We feel we're doing it right
August 1, 2019

Blain's Morning Porridge - Swiss National Day

"We can swing together cos we feel we're doing it right.."

A FED TALE

With one hand the US Federal Reserve giveth, a 25 basis point cut, but on the other it taketh; Powell's "mid-cycle adjustment" left markets confused. Where is the easing to negative infinity they'd been promised?

The yield curve inverted (spawning a host of headlines about how the bond market again predicts a recession), the dollar strengthened (well, of course it would), and stocks did nothing till they stumbled and fell a bit – a toddler screaming that "insuring against downside risks" should mean a promise of another cut, stunned when Powell said "it's not the beginning of a long series of rate cuts".

Thus occurred the most pointless rate cut in Fed history – easing rates in a "healthy" economy pretty much at full employment with a "favourable" outlook, where the only real problem is massively inflated financial asset bubbles. The effect will be to juice already distorted financial assets higher. Marvellous (US readers – sarcasm alert). Two Fed Voting Governors dissented – give them medals.

Trump tweeted: "As usual, Powell let us down." Helpful. Donald wants a "lengthy and aggressive rate cut cycle which will keep pace with China, The European Union and other countries…". Predictable.

Climate

Back here in the land of common unsense…I am now going to upset lots of Porridge Readers who think environmental degradation/climate warming is a communist plot, bogus science and to even mention it will cause economic mayhem.

Believe whatever you want to believe – I believe climate change is very real, it's a massive threat, and it's the greatest opportunity in terms of new technology, risk investment and upside returns. It's already happening, and it is changing the world. Think about it: Tesla is not just about innovating electric cars… it's about why we need to move to electric cars, and the consequences for the current automotive industry. And Tesla is just a tiny part of a massive shift from a carbon emissions to a carbon neutral economy. Either embrace it or become a fossil.

Everyone will be aware the last ten years have been the hottest on record in the UK – the records go back to 1884. We haven't had a top ten coldest year since 1963 – which even I don't remember (I was a toddler!; Editor's note: this editor is old enough to remember that winter, the highlight of which was building an igloo about 50 yards from the front door of his council house in Airdrie in central Scotland, in his shorts…).

This year we've seen more catastrophic flooding, our seas suffering algae blooms, and plastic littering our beaches. It's bad here. It's worse elsewhere.

I also note the decision of schoolgirl climate change protester Greta Thunberg to sail across the Atlantic to attend UN climate summits in the US and Chile, in the state-of-the-art foiling carbon-fibre race yacht, Malizia II (Editor's note: Carbon? Isn't that verboten?). There has been a considerable amount of comment mocking her decision – saying her father is trying to monetize her celebrity, or it's autistic headline-grabbing attention-seeking behaviour. A sizable number of Morning Porridge Readers will consider Thunberg's climate protests an annoyance, and question her motivations for doing it.

She deserves our praise. Good luck to her. Apparently, she hasn't done much sailing. She is in for a shock. Two weeks on a fast carbon boat with a bucket and chuck it approach to toilets will show her a particularly stark reality of ocean racing. She is a brave lass to be taking it on. I hope she enjoys it. A bad day at sea is better than a good day in the office every time!

She's doing it for all the right reasons. She believes, but unlike most of us is doing something about it. She is doing it because she's uncomfortable with the carbon footprint a flight to the conference will create - two tonnes of CO2 emissions. Not insignificant in a year when we've seen record winter and summer temperatures across Europe, the fastest Greenland ice-melt and record growth spurt in Californian Redwoods – a sure sign of warming!

Meanwhile, I watched Bank of England Governor Mark Carney on Channel 4 last night actively support market initiatives to boost environmental and climate change investments. He was on the ball – he was the best qualified person for the International Monetary Fund job, but was actively discriminated against for not being European enough.

The concept of impact investment rather than growth investment is the future. Here's an idea for politicians – create a new supranational institution to actually do something in terms of boosting Impact Green and Climate investments and put him in the chair.

There is an article in the FT this morning – BlackRock lambasted over wasteful fossil fuel investments. It's a bit unfair as a story in that basically BlackRock's index tracker investments in coal, power and oil have proved an opportunity cost, losing money they could have made by consciously not investing in these underperforming stocks. However, the point is: Markets are now actively deselecting non-environmentally beneficial stocks – a point the smart money and clever firms get!

It can go too far. There is an absolutely infuriating story about how the British Museum is being challenged over its sponsorship from BP. A group called Culture Unstained wants to end sponsorship from companies that profit from fossil fuels.. blah blah blah..

BP is a smart firm – it is actively managing for change and engaging. Yet, the whole climate change debate is now damaged because the actions of a few extremist protestors damage the arguments in the minds of most people.

The current shift towards green and climate awareness is fantastic, but let's keep it focussed. It doesn't need to stop business. For instance, there is no need to be anti-coal. Sure, replacing dirty coal power and massive emissions with clean energy makes sense, but let's not cut off our nose to spite our face.

