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Kyle Bass Reveals Hong Kong Dollar Trade

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Kyle Bass, CIO of Hayman Capital, sits again down with Raoul Pal in an effort to lastly reveal the chance that he referred to as “the most asymmetric trade ever seen in my entire life.” Bass follows up on his earlier ideas on China, and lays out the logic behind his thesis. He additionally delves into the related historic context, and discusses the dangers to the monetary system posed by an overvalued property market. Filmed on April 24, 2019 in New York.

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The Asymmetric Opportunity Revealed (w/ Kyle Bass & Raoul Pal)
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Transcript:
For the complete transcript go to: https://rvtv.io/2KFv5rA
KYLE BASS: And so, proper now, we face Brexit and I do not know what is going on to occur subsequent, however I feel
that again then, they engaged in a peg to attempt to deliver some kind of stability to calm the nerves and the
psyches of traders in Southeast Asia and primarily Hong Kong, as a result of as you already know, traders have been
pondering with Great Britain, there is a legislative democracy, there’s principally monetary stability, there’s rule
of legislation. They’re all of the issues that capital wants to speculate and make actual investments within the sovereign of the
territory. And with the concept that China would possibly take again over sooner somewhat than later, the cash left. And
that is why they needed to institute the peg.
So, the UK-Chinese settlement, this British settlement 1984 stipulated or set forth the principles by which Great
Britain would interact with Hong Kong sooner or later. And the handoff can be July 1
st
, 1997. Fast ahead
from ’84 to ’92 when the US entered its Hong Kong-US Policy Act, each Great Britain and the US deal with
Hong Kong as its personal sovereign, so long as it maintains autonomy. Autonomy in its financial affairs, and
its legislative affairs and its rule of legislation.
RAOUL PAL: What does autonomy imply?
KYLE BASS: That nobody else is operating the present. This settlement stipulates that it’s a particular
administrative area of China, nevertheless it’ll be handled as Hong Kong so long as these issues are maintained.
Like, I’d like to cowl that secondarily in our conversationRAOUL PAL: That’s my query, what’s autonomy, however yeahKYLE BASS: Yeah. The phrase’s essential. So, once you have a look at right now, in the event you simply have a look at Hong Kong
from a macro perspective, it is actually vital to consider what occurs once you peg your forex
to a different. There’s the pegged forex, then there’s the anchor forex. The anchor forex, on this case,
is the greenback. What you are doing is you are principally saying I’ll undertake their financial coverage. I’ll undertake their
yield curve. I’ll principally let Jesus take the wheel and let the US run my financial system.
Now, that works really pretty nicely so long as there is a synchronicity in financial outputs, proper, i.e. if the
economies are working collectively, if one grows, the opposite grows, if one goes into decline, the opposite goes into
decline. That form of relationship really works. If one financial system is rising, whereas the opposite one is declining,
and it’s a must to import financial coverage and that i.e. the identical charges curve, it is a catastrophe for the one which’s
declining.

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41 Comments

  1. kyle bass really did his homework, i enjoy his thought process, unfortunately the interviewer was unable to be on his wavelength and it shows.

  2. wow I diden't know and this, this is the first time I heard of the problem with Hong Kong, I have shorted Tesla but HSBC seems to be in worse shape by far!

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  4. Gotta say I hesitated to watch — like what an HK story gonna teach me? But oh, boy am I glad I did. This video was really good — I put it on my "must re-watch list". Thanks guys!

  5. In the end he goes "Well, there you have it!". Except we don't. He didn't say what the investment idea was. He didn't say how to trade it. He didn't say how to put the trade on or even what it is.

  6. Wait a minute..
    Wasn't this guy talking about the collapse of Japan for the last 3 to 4 years and betting on it.
    Now he's talking about the collapse of China.
    What happened to his Japan angle?

    Forget about past predictions and Onward Ho ?

  7. See no reason it cannot defend the peg at expense of economic deterioration. When hibor can go up to 300%, you won’t attack the peg, but other assets, which HKMA wont care

  8. Bass had a high conviction short JPY trade for a few years, didn't work, and now comes up with another one that is much less likely to succeed. George Soros used all his might to attack the HKD during the Asian Financial Crisis, and failed. Why would the smaller Bass be able to do it now?

  9. may i know if Bass trade is right, what will be the value of real estate in Hong kong? If HK is depeg, will HK dollars be appreciated or depreciated? what will happen to the property price if depeg happens?

  10. Can't say whether Kyle is merely speaking out what he thinks, or there's actually a vulnerability to take advantage of. The only hard part is that with China funneling most of the money through HK or Macau, the money pool would be way larger than what most funds would have. Well, unless there's a large enough fear to trigger a stampede then there may be a point to start

  11. Hong Kong is like the ultimate example of cheap debt effect. Homes all inflated to the point only another debt zombie can buy it. Overleveraged, no farms, etc etc. In reality, they really depends on China's economy. Hell, it's a city built originally as Opium distribution center.

  12. this just seems like a bad play all around, hong kong has current account 5%, trade is negative this means money is flowing through there, ccp uses hong kong to get money out/in so central bank will be injected with supply of dollars, for this to stop, ccp itself would have to have a depleted central bank, witch they dont. kyle is trying to short china through hong kong, it wont work.

  13. Kyle Bass track record since 2008:

    Bet against European sovereign debt – FAIL
    Bet against Japanese sovereign debt – FAIL
    Concentrated position on GM – FAIL

    ONE correct, lucky, profitable, contrarian bet compared to a string of miserable failures does not make one insightful.

  14. Great discussion, but isn't he totally off on the aggregate balance figure being the reserves to protect the peg? It's the Exchange Fund which is the reserve to protect the peg, and the funds value stands at 437bn USD.

    "The HKMA, under the delegated authority of the Financial Secretary and within the terms of the delegation, is responsible to the Financial Secretary for the use of the Exchange Fund, and for the investment management of the Exchange Fund.
    The Exchange Fund's primary objective, as laid down in the Exchange Fund Ordinance, is to affect, either directly or indirectly, the exchange value of the currency of Hong Kong. The Fund may also be used to maintain the stability and integrity of Hong Kong's monetary and financial systems to help maintain Hong Kong as an international financial centre."

    "The Hong Kong Monetary Authority (HKMA) announced today (Thursday) that the official foreign currency reserve assets of Hong Kong amounted to US$437.8 billion as at the end of May 2019 (end-April 2019: US$436.4 billion) (Annex). The total foreign currency reserve assets of US$437.8 billion represent about seven times the currency in circulation or 45% of Hong Kong dollar M3."

  15. Yea. Short sovereign 10 year. Ok. Sure. I see Bass started jumping on that trade in 12/18. Now it's looking like it's being defended so call in the lemmings to help support Kyle's position.

    What else ya got?

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