Thursday, April 11, 2013

Kyle Bass Discusses Japan, Subprime Credit, Housing, & Gold

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.



Sam Zell & David Rosenberg Discuss The Fed Driven Stock Bubble

Excellent interview with David Rosenberg and Sam Zell who describe how nothing in the real economy is actually getting better (and many of the macro indicators show that things are worsening), but the stock market goes up every day.

When Maria asks Zell about the cash on the corporate balance sheets (the cash that I explained doesn't actually exist in Next Stock Price Catalyst: Cash On The Sidelines?), he responds by saying that "I was never recognized for my cash, only my earnings growth."

Zell says that "this stock market feels very much like the real estate market in 2006."

The Fed driven liquidity party drives higher and higher with no real fundamentals backing the share price growth, until it the music stops. Then you will see a rush to the exits and collapse far bigger than what occurred in 2008.

Sunday, April 7, 2013

Next Stock Price Catalyst: Cash On The Sidelines?

One of the catalysts you may have heard discussed recently that will bring corporate growth (and subsequent growth in share prices) is the ocean of cash corporations have available "on the sideline." Analysts will tell you that these corporations could build new factories, invest in new products, hire new people, or best of all; buy back more of their own shares.

What is the problem with this great story?

It only looks at one side of the balance sheet.

The interactive graphic below courtesy of MISH and Mike Klaczynski at Tableau Software provides one of the best visuals you will find for the balance sheets of the top 50 largest corporations in America.

The green lines show the "ocean of cash" these corporations are holding. What are the pink lines that are suffocating those tiny green lines?

Debt.

The actual cash available in relation to their debt is negative $850 billion.