How can companies and investors avoid losing money as the global economy goes into a China-led recession? That’s the key question as we enter 2019. We have reached a fork in the road:
The central banks’ aim was set out in November 2010 by US Federal Reserve Chairman, Ben Bernanke:
“Higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.”
And the current Chairman, Jay Powell, rushed to calm investors on Friday by confirming this policy:
“We will be prepared to adjust policy quickly and flexibly and use all of our tools to support the economy should that be appropriate.”
His words confirm he equates “the economy” with the stock market, as the chart shows:
- The Fed no longer sees its core mandate on jobs and prices as defining its role
- Instead it has become focused on making sure the S&P 500 moves steadily upwards
- Every time the S&P 500t flirts with breaking the lower “tramline”, the Fed rushes to its rescue
Like Wile E Coyote in the Road Runner cartoons, the Fed has used more and more absurdly complex strategies to try and keep the market going upwards. But now it is very close to finding itself over the cliff edge.
CORPORATE DEBT IS THE KEY RISK FOR 2019
The Fed should have realised long ago that markets cannot keep climbing forever. Instead, by printing $4tn of free cash, it has temporarily destroyed their key role of price discovery. As a result:
- Investors now have no idea if are paying too much for their purchases
- Companies don’t know if their new investments will actually make money
We are heading almost inevitably to another ‘Minsky Moment’ as I described in September 2008,:
“Earnings from the new investments prove too low to pay the interest due on the debt. Confidence in the ‘new paradigm’ disappears and, with it, market liquidity. Investors find themselves unable to sell the under-performing asset, and suddenly realise they have over-paid. In turn, this prompts a rush for the exits. Prices then begin to drop quite sharply, as ‘distress sales’ take place.”
This time, however, the risk is in corporate debt, not US subprime lending. As the charts above show:
- The ratio of US corporate debt to GDP has reached an eye-watering 46%, higher than ever before
- Lending standards have collapsed with most investment debt in the lowest “Triple B” grade
Investors’ obviously loved Powell’s confirmation on Friday that he is determined to cover their backs. But they may start to remember over the weekend that the cause of Thursday’s collapse was Apple’s problems in China – about which, the Fed can actually do very little.
And whilst Apple won’t go bankrupt any time soon, weaker companies in its supply chain certainly face this risk – as do other companies dependent on sales in China. And as their sales volumes and profits start to fall, investors similarly risk finding that large numbers of companies with “Triple B” ratings have suddenly been re-rated as “Junk”:
- Bianco Research suggest that 14% of companies in the S&P 1500 are zombies, with their earnings unable to cover interest expenses
- The Bank of International Settlements has already warned that Western central banks stimulus lending means that >10% of US/EU firms currently “rely on rolling over loans as their interest bill exceeds their EBIT. They are most likely to fail as liquidity starts to dry up”.
CHINA’S CORPORATE DEBT IS THE EPICENTRE OF THE RISK
As the chart shows, China’s corporate debt is now the highest in the world. Yet it hardly existed before 2008, when China’s leadership panicked and began the largest stimulus programme in history.
The “good news” is that China’s new leadership recognise the problem, as I discussed in November 2017, China’s central bank governor warns of ‘Minsky Moment’ risk. The “bad news” – for the Fed’s desire to support the stock market, and for companies dependent on Chinese demand – is that they are determined to tackle the risk, having warned:
“China’s financial sector is and will be in a period with high risks that are easily triggered. Under pressure from multiple factors at home and abroad, the risks are multiple, broad, hidden, complex, sudden, contagious, and hazardous. The structural unbalance is salient; law-breaking and disorders are rampant; latent risks are accumulating; [and the financial system’s] vulnerability is obviously increasing.”
Companies and investors need to take great care in 2019. China’s downturn means that markets are starting to rediscover their role of price discovery, despite the Fed’s efforts to keep waving its magic wand:
- Companies with too much debt will go bankrupt, leading to the Minsky Moment
- The domino effect of price wars and lower volumes will quickly hit other supply chains
- Time spent today in understanding this risk will prove time very well spent later this year
Once the tramline is broken, the Fed and the S&P 500 will find themselves in Wile E Coyote’s position in the famous Road Runner cartoons – with nowhere to go, but down.
