Blain’s Morning Porridge – 8th July 2019

Blain’s Morning Porridge  – July 8th 2019

“Taking more risk for a lower return and less liquidity is not a winning strategy.” 

In the headlines this morning:

Blain’s Financial Porridge Podcast on Website, or Subscribe to Audioboom podcastor go via Spotifyor iTunes(Other channels available from Audioboom)

Another glorious week of markets in prospect? I started badly jumping on the wrong train! I thought it was the London train because it came at the time the London train should… alas.. nope.. It was a London train but stopped everywhere like Basingrad, Wonking and Claammm.. SouthWest Rail is a harsh mistress….

What have we got to forward to this week?

The UK’s grovelling sycophancy towards the USA backfired spectacularly after a paper leaked exactly what the UK Ambassador has been telling his bosses about Trump and his administration. Trump is not happy. So much for the Royal Family having to host his recent State Visit. The really interesting comment was about the White House’s “incoherent” policies – which makes me wonder if Iran is testing Trump as it reveals it’s been enhancing more uranium than allowed, but is making overtures to a more open dialog with the Europe. They are clearly trying to drive a wedge between the US and Europe. If the UK is going to play, then the immediate release of Nazanin Zaghari-Ratcliffe should be non-negotiable.

And then these is Deutsche Bank. Shame, but all bad things come to an end. It sounds like DB is finally giving up. There are a couple of critical lessons; i) They should have pulled the plug sooner to save shareholders: no investment bank will succeed if the staff feel the management’s heart is not in it and that’s been a problem at DB for years. ii) The ongoing string of regulatory SNAFUs shows no sign of slowing, iii) With new Basel IV rules likely to crush the bank with yet more complex capital rules and costs, plus a massive new capital requirement.. The question is… why bother?

I’m trying to hook up a bank analyst to talk about Deutsche on my next Podcast – this week’s Blain’s Financial Porridgeis on the Website, Spotify and iTunes (see links above).

But first, the most important stuff this morning. I published a new book over the weekend – The Fifth Horseman. (The link takes you to the Amazon Kindle page.) Its a Polemic: who to blame for the ongoing destruction of the global economy. Most market histories are awfully dull affairs, so I tried to make this more interesting:

Hell’s Top Banker, TJ Wormwood, managed the global crisis of 2007/08. It’s been so successful he’s looking to extend the programme. His latest “wheeze” to keep up the fear and uncertainty is to introduce a new Fifth Horseman of the Apocalypse – “Financial Meltdown”. 

As revealed in a series of hacked emails to his boss, Wormwood has orchestrated a whole series of flawed polices and themes including quantitative easing, over-hasty financial regulation, austerity government spending, political weakness and populism. These have triggered all kinds of unintended consequences ranging from a complete rift between the deflationary real economy and the inflated bubbles in financial assets, rising wealth inequality as the rich get phenomenally wealthy while the poor are subjugated under crushing debt and the GIG economy percolating upwards, declining health and social wellbeing, protectionism and the end of Free Trade – which keeps governments distracted from growing environmental threats. 

And all Wormwood has had to do to achieve it is whisper in the right ears… 

Even better are some of the new policies he’s encouraging, like crypto, Modern Monetary Theory, trade wars and further regulation to crush market liquidity. The plan is doing very well – financial meltdown is on the horizon while fear, uncertainty and instability dominate activity. The only threat is the slender possibility mankind might work out how to stop it… and then he’s got an even better plan… 

The book is available on Amazon Kindle or Paperback. Bear in mind you get the Porridge for free most days, so for less than the price of a couple of pints The Fifth Horseman will amuse, inform and infuriate you! Please post a review if you buy it – there will be launch party soon!

Back to Deutsche Bank – 18000 jobs to go, pulling  out of equities and cutting back rates trading, focusing on corporates rather than hedge funds, $83 bln of “unwanted assets” into a new badder bank. The question is why did it take so long? Did management think the tinkering of the last 4 reboots in 5 years would have turned it back into a premier name earlier? If any DB readers want to give me the inside story, then anything you say will be kept in confidence.

Finally, last week we were talking about illiquidity crush a number of investment firms when they’ve held deeply illiquid securities. Although these may be money-good, the fact they can’t be sold in times of stress – and times of stress includes investors discovering a fund holds them – has triggered crisis at GAM last year, and Woodford and H2O this year.

There is a great story on Reuters this morning – Exclusive: Greensill issued false statement on bonds sold by metals tycoon Gupta.This is one of the securities that broke Gam.. and it’s a complex tale. I’m aware because I was trying to help GAM shift the bonds last year, but there was such a lack of clarity over a promised guarantee and a private call it was impossible.

However, the real story might be one for MPs and the Scottish Parliament to answer: why did Scotland provide a guarantee for the Aluminium smelter acquired by the Gupta’s through a convoluted structure involving linked family firms SIMEC and Liberty, when so few jobs were involved? It was an awful lot of money that saw a lot of fees paid out on a private deal. And who is the MP for the area..? Oh, it’s my old childhood chum, Ian Blackford, scourge of the government and leader of the SNP horde in Whitehall. Someone should be asking questions…. Does anyone have Private Eye Ian Hislop’s email..?

Out of time, and back to the day job..

Bill Blain