In the wake of the March 29 dissolution of Venezuela’s National Assembly, an act that was widely condemned as a coup by President Nicolás Maduro, the economy of that poor, socialism-ravaged country has continued to circle the drain even as opponents of Maduro have taken to the streets day by day to demand their nation back, shouting “No more dictatorship!” Hundreds of thousands of protesters have filled the streets of Caracas and other cities; on Wednesday of last week, which saw the country’s largest protests in years, over 300 protesters were arrested, and pro-Maduro cops, gangsters, and soldiers have caused several deaths. (As of last Friday, the number of fatalities had risen to at least twenty.) Increasing, the capital has resembled a battle zone, with protesters setting up “burning barricades in several neighborhoods” and the military patrolling the night streets in “light-armored vehicles.”
Maduro himself, who has rejected the idea that the dissolution of the legislature constituted a coup, has said that, on the contrary, the protests against him – which in any free country, of course, would be protected by the right of assembly – amounted to a coup attempt. Vice President Tarek El Aissami has called Maduro’s opponents “terrorist leaders” and accused their followers of “fascist violence.” Another recent Maduro move was barring Henrique Capriles, the top opposition leader, whom Maduro has called “trash,” from running for public office.
Late last week, engineering student David Marval, one of the protesters in Caracas, told Bloomberg News: “Everyone is asking what the plan is….For me, you have to paralyze the entire city.” Informed observers ventured that “Maduro’s grip on power is weakening.” At a press conference, opposition legislator Freddy Guevara said: “Twenty days of resistance and we feel newly born.” Raquel Belfort toldTime Magazine: “This is the moment….People are sick of this….we’ve touched rock bottom. I think if we take to the streets every day we’ll end this government.”
Yet in an April 21 article for The Week, Pascal-Emmanuel Gobry suggested that an end to Maduro’s tyranny is not yet in sight. Venezuela, Gobry lamented, “cannot wake up from its socialist nightmare.” Maduro, he maintained “increasingly looks like a ‘Bolivarian’ version of Vladimir Putin, holding power through corrupt patronage, fear, and the smothering of alternative voices and power centers.”
Gobry served up a welter of chilling statistics about Venezuela’s “rotting” economy: “The economy shrank by 18 percent last year, with unemployment at 25 percent, and inflation slated to be 750 percent this year and 2,000 percent the next.” The very real human toll of this socialist disaster is reflected in the fact that during the past year, “74 percent of Venezuelans lost an average of nearly 20 pounds each.” Also, “children are suffering from malnourishment for the first time in the country’s modern history” and “hospitals are running out of even basic drugs.” On April 20, the Wall Street Journal reported that many Venezuelans are, quite simply, too hungry to join in the protests.
Among the recent casualties of the economic free-fall was an announcement on that same date that General Motors, in reaction to a government seizure of one of its factories, was withdrawing entirely from the country, where it has thousands of employees. Oh, and let’s not forget that Caracas is now “the murder capital of the world.” All this in a country with extraordinary human and natural resources that was once, hard as it may now be to believe, on the verge of having a First World economy.
Another month, another new low for Kyle Bass, the favorite hedge-funder of Argentine autocrats.
First, a quick recap. Bass, who founded his Dallas-based fund, Hayman Capital Management, in 2006, made his fortune – and international headlines – by correctly predicting the 2008 subprime mortgage crisis. For a while there, he was a superstar. He was M. Night Shayamalan in 2001, coming out of nowhere to get nominated for both his script and direction of The Sixth Sense. Observers jumped to the conclusion that Bass was some kind of genius who could do no wrong.
But time went on.
And time has not been kind to Kyle Bass.
The magic touch – if he ever had it – is long gone. Just as Shayamalan has made bad movie after bad movie, Bass has made bad call after bad call.
And he’s done it in full view of the market-following public. The guy seems never to turn down an invitation to go on TV and pontificate – proffering so-called “analysis” that invariably serves his own bottom line.
