Why You Should Be Worried About China’s Evergrande Meltdown

as the s p 500 begins to experience a rare drawdown you will see the word everground appear on news networks across america what started off as a potential crisis in the far east has now spread worldwide markets in europe the united states and asia are now seeing fear levels rise and selling begin infamous investor michael bury reopened his twitter account now verified to chime in on the developing situation in today's video we answer the question everyone seems to be asking is everground the chinese lehman brothers and can its downfall bring down the entire global economy to start we have to understand what everground is and does in simple terms they are china's number two largest property developer selling mostly apartments to upper and middle-class dwellers although they have expanded into various other industries everground was up until recently the world's most valuable real estate company owning more than 1300 projects across 130 cities in china its business operations have been questioned by many in the past decade but it wasn't until very recently that we saw the majority of analysts begin to predict that this organization was on the edge of collapse since 2020 the stock price has slowly collapsed going from three dollars and 50 cents to 40 cents dropping 90 percent in less than 18 months what many are predicting is that an ever ground bankruptcy would have serious implications for the world economy similar in nature to what happened to lehman brothers back in 2008 this is because the company's connections go way deeper than what you would think the chinese real estate market is something that many people across finance have pointed to as an example of how bad a bubble can get i'm not going to spend much time in this video explaining the real estate culture in china but this economics explained video published 4 weeks ago summarizes the situation almost perfectly it's not uncommon for chinese citizens to buy multiple homes and invest all of their life savings into real estate even if they don't live there buying an apartment is one of the only methods common chinese citizens can invest their money real estate values have shot up in the past 20 years growing about 10 to 15 percent annually this strong growth has created an illusion that pouring your cash into chinese apartments is essentially a risk-free bet to grow your net worth significantly back in 2020 prices began slipping and due to the nature of the system a positive feedback loop developed rather quickly once prices fell the inventories or assets became less valuable making it harder to get loans harder to build new projects therefore harder to pay back loans which ultimately led us to liquidations this destructive tale sounds awfully familiar to this lehman brothers is going bankrupt and financial markets from asia to europe are doing their utmost to prevent monday from turning from dark to black employees of america's fourth largest investment bank saw the writing on the wall late sunday after talks to pull them back from the abyss collapsed british firm barclays bank said no thanks while bank of america decided instead to help another struggling bank merrill lynch in a merger deal worth over 50 billion dollars the us government said it won't bail out lehman which last week announced more than 3.9 billion dollars in losses now 13 years later the lima moment may be coming to china and you may be thinking that the ccp unlike the usa is going to save this massive company via a bailout after all president for lifeg can't possibly risk a global economic meltdown on his watch well according to the latest reports no china is not showing any signs that they're gonna bail out the company and this all comes down to some internal politics that you can understand after you've watched that economics explained video michael bury who recently made a comeback to twitter had this to say claiming that we should take a look at a twitter account called last bear standing for all the information regarding this crisis i've read over it and here's what stands out according to the analysis evergrande uses pre-sales as a primary way of funding current operations and debt this means selling apartments before they're even built in china citizens are required to put as much as 50 percent down on new real estate purchases so this incoming cash from pre-sales is a giant liquidity source now the theory is that the developers got greedy and began offering these pre-sales with steep discounts according to last bear standing evergronn knows that these units will likely never even be built they took the money but have no plans on actually delivering the apartments this part is probably true especially given the fact that many chinese cities have recently banned pre-sales altogether the scariest part about all this is that nobody really knows just how much they actually owe but what is known is that the figure is disgusting hundreds of billions of us dollars you can read the full thread linked in the description below but essentially it concludes with this real estate is the foundation of the chinese economy if it falls under the entire chinese financial system will go down with it and as the world's second largest economy the consequences for everyone will be similar to that of 2008. this morning the s p 500 slipped nearly two percent and various chinese stocks like alibaba slipped more than five percent cnbc was quick to jump on the coverage and bring on larry mcdonald to try and explain why this incoming doom wasn't doom at all and that everground is nothing to worry about just a hiccup in a world where the market seemingly only goes up let's talk about this morning's sell-off and the situation in china with evergrand joining us now editor of the bear traps report larry mcdonald he's also author of the book a colossal failure of common sense the inside story of the lehman brothers or the collapse of lehman brothers larry it's good to see you we're going to get in the weeds here at this point you're not seeing a certain underpinnings indicate that this is going to be a major problem for the global financial system at this point why not um if you're david tepper who's a good friend of yours or a billionaire and you see risk coming the first thing that you're going to do is put on the cheapest hedges possible in other words you're going to make bets in the world on assets that will protect you from a downfall so far we're seeing some of those hedges but not the way we've seen in the past like before lehman or before the china de-dal crisis in 2015 the bets in certain assets were substantially greater than they are now you're talking about um you watch credit default swaps you you watch just the volatility of the of the chinese currency can you go into three or four of the things that that you're talking about and as i said explain uh you know why it matters now if we look at things today and if you're looking at david tepper or bill ackman or one of these guys i don't see a lot of transactions in credit default swaps in hsbc standard charter anz bank the big banks that have exposure to the asia region whether you believe bury last bear standing or larry mcdonald there is no doubt that this developing situation is something to watch out for a meltdown in china will be quite catastrophic for the world in my opinion the best piece of information to look at is the bond chart as explained by tweet number seven in that thread everground survived a rapid sell-off last september and april now the selloff is once again rapidly accelerating this chart reveals the shocking nature of the decline and if this can continue into the fall there truly is no hope other than a miracle bailout by these central planners in beijing many forget that even lehman brothers took over one year to collapse we like to think that it was an overnight event that took everyone by surprise but this chart reveals just how slowly it played out the same could be happening with everground thank you guys for watching as always please make sure you hit that subscribe button if you enjoyed

Channel: MHFIN

Views: 249,852

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Id: _4qmYXMXDeQ

Length: 8min 2sec (482 seconds)

Published: Mon Sep 20 2021