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A Slew of Things to Think about when Figuring Where Markets Go Next!

Lots going on out there – but what does it all mean? Markets have plenty to consider from rates, inflation, micro, macro, geopolitics and climate – but the core objective remains: generating dull, boring predictable returns in difficult markets.

Blain’s Morning Porridge – July 10th 2023: A Slew of Things to Think about when Figuring Where Markets Go Next!

“Put them together and what have you got – Bibbidi-boddidi-boo!”

Lots going on out there – but what does it all mean? Markets have plenty to consider from rates, inflation, micro, macro, geopolitics and climate – but the core objective remains: generating dull, boring predictable returns in difficult markets.

The first article I opened this morning was a predictably predictable note in the FT this morning predicting further consolidation in the investment and wealth management business. (4 predictables in the first paragraph? A record?) No Sh*t Sherlock – I thought to myself. Yep. All investment management is going to end up in fewer and fewer firms managing vast sums of money on the back of Bots, ChatGPT and AI. Small, smart firms with insights into what’s really going on will be swallowed whole by the whales…

Utter nonsense. Insight and diversity drive investment success. Recognising uncertainty as opportunity, and being able to execute return generating strategies while the big-boys stumble over their internal bureaucracy makes investment management exciting. Smart ideas will win out. I then spent 10 minutes looking at (note – not bothering to read) pages and pages of analyst analysis of current markets. I put my iPad down and went to my computer… and the following is today’s Morning Porridge:

Last week gave us some fascinating insights as to what might happen through the second half of 2023 – lots of “news” to unpack in terms of themes on how markets may, or may not, perform, and clues on direction. Some are micro, some macro, but mix them together and it’s a bit a slew. The challenge is to spot the direction and trend, the opportunities and work out what others may be missing:

  • What did the US jobs number tell us? US job creation is moderating (209k vs expected 244k), but wage demands from workers are not- up 4.4%. The same thing is being repeated around the globe – economies struggle with labour supply, creating a stronger, more entrenched, wage-inflationary impulse, while workers are not accepting they should moderate pay-demands. Trading recession vs wages is not a recipe for social harmony.
  • This week’s US CPI data on Wednesday is the next big number to panic about. What will sticky inflation, inverted yield curves and overly buoyant stock markets tell us about the threats of soft vs hard landing? (Practically nothing – bond and stock prices only tell us what investors fear and love, not what they economy is actually doing.)
  • The Fed will hike this month. Higher for longer rates are implied – putting bonds on notice of ongoing underperformance. Bond analysts now accept problems go deep – start watching not just Hi-yield bonds for an illiquidity crunch, CLOs triggering a sale wave, IG credit remaining shut, but also things like Germany/France bond spreads. As rates edge up unintended consequences could include further pressure on banks and funds. Bonds are not about to resume their 40 year bull market – this is a new cycle.
  • Outlooks for earnings season predict increasing pressure on sales from falling consumer discretionary spending, and more pain from rising rates on corporate balance sheets. There is no denying bad news on way for equities – which does not mean they lose all value…
  • Three big stories stood out in tech: Markets now accept the AI bubble was just that. Facebook Threads taking on Twitter is interesting – all kinds of nonsense to unravel there. Toyota announcing new “holy-grail” lighter, longer-range, fast charging battery tech will have been a “judder moment” for Musk – if its commercial it will further confirm BEVs are a maturing market and undermine the current incumbent – Tesla.
  • US Treasury Secretary Janet Yellen’s trip to China went well in terms of keeping the communication lines from being pulled. Holding meetings to discuss meetings about meetings is better than not talking at all.
  • Get used to a strategic stalemate in Ukraine – and implications on Geopolitics. The Ukrainian’s are held back by the depth of Russian minefields (plus the speed they can be sewn from the air), and their paucity of tactical battlefront air-defences. They need more AA and the game-changing capability “cluster-weapons” could bring – effectively reversing the traditional advantages of entrenched defending troops. Ukraine can’t win without them. Russia can’t win while NATO continues to support Ukraine. Russia’s most effective policy will be to undermine western political support any way they can. China will be keen to maintain the instability.
  • Great story I read on my chum Will Nutting’s “Nutstuff” commentary last week re a ticking demographic China bomb: analysing data such as lights left on in city apartments, demand for household salt, how much double counting has been used to secure central government money by regional administrations, plus the birth rate distortions of single child policies and female infanticide, may mean that’s China’s claimed 1.44 bln population may be as low as 1 bln! That has massive implications about transition into a consumer society and productivity, plus how much time China really has. Emperor Xi knows this.
  • Geopolitics is going to remain fractious – especially with the political cycle coming up in the UK and especially the US. That’s a challenge/opportunity for Russia, China and the Non-Aligned South. Trump looks more and more nailed on as the Republican candidate which a large number of Americans will love. More will not. It’s shaping up a choice of the least bad outcome – a frail and diminished Biden or a vengeful Trump. The implications are huge. China may decide political diversions offer the best chance for a swift Taiwan intervention and the hope a new accommodation can then be reached post election. Russia will be hoping a second term Trump will disown Ukraine, and will leave Nato fractured. (And then of course is the Nato meeting this week – with the UK and USA unaligned.)
  • The Earth has seen its highest temperatures in recorded human history – 17.18C on Wednesday last week. Taken alongside unprecedented high sea surface temperatures (pronounced hotter in the Artic seas), record low Antarctic Ice and the new El-Nino, scientists expect the future will be much hotter – and chaotic.

