Brace for Disaster: Unthinkable Catastrophe in the Global Banking System Unfolds
Summary
TLDRIn this alarming financial analysis, host Steve Van Meter unveils a looming catastrophe within the global banking system, spotlighted by a staggering 46% profit tumble of China VY and its domino effect on the world economy. As property developers in China face unprecedented debt, leading to fire sale prices and commercial real estate pressures, the banking system's integrity is under threat. With central banks and Beijing scrambling to mitigate the fallout, the episode paints a grim picture of potential global financial crisis, underlining the critical interconnectedness of property markets, banking stability, and economic health. Moreover, Steve discusses his successful trading strategies amidst this turmoil, highlighting opportunities amidst chaos.
Takeaways
- 📈 China's VY profit dropped by 46%, indicating a significant financial downturn and plans to reduce debt by $14 billion.
- 💰 The decline in profits for Chinese property developers, such as Vani, is putting pressure on commercial real estate, potentially leading to a global financial crisis.
- 🔥 Beijing is seen as crucial in supporting major property developers to prevent a total collapse of the property sector and its banking system.
- 🚨 Bank of communications reported a significant increase in bad loan ratios, pointing towards worsening conditions in the banking sector.
- 📉 The U.S. banking system shows signs of strain with downgrades and negative outlooks for several regional banks due to commercial real estate exposures.
- 🔴 Commercial real estate values are plummeting, leading to increased risks of bank insolvencies and potential federal bailouts.
- 💥 High exposure to bad commercial real estate loans is creating financial instability, with significant losses for lenders and investors.
- 💳 The Federal Reserve's focus on inflation and labor markets may overlook the immediate threats posed by the destabilizing commercial real estate market.
- 💵 The bond market signals that the Fed might have its policy wrong, hinting at a brewing crisis if not addressed promptly.
- 🚫 A global financial crisis looms with potential widespread bank failures unless immediate actions are taken to mitigate these emerging risks.
Q & A
What triggered the recent financial crisis according to the script?
-The financial crisis was triggered by a 46% drop in profits for China VY, leading to a fire sale in commercial real estate and putting pressure on the global banking system.
How are central bankers perceived in their response to the unfolding crisis?
-Central bankers are perceived as clueless in their response to the unfolding crisis, with their actions or lack thereof not effectively addressing the root causes or mitigating the impact.
What specific sector's downturn is cited as influencing the crisis?
-The downturn in China's real estate sector, particularly among major property developers like Vani, is cited as a significant influencer of the crisis.
What role does government support play in the crisis, according to the script?
-Government support, particularly in backing major property developers like Vani, is highlighted as crucial. However, despite efforts, such as Beijing vowing to support the property developers, the crisis continues to escalate.
What are the consequences of the property developers' crisis on banks?
-The crisis among property developers leads to a ripple effect where banks face increased insolvency risks due to defaulted loans, putting the entire banking system under threat.
What does the script suggest about the future trust in China as a financial center?
-The script suggests that the unfolding crisis could lead to a permanent loss of trust in China as a financial center globally, due to the systemic failures exposed.
How does the script relate the crisis to the global economy?
-The crisis, starting with China's property sector downturn and banking system troubles, is described as rippling across the world, potentially plunging the global economy into a new financial crisis.
What alternative financial solution is presented in the script?
-The script presents a trading system offered by the host, Steve, as an alternative solution, claiming it can help viewers navigate the crisis through informed trading decisions.
What does the downgrade of credit ratings signify for property developers and banks?
-The downgrade of credit ratings for property developers like Vani signifies worsening financial health, which impacts their financing capabilities and escalates the banking crisis due to deteriorating lender and buyer confidence.
What potential policy response to the crisis does the script suggest?
-The script suggests that a potential policy response to the crisis could include lowering interest rates to zero or even negative to stimulate lending and economic activity, though it questions the efficacy of this approach.
Outlines
🌪️ Global Banking Crisis and Chinese Property Market
The paragraph discusses the unfolding catastrophe in the global banking system, triggered by a significant drop in the profits of a major Chinese property developer. The developer's need to cut debt leads to concerns about a fire sale of assets, further impacting commercial real estate. The narrative connects the struggles of the property sector to the stability of China's banking system and its potential ripple effects on the global economy. The segment also highlights the Chinese government's efforts to support property developers and the challenges faced by consumers and banks alike.
📉 Rising Non-Performing Loans and Economic Concerns
This paragraph emphasizes the increase in non-performing loans within China's banking sector, particularly in the real estate segment. It points out the high non-performing loan ratios among various Chinese banks and the potential risks this poses to financial stability. The discussion extends to the impact of falling asset values and liquidity issues on the global real estate sector, hinting at a possible domino effect of bank failures. The segment also notes the concerns raised by financial regulatory bodies like the Bank of England and the potential for a global financial crisis.
