Kyle Bass On China's "Contraction" And "The Fed's Worst Nightmare"

Zero Hedge ^ | 5-27-2014 | Tyler Durden

[blam]

Tyler Durden
05/26/2014

For the last several years, nobody has been more outspokenly bearish on Japan than Kyle Bass. In a recent talk, Bass reiterated his doubts about Japan’s chances of averting a debt crisis. What’s more, he also said China’s economy will fall below expectations.

Bass changed one aspect of his outlook on Japan. Instead of predicting a collapse of the Japanese bond market, he focused on a severe weakening of the yen – without predicting when that might happen.

His predictions for China were equally distressing. He said that its banks will be saddled with non-performing loans and that its economy is actually contracting.

“I don’t think the markets are discounting what’s really happening in China,” he said.

Bass is the founder of Hayman Capital, a Dallas-based hedge fund. He was featured prominently in Michael Lewis’ recent book, The Big Short, for profiting from investments during the sub-prime crisis, which he accurately predicted.

He spoke on May 19 at in San Diego at the Strategic Investment Conference, which was sponsored by Altegris and John Mauldin.

I’ll look at Bass’ predictions for Asia’s two biggest economies – and how Bass believes investors can profit from their plights.

China

China’s economy isn’t just slowing down, according to Bass: It’ contracting. While China’s published rates for annual growth are still positive, Bass said the nation’s economic growth was negative from the fourth quarter of 2013 to the first quarter of 2014.

That is a result of excessive government spending on unproductive sectors of the economy. Bass said the People’s Bank of China (PBoC) has been more aggressive in its quantitative easing (QE) that the Federal Reserve has, but much of that money has gone into unproductive credit expansion.

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[blam]

We Told You We'd Be Talking About Inflation...

[Pearls Before Swine]

There’s a line in the middle of the article that I love:

“A rolling loan gathers no loss.”

[thejokker]

Our economy has been trying to deflate since the middle 2000’s but Federal Spending has been artificially reflating it. The economy will remain “sick” until we allow it to happen. Like a drug-addict we must wean ourselves off of borrowed money or face collapse.

[Cringing Negativism Network]

In 2013 America bought 440 billion worth of goods from China.

In 2013 China bought 122 billion worth of goods from America.

Bring back US jobs.

[Georgia Girl 2]

I agree. Everytime the Fed slows the printing the deflation starts up again. They are like a hamster on a wheel and they don’t know what to do about it. We will finally face total econonmic collapse and then maybe recovery.