Where does it go from here?
December 5, 2018

Blain's Morning Porridge 

"Where does it go from here? Is it down to the lake I fear?" 

Sorry for the lack of commentary yesterday, but I was scrabbling around trying to lash down reality..

If you are struggling to understand why it all looks so financially miserable out there, one of my colleagues summed it up perfectly: "We just passed PEAK TRUMP B*LL*H*T!" 

After's Sunday's self-delusional backslapping de-escalation of the China trade war, it's clear Trump solved nothing. His twitterstorm of subsequent denials, accusations and demands hasn't helped. The Chinese are furious. His own administration can't agree. He made it up! The market has had enough. Trump came back claiming a deal with China….. And the market ignored him. Monday's rally lasted moments and collapsed. Yesterday felt like capitulation.

It's highly significant – Trump has moved from being a positive market-moving factor to becoming a market liability.

Helpfully, markets are closed today for George Bush's funeral. He was a great man and a decent president. Markets now ascertain the truth about Trump – nothing to mourn there. It's just a matter of time before American voters realize it. The markets' affair with the plump baby is over.

We're entering a NEW AGE OF FINANCIAL REALITY.  We've just seen the Emperor's New Clothes Moment for Trump. He really is in the "all-together"…swimming naked as the tide rolls out, and it ain't a pretty sight.. (and it's true what they said…) PTBS IS REAL. IT HAS HAPPENED. 

Where do we go from here? I've said it a few times already – 2019 is likely to see the start of the new market reality. Although some pundits claim yesterday's sell-off was due to automated algorithms triggering a crash because they misread the US yield curve inversion – bad programming they claim - the reality is markets are extremely nervous: of the recessionary signals the inversion shows, slowing economic numbers, the prospects for trade war accelerating recession, etc.

The US economy may be at full employment and growing, but where does it go from here as the rest of the globe falters, housing collapses, auto sales plummet and everyone worries just how they are going to pay off student loans, mortgages and credit cards? Markets have reversed polarity on Trump (with apologies to Doctor Who scriptwriters for misusing one of their classic deus ex machina meaningless lines).

PTBS means we just switched from positive to negative. Don't think about what can go right as Trump forces through trade deals, tax cuts, a compliant Fed, etc. Think about Trump negatives – forget the Fed put. Forget overly-optimistic valuations based on rosy global growth projections, and the belief very smart people will make bright shiney things brighter and shinier. Next year is going to be about real stuff, like how are you going to sell this commodity (be it an electric car, swanky mobile phone with a fruit logo, or avocados? Why avocados…? because.. just because.) Consumption vs recession. Ouch.

Markets are being roiled by politics, soiling themselves on trade war panics, scared witless by mounting populism and its pay-off: massive policy mistakes, and waking up to the horrendous unintended consequences of the last ten years of monetary experimentation and over-regulation, working out that every single financial asset (by which I mean listed stocks and bonds) is price-distorted.

In fact, every aspect of modern finance is distorted!  Sentiment is bruised which means the global economy is vulnerable to being pushed over the edge as the current fears of recession in 2019 become a self-fulfilling prophesy.

Excellent! When all around are losing theirs, keep yours. Time to get your buying boots ready. There are going to be some fantastic bargains. There always are when it goes wibbly-wobbly/topsy-turvy. (The danger, of course, is there are so many people thinking it's about to get cheap, that it never does….)

Remember Blain's Mantra No 1: The market has but one objective: to inflict the maximum amount of pain on the maximum number of participants.  Just make sure you aren't on the wrong side. Contrarian time.

Take Thomas Cook – massive equity crash and bonds massively wider as they admit they got 2018 horribly wrong. Expected to default. The UK holiday airline really could not have done a worse job. Turned a passable holiday carrier into the proverbial plane wreck. The management should be hung, drawn and quartered for screwing up so thoroughly.

But is it about to go bust? Nope. They can't raise equity at these levels, but it's not got a big bond redemption for three years, which might be time to put the broken parts back together again. Again. They have been here before) It's a risk, but when its trading like distressed junk and we're about to have a great ski season…maybe time for a punt?

And there have to be thousands of similar opportunities out there. Financial Reality will work both ways.

How about Apple? They are my particular target at the moment. My new iPhone X developed a hairline crack on the back and started playing up. No idea how it happened because it was protected by an Apple shock box. Apple say the crack is negligent damage, and are offering to fix it for £670 six weeks after I bought it despite a one-year warranty – worth zero. I suppose it's their new business model.. as iPhone sales fall off a cliff, charge people silly money to repair them. 

Samsung here I come! If enough people do the same.. and names like Apple sink…then at some point they will get sensible, accept their failure to innovate, and start to deserve our custom again. Once they realise they are just a commodity maker then they either make a truly innovative product or start charging sensible money, or go the same way as Nokia…. Their call.

If you want something to cheer you up this morning.. try Saxo Bank's Outrageous Predictions 2019. Some great ideas in it – and some of them not so stupid. It's available elsewhere on this website.

