THE WOLF STREET REPORT: What a Collapse of China’s Evergrande Would Mean

China hasn’t bailed out its over-indebted property developers yet, to the shock of foreign investors who’d bought their dollar bonds. Could the forced deleveraging trigger a financial crisis? (You can also download the WOLF STREET REPORT wherever you get your podcasts).

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  162 comments for “THE WOLF STREET REPORT: What a Collapse of China’s Evergrande Would Mean

  1. GotCollateral says:

    Those foreign investors also have exposure to other assets that are tied in collateral chains related to those dollar bonds and will have knock on effects in other asset markets outside of china…

    China deleveraging means everyone else will be deleveraging as well (global credit impulse is firmly in negative territory after deaccelerating for months now)…

    • Cas127 says:

      “in collateral chains”

      Can’t emphasize enough how important this concept is.

      For the leverage loving types who tend to frequent the real estate playgrounds, loan stacking (current excess “valuation” of loan A’s collateral serves as collateral for loan B, whose own excess collateral “valuation” serves as collateral for loan C, and so on.)

      Everything looks fine, or better than fine, as the hothouse atmosphere gets more and more pumped up by pyramided collateral valuations.


      The actual rents collected are clearly insufficient to pay the interest (even the ZIRP molested interest) on this pyramid of skulls, er, loans. Let alone pay down loan principal.

      Then everything starts to collapse in a cascade failure, as collateral valuations all get reset downward and the stacked leverage that made the RE bubble possible, now works to implode it.

      This can happen in any leveraged mkt and in any country or across countries

      As the financial world has become ever more interconnected (ie, stacked loans/collateral types), this domino theory of cascading failure becomes more and more of a threat, since more bubbles are enabled on the front end.

      And ZIRP just makes things worse…much, much worse, since artificially depressed interest rates encourage much greater loan activity, at higher leverage levels.

      Enough so that even a flicker of a return to natural, unmanipulated interest rates triggers above mentioned cascade failures.

      • NARmageddon says:

        Great explanation. I guess what Wolf calls “forced deleveraging”, in the article, is the same as what you call “cascading failures”.

        Similar to a cascading set of margin calls, I guess one could also say.

        • Thomas Roberts says:

          China’s Financial system is segregated enough (from the rest of the world) that a collapse of the Chinese financial system, couldn’t directly collapse other major financial systems in other countries. The recent fall in Chinese stocks and the minimal impact on the rest of the world is a good example of this.

          A much bigger concern for those outside China, is that if the Chinese financial system did collapse, this could have major effects on the supply chains with segments in China. Right now, already many manufacturers in China are struggling, because of the global supply chain shortages, internal supply chains collapsing, power outages, pandemic lockdowns, inflation (especially in Chinese housing), CCP factions fighting+infighting, floods, and much more.

          If enough Chinese manufacturers/factories went under, that could cause far worse supply chain shortages throughout world (than current ones). More and more companies are leaving China, so depending on how long it takes for firms to relocate vs how long can China prevent a possible major collapse of its financial system; the damage may be minimized.

          If the Chinese financial system collapsed soon and a large part of china’s manufacturing collapsed with it, the effects of that could cause a global recession and many problems.

          If China did allow a major collapse of its manufacturing, CCP China would be over. So it’s not something, I’m worried about it very much. It’s likely possible that more strategically important industries could be protected (in China), while less important ones could experience major issues. If china’s financial system does collapse, don’t expect big problems (in America), but expect that alot of things at the store, will be out of stock for awhile, to a much greater extent than since pandemic started.

        • Nick Kelly says:

          The idea that the financial system of the world’s second largest economy could ‘collapse’ while causing as its largest problem just issues with supply chains is very optimistic. China has many investors from outside and many investments outside. It is the world’s largest importer of raw materials and commodities. Its creation of credit after the 2008 GFC was the largest in the world and was felt throughout the world. As part of Belt and Road it operates as far away as Greece where it operates a large port.

          Fortunately the optimistic projection is based on a much, much more pessimistic evaluation of the present situation which apparently sees China’s economy on the brink, suffering from floods, power outages (like Louisiana) and self- destructing from ‘infighting by CCP factions’.

          The last is new. There is a challenge to Xi’s leadership?

        • Thomas Roberts says:

          Nick Kelly,

          Actual people with brains who follow China, know there are alot of internal power struggles within the CCP. References to this power struggle are frequently made whenever news agencies talk about corruption crackdowns or purrges within China and nearly all news agencies will talk about it at least occasionally (once a year at least). It’s far beyond undeniable that this is happening. Xi is indeed fighting to hold onto power.

          As for Louisiana, it was hit with one of the strongest ever hurricanes to hit America. Using western designed technology, America successfully predicted the course and strength of the hurricane and evacuated the populations of would be hard hit regions, kept emergency rescuers on standby for those who refused to leave, and has been working nonstop to fix damage from this hurricane.

          This is VERY different from what China did this year. In the Henan province of China this year, there was massive floods that were made worse by the CCP designed dam systems. Many dams were at max capacity so they first did what the CCP always does in situations like this, they intentionally broke sections of levees to divert water from cities into villages, they do this without warning the villagers, because that would admit fault. And like always many villages and villagers were drowned. If you know so much about China, why don’t you explain to everyone what actually happened and the real death tolls in the
          Jingguang Road Tunnel in Zhengzhou, Henan, China
          or the
          zhengzhou subway line 5
          Foreign reporters were harassed in Henan and not allowed to actually get close to major disaster scenes. The true total death toll for the floods in Henan are not possible to get, but it’s at least in the 4 figure range, but almost definitely mid 5 figure range.

        • Thomas Roberts says:

          China is suffering from power outages because, it’s trying to “punish” Australia by not buying certain things like coal from them, which has caused a shortage, floods throughout China has also impacted coal mining. Chinas much more severe, widespread and longer lasting power outages are a human caused issue and not a temporary result of a strong hurricane.

          The BRI is just a bunch of projects the CCP uses to buy off corrupt politicians, most of them have already failed. Many are disasters in the making. Shipping by freight is far cheaper than land routes and nobody needs the CCP to build ports.

          As I said before, Chinas financial system is mostly segregated from the rest of the world. You have to watch very closely how the CCP counts it’s numbers. China is a large importer of resources, much of it goes into exports that would have been a protected industry like I mentioned, or the demand would simply switch to whatever countries get some of the manufacturing leaving china. Some smaller economies could get hit from a drop in exports to China, but larger countries will be fine.

        • Nick Kelly says:

          In Xi’s struggle for power are we looking at a ‘night of the long knives’?
          Do you consider Oz a country that would be fine without exports of iron ore to China? For now, by mutual tacit agreement the two sides are leaving iron ore out of the spat because no one near by can match Oz grade/price from the Pilbara range. If China collapses the imports would be slashed.

        • Thomas Roberts says:

          The CCP has alot of traditions, some of which are derived from Chinese culture. When one faction attacks another, they mainly start with the bottom and go upwards from there. The Xi faction also has alot of infighting. This fighting shows up as corruption purrges and as crackdowns on certain industries and businesses and as many other things. While Xi is fighting, there is conflicting reports on whether he is probably going to be “reelected” next year. If he doesn’t get relected, something could happen to him, but it could be something like a “heart attack”, it’s hard to say.

          As for Australia, if China stops importing iron ore, alot of the demand will shift to other countries. Australia is a rich country and while losing a chunk of your exports is a blow to the economy, it’s easily manageable. It’s important to note that most of Australia’s exports are resources and because the value of resources has been rising, that will take a big part of the blow, possibly all of it, away.

