Kyle Bass is betting for the world to end. But first, he wants to see everyone in China lose their money. He declares in a note out today: there is over $34.5 trillion (WTF, how is that possible?) in the Chinese banking system, much of which is wrought with utter garbage. He rambles on about the shadow banking system, much to the chagrin of the illuminati. Then he states if China were to write down 10% from that $34.5 trillion, they’d stand to endure a $3.5 trillion drawdown.
Well, no fucking kidding. If I were to jump into a lake, I’d get wet. But I don’t feel like doing that right now, Kyle Bass, for the waters are too frigid.
Should the Chinese banking system lose 10 percent of its assets because of nonperforming loans, the nation’s banks will see about $3.5 trillion in equity vanish, Bass, the founder of Dallas-based Hayman Capital Management, wrote in a letter to investors obtained by Bloomberg. The world’s second-biggest economy may end up having to print more than $10 trillion of yuan to recapitalize banks, pressuring the currency to devalue in excess of 30 percent against the dollar, according to Bass.
“What we are witnessing is the resettling of the largest macro imbalance the world has ever seen,” he wrote. “Credit in China has reached its near-term limit, and the Chinese banking system will experience a loss cycle that will have profound implications for the rest of the world.”“The problems China faces have no precedent,” Bass wrote in the letter. “They are so large that it will take every ounce of commitment by the Chinese government to rectify the imbalances. Risk assets will not be the place to be while all of this is happening.”
“We believe the epicenter of the problem is the Chinese banking system and its coming losses,” he wrote. “Until China experiences a significant devaluation, it will not be able to cope with the build-up of credit that has helped fuel its rise, but may, in the short-term, be its undoing.”
Bass claims only $2.2 trillion of China’s $3.2 trillion in FX reserves are liquid.
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Bass thinks China is like the US and has legit banking regulators. The fact is, even if they do have 3.5 trilly of non-performing loans, they will never admit it.
True. If they do have that many garbage loans, they will cover it up as long as they can– which may be quite a long time. China is a very opaque economy.
just fear mongering bs…what Muricans do best…Let me know when you find Iraqi WMD’s….
Yes, it could possibly be fear mongering. U could say anything U want about China’s economy– positive or negative– and you have no way of knowing whether it’s true or not.
I think he’s talking about two different things here. Chinese bank loans are denominated in yuan or whatever they are calling their currency today. A bunch of those loans going bad is deflationary for the yuan. Then the PBOC has to create new money to recapitalize the banks. Not inflationary, at best a wash. The Fed did the same thing in 2008-09.
The other thing that is happening is that the equivalent $100B a month of capital is leaving China. In order to do this it must be exchanged for another currency. This puts pressure on the yuan lowering it’s value against other currencies.
That’s why Soros et al are all in the short yuan /long dollar trade.
Not sure why the Chinese are defending their currency with their foreign reserves since they have generally preferred a weak currency to boost exports.
Anyway, Kyle isn’t confused since he is short the yuan big time. This is him talking his book and trying to find more reasons why the yuan is going down.
other than you Professor Fly,
Bass is my hero
** Then he states if China were to write down 10% from that $34.5 trillion, they’d stand to endure a $3.5 trillion drawdown. **
That is certainly worth 2 and 20 no matter how you slice it.