*Japan reaches Keynesian end-point (can't service their debt);
*This will happen when there's loss of confidence in their debt market, similar to Greece;
*Fears will switch from deflation to inflation;
*Japan's Debt/Revenue ratio is 20;
*Watch 5 and 10 year cash JGB rates (Japanese Government Bonds)
Regarding U.S. stocks and investing in this environment
*Not surprised at U.S. market, look at Zimbabwe's stock market during past decade (nominal terms);
*Bernanke is printing $3.3 billion a day;
*If you print enough money to recapitalize banking system losses, the tree never fell in the woods;
*Moved systemic risk from private balance sheet to public balance sheet;
*For now own productive assets (MLPs, apartments), nonproductive (gold, silver), real estate, cash;
*"Plan B is, to the extent that I'm right, and you start to see sovereign dominoes falling and the focus ends up on Japan very quickly, what do you do with your money? Well, if we go to +4 in GDP to -3 or 4 in global GDP, and we have an equity market contraction of 40 or 50 percent, you're going to need some money to buy. That's going to be the greatest time in the world to buy once these restructurings happen."
2) Kyle Bass on muni defaults
"I agree with (Meredith) Whitney that there will be a number of muni defaults, but it's where you draw the line. Will states be allowed to default? Will legislation be introduced to allow states to restructure? I don't believe that's the case. I believe states will not default. I believe State GOs will be fine. But I think when you get down to city, county and project level municipal finance I think those are all open season for defaults."
3) Kyle Bass on U.S national debt (deficit/revenue), zero interest rate policy trap (ZIRP), Fed buying Treasuries, Europe sovereign debt, Greece WACC. A rise in short term rates has an immediate effect on Treasury interest payments.
4) Kyle Bass on food inflation, consumer price index and currencies.
*40% of headline CPI is derived from housing, core CPI minimizes the effect of food and energy
*Food prices have gone up worldwide (floods in Australia, fires in Russia, China drought);
*Sees Russia headline CPI at 15%, China headline CPI at 10% if food prices stay up;
*He holds physical gold as a currency hedge;
*JApan has monetized 53 trillion Yen of debt (BoJ owns 10% of sovereign debt of Japan);
*As they print money (debase currency), he sees a lower Yen w/ possible overshoot;
*Nikkei (export economy) could benefit for a short period of time
Link to Kyle Bass's February 2011 Investor letter.