There is a project here in the UK I'm very enthusiastic on: opening a new UK deep coal mine to produce the world's best metallurgical coal, which is used to construct top grade metals. In the process all the CO2 emissions can be managed and contained. Carbon from coal is a critical ingredient of high-grade steels – which are critical for growth and "impact" in terms of a better society. It's profitable, it makes sound sense, it can be mitigated, but most investors are running scared because of the environmental social and governance noise it could generate.

Going back to Thunberg: if you think a teenaged climate change campaigner sailing the Altantic rather than flying isn't important, then you are missing the point. Part of that point is we're not all able to take 14 days out of our schedule to sail to New York, and another two weeks to come back. (I would be happy to…but am not sure Shard would keep paying me!).

We need transport. The electric plane is coming. At the moment we could build a plane to fly from London to New York. It will be about the size of an A380 mega-jumbo. Sadly, there won't be any room for passengers – the plane will essentially be a flying battery. The problem is battery storage: capacitance. That is going to change – planes will be innovated and new capacitance/power strategies will be developed. And if there is an industry ripe for disruption then it's airplanes!

The bottom line is climate and environment are the biggest challenges we face – and offer the biggest opportunities. There is great stuff going on – new farming methods, sequestering CO2 in old gas wells, and treating waste – all deals I'm working on. The danger is it gets over-politicized or over-bureaucratic in terms of what and what does not get passed by self-elected green Stazis.

Blain's Brexit Watch

As UK Prime Minister for today Boris Johnson plans to pour billions into no-deal preparations, the Irish accuse him of bullying tactics, and the Labour Party gets ready to offer a second referendum as its response, it's all becoming terribly exciting. (It is also deeply depressing – just writing this makes me wonder if I am suffering post-traumatic stress disorder?) The feelgood Boris's ascension to the highest elected office in the UK engendered just a week ago is already wearing thin. All the bluff and bluster needs balanced by something tangible. As yet, we aren't seeing it. This is leading to lots of questions – does Boris need to engage with Brussels and go visit?

The answer from Downing Street will be no. Advisor Dominic Cummings will insist. Let others respond to the challenge of an agreement that Boris has laid down. No-Engagement. Europe will come to us. Seriously?

The result is going to be further uncertainty, confustion and opportunities for Project Fear Remoaners to snipe and moan. Pundits now see the likelihood of a No-Deal at 30 percent and rising, with sterling heading lower to US$1.15.

Hold onto your seats, boys and girls. This is going to get rough before we land.

No Porridge tomorrow – off to the Wickham Festival! Have a great weekend!

Bill Blain

Shard Capital





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Blain's Morning Porridge - Swiss National Day

"We can swing together cos we feel we're doing it right.."

A FED TALE

With one hand the US Federal Reserve giveth, a 25 basis point cut, but on the other it taketh; Powell's "mid-cycle adjustment" left markets confused. Where is the easing to negative infinity they'd been promised?

The yield curve inverted (spawning a host of headlines about how the bond market again predicts a recession), the dollar strengthened (well, of course it would), and stocks did nothing till they stumbled and fell a bit – a toddler screaming that "insuring against downside risks" should mean a promise of another cut, stunned when Powell said "it's not the beginning of a long series of rate cuts".

Thus occurred the most pointless rate cut in Fed history – easing rates in a "healthy" economy pretty much at full employment with a "favourable" outlook, where the only real problem is massively inflated financial asset bubbles. The effect will be to juice already distorted financial assets higher. Marvellous (US readers – sarcasm alert). Two Fed Voting Governors dissented – give them medals.

Trump tweeted: "As usual, Powell let us down." Helpful. Donald wants a "lengthy and aggressive rate cut cycle which will keep pace with China, The European Union and other countries…". Predictable.

Climate

Back here in the land of common unsense…I am now going to upset lots of Porridge Readers who think environmental degradation/climate warming is a communist plot, bogus science and to even mention it will cause economic mayhem.

Believe whatever you want to believe – I believe climate change is very real, it's a massive threat, and it's the greatest opportunity in terms of new technology, risk investment and upside returns. It's already happening, and it is changing the world. Think about it: Tesla is not just about innovating electric cars… it's about why we need to move to electric cars, and the consequences for the current automotive industry. And Tesla is just a tiny part of a massive shift from a carbon emissions to a carbon neutral economy. Either embrace it or become a fossil.

Everyone will be aware the last ten years have been the hottest on record in the UK – the records go back to 1884. We haven't had a top ten coldest year since 1963 – which even I don't remember (I was a toddler!; Editor's note: this editor is old enough to remember that winter, the highlight of which was building an igloo about 50 yards from the front door of his council house in Airdrie in central Scotland, in his shorts…).

This year we've seen more catastrophic flooding, our seas suffering algae blooms, and plastic littering our beaches. It's bad here. It's worse elsewhere.

