Outlooks 2018 looming large
December 8, 2017

Mint - Blain's Morning Porridge

For the avoidance of doubt – the Morning Porridge is unrestricted market commentary freely available to all qualified investors on an unsolicited basis. It is not investment advice…

I do apologise for the irregularity of the Morning Porridge this month – lots going on, lots of folk to see, and lots of commentary requests. Full and normal service will resume in the New Year, and next week I'll be focusing on some 2018 outlook Porridge notes – unless of course something terrible exciting happens. Which is why I've primed the home PC for action over the festive break!

There is more going on than just the "just-in-time" overnight Brexit Agreement; Congress passed a short extension to allow Federal Spending through the tax negotiations, Martin Shultz (soon to be German Vice-Chancellor?) laid out his accept-it-or-leave it vision of a United Yoorp, and then there is the extraordinary euphoric mania exploding around BitCoin as it sucks in more and more greater fools – perhaps persuaded by the dubious legitimacy shortly to be conveyed by futures contracts.

And then there is what's going on in high-yield markets. It's year end, and the bank origination desks are desperately to trying to push out the deals before the market closes (and their clients run out of money!). Sadly, these are the names no one else will fund. It's reviving memories of Parmalat and PeskyNova – two classic Christmas junk nightmares. Now it's Altis and Steinhof… reminding everyone why junk means junk.

When European junk trades at lower yields than treasuries and no one knows what they are buying.. that's the wake-up call for next year's big threat. Corporate bond mayhem – coming to a market near you… (When your salesman at the investment bank who just sold you that tub of rubbish isn't picking up your call, our friendly and helpful corporate bond desk is active across all the recent junk issues!)

The market reaction to the Brexit smoozle hasn't been immediate wild acclamation. We're looking at sterling as the obvious way to play Brexit games – and although it moved up last night on the back of rumours, this morning it's simply dancing around "lesser threat" levels – what we'd call mildly positive. Versus the euro we're at the strongest sterling levels since June.

What happens next? Isn't it peculiar that that question immediately raises questions about Premier Theresa May's longevity rather than the more pertinent ones about the UK economy being able to move forward? But they do say markets are simply reflections of the political world. Politically we might just have some stability. She's delivered something. Shut up Boris et al.

Economically? Moving on to tangible negotiations on trade means industry and commerce can get down to figuring out not only the costs but the practicalities of exciting the union and what that means in terms of customs, (i.e.: how UK industry will adjust to practical issues such as longer production lead times ("just-in-time" manufacturing slowed by border controls) and all the other tensions and grit that exiting Europe will inflict on the daily grind of industry.)

It would be interesting to see some sector analysis on exactly what parts of UK industry will be winners and losers. While there will clearly be costs and greater friction, finally we can get down to addressing opportunities.

Meanwhile, anyone still doubting the wisdom of the great British electorate in voting for Brexit may care to peruse Martin Shultz's call for a United States of Europe. It's marvellous stuff, calling for countries that don't immediately agree to a new constitutional treaty to be slung out, for the appointment of a finance minister, and the establishment of the United States of Europe by 2025. Oh dear…

Schultz, leader of the German SDP and likely Vice Chancellor when/if a coalition with Merkel is inked, is playing a smart German political game. He knows the greatest threat to Merkel comes from within her own party, who bitterly resent her pragmatic shift leftwards. She's accepted this in return for coalition. While the German right detest the concept of debt mutualization across Europe – and the obvious stuff like immigration – Schultz has laid out his pan-Europe vision, making it crystal clear he's opposed to austerity and shares Macron's vision of more Europe.

I loved his classic line "The EU can't afford another four years of German policy towards Europe a la Wolfgang Schauble"!

Shultz's bandstanding is the price Merkel will have to pay for a majority coalition – further weakening her party and status among CDU stalwarts and coalescing right-wing German views. A short-term German political fix might spell even more long-term trouble! A minority government remains a possibility. A great article on Bloomberg "Defiant Merkel Critics Press Her to Consider Minority Government" covers all the runners and riders in the current German race.

Meanwhile, next week sees the improbable launch of BitCoin futures. This looks like having the potential to be a storm of monumental proportions when it bursts. Every bank knows BTC's extraordinary gains are a crowd delusion fuelled by the extraordinary promise of free wealth! Yet, many will be willing to trade and settle them for their clients – largely retail.

Bitcoin has become the ultimate Klondyke. Most folk don't have a clue what BTC and the associated Blockchain ledger might be, but everyone knows what the price action has been. Where that price is going is clouded by a lack of clarity on the technological nuances, distorted by libertarian/geek monetary gobbledygook, confused by a plethora of me-too coin offerings, speculators who see the chance of a quick buck and investors scared they are missing out.

I've spent most of this week learning more and more about the limitations of Blockchain and two things are crystal clear – it doesn't work, and it's an evolutionary dead end that nimbler cryptocurrencies will take the niche of. But I still don't understand why we need them at all? If its central banks you object to, let's have a private cryptocurrency based on gold, or oil, or something else tangible…but based on some computer babble? Not for me.

