Blain's Morning Porridge - the wisest man in the markets is driving a mini-cab!

Blain’s Morning Porridge – May 16th 2017 “Now all them things that seemed so important, well mister, they vanished right into the air….”

I’ve been very fortunate this morning to spend 30 minutes in the company of perhaps the wisest man in the whole of London. Stuck in traffic on the way back from the West End, I discovered my mini-cab driver has a better approach and strategy for dealing with the daily misery that is modern life than any investment professional I’ve ever met. His advice included smiling nicely at other drivers cutting him up, letting politicians get on with it – in the long run they don’t really matter - and investing only in companies where he understands exactly what they do and why. He also let me in on the secret of Nigella seeds – aparently they cure everything from toothache to the SNP. I shall try them later! He really should be driving a desk in a psychotherapy ward or as CIO of a massively large investment firm. I took the opportunity to unburden myself of my current concerns on markets. I explained my fears about the low level of the VIX and the complacency that seems to dominate market thinking. I fretted how financial asset prices keep head remorselessly higher with no rhyme or reason. It seems nothing: not a China slowdown, the declining oil outlook or the political stramash that passes for law-making in Washington/London/Berlin, is able to slow the irresistible rise and asset-inflation in markets. He politely listened. Nodded his head. He suggested a nice cup of coffee or tea and some Nigella Seeds. A smart man indeed. So how to cope with these markets? It’s easy to miss the Forest among all these trees. A veritable deluge of new supply in the bond market with just about everyone from France to Slovenia launching new deals. Since there is minimal liquidity in any deal more than a few days in secondary, everyone is piling into new bonds. Spreads continue to grind tighter. If someone can explain to me why High Yield bond idexes are within a gnat’s chuff of all-time highs, I would love to understand… My chums on the emerging markets desk tell me the place to be is Greece. (What??? Whoever could possibly have imagined that at some point we’d actually be telling folk Greece makes sense.. but, such is the wonder of this modern age.) The GGB strip market has been trading higher and higher, indicating the market anticipates a good conclusion to the current discussions. Moreover, Moodys has maintained a stable outlook on Greek banks and improving profitability. Have I been missing something? Sounds like I have… If Greece, or other EM themes are markets you have been looking at, let me put you in touch with the EM team. They produce an excellent daily EM summary – if you want added to the distribution let me know! As for Europe, I really can’t understand all the positivity – which means I’ve been missing an open goal. I’ve been reading stories about how undervalued European stocks are, how the French economy now looks so positive under the new president Macron, and I not a tale on Bloomberg about how money invested into the iShares Core MSCI Europe ETF is up 155% since December! What did they spot that I missed? The similar, and more liquid Vanguard FTSE Europe ETF is only up 14%. Both funds are up 21% in value this year. Both ETFs have boomed on the basis of a general upgrade on Europe as expectations of recovery have grown. Have they? What’s improved? Less political threat now that France is behind us? Huh, don’t believe it. Although I do note Macron has started well – his first act as French president being to go pay homage to Merkel. But I really can’t argue with the reality of European markets higher.. Does’t mean I understand it though.. Running slow this morning, so keeping it short.. Fastnet Race Charity: http://www.sail4cancer.org/fastnet-2017-bill-blain

Bill Blain