I meant natural, not integer
August 22, 2019

Blain's Morning Porridge

"The Road goes ever on and on, down from the door where it began… "

Tomorrow morning I start my Charity Walk along the South Downs Way – Winchester to Eastbourne - which means no Porridge next week. Thanks for all the donations. I do urge all readers to think about Cardiac Care. I got the shock of my life when I found out I was in trouble a few years ago. I'm walking 100 miles-plus next week to raise awareness of coping with heart disease and its consequences. Wessex Heartbeat do a superb job helping people cope! I do hope you never need their help, but others will.

Meanwhile..

A cohort of pedants among the Porridge Readership complained en masse yesterday when I quoted hedge fund manager Kyle Bass noting the US is "the only country with an integer in front of our bond yields!" Of course, I should have corrected him as integers can also be zero or negative whole numbers. The correct nomenclature should have been "natural number". I shall not get that one wrong again. A total of 23 people saw fit to harangue me about integers yesterday morning. Does no one have any work to do?

News this morning..

Stocks almost back to pre-wobble levels? Not really. Stocks are range trading – waiting new direction, which they didn't get from the split US Federal Reserve minutes, Trump's demand for 100 basis points easing or his "chosen-one" comments about how he's thinking about solving the trade war. When a football manager said he was the Chosen One, his team went straight for the straitjackets! Donald says it and we all smile uneasily… Tomorrow we hear how Fed Chairman Jerome Powell is dealing with the split Fed and how he's going to appease Trump without mentioning him.

Back in Yoorp

All European history ultimately boils down to how best to upset the French. I am not sure Boris's blithely thanking Angela Merkel for 30 days to solve the backstop was quite what she expected. The UK papers have seized upon it as a hope we can get still get a Brexit Deal before E-Day, but I'd like to ask my German readers to comment – was she being sarcastic, as in: "It took two years to craft the Brexit deal and you think you can do better, you numpty?"

If her offer was genuine, then it's a chink in the EU armour. It's going to be interesting how the German/Franco axis splits in Biarritz at the G7 tomorrow – Macron seems to have forgotten to take his little red pills and is acting a tad Napoleonic, issuing his own communiques, imperial orders and such for the G7 gabfest. He doesn't want anything to spoil his party – especially not an ebullient Boris pointing out how simple a deal would be. How about…"We agree to maintaining a "borderless border" between Ireland and Norn Iron based on mutually agreed trade arrangements and trade technology." Simples…as James Joyce, considered by many to be Ireland's greatest ever writer (though not by others)…says in Ulysses, decades and decades before any blooming meerkat did.

Meanwhile…back in the unreal world of integer-based yields..

Suitably chastened and up to speed on numbers, this morning I am not sure if I am stunned by the fact there were only EUR 869 million of bids for the new zero-coupon EUR 2 billion German 30-year bund at a yield of -0.11 percent, or whether I am stunned there were EUR 869 million of orders for a negative yielding bund maturing in 2050! (The Bundesbank is the proud holder of the unsold bonds…) Berlin Hyp reopened the covered bond market with a three-year EUR 1 billion jumbo covered bond at -0.59 percent - a spread of 35 basis points to three-year bunds. I remember back in the 1990s looking closely at German Pfandbrief covered bonds. They proudly boasted not a single deal had gone bust since new laws were introduced in 1899 (or somesuch year). The year before a number of issuers had defaulted. I wonder just how liquid the new Berlin Hyp deal will be if we see a sudden rise in rate expectations?

Talking to one of the banks yesterday, I was told demand for the 30-year bund was decent after it broke – hinting folk just didn't want to be involved in the bid. They came in quietly after the event. No fuss. Analysts say the relative failure of the bund 30-year auction bodes ill for new century bonds from the US and UK. I understand the US has already ruled it out – disappointed by the reaction of potential buyers. I think they are wrong – the reason bond buyers are saying ‘not really' is bias towards not being seen to play in such a difficult-to-explain instrument. If they believe in duration and bonds are going lower for longer, they are buyers. I am thinking of developing a dark web app to supply anxious bond fund income managers with their daily fix of long bonds by motorbike courier.

I haven't heard much about a UK century bond. Perhaps the UK Debt Management Office are still on holiday somewhere in Southern France? Wakey Wakey Over the Road there!). I reckon there is substantial, but bashful, hidden demand for a century bond. Use it to build HS2. Give it a week or so and try again. Anything with a natural number in front of the decimals is a plus at this point.

