Blain’s Morning Porridge, Nov 19 2020: And was Jerusalem builded?

“Show me a home where the buffalo roam, and I’ll show you a messy carpet.”

Walking Home For Christmas Charity Appeal

This year I am joining my colleagues at Shard Capital to raise money for the UK ex-military charity Walking With The Wounded. The Charity supports ex-military and their families in need of urgent mental health care so they can thrive and contribute in their communities once more. This year our veterans faced the new battlefield of the Coronavirus and the mental challenges it raised for us all.

She-Who-is-Mrs-Blain – my wife Nicky – and I are the bubblicious Team Morning Porridge. We are planning to do a series of three 20 km weekend hikes over the last week of November and the first two weeks of December.

Please consider making a donationto WWTW’s Walking Home For Christmas appeal – not as a small thanks for your daily Porridge, but to support a very worthwhile charity this difficult year:


Today – A Green and Pleasant Land, Boeing and Quants..

Back in the Markets

After Hungary and Poland stomped and howled about playing nice, it smells like compromises will be needed in Europe.  Otherwise, it’s a story of ongoing Pandemic fears as the numbers continue to trouble markets and threaten Christmas.  Wild hopeful swings in some stocks, but generally the mood out there is hunkering down to see how Covid plays out, how soon the vaccines will have some effect, and mixed feelings about how damaging Trump’s ongoing electoral denial and loose cannon actions may be. What will be.. will be..

Forget the Red, White and Blue of the Union Jack.. let’s make it Green

Just across Southampton Water from Hamble is Calshot power station – an ugly, but landmark building. It was oil-fired, and designed to light up quickly to provide additional power for the grid in periods of peak demand. Its moment came during the 1984 miners’ strike, but otherwise it was largely unused. Its now being scrapped, and its iconic chimney – happily known as The BFC, and incorrectly said to be the highest point in Hampshire – will be demolished sometime soon.

I mention it because we’re going to need similar back up for the grid as Britain’s bold new green renewable future develops. It’s all terribly exciting, but raises some fundamental issues. Like many observers of the UK political scene, my first reaction on Boris’ new-found green enthusiasms is – What Is He Trying to Hide? I like the idea of Rolls Royce building smaller, nuclear submarine based, nuclear reactors – why not?

The reliance on Wind is obvious – we have lots of it here on our little Island on the unfashionable end of Europe. Scotland is about the most reliably blowy place on the planet. The North Sea might be shallow and stormy, but it’s easier to build wind farms there than most places. Many years ago I was mightily impressed by a small imaginatively named cargo-barge called Bladerunner transporting incredible wind-turbine blades as long as my 13 meter yacht from the Isle of Wight to the mainland.. Today it’s successor, Bladerunner 2, carries 82 meter blades, and they will need to build a larger barge soon.

As a sailor I can tell you there are problems with the wind. There is always either too much or too little. Its not reliable. The average wind speed in the UK is 8.2 mph – less than the 25 mph where wind turbines are most efficient. There are many days when there is no wind at all, and as many when its blowing dogs off chains or half-pelicans and wind-turbines have to be feathered – ie, shut down.

It means that the UK’s future reliance on the wind will require back-up. Hopefully the new Rolls Royce mini-nukes will come in at cost and produce much cheaper power than the sprawling white elephants the UK is currently building – which are hysterically non-economic, but are – if you stretch the definition, avoid talking about decommissioning costs, and unresolved nuclear waste storage issues – greenish.

However, there is an alternative – the most abundant source of free, green, and infinitely renewable ongoing power – Tidal Energy. Twice a day, without fail, the tides comes in and out, sweeping round the coasts. If we could just use our engineering brilliance to scoop a little bit of that energy…

There is a little island of the coast of Wales – Bardsey – where £1.2 million is being spent on a tiny little project. Last year I tried to fund a trial of new tidal energy units in the English Channel – to general indifference from investors happy to tick their ESG boxes by buying wind assets. Tide is an engineering challenge – the ocean is hostile, it corrodes and batters everything, and the moment you put anything man-made into the sea it becomes prime-real estate for all kinds of sea life – eroding efficiency.

