Kyle Bass Hour Keynote Address: France Is Next

Kyle Bass the founder of Hayman Capital recently spoke at the AC2012 The Engtanglement KB. He was the keynote speaker at the event. Not surprisingly, he spoke about bloated balance sheets’ of Central Banks. He talks about Europe and Japan, but does not discuss much about his recent investments in non agency debt.

He notes that the LTRO did not really accomplish anything, as there was still a bank run in many of the poorer European countries. Bass notes that despite exports outside the region, Europe appears to trade with itself, with flows going from Southern to Northern Europe. Without even looking at off balance sheet revenue, the situation appears to be grim in many countries. He notes that Ireland and Iceland had banking assets with 10x assets versus GDP. Bass thinks that France is next, and if the Euro splits up, France will not be allowed to stay.

Bass states that he had a conversation with famous author, Kennth Rogoff, several years ago to discuss some of the debt problems around the world. Bass realized that none of the regulators were paying attention to the problem, which made him more fearful. He now believes that inflating out of the situation ‘as Academics want to do’ will not work, as revenue will not grow as fast as revenue. Japan has 24x its tax revenue in debt, if it ever moves to inflationary levels the country ‘will be finished.’ He calls this a case of the Keynesian end point, and notes Russia as a recent example.

Bass then gets into discussing confirmation bias (which he apparently does not believe he is prone to).

The full one hour keynote video presentation can be found at the following link.
Source: valuewalk.com

Kyle Bass Buys Stakes in Merging Yellow Pages Companies

Source: nasdaq.com

Kyle Bass , founder of the Dallas-based hedge fund Hayman Advisors, has picked up two new stocks, GuruFocus Real Time Picks reports. They are: Dex One Corp. ( DEXO ) and SuperMedia Inc. ( SPMD ).

Bass sold more than half of the positions in his portfolio in the third quarter, dropping the total number to five, with a total investment value of $70.32 million and a 78.6% weighting in the consumer cyclical sector. The two new buys bring the total to seven.

Bass' outlook for the global economy includes concern over the effects of perpetual quantitative easing, increasing deficits, potential inflation and fiscal profligacy in the actions of central bankers and monetary authorities.

"We have a hard time understanding how the current situation ends any way other than a massive loss of wealth and purchasing power through default, inflation or both," he wrote in his November letter to investors .

Both of Bass' new stocks are merging yellow pages publishers that have experienced massive losses in market value over the past three years after emerging from bankruptcy.

Dex One Corp. ( DEXO ) and SuperMedia Inc. ( SPMD )

Bass bought 5,064,550 shares of Dex One Corp., equal to a 9.95% stake in the company, on Dec. 12 for approximately $1.30 per share on average.

With local market intelligence and team of market consultants, Dex One is a marketing company that helps local businesses identify, attract and retain new customers. It began trading on the NYSE in February 2010 for near $30 per share. Since then, its price has dropped 94.56% to $1.65 per share in Thursday trading. It is also down 3% year to date.

On Dec. 4, Dex One received a notification from the NYSE that its closing price was below the minimum required price for listing of $1.00 per share for a consecutive 30 trading-day period. The company responded by announcing a 1 for 5 reverse stock split to pull its price up. It has until its annual meeting of stockholders to meet the NYSE's requirement.

In August, the company announced that it would combine with Dallas-based SuperMedia Inc. ( SPMD ), the other stock that Bass bought on Dec. 12. Bass took a 9.96% stake in SuperMedia, buying 1,560,941 shares of the company for about $2.70 per share on average.

SuperMedia, a publisher of yellow pages directories, has seen its stock has decline 91.45% over the past five years and increase 23% year to date.

In a stock-for-stock transaction, the merger will create a single social, local and mobile marketing solutions provider to local businesses. The new business would have over 5,800 employees, 3,100 consultants and 700,000 businesses as clients. Dex One shareholders will own about 60% of the company, and SuperMedia shareholders will own about 40%.

