Saturday, December 3, 2011

Important Interview with Kyle Bass

Here's a thought-provoking and sobering interiew with Kyle Bass.  He talks about the consequences of "kicking the can down the road," and the potential ramifications of sovereign default -- and many other things, such as the fact that the nations collectively have the largest accumulation of debt in world history. 

He also talks about how Europe is in a much worse position than the US, although the EU leaders seem to be in denial of this fact.

Pretty sharp guy if you're not familiar with him.  If you have any questions about the fundamentals backing the bear case, then watch this interview.

Embedding is disabled on this video, so all I can post is the link.  (Thanks to KWave for the link!)

AC2011 Session 1.2 Come Undone: Kyle Bass redux


  1. yes, great interview. About that US/EU difference of opinion, read this take coming from the EU side about the US.

  2. Thanks, Jack.  I'm very interested to read that and will get to it later.  Actually charting the Euro as we speak.  :)

  3. yes , as usual he is great. He did a similar one with BBC, a week or so ago, and his last letter to his clients is also very informitive. Here is the link.

  4. I think the market is running out of time. We've been adjudicating this case for six months now. The argument is between a larger bear trend and a bullish counter-trend. Twice, the decision has been on the bears' side, and twice brought back for appeal. The focal point is 1260 on Tuesday. This is it. Europe will not break down on Tuesday, but the market is a forward looking device.

    What make Friday's shooting star very significant are (1) It occurred in a week when everyone must be paying attention, (2) It probed the 1260 battle line, and (3) The oscillators are not overbought.

    I would say that the bulls and the bears are equally financed. The former did not expend much on the last leg up. The latter profited on the last leg down. So again, on such fine balance, a shoot star is not a promising sign for the bulls.

    Thank you very much, Pretzel, for discerning that under either of the two count scenarios, we are almost certainly topping in the near term. Like Vulture, I was unwisely loaded up on shorts - very leveraged, in my case - and your reading has helped me decide to stay in - hopefully, a rejuvenating choice.

    On the chart I'm posting, it's all linear geometry. The make or break case for the downdraft from Tuesday will be 1180. I would cover 1/3 of my position there. If it shows momentum past 1150, I would target 1070.

  5. Hi, GC, welcome-

    Nice chart, and good arguments from a logical standpoint.  I suppose next week we'll see if there's any vestige of logic left in this market, at least over the ST. 

  6. Excellent link PL, this could prove a very valuable 'mid to long position' post. So genuine thanks for sharing.
    I was particularly struck by the comments in minute 41 about ‘productive assets’.  I’m curious what any others around here consider good productive assets for return of capital? 
    (I’m in a good private rental property and notes firm, and some farmland, but would like to look at some additional options)

  7. ManticVII; gold and silver are good inflation hedge with significant upside potential.....Blass is mheavily invested in them also.

  8. Logic should be very afraid of exuberance. I was just reading a bit of Jim Cramer. Other than banks and a huge lament on the correlation of *everything* to the euro, he's quite upbeat. He has an interesting strategy: Go long with companies with a good story, and hedge with puts on banks. Makes sense if you consider the extra leverage you would get from the puts. Heck, if 1260 breaks upward, I might have to do that.

  9. For those watching the video, Bass at one point mentioned that one of his best readings was a 9-page paper by Nassim Taleb, titled "The Black Swan of Cairo".

    Here is the link:

    Very insightful read. Gives you an idea how unexpected things... things that are supposed to be of extremely low probability (yet extreme consequences) keep happening at an alarming regularity.

  10. Logic has nothing to do with the markets.  But I do find it entertaining so am glad to read about it.  Logically there is no reason why the market should have doubled since March 2009.  And if it doubles again in the next 5 years or so, people will correctly say that there was no reason for that either.

    So I am most interested in the charts and am grateful that Pretz provides some great ones here, with the E Waves on them.  

  11. BTW I don't understand hedging.  If you go long good companies and hedge with puts on banks, then any money you make on one end will likely be lost on the other end.  Why not just pick a direction for the market and go with it?  If you're wrong, you get stopped out, and at that time, you decide whether to trade in the other direction.  With hedging, you will likely break even either way, except for maybe commissions, so you're out a little bit of money.  So why not stay in cash if you don't have any edge?  

