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This Evergrande Thing Is Serious

TAEZZAR

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Listening to it now. Very interesting.
I agree with most of what he says, but some of it is a bit over the top - "China will crumble" I hope he is right but that is very optimistic.
Silver $22.50 to $600 in a month or 2 - a Hunt Bros. wet dream.
Gold 10X todays spot !!
So silver will move over twice as high as gold ! ?
That really means that the dollar will follow Zimbabwe/Venezuela !
 

Casey Jones

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I agree with most of what he says, but some of it is a bit over the top - "China will crumble" I hope he is right but that is very optimistic.
Silver $22.50 to $600 in a month or 2 - a Hunt Bros. wet dream.
Gold 10X todays spot !!
So silver will move over twice as high as gold ! ?
That really means that the dollar will follow Zimbabwe/Venezuela !
He also says The People will win over the Deep State.

I think he's trying to put a Happy-Talk spin on it. In the unfolding conflict, Man-versus-Government...nobody wins. Maybe the Deep State loses more; maybe the Deep State as it is, collapses...but we all lose, and big-time.
 

southfork

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Cant say its serious, thingking back, s and l failures, gm etal, lehman, not to mention more, joe 6pk will be taxed to death to cover the balances.
Say too big to fail
 

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  • Sept. sales totaled 759.6b yuan ($118BN), down 36.2% from September 2020 and 17.7% lower from the same period in 2019, deepening a downward spiral that started in July
  • Among companies, 60% of developers saw sales decrease by more than 30% y/y in Sept.
  • Beijing, Shenzhen and Guangzhou saw transaction volume of residential properties decline 30% y/y, while Shanghai fell 45%
So while some observers have compared Evergrande’s woes to the epic collapse of Lehman, the truth is that the coming default is just the trigger event whose downstream effects would pull down the entire Chinese bubble house of apartments cards, something the latest housing data show is already in play. Because at the end of the day, no Ponzi scheme can continue if the participants lose faith in a favorable outcome, and at $62 trillion China's housing sector is the world's biggest Ponzi scheme.
 

AurumAg

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Existing home sales over here in Silicon Valley are literally through the roof.

Bidding wars, and guess who most of the buyers are?

As soon as escrow closes, they start demo and build a new or extensively remodeled house.

WW4

Not with a bang but a whimper.
 

chieftain

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Not knowing Silicunt Valley much, who are the buyers Aurum?
 

AurumAg

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Unca Walt

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Not in this lifetime!
Actually, I used to have a newspaper clipping that told of the execution of QC managers, and manufacturing managers of a refrigerator company in China. It was in a frame on my wall in my office.

The work was so shoddy, they were taken out into a field and shot. TINS. This was in the 70's...IIRC

Snopes says it is a rumor. Well, I useta have a copy of the "rumor".
 

gnome

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we had the same thing here with enron, and no magic implosions from the peons,

being stupid sucks,
too bad 'ole confuscious didn't tell them about 'don't put all your eggs in one basket'
Confuse us was both a philosopher and a politician, who advocated for government centralization.
Daoism a little more my style...
 

Buck

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Existing home sales over here in Silicon Valley are literally through the roof.

Bidding wars, and guess who most of the buyers are?

As soon as escrow closes, they start demo and build a new or extensively remodeled house.

WW4

Not with a bang but a whimper.
is that to remove the natural gas hook ups that currently exist, yet can't exist, in new build outs?

this State is going all electric at a very rapid rate...

yet they're collapsing the grid at the same time by turning off generating facilities



it's a very reasonable thing to do...so they say



and i'm not convinced
 

Voodoo

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Mostly Chins.

$62 Trillion would buy a lot of property, even in Silicon Valley. Those are the smart ones trying to get some money out of that ponzi scheme.
 

Goldhedge

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Bubbles eventually burst....
 

chieftain

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Not sure if the Wall Street Journal is paywalled but this is interesting

 

Voodoo

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chieftain

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^ Someone forgot to bring the lube.
 
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Scorpio

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Voodoo

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You never know... JPM readers might be on an 8th grade level and so not as obvious to them.
 

Zed

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From what little I understand, Evergrande was kind of a ponzi scheme where they used deposits from chinese citizens for a future house to build current houses and they've been the driving force behind the huge housing market bubble in China that's eventually going to burst.

Deposits produced cash flow that paid loans that financed the building. If deposit taking slowed then default is a risk. Not really a Ponzi in that it is possible to complete the deal and get out with a profit provided, nothing goes wrong, your projects run well and are costed correctly. All well and good in a bull market but @ a market turn, across a massive portfolio it could prove to be an issue if you got too leveraged (they did!). It's one of those things, you do it conservatively and it's all well and good, get to highly leveraged and it is a time bomb.

Ponzi's have no chance of ever resolving, where as this could have if it were not mismanaged.
 

Zed

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from that link, a sample of well done writing, clever and fun

"Evergrande's contagion risk is now spreading across other issuers and sectors," JPMorgan's analysts said, demonstrating a rare talent for observing the obvious.

