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This Evergrande Thing Is Serious

Goldhedge

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This Evergrande Thing Is Serious​

BY JOHN RUBINO ◆ SEPTEMBER 18, 2021

China’s Evergrande has been in the news lately, but not always in an understandable way. The real estate developer is just too big and its financial arrangements too obscure to be easily grasped by people with a lot of other things on their plates. Plus, China has had plenty of corporate implosions in the recent past and the CCP/BoC has always stepped in and saved the day. So why worry this time?

Because this time is apparently different, writes Credit Bubble Bulletin’s Doug Noland. Here’s a quick excerpt from a much longer piece he published this morning:
Evergrande owes over $300 billion – to banks and non-bank financial institutions, domestic and international bond holders, suppliers and apartment buyers. It has bank borrowings of $90 billion, including to Agricultural Bank of China, China Minsheng Banking Corp and China CITIC Bank Corp. (reports have 128 banks with exposure). Thousands of suppliers are on the hook for $100 billion.​
It appears an Evergrande debt restructuring is inevitable. From a few decades of close observation, these types of situations generally prove worse than even the more bearish analysts fear. Assume ugly and messy. The presumption all along – by bankers, investors and apartment purchasers – was that Beijing would never allow a collapse of such a huge player. This fundamental market perception is in serious jeopardy.​
Evergrande is the most indebted of a highly levered Chinese developer sector (top three in revenues). It “owns more than 1,300 projects in more than 280 cities.” Evergrande employs 200,000 – and “indirectly helps sustain more than 3.8 million jobs each year.”​
From CNN (Michelle Toh): “Outside housing, the group has invested in electric vehicles, sports and theme parks. It even owns a food and beverage business, selling bottled water, groceries, dairy products and other goods across China. In 2010, the company bought a soccer team, which is now known as Guangzhou Evergrande. That team has since built what is believed to be the world’s biggest soccer school, at a cost of $185 million to Evergrande. Guangzhou Evergrande continues to reach for new records: It’s currently working on creating the world’s biggest soccer stadium, assuming that construction is completed next year as expected. The $1.7 billion site is shaped as a giant lotus flower, and will eventually be able to seat 100,000 spectators.”​
Evergrande epitomizes China’s historic Credit Bubble. It has borrowed and spent lavishly, in what history will surely view as a company that operated at the epicenter of an extraordinary Bubble of asset inflation, speculation and reckless debt-financed mal-investment.​
Estimates have Evergrande bondholders receiving 25 cents on the dollar in a restructuring. It borrowed $20 billion in the booming off-shore dollar bond marketplace. As a focal point of the global Bubble in leveraged speculation, China’s offshore debt market has ballooned during this protracted cycle. From the FT (Hudson Lockett and Thomas Hale): “Chinese issuers face their largest-ever wave of dollar bond maturities this year at $118bn, according to Refinitiv. But even that is dwarfed by the Rmb7.8tn ($1.2tn) of onshore debt maturing in 2021. The latter figure could have big repercussions for offshore bondholders, especially if the restructuring of onshore debt is prioritised.”​
“Money” has flooded into China this year, in yet another example of the incredible “Terminal Phase” dynamic, where speculative finance inundates a system even in the face of acute Bubble fragility. Unwieldy speculative flows only exacerbate systemic vulnerabilities. Trouble for Evergrande, the developers and Chinese high-yield debt marks a momentous inflection point for Chinese and global leveraged speculation.​
The takeaway? Everyone with money invested in or lent to a big entity with convoluted finances is going to pull back, either selling part of their stake or demanding payment on their loans. At a minimum, they’ll refrain from further investment.

This kind of phase change in market sentiment driven by a large corporate implosion is now known as a “Lehman Moment” after the failure of Wall Street investment bank Lehman Brothers that is blamed for kicking off the Great Recession.

Evergrande is vastly bigger than Lehman and today’s world is vastly more leveraged and therefore fragile than that of 2007. In another popular turn of phrase, the bubble may have found its pin.
 

Buck

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i keep reading references to China, banks, developers, investors, etc...

every story has the same base 'victims' Chinese folks

the only 'westerners' to have any money invested over there are perhaps foolish, but probably have lots of risk-on coverage, against such a 'game'

and since the chinese banks are china itself, they'll absorb most of the loss themselves, pass off whatever they can onto the backs of the poor and will probably execute one or two men and will move on as if the dead bodies don't exist


...Next!
 

gnome

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Talked to a friend in Beijing tonight. Consensus over there is that BoC/CCP will just paper this over, but of course, that is a manufactured consensus. The government owns 30-50% of any company of strategic interest, so if a company defaults they own half of both the debtor and creditor. The can force the creditor to eat as much of the loan as they want.
 

hardmoney

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The puppetmasters love to time events like this for special dates; it's kind of a numerology thing. The fact that this happens exactly thirteen years after Lehman seems like much more than a coinky-dink.

