Evergrande teeters on edge of default as $148M payment falls due(reuters.com)
reuters.com
Evergrande teeters on edge of default as $148M payment falls due
https://www.reuters.com/business/investors-await-evergrandes-overdue-148-mln-payment-amid-contagion-fears-2021-11-09/
407 comments
Absolutely crazy that the top comment on this story is a "USD short squeeze" idea after 5 hours. These amounts, 200 million, 150 million USD.. this is peanuts, a fart in the wind.
PROTIP: Anyone like Lyn Alden that is offering premium stock tips is by definition a fraud, if you can beat the markets you just beat the markets and Scrooge McDuck-it, you don't run a damn newsletter.
PROTIP: Anyone like Lyn Alden that is offering premium stock tips is by definition a fraud, if you can beat the markets you just beat the markets and Scrooge McDuck-it, you don't run a damn newsletter.
That's a $150 million payment that they can't make. The concern is how are they going to make the future payments? Their total liabilities are on the order of $300 billion. Fantasia (mentioned in the story) is another China real estate developer in trouble. The concern is that this is the tip of the iceberg.
> Their total liabilities are on the order of $300 billion
~300 billion is the size of their debt (485 at the end of H1 2021). Their assets are at +2 trillion, +1 trillion in real estate alone.
Their problem is that with their current cash flow they can't pay their debt, ever, and now, they can't even keep up with the interest. But they're still in a position where selling off part of their inventory can offset the debt, and to my knowledge, that's what they've been trying to do.
That is, if their financial statements area real. That's the quid here, their position isn't particularly anomalous, but the market cap sits at 33 billion, very far from their declared assets, meaning the market doesn't believe those statements. Thats 60 to 1, where most REIT sit at around 2 to 1.
Their main problem is the large amount of unfinished homes (read: not producing any income) and you need money to fix that. My guess is that the government will step in to fix that point in particular.
~300 billion is the size of their debt (485 at the end of H1 2021). Their assets are at +2 trillion, +1 trillion in real estate alone.
Their problem is that with their current cash flow they can't pay their debt, ever, and now, they can't even keep up with the interest. But they're still in a position where selling off part of their inventory can offset the debt, and to my knowledge, that's what they've been trying to do.
That is, if their financial statements area real. That's the quid here, their position isn't particularly anomalous, but the market cap sits at 33 billion, very far from their declared assets, meaning the market doesn't believe those statements. Thats 60 to 1, where most REIT sit at around 2 to 1.
Their main problem is the large amount of unfinished homes (read: not producing any income) and you need money to fix that. My guess is that the government will step in to fix that point in particular.
How sure are you their assets are really worth 2T? Isn't that a lot of the question here?
You are right to ask that question. Generally, real estate is considered a low liquidity asset. I wonder how much their real estate assets are discounted during buy-side analysis.
From Wiki (https://en.wikipedia.org/wiki/Evergrande_Group), I looked at the source for total assets: https://finance.yahoo.com/quote/3333.HK/balance-sheet?p=3333...
At end of 2020: Total assets: 2.3T CNY -> 359B USD (@ 6.40 CNY/USD) Total debt : 0.7T CNY -> 109B USD (@ 6.40 CNY/USD)
From Wiki (https://en.wikipedia.org/wiki/Evergrande_Group), I looked at the source for total assets: https://finance.yahoo.com/quote/3333.HK/balance-sheet?p=3333...
At end of 2020: Total assets: 2.3T CNY -> 359B USD (@ 6.40 CNY/USD) Total debt : 0.7T CNY -> 109B USD (@ 6.40 CNY/USD)
Are you giving the book value of their assets? That tends to collapse when the asset holder is forced to sell in a hurry.
All of which is unrelated to the idea of some sort of /global/ USD short squeeze, which is just a nonsense idea.
Holding debt in another nation's currency involves risks but it is also the case that bond issuers can mitigate that risk with financial tools at the time of borrowing. It is doubly true that the CNY has and still is trading within a narrow band over the life of these debts, currency risks are not a factor in this story in any way.
Holding debt in another nation's currency involves risks but it is also the case that bond issuers can mitigate that risk with financial tools at the time of borrowing. It is doubly true that the CNY has and still is trading within a narrow band over the life of these debts, currency risks are not a factor in this story in any way.
This ‘protip’ is quite wrong on many levels. Observe the behaviour of the most successful investors, and you will notice they write books, go on podcasts, talk about their strategies etc all the time. In fact you can’t shut them up. The world’s most successful investor, the biggest ‘Scrooge McDuck’ of them all, has completely public disclosures.
On the contrary, the worst advice comes from people who have no accountability or reputation to worry about.
On the contrary, the worst advice comes from people who have no accountability or reputation to worry about.
But they talk about them after the trade. And therein lies the trick.
Lehman Bros was, relatively speaking, also a "fart in the wind" - it all started with $2.8 billion loss (not even default). Things kinda snowballed massively from there though, over the course of a few months to the point where it was a threat to the global financial system. The fear is the same could happen in China as well.
Same for Bear Stearns. First hit on Google search for "bear stearns hedge fund losses" gives: https://www.investopedia.com/articles/07/bear-stearns-collap....
Quote: <<July 17, 2007—In a letter sent to investors, Bear Stearns Asset Management reported that its Bear Stearns High-Grade Structured Credit Fund had lost more than 90% of its value, while the Bear Stearns High-Grade Structured Credit Enhanced Leveraged Fund had lost virtually all of its investor capital. The larger Structured Credit Fund had around $1 billion, while the Enhanced Leveraged Fund, which was less than a year old, had nearly $600 million in investor capital.>>
After the incident, Bear took the bad assets onto their own balance sheet. Shortly thereafter, creditors starting asking hard questions: "What other crap is on your bloated balance sheet?"
That said, the PRC gov't might allow Evergrande to default on their offshore/external/USD debt, but provide a bailout onshore. That seems realistic. During the 2008 GFC, Deutsche had an enormous footprint in the United States (via commercial and investment banking). They got almost nothing from US Fed/Treasury during bailouts. Same for UBS. Why not? They were not American corporations.
Quote: <<July 17, 2007—In a letter sent to investors, Bear Stearns Asset Management reported that its Bear Stearns High-Grade Structured Credit Fund had lost more than 90% of its value, while the Bear Stearns High-Grade Structured Credit Enhanced Leveraged Fund had lost virtually all of its investor capital. The larger Structured Credit Fund had around $1 billion, while the Enhanced Leveraged Fund, which was less than a year old, had nearly $600 million in investor capital.>>
After the incident, Bear took the bad assets onto their own balance sheet. Shortly thereafter, creditors starting asking hard questions: "What other crap is on your bloated balance sheet?"
That said, the PRC gov't might allow Evergrande to default on their offshore/external/USD debt, but provide a bailout onshore. That seems realistic. During the 2008 GFC, Deutsche had an enormous footprint in the United States (via commercial and investment banking). They got almost nothing from US Fed/Treasury during bailouts. Same for UBS. Why not? They were not American corporations.
Wouldn't that severely damage China's ability to attract foreign capital, though? I mean, they've already made their printer go brrrr to the point where Jerome Powell would blush, so it doesn't seem like they have a ton of flexibility in terms of domestic monetary policy, and therefore bailouts. And nobody outside China is stupid enough to jump on the deck of this particular Titanic. Nobody inside China is, either, but the government can make them jump on, much like US government did with US financial firms in 2008.
> Wouldn't that severely damage China's ability to attract foreign capital, though?
I kinda get the impression that they want capital for manufacturing rather than property speculation.
Given how important house prices/construction is for their economy and growth, it's gonna be really interesting to see what they do (will they accept negative GDP growth to increase "common prosperity").
I kinda get the impression that they want capital for manufacturing rather than property speculation.
Given how important house prices/construction is for their economy and growth, it's gonna be really interesting to see what they do (will they accept negative GDP growth to increase "common prosperity").
That says pretty appalling things about Western capitalism in general that it is predicated on government (ie, public) backstops, protected from the market, socialism for the rich/elite, and not available to the little people. Starts to look like the worst of communism, frankly.
As JP Morgan said what caused the 1929 stock crash, "someone asked for a dollar".
Lehman was allowed to go bankrupt, which in the UK forced the immediate cessation of operations (in the U.S., the firm can still operate even if its bankrupt). That was the equivalent of shifting to park on a car moving 80 miles an hour, especially as they froze their prime brokerage.
The blow up probably could have been less severe if they smoothed the landing.
The blow up probably could have been less severe if they smoothed the landing.
That's interesting. What is the expected method to emerge from bankruptcy, or at least protect investors and creditors, if a business must cease operations?
My intuition (and the presumption in the U.S.) is that a market position allows a business to dispose of inventory in normal commercial channels more profitably than auctioning it at wholesale in a Chapter 7-style liquidation. Hence first-day motions in U.S. bankruptcy courts.
(Disclaimer: I worked on the Lehman Brothers bankruptcy but did not represent any U.S. or U.K. subsidiaries.)
My intuition (and the presumption in the U.S.) is that a market position allows a business to dispose of inventory in normal commercial channels more profitably than auctioning it at wholesale in a Chapter 7-style liquidation. Hence first-day motions in U.S. bankruptcy courts.
(Disclaimer: I worked on the Lehman Brothers bankruptcy but did not represent any U.S. or U.K. subsidiaries.)
That's a point worth reenforcing. The initial losses were severely compounded by nominal value locked in credit default swaps... which were insured by unbacked policies. There has to be at least one person here that understands the sizes of these derivative markets in China, right?
Nearly every single financial company (including JPM, Morgan Stanley, etc) offer premium stock tips through there analysts...
Lyn Alden's site is a wealth of knowledge but I don't subscribe to any newsletters.
Lyn Alden's site is a wealth of knowledge but I don't subscribe to any newsletters.
> Nearly every single financial company (including JPM, Morgan Stanley, etc) offer premium stock tips through there analysts...
Well, they're expected to do that to maintain their stature as the "lighthouses" of the financial system
Well, they're expected to do that to maintain their stature as the "lighthouses" of the financial system
Not to mention, are they really doing it in good faith? Back in the GFC days, Goldman made headlines for just trading against their clients. Rather, I guess, for saying the quiet part out loud.
> Thomas Mazarakis, who heads Goldman’s fundamental strategies group, told select clients in an email that his unit often provided investment ideas that the firm had already traded on and the firm sometimes took the opposite approach, betting against particular instruments recommended by the group, the Times said.
> “We may trade, and may have existing positions, based on trading ideas before we have discussed those trading ideas with you,” the paper quoted Mazarakis as writing in the email. [1]
Would seem a good way to monetize your audience is to (a) get paid to (b) take positions and then (c) control the narrative around your positions - both publicly and to paying customers to gin the position up.
[1] https://www.reuters.com/article/us-goldmansachs-trades/goldm...
> Thomas Mazarakis, who heads Goldman’s fundamental strategies group, told select clients in an email that his unit often provided investment ideas that the firm had already traded on and the firm sometimes took the opposite approach, betting against particular instruments recommended by the group, the Times said.
> “We may trade, and may have existing positions, based on trading ideas before we have discussed those trading ideas with you,” the paper quoted Mazarakis as writing in the email. [1]
Would seem a good way to monetize your audience is to (a) get paid to (b) take positions and then (c) control the narrative around your positions - both publicly and to paying customers to gin the position up.
[1] https://www.reuters.com/article/us-goldmansachs-trades/goldm...
Your last sentence is perfect: pithy. This same strategy is, of course, also used by short sellers. Larger hedge funds have a PR team that works to increase media coverage of their short positions. See: Bill Ackman and Herbalife.
> PROTIP: Anyone like Lyn Alden that is offering premium stock tips is by definition a fraud, if you can beat the markets you just beat the markets and Scrooge McDuck-it, you don't run a damn newsletter.
For all I know you are right about Alden's ethics, but the EMH is not baked into the definition of fraud.
In fact, many investors do offer public trading advice: it's common among short sellers to both short their targets and publish analyses explaining why they think their target is overvalued. This is controversial, but if it is clear to receivers of the advice that the advice comes from a short-seller whose positions are known, then I do not regard it as particularly unethical.
For all I know you are right about Alden's ethics, but the EMH is not baked into the definition of fraud.
In fact, many investors do offer public trading advice: it's common among short sellers to both short their targets and publish analyses explaining why they think their target is overvalued. This is controversial, but if it is clear to receivers of the advice that the advice comes from a short-seller whose positions are known, then I do not regard it as particularly unethical.
I think the bigger implication here is that Evergrande may roll over and cause a shit tsunami.
[deleted]
Official or public available info on those Chinese debts are a couple hundred mils. Yes these are peanuts. But unofficial numbers are several magnitude higher even extremely likely Chinese authority unaware of (2008 showed that US government had no clue how bad it was back then which even AIG almost gone). It is basically the iceberg sinking Titanic in the remaking now on Chinese financial front. Also, when USD start to rise, regional currencies tend to slide...millions and millions middle class people will participate to buy USD as the new inflation hedger like gold (which will be underperforming during the short sequeeze situation). The only thing that will stop this is Chinese government printing money more than Barry did in his terms (basically spreading those debts indirectly pay by citizens).
Or, perhaps the Chinese government revalues gold at $10k.
> Anyone like Lyn Alden that is offering premium stock tips is by definition a fraud
I've been reading everything I could on economy and finance in my early twenties and Lyn Alden blog is the only thing I needed then and wasn't available. She is pure gold — I know no one that is able to explain complex topics in this context with such clarity.
I've been reading everything I could on economy and finance in my early twenties and Lyn Alden blog is the only thing I needed then and wasn't available. She is pure gold — I know no one that is able to explain complex topics in this context with such clarity.
The fart before the storm, perhaps.
>Anyone like Lyn Alden that is offering premium stock tips is by definition a fraud
Hmmm , depends on what these "tips" entail right? What if another website offers long term hold advice via a newsletter and charges you for it? As a matter of fact, I do subscribe to one in India (no , I am not going to publicise it. DM me if you want to know) where the holding periods are anywhere between 2yrs to 5 yrs. There are disclosures that say whether the stock analyst holds the stock/bond etc.
Hmmm , depends on what these "tips" entail right? What if another website offers long term hold advice via a newsletter and charges you for it? As a matter of fact, I do subscribe to one in India (no , I am not going to publicise it. DM me if you want to know) where the holding periods are anywhere between 2yrs to 5 yrs. There are disclosures that say whether the stock analyst holds the stock/bond etc.
The US can keep issuing dollars for as long as they like. And you will buy these pieces of paper because they are backed by the US Military, the US Air Force and the US Navy.
They can keep issuing them. They will not have the same value, though.
No this rule does not apply in the US.
The US has printed 20% of all dollars ever existed since 2020. Check the exchange rates with any other currency, EUR, British sterling, Chinese RMB. Did it become cheaper? Of course not.
We will always buy USD, because it has as a collateral 8billion lives.
The US has printed 20% of all dollars ever existed since 2020. Check the exchange rates with any other currency, EUR, British sterling, Chinese RMB. Did it become cheaper? Of course not.
We will always buy USD, because it has as a collateral 8billion lives.
The reason it hasn't fallen against those other currencies is that the other currencies' supplies have increased more during this period. The printing was global, and the US not a leader on it.
Against everything else than other unlimited supply currencies, fiat money has fallen dramatically. It's a simple fact, not an endorsement of anything.
Everyone knows the basic mechanics of supply and demand on price, but somehow when it comes to fiat money, many manage to swap common sense with a number of convoluted theories.
Against everything else than other unlimited supply currencies, fiat money has fallen dramatically. It's a simple fact, not an endorsement of anything.
Everyone knows the basic mechanics of supply and demand on price, but somehow when it comes to fiat money, many manage to swap common sense with a number of convoluted theories.
You are plain wrong.
Check the most widely accepted scarce commodity: gold. Gold/USD prices are now at the level they were in 2012.
Now if your argument is based on the USD price of Shiba Inu, well I have news for you.
Check the most widely accepted scarce commodity: gold. Gold/USD prices are now at the level they were in 2012.
Now if your argument is based on the USD price of Shiba Inu, well I have news for you.
You're cherry picking the top of the previous inflation scare-fueled gold bullrun (it's up 7x since the year 2000), and the one asset that's heavily manipulated to the downside (demonstrated by the huge premiums in physical delivery during the GME mania which weren't arbitraged away).
Convenient straw man to try and classify anyone exposing the intentionality behind today's inflation levels as a crypto shill. Almost all assets have exploded in fiat values since the start of Covid printing, not just crypto. Supply chain issues didn't affect Rolex watches and metropolis housing markets, money printing, QE and low interest rates did.
Convenient straw man to try and classify anyone exposing the intentionality behind today's inflation levels as a crypto shill. Almost all assets have exploded in fiat values since the start of Covid printing, not just crypto. Supply chain issues didn't affect Rolex watches and metropolis housing markets, money printing, QE and low interest rates did.
We buy USD because its long term existence is practically guaranteed by the power of its military.
The world buys dollars because it needs them to fulfill oil and other commodity contracts, that are priced in dollars, which are then typically reinvested in US Treasuries by commodity exporters (because why not?).
https://www.investopedia.com/terms/p/petrodollars.asp
https://www.bloomberg.com/news/features/2016-05-30/the-untol...
If a country wanted to not buy dollars, here's how that would go.
No Dollars: "Hi, we'd like some oil."
Oil Producer: "Great, here's how much that contract is in dollars."
No Dollars: "How much would it be in my local currency?"
Oil Producer: "Well, you see, we don't really quote in other currencies..."
No Dollars: "Fine, I'll find someone who will."
Middle Person: "I heard you're looking to buy oil with Pentali Marcograms?"
No Dollars: "Sure am, what price will you give me?"
Middle Person: "10% over the exchange rate between Pentali Marcograms and US dollars. You know oil producers trade in dollars, right?"
https://www.investopedia.com/terms/p/petrodollars.asp
https://www.bloomberg.com/news/features/2016-05-30/the-untol...
If a country wanted to not buy dollars, here's how that would go.
No Dollars: "Hi, we'd like some oil."
Oil Producer: "Great, here's how much that contract is in dollars."
No Dollars: "How much would it be in my local currency?"
Oil Producer: "Well, you see, we don't really quote in other currencies..."
