Fourth Turning Has Arrived: Adios Western Ruling Class

EU elites promised a prosperous green future. This could be their undoing

What is embroiling Europe is deeper than a political crisis – it is approaching what can be called a crisis of legitimacy for the ruling elite. This can be thought of as a metaphysical event that precedes political upheaval, the latter being merely confirmation that such a crisis has taken place. Legitimacy is, of course, a rather nebulous concept, and it defies objective measurement.

Ruling classes throughout history have always advanced various claims about their own legitimacy, without which a stable political order is impossible. In tracing the contours of the current crisis, it’s important to establish what exactly the claims Europe's technocratic elite have put forth and how they are becoming increasingly difficult to believe.

Ostensibly, the EU’s ruling elite has staked out the green transition as its raison d’être. They claim to have the mandate, vision and competence to see it through and have set clear targets to measure their success.

It was a good run, but when you're destroying nuclear power plants and running 6 percent deficits to prop up your Potemkin economy and financial markets, the reaper is right around the corner.

Here We Go Again: $32 billion in Trust Products Fail

China: $32 Billion Trust Default

Bear Rally Over? Yield Curve and VIX Turn Higher

It has been a long and winding road in this bear market. Yes, I still believe a bear markert is underway until new highs are made. I haven't been tactically bearish on the market over the preceding months, onyl taking some small swings when setups looked good. Until those old highs are taken out, my bear market call from November 2021 remains intact.

First, the classic bubble chart pattern hasn't been violated:

A double-top is a valid expression of the "return to normal" phase. Bullish sentiment and speculative behavior return to near peak levels, propelling the major indexes or stocks into double-tops. Anecdotal, but cryptocurrency speculators believe a new bull market is underway. Bitcoin BTC has a pattern that is consistent with the classic top though:

Tesla, Google, Amazon and Meta all sport the classic pattern with no hint of an imminent double-top. The paradox stocks are Apple and Microsoft. Both have achieved new all-time highs. Their massive weight in the S&P 500 technology sector (nearing 50 percent at times) propelled that sector to a new all-time high in July. If I'm correct in my assessment, this will turn into an overthrow of a double-top pattern and not an extension of the bull market.

Industrials also achieved new all-time highs this year. Energy and materials made new highs in the second-quarter of 2022 and remain within striking distance of new highs.

I'll digress here and give the bullish argument over the longer-term. Assume for a moment the U.S. was primed for a recession around the time the coronavirus hit. The government then wrecked the economy and then flooded it with far too much stimulus. Even though there's no official recession in 2023, the U.S. government is running deficits on par with the fallout from 2008:

There's nothing bullish about that chart long-term. Growing deficits will increase inflationary pressure. Falling deficits could trigger deflationary pressure. Since stocks are priced for perfection, deviation out of the Goldilocks Zone will trigger price declines in all sectors at least for a time, barring an explosive move higher in energy as we saw in early 2022.

I don't want to belabor the valuation topic, but here is the price-to-earnings ratio divided by the growth rate (PEG) and the spread between investment grade corporate bonds and the Federal funds rate.

Going back the to the bull thesis: what if the government front-loaded stimulus and the bear market/recession doesn't materialize? In that case, either an extension of the bull unfolds or the transition occurs without the bear move. Both EFA and EEM, the developed and emerging market ETFs, bottomed in October 2022, with EEM having a little overthrow this year:

To wrap up the bull case: the government flooded the economy with stimulus, triggering a temporary inflation surge. Inflation settles back into the Goldilocks Zone, as does GDP growth, sub-2 percent for both. In the short-term bull scenario, stocks enjoy an extension with tech and other speculative assets resuming leadership. In the longer-term scenario, the transition to new leadership such as industrials, energy, commodities and foreign markets takes place without a major bear.

Back to the bear scenario, one of the strongest signals for a recession has been the inverted yield curve. It doesn't indicate an imminent recession, rather it signals the pre-recesesionary stage. The actual recession comes when the yield curve steepens. Going back the past four decades, this has always occurred when the Federal Reserve slashed rates. Right now, the yield curve is steepening because long-term bond yields are rising faster than short-term yields. It is a small move at the moment, but the spread has made a higher low, indicating the final low might be in.

The 10-year treasury yield has a bullish formation that may or may not complete. If it completes, then higher long-term rates will sink financial asset valuation and could indicate a stagflationary recession. The 30-year mortgage would be on its way towards 10 percent, a level that would almost assuredly kill home prices too. On the flip side, a traditional steepening via Fed rate cuts would be another bear market and recession like we've seen in 2000 and 2008.

