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輕鬆賺錢
Important Information
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
This material has been prepared solely for the purposes of illustration and discussion. “Broyhill Asset Management” is the marketing
name for the investment management business conducted by Broyhill Asset Management, LLC. and its affiliates. Broyhill Asset
Management, LLC is an SEC Registered Investment Advisor. Private investment vehicles are offered through Broyhill Wakin General
Partners LLC, Surety Capital Management LLC, and Broyhill Strategic Partners LLC, and are only offered by delivery of confidential
offering memorandum and subscription materials to eligible investors who meet certain statutory and/or regulatory criteria. Each General
Partner is a separate legal entity and is affiliated with Broyhill Asset Management, LLC through common ownership and control.
Under no circumstances should the information contained herein be used or considered as an offer to sell, or solicitation of an offer to
buy any security. Any security offering is subject to certain investor eligibility criteria as detailed in the applicable offering documents. The
information contained herein is confidential and may not be reproduced or circulated in whole or in part. The information is in summary
form for convenience of presentation, it is not complete and should not be relied upon as such.
Any information, data, statement, opinions, or projections made herein may contain certain forward looking statements, projections, and
information that are based on the beliefs of Broyhill Asset Management as well as assumptions made by, and information currently
available to, Broyhill Asset Management. Such statements reflect the view of Broyhill Asset Management with respect to future events and
are subject to certain risks, uncertainties and assumptions (including, but not limited to, changes in general economic and business
conditions, interest rate and securities market fluctuations, competition from within and without the investment industry, new products
and services in the investment industry, changes in customer profiles, and changes in laws and regulations applicable to Broyhill Asset
Management). Should one or more of these other risks or uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those described herein.
All information, including performance information, has been prepared in good faith; there are no representations or warranty expresses
or implied, as to the accuracy or completeness, of the information, and nothing herein shall be relied upon as a promise or representation
as to the past or future performance. This material may include information that is based, in part or in full, on hypothetical assumptions,
models, and/or other analysis (which may not necessarily be described herein), no representations or warranty is made as to the
reasonableness of any such assumptions, models, or analysis. The information set forth herein was gathered from various sources which
are believed, but not guaranteed, to be reliable. Unless stated otherwise, any opinions expressed herein are current as of the date hereof
and are subject to change at any time. Accordingly, neither Broyhill Asset Management not its principals or affiliates make any
representations as to the timeliness of any information in this presentation.
How Do You Say “Easy Money” in Mandarin?
Conference Dial-In Number: (218) 339-3600 Participant Access Code: 722682#
Conference Playback Number: (218) 339-3699
Access Code: 722682#
Thursday, November 3rd, 2011
The call will begin promptly at 11:00AM EST
Agenda
Characteristics of a Bubble
Cyclical Slowdown
Logical Fallacy
Food for Thought
Agenda | 4
Bubble
Behavior
Manias, Panics, and Crashes
1. Compelling Growth Story
2. Blind Faith
3. Misallocation of Capital
4. Surge in Corruption
5. Fixed Currency Regimes
6. Credit Boom
7. Moral Hazard
8. Madness of crowds
9. Ponzi Finance
10. Bubble Valuations
Bubble Behavior | 6
Source: GMO White Paper, China’s Red Flags, March 2010
A Compelling Growth Story
CHINA’S CONTRIBUTION TO WORLD GROWTH
Bubble Behavior | 7
Blind Faith
Advantages over market economies
An advantage of a planned economy, one which was among
the most important for socialist economists of the early 20th
century, is that it is theoretically not subject to major pitfalls
of market economies and marked-oriented mixed
economies. A planned economy, in theory, does not suffer
from business cycles; it does not experience alleged crises of
overproduction such as the one that was believed to have
contributed to the Great Depression. From the modern
perspective, planned economies theoretically do not result in
asset bubbles – massive misallocations of resources such as
the dot-com bubble of the late 1990s or the housing bubble
of mid-2000s. Source: Wikipedia
Bubble Behavior | 8
Misallocation of Capital
Source: JPMorgan
CHINA CONSUMPTION & INVESTMENT AS PERCENTAGE OF GDP
Bubble Behavior | 9
Investment Boom in Historical Context
Source: Knight Capital
CHINA’S BOOM HAS SURPASSED ANYTHING WE HAVE EVER SEEN HISTORICALLY
Bubble Behavior | 10
Corruption
Bubble Behavior | 11
Fixed Exchange Rates
ACCUMULATION OF RESERVES FINANCED BY AN EXPANDING MONETARY BASE
Bubble Behavior | 12
Easy Money
LOCAL GOVERNMENT DEBT GREW 36-FOLD IN 13 YEARS!
