The head of the clown
August 5, 2019

Blain's Morning Porridge

"Who put the crown on the head of the clown?"

That was an interesting close last week! The US Federal Reserve disappoints the markets when Powell said: "it's not the beginning of a long series of rate cuts," and Trump followed up by slapping 10 percent tariffs on US$300 billion of China exports. You'd almost think he's planned it. Stocks crash. Bonds rally. Rest of world focuses on the news and prepares for slowdown. A number of the big investment banks have gone negative on credit and stocks – they see a business shock is coming…

It looks like the big stories this week will all be political: What is going on in the US, and what happens next? What is China going to do about Hong Kong and what are the implications as the Renminbi falls under the Rmb7 "floor"? Now that Boris Johnson's parliamentary majority is down to one, (and his party is full of closet Remainers) what's his strategy and what are the implications for sterling? And what about Europe – very interesting article by Wolfgang Munchau in FT yesterday: "Germany is replaying Britain's Brexit Debate", which would apparently kill my hopes/expectations Europe is about to get its fiscal policy act together!

Yep, it's doom and gloom all around this morning! I could not be happier or more excited!

The headlines this morning look exceptionally gloomy for investment purposes. There is Berkshire Hathaway sitting on a $122 billion cash pile – what does that say about valuations? Trump spokesman blames Powell for stock crash – voters will believe anything, apparently. Rumours of infighting within New York Fed support the notion of a US central bank struggling to react to Trump. With the threat of a recession/slowdown (which wasn't reflected in Friday's payroll data) weighing on investors, what is the chance that further weak earnings and summer slowdown add to fears about just how inflated stocks and bonds are?

The current US ructions boil down – as they always do – to Trump. Don't underestimate him or dismiss him as an idiot. Don't believe everything you read about the chaotic White House. He has clear goals and objectives, and isn't subject to any scruples in how he achieves them. It's business to him – he spiked the trade talks knowing he was unlikely to win, but still looks like he's fighting for middle America. He is putting the pressure on the Fed – so it's clearly not going to be his fault next November.

It certainty looks like we are in for an escalation of the trade crisis. With the Renminbi now trading below 7 and Asian sources claiming Chinese state entities have been told to stop buying US agricultural goods, then any kind of breaking the trade impasse looks unlikely. It strikes me the market looks somewhat unhealthy – massively overenthusiastic stock market (even after late last week's sell-off on Fed and tariffs), and still crazy spreads in credit. What is to like? Er.. nothing.

And what about China? As Hong Kong protests continue and the government ups the rhetoric about its being Taiwan and US sponsored, what's the betting the Chinese intervene? That may be exactly what Trump wants. He has no intention of letting the US get involved, but it will distract the China leadership and he can turn to the US electorate and say: "Look at the kind of people we are dealing with…" Trump cares not a jot about Hong Kong – it's unlikely to win him votes. Taiwan would be a different issue – many Americans may feel obligated to get involved – but Hong Kong? Heck, no… what's China got to do with the USA?

I'll talk about the UK below, but interesting to note the number of weekend comments about the growing future weakness of the German economy. Too closely aligned with the automotive sector and the rest of the economy, including finance, not nimble enough to react – these are all themes the Porridge has been exploring for years!

Meanwhile the European Union has nominated Kristalina Georgieva, a Bulgarian, to be next head of the International Monetary Fund. When I first heard her name suggested a few weeks ago my first thought was which camp is she in. Give you a clue – the Germans, Dutch and UK are not happy. Therefore…she must be French. In Macron's pocket – which begs the question what does the rest of the world think about the IMF once more looking likely to be a piggy-bank for Europe when the rest of the world struggles?

Meanwhile… A quick rant at Bloomberg

I am peeved this morning. I have used a Bloomberg Terminal since 1989, but since I now execute via our traders, I don't need it as much, and we are very cost conscious here at Shard. But I do have a subscription to Bloomberg News – they have some excellent writers, like Mark Gilbert and Marcus Ashworth, and since traders/investors read BBerg, it's important to keep an eye on it. But, heaven help you if you can't log in – as I could not this morning.