The decline in the VIX has been a hallmark of this bull market. The VIX has fallen below the level reached at the November 2021 peak, indicating fear is gone. Here's the VIX overlaid with the 2s10s spread:

VIX isn't a great indicator in that it tends to be coincident with the 2s10s, but a rising VIX indicates rising fear, likely because there's bearish action in parts of the market ahead of the full-blown bear. Here's a look at when the VIX bottomed ahed of prior bearish periods:

There will be bearish trades emerging very soon if the yield curve has finished inverting and moved into steepening. Ditto if the VIX follows it higher. With September and October coming up, the calendar supports a market top scenario here. New highs on the major indexes will invalidate the bear scenario, as will a falling VIX. If the 2s10s inverts further or moves sideways, it will indicate no imminent economic pressure. If the 10-year yield fails a breakout for instance, the yield curve might invert further while the broader stock market interprets the falling yield as disinflationary and therefore bullish.

Troubles in China: Developers Going Down, Province Needs a Bailout

Here we are again, at the starting line for a crisis: Chinese Developers Going Down Like Dominoes

Game Over

Repo is inverse with XLF, not on XLE.

Financial Stress Like in 2020 and 2008

I covered BXMT a few times last year. It was one of my "crash" targets. It is rolling into crash territory now. Some resistance around, conservatively, $16.50 per share. Below that it can free fall. If that happens, we'll be in a full-blown financial crisis of some degree.

The other side of the market is the Nasdaq. The NQ continues holding up. It needs to break 12000 and not look back for a full-blown bear move to get underway.

The Nasdaq's reslience, really the whole market's, speaks to the still extremely bullish sentiment within the market and the trillions of inflated liquidity sloshing around. The behavior of banks, commodities and so on are now hinting that this money will be deflated and sent to money heaven. Investors can hedge risk of bailouts and supercharged inflation with assets such as gold. Until there is some major pain however, I do not expect the Federal Reserve will go into full bailout mode because it will risk, with signficant probabiity, even higher readings the inflation indexes. If inflation goes up and rates with it, more banks fail. If inflation goes up and the Fed does what they did for SVB Financial, inflation goes higher still and takes down the whole economy. They're trapped and so are all the bulls that aren't hedged.

The Ride Never Ends: China to Inflate Housing Again

It seems like the world is out of ideas.

iFeng: 楼市重磅！央行、银保监会：新房价格连降3个月，可放宽首套房贷利率下限

Reuters: China property shares firm on more policy support, easing curbs

The central bank said on Thursday that for cities where the selling prices of new homes fall month-on-month and year-on-year for three consecutive months, the floor on mortgage rates can be lowered or abolished for first-time home buyers in phases.

China is also planning to relax restrictions on borrowing for property developers by dialing back the "three red lines" policy, Bloomberg News reported on Friday.

The property sector, which accounts for a quarter of China's economy

Auto Lending Trouble

A Twitter thread. tl;dr Car prices have plunged so much that consumer would owe on loans when trading in a car. The lenders will give them new loans anyway and ignore that part, assuming they'll default on the older loan. Yay auto sales!

Where Are We in the Credit Cycle?

When you zoom into a hyperinflation the chart is fractal. A constant collapse in value. The past 50 years is a slow-motion inflation of credit. History says there's no way to abort this trend without major damage. The peak in the total credt-to-GDP ratio 2009 was a result of the financial crisis. Is this a giant base with 2020 pointing the way north? Or was 2020 an overthrow creating a complex double top?

One Path to a Market Crash: Credit Spreads

High yield credit is outperforming government debt as it did into the 2007 peak. What's amazing is credit has been deteriorating unlike in 2007. The low in 2007 was below the 1997 low, and it produces a peak in the HYG/TLT ratio. The current high is being made with credit risk sitting at the "get out of stocks now" line.

TLT isn't an appropriate comparison fund for HYG in most cases because there's a big duration mismatch, 20 years versus about 5 to 7 years. U use it because it is volatile and these two funds are sort of companion ETFs for income investors the past 13 years. You buy TLT in the corrections, and HYG at the lows. With that in mind, here's another way of expressing this relationship. The high-yield srpead divided by the 10-year and 5-year treasury yields. They're both approaching lows seen in September 2018.