          Also remember that the virus has cost BRI countries, more than the CCP has ever put into them.

      • Tom Pfotzer says:

        Aaaand that is exactly what the Fed is in business to prevent: that cascade default. This is what the Fed fears most.

        They will pay any price to prevent that. They remember 2008 quite well.

        The Fed hired Bernanke, in advance of 2008, because he was ready and willing and able (QE, no mark-to-market, ZIRP, etc.) to prevent it. Remember “helicopter money”? Ready, willing and able.

        What has changed?

    • Depth Charge says:

      It’s called “netting,” and once there is a credit event all of the derivatives blow up and take down the entire system.

      • VintageVNvet says:

        Don’t have any idea where your term, netting derives??
        In my experience, it meant hitting into a net, whether tennis, or any other sport.
        Please be so kind to explain, thanks.
        And thanks for your consistent ”attidude” on here,,, it helps, at least me, to have as many points of view, (POVs) as possible for me to at least triangulate, if not the next level of analysis.
        Been on here to try to figure out how to ”invest” these days, since snug on RE,, and been OUT of SM many decades, after ”mentored” profits from 50s to early 80s….
        Wolf’s top notch reporting helps a ton,,, commentariat another ton or sometimes two+.

        • Mark says:

          A simple example – I owe you $100 and you owe me $80, the net exposure is that I owe you $20

    • georgist says:

      Gold normally tanks when people have to get cash or go under.

      It’s holding steady today (so far!).

      • Frederick says:

        Tanks for a very short time until everybody realizes gold is money and the only thing safe When the money printing increases gold has its day

        • georgist says:

          Yes, but at the start everyone sells to meet margin.

        • Old School says:

          It’s a little hard to figure why the big gold miners are relatively cheap with PE around 15 unless people think gold is going to average a much lower price the next few years. Break even cost is around $1000 it seems.

        • Roger Davis says:

          Frederick, first I understand I’ll get yelled at.

          1) Gold is a yellow rock.
          2) It can be more easily debased than a….
          3) No one will ever be able to go into a grocery store with a pouch of yellow rock dust and buy milk.
          4) Having gold is like telling your neighbours (you can see from the spelling I’m a Canuck) “Come on over and rob me!”
          5) If you insist on a love of rocks at least just collect diamonds. When the end days come you can always stick them up your mule* (word substituted by polite Canadian).

        • Old School says:


          History tells us that gold is better than paper when the currency fails. Currencies fail more than you think. Probably easily tops a hundred times in last 300 years. Still remember seeing Confederate money as kid and not being able to understand it wasn’t worth anything. To a child it looked as real as the Greenback.

        • Nick Kelly says:

          1) Gold is a yellow rock.
          2) It can be more easily debased than a….
          3) No one will ever be able to go into a grocery store with a pouch of yellow rock dust and buy milk.
          4) Having gold is like telling your neighbours (you can see from the spelling I’m a Canuck) “Come on over and rob me!”

          1. Agree it is yellow albeit of a very special kind.

          2. It can’t be debased. It is 1.5 times heavier than lead and any attempt to pass a fake gold coin was easily detectable in ancient times. There are no compounds of gold ( there are alloys) it doesn’t react with anything. This is why it still shines after centuries in salt water.

          3. No one can go into a store and buy milk.

          Nor can you with a US T-bill, or even an old high denomination note, e.g., 1000 US. These all will take time to turn into cash spendable at a grocery. You are almost certainly within a hour of a gold buyer, who will exchange it for cash at a lower commission than most currencies.

          4. Agree you shouldn’t say you have gold at home or cash or Bitcoin. Especially BC ! There have been hold- ups where they point a gun and transfer the BC. Very tough to investigate. Where is the stolen property?

          Fact about gold. By 1938 Hitler’s rearming had almost bankrupted Germany, to the point that the central bank was wondering how they’d pay for imported food. They paid for the war for the first 2 years with captured gold, much of it going to Sweden for iron ore. The Swiss were often middle men.

        • Frederick says:

          I think Roger is going through menopause or something Strange most Canadians are know are nice, polite people

        • ram says:

          It is also essential to modern electronics. The leads connecting the ICs in your digital devices to the outside world are made of gold. Soon industrial demand alone will defeat the “paper gold” issuers that are suppressing the price.

      • Gold tanks when there are more sellers than buyers. When other assets fail, that tends to create more buyers. August 8 is instructive. Heavy short selling resulted in a higher gold price by the end of the week. Because sellers become exhausted, short sellers work under a “time limit.” This is a natural cycle, but August 8-13 taught us that gold is now in strong 💪 hands. While a liquidity crunch would provoke gold selling, my call is that it would be short lived. You would then see a 🚀 rocket to the upside. I’ve held gold miners over 18 years and done well. My feel for the current market is that gold is a sleeping giant with massive upside looming.

        • Frederick says:

          Laurence Hunt I totally agree

        • Larry says:

          The forex managed to drop Au ETF another $50 this past week. The Basel III protocol was a joke as the BoE immediately allowed exemptions and the American banks through Forex continue with unabated ETF manipulation.

    • RH says:

      Amen. This will have effects in world markets, as predicted in the panicked cattle stampede economic theory of another, illustrious, prior commenter.

      Also, Wolf, while the CCP does control all mainland Chinese entities and connected persons, it does not control foreign creditors/chumps/”investors,” including Taiwanese investors who have lost faith in the CCP’s good faith or word, and it is desperate for dollars as reported in interviews in Real Vision Finance a year or more ago. The CCP’s members, all or most utterly corrupt, have been stuffing their “arks of doom” with dollars in foreign countries for too long and cannot be expected to cease transferring out CCP funds just because their ship of state just hit an iceberg.

      Other indicators of the CCP’s lack of funds, such as its recent demand that its own teachers refund to the government their meager BONUSES, which has forced some to bankruptcy or suicide, mean that the CCP may be in its last financial legs. See NTD’s “Teachers Across China Asked to Return Bonuses.” Other indicators may be pointing to the same: “China Cancelled Two Super Aircraft Carriers. Here’s the Story Why” in the national interest.

      I, for one, am shocked. What is the world coming to when just being devotedly and profoundly greedy and evil does not ensure your success? The similarly evil, CCP-allies, US banksters and Wall Streeters better take note.

      • MonkeyBusiness says:

        LOL. NTD just like The Epoch Times were founded by members of the Falun Gong. Many of their stories were made up for obvious reasons.

        • RH says:

          So, you want me to believe the CCP members that their own leaders admit are fabricating financial numbers and both parties and the last two secretaries of state accused of murdering and committing genocide against Uighurs, Tibetans, Fallen Gong, etc.? Give me a break!

          Also, searching will reveal many, many sources that agree as to the CCP leadership’s incompetence and China’s resulting dire, growing, financial problems. I predict that, even if they could, they will not bail out all of their collapsing developers and this will be their real estate markets’ Lehman moment — which reference they also would not understand.

        • MonkeyBusiness says:

          They are so incompetent, they lifted hundreds of millions out of poverty. But you don’t care about that obviously. Dynasties have fallen in China before because of rebellions, etc.

          Do you see the common people rebelling? Protests happen everyday, but no rebellion.

          No one is saying China is perfect, but trusting NTD, etc full blown is akin to saying the United States is evil because Edward Snowden says it’s so. Oops, he might actually have a point there.

          Also why don’t you go to Youtube and see the videos from Westerners living there?

  2. J-Pow!!! says:

    I will never let China go under!!!! I will bail them out too!!!!! Hahahahahahaha!!!!!!!!

