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Winter is Coming for the UK

Winter is Coming for the UK

The outlook for the UK looks increasingly grim. There are few reasons to hope a new government can reverse the mounting consumer fears, stagflation and the growing sense of decline.

“Tell them the North remembers. Tell them Winter is Coming.”

This morning. The outlook for the UK looks increasingly grim. There are few reasons to hope a new government can reverse the mounting consumer fears, stagflation and the growing sense of decline.

Yesterday was cold, wet and grey. The sudden end of the glorious summer highlights how dark and bleak the mood in the UK has become. UK Consumer confidence has collapsed to levels not seen since the 1970s. London has ground to a halt with tube and rail strikes. Its not just the cost of living crisis – which, to be blunt, has only just begun and will get much, much worse as winter deepens– but folk are losing confidence in the broken mechanics of the economy, the absence of leadership and a growing sense things won’t get any better.

The country feels like its sinking into a treacle of energy-sucking, suffocating despond. Everything in Britain feels broken: the NHS is too crowded to treat patients, excess death rates show untreated cancers, heart-disease and stokes from lockdown now far outnumber Covid deaths, the police are so overloaded they have stopped even bothering to investigate crime, while airports are blocked, trains don’t work, and it really doesn’t matter because you can’t get a passport or driving licence renewed. As the rains come down, we’re under threat of dire authoritarian punishment if we dare use a garden hose – although to be fair, who is going to arrest you?

Thank heaven we’re about to get a new prime minister – SARCASM ALERT.

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

The Great Crash of 2022 – What happens next? Go read the Book!

The Great Crash of 2022 – What happens next? Go read the Book!

Yesterday’s market meltdown was heralded as a “capitulation trade”, but who knows? What we do know is there an awful lot to worry about, and the conditions for the BIG ONE have been building for decades. Time to re-read The Great Crash, 1929.

“That which does not kill us, makes us stronger….”

This Morning – Yesterday’s market meltdown was heralded as a “capitulation trade”, but who knows? What we do know is there an awful lot to worry about, and the conditions for the BIG ONE have been building for decades. Time to re-read The Great Crash, 1929.

There is nothing like a 6.30 am swim against the tide on cold, grey morning in muddy near-freezing water to remind you of why we spend so much money on mattresses and warm snuggly duvets. Of course, a swim should have been a wonderful moment to contemplate what the papers are calling the “Capitulation Trade” – as stocks posted their worst day in a couple of years and bonds tumbled…. But… Keeping up my momentum against the building down-tide was my primary concern.

Does that mean I missed the opportunity to liquidate my entire account before the end of everything – which might be later this afternoon? Oh dear…

On Wednesday, the market welcomed Jay Powell’s 50 bp hike with a relief rally. Yesterday it puked and reversed all its recent gains. What changed? Who knows, but was yesterday really the beginning of the big and negative something we’ve all been waiting for?

Maybe, maybe not. Who knows? Who can tell? If I knew I wouldn’t be swimming in dirty cold rivers to stay fit, nor would I be writing about it each morning!

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

Inflation – Cassandra Speaks

Inflation – Cassandra Speaks

Inflation should be front and centre for markets – give or take Ukraine, Oil, etc. How real is it, and just how bad could the consequences be? Not talking about it is one way to ensure it hurts.

“The way to crush the bourgeoise is to grind them between the millstones of taxation and inflation.”

This Morning: Inflation should be front and centre for markets – give or take Ukraine, Oil, etc. How real is it, and just how bad could the consequences be? Not talking about it is one way to ensure it hurts.

Contrary to expectations, World War Last didn’t break out yesterday. Either the Russians are stepping back or they are retreating in a forward direction while adding thousands of new troops… Who knows..? Who to believe? In the absence of evidence or a credible reason for Putin pressing the auto-destruct button while he’s winning, (er, yes, he probably is as the West discomboffulates around the issue, beset by leadership crises, division, energy prices and distrust), can we now look forward to Spring?

And get back to worrying about real stuff. Like inflation?

