Month: November 2021

It may seem like ancient history now, with the S&P obliviously plowing ever higher, but just over a month ago stocks briefly panicked over fears that China’s property market, the largest single asset-class in the world according to Goldman…

… was about to implode as a result of a domino effect of Evergrande’s upcoming bankruptcy. And while US equities have clearly moved on since then, the contagion within China’s property sector has spread widely, and in the first two days of November, the selloff in Chinese developers’ debt has deepened with one of the 20 biggest developers joining a host of firms looking to dodge defaults as debt crises effectively shut them out of the overseas financing market.

Yango Group became the latest developer trying to improve its liquidity and avoid default by delaying near-term bond payments, Bloomberg reported. The Shanghai-based builder, which ranked as the 18th biggest in the nation by contracted sales, is seeking to extend three of its dollar notes as “existing internal resources may be insufficient,” according to a stock exchange filing.

The company’s warning of a possible default is intensifying investor concerns that developers are caught in a negative credit loop as refinancing risks prompting firms to curb spending and reduce sales. Yango shares fell as much as 9% Monday in Shenzhen, hitting a seven-year low. Several of its onshore bonds plunged to record lows, prompting trading halts. The 5.3% bonds due Jan 2022 , which were trading above 90 just one month ago (during the peak of the Evergrande crisis) closed at an all time low of 22 cents on the dollar.

Not surprisingly, Chinese rating agency Golden Credit Rating cut Yango Group’s credit rating to AA+ from AAA, citing mounting pressure on debt repayment, according to a statement to Shenzhen stock exchange. Yango’s outlook was cut to negative from stable by Golden Credit and Dagong Global Credit: statement. This is after the bonds lost 80% of their value in just over a month.

The relentless contagion inside China’s property sector pushed the country’s dollar high-yield bonds to fall for a ninth straight day Tuesday after tumbling nearly 9 cents on the dollar in October, closing out the worst two-month slide in a decade. The average yield in the dollar junk bond index touched a record 21.5% on Tuesday, surpassing even the Sept 2011 repo crisis highs.

Yuzhou Group Holdings Co.’s bond due 2025 tumbled 11.6 cents to 38 cents, on pace for its biggest drop in since March, while Sunac China Holdings Ltd.’s note due 2026 fell 5.3 cents to 65.5 cents.

Amid the carnage, more property firms have been scrambling to avoid missing debt deadlines recently, as the government clampdown on the real estate sector and a liquidity crisis at Evergrande make it tougher for firms to roll over their dollar debt. Other recent examples include Xinyuan Real Estate which last month secured approval on an exchange offer for a bond.

“We will see more of such offers or even defaults in coming weeks and months,” according to Eddie Chia, portfolio manager at China Life Franklin.

“Yango is a top developer that had normal operations, albeit slightly more leverage, but clearly it is threatened by a confidence crisis,” he said. “The other developers in the dollar bond market are much smaller than Yango, and most issuers cannot survive if the market is closed.”

Of course, extending payment deadlines is just a temporary solution; without the underlying cash flow the inevitable default becomes just a question of timing. Still, some investors are betting that granting reprieves now will allow firms to improve their liquidity when the primary market re-opens for China’s riskier borrowers, though it’s unclear when that may happen.Fitch Ratings highlighted that Xinyuan’s default risks remain high, for instance, even after it raised its issuer default rating on the firm to CC from restricted default.

Unfortunately, it’s not looking good for the core business: in fact it’s looking downright terrible – China’s top 100 developers saw new-home sales fall 32% from a year earlier in October, according to China Real Estate Information Corp. after a similar slump in September.

More than 80% of the developers saw property sales decline year over year last month, with 44 developers recording drops of more than 30% and 37 developers saw home sales decline on both month-on-month and year-on-year basis, the latest data showed prompting analysts to say it’s almost certain that the housing market will cool further and the outlook for developers’ sales in the fourth quarter is not optimistic.

Among the 29 major cities monitored by CRIC, residential property sales by floor space fell by 3% in October from a month earlier, sliding 22% from the same period last year and down 12% from the same period in 2019. In particular, home sales in the 25 tier-2 and tier-3 cities declined 4% month over month in October and dropped 23% from a year earlier, showed the data.

