Good Monday AM,
|Who is Evergrande and why am I mentioning it today? China’s Evergrande is a real estate developer who turned billions of dollars in borrowed money into the dream of homeownership for millions of Chinese citizens. But years of aggressive borrowing have collided with Beijing’s crackdown on debt, leaving the giant developer on the brink of collapse. Evergrande’s problems are not its alone to bear. They have cross collateralized debt with other companies, all of which are in a mass selloff and a race to zero. The ripple effects on the economy and social stability are the biggest test of Beijing’s rejuvenated campaign to end debt-fueled speculation and stop home prices from surging while the government tries to lower inequality and keep housing affordable for the masses.
|Evergrande had $89 billion in first outstanding debt at the end of June ($300b including the cross collateralization), about 42% of which comes due in less than a year, according to its most recent financial results and currently no foreseeable way to pay. Evergrande’s total debt burden is the biggest for any publicly traded real-estate management or development company in the world, data from S&P Global Market Intelligence shows.
So why mention this? We are part of a global economy and as such, when there is a shock to the system, the ripples are felt everywhere. Equities across all markets are under pressure with the Dow down almost 700 points. Bonds are a safe haven (especially the US Treasuries) and are doing well with the 10-yr back to 1.31%. If stocks continue to crash, bonds will catch a bid and are likely to rally considerably. This could be the excuse the FED needed to stall the tapering discussion when they announce their decision Wednesday.
Please remain safe and healthy, make today great!