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Subject:  Kyle Bass: Japan's fuse is lit... Date:  1/18/2013  8:46 PM
Author:  notehound Number:  413701 of 538821

Every once in a great while, Bubblevision (CNBC) has a non-fluff interview. Today they cornered Kyle Bass at the NYSE:

The whole interview (at the link) is worth watching. However, the following excerpt gave me pause:

Japanese debt is about 24 times central government tax revenue... The clock has started on the qualitative shift in participants' minds that the situation is untenable as the realization that Japan spends 25% of revenue on interest now - and with higher rates (via this supposed inflation) the entire situation becomes farcical as every 1% rise in their cost of capital (or rates) costs them another 25% of revenue! wary of the Potemkin village of the central bankers....

The crux of his argument is that low yield/no yield bonds only work when the holders are promised continual deflation. He posits that when bond holders see that the swaps curve starts to price in inflation (as opposed to deflation), the bubble will burst.

Kyle Bass is no slouch and he's richer than I expect to ever be. The interview is worth a watch.

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