Sovereign crisis - France blow out right on cue - chartporn 3

 

The recent French riots is but the tip of the iceberg in what could spiral out of control in the 2nd largest economy in the EU, as we have aluded to for some time now. The next big crisis will be from sovereign bonds, and France is indeed leading the charge (see here). More graphically, the debt pile is now much higher than even the USSR at the time it broke up:

Europe faltering on all fronts

The woes in Europe does not stop at the English Channel - as indicated in the how HSBC may be caught in a rising tax trap (see Article 7), UK is also facing some severe fiscal challenges and tax hikes may be the only solution, which will surely weaken the tax base even further.

And Germany's continuous decline in manufacturing output (Article 1) could further undermine investor confidence when any bad statistic hits the wires next. All major economies are now in a spiralling interest cycle, and any default by a weak payer could trigger the next contagion:

On top of all this, when more central banks next hike policy rates, the momentum could accelerate in long bond yield increases:

  Fed – further 50bp of Fed hikes expected
  RBA – risk of further tightening this year
  ECB - 25bp hike expected by year end
  BoE – a 25bp hike by year end
  BoC - expect to lift 25bp in both December and March

While some banks may be advocating long bonds at this juncture (below chart shows massive long bets on bonds right now), may be due to myopic focus of very short term trading patterns, the mega multi-decade turning point upon us could swiftly sweep all longs into big losses, so beware of who you listen to...

Other factors to exacerbate rate pressures

There are some truly worrying developments all over the place that suggest inflationary pressures will not ease, for example, Supertanker Rates Soaring To Near Record $1 Million A Day, adding cost of oil and bulk commodities being shipped (Article 2), and even in the US, diesel prices are reaching new highs:

Deglobalisation / trade fragmentation add headwinds

As govts lose people's confidence (eg Scottish, Welsh and Northern Irish leaders meet to plan break-up of United Kingdom, Article 3), separatist movements is now clearly on the march, increasing trade and investment friction, further adding to inflationary pressures. The next one to watch will be the Alberta vote to leave Canada:

Meanwhile increasing temptation to add sanctions will further disrupt global supply chains, as Trump signed the Russia and Iran Sanctions Bill (Article 4)...

US should be safer, private sector in better shape, but hyperscalers...

Although the US debt situation is severe (most of 2026 rollover is already on short duration, and likely see some coupon inflation soon, see chart below), the likely blow up first shot will be fired in Europe or Japan, or some other fringe economies.

We continue to see the pandemic to be centred on public sector, as for the first time in the past 70 years, govt debt is by far the biggest elephant in the room:

Also worth staying vigilant is how the new bubble of AI may be pricked given how extended the euphorial rises have become, and of course with it all the hundreds of billions of AI related debt issued of late:

Risk of false flags rising

When govts lose control, the temptation rises to create false flags to divert attention to 'external enemies'; the institution of emergency conditions may also conveniently defer or cancel elections in which current politicians in power could dodge the unavoidable losses facing them. The telltail signs are now becoming quite obvious:

- Poland's prime minister warns of Russian 'accidental' attacks on Ukraine's allies (Article 5);

- Moscow Sends Nuclear Warning to NATO as Tensions Rise in the Baltic (Article 6)

So many things can go wrong, and some of them catastrophically... all we can hope is to be prepared and safeguard our own immediate circle of care. Hope our fears of the bad outcomes are overly pessimistic, it still does not make the case for preparation invalid.

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Article 1: Who backstops the backstop?
https://bondvigilantes.com/blog/2026/09/who-backstops-the-backstop/

Article 2: Mideast Chaos Sends Supertanker Rates Soaring To Near Record $1 Million A Day
https://www.zerohedge.com/energy/mideast-chaos-sends-supertanker-rates-soaring-800000-day

Article 3: Scottish, Welsh and Northern Irish leaders meet to plan break-up of United Kingdom
https://www.telegraph.co.uk/politics/2026/09/13/irish-scots-and-welsh-leaders-meet-to-plot-break-up-uk/

