default

With Freeport McMoran at the top of the list of entities due to be downgraded to junk (in fact trading in credit markets with a 79% chance of default), it is perhaps not entirely surprising that yesterday's dead-cat-bounce is fading fast this morning as Carl Icahn's big bet turns sour-er.

Globally the bond bubble has grown by more than $20 trillion since 2008. Today it is north of $100 trillion, with an additional $555+ trillion in derivatives trading based on it.

As the towering forces that are prevailing against failing global economic architecture and the pit of debt beneath that structure, as laid out below, it is clear that the 'Epocalypse' - encompassing the roots "economic, epoch, collapse" and "apocalypse" - is here, and it is everywhere. The Great Collapse has already begun. What follows are the megatrends that will increasingly gang up in the first part of 2016 to stomp the deeply flawed global economy down into its own hole of debt.

...the Swiss canton of Zug is asking its citizens to delay paying their taxes for as long as possible, because the cantonal government doesn’t want to take in a pile of cash, only to end up paying the bank interest on all the tax revenue.

Following Noble Group's downgrade to junk and "Enron moment," we thought it worth considering who is next to be junked?

A few market participants have noticed that the US High Yield Energy sector's credit risk collapsed 170bps this morning according to Bloomberg's data. This is the biggest plunge (rally) in the index of "incredibly risky stuff" on record and in the face of new cycle lows in crude, borrowing bases contracting, and rig counts crashing, this seemed odd... well here is why the index collapsed (spoiler alert - do not get excited).

Having told banks and investors "don't panic" in September, amid spiking interbank lending rates and surging default/devaluation risks, it appears the massive shortage of dollars that we warned about in December has washed tsunami-like ashore in oil-producing Nigeria. Following the Central bank's decision this week to halt dollar sales to non-bank FX market operators, black market exchange rates spiked to 282/USD (vs 199 official) and CDS spiked to record highs implying drastic devaluations loom.

With China now "murdering" Yuan shorts, markets are content that the Chinese debacle seems to be contained if only for a while, and so the attention of both traders and algos alike has focused on oil, which earlier in the session dragged global equities lower as it dropped by 3%, just shy of the $30 level, a new 11 year low, before staging another dramatic rebound in minutes, wiping out all losses in the aftermath of what appears to have been a deadly suicide bomber terrorist explosion on a square the middle of Istanbul's historic district.

... if analysts, like those at Autonomous are to be believed, China’s banks could require up to $7.7tn of new capital and funding over the next three years. State bailouts could send the government debt to GDP ratio spiralling from 22 per cent to 122 per cent. That kind of shock would be a challenge for any country, even one of China’s vast might.

The default of Sherwin Alumina, a US subsidiary of Glencore, refocused the market's attention on the one company which in September was among the hardest hit in the post-China devaluation rout, and the immediate result was that while Glencore stock plunged and is once again approaching all time lows, a more ominous development was that GLEN's CDS spiked to as much as 950 basis points, the highest since April 2009 and suggesting far more pain is in store for the commodity trading giant.

Many price-battered precious metals investors may currently be sitting on some quantity of capital that they plan to convert into gold and silver, but they are wondering when “the best time” is to do so.

Chinese stocks are trading at the lows of the day after Overnight HIBOR rates (Hong Kong's interbank borrowing rate) exploded a stunning 939bps to a record high 13.4%. It is clear that banks are utterly desperate for liquidity and/or are extremely concerned about one another's counterparty risk. This has dragged HSCEI down 5% (to its lowest since Oct 2011).

An unseen bubble at the heart of the financial system is deflating with unknown consequences. When bubbles deflate, and here we are talking about one in the hundreds of trillions, bad debts are usually exposed. Even though much of the reduction in outstanding OTC derivatives is due to consolidation of positions following the Frank Dodd Act, much of it is not. When free markets reassert themselves, and they always do, the disruption promises to be substantial. We appear to be in the early stages of this event. If so, demand for physical gold can be expected to escalate rapidly as a financial crisis unfolds.

“The commonwealth has committed itself to a ‘scorched earth’ strategy of blaming its fiscal and structural problems on lenders, Congress and others, in an effort to deflect responsibility and obtain retroactive application of bankruptcy laws.”

If you had not noticed, 2016 has begun with gold and the USD rising simultaneously. This is different and important. This is very positive for gold and very bad for the world...