Well, everyone, it's official evergrant, has finally been declared in default. Long considered too big to fail. The jig is up. The game is over after three months of difficulties.

Actually more. The difficulties have really been going on all year, but after three months of real big difficulties that we've been hearing about in the markets and in the u.s media, the chinese property developer has officially missed payments beyond the grace period and has been declared in default. This has widely been expected over the last few days, though, because if you look at the stock today, it's actually up 4.05 percent just type into google 3333.hk to see the stock yourself. The ticker symbol on the hong kong stock exchange is 3333.hk.

Now, if you zoom out over the last five days, though you'll see, the stock is down 21, this week 24, this uh over the last 30 days, which really signals that a lot of pain has come in over the last five days here because of this default. Coming thanks to what happened on monday, missed payments and, of course the stock is down 84 percent. Over the year three days ago, the wall street journal india indicated that evergrand was preparing for a massive reorganization. Thanks to the end of the 30-day grace period on an 82.5 million dollar interest, payment loan or interest payment on a loan uh that ended on a monday that was the end of the grace period.

Imagine having to make an 82.5 million dollar payment just on interest for a month. That's a lot of money, but anyway they're also a huge company. Uh. Now evergrand has indicated that it is working with offshore companies to set up restructuring.

It missed its payment on monday. Evergrant did not respond about missing its payment, but bondholders have declared they have not received their payment and this morning fitch, which is a rating agency global rating agency popular in the united states, as well as labeled evergrant as officially in default. It is now in a category known as restricted default, which means it's technically not yet in bankruptcy or liquidation, but it's basically on its way now. Evergrande has made no statement about this, and ultimately evergrand will whatever deal evergreen makes, will require the chinese government to sign off on the bigger fears, though, are that there could be contagion and fallout out of this evergrant crisis.

It's going to start with chinese homeowners. Many of whom have already paid for thousands of properties that are supposed to be built by the property developer evergrand, but i have not yet been built because well, the company ran out of money. Now, china, about a month and a half ago, loosened a lot of the new restrictive debt measures and limitations, especially their three strikes rule that they implemented last august in 2020. Part of by the way, the reason why we're seeing so much stress in the property market now, because, while china going back a little further, is like hey, everyone borrow as much money as you can.

So you could build build, build and then now that you've borrowed as much money as you could we'll change the rules in 2020 and tighten how much you can borrow and well ever since then, property companies in china have started having a little bit more stress. Trying to actually get projects completed, especially through supply chain shortages of the covet crisis, labor shortages of the coveted crisis and then, of course, the commodities skyrocketing like lumber, for example, to build homes, but not just lumber. It's aluminum for sheet metal or framing you name. It commodities have skyrocketed thanks to inflation and well that makes it very difficult and expensive to build homes, especially condo developments, and so it's no surprise that property developers in china have fallen under a substantial amount of stress.

Now. There is an expectation that other developers will be able to step in and purchase these properties that evergrand committed to build in sort of a restructuring, basically buying these properties for a massive discount, then fulfilling evergren's original obligations and building these properties for the homeowners who bought Them, but in the meantime, there are a ton, thousands of chinese homeowners that will be left in a complete lurch, and this has already totally shaken the chinese real estate market. But it's also shaking the liquidity requirements of chinese individuals. If you look at refinances alone in china, we're seeing of refinances so new mortgages up 40 in october, this is substantial.

That is a sign of stress, especially when the chinese culture, maybe not necessarily evergreen, but individual chinese culture is generally deemed to be more debt. Averse and more interested in cash as compared to us in america, so to all of a sudden, see a 40 increase in the amount of new mortgage activity is, is a potential sign that individuals in china are trying to take advantage of comparable sales at levels where They are now before prices fall because real estate takes a while to actually see prices fall and potentially that individuals have uh cash stress. That they're i mean i imagine there are some who are trying to be savvy and start collecting cash, so they can go buying in the dip so to speak. But i imagine the vast majority of individuals are suffering from cash stress in that they've paid for properties that they now can't move into.

As expected now they've got to go rent or buy something else, and they won't get their money back potentially for years. So this is very likely leading to multiple property refinances by individuals of other properties, whatever wherever they can get money from, but i think it will also ultimately have implications for other assets, whether those are stocks or cryptocurrencies, which we'll talk about in just a moment uh. It is worth noting that, as of november 15th, the chinese property market slowed substantially, it's been slowing really since may prices in all, but six of the major 70 cities have begun to slump. This is according to reuters and the november 15th.

Article new construction starts fell by 33 percent and uh. It is too soon to determine exactly how much prices will ultimately fall. So far, we've just seen a uh our first negative month of home price gains. For the last six years.

We've seen home price gains in china and we've seen our first negative month in september, and we expect that over the next three months, we're going to start getting real data about october november december and we'll start seeing how bad things are really getting. Some folks are expecting price to clients of anywhere between 20 to 40 percent, although of course an exact number is not anywhere near known. Yet. We also know that a significant portion of chinese individuals do huddle bitcoin, even though uh we know that bitcoin mining and transactions are illegal in china.