🏦 Stress in Commercial Real Estate and Banking System
The focus of this paragraph is on the stress within the commercial real estate market and its repercussions on the banking system, both in China and the United States. It details instances of property foreclosures and the challenges faced by landlords in meeting their mortgage payments. The paragraph also discusses the downgrade of regional US banks by ratings agencies due to their exposure to commercial real estate loans, signaling potential insolvencies. The narrative suggests that the current economic situation may lead to government interventions, such as pushing for higher occupancy rates in commercial spaces.
📉 Federal Funds Rate and Financial Crisis Predictions
The final paragraph examines the relationship between the federal funds rate and the consumer price index, questioning the Federal Reserve's focus on the labor market rather than the destabilizing commercial real estate market. It critiques the Fed's policy decisions and suggests that the bond market is signaling significant stress building within the financial system. The segment concludes with a warning of an impending global financial crisis, potentially leading to widespread bank failures, and calls for urgent action to address these issues.
Mindmap
Keywords
💡Global Banking Crisis
💡Central Bankers
💡Real Estate Sector
💡Fire Sale Prices
💡Debt Default
💡Liquidity Strain
💡Credit Rating Downgrade
💡Commercial Real Estate
💡Negative Interest Rates
💡Bank Lending Contraction
Highlights
Host Steve an Meter discusses the global banking crisis unfolding.
China VY's profit tumbles by 46%, signaling real estate sector issues.
Property developers in China facing severe debt challenges.
Vani's financial struggles represent broader trends in Chinese real estate.
Potential global financial crisis linked to China's property and banking sector woes.
Steve criticizes central bankers for their response to the crisis.
Discussion of Steve's trading system success and its impact on competitors.
Bank of communications reports increased bad loan ratio.
Vanke's credit rating downgrade and its implications for the property market.
Analysis of China's banking sector's vulnerability due to real estate downturn.
Global repercussion of China's financial instability discussed.
Steve predicts commercial real estate and banking failures in the U.S.
The impact of hybrid work models on commercial real estate.
Steve suggests government incentives for returning to office work.
Discussion of U.S. regional banks' risk from commercial real estate exposure.
Transcripts
this just crashed by 46% I'm your host
Steve an meter and thanks for joining me
today and our lead story it's time to
brace for disaster as an unthinkable
catastrophe in the global banking system
is now unfolding what I want you to see
is we're going to look at the epicenter
and how this is Rippling across the
world and about to plunge the global
economy into the next financial crisis
meanwhile as I'll show you Central
Bankers remain completely clueless now
let's head over to Bloomberg where we
picked today's story up with the
headline is China VY profit tumbles by
whopping
46% is now vowing to cut its debt by $14
billion and you'll think there's only
one way for these property developers to
shed debt it's not that they have cash
to pay it off they have to unload assets
that means fire sale prices putting
further downward pressure on Commercial
Real Estate which is indeed going to be
the next global catastrophe that plunges
the world into allout financial crisis
the yearslong slump in China's real
estate sector is weighting on some of
the largest builders that have avoided a
default so far Vani whose major
shareholder is a state-owned firm in
Shen Zing has been seen as a bellweather
for the government support of major
property developers after Rivals
including China everr defaulted and of
course Beijing has every reason to
respond because as we know there's such
a high and strong connection between the
property developers and their banking
system if you lose the property sector
all that leverage starts to come Unwound
all those loans go into default and next
thing you know your entire banking
system is insolvent that ripples across
the world and after that the world will
never trust China as a financial center
ever again this is all handson deck for
Beijing as Banky posted its biggest
sales decline in its six years last
month adding to its liquidity strain
suggesting it has no means to pay off
all that debt contracted sales for
February plunged a whopping 53% from a
year ago to 14 billion youan and this
all happens after Vin vowed to step in
and put support under its property
developers and what did I tell you would
happen is consumers wouldn't respond at
all and they're not FID ratings last
week downgraded vanke's credit rating to
Jun joining Moody's rating that cut the
Builder to blow invest grade earlier
this month and warn to further
reductions this is a huge problem
because these downgrades are set to
impede the developers financing as well
as contracted sales as lender and buyer
confidence dwindles further this is a
major issue these rating downgrades are
serious business and you can see that
for Vani and the other property
developers it's only going to get
substantially worse and what that means
well China's banks are next as China's
property crisis is Rippling through its
biggest banks and one place should have
a crisis well that should be your
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description below because Bank of
communications reported Wednesday this
property bad loan ratio jumped to
4.99% at the end of last year from a
2.8% year earlier what this means is
opportunities are going to be knocking
in the markets our reports will show you
where these are at because these banks
are going to unwind in a big way because
look while the balance of it's over the
mortgage is slip Especial mention of
loans for the segment a leading
indicator of salour loans jumped 23% to
