Blain’s Morning Porridge – August 12th 2019
“Not so glorious a day for the Grouse.…”
In the headlines this morning: https://morningporridge.com/stuff-im-watching
I blew myself up on Sunday…
While cooking for a bunch of pals in the back garden I opened the Big-Green-Egg and it burped! A fireball of superheated charcoal plasma/flame blevied outwards. The conflagration removed much of my already scarce hair and my left eyebrow. No real damage except to my pride – and very embarrassing. My chums are mining a rich vein of hair-loss and eyebrow memes and puns – Eye, Eye Skipper! Feel free to contribute. What really peeves me is I had a proper hair-cut last week… I could have saved my money if I’d known.
Markets – more of the same?
What have we got to look forward to in markets this week? Trade and Data sensitive, and FX led. The trend remains for very choppy conditions as investors try to balance how far to chase down bond yields as a flight to safety trade or in the face of likely central bank easing. They key factor remains data, and it’s all pointing to weaker economic numbers from just about everywhere. However, it does feel the race to lower yields has paused. Also worth listening to the comment flow from central banks.
I’m increasingly worried about Europe’s vulnerability. German data on Wednesday is likely to confirm Europe’s strongest economy contracted in Q2 – which puts last week’s UK slide into perspective. Germany looks week and defensive – and how will the EU respond if Trump decides to lash out on trade? It’s possible. It looks clear the China discussions are going nowhere. Even Trump understands zero sum game.
Time to bully someone else? What many analysts deride as “Incoherent Policy Decisions”, could equally be seen as considered probing of economic weakness. Trump sees a bulls-eye vs Germany. How many points can he score with his electorate? How Europe’s trade surplus with the US is growing – and Germany is 40% of that. The German’s don’t import much from the US, and they’re buying oil and gas from Russia! And the US is effectively defending them because of low defence spending! The temerity of these people!
The second factor to consider is trade rhetoric. Get over it. It’s happening – and it’s happening first in currency markets. Some analysts are fearful dollar strength will trigger further pain and thus a recession led out of EM nations – much as happened in the late 90s. The strength of the dollar is focusing the pain on to the US. FX is a funny old market – they say you can’t fight central banks, but currency intervention is a funny old thing – very difficult to do well or effectively. In recent weeks “currency manipulation” has become a theme – but there is precious little to be done about it in terms of further tariffs!
And then there is the equity markets – where do we go from here? Some of the corporate news last weeks looked weak. Much of it is company specific – such as Disney discovering its over-hyped Star Wars experience isn’t the must do “guest-experience” they anticipated! What is surprising are the scale of intra-day moves on bad news – such as Burford trading up and down through 50% moves on the back of a short-seller report.
The economic picture remains of slowdown, with a rising chance of a full blown recession as economies struggle in the wake of trade.
Meanwhile, the threat board is flashing amber again.
The first big threat is Italy.Deputy Prime Minister Matteo Salvini has been sporting budgie smugglers as he parades round Italian beaches to spread his message of peace and love.. (unless you an immigrant, refugee, feckless southerner, or supporter of 5-star). He’s confident his League can win. A new Election is likely in Oct, which means the critical discussion on the next Italy budget. Salvini favours cutting taxes, raising cash, spending money on the moribund economy, and challenging EU 3% deficit limits. That puts him on crash course with the ECB. What happens? Will the ECB decide to accommodate him – persuaded by the long-term decline in Italy metrics? Or how will the German’s respond.
Last week I got very mixed signals from Germany. For a while some political analysts have been telling me there is a good chance Germany will agree to fiscal reflation: partly because they understand the economic need, and also the political need to cement a post-Brexit EU together. But others tell me opinion is hardening against handouts, and German opinion is moving away from support for the ECB allowing other EU members to borrow.
All of which means Italy could trigger yet another bout of European wobbles.
