Blain's Morning Porridge - Feb 16th 2018. The Global Stock Market Crash is delayed by signalling

Blain’s Morning Porridge – February 16th 2018

“Break the cycle, Morty. Rise above. Focus on Science.”

The Morning Porridge is unrestricted market commentary freely available to all investors on an unsolicited basis. It is not investment research.

Happy New Year, China.. Yeah… let’s see how the Year of the Dog pans out for heavily indebted China corporates..

I’ve been distracted the last couple of weeks by global stock markets, the VAR Shock (which others are calling the VIX Volatility crisis), and trying to figure out if the market goes up, down or sideways. Rising bond yields, inflation, oil prices and take a look at gold – I think these are all bound to change behaviours? Apparently not. My small brain is pretty much exhausted by it all.. I was expecting this week to be up and down faster than the proverbial you know whats... Instead, everyone has stopped worrying, is looking sagely at charts they barely comprehend and concluding.. “these are the not the droids we are looking for.”

Screaming complacency….. Or maybe not? My stock picking chum Steve Previs notes SPX has closed about the 50 day moving average for the first time in days. Let joy be unconfined…

So, this morning I’d thought I’d go back to thinking about other stuff – real stuff. Like Europe.

I read some nonsense on Bloomberg yesterday that “Europe is The New Hot Destination” for smart buyers. Sweet Lord in Heaven… give me strength! But, I persevered and read it. I’m told the US is so messy, the UK so dithering, and Japan so struggling to keep up the illusion, that Europe, (yep, the same Europe we’ve been shaking our heads about for years… that place just over the horizon in the direction we Brits no longer look…) is the place to go with all yer money. Let’s not worry about the ECB QE distortions, or the Euro, or that stuff, but let’s consider what the Euro-lovies are so excited about..

There is a lot of positive stuff out there: The Germans have played nice and have a new government. (Some doubts how long it will last, but hey-ho, and keep smiling..) France is doing rather well. Sure, there is the looming unpleasantness of the Italian Election coming up, and spreads on Greek debt are under pressure – let’s not talk about their recent deal. Yet.

The economic numbers are no longer absolutely ******* terrible… They are still awful but slightly less horrible, meaning the 60% of fund managers who have only been in the city for less than 7 years (latest survey of portfolio managers) don’t actually realise how unconvincing these numbers are in terms of historical context…

France is a great story. Macron has demonstrated the strength of populist politics – everyone thought the populist French play was Le Pen’s Front Nationale. Not so, Macron played a blinder getting his new party, his ideas and his people into a commanding position and actually changing France. Challenges from organised labour have failed to dent him significantly. The beauty of the French constitution is that the President can actually get things done! (No wonder Trump admires him – no pesky checks or balances…)

So French employment is improving – back to same level as pre-crisis. Macron’s success comes alongside Global Macro Aligned Growth, and a positive vibe across Europe. We’ve actually got Frenchmen heading back from London to Paris (I mean… what’s to like about this) and Paris house prices are rising. The economy is running into capacity constraints in the labour market, and roadblocs are emerging, but these are good problems to have. What could possibly go wrong… ? (Regular US readers might just be spotting a slight sarcastic rhetorical question coming up..)

France needs the rest of Europe to maintain its recovery. On the face of it, that looks possible. The new German coalition has gone all soft and mushy over Europe. Closer union with the rest of Yoorp and all that – which is bound to fuel further growth. Sounds great for the soggy lefties seeking to enforce their vision on Angela’s vision of Germany… and she had no choice but to accept.

But, of course, it’s not actually what the bulk of the German electorate actually want. The small number of SDP dreamers believe closer European Union will lead to economic nirvana. The bulk of German electors equally firmly believe every other European can be defined somewhere on the parasite spectrum seeking to suck the blood of German economic prowess.. That’s not a recipe for long-term success.

As for Greece? The new ’25 bonds are proving a great speculative game to pass away otherwise dull markets. Traded yesterday anywhere between 96-97.5. Place yer bets and have a play. And who knows what’s going to happen in Italy..

In short, when I read a headline saying Europe is the new Investment Mecca, I can’t help but think of Accrington Stanley..

On the other hand, I do note a story on Bberg that “Cracks are appearing in Credit Funds” as investors head for the Exits! NSS! We’ve just seen the 5th largest ever week for redemptions as $14 bln was pulled from bond funds, over $10 bln of that being from the High Yield sector. Folk are de-risking in the credit markets.

On that happy thot, have a Great Weekend!