Brace for Disaster: Unthinkable Catastrophe in the Global Banking System Unfolds

Summary

In 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

00:00

🌪️ 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.

05:00

📉 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.

10:01

🏦 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.

15:02

📉 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.

Keywords

💡Global Banking Crisis

The term 'Global Banking Crisis' refers to a situation where financial instability and failure of banking institutions occur on a worldwide scale, potentially leading to economic downturns across multiple countries. In the context of the video, the crisis is triggered by the collapse of China's real estate sector, leading to a domino effect that impacts the global economy. The video describes how the inability of property developers to manage their debts could lead to widespread defaults, affecting banks and the broader financial system, thereby rippling across the world to plunge the global economy into a financial crisis.

💡Central Bankers

Central Bankers are officials responsible for overseeing the monetary policy of a country's central bank. They play a crucial role in managing a country's currency, money supply, and interest rates. The video criticizes Central Bankers for being 'completely clueless' about the unfolding crisis, suggesting they are unaware or unable to prevent the cascading effects of the real estate downturn in China on the global banking system. Their traditional tools and policies, like adjusting interest rates, are implied to be ineffective against the magnitude of the crisis at hand.

💡Real Estate Sector

The Real Estate Sector involves the development, buying, selling, and leasing of property. In the video, China's real estate sector is highlighted as the epicenter of the crisis due to its significant debt levels and the default of major property developers. The downturn in this sector is presented as a critical issue because of its direct ties to the banking system through loans and its broader impact on the economy. The failure of major developers and the subsequent drop in commercial real estate prices are flagged as precursors to the banking crisis.

💡Fire Sale Prices

Fire Sale Prices refer to the selling of assets at heavily discounted rates, typically in a situation of financial distress. The video mentions that property developers, under the pressure to reduce debt, will need to unload assets, leading to fire sale prices. This is significant because it puts further downward pressure on commercial real estate prices, exacerbating the financial instability within the real estate market and the broader economy.

💡Debt Default

Debt Default occurs when a borrower fails to meet the legal obligations of debt repayment. The script discusses defaults among China's property developers as a major concern, highlighting the strong link between these defaults and the health of the banking system. Defaults can lead to significant losses for banks, increase in bad loans, and can trigger a wider financial crisis by undermining confidence in the financial system.

💡Liquidity Strain

Liquidity Strain refers to a situation where financial institutions or companies face difficulty in meeting immediate cash flow needs. The video describes this in the context of China's property developers and banks, where contracted sales plunge, and the inability to sell assets or secure new financing puts significant pressure on their liquidity. This strain is critical as it can lead to defaults and exacerbate the financial crisis.

💡Credit Rating Downgrade

A Credit Rating Downgrade is a negative change in the creditworthiness assessment of an entity by a credit rating agency. The video outlines how downgrades impact property developers and banks by making it more difficult and expensive for them to borrow money, further reducing lender and buyer confidence. These downgrades are a sign of increasing financial distress and contribute to the cycle of declining asset values and tighter credit conditions.

💡Commercial Real Estate

Commercial Real Estate refers to properties used for business purposes. The video emphasizes its importance and vulnerability, noting that the crisis in the real estate sector puts downward pressure on commercial real estate prices. This decline is presented as a major factor in the financial crisis, leading to potential losses for banks and investors, and contributing to the insolvency of financial institutions.

💡Negative Interest Rates

Negative Interest Rates are an unconventional monetary policy tool where central banks set their benchmark interest rates below zero. The video suggests that to combat the crisis, interest rates may need to be dropped to zero or even go negative. This policy is aimed at encouraging borrowing and spending by penalizing banks for holding onto cash, but the video hints at skepticism regarding its effectiveness in resolving the underlying issues of the crisis.

💡Bank Lending Contraction

Bank Lending Contraction refers to a reduction in the amount of credit available from banks to borrowers. The video discusses this in the context of the economic downturn, where banks reduce lending due to increased risk of default. This contraction exacerbates the crisis by restricting access to finance for businesses and consumers, leading to further slowdowns in economic activity and contributing to the overall financial instability.

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

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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