    • MonkeyBusiness says:

      Swap lines coming soon.

      • joe2 says:

        Yeah. Government will save rich investors but not trapped citizens.

        “Off Balance Sheet” such a useful concept.

        • Rudolf Zimmer says:

          China is not US or vassals. The foreigners will pay the Bill. Stability of the country ist the highest priority of the CCP.

        • MonkeyBusiness says:

          Powerful people have a lot more in common with each other than with regular people.

          It’s a mistake to think American Elites will put the interest of the American people before the interest of other elites. Heck we see the proof every day.

    • AdamSmith says:

      You are a hoot..
      You are a bot from the Chinese Communist Party
      Harbor Freight is hiring….

      • J-Pow!!! says:

        Thank you for your support [AdamSmith]. I am always happy to do my best, [insert user name].



      • The Nominalist says:

        AS: “You are a bot from the Chinese Communist Party.”

        Wiki: “In 1977,[5] Eric Smidt and his father, Allan Smidt, started Harbor Freight and Salvage in a small building in North Hollywood, California…. In February 2018, Cedars-Sinai announced a $50 million gift from Eric and Susan Smidt and The Smidt Foundation to create the Smidt Heart Institute…. In 2015, a class action lawsuit was filed against the company by customers, claiming that the tool company falsely advertised “normal” prices for products that were higher than an advertised “sale” price….”

    • MCH says:

      Thanks JP, know this, you will forever be ranked amongst the pantheon of friends of China, important friends such as Nixon, Kissinger, the Bushes, Clinton, and others. Your stimulus has helped China greatly in weathering the effects of the pandemic.

      You above all would have Peng belting out wind beneath my wings…

      • Dan Romig says:


        Good point.

        Kissinger helped settle the strike at the huge copper mine in Chile in spring 2008. (control of the mine was what precipitated the September 11,1973 Chilean coup & the taking out of Allende – which was orchestrated by Kissinger and President Nixon)

        The deal gave the mine workers most of what they wanted, and China & Chile set up a free-trade agreement that provided raw materials to China, and in return, finished goods to Chile. Kissinger Associates, Inc. brokered the whole deal.

        Name the three prominent people sitting side by side as the Olympic Games were opened in China on 08/08/2008:
        President George W. Bush, President Hu Jintao & Henry Kissinger.

  3. Djreef says:

    Big Fat Ponzi scheme.

    • RH says:

      You do not know the half of it. Chinese people paid for BILLIONS in real estate in advance with HUGE down payments and then monthly payments, but the thousands of tofu-dreg, skyscraper, ludicrously-overpriced units sold to them will probably never be built or never finished since Evergrande Real Estate Group is going down the toilet.

      Ditto for other Chinese companies, probably. Read about Fantasia Holdings. In any other country, the Evergrande founder would be boarding his $60,000,000 to $100,000,000 super-yacht to flee to another country. In China, he is a little, happy, loyal, rear-kissing, Xi-loving commie safe in the bosom of the CCP’s kleptocracy, just one parasite among many feeding off of the blood of ordinary Chinese people like happy fleas or lice or leeches. Nevertheless, the failure of Evergrande will raise capital costs on the other CCP crooks seeking to run scams to build real estate and depress the prices of Chinese real estate, so Chinese people will be angry, to say the least.

      The CCP crooks are just like our banksters and Wall Streeter parasites, who produce nothing but bribes for politicians, media manipulation to deceive Americans, and the need for governmental or “Federal” Reserve bankster cartel bailouts constantly being paid to them to get them out of their gambling, CDO/BTO losses.

    • RH says:

      I forgot to add: watch the excellent documentary “In the Same Breath” if you want to learn who deserves your thanks for the last year of joy and the reason for my schadenfreude. Amanpour and Company did an interview with its courageous, Chinese director.

  4. DR DOOM says:

    Wow, did I hear correctly that housing was for living in and not speculation? I agree. Am I a closet Commie and did not even know it? I noticed the Hang Seng was doing a 900 point turn around to -450 . Could the Black Swan be trying to get airborne?

    • historicus says:

      “did I hear correctly that housing was for living in and not speculation?”

      Tell it to Blackrock.

      And why does the Fed FEED THE SPECULATION with the lending of money to the mortgage industry 3% below inflation? (buying $40 billion a month of MBSs)

      • Mendocino Coast says:

        BlackRock :
        I am with you 100% on That ” tell it to BlackRock ”
        a total for profit Speculative Company lik Many in USA
        It seems that this Blog is about Results not the Causes
        Just lookl at the Charts ( and they are good But ) and you see
        the Results Yes ?

    • georgist says:

      We need land value tax to deter speculators.

      Central banks (and the market) do need to be able to decrease rates sometimes to encourage borrowing, but this has to be against productive activity.

      Taxing land will capture the unearned increase in the unimproved value. This will prevent speculators, allow income tax to decrease, and foster productive borrowing.

      We cannot simply rely on high rates making housing “too expensive” as once rates settle at a new higher value, the same problem of unearned uplift still applies. For example borrowing at 12% against a much lower wage multiple will still yield that speculator big gains if they buy because they know the city will build a metro hub close by.

      • alfredlordbleep says:

        General asset inflation is tied to (super) cheap credit. Indexing the tax rate on capital gains inversely with borrowing rates is a first step. (After all the division between long and short term cap gains rates is a crude one).

  5. Red says:

    It sounded like this has been in the works since 2017. A black swan event is a surprise. Just greedy people that maybe getting a close haircut.

    • drifterprof says:

      It sounds like a bloodbath of Evergrande dollar bondholders (including billions owned by non-Chinese) would be a big first-time surprise. It would be like there was a Chair Jai Po-Weh over there who did a complete 180 on QE.

  6. Red says:

    What im more curious about is Wolfs head size, dude is has in depth knowledge of 50 different subjects.

    • Auld Kodjer says:

      Polmath – yes
      Renaissance man – hmm
      Big head – never

    • Cas127 says:

      Him and FRED.

      Although FRED tends to be of less use on intl matters.

      And despite the surface dissimilarities of various financial mkts, they all tend to be disproportionately influenced by a relative handful of economic variables…many/most of which are represented in the discounted cash flow formula.

      That is how/why the Fed is able to operationalize its continent-wide/global f*ckery-pokery.

  7. Red says:

    My bad apparently having a big head is not a affectionate term.

    • AdamSmith says:

      I think I saw you at a baby boomer estate sale in Texas….lol

      No doubt that Wolf flies at a higher elevation than most.

      What I am beginning to think is all the “outrage” news makes big money on the “outrage news machine” that is many reacting to how they feel and not able to do much about it because the economy is no longer what it was and will not be in the future as well.

      I think those considering serious money like Citadel that contributed to Robin Hood was the big eye opener for me that most the outrage is pointless for most as what is to come will cause many to suffer and everyone here wants to learn as much as possible in hopes of not being in the wrong investment at the wrong time which is next to impossible to achieve as being inert has the enemy of inflation. There is no where to go really. Most of us are just anchovies in the bait tank.

      I am close to disconnecting from it all and doing my best to enjoy the good life I have which does not require much. I wish all here well in their journey and Wolf is just like that favorite brother that helps you cut through all the bull$@#t. Thanks Bro…..

      Those older investors will mostly be supplanted by a small class of people just like Amazon, EBay, and Walmart has done to all manner of retail. It is inevitable that investment will be robbed from many…. Even those who are keenly aware of how it used to be versus how it will be….
      Most of use have no clue of the degree of artificial intelligence that is well-entrenched and just starting to get its legs…..

