Blain’s Morning Porridge – 5th November 2018

Blain’s Morning Porridge  – 5th November 2018

“It is very queer that the unhappiness of the world is so often brought on by small men..” 

(In deference to the past all opening quotes will be WWI linked this week…)

In the headlines this morning:

Tonight the UK celebrates not blowing up the Houses of Parliament. Guy Fawkes is celebrated as some kind of national hero. How easily we’ve forgot he was a failed terrorist and mercenary.

If there is one thing to describe the mood this morning.. its “speculative”. We can speculate on this week’s US elections, Brexit, Trade, Germany, Italy, Markets, Sentiment and whatever. As my wife snapped at me this morning.. “stop wasting energy worrying about it… get on and solve it.. or go back to sleep.”

It’s not easy being a strategist. Its much easier to be obscurely pretentious: “History looks back from the perspective of the present to the flow of events broken into fractal tributaries by the consequences of actions….” I read too much history.

I am clearly caught up in that “flow of history” without the proverbial paddle. I don’t have a clue where the present confused swirling current is going or how the slew of pressure points above will play out. But, no-one else does either..

I guess my job is to make educated guesses. (If anyone really knows what’s going on.. please share.) I shall predict/pontificate… Its going to be less bad than we think it might be, but less good than we hope.. (Warned you I was going to be pretentious..)

One way to approach this might be to try slicing and dicing all the component pieces. It might make it simpler. What’s the picture this morning?

· Warren Buffet buying back Berkshire Hathaway stock could presage many things – not just he can’t see opportunities or think of anything smart to do with the money. With the earnings season now behind us (meaning US companies can resume their buy-buy-back programmes), the worst month for markets (always October) past, and valuations looking less looney-tune, perhaps we’re in for a smoother ride to year end?

· Forget US recession. Strong wage inflation in Friday’s US payroll data confirms the Fed remains set on hiking rates.

· Trade tensions between US and China remain high. The market fears Trump was electioneering when he twitter-stormed about rapprochement with XI and the prospects for any early trade agreement signing in Singapore. Some form of settlement remains on the cards.

· Xi is on the defensive, talking up China as the champion of Free Trade – which seems a tad desperate. Its likely he’s looking for a solution. Another tick for settlement.

· According to the “briefed” press, the UK seems to be edging towards some kind of Brexit fudge – if we can just persuade everyone fudge is equals “statesmanlike” agreement… sorted. The market will likely remain volatile, but a final settlement that is “less good and less bad” remains the likely outcome.

· In Europe I’m worried about banks and the ECB, but the focus in on increasingly fraxious politics. I’m trying to follow the internal politics of the ruling German CDU – but can’t perceive any way it plays positively. Watching BTP yields, I think I understand the train wreck of Italian politics: the new govt knows it has to keep borrowing costs low so its experimenting with smiling sweetly, telling us they love Europe and the Euro, while  remaining utterly determined to fight Brussels and end austerity. That’s unsustainable, but, hey-ho, as long as they remain within the Euro fold … why worry?

The outlier is tomorrow’s Mid-Term US elections. Why are they so important? Because they will set the Trump agenda and mood till the next election (2-yrs). Its looking like he’s managed to draw back much on the Democrats perceived lead to take Congress. Depends what you read, but it looks in the balance.

The last few years have proved that pollsters aren’t as good as they should be when it comes to guessing results, and now the trends are peppered with false-news and voters who hide or just don’t know their preferences. So where are US voters taking us? We shall find out soon enough.

While markets are bound to love a few more years of Trump tax cuts and government spending, it’s also discounting the destabilising effects of a potential fracture with the Fed, Trump picking fights he can’t win, and all the other stuff the liberal wing of the market predicted he’d get wrong 2 years ago… Bear in mind; the worst case Trump scenarios didn’t happen then… and probably won’t happen in the next 2 years either.. but markets do like to anticipate the worst and scare themselves..

A couple of anxious days and then we shall find something else to worry about..

Sometimes the World just doesn’t make sense, yet works perfectly. I received yet another lesson in not overanalysing stuff and underestimating opinion over the weekend.

She-who-is-now-Mrs-Blain and I went to see the Freddie Mercury biopic Bohemian Rhapsody. To call the film poor, cliched, and steeped in rank compromise is overpraising it. It’s formulaic, written by committee (I suppose to avoid upsetting the surviving band members), predictable, and signposted in florid letters throughout.

Yet, its possibly the most enjoyable film I’ve seen in years!

On Saturday Night at the Movies we were was tapping along to every song. We laughed, we anticipated every set-up gag and line and we loved it. It was more than “Perfectly Adequate” as one review of “Night at the Opera” opined back in ‘76.

Back then, my school-boy pretentious tastes were for Prog Rock, West Coast Cool and Ironic Jazz (Steely Dan) – Queen was populist preening. Punk was still around the corner. (There is nothing not to like about the Ramones, The Stranglers and The Clash!) But these other bands weren’t even there or stole the show at Live Aid! (Can’t believe that was 33 years ago!)

Just goes to show… give the crowd what they like and they’ll love it..

I think Donald Trump gets that… and that’s why tomorrow’s US Midterms might still be a surprise..

Story links on the Website:

Xi on Free Trade

Buffet opts for buybacks

Pound Poised for Rally

Peak iPhone

Deutsche Bank – Great Risk at Great Discount

Hedged Fixed Income ETFs

GE Capital Calls Time on Commercial Paper

History shows bonds outperform stocks in the long run

Out of time..