Preventing a Financial Crisis: Why China Won’t Open Its Economy (w/ Chris Balding)

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So how justified is the pessimistic China story of doom and gloom?
I agree with their analysis.
And I disagree pretty strongly with the conclusions they draw.
And here’s what I mean by that, everything that the China pessimists talk about with
regards to overcapacity, excess debt, all of that is true.
And, in fact, it’s probably, in reality, worse than even what they say.
They’re entirely right about what that typically leads to.
Here’s where I differ significantly, I see a potential financial crisis as the last outcome in the China story.
And there’s a very simple reason for that.
And it has nothing to do with finance or economics.
And it’s this, if there is a China crisis, of what you and I would mutually agree upon
is a true financial crisis, 2008, you know something like that, that is what would become
the once a century event.
That would be D-day, that would be the communists rolling into Moscow, that would be 1989, all
rolled into one event.
Beijing knows this, OK?
Beijing will do everything possible to prevent a financial crisis from taking place.
Now, I need to be perfectly clear, that doesn’t mean that they’re going to make good policy
decisions.
It most definitely does not mean that they’re going to make good policy decisions.
But it does mean that their objective is to prevent a financial crisis, at all costs.
When the US government was looking at some of the decisions it made in 2008, it made
a very clear, conscious decision, we are not going to rescue some of these firms, we are
not going to rescue specific asset holders in the decisions they’ve made.
Now we can debate whether or not that was the right decision, but there was a very clear
decision, we’re not going to do this, we’re not going to allow specific pain or events
to unfold.
Beijing does not have that option.
Someone I trust quite seriously on these issues said, it is Beijing’s objective to become
Tokyo, not Thailand.
And what they mean by that is, they are very willing to turn it into a long, grinding mess,
but they are absolutely, under no uncertain circumstances, willing to let it become a
financial crisis.
Because if it is a financial crisis, that changes everything we know about China, overnight.
That is the once a century event, and Beijing is going to do everything they can to prevent
that from happening.

Here’s How One Former Hedge Fund Manager Plans To Democratize Financial Information

Raoul Pal’s best idea came to him over a glass of wine with Grant Williams.

It was Spain, the year was 2013, and Pal was producing his own research publication called The Global Macro Investor. Years earlier, he’d left a global macro hedge fund called GLG Partners when the industry veered in a direction he didn’t like.

Coming into his conversation with Williams, Pal had already spoken with two friends about the changes sweeping the media landscape and the inability of television companies and publishers to adapt. As the two enjoyed their wine, Pal threw out a crazy idea: why not start their own on-demand TV channel for finance?

A year later, the duo worked with three other founders to bring that idea to life. The end result was Real Vision, which was born with a simple mission: democratizing financial information in as many ways as possible for as many people as possible.

The company produces free content, including a podcast called Adventures in Finance and its 20/20 newsletter, and paid content that includes two newsletters – Real Vision Think Tank and Macro Insiders – and high-quality videos available by subscription. Providing actionable data to paying subscribers was a risky choice in a world where free, bite-sized content with punchy headlines seems to be the preference.

“When we started this business, we could have gone the route of BuzzFeed or Business Insider and generated content, gone after advertising dollars, and chased the short attention span with the clickbait headlines,” Pal said. “When we sought advice, we were told people would not be willing to pay to watch longform videos. Being contrarians, we decided to offer hour-long conversations on a subscription basis.”

The reasoning for why Pal and his fellow co-founders decided to go against industry trends offers a compelling lesson for aspiring entrepreneurs: “The opportunities always lie where everybody else is not doing something.”

Video creators are attractive in the new media landscape

Right now, the hottest opportunity with content is video. This is true online and with television, where cable is being disbanded and companies like Amazon, Netflix, Apple, HBO and Disney are rushing to be both providers and content creators. Real Vision has become a highly attractive proposition by creating relevant and insightful video content, especially with a younger generation of investors and curious financial minds.

“The average viewer of CNBC is 63 years old,” Pal explained. “Meanwhile, we have deals with Cambridge University and MIT to attract students. We have Millennials, Gen X’ers and Baby Boomers. Our audience skew is young, massively educated, and well-paid, which is a fantastic demographic to have in this platform world.”

Pal’s opinions on what financial media should be were formed in part from watching the mainstream media cover the financial crisis of 2008. Pal was appalled by the way print publications and news networks opted for racy, exciting coverage that treated the loss of people’s life savings with such flippancy. He also saw a lack of truth and balance in the narratives that were being presented to everyday investors.

“The narratives given to the world are often picked by investment banks because they don’t want to take you the darker side of what’s going on in the world,” Pal said. “There are sites like Zero Hedge where people can see what’s really going on, but I saw a need for more truth and balance in finance. That’s how our ideas came together.”

