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