  12. Well there are tax advantages to holding onto stock long term.  The long term cap. gains tax is way less than most people's short-term rate would be, which is generally their marginal tax rate.  Plus you can realize gains after you retire when your rates are lower etc.  So people with core stock holdings may hedge their positions with puts if they anticipate some downside ahead. That way they aren't forced to sell and realize gains, but are protected by monetizing their puts after a market correction/downturn or if they owned the underlying security they could put their stock to the seller if things got real bad and they no longer wanted to own the stock at that level.

  13. Yeah, I don't understand hedging either, unless you do have an insight on, say, GOOG, that it's going to really break out very soon. But then, there's Europe.  If you size the puts properly, you might have the breakout velocity trump the option depreciation rate. But in the meantime, you have some insurance against Europe. If you don't buy the insurance, you're completely naked there.

    Like you, I'm thankful for Pretzel's great analyses on somewhat obscure indicators and wave counts. A great video on Kyle Bass, too! The common man needs revelations from the cognoscenti.

  14. There's much to be said for keeping it simple. Having said that...

    At times I attempt to do some dynamic hedging, where I try to remove some of the market risk associated with long term holdings that I intend to hold on a "permanent" basis. Those are positions I believe will outperform the market in the long term (think non-cyclical, non-discretionary spend, mega-cap, high dividend paying businesses with strong and resilient cashflows). If in the shorter term I believe there is significant risk of market falls, I might try to hedge some of that market risk with say an index short position or similar. This is a cheaper way (fee-wise) to express that view than by selling and re-buying multiple positions, with the various associated spread, transaction and tax costs.

    There's also a psychological benefit. Having a hedge position on, even if only a partial hedge, provides some psychological comfort during market falls (by being "right" on that position, and seeing it in the black while other positions are suffering profit erosion or moving into the red). This reduces the chance of succumbing to the emotional pressures than can be brought to bear during market falls, causing people to sell near the bottom.

    If I could call market direction right all the time, of course none of this would be necessary, and I'd be dumping everything and then be all-in again with leverage on market every turn. But if I could do that, why'd I be hanging around on blogs all day? I'd be sat near the beach on some bright sunny island somewhere, just like PL!  ;)

    So, in many ways, it's about recognising that I'm often wrong. It's a less binary way of viewing the market. Compared to someone who's right all the time, less money will be made for sure, but I'm far from someone who's right all the time, and so this approach can literally help hedge my bets.

  15. Whew, it's good to hear Cramer's upbeat again.  He got bearish a week or so ago -- and that really made me worried for the bear case.  7 out of 10 times, Cramer's a great fade in bear markets!  :)

    The problem Cramer has is one of audience -- "world going to hell" just isn't what the majority want to hear.  If I recall, he didn't get on board with the bear case in 2008 until *after* the September crash.  He's an "entertainer" first and foremost.

  16. PL, I don't understand how other members are able to respond in a threaded fashion. I don't see any "Post Reply" button??

  17. PL, Look at this explanation and try the Live Demo:

  18. Lol, yet you're posting this in a threaded fashion.  Hmmm...

    It's a glitch with Disqus and how it interacts w/ certain browsers.  Usually, the button is there but can't be seen due to the color scheme it defaults to on certain browsers.  Btw, generally the intraday discussion are on the latest market post... feel free to join us over on the SPX/Euro update.  :)

  19. I see it now. Have to use Internet Explorer to see the buttons. Won't show on Firefox or Chrome. That's very surprising, for an operation as big as Disqus, to not issue browser-independent widgets. I don't know anything about Disqus, but maybe you're linking to some older version of their widget?

    I can only post in a threaded fashion by replying to the email notification from Disqus, as I am doing here.

    Yes, I know there's a discussion on today's thread, but just conversing here as it's more about the Blogger web site.


  20. It's an excellent interview but I don't share his views on money printing. Officials will always say they can print because it sounds like they have a solution if everything breaks. They don't. So far the Fed offered only more credit and not more money. All their QE programs bought securities guaranteed by the federal government. Japan did a lot of QE, Keynesian stimulus and had a long recession. They still ended up in deflation. It's simple to print money when all you have is a printing press. It's not that simple when you create money by buying IOUs . 98% of the money supply is credit so if monetization occurs on a large scale the credit markets will stop functioning. It's much more disruptive for the government than deflation since this is where they get capital out of the free market. As long as there is government debt monetization is not in the government's interest.