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Ming Zhao

@FabiusMercurius

2 Oct

🇺🇸🏦 America's Shadow Banks

With all this Debt Ceiling talk, here's another throwback:

What are shadow banks?
How did they spur the 2008 financial crisis?

"But shadow banks aren't a thing anymore, right?"
Wrong.

Today they underwrite more debt than regular banks.

Thread👇

1/ If it looks like a duck & quacks like a duck...

Is it a 🦆?

If a company moves money around and lends to other companies even (especially) when real banks refuse, then is it a bank?

In 2007, economist Paul McCulley named these things "shadow banks."

The name stuck around.

2/ What do they do?

4 things.

- Transfer credit risk: from loan originator to 3rd party
- Lever up: borrow $ to invest & make more $
- Transform liquidity: use cash-like liabilities to buy hard-to-sell assets
- Transform maturity: use short-term deposits to fund long term loans

Read 19 tweets

Ming Zhao

@FabiusMercurius

21 Sep

Post-Evergrande: China's Waterfall of Pain

China itself is one big Evergrande.
One big debt crisis.

For years massively over-levered shadow banks masqueraded as propcos, got drunk on credit, flirted w/ default & called for bailout like a late-night uber.

Contagion has begun
👇

1/ How Evergrande is Actually a (Shadow) Bank

On the surface Evergrande is a propco. It has insatiable demand for capital cuz it needs to buy land. That's what propcos do.

But then Evergrande started stuffing its commercial paper into WMPs & selling it off to its own employees.

Let's be more explicit.

In June 2019, Evergrande plowed 13.2B¥ into Shengjing Bank, acquiring 36% stake in a literal lender.
Shengjing was on the brink of default. Tier 1 capital adequacy ratio was 8.52%, barely above regulatory req.

Now why would a propco bail out a bank? 🤔

Read 16 tweets

Ming Zhao

@FabiusMercurius

18 Sep

🇨🇳Evergrande's Backstory🇨🇳

🌎 The world demands answers.

From Fortune 500 to 1.95 Trillion in debt: How did China's #2 real estate giant get to this point?

How much cash does it *actually* have?
Will there be a bailout?
Who's gonna get f*cked?

Here goes. Story time.
👇

1/ First, how bad is the current situation?

There's not much info on Evergrande's finances on the Western web (aka Google) so I had to dig through the Chinese web (aka Baidu).

This poster shows China's top 3 most indebted real estate co's in 2020:

#1 is Evergrande (@ 1.95T ¥!)

2/ According to the company's 2020 annual report, 674B ¥ (35%) is interest-bearing debt, which means it incurs new interest liability of 180+M ¥ every day!

Comparatively, it only has 158B in cash to repay all its short term debt + interest which means...

Major defaults to come.

Read 15 tweets

Ming Zhao

@FabiusMercurius

13 Sep

Met a guy at a party this weekend.

He was fine until,
Guy: "U were Columbia 2016? What was ur 5-Year reunion like?

Did y'all sit around figuring out who's the most successful?"

My stomach dropped. Something vile was bubbling in my throat-- the toxicity dizzying.

Story time 👇

He was a Columbia 2019 so maybe it was self-deprecating humor?

Well not funny. A revolving door of emotions passed between us.

First, disgust. Why the fuck would we come all this way just to whip out our dicks & size each other up?

Second, denial. Dude musta had no friends.

People like him were the exception, not the rule.

Third, sympathy. Should I feel bad for him?

Fourth, realization. Damn, this guy... was all of us.

Fifth, disgust. Why the fuck did we come all this way just to whip out our dicks and size each other up?

Read 11 tweets

Ming Zhao

@FabiusMercurius

11 Sep

🥬Kimchi Premium & Hidden Arbitrage🥬

On Jan 8, 2018, a man made $1.5B trading BTC in Korea.

BTC price was $25K in Korea.
But $16K elsewhere in the world.

57% arbitrage opportunity! WHAT?! This trade became infamously known as the Kimchi Premium.

Here's the full story:
👇

1/ How it started

It was not always this way.

Back in Jan 2017, BTC hovered at $2K. Crypto prices between Korea & elsewhere was not that different.

By Dec 2017, BTC had soared 10x to $20K. Unknown to most of us, there was an even madder dash to panic buy in Korea than the US.

Suddenly S. Korea was trading 20% of all global BTC volumes on any given day. The "Korean Housewife Trader" became a meme.

Such localized trading frenzy caused local BTC prices to diverge from 1% premium to 10% to 30%...

At 30%, (even) CNN took notice:
money.cnn.com/2017/12/12/tec…

Read 11 tweets

Ming Zhao

@FabiusMercurius

4 Sep

👩‍❤️‍👨 Dating + Investing: The Same Game? 👩‍❤️‍👨

Men want 2 things.

1. Hot date 🔥 (or several)
2. Hot portco 🦄 (or several)

Turns out:
There's a famous game theory algorithm that maximizes ur chances of finding both.

It's called ...
👇

1/ What is the Secretary Problem?

Imagine ur in HR.
U wanna hire the best secretary from N applicants. So u interview them 1 by 1 until u decide to accept one. Rejected candidates can't be resurrected.

What strategy maximizes ur chances of choosing the BEST?

[code @ end of 🧵]

Now replace "ur in HR" with
"ur a normal guy" (or girl).

Replace "secretary" with
"hot date" &/or "hot portfolio company🦄."

The strategy that maximizes for the BEST secretary also maximizes for the BEST gf/bf also maximizes for the BEST investment. 🤯

So what is it? 🤖

Read 15 tweets

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