Think of it this way. The decline in interest rates this year has taken companies up to the starting line of panic in the credit markets. Any follow through will trigger the type of fear normally associated with recessions and credit events. At that point, it doesn't matter if treasury yields fall except that falling yields will keep panic limited to corporate bonds.

Everybody Wants to Buy the Dip

ZH: Here Comes The Open Revolt: A Reeling Europe Lashes Out At The Fed For "Bringing Us To A World Recession"

At least that was the case until now: because today, in a startling outcry breaching the unspoken protocol of "no dissent, never dissent", Josep Borrell, the high representative of the 27-member EU bloc, lashed out all too publicly at the Fed when he said that central banks (across Europe where the recession will be far, far worse than in the US) are being forced to follow the Fed’s multiple rate rises to prevent their currencies from slumping against the dollar, and compared the US central bank’s influence to Germany’s dominance of European monetary policy before the creation of the euro.

Of course, back then the solution to the super deutsche mark was simple: pool all nations under a common currency umbrella, even if it means misery for the less productive, and less mercantilist countries (hence the neverending European sovereign debt crisis which remains in hibernation only thanks to the ECB's bond buying). This time however, there is no simple solution taking advantage of gullible states, instead now that they've broken the seal of silence, the "leaders" of Europe admit to just how powerless they truly are when the custodian of the world's reserve currency has to do what's best only for itself, allies and friends be damned:

“Everybody has to follow, because otherwise their currency will be [devalued],” Borrell said to an audience of EU ambassadors, the FT reported. “Everybody is running to increase interest rates, this will bring us to a world recession.”

Because otherwise their currency will be devalued.

Because otherwise their currency will be devalued.

Because otherwise their currency will be devalued.

Because otherwise their currency will be devalued.

Because otherwise their currency will be devalued.

Because otherwise their currency will be devalued.

How many people who say the reserve currency status makes USD strong also realize every other nation on Earth is printing money more aggressively? The moment the U.S. starts acting in its own interest, the world squeals for more U.S. money printing. The Bank of England extended their new "temporary" QE program today...

The path to total economic devastation is becoming clear. A Federal Reserve pivot in any form will reignite speculative activity. It will reward buy-the-dip. This will produce a mind-bending rally that could wipe some bears out. Apres cette...

Crude broke down yesterday. Along with my horizontal, I'll be watching $90.50 on crude this morning. Always pay attention when as asset is behaving well with respect to chart, particularly wildly psychotic assets (chart-wise) such as crude oil. I'm quite heavily short energy after adding more weekly puts on XLE yesterday.

Gold also behaved extremely well yesterday. First it hugged my higher horizontal (from my SlopeChart) and then held the final line on this chart.

BTC is hanging on. At this point, I admit to having some doubt that it will crack, but that's why its breakdown will be part of a larger capitulation event in the market. I'm not alone in thinking that.

I don't think this line is extremely important for the ES, but this is the last line I have on the chart. Below it, the "support" is the prior 52-week low made at the end of September.

There are still shorting opportunities for aggressive investors. XLP and XLE look particularly vulnerable, as do bank stocks if their earnings reports are negative. They start reporting on Friday. Another important report this week is Domino's on Thursday. I have puts on it and McDonald's. I don't know if the stock will breakdown this week or not, but there's a monster bearish setup. McDonald's is still below a long-term support line. It's the type of setup I want a position on. If Domino's guides lower or misses because of labor costs, the entire restaurant sector has bearish chart setups.

Finally, it seems that everyone wants to buy the dip, including myself and many bears. Everyone fears a Fed pivot could catch them mispositioned. If the market makes everyone lose, then maybe something very scary is about to happen that will make everyone fear holding stocks. Or something very good will happen that catches all the bears off guard. I lean towards the former rather than the latter, but the CPI is coming this week. Be on alert.

Debt Forgiveness: Inflationary or Deflationary?

For the moment, potentially inflationary. On the whole, deflationary. Just The News: Penn Wharton says Biden student loan plan could exceed $1 trillion

Researchers found that students may be incentivized to borrow more money because the Biden administration is capping loan repayments at 5% of borrowers' income

The largest potential cost-driver Penn Wharton identified is the Biden administration's new income-driven repayment plan, which includes capping monthly student loan payments at 5% of a borrower's discretionary income and reforming the repayment guidelines to guarantee that no borrower who makes "about the annual equivalent of a $15 minimum wage" will have to make monthly loan payments.