Moving on.. Who do you think murdered Jeffrey Epstein?Trump tweets say it was Bill Clinton! C’mon.. the fact the new Monica Lewinski sponsored version of that Dress story will be shown 5 weeks before next year’s US election says it all. Best suspect I’ve heard thus far is Daniel Craig as 007 on the orders of Her Majesty – she’s very protective of No 2 son. Even George Clooney is supposedly in the frame this morning. Bottom line is Epstein’s death is just a little too convenient. I would love to know the truth, and in the US, the truth still finds its way out. After watching the old film of Trump and Epstein…..
And if you really want to scare yourself this morning try this from Evergreen-Gavekal – Debt-End. It summarises all the reasons to panic about the bond market. They are all issues we’ve discussed in the porridge over the years. I would certainly agree there are debt threats from negative yields distorting economic behaviour, the risks in credit markets being hidden and magnified by low yields, and the dangers of more and more debt.. I am looking at the corporate debt market and shaking my head in disbelief, just waiting for the BBB implosion…….
But I also think we have to acknowledge the opportunity states have to reflate their economies through fiscal policy. Raising cash when rates are high is one issue. Now its different. Rates have never been so low. Sure, there are risks in terms of inflation and asset collateral damage if countries start to run the money printing presses (which Europe can’t do). But there are also opportunities in terms of growth and upside from renewed social and economic infrastructure. The world is now so mired in the consequences of 10years of financial repression and failed monetary experimentation, there is little alternative but to try doing something new!
Blain’s Brexit Watch
Three stories sum up the reality of Brexit:
One is a Welsh Trailer Maker struggling to hire the staff it desperately needs to meet its burgeoning export book – which is growing as sterling tumbles and their excellent trailers become competitive in export markets.
The other was dinner with someone who used to compile the economic reports from business used by the Bank of England. The person confirmed miserable business sentiment across England due to Brexit – not just uncertainty, the fact its happening, but the damage being done to order books.
Another of my chums runs a successful business, but is seeing it under extreme pressure because of its European links. He asked a very simple question: “Can anyone give me any reasons at all how Brexit will improve my business”. He is very worried the Government’s promised support for small businesses – will be sucked up by the big firms!
UK SME’s need reassurance! There is a challenge for the Chancellor!
Meanwhile, Boris will apparently accept Leo Varadkar’s invitation to meet. Apparently the Irish will not budge on the Backstop.. so nothing changes. The realisation a no-deal is now the default on Oct 31 – rather than no-exit or an extension is finally dawning across the UK. I wonder if it is in Europe? If it is – and I hope so – then all it takes is a bit of give and there is a chance to find a new more acceptable solution to give the UK a negotiated exit. Anything that lets the UK leave, but keeps doors and borders open and time for everyone to adjust would be a massive win all round. UK remains a valued trading partner and market, and gets to be outside the political construct. Better for everyone. And for Europe, a deal with UK could be a plus… defusing the tensions bound to follow an Italian job…
Sadly… the reality is a bit like the weekend weather. Grey and blustery… and far too stormy!
And Finally.. .
Service might be intermittent this week. It’s Cowes Week – the greatest sailing regatta in the world. I’m only racing a few days this year because of work commitments – I am such a martyr! I already missed doing the Fastnet Race this year. It’s just possible the office TV will be switched to Cowes TV. If I don’t answer my phone.. try the mobile. I’m certainly in London Monday-Wednesday!
Even without my left eyebrow I was greatly impressed watching the Larry Ellison/Russel Coutts designed Sail F50 GP championship off Cowes y’day. These fantastic 50 ft fast wingsail foiling catamarans do 50 knots plus! 6 of them were racing up and down the Solent. Spectacular stuff – great capsize from the Americans (although they got their boat upright and racing again 20 mins later) but the Brits had to retire after they buried their boat and broke it. Ooops.
Australia nailed every race convincingly! The crews are top level sailors, comprising America’s Cup and Olympians. The boats are sponsored by leading brands. It’s clean sustainable sport – crewed by Athletes and powered by Nature! But, unless you are a sailing fan, you probably didn’t know anything about it. The national TV channels didn’t mention it or deem it worth of coverage! 10,000 spectators watching from the shore disagreed! Catch it on You-Tube.
Out of time and back to the day job..