"We believe this merger is in the best interests of shareholders, lenders, customers, employees and consumers," said Alan Schultz, chairman of the board of directors of Dex One. "Dex One and SuperMedia are closely aligned with a solid value proposition for local businesses, and we expect the transaction to generate significant operational and financial synergies, which will create additional investor value."

Both SuperMedia and Dex One underwent Chapter 11 bankruptcy in 2009, as customers began to depend increasingly on digital search instead of physical directories, and exited bankruptcy in 2010.

Since then, SuperMedia's revenue declined from $2.5 billion in 2009 to $1.64 billion in 2011, and net income fell from $8.3 billion in 2009 to a net loss of $771 million in 2011. Dex One's revenue increased from $991 million in 2010 to $1.48 billion in 2011, and net losses eased from $942 million to $519 million.

The unified company in 2011 would have had $3.1 billion in revenue, $778 million in operating income and $1.2 billion in adjusted EBITDA.

It would also experience cost savings of $150 million to $175 million by 2015 due to "scale efficiencies; rationalization of duplicative solutions, products and vendor relationships; headcount reductions; and adoption of the most cost effective management and operating practices and technology platforms and systems from Dex One and SuperMedia," the company said in a statement.

The transaction was expected to close in the fourth quarter of 2012, but was pushed back in the first half of 2013 when both companies reworked their debt obligations. The companies announced on Dec. 6 that they had reached an agreement with their lending steering committee to extend the maturity dates of their senior secured debt up to 26 months until Dec. 31, 2016, and upheld the economics terms of the merger.

Kyle Bass Buys 5.9 Pct of Sealy Corporation

Source: nasdaq.com

Kyle Bass purchased 5,644,245 shares of Sealy Corporation ( ZZ ), or 5.9% of the global bedding producer, at the average price of $2.04 on September 20, according to GuruFocus Real Time Picks . Bass is the managing member and principal of Hayman Advisors LP and primarily invests according to his views on the macroeconomic environment.

Sealy's stock has declined almost 88% in the last ten years, but gained almost 35% in the last month. The company's revenue declined annually from 2007 to 2010, and increased to $1.2 billion in 2011. Earnings had been increasing each year since Sealy fell to a loss in 2008, but it fell to another loss, of $5.66 million, in 2011. Sealy's balance sheet contains approximately $232.2 in cash and $810.1 million in long-term liabilities and debt.

The company's stock has traded in a range of $1.09 and $2.45 per share in the last 52 weeks, though it began trading at $17.50 when it held its IPO in 2006.

Sealy has been making operational changes in the last several years. Most prominently, in the first and second quarters, it introduced and began to ship two new lines - one premium and one value priced - and accompanied them with an advertising campaign. In the first quarter, sales, gross margin and adjusted EBITDA performance improvement were driven by the success of its Next Generation Stearns & Foster line, which it began shipping in the fourth quarter of 2011.

In the fourth quarter of 2010, Sealy divested all of its European assets and discontinued operations in Brazil and arranged license agreements with third parties in those markets instead.

In an investor presentation, Sealy says that its outlook is "strongly tied to macroeconomic conditions" and shows that the whole industry had double-digit sales growth in the years following stagnant recessionary periods as U.S. GDP improved.

The company announces its third-quarter financials, which will contain the results of its new initiatives, on September 27.

GuruFocus Real Time Picks alerts you for the stock purchases and sales that Gurus have made within the last two days. Follow your favorite Gurus closely with GuruFocus' Premium Membership! If you are not a Premium Member, we invite you for a 7-Day Free Trial .About GuruFocus: GuruFocus.com tracks the stocks picks and portfolio holdings of the world's best investors. This value investing site offers stock screeners and valuation tools. And publishes daily articles tracking the latest moves of the world's best investors. GuruFocus also provides promising stock ideas in 3 monthly newsletters sent to Premium Members .

Kyle Bass: Investment Ideas For The Apocalypse

Source: valuewalk.com

Europe’s political and monetary union has not got long left, according to Kyle Bass. The Hayman Capital founder made the comments today on CNBC’s Squawk on the Street. The network’s report on the interview can be found here. A video of the interview can be seen here.