In addition to making bad calls, he’s made unsavory alliances. While pretty much everyone else in the business thinks that the economically illiterate Argentinian despot Cristina Fernández de Kirchner is the worst thing that ever happened to her country’s economy, Bass can’t stop singing the woman’s praises. Last year, her country defaulted on its sovereign debt for the second time in thirteen years – an action at once indefensible and irrational. But, as we’ve seen, Bass defended it and rationalized it anyway, sounding so outrageously out of touch with reality that, as the New York Post put it, he sounded more like Argentina’s leftist economy minister Axel Kicillof than a U.S. hedge-fund manager.
If Bass came off like one of the hyper-socialist Kirchner’s lackeys and minions, that should be no surprise – because he is one of her lackeys and minions. The BBC has said he has a good relationship with her. That’s putting it mildly: Bass has consistently championed her preposterously irresponsible economic policies and has delicately ignored the cartoonish degree to which she and her breathtakingly amoral cronies have ripped off their own people.
And he’s gone even further than that: when New York Judge Thomas Griesa ruled that Argentina couldn’t just shell out to creditors who’d agreed to settle for reduced amounts, but also had to pay creditors – including Paul Singer of Elliott Management – who insisted on full payment, Bass took Kirchner’s side, calling Singer & co. “immoral” for, as he put it, “holding poor countries as hostages” and “holding up 42 million people from progress.” As we’ve said before, what’s really holding up progress in Argentina are Kirchner and her staggeringly incompetent and corrupt flunkies, whose economic illiteracy and limitless avarice have sent poverty levels sky high in a once affluent nation.
The question is: why? Why is Bass such a Buenos Aires bootlicker? Why is his nose a bright salmon pink from rubbing it up against the walls of the Casa Rosada? What kinds of secret, unscrupulous deals does he have – or want to have – with the you-scratch-my-back-I’ll-scratch-yours Kirchner dynasty?
Bass’s shady ties with Kirchner and her crew aren’t his only ethical lapse since his fifteen minutes of glory. This is, for example, the guy who, in order to make good on his investment in General Motors, went on TV to try to shift the blame for fatalities caused by non-deploying airbags and faulty power steering in GM cars – problems that the auto giant knew about and failed to act on – onto the dead victims themselves, charging (disgustingly) that they’d either been drunk or failed to wear seatbelts.
Then there’s his business ties to the late Chris (American Sniper) Kyle, whose widow, Taya, is now embroiled in a messy lawsuit with one of Bass’s subordinates at Hayman, whom she’s accused of all kinds of unethical behavior. (Imagine!)
And this is also, note well, the guy who, as we’ve reported, came up a year or so ago with a ploy so vile that both houses of Congress are now working overtime – on a bipartisan basis – to close up the loophole that makes it possible.
The scheme is as simple as it is loathsome: Bass – in collusion with one Erich Spangenberg, known as “the world’s most notorious patent troll” – picks out certain pharmaceutical firms, short-sells their stocks, then challenges one or more of their patents via a front organization, the Coalition for Affordable Drugs, that he set up precisely for this purpose. The inevitable result: the stocks go down, Bass rakes in a few million quick simoleons, and the pharma companies’ prices go up while their motive to fund medical research goes down – thus causing palpable harm to the millions of people who depend on those firms’ products to ameliorate their suffering, relieve their symptoms, or prolong (or even save) their lives.
But why care about the sick and infirm when you’re in a position to turn a buck?
When Bass first got called on this sleazy dodge, he insisted he was doing it for a noble reason: bust patents and competition will drive drug prices down. On close examination, his explanation didn’t really make sense – and it didn’t fool anybody. “There’s nothing in this man’s history,” pointed out James C. Greenwood, a pharma industry leader, “to suggest he has any interest in lowering health-care costs.” Scott McKeown, an intellectual-property expert, dismissed Bass’s claim that he’s actually trying to help patients. Bass, he said, was “simply hoping to spook financial markets to his benefit.” Nobody disagrees.
So transparent was his pretense of altruism, in fact, that Bass has dropped it and switched to another defense. In a response to a filing against him by Celgene, the pharma firm that’s been his biggest target, Bass acknowledged he was motivated by a lust for profit – but quickly added that pharmaceutical companies, too, are driven by financial self-interest. So what, he asked, is the difference?
