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Kyle Bass warns QE end will shake up markets

Central banks meeting next week will expose a huge divergence in monetary policy between several major economies, putting the macro environment in focus and weighing on foreign exchange, hedge fund manager Kyle Bass said Wednesday.
The founder of the $1.7 billion hedge fund Hayman Capital thinks the Fed likely will taper its bond-buying stimulus to zero next week. The Bank of Japan, however, likely will announce it will do whatever it takes to prevent the world’s third-largest economy from heading into a major crisis.
“They still run 10 percent fiscal deficits. We think they’re going to run a current account deficit of 2 to 4 percent next year and Japan is going to have to buy more bonds and the U.S. is going to buy no more,” Bass said on “Squawk on the Street.” “And so when the training wheels come off the market in central bank land, macro becomes functionally much more relevant.”
That divergence in monetary policy will undoubtedly weigh on Europe, too, which will be forced to “go all in to arrest their deflationary environment,” Bass said.

In turn, Bass thinks the U.S. dollar will gain strength.
Bass, whose Dallas-based fund is known both for large stock market investments and other idiosyncratic bets, drew attention earlier this year for his alarmist views on Japan’s economy. Needless to say, he continues to short the Japanese yen.

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