No Dollars: "Fine, I'll find someone who will."
Middle Person: "I heard you're looking to buy oil with Pentali Marcograms?"
No Dollars: "Sure am, what price will you give me?"
Middle Person: "10% over the exchange rate between Pentali Marcograms and US dollars. You know oil producers trade in dollars, right?"
> 10% over the exchange rate between Pentali Marcograms and US dollars. You know oil producers trade in dollars, right?"
You are off by three orders of magnitude, which is pretty amazing.
Forex markets have incredibly tight spreads measured in pips, say 1-4 pips, where 1 pip = 0.0001.
The reason why dollars are important is that people store the results of their oil sales in USD assets. What a good is purchased with means nothing. Where you store the proceeds of the sale is what counts.
This goes to that oh-so-tired phrase 'petrodollar', which many autodidacts misuse to signal a lack of understanding of both forex markets and oil economics. What "petrodollars" means is the dollar holdings that oil exporting states maintain. It does not refer to the currency oil is purchased in. It comes from eurodollar, which signifies dollar holdings in Europe, and not the purchasing of European goods with dollars.
Once we get that definition right, we understand it as a synecdoche for US hegemony in reserve currencies -- e.g. where foreign central banks store their wealth. The actual currency oil is priced in - or anything is priced in - means nothing. What is the point of saving a pip in the forex markets if you are going to be losing .1% in bid/ask spreads when you try to store your wealth in an illiquid bond market? No one -- absolutely no one - optimizes for reducing forex costs when deciding in which nation to park their wealth. They are much more concerned with questions like "Is it legal for me to purchase these bonds? will my wealth be confiscated in the future? What kind of fees do I pay when I buy these bonds?"
The reason the world wants to store their wealth as dollar assets is because the US has a reputation for openness to foreign investment, rule of law, political stability, upholding foreign investor rights, and amazingly deep capital markets that can absorb large foreign inflows with very low spreads. So the bid/ask spread when trying purchase a few billion worth of U.S. bonds is much more important to explaining US financial hegemony than what some random country demands as payment.
I think the no. 1 reason why people get this all wrong is they still want to think we live in a world of specie flows. But there are no bearer assets in international trade - you can't take it with you back home. Your foreign trade profits are going to be stored in some custodial account in some other country. So trusting that country is a big deal. People who think trade is conducted with gold nuggets don't see this custodial account problem, and that's why they don't understand why the U.S. is a global reserve currency. That's when all sorts of conspiracy theories about oil sales, or aircraft carriers, come into play as they try to understand the U.S. role using the ideas they are comfortable with.
You are off by three orders of magnitude, which is pretty amazing.
Forex markets have incredibly tight spreads measured in pips, say 1-4 pips, where 1 pip = 0.0001.
The reason why dollars are important is that people store the results of their oil sales in USD assets. What a good is purchased with means nothing. Where you store the proceeds of the sale is what counts.
This goes to that oh-so-tired phrase 'petrodollar', which many autodidacts misuse to signal a lack of understanding of both forex markets and oil economics. What "petrodollars" means is the dollar holdings that oil exporting states maintain. It does not refer to the currency oil is purchased in. It comes from eurodollar, which signifies dollar holdings in Europe, and not the purchasing of European goods with dollars.
Once we get that definition right, we understand it as a synecdoche for US hegemony in reserve currencies -- e.g. where foreign central banks store their wealth. The actual currency oil is priced in - or anything is priced in - means nothing. What is the point of saving a pip in the forex markets if you are going to be losing .1% in bid/ask spreads when you try to store your wealth in an illiquid bond market? No one -- absolutely no one - optimizes for reducing forex costs when deciding in which nation to park their wealth. They are much more concerned with questions like "Is it legal for me to purchase these bonds? will my wealth be confiscated in the future? What kind of fees do I pay when I buy these bonds?"
The reason the world wants to store their wealth as dollar assets is because the US has a reputation for openness to foreign investment, rule of law, political stability, upholding foreign investor rights, and amazingly deep capital markets that can absorb large foreign inflows with very low spreads. So the bid/ask spread when trying purchase a few billion worth of U.S. bonds is much more important to explaining US financial hegemony than what some random country demands as payment.
I think the no. 1 reason why people get this all wrong is they still want to think we live in a world of specie flows. But there are no bearer assets in international trade - you can't take it with you back home. Your foreign trade profits are going to be stored in some custodial account in some other country. So trusting that country is a big deal. People who think trade is conducted with gold nuggets don't see this custodial account problem, and that's why they don't understand why the U.S. is a global reserve currency. That's when all sorts of conspiracy theories about oil sales, or aircraft carriers, come into play as they try to understand the U.S. role using the ideas they are comfortable with.
If we're talking about a country that's attempting to (or has no choice but to) cut USD out of its foreign trading, I don't think we're talking about a standard, highly-liquid currency pair.
And what currency a good is purchased in absolutely means something!
Your claim is that people store the proceeds of sales in dollars because of the trust factors, volume, and tight spreads. But I'd say that 2/3 of those (volume and tight spreads) are consequences of its utility and use as an international settling currency. Catch 22.
Yet are those things worth enough that international exporters would continue to trade in / hold in (effectively the same, if we collapse the goods trader and forex trader into a single entity) if the dollar ran 5% inflation and low central bank rates for years?
I suppose we'll see, but that's an atypical situation in the last 50 years of pure fiat international finance.
And what currency a good is purchased in absolutely means something!
Your claim is that people store the proceeds of sales in dollars because of the trust factors, volume, and tight spreads. But I'd say that 2/3 of those (volume and tight spreads) are consequences of its utility and use as an international settling currency. Catch 22.
Yet are those things worth enough that international exporters would continue to trade in / hold in (effectively the same, if we collapse the goods trader and forex trader into a single entity) if the dollar ran 5% inflation and low central bank rates for years?
I suppose we'll see, but that's an atypical situation in the last 50 years of pure fiat international finance.
> If we're talking about a country that's attempting to (or has no choice but to) cut USD out of its foreign trading
For some small country -- and it would need to be a small country, like Sierra Leone, that cannot access the Forex markets, then they need foreign reserves ahead of time. This is true. But if they don't want to hold their reserves as USD they can hold them in EUR or YEN if they like, and then when they need to buy oil, they sell the EUR for USD and buy oil with USD.
While the USD is the largest foreign reserve, it's like 60%, there is also EUR, British Pound, Yen, and some other currencies that are ubiquitous enough for Sierra Leone to hold. These can readily be sold on the spot for whatever a nation wants as payment.
https://www.federalreserve.gov/econres/notes/feds-notes/the-....
For some small country -- and it would need to be a small country, like Sierra Leone, that cannot access the Forex markets, then they need foreign reserves ahead of time. This is true. But if they don't want to hold their reserves as USD they can hold them in EUR or YEN if they like, and then when they need to buy oil, they sell the EUR for USD and buy oil with USD.
While the USD is the largest foreign reserve, it's like 60%, there is also EUR, British Pound, Yen, and some other currencies that are ubiquitous enough for Sierra Leone to hold. These can readily be sold on the spot for whatever a nation wants as payment.
https://www.federalreserve.gov/econres/notes/feds-notes/the-....
And if you want to sell your oil in another currency, then you're Saddam and you're fucked. By the US.
[deleted]
And the marines and coast guard too!
Are you sure? The US military doesn’t look to be at its peak. Despite its massive budget China’s military rise and the return of Russian military power might be changing the US’s role as the worlds only military super power.
We may spend 10 times more than any other nation on our military … but due to bureaucracy and other inefficiencies our spending doesn’t quite get the same bang for its buck if you will.
We may spend 10 times more than any other nation on our military … but due to bureaucracy and other inefficiencies our spending doesn’t quite get the same bang for its buck if you will.
How can the "entire world" have a short position on USD? Who is taking the other side of the position? Is there someone outside of the world lending out money?
Is your theory that the US government will run out of dollars? How do you imagine that will happen - a paper shortage?
The system isn't that simple?
The US Government sells treasuries and bonds to raise dollars. These have to be approved by congress, which is why every so often you'll hear about government shutdowns, because, yes, if for whatever reason, the US Congress doesn't pass a debt ceiling lift, the US Treasury will not have enough money to run things anymore.
Then there's the Federal Reserve, which loans dollars to banks to create liquidity and velocity in the monetary system depending on certain conditions (Primarily inflation and unemployment I believe).
(Presumably there's a fair amount more to it than that as well).
The US Government sells treasuries and bonds to raise dollars. These have to be approved by congress, which is why every so often you'll hear about government shutdowns, because, yes, if for whatever reason, the US Congress doesn't pass a debt ceiling lift, the US Treasury will not have enough money to run things anymore.
Then there's the Federal Reserve, which loans dollars to banks to create liquidity and velocity in the monetary system depending on certain conditions (Primarily inflation and unemployment I believe).
(Presumably there's a fair amount more to it than that as well).
The real fun begins when the fed starts buying treasuries.
What happens then? Don't they already do that?
Digits overflow would be a more appropriate concern
Paper money makes up only about 10% of the total money supply. The vast majority of USD is just represented by data in a ledger.
Which is an order of magnitude easier to come by, proving OP's point.
I think the OP is saying that you can have a situation where the short term demand for dollars outstrips the supply available at that given time (think in terms of hours or days). This could lead to a sharp but short increase in the value of the dollar, since there's only a limited, albeit extremely large, amount available on the market at any given time.
The bank needing the currency asks the central bank for the extra currency and it’s simply a number in a “database” somewhere. It can be done rather quickly.
it's not the bank, but the borrowers who need the currency.
So an increase in borrowing from various parties pushes the interest rate higher (the banks would want to charge as high an interest as possible, but no higher than what would make the client move to a different bank for the loan).
The central bank could potentially alleviate and increase borrowing without interest rate hikes by allowing the banks themselves to obtain funds from CB at a lower interest (than another bank), and the competition between banks would push the interest rate back down.
So an increase in borrowing from various parties pushes the interest rate higher (the banks would want to charge as high an interest as possible, but no higher than what would make the client move to a different bank for the loan).
The central bank could potentially alleviate and increase borrowing without interest rate hikes by allowing the banks themselves to obtain funds from CB at a lower interest (than another bank), and the competition between banks would push the interest rate back down.
I take the post as the US dollar becoming more scarce but not running out.
If OP is right I don’t see the federal reserve acting to bail out China.
They might happen to do QE for another reason but not to help out other countries with their problems.
If OP is right I don’t see the federal reserve acting to bail out China.
They might happen to do QE for another reason but not to help out other countries with their problems.
As the bank of the world's reserve currency the Fed is always implicitly running a world bank. The transmission mechanism is for foreign currency to depreciate against USD which causes US domestic financial conditions to tighten, and the Fed would then have to loosen.
The entire value of the currency is based on supply and demand, whether the gp is correct in their prediction, increased demand relative to supply is the defining mechanism of how a currency's value would increase.
Are you predicting large scale deflation? That’s the opposite of what we’re seeing now, but if it happens the fed can fix it by just printing money.
Generally speaking the vast majority of money is created by the private sector and not the government. For the Fed to be able to "fix" this by printing more money would already represent a large systematic change. This isn't impossible but fending off a deflationary shock is far more complex than people tend to assume, I think in part because of underlying assumptions that the majority of monetary creation is done by the government when in fact that may not be the case.
I’m far from an expert, but can the US Fed really print more money? Didn’t I hear that something like 30% of the USD in circulation today didn’t exist at the start of 2020?
It has to stop somewhere. Doesn’t it? (Genuine question!)
It has to stop somewhere. Doesn’t it? (Genuine question!)
The limiting factor is inflation!
If we get massive deflation from a “dollar short squeeze” (which I don’t actually think is likely but it’s what OP was suggesting) that means we need more inflation, which printing money would produce.
If we get massive deflation from a “dollar short squeeze” (which I don’t actually think is likely but it’s what OP was suggesting) that means we need more inflation, which printing money would produce.
Printing money doesn't necessarily create inflation if it doesn't go into circulation.
My understanding is that "printing money" with a jobs program would be more effective at stimulating spending that, say, "printing money" with cheap interest rates (which might just mostly ultimately go into people's bank accounts as they sell assets to people borrowing the cheap money).
My understanding is that "printing money" with a jobs program would be more effective at stimulating spending that, say, "printing money" with cheap interest rates (which might just mostly ultimately go into people's bank accounts as they sell assets to people borrowing the cheap money).
Technically it doesn't stop, but they are optimizing a complex system, and want to mitigate negative effects on their measures.
Well, it doesn't _have_ to, ask Zimbabweans. But there are real reasons they would not want to print forever.
QE and printing are different though
Not in substance.
That's exactly why they're printing so much money. Deflation would cause a deflation spiral - i.e. a short squeeze on the dollar. They can keep doing it, but it's basically a mass-scale confiscation of assets from people. Not sure if that's the goal.
Apparently in the age of WSB apes, everything is a “short squeeze”. Even GME wasn’t a short squeeze (the SEC report clearly presents irrefutable evidence) and neither is deflation.
Why not just aim for 2% inflation like normal?
> The dollar spiked past a key technical level today.
I don't know much about "technical" forex trading, but I can say that USD/CNY didn't really change today, neither did USD/CAD, or USD/GBP. Everything is around where it's been over the past few weeks. Are you saying the real exchange rates will significantly change soon?
I don't know much about "technical" forex trading, but I can say that USD/CNY didn't really change today, neither did USD/CAD, or USD/GBP. Everything is around where it's been over the past few weeks. Are you saying the real exchange rates will significantly change soon?
Short term USD/CNY is clamped by Chinese government currency purchases.
People will only notice when China decides its FX is running low
People will only notice when China decides its FX is running low
Hmmm. Chinese currency is fundementally undervalue though. I don't think this "running low" can happen. Chinese business and gov must have vast USD assets.
TA is tarot for finance bros.
[deleted]
Turns out that USD is getting stronger today, except, of course, against CNY. Interesting.
Rates went up because of the release of the inflation data. It wasn’t anything to do with what you are mentioning.
Also, while the dynamic you describe is real (1) the mechanics are not similar to an equity short squeeze , not a good analogy and (2) unlikely this type of pressure comes from China. They need to hold/buy treasuries to manage their currency (ie keep it weak). If they don’t, their export competitiveness suffers which is last thing that gov will allow. They have other ways of managing the situation.
Also, while the dynamic you describe is real (1) the mechanics are not similar to an equity short squeeze , not a good analogy and (2) unlikely this type of pressure comes from China. They need to hold/buy treasuries to manage their currency (ie keep it weak). If they don’t, their export competitiveness suffers which is last thing that gov will allow. They have other ways of managing the situation.
the fed are clowns. inflation data should have been priced in as anybody worth their salt (or indeed anybody doing any kind of shopping, which is everyone) knew that inflation would print above expectations, especially fed's. today's reaction was... panic of uninformed volume?
It wasn’t priced in or the market would not have moved.
“everyone knew that Inflation would be above expectations” you should think about this more.
Regardless, why does any of this make the feds clowns?
“everyone knew that Inflation would be above expectations” you should think about this more.
Regardless, why does any of this make the feds clowns?
Because I’ve been positioned in the market for inflation since February. If I could figure that out, what were they doing?
No comment on the content of the lynalden.com post (haven't read the entire thing yet), but for the love of pete, blog writers, please make sure you put a date on your posts. Especially when you're discussing something that involves current events.
I think she might just have forgotten to date this one? Most other articles back to 2020 seem to have publish dates. Either way this one seems to be from April 2020.
It does seem to be a trend in less-than-professional blogs.
Although I'd assume, maybe it helps with traffic? Presumably people would be more interested in reading a previous financial post, if they didn't know it was 2 years old.
Although I'd assume, maybe it helps with traffic? Presumably people would be more interested in reading a previous financial post, if they didn't know it was 2 years old.
The "best" policy is for content to start out dated and then simply erase the dates as it gets older.
An SEO scam I see some sites run is change it to an "updated at"
Name 1 example of a currency crisis where the debtor nation had debt denominated in their own currency.
I'll save you the time. There are no examples.
Every currency crisis has debt denominated in a foreign currency. - Germany in the 1930 (WW1 reparations were gold marks) - Argetina (foreign borrow and currency peg to USD). - Thailand. - Turkey (now, borrowed in Euro).
https://en.wikipedia.org/wiki/War_reparations "Germany agreed to pay reparations of 132 billion gold marks"
https://www.federalreservehistory.org/essays/asian-financial... "Heavy foreign borrowing, "
https://economics.rabobank.com/publications/2013/august/the-... "Argentina’s hard currency peg to the US Dollar, pro-cyclical fiscal policies and extensive foreign borrowing"
If you're going claim a coming currency crisis, test that assumption against the historical record at your earliest convenience.
I'll save you the time. There are no examples.
Every currency crisis has debt denominated in a foreign currency. - Germany in the 1930 (WW1 reparations were gold marks) - Argetina (foreign borrow and currency peg to USD). - Thailand. - Turkey (now, borrowed in Euro).
https://en.wikipedia.org/wiki/War_reparations "Germany agreed to pay reparations of 132 billion gold marks"
https://www.federalreservehistory.org/essays/asian-financial... "Heavy foreign borrowing, "
https://economics.rabobank.com/publications/2013/august/the-... "Argentina’s hard currency peg to the US Dollar, pro-cyclical fiscal policies and extensive foreign borrowing"
If you're going claim a coming currency crisis, test that assumption against the historical record at your earliest convenience.
It depends what you mean by currency crisis.
But yes, it has happened. Russia 1998 is the most well-known example. Everyone believed that because Russia could issue GKOs in RUB, they wouldn't blow up like Asia...they did. This also happened, to a large extent, in Mexico in 1994 (Mexico actually issued tesobonos, they were domestic currency denominated but shifted the currency risk to taxpayers, they were quite a security).
The reason why is fairly simple: it doesn't matter if the debt is denominated in domestic or not, because people buy the bonds and then hedge their currency exposure which leads (eventually) to the domestic banking system having the same synthetic position as if your debt was denominated in a foreign currency.
The slight issue with historical examples is that the situation is correlated to high levels of financial globalization, which largely didn't happen until the 90s. But because something has never happened, doesn't mean it is impossible.
