Blain’s Morning Porridge – March 13th2020
“Vulgar, but not a vulgar as Louis Vuitton, thought Sherman.”
Perhaps it’s time to think the unthinkable and close markets for a few weeks?
Today we might be seeing a rash of desparate new efforts by central banks to promise liquidity to Treasuries, to pump money into stocks and shares in Norway and Japan… but you have to wonder what possible chance they have. It’s a long-held truism in FX markets that intervention only works when you intervene in the direction sentiment is heading.
You can’t stem fear.
The Virus, crowded hospitals, containment and social distancing are all going to happen – whatever we do. The crisis will top in a few weeks, maybe months, and then its pick-up the pieces. That’s a first order of business for new Bank of England Governor Andrew Bailey when he takes over on Monday? How to stem further panic? Good luck to him. Unfortunately, closing markets would probably just create even more negative consequences and value destruction as a tidal wave waits for the doors to re-open. There are still massive long positions that didn’t capitulate earlier – they are now irretrievably lost.
The key drivers yesterday that spun rationale-thought into panic were multiple:
· Virus fears have multiplied as quickly as infection rates across the Occident are rising – that’s made the Virus very real indeed. Fear and the Virus have both broken containment. Delay is the only theme.
· Markets faith in Governments and the Authorities – particularly Trump and the ECB – to provide cover, has been shattered. They are variously accused in the press of incoherence, ineffectivness and being out-of-touch. Largard’s lack of experience came to the fore. Faith has gone. Worse – there are few signs industry leaders, regulators, central bankers and government are getting together to address this as happened in 2008. Who wants to be in Room with Trump’s lackeys? (Except here in the UK – where it looks much more joined up – but we are a small island in a raging sea.)
· All the signs from global commodities, trade, shipping etc point to massive economic slowdown and distress.
· We are now into stage 3 of crisis – imagining how markets might seize up further, panicking about chronic illiquidity in corporate bonds, and fearing even the most liquid markets like Treasuries could derail.
In short. Its brutal out there.
Stocks are crashing rather than heading for any kind of landing – forget soft, the only issue is how hard. I am not surprised – read back through my Porridge Blogs this year, and trace the path. Now the indices could go much much lower: the slow motion market crash I’ve been talking about the last few weeks has now accelerated into a complete full-on meltdown.
Asset Management next to fall
It means we are going to see crisis come home to roost in Asset Management sector. The last 13 years has seen a massive transfer of risk from banks to AM. That’s a lot of pain now on the books. It will come to the fore in coming days as funds are gated, massive losses announced, and Central Banks and the Authorities are forced to react. Might even be a bail-out or 100? So far there hasn’t been much hard stories (H2Ois one), but take a look at how much Blackrock is down since Mid-Feb – 33%. It’s the similar across the board.
Trump’s ill-judged address to the Nation on Wednesday night, and his closing the door on Europe, will be remembered as the single most expensive speech in history. In 10 minutes, Trump’s stupid havering wiped more value out of savers pockets that ever before. Well done Genius. (Why were the British Isles not on the banned list? He owns Golf Courses in Ireland and Scotland.)
Christine Lagarde apparently threw Italy under the bus yesterdaywhen she said is getting it in the eye this morning after telling us: “We are not here to close spreads”. There is an excellent take on this by Mark Gilbert and Marcus Ashworth, but I’m not so sure she completely failed. She has illustrated the gap between what the ECB can do, and what the markets expect it can do. She can’t deliver the fiscal stimulus Europe desperately needs – that requires Brussels and Berlin to wake up. With Berlin scrabbling to succeed the Learesque-looking Merkel, this is going to be a typically European crisis response: The crisis will deepen, look insolvable, and at last moment just enough will happen, the ball will be kicked a bit further down the road, and Europe will struggle on the next nexus of crisis!
If you want to make money, keep shorting Italy, Portugal, Spain and Greece, but get ready to switch to long as pressure mounts, bailouts are mentioned, and Europe’s overriding imperative: “SAVE THE EURO AT ALL COSTS” comes into play.
What we are seeing is Markets in action. We can panic, dither, laugh and fiddle as Rome burns around us, but… I’m watching, waiting and already seizing up the potential buy opportunities. There are going to be some superb opportunities. This is going to be an absolute golden-once-in-a-decade buying opportunity – when the dust and debris starts to clear.
Step bank, hunker down, get ready…
There are going to be stumbles, but its interesting to watch what happens as China, its economy and its markets recover.
If you want some ideas on what I’m personally looking at in terms of opportunity.. let’s chat. You know how to get hold of me. (Institutional investors only I’m afraid.)
Meanwhile… the cost of Coronavirus:
I don’t know anyone who yet has the disease, but its already struck at the heart of family and friends. If it is hurting us, then the pain across the globe must be immense.
My daughter’s dream job in fashion is about to go down the plug: they import fabric from Asia and have it made up in Italy. That ain’t happening now. Missed shipments and lockdown means they are about to miss delivering their biggest order of the year, and its cancellation will simply kill the business. They will be forced to pull the plug on staff today. If anyone wants a bright, fashion-savvy girl Friday who understands the business from the bottom up – get in touch..
Meanwhile, chums from Scotland have spent the last 2 weeks cruising in endless circles round the Indian Ocean banned from stopping anywhere – they’ve just been dropped off early in the Gulf and making their own way home. The cruising industry is finished – and it’s a major UK employer. A number of Flybe pilots in the area (Southampton is one if its bases) aren’t even trying to find new jobs as aviation collapses. Another works for Norwegian, and he has a baby on the way. Another chum runs an AirBNB service in London – and its collapsing. Two of my closest friends run businesses that are seeing contracts delayed or pulled.
And the virus hasn’t even really started.
Five Things To Be Reading Today
And just to keep the doomsters happy, a choice piece of scare-story from a “Prepper” website:
Out of time and have a great weekend without touching, hugging or otherwise getting within 100 yards of a fellow human being…
From the Hamble Bunker..