Is It Ever To Be Grande?
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2021-09-20 14:41 by Karl Denninger
in Market Musings , 539 references Ignore this thread
Is It Ever To Be Grande?
[Comments enabled]

You have to chuckle at this.

Evergrande, an alleged "investment vehicle" in China, appears to be detonating.

A primer: If it's financial and in China, it's a scam.  If you don't understand how it's a scam and who's going to get scammed, guess who is wearing the hat marked "Sucker"?  Uh huh.

The only difference?  This is a big-un.

The natto was especially bad overseas and it translated right over here, good for a nice big fat vomit on US markets.

Or was it?

Well, in point terms it was.  But in terms of real violence?  Not really.  Not yet anyway.

I do remind it's September.  Which has a history of being, well, sort of nasty when it comes to markets.  And October too.  In fact those are the two most-notorious months for market crashes -- but hardly the only ones.

This is rather.... orderly.  Where's the monster volume, for one?  Uh, nope.  Not yet.

I'd be careful here.  Washouts usually come on major volume.  Which means this may be a ripple or...... a warning.  Exactly none of the "aw crap!" indicators I have on my screen here are flashing "wash-out" or "panic."  Not yet.

Here's the challenge when it comes to China.  Yes, their economy is unstable.  Yes, they'd like to own the world.  Yes, they're Communists -- real ones, not the fake stuff some people talk about over here.  Yes, the CCP (or PLA) will make you "disappear" if they don't like you.  Yes, they have a whole crap-ton of political prisoners and more than a few religious ones too.  We'd never do anything like that, right?

But this also means that the CCP has a habit of "back door" protecting everyone they like and screwing everyone else.  Oh, nobody thought of that, did they?   How much leverage was on with these positions?  You expect honest answers out of the Chinese?  Certainly they'll be as "honest" as those out of Fauci, right?

What's interesting when I look at the board is who is getting hit on a differential basis.  Some names I'd expect, but others I would not.  Is it entirely the speculative cohort?   No.  Those linked to Chinese supply?  No.  Hmmm.....

I'm watching this carefully, but I'm sure not buying here.

There's the smell of smoke in the air, and I just saw a cockroach.

Bet that it isn't the only one.

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Obseedian
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Diversitopia
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Douche Bank and Credit Suisse getting hammered, down 8%. I guess we found where some of that Western exposure is...

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Abelardlindsey
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China's total debt: corporate, governmental, financial, consumer; is 335% of GDP. What was this statistic for Japan prior to the collapse of their bubble in 1991? Such a comparison would be useful now.

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It's all in the mitochondria.
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Erroldo
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Just a few days ago I posted on here about 401k cant allow to be 201k. Down 3% this morning and 6% from peak, and I push 20% to cash today. Just watching the rest from here. I may see the market rise tomorrow and miss some gain, but that's part of the calculated decision I make.
Redjack
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Grandpa always said if you don't know who the sucker is at the poker table, you are it.

Same with investing in China. The round eyes get taken out first.

Will be interesting.
Abelardlindsey
Posts: 561
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I got out of Chinese investments a couple of months ago. Ant Financial was the shot across the bow. But many others and myself considered it fluke. My wife, who is Japanese, watching the Japan business news, which covers China much more thoroughly than out business news. She wanted us out of China as well. She also brought the EverGrande thing to my attention (although I saw it on ZH about the same time).

I have no idea how far Xi plans to go with his "reforms". But what is abundantly clear is that China as a growth story is over. They are already in a Japan-like stagnation (something I did not expect until 2030) and, like Japan, will become a permanent state of affairs for the foreseeable future.

This does not mean that the Chinese will stop innovating technologically and catching up to the West. I expect them to reach parity with the West within 5 years. The key milestones will be to Make their own semiconductor OEM tools (CVD, PVD, etch tools such as those made by LamNovellus and AMAT) as well as jet engines (those fat turbofans on all current airliners).

Nevertheless, they have now entered the Japan-like stagnation. Invest accordingly.

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It's all in the mitochondria.
No liability, No mandates
Chiff
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http://www.deepthroatipo.com/mr-cash-mee....

The following is the simplest way I can think of to describe whats happening. All figures discussed are, of course, actual values, rounded to the nearest few trillion US Dollars .

As always, out of respect for your time, key points are in RED.feel free to skip over my highly entertaining economic comedy if it isnt your cup of tea.

Key Takeaways:

1.) We will discuss the interaction between the only two investors that matter (Mr. Cash and Mr. Market) and the FED.

2.) We will describe the outcome of the two monetary scenarios, Ideal Scenario #1 (smoothly providing market liquidity proactively) and the Not So Ideal Scenario #2 (the bumpy road of providing liquidity retroactively) currently being implemented, interchangeably, by the FED.

