Blain’s Morning Porridge – 16th October, 2023: What does Rugby Tell Us About Markets?

“I’ve been alive for four and a half centuries, and I cannot die.”

“Well, everyone has got their problems”

What does the Rugby World Cup tell us about markets? Expect the unexpected? Ignore nothing and don’t bet on favourites? Perhaps.. As the geopolitical threats pile upon each other, it’s time for caution. Forwards win games, but backs stop it being lost!

The Gods of Rugby are capricious and cruel. They treat us to some of the best games ever, yet laugh in our faces as our hopes and expectations are thrown to the winds.

Rugby matches are just like markets.

They can be fast and furious. They can be dull and tedious. We can make all kinds of predictions on how they will play out based on relative strengths, performances, experience vs expertise, conditions, morale, sentiment, fitness, skills, who can arbitrage the arcane rules most effectively, and a host of other dimly viewed through a mirror darkly factors. It’s about brute strength, speed of thought, quickness of action, and fleet of foot. The best players are the smartest, the most useful are the strongest. We can make analytical judgements on who will thrive and who will not………

Rugby is exactly the same.  

When the current World Cup began weeks ago in France there were some teams that looked strong yet tumbled like felled trees. The draw favoured some and cursed others. Next weekend the 4 remaining teams contest the semis, at least one of which got there to the surprise of many. What we get is seldom what we expect.

I some vital respects Rugby is completely different to markets – in Rugby there can be only one. In markets multiple winners and losers is the norm. While Rugby is about how the hopes, aspirations and 30 players divided into two teams play out, markets are about the whiles, the cares, the needs and wants of the global whole.

And so it is – after some of the greatest, fastest most exciting Rugby ever played, the only remaining European Team in this World Cup is England… Had England lost to Fiji they would have been unlucky. Yet, the fact they won was luck.

Life is not fair.

Over the weekend we had 2 World Cup Final quality games, but both Ireland and France are now out. To my mind they were the best teams, but not on the night. It’s likely to be a Kiwi vs Springbok final. Maybe England will surprise us in the semis? I doubt it, yet I will give them my grudging support (to be frank: it’s difficult for a non-Englishman to support Owen Farrell.) Although the Boks are brilliant; “I’ve met the Emperor of China and the only working British Miner, but I’ve never met a nice ….. …….” (I jest.) Argentina? All credit to them for taking out Wales, but the All Blacks will likely mash them.

On Saturday I watched 3 games of Rugby (and 2 on Sunday). Perversely, the one I enjoyed most was the first one: She-who-is-Mrs-Blain and I drove down to the West Country to watch Bath vs Newcastle Falcons in an English club game. What a fantastic match it was, excellent rugby and a great relaxed mood with friends at the match. (Nice to see Scotland’s Finn Russel make his Bath debut after his team departed France last week.) There is nothing quite as lovely as watching a match, sitting in the autumn sunshine, with a 2 pint bucket of local cider…

Enough havering about Rugby, but there are lessons.

This week the markets will be on tenterhooks – nervous about the extent to which the Israel/Palestine tensions engulfs the whole region. I often write about the effects of geopolitics on markets – and am often told I over-emphasise its importance relative to more market driven factors.  I beg to differ.

The next few weeks will be geo-focused. The analysts will be watching Israel’s Northern Flank: will the well-equipped Iran supplied Hezbollah open a second front? Will the West Bank explode? Are oil prices set to rise? How will Iran and Saudi play out? How quickly, or how long does Israel have before sympathy for last week’s barbaric Hamas terror is replaced by condemnation of the destruction of Gaza? What advantage will China and Russia seek from the fermenting instability? While we are distracted by Gaza what about new Russian offensives in Ukraine and what is China doing?

How will all these geopolitical tremblors shift the price of commodities, financial assets and currencies? Safe havens – for all that the Iranians hate it – means US$ and Treasuries. Oil and Energy are now markets of instability. The more the world divides the more the likelihood of recession – which impacts the poorest nations hardest.

Thus far, there has been limited spill-over from Palestine to markets in terms of an oil shock – but I suspect it’s a lagging, long-term rot that could spread as oil prices are pressured, geopolitics is impacted, and new lines of long-term hatred are drawn.

Iran and its terrorist clients, Hamas and Hezbollah, are betting they can unravel the long-term move towards Arab-states reaching an accommodation with Israel, while weakening US hegemony over the region by exploiting its support for Israel. The greater the destruction in Gaza, the more Israeli settlers on the West Bank are seen to harass and murder Arab residents, the more the expect to shift the dial against the West.  It’s a policy of destabilisation which China and Russia have nothing to lose from – only to gain. However, the very same destruction they seek only makes the US stronger as the dollar rises!

I listened to a particularly sickening interview with a Hamas leader on Sunday – safely ensconced in a luxury Qatar hotel. They claim to be fighting for the repressed rights of the Palestinian people, buts it really an extension of wars that Israel previously won decades ago. While I have some sympathy with Palestinians (not Hamas or terrorists), mass migrations forced by war are a historical fact and reality of global disorder, justifying terror with “whataboutisms” is not acceptable. Sadly, the rhetoric of Hamas and even left-wing Israeli politicians leave no room for compromise.

In terms of death and destruction – its brutal. The pictures from Gaza are shocking. But in terms of markets, it’s going to be about energy shocks and confirming the strength of the mighty dollar. Play accordingly.

The threats to Western Markets are significant. Much of the mainstream business press has finally picked up on the reality that a crashing bond market, the end of the 40 year bond-bull market, has significant implications for markets, including a likely repricing of the stock markets (actually, much of it has already happened.) Serious market analysts have been remarking on the similarities (and differences) to October 1987 – the first really big market crash I participated in from the trading floor.  (I think I first wrote October would be the critical month back in January… but hey-ho, if you didn’t action it then… too late.)

There is no market reality at present – just a very confused sea-state of conflicting currents, tides and storm-driven market chop. Navigating it isn’t going to get any easier in coming days.

Five Things To Read This Morning

Times                          The Day I met the leader of Hamas: “We’re always ready for War”

Torygraph                   Middle East conflict threatens to trigger another Black Monday

FT                               Geopolitical volatility threatens to return to the financial markets

WSJ                            A Recession is no Longer the Consensus

BBerg                          Britain’s Rich Fret Over Keir Starmer Winning Power

Out of time, off to catch a train, and back to the day job!

Bill Blain

Strategist – Shard Capital