The China Narrative That Really Matters

Tyler Durden's picture




 

Submitted by Ben Hunt via Salient Partners' Epsilon Theory blog,

I'm a China bull, let's get that out of the way first. But like anything connected with the global industrial and commodity complex today, from Emerging Markets to MLPs to oil prices, it doesn't matter what the Truth with a capital T might be regarding the real world economic or business fundamentals. The story is broken. The stocks are broken.
 
I've written a lot here in Epsilon Theory about what's happening in China and what it means for the China growth story to break.
Most directly on the topic, read "When the Story Breaks". It's a quick read and introduces an Epsilon Theory perspective for how to think about China.
 
Most recently on the topic, and why the Chinese currency devaluation kicks US equity markets right in the teeth, read "Storm Warning".
 
Most fundamentally on the topic, and why the Chinese currency devaluation is an existential issue for the Beijing regime, read "The Dude Abides: China in the Golden Age of Central Bankers".
 
There are other notes on China if you're so inclined, including: "The Donkey of Guizhou", "Rosebud", and "The Power of Why, Exhibit 4,512 in a Continuing Series".
 
For a related note on the overall Emerging Market story, read "It Was Barzini All Along". For an Epsilon Theory perspective on oil prices, read "The Unbearable Over-Determination of Oil".
Now most stories heal themselves over time, and the China growth story is no exception. Or rather, over time these broken stories evolve into a market-supportive story, for example from a growth story into a value story. You see this in market narratives all the time.
 
But there's one aspect of the China story that can't heal itself or transform into something more benign from a market perspective, and that's the Narrative of Chinese Government Competence. To quote myself in "When the Story Breaks":
"This is a completely different Narrative than the growth story, and it’s the story that one-party States rely on to prevent even the thought of a viable political opposition. In highly authoritarian one-party nations – like Saddam's Iraq or the Shah’s Iran – you’ll typically see the competence Narrative focused on the omnipresent secret police apparatus. In less authoritarian one-party nations – like Lee Kuan Yew’s Singapore or Deng Xiaoping’s China – the competence Narrative is more often based on delivering positive economic outcomes to a wide swath of citizens (not that these regimes are a slouch in the secret police department, of course). From a political perspective, this competence Narrative is THE source of legitimacy and stability for a one-party State. In a multi-party system, you can vote the incompetents (or far more likely, the perceived incompetents) out of office and replace them peacefully with another regime. That’s not an option in a one-party State, and if the competency story breaks the result is always a very dicey and usually a violent power transition."
So when I read an article this morning in a famous media outlet owned by famously Beijing-friendly Rupert Murdoch that "the impression left on investors is that Chinese authorities are out of their depth" and that "certainly with respect to the stock market, their reputation for incompetence is well-earned", I get nervous. 
 
I get nervous because the next move in China is going to be a political move, and political moves are never well anticipated by markets. The Beijing regime is going to take steps to defend itself, or at least insulate itself, from the growing Narrative that they are incompetent. Heads will roll. Literally, in all likelihood. But the incompetence genie is very hard to stuff back into the bottle, and depending on whose head is on the chopping block, regime stability can deteriorate very quickly. Now that's what will make me change my bullish stance on China fundamentals, and that's what will make the US market swoon of last August look like a gentle spring rain. 
 
From an Epsilon Theory perspective, a collapse in the Narrative of Chinese Government Competence is the biggest systemic risk out there right now, and that's where I'm focusing my risk antennae.
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Fri, 01/08/2016 - 12:17 | 7017562 KesselRunin12Parsecs
KesselRunin12Parsecs's picture

We don't need no stinkin' 'narratives'

Fri, 01/08/2016 - 12:25 | 7017602 Wile-E-Coyote
Wile-E-Coyote's picture

Yeah my wife has dog breath in the morning it is like her arse grew teeth.

Fri, 01/08/2016 - 12:53 | 7017755 FireBrander
FireBrander's picture

My wife's cooking is so bad, that when I feed it to my dog, he licks his ass just to get the taste out of his mouth.

Fri, 01/08/2016 - 13:00 | 7017790 power steering
power steering's picture

European and I'm a Putin

Fri, 01/08/2016 - 12:33 | 7017642 yrad
yrad's picture

"I'm a China bull, let's get that out of the way first."

 

I stopped reading.

Fri, 01/08/2016 - 12:36 | 7017651 Cui Bono
Cui Bono's picture

How about a better narrative.....

Happy Roy Batty inception date Bitchez!

http://www.telegraph.co.uk/film/blade-runner/roy-batty-birthday-inceptio...

Fri, 01/08/2016 - 12:41 | 7017674 KnuckleDragger-X
KnuckleDragger-X's picture

Nowadays any economy anywhere is politically driven and the narrative is really all they have. Entropy is ignored and common sense is illegal, so party on while the ship sinks, because the government will save us......

