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Gary Shilling: China's Problems Are The World's Problems
In an excellent interview with STA Wealth's Lance Roberts, A. Gary Shilling dives into a number of issues. From four more years of deleveraging to go to five potential major shocks that will force "an agonizing reappraisal and switch to "risk off" strategies" for most long-only equity investors, Shilling is cautious; but his biggest fear is China (for these 8 reasons)...
There are a number of shocks that would force investors into an agonizing reappraisal and a switch to a “risk off” strategy. Most investors with long-only equity portfolios don’t want to walk away from a winning game. Like most humans, they play until they lose, as was true of the dot com stocks in the late 1990s and the housing bubble-driven market in the mid-2000s.
Here are five potential major shocks:
- A financial crisis in China if she bungles her attempts to shift from an export-driven to a domesticled economy while opening financial markets;
- an escalating confrontation between Russia and the West over Ukraine and nearby countries;
- a spike in oil prices resulting from a blow-up in the Middle East or in Venezuela; and
- global contagion resulting from developing country woes.
- We’re not forecasting one or more of these shocks to materialize.
Nevertheless, in a slow growth world, they can’t be ignored since it doesn’t take much of a hiccup to turn meager growth into a self-feeding decline in economic activity.
However, the 800lb gorilla in the room is China. China’s problems are the world’s problems, and there are eight of them that singly - or more likely, in combination - could precipitate a major crisis
Shilling goes on to discuss:
- What is the real status of employment?
- Is the economy actually improving?
- Why the deleveraging cycle likely to last at least four more years?
- Is the "bond bull market" actually over?
- Has the Federal Reserve gotten itself caught in a liquidity trap?
Full interview here
Shilling Insight Letter...
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China already joined with Russia to destroy the petro-dollar. Now they will begin to eliminate Western directors from their 51% controlled corporate boards and then to eliminate global patent laws. It is a done deal. Everything is about timing in financial wars.
The NWO is on the run. Can't have HFTs either since they prevent the FED from total control of the markets.
Banksters prepare to jump.
One of his five potential major shocks is "we're not forecasting one or more of these shocks to materialize".. Hmm [scratching head]
that some juju.
What if he changed his mind and predicted a shock.
Omigod!!!
The bad news is; the good news was wrong?
I thought that comment rather odd. Like he was dreaming up events and came up one short.
Invest in China crap is coming to screeching halt. Americkan Corporations are going to get fucked .
I wanna see the Chinese drive Jeffry Immelt to the end of the pier without a dollar in pocket and no plane ticket home, then ordered to drop pants.
Only if your speculating in the dying industrial revolution. China last to industrilaise and reap the enviromental losses.
Money what is it yah.
No more focus on Black Swans. Black Bears and Black Dragons. If the need for Petro Dollars collapse, will inflation run rampant as dollars are repatriated?
Not good me thinks. Vlad has a pretty good hand at this table and we got nothing but Obama who is pissing off the dealer.
Fate the Magnificent
"Push the Button, Max"
Gary Schilling is the only one to my knowledge to have call BOTH "the subprime slime" AND the interest rate call.
With no economic recovery in sight pretty much for forever it's hard not to LOVE treasuries. Having said that there is what is called a "crowding out effect" as this single asset class does so well we just end of with no hope an economic recovery...let alone stare and wonder at what's going on "mo-mo monkey land."
Obviously the Fed will be "reverse repo'ing" for the next 1000 years as part of their so called "wind down" operations. How else to "pay" for War with Russia?
The Treasury mints a Trillion Dollar Coin. The holders of USTs screamed at the idea, but this is to buy real stuff and pay real people. Nothing important.
Another short term backing up in long rates from Fed exiting QE and traders sitting on buys to drive prices down to a point were short rates climb from money going up the curve searching for yield bargains? Reverse repo's within the Banking system to back out bank balance sheets and the lost war on perceptions?
Most Americans do not have a clue as to what is currently unfolding within China. Every country has unofficial lenders, but in China individuals, companies and even local governments who can not get loans from state-controlled banks have been on a borrowing binge from these unofficial sources.
China is awash in overcapacity and debt. After several years of growing debt loads concern is rising the whole unstable pyramid is about to come crashing down. This could bring China and possibly the global economy with it. The economic efficiency of credit has begun to collapse in China and the unwinding of China’s giant credit spree could be vary painful. More on China's credit trap below.
http://brucewilds.blogspot.com/2014/03/china-and-great-credit-trap.html
"a borrowing binge from these unofficial sources"
And, the discussion centers around whether or not the PBOC will backstop some of the shadow banking losses. I agree, that could be a true lead-in to moral hazard - unless they are very crafty about it. What if they backstopped all of the shadow banking losses by offering up all of their U.S. Treasuries as collateral? GI/GO Sure beats using them as wallpaper as QE4 ever is contemplated.
