One of the big trades of 2015 has been to short the the euro against the dollar as the European Central Bank (ECB) becomes more aggressive with easy monetary policy and the US Federal Reserve begins to tighten policy with interest rate hikes.
The US dollar has been on a tear on this trend, and the euro has been tanking. And with the prospect of the ECB buying bonds, bond price have been surging and yields have been tumbling.
Kyle Bass goes contrarian
Raoul Pal has another great interview with Texan hedge fund manager Kyle Bass, the founder of Hayman Capital Management, available now on Real Vision Television.
During the quick interview, Bass answered a number of questions from Pal, including his best trade idea for 2015 and advice for new investors.
Bass thinks that those forming positions to trade quantitative easing (QE) in Europe might be caught by surprise.
“I think the market is misunderstanding European rates the most. I think the market is front-running Draghi,” he said.
He added: “I think the European economy is actually turning and looking pretty good, albeit from a very low base; and I think the people that are in there buying more and more bonds are going to be left holding the bag.”
His best trade idea right now for the rest of 2015 is European rates “So paying European rates and being short European bonds,” he said. (i.e. he’s predicting EU yields will rise, which to be fair, they have done since this interview was taped in the beginning of May.)
“We’d been dead wrong.”
When asked about the last major trade he got wrong and why, Bass went into detail about his bet that Japanese interest rates would rise, describing the thesis behind that trade and what happened after.
“We’d been dead wrong,” he said. “We really, really got that one wrong. And thank God we got the currency side right.”
Bass’ Japanese trade is one he’s famous for the last four-and-a-half years. There are two parts of the trade — Japanese rates and the weak Yen. The latter is playing out, but the former hasn’t worked… yet.
“My best advice…”
He also shared his best piece of advice for new investors, stressing the importance of humility and perspective, even in trades that theoretically should be working perfectly.
“My best advice is, you can’t bring your ego into this,” he said. “Meaning, if you have an ideology that’s well researched, well thought, and you have high conviction, and you’re wrong, you have to admit when you’re wrong.”
“I think if you bring humility into it quickly, it will save you a lot of money.”
Last year, Pal, a former GLG fund manager, launched Real Vision Television — an on-demand subscription video service providing a library of content on economics and investing. He did it because he wanted to have real, uninterrupted discussions with some of the brightest minds in the industry that you just can’t get with a soundbite on traditional financial television.