During this Summer, we questioned Bass’ future on the basis that his bet on Japan’s default was not playing out as quickly as he might have hoped. Comparing his prospects to John Paulson’s may have been premature, but his unique perspective on macroeconomics often draws criticism.

Bass, who was made famous by his bet against sub-prime mortgages in 2008, thinks the debt accumulation across the world, which he calls “the largest peacetime accumulation of debt in history”, is making it very difficult to make good investment decisions.

The most obvious manifestation of the global debt problem is, of course, in Europe. Bass thinks the continent’s political and monetary union is only “perceived to be staying together”. To highlight his point, he concentrates on the 90% of bond value that has been lost by investors in Greek debt.

Bass also points to European history as support for the inevitability of the continent’s downfall. He suggests that countries known for tearing themselves apart with war for hundreds of years, are unlikely to simply hand sovereignty to some higher power, the European Union, or more cynically Germany.

The logjam caused by mistrust will weaken Europe going forward, and will inevitably result in a collapse of some form on the continent. Bass’ projection is one of the most pessimistic out there, and it leaves investors with very few places to put their money with confidence.

Similar problems are rampant in the United States. The confidence investors appear to have in the federal government is unwarranted, according to Kyle Bass. He sees any success in sealing the large budget deficit and the increasing debt burden as unlikely.

Neither party, if given complete control, would be able to solve the problems in the United States budget. Bass admits having taken a pencil to the budget, and discloses that the changes he had to make to balance would make anyone un-electable.

Because of the volatility he sees coming in future, Bass has been looking for safe investments, guarded from European problems, or the global debt crisis. Bass’ solution to the problem is Mortgage Backed Securities. Despite making his name from shorting the assets, Bass believes they are now relatively safe in the long run.

Half of the maven’s portfolios are made up of Mortgage Backed Securities, and he holds about 1% of the entire market in the assets. Despite his confidence in the asset, Bass doesn’t see the housing market giving great returns any time soon. The important thing for him is that he does not see the market declining again for some time either.

In the grand scheme of things, Bass calls safe any assets that are productive. Those that actually create a product in demand. Examples include natural gas and oil wells, and rented properties.

Gold is relatively safe according to Kyle Bass, but only because it forms a sort of secondary currency. It has no true value in and of itself, but confidence in it appears to be self sustaining, for the time being.

Bass is also confident that inflation is due to come creeping up in the future. He asserted that the initial rounds of money printing by the Federal Reserve, and other central banks around the world, only made up for the losses suffered in money supply during the crisis. The money printing, currently underway, will cause inflation, but it will take time.

Bass does not paint an optimistic picture of the world’s future. If anything, it is one of the most pessimistic portraits from anyone in the investment sector. Bass is betting on disaster.

In summary, Europe will collapse, the United States will not be able to solve its own debt crisis, inflation will hit sometime in the future, and debt problems will continue to plague the world for a long time to come.

In the atmosphere Bass projects, it is a wonder he is investing in anything but reinforced concrete bunkers and automatic weapons. He does have some ideas on what to go for in a doomsday scenario, and as one of the only public investors out there following this type of long term disaster strategy, his picks are certainly worth a look.

Bass has been projecting this sort of disaster for a while now, and, like his Japan picks, it may be less important that something is going to happen, than it is, when it is going to happen. If an investor locks themselves into a low returns but safe from the Apocalypse model, its difficult to choose a time to get out.

Watch the interview in full to get a real understanding of the future according to Bass. It’s a fascinating outlook, though betting on the apocalypse seems silly.

Kyle Bass: World Saddled With Too Much Debt Read more: Kyle Bass: World Saddled With Too Much Debt

Source: moneynews.com

The global economy is bogged down with too much debt, giving investors little choice as to where they should put their money, said Kyle Bass, founder of hedge fund Hayman Capital.

“We’ve never been here before,” Bass told CNBC.

“It has been the largest peacetime accumulation of debt in history.”

