Blain's Morning Porridge - Markets are like a Game of Jenga.. or are they?
Blain’s Morning Porridge – March 31st 2017
“Now there’s a look in your eyes, like black holes in the sky..”
Short comment this morning. Its International Kindness day.. so please don’t shout too loudly. It was a Big Thursday, closing with Artisan Gin and Tonics on our balcony overlooking the Thames… She-who-is-Mrs Blain and I were singing along to Wish You Were Her at very early o’clock.
Ouch… Where is the emergency bottle of IRN BRU?
It’s the end of the first quarter and we’re all still breathing. Lots of articles, blogs and analysis are talking about a correction and a crunch to come sooner or later this year, but to be honest… its not happening yet. We are weathering the storm. Markets are coping and adjusting, shrugging off the angry-wee Scotswoman, Brexit uncertainty, Trump disappointments and Europe being Europe.
That’s what markets do…
But…
Somewhere there is a market pundit sitting at a bus-stop telling listeners that: “Markets are like a Game of Jenga”. You know the play – blocks of wood constructed in a tower. You carefully pull out the blocks one by one and add them to the top. The Tower gets higher and higher, but eventually someone pulls out the wrong block and gravity takes over… suddenly its Crash-Kabang..
If the market really is a Game of Jenga – then it only ends one way.
I’m not so certain. History and experience teaches us markets are volatile, and tend to crash and correct. However, give them time and they rise and recover again. Get over it – invest accordingly between fixed income and stocks.
Volatility is a function of events and noise. We can look at the Macro picture of global trade and economic data and reach one set of conclusions, and we can consider how the big themes currently developing might turn catastrophic (by which I mean cause market moves outside the usual 3 standard deviations) in the next quarter.
Brexit will be a slow-burn through the next 2 years. Get used to it, and look for spikes from distractions like Nicola Sturgeon and other crazed European politicos with axes to grind.
Europe, the Euro and timing on ECB action will be an ongoing soap through till at least this time next year when German elections are out the way, the next Greek near-crisis is resolved, while European leaders hope there has been some recovery.
The US might be the most interesting. News that Trump’s former chum, General Mike Flynn is willing to testify in return for immunity sounds like a story-line from House of Cards. However, one theme I’ve heard from my Washington sources is Trump could well be dumped in favour of VP Mike Pence if anything is proved re a Russian Connection. That could well prove a short-term market positive as the market looks to Pence to deliver a considered and pragmatic Trump reform package. Sadly that upside will probably evaporate when the market figures it’s the Republicans rather than Trump that might be the problem.
And if you feel you don’t have enough to worry about – there is a very interesting Bloomberg note on Asian Security Risks – well worth a read if you don’t think the new Stephen King Clown horror film will scare you enough: http://bloom.bg/2nHVz0S
Meanwhile, I read a great article about South Africa this morning by my good friend Anthony Peters – happy to send it round to anyone interested. One of the takeaways from his note is the tedious inevitability of things..
Have a great weekend!
Fastnet Race Charity: http://www.sail4cancer.org/fastnet-2017-bill-blain
Bill Blain