The big deflationary wave hitting the markets right now is gaining steam.  The S&P 500 finally put in a proper down day (~1%) after months of liquidity-fueled levitation.  The oil markets took a little while to catch up with the grain complex, which began selling off in late March, but with Brent finally putting in a daily close below $100 per barrel it is getting harder to keep selling the idea of a global recovery.  We Austrian economists have been warning for four years now that all of this quantitative easing has not fixed anything.  The shadow banking system is still shrinking.  Credit growth that is not student loans or subsidized first-time mortgages is non-existent.  The Fed keeps pumping money into the system and it keeps on winding back up deposited on account with them at 0.25%.

The precious metals complex has been flogged to death by angry black swans and now have to be looked at as sending out serious liquidity red flags.  Yes, the world is awash in money but as Jeffrey Snider at Alhambra Investment Services points out, there is no high-quality collateral out there to backstop the repo market other than gold.

If he’s right then we have to ask ourselves what is the cause of this lack of repo collateral.  Why was it needed all of a sudden?  And how long is this going to go on?  For now commodities are caught in the backwash of this rogue wave.  Brent looks poised to challenge its July 2012 low near $90 after today’s rout.