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! ...be wary of the Potemkin village of the central bankers....http://www.cnbc.com/id/100391704The 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.;-)
Notehound:I posted it on the thread about Mauldin and Japan, but will say again that while his thesis could be correct, Japan owns a printing press.... The outcome I think will be printing money to pay the bills, causing inflation (the scenario so many have predicted as imminent in the US, but has yet to occur here). Thus, I think shorting the Yen makes more sense to the average investor, and will pay off sooner. (Kyle Bass, I believe, is short the Japanese bond). The big money, though, might be in the bonds... But not sure how that works for us pedestrian investors. There are short (and triple-short) ETFs on the Japanese Bond. I currently have shares of a triple-short Yen ETF. I will probably re-initiate my trade on the bonds at some point in the future. However, there is the possibility that a sinking Yen will improve Japanese exports, and help cover the costs. This could delay indefinitely, the explosion. I have to say, though, K. Bass makes a good case for his ideas. I see no reason why any wise investor does not put a small amount of money on a short-yen and short-Japanese bonds. Can they go the other way? Certainly. But there are limits to how much lower, IMO. The potential upside, I think, far outweighs the potential risk. His comments on housing and China are also excellent.Cheers,Doug
Note that almost all Japanese government bond are held domestically.I read somewhere that a one-time, 30 percent tax on pension fund assets would make the government solvent again.
notehound,this board on a perennial basis mischaracterizes central govt debt.Japan will do better than ever......http://stockcharts.com/freecharts/gallery.html?$NIKKhttp://stockcharts.com/freecharts/gallery.html?$XJYDave
I read somewhere that a one-time, 30 percent tax on pension fund assets would make the government solvent again. this is a very common misnomer....the govt of Japan is solvent.....you can huff and puff but you will not blow down the house.....Dave
And then what do they do when the debt runs up again in a few years? Another 30% tax off the people's pensions?
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