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CLUBHOUSE & EVERGRANDE........101 Windex for the glass eyes.

Discussion in 'The Kruse Longevity Center' started by Jack Kruse, Sep 17, 2021.

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  1. Jack Kruse

    Jack Kruse Administrator

    Clubhouse Update for those who listened to the diarrhea from the stage this AM from a single voice. Here is his blind spot as I see it.

    Evergrande damage control PBOC injected ¥90B ($13.9B) of funds on a net basis via 7-day & 14-day reverse repurchase agreements last Friday, this is the most since February & first time this month that authorities added >¥10B of short-term liquidity into the banking system in a day.

    Now the PBOC is saying they are not going to nationalize their debt.

    Could Evergrande debt be an added wave to global debt markets without any issues?

    The wise among us now realize 85% of US junk bonds have negative real yields - after 08' it peaked at 10% Pair this with the fact that 25% of global government debt yields negative NOMINALLY. Never in history has the world seen more negative yielding debt - markets are backed into a corner. Evergrande wave of debt would easily be able to knock over the CDS spreads and bond markets in the USA.

    In the last 24 months the US Federal Reserve has added nearly $4.7 trillion to its balance sheet compared to $3.8 trillion it added in the 6 years following the financial crisis. "We print it digitally" - Jay Powell

    They'll never unwind this. Ever.


    What would 4-10 Trillion dollars of bad Chinese debt do to the global debt markets short term right now with the debt the USA added recently?


    What has happened recently to the USA system with respect to debt.

    In light of McConnell's recent comments on the USA debt ceiling, do a quick check on the Treasury's General Account: $296.9B as of 9/1/21.

    The Daily Treasury Statement from the first Tuesday shows MTD net change in cash of -$144.8B. Puts current cash balance around $152B. Looks like $144B in UST maturing by 9/30.

    The US Treasury net change likely reflects unexpected emergency cash outlay for the withdrawal from Afghanistan as well. And of course, the child tax credit is roughly $118 B/month

    This means the TGA will be broke in EARLY OCTOBER.

    So what happens if Evergrande debt issues hit USA credit markets at roughly the same time in Early October?

    McConnell's comments become magnified in this light. THE DEBT CEILING MAKES US MARKETS VULNERABLE TO ATTACK. THIS WILL ALTER THE GLOBAL RESERVE CURRENCY STATUS OF THE US AND MIGHT DO WHAT XI has always wanted. Make the US bend at the knee by causing a dramatic reversal from this picture of inflation to a massive deflationary abyss on a short term basis. Could Xi be Sun Zu here?

    McConnell said, “The country must never default…debt ceiling will need to be raised. But who does that depends on who American people elected. The only issue is, whose responsibility is it to do it? A Democratic president, a Democratic House, a Democratic Senate. It's their obligation

    Those are Xi people. Biden administration and Xi both buy into the WEF ideas of a one world government.

    Doesn’t anyone understand that raising the debt limit means the USA DID default in the past????

    Hate to be the bearer of bad news, but we've defaulted already - two times in fact. First, in 1933-1934 when FDR confiscated all gold at $20.67 per oz and then devalued the dollar to $35 per oz for 40 years. Second default, in 1971 when Nixon closed the gold window.

    McConnell effectively can run the country but not increasing the debt ceiling. To me it appears China might be using Evergrande as their version of the 2 airplanes that flew into the World trade Center in 2001. If you can can engineer a debt wave to hit just at the right time in the USA you might make DYX go to the moon and facilitate a rapid US credit crisis when the economy is most vulnerable and you can complete your 100 year plan. Because you already have a CBDC you can out print money to keep the financial strangle hold on US markets to force them to act in a way that suits your 100 year plan.

    Do you want to fly blind or do you want to operate using the precaution principle? Should you pay attention to the events developing in Asia right and try to understand them from a 30,000 foot view?

