In recent days we’ve looked at threats to Australia’s economic future from China and the USA. And, we’ve looked closely at the internal threats from our over-indebted government, massively risky banking sector, and housing market bubble.
Now, a genius short-seller who made $500 million betting against the US housing market in 2007 has pointed out what may be Australia’s biggest external economic threat of all.
Buy a farm house in the middle of nowhere, pick up a gun or two, prepare for hyperinflation and brace for a catastrophic bankruptcy. Thirty minutes with hedge-fund manager J. Kyle Bass has you wanting to do all of the above.
The head of Dallas-based Hayman Advisors LP isn’t thinking about Greece or even Spain but Japan, the world’s third-biggest economy. He says his bet against Japanese government bonds is even “more compelling” than his gamble to sell short U.S. subprime-mortgage debt, which earned him $500 million in 2007.
Shorting Japan has been a losing proposition in recent years. But the earthquake, tsunami and nuclear crisis altered the outlook for a nation whose debt is more than double the size of the economy. Bass says a collapse is inevitable, making Japan’s 10-year bonds — they yield 1.3 percent, among the lowest in the world — a natural for a bear investor.
His argument is this: Japan now spends half of its central- government revenue on servicing debt. This task won’t get any easier as the country’s population ages and shrinks — provided rates stay the same. What’s more, the price tag for the earthquake and its effects will far exceed Japan’s initial $300 billion estimate, pushing the country over the edge. In Bass’s view, the biggest asset bubble ever is hiding in plain sight.
According to the Department of Foreign Affairs and Trade (DFAT), Japan is our second largest export market, and trading partner. Not far behind China:
If J. Kyle Bass is right … and remember, he made a cool half a billion from correctly picking the weakest link back in 2007 … then we can chalk up Japan on our Ever-Present Threat board as well.
Possibly at the top of the list.