Blain's Morning Porridge - August 1st 2017 - Dancing the Fandango, Brexit Horror and Stagflation
Blain’s Morning Porridge – August 1st 2017
“And the wheel’s kick and the wind’s song and the white sail’s shaking, and a grey mist on the sea’s face, and a grey dawn breaking...”
Another fascinating day in Washington as it turns out Scaramoucii can’t dance the fandango.
While everyone else is watching and wondering who will be defenestrated from Trump World next, I’m wondering who else has watched “Seven Days in May” recently? Are the clique of Generals on Pennsylvania Avenue taking over the asylum..? Who knows.. maybe the new 4 Star Marine will bring a little order to the Chaos.. or maybe that will be the big crisis point?
It must be the summer… so Brexit threats loom large in the press this morning. Into the dark woods of fear and despair we go as the papers tell us about UK civil servants wring their hair out at Theresa May’s “control freak freeze” and a “wasted year while the Tories negotiated with themselves” have peeved our former chums in Europe. (NSS award on its way.)
Meanwhile UK banks are on the front page of the FT as a report from the well-respected Oliver Wyman says they will see cost rises and capital requirements up by 30% due to Brexit. Is it just more “Project Fear” fake news? Wyman say its worst case planning, but also the costs of duplication from having to set up European operations. Wyman reckon 40k UK financial sector jobs could be lost due to Brexit.
Interesting article on Bloomberg as former Fed Head Alan Greenspan warns the real bubble isn’t stocks, but in the bond market! “By any real measure, real long-term interest rates are much too low and therefore unsustainable”. He went on to warn of slow growth and rising inflation in the US. Stagflation on the horizon!
We’re already there with stagnation since 2008 as cash has been flowed into financial assets rather than Capex and productivity growth. Greenspan now sees the second part of the whammy coming: Tepid growth and rising inflation. When it comes, the Fed will be forced to act, triggering bond rout and a following stock correction.
Even more interesting is the Fed Model valuation showing stocks close to “screaming buy” levels relative to bonds: 10-year inflation linked bonds yield 0.47%, while the S&P 500 dividend yield stands at 4.7%, some 21% higher than the 20 year average! Despite very high P/E ratios, is it a pretty powerful indication we’re looking at the wrong bubble? Problem is, one bubble bursting doesn’t inflate another one.. worth taking a look at 10-year US bond yields and the stock market over last 10-yrs…
And what about the dollar?
There may be signs the current decline will be reversed. I’ve heard and read too many people saying it’s a “crowed trade”, and with a new broom in the White House, a reconciliation twixt Trump and the Party, and maybe a reassessment of priorities.. well who knows… but maybe time for the dollar upside?
Afraid this is the last Morning Porridge for the next two weeks.
Finally its time to focus on this year’s challenge, the Fastnet Race.
It’s described as the Everest of offshore yacht racing. It starts Sunday morning and my crew and I will be racing my yacht, Batfish V, some 610 miles from Cowes (on the Isle of Wight), along the Southern English coast, round Land’s End, across the Irish Sea to the South-West Tip of Ireland, back South-East around the Scillies and finish in Plymouth. We should finish on Thursday – I hope.
If you are interested, you can follow the race on the Royal Ocean Racing Club Fastnet website: http://www.rolexfastnetrace.com/Tracking/2017-fleet-tracking.html
We’re raising money for charity – Sail4Cancer and Wessex Heartbeat. Regular readers will remember I had some dodgy ticker issues last year: http://www.sail4cancer.org/fastnet-2017-bill-blain
Back in Mid August.. have fund and stick with it: “Illegitimi non Carborundrum”
Bill Blain