Blain’s Morning Porridge – April 30th 2020 – Promises Promises…

Blain’s Morning Porridge – April 30th 2020

“I dinnae think she can tak any more, Captain…”

I can’t understand why US stock markets didn’t hit record highs last night? What’s wrong with the Yanks? Didn’t they read Gilead Sciences report on a positive C-19 trial on Remdesivir? Surely that is worth a couple of hundred points up? Haven’t they listened to Trump describing Project Warp Speed and promising a vaccine available in just a few months? And, Tesla posted a profit when global car companies around the globe are in surrender mode. What’s not to like! Bring it on….

In the face of such overwhelmingly positive news – Markets should be Stratospheric.. (US Readers – Very Heavy Sarcasm Alert.)

What is real? What is not? What are hopes? What are just dreams? And, what is bona fide bunkum? That is the real story of this market – who will ultimately be the winners (a few), verus who will be the small, big and massive losers (most), and who are the fraudsters.

What is real includes Microsoft. Just a few weeks ago I wrote about how the WFH revolution will provide a massive boost to cloud adoption, revenues and growth. Microsoft reported the last two months have seen cloud adoption on a massive scale (59% growth over Q1) and digital transformation on a scale they previously expected would take 2 years! That is real – and why the stock sits in my portfolio.

What is real includes the Fed. Last night Powell made clear the US central bank stands ready to do more… to anchor markets. US Q1 GDP fell 4.8% – more than expected.  French GDP fell 6% – the steepest decline in history. European growth is expected to have fallen nearly 4% in Q1. In the expectation of a 15% decline across Europe this year, the ECB will be lining up another couple of notional trillion Euro to throw at QEI – Legarde speaks this afternoon. What to do? Buy more Euro debt to sell to the ECB!  That’s real!

What is real is Shell cutting its dividend for the first time since second world war – that will shock a few pals who were hoping to retire on it’s dividends. This is a major shocker and could prove the straw that breaks the expectations back! Its massive significant for real money pension and insurance funds. What is real is Hertz preparing for bankruptcy after missing a series of lease payments despite laying off staff.

What is not real probably includes the significance of the latest US National Institute of Allergy and Infectious Diseases (NIAID) trial of Remdesivir, the Gilead drug being trumped as a wonder cure. “Quite Good News” is not exactly a ringing endorsement, but you’d think humanity is saved! I feel sorry for Dr Anthony Fauci – Head of NIAID. You can see it in his eyes.. “Please get me away from these idiots.. they are holding my family hostage…” as he was wheeled into the Oval Office and the Emperor’s presence to make positive noises. At the same time another Chinese trial was inconclusive.

You can see where this is going. The markets desperately want to validate the recent gains by massively inflating anything that looks to positively solve Coronavirus and return the world they understand to normal. Meanwhile, the market is keeping its eyes tight shut to the economic reality.

Into a new category I shall call misguided hopeful bunkum is Trump’s Operation Warp Speed. He has promised to vaccinate most Americans by January… with a vaccine we still don’t have. Words… words..words. Trump believes success is measured by what people will think, not what he achieves. Throwing around precedents like the Manhattan project does not guarantee success. His own advisors (including Prisoner No 6 – Dr Fauci) say the best case is 12-18 months to develop!

(I would advise Boris to be very suspicious when Trump starts demanding preferential access to the promising UK Oxford virus project – remember how the Septics treated the UK after the last Manhattan project. The last 4 years has conclusively demonstrated just how much trust foreign allies should invest in the US presidency.)

What is in the hopeful category? It includes Wizz and Ryan Air. Both are planning to ramp up low-cost European flights from the summer and expect a rapid reopening of air routes. It might be problematic to go on a weekend City-Break to Prague if you have to spend 2 weeks in quarantine when you arrive, and another 2 weeks when you fly back..

However, the fact some of the largest Low-Cost-Carriers anticipate pent up demand to travel, for holidays and business, does strike a chord. It rather depends on how the virus pans out. If it’s possible to travel, I rather suspect Jozsef Varadi of Wizz and the oh-so-amusing Michael O’Leary of Ryan Air could be right. Planning a ramp up when other airlines are sacking 30% of staff (BA), cancelling nearly all flights (Norwegian), or begging bailouts (about everyone else) is a smart move. If the virus means it can’t happen, they can stand down. If the Virus allows it – they have a march on the market. (I shall resist – I am thinking flying Ryan Air is even worse that catching SouthWest Trains!)

Also in the hopeful category might be Facebook. Better than expected results, but it’s been warning about declining advertising revenue which could well bite much deeper into Q2. Got to think FB is in the same bracket as Netflix – doing very well because people turn to their screens in Lockdown.. but will it be sustainable… ?

And what is in the Just Barmy category?

One can’t help but be impressed with Tesla’s stand out $16 mm Q1 profit. (US Readers – Sarcasm…) $16 is a very very small number. (I am currently raising money for relatively unknown SMEs that make more profit than that from secure markets in which they dominate price setting and supply with secure demand in view – and they ain’t worth gazillionbillions!)

Tesla stock rocketed 10% on the news of its stupendously tiny profit – which was a gain in market cap of around $1.3 bln, or about 81 times the profit it made. Go figure…

Its only ever positive with Tesla. There is absolutely nothing holding the company back – except of course the “God***m Fascists” in Government Musk says are denying the rights of American consumers to make him rich. He is in line for a $720 mm plus payday under the terms of his one-sided stock options bonus plan.

Of course , expressing any doubts on the EV car maker means I am going to be trolled by Musk’s army of TeslaBot stock commentators. I bet someone posts something like: “I bought Tesla at $28, and then again all the way up, my last purchase at $600. I ain’t going to sell a single share till it hits $3000 – and all the numbers prove it will be there in just months.” Of course you did. What a clever little lying troll you are.

Line up the shills.

Although Tesla claims to have plenty of cash to burn… expect to see it raise more debt and more capital… The Teslaphiles will praise Musk for vision and smarts… A variation on WeWork this way comes….

Full Disclosure: I own Tesla stock – by accident. The day Musk is quietly locked away in a secure government facility for Sociopaths will be the day I start to take the firm’s prospects seriously. Whatever the trolls say, I know many institutional investors share that view. There is nothing wrong with the cars – but I think I’ll keep my Landy, and the F500 is much more fun.

Five Things To Read This Morning

FT – Remdesivir: Five things to know about the antiviral drug

WSJ – WeWork Troubles Take Deeper Bite Out of Softbank

WSJ – Coronavirus Turmoil, Free Trades Draw Newbies into Stock Market

Torygraph – Ministers in crunch talks on getting UK back to work

ZH – “The Truce is Over”: Trump Considering Ways to Punish China, Convinced Beijing “Will do Anything” to Make Him Lose Election

Finally.. I strongly suspect this London family will become the next sensation in the UK after the police told them to stop playing classical music in their front garden during Lockdown.

I’m pretty sure it will all end soon anyway. Yesterday I was in hospital – for a routine ultrasound. Back in March I’d been told the test would probably be delayed till the autumn because of the virus. On Tuesday I got a call asking if I was available – they are reopen for business. A chum who is an oncologist who was switched to A&E told me they literally chase any new case that comes in the door it’s been so quiet! The radiologist told me they hope to get back up to speed in days.

Normality is coming.. so back to the day job!

Bill Blain

Shard Capital