🔴 Kyle Bass Explains The Chinese Currency Crisis As An Investment Opportunity

KYLE BASS: The 10-year period from ’08 to
2018 were the best 10 years that Hong Kong will ever see, will never
happen again. The Hong Kong banking system is now almost
nine times their GDP. Call it today, it’s 850% of GDP. 280% of GDP of the 850 is lent to Chinese
property developers into China. They’re the most levered nation in the world
with the most expensive real estate in the world with an economic arrangement
with a country that is no longer
synchronized. It is a recipe for disaster. RAOUL PAL: If you remember a month ago, Kyle
Bass was on Real Vision talking about China. And he said he had one big trade for us. The really big one, the one that he’s been
doing all of his work on. And he refused to unveil it until he told his
investors and got himself set up and positioned. That moment’s now. Kyle’s
back to come and tell us the next big trade. The trade that he thinks is one of the
greatest opportunities in financial markets. It’s going to be super interesting for us all
to sit back and watch Kyle Bass unveil this great idea. So, Kyle, you come with a tie, I’ve got my
collars up. What you promised me a month ago is you’re
going to come with the killer trade. The big idea that you’ve been working on for
a while ago and we alluded it on Real Vision to people. And now you’re back, and you’re ready to
unveil what is- you and I have spoken about it a little bit. And it’s, for me, fascinating and almost
incredible talking through it. KYLE BASS: Very start at the beginning. So,
for the last really three years, we’ve focused on as you know, I don’t know-
six or seven years, we focused on China’s financial system. And
that’s taken us to understanding the flows and the plumbing of capital and how it flows
in and out of China, whether you’re looking
at Hong Kong or China or you’re looking at
listed market or the domestic market in
China. The majority of the capital flows through
Hong Kong and when you look at Hong Kong as a
sovereign- tell a little bit of a story as far as the
existence of Hong Kong in its economic and financial state that
they’re in today, you have to look back 36
years. Really have to look back much further than
that when the UK or Great Britain really fought a couple of wars, the first and
second Opium Wars and then the balance for the new territories and took over Hong
Kong Island, Kowloon and the new territories. And they basically ruled those territories
for a very long time. And at some point in time, in the late 1970s,
early 1980s Deng Xiaoping started I think some rhetoric back behind the scenes some
conversations with Margaret Thatcher on
handing Hong Kong over back to the Chinese as you
know the British basically secured their rule over Hong Kong with a 99-year lease. The
Chinese wanted that lease to end in 1997 and threatened I think the British in one way or
another to get them to do it a little sooner. And so, while these negotiations were going
on, word got out that the Chinese were talking to
the British about a handover. And if you notice what happened then, the
Hong Kong currency had about a 50% decline versus both the dollar and the
pound going into 1983. And then, in late
1983- RAOUL PAL: So, it was a free-floating
currency then? KYLE BASS: It was a free-floating currency
then, yep. So, but 50% devalued over just a handful of
years. To the extent that the South China Morning Post was saying it’s becoming a
banana republic. The currency is in a “free fall”, and then
they pegged it to the dollar, the US dollar. Fascinating, right? It’s being controlled by
the British and yet they’ve pegged it to the US dollar looking for more stability
than I guess the British had. RAOUL PAL: Nice dig. KYLE BASS: And so, right now, we face Brexit
and I don’t know what’s going to happen next, but I think that back then, they engaged in a
peg to try to bring some sort of stability to
calm the nerves and the psyches of investors in Southeast
Asia and primarily Hong Kong, because as you know, investors were thinking
with Great Britain, there’s a legislative democracy, there’s
basically financial stability, there’s rule
of law. They’re all the things that capital needs to
invest and make real investments in the sovereign of
the territory. And with the idea that China might take back
over sooner rather than later, the money
left. And that’s why they had to institute the peg. So, the UK-Chinese agreement, this British
agreement 1984 stipulated or set forth the
rules by which Great Britain would engage with Hong
Kong in the future. And the handoff would be July 1st, 1997. Fast forward from ’84 to ’92 when the US
entered its Hong Kong-US Policy Act, both Great Britain and the US treat Hong Kong
as its own sovereign, as long as it maintains autonomy. Autonomy in its economic affairs, and its
legislative affairs and its rule of law. RAOUL PAL: What does autonomy mean? KYLE BASS: That no one else is running the
show. This agreement stipulates that it is a
special administrative region of China, but it’ll be treated as Hong Kong as long as
those things are maintained. Like, I’d love to cover that secondarily in
our conversation- RAOUL PAL: That’s my question, what’s
autonomy, but yeah- KYLE BASS: Yeah. The word’s very important. So, when you look at today, if you just look
at Hong Kong from a macro perspective, it’s really important to think about what
happens when you peg your currency to
another. There’s the pegged currency, then there’s the
anchor currency. The anchor currency, in this case, is the
dollar. What you’re doing is you’re basically saying
I will adopt their monetary policy. I’ll adopt their yield curve. I will basically let Jesus take the wheel and
let the US run my economy. Now, that works actually fairly well as long
as there’s a synchronicity in economic
outputs, right, i.e. if the economies are working
together, if one grows, the other grows, if one goes into decline, the other goes into
decline. That kind of relationship actually works. If one economy is growing, while the other
one is declining, and you have to import monetary policy and
i.e. the same rates curve, it’s a disaster for the one that’s declining. And so, 36 years ago, the US was the engine
for the world. And as the US economy went, the world economy went. There was
synchronicity. And if you fast forward to China’s ascension
to WTO in 2001, China’s move into becoming the second largest
economy in the world with roughly 15% of GDP. And you look at the infrastructure build that
China engaged in since 2001 in their southern ports, really
southern and up the coast, what you see is Hong Kong used to be the
biggest port in the world. They were a dollar-based goods exporter and
re-exporter of goods for Southern China. They were essentially China’s southern port. And they were very functionally relevant to
China especially in the early 1990s. They represented a quarter of China’s GDP,
actually, almost 30% of China’s GDP. Today, it’s 2.5%. So, they were ready
relatively unimportant, important, very
important, and now, unimportant again from an economic
perspective, right? From a capital raising perspective, very
important. But from an economic output perspective, not
that important. I think if you look at how Hong Kong’s
economy has changed over the last 36 years, they’ve gone from a goods exporter and
services importer, and right in the financial
crisis, that flipped and now, we have a chart in
here, whereby you see the blue bars are
goods, the red bars are services. So, it looks like
the financial crisis flipped them. But that’s just coincidental actually. It was the southern port buildout that
