Blain’s Morning Porridge – Nov 13th 2019

Blain’s Morning Porridge  – November 13th 2019

“Surely we should have clever people in Parliament?”… “Seems like a good idea, why don’t we try it?” 

November 13th

I’d like to start this morning with the obituary of Field Marshal The Lord Bramall, the UK’s most distinguished soldier.  From storming the beaches of Normandy in 1944 to the travesty of the utterly discredited police Operation Midland, Bramall overcame it all. But, perhaps the most challenging phase of his long career were the problems he experienced dealing with Defence Secretary Michael Heseltine:

“Heseltine’s lack of punctuality, and failure to keep appointments, infuriated Bramall. One day he snapped. “All my life I have been raised to think that you cannot lead anyone unless you respect those below you,” he told the abashed cabinet minister. “You so often treat people with contempt.” Bramall was equally unimpressed by Heseltine’s disdain for the complexities of military strategy. “I put strategy papers up to him ad infinitum, and he just wasn’t interested,” Bramall recalled.

How many of us who’ve spent our careers in finance are not familiar with similar discourtesy, lack of empathy and arrogance?  There is a life-lesson in there..


I’ve been writing the Porridge since 2007. I started in finance in 1985, and my career has been dominated by market moves, innovation, central banks, economic direction, and more recently political driven shifts. Through the whole of the Obama presidency I think I might have referred to Barak once or twice, and usually in passing. Since Trump came to power he’s been the single most dominant feature moving markets. Trump is a disruptor. 

Yesterday’s speech to the Economic Club of New York has been covered to death in the press – but the key takeaways are fascinating; renewed trade threats are just one aspect of how Trump is set to continue dominating markets:

First, forget last week’s much hyped “trade truce” – Trump is still lollygagging about he’s still wondering whether to make a deal, and how China are waiting for him to opine on their options. It’s utter nonsense. A trade deal is at best a 50/50 call. It’s something that could happen, but equally it might not.  On one hand, any trade agreement is subject to Trump’s mood. Markets moving on a capricious president’s whims and hopes of winning an election does not seem like a promising foundation on which to base long-term investment strategies.

The reality is a trade agreement/accommodation with China is not in America’s gift – it’s a two-sided negotiation between two empowered nation states. It is not for Trump to dictate terms on the basis of how it plays to his electorate – Xi and the Chinese increasingly understand.

Interesting to note the new BoA fund manager survey shows 50% of respondents are worried about the China/US trade war (39%) or a China slowdown (11%).  The reality is China dominates markets. Trump is the factor that can set it off. (16% fear a bond meltdown…)

Second, was Trump’s plea to the electorate via his Wall Street address – read all about it here. He can point to the S&P being 23% higher through 2019 – but we all know the level of the stock market sends a very strong signal of national strength which voters love, right up to moment they still lose their livelihoods. In reality a booming stock market means diddley squat to improving the lot of the electorate, and that is clearly biting in the critical rustbelt and agri-states where the next election will be won or lost.  If the Trump dividend is not filtering down to the electorate, he’s in trouble. That’s why the Democrats are playing to income inequality and the tax-the-rich agenda.

The third issue is how unstable US politics could yet become. If Trump sounded a little bit desperate to please his Wall Street Audience yesterday, he still has to appease his own party even more. The impeachment hearings go public this week – but we all know Trump will only lose if his own Republicans disown him and vote against him.  That’s what happened to Nixon – Republican Senators saw which way the wind was blowing and chose Ford, a man who famously “could not walk and chew gum at the same time”, as a better choice to win the next election.

The choice in front of Republican senators is not complex: They don’t love Trump, they find him uncouth, unreliable, he’s not-one-of-them, but he has done well for them enacting tax cuts and putting pressure on the Fed to create a favourable economic boom. But he’s now a liability. They can wait a while – to see how the electorate react to the public hearings. At the moment the public distrust how the Democrats have handled the impeachment – thus far. That could turn. There is something classically compelling about who might strike the fatal blow – Et tu Giuliani?

What’s to stop Republican senators standing up declaring for indecent decency, pushing Trump aside, and letting Pence takeover? Then they can elect one of their own to step into the breach and win the next election against a disunited left-leaning Democrats? Interesting thought. Does it sound like something out of I Claudius? Keep a very close eye of the next few days as the Impeachment hearings progress. Watch for signs of the Republicans making a switch.

If the Republicans think they are doing well from Trump’s pumping of the stock markets, think how well they might react were he to go – and the chances of a real trade settlement rise dramatically!

Hong Kong

The fly in the ointment in such a positive US scenario might be Hong Kong. It feels close to ignition point. It seems the basic decency of the Hong Kong police has gone, and the protestors have turned hard-line. The city is divided – apparently even a mumble in Mandarin well get the speaker beaten up.  Something is going to happen – which could change everything.  Does China march in to restore order, to protect citizens, to support the police? And how will the west react?

5 Things to Read Today

FT – Events in Hong Kong reveal the thin veneer of civilisation

BBerg – Trump Threatens Substantially More Tariffs If No China Deal

FT – Don’t call time on the big bond rally just yet

WSJ – AbbVie Sells $30 bln of Bonds to Fund Allergan Purchase

BBerg – ECB’s Negative-Rate Tweak Shifts Cash from Germany to Italy

Out of time and back to the day job!

Bill Blain

Shard Capital