| Dear Reader, There are some things that I call “water cooler” topics in finance. They don’t have any bearing on what we are doing in the real world—people just like to argue about them. Which is why today, we’re going to talk about why you shouldn’t care about EVERGRANDE. Last week, I received message after message from my Daily Dirtnap readers asking me to talk about Evergrande and what was going on in China. They wanted to know, “Could it be the next Lehman?” My answer was this: Did it have any impact whatsoever on our portfolio? Or US markets? No. It did not. It was hardly a blip on the radar. A couple days later, one of my readers tweeted me and said… But if you somehow missed the panic, or just wanted to know how I reached my conclusion, let’s go back in time for a bit... Evergrande is a Chinese property developer best known for building ghost cities. Remember that? Even 60 Minutes did a piece on it. It was malinvestment on a massive scale. See all those buildings? Empty. Photo: Evergrande ‘Splendor’ Kunming
“Just because you build it doesn’t mean they’ll come. Seven hundred million people in China live on less than $2 a day. They simply can’t afford these [apartments].”—60 Minutes. At the time, we wondered at what would become of all this malinvestment. Now we know. Ten years later, it’s all playing out in real time. Evergrande is $88 billion in the hole. They win the award for “highest debt burden of any publicly traded real estate management company in existence.” So, yeah. People worried. If they default, could they cause the next 2008-style financial crisis? Maybe... If they were allowed to default. But this is China. On September 20th, 2021, I wrote to my Daily Dirtnap readers and said: “Ultimately, the losses from Evergrande will be socialized. You won’t really see the effects of it because prices will not be permitted to fluctuate. The Evergrande bonds will simply be halted.” At the moment, China is hurting itself. Not your investments or mine. I’m in no way saying there won’t be repercussions for Evergrande. But here is how I think it will play out. Chinese equities will underperform Western equities for a long time to come. Which is why I told my readers, “The China story is over. We never bought into it, for all the reasons I described.”—The Daily Dirtnap, 9/22/21 How to Avoid the Water Cooler The market is full of noise. Every day, on every medium (TV, online, social media), you are hit with a barrage of opinions. It’s one giant freak-out session where everyone is trying to out-scream each other. Being a sentiment-based investor doesn’t mean I get caught up in that. I’m looking for the “big” ideas, the real market movers. If you’re looking for a way to cut the noise and concentrate on the ideas that really matter—the ones most likely to make you money or keep you from losing it—then I think you’d like reading my private, daily letter, The Daily Dirtnap. The Dirtnap started as a nameless letter on the Bloomberg Terminal sent only to my colleagues and clients during my time as an active trader at Lehman Brothers. Back when I was moving up to $1 billion a day in volume. Since its inception, professional and individual investors alike have used my private, daily letter to keep a tab on what moves the markets: SENTIMENT. My readers describe it as an “underground club.” It’s not a flashy “Join now and make 10,000% gains on this tiny, unknown stock!” kind of letter. It’s for people who want to be better investors, who want to manage risk, get new ideas, and see around the corner before anyone else. It’s my hope that with stories like the above (why you shouldn’t care about Evergrande), you can see what kind of letter The Daily Dirtnap is and how keeping an eye on sentiment can help you. You don’t have to take my word for it, though. Find out what my readers have to say… “I like the idea of following sentiment but don’t have the time or resources to really watch it. I like that [The Daily Dirtnap] does that for me. My portfolio has done very well with [The Daily Dirtnap]’s guidance and has paid for the subscription many times over.” —AS That’s one of over 550 responses I got when I checked in with my current Dirtnap members last month to ask what role The Daily Dirtnap played in their investing strategies (I do that every three to five years… I just want to see how people are doing). You can read about what The Daily Dirtnap is doing for current readers, and more importantly, what it can do for you HERE. I’m not one of those “beat you over the head with promises of GAINS GAINS GAINS!” guys. But I know the value of The Daily Dirtnap, and I know what it’s done for my readers. I know what it can do for you. So, as they say… READ ALL ABOUT IT.
This is the only time of the year I offer a discounted membership. So, if you’ve been interested in joining, now’s a really great time. In fact, a former subscriber (now, renewed) wrote in to say, “I’ve been missing the subscription but was on the fence. Saw your interview with Ed this morning. That two-year deal is too good to pass up, so I am back!” Talk to you tomorrow when I hit you with episode three of “How to Master Sentiment”... I’ve got a Lehman story you can’t miss. Jared Dillian
Editor, The 10th Man and The Daily Dirtnap
Mauldin Economics | 