The news this morning is UK inflation hitting a 30-year high, home price rises in the US and UK earning more than the average working wage, and the Fed Minutes – yawn. Put these together and it looks torrid. Yet the market seems unbovvered…  There is a strong likelihood the Fed will hike 50 bp in March and up to 10 times in the next (whatever length of time) years/months/minutes… Whateva… Expectations of aggressive moves in rates have doubled in recent weeks.

Commentary in the bond market ranges from the risks of over-aggressive policy mistakes, arguments about how long “transitory” inflation might last, and the risks of further supply and wage driven inflation hikes…

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

Covid is dead. Energy is the new crisis.

Covid is dead. Energy is the new crisis.

Markets are welcoming victory versus COVID, but the next crisis is upon us: Energy instability. The consequences could be dramatic..

“Trying to fire-up the induction hob by rubbing two sticks together proved a waste of time..”

This morning: Markets are welcoming victory versus COVID, but the next crisis is upon us: Energy instability. The consequences could be dramatic..

Back to the grindstone with a vengeance today – holidays are over and the Christmas decorations are back in their boxes. Time to get serious about 2022. Time to buy or time to sell?

I am unconvinced many market participants understand just how much the ground has shifted over the last quarter – particularly in relation to Energy pricing. The first few months of 2022 are going to be about the market learning what the new landscape looks like, and how it adapts to a new and changing economic reality. This new year is going to be fundamentally different and more challenging in terms of how to invest “smart” in a new and utterly changed financial market environment.

On the plus side, the outlook for 2022 has rosy overtones: Increasingly it looks like the back of Coronavirus has been broken. Infections of the new Omicron might be running out of control around the globe, but new variant hospitalisations and deaths are way down. The crisis is now coloured by issues such as the number of workers off sick – or more likely isolating at home with positive test results and minor symptoms. Official UK vaccine numbers (rather than dubious source material from the University of Facebook) show booster shots are 88% effective against Omicron, and the hospitalisation risk of the new variant is 1/3rd of the previous Delta.

Hallelujah! Ding-Dong! Yippee…

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

Is Evergrande a symptom of deeper malaise?

Is Evergrande a symptom of deeper malaise?

Evergrande’s imminent default is rocking markets – but few believe the collapse of a Chinese property developer could trigger a global financial crisis. What if Evergrande is just a symptom of a deeper malaise within the Chinese economy and its political/business structures? Maybe there is more at stake than we realise? What if Emperor Xi decides he needs a distraction?

“If that’s true, we are very close to the China Syndrome ”

This Morning – Evergrande’s imminent default is rocking markets – but few believe the collapse of a Chinese property developer could trigger a global financial crisis. What if Evergrande is just a symptom of a deeper malaise within the Chinese economy and its political/business structures? Maybe there is more at stake than we realise? What if Emperor Xi decides he needs a distraction?

After yesterday’s market tumble Evergrande dominates thinking this morning. The early headlines say the risk is “easing”. Don’t be fooled. S&P are on the wires saying it’s on the brink of default and is unlikely to get govt support. It’s Asia’s largest junk-bond issuer. Anyone for the last few choc-ices then?

The market view on the coming Evergrande “event” is mixed. Some analysts are dismissing it as an internal “China event”, others reckon there may be some systemic risk but one Government can easily address. There is some speculation about “lessons” to be learnt… There are even China supporters who reckon its proof of robust China capitalism – the right to fail is a positive!

I’ve got a darker perspective.

The massive shifts we’ve seen in China’s political/business public persona over the past few years have been variously ascribed: a reaction to Trump’s protectionism, China taking its place as a leading nation, Xi flexing his military muscle, and now a clampdown on divisive wealthy businesses to promote common prosperity.

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

Inflation, Covid, Central Banks and Politics – about half the things to really worry about…

Inflation, Covid, Central Banks and Politics – about half the things to really worry about…

As markets shake off their summer slumbers, what should we be worrying about? Lots..! From real vs transitory inflation arguments, the long-term economic consequences of Covid, the future for Central Banking unable to unravel its Gordian knot of monetary experimentation, and the prospects for rising political instability in the US and Europe.

