One thing that struck me as odd, when going back over the charts posted here is that all of these assets share one thing in common (when physical possession is taken):

  • Havens against taxation.
  • Not subject to counterparty risk.

Of course, as the old economic adage (no doubt adopted from the hard sciences) goes, correlation is not causation.

So, is it possible that something other than tax risk on account of sovereign default is driving these price spikes? Yes. And that something may be counterparty risk.

If this is the case, this would echo the 2007-2009 period in the US and Europe, whereby, financial institutions, faced with unquantifiable risks and the potential defaults of financial partners (driven by the US subprime mortgage crisis), were looking for any asset to tether themselves to.

Could it be that George Soros is right, and that China is facing a serious problem with their financial debt?

I guess this could be feasible based on this week’s market moves.  One way or another, we’ll know in about 1-9 months. As opaque and murky as Chinese markets currently are (and they are murky), the insolvency of major financial institutions is a bit hard to sweep under the rug.

There have certainly been some odd moves in the HIBOR already this year.  The hope, of course, is that the Chinese banks are first, and the Western banks are relatively insulated.  God forbid we have another Global Financial Crisis.

Either way, this week’s moves appears to be driven by capital flows out of risky overleveraged markets.  Keep an eye out for a shock central bank announcement, or a pivot on central bank policy soon.


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