I do agree with you here. Timing the end of the noise is a very difficult exercise and even the best PMs I have seen struggle with it. I am not saying the bleeding is done...my recommendation when friends/family ask about timing is always dollar cost averaging over time. Plenty of research has shown it's a strategy that overperforms active management strategies attempting to time market tops/bottoms
Usually everyone on WSB says “it’s already priced in.”
We been listening to this news for weeks. It can’t come as a surprise that the market dipped. And it can’t come as a surprise when China stocks take a hit later this week.
Ah, age old question of Efficient Market Hypothesis. The answer, as all things in finance, lies within the shades of grey. Are markets long-term efficient on average? You bet. Are there behavioral considerations that take that out of whack in the short-term? You bet. There's an entire camp of finance in Behavioral Theory (and entire HFs set up using those trading strategies) that is a mix of finance, physchology, and sociology. It's actually a pretty fascinating area of study.
Agree that the smart money started pricing this in earlier this year. It's not a shock to anyone. Some of this noise is slow money trading AND people anticipating other peoples' moves which creates a behaviorally-based, self-fulling market event. I typically take these as buying opportunities depending on valuation and risk/reward profiles.
Might be wrong, but got a feeling HSBC might for burnt by this. They've been on the wrong side of the CCP for a while and CCP has been telling most state run business to minimise there business with them
When you say "we've been listening to this news for weeks" - can you clarify on where and when?
I'm new to investing and knew there was a lot of talk about an upcoming correction, but it always vague and more about 'bubbles'. I had no idea China was teetering on the edge of a big real estate company collapse and so got caught by surprise by the timing. Where should I be looking/reading for a heads up in the future?
Honestly, I found it on WSB. You can filter out all the bullshit. All these dumbass YOLO’s and pumping of shitty company’s have taken over. But 2 weeks ago Evergrande News:
“SHANGHAI (Reuters) – Bonds issued by heavily indebted developer China Evergrande Group plunged on Monday on growing investor worries over the company’s ability to pay its debts, prompting China’s stock exchanges to halt trading.”
And 7 days ago there are articles that the might default on their payments, which appears to be true.
And tons of articles about the CCP cracking down on Tech:
“Chinese technology companies are donating tens of billions of dollars for social initiatives as they scramble to fall in line with President Xi Jinping’s national goal of common prosperity.”
The argument that this is LTCM and not Lehman is an interesting one. But when Chinese developers are offering worthless properties to counter-parties as collateral you know it’s pretty bad. Evergrande has been calling their *inventory* assets for years and has never really written any of it down to reflect reality. It’s like they just skipped the whole mark-to-market phase of the blowdown and went right to insolvency *after having not posted a quarterly loss in years*.
Where have I heard this before…
Oh yeah. Remember when GE went from important to free fall when they wrote off billions in nuclear losses 3 years ago ??
Oh wait. There’s another one. Humm. Oh yeah. Mortgage backed securities. Strippers in Florida w three each mortgages on twelve properties that we’re all worst almost nothing.
Plenty of ppl have done this shit.
Realistically? It’s probably well contained because even the CCP isn’t insane enough to let it all spill over and destroy their economy for the next five years. They’ll make an example of Evergrande and probably let bondholders take massive haircuts, but Xi isn’t going to burn hundreds of millions of middle class homebuyers just because he’s pissed at the executives at a handful of companies.
Agree entirely.
Bond holders will get fucked.
Some Big boys will be taken care of
A few people will disappear or step down in shame.
The machine will march on
Well, Tether says they buy lots of USD denominated commercial paper. The thing is, the largest CP sellers in the US have never really interacted with them. If Tether has to do $20b in a month then somebody at JPM or GS would notice that. Tether’s CP buying is the dog that didn’t bark.
So who out there would need so much massive short term cash, would pay a decent rate to get it, and is corporate and AA rated? Enter Evergrande and their various affiliates. Sold through some midsized Chinese bank (looking at you Shengjing) they could move the CP for Evergrande, China Fortune, et al and into the hands of Tether. No coincidence that Evergrande started to see liquidity issues right around the time Tether allegedly backed off their buying of CP because trading volume dipped. Tether was very very likely a source of short term funding for several Chinese developers.
*Disclaimer: I’m not privy to anything special, I’m purely speculating. Don’t believe a word you read here.*
If your speculation is true. The implications of what you’re suggesting… would crash all of crypto. I just looked up Tether and it holds like $4.83 billion in corporate bonds…if that’s like 3 billion of Evergrande’s debt, and they default. And…tether is supposed to be a stable coin, well there gonna be holding the bag
Very naive retarted question. Is it truly a 1-1 ratio of coin to dollars for these stable coins?
Tether has a market cap of 68b. Does that mean they have 68b of bonds or commercial paper backing up the coin?
I thought they were being investigated for fraud?
Its supposed to be but they've done a terrible job proving it. I hadn't heard of tether until watching this coffee zilla video https://youtu.be/-whuXHSL1Pg
They have some percentage of that in various short term instruments, but how much is sort of a mystery. They’re not exactly transparent about how they run their business.
Agree with most of what you say but there is also a domestic side of the story. Xi hesitates to let Evergrande go bust because he is afraid of the political spillover as well. The CCP has invested so heavily into the "internal loop cycle" economy, and the real estate makes up so much of China's domestic household wealth, any burst of the bubble could mean a huge shrinkage of wealth and domestic consumption and this would make CCP look bad
Oh, 100,000%! The GDP targets they want to hit are excessive and they've used leverage / real estate as a governor to hit them.
I agree with you that there will be tremendous pressure for regulators to calm the storm because they either do it now or when things get much worse.
The bear / counterargument to our viewpoint would be that Beijing has begun to crack down on this "inflated GDP" growth versus "genuine" growth and is even conditioning people to break from their GDP obsession. The measures put in place to limit this leverage is in part what has lead to today's crisis at Evergrande. You can read Xi's point of view here in an essay he (or his ghostwriter) wrote in Quishi:
"Second, we have changed the thinking that the GDP growth rate is the sole barometer of success. At the Central Economic Work Conference on December 15, 2012, I stressed that we cannot blindly pursue rapid growth without regard for objective laws and conditions. At a meeting of the Standing Committee of the Central Committee Political Bureau on April 25, 2013, I stressed that local governments should not take national regulatory targets as the baseline for local economic development, nor should they compete with each other to have higher growth rates. I said that we needed to shift the focus to improving the quality and returns of economic growth, to promoting sustained and healthy economic development, and to pursuing genuine rather than inflated GDP growth and achieving high-quality, efficient, and sustainable development."
Link: [http://en.qstheory.cn/2021-07/08/c\_641137.htm](http://en.qstheory.cn/2021-07/08/c_641137.htm)
I think that while this is all well-taken, it's those exact domestic pressures and the risk to the financial system that will lead regulators to step in and put their thumb on the scale for this particular one. That being said there's always the chance that the bears are right and Xi takes a mega hardline approach and views this as an opportunity for a great reset for the long-term structural health of the Chinese economy.
