Blain’s Morning Porridge – Sept 16th 2019 –

Blain’s Mid-Morning Porridge  – September 16th 2019

“Sand, Sand and more Sand.. no wonder they are so grumpy.. ”

In the headlines this morning:

Blain’s Financial Porridge Podcast on Website (Subscribe to Audioboom podcast or go via Spotify or iTunes (Other channels available from Audioboom)

Book: The Fifth Horseman – How to Destroy the Global Economy, is on Amazon in Kindle or book format.

Just like comedy, the secret of a market-jarring global shock is TIMING.. 

As Washington scrambles for face-saving evidence to pin on Iran, there are some pretty fundamental questions to be asked about the weekend precision strikes on Saudi’s oil facilities.

There are the obvious market effects to consider: While production might be swiftly repaired and resumed – the price spike is going to change behaviours dramatically in terms of energy trading and hedging.  While there is capacity to cover lost production short-term, raising the threat level will change price expectations long-term.  How quickly can the globe shift supply from the Middle East if this brews up into a full regional conflict?  How could China scrabbling for new oil sources impact prices?  The attack begs questions about oil inflation, global resilience to an oil shock, and has every analyst scribbling about his compares to previous oil shocks.  And an oil shock in the week the Fed meets to discuss another US rate cut? Interesting….

The success of the strike, (taking out the production facilities has been tried before, but never with such stunning success), cast doubts on both US and Saudi intelligence and competence. In terms of timing the attackers chose their moment spectacularly well.

It was a precision attack on Saudi’s regional credibility – and by extension on Trump and the US.  The competence of Trump’s buddy, de-facto ruler Crown Prince MBS is on the line. Saudi is the third highest defence spending nation at $69 bln, and ranks highest global spender in terms of 8.8% of GDP!  So why is Saudi doing so badly in the conflict with supposedly unsophisticated Houthi tribesmen?  Someone should probably be asking questions about what the recently arrived US forces sent by Trump and their Patriot missiles were up to.

Clobbering Aramco just days after Crown Prince MBS effectively sacked the respected oil industry veteran Khalid al-Falih and replaced him with a political ally and head of the Saudi SWF, looks almost prescient.  Without the proceeds of the Aramco sale – Saudi is in trouble trying to balance reform, growth and sentiment.  It’s a gift to any internal Saudi dissent.  This is a Morning Porridge I wrote earlier this year on Saudi and Aramco – bit out of date, but sums up the issues.

Even more interesting is going to be the reaction in Washington.  Trump immediately authorised the use of the Strategic Reserve, but politically, it’s been chaotic.  The Saudi’s have not said it was Iran, yet Mike Pompeo beat Trump with an immediate Tweet pinning the blame on Tehran.  He’s slimed and oozed his way to become Trump’s closest advisor. Now’s he’s trying to fill uber-hawk’s John Bolton’s shoes (the National Security Advisor sacked last week).

Let’s assume it was the Iranians – and they know just how dysfunctional the White House has become.  Brilliant timing – unbalance Trump as he stumbles trying to replace Bolton.  Moments after he sacked Bolton, Trump had been tweeting about meeting Iran’s leaders in NY at the UN meeting.  Now he claim’s the US is “locked and loaded” and will act when it’s verified – which means Pompeo’s claims were premature.  The Iranian’s will be betting Trump will talk tough and do nothing.

All eyes on Oil Prices today, and what comes out of Washington. Messy doesn’t begin to describe it.

Elsewhere I was going to write about the slowing Chinese economy – worst industrial production numbers in years, and the risks of fiscal reflation in Europe.. but these can wait for tomorrow.

Meanwhile…  back in the UK…. 

Boris goes to Luxembourg to meet Jean-Claude Juncker. What a treat for them both.

I found myself watching the Last Night of the Proms on Saturday Night.  Great fun.  What was very interesting was the flag ratio in the Albert Hall.  Lots of entitled sorts in the front rows and on the floor, wearing European Union hats and waving European Union flags. I’d say they outnumbered the Union Jacks about 3:1.  Then the scene went to the Proms in the Park from London and Swansea – and the ratios must have been at least 10:1 in favour of the Union Jack.  Nary a European flag to be seen.  6000 posh folk paying £100s for their tickets in the Albert Hall want to remain, while the 120,000 mere commoners attending the free concerts are happy to wave the flag of their country…

No point in mentioning Scotland – a sea of Saltires (The White on Blue St Andrew’s Cross).

Out of time and back to the day job..

Bill Blain

Shard Capital