Here’s the weekly rundown
Weekly Summary:
What’s worse than bad Chinese takeout?? Bad Chinese real estate you find out about Monday morning before you’ve had your overpriced coffee.
What’s worse than overpriced coffee? Lukewarm overpriced coffee which is exactly what many traders on Wall Street were drinking by the time they realized 30% of China’s GDP comes from real estate and that China’s largest developer, Evergrande, is about to default on $300 Billion worth of debt possibly starting this week!
This was the story developing Monday morning that was the main catalyst driving the Dow’s largest single-day drop since May (-600 points). The main fear was that the default of China’s largest real estate developer could spread financial instability to other industries including those outside of China.
However, the bark was scarier than the bite.
By Tuesday Evergrande came through on a small portion of its debt (domestic debt payments) and Wall Street realized that Xi (China’s President) might let Evergrande fail but not to the point of taking out the entire economy -triggering a rally.
Adding fuel to the mid-week rally, Fed Chair J. Powell left us with, well, no news from the US Central Bank’s meeting which turns out to be good news since the alternative is more expensive money. This is especially good for stocks since cheap money means bank accounts and bonds are a terrible alternative to store money. Most people would rather take a small return than no return meaning stocks are the only game in town right now even if many are trading at a premium.
Which is what the underlying theme of this week and really this month has been. Things have been so good for stocks this year, many investors are now out looking for what can go wrong. The reality though is that for the near term, most things are good and will likely stay good for a while.
Fear and uncertainty were market drivers this week.
More on China Real Estate
Just don’t say anything…China’s real estate developer Evergrande did miss an $89 million interest payment to its lenders due Thursday. Evergrande’s excuse? They didn’t say anything about not being able to pay.
The company this year has struggled to sell many of its properties this year to cover its liabilities often having to take deep discounts to get anything to move. That’s really bad when you have little to no equity in properties to cover the difference on the loss.
It is likely that the heavily leveraged company will not survive, however, the current probability that their default spreads financial instability to US markets is low. That said, this serves as another warning to US investors about the current state of investing in China.
The Major Headlines:
? Raise the Debt Ceiling
Write the check. That’s what Democrats on capitol hill are saying this week when it comes to figuring out how to keep the government-funded. According to Treasury Secretary Janet Yellen if Congress doesn’t increase the amount the Federal Government can borrow, they’ll be out of money by October (so like two weeks).
The two current options were to increase the debt limit, which is like increasing the amount you can charge to a credit card, or suspend the debt limit, which is just to say there is no limit. –See Article
? Civilians Return from Space
Home sweet home! The civilian first space tourists safely returned back to earth Saturday evening. The mission called Inspiration4 raised over $200 million for St. Jude children’s hospital. –See Article
?? You Pissed Off the French
Sharing secrets and stealing business. The US military struck a deal with Australia this week to share US nuclear submarine technology with Australia in an effort to bolster Western military deterrence to China.
Why is France mad?
France is mad for a few reasons. One is that France had been working for several years to build French diesel submarines for Australia. Another is that the nuclear technology shared with Australia isn’t shared with France. To top it all off, France was not clued in to the US strategy until basically after the last minute.
The result was a very angry France who recalled their ambassador to the US. –See Article
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