Evergrande JUST Officially DEFAULTED | What's NEXT.

well everyone it's official evergrant

has finally been declared in default

long considered too big to fail the jig

is up the game is over after three

months of difficulties actually more the

difficulties have really been going on

all year but after three months of real

big difficulties that we've been hearing

about in the markets and in the u.s

media

the chinese property developer has

officially missed payments beyond the

grace period and has been declared in

default

this has widely been expected over the

last few days though because if you look

at the stock today it's actually up 4.05

percent just type into google 3333.hk

to see the stock yourself the ticker

symbol on the hong kong stock exchange

is

3333.hk now if you zoom out over the

last five days though you'll see the

stock is down 21

this week 24

this uh over the last 30 days which

really signals that a lot of pain has

come in over the last five days here

because of this default coming thanks to

what happened on monday missed payments

and of course the stock is down 84

percent over the year

three days ago the wall street journal

india indicated that evergrand was

preparing for a massive reorganization

thanks to the end of the 30-day grace

period on an 82.5 million dollar

interest payment loan or interest

payment on a loan uh that ended on a

monday that was the end of the grace

period imagine having to make an 82.5

million dollar payment just on interest

for a month

that's a lot of money but anyway they're

also a huge company uh

now

evergrand has indicated that it is

working with offshore companies to set

up restructuring it missed its payment

on monday evergrant did not respond

about missing its payment but

bondholders have declared they have not

received their payment and this morning

fitch which is a rating agency global

rating agency popular in the united

states as well as labeled evergrant as

officially in default it is now in a

category known as restricted default

which means it's technically not yet in

bankruptcy or liquidation but it's

basically on its way

now evergrande has made no statement

about this and ultimately evergrand

will whatever deal evergreen makes will

require the chinese government to sign

off on the bigger fears though are that

there could be contagion and fallout out

of this evergrant crisis it's going to

start with chinese homeowners many of

whom have already paid for thousands of

properties that are supposed to be built

by the property developer evergrand but

i have not yet been built because well

the company ran out of money now china

about a month and a half ago loosened a

lot of the new restrictive debt measures

and limitations especially their three

strikes rule that they implemented last

august in 2020 part of by the way the

reason why we're seeing so much stress

in the property market now because while

china going back a little further is

like hey everyone borrow as much money

as you can so you could build build

build and then

now that you've borrowed as much money

as you could we'll change the rules in

2020 and tighten how much you can borrow

and well ever since then property

companies in china have started having a

little bit more stress trying to

actually get projects completed

especially through supply chain

shortages of the covet crisis labor

shortages of the coveted crisis and then

of course the commodities skyrocketing

like lumber for example to build homes

but not just lumber it's aluminum for

sheet metal or framing you name it

commodities have skyrocketed thanks to

inflation and well that makes it very

difficult and expensive to build homes

especially condo developments and so

it's no surprise that property

developers in china have fallen under a

substantial amount of stress

now there is an expectation that other

developers will be able to step in and

purchase these properties that evergrand

committed to build in sort of a

restructuring

basically buying these properties for a

massive discount then fulfilling

evergren's original obligations and

building these properties for the

homeowners who bought them but in the

meantime there are a ton thousands of

chinese homeowners that will be left in

a complete lurch

and this has already totally shaken the

chinese real estate market but it's also

shaking

the liquidity requirements of chinese

individuals if you look at refinances

alone in china we're seeing of

refinances so new mortgages up 40

in october this is substantial that is a

sign of stress especially when the

chinese culture maybe not necessarily

evergreen but individual chinese culture

is generally deemed to be more debt

averse and more interested in cash as

compared to us in america

so to all of a sudden see a 40 increase

in the amount of new mortgage activity

is is a potential sign that individuals

in china are trying to take advantage of

comparable sales at levels where they

are now before prices fall because real

estate takes a while to actually see

prices fall and potentially that

individuals have uh cash stress that

they're i mean i imagine there are some

who are trying to be savvy and start

collecting cash so they can go buying in

the dip so to speak but i imagine the

vast majority of individuals

are suffering from cash stress in that

they've paid for properties that they

now can't move into as expected now

they've got to go rent or buy something

else and they won't get their money back

potentially for years so this is very

likely leading to multiple property

refinances by individuals of other

properties whatever wherever they can

get money from but i think it will also

ultimately have implications for other

assets whether those are stocks or

cryptocurrencies which we'll talk about

in just a moment uh it is worth noting

that as of november 15th the chinese

property market slowed substantially

it's been slowing really since may

prices in all but six of the major 70

cities have begun to slump this is

according to reuters and the november

15th article new construction starts

fell by 33 percent and uh it is too soon

to determine exactly how much prices

will ultimately fall so far we've just

seen a uh our first negative month of

home price gains for the last six years

we've seen home price gains in china and

we've seen our first negative month in

september and we expect that over the

next three months we're going to start

getting real data about october november

december and we'll start seeing how bad

things are really getting some folks are

expecting price to clients of anywhere

between 20 to 40 percent although of

course an exact number is not anywhere

near known yet we also know that a

significant portion of chinese

individuals do huddle bitcoin even

though uh we know that bitcoin mining

and transactions are illegal in china

there are a lot of individuals in china

who don't do not trust their own

government's currency and they prefer

cryptocurrency and this is a very common

thing with cryptocurrencies uh it's

