Business

As out friends from Fasanara Capital remind us, despite record liquidity injections by the PBOC in the past few days, Chinese repo rates have resumed continue breaking higher.

The move is odd, given ongoing record liquidity injections (RMB 680 bn last week, RMB 150 bn today).

As Fasanara's Francesco Filia writes, "the mind inevitably goes to excess credit troubles in China and potential for CNH selling-off" and adds that the "move directly affects leveraged positions on bonds, funded by short-term repos."

Outside of an exogenous geopolitical event - which given the way the world is tilting is becoming an increasingly likely occurrence - BofAML believes a bear market case is strongly supported by the probability of an economic shock most likely be tied to credit where signs of stress are building the most.

There are four simple factors that suggest problems ahead...

1. Investors are starting to believe we’re “late cycle”

Submitted by Mac Slavo via SHTFPlan.com,

Astute observers of financial markets, especially in the precious metals sector, have long argued that small concentrations of major market players have been manipulating asset prices. Last week those suspicions were confirmed when Deutsche Bank, one of the world’s leading financial institutions, not only admitted to regulators that they have been involved in the racket, but that they were prepared to turn over records implicating many of their cohorts in a global scheme to suppress prices.

One month ago we presented the simple reason why numerous oil producers did not believe the oil rally: they were aggressively hedging future production at prices - some as low as the mid-$30's - which were considered uneconomical as recently as 6 months ago, and while they were eliminating future downside risk should oil resume its plunge, they would also cap their were oil to soar much higher.