YouSaid · the spoken record

Kyle Bass

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56
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2021-11-14
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2021-11-14
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  1. “You and I both know inflation is running, call it mid teens, if not higher, and interest rates are still at zero. So the insidious negative real rates of return are hitting our savings in a major way. And that's what's going on, right? So when you think about mortgages and housing availability, who knew that when the virus plagued the world that the first thing that would happen is people would just go, you know, when rates went to zero and mortgage rates collapsed even further, that everybody just bought every house they could find. I wouldn't have bet that actually, but that's what happened. And so now we're in a scenario where the price of everything has gone up, including residential housing, including commercial, real estate. And I don't, while it's much higher than it once was, I don't believe we're in a bubble because of the amount of liquidity in the system.”

    2021-11-14 · We Study Billionaires · TIP396: China and the Macro Impact w/ Kyle Bass · IDENTIFIED FROM THE TRANSCRIPT

  2. “No, so that's a good question. I don't believe we're in a bubble today as far as ratios are concerned and leverage in the system is concerned. We're in a bubble today that I don't think will pop because the Fed, so regardless of how many mortgages they're buying, I think it's closer to $40 billion right now a month. But I think it's important to note that we have 40% more cash or broad money in our system than we had two years ago or 18 months ago when the virus first emanated from Wuhan. And so that's never happened in the history of the United States before to have 40% more money in the system. So I'm a monetrist at heart. And so I believe, you know, if you increase the money supply 40%, you're going to have a 40% depreciation in purchasing power roughly thereabouts.”

    2021-11-14 · We Study Billionaires · TIP396: China and the Macro Impact w/ Kyle Bass · IDENTIFIED FROM THE TRANSCRIPT

  3. “You know, I think, look, our big year was 2007. Primarily, we were short mortgage bonds at par in our negative carry was 1.5, 2%. So my downside scenario was when you think about all in, you know, my downside scenario was I lost 2% a year in the position. My upside scenario is we made 80, 90, 100%. So that was a, it's hard to say that we went all in, but we had a meaningful position there. And then when we also launched our mortgage funds and our mortgage funds back then, at the end of 2006 is when we launched, I designed it so that it had about 10 times implicit leverage. And our negative carrier was about 11% a year, right? So think about the proposition to investors was I'm going to lose about a third of your money over a three-year period, or we're going to make 10 times your money. It was a pretty good value proposition. You could say that was all in, right? But we ended up making.”

    2021-11-14 · We Study Billionaires · TIP396: China and the Macro Impact w/ Kyle Bass · IDENTIFIED FROM THE TRANSCRIPT

  4. “Things if all of a sudden the Fed were to really aggressively taper today, I don't care what company you are, what stock you are, you're probably not going to go up for a while. So it just kind of took me into a place where things were more, I think for me, more logical. It was just my own view.”

    2021-11-14 · We Study Billionaires · TIP396: China and the Macro Impact w/ Kyle Bass · IDENTIFIED FROM THE TRANSCRIPT

  5. “Searching for something to get short and then to hedge, you know, being long Asia. And I think when you think back to the crisis, what central banks did and governments did is they took the bad private assets under the public balance sheets, right? They started guaranteeing banks. They started investing in equity. They started taking on the risk of the bad assets in the market. So something that started as micro ended up being macro, right? The sovereigns were taking the bad private assets on the public balance sheets. And that happened here. It happened in Europe. We studied Europe. We studied Europe's banking system and the size of the call it 20 biggest banks in Europe. And so the world moved, in my opinion, or at least in my mind, from microinvesting to macro investing. And now macro really drives sentiment and investing kind of market-wide. I realize the idiosyncrasies of companies like Google and Facebook and the others, but the excess liquidity in the markets is what drives.”

    2021-11-14 · We Study Billionaires · TIP396: China and the Macro Impact w/ Kyle Bass · IDENTIFIED FROM THE TRANSCRIPT

  6. “It was actually more of a logical process. You know, when I launched the firm in 2006, we were actually very interested in long Asian equities and was looking, if you remember back then, you know, that's when housing prices had moved parabolically in the U.S. That's when they were getting to be roughly seven times annual income. And they'd always hung around four and a half times. And, you know, so we were looking at the housing market, knowing it was a bubble, trying to figure out how to basically asymmetrically be short housing. You know, you didn't want to be necessarily short a home builder because a lot of them were being acquired. A lot of their mortgage origination businesses were being acquired. And there was a lot of risk there. And so in doing the work, trying to figure out how to really cap our downside, we got short some mortgage bonds instead of mortgage originators. And that was kind of a moment that came through due diligence and research.”

    2021-11-14 · We Study Billionaires · TIP396: China and the Macro Impact w/ Kyle Bass · IDENTIFIED FROM THE TRANSCRIPT