Straight to the main issue
February 5, 2018

Mint - Blain's Morning Porridge 

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

Let's get straight to the main issue: Wales made their own luck and seized opportunities, while Scotland waited for them to come along. I guess Saturday was just another day of my life I'll never get back, as the expectation of a new dawn in Scottish rugby was once again crushed ruthlessly..

Enough… Is nobody concerned the Dow fell by 666 points on Friday? That's the number of the hamster! (Long story, but our pet hamster at university had a unusual moniker..) Spooky or what... 

2018 is becoming the most interesting market I've seen for years...All kinds of things might happen. There are rumours the Chinese state has been in supporting China stocks. 

Oh, the irony of it all. Friday's market wobbles were triggered by economic strength, and reinforced by the week's earlier slides. Stronger US wages - hence the Treasury 10s at 2.85 percent - should hardly have been a shocking surprise in an economy close to full employment.. but.. that's the way markets play. The fact FORMER Federal Reserve Head Janet Yellen now says stocks might be overpriced deserves a NSS award.

Other blogs have noted this correction only takes stock market back to mid-Jan levels, but it's the bond market that's changed - and that's significant. The rise in the VIX fear index gets more headlines than it deserves - probably.  

For stockwatchers the game is about whether last week's weakness represents a top, a buying opportunity or the start of something painful. I've read half-a-dozen different takes on dip buying, the absence of dip buyers, minor sentiment pause, to the beginning of a down cycle. At times like this I have to consult my own stockpicking augur - Steve Previs - whose finely honed mind can perceive the trend lines thrown up by a hundred markets. 

He concludes the charts are telling him not to panic. Wearing his pointy wizard chartist hat, and a cloak with constellations woven through it, he flutters his arms over his crystal ball and...pronounces the bull market is still intact and there are strong buy signals in place. Sure, the bulls got a spanking last week, and the market bears think their long-term fears are justified…but…no. Steve reckons this will be a very short-lived sell-off - and it's already oversold. The rise in VIX is interesting, but far from terminal. We have moved into a "fear" phase on the CNN Fear and Greed Index - but markets are fickle psychobabble pits. (If you'd like a copy of Steve's charts from this morning – email me.)

From a more strategic perspective, it's a very different argument. The fact is rates are rising from massively distorted and artificially low levels. We are not in an environment where already high rates are rising to dampen inflationary or overheating markets. We're in a normalizing market where rates will rise towards long-term trends – not above them. Although there is truth in bond markets, there is probably less to worry about…for now. 

The call is between those of us who believe we're back into a normal market cycle, where rising bond yields will trigger a stock correction to more normal levels. Or, are we into a whole new global aligned macro driving new fundamentals, GDP (gross domestic product) much higher, and commensurate upside for global stocks? I suspect the latter – although I'm also worried that that breaks down if we get a growth shock reversing into a recession. 

There are good arguments to suspect we aren't properly valuing the global economy. Current GDP metrics and data collection is founded in a different age of tangible exports and accounting concepts of goodwill. The modern economy is about services, intellectual property and intangibles - resulting in a massive discounting of the real GDP number. More on this later.

Moreover, the structure of stock markets has dramatically altered - fewer public companies and less stock in circulations after buybacks. The simple equation is higher GDP and fewer shares means their value should be higher. Doh?

Meanwhile, for the increasing number of Porridge readers interested in aviation assets, great story on Bloomberg this morning – Airbus and Boeing eying 16,000 Plane Jackpot as Asia Gets Airborne. Over the next 20 years, that's the number of new aircraft Boeing expect Asian airlines to require. That's $2.5 trillion at list prices! Well worth a read!   

And amazingly…no problems on the train this morning…

Bill Blain

Head of Capital Markets/ Alternative Assets

Mint Partners





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Mint - Blain's Morning Porridge 

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

Let's get straight to the main issue: Wales made their own luck and seized opportunities, while Scotland waited for them to come along. I guess Saturday was just another day of my life I'll never get back, as the expectation of a new dawn in Scottish rugby was once again crushed ruthlessly..

Enough… Is nobody concerned the Dow fell by 666 points on Friday? That's the number of the hamster! (Long story, but our pet hamster at university had a unusual moniker..) Spooky or what... 

2018 is becoming the most interesting market I've seen for years...All kinds of things might happen. There are rumours the Chinese state has been in supporting China stocks. 

Oh, the irony of it all. Friday's market wobbles were triggered by economic strength, and reinforced by the week's earlier slides. Stronger US wages - hence the Treasury 10s at 2.85 percent - should hardly have been a shocking surprise in an economy close to full employment.. but.. that's the way markets play. The fact FORMER Federal Reserve Head Janet Yellen now says stocks might be overpriced deserves a NSS award.

Other blogs have noted this correction only takes stock market back to mid-Jan levels, but it's the bond market that's changed - and that's significant. The rise in the VIX fear index gets more headlines than it deserves - probably.  

For stockwatchers the game is about whether last week's weakness represents a top, a buying opportunity or the start of something painful. I've read half-a-dozen different takes on dip buying, the absence of dip buyers, minor sentiment pause, to the beginning of a down cycle. At times like this I have to consult my own stockpicking augur - Steve Previs - whose finely honed mind can perceive the trend lines thrown up by a hundred markets. 

He concludes the charts are telling him not to panic. Wearing his pointy wizard chartist hat, and a cloak with constellations woven through it, he flutters his arms over his crystal ball and...pronounces the bull market is still intact and there are strong buy signals in place. Sure, the bulls got a spanking last week, and the market bears think their long-term fears are justified…but…no. Steve reckons this will be a very short-lived sell-off - and it's already oversold. The rise in VIX is interesting, but far from terminal. We have moved into a "fear" phase on the CNN Fear and Greed Index - but markets are fickle psychobabble pits. (If you'd like a copy of Steve's charts from this morning – email me.)

From a more strategic perspective, it's a very different argument. The fact is rates are rising from massively distorted and artificially low levels. We are not in an environment where already high rates are rising to dampen inflationary or overheating markets. We're in a normalizing market where rates will rise towards long-term trends – not above them. Although there is truth in bond markets, there is probably less to worry about…for now. 

The call is between those of us who believe we're back into a normal market cycle, where rising bond yields will trigger a stock correction to more normal levels. Or, are we into a whole new global aligned macro driving new fundamentals, GDP (gross domestic product) much higher, and commensurate upside for global stocks? I suspect the latter – although I'm also worried that that breaks down if we get a growth shock reversing into a recession. 

There are good arguments to suspect we aren't properly valuing the global economy. Current GDP metrics and data collection is founded in a different age of tangible exports and accounting concepts of goodwill. The modern economy is about services, intellectual property and intangibles - resulting in a massive discounting of the real GDP number. More on this later.

Moreover, the structure of stock markets has dramatically altered - fewer public companies and less stock in circulations after buybacks. The simple equation is higher GDP and fewer shares means their value should be higher. Doh?

Meanwhile, for the increasing number of Porridge readers interested in aviation assets, great story on Bloomberg this morning – Airbus and Boeing eying 16,000 Plane Jackpot as Asia Gets Airborne. Over the next 20 years, that's the number of new aircraft Boeing expect Asian airlines to require. That's $2.5 trillion at list prices! Well worth a read!   

And amazingly…no problems on the train this morning…

Bill Blain

Head of Capital Markets/ Alternative Assets

Mint Partners



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