[HN Gopher] Evergrande teeters on edge of default as $148M payme...
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Evergrande teeters on edge of default as $148M payment falls due
Author : nwidynski
Score : 254 points
Date : 2021-11-10 18:14 UTC (4 hours ago)
(HTM) web link (www.reuters.com)
(TXT) w3m dump (www.reuters.com)
| underscore_ku wrote:
| i'm scared!
| [deleted]
| xwdv wrote:
| $148M correct? Seems small, like a fairly wealthy multi-
| billionaire could just pay that off in one fell swoop.
| nwidynski wrote:
| This is just the interest payment on a $300B debt.
| Specie33 wrote:
| 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.
| Laforet wrote:
| 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.
| rp1 wrote:
| 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.
| justicezyx wrote:
| 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".
| rp1 wrote:
| 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...
| HenryKissinger wrote:
| 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.
| beervirus wrote:
| Yes, the CCP changing the rules is "the free market."
| emkoemko wrote:
| 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...
| vkou wrote:
| 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.
| selectodude wrote:
| 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.
| jjk166 wrote:
| 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.
| theandrewbailey wrote:
| I agree with that, but that didn't happen in 2008.
| xxpor wrote:
| 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.
| JumpCrisscross wrote:
| > _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.
| igammarays wrote:
| 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.
| shmatt wrote:
| 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
| mschuster91 wrote:
| > 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.
| throw9000 wrote:
| 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.
| rp1 wrote:
| 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.
| uoaei wrote:
| 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.
| adfm wrote:
| 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.
| uoaei wrote:
| 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"?
| rp1 wrote:
| Neoliberalism is an economic policy, it has nothing to do
| with liberal politics.
| uoaei wrote:
| 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.
| justicezyx wrote:
| It's naive to split economy and politics... Just like
| it's naive to split culture and engineering in a company.
| gpm wrote:
| 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.
| shagie wrote:
| > 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.
| whimsicalism wrote:
| 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.
| scoopertrooper wrote:
| 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.
| [deleted]
| runako wrote:
| 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.
| duxup wrote:
| What is the US supposed to do, prevent anyone from being
| exposed to this situation?
|
| That's a wide ranging / impossible mandate there.
| emkoemko wrote:
| 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 ...
| mym1990 wrote:
| China markets are heavily intertwined with everything,
| not investing in Chinese companies will not protect you.
| spamizbad wrote:
| A bunch of greedy US investors dumped money into quixotic
| Chinese companies and we should bail them out? Sounds
| politically toxic to me.
| zaptrem wrote:
| 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?
| ncallaway wrote:
| 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.
| kevingadd wrote:
| 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.
| topper-123 wrote:
| > 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.
| jonahbenton wrote:
| Uh, Tether?
| vmception wrote:
| 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.
| raesene9 wrote:
| 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...
| AlexCoventry wrote:
| Why do you believe that?
| raesene9 wrote:
| 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.
| lamontcg wrote:
| 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.
| manquer wrote:
| 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.
| ChuckMcM wrote:
| 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.
| AlexCoventry wrote:
| Do you mean Matt Levine? If not, could you give a link,
| please?
| ChuckMcM wrote:
| 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: h
| ttps://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: "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.
|
| In fact they were apparently advertised in the elevators:
| "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.
|
| And it also sold the wealth management products to
| employees: 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.
|
| These products were simultaneously (1) "categorised as
| fixed-income products suitable for 'conservative investors
| seeking steady returns'" and (2) sold with 11% yields.
| Seems bad!
|
| 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.
| AlexCoventry wrote:
| Thanks.
| jacquesm wrote:
| The same happened in reverse with the Euro and the Swiss
| Franc.
| irthomasthomas wrote:
| Surprised Xi didn't just step in and pay the trifling sum.
| ww520 wrote:
| So those Tether "loans" to Evergrande are all gone up in smoke?
| bingohbangoh wrote:
| So is this still "the next Lehman brothers"?
|
| Or have we moved on to something else?
| chalst wrote:
| 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.
| WhisperingShiba wrote:
| 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.
| jjoonathan wrote:
| 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.
| whimsicalism wrote:
| 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.
| stickfigure wrote:
| 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.
| matt_s wrote:
| 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.
| dageshi wrote:
| 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.
| rossdavidh wrote:
| 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.
| JumpCrisscross wrote:
| > _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.
| ericmay wrote:
| Less a show of strength IMO and more of a using the fire
| extinguisher to put out a fire.
| xxpor wrote:
| 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...
| nostromo wrote:
| > 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.
| whimsicalism wrote:
| 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.
| tomputer wrote:
| 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.
| whimsicalism wrote:
| 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.
| bob229 wrote:
| Lol
| darkwater wrote:
| Can anyone ElI5 what this could potentially mean for the world
| economy?
| christkv wrote:
| 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.
| misterbwong wrote:
| 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.
| ethbr0 wrote:
| 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?
| snovv_crash wrote:
| 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.