    As long as China keeps settling in US dollars then we will be ok with continuing to creat currency and monetizing past debt. MIGHT EVERGRANDE BE THEIR LINE IN THE SAND?

    Inflation will make out debt seem cheap, but a deflationary spiral would destroy the USA in very quick fashion. Might the Fed and Treasury be blind to the CCPs plan because they are too comfortable? The US financial system believes we owe the Fed and they don’t need to be paid back anytime soon. So this fuels their blind spots.

    Might Rome be burning and the fire so far away that you don't feel the heat yet? Some of us can see the fire burning and we do not need to feel the heat to understand what is going on in the global stage.
    GavinH and Johan Lindstrøm like this.
  2. Jack Kruse

    Jack Kruse Administrator


    It was a bomb placed at the foundation of the US financial system designed to weaken it. Not destroy it. Similar to the 1993 World Trade center bombings.

    It has been effective. COVID was a compliance test for this economic reset.

    I don’t know who needs to hear this, but punishing the unvaccinated cannot stop an accounting fraud

    I don’t know who needs to hear this, but punishing the unvaccinated cannot stop an accounting fraud. The CCP operates the WHO as a financial weapon against the West.



    GavinH and Sara S like this.
  3. Jack Kruse

    Jack Kruse Administrator

    When you want to get to the truth you have to ask better questions.

    Anyone who tries to muzzle you should be avoided.

    Question everything.
  4. Jack Kruse

    Jack Kruse Administrator

    These idea began in my Hyperinflation thesis thread on this website in July of 2021 on page 21 of that thread.

    Lots of updates to it now.
    GavinH and John Schumacher like this.
  5. Jack Kruse

    Jack Kruse Administrator

    Governments create emergencies so they can usurp power.

    Biden: “Since the pandemic began, billionaires have seen their wealth go up by $1.8 trillion.” Modern “liberalism.” Shut down the economy, giving $1.8 trillion to billionaires, then complain their wealth went up. AOC’s “tax the rich” dress in his recent speech form WH.gov.
  6. Jack Kruse

    Jack Kruse Administrator

    McConnell is setting the stage.

    McConnell wants Dems to WRITE THE BILL on the debt ceiling. They must decide on extension or amount. He won't back a BiP 'extension' that opens the door for the 3.5T in the infrastructure bill because of the 2022 elections, because that bill cant survive the 'pay-for' intact. He wants the campaign issue badly, obviously. It isnt debt.........The CCP knows this and I think they will use it to weaken the US Treasury.
  7. Jack Kruse

    Jack Kruse Administrator

    The target the fed is putting on the Treasury makes it easier for Xi to hit everyday. If the Fed doesn't slow the pace of its monthly bond purchases in the next few months, its balance sheet will be close to $9 trillion by yearend. In the past three months alone, its holdings have expanded by $384 billion, to $8.45 trillion.

  8. Jack Kruse

    Jack Kruse Administrator

    The Evergande credit contagion is spreading, with bonds of China's other leveraged developers tumbling.
  9. Jack Kruse

    Jack Kruse Administrator

    China's central bank injected liquidity into the banking system as the credit contagion worsens.
  10. Jack Kruse

    Jack Kruse Administrator

    Current exchange rate US DOLLAR (USD) to CHINA RENMINBI (CNY) including currency.

    DYX needs to be watched.

    China's junk bond yields keep rising to 14.4% due to fears of an Evergrande default could trigger a domino effect.

