Consider the source. Joe W has a hard-on for fiat currencies and countries that can finance their own debt through the pressing of a button. He thinks the U.S. gov't doesn't spend/print enough, nor Japan, nor the U.K., and of course, the ECB is all that's holding back Europe from becoming Hong Kong. As I understand it, Bass' trade was structured to bet a little for a very large payoff. Obviously, EV was positive (as far as he saw it), but the vast majority of times was going to be a zero. Glad to have you back, and have it as I'm off to the golf course on this wonderful August day (can't believe how cool it is w/low humidity!).
I think Joe W cites ValueWalk as the original source here: http://www.valuewalk.com/2012/05/kyle-bass-japan-macro-fund-down-29-for-april/ If you're correct and Bass's trade was done through options as you describe, I don't really see how the fund can be down 61% since Jul2010 inception. I have been looking at the JGB trade myself recently and I concluded that there's just no cheap options there (looks like Hugh Hendry hoovered up the last remaining ones). Moreover, the dynamics and the timing are very very tricky. Thank you and it's good to be back.
I don't dispute the numbers, just Joe's shit-eating Krugmannite attitude. I've heard Bass talking about his positions in which he described trading desks quoting him (what he thought) were ridiculously low prices on put swaptions (or the like), paying little more than zero to say bet on JGBs yielding more than 5% sometime over the next decade - with the payoff being a ridiculous multiple of his cost.
If Bass structured the trade as you describe (buying very low-cost long expiry options), there's absolutely no way he could be down 61% from inception. Either the reported numbers are wrong or his trade was structured differently.
Isn't this the performance of a fund set up purely to make this long-term bet, rather than his main hedge fund?
And he still posts every week in a tone of voice that implies he knows what the hell he's doing. Amazing how someone can gather a billion dollars with no edge whatsoever, and high fees, when there are good traders and investors out there struggling to raise capital.
Bass talks an impressive game (I actually wish we heard from him more often) but it appears he had no history as a fund manager prior to his big mortgage bet. It's easily conceivable that he's falling into the same sort of trap that snared Paulson - his status and reputation is based on one big winning bet where he had some degree of inside info (IIRC Bass worked at Bear Sterns among others and had a front-row seat to what was going on). Perhaps when it comes to the nitty-gritty experience-based stuff of macro analysis, properly structuring, entering and managing trades etc. he doesn't have much edge at all.
Five billion dollars actually... As an aside, is there really a significant population of traders with meaningful (say 5+ years) track records of strong returns struggling in the dark because nobody will give them money? I can't say I've ever explored it because I've neither felt the need to raise OPM nor had millions just burning a hole in my pocket, but in this environment where the whole investor class is desperately searching for yield, with many big names drastically underperforming, or exiting the biz, or returning funds for want of opportunity etc. - you'd think every joe sixpack who can halfway-plausibly claim to deliver double-digit returns with minimal DD would be completely inundated with investor cash. Money is always more readily available than genuine trading skill. I bet a capital-starved trader could raise many millions even through a venue like ET, provided they have an actual track record to show - which is always the rub.