Blain’s Morning Porridge – 18 Jan 2021:Four and In!

The third Monday in January is Blue Monday. Apparently it’s the most miserable day of the year as failed New Year resolutions, and Christmas spending catches us up!

Blain’s Morning Porridge – 18 Jan 2021 – Four and In!

“Shallow understanding from people of good will is more frustrating than absolute misunderstanding from people of ill will.”

The third Monday in January is Blue Monday. Apparently it’s the most miserable day of the year as failed New Year resolutions, and Christmas spending catches us up! Not for me! I’m happy, confident and even excited about what’s coming next.

Markets-wise there is plenty to consider – the effect of the $1.9 gazillion Biden spend-a-thon on rates and inflation, and therefore the bond market (crashing minor chords), even as The Squid elevates its US growth expectations (WSJ Survey: US Economic Growth will exceed 4% in 2021). The likelihood of global post-Covid recovery is balanced by the World Bank reporting on just how damaging the pandemic has been to emerging economies where the only winners have been crime and corruption. (FT – Kristaline Georgieva: “We are in a resilient place but cannot take stability for granted.)  

Also in the news is the spectacular growth posted by China for 2000 (WSJ: China is the only major economy to report Economic Growth) is bound to further nfuriate the billions who still wonder where and how Covid started, and how come the Chinese seem to have got away with it. 

This week’s headlines will be dominated by Wednesday’s presidential inauguration and the threat of violence. Biden’s challenge is addressing all 75 million American’s who voted for Trump and persuading them he’s genuine about addressing their very real grievances on jobs, opportunities and their profound sense of being left behind as the elites prosper. The question we wait to be answered: will they show any sign of listening? How will Biden persuade them – without breaking the union?

I was going to write about Boeing’s $2.5 bln deferred prosecution agreement this morning. In my humble opinion it’s about the shabbiest, corrupt lump of excrement that pretty much explains everything that is wrong with corporate governance and what we have to do to change it. I’ve been looking at the saga for nearly week now trying to work out what to say in terms of ESG investment. My gut feel is if investors who get the Green aspect aren’t funding fossil fuels to “save” the planet, what makes it Ok to own the stock of a corporate that’s just bought itself out of a of mass manslaughter charge? It’s a massive corporate-governance issue. If I get time tomorrow morning – I’ll write it up – but this story sums it up well:  NYT – Boeing’s $2.5 bln Settlement with US over 737 Max

But since it’s a holiday in the US today celebrating Martin Luther King, I thought it might be worth writing something about why it’s now time to think about buying into UK Inc. 

Confidence is everything: as the UK heads towards 500k vaccinations per day, as the National Health Service copes with the surging number COVID cases, and despite the long odds against it ever happening even the government begins to look marginally less incompetent. The virus can mutate and keep threatening us – but it won’t win.

I detect there is a new mood developing in the UK. Over the last few years we’ve done a great job talking ourselves down, rubbishing ourselves about Brexit, and everything else. Maybe our depreciation and lack of confidence is about to change?

Improving confidence and humour go together. “Doing a Whitty” is the new way kids describe a massive over-reaction (named after the UK’s highly qualified but emotionless chief medic.) Folk turn off when the Beeb wheels on another “talking head: whittering on about imminent disaster. I wonder if anyone actually listens to Laura Doomsberg on the BBC anymore.  

Enough with the bad news… 

While there is misery out there, and many folk accept their lives have been put on hold, there is something new, a “do-yer-worst” attitude towards Covid spreading over the land. When we want to laugh, nothing will stop us. You can hear in on the radio, read in the papers and watch it on the TV and on the streets; an increasingly confident, funny and infectious gallows humour is giving some hope as we learn to cope. 

I think hope is returning. It’s a new kind of Blitz spirit – the UK might not have coped terribly well with Covid, Brexit, Recession, Boris and whatever else the pernicious gods have thrown our way, but we are beginning to remember we can still laugh at it all.