3.) We will discuss the, unavoidable dollar depreciation inherent in following these two scenarios at a pace in excess of other major economies/markets/currencies. We will describe how US Dollar liquidity has recently surpassed that of other major money supplies by a wide margin, effectively providing the money and fueling the corresponding financial asset growth for the world.

4.) We will describe preventive measures to avoid the potential, eventual collapse of the Western financial system in the Financial War is hellScenario #3, such as Countermeasures and capital controls which may or may not be currently under consideration by the FED and Treasury.

5.) Today, by my calculation, the Chinese Communist Party, through surrogates, LLCs and agents has care custody and control over roughly $35 Trillion of Western Financial Assets and likely significant influence over nearly twice that level. (i.e. other Money Managers pay significant attention to whether these Chinese Controlled entities and whales are buying or selling.)

6.) We discuss Mutually Assured Financial Destruction (MAFD) detente, whereby both the Chinese Communist Party and Americas policy makers fully understand each others capabilities and limitations, preferring a mutually conceded stalemate, knowing full well that any type of financial first strike would be a near fatal blow to both nations economic prospects.

7.) So there you have it, in my binary world, either the FED and the Treasury (Jay and Janet) have no idea whats going on and they will continue to blindly follow the data providing liquidity either proactively (smoothly) or re-actively (bumpy) eventually destroying the value of the dollar and transferring Americas global leadership and wealth to the Chinese Communist Party; or, alternatively and hopefully, Jay and Janet are brilliant, tough strategic thinkers who understand the threat, have already designed stealth countermeasures as described, ready to deploy at the first sign of the offensive, sinking the CCP financial ships in the channel and saving America and the West from eventual Chinese Communist domination.

8.)If Janet and Jay dont already fully understand this and hopefully, have it well under control, for the sake of the world, we can only pray that they figure it out and get it before its too late. If they dont, there are those out there, who are much less compassionate and forgiving than I am, who might just interpret this as the greatest, most incompetent, blunderous policy pursuit in Central Banking history. After all, everyone makes mistakes, but implementing decades of incredibly bad, more of the same, policy that eventually destroys Western civilizationwell thats quite an ooopppssy daisy
Kennington
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I think the sector and/or stock that sticks out like a sore thumb to me is cripto...BTCUSD is currently off right around 8%
Kennington
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NON-PROFESSIONAL viewing of the Bitcoin chart looks like resistance around 42k...a break of that level could result in another day or couple days like today.
Calrissian
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London, UK
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re: If it's financial and in China, it's a scam.
-
Great line. Will highlight the post on Tuesday. I'm sure it'll annoy some of my audience, which is always a good thing.
Flappingeagle
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Wasnt it about 9 months between Bear Stearns hedge-fund collapse and the troubles on Wall Street? Can we expect trouble here next spring/summer or, is that putting too much stock in expecting events to repeat exactly the same?

Flap

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Here are my predictions for everyone to see:
S&P 500 at 320, DOW at 2200, Gold $300/oz, and Corn $2/bu.
No sign that housing, equities, or farmland are in a bubble- Yellen 11/14/13
Trying to leave the Rat Race to the rats...
Tickerguy
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Never know. IMHO keep a close eye on the debt markets.

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Flappingeagle
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There is not now, nor has there ever been, an "H" in your opinions!

smiley

Flap

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Here are my predictions for everyone to see:
S&P 500 at 320, DOW at 2200, Gold $300/oz, and Corn $2/bu.
No sign that housing, equities, or farmland are in a bubble- Yellen 11/14/13
Trying to leave the Rat Race to the rats...
Ewtnewbie2
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Always fun to hear the "civilians" I interact with mention the stock market when it has a negative 2%+ kind of day and how they lost so much money on that day. Well, it has gone up 100's of % since the March 2009 bottom and you've been 100% invested 100% of the time at the behest of your money "manager" so if you are gonna ride the UP, you are gonna ride the DOWN. Figuring out WHERE to get off the ride is the key, and most never have or do have a plan to do that. So sad.

Until you sell something, you just have paper wealth. And paper wealth can disappear very, very quickly when things get ugly in the markets. Good luck to those still playing in the casino with "house money." The casino always wins...unless you walk away when you have winnings and cash them in!
Goldbrick
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Flap, the Bear funds went***** up in Aug 2007. Did Phoney & Fraudie go under in the Spring of '08? I don't recall exactly. There were plenty of shotgun marriages of insolvent banks all year.