| ethbr0 wrote:
| 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.
| christkv wrote:
| "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.
| manquer wrote:
| 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.
| polskibus wrote:
| original title is "Evergrande teeters on edge of default as $148
| mln payment falls due". not exactly "defaults"
| dang wrote:
| 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
| Kye wrote:
| 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.
| nwidynski wrote:
| Just read this now, should've picked the DMSA link, but
| couldn't edit once posted. Thanks for updating though.
| draw_down wrote:
| Assuming the original title is not editorialized seems a bit
| facetious. But whatever, rules are rules!
| chalst wrote:
| 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.
| nwidynski wrote:
| 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.
| asplake wrote:
| 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.
| ad8e wrote:
| > 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.
| AlexCoventry wrote:
| Wednesday finished about three hours ago, in China, FWIW.
| [deleted]
| nwidynski wrote:
| "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.
| aplummer wrote:
| It did default though, the title of the Reuters article is
| playing it too safe. The contents of the first paragraph
| describe the default.
| klipklop wrote:
| >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."
| stefan_ wrote:
| 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.
| makerofspoons wrote:
| AP is reporting the default is official:
| https://apnews.com/press-release/pr-newswire/business-
| china-...
| yorwba wrote:
| > Press release content from PR Newswire. The AP news staff
| was not involved in its creation.
| qnsi wrote:
| 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.
| Swizec wrote:
| 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.
| h2odragon wrote:
| "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"
| acomjean wrote:
| 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
| nwidynski wrote:
| Well this time they already were inside a 30-day grace period
| which as of 3 hours ago they missed aswell, hence the default.
| riffraff wrote:
| 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.
| raesene9 wrote:
| 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...
| mpalczewski wrote:
| 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.
| boringg wrote:
| 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.
| [deleted]
| nikanj wrote:
| 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?
| quickthrower2 wrote:
| "large company" doesn't imply solvency
| Yuioup wrote:
| This is interest payment.
| thirtyseven wrote:
| Because they don't have it
| nwidynski wrote:
| 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.
| weego wrote:
| 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.
| ndesaulniers wrote:
| 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.
| bluecalm wrote:
| They need to pay that in USD not USDT. One of those can be
| printed at will by your NFT wash trading buddies. The other is
| not so easy to get ahold of.
| duxup wrote:
| 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.
| pezzana wrote:
| > Shares of developer Fantasia Holdings (1777.HK) plunged 50% on
| Wednesday after it said there was no guarantee it would be able
| to meet its other financial obligations following a missed
| payment of $205.7 million due on Oct. 4.
|
| 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.
| yaacov wrote:
| 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.
| jen729w wrote:
| 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!)
| rossdavidh wrote:
| Well, it doesn't _have_ to, ask Zimbabweans. But there are
| real reasons they would not want to print forever.
| quickthrower2 wrote:
| QE and printing are different though
| yaacov wrote:
| 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.
| mym1990 wrote:
| This is just treating a symptom, and not the underlying
| cause(whatever that may be).
| majormajor wrote:
| 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).
| polyomino wrote:
| Technically it doesn't stop, but they are optimizing a
| complex system, and want to mitigate negative effects on
| their measures.
| rwmj wrote:
| Is your theory that the US government will run out of dollars?
| How do you imagine that will happen - a paper shortage?
| version_five wrote:
| 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.
| throwaway09223 wrote:
| 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.
| guiriduro wrote:
| Which is an order of magnitude easier to come by, proving
| OP's point.
| Andrew_nenakhov wrote:
| Digits overflow would be a more appropriate concern
| zhdc1 wrote:
| 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.
| hangonhn wrote:
| 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.
| codyb wrote:
| 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).
| scoopertrooper wrote:
| The real fun begins when the fed starts buying treasuries.
| quickthrower2 wrote:
| 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.
| pishpash wrote:
| 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.
| boplicity wrote:
| > 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?
| baybal2 wrote:
| Short term USD/CNY is clamped by Chinese government currency
| purchases.
|
| People will only notice when China decides its FX is running
| low
| whatever1 wrote:
| 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.
| darawk wrote:
| They can keep issuing them. They will not have the same
| value, though.
| whatever1 wrote:
| 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.
| xwdv wrote:
| We buy USD because its long term existence is practically
| guaranteed by the power of its military.
| ethbr0 wrote:
| 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?"
| rsj_hn wrote:
| > 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 bid/ask spreads in the amazingly efficient
| forex markets.
| [deleted]
| xxpor wrote:
| 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.
| kipchak wrote:
| 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.
| ethbr0 wrote:
| 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.
| riggins wrote:
| 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.
| beambot wrote:
| 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.
| riggins wrote:
| 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.
| HFguy wrote:
| 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.
| baq wrote:
| 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?
| ethbr0 wrote:
| The Fed never said they weren't expecting inflation: they
| said they expected any inflation to be transitory (e.g. to
| return to expected levels by the end of 2022/23).
|
| So, we'll see.