Debt cancellation alone will cost the United States up to $519 billion, Wharton found in an analysis published Friday. Loan forbearance, which allows borrowers to temporarily stop paying, will cost an estimated $16 billion. The income-driven repayment plan will initially cost $70 billion, however, specific details have yet to be released and the price may be significantly higher.

The income-based portion of Biden's plan needs further analysis, but it may cost $450 billion or more, bringing the total cost of student loan forgiveness to more than $1 trillion, economist Junlei Chen wrote in the Budget Model.

One possible problem researchers found with the income-driven repayment plan is that students may be incentivized to borrow more money because the Biden administration's plan caps loan repayments at 5% of the borrowers' income.

My hunch is debt levels will not increase because there will be losses borne by lenders. Even if the amount of outstanding debt increases, the value of that debt will decline because repayment is less certain. When a bond goes from AAA to B, it deflates. The money supply declines because lower quality bonds do not function as money. If the Biden admin makes enough rules that favor borrowers, at some point the value of student debt will decline faster than new lending increases.

Chinese Cities Step Up Credit Guarantees

JS China: 扬州市政府性融资担保规模破百亿

Government financing guarantee institutions play a "booster" role in financial services for the real economy. Recently, the reporter learned from the Municipal Local Financial Supervision Bureau that as of July, the scale of government financing guarantees in our city has exceeded 10 billion yuan. In recent years, our city has accelerated the construction of a government financing guarantee system, increased credit enhancement support for small and micro enterprises, "agriculture, rural areas and farmers" and other entities, and is committed to providing high-quality, convenient and low-cost services for the city's small and micro enterprises and "agriculture, rural areas and farmers" entities. Financing guarantee services with high rates, focusing on alleviating the problems of difficult and expensive financing for enterprises.

It is understood that the scale of government financing guarantees in the city has jumped from 4.47 billion yuan at the end of 2020 to 10.249 billion yuan in July 2022, and the number of small and micro enterprises and "agriculture, rural areas and farmers" customers in insurance has increased from 2,315 to 4,804. The average guarantee rate From around 1% in 2020 to below 0.5% in 2022.

Chinese Govt to Shore Up Domestic Bond Market

STCN: 监管推进有担保发债试点 房地产股债大涨

On August 16, it was rumored that the regulator held a closed-door meeting with some developers, and planned to designate state-owned enterprises to guarantee and underwrite demonstration housing companies to issue bonds to provide liquidity support for housing companies.

A number of real estate companies and people in the capital market confirmed the authenticity of the news to the Economic Observer Network. However, given that the bond market has been extremely sensitive recently, and the pilot has not really been implemented, the possibility of variables cannot be ruled out. Therefore, the regulators hope to participate in To keep a low profile.

Marketwatch: Chinese property stocks rally on reports of government bond issue

Chinese regulators have reportedly ordered state-owned China Bond Insurance Co. Ltd to guarantee onshore bond issuances to a number of developers in the struggling sector, according to Reuters.

Stock prices in the named shortlist bounced up in response to the news, with Hong-Kong-listed shares in property developer Country Garden Holdings up as much as 18% to 2.74 Hong Kong dollars early in the trading day and pared its gains later on Tuesday to a 9% rise

Shares of Gemdale Properties rose 5% while investors snapped up shares in Longfor Properties which reached highs of HK$26.40, a rise of almost 19%, and CIFI Holdings which rallied 12.9% to HK$2.22.

China Bond Insurance Co provides financial guarantee services and will provide “full amount, unconditional and irrevocable joint liability guarantee” to the medium-term notes for a number of developers, according to the Reuters sources.

No Surprise: Foreign Bondholders Lose First in China

Bloomberg: One of the Decade's Hottest Bond Markets Is Imploding in China

When investor demand for Chinese property debt was approaching its peak back in 2018, a banker could pull together the makings of a multi-million dollar deal during a Saturday boat trip around Hong Kong’s harbor and barely look up from her drink while doing it.

Now, the $203 billion market—which once yielded several deals a week and padded portfolios across the world from Pimco to UBS—is all but dead. And offshore investors are swallowing almost all of the losses.

