Why so serious?
December 6, 2018

Blain's Morning Porridge 

"Why So Serious? " 

I think the Global Trade War is now a shooting war. A few weeks ago one of my very smart Chief Investment Officer contacts warned me the real story of the year isn't just the implications for supply chains from a trade spat, but a more fundamental "Tech Cold War" between China and the US for dominance. It's a battle that will shortly reach epic proportions, force huge change in the global tech supply chain, and has massive implications for current incumbents.

Over this last few days, it's all going off. The US, Australia, New Zealand and the UK have banned Huawei from new 5G systems over embedded spy tech and "security" issues. Now we learn that even as Xi and Trump were meeting, the CFO of Huawei was arrested in Canada for violating US sanctions on Iran! She is also the daughter of Hauwei's founder.

I suspect the news will trigger a massive downtrade in stocks today. Brace, Brace, Brace!

The core objective of Trump's trade war threats are to contain China's becoming a technological equal and competitor after all its learnt from access and replication of US tech. If we see a full tech war with lines drawn, then it potentially clobbers everything from Apple down. It means a choice between US tech or China tech.

"Made in China 2025" is the Chinese target of becoming the leader in tech, and avoiding just being a US manufacturing centre. It's happening – Hauwei's lead in 5G is just one example.

More on this next week – but it's going to be a massive story. Bladerunner anyone?

Meanwhile, story on BBerg yesterday says it's the worst market since 1972. Did you know 1972 was the longest year ever? Two leap seconds were added (one in June and one in Dec), making it 366 days and 2 seconds long.

I don't particularly remember 1972.. swimmer David Wilkie came to our school to show off his Olympic silver medal, I had a double digit birthday, Werner von Braun resigned from NASA, the Vietnam war rumbled on and Britain went to war with Iceland over cod. But I don't remember the markets so clearly.

Last year nearly every major asset class posted decent gains. This year everything looks pants.  Just like 1972! This year not a single major asset class has posted returns in excess of 5 percent. Treasuries and investment grade bonds, high-yield, US, international or emerging stocks, real estate and commodities have all had awful years.. So much for retiring…

Of course, at this point someone will samba onto the stage singing that Brazil stocks are up 17 percent in 2018! (A new populist president has had a positive effect..)

Or you could make the comment that over two years – one year is such an arbitrary number – even US stocks are currently up 10 percent. Why the long faces..? Over the last nine years and 240 days… the S&P is up 294 percent! Wowser. Best not to forget the lessons of 2018. (Quick… what are they?)

The one area that interests me particularly is residential – it's the largest asset class on the planet – around US$300 trillion, but it's very granular – lots of tiny lots owned by individuals. It's also the closest in terms of relation to global GDP. Let's assume we get past these little hiccups in Brexit, trade wars, and a possible recession next year, and go back to the simple reality that resi is a rather effective way to track and beat growth.. Might be worth thinking about – while lots of funds are looking to exit "resi" trades – might be time to go contrarian!

Hard hats at the ready today.. Be safe.

Out of time.. 

Bill Blain

Strategist

Shard Capital





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Blain's Morning Porridge 

"Why So Serious? " 

I think the Global Trade War is now a shooting war. A few weeks ago one of my very smart Chief Investment Officer contacts warned me the real story of the year isn't just the implications for supply chains from a trade spat, but a more fundamental "Tech Cold War" between China and the US for dominance. It's a battle that will shortly reach epic proportions, force huge change in the global tech supply chain, and has massive implications for current incumbents.

Over this last few days, it's all going off. The US, Australia, New Zealand and the UK have banned Huawei from new 5G systems over embedded spy tech and "security" issues. Now we learn that even as Xi and Trump were meeting, the CFO of Huawei was arrested in Canada for violating US sanctions on Iran! She is also the daughter of Hauwei's founder.

I suspect the news will trigger a massive downtrade in stocks today. Brace, Brace, Brace!

The core objective of Trump's trade war threats are to contain China's becoming a technological equal and competitor after all its learnt from access and replication of US tech. If we see a full tech war with lines drawn, then it potentially clobbers everything from Apple down. It means a choice between US tech or China tech.

"Made in China 2025" is the Chinese target of becoming the leader in tech, and avoiding just being a US manufacturing centre. It's happening – Hauwei's lead in 5G is just one example.

More on this next week – but it's going to be a massive story. Bladerunner anyone?

Meanwhile, story on BBerg yesterday says it's the worst market since 1972. Did you know 1972 was the longest year ever? Two leap seconds were added (one in June and one in Dec), making it 366 days and 2 seconds long.

I don't particularly remember 1972.. swimmer David Wilkie came to our school to show off his Olympic silver medal, I had a double digit birthday, Werner von Braun resigned from NASA, the Vietnam war rumbled on and Britain went to war with Iceland over cod. But I don't remember the markets so clearly.

Last year nearly every major asset class posted decent gains. This year everything looks pants.  Just like 1972! This year not a single major asset class has posted returns in excess of 5 percent. Treasuries and investment grade bonds, high-yield, US, international or emerging stocks, real estate and commodities have all had awful years.. So much for retiring…

Of course, at this point someone will samba onto the stage singing that Brazil stocks are up 17 percent in 2018! (A new populist president has had a positive effect..)

Or you could make the comment that over two years – one year is such an arbitrary number – even US stocks are currently up 10 percent. Why the long faces..? Over the last nine years and 240 days… the S&P is up 294 percent! Wowser. Best not to forget the lessons of 2018. (Quick… what are they?)

The one area that interests me particularly is residential – it's the largest asset class on the planet – around US$300 trillion, but it's very granular – lots of tiny lots owned by individuals. It's also the closest in terms of relation to global GDP. Let's assume we get past these little hiccups in Brexit, trade wars, and a possible recession next year, and go back to the simple reality that resi is a rather effective way to track and beat growth.. Might be worth thinking about – while lots of funds are looking to exit "resi" trades – might be time to go contrarian!

Hard hats at the ready today.. Be safe.

Out of time.. 

Bill Blain

Strategist

Shard Capital



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