The UK has been hit hard, and our economy has been trashed harder – but I suspect its all relative. When we look back once the pandemic is over, I suspect our current apparent underperformance will look ok. 

There are even reasons to smile. 170 years of being robbed looks like it finally may come to an end because there are a team of Brits out there showing the World How to Do It. 

2021 is an America’s Cup year – the oldest contested international trophy in sport. Before Christmas, like many sailing fanatics, I was writing off UK’s Sir Ben Ainslie and the Team INEOS’ raceboat, Britannia. In the first series of pre-races before the America’s cup in March, the Brits lost every single race and the boat looked like a piglet at a puppy show.

Whatever happened since then has been transformational – every part of the boat that could be fixed or replaced was. It’s paid off. This weekend we saw a dramatic turnaround as Team UK won 4 out of 4 races in the first two round robin stages of the Prada Cup – which will determine which of the three challengers: the UK, Italy and the US will take on current holder New Zealand in March. 

All three yachts; “Luna Rosa” for Italy, the American “Patriot” and Britannia look closely matched on the water. I’d say the Italians have the best looking boat, which means they are probably fastest as well. (Looks matter. The wind gods love pretty boats.) 

But Sir Ben is perhaps the best sailor in the world, and he’s assembled a fantastic team around him. Over the 3 days of racing INEOS looked composed and measured as the Brits outsailed both other teams. On Saturday they conclusively trumped the Yanks in light winds. On Sunday the Italians were faster, but Ben simply outsailed them on a heavy wind day. 

There is a lesson in why the Brits are suddenly favourites. Despite being written off earlier – they are demonstrating that a perfectly prepared boat will win. They are showing dedication and team-work, mastery of the technology, and that clear leadership is critical. It might have happened late in the day, but the programme has come together at the right time.  

What’s been critical is the relationship between Ainslie driving the boat and the tactician Giles Scott telling him where to put the boat. Ben can keep his head in the boat; focused on speed, course and the feel of the helm, the foils, the rudder and sails. He’s having a constant dialog with Giles who’s got everything outside the boat; the geometry of the course, the wind shifts, the waves, and the competition, in his view. 

Neither the Americans or the Italians have got the communications mastered. There is muddle on their calls, uncertainty on who is making them or who is doing what. That’s because these big AC75 America’s Cup race boats are compromises. On the Yankee boat the best tactician is also grinding. The Italians have 2 drivers and 2 tacticians, switching roles – it’s not actually clear who is making the calls. For the UK, Ben drives and Giles has one job and one job only – tactics. 

It went horribly wrong for the Americans on Sunday. They have now lost all 4 of their races, and managed a spectacular capsize on the last leg of their final race trying to pull off a tricky bear-away the Brits had played to perfection earlier. They were unlucky a wind squall hit them, but also there may have been some confusion on board as a key rope, the backstay runner, wasn’t let off. The result was catastrophe. Whatever happened, they crashed violently, and put a big hole in the boat as critical equipment crashed through the hull. It may take weeks to fix. It looked horrible and dangerous, but none of the crew were hurt.

Regular readers will know I’m passionate about sailing – I’ve raced a succession of mid-sized race yachts over the years. I’ve had the great fortune to have some fantastic sailors crew for me on my yachts, and I’ve been blessed with opportunities to sail for other top racers on theirs. I’ve even won a few pieces of silverware racing “offshore” and “around the cans”. Over the past few years (since the unpleasantness involving cardio-surgery, infection and the massive heart-attack) I’ve scaled back my racing. This year I’ll not be taking part in the Fastnet Race – She-who-is-mrs-blain wants me doing up the new house. (But… if anyone needs a naviguessor I might get a week off for good behaviour…)

I’ve learnt more about teamwork and success racing yachts than I ever did in investment banking. There are lessons for the UK in the recovery and success of Team INEOS in NZ. The next set of races starts Friday. 

Out of time and back to the day job

Bill Blain

Shard Capital

billblain@morningporridge.com