Hayman takes a macro view into account in its investment decisions. In his 2008 investor letter, he said, “These returns are the product of many sleepless nights, intense governmental action, and countless discussions among our investment team with regard to our macro views." Currently, he sees the demise of Europe as inevitable and repercussions lasting for months or years. But he believes life, as well as investing, will go on.
Bass’ portfolio contains 12 stocks with a total value of $739.2 million. Most of the fund is invested in oil & gas, financials and technology. In his investor letter from October 2009, Bass explained, “Our investments are focused on asset-heavy businesses where we can buy into the right portion of the capital structure in advance of the restructuring.”
Bass bought two new stocks in the oil & gas sector in the third quarter. His largest new position, McMoRan Exploration (NYSE:MMR), is a oil and gas exploration, development and production company focused on the Gulf of Mexico and the onshore Gulf Coast region. It also deals with mining and production of sulfur. Bass bought 1.3 million shares at an average price of $14.17 per share. The stock, which has gone down 6.6% year to date, trades for $16 on Monday.
McMoRan has one of the largest acreage positions in the shallow waters of the Gulf of Mexico and Gulf Coast. For the nine months ended Sept. 30, 2011, McMoRan’s revenues increased to $4.3 billion, from $3.4 billion the first nine months of 2010. It also incurred a diluted net loss more share of $0.55, compared to a net loss of $1.17. The company had $642 million in cash at Sept. 30, 2011 and total debt of $561.6.
His second-largest buy, Imation Corp. (NYSE:IMN), is in the technology hardware & equipment sector. It develops, manufactures and markets products for color management, imaging and data storage applications, and has a $228 market cap. Imation’s revenues have trended downward for the last three years, and it had profit losses in 2009 and 2010. Free cash flow has remained positive, and more than doubled in 2010 to $143 million, a company record.
The stock has gone down over 40% year to date, and Bass bought 379,320 shares for about $8 per share, building on his position he initiated with 66,093 shares in the second quarter, for a total holding of 1,045,413 shares.
Oil & gas producers he sold out of include Exergy XXI Ltd. (NASDAQ:EXXI), Energy Partners Ltd. (NYSE:EPL) and Apache Corp. (NYSE:APA). He also exited all of his financials, including all of his Royal Bank of Scotland (NYSE:RBS) securities and KKR & Co. LP (NYSE:KKR).
Macro Calls and Japan
Bass believes that Japan is the next country where a crisis will erupt. They spend more than twice what they make, he said in a recent interview at the Darden School of Business. “The way that they finance themselves is that they sell a lot of bonds. And they’ve been able to sell those bonds to their banks, their life cos, their pensions, because they run a big current account surplus.so when you run a big account surprus, that’s new money coming into the system, that new money gets levered in the banking system. What happens is the levered new money buys the bonds to run the fiscal deficit. Well, when your current account dwindles as it does now it’s not sub-3% and your fiscal imbalance is north of 10, you can’t fund yourself anymore. And that’s where they stand at this moment,” he said.
Bass also believes that leaders of the EMU have lost control of the situation and it will not continue to exist in its current form. He sees more countries who contribute to the IMF becoming in need of aid from the IMF, which will exhaust its funds. Investors in sovereign debt are mistakenly believing that hard defaults cannot occur. However, he says in a letter from November 2011 that “financial history has shown repeatedly that waves of default are commonplace across a longer time horizon.”
Unlike doom and gloomers, however, he does not see his thesis playing out as the end of the world, but a temporary disruption.
To read more about Kyle Bass and view his portfolio, go here.