It's time to get things started
March 13, 2019

Blain's Morning Porridge

"It's time to get things started on the most sensational, inspirational, celebrational…. " 

One of our traders was dragged screaming and foaming at the mouth from his desk this morning. As we gently strapped him up in the office straight-jacket and wheeled him towards the Calm Room he was yelling: "You can pull my fingernails out, attach crocodile clips to my fluffy bits, extract all my teeth – but please just stop the Brexit Noise. PLEASE! I CAN'T TAKE ANYMORE!"

I'm not so bothered. After last night's ritual parliamentary mugging (by only 149 votes this time), now we face a "rule out no-deal vote" today. A no-deal Brexit will be taken off the table, and tomorrow Parliament will approve an extension of the March 29 deadline, meaning we can keep playing the Brexit "what happens next" game into perpetuity. Joy.

What comes next? is a very good question. We have no idea what is possible in terms of an extension from the EU. Do we need to send Farage back to Strasbourg as an MEP? (Please say yes.. because he's bound to make us giggle!) A minority Labour government might be a good thing – expose Corbyn, get him replaced with someone within touching distance of common sense?

Or do we face an inevitable slide towards a second referendum? ("Surely that's unconstitutional", opined She-Who-is-now-Mrs-Blain last night… "Well it probably would be, if we had one" I replied.  Are we spinning towards the no Brexit? caught on the event horizon of the EU for eternity… I rather fear we are.. some things are just too difficult. Who really cares anymore? We just don't know. And markets don't like not knowing…

All the above is about UK politics. The economic and market reality is far more sanguine. Think of sterling's rise back to 1.315 and the ongoing strength of the economy (despite official doom and gloom) and it's not actually so bad. I detect a consensus among many investors that the UK would get over Brexit fairly quickly once it's done and dusted. It will be remembered as a non-event. In a few short years the UK should be outperforming the EU.

The fly in the ointment is the shocking breakdown in parliamentary politics as we approach the break. That's what's scaring investors – not trade deals, GDP or border controls – which everyone knows will be solved, but the inability of the mother of parliaments to make a decision.

While the calm reaction in markets last night was because everyone in bond, currency and equity markets had already figured and discounted the fact May was going to lose the vote, there remains capacity to shock. Foreign investors are appalled. Not by the Brexit call, but at the abject failure and dismal collapse of UK politics.

We really would be better off with the Muppets running the country. Oh? They are? Let's light the lights… 

Meanwhile, back on dry land, the stock story of the moment remains Boeing. Stock is down 12 percent since Sunday's tragic crash of the Ethiopian B-737 Max 8 in circumstances that smack of a similar problem to a crash by Lion Air five months ago. There is much speculation on how vulnerable the company might be to further downside if a major fault is uncovered.

The plane is now grounded around the world, with the major exception of the US. Analysts are now talking potential deeper trouble - the Chinese were quick to ground their fleet - hinting perhaps they want to favour their own domestic product, the Comac C919 (which is at least a generation behind Airbus and Boeing). The Chinese would certainly like to grab a share of the 10,000 new aircraft likely to be ordered by Asian airlines over the next ten years.

Trump didn't help by tweeting about the need for better trained pilots and less complex planes. I hope all his voters in Seattle took note of his "helpfulness".

Is all the angst about Boeing overblown? The plane maker was quick to warn all airlines operating the B-737 Max of the potential stall system and sensor problems five months ago. The investigation of the plane's black boxes is still underway. Remember, the market always overestimates and exaggerates downside risk.

Finally, my favourite read over the weekend is the FT's excellent "Lunch With" column. This week I missed it, till yesterday afternoon – and it was Lunch with Bill Gross. The Bond King himself. One paragraph really caught my attention:

"Gross frets that the US economy is just buzzing from the sugar high of last year's tax cuts, and is concerned that low bond yields are doing severe damage to global pension systems. But his biggest fear is President Donald Trump, and what he might do as the next election draws closer. "I think he's dangerous," he says. "He's going to drag us into something for his own personal benefit."

Wowser. I like it when someone explains their position clearly and succinctly. It also fits with what many think… the prospect of an accidental global financial reset driven by an unexpected moment. Donald Trump? Who would be better qualified to deliver it?  