But we do things despite them being difficult. It staggers me the difficulty some of the Tidal energy companies I’ve looked at are finding when they seek funding. Because it’s still experimental, tidal costs about 5 times as much to produce electricity as the most efficient windfarms. If we were to spend money testing, experimenting and then producing tidal units, that cost will tumble. If tidal energy was 3 times as costly but is twice as reliable as Wind – then it utterly makes sense, and is a far better solution for the Grid which currently has to pay windfarms to shut down when there is surplus energy.

Maybe I should write to Carrie Symonds – she seems to get the whole green thing. If you want to learn more about Tidal and meet some firms – give me a shout.

Boeing, Boing… boing… bong… 

Boeing finally got permission to fly its cursed B-737 Max aircraft again from the US Federal Aviation Authority yesterday. The stock fell by 5% through the day – on the realisation the flight permission doesn’t help, and is just another chapter in the sordid tale that Boeing has become. Once, it was one of the most important firms on the planet; safe, innovative and sexy – allowing the explosion of global travel. And then it all went terribly, terribly wrong. The story in the aviation sector is that when Boeing proposed a takeover of an ailing rival, the accountants at McDonnell Douglas famously ended up buying Boeing with Boeing’s money.

The bean counters took over. Costs were cut. As worker salaries fell and quality declined, the management paid themselves ever bigger bonuses. They used the profits from the business to boost its stock price – making their stocks options a personal gold mine. They didn’t spend money on developing a new fuel-efficient successor to the 50-year old 737 design, but borrowed more and more money from the bond market to spend some $43 billion buying back its own stock. That stock is worth 45% less than its peak – all than money is gone and leaves the company encumbered by leverage. Boeing is not producing any planes anyone wants to buy.

346 people died when the two B-737 Max aircraft crashed because of flawed and unsafe tech of which the pilots were unaware.

Despite quoshing the whole aviation sector, and bankrupting many customers (Norwegian sued tor bankruptcy yesterday), Covid is the least of Boeing’s problems. Boeing doesn’t have the cash or headroom to spend the $30 bln it would need to design a wholly new replacement for the Max. It certainly can’t afford the investment to catch up rival Airbus’ plans for hydrogen power airliners.

Yet the stock price still holds up, and it’s still able to borrow from bond markets because its… Boeing, a massive US exporter and job creator. It won’t be allowed to fail…

It will be interesting to see what comes next. Boeing faces further court hurdles from the suits for the deaths its flawed tech caused. Many questions will be asked about how Boeing had effectively mounted a reverse capture of its regulator, the FAA.

As for the Boeing 737 Max.. who knows? Tui have already said they will let any passenger scheduled to fly on one chose another flight on another plane for free. Ryan Air say you will fly what you are told to fly. The planes have been grounded for 20 months, with hundreds of undelivered, but completed, aircraft rotting in airport parking lots. Hundreds of orders were cancelled. It will take months to get the grounded planes certified and back in the air – and even if anyone was flying, who wants to fly or fly-on perhaps the most discredited aircraft in commercial aviation history?

Quant funds

The capital markets famously have no memory – which is why the crashes in a number of Quant funds that misread Covid-triggered volatility provide the light comedy relief this morning. Renaissance and Two Sigma made the same old mistakes big funds have been making since there were big funds. Long-Term Capital Management was the wake-up-smell-coffee moment back in the 90s.. and then folk went back snoozing. Read the story on Bloomberg..

Five Things to Read This Morning

WSJ – Boeing 737 MAX Cleared to Fly Again, But Covid has Sapped Demand

FT – Vaccine arrival expected to trigger dollar slump in 2021

FT – Bitcoin revival: boom or bubble?

BBerg – EU Fights to Save Billions in Aid with Lagarde Demanding Action

WSJ – China Borrows at Negative Rates for First Time

Out of time, and back to the day job..

And please contribute to our Walking Home For Christmas Charity

Bill Blain

Shard Capital