    John Schumacher and GavinH like this.
  11. Jack Kruse

    Jack Kruse Administrator

  12. Jack Kruse

    Jack Kruse Administrator

  13. Jack Kruse

    Jack Kruse Administrator

    One common practice of these construction companies,a game Evergrande excelled at, was to bid land at prices significantly higher than market. It didn’t matter to them, coz the risk got transferred to flat buyers and banks that financed the purchase.
    That model worked well for local governments, banks and households because house prices were going up. So much so over the last 15 years, that a serious affordability crisis emerged in major cities AND HH debt soared way above disposable inc - below HH debt as % GDP

    So it wasn’t hard to figure out the economic disaster in the making: exponential price rises with explosive HH and Construction leverage. But that’s not all. There is another problem that escapes most China analysts.
    As a result of years of seeking easy growth through construction and leverage, the misallocation of capital was :
    1- capital starving more innovative and high tech sectors (see chart) and
    2- creating a headwind for a re-balancing towards a more consumption driven growth.


    At some point, reigning in lending to the RE sector became vital in order to address the structural issue of capital misallocation. That also explains the curbs on VC investments in RE and most importantly, a curb on all the irregularities that characterized RE.
    The issue of irregularities is at the core of what is happening with Evergrande. More on that later. It’s a long introduction, but it seemed important to explain these issues to understand the long term nature of this problem and why it’s resolution will be tedious.
    So there is a new paradigm dictated by a set of economic realities that CCP could no longer ignore and most importantly, they can relax the rules a bit, but can’t reverse course. They can’t allow consumers to be bust nor a rogue unproductive sector to balloon further.
    The tail risk emanating from the implementation of this new paradigm is being priced in. It’s not only Evergrande’s credit that is collapsing but the whole High Yield market in China is collapsing. Contagion is AT work now. Anyone who tells you otherwise just does not get it. China High Yield market is some 10% away from it’s March 20 low….that’s not benign to them or us.


    Within construction many weak operators are seeing their credit collapse: Fantasia, R&F, Suna, China Aoyuan. But that’s not all. The stress is spreading to the banks and financials. Here is Minsheng and Ping An - next level up would be IG starting to show stress.


    So we established that we are in the phase of pricing the tail risk. All in all pretty China centric for now. How could it create contagion beyond. There are significant losses already for the international holders of China credit and equities. That’s one channel.
    Any broader contango on towards the financial sector in China will prompt temporary policy responses like liquidity injection (done this week). But don’t expect a turnaround. They can’t. How will it resolve itself? Well, it started with leverage as the big issue.
    So it will get resolved through asset sales. Idiosyncratic stories will dominate. Stronger balance sheet players will snap land and construction sites. SOEs will snap some assets. State will unwind bad players to help make whole employees and home buyers.

    There is a shady side to many of these construction cities, non more so than Evergrande and their Wealth management products sold mostly to employees. They can’t discharge the guarantees on many of these products and there are rumors of insider selling.
    Expect more rot to be exposed, trials, accountability, compensation, etc…Stabilizing the onshore property market will be long, arduous, and risky. Evergrande alone has an order book of 1.7 m residential units. Those are down paid for, yet unfinished.

    Uncertainty and volatility will remain elevated. None of the ill-informed « they will bail them out » scenarii is possible. One thing is certain, there will be a protracted construction slump in activity and price increases. CCP might not allow for house and land price.
    There’s obviously a read- cross for all commodities, but mostly steel. Dalian Iron Ore started collapsing in July and never looked back. Unsurprisingly, August showed the biggest drop in steel output on record…


    And guess who is taking note? The miners are. That’s how contagion works. Aussie miners are the obvious play here: you can see that RIO has established a downtrend and is looking primed for a large move down. $BHP and $FMG looking equally awful.

    It’s not only a commo issue. China’s consumers are very levered and while output has been restored to pre-COVID levels, consumers can’t keep up. Retail sales plunged recently to 11% below trend and all high frequency measures are showing sluggish spending. Chart Pic.


