Blain’s Morning Porridge – July 8 2020 – Madness abounds

Blain’s Morning Porridge, July 8th 2020 – Madness all around

“The hurrier I go, the behinder I get..”

I used to think the “believe 6 impossible things before breakfast” line from Alice Through the Looking Glass was one of the funniest things ever written. Until this year.. I’ve come to understand it’s a statement of simple fact for this corona-addled age. I really can’t believe just how confused, conflicted, unfocused and distracted the various threads of society are becoming.

While the virus is still lashing its way around the globe – hitting the Southern Hemisphere in winter – it does feels like its passing. Look for what happens in terms of new cases and outbreaks in Oz over the coming weeks for potential clues about a second wave to hit the North come autumn.

The Pandemic has become the defining event of the decade. As it eases, there are a whole series of unexpected releases occurring. Not just in terms of surprisingly strong snapback economic numbers due to 3 months of repressed consumer spending, but also in terms of bizarre behaviours as tension eases. As the global economy tries to rebalance after the shock, it feels we’re being deluged in a sea of delusional noise and madness..

Let me try to explain… without using the word “unprecedented”.

Stop for one moment to take a dispassionate look at what has been achieved through the last 4 months: The medical services coped – rather well. The scientists are innovating treatments, therapies and, who knows, maybe we will get an effective vaccine. Millions of key workers – the delivery men, the rubbish collectors, the shop workers and all the rest – combined magnificently to keep society functioning. The worst effects of the Virus shut-down on economies have been effectively mitigated by swift government bailouts, furloughs and support – avoiding immediate mass unemployment.

Of course, everyone will find something to complain about. There have been mistakes and failures. Here in the UK we delight in complaining about how badly the government has done and blaming everything on Boris. But, it’s been quite impressive how well the shocks have been absorbed. There will be consequences. The global economy has been bruised and battered. The cost has been enormous – and we’re not entirely sure how it’s going to be paid for.

Yet, as we come out of the crisis… take a look at the headlines. As the tension is released, pragmatism is out the window and the days of madness are upon us. It feels a little crazy – but I suspect we’re now in for a period of calculated noise.

Take, for instance, the Scottish Government declaring it’s going to set its own food and environmental standards in direct defiance of London. Its Nicola Sturgeon at her best/worst. She’s adept at playing any card to demonstrate to the Scots how it’s all England’s fault. Nicola is a feisty wee thing – and I have a reluctant admiration for her.

She’s had a great virus; looking calm, measured, sensible, ordered and pragmatic – everything the ill and shambolic Boris has not. As the Shaggy One stumbles.. she pounces by throwing out another pointless challenge. It sounds imminently sensible and reasonable – protecting the Scots from the evils of chlorinated chicken.

One of my kids asked why can’t we have her as Prime Minister? It’s an intriguing question – would she not have made a great leader of the UK? I sadly suspect her fate is to become leader of a very poor and divided independent Scotland at the cost of fracturing the UK.

Nicola’s success in Scotland should be a serious concern for markets. There is already a massive discount on UK Inc over Brexit/deal concerns. The threat of another destabilising Indy referendum vote – which she could well win – could be another nail in our economic coffin. Or would it? Sorry to be blunt… but England without Scotland? Such a bad thing?

Scotland without England is definitely going to prove a loser North of the Border though! If the SNP really want to leave the UK, the way to win it… is give the English the vote!

And then we have the Madness in Frankfurt.

Christine Lagarde in on the front of the FT telling us she’s going to focus the ECB towards buying Green Bonds because she’s been staring into the eyes of her children and doesn’t want them to blame her.. for whatever.

I absolutely believe we need to address climate change – but I was rather hoping we could get out this immediate crisis first? Let’s get the economy up and running, make sure everyone has jobs and a livelihood, then get on with the business of saving the planet. And I was rather hoping my elected politicians would be leading the charge – rather that a central banker…. But perhaps they do things differently in Europe these days…

Of course, what Madame Lagarde is doing is trying to divert attention from the EU’s farcical Euro 750 bln bailout fund which is still so far from agreement it probably won’t be executable for months. Which is too late for Italy. By throwing a green bond programme into the equation to distract us, she’s not talking about the real issues – which threaten a new Euro crisis.

And of course, there is still the issue of what is a green bond? The investment banks are having a wonderful time announcing their new Green Bond departments and appointing bankers to highly paid positions as Green Bond champions, but as far as I can make out about the only distinguishing feature of most Green bonds is that the prospectus says they are a green bond on the front page..

Green bonds work because banks have persuaded investment management funds they will look good from an ESG (Environment, Social and Governance) perspective if they buy Green Bonds. Everyone gets to virtue signal how green they are..

And naturally everyone jumps on the bandwagon… Great comment yesterday from 24 Asset Management wondering how a bank can issue a Green AT1 deal – as Santander has just done. Like them I am struggling to understand how any bank can segregate the capital it allocates to projects it decides are green, as against those which are black. And… it also looks like the bank will be using the proceeds of this new AT1 deal to payback a previous not-so-green AT1 deal.

Meanwhile, there is also genuine madness out there.. Folk are struggling. Mental health, anger and despair are going to come to the forefront in coming months.

Like the woman who jumps into a bramble patch to maintain social distancing – screaming as we pass by about keeping at least a kilometre from her as she’s shielding. Or the corona-nazis tearing the masks off pensioners while yelling about how the virus is fake news spread by agents of a Zionist World-Government conspiracy.

And there is the really sad stuff, like the child who is scared to go into the back garden because she’s picked up on the threat from watching CeeBeebies.

I suspect the next few months are going to be… noisy.

Five Things to Read This Morning

Politico – Why the Recovery Fund Won’t Work

FT – Lagarde puts Green Policy top of Agenda in ECB bond buying

Torygraph – Europe’s great plan is little more than political theatre

BBerg – HSBC slumps as US plans to punish HK banks

WSJ – Fed official warns COVID still poses challenge for Financial System

Out of time, and back to the day job!

Bill Blain

Shard Capital