Bill Blain

Strategist

Shard Capital





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Blain's Morning Porridge 

"Where does it go from here? Is it down to the lake I fear?" 

Sorry for the lack of commentary yesterday, but I was scrabbling around trying to lash down reality..

If you are struggling to understand why it all looks so financially miserable out there, one of my colleagues summed it up perfectly: "We just passed PEAK TRUMP B*LL*H*T!" 

After's Sunday's self-delusional backslapping de-escalation of the China trade war, it's clear Trump solved nothing. His twitterstorm of subsequent denials, accusations and demands hasn't helped. The Chinese are furious. His own administration can't agree. He made it up! The market has had enough. Trump came back claiming a deal with China….. And the market ignored him. Monday's rally lasted moments and collapsed. Yesterday felt like capitulation.

It's highly significant – Trump has moved from being a positive market-moving factor to becoming a market liability.

Helpfully, markets are closed today for George Bush's funeral. He was a great man and a decent president. Markets now ascertain the truth about Trump – nothing to mourn there. It's just a matter of time before American voters realize it. The markets' affair with the plump baby is over.

We're entering a NEW AGE OF FINANCIAL REALITY.  We've just seen the Emperor's New Clothes Moment for Trump. He really is in the "all-together"…swimming naked as the tide rolls out, and it ain't a pretty sight.. (and it's true what they said…) PTBS IS REAL. IT HAS HAPPENED. 

Where do we go from here? I've said it a few times already – 2019 is likely to see the start of the new market reality. Although some pundits claim yesterday's sell-off was due to automated algorithms triggering a crash because they misread the US yield curve inversion – bad programming they claim - the reality is markets are extremely nervous: of the recessionary signals the inversion shows, slowing economic numbers, the prospects for trade war accelerating recession, etc.

The US economy may be at full employment and growing, but where does it go from here as the rest of the globe falters, housing collapses, auto sales plummet and everyone worries just how they are going to pay off student loans, mortgages and credit cards? Markets have reversed polarity on Trump (with apologies to Doctor Who scriptwriters for misusing one of their classic deus ex machina meaningless lines).

PTBS means we just switched from positive to negative. Don't think about what can go right as Trump forces through trade deals, tax cuts, a compliant Fed, etc. Think about Trump negatives – forget the Fed put. Forget overly-optimistic valuations based on rosy global growth projections, and the belief very smart people will make bright shiney things brighter and shinier. Next year is going to be about real stuff, like how are you going to sell this commodity (be it an electric car, swanky mobile phone with a fruit logo, or avocados? Why avocados…? because.. just because.) Consumption vs recession. Ouch.

Markets are being roiled by politics, soiling themselves on trade war panics, scared witless by mounting populism and its pay-off: massive policy mistakes, and waking up to the horrendous unintended consequences of the last ten years of monetary experimentation and over-regulation, working out that every single financial asset (by which I mean listed stocks and bonds) is price-distorted.

In fact, every aspect of modern finance is distorted!  Sentiment is bruised which means the global economy is vulnerable to being pushed over the edge as the current fears of recession in 2019 become a self-fulfilling prophesy.

Excellent! When all around are losing theirs, keep yours. Time to get your buying boots ready. There are going to be some fantastic bargains. There always are when it goes wibbly-wobbly/topsy-turvy. (The danger, of course, is there are so many people thinking it's about to get cheap, that it never does….)

Remember Blain's Mantra No 1: The market has but one objective: to inflict the maximum amount of pain on the maximum number of participants.  Just make sure you aren't on the wrong side. Contrarian time.

Take Thomas Cook – massive equity crash and bonds massively wider as they admit they got 2018 horribly wrong. Expected to default. The UK holiday airline really could not have done a worse job. Turned a passable holiday carrier into the proverbial plane wreck. The management should be hung, drawn and quartered for screwing up so thoroughly.

But is it about to go bust? Nope. They can't raise equity at these levels, but it's not got a big bond redemption for three years, which might be time to put the broken parts back together again. Again. They have been here before) It's a risk, but when its trading like distressed junk and we're about to have a great ski season…maybe time for a punt?

And there have to be thousands of similar opportunities out there. Financial Reality will work both ways.

How about Apple? They are my particular target at the moment. My new iPhone X developed a hairline crack on the back and started playing up. No idea how it happened because it was protected by an Apple shock box. Apple say the crack is negligent damage, and are offering to fix it for £670 six weeks after I bought it despite a one-year warranty – worth zero. I suppose it's their new business model.. as iPhone sales fall off a cliff, charge people silly money to repair them. 

Samsung here I come! If enough people do the same.. and names like Apple sink…then at some point they will get sensible, accept their failure to innovate, and start to deserve our custom again. Once they realise they are just a commodity maker then they either make a truly innovative product or start charging sensible money, or go the same way as Nokia…. Their call.

If you want something to cheer you up this morning.. try Saxo Bank's Outrageous Predictions 2019. Some great ideas in it – and some of them not so stupid. It's available elsewhere on this website.

Bill Blain

Strategist

Shard Capital



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