On the other hand, the long-term possibilities that BTC exploits in terms of Blockchain distributed ledgers are very real. Blockchain applications are going to utterly change finance..

Time to go blab about the EU agreement..

Bill Blain

Head of Capital Markets/Alternative Assets

Mint Partners





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Mint - Blain's Morning Porridge

For the avoidance of doubt – the Morning Porridge is unrestricted market commentary freely available to all qualified investors on an unsolicited basis. It is not investment advice…

I do apologise for the irregularity of the Morning Porridge this month – lots going on, lots of folk to see, and lots of commentary requests. Full and normal service will resume in the New Year, and next week I'll be focusing on some 2018 outlook Porridge notes – unless of course something terrible exciting happens. Which is why I've primed the home PC for action over the festive break!

There is more going on than just the "just-in-time" overnight Brexit Agreement; Congress passed a short extension to allow Federal Spending through the tax negotiations, Martin Shultz (soon to be German Vice-Chancellor?) laid out his accept-it-or-leave it vision of a United Yoorp, and then there is the extraordinary euphoric mania exploding around BitCoin as it sucks in more and more greater fools – perhaps persuaded by the dubious legitimacy shortly to be conveyed by futures contracts.

And then there is what's going on in high-yield markets. It's year end, and the bank origination desks are desperately to trying to push out the deals before the market closes (and their clients run out of money!). Sadly, these are the names no one else will fund. It's reviving memories of Parmalat and PeskyNova – two classic Christmas junk nightmares. Now it's Altis and Steinhof… reminding everyone why junk means junk.

When European junk trades at lower yields than treasuries and no one knows what they are buying.. that's the wake-up call for next year's big threat. Corporate bond mayhem – coming to a market near you… (When your salesman at the investment bank who just sold you that tub of rubbish isn't picking up your call, our friendly and helpful corporate bond desk is active across all the recent junk issues!)

The market reaction to the Brexit smoozle hasn't been immediate wild acclamation. We're looking at sterling as the obvious way to play Brexit games – and although it moved up last night on the back of rumours, this morning it's simply dancing around "lesser threat" levels – what we'd call mildly positive. Versus the euro we're at the strongest sterling levels since June.

What happens next? Isn't it peculiar that that question immediately raises questions about Premier Theresa May's longevity rather than the more pertinent ones about the UK economy being able to move forward? But they do say markets are simply reflections of the political world. Politically we might just have some stability. She's delivered something. Shut up Boris et al.

Economically? Moving on to tangible negotiations on trade means industry and commerce can get down to figuring out not only the costs but the practicalities of exciting the union and what that means in terms of customs, (i.e.: how UK industry will adjust to practical issues such as longer production lead times ("just-in-time" manufacturing slowed by border controls) and all the other tensions and grit that exiting Europe will inflict on the daily grind of industry.)

It would be interesting to see some sector analysis on exactly what parts of UK industry will be winners and losers. While there will clearly be costs and greater friction, finally we can get down to addressing opportunities.

Meanwhile, anyone still doubting the wisdom of the great British electorate in voting for Brexit may care to peruse Martin Shultz's call for a United States of Europe. It's marvellous stuff, calling for countries that don't immediately agree to a new constitutional treaty to be slung out, for the appointment of a finance minister, and the establishment of the United States of Europe by 2025. Oh dear…

Schultz, leader of the German SDP and likely Vice Chancellor when/if a coalition with Merkel is inked, is playing a smart German political game. He knows the greatest threat to Merkel comes from within her own party, who bitterly resent her pragmatic shift leftwards. She's accepted this in return for coalition. While the German right detest the concept of debt mutualization across Europe – and the obvious stuff like immigration – Schultz has laid out his pan-Europe vision, making it crystal clear he's opposed to austerity and shares Macron's vision of more Europe.

I loved his classic line "The EU can't afford another four years of German policy towards Europe a la Wolfgang Schauble"!

Shultz's bandstanding is the price Merkel will have to pay for a majority coalition – further weakening her party and status among CDU stalwarts and coalescing right-wing German views. A short-term German political fix might spell even more long-term trouble! A minority government remains a possibility. A great article on Bloomberg "Defiant Merkel Critics Press Her to Consider Minority Government" covers all the runners and riders in the current German race.

Meanwhile, next week sees the improbable launch of BitCoin futures. This looks like having the potential to be a storm of monumental proportions when it bursts. Every bank knows BTC's extraordinary gains are a crowd delusion fuelled by the extraordinary promise of free wealth! Yet, many will be willing to trade and settle them for their clients – largely retail.

Bitcoin has become the ultimate Klondyke. Most folk don't have a clue what BTC and the associated Blockchain ledger might be, but everyone knows what the price action has been. Where that price is going is clouded by a lack of clarity on the technological nuances, distorted by libertarian/geek monetary gobbledygook, confused by a plethora of me-too coin offerings, speculators who see the chance of a quick buck and investors scared they are missing out.

I've spent most of this