Blain’s Morning Porridge – April 24th 2019 – Summer is coming…

Blain’s Morning Porridge  – April 24th  2019

“24 hours in a plane is less than enternity in hell, but at the time…  ”

In the headlines this morning:

I spent Easter week travelling – so I’ve a lot of catch up to complete. Today’s porridge is not so much an economic outlook or market commentary – more about some concerns I picked up in Australia..

However, my spidey senses,  the runes and other news flow all point to a generally “interesting summer” ahead. Probably not a good thing….

The political surface waters remain challenging. The horrific terrorist attacks in Sri Lanka highlights ongoing threats and gives politicians plenty to fulminate about in terms of security. A (terribly serious) 16 year old Swede has (quite rightly) caught the Global Zeitgeist on the environment and has politicians of all hues pandering to her. Even up the back end of Australia’s Hunter Valley we were bemused and disturbed by the climate protests in London (nothing quite as unreasonable as the English middle classes thinking they are being reasonable). The billionaire money flowing into Notre Dame left my generation Z daughter quite incensed. Layer on top interviews with strident young socialists from Washington, and predictions of how anti-establishment the European elections in Spain and the EU will be. London is going to be distinctly unpleasant in early June – we can only hope for miserable weather during the Trump state-visit to keep demonstrators from grid-locking London.

What’s happening under the political surface is more intriguing: how much longer can China delay a trade settlement? Can the US Democrats coalesce around common policy and a candidate to challenge Trump? (It’s looking unlikely.) Was the fire a divine moment for Macron? Can he re-establish dialog over Europe with lame duck Merkel? How will new lines develop in post May election Yoorp? Italy vs Europe over budget deficits is still on the cards – keep any eye on European bond spreads methinks.

In terms of markets, nothing seems to have changed on Risk Threat Board of imagined global slowdown, and the prospects of China/US, and US/Europe trade wars. Corporate earnings have failed to disappoint rather than excite, but such is the volume of money looking to work, that stock markets continue to rally. I’ve noticed a growing number of nervous nellies writing articles questioning “how much longer can this be sustained” in terms of “overly tranquil” stock market gains and false limited volatility. Gold at a seasonal low always makes me antsy.

I predict a hot stormy summer ahead.

Australia was interesting….

I am really struggling to understand how the Australians get away with it. It’s a stunning place. Staying with my daughter Jenny on Bondi Beach was any eye-opener to a different life. Every morning the cafes were full of bright young Ozzies ordering the national dish – Avocado Toast.. They all seem to be doing well – everyone with new phones and wearing the latest sports gear. The pavements are congested with yummy mummies pushing expensive all terrain prams. Everyone looks happy and is carrying a surf board. The Hunter Valley clubs and resorts were full of top end cars and the helicopters didn’t stop.

Yet, what struck me most was that none of them were actually working. We booked a surf lesson – and sure enough the instructor has a day job as a junior doctor. (In this country – Junior doctors do 80 hour weeks for years on end. In Oz, they go surfing…) Friends told us everyone “works from home..” I got told the story of one senior Australian fund manager who has been working from home for years, and no one is sure what she looks like any more.

Their general election has just kicked off, but despite trying quite hard, I couldn’t actually work out what the parties actually stand for in terms of vision or strategic direction. There was a lot of negative stuff; “he said, she said..”. The whole nation is riveted by the pension arrangements and which politician will ***k them up least. The main news leads weren’t about policy, but the latest candidate forced to pull out the race for saying something racist, LGBT-phobic or misogynistic, 20 years ago. It might be a big country, but they sounded small town politicians. And it doesn’t apparently matter – everyone is doing “awright”.

Does it actually matter? Australian works, people seem to earn enough to thrive. Poverty was a fraction of what I’ve recently seeing the US. On the other hand, over a few beers, and on being introduced to the tradition of the Sydney Brunch – there is definite fear.

The Oz economy is badly misbalanced and utterly beholden to China. 33% of exports go to China. Its their largest import source. The biggest sector is now tourism – and there are now more Chinese tourists to Oz and the UK, US, Japan and NZ combined…China tourists outspend everyone with over $11.5 bin per annum in Oz. While its slightly embarrassing to watch pretty young Chinese brides queuing for a wedding photo with the Opera House in the background, or shoals of them stopping traffic to get photos of Kangaroos, but they are the lifeblood of the Oz economy. The whole economy is increasingly dependent upon the China prosperity sphere. China owns much of the infrastructure, and over many beers chums told me darkly of pretty direct attempts to own the politics also.

What happens if they were to pull back – even a modest Chinese downturn and a spending freeze would hurt? It’s not hard to see why so many Australian market watchers are concerned about the economic vulnerabilities. When China slows, Oz runs the risk of stopping. Oz will be the canary in the coalmine if China does slow.

What are the risks of a China slowdown…? I’ll be putting something together in the next few days… and I’ll try strip out the hype and leave facts. Any contributions appreciated.

Full Morning Porridge service resumes tomorrow.

Bill Blain

Shard Capital