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"The higher I go, the crookeder it gets."
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Mannfm11
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The Chinese treat property, like the rest of the world treats cars. Dive it around the block, take 20% off. It is full of empty property, much of it, because the buyers don't want it used. I think, the last I heard, 60 million housing units. To compare, that is 30 years of solid US construction. There is a bubble as well and plenty of other empty property, in other categories.

China has been playing hide the problems, in finance, for a long time. Real estate is no exception. I think it is the investment choice, of the masses. Question is, how long can they hold unused property? It still gets old, needs maintenance.

How many cockroaches is one question. I think the big question is, when do you stop the insanity, quit building supply and use it? I saw a property bubble, in Dallas, in the 1980's. Tollway front land, in Addison was $75 a foot. Several years later, it was $10. Where there were open fields, in 1980, was a literal city, by 1985. The entire north side downtown skyline was covered by a line of new skyscrapers. The crane was the Dallas city bird. 1983-1984, there were 200,000 housing units. Result was the S&L bailout and nothing built, for a long time and a wash out of previously existing property prices.

I was watching this excitement, with open eyes. The later projects were being brought out of the crown, often with the financing S&L taking 40% of the space. The Dallas office market more than doubled, between 1979 and 1986. Construction, 20 million feet, consumption 5 million to 8 million square feet. When the circus stopped, they all came to DFW and Austin. There was a lot of Canadian money. Downtown was eventually absorbed by making office, into housing.

I don't know how much pyramiding of finance is done, in construction, where you pay your last project carry, with the financing of your next project, but I suspect there is more of it than you can imagine. When the game stops, it all rolls backwards. Being so much Chinese property is empty, I suspect this game is massive, in China.

There was one benefit to the bust, in DFW. The construction vehicles cleared off the highway. You want a gauge of a boom, check the traffic. It was a near total wipeout, in DFW. We had 5 years of housing in 2 (Houston was the leading housing market, in the 1970's with around 50,000 units annually). To boot, there were a massive number of empty lots to continue the game. Lots determine new supply, thus current prices.

In any case, they will likely paper over this fiasco, after markets puke, for a few months. The question is, will the situation be corrected, or will it go on until they can never build anything in China again? This circus going on longer is one threat. It stopping is another. Only the later is the right choice, but either will be devastating to world demand, especially, in China.

I read where China used more concrete in 2011-2013 than the US used, in the entire 20th century. Digest that equation, the biggest economy, in the world being consumed 100 years of supply, in 3 years? Airports, streets, homes, highways, dams, power plants, etc. There are few things I have ever read more astonishing. They didn't just use that much. They had to build the capacity, 33 times the average size of the US 20th century capacity. Construction stops, that is a hell of a lot of idle capacity and the death of the Chinese plant construction business, maybe forever.

Where there is concrete, there is steel. Where there is building construction, there is concrete. The over capacity of steel is already off the charts, in China. Kiss the world industry good bye, as China will surely dump more steel.

I had to do a lot of reading to understand 1929. The world caught cold and the USA caught pneumonia. The USA fell into the export financing business and it created a capital goods boom. Capital goods booms feed on themselves. Just like more housing demands more concrete, more concrete demands more concrete plants, which demands more materials to build concrete plants. A crack up boom produces the need for a long stream of investment to build everything. The wonder of an advanced capitalist system also creates its hazard. The capitalist is supposed to feed the consumer, through their reinvestments. The price of capital is supposed to control this feature, but when credit is cheap, for long periods of time, it creates illusionary demand.

This phenomenal mistake creates depressions, as the illusionary demand vanishes, and with it, the ongoing long expansion capital goods process goes with it, putting people out of jobs.

China is the modern day 1920's USA. They have financed their exports, over expanded domestically, within the boom and used funny financing to create a monster. The result, if they allow it to adjust, is a worldwide drop in demand. The China home construction business is 5 times the size of the US. The late 1980's construction boom, in the US took the economy into a deep hole. Some say it was a near depression. We were rescued by cheap money and a bubble economy. It won't go on forever. A burst of the China bubble will have worldwide consequences.

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The only function of economic forecasting is to make astrology look respectable.---John Kenneth Galbraith
Mannfm11
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@Flap, my memory is Bear was the end of March, Lehman was mid September. About 5 months. The turmoil started around spring 2007. We went to make believe, where they mark to fantasy and only we get margin calls.

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The only function of economic forecasting is to make astrology look respectable.---John Kenneth Galbraith
Mannfm11
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DFW, Tx
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This goes along with the other demand danger, how many die from the jabs? 10 million would wipe out a sizable chunk of current demand, from housing. 50 million would be a disaster. Wonder why they opened the border?

