On the one hand, Bloomberg today tells us retail demand for stocks is as hot as ever:“Over the last few weeks, every down move has been met with buyers that have come in,” Brad Sorensen, director of market and sector analysis at San Francisco-based Charles Schwab Corp., said by telephone. His firm has $2.08 trillion in client assets. “People on the sidelines are waiting for a pullback to get into the market that they’ve missed for the past six months. We’re seeing more of that today.”On the other, we have someone well-placed in China telling the world that its local debt is a train wreck waiting to happen, a classic Minksy Ponzi unit, but the timing of the unraveling is uncertain. And the source is an authority and not the sort one would expect to make remarks like that casually.The Financial Times tells us the alert comes from Zhang Ke, vice chairman of the Chinese accounting association, who said his accounting firm, ShineWing, had virtually stopped signing the financial statements for bond sales by local governments. He described the debt as “out of control” with the potential to cause a bigger-than-housing-crisis level bust. But since the obligations can still be rolled, who knows when the dubious debt will fall under its own weight. As the article explains:Local government debts soared after 2008, when Beijing loosened borrowing constraints to soften the impact of the global financial crisis. Provinces, cities, counties and villages across China are now estimated to owe between Rmb10tn and Rmb20tn $1.6tn and $3.2tn, equivalent to 20-40 per cent of the size of the economy.Last week, Fitch cut China’s sovereign credit rating, in the first such move by an international agency since 1999. On Tuesday, Moody’s cut its outlook for China’s rating from positive to stable.Local governments are prohibited from directly raising debt, so they have used special purpose vehicles to circumvent these rules, issuing bonds under the vehicles’ names to fund infrastructure projects.Investment companies owned by local governments sold Rmb283bn of bonds in the first quarter of 2013, more than double the total for the same period last year. Such an increase would normally be expected to boost the economy, but China’s growth unexpectedly slowed to 7.7 per cent in the first quarter of 2013.Mr Zhang said many local governments had invested in projects from public squares to road repairs that were generating lacklustre returns, and so were relying on financing rollovers to pay back their creditors. “The only thing you can do is issue new debt to repay the old,” he said. “But there will be some day down the line when this can’t go on.”

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