Are we too pessimistic with regard to China? Perhaps, but who really knows. Seriously, who really knows. The data out of the Ultimate Crony Capitalist State is poor. It is politically manipulated. No one really has a hard sense of what’s actually going on, including probably the Chinese government to a large extent.
The feeling at the moment is that the world has settled out a bit as China’s Shanghai market appears to have bottomed for the time being. We’ve all resumed doing the economic muddle shuffle like we were doing before China started throwing up on itself in August. Our market is back up. The Chinese market is up some. Maybe the storm has passed. Maybe this was just another post 2008 head fake.
But it felt more serious than past head fakes. Indeed August and September probably indicate that the underlying global economic instability post-2008 is coming increasingly to the fore.
And the recent spasm didn’t feel like a head fake in Brazil, Japan, and in Canada which are all currently in recession.
Burbank, the founder of $4.4 billion Passport, told investors in an Oct. 30 letter to beware of a China-led shakeout. The world may be heading into “a global downturn that leaves no region safe, including the United States,” he wrote. If economic conditions worsen in China, particularly with nonperforming loans, it could mean the end of the dollar peg for the yuan, lower interest rates and the liquidation of risk assets around the world, he said…
…Elliott Management’s Paul Singer also warned about global contagion from China’s decline. Singer told investors in an October letter that emerging market countries are “choking” on U.S. dollar-denominated debt that was extended due to low interest rates and monetary stimulus. He said many emerging economies, which are in recession, are “scared to death” about even a 25 basis-point increase in U.S. interest rates.