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Blain's Morning Porridge, Submitted by Bill Blain of Mint Partners

The Great Crash of 2018? Look to the bond markets to trigger Mayhem!

Authored by 720Global's Michael Liebowitz via RealInvestmentAdvice.com,

“Before long, we will all begin to find out the extent to which Brexit is a gentle stroll along a smooth path to a land of cake and consumption.” – Mark Carney, Bank of England Governor

The recovery in Eurozone growth has become part of the synchronised global growth narrative that most investors are relying on to deliver further gains in equities as we head into 2018. However, the “Zombification” of a chunk of the Eurozone’s corporate sector is not only a major unaddressed structural problem, but it’s getting worse, especially in…you guessed it…Italy and Spain. According to the WSJ.

The Bank of England has done some timely and truly eye-opening research into the resilience of corporate bond markets. The research is contained in the Bank of England Financial Stability Paper No.42 and is titled “Simulating stress across the financial system:  the resilience of corporate bond markets and the role of investment funds” by Yuliya Baranova, Jamie Coen, Pippa Lowe, Joseph Noss and Laura Silvestri.

The PBOC stepped up cash injections this week, suggesting authorities are trying to shore up financial markets as a selloff in bonds spreads to equities... but it is not working!

As Bloomberg reports, the central bank has already added a net 510 billion yuan ($77 billion) via open-market operations into the financial system this week, matching the third biggest weekly injection this year.

But, it is not enough...