How the Evergrande case affects crypto and commodities

In this (unfortunately paid) article, the Wall Street Journal informs us that the Chinese government is preparing with local governments an exit strategy from the credit crisis, of which the Evergrande case is just the tip of the iceberg.

The government's plan doesn't officially provide for a bailout of Evergrande, but it does lay out all the measures needed to prevent the credit crisis from spilling over into the real economy (and many don't realize that the recent squeeze on the crypto sector is also part of these measures).

Meanwhile, in the last few hours, news, also relayed by the state-run Global Times newspaper, would confirm that seven days before its next coupon, Monday, October 11, indebted real estate giant Evergrande, suspended from trading in Hong Kong, is about to receive an offer from Hopson Development Holdings, also suspended, another Hong Kong real estate giant that would put HK$40 billion on the table for 51% of its subsidiary Evergrande Property Services Group. Tycoon Man Yee Chu would be "called in" to save Xu Jiayin's disgraced Evergrande empire.

When one analyzes the Evergrande "case" one forgets that it did not happen suddenly and unexpectedly, as happened with the Lehman "case", but on the contrary was caused by a voluntary and programmed credit crunch by the government.

As I wrote in a previous article (Bitcoin the great wave), every two or three years the Chinese government "tapering" the huge credit bubble that sustains the country's economy. And each time, some sector suffers.

But each time the Chinese economy recovers as if nothing happened.

A planned "tapering" is infinitely more controllable than a sudden drying up of credit availability due to factors that had been put under the mattress for years (as happened with Lehman).

The head of the Federal Reserve, Powell, knows this very well, and for this reason he regularly announces in a press conference a possible tapering that could defuse any unforeseen event.

Having therefore cleared the field of all fears of "catastrophes" linked to this affair, let us now move on to understand what real consequences this could have for an investor.

In reality, it is easy to predict what could happen.

Without a massive monetary easing intervention by the Chinese central bank, the cost for Chinese companies wishing to contract new debts with banks will remain high.

In the medium to short term, therefore, high interest rates for Chinese corporate bonds will curb the expansion of demand for raw materials and materials by companies.

Added to this is the fact that the government itself, as we mentioned in this article, has mobilized its reserves of raw materials precisely to reduce price increases in this sector.

In addition, the recent Chinese decision to force temporary closures or production slowdowns on all companies that produce components for Western high tech (Apple, Tesla, Intel, Nvidia, Qualcomm, NXP, Infineon, ASE) will bring among other consequences, a further reduction in demand (and prices) of raw materials.

As a consequence, some very strong trends, such as those of uranium and metals for batteries, will slow down.

But this will not curb the extraordinary pressure that some key economic factors are exerting on these trends (we talked about this a few days ago regarding uranium and copper).

As mentioned in the previous article (Commodities in light of september declines), these are supercycles that will last three to five years on the upside and may be slowed only temporarily by the Chinese.

However, such cycles require special expertise to ride. In particular, one must skillfully link them (in reverse) to the ten-year stock market bubble, so as to gradually buy into the declines and then "loosen the reins" when the bubble ends.

Conclusion

To finish the review of the possible consequences of this crisis planned by the Chinese government, let's give a final nod to cryptocurrencies.

The Chinese government, as we said before, is trying to keep under control any practical consequences of the acute phase of this crisis, including the predictable increase in cryptocurrency purchases by panicked Chinese.

It is no coincidence then that right now he has been waving his usual threats towards this sector, which in reality has long abandoned China in terms of products and services, making this country completely irrelevant to its economic fundamentals.

Of course, there remains a segment of the population that continues to trade crypto hiding with VPNs, OTC platforms and Defi; and it is precisely against them that the government has "barked".

We don't know how many of these diehard groups there are (judging by the government's verbal violence, there may still be many), but there is no question that their fate will have any effect on the market (every effect of the ban has already been discounted).

Thanks for reading.

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