market folly

Recently, Hayman Capital hedge fund manager Kyle Bass was on CNBC talking about how to fix the financial system and also about sovereign debt and the possibilities of default. This area is definitely Bass' niche as we've covered his predictions of sovereign default back in May of 2009. In the video, Bass outlines how to fix the financial system by focusing on three talking points: OTC derivatives, bank leverage & reserves, and Fannie Mae/Freddie Mac.

Bass also goes on to talk about Japan and the United States as it pertains to sovereign debt issues. He calls Japan the 'canary in the coal mine' and says that Japan could default or devalue its currency within 3-4 years and that the United States could do the same in 10-12 years. He cites that sovereign balance sheets expand 86% from pre-crisis levels once governments start acquiring formerly private sector assets in attempts to thwart the crisis.

Embedded below is Kyle Bass' interview with CNBC, so email and RSS readers will need to come to the site in order to see the video:




Interesting thoughts from Bass as always, as his Hayman Capital hedge fund seems to be one of the few you hear about in the 'mainstream' warning about the potential for large sovereign defaults. We previously got a glimpse as to what Bass was investing in back in October, as 50% of his assets were invested in mortgages then. We haven't seen any updates out of his hedge fund since then, so if you are 'in the know,' please get in contact with us.

For those unfamiliar with Bass, here's what you need to know: Kyle Bass attended Texas Christian University (TCU) in Fort Worth, TX and now runs his firm Hayman Advisors. He launched his hedge fund in 2006 with $33 million in initial capital. In August of 2006, he began shorting around $4 billion of subprime securities through various derivatives. He eventually turned $100 million into over $700 million based on his prediction of the crisis. He previously has worked at Bear Stearns' event-driven and special situations unit and he has also in the past headed an office of Legg Mason. His first major prediction was centered around leverage. We'll have to see if his second leverage-based prediction plays out.