Well, some people do see a difference, and they’re out to stop him. As we’ve noted, a government agency, the Patent Trial and Appeals Board (PTAB), is considering sanctioning Bass for abusing the system with his patent challenges. Also – get this – Celgene has charged Bass and Spangenberg with extortion. Spangenberg, apparently, sent Celgene drafts of patent-challenging petitions, saying, accordingto Bloomberg News, that “he’d file them unless given cash.”
Some observers might wonder why Bass, who for fifteen minutes there was the Wunderkind of the hedge-fund industry, would be engaged in such grubby hijinks. Why would a guy who’s flown so high and cashed in so handsomely sink so low in order to further line his already well-stuffed pockets? An August 13 article in Barron’s helps clear up that question. We already knew that Bass had lost his fabled magic touch. But it turns out things are even worse than we imagined.
Jim McTague tells the story: “Bass has had a dismal time of it recently….Suddenly, the former luminary can’t seem to get anything right.” While it’s hard “to know exactly how Bass’ funds are doing because he keeps his fund’s actual performance metrics close to the vest,” news reports say he “lost somewhere around 30% in 2014, the mirror opposite of the industry’s best-performing hedge fund managers.”
Thirty percent! No further questions, Your Honor.
McTague quotes a recent article in which Bass himself admitted to having had “a tough year.” “It’s nice to win all of the time,” Bass said. “When you are not winning and everyone else is, it makes life difficult.”
No wonder he’s pulling this chintzy pharma con and sucking up to Cristina Fernández de Kirchner, that despotic queen of the pampas!
According to McTague, Bass’s two current preoccupations are oil (everyone else to the contrary, he’s counting on prices to rise within a year) and Argentina (where, in McTague’s words, Bass continues to be “bullish where others are heading for the exits”).
Bass, reports McTague, refuses to talk about his and Spangenberg’s tacky patent ruse. Meanwhile, the latest news from Capitol Hill is that bills triggered by Bass’s activities have easily cleared both the House and Senate Judiciary Committees, with legislators hoping that by the end of this month a law will be on the books that “cut[s] the legs from under this particular Bass strategy.”
Once that happens, what’s on deck for Bass? What squalid swamp will he wade into next? What sordid small-time con will he cook up? We don’t hold his stock-picking powers in particularly high regard – not anymore, at least – but we’re bubbling over with confidence that this shameless bottom-feeder has a cornucopia of uniquely unethical make-a-buck stratagems left in him.
And, of course, if all else fails, he’ll always have Buenos Aires.
UPDATE, August 27: Only hours after this post went up, the Patent Trial and Appeal Board denied Bass’s first two patent challenges. The PTAB’s decision “sets a worrying precedent for Bass,” wrote Business Insider, which also noted this very illuminating response by Bass: “It should be axiomatic that people do not undertake socially valuable activity for free.” In Bass’s world, it’s all about the money.
A few weeks ago, we brought you the story of Kyle Bass, the best friend an Argentine autocrat could have.
Ever since he struck it rich on the subprime mortgage crisis, the mainstream media have paid plenty of attention to the moves and prognostications of the Dallas-based hedge-funder. In fact, you might even say that Bass has encouraged this attention, seemingly never saying no to an opportunity to appear on TV and share “analysis” that somehow always lines up with his own financial self-interest.
Take, for instance, the time he went on CNBC and called Argentina’s holdout creditors “immoral” for “holding up 42 million people from progress.” Never mind that what’s really holding up progress for the citizens of Argentina are the corrupt Kirchner caudillos, who’ve imposed disastrous economic policies on the country while simultaneously attempting to rob it blind.
No, Bass decided to ignore President Cristina Fernández de Kirchner’s wholesale corruption and ideological insanity. Instead, he chose to kiss up to the Kirchner regime by slandering her preferred bogeymen, the holdout hedge funds. Could it be that Bass, who has extensive investments in Argentina, was trying to curry favor with the Kirchners, who are notorious about giving sweetheart deals to hedge funds that help them do their dirty work? Could it be, indeed, that Bass already benefitted from such deals? Stay tuned.
