Blain's Morning Porridge - What next for the Peso Sterling?
Blain’s Morning Porridge October 12th 2016
“I think I was trying to suggest something about the duality of man.... sir.”
From the sublime to the ridiculous..
How fares the Great British Peso this morning?
Up? Why? What new rumour or sigh has driven it higher? The Blessed Theresa has agreed to a parliamentary vote on Brexit, setting the scene for yet another extraordinary chapter in this fascinating tale of “haven’t a clue”. You really could not be making this up. Let’s see.. UK lawmakers get to say yea or nay as long as it doesn’t “undermine the negotiating position of the government.”
Ahem… and that’s the positive?
A friend who moonlights as a rather good bank analyst summed it up this morning: “Trying to do Brexit is like performing open-heart surgery with a scalpel in one hand and a user manual in the other… there is definitely a risk of major mistakes..” Too true – The Peso Sterling will remain extremely volatile, potentially for years and we thread our way through this utterly unmapped process, but I reckon it’s a screaming buy at some point. We like volatility.. don’t we?
If I have time.. I might write a Halloween tale around the Brexit risks..
This morning a chum at a major UK fund shared in his market blog the news the Peso Sterling is the 142th worst performing currency this year. Only slightly better than the Suriname Dollar which is down 48% - but it really doesn’t matter… Suriname is about to roadshow its debut Eurodollar bond… I bet it’s oversubscribed…
On the other hand, my learned stock-augur colleague, Steve Previs, has dissected the entrails of the US stock market, and concludes the portents are bad. Forget the eagle crapping on the NYSE opening bell, but the SPX has closed below its 100 day moving average, a convincing sign of pain ahead. While, the market remains blithe, Steve points out other signs of pain as technical factors and the new earnings season look set to disappoint…
Woe, Woe, thrice Woe..
Meanwhile, I was out to dinner with a mixed crew of fund managers and academics – who scarily know far more than market folk and really do understand the Game of Politics. Wheels within wheels and a stunning exposition of just how confounded German politics are.. if I could remember what we agreed.. I’d share!
What I do recall is we all think it’s a crazy mixed up world. Trump was one matter, Europe another and of course one economics professor, who teaches in Boston over there, wondered WTF is happening here. No matter.. plough on regardless.. and we solved the problems of the global economy though the medium of more Expresso Martinis.. (which are rather good in Hawksmoor..)
We were wondering if we can get a quarter ounce of whatever they are smoking in Europe. Where, despite the pace of economic recovery approaching that of an arthritic snail pushing a very heavy zimmer-frame, the ECB continues to mumble-swerve about tapering their bond buying and tells us with a straight face that inflation is on target – whatever relevance that might be. We are being prepared for disappointment if you still think the programmes will be extended. And if you bought corporate bonds at negative yields.. tough..
All of which means the outlook remains nasty for the GB-Peso, nasty for stocks and Really Horrible for bonds.. which means it’s probably a great time for a business trip..
I’m afraid there will be no porridge for the next 10 days or so.. I’m out the office on business seeing folk that have to be seen. I’ll be looking at emails at strange and curious times, and will respond asap to anything interesting.
Among the many worthwhile things I find I’m going to miss is the Reed Smith Alternative Assets conference next week – where my wage-slaves on the Mint Alternatives team; Prodi and Jamie, will be hosting an investor panel discussion. If you haven’t already got an invite, let me know. I’ve copied Prodi’s email above should I be unavailable.
The conference should be fascinating with Reed Smith assembling some very interesting new issuers and business propositions to look at.
I’ll also be missing perhaps the biggest turn around in markets these last 30-yrs as the foundations of the US money markets are flipped into oblivion. Money market funds will no longer be about not “breaking the buck”, but will be based on floating prices effectively around NAV – in other words, forcing them to shift their investments to ever less risky assets to preserve the dollar myth.
The result? Libor is up and yet more distortion lies ahead in US bond markets (well strictly speaking “notes”). Short-term funding is no longer going into the banks and institutions that could use it.. Money markets are enormously complex and influential – setting the tone across swaps, rates, liquidity and currencies. Analysts are split – does Libor rise or fall post the new rules?
Goldman, quoted in Bberg, say Libor will hit 3.6% by 2019.. Think about it… Yep.. it’s time to start worrying about a whole new set of unintended consequences..
As a final thought.. this morning’s photo tells us the year is drawing on.. they are constructing the ice-rink at Canary Wharf… but if anyone starts playing Christmas music in the mall… I shall go postal..
Back to the day job.. and your daily porridge resumes the week after next..
Bill Blain
Head of Capital Markets / Alternative Assets