Blain's Morning Porridge - Nov 9th 2017. The UK vs Europe, the best comedy show ever!
Blain’s Morning Porridge – November 9th 2017
“Hold tight, wait till the party’s over, hold tight, we’re in for nasty weather…”
For the avoidance of doubt – the Morning Porridge is unrestricted market commentary, it is not investment advice…
You really can’t make this stuff up. Get out the blunted spoons as the EU demands UK pays to play or forget a December start to real talks. The UK government in disarray. Global investors shaking their heads asking WTF and getting a bit bored and disinterested by it.
It could be a top class comedy.
Imagine the scene… A wood panelled office in Downing Street; Theresa Maybemight is trying to rebalance her cabinet. After carelessly losing a remainer last week, she has to sack a Brexiteer this week. Howls of hysterical studio laughter as cosmic balance is restored by chucking another one to the wolves.. Till tomorrow… as a blonde chubby bloke winks to camera…
Back in Brussells (actually Berlin, cos let’s be honest about it) a group of German experts have reviewed the situation and concluded Brexit might be bad for Germany (in comedy German accents) so therefore it can’t happen. End of discussion. Crashing minor chords. Their stooges in Brussels read out a demand for “One Gizillionbillion dollars” in a passable Dr Evil impersonation (comedy Belgian accents) and give poor little Theresa six weeks to pay. Or else…
Meanwhile, way down south in Italy, smiling comic character Silvio Berlusconi bounces back on stage with this new Lega Nord comic sidekicks making sexist jokes, suggestively squeezing some melons like it was 1970 all over again, and spending loads and loads of other peoples’ money to get re-elected.. When sidekick asks who’s going to pay for it, he delivers the classic punchline “Oh, don’t a-worry (classic Italian comedy accent), Mario Draghi will “do whatever it takes”….
Boom Boom.. Closing credits..
At this point it might be worth asking why the UK ever got involved in Europe in the first place. Fortunately, a record of a conversation between a Cabinet Minister and his Permanent Secretary (Civil Service head) was uncovered in recently released cabinet papers from 1980:
Sir Humphrey (for it is he..): Minister, Britain has had the same foreign policy objective for at least the last 500 years: to create a disunited Europe. In that cause we have fought with the Dutch against the Spanish, with the Germans against the French, with the French and Italians against the Germans, and with the French against the Germans and Italians. Divide and rule, you see. Why should we change now, when it’s worked so well? Jim Hacker MP: That’s all ancient history, surely? Sir Humphrey: Yes, and current policy. We had to break the whole thing [the EEC] up, so we had to get inside. We tried to break it up from the outside, but that wouldn’t work. Now that we’re inside we can make a complete pig’s breakfast of the whole thing: set the Germans against the French, the French against the Italians, the Italians against the Dutch… The Foreign Office is terribly pleased; it’s just like old times. Hacker: But surely we’re all committed to the European ideal? Sir Humphrey: [chuckles] Really, minister. Hacker: What appalling cynicism. Sir Humphrey: Yes… We call it diplomacy, minister.
Back on Planet Rest-of-the-world…
Stock markets and bond spreads continue to defy gravity. It feels like many of the bears are in capitulation mode, finally accepting they can’t afford to sit on the sidelines, un-invested in these soar-a-way markets. There is little consolation from sitting safe and not making any money when markets continue to ratchet tighter every day.
The data continues to look solid – the quarterly results season was strong, the indications of stronger global growth continue to mount, and we’re even seeing signs of some wage inflation. The threat of an oil-price shock pulling down the global feel-good seems to have receded. You can’t wait forever to buy the dips when the dips aren’t coming!
On the other hand, waiting for the correction is like watching for the kettle to boil – you know it will.. but when? What might trigger a turnover? Middle East, China Lending.. who knows, get over it and Buy, Buy, Buy!
Of course, you could wake up, smell the coffee, and conclude it can’t last forever. And then look for assets that are uncorrelated to the inflated financial asset markets.
One of the uncorrelated alternative markets I particularly like is aviation. For anyone unconvinced on aviation assets then the news Boeing just announced $37 bln of Chinese orders for 300 aircraft is worth noting. Sure, it gives Trump an opportunity to brag and get closer towards his $200 bln of new business while in China target, but in fact it’s nothing particularly special in terms of aviation spending.
Over the next two decades, we expect to see over 800 aircraft delivered every year into the Asian markets – they all need to be financed!
The leading aviation forecasters agree the next 20-years are going to see a global shortage of aviation assets. Rising Economic Growth, improving Living Standards, and Urbanisation will lead to a very large increase in the demand for new and replacement passenger aircraft. Over the next 20 years, aggregate demand will surpass 39,500 new commercial jet airliners. Over half new aircraft will be delivered in the growing Asian market with solid growth in North America and Europe. The number of aircraft in service will increase from 22,510 to over 45,000 – the bulk of which will be regional single aisle aircraft – meaning older aircraft are likely to appreciate also as service lives increase, leading to further aviation opportunities in engines and spare parts.
Is it a market you can ignore?
The market value of the new aircraft to be delivered will exceed $6 trillion (at current market prices). Rising demand and production constraints will lead to a scarcity of aircraft and long delivery delays.
Fortunately, I have a number of secondary and new deals we’re working on that provide exposure to the asset class with significantly enhanced returns. Who ya going to call? My number is below!
Bill Blain