Sell Commodities Before Bear Holocaust Completes

China's speculative commodities bubble could be in trouble if authorities cut off the supply of money and credit. Meanwhile, the rapid rally has been described as a bear Holocaust.

Stockstar: 任泽平:警惕债市风险 防范期货市场泡沫投机
Managing Director and Chief Macro Analyst of Guotai Junan Research Institute warns of bond market and commodities bubble risk:
Monetary policy may enter the observation period, it will not be as loose as in 2014 - 2015.
For a refresher, 2014-2015 was a period of punctuated deflation, in housing, credit and then the currency market (dollar deflation).
Based on historical experience, CPI exceeds 2.5%, monetary policy will enter the observation period; 3% of the cordon; more than 3%, monetary policy tightening will face pressure. If 2016 CPI2.5% -3%, moderate inflation, monetary policy will be observed based, which means that no more than money 2014-- loose in 2015, but not significantly tightened.

...In the economic recovery, inflation expectations, credit defaults, deleveraging and other background, wary bond market risk, as well as possible for corporate financing costs, old debt, financial stability, risk premiums and other negative contagion effect.

Moderate inflation is conducive to higher commodity prices and corporate earnings improved. Recently a weaker dollar, the domestic economic recovery, ample liquidity, historically low inventories, supply-side driven contraction, energy, black, nonferrous metals, agricultural products and other commodities rose, the cycle industry and agriculture contribute to improving corporate profits, but also need to guard against the resurgence of inefficient excess capacity and speculative futures market bubble.
Li Xunlei writes that inflation expectations are worse than renminbi depreciation expectations in 李迅雷:通胀预期比人民币贬值预期更可怕
CPI is a new risk variable

CPI 2016 in January only 1.8% in February, suddenly jumped to 2.3%. If only pork, vegetable prices, the seasonal factors in the future or will subside. But the bottom commodity prices bounced up, it will raise the core CPI, CPI rise so that more rigid.

2016 government work report, the M2 growth target has been increased to 13%, which means M2- nominal of GDP (growth) of the scissors more than 6%, it should be at a historic high. M2 high-growth market to provide ample liquidity, which is in the past year of asset shortage logic. Rebar futures have soared recently and has attracted a lot of money entered the futures market, reflecting the social restlessness of hot money speculators take advantage of people for inflation expectations or fear, initiate a round of speculation in commodity futures.

From rebar spot price movements, the maximum time in 2008, the price of more than 5500 yuan per ton, in January 2011, some also more than 5000 yuan, and now even has risen about 80% from the bottom, not to 3000 yuan, indicating that the price level is still low.

Thus, both the precious metals prices, or commodity prices, according to the current price level, they rose logic is established. China's PPI has been 50 months in negative territory, the upward momentum is so pent up, the CPI and PPI conduction will occur sooner or later.
He then makes the point made on this blog, repeatedly over the past several years.
This year moderate inflation, the probability of large

Everyone seems to have this logic: if not to devalue the yuan outside, it will internal devaluation, appears inflation.
The explosion in A-shares, and now commodities, shows that if authorities let the market run, inflation will rapidly build. They have eased policy at times and allowed bursts of credit to pour into the economy, which shows up as explosions in stocks, bonds, houses and now commodities.

Li isn't worried about inflation yet though, he sees inflation as moderate due to the weight of deflation:
Thus, inflation is expected to be more terrible than the expected devaluation of the renminbi, because the former is not controllable, the latter under the conditions of capital controls is controllable. 2014 Central Economic Work Conference proposed the "high leverage, bubble" problem, in 2016 the problem even more serious, if inflation is really worse, it will have to tighten monetary policy, which there is a high stock market bubble, the bond market, the property market is bearish. For the real economy it is also bad.

However, if according to my judgment, CPI rise is not excessive, a little more than 3% level may stop, then monetary policy will not be tightened significantly, may just be "modest shift" only. Monetary policy shift is not always a good thing, although this policy initiatives help to curb the risk of the outbreak, but did not address the crux of the economy, the crisis is at best delayed it.
Finally, here's the tale of a couple of guys in Shenzhen who decided to try shorting the market, a May steel contract. One of the guys had saved money to buy a house in Shenzhen, but he lost money in the A-share crash of 2015 and home prices ran away, so he dumps his downpayment into shorting. His buddy tells the story:
CNFol: 期货暴涨!我爆仓了!一场空头大屠杀的行情悄然开始
To futures speculation, mostly just speculation fishing for a true hedging, minority.   

March 28, thread 1605 daily beginning was departing, and friends A (tentatively letter instead of his name right) speaking on whether or not to short, the following is our conversation:   After that, we began a nightmare 20 days ......  
market is like and we are against, like, after we were short, a bear stock market quietly started strangling ......   
March 31   empty one small profit.  
April 1  Fool's Day, 1605 thread rose 2.83%, we start losing money.  
April 5   the price was dropped back to the open space of the cost price, perhaps formed headed it! Not flat.  
April 6   high overcast doji, headed clear! Overweight!   April 7 - 8,   stagflation! Plummeted to begin!   
April 11   jumped 4.99%, what happens? Trading software prompts risk, and to make money, not burst!  
April 13 - 15,   ha ha ha, come down, go up the money at a high level was too bright!  
April 18 - 21,   four days threads 1605 jumped more than 22% cumulative, short dead! I burst positions it!   In other species the battlefield, but also staged a massacre bears massacre, the camp bears have an emergency! Cotton rose nearly 28% two weeks!   Two weeks of iron ore rose more than 25%!   Asphalt two weeks rose more than 15%!   Even the usually less active movements of eggs has also joined the action to the massacre bears, April 20 rose 2.98%,
April 21 limit ......   All of a sudden, the market is full of dead bears, futures battlefield filled with smoke, the bulls have a carnival...
Finally, ZH has coverage including the chart below, which happens to be the exact commodity traded by the two idiots above. Beware The Bubble In China's Domestic Commodity Market.
There's also a chart showing the steelmaker A-shares haven't rallied much at all. This fits with what one analyst wrote last week, covered a couple of days ago in A Reminder of ChiNext Volatility
He sees the believers in the Chinese rebound story piling into the futures market, while the disbelievers are staying with equities and bonds. He concludes that the scary thing isn't the drop in stocks on the chart, it's that futures kept rising.

Those who believe in supply-side reform and recovery in the demand side went to the futures market, those that do not believe that stay in the stock market and curse.

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