“How many divisions does the Pope have?”

This morning: As markets shake off their summer slumbers, what should we be worrying about? Lots..! From real vs transitory inflation arguments, the long-term economic consequences of Covid, the future for Central Banking unable to unravel its Gordian knot of monetary experimentation, and the prospects for rising political instability in the US and Europe.

Same as, same as….  

Not an Apology

I’ve been told I should apologise for yesterday’s Porridge. A reader unsubscribed because I don’t treat Tesla seriously. (Shock, horror.. somehow I shall live with the pain of rejection…) Another commented: “hating Tesla must be a very difficult way to make a living.” Sure. I agree – it is. In my private Jihad versus Elon Musk I have missed massive market upside… but then again, it’s not my job to pump up illusory market valuations. It’s to paint the picture as I see it, and caution foolish markets about their gullibility. I will continue to characterise Tesla as an unjustifiably overpriced automaker, pretending to be something else, run by a narcissistic show-boater.

Meanwhile…

What should we really be worrying about?……

  • China?
  • US Politics in the wake of the Afghan Skedaddle?
  • Overpriced Markets and Asset Bubbles?
  • The future of Tech and ESG?
  • Central Banks trapped by the consequences of their own monetary experimentation?
  • Boom or Bust post Covid Economies?
  • Inflation, Deflation or Stagflation?

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

Brace, Brace, Brace: Global Supply Chains, Instability and Archegos

Brace, Brace, Brace: Global Supply Chains, Instability and Archegos

You could not make this up; an unimaginably complex WW3 Techno-thriller unfolding as markets stumble and global supply chains hover on the edge of anarchy. On the other hand, maybe that’s just the way it was planned.

“The supreme art of war is to subdue the enemy without fighting.”

This morning – You could not make this up; an unimaginably complex WW3 Techno-thriller unfolding as markets stumble and global supply chains hover on the edge of anarchy. On the other hand, maybe that’s just the way it was planned.

I am not one for conspiracy theories. But… this morning… If I was a writer of trashy global-techno-World War 3 pulp fiction, and proposed the following scenario where the global economy lurches into an unprecedented period of instability – nobody would believe me:

1)    Global Supply Chains, weakened and struggling after a year of global pandemic, plus a growing shortage of microchips holding back multiple industrial sectors, are plunged into new crisis by a puff of wind causing a box-ship to skite sideways and block the Suez Canal, trapping East-West Trade.

2)    Unstable and over-priced Global Markets are spooked into a frenzy late on a quiet Friday night by the largest margin calls ever ($20 bln plus) as an Asian “family office” dumps billions of dollars of stock into the market. Collateral damage spreads, as other financial firms, (inevitably including Credit Suisse (Switzerland’s very own Deutsche Bank), and Nomura), announce material losses.

3)    As global central banks struggle to restore real growth, while trying to hold interest rates low and support commerce, and acutely conscious of how a market crash could crush global confidence – things suddenly get more difficult as confidence in equity valuations takes a massive knock.

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

bill blain, morning porridge, supply chains, supply chain disruptions, risk

Blain’s Morning Porridge – Sept 22nd 2020: Rocketmen and Viruses

Blain’s Morning Porridge – Sept 22nd 2020: Rocketmen and Viruses

 

“I’m the King of rock and roll, completely…”

From the Ministry of Common Sense: “To celebrate this morning’s Autumn Equinox, we’ve decided to commit economic suicide.”

The pandemic is a pernicious little beast.  It clearly eats away brains. Rising infections are a risk.  In the face of clear evidence fewer people are dying and the medical services are coping better with Covid cases – we could assess that risk, and would probably conclude its better to stay broadly open. Or we can let fear and emotion run us: let’s stay safe by closing down while hoping and praying for a vaccine next year. Hope is never a good strategy – action is. The choice is pain today as more people might die earlier from the infection, or pain tomorrow as jobs, livelihoods, and more deaths result long-term from economic shutdown.