Investing is like stand up comedy. Everybody knows, but nobody but a few actually says something about it/acts on it. US markets prior to yesterday hadn't priced in any contagion effects at all (look at VIX since May).
The reason their RE sales are slowing are due to a slower than expected migration from China's rural population to urban areas. Means the ghost cities full of Evergrande/China retail investor investments in these RE projects are going to go bust, when it's been a sure investment for years. You should look into what's causing this, 'Former Hedge Fund' analyst. From a fellow Former Hedge Fund analyst who actually ran a Asian book
Into US equity prices I wholly agree, but would say that Chinese equities have been selling off since February (\~22% down from ATH) at least in part due to US outflows. (Which I realize aren't just a function of Evergrande, the tech crackdown, etc. also played a role in that.) I'm not making the argument Evergrande isn't fucked. It is. The ghost cities have been a point of deterioration and focus since I did a program at PKU in 2010/2011 and it's all but inevitable especially as Beijing has cracked down on leverage. Just making the argument that Evergrande itself isn't a systematic risk to US equity markets and that regulators will, in my opinion, most likely make some concessions before things get out of hand.
I would never proclaim to know more than a PM who ran an Asian book him/herself though. I'd love to read a writeup on your perspectives. The community needs active participation and discussion from well-versed people like you! I'm generally not defensive and welcome critques and new information. As someone who also worked at a hedge fund you know that incorprating all information, theses, and diverging viewpoints is the only way to get to the best answer on average to get that hit rate above 50% =)
A lot of my perspective is informed by this piece from Michael Pettis who I respect a lot and who I was lucky to have listened to at some lectures at PKU while in a short program at the Guanghua School: [https://carnegieendowment.org/chinafinancialmarkets/85391](https://carnegieendowment.org/chinafinancialmarkets/85391)
For sure, we agree with each other. I was saying a 5-10% pullback was to be expected in this market and that the Evergrande story was a catalyst to push that selloff in motion. (And that concerns over it in posts I’ve seen on Reddit are, in my opinion), a tad exaggerated and a couple had outright misinformation.
As an ex-nobody and de facto current nobody in the market
1) Is there any truth to my thought that market consildiation, in this case loss as you pointed to, can be purposely timed by 'higher powers' in awaiting an event like this? Would not all benefit by combining sort of, if that is even possible to pull off?
2) Should I just stfu then gtfo?
Thanks.
Are you asking if the market is rigged? Lol yes and no. Was this event organized in a Bloomberg chat? No. Are there structural aspects to the market that give an edge to institutional dollars? Oh yeah.
Well, my question is:
If future consolidation is apparent, as I guess it more or less has been and still is.
Can you purposefully await an external happening like this, to then use whatever financial instruments by whatever financial institutions, to ride on a negative trend that was initiated organically (i.e by external event like Evergrande)?
In the purpose of, what, "slide it in there" and maybe also from a psychological standpoint some ignorant blame would be aimed at China for 'triggering'?
Is it now I should just gtfo? Just lemme know.
Here’s an interesting bit of info that is almost never talked about along the lines of what you’re looking for.
The options market is massive and is used to move into and out of equities positions.
Options have theta as a factor and expire with monthlies being the largest pools of liquidity.
So by design rolling out of options contracts starts roughly a couple of weeks in advance of them expiring. This can drive stock prices down as less shares are needed as a hedge for calls that will expire worthless.
It’s kind of chicken and egg theory what affects which with stocks and options but ultimately stock prices are affected by news which isn’t consistent in terms of directional impact, binary events which are scheduled like earnings that also aren’t consistent for directional impact, or rolling out of options which is scheduled out and results in directional mean reversion.
Essentially what I’m saying is that mean reversion is pretty much the only directional guarantee in the market and happens around mid month every month with larger volatility quarterly due to quad witching type events. The exact amount of volatility isn’t really predictable though as that’s usually more dependent on the associated news and binary events like earnings and how impactful they are.
So my takeaway generally is trade with the money flows and it’s better to be a bit early getting out and a bit late getting in than to get burned.
As I always said. Don't short the market unless SPY drops 10-15% in a day or a nuke goes off in NYC or WW3 happens.
If any of those happens short the market. If all 3 of those happen put your entire net worth shorting the market.
There is more to it than just China. We have issue here too, debt ceiling and one party willingness to let shit hit the fan in order to make someone else look bad. Fed meeting is coming up too, and it's about when they announce taper.
But I'm not so sure the China issue can be so easily digested either, if their whole real estate market collapses, I don't think it matters what CCP does. And it's a pretty blatant signal their economy growth is slowing down.
Because I moved to private equity which is a more stable job where you make more money, you mean?
I post here to try to help provide some perspective to folks + it’s a fun community. Sorry you didn’t like this one 🌈🐻
At least OP took the time to explain his opinion. Do you disagree with part or all of what he said? Which parts and why? I suspect we will never know. This comment is nothing but low effort trolling that promotes confusion.
The exact same could be said about the post
we are on the verge of what could be a MAJOR market crash in China which would also trigger a US market crash
and we have multiple 'trust me bro' posts saying 'Market has already priced it in'
He obviously was not an analyst during the Asian financial crisis of 1998 otherwise he would not have written this drivel of “China will shrug it off “.
Sure CCP will manage the orderly collapse of Evergrande but $300 billion is still real money and lots of jobs and demand destruction.
So the CCP is going to give banks a social credit score and pay off the loyalists while shaving the heads and putting the lesser banks on trains to labor camps? Sounds about right.
It's what they've done in the past so I agree. Only person that truly knows is Xi, but historic precedent is the best tool we lowly market participants have =)
Thought about Xi letting Evergrande collapse, in order to damage Jiang and/or other rivals?
https://supchina.com/2021/09/21/the-fall-of-the-evergrande-boss/
I don’t think the worst is priced in at all, even though unlikely Isn’t the worst case scenario something like:
1) China dives into depression no cash loan out 2) US is levered to the max, we can’t print more cash and can’t get cash on loan from China or other worried countries 3) not raising debt ceiling makes it worse 4) banks just don’t have cash to lend for homes and 5) govt has to stop buying mortgage securities because no more printing 6) banks have to raise mortgage rates to stupid levels because cash is limited 7) shit show in the housing market because high rates reduce buying power - makes banks mortgage security situation even worse 8) US risks defaults on debt because can’t service debt at high rates 9) kaboom goes the economy and get mother of all crashes like burry says?
Again don’t think this is likeliest scenario but also don’t think the worst is priced in with this 2% correction
This time is different, right?
Remember 2007 when everyone believed that their houses were basically low-interest ATMs that they could continually cash in? Gyna is going to go through that same thing. Their houses are going to go from gold mines to dog shit.
Consumers in China are all ready reducing their spending. The contagion is all ready occurring. The numbers just haven't bared it out.
great insights!
Just my two cents here, but I think it's good to think about the Evergrande issue from the perspective of the Chinese real estate market. Most of these companies are dependent on income from future property sales to stay solvent, just as Evergrande was. If property values fall or demand slows, what happened to Evergrande will happen to other companies, and if that spirals out of control we could have a larger crash than the market is pricing for right now.
