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The Hornet in the Bedroom Moment makes everything feel much, much worse… but its bad enough already.

Are current markets turning into a bad dream? There are so many reasons to be fearful, but giving into our terrors shows how driven by bias we are. A Hornet in the Bedroom Moment can make everything look bad. The reality is… probably not as bad as it looks!

Blain’s Morning Porridge Aug 3 2023: The Hornet in the Bedroom Moment makes everything feel much, much worse… but its bad enough already.

“The Hornet’s power to weight ratio means it should not be able to fly, but it does not know that and flies rather well.”

Are current markets turning into a bad dream? There are so many reasons to be fearful, but giving into our terrors shows how driven by bias we are. A Hornet in the Bedroom Moment can make everything look bad. The reality is… probably not as bad as it looks!

Oh dear. The headlines today ain’t good: Treasuries Routed. Stocks Collapse. Earnings Missed. Political Risks Rising!

I am struggling this morning. But not just with markets… My Orwellian Room 101 terror is Wasps… Last night there was a Hornet in our bedroom buzzing like a Huey with a souped-up engine.

It was a European hornet – which to my mind is about 6 ft long with great big sharp pointy teeth and a sting that would make a Highland broadsword look like a sewing needle. In reality, the sting is a complete fatherless son but they are relatively harmless, prefer to stay out our way, and are rather good at keeping pests out the garden. (The Asian Hornet – which has been spotted in our neck of Hampshire is even more scary – a veritable 18ft lance of a sting…. I never exaggerate!)

My wife was able to chase the beastie into the bathroom, where she “dealt” with it. Yet, I was terrified all night, fearful it might survive the flush, chew its way through the door, or sneak through the lock… one’s mind does funny things when half awake.

I then had nightmares of being stalked by Yellow-jacketed equity-brokers trying to sell me a Fintec IPO…. It was a simply awful deal – but I was being pushed to participate! As a result I slept in this morning. I find myself in a rather dismal mood and perfectly willing to believe the current market is probably a precursor to the end of everything…

Except, of course, it isn’t. I am suffering a Hornet in the Bedroom Moment. My dear but departed mother would have simply told me to leave it alone.. “It’s more scared of you than you are of it..” She was usually right. Time to take a more balanced and considered view of the market….

So please forgive a rather short morning’s porridge….

Yesterday was a funny old day… lots of discussions with market chums – many of them expressing variations on the same theme: a correction/reset is coming. Some think that means a buying window later this year – maybe even this quarter. Others think it will expose the market rally since Nov 22 as an extraordinarily deep “Bear Trap” – sucking in money on the back of FOMO.

Whatever, the mood this morning has turned distinctly Risk Off – but I am still being told of great value in some sectors. I can’t help but wonder how much better value these will look when prices correct downwards – but waiting for a market to fall is just another form of snare…

The list that follows is a condensation of recent discussions. Although the trigger for yesterday’s market woe was the downgrade of the USA to AA+, it’s been a coming crisis with multiple roots and vectors by which the pain will spread:

  • Global recession and longer supply chain dislocation/inflation a distinct possibility on Europe and China slowdowns.
  • Euphoric market leave US stocks looking overvalued.
  • Tech stocks are trading at a massive premium to market – bubble driven by unrealistic AI expectations and FOMO.
  • Raised sovereign debt concerns and fears they are unsustainable.
  • Falling discretionary consumer spending – pressure on earnings.
  • Rising personal defaults across mortgages, autos, credit cards and unsecured lending.
  • Rising corporate default rates and widening funding spreads adding to slowdown.
  • Confident/sentiment under-pressure from declining housing markets.
  • Central Banks failing to achieve soft-landings will put their credibility under further pressure.
  • Inflation is moderating, but likely to prove sticky and volatile if energy and food costs rise.
  • Apparent disconnect in traditional inflation fighting tactics – trying to stall economy not working.
  • Lending by banks and non-bank lenders is becoming tighter. Credit is drying up.
  • Credit concerns exacerbated by ongoing concerns about just how strong banking sector is in the face of “unrealised” bond losses.
  • Rising political risk – US political risk is up to 11. UK political risk elevated. Distrust of politicians rising.
  • Rising inequality and dissatisfaction.
  • Increasingly polarised society on issues from right vs left, green vs growth, young vs old.
  • Current US economic resilience and jobs strength is lagging the succession of rate hikes.
  • Renewed geopolitical pressure to end stalemate war in Ukraine could leave West looking weak, leave Russia uncowed, and reinforce Global South’s move towards China.

I don’t agree these are all threats – some are overplayed, like the threat to Sovereign Debt. Others, like the potential political dislocation and even an uncivil war in the US are, perhaps, underacknowledged.

What could make it worse?

Sometimes all the market needs to make a massive directional shift is a tiny little nudge to start a few pebbles rolling down the hill which trigger the landslide. Maybe the nudge this time was the US downgrade, maybe it will be something else, like some bad news in Tech stocks triggering a fundamentals based reappraisal of value. I suspect it will be shock/surprise around a single stock that turns this wobble into a full tremblor. Maybe it will come from politics.

At this point.. don’t take me for an uber-bear. My gut feel is a correction rather than full crash – some overvalued stocks will suffer. We will likely hit some form of economic slowdown (perhaps not the repeat of the 1920s or 2008 so many fear.) We may even see a few market leaders take a spanking as their unsustainability becomes painfully apparent. But.. I am not expecting the US to default on Treasuries, or London to become Buenos Aires on Thames… unless….

What’s that buzzing sound from behind my office curtain?

No time for Five Things…

Out of time, and back to the day job..

Bill Blain

Strategist – Shard Capital


  1. I probably missed this matter when you addressed it. Is there any note on the level of quantitive easing that the Eurozone and Sterling carried out during Covid, and how much of this is reflected in debt, and how much in additional currency in the market?

    • I’ve written about it before – will have to go dig out the numbers.
      But the Bank of England owns about £800bln of QE bought Gilts, while the ECB holds about Euro3.4 trillion of bonds bought under the QE Asset Purchase Plan..
      Not sure what you mean by how much debt and additional currency.. the volume of debt the UK Treasury and EU created by selling these bonds (debt) to the ECB and BOE respectively is new cash..
      Together these would come to a total value of 2 Zonks..

  2. In California we have tarantula hawks which are supposed to have the world’s worst sting (or at least close to it). They rarely sting humans. My neighbor, who is very understated and quite tough, said that he cried and collapsed to the ground when stung (one had made a burrow under his woodpile). I see them all the time when I bicycle and I definitely try to avoid them. I would rather not find out personally about how painful they are.

    Here is an article from the Natural History Museum in London.

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