Blain’s Morning Porridge – March 25th 2019

Blain’s Morning Porridge  – 25th March  2019

“Why that’s absurd, the wing is on the bird..”

In the headlines this morning:

Spring has sprung, and it was a fantastic weekend – attached photo of she-who-is-now-Mrs-Blain driving the boat at full pelt across the Solent. What’s not to like about the world! What is this strange feeling? I do believe I am feeling mildly “bullish”. Think I better bang my head against a wall until my normal cynical bear mode is restored

It’s coming up for the end of the first quarter and its… not bad! Despite all the doom and gloom, the geopolitical uncertainty, the howls of imminent financial reset, the political anguish…. markets have been posting positive market numbers! Most assets classes are showing positive returns. I’ve been trying to check claims it’s been the most positive start to a new year since 1987.. (er.. those of old enough to remember will recall that ended up a very bad year, but hey, we’re still breathing!)

It’s all good news! The US stock market posting a very positive rally since the near rout in December. Rest of the world is following it up. Bonds look in fine shape – treasuries prices are up, credit looks resilient, while EM and Hi-Yield have produced positive returns rather than the spanking many investors expected. The central banks have been playing nicely: The Fed has declared itself a dove, the ECB shows no sign of scaring markets – only the Bank of England threatens to do something stupid when it warns it might have to hike sterling rates to defend the currency if the UK crashes out on Brexit.

Calm before the storm?

On the other hand, bond prices may be up, but Bunds are back in negative yield territory and JGBs close to it. The US curve is inverted – traditionalists saying this is a very very bad sign. (Actually, my chum Anthony Peters points out the 3month-10-year curve – the relevant one – is flat!) No matter! Investors around the globe are increasingly nervous of a coming recession. CIO’s are saying stuff like time for “an abrupt reassessment of the business cycle”, “the probability of global recession remains elevated”, “the tax giveaway is played out,” “employment may be at full capacity, but the economy feels tired”, or “signals all point to slowdown” – all from articles over the weekend.

Are they being bearish or just prudent?

When investors start thinking slowdown, they look at the US deficit, the problems in China, the on-going going nowhere in Europe and think: “they are likely to underperform, so lets put our money into the EM economies likely to outperform.. which are…?”  That burning smell will be their fingers..

Personally, I’d recommend putting cash outside the traditional financial asset markets – away from listed stocks and bonds, and into Alternatives – a wide spectrum of off market investments, including Private Equity, Venture Capital, but also direct lending, private placements and secured bonds. When you can achieve 7% plus in aviation, or nearly 10% returns in secured property investors uncorrelated to the risks QE unwind, or 8% in SME lending on a diversified basis, these assets illustrate much stronger return characteristics and less risk than just trying to not buy government bonds yielding near enough to zero.

For anyone who is interested in Alternatives, The March edition of Blain’s Alternative Asset Outlook is up on the website. Check it out on: Blain’s Alternative Asset Outlook March 2019

And, in this morning’s outbreak of positivity, you will note I haven’t even mentioned the geopolitical uncertainties like trade wars, Europe, Brexit, etc.


Later today Tim Cook will announce Apple’s new direction. To answer the question where is Apple stock going, you need to understand why it has done so well these past few years.. I reckon the reason for its ongoing success – unmatched by any other tech firm – is because it’s successfully captured all three 3 cycles of the ongoing tech revolution:

First; When Steve Jobs returned as Apple’s saviour, he relaunched the company back into the middle of the Computer Revolution – and seized the high ground through iconic design, and turned the Apple Mac and Mac-Books into status symbols. Unlike every other hardware manufacturer, Apple built and retained brand status.

Second; the company captured and held the second cycle – the Mobile Revolution. Not by being first, or inventing the smart phone, but by improving and creating (again) an iconic design to make the iPhone the phone everyone wanted. Again, it built and retained its brand status.

Third, Apple scored a major success in the 2000s thru the innovation of the iPod (a revolution in mobile music and storage), and then stumbled or progressed to iTunes (a revolution in the way music is sold), which gave them the concept and leadership of the App Revolution in mobile services). Apple has dominated the third Tech cycle, controlling App delivery and being able to reap payments from across the App ecosystem.

The three tech cycles (computing, mobile, and Apps) are now effectively commoditised – as Apple is clearly discovering with the iPhone in mobile. What is Apple going to do next? Everyone expects them to pile into the Content and Service Revolution – but that’s just a subset of the App revolution – providing services to compete with Netflix, Spotify (as it does through i-Tunes) and the rest. Apple apparently has great hopes for its Netflix-killer.

Compete is the key word here. Apple has won its previous competitions through brand strength and design. Can it win and dominate in the same way making films and TV and what other services it targets? The financial analysts say yes. I reckon it’s a risk. The only real durable brand in TV/Film content is probably Disney – as Netflix and Prime will discover to their cost.

Shard runs a fourth Tech cycle VC fund – Suir Valley. We reckon the next Tech revolution and cycle will be in the applications of AI, Virtual Reality and FinTech. Its already happening. What’s Apple’s plan in that cycle? Use its trillions of dollars to buy AI cars, design brand and innovate them? Or something more subtle that dominate film and games (a bigger industry than Hollywood) through VR and IR? We are way ahead of them already… call and I’ll put you in touch with the Suir Valley team!

This is worrying.. its 9.00 on a Monday morning and I’m still feeling positive..

Back to the day job!

Bill Blain

Shard Capital