Blain’s Morning Porridge – 13th December 2018 – Where next?

Blain’s Morning Porridge  – 13th December  2018

“I put them with my own, can’t make it all alone, I’ve built my dreams around you.” 

In the headlines this morning:

As I said yesterday; if May wins the UK remains a SELL.

She won her confidence vote, but, the essential reality is 2 in 5 Conservative MPs oppose her. As a result, nothing will be solved about Brexit. The latest polls broadly suggest the UK is hung 50/50 leave/remain, but break it down and it’s still 50% remain, but 25% of leavers who would accept the current deal are vehemently opposed by the 25% who’d prefer a no deal Brexit. That’s the critical political fault line exposed by yesterday’s vote.

These are the numbers party strategists will be making their calculations upon. Every politician is each assessing their own chances and opportunities. The UK is now a game of political optimisation.

Pro-Brexit MPs with leave majorities should be concerned – their vote is split. For MPs sitting on Remain majorities or even modest minorities, their political maximisation strategy is probably to align with Remain as the Leave vote becomes increasingly fractured, split and disenchanted. The extreme Brexiteers will fulminate, get angry, drop their allegiances, and waste their votes on the extreme right or whatever Nigel Farage comes up with.. 25% of the electorate will win one or two seats at the next election. Discount them.

The exact numbers are something we need to analyse in terms of individual MPs, on a party to party basis, at a constituency parliamentary and referendum level – I’ve got someone in mind to work on it.

Smart investors should be able to make some educated guesses how these scenarios play out… and thus: when to buy into a cheap UK. More than happy to discuss timing…

My own guess is we’re likely to see a parliamentary shift towards Remain and even a second referendum – simply on the basis that’s where MPs are likely to see the best chance of holding onto their jobs. Democracy be damned. (For clarity – I am a soft Brexiteer. I’d accept the current deal and move on! I think a second referendum would be abject surrender.)

We’re likely to see further Brexit-led instability, but little new, through Jan into Feb. No compromise from Europe. Then, as the deadline approaches, I expect Theresa’s final act will be for the  UK to step back and delay Brexit – citing the need for more time to avoid the No Deal (which only 25% support). The EU will graciously allow us more time, even suggest we pause or annul Article 50. They know the argument is heading their way if they exhibit patience.

Then we head towards inevitable elections – Theresa May will be gone. She will be persuaded to step down to let a “strong and stable” leader take over.. (something familiar about that phrase…?). Who? Does it matter? I suspect the prospect of electoral suicide means the Tories won’t vote for a prominent Brexiteer. Will the party split? Who knows? Who cares? It would have serious impact on our electoral calculations.

Voter disenchantment with the Tories – or the BSBP (back-stabbing b******s party) – is very real. At least Boris has learnt to keep his mouth shut. The minister for the 19th Century might care to take note. Smart Tories are making positive sounds about listening. I suspect fear of a Labour Government means an election isn’t likely to lead to electoral cataclysm for the Tories (although it’s a very attractive thought). A good chum is quoted in the WSJ this morning saying: “a Jeremy Corbyn government is far worse than any Brexit or no Brexit,” and “It would be apocalyptic for the economy.”

Of course it would.. Wouldn’t it? Would Labour really be that bad? Momentum, to be frank, controls far fewer seats than its given credit for, and is running out of “momentum”.. All it needs is for grass roots labour supporters to support moderates. Corbyn’s ability to deliver his Red policies on nationalisation etc will be extremely limited by the parliamentary party which remains vehemently opposed to him. Even momentum candidates know their electorates objectives are not the same as the 40 unwashed Trotskyites that won them the right to stand.

When it comes to Labour, the Trend is our Friend. Every time Labour wanders too far left, it eventually goes into autocorrect – and swings back right. Think about Militant and Clause 4 last century! What we really need is a sans Blair Blairite revolution. That’s why I mentioned David Miliband yesterday. The Time is Now! If Labour could get a palatable leadership in place in the next few months they are assured of power. As might a new soft centre party.. there’s a thot!

I’m just a market commentator. I’m not a political pundit. But it’s clear the current unresolvable political environment creates a series of very interesting market outcome scenarios. All of which means the UK remains uncertain, and markets hate uncertainty – except to the extent it generates wonderful volatility to gamble against!

Don’t expect this to end any time soon.

Meanwhile, back in the real world..

I have to laugh at Macron’s France blithely breaking EU debt guidelines while Italy is forced to put new policies in place to get their budget deficit back in line at 2.04%. Actually, that’s bullsh*t. Italy is not going to cut the deficit number. It simply says it will. That’s not quite same thing. More on where European Govt spreads are going next week. Meanwhile, what Draghi going to say about the end of QE? As Europe sinks towards recessions… I’m sure he’ll find some other way to deluge the continent in free money to keep the happy party going…

The German govt is apparently keen for Commerz and Deutsche to merge. That will be the end of Finanzplatz Deutscheland. Merging two troubled banking dinosaurs to create a larger basketcase is a recipe for years of conflict as their competing cultures of mediocracy duke it out. Sorry to be harsh… but in recent years neither bank has been batting in doubt digits. What about the European dream? Domestic mergers like this are born from political protectionism. There still isn’t a single successful example of pan-European banking – and don’t quote me Santander.. there are sound reasons they kept The Shabby-Abbey.

What to say about the US? Who would you trust? Michael Cohen or Donald Trump? Or neither..?

Out of time..