Blain's Morning Porridge -
Blain’s Mid-Morning Porridge – January 10th 2017
“A chess player never has a heart attack 2 moves from check-mate..”
After an “interesting” 12 weeks, I’m back in the office.
Service will be intermittent for the next few weeks as I settle down, juggle check-ups and appointments, but also get in some skiing! That might surprise folk wondering if it’s wise for a triple-bypass recipient to even consider such nonsense, but the quacks say my ticker is good for it, and told me to go do “stuff” till it hurts! So a few gentle days on the slopes – not racing! – will do me a world of good.
I’ve also been told to amend my debauched ways.. so no more all-day lunches. I spent most of December going for long walks. I’m sort of going dry till I lose about 20 kilos! I’m going to do lots more sailing – cos it’s good for me!
In terms of markets I’m still a tad out of touch, but the Mint teams have been busy briefing me. Since I never got the opportunity to do a 2017 outlook last year, let me start by stating the issues causing me some worry:
Throughout my career, years ending in 7 haven’t been good.
1987 saw a massive stock market crash, in 1997 we got the Asian Financial Crisis, and 2007 saw the start of the Global Financial Crisis and consequences we’re still struggling with today. In the case of year 7s, the trend is not our friend.
I’m told by my stock picking chartists there is a 10-yr stock cycle that looks to have peaked. Many factors about this succession of market turnaround moments worry me – firstly, the scale of crisis seems to be multiplying as each 10-yrs event. A simple stock market rout in 1987 became near global catastrophe in 2007.
Thankfully we haven’t ever had the kind of absolute global market meltdown doomsters say will happen, but it does strike me that market moves – whether caused by an evil conjunction of rogue algorithims and Hi-Speed-Trading, or simple human foolishness – are becoming increasingly chaotic, thus raising the scale of crashes.
The second aspect is how financial crisis are solved. Each is new – but it worries me the efforts made to ensure the last crisis doesn’t happen again may contribute to the causes the next one. I certainly don’t believe the deluge of regulatory tat since 2008 has made the world safer. It has not… it has made it more.. difficult. It’s a game of consequences…
And change is definitely coming…
I’ve been looking at the dismal science of Economics. It’s proper name is political economy and its not a proper science. It’s a language for understanding complex events and responding to them,rather than mathematical rules. Over the past 10-years we’ve seen a massive economic experiment in monetary economics. It’s hasn’t gone well. It strikes me the legions of central bank economists are akin to the ancient alchemists looking to change base metal into gold….
The piper will soon want paid. The next phase – underway already - will be a reversal back to fiscal economics. That one potentially positive reality for the US and UK, but yet another minefield for Europe. It’s a big if to see whether Trump delivers the fiscal boost the market expects, or whether the continued weakness of sterling continues to push the FTSE into the stratosphere. I have my doubts…!
In Europe a swing towards Fiscal policy spells crisis.
The fact that France and Italy could be steaming towards fiscal stimuli will break the current ECB monetary consensus, while Germans become increasing strident about the need for higher rates and an end to QE. Add to that a hefty dose of European politics. Dutch Elections, French Elections and the Germans.. its all much to worry about.
I’ve noticed many folk produce lists of 5 events that will shake markets in 2017. I could try to do the same, but I’m a bit late. Many folk think European events will trigger massive crisis and the potential break-up of the Euro.
How should you trade that?
If it happens and Europe unravels, then its likely we’ll see a flight to quality in Gold and US Treasuries. We’ll see European Stock markets correct massively. I also expect you’d want to massively short European bank stocks and credit (although contrarians might argue a European breakup would be best thing for banks!) Our structured note team has designed a number of leveraged structured note plays to recognise just such views – up from small premium would be lost if it doesn’t happen, but pay out *12 if it does…
Meanwhile, I’m still playing catch-up in credit, but just before Christmas we closed a very effective Aviation deal paying investors a significant coupon. We’ll be repeating the deal later this year – so if you want to learn more let me know.
Also on our Alternative Investment list, perhaps one for car lovers – how would you fancy a significant equity stake in an iconic prestige UK sporting car brand? Want to know more? Then give me a shout..
Normal service resumes next week..
Good to be back…