Dear Hedgeye Nation,
We just hosted nine of the sharpest investing minds on HedgeyeTV for a 3-day bonanza of world-class interviews. During the first day of our semiannual Hedgeye Investing Summit, Hedgeye CEO Keith McCullough was joined by Portfolio Manager at Quadriga, Diego Parrilla.
Below is a brief excerpt and transcript from the interview. You can access the entire hour-long interview, as well as the 8 other financial market webcasts, by registering here.
* * *
In this clip from the first day of Hedgeye’s Investing Summit, Hedgeye CEO Keith McCullough & Diego Parrilla (Portfolio Manager at Quadriga) break down rip roaring commodity and energy inflation, how over-charged monetary stimulus is leaving the entire globe susceptible to stagflation, and why China is “Lehman Squared.”
"Evergrande is more like Bear Stearns than Lehman, because we're going to look back and connect the dots... we'll see that this is the tip of a giant iceberg of leverage, bubbles, and implicit guarantees," says Parrilla.
Parrilla: The Chinese economy and the Chinese model is very much obsessed with control. And it does it in a way that imposes a lot of rigidities in the system, be it the one child policy, the currency controls, the monetary policy mechanisms and everything else.
And what from the outside looks like an incredibly robust, solid framework, it's actually potentially quite fragile under certain circumstances. A bit like a concrete building in an earthquake. Right. It might look very, very strong.
Let's start with the the currency controls. So you decide that you want to control the exchange rate, the flow of money, and you make it very difficult for money to go. And then what you do is every time you you face some some crisis, you're going to effectively print a ton of money, which cannot really exit freely. So what happens with that money that is printed and stays in the system?
Well, it kind of flows into things like real estate and infrastructure. And you sort of create this dynamic where it's been about 30% of the Chinese GDP is related to the construction. And so you have this dynamic where all this liquidity, all this money, all these imbalances, in my opinion, actually flow into this and create higher and higher valuations and a model that has a lot of leverage.