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“Slain, after all man’s devices had failed, by the humblest things that God, in his wisdom, has put upon this earth””

After last week’s stock market ructions, my market spidey senses are tingling… https://morningporridge.com/stuff-im-watching

In the headlights this morning:

Saudi Arabia: forget the IPO and worry about MbS threating an oil war if the West doesn’t let him murder whomever he doesn’t like. $100 by year end?
Brexit: The next millennium bug? Very good interview on Andrew Marr show with head of Next outlined a no-deal will be less than optimal, but it won’t be a disaster. Lets get on with it.
Germany: Merkel’s affiliate party takes a pasting in Bavaria. Who is out a job first? Merkel or May?
Trumpland: It’s the Fed’s fault. “I know more about markets than anyone else..” Blahbity blah blah blah.. That man never ceases to amuse us.

Thought for the day: “It’s always about politics..”

Market Psychology

I’ve never met a stupid chief investment officer*, but market moves never cease to bemuse me. Market perceptions seldom reflect economic reality. The “group-think” that is the market’s collective mind doesn’t have the time to ponder the deeper implications of news and events – it spontaneously reacts to headlines. The group psychology of markets swings from profoundly fearful to over-exuberant in a heartbeat.

At the moment the mood remains profoundly negative – reflecting very scared traders. The stock market’s crash, the news flow, the IMF and others predicting a slowing global economy, Italy vs Brussels, Brexit – and its doom’n’gloom all round. A few bright spots of news, like Brazil, aren’t improving sentiment. The market believed we were doomed on Thursday and saved by Friday. This morning the coin flip says: “we’re all dead by Wednesday.” Risk-off then?

…click on the above link to read the rest of the article…

Blain: Will The Fed Hike Unleash The “Swing” Moment When Suddenly Balance Is Lost?

June 13, 2018

Blain: Will The Fed Hike Unleash The “Swing” Moment When Suddenly Balance Is Lost?

Fed, Stratospheric dangers, US corporate leverage and the greater competition to manage funds.

“Of all extinct life-forms, dinosaurs are the most popular. Why that should be is not clear… ”

All eyes on the Fed today. They will hike by 25bp to 2% – the 6th hike in 7 quarters. Slow and gradual. This is something of a one-off in terms of the economic environment – unconventional being the word. Easy financial conditions in terms of growth, inflation, jobs and the ongoing fiscal spending and tax boosts. Plus, we’ve got the positive sentiment effects of strong equity and real estate markets – when folk feel rich they feel positive! Plus plus, with the rest of the world still on negative or zero interest rates, then money continues to pour into Treasuries making the ballooning deficit a SEPT (Someone Else’s Problem Tomorrow). Asset prices are inflated, but still weakness in consumer prices and wages. This remains an “interesting” space in terms of the potential policy pitfalls, and the “swing” moment – when suddenly balance is lost and the centre cannot hold…

Perhaps the writing is already on the wall? I was slightly concerned to read the National Federation of Independent Business (the US SME organisation) believes: “Main Street optimism is on a “stratospheric trajectory” thanks to recent tax cuts and regulatory changes”. Stratospheric is often confused with ballistic. Stratospheric could mean its’ going into orbit, or simply that a ballistic launch will reach the stratosphere. Sadly, ballistic means the kind of trajectory Kim Jong Un claims to no longer be interest in…`

(Last time someone was talking “stratospheric” it was in relation to Bitcoin, and that’s not ending well. Final comment on ballistic trajectories….I note a headline about Telsa slashing salaried staff.. )

…click on the above link to read the rest of the article…

BIll Blain: “The Unintended Consequences Are Finally Coming Back To Bite Us”

February 12, 2018

BIll Blain: “The Unintended Consequences Are Finally Coming Back To Bite Us”

Fundamentals ok, Technicals corrected, so why we should still be nervous on what comes next for markets…

“If the apocalypse comes, tweet me..”

That was an interesting week that was…. but what a hangover we face! What happened to the global bull stock market? Just as the party was looking likely to carry on forever, the music stopped… Reading through market the scribblers this morning, the consensus seems to be it was just a correction, and we should be buying the dips. I’m always a big supporter of buying dips…. I’m not so keen on buying into a more secular decline.

Thing is, it feels there is nothing particular we can put the finger on as responsible for last week’s stock market ructions. Bond yields rose a bit, inflation has gathered a bit of momentum, and economic fundamentals remain generally positive and are expected to improve in line with rising growth estimates. There is little threat of an oil-shock. Folk have pointed out that with so much money likely to be invested in share-buybacks and special dividends by US companies repatriating cash, the stock fundamentals look positive.

