Evergrande in China will be a “Lehman moment”

In his Daily market notes report to investors, while commenting that Evergrande is a “Lehman Moment,” Louis Navellier wrote:

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Letters, conferences and more on hedge funds in the second quarter of 2021

The role of knowledge in asset management

Actively managed fundsIs there a link between intelligence, knowledge and successful investment? At first glance, this may appear to be the case. Wall Street is known to hire only the best and the brightest. However, some of the most successful investors in the world have not attended the best universities in the world and do not claim to have an above average IQ Read More

Fed credibility

Ahead of this week’s FOMC meeting, the cooling of these inflation figures gives the Fed credibility as to its prediction of “transitory inflation”. Overall, the August CPI was a very good surprise!

The Ministry of Labor also announced that import prices fell by 0.3% in August, proof that inflation can be “transient”, as the Fed has suggested. Export prices increased 0.4% in August, but it was the smallest monthly increase in 10 months, so there is some hope that inflationary forces are cooling down.

The big surprise last week, the Commerce Department announced on Thursday that retail sales increased 0.7% in August. Another example of inflation driving retail sales is that gasoline sales rose 2%.

Another trend reversal occurred on Thursday when the Labor Department said weekly unemployment claims reached 332,000.

Despite the increase in Covid cases last month, the consumer was clearly in the mood to spend money, since online sales increased 5.3%, furniture sales increased 3.7%, and general merchandise sales increased 3.5%. Retail sales have grown an impressive 15.1% over the past 12 months. You can’t keep the American consumer down!

Evergrand: a Lehman moment

Will China’s Evergrande Property Services Group Ltd (HKG: 6666) be a “Lehman moment” if Beijing allows what could be a default of more than $ 300 billion in debt?

Evergrande’s business accounts for around 2% of Chinese GDP, and the company’s shares have lost around 90% of its value. So at this point it looks like the worst case would be a controlled crash – bankruptcy and the dismantling of the company by the State, with assets absorbed by Western markets.

There is more evidence of a looming global economic slowdown. On Wednesday, China’s National Bureau of Statistics said retail sales rose only 2.5% (annualized) in August, a significant drop from the 8.5% annual rate in July. Real estate investment in China has slowed this year to an annual rate of 10.9%. When the Chinese real estate market cools, consumer spending also tends to slow.

Due to China’s domestic difficulties and the recent slowdown, the United States will continue to lead global GDP growth.

Evergrande

Favorable IWM configuration

While the trend for equities is likely to be down, the markets are looking to the future and have likely incorporated most of the pessimism. caused by these observed risks. Assuming there is progress on current headwinds, inflation, Fed policy, covid, it might behoove investors to carefully consider go long the russell 2000, where the majority of the shares are small national companies. It is perhaps the least well-owned sector with the most leeway.

The good thing about this investment setup is that downside risk is very well defined by looking at the cumulative chart of the Russell 2000 iShares ETF (IWM), which has been consolidating in a range of 20 points for eight months.

The Russell 2000 missed this year’s rally. As of last Friday’s close, the S&P 500 is up 18% and the Nasdaq is ahead 16.7%, but the Russell 2000 has only risen 13.3% Considering that stocks at small and medium capitalization present the greatest investment risk, seeing this level of the market in the midst of so much difficulty is not only counterintuitive, it is starting to sound very convincing.

Heard and notable:

Amazon’s European branch was fined $ 885.9 million for “non-compliance with general principles of data processing”. The EU General Data Protection Regulation (GDPR) regulatory framework aims to give users more control over their own data – and lays the groundwork to impose fines on companies offering their services in the EU for breach of his articles. Source: Statista

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