The incipient China Evergrande default finally caught up with global markets. The $200 trillion question on the table IS - is this the global Minsky Moment and is hyper asset deflation imminent?
Today Zerohedge was boasting that they had "predicted" the Evergrande global contagion. And yet they continue to constantly push their hyper-inflation hypothesis. If this IS a global Minsky Moment then we are on the verge of hyper-deflation, not hyper-inflation. Hyper-deflation being a situation in which EVERYTHING is on sale at the same time and no one wants to buy ANYTHING because they are all busy raising cash.
The "trigger" for this event may well be the most leveraged property developer in world history (Evergrande), however from there the downstream effects will ripple out to EM currencies which have been rolling over for months. And from there, crypto currencies will be another domino that already entered bear market back in May of this year. From there it will be a short jump to retail speculators many of who own both stocks AND cryptos in their Robinhood accounts. Of course the Gamestop debacle way back in January was a widely ignored warning of potential retail panic turning into stock market systemic risk.
Remember this?
What we saw back in March 2020 and what we are witnessing again, is that cryptos and stocks are highly correlated. To the downside. We see in the top pane, S&P breadth began rolling over back in May at the same time that crypto peaked. And then they both bottomed at the same time. And then both completed a second wave retracement to a LOWER high:
Nevertheless, U.S. stock bulls remain sanguine as they bought the overnight Evergrande dip amid no signs of panic whatsoever. Here we see via the % of S&P stocks above the 200 day moving average, that breadth is the weakest of 2021:
It should be noted that Dow Transports never confirmed the late August "Jackson Hole" high in the S&P 500. Now we see Transport breadth is back in the crash zone.
As I noted on Twitter, Bill Gross top ticked the S&P Jackson Hole high with his "Cash is trash" comment. The same way Ray Dalio top ticked the market in 2018 AND 2020 just before the pandemic meltdown. Meanwhile, for those who will say there was "no warning". Record option skew was right AGAIN. Albeit it was the second high that accompanied the rollover. The same as last times.
In summary, the Fed is on the verge of tapering their monetary policy at a time when the markets are already beginning to crumble.
Capital markets are now 100% dependent upon monetary welfare for the rich.
Which is by far the biggest unspoken risk - social mood collapse as evidenced by decade low consumer sentiment and impending bailout failure. There is no way under these conditions that billionaires will get another bailout. The losses will fall where they may.
Worse yet, the economy that essentially drove the entire world out of deflation in 2008 was China. This time around, China is the weakest link. Therefore they will be flooding the world with deflation on a massive scale via competitive debasement.
Now imagine all of this dislocation taking place while Chinese markets are on a two day holiday break. They will be back in session Wednesday morning Asia Pacific time.