Maybe the poo is finally about to hit the fan......
 

the_shootist

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Let it fall!
 

hammerhead

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Buildings and developments depreciate and require more money to maintain. Sooner or later it catches up. Anybody up to buying a mall?
 
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Ensoniq

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We owe China a trillion, they could nationalize it by collateralizing t bills
 

Buck

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Buildings and developments depreciate and require more money to maintain. Sooner or later it catches up. Anybody up to buying a mall?
a Ghost City, buy one of those, lock stock and barrel

then, build a brewery right next door, sell a few different varieties of outstanding small-batch brew...buy a few of them chinese chaise lounges, sit back and watch the buildings decay and fall over...


insure with Lloyds first, of course


:beer:
 

gnome

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a Ghost City, buy one of those, lock stock and barrel

then, build a brewery right next door, sell a few different varieties of outstanding small-batch brew...buy a few of them chinese chaise lounges, sit back and watch the buildings decay and fall over...


insure with Lloyds first, of course


:beer:
You might be onto something with the brewery thing. Last time I was in Shanghai I was surprised at the selection of good German & Belgian beers. Much better than you usually find in Tokyo (boring!). There probably is an open niche for microbreweries.
 

Buck

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You might be onto something with the brewery thing. Last time I was in Shanghai I was surprised at the selection of good German & Belgian beers. Much better than you usually find in Tokyo (boring!). There probably is an open niche for microbreweries.
there's probably a lot of potential but the overlords sound like they'd be real difficult to get along with, especially when they perceive you've done something wrong...

i'm awaiting the day a foreign business CEO is held, tried and executed for producing crappy products and forged items and going against the party policy


oh the irony
 

Unca Walt

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i keep reading references to China, banks, developers, investors, etc...
every story has the same base 'victims' Chinese folks
the only 'westerners' to have any money invested over there are perhaps foolish, but probably have lots of risk-on coverage, against such a 'game'
and since the chinese banks are china itself, they'll absorb most of the loss themselves, pass off whatever they can onto the backs of the poor and will probably execute one or two men and will move on as if the dead bodies don't exist

The sneeeky problem that raises its little yellow head is that YOU may be invested in a CCP company. Some sooper-American-sounding name like "American Greatness" brand riding longmotors. Or bicycles. Or blenders. Or toothpaste. Or bacon. Or bank.

You may be working for one. With no way (yet) to find out. o_O :tongue:

When this blows, bro... it will affect us all. Big time.
 

Goldhedge

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I wonder how many US banks and investment houses are in bed with Evergrande....?
 

the_shootist

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i'm awaiting the day a foreign business CEO is held, tried and executed for producing crappy products and forged items and going against the party policy
Not in this lifetime!
 

BigJim#1-8

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Buck

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and any clarity continues to escape everyone...from that link

"There was no reason for the selloff - an officer at the firm’s Hong Kong office said there’s no one to attend to media inquires which is probably not a good sign - which was attributed to the general panic resulting from Evergrande's imminent default, nor did the company give a reason for the trading halt in Hong Kong."
 

Evl Bnkr

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so, sounds like it might be good timing to take a short position on Evergrande :2 thumbs up:
 

the_shootist

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and any clarity continues to escape everyone...from that link

"There was no reason for the selloff - an officer at the firm’s Hong Kong office said there’s no one to attend to media inquires which is probably not a good sign - which was attributed to the general panic resulting from Evergrande's imminent default, nor did the company give a reason for the trading halt in Hong Kong."
Let the dominoes fall!!!
 

Goldhedge

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WHY THE EVERGRANDE COLLAPSE MATTERS...by LYNETTE ZANG​

 

anywoundedduck

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I wonder how many US banks and investment houses are in bed with Evergrande....?
I want to know which ones aren't.
Most have some degree of exposure.
Another Lehman, but ten times worse.
Dominoes.
 

the_shootist

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I want to know which ones aren't.
Most have some degree of exposure.
Another Lehman, but ten times worse.
Dominoes.
Meh, at this point the manipulation and bailout processes are so epic that they can pretty much cover up anything. I'll believe it when I see it! I have no more energy for any more 'what if's"
 

Ensoniq

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Not a great day in the market

China jitters
 

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I feel like the thread has already come full circle.
 

Buck

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the markets are down, metals mixed...


Guam is still afloat
 

Goldhedge

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Bottom Feeder

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Retirement plans like to invest heavily in real estate companies, don't they?
 

