From China, with concern

"The media would have you believe that the ongoing "official" correction in the U.S. equities market is all about the southern member states of the Euro-zone – Greece, Portugal and Spain (GPS). Although concern about the economically-weak and highly-indebted Euro-zone states have played a role in the U.S. equities market correction, we think there is more to the correction than GPS. Moreover, we believe that the problems of these challenged Euro-zone members will not have a significant effect on U.S. or global economic activity in the foreseeable future. China might, but not Greece, Portugal and Spain."

Paul Kasriel/Asha Bangalore

Indeed. We need to refocus on the real elephant in the room: China. Because, as much as the Mediterranean fellows above would like to matter a lot, maybe they don't, relatively speaking. Greece is a great nation. But just not as big as China. Should China slow down its commodity hoarding: down the market goes. And not the puny 10 percent down. Should it really cool off its infrastructure spending: down. Should it talk about buying less Treasuries: yields up right away, in a meaningful way. But not yet.

China sure has its hands full. The whole export-internal consumption reorientation and etc. And some of us may talk about shorting its real estate companies being a sure bet. But I suspect that the Chinese government will do everything it can to limit the downside and not to lose face. And it may as well be able to deflate this slowly, without major blow-ups, at least officially. Instead of a burst, we may get a prolonged, controlled decline. Isn't that at least a possibility?

Let's not forget that in China, the private sector does not end where the Party starts and vice versa. If we bailed out pretty much everybody, I am pretty skeptical on China not doing the same for its lenders/developers. Debt "restructuring" and robust/ongoing cap infusions will follow. This is not 1998 and China is no Russia. Nobody is defaulting on anything and the show must go on. Monetize and Infuse. And if it goes long enough it might as well outlast the current deflationary spell in the West and James Chanos' shorting effort.

"It’s not yet time for China to discuss reducing or stopping policy support for the nation’s real estate industry, the Securities Times reported today, citing Li Fuan, head of the China Banking Regulatory Commission’s department of banking innovation."

via Bloomberg

Not yet.