basically moved China’s, let’s say ownership of the top 10 ports in
the world, from 9% in 2001 to 60% in 2015. So, that’s what happened in making- forcing
Hong Kong to actually reinvent its economy. Hong Kong today is a massive goods, net goods
importer, it’s hard to believe that. And they’re a services exporter and they face
China, right, for travel, for financial services, real estate services,
legal services, call it 80% plus their economy relies on China on the export
side of services. And they import dollar-based goods. And so, there’s no lack of- there’s no
synchronicity between the two. RAOUL PAL: So, they coupled essentially from
the US economy? KYLE BASS: Yeah. And so, when you and I were
running Hong Kong today, and we said, how should we run our economy? We would say, pegging to the dollar would not
be the right idea. RAOUL PAL: X the R&D I guess, if you can do
it. KYLE BASS: Yeah. And so, their economic
arrangement with the US is one that has changed dramatically over 36 years,
but on the face of the world, that actually hasn’t changed at all yet. And
then you look at the macro of Hong Kong, if you import US monetary policy, as they
went into 2008, right? In 2008, US took rates to zero. So,
historically, the anchor currency is the one
that, let’s say is the fiscally responsible one.
It’s the one that keeps inflation under
control. It’s the one that keeps rates where they
should be, keeps a more stable economy and that’s why
people anchor to them. In this case, the inmates are now running the
asylum, we just took rates to zero. Imagine this, 2008, US takes rates to zero so
Hong Kong rates go to zero. And their largest trading partner, China,
goes to the gas pedal. So, the 10-year period from ’08 to 2018 were
the best 10 years at Hong Kong will ever see, will never happen again. So, no wonder real
estate went up five to 700% in a 10-year
period. Right? No wonder the price of Hong Kong real
estate is $10,000 a square foot. RAOUL PAL: And that’s why that chart of
services because it all becomes finance because it all just goes to
money. Right? KYLE BASS: Well, it’s free money. And your
largest trading partners growing double
digits. And so, what happened, the Chinese came in
with all the money they were making and bought all the real estate in Hong Kong.
So, now, it’s completely unaffordable, I think the most expensive real estate in the
world. And what’s interesting is the Hong Kong banking system did exactly what
Iceland, Ireland and Cyprus did. The Hong Kong banking system is now almost
nine times their GDP. What was the common denominator the countries
that fell apart in the European crisis? They fell like dominoes. It was the size of their banking system when
they hit a slight recession. Broke the country, right, because the country
has to go in and save the banks, save depositors. And that means the sovereign has to lend into
the banks and it breaks the sovereign because the banks
are levered to the GDP. RAOUL PAL: But what did they lend against in
Hong Kong? Because this is going to be the key, right?
The USA is the housing market- KYLE BASS: This is a fun one. Call it today,
it’s 850% of GDP. 280% of GDP of the 850 is lent to Chinese
property developers into China. The rest is lent to domestic SMEs and
mortgages. So, I hear a lot from the various sell side
firms that we call, they say, oh, Hong Kong mortgages are only
50% loan to value, not a problem. And I said really? How to how do they afford
a 50% deposit on the most expensive real estate in the world?
They said, that’s easy. So, the bank lends 50. The property
developers lend 35 in a second lien, and
families- the families or friends lend them the other
15. I said, so how does that work? And they say, well, that’s easy, because
housing goes up like 10% to 15% a year. So, in the first year- this is a partner at
one of the biggest firms in the world tells
me this that runs a real estate business. In the
first year, they re-fi their family home. And in the next two years, they re-fi the
developers out and then they have a 50% off of the loan. I said, but what if prices go down? He said,
oh, prices don’t go down. Literally, I’m hearing this again. RAOUL PAL: We’ve heard this before. KYLE BASS: And so, there’s this belief that
the loans in the banking system are safe because of their loan to value ratios. I
think we all know that that’s not going to be
true. RAOUL PAL: So, of the Hong Kong money, the
banking system, is most of that debt in
China. Chinese debt. KYLE BASS: Yes. RAOUL PAL: It’s nothing to do with the Hong
Kong domestic so- KYLE BASS: Oh, no, no. So, 280- say of the
850, 280 is on to China. The balances went to Hong Kong domestics. RAOUL PAL: Right. What the hell do they do
with it all? Because that many people in Hong Kong- KYLE BASS: Private sector financial credit is
the highest of any developed nation in the world. 300% of GDP. Look at the US and Japan
and look at where Hong Kong is. So, you have the most levered banking system
in the world- RAOUL PAL: [Inaudible] mechanism, that is
flowing back into China just feels that you don’t look at the streets of Hong
Kong and think everyone’s completely borrowed as much money as Libor’s. It feels like
there’s another mechanism. KYLE BASS: Well, they could have taken the
money and invested in China, right? What I’m saying is domestic private sector
credit to GDP is 300% banking assets to GDP are 850. So, they’re the most levered nation
in the world with the most expensive real
estate in the world with an economic arrangement
with a country that is no longer
synchronized. It is a recipe for disaster. RAOUL PAL: So, everyone’s kind of have in
their head, yeah, heard this all before in
’98. And everyone got every hedge fund to try to
take advantage of that peg breaking, didn’t break. What’s going on now that’s
different? Because you’ve got- you’ve look at reserves and a whole number of
different things [inaudible]. KYLE BASS: Yeah, let’s talk about ’98 first.
I think it’s important to see the HK may have a decision to make, right, either revalue the
peg or suffer a massive debt deflation. And now, their debt was nowhere near what it
is today. But what they did- if you look at this chart here, from July
2nd, 1997, which is when the Thai baht broke the peg,
interestingly enough, one day after the handoff from the Brits to
the Chinese, July 1st, ’97 was day the
handoff. July 2nd was when the Thai baht broke. That
is not coincidental. So, from July 2nd of ’97 to the beginning of
2003, Hong Kong real estate dropped 70% in value.
Right? So, they elected to take a multiyear
enormous, basically, deflation like
depression. So, the way that they made that election
during the crisis of ’97-’98, is they spiked overnight rates up to 20%. So,
US rates were 4.5%, 5%, right? So, they took rates from five to 20 on a
spike to forge any currency from leaving, they were trying to keep currency there,
right? Well, today, the fascinating thing about
their banking system or their mortgages, their assets, their loans and their system,
the substantial majority of all those loans indexes to one-month high
bar, their overnight lending rate and they all reset every month. So, imagine
taking an economy at max leverage and raising rates to keep currency from
leaving. RAOUL PAL: Impossible. KYLE BASS: That arrow is out of the quiver.
They can’t do it this time. So, if you look at the IMF’s article for
review of Hong Kong, the number one risk is the fact that all the loans are floating
an index to one-month high bar. RAOUL PAL: It’s the same with the UK back in
Sterling crisis. All the UK properties borrowed at the short-
term rate. KYLE BASS: Right. Same with Hong Kong. Now, they have a mechanism in their mortgage
