The high-profile hedge fund manager Kyle Bass, who made a fortune by successfully betting against subprime in 2008, is now betting heavily on the failure of governments. His latest letter (via GuruFocus) is titled “Imminent Defaults” and in it he spells out what he sees as the warning signs for a country, and which countries are already screwed (Japanese bank Nomura seems to agree with his points – see their comments below as well).
Below you find his points on Japan, comparing it to the Madoff scheme (via Business Insider):
Madoff’s scheme collapsed for one primary reason — he had more investors exiting his scheme than entering. As soon as this happened it was over. According to this most recent census, the Japanese population peaked within the last few years at 127.9 million and has since lost 3 million. Japan has one of the most homogeneous — and some might even call it xenophobic — societies of any developed nation in the world. It is no secret that there is no love lost between the Japanese and their neighbors, and therefore, immigration is an unlikely answer to a dwindling poulace.
It is indisputable that Japan has the worst on balance sheet debt burden in the world (roughly 229% of GDP).
The European debt crisis will simply act as an accelerant to the Japanese situation as it will most likely change the qualitative thoughts of JGB investors. We believe that the sequence of events is set to begin in the new few months.
(His investor letter can be read below.)
And Nomura seems to agree with him, somehow. Here is their latest note on the issue:
“There’s speculation that a bad gain in bond yields and yen weakness will happen simultaneously,” said Yunosuke Ikeda, head of Japan foreign-exchange research at Nomura Securities Co., the nation’s biggest brokerage. “Overseas investors may be thinking a bond slump should spread to Japan especially after it occurred in Germany.”