Marc Faber Fears No Soft-Landing Of China's "Credit Bubble Of Epic Proportions"

Tyler Durden's picture

"Investors should (and most don't) realize China is a credit bubble of epic proportions," warns an anxious Marc Faber during a brief Bloomberg TV interview. "China is not just a country, it's an empire," Faber adds, and warns that while some sectors may have growth ("just ask Yum Brands" he jokes), "but other very important sectors like industrial production aren't  growing at the present time." In fact, Faber warns "I don't think China's economy is growing at all," and while policy-makers may be able to "cushion the downturn somewhat," he warns that achieving any soft-landing will be "very difficult," even as he expects China to continue devaluing the Yuan.

 

Faber speaks to Bloomberg TV's Stephanie Ruhle,

 

Some key excerpts...

On the mythical soft-landing...

FABER: I think it's very difficult if you had the kind of bubble like you had in China, and the credit bubble, to then engineer a soft landing. You could maybe cushion the downturn somewhat, but the fact is I don't believe that the economy isn't growing at all, but I think that I have argued and this for the last 18 months that the economy was slowing down meaningfully, and that growth would be roughly at three to four percent, which it is at the present time, I would imagine.

Is China an accident waiting to happen?

FABER: Well it depends what an accident is in terms of definition, but I would say this. We have had very heavy capital flight over the last eight, nine months coming out of China. And if I had to bet on someone, the local knowledge or some economy somewhere in the world talking up China and how great it is, I would bet on the locals, who are shifting money out of China at the record level at the present time.

 

Secondly, the growth figures that the government are publishing do not match the reality, say exports are down, imports are down. Industrial production is down. Car sales were down. Maybe they stabilized for a while, but a lot of indicators are very negative. Railway freight traffic is down 17 percent year-on-year. You want to tell me that the economy is growing at 6.9 percent. It doesn't rhyme.

On China's gigantic scale and credit bubble...

FABER: I think many people don't understand that China has a population twice as large as the U.S. and Europe combined. It's not just a country. It's an entire empire. And you can have growth in some sectors of the economy. I have no doubt that some service sectors are growing, but other very important sectors like industrial production isn't growing at the present time.

 

If you really want to have a good view of the service sector and how well it's doing in China, ask Yum!, the fast-food chain in the U.S. They will tell you about their Chinese sales.

 

And the way the U.S. had sometimes a recession in California like in the early 1990s, and other states were growing, you can have in China some provinces growing and others contracting. And so and to measure economic growth in a country this large with that many people is very difficult. But say the evidence shows that it's nowhere growing at the same pace it was growing say between 2000 and 2007.

 

And what we have had in China, and this investors should realize, is a credit bubble of epic proportions. I have read economic history. I've never seen credit as a percent of the economy growing as fast as in China in the last seven years.

On whether Central Planning can 'fix' what ails the Chinese economy...

FABER: No, I don't think that it's very helpful, although I have to say if you look at China 40 years ago, 30 years ago and today, of course there has been huge economic development, partly because the government has relatively efficient at say moving people, and building roads and building the infrastructure up and so forth. So it's a mixed economy. On the one hand, you have very free capitalism. On the other hand, you have heavy government interventions

And in my view, the recent interest rate cuts will not be particularly helpful for the economy because we have had a meaningful slowdown already at the time they cut interest rates six times since last November.

On China's currency devaluation...

FABER: But coming to the currency, I think we live in a world where there is coordinated action by central banks to print money in the U.S., in the EU, in Japan, and of course also the Bank of England. They coordinate monetary policies, and as you know, the yen has depreciated very strongly against the U.S. dollar over the last three years. And I think the Chinese will adjust their currency down somewhat.

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JamaicaJim's picture

Great Mark

Take a stool softener....might help. Make sure it's not Made in China

El Viejo's picture

China and others have copied a peaking and dying American lifestyle. The Chart lines are now crossing. In America they are a little more patient than in China. China will have a revolution of epic proportions or start a war to divert attention.

NoDebt's picture

Exactly, El Viejo.  I don't agree with you often but you nailed that one.  They bought into the whole "better living through debt" thing just as it was starting to back up on itself.

That being said, Mark is not the most optimistic guy.  Collapse?  Maybe but I somehow doubt it.  I forsee a future where the Yuan is included in the "basket" or reserve currencies (it could be included in less than a year, from what I've been reading).  Once that happens, they can QE the shit outta things, buy bad assets and print that debt to oblivion with the rest of us rapidly-graying, busted-ass "developed" economies and then we'll all be slightly different versions of Japan together.

Bokkenrijder's picture

Hahaha, the biggest charlatan of all times, Marc Faber, is suddenly bearish about China.

BTW, what about all that Chinese gold..? Hahahaha!

Keep on hoping for and dreaming about a Chinese gold standard, it ain't gonna happen bitches! The only thing 'gold' are all those gold coloured iPhones that you see the Chinese walking around with.

Majestic12's picture

"Marc Faber Fears No Soft-Landing"

He also clearly fears Botox....

Seer's picture

Yup!  And...

