Blain’s Morning Porridge – Dec 2nd 2019

Blain’s Morning Porridge  – December 2nd 2019

“Policies in, policies out… I doubt anyone will actually notice…… ”

I am going to send a case of Islay Whisky to the UN climate change conference in Madrid. I find it’s the most efficient lubricant and sharpner for the Brain. They have a problem to solve, but I have a starting point for them: Climate Change is basically about excessive population growth. If we want to slow population growth, there is absolutely no disagreement you can do that by improving Educational Opportunities, ensuring the sound Rule of Law, and raising Living Standards. Make it happen.  And do all the other stuff as well… including carbon neutral targets and mapping how to achieve it.

Back in the markets – Medium to Long Term

This is probably the last Big Week for markets this decade! The game through to Dec 1st will be to avoid compromising this year’s surprisingly substantial gains, and focusing on how to play the pitch when markets surge open again in January.

There are two entirely predictable schools of thought for next year:

A) There is still too much money sloshing round financial assets, and compliant central banks that will continue to pump in yet more too much money to avoid anything that looks wobbly that might destabilise the too much money financial asset economy. If you buy this scenario, the strategy is buy, buy and buy some more…

B) Or, some “no-see-um” idiosyncratic event or global slowdown is going to destabilise the whole market driven caboodle. Prices will come crashing down, the bubbles will burst – bond yields will rise, zombie defaults will be unstoppable, illiquidity will leave investors no choice but hit distressed bids, while equity markets will rattle like dried peas in a hollow gourd. In this scenario, the strategy will be to wait, then buy, buy and buy some more.. The only question is when to risk holding returnless cash…

Personally, I’m going with something a bit different. I’m still writing my year end strategy note, but it will argue the 2020s are going to be all about sustainable investment.

The defining strategy of the 2010-2019 market was riding the monetary policy mistakes which pumped money into financial assets – it was a brilliant game for those who played it well.

The last 10-years were largely about denial of rationality by piling on risk in what looked to be risk-off markets, holding your nerve in the face of improbable market gains, all of which required a long-term suspension of disbelief.  Do these three things and you did well! It really didn’t require that much skill – just the understanding of why Central Banks could not afford to stop juicing markets via flawed monetary policy.

The next 10-years is going to be very interesting.  Central Banks have smelt the coffee and know it was all a mistake. Fiscal policy is a dangerous thing in terms of unwise government debt loads and badly chosen spending.

Sustainability is more intriguing – it will embrace climate cure, but also seek to invest on a rational basis across markets to create a more stable, just and fair social and economic base – hence my earlier comments about Education, Law and Order, and Living Standards. I’m shocked how we seem to be regressing: our children’s generation starting their careers crippled by debt, nations burdened by civil service pension loads, and businesses run solely for the enrichment of the few.

The 2020’s are going to be very different as the excesses of the last 10-years are deconstructed. Sustainability is a grown-up version of the ESG card investors have been learning to play the last few years. It will encompass Climate Cure, but also the reality that you can’t sort out the environment if you stop investing in fuels, coal for steel, and keep the global economy expanding to raise living standards.

No reason it can’t be done better – and that’s my big theme for the next 10-years. Rational sustainable market solutions to the despair of the last 10-years and the environmental damage done by the last 200!

The Short-term 

The big issues to focus on this week will include:

· How much has Trade shenanigans stifled the global economy?  Will we ever get a deal? China are demanding T’rump rolls back tariffs, which is a no-no in election year!

· How much is China hurting? PMIs look stronger, but the stories on defaulting, cross-encumbered, zombie quasi state companies seem to be never-ending.

· Hong Kong rumbles on like a soggy firecracker that may or may-not go off. Taiwan is going to be “interesting” next year.

· How badly have the Democrats miscalculated the T’rump impeachment effort in the face of a suspicious American electorate? Does it spin the electoral calculus for Nov 2020?

· What happens next for UK election – will the Melting block of Ice be no-show shamed by Boris replacing it to do an interview with Andrew Neil? Will T’rump’s London Visit for the Nato meeting prove a disaster for Boris if T’rump says something “Positive” about him.

· What does the recent German SDP shunt to the left mean for Merkel’s final demented years? – The coalition might break down. Macro is smiling sinisterly….

· Ireland’s bond rating  was hiked to AA- by S&P. I’m pretty sure the EU is going to throw Ireland under the proverbial bus once Brexit is done, and they are likely to find little support from a Tory government here.

Sadly, most of these questions are of politics, and I simply don’t know…

The key piece of data will be the US Jobs number on Friday, with markets focused on the likelihood of whether the Fed will cut rates again in the new year. With the US economy sending strong signals – in terms of jobs and growth, it would only be the lack of inflationary threat and the strength of the dollar that would mitigate for further easy policy… but that’s far too logical an argument for a Monday.

Commuter Hell

This morning is the start of a whole month of strikes by South West train drivers. This morning the management cobbled together a service by putting high capacity local trains on the Southampton London route. It’s one level up from a cattle truck – and it was horrible. The seats seem to have been designed for Dopey the Dwarf’s midget brother – when you are my size, the seat back table was just too small for a laptop, and too close to my ample belly for comfort.

However, I spoke with the guard, and he confirmed what I’d previously heard – this strike is the rail drivers’ union demanding the guards are on the trains. The guards have been given enhanced roles as train managers and they don’t want the strike. Neither do most drivers.. but the RMT union does. I hope it costs Labour every seat south of Watford…

Porridge times during December might be variable because of the strike. On some trainless days I will be working from home, so it should be delivered on time. Otherwise when you recieve it will depend on such variables as could I get a seat to write it, points delays, a lack of carriages and suchlike.. oh the misery of it all.. Welcome to Advent – the season of goodwill to all men, except the RMT!

Out of time and back to the day job…

Bill Blain

Shard Capital