Welcome back to the channel everyone today, i want to talk about why evergrande is going to be so much worse than lehman brothers and why the chinese government is not going to bail out that debt. That's majority held by us institutions and u.s banks, so stay tuned and let's make some money, but before i dive into the video i just want to give a massive shout out the team over on the private discord there. They get urgent news due diligence and updates on amc, gamestop other stocks and cryptocurrency. Before i even make a video - and it's the best place to ask me a question, as i'm active there, pretty much 24 hours a day linked in the description below and while you're down, there also be sure to check out my store to pick yourself up.

A cool space ape hoodie like this one or maybe a to the moon, t-shirt or something else also linked in the description below, and i want to dive straight in with the key information. So two debts, one company or a tale of two defaults, and why? China's bailouts will look radically different than the ones wall street is used to so evergrande is a big story right now and there's a bunch of speculation, both informed and not about it running rampant. As someone with a bit of experience with how chinese businesses run, i figured i'd share with the group. His mba is an international business with an emphasis on china and he did a fair bit of it at a university in beijing.

Whether that means he knows what he's talking about or not is up to you to decide too long didn't read. China is going to do some sort of evergrande bailout, but because they have radically different incentives than western politicians. It's gon na look very very different and heges are extra screwed, okay. So first, let's talk about the 300 billion dollars in debt.

Evergrande has by comparing it to lehman brothers, not really a fair comparison for a lot of reasons, but it's something on everyone's mind. So, let's begin there when lehman collapsed in 2008, they had 619 billion dollars in liabilities or debt, which is more than twice whatever grande. Has so that means this is way less of a big deal right well, wrong. Layman also had 639 billion dollars in assets, which meant that, even though they went bust, they were still slightly net positive at the time.

Evergrande is not net positive and they've got a lot more than just 300 billion dollars in debt, 300 billion dollars is just their outstanding bonds. Some of that debt is unknowable because it's hidden in china's shadow banking system and state banks, or it's owed off the books to employees and their families, there's also a whole pile of debt owed to suppliers and subcontractors, which we also don't have the numbers for right. Now and finally, since you really really really can't trust official numbers about anything in china, the problem is likely worse than what they're telling us and again this is unknowable unknown, but there's another component to that debt that we do have a number four and that's 1.6 Million apartments see real estate in china, doesn't work remotely like real estate in the usa does, for one thing, state benefits are based off of where you officially live. So an address in a big city is a lot more valuable than just a place to sleep, and that's also why there's huge slums outside of big cities, because without an address they aren't entitled to state benefits like health care and for a second thing, if you're Buying property in china there's no zero down and a teaser apr, there's not even a 20 down and a mortgage.

It ranges between 50 down and full price in cash. No loan that upfront money paid is going to be super important later, so keep it in the back of your head. While i go through this next part now, we need to talk about how evergrande financed and ran its massive expansion over the last couple of years. Finally, they'd buy up land well above market price finance it with debt offerings and then take deposits from potential buyers and start building apartments and then sell the remaining debt in bonds sort of similar to how the usa did with mortgage-backed securities and related securities from the Big shore, well, the thing is the numbers, never actually added up completely and the whole thing was always sustained by using revenue from pre-selling the next project to pay for the current one.

Unfortunately, this also didn't quite add up after the executives, skimmed their cut or their salaries off the top as well. So it then turned into using revenue from the next project to pay for the debt on the project, one or two buildings beforehand. This kept escalating every time things cycled through until it all fell apart, like a bunch of jenga blocks. If that process sounds familiar, it's because it's the same scam, bernie madoff ran for years a ponzi scheme where the new money pays off the profits of the earlier investors, and it only works as long as exponentially.

More new money is coming in all the time. When that inflow stops or even slows, you get the bad kind of boom. A few years ago, the ccp got alarmed about the amount of leverage or debt and speculation in the domestic housing market and tried to bleed out slowly with the one person one house policy. Unfortunately, for them, the problem was already so bad that even slowing down the inflow of new money was going to detonate things, and that's what's happening now to evergrande, which will be the first of many to fall like this.

Okay. So now you're caught up with what's happening, and why here's why things have escalated so quickly that executives are being taken hostage. Remember when i said to pay attention to where the upfront money for new projects came from yeah, unlike in the us, where people lost some rent, a place to live, and maybe some equity or a down payment in china, it's people losing the entire purchase price of The building and not big bankers or banks or mortgages that are being lost. It's individuals losing their and often their extended family's entire life savings because they spent all for an apartment that hasn't been built.

Yet with a company, that's currently being liquidated and that's the second debt that needs to be paid here, not just the bond parts, which is all the western media understands or cares about, but the apartments and better lives and opportunities that these people and their families dumped Their generations of savings into 1.6 million apartments worth of debt, and that's just from evergrande - it's been less than a week and they're already taking executives hostage next up the chain is party officials and that's when the tanks come out and things start getting really bad. So moving on that's why z's response to this is going to be so different than what everyone here in the west is used to with financial crisis, because the main, or at least most reliable motivation for basically all politicians is to gain and stay in power. In the west, that means keeping rich donors happy, which means screwing over the little guy printing money and preserving the wealth of the wealthy and the integrity of the international finance system and banks in china. That means keeping society stable and prosperous enough to not have revolution on the streets, so any focus or potential bailout that the ccp initiates isn't going to focus on international institutions or banks or bondholders debt.