Despite the chill, 32 developers managed to achieve sales of more than 100 billion yuan in the first ten months of the year, six more than the same period last year, and 148 developers’ revenue for the 10-month period exceeded 10 billion yuan, according to data from China Index Academy, one of the largest independent real estate research firms in China.

As Yuan Talk notes, Country Garden ranked the top with 676.1 billion yuan home sales in the first ten months of the year, followed by Vanke, Sunac and Poly, according to China Index Academy. The top four developers’ total home sales during the period reached 2.17 trillion yuan.

The top 32 developers’ home sales growing by an average of 10.6 per cent year over year, while the average growth for 23 developers with 50 – 100 billion yuan sales in January – October was at 17.5 per cent, 28 developers with 30 – 50 billion sales at 21.3 per cent and 34 developers with sales at 20 – 30 billion yuan at 24.3 per cent and developers with sales at 10 – 20 billion yuan at 21.3 per cent, according to data from China Index Academy.

Separate data from China Index Academy showed that property developers’ bond issuance reached 13 billion yuan in October, only about 40 per cent of the 32.8 billion yuan in September. Their offshore bond issuance fell significantly to only 8.427 billion yuan.

If local companies are locked out of the bond market their defaults are virtually assured: with cash from operations collapsing, if they are unable to roll over upcoming maturities into new debt, a default tsunami is virtually assured.

Meanwhile, amid rising scrutiny over China’s weakest players, not all firms will be able to secure bond extensions. Modern Land China failed to repay either the principal or interest on a $250 million bond late last month after it earlier terminated a proposal to extend the bond’s maturity by three months.

The lack of government assistance means much more pain is in store: after at least four builders defaulted last month, limited access to refinancing channels has threatened a wave of delinquencies: some of China’s worst-performing dollar junk bond borrowers have some $2 billion in onshore and offshore bond payments due November. And as investors focus on who files next, here are the developers with payments due this week:

• Scenery Journey Ltd. $41.9 million coupon on note due 2022: Nov. 6
• Scenery Journey $40.6 million coupon on note due 2023: Nov. 6
• Zhenro Properties Group Ltd. $13.7 million coupon on note due 2023: Nov. 6
• Central China Real Estate Ltd. $7.79 million coupon on note due 2023: Nov. 7

Amid a growing panic that not a single developer will be able to meat their obligations, some firms are loudly telegraphing their ability to meet debt obligations writes Bloomberg’s Sofia Horta e Costa. On Monday, Zhenro Properties Group said it informed a bond trustee it will redeem its 5.95% dollar notes early in full on Nov. 16. Central China Real Estate on Tuesday said it has remitted funds to a trustee for payment of its 6.75% dollar bonds, which are due Nov. 8.

And while creditors of these companies can breathe a sigh of relief that their next coupon payments are incoming, we doubt they will hang around for the next one with the situation across China’s property sector as dire as it was during the depths of the global financial crisis and getting worse with every month.

While Tesla has been making headlines for over a week with its stunning surge above $1 trillion market-cap and seemingly endless willingness to rip shorts’ faces off day after day (amid ‘weaponized gamma’ squeezes), JPMorgan’s quant strategist Peng Cheng wrote in a brief note on market structure that, while TSLA-talk dominated WallStreetBets’s Reddit pages, it was institutional investors that made up the “vast majority” of the recent surge.

As even Jim (never seen a rallying stocks I didn’t like) Cramer exclaimed: “I’ve actually never seen a stock go up endlessly on nothing.”

So what was driving it?

On the cash equity order flow side, Peng writes that strong buying pressure came from both retail and non-retail market orders (Figure 1).

While retail flow has been reliably persistent, totaling $544MM since Oct 25, non-retail orders make up the vast majority of the imbalance, registering $4.5B of net buying by our estimates. It is worth noting that we observe close to $3B of net buying on Nov 1 from non-retail investors.