Now we have to guess where the firewall is.
 

Scorpio

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might be wrong Zed, but if I remember correctly, when they popped the japan bubble way back when,
that too was done with property first,

the fire started there, then spread,

not sure that is what is happening here, but have to remain willing to accept it as that
 

Zed

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might be wrong Zed, but if I remember correctly, when they popped the japan bubble way back when,
that too was done with property first,

the fire started there, then spread,

not sure that is what is happening here, but have to remain willing to accept it as that

Yes... it's a massive market to deleverage, if it gets out of control it will be huge, epically huge! My problem is that I don't understand just what the CCP can/will do, they may just print yuan and hand it out and say it is all OK (one way or another!)... then it becomes an inflation issue and not a credit crunch.

They will probably stuff new cash into the hole, a cascading defaults seems too painful for the CCP to bear. The loss of face, let alone the direct economic impact, would be catastrophic.

If they can't control this the CCP might be closer to losing the country than many think.

I'm about to listen to a China thang from Gavkal, maybe they have better insight. I'll get back to you on that one!
 

chieftain

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Scorpio

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Zed,

they have the yuan pegged to the usd,
so they are limited as to how much they can just start printing,

you and I have seen that story before, and it never ends up well unless the country is willing to let their currency dive,
which results in massive internal inflation, etc.
 

Zed

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Zed,

they have the yuan pegged to the usd,
so they are limited as to how much they can just start printing,

Not really...

A. It is more of a dirty float and they have been letting it strengthen.

1634006234661.png


B. The US just smoked the printing press which gives them a heap of room to follow.

you and I have seen that story before, and it never ends up well unless the country is willing to let their currency dive,
which results in massive internal inflation, etc.

Yep... but I think they want this to happen. The money will be used to support the little guys in the fallout while Evergrande will be sacrificed.

Don't forget what all the leading economies have just done in terms of $$$ creation, they don't have to out do you to fix this, they can stay relatively strong.

I'm still of a mind that they are taking a calculated risk here. China is moving to a deflationary mode, population is contracting and things are changing.
 

Goldhedge

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It's the derivatives nobody is talking about.

That really means that the dollar will follow Zimbabwe/Venezuela !
Or the Weimar Republic
and at $62 trillion China's housing sector is the world's biggest Ponzi scheme.
How large is the US housing market - to compare?
 

Zed

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It's the derivatives nobody is talking about.

The CCP wants to punish the over leveraged players, this is a cautionary tale in the making. They are refocusing their economy on a shrinking population. They believe they have this under control.
 

Goldhedge

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Zed

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chieftain

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It was one thing to limit families to one child, it's another to discard girls until a boy is born. They will experience the mother of unintended consequences for this insanity.
 
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Casey Jones

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It was one thing to limit families to one child, it's another to discard girls until a boy is born. They will experience the mother on unintended consequences for this insanity.
Another reason why we can look forward to PLA "Peacekeepers" arriving.

All those young-adult males...need women.

Sending them here to loot, pillage and rape, is like turning a fat kid loose in a candy store.
 

gnome

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might be wrong Zed, but if I remember correctly, when they popped the japan bubble way back when,
that too was done with property first,

the fire started there, then spread,

not sure that is what is happening here, but have to remain willing to accept it as that
Other way around. Stock market crashed simultaneously in US and Japan on Black Monday 1987.
Real estate market in japan took off to the upside for a few years (not unlike what happened to RE in the US following dotcom bust)
Eventually real estate crashed and has not recovered since. Inlaws' apartment in Tokyo today is worth about 1/3 what it was at the peak around 1990. Now that's deflation!
 

chieftain

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I didn't realise RE in Japan hasn't recovered since 1990.
 

Scorpio

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thanks for that clarity,

here is a chart of what gnome speaks to
looks to be about 2/3 of its peak and that was a long long time ago

and interesting for all the monetary creation over there since,


re.jpg
 

chieftain

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Twenty years of declining RE prices... which bubble replaced the RE one, govco borrowing?
 

Goldhedge

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"It's A Disastrous Day" - All Hell Breaks Loose In China's Bond Markets​

BY TYLER DURDEN
TUESDAY, OCT 12, 2021 - 04:11 AM
The US bond market may be closed, but it was fully open in China, and locals took advantage of this fact to do one thing: sell.

In the aftermath of our viral post ""Catastrophic" Property Sales Mean China's Worst Case Scenario Is Now In Play", China property firms bonds were hit with another wrecking ball on Monday as Evergrande was set to miss its third round of (offshore) bond payments in as many weeks and rival Modern Land became the latest scrambling to delay deadlines.

Having already suffered the fastest drop on record, Chinese junk bond markets - where property developer issuers dominate - were routed once again as fears about fast-spreading contagion in the $5 trillion sector, which drives a sizable chunk of the Chinese economy, continued to savage sentiment. Meanwhile, China Evergrande Group's offshore bondholders still had not received interest payment by a Monday deadline Asia time, Reuters reported citing sources.

