The Chinese are a proud people. Most of the information that comes out of China is structured so the Chinese don’t lose face with the rest of the world. The Chinese economy was once the largest in the world, and the Chinese leaders want to hold that position again. But the Chinese manufacturing based economy started to stall a few years ago, and the government had to scramble to keep their Growth Domestic Product percent up to the new normal which was between six and ten percent. The Chinese government has been dipping into their massive cash reserves for more than 18 months, and investors like Kyle Bass say that’s a sign that there is something rotten in the Chinese economic figures. Kyle Bass is sure that China is going to hit an economic wall similar to the wall the U.S. hit in 2008, and he is betting millions of dollars that will trigger a massive devaluation of their currency.
Kyle Bass isn’t the only hedge fund investor that has millions riding on a Chinese economic meltdown, according to UsfulStooges. Several big hedge funds have placed the same bet, and they are just waiting for the hammer to fall on the Chinese banks. Kyle Bass thinks the Chinese banks have a huge amount of bad debt on their books, and the government will be forced to erase the debt using capital reserves. The Chinese are formidable foes, so Bass has a fight on his hands, but Bass is used to fighting.
But there have been other questionable bets that have left a very bad taste in the mouths of investors. When he sided with GM over the faulty steering mechanism situation, he lost credibility. When he sided with former Argentina President Cristina de Kirchner, he lost more credibility when she defaulted on her debt bonds. Chris Kyle’s widow claims the Bass hedge fund, Hayman Capital, is unethical, and some of the drug companies agree with her because Hayman Capital is betting against their stock using what some of them call, “inside information.”