However, Peng also notes that JPMorgan has shown previously that non-retail market orders tend to carry a Momentum bias; and since the observation coincided with the beginning of the month, JPMorgan believes the strong buying flow could be due to momentum portfolio rebalancing.

On the options side of the market, Peng points out that much of the imbalance is concentrated on call options.

As seen in Figure 2 above, with the exception of Oct 26, there has been a strong call buying interest by option traders (including retail and non-retail). In total $2.6B of net premium were spent on buying call options, while put options were net sold for a premium of $660MM.

Once again, JPMorgan points out that retail investors make up a relatively small percentage of the volume (Figure 3).

Interestingly, Peng points out that retail traders appear to be more willing to sell puts compared with the other market participants, due to monetizing the high implied volatility, thereby exhibiting a more balanced gamma preference.

Using the aggregated option order imbalance, Figure 4 shows the estimated gamma supply/demand across a range of spot prices. Peng estimates that end clients are net long gamma and dealers are net short gamma for stock prices below $2000, with the peak gamma likely to occur at around $1184 (+$308MM per 1% move in stock price).

Importantly, this gamma profile includes options traded only since Oct 25, and do not reflect trades previous to those dates.

So it would seem, jealous and tired of the outsized and ‘easy’ returns being bragged about by every freshly-minted TikTok trading guru, the old dogs of institutional trading have learned the new tricks of retail’s Reddit crowd and are executing in size.

So given JPMorgan’s view that this latest round of strong buying from institutions “could be due to momentum portfolio rebalancing,” the question is, what happens next since momo-players are notoriously not diamond-hands.

After today’s weakness (triggered by Musk’s tweet on the Hertz order), SpotGamma suggests that it’s likely that volatility continues into the most serious part of the decay process which is expected to occur mid-week.

Given that there is a large base of overall gamma (not just the post-Oct 25th gamma illustrated above by JPMorgan) at the $1,100 strike still, SpotGamma sees this level acting as short-term support on any consolidation into the November 5 expiry, for which we see the $1,200 strike being most favored, now.

However, SpotGamma founder Brent Kochuba cautions readers: “These rampant moves are appearing to be more widespread, and we believe this invokes instability that usually ends badly.”

On Tuesday, opening statements in the trial of Kyle Rittenhouse, an18-year-old aspiring police officer accused of fatally shooting two men and wounding a third on the night of Aug. 25, 2020, as BLM riots raged in the streets of Kenosha in response to a white-on-black police shooting.

While prosecutors have slapped the teen with two counts of homicide and one count of attempted homicide, Rittenhouse has pleaded not guilty to all charges, claiming self-defense.

Now, new footage has emerged which bolsters his case.

Before the shooting began, Rittenhouse, 17 at the time, was had arrived in Kenosha in order to help keep order and protect businesses from looting and arson.

“People are getting inured, and our job is to protect this business, and part of my job is also to help people. If there’s somebody hurt, I’m running into harm’s way. That’s why I have my rifle, because I need to protect myself obviously. But I also have my med kit,” Rittenhouse said in footage recorded before the incident.

During the course of the evening, protesters became increasingly violent against Rittenhouse and the group he was with – eventually chasing the teen down the street when protester Joseph Rosenbaum was shot dead in the parking lot of a used car dealership. Shortly thereafter, Rittenhouse could be seen defending himself on the ground from multiple attackers – when he fatally wounded another, and shot the bicep of protester Gaige Grosskreutz who had drawn a pistol and was in the process of aiming it at the teen.

I will. In the first photo, we see one of the men bludgeoning Kyle Rittenhouse with his skateboard. In the other two photos, we see a man who—as Rittenhouse is laying on the ground—draws a pistol in an attempt to murder Rittenhouse, only to be shot himself. pic.twitter.com/RPQw8cpQqS

— Francis Curt 🇻🇦 (@fcXXXIII) November 2, 2021

At the time, this footage captured by journalist Brendan Gutenschwager, was all we had to go on.

The Kyle Rittenhouse Shooting: WHAT ACTUALLY HAPPENED!

