“Markets are always a puzzle,” Elliott Management founder Paul Singer mused in his June 30 letter to investors reviewed by ValueWalk. As he looks at China and non-cleared derivatives, two seemingly unrelated issues, Paul Singer’s Q2 Letter  sees markets that are “sheathed in dense clouds which teasingly part for only brief glimpses of what may lie beyond.”

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Paul Singer's Q2 Letter - Chinese "wealth management products" seem much like 2008-like US derivatives

Non-financial sector debt in China has grown over 400% since the 2008 financial crisis, with a debt to GDP level now rivaling Japan near 257%. Looking under the hood of Chinese debt, leverage and financial products that could be causation for the next crisis, Paul Singer's Q2 letter spots two candidates – both of which bear similarities to what was causation for the 2008 version.

Individually-held Chinese “wealth management products” appear more like a parlor game that provide a return to investors without much understanding of how they work. These investment vehicles, offered by mainstream banks, have racked up $10 trillion in assets. But Singer notes troubling similarities with the nontransparent investment products at the center of the 2008 crash.

“They are as gamey and inaccurately-disclosed as any of the contraptions of the American derivatives/structured-products/subprime/credit bubbles, and have all the complexity of cross-holdings, debt hidden under the costume of equity, and insane leverage,” he writes. “Moreover, 60% of these products have maturities of less than three months. A more powerful accelerant of a future market crisis can scarcely be imagined.”

The second issue is


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