    And China is looking at a winter of power shortages that’s gonna challenge it’s output further. It’s looking pretty dire and a last level of pernicious contagion will come from the losses all unsuspecting US moms and pops will incur following years of reckless inflows.
    While some signs of funding stress are emerging like the Onshore USD/CNY 1y swap rates ticking up, it’s still largely benign. China is a financial system where state and banks are 1 and liabilities locally dominated and held.
    If funding stress signs don’t emerge, don’t conclude that there is no contagion. Contagion is playing out already if you know where to look.
    GavinH, John Schumacher and JanSz like this.
  14. Jack Kruse

    Jack Kruse Administrator

    Evergrande and many companies like it in China. Do you want to understand what is going on? 2013 report by 60 minutes is an excellent summary. 12 minutes long. You will have a better understand about what is popping right now.

    A Blackrock fund manager has just cut all gold from portfolio
    Meanwhile, I have found that BlackRock is exposed to Evergrande.
    This fund manager clearly does not care about risk management.
    He owns no BTC either.

    CATHIE WOOD SOLD ANOTHER $31 MILLION WORTH OF TESLA THURS, TOTAL NOW $297 MILLION SOLD THIS MONTH because she knows China's supply chains are imploding and Tesla cannnot make it with a steady stream of rare earth metals and semi conductors.

    I think Monday is going to be ugly on Wall St as this stuff leaks out
  15. Jack Kruse

    Jack Kruse Administrator

    Hong Kong's richest women Chan Hoi Wan has sold 24.4 Million shares of Evergrande for $11.2 Million. Her stake fell to 7.96% from 8.15%. 2nd time she sold just in this month. Her billionaire husband is a good friend of Evergrande founder Hui Ka Yan. They know a credit crisis is coming.

    Look who owns Evergrande?
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  16. Jack Kruse

    Jack Kruse Administrator

    Evergrande is on the hook for 500 billion (¥CNY) worth of mortgage guarantees. If borrowers default on their mortgages, Evergrande is obligated to buy them back. This liability doesn't appear on the balance sheet because the C-suite deems the likelihood of default "immaterial"

  17. Jack Kruse

    Jack Kruse Administrator

    This might not be pretty.
    GavinH and John Schumacher like this.
  18. Jack Kruse

    Jack Kruse Administrator

    This is an interesting problem for central banking geeks. Many of China Evergrande's suppliers, who were paid not with cash but with Evergrande commercial paper (CP), are now finding it hard to get paid, and so are worried about their own.
    Solvency and liquidity: "The plight of Wu and many others like him has thrown a spotlight on the extensive use of CP in China's property sector. Developers favour it as they prefer to not pay upfront and because it doesn't count as interest-bearing debt."
    This is an obvious problem for Evergrande's suppliers, who might not be paid after having delivered products, but, it is a monetary problem. As long as CP from large property developers was...used as money.

    The CP was widely accepted as an efficient payments mechanism to suppliers, it was not much different from other forms of money. As Hyman Minsky liked to point out, while anyone can make money, the hard part is getting others to accept it, and this CP was widely accepted as money.

    As such it formed part of China's money base. Money isn't a "thing" so much as it is a quality inherent — to very different degrees — in all assets. If suppliers now become reluctant to accept CP issued by property developers, this will have two macroeconomic impacts.
    First, obviously, it will reduce the efficiency of business transactions — i.e. raise frictional costs — in the property sector. Second, it will cause a contraction in China's "real" money supply as an asset that was once highly "money-like" becomes much less so.
    To the extent that the PBoC recognizes this, they should expand the domestic money supply to make up for the partial demonetization of Chinese CP.

    JanSz, GavinH and John Schumacher like this.
  19. Jack Kruse

    Jack Kruse Administrator

    "Three weeks ago we did not see any imminent risk of a credit event occurring for Evergrande. Since then, there have been a number of setbacks which have led us to believe that a credit event seems unavoidable" - UBS
  20. Jack Kruse

    Jack Kruse Administrator

    PRC's current situation, in a nutshell.
    More than anything, they're flailing about to reconcile two fundamentally incompatible goals:

    1. Reinforce centralized control of the economy
    2. Maintain liquidity through high exports until domestic demand can offset export losses The failure cascades are undermining both.
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