'BTFD and HODL. There's always a bailout'

TLDR & TLDL: Yet again, global and local investors are watching another Government-arranged bailout of asset values. No wonder everyone buys the dip.

They now believe there’ll always be a bailout paid for by taxpayers and renters now and into the future, and anyone who sells is a mug. (And they have BTFD and HODL mugs to prove it)

This state of collective moral hazard (where people take risks knowing they’ll benefit and someone else will pay if the worst happens) was emphasised again overnight as Fitch officially declared China’s biggest and most indebted apartment developers, Evergrande and Kaisa, to be in default. But investors, who would normally worry in a pre-GFC world about an Austrian-style ‘cleanout’ of the most feckless and indebted, are now sanguine. Many are not old enough to even imagine such a thing. Market values are therefore relaxed near record highs this morning despite the news.

They can see ‘Team China’ arranging a controlled implosion where state banks, state investors and local governments write down each others’ asset values in a way that doesn’t spook real savers, both locally and globally. The losses are socialised via state balance sheets so the profits can continue be privatised by asset owners. Sound familiar? Renters and regular income tax and consumption tax payers are the losers in this world where asset owners who pay little or no tax are always the winners.

See more below the paywall fold on this ‘feverish age’ of investors, especially the newer younger ones always ‘buying the dip’ to ensure they never miss out on the ‘free money’ from Governments in the next bailout. No wonder share prices, house prices and cryptocurrencies have exploded to ever-rising record highs that just will not fall.

The big question is how to defuse this pile of electronically-generated pile of ‘value’ before it blows up the real world.

China’s biggest and most indebted apartment developers, Evergrande and Kaisa, have been declared to be in default. Photo: Getty Images

Elsewhere in the news here and overseas overnight:

• the FDA approved Pfizer’s booster shots for 16/17 year olds;

• US jobless claims fell more than expected in Nov to their lowest level since Sept 1969, emphasising the robustness of the jobs market and reinforcing expectations the Fed could hike as soon as May (CNBC);

• China’s annual consumer price inflation rate was weaker than expected at 2.3% in Nov because of an economic slowdown, which is raising expectations of further monetary policy easing in the world’s second largest economy and NZ’s largest trading partner (Reuters);

• China told multinationals to sever ties with Lithuania or face being shut out of the Chinese market, ramping up its punishment of the tiny Baltic nation for allowing Taiwan to set up an embassy there (Reuters); and,

• in local scoops overnight, Ashley Bloomfield admitted to the Waitangi Tribunal the Govt overuled his advice about allowing younger Maori to be vaccinated first.

Coming up later today:

• I’ll be opening up my weekly Ask Me Anything thread for paid subscribers at midday for an hour;

• we’ll have our weekly ‘hoon’ webinar around the week’s events with Peter Bale at 4pm for an hour (paid subscribers can scroll to the bottom to get the link); and,

• I’ll be watching US CPI inflation data for Nov tonight, which economists expect to rise to an annual rate of 6.7% from 6.2% in Oct, the fastest inflation since 1982.

(Take advantage of my special pre-Christmas offer to become a paid annual subscriber, which means you can join our community and support my accountability and explanatory journalism on housing, climate change and child poverty.)

A modern investor view. See more below the paywall fold.