Volatility - Do Not Resuscitate - Evergrande (VIXplosion)
Updated
Idea for Macro:
- Free money is cut off at the source. China Credit Impulse turned negative > Evergrande is first to fall > Overseas investments downsized > widespread effects.
- China was the only productive economy in 2020 > driver of global economy (60% importer of oil).
- CN30Y is closely correlated to CCI > leads US30Y > leads US risk assets.
- Chinese Central Bank POC draining liquidity from the system (Injects 10 bn yuan via RRP while 30 bn yuan expires).
- China HY leads down > US HY/Junk goes down > NDX goes down:
- Currency showing strength:
When you see currencies, bonds, and equities rising together, it means normal correlations have fallen apart. Typical before a crash/crisis type event.
CCI is the leading indicator.
Will see a VIXplosion.
GLHF
- DPT
- Free money is cut off at the source. China Credit Impulse turned negative > Evergrande is first to fall > Overseas investments downsized > widespread effects.
- China was the only productive economy in 2020 > driver of global economy (60% importer of oil).
- CN30Y is closely correlated to CCI > leads US30Y > leads US risk assets.
- Chinese Central Bank POC draining liquidity from the system (Injects 10 bn yuan via RRP while 30 bn yuan expires).
- China HY leads down > US HY/Junk goes down > NDX goes down:
- Currency showing strength:
When you see currencies, bonds, and equities rising together, it means normal correlations have fallen apart. Typical before a crash/crisis type event.
CCI is the leading indicator.
Will see a VIXplosion.
GLHF
- DPT
Trade active
Shadow banking:CIBC finishing distribution pattern. 5T+ AUM. 4 biggest banks in world are in China (they are state owned - guess who is the largest asset manager in the world) with 17T+ AUM.
BlackRock and Vanguard together have 18T+ AUM.
Can US and EU AMCs absorb all the selling with money printing? I think not.
Trade active
Something noteworthy is AMC being made meme status to both shroud and worship Asset Management Companies (AMCs) who rule the world.Trade active
Evergrande Bank Deposit frozen, Beijing cracking down on excess debt in property sector, shares down 7% bond due 2025 down 2.3 cents on the dollarTrade active
"Once a prolific issuer of debt, Evergrande hasn’t sold a single dollar bond in more than 17 months."Trade active
US Credit (Junk + Leverage) rolling over: Note
Evergrande might be a Bear Stearns for global markets this time aroundTrade active
All thats left is for the translation to US markets: CN Credit > US Credit > US EquitiesTrade closed: target reached
It will be different this timeNote
Seems tether is linked to thisNote
More property companies capitulating:Dollar bonds are the canary.
Property companies' debt defaults are cascading into tightening credit conditions in the Chinese economy because the PBOC's assets being 2/3~ FX reserves.
China has been easing to increase credit/M2 growth recently. It's to try and counteract monetary tightness resulting from USD shortage (assets) pressuring PBOC liabilities (base money supply for domestic economy).
Source: Maroon Macro
This will lead to demand for the dollar.
Note
New credit to developers dried up months ago. If you own tradeable debt and you want out, you must move fast and accept deep discounts to move sizeWhere this gets really messy is when this spreads from property developers to banks. If the concern moves from direct exposure to concern of your counterparties exposure, you may stop lending to a banks. When interbank lending breaks down, shit hits the fan.
"It" is not Evergrande or Huarong.
The model is simple: local governments raise revenue by land sales to support SOEs and infrastructure projects. Developers take on debt to buy the land and build housing. Citizens take savings and debt to buy the houses. This can and has continued until debt runs dry.
By imposing the Three Red Lines on developers, increasing mortgage rates, and cracking down on prices, Beijing has shut off the debt flow. Banks are now very weary to lend anyway even if they are have capacity to do so.
Think about debt. A bank gives someone money, so they can create or buy something of value, which allows the loan to be repaid. If that money does not create value, the bank will lose money. Their recovery is simply how much value was created in the process.
Xi himself has been warning against property speculation for years.
The highest financial regulator also warned that those who think property prices will not fall will be badly hurt.
In the context of the broader Chinese regulations that have been coming at record pace, it seems the country is dead-set on removing what its views as cancers, however painful that may be. Property is the grey-rhino; cancer number one.
- The Last Bear Standing
Xi has made it clear with his actions that he will not save the market, nor does he answer to Wall St.
Note
Evergrande stops paying interests on its outstanding loans.From Sep 8, Evergrande will no longer honor payments due to their wealth management products.
Their collapse is a catalyst.
Note
EVERGRANDE SAYS ALL ONSHORE BONDS SUSPEND TRADING SEPT. 16
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