It’s 10 years since my forecast of a global financial crisis came true, as Lehman Brothers collapsed. I had warned of this consistently here in the blog, and in the Letters column of the Financial Times. But, of course, nobody wanted to listen whilst the party was going strong. As the FT’s world trade editor wrote at the time, commenting on the Queen’s question “Why did nobody see this coming”:
“Why didn’t people see it coming? Some did, Ma’am. Some did. But it doesn’t mean they were listened to. And there is a long history of people in authority running up vast debts without public accountability and eventually losing their heads. Let’s just try and get through this one without a civil war, shall we?”
That rationale, I understood. I was the “party pooper” warning of crisis for nearly 2 years. But people didn’t want warnings. And, of course, until we got to March 2008 and Bear Stearns collapsed, I couldn’t answer their all-important question, “When is this going to happen?”.
If you take the 4 great questions of life – Why, What, How and When – the ‘When’ question is really the least important:
- If you know ‘Why’ something is going to happen, ‘What’ it involves and ‘How’ it will impact, then ‘When’ is simply the detail that confirms the analysis was right
- But if you don’t want to know about a problem, its the easiest thing in the world to dismiss it by arguing “your comment is no use to me, unless you can tell me when its going to happen”
But I admit that what did surprise me, after John Richardson and I had written Boom, Gloom and the New Normal: how the Western BabyBoomers are Changing Demand Patterns, Again, was that people really liked our analysis of the impact of demographic change on the economy – but still ignored its implications for their business and the economy.
The above chart is a good example, showing the latest data from the US Consumer Expenditure Survey. It confirms what common sense tells us:
- Household spending is closely linked to age
- Housing expenditure is the biggest single expense for most people, and peaks between the ages of 35-54
- Transport and food & drink are the next largest spend, and peak at the same ages
- Health expenditure, on the other hand, peaks as one gets older
This is critical information for central bankers, companies and investors, given that consumer spending is 60%-70% of GDP in most developed countries.
Yet the only central banker who took it seriously, Masaaki Shirikawa, Governor of the Bank of Japan, was promptly sacked after premier Abe came to power. Printing money seemed so much easier than having difficult but essential discussions with voters about the impact of an ageing population, but as Shirikawa noted:
“The main problem in the Japanese economy is not deflation, it’s demographics. The issue is whether monetary policy is effective in restoring economic recovery. My observation is, it is quite limited.”
Equally, the second chart confirms that the US is also a rapidly ageing society, with 20m households having moved into the 55+ age range since 2000. And whilst the 55+ group’s spending has increased over the period, this is only because many of the younger BabyBooomers are still in their 50s or early 60s. So whilst their spend is declining, it hasn’t yet suffered the 43% fall that occurs after the age of 75 (by comparison with the peak spending 45-54 period).
Yet policymakers still insist that the 2008 crisis was all about liquidity, and had nothing to do with the impact of today’s ageing populations on spending and economic growth. And most companies also still plan for “business as usual”.
SO WHAT HAPPENS NEXT, AS THE DEBT BURDEN GROWS?
For obvious reasons, I disagree with these views. Of course, it would be lovely to find that today’s record levels of debt – created in the vain attempt to stimulate growth – could be made to simply disappear. I have read analyses by learned commentators arguing that central banks can simply “write off” their debt, and it will magically disappear.
But I have never yet found a bank or credit card company prepared to “write off” any debt that I owe them in this way. (If you know of one, please let me know, and I will pass on the details). And most of us know from personal experience that interest costs soon mount up, if you can’t pay the debt at once and have to finance it for a while.
So its quite clear that today’s record levels of debt create massive headwinds for future growth. At $247tn, it now amounts to 318% of global GDP. In reality, only two choices lie ahead:
- The past decade’s borrowing brought forward consumption from the future, so repaying the debt means growth will slow very dramatically – adding to the demand deficit created by today’s globally ageing populations
- Failing to pay back the debt risks creating chaos in financial markets, as we are starting to see with the crises in Argentina and Turkey, as lenders suddenly realise their loans cannot be repaid
But, of course, I can’t yet say exactly ‘When?’ this simple fact will finally impact the economy and markets. For the moment, as between 2006 – March 2008, I can only tell you:
‘Why?’ it is going to happen, ‘What?’ it involves and ‘How?’ you can recognise the warning signs.