There are a lot of individuals in china who don't do not trust their own government's currency and they prefer cryptocurrency, and this is a very common thing, with cryptocurrencies uh. It's actually potentially one of the reasons why china is banning cryptocurrencies to try to force people to use uh the the chinese renminbi, but anyway, yahoo, finance reported just five months ago that, according to data, they collected china ranked in the top eight countries of countries that Trade and spend crypto now uh just five months ago. This was right in the middle of when we started seeing the shutdown of virtually all of the miners in china, so this could certainly fall, but we are seeing a little bit of stress in bitcoin prices right now, bitcoin, just under 50 000 right now been in A little bit of a stressful mood over the last week here, especially on monday, we saw a little bit of a dip when this default actually occurred. It wasn't officially declared, though, until today so but again, this makes sense if you're, if you are an individual who's suffering from a liquidity crisis like a lack of cash, it would make sense that you're going to quickly try to break the piggy bank, try to refinance What you can try to liquidate whatever you can, i think nfts are usually the first things to get liquidated then cryptocurrencies and stocks, so yeah there could be other stress on stocks as well.

I'm not sure how much it'll affect our stock market in the united states. I do think that there could be fear that starts getting priced in, though in the united states over how much this could really spread. Now the wall street just journal this morning put out a piece to try to relax fears over evergreen. According to the uh governor of the people's bank of china, which is who the wall street journal cited, the risk of evergrand quote does not undermine the market.

For the medium or long term and long term, so now at face value. That means we're definitely going to have issues in the short term because they didn't mention short term we'd, be okay. The governor of the people's bank of china says we shouldn't have issues in the medium or long term, but that also requires that you actually believe the governor of the people's bank of china, and if you do then you're good, i mean, i suppose you could also Believe jerome powell or janet yellen because they also say don't worry, we're good. But if you have any reason not to believe china, janet yellen or jerome powell, then maybe there's a reason to be slightly concerned and maybe a little bit more.

On the conservative side of things, yeah now, look, let's be real, no matter what happens we we know that a china is wanting the market to end up dealing with evergrand they're, not going to bail out evergrand, and that means we're probably going to see gdp slow Down in china, since the real estate market makes up 25 of china's economy, a slowdown in a quarter of china's economy will probably drag gdp down in china, which will probably drag down global spending, global manufacturing and global innovation and global sales. Even for for vehicles, even teslas in china, just as an example and ultimately we could see a drag on global gdp because of this think of it kind of like. If there's, if there's like a black hole in one area like 25 of china's economy, then that kind of like sucks down gdp - maybe that's not the best analogy, but it's the best visual i could think of so we do expect that evergren is going to create Some form of a headwind now do we think that this is going to create a market crash in the united states? Probably not, but any additional financial stress in the markets is, is an additional slow drain on the emotions and and really the the strength of hodlers. In america, the reason for that is, the federal reserve is likely to continue tightening the next fomc meeting is uh next week next wednesday on december 15th, and that's when we do expect them to double the taper pace.

And then we expect at least two interest rate increases in 2022 at this point, and so, if you start raising interest rates because you're worried about inflation while at the same time starting to see global gdp slow down. Because now we're not out of covet boom time. At the same time as we've got a drag down because of tightening and a drag down because of chinese real estate, well, then, then, all of a sudden, you start looking around you going uh. Oh, is this potentially a market that is going to start being fearful about stagflation, because stagflation is a stagnating or slowing economy with higher inflation right now? This is personally not my base case scenario for the coming years.

I expect within two or three years that inflation will be virtually completely gone uh. I do expect it to inflect downwards over the next coming months, a little bit later than expected, but i do expect to see that inflection point down. I do think this friday, cpi print is going to be a disaster, though this might end up being our peak we'll see - and i know it's hard to envision while we're at a peak that things could actually come down, but remember folks, i always like to say The flavor of the day is the flavor of the year in the stock market, and that's because anytime somebody's nervous about something in the stock market today they're nervous about it. Well, they feel like they're, going to be nervous about it rather forever, like oh, my gosh.

It can never change it's kind of like when stocks are going up. Oh my gosh, it's never gon na end. It's gon na keep going to the moon and then people fumble in at the top, and then they lose their pants right uh. It's it's straight up.

Psychology stocks and psychology and money there's a reason: i've got courses on this stuff, okay, but anyway, it's worth noting that we have been in a massive 40-year period of deflationary trends across modern developed countries. It wasn't long ago that we were having conversations about negative interest rates as we looked to japan and europe as really countries who were just maybe potentially slightly ahead of us now, hopefully uh. You know we stay strong in our markets. My expectation is that there will continue to be little opportunities to uh by the dip.

I i don't have foresight, though, that we would see something substantially larger unless we had a confluence of multiple different catalysts, which i think most of our negative catalysts will start really disappearing here, and many of them already have disappeared here in december. But my recommendations generally hold hashtag, not financial advice, but stay on margin, invest in high quality companies with high cash flow, not money. Losing companies right now preserve the capital that you need to get by stay the course and also look for high margin companies. So you stay at a margin that means debt and you get into high margin companies, companies that have the capacity to buffer potential, either inflation or deflation higher emerging companies will be able to do both of those so uh.

Just a quick example. Some of those visa nvidia uh paypal, these these are some high margin. Companies uh end phase etsy a little more middle of the road, but also great companies. All right folks.

Thank you so very much for watching this video. We will see you in the next one. Thanks again, goodbye.