It's going to focus on the apartments there, the debt to the tens of millions of chinese citizens who got taken by evergrande and possibly hundreds of millions who got wiped out on unbuilt buildings by the time. This is all over. Another key thing to remember here is what happens to countries with debt to other countries experiencing a financial crisis that aren't the usa. A prime example is what germany did to greece after the 2008 crash things in greece got so bad.

The unemployment was well north of 25, and people were starving to death, the people elected what were effectively communist, then fascist governments back to back in an effort to find a way out and that's how bad it got now think about the fact that china, through its Belt and road initiative has been lending out money all over asia, africa and eastern europe. All of those countries who took on debt to china to get infrastructure work done by chinese construction companies had been enjoying having that debt laid off in exchange for political influence. Well, they're about to get some very harsh lessons in which people the chinese government values more than them. Finally, no china can't call on its u.s debt because they have to keep buying treasuries to keep their currency cheap if they stop or worse start selling, then the yuan quickly appreciates to the point that their exports aren't competitive anymore and their entire economy collapses.

Also save some prayers for western australia because their mining industry just got obliterated by the lack of chinese demand, and this could also go for worldwide companies as well. Bathroom manufacturers across the world are suddenly going to see a slump in sales because china is going to stop buying same with. Maybe car manufacturers, brick manufacturers, basically anything that goes into a property - is now likely to slump. Now.

You might have also seen earlier that mike berry, tweeted, saying 135 china crash now attached to it. Wasn't this video of the big short. It was a song. Many people obviously skipped the one minute and 35 second mark, but there wasn't really much going on, but if, instead you go to the big short film, you get.

This fine just put the business news on. Please thank you and the s p picked up three points. Mortgage meltdown continued today subprime mortgage lender new century financial uh. What's the industry leader by the way filed for bankruptcy company immediately good time for my voice to go fired 3 200 workers, the manufacturing index also fell in the month of march.

It's warning that economic growth could slow now, the in students now that clip there talks about new century financial going bankrupt, maybe similarly to evergrande going bankrupt and jamie shipley then says it's starting now. Obviously, this is just a theory that could be very tinfoil hat based, but something also very interesting happened shortly after michael bury deleted, his twitter account again, and i wonder if the sec paid him another visit for too much truth. Maybe michael brewery didn't expect people to cotton on quite so quickly to the fact that that wasn't actually a song reference, but maybe it was the big short reference instead, especially as michael brewer has been tweeting a lot recently about evergrande and its impacts. It's very very possible, interestingly enough.

Somebody that potentially agrees with michael bury is nancy pelosi, who reportedly bought one million dollars of put options on china hours before evergrande announced potential default. Now, if that is an insider trading, then well, i don't know what is and also blackrock have reportedly been selling all chinese property sector holdings and meanwhile they're telling everyone that there is no need to worry if blackrock are dumping all of their chinese property sector holdings. Well, clearly, there is a need to worry now. Obviously i also want to touch on amc and there's something very, very interesting that i've managed to put together.

Maybe apes are now currently on the course to own, even more than 80 percent of the flow 80 of the legit flow trade, trades tweeted saying my theory: 20 of this stock is owned by institutions by the book. Who knows if it's actually 20 or less with a seemingly unavoidable market correction on the horizon, lots of chips are getting dumped by the suits. I think you're watching that process right now, patience, and that is obviously why amc is falling at the moment. Loads of suits are reorganizing their portfolios and are just obviously selling off amc in the mass panic, but there's a good chance that a lot of these shares are moving from institutions to apes, explaining the continuous downward pressure.

Although our holy and mighty negative beta did not react the way many of us thought it would, i think it still react that way. It's just going to be a delayed reaction. Trey bought up some good points on twitter margin. Calls and liquidations are going to be making their rounds all over.

The market blackrock in particular, is long on amc, but also heavily interested in evergrande. I know apes are eating up these dips. We are continuing to build on the 80 ownership we were notified of in june, keep up the good work, apes, cool, calm, apish. Therefore, it wouldn't surprise me if very very shortly we end up owning 90 of the float 95 of the float or even higher.

Now i also wanted to quickly touch on the reverse, repos and we've now had 28 days in a row over one trillion dollars and a new record high two days in a row as well. We broke the previous high of 1.189 trillion dollars on friday, with 1.218 trillion dollars and on monday we broke it again with 1.224 trillion dollars. I am personally very excited to see what's going to happen tomorrow on wednesday, now that china will have finished its autumn holiday. Therefore, the markets are going to be open in china and everyone is going to have a very large reaction to the evergrande fall.

I think we're going to see some massive massive selling off in china on wednesday, which i do think is also going to impact the us on wednesday and thursday and through the rest of the week as well, guys be sure to. Let me know down in the comments below what impact do you think ever grindly is going to have on the us markets how big of a correction in the s p 500. Do you think that we're gon na have and be sure to check out that link down in the description below to join the team on the private discord, and also to check out some of the clothing and, as always, guys, if you enjoyed this video, be sure To check out some of my others, alternatively, subscribe to channel and ding that notification bell, because that way, you'll be alerted. When i upload a new video cheers.