Blain’s Morning Porridge – June 26th 2019

Blain’s Morning Porridge  – June 26th 2019

“France has no friends, only interests…”

In the headlines this morning:

When the Fed Chairman has to say he’s “insulated from short-term political pressures”, then you know his ears are bleeding from a full up-to 11 Trump rant. Apparently, Trump’s stooges have been sounding out other Fed governors for the job. Powell went onto say he remains sort-of dovish, which suggests he is paying attention. What do you do when you lose confidence in central banks?

The market isn’t convinced – hence y’day’s sell off. But it was still probably a smart thing for Powell to say – come Friday the market is likely to be very disappointed by a very lacklustre G20 meeting. From the mumbleswerve it sounds the best can be hoped for is that Xi and Trump meet and agree wording about agreeing to agree to resume discussions re reaching agreement on trade. Which means they basically agree nothing. At which stage the Fed comes in more dovish gibberish about easing due to worsening global financial outlook to stem a major sell off, and we get a 25 cent cut in July. Sorted.

If only it was always so easy…

I’ve been thinking about Europe the last few days.. And I am worried.. Yes, I know we are supposed to be trying to forget about our confusing love for Europe, (It’s us, it’s not you) and trying to pretend we are good Globalists… but I can’t help but think we are approaching something of a significant moment in terms of how thing are across Le Manche. Maybe it’s time for a rethink..? (I can just imagine my mate Anthony spluttering in fury into his tea as he reads this..)

The whole Brexit thing has been a god-awful mishandled mess. The polls tell us many in the country are now reconsidering whether we should leave at all. My Remainer friends (yes, I sup with both devils and angels) tell me we’d be utterly mad to be leaving the EU now, citing all the usual good reasons about them being our leading trade partner in an increasingly protectionist and uncertain world. They make a convincing case.

But, I’m afraid they are probably wrong. I am finally convinced that what I’m watching in Europe settles the question. I’m more convinced than ever we’d be mad to tie our future economic prosperity to what look’s an increasingly hollow and fraxious façade. I am not anti-European, but I think it’s about to go through a slow implosion. There is an increasing likelihood Europe becomes largely detached and delinked from the US and other Occidental economies, and irrelevant to the growth economies of the Orient. From a trade perspective, I suspect we’d be better off outside.

Let me cite some of my concerns.

The Brussels Brexit façade is cracking. The thing that caught my attention y’day was the Irish Finance Minister warning about 50k Irish jobs lost, government borrowing requirements going through the roof, and the economic flatlining of the Irish economy on a no deal Brexit. Hang-on, surely not..? The Taoseach, Leo Varadkar, has been amongst the most ardent Brussels supporters demanding harsh conditions from the UK. Maybe Boris or Jeremy should give him a call and talk about how to resolve the border issue. The bottom line – which everyone knows – is Ireland is more vulnerable than the UK. If Ireland knows it – so do others.

Then there is the ongoing economic misery across Europe. Most of the economy remains stalled – and there are signs it could get worse, especially in Germany if the globe slips into a protectionist recession. The fact Draghi is going to end his tenure in October with further rate cuts, reopening the QE asset purchase programmes, and still no inflation, says it all. Draghi deserves every credit for his political skills herding the ECB council into action and holding the Euro/ECB construct together.. but where does Europe go from here?  (Actually, here’s an idea… would Mario Draghi like Mark Carney’s job?)

Europe needs a common plan – but it looks increasingly unlikely and undeliverable. The acrimonious spat developing between France and Germany over the EU/EC/ECB leadership roles is going to dominate the agenda. Firstly, it should highlight to the rest of Europe’s leadership what bit players they are in the long-term German/France Game of Thrones. Second, it should be apparent to Europe’s electorate what a democratic travesty it is. It’s a power game between the two major powers, the others don’t matter.

Macron has rejected German candidate Manfred Weber for the Presidency, and the “Spitzenkandidat” process, which automatically gave the biggest party to commission president job. It’s a slap in the face not just to Merkel, but the Brussels Eurocracy. The temerity of the man! Suggest the parliament might actually choose? How un-European! I don’t see how not – none of the “Spitzenkandidat” has a clear majority.. but apparently the centre-right are determined their man gets the job! A battle is also shaping up between France and Germany on the ECB job – which is less than ideal. It’s going to get messy and a non-optimal compromise solution over this weekend will just deepen the resentments between France and Germany.

Which means the real European issue – solving the economic problem by pulling together a growth agenda, agreeing how to reflate deflationary economies, and preparing for Post-Brexit Europe are on the backburner.

Sorry to my Remainer chums, but we have overstayed our welcome, and really should leave now before our European hosts do a Boris and start chucking the crockery at each other..

Meanwhile, I’ve attached my latest Alternative Asset Outlook –

Out of time, and back to the day job…

Bill Blain

Shard Capital