Choices, choices… Both approaches have clear costs. But one is clearly preferable to the other – if government had the guts to say it.

The brutal reality is deaths hump upwards during the autumn and winter from respiratory illness. Markets get it. Markets are about assessing risks and outcomes. Which is why they’ve stalled – losing confidence and knowing both long and short-term economic costs will be lower if we shift towards keeping the economy on track to recovery, and facing down the virus. It’s not just Sweden that get’s that. Compare and contrast the UK approach with Germany – which is going to brazen it out by keeping the economy as open as practical. Germany will suffer a far lower hit.

Just as the UK economy was struggling back onto its knees, it will get the legs kicked from under it. There is now zero-talk of swift recovery – estimates are now for 2022 before the economy claws back its likely 7% drop in 2020. A W-shape looks nailed-on.

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

Blain’s Morning Porridge – 21st August 2020 – John Law’s MMT revisited

 

Blain’s Morning Porridge – 21st August 2020 – John Law’s MMT revisited

“Earlier today apparently a woman rang the BBC and said she had heard that there was a hurricane on the way. Well if you are watching, don’t worry, there isn’t.”

It’s blowing a full hooley out there this morning, which is very bad news for my olive trees as the storm is shaking the ripening fruit off. Shame. It’s the first time our little olive grove has produced what looked likely to become full-sized olives. I was going to add them to Dirty Martinis. Meanwhile, mink farms are being wiped out by coronavirus which is proving 100% fatal to the well-dressed ferrets. Interesting, but what does it mean…?

It’s Friday, which means I am allowed to go off on something of a tangent – so let’s not worry about how long this tech rally continues, the rising tensions in Europe, Apple spending $17bln on stock buybacks, China vs US, or the US election.

What’s got me worried this morning is the headline in the FT: UK Public Debt tops £2 trillion for first time on Covid Spending Boom.

Should we worry or should we not? (Clue: the first one…)

Let me ask the question: how long can governments continue to spend their way out of the Coronavirus crisis? The bills for long-term furlough programmes and sectoral bailouts and support, increased social services as unemployment rises, and the urgent need for health spending are going to come due at some point. Is it going to be a problem, and if yes, how big?

Government debt is rocketing higher – but does it matter? Conventional thinking, based on Reinhart and Rogoff, is when debt/GDP exceeds 77% there will a significant slowdown in growth.

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

Blain’s Morning Porridge – Aug 11 2020 – Who Pulled the Plug?

Blain’s Morning Porridge – Aug 11 2020 – Who Pulled the Plug?

“Unnervingly coherent and laughably mindless”

This morning’s opening quote isn’t an independent assessment of the Morning Porridge – but is lifted from a newspaper article on Artificial Intelligence.  It ends on a very scary tag: the AI is asked if it is conscious and responds: “To be clear, I am not a person.  I am not self-aware.  I am not conscious.  I can’t feel pain.  I don’t enjoy anything.  I am a cold, calculating machine designed to simulate human response and to predict the probability of certain outcomes.  The only reason I am responding is to defend my honour.”  This is not from some dystopian novel or a reboot of the Terminator series… but from the this morning’s FT

Should we pull the plug or ask it some more questions? 

Back in the real world…

We are now in the depths of the summer doldrums – and markets are showing even less correlation to global events than usual.  Stock and Bond Markets remain chronically distorted by the effects of Central Bank liquidity. China markets have shrugged off the new Trump US sanctions – and Xi has stepped up the arrest of protest figureheads in HK.  Ten-cent has taken a tumble on the back of Trump banning Tik Tok and WeChat – confirming the degree to which individual stocks are vulnerable to shifts in the narrative. Watch for case-by-case wobbles as the China-US rift opens wider – when will China decide to make trouble for Tesla to boost its copy-cars? 

But even the China/US tiff is likely to be something of a sideshow. My first question to the AI machine would be – just how deep is the coming global recession going to be?  Despite some recent strong economic releases, the trend shows the recession is underway.