Investors, meanwhile, are having a tough time planning strategies, he said, adding that his “goal is not to lose money.”

Famed for shorting subprime residential mortgage-backed securities long before the housing bust, Bass told CNBC he now has about half his portfolio in subprime and partly subprime mortgage bonds on expectations that while home prices aren’t set for a noted rebound, they’re not likely to go down anymore, either.

Investors should also look for hard assets such as apartment buildings, oil wells and gas wells —“anything that has a real asset that’s productive,” Bass added.

Central banks have been loosening monetary policies worldwide, slashing interest rates and pumping liquidity into their respective economies, dubbed as money printing by the markets, which has weakened paper currencies and inflated stock prices.

Inflation will sooner or later strike, thanks to such monetary accommodation, which Bass said isn’t going to spark recovery due to the massive amounts of debt.

“We had a hyper-leveraged economy and world going into the financial crisis,” Bass said.

“We lost trillions and trillions of dollars because of that leverage. The first several trillion dollars that were printed just replaced what was lost” and had no net effect on global money supply, although as liquidity levels continue to rise, inflation rates will follow suit.

Other noted investors are making similar calls for hard assets, especially in light of ultra-loose monetary policies in the United States.

The Federal Reserve recently announced it will spend $40 billion a month buying mortgage-backed securities from banks to pump liquidity into the financial system in a way that pushes down interest rates across the broader economy to spur recovery, a monetary policy measure known as quantitative easing.

Side effects to such a policy tool include a weaker dollar, rising stock and commodity prices and mounting inflationary pressures.

Gold performs particularly well under such a scenario, especially in the wake of the two previous rounds of quantitative easing that pumped a combined $2.3 trillion in inflation-fueling liquidity into the economy.

Expect gains to continue as the dollar weakens and institutions stock up on gold as a hedge, central banks especially.

“What they used to be selling into the market now they are clamoring for and are taking off the market,” David McAlvany, CEO of the McAlvany Financial Group, told Newsmax.TV in a recent interview.

Supply constraints will add further upward pressure to gold.

“This is a commodity space where there has been very little expansion in terms of overall production, so expanded demand and minimal increases in supply, I think you have the perfect powder keg for prices going significantly higher for gold and silver.”

Bass's Hayman to launch QIF managed account version of flagship

Dallas-based Hayman Capital Management, the $1.1bn asset manager whose founder Kyle Bass made $500m during the 2007 US subprime collapse, is to launch an Ireland-domiciled managed account of its flagship hedge fund strategy, HFMWeek has learned.
According to a source familiar with the plans, the offering will become part of an Irish Qualified Investor Fund (QIF) in a separately managed account structure, giving Hayman's maiden strategy, Hayman Advisors, greater exposure to non-US investors.
The move comes as QIFs experienced high asset growth in recent years. In a report from last year, HFMWeek revealed that total assets of QIFs in 2010 grew by 35% to €153bn according to figures released from the Central Bank of Ireland.
QIFs, a type of regulated investment fund vehicle, can be authorised by the Central Bank within 24 hours of receipt of completed documentation. To be eligible as a QIF, a fund must have a minimum initial subscription of €100,000 per investor.
Additional details were not available. A Hayman spokesperson declined to comment.
Last month, reports revealed that Hayman Capital launched a structured products vehicle focused on RMBS opportunities.     

Is Kyle Bass Wrong on the Japan Trade?

Kyle Bass may be one of the best-known hedge-fund investors in the world. His bets against subprime made him wealthy, and as close as you can come to being a celebrity while managing a hedge fund.

These days, he is probably best known for his prediction that Japan is headed for a “bond crisis.”

The principle rationale for his thesis is demographic. Japan has an aging population with more people leaving the work force than entering. He predicts that soon they will have more people dis-saving than saving and begin accumulating a trade deficit with the rest of the world, breaking “the funding mechanism” that has supported low interest rates in Japan for decades.

“Their ability to fund themselves internally is coming to an end,” Bass wrote to investors in a letter last November.