| anm89 wrote:
| I would say that is still not a very credible claim.
| HFguy wrote:
| 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?
| SilasX wrote:
| 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.
| thereddaikon wrote:
| 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?
| vkou wrote:
| 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.
| thereddaikon wrote:
| 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.
| whimsicalism wrote:
| 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.
| whimsicalism wrote:
| 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.
| thereddaikon wrote:
| 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.
| whimsicalism wrote:
| Totally. I found actually visiting China to be informative.
| smilekzs wrote:
| FWIW, the quoted article is from Japan.
| thereddaikon wrote:
| 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.
| toyg wrote:
| 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.
| [deleted]
| mmastrac wrote:
| 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.
| LurkingPenguin wrote:
| > 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...
| whimsicalism wrote:
| > 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.
| jerf wrote:
| 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.
| bsanr2 wrote:
| A lot of people seem intent on letting us know that this is the
| case, at least.
| WhisperingShiba wrote:
| 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.
| bsanr2 wrote:
| 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.
| itronitron wrote:
| https://www.prnewswire.com/news-releases/evergrande-
| official...
| svnt wrote:
| 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
| riffraff wrote:
| 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.
| AlexandrB wrote:
| 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.
| baq wrote:
| in a game of musical chairs everybody is having fun while
| the music is playing.
| raesene9 wrote:
| 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...
| markus_zhang wrote:
| 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.
| 01100011 wrote:
| 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?
| ulber wrote:
| >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/Ho
| me/D...
| klodolph wrote:
| 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.
| boringg wrote:
| 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.
| JumpCrisscross wrote:
| > _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.
| puranjay wrote:
| > 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.
| JumpCrisscross wrote:
| > _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.
| whimsicalism wrote:
| 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.
| majormajor wrote:
| > 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.
| JumpCrisscross wrote:
| > _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.
| boringg wrote:
| 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).
| mym1990 wrote:
| 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?
| LatteLazy wrote:
| 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 :)
| Kye wrote:
| 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...
| paulpauper wrote:
| 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.
| OnlineGladiator wrote:
| 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.
| ncallaway wrote:
| 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.
| soperj wrote:
| They owe 300 billion. So no they couldn't.
| paulpauper wrote:
| 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.
| manquer wrote:
| 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.
| throwuxiytayq wrote:
| So what you're saying is, if you had $300 bln, this is what
| you'd spend it on?
| leesec wrote:
| Yeah or you know, the Chinese government.
| throwuxiytayq wrote:
| Oh yeah, I'm sure they'd bounce right back after that.
| phyalow wrote:
| 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.
| gnabgib wrote:
| 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)
| BogdanPetre wrote:
| Now we will know which US and European banks are exposed and how
| big..
| [deleted]
| DebtDeflation wrote:
| 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?
| baybal2 wrote:
| > 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...
| adventured wrote:
| 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).
| baybal2 wrote:
| 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/
| tedunangst wrote:
| Is blackrock leveraged 100x on evergrande bonds?
| curuinor wrote:
| 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
| mindslight wrote:
| 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.
| rapsey wrote:
| No they are not afraid of China. They are afraid of people
| panicking in the US/EU.
| DebtDeflation wrote:
| 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?
| raesene9 wrote:
| 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/1458499174026
| 997760?s...
|
| Which means that, if true, Evergrande have now defaulted.
| PicassoCTs wrote:
| 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.
| Arnt wrote:
| 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).
| DebtDeflation wrote:
| 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.
| raesene9 wrote:
| 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.
| jacquesm wrote:
| Caching.
| Dma54rhs wrote:
| Or A/B title testing that is so very common nowadays.
| stelliosk wrote:
| Depends if you're a half glass empty or half glass full
| person, whether 2 out of 3 payments is good or bad.
| mekster wrote:
| 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-...
| chunghuaming wrote:
| 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.
|
| Jia Su Jia Su Jia Su Geng Kuai Kan Dao Jie Ju
| toyg wrote:
| _> 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...?
| netcan wrote:
| 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.
| shoto_io wrote:
| What are the implications of this?
| PicassoCTs wrote:
| 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.
| chunghuaming wrote:
| 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.
| fny wrote:
| I actually think NYT updated this headline too: I swear it said
| the opposite earlier today, but I can't find it on newdiffs.
| [deleted]
| csours wrote:
| To some extent, markets follow Looney Tunes logic - if you
| don't look down you aren't falling yet.
| diveanon wrote:
| 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.
| tobltobs wrote:
| Last time the economy imploded (March 2020) BTC also fall
| apart.
| paulpauper wrote:
| 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.
| diveanon wrote:
| Btc hit a new ath today along with eth...
| l33tbro wrote:
| 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.
| gremlinsinc wrote:
| 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).
| noah_buddy wrote:
| 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.
| jjt-yn_t wrote:
| I read that as "if you install the evergrande app, its defaults
| would be..." or "if you use the new coding language or front end
| to AWS, its defaults would be" at first. Til I saw the URL past
| the headline...
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