Out of time and back to the day job

Bill Blain 

Shard Capital





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Blain's Morning Porridge

"It's time to get things started on the most sensational, inspirational, celebrational…. " 

One of our traders was dragged screaming and foaming at the mouth from his desk this morning. As we gently strapped him up in the office straight-jacket and wheeled him towards the Calm Room he was yelling: "You can pull my fingernails out, attach crocodile clips to my fluffy bits, extract all my teeth – but please just stop the Brexit Noise. PLEASE! I CAN'T TAKE ANYMORE!"

I'm not so bothered. After last night's ritual parliamentary mugging (by only 149 votes this time), now we face a "rule out no-deal vote" today. A no-deal Brexit will be taken off the table, and tomorrow Parliament will approve an extension of the March 29 deadline, meaning we can keep playing the Brexit "what happens next" game into perpetuity. Joy.

What comes next? is a very good question. We have no idea what is possible in terms of an extension from the EU. Do we need to send Farage back to Strasbourg as an MEP? (Please say yes.. because he's bound to make us giggle!) A minority Labour government might be a good thing – expose Corbyn, get him replaced with someone within touching distance of common sense?

Or do we face an inevitable slide towards a second referendum? ("Surely that's unconstitutional", opined She-Who-is-now-Mrs-Blain last night… "Well it probably would be, if we had one" I replied.  Are we spinning towards the no Brexit? caught on the event horizon of the EU for eternity… I rather fear we are.. some things are just too difficult. Who really cares anymore? We just don't know. And markets don't like not knowing…

All the above is about UK politics. The economic and market reality is far more sanguine. Think of sterling's rise back to 1.315 and the ongoing strength of the economy (despite official doom and gloom) and it's not actually so bad. I detect a consensus among many investors that the UK would get over Brexit fairly quickly once it's done and dusted. It will be remembered as a non-event. In a few short years the UK should be outperforming the EU.

The fly in the ointment is the shocking breakdown in parliamentary politics as we approach the break. That's what's scaring investors – not trade deals, GDP or border controls – which everyone knows will be solved, but the inability of the mother of parliaments to make a decision.

While the calm reaction in markets last night was because everyone in bond, currency and equity markets had already figured and discounted the fact May was going to lose the vote, there remains capacity to shock. Foreign investors are appalled. Not by the Brexit call, but at the abject failure and dismal collapse of UK politics.

We really would be better off with the Muppets running the country. Oh? They are? Let's light the lights… 

Meanwhile, back on dry land, the stock story of the moment remains Boeing. Stock is down 12 percent since Sunday's tragic crash of the Ethiopian B-737 Max 8 in circumstances that smack of a similar problem to a crash by Lion Air five months ago. There is much speculation on how vulnerable the company might be to further downside if a major fault is uncovered.

The plane is now grounded around the world, with the major exception of the US. Analysts are now talking potential deeper trouble - the Chinese were quick to ground their fleet - hinting perhaps they want to favour their own domestic product, the Comac C919 (which is at least a generation behind Airbus and Boeing). The Chinese would certainly like to grab a share of the 10,000 new aircraft likely to be ordered by Asian airlines over the next ten years.

Trump didn't help by tweeting about the need for better trained pilots and less complex planes. I hope all his voters in Seattle took note of his "helpfulness".

Is all the angst about Boeing overblown? The plane maker was quick to warn all airlines operating the B-737 Max of the potential stall system and sensor problems five months ago. The investigation of the plane's black boxes is still underway. Remember, the market always overestimates and exaggerates downside risk.

Finally, my favourite read over the weekend is the FT's excellent "Lunch With" column. This week I missed it, till yesterday afternoon – and it was Lunch with Bill Gross. The Bond King himself. One paragraph really caught my attention:

"Gross frets that the US economy is just buzzing from the sugar high of last year's tax cuts, and is concerned that low bond yields are doing severe damage to global pension systems. But his biggest fear is President Donald Trump, and what he might do as the next election draws closer. "I think he's dangerous," he says. "He's going to drag us into something for his own personal benefit."

Wowser. I like it when someone explains their position clearly and succinctly. It also fits with what many think… the prospect of an accidental global financial reset driven by an unexpected moment. Donald Trump? Who would be better qualified to deliver it?  

Out of time and back to the day job

Bill Blain 

Shard Capital



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