You probably know by now that if Kyle Bass speaks, writes, or breathes, you are going to hear about it here. In this excellent interview with Bloomberg he discusses the coming full blown collapse of Japan (a true Black Swan that no one has priced into future models).
"Everyone that owns the Japanese bonds knows they are insolvent, but it is a question of how long they can hang on."
In the trade where he bet against subprime mortgages Bass notes:
He put on a trade where they anticipated losing 10% to 11% a year (making insurance payments on subprime debt), with a payout that would be 10 times the money if they were correct (this was using CDS insurance in the derivatives market). He was correct.
On his current Japan trade:
He has put together a portfolio where they lose 1% to 2% per year (making the insurance premiums) with a payout of 300 to 400 times the money invested in they are correct.
