Bill Blain: "I Have Never Seen So Many Extraordinary Events In One Year, And I’ve Been In Markets Since 1985!"

Via Bill Blain of Mint Partner,

We don’t think 2018 is going to be the End of the World. There will be opportunities and mistakes. Winners and grinners, and more than a few losers. Sure, we’re looking forward to the new MiFID regime – isn’t everyone? (US Readers…..)

Our broad brush picture is a continuation and acceleration of the Global Macro Alignment theme – a stronger global economy, cautious normalisation, continued upside for risk assets (stocks and alternatives), but a negative outlook for the bond markets with rates set to rise as Central Banks pull back from distortion. They will remain nervous about financial market instability.

If things wobble, them my personal view is the High Yield market is where we will see the most dramatic losses start in bonds. We still see a strong chance of equity market correction – and will buy into it because the global economy is expanding. Our big Macro Threat for the coming year is resurgent inflation – how quickly will it mount and will it take out market sentiment.

The devil is in the detail. We’re positive across all the developed economies and expect to see growth expectations raise. Although the US, UK and Europe will be moving into Normalisation with tightening, while inflation remains sub 2% Japan will continue its ZIRP (zero interest rate policy) which is massive yen negative and therefore stock positive – my Japan-watching macro man Martin Malone is calling for further massive gains in Japan Stocks.

A number of clients are also positive Europe. Despite my scepticism, I can see why. Finally it looks like the European employment crisis is being addressed – unemployment is set to fall below 8% in 2018. That is still intolerably high in social terms, but it’s a massive improvement on where we were. All the other growth drivers for Europe are now positive – strongly suggesting the ECB will ease back on QE and tighten policy. Rates will probably not rise immediately – but the hints will be there.

The US remains problematical – where is tax-reform, protectionism, Trump and all that going to lead us? In the UK it’s a balancing act on Brexit uncertainties, and inflation driven by the week currency. In both case I doubt the authorities will risk market instability though rash action.

Through the coming year, I’ll be providing free and open commentary on these themes on daily basis through the Morning Porridge. We’ve checked and it’s going to be MiFID 2 compliant. The aim of the legislation is to make markets transparent – that’s what I’ve always looked to do! 

I opened a Christmas card this morning from an old market mate in Switzerland this morning who wrote: “2018 might be quite an exciting year!”

If it’s anything like 2017, then he’s going to be right – but the past is not necessarily a guide to the future. I don’t think I’ve ever seen so many extraordinary events in a single year – and remember I’ve been in markets since 1985!

I guess on theme for 2017 has been: New disruptive technology + massive global central bank liquidity + global interconnected markets.

That’s glib enough to explain some of it.. But much of the stuff that happened is completely off the wall, but how markets react tell us lots about market phycology and what drives investors in times of ongoing yield repression (QE & ZIRP), too much money chasing too few assets, and massive FOMO (Fear of missing out):

Markets remain distorted: 10 years after the crisis begain, Global Bank QE has added some $2 trillion to markets, causing severe distortion effects to leap from countries and across asset classes.

 

Common Sense is an uncommon commodity: Theresa May chucking away her political majority and plunging the already difficult Brexit talks into a mire with the Northern Irish Taliban.

 

The markets have no memory: Argentina – a country we reckon goes bust every 18-years, successfully issuing a 100 year Century Bond.

 

Equity and Debt are not aligned: Junk bond issuers selling massively oversubscribed $1 bln deals, the sole purpose of which is to pay a dividend to the private equity owners!

 

Never mind what it is – Just Buy: Greed and avarice is alive and well as speculators pile into the BitCoin Ponzi – convinced they know what it is. They don’t. Never buy stuff you don’t understand.

 

An illustration of real value: Earlier this year I was asked to find buyer for some bonds guaranteed by the Scottish Government. The lack of interest demonstrates clearly the significance of confidence in government.

 

What is it worth?: Salvator Mundi, a painting that may be tangentially by Leonardo sells for $450mm, funded by a Saudi Prince – who is desperately trying to reform his country while shaking down its business classes to pay for it..

I suppose I could add lots more to that list… but lets just think about a few threats for the coming year:

In Europe we’ve got downside from German Politics, the Italian Elections, Separatism in Spain (and maybe Italy), and Brexit, upside from renewed Federalism from France and the German SDP, plus a recovering economy taking some of the pressure off. I guess we will crawl our way around these.

In the States is a question of where Trump is headed. Tax reform? And what will the new Fed do. And what about China?

Sell Bonds and buy Risk Assets – Stocks and Alternatives.. Can it really be that simple?

Elsewhere? Who knows, who can tell..  Anyone for last mince pie?

So nothing left for 2017, except to say Have yourselves a Merry Christmas and a Guid and Prosperous New Year!

It’s certainly going to be “interesting”

 

Comments

Arnold JRobby Fri, 12/15/2017 - 08:48 Permalink

I'm glad I don't pay for a subscription.

"..I’ll be providing free and open commentary on these themes on daily basis through the Morning Porridge. We’ve checked and it’s going to be MiFID 2 compliant. The aim of the legislation is to make markets transparent..."

I can be just as clueless by myself, thank you Bill.

In reply to by JRobby

Semi-employed … Fri, 12/15/2017 - 08:26 Permalink

That headline is no way to generate clicks and comments on ZH!  My 2018 prediction: There will be more crypto booming along with more crypto bashing and Get Off My Lawnism from ZH.

Unbelievabubble Fri, 12/15/2017 - 08:32 Permalink

LOL ..."global economy is expanding.."Yes.Bill. That's what happens when you print a whole bunch of money and throw it into the ring at zero interest rates (oh, and 'lose' another 20 trillion or so, behind the couch, through bad accounting..aka 'Black' budgets)The problems starts when the fat lady sings. Then you'll want to watch she doesn't fall on you.

Memedada Unbelievabubble Fri, 12/15/2017 - 08:47 Permalink

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Yep. And I think “expanding” is the wrong word – it makes you think that there are more economic activities that create real value for people. Inflating does more justice to the actual state of affairs. They basically just put some extra zeroes behind the macro-numbers and vupti “see we made the economy expand (aka inflate)”…
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The trick, however, is to make the economy inflate for the ownership class and deflate for the plebs – at the same time = trickle-up economy.  

In reply to by Unbelievabubble

Pooby Fri, 12/15/2017 - 08:34 Permalink

"We don't think 2018 will be the end of the world" was the original title here. They just changed it. I guess it wasn't doom-porny enough to get clicks.

silverer Fri, 12/15/2017 - 08:46 Permalink

The Deep State will refer to it in history as "The Financial Renaissance", that wonderful era when the central bankers and elitists were artistically creative with your money.

Unbelievabubble Fri, 12/15/2017 - 09:19 Permalink

Bill, there's no other way of saying this, but you're either a delusional w@nker, or you and your pin-stripped mates are talking your own book to take advantage of those less well informed. Do us all a favour and eat your porridge in private. 

Exponere Mendaces Fri, 12/15/2017 - 14:36 Permalink

LOL "Bitcoin Ponzi"Yeah, have fun with your fiat assets priced for you lovingly by the central banks and associated rent-seekers.I'll be over here laughing my ass off, because I'm part of the future - not a relic like this asshole.