Blain’s Morning Porridge – October 13th 2021: On Holiday: So, Farewell to all that…
“There’s no money in poetry, but there’s no poetry in money, either.”
This morning – One simply can’t ignore a bleeping email. So much for being on holiday, but this week I will simply observe and repeat: please don’t break the market while I’m out!
I wasn’t planning to write the Porridge this week. She-Who-is-Mrs-Blain and I are taking a week off in Mallorca – and the weather is absolutely perfect for gastro-walks through the mountains around the beautiful town of Soller. I’ve been trying to ignore emails – but some of the deals we’re working on demand immediate action. And if my email is on, I can’t help myself from reading the news and wondering what’s going on. Plus, Porridge subscribers are complaining….
So, forgive today’s rather discombobulated series of random thoughts.. Nervous times indeed… October is always a good month to be nervous….
Reasons not to be cheerful include…
Oil at $82 (Inflation.) Gas at record levels (Inflation and Energy Crisis). Bond yields climbing (Inflation and Slowdown). Central bankers still using “transitory” (Central Bank Policy Mistakes – always a massive risk). Supply-Chains and inflation/stagflation (Recession). Record employment and record job vacancies in roles that no one want to take at these wages… (The World is going to change.) Apple’s admission it will miss iPhone (x+1) delivery targets due to chip shortages is just another example of supply chain consequences.
Relax. It will all be fine. Probably. Maybe.
Snapshots I’ve gleaned from the press this week include…
When the Bank of England’s new economist, Huw Pill warned about the risk of sharp correction in market risks… a cynic might counter the Bank noticing the danger inherent in inflated financial assets must mean the crash has already occurred and is likely done and dusted. But Pill is a recent Goldman graduate and is probably still current on the ways of the world.
The best thing I’ve read poolside is Bloomberg’s “Anyone Seen Tether’s Billions”. It’s a fascinating expose of the nonsense and unlikely schemers that lurk in the corners of Crypto-world. It comes to the conclusion the $69 billion of “liquid-assets” backing tether (a tenuous link between crypto exchanges) probably don’t exist, and never did. If you want to understand my own deep-seated resistance to crypto and all the dope that permeates it – read the article. (For the record – I have a great project based on blockchain and crypto tech to solve the pressing issue of climate change and carbon pricing… No shysters please.)
Another great article was in the FT looking at Elon Musk’s Space X. Its success truly is extraordinary – here is a company that now dominates every aspect of the commercialisation of space that’s come into being on the back of Musk’s force of vision (yes, I know I don’t like him, but it’s still extraordinary), the lack of government bureaucracy that’s enabled SpaceX to power through failures and keep moving forward, but mostly the power of unlimited capital! It’s been Musk’s unbelievable wealth generated through Telsa, and his ability to charm the money boys, that piled the money into SpaceX – enabling his vision to race ahead of the opposition.
Perhaps the best questions to ask about SpaceX aren’t why it’s succeeded, but why the others have fallen so far behind? Conventional wisdom should have seen Boeing as a natural leader – but its conspicuous failure (not just delivery of a space vehicle) are instructive about senile companies. Meanwhile, Jeff Bezos has chucked cash into his Blue Origin, but its relative failure is due to botched management and leadership, and a toxic work culture – this superb Washington Post article is well worth a read.
The risks of Central Bank policy mistakes are always front and centre when it comes to the next big crash, but the idea they might be basing their expectations on the IMF is looking increasingly worrying. This morning I note the IMF used the World Bank’s annual gab-fest in Washington to cut 2021 global growth forecasts by 0.1% – stunning and not very deflective move.
I use IMF growth numbers as a useful garnish for economic arguments or pitchbooks – as in: the IMF predicts 4% growth and moderating inflation in Ruritania. Who could possibly have thought the IMF’s growth numbers were biddable – I mean, no one ever, never thought Chinese growth numbers were “massaged”… I am shocked, shocked to discover gambling going on… “here are your winnings inspector.”
Meanwhile, as the COP26 Climate Change Conference approaches… the noise on green and carbon-free investing is rising. The virtue puritans are out in force. Mark Carney’s Glasgow Financial Alliance For Net Zero (GFANZ (really???)), is getting it in the ear from Greenies determining not a drop more oil is ever extracted, and from banks that aren’t joining his environmental crusade.
We’re seeing the effects of carbon disinvestment clearly – the surge in oil and especially gas prices highlighting future energy scarcity. Some environmentalists believe this demonstrates the effectiveness of ESG investing – pushing up the market cost of energy forcing the economy to use less of it. That would be a fine argument if the alternative wasn’t freezing to death and starving when there is no power…
The real consequences are how fuel poverty will impact the poorest in society most heavily – Eat or Heat will become a very real issue for pensioners and children this winter. Energy inflation has all kinds of negative growth implications.
The reality is we need something more nuanced than the blanket ban on fossil energy investments the green lobby demands. We need a transition plan. It’s all very well to know that portfolio management firms are measuring their carbon emissions and climate change credentials – but we need a better measure of how companies are moving their investments towards a better future.
I want to put my savings into an investment management firm that is going to ensure my grandkids have a safe and prosperous future, rather than one when economic collapse leaves them scrabbling. At the moment the dunderheaded assumption many investment committees are making is that complete divestment and future non-investment in any form of carbon extraction is an environmental win that also gets them funds to invest.
It’s not an economic win. And it’s not a long-term win.
What we need is a long-term analysis of potential paths – like how a tonne of metallurgical coal mined today could reduce our future need for coal by thousands of tonnes. For instance – 500 tonnes of Met Coal mined today is required to produce the steel to build and place a wind generator, a single 3.6 MW windmill, on an offshore wind farm. One ton of coal produces 2000 kw of power (the numbers vary). Over the next 10-years, in theory a 3.6 MW turbine will produce the equivalent of 18,000 tonnes of coal. In reality – it will be less, but you get the gist..
My message is not to kill coal, but use fossil fuels today to ensure we don’t need to tomorrow!
Finally, a holiday story..
When we arrived on the West Coast of Mallorca, the first thing Mrs B and I did was buy a walking map of local routes and immediately spotted the Robert Graves museum at Deia, just a few miles and mountains from our base in Soller. When I was a kid it was the novels of Sir Walter Scott, Tolkien’s Lord of the Rings, and Graves’ I, Claudius series that defined me. The BBC version remains the greatest thing I’ve ever watched.
Yesterday we visited the museum and what a story it told. Simply extraordinary. We then scrabbled up the cobbled hill to the church he’s buried in, and then down steep and winding paths to a seaside cove – which was packed with Mallorcans celebrating Columbus Day. The whole coast is extraordinarily beautiful. Whoever said the Spanish are poor – a tiny two-bedroom cottage on the coast will set you back €3.2 million. I better start saving….
The porridge will resume next week!
Out of time, and back to the pool… (20 lengths then 5 miles up pathss to a highly recommended restaurant for lunch!)
Strategist, Shard Capital