Blain’s Morning Porridge – June 19th 2020 – A long list of worries..
“Of course you didn’t wake me, the phone was ringing anyway…”
Apologies for this morning’s late and short Morning Porridge.
It’s been a busy and confusing morning. Working from home apparently means no limits on when clients think it’s a good time to call. No complaints – it’s nice to hear all about the weather in Asia, but “I knew you’d be home” call at 4.30 am didn’t impress She-Who-Was-A-Sleeping-Mrs-Blain. Then my coalescing thoughts were then further interrupted by the arrival of manna from heaven in the shape of the Ocado Man!
As always I’ve been trying to sum up the current outlook and give some market insights in a couple of paragraphs. The left analytical side of my brain wants to list everything with clear strategies on addressing the looming crisis.
The right-hand creative side – well, it just wants to sum-up the outlook as “dangerous, and get on with marketing a new property deal we’re working on as something far more interesting…. It makes sense: it’s a real deal, based on real assets, producing real returns in an asset class likely to appreciate. Its everything financial assets no longer are… worthwhile..
For what it’s worth, this is what is agitating me this morning:
· Are global trade tensions set to rise on a “complete decoupling” with China? Or do we just ignore Trump from here on in as the polls predict a hammering in November. Will the Middle Kingdom really cave in and buy more soybeans from borderline-Trump voting US states? The shale-oil sector, the US economic “force-multiplier” is to all intents bust. What does it all mean for the dollar and the US position as global hegemon?
· Despite the virus and trade risks, IPOs are surging with unlikely sounding new companies seeing their new stock price double despite the underlying economic doom and gloom. The laws of financial gravity dictate….
· Virus bubbles are not second-wave – that’s still to come, say the scientists. The current outbreaks are first-wave re-ignitions, and demonstrate the risks of flash-fire outbreaks after the main wave has passed, and distancing breaks down.
· UBS are warning their High-New-Worth Clients to ignore frothy stock market bubbles and invest in fundamentals for the long-term.
· Global markets are trading like there is no crisis – and that the last five months of crushed earnings won’t matter. Bridgewater’s Ray Dalio is predicting a “lost decade for stocks.”
· The global economy will remain hamstrung unless we get a vaccine.
· Expression of the month is “Corporate Resilience”.
· The implications and consequences of unlimited bailouts and QE Infinity have massively distorted market pricing, and despite recession, inflation fears are rising round the globe as a result of unconstrained monetary expansion. Stocks and Bond are over-priced and returns have tumbled.
· Bailouts, rescues and QE infinity unfairly favour the larger corporates able to access bond markets and attract govt money on the back of the scale and job creation metrics. The smaller SMEs that subcontract for them get less support and struggle – making SMEs weaker while larger firms get greater dominance in contract negotiations. Its another example of growing inequality.
· German Fintech darling Wirecard crashes 75% after it loses $19 bln held by Asian banks – who are mumbleswerving about fraud – and the CEO is suspended.
· UK Government debt tops 100% of GDP, and the Bank of England downscales its estimates to a 20% GDP tumble based on better than expected consumption, even as downside risks are screaming higher from aerospace, tourism and hospitality sectors, and unemployment starts to soar higher as companies adjust to long-term slowdown.
· Corporate debt has doubled, or tripled according to some measures, since last crisis. Much of it has not been spent on productivity gains, but on stock buybacks. And nobody else seems to think that’s a problem.
· Hopeful (and bust) European nations will fall behind France and Germany to approve essentially unlimited cash bailouts from the rich EU to poor nations, but as any one member can block it, the frugal 4/5 may yet slow the process – perhaps taking months. Some kind of compromise will be hailed as a breakthrough – and kick the problem further down the road.
· European banks got another €550 bln of TLTRO money – they actually have some €1.3 trillion of effectively free money from the ECB. All that free money and the European economy still flatlining…? It suggests there is something seriously wrong with the TLTRO transmission mechanism, or European banks are hoarding the cash… and gaming QE.
There is a very sad picture in the papers this morning of bits for the very last A380 Superjumbo being trundled to the factory in Toulouse. (I have doubts where most A380s will ever fly again after this crisis – and suspect the last one will have a very short service career.)
But…. Things aren’t so bad after all…
It’s nice to discover people are paying attention to the Morning Porridge. For instance, y’day I was sent an article from last week’s FT about the return of Ed Miliband (who?) to the front benches, as shadow minister for business, energy and industrial strategy. It said: “He cites the example of retraining laid-off Rolls-Royce aircraft engine makers: “They could be incredibly useful to the future of our renewables industry.”
I would simply refer readers to the Morning Porridge 21st May, when I suggested: “If the precision aerospace engineers of Rolls Royce and their suppliers need new markets, then might I direct them into [renewable energy]?
There is hope for the labour party yet…
If you want a really good film for the weekend try The Queen and Slim. I watched it last night – and it’s a wakeup call to those of us who’ve been desensitised or protected in our City bubble from the realities of institutionalised racism. If I’d watched it a few months ago I would have said great film, but that can’t be real.
Well… now we know it is. And when you read of a senior UK nurse spending 18 hours in a cell because she demanded to know why UK police wanted to search her car… well you know it happens here in the UK as well. Sure, The Queen and Slim is a polemical film – but it’s well worth the time. Its helped crystallise my views on Black Lives Matter. I won’t be taking the knee – they simply aren’t up to it any more – but I’m definately a supporter.
Five Six Things to Read This Morning…
FT – Prospering in the pandemic: the top 100 companies
FT – Emerging markets to face “judgement day” as QE goes global
BBerg – Lufthansa Says A380s Won’t Return for at Least Two Years
WSJ – Black Lives Matter’s Years of Pressure Paved Way for Sudden Police Overhaul
Torygraph – Retail sales bounce back 12% in May
ZH – Egypt and Ethiopia Are on Verge of War Over Water As Nile Crisis Escalates
Out of time, have a great weekend…