The Institutional Risk Analyst

The markets got their rate cut over the past six months and now may have to give some of that back.

Our view is that China has been caught in a debt deflation for the past five years.

Beijing will not allow Chinese firms to list their shares offshore unless they ensure that their business and the related data are protected

So what is our top concerns in 2019? First comes liquidity. For the past several weeks, US equities have fallen as the great unwind gathers speed. The same pressures that are causing the Federal Open Market Committee to consider pausing on rate hikes in 2019 are forcing stocks lower.

Most of the market’s attention currently is focused on two related risk hot spots: Asia and Technology. In the case of the former the great deflation in China is gathering speed thanks to Beijing's spending and President Donald Trump’s asymmetrical trade war. As illustrated by the massive liquidation of HNA, the implosion of Uncle Xi’s paper tiger continues apace.

Douglas Braunstein, founder and managing partner of Hudson Executive Capital and J.P. Morgan's (JPM) former CFO, said in an interview with CNBC that the firm has taken on the stake over the last few months after studying the stock for a year. We’ve been following DB for a lot longer than that and have great difficulty constructing a bull case for the name. But let’s take a look anyway.

But should the bank stumble in a way that surprises Europe’s distracted politicians, look for a very hastily planned merger. Our candidate for the first zombie merger of the 21st Century: DB plus Citigroup (C). Neither bank has a particularly strong domestic banking business or funding base, but there are some interesting asymmetries. Financially it would be a disaster for shareholders, but politically it makes all the sense in the world -- especially if you are Angela Mer

In the case of both Uncle Xi and President Trump, we should remember the words of George Orwell in his 1944 classic, Animal Farm: A fairy story: “Twelve voices were shouting in anger, and they were all alike. No question now, what had happened to the faces of the pigs. The creatures outside looked from pig to man, and from man to pig, and from pig to man again; but already it was impossible to say which was which.”

In December this past year, Chinese lender Citic Bancorp warned that the high-flying HNA Group was having trouble paying its considerable short-term debts. After building a $40 billion pile of investments around the world largely funded with debt, HNA seems to have reached the end of its ability to grow further, both in financial and political terms.