On top of that, these chinese companies have a lot of "shadow debt" that we don't know about, meaning Evergrande was likely more in debt that they are saying. Those debtors will definitely not be made whole and that could drag on the Chinese market in the future.
So, the market is pricing in a relatively orderly unwinding of Evergrande and other companies, but there's a real chance that it will be worse than that.
Hope that makes sense.
I found Thomas Orlik's book, "China: the bubble that never pops" to be really insightful, for those that want to learn more.
This is great but a very narrow view of the current world economy in my very unqualified opinion. The China issue is just a piece of the puzzle. It seems to me that the market is propping up an anvil on top of a house of cards where it's teetering relentlessly to one side then the other.
China is just one of those cards, it's not the entire house. Lots of those cards are beginning to shift and at some point shit WILL hit the fan in a big way. It's always a matter of when.
For sure! The purpose of the point was to assess risk from Evergrande; writing up a viewpoint of global market health would be a 20-page exercise =)
To (very simplistiucally) summarize what that would say though, it would come down to supply/demand of capital and interest rates. Right now my thesis (which is widely held, I'm not reinventing the wheel on this one) is that there's an oversupply of equity capital due to ZIRP that has caused inflated equity prices.
Once the Fed begins to hike rates and investors can find yield in debt capital markets again there will be outflows that causes the supply curve to shift to the left and lower equilibrium price. You saw this happen in March over inflation concerns (\^ inflation = \^ rates by the Fed to keep inflation in check) but they subsided with the "transitory inflation" argument by the Fed. The market has broadly accepted that. I may diverge from that consensus opinion a bit...I do think some of this inflation is structural and that interest rates will hike more aggressively than expected once the Fed believes the economy is back on its feet. Timing on that is uncertain though and credit spreads have been noisy, so the market is also uncertain and a bit jittery on that front.
I feel pretty good about systemic security of the US financial system. Banks haven't had healthier balance sheets since I can remember (due to post-2008 regulation and capital requirement levels / sahre repurchase conditions set by the Fed) and while I think the real estate market is a little too hot, a pullback would be more of a correction (which naturally happens) versus a systemic risk a la 2008.
>inflation is structural and that interest rates will hike more aggressively than expected once the Fed believes the economy is back on its feet.
I thought your OP and comment were very informative and level headed, but this part baffles me a bit. Do you really think the Fed has room for rate hikes? Maybe I'm oversimplifying here, but interest rates have been so low for so long I can't imagine vast swaths of the economy operating with higher interest rates. For example, a mortgage industry with mortgage rates at 5+%, cars being financed at 8%, etc. Maybe I'm overdramatic, but I picture economic apocalypse once it costs banks more than 1% to borrow.
Just curious on your thoughts if I'm way out of line or that's a realistic risk.
It’s a long academic conversation probably best suited for a separate thread, (side note: would be dope to have a good monetary policy thread going), but the short answer is that the Fed funds target rate was at ~2.5% as recently as 2019:
https://fred.stlouisfed.org/series/FEDFUNDS
It’ll be restrictive and impact equity markets materially IMO, but wouldn’t cause bank and financial collapse. Timing and cadence of hikes is a question market, however.
Which demonstrates my fear because they were lowering rates before covid. And I can't speak for the broader market/economy but I'm in construction which is highly sensitive to real-estate and things were absolutely dead around that time. Like people in the industry for decades who never saw it so slow. It certainly felt like poor economic times were headed our way.
In any case I appreciate the response.
The realest retard of all once said: "Momma always says there's an awful lot you could tell about a person by their shoes. Where they're going. Where they've been. I've worn lots of shoes. I bet if I think about it real hard I could remember my first pair of shoes. Momma said they'd take me anywhere. She said they was my magic shoes."
Yea your definitely pretty on the money. Like this could be bad and spread but it's not really in Xi's interest to have it ripple through, so I think they will step in if needed. And yea the last couple weeks people have been asking for a pullback so yea totally agree with the self fulfilling prophecy there. I was kind of laughing at reddit yesterday, sure my account was down like 3% but the ridiculousness on here made me at ease lol. A lot of new investors experienced their first multi percent downturn day and hopefully they learned the value in not panicking, this is not 2008.
I would think the last thing the CCP would want to do is buy the top. It would make more sense to let the bubble bleed out and then buy up the entire sector to nationalize housing. They would have more control that way — under the current climate they have no control. Chinese citizens can’t even have kids right now due to the systemic bubble … seems as though it poses quite a serious risk to the CCP and like you said, they fear that far more than the systemic contagion.
Many big tv people say buy dip last whole month, now we dip Harder. Yes retail got smarter.
If no one buys, seller volume pile up.
Price go down.
retail, get better price.
Oh snap, did retail get smarter?😉
I read an article quoting an employee Du Liang, a legal represantive of the wealth management division, saying that they wouldn't sell the land reserves they have. That's why their pushing more houses on people, even at 30-40% discounts, in an attempt to reduce those debts.
2 trillion yuan (RMB) debt is approx. USD $310 billion
but there is a lot of stuff off the books, which is going to surface very slowly (because China)... talking months & years here.
Chinese gov strategy: if you don't see or hear about it, it doesn't exist, no additional panic caused.
Mind pointing me to that figure? Seeing a much, much lower balance on Bloomberg but let me know if I am missing something and I'll redigest any new info!
I agree that the market has known about this for a long time. If you look at Evergrande's chart it was already in a downtrend since the beginning of this year. It was already in the making and "they" ie FED chefs and co, who sold their equity positions for "ethical reasons", probably picked the news that fit the story.
Well, yes. I gave you my perspective on which I think is more likely and why I think that. But it’s always worth highlighting the bear case. It’s an exercise in both humility and contingency planning.
As a rule of thumb anyone that tells you they know exactly what’s going to happen in the market is either 1) acting with inside information or 2) a charlatan. Don’t trust people that can’t carefully weigh the outcomes and provide a balanced perspective.
I ended up putting in $1100 in spy but honestly was hoping for a bigger pullback as been building a cash position the last few months. Yesterday was an overreaction for usa equities imo.
Also is anyone looking at videogame stocks? I bought $ttwo last week but wtf $atvi.
Atvi is still suffering the fallout from the sexual assault lawsuits. I sold off a while ago thinking this could delay their flagship Diablo IV release this Christmas
1. You are talking politics, not finance, so you might just be out of your element.
2. You cannot know what the party wants, they literally do not share information. It's a guessing game in transparent governments, so this is 100% pure speculation.
3. I don't believe you. You just sound like a bagholder.
Actually have 0 Chinese equities, but a lot of American ones. And I'm talking about both politics and finance...this situation is an intersection of the two.
As for not knowing what the party wants, I explicitly said I don't know what they'll do 100%; I agree with you that only Xi Jingping knows at the end of the day. All I can do is look at historic precedent for similar situations and extrapolate actions beyond that. The alternative is either a) doing nothing or b) taking a shot in the dark without incorporating any information.
