Blain's Morning Porridge, submitted by Bill Blain of Shard Capital
"Six impossible things before breakfast…”
One of my colleagues came over this morning and said: “Bill, you have the easiest job in the World. Brexit: the gift that just keeps on giving.” True. For sheer horror value it’s the equivalent of lining up a whole row of cute little seal pups and handing a psychopath a baseball bat. UK politicians could not look more stupid, even if the SAS trained them in combat stupidity. That said, John Bercow’s valedictory last night from the Speaker’s chair was amusing stuff. We shall miss him.. Order.. Order..
Of course, as an entirely serious market strategist (really?) I deeply resent the implication I’m being lazy by focusing on the political issues of a small country at the unfashionable end of Yoorp. But, if I’m absolutely honest, it’s fascinating to watch this slow motion, ergot-driven, dance macabre! I just can’t wait to see what goes humiliatingly wrong next. (Regular readers of the Porridge may remember my contribution on the collapse of Lehman Brothers was a top 30 financial apocalypse playlist. The Porridge has always been a more esoteric market commentary than other, perhaps, more focused views..)
And just to prove I’m not Brexit fixated, let me list all the other things I’m thinking about this morning:
- What is the ECB actually going to do this week? Why? How much will lower European rates and a resumed buy programme further distort already distorted bond markets? How little will NIRP (Negative Interest Rate Policies) achieve in terms of stimulating European Growth? Why are European bank stocks rising when perpetual NIRP is destroying all values, inflating financial assets, and increasing systemic bank risk? How will more of the same improve the chances of Christine Lagarde moving the agenda forward into common fiscal policies? What chance of fiscal agreement? (And do note, investors in long dated German bunds are now down over 6% over the last 2 weeks on just the hint the German’s might press the stimulus button - just a hint of more pain to come?)
- What about US Corporate Debt? Ford Cut to Junk – what are the implications for the rest of increasingly overleveraged pre-tech industries struggling to restructure and adapt? Why is Apple sitting on a huge cash pile, but borrowing more.. (because they can), and how much more potential damage to corporate America’s leverage is going on across the sector? Does debt matter in this low rate environment? How do you kill Zombie Corporates in a ZIRP environment? (Head shot.. always a head shot.)
- Why are we even worrying about US/China trade negotiations? Whatever the White House says we’re way beyond a future agreement. The outcome is going to be increased polarisation as new supply chains develop, a new cold war emerges, and the implications of slowing, internally focused China economy are understood. The expectations for global growth fuelled by China’s belt and road policies can be quietly forgotten.
- What about Global stocks? Does Softbank urging We Company to pull its IPO (because it will expose how much money Softbank has lost as it tries to double up on its “Vision Fund”) represent the top of a bubble?
And a fantastic article in FT about the new Volfefe Index. Perhaps more important are serious concerns about the chaotic White House, and how much longer the Trump administration can keep up the illusion its functional.. but hey-ho, we can’t comment from here in the UK about other nation’s dysfunctional politics, can we?
For all these and more… I suspect none of these are questions to which there are answers people particularly want to hear.
However, the biggest question I’m struggling with remains the UK. We’ve watched the Conservative part immolate itself most spectacularly in recent weeks. Regular readers will know that’s unlikely to cause me much pain or regret. As a Scotsman I am genetically engineered to vote Red – although I shall admit I once voted Blue, but only because the other choice was Liberal which, frankly, is just a waste of ink on a ballot paper.
What I really, really want to understand is what the Labour Party offers as an alternative? I did get out the 2017 Labour Manifesto the other day, and to be fair, there is nothing I really disagree with in terms of building a fairer country and its focus on more police officers, better health services and especially better education. (For the Record: the reason I detest the Liberals was their craven support for University Fees so they could sit in the coalition government. They are well meaning middle class kulaks (look it up yourself) lickspittle-capitalist-lackeys who are not to be trusted!)
I also agree with Tory Chancellor’s Sajid Javid’s plans to borrow more and spend to boost/repair the economy after 10-years of austerity. There really isn’t that much between the parties – there never rally has been.
As for all the stuff about how McDonald and Corbyn are unreformed Marxists who are going to steal you rental flats, nationalise your watch collections, and put Somali refugees in your sitting room… sure.. it won’t happen. Just like when Dangerous Radical Tony Blair took office in 1997 and the became the best conservative premier of all time (until he started behaving like one..) Despite Momentum, the bulk of Labour MPs (like Tory MPs) are essentially decent. I would expect the UK media to become even more hostile to Labour as an election approaches.
I am, however, somewhat concerned that a well-meaning Labour government will prove an even bigger disaster than the current Tory farce. In the 2017 Manifesto Labour said it accepts the referendum result and will put the national interest first. Yet listening to, and reading what Labour politicians are now saying, they make the Conservatives sound sensible, organised and united! I think the official Labour Brexit policy is something like: “We will negotiate a new Brexit agreement with Brussels which we will then put to the people a choice in a second referendum. We will then campaign to remain in Europe by voting against the agreement we negotiate with Brussels.”
Back to the day job… and out of time.