      Auf Wiederschauen battle weary brothers

      • Cas127 says:

        “next to impossible to achieve as being inert has the enemy of inflation. There is no where to go really. Most of us are just anchovies in the bait tank.”

        We are all just the bitches of a relentlessly debasing currency. It is the poisoned sea in which we swim.

        But…once that is realized, and a small conceptual jump is taken (“maybe it ain’t a great idea to have all my savings in a single, easily manipulated store of value…looking at you USD, you late-in-life green tinted trollop”) then things start looking up.

        There is no one alternative solution that has won consensus approval or truly earned trust by surviving concerted attacks…but it is really enough of a first step to know what you incrementally need to move away from.

        Our truly crappy political class may have ensured an American ending that weirdly mirrors the end of the Soviet Union…not so much a violent implosion as a vast liquidation of the old faith.

      • A working PhD says:

        It’s amazing how little money you actually need to live on, if all the debt is paid off, you grow and preserve food out of a garden, and live a “more with less” lifestyle (a Mennonite concept, and no, I am not Mennonite).

        I used to play the options market – and the last time was around the LTCM collapse. I purchased Citibank puts at just out of the money and should have made enough to retire. But, what did Citibank do??? They cooked the books in that quarter, the stock never went down, and I didn’t make anything. A month later, Citibank fessed up about their accounting irregularities and I got a class action notification in the mail, suing them for fraud.

        So, that was it. I have concentrated on “hard” assets ever since – at least beating inflation.

        • Cas127 says:

          “It’s amazing how little money you actually need to live on”

          Generally true, but irrational housing inflation triggered by DC’s money printing/interest rate manipulation kinda screws this up too.

          Housing tends to be one of the least substitutable goods (if home mtgs and apts rents are both soaring, living in an RV/tent tends to be viewed as a poor substitute).

          And housing prices and rents have generally been zooming, despite the fact that many non-ZIRP-infected economic fundamentals are bad (millions fewer employed, housing demand reduced by Covid dead, etc.

      • Old School says:

        Some of us are old enough to remember the nifty fifty that sold for sky high PE’s. Big percentage are in the trash heap of financial history replaced by better technology or better managed companies.

        • Cas127 says:


          Except now it is more like the Horrifying Fifteen or the Terrifying Ten…

          Tesla 100+ PE, yielding a 764 billion mkt cap.
          Apple 36 PE, 2.2 trillion mkt cap
          Visa 43 PE, 458 billion mkt cap
          PayPal 54 PE, 339 billion mkt cap
          Danaher Diagnostics 50 PE, 172 billion mkt cap
          AbbeVie 40 PE, 184 billion mkt cap

          Disney Nil PE (no earnings, just loss), *338 billion* mkt cap

          NetFlix 92 PE, 247 billion mkt cap
          Nike 80 PE, 223 billion mkt cap

          Estee Lauder 100 PE, 107 billion mkt cap

          UPS 99 PE, 140 billion mkt cap

          Amazon 78 PE, 1.7 trillion mkt cap

          Exxon No PE (loss), 220 billion mkt cap (at least oil in ground)

          Chevron No PE (loss), 182 billion mkt cap (ditto oil)

          Those PEs are in a universe where a 15 PE was historically normal.

          And the mkt caps show the outsize influence that a small number of companies can have in weighting terms on the SP 500 index (last yr, 5 or so companies accounted for 20%+ of index weighting).

    • SwissBrit says:

      saying someone has a big brain can be good (which is what you meant I guess), but accusing someone of having a big head means that you think they have an inflated opinion of themselves

      • VintageVNvet says:

        Glad to see some, out of local, folks get that distinction SB!
        Another way to say it is, ”He’s all hat and no cattle.”
        And, of course, there are many other local and more local ”sayings” for the same concept of arrogance over actuality, eh
        OTOH, before but especially since ”the coop” and the princess did their parts to perfection in the nooner,,, many folks everywhere have taken to opposite tack, and did what had to be done, stepped back from that activity and have taken no credit or honours…

  8. Álvaro (from Spain) says:

    China just put a city of almost 3 million population into lockdown again.

    • roddy6667 says:

      It’s not hard to do. In a couple weeks, there will be no COVID there. It works.The pandemic was pretty much over a year ago. What they are doing now is only an abundance of caution.

    • Petunia says:

      It’s what they do when they want to contain the social unrest. They do this in the western countries as well. See Paris, Vienna, Australia, Canada, UK, and the US too. None of this is about the pandemic, it’s about political control.

      • Auld Kodjer says:

        Ms Petunia – I have grown fond of your feistiness. You are perhaps more Ruellia than Petunia.

        But there is no political control in Australia. There is a universal distain of those swamp creatures down here. Heck – they even had to make voting compulsory here because no-one would turn out to vote when the only choice is between a baked turd and a fried turd.

        Rather, most (admittedly not all) Australians accept lock-downs because we listen to our medical experts and have a decent level of trust in our health system.

        • ram says:

          So that is why the biggest unions are on strike, truckers are blocking the highways, and most emergency service workers have walked off the job?

          Any trust in the Australian health system was lost under the Morrison regime.

  9. Flashman says:

    Bang!! CDO if one goes they all go and this is the big one. good luck chaps

  10. Franz Beckenbauer says:

    You know what’s funny ?

    Reverse Repo’s go to 1 trillion with no indication on any of the FED’s balance sheets of 1 trillion of assets leaving. None. Zero. Zilch.

    At the same time, Evergrande’s “dollar bonds” and probably a bunch of other chinese triade gangsters, sorry, property developers are bailed out by – someone.

    That’s a damn funny coincidence.

  11. Franz Beckenbauer says:

    Oh, and to make things even more funny to the point of being hilarious: Palantir, the one company on the planet who knows how big and stinky that pile of steaming brown fecal matter in the world financial system is and how fast it is rolling downhill where the “investors” are still busy chasing the next top buys the “barbarous relic” to prepare for a “black swan event”.

    These things happen.

  12. A says:

    So greedy foreigners, used to corrupt western governments giving them free money for nothing, gave the Chinese communist party hundreds of billions of dollars.

    And the CCP took the money and said “thanks for your donation to our communist cause, now get lost”

  13. Anthony says:

    Here in sunny Manchester UK, we are still getting Chinese buyers for local properties. What has it done to my local house price inflation rate. It’s not really that much. My house is now valued at roughly, nine times what we paid for it in 1999. What is 900% when you say it fast….nothing….

    • Kleiber says:

      The BBC documentary last year called Manctopia was quite eye opening about that northern boom in property. Never seen so many cranes in a city centre outside London.

      • Auldyin says:

        Was that BBC or BBS? Sorry.
        External books must balance, Chinese must buy something to cover the trade deficit.
        I like the Chinese, they’re clever.
        Nice to get UK company here!

    • georgist says:

      Same in Montreal.

      Politicians say they will help working families with $10 child tax credit.

      Housing is up $300k. The solution is very obvious. Crash housing.

    • Old School says:

      How are property taxes?

  14. Old School says:

    Not much of an expert on China, but I have 3 comments:

    1. About 15 years ago I saw a guy on CNBC that said the return on capital in China was zero.
    2. We had someone visit our business from Taiwan. He said if China gets into the same business as you, you might as well get out because they don’t care about making a profit.
    3. David Stockman has written a lot of articles about China’s habit of over building with borrowed money. Besides the residential market, it was entire industries such as steel and concrete.