Central banks remain hawkish re normalisation and higher interest rates – but modestly so. A world with moderate on-trend inflation, still low interest rates, and solid growth prospects should be positive. A screaming buy signal.

Others say last week’s pain was technically driven – on the back of a massive sudden and shocking unwind of “short-vol” trades. Others say if was due to AI driven algorithmic traders, while the FT carries a story about insurance companies dumping massive amounts of stocks, triggered by rising volatility, linked to “managed volatility” variable annuities.

…click on the above link to read the rest of the article…

Blain: “Here’s Why This Gets Worse Before It Gets Better”

February 9, 2018

Blain: “Here’s Why This Gets Worse Before It Gets Better”

Wobble continues. Does a Correction morph into a Crash?

“They would never evolve. They shouldn’t have survived.…. Evolution was something that happened to other species..”

Not looking like a positive morning out there. Stocks are down 10% – so officially it’s a correction! Markets are still wobbling. Folk who thought they’d survived Monday’s carnage intact are new beginning to wonder if they should press the panic-button, or pull the dump-lever just in case this gets worse and liquidity dries up. The US has managed to shut itself down again. Our best hope at the Winter Olympics has broken her heel. If this all feels sickeningly familiar – Welcome to 2008 Part 2. Market wobbles, you heave a sigh of relief, and then it pukes massively all over you.

Early this morning it was raining. A storm is coming. And I must have dropped my wallet after paying for a Taxi early this morning.

My gut feel – based on active participation in every single market Donnybrook/Stamash since 1987 – is this gets worse before it gets better. And that’s a good thing – because this is when the great opportunities present themselves!! Cry Havoc and unleash the brokers…

But first we need to talk about my wallet. I appreciate most of you are more concerned with markets than my wallet, but does Life care? Losing my wallet is probably far less worse than will happen to most folk. Yet, its illustrative of something: I called my Amex card to cancel. Lots of help, new card with me early next week. Called my bank. Lots of unhelpful questions and the impression I was the 10 thousandth idiot to a lost my wallet this morning. Sympathy? Look for it in a dictionary is the best advice. New card after 6 business days? Perhaps.

…click on the above link to read the rest of the article…

Bill Blain: “Catalan Separatists Made The Risk Of Spain’s Wealthiest Region Decoupling Into A High Probability Event”

October 2, 2017

Bill Blain: “Catalan Separatists Made The Risk Of Spain’s Wealthiest Region Decoupling Into A High Probability Event”

“Reputations changeable, Situations Tolerable. Baby you’re adoreable.”

It’s the start of Q4 and October, always the most volatile month of the year – and it’s started with shock and surprise. Just a few years ago it would have been inconceivable Spain’s vibrant democracy might stumble towards the verge of dismemberment. But this morning…Spain bonds under pressure.. Anyone who thinks populism is dead is profoundly wrong. If it can happen in Spain… it can happen elsewhere.

Big and small political surprises define market..

What did happen yesterday?

It’s about how the story is told.

Maybe the Catalans got lucky, or maybe they planned it this way, but whatever, they just pulled off a stunning success in terms of managing the narrative and setting the agenda. The world heard and saw exactly what they wanted us to see: the Spanish Government defining democracy by denying people the right to express their desires with violence, guns and tear gas.

In a single day the rebels made previous legitimate constitutional and political arguments irrelevant. It looks like they drove Madrid into and through this crisis – giving them no options or opportunities for dialog, forcing them to react and successfully painting Madrid to the world as the dictatorial baddies. Now, no one is even remotely interested that the economics conclusively demonstrate what a spectacularly bad idea an independent Catalunya will be. The rebels have reset the whole debate in their favour – polarising domestic and international opinion while seeding their revolution with a couple of million votes.

The referendum was always irrelevant – although we’ll hear plenty about its legitimacy in coming days. The only thing the rebels haven’t done yet is leave even a very small window open for the Spanish to start negotiations on.

…click on the above link to read the rest of the article…

Bill Blain: “Oil Could Change Everything”

September 26, 2017

Bill Blain: “Oil Could Change Everything”

Blain’s Morning Porridge: A Short Distraction In The Oil Market

Did I detect a distinct change in the market wind yesterday? There is a new freshening blow out the East. It feels like the world is changing: a slide in tech stocks and a wobble in sentiment, stronger oil prices and all the noise about Germany and where that leaves Europe, and Macron’s France’s dreams of Empire closer union.