I remember writing something about this specifically...oh yeah: China Will Nuke Foreign Investors From Orbit

Why the Dollar is Relatively Strong, Euro Edition

One of the first emergent signs of what is now called Wokeism was an attack on "ethnocentrism" in the 1990s. That's when the universities started cancelling "dead white men" for being white and men. However, the concept of ethnocentrism isn't entirely bad. A person can cloud their judgement by being excessively focused on the near while ignoring the far. This has been most evident among the dollar bears who are so focused on the failures of the Federal Reserve that they cannot see the greater failures of foreign central banks.

The rise of the U.S. dollar exchange rate this year has made monkeys of all the dollar bears. Cyclically, the U.S. dollar was primed for a decline, yet instead it has broken with four decades of cycle history and moved higher. The U.S. economy is shrinking as a share of the global economy, yet as a reserve currency and unit of account, creation of simulacra dollars (Eurodollars) exceeds that of the base money. Base money growth in the U.S. rises, but demand on that base money rises faster because of overseas credit creation.  Hence demand for the base money rises when expansion of the credit money (Eurodollars) slows or contracts.

I predict that, if the U.S. dollar loses reserve currency status, avoids going the way of Zimbabwe and something like SDRs replace it, the U.S. dollar will eventually appreciate versus the SDR. For the same reason the German deutschmark would appreciate versus a rump euro. Whenever there is a shared resources such as a common currency, he who prints most will drive the value of the currency lower.

Mises.org: ECB’s Long Journey into Currency Collapse Just Got a Lot Shorter

The new instrument, born under the name “transmission protection instrument” (TPI), will be the catalyst to the accelerated full transformation of the ECB into a bloated European “bad bank” fund. This entity enjoys a giant privilege. Its liabilities are in large part the designated money (whether as banknotes or as reserves of banks) enjoying huge protections as such (most importantly legal tender) in all member countries of the European Monetary Union.

In effect, since the EMU crises of 2010-12, the ECB has been the agent which has “communalized” much of the bad state and bank debt of Italy (also Spain, Portugal and Greece). It has done this by issuing euro money liabilities against giant purchases of government paper and long-term lending (called LTROs) into the corresponding weak banking systems (again most of all Italy).

This communalization has created three big problems for the future of the euro:

The euro is weak because it allowed countries such as Greece to issue "deutschmark" bonds in the 2000s. The euro was strong because of Germany, rather than weak because of Greece. Economic policy in Germany looks even worse than that of Greece in 2022, hence the rapid decline in the euro. The breakup scenario for the euro, however, has always been a German exit because the common currency exchange rate trends towards the most profligate borrowers over time. As soon as the European Union passed on kicking Greece out, it guaranteed the most likely breakup scenario is a German exit.

Third: the tolerance of the German public for this transformation of the ECB and its money could snap in a way which means that the Federal Republic pulls out of the union. Germany has been critical in keeping the ECB humpty dumpty together. Partly this critical role depends on public perception (that Germany stands behind the ECB and all its potential losses), albeit there is much wishful thinking here rather than legal fact.

...If, for whatever reason, the Italian spread (Italian government bond yields vs. German) suddenly widens – perhaps because markets distrust the political direction or sense that Italian credit institutions are in a new bleak situation – then the ECB can turn on the taps. Yes, it will sterilize the new lending, that means presumably disposing of German and Dutch paper in the ECB balance sheet to make room for Italian for example, becoming even more of a bad bank.

There are decisive moments in monetary history. The aftermath of July 21 is likely to be one of them as regards the European monetary future. These problems have become a lot worse

The same logic can be applied to an SDR, special drawing rights from the IMF. Whether it is formal or not, a move to a world with no dominant reserve currency is not that different from one with the SDR as the main reserve asset because in both cases, countries will be using currency baskets. The U.S. losing its reserve currency status would look more like a German exit from the euro than not in terms of the domestic economy. A costly adjustment period followed by the U.S. "decoupling" from the global economy as it becomes free to pursue a mercenary America First national economic plan. Placing tariffs on Chinese goods and on Chinese purchases of U.S. assets is fraught with economic costs today because it threatens the reserve currency status of the U.S. dollar. 

In the near-term though, it is the breakup of the euro that is helping lift the U.S. dollar because the (formerly?) dominant Germany economy is being pulled down by green idiocy, Baizuo foreign policy and the deficit spenders in Southern Europe. Declining social mood makes a total breakup increasingly likely. Keeping the euro together will require printing money much faster than in the United States. Investors and businesses that leverage themselves on the assumption of a relatively weak dollar will experience deflationary collapses as happened in 2008, 2011, 2014, 2018, and again in 2022.

