1 April 2022

Today’s letter promises to be as manic as I am, don’t expect any linear thread of consciousness.

You know I love my price journey tool. This is how the Q1 played out. Look at that volatility compared to the EURUSD. Brent Oil has been the monster performer over the quarter when looking at these big 5.

Take a look below how the CTA’s (guys like me but not like me) have performed. This is a traders market, I love it. Give me volatility any day and I am in heaven.

You can also tell from this chart that the CTA community have been growing their short position relative to the market. Will the SP500 please drop now and make Dr Bearman happy.

The chart below demonstrates a pretty weak picture for Europe focused stocks.

I think it is safe to say the Inflation Genie is out the bottle when you look at this chart of global inflation. US leading the pack, ZIRP, QE infinity, MMT – go you good thing (not).

Remember when all we spoke about was the inflows into Bitcoin when $100k and $1m was slipping off the tongue quiet effortlessly. Well there seems to be a revival with steady inflows coming into the sector.

The China Story

The whole time I have been building towards this story now I have only a few minutes to bang out what I wanted to say.

I have been saying for many months now in this letter than China is on the verge of their own subprime crisis. They have had a property bubble of note, not only promoted by a shadow banking system but the government itself.

You see Chinese Residential Property is the biggest asset class in the world. I actually didn’t realise that before today.

I have been writing about the collapse of Evergrande, the Grand Daddy of the property development industry. They have defaulted on some of their foreign bonds with more than $2 billion being seized in deposits to try and offset some of the loans. Without going into the details its a bloody mess.

Here’s more from Bloomberg:

The People‚Äôs Bank of China is leading the effort, seeking to shore up confidence in the $60 trillion financial system as the economy slows and a debt crisis in the property industry spreads. The stability fund would dwarf other pools available to bail out troubled institutions and their depositors.

Bloomberg

Chinese banks are suffering with so many bad debts that there is no chance they can avoid a disaster without the PBOC stepping in as well as the CCP leadership. You can also see that there has been a steady decline in new mortgages.

If you add to this that they are still trying to avoid a full outbreak of Covid by locking down large cities then you can be sure that there is a lot more pain to come for the Chinese economy. With all this on Xi Jinping’s plate lets hope that any previous deals China had with Russia will be put aside to focus on ensuring a steady path for the economy.

Finally something about Big Shot (Short) Nickel

I was wondering this morning what ever happened to Nickel, did Big Shot escape his Big Squeeze.

It looks like all the favours he called in to hold onto his shorts paid off. I haven’t heard any official numbers but Nickel is trading at $32,150 a ton so I am sure he is well in the money. He really should be bankrupt but that is what happens when you take on someone who sets the rules and changes them to suite himself along the way.

A good lesson for those trying to negotiate with Putin. He is playing a game that only he knows the rules. He has however taking this to a whole new level that will see him more and more isolated. Nobody likes playing with someone who doesn’t play fair or to agreed rules. Playing the economy game by yourself is not a lot of fun. Ask the people in north Korea.

Lets hope that some normality can resume and a negotiated peace of a workable nature can result speedily. Biden said it and I will say it as well we need a Russia without Putin. I cannot believe I just quoted Biden but at least in his semi senile state he had something worthwhile to say even if he tried to walk it back because the establishment didn’t want the truth on everyone’s lips to come out.

The only way to deal with a bully is through strength, not weakness. Go read any game theory model, its the easiest game in the world to play when you know what your opponent won’t do. In fact it ends up being no game at all.

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