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

Blain’s Morning Porridge, July 23 2020: This time it’s different?

Blain’s Morning Porridge, July 23 2020: This time it’s different?

“Bubbles are far more dangerous when they are fuelled by debt”

This time it’s different”, is one of the most dangerous beliefs in financial markets. This time, things are different – but for a reason. Global Central Banks have pumped liquidity into the financial system to support the global economy as it struggles with a toxic economic shock of unprecedented scale. This may surprise some market participants, but they did not do it to pump stock markers and bond indices to stratospheric levels. They are doing it to save jobs, keep companies afloat and keep society stable.

Markets are indifferent to such concerns. They care about “up”. 

The liquidity effect has generated the market momentum that’s driven the rally since March 23rd– not fundamentals. It’s like watching moths being drawn to a flame. You just know this can’t last, and the bear trap is going to slam shut at some point. Questions are when and if ever? There are articles about big institutions quietly exiting Amazon, Apple, Alphabet, Facebook et al… there are tabs explaining how over 500,000 RobinHood accounts have bought Tesla in recent weeks, there are stories about insider selling.  

Who knows? 

Never forget Blain’s Market Mantra No 1: “The Market has but one objective; to inflict the maximum amount of pain on the maximum number of participants.”

When the American’s are chucking China out of Houston, and worse, the Chinese are taking English Premier Football off the TV (which is actually going to prove highly significant for some clubs), you know the world is really changing. Central Bank action is central bank action. A new Cold War is fundamentally serious… 

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

Blain’s Morning Porridge – July 10, 2020 – The World Shifts

Blain’s Morning Porridge – July 10, 2020 – The World Shifts

“Carthago delenda est”

Did you feel the world wobble last night?  

As Washington imposes sanctions on top level Chinese officals over ethnic abuse in Xinjiang, and waits for Trump to sign “autonomy” action over Hong Kong targeting officials over the new security law, we are now even closer to the inevitable showdown between Rome and Carthage. The implications are going to be enormous… This story is accelerating very quickly… thing are “occurring” faster than we think…

My spidey senses are a-tingle.. 

Trying to fathom out why markets are so strong, ongoing coronavirus and economic breakdowns, how politics are so ineffective, and how fragile and vulnerable sentiment might be to sudden and swift shifts in the narrative, is somewhat exhausting. While the markets are focused on the earnings season (beginning Monday), the ongoing supply chain problems -like car factories being shuttered because they can’t get parts, and the likelihood of further stimulus.. the news out of Asia makes me suspect the real world has just become massively less stable.

At the tactical level, the outbreak of cold-war hostilities and the threat of sanctions on banks in Hong Kong is yet another nail in the decaying corpse of HSBC.  If the former colony is de-dollarised, and banks are stopped from clearing the greenback, it will trigger enormous shifts across Asia. It will raise the prospect of a complete rift between the US and China as banks are forced to make a choice: they can’t serve two masters.. the dollar or Beijing.

At the strategic level.. who knows.. Plus for Europe? After the coronavirus.. a full scale Cold War? Or maybe its going to be a good thing.. a wedge between China and the West driving new innovation and economic growth? Who knows… more on this later… 

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

Blain’s Morning Porridge – June 29 2020: What if it’s just begun?

Blain’s Morning Porridge – June 29 2020: What if it’s just begun?

What if the real pain is still to come?

“That about sums it up for me..”

There is an amusing piece on the FTs’ Alphaville listing 20 things investors should look for when trying to work out who will be the next Wirecard. You don’t need to be a financial genius to work out which company they might be talking about… It’s a basic wake-up call. In periods of economic darkness, its all-to-easy to be persuaded as to the efficacy of snake oil. If something over-promises, makes lots of noise while underdelivering, and is basically a personality cult – then it’s long-term unlikely to be a particularly successful investment.

Back in the real world…

We are nearly half-way through 2020. Although we’ve been shocked, surprised and buffeted by the Virus, and buoyed by the swift and effective intervention of Governments to support companies and mitigate job losses while Central Banks have calmed markets with the opium of QE Infinity, I can’t help wonder if the real earthquake is yet to come. 