The point is confused though. The causes of currency crises are changes in capital flows. That is really just saying: the reason why currencies fall is because people sell. They don't really need some "explanation", they definitely contra-indicate with stuff like domestic currency debt...but there is no universal theory possible beyond: people sold the currency (and so currency crises have happened with capital outflows for some exogenous reason, war, etc.).
But yes, it has happened. Russia 1998 is the most well-known example. Everyone believed that because Russia could issue GKOs in RUB, they wouldn't blow up like Asia...they did. This also happened, to a large extent, in Mexico in 1994 (Mexico actually issued tesobonos, they were domestic currency denominated but shifted the currency risk to taxpayers, they were quite a security).
The reason why is fairly simple: it doesn't matter if the debt is denominated in domestic or not, because people buy the bonds and then hedge their currency exposure which leads (eventually) to the domestic banking system having the same synthetic position as if your debt was denominated in a foreign currency.
The slight issue with historical examples is that the situation is correlated to high levels of financial globalization, which largely didn't happen until the 90s. But because something has never happened, doesn't mean it is impossible.
The point is confused though. The causes of currency crises are changes in capital flows. That is really just saying: the reason why currencies fall is because people sell. They don't really need some "explanation", they definitely contra-indicate with stuff like domestic currency debt...but there is no universal theory possible beyond: people sold the currency (and so currency crises have happened with capital outflows for some exogenous reason, war, etc.).
In 1998, Russia was propping up their currency by buying USD and Eurobonds at staggering rates.. The crisis wasn't due to anything to do what the US is facing but not being able to pay their foreign creditors, not being able to call the Soviet-era debt back from debtors, and owing the IMF billions of dollars they couldn't repay.
Russia wouldn't have had a currency collapse if they had a floating currency to begin with;
> After reviewing the three generations of currency crisis models, we conclude that four key ingredients can trigger a crisis: a fixed exchange rate, fiscal deficits and debt, the conduct of monetary policy, and expectations of impending default.
https://files.stlouisfed.org/files/htdocs/publications/revie...
Russia wouldn't have had a currency collapse if they had a floating currency to begin with;
> After reviewing the three generations of currency crisis models, we conclude that four key ingredients can trigger a crisis: a fixed exchange rate, fiscal deficits and debt, the conduct of monetary policy, and expectations of impending default.
https://files.stlouisfed.org/files/htdocs/publications/revie...
Correct, four things can trigger a crisis...in addition to many other things.
And that occurred after the currency crisis had started (the debt swap into Eurobonds was because of the GKOs). I am not sure what the US has to do with it. I am not sure what "Soviet-era debt" has to do with it (that debt was very soft, was rolled over multiple times in the early 90s, and wasn't related to Russia's problems). I am not sure what the IMF has to do with it (the IMF came in after it started...that is why the IMF came in).
Yes, it would have...that is self-evident. The reason the peg collapsed was because the free market/floating rate was lower. The only purpose of the peg is to stop the currency going down (again, this is a weird, self-evident proof...saying that the currency wouldn't have collapsed if they had a floating rate makes no sense, it would have collapsed faster).
And that occurred after the currency crisis had started (the debt swap into Eurobonds was because of the GKOs). I am not sure what the US has to do with it. I am not sure what "Soviet-era debt" has to do with it (that debt was very soft, was rolled over multiple times in the early 90s, and wasn't related to Russia's problems). I am not sure what the IMF has to do with it (the IMF came in after it started...that is why the IMF came in).
Yes, it would have...that is self-evident. The reason the peg collapsed was because the free market/floating rate was lower. The only purpose of the peg is to stop the currency going down (again, this is a weird, self-evident proof...saying that the currency wouldn't have collapsed if they had a floating rate makes no sense, it would have collapsed faster).
> I am not sure what "Soviet-era debt" has to do with it (that debt was very soft, was rolled over multiple times in the early 90s, and wasn't related to Russia's problems).
A large portion of their foreign denominated debt was from the Soviet era -- just a few years prior to 1998 they committed to repaying nearly $100 billion of that old debt. Russia was accepted into the "Paris Club" based on a valuation of their sovereign assets -- 1/4 of which were loans due to them from the Soviet era from Cuba/Vietnam and other satellite countries that had no capability to repay those loans. So the Soviet Era debt was a big portion of their liability and made up a substantial portion of their assets.
None of these things are remotely similar to the US situation of almost universally US debt denominated in USD. So I think GP is spot on when they say there's 0 chance of a currency crisis.
A large portion of their foreign denominated debt was from the Soviet era -- just a few years prior to 1998 they committed to repaying nearly $100 billion of that old debt. Russia was accepted into the "Paris Club" based on a valuation of their sovereign assets -- 1/4 of which were loans due to them from the Soviet era from Cuba/Vietnam and other satellite countries that had no capability to repay those loans. So the Soviet Era debt was a big portion of their liability and made up a substantial portion of their assets.
None of these things are remotely similar to the US situation of almost universally US debt denominated in USD. So I think GP is spot on when they say there's 0 chance of a currency crisis.
GP agrees with you: They're saying the currency crisis starting in Asia is USD-denominated (the international bonds in particular), which is creating a positive feedback loop when USD-RMB exchange rates spike. They're saying you might see this manifest as big movements in bond redemptions or sales as people scramble to secure USD.
I assume you mean OP?
> The entire world (including the US federal government) has taken a short position on the US dollar
I read this as a prediction of some type of crisis.
Anyway, wrt the US Federal Government, having government debt is not that same as having a short position. For one, the US Fed govt's revenue (i.e. tax collection) is denominated in the same USD as the debt. So if USD goes up, tax collection go up.
> The entire world (including the US federal government) has taken a short position on the US dollar
I read this as a prediction of some type of crisis.
Anyway, wrt the US Federal Government, having government debt is not that same as having a short position. For one, the US Fed govt's revenue (i.e. tax collection) is denominated in the same USD as the debt. So if USD goes up, tax collection go up.
> I assume you mean OP?
"GP = grand parent, i.e. the post that the post-your're-replying-to was replying to"
Source: https://news.ycombinator.com/item?id=8363625
"GP = grand parent, i.e. the post that the post-your're-replying-to was replying to"
Source: https://news.ycombinator.com/item?id=8363625
"I read this as a prediction of some type of crisis."
I think your parent was suggesting that the behavior of the entire world is effectively a short-dollar position - whether they intended it to be or not.
I think your parent was suggesting that the behavior of the entire world is effectively a short-dollar position - whether they intended it to be or not.
> So if USD goes up, tax collection go up
Currencies going up usually leads to a reduction of exports which subsequently leads to an economic downturn, which leads to less taxes.
Apart from that, mass sell offs of government debt leads to increasing interest rates. You can buy that off with quantitative easing but probably that has limits too.
Currencies going up usually leads to a reduction of exports which subsequently leads to an economic downturn, which leads to less taxes.
Apart from that, mass sell offs of government debt leads to increasing interest rates. You can buy that off with quantitative easing but probably that has limits too.
If US prints 100 trillion dollars tomorrow (debt fully monetized by Federal Reserve), won't it cause a currency crisis?
Because of the trillions of dollars they'd have to spend on ink refill cartridges?
And yet, a 1.56% yield for ten years (below its 18 month high) while inflation just hit 5.4%[0] doesn’t feel like a big selloff.
[0] or 6.2 or whatever depending on what version you use.
[0] or 6.2 or whatever depending on what version you use.
Chinese state banks have substantial dollar deposits (it is largely state banks that are lending to companies like Evergrande offshore). The PBOC stopped issuing notes (and sterilising the dollar inflow) years ago, and onshore dollar deposits are above $1tn. A lot of the stuff you read about this online is exceptionally misleading (I have no idea why there is this cottage industry of "economic experts" who don't understand economics...it is parallel to the gold bug industry, it is very weird).
What do you mean that they stopped issuing notes. China expands their money supply almost as much by percentage compared to the US.
Domestic banks were not allowed to hold USD deposits (because that would have meant export earnings leaked into the Chinese money supply and the RMB would have risen), so when an exporter deposited earnings with them, they would take the dollars to the PBOC who would issue them with an interest-bearing note.
Around 2017/18, the PBOC stopped doing this and allowed domestic banks to retain and invest the dollar earnings that exporters deposited. China's money supply is not directly related to the US money supply. China's capital account is still closed. All that has changed is that the onshore dollar market has increased (the PBOC retains a huge amount of control over lending decisions, Chinese state banks are not investing in US markets, it is being retained in China).
Around 2017/18, the PBOC stopped doing this and allowed domestic banks to retain and invest the dollar earnings that exporters deposited. China's money supply is not directly related to the US money supply. China's capital account is still closed. All that has changed is that the onshore dollar market has increased (the PBOC retains a huge amount of control over lending decisions, Chinese state banks are not investing in US markets, it is being retained in China).
Breaking the Ichimoku cloud!
Interesting about this is that Evergrande is defaulting only on foreign held debt. Not internal debt after a ccp mandate.
If their economy continues its downturn then this precedent would hold for all debt. I would really watch personal funds and investments and insure they dont hold any chinese debt as an asset.
If their economy continues its downturn then this precedent would hold for all debt. I would really watch personal funds and investments and insure they dont hold any chinese debt as an asset.
Mark Levine had some good thoughts on this situation, and it really does seem to encapsulate the entire Chinese "free market" experiment in a single entity. I hope that market regulators all around the planet are paying attention to the challenges of trying to "control" market movements in order to promote an agenda (whether it is protecting pension funds or national prestige).
If you've got your "thumb on the scale" as the saying goes, there will always be forces that try to exploit that condition.
If you've got your "thumb on the scale" as the saying goes, there will always be forces that try to exploit that condition.
National banks have always had certain objectives (or “agendas”) that broadly correspondent to the general welfare and stability of the system. I don’t know how it would even be possible for them to make decisions without having objectives, so the “hands-off” or “neutrality” people clamor for seems rather unspecific.
The idea that tying the money to some physical (gold standard) or mathematical (Bitcoin) “reality” is somehow preferable is just the naturalistic fallacy wrapped in cynicism, namely that today’s institutions are incapable of making better decisions than the completely arbitrary whims of these alternatives. And all the ghosts people seem haunted by (hyperinflation) are figments of history a century removed.
The idea that tying the money to some physical (gold standard) or mathematical (Bitcoin) “reality” is somehow preferable is just the naturalistic fallacy wrapped in cynicism, namely that today’s institutions are incapable of making better decisions than the completely arbitrary whims of these alternatives. And all the ghosts people seem haunted by (hyperinflation) are figments of history a century removed.
Do you mean Matt Levine? If not, could you give a link, please?
Yes, Matt, and I get the newsletter so I don't know where the link is, but here is an excerpt:
EDIT found the link: https://www.bloomberg.com/opinion/articles/2021-09-21/evergr...
From Matt Levine:
It seems to me that what is interesting about Evergrande is not so much the magnitude of its debt problems but their variety. Evergrande owes money to Chinese banks. It owes money to foreign hedge funds, and foreign investors own its stock. It owes money to suppliers, and to Chinese retail investors in those wealth management products. And it owes apartments to buyers. And the retail investors who bought Evergrande wealth management products were often also Evergrande homeowners, because the products were sold at Evergrande buildings:
When a big company runs out of money, the basic questions are (1) who gets paid and who doesn’t and (2) should the government pay its debts for it? Those questions are interconnected. There is an ordinary way to answer the first question, some waterfall of claim seniority. You look at the company’s capital structure and say “well these people have senior claims and will get paid back, and these people have junior claims and won’t, and these other people are somewhere in the middle and might get some recovery.” And there are complex and subtle questions about the best way to preserve value in the business: Perhaps you have the legal right to stiff customers (perhaps their deposits aren’t particularly senior claims), but if you do that you’ll never get any more customers, so you treat them better than you are legally required to. And the managers of the business and the creditors and the lawyers work together to figure out a plan that maximizes the recovery for everyone.
But if the ordinary process to answer the first question ends up with an answer like “sympathetic ordinary people lose their life savings,” or “politically connected people lose everything,” or “the banking system loses a lot of money and becomes undercapitalized,” or for that matter “housing prices collapse,” then that is a good reason for the government to step in. And if the government is stepping in, there is no particular reason to assume that the ordinary claims of seniority will apply. If the government steps in to rescue small investors or the banking system or housing prices, that doesn’t necessarily mean it will also rescue foreign hedge funds.
Bloomberg’s Joe Weisenthal and Tracy Alloway did an Odd Lots episode with analyst Travis Lundy about this, in which he gives his best guess at a waterfall of repayment. “I think that if you start from the ranking of who ends up coming out well on this, if you had to ask, this is the Communist Party of China who's the most important stakeholder in this,” he says, and then goes through a list of claimants ordered by, basically, how politically sympathetic they are. This seems like a more reasonable analysis than, like, looking at the corporate structure and legal document to see which claims are more senior.
Much of the writing about Evergrande has been about “is this China’s Lehman moment?” The main lesson of Lehman was that the collapse of a big levered interconnected firm could cause serious economic damage, and since Lehman, financial regulators in the U.S. and Europe have done a lot of work on reducing leverage and interconnection and damage.
From Matt Levine:
It seems to me that what is interesting about Evergrande is not so much the magnitude of its debt problems but their variety. Evergrande owes money to Chinese banks. It owes money to foreign hedge funds, and foreign investors own its stock. It owes money to suppliers, and to Chinese retail investors in those wealth management products. And it owes apartments to buyers. And the retail investors who bought Evergrande wealth management products were often also Evergrande homeowners, because the products were sold at Evergrande buildings:
“My parents put the bulk of their savings, which is Rmb200,000 and not a lot by Evergrande’s standard, into its [wealth management products],” said the daughter of one investor who asked to be identified by her surname Xu.
She said an Evergrande financial adviser stationed in an apartment tower built by the company in central China had persuaded her mother to invest. “They wouldn’t have trusted Evergrande’s wealth products had they not bought the developer’s apartment,” she said.
"I bought from the property managers after seeing the ad in the elevator, as I trusted Evergrande for being a Fortune Global 500 company,” said the owner of an Evergrande property in the conglomerate's home province of Guangdong surnamed Du.
When the troubled Chinese property giant Evergrande was starved for cash earlier this year, it turned to its own employees with a strong-arm pitch: Those who wanted to keep their bonuses would have to give Evergrande a short-term loan.
Some workers tapped their friends and family for money to lend to the company. Others borrowed from the bank. Then, this month, Evergrande suddenly stopped paying back the loans, which had been packaged as high-interest investments. …
The extent of the campaign and how much money it might have raised were unclear. Employees were told to each invest a certain amount of money in Evergrande Wealth products, and that if they failed to do so, their performance pay and bonuses would be docked, employees told Anhui.
When a big company runs out of money, the basic questions are (1) who gets paid and who doesn’t and (2) should the government pay its debts for it? Those questions are interconnected. There is an ordinary way to answer the first question, some waterfall of claim seniority. You look at the company’s capital structure and say “well these people have senior claims and will get paid back, and these people have junior claims and won’t, and these other people are somewhere in the middle and might get some recovery.” And there are complex and subtle questions about the best way to preserve value in the business: Perhaps you have the legal right to stiff customers (perhaps their deposits aren’t particularly senior claims), but if you do that you’ll never get any more customers, so you treat them better than you are legally required to. And the managers of the business and the creditors and the lawyers work together to figure out a plan that maximizes the recovery for everyone.
But if the ordinary process to answer the first question ends up with an answer like “sympathetic ordinary people lose their life savings,” or “politically connected people lose everything,” or “the banking system loses a lot of money and becomes undercapitalized,” or for that matter “housing prices collapse,” then that is a good reason for the government to step in. And if the government is stepping in, there is no particular reason to assume that the ordinary claims of seniority will apply. If the government steps in to rescue small investors or the banking system or housing prices, that doesn’t necessarily mean it will also rescue foreign hedge funds.
Bloomberg’s Joe Weisenthal and Tracy Alloway did an Odd Lots episode with analyst Travis Lundy about this, in which he gives his best guess at a waterfall of repayment. “I think that if you start from the ranking of who ends up coming out well on this, if you had to ask, this is the Communist Party of China who's the most important stakeholder in this,” he says, and then goes through a list of claimants ordered by, basically, how politically sympathetic they are. This seems like a more reasonable analysis than, like, looking at the corporate structure and legal document to see which claims are more senior.
Much of the writing about Evergrande has been about “is this China’s Lehman moment?” The main lesson of Lehman was that the collapse of a big levered interconnected firm could cause serious economic damage, and since Lehman, financial regulators in the U.S. and Europe have done a lot of work on reducing leverage and interconnection and damage.
This is very Sam Zell no BS type advice....When a big company runs out of money, the basic questions are (1) who gets paid and who doesn’t and (2) should the government pay its debts for it?
Guessing whom gets paid back first is often a great way to make a lot of money if you can monetize it. Think MBS tranches AAA or BBB. With the international real estate market being at all time highs there is a huge movement of money that will trade hands in the next 10 years. How that will happen and how to gain exposure is the 1mm dollar question. Maybe Aladdin and BLRK have the answer?
Housing should be a human right, not an investment.
The guy down the road from me got his flat as a human right. He throws his empty bottles on to the street where I have to walk my dog. The rumour is his sister is also in there and is on the game. His behaviour is making the guy who lives beneath him not sleep at night. The housing association has given up "trying to support him to change his behaviour" and is now taking him to court. By the end of the year, we all hope, he will be out of his flat. Then he will be given another flat, next to some even unluckier people, as a human right.
Sounds like he's an ass. And if he paid rent he'd still be an ass. It's not a magic cure for what's wrong with him.
To an extent. But if you give asses free money, that doesn't tend to change their behaviour.
Give the homeless one of the houses in St Louie or Gary. They can fix it up and have a place.
There is lots of housing that is not expensive but people have to WORK for it or it doesn't mean anything.
Thanks.
The same happened in reverse with the Euro and the Swiss Franc.
Much of their domestic debt has been quietly swapped for equity and commercial papers over the past few years. A tonne of unsecured debt that they have no intention nor ability to pay back.
The reason why Evergrande has accumulated so much foreign debt in the first place is because no domestic bank wanted to touch them with a ten foot pole. After all they have effectively defaulted once already by unilaterally declaring an equity swap on 130 billion CNY worth of maturing bonds in September last year.