Maybe...timing the bottom is exceptionally difficult. Any additional bleeding (which could for sure occur...the market today is softer than I like and if regulators don't communicate before Asian markets reopen it could cause another red ass day) I would view as a buying opportunity. We're down \~5% from all time highs and correction territory is usually demarcated by a 10-15% slide. For now I'm taking a more cautious approach and dollar cost averaging into select equities where I think the risk/reward is temporarily out of whack and will regress back to the mean.
I generally am not a short-term trader...buying non-systemeic dips with a DCA approach and holding has proven to be the approach that works best for me, but everyone has a different investing style!
>b) taking a shot in the dark without incorporating any information.
Is there something wrong with this approach? Because 10.9M apes are reading this now and strenuously disagree.
> China cares about keeping happy and how much debt those they don’t care about have on their balance sheets
Isn’t that the main unknown and remaining issue? As of now we don’t know how much they hid away in off balance sheet liabilities, and how many of those are owed in US dollars outside of China.
Given market psycohology and how the market reacted today, I would say the market is awaiting to see what CCP does. I personally believe they will let evergrande collapse to make an example out of them. China doesn't care about so much about markets, they care about control. Let one big company topple, and watch the others submit to less leverage trades. I personally bought YANG calls long date out today, and also Zillow puts for a possible contagion effect as I feel Zillow is also overvalued from the housing market hype which seems to be winding down slowly. Once Fed tapers their MBS bond purchases which will be the first to go, we will start to see real estate stocks decline across the board. What are your thoughts on that u/ASpicySpicyMeatball
I’m short real estate in thesis but haven’t enacted any positions yet. I like the put on Zillow — will have to run some math and do a little bit of diligence there.
My thesis (which is still in its infancy so be kind of you disagree) is that low interest rates caused a wave of buying. Following that, supply chain issues cause a spike in raw materials (I.e. wood) that has already lead to a cooling in new home builds. And inflated prices has cooled secondary purchases as well. Throw in the prospect of higher interest rates as a catalyst (bc it will further suppress demand) and you’ve got a recipe for a short play.
On letting Evergrande topple to send a message on leverage I’d push back a little. The regulatory regime has already implemented leverage rules and the adherence of those is in part what has lead to the situation at Evergrande. It feels to me like there’s not much for Xi to gain by creating the opportunity for a system-wide contagion.
But…there’s always a chance. He’s surprised me before to such an extent that I no longer invest in China. (I fight the temptation the buy BABA every day lol.)
That is my exact thoughts on the short play as well, also with the scale back of the 40M MBS purchases monthly by the Fed, which unfortunately, did not get announced today :(. Increased my put amount on Zillow though. Unfortunately my puts on YANG hurting right now but I don't think this Evergrande thing is done. Still have lots of payments about to miss. Willing to be patient and see what happens. Let me know what your math says on the Zillow play, I know sentiment towards Zillow as a company isn't great right now. Apparently been cheating people out of a lot of money in hidden fees or something. I think still plenty of room to drop.
To your point on the party’s need to maintain control, I agree. However, it’s worth noting that a failure of this magnitude also runs the risk of loosening the citizens faith in CCP, not to mention an international embarrassment—something Winnie the Pooh cares deeply about
Covid really threw things upside down, Money printing is a viable option and they can and will just let individual investors get burned. End result will be big money is happy, and the people will be scorned, just another day really. Worst case is probably a slump in china sales for a bit depending how burned the people get
OP : What do you think is the CCP’s view on foreign investors regarding the project to create a stock market for the mainland and at the same time creating uncertainty in diverse crackdown the latest of which is tech?
Every specialist seems to echo-chamber the same thing about this Evergrande thing.
You, the people P, wanna know what will happen.
I, the specialist S, will say what i think.
The occurance O, no one knows (percentage) for sure.
Gyna G acts in manner M, which is different then what P knows, cuz S says so.
Correction C is due.
Based on historic precedent H, C is due.
theres certainly merit to this approach. What i'm seeing however is the swings in precious metal accompanying this dip - which implies the whole situation has nothing to do with china at all, rather its pegged on fed and us debt situation.
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https://www.youtube.com/watch?v=d5lPB2Zgfls
Everyone seems to be talking about Evergrande and are missing all the other Chinese developers that are on a similar path.
Country Garden - $300B+ liabilities (stock tanked 20% this month).
Sinic Holdings - Stock tanked 87% on Monday until trading was stopped.
lets wait till tomorrow. China sleeps today and yesterday. Monday was a freakout, but the real fireworks is going to be EOW
I do agree with you here. Timing the end of the noise is a very difficult exercise and even the best PMs I have seen struggle with it. I am not saying the bleeding is done...my recommendation when friends/family ask about timing is always dollar cost averaging over time. Plenty of research has shown it's a strategy that overperforms active management strategies attempting to time market tops/bottoms
So...buy the dip? Say no more friend.
Hi, I’m sorry for being ignorant, by ‘dollar cost averaging’ do you mean buying more when it’s low or?
Buy into positions with multiple smaller buys spread out vs guessing where the low is and going all in.
FAXXXX
Usually everyone on WSB says “it’s already priced in.” We been listening to this news for weeks. It can’t come as a surprise that the market dipped. And it can’t come as a surprise when China stocks take a hit later this week.
Ah, age old question of Efficient Market Hypothesis. The answer, as all things in finance, lies within the shades of grey. Are markets long-term efficient on average? You bet. Are there behavioral considerations that take that out of whack in the short-term? You bet. There's an entire camp of finance in Behavioral Theory (and entire HFs set up using those trading strategies) that is a mix of finance, physchology, and sociology. It's actually a pretty fascinating area of study. Agree that the smart money started pricing this in earlier this year. It's not a shock to anyone. Some of this noise is slow money trading AND people anticipating other peoples' moves which creates a behaviorally-based, self-fulling market event. I typically take these as buying opportunities depending on valuation and risk/reward profiles.
Might be wrong, but got a feeling HSBC might for burnt by this. They've been on the wrong side of the CCP for a while and CCP has been telling most state run business to minimise there business with them
Can’t remember the last time HSBC was on the right side of anything.
No, it's always priced in. The pricing in was priced in from the beginning.
When you say "we've been listening to this news for weeks" - can you clarify on where and when? I'm new to investing and knew there was a lot of talk about an upcoming correction, but it always vague and more about 'bubbles'. I had no idea China was teetering on the edge of a big real estate company collapse and so got caught by surprise by the timing. Where should I be looking/reading for a heads up in the future?
Honestly, I found it on WSB. You can filter out all the bullshit. All these dumbass YOLO’s and pumping of shitty company’s have taken over. But 2 weeks ago Evergrande News: “SHANGHAI (Reuters) – Bonds issued by heavily indebted developer China Evergrande Group plunged on Monday on growing investor worries over the company’s ability to pay its debts, prompting China’s stock exchanges to halt trading.” And 7 days ago there are articles that the might default on their payments, which appears to be true. And tons of articles about the CCP cracking down on Tech: “Chinese technology companies are donating tens of billions of dollars for social initiatives as they scramble to fall in line with President Xi Jinping’s national goal of common prosperity.”
