Why the deliberate mistake? What is really going on in the Global Economy?

Blain’s Morning Porridge, Sept 11th 2023: Why the deliberate mistake? What is really going on in the Global Economy?

“Sometimes it’s best to say nothing and listen to what the silence is telling us.”

The Rugby World Cup is a reminder of all that is good, exciting and honest about 30 folk beating the crap out of each other. Enjoy the frenetic mayhem! Meanwhile, what is John Authers trying to tell us. And where are we this 9/11?

Today is 9/11.

I would urge all my professional readers to do a trade with BGC today. The firm will be donating their profits to charity in recognition of how it was almost wiped out 22 years ago. It’s your chance to deal with the Celebs who come into the firm and take the phones – I was once witness to the brilliant Samuel L Jackson asking the client on the other end of a deal: “Are we done? Are we done M*th*rf*ck*r?” It was an absolute diamond moment.  Go on.. give BGC a call.

Planet Rugby

I really can’t understand why anyone bothers with football, cricket or any other sporting malarky when the Rugby World Cup is upon us. It opened Friday night with a cracker of a game between host nation France and the Kiwis. France won and the New Zealand government is duly expected to lose the coming election. Romania had the temerity to score first against Ireland and were obliterated for it. England did something surprising: they played football, but actually won a game. Scotland played a classic hard fast game against South Africa, but the ‘Boks made fewer mistakes, used players better and were luckier. Wales and Fiji gave us a scintillating match that entertained every second. It was all a bit of an overload…

It’s got weeks to run and if it stays this good, the complete and utter collapse of global markets will hardly merit a mention….

Meanwhile…

Something is very wrong in the world this morning…

(I have edited this since I put it out this morning: )

This morning I started the market week with a mystery: Why would the greatly esteemed Bloomberg Writer, John Authers, start his daily opinion piece this morning, “Points of Return” with what looks a deliberate mistake?

Authers began his column writing about Douglas Adams classic 5-part Hitchhiker’s Guide to the Galaxy trilogy. In book 1 a computer called Deep Thought is programmed to calculate the answer the Ultimate Question of Life, The Universe and Everything. Just about everyone who has ever picked up a book will know the punchline: the computer takes 2 millennia to calculate the answer is 42. The crux of the whole tale is that a new, more powerful computer is then required to work out what the question was. That computer is the Earth – which is sadly destroyed to make way for an intergalactic motorway moments before the big reveal.

As a result, there is has been plenty of speculation as to what the question might have been be? Two of the most popular answers that work are: How many roads must a man walk down? Or 6 x 7? At no point during the 5-part trilogy does Adams actually reveal the question.

So why did John Authors write this morning: “the question turns out to have been 6 x 9?” Which as, any phule know, is 54 which minus 3 is 51. Curious?

54 or 51 are so glaringly wrong in a HGTTG context I can only conclude Authers is sending us a coded message, hoping some young American editor was unaware. Maybe Bloomberg are holding him hostage for discovering something he should not have? Or maybe its his warning Mike Bloomberg is a Space Alien – that Bloomberg landed on Earth in 1951 in the town of Roswell in the ever-so-secret-everyone-has-heard of-it Area 51? Who knows, but it would make kinda sense… Did you know it costs $54 per day to run a Bloomberg machine? (OK – I made that up.. sort of.)

51 and 54…. Interesting numbers…. Curiouser and curiouser…. But absolutely not in the Douglas Adam cannon – or so I thought. I forgot that in book 4 the hero of the book is trapped on the prehistoric earth and randomly pulls scrabble pieces out the bag which spell: “What do you get if you muliply 6 times 9?” which we all know is 42, in base 13. Adam’s later said he did not joke in base 13.

There are few clues as to what signal Authers was trying to send this morning in his column. He notes that no-matter how you calculate Equity Risk Premiums – the extra return required from equity over bonds to reflect their greater risk – that number always trends back to around 4 in the long-run, but bounces around in the way a whale hitting a planet doesn’t with tremendous volatility in the short-and-medium term. It all gets a bit technical, but even if your divide the logic by 51, it still doesn’t spell “HELP ME!” or may be we should be concerned about September 13th this year?

What is does highlight is stocks could be overvalued – High PE ratios and low inflation is normal, but we are in a period of highly speculative high PE’s while inflation is still vulnerable to increased energy costs and wage inflation.

Or was Author’s deliberate mistake a sign to look at the second half of his piece on “Building Better Economic BRICS”? On the back of the Delhi G20 Gabfest – leaders of the Global Economy (sans Russia and China) put out a mealy-mouthed compromise of a communique about peace in Ukraine that will upset many in the West. Was that what Authors was trying to focus us upon?  Nope – basically that gains in the BRICS nations since 2001 have now been overhauled by gains on the S&P 500 in the same period. The “US looks as exceptional as ever”, say Authors, and he is right. The US is so exceptional (and I would add a large, liquid, and sustainable market more able to ride the waves of outrageous fortune), that it can trade on a higher Equity Risk Premium than more volatile markets.

And that’s maybe the point Authers is making. US markets, no matter what the shocks, the upturns and apparent madness of them… tend to outperform in the long-run. Having spent a career watching the role of the UK as a pre-eminent stock market waste away into insignificance I’m very aware global equities has become something of a subset of the US market – or so it feels.

Despite making a (deliberate?) mistake over his mistake re the Sacred Texts of HHGTTG, Authers is never a bad start to your morning’s reading.

As a final thought on the subject of 9/11: I was in London that day, watching it unfold on the screens from halfway up One Canada Square. The Boss decided London’s then premier-office tower was too obvious a target and sent us home. But we went to gym and watched it all horribly unfold in New York that day. Since then we’ve watched how the world has changed – not necessarily for the better. I’ve marvelled at the pools where the buildings once stood. Whatever we think – the consequences of 9/11 will never leave.

Back on Planet Yoorp

It does feel like the tides of the affairs of men are rather sweeping around Europe. While we listen to Janet Yellen describe her increasing expectations for a soft-landing for the US economy, and the market take the view the US economy remain more robust than nay-sayers give it credit for, Europe looks in trouble. Inflation is not cowed. A gas strike in Oz will push up Gas Prices in Europe, and oil prices remain elevated. The bureaucracy and treacle of the ECB is proving ineffective at stimulating the somnambulant Yoorpeen economy. Just how bad could Europe get? A question to look at later this week..

Five Things to Read This Morning

BBerg                           The Mighty American Consumer is About to Hit a Wall

Bberg                           Top ECB Bank Watchdog Outlines Biggest Revamp Yet as Tenure Ends

FT                                 Janet Yellen denies G20 weakened statement on Ukraine at New Delhi Summit

Project Syndicate          What the G20 Must Deliver

WSJ                              Meta is developing a New, More Powerful AI System as Tech Race Escalates

Out of time and back to the day job…

Bill Blain

Strategist – Shard Capital