I am still bullish about long-term recovery as we adapt to the virus and it spurs a new tech development age. But I can’t help feeling deeply uneasy about current markets and the resilience of global financial systems. 

This crisis is unlike anything I’ve experienced before. Normally a market crash is explosive event – it occurs when something in the financial sphere breaks; like confidence in housing and financial systems in 2007, or valuations in the Dot.Com crash, or faith in credit constructs like during the European Sovereign Debt crisis in the 2010s. In each of case of financial mayhem I’ve experienced since the Great Perp Crash of 1986, the initial shock and horror gradually lessens as the market discounts the shock, shrugs it off, and carries on. 

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

Blain’s Morning Porridge – June 11 2020: The illusion wears thin

Blain’s Morning Porridge – June 11 2020: The illusion wears thin

“It is the system that deserves to be blamed. What those who wish to perpetuate the system deserve is another question.”

The Fed did exactly what was expected – nay, demanded! Asset purchase volumes will be maintained while rates will remain near zero for the next 2 years. Hallelujah! The market shrugged aside indications a second virus wave is hitting across parts of the US and Europe… 

If Fed-Head Jay Powell has said anything else, there would have been a hissy-fit mini-taper-tantrum. The dominant force on markets will remain central banks juicing markets – and all the entails in terms of distortion. The immediate lesson for investors is – keep buying! The Fed and the other CBs have got your back. They can’t afford for markets to stumble.

Problem is… little the Fed said is likely to change the reality of the coming recession. The downturn might not be as deep or as bad as we originally feared, but whatever nonsense some analysts are spouting in terms of hopes for a V-Shape recovery… recession is coming. It might be less damaging, and less long-lived than we fear… But.. 

There is a new and growing dimension to this crisis…

The Black Lives Matter demonstrations around the globe highlight the threat of social unrest, and political dislocation. When the virus kicked in, I commented a few times how lockdown frustrations and hot summer nights could be a recipe for riots. But, what’s happened is much more fundamental – and should be a critical concern for investors in terms of how it changes the political narrative.  

Unrest is a political issue – and politics have a seriously underestimated ability to roil markets. 

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

Blain’s Morning Porridge – May 19 2020 – Yoorp Kicks The Can

Blain’s Morning Porridge – May 19 2020 – Yoorp Kicks The Can

“I don’t think I could stand another ten years of this fighting…”

Yesterday afternoon I set out to cure Coronavirus. I set up a new company, Splurgeldrug.Com, issuing our first press release about promising new drug trials, followed by another reporting how lab rats responded favourably to the first press release, and how confident of a vaccine in the near future we are. Splugeldrug.com stock went to $600 by teatime, and I currently negotiating the leveraged acquisition of a drug major… 

It’s that kind of market. Rumour and sigh abounds.. 

As a wiser heads than I have noted… most drugs take years to get to market, and less than 1% are ever approved. We still don’t have an effective vaccine for the constantly evolving and mutating annual flu. To bet the farm on a successful vaccine would seem reckless… 

Let’s be honest.. if we get a successful vaccine it will help speed global recovery, but it won’t undo the brutal economic damage that’s already been done. A vaccine will simply flatten the depth of the recession – not reverse it, and certainly not magically convert Q2 Earnings into positive numbers…  

Markets are not thriving because they expect a vaccine miracle. They are simply arbing governments and central banks. When Powell says he’s “not out of ammunition by a long-shot”, that’s a massive buy signal. Any positive news helps.. and as the central banks have got out backs, just ignore the bad stuff… 

(Oh dear… I suspect this will end badly…)

Yoorp – The Decline of the West, part 5826

Thankfully, I have something more significant and real(ish) to write about this morning… Yet again, for all the wrong reasons, it’s time to buy European distressed European Sovereign bonds. Wait for the them to tighten. Sell, then wait for the next crisis. 

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

Olduvai IV: Courage
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