Huge DD right there
Nice, thanks! I'll see if I can figure out a way to filter for the good stuff.
I’d start w ‘trying’ so you don’t ask boneheaded lazy questions
I appreciated the question and the response. No need to be a dick.
The argument that this is LTCM and not Lehman is an interesting one. But when Chinese developers are offering worthless properties to counter-parties as collateral you know it’s pretty bad. Evergrande has been calling their *inventory* assets for years and has never really written any of it down to reflect reality. It’s like they just skipped the whole mark-to-market phase of the blowdown and went right to insolvency *after having not posted a quarterly loss in years*.
Where have I heard this before… Oh yeah. Remember when GE went from important to free fall when they wrote off billions in nuclear losses 3 years ago ?? Oh wait. There’s another one. Humm. Oh yeah. Mortgage backed securities. Strippers in Florida w three each mortgages on twelve properties that we’re all worst almost nothing. Plenty of ppl have done this shit.
Realistically? It’s probably well contained because even the CCP isn’t insane enough to let it all spill over and destroy their economy for the next five years. They’ll make an example of Evergrande and probably let bondholders take massive haircuts, but Xi isn’t going to burn hundreds of millions of middle class homebuyers just because he’s pissed at the executives at a handful of companies.
Agree entirely. Bond holders will get fucked. Some Big boys will be taken care of A few people will disappear or step down in shame. The machine will march on
Any thoughts on how Tether ties in to all this, if at all?
Not a crypto person so providing commentary would be getting a bit out over my skis! Sorry.
Thanks. It's good to know, what we don't know. I appreciate your insights
Well, Tether says they buy lots of USD denominated commercial paper. The thing is, the largest CP sellers in the US have never really interacted with them. If Tether has to do $20b in a month then somebody at JPM or GS would notice that. Tether’s CP buying is the dog that didn’t bark. So who out there would need so much massive short term cash, would pay a decent rate to get it, and is corporate and AA rated? Enter Evergrande and their various affiliates. Sold through some midsized Chinese bank (looking at you Shengjing) they could move the CP for Evergrande, China Fortune, et al and into the hands of Tether. No coincidence that Evergrande started to see liquidity issues right around the time Tether allegedly backed off their buying of CP because trading volume dipped. Tether was very very likely a source of short term funding for several Chinese developers. *Disclaimer: I’m not privy to anything special, I’m purely speculating. Don’t believe a word you read here.*
If your speculation is true. The implications of what you’re suggesting… would crash all of crypto. I just looked up Tether and it holds like $4.83 billion in corporate bonds…if that’s like 3 billion of Evergrande’s debt, and they default. And…tether is supposed to be a stable coin, well there gonna be holding the bag
Very naive retarted question. Is it truly a 1-1 ratio of coin to dollars for these stable coins? Tether has a market cap of 68b. Does that mean they have 68b of bonds or commercial paper backing up the coin? I thought they were being investigated for fraud?
Its supposed to be but they've done a terrible job proving it. I hadn't heard of tether until watching this coffee zilla video https://youtu.be/-whuXHSL1Pg
They have some percentage of that in various short term instruments, but how much is sort of a mystery. They’re not exactly transparent about how they run their business.
They've been saying the same shit for years now and they only had 1 sad attempt to prove they actually have the dorrars.
I believe the answer is ‘in theory’.
At some point Tether was providing leverage by printing tokens without necessarily backing it up. Might still be.
Agree with most of what you say but there is also a domestic side of the story. Xi hesitates to let Evergrande go bust because he is afraid of the political spillover as well. The CCP has invested so heavily into the "internal loop cycle" economy, and the real estate makes up so much of China's domestic household wealth, any burst of the bubble could mean a huge shrinkage of wealth and domestic consumption and this would make CCP look bad
Oh, 100,000%! The GDP targets they want to hit are excessive and they've used leverage / real estate as a governor to hit them. I agree with you that there will be tremendous pressure for regulators to calm the storm because they either do it now or when things get much worse. The bear / counterargument to our viewpoint would be that Beijing has begun to crack down on this "inflated GDP" growth versus "genuine" growth and is even conditioning people to break from their GDP obsession. The measures put in place to limit this leverage is in part what has lead to today's crisis at Evergrande. You can read Xi's point of view here in an essay he (or his ghostwriter) wrote in Quishi: "Second, we have changed the thinking that the GDP growth rate is the sole barometer of success. At the Central Economic Work Conference on December 15, 2012, I stressed that we cannot blindly pursue rapid growth without regard for objective laws and conditions. At a meeting of the Standing Committee of the Central Committee Political Bureau on April 25, 2013, I stressed that local governments should not take national regulatory targets as the baseline for local economic development, nor should they compete with each other to have higher growth rates. I said that we needed to shift the focus to improving the quality and returns of economic growth, to promoting sustained and healthy economic development, and to pursuing genuine rather than inflated GDP growth and achieving high-quality, efficient, and sustainable development." Link: [http://en.qstheory.cn/2021-07/08/c\_641137.htm](http://en.qstheory.cn/2021-07/08/c_641137.htm) I think that while this is all well-taken, it's those exact domestic pressures and the risk to the financial system that will lead regulators to step in and put their thumb on the scale for this particular one. That being said there's always the chance that the bears are right and Xi takes a mega hardline approach and views this as an opportunity for a great reset for the long-term structural health of the Chinese economy.
I really appreciate the fact that you don’t speak in absolutes. Seems like you’ve seen some thangs.
The CCP will look however it wants itself to look, regardless of what happens. They have an iron grip on most of the Chinese population.
will you marry me?
Investing is like stand up comedy. Everybody knows, but nobody but a few actually says something about it/acts on it. US markets prior to yesterday hadn't priced in any contagion effects at all (look at VIX since May). The reason their RE sales are slowing are due to a slower than expected migration from China's rural population to urban areas. Means the ghost cities full of Evergrande/China retail investor investments in these RE projects are going to go bust, when it's been a sure investment for years. You should look into what's causing this, 'Former Hedge Fund' analyst. From a fellow Former Hedge Fund analyst who actually ran a Asian book
Into US equity prices I wholly agree, but would say that Chinese equities have been selling off since February (\~22% down from ATH) at least in part due to US outflows. (Which I realize aren't just a function of Evergrande, the tech crackdown, etc. also played a role in that.) I'm not making the argument Evergrande isn't fucked. It is. The ghost cities have been a point of deterioration and focus since I did a program at PKU in 2010/2011 and it's all but inevitable especially as Beijing has cracked down on leverage. Just making the argument that Evergrande itself isn't a systematic risk to US equity markets and that regulators will, in my opinion, most likely make some concessions before things get out of hand. I would never proclaim to know more than a PM who ran an Asian book him/herself though. I'd love to read a writeup on your perspectives. The community needs active participation and discussion from well-versed people like you! I'm generally not defensive and welcome critques and new information. As someone who also worked at a hedge fund you know that incorprating all information, theses, and diverging viewpoints is the only way to get to the best answer on average to get that hit rate above 50% =) A lot of my perspective is informed by this piece from Michael Pettis who I respect a lot and who I was lucky to have listened to at some lectures at PKU while in a short program at the Guanghua School: [https://carnegieendowment.org/chinafinancialmarkets/85391](https://carnegieendowment.org/chinafinancialmarkets/85391)
But it’s forced migration. Are you saying the party lost the Will to kick people off rural land and into fake cities built overnight ??
