Kyle Bass on Europe & How He's Investing Now: Interview ~ market folly

Friday, October 5, 2012

Kyle Bass on Europe & How He's Investing Now: Interview

Continuing coverage of hedge fund appearances from the Barefoot Economic Summit, we also wanted to highlight Kyle Bass' interview on CNBC.  The Hayman Capital founder touched on Europe and how he's positioning his portfolio.

Bass noted that global money printing has made it a difficult investing environment.And regarding Europe, he says that:  "You will still see the European dominoes fall, I don't think there's any way around it."

Bass then elaborated that:

"The world sits in a place where it hasn't ever been before.  It's the largest peace-time accumulation of debt in world history ... The reason it's so difficult for us to understand what the playbook looks like going forward: we've never been here before."

Bass Long RMBS

As to how you invest given this worldwide mess, Bass says: "in our portfolio we have more than half our portfolio invested in subprime and Alt-A bonds." 

He thinks housing is going to flatten out (not going up anytime in the near future, but not going down either).  He feels you still have to flush out the shadow inventory (which he argues is still high).

As to how else he's positioned his portfolio:

"In our portfolio, we actually own what we call event-driven situations in either credit or equity and the way that we hedge our kind of the corpus of our portfolio is - the Black Scholes model of options pricing dramatically misprices optionality at secular turning points.  So there is enormous convexity in various areas of the world and we can spend just a small amount of capital and have enormous convex positions.  And I believe all the convexity in the world is in Japan."

On Investing "Not To Lose Money"

If you're approaching investing with the mentality of simply not losing money, Bass argues you need to own producing assets, something that's "nailed down."  He cited apartments, oil wells, and gas wells as examples.

When prodded about gold, Bass said he simply views it as a surrogate currency and doesn't think the gold standard will return anytime soon.  He still thinks you should own it among all the other currencies, but he doesn't know what percentage allocation is appropriate.

Embedded below is the video of Bass' interview:

Earlier today we posted John Burbank's interview from the same summit where the Passport Capital founder said he was negative on the US economy.

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