I posted an article on China opening up their swaps market of $3.1 tr.
The figure looked very low to me. I have been thinking it over.
A massive amount of China’s factory build out(where swaps are generally used) was created and owned by Western interests.
Yes Chinese banks are counter parties in the loans. But the swaps are from mainly the US and western Europe.
We are in trouble as the Chinese banks stop paying the interest swaps. Their real estate sector sinking this can come to pass.
China is building into their own internal crisis financially.
Our crisis MIGHT be a sudden drop in the major financials Derivatives and Futures Receivables. The swap face value is not the issue nor reported. The interest payments are massive numbers in the Futures accounts receivable and payable. So large that the market cap of the major financials are dwarfed by the receivables. The payables and receivables generally are close to matching.
If you remember 2008, it was our securitized debt from the US but the buyers in Europe had gone hog wild buying the crap paper from us. The results were worse in some European nations than in the US.
Leap1, I don’t understand swaps or why the problems in the Chinese real estate sector can harm the U.S. Do you have links to some articles and data that can explain it?
Our crisis MIGHT be a sudden drop in the major financials Derivatives and Futures Receivables. The swap face value is not the issue nor reported. The interest payments are massive numbers in the Futures accounts receivable and payable. So large that the market cap of the major financials are dwarfed by the receivables. The payables and receivables generally are close to matching.
I think the gist is that while our financials aren’t exposed to loss should Chinese swaps suddenly go up in spectacular fashion, but rather that their stock prices are supported by the future cash flow those swaps represent. No swaps means no cash receivables.
The TTM JPM is making $39 billion as of now. I am using JPM as the posterchild or profile of the major financial corporations.
On this next link look for the “Total Liabilities and Net Interest” arrow click it and look for the Trading Liabilities. That number is “net”. That assumes the net balance of receivables and payables. Take in the scale of the net figure. That net figure in larger part is made up of the interest rate swaps with Chinese and other banks globally. Under these conditions it can become a house of cards.
The problem is the Chinese are counter parties to western banks when a western firm sets up shop in China. The face values are tremendous. But not fully known. There are very few resources to know. The data is not aggregated that I know of, but I am sure the FED would have economists looking at times.
As Chinese banks fail the payments on the interest swaps MIGHT end. Like candles slowly being snuffed out. JPM’s $39 billion profit can dry up overnight. The bank can possibly become insolvent.
I apologize for no links. The only sort of source that would follow this is a central bank but Swaps are not regulated so there are no agencies with reports. News paper reporters do not dig into this stuff. If they do it is a shallow look.
This is just my own thinking. I claim it. I was shocked the first time I saw the derivatives and futures receivables to payables and saw how precarious the net balance is. Any bad bad times can wipe out the financial industry.
The TTM operating cashflow is way up as the real estate market has surged.
But see the changes in the TTM under operating cashflow of the accounts receivable and payable. The US real estate market is beginning to ebb. The receivables and payables can become a crisis.
I apologize for no links. The only sort of source that would follow this is a central bank but Swaps are not regulated so there are no agencies with reports. News paper reporters do not dig into this stuff. If they do it is a shallow look.
You gave a link, and a thoughtful discussion of your logic. While I also do not understand it, and am too lazy (or too busy) to read the Yahoo financials and I think that true novel thought and discussion like this what is important here.
Eventually I will read the report JPM annual report and the 10-q s that support it to look for patterns. Keep talking, keep thinking.
While you are at it, here is a link to the data the can get people tossed in the clink if it is wrong. (In perfect world)
I thought at one time to build a search engine that could download and crawl the whole database looking for Saul stocks that had been Saul stocks but were no longer Saul stocks. Those companies do not have a lot of coverage and would make for excellent short candidates.
Back to the subject at hand. With this database, all to big too fail companies can be dowloaded into one data base, searched for credit default swaps and then those data can be analyzed for flow.
I wonder id Data Dog could help with that?
Finally, thanks again for the research and thoughtful discussion.
Finally, thanks again for the research and thoughtful discussion.
Qaz,
Thank you for the kind words. That is really what I want from this board, more a “thoughtful discussion” on finance and econ. I was getting to my wits end. I wont get further into that.
The research part is just fragments of data. The request for a link was for a newspaper reporter to make something more legitimate. That is not really in their wheelhouse.
In the 2008 meltdown the unsung failure were the swaps. In a meltdown this will be the big failure again. And again the face of it will be a failed real estate market. Failed bond market. This time primarily in China. Except the swaps market is mostly a western tool. Oy!!
I am not sure to expect a Lehman Brothers moment out of China. We do not know how innovative their government and central bank will be at propping up the corporations. The relations between communist party members public and private sectors are not clear to us.
Our consideration is that the communists may welch on our financials.
In 2009 - 2011 the western banks bailed out everyone, including too a degree China. I am worried the Chinese wont return the favor. Why should they? The swaps are not really their tools. Yes they have a $3.1 tr market. That is tiny as far as the overall swaps market. The overall market is not their problem.
Keep in mind readers these are IFs but also realize we are beginning to see WHEN. Meanwhile party like its 1999?