This narrative of a country needing internal, private savings to fund its government spending and public-sector debt accumulation is familiar to a lot of people and has the ring of truth.

If the government cannot keep borrowing from its people, won’t it have to borrow from outsiders? When the country starts paying out more to the rest of the world than it takes in, doesn’t it become dependent on the credit of the rest of the world? And what if outsiders won't tolerate lending at near zero-rates against a public sector balance sheet with a “debt burden” as high as Japan’s? 

That’s certainly the way it would work for a household. As revenues contract, the ability of a household to “fund” itself contracts as well. An aging household—that is, one in which grandpa and grandma retire—had better have some savings. If they are dependent on credit, they will soon find themselves paying exorbitant interest rates.

Sure, they could do a reverse mortgage, but eventually that too will run dry. When they run out of equity to mortgage, bankruptcy will loom.

Joe Weisenthal at Business Insider thinks that this resemblance is an illusion. Japan, he argues, is not going bust. Bass’ logic is “badly flawed,” he writes. As a result, the Japanese trade is “never going to pay off for him.”

Weisenthal makes a number of points in his argument. First of all, he says that the dependence of foreign creditors is an irrelevancy.

“There's no connection between rate sustainability and domestic/foreign borrowing,” Wesienthal writes.

The reason why is fascinating, because in order to get your mind around it you have to understand that for Japan, government debt accumulation is nothing like debt accumulation by private households, municipalities, corporations or even European governments. You have to step through the looking glass and apply Alice-in-Government-Land logic.

Weisenthal explains:

Foreign ownership of debt is not a function of the country going cap in hand all around the world, looking for investors to buy their bonds. It's a function of trade. When a country runs a trade deficit, it basically means it's spending more on goods from the rest of the world than the rest of the world is spending on goods from said country.

So it stands to reason that if Japan is buying a lot from the rest of the world, then there are a lot of yen floating around the world: More yen wind up in places like China, the Mideast, the US, Europe, etc.

What happens to those yen? Well, some will get spent on other things, but in the end, they'll all wind up in bank accounts somewhere, and somehow they'll find their way into a Japanese Government Bond, so that the holder of said yen might get some yield. Now theoretically if someone had a bunch of yen, they might prefer to buy German bonds or US bonds, and that's fine, but then there's another private holder of yen who has to make a decision about where they're going to place their currency. Eventually, that currency will find its way home, and the cycle is complete.

But if Japan doesn’t have to worry that high levels of debt will drive interest rates higher, what is going on in Europe?

The very question points toward its own answer. Japan has much higher levels of debt compared to its GDP than any European country. If that metric were what mattered, Japan would already be in a debt crisis.

Indeed, it would have preceded Greece into default and political mayhem. Greece, Italy, Spain, Ireland and Portugal all have more attractive “balance sheets” on this measure.

So obviously, something else is going on. Part of the answer is the currency union. As Weisenthal explains, Japan’s excess spending inevitably winds up as yen-denominated savings in Japanese government bonds. But when the government of Spain deficit-spends, there’s no guarantee that the euros wind up being used to buy Spanish government bonds. In fact, right now, much of the deficit funds of countries like Spain and Greece are being used to buy German bonds.

“This is the key idea that Bass is missing, and why his trade is never going to pay off. For a country that borrows in its own currency, government spending finances borrowing! If Japan spends 100 billion yen on something, that's 100 billion yen out there in the world that will eventually wind up in a financial institution, where ultimately 100 billion yen worth of JGB will be purchased,” Weisenthal writes.

In other words, Bass has the “funding mechanism” that supports Japanese government bonds backwards.

I’d argue that Weisenthal potentially misses one possible source of a crisis—a loss in global demand for yen.

For a country like Japan, there is no risk at all of interest rates rising—except in accordance with public policy. So long as the Bank of Japan desires rates to stay low, they will stay low. Even if all the foreigners with excess yen holdings decided to bury their yen in the ground, rates would stay low because Japan’s central bank can support rates at whatever level it wishes by simply buying the bonds at the target rate.