actually potentially one of the reasons

why china is banning cryptocurrencies to

try to force people to use uh the the

chinese renminbi but anyway yahoo

finance reported just five months ago

that according to data they collected

china ranked in the top eight countries

of countries that trade and spend crypto

now uh just five months ago this was

right in the middle of when we started

seeing the shutdown of virtually all of

the miners in china so this could

certainly fall but we are seeing a

little bit of stress in bitcoin prices

right now bitcoin just under 50 000

right now been in a little bit of a

stressful mood over the last week here

especially on monday we saw a little bit

of a dip when this default actually

occurred it wasn't officially declared

though until today

so

but again this makes sense if you're if

you are an individual who's suffering

from a liquidity crisis like a lack of

cash it would make sense that you're

going to quickly try to break the piggy

bank try to refinance what you can try

to liquidate whatever you can i think

nfts are usually the first things to get

liquidated then cryptocurrencies and

stocks so yeah there could be other

stress on stocks as well i'm not sure

how much it'll affect our stock market

in the united states i do think that

there could be fear that starts getting

priced in though in the united states

over how much this could really spread

now the wall street just journal this

morning put out a piece to try to relax

fears over evergreen according to the uh

governor of the people's bank of china

which is who the wall street journal

cited the risk of evergrand quote does

not undermine the market for the medium

or long term

and long term so now at face value that

means we're definitely going to have

issues in the short term because they

didn't mention short term we'd be okay

the governor of the people's bank of

china says we shouldn't have issues in

the medium or long term but that also

requires that you actually believe the

governor of the people's bank of china

and if you do then you're good i mean i

suppose you could also believe jerome

powell or janet yellen because they also

say don't worry we're good but if you

have any reason not to believe china

janet yellen or jerome powell

then maybe there's a reason to be

slightly concerned and maybe a little

bit more on the conservative side of

things yeah now look let's be real

no matter what happens we we know that a

china is wanting the market to end up

dealing with evergrand they're not going

to bail out evergrand and that means

we're probably going to see gdp slow

down in china since the real estate

market makes up 25 of china's economy a

slowdown in a quarter of china's economy

will probably drag gdp down in china

which will probably drag down global

spending global manufacturing and global

innovation

and global sales even for for vehicles

even teslas in china just as an example

and ultimately we could see a drag on

global gdp because of this think of it

kind of like if there's if there's like

a black hole in one area like 25 of

china's economy

then that kind of like sucks down gdp

maybe that's not the best analogy but

it's the best visual i could think of so

we do expect that evergren is going to

create some form of a headwind

now do we think that this is going to

create a market crash in the united

states probably not but any additional

financial stress in the markets is is an

additional slow drain on the emotions

and and really the the strength of

hodlers in america

the reason for that is the federal

reserve is likely to continue tightening

the next fomc meeting is uh next week

next wednesday on december 15th and

that's when we do expect them to double

the taper pace

and then we expect at least two interest

rate increases in 2022 at this point and

so if you start raising interest rates

because you're worried about inflation

while at the same time starting to see

global gdp slow down because now we're

not out of covet boom time

at the same time as we've got a drag

down because of tightening and a drag

down because of chinese real estate well

then then all of a sudden you start

looking around you going uh oh is this

potentially a market that is going to

start being fearful about stagflation

because stagflation is a stagnating or

slowing economy with higher inflation

right now this is personally not my base

case scenario for the coming years i

expect within two or three years that

inflation will be virtually completely

gone uh i do expect it to inflect

downwards over the next coming months a

little bit later than expected but i do

expect to see that inflection point down

i do think this friday cpi print is

going to be a disaster though this might

end up being our peak we'll see

and i know it's hard to envision while

we're at a peak that things could

actually come down but remember folks

i always like to say the flavor of the

day is the flavor of the year in the

stock market and that's because anytime

somebody's nervous about something in

the stock market today they're nervous

about it

well they feel like they're going to be

nervous about it rather forever like oh

my gosh it can never change it's kind of

like when stocks are going up oh my gosh

it's never gonna end it's gonna keep

going to the moon and then people fumble

in at the top and then they lose their

pants right

uh it's it's

straight up psychology stocks and

psychology and money there's a reason

i've got courses on this stuff okay but

anyway it's worth noting that we have

been in a massive 40-year period of

deflationary trends across modern

developed countries

it wasn't long ago that we were having

conversations about negative interest

rates as we looked to japan and europe

as really countries who were just maybe

potentially slightly ahead of us

now hopefully uh you know we stay strong

in our markets

my expectation is that there will

continue to be little opportunities to

uh by the dip i i don't have foresight

though that we would see something

substantially larger unless we had a

confluence of multiple different

catalysts

which i think most of our negative

catalysts will start really disappearing

here and many of them already have

disappeared here in december but my

recommendations generally hold hashtag

not financial advice but stay on margin

invest in high

quality companies with high cash flow

not money losing companies right now

preserve the capital that you need to

get by stay the course and also look for

high margin companies so you stay at a

margin that means debt and you get into

high margin companies companies that

have the capacity to buffer potential

either inflation or deflation higher

emerging companies will be able to do

both of those so uh just a quick example

some of those visa nvidia

uh paypal

these these are some high margin

companies uh end phase etsy a little

more middle of the road but also great

companies all right folks thank you so

very much for watching this video we

will see you in the next one thanks

again goodbye