Blain’s Morning Porridge, submitted by Bill Blain of Shard Capital
“Summer Breeze makes me feel fine… blowing thru the jasmine on my mind..!
Run for the hills..? Nope.
How much more horrible does this need to get: Chinese Police Troops poised on the Hong Kong Border? Bond Yields inverted and tumbling lower? Germany sliding into recession? China hiding internal pain? Global Equity threatening to puke completely? Italy government about to fall? Brexit? Trade wars deepening? Political gridlock? Geopolitical uncertainty? A new banking crisis? The outlook looks horrible… but Relax. Just Do It! The sun will likely come up tomorrow. And don’t forget we are right in the Ides of August: the thinnest, most illiquid time of the year. Crashes usually happen in October!
We’ve also got a growing awareness from global regulators, central bankers, and politicians of just how badly flawed policy responses and their unintended consequences have been since 2008. None of them want to jeopardize their electoral chances or future careers. If crisis crunches into crash there is the reality of a rescue bailout to factor in. (How is the question – central banks are out of options on rates, so I guess they just buy everything and end the logic of free markets for ever…)
Plus, it’s a simple fact there is loads and loads of ready cash sitting waiting for the opportunity to invest on a market reset. When the whole street is waiting for a correction as the moment to buy… It doesn’t happen till you don’t expect it.
Let’s not be overly optimistic. There are clearly troubles ahead, but I suspect they are likely to be tactical in the short-run. The risk is a couple of tactical shocks could precipitate a strategic collapse. Let me explain – all it might take is a couple of key stock shocks to really crush market sentiment, and spin us into a situation where the “authorities” have to respond to crisis.
Let me give you the four stocks I think you should be watching for signs we’ve in the deep solids…
- First up is HSBC. If Hong Kong kicks off, there has to be a massive sell off in the bank. It gets 90% of its profits from Hong Kong – which is already massively destabilised as a result of the tensions and protests. Money and skills are exiting the territory and heading towards Singapore. HSBC is already on the China sh*t-list over Huawai. If you think the Chinese will enable a foreign bank and signal of imperialism to flower in a New Hong Kong, then please can I have a quarter of whatever you are smoking. (And HSBC makes my blood boil: Yesterday I tried to pay money to my daughter’s new account in Oz. I gave the details to HSBC over the phone, but they refused to make any payments unless I answered a host of deeply personal questions about why – they knew it was daughter! I understand why, but they were so bloody rude and arrogant about it – treating me like a child. I gave up. I am also writing to the FCA to make formal complaint: they screwed up 3 credit card repayments in a row, and then promised to respond to my initial complaint within 8 weeks. They offered me a meeting in a Southampton branch to discuss. I said no – let’s meet in London when I live and work during the week. They considered that sufficient grounds to close the case. They are definitionally useless.)
- Second stock to watch is GE – in the press yesterday because the guy that exposed Madoff says they are guilty of a $38 bln fraud in their insurance and Baker Hughes business. Ouch. Late last year I warned GE had a very limited time to fix itself – See “Is GE Going to Repay its Debt”. Now GE may be working round its problems, but another wobble and the kind of 15% stock crash we saw last night makes that path even more perilous. Bad news sticks.
- Third is Boeing. I’ve written about its problems so many times – back in July warning that as the biggest component stock on the Dow, Boeing could be the name to trigger collapse. There is no idea when it gets the B 737 Max programme back in the air or if anyone will now fly it. The company is still in denial, and the likelihood of massive legal action as the scale of their regulatory capture of the FAA becomes apparent is growing. The sheer greed of their top management and how they pushed back safety in pursuit of bonueses and their pay packages could yet crush the company and force a policy response from US government that could totally change their position selling planes abroad.
- And, then there is We-Work’s IPO. You really could not make it up how one sided the terms of the IPO are and what it actually says about the company’s “mission”, values and its boss – Adam Neumann. To buy this stock you would need to be insane. If it’s not the absolute top of the crazy tech IPO market, then the world needs a reset. To read the details try this from the Register: Authentic Tech Company Vibes, right down to billion in losses and admission it may never be profitable. And the thing is – its not a Tech company at all. It’s a rather poorly managed property play run by a snake oil salesman who’d bluffed some stupid money. Here’s what I said about We-Work back in January.
I am sure there are a host of other equity and bond stories that could provide the sparks that light a market conflaguration in coming weeks. Or maybe we will get lucky and the fires keep get put out before they take hold. We only need to be unlucky a few times….
Bottom line – I suspect we are at something of a wake-up and smell the coffee moment. It’s going to be painful and massive pressure on top level level stocks will trigger all kinds of post-shock consequences. It will likely trigger a regulatory reaction and a buying opportunity. I suppose the only strategy is stay awake and be a boy-scout: be prepared..
Meanwhile, back in Camelot… Blain’s Brexit Watch
When I get round to writing the definitive comedy about Brexit I am going to ask Jeremy Corbyn to play himself. He’s brilliant. An unchallenged masterof pathos, gormlessness, and a capacity for self-delusion that would be unbeatable if parliament didn’t already contain Hammond and the Liberals. However, his offer to lead the country might not be so stupid – he’s not saving No-Brexit. He’s strectching out the pain, promising Brexit Tomorrow, if you still want it. Bottom line on Brexit. Going to hurt. UK will feel pain, and recover. Not so sure about Europe.