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Kyle Bass, famous for predicting the sub prime mortgage crisis, has been predicting a Japan crisis for some time now.

Most recently, he did so in a speech at the Myron Scholes Global Markets Forum of the University of Chicago’s Booth School of Business (you most likely recognize the name Scholes from the Black-Scholes model of option pricing).

At Enwealthen, we believe actions speak louder than words, so I pay attention to the predictions of someone who was able to predict the 2008 economic meltdown.

As is common with Mr. Bass’ talks, there are slides he was talking to which were not visible on the video.  However, he spent most of the 30 minutes talking about the data behind his opinion that Japan will be hit by a financial crisis in the near future.  A few bullet points that stuck in my mind:

  • Japan’s population is aging quickly – people are exiting labor force faster than younger people are entering it.
  • Hiroshi Nakaso, Assistant Governor of the Bank of Japan, is the man to watch.
  • Government bond market is over-hyped: advertising government bonds in taxi cabs, and being promoted by cultural icons such as a sumo wrestler, and a girl band.
  • When asked what he would do if put in charge of Japan’s economy – “I’d quit”.  There’s a reason Japan has had 10 finance ministers in the last 5 years.
  • When asked what to invest in, Mr. Bass effectively said cash flowing assets: real estate, operating businesses.
  • Central banks are not to be trusted, and reminded us of Jean-Claude Juncker‘s famous quote: “When the going gets tough, you have to lie.

I dont get paid to be an optimist, I don’t get paid to be a pessimist, I get paid to be a realist.

– Kyle Bass

When asked what should a retail investor do to play this scenario, Mr. Bass stated there were no simple ways to do so – the instruments required are too esoteric and require too much capital.  However, at the end of the Q&A session, he stated if he were going to fire and forget, make an investment and walk away for 10 years, “I would buy gold, sell yen, and go to sleep.  I think that’s the single best investment you can make.”  Straight from the horse’s mouth.

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Is Kyle Bass right in his predictions of Japan’s imminent collapse?  He certainly is a convincing speaker.  Tell me what you think in the comments below.

 

Photo of Japanese salaryman asleep on subway courtesy of Daniel.

2 COMMENTS

  1. According to the Japanese Finance Minister the objectives from the current government are not intended to weaken the yen but I think that is exactly what is happening.

    • I couldn't agree more. Given the Nikkei 225 growth over 50% in the past 6 months, it's either the world's biggest carry trade, or people desperate to keep their skin in the game.

      At this point, Japan is showing the United States what's in its future, sooner.

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