Ann: Appointment of Non-Executive Director, page-16

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Stormboy2

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14/09/21

13:49

Post #: 56051544
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Originally posted by Greenflint: ↑

Good point. I wonder if the debt fueled growth is starting to unravel? Can this be the financial version of the Covid pandemic that may spread to the rest of the world?

Based on what I had read, below is the summary of Evergrande debt position:
1) US$300B total debt.
2) Of the above, US$20B are in off-shore bonds.
3) US$ nominated bonds of ~US$6B is due next year (no breakdown on off-shore and on-shore).

On the basis of the above alone, it does not look like it is going to trigger a black swan event at the world stage.

However there may be a domino effect on the rest of the Chinese real estate developers where a lot of the growth were fueled by debt. If Evergrande fell, then it naturally follows that the rest of the developers will find it difficult to raise money through bonds and therefore the Chinese real estate sector may trigger the country economic slowdown. The impact of the world second largest economy of $16T slowing down, will not be insignificant. The economic slowdown perhaps may kickstart a second worldwide recession.

How will that impact price of gold? Higher private bond yield(as the private developers need to re-cycle their debts) in China may trigger inflation and instead of importing inflation, this time around China may export inflation to US and the rest of the world. US inflation had stayed low in the past due to the off-shoring of its high cost manufacturing base i.e. exporting its inflationary pressure to China. Inflation as we understand (study says otherwise!) correlates to higher gold price.

Outcome is: slowing world economies + higher inflation = stagflation (reminiscence of 1970s stagflation).

US FED can't do much under this stagflation scenario. In a slowing economy, interest rate will have to remain low to keep the economy going and inflation will continue to run high. Perhaps apply a shock therapy to the economy by jacking up interest rate? Unlikely due to high level of debts (different to the 1970s when the debt level was much lower) in the private and public sectors!!! Essentially US FED has no tool left in the toolbox to counter a stagflation.

Time will tell.

Cheers.

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Lehman Bros went under for 60mil.
They have a large position in property in Aus, Can US.
China not keen to bail them out.
USA may want the tax payer to rescue them.
They do have a large foot print in half finished projects.
When the trust breaks, hard to put Humpty Dumpty back together again.

DCN Price at posting: 22.8¢ Sentiment: Buy Disclosure: Held
3 Upvote

0 Great analysis

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Ann: Appointment of Non-Executive Director, page-16

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