Blain's Morning Porridge - May 24th - Europe? Aligned or Not?
Blain’s Morning Porridge – May 24th 2017
“It may not be necessary for the public to believe the central bank’s claims that it will allow an overshoot of inflation; it may only be necessary the administration and the legislators believe it.”
Definitely a different vibe as I came into the office this morning. We are fortunate in our security services.
Back to the markets, and yesterday was understandably a thin day.
What did the European numbers tell us? Both France and Germany came in strongly. A number of analyst reports through the day therefore conclude Europe is fixed – buy stocks, buy Euros, buy Periphery and then buy some more. I even saw a note saying it will soon be a French, German and Spanish economic troika – wow what a change a decade makes (US readers: sarcasm alert!).
The general thesis is the alignment of France and Germany in terms of growth, expansion, politics and closer European integration means the problems of the past are behind us.
Except none of that is true.
There is not real alignment from one bank of the Rhine to the other. Germany is a healthy reformed mature economy in step up mode. It made sensible life style changes years ago, and has become good chums with its economic trainer. France doesn’t even know where the economic gym is. It’s the equivalent of an economic alcoholic that’s finally joined the programme but is still to address years of red-tape, bureaucracy and labour market inefficiency.
“Hi. My name’s France and I’ve got a 35 hours work week..”
Rest of Yoorp politely claps.
The crisis for Europe will hit when Germany hits full employment overheat while France still wobbles close to double digit joblessness. Macron clearly believes France shares a common purpose with Germany, and thinks he’ll persuade the Germans on the merits of sensible and considered fiscal expansion. I’m sure Merkel played some lip service to his overtures – but her electoral brief is strong and secure: Germany is never ever going to mutualise European debt - (in any meaningful form!)
Lest we forget, Europe aint France and Germany… What about the rest?
Italy. Nope. Lets not even waste time talking about it.
Greece? Irrelevant. Read Adults in the Room.
Elsewhere?
China downgrade by Moody’s last night, citing the challenges of maintaining growth, while controlling runaway leverage in the economy. Hardly rocket science – and most seasoned China hands say it’s a statement of downright bleeding obvious. But criticism and questioning of whether the party can do control the many forces on the economy is pertinent – the Chinese reacted predicably – saying the agency underestimates their ability to reform and boost demand.
Is the big shock going to be triggered out of China?
While I wonder how long the government can deliver the 6.5% growth considered necessary to keep the populace happy, I wonder if we are looking in the wrong direction? The real issue could yet prove to be a third factor in China – the inability of government to address the environmental damage caused by the last 30 years of rampant growth. The government’s success in addressing smog, air quality, heavy metal pollution, water quality and desertification could prove far more a challenge that reining in lending while keeping the populace in check with jobs.
And for anyone that has been watching commodities trade Nobel on the current price rollercoater, our high-yield team has been very busy, making 2 way markets. Call for prices!
I’m out the rest of this week – client’s charity lunch tomorrow and then a long yacht race over the weekend (which might be “interesting” as there is nothing more than a baby’s breath of wind forecast. There is Fog in the channel, which can be pretty scary late at night crossing the busiest shipping lanes on the planet.)
But finally the Sporting Event of the year is upon us.. the big one we’ve all been waiting for.. the America’s Cup extravaganza in Bermuda! The pre-cup Challenger series starts on Friday and will see one of 5 teams earn the right to face USA Team Oracle in the actual America’s Cup in late June.
The whole of Blighty thinks Ben Ainslie Racing (BAR) is going to win in the greatest British Naval victory since Trafalgar… Since 1851 UK boats have competed for the America’s cup 21 times. We’ve never won.
Sorry. But it’s looking unlikely we’ll win this time either.
There is a very real risk we’ll not even get to the disappointment equivalent of a penalty shootout – the Brits just don’t look fast enough.
Some say Ben is just playing clever, that he’s been deliberately under-sailing the boat and making it look slower to fool the opposition – but that doesn’t make sense. To get the best of out a boat you have to push, push and push harder. There is a forlorn hope the Brits are saving some incredible racing winning performance improvements for the actual day – on the basis there is not point revealing it now, which cuts down the amount of time rivals have to match us. Sadly, that’s a hope… not the reality.
The inside sailing scuttlebutt says the favoured teams to meet the Yanks in the final are the Kiwis (Emirates Team NZ) or the Swedes (Artemis). Even Japan (Softbank) has been doing comparatively well – superb video here from the Japanese explaining why these boats are so fast - http://www.cupexperience.com/blog/2017/04/softbank-team-japans-nick-holroyd-explains-foil-design-tradeoffs/
Rita, Ben’s boat, is able to beat the French, but that still leaves them well shy of the pack. The years spent building a big team HQ in Portsmouth and waiting for opportunities to train on the dreich Solent haven’t prepared them for racing in Bermuda’s more reliable conditions. Odds on Sir Ben are quoted at 10/3 – which probably reflects hope over reality. The Kiwis as 9/4 while the Yanks are 11/10 on!
If BAR gets sent home early, I’ll be shifting support to the Swedes – their skipper, Ian Percy, is another British Olympian and hopefully will be able to shove the Yanks off the podium. And of course, the Kiwis are basically Scotsmen Version 2.2 so they also get my vote.
Anyone interested in the America’s Cup… give me a shout.
And with that, let me remind you I am doing the Fastnet race in August to raise money for my two nominated charities; Sail4Cancer and Wessex Heartbeat:
Fastnet Charity: http://www.sail4cancer.org/fastnet-2017-bill-blain
Bill Blain