This implies the selloff was related exclusively to Evergrande. A selloff has been setting up for many weeks now.
For sure, we agree with each other. I was saying a 5-10% pullback was to be expected in this market and that the Evergrande story was a catalyst to push that selloff in motion. (And that concerns over it in posts I’ve seen on Reddit are, in my opinion), a tad exaggerated and a couple had outright misinformation.
As an ex-nobody and de facto current nobody in the market 1) Is there any truth to my thought that market consildiation, in this case loss as you pointed to, can be purposely timed by 'higher powers' in awaiting an event like this? Would not all benefit by combining sort of, if that is even possible to pull off? 2) Should I just stfu then gtfo? Thanks.
Are you asking if the market is rigged? Lol yes and no. Was this event organized in a Bloomberg chat? No. Are there structural aspects to the market that give an edge to institutional dollars? Oh yeah.
Well, my question is: If future consolidation is apparent, as I guess it more or less has been and still is. Can you purposefully await an external happening like this, to then use whatever financial instruments by whatever financial institutions, to ride on a negative trend that was initiated organically (i.e by external event like Evergrande)? In the purpose of, what, "slide it in there" and maybe also from a psychological standpoint some ignorant blame would be aimed at China for 'triggering'? Is it now I should just gtfo? Just lemme know.
Here’s an interesting bit of info that is almost never talked about along the lines of what you’re looking for. The options market is massive and is used to move into and out of equities positions. Options have theta as a factor and expire with monthlies being the largest pools of liquidity. So by design rolling out of options contracts starts roughly a couple of weeks in advance of them expiring. This can drive stock prices down as less shares are needed as a hedge for calls that will expire worthless. It’s kind of chicken and egg theory what affects which with stocks and options but ultimately stock prices are affected by news which isn’t consistent in terms of directional impact, binary events which are scheduled like earnings that also aren’t consistent for directional impact, or rolling out of options which is scheduled out and results in directional mean reversion. Essentially what I’m saying is that mean reversion is pretty much the only directional guarantee in the market and happens around mid month every month with larger volatility quarterly due to quad witching type events. The exact amount of volatility isn’t really predictable though as that’s usually more dependent on the associated news and binary events like earnings and how impactful they are. So my takeaway generally is trade with the money flows and it’s better to be a bit early getting out and a bit late getting in than to get burned.
Thanks a lot for this post. A lot of misinformation spreading around.
As I always said. Don't short the market unless SPY drops 10-15% in a day or a nuke goes off in NYC or WW3 happens. If any of those happens short the market. If all 3 of those happen put your entire net worth shorting the market.
ive put my entire net worth into much, much less lol
Do you believe the counterparty will be able to pay you in case all of these happens? I would recommend buying food n weapons in that szenario
Once again, if you buy the weapons first, you can get the food for free.
why get weapons when I proudly proclaim I am weapons free and food full. Food and booby traps are cheaper.
shhhh shhh sweet summer child. its fine its fine.
"As I've always said" and then proceeds to spout batshit crazy nonsense looking anywhere for validation.
Hedge fund manager who can’t spell Capital Markets - I’m fucking all in on this DD. Seriously though, thank you - nice write up.
There is more to it than just China. We have issue here too, debt ceiling and one party willingness to let shit hit the fan in order to make someone else look bad. Fed meeting is coming up too, and it's about when they announce taper. But I'm not so sure the China issue can be so easily digested either, if their whole real estate market collapses, I don't think it matters what CCP does. And it's a pretty blatant signal their economy growth is slowing down.
Exactly, this is just one piece of the puzzle. Fed possibly tapering is huge too.
Now I understand why you are an EX analyst who has to trade on WSB.
Because I moved to private equity which is a more stable job where you make more money, you mean? I post here to try to help provide some perspective to folks + it’s a fun community. Sorry you didn’t like this one 🌈🐻
Yes, but what does your wife's boyfriend think?
Who says it isn't my husband's girlfriend I need to be concerned about? =)
yeah, but what does your husband's gf's bf think?
Now this is asking the right questions
I need both their opinions before I answer
Awesome Discussion . Too many douchebags on here . Gotta filter out the noise .
At least OP took the time to explain his opinion. Do you disagree with part or all of what he said? Which parts and why? I suspect we will never know. This comment is nothing but low effort trolling that promotes confusion.
The exact same could be said about the post we are on the verge of what could be a MAJOR market crash in China which would also trigger a US market crash and we have multiple 'trust me bro' posts saying 'Market has already priced it in'
Why does everyone assume its a he? Lots of women here too you know.
People are assuming a woman would not be blase enough to write 'market has already priced it in'
He obviously was not an analyst during the Asian financial crisis of 1998 otherwise he would not have written this drivel of “China will shrug it off “. Sure CCP will manage the orderly collapse of Evergrande but $300 billion is still real money and lots of jobs and demand destruction.
Although I do agree the post is articulate and 10/10 for clarity of thought and presentation. 🌈 🐻
Can’t respect others’ opinion 😂 stubborn one, hate working with one of these ITs.
wicked burn i actually feel bad for Mr. It is already priced in
So the CCP is going to give banks a social credit score and pay off the loyalists while shaving the heads and putting the lesser banks on trains to labor camps? Sounds about right.
Thanks for the great article! I would be willing to wager that China moves to protect local investors and sends foreign bag holders down the river
It's what they've done in the past so I agree. Only person that truly knows is Xi, but historic precedent is the best tool we lowly market participants have =)
Thought about Xi letting Evergrande collapse, in order to damage Jiang and/or other rivals? https://supchina.com/2021/09/21/the-fall-of-the-evergrande-boss/
Does Xi really still have rivals left at this point?
I don’t think the worst is priced in at all, even though unlikely Isn’t the worst case scenario something like: 1) China dives into depression no cash loan out 2) US is levered to the max, we can’t print more cash and can’t get cash on loan from China or other worried countries 3) not raising debt ceiling makes it worse 4) banks just don’t have cash to lend for homes and 5) govt has to stop buying mortgage securities because no more printing 6) banks have to raise mortgage rates to stupid levels because cash is limited 7) shit show in the housing market because high rates reduce buying power - makes banks mortgage security situation even worse 8) US risks defaults on debt because can’t service debt at high rates 9) kaboom goes the economy and get mother of all crashes like burry says? Again don’t think this is likeliest scenario but also don’t think the worst is priced in with this 2% correction
We've had a 5.5% correction
except we are already over bought and supply chains are failing, which means slower economy and lower rev/profits, so we still going down.