Of course we still have all the usual worries, like North Korea saying Trumps twittering gives them carte blanche to shoot down American planes – which, to be honest, is unlikely because nobody is really that stupid… are they? And as Trump plays to red-neck sports fans, we also saw the death knell spike delivered on Obamacare reform. Then there is Spain vs Catalunya – perhaps a topic we should pay more attention to. And I think there was probably more news about Brexit, but to be honest I wasn’t paying attention and could not be ar**d to read about it. Bored of it. Get on with it.

As always, there is so much to think about.

Oil is one I’m watching closely because it’s the global commodity and market price that could change everything.

We’ve been arguing across the desk these past few years about whether $55-45 is the new normal range for oil, or do prices revert back towards $100? Some argue a stronger global economy means higher prices, others that the demand and supply dynamics have so fundamentally changed that a lower long term range is nailed-on for decades.

…click on the above link to read the rest of the article…

Bill Blain Crawls Back Into His Pit: “There Is Apparently Nothing To Worry About”

September 14, 2017

What do we know different this morning?

There is apparently nothing to worry about. Everything is coming up roses. These are not the droids you are looking for – says my market guru Steve Previs. All the old market bears, like me, are looking for stuff to grumble about – terrified by the unintended consequences of QE, caught in the headlights of apparently overbought markets, of whatever else panics them… etc.

But what do we know?

We know nothing – the markets continue to make new highs supported by a blaze of good news and positive expectations. The disappointing China data and threat of poor US data is momentary… apparently.. But, but and but again… mood and sentiment can change on a dime…

I shall crawl back into my pit and ponder…

I could list a whole run of things likely to worry the markets in coming months. As usual, 99% of things the market unwisely labels “known unknowns” prove nothing more that whispy worries and momentary concerns – that with the benefit of hindsight we built up out of all proportion.

But, I am still convinced there is trouble ahead in bonds. The fact countries like Tajikistan and Ukraine are doing blowout deals is one thing – it shows price compression is out of sync and we are approaching a Ukrainian Chicken Farm Moment in the new issue bond market. It’s inevitable. The UCFM is an immutable law of bond physics.

I suspect there is trouble ahead in Investment Grade as well – which spells trouble for delicate sovereign sentiment. I got lots of positive feedback on my comments on the Austria “2% for 100” years deal yesterday, including a very astute observation from a US client as I tried to whet his interest:

…click on the above link to read the rest of the article…

Bill Blain: “This Is What Terrifies Draghi And Other Central Bankers”

September 13, 2017

Bill Blain: “This Is What Terrifies Draghi And Other Central Bankers”

Austria 2% for 100 year bond will go down as “financial moment”. Wake up and smell the coffee of economic reality

Blain’s Morning Porridge – September 13th 2017

“Hey Satan, paid my dues, playing in a rocking band…”

This morning dawns bright and hopeful. After the Caribbean hurricanes, London survived a storm last night which ruffled the waters of the Thames, and caused some mild distress in terms of leaves blown off trees. Do your worst Mother Nature! England is ready!

Markets are enthused, boosted by talk of a US tax-reform roadshow, stock markets hitting new highs because the Norte Koreans haven’t found a match to light the fuse on their next firework, and Apple looking likely to get away with pushing the price of a new bright shinny thing past $1000.

I read a great line yesterday I suspect someone is going to ultimately regret: “We have solid global growth and some of the easiest financial conditions in history… hooray!”

It’s probably true we have ridiculously easy conditions – but playing it won’t be easy and I doubt there will be much to cheer as the unintended consequences of financial asset inflation play out! More about that below.

Or how about reading Goldman Sachs saying there won’t be a Global Stock Crash because “too many people expect it..” (Oh, yes they said it – months after I did!) It’s such an obvious triple bluff: Goldman might be saying they don’t expect the crash because they want you to think they do, but you will further out-think them and figure because they are Goldman and are so awfully smart they’ve worked out you would work that out… and they actually want to buy the whole market, or maybe it’s a quadruple bluff… I’m sure you get the gist.

…click on the above link to read the rest of the article…

Bill Blain: “I’ve Got October 12th As The Day The Big Equity Crash Occurs”

August 31, 2017

Bill Blain: “I’ve Got October 12th As The Day The Big Equity Crash Occurs”

Submitted by Bill Blain of Mint Partners

The big risk? The ECB taper… what follows?

“It will not always be summer; build barns.”

Today’s sermon is about complacency.

Yesterday, I read in a Fixed Income analyst comment something about the: “robust macro backdrop ahead of the ECB meeting on Sept 7th creating a solid base for risk assets and prompting a steady flow of borrowers to get funding programmes underway..” Sure enough, there is a feeding frenzy developing in the new issue bond market…

Meanwhile, my stock picking chartist Steve Previs warns the gauges he follows, like put/call ratios and VIX, reflect an “overly confident” market. He thinks a top is coming.

