China dept bomb
- D5CAV
- Posts: 2428
- Joined: Tue Aug 19, 2008 2:48 am
Re: China dept bomb
Hayman Capital's Kyle Bass, who made his fortune going short on MBSs (Mortgage Backed Securities) before the "Big Short" of 2008, has been pushing this trade for 2 years now, along with his famous "widowmaker" short on JGBs (Japan Government Bonds), which is approaching 10 years.
There is an old saying on Wall Street that "The market can stay irrational longer than you can stay solvent."
Kyle is more solvent than most, but the market is still in irrational territory.
I just looked at Lyft's S1 filing. $5 billion invested with the last money valuation at $15 billion for a company that is losing $1 billion on $2 billion in revenue.
Yeah. I'll go long on China before I go long on that...
There is an old saying on Wall Street that "The market can stay irrational longer than you can stay solvent."
Kyle is more solvent than most, but the market is still in irrational territory.
I just looked at Lyft's S1 filing. $5 billion invested with the last money valuation at $15 billion for a company that is losing $1 billion on $2 billion in revenue.
Yeah. I'll go long on China before I go long on that...
“None are more hopelessly enslaved than those who falsely believe they are free.” Johann Wolfgang von Goethe
- Vonz90
- Posts: 4731
- Joined: Fri Sep 19, 2008 4:05 pm
Re: China dept bomb
https://www.foreignaffairs.com/articles ... c-slowdown
Looks like they are doubling down with more debt. This will not end well.
Looks like they are doubling down with more debt. This will not end well.
- Frankingun
- Posts: 1925
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Re: China dept bomb
Shhh. Never interrupt your enemy when they’re making a mistake.
- Weetabix
- Posts: 6106
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Re: China dept bomb
I don't know. Our issues in 2008 affected more than us. Theirs could affect us.Frankingun wrote: ↑Wed Mar 20, 2019 6:35 pm Shhh. Never interrupt your enemy when they’re making a mistake.
Note to self: start reading sig lines. They're actually quite amusing. :D
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Re: China dept bomb
1. Anything that can't go on forever, won't.Weetabix wrote: ↑Wed Mar 20, 2019 7:06 pmI don't know. Our issues in 2008 affected more than us. Theirs could affect us.Frankingun wrote: ↑Wed Mar 20, 2019 6:35 pm Shhh. Never interrupt your enemy when they’re making a mistake.
2. The market can remain irrational longer than you can remain solvent.
A China-scale repeat of Venezuela would be a disaster of massive proportions. And Venezuela doesn't have a military that is much of a threat to its neighbors, nor do they have nukes.
Question: if there is debt, someone is buying that debt/loaning the money? Who are the creditors of all this debt in China?
Fortuna Fortis Paratus
- Vonz90
- Posts: 4731
- Joined: Fri Sep 19, 2008 4:05 pm
Re: China dept bomb
Reasonable question, with the caveat that I am not an expert - I will pass on what I have been reading, they have about 1 Trillion in foreign liabilities but much more in internal. They are leveraged both at the national government level, local government level, corporate level and consumer level.Langenator wrote: ↑Wed Mar 20, 2019 9:55 pm1. Anything that can't go on forever, won't.Weetabix wrote: ↑Wed Mar 20, 2019 7:06 pmI don't know. Our issues in 2008 affected more than us. Theirs could affect us.Frankingun wrote: ↑Wed Mar 20, 2019 6:35 pm Shhh. Never interrupt your enemy when they’re making a mistake.
2. The market can remain irrational longer than you can remain solvent.
A China-scale repeat of Venezuela would be a disaster of massive proportions. And Venezuela doesn't have a military that is much of a threat to its neighbors, nor do they have nukes.
Question: if there is debt, someone is buying that debt/loaning the money? Who are the creditors of all this debt in China?
The biggest issue (From my POV) is that they have been for years papering over non performing loans and otherwise propping up failing banks with central funds (all of their banks are state owned). It has worked because there has been enough outside demand and growth to make up the difference, but it is still taking a toll.
They are in a debt cycle where the higher debt requires higher servicing costs and eventually they will run out. slack. (Frankly we suck too, but our debt servicing costs are like a third if theirs spread over a much wider base. Also, as perceived risk there goes up investors are looking for safe haven and we are the main one.)
Certainly it cannot go on forever, but they may keep it going for a long time. They would be better to do a TARP or something similar to wind down the bad loans and insolvent companies, and they have a little, but they are very afraid of a recession so they do not want to risk it.
A possible outcome in place of a crash is a zombie economy like the Japanese ended up with (with lots of insolvent companies limping along but not allowed to die. But Japan had a much wider base and lower net debt, I do not think China could sustain even that if their growth/debt cycle gets interrupted. But who knows for sure, I just know it will be ugly when it happens.
I don't know how it will impact us either, I could see net plus or net minus.
- D5CAV
- Posts: 2428
- Joined: Tue Aug 19, 2008 2:48 am
Re: China dept bomb
Forget the bad things I said about Lyft. They only lost $1 billion on $2 billion of revenue.
WeWork lost $2 billion on $2 billion of revenue.
https://www.zerohedge.com/news/2019-03- ... 19-billion
Just to put this in perspective, the poster-child of the dot.com debacle, Pets.com, "only" burned through about $100 million of investors' money before cratering.
Investors may actually get back 30 or 40 cents on the dollar with JGBs and CGBs. A screaming "buy"* in comparison.
* Note: this is not a recommendation to buy any securities. Talk to your investment professional.
“None are more hopelessly enslaved than those who falsely believe they are free.” Johann Wolfgang von Goethe