The concept of the cycle is crucial in the economy, market, and business. In the past, crises occurred every ten years of the cycle. The Dot Com bubble burst in the early 2000s, destroying many people's investment accounts. In 2009, a number of large banks that were thought to be too big to fail failed after heavily investing in a complex, highly leveraged investment product. It's been a decade since then. Because there are so many bubbles this time, Michael Burry will have a difficult time predicting what will cause the crash. It could be an overpriced market, a cryptocurrency, or an inflation risk, but we should keep our ears to the ground and keep an eye on what's going on on the other side of the world.
The Chinese Communist Party enacted new rules to limit the amount owed by large real estate developers. Evergrande, the world's most indebted real estate developer, took the biggest hit as a result of these rules. Evergrande Real Estate currently owns over 1,300 projects in over 280 cities throughout China. By borrowing more than $300 billion, they have aggressively expanded to become one of China's largest companies.
Evergrande was forced to offer its properties at steep discounts as a result of the new measures, in order to ensure that enough money was coming in to keep the business afloat. However, it is having difficulty meeting the interest payments on its debts, which total tens of millions of dollars. In recent weeks, the company has taken steps to repay its debts to customers, investors, and suppliers.
Because of this uncertainty, Evergrande's stock price has dropped by around 80% this year. Global credit rating agencies have also downgraded its bonds. Because they owe money to 171 domestic banks and 121 other financial firms, their problems could have a serious impact on China's financial system. Furthermore, companies that do business with Evergrande, such as construction and design firms and material suppliers, face significant losses that could force them into bankruptcy. If Evergrande fails, banks and other lenders may be forced to lend less, potentially resulting in a credit crunch.
If they face a credit crunch, it will severely harm other countries' economies and markets, as China is each country's top trader. This could be interpreted as a small butterfly movement, but it has the potential to cause a storm on the other side. Because this has the potential to burst the bubbles that I mentioned earlier in our market. I'm not sure when it will happen, but if it does, nothing will be able to stop the market from collapsing. The only word I can think of to describe it is chaos. When people were in chaos in the past, they fought each other to survive. As a result, our society may face yet another major devastation.
Evergrande must not fail because so much is at stake. If they fail, the Chinese communist party must intervene to assist Evergrande in order to prevent a chain reaction. I'm afraid the Chinese communist party would be hesitant to assist because a high-profile bailout would be seen as a bad example.
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