The interesting thing about the China story, getting back to the macro and micro, and as dire as I think the macro story is - due to bad credit and credit extension that makes Greece and Spain and the U.S. look like child's play - when you get to the micro of individual companies, they look even worse.

What we define as a bubble is any kind of debt-fueled asset inflation where the cash flow generated by the asset itself - a rental property, office building, condo - does not cover the debt incurred to buy the asset. So you depend on a greater fool, if you will, to come in and buy at a higher price.

What people don't realize is that China papered over its last two credit bubbles, those in 1999 and 2004. The banks were never bailed out - they just exchanged their bad loans for questionable bonds from quasi-state organizations.

In China, remember, the the banks are arms of state policy. They loan because the local party official or regional party official tells them we need a new stadium. They are instruments of state policy.

I call it the Rule of Three. If you read a company's financial statements three times, and you still can't figure out how they make their money, that's usually for a reason.

Bubbles are best identified by credit excesses, not valuation excesses. And there's no bigger credit excess than in China.

Increasingly, the real estate developers can't get bank loans for their project financing in China. They're now going into the Hong Kong market to raise money in the bond market at very, very high rates, as high as 15, 20 percent.