a couple quotes

22 Feb

A couple recent quotes that speak volumes.

Michael Pettis, in this week’s research note, on the economics of China’s growth :

Not only do I believe that the combination of very low cost of capital, socialized credit risks, and strong short-term political incentives to fund massive projects always leads to capital misallocation, but I also believe that the explosion in [Non-Performing Loans] a decade ago, and the fact that total [State Owned Enterprise] profits are just a fraction of the interest rate subsidy they receive, is strong evidence that misallocated capital has long been a serious problem in China.”

Jeffrey Gundlach, on high-yield bonds (Barron’s):

The current 300 basis-point, or three percentage-point, spread between yields in the high-yield market and on 20-year (Treasury) bonds is as narrow as it has been at any time in the latest credit cycle.


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