These are just the most obvious of the “big stuff” themes.. put them together and what have you got? Challenge and opportunity!

It’s never The End of the World (till it is, but that’s outside my definition of long-term.) But things are not going to get any easier. We’re probably looking at harder crash landings, recession/stagflation in Europe/UK, less so in US. Bond markets are certainly not the surefire bet everyone expected them to be when inflation was described as transitory by central banks last year. Everyone is hoping that makes equity markets the place to be – but, as we all know – hope is never a strategy.

What’s the answer?

At one level: contentious, unstable, flippity-floppity markets need some degree of balance. I’d suggest a safety approach – this is not the time to be short gold, but neither is it time to go soft on fundamentals of growth from a shallow US Recession or even resilience. My key point would be returns – how to generate double-digit, real-inflation busting safe returns. If you haven’t looked at my current aviation deal – then probably a good time to do so. Latest numbers from the aviation sector show flights are up 10% year-on-year with Asia posting strongest gains at +37%. Yet flight numbers are still lower than 2019 – mainly because of aircraft and crew shortages! I suspect there are lessons be learnt from aviation as a proxy for confidence…

A second issue is the changing financial ecosystem we are in – Bonds are no longer in long-term bull mode. Real credit and virtuous sovereign trinity issues need to be considered, while the costs of climate change and energy transition could become the ultimate “public” good. More on all this later..

Oh…… Vienna…

Meanwhile… My favourite story this morning is from the marvellous Marcus Ashworth on Bloomberg: “Austria’s Century Bonds Have Cost Investors Dearly”.

This should be core reading for Fixed Income 101: It’s a bond I’ve written about many times:  in 2020 the Austrian’s sold a €4.6bln 100-year bond with a 0.85% coupon which was lapped up by happy bond investors. Everyone though ultra-low rates would be sustained indefinitely, that inflation was dead and buried. As rates went profoundly negative during Covid, the bond price hit 235%. The bond will repay in 97 years time at 100%. You can buy it today around 67%.

If you had invested in it at launch.. well think of it this way.. you could have bought a whole Sachertorte for €59 instead. Because of inflation, you will be able to buy some crumbs; about 17 grammes of a 1 kilo Sachertorte at maturity when you get that €59 back. Investment brilliance.

Finally, she-who-is-Mrs-Blain and I took a few days off to go sailing last week. We reached some pretty momentous conclusions about life and the meaning of everything – they key thing being we need a new more cruising orientated boat. We are getting too old for the pair of us to be jumping round a race-yacht in 25 knots of wind at this stage of life. Batfish 5 is going up for sale.. and we’re looking for a more comfortable Batfish 6.

Five Things To Read This Morning

WSJ                 A Soft Corporate Earnings Season Poses Next Test for Stock Market Rally

FT                    Financial storm bears down on US commercial real estate

FT                    Bond bull markets: lessons from the past

BBerg              There’s more pain on the way for S&P500 as Profit Warnings Loom, Investors Say

CleanTech       Toyota Claims Solid-State Battery Has 745 Mile Range, 10 Min Charging Time

Out of time, and back to the day job with a vengeance…

Bill Blain

Strategist – Shard Capital


  1. You’ve got me curious about Will Nutting. Do you have a link to his article about China?

    Thank you.

    • Here are Will Nuttings Comments.
      You can find him on:

      China Demographics: What if the Chinese population is actually 1 billion and not 1.44bn!? What if Beijing has totally overestimated the birth-rate in china and totally underestimated female infanticide? (This could be like Russia in the mid-80’s when their economy was found to be much smaller and weaker than people thought. Some fascinating work behind this. In 1995 data was 850m going to to 950/1bn for 2020. Assumed now to be 1.44bn imminently. There is some fascinating analysis I am told corroborated by 3 independent sources. The 1st based on Salt consumption. The 2nd Moscow academy of scientists (as credible as MIT, Oxford etc) data skewed on double-counting for justifying higher regional govt spending. The 3rd data point from NASA using night pollution and using this to estimate GNP. Then there is the dark-web data-base that alludes to formal census and Govt work (now denied) of <1bn. You may ask SO WHAT? : well what if this is a centralised economy that might simply be believing its own garbage that has been over building infrastructure & housing. Go around the major cities at night and there are way too few lights on in major apartment blocks. Whatsmore ask anyone who has ever seen or experienced crowding like you would in New Delhi, Sao Paolo or even Oxford street on a Saturday afternoon. Chinas’ empty cities seem to be the reality few are talking about anymore...(Thx M Latham/ Commodity intelligence). As an aside: see the latest Singapore Population data from 2022? Births were down 8pc YoY to just 35k. Deaths up a whopping 10.7% YoY; highest No since 1960!

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