China: Danger signs looming for Oz?

China: Danger signs looming for Oz?

We have previously written about J. Kyle Bass. He is the founder and principal of Hayman Capital Management, L.P., a Dallas-based hedge fund. According to Wikipedia, “Bass became well-known after successfully predicting and benefitting from the subprime mortgage crisis by purchasing credit default swaps on subprime securities issued by various investment banks (similar to shorting the bonds).”

He then parlayed the billions he made from the US financial crisis into a bet against Europe, which again proved profitable.

“Bass has since continued to attract media attention for his prediction of the European sovereign-debt crisis and his expectations regarding the economic future of Japan and Argentina.”

He also is making a big bet buying the bonds of Australia, Canada, New Zealand and Brazil – countries that will be affected negatively by a China slow-down, which he describes as inevitable.

This view reflects that of several others including Bridgewater Associates who point, more generally, to the unsustainability of credit growth above income growth.

At 34:20 in this video, Mr Bass mentions he believes China is slowing down much faster than everyone thinks. Notwithstanding the fact that slowing GDP growth to 5 per cent means regime change in China and therefore the president Xi Jinping may dial-up growth again to save his job, when you look at their import and export data they don’t reconcile with the accounts of their trading partners.  They are slowing rapidly and that’s why iron ore prices are falling.

For Australian investors, don’t be too early to buy ‘value’ in resource companies and contractors.

It’s also worth noting his beginning comments about a disorderly unwinding of QE in the US. This would pose some risks for our stronger-for-longer stock market thesis.

MORE BY RogerINVEST WITH MONTGOMERY

Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.