I also note the decision of schoolgirl climate change protester Greta Thunberg to sail across the Atlantic to attend UN climate summits in the US and Chile, in the state-of-the-art foiling carbon-fibre race yacht, Malizia II (Editor's note: Carbon? Isn't that verboten?). There has been a considerable amount of comment mocking her decision – saying her father is trying to monetize her celebrity, or it's autistic headline-grabbing attention-seeking behaviour. A sizable number of Morning Porridge Readers will consider Thunberg's climate protests an annoyance, and question her motivations for doing it.

She deserves our praise. Good luck to her. Apparently, she hasn't done much sailing. She is in for a shock. Two weeks on a fast carbon boat with a bucket and chuck it approach to toilets will show her a particularly stark reality of ocean racing. She is a brave lass to be taking it on. I hope she enjoys it. A bad day at sea is better than a good day in the office every time!

She's doing it for all the right reasons. She believes, but unlike most of us is doing something about it. She is doing it because she's uncomfortable with the carbon footprint a flight to the conference will create - two tonnes of CO2 emissions. Not insignificant in a year when we've seen record winter and summer temperatures across Europe, the fastest Greenland ice-melt and record growth spurt in Californian Redwoods – a sure sign of warming!

Meanwhile, I watched Bank of England Governor Mark Carney on Channel 4 last night actively support market initiatives to boost environmental and climate change investments. He was on the ball – he was the best qualified person for the International Monetary Fund job, but was actively discriminated against for not being European enough.

The concept of impact investment rather than growth investment is the future. Here's an idea for politicians – create a new supranational institution to actually do something in terms of boosting Impact Green and Climate investments and put him in the chair.

There is an article in the FT this morning – BlackRock lambasted over wasteful fossil fuel investments. It's a bit unfair as a story in that basically BlackRock's index tracker investments in coal, power and oil have proved an opportunity cost, losing money they could have made by consciously not investing in these underperforming stocks. However, the point is: Markets are now actively deselecting non-environmentally beneficial stocks – a point the smart money and clever firms get!

It can go too far. There is an absolutely infuriating story about how the British Museum is being challenged over its sponsorship from BP. A group called Culture Unstained wants to end sponsorship from companies that profit from fossil fuels.. blah blah blah..

BP is a smart firm – it is actively managing for change and engaging. Yet, the whole climate change debate is now damaged because the actions of a few extremist protestors damage the arguments in the minds of most people.

The current shift towards green and climate awareness is fantastic, but let's keep it focussed. It doesn't need to stop business. For instance, there is no need to be anti-coal. Sure, replacing dirty coal power and massive emissions with clean energy makes sense, but let's not cut off our nose to spite our face.

There is a project here in the UK I'm very enthusiastic on: opening a new UK deep coal mine to produce the world's best metallurgical coal, which is used to construct top grade metals. In the process all the CO2 emissions can be managed and contained. Carbon from coal is a critical ingredient of high-grade steels – which are critical for growth and "impact" in terms of a better society. It's profitable, it makes sound sense, it can be mitigated, but most investors are running scared because of the environmental social and governance noise it could generate.

Going back to Thunberg: if you think a teenaged climate change campaigner sailing the Altantic rather than flying isn't important, then you are missing the point. Part of that point is we're not all able to take 14 days out of our schedule to sail to New York, and another two weeks to come back. (I would be happy to…but am not sure Shard would keep paying me!).

We need transport. The electric plane is coming. At the moment we could build a plane to fly from London to New York. It will be about the size of an A380 mega-jumbo. Sadly, there won't be any room for passengers – the plane will essentially be a flying battery. The problem is battery storage: capacitance. That is going to change – planes will be innovated and new capacitance/power strategies will be developed. And if there is an industry ripe for disruption then it's airplanes!

The bottom line is climate and environment are the biggest challenges we face – and offer the biggest opportunities. There is great stuff going on – new farming methods, sequestering CO2 in old gas wells, and treating waste – all deals I'm working on. The danger is it gets over-politicized or over-bureaucratic in terms of what and what does not get passed by self-elected green Stazis.

Blain's Brexit Watch

As UK Prime Minister for today Boris Johnson plans to pour billions into no-deal preparations, the Irish accuse him of bullying tactics, and the Labour Party gets ready to offer a second referendum as its response, it's all becoming terribly exciting. (It is also deeply depressing – just writing this makes me wonder if I am suffering post-traumatic stress disorder?) The feelgood Boris's ascension to the highest elected office in the UK engendered just a week ago is already wearing thin. All the bluff and bluster needs balanced by something tangible. As yet, we aren't seeing it. This is leading to lots of questions – does Boris need to engage with Brussels and go visit?

The answer from Downing Street will be no. Advisor Dominic Cummings will insist. Let others respond to the challenge of an agreement that Boris has laid down. No-Engagement. Europe will come to us. Seriously?

The result is going to be further uncertainty, confustion and opportunities for Project Fear Remoaners to snipe and moan. Pundits now see the likelihood of a No-Deal at 30 percent and rising, with sterling heading lower to US$1.15.

Hold onto your seats, boys and girls. This is going to get rough before we land.

No Porridge tomorrow – off to the Wickham Festival! Have a great weekend!

Bill Blain

Shard Capital



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