Blain’s Morning Porridge – October 2^nd 2023 – From the Road: visit Portugal now before everyone else does!

“Wet or fine, the air of Portugal has a natural happiness in it, and the people of the country should be as happy and prosperous as any people in the world.”

Normal Morning Porridge will resume later this week. I’ve been taking a short-break travelling round Portugal, and it’s an extraordinary place. The possibilities and opportunities confirm it’s far too easy to simply dismiss Europe’s periphery as irrelevant.

I’ve been trying to write Morning Porridges while travelling – apologies for not posting anything… all my own fault. I foolishly left the charger for my Office Lap Top in the office, so I brought my trusty Mac-Book instead. After spending a very frustrating morning trying to fire it up – well, I gave up.

I recently re-set my Mac-Book to free up memory, but when I tried to write last week I found Google, Microsoft and the half-a-dozen other parasitical piratical tech robber barons which effectively control our lives, demanded I re-log on, sign in, sign up, consider new options, and basically agree to all the multiple ways in which their apps and utilities rip us off by monetising us on line. It was somewhat frustrating.

They can all swing…. when the revolution comes… they surely will.

I’m afraid this morning’s Porridge is more a travelog than a market comment – normal Porridge will resume later this week. As always – to understand markets, understand what is really going on in Bond Markets.It’s clear we’ve got a whole raft of debt issues to consider – and they will drive activity and reaction across markets:

• What are the consequences of the close-call that was the US Government Shut-down and the signals that sends? (Clue: it ain’t over yet.)
• How are expectations of higher for longer rates taking hold across markets – and how will these change corporate and consumer decision making?
• What are the threats raised by rising quantum of national debt around the West?
• Which nations can you trust to prioritise and allocate debt, and which would you not?
• What does the collapse of consensus politics across the west mean long-term?

Thoughts and answers on all these questions.. will have to wait for later this week..

This morning’s Porridge has little to do with markets I’m afraid. It’s a travelog about one of the most interesting places I’ve been in years – Portugal.

Our trip was a coincidence of opportunities. She-who-is-Mrs-Blain is taking a short-career break, while a chum/client from across the pond finally renewed his passport and suggested a weekend playing golf on the Algarve. Boll-chocs to Golf (a good walk spoilt) I said: “Let’s do lunch in Lisbon.” So we did. We took our chums for lunch and dinner, caught the train north to Oporto and then a tour-boat up the river Douro to do some wine quaffing. All rather fun – and far less expensive than you’d think. Our rail fares in Portugal were less than a return trip to London from home.

It’s wasn’t Lisbon that captured me. It’s a fascinating and beautiful place, a foody heaven, a tad on the hilly side, and packed with tourists. It wasn’t Oporto, which is equally fascinating and beautiful, and even more packed with tourists. And it wasn’t the Douro River, which is beautiful and fascinating, and only a few too many tourists. It wasn’t the wine – which is simply marvellous.

Maybe it was the most perfectly cooked Sea Bass in a great fish place near Belem. (It is definitely not Salt Cod Bacalou – which to my mind tastes like slightly-off fish flavoured plastic.) It might have been the Cherry Brandy we imbibed on a Lisbon side street. It might have been the Natas – the perfect pastry. It might have been the free-guide (who was well tipped) telling us about the national poet, Carmoy – and my subsequent efforts to find a copy of his classic in English. It might have been getting caught up in a film shoot about the Carnation Revolution – which occurred in Lisbon just 7 months after I first visited Lisbon as Schoolboy on a School Cruise Ship. Maybe it was the Lalique glass in the Gulbeckian, the trams, or the squares. Maybe it was the Fado music one evening (melodic and moving… and not all miserable!) Maybe it was the architecture of Oporto, or the tiled churches? Maybe it was the Douro River or the incredible terraces of Vine and Olives? Maybe it was the perfect bottle of red in Quinta Bomfin? (Maybe…)

What I do know is the Portuguese people make it so good. They are wonderful, friendly and helpful. If they ever stop smiling, then Portugal will be in trouble.

Why might they stop smiling? There are an awful lot of tourists. Apparently there have been a succession of articles in Forbes Magazine praising Portugal as the cheapest place to visit in Western Europe for American tourists. The numbers up from 50,000 Americans per month a decade ago to over 350k today. They are the second largest group visiting after the English. Portugal had 1.7mm tourists in May. That’s an awful lot of folk scrabbling to find lunch in a small nation.

It’s not that American tourists are bad people. They are great news for the Portuguese economy, but not so much for other tourists. In an economy struggling to attract enough workers into the hospitality sector, any increase in numbers puts pressure on the system. Our observations of Americans last week (which our American chums agreed with), its they i) tend to be older, ii) ask lots more questions, and iii) expect faster and better service, meaning there is less of the total service cake left to go round everyone. Many times it felt like Portuguese hospitality was straining to keep up.