In the meantime, let’s return to that word “immoral.” It’s an interesting word choice for Bass, given his own preferred investments. In another of his more infamous TV appearances, Bass was asked a question about General Motors. Once again, Bass, a major GM stockholder, provided “analysis” that lined up perfectly with his own financial self-interest. GM had been charged with creating a “culture of cover-up” by masking a defect that disabled airbags in certain models, causing passenger deaths. How did Bass defend GM? Easy – by blaming the victims:
BASS: Of those 13 deaths that happened, 12 of them either weren’t wearing their seatbelt or were under the influence of alcohol. And so, again, we don’t know what caused each of these deaths, and each of them I think has a multi-variable equation that goes into what happened. But I think that it’s really important to understand the narrative being told in the press versus, kind of, the factual narrative that yes, all deaths are tragedies, and human beings seem to think that tragedies could be prevented, or even greater tragedies. But in this case, I don’t think that the narrative is being told, because there is no upside for the press to tell the narrative to drive with your seat belt on and be sober.
How very moral of Bass, all this concern about the “narratives” surrounding these deaths. In any event, interviewer David Faber’s response left Bass stammering and quickly trying to change the subject:
FABER: That’s absolutely true, but others would say, you know, just because people may have been driving under the influence or not wearing their seat belt doesn’t mean they should be getting in a car where the airbags don’t work and the power steering doesn’t work.
BASS: Exactly…exactly. So the public policy issue is a much larger one.
Nice try, Kyle. Actually, the issue was not “much larger” but very simple and straightforward: GM was aware of safety concerns but failed to act on them. And Bass’s effort to obfuscate and trivialize that issue for financial gain raises serious moral questions.
Bass’s latest investment strategy is of equally dubious morality: exploiting a new process called “inter partes review” to challenge pharmaceutical companies’ patents. As a pharma-industry newsletter noted recently, Bass spins his new stratagem as “noble” – he wants to take on pharma monopolies, spur competition, and thus lower drug prices. “A small minority of drug companies,” maintained Bass’s fund, Hayman Capital Management, in a recent statement, “are abusing the patent system to sustain invalid patents that contain no meaningful innovations but serve to maintain their anti-competitive, high-price monopoly to the detriment of Americans suffering from illness.”
In short, Bass, who created something called the Coalition for Affordable Drugs for the express purpose of carrying out his patent challenges, would have you believe that he’s acting in the interest of those Americans. But the truth is a little more complicated – and quite a bit darker – than that.
The first product Bass tried to wrench away from its manufacturer was Ampyra, which helps multiple sclerosis patients walk. The active ingredient in the drug, wrote Tracy Staton at Fierce Pharma, is an “old molecule” that was originally used as a bird poison; Acorda Therapeutics “did the work to make it useful in humans.” Unsurprisingly, after Bass filed papers officially challenging the patent, Acorda’s stock price dropped – and guess who made a tidy profit? Bass, who’d sold Acorda short in expectation of this highly predictable result.
Bass’s cynical new money-making scheme, of course, raises the question: with somebody like him hammering away at other people’s patents in an attempt to rake in a few quick, easy millions – and thus driving down the profits of pharma shareholders – what will happen to the motivation of drug companies to develop medicines that transform the lives of people suffering from grave illnesses?
Bass’s next move after Ampyra made this question even more urgent. His target this time was Imbruvica, one of the latest generation of cancer-fighting drugs, produced by Johnson & Johnson and Pharmacyclics. Unlike Ampyra, Imbruvica was a brand-new drug, having received FDA approval as recently as 2013. It’s considered a “breakthrough” therapy and has been called “[t]he drug that may make chemo a thing of the past.” Bass challenged a patent for Imbruvica that was granted just last year – for treating mantle-cell lymphoma – and that expires in 2031. After he filed his petition taking on the patent, the price of Pharmacyclics stock went down – and Bass, once again, enjoyed a nice payday.