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“Nobody could ever have seen this coming” is the normal comment after sudden share price falls. And its been earning its money over the past week as “suddenly” share prices of some of the major “story stocks” on the US market have hit air pockets, as the chart shows:
- Facebook was the biggest “surprise”, falling 20% on Thursday to lose $120bn in value
- Twitter was another “surprise”, falling 21% on Friday to lose $7bn
- Netflix has also lost 15% over the past 16 days, losing $27bn
- Tesla has lost 20% over the past 6 weeks, losing $13bn
These are quite major falls for stocks which were supposed to be unstoppable in terms of their market advances.
Of course, their supporters could say it was just a healthy correction and a “buying opportunity”. And they might add that so far, other “story stocks” such as Alphabet, Apple and Amazon are still doing well. But others might say a paradigm shift is underway, and these sudden shocks are just the early warning that the central banks’ Quantitative Easing bubble is finally starting to burst.
They might have a point, looking at the second set of charts:
- Twitter stopped being a major growth story as long ago as 2015, since when its user growth has been relatively slow, even going negative in some quarters
- Facebook stopped showing major growth in active users 18 months ago – and in 2018, it has been flat in N America and losing subscribers in Europe, whilst Asia and the Rest of the World are also heading downwards
- Tesla, of course, has been a serial disappointment. Its founder, Elon Musk, was brutally honest when founding the company in 2003, saying it had a 10% chance of success. Since then, it has mostly failed to meet its production targets. It was supposed to be making 5000 Tesla 3 cars a week by the end of last year, but according to Bloomberg’s Model 3 tracker, it is currently producing only 2825/week. Around 0.5 million buyers have paid their $1k deposits and are still waiting for their car – and Tesla needs their cash if its not to run out of money
- Netflix is another “story stock” now seeing a downturn in subscriber growth. Yet at its peak it had a market value of $181bn, with net income for this quarter forecast by the company at just $307m. Like Tesla, it was valued at a higher value than comparable businesses such as Disney, which have had solid earnings streams for decades.
The common factor with all 4 stocks is that they have a great “narrative” or “story”. Elon Musk has held investors spellbound whilst he told them of unparalleled riches to come from his innovation. This seemed to be the same with Facebook until the furore arose over the data user scandal with Cambridge Analytica. Twitter and Netflix have also had a great “story”, which overcame the need to show real earnings even after years of investment.
THE LIQUIDITY BUBBLES ARE STARTING TO BURST AS CENTRAL BANK STIMULUS SLOWS
In other words, reality seems to be starting to intrude on the “story”, just as it did at the end of the dot-com bubble in 2000, and the US subprime bubble in 2008. The key, then as now, is the end of the stimulus policies that created the bubbles, as the 3rd set of charts shows:
- Slowly but surely, the US Federal Reserve is finally raising interest rates back to more normal levels
- And more importantly, China’s shadow bank lending is declining – H1 was down by $468bn versus 2017
Even the European Central Bank and the Bank of Japan have signalled they might finally be about to cut back on the combined $5.75tn of lending, often at negative rates, that they pumped into the markets between 2015 – March 2018.
The issue is simple. All bubbles need more and more air to be pumped into them to keep growing. Once the air stops being added, they start to burst. And for the moment, at least, Facebook, Twitter, Netflix and Tesla are all acting as the proverbial canary in the coal mine, warning that the great $33tn Quantitative Easing bubble may be starting to burst.
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London house prices are “falling at the fastest rate in almost a decade” according to major property lender, Nationwide. And almost 40% of new-build sales were to bulk buyers at discounts of up to 30%, according of researchers, Molior. As the CEO of builders Crest Nicholson told the Financial Times:
“We did this sale because we knew we would otherwise have unsold built stock.”
They probably made a wise decision to take their profit and sell now. There are currently 68,000 units under construction in London, and nearly half of them are unsold. Slower moving builders will likely find themselves having to take losses in order to find a buyer.
London is a series of villages and the issues are different across the city:
Nine Elms, SW London. This $15bn (US$20bn) transformation has been ‘an accident waiting to happen‘ for some time. It plans to build 20000 new homes in 39 developments at prices of up to £2200/sq ft. Yet 2/3rds of London buyers can only afford homes costing up to $450/sq ft – thus 43% of apartments for sale have already cut their price.