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The only function of economic forecasting is to make astrology look respectable.---John Kenneth Galbraith
Tickerguy
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Bear was March '08. Lehman was September. Citi KNEW Lehman was broke several WEEKS before they blew up and that means a HUGE number of people knew about it and, based on the number of PUTs being bought were trading on it too. This is wildly illegal and could only be made legal one way -- immediate public disclosure -- but nobody gave a **** and still doesn't.

But the ACTUAL initiating event was in February of 2007 which initiated in Asia; that was when I noted something was VERY wrong. It was in April when 1Q2007 earnings were reported that I discovered banks were paying DIVIDENDS with..... nothing. They didn't have the money. I caught WaMu doing that and it was obvious they WOULD blow up with certainty -- it was only a question of how long the fuse was.

The answer was: About a year and change.

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I don't give a flying **** if you're offended.
Abelardlindsey
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I remember when WaMu went under. They were holding too many of those mortgage-based securities which, in turn, were full of toxic sub-prime mortgages.

What I could not understand for the life of me (and still don't really understand) is why the banks had all of this toxic garbage in their portfolios. I mean, the banks being mortgage originators, were issuing all of these sub-prime mortgages in the first place. They knew they were bogus. Yet they still bought, or held on to them, as though they were legitimate investments.

Before the jig was up, I honestly thought the banks would walk away from this untouched. I assumed that it would be institutional investors of various kinds (hedge funds, private equity funds, etc.) that would be caught holding the bag. Since the banks were the originators of all this toxic garbage, they would be smart enough not to be caught holding the bag. Obviously I was wrong.

Talking about the right hand not knowing what the left hand was doing. The only explanation I could come up with is simply bureaucratic incompetence. The department issuing the mortgages had no communication with the department investing in them. This is also why I have difficulty believing in grand conspiracy theories. They require a level of institutional competence that was obviously lacking in the housing runup to the general financial crash. Since all of the world's smartest people go into investment banking, and even they cannot see and deal with the bubbles they create and still get caught up in, I find it difficult to believe that any other venue or set of institutions are going to be any more competent in this regard.

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It's all in the mitochondria.
No liability, No mandates
Abelardlindsey
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Consider that EverGrande, in dollar value, is five times bigger than Lehman Brothers was.

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It's all in the mitochondria.
No liability, No mandates
Tickerguy
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@Abelardlindsey - The only reason WaMu blew up (and most of the rest) is that they were paying dividends with money they didn't have. They were "justifying" that by using capitalized interest (negative amort loans) in their computations and assuming it was all money good and would be paid..... someday.

Except.... dividends are paid NOW. If the "someday" doesn't show up as expected you are ****ED if you do that. The FDIC is supposed to forbid this sort of bull**** via a "prompt corrective action" order, but of course they did not. They knew about it too because these were not small, closely-held firms -- they were PUBLIC firms and issuing 10Qs, so it was all out there in the public eye and on the table.

Indeed one of the very first Tickers I ever wrote was on the WaMu bull****; it was what prompted me to start doing this.

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I don't give a flying **** if you're offended.
Little_eddie
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@Abelardlindsey
That's the biggest problem with propaganda (lies).

The people running the scams start believing them. You see it over and over again.

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We live in an ENERGY based economy, Money is just how we keep score. Primary Energy growth is now negative and it won't get any better. ITEOFWAWKI

Think of how stupid the average person is, and realize half of them are stupider than that. - George Carlin
Abelardlindsey
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Little eddie,

Quote:
That's the biggest problem with propaganda (lies).

The people running the scams start believing them. You see it over and over again.


A fund manager I discussed this issue with back in 2008 said this exact same thing. He said con artist start to believe their own stories as time goes on.

Quote:
The only reason WaMu blew up (and most of the rest) is that they were paying dividends with money they didn't have. They were "justifying" that by using capitalized interest (negative amort loans) in their computations and assuming it was all money good and would be paid..... someday.


Yes, I know this. But one of the reasons why WaMu was financially strapped in the first place was because of their holding of all of those mortgage-based securites.

I actually had an account in WaMu. One day it stopped being WaMu and became Chase Bank. I remember watching their share price go down. WaMu was folded into Chase Bank went it dropped below a dollar per share.





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It's all in the mitochondria.
No liability, No mandates
Tsherry
Posts: 6831
Incept: 2008-12-09

Spokane WA
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Former partner's kid got his first 'real' job with WaMu in late 2006. He literally did nothing at the place; they did not have anything for him to do (IT management, etc.) He was employed there from early '07 until they detonated, making about 95K a year as a 24 y.o. right out of school.

He later said he didn't to more than 8 hours of work during his entire time there. He did read a substantial amount of Ayn Rand, though.
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