Last Bubble Standing

Tyler Durden's picture

EM debt bubble... emaciated, FX Carry... crucified, Crude...crushed,  High yield bonds... burst, Chinese equities... blown, Trannies... trounced, Small Caps... slammed, Biotechs... busted, and FANGs finally FUBAR! But there is one big (very big) bubble left in the world that no one is talking about, and a rather large liquidity-busting pin beckons...

In May 2015 we first explained exactly why China was blowing its equity market bubble. Simply put, with more "equity," companies were better able to refinance/roll (note, no interest in debt reduction or deleveraging) their record-breaking mountain of debt and avoid the systemic collapse that is utterly imminent for just a few more months/years.

Now that the equity market bubble has burst, Chinese authorities have chased investors into another bubble.

In October 2015, we warned of the relative risk building in the Chinese corporate bond market.

As the rout in Chinese stocks this year erased $5 trillion of value, investors fled for safety in the nation’s red-hot corporate bond market. They may have just moved from one bubble to another.

Into Chinese corporate bonds...


As we detailed just two months ago, this historic bond bubble is paradoxical for the simple reason that China's credit fundamentals have never been worse, and as we further showed, as a result of the ongoing collapse in commodity prices (which today's Chinese rate and RRR-cut will have absolutely no impact on), more than half of commodity companies can't generate the cash required to even pay their interest, a number which drops to "only" a quarter when expanded to all industries.


"The equity rout merely reflects worries about China’s economy, while a bond market crash would mean the worries have become a reality as corporate debts go unpaid," said Xia Le, the chief economist for Asia at Banco Bilbao. "A Chinese credit collapse would also likely spark a more significant selloff in emerging-market assets."

"Global investors are looking for signs of a collapse in China, which itself could increase the chances of a crash... This game can’t go on forever."

They will find it soon, because while China may have managed to once again kick the can on its most recent default when state-owned SinoSteel failed to pay due principal and interest last month only to get a quasi-government bailout, every incremental bail out merely forces even more cash misallocation and even more foolish "investments" into this high risk asset class as investors ignore any concerns about fundamentals, assuming instead that the government will always bail them out.

Worse still, it is not just the most creditworthy of Chinese corporate bonds that are at record low yields. As the following shocking decoupling shows, even BBB credits are in an extreme bubble - entirely separate from the reality of their underlying business risk (as indicated by the equity market and equity vol)...


The problem with that is that as BofA's David Cui notes today, China's bond market is the epitome of a "potential source of financial instability."

Here is Cui:

Our analysis shows that:

  1. the bond market is clearly not pricing default risk properly;
  2. the bond market has taken a few SME bond defaults in stride and seems to be counting on bail-outs of the few SOE bonds that are reportedly facing default risk; and
  3. leverage in the bond market is rapidly building up.

But most importantly, Bank of America has now given a time frame in which China's bond market will blow up, resulting in far more dire consequences that the equity bubble bursting this summer.

On the current trajectory, we doubt the market can stay stable beyond a few quarters, especially if some SOE and/or LGFV bonds indeed default.

Finally, to answer the question on everyone's mind - here is the full list of most likely upcoming Chinese debt default cases. When the bubble bursts, these names will be the first to blow up.


And now tonight we get this...


Charts: Bloomberg

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Cognitive Dissonance's picture

Bubble bubble, toil and trouble. The (central bank) spirits are about to speak.

<Bubble? What bubble? I don't see no stinkin' bubble.>

Soul Glow's picture

China's debt bubble is fine!  It's fiiine!!

NoDebt's picture

Those three top graphs are some scary ass shit.

turtle's picture

Interest rates still have a long way to fall in China...

Stainless Steel Rat's picture
Stainless Steel Rat (not verified) turtle Jan 13, 2016 11:07 PM

Coming soon: Leveraged Inverse ETF bubble.

franzpick's picture

China's NPL:  Just a Non-Performing-List.

knukles's picture

Gosh.  If I didn't know any better I'd say this all's reminiscent of past brutal global market dislocations correcting past excesses, which in retrospect are identified by the blood flowing freely over the transoms.  Add in the witches and it really gets scary.

mandalou's picture

just throw water on it

jakesdad's picture

let's leave hillary out of this for now - there's still hope...  ;-)

stacking12321's picture

+1 for your use of the word transom

philipat's picture

And Real Estate in NY, SF, Vancouver, London etc?

mandalou's picture

Now there is an idea. Create a CDS for each city this way we could short those mentioned and long Detroit.

TheDanimal's picture

There must be someone out there selling CDS on municipal bonds, right? I mean it's just too obvious.

mtndds's picture

Yes.  IF I see HOUSING take a duce and UNEMPLOYMENT starts rising then I know things are getting real.  Other than that its all TRANSITORY.

Kreditanstalt's picture

GOLD, BITCHEZ...!   Get it??

Desperate, craven yield-chasing in a no-real-growth world is LEMMING-LIKE.


Tasty Sandwich's picture

China:  the has-been superpower that never was.

DirkDiggler11's picture

Afrikan currencies literally imploding, see Nigeria and SA.

