tv Wall Street Week FOX Business April 15, 2016 8:30pm-9:01pm EDT
in the meantime, good night from new york. >> announcer: this show has never been solely bin investments. we talked about anything that affected people and their money. from box business head quarters in new york city, the new "wall street week." gargary: welcome to "wall street week." i'm gary kaminsky along with maria bartiromo. maria: 2016 proving to be a
remarkable and pivotaal year for america. kyle bass is with us. he joins us right now. gary: i want to talk to you about the race but first i want to talk about the story of the week. negative interest rates. there were warnings about the implications for negative rates. as i talk to our clients, it's the biggest concern we have. should we be worried about negative interest rates in the united states? kyle bass: i think this is where the academics are clark with the practitioners. i think on paper negative rates make a lot of sense, but in the world they make no sense. having $trillions in debt an trading at 50 basis points is ludicrous.
this experiment going on, we all know will end poorly but we don't know when that time is. gary: the academics may influence the policy makers. should people be considering taking money out of banks because soon they may be having to leave the money there? >> if they told you and i they are going to tax 'deposits by 100 basis points, better to put it in a safe under your mattress. that's why you see resurgence in gold. >> and when you look at the reason that we have negative rate is because we have a slow economy, whether it's in japan or china and the u.s. i ask you, what your take. i know your money is in china. but as far as the u.s. is concerned. do you think donald trump is right, we are on the doorstep of
a massive recession in the u.s.? kyle bass: donald trump may be right for the wrong reasons. asia has a giant credit bubble they have been building for the last 10 years or longer that reached its atrophy level and it will happen the next two or three years. so whether that causes the u.s. the have a brief minor recession, i think it's 40%, 50% in the next year personally. but it doesn't mean that slow global growth is going to lead to persistent recession. i also don't buy his idea monetary policy can generate true organic growth. it can help us out of a crisis. but we have had 8 years full out monetary and policies philly he justed. when the guard goes to the g-20 and says we have to work together.
we have been working together. now we are stuck with kind of stagnation and excess capacity and a lot of debt. maria: to be clear to your first question, it hasn't worked. the bank of japan going negative interest rates. market have responded completely the opposite of what you would have expected. kyle bass: economics assume everyone is a rational actor. we know there aren't that's rational actors. that's the divergence between academia and actual actors. gary: you spend a lot of time, i know a lot of people in washington reach out to you for your advice as it relates to economic matters. what do you think wall street and the financial industry and the markets want to see in the next president? who is the best president of the
candidate for the equity markets? >> i'll give you a crazy answer. i think it's hillary. many people, maria told us they think they know what they are getting there. kyle bass: i think she is the most sane actor of them all. they might seek economics -- it's a good thing no one seeks political advice from me. maria: hillary clinton said she want to keep drug prices in check and hold the understand companies accountable, wants to raise taxes by $1.1 trillion. while she is the one with experience and steady when you look at what's going on with the other candidates. her policies are very liberal. do you think that hurts markets in any way? kyle bass: on drug prices, how can you not say we should rein in drug prices when they have been freely able to charge of
what they wanted to charge. that has changed and it's for the better for our country. it's better for you and i and anyone who buys prescription drugs, it's better. when i think about the policies you discussed. raising taxes. one thing to think about is this divide between the haves and have nots. one unintended consequence of fed easy money policy is the distribute tiffanyture of the -- the distributive nature of policy. i don't know one. so what happened is we went to this policy where we went to go to q.e. that raised asset prices. the only people with assets are rich people in general. so they became much more rich. that divide widened.
now we have this unintended consequence, they made that divide larger. so i think this is a big issue. you talk about raising tax. it's inevitable we'll have to raise personal income tax. we have to cut corporate tax if we are going to compete on a global scale. but that's what has to happen. if hillary is being pragmatic then i support her. gary: stay with us. we'll be right back on "wall street week." >> announcer: when kyle bass looks at china he sees opportunity for his investors. he explains that and a lot more next. at mfs investment management, we believe in the power of active management. by debating our research to find the best investments. by looking at global and local insights to benefit from different points of view.
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maria: welcome back to "wall street week." we are talking with hayman capital's kyle bass. you look at wall street. economic disaster waiting to happen? do you expect the chinese market to slow down? kyle bass: in the fourth quarter they printed 5.8% gdp growth. that's the lowest in 41 years. they had reverse migration for the first time in 30 years. 5.8 million chinese went from urban back to rural areas. i don't know how you define hard landing but they are in the middle of a hard landing. when you look at what's causing the hard landing. it's amal gulls to what happened in the u.s. greenspan lowered rates to 2%.
we started raising rates but then we had subprime lending and everything that went on. that same thing happened in china. china has grown its banking system 1,000 percent in 10 years. it only has 10 or 11 trillion of gdp. what's happening today in the last year they went to 100% lending so you saw in the tier one cities real estate went up 70%. point being, they are going to have a crisis similar to what we had. not the interconnectedness and all the problems the u.s. had with europe. but it's just a cycle. they are in. >> different place in the world than we are in kawstles cycles. they are focused on the symptoms.