Fri, 01/08/2016 - 12:19 | 7017569 pitz
pitz's picture

Chinese government is far, far more competent than the US government.  They'll have a much easier time extricating themselves from deflation, than the US will from hyperinflation.

Fri, 01/08/2016 - 12:22 | 7017587 eyesofpelosi
eyesofpelosi's picture

Prehistory
Main article: Chinese prehistory
Archaeological evidence suggests that early hominids inhabited China between 250,000 and 2.24 million years ago.[33] A cave in Zhoukoudian (near present-day Beijing) exhibits hominid fossils dated at between 680,000 and 780,000 BCE.[34] The fossils are of Peking Man, an example of Homo erectus who used fire.[35] Fossilised teeth of Homo sapiens dating to 125,000–80,000 BCE have been discovered in Fuyan Cave in Dao County, Hunan.[36] Chinese proto-writing existed in Jiahu around 7000 BC,[37] Dadiwan from 5800 BC to 5400 BC, Damaidi around 6000 BC [38] and Banpo dating from the 5th millennium BC. Some scholars have suggested that Jiahu symbol (7th millennium BC) was the earliest Chinese writing system.[37]

I agree, they have been around, as a people, and as a civilization for a very long time...

Fri, 01/08/2016 - 12:33 | 7017615 FireBrander
FireBrander's picture

Bullshit! The Earth is only 6000 years old.

See page 642, section B paragraph C of the Bible if you want proof.

Plus, the Chinese don't look anything like God! God was a 6' tall white man! The Chinese, and all other non-true-whites (don't get me started on non-white people), are just errors God made while trying to make man in his TRUE image..like God making the Devil...sometimes creation just doesn't go 100% right...you people are so ignorant.

Oh, and Jesus was NOT brown! He was White like God! He may have appeared Brown, but that's only because the intense sun tanned him that perfectly roasted turkey color.

Fri, 01/08/2016 - 12:33 | 7017643 eyesofpelosi
eyesofpelosi's picture

Sources on the internet claim it is flat too!

Fri, 01/08/2016 - 12:51 | 7017736 FireBrander
FireBrander's picture

The Earth is a flat circle! Look at any picture from space and it's easy to see. Also, if you look at imagery from probes looking back at the Earth, the Sun is not the center of our solar system! All of this "Science" stuff is pure bunk!

Fri, 01/08/2016 - 12:52 | 7017748 stormsailor
stormsailor's picture

yeah, but is it a particle or a wave?

Fri, 01/08/2016 - 13:03 | 7017809 Ms No
Ms No's picture

It depends on who is observing.

Fri, 01/08/2016 - 13:23 | 7017898 stormsailor
stormsailor's picture

yeah,  cause you can get arrested for that you know

Fri, 01/08/2016 - 13:37 | 7017949 Ms No
Ms No's picture

Oh I know.  Apparently it is far more legal to experiment with the observer effect on particles as opposed to looking in the window of your neighbor that used to be a male underwear model. 

I am pretty sure that one was wave function. ( ;

Fri, 01/08/2016 - 16:04 | 7018702 stormsailor
stormsailor's picture

but infinitly less fun, if its a female model.  it a wonder every 13 year old boy back in the 60's isn't on the sexual predator list now.  oh for a glimpse.  jeez, we use to look forward to the sears catalog back in the day. i remember 1969 when sears went to glossy full color.  wow,  just wow

Fri, 01/08/2016 - 15:20 | 7018469 ElwinCthulhu
ElwinCthulhu's picture

<=== UP for cat be alive

<=== DOWN for cat be dead

Your vote will make it so.

Fri, 01/08/2016 - 18:32 | 7019405 SixIsNinE
SixIsNinE's picture

the Heliocentric Model imposed upon us from birth looks quite the impossible contrivance:

https://www.youtube.com/watch?v=H7WyrIZzyPY  - this is the Morgile's quick 15min

presentation on what the Heliocentric Model requires one to accept - after watching, if you're still a Heliocentric supporter you'll probably be doing impossible conniptions in your brain to try to still make the math work.  

Spinning balls, all - the Sun, the Earth, the Moon, all the other so-called "Galaxies" ... the simplest deduction reveals the fallacy of the heliocentric model.  In that model, we are supposedly orbiting around the sun - our winter period is supposed to be way opposite the sun from where we were in summer.  Think about how for eons we have the same star patterns above our heads, year after year.  Yet we're supposed to be travelling billions of miles a year around a mysterious "Galactic Center" - and yet our star/plane t patterns remain the same. 

NASA announced recently they are quitting the fake Space Station, as it's now far too obvious to far too many people that it's fake.  Time for a new game.

