Kyle Bass: Yuan devaluation best opportunity

Cross posted from Investing in Chinese stocks:

Jump to 10:40. Readers will be familiar with the thesis.


From ZH:

Over the weekend, when citing from an excerpt of the latest Wall Street Week episode, we revealed what to Kyle Bass was the “best investment for the next 3-5 years”: the energy space. Bass added he was agnostic as to what subsector of energy one should invest in: whether it is infrastructure, pipelines, producers, upstream, downstream, he believes that there are places in the cap structure of each of these where once can put new capital and generate substantial returns. He also added that “the energy rebound, when it happens, will be comparable to the housing rebound post 2009.”

Coming from the guy who correctly predicted the collapse of housing going into 2009, one should take his prediction seriously, even though as Bass himself admitted, he was early to this trade which led to “one of the worst years in the last ten” for his Hayman Capital. Judging by today’s very modest reaction in the price of oil to a dramatic escalation in the Middle East, the market will need a far more dramatic reduction in supply before it agrees with Bass’ thesis.

But what about the shorter-term for those who don’t have a 3-5 year investment horizon? Bass discussed that after a question by Gary Kaminsky asking the Texas hedge fund manager “when you look at opportunities as an investor right now, what’s the greatest opportunity?”

His response:

“Given our views on credit contraction in Asia, and in China in particular, let’s say they are going to go through a banking loss cycle like we went through during the Great Financial Crisis, there’s one thing that is going to happen: China is going to have to dramatically devalue its currency.”

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  1. The Chinese can only devalue their currency if they have counterparties for their capital exports.

    While Mr Robb is keen to sell them as much of Australia as possible that is unlikely to be enough.

    Looks like Belgium will be buying a lot of US treasuries some time soon. They must go well with chocolate.

    Perhaps we ALL could export capital to Mars and let the martians run a CAD.

    • Ha!.. Am I right to think you are referring to the NC piece.

      Shortly after Washington began following through with a yearlong promise to reign in its latest quantitative easing program in December 2013, Belgian treasury holdings skyrocketed by 141 Billion dollars over the course of the next four months, giving the dollar the support it needed to wean itself off of the monetary injection. It is likely that the ECB was the covert buyer of these treasuries, using a Belgium based clearing house called Euroclear as a front.

      • Everyone must love chocolate because for a while I was seeing references to the Chinese trading US treasuries via Belgium.

        I find it amusing how often a country’s desire to “devalue” is treated as though it is something they get to decide without regard to anyone else.

        A country can only push their currency down if someone else is letting their currency be pushed up.

        The dunderheads down under are champions at allowing the $AUD get pumped up on a warm updraft of foreign hot money from currency manipulators. Even to the point where bone heads like Joel Fitzgibbon from the ALP claim it is the national destiny.

        A bi-partisan project to inflate the $AUD with unproductive capital inflows and effectively impose a massive tariff on all Australian industry and workers.

        Just as well we are different.

  2. Energy the next big play? Isn’t that pretty much the opposite to what has been argued here re LNG etc?

  3. Kyle Bass was alongside a couple of others who called the Housing Bubble right – John Paulson comes to mind. But wasn’t he skinned alive on getting Japanese Bonds wrong a couple of years after that? And didn’t he buy a heap of gold too, before the fall? Again, like Paulson. So that ‘he was early’ on energy makes it 3/4 Big Calls that haven’t quite played out. “Yet!” might be the response, but if China has to sell her gold to plug a few holes, then maybe energy too might not go the way it ‘obviously’ should, either….

    • A case of two steps ahead and you’re crazy. He’s awaiting japan government debt interest to exceed tax intake..tht would be interesting.

  4. Still waiting for his Japanese debt prediction to come good.

    [Edit] That’s what I get for leaving my comment window open too long, Janet mentions the same above.