market that has a cap at prime minus. A rate call it 250. Prime is at 5. And so,
the Hong Kongers believe that even though their rates have gone from an effective 1.25%
or 1.5% to 2.5%, that there’s a cap. So, the most fascinating thing was in
September of 2018- I think it’s September 29- was the day that Fed raised rates. That night, Hong Kong raised the prime
lending rate by 12.5 basis points. That’s it. The next week, the South China Morning Post
ran stories every day, talking about real
estate dropping 6% to 10% in a week, because all of
a sudden, the Hong Kongers figured out that the cap could move, right? You can’t
just move based lending rate, you have to move prime if rates are going to
move up. So, 12.5 bip move on the prime lending rate
scared the entirety of the Hong Kong real estate market. That’s why you see that hook down there at
the end of this chart. That started at the end of September. RAOUL PAL: So, then the other preconception
is right now- same as it was back then- is Hong Kong has unlimited balance sheet, the HKMA- because even I’m burned by the HKMA
because they even bought the equity market. They killed everybody, every hedge fund. You
can talk to Paul Tudor Jones and the whole
lot. I don’t fight these guys. So, Tudor and the
HKMA, the options they’ve got in this
situation. KYLE BASS: Let’s talk about Norman Chan,
right, the head of the HKMA. He’s going to retire here in the next four or
five months. So, they’re going to look for new leadership.
As far as the HKMA and this idea that is- let’s say talked about by the sell side a lot
with regard to they have a pile of dollar- based reserves. They have a what they call
perfect currency board. For every seven
point- call it 7.8 Hong Kong dollars in the system,
there’s a dollar in the system. And they’ve got more than their entire GDP in
money in circulation, everything’s going to be fine. When you think about that, if currency boards
worked, then Argentina, which used to be one to one to the US dollar
in 2001- if you just think about this- 2001, 17 years ago, 18 years ago now, I was
wondering what- we know what it is today. 43 to one, maybe 44. Who knows what it is?
Right? When you look at a currency board, if you look at a currency peg, let’s say that
identity is true. For every 7.8 Hong Kong dollars in the
system, there’s one US dollar in the system. You can’t take it below that and run a
fractional reserve peg, I guess you can, but
you’d lose- confidence would be lost very quickly. And so, the way we look at it, we look at it
as currency in circulation, which you can’t really- let’s just say go
into. You can’t go into that cookie jar. You have to stay out with your excess
reserves. So, Hong Kong reports every night what their
excess reserves are. They call it their aggregate balance. And just two years ago, that was about HKD
170 billion, real money. In the last year, they’ve spent 80% of that
money defending the peg- 80. 8-0. They have HKD 50 billion left, call it USD 6
billion left, before all of a sudden, they’re going to have to make a decision. Now, can they go find some other money in
their economy somewhere somehow to keep defending the peg? This actually goes back to this concept of
even sovereign default. And if you and I are running a sovereign or
you and I are running a peg, it’s actually similar. Do we think that it’s
anomalous that this attack is speculators? Or is it the macro economy telling us that
maybe the peg’s not pegged to the right
thing? And maybe not the value is the right value?
All right? Is it temporary or is it a secular problem? RAOUL PAL: So, in 98, what was different is
everybody was under pressure. KYLE BASS: Yes. RAOUL PAL: It wasn’t Hong Kongers problem. KYLE BASS: Exactly right. RAOUL PAL: But nobody’s- KYLE BASS: And it wasn’t Hong Kong’s leverage
either. And it wasn’t Hong Kong’s [inaudible] market
or banks. It was people were running into dollars
afraid of China taking over the region. And so, now, you have this hyper levered
system. In the most expensive real estate market in
the world, you have the natural moves. So, right now, if these two- if the Hong Kong
dollar and US dollar interchangeable, which freely interchangeable which they are
at the peg, you can earn 83 basis points more on an
overnight rate if you just have a dollar
deposit. So, if I asked you, Raoul, would you rather
have 1% or 2% on your deposits? And it’s freely interchangeable. You don’t
have to be a genius to figure that one out. So, then, that’s why the pressure continues
to mount and mount and mount. People are just converting the dollar. RAOUL PAL: So, I don’t think many people will
be aware of what’s actually going on the Hong Kong
currency. Explain a bit about the situation
of what’s been going on how it’s been trading
versus the peg. KYLE BASS: So, it has a very narrow band. So,
the peg was set in ’83. They adjusted it to a band, the band is 7.75
to 7.85 to the dollar. It’s basically a little more than a 1% band. And so, for the last few years, it’s traded
at the strong side of the band. And in the last one year, it’s traded to the
weak side, the 7.85 to the dollar. And so, what happens when- RAOUL PAL: But a flat line there, though. KYLE BASS: But what happens is if you’re
going to maintain a hard edge, like they have to maintain, they have to sell
dollars and buy their own currency. So, they have to sell their rainy-day fund,
their excess dollars, they have to sell. So, they’ve sold 80% of those dollars in a
year’s time. Just think about that. So, what happens when they sell the last 20%?
So, two things happen. Either they find more dollars by mortgaging
or leveraging another asset or requisitioning funds from somewhere. It’s
not the only money they have. And we’ve done a very in-depth analysis, not
in our letter, we can cover that another day. But let’s just say they have a decision to
make. They can raise rates up to the level where
they stopped the currency from running, i.e. converting the dollars, or they can find
some more money to fight the peg with. RAOUL PAL: Now, the other question is, is
this is clearly tied into the Chinese story. Is this also a capsule flight from China via
Hong Kong? Because that’s always been my premise that
this is a mechanism that’s part of a bigger story, and too
difficult for the HKMA to stand in the way
of. KYLE BASS: I’ll say that your premise has
been right for a few years, in the last few
years. But if you remember when China closed the
door, really shut down and put their fingers in the holes of the dam
or the money running out of China. They did that really beginning of 2017. I’ll
give you some anecdotes. I have friends that are some of the biggest
art dealers in the world and they do these Art Basel shows, right. And
there’s an Art Basel in Miami. There’s an Art Basel in Hong Kong. And so, in the last couple of years, this
year in particular, my friend that sells all the fancy paintings,
not one Chinese buyer this year, not one. And three years ago, they were selling them
like hotcakes to the Chinese. So, they can’t get their money out. And they’re policing that very, very, very,
very closely. RAOUL PAL: But my guess is they can put the
money, as you said earlier, into Hong Kong, right? So, their first step was put into Hong Kong
real estate, right? You’re outside of China, because within
China, then you’re free. You liquidate the property or whatever you
do- KYLE BASS: And in theory, there’s a rule of
law on Hong Kong, right? It’s still a UK rule of law in theory. RAOUL PAL: In theory, exactly. Which we’ll
come a little bit on to in a sec. But I just have a feeling that that money is
flowing out. So, let’s say they sell real estates. It’s