In the absence of any help, I found myself denied access to financial information. I shall be writing to all the major European regulators today to complain that Bloomberg is effectively an insider news organization, illicitly profiting for selling news to only those who pay, subscribe and denying access to others. I might also question how many of Bloomberg's commentators from the market are also terminal subscribers? I already know a number of regulators who are concerned that Bloomberg's closed financial ecosystem within the global markets is overly exclusive and expensive.

Time to stir up some trouble. It might be fun to see how a European case against Bloomberg plays with Trump. Can you imagine him being forced to defend Michael Bloomberg's access to markets?

Blain's Brexit Watch

How much of the Boris feelgood remains? As Boris' parliamentary majority falls to the lowest single digit – one – my sources tell me the mood in Whitehall is fracturing. On the one hand, Remainers are now openly threatening rebellion. On the other, Boris and his Eminence Noire, Dominic Cummings, are sticking to the plan – Brexit, Brexit, Brexit. Even if the current government falls in a no-confidence motion, the plan is to delay an election till after October 31, meaning the UK would simply fallout of the EU with a no-deal on Hallowe'en.

Analysts are hiking their bets on a no-deal. Last week the consensus was for about a 30 percent likelihood of no-deal. This week it's rising to 50 percent. Targets for sterling in what's bound to be a fractious week are for the pound to drop to $1.15 on a no-deal. I suspect there is room for the pound to test parity if the Johnson government suffers further wobbles and instability.

The papers say Boris is planning to put up the fortress gates when Parliament reconvenes in September and push for a post-leave November Election: "People versus the Politicians". The quote in the FT is fascinating: "Someone put Grieve's idea to Cummings on Friday that if we lose the vote of no confidence the PM will have to resign – he spat his drink out laughing". Cummings apparently said: "The idea we will hand over to a new government rather than leave with an election after October 31 is laughable."

What is very interesting is that Cummings has become the story. Not Boris. That's a possible fracture line for the government. Cummings may be brilliant, but he's got an appalling knack for upsetting people. When the parliamentary majority is one, then you need to trade carefully, and not risk pushback. But without Cummings threatening to latterly tear the throats out of waverers, then what's to hold discipline together?

Watch this space..

Out of time and back to the day job…

Bill Blain

Shard





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Blain's Morning Porridge

"Who put the crown on the head of the clown?"

That was an interesting close last week! The US Federal Reserve disappoints the markets when Powell said: "it's not the beginning of a long series of rate cuts," and Trump followed up by slapping 10 percent tariffs on US$300 billion of China exports. You'd almost think he's planned it. Stocks crash. Bonds rally. Rest of world focuses on the news and prepares for slowdown. A number of the big investment banks have gone negative on credit and stocks – they see a business shock is coming…

It looks like the big stories this week will all be political: What is going on in the US, and what happens next? What is China going to do about Hong Kong and what are the implications as the Renminbi falls under the Rmb7 "floor"? Now that Boris Johnson's parliamentary majority is down to one, (and his party is full of closet Remainers) what's his strategy and what are the implications for sterling? And what about Europe – very interesting article by Wolfgang Munchau in FT yesterday: "Germany is replaying Britain's Brexit Debate", which would apparently kill my hopes/expectations Europe is about to get its fiscal policy act together!

Yep, it's doom and gloom all around this morning! I could not be happier or more excited!

The headlines this morning look exceptionally gloomy for investment purposes. There is Berkshire Hathaway sitting on a $122 billion cash pile – what does that say about valuations? Trump spokesman blames Powell for stock crash – voters will believe anything, apparently. Rumours of infighting within New York Fed support the notion of a US central bank struggling to react to Trump. With the threat of a recession/slowdown (which wasn't reflected in Friday's payroll data) weighing on investors, what is the chance that further weak earnings and summer slowdown add to fears about just how inflated stocks and bonds are?

The current US ructions boil down – as they always do – to Trump. Don't underestimate him or dismiss him as an idiot. Don't believe everything you read about the chaotic White House. He has clear goals and objectives, and isn't subject to any scruples in how he achieves them. It's business to him – he spiked the trade talks knowing he was unlikely to win, but still looks like he's fighting for middle America. He is putting the pressure on the Fed – so it's clearly not going to be his fault next November.

