Blain’s Morning Porridge – January 27th 2020
“Woke Capitalism: Get Woke or Go Broke.”
At the start of a new week we’ve got Coronavirus, Deutsche Bank looking stupid again, Woke Capitalism and why Earnings should scare you.. But first.. is it Killer Snake or Bat flu? If nothing else, the virus is distracting US viewers from Bolton’s likely damning Trump testimony in the impeachment trial – the fact the US president won’t lose his job being possibly the least unpredictable thing going on out there.
The headlines are flashing red about the Wuhan Coronavirus. Why is it causing such market angst? Nikkei down 2%, and safe haven trades flying! The numbers are rising quadratically in terms of deaths and infections – it’s beginning to look like an epidemic.
Over the weekend there was lots of email and text traffic on the virus. Some correspondents were wondering why a virus that seems less dangerous than SARs with a mere 3% mortality rate largely confined to infirm elderly patients is raising such a hullaballo? It’s a fair point – compared to the flu viruses, which dispatch more than a quarter of a million mainly older global citizens each year, the current numbers are tiny. SARs 17 years ago had market and economic consequences out of any proportion to the 800 deaths blamed on it. The optimists point out how we’ve lived side by side, and feasted upon, wild animals for hundreds of thousands of years, and its only very recently our proximity to these reservoirs of unknown viruses has been reduced.
That’s not the way the medical authorities view the risks – they focus on the unknown dangers: the possibility we’ve never been exposed to this before, and there is no long-term genetic immunity. We need to model and understand it, because there is risk this virus could mutate to make it more infectious and deadly. There is lack of clarity on the vector (more likely to be bats rather than snake meat), and the unknowns on just how contagious this may be in terms of carriers and sufferers. There are also questions on the virus’s effect – the great flu of 1918 tended to strike and kill the young and fit rather than the elderly who may have acquired immunity earlier, and left a significant number of patients in a persistent vegetative state.
In the face of the clinical unknows and the defensive response of governments, there are those looking at the real economic consequence of over-reaction/prudent precautions. The immediate financial implications of closing borders across China will be painful in terms of the effects on travel, trade and business – and likely international barriers. Global supply chains may get a short-sharp shock, especially in agribusiness. The immediate financial effects of shuttering Chinese production for a week by extending the lunar new year holiday will be significant.
Finally, we are also seeing social media full of rumour and sigh: stories about how the Chinese government are hiding 90,000 infected patients, how the death tolls are far higher, how medical supplies are running out, they have less than 2 days supply of Haz-Mat suits, and how anti-viral treatments and interferon are having no effect on the disease. The rumour and sigh isn’t helped by the fact we know local authorities sat on the virus news for weeks, trying to pretend it wasn’t happening. If the disease has a 5-10 day gestation, why are we only now seeing deaths and infections balloon, when it’s been around since December? Something doesn’t sound right.
Fuelled by conspiracy theories, the agenda on the fake-news sites is pretty apocalyptic. The rather panicked Chinese chief medical administrator on the news last night didn’t help. It’s a chance for right-wing libertarians to pile into the corruption of the local party level in China, alleging it’s the local party apparatchiks who’ve been taking bribes to keep bush-meat markets open and then failed to respond.
Whatever the truth about the Wuhan Coronavirus, it doesn’t matter if it’s actually just a statistical short-term anomaly compared to a normal flu – it’s having an immediate effect on real business, and is therefore impacting markets. It’s shaking confidence. The fact we know so little about it adds an extra level of uncertainty, which is then squared by the disparities between the official announcements and the strung-und-drang of social media fake-news flow.
The fact it’s a no-see-um that occurred just when all the market charts suggested some kind of top – as I predicted last week in Meltup to Meltdown – is kind of spooky!
Watch this space..
I was out to lunch on Friday with a very senior and famous City figure, and we ended up talking about Deutsche Bank. Our conclusion was it’s unlikely to find a route back to market relevance, and it’s almost inevitable it will be swallowed up in a domestic merger (despite last year’s failed wooing of Commerzbank), or simply vanish in a puff of logic. We got on to speaking about why the German’s are such brilliant engineers but such hopeless bankers – we concluded its probably genetic, but also because of the insularity of each Lander, the lack of single financing hub, a suspicion of Anglo-Saxon business, and political factors.
So you can guess I laughed my silly when I read on Saturday morning the latest wizard wheeze to restore Deutsche Bank to the top flight of banking is to appoint a former politician with zero banking experience who got squeezed out in the last round of Bundestag musical chairs. (And it doesn’t help they will also be fined for bribery in Saudi Arabia – who could possibly have guessed paying introductory fees to The House of Saud was illegal? (US Readers – Sarcasm Alert.))
If any readers can suggest a single reason why Sigmar Gabriel, a one-year Foreign Minister with a passing familiarity in the economic ministry, is going to turn-around Deutsche Bank as an NED because the regulators didn’t like an experienced banker from a rival in the seat, please explain. I shall print the best replies.
For years International banks have been milking the foolishness of German politicians in finance. Landesbank appointed local political worthies to positions of power, and the big American firms exploited them. If you couldn’t sell it to a real account, well that’s why the American banks all had the Landesbanks, Union Banks and others on speed dial to buy the latest unpalatable banking toxic waste. Sounds like nothing will change.
The best definition of Woke I’ve heard is from my daughter, who slightly shocked that neither I or her stepmother didn’t really understand the concept, defined it as: “The right to be offended by the opinions of anyone else about anything, while being equally offended if they are offended by your opinions.” I think that seems to sum it up pretty well.
I consider myself a Woke victim: displaced from a semi-regular BBC slot for being pale, male and stale, and then, according to my inside chum at the Beeb, causing shock and horror for complaining – therefore confirming my non-wokeness. I am sure the viewers haven’t noticed and are delighted a pretty young Indian girl rather than a fat angry Scotsman is regaling them with insights into market moves. Oh – guilty of half a dozen Woke fails in a single sentence… (deliberately…)
However, I digress.. The future is apparently now about Woke Capitalism. Be Woke or be Broke, is the latest catchphrase as cigarette companies, betting companies, oil majors, thermal coal miners, and diesel car markers all line up to demonstrate their Woke credentials. You can put lipstick on pigs.
US Earnings and Stock Markets
Very simple question. Why are stock markets so high? A) Because companies’ future earnings are undervalued. B) Because global economic prospects are so good. C) Stocks offer better relative value to other financial assets. D) Some other reason..?
Five Stories to Read this Morning
FT – Stocks and oil slump as mounting virus fears drive sell-off
FT – The next bust may not come soon, but it will hurt
NY Times – It May Be The Biggest Tax Heist Ever. And Europe Wants Justice – Cum-Ex
Bloomberg – Populists Humiliated in Italy Vote
WSJ – Bolton Claim Ties Trump to Aid Freeze
Out of time and back to the day job
Bill Blain, Strategist, Shard Capital