Hedge fund investors like Kyle Bass like to bet big and win. Bass has been at the top of the investment industry for the last eight years. He bet the subprime mortgage industry was going to collapse in 2008, and that investment made him very rich. The 2008 financial collapse made his investors richer while the rest of the country tried to avoid bankruptcy. Bass didn’t waste any time building a hedge fund that produced excellent returns. He was riding high until two years ago. That’s when some of his investments started to fall apart. But he is convinced poor results are behind him now. His latest bet against China’s currency is a sure winner, according to Bass.
But China is a formidable foe even though the country is having its share of economic and financial setbacks. Bass believes China is going to be forced to use capital reserves once again to keep their banking system solvent. If they do use part of their trillions in capital reserves, the yuan will fall in value against the U.S. dollar and the German mark. If that happens over the next three years, Bass and his investment firm, Hayman Capital, will make another fortune. Hayman Capital sold 75 percent of the stocks in the fund’s portfolio and invested that money in shorting the yuan.
That investment is risky, but Bass lives to take risks. He risked his credibility when he took his friend Cristina de Kirchner side when she decided to default on Argentina bonds and leave four other hedge funds holding billions in bad paper. He took a big risk when he stood behind General Motors when people died because of faulty airbags and steering mechanisms. And he is taking another risk by betting that drug company stocks will drop when the news breaks that they are being investigated for price fixing. Bass is getting inside information from one of the instigators of those claims, Erich Spangenberg. Kyle Bass has a tarnished reputation, and his bet against the Chinese yuan is his comeback story. Bass needs something to bring his credibility rating back to the positive side, but betting against China is a dangerous way to do that.