This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Importance of Fundamentals; China's Slowing Economy: Best of Kass

Here is a critical view (hat tip Zero Hedge) of the potential risks associated with the Chinese credit bubble.

The China report gives one of the first glimpses into 2014 and follows Sunday's industrial production number that was 9.7% vs. consensus of 9.8% (a tiny difference but since the numbers are manipulated in China, some people thought this slight IP miss last Sunday had some relevance).

Bottom line: China's economic growth is slowing. For now we do not yet know for sure whether that slowdown will be importantly impactful to global growth and, in turn, global equities. The more important point is that the rampant growth in municipal and corporate debt in China has delivered a potentially lethal and quantum increase of nonperforming loans in the Chinese banking system and shadow banking system. This has constrained lending and will likely translate into slowing economic growth in the region.

What will China do to avoid this slowdown? The public infrastructure build out option is a nonstarter, as there is already too much of it. The same applies to the private sector infrastructure complex.

Must Read: Jim Cramer: China's Bad News Is Just Plain Bad News

What China needs is to shift from export/infrastructure and debt-driven growth to consumption-based growth and reform. However, with the banks and other financial intermediaries constrained, a tough transition lies ahead.

On one hand (Column A), the Chinese growth challenge and credit risks are issues/problem that are well known to investors, and the bulls argue that this has been discounted, as China's stock market has been among the worst in the world over the past 12-15 months. "The China Problem," to many in the consensus, was one of the concerns widely held as we entered into 2014. (That consensus was highlighted in my "15 Surprises for 2014," and that universality of concern kept me from listing it as a surprise.)

On the other hand (Column B and my view), the ramifications of a Chinese economic slowdown and a potential credit meltdown may have not been discounted by the U.S. stock market and other global equity markets.

I am out of the office at a breakfast meeting, so there will be no "Morning Market Look" this morning.

At the time of original publication, Kass was short SPY.




Doug Kass is the president of Seabreeze Partners Management Inc. Under no circumstances does this information represent a recommendation to buy, sell or hold any security.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free

Markets

Chart of I:DJI
DOW 15,973.84 +313.66 2.00%
S&P 500 1,864.78 +35.70 1.95%
NASDAQ 4,337.5120 +70.6750 1.66%

Our Tweets

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs