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Evergrande teeters on edge of default as $148M payment falls due

reuters.com

231–240 of 408 posts

Re: Evergrande teeters on edge of default as $148M payment falls due

#231

Earlier quoted context omitted.

They knew it was too hot, but the market failure in the bond rating market hadn't been identified so they were operating off of flawed information. The real failure of the Fed was being way too tight monetarily after the crisis started though.

It looks like they went from too tight to too loose: https://fred.stlouisfed.org/series/BOGMBASE I’m not an economist but that graph looks unhealthy.

Monetary base is irrelevant without looking at velocity (https://fred.stlouisfed.org/series/M2V)

The Fed has been much more on point this time around than it was in 2008.

Re: Evergrande teeters on edge of default as $148M payment falls due

#232

Interesting about this is that Evergrande is defaulting only on foreign held debt. Not internal debt after a ccp mandate. If their economy continues its downturn then this precedent would hold for all debt. I would really watch personal funds and investments and insure they dont hold any chinese debt as an asset.

> Evergrande, the world's most indebted developer … grapples with more than $300 billion in liabilities, $19 billion of which are international market bonds.

Sounds like this is mostly domestic debt, so they cant make this go away by saying they wont support international debt holders. Seems like the CCP in a tough spot here.

Re: Evergrande teeters on edge of default as $148M payment falls due

#233

Speaking of misleading headlines: https://www.nytimes.com/2021/11/10/business/evergrande-bond-... https://archive.md/cPsjv "China Evergrande meets a Wednesday payment deadline for two of its bonds." On multiple levels, too. "It was not immediately clear whether it had made payment on the third bond, which matures in 2024, or if all of the investors in the other two bonds had received payment." So basically they MIGHT…

If anything, the quotes you cite make it seem like the misleading slant of the headline is the speculation about possible default based entirely on an unknown. Two out of three bonds being paid is normal, and the third being unknown is not evidence of much.

Furthermore, it seems to me that saying a company has defaulted is a pretty serious statement that would constitute libel if not appropriately checked. And so even with a few unofficial reports of bond holders not getting paid, it would be irresponsible to prematurely declare a default.

The facts that have been reported certainly don't look good, but it's also the press's modus operandi to sensationalize.

Re: Evergrande teeters on edge of default as $148M payment falls due

#234

Speaking of misleading headlines: https://www.nytimes.com/2021/11/10/business/evergrande-bond-... https://archive.md/cPsjv "China Evergrande meets a Wednesday payment deadline for two of its bonds." On multiple levels, too. "It was not immediately clear whether it had made payment on the third bond, which matures in 2024, or if all of the investors in the other two bonds had received payment." So basically they MIGHT…

Some investors have not received Evergrande unit's bond interest due Nov 6, say sources https://www.reuters.com/business/some-evergrande-units-offsh... Evergrande bondholders say they have not received $148m interest payments https://www.ft.com/content/88dcb535-3945-4138-b394-dda82292b... Basically, selective default by Evergrande. Full official default likely very soon, and for most of the Chinese real estate compan…

> Full official default likely very soon, and for most of the Chinese real estate companies.

Will this be the Chinese version of Japan's real-estate crash of the '90s...?

Re: Evergrande teeters on edge of default as $148M payment falls due

#235

Earlier quoted context omitted.

Some investors have not received Evergrande unit's bond interest due Nov 6, say sources https://www.reuters.com/business/some-evergrande-units-offsh... Evergrande bondholders say they have not received $148m interest payments https://www.ft.com/content/88dcb535-3945-4138-b394-dda82292b... Basically, selective default by Evergrande. Full official default likely very soon, and for most of the Chinese real estate compan…

What are the implications of this?

China will choose internal stability over external connections. Internal investors (party officials, chineses companies and private investors will receive partial reparations for their lost investments - or goods (flats etc.)

International Investors like BlackRock will take a massive bath.

Re: Evergrande teeters on edge of default as $148M payment falls due

#236

How much exposure does the Western world have to this? My guess would be "not much". It'll sting some emerging market investors, but I don't think you'll see a massive knock-on here.

My guess is that nobody really knows. How could someone(or even a group of trained experts) possibly know the full extent and the dominoes that might fall elsewhere in a situation as complex as this?

Re: Evergrande teeters on edge of default as $148M payment falls due

#237
post #40

Earlier quoted context omitted.

Calling it now: Tether and a few other stablecoins explode. Where other than China would you go to buy massive positions (face valued) of bonds, with continued room for expansion of your position, in private deals that you could keep quiet?

Any of the other BRICS countries would also be a viable option for that, without the big downside of the CCP's anti-crypto position.

Afaik, neither Brazil or India has loose and large enough capital markets to support that influx. And Russia is a dicey proposition.

Besides, the CCP's anti-crypto position doesn't matter here. We're talking about a company (Tether Holdings Limited, or a front for it) investing in bonds. No crypto involved.

Re: Evergrande teeters on edge of default as $148M payment falls due

#238
post #227
post #199

Earlier quoted context omitted.

We buy USD because its long term existence is practically guaranteed by the power of its military.

The world buys dollars because it needs them to fulfill oil and other commodity contracts, that are priced in dollars, which are then typically reinvested in US Treasuries by commodity exporters (because why not?). https://www.investopedia.com/terms/p/petrodollars.asp https://www.bloomberg.com/news/features/2016-05-30/the-untol... If a country wanted to not buy dollars, here's how that would go. No Dollars: "Hi, we'd…

> 10% over the exchange rate between Pentali Marcograms and US dollars. You know oil producers trade in dollars, right?"

You are off by three orders of magnitude, which is pretty amazing.

Forex markets have incredibly tight spreads measured in pips, say 1-4 pips, where 1 pip = 0.0001.

The reason why dollars are important is that people store the results of their oil sales in USD assets. What a good is purchased with means nothing. Where you store the proceeds of the sale is what counts.

This goes to that oh-so-tired phrase 'petrodollar', which many autodidacts misuse to signal a lack of understanding of both forex markets and oil economics. What "petrodollars" means is the dollar holdings that oil exporting states maintain. It does not refer to the currency oil is purchased in. It comes from eurodollar, which signifies dollar holdings in Europe, and not the purchasing of European goods with dollars.

Once we get that definition right, we understand it as a synecdoche for US hegemony in reserve currencies -- e.g. where foreign central banks store their wealth. The actual currency oil is priced in - or anything is priced in - means nothing. What is the point of saving a pip in the forex markets if you are going to be losing .1% in bid/ask spreads when you try to store your wealth in an illiquid bond market? No one -- absolutely no one - optimizes for reducing forex costs when deciding in which nation to park their wealth. They are much more concerned with questions like "Is it legal for me to purchase these bonds? will my wealth be confiscated in the future? What kind of fees do I pay when I buy these bonds?"

The reason the world wants to store their wealth as dollar assets is because the US has a reputation for openness to foreign investment, rule of law, political stability, upholding foreign investor rights, and amazingly deep capital markets that can absorb large foreign inflows with very low spreads. So the bid/ask spread when trying purchase a few billion worth of U.S. bonds is much more important to explaining US financial hegemony than what some random country demands as payment.

I think the no. 1 reason why people get this all wrong is they still want to think we live in a world of specie flows. But there are no bearer assets in international trade - you can't take it with you back home. Your foreign trade profits are going to be stored in some custodial account in some other country. So trusting that country is a big deal. People who think trade is conducted with gold nuggets don't see this custodial account problem, and that's why they don't understand why the U.S. is a global reserve currency. That's when all sorts of conspiracy theories about oil sales, or aircraft carriers, come into play as they try to understand the U.S. role using the ideas they are comfortable with.

Re: Evergrande teeters on edge of default as $148M payment falls due

#239

Earlier quoted context omitted.

Some investors have not received Evergrande unit's bond interest due Nov 6, say sources https://www.reuters.com/business/some-evergrande-units-offsh... Evergrande bondholders say they have not received $148m interest payments https://www.ft.com/content/88dcb535-3945-4138-b394-dda82292b... Basically, selective default by Evergrande. Full official default likely very soon, and for most of the Chinese real estate compan…

What are the implications of this?

GDP decline of 2-5%, recession: Chinese real estate is 70% of household wealth, and 30% of GDP. Likely these #s are worse, since the government obfuscates data. Home sales is already down 30% y/y.

Pressure on tech and other industries in China: Xi Jing Ping will officially be a dictator, come party congress 2022. Tech and real estate are industries owned by the oligarchs of Shanghai faction, which is against Xi Jing Ping.

Even more societal lockdowns: In the last few months, there were silencing of a #metoo incident, scrubbing of a famous actress from internet, removing discussions of evergrande bankruptcy, and disappearing/reapperance of alibaba's ceo. Look for more of these.

No war attempt on Taiwan in the near future: between real estate collapse, economic decline, coal shortage, food shortage, inflation, huge debts, and covid waves/lockdowns, CCP won't have any appetite.

Suicidal war attempt on Taiwan: CCP may get desperate when riots broke out, or need a victory to focus its citizen's outrage elsewhere. Then they'll face the combined forces of western countries, and will have to suffer through economic sanctions.

Re: Evergrande teeters on edge of default as $148M payment falls due

#240
post #234

Earlier quoted context omitted.

Some investors have not received Evergrande unit's bond interest due Nov 6, say sources https://www.reuters.com/business/some-evergrande-units-offsh... Evergrande bondholders say they have not received $148m interest payments https://www.ft.com/content/88dcb535-3945-4138-b394-dda82292b... Basically, selective default by Evergrande. Full official default likely very soon, and for most of the Chinese real estate compan…

> Full official default likely very soon, and for most of the Chinese real estate companies. Will this be the Chinese version of Japan's real-estate crash of the '90s...?

Too soon to say. Policy plays a big roles here and chinese policy debates are mysterious. It's possible they want to crash the real estate market, and reverse out of the appreciating real estate setup. Trade off between middle class wealth accumulation and housing affordability.

They're currently reversing out of the college cram school thing. There's some sort of similarity here.

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