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- Top China Banks Triple Debt Write-Offs as Defaults Loom – Bloomberg
China’s biggest banks tripled the amount of bad loans written off in the first half, cleaning up their books ahead of what may be a fresh wave of defaults.
Industrial & Commercial Bank of China Ltd., the world’s most profitable lender, and its four largest rivals expunged in the first six months 22.1 billion yuan ($3.65 billion) of debt that couldn’t be collected, up from 7.65 billion yuan a year earlier, filings showed. That didn’t pare first-half profits, which climbed to a record $76 billion, as provisions were set aside in earlier periods when the loans began souring.
“The China bank stocks are under pressure due to bad debt write-offs,” Sandy Mehta, chief executive officer of Value Investment Principals Ltd. in Hong Kong, wrote in an e-mail. “The new leadership in China is serious about the financial sector getting its house in order, and addressing any asset quality issues.”
Jim Chanos, the founder of Kynikos Associates Ltd. who predicted the collapse of Enron Corp. in 2001, said last month that he’s maintaining bearish bets on China’s banks. The country will have a “credit event” in the next five years as loan growth begins to slow, he predicted.
- Urban world: The shifting global business landscape | McKinsey & Company
…research shows that the emerging economies’ share of Fortune Global 500 companies will probably jump to more than 45 percent by 2025, up from just 5 percent in 2000 (Exhibit 1). That’s because while three-quarters of the world’s 8,000 companies with annual revenue of $1 billion or more are today based in developed economies, we forecast that an additional 7,000 could reach that size in little more than a decade—and 70 percent of them will most likely come from emerging markets.
- Another billionaire is predicting doom. Ignore him.
… a bubble is a situation where the price of an asset is bid up beyond what can be justified by its fundamental value, due to human psychology. People see a price rising, expect it to keep rising forever [necessarily forever?], and thus concoct whatever story they need to make that valuation worthwhile.
… there are Druckenmiller’s arguments on Social Security obligations as the trigger of the next global financial crisis. The poster advertising Druckenmiller’s speech last week argues that the “true national debt” is more than $200 trillion. What the sponsor seems to be doing is looking at the liabilities side of the balance sheet, but not the asset side. Yes, Social Security and Medicare are on the hook to pay out a lot of money in the future. But they are also on track to collect many trillions in tax revenue in the future.
- Addicted to the Apocalypse – NYTimes.com
Washington has spent the past three-plus years in terror of a debt crisis that keeps not happening, and, in fact, can’t happen to a country like the United States, which has its own currency and borrows in that currency.
What we can worry about is over-shooting inflation once the economy heats up. Way over shooting it is highly unlikely though, as the Fed would simply do a Volker, as in jack up interest rates to wring the inflation out.
- China’s Hidden Debt Problem: An Unavoidable Crisis In The Making? | Economy Watch
Estimates for China’s local government debts are now close to $3.3 trillion. Some analysts though believe that the government need not be duly concerned about rising bad debts in its banking sector, as their central bank’s extensive foreign reserves is easily enough to recapitalize the banks. What these analysts fail to understand is that these reserves were not accumulated merely by savings, but also involved more borrowing by the People’s Bank of China.
Michael Pettis tells us that China must rob Peter to pay Paul. However, China can inflate its way out to a large degree, which wouldn’t hurt its exports.