Can anyone answer why the Pope said on Christmas day that this might be Christians last year to celebrate Christmas ?

 

Fri, 01/08/2016 - 12:59 | 7017785 MalteseFalcon
MalteseFalcon's picture

"Plus, the Chinese don't look anything like God! God was a 6' tall white man!"

I saw the painting in a magazine!!

Fri, 01/08/2016 - 13:29 | 7017912 stormsailor
stormsailor's picture

i must have seen a different magazine, in mine he was the same but sitting in a big chair.  like the lincoln memorial

Fri, 01/08/2016 - 13:00 | 7017791 More Ammo
More Ammo's picture

obviously from the reds some people don't get sarcasm without the tag...

Fri, 01/08/2016 - 14:46 | 7018286 Sages wife
Sages wife's picture

What the fuck do you mean by that?

Fri, 01/08/2016 - 15:01 | 7018368 Demdere
Demdere's picture

Poe's Law covers that.

https://en.wikipedia.org/wiki/Poe's_law

Fri, 01/08/2016 - 12:28 | 7017617 ParkAveFlasher
ParkAveFlasher's picture

Nine millenia of fire drills and all-you-can buffets, oh and nearly five decades of attempting an end-around of the American middle class via the "China is democratizing and consumerizing" narrative and the re-framing of the old slavery picture.  But this guy says the story is more important than the reality.  Well, maybe to some, and good luck with that.

Fri, 01/08/2016 - 12:42 | 7017684 Kaeako
Kaeako's picture

Around for a long time, gone through many of the exact problems plaguing the Chinese and global economies right now, yet learned nothing... Incompetence, the bane of empires and dynasties from time immemorial.

Fri, 01/08/2016 - 12:22 | 7017588 DownWithYogaPants
DownWithYogaPants's picture

I have to guess the Chinese gov skim is even worse than that of the USA.  

Fri, 01/08/2016 - 12:26 | 7017612 joego1
joego1's picture

Homer Simpson 1 vs Homer Simpson 2

Fri, 01/08/2016 - 12:56 | 7017776 Yen Cross
Yen Cross's picture

 Not so much> China's debt ratio stands at more than 240%, or 161 trillion yuan ($25 trillion), according to calculations by The Economist.Oct 24, 2015.

 I won't even go into non-performing loans.

Fri, 01/08/2016 - 12:25 | 7017574 Demdere
Demdere's picture

What happens when the US government also 'has to make a political move'?

Our Israeli-Neocon masters have the initiative.  We should take that from them.

I have been watching Sibel Edmonds, read her book a few years ago. The corruption is very deep, very systemic.  The US Military and CIA are the heroin distributors to the world, and that has infected Congress. Dennis Hastert was a long-time pedophile, took $ from the drug lords and foreign powers, got off scott free because the entire system is corrupt.  FBI, CIA, ... all very un-lawful.

https://www.youtube.com/watch?v=2XvXMyVt5GA

Time to bang on pots and pans, I think.

Fri, 01/08/2016 - 14:03 | 7018050 Kirk2NCC1701
Kirk2NCC1701's picture

Whaddya mean 'all very unlawful'?

Hollywood assures me that they are all honest, decent, law-abiding supermen and veritable Iowa Monsanto-corn-fed Ubermenschen.  

Now you tell me they've all Broken Bad, into Uberaffen?  Who could seen this Narrative of "Power corrupts..." coming?

Fri, 01/08/2016 - 12:19 | 7017575 eyesofpelosi
eyesofpelosi's picture

So is the ChiCom Stock Market like their shitty food?

Fri, 01/08/2016 - 12:21 | 7017584 de3de8
de3de8's picture

Just send Krugman over he'll fix it

Fri, 01/08/2016 - 12:23 | 7017595 Ms No
Ms No's picture

I always just figured that the federal reserve banking system's process of "transitioning" required the newly captured country to do what ever the hell it wants which may include handing your media over one step at a time to assholes like Murdoch.  Apparently China isn't entirely going along with the transitioning process and the bankers well make up whatever meme they choose to explain their eventual retaliation.   

Fri, 01/08/2016 - 12:26 | 7017616 buzzsaw99
buzzsaw99's picture

this is crap. we have only one party in the usa. the maggot party. we can't vote the incompetents out because they aren't incompetent. they are OWNED.

Fri, 01/08/2016 - 13:12 | 7017858 Dr. Engali
Dr. Engali's picture

Yeah, this guy revealed just how big of an idiot he is when he started spewing that garbage. 

Fri, 01/08/2016 - 12:29 | 7017623 madbraz
madbraz's picture

hey "china bull" loser, get that "risk antennae" and shove it where the sun don't shine.  

