14 Jan 2022

MANCHESTER, ENGLAND – JULY 01: Prince Andrew, Duke of York, attends a commemoration service at Manchester Cathedral marking the 100th anniversary since the start of the Battle of the Somme. July 1, 2016 in Manchester, England. Services are being held across Britain and the world to remember those who died in the Battle of the Somme which began 100 years ago on July 1st 1916. Armies of British and French soldiers fought against the German Empire leading to over one million lives being lost. (Photo by Christopher Furlong – WPA Pool/Getty Images)

Talk about the black sheep in the family, everyone has one but when you are part of the most famous monarchy in the world you have a real problem. There is a tendency for society to worship celebrity and people in positions of power and authority. If there is one thing I have learned in my 50 years on this planet is that we are all human and fallible. Never never think because of the position and persona a person presents to the world that is the real person.

Lets get to the markets as finally the excitement is back and I am having a royal time of it.


What is noteworthy is the selloff in natural gas (XNGUSD) and more importantly the selling in the S&P500 (US500) and the Nasdaq (US100). You can see in the chart below I am short determined to sell this top. A word of caution this is not for sissies, don’t try this at home. I currently have stops at 4740.

Lets take a look at how people are positioned for risk according to a recent survey by Morgan Stanley. It appears to me not too many people are expecting much risk. Buckle up I say, this year is not going to be as straightforward as the last few.

This lack of risk worry is evident with the VIX which is pretty much in the average territory.

I came across a really interesting piece of research from J.P. Morgan. You read about these record inflows of retail money and you think ok there is a sea of money (will be discussed in the next section the Money Complex) waiting to be put to work that will prove supportive of the markets.

According to JP, “there is no longer excess cash from an asset allocation point of view.” Could this lead to a sustained selloff as winners decide to cash in some of those winnings. It doesn’t help if everyone is a seller.

Money Complex

Yesterday I wrote about the reason for the 40yr high inflation in the US was the excess debt and monetary stimulus via M2 money supply being pumped into the economy due to decelerating velocity and diminishing marginal GDP output relative to a unit of debt. There was however another factor which I should have included and that was the excess savings being spent.

It is important to realise about 68% of the US GDP is consumption driven. Let us look at some of the numbers but before we do that I want to illustrate what the personal savings rate did with the Corona virus pandemic. This chart has really perplexed me over many months. The way the statisticians calculate this number is they look at bank balances of people. Let me speak in round numbers firstly banks were quick to come out with rescue packages allowing mortgagees to defer their home loan payments, this naturally allowed people to build a buffer especially if they were still employed. Then came the stimulus packages lets call it $2.7 trillion so this additional cash was pushed into the hands of the public who naturally did with Americans do, you guessed it – SPEND.

It’s worth looking more closely at that spending. The Federal Reserve Bank of St Louis reports Americans spent at an annual rate of $US16.4 trillion in November 2021, up from $US14.8 trillion in February 2020.

That’s a $US1.6 trillion rise in less than two years and there is still another 1.1 trillion left over from the $2.7 trillion. Too much money chasing too few goods (add supply chain issues and you have even fewer goods ) and you have the perfect recipe for inflation. With inflation expectations ingrained it will be hard to bring inflation down without many interest rate hikes and a reversal of QE.

I thought this was interesting. Canada’s economy is on fire, they have blown past their pre-Covid employment highs. I haven’t looked at their inflation numbers but I know their property market was on fire so I guess inflation must be sky high.


Let me provide you with some free advice that you never asked for. Super fast growth, uber growth, usually comes with a cheque. When a company is experiencing incredible growth they are usually the darling of the markets and the envy of competitors, colleagues and friends. However this growth is usually associated with poor diligence, excessive risk taking, overpayment and poor operational management. For a period of time this typically hidden beneath the volume of deals and the ability to use creative accounting. Lets face it lending money on the most favourable terms in the market will usually win you the deal.

China Minsheng Banking Corp is one such example. Once the darling of the banking world founded in 1996 as China’s first non-state controlled lender it now ranked by Bloomberg World Banks Index as the worst performer of the 155 members, down 31% in the last 12 months. It grew incredibly fast outpacing its state owned counterparts. Karma is a bitch as we know only too well. It has 27% of its tier one capital exposed to high risk property developers.

Wait for it who is one of its biggest borrowers. Of course you knew, none other than China Evergrande Corp. In case you missed it, Evergrande has now just managed to negotiate a delayed repayment to an onshore loan, before it was defaulting on dollar based loans now its much closer to home, 4.5 billion yuan ($707m). Trust me this is not over by a long shot. We are getting much closer to the ZERO mark where this company is probably fairly valued if it wasn’t for the PBOC implied support. I wouldn’t be surprised if Xi tosses this one to the dogs.

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