Below is a direct excerpt from the Martis Bent Issue # 1080: “There’s nothing like the smell of a credit risk infection on Monday morning.” Sign up here for the newsletter.
A few weeks ago we warned China about the possibility of a “canary in coal mines” situation that one of the country’s largest real estate developers in China, Evergrand, seems to be in the “acceleration” stage of massive devaluation of their credit which markets started pricing in May this year. . Well, we’ve gathered in this dark corner of the internet today so you can alert the lunatics (if you haven’t already) that something has been torn down. Evergrand is going under and it is pulling along with other big real estate developers in China. The world is witnessing another Lehman moment, but this time it’s coming out of China, not New York City.
As you can see from the chart above shared on ZeroHage, this contagious phenomenon in the Chinese real estate development market has begun to question the value of Chinese sovereign debt as the price of a 5-year credit default swap has skyrocketed this morning. The market indicates that investors are willing to pay higher prices for default insurance because the possibility of infecting the Chinese (and potentially global) credit market seems inevitable at the moment. In particular considering the fact that CCP has come out and said that they do not plan to leave behind real estate developers who are currently on the verge of bankruptcy. It will be interesting to see if they keep this attitude as things get worse.
If the following WSJ article describes Xi’s CCP’s intent to “reverse China’s decades-long evolution towards Western-style capitalism and take the country in a completely different direction” – China – then this explosion in the Chinese real estate development market is perfect. Bugaiman may be because Xi tried to force the Chinese economy in that direction.
“Look at what capitalism has done. We need to connect ourselves better with Chairman Mao’s philosophy now than ever before. The greedy capitalists have put us in a very precarious situation.”
We’ll see if that framing works. But before doing or not doing this, we want to highlight that this situation is not a product of neutral capitalism, but a product of the creation of neutral debt in a world that has already been imposed on Giles.
Anyone who has been focusing on the Chinese real estate market for the past decade can tell you that this is a house of cards waiting to collapse. The existence of a ghost town, excluding dozens, is enough evidence to prove that there is an isolated displacement between what CCP and real estate developers were reporting from a growth perspective and reality. Although there has been a ton of development activity over the past decade, it has not been followed up with demand from consumers. On top of that, when things started to fall apart, it became clear that Evergrand – and others – were engaged in the issue of foreign debt instruments that were used to keep the music playing as long as possible. To lure the average Chinese citizen into their overcrowded operation by promising an average payment.
The situation is very hairy and it is evolving very fast. We’ll find out how bad it is in the coming weeks and months. Through these large real estate players, their debt instruments and the direct investment by the CCP, we will find out how open the Western world is to China’s economy.
I can’t tell you how this will affect Bitcoin in the short to medium term, but I can tell you that I am extremely grateful that Bitcoin exists in such an environment. The ability to keep an asset completely isolated from a global financial system based on paper promises is a godsend. Not only that, when we convert to a global bitcoin standard, it will be very difficult to keep the world economy in such a precarious situation because it is impossible to provide the amount of debt that the world is currently mired in.
As always, we will keep you crazy as the situation develops.