Assessments / Blog


As we continue to explore the fragility and future implications of a Chinese economic contraction from PART I as well as the broad extent such a contraction may have on global markets.  Our continued premise is that a renewed capital shift is taking place that focuses on US Blue Chips and Mid-Cap stocks.  We believe this is currently facilitating a renewed valuation exploration process in the US and global markets and, as such, may result in expanded price exploration for many global markets.

Credit, debt and equity crisis events typically unfold in one of two forms; orderly or disorderly.  Our belief that an orderly credit/debt crisis event is currently unfolding in China/Asia and Europe is based on the premise that the Chinese economic data may have been grossly inflated over the past 9+ years and that the extended credit boom in China/Asia may be similar to the 2008-09 credit crisis experienced in the USA.  When a credit boom takes place, a vast majority of this new credit enters the global market as private, corporate and government debt.  When a credit contraction event takes place, this credit/debt become a massive liability which can ultimately destroy future capabilities.

One aspect of the total Chinese credit/debt ratio to consider would be the GDP Deflator values.  These ratios compare non-inflation adjusted GDP to inflation-adjusted GDP.  As inflation increases, the difference between Nominal GDP and Real GDP are related in the GDP Deflator values.  Currently, the Chinese GDP Deflator values are reporting at 656% for 2017 – which indicates the year over year inflation is running at 656% from the base year.  We believe this inflation measure may actually be much higher in 2018 and would indicate that consumer inflation continues to skyrocket in China while credit/debt issues are becoming more prominent.

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