YouSaid · the spoken record

Brian McCarthy

lines on the record: 105
first: 2024-02-09
most recent: 2024-02-09
sittings or episodes: 1
sources: podcast

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“Unsustainable. And then the other dimension is everything that's happened geopolitically from the Trump tariffs to Xi Jinping seeing what happened to Russia when they ended up on the wrong side of the West and getting cut out of the global financial system and this sort of great power struggle, sort of a Cold War situation where both the US and China are trying to make themselves robust to decoupling so that they have the threat and aren't threatened by that. And that required Xi to stop wasting resources on creating fake GDP to some extent to keep the people fat and happy. So he's made a really, I think, a definitive decision to get off this unsustainable path. And I think that investment-led growth model is done in China.”
2024-02-09 · Forward Guidance · China’s Deflation Trap | Brian McCarthy On The Popping Of The World’s Biggest Bubble Ever · IDENTIFIED FROM THE TRANSCRIPT
“I have to say, Xi Jinping basically decided to stop the madness. If he had wanted to push this to where the ultimate extreme is, they would probably still be going. You know, home prices might be up another 30% from where the insane levels they saw two years ago. So to an extent, we don't really know when this would have broken down on its own because he did decide to stop it. And I think that's because he saw that, you know, the ultimate endgame was not pretty. And I think the decision really coalesced around his getting the second term really solidifying power. And in his mind, he's the leader for life. There was no one to kick this can to. So there's no next guy in his mind to take care of the problem. It was going to be on his plate eventually. Again, it was self-evident.”
2024-02-09 · Forward Guidance · China’s Deflation Trap | Brian McCarthy On The Popping Of The World’s Biggest Bubble Ever · IDENTIFIED FROM THE TRANSCRIPT
“Government would always make everything good. So, this sort of credibility is what's held this model together and it's starting to fray. The problem is the way they make everything good is simply by having banks, you know, gathering a rolling loan gathers no loss, right? They just kept rolling the losses, hiding them on their balance sheet by applying more and more credit to Phil in the losses. So you had two problems. One that the credit that it takes to roll these losses was accumulating. So we needed more and more credit just to keep a certain amount of growth going, but also the investment they were doing was lower value added. So this thing was always destined to sort of go pear-shaped in an exponential fashion because they're rolling more and more bad assets and the new assets they're creating are lower and lower quality.”
2024-02-09 · Forward Guidance · China’s Deflation Trap | Brian McCarthy On The Popping Of The World’s Biggest Bubble Ever · IDENTIFIED FROM THE TRANSCRIPT
“I think reach the point where it's become overtly unsustainable. And the problem was that they were, when investment-led growth, 20 years ago, when Shanghai was a cow pasture to use an extreme example, any fixed asset investment was high value added. So like the first airport in a mid-sized city is really high value added. But the model progressed to the point where they were building the third airport in a medium-sized city and it's empty. So there were a couple problems built into this model. One was that the malinvestment needed to be rolled. So the system ran on almost a universal moral hazard. So it was okay for everybody to fund this male investment because”
2024-02-09 · Forward Guidance · China’s Deflation Trap | Brian McCarthy On The Popping Of The World’s Biggest Bubble Ever · IDENTIFIED FROM THE TRANSCRIPT
“So I've been following China really closely for the better part of a little over a decade now. I was at a hedge fund called Emerging Sovereign Group back in 2012, and the fund was acquired by the Carlisle Group. And I was the head of macro research. My boss called me into his office and he said, you know, Carlisle is really into China. We don't really have anything, you know, any China macro product or anything going on. Go to China for a month, come back and tell me what you think. And, you know, I was sort of a developed market guy, not an EM guy. So I went to China for a month and I came back and I said, oh my God, this is the biggest Ponzi scheme I've ever seen. And as you know, it's only orders of magnitude bigger. So there was always a dynamic built into the investment-led growth model that was unsustainable with finally.”
2024-02-09 · Forward Guidance · China’s Deflation Trap | Brian McCarthy On The Popping Of The World’s Biggest Bubble Ever · IDENTIFIED FROM THE TRANSCRIPT