mainland money that’s been there for 10
years. It now finds its way out because they’re
looking for more security. So, it goes to Vancouver, it goes to Sydney
or wherever. KYLE BASS: Imagine if you’re a Hong Kong
family that has been there for generations. And let’s say you’ve built wealth over time.
You would have to be foolish. And in a freely convertible market, you’d
have to be foolish to leave at Hong Kong
dollars given the macro economic instability of Hong
Kong. And what happens in a peg where 36
years, there’s no volatility, right, no volatility
begets no volatility until it doesn’t. But if you look at the macro, if you had your
entire wealth invested in Hong Kong dollars, in Hong Kong stocks and bonds, and I sat and
talk with you and explain to you how bad the macro is, and then you say, well, it’s
probably going to be a political situation. I don’t care. I’d rather own US dollars
tomorrow, and not be on the hook or at risk of my home
currency collapsing. RAOUL PAL: So, let’s talk a little bit about
risk in terms of the rest of the people in Hong Kong. Because
we talked about autonomy, we both sniggered about autonomy in Hong Kong
because it feels like and from friends of
mine in Hong Kong as well and you’ve got friends
in Hong Kong- that autonomy is going fast. KYLE BASS: So, last night, I had dinner with
a friend that just sold both pieces of real estate that he had there and he moved
his family to London. RAOUL PAL: Oh, really? KYLE BASS: Gone. He grew up in Hong Kong,
generational Hong Kong family, the moment that China started actually
floating a proposal to be able to extra judicially grab someone off the
streets of Hong Kong and take them to China without any court
proceeding, that’s scaring the Hong Kong- not only the Hong Kong elite, but 85,000
Americans that live there, right? In the past, we all know that the MSS from
China grabbed booksellers that were writing
books about President G that he didn’t like, and
they came in the middle of the night, took him and ripped him, rip them back to
China. That was a political grabbing. And everyone was up in arms about it. And there were four booksellers that went
missing for a while, and then they resurfaced at some point in the
future, never to sell another one of those books
again. This is a different thing. The proposal in
the manner in which it is stated today, and Carrie Lamb’s government is the one
making this proposal. So, she’s not really democratically elected,
right? She’s chosen by President G to be the CEO of Hong Kong and she’s proposing
this, and her proposal is it states that
there’ll be a judicial review, i.e. if the crime that
is supposedly been committed by the
“fugitive” is a crime also in Hong Kong. So, let’s
choose murder, right? It’s a crime in both
places. If China calls the police station in Hong
Kong, and says Raoul committed a murder in China,
arrest him and send him over here. The court says their judicial review is okay,
is murder a crime here? Oh, yes, it’s a crime here, we’ve got- the
presumption is guilt. So, there is no court process to determine
whether or not this is a political movement or not or whether or not you actually
committed a murder. RAOUL PAL: So, how can people like Li Ka-
shing remain within Hong Kong? KYLE BASS: I think they have to leave. I
think it’s a real problem. My friends that are very well-off are
leaving. Now, if you remember Nancy Pelosi
just had a group of 10 delegates from Hong Kong here to
the States two weeks ago. And was very forceful with some language and
said, there are 85,000 Americans that live in Hong
Kong. And we are very concerned about the new
proposals that are being floated in the legislature in
Hong Kong. If this becomes law, more importantly, this
goes back to this word autonomy. The Brits agreement with Hong Kong and the US
agreement with Hong Kong, for instance, the 1992 US-Hong Kong Policy
Act is re-ratified annually. The State Department submits report to the
President and then it’s up to the President to either take the State Department’s
recommendations or do whatever he wants to
do. If he determines that they are no longer
sufficiently autonomous, we can treat Hong Kong as China. Well, that changes the entire complexion of
Hong Kong’s economy, meaning all of a sudden, all the tariffs, all the restrictions, all
the rules of trade that we engage with China
on, we start treating Hong Kong that way. Today,
Hong Kong is treated as its own sovereign. There are no tariffs, it’s free trade,
unabated free trade. And as long as, again, they maintain that
autonomy, we honor that agreement. If this law goes through, it is a clear
violation of our policy act and it’s a clear violation of the Brits agreement with Hong
Kong. That in itself will force- remember in 1995,
during the Tequila Crisis, what happened? What precipitated the Mexican decline? What
precipitated Thailand in ’97? It’s always one thing. It’s always the
wealthy lose faith or fear the government and they start moving their assets out. RAOUL PAL: Yeah. I was thinking too. It was
the same. KYLE BASS: That’s what happens. So, if the
wealthy in Hong Kong either convert to
dollars or start leaving, which I think both will
happen, then Hong Kong is finished. RAOUL PAL: So, what do you think? How does
this play out? So, we’ve seen the HKMA is running low on the
accessories. The currency is staples to the limit, so they
haven’t intervened almost every day. The US dollar as of today looks like it’s
breaking high and it’s going to get stronger, which will only put more pressure on this
situation. How does it play out? What’s going to happen
in this? KYLE BASS: I really don’t know. All I know is
the pressure that is being applied is not a- this is not anomalous, it’s not a one-off, it’s not they’re just caught up in the in the
tide of people moving to dollars everywhere and in Hong Kong, it’s not of its own
problems. You’re talking about the most levered
developed economy in the world with the most
levered consumers in the world with the most
expensive real estate in the world, all of a sudden, having a real problem. RAOUL PAL: So, why do people look at
Australia and Canada before they look at Hong
Kong? KYLE BASS: Again, 36 years of stability
begets more stability. It’s an availability heuristic, right? It’s
the way we think. RAOUL PAL: Because we all think that
Australian housing market is going to blow
up, the banking system is going to get trouble.
Canada, probably the same. There’s nobody talking this Hong Kong story. Everybody says, don’t be stupid because Hong
Kong will be fine. KYLE BASS: Yeah, well, if I were living in
Hong Kong with my wealth there, I would have already converted it and left. RAOUL PAL: And the currency is telling us
something every day, there’s money leaving that country and
nobody’s noticing. KYLE BASS: And you know what’s interesting?
The architect of the peg himself, Greenwood wrote an article just last week
published in The Wall Street Journal, I
believe. In it, he says, people are starting to
speculate on the Hong Kong dollar. They’ve lost money for 36 years. They’ll lose
money again. It’s a perfect peg, nothing to see here. Then
why did you write the article? RAOUL PAL: Yeah, he can’t say these things. KYLE BASS: It’s just like when you incur-
going into the European crisis, he said Greece will not default. It’ll never
default. And then we didn’t have a meeting. And then a few finance ministers said, but we
just did- a reporter said, we just talked to other finance ministers
that were in the meeting. And they said, so you just lied to us? He said, listen, when it gets serious, you
have to lie. You remember that? RAOUL PAL: Yeah. KYLE BASS: So, like, no one’s ever going to
