ONE OF THE TOP HEDGE FUNDS OF 2016 IS BETTING ON A CRISIS THAT BLINDSIDES EVERYONE

BY JULIA LA ROCHE AT BUSINESS INSIDER

A ticking ‘time bomb’

According to McConaghy, there’s a confluence of factors at play, including regional banks overstating recurring earnings, a shrinking mortgage market because of demographic changes, rising competition from semi-government players, the impact of monetary policy causing cash hoarding among households to accelerate, and a massive amount of hidden nonperforming loans that will be a “time bomb” as baby boomers start to turn 70.

The biggest worry

What worries McConaghy the most, though, is the huge number of hidden nonperforming loans (NPLs).

He said:

Japan has been an economy that’s living on borrowed time via hidden nonperforming loans and irregular accounting of equity gains as interest income. The inefficient allocation of labor resources to zombie companies amidst a rapidly declining working age population will continue to dampen economic activity until we see a washout of economically unjustified borrowers.