Navigating the challenges of entrepreneurship

Seizing opportunity always comes with risk, as Pal and his team discovered while they worked to start the company, which was financed for the first couple years. A large chunk of those funds was spent on a platform that could handle the demands Real Vision’s video library would place on the site, especially as its user base expanded. When the site went live, the team was horrified to learn that users were universally having trouble playing videos in their browser. Thankfully, a Swedish developer based in Malaysia reached out and helped Real Vision build their current platform.

But that initial mistake torched over a million dollars of funding. Pal learned an important startup lesson in those early days that every founder should know going in:

“You really don’t know what you’re doing most of the time.”

To paraphrase Reid Hoffman, Pal discovered that running a startup is like “throwing yourself off a cliff and trying to assemble a parachute on the way down.” It’s been the biggest challenge of his career partly because of how little he knew about his new industry, which required him to quickly accumulate industry knowledge. He also felt out of his element managing video editors, so he had to acquire new management skills.

When your company grows seven-fold in 18 months, decision making happens rapidly and it can become difficult to maintain control. In order to manage Real Vision’s growth, Pal had to prioritize processes and structure, two concepts he’d paid little attention to up to that point in his career: “Get the process and the structure right,” he advised. “Without those things, you cannot build a business. It will keep falling over.”

Another hard reality that Pal had to confront was constant failure. As he learned from other founders, dealing with failure in a startup is all part of the process.

“We fail endlessly every single day,” Pal admitted. “But the point is that every time you fail, you pick yourself up, figure out why you failed, and then jump over that hurdle and keep going. You have to see hurdles as speed bumps and not brick walls. Just keep your eyes on the horizon and move forward without leaving a trail of destruction behind you. To do that, you need the right staff and the right infrastructure. It’s been hard, but starting this company is one of the most rewarding things I’ve ever done.”

Time to ditch CNBC and get Real (Vision)

The key value that Real Vision adds stems from its “long-form documentaries, in-depth interviews and actionable analysis.” These contrast starkly with CNBC’s 60-second sound bites.

For example, Williams’ recent interview with David Stockman, Ronald Reagan’s former budget director, ran nearly 90 minutes.

Real Viewers who invested the time got an in-depth overview of how America’s 1971 default on its gold debts (which few CNBC viewers have even heard about) may be setting the stage for a colossal reset.

“Major media are perpetual bulls because this draws advertisers,” jokes Williams. “Imagine running a mutual fund ad right after an analyst says the market is overvalued. That wouldn’t work well. But we don’t run ads. So we can offer a wider range of opinions.”

Fed employees not allowed to speak to the press

With Real Vision broadening its content, Williams has increasingly focused on digging deeper into the Federal Reserve and the shady world of central banking. The process has heightened his conviction about the role that physical gold needs to play in investor portfolios.

That said, it hasn’t been easy. As John Maynard Keynes noted, central banks go to huge lengths to hide their primary roles as government tax collectors.

Federal Reserve employees, for example, are forbidden from speaking to the press. To make sure that they don’t, the Fed only hires the most obsequious candidates, from universities whose graduates have a reputation for towing the line.

The process works.

With the exception of Danielle DiMartino Booth, whose book Fed Up! appeared after the last financial crisis, the Fed—which some argue is running a colossal Ponzi scheme—has not had a major whistle blower in its 100+ year history.

The same applies to the big banks, which according to Keefe, Bruyette & Woods have paid nearly $250 billion in fines for fraudulent activities, without one of their key executives having “blown the whistle” to warn the public.

Williams, though not a journalist by training, has picked up a decent bag of tricks over the years.

For example, this week Real Vision ran a 90-minute interview with William White, an obscure former Bank of Canada, BIS and now an OECD official, who has been out of central banking for more than ten years.

CNBC journalists, who are only interested in sound bites, wouldn’t have given White two minutes of their time. Yet his importance cannot be overstated.

Williams knew that because White was no longer affiliated with the central banks (but remains connected with the key players), he was thus able to speak relatively candidly.

Central banks’ steady incompetence

White’s warnings—that central banks’ steady incompetence has dug them into a huge hole, that they are likely all working for themselves (as opposed to colluding, as some suspect) and that global debts will not be paid back—thus need to be taken with utmost seriousness.

White also reminded Real Vision viewers that he had worked closely with Claudio Borio, the current head of the economics department at the BIS, and suggested that the two thought alike.

This provides a strong hint that Borio’s commentaries during the coming months will be “must-reads” for all who are monitoring the international financial system.

A broad range of sources

Critics argue that viewers of CNBC and other mainstream media have more than made up their losses since the dot.com and housing bubble crashes.

However, that only applies to investors who were wealthy enough to hold on throughout and after the crises. Ordinary and poorer investors weren’t able to risk their remaining assets. Many left the market, never to return.

A market crash today would be particularly catastrophic to baby boomers, many of whom are simply too old to be able to wait out another boom-bust cycle. Hence the importance of Williams’ reasoning.

With consumer, business and public sector debts and most major markets all near record levels, investors do need to consult a broad range of sources.

But those who only have time to follow just one financial network should probably ditch CNBC and get Real Vision.