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China faces a potential Lehman moment. Wall Street is unfazed

By Matt Egan, CNN Business - September 16, 2021

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David R. Kotok - In the News

 

The implosion of Lehman Brothers, 13 years ago this week, showed how the collapse of a single entity can send shockwaves around the world.

Echoes from that event are resounding today as a massive property developer on the other side of the world teeters on the brink of default.

The risk is that the collapse of Evergrande, a Chinese real estate company with a staggering $300 billion of debt outstanding, could set off a chain reaction that spreads overseas.

David Kotok, co-founder and chief investment officer of Cumberland Advisors, agrees, dismissing Evergrande as a "Chinese domestic credit problem."

"It does not look as if it has any contagion effects on American companies or American financial markets," Kotok said. "We see no credit spread widening,"

Credit spreads, the difference between corporate bonds and ultra-safe Treasury rates, remain very narrow. That's a sign that investors aren't worried — especially given the Federal Reserve's unprecedented support for the economy and markets. Of course, that can change in a heartbeat.

"I would change my view at once if I saw any contagion or spillover" into the world's biggest economies, Kotok said.

The US Treasury Department declined to comment on the Evergrande situation.

 

Read the full article at CNN Business: https://www.cnn.com/2021/09/16/business/wall-street-evergrande-china/index.html


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David R. Kotok
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