Finance: What To Be Scared Of

Don't worry about China's banks; do worry about America's student and car loans!

  1. CHINA'S BANKS

    According to the Bank for International Settlements (BIS), "Excessive credit growth in China is signalling an increasing risk of a banking crisis in the next three years... An early warning of financial overheating - the credit to GDP gap -  hit 30.1... in the first quarter of this year... Any level above 10 signals a crisis ..." 
  2. NO REASON TO WORRY

    First, China's banks are domestically-orientated, both as regards their funding as well as their lending. This means that there is no chance of foreigners "pulling the rug". Secondly, the bulk of this China gap is due to lending to State Owned Enterprises, to SOEs. These loans surely are backed by the government in one form or another. Finally, don't get hung up on the false precision of that '30.1": God help us if China's statisticians ever issued one correct number!
  3. WORRY ABOUT AMERICA' STUDENT AS WELL AS CAR LOANS

    Now here we should worry. Apparently, America's student loan market dwarfs her mortgage market! Whilst student loans are government guaranteed, the spin-off instruments being created by bonus-hungry bankers are not. My concern is that we will experience a mega-re-run of that The Big Short in the student- as well as car-loan markets. Banks's CDOs. These CDOs as well as derivatives priced off them could burst, particularly the latter. 
  4. INVESTMENT IMPLICATION

    Keep buying China stocks: her Economic Time® keeps improving gingerly; however, don't worry about a credit crisis there.  Meanwhile, avoid ANY financial wizardry concocted around America's  financial institutions, student as well as car loans: caveat emptor!

The above notes formed part of a RTHK radio show, you can listen to the blog  more

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