Blain’s Morning Porridge – May 28th 2019

Blain’s Morning Porridge  – May 28th 2019

“Have you any dreams you’d like to sell…”

In the headlines this morning:

What was I smoking last week? It must have been strong stuff to make me think the already forgotten departure of Theresa May as UK Prime Minister might solve anything. Instead we start the week with UK and European politics apparently more polarised and fractured than ever before. My goldfish is standing for leadership of the Conservative party. I got hate mail berating me for not voting for Brexit… (I’ve been called worse than a fat-parasitical **** btw), and mildly miffed email’s from Liberals for not supporting further referendums.

It’s a mess, or so the papers say. Apparently, Farage is going to take a run at winning the next general election, while some think Merkel will now accept a European role so she can exit the Chancellorship with dignity…. Rumours, hopes and dreams abound.…

Step back, relax, and breathe deeply.

UK and European stocks barely moved. Government bonds tightened, and Greek bonds massively in following announcement of a snap election after left wing Syriza got gubbed at the polls. Italian bonds moved wider because of the rising threat of a war over debt with the ECB – not due to the election (although the result has empowered the League’s Salvini.)

The results of European elections were great news for the media pundits. They are full of contradictory bluster, confusing flibflab, political double speak and obstification from both a UK and Euro perspective. But, the numbers don’t actually count – it’s how they pan-out that does. In the immediate time-frame they will give the political talking heads lots to talk about, but little to say.

In market terms – what do they mean, and where do they lead us? No reason to panic. It’s just more of the same.. get on with it. The economic numbers in UK remain better than we might expect. Europe remains headed for recession. Italy was, is and remains the front and centre risk. Figure that one out. Globally? Who cares?

In the UK Brexit won the largest share of the vote, but the remain parties polled more overall than the leavers. In Scotland the SNP won the vote, but more people voted for remain in the UK parties. The Brexiteers are now arguing the scale of support for remain was biaised: remainers were incentivised to vote, while leavers, disappointed by the failure of government to deliver on the democratic result of the referendum stayed away in droves – although the turnout was high!

Compromise, pragmatism, and shared objectives don’t figure high on anyone’s agenda this morning as politicians posture for leadership elections, repositioning their parties, or bragging about how well they did and how this changes the “electoral landscape entirely”. Sure, how many times have we heard forgotten Liberal leaders say that? Win a bye-election, forgotten at the General.  In short, the Euro elections contain no solution to solving Brexit in the UK – I can’t see a majority supporting any solution in parliament.

Let’s not write-off the conservatives completely: the Brexit party was a single issue protest vote. It delivered a clear verdict on the tawdry failure of the conservatives in parliament, and spanked Labour for similar reasons. Historically, protest votes don’t translate to general elections or to constituency wins – which is why the Greens in the UK are unlikely to ever have many seats under our first-past-the-post system of representative democracy. I heard one suggestion this morning; Farage will accept a deal to merge his Brexit party into the Conservatives in return for high office – that would be…. not positive for a whole bunch of Tory-wannabees. (Who is Keith Malthouse?)

Europe is equally confusing – Anti-EU nationalists polled less than expected, but the diversity of results demonstrates exactly why Europe has never been a single polity. Different countries with different histories and objectives. The Right won in the East, turnout was high, and the strength of Green support suggests they are the long-term theme in Europe. There is likely to be considerable horse-trading in Brussels around successors for the EU top-jobs – which like all things European will be non-transparent and take ages.

It’s going to be really Interesting to see how this develops. How will Macron and Merkel set any kind of agenda when they are now backing different candidates? How will Italy’s Salvini demanding a seat at the ECB to push for infrastructure spending be rebuffed. Who gets the key presidency, council and ECB jobs? All kinds of names being banded about. At this stage, we have to wait and see how the politics develops. I suggest the trend to watch and think about is the Green vote coming together across Europe – that is very interesting.

My conclusion: don’t over-read the UK results, and don’t expect anything swift in Europe. Keep the focus on global trade, the China/US dynamic, US inflation and Bonds. Look to bonds for the truth… I’m more than slightly concerned imported inflation, the underlying strength and resilience of the US economy and growth, may upset markets when rates aren’t eased… Watch that space..

Meanwhile, one thing really got my goat this morning. I am becoming increasingly disillusioned with Linked-In. Its becoming little more than a window for folk to virtue-signal, post self-congratulatory tosh, and piffle about how well they are doing.

This morning it was, again, the Asian Infrastructure Investment Bank posting some nonsense about their forum in London to “engage” with the City and discuss vitally important common interests. All I saw in the glossy post were lots of expensive hired names – again ex-finance minister Danny Alexander was in the frame. They are there to give some bogus credibility, while the empty chairs in the photos and the bored Chinese officials sitting in the background to check their expensive hires stayed on message said it all. It’s no surprise to me the investment banks support and pander the AIIB – they want the fees. If China wants to engage in debt diplomacy, no problem! It’s their money. But it surprises me more folk are not questioning this kind of nonsense – Is it just me?

Out of time (and late this morning because SouthWest Rail is nearly as chaotic as politics..)

Bill Blain

Shard Capital