In terms of where rates are going, we know the European Central Bank is talking about further easing and more quantitative easing in September…at least we know who will be buying. Or are we poised on the edge of a bond cataclysm? Lots of people think so.

My problem is I can't decide. I am going to ponder upon this as I plod the track next week. Should I sell all my stock and put it in stocks in the surefire knowledge and expectation stock markets are a bubblicious asset bubble set to pop? And then put all my money in US treasuries because they are the flight to safety trade, and the whole world is looking to buy them as about the only meaningful positive yield bond market on this blessed green earth? I did read yesterday the volumes of US stock buybacks by corporates have declined substantially – a clear driver of much of the upside in stocks.

Or should I dump all my bonds and buy loads of stocks on the basis lower rates are nonsense, the Americans and Chinese are about to kiss and make up, there will be no global recession and I'm seriously underestimating how much further easing will do to improve stock sentiment? And since the stock markets are getting smaller, then the cost attractions of equity are rising! Any advice appreciated.

Or should I just hold cash and park it in as many bank accounts as I can open: "Honest, Mr Banker – It's kosher money and nothing to do with my South American business interests…"

My problem with cash is that some high street banks are too stupid to trust. The latest wheeze by the Horrendously Stupid Banking Corp (figure it out for yourself) was to cut my wife's business overdraft facility to zero without bothering to inform her. She only found out when a critical direct debit re her professional indemnity Insurance wasn't honoured. It put her business in an immediate perilous state, but all the bank cares about is that she signs a repayment plan immediately.

She was furious – a very scary thing. She asked for a meeting with a senior bank executive, but instead got referred to another team who wasted her time, asked lots of pointless questions, decided the simplest way to treat it was as a new application, and told her she would get a new overdraft if she first pay off her current one. She has now written to the bank's UK CEO, her MP and the FCA to make a complaint that the bank's incompetence could have bankrupted a highly successful business. We've made yet another formal complaint. We expect prevarication.

Which explains why cash isn't a great option…. Horrendously Stupid Bank Corp would no doubt lose it…

Enough… Time to go back to my day job. Try not to break the market while I'm out..

Bill Blain

Shard Capital





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Blain's Morning Porridge

"The Road goes ever on and on, down from the door where it began… "

Tomorrow morning I start my Charity Walk along the South Downs Way – Winchester to Eastbourne - which means no Porridge next week. Thanks for all the donations. I do urge all readers to think about Cardiac Care. I got the shock of my life when I found out I was in trouble a few years ago. I'm walking 100 miles-plus next week to raise awareness of coping with heart disease and its consequences. Wessex Heartbeat do a superb job helping people cope! I do hope you never need their help, but others will.

Meanwhile..

A cohort of pedants among the Porridge Readership complained en masse yesterday when I quoted hedge fund manager Kyle Bass noting the US is "the only country with an integer in front of our bond yields!" Of course, I should have corrected him as integers can also be zero or negative whole numbers. The correct nomenclature should have been "natural number". I shall not get that one wrong again. A total of 23 people saw fit to harangue me about integers yesterday morning. Does no one have any work to do?

News this morning..

Stocks almost back to pre-wobble levels? Not really. Stocks are range trading – waiting new direction, which they didn't get from the split US Federal Reserve minutes, Trump's demand for 100 basis points easing or his "chosen-one" comments about how he's thinking about solving the trade war. When a football manager said he was the Chosen One, his team went straight for the straitjackets! Donald says it and we all smile uneasily… Tomorrow we hear how Fed Chairman Jerome Powell is dealing with the split Fed and how he's going to appease Trump without mentioning him.

Back in Yoorp

All European history ultimately boils down to how best to upset the French. I am not sure Boris's blithely thanking Angela Merkel for 30 days to solve the backstop was quite what she expected. The UK papers have seized upon it as a hope we can get still get a Brexit Deal before E-Day, but I'd like to ask my German readers to comment – was she being sarcastic, as in: "It took two years to craft the Brexit deal and you think you can do better, you numpty?"

