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Monday, June 17, 2013

Market Thought... China debt chatter saturation

The China debt chatter started getting heavier, but today it seems like its mainstreamed.

All-in-all, there is a consensus: local and business debt in China is out-of-wack with shadow lending, and interbank lending has spiked, but there is $3.4Trillion in reserves the Central Government will use to maintain social order. (Also, Chinese banks are really only exposed to themselves. So the risk of contagion is low. And the low consumer debt is nice too.)

The latest export numbers were bad. Or a signal that the Central Government is ready to clean house. After all, if they want the local provinces to establish a muni-bond structure, the local governments will need to develop trust with investors.

Will China see a hiccup de-leveraging one area of the economy vs stimulating or expansion-of-credit in other areas to support a more consumer driven economy?

For the last couple of decades the Central Government has been able to fiddle its economy like a violin.    

Confidence in China seems to have already waned w/the decline and clear divergence from the SP500.

However, its not so different from the rest of the emerging markets.

When chatter is mainstream, can either: 

1. feed on itself producing a cycle of negativity or euphoria

2. the market is already discounting the concern because everyone knows "it"

Looks like the latter is taking place here. 

If China allows this debt issue to hit their economy, it will cause a hiccup in Japan's efforts to re-flate. (But I do think, once Japan is done debasing the Yen, Europe will create a stimulus effort.)

(Here is a good write up on the situation, but the chatter is bountiful.)

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