Marc Rubinstein has over 25 years experience as an analyst and investor in the financials sector whi
Ever Grande
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This commentary is being provided to you as general information only and should not be taken as investment advice. The opinions expressed in these materials represent the personal views of the author(s). It is not investment research or a research recommendation, as it does not constitute substantive research or analysis. Any action that you take as a result of information contained in this document is ultimately your responsibility. Epsilon Theory will not accept liability for any loss or damage, including without limitation to any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Consult your investment advisor before making any investment decisions. It must be noted, that no one can accurately predict the future of the market with certainty or guarantee future investment performance. Past performance is not a guarantee of future results. Statements in this communication are forward-looking statements. The forward-looking statements and other views expressed herein are as of the date of this publication. Actual future results or occurrences may differ significantly from those anticipated in any forward-looking statements, and there is no guarantee that any predictions will come to pass. The views expressed herein are subject to change at any time, due to numerous market and other factors. Epsilon Theory disclaims any obligation to update publicly or revise any forward-looking statements or views expressed herein. This information is neither an offer to sell nor a solicitation of any offer to buy any securities. This commentary has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. Epsilon Theory recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial advisor. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.
A fascinating article, thank you.
So we are all living in a very large global “house of cards” with hard to fathom inter-dependencies (e.g. Tether to Evergrande). What will knock the first card down, and where will the collapse ripple to?
Interconnectedness, and opaque levered collateral chains are the backbone of our credit driven financial markets. This is why market pros with skin in the game should always keep a set of indicators or tickers to monitor whether the narratives at play match up to the facts in the real world. Chinese property developers, certain currency pairs that finance carry trades, credit spreads, yield curve shapes, IPO performance, crowded trades… there are scores of them. I would call it the modern day version of the tape reading done by the best traders in the days before computers.
The financial markets are like a living organism that sends out signals of its rude health or impending sickness. The structural changes of the past 10-15 years that are too numerous to list not only made markets too important to fail, but also relegated these nuanced signals to the dustbin of relevancy… Ultra loose monetary policy, consistent fiscal stimulus and corporate financial engineering rarely waver or alter their risk budget based on market signals.
Knowing these currently signal falsely a high percentage of the time in the current construct, I am still hardwired to pay attention! There is currently a shortage of good collateral (US bills) and it is manifesting in yields below Fed floors, TIC data, repo, and the dollar strengthening vs a universal chorus it should weaken. This is never good for risk assets…eventually. The US 10 year has not collapsed 50 basis points due to mysterious technical factors that Wall Street and the Fed mumble over. The wavering market signals are piling up for us old time tape readers.
Great piece, Marc, as always. Question - why were they funding in USD? Was RMB funding not available or was USD funding cheaper (ignoring currency risk)? Could they have growth their balance sheet so quickly without access to USD funding?
Work for an organisation bought by EG. Spending has been frozen for the past year… Senior management leaving. Very opaque we do not know what will happen and are now trying to fundraise money to sustain salaries.
The potential for a cascade is interesting. If real it would be a massive issue as was pointed out above interconnectedness and collateral chains are definitely the water in which we swim.
I’m now much more cynical in my old age and I’m starting to wonder (thanks Rusty!) if it’s a manufactured wall of worry.