The reason why Evergrande has accumulated so much foreign debt in the first place is because no domestic bank wanted to touch them with a ten foot pole. After all they have effectively defaulted once already by unilaterally declaring an equity swap on 130 billion CNY worth of maturing bonds in September last year.
Clearing firm Clearstream said all coupons were paid. It is insteresting how little patience people have. There is an authoritative source here. People could just wait for a few more hours for it: https://news.yahoo.com/evergrande-makes-overdue-interest-pay...
> Evergrande, the world's most indebted developer … grapples with more than $300 billion in liabilities, $19 billion of which are international market bonds.
Sounds like this is mostly domestic debt, so they cant make this go away by saying they wont support international debt holders. Seems like the CCP in a tough spot here.
Sounds like this is mostly domestic debt, so they cant make this go away by saying they wont support international debt holders. Seems like the CCP in a tough spot here.
There is no distinction between foreign held and internal debt. The offshore debt is owned predominantly by Chinese state banks. There are a few funds that hold these bonds (Ashmore is one), but there is a massive dollar surplus within China and so all the state banks were looking for somewhere to invest money...and Evergrande created a way to do that.
> Interesting about this is that Evergrande is defaulting only on foreign held debt. Not internal debt after a ccp mandate.
This will put a huge hamper on China's FDI: if foreign investors are given a worse place in line in case of insolvency, they will either shy away from investing at all or demand higher returns for the extra risk.
This will put a huge hamper on China's FDI: if foreign investors are given a worse place in line in case of insolvency, they will either shy away from investing at all or demand higher returns for the extra risk.
Chinese FDI inflows and outflows are actually almost equivalent in USD terms. Furthermore, China is well known for placing huge restrictions on capital outflow in its economy.
I think it's safe to say that even if every last dollar of FDI dried up, China would be more than fine with its domestic capital supply.
Furthermore, the identities of the big FDI investors are dominated by physical manufacturers investing in onshore operations. Not so much liquid global securities trading.
I think it's safe to say that even if every last dollar of FDI dried up, China would be more than fine with its domestic capital supply.
Furthermore, the identities of the big FDI investors are dominated by physical manufacturers investing in onshore operations. Not so much liquid global securities trading.
Uh, Tether?
because some guy on twitter said any Tether exposure to commercial paper = 150% exposure to imploding evergrande bonds
this is the funniest meme, “we made it up” https://youtu.be/GM-e46xdcUo
Its a pretty clever meme because pointing out how dumb it is makes it seem like that person doesnt believe there is anything else wrong with tether, immediate derailing their criticism of the latest rumor, allowing for literally any rumor to be masqueraded as truth.
this is the funniest meme, “we made it up” https://youtu.be/GM-e46xdcUo
Its a pretty clever meme because pointing out how dumb it is makes it seem like that person doesnt believe there is anything else wrong with tether, immediate derailing their criticism of the latest rumor, allowing for literally any rumor to be masqueraded as truth.
I don't think Tether is in purely Evergrande bonds, but I do think Tether has a load of Chinese bonds/commercial paper, and if an Evergrande default causes a general reduction in the value of those, Tether will be in a very sticky position as they'll have a large hole in their reserves...
Why would anyone care? It's not like Tether has ever been audited and there is so much other shadiness that it's more than likely there is already a massive hole in the Tether reserves.
Why do you believe that?
So AFAIK Tether has ~$30b of commercial paper (https://tether.to/wp-content/uploads/2021/08/tether_assuranc...) which would make it one of the larger commercial paper operators in the US market if it operated there.
From what I've read, other paricipants in the US market have stated they don't see Tether partipating there, to that kind of volume.
Combine that with the fact that, until recently, China was a huge market for crypto both miners and traders, and it seems likely that the large chinese commercial paper market would be where Tether would have at least some of it's money.
From what I've read, other paricipants in the US market have stated they don't see Tether partipating there, to that kind of volume.
Combine that with the fact that, until recently, China was a huge market for crypto both miners and traders, and it seems likely that the large chinese commercial paper market would be where Tether would have at least some of it's money.
I don't understand why anyone believes Tether when they say they own $30b of commercial paper. The fact that nobody in any of the commercial paper markets know who they are suggests that Tether is once again at least being misleading if not lying.
They have to own something for $30B+ [1]. It is unlikely it is anything in significant in the U.S, both because it is harder not to be noticed as you say and also greater risk of interference from regulators etc.
It is not unreasonable to think China has good chunk of those deposits, and in China real estate is a big component of the economy and growth in the recent years.
Chinese real estate market is both large enough and opaque to be able to ingest that kind of capital.
[1] It is possible they are issuing tokens out of thin air without actually taking in equivalent USD/fiat currency, but given it trading volume on crypto exchanges it seems unlikely say 90+% of their $73B + are tokens fake. Even 10% is $7.3B a very significant sum.
It is not unreasonable to think China has good chunk of those deposits, and in China real estate is a big component of the economy and growth in the recent years.
Chinese real estate market is both large enough and opaque to be able to ingest that kind of capital.
[1] It is possible they are issuing tokens out of thin air without actually taking in equivalent USD/fiat currency, but given it trading volume on crypto exchanges it seems unlikely say 90+% of their $73B + are tokens fake. Even 10% is $7.3B a very significant sum.
They're probably exchanging Tether for loans that their counterparties write against crypto collateral and calling that "commercial paper".
Anything else is ridiculous because people would notice it. If it is all self-contained withing crypto then it makes vastly more sense.
Once you think of a cold wallet full of bitcoin as having value like real estate[*] then it makes sense to take out tether loans against that collateral.
They need to make up something though to sound responsible so they call it "commercial paper" and for some reason nobody questions if they might be grossly twisting the meaning of those two words.
[*] Which I don't, but everyone involved in crypto certainly does.
Anything else is ridiculous because people would notice it. If it is all self-contained withing crypto then it makes vastly more sense.
Once you think of a cold wallet full of bitcoin as having value like real estate[*] then it makes sense to take out tether loans against that collateral.
They need to make up something though to sound responsible so they call it "commercial paper" and for some reason nobody questions if they might be grossly twisting the meaning of those two words.
[*] Which I don't, but everyone involved in crypto certainly does.
Honestly, if anybody ever bothered to assume that Tether worked the way it was advertised most of the time - just like both the NYAG and CFTC found most of the time for most Tethers - it would actually all make sense.
Why would better managed and more transparent competitors like USDC, GUSD, and PAXOS all be rising in circulation at the exact same trajectory as Tether, if Tether was just doing funny money accounting or having completely uncollateralized Tethers compared to just the same distribution of regional crypto enthusiasm in the same kinds of transactions. What if, yeah I know, what if people actually just deposit fiat and rarely redeem for fiat because they treat stablecoins as basically their savings and investing account. The craaaziest idea, I know, but the behavior is being mimicked across all fiat-backed stablecoins which suggests that its harder to assume the worst about Tether simply because its never transparent enough and yeah, it won't be. My only point is to think "hm maybe people actually use it and like it and that's the vast majority of the creation of more tethers just like two US regulators found."
Why would better managed and more transparent competitors like USDC, GUSD, and PAXOS all be rising in circulation at the exact same trajectory as Tether, if Tether was just doing funny money accounting or having completely uncollateralized Tethers compared to just the same distribution of regional crypto enthusiasm in the same kinds of transactions. What if, yeah I know, what if people actually just deposit fiat and rarely redeem for fiat because they treat stablecoins as basically their savings and investing account. The craaaziest idea, I know, but the behavior is being mimicked across all fiat-backed stablecoins which suggests that its harder to assume the worst about Tether simply because its never transparent enough and yeah, it won't be. My only point is to think "hm maybe people actually use it and like it and that's the vast majority of the creation of more tethers just like two US regulators found."
Because nobody is going to be dumping $70B of actual USD into Tether while BTC is running up massively in value.
That would effectively be $70B parked under a mattress.
That would effectively be $70B parked under a mattress.
Tethers are only destroyed when they are redeemed. When people create Tether and trade them, they still exist with whoever is the recipient.
The same with other bank account stablecoins.
Much of that Tether is stored within liquidity pools and other onchain financial services, the same with other bank account stablecoins. So thats not a great assumption to bolster the ongoing transparency issues with Tether.
The same with other bank account stablecoins.
Much of that Tether is stored within liquidity pools and other onchain financial services, the same with other bank account stablecoins. So thats not a great assumption to bolster the ongoing transparency issues with Tether.
If their commercial paper is something other than Evergrande, surely they'd have said so by now. (Assuming it exists at all, of course)
They dont need to respond to every rumor, its been a whole decade, they’ve weathered much greater crisis of confidence with far below $1 exchange rates. The people that do care would have said prove it, aka “disprove the random rumor”, and wouldn't be satisfied with any statement or attestation or anything greater that they’ve never done anyway. At this point whats the use of energy in that direction anymore. Even audited stablecoins are a systemic risk to the crypto ecosystem. So at this point your either in or out. Hot potato. Just like all the other markets where Lehman bros and Aig got such great audits and ratings. I’m not trying to squash conversation about it, just offering a perspective because really the standard being levied applies to USDC, GUSD, PAXOS and others who have grown to similarly large heights.
Even the earlier assumption that Tether wouldnt have US assets is made up on the spot, its weird! They were banking in Peurto Rico for years! Two US regulators didnt move to freeze their assets they just said “update your disclaimers”. Why dont we make a rumor that they hold Hertz bonds and Certificates of Deposit at Capital One Bank? Its arbitrary! They should prove they dont have Hertz bonds just so I can say “I …. dont believe you.”
Even the earlier assumption that Tether wouldnt have US assets is made up on the spot, its weird! They were banking in Peurto Rico for years! Two US regulators didnt move to freeze their assets they just said “update your disclaimers”. Why dont we make a rumor that they hold Hertz bonds and Certificates of Deposit at Capital One Bank? Its arbitrary! They should prove they dont have Hertz bonds just so I can say “I …. dont believe you.”
They have said it's not Evergrande.
China has been waging economic warfare via equity markets for a while now. The U.S. hasn’t done anything to protect investors from billions in losses. Totally embarrassing.
The U.S. shouldn't protect investors from the free market? That's the free market at work. Investors are not entitled to be paid. All investments carry risk.
I agree with that, but that didn't happen in 2008.
it did - some people left holding the bag lost out. The banks were playing the middleman, they weren't the ones taking the risks.
It could be said that the rating agencies were complicit, since their ratings were trusted by various parties by assumption and did not do their own due diligence.
It could be said that the rating agencies were complicit, since their ratings were trusted by various parties by assumption and did not do their own due diligence.
Yes, the CCP changing the rules is “the free market.”
free market where if i want to invest into a Chinese company i have to invest into a fake company in the Bahamas? If i want to really invest into China there are crazy rules and in the end they will just take your ip...
If I build a company with the assumption that the rules of the locale it operates never change, I'm certain that I'm the fool in the conversation.
What you describe is a known risk that anyone with a lick of sense should be accounting for, before they invest.
What you describe is a known risk that anyone with a lick of sense should be accounting for, before they invest.
There is significant counterparty risk when investing in China. It's a shame that people had to find out like this. Or maybe it's for the best.
If they're choosing of their own free will to participate in the market, it's a free market. No one said anything about a safe market.
From a US government perspective, the options are either let people invest their money in China or not let people invest their money in China. To let people decide on their own if investing money in Chinese companies is worth the risk seems to me to be the more free market option than our government forbidding it. That China can then pull the rug out from under you is the risk you take due to your choice of investment, if we wanted the government to protect people from that risk it should have been done before investment happened, not after.
A) What do you propose the US do?
B) Why should the US do anything? If your risk profile when dealing with Chinese companies doesn't include the risk that the CPC will change the rules of the game later to benefit the domestic economy, you're a sucker.
B) Why should the US do anything? If your risk profile when dealing with Chinese companies doesn't include the risk that the CPC will change the rules of the game later to benefit the domestic economy, you're a sucker.
A) I'd suggest that there are a wide variety of options here, reciprocal actions are common in diplomacy, so for instance the US could default on an equal amount of US debt that China holds, or perhaps pass a law that in the case of the bankruptcy of US companies bonds owned by Chinese nationals at any time after the proposal of said law (to avoiding them just selling them) are void.
Of course these options (and probably any other options you imagine) would have pretty wide reaching side effects - to the extent that I'm not even sure they are worth the cost - but they definitely exist.
B) Because transfer of wealth from US investors to China harms US interests, the US government exists to serve US interests and part of that is standing up for their nationals in international trade.
Of course these options (and probably any other options you imagine) would have pretty wide reaching side effects - to the extent that I'm not even sure they are worth the cost - but they definitely exist.
B) Because transfer of wealth from US investors to China harms US interests, the US government exists to serve US interests and part of that is standing up for their nationals in international trade.
The United States government defaulting on any amount of its debt would be really really really stupid policy.
> Because transfer of wealth from US investors to China harms US interests, the US government exists to serve US interests and part of that is standing up for their nationals in international trade.
I am not convinced apriori that this is the case, and don't feel comfortable having politicians who definitely have no clue whether that is the case making the calls.
> Because transfer of wealth from US investors to China harms US interests, the US government exists to serve US interests and part of that is standing up for their nationals in international trade.
I am not convinced apriori that this is the case, and don't feel comfortable having politicians who definitely have no clue whether that is the case making the calls.
> The United States government defaulting on any amount of its debt would be really really really stupid policy.
Also arguably unconstitutional
Also arguably unconstitutional
>Also arguably unconstitutional
Umm how?
Umm how?
The market has a way of dealing with this. Chinese corporate debt is currently trading for pennies on the dollar. Chinese companies are going to be essentially locked out of global credit markets for the foreseeable future.
> for instance the US could default on an equal amount of US debt that China holds
https://constitution.congress.gov/browse/essay/amdt14_S4_1_1...
> The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.
The US defaulting on any debt is unconstitutional.
https://constitution.congress.gov/browse/essay/amdt14_S4_1_1...
> The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.
The US defaulting on any debt is unconstitutional.
> Why should the US do anything?
If private investors want to invest in China, that's fine. But pensions and banks should not, and should not be investing in funds that do. Their risks are shared, and China trashing their balance sheets is a public policy concern.
If private investors want to invest in China, that's fine. But pensions and banks should not, and should not be investing in funds that do. Their risks are shared, and China trashing their balance sheets is a public policy concern.
> But pensions and banks should not [invest in china], and should not be investing in funds that do.
It could be argued that pensions should not be investing in risky bonds (or assets), but this idea shouldn't have anything to do with china specifically. Institutions that can't absorb these risks should not take them.
Just because it's china related, doesn't mean that the gov't should have a specific policy to prevent it from happening (but allow these institutions to invest in other, equally risky assets). To allow such policy to be set is to turn investment into political weapon. I do not want to see that.
It could be argued that pensions should not be investing in risky bonds (or assets), but this idea shouldn't have anything to do with china specifically. Institutions that can't absorb these risks should not take them.
Just because it's china related, doesn't mean that the gov't should have a specific policy to prevent it from happening (but allow these institutions to invest in other, equally risky assets). To allow such policy to be set is to turn investment into political weapon. I do not want to see that.
The government should do everything* to protect me, the citizen.
*Except the things that make me confused and angry, even if they benefit other citizens.
Welcome to neoliberal hell.
*Except the things that make me confused and angry, even if they benefit other citizens.
Welcome to neoliberal hell.
Bashing on neolibs and alt-right isn't going to solve anything.
The problem with politics is the left knows it's not always right.
The problem with politics is the left knows it's not always right.
I want to understand that second sentence better. Is it the same sentiment as the Bukowski quote stating “The problem with the world is that the intelligent people are full of doubts, while the stupid ones are full of confidence”?
Neoliberalism is an economic policy, it has nothing to do with liberal politics.
Did you really just say that economic policy has nothing to do with politics?
If we hamfist "politics" to mean nothing but culture war noise, then sure, economics and politics are separate. I always thought that people were smarter than that.
It's naive to split economy and politics... Just like it's naive to split culture and engineering in a company.
A) Fight back by limiting Chinese expansion with US financial influence. Sanctions, etc.
B) The US should do something, because if they don't, China will continue to take advantage of US ineptness. States have powers which investors simply don't have.
B) The US should do something, because if they don't, China will continue to take advantage of US ineptness. States have powers which investors simply don't have.
US government ineptness? Or US citizen ineptness. It's not the government buying this debt
Now what, the government stops people from trying to make a quick buck on a high risk investments? We can start from stopping Americans from paying 7 figures for digital drawings of monkeys
Now what, the government stops people from trying to make a quick buck on a high risk investments? We can start from stopping Americans from paying 7 figures for digital drawings of monkeys
> US government ineptness? Or US citizen ineptness. It's not the government buying this debt
You are focusing on this one type of transaction whereas the reality is that the Chinese state exercises influence in a lot of other areas where US investors have no control. Say, for, example using state-sponsored hacking and espionage to give an unfair advantage to their investors on the international free market. Something US investors could go to jail for if they tried to do. I repeat, if the US doesn’t fight for US investors interests, China will nonetheless fight for theirs.
You are focusing on this one type of transaction whereas the reality is that the Chinese state exercises influence in a lot of other areas where US investors have no control. Say, for, example using state-sponsored hacking and espionage to give an unfair advantage to their investors on the international free market. Something US investors could go to jail for if they tried to do. I repeat, if the US doesn’t fight for US investors interests, China will nonetheless fight for theirs.
> We can start from stopping Americans from paying 7 figures for digital drawings of monkeys
NFTs are even more moronic than that: they are nothing more than links to external content - Tweets, images, videos, whatever. Meaning that everyone who wants to see and reproduce the content you paid a million dollars for only has to download and dump the corresponding blockchain... and also meaning that you are the proud owner of a bit of nothing when the external hosting service goes down.
If you ask me, NFTs are a combination of tulip mania, scams and good old-fashioned money laundering using art.
NFTs are even more moronic than that: they are nothing more than links to external content - Tweets, images, videos, whatever. Meaning that everyone who wants to see and reproduce the content you paid a million dollars for only has to download and dump the corresponding blockchain... and also meaning that you are the proud owner of a bit of nothing when the external hosting service goes down.