9.88 billion you want you want to make
the case or zero interest rates it's
going to be all over Today's Show
because big Ral Industrial and
Commercial Bank of China s its bad loans
from Residential Mortgages rise
99.6% to 27.8 billion Yan in corporate
loan segment is property non-performing
loan ratio was the highest among all
sectors in fact even agricultural Bank
of China not wanting to be outdone by it
Spears reported a 4.7% increase in
soured Residential Mortgage Loans last
year while it's non-performing loan
ratio for the property sector also
topped other Industries so what are
these Banks starting to sell us look
they're saying the the defaults are
going to go up people are missing
payments they're late on payments that
this is a serious issue that's happening
and you look at the property developers
they are going to go down consumers are
struggling their running out of cash
what these Central Bankers political
Elite did is invert the yield and money
curves they constricted the creation of
credit and the creation of money in the
global economy and now it's starting to
actually hit home and as you're going to
see Ripple all across the world
meanwhile all they care about is
inflation well and there's no banks left
we won't have to worry about that as a
nation's largest state owned banks are
struggling to maintain growth as Beijing
T them with duties to help pump up the
domestic economy as well as rescue its
debt late in property developers and
local develop governments the State
Banks have so far heated beijing's call
which is well what you do in that type
of situation because they are a
dictatorship to lower the lending rates
and step up financing to support
developers because you better do what
they tell you to do or else well in this
case what you're seeing is look the
government's come in and say look you
Banks you need to lend and you need to
lend now we're going to make you lend
meanwhile everyone else is becoming late
on their loans entering default it's a
bad situation the only answer will
eventually be to drop rates to zero and
I don't think that will even solve it
may have to go negative and here you can
see China's Banks bad loans climb to a
record high as margin slumps you want to
talk about an alien economy headed into
a recession there you go financial
crisis right behind it as big lenders
profitability and asset quality are in
Focus as investors wait to gauge their
resilience in economy that's heav riant
on Bank lending to regain momentum but
that's the case with any debt-based
economy even here in the US Bank lending
is absolutely critical if you see it
contract it's just another layer of
money destruction because remember
commercial Banks create money when they
lend the problem is have there are more
loans being paid down or off than
they're being created you have undb
money destruction just add to the
problem here outstanding bad loans
climbed a record 2. 23 trillion Yan here
you can see in the US you know we talk
about the link to lending in the economy
we've got us data here commercial
industrial lending now Contracting 2.5%
year-over-year this is usually something
that only happens in a recession or just
after it suggesting indeed the US
economy is there just most people don't
realize it yet overlaid against the Real
gross domestic proct and red what do you
see slowdowns in the economy match
Slowdown in lending you see that happen
every time suggesting what we heard of
course from the Biden Administration
that the last quarter was just a sign of
the boom to come and the fed championing
their s and how they caused the global
or the US economy that is to engineer a
soft Landing the banking data suggests
something far worse is coming and
normally it goes along with cutting
rates in this case that means we're
likely to head back to zero maybe even
negative when the FED finds out that Z %
didn't work because I want you to see
that when you see slowdowns in lending
and you do not have higher interest
rates working so that's the key here is
the Fed thought hey we're going to raise
rates and because the economy is so
robust it won't have a problem in this
case we see lending growth and demand
contract how do you spur it into
creation you have to lower rates and
you'll notice that look at this chart
throughout history that's exactly what
it works slow down in lending fed's
cutting rates that's shown in red and
how about now we're in contraction this
is the first time we've been in
contraction the FED wasn't aggressively
cutting this is dangerous it's only a
matter of time before these lags of
Central Banking policy kick into the
real economy by then any pivot by
Central Bankers will be too little and
far too late because here now we're
seeing it's starting in China but going
all around the world as Swiss banks risk
significant losses from commercial real
estate as watch finma says not to be
confused of course the regular here in
the United States finma comments All
Echo a warning by the bank of England
earlier on Wednesday was said that risks
to the global real estate sector are
creating a danger to financial stability
though you can imagine if we continue to
see asset values and commercial real
estate fall and liquidity start to dry
up in the system which is happening
banks will start to go and solve it and
fail it's going to be a domino wave
across the world and that's the risk
here as commercial real estate prices
could fall further will make the case
why yes they're going to come down even
more than either the experts said
leading to a loss for lenders well we
know the banks can't even absorb that
there means they're insolvent and that
means rates go down to zero fed bailouts
go into full steam as a central bank's
Financial policy committee said fueling
to concern that commercial property
landlords may fall behind on their
mortgage payments well of course they
are because they don't have the revenue
when your building isn't full of tenant
well it means you're going to fall
behind and that's the problem here as we
