China Debt Bubble Has Reached Saturation Point

Michael Pettis gave a speech today at the CFA convention where he discussed the massive growth in China over 30 years. He said that China reached its point of saturation of too much debt fueled unneeded development roughly in 1998 or maybe 2003. This would be at the point where additional investment is no longer socially productive, in other words when they are adding far more capacity than needed. Then by definition, debt grows faster than debt service capacity. Thirty countries have had cases since 1945 like this, it always happens where they overdo it with excess debt, he said. It is interesting that Pettis says that the saturation point in China was reached in 1998. That is roughly about

2017-01-10T23:33:01-08:00 May 10th, 2016|mayflowercapital blog|Comments Off on China Debt Bubble Has Reached Saturation Point

Will China Devalue The Yuan?

Many people wonder if China will devalue its currency, the Yuan, by a huge percentage dramatically as they did by 50% in 1994. The reason this is unlikely to happen is because the countries with the big three currencies (the U.S., EU and Japan) don’t want that to happen and will be willing help China to prop up the Yuan if it needs that. Basically the world is dependent on having the major EM currencies avoid devaluation because that might drive the dollar higher and thus make it even more difficult for EM debtors to repay loans to Developed country banks. If another Lehman-style crisis happened because of this, the world’s central banks would find that the zero bound problem

2017-01-10T23:33:02-08:00 March 23rd, 2016|mayflowercapital blog|Comments Off on Will China Devalue The Yuan?

Can China Use Annuities To Fix Their Economy?

In the U.S. there are equity indexed annuities which claim that you can never lose money and you get to participate in investing in the stock market because the annuity is indexed to stocks. The secret to how annuity companies attempt to do this is that they require that no withdrawals be taken other than small monthly annuitization payments for the next 30 years. If you decide to close out the account and withdraw your funds then you take out only what the value of the account would be worth if there was no annuity guarantee minus the annuity company’s hefty fees. An investor could try to replicate this by simply refusing to sell his stocks for 30 years! Based

2016-03-01T13:42:33-08:00 March 1st, 2016|mayflowercapital blog|Comments Off on Can China Use Annuities To Fix Their Economy?