I'm pretty sure that the energy equation was well understood way-back-when during the 50s when the "anti-communist" story gained political traction here in the US.  The aim was to subvert China, to get it to consume itself.  Without its own energy resources it would only be a matter of time before it collapses.  Rather than doing it via straight-up war, like with Japan and Germany (both losers because of a lack of energy- US had Japan checkmated right from the very start with the oil blockade [which then forced the Japanese to "start" the war with the US]; Germany failed to take over the Russian oil fields).  So, much easier to get the "opponent" to take itself out.  Spread the consumerism disease to China and then watch it quickly run out of steam.

Communism, or any other organizing structure, has ZERO chance against Wall Street and Madison Avenue.

Hulk's picture

Precisely. Demonstrates just how good our Marketing really is...

TideFighter's picture

Consolidation....at the mall, Christmas Trees, Costumes, and Turkeys.

Happy Hallothankmus to you.

Keltner Channel Surf's picture

The "Gartman of Bears", not as dumb, not a flip-flopper, but doesn't seem to comprehend the importance of timing, something traders can't afford to always be early by a decade on.

jump_mutha_fukah's picture

Hey KCS...noticed some unusual options action today in TNA weeklys, Pretty early volume of over 1K contracts on the 68 calls, large volume on the 65,66,67 puts...specifically the 65 and 67 (may be indicative of a spread), but nonetheless as of late rarely do weekly puts draw such large volume. The OI on the 68 calls was quite heafty to begin with for a weekly OI in any one given strike. Seems there may be some conviction for a downside move this week. Took the liberty of buying some 66 puts but will exit them soon(maybe on close or any big downdraft)...already short the calls from last weeks roll so not going too Chuck Norris here.

 

jump_mutha_fukah's picture

Maybe a mini H&S developing there on the RUT over the 10/7 till now on the daily??? Bear pennant off the lows perhaps(assuming RUT downtrend is still intact)? Hopefully we are not just consolidating for a push higher.

Maybe they will run out of the stops they have been hunting all day today and we get a nice swoosh lower.

Keltner Channel Surf's picture

Pardon the delayed reply, today was obviously going nowhere, it's the first day I stopped at 1:45 to take a nice walk in the lovely NE Ohio weather, 56 degrees, low humidity, sunny, perfect.

Central bankers did so much damage to charts, it could go either way, though I suspect what you're seeing in options may very well be either pre-FOMC/BOJ positioning/hedging, or perhaps the thought that the QQQs and SPY HAVE to fill that crazy gap and, if so, TNA would likely breach it's 20MA in sympathy, perhaps to 66 or so.  Though the BOJ leak suggests no action, unless our Fed surprises we may be in for one of the most untradable weeks all year as buy-siders fight for returns against bearish algos. 

You seem to have a strategy for all situations, my best move may be to not trade until clear signals arrive.  Still, I've rolled up my sleeves and revamped my intraday strategy with an exciting little tweak to my approach I'm dying to try, including a new indicator ideal for assessing hourly Keltner trecking and central MA bouncing, but as you know the past 4 weeks have been untradable as any all year, pure central bank crap, hopefully we can end the year with a big push, I don't care direction, but this managed stairstepping, largely overnight, needs to end soon ... Keep the faith, you may very well be positioned ideally after the sugar runs dry ...

assistedliving's picture

Gee,,,that was helpful Marc

TideFighter's picture

I predict an earthquake in California sometime in the future. I predict a crash of the US economy sometime in the future. On a long enough timeline the survival rate for everyone drops to zero.

 

Enough already, of this pony-tailed nostradumbass. Everything he says is not only hedged, its hedge with no timeline. 

Bokkenrijder's picture

Precisely, and yet filling his pockets with fiat Dollars in return for his Doom Gloom Boom report.

He's just another one of those talking heads on CNBC, Bloomberg etc.

If he really was telling something useful for all us sheeple out there, he would not get invited...

flysofree's picture

Asian tycoons are running away to US, Canada and Australia; US CEOs and bankers are running away to Asia; Japanese businessmen are staying put and European elites after heeding Harry Dent's alarmist demographic predictions are flooding their continent with Muslims.

I want to move to Japan!

Seer's picture

As things progress you'd find that unless you're actually certified to be Japanese you'll either be kicked out or forced into menial labor.

kevinearick's picture

The communist den of thieves is always mimicking marriage, children and work, and is always being taken advantage of by the resulting fascist den of thieves, in a positive, viral feedback loop. The communist physicists at NASA, Boeing and JPM, spoiled brats all, aren't all working for Wall Street by accident. Only labor invests across the entire empire cycle. “The seekers of the future revolve around the splendid present,” erroneously.

Consumers consuming everything in their path, communists pretending to be married and kidnapping children as a jobs program, ends badly, for them, surprise. Regardless of government, they are all living on borrowed time. Small town or big city, the only difference is the recycle time duration of the perception. Dial 1-800-get-ajob to join. “Don't hate me because I'm a real person,” crack me up.

kevinearick's picture

oil $45, Nasdaq 5000, CAD .75

Rubicon - irony.

the simplistic idea of planets revolving around the sun is as stupid as the flat earth.

