February 11, 2016

"Fasten Your Seatbelts": Kyle Bass Previews The Collapse Of China's $34 Trillion Banking Sector

Earlier this month, Kyle Bass asked a funny question in a discussion with CNBC’s David Faber. To wit: “If some fund manager in Texas is saying that your currency is dramatically overvalued, you shouldn’t care on a $10 trillion economy with $34 trillion in your banks. I have, call it a billion -  it’s so small it should be irrelevant and yet somehow it’s really relevant.”

Bass was referring to China’s penchant for firing off hilariously absurd “Op-Eds” in response to anyone who suggests that the country may indeed be experiencing the dreaded “hard landing” or that a much larger yuan devaluation is a virtual certainty. The People’s Daily literally laughed at George Soros when the aging billionaire said he was short Asian currencies in Davos. “Declaring war on China’s currency? Ha ha,” PD wrote. Chinese media also called Soros a “crocodile,” a “predator,” and said his yuan gambit “cannot possibly succeed.”

That’s what Bass means when he says the Chinese seem to be quite ornery for a country that claims to be unabashedly confident about the prospects for their economy. Bass, like Soros, is betting on a steep devaluation of the yuan. In fact, he thinks a one-way bet on RMB weakness is "the greatest investment opportunity right now." The thesis is simple. Here’s some of our commentary from last week followed by key excerpts from the CNBC interview which should serve as a nice recap of why Bass thinks the yuan is set to fall by 30-40%:

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