How many reasons to be miserable about markets do you need?

It’s going to be a testing week for markets as a whole slew of negatives, challenges and no-see-ums threaten to overturn everything. It couldn’t look worse… unless of course you remember my key market mantra (read on), and that the sun usually comes up tomorrow. Happy Valentines.. 

Blain’s Morning Porridge – 14th Feb 2022: How many reasons to be miserable about markets do you need?

“The roses in the window box have tilted to one side….”

This morning: It’s going to be a testing week for markets as a whole slew of negatives, challenges and no-see-ums threaten to overturn everything. It couldn’t look worse… unless of course you remember my key market mantra (read on), and that the sun usually comes up tomorrow. Happy Valentines.. 

It might be Valentines love and joy all-round today, but it feels this is going to be a critical, (insert nervous-sounding adjective of your choice), week for markets. Not only is World War 3 apparently nailed on to interrupt Breakfast on Wednesday morning – according to whatever hysterical politician you listen to – but we’ve got a market set for a massive tumble on the back of (take your pick of the following ingredients):

  • Commodities squeeze and empty inventories as backwardation in futures suggest long-term dislocation.
  • The possibility the current Inflation meteor shower (will explain below..) morphs into a fully destructive Strike!
  • Geopolitics – end of the Olympics, end of the truce.
  • Switchback prices on the back of dislocated markets.
  • Ongoing supply chain dislocation.
  • Long-term Energy infrastructure instability – Blame ESG.
  • Oil going to $100 or $200!
  • Drought, Fire and Flood..
  • Storms to hit Europe driving up Gas Price
  • Rising Rates unlikely to improve inflation outlook.
  • European fragmentation on rates, inflation, gas, whatever!
  • Other – take your pick and please describe in the comments section below:

Yep, the outlook is awful, it’s the end of the world.. We’ll be lucky to survive till Thursday…

Or.. as I periodically remind markets: “Things are never as bad as you fear, but seldom as good as you hope..”

This morning, I’ll focus on just a few of the issues above:

Market dislocation is what’s getting the attention as stocks pump and dump. It’s just not normal to see the modern bell-weather stocks like Amazon, Facebook (Meta), and Netflix dive and rise in double digit daily moves.

What’s happening for stocks to trade like a carnival switchback ride? Some say it’s because the market isn’t able to process the news, that retail investors are distorting the action, or that it’s the Ultra-High Frequency Traders stock-trading algorithms being overwhelmed by the rapid moment-by-moment event-driven swings. Whatever – something has changed. Or has it… its just a phase – but a phase that occurs when markets are toppy.

More likely the directional volatility is due to a very simple force – probably hedge firms understanding the market doesn’t understand the moves. They are betting big the market has now topped and will likely be caught in a range for the coming months as expectations and reality play catch up. In the meantime they sell every rally and reinvest into the dips, betting the enormous voting machine that is the market doesn’t yet get it. The market remains convinced earnings will continue to improve and that prices won’t, nay can’t, go down for multiple reasons (including the ongoing belief Central Banks will step in and rescue them if the going gets tough.) The smart guys are reaping the fruits of such foolishness.

Key lesson here is it’s not what you believe about the market that matters – it’s what the market believes. Smart traders make money betting on what the market thinks.. not what a clever analyst or a Reddit follower thinks he or she knows..

The inflation meteor shower is a concept I’m going to patent. I’ve taken it from astronomy – where a couple of times each year the Earth passes through clouds of dust left in our orbit by passing comets. We get a spectacular display of meteors for a few hours. Central Banks had been praying and hoping the current inflation shower rocking the global economy would prove similarly short-lived – transitory.

No chance.

Taking a look at global economy we’ve got a clear inflation-trend fuelled by multiple drivers. Just as meteor showers all seem to come from a single point in the night sky, an inflation shower seems to emanate from a similar locus – prices driven up by short-term shortages in the case of the supply chain shocks resulting from the dislocation caused by the pandemic. Hence, it’s been easy to persuade markets to still factor it as a simple, relatively short-term effect. Nothing to worry about? Really!!!

