There's Too Much Debt, Here's What to Do: Kyle Bass
Kyle Bass, who famously made a fortune shorting the subprime market before the housing market collapse, is worried that there's too much debt in the world.
“We’ve never been here before,” said Bass, founder of hedge fund Hayman Capital, in an interview Wednesday on CNBC'S “Squawk on the Street.” “It has been the largest peacetime accumulation of debt in history.”
And that makes investment decisions extremely difficult, Bass said.
After shortingsubprime residential mortgage-backed securitiesbefore the the housing bust, Bass now has about half his portfolio in subprime and partly subprime mortgage bonds.
While Bass isn’t expecting further declines in home prices, a rebound doesn’t appear likely until the shadow housing inventory is flushed out, he said. (Read More: States with the Healthiest Housing Markets.)
With ongoing uncertainty about the global debt situation, the fund manager said his “goal is not to lose money.”
Bass suggests owning productive assets—apartment buildings, oil wells, gas wells—“anything that has a real asset that’s productive.”
Gold should also be owned, but Bass didn’t have a specific answer as to how much of a portfolio it should make up.
In the last decade, he noted, global debt balances — government, household and corporate — have gone from $80 trillion to $200 trillion.
That’s an 11 percent growth rate, far outstripping the 1.2 percent population growth and real gross domestic product growth of 3.8 percent, he added. Meanwhile, central bank balance sheets have expanded 16 percent.
Bass noted that historically when you get to 250 percent of credit market debt to GDP, it was when countries were preparing for war. (Read More: US Is Debt Addict on 'Budgetary Crystal Meth': Gross.)
Inflationis also lurking down the line, he believes.
“We had a hyper-leveraged economy and world going into the financial crisis," Bass said. "We lost trillions and trillions of dollars because of that leverage. The first several trillion dollars that were printed just replaced what was lost” and had no net effect on global money supply.
But subsequent printing, which is where we are today, starts to affect the economy, Bass said, pointing to rising inflation in Southern Europe and slowing economic growth.
Bass also had little confidence U.S. and European politicians would be able to solve their respective debt issues.