Ensoniq

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What so frustrating is the bazillion rules to ensure transparency but that allow off balance sheet risk that dwarfs all other activity

We’ve got Sarbanes Oxley, we’ve got Gaap, we’ve got FASB. The CEO of a public company now has to vouch with personal liability risk for his firms financial statements

But derivatives, we can do that off book. No one knows how deep and wide the risk is, or at least I don’t.
 

ABC123

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1633282203203.png

'I have nothing left to live for': Evergrande meeting descends into chaos as investor pulls knife and threatens to kill herself



https://www.yahoo.com/entertainment/nothing-left-live-evergrande-meeting-174442622.html
1633282225946.png

“I don't want the interest on my investment, I just want my money back. So here's what I have to say to you. If Evergrande Wealth doesn't give me my money today, I'll kill myself right here,” she told the staff. “If this isn't handled today, I'll die right here, right in front of you. My retirement savings are all in that investment. I have nothing left to live for."
 

Scorpio

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I just want my money back. So here's what I have to say to you. If Evergrande Wealth doesn't give me my money today, I'll kill myself right here,” she told the staff. “If this isn't handled today, I'll die right here, right in front of you. My retirement savings are all in that investment. I have nothing left to live for."

whatever,

sucks to be a stupid peasant,

that is not how to play the game, you lose

next
 

Casey Jones

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I wonder how many US banks and investment houses are in bed with Evergrande....?
Would it matter, at this point?

The banks no longer exist to draw in depositors or lend on real estate. Or even on durable goods (autos). They're a money-laundering service of the Fed printing-press scheme...Fed buys unrepayable T-bills, prints money using them to balance the books. Money at the Fed Discount Window, where member banks can get, now, ZIRP (or damn near).

Banks then plow the money into the stonk market - following the indices. Dow, S&P, etc. Just mindlessly.

Since banksters are the whales in the stonk market, now...that drives prices up. Sell in a few days to "repay" and then reborrow. Paying commission all the way. "Churning," it used to be called

Home loans? Once made, they're sold right to Fannie Farmer/Freddie Kruger. Banksters want nothing to do with them.

Depositors? Pests. They might be useful in the future, to upend...have some sort of manufactured crisis that allows the bank to dodge depositors' claims. But there's no money there; the only reason to still solicit depositors is PR goodwill.

So if some of the big banksters go down (are ALLOWED to go down) with Evercommuniste...well, it means moar concentration of bank power with those that are TBTF. That's already a problem; how would it get worse?
 

Buck

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sucks to be a stupid peasant,
i'd hate to be the one who piss' off these thousands of 'stupid peasants' because in a country of billions, they certainly know thousands more who are just 'partly invested' in this company...and they all know thousands more

and amongst those tens of thousands are 'antagonists', the chinese version of shit disturbers who aren't going to miss the opportunity...


just saying, this could literally explode, from the stupid peasants



let's just wait for a bit...

:summer:
 

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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'
 

Scorpio

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and for another thing, the company was doing exactly what that person wanted them to do,
take a turn at the roulette wheel of fiat and leverage,

they paid them to do that, looking for the greater fool than them,

everybody wants to play the victim when stuff doesn't go their way
 

Buck

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there used to be this thing called 'trust'.......

having that was supposed to preclude anyone selling any stock or bonds to anyone

i think it was called 'ethics' near the very end, before it was buried
 

Ensoniq

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there used to be this thing called 'trust'.......

Chicoms have a different playbook. I’m way over here and I understand it. You’d think the lady with the knife that lives there would know the norms.
 

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Boom!

 

Casey Jones

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Over with Greg Hunter, Clif High was predicting "something major" in the first week of October - basically this week. Now Clif's a bit of a flake, but he's right more-often than true kooks, and he's got his methods - web-crawlers looking for key words discussed online. He was saying a major disrupting event would happen between the first and third week, most likely the first week. He didn't get into specifics about Evergrande - he wasn't versed in its finances. To him it could have been any number of things.

Well...this could be it. First week, China, Ltd (subsidiary of CCP Industries) implodes. Second week, the international banksters follow them into the hole.

Third week? Major pension funds?
 

Goldhedge

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Over with Greg Hunter, Clif High was predicting "something major" in the first week of October - basically this week. Now Clif's a bit of a flake, but he's right more-often than true kooks, and he's got his methods - web-crawlers looking for key words discussed online. He was saying a major disrupting event would happen between the first and third week, most likely the first week. He didn't get into specifics about Evergrande - he wasn't versed in its finances. To him it could have been any number of things.

Well...this could be it. First week, China, Ltd (subsidiary of CCP Industries) implodes. Second week, the international banksters follow them into the hole.

Third week? Major pension funds?
Listening to it now. Very interesting. 30 mins in he's speaking about the vaccine at this point....