with Bert Dohmen & Gordon T Long
23 Minutes, 37 Slides
Bert Dohmen who recently authored "The
Coming China Crisis" is now warning about Chinese shipping credit and
what he sees in oversea freight rates. He believes there was a major dividing
line that was crossed in June 2013 when overnight lending rates abruptly
tripled. Though government actions quieted things down on the surface (at
least temporarily), below the surface an avalanche of credit issues has ensued.
China
Bert predicted much of what is currently occurring in his book and describes
it as China hitting the "Great Wall of Communism". As an export led economy
being capital investment driven it is now time for innovative entrepreneurs
to take over, but they can't. 41% of Chinese GDP is primarily foreign capital
investment which has slowed and new investment from investment savings is not
occurring. "It has gone as far as it can go!" according to Bert Dohmen.
The basic reason is mal-investment due to corruption and the unregulated and
massive shadow banking system which has taken hold of the Chinese economy.
With $21T of loans outstanding the unregulated shadow banking system has funded
half of these loans and is now facing escalating levels of default.
Most troubling is the level of corruption and the control that the government
owned "SOB" exercise. Only recently has the scale of the corruption began to
be made visible outside of China.
Baltic Freight Rate & Shipping Credit
Chinese government economic numbers are manipulated and therefore shipping
levels and their rates are the actual measure of the real global trade which
investors need to study.
The Chinese private sector is in recession and has been for some time which
can be seen in the 40% decline in one month in the Baltic Freight rates. It
was made clear last month when 300 tons of Soybeans could not get a shipping
letter of credit. Additionally, financial leverage being employed regarding
the use of imported commodities as loan collateral became public.
The shipping credit 'canary' is very reminiscent of exactly what preceded
the 2007 global financial collapse.
US Economic "Demand Engine" is Stalled
China's export lead and investment driven economy has been powered by the
US consumer. However US and European retail sales and real disposable income
is sending an unambiguous message that slowing growth and even contraction
lay ahead. US Money velocity has been steadily falling as US businesses continue
to resist investment. This does not bode well for for an already tenuous problem
in China.
Bert sees turbulent times directly ahead as the realities of slowing global
trade come home to roost in China.
Macro Analytics Video: Baltic
Freight, Shipping Credit & China - Part 1 w/Bert Dohmen
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