West End, Central London. This is the top end of the market, and was one of the first areas to see a decline. As buying agent Henry Pryor notes:
“Very few people want to buy or sell property in the few months leading up to our monumental political divorce from Europe next March, which is why 50% of homes on the market in Belgravia and Mayfair have been on the market for over a year. Yet there are people who have to sell, whether it be because of divorce, debt or death, so if you have money to spend I can’t remember a time since the credit crunch in 2007 when you could get a better deal.”
NW London. Foreign buyers flooded into this area as financial services boomed. Rising bonuses meant many didn’t need a mortgage and could afford to pay £1m – £2.5m in cash. But now, many banks are activating contingency plans to move some of their highly paid staff out of London ahead of Brexit. Thus Pryor reports buying a property recently for £1.7m, which had been on the market for £2.25m just 2 years ago.
W London. Also popular with foreign buyers, even areas such as Kew (with its world-famous Royal Botanic Gardens) have seen a dramatic sales volume decline. In Kew itself, volume is down 40% over the past 2 years. And, of course, volume always leads prices – up or down. Over half of the homes now on sale have cut prices by at least 5% – 10%, and the pace of decline seems to be rising. One home has cut its offer price by 17.5% since March.
Outer London. This is the one area bucking the trend, due to the support provided by the government’s ‘Help to Buy’ programme. This provides state-backed loans for up to £600k with a deposit of just 5%. As Molior comment, this is “the only game in town” for individual purchasers, given that prices in central London are out of reach for new buyers.
The key issue is highlighted in the charts above – affordability:
- The first chart shows how prices were very cyclical till 2000, due to interest rate changes. They doubled between 1983 – 1989, for example, and then almost halved by 1993. In turn, the ratio of prices to average earnings fluctuated between 4x – 6x
- But interest rates have been relatively low over the past 20 years, and new factors instead drove home prices
- The second chart shows the impact in terms of first-time buyer affordability and mortgage payments. Payments were 40% of take-home pay until 1998, but then rose steadily to above 100% during the Subprime Bubble. After a brief downturn, the Quantitative Easing (QE) bubble then took them back over 100% in 2016
The paradigm shift was driven by policy changes after the 2000 dot-com crash. As in the USA, the Bank of England decided to support house prices via lower interest rates to avoid a downturn, and then doubled down on the policy after the financial crash – despite the Governor’s warning in 2007 that:
“We knew that we had pushed consumption up to levels that could not possibly be sustained in the medium and longer term. But for the time being if we had not done that the UK economy would have gone into recession… That pushed up house prices and increased household debt. That problem has been a legacy to my successors; they have to sort it out.”
- The 2000 stock market collapse and subprime’s low interest rates led many to see property as safer than shares. They created the buy-to-let trend and decided property would instead become their pension pot for the future
- The 2008 financial crisis, and upheavals in the Middle East, Russia, and parts of the Eurozone led many foreign buyers to join the buying trend, seeing London property as a “safe place” in a more uncertain investment world
- Asian buyers also flooded in to buy new property “off-plan”. As I noted in 2015, agents were describing the Nine Elms development as: ” ‘Singapore-on-Thames’. Buying off-plan was the ultimate option play for a lot of the buyers [who are] Asian. You only need to put down 10% and then see how the market goes. A lot of buyers are effectively taking a financial position rather than buying a property”“
But now all these factors are unraveling, leaving prices to be set by local supply/demand factors again. Recent governments have taken away the tax incentives behind buy-to-let, and have raised taxes for foreign buyers. As the top chart shows, this leave prices looking very exposed:
- They averaged 4.8x earnings from 1971 – 2000, but have since averaged 8.7x and are currently 11.8x
- Based on average London earnings of £39.5k, a return to the 4.8x ratio would leave prices at £190k
- That compares with actual average prices of £468k today
And, of course, there is the issue of exchange rates. Older house-owners will remember that the Bank of England would regularly have to raise interest rates to protect the value of the pound. In 1992, they rose to 15% at the height of the ERM crisis. But policy since then has been entirely in the other direction.
Nobody knows whether what will happen next to the value of the pound. But if interest rates do become more volatile again, as in 1971-2000, cyclicality might also return to the London housing market.
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More people left poverty in the past 70 years than in the whole of history, thanks to the BabyBoomer-led economic SuperCycle. World Bank and OECD data show that less than 10% of the world’s population now live below the extreme poverty line of $1.90/day, compared to 55% in 1950.
