December 14, 2011

Kyle Bass recent comments

As the dominoes fall, it's clear that the peripheral countries that are in the news so much -- the PIIGS as we like to call them (Portugal, Ireland, Italy, Greece and Spain) -- will have to restructure their obligations," he tells BNN. "I think that's coming much sooner than others would think and that is something you must prepare for in 2012."

"You see the deposits leaving the periphery at an annualized rate of more than 20 percent. This is the final precursor for a sovereign default and it's happening while we speak." Bass believes that the excessive leverage at European banks will continue to haunt the region.

"Europe's banks have three times as much leverage from equity to assets that U.S. banks have," he says. "Spain, by looking at a snapshot on a piece of paper looks like they might have a manageable scenario, but when they recap their banks they won't have a manageable scenario and they have to recap their banks and so do the rest of Europe."

Bass says Germany -- considered the economic powerhouse of Europe -- is no better: "[Germany currently has an] 82 percent on balance sovereign-to-debt GDP today…in a post-recap world Germany will be north of 100 percent and will also be in a very difficult scenario."


Source: BNN

December 13, 2011

Kyle Bass Still Thinks Euro is Doomed

Kyle Bass’s recent investor letter was released where he updated his thoughts on the Euro Zone.
Bass has long been bearish on European credit. As a matter of fact, Bass has proven himself by recognizing and profiting from the U.S. mortgage bubble.
Here are the highlights:
  • debt has grown at 11% CAGR for the last decade while GDP has grown at 4%. The reason why the Western world is in a debt spiral is due to a decade of out of control spending. Bass’ analysis begs the question – if debt growth is reduced to 4%, what would happen to real GDP?
  • “there is no magical pool of capital to stave off this unfortunate conclusion to the global debt super cycle
  • Bass thinks that Italian and Spanish bond yields are suggesting that Euro has already broken up
  • Bass reiterated that the leveraged EFSF CDO idea is collapsing because a guarantor of debt (Italy) is now a recipient of aid. In other words Italy went from being a creditor to a debtor
  • forget about the IMF bailing out Euro debt. The IMF was designed to bail out small third world nations not to fund profiligate spending by countries like Italy
  • Bass attacks the widespread notion that the ECB would eventually “print away the problems.” Bass thinks that National Central Banks will print post-default in order to recapitalize their banking systems.
  • Bass thinks that investors have become complacent that there would always be a bailout and thus cannot even conceive of the possibility of a wave of defaults.
  • Bass thinks that Japan’s debt problems will be front page news once the market is not fixated on Europe anymore