Blain’s Morning Porridge – Dec 6th 2018 – Trade war just started!

Blain’s Morning Porridge  – 6th December  2018

“Why So Serious? ” 

In the headlines this morning:

I think the Global Trade War is now a shooting war.

A few weeks ago one of my very smart CIO contacts warned me the real story of the year isn’t just the implications for supply chains from a Trade Spat, but a more fundamental “Tech Cold War” between China and the US for dominance. It’s a battle that will shortly reach epic proportions, force huge change in the global tech supply chain, and has massive implications for current incumbents.

Over this last few days, its all going off. The US, Australia, NZ and the UK have banned Huawei from new 5G systems over embedded spy tech and “security” issues. Now we learn that even as Xi and Trump were meeting, the CFO of Huawei was arrested in Canada for violating US sanctions on Iran! She is also the daughter of Hauwei’s founder.

I suspect the news will trigger a massive downtrade in stocks today. Brace, Brace, Brace!

The core objective of Trump’s trade war threats are to contain China’s becoming a technological equal and competitor after all its learnt from access and replication of US tech. If we see a full Tech War with lines drawn, then its potentially clobbers everything from Apple down. It means a choice between US Tech or China Tech.

“Made in China 2025” is the Chinese target of becoming the leader in tech, and avoiding just being a US manufacturing centre. Its happening – Hauwei’s lead in 5G is just one example.

More on this next week – but its going to be a massive story. Blade Runner anyone?

Meanwhile, story on BBerg y’day says it’s the worst market since 1972. Did you know 1972 was the longest year ever? 2 leap seconds were added (one in June and one in Dec), making it 366 days and 2 seconds long.

I don’t particularly remember 1972.. swimmer David Wilkie came to our school to show off his Olympic silver medal, I had a double digit birthday, Werner Von Braun resigned from NASA, the Vietnam war rumbled on and Britain went to war with Iceland over cod. But I don’t remember the markets so clearly.

Last year nearly every major asset class posted decent gains. This year everything looks pants.  Just like 1972! This year not a single major asset class has posted returns in excess of 5%. Treasuries and Investment grade bonds, Hi-yield, US, International or Emerging Stocks, real estate and commodities have all had awful years.. So much for retiring…

Of course, at this point someone will Samba onto the stage singing that Brazil stocks are up 17% in 2018! (A new populist president has had a positive effect..)

Or you could make the comment that over 2 years – 1 year is such an arbitrary number – even US stocks are currently up 10%. Why the long faces..? Over the last 9 years and 240 days… the S&P is up 294%! Wowser. Best not to forget the lessons of 2018. (Quick… what are they?)

The one area that interests me particularly is Residential – it’s the largest asset class on the planet – around $300 trillion, but it’s very granular – lots of tiny lots owned by individuals. Its also the closest in terms of relation to global GDP. Lets assume we get past these little hiccups in Brexit, trade wars, and a possible recession next year, and go back to the simple reality Resi is a rather effective way to track and beat growth.. Might be worth thinking about – while lots of funds are looking to exit “Resi” trades – might be time to go contrarian!

Finally, great article in City AM this morning. Give it a read!

Hard hats at the ready today.. Be safe.

Out of time..