Posted by WARREN MOSLER on May 11th, 2012
Yet another legacy bites the dust:
By Jeff Cox
May 10 (CNBC) — Japan is about to join Europe in the debt crisis ranks, with the two regions offering the best opportunities for investors to bet against, hedge fund manager Kyle Bass said.
While the world’s attention has been focused on sovereign debt issues in Greece and elsewhere, Japan will emerge as a problem area as well as the European developments accelerate, Bass told attendees at the Skybridge Alternatives, or SALT, conference.
“Greece will circle the drain and be ungovernable in the next 30 to 60 days,” said Bass, founder of Heyman Capital and famous for presciently shorting subprime mortgage bonds before the industry collapsed. “Japan is in the crosshairs of the market…I’ve never seen more mispriced optionality in my entire life.”
The Bank of Japan, the nation’s equivalent of the U.S. Federal Reserve, is effectively monetizing the national debt by buying up 50 trillion yen-worth of Japanese Government Bonds, commonly referred to as JGBs in the marketplace, Bass said.
There are a number of perils commonly associated with the strategy of a central bank trying to print its way out of a debt crisis, not the least of which is inflation and lack of confidence in stability of debt, though Bass did not mention specific threats.
However, he said it’s easy to see a crisis coming.
“The fact of the matter is this is no longer an exercise in quantitative analysis,” he said. “It’s a question of when, not if.”
An aging Japanese population and entitlement culture are primary factors contributing to the national debt problem. Bass used disgraced money manager Bernie Madoff to make a point.
“Madoff taught us something,” Bass said. “You can make promises for a long time as long as you don’t have to live up to them.”