gary: you called crash in 2008. when you look at china and and t out many times what you see there in terms of the nothing bank financials. three years from now, what happens in china and why does it matter to viewers here who invested in u.s. markets? kyle bass: when you look at emerging markets back in 2008. 15% of gdp. in dollar terms day it's 37%. the emerging markets are important to your portfolio. if you look at global gdp growth and most of that growth is e.m. most of that with south america, russia, brazil. but you want to focus on asia. asia is the engine for e.m. growth. and china is the engine for for
asian growth. if you are allocating capital to the u.s., you might want to hold back for the next couple years. banking loss cycles take 2 1/2 to 3 years. i think we are only two quarters into a 10-12 quarter cycle in asia. that means you should be very carefullal lating capital for the next couple years. >> is the china crash the ultimate crash? >> the interesting thing is it's not the end of the world. we are not going to have a lehman moment on china. they will have to recapitalize their banks. in 2001 chinad to recapitalize their banks. it cost them 30% of gdp. i don't get into how they did it. but they recapped their banks.
they had to couple with the equity. we had a trillion of he can wirtd in our bank -- we had a trillion of equity in our banking assets. but during crisis we pumped in 700 billion into bank equity. for all intents and purposes we lost 70% of all bank equity in the united states. they have 34.5 trillion dollars of assets in their banks and 2 trillion of equity. i think they will lose 2 trillion of equity. they will expand their central bank sheet. it's not the end of the world. but it's the end of massive credit-led growth in asia. you look at hong kong and singapore, they had credit contractions in the first square and they will have them in the
second quarter. maria: you have a banking crisis in china yet you are still investing there. you have money in asia. kyle bass: we have all of our focus on asia, we don't have money invested in asia. what we have is we are long on the u.s. dollar and we are betting against the chinese currency. if we are right about the banking crisis and right about the fact they are going to do everything it take to fix themselves which they will. they will recap their banks and reform everything they can do on the spending side, they will do everything they have to do, you and i would do if you parachute in a run to the chinese financial situation. their currency will have a massive devaluation. maria: does that impact the japanese yen and the euro?
kyle bass: the dollar is a small component of that. you are going to see -- we are going to see an asian credit problem analogous to that of '97-'98. gary: you have a went public with this trade self chinese officials said they shall going to support the currency and you are going to lose money. did you he from members of the chinese government? kyle bass: i didn't. but look at the i.m.f. out of the last 210 recessions they called exactly. it's not their job. their job ising to bullish. it's to provide support and confidence. you just can't believe it. european officials said anyone betting against greece's sovereign debt will never make a dime. guess what? they defaulted and they lost 80 point.
the reporter asked the ceo of bear stearns that question. gary: the question made people so uneasy bear stearns fate was set. is that a true story? kyle bass: yes. gary: you were able to ascertain that goldman stacks stopped draigd with bear. kyle bass: the entire financial landscape in the u.s. and financial world is based upon trust. if one firm is not willing to face another firm, then the other firm is finished. maria: it puts them out of business. kyle bass: they put themselves out of business. if you talk to ace greenberg and what went on that predated the financial crisis. whether it was bobby steinberg that ran risk imagine the or
jimmy cain who ran the firm, they took on those risks. gary: didn't you make a presentation to the executive committee of bear stearns prestwait 2008 on what they were holding? kyle bass: i walked them through the entire presentation. gary: this is a story -- i you a talked to kyle about this. for whatever reason this has not been out there in the public. tell the viewers what happened at that meeting. kyle bass: all my friends were at bear stearns. i had many, many friends there. my current broker paneling account is at bear stearns. i care very much about those people. the last thing wanted was for them to go down. so in november of 2006 i went in and met with a risk management committee. and we had a room full of bear stearns execs. jimmy and ace weren't in the
room. but for 90 minutes i went through how i thought this was going to go. at that time i'm a small fund manager in texas. gary: what happened at the end of that meeting? kyle bass: bobby steinberg put his harm around me and said that's a compelling presentation and guide hope you are wrong. maria: of course they hoped you were wrong. gary: there were things they could have done to mitigate risks and they didn't do it. maria: do you see anything in the united states that compare to what you saw in 2006? kyle bass: i don't. we recapped pour banks. there is a lot of complaining and moaning about excessive regulations. the only reason a few of these firms exist is. gary: a concern in the european
banks is similar to what we had in 2006. kyle bass: i think that's absolutely true. the europeans couldn't recap their banks like we could. they couldn't choose which child they loved most or which child they hated most because it wouldn't be fair. there is no central passing authority in europe. gary: is there going to be a lehman moment in europe for the banks? kyle bass: way mean is the interconnected nature of lehman's failure and everyone worrying about derivative contracts failing. every derivative trade settled perfectly in lehman. i think the world is better off seeing how a bank can fail rather than us saving everyone and everything. i know that will be controversial. but i think it is better. maria: when it comes to the stock market, is there anywhere in the world you want to be
putting money to invest in stocks right now? kyle bass: no. if i'm right about china gdp will slow and it won't be risk positive for equity. can equity spieng on impeachment in brazil or e.m. rallies where china about build more cities to nowhere? yes. but in the long run you have to be careful today about putting more money into equities. maria: thanks so much, kyle bass. gary: next week. we have a warning on one of the hottest tech stocks out there. so you want to listen. we'll see you next week.
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