Japan will be consumed by a debt crisis surpassing the U.S. subprime crash, a leading U.S.-based hedge fund manager has warned, telling investors that "the beginning of the end has begun" for Japan's finances.
Over-indebted governments, and especially the precarious state of Japan's finances, set the tone for the high-profile Ira Sohn investment conference in New York on Wednesday.
Kyle Bass of Hayman Capital, a $1.8 billion Texas-based hedge fund and a noted Japan bear, said signs of the crisis had started to emerge, as banks and dealers become less willing to take the other side of negative bets from funds such as his.
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Mr. Bass said that the Japanese government was "insolvent" and described recent accounting moves that included issuing a new form of debt called Japanese compensation bonds as "adding a Ponzi scheme to a Ponzi scheme".
Mr. Bass, who was one of the hedge fund managers to famously bet against the value of subprime mortgage-backed securities in 2007, said that the quantitative argument was now complete, and that it was simply a qualitative argument about when crisis hit Japan. He predicted that inflation in Japan would hit 2 percent and that the yen would fall below ¥125 to the dollar.
Mr. Bass was not entirely bearish, however, as he extolled the prospects for Dex Media, whose stock promptly surged 22 percent to $16.72 in trading.
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Paul Singer of Elliott Management opened the conference with a bleak outlook for the global financial system. He said that "there are no safe havens" in today's markets, providing an overview of the world economy.