Quote:
Originally Posted by JMarchand1981
I think you are underselling the Evergrande liquidity issue. That's really all I want to toss out there. It won't be a 2009-type of meltdown, but the volatility will shake out a lot of weak hands.
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As I understand it and how I model it:
Evergrande is a known risk. I can find articles with people worried about Evergrande’s debt problem back to January of this year. I believe the default has been a forgone conclusion for months. China started running stress tests on their liquidity in early June and by the end of the month Chinese banks killed their credit. I have to believe quants have modeled the risk associated with their eventual default.
In the end, Evergrande’s default is roughly 1/2 the size of Lehman’s (non inflation adjusted) and maybe 2% of the reach at best. For contrast, Lehman was in the S&P 100.
I’d assume the vast majority of Evergrande is contained in China, and it’s likely that China softens the blow internally. China just dumped $14B into its markets last week.
I agree the volatility will shake week hands, but when VIX cools (and it will), SPY will continue its trajectory and the markets move forward.
Last time VIX went this high, SPY was at $405. We’re about $30 higher now, so what happens when VIX cools back down to even the 18 range? Hell, VIX is up 50% in the past month and SPY is down 3%.
At this rate we could go back to the VIX being at 60+ and we’d lose maybe 15%? I’ll just buy more, along with most everybody else. So much cash on the sideline waiting for that event.
Any meaningful swipe will likely occur in the crypto space I’d assume, not on the NYSE.
I could be reading everything wrong, I just believe their to be greater tail risks to the markets than a $300B default from Chinas 2nd largest real estate developer.