    Building anything with borrowed money that doesn’t have a positive return on capital is a time bomb that usually will end up abandoned with weeds growing up through it in time.

    • Sams says:

      Not necessarily so.
      If housing, road, a railway line or a factory is built with borrowed money it may still be used even if there is no positive return on capital.

      Those using the infrastructure may have positive benefits and continue to use and maintain the investment, but not the loan. The creditor get nothing, but the user is just fine. In short, the ownership is transferred from creditor to user.

      • Paulo says:

        We’ve got a local rail line with weeds growing up through the tracks. It is slowly being converted to a bike and walking trail, one km at a time. That rail line property was a grant….free money, 140 years ago. The local pulp mill is now being dismantled 1 foot at a time. The last forestry rail line in BC has just had all its track hauled away for recycle this summer, hundreds and hundreds of truck loads. A modern NG gas plant for generation is going to be shuttered, because the pulp mill doesn’t exist to pay for the generated steam by-product. Then we have the malls and empty commercial space.

        That is why I will disagree with your comment. Not only do the lenders get shafted, the infrastructure degrades and disappears for the most part.

        I would have agreed with housing staying viable, then I thought of Detroit. After rereading your comment I noticed the word ‘may’.
        But ownership is never transferred to the user unless they buy it out of bankruptcy, or some entity buys it and basically gives it away to them. They’re doing this in many Canadian cities, buying up failing hotels and motels and setting them up for the homeless. Seriously. My old home town has done this with many properties including recently converting a tired restaurant to a soup kitchen and drop in centre. My son tells me they have a fenced compound full of lawn mowers and bikes. Hmmmm, wonder here they came from?

        I think we are already in serious decline. It’s just hidden with fancy bling.

        Read this one and will share:
        Amazon Canada will hire 15,000 new warehouse and distribution workers in communities across the country this fall to support its ongoing Canadian expansion plans, the e-commerce giant said Monday.

        At the same time, Amazon also announced it will increase the starting wage for its front-line, hourly employees in Canada 27 per cent to $21.65 an hour from $17 an hour.

        • Sams says:

          Just the detail about transfer of ownership is where China may not follow the practice in the “western world”. One entity, the state, could if it see it fit do so. Without compensating the creditors. I do not know China, but I know it is different enough to not expect anything that come down to politics to work like it do in the USA.

          A historical example, the Soviet Union crashed economically and disintegrated. Something may be learnt from that, but an economic crash in the USA would not play out anything like that as the premises is totally different.

      • Jon says:

        What about the ghost cities of China?

    • SpencerG says:

      I like the three points you make. Particularly point number 2. And the Taiwanese have close enough access to China to be able to observe that phenomenon.

      • Auldyin says:

        Tell that to TSMC they are in China’s back yard and they are making a fortune. They are also co-operating intensively with China and East Asia. You should never believe the MSM, they’re not on your side.
        I’m loving watching neo-liberal Oligarchs complaining about how China is wrecking the model by putting the people’s interests ahead of the financier’s interests. Glad I’m alive to see it.
        Just sayin’

        • Wisdom Seeker says:

          Re “wrecking the model by putting the people’s interests ahead of the financier’s interests”…

          What you’re watching isn’t “putting the people’s interests ahead”, it’s a purge of those with competing interests, and indoctrination with Xi Jinping Thought, and likely worse to come.

          The only people who can put the People’s Interests first are the people themselves, and in China they don’t have a vote or, thanks to Xi, even a voice today. Dissent is simply deleted, and those who fall out of favor get Memory-Holed.

          China is putting the Party’s interests first, not the People’s interest. And by “Party”, we mean “Xi” because he’s the Dictator-for-Life. They’re on the totalitarian slippery slope over there and it’s going to get a lot worse before it ever gets better.

        • Auldyin says:

          To advance in the ‘Party’ you have to demonstrate a lifetime of ‘service’ to the people. We can argue over what ‘democracy’ actually means. Did you want to spend billions in Afghanistan?
          The party is an extreme meritocracy where you have to pass exams and be approved by seniors to advance, like the ancient Chinese Civil Service.
          Xi has got to the pinnacle of that method of operation and that must, at least, show he is a very clever man and, being that, he won’t be stupid enough to think he can control 1.4bn people as a Dictator. To lift millions out of poverty must surely be a feat that gets some acknowledgement.
          It’s not what the MSM tells you it is.

        • Wisdom Seeker says:

          @Auldyin: They said the same about Lenin. Lenin was really smart but once in power he was vulnerable to the true sociopath, Stalin. It’s the Stalin we don’t see yet that I’m most worried about.

          How does the Party measure “service to the people”? LOL… And don’t get me started on the “meritocracy” thing. See below.

          As for lifting millions out of poverty, that was mainly Deng’s achievement, and the others prior to Xi who had the wisdom to accept limits to their term in power. Xi inherited the Chinese Success, he didn’t create it.

          So far Xi’s mainly been a destroyer. His early actions were to round up potential opposition leaders and jail them because of corruption – and whether the charges were true or not, neither scenario supports “extreme meritocracy”. Hong Kong is dying. Xinjiang is home to the new Gulag Archipelago. Now Xi’s Party is demolishing all sorts of businesses, and not with any kind of legislative process or even a transition period, but simply by overnight edicts from on high. The avoidable tragedy of Wuhan (and the planet) was on his watch as well. When the Party Leaders of Wuhan, those “meritocratic” “servants of the people”, had their chance to really put the People’s Interests first, they instead responded with a coverup and blamed those who called out the true warning. Their incompetence led to the worst disease outbreak in 100 years and brought eternal shame upon themselves.

          What’s scary is that I’m almost afraid to write this, who knows if they will track it down and use it against my family somehow? Freedom of Speech is the most fundamental natural human right and it doesn’t exist over there. Which makes communism wrong from the start.

          Xi’s China – trillions of dollars in avoidable economic damage already and it’s still early days.

        • Auldyin says:

          Sorry I upset you, I guess all these tourists I talk to are just BS-ing me.

    • roddy6667 says:

      40 percent of the GDP in China is made up of State Owned Entities. They include banking, car manufacturing, electrical generation, oil and gas, internet, phones, mobile phone services, TV, and home heating in the northern half of the country. They do not need to make a profit. They provide goods and dervices to the citizens at prices that private enterprise cannot match.
      Also, 15 years ago in China is ancient hisory. Do not make any decisions of form any opinions on what was going on 15 years ago.

      • Old School says:

        It’s hard to know. Many people think that profit is a water that goes to shareholders. The normal way it goes is state owned enterprises are woefully inefficient and unable to compete with for profit enterprises.

        I do not know, but suspect China has centrally planned themselves into the mother of all malinvestment in anything that can be built with steel and concrete.

        A sustainable prosperous economy is hard to build. Part of the key is you have to allow the economy develop where entrepreneurs take it. Trying to over regulate it causes it to loose the creative destruction needed for improved standard of living.

        • Auldyin says:

          It should be conventional wisdom by now that the bulk of true innovation comes from SME’s.
          China fosters SME’s and a lot of what they are doing now is towards re-balancing from huge monopolies back to SME’s.
          In the West, a handful of huge multi-nationals have just bought up or absorbed any small company which showed any kind of challenge to them, sometimes suppressing the product if it was truly disruptive.
          QE and Covid lock-downs have been a further disaster for SME’s which are in danger of becoming an extinct species because our giant banks won’t lend to them, preferring instead to pump money into property assets and FANG type stocks which have monopoly positions due to sheer size and coverage.
          China is on the problem so should we be.