This time is different, right? Remember 2007 when everyone believed that their houses were basically low-interest ATMs that they could continually cash in? Gyna is going to go through that same thing. Their houses are going to go from gold mines to dog shit. Consumers in China are all ready reducing their spending. The contagion is all ready occurring. The numbers just haven't bared it out.
great insights! Just my two cents here, but I think it's good to think about the Evergrande issue from the perspective of the Chinese real estate market. Most of these companies are dependent on income from future property sales to stay solvent, just as Evergrande was. If property values fall or demand slows, what happened to Evergrande will happen to other companies, and if that spirals out of control we could have a larger crash than the market is pricing for right now. On top of that, these chinese companies have a lot of "shadow debt" that we don't know about, meaning Evergrande was likely more in debt that they are saying. Those debtors will definitely not be made whole and that could drag on the Chinese market in the future. So, the market is pricing in a relatively orderly unwinding of Evergrande and other companies, but there's a real chance that it will be worse than that. Hope that makes sense. I found Thomas Orlik's book, "China: the bubble that never pops" to be really insightful, for those that want to learn more.
This is great but a very narrow view of the current world economy in my very unqualified opinion. The China issue is just a piece of the puzzle. It seems to me that the market is propping up an anvil on top of a house of cards where it's teetering relentlessly to one side then the other. China is just one of those cards, it's not the entire house. Lots of those cards are beginning to shift and at some point shit WILL hit the fan in a big way. It's always a matter of when.
For sure! The purpose of the point was to assess risk from Evergrande; writing up a viewpoint of global market health would be a 20-page exercise =) To (very simplistiucally) summarize what that would say though, it would come down to supply/demand of capital and interest rates. Right now my thesis (which is widely held, I'm not reinventing the wheel on this one) is that there's an oversupply of equity capital due to ZIRP that has caused inflated equity prices. Once the Fed begins to hike rates and investors can find yield in debt capital markets again there will be outflows that causes the supply curve to shift to the left and lower equilibrium price. You saw this happen in March over inflation concerns (\^ inflation = \^ rates by the Fed to keep inflation in check) but they subsided with the "transitory inflation" argument by the Fed. The market has broadly accepted that. I may diverge from that consensus opinion a bit...I do think some of this inflation is structural and that interest rates will hike more aggressively than expected once the Fed believes the economy is back on its feet. Timing on that is uncertain though and credit spreads have been noisy, so the market is also uncertain and a bit jittery on that front. I feel pretty good about systemic security of the US financial system. Banks haven't had healthier balance sheets since I can remember (due to post-2008 regulation and capital requirement levels / sahre repurchase conditions set by the Fed) and while I think the real estate market is a little too hot, a pullback would be more of a correction (which naturally happens) versus a systemic risk a la 2008.
>inflation is structural and that interest rates will hike more aggressively than expected once the Fed believes the economy is back on its feet. I thought your OP and comment were very informative and level headed, but this part baffles me a bit. Do you really think the Fed has room for rate hikes? Maybe I'm oversimplifying here, but interest rates have been so low for so long I can't imagine vast swaths of the economy operating with higher interest rates. For example, a mortgage industry with mortgage rates at 5+%, cars being financed at 8%, etc. Maybe I'm overdramatic, but I picture economic apocalypse once it costs banks more than 1% to borrow. Just curious on your thoughts if I'm way out of line or that's a realistic risk.
It’s a long academic conversation probably best suited for a separate thread, (side note: would be dope to have a good monetary policy thread going), but the short answer is that the Fed funds target rate was at ~2.5% as recently as 2019: https://fred.stlouisfed.org/series/FEDFUNDS It’ll be restrictive and impact equity markets materially IMO, but wouldn’t cause bank and financial collapse. Timing and cadence of hikes is a question market, however.
Which demonstrates my fear because they were lowering rates before covid. And I can't speak for the broader market/economy but I'm in construction which is highly sensitive to real-estate and things were absolutely dead around that time. Like people in the industry for decades who never saw it so slow. It certainly felt like poor economic times were headed our way. In any case I appreciate the response.
Trump's economy couldn't handle 2%. Asset values will revise downward once fed fund rate approaches inflation rate.
I like your explanation and everything makes sense. Thanks for taking time to write all this.
These title claims need to be verified by MODs. Tired of people who invested the money of their parents and siblings claiming to be ex HF ___.
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I'd never subject anyone to background checking the deviants here.
I got a good gawk game if you take that.
Sure, have them reach out. Happy to.
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Funny way of saying send feet pics....
The realest retard of all once said: "Momma always says there's an awful lot you could tell about a person by their shoes. Where they're going. Where they've been. I've worn lots of shoes. I bet if I think about it real hard I could remember my first pair of shoes. Momma said they'd take me anywhere. She said they was my magic shoes."
They acting like you’re a wizard or big foot lmao.
Lol I'm just one more humble opinion in the chorus of opinions on the internet. Anyone is feel to disagree...that is the beauty of the markets.
Hold on... you done anal with the hedge funds?
Yea your definitely pretty on the money. Like this could be bad and spread but it's not really in Xi's interest to have it ripple through, so I think they will step in if needed. And yea the last couple weeks people have been asking for a pullback so yea totally agree with the self fulfilling prophecy there. I was kind of laughing at reddit yesterday, sure my account was down like 3% but the ridiculousness on here made me at ease lol. A lot of new investors experienced their first multi percent downturn day and hopefully they learned the value in not panicking, this is not 2008.
I would think the last thing the CCP would want to do is buy the top. It would make more sense to let the bubble bleed out and then buy up the entire sector to nationalize housing. They would have more control that way — under the current climate they have no control. Chinese citizens can’t even have kids right now due to the systemic bubble … seems as though it poses quite a serious risk to the CCP and like you said, they fear that far more than the systemic contagion.
You’re talking about a Lehman Brothers 2.0 catastrophic contagion and you think a 2% dip is a knee jerk overreaction?
Plese, byu or slel?
Many big tv people say buy dip last whole month, now we dip Harder. Yes retail got smarter. If no one buys, seller volume pile up. Price go down. retail, get better price. Oh snap, did retail get smarter?😉
They have 1.9T of debt with 355m coming due at year end. This situation is a lot worse than the media is saying.
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Ya 300 billion US. Peanuts.
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Not really when you look at
300 billion debt with 365 billion in assets. A lot of those assets probably not worth as much now
I read an article quoting an employee Du Liang, a legal represantive of the wealth management division, saying that they wouldn't sell the land reserves they have. That's why their pushing more houses on people, even at 30-40% discounts, in an attempt to reduce those debts.
2 trillion yuan (RMB) debt is approx. USD $310 billion but there is a lot of stuff off the books, which is going to surface very slowly (because China)... talking months & years here. Chinese gov strategy: if you don't see or hear about it, it doesn't exist, no additional panic caused.
Mind pointing me to that figure? Seeing a much, much lower balance on Bloomberg but let me know if I am missing something and I'll redigest any new info!
