Stock Market Wealth

CHINA CONTAGION: LEHMAN MOMENT 2.0!

by | Stock Market Wealth

What, When, Where

Staying at the iconic Waldorf Astoria in NYC, my wife and I went up to our room; we walked the hallways, which are carpeted in beautiful colors and checked out the hung framed pictures of presidents who’d stayed in this very same hotel over the years, along with royalty and celebrities. If a bellboy or hotel employee passed by us in the dorm, he cleared the way by standing against the wall, letting you through; it was all very surreal, as I booked only one night to get a sense of the experience.

My wife and I were young and usually stayed at low-cost hotels, but for that night, we felt like kings!

At 3 PM sharp, we jumped in bed and slept for a couple hours in those ultra-comfortable bed sheets, cranking the A/C to South Pole mode and woke up at 5:30 PM, ready to head out and enjoy the nightlife.

I booked us on a limousine party-hopping service; we were in our mid-20s, first time in NYC and it seemed like the sensible thing to do.

The limo picks you up at 10 PM and drops you off at five different clubs, as you hop from one to another. We were so tired after the second one that we headed back to the Waldorf Astoria!

Before all of that, though, we had tickets to the opera. It was my first one and it was a tragic story, so as the music and the singing turned more dramatic, I thought about prior years (2008-2009), when feared gripped the markets and the financial system came within an inch of falling apart. Here we were in 2011 and the economy was beginning to recover.

Today, the world is learning that China Evergrande Group, a company with a market cap of $30bn, has debts outstanding to the tune of $300bn and is at risk of default.

The Evergrande Group is China’s second-largest property developer by sales, making it the 122nd largest group in the world by revenue. 

The firm has developed projects in over 170 cities in China.

In opera, you can see the tension building up, the tragedy evolving and accelerating right before your very eyes; similarly, we saw this one happening with Evergrande, since reports about its insane debt obligations surfaced as far back as 2016, right when its founder became the richest man in China!

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    I’m in the process of looking at an apartment for myself, so I am learning how a developer uses bank leverage, loans and the funds of its customers to fund the growth and pace of progress, so a year of shutdowns and supply chain issues will definitely create trouble for it!

    China’s government may or may not bail out this monster-sized company, which impacts China’s economy, since real estate is all-important to the Chinese people. A home in China is the biggest source of equity for the average family, much more than it is in the United States.

    Will this tragic opera and sad episode turn itself into another bailout, just as my night in NYC started with opera and morphed into party hopping? What I find interesting is that most people now believe a government aid package to a business is the norm and they celebrate it.

    The CCP won’t be as favorable as Washington was in bailing out its corporations; if the CCP buys Evergrande, it will want to pay a steep discount.

    This is all happening right as the FED is about to potentially make a big monetary shift and while the debt ceiling is debated; stimulus and fiscal aid are also subsiding!

    Cash remains a beautiful tool, as I said just a few weeks ago, since while it erodes a few percentage points per annum, it won’t drop 20% or 30% like some stocks do, allowing the cash-rich to capitalize!

    I’m using this week’s crash to find the one company that I’m going to load up on, once this opera sees its resolution and I will update you on exactly which company it is!

    Best Regards,

    Lior Gantz
    President, WealthResearchGroup.com

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