Blain’s Morning Porridge – November 14th 2019

Blain’s Morning Porridge  – November 14th 2019

“If voting made any difference, they wouldn’t let us do it…” 

November 14th

China and the US continue to dance around each other’s handbags to reach a phase one agreement – the Chinese will agree if there is tariff cancellation which Trump isn’t ready to give, and the talks are stymied over agriculture – where Trump needs a win. Who cares…? Details, just details. The market seems fine to reckon a trade deal is likely sometime… I’m not convinced, but let’s stay with the party…

I suppose the headlines this morning are all about Trade and Growth. China and Japan are clearly slowing. Germany had avoided full scale recession – 0.1% growth in the third quarter.. Wow.. and that’s the good news? Negative interest rates really work well then… Remind me what did the UK grow by in Q3? Is 1% year-on-year growth bigger? I think you will find it is.. just saying..

Of course, Germany’s problems are all about what they sell to China and changing Automobile supply chains – so its not fair to say Germany has a major economic and manufacturing problem? Really..? The Chinese don’t need German machine tool engineering any more (Europe certainly doesn’t), and, as I’ve said before; the current Auto-revolution basically puts Germany in the same position as the Horse-drawn carriage makers of the 19th Century..  (Ouch..) Any economy based on the multiplier effects auto-engineering industries create is going to struggle – and that’s going to be as much a problem in parts of the UK as it will be in Germany. Its nothing to do with Brexit – its all to do with how the world is changing.

Streaming – Content is King

As the S&P flirts shy of another top (yawn), the big news was Disney hitting a new high after selling 10 million subscriptions to its Disney+ streaming service. That’s pretty darn strong – compared to how long it took other services to build the same base… I’ve been trying to load the new Apple TV app onto my TV, but apparently our 4 year old TV requires something called a Firestick to access it. So I guess I’ll would watch Netflix – if I could find anything worth watching, or Channel 4 repeats of Dick and Angel escaping to the Chateaux…  Charming stuff..

Disney’s success shows its all about content.. which is the theme of a new private deal we are leading in the “Music-as-an-asset” sector. We were out seeing accounts in Mayfair yesterday – but rather than bore them with a Powerpoint deck of slides, we slapped down the firm’s credentials in front of potential funders: 33 years of success contained in a 6-album presentation pack showcasing its core artistic talent over the years. I was hoping at least one of the analysts looking at the box would ask what the vinyl LPs inside were! But sadly not.. Music as an asset is now familiar across the Alternative investment sector…

Back in the USA… 

It sounds like Jerome Powell is on board with the new monetary scepticism, pushing back on further rate cuts as he reminded Washington the Fed is not there to juice the economy or otherwise do the government’s job – “The Fed should never be heard to commenting on trade policy. It is not our job… Our lane is the economy.” When asked about the effect of further tax cuts, he added: “It is really not our role to score or evaluate campaign proposals”.

It was a subtle reminder of the Fed has a “mandate of full employment, stable prices and moderate rates”. Addressing Trump’s calls for lower US rates he said it would be inappropriate in an economy where there is: “a strong consumer sector, we have inflation… you see negative rates larger economies at times when growth is low and inflation is low. That’s not the case here.”

Trump – An Update on Impeachment. 

I wrote yesterday that Trump’s future lies with the 53 Republican Senators. If 18 of them vote with the Democrats and the 2 independents, then Trump is out – it needs a 2/3 vote to impeach.  I’m fortunate in having some very good political contacts in the US – I’m reliably informed the Republican senators aren’t going to knife Trump – tempting though it might be.

I touched some raw nerves when I suggested the likelihood of a Republican mini-coup scenario: voting to impeach Trump and replace him for the 2020 with one of their own. Its certainly a “plausible” outcome, but at the moment it’s highly unlikely. I’m told the Republican senators think the evidence to make Impeachment stick just isn’t convincing enough – as it currently stands – to convince the electorate.  If a new smoking gun is uncovered – then the balance could change. As it stands, the mood within the Republican Senate group is that Trump went too far, but not far enough to warrant impeachment this close to a US election.

The senators are asking questions as to why Trump behaved the way he did, but also why Hunter Biden, the son of Democrat vice-president was on the board of a Ukrainian company known to be less than pristine.  Whether that is a fair question is immaterial – it’s the way the Senators think and vote that counts.

My sources tell me Republican Senators won’t vote for impeachment, but are more likely to pass the matter of Trump’s behaviours for judgement to the US Electorate in next year’s elections. They don’t want to be seen pandering to an anti-Trump campaign they think the electorate believes was spawned within the Beltway swamp.

Knowing the quality of my sources, I’m downgrading the likelihood Trump is impeached. Which means Trump is going to remain the dominant factor on markets through till at least November 2020.

At least it will keep markets… “Interesting”..

5 Things to Read Today

FT – Five market axioms that can no longer be relied upon – Mohamed El-Erian

Cirium – Expert View: The Impact of the Boeing 737 NG Cracks

FT – EU prepares tweak to Mifid market rules after industry backlash

BBerg – China’s Investments Growth Slows to a Record Low

WSJ – Impeachment Inquiry: Public Hearing Surfaces New Claim on Trump

Out of time and back to day job…

Bill Blain