KYLE BASS: THE COMING CHINA RESET WILL MEAN A 30% DROP IN THE YUAN WITHIN TWO YEARS



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11-14-18 - "Kyle Bass Doubles-Down On Yuan Short, Calls For "China Reset""



MATASII TAKEAWAYS:

  • Hayman Capital's Kyle Bass, who has long argued that the yuan will slide 30% against the dollar as the country's credit bubble bursts,
  • He has added to his currency short as the currency hovers just above the big round 7-to-the-dollar level,
  • As corporate defaults soar, Bass believes that China is headed for a "reset" that he expects to arrive during "the next couple of years,"
  • China could lose more than $2.5 trillion of equity, more than triple the size of the U.S bank bailout during the 2008 financial crisis, and would have to print more than $25 trillion of renmimbi to counteract the impact of slowing economic growth and declining credit on its banks - "It’s insane how levered this market has become,"
  • "You’re starting to see bankruptcies across the board in China that are hard to hide, if you look at the corporate default rate, the bankruptcy rate, M1 and M2 (money supply), the slowest money growth in over four decades."
  • Small- and medium-sized companies are now resorting to 'imaginative' strategies for paying down their debt - including striking an agreement with creditors for a 'payment in kind' of ham.


KYLE BASS: THE COMING CHINA RESET WILL MEAN A 30% DROP IN THE YUAN WITHIN TWO YEARS

Nearly 18 months after Hayman Capital's Kyle Bass declared that he intended to stand by his massive offshore yuan short even as his fund moved deep into the red (unlike all of those other "tourist China bears" who had jumped ship at the first stirrings of dollar weakness), the Dallas hedge fund manager revealed that he had finally broken even after his fund sunk 20% last year, according to Reuters.

Which means now is the perfect time to double down...

Bass

Bass, who has long argued that the yuan will slide 30% against the dollar as the country's credit bubble bursts, told his audience that he has added to his currency short as the currency hovers just above the big round 7-to-the-dollar level. He also praised President Trump's trade policies, which he said would be "100% healthy for the next 10 years", though he clarified that he was "not a Trump voter" and that he would jump at the opportunity to throw his support behind Michael Bloomberg.

"Tariffs come and go," Bass said.

"But how do you negotiate with someone...with the hopes that they would liberalize their economy and do the things they said they would do, and especially don’t do the things they said they wouldn’t do, and yet they’ve done everything exactly as they always have?"

Trump’s shortcomings, Bass said, include his tweeting and other means by which he communicates his message.

"‘Trade wars are good,’ that was an insane comment to say," Bass said of Trump. "What he should have said is, ‘We’re going to reciprocate with China, where they’re going to let us into their markets, we’re going to let them into ours...’ His actions were proper, but his comments were improper."

As corporate defaults soar, Bass believes that China is headed for a "reset" that he expects to arrive during "the next couple of years."

He projected that China could lose more than $2.5 trillion of equity, more than triple the size of the U.S bank bailout during the 2008 financial crisis, and would have to print more than $25 trillion of renmimbi to counteract the impact of slowing economic growth and declining credit on its banks.

"It’s insane how levered this market has become," Bass said.

"You’re starting to see bankruptcies across the board in China that are hard to hide, if you look at the corporate default rate, the bankruptcy rate, M1 and M2 (money supply), the slowest money growth in over four decades."

"We’ll have a reset in China, and I think it will happen in the next couple of years," Bass concluded.

Chinese companies are already feeling the impact of its slowing credit impulse...

Credit

...As defaults soar...

CHina

...And small- and medium-sized companies resort to 'imaginative' strategies for paying down their debt - including striking an agreement with creditors for a 'payment in kind' of ham.