Seer's picture

History will tell you that ALL empires collapse, irrespective of being "Communist" or other:

http://www.newworldeconomics.com/archives/2014/092814_files/TheFateofEmp...

Your invectiveness misses the underlying root of our "problems."  That's OK, even the above, exceptionally well studied work by Glubb misses it as well: Glubb, however, was objective enough to realize that the FACTS did not identify a "them" as being the fault.  "Go forth and multiply" <- on a finite planet that is just BAD advice, as given the view of perpetual growth on a finite planet being possible only then leads to abuse (debt-based societies [as soon as you introduce "interest," without proven deliverables [such as was the case of the original construct of "interest" as the rights to cattle/calves born during transit]).

BUT, it's always to easier to blame others...

kevinearick's picture

you are assuming a monolith; if everyone just behaves...

all empires are communist, regardless of dress, majorities who consume until they cannot, always with a ready scapegoat to ensure continuation, in a competition for scale.

you are either expecting change in human behavior, which isn't going to happen, or no change, in depression. Humanity is not a monolith, except for the majority, individuals pretending to be different, with different colored fill-in-the-blank.

Seer's picture

Please point out where I say anything that is along the lines of "expecting change."

Feel free to rummage around through the ZH archives, where there you'll find that I have, over the course of some 5 years now, stated that CHANGE IS the constant: I have often noted that there are but three states -Expansion, Stasis and Contraction- and that Stasis is but a marker between Expansion and Contraction, therefore we can ONLY be in a state of Expansion or Contraction (if it's not ONE, then it's the OTHER!).  You'll also find that I'm no fan of using the word "solution" (I tend to always quote it to emphasize that I feel it needs to be parsed for a more meaningful use) connotes permanence: refer to my understanding that CHANGE is the constant- there cannot, therefore, be ANY "solution" (other than the "final" one- a complete ending such as death [and even here there's way too much that's debatable]).

I came to this article to find out what is happening with China's economy (to add to my knowledge).  Bashing "Communism" and or bringing up denigrations and parading around xenophobia, though having some impact on the general sense of short-term behaviors, only really detracts from the BIG PICTURE.

But, I'm glad that you've got it all figured out!

flysofree's picture

Faber is begining to look like a flying Shaolin monk from some 1980s Kung Fu movie.

Seer's picture

I thought your comment was pretty good! (though it kind of violates my rules of discussion, to not take things down to such shallow waters).

Seer's picture

I'd like to see a discussion/debate between Faber and Jim Rogers.

Bokkenrijder's picture

Why?

You'd only hear the usual one-liners like "farmers will be driving Maserati's," "the Dollar is a terribly flawed currency" and "my daughter is learning Mandarin" on one hand, and some Swiss-German-English "meester Bernaaankeee is a manie-printer" and "please baaay maaaay nooose letter" on the other.

Seer's picture

 Usually they're sat with some stupid talking-head and just spout their normal lines, yes.  I that they'd be forced to talk about meaningful shit if they were positioned to go up against one another.

SweetDoug's picture

'
'
'
Uggh… Had to down-vote ya…

Bloody awful line.

How old are you? 7?

•?–<
V-V

coast's picture

November is when IMF votes to allow yuan into global basket of currencies..census is a yes vote...the vote will be yes

Dr. Bonzo's picture

After listening to Faber for over a decade I'm getting the impression his crystal ball is getting dimmer and dimmer and dimmer. He used to call crashes almost to the exact day-week-month.... now it's like he's phoning it in; making broad sweeping observations that any one of us could make. A decade ago he would have predicted the month and size of the China blow-up. Now he giggles and dishes up platitudes.

Sad.

PleasedToMeatYou's picture

I'll be worried when Faber comes out and says "I was wrong about all this Gloom.  The Fed's got our back's on this." 

Md4's picture

Hard to argue with Faber's view.

We already know why, too.

Moneyed interests are bugging out. Their stock racket is margined to permit participation by small fry "investors" trying to build wealth without the production income they were led to believe would be damned near infinite.

We have no idea how much gold they have, but they didn't buy it for nothing.

If you are the most populous nation on the planet, what do YOU tell 1.3 billion people about YOUR economy?

Same thing we're being told...

It isn't true in either place, because it CAN'T be.

And we know EXACTLY why, too...

Our problem centers on western corporate board room tables, and NOT on distant battlefields.

m

Seer's picture

And really, how are the actions really any different than us folks here?

1. Looking to get out of a failing system- check!;

2. Stocking up on more fundamentally sound assets, like PMs- check!;

3. Looking to profit off the failing system- check!;

4. Not trusting the "System"- check!;

5. Talking about the above to those that will listen- check!

Only difference lies in the SCALE of our abilities, and the size of the crowd we can assemble.

It's about SURVIVAL.  We are in a system that has a lot of participants who were given big head-starts, THAT is really why most are whining.  Really, there are plenty of folks in the world who look at us here with that same sense!