Blain’s Morning Porridge, 19 May 2022: The Judder Moment Just Crashed Markets
“I love the smell of burning Napalm in the morning…”
This Morning – Did you feel the Earth shake and judder? When dull, boring, predictable retail giants crash 25% intra-day, time to take notice. Boom/Bust is back – and this time its serious. Anyone for the last few choc-ice?
This won’t help, but I’m going to keep it short this morning, because I am delighted to report waking up this morning with a proper “everything’s-back-to-normal” hangover!
Yesterday I had a “proper” lunch with clients in the City, followed by a few hours pretending to work in our fantastic new offices (where we are adapting to hot-desking (new people to speak to everyday), and working from home when able), before myself and some colleagues snuck out to try out the posh wine bar around the corner (excellent Alberino). Then it all went deliciously wrong at the first Shard post-pandemic party. Not sure what I was drinking, but it was all Julian’s fault!
She-who-is-Mrs-Blain picked me up late from the train station, and hazarded the observation I was a tad squiffy. She won a NSS award for her observational candour.
Blain is available for lunches whenever… Life is back to normal.
Unfortunately.. markets are not..
Just as I start to enjoy London again, we’ve got 9% UK Inflation, a developing currency crisis, and to cap it all.. Markets just had a cardiac event.
Did you feel the Earth shake and shudder as US retail numbers confirmed everything we feared about recession, inflation and consumer confidence? It’s time to pay the bill for the exuberant excesses of the 2009-2021 bull market.
As the music slows, the world is spinning into a proper, full-on, consumer led recession. On Tuesday it was Walmart’s disappointing numbers, and yesterday Target’s precipitous 25% drop on the back of retail misses sent the pictures dropping off the wall. This morning, the tumbles are continuing across Occidental markets after Tencent released equally shocking numbers as covid, lockdowns, and cost of living concerns hammer spending.
When solid, dull, boring and predictable retail businesses like Target are crashing 25% intraday… that’s as good a time as any to worry. The scale of the market crash is being magnified by the number of folk who’ve been expecting it, but also algo/computer led sell programmes kicking in as the market down-spikes.
Brace, Brace, Brace… I feel a Terrible Thursday coming on… and, to be blunt.. I’d rather have a nice quiet day and a couple of aspirins…
Not going to happen. I have a whole round of “told-you-so” calls to make! Did I not write a few weeks ago that Musk would try to wriggle out his Twitter deal? Oh, yes I did… (And Telsa just got booted off the S&P ESG index..)
Frankly… I am surprised the market was “surprised” by supply chain disruptions, rising fuel and freight costs, inflation outstripping wages, and crashing consumer confidence impacting numbers at leading retailers.. Who would have thought.. eh?
Recessions are a normal feature of the business cycle.. Whatever Gordon Brown ill-advisedly once said about the Boom and Bust cycle being over, it clearly isn’t. But what we are seeing now is different – central bank monetary experimentation has been delaying and putting this off for over a decade..
Think of it as the coiled spring of markets has been tensioned, and storing up a decade of distortion – well… it just sprung.. (Oh dear.. its going to be a morning of bad metaphors…)
On Monday I warned readers this weeks was going to be heavy on Central Banks – and sure enough.. they are all I’ve really written about. But they are what is driving these manic markets – the unravelling of the last 14 years of Central Bank monetary distortion. In the normal business cycle the booms and bust come with the inevitability of the rising/falling tide. The wonderful sand-castles built on the beach of consumer spending is washed away… and you rebuild it tomorrow.. bigger and better..
This is different. We’ve been putting this off for too long. This is a tidal wave that threatens the very beach itself.
Yesterday I highlighted how a decade of central bank monetary distortion has changed the way capitalism works – I explained one of the reasons Boeing has gone from great to terrible company was the distorting effects of easy liquidity changing a brilliant engineering company to a terrible financial slash and burner.
The same kind of distorting behaviours are going to become apparent across the business landscape in coming months. Normally a global crash exposes which investors are swimming in threadbare underwear.. This time, it’s going to expose a raft of companies struggling to cope with higher rates and discovering underinvestment and too much squandered on stock buybacks has left them fatally vulnerable..
It’s going to be felt particularly in the corporate bond markets.. Whatever the rating agencies say about healthy corporate balance sheets, I’ve heard that BS before. Defaults are going to spike.. which is an opportunity in itself.
What we now know is central banks tinkering with markets, keeping rates artificially low to drive growth (which never really happened because all the liquidity went into financial assets), has consequences. Now they will try to calm activity and drive down inflation by rising rates… but we’re passed all that now. This is entering a chaotic phase.
Excellent. Chaos spells opportunity!
Stagflation is on the near horizon. Global stocks are being hammered and the bond market will be next.. It’s likely to get very messy indeed, and whatever markets hope for in terms of renewed central bank interventions to stop chaotic markets making a bad recession into a worse global depression… it’s just not likely to happen…
Someone switch off Jim Morrison and the Door’s album spinning on the record deck… This is the end….
Now.. in the meantime… I want to buy Lithium – if anyone is a seller, let me know. And, do I have a deal for you in the Petchem sector… I was speaking to a major oil figure yesterday who told me.. “I’m confident we’ll be shipping more oil products in 2050 than we are today.” If you like that tale, drop me a line…
Five Things to make a bad day worse…
Out of time, and off to find a can of coke and the Alka-Seltzer..
Strategist – Shard Capital