Commentary from journalists @JackPosobiec and @ElijahSchaffer, edited by @jondutoit. From https://t.co/DmPO8WAg6k by @Lauren_Southern 1/3 https://t.co/tMdRhmVHGd pic.twitter.com/zS3iNBWmXr

— Scooter Downey ☦️ 🇺🇸 (@TrueLegendFilms) October 26, 2021

.@TuckerCarlson is airing “never-before-seen” footage of the shooting incidents in Kenosha.

The footage comes from the non-profit of Rittenhouse’s defense attorney. pic.twitter.com/0RrlnFNMJa

— Washington Examiner (@dcexaminer) September 23, 2020

Now, Human Events’ Jack Posobiec reveals that the FBI sat on potentially exonerating evidence in the Rittenhouse case, where threats against Kyle can clearly be heard before he opened fire, as well as what appear to be muzzle flashes from people shooting at the teen. We recommend playing full screen.

BREAKING: Human Events Daily has obtained never-before-seen FBI footage of the Kyle Rittenhouse Shootinghttps://t.co/QFAfI7mmJp pic.twitter.com/J8vOOoD3rg

— Jack Posobiec 🇺🇸 (@JackPosobiec) November 2, 2021

WOW…they have FLIR footage of Rosenbaum chasing Kyle Rittenhouse from the FBI. You can clearly see the muzzle flashes from the 9mm fired at Rittenhouse.

— Selfless Thoughtful Human Delight (@SavageNoMore) November 2, 2021

Holy shit. He should have never been charged.

— Ray Epps FBI (@SeaLevel18) November 2, 2021

According to legal experts, Rittenhouse has a strong case.

To be clear:

The footage released by Human Events today clearly shows for the first time that Kyle Rittenhouse acted in self-defense and this case never should have been brought to trial

This is malicious prosecution

— Jack Posobiec 🇺🇸 (@JackPosobiec) November 2, 2021

Authored by Mark Glennon via Wirepoints.org,

Unless you want your blood to boil, do not watch the video from last week of supporters of a bill to amend Illinois’ Health Care Right of Conscience Act (HCRCA). Dishonesty, despotism and undisguised ignorance were on full display in a move to assure compliance with vaccine and other COVID mandates.

Passed in 1977, HCRCA has been a point of distinction in which Illinois can take pride. It prohibits discrimination against anybody who chooses not to receive any particular form of health care services that are contrary to his or her conscience.

Predictably, HCRCA is being used by those who are at risk of losing their jobs because of their opposition to COVID vax mandates, and action in the courts has been going their way. Several Illinois courts have provided temporary relief against the mandates pending full hearings and appeals.

That makes Gov. JB Pritzker and his allies in the General Assembly unhappy. They want mandate resisters punished. HCRCA is getting in the way of that, so they want it amended.

They turned to Rep. Robyn Gabel (D-Evanston) to carry their bill, which she sponsored, to strip the right to object to COVID vax mandates under HCRCA.

Big mistake.

Gabel is personification of that confluence of dishonesty, despotism and undisguised ignorance, which we have documented before in the stories linked below. Some other supporters were guilty of some of the same in how they defended the bill.

To fully appreciate how bad their performance was, you really need to watch at least part of the video linked here of the House debtate, particularly Gabel’s answers to questions. It’s readily apparent that she has no interest in honestly describing her bill, and no understanding of what existing law says, where the science on COVID stands and how legislative and judicial processes work.

Watch the video if you can, but here are a few highlights:

The first and most obvious question came from Rep. Adam Neimberg (R-Tuetopolis), who asks what recourse would remain, if the bill becomes law, for those whose consciences say no vax.

Robyn Gabel during one of the many times she needed help answering simple questions about the bill she sponsored.

But Gabel can’t even provide her own answer on that. She turns to an aide for an answer, as she does repeatedly throughout the hearing, and ends up simply re-reading something from her opening statement, which does not answer the question.

Watch how often she needs help even on the simplest questions, and she often seems unable to repeat what her aid tells her in an intelligible fashion.

Gabel repeatedly says her bill “merely clarifies the well-established intent of the original law.”