Bubble Behavior | 13
Moral Hazard
GROWTH RATE OF LOANS & DEPOSITS
Bubble Behavior | 14
The Madness of Crowds
Bubble Behavior | 15
Ponzi Finance
OFF-BALANCE SHEET FINANCING HAS GROWN IN IMPORTANCE
Bubble Behavior | 16
Bubble Valuations
A TALE OF FOUR HOUSING BUBBLES
Bubble Behavior | 17
China’s Ghost Cities
Bubble Behavior | 18
http://www.youtube.com/watch?v=wm7rOKT151Y&feature=related
Cyclical
Slowdown
Yield Curve Warning of Imminent Growth Slump
Cyclical Slowdown | 20
Source: Bloomberg
CHINESE YIELD CURVE AT “LEHMAN LEVELS”
Chinese Credit Expansion: Too Far, Too Fast
CHINA IS A HIGHLY INDEBTED COUNTRY
Cyclical Slowdown | 21
Monetary Conditions Have Become Restrictive
CHINESE M1 & M2 GROWTH (YOY%)
Cyclical Slowdown | 22
Source: Societe Generale
Tighter Credit Driving Underground Lending
WENZHOU PRIVATE LENDING RATE
Cyclical Slowdown | 23
Large Volume of Shadow Banking Flowing to Real Estate
Source: Societe Generale
CHINESE PROPERTY DEVELOPERS ARE LOOKING EVERYWHERE FOR FUNDING
Cyclical Slowdown | 24
The Result – A Decline in NPLs?
The amount of bad debt held by mainland commercial
banks declined during the second quarter, the China Banking
Regulatory Commission said.
Problem, or “non-performing” loans dropped 2.4 per cent
to 422.9 billion yuan at the end of June while the non-
performing loan ratio slipped 10 basis points from March to
1 per cent in June.
- South China Morning Post
Cyclical Slowdown | 25
Logical
Fallacy
Consumption Share of GDP
2001 45.3% 34.6% 16.0% 4.0%
2002 44.0 36.2 15.6 4.2
2003 42.2 39.1 14.7 4.0
2004 40.6 40.5 13.9 5.1
2005 38.8 39.7 14.1 7.4
2006 36.9 39.6 13.7 9.7
2007 36.0 39.1 13.5 11.4
2008 35.1 40.7 13.3 10.9
2009 35.0 45.2 12.8 7.0
2010 33.8 46.2 13.6 6.4
Source: Michael Pettis, China Financial Markets
Logical Fallacy | 27
CONSUMPTION INVESTMENT GOVERNMENT TRADE
The Arithmetic of Consumption
46.0% 50.0% 54.0%
GDP Growth
2.0% 5.1 6.0 6.8
4.0% 7.2 8.1 8.9
6.0% 9.3 10.2 11.0
8.0% 11.3 12.2 13.1
10.0% 13.4 14.3 15.2
Source: Michael Pettis, China Financial Markets
EXPECTED CONSUMPTION AS SHARE OF GDP
Logical Fallacy | 28
The Implications
As consumption declined as a share of GDP, investment
increased. By definition, as China rebalances, this must
reverse.
Consumption has grown at a very rapid 7-8% annually over
the last decade. If it remains at this level, China can slowly
rebalance with GDP growth of 4-5%.
But history suggests that if GDP growth drops this sharply,
it will be incredibly difficult for income and consumption
growth to be maintained.
Logical Fallacy | 29
Food for
Thought
These Things Aren’t Banks
Food For Thought | 31
Chinese banks have very little breathing
room to absorb potential losses. A 12-
15% NPL ratio would erase all bank
equity.
Fitch reports bad loans could rise to 15-
30% of bank assets. NPL’s reached 40%
during China’s last financial crisis and
these loans are still lingering on China’s
balance sheet.
The recent surge in Chinese debt
exceeded credit expansions during the US
credit bubble, in Japan prior to its
property bubble and in South Korea
before the Asian Financial Crisis.
Copper Hangover
“China has for the first time revealed the estimated size of
its copper inventories, shedding light on one of the
commodity market’s biggest mysteries.
“Chinese copper inventories stood at 1.9m tonnes at the
end of 2010, more than the US consumes in a year,
according to estimates by the state-backed China Non-
Ferrous Metals Industry Association. The estimate is
significantly higher than the 1.0m-1.5m tonnes range that
foreign executives have assumed in the past.”
- Financial Times
Food For Thought | 32
Hot Money Indicator
RATES, RENMINBI, & HOT MONEY
Food For Thought | 33
Remnants of Smoot Hawley
CHINA’S LIQUIDITY PUMP HAS JUST BEEN SWITCHED OFF
Food For Thought | 34
Bottom Line
Every single case in history where countries have undergone
decade(s) of investment-led “miracle” growth has ended far
worse than even the most pessimistic forecasts during the
boom period.
China is the most extreme version of this growth model to
date. Why should it somehow find itself immune from the
consequences that have afflicted every one of its
predecessors?
Food For Thought | 35
Related Investment Positions
0.5%
139.7%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
160.0%
Capital at Risk Notional Exposure
Chinese Yuan Puts
0.9%
81.5%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
Annual Carry Notional
Related Credit Default Swaps
1.9%
128.5%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
Capital at Risk Notional Exposure
Australian Interest Rate Swaptions
1.0%
112.9%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
Capital at Risk Notional Exposure
Australian Currency Puts
Food For Thought | 36
For more information please contact:
Mr. Christopher R. Pavese, CFA
Broyhill Asset Management
800 Golfview Park
Post Office Box 500
Lenoir, NC 28645
Phone: 828 758 6100
Fax: 828 758 8919
Contact Information