tell you this is coming. No one. RAOUL PAL: Before, it’s trading through. KYLE BASS: No. RAOUL PAL: That’s interesting. KYLE BASS: They’re still trading on rate
differentials. So, I think when they run out, then you get
the next move. RAOUL PAL: I don’t think people understand
quite the impact that if Hong Kong were to devalue or have to
abandon their peg, let’s say they’ve dressed it up as a, we want
to re-peg to the mainland. KYLE BASS: Yeah, that makes a lot of sense. RAOUL PAL: It would make- yeah, politically,
you can get away with it. But what that does is immediately put
pressure probably on the Chinese currency
itself, but across the region because Hong Kong
is/was one of the stabilizing economies because Hong Kong and Singapore- they’re the
two Free Trade Zones, you do that? It’s going to start devaluing all of the
currencies across the region. KYLE BASS: I don’t know. I hear you but I
don’t have an opinion on it truthfully. RAOUL PAL: No? KYLE BASS: No, I think that- RAOUL PAL: Maybe, it’s the knock-on effects
are enormous. KYLE BASS: They typically are. And nothing’s
ever- because subprime wasn’t contained,
right? No matter how big the problem is, there’s
never true firewalls, you remember that? RAOUL PAL: Your focus is on okay, this is the
one thing. KYLE BASS: Yeah, I think that the rate
differential is really interesting, and I think that if as a global investor and
as someone that looks at risk, the way you look at risk, if you’re- there
are a few people that this should appeal to. Number one, it should appeal to anyone that
has their wealth in Hong Kong dollars. They better pay a lot of attention here
because right now, it’s free to hedge
yourself. It actually pays you to switch to the other
currency. That doesn’t have all the problems that are
endemic in yours. The second group of people are the global
asset allocators, right? If you and I are running a pension endowment
or sovereign wealth fund, and we have money to your point allocated not
only to Hong Kong- Hong Kong, China, Southeast Asia, this will
be a destabilizing event. And so, maybe there’s a way you could hedge
yourself against that. There is one, right? And the most interesting thing about that is
the hedge pays you, you don’t have to pay for the hedge. RAOUL PAL: And so, HSBC. HSBC is an enormous
bank split between London and Hong Kong. So, surely, they’re doing the hedge, right?
If you’re the CEO of HSBC, you should to be switching all of your- can I
see, bizarrely enough, I do know one of the treasurers or the
treasurer of HSBC- I could probably find out, but somebody, they
would know. And they would have some idea what they will
do with their reserves. KYLE BASS: So, the funny thing is about Hong
Kong also, just think about it. The two largest banks in Hong Kong are two
orphaned children of British financial institution. That are bankruptcy remote. They’re firewalled from a corporate capital
structure perspective. RAOUL PAL: Obviously, in the UK and Hong
Kong. KYLE BASS: And they don’t have any British
depositors. So, yeah, I’d be worried if I
own- we don’t have any positions in any banks to
be clear. But I can promise you, I wouldn’t own either
one of the rest. RAOUL PAL: So, there’s another trade. So, back in my youth, I see a lot of these
equities pair trades. KYLE BASS: Long their parent, short the Dows? RAOUL PAL: Well, particularly because there
was the Jew listing. I remember, in fact, when I was a salesman, I
did, I don’t know, maybe $2 billion of this trade for equity before long term
capital, which obviously blew them up. But the point being is I don’t have a trade
any longer. But my guess is there’s the pairs trade
because you basically go the UK and say, the Hong Kong and said they trade at
the same price. They won’t trade at the same price in the
future because the Hong Kong entity, because it’s bankruptcy remote. I’ve tried a
massive discount. KYLE BASS: That’ll be for you to engage in
and not me. But it’s definitely an
interesting idea. RAOUL PAL: Yeah. So, I think- yeah, it’s
super interesting because lot of people just haven’t looked at
this yet. And I think what you’re on to is something
that nobody’s been talking about. I like the fact that most people will be
cynical about it as well. KYLE BASS: Oh, yeah. Look, one or 2% of the
people end up getting it right in things like this, right? RAOUL PAL: Yeah. That’s right. KYLE BASS: You look back to Switzerland going
through a strong side, you look back to the Tequila Crisis or the
Thai baht, or- there’s so many other situations that just
caught everyone by surprise. If you just took the time to analyze it, it
wouldn’t have caught you by surprise. And if you watched what the wealthy were
doing in all of those situations, you didn’t know what was going to happen. RAOUL PAL: So, the worst question of all,
time horizon? KYLE BASS: Yeah. It’s 36 years, Raoul. It’d be arrogant to say that you have any
idea with what’s to happen. RAOUL PAL: You can’t get away with saying I
have no idea. KYLE BASS: Okay. If 80% of the rainy-day fund
is burned up in a year’s time, in time continuum, just 12 to 18 months a
long time. I don’t think it’s very long. RAOUL PAL: No, I don’t think so at all. KYLE BASS: I don’t think 18 months from now,
you’re going to know what happened. RAOUL PAL: Yeah. KYLE BASS: You were going to know and it’s
probably sooner, I’m hedging. RAOUL PAL: Yeah, no, I get that. Yeah, I
think it probably is, if it’s going to
happen, it’s likely to happen relatively soon. KYLE BASS: Yeah. RAOUL PAL: Well, Kyle, it’s brilliant. Thank
you for coming back and unveiling the big trade. I think people
have been super interested by it. KYLE BASS: Thanks, Raoul. RAOUL PAL: Thank you so much for your time. So, there you have it, the big trade. It’s
Hong Kong. And that’s what interests me about Hong Kong
is I lived and breathed the ’98 Hong Kong dollar peg
crisis, and all the things going on. I know how people are scarred by this. Nobody
wants to take on the HKMA. But Kyle does, and I think that’s
interesting. It’s ballsy as well. But I think his thesis is sound. It’s
interesting, it’s unique. You don’t hear it a lot. Very many people are
dismissive. And like, I also know people will say, well,
Kyle said this about Japan, and Kyle said it about China. This is the game that we play. Not everything
comes to fruition. But when you’ve got an opportunity like this,
with a really skewed risk reward, you can make exponential amounts of money
when you get them right. Sometimes you don’t get them right. But the
point being is the facts, tip probability wildly in the favor of this
trade. And I think it’s interesting. It’s also interesting I asked Kyle- I said,
hey, Kyle, so tell us what trades you’re
doing. He’s like, well, the Coca-Cola gave away
their secret sauce. People want to know, but he’s not going to give us that. But what
I do know is- and I asked him in the
interview, there’s a lot of knock-on effects. And again,
he was lip-sealed on the knock-on effects, there are knock-on effects. I talked about
the Hong Kong dollar pairs trade in HSBC. There’s obviously abilities to trade the
currency. And there are the effects on the markets
around it. I think the Australian dollar, or whether
it’s the South Korean won, or some of the other currencies will get
caught up in this or whether it’s some stock markets, or you
can just distill it down to- if this happens, people are going to buy US
government bonds. So, buy bonds. Either way, there’s lots of ways of skinning
this cat. You can filter into your own investment
decisions, but I think it’s an important one and a
fascinating one. So, let’s see how it plays