If you ask me, NFTs are a combination of tulip mania, scams and good old-fashioned money laundering using art.
There is other value than the current outlook on NFT's. It is a record of a digital thumbprint. This is really the value of all blockchain based tech.
The example i use is this. Think of the Green Rolling Hills photo that was on however billion windows desktops. The original owner could have copyrighted that photo and registered its first upload onto the blockchain. It is registered then as the first photo of a very specific high use photo and i would say that digital asset has a value.
Crypto Kitties etc are not my cup of tea, its the value created by the option of the tec that i think will have ramifications. I am working on a project in this space currently.
The example i use is this. Think of the Green Rolling Hills photo that was on however billion windows desktops. The original owner could have copyrighted that photo and registered its first upload onto the blockchain. It is registered then as the first photo of a very specific high use photo and i would say that digital asset has a value.
Crypto Kitties etc are not my cup of tea, its the value created by the option of the tec that i think will have ramifications. I am working on a project in this space currently.
Why do you need a blockchain with all the environmental waste (CO2 from electricity generation as well as heaps and heaps of eventually discarded mining equipment) for the purpose of maintaining who is the owner of the copyright for a piece of work?
That's what the US has the Copyright Office for ffs!
That's what the US has the Copyright Office for ffs!
If the US intervenes, they're branded as interlopers. If they don't, they're branded as inept. Seems like they're fucked either way in the eyes of the rest of the world.
For A) the U.S. should delist all Chinese ADRs to start. There were literally billions of stock in completely fraudulent companies being sold on U.S. exchanges.
What is the US supposed to do, prevent anyone from being exposed to this situation?
That's a wide ranging / impossible mandate there.
That's a wide ranging / impossible mandate there.
how about not let people invest in companies that are Chinese? since the CCP bans them from being listed anyways, now when you invest in Chinese companies your investing in some fake company in the Bahamas ...
China markets are heavily intertwined with everything, not investing in Chinese companies will not protect you.
Wait a second...
How is Evergrande's foreign debt default translate to "waging economic warfare via equity markets"? Of course China is responsible for its own domestic debt, because evergrande borrowed from state-backed banks. Are foreign debters also backed by Chinese government? Are you suggesting Chinese government should take responsibility for foreign investors?
And "for a while"? Name another case remotely matches "economic warfare".
How is Evergrande's foreign debt default translate to "waging economic warfare via equity markets"? Of course China is responsible for its own domestic debt, because evergrande borrowed from state-backed banks. Are foreign debters also backed by Chinese government? Are you suggesting Chinese government should take responsibility for foreign investors?
And "for a while"? Name another case remotely matches "economic warfare".
Since you asked, China basically had an inside man in the Californian pension system and purchased a large amount of Chinese tech stocks. Beijing then pulled the carpet out from under them, causing 400B in US pension losses: https://www.google.com/amp/s/californiaglobe.com/articles/us...
amp links really undermine your credibility...
https://californiaglobe.com/fr/us-pension-funds-lost-400-bil...
https://californiaglobe.com/fr/us-pension-funds-lost-400-bil...
I can't tell if this is a joke or you are serious. Can you clarify?
OP makes a complicated allegation. I don't care enough about the allegation to devote the mental effort to understand it or to determine if the source cited is bogus. Generally I have more regard for the opinions of careful thinkers. Pasting an untidy URL is a sign of sloppy thinking.
> Pasting an untidy URL is a sign of sloppy thinking.
Thanks, you answered all I need to know with this comment here. Judging the validity of OPs argument based on your personal dislike of amp in a url.
Thanks, you answered all I need to know with this comment here. Judging the validity of OPs argument based on your personal dislike of amp in a url.
Or I’m on a cellphone????
Assuming that you are trolling, one advice in this situation is that you can curb the urge to post something on your phone, which restricted your flexibility and causes the tendance to post things with little context and concrete meaning, and wait until you have access to the right tool for expressing yourself.
It is not easy.
At the spot of seeing something that you feel strongly, it's an exercise of strong will to actually have a clear mind and use rationality to communicate.
Emotion is the fuel of mental activity. It likes to explode. The mind's role is to place it on steady pace, and generate power that actually changed things, instead of just exploding on spot.
It is not easy.
At the spot of seeing something that you feel strongly, it's an exercise of strong will to actually have a clear mind and use rationality to communicate.
Emotion is the fuel of mental activity. It likes to explode. The mind's role is to place it on steady pace, and generate power that actually changed things, instead of just exploding on spot.
Now sure how to connect the dots from your article to the claim that China "waging economic warfare through equity market".
Facts:
* US pension fund lost 400B on China investment. That's total in US not directly related to the "inside man in the CA pension system". But wait for others facts below.
* This CA pension system inside man "Yu Ben Meng" is chief investment officer of CA public employees retirement system (CalPERS). He "has long and cozy relationship with China". Because he was recruited into the "thousand talents" program.
* CalPERS invested 3.1 billion into Chinese companies. The amount lost because of them us undisclosed in the article.
Back to your statement:
> China basically had an inside man in the Californian pension system
He is recruited as thousands talent program. The relationship is claimed to be academic.
When his investment decision into Chinese companies on behalf of Cal PERS is unknown. To substantiate your statement, at least, based on the known facts, there should be a casual connection between his recruitment to thousand talent program, and later decision to invest into Chinese firm.
Further, the investment gain from this investment needs to be negative or noticeablly below market norm to actually give any doubt that such investment was not driven by sane investment assessment.
> Beijing then pulled the carpet out from under them, causing 400B in US pension losses
It's strange to paint this as a economic warfare.
Why is regulatory action with the intention to curb private corporations' influence (as western media like to portrait), being transformed into economy warfare.
Of course, it's not a stretch to claim that in this action, CCP indeed achieved the purpose of economic warfare.
But that's just usual international business. US fed has already caused global financial crisis, because of their domestic policies. For multiple times over the 20 and 21 centuries.
Did US wage economic warfare against all other nations on earth? (Because of US dollars' supremacy)
If one admit US is wagging war, then sure, China is also waging a war.
Call this whatabohtism.
But at least make it clear that this is not some Chinese specific evil. This is a universal evil.
As a Chinese myself, I don't want to be the spagagoat once US China got into an actual war. CCP is as bad as USA, thats not any Chinese fault.
And who is not investing in China? Ray Dallio? He must be a more China inside man. As he is not only investing in China, he openly claim it's still good to invest in China!
Mr. Yu Ben Meng, aside from being a Chinese, is he doing more pro China than Mr. Dallio? I cannot find any such evidence from your article.
So the reason call him a China inside man, is just because he is a Chinese?
Tell me, except the word "racism" what should I use to describe this reasoning?!
Facts:
* US pension fund lost 400B on China investment. That's total in US not directly related to the "inside man in the CA pension system". But wait for others facts below.
* This CA pension system inside man "Yu Ben Meng" is chief investment officer of CA public employees retirement system (CalPERS). He "has long and cozy relationship with China". Because he was recruited into the "thousand talents" program.
* CalPERS invested 3.1 billion into Chinese companies. The amount lost because of them us undisclosed in the article.
Back to your statement:
> China basically had an inside man in the Californian pension system
He is recruited as thousands talent program. The relationship is claimed to be academic.
When his investment decision into Chinese companies on behalf of Cal PERS is unknown. To substantiate your statement, at least, based on the known facts, there should be a casual connection between his recruitment to thousand talent program, and later decision to invest into Chinese firm.
Further, the investment gain from this investment needs to be negative or noticeablly below market norm to actually give any doubt that such investment was not driven by sane investment assessment.
> Beijing then pulled the carpet out from under them, causing 400B in US pension losses
It's strange to paint this as a economic warfare.
Why is regulatory action with the intention to curb private corporations' influence (as western media like to portrait), being transformed into economy warfare.
Of course, it's not a stretch to claim that in this action, CCP indeed achieved the purpose of economic warfare.
But that's just usual international business. US fed has already caused global financial crisis, because of their domestic policies. For multiple times over the 20 and 21 centuries.
Did US wage economic warfare against all other nations on earth? (Because of US dollars' supremacy)
If one admit US is wagging war, then sure, China is also waging a war.
Call this whatabohtism.
But at least make it clear that this is not some Chinese specific evil. This is a universal evil.
As a Chinese myself, I don't want to be the spagagoat once US China got into an actual war. CCP is as bad as USA, thats not any Chinese fault.
And who is not investing in China? Ray Dallio? He must be a more China inside man. As he is not only investing in China, he openly claim it's still good to invest in China!
Mr. Yu Ben Meng, aside from being a Chinese, is he doing more pro China than Mr. Dallio? I cannot find any such evidence from your article.
So the reason call him a China inside man, is just because he is a Chinese?
Tell me, except the word "racism" what should I use to describe this reasoning?!
Sorry, that’s a lot of words that doesn’t address anything. This guy is under investigation because of his actions. Bringing up a bunch of irrelevant facts just serves as a distraction. Seriously, the U.S. causing the global financial crisis is your counter argument?
At the moment like this, I always wonder:
Should I spend time engaging with this guy who appears not reading, or cherrypicking statements, or plainly trolling?...
I think the one sentence explanation is that your statement is plainly racism.
Even in this post, you admitted that "This guy is under investigation", yet you are able to use a unsubstantiated charge, and blow it into China economic warfare, and label that person as "China inside person".
> that’s a lot of words that doesn’t address anything
Sure, tell me, which part is address nothing?
Should I spend time engaging with this guy who appears not reading, or cherrypicking statements, or plainly trolling?...
I think the one sentence explanation is that your statement is plainly racism.
Even in this post, you admitted that "This guy is under investigation", yet you are able to use a unsubstantiated charge, and blow it into China economic warfare, and label that person as "China inside person".
> that’s a lot of words that doesn’t address anything
Sure, tell me, which part is address nothing?
Ah yes, anyone criticizing china is racist. Straight out of the CCP handbook.
WTF?
We are talking about a random US Chinese person, where did I defend CCP?!
WHAT KIND OF STUPIDITY IS NOW RAMPAGING ON HN!?
We are talking about a random US Chinese person, where did I defend CCP?!
WHAT KIND OF STUPIDITY IS NOW RAMPAGING ON HN!?
I think the original accusation is a bit of a stretch. Alot of funds of all sorts have diversified and invested in China which makes sense since China is the world's second largest economy.
A bit stretch is about objective as calling Trump "a bit erratic".
..
I guess it's "warfare via equity markets" if you didn't exit the trade soon enough.
But what would you call it when American investors make boatloads of money investing in Chinese stocks? And should the US regulate away their ability to earn those returns?
Since US investors can also lose money when US companies default, should investors also be prevented from investing in those too?
Incidentally, this "protect investors" logic is the same reason for the accredited investor regulations that prevent the masses from investing in startups.
But what would you call it when American investors make boatloads of money investing in Chinese stocks? And should the US regulate away their ability to earn those returns?
Since US investors can also lose money when US companies default, should investors also be prevented from investing in those too?
Incidentally, this "protect investors" logic is the same reason for the accredited investor regulations that prevent the masses from investing in startups.
A bunch of greedy US investors dumped money into quixotic Chinese companies and we should bail them out? Sounds politically toxic to me.
If a large group of innocent US citizens that ventured to China for tourism reasons were shot down by CCP police would you say the government should stay out of it, instead blaming them for trusting China?
if those large group of people agreed to be shot at, for a chance to get a lot of money in return, then they made their own choice and must live with those consequences.
Unless there's some element of fraud undertaken on the part of a national gov't (like CCP), which only the US gov't could present as a counter to, there should be no intervention from the US gov't about the defaults in china and the investment losses incurred to US citizens.
Unless there's some element of fraud undertaken on the part of a national gov't (like CCP), which only the US gov't could present as a counter to, there should be no intervention from the US gov't about the defaults in china and the investment losses incurred to US citizens.
Handing money to a foreign business because you see dollar signs that aren't there is not remotely comparable to getting killed by a police officer.
It’s almost like those to situations are entirely different and so it’s completely reasonable that someone would have a different reaction to them.
[deleted]
This is not even frontpage of ft, bloomberg etc. Bloomberg Europe TV station talks about Johnson & Johnson factory problems in China but not Evergrande.
My reading from above pieces of information:
it's not that important yet. Maybe they will pay late again as they did previously when they were late one day.
My reading from above pieces of information:
it's not that important yet. Maybe they will pay late again as they did previously when they were late one day.
Well this time they already were inside a 30-day grace period which as of 3 hours ago they missed aswell, hence the default.
It's unclear if they paid or not, even last time the creditors received the Money the day after the 30 days had passed.
It seems they didn't but we won't know until tomorrow or so.
It seems they didn't but we won't know until tomorrow or so.
One organization who states that they are a creditor has published a letter stating that they've not been paid
https://twitter.com/dhthakur745/status/1458499174026997760?s...
https://twitter.com/dhthakur745/status/1458499174026997760?s...
AFAIU that refers to "we've not Received money by the end of the day".
But the clearinghouse managing the bonds said those have been paid later, just like last time.
Notice the latter also says "they defaulted again", which is not true.
https://news.yahoo.com/evergrande-makes-overdue-interest-pay...
But the clearinghouse managing the bonds said those have been paid later, just like last time.
Notice the latter also says "they defaulted again", which is not true.
https://news.yahoo.com/evergrande-makes-overdue-interest-pay...
The news doesn't decide what to run based on importance but rather based on salience.
As someone that is financially versed, even I have trouble grasping the why this is a big deal. Complicated things don't get run.
Whereas J&J factory problems, that sounds like a covid thing and it's easy to see why that might be important.
As someone that is financially versed, even I have trouble grasping the why this is a big deal. Complicated things don't get run.
Whereas J&J factory problems, that sounds like a covid thing and it's easy to see why that might be important.
People are concerned about this because of 2 reasons:
(1) to see what the PRC does to contain the risk (it looks like they have contained the majority of the risk and forced the executives to pay from their own wealth [smart signaling])
(2) Broader narrative of concern around contagion effects from a Chinese real estate collapse and from a global media perspective its a great FUD similar to wall street financial collapse in the aughts on the surface but once you look deeper not similar at all. Theres always interest to see if a house of cards is about to fall. Also this sells newspaper / clickthrough ad dollars.
It's important to watch but the ripple effects on this look to be small and likely to be contained in China.
It's important to watch but the ripple effects on this look to be small and likely to be contained in China.
Its actually been on DW (german) news for a while. They spent an hour discussing it last week. It was in my feed often enough that I figured I should take a look after the 4th or 5th story..
But your right, it hasn't hit major media in any form.
https://www.youtube.com/watch?v=f5Qi4oB1W_8
But your right, it hasn't hit major media in any form.
https://www.youtube.com/watch?v=f5Qi4oB1W_8
For what it's worth, the Economist has been showing this in their daily "5 most important stories today" section of the app for the past month or two. Comes up at least once a week.
Maybe the typical Economist readership cares more about this. I for one did not quite grok the importance or the implications, but it's been interesting to hear about.
Maybe the typical Economist readership cares more about this. I for one did not quite grok the importance or the implications, but it's been interesting to hear about.
"The leak from that dam has been going on for years, and only the one crazy guy keeps making noise about it. We'll just enjoy our home under it by the stream until it becomes important"
Bloomberg, the person, is partial and biased towards China. Many of his interviews has made that very clear.
Some good explanatory threads I saved when the Evergrande news first broke a couple of months ago:
https://twitter.com/SahilBloom/status/1439920043404546050
https://twitter.com/FabiusMercurius/status/14392189567791513...
https://twitter.com/INArteCarloDoss/status/14389444317349191...
https://twitter.com/SahilBloom/status/1439920043404546050
https://twitter.com/FabiusMercurius/status/14392189567791513...
https://twitter.com/INArteCarloDoss/status/14389444317349191...
Speaking of misleading headlines:
https://www.nytimes.com/2021/11/10/business/evergrande-bond-...
https://archive.md/cPsjv
"China Evergrande meets a Wednesday payment deadline for two of its bonds."
On multiple levels, too.
"It was not immediately clear whether it had made payment on the third bond, which matures in 2024, or if all of the investors in the other two bonds had received payment."
So basically they MIGHT have made payments on 2 of the 3 bonds. How is this being treated as anything other than a default? Is the financial press just afraid of upsetting China here?
https://www.nytimes.com/2021/11/10/business/evergrande-bond-...
https://archive.md/cPsjv
"China Evergrande meets a Wednesday payment deadline for two of its bonds."
On multiple levels, too.
"It was not immediately clear whether it had made payment on the third bond, which matures in 2024, or if all of the investors in the other two bonds had received payment."
So basically they MIGHT have made payments on 2 of the 3 bonds. How is this being treated as anything other than a default? Is the financial press just afraid of upsetting China here?
> Is the financial press just afraid of upsetting China here?
BlackRock is the biggest foreign owner of Evergrande bonds.
Next there are Vanguard, and a few other equally big Western funds.
https://www.reuters.com/business/finance/blackrock-hsbc-amon...
BlackRock is the biggest foreign owner of Evergrande bonds.
Next there are Vanguard, and a few other equally big Western funds.
https://www.reuters.com/business/finance/blackrock-hsbc-amon...
Where does the article say that?
It says: "BlackRock, HSBC among largest buyers of Evergrande debt"
Those are relatively recent purchases and they were tiny re BlackRock -
"BlackRock added 31.3 million notes of Evergrande's debt between January and August 2021, pushing its stake in the company to 1% of the assets in its $1.7 billion Asian High Yield Bond Fund, according to Morningstar."
1% of $1.7 billion, or $17 million.
That's equal to 1/100th of 1% of BlackRock's assets. And they've got $9+ trillion under management.
BlackRock has taken a hit on their equity in Evergrande, which is already largely toast:
"The data also shows that BlackRock, the world’s largest asset manager, has suffered a $95.3m book loss on its Evergrande holding, which at the start of the year stood at just over $111m."
https://www.fnlondon.com/articles/blackrock-vanguard-shareho...
The Financial Times in late September estimated BlackRock's total exposure to Evergrande at $400 million. At their scale they can take a $250-$400 million loss and shrug it off. Evergrande represents a several hundred billion dollar problem for China domestically, and that's before you get to the cascade risk for their property market (which represents 65-70% of all household assets in China).