It certainty looks like we are in for an escalation of the trade crisis. With the Renminbi now trading below 7 and Asian sources claiming Chinese state entities have been told to stop buying US agricultural goods, then any kind of breaking the trade impasse looks unlikely. It strikes me the market looks somewhat unhealthy – massively overenthusiastic stock market (even after late last week's sell-off on Fed and tariffs), and still crazy spreads in credit. What is to like? Er.. nothing.

And what about China? As Hong Kong protests continue and the government ups the rhetoric about its being Taiwan and US sponsored, what's the betting the Chinese intervene? That may be exactly what Trump wants. He has no intention of letting the US get involved, but it will distract the China leadership and he can turn to the US electorate and say: "Look at the kind of people we are dealing with…" Trump cares not a jot about Hong Kong – it's unlikely to win him votes. Taiwan would be a different issue – many Americans may feel obligated to get involved – but Hong Kong? Heck, no… what's China got to do with the USA?

I'll talk about the UK below, but interesting to note the number of weekend comments about the growing future weakness of the German economy. Too closely aligned with the automotive sector and the rest of the economy, including finance, not nimble enough to react – these are all themes the Porridge has been exploring for years!

Meanwhile the European Union has nominated Kristalina Georgieva, a Bulgarian, to be next head of the International Monetary Fund. When I first heard her name suggested a few weeks ago my first thought was which camp is she in. Give you a clue – the Germans, Dutch and UK are not happy. Therefore…she must be French. In Macron's pocket – which begs the question what does the rest of the world think about the IMF once more looking likely to be a piggy-bank for Europe when the rest of the world struggles?

Meanwhile… A quick rant at Bloomberg

I am peeved this morning. I have used a Bloomberg Terminal since 1989, but since I now execute via our traders, I don't need it as much, and we are very cost conscious here at Shard. But I do have a subscription to Bloomberg News – they have some excellent writers, like Mark Gilbert and Marcus Ashworth, and since traders/investors read BBerg, it's important to keep an eye on it. But, heaven help you if you can't log in – as I could not this morning.

In the absence of any help, I found myself denied access to financial information. I shall be writing to all the major European regulators today to complain that Bloomberg is effectively an insider news organization, illicitly profiting for selling news to only those who pay, subscribe and denying access to others. I might also question how many of Bloomberg's commentators from the market are also terminal subscribers? I already know a number of regulators who are concerned that Bloomberg's closed financial ecosystem within the global markets is overly exclusive and expensive.

Time to stir up some trouble. It might be fun to see how a European case against Bloomberg plays with Trump. Can you imagine him being forced to defend Michael Bloomberg's access to markets?

Blain's Brexit Watch

How much of the Boris feelgood remains? As Boris' parliamentary majority falls to the lowest single digit – one – my sources tell me the mood in Whitehall is fracturing. On the one hand, Remainers are now openly threatening rebellion. On the other, Boris and his Eminence Noire, Dominic Cummings, are sticking to the plan – Brexit, Brexit, Brexit. Even if the current government falls in a no-confidence motion, the plan is to delay an election till after October 31, meaning the UK would simply fallout of the EU with a no-deal on Hallowe'en.

Analysts are hiking their bets on a no-deal. Last week the consensus was for about a 30 percent likelihood of no-deal. This week it's rising to 50 percent. Targets for sterling in what's bound to be a fractious week are for the pound to drop to $1.15 on a no-deal. I suspect there is room for the pound to test parity if the Johnson government suffers further wobbles and instability.

The papers say Boris is planning to put up the fortress gates when Parliament reconvenes in September and push for a post-leave November Election: "People versus the Politicians". The quote in the FT is fascinating: "Someone put Grieve's idea to Cummings on Friday that if we lose the vote of no confidence the PM will have to resign – he spat his drink out laughing". Cummings apparently said: "The idea we will hand over to a new government rather than leave with an election after October 31 is laughable."

What is very interesting is that Cummings has become the story. Not Boris. That's a possible fracture line for the government. Cummings may be brilliant, but he's got an appalling knack for upsetting people. When the parliamentary majority is one, then you need to trade carefully, and not risk pushback. But without Cummings threatening to latterly tear the throats out of waverers, then what's to hold discipline together?

Watch this space..

Out of time and back to the day job…

Bill Blain

Shard



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