Panic’s In The Air! Chinese Sovereign Risk Spikes Most Since Lehman, Junk Bonds Are Getting Crushed, An Outright Panic & Liquidation Now Taking Place…
Given the earlier rumors of PBOC bailing out the funding markets (followed rapidly by their actual denial/explanation of what is going on which is much less supportive than an exuberantly bouncing market implies), it is perhaps ironic that the nation’s government mouthpiece – The People’s Daily – explains that help is not coming:
A bailout of the stock market is not beneficial to the development of a sound capital market, although some analysts are suggesting the China Securities Regulatory Commission and the People’s Bank of China should intervene
Wet Nurse Action
The central bank efforts to provide liquidity are highly unlikely to work. The structural problems are immense:
- China’s shadow banking system is a mess
- Property bubbles are immense
- Infrastructure malinvestment is unprecedented
- Rolling over of loans of State Owned Enterprises (SOEs) is going to be very problematic with any increase in interest rates
For further reading, please see …
- Cash Squeeze in China, Interest Rate Swaps Rise Most in 22 Months; China’s Credit Bubble About to Pop; Shadow Banking Crackdown
- Pettis on China, Europe, Japan: Bad News for Those Looking for Growth
- Epic Glut of Graduates Depresses Wages; Fake Job Offers Taint Hiring Statistics
In theory the central bank could paper over this mess with massive amounts of liquidity, but in practice, such action will either further fuel China’s immense structural problems, or more likely, the credit bubble in China has gotten as big as it is going to get, no matter what the Central bank does.
The world is not remotely prepared for a major slowdown in China. Yet, China’s credit bubble has popped, and growth going forward will plunge as China rebalances.
Chinese Sovereign Risk Spikes Most Since Lehman
China’s 5Y CDS spiked to 18 month highs…
as CDS is tracking 1-month SHIBOR extremely closely…
The Junk Bonds Investors Once Loved Are Getting Crushed
$333 million gone from high yield funds last week alone.
S&P 500 fell between 17% to 50% last times junk bonds did this!
CLICK ON CHART TO ENLARGE
The Effective yield on High yield bonds (Junk bonds) are at historical lows at this time. Over the past 6 years, when the yield broke above resistance of bullish falling wedges, the S&P 500 ended up declining between 17% & 50%.
Now the yield on junk bonds is breaking above resistance of a bullish falling wedge for the third time since 2007.
Should we listen to the message coming from the yield breakout? Will it be different this time?
There Is Outright Panic & Liquidation Now Taking Place – Leeb
On the heels of continued chaos in global markets, today acclaimed money manager Stephen Leeb told King World News there is outright panic and liquidation nowtaking place. Leeb also told KWN the Chinese are going to get extremely aggressive in the physical gold market because they believe the price is way too cheap.
Leeb: “I’m trying to focus on the reasons for the collapse, not only in gold and silver, but most of the stock markets across the globe. A lot of investors read Bernanke’s comments about ending QE, if certain economic conditions were achieved, as a reason to liquidate…..
Deutsche Bank cuts gold, silver forecast for 2013
SPY hit important resistance pivots and Fib retracements yesterday. Interest rates dropping. China rebounding.
Expect a short term bounce maybe until July 4 and then a massive dump.
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