This Day On The Street
Continue to site right-arrow
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
TheStreet Open House

China-Proof Your Portfolio Now, Before Sino Debt Hits the Fan

Stocks in this article: YUMKMBKO

NEW YORK ( TheStreet) -- It’s China’s turn for a debt crisis, so keep your eyes open for the unexpected. There are signs to look for, and certain equities are most likely to be affected.

China’s total bank debt has grown from $14 trillion in 2008 to $25 trillion today -- more than double the total size of the U.S. commercial banking sector. To support this massive growth in credit, China’s central bank has more than doubled its cash supply by printing more money.

While this may have softened the blow of the 2008 financial crisis, history has never seen such a colossal ramp-up of both money and credit without a subsequent period of financial chaos.

Read More: Warren Buffett's Top 10 Dividend Stocks

Moreover, that new money was borrowed primarily by state-owned businesses and municipalities -- entities that are not focused on economic profit, but rather on driving employment and meeting the growth targets tied to the nation’s Communist legacy. (For a more in-depth study of the subject, I recommend James Rickards’ book The Death of Money: The Coming Collapse of the International Monetary System.)

In 2008, U.S. investors could point to one clear moment when financial institutions’ absurdly levered balance sheets exploded into global disaster: September 15, 2008, when Lehman Brothers declared bankruptcy.

In watching for signs of a crisis in China, however, investors should expect no such clarity. In fact, as China’s growth is slowing, and labor costs are rising, the situation is more analogous to the frog in a pot of water that is slowly heating up.

Investors will need to be closely attuned to particular signals that could indicate oncoming trouble, since the country’s leadership would likely try to keep a crisis out of view for as long as possible.

Read More: 10 Stocks George Soros Is Buying

One sign could be an announcement by the central government of higher GDP growth targets. In China, doubling down on growth -- in effect, a much larger and systemic stimulus package than the one the Obama administration introduced post-2008-- would likely indicate that the problem of bad loans has grown so widespread that the only hope for repayment is to artificially drive up domestic demand as a means of soaking up excess capacity and potentially “inflating away” regional and corporate debt burdens.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

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
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, 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
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,677.90 +216.58 1.32%
S&P 500 1,950.82 +23.71 1.23%
NASDAQ 4,452.7920 +69.9450 1.60%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs