Defending Mark Carney
May 23, 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. 

What a fascinating day – forget the news about Barclay's looking for another bank to merge with (ie, someone else to blame?), but I found myself in the remarkable position of being just about the only person in the City of London defending Bank of England Governor, Mark Carney, on an unexpected TV debate. (Standard Bank would make sense – it could make Barclays look a little bit more like HSBC.. and if they really, really, really want to be HSBC I'll be happy to  share my experiences on how to make their retail banking as absolutely bad as the Home for Scottish Bank Clerks'.. (subtle eh?))

Turkey? Ouch. That's got to hurt. Sadly, it could get even more fun if the government panics, puts capital controls in place, and basically closes down the country. It might happen. Maybe time to remind ourselves that countries that borrow in dollars might struggle to pay them back if they trash their economy before payment date. Just saying….

Back to my Mark Carney story… I was expecting to blather about our positive global macro views and our terribly exciting investment thesis to go with it, but instead I found myself wittering on about the UK economy. Except for being a very small cog within the improbability field that is the UK's economic swamp, and therefore painfully aware of its many issues (especially in rail infrastructure and the National Health Service), I'm seldom bothered by whatever the BofE thinks or says. It just kind of happens…. gently washing over us…

But, I do see the UK's potential to be a powerful, effective, innovative mercantile nation. It's currently constrained by consumer fear, low wages, high living costs and well intentioned, but remarkably poor, dithery and costly government. You can see it on the high street where the squeezed middle classes have given up spending – even the mighty Marks & Spencer is closing stores. Our economy feels tired, battered and exhausted. The miserable winter didn't help (although some event last week in a west London suburb seems to have boosted flag and Pimms sales). The perception of rising inflation – especially in petrol/diesel isn't helping.

Who to blame? Every analyst, commentator, ne'er-do-well, and other species of City shyster, is determined to talk down Carney, slap him with the unreliable boyfriend tag and worse – because he pulled back on a rate hike? That could have been the straw on the camel's back. The hostility towards him is, perhaps, a tad unfair.

Would you rather he actually paid attention to the data or not? Despite being the outsider brought in to give perspective, Carney de facto became part of the establishment, functioning within the long-established institutional bias and inertia that drives our institutions and civil service. They are all very smart and clever, but very certain of their path and convictions – including the intellectual canon that not being part of Europe is unthinkable. 

Hence, Carney's big mistake was being distinctly partial, joining the Project Fear Brexit agenda, and then the horrible miscalculation of panicking about imminent economic collapse in the wake of the vote. Oops. Not popular. 

Yet, policy mistakes by central banks are hardly uncommon. In fact, some analysts reckon every single market pratfall and stumble can be traced back to central bankers getting it wrong. Policy error is a fact of markets. Build it into the model.

I'm a practical Brexiteer. It's going to happen – so let's make the best of it. It will be messy and costly, but with some effort it will work to both the UK and Europe's advantage. The establishment clearly still struggles with that perspective.

Now Carney and his BofE have the difficult job of guiding the economy with their limited arsenal of options. He has to be data-dependent. As the "exhausted" economy struggles with limited growth, squeezed consumer confidence, and austerity (let us not forget), it's a delicate path to explain and provide guidance on – which is why he's under such pressure again. It might help if he could find something to be enthusiastic about. 

Would that we were in the situation of the USA where the economy is expanding, jobs are booming, the dollar is being kept low by massive government borrowing being spent on fiscal expansion and spending… Hey, wait… isn't that a plan??? (Of course, it could all go dramatically wrong – if the world stops buying treasuries, then the real US rate (the ten-year) will go through the roof and the economy will do an impression of an almighty cardiac arrest! It's a risk, but not a high one when every other major bond market is paying the square root of zero in terms of bond yields. (Or you could buy Italy…folk did yesterday..)

Which brings me back to our Macro View and current investment thesis – and since I'm running out of time let me cut it short. The global economy is going to expand – there are lots of reasons to be positive in terms of the global trade agenda, rate normalisation and rising commodities. However, be aware we are still suffering legacy quantitative easing distortions. What to buy?

1)    Bonds are in trouble. Bear market. Rates will rise. Spreads don't make a whole lot of risk/return sense. (Even PIMCO agrees with me!)

2)    Risk-on equities – sure there are valuation niggles, but growth is more likely than not, and the next recession is still down the road.

3)    Risk on real assets/alternatives – apparently less liquid, but ultimately more rewarding in terms of diversification, relative value and as potential hedge against inflation and other economic events. Buy assets linked to global growth! 

So many different approaches to Alternatives – infrastructure, transport, renewables, housing, commodities, or even simple diversification plays. And speaking of which, if there are any investors thinking about Tier 1 – give me a shout. We are going to do something remarkable… 

Finally…went to see Deadpool 2 last night. My sides hurt from laughing. It's hilarious, very violent, very sweary, and full of running gags and cultural references. Enjoy! 

Back to the day job…

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. 

What a fascinating day – forget the news about Barclay's looking for another bank to merge with (ie, someone else to blame?), but I found myself in the remarkable position of being just about the only person in the City of London defending Bank of England Governor, Mark Carney, on an unexpected TV debate. (Standard Bank would make sense – it could make Barclays look a little bit more like HSBC.. and if they really, really, really want to be HSBC I'll be happy to  share my experiences on how to make their retail banking as absolutely bad as the Home for Scottish Bank Clerks'.. (subtle eh?))

Turkey? Ouch. That's got to hurt. Sadly, it could get even more fun if the government panics, puts capital controls in place, and basically closes down the country. It might happen. Maybe time to remind ourselves that countries that borrow in dollars might struggle to pay them back if they trash their economy before payment date. Just saying….

Back to my Mark Carney story… I was expecting to blather about our positive global macro views and our terribly exciting investment thesis to go with it, but instead I found myself wittering on about the UK economy. Except for being a very small cog within the improbability field that is the UK's economic swamp, and therefore painfully aware of its many issues (especially in rail infrastructure and the National Health Service), I'm seldom bothered by whatever the BofE thinks or says. It just kind of happens…. gently washing over us…

But, I do see the UK's potential to be a powerful, effective, innovative mercantile nation. It's currently constrained by consumer fear, low wages, high living costs and well intentioned, but remarkably poor, dithery and costly government. You can see it on the high street where the squeezed middle classes have given up spending – even the mighty Marks & Spencer is closing stores. Our economy feels tired, battered and exhausted. The miserable winter didn't help (although some event last week in a west London suburb seems to have boosted flag and Pimms sales). The perception of rising inflation – especially in petrol/diesel isn't helping.

Who to blame? Every analyst, commentator, ne'er-do-well, and other species of City shyster, is determined to talk down Carney, slap him with the unreliable boyfriend tag and worse – because he pulled back on a rate hike? That could have been the straw on the camel's back. The hostility towards him is, perhaps, a tad unfair.

Would you rather he actually paid attention to the data or not? Despite being the outsider brought in to give perspective, Carney de facto became part of the establishment, functioning within the long-established institutional bias and inertia that drives our institutions and civil service. They are all very smart and clever, but very certain of their path and convictions – including the intellectual canon that not being part of Europe is unthinkable. 

Hence, Carney's big mistake was being distinctly partial, joining the Project Fear Brexit agenda, and then the horrible miscalculation of panicking about imminent economic collapse in the wake of the vote. Oops. Not popular. 

Yet, policy mistakes by central banks are hardly uncommon. In fact, some analysts reckon every single market pratfall and stumble can be traced back to central bankers getting it wrong. Policy error is a fact of markets. Build it into the model.

I'm a practical Brexiteer. It's going to happen – so let's make the best of it. It will be messy and costly, but with some effort it will work to both the UK and Europe's advantage. The establishment clearly still struggles with that perspective.

Now Carney and his BofE have the difficult job of guiding the economy with their limited arsenal of options. He has to be data-dependent. As the "exhausted" economy struggles with limited growth, squeezed consumer confidence, and austerity (let us not forget), it's a delicate path to explain and provide guidance on – which is why he's under such pressure again. It might help if he could find something to be enthusiastic about. 

Would that we were in the situation of the USA where the economy is expanding, jobs are booming, the dollar is being kept low by massive government borrowing being spent on fiscal expansion and spending… Hey, wait… isn't that a plan??? (Of course, it could all go dramatically wrong – if the world stops buying treasuries, then the real US rate (the ten-year) will go through the roof and the economy will do an impression of an almighty cardiac arrest! It's a risk, but not a high one when every other major bond market is paying the square root of zero in terms of bond yields. (Or you could buy Italy…folk did yesterday..)

Which brings me back to our Macro View and current investment thesis – and since I'm running out of time let me cut it short. The global economy is going to expand – there are lots of reasons to be positive in terms of the global trade agenda, rate normalisation and rising commodities. However, be aware we are still suffering legacy quantitative easing distortions. What to buy?

1)    Bonds are in trouble. Bear market. Rates will rise. Spreads don't make a whole lot of risk/return sense. (Even PIMCO agrees with me!)

2)    Risk-on equities – sure there are valuation niggles, but growth is more likely than not, and the next recession is still down the road.

3)    Risk on real assets/alternatives – apparently less liquid, but ultimately more rewarding in terms of diversification, relative value and as potential hedge against inflation and other economic events. Buy assets linked to global growth! 

So many different approaches to Alternatives – infrastructure, transport, renewables, housing, commodities, or even simple diversification plays. And speaking of which, if there are any investors thinking about Tier 1 – give me a shout. We are going to do something remarkable… 

Finally…went to see Deadpool 2 last night. My sides hurt from laughing. It's hilarious, very violent, very sweary, and full of running gags and cultural references. Enjoy! 

Back to the day job…

Bill Blain

Head of Capital Markets/Alternative Assets

Mint Partners



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