But while Evergrande's default is now just semantics, and one week after Fantasia shocked bondholders with a surprise announcement it too would stuff creditors just weeks after it had said its liquidity was fine, which sent its bond plunging from par to 74 cents in seconds...



... other signs of stress included smaller rival Modern Land asking investors to push back by three months a $250 million bond payment due on Oct. 25 in part "to avoid any potential payment default." This was not expected, and Modern Land's April 2023 bond plunged more than 50% to 30 cents on the day.



Elsewhere, Xinyuan Real Estate proposed paying just 5% of principal on a note due Oct. 15 and swapping that debt for bonds due 2023. Fitch Ratings called the move a distressed debt exchange while downgrading the firm to C. At least the two companies are relatively small: Modern Land and Xinyuan have $1.35 billion and $760 million of dollar bonds outstanding, respectively, according to data compiled by Bloomberg. In comparison, Evergrande has $19.2 billion.

Among the declines for high-yield issuers, China Aoyuan Group’s 6.35% note due 2024 dropped 13.2 cents on the dollar to 57.5 cents; Sunac's 6.5% dollar bond due 2026 declined 9.4 cents to 57.9 cents, leaving both poised to close at the lowest-ever levels.

Kaisa Group, which was the first Chinese property developer to default back in 2015, also saw some of its bonds slump to less than half their face value while supposedly "safe" names such as R&F Properties, and Greenland Holdings, which both have prestige projects in global cities like London, were also widely sold.

Yields on Chinese junk-rated dollar bonds surged 291 basis points to 17.54% last week, the highest level in about a decade, according to a Bloomberg index.



And just to add insult to injury, China's10-year government bond futures declined to a three-month low as the central bank’s latest liquidity draining weakened expectations of fresh monetary policy easing. Futures contracts on 10-year notes fall 0.4% to 99.14, the lowest level since July 12. 10-year sovereign bond yields rose 5bps, the biggest gains in two months, to 2.96%.

"It's a disastrous day,"
Clarence Tam, fixed income PM at Avenue Asset Management in Hong Kong, told Reuters, highlighting how even some supposedly safer "investment grade" firms had now seen 20% wiped off their bonds. "We think it's driven by global fund outflow .... Fundamentally, we are worried the mortgage management onshore hits the developers' cash flow hard," he added, referring to concerns people could stop putting deposits down on new homes.

In other words, the dynamic we discussed over the weekend in which we explained why "China's Worst Case Scenario Is Now In Play" is spreading from the biggest rotten apples - i.e., Evergrande, Fantasia - to collapsing confidence in the property sector, to credits that until now were seen as healthy and immune from a property implosion. In short, the bursting of the US housing bubble has moved to China, and yes - that culminated with the original Lehman moment.

Meanwhile, JPMorgan analysts highlighted how international investors were now demanding the highest ever premium to buy or hold 'junk'-rated Chinese debt. There is now a whopping 1,200 basis point difference between the bank's closely-followed JACI China high yield index and a similar index of investment grade AA-rated local Chinese market bonds, known as "onshore" bonds. The option-adjusted spread on the ICE BofA Asian Dollar High Yield Corporate China Issuers Index (.MERACYC) is also at its widest ever.

"Evergrande's contagion risk is now spreading across other issuers and sectors," JPMorgan's analysts said, demonstrating a rare talent for observing the obvious.

And while today may have been "disastrous" it could get far, far worse if the market loses faith that Beijing will bail out the bond market.
"We believe policymakers have zero tolerance for systemic risk to emerge and are aiming to maintain a stable property market, and policy support could be forthcoming if the deterioration in property activity levels worsen," said Goldman head of Asia Credit Kenneth Ho.

Overnight we saw the first sign of such an implicit support in Harbin, the capital of northeastern Heilongjiang province, which became one of the first cities in China to announce measures to support property developers and their projects. According to a report on a website run by Harbin Daily, the city will offer as much as 100,000 yuan home-purchase subsidy to “talents” that meet certain requirements. The city would also make more existing homes eligible for housing provident fund loans to buyers; the moves are aimed at promoting stable and healthy development of the city’s property market, according to the document.

The cash-strapped property developer's troubles and contagion worries have sent shockwaves across global markets and the firm has already missed payments on dollar bonds, worth a combined $131 million, that were due on Sept. 23 and Sept. 29.

While China's property sector turmoil has so far been contained to the bond market, tensions amid offshore bonds could soon create headaches for the country’s equity traders, according to Gilbert Wong, head of Asia quantitative research at Morgan Stanley. High-yield credit spreads over comparable Treasuries are the widest on record -- at about 1,866 basis points on an option-adjusted basis, data compiled by Bloomberg as of Friday show. But a measure of stock volatility has actually fallen so far this month.



Still, the pair has shown a close relationship in recent years, which suggests their divergence may not last. In the end, a crash in the stock market, where hundreds of millions of Chinese residents are invested, may be just the kick Beijing needs to wake it out of its no bailout stupor.