Blain’s Morning Porridge – November 27th 2019
“You seem to lack answers as much as you lack belief in your policies?”
First – a Charitable Diversion
A great night at a Charity Dinner for the Tall Ships Youth Trust – a charity She-who-is-Mrs-Blain and I are delighted to support. The Trust has achieved spectacular success offering deprived inner-city kids a way forward by using sailing to bring out the best in them. Over the past 60 years, the Trust has taken over 117,000 young trainees to sea and unlocked their potential. The usual trick is to sail straight out into an Atlantic Storm, which soon breaks down any preconceived notions as the crew learns to work together. The programme works. We heard from kids whose lives have been literally turned around following their time on the Trust’s boats. Two years ago the Trust retired its Brig, the Stavros S Niarchos, and its now looking for £5 million to build a new boat – it will be money well spent.
The star turn of the auction was lunch on HMS Queen Elizabeth, the UK’s aircraft carrier. It went for far more than we’d budgeted – but we’re kicking ourselves for not digging deeper into the piggy bank. Someone I know well bid for the round at Trump Towers Turnberry. The Shame, The Horror! He has pleaded I don’t mention him by name… and since its nearly Christmas… I won’t…
Back to markets… UBER!
Lots of millennial gnashing of teeth yesterday at the thought UBER might vanish from London. I really don’t understand what the problem is? Give me a London Taxi every-time – courteous and know where they are going, and often cheaper. Last night Uber quoted £21 for a ride that cost £11 in a proper London Cab. Taxi and Mini Cab apps abound – it’s a very competitive market. When I was young, a mini-cab involved going to the very dingy office in a dark spot by the railway station where a dodgy dispatcher would offer us a smelly, barely functional car home driven by chap with minimal understanding of English or the Highway code. I never understood how UBER turned that business into a Tech Unicorn worth billions. Turns out they didn’t. It remains unprofitable and will never likely be. What’s the fuss about?
Politics..
Sadly, I missed the Corbyn interview last night. I’m told it was…. Illuminating. It probably won’t have much effect. They say: “if you are not a rabid socialist in your teens and twenties, then you have no heart. If you are still a socialist in your 50’s then you have no head”. It’s unlikely many of the millennial voters who could decide this election would bother to watch old fogey Andrew Neil interview Jeremy Corbyn, and the older generation who did all have heads.
Trade
Meanwhile… The mumble-swerve from the Oval Office says a trade deal with China is just around the corner. The Chinese confirmed talks took place, but on a fairly limited deal. Trade talk has dominated short-term market moves for too long – the long-term reality is going to be a very different global trade landscape, and a very much more confrontational US/China line.
As the US will be closed for Thanksgiving tomorrow, and we’re into the Christmas silly season next week, the markets are effectively winding down for this Decade already. Gosh, it feels like it was 2009 just yesterday. Stocks are at record levels and bonds are holding their recent gains. Where do we go from here?
I’m in the early stages of writing my Market outlook for the coming Decade – forget any of this short-term yearly forecast nonsense. One of my major themes will be growth. As China continues to slow – as shown in the morning’s slowing number, the real issue will be how future global trade develops. Although China manufacturers and businesses are clearly struggling with the effects of slowdown, (profits are down nearly 10% y-o-y across Chinese industrials) it would be wrong to characterise this as a long-term China lose. It’s short-term, and will drive China down new trade routes, domestic consumption, and particularly a Tech split with the occidental economies. The consequences… are wide-ranging.
ESG
Regular readers will know ESG – Environmental, Social and Governance – standards are something I frequently rant about. Its not because I don’t agree they are vitally important, they are. I happen to think they are a bit obvious. I would never countenance investing a firm with poor corporate governance; it’s a quick route to bankruptcy. Neither could I invest in anything will dubious social morality, which is one of the major issues I have with firms like Uber that exploit the unfairness of the GIG economy. I support anything positive for Greening the planet and curing climate damage. Environment is obvious – or is it?
We need to be pragmatic. It’s too much to simply ban any investment in fossil fuels. China is in the press because its restarted building coal fired power stations – despite being the largest adopter of Solar renewable power. It faced a power crisis if it didn’t – does the West challenge China on that, or accept its part of a long-term shift in the right direction? Or what about the amount of steel it takes to put a wind farm in the ocean – without Met Coal you simply can’t do it. I was reading a piece lately that you need to drive an Electric Vehicle some 200,000 miles before you neutralise its Carbon debt relative to a conventional car. Do we ban EV tech before it becomes more efficient – of course not. And who determines what is good or bad?
What should the rule be on Environmental investments? Pragmatism and need should be determinants. I can’t help but notice a few funds quietly buying up “Bad ESG” investments on the basis they may fail conventional ESG tests, but the discipline of being denied easy finance and the need to proactively manage their market position, perversely makes them better and much cheaper investments.
The FT carries and interesting piece this morning – Credit rating agencies focus on rising ESG risk. It explains how Moody’s is going to face ESG risks into ratings. Bad or Good thing? The reality is its probably a good thing – because we need to keep hammering ESG into investors skulls. Bear in mind – ratings are only opinions. I would use a rating that flags ESG concerns not as a reason not to buy a firm, but as a opening to discuss carefully with the management how they were addressing these concerns.
I can see an opening for a fund of negatively impacted ESG names where the fund managers have done the work to ensure the risks and threats are covered. Effectively, its another way to arb the market! The FT article is well worth a read!
Five Things to read this morning
FT – Beware the Dawn of the Corporate Dead
BBerg – Global Risk-Taking Binge Gives Central Banks Cause to Shudder
WSJ – Softbank Criticized by Investors After WeWork Wipeout
WSJ – Boeing Faces New Obstacle in Returning 737 Max Jets to Service
CNBC – Uber rivals mobilize as the company’s future in London becomes uncertain
Out of time and back to the day job…
Bill Blain
Shard Capital