China is struggling, but the rest of the world doesn’t know it. The second largest economy in the world is in a free fall, and the Chinese government is spending billions of dollars to stop it. The corporate bond market in China contracted in the second quarter of 2016, and missed payments are becoming the norm. Kyle Bass, the hedge fund genius that bet the subprime mortgage industry was going to collapse in 2008, and the Greeks would default on their debt, is betting that the Chinese are in over their heads, and a devaluation is all but certain.
Bass bases his opinion about China’s economy on the fact that 17 publicly traded Chinese bonds defaulted in 2016, and more than 188 companies have delayed debt sales since the end of the first quarter of 2016. Bass isn’t the only hedge fund giant that is betting against China. George Soros and other high-profile managers are doing the same thing.
But Kyle Bass is leading the charge in the press. Mr. Bass isn’t afraid to talk about his bet against China because he sees signs that he’s right, and the Dallas investor likes to be right. Bass said the Chinese banks will lose more money than the U.S. banks lost in 2008, and the yuan, China’s currency, will be devalued by more than 30 percent. Those predictions are tall Texas words, but Kyle Bass likes to use language like that. He threw four of his hedge fund colleagues under the bus when Argentina defaulted on their debt bonds. The president of Argentina defaulted on $12 billion in debt bonds, and Bass said the hedge funds deserved to lose. When GM was caught installing faulty airbags in some of their models, Bass took GM’s side, and he berated the victims because his company, Hayman Advisors, was the largest stockholder at the time.
The list of Kyle Bass missteps is as longer than the zeros in his net worth, but he keeps on talking and betting against the system. The last two years haven’t been kind to Mr. Bass, but he still has enough money to be considered one of the elite in the financial industry in spite of his questionable actions.