China Huarong’s Plunging Bonds Point to Major Market Shift

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14 April 2021




Video commentary for April 13th 2021




Eoin Treacy’s view


A link to today’s video commentary is posted in the Subscriber’s Area.

Some of the topics discussed include: cryptocurrencies breakout, nasdaq hits a new high, China lagging, Europe steady, Bonds firm, Asian currency ease while commodity currencies firm,




China Huarong’s Plunging Bonds Point to Major Market Shift


This article from Bloomberg may be of interest to subscribers. Here is a section:


The big question now confronting investors is how much pain China’s government is willing to tolerate as it tries to wean the bond market off implicit guarantees. None of the state-owned companies that have defaulted so far — including Peking University Founder Group Corp., which is ultimately controlled by China’s education ministry — were considered as systemically important as China Huarong.


Chinese authorities have tried to strike a balance between instilling more market discipline and avoiding a sudden loss of confidence that might spiral into a crisis. But the tumult surrounding China Huarong, some of whose bonds are now trading below 80 cents on the dollar, highlights how quickly investor sentiment can deteriorate even at a time when the economy is strengthening.


“China’s credit market is entering a new era as SOEs are emerging as the main source of stress,” said Shuncheng Zhang, an analyst at Fitch Ratings. Whatever the outcome for China Huarong, policy makers will likely allow more defaults in the state sector to reduce moral hazard and cultivate a more mature debt market, he added.




Eoin Treacy’s view


Huarong was created as a bad bank, where the defunct loans of China’s banks were dumped 20 years ago. The generally accepted business model for these kinds of entities is they end up with hard to value assets and are given the time required to sell them at profitable rates. That’s how Ireland’s bad bank functioned in the aftermath of the Global Financial Crisis for example. The fact that Huarong is now running into trouble is reflective of the fact that it long ago departed from its bad bank foundation to imitate the business model of the banks it was designed to clean up.




Lumber Frenzy Drives Up Home Prices as Suppliers Can’t Keep Up


This article from Bloomberg may be of interest to subscribers. Here is a section:


“Each part of the supply chain has different issues,” said Brooks Mendell, chief executive officer of forest-supply researcher Forisk Consulting in Georgia. “There is not a sawmill that I have talked to in two years that has all their slots filled.”

This is a big turnaround from just two years ago. In 2019, weak demand prompted a steady stream of output reductions and mill closures from companies including Canfor Corp. and West Fraser Timber Co., the world’s biggest lumber supplier. That left producers flat footed amid the unexpected demand boom as the pandemic kept people indoors, sparking a wave of do-it-yourself upgrades, full-scale renovations and purchases of bigger homes.

When demand held strong throughout the winter, typically a seasonal lull, mills didn’t have time to replenish their inventories. Now, stockpiles are “extremely lean” as North America heads back into peak building season and lumber prices will stay high “for the foreseeable future,” Devin Stockfish, the CEO of Weyerhaeuser Co., said last month.


Lumber futures have more than tripled since the pandemic started, touching an all-time high of $1,157.50 per 1,000 board feet on Monday.




Eoin Treacy’s view


The mountain pine beetle infestation has been a growing problem for more than a decade but production cuts, the closing of mills and lack of a skilled workforce are more immediate problems. The only way to encourage more workers into the sector is to offer higher wages. That suggests we have seen a step change in the price of lumber and the breakout will be sustained in just the same way as it was in 1993.




Binance Launches Zero-Commission, Tradable Stock Tokens


This article from binance.com may be of interest to subscribers. Here is a section:


Binance is delighted to announce the official launch of its zero-commission, tradable stock tokens, allowing the users to trade fractional stocks. Stock tokens are denominated, settled, and collateralized in BUSD.


The first Binance Stock Token to be listed is Tesla Inc. (TSLA). Trading for the TSLA/BUSD pair is scheduled to open at 2021-04-12 1:35 PM (UTC). Users will be able to trade fractional Tesla stock on the Binance website.


What are Binance Stock Tokens?


Binance Stock Tokens are zero-commission digital tokens fully backed by a depository portfolio of underlying securities that represents the outstanding tokens. Holders of stock tokens qualify for economic returns on the underlying shares, including potential dividends.


Binance will continue to respond to market demand by listing more stock tokens and features. Trading of stock tokens will follow traditional exchange hours and is not available for residents in Mainland China, Turkey, and other restricted jurisdictions. Interested traders will be required to pass Know-Your-Customer and other relevant compliance measures.


For more information on Stock Tokens, please refer to the guide here.




Eoin Treacy’s view


Robinhood made a splash when it began to offer fractional share sales. That allowed a large swathe of new retail traders to participate in the market than ever before. Fractional ownership is now also available for most of the primary retail brokers but the concept is borrowed from the cryptocurrency sector where fractional ownership of bitcoin has been available for years.




Eoin’s personal portfolio: futures long opened March 30th


Eoin Treacy’s view


One of the most commonly asked questions by subscribers is how to find details of my open traders. To make it easier I will simply repost the latest summary daily until there is a change.




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