Blain’s Morning Porridge – 19th November 2018

“Mon Centre cede, ma droite recule, situation excellente, j’attaque..”

Oh No…! its Monday again.. So soon?

In the headlines this morning:

What have we got to worry about? Short week in the US due to Thanksgiving on Thursday and the start of the consumption season kicking off on Black Friday when millions of us will spend money we don’t have on stuff we don’t need. The best we can do in Europe is Beaujolais Nouveau… if anyone else remembers that particularly good reason for leaving Europe’s wine lake to the Europeans, let’s spare others and do a bottle at lunchtime Thursday?

Back in the grown-up’s World, you wonder why we bother to get out of bed? Back in October we had nothing to worry about. Excellent economic outlook – the US president pump priming the economy with tax bribery, solid global growth, excellent corporate earnings and a smug smile on the market’s face.

Here we are in November, and the market is miserable. We’re seeing the ante upped on US-China Trade tensions, the UK Brexit farrago deepens, rising doubts about where the US economy is headed next year (as expectations of the Fed’s tightening path diminish), the Tech stock darlings are about 10billion percent lower, while doubts about French and German political stability are stocking the fears of populism for next year’s EU elections, and Italy is preparing to take on all comers. Even the Times of London has noticed Apple Stock is about 20% lower… so it must be serious…

Equity markets look soggy, and all the noise about corporate bonds suggests serious trouble ’t Mill.


Time to get your buying boots ready. At some point soon this market is going to be a screaming buy – but a selective one.

Brexit is the easy one. We hear the Minister for the 18th Century (Moo-og) has 42 of the 48 votes he needs for a no-confidence challenge on May. What’s his alternative? They seem to be misjudging the mood of the nation – which is “you guys have a made a dogs dinner of the negotiations, but lets just get it done.” And then there is still parliament to worry about. No wonder market is nervous. But, when it’s done, it’s going to prove a Millennium Bug event – what was all the worry about? Massive relief rally in sterling and UK inc!

Stocks and bonds look more problematic. Market volatility is a marvellous thing. It scares the nervous nellies into distressed selling, making the markets look even more attractive for the brave. The question is what differentiates cheap-skate bottom fishers versus sophisticated investors who see a new trend?

The trick is to spot what that trend is going to be. The trend of the last 10-years has been multi-fold. Two I’d note would be: i) the distortion effects of QE and effectively zero-cost money, ii) “belief” in the new-new thing – allowing a whole range of improbable financial hopes to coalesce including the rise of the perma-loss company (where losing money to grow became a “good-thang” on the back of massively inflated expectations.) I am sure there are many other trends readers can suggest other trends that characterise recent years; including the rise of populism and its effects on markets, the decline in corporate credit standards in search of yield, and the dumbing-down of market participants in the name of Algos, Hi-frequency, AI and graduate hires.

I suspect the new direction will likely include a strong dose of common sense – hence the bite back on tech and recent focus on value dividend stocks, and a refocus on fundamental credit quality, earnings outlook, and fundamentals.

Is the Age of Financial Realism upon us?

I’ve long argued that QE and its associated distortions have made the listed stock and bond markets far more lottery like – real returns are more likely to be made from real assets. I’ve focused on deals linked to the performance of real assets – like infrastructure, transport, energy and such: garnering real risk returns from real assets that real people us (and pay for). At some point I’m going to relaunch my bi-monthly Alternative Asset outlook – looking at current deals. If you’d like to be on the distribution let me know (professional investors only.)

Check out the website for links to a whole series of stories on current markets. There is particularly good one from FT about UK property market that should set hearts a flutter – if the one-way up UK property market has stalled, then we really are in trouble… Or do cheap prices today represent a buying opportunity!

Out of time and back to day job..