        • CJH says:

          After four decades of de-regulation, I’m having a hard time believing the ‘free market’ narrative. As for the ‘creative destruction’ part of that narrative, just look at the three recessions (2000, 2008-9 & now) that come along like clockwork every decade. I could cite that chronic flaw of capitalism back before Reagan. As for China, it’s a big country with its own currency and it has an understanding of how to use fiscal tools, capital controls, and yes strict regulation tightening if required. China has been eating our lunch for 30 years.

      • ru82 says:

        The Chinese stock market has zero gains over the past 10 years. Hard to believe considering their GDP growth has been almost 2x the U.S. GDP growth yet the SP500 is up over 300% during the same time.

        It must stink living in China and investing in the Chinese stock market. I guess that is why they buy up so much North American property in search of anytype of return.

        • Old School says:

          Ten years of stock market gains can be unwound in a few months. Wouldn’t surprise me if it happens as stock market doesn’t reflect value of real economy. It reflects value of real economy supported by ZIRP and QE.

  15. Danlxyz says:

    So, who are the foreign investors who will be taking these losses?

  16. David Hall says:

    China home prices rose 4.6% YOY in July 2021.

  17. Tom Stone says:

    Wolf, like myself, is very aware of risks, particularly tail risks.
    Because we have both been burned in the past, badly.
    He and I also have a tendency to evaluate markets rationally and on the basis of historical precedents.
    Which does not work well ( Until it does) when Markets diverge from fundamentals and become wholly irrational.
    Which is where we are now.
    The piper always has to be paid at some point and there are a lot of indications that we are close to, or at that point.

    • AdamSmith says:

      Take a look at the website.
      Look over what is on the website and you will understand it clearly.
      Started by Peter Theil of PayPal fame….
      This is the best example of the future that is the new hyperspeed reality faster than the human mind and able to eliminate much of the friction of decision-making (unless you are designing and maintaining the algorithms). All we can do it get out of the way hopefully with some of our money if you can’t let go of the old ways….

      What is hard to do is let go of the reality we all knew. I experienced this in retail and when doing military surplus I became aware of Palintir.

      Type in “Why Silicon Valley billionaires are prepping for the apocalypse in New Zealand.” and you will see what Peter Theil did and others like him because of the book titled “The Sovereign Individual (Mastering the transition to the information age).”

      Wolf has the unique position of looking at the old way with great clarity vis-a-vis the new way (which will always evolve everyday with no end).

      Once you read this you will have the “big picture” in hand to help you understand the NOW….

      • georgist says:

        it’s a website in madarin with captcha!

      • Auldyin says:

        What makes the human brain ‘different’ is philosophy.
        In other words ‘why’ would mankind do that?
        Until you answer ‘why’ you can’t provide a conclusive answer to anything, ever!

      • Old School says:

        It may be different this time, but the normal way it plays out is people get too excited about new technology and pay too much for it.

        The technology raises our standard of living, but they let us down as long term investments. A few companies win and everyone else goes bankrupt or maybe are bought out when stock price gets low enough.

      • 91B20 1stCav (AUS) says:

        AdamS-begging the thought: “Who are the Praetorians for Thiel, et al, and how much/long can they be trusted???”.

        may we all find a better day.

        • AdamSmith says:

          Want is important to note is like on the Business/Finance section of today’s wsj.

          “Steven Cohen to Invest in New Crypto Quant Trading Firm”

          This is an example of what the old school trader will face more and more. And this is just a mickey mouse example as compared to what is happening worldwide. And note, those outside the country will seek MAXIMUM ALPHA in any way, every second, with AI or ANY OTHER WAY POSSIBLE. 24/7.

          Old School Investing will not compare in return or value increase ever again and will soon be irrelevant if not already.

  18. Say It Aint So says:

    There are many interesting comments here…and in all honesty there have been many of these similar comments over the past 13 years (since 2008)…as I have mentioned before, “How do you tell a boomer who has been investing in their 401K for the past 15 years with the exceptional returns that it is time to get out? If anyone thinks that the CCP will not come out on top they need to research history as in the end they will end up as the landlords of said properties and they will “buy out” the investors for pennies on the dollar…Forget Jay P….as this is Janet Yellen’s game now and between her and Ben Bernanke…the House always wins…

    • Old school says:

      I am seeing several telling signs of the end is nigh:

      1. House committee chairman said USA can’t go bankrupt because government can print money.
      2. Saw a graph that stock market assets are at higher percentage of household net worth than tech bubble and housing bubble.
      3. Congress loves to spend to get elected, but agreeing to raise taxes is about 10 times harder and without tax increases the big dreams will die.

      • ru82 says:

        A boomer friend of mine who just upgraded his nice house to another nice house and has made a killing in his 401k said where else can you invest your money. He is sticking to the stock market.

        It is easy and it keeps going up. Even if it dropped 30% he is still way up and in good shape

        • Old School says:

          Maybe he is right, but just returning to normal price to sales takes you down around 70% and if we crash to lowest price to sales that’s about 85% as in you have 15% left over at the bottom.

          Probably will not happen, but everyone trusting the Fed and Congress for their prosperity might be a mistake. Especially with socialism good, capitalism bad political shift among many.

        • 91B20 1stCav (AUS) says:

          OS-socialism wouldn’t be much of an issue if capitalism would just learn to stop soiling the common bed…

          may we all find a better day.

  19. 2banana says:

    You know, I realize China is communist.

    But, when you get into the details, who can really argue with the Chinese government crackdowns on their property developers and internet companies.

    China is actually breaking up internet monopolies and forcing more consumer data protections.

    And the lack of America’s control of those same two industries and bailout upon bailout.

    • Nicko2 says:

      China is stifling their own innovation, to their long term detriment.

      • 2banana says:


        Monopolies don’t foster innovation.

        Censoring those with a different viewpoint doesn’t foster innovation.

        • Auldyin says:

          There are times in history when ‘innovation’ can get too far ahead of society and consolidation is needed to catch up. I believe we are there now and changes need to be absorbed for a while before we go off on another charge in a few years time.
          Just sayin’

      • Turtle says:

        Imagine what they could do as a free society. Like, as in not filtering the Internet and ditching the whole CCP control structure. That’d be the fastest way to make the US number two.

        • RightNYer says:

          Except that while the U.S. doesn’t filter the Internet on a government level, the “woke” crowd, combined with not so subtle pressure from the leftists in politics, results in Internet hosts, banks, credit card processors, and other infrastructure type companies canceling unpopular actors and opinions. Is that really any better?

        • MonkeyBusiness says:

          Then they’ll get Team Red vs Team Blue.

        • roddy6667 says:

          I just spent 7 years in China. When you live there, you don’t feel “un-free”. You live your life, start and run your businesses, prosper and enjoy a good life. If you become a multibillionaire and infringe on the state owned enterprises, you will get slapped down. China has rejected vulture capitalism and the serfdom it creates. The middle class is growing and prospering, and the poor have benefitted the most. After 65 years in America, I would put my bets on the Chinese model. However, it only works in China. America is safe to fail in its own economic and political quagmire.

        • Auldyin says:

          Kudos man, but try getting MSM to ever acknowledge what you said.

        • Auldyin says:

          Why do you think they are not ‘free’ just because they don’t have the same narrative as you do?
          Just askin’

      • MonkeyBusiness says:

        I just love comments like this. Their behemoths, like our behemoths used to be SMALL. Didn’t stop them from innovating then.

    • georgist says:

      Removing rentiers (including land speculators) is the number one priority for China and the USA. It destroys societies.

      If China does crack down on rentiers effectively, they will leave the USA far, far behind.