Most Americans do not have a clue as to what is currently unfolding within their country. Every country has unofficial lenders, but in USA large companies and banks get bailed out (by the Fed and the Government), and even local governments who can not get loans from state-controlled banks have been on a borrowing binge, whereas the middle class and fiat savers - the backbone of a healthy economy - get systematically screwed.
USA is awash in overcapacity (inventories show the way !) and debt. After several decades of growing debt loads concern is rising the whole unstable pyramid is about to come crashing down. This could bring the USA and possibly the global economy with it. The economic efficiency of credit has begun to collapse in the USA (and on a global scale due to ZIRP) and the unwinding of USA’s giant credit spree (e.g. the balance sheet of the FED) could be vary painful.
THEY ARE GOING TO NEED DOLLARS
agreed... when people finally figure out that credit is not cash, cash will be king and in extreme demand...
The emerging markets are just a scam to take your dollars away from you. China will crash just like the rest.
Well, I once saw a dusty old book that was published in the 1800's. It called a region in Asia an "emerging market". Just sayin'
Watered the raised beds, new shoots coming up. Harvested some kale. Fed the chickens. Cleaned thier pen. Turned the compost pile. Tons of worms! Gathered some eggs.
China has surpassed us in graft, corruption, pollution, factory deaths, factory maiming, floating pigs and consumerism. Go China! We're still number two...shit.
Also real estate speculation, depopulating the countryside and engineering failures. About where we were fifty years ago.
Throw out reason number four and I would swear I was reading about the U.S.
it is systemic and global and all traced back
to debt as money hinging on the trust
between strangers who do not
even know their own mind never mind the counterparty.
nice word, "counterparty".
winning ....
wasn't the whole point of money that you wouldn't have to trust strangers?
yes, that is the point of money.
hmmm ...
why has gold been associated with that
question? we may have to think and consider
beyond the notions of fanatics and immerse our
attention elsewhere? the time has come to think
for ourselves.
Remember to read between the lines on half truth propaganda news bulletins. They have been remobilizing efforts to disquise another attempt to rally global support. Ketchup horse face will unveil another laughable speech on foreign policy.
...
Households have to think, act, and invest long term.
Corporations and financiers in collusion with .gov collude to game households short term.
Since 2008 the authorities acted to prop up governments as well as the economy by saving the financial system. It is important to remember these authorities are politicians and bureaucrats that want increased power and influence.
They appear to have hit the jackpot by joining with the banks to create the "Financial-Political Complex." This promotes the current financial policy and supports banks that are "to big to fail" and yes then the banks can support the government markets. More about this unholy alliance in the article below.
http://brucewilds.blogspot.com/2012/10/the-financial-political-complex.html
Fast growth tends to mask flaws and weakness within a system, and China has been growing like a weed for years. In recent years many of the investment decisions in China were driven by politics and corruption. This has created massive overcapacity. Money has been poorly allocated and often shoveled into deep holes like ghost cities and bridges to nowhere.
We now see the 6.6 trillion dollar spending spree used as stimulus to combat global economic slowdown after 2008 is coming back to haunt China. This has greatly expanded credit and created huge overcapacity during the past five years. A massive debt crisis now looms as companies are struggling to repay loan taken to build factories that sit idle because of weak demand. More in the article below,
http://brucewilds.blogspot.com/2013/11/china-land-of-overcapacity-and-de...
Let nature take back.
The major exporters to China (such as Brazil and So. Africa) should be very worried.
The U.S. suppliers of mining machinery should, therefore, also be worried.
What I would like to know is how many things that we really need here in the U.S. are imported from China? Clothing, yes, since we no longer have a textile industry. Hard to think of many other things that are vital.
sex toys
The best way to concider what will happen in China is from the point of view of their leaders.
They no doubt want the 'party" (pun intended) to continue but they also know by now that the huge debts floating around in the system cannot go on for ever. The PBoC couldl just print its way out of this crisis and in doing so will devalue the Yuan but this will also drive up inflation of imported fuels and food. The resulting anger fom the population could be more dangerous for the leaders of china than an econmic crash.
I bet the Chinese leaders will chose deflation. The Yuan will strengthen and imports will be less expensive. The blame for the crash of the economy will be laid squarely onto the corrupt business men and lowly ranked regional politicians and government employees.
China will then peg their currency to a portion of gold, Russia will follow suit and then once Brasil and India have got their house in order , they also will join the cartel.
I am of course not betting on any of this actually happening but its one scenario that could unfold.
max
Mr. Shilling has been so right for so many years. Great work, Gary. Hopefully, in this rigged market world, your analytics continue hit the nail on the head.