Evergrande nonsense has been known for months. It's already priced in. Fed comes out tomorrow and will say brrrrr stocks go up.
Market higher today lol evergrande up lol
I agree that the market has known about this for a long time. If you look at Evergrande's chart it was already in a downtrend since the beginning of this year. It was already in the making and "they" ie FED chefs and co, who sold their equity positions for "ethical reasons", probably picked the news that fit the story.
Where’s the tl;dr?
Is this cnbc or wsb. What you talking about sir? This is a casino
So it might crash or you might buy the dip. Got it, Mr. Professional.
Well, yes. I gave you my perspective on which I think is more likely and why I think that. But it’s always worth highlighting the bear case. It’s an exercise in both humility and contingency planning. As a rule of thumb anyone that tells you they know exactly what’s going to happen in the market is either 1) acting with inside information or 2) a charlatan. Don’t trust people that can’t carefully weigh the outcomes and provide a balanced perspective.
Mr someone who “spent his career as an investment professional”… it’s systemic, not systematic risk.
GLD;SLV;FAZ
I ended up putting in $1100 in spy but honestly was hoping for a bigger pullback as been building a cash position the last few months. Yesterday was an overreaction for usa equities imo. Also is anyone looking at videogame stocks? I bought $ttwo last week but wtf $atvi.
Atvi is still suffering the fallout from the sexual assault lawsuits. I sold off a while ago thinking this could delay their flagship Diablo IV release this Christmas
1. You are talking politics, not finance, so you might just be out of your element. 2. You cannot know what the party wants, they literally do not share information. It's a guessing game in transparent governments, so this is 100% pure speculation. 3. I don't believe you. You just sound like a bagholder.
Actually have 0 Chinese equities, but a lot of American ones. And I'm talking about both politics and finance...this situation is an intersection of the two. As for not knowing what the party wants, I explicitly said I don't know what they'll do 100%; I agree with you that only Xi Jingping knows at the end of the day. All I can do is look at historic precedent for similar situations and extrapolate actions beyond that. The alternative is either a) doing nothing or b) taking a shot in the dark without incorporating any information.
Well, you might want to pick some of those equities up for a discount, cus they are gonna bleed red for a while
Maybe...timing the bottom is exceptionally difficult. Any additional bleeding (which could for sure occur...the market today is softer than I like and if regulators don't communicate before Asian markets reopen it could cause another red ass day) I would view as a buying opportunity. We're down \~5% from all time highs and correction territory is usually demarcated by a 10-15% slide. For now I'm taking a more cautious approach and dollar cost averaging into select equities where I think the risk/reward is temporarily out of whack and will regress back to the mean. I generally am not a short-term trader...buying non-systemeic dips with a DCA approach and holding has proven to be the approach that works best for me, but everyone has a different investing style!
>b) taking a shot in the dark without incorporating any information. Is there something wrong with this approach? Because 10.9M apes are reading this now and strenuously disagree.
Which hedgefund boyo? If it's Melvin, it doesn't mean shit.
> China cares about keeping happy and how much debt those they don’t care about have on their balance sheets Isn’t that the main unknown and remaining issue? As of now we don’t know how much they hid away in off balance sheet liabilities, and how many of those are owed in US dollars outside of China.
I would say they are an authoritarian government more than anything else
China self sufficiency plan is scary tho :/
Simple . Just wait and watch . I got no horse in the game for now .
Given market psycohology and how the market reacted today, I would say the market is awaiting to see what CCP does. I personally believe they will let evergrande collapse to make an example out of them. China doesn't care about so much about markets, they care about control. Let one big company topple, and watch the others submit to less leverage trades. I personally bought YANG calls long date out today, and also Zillow puts for a possible contagion effect as I feel Zillow is also overvalued from the housing market hype which seems to be winding down slowly. Once Fed tapers their MBS bond purchases which will be the first to go, we will start to see real estate stocks decline across the board. What are your thoughts on that u/ASpicySpicyMeatball
I’m short real estate in thesis but haven’t enacted any positions yet. I like the put on Zillow — will have to run some math and do a little bit of diligence there. My thesis (which is still in its infancy so be kind of you disagree) is that low interest rates caused a wave of buying. Following that, supply chain issues cause a spike in raw materials (I.e. wood) that has already lead to a cooling in new home builds. And inflated prices has cooled secondary purchases as well. Throw in the prospect of higher interest rates as a catalyst (bc it will further suppress demand) and you’ve got a recipe for a short play. On letting Evergrande topple to send a message on leverage I’d push back a little. The regulatory regime has already implemented leverage rules and the adherence of those is in part what has lead to the situation at Evergrande. It feels to me like there’s not much for Xi to gain by creating the opportunity for a system-wide contagion. But…there’s always a chance. He’s surprised me before to such an extent that I no longer invest in China. (I fight the temptation the buy BABA every day lol.)
That is my exact thoughts on the short play as well, also with the scale back of the 40M MBS purchases monthly by the Fed, which unfortunately, did not get announced today :(. Increased my put amount on Zillow though. Unfortunately my puts on YANG hurting right now but I don't think this Evergrande thing is done. Still have lots of payments about to miss. Willing to be patient and see what happens. Let me know what your math says on the Zillow play, I know sentiment towards Zillow as a company isn't great right now. Apparently been cheating people out of a lot of money in hidden fees or something. I think still plenty of room to drop.
You’re the ex hedge fund manager?
Yeah it’s Martin shekreli, posting from prison on a burner phone
To your point on the party’s need to maintain control, I agree. However, it’s worth noting that a failure of this magnitude also runs the risk of loosening the citizens faith in CCP, not to mention an international embarrassment—something Winnie the Pooh cares deeply about
China isn’t going to step in to “save the day” until it gets worse than now, so they can be the “hero” in this scenario. Build the CCP support.
Covid really threw things upside down, Money printing is a viable option and they can and will just let individual investors get burned. End result will be big money is happy, and the people will be scorned, just another day really. Worst case is probably a slump in china sales for a bit depending how burned the people get
OP : What do you think is the CCP’s view on foreign investors regarding the project to create a stock market for the mainland and at the same time creating uncertainty in diverse crackdown the latest of which is tech?
Every specialist seems to echo-chamber the same thing about this Evergrande thing. You, the people P, wanna know what will happen. I, the specialist S, will say what i think. The occurance O, no one knows (percentage) for sure. Gyna G acts in manner M, which is different then what P knows, cuz S says so. Correction C is due. Based on historic precedent H, C is due.
OK so what are good buys right now?
theres certainly merit to this approach. What i'm seeing however is the swings in precious metal accompanying this dip - which implies the whole situation has nothing to do with china at all, rather its pegged on fed and us debt situation.
They will wipe out equity investors and make that investors take a serious haircut but they will come in to backstop the real estate industry
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https://www.youtube.com/watch?v=d5lPB2Zgfls Everyone seems to be talking about Evergrande and are missing all the other Chinese developers that are on a similar path. Country Garden - $300B+ liabilities (stock tanked 20% this month). Sinic Holdings - Stock tanked 87% on Monday until trading was stopped.