That 2008 Feel: Henan Rolls Out the Tanks to Protect PBoC

See Banking Failures in Henan Persist for background on the ongoing saga of Henan banking problems. Protests escalated this month and it is claimed this is video of that same People's Bank of China building where large protests took place a couple of weeks ago.

Back in 2008, everyone took their eye off China for the 2008 Olympics in Beijing, but in reality the country was sending a strong warning about the health of the global economy. Once again, we're rolling into August with a rally in stocks (indexes bounced in late August in 2008) while China shows signs of severe economic stress.

Chinese Stop Paying for Unfinished Homes

The lunacy that was China's housing market is coming to an end, or so it seems. With so many rabbits pulled out of hats, one is always wary of one more can kick.

Not satisfied with paying up for newly constructed homes, for years Chinese have paid up for future construction, sometimes years away. They take on mortgages. Some "ponzi" builders finance construction of new units from presales of apartments further into the future. That system is now crashing as homebuyers refuse to pay for homes that have not been built yet.

ZH: China On Verge Of Violent Debt Jubilee As "Disgruntled" Homebuyers Refuse To Pay Their Mortgage

According to researcher China Real Estate Information, homebuyers have stopped mortgage payments on at least 100 projects in more than 50 cities as of Wednesday, up from 58 projects on Tuesday and only 28 on Monday, according to Jefferies Financial Group Inc. analysts including Shujin Chen.

Analysts believe that a drop in home values may be another driver for the refusal to meet mortgage payments. “Investors are concerned about the spread of mortgage payment snubs to buyers, simply due to lower property prices, and the impact on property sales,” Chen wrote.

Homebuyers effectively have an option to buy a home and if they refuse to pay for that option because the price plunges, construction will halt or never begin. Eventually, any system pulling demand forward like the Chinese housing market will run into a blow up. See Here We Go Again, Again: China's Housing Market Freezes for a bunch of links to prior coverage of similar situations over the past decade.

Banking Failures in Henan Persist

Violent clashes with plain clothes officers on Sunday. People in the videos claims these are actually criminals from triad gangs.

This is a continuation of the story from a month earlier, when everyone across China from parts of Henan were given red codes on their covid passports, sending them all into lockdown, after runs on local banks.

Oriental Daily: 3000存户到郑州银行维权　爆发警民流血冲突

The conflict of depositors’ rights protection broke out in Henan, China. On Sunday, nearly 3,000 bank depositors from all over the country protested outside the Zhengzhou sub-branch of the People’s Bank of China, but were surrounded by a group of police and unknown persons, causing bloody clashes between the two sides.

Many people held slogans demanding the bank to return their deposits, and even wrote "oppose the capriciousness of power, oppose the violent beating of depositors by the Henan provincial government in conjunction with the underworld", "resist the violent treatment of depositors by the Henan police, oppose oppression, and demand the rule of law for human rights.

The depositors (depositors) of Henan Rural Banks were unable to withdraw cash in April. In June, they wanted to go to Henan to retrieve their deposits, but were unable to travel due to the "red code from the sky". The incident has attracted great attention, and the amount involved may be as high as nearly 40 billion yuan (about 26.434 billion ringgit).

That is almost $6 billion in U.S. dollars.

China Bad Bank Goes Bad

Huarong Perpetual Dollar Bond Tumbles Most Since Debt Scare

A China Huarong Asset Management Co. perpetual dollar bond is set for its biggest drop since the company spooked investors about its financial health last year. The bad-loan manager’s 4.25% perpetual note fell 10 cents on the dollar to 75 cents Wednesday, the most in about 15 months, according to Bloomberg-compiled prices. Its other dollar bonds, including some perpetuals, were largely unchanged.

“We are starting to see a contagion effect from Great Wall to the whole AMC space,” said Nicholas Yap, head of Asia credit desk analysts at Nomura Holdings Inc. “While it is not surprising that Huarong’s subordinated perpetual bonds have seen the biggest dip given their weaker bond structure, the move has undoubtedly been amplified by the very-weak market backdrop and poor trading liquidity at present.”

Shades of 2008. Inflation is being taken out everywhere.

My worst trade this month was long yen expecting a drop as inflation pulled back. Maybe there is still a drop coming in the month ahead, but the chart is starting to lean back towards a breakout. Considering the conditions in China, yuan depreciation can't be far off...

CNY/JPY looks like a potential double top.