This Monday the stock market was rocked by news that a giant container ship named āEvergrandeā was stuck in the Suez Canal.
Just kidding, that was the āEver Givenā, operated by Evergreen Marine Corp. and it happened back in March. I understand this is highly confusing but luckily @TrungTPhan has us covered with this handy chart.
Now that we have that out of the way, let's discuss Evergrande, one of the largest property developers in China, and as recently as 2018, was the most valuable real estate company in the world. For context, itās revenue put it on par with Boeing and Procter & Gamble, and the amount of land owned and developed by this single company was 5x larger than Manhattan!
Today, they are a company on the verge of collapse as they began missing debt payments to multiple lenders on Monday. The market didnāt like not being repaid the money theyād lent out, and Wall Street mashed the sell button during Mondayās trading session. This led to market turmoil with the market falling its most since May, and briefly correcting 5% for the first time in over a year.
While it did escalate quickly, this story was actually a long time in the making. Famed short seller Andrew Left at Citron called this collapse in 2012, and Grantās Interest Rate Observer detailed it back in 2017. Unfortunately, cases like this are often covered up until the last minute despite Evergrande hitting every single square of Fraud Bingoā¢.
Despite this occurring halfway across the world, it still may have real repercussions on the US Stock Market. That is because our economy has become more and more global over the last decade, and weāre increasingly reliant on China: either importing (buying) from them to sell here, or (more often) exporting there to sell to the growing Chinese consumer class.
Now, some of you may see echoes of the collapse of Lehman Brothers in 2008, which sparked a global financial crisis (if you donāt remember, itās okay most of us werenāt legal drinking age yet - blame your parents). There ARE some similarities - including how a single companyās actions can ripple through a world economy - as explained here by Selena Gomez in The Big Short (MUST WATCH).
There is one major difference: the country in which these events occurred.
Lehman Brothers was part of a financial disaster in a Capitalist country and Evergrande is currently taking place in a Communist country.
Despite divergent philosophical beliefs, both cases essentially boil down to greed. So, for those of you cheering on Communism, I hate to tell you, it doesnāt solve for human greed.
And while I am not here to defend ANYONE who contributed to the Great Financial Crisis of 2008/2009, I will say this: short sellers of these failing companies were not barred from trading like Andrew Left of Citron (he was right btw), in fact we made a movie, with hot people about them.
And despite making penis jokes about our billionaires recently, they are living free and launching rockets, we canāt say the same for Chinese billionaires. Yes, that article (go click it) describes how Jack Ma, essentially the Jeff Bezos of China, was disappeared for disobeying the Chinese Communist Party.
Whatās the Upside?
Economic ideologies canāt cure human foibles, but they can alter the outcome of an event. Be thankful our Billionaires have the freedom to launch rockets - not be imprisoned, and our short sellers have freedom of speech to help (rightfully) call out fraud.
Because Evergrande is taking place in China, we donāt believe it represents a āLehmanā moment where global markets collapse. There may be some volatility but Chinaās authoritarian (read: total) control should make Evergrande more of a sacrificial lamb than a major domino.
For Your Weekend
This is where weāll post a round-up of essays, podcasts, and streaming shows to check out over your weekend. We cast a wide net so you donāt have to.
Read:
āFusion gets Closerā (CNBC)
In some real life Tony Stark shit, Bill Gates and MIT have partnered in an attempt to develop a new source of endless energy.
Watch:
āSchumacherā (Netflix)
For adrenaline junkies and perfectionists alike, this doc is a look into the life and career of an all time great racing car driver, Michael Schumacher.