Personally, I’ve still got October 12th at 10.30 in the morning tagged as the moment the big equity crash occurs and I get out my buying boots ready for the opportunities that will follow. (Why Oct 12th? Why not..? The date has a nice ring about it as day of manic market mayhem – and the following day is a Friday the 13th… meaning it will panic folk even more!” Mwwwhahahaha..! )

n the fixed income markets I think we’re glossing over the likely pain to come courtesy of the ECB.

What happens post the next ECB meeting, (or more likely the ECB meeting after that, or the one after that, based on the ECB’s predilection for kicking the can down the road)? Forget inflation and growth nonsense.. at some stage the ECB has no choice but to ‘fess up how it’s actually been mutualising European debt, and cut its buying programme. We’re all talking about European normalisation, wondering when, but when it actually happens, please explain exactly how that “solid base for risk assets” works.

…click on the above link to read the rest of the article…

Bill Blain On Provident’s Suprime Shock: “Can’t Get Much Worse You’d Think? Oh Yes It Can”

August 23, 2017

Bill Blain On Provident’s Suprime Shock: “Can’t Get Much Worse You’d Think? Oh Yes It Can”

By Bill Blain of Mint Partners

Blain’s Morning Porridge

Provident Financial. What a mess. Is it an opportunity?

Provident has become the story of the week. In case you missed it: the stock has been hammered and its bonds are trading massively down on the back of multiple bad news bullets: an FCA investigation into the Vanquis credit card and loan repayment options, a failed new technology introduction and new staffing approach that caused a leap in defaults from 10% to 43% (!), suspended dividends and the departure of the CEO.

Ouch.

For years Provident was a respected name, secure in its niche supplying credit to the bottom of the UK credit pool. Its experienced independent door-to-door salesmen managed their clients pragmatically – a personal touch that kept defaults low and recoveries high. Earlier this year the model was turned on its head. The independent door-to-door guys were replaced by I-pad wielding scripted staff controlled by head office. The system appears to have collapsed overnight. Defaults soared.

The firm threw away control of its clients.

Venezuela’s ‘Goldman Bounce’ In Reserves Is Gone

The boost in foreign reserves Venezuela enjoyed after Goldman Sachs investment arm picked up $2.8 billion of…

Muppets.

Provident has been described as “uninvestable”.

It looks like a case of classic management incompetence. Replace a tried and tested functional business model with something new that doesn’t work. But there is more to it. It should remind fixed income investors of the importance of cash-flow – and exactly how cash is collected and overseen. Years of experience has taught us that firms with a tight control of their credit processes and sustainable businesses are the ones to invest in.

…click on the above link to read the rest of the article…

Bill Blain: There Is A “Last Days Of Rome” Feel To The News These Days…

August 22, 2017

Bill Blain: There Is A “Last Days Of Rome” Feel To The News These Days…

By Bill Blain of Mint Partners

Blain’s Morning Porridge – August 22nd 2017

“”Forty-two,” said Deep Thought, with infinite majesty and calm.… ”

I’m wondering if I’ve stumbled into a parallel universe after coming back to the office yesterday. Its too damn quiet out-there! Everybody else is apparently still on holiday. It’s scary. Every headline is about thin markets or how markets have shrugged off last week’s sell off.. (what about next week’s?) There doesn’t seem to be anyone actually at their desks… That’ll change…

This week? Since no one is out there.. I can say what I like.. It’s no wonder news flow noise is being magnified out of proportion..

It used to be the summer was the right time for big Jackson Hole style gatherings – safe on the basis holiday markets weren’t paying much attention. Central bankers/economists/investors and other influencers could gab and pontificate without upsetting anyone. But today.. well maybe there are just too many journalists, bloggers and other market parasites just desperately keen to make sure folk are acting upon their supremely important insights into what Stephen Mnuchin’s wife was wearing during his visit to Fort Knox and what it means for global asset prices.

There is a “last days of Rome” feel to the news these days…

But some stuff is still well worth thinking about, so I have to comment on a great Bloomberg Article this morning: “Unintended Consequences of Quantitative Easing” by Jean-Michel Paul.

Regular readers of the morning porridge will know I’ve been deeply suspicious about QE since Day 1. I’ve been writing about the dangers of QE and asset price inflation, for years. Cassandra like, I’m probably right to be concerned, but was anyone listening?

THEY ARE NOW!

…click on the above link to read the rest of the article…

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