8 Dec 2021

Evergrande

The chances are you missed the 20% drop in the Evergrande Chinese Property Developers share price on Monday. They told the market on Friday that they were unable to make payment on two of the bonds with interest payments of a combined $82.5 million now due. Remember these payments were due on 6 Nov and to assist they were given 30 days to come up with the money. Well they couldn’t do it so what does that means for the next instalment of interest payments accruing?

Another large Chinese developer Kaisa Group has creditors requiring $652 million of loan repayments and guess what they don’t think they can service it.

These are very interesting times we have the US Government Debt Ceiling Limit in a very similar situation. Well 2 months ago they were about to blow through the roof so guess what they did? They did nothing, they said let’s sort it out by the end of the year as there is a little too much going down at the moment. Well well my Twitter feed lit up this morning with news that a deal is about to happen and so a deal was done.

Republicans and Democrats in Congress have agreed on a plan to break a partisan impasse and raise the government’s debt ceiling likely through next year, pulling the nation away from the brink of a default. So now the can is been kicked a little further down the road.

I started watching the Squid Games with my wife last night. You get to see the human psyche at work when there is nothing left to lose, you “go for broke” so to speak. So what did the People’s Bank of China do with all the looming defaults. On Monday night they announced a 50 basis point cut to the required reserve ratio in their banking system thus freeing up credit to help counteract the slowing economy.

I have been carrying on about the weakening Chinese economy for a little while now and these not so subtle actions tell me that Big Brother was getting a little nervous and decided to reverse some of its tightening action that it took in the early part of the year. The talk is of interest rates cuts to come next. I keep saying that I have learned my lesson not to fight a see of liquidity as it tends to go straight to the equity markets and they tend to go straight up.

Berman you know the drill more money chasing equities results in an upward sloping trend line. What you are seeing here is an all time record more than $300 billion of money flowing into Vanguards equity ETFs and the year is not even done. The previous all time record was $200 billion. Note to self always keep an eye on the money. Extra note: what I say and what I do are two different things as I couldn’t resist a small short this morning with a stop at the ATH.

The US markets have rallied hard overnight once again excited to have another go at a new all time high.

Lastly I wanted to comment on the unfolding drama taking place at Magellan. Who doesn’t love a drama. I know nothing about the company and why the Chief Executive left without a word. The central character of the Magellan story is the billionaire founder and CIO Hamish Douglass, actually I am not sure if he is still a billionaire with his share price tanking the way it is dropping. He most certainly won’t be a billionaire when his divorce settlement goes through but I have digressed.

Here is a guy who is an exceptionally talented fund manager having built a company managing $116 billion, this is no mean feat. However he is currently going through a performance slump which frankly is inevitable and I want to actually compliment him for having the guts to do what he is doing.

I think history will look back at this time and define it as probably the time he went from a Prince to a King (my views). He is under performing a market that has frankly lost its senses. It’s a mania of sorts and he is being cautious and responsible. I am making as if Magellan is a one man show which for the purposes of the big calls it is.

It once again confirms to me that life is filled with challenges, just because you are a billionaire(ish) doesn’t mean you are not tested. In fact you could argue the test is even greater for those blessed with such financial success. Of course I have no crystal ball and Hamish could become another statistic and fall into investment insignificance but I really back this guy as from what I have read he has the guts and the balls to back himself and carry the load when everyone else is saying ride the wave mate you don’t have to carry it all on your shoulders. The greats certainly have to carry a heavy load at times and mostly when it’s the hardest. Let’s see what unfolds in this fascinating drama.

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