Globalisation has been a key element in enabling this progress, as countries and regions began to trade with each other. But now global trade is starting to decline, as the chart from the authoritative Dutch World Trade Monitor shows:
- After a good start to 2018, February saw trade fall 0.7% in February and 1.2% in March
- The major slowdown was in Asia, particularly China, as its lending began to slow
And then on Friday, President Trump confirmed the opening of his long-planned trade wars:
- He imposed 25% import tariffs on steel and 10% on aluminium from Canada, Mexico and the European Union
- Similar tariffs were already in place on imports from China, Russia and other countries
- America’s longest standing allies have since imposed their own sanctions in retaliation
- The stage is now set for a developing global trade war as more countries join in
PRESIDENT TRUMP IS IMPLEMENTING THE POLICIES ON WHICH HE WAS ELECTED
None of this should have been a surprise, as it simply follows the agenda that President Trump set out in his Gettysburg speech just before the election. His policy proposals then, which I featured here in depth in January 2017, were crystal clear about his objectives, as the slide shows:
- Those policies marked in red are now being introduced
- Only 2 of them – around China being a currency manipulator, and infrastructure – are still to be delivered
- Yet companies, commentators and analysts have preferred to ignore the obvious
It was clear then, and is even clearer today, that Trump intends to abandon the policies followed by all post-War Republican and Democratic presidents including Eisenhower, Reagan and Clinton, and summarised in President Kennedy’s 1961 Inauguration Speech:
“To those old allies whose cultural and spiritual origins we share, we pledge the loyalty of faithful friends. United there is little we cannot do in a host of cooperative ventures. Divided there is little we can do–for we dare not meet a powerful challenge at odds and split asunder.”
As I noted after Trump’s own Inauguration Speech in January last year, he broke very explicitly with these policies:
“We assembled here today are issuing a new decree to be heard in every city in every foreign capital and in every hall of power. From this day forward, a new vision will govern our land. From this day forward, it’s going to be only America first, America first. Every decision on trade, on taxes, on immigration, on foreign affairs will be made to benefit American workers and American families.”
BAD NEWS HAS ALWAYS LED TO MORE STIMULUS IN THE PAST
Unsurprisingly, financial markets have chosen to ignore this rise in protectionism. For them, bad news is always good news, as they expect the central banks to provide more stimulus via their money-printing policies. As the left-hand chart shows of Prof Robert Shiller’s CAPE Index (Cyclically Adjusted Price/Earnings ratio) since 1881:
- When Trump took office, the ratio was already at 28.5 – above the 1901 and 1966 peaks
- Since then it has peaked at 33.3, above the 1929 peak
- Only 2000 was higher at 44, when the end of the SuperCycle coincided with the Fed’s first liquidity programme to prevent any problems with the Y2K issue
The right-hand chart confirms the bubble nature of the rally:
- It compares S&P 500 developments with the level of margin debt in the New York Stock Exchange
- Until 1985, the Fed operated on the principle of “taking away the punchbowl as the party gets going“
- Since then, it has increasingly believed, as then Fed Chairman Ben Bernanke said in November 2010
“Higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.”
As a result, the S&P 500 has risen along with margin debt, which peaked at $659bn in January ($2018).
FINANCIAL MARKETS HAVE AN UNPLEASANT “SURPRISE” AHEAD AS CHINA SLOWS
It is therefore no great surprise that financial markets have continued to ignore developments in the real world.
Yet a decline in world trade, and the rise in protectionism, will inevitably produce Winners and Losers. This will be quite different from the SuperCycle, when the rise of globalisation created “win-win opportunities” for countries and regions:
- Essentially the deal was that consumers in richer countries got cheaper, well-made, products
- People in poorer countries gained paid employment for the first time in history by making these products
History also suggests President Trump will be proved wrong with his March suggestion that: “Trade wars are good and easy to win”. Like all wars, they are easy to start and increasingly difficult to end.
So far, financial markets have ignored these uncomfortable facts. They still believe that any bad news will lead to even more central bank stimulus, and a further rise in margin debt.
But as I noted last week, China – not the Fed – was in fact the major source of stimulus lending. Now its lending bubble is history, the party in financial markets is inevitably entering its end-game.
