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Old 12-26-2012, 12:14 PM   #1 (permalink)
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Kyle Bass' Five Reasons to Short the Yen and Japanese Government Bond Market

HoboTrader shared the full presentation with us here, although in the video below I've narrowed it down to just over 8 minutes covering the 5 key reasons Kyle Bass believes the Japanese government bond market collapse by the end of 2016 if not sooner. We've discussed the collapse of Japan a good bit here on InformedTrades; see our Japan archive, as well as DREBG's blog for some technical trades related to the yen.

The five reasons Bass expects the Japanese government bond market to collapse are as follows:

1. Japan has an extremely high amount of debt; it simply cannot be repaid.
2. Interest expense on debt is very high and growing.
3. Contrary to popular belief, Japan is NOT self-funding. The Bank of Japan will need to print more money in the years to come.
4. Japan's demographic crisis has arrived. The country's population is declining, its taxable income is declining, savings rate are declining, and social security payments are rising.
5. The Japanese government is at a loss for how to deal with the problem.

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Old 12-26-2012, 09:36 PM   #2 (permalink)
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You got picked up on Zerohedge!
The Annotated Kyle Bass 'Short-Japan' Thesis | ZeroHedge
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Old 12-26-2012, 09:53 PM   #3 (permalink)
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I thought Kyle Bass's speech was really good and you di a good job editing. I had not realized that Japan was already paying 25% to service its debt. At basically zero percent too.

I see the angle here big time. Before, what you might call 'bond raiders' really couldn't attack Japan debt because the BOJ had at least a pretty good account surplus.

So in simple language, what this meant was, if traders started shorting bonds and/or in any way yields were in threat of rising, the BOJ could just print some money and buy some bonds (do an intervention), and it had the fact that they were exporting more than they are importing to counter the weakening of the currency from the intervention.

If yields in anyway rose in Japan now, the BOJ would simple run the presses Wiemar style for lack of any other choice, but there would be nothing to counter the Yen weakening from this.

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Old 12-27-2012, 03:59 AM   #4 (permalink)
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I humbly suggest we not discount the Japanese ability to stick their heads deeper into the sand than anyone here can possibly imagine.

The govt desperately wants inflation and hopes to devalue the yen as part of their strategy.

shorting the JGB would seem a no brainer at this point as illustrated by Mr Bass, but don't underestimate the black box. If you cannot speak Japanese you won't comprehend the box or its cultural significance.

Default is probable but timing is the key issue.

I appreciate Mr Bass going public with his 2013 Q3 or 4 guesstimates

we are all along for the ride
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japan , kyle bass

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