It says: "BlackRock, HSBC among largest buyers of Evergrande debt"
Those are relatively recent purchases and they were tiny re BlackRock -
"BlackRock added 31.3 million notes of Evergrande's debt between January and August 2021, pushing its stake in the company to 1% of the assets in its $1.7 billion Asian High Yield Bond Fund, according to Morningstar."
1% of $1.7 billion, or $17 million.
That's equal to 1/100th of 1% of BlackRock's assets. And they've got $9+ trillion under management.
BlackRock has taken a hit on their equity in Evergrande, which is already largely toast:
"The data also shows that BlackRock, the world’s largest asset manager, has suffered a $95.3m book loss on its Evergrande holding, which at the start of the year stood at just over $111m."
https://www.fnlondon.com/articles/blackrock-vanguard-shareho...
The Financial Times in late September estimated BlackRock's total exposure to Evergrande at $400 million. At their scale they can take a $250-$400 million loss and shrug it off. Evergrande represents a several hundred billion dollar problem for China domestically, and that's before you get to the cascade risk for their property market (which represents 65-70% of all household assets in China).
Is it important, or the fact that
a megafund like BlackRock makes completely hopeless C rated bonds from a very shady market 1% of their fund?
1% of a BlackRock fund is a megaton of money.
Remember, LTCM went down after a few percent sell-off turning into an avalanche.
And yes, this below is very appropriate.
https://blackrockloveschina.com/
1% of a BlackRock fund is a megaton of money.
Remember, LTCM went down after a few percent sell-off turning into an avalanche.
And yes, this below is very appropriate.
https://blackrockloveschina.com/
1.7 billion fund to blackrock is nothing to them, shove like 5-10 peeps to it, tops
also the vast majority of blackrock's holdings are unleveraged equity
also the vast majority of blackrock's holdings are unleveraged equity
Is blackrock leveraged 100x on evergrande bonds?
No they are not afraid of China. They are afraid of people panicking in the US/EU.
Apologies for responding to my own post, but if you do a Google news search for Evergrande the first link that pops up is:
https://www.forexlive.com/news/!/evergrande-met-todays-bond-...
The title on Google News is "Evergrande Met Today's Bond Payment Deadline" but if you click to the article the headline changes to "Evergrande met at least part of today's bond payment deadline".
What is going on here?
https://www.forexlive.com/news/!/evergrande-met-todays-bond-...
The title on Google News is "Evergrande Met Today's Bond Payment Deadline" but if you click to the article the headline changes to "Evergrande met at least part of today's bond payment deadline".
What is going on here?
AFAIK the challenge is that Evergrande and its bond holders don't make public statements about the repayments, so it's unclear whether they've been made or not.
However in this case it seems that a bondholder has explicitly stated that they have not been paid by the deadline https://twitter.com/dhthakur745/status/1458499174026997760?s...
Which means that, if true, Evergrande have now defaulted.
However in this case it seems that a bondholder has explicitly stated that they have not been paid by the deadline https://twitter.com/dhthakur745/status/1458499174026997760?s...
Which means that, if true, Evergrande have now defaulted.
So, the usual defaulting mechanism does not work. (Size of investment gives claim percentage, bank loans are fulfilled first).
Instead, its a quite bizarr negotiation process- local investors first, then citizens (to prevent a riot) - then if anything is left, the international investors.
If that is the full approach, then a massive retreat of investment out of china is to be expected.
Instead, its a quite bizarr negotiation process- local investors first, then citizens (to prevent a riot) - then if anything is left, the international investors.
If that is the full approach, then a massive retreat of investment out of china is to be expected.
That only happens after default, and default happens when a loan can't be repaid. Evergrande wasn't bankrupt yesterday, so the bankruptcy rules don't apply today. They may tomorrow, for the loans that weren't repaid today (or in the past).
Yeah, people seem to forget that "default" is a technical legal term meaning failure to fulfill a contractual obligation, in this case failure to make an interest payment on a bond by a specified date. If they didn't make the payment today, then they are in default. Bankruptcy is a more nebulous term and can refer to the filing, the court proceeding, or the final judgement. Being in default is a matter of fact and is not dependent on any of that.
The "interesting" piece with this default is whether it triggers further cross-defaults.
A couple of articles I read suggested that if Evergrande defaults on one bond it can trigger instant defaults on others.
A couple of articles I read suggested that if Evergrande defaults on one bond it can trigger instant defaults on others.
Depends if you're a half glass empty or half glass full person, whether 2 out of 3 payments is good or bad.
It doesn't look good.
> This means that if a single one of these bonds defaults, all 23 outstanding bonds automatically have ‘default’ status
https://apnews.com/press-release/pr-newswire/business-china-...
> This means that if a single one of these bonds defaults, all 23 outstanding bonds automatically have ‘default’ status
https://apnews.com/press-release/pr-newswire/business-china-...
To some extent, markets follow Looney Tunes logic - if you don't look down you aren't falling yet.
I actually think NYT updated this headline too: I swear it said the opposite earlier today, but I can't find it on newdiffs.
Some investors have not received Evergrande unit's bond interest due Nov 6, say sources
https://www.reuters.com/business/some-evergrande-units-offsh...
Evergrande bondholders say they have not received $148m interest payments https://www.ft.com/content/88dcb535-3945-4138-b394-dda82292b...
Basically, selective default by Evergrande. Full official default likely very soon, and for most of the Chinese real estate companies.
加速加速加速 更快看到结局
Evergrande bondholders say they have not received $148m interest payments https://www.ft.com/content/88dcb535-3945-4138-b394-dda82292b...
Basically, selective default by Evergrande. Full official default likely very soon, and for most of the Chinese real estate companies.
加速加速加速 更快看到结局
What are the implications of this?
GDP decline of 2-5%, recession: Chinese real estate is 70% of household wealth, and 30% of GDP. Likely these #s are worse, since the government obfuscates data. Home sales is already down 30% y/y.
Pressure on tech and other industries in China: Xi Jing Ping will officially be a dictator, come party congress 2022. Tech and real estate are industries owned by the oligarchs of Shanghai faction, which is against Xi Jing Ping.
Even more societal lockdowns: In the last few months, there were silencing of a #metoo incident, scrubbing of a famous actress from internet, removing discussions of evergrande bankruptcy, and disappearing/reapperance of alibaba's ceo. Look for more of these.
No war attempt on Taiwan in the near future: between real estate collapse, economic decline, coal shortage, food shortage, inflation, huge debts, and covid waves/lockdowns, CCP won't have any appetite.
Suicidal war attempt on Taiwan: CCP may get desperate when riots broke out, or need a victory to focus its citizen's outrage elsewhere. Then they'll face the combined forces of western countries, and will have to suffer through economic sanctions.
Pressure on tech and other industries in China: Xi Jing Ping will officially be a dictator, come party congress 2022. Tech and real estate are industries owned by the oligarchs of Shanghai faction, which is against Xi Jing Ping.
Even more societal lockdowns: In the last few months, there were silencing of a #metoo incident, scrubbing of a famous actress from internet, removing discussions of evergrande bankruptcy, and disappearing/reapperance of alibaba's ceo. Look for more of these.
No war attempt on Taiwan in the near future: between real estate collapse, economic decline, coal shortage, food shortage, inflation, huge debts, and covid waves/lockdowns, CCP won't have any appetite.
Suicidal war attempt on Taiwan: CCP may get desperate when riots broke out, or need a victory to focus its citizen's outrage elsewhere. Then they'll face the combined forces of western countries, and will have to suffer through economic sanctions.
Even if they take Taiwan, won’t they be completely shut out of world markets?
By what mechanism? Most of the world more or less officially recognizes China's claim on Taiwan. I think it would be horrifically sad and disappointing, but more or less ignored, like Hong Kong.
Biden has said he'd go to war to protect Taiwan. https://www.npr.org/2021/10/28/1048513474/biden-us-taiwan-ch...
Probably posturing, but hard to imagine he wouldn't at least impose sanctions.
Probably posturing, but hard to imagine he wouldn't at least impose sanctions.
China will choose internal stability over external connections. Internal investors (party officials, chineses companies and private investors will receive partial reparations for their lost investments - or goods (flats etc.)
International Investors like BlackRock will take a massive bath.
International Investors like BlackRock will take a massive bath.
> Full official default likely very soon, and for most of the Chinese real estate companies.
Will this be the Chinese version of Japan's real-estate crash of the '90s...?
Will this be the Chinese version of Japan's real-estate crash of the '90s...?
> Will this be the Chinese version of Japan's real-estate crash of the '90s...?
If we are lucky? Otherwise, it could be much worse than that. Vancouver, the Bay Area, and LA got hit hard by Japan's real estate crash, I wonder if history will repeat?
If we are lucky? Otherwise, it could be much worse than that. Vancouver, the Bay Area, and LA got hit hard by Japan's real estate crash, I wonder if history will repeat?
Too soon to say. Policy plays a big roles here and chinese policy debates are mysterious. It's possible they want to crash the real estate market, and reverse out of the appreciating real estate setup. Trade off between middle class wealth accumulation and housing affordability.
They're currently reversing out of the college cram school thing. There's some sort of similarity here.
They're currently reversing out of the college cram school thing. There's some sort of similarity here.
>加速加速加速 更快看到结局
Haha, trying to buy an apartment in Shenzhen? I can't say the sentiment here is much different amongst young people.
Haha, trying to buy an apartment in Shenzhen? I can't say the sentiment here is much different amongst young people.
If anything, the quotes you cite make it seem like the misleading slant of the headline is the speculation about possible default based entirely on an unknown. Two out of three bonds being paid is normal, and the third being unknown is not evidence of much.
Furthermore, it seems to me that saying a company has defaulted is a pretty serious statement that would constitute libel if not appropriately checked. And so even with a few unofficial reports of bond holders not getting paid, it would be irresponsible to prematurely declare a default.
The facts that have been reported certainly don't look good, but it's also the press's modus operandi to sensationalize.
Furthermore, it seems to me that saying a company has defaulted is a pretty serious statement that would constitute libel if not appropriately checked. And so even with a few unofficial reports of bond holders not getting paid, it would be irresponsible to prematurely declare a default.
The facts that have been reported certainly don't look good, but it's also the press's modus operandi to sensationalize.
[deleted]
Isn’t $148 million like four meme NFTs? Why would a large company be teetering on the edge for such a small amount of money?
Because they don't have it
The payment on the debt was due today, and as of 3 hours ago that timeframe has passed, which is why the default got announced by the DMSA.
Because they actually are in debt to the tune of $300bn but they've managed to keep playing so they stay afloat. This would be the moment the music stops.
Because they have multiple different bonds outstanding with differing maturity dates...failure to pay back one is indicative that there may be successive failures after this one.
There are cross default provisions across the bonds. A default on one is a default on all 23 outstanding bonds.
From other articles the issue is that they can't even pay a "meme NFT" ...
If they can't pay that, what can they pay on their 300B in other debts?
Other news sources indicate they don't have money coming in, possibly NONE, the real estate market in China is getting cold... and they have unfinished projects that they already collected money on that require money to complete.
If they can't pay that, what can they pay on their 300B in other debts?
Other news sources indicate they don't have money coming in, possibly NONE, the real estate market in China is getting cold... and they have unfinished projects that they already collected money on that require money to complete.
This is interest payment.
“large company” doesn’t imply solvency
Thats not the size of what they owe, its the size of what they owe today.
When you have 0 liquid dollars then $148 million is more than you have.
When you have 0 liquid dollars then $148 million is more than you have.
How much exposure does the Western world have to this? My guess would be "not much". It'll sting some emerging market investors, but I don't think you'll see a massive knock-on here.
> It'll sting some emerging market investors, but I don't think you'll see a massive knock-on here.
China has basically been the single biggest driver of global growth over the past decade. Its highly overleveraged real estate market is a huge threat to its overall economy, and that has plenty of potential to create a massive knock-on.
https://www.reuters.com/article/us-economy-global-kemp-colum...
China has basically been the single biggest driver of global growth over the past decade. Its highly overleveraged real estate market is a huge threat to its overall economy, and that has plenty of potential to create a massive knock-on.
https://www.reuters.com/article/us-economy-global-kemp-colum...
Leverage in the US is very high too. I'm thinking the next crisis will in the end be known as the Leverage Crisis, because it's leverage that will take what was already going to be a big financial crisis into financial catastrophe. It really wouldn't take much to tip us over right now because the ever-rising stock prices are encouraging everyone and their duck to leverage to the max, further pushing up prices... it's not a good cycle.
> China has basically been the single biggest driver of global growth over the past decade. Its highly overleveraged real estate market is a huge threat to its overall economy, and that has plenty of potential to create a massive knock-on.
I think what Western observers are missing is that this was an intentional "let fail" in order to prevent this structural weakness from becoming too big of a problem.
China is basically euthanizing this industry because they perceive it as a structural weakness.
I think what Western observers are missing is that this was an intentional "let fail" in order to prevent this structural weakness from becoming too big of a problem.
China is basically euthanizing this industry because they perceive it as a structural weakness.
> I think what Western observers are missing is that this was an intentional "let fail" in order to prevent this structural weakness from becoming too big of a problem.
I think what you're missing is that China isn't even out of the first inning on this one.
Evergrande hasn't even failed yet. It's a slow-moving trainwreck and the contagion is only just starting to spread.
https://www.reuters.com/world/china/chinas-state-council-hel...
I think what you're missing is that China isn't even out of the first inning on this one.
Evergrande hasn't even failed yet. It's a slow-moving trainwreck and the contagion is only just starting to spread.
https://www.reuters.com/world/china/chinas-state-council-hel...
Hasn't Ray Dalio been advocating investing in China for a couple of years now? His thesis is that the US is a world power on the decline and China will soon rise to take its place. I wonder how that worked out for him and his fund?
Bridgewater suffered massive losses and laid off a ton of staff a year or two ago. The losses were something like $12 billion in 2020. If you are hiring in the northeast, you've probably run into ex-Bridgewater employees.
In the long run China has a lot of power here. This might be a correction in how they set up their economy but I don't think anyone doubts that China is an economic superpower.
The thing is investing in China a foreigner is a complete dice roll where you have no real power and no visibility into what you are investing in.
The thing is investing in China a foreigner is a complete dice roll where you have no real power and no visibility into what you are investing in.
> I don't think anyone doubts that China is an economic superpower
They are, but the foundation is rickety. Xi is a dictator. That increases the odds of catastrophic failure. Were an economic collapse to become protracted, it's not hard to imagine separatist movements and competing power sectors turning to violence as a political tool.
They are, but the foundation is rickety. Xi is a dictator. That increases the odds of catastrophic failure. Were an economic collapse to become protracted, it's not hard to imagine separatist movements and competing power sectors turning to violence as a political tool.
That is hard to imagine. We have to believe that the CCP wouldn't crack down on separatists, and they wouldn't elect a new leader.
China may have eliminated the term limit (of 2x5 years), but Xi has only been president for 8 years. They still have a fresh memory of transferring power. Certainly the longer he's president, the scenario you outline becomes more likely... but not in 8 years.
China may have eliminated the term limit (of 2x5 years), but Xi has only been president for 8 years. They still have a fresh memory of transferring power. Certainly the longer he's president, the scenario you outline becomes more likely... but not in 8 years.
Isn’t Xi Jinping announcing his lifetime rule today or this week?
People have been talking about the "rickety foundation" of China for decades. I'm sure when they have an economic downturn sometime in the next two decades, those people will all come out to crow about how they had been right all along.
To me, they seem to be building on top of a more modern infrastructure base and do not have the super-prevalent NIMBY problems that exist in the West.
To me, they seem to be building on top of a more modern infrastructure base and do not have the super-prevalent NIMBY problems that exist in the West.
> People have been talking about the "rickety foundation" of China for decades
Economically, sure. (Those always struck me as sour grapes or a fundamental misunderstanding of how debt works in a centrally-planned economy.)
Politically, however, the CCP had intraparty competition that avoided the sort of rot that felled the Soviets. It also kept the Party thinking long term. Hong Kong and Taiwan are good examples of Xi's impatience. Absent intervention, Hong Kong would have uncontroversially folded into China in 2047. The combination of China's military and economic prowess, then, could have encouraged peaceful unification with Taiwan. But Xi was impatient. He wanted it in his lifetime. So he rushed Hong Kong and screwed up not only Taiwan, but relations with all his neighbors, from the Philippines to India.
Dictators like to style themselves as monarchs. But monarchy has a continuity that dictatorships don't. That makes them more impatient and more unstable, particularly at the transfer of power.
Economically, sure. (Those always struck me as sour grapes or a fundamental misunderstanding of how debt works in a centrally-planned economy.)
Politically, however, the CCP had intraparty competition that avoided the sort of rot that felled the Soviets. It also kept the Party thinking long term. Hong Kong and Taiwan are good examples of Xi's impatience. Absent intervention, Hong Kong would have uncontroversially folded into China in 2047. The combination of China's military and economic prowess, then, could have encouraged peaceful unification with Taiwan. But Xi was impatient. He wanted it in his lifetime. So he rushed Hong Kong and screwed up not only Taiwan, but relations with all his neighbors, from the Philippines to India.
Dictators like to style themselves as monarchs. But monarchy has a continuity that dictatorships don't. That makes them more impatient and more unstable, particularly at the transfer of power.
In 8 years, China is not going to rot to the degree you're referring to. So Xi made a mistake and maybe cost China Taiwan... but in no way does China's future depend on Taiwan. He has to make a lot more mistakes or be in power much longer. Right now, his tenure could be compared to a bad US president... we survive that sort of damage fine (it's not good, but the country isnt going to fail).
Agreed - the fundamental political structure is flawed. However we don't know how long it will take for that structure to break or change. Currently Xi is making some moves (with the historical resolution) to retain power indefinitely.
There are also economic problems in China that Evergrande has brought to the attention - the wild speculation in real estate that is concerning for the party to maintain control. As well with the tech crackdown recently. In broad brushes it points to some problems over there (manageable probably - but risks for control of the party).
There are also economic problems in China that Evergrande has brought to the attention - the wild speculation in real estate that is concerning for the party to maintain control. As well with the tech crackdown recently. In broad brushes it points to some problems over there (manageable probably - but risks for control of the party).