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As China’s shadow banking is reined in, the impact on the global economy is already clear, as I describe in my latest post for the Financial Times, published on the BeyondBrics blog
China’s shadow banking sector has been a major source of speculative lending to the global economy. But 2018 has seen it entering its end-game, as our first chart shows, collapsing by 64% in renminbi terms in January to April from the same period last year (by $274bn in dollar terms).
The start of the year is usually a peak period for lending, with banks getting new quotas for the year.
The downturn was also noteworthy as it marked the end of China’s lending bubble, which began in 2009 after the financial crisis. Before then, China’s total social financing (TSF), which includes official and shadow lending, had averaged 2 times gross domestic product in the period from 2002 to 2008. But between 2009 and 2013, it jumped to 3.2 times GDP as China’s stimulus programme took off.
It is no accident, for example, that China’s Tier 1 cities boast some of the highest house price-to-earnings ratios in the world or, indeed, that Chinese buyers have dominated key areas of the global property market in recent years.
The picture began to change with the start of President Xi Jinping’s first term in 2013, as our second chart confirms. Shadow banking’s share of TSF has since fallen from nearly 50% to just 15% by April, almost back to the 8% level of 2002. TSF had already slowed to 2.4 times GDP in 2014 to 2017.
The start of Mr Xi’s second term has seen him in effect take charge of the economy through the mechanism of his central leading groups. He has also been able to place his supporters in key positions to help ensure alignment as the policy changes are rolled out.
This year’s lending data are therefore likely to set a precedent for the future, rather than being a one-off blip. Although some of the shadow lending was reabsorbed in the official sector, TSF actually fell 14% ($110bn) in the first four months of the year. Already the economy is noticing the impact. Auto sales, for example, which at the height of the stimulus programme grew more than 50% in 2009 and by a third in 2010, have seen just 3% growth so far this year.
The downturn also confirms the importance of Mr Xi’s decision to make “financial deleveraging” the first of his promised “three tough battles” to secure China’s goal of becoming a “moderately prosperous society” by 2020, as we discussed in February.
It maps on to the IMF’s warning in its latest Global Stability Financial Report that:
“In China, regulators have taken a number of steps to reduce risks in the financial system. Despite these efforts, however, vulnerabilities remain elevated. The use of leverage and liquidity transformation in risky investment products remains widespread, with risks residing in opaque corners of the financial system.”
The problems relate to the close linkage between China’s Rmb250tn ($40tn) banking sector and the shadow banks, through its exposure to the Rmb75tn off-balance-sheet investment vehicles. The recent decision to create a new Banking and Insurance Regulatory Commission is another sign of the changes under way, as this will eliminate the previous opportunity for arbitrage created by the existence of separate standards in the banking and insurance industries for the same activity, such as leasing.
As the IMF’s chart below highlights, lightly regulated vehicles have played a critical role in China’s credit boom. Banks, for example, have been able to use the shadow sector to repackage high-risk credit investments as low-risk retail savings products, which are then made available in turn to consumers at the touch of their smartphone button. This development has heightened liquidity risks among the small and medium-sized banks, whose reliance on short-term non-deposit funding remains high. The IMF notes, for example, that “more than 80% of outstanding wealth management products are billed as low risk”.
Mr Xi clearly knows he faces a tough battle to rein-in leverage, given the creativity that has been shown by the banks in ramping up their lending over the past decade. The stimulus programme has also created its own supporters in the construction and related industries, as large amounts of cash have been washing around China’s property markets, and finding its way into overseas markets.
But Mr Xi is now China’s most powerful leader since Mao, and it would seem unwise to bet against him succeeding with his deleveraging objective, even if it does create short-term pain for the economy as shadow banking is brought back under control.
As Gabriel Wildau has reported, the official sector is already under pressure from Beijing to boost its capital base. Analysts are suggesting that $170bn of new capital may be required by the mid-sized banks, whilst Moody’s estimates the four megabanks may require more than double this amount by 2025 in terms of “special debt” to meet new Financial Stability Board rules.
Essentially, therefore, China’s lending bubble is now history and the tide of capital flows is reversing. It is therefore no surprise that global interest rates are now on the rise, with the US 10-year rate breaking through 3%. Investors and companies might be well advised to prepare for some big shocks ahead. As Warren Buffett once wisely remarked, it is “only when the tide goes out, do you discover who’s been swimming naked”.
Paul Hodges and Daniël de Blocq van Scheltinga publish The pH Report.
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