Blain’s Morning Porridge, Nov 9 2020: Business as Usual?

“No point worrying today about stuff we have to worry about tomorrow..”

Deep sigh of relief.. Now that’s done, let’s get back to worrying about other things! Markets look up, everyone is positive… and what’s to worry about? Oh, the virus, the election fallout, and all the usual stuff.

Will Trump’s “emotional-clone” Boris get an early trade deal from President-Elect Biden? It’s an elephant and the flea kind of story: dominating headlines in the UK, unremarked upon in the US. But, will the hope of an early White-House invite spur Boris to grab a last minute Brexit agreement? Could such hopes focus his Pandemic approach? Anything positive from the New Man in Washington will be win for the beleaguered Boris – and might make a momentary dent in the successive waves of negativity battering UK markets.

The FTSE and Sterling aren’t top of anyone’s wish list these days. Investors are circling like sharks – waiting for the moment they look cheap enough to take a punt on. Relationships with Europe, the US and the Pandemic’s double dip on the economy are the critical factors influencing day to day moves, but they don’t really describe what’s happening in the UK, a sense of deepening malaise and economic decay, government inertia, bureaucracy and policy failure.

It’s a combination of all these factors that are the real reasons the UK is fast losing its attractions attracting international investment, and is failing utterly to grow large new globally competitive companies.

I’ve commented often enough about the policy madness of negative interest rates and knock-on effects on savings and investments.  I’ve fulminated many times about the exploding costs of gold-plated civil service pensions and how they will bankrupt the rest of the nation. I’ve said many times the NHS and Education need not just a massive reboot, but a boot up the proverbial. I’ve looked in vain for any grown up policies designed to refigure and create growth across the UK. I’ve argued we can afford it with MMT govt spending – its worth the risk!

Ask these questions and expect a barrage of silence.

I’ve long tried to figure out why the UK seems to be in such long-term decline. London is the most vibrant and cosmopolitan City on Earth, the Square Mile still contains the brightest and best financiers, while the civil servants running the great offices of state are well trained and exceedingly clever.

What is going wrong? Is it our politics? Our entrepreneurial drive? Or what… And suddenly, it came to me in something of a lightbulb moment when I switched on the TV.

I was escaping the news by tuning into a programme about Cornwall last night. I love Cornwall – if I wasn’t a Scot, I’d be Cornish! It a place I can never tire of, its stunning, its wild and I didn’t need to watch Poldark to learn that. But this programme was different. It wasn’t the usual celebrity waffling on about her favourite beach or the best cream teas – but a proper in-depth dive into why England’s most stunning county is also its poorest and most deprived.

The presenter kept off the beaches and met real Cornishmen and women to discuss hopelessness, the unaffordability of housing, low wages, and poverty. It’s shocking to hear a man who runs one of the largest food banks in the country point to a beach on the horizon and say many of the local kids have never been because their families can’t afford to take them there. The only “jobs” now are seasonal and poorly paid – if you want a career, leave. There are some bright spots in China clay, but even resumed Tin mining will likely be at mercy of market prices.

It’s a question to be answered across the UK – how to make rural communities outside London viable. Cornish villages are largely empty – many homes owned by wealthy DFLs (Down-From-Londons), while the locals are living on sink estates, tin-sheds or they camp near work through the summer season. I admired the tenacity of the lads selling tacos on Polzeath beach, but at the end of the season they moved to Exeter.

The experience of Cornwall is being repeated across the UK – what is being done to ensure meaningful growth outside the London sphere? There is talk of rebuilding and creating jobs, but jobs are not rewarding careers. It’s not the fault of the Londoners their local economy has boomed since 1980, and buying a delightful little cottage close to Padstein is relatively affordable and doesn’t cost much more than the lease payments on the Range Rover they bought to get them there for the weekend.

This is relevant to markets because its opportunity, but its likely to be an unfilled one unless government starts treating Regional Policy as critically important – favouring regional growth to expand the economy and give meaning to millions of regional workers. Whatever government does with one hand, it chokes with the other – and experience I’ve learnt myself this year.

I’ve been trying to finance a new Metallurgical Coal mine. 90% of the investors I’ve spoken to immediately turned it down on the basis they couldn’t take Coal to their investment committees – “to difficult, they won’t touch coal.” I tried to explain how Met Coal is critical to manufacture steel, and digging it here in the UK is cheaper and saves carbon miles importing it from Australia. If investors actually did the analysis they would se how the deal ticks the E in ESG very convincingly – its environmentally positive.

It also ticks the S box – social. It would create 500 long-term well-paid jobs in a severely depressed part of the UK, bringing skilled careers to area blighted since the mines were closed back in the 1980s. The deal had the full support of local politicians, MPs and the bulk of the local population. But, after winning all planning consents and judicial review, it was effectively blocked. No one is going to finance difficult assets when there is no political will to do so. While Government wants to be green and create growth and jobs, its’ apparently unwilling to face down Climate Change protestors, Extinction rebellion, and some NIMBYs (not-in-my-back-yard) who preferred the coal to be left under the Irish sea.

Its ultimately unsustainable. The UK won’t survive unless the whole of the UK thrives. The Coronavirus Pandemic has been a shocker which has accelerated inequality and division in the UK. The London knowledge-based, fine-with-working-from-home economy will have thrived, while Cornwall’s season hospitality sector has been pressured despite staycations.

Meanwhile… we have to talk about IT 

Sorry, but I can’t open the week the US election. Markets love a Biden presidency – apparently. I guess many of the problems we face here in the UK in terms of regional policy and growth are equally true in the US, but it will take time before they are addressed. There does look to be clear upside for markets: stimulus, green investment, infrastructure.

The question is whether a new Democrat government will be able to make any inroads into Americas’s problems?

The risks of long-term gridlock and factionalism are rising. Trump will fight the election court-case by court-case for as long as he can.  He will contest, delay and deny to the last. I’m sure he knows he’s lost, but he’s got strategy. Trump expects a tidal wave of support from HIS voters to continue for the next four years, constantly questioning the result, loudly, every moment of every day.

Most of all, Trump wants the Republican party to hear that support and noise – and be very, very aware its Donald Trump the masses think was robbed. Trump is setting himself as the kingmaker of a Republican party moulded in his image. That’s why Trump junior’s threat to Republican hopefuls in 2024 was noted. Its why senior Republican’s are staying very quiet about his refusal to concede as Trump rails against the “fraudulent stolen election.” He knows he lost – but why admit it? Decency and convention? Why bother..

Few senior republicans will risk arguing with Trump. Outsider Republican Mitt Romney hit the nail: “[Trump] is wrong to say that the election was rigged, corrupt and stolen – doing so damages the cause of freedom here and around the world, weakens the institutions that lie at the foundation of the Republic, and reckless inflames destructive and dangerous passions.”

The Chinese will love it. A divided America focused on a noisy verbal civil war. It begs the question – how should investment strategies on the dollar, US rates and US companies be priced long-term to reflect the growing imperfections of the Union?

I think it was the Greeks who first identified the major risk of democracy; over time it tends to benefit smaller self-interested factions, rather than the entire state.

Five Things to Read This Morning

FT – Renminbi bulls emerge after US election wobbles

WSJ – Divided Governments Are Supposed to Be Good for Stocks. The Data Don’t Support That.

Bloomberg – Biden Gets Muted Reaction In China With Trump-Era Rift to Endure

Torygraph – Trump faces a battery of legal cases on leaving office

Bloomberg – What Biden’s Win Means for Europe

Out of time and back to the day job..

Bill Blain

Shard Capital