Blain’s Morning Porridge – December 19th 2019
“Hard words are rarely useful. Real firmness is good for everything. Strut is good for nothing.”
What a great headline: Sweden raises rates to Zero.. I guess that sums up the year and the decade.
As we approach the end of 2020 and the end of the decade, markets are taking everything in their stride. Recession? What Recession? Slowdown? What Slowdown? Trade Wars? What Trade War? Short-Term Repo Crisis? What crisis? Normalisation? No chance… Global sentiment looks to be ticking up. Activity levels are rising. Everything looks tickety-boo… the World is settling in for a quiet holiday season and a New Year full of promised upside.
What a great year it’s been if you’d been sitting on bonds and stocks. Everything is up – except the part of my pension fund run by a pension fund.. which seems to be pretty much where it was despite all the fees I’ve been paying them… Might have to think about that next year… My personal investing triumph of the year has to be my decision to leave my SIPP (Self Invested Pension Plan) fully invested, and not dump all my positions in the expectation of a crash. There is a lesson there somewhere.
What could possibly go wrong?
Even politics looks to be quiet. Politics has been the driver of much market action through the last 10-years. Now, everything looks to be resolved. The Tories won a dissent-crushing landslide in the UK election. Last night’s impeachment of Trump in Congress – only the third ever, and the first of a one-term president is utterly, absolutely, and completely… Pointless? Irrelevant? A shame?
Everyone is going to be watching the US next year…
When it goes to the Senate for trial there is precisely zero chance Trump will be found guilty by the Republican majority. Polls in the US press would seem to show the whole Impeachment circus has not swayed a single voter among the deeply polarised electorate. All Democrats continue to believe the worst of Trump.
Republicans continue to.. Well what do they believe? A number of things; a) Trump’s their best chance of keeping the Democrats out, b) he’s the best chance of keeping the Republicans in, and a very few of them even believe the c) he’s a great president who is making America great again.
Everyone is entitled to their views…
Most Republicans I know will privately admit Trumps many and obvious faults – but argue they are irrelevant. They worry about the quality (and limited pool) of his advisors, the stories about son-in-law Jared Kushner running the presidential agenda, and the rumours of further scandals working down the pipeline. However, they get past their concerns by reconciling his behaviour with positive effects they ascribe to him – one of which is keep a “Republican” in the Oval office. Loathe him or loathe him, the issues he’s scratched are important; trade disparities, IP rights, and rattling his allies about Defence Spending particularly. Tax giveaway’s certainly help explain his popularity with some niches of society. His personal Jihad on immigration certainly plays well to many voters.
The Democrats are still refining their own confused agenda, but it’s not necessarily going to be one that American’s will recognise on their list of wants. As the Dems drift leftwards, their electoral plan for 2020 seems to as irrelevant to American voters as Labour became in its heartlands here in the UK just last week.
As one US economic commentator told me last week: if the Democrats had only engaged with Trump they would have discovered he’s a Democrat at heart, proposing massive infrastructure spending and programmes that would have suited them. That’s not entirely true of course. Democrats were unlikely to accept the complete unwind of Obama’s healthcare without a struggle, while their inherent social do-good-ery means they have to be seen embracing every aspect of the battles against climate change, gender discrimination, income inequality, tax fairness, and every other form of whatever fluffy -ism they wish to battle.. Nothing wrong with these topics – support them all myself, but… you also need to voice them in a way to get elected!
What happens next year in the US election is bound to impact markets through 2020. As I’ve written before, the battle will be fought in a very few key states, but can the Democrats make themselves relevant and turn around the likely result? Increasingly folk are talking about Mike Bloomberg as the compromise candidate – how can he lose if just chucks loads and loads and loads of money at winning? Would that be such bad thing? I have my doubts…
Bloomberg won’t solve the key issue at the heart of the US political problem; Gridlock.
And since every single commentator is talking about the US as the nexus for political volatility next year, I strongly suggest we look elsewhere….
Thankfully, it probably won’t be here in the UK. Despite all the noise about the impossibility of agreeing a final Brexit deal within a year, I reckon the UK will be quiet – unless of course Boris does something profoundly Boris.. which I’m told is a solid each-way bet.
I’m more concerned about Europe. Macron is being forced into compromise domestically. It’s the end of the Merkel era in German and its setting up for fratricide in the Bundesrat. Meanwhile the Poles and Hungarians are not being very good Europeans, while allegations of corruption are rising elsewhere in the East. Italy could well spring some well anticipated surprises, and who knows how nationalism in Spain plays out.
While everyone is watching the US, perhaps its time to be looking at Europe.
Five things to Read Today
FT – Bank of England to set up tough climate stress tests
FT – El-Erian – Investors rely on short-term supports at their peril
FT – Top-rated US companies raise record $129 bln in Euro debt
WSJ – House Debate Over Impeachment of President Trump Appeared to Settle Nothing
WSJ – SEC Proposes Giving More Investors Access to Private Markets
Out of time and back to the day job..