What? How does a legislature clarify the intent of a legislature from decades earlier? It can’t. The original intent is what it is. The purpose of the amendment is obviously to change the law. It’s just that it’s supporters don’t have the courage to say that directly. In fact Gabel expressly says the bill is not changing existing law. Of course it is.

Far more importantly, legislative intent means nothing when a law’s words are clear. And both a federal court and state court have said that the relevant parts of HCRCA are clear, leaving nothing to intent. Rep. Deanne Mazzochi (R-Westmont) addressed that directly with Gabel starting at about the 19.00 mark. Gabel says she has no knowledge of that.

HCRCA was intended, Gabel says, only to be about abortion, contraceptives and the like. Everybody knows that now “with certainty.” And the law is being “intentionally distorted” so people can “thumb their noses” at the vax, she says. Anybody who claims otherwise is engaging in the spread of misinformation, she says.

No, there is nothing in HCRCA limiting it to abortion and other family planning matters. The law is what the courts say it is, not what Gabel or anybody else wants, and the courts have said it means what it says.

It says, in essence, that it is unlawful to discriminate in any manner because of somebody’s conscientious refusal to participate in any way in any particular form of health care services contrary to his or her conscience. The full text of the relevant portion is reproduced below.

Gabel says at one point, in questioning from Mazzochi, that HCRCA is not supposed to apply to vax mandates because the vax is “not in a healthcare setting.” That’s just too preposterous to warrant a response.

Gabel says repeatedly that federal remedies remain, and her bill expressly says they do. That’s just show. Of course they do. The problem is that the federal law is far more restrictive and difficult to use, which is why the Pritzker Administration has targeted the Illinois law.

At about the 50.00 mark, Rep. Keith Wheeler (R-North Aurora) asks about the amendment being worded so broadly that any mandate could be imposed by an employer, no matter how extreme, unfounded or irrational, still leaving the employee with no recourse.

Gabel says that’s not an issue because there is no disagreement about proper steps to mitigate COVID.

Is she entirely unaware of the intense debate going on among medical experts and the huge differences across nations in the mitigations they decided will work? Among those open issues are mask mandates, whether those with prior infection need vaccination, who needs boosters, whether children need vaccinations and much, much more. How completely uninformed must one be to be oblivious to those open issues.

Most importantly, those issues include the growing evidence and scientific opinion that vaccinated people spread the virus about as much as the unvaccinated, which destroys the rationale for mandates.

As for the current courts ruling in favor of those objecting to mask mandates, that’s just “a few courts bastardizing” the intent of the bill, Gabel says. The same charge was made by at least one other bill supporter on the tape. I suspect that won’t help them in those cases, which are ongoing.

Most fundamentally, Gabel repeatedly says her amendment does not take away any right. That’s fundamentally dishonest because, as of now, people do have a right to use HCRCA respecting COVID and vaccines for it. We do not yet know what courts will ultimately say about that right, but Gabel is simply wishing away a right that is for the courts to further define.

*  *  *

All is not lost.

First, though the bill has now passed both the House and Senate, enough lawmakers in both parties voted against it to bar immediate effect. That means the effective date will be June 1, 2022.

Second, gamesmanship by the sponsors may backfire on them. The bill initially included examples of what punishments would be permissible for those who refused vax and other COVID mandates. Those examples included terminating employment and excluding individuals from a school or a place of employment. But those examples were later deleted as a cosmetic attempt to make the bill look more palatable. It’s conceivable that the deletion would be interpreted to mean that those actions are not permissible under bill as finalized.

Finally, and most importantly, step back and look beyond the conduct of Illinois lawmakers and the details of their wording. Principles far more important are at issue. Listen to recent words of Christine Anderson, a German member of the European Parliament.

You may not agree with her decision not to be vaccinated or her views on that. I am among the vaccinated. But this is about the rights of those who choose otherwise, and Anderson’s broader message is timeless. A video of her is here.

Must Watch Very Powerful.