100 thoughts on “🔴 Kyle Bass Explains The Chinese Currency Crisis As An Investment Opportunity

  1. Is Mr. Bass a successor of Gordon Chang, promoting the collapsing of Chinese economy, which has not come despite many books sold.

  2. I don't know half of what's being said here, but if there's something I fully grasp, it's "I don't care, I'd rather own U.S. dollars tomorrow and not be on the hook or at risk of my home currency collapsing."……

    What that tells me is that internally and externally, there is no confidence in the currency to invest in, and it's basically a balloon approaching a needle head, pop and everything inside to vanish, but in reality it was never there in the first place because you could never see it to begin with.

  3. Regular guy here looking for a trade?? I get it, Hong Kong is a ponzi scheme. So Short the chinese version of countrywide, who is that?

  4. If anyone has seen “The China Hustle” it’s merely a microcosm of China’s entire economy and government, China is losing their normally calm demeanor cause Trump is sticking to their ribs when for decades The cowardly beta male leaders in the West for too long starting with Richard Nixon bent over backwards, spreads their cheeks, and took it (I’d say deep but we’re talking about the Chinese) I believe Reagan would have rolled over China and buried them for good but was preoccupied with the Soviet Union and unfortunately for America, Reagan and the conservative movement didn’t have enough time bc starting in the 60s specifically white Americans with were beginning to soften so they failed to elect Barry Goldwater’s philosophy of limited government strong national defense would have decimated USSR by the time Reagan reached the White House leaving China and emergence of Japan for Reagan’s economic policies to crush their rise.

  5. The Social Media Control will kill the China economy also. What does the China Government want? Control of people or making their economy prosper.?? Maybe they can't operate in a market by rule of law and fairness.

  6. When they report China crisis are they talking about for the Corporations ,or for we the enslaved? I guess because the corporation pass down their debt on for us the enslaved will pay. They corporations claim we are at fault for everything they gamble with. Its all our fault. hahahaha like we have time to even breath The is a global game and we are the tokens used for their gain. I bought into Now I see the light Peace and Love beamed to all

  7. Where is Soros in the China equation? Without china soros loses leverage to steal from the us economy.

  8. Obama was warning about the Chinese manipulation of their currency but no one was paying any attention years ago while he was president….fact!

  9. Risky. PBOC will be a backstop to HKMA. So this trade wold be a bet against the PBOC.

  10. Great Watch , Informative Content , :liked and Shared , Wish I had a Currency Exchange closer . I see Opportunity Here 🙂 QC

  11. So Hong Kong is the goose that laid the golden egg….or all capital inflows to China come through Hong Kong…..so China steps in to up the fund to maintain the peg. China will do this to maintain the continuity in capital inflows. I see the currency peg not being broken.

  12. shorting British pound to pair with euro seems more real then this hkd play…

  13. mainland china is broke, borrowing 400-850bil from HSBC. they want/need hong kongs wealth

  14. Can you explain how a private corporation was known as the federal reserve and the private corporation BANK OF England can put both countries into deliberate bankruptcy, fraud is it not? and Hongkong banking is different or is it the same?nd can you explain the fractional banking corruption to us, please?

  15. So if we're to place a bet…. we're supposed to SHORT the HK Dollars? Say.. 12 to 18 months?

  16. Extradition happens only if the judicial system of Hong Kong approves. What Kyle said is false info. Anyway, the bill was taken off the shelf now.

  17. Sounds like these vulture financial companies have already shorted Hong Kong, and it explains why the Hong Kong turmoils are happening.

  18. What the world continue to forget or stay ignorant, is America and her close allies are pegged to a war economy!

    China does not do regime change and it’s not fair to treat her as an authoritarian state whilst the west profit massively from war!

    The double standards of the west is appalling!

  19. It's smart to hedge the HKD based assets by diversifying the portfolio to USD and Euro based assets, just as the Mr. Lee did a few years back. But to aggressively short the HK dollars may face the head winds from Mainland since PBOC will definitely provide HK the greenback it needs to maintain its financial stability. China still has about 3 trillion USD in its massive foreign reserve and can maintain it by generating trade surplus through exports. HK will exacerbate the capital outflow and loss of USD reserve in China undoubtedly, but I don't see an impending collapse in the real estate market or the HKD in the short term, though the trend is clear.

  20. All the hard work the people of Hong Kong did and do.its a shame the communist will come along and just out right take the freedom and wealth. That's big-time shit

  21. Dang Jao Ping? Funny. Can a corporation be sovereign? The big money left before 1998. Now the top commies have their retirement investments in HK, and they are F-ing themselves. Anyone extradited to PRC is likely to be used for organ harvesting sales.

  22. When I hear these so called experts talk about an investing opportunity, the first thing that comes to mind is do not invest in what they are pushing and the reason is they either have big holdings in the subject area and are losing alot of their wealth and they want millions invested so they can sell and recoup alot of their losses or they want the price to go up to a point so they can bail and make a bunch of money and walk away while the common folk lose everything. Don't be stupid these so called experts are not experts they are con men who pray on the stupid folk who believe everything everyone else tells them.

  23. Kyle, I enjoy these interviews, but more your financial expertise! I Really enjoyed your interview
    with Miles, the Chinese businessman. I still have Major questions, about his allegiance
    and motives…Keep up the Great interviews, Very enlightening!

  24. Kyle Bass: Troubling Times For His Strategy

    The head of Hayman Capital has significantly underperformed over the past decade

    Who would have expected a superstar of the financial crisis, with a return of 212% in 2007, to have trouble making mid-single-digits since then?

