Kyle Bass Bets on Full-Blown Japan Crisis!

• Kyle Bass Bets on Full-Blown Japan Crisis! 
  by Dan McCrum, Financial Times, via http://www.cnbc.com/ 
  Kyle Bass hopes he is wrong, and so may everyone else, as the danger predicted by the founder of Dallas-based Hayman Capital is nothing less than a full blown financial crisis in the world’s third-largest economy, Japan.
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  While the hedge-fund trade of the year has been to short the yen and buy Japanese stocks placed for an export boom, Mr. Bass sees in “Abenomics” – stimulus from Japan’s new prime minister Shinzo Abe – signs of stress that he has been predicting for three years.
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  The length of that call might see him labelled as just another bear pushing a tired case. Shorting Japanese bonds has been the “widow-maker” trade for a decade: as interest rates moved ever lower it destroyed investors betting on a rise.
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  Mr. Bass, though, predicts more than higher yields: “They will have a bond crisis in the next couple of years. A bond crisis doesn’t mean spread widening. It means they lose control of rates and their currency.”
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  (Read More: Volatile Bond Markets Puts Bank of Japan in Spin)
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  Yet Mr. Bass is no kook or perma bear, the investing equivalent of a stopped clock. He has form as one of the select group who predicted and profited from the housing crash in 2007. According to investors, his $1.5 billion hedge fund has averaged after-fee returns of 25 percent a year since 2006.
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  He is also mostly long, investing in securitized credit, and such things as bank loans issued by SuperMedia, a legacy Yellow Pages-style business.
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  He demurs on the details of his Japan bets, but the suggestion is option positions that, like those on pre-crisis mortgage-backed securities, trade at the wrong price. Mr. Bass says: “What’s funny is that we’re pricing optionality on the risk-free rate using the risk-free rate as an input. So, basically, the outcome of that formula at secular turning points is just wrong.”
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  For Japan, that turning point is approaching, and to explain why he turns to Bernard Madoff, the U.S. mega-fraudster. “As long as you have more people entering than exiting, you can maintain any kind of fraud, lie, or non-payment of obligations.”
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  read more!

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