> To me, they seem to be building on top of a more modern infrastructure base and do not have the super-prevalent NIMBY problems that exist in the West.
How new the roads and houses are doesn't seem like the most relevant factor for future economic growth.
The US built modern infra for the time, then it stagnated.
Japan built modern infra for the time, then it stagnated.
The US and Japan otherwise took very divergent economic growth paths.
China could go either way, but the increasing central control is hardly without risk for future economic development. Miss a few big bets and you have less of a backup plan than a less-organized economy.
How new the roads and houses are doesn't seem like the most relevant factor for future economic growth.
The US built modern infra for the time, then it stagnated.
Japan built modern infra for the time, then it stagnated.
The US and Japan otherwise took very divergent economic growth paths.
China could go either way, but the increasing central control is hardly without risk for future economic development. Miss a few big bets and you have less of a backup plan than a less-organized economy.
> Xi is a dictator.
Countries that have never known democracy, or received democracy without ever truly fighting for it, don't really care much whether you're a dictator or not a dictator- that's all that they've known.
Countries that have never known democracy, or received democracy without ever truly fighting for it, don't really care much whether you're a dictator or not a dictator- that's all that they've known.
> Countries that have never known democracy, or received democracy without ever truly fighting for it, don't really care much whether you're a dictator or not a dictator- that's all that they've known
I'm not blaming anyone for the government model. Just staying that it comes with known risks, and one of those is economic depressions and power transitions becoming violent. The stakes are too high.
I'm not blaming anyone for the government model. Just staying that it comes with known risks, and one of those is economic depressions and power transitions becoming violent. The stakes are too high.
>His thesis is that the US is a world power on the decline and China will soon rise to take its place.
Something I've found interesting about these kinds of theses (although I'm sure there's more to his) is that just believing that a company/country/whatever is going to be successful doesn't make it a good investment. It's all about the pricing of the asset and ultimately, for assets priced by a market mechanism, about what other people think. So a thesis for investing more in China could be "US is in decline and China will take its place faster/more fully than the market thinks."
Of course even if you don't have any special knowledge about China's future, the default position should still be to invest a part of your portfolio according to it's market weight, which in the FTSE All-World Index [1] is 3.9% currently.
[1]: https://research.ftserussell.com/Analytics/Factsheets/Home/D...
Something I've found interesting about these kinds of theses (although I'm sure there's more to his) is that just believing that a company/country/whatever is going to be successful doesn't make it a good investment. It's all about the pricing of the asset and ultimately, for assets priced by a market mechanism, about what other people think. So a thesis for investing more in China could be "US is in decline and China will take its place faster/more fully than the market thinks."
Of course even if you don't have any special knowledge about China's future, the default position should still be to invest a part of your portfolio according to it's market weight, which in the FTSE All-World Index [1] is 3.9% currently.
[1]: https://research.ftserussell.com/Analytics/Factsheets/Home/D...
I don't think this criticism applies here. The thesis is clearly contrarian, as the market prices US assets lavishly and Chinese dirt cheap. The reader can be assumed to know that.
> His thesis is that the US is a world power on the decline and China will soon rise to take its place.
I feel like someone has mistaken 100 years for 10 years.
I feel like someone has mistaken 100 years for 10 years.
My guess is the opposite :) Chinese bonds have nice high yields and there's a load of money from western companies looking for yield.
Until recently they were considered (by most people) to be a relatively safe bet, so why wouldn't there be a load of money in there...
Until recently they were considered (by most people) to be a relatively safe bet, so why wouldn't there be a load of money in there...
A lot of people seem intent on letting us know that this is the case, at least.
The economy is held up by belief, and while I'm sure there are some good intentioned people telling us this, there are certainly some people who are using this as an opportunity to change financial positions.
It's important to point out that DMSA's release alledges that media has been trading on rumors that Evergrande had made the earlier missed debt payments before the grace period ended, when in fact it it had not. Several commentators over the past few weeks have pointed out that all of the media reports saying that the payments had been made were circuitously cited; no one had heard from a creditor directly. Now we have.
So now one has to wonder why essentially every major journalistic entity involved in the financial space would bet their reputation on hearsay, for something with such limited effects; especially when it would only buy a few weeks, at most, of this false belief.
So now one has to wonder why essentially every major journalistic entity involved in the financial space would bet their reputation on hearsay, for something with such limited effects; especially when it would only buy a few weeks, at most, of this false belief.
a) All owned by the billionaire set, directly or indirectly
b) Their reputations are already unimportant in important circles; see a)
c) A few weeks is enough time to comfortably check even a complex portfolio and exit positions with exposure
b) Their reputations are already unimportant in important circles; see a)
c) A few weeks is enough time to comfortably check even a complex portfolio and exit positions with exposure
I think it's more like exposure of Chinese companies from international investors. It's going to be very tough to get fx credit lines for those construction companies from now on.
I'm personally looking forward to see if tether comes out of this with a hole in their books, due to common suspicion they hold a ton of Chinese commercial paper.
Even if they do, does it matter? Everyone already seems to be ok with Tether lying about the backing of USDT. I don't expect USDT holders to decide to sell based on loss of value in the assets backing USDT. Especially when Tether is so opaque that's it's hard to know what the real impact might be.
Would anyone notice? As long as they can continue paying redemptions they could hide a hole for a long time; it wouldn't be the first time.
My guess is that nobody really knows. How could someone(or even a group of trained experts) possibly know the full extent and the dominoes that might fall elsewhere in a situation as complex as this?
The CCP are in a similar position to the west: if they let one mega corp fail, others might, if others might maybe you need to re-evaluate your investments in all of China?
Here in the west we've just extended indefinite credit (13 years and counting). So it's a bit of a pivotal moment for the CCP imho. It might turn out they're more committed to markets than we are :)
Here in the west we've just extended indefinite credit (13 years and counting). So it's a bit of a pivotal moment for the CCP imho. It might turn out they're more committed to markets than we are :)
Time for China to learn all about financial restructuring. I'm thinking a Debt for equity swap, a haircut for investors and jail time for the directors. Property is a religion in Asia, there's an unshakeable belief in its robustness as an investment, this may help to shake that a bit.
Not just Asia, as we shall see when interest rates begin to rise in the west.
Yes, that is not going to be pretty
Here's to hoping for more big real estate investor defaults, maybe housing prices in the USA will drop from oversea investors offloading properties they can't afford the taxes on... (wishful thinking).
If property investment in China turns sour, where do you think those investors will go? At least some will invest in property in the US.
Can anyone ElI5 what this could potentially mean for the world economy?
The direct exposure in itself is not very high as other posters have noted, however the way the CCP is handling this and general market reaction can have serious impact on confidence and in turn financials markets can react globally .
In combination with high U.S. inflation, slow economic recovery in the aftermath COVID-19, labor shortage/great resignation/ supply chain challenges , there can be potentially large domino effects, however is hard for anyone to say how bad it can become, or will we be lucky.
In combination with high U.S. inflation, slow economic recovery in the aftermath COVID-19, labor shortage/great resignation/ supply chain challenges , there can be potentially large domino effects, however is hard for anyone to say how bad it can become, or will we be lucky.
Exposure to the international market is 19 billion USD so I'm guessing some funds will take a bad hit and will start legal proceedings. Bonds must have been junk for awhile now though so don't know who takes the hit. The unknown is the internal Chinese market side-effects. Depends on who holds the debt and if the government steps in to rescue it.
19B international exposure really doesn't seem like a lot, but, as you said, in the context of 300B total in liabilities. $279B is -a lot- for a Chinese market where the home ownership rate is almost 90% and non-primary home purchases account for ~70% of the housing purchases.
"The financial fallout would be far reaching. Evergrande reportedly owes money to around 171 domestic banks and 121 other financial firms," the Economist Intelligence Unit's (EIU) Mattie Bekink told the BBC.
I would suspect the Chinese government will backstop the banks and firms but force consolidation and punish some people publicly.
I would suspect the Chinese government will backstop the banks and firms but force consolidation and punish some people publicly.
Calling it now: Tether and a few other stablecoins explode.
Where other than China would you go to buy massive positions (face valued) of bonds, with continued room for expansion of your position, in private deals that you could keep quiet?
Where other than China would you go to buy massive positions (face valued) of bonds, with continued room for expansion of your position, in private deals that you could keep quiet?
Any of the other BRICS countries would also be a viable option for that, without the big downside of the CCP's anti-crypto position.
Afaik, neither Brazil or India has loose and large enough capital markets to support that influx. And Russia is a dicey proposition.
Besides, the CCP's anti-crypto position doesn't matter here. We're talking about a company (Tether Holdings Limited, or a front for it) investing in bonds. No crypto involved.
Besides, the CCP's anti-crypto position doesn't matter here. We're talking about a company (Tether Holdings Limited, or a front for it) investing in bonds. No crypto involved.
So is this still "the next Lehman brothers"?
Or have we moved on to something else?
Or have we moved on to something else?
It's Lehman-like in that I don't think China will be bailing anyone out.
It's not Lehman-like in that the company isn't a tangled octopus in the middle of the financial system. Lots of investors exposed to developing markets will get burned, but I don't think the knock-on effects will be huge.
It's not Lehman-like in that the company isn't a tangled octopus in the middle of the financial system. Lots of investors exposed to developing markets will get burned, but I don't think the knock-on effects will be huge.
I think the complicating factor is that the Chinese housing market is where the people of China attempt to have savings.
A major housing market panic in China could create a lot of despair and unrest in China.
A major housing market panic in China could create a lot of despair and unrest in China.
Which would challenge CCP legitimacy, which would push the CCP to rely on the time tested tactic of blaming someone else and going to war over it.
I really, really hope I'm wrong about that.
I really, really hope I'm wrong about that.
Most people in the world do not actually want war. I'm quite confident that, while we have not evolved past being mean to each other and dumb scarcity mindsets, that the average person knows that any warfare is bad for them.
The CCP has a long way to fall - it is much more popular among its populace than our government is and we aren't seeing substantial armed rebellion here yet.
The dynamic in China is that the central government is overwhelmingly popular and the local governments are more derided.
The dynamic in China is that the central government is overwhelmingly popular and the local governments are more derided.
Eh? We just voted the guys in charge out last year. No need for armed rebellion, but same results.
What happens in China when public sentiment shifts is anyone's guess.
What happens in China when public sentiment shifts is anyone's guess.
It used to be the case that the CCP was decentralised: the regions had their own parties that were not ideologically answerable to the central party. Then, popular unrest could lead to the leader losing support of the regions, which could lead to the leader being deposed. Mao liked it this way, because his popularity in the regions strengthened him against his enemies in the central party.
I don't really follow the minutia of today's politics in China, but my impression is that Xi has taken away power from the regions. If so, then this former route for change may have been blocked.
I don't really follow the minutia of today's politics in China, but my impression is that Xi has taken away power from the regions. If so, then this former route for change may have been blocked.
China doesn't have a convertible currency, it might cause turmoil in China but I don't see how it can effect the rest of the world much.
If Chinese billionaires have to start selling a lot of overseas real estate, equities, cryptocurrencies, etc. to pay off debts because the CCP put them in a small room with a terminal and said "pay off this debt or bad things happen to you", then it can absolutely affect the rest of the world.
Now, given how many things in the US are at terribly inflated prices, especially housing that people need to live in, maybe in the long run it's a good thing. But between here and there it could be quite turbulent.
Now, given how many things in the US are at terribly inflated prices, especially housing that people need to live in, maybe in the long run it's a good thing. But between here and there it could be quite turbulent.
> is this still "the next Lehman brothers"?
No, and it never was.
With Lehman, the banks stopped lending to Lehman and then to everyone else. In China, Beijing can let Evergrande default while compelling lending to peripheral players. Thise players know this. The market knows this. That makes contagion risk de minimis. (For Western central banks, the analogous policy tool is “extraordinary measures,” i.e. committing to buying everything in sight.)
Keep in mind that Evergrande is defaulting because Beijing implemented debt limits. They’re wilfully deflating the bubble American policymakers ignored in ‘08. I’m a China hawk. But this whole episode is a show of strength for their system.
No, and it never was.
With Lehman, the banks stopped lending to Lehman and then to everyone else. In China, Beijing can let Evergrande default while compelling lending to peripheral players. Thise players know this. The market knows this. That makes contagion risk de minimis. (For Western central banks, the analogous policy tool is “extraordinary measures,” i.e. committing to buying everything in sight.)
Keep in mind that Evergrande is defaulting because Beijing implemented debt limits. They’re wilfully deflating the bubble American policymakers ignored in ‘08. I’m a China hawk. But this whole episode is a show of strength for their system.
If it were a show of strength in the system why did they let the bubble get so big in the first place?
They've been using real estate as a place to stash everything bad for a while:
https://noahpinion.substack.com/p/what-if-xi-jinping-just-is...
They've been using real estate as a place to stash everything bad for a while:
https://noahpinion.substack.com/p/what-if-xi-jinping-just-is...
Less a show of strength IMO and more of a using the fire extinguisher to put out a fire.
> They’re wilfully deflating the bubble American policymakers ignored in ‘08.
The Fed was aware of the real estate bubble and tried to deflate it in 07-08. But it's hard to deflate a bubble gradually without triggering a catastrophic downturn.
The Fed played a huge role in triggering the recession. They intended to deflate the housing bubble, but didn't realize it would cause several banks to implode and risk the entire financial system.
The Fed was aware of the real estate bubble and tried to deflate it in 07-08. But it's hard to deflate a bubble gradually without triggering a catastrophic downturn.
The Fed played a huge role in triggering the recession. They intended to deflate the housing bubble, but didn't realize it would cause several banks to implode and risk the entire financial system.
They knew it was too hot, but the market failure in the bond rating market hadn't been identified so they were operating off of flawed information.
The real failure of the Fed was being way too tight monetarily after the crisis started though.
The real failure of the Fed was being way too tight monetarily after the crisis started though.
It looks like they went from too tight to too loose:
https://fred.stlouisfed.org/series/BOGMBASE
I’m not an economist but that graph looks unhealthy.
https://fred.stlouisfed.org/series/BOGMBASE
I’m not an economist but that graph looks unhealthy.
Monetary base is irrelevant without looking at velocity (https://fred.stlouisfed.org/series/M2V)
The Fed has been much more on point this time around than it was in 2008.
The Fed has been much more on point this time around than it was in 2008.
Like software Q&A's the answer might be "it depends".
Imagine there are EU/US banks that have loaned money to Evergrande or any related domino that may fall.
I imagine a loan from a bank is listed as an asset for the bank because they are charging interest monthly and it produces income for the bank. Now they don't have that income because the company isn't paying. It now moves to the liability part of the balance sheet.
One of the elements of the 2008 crisis was mortgage backed securities, bundling of mortgages sold as a security. What if these banks have done the same thing with Commercial mortgages/bonds? How many derivatives are based on these loans/bonds Evergrande isn't paying on? Zero, then likely no "contagion". Many? maybe they are isolated to China?
I think its likely an onion that is peeling back its layers and we don't know the full impact until its done.
Imagine there are EU/US banks that have loaned money to Evergrande or any related domino that may fall.
I imagine a loan from a bank is listed as an asset for the bank because they are charging interest monthly and it produces income for the bank. Now they don't have that income because the company isn't paying. It now moves to the liability part of the balance sheet.
One of the elements of the 2008 crisis was mortgage backed securities, bundling of mortgages sold as a security. What if these banks have done the same thing with Commercial mortgages/bonds? How many derivatives are based on these loans/bonds Evergrande isn't paying on? Zero, then likely no "contagion". Many? maybe they are isolated to China?
I think its likely an onion that is peeling back its layers and we don't know the full impact until its done.
There has been talk for years about China's wild construction programs, creating entire cities that nobody lives in. It was obviously unsustainable. Could it be finally falling apart?
The follow up reporting (not widely circulated in the West) on this was that many of those cities have since been filled up and inhabited.
https://asia.nikkei.com/Spotlight/Society/China-s-largest-gh...
Wade Shepard, author of Ghost Cities of China:
> Today, China’s so-called ghost cities that were so prevalently showcased in 2013 and 2014 (...) have filled up to the point of being functioning, normal cities
I would be really, really skeptical of post-2012 reporting on China. I understand why people are increasingly anti-China (the Uyghur stuff is disgusting) but you really don't get close to a neutral perspective from most of the Western media.
https://asia.nikkei.com/Spotlight/Society/China-s-largest-gh...
Wade Shepard, author of Ghost Cities of China:
> Today, China’s so-called ghost cities that were so prevalently showcased in 2013 and 2014 (...) have filled up to the point of being functioning, normal cities
I would be really, really skeptical of post-2012 reporting on China. I understand why people are increasingly anti-China (the Uyghur stuff is disgusting) but you really don't get close to a neutral perspective from most of the Western media.
You can go visit Kangbashi (Ordos's new distrcit) today (well, when China opens again) if you want to see a ghost city. Kangbashi will fill up as soon as coal becomes popular in China again, which is probably never.
Or even closer to Beijing in Tianjin's new financial district. Actually, the tallest building in China is an incomplete sky scraper in Tianjin (https://en.wikipedia.org/wiki/Goldin_Finance_117), which hasn't had any work done on it since 2015 or so (similar to North Korea's Ryugyong Hotel).
> but you really don't get close to a neutral perspective from most of the Western media.
If anything considering my 9 years living in Beijing, western media holds off on a lot of crazy things that happen in China. No one would actually believe the reality, they would think it was all made up (e.g. the incomplete sky scraper in Tianjin).
Or even closer to Beijing in Tianjin's new financial district. Actually, the tallest building in China is an incomplete sky scraper in Tianjin (https://en.wikipedia.org/wiki/Goldin_Finance_117), which hasn't had any work done on it since 2015 or so (similar to North Korea's Ryugyong Hotel).
> but you really don't get close to a neutral perspective from most of the Western media.
If anything considering my 9 years living in Beijing, western media holds off on a lot of crazy things that happen in China. No one would actually believe the reality, they would think it was all made up (e.g. the incomplete sky scraper in Tianjin).
I don't think an unbuilt tower is as crazy as you think it is. There are tons of unfinished projects scattered throughout the West. I actually was just next to a massive one (not in the US but in Europe) the other day.