On April 1, he struck again. He filed challenges against patents for not one but two drugs – Lialda, a treatment for ulcerative colitis, and Gattex, a medication for short bowel syndrome, both produced by Shire. Before the month was over, Bass had taken shots at several additional patents: for Thalomid, a leprosy drug; for Revlimid, an anemia medication; for Tecfidera, which has been called a “blockbuster multiple-sclerosis drug”; for Fumaderm, used to treat psoriasis; and for Xyrem, a narcolepsy treatment.
James C. Greenwood, the chief executive of BIO, a trade association representing “biotechnology companies, academic institutions, state biotechnology centers and related organizations across the United States,” has denounced all these moves by Bass. When Congress instituted the inter partes review system in 2012, charges Greenwood, it didn’t mean for it “to be utilized by those attempting to profit from the confusion the current system creates. Such efforts not only damage the value of companies working on cures – but hurts those sick and suffering patients and their families who are eager for cures.” Apropos of Bass’s claim that he’s doing all this to help patients, moreover, Greenwood has pointed out that “[t]here’s nothing in this man’s history to suggest he has any interest in lowering health-care costs.”
Indeed, there’s nothing in Bass’s history – his grandstanding about morality notwithstanding – to suggest that this friend of corrupt autocrats is about anything more than turning a profit.
Michael Lewis, the financial writer, has said that when he first met Kyle Bass, “I had an experience I’ve often had while listening to people who seem perfectly certain about uncertain events….One part of me was swept away by his argument….The other part suspected he might be nuts.”
Lewis isn’t the only financial insider who’s had a mixed reaction to Kyle Bass. The Dallas hedge-fund manager has, it must be acknowledged, won his share of praise. Once upon a time, indeed, he was considered something of an instant legend. Only two years after launching his own hedge fund in 2006, he struck it rich as a result of having predicted the subprime mortgage crisis.
For fifteen minutes, he was the hottest guy in the game.
Since then, however, things haven’t gone very smoothly for Kyle Bass. Far from it. In recent years – not to put too fine a point on it – his fund, Hayman Capital Management, has often performed disastrously. It’s had its ups, but some of its downs have been headline-making. In April 2012 alone, it lost 29% of its value. During the first quarter of 2014, it dropped by over 6%.
Time and again, Kyle Bass’s confident forecasts have proven wrong – often catastrophically so. Most famously, he’s been saying for years that the Japanese economy is an immense Ponzi scheme and that any minute now the market will catch on – leading inevitably to a debt crisis that sends bond yields sky-high and makes the yen all but worthless. In July 2013, he warned that this implosion would come within about two years – and would rock international markets so dramatically as to force the Western world to reconstruct its economic order from the ground up.
His doom-and-gloom prophecies for Japan, however, have yet to be fulfilled. And as time has gone by, more and more observers have clobbered his analysis. In May 2012, Joe Weisenthal of Business Insider called Bass’s take on Japan “totally simplistic and incorrect.” Noting that Bass bases his forecast largely on Japan’s debt-to-GDP ratio, Weisenthal pointed out that debt-to-GDP “is a lousy measure of anything” because it “just doesn’t tell you anything about interest rate risk or credit risk.”
After all, argued Weisenthal, foreigners hold plenty of U.S. debt, but this hasn’t sent the American economy into a tailspin; by contrast, Italy’s public debt is mostly held domestically, yet that country is headed down the tubes. Yes, Weisenthal acknowledges, “there are a lot of yen floating around the world,” but ultimately “that currency will find its way home.” This, in Weisenthal’s view, is what Kyle Bass doesn’t get:
For a country that borrows in its own currency, government spending finances borrowing! If Japan spends 100 billion yen on something, that’s 100 billion yen out there in the world that will eventually wind up in a financial institution, where ultimately 100 billion yen worth of JGB will be purchased.
Weisenthal also made this observation:
True sovereign bustups are not the result of accounting or numbers, but the result of some kind of social/political dysfunction. Japan is arguably the most stable society in the world, with low unemployment and a functioning economic and political culture. Thanks to the country’s population dynamics, Japan isn’t a growth dynamo, but there aren’t even the vaguest hints of instability. It’s not the kind of place where you’d see a meltdown.