    Kyle Bass (Trades, Portfolio), a Texan hedge fund manager, has made some interesting bets over the past decade, but none have revived the old magic.

    What is it about his global shorting strategy that has gone wrong?

    Who is Bass?

    Born in Miami, Florida, Texas-basedD Magazine says Bass moved to Dallas as a child.

    His investment career began at Bear Stearns, in the field of event-driven special situations and short selling. He was promoted to senior managing director at age 28 before moving to Legg Mason. At the latter firm, for which he managed the Dallas office, he closely watched the housing industry. While in these two jobs, he saved enough to start Hayman Capital Management in 2006.

    After months of research by Bass and his team, they were ready to take on the then-burgeoning subprime mortgages industry. He short sold some $4 billion worth of subprime securities to the synthetic Credit Default Swap market.

    Bass' research and intuition proved correct, and an initial $110 million investment became a $700 million jackpot. That, in turn, led to a highly publicized appearance before an investigative committee in Washington D.C., where he provided a much-quoted analysis of the meltdown.

    What is Hayman Capital?

    Hayman Capital Management L.P., is a Dallas-based investment management firm that provides services to private pooled vehicles and separate accounts. It is solely owned by Bass.

    According to the Form ADV Part 2A, its investors are typically institutions, funds-of-funds, family offices and high-net-worth individuals.

    This firm is an umbrella organization for numerous other Bass-owned entities, including a Cayman Islands exempted company. These entities manage private funds, including the Hayman Funds, the China funds and the Hong Kong funds.

    In a Form ADV filing on June 5, 2017, the firm reported $815 million of discretionary assets under management. On Jan. 16, 2017, $63 million, or less than 10%, was in equities.


    Hayman invests in three types of opportunities:

    Macroeconomic trends.
    Special situations.
    Event-driven situations.
    It does not invest in real estate, perhaps appropriate for a fund manager who made his name by shorting the housing industry.

    They report the investment process starts with idea generation. Team members monitor a defined universe of sovereign actions, corporate events, global market conditions and internal and external sources.

    Then, the successful idea is evaluated on intrinsic value and on its risk and reward profile.

    Once past this hurdle, remaining ideas are subject to fundamental analysis of the economics involved, pricing discrepancies and identified catalysts. At this stage, they also assess country risks such as government, gross domestic product, capital account, political stability and currency.

    As noted, Bass became a star investor by recognizing and profiting from the subprime mortgage crisis. Since 2008, he has also made several other, seemingly brash, bets:

    Drug prices: This shorting campaign began in 2015, as Bass saw an opportunity to challenge drug patents, drive down the cost to consumers and make a profit for his firm. He had mixed success, and apparently little financial success. Business Insider reported in February 2016 that Bass had given back most of the $700 million he had raised from investors. It also reports Bass intends to keep fighting the patents.
    China: Bass was convinced the Chinese financial system is rotten, and so shorted the yuan. However, the Chinese system keeps rolling along and, under the current leadership, cross-subsidizations of all kinds are expected to continue. Linette Lopez of Business Insider points out that while the banks may be fragile, they are not conventional business enterprises and can be propped up as long the leadership deems it to be in the country’s interest. She says, “Sometimes, no matter how right you are, you're still wrong and you're still going to lose money.”
    Greece: The New York Post reports Bass supposedly made billions in 2012 by shorting Greece, but his fund gained only 16% that year.
    U.S. national debt, Greek debt, Japanese debt, Argentinian debt: No doubt much of the world is running up debt and will likely face a messy reckoning. But when? Bass thinks the reckoning should have come by now or will come soon. But most countries have found ways to stave off that reckoning, for the time being at least. In the meantime, he has struggled to get to mid-single-digit returns.
    Lightning has not struck twice for Bass. The strategy that gave him so much in the mid-2000s has failed him since then. Has he misgauged or do the counterparties on the other side of his shorts possess some knowledge that he does not?


    This chart shows the sectoral allocation of the three equities held in Bass’ portfolio:

    Kyle Bass sectors

    And this GuruFocus list shows the three equities:

    Kyle Bass equities

    Note the heavy holding in put options. These derivatives will rise in price if the price of Shire (NASDAQ:SHPG) shares fall. Note as well that Shire is a biotech stock and one of the targets of Bass’ shorts on drug companies.


    A couple of GuruFocus headlines tell the essential story of his performance:

    Kyle Bass – Stung By Losses, Hoping for a Comeback (Aug. 14, 2015)
    Troubled Kyle Bass Reduces Stake in NMI Holdings: Struggling hedge fund has experienced biggest losing streak in its history (Oct. 14, 2016)
    In 2007, Bass had scored a return of 212%, according to a 2015 Institutional Investor article, which goes on to note that he had not had a big win since then. It also reports the Hayman Capital Master Fund had posted an average annual return over those eight years of just 1.56%.

    This TipRanks chart shows how bad things have been for the whole firm over the past five years:

    Kyle Bass performance 5 years

    As we have seen with so many other gurus, adapting to a long bull market is tougher than it appears. Bass’ business model worked so well for one big crisis, then produced rocky returns for succeeding years.


    John Maynard Keynes famously said, “The market can stay irrational longer than you can stay solvent.” He said that after personally misjudging the currency markets and enduring a major loss.

    Over the past 10 years, Bass has done his homework and invested in situations ripe for shorting. However, the “markets” maintained their irrationality longer than he expected and, as a result, he lost many bets.

    Value investors might learn from his experience. Investing in the belief the market must correct itself is a risky gambit. I am one of many who has predicted an end to the bull market for a couple of years now. Fortunately, I have not acted on the hunch so far.

    Further, investors should be prepared to tweak their strategy over time, assuming the strategy has a solid base; if not, a new strategy should be considered. Mr. Market always has his own ideas and will continue to surprise us as long as we invest.

    Have a nice day reading this betting guy Kyle Bass, who’s causing his clients lost opportunities… especially when the market is in turmoil right now when there’s so much money to be made. Kyle’s seems out of his depth predicting the current market…

  25. No socialist system can last if it’s not propped up by debt. Now the Chickens are coming home to roost in China.

  26. The over-leveraged HK property bubble is extremely scary. Time to short HK Dollar?

  27. Guys, you in the US have been predicting China's economic collapse since the 1990s.
    It's 2019 and we're still waiting.
    While we keep on waiting I suggest you look for a job you actually understand something about.
    Clearly you don't know chinese economy, nor you understand the essential differences between a free market capitalism and a state run capitalism.
    Since you don't understand the core subject, there's no way your predictions can be anywhere close to being accurate.

    Please amuse me some more with your doom prophecy while the only doom you're spelling is the one on your credibility.