head over to Los Angeles look at this an
office tower there dumped by Brookfield
faces foreclosure sell so wait a minute
it already was sold and now it's in
foreclosure a second time how about that
as the building is 73% leas and Carries
465 million in debt this one at 777
South Figaroa is being sold for about
145 million roughly 50% less than the
outstanding debt on the property what
does that mean someone's got to eat that
loss and eat it in a big way either when
it's sell the owner got to pay it down
which will'll assume they don't have the
money the bank has got to restructure
that the question is can they well maybe
they can do it for one but how many
buildings can they do this for before
it's over the gas company Tower was
appraised in 2020 at 632 million but
it's now worth closer to 200 million
based on the 141 $ per square foot price
the building has roughly 465 million in
loans that math doesn't work at all
including 350 million in commercial
mortgage back Securities and two Meine
mortgages for 65 million and 50 million
but get this this rot is sitting all
inside of retirement accounts in a big
way because look at to Pacific
investment management is the largest
holder of most senior debt at 167
million slice of the commercial mortgage
back security that means we're going to
find out in a big way that a lot of
Americans are owning something that is
going to go down and Trigger the next
Crisis they don't know it yet well but
it's there and this is going to get
through the US banking system in a big
way as S&P Global is now downgraded
outlooks on five Regional US Banks just
wait one day they're going to downgrade
them all to junk right now we're going
negative as ratings agency downgraded
the Outlook of First Commonwealth
Financial MNT Bank sovis Financial trust
Mark and Valley National Bank Corp to
negative from stable it said the
negative outlook revisions reflect the
possibility that stress and commercial
real estate markets may hurt the asset
quality well you think a little bit and
performance of the five banks well we'll
just say these five are likely to be the
next that go in solvent which have some
of the highest exposures to commercial
real estate loans among Banks we rate
now maybe that's the warning sign for
customers to get their money out before
these Banks go upside down investor
concerns over Regional Banks commercial
real estate exposure intensified this
year after New York committee bankor
flagged a surprised quarterly loss
citing provisions on soured CR loans
which trigger to sell off and US
Regional banking shares the banker sold
assets to sh up his balance sheet but
that may not be enough investors and
analysts have been worried that higher
borrowing costs and lingering low
occupancy rates so you have a double
whammy here you know the FED can fix one
side they can drop rates to zero and one
of the reasons I keep saying I don't
think 0% interest rates solve the next
financial crisis is because without the
occupancy rate to support any form of
debt well that means of course these
buildings are illiquid assets this is a
huge problem one of the reasons I've
also said there's going to be a push by
the government for people to go back to
work this whole hybrid work from home
thing I think it ends I know many of you
saying no way I won't do that but watch
the government will give tax breaks to
companies that do it and companies will
give raises to those who will you wait
and see find out if I'm right on that
call but office spases for the aftermath
that the covid-19 pandemic could result
in more lenders taking losses as
borrowers default on loans the problem
as we've noted the banking system is INS
solvent these small and midsize Regional
Banks cannot absorb losses they're
already upside down in their loan book
they're upside down in the treasury
Securities that means we got to go back
to zero maybe negative again so these
Banks can offload their treasury
scurries because then they can sell them
in the market where there' be a massive
amount of demand they nether loan book
to go the other direction to maybe they
can find buyers for it maybe the FED
will buy it we don't know the problem is
these banks are going to need a lot of
cash and there's no answer on where
they're going to get it from because
right now pal well he just could care
less about commercial real estate as
he's juicing the bond market bet on
inflation will it tilt to jobs he does
worried here about what's going on in
the commercial real estate market that
should be his Focus but look at this if
anybody thinks that there's a
relationship between the federal funds
rate and the consumer price index I want
you to see that normally there isn't one
in fact usually The fed's Cutting rates
well ahead of inflation some Cycles
other times it's cutting rate after this
time well they're doing nothing as the
commercial real estate Mark market
destabilizes and threatens us into an
allout financial crisis now they're
focused on the labor market which as of
today is holding steady but this is what
we should have been focused all the time
because what you can see is when you
note the federal fund rate in red when
it comes down it matches when continued
unemployment claims which are sitting
just over 1.8 million well when they had
hire the FED starts to panic because you
don't need to worry about inflation when
people are losing their job it's only a
matter of time before the data catches
up to it but what does a Fed really care
about what do they really follow well
that's twoyear treasury yields and what
they're starting to tell us that shown
in blue is the fed's got policy wrong
and the bond market starting to say the
stress is building in the system in a
big way and if something's not done and
soon we're going to not just be in a
global recession we're going to be in a
global financial crisis where we could
see Banks all around the world outright
fail and with that I'm Steve vanmeer
thanks for watching thanks for being
fans bye
now
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