Evergrande

This past week, Evergrande, the huge Chinese property developer, became the big elephant in the room. Markets swooned as default became increasingly likely. With $300 billion in outstanding debt, some of it to international investors, contagion is the concern. Investors do not know who is holding what or how much of this debt. This all brings up remembrances of the financial/debt crisis of 2007 to 2009. It was only after the fact that we discovered which banks and institutions were holding too much bad paper.

However, an Evergrande collapse is not nearly of the same magnitude. It is significant for China, but much less so for others. Contagion to the world’s financial system seems remote. Investors with bitter memories are simply cautious. The Evergrande mini crisis should soon fade into the background.

This episode was a catalyst for a steep sell-off in stock markets around the world. A correction had actually been rolling through stocks for over a month; it was only when the very large companies declined that it became obvious. These mega-cap stocks had been holding up the major indices with their outsized positions. The good news is that when the leaders finally correct, the process is close to concluding – not beginning. The business future in America still looks bright. The Evergrande episode just might highlight the advantages of investing here for both businesses and individuals. Stay steady my friends.

The Lonely Bull