Share this page!

Michael Pettis Profile picture
Twitter logo
3 Feb, 4 tweets, 2 min read
1/4
This very good piece by @hussmanjp will probably be ignored, as pieces like this always are unless their authors are lucky enough to publish them just before a collapse in the market. One point I would make is that I don’t think it is market...

hussmanfunds.com/comment/mc2102…
2/4
“psychology” — fear and greed, most famously — that cause market bubbles and collapses, and so these kinds of warnings will have almost no overall effect.

As I see it, in any large market there is inevitably a normal distribution of risk-taking participants, including a...
3/4
normal distribution among the foolishly optimistic and the equally foolishly pessimistic, of confidence, ignorance and so on. What matters, I think, are the structural conditions that favor one side or the other of the distribution. I am pretty sure these have to do with...
4/4
To do with underlying liquidity conditions, the ease of borrowing, inverted or hedged balance sheet structures, and other types of pro-cyclical incentives and behaviors. The trick is to understand what causes a reversal of these conditions.

• • •

Missing some Tweet in this thread? You can try to force a refresh
　

Keep Current with Michael Pettis

Michael Pettis Profile picture

Stay in touch and get notified when new unrolls are available from this author!

Read all threads

This Thread may be Removed Anytime!

PDF

Twitter may remove this content at anytime! Save it as PDF for later use!

Try unrolling a thread yourself!

how to unroll video
  1. Follow @ThreadReaderApp to mention us!

  2. From a Twitter thread mention us with a keyword "unroll"
@threadreaderapp unroll

Practice here first or read more on our help page!

More from @michaelxpettis

Michael Pettis Profile picture
4 Feb
1/5
This article suggests that the reason the surge in China’s surplus isn't being matched by an equivalent rise in PBoC reserves is because there was an increase in other net capital outflows. But this is true simply by definition. The balance of...

scmp.com/economy/china-…
2/5
payments must always balance.

What really matters is what explains those other net capital outflows. There was of course a significant increase in net dollar assets among Chinese banks, which is where much of the suspicion lies, along with substantial errors and...
3/5
omissions, and the article quotes an analyst as suggesting that “Commercial banks are soaking up a lot of dollars so that they can use it for overseas lending and investments.”

That’s a little weird. It might have made sense two years ago when RMB interest rates...
Read 5 tweets
Michael Pettis Profile picture
4 Feb
1/5
Yes, you are right, Matt. In hindsight we forget how terrified the US and Europe were in the late 1950s and 1960s about what seemed like a formidable Soviet technological threat, along with a relative growth rate so high that in the early 1960s most economists expected
2/5
that the USSR would overtake the US economically and technologically during the 1980s. You have only to watch the Nixon-Khrushchev kitchen debate in 1959 to see how Soviet confidence in their technological path so exceeded US confidence.

3/5
In retrospect both sides got it so wrong that today it seems almost comical, and it is impossible to believe that the US or anyone else once took the threat seriously, but in fact an awful lot of very smart and knowledgeable people did, and a lot of long-term planning...
Read 5 tweets
Michael Pettis Profile picture
2 Feb
1/7
While there was a certainly a long period in which provincial growth rates collectively exceeded the national growth rate, Shehzad, they have been more closely in line over the past few years. In fact when I counted up 2020 GDP province by province, I came up with...
2/7
RMB 101.24 trillion, vs the national NBS figure of RMB 101.59. That's not a big difference, but at least it is on the "unexpected" side.

Obviously there are other problems with the data – you found many instances of fudging, while I worried more about the capitalization...
3/7
in the past 15-20 years of what should've been expensed (necessary if they are to target GDP growth rates above the real growth rate of the underlying economy) – and the provincial data is clearly worse than the national data: even Beijing has acknowledged this many times.
Read 7 tweets
Michael Pettis Profile picture
1 Feb
1/4
Interestingly enough, when the Massachusetts Bank Commissioner first went after Charles Ponzi’s scheme in August 1920 (only 8 months after it started), many of his investors blamed their subsequent losses on highly biased meddling by the...

ft.com/content/4916c4…
2/4
authorities, and angrily accused the financial elites of trying to destroy an operation that was bringing the secrets of Wall Street to the masses. Ponzi, they said, was trying to help ordinary people in their struggle with the bankers, and the bankers had decided to...
3/4
go after him only because his financial operations had been so successful .

One way to be a successful con man, it seems, is to tap into the legitimate resentment of the aggrieved and convince them (and perhaps yourself) that you are their champion. By the way at least...
Read 4 tweets
Michael Pettis Profile picture
31 Jan
1/4
As Beijing tries to limit the money entering real estate and wealth-management products, both of which have assumed bubble-like proportions in the past several years, it seems that money is now pouring into mutual funds, which were up 48% in 2020.

ft.com/content/e9a7f4…
2/4
Such is the frenzy for new funds that 20-30% of the cash raised by new equity funds is redeemed within six months. Investors seem to be churning new fund launches the way they churn IPOs, buying new funds for an expected pop in value and then quickly flipping them.
3/4
This isn't an especially new problem in China, but it does reinforce the lesson – one we've seen many times before in many other economies – that you can't really control bubble-like behavior by clamping down on the symptoms of any particular bubble. If the underlying...
Read 5 tweets
Michael Pettis Profile picture
29 Jan
1/5
Economically troubled Liaoning province is merging 12 banks into one “first-class urban commercial bank” that has a “clear shareholding structure, abundant capital adequacy, tight internal risk control and fine governance.”

caixinglobal.com/2021-01-29/lia…
2/5
While the provincial government hasn't given any information about which banks will be merged, what their new structure will entail, and how they will be capitalized, there is an important lesson here about the positive feedback between GDP growth and bank expansion.
3/5
When the economy is growing rapidly, banks learn to expand credit too generously and encourage borrowers to take on balance-sheet risk, both of which further encourage growth. The problem is that once the economy begins to slow, this highly pro-cyclical process goes..
Read 5 tweets

Did Thread Reader help you today?

Support us! We are indie developers!

This site is made by just two indie developers on a laptop doing marketing, support and development! Read more about the story.

Become a Premium Member ($3/month or $30/year) and get exclusive features!

Become Premium

Too expensive? Make a small donation by buying us coffee ($5) or help with server cost ($10)

Donate via Paypal Become our Patreon

Thank you for your support!

Follow Us on Twitter!

Like this author's thread?

Get emails when @michaelxpettis has new unrolls!

Check out other threads from @michaelxpettis!

Read all threads by @michaelxpettis