The reality is much more complex. Many of the current inflation drivers now playing out are long-term and have been crystalised by the pandemic rather than caused by it. The current supply chain chaos may still prove a short-term problem that will fix itself, but in reality many of the inflationary drivers are due to long-term inefficiencies – like why did no other nation bother to replicate/challenge Taiwan’s chip dominance, or why have tech firms failed to secure access to the critical rare-earth commodities? Or why have Electric Vehicles received such support when global shortages of lithium will some make them impossibly expensive.

Or why have western corporates spent so much of their profits and borrower hugely from markets to finance stock buy-backs rather than build new productive capacity? The answer on that one is simple – monetary distortion distorts everything.

My point is we are now seeing a storm of inflationary points erupt across the economic heavens. Years of deeply inflationary monetary disortions now have to be paid back – which accumulated interest. These include supply chains, but also coming pressures in food (where the cost of fertilizer has rocketed due to the pandemic and plant shutdowns), Energy, Labour costs and now rising rates. I rather fear my inflation meteor storm could yet prove a destructive meteor strike!

Which leads to the current Dislocation in Energy – another story of consequences, bloody consequences. For the last umpteen years a general do-good urge to invest in green renewable energy has evolved into the Holy Church of ESG Wokery. I absolutely believe in the need to decarbonise, address climate change and improve the environment – but I also sincerely believe in global growth to raise global living standards as the only way to level out society and end inequality.

As I’ve written many times, we can get to carbon zero by doing sensible things and acknowledging the need for carbon transition (including the heresy of using Gas as part of that transition). But today, the lack of investment in transition energy means we’re burning more coal and facing an energy crisis after decades of underinvestment.

I could go on to discuss why the currents pulling on Europe could well reignite the sovereign debt crisis, or how supply chain problems could trigger much larger inflationary dislocation for tech.. but got a call I have to jump on.

Meanwhile I think I ought to put a health morning on all this morning’s Five Things to Read Today lest they leave you as depressed as they left me earlier today..

Five Things to be Miserable About This Morning:

FT – Waning Stockpiles drive widespread global commodity crunch

FT – Investors such to US oil and gas bonds as energy prices boost finances

ZH – Morgan Stanley: The Amount of Hiking Needed to Contain Inflation Will Soon Stall The Economy

BBerg – European Energy Prices Jump on Mounting Tension Over Ukraine

WSJ – Russian Invasion Peril is Driving Oil Prices Near $100

Out of time, off to slit my own throat…. And then do the day-job..

Bill Blain

Strategist – Shard Capital



  1. Nuclear and Gas are the SENSIBLE way to mitigate the Energy crisis; a huge increase in supply here could then crowd out the filthy Coal. China plans more Nuclear, France has seen the light and reversed their previously stated policy of reducing their Nuclear energy dependency; in contrast the ‘foolish virgin’ Germany is on the verge of completing the decomissioning all of theirs.
    Meanwhile, you may not like Fracking – but I would bet we will see that back on the table again as the ‘lesser evil’….especially as we now face Inflation, which is “Kryptonite to Politicians” – Jimmy Carter 1979.

    • Problem with nuclear is about everything; from NIMBYism, safety, the costs and wondering if we are going down the right road of massive 30-year life-span white-elephants. I agree we need Nuclear – but maybe in more manageable and deliverable formats – like the new Rolls Royce idea..


  2. Hi Bill
    Youve missed one off your list- Scotland played rugby in Wales at the weekend in case you missed it– According to the BBC (Tom English- is he English??)-The entire plodding predictability of it all was the thing, the dreary throwback to an age where Scotland in pursuit of victory had no ideas, no penetration and no threat.
    Cheers! Steve (not Welsh btw)

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