NOTES on a monster trade: According to the internets, Hedge Fund behemoths and up-and-comers alike are setting their sights on short Renmenbi. The Wall Street Journal, via reporters Juliet Chung and Carolyn Cui, just reported something that feels like the “new new thing” in terms of a Big Short:
“Kyle Bass’s Hayman Capital Management has sold off the bulk of its investments in stocks, commodities and bonds so it can focus on shorting Asian currencies, including the yuan and the Hong Kong dollar.”
If I understand what I read, Bass’ bet is targeted for fruition circa 2020, in a three to five year bet that the Princelings Bank of Cash will eventually, one way or the other, like it or not, have a devaluation of devaluations. Was I mistaken in recalling that China HAD a 4T+ USD forex reserve now down to 3.5+T USD? I read also that the actual practical forex liquid reserves may in fact amount to only $1T USD, possibly up to $2T USD. And Bass has company. That billboard sized shot across the bow against Soros made everyone remember the $1B profits made from breaking “cable” a generation ago. The piece goes on to note other hedge fund hotel residents, including Druckenmiller, Tepper, Einhorn are in on the trade too but I’m not sure if it’s to the tune of “all in” with Bass’ 85% weighting.
There are etfs, futures and forex trades that could be constructed. The mind reels at the magnitude of the potential return. This will be one lumpy return with a huge payoff, no annuity-like ATM machine cash machine for anyone impatient and impecunious. You better have the time frame and bankroll for this one.
There’s a paywalled link to the WSJ report: WSJ report of Currency War on Yuan
Nice summarized post Ed, way to get out in front of it before CNBC did. I saw them post something this morning, but they were behind.
Bass must have supreme confidence in this trade; I mean 85%! I’m figuring he has to have these spread out over three years. I just can’t imagine he would be completely exposed with very little (reported) risk management.
Going long the USD/CYN is a duh. Shorting Commodities along with Loonie, Aussie, Kiwi are duhs. Actually IMHO we have created one huge massive global Bubble since 2009 on the use of financing thru the speculation of commodities causing massive over supplies vs actual demand. So riding SPX down to 577ish is my big short.
Thanks Boyaj, this idea has been in the air for sometime but to see it in print is stunning. Bass does deep water diving as sport and relaxation, and that requires planning, preparation, so yes I’m inclined to agree with you, he must have some risk mgmt protocol in place, he’s not a cowboy; true that tradingnymph about the “duh” trades in raw materials
I wouldn’t go as far to say he’s not a cowboy; my dude lives on a ranch in Texas.
Heh heh, I meant, and we both know, he doesn’t wing it in terms of his investments.