      The USA has to respond to this, or become irrelevant.

      • OutsideTheBox says:


        There ya go !

        Keep shaking your fist at that cloud !

        Your point has some validity.

        Nonetheless, it is doomed to irrelevance.

        • georgist says:

          This is why America is like it is. Nobody gives up like you guys.

          Labour rights.
          Healthcare rights.
          Education rights.
          Housing rights.

          Keep on giving up. The only thing you excel at more is punching down.

        • Anthony A. says:

          georgist, why don’t you come over here to the U.S. and run for office then implement your views? You seem so passionate about helping fix things here.

        • Old School says:

          G told on himself. Doesn’t want pay for his healthcare, education or housing. It’s a right to have someone else pay for it or print it into existence.

        • georgist says:

          Why don’t I run for office in the USA?

          That’s the retort? Like I said, the education system needs investment.

          I’ve made a comment about China and rentiers. Instead as usual all we get is silly partisan stuff and school-yard comments.

      • MCH says:

        Seriously, do you even know what you are talking about?

        One of the main reason that real estate speculation took off in China is because there aren’t a lot of other credible investment alternatives. You should seriously try to understand what the people of China, and I don’t mean the 0.1% can invest in and what their restrictions are.

        It is extremely difficult for money to flow out of China and put to use elsewhere. That’s why the property bubble has continued to inflate. If that bubble suddenly pops and social unrest really happens. Then what happened in Beijing in 1989 would look like 2008.

      • Wolf Richter says:


        I’m getting really tired of your “rentier” trolling. Day after day, always the same copy-and-paste stuff. Enough!!

      • me says:

        Most people on this this site have not read Henry George nor are familiar with him.

        It appears that georgist is neither despite continually harping on about land tax and rentiers.

        When George wrote about land tax (late 1800’s) there was no income tax in the USA and there was no social security either.

        He advocated for a land tax so as to get rid of all other taxes. He advocated a single tax for everything based on land.

        And the problem with taxes and politicians is well known – they are never happy without increasing taxes or finding something new to tax.

        There is no way that a land tax as envisioned by George would work in a modern economy.

        Furthermore, georgist ignores the simple fact that land (real estate) is already one of the most heavily taxed assets around the world in most countries.

        In reality no one really owns land anymore and in fact all land is rented or leased from the government. These rent/lease payments are called real estate taxes.

        In the USA they run from 1 to 3 percent or more of the value of the property every year. Fail to pay them and the government will take your so called owned property.

        Some countries even levy a transaction tax on it when buying it and of course there is capital gains tax on the profit when you sell it in many countries.

        Some jurisdictions in the USA also levy what are called specials when a new road, sewer, or sidewalk is built near the real estate that you own. These specials are tacked on to the yearly real estate tax bill and paid off over a number of years such as 15 or 20 depending on the cost of the project.

        The only other asset that I know of that incurs a yearly tax for owning it is the automobile in the form of registration tax.

        You do not pay tax on the fact that you own gold, silver or bonds in most places in the world. You do however, pay tax based on the fact that you own real estate.

        So with all that in mind maybe georgist could stop with the continual bs as it shows that he really does not understand how real estate is taxed in the real world.

        • Old school says:

          The most insane concept for a tax I ever heard of was a value added tax. Taxing someone for adding value gets you more people that don’t add value.

    • Auldyin says:

      Definitely neurons firing there big time.

  20. Brendan says:

    Thank you Wolf.

  21. GSH says:

    Thanks for a cogent description of what is going on in Chinese real estate.

    My guess on what will happen next: The Fed will either provide a trillion $ swap line to save OUR leveraged, too-big-to-fail corporate investors or create a Maidenhair-type facility to buy the Chinese dollar bonds outright.

  22. Peanut Gallery says:

    So is there a deadline for Evergrande? If so, when is it?

    • SpencerG says:

      It is whenever the Chinese government says it is. And according to recent news reports (this week) Chinese regulators are extending the time Evergrande needs so they can sell off assets to try to cover their debts (or debt payments at least).

    • Auldyin says:

      Ah Ha! Could that be why Ole Joe phoned Bro Xi a couple of nights back?

  23. Just not really sure if this power to the people stuff is for show, or they really mean it. If Beijing saw the bubble and decided to let some air out, they could cover themselves. On the Am side the government spent trillions on the people and the Fed didn’t back down on monetary policy one inch. (the monetary phazits are in control) If Beijing blinks, is it part of a larger pullback? Or maybe they figured out that phazits and kohmyounists don’t get along?

    • georgist says:

      For over a decade it just baffled me why the CCP would allow rampant land speculation.

      It’s so clearly the one big problem with Western “capitalism”.

      They copied our commercial model, but they also copied the cancer eating it alive.

    • Wolf Richter says:

      Ambrose Bierce,

      Some of it is show to cover up efforts to control the financial system and keep it from blowing up. And some of is motivated by fears of social unrest when housing gets too expensive for young people to buy or rent.

      • roddy6667 says:

        Housing is still very affordable for young couples in most Chinese cities. The articles critical of China like to point out prices in Shanghai, Beijing, etc. This is like prtraying Park Avenue, SF Bay, and beachfront Miami as typical of American housing. When you travel around inside China, new construction has the prices posted. They are stated in RMB per sq. meter. Very affordable homes are avalable, brand new, almost anywhere you go outside the huge metropolises. Also, the newly wed couple does not buy the house. The groom’s family does. Homes are often bought 20 years before the kids get married, Couples get married at about age 30, so the family has 30 years to save, and they do. If a little more cash is needed, the grandparents usually live in the same home or cloe by, and they come up with cash. And the young couple have been working and saving since high school or college, 8 to 12 years, and they may contribute if necessary. Sometimes a small mortgage is floated as a kind of bridge loan, and it is paid off quickly.
        Young people can get into financial trouble when they stray from this very old Chinese model. If you move away from you family and move to Shanghai and buy a home after college with a mortgage, you will be in big trouble. You may be totally priced out of the market, The American method does not work in China. It’s like going to the UK and deciding that you are going to drive on the right.

        • Anthony A. says:

          Thanks for the on the ground observations. It’s clear the lower and middle class in China is doing something right seeing there are so many of them trying to live a somewhat normal life.

        • Auldyin says:

          You are highlighting the problem perfectly, which is that people in the west just don’t get told these things about China and Russia because it just does not fit with the MSM narrative of creating ‘an other’ who can be vilified as an enemy to justify military expenditure and taxation.
          Decent professional journalists would follow the money trail like they should have done with QE and tell you what’s going on.
          Uk cut off CCPtv, wonder why?
          RT does superb on the ground documentaries in countries all over the world. Our lot always have an angle.
          Just sayin’

      • Ron says:

        Sounds familiar right here in usa

  24. MCH says:

    I wonder who are the Michael Burries and John Paulsons of this round. I am going to guess that there are plenty of opportunities to have CDS on those bonds.

    Given the priority on social stability, let’s see if the tough love follows through this time. Although I get the feeling that the game is different this time. And people might not be prepared for it.

  25. SpencerG says:

    As my Dad says, “It is not Debt that puts you into bankruptcy… it is (negative) Cash Flow.”

    That said, I think this is overblown. The ENTIRE dollar bond market in all of ASIA is only $300 billion according to the WSJ. I don’t know what portion of that is Evergrande’s or what portion Americans own… but it is by definition less than the whole.

    And it is not like these companies don’t have assets to sell. China is just going to give Evergrande time to sell off assets and start covering their debts. There may be a haircut for bondholders but it won’t be big. None of this will look pretty but it won’t be a disaster either.

