Blain’s Morning Porridge 28^th October 2028 – Compare and contrast the Real World with Dreams

 “And you have burned so very, very brightly…”

Gold has taken a bit of a tumble – but is the correction a buying opportunity? While the UK feels increasing glum ahead of the few choices in the November Budget, Elon Musk is confident on his demands for a $1 trillion upside bonus. They are illustrations of the contrast between hype, speculation and downside manipulation.

LINK TO PODCAST – HERE

If you want a simple illustration of how far fear and speculation in global markets are diverging from reality, have a quick think about what Gold, the UK and Tesla are telling us. While UK Chancellor Rachel Reeves tries to stretch the few billion pounds left in the Whitehall piggy-bank to balance the books, Elon Musk is calling anyone questioning his $1 trillion pay demands an idiot! As the West looks increasingly distracted by hype and politics, smart money is watching Gold – is the current correction a buying-window before the outlook deteriorates further?

I reckon it might be – common sense seldom exhibits the speed of a contagious pandemic!

And if we’re going to talk about the UK, the obvious place to start is Buenos Aires. I’ve read a truly ridiculous series of articles in the Torygraph this morning – calling for the UK to follow the example of Javier Milei in Argentina: Milei has given Britain a serious economic lesson.

Austerity… really? If a minor celebrity was to lose their leg in a car crash… would you saw your own leg off to follow fashion? While the Guardian speculates the real reason Argentina voted for Austerity was Trump’s threats to walk away and pull US support to punish voters, the Torygraph praises voters’ common sense and willingness to drink deep of the deadly economic nightshade of austerity.

According to the comfortable Right Wing deeper austerity is the answer. It is, then its likely to crash the UK economy, trigger a housing market apocalypse, and consign millions of workers to poverty all in the name of the Libertarian credo of Austerity… It will leave the wealthy least affected. They say it would be a brilliant idea for the UK. Really? You really think the electoral mob that’s been manipulated into thinking Tommy Sheriden, Reform and Nigel Farage offer a bright glorious economic future will be voting for that?

The reality is UK inflation is 4% not 400%. We have economic problems – not unsolvable crises. Labour’s problem is not solutions – it’s lacking the imagination to acknowledge and execute them. If we don’t acknowledge the UK’s underlying issues and how they occurred, then like Argentina we’ll be doomed to an Eat, Sleep, Slump, Repeat cycle of repeating crises. Argentina repeatedly defaults. The UK is repeatedly the “sick-man of Europe” until its France, Germany, (insert as applicable).

UK Chancellor Rachel Reeves is set to give the most critical budget in UK economic history (until the next one) on Nov 26^th. She’s playing an almost impossible hand of cards.

• The problems facing the UK have been long-term in their genesis – the consequences of decisions made decades ago (or not made!). They didn’t suddenly emerge in the 15 months since the last election. Yet, every problem that’s festered for years is now painted as of Reeve’s direct making.
• They are the result from long-term and circular policy failures: an economy that’s suffered chronic underinvestment, productivity shocks, the financialisation of UK firms through their sale to foreign asset strippers and PE, leading to crashing consumer sentiment and increasing voter dissatisfaction, that’s supported the rise of populism, which now scares global investors.
• There is the UK’s perilous financial situation leaving zero options – an urgent need to invest in housing, infrastructure, health and defence when the piggy bank is empty, and a desperate requirement to stimulate private sector growth to drive recover, again when there is no money.

Yet, for all the headlines… the UK is not in crisis. The Gilts market is solid – and in bonds there is always truth.

The coming budget is really all about who pays for it. The poor through spending cuts eating into dismal services and the rich who will be furious to be asked to pay higher taxes. Very, very few people will be happy. Everyone will call Reeves a fool – yet she is the one taking the hard decisions and knowing it’s going to be a “courageous” day. I political terms – courageous is decision you know is the right one, even though it is likely to end one’s career and hopes for political advancement.