(She-who-is-Mrs-Blain got mega-peeved at Americans who don’t get queues – as we waited in line to be seated one night, a couple barged through: “we’ve got reservations”. So did everyone else…  but the staff sat them first trying to be nice. I had to physically restrain Mrs Blain….)

However, it’s not just too many Americans. We experienced another extreme in Tourism last week. After our trip up the Douro we checked into a famous business chain hotel only to be surprised to spot a chap drunkenly snoring in the hotel lobby (3pm in the afternoon) as staff tried to move him despite the objections of his friends. We recognised the accents straight away. Turned out the hotel’s banqueting suite and most of the rooms had been booked for a massive wedding by families from the Irish and British travelling community.

Anyone familiar with My Big Fat Gypsy Wedding from the TV will be aware UK and Irish hotels refuse to cater their events – their simple solution is to go to Portugal instead. We missed the fun and games that evening. Staff told us the police were called multiple times to break up the traditional wedding punch-ups. And yes, they all paid cash as they checked out the next day. (Yet, the travellers we spoke with in the hotel were absolutely lovely, polite and charming… just a little different.)

Enough complaining about Tourists – but it’s a potential problem for Portugal: what is the optimal number to maximise its contribution to the economy? Too many tourists not only exhaust the hospitality business, but will compromise the value of Portugal as a destination. Putting up prices (currently its USP relative to elsewhere in Yoorp)) could result in soaring domestic inflation unless handled very carefully.

At the moment there is tremendous value in Premium Tourism in Portugal. Oporto, Lisbon and the Country is prime tourist real estate. Oporto must be one of the most tourist attractive cities on Earth, but wander round it and I reckon at least 20% of the beautiful 18^th-20^th Century buildings that make up its signature housing stock are in a state of destitution – apparently a hangover after decades of rent control meant landlords allowed buildings to decay. Do these buildings up – as some hotel groups are doing – and you have highly desirable river view, and masses of Airbnb or Boutique Hotel rooms to sell – but how to do it without a) glutting the market and b) creating inflation from a building boom?

Or do you do up these buildings to create plenty of fine accommodation to attract young and highly educated tech, culture and digital nomad workers to Portugal at a time when every other nation in Europe lacks living-space for younger workers? Could the quality of life advantages make Portugal a European tiger economy?

And then there is Port – you can’t miss it in Oporto. Every viewpoint, mirador, and vantage point looks out over the warehouses of the famous Port Houses – Dow, Croft, Taylors, Warres, you name it they are there. Nothing on the planet beats a really, really good 40 year old Tawny as a post prandial tipple, and Mrs Blain is now partial to a Port Tonic (white port with tonic – very summery and refreshing).

But, give a glass of 3 year old Ruby Port to anyone under 40 and they will grimace, telling you it’s an old people’s drink, too sweet and sticky. Give them the choice and they’d rather have a glass of fine wine or a fine spirit like Whisky, Rum or Tequilla. Yet, the big Quinta’s we visited largely focused their marketing efforts on Port.

I was there to learn about Douro Wine. I’ve drunk some superb ones – and wanted to find out more. The Douro is famously the oldest wine DOC on the planet – but its rules are somewhat complex. There are around 15 local regional grapes (the number depends on who you speak to), and every bottle has to be a mix of them. The winemaker’s skill is to choose grow the best grapes for the challenging terrior, and use that palate to achieve the best wine outcome. Some of them are masterpieces..

I’m not entirely sure how it works, but unlike Italian Chianti, which is a mix around a base of 80% Sangiovase for Classico, Douro has no base grape. Apparently, no one has ever successfully persuaded the DOC authorities to allow specific varietal bottlings. That surprised me: one of the regional grapes is Tempranillo (by a different name of course) which is the base of Rioja in Spain. The other is Touriga National which I am assured makes excellent wine. Perhaps, it because the big Quintas want to keep the focus on port rather than better wines?

Whatever, a few days in Pinhao in the centre of the Douro’s wine growing region was simply amazing. I’ve not seen terraces of vines and olives like it ever before. I’ve never sampled so many amazing wines at such reasonable prices. I’ve never tasted such peppery olive oil. If only I could ship it all home.. but following Brexit I will now be charged about £35 per case if I do which means I’ll be checking whatever is on the shelves at Aldi and Lidl instead!

One week travelling round Portugal is too short a time to begin to appreciate it, or understand the complexity of its economy and its issues, but the one thing I know for sure is we’re going back…

Apologies for not writing about markets this morning..

Out of time, and off to the beach in Foz.. (back on Tuesday)…

Bill Blain

Strategist – Shard Capital