    In fact I wouldn’t be surprised at all to find “Bond Vultures” out there snapping up these bonds if they are currently selling for 25 cents on the dollar. Certainly they will be waiting in the wings to do just that.

    • Franz Beckenbauer says:

      “The ENTIRE dollar bond market in all of ASIA is only $300 billion according to the WSJ.”

      How would they know that ?

      They don’t. They are just making this up.

      WS stands for what ? Exactly.

      The astounding thing is there’s still people believing them.

    • Franz Beckenbauer says:

      To give you some vague idea of the nature of the problem, here’s an article entitled “US pension funds invest in China” (

      That’s right, your pensions depend on the commies in Beijing.

      “Some pension fund managers claim they’re at the mercy of China-based companies to help plug their pension funding shortfalls. According to Equable’s State of Pensions 2020 December update, unfunded liabilities totaled $1.34 trillion across all state pension plans.”

      That’s trillion with a major “T”.

      You get the idea.

    • My sentiment as well. When Druckenmiller said he was all in on China, that leaves a lot open. He is a distressed debt buyer writ large. The notion that Beijing would place obstacles to foreign investment and then allow Evergrande to fail? That speaks of nationalization of assets. It’s also pretty scary because they can drive down RE prices without regard for investment. Their GDP is running about 6%? and RE is a third of that more or less. Even if you reduce that to nothing you are still in good shape overall.

      • RightNYer says:

        Seizing the rental apartments of landlords for a supposed “emergency” speaks of nationalization of assets too.

      • Franz Beckenbauer says:

        Beijing can’t do a thing about Evergrande.

        Question: How does the PBoC bail out a failing dollar bond ?
        Answer: They don’t. Because they can’t print dollars.

        Question: Who can ?

    • Wolf Richter says:


      Yes, negative cash flow is the problem with these property developers, and has been for years. That is why they kept borrowing more and more money, and now they cannot even pay their suppliers anymore. Negative cash flow killed them.

      “The ENTIRE dollar bond market in all of ASIA is only $300 billion…”

      You misunderstood. What is at risk here is not just the offshore bond market but also the $17 Trillion onshore bond market of China. All these companies in the property sector have more onshore debt than offshore debt. This piece focused on the issue of offshore investors (mostly foreign investors). But in terms of credit problems, it spans both the onshore and offshore bond market.

      Yes, vulture investors are already buying these bonds at 25 cents on the dollar, hoping to get some collateral or maybe a bailout or restructured notes that would allow them to make a profit. This is the case in nearly every bankruptcy in the US as well, and was the case during the Financial Crisis. Original investors lose their shirt, and others pick up the debris and make a bundle, or also lose their shirt.

      “And it is not like these companies don’t have assets to sell…”

      This statement reflects a misconception. Those assets are already pledged as collateral. If they’re sold, the proceeds from the sale go to the lenders that have lent against the collateral, and they will likely take a loss, and there is likely nothing left over for other creditors. In the US, this is precisely the kind of issue that gets sorted out in bankruptcy court where losses are distributed to the stake holders, ranging from 100% loss for some, including usually equity holders, to 0% loss for the most secured senior creditors.

      • SpencerG says:

        Thanks Wolf.

      • Fallen Jester says:

        Question Wolf.

        So from the audio I hear China is trying to squash real estate speculation. They also seem to be trying to curtail both domestic groups(Alibaba) and foreigners(Dollar Bonds ect) trying to buy influence in China. It also seem they may resent the dollar bond folks thinking that the CCP would be forced to bail them out.

        Historically usually one markets or country gets over its skids. Defaults happen, wars arise ect. I’m not sure the entire world has ever done it all at the same time. But here we are.

        Maersk stating they need the consumer to buy less stuff so they can catch up on deliveries.

        Screaming inflation in almost all tangible markets globally.

        All the players appear to be trying to take the last Jenga block out of their opponents stack to trigger and exploitable collapse without imploding their own tower in the process.

        What do believe( or whom do you believe) will crack catastrophically given overheated and over leveraged monetary conditions that currently exist everywhere? What firms stand to be most damaged outside of China from their misallocations in the Chinese real estate bubble?

        Are we at the stage where the Central Banks and counter parties are starting to go their own way? Or are they so trapped by the numbers they are still cooperating?

  26. COWG says:

    My question would be… who are the entities that gave theses guys the money for bonds to start with? And where was due diligence would be the order of the day…

    As a developer, don’t you have to sell the development at some point in time? Okay, so here’s a pile of money, go build something and when you sell that one, we’ll give you some more…

    Is this case where they just kept building things but sold nothing? And entities/ institutions kept giving them OPM and collecting fees for putting equity at risk…

    Would this not be another disaster to lay at the feet of the Fed for their no interest policies to warrant such risk for yield ?

    I personally would like to see the end of the Liars, Ponzis, and Casino financial manipulations ( in all areas, not just RE) that harm so much…

    Would a lot of people get hurt, sure…

    But then again, Stupid should hurt…

    • Old School says:

      My limited understanding is real estate bubbles are the most tempting and damaging for governments and banks. The bubble allows for a lot of leverage to juice employment of the general population.

      Residential housing investment is really more investment in lifestyle than in competitive international industrial production. When real estate goes poof it can take banks with it because of excess leverage. Some say real estate bubbles are the worst type.

  27. Nicko2 says:

    Ancient Chinese Proverb: To become rich is glorious; Invest in Vancouver Real Estate.

  28. Auldyin says:

    The Chinese have calculated that their one child policy ran too long and now they are aiming to boost population by making it much more attractive to start a family, ie cheaper housing, cheaper education, not stuck with selfie obsessed monsters, not fighting to get the kids off computer games for bed, and all sorts of things to make family life great again. When I was a kid the Government made me drink orange juice.
    Didn’t Confucius say it was a curse to live in interesting times?

  29. MonkeyBusiness says:

    Evergrande has hired a bankruptcy advisor.

    No bail out it seems. Looking towards the fireworks.

  30. Peanut Gallery says:

    What is taking Evergrande so long to declare bankruptcy?

    • Franz Beckenbauer says:

      The FED has to figure out how to give’em all those dollars without too many people noticing. Reverse Repo’s only go so far.

  31. CJH says:

    Question. How much of the ‘onshore’ bonds are held by the state?

  32. Tang says:

    Good to consolidate the facts of the Ever grande saga and not muddle our thoughts with supposition and not relevant comparison.

    This company is the largest property company in China.
    Has many projects, customers, creditors, suppliers and many avenues of getting capital in which for those years they happily exploited wantonly without any worry…..most of us could behave in a like manner if in those shoes……Of course many esp foreigner investors jumped in….including Black Rock and SWF vehicles. Of course many will dismiss their stake as pittance.
    Then the 3 red lines. Lehman had no line to cross..and Hank Paulson did what to me was right.
    Ever grande fail at all the lines.
    Show the Chinese government bail them out after specifying what should and should not be the case? If an authority allows people to break the rules why have the rules then?
    What about the hundreds, thousands who fail and are waiting in line for the forgiveness hug.

    Investors, losses, bank losses, customers employee losses, creditors..
    Bonds shaved etc are all the mechanisms…to stress ones importance.

    That is why politicians cannot have, cannot own, cannot be link to businesses……at times you need to draw a line…..and you realized later that a leg crosses it.

    Yet most countries have such happenings and rely on their political power to side step………..Hank Paulson knew Lehman was beyond him.
    Is Ever grande saga beyong CCP?

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