Yet.. no matter what Reeves says on Nov 26^th, and the opprobrium that will be heaped upon her by the opposition parties.. I’ll give her credit. While I am no longer a committed Labour supporter (14 years of Tory misgovernment ensured I was.. 15 months of the bland Sir Keir Stamer have ensured I am not.) I do acknowledge the situation and the position Reeves is in.

If she were to ask my advice? Unlikely, but it would be to realise the UK’s strengths (innovation, invention and smarts) and invest in these, be imaginative and explain the future as you unravel the budget rules and free up investment. And don’t be afraid to engage and explain. (Writing that.. why was I thinking of Liz Truss..? Worrying..)

In contrast Elon Musk is threatening a monumental tantrum if Tesla shareholders don’t approve his $1 trillion pay package. I have assembled a small library of Books about Musk over the years – they chronical his repeated overpromise/underdelivery, but also how his fans are willing to let their belief in him overcome his failures.

When Musk negotiated his last pay deal, I was shocked by the effect – rather than question how unlikely it was Tesla (which was just beginning to make real profits) could ever hit the targets that would vest the $56 bln Musk was then demanding to stay as CEO, many of my colleagues jumped on it as a buy-signal. If Must was so confident, they bought into that. They were right and I was wrong. Tesla Stock hit the targets, and although the courts are still debating if Musk’s board of friends and family were right to allow his pay award – anyone who bought the stock made off like the proverbial bandits.

Today Tesla posts meh profits of $1.37mm as it cuts margins to sell cars to a disenchanted buyer base who either hate Musk, or hate EVs. Without subsidies Americans are said to be returning to Gas Guzzlers. (They should try hybrids, I am loving my new Lexus.) Selling cars is not going to make Tesla worth the $8.7 trillion market cap to trigger his $1 trillion award.

Which means he will actually have to deliver the Robotaxis and Optimus Robots he’s been promising for years. I know plenty of folk who absolutely believe Musk can and will deliver – therefore they are buying.

But… Tesla’s success was based on it being the first mover in EVs and dominating that new market for a decade. His success at SpaceX was cracking the DNA of rockets and the Falcon 9 by “failing fast”. Now there are multiple EV firms. Waymo is running far more Robotaxis in US cities than Tesla. Chinese firms are building lots of robots cheap and cheerfully – marking it as a future market to dominate. Witness the number and quality of new Chinese EV and Hybrid cars now flooding European markets at half the price of Western brands – I nearly bought one myself. Other people are making rockets. And X/Twitter is.. let’s not go there.

Musk is ranting that corporate terrorists with no freaking clue are holding back his business. I don’t believe Musk will get Tesla to a $8.7 trillion market cap. I think Tesla, and to an extent, Space X, are “mountain of hype built on foundations of sand…”

But I was wrong last time. If he can perfect the tech of robotaxis and household robots.. then he set whatever margins he wants to become the Tyrell Corporation of the future. (Bonus points for folk that get that reference..)

The thing is.. Rachel Reeves is facing overwhelming decisions to be taken on the UK economy which will impact every one of us now. She will garner little thanks. Such has been the energy of blitzkrieg politics against her, that the nation has little confidence she’s going to get it right. Elon Musk has repeatedly come short on promises and profits, but is worth what he is… Life is not fair.

What is the difference between Musk’s success and Reeve’s likely failure. He has charisma and the personality to convince. Reeves? (And to continue that… Sir Keir Starmer is a brilliant lawyer, but lacking a personality. Nigel Farage is 100% personality leaving room for ….. Place your bets accordingly.)

Meanwhile… Gold the ultimate hedge against inflation and the sum of human stupidity briefly dipped below $4000 y’day. If anything the world feels a little more foolish and I reckon Gold and Stupidity are correlated.

Out of time and back to the day job

Bill Blain

CEO – Windshift Capital

Author – The Morning Porridge

Partner – Shard Capital