Monday Takeaways: Why I’m Watching China

Shah Gilani|January 15, 2024

The markets are closed for Martin Luther King Jr. Day… but things are heating up in China.

And not in a good way.

Its property sector is falling apart. Multiple businesses have gone bankrupt… including one of the country’s largest shadow banks… an institution that’s underwater by $36 BILLION.

It’s a huge problem… that’s going to hit our shores.

I explain why… and how… in my Monday Takeaways video.

Plus, I share the biggest ticker involved in this mess.

Click on the image below to watch it.

 

Transcript

Hey, everybody. Shah Gilani here with your Monday Takeaways.

I know it’s a holiday. Happy Martin Luther King Jr. Day to you all. Yes, it’s a holiday, and it’s a good thing. Markets are closed to get a little bit of a rest. Three-day weekend. It’s all good.

But things aren’t all closed everywhere. They’re certainly not closed in China, people, because China needs to move along. Things aren’t good in China. Things are really bad.

One of the top 10 shadow banks… shadow banks, not real banks, shadow banks… they look, act, walk and talk like banks, but they’re not banks… BK… just went bankrupt. Yeah, I’m talking about… hopefully I’m pronouncing it correctly… Zhongzhi. This is one of the top 10 shadow banks in China.

It just found out assets minus liabilities are underwater by $36 billion.

Zhongzhi has a division that is a trust company, a trust business. As far as a trust business goes… What do these trusts that look like and act like banks but aren’t banks do? They sell wealth management products.

What are wealth management products? They’re high-yielding products that a lot of wealthy people buy, but the general public buys them also. They’re high-yielding – that’s why they look so good. They’re wealth management… like “We’re going to manage your wealth higher.” Sounds good.

How do they return such high-yielding products? How do they create them?

They take the money and they invest it in even higher-yielding stuff. Higher-yielding projects, investments, businesses, sectors… mostly property. And that’s a problem because the property sector in China – a $60 trillion sector, the largest asset class in the world – is in trouble. And so it’s not a surprise to me, the Zhongzhi failure. Now, of the top 10, I think we’re going to see other shadow banks falter, probably BK. So China’s a mess.

The takeaway here is, you have to keep an eye on China.

It’s unlikely we’ll have a Lehman moment in China, but I think it’s possible. I say “unlikely” because it’s a communist country. They have their own printing press. They can do what they want with their currency. They can bail out their banks with printed money. There’s a lot they can do, and they’re going to have to do it… because the weight of a $60 trillion asset class could implode the economy… and maybe there’s not enough that they can do. That remains to be seen. That’s a worry out there, and it should be a worry for everybody because markets globally will take a hit. The second-largest economy in the world imploding is not going to not impact everybody else globally.

So I’m not saying it’s going to happen, but I’m saying it’s out there. When you’re thinking about black swans… now it’s a gray swan. It’s out there, people.

So the takeaway there is to keep an eye on what’s happening in China. Keep an eye on what they’re trying to do and if there’s going to be success or if they’re failing. The stock market’s been down three years in a row. It’s pretty ugly. They’re going to have to do some stimulus to support the economy. They have to do something to stop leaning on the tech sector and knocking down their equity markets. They’re going to have to do something. And if they don’t, guess what? The camel’s going to tip over.

So the takeaway there: Keep an eye on China.

And also keep an eye on China-U.S. relations. Because we are in the beginning stages… really, it started with the Trump administration, but it’s gotten worse in the Biden administration, as far as the relationship goes. Trump started with tariffs on China, and the Biden administration’s continued with tariffs on China. But now we’re in chip war with China. Really, it’s beyond a chip war, people. It’s the digital cold war between the U.S. and China, and it’s going to get worse.

There’s a fallout… and the takeaway from the fallout – first and foremost, because we’re all about markets and stocks here – is Apple. Yes, Apple.

The takeaway from the U.S.-China digital cold war? First casualty: Apple.

You want to know why and how bad it’s going to get for Apple? You have to read Total Wealth, at totalwealthresearch.com. You know, it’s free, people. And you know, you have to read it this Friday because I’m going to tell you what’s going on with Apple and China… and what’s going on with this digital cold war… how it’s going to impact China, how it’s going to impact the U.S.-China relationship and how it’s going to impact geopolitics globally.

So check out totalwealthresearch.com on Friday. It’s free. You already know that. Why? Because you don’t know what you don’t know.

Catch you guys next week. Cheers.