Another expert who’s disputed Kyle Bass’s Japan scenario is Jesper Koll, head of Japanese equity research at J.P. Morgan Securities Japan. In Koll’s view, as paraphrased by Stephen Harner of Forbes, “Kyle Bass has not fully thought through some of his points, or has ignored contrary indications.” Yes, wrote Harner, the economic policies of Prime Minister Shinzō – who set a 2% inflation target and decreed a “Keynesian deficit spending stimulus” – might raise interest rates, but “there will be no crisis, and there may not be higher rates.”
Koll’s view, in short, is that Japanese government bonds “remain an attractive asset.” Koll made a number of cogent points – among them, that deregulation in several sectors of the Japanese economy could send productivity soaring and significantly boost the country’s economic health.
Curiously, while sounding a death knell for Japan, Kyle Bass has been bullish on – of all countries – Argentina. In September 2014, the BBC reported that unlike Moody’s and other ratings agencies, which were “very critical” of the regime of Cristina Fernández de Kirchner, “Kyle Bass believes that the current economic policy of the Argentinian government is the correct one.”
So gung-ho, in fact, has he been on investment in Argentina – which, it will be recalled, defaulted on its debt last year for the second time in thirteen years – that The New York Post commented on August 28, 2014, that Kyle Bass, addressing this subject on the previous day, had “sounded more like Argentina’s leftist economy minister Axel Kicillof than a U.S. hedge-fund manager.”
Was the Post on to something? Throughout Argentina’s debt crisis, Kyle Bass did come off not like a responsible financial manager but like a paid spokesman for the Casa Rosada (Argentina’s White House). As the BBC noted, Hayman Capital has a “good relationship” with Fernández – a leader who, like her late husband and predecessor, Néstor Kirchner, is notorious for her destructively socialist economic policies and her government’s staggering levels of corruption. The ruling by a New York judge that Argentina couldn’t dodge its debt to holdout creditor Paul Singer of Elliott Management was legally solid, but Kyle Bass wasn’t having any of it: Singer, he charged inappropriately, was “holding poor countries as hostages.”
Then there is his perplexing enthusiasm for General Motors. It’s been his biggest position for some time, although he admitted himself that a massive GM recall made 2014 “a tough year” for his firm. Still, he insisted that GM’s management was “doing a great job” and that the company was “much leaner” than in the 1990s. “By every metric” except the recall issue, Kyle Bass claimed, GM is “doing great.”
In February 2015, all his major moves having failed him, Kyle Basstried a new tack: selling pharmaceutical companies short and then exploiting a relatively new process, “inter partes review,” to challenge their patents. First he went after Acorda Therapeutics, whose major product is Ampyra, a treatment for multiple sclerosis, and whose stock fell nearly ten percent as a result of his challenge. It remains to be seen how this new move will pan out.
Meanwhile, Kyle Bass finds himself entangled in what may be America’s least enviable legal battle. A few years back, he went into business with the late Chris Kyle, subject of the recent film American Sniper and now a posthumous national hero; the enterprise has since gone bankrupt, and Chris Kyle’s widow, Taya, has sued a Hayman Capital attorney, making a host of serious charges, among them that he pressured her husband to surrender the rights to his firm’s now-iconic logo and that (in violation of Texas law) the lawyer never made clear that his ultimate loyalty was to Hayman and not Kyle. Also at issue are a loan on the Kyle family home and the profits from his bestselling memoir. However you cut it, it’s a shabby situation for a hedge-fund superstar to find himself in.
Briefly put, Kyle Bass’s star has slipped considerably since he made his name – and his fortune – on the subprime mortgage crisis. It seems fair to say that what looked for a while there like a Midas touch has turned out to be something more like a case of first-time gambler’s luck giving way to the usual Vegas pattern of loss after loss after loss.
Sure, he could still turn things around. Who knows? Stranger things have happened. But given his recent record, we wouldn’t bet on it.