Article 4: Trump Signs Russia and Iran Sanctions Bill
https://www.theepochtimes.com/us/trump-signs-russia-and-iran-sanctions-bill-6089946

Article 5: Poland's prime minister warns of Russian 'accidental' attacks on Ukraine's allies
https://www.npr.org/2026/09/18/nx-s1-5973265/poland-nato-russia

Article 6: Moscow Sends Nuclear Warning to NATO as Tensions Rise in the Baltic
https://www.themoscowtimes.com/2026/09/30/moscow-sends-nuclear-warning-to-nato-as-tensions-rise-in-the-baltic-a93828

Article 7: 滙控恐要進貢倫敦 再非收息首選
https://www.hkej.com/dailynews/article?id=4535013

 

Farmland - will suffer too, but at least won't go hungry...

The Israeli/US attack on Iran has led to first a collapse in oil/gas supply, first through disruption of the Strait of Hormuz, but subsequently from retaliatory bombing of GCC state energy facilities by Iran.

Petroleum shortage cuts feedstock supplies

This is not a problem of 'energy for power' only, but also how disruptions in input raw materials will impact food prices, as seen here:

Article 1: India's major fertilizer plants, including IFFCO, have shut down due to LNG shortages ...threatening urea supply, higher global prices;

Article 4: Australia's wheat farmers are cutting back plantings in favor of oilseeds and pulses due to fertilizer shortages and high costs triggered by the Iran war;

Article 6: A North Carolina farmer warns that the Persian Gulf fertilizer crisis, with urea prices surging from $475 to $550/ton due to war disruptions, will trigger a massive decline in U.S. crop yields and planted acres ...potentially driving global food prices up 12–18% by 2026.

Not only are urea (and other fertiliser shortages) going to drive up input costs, and thus producer prices selling to the market, the reduced yields and reduced production could even trigger a bigger problem - food shortage - recalling that famines lead to unrest and wars, if the situation worsens (likely), we may see much more widespread societal chaos soon...

Fuel costs to slash supply - bad for prices

The more obvious issue most people are aware of, is that oil supply disruption increases costs of everything, but from the food perspective, the impact on supply can be leading to shortages soon:

Article 2: Ireland’s fishing fleet risks grounding within 2–3 weeks from soaring diesel costs it cannot pass on, endangering 3,650 processing jobs;

Article 5: High diesel prices, up ~70% due to the Iran war, have idled over half the Dutch fishing fleet (80-90% of beam trawlers) and are crippling other European fleets, tightening fish supply and driving up prices;

Article 3: Australia’s largest ammonia plant (Yara Pilbara) will remain shut for two months after a power outage, worsening global fertilizer and explosives shortages... hitting farmers and iron ore miners.

The list can go on and on, but we will stop here. Unsurprisingly (probably due to still ample storage and reserves), agri prices have not gone up in line with other more immediately hit commodities, and may indeed underperform in the short term (red arrows), but eventually when shortage worsen enough, this will become more priceless than any electric car or wind turbine needs as people want to fill their bellies:

Meanwhile, the still modest food price reaction is probably our last chance to buy enough reserve NOW before the masses start waking up to the implications, and the inevitable mass panic and scramble buying:

Agri price index has already broken out of the down trend from the 2022 highs above, and could well recapture the 2011 highs in the next few months.

Think of ripple effects, act ahead of crowds

If you are focused on just the headlines and oil prices, then more surprises will be in store, think of everything you may need in future (eg replace that 3-yr old phone, or upgrade your 5-yr old TV), and buy NOW, before the cost tsunami take out daily necessities one after another:

We do not want to be alarmist, but it is pictures like this that gave us the peace of mind for farm ownership - yes the produce may be slashed due to costs, but at least you have all that's needed for feeding the family, if not also the remoteness from conflict/unrest centres in most of the urban centres:

With this in mind, here is a refreshed top buy farm list for our target market.

(Topbuys for clients)

We subscribe to the Scout Motto (link) of 'be prepared', and given it is the long holiday weekend, we better leave you with a vaguely humorous end to the rather macabre message above, enjoy Tom Lehrer's song of the same motto:

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