Fri, 01/08/2016 - 12:31 | 7017632 Yen Cross
Yen Cross's picture

  The kidnappings [assisted investigations] will continue until further notice...

 Sincerely,

 Xi Jinping

Fri, 01/08/2016 - 12:33 | 7017638 K_BX
K_BX's picture

Didn´t just another chinese billionaire disappear?

Fri, 01/08/2016 - 12:36 | 7017655 Ms No
Ms No's picture

I don't know what's going on but one has to wonder if these billionaires are not part of a subversive contingent that they are trying to purge.

Fri, 01/08/2016 - 14:08 | 7018084 Kirk2NCC1701
Kirk2NCC1701's picture

Grasshopper, do you NOW understand why so many Chinese are setting up their Plan B homes in Vancouver/Hongcouver?

Fri, 01/08/2016 - 14:13 | 7018108 eyesofpelosi
eyesofpelosi's picture

They don't fuck around over there...we should deport Soros to China...

Fri, 01/08/2016 - 12:37 | 7017659 orangegeek
orangegeek's picture

Wicked men, you face the Tick!!

Fri, 01/08/2016 - 12:38 | 7017663 Joebloinvestor
Joebloinvestor's picture

If China wanted worldwide awe, they would stomp a six foot mudhole in DNK and erase the queery little runt.

Fri, 01/08/2016 - 12:41 | 7017671 The Saint
The Saint's picture

So, China is going to have to go back (or did they never stop) to their human rights abusing tactics to keep the people in line?

Fri, 01/08/2016 - 12:49 | 7017724 conraddobler
conraddobler's picture

The hubris of control never gets old.

It's an ILLUSION that you control anything.   I have to tip my hat to native American's who said this:

Where White Man Went Wrong

Indian Chief "Two Eagles" was asked by a white U.S. government official, 'You have observed the white man for 90 years. You've seen his progress, and the damage he's done."

The Chief nodded in agreement.
The official continued, "Considering all these events, in your opinion where did the white man go wrong?"

The Chief stared at the government official then replied, "When white man find land, Indians runnning it, no taxes, no debt, plenty buffalo, plenty beaver, clean water, women did all the work, Medicine man free. Indian man spend all day hunting and fishing; all night having sex."

Then the Chief leaned back and smiled, "Only white man dumb enough to think he could improve a system like that."

  Well it seems the Chinese are white too.

 

 

Fri, 01/08/2016 - 13:05 | 7017802 falak pema
falak pema's picture

Yes, yes you should read about the unscrupulous, greedy fools leading the gullible buffoons... and my story of the Queen's necklace :

The Commodities of Cathay and how they vanish (or melt).

Fri, 01/08/2016 - 13:02 | 7017803 Herdee
Herdee's picture

The size of the corruption is on a massive scale.Communist Party hacks and their connections all running Government Corporations.Anybody that believes any numbers coming out from these F'n crooks needs their head read.This where all the politicians in Washington shipped all the good manufacturing jobs to.They got the idea that Communists would fund their deficit war spending.Low life scum like John McCain and his NeoCon followers behind the financial scam to destroy America.He's a traitor.

Fri, 01/08/2016 - 13:09 | 7017843 Jkweb007
Jkweb007's picture

I find it amusing the west news media blame thier economy on China. Hmmm chinese market goes down and its blamed for crashing the dow. Then our news media talks of the corruption surely its not here. So lets let the cards fall are we saying China is the main economy in the world today. Our politicians are actually out for our interest and these to big to fail bankers are completely honest.

I read, sorry for digressing but that Poland a Nato like country just took over its media and the EU says well its not a big deal. Everyday its like the West and East are trading sides. The west is moving to the old USSR mode and the East is becoming more capitalistic.

I think this China Narrative is spot on. Trying to embarras China globally has backfired and I truly believe when they decide to back thier currency with gold what the Murdoch BS news will spin. The real fact is the western banks are nearing collapse becuase of thier own corruption. China has nothing to do with it.

Fri, 01/08/2016 - 13:09 | 7017844 Jkweb007
Jkweb007's picture

I find it amusing the west news media blame thier economy on China. Hmmm chinese market goes down and its blamed for crashing the dow. Then our news media talks of the corruption surely its not here. So lets let the cards fall are we saying China is the main economy in the world today. Our politicians are actually out for our interest and these to big to fail bankers are completely honest.

I read, sorry for digressing but that Poland a Nato like country just took over its media and the EU says well its not a big deal. Everyday its like the West and East are trading sides. The west is moving to the old USSR mode and the East is becoming more capitalistic.

I think this China Narrative is spot on. Trying to embarras China globally has backfired and I truly believe when they decide to back thier currency with gold what the Murdoch BS news will spin. The real fact is the western banks are nearing collapse becuase of thier own corruption. China has nothing to do with it.

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