Hedge Fund CIO: “This Is Unprecedented… No Trader Has A Model For This”
by Tyler Durden
ZeroHedge.com
May 14, 2017
It’s Sunday morning, and as is customary for this time of the week, we present the best excerpts from the latest weekend note by one of our favorite market commentators, Eric Peters, CIO of One River Asset Management. Today we focus on what is currently the most controversial topic in capital markets, namely China, and how it could – and willl – impact not only the global reflation trade but risk assets across the world. Or rather, how it may, because as Peters puts it in the simplest possible terms, “no one has a model for this.”
“No one has a model for this,” said the CIO.
“Everyone buying assets today is building somewhat plausible arguments, but they’re really all just geared to decisions made in Beijing.”
The most crowded trade in the world is cognitive dissonance on China. “We need persistent increases in debt relative to GDP for the world economy to function. And since 2011, 100% of global non-financial private-sector net credit creation has occurred in China. Across the western world, it’s been zero.” Since 2008, non-financial private-sector credit has risen 20% per year in China. In the west, net credit creation occurred through rising government debt – but for that fact, our economies would’ve suffered profoundly. Instead, global asset and liability levels have grown inexorably, led by Chinese credit creation.
“At 20% annual credit growth, China’s asset (and liability) base doubles every 3.5 years.” Seven years ago China’s asset base was roughly $15trln. Then it doubled. And doubled again.
“China’s asset base today is roughly $60trln, on its way to $120trln sometime in 2020,” he laughed, his spreadsheet sprouting trees, racing to the sky. “The US asset base is $90trln. They’ll pass us in 2yrs. When we were $60trln, China was $10trln.”
The Rest…HERE