  28. So short the HK stock market? How as the revolution going on affected this situation?

  29. why is chinese real estate so expensive when only a small group of people can afford to buy it? China is a nation of SCAMMERS!

  30. The Chinese bought real estate EVERYWHERE. The wealthiest areas of Long Island are being taken over by the Chinese. They have literal suitcases of cash and buy homes in cash.

  31. Should have just nuked them in 48.
    Oh well. 75years late is better than never. Bring on 2024.

  32. Another great video from Real Vision! I have a question for the folks there (or for any finance professionals out there in the comment section): what kind of education would you recommend for a non-finance professional that’s completely fascinated by these topics and is trying in his off time to play catch up? I would love to hear more about the kind of education(s)/background(s)/resources guys and girls like you have access to and best practices on how to use them.

    Ps a dream of mine would be a video series from Real Vision contributors teaching cavemen like me the fundamentals of: the economy, banking/lending, credit/debt, currencies (ie pegs), various financial bodies and the respective spheres of influence (ie investment banks vs private equity vs hedge funds vs insurance agencies etc etc).. basically a “Masterclass” series, starting with the most basic concepts and eventually ramping up to the higher level concepts so that one day folks like me will be able to fully appreciate the depth and scope of the information presented in these interviews.

  33. hong kong and china are dying , how can one earn some spare cash during this times ?

  34. Super interesting….here we are early September and US treasuries have exploded higher…..is this why?

  35. The unintended consequence of multiple actions all over the world.. they visit is together and bingo

  36. Hong Kong real estate dropped 70% in value from July 2nd of 97 to the beginning of 2003. Guess what happened in the beginning of 2003, an outbreak of SARS on March 11th of 2003, then a relatively unknown disease. I believe SARS was responsible for at least 50 of the 70% drop.

  37. Now, I realized that one road one bend and massive tourists that China pouring into the world wide are all using to laundry over printed RMB the grass paper to US dollar.

  38. China will definitly maintain 1 country 2 systems in HK, as long as HK exchange market opens normally, china will Not intervene. riots may last for months, political strugle goes on meanwhile HK police and governor will Not tolerate violence in airport and financial district.

  39. I'm not looking forward to the next US recession, but I am looking forward to shorting during the next US recession. Once SHTF everyone is going to pull their 401k and then the passive investment bubble will show up.

  40. Wait a minute…he's encouraging a short bet against HK and he has no opinion as to whether or how that might effect other Asian currencies?

  41. What ??? Is the Big trade for Hong Kong ??
    Understood the whole interview. What specific vehicle is it reccomending based on Hong Kong’s vulnerability

  42. To break current reserve currency system (dollar)… it is all about politics and will in the end. Can be done. But unfortunately, with countries with nuclear weapons, such politics and will can have very serious consequences. Nobody wants US, Russia or China to break down economically or politically. That's when we get our answer to infamous Fermi Paradox.

  43. Iran just announced to use chinese yuan in stead of US dollar for their oil and team up with other five countries to de dollar and promote yuans. So what you think about it Mr Kyle Bass?

  44. Hmm… interesting idea.. but it is not exactly what ppl there thinking of the currency system.. as he said.. every HKD7.8 is backed by US1. … it sounds nothing to usual people.. the magic is that it is actually a pool of money there.. you invest (inflow) more, the pool size increases.. if you take your money back (outflow), the pool size decreases. The critical thing is that you can withdraw only how much money you have invested at time zero. The pool size will eventually come to a level that purely contributed by HK's own money.

  45. If democracy comes to China that will restructure as well as political and geographical . They lose their power

  46. What are your thoughts on the proposal for Hong Kong to purchase the London Stock Exchange? This is going to tie UK's money with Hong Kong. My opinion is that this is a long term bad deal for the global economy.

  47. To my way of thinking all money is born as debt at banks through a mischievous point of law that is forcing criminal activity – that money is then owned not by you as the borrower, but by the bank as the agent that created the money on a keyboard out of nothing since the reserves are never lent. Since banks own that money under law they can set the terms for payback, then complain, add pressure to the government when not enough of the amount owed to them is paid back by the populace, or it cannot be paid back. Add to that the fact that they sell your debts in any case to make money on it since they own that money remember ( you signed over ownership of it upon its creation by the bank). The upshot of this since they sold the mortgage that they own which was authorised by yourself they have already received that mortgage payment back so why are they still asking you for it? That might be illegal to do as it represents theft since they are taking money that is not owed to them since they sold said debt to the debt market. They have been paid.

  48. Kyle states 80% of Hong Kong's $170 Billion HKD HKMA has been used? So HKMA is left with $34 Billion HKD? HKMA as of today stands at $448 Billion USD. Which is give or take $3.5 trillion HKD. Is he making up numbers or am I missing something?

  49. I was thinking of using a Chinese company for a manufacturer. Head Office was in Hong Kong – Manufacturing was just 50 KM away in Mainland China. I had to pay them in USD. I could not pay them in CNY or HKD. So mainland China has purposefully made Hong Kong into a service economy – being the business front and money funneler of USD into the Chinese economy. Hong Kong companies are not allowed to have manufacturing in China – and still do business in HKD or CNY. If they want to have manufacturing in China and an Office in Hong Kong – they have to do business in USD – otherwsie they cannot do business. When Hong Kong was British run they could be an import export company – not have businesses in China – but do business with China. Now it is Chinese run – the Hong Kong companies were forced to move part of their business to China – then start doing import export in USD. And this was a requirement from the Chinese government… To weaken the power of the Hong Kong businesses. And to move the economic power of HongKong to mainland China. Part of Mainland China's power is from forcing Hong Kong companies to invest in mainland China… moving Hong Kong's economic might into China… and forcing Hong Kong to be the Financial Port for Mainland China. You cannot do import Export business with a Chinese company – unless you do it through Hong Kong – and you can only do business in USD.

  50. When the bubble burst for Japan – what happened? It will be 10 times worse when the Hong Kong / China bubble bursts.

  51. I get the idea that some people think that USD in Hong Kong stops and circulates in Hong Kong. It doesn't… it sits in Hong Kong for about 2 days then moves into Mainland China. So to see the USD peg to HKD – is not correct. The Hong Kong USD peg is Mainland China buffering a CNY to USD peg. So it is more than just a Hong Kong currency / economic issue – it is a mainland China issue. So mainland China uses Hong Kong as a buffer and a funnel to get a hold of USD.

  52. Interesting that Singapore was mentioned – That is another country with an over inflated real estate market… And guess who inflated that real estate market? And the same goes for the Australian Real Estate market… and Canada… China. So if Hong Kong goes – So will Australia and Singapore and Canada.

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