Since a thread has been posted in the name of bearishness, I'll do my best to emulate Martis.
I think, there's a bigger hole somewhere else that hasn't shown its head. I think, there is an outside chance the entire financial system worldwide is on the brink of being threatened. I think, there's a possibility that world leaders and finance bosses know of this, and are doing their hardest and best to keep it from coming out in the open and sending panic around the markets.
The thing is, I can guess what the problem is. And I believe I am right.
The problem is China. They're gonna stop supporting the world. Bear with me, and call me fanciful, but hear me out.
It makes very little economic sense, especially for a race which is known for its shrewdness, long term planning and vision, and dexterity of public policy changes to support and encourage continuous printing of money. It makes little sense for them to entertain reducing the one deciding factor that gives them a competitive edge in world trade - cheap yuan.
You can ask any fool on the street who has two cents to his name. Would you give money to someone in exchange for paper that reduces in value every year, even if that person promises to buy things from you?
And even in the oft chance you are mad enough to say yes to THAT question, the next question that follows would be; " Are you going to make the price of your goods more expensive than the bloke who just exchanged his lousy piece of paper for your money, so that he has a chance of selling it to your other customers?"
Why I say that's a problem, and its a hole bigger than anyone cares to let on is this. IF China stops buying all this short term debt, countries will fail. The very essence of finance and economics will come into question if they don't. After all, fundamental free market economics are, the strong survive, and the weak die. If you cannot pay your bills, you are insolvent.
I get the feeling that world leaders have collectively realised that China's patience as being the last banker of resort is running out fast.
Why do I second guess this?
Well, three reasons.
I highlighted once that I witness a raft of Chinese assets fleeing the country. This remains true. I was just at a dinner in Hong Kong last Sunday with a rather large company chief who was looking at an immediate listing in a foreign domicile. (Company shall remain nameless for obvious reasons)
In between stuffed geo-duck, hairy-crabs and 21 year old Macellans - he confided in me, the only way to preserve his wealth, that his family has built for 3 generations with 100% surety, was to undergo a listing offshore, to capitalise the company in a domicile that has ZERO chance of nationalizing the assets at will. (Think Venezuela and gold).
I argued, but there is no where safe. Everywhere, you run the risk of the currency valuations falling against the yuan, should the government float it.
His counter was very simple. "Yes, it may lose value. But better to have half of something than everything of nothing. Plus it's 5 years away. We're going through a cabinet change next year. Lots can happen. Quickly."
The second reason is the rapid actions of world governments in response to an immediate fluctuation in the US currency. Indonesia, Korea, Japan, Switzerland and Brazil have all acted within the first 24 hours of a sudden spike or collapse in their currency pairs. That governments are attacking/defending the source of equity movements (currency markets) speaks volumes. That they are attacking THAT quickly, screams fear. That they do in in concert, you might as well tell me that they are all hiding a big fat secret.
The third reason, is the existence of banking covenants. This is a real threat. You all remember Babcock and Brown, how it was indestructible at 30 bucks and the 8.50 covenant was laughed at at 20.00 and within 3 weeks it was 6 bucks.
I wonder what are the covenants for Unicredit, SG, Paribas, Santander, Deutsche, CASA and Agricole.
(20min delay)