Europe in a debt ridden, no growth Muslim rape orgy. Even Putin comes out today and says Russian economy is shit. He was straight up legit about it.

Hong Kong is screwed, Japan "Fukushima'ed" its economy a decade ago, the Japs have been the Walking Dead for a decade now. The Chicom's will prove their "economic engineering" has been like giving a two year old a hammer. This one will leave a mark when it blows up ...

Lastly, the US and Canada are screwed as bad as everyone else. No growth, commodity deflation, and governments full of corrupt, worthless ass politicians.

Now look at the state of the World economies and tell me why I should not be investing my money in Food, Ammo, Whiskey, Gold, and Silver ? Hard physical assets are going to be the only store of wealth ...

stacking12321's picture

congratulations on your membership in the not-so-exclusive club: people who don't know what the word "literally" means.

DirkDiggler11's picture

So are you the ZH spelling and grammar bitch tonight ?

I looked it up just for your, here is the definition:

in a literal manner or sense; exactly.
"the driver took it literally when asked to go straight across the traffic circle"
synonyms: exactly, precisely, actually, really, truly; More
used for emphasis or to express strong feeling while not being literally true.
"I have received literally thousands of letters"
An adverb the ZH Snob and resident fuck face stacking12321 uses to mount quasi homosexual confused gender attacks on other posters. Stacking 12321 should stick to dry humping his sister's panties on the mannequin in the basement. Shave stacking12321's Mom's back and tell him not to fuck with your posts Dirk.

Any questions ?

Ponk's picture

Stocks can only 'implode' 'collapse' metaphorically not 'literally'.

new game's picture

i dispise fuking speling  as bitchezzez, cause gess what i cant spel. fuken -eh...

stacking12321's picture

yes, just one: what is your fascination with your sister's panties?

i don't have a sister, so this must be about you.

maybe you should share your feelings with her?


and questions aside, i also have a comment: you mention "spelling and grammar", but that was an ignorant, uninformed thing to say: we are discussing neither spelling, nor grammar. what we are discussing is the definition of the word "literally".

perhaps you can comment on how it is possible for currency, such as a piece of paper, to "literally implode". perhaps a vortex or a black hole opened up within the fibers of the note, causing its physical manifestation to collapse.

perhaps you can post a link to a video of currency "literally imploding" so that we can observe what that looks like. shouldn't be difficult as you are obviously confident that such things do happen.

thank you for your attention to this matter!

tarabel's picture



Why shouldn't you be investing in food, ammo, whiskey, gold, and silver?

Because you are getting sleepy. Verrrryy sleeeepy.

And when I snap my fingers, you will awaken and be seized by a sudden urge to donate all of these items to me. After which, you will fall back into a deep slumber, forget that any of this ever happened, and volunteer for the Hillary Clinton campaign when you wake up.


chunga's picture

The biggest bubble in town is the fraud bubble. Practically everything is now fraud.

Yen Cross's picture

Ripleys Bullshit > or NOT?

silverer's picture

Too many moved from "producers" to "parasites".

Dragon HAwk's picture

Package Debt and call it a security...

   works till it doesn't...

thinkmoretalkless's picture

It does have an ironic ring to it.

hooligan2009's picture

written in early 70's, still resonates

(great guitar at 2 minutes) then some relevant lyrics at 2.30

don't know why the end lyrics have been missed off..

maybe it's because they are "baby, you've been had"

thinkmoretalkless's picture

Time to jump in the fox hole.

new game's picture

and join the rabbits. safety in numbers, ar, ar...

trillionaire's picture

I don't have a sophisticated / professional trading account, but how would one make money off this?  (is it possible?) 

DirkDiggler11's picture

My suggestion would be to buy Gold and Silver, but that is my answer to almost everything these days...

Seriously, the first thing you should do is dig deep and find out what exposure your current investments has to these companies in China. You may be surprised what you find. If you do find investments with significant exposure, then find out how the short that investment while selling what you hold..

Ponk's picture

Had not noticed these charts before. My doom boner just twitched upward.

Wahooo's picture

Am I misreading the chart? Looks like most of these debts have been resolved.

Kiwi Pete's picture

How can this list of bonds show the most likely to blow up when the 'Latest Development' column for half of them says "The Borrower Repaid The Bond In Full". All the rest bar one have been repaid by the parent company, Goverment body or such and in fact only one bond defaulted.


I do think that Zerohedge does overdo it on the doom and gloom sometimes.


Nice graphs though!

Archetype's picture

Swedish real estate and housing bonds = massive bubble ready to explode.

hedgiex's picture

The NPLs of the big 5 State owned Banks will be cycled to their AMCs (Balance Sheet dressings). The bonds of "systematically important" state owned Corporations will also be cycled to Special Purpose AMCs. Sytematically Important Criteira are defined in ever changing waves based on which holes are leaking. Just get the basics right, any fund raising to repay existing debt obligations is a ponzi. Leave it to their locals to lap up these ponzis. They know how to give with their right hand and take back with the left to keep the shows on but these are not for foreign investors who they subtly threaten to be left out as participants in their inevitable (?) next Resurrection.