If her offer was genuine, then it's a chink in the EU armour. It's going to be interesting how the German/Franco axis splits in Biarritz at the G7 tomorrow – Macron seems to have forgotten to take his little red pills and is acting a tad Napoleonic, issuing his own communiques, imperial orders and such for the G7 gabfest. He doesn't want anything to spoil his party – especially not an ebullient Boris pointing out how simple a deal would be. How about…"We agree to maintaining a "borderless border" between Ireland and Norn Iron based on mutually agreed trade arrangements and trade technology." Simples…as James Joyce, considered by many to be Ireland's greatest ever writer (though not by others)…says in Ulysses, decades and decades before any blooming meerkat did.

Meanwhile…back in the unreal world of integer-based yields..

Suitably chastened and up to speed on numbers, this morning I am not sure if I am stunned by the fact there were only EUR 869 million of bids for the new zero-coupon EUR 2 billion German 30-year bund at a yield of -0.11 percent, or whether I am stunned there were EUR 869 million of orders for a negative yielding bund maturing in 2050! (The Bundesbank is the proud holder of the unsold bonds…) Berlin Hyp reopened the covered bond market with a three-year EUR 1 billion jumbo covered bond at -0.59 percent - a spread of 35 basis points to three-year bunds. I remember back in the 1990s looking closely at German Pfandbrief covered bonds. They proudly boasted not a single deal had gone bust since new laws were introduced in 1899 (or somesuch year). The year before a number of issuers had defaulted. I wonder just how liquid the new Berlin Hyp deal will be if we see a sudden rise in rate expectations?

Talking to one of the banks yesterday, I was told demand for the 30-year bund was decent after it broke – hinting folk just didn't want to be involved in the bid. They came in quietly after the event. No fuss. Analysts say the relative failure of the bund 30-year auction bodes ill for new century bonds from the US and UK. I understand the US has already ruled it out – disappointed by the reaction of potential buyers. I think they are wrong – the reason bond buyers are saying ‘not really' is bias towards not being seen to play in such a difficult-to-explain instrument. If they believe in duration and bonds are going lower for longer, they are buyers. I am thinking of developing a dark web app to supply anxious bond fund income managers with their daily fix of long bonds by motorbike courier.

I haven't heard much about a UK century bond. Perhaps the UK Debt Management Office are still on holiday somewhere in Southern France? Wakey Wakey Over the Road there!). I reckon there is substantial, but bashful, hidden demand for a century bond. Use it to build HS2. Give it a week or so and try again. Anything with a natural number in front of the decimals is a plus at this point.

In terms of where rates are going, we know the European Central Bank is talking about further easing and more quantitative easing in September…at least we know who will be buying. Or are we poised on the edge of a bond cataclysm? Lots of people think so.

My problem is I can't decide. I am going to ponder upon this as I plod the track next week. Should I sell all my stock and put it in stocks in the surefire knowledge and expectation stock markets are a bubblicious asset bubble set to pop? And then put all my money in US treasuries because they are the flight to safety trade, and the whole world is looking to buy them as about the only meaningful positive yield bond market on this blessed green earth? I did read yesterday the volumes of US stock buybacks by corporates have declined substantially – a clear driver of much of the upside in stocks.

Or should I dump all my bonds and buy loads of stocks on the basis lower rates are nonsense, the Americans and Chinese are about to kiss and make up, there will be no global recession and I'm seriously underestimating how much further easing will do to improve stock sentiment? And since the stock markets are getting smaller, then the cost attractions of equity are rising! Any advice appreciated.

Or should I just hold cash and park it in as many bank accounts as I can open: "Honest, Mr Banker – It's kosher money and nothing to do with my South American business interests…"

My problem with cash is that some high street banks are too stupid to trust. The latest wheeze by the Horrendously Stupid Banking Corp (figure it out for yourself) was to cut my wife's business overdraft facility to zero without bothering to inform her. She only found out when a critical direct debit re her professional indemnity Insurance wasn't honoured. It put her business in an immediate perilous state, but all the bank cares about is that she signs a repayment plan immediately.

She was furious – a very scary thing. She asked for a meeting with a senior bank executive, but instead got referred to another team who wasted her time, asked lots of pointless questions, decided the simplest way to treat it was as a new application, and told her she would get a new overdraft if she first pay off her current one. She has now written to the bank's UK CEO, her MP and the FCA to make a complaint that the bank's incompetence could have bankrupted a highly successful business. We've made yet another formal complaint. We expect prevarication.

Which explains why cash isn't a great option…. Horrendously Stupid Bank Corp would no doubt lose it…

Enough… Time to go back to my day job. Try not to break the market while I'm out..

Bill Blain

Shard Capital



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