Evergrande Makes Lehman Trend Again

The market “is signaling that it’s fretting over more than Evergrande,” one headline read, on Tuesday afternoon.

Ironic because, according to headlines themselves, Evergrande is all that matters.

The amusing figure (below) is Bloomberg’s story count feature. With keyword “Lehman.”

To the best of my knowledge, Dick Fuld isn’t trending and neither is Erin Callan. Which means that at least as far as the financial media is concerned, Evergrande, and the prospect of a Chinese “Lehman moment,” is what counts.

And it’s not just the financial media, either. “Is China about to face its ‘Lehman Brothers moment’?”, CBS News wondered. “China faces a potential Lehman moment. Wall Street is unfazed,” declared CNN, in an article dated September 16.

Fast forward a few days, and Wall Street is fazed. Or at least dazed. But by no means willing to countenance the idea of a systemic meltdown in China. As noted Tuesday morning, analysts aren’t convinced of the analogue.

Read more: Amid ‘Lehman Moment’ Debate, Evergrande Faces Ponzi Innuendo

Ray Dalio weighed in. “Explain why this is not a Lehman moment to Ray Dalio,” Tom Keene demanded, leaning into his interlocutor in characteristically menacing fashion during a Tuesday interview.

“Well, because [Lehman] produced pervasive structural damage that wasn’t rectified until the Treasury came across and the Fed came across with QE,” Dalio said.

“This isn’t that kind of thing. $300 billion is what they owe and this is all manageable,” he continued. “If the debt is in your own currency, you can deal with it. It’s a good thing that the lenders get stung.”

Tell that to the lenders. As expected, the company missed interest payments to at least two banks on Tuesday.

Evergrande needs to make more than $650 million in coupon payments over the next four months (figure above).

The situation probably is “manageable,” as Dalio contended. But it’s a mess nevertheless.

Allegations that the company was peddling wealth management products to retail investors in order to pay off other WMPs made for exceptionally poor publicity, even as the accusations were hardly surprising.

I used the figure (above) on Tuesday morning, but I’ll deploy it again.

“The outcome is likely to involve serious pain for some markets — and management — [but] a variety of bail-outs and bail-ins may ensure ordinary people are not too badly bruised,” Rabobank’s Michael Every wrote Tuesday.

“The industry and banking sector can be consolidated, and the tab passed to the PBoC,” he added, suggesting that “Evergrande itself can be renamed or repurposed: Perhaps building ‘productive’ social housing.”

The bigger story is (still) the overarching societal overhaul — “common prosperity” and everything that goes along with it.

“One can easily notice that with each regulatory announcement, unrelated industries react negatively in sympathy,” JonesTrading’s Mike O’Rourke said. “Investors don’t know where it will stop, or where they stand, so they sell [and] while trying not to minimize Evergrande, we believe it is simply the latest, but a highly anticipated, manifestation of China’s structural shift.”

In the same Tuesday note cited above, Rabo’s Every called Evergrande “just the symbol of far larger problems.” “Everyone knows China’s property sector is over-leveraged and that far too much ‘productive’ physical output is channelled into building empty concrete high-rise boxes as a ‘store of wealth’, despite the fact they crumble over time and the population is about to shrink,” he said, in the course of suggesting that “the key question is what the Chinese growth model looks like after Evergrande is resolved.”

In the end, it’s possible those expecting some manner of dramatic, headline-worthy resolution aren’t thinking about this the right way.

“I spent three decades as a reporter and editor covering Chinese credit collapses, and I’ve seen the Evergrande movie before,” Bloomberg’s Sandy Hendry wrote. “It’s long, drawn-out and there is no surprise ending,” Hendry sighed. “Companies are either slowly strangled to death by Chinese creditors or are guided into a streamlined rebirth with founders disappearing for chats with regulators over tea.”