> You can go visit Kangbashi (Ordos's new distrcit) today (well, when China opens again) if you want to see a ghost city. Kangbashi will fill up as soon as coal becomes popular in China again, which is probably never.
If you read the article I posted, Kangbashi is specifically the district under discussion - it is no longer empty, actively building new apartments due to demand.
Coal didn't become popular again, but they moved the top schools of the province into the area.
> You can go visit Kangbashi (Ordos's new distrcit) today (well, when China opens again) if you want to see a ghost city. Kangbashi will fill up as soon as coal becomes popular in China again, which is probably never.
If you read the article I posted, Kangbashi is specifically the district under discussion - it is no longer empty, actively building new apartments due to demand.
Coal didn't become popular again, but they moved the top schools of the province into the area.
> I don't think an unbuilt tower is as crazy as you think it is.
Every time I've visited Tianjin, I've seen a derelict half built sky scraper. The first time I visited was in 1999. What is up with that city?
> There are tons of unfinished projects scattered throughout the West.
In the USA? There are none, not sky scrapers. Maybe that half built Huawei facility in Wisconsin?
> I actually was just next to a massive one (not in the US but in Europe)
Great! Eastern or Western Europe?
> If you read the article I posted, Kangbashi is specifically the district under discussion - it is no longer empty, actively building new apartments due to demand.
Kangbashi was originally specced for a few million people. It has...maybe a hundred thousand now? The streets are still pretty empty compared to the rest of Urban Ordos.
> Coal didn't become popular again, but they moved the top schools of the province into the area.
They moved one top school to the area. Will it be enough? Can you make a city by relocating a few middle school and university campuses? That only gives you so much growth.
Every time I've visited Tianjin, I've seen a derelict half built sky scraper. The first time I visited was in 1999. What is up with that city?
> There are tons of unfinished projects scattered throughout the West.
In the USA? There are none, not sky scrapers. Maybe that half built Huawei facility in Wisconsin?
> I actually was just next to a massive one (not in the US but in Europe)
Great! Eastern or Western Europe?
> If you read the article I posted, Kangbashi is specifically the district under discussion - it is no longer empty, actively building new apartments due to demand.
Kangbashi was originally specced for a few million people. It has...maybe a hundred thousand now? The streets are still pretty empty compared to the rest of Urban Ordos.
> Coal didn't become popular again, but they moved the top schools of the province into the area.
They moved one top school to the area. Will it be enough? Can you make a city by relocating a few middle school and university campuses? That only gives you so much growth.
Neither do you get one from China itself. Its hard to tell what is really going on when everyone has an agenda to warp reality.
It doesn't help that those so called "experts" can't even read of understand the language.
And a anti china bias is a sure way to get promoted.
The system makes sure the story write themselves and then westerners are surprised it didn't went the way they expected it would.
That is pretty much my conclusion from watching think tank china watchers for over 8 years,
I got so annoyed I decided to learn the language myself this year, should be a interesting journey the next 5 years or so.
Totally. I found actually visiting China to be informative.
There's a saying in chinese, which roughly translates to "seeing is understanding", and it is so true. You can only see the truth for yourself, and you need to see it with your own eyes.
FWIW, the quoted article is from Japan.
Oh yeah, I wasn't commenting on that article directly. Just adding that any discussion about matters on the ground in China will always get warped because every information broker has a strong incentive to push their agenda. CCP will always want to make things seem rosy and perfect. Western Media wants to make it seem bad because drama sells.
It's not (just) that "drama sells", but that the US constantly need a Great Satan to justify massive military spending and force projection. The USSR is gone and its replacement is only dangerous to its immediate neighbours, so it doesn't really work for that role. China, on the other hand, has (not that) quiet ambitions of global dominance, so it works well. It doesn't help that the Chinese are fond of making clearly-illiberal moves every other day.
China builds housing in advance of demand. In the United States, we fail to build housing even in the face of demand.
There's pros and cons to either system, but so far, the demand has largely arrived. The ghost cities of 2010 are now bustling metropolises. The ghost cities of 2020... Are on track to become bustling metropolises.
China has added ~500 million people to its cities over the past 50 years. 'Build in anticipation of demand' seems like a sensible approach to this sort of thing.
There's pros and cons to either system, but so far, the demand has largely arrived. The ghost cities of 2010 are now bustling metropolises. The ghost cities of 2020... Are on track to become bustling metropolises.
China has added ~500 million people to its cities over the past 50 years. 'Build in anticipation of demand' seems like a sensible approach to this sort of thing.
> The ghost cities of 2010 are now bustling metropolises. The ghost cities of 2020... Are on track to become bustling metropolises.
That really isn't true. Kangbashi (a district of Ordos in Inner Mongolia) is still pretty empty for the amount of infrastructure they've built. They "lowered" their population target and claimed success, and are trying to get people to move there by putting in a good school, but you can still go there to see empty boulevards.
Likewise, China's tallest building is an incomplete skyscraper in Tianjin that hasn't had any work done on it since 2015. Tianjin also overbuilt on a new financial district that no one is really interested in.
Many of these overbuilt buildings are never going to be lived in before they are torn down. They just aren't in very convenient locations (e.g. not enough jobs to sustain those areas and no one wants to commute in traffic to where their are jobs).
That really isn't true. Kangbashi (a district of Ordos in Inner Mongolia) is still pretty empty for the amount of infrastructure they've built. They "lowered" their population target and claimed success, and are trying to get people to move there by putting in a good school, but you can still go there to see empty boulevards.
Likewise, China's tallest building is an incomplete skyscraper in Tianjin that hasn't had any work done on it since 2015. Tianjin also overbuilt on a new financial district that no one is really interested in.
Many of these overbuilt buildings are never going to be lived in before they are torn down. They just aren't in very convenient locations (e.g. not enough jobs to sustain those areas and no one wants to commute in traffic to where their are jobs).
>They just aren't in very convenient locations (e.g. not enough jobs to sustain those areas and no one wants to commute in traffic to where their are jobs).
I wonder how will WFH affect it though. Even with cultural resistance, WFH long-term seems inevitable on so many levels.
I wonder how will WFH affect it though. Even with cultural resistance, WFH long-term seems inevitable on so many levels.
The problem is, how many techies are there, and will you have the infrastructure to support everything else in a ghost district? And why bother? If I’m going to WFH in China, why not a nice tourist town like Lijiang or Daocheng? A dreary ghost district just for the sake of affordable housing isn’t a nice place to spend life.
As long as you can make sure they don't rot before people move in. There are pros and cons to both approaches and I have personally seen the downsides to not building enough housing. We also allow far too much speculation on residential real estate in the US for my liking. People's livelihoods shouldn't be traded commodities.
You need speculation to send price signals to the housing producers. Speculation without any building is the problem.
Speculators blocking new building is also a problem.
Speculators blocking new building is also a problem.
Speculation is also a problem when you have to pay to play.
Everyone needs housing, but when owning a house means it has a speculative resale value, you have to pay that premium in order to buy one.
This has a few consequences:
1. Downpayments and mortgages grow, because you aren't just buying shelter, you are buying a financial instrument with a significant resale value.
2. Your financial well-being is now deeply entwined in the fate of the housing and mortgage market. Higher interest rates become horrible for you, as they depress housing prices, and put your home underwater. New construction is horrible to you, as it reduces the value of the speculative portion of your purchase. Likewise for the existence of affordable forms of housing, and renter-friendly legislature.
Speculation from the perspective of a developer is part of running a business. They shoulder a fair amount of financial risk when they choose to develop, and obviously want to hedge it. Speculation as a 'every homeowner in the country is also a speculator, whether they want to be one or not' leads to some questionable outcomes.
Everyone needs housing, but when owning a house means it has a speculative resale value, you have to pay that premium in order to buy one.
This has a few consequences:
1. Downpayments and mortgages grow, because you aren't just buying shelter, you are buying a financial instrument with a significant resale value.
2. Your financial well-being is now deeply entwined in the fate of the housing and mortgage market. Higher interest rates become horrible for you, as they depress housing prices, and put your home underwater. New construction is horrible to you, as it reduces the value of the speculative portion of your purchase. Likewise for the existence of affordable forms of housing, and renter-friendly legislature.
Speculation from the perspective of a developer is part of running a business. They shoulder a fair amount of financial risk when they choose to develop, and obviously want to hedge it. Speculation as a 'every homeowner in the country is also a speculator, whether they want to be one or not' leads to some questionable outcomes.
1. you don't need to own your house as an asset to have housing
2. yes, people should be expected to pay the time discounted expected future value of the thing in order to own the thing. speculation is what prevents people from buying shitty houses for dirt cheap in areas that are ideal for apartment development and then refusing to move - that is a good thing.
2 -> Yes agreed, it is bad how it distorts the incentives and when the people on one side of the transaction (usually the homeowners) have all or most of the political power, that becomes a large problem.
The reality is that we have to have a mechanism to encourage people to sell their homes and move when more valuable uses become available (like moving in 30 people into an apartment building where there were previously
Speculation, in the United States, is that mechanism. There are probably alternatives (as a sketch: devolving eminent domain authority to local govt & non-profits -> obtain financing for compensating owners -> eminent domain-ify vacant lots/unused parking lots -> build housing -> sell housing -> pay back creditors; this would probably do a ton), but currently speculation & financialization is the best engine for resource allocation in the US.
2. yes, people should be expected to pay the time discounted expected future value of the thing in order to own the thing. speculation is what prevents people from buying shitty houses for dirt cheap in areas that are ideal for apartment development and then refusing to move - that is a good thing.
2 -> Yes agreed, it is bad how it distorts the incentives and when the people on one side of the transaction (usually the homeowners) have all or most of the political power, that becomes a large problem.
The reality is that we have to have a mechanism to encourage people to sell their homes and move when more valuable uses become available (like moving in 30 people into an apartment building where there were previously
Speculation, in the United States, is that mechanism. There are probably alternatives (as a sketch: devolving eminent domain authority to local govt & non-profits -> obtain financing for compensating owners -> eminent domain-ify vacant lots/unused parking lots -> build housing -> sell housing -> pay back creditors; this would probably do a ton), but currently speculation & financialization is the best engine for resource allocation in the US.
China also lacks a property tax so speculation is much more viable than in the west (where you have to pay property tax on a house if it is lived in or not).
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So those Tether "loans" to Evergrande are all gone up in smoke?
Now we will know which US and European banks are exposed and how big..
This can't be good for SoftBank/Masayoshi Son right after they just had to report a large loss (unless this risk was embedded in that report)
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$148M correct? Seems small, like a fairly wealthy multi-billionaire could just pay that off in one fell swoop.
My mortgage payment is small enough that a lot of people could easily afford a single payment if I had defaulted on it. That doesn’t mean they could just pay off the entire remainder of a mortgage.
Paying off the current payment doesn’t deal with the remaining $300B debt that they need to service. It just kicks the can down the road a few days.
Good luck finding a multi-billionaire that’s going to swoop in and make $148M payments on a regularly recurring basis for the next decade.
Paying off the current payment doesn’t deal with the remaining $300B debt that they need to service. It just kicks the can down the road a few days.
Good luck finding a multi-billionaire that’s going to swoop in and make $148M payments on a regularly recurring basis for the next decade.
This is just the interest payment on a $300B debt.
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Translation: A crash is incoming.
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Surprised Xi didn't just step in and pay the trifling sum.
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original title is "Evergrande teeters on edge of default as $148 mln payment falls due". not exactly "defaults"
This post was in direct response to: http://dmsa-agentur.de/download/20211110_DMSA_EVG_PM_en.pdf . I just thought the reuters article contained more relevant information.
Edit: that link seems to justify the title but it doesn’t fit the main article.
Seriously misleading title though. A default is a well-defined event. “Defaults” implies that it has happened. “Teetering” is something else. Needs fixing.
Seriously misleading title though. A default is a well-defined event. “Defaults” implies that it has happened. “Teetering” is something else. Needs fixing.
> Exactly what time the grace period expires on Wednesday is unclear, but the two sources with knowledge of the matter said some bondholders had not been paid by the end of the Asian business day.
It's ambiguous, but the title is a fair conclusion.
It's ambiguous, but the title is a fair conclusion.
Wednesday finished about three hours ago, in China, FWIW.
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"Evergrande officially defaulted - DMSA is preparing bankruptcy proceedings against Evergrande Group", see: http://dmsa-agentur.de/download/20211110_DMSA_EVG_PM_en.pdf . Will fix the title though if more people view it as misleading.
It did default though, the title of the Reuters article is playing it too safe. The contents of the first paragraph describe the default.
This PDF is predicting "the final meltdown of the global financial system" in the first paragraph. I don't want to be a negative nancy, but it reads a lot like "all vaccinated people will fall over dead by end of the year" to me.
AP is reporting the default is official: https://apnews.com/press-release/pr-newswire/business-china-...
> Press release content from PR Newswire. The AP news staff was not involved in its creation.
>Evergrande, the world's most indebted corporation, could ultimately lead to a "Great Reset", i.e. the final meltdown of the global financial system
Bonus points for that PDF using the phrase "great reset."
Bonus points for that PDF using the phrase "great reset."
Yes - submitted title was "Evergrande defaults" and we've reverted it now.
"Please use the original title, unless it is misleading or linkbait; don't editorialize."
https://news.ycombinator.com/newsguidelines.html
"Please use the original title, unless it is misleading or linkbait; don't editorialize."
https://news.ycombinator.com/newsguidelines.html
Worth noting it seems to have turned into a default in the hours since Reuters posted that. The editorialized title and actual title could come close to alignment if Reuters updates it.
Just read this now, should've picked the DMSA link, but couldn't edit once posted. Thanks for updating though.
If you don't make every payment in whole when it is due, and you haven't managed to renegotiate with your creditors, then you've defaulted. It doesn't mean that the debts are worthless, but it does mean that their value is up in the air.
Any top 10 billionaire could write them a check for the amount owed without even breaking a sweat and thus stave off of billions of dollars of systemic damage. It goes to show how bailouts, despite being maligned by the public, do work.
Oh yeah, I'm sure they'd bounce right back after that.
Problem is, in the context of their disastorous (and likely fraudulent) balance sheet, they really need billions of dollars more. It really isnt about $148m, this is just the tip of the iceberg - its just an incremental interest obligation, with a wall of debt lurking behind it. So while they may get another month or two leniancy from the markets if they pay this, it still doesnt resolve the near inevitability of default.
They have reoccurring interest and sometimes principal payments well into the future - overall their debt is over $300 billion. So no, it's not a drop in the bucket for any one person.
https://www.ft.com/content/e0a447f9-b4c2-45dc-bfc8-755b284d1...
As to how you've jumped from "rich individuals don't want to pay corporate debts" to "government bailouts clearly work" I have no idea.
https://www.ft.com/content/e0a447f9-b4c2-45dc-bfc8-755b284d1...
As to how you've jumped from "rich individuals don't want to pay corporate debts" to "government bailouts clearly work" I have no idea.
They owe 300 billion. So no they couldn't.
This is doable by a large govt. $300 billion is 1/10 of covid aid and related stimulus. The point is that small, strategic payments can stave off much greater systemic damage, which is what a bailout does.
It is hard for any government even not democratically elected ones like CCP to be able to spend $300B tax payer money to bail out creditors of a single private company.
Evergrande is hardly unique or even the largest real estate company in China. There are a lot of large companies in serious debt trouble there now, it will cost the government lot more than $300B to bail out the sector.
Evergrande is hardly unique or even the largest real estate company in China. There are a lot of large companies in serious debt trouble there now, it will cost the government lot more than $300B to bail out the sector.
So what you're saying is, if you had $300 bln, this is what you'd spend it on?
Yeah or you know, the Chinese government.
It’s like saying you can pay off someone’s mortgage to keep them house by paying off their $1,000 mortgage bill for the month.
That’s not the end of their debt obligations, just the first one to come due that they’re not able to pay. There are many more debt obligations behind this one, so paying off this obligation just kicks the can a few days down the road.
To pay off all the debt obligations, would likely be billions of dollars.
That’s not the end of their debt obligations, just the first one to come due that they’re not able to pay. There are many more debt obligations behind this one, so paying off this obligation just kicks the can a few days down the road.
To pay off all the debt obligations, would likely be billions of dollars.
Who could have ever predicted this?
Glad I’ve been building a solid crypto portfolio, looking forward to cashing in the last few years gains to buy some houses on the cheap again after the economy implodes.
Glad I’ve been building a solid crypto portfolio, looking forward to cashing in the last few years gains to buy some houses on the cheap again after the economy implodes.
You do realize crypto is part of the same speculative bubble?
And before the strawmen start piling up - that doesn't mean all crypto is forever useless, but right now crypto it is absolutely over-invested in relative to liquidity.
And before the strawmen start piling up - that doesn't mean all crypto is forever useless, but right now crypto it is absolutely over-invested in relative to liquidity.
Last time the economy imploded (March 2020) BTC also fall apart.
hmmm what is bitcoin doing on this news?
it's evident crypto is not a hedge against uncertainty or bad news, but rather is highly correlated with the stock market and overall US economy.
it's evident crypto is not a hedge against uncertainty or bad news, but rather is highly correlated with the stock market and overall US economy.
Btc hit a new ath today along with eth…
Watch the US bond market closely. Today saw a sharp selloff on the 10-year maturity, a favorite "asset" of foreign governments and companies. When those organizations get into trouble, they sell treasuries to raise cash. "Trouble" often comes in the form of dollar-denominated debt which must be serviced in dollars.
As the dollar rises, borrowers of dollar-denominated debt must raise more local currency to buy the dollars to service their loans. That puts further upward pressure on the dollar, distressing foreign usd-debtholders even more. It's called a "short squeeze":
https://www.lynalden.com/global-dollar-short-squeeze/
The entire world (including the US federal government) has taken a short position on the US dollar by assuming obligations requiring them to pay later in dollars. Ask any Ape on WallStreetBets what happens to shorts during a short squeeze, and you'll get the same answer: they get rekt.
The dollar spiked past a key technical level today.
https://www.tradingview.com/chart/?symbol=DXY
In 2020, a similar dynamic took hold, with stocks, bonds, and gold falling in price as the dollar surged. We may not be there yet, but the scramble for dollars in China (and possibly all of Asia) is just starting.