“In the entire history of mankind there has never been a political elite sincerely concerned about the wellbeing of regular people. What makes any of us think that it is different now. – Christine Anderson European Parliament.” pic.twitter.com/oSVYzg81p5

— ‘Sikh For Truth’. (@SikhForTruth) October 29, 2021

These were among her comments:

Always question everything any government does or does not do. Always look for ulterior motives. And always ask cui bono?, who benefits?

Whenever a political elite pushes an agenda this hard, and resort to extortion and manipulation to get their way, you can almost always be sure your benefit is definitely not what they had at heart.

As far as I’m concerned, I will not be vaccinated with anything that has not been properly vetted and tested and has shown no sound scientific evidence that the benefits outweigh the disease itself in possible long-term side effects, which to this day we don’t know anything about.

I will not be reduced to a mere guinea pig by getting vaccinated with an experimental drug, and I will most assuredly not get vaccinated because my government tells me to and promises, in return, I will be granted freedom.

Let’s be clear about one thing: No one grants me freedom for I am a free person.

So, I dare the European Commission and the German government: Throw me in jail, lock me up and throw away the key for all I care. But you will never be able to coerce me into being vaccinated if I, the free citizen that I am, choose not to be vaccinated.

*  *  *

Text of relevant portion of HCRCA:

45 ILCS 70/5) (from Ch. 111 1/2, par. 5305)
Sec. 5. Discrimination. It shall be unlawful for any person, public or private institution, or public official to discriminate against any person in any manner, including but not limited to, licensing, hiring, promotion, transfer, staff appointment, hospital, managed care entity, or any other privileges, because of such person’s conscientious refusal to receive, obtain, accept, perform, assist, counsel, suggest, recommend, refer or participate in any way in any particular form of health care services contrary to his or her conscience.
(Source: P.A. 90-246, eff. 1-1-98.)

*  *  *

Other Wirepoints columns about Rep. Robyn Gabel:

Legislators’ ‘Town Hall’ Becomes Metaphor For Failing Illinois

A Particularly Dishonest ‘Town Hall’ Meeting on Budget With IL Rep. Robyn Gabel

The Sound of Silence: Smug progressives, Madigan and harassment – Quicktake

Crony Capitalism’s Latest Scheme for Illinois is Green

Two of Illinois’ most fiscally reckless and dishonest lawmakers push resolution on federal spending priorities

Other States Balk at Multibillion Dollar Cost While Illinois Spends Blindly on Energy Alternatives 

After a chilly and rainy Tuesday in the Mid-Atlantic and Northeast, temperatures will plunge into the 30s and even the 20s in some areas prompting the National Weather Service (NWS) to issue freeze warnings for parts of the Mid-Atlantic and Northeast. 

Freeze warnings are expected to go into effect from 0200 ET to 1000 ET Wednesday. NWS said, “frost and freeze conditions will kill crops, other sensitive vegetation and possibly damage unprotected outdoor plumbing.” 

The warning is in effect for the I-81 corridor/Shenandoah Valley in Virginia, West Virginia, Maryland, north-central Maryland, and portions of the Virginia Piedmont. The warning continues up the I-95 corridor (west of the major highway) from Maryland to Danbury, Connecticut. New York City currently doesn’t have any advisories or warnings for freezing temps. 

Areas up and down the Northeast will experience a temperature drop in the overnight and colder weather this week. Warmer temps are expected next week. 

Baltimore/Washington International Thurgood Marshall Airport Minimum Temps

Frederick, Maryland (near Camp David) Minimum Temps

York, Pennsylvania Minimum Temps

Allentown, Pennsylvania Minimum Temps

AccuWeather meteorologists have also been tracking two potential storms that both could bring snow to some areas. 

“As that storm takes a northeastward turn and encounters the Appalachians, rain is likely to become mixed with and even change over to a period of wet snow at elevations near and above 2,000 feet in parts of West Virginia, western Maryland and southwestern Pennsylvania on Tuesday,” AccuWeather Meteorologist Brandon Buckingham said.

Colder air is expected to settle over the Northeast on Wednesday and Thursday. This week is a reminder that fall is quickly changing into winter amid an energy crunch. Power prices are expected to rise. Still, there is some good news. Temps will be a tad warmer next week.