||Kyle Bass (Photo: Bloomberg)|
Perhaps no one is as closely associated with pessimism on the Japanese economy as Kyle Bass. He’s talked up his short position—which he considers to be one of the most asymmetric bets in history—in Hayman Capital investor letters, at hedge fund conferences and on CNBC. Now his views have been immortalized in a Harvard Business School case study.
HBS professor Robin Greenwood led the study with help from the school’s Japan Research Center and published the 28 page case March 27. It focuses on Bass’ recent self-evaluation of his bearish views given seemingly contradictory government indicators.
“In late December 2011, Hayman Capital founder and portfolio manager Kyle Bass was reviewing Japanese government budget projections for 2012,” says a case summary. “The projections appeared contrary to Hayman Capital's views on Japan, where the fund had built a bearish position. Japan had the world's highest debt burden, whether expressed as a percentage of GDP or government revenue. Guided by recent global events, Bass forecast that Japan would soon experience increases in interest rates, a devaluation of the currency, and, eventually, a restructuring of the country's debt.”
In the end, Bass’ views are reinforced. “In many ways I hope we are wrong about Japan,” he is quoted as saying in the case. “I could easily be wrong about the whole thing, but I haven’t been persuaded yet.”
As Bass said this week in a keynote address at the EuroHedge Summit, the case study is perhaps the first ever written on an event that has not yet happened.
But Hayman is in the business of looking forward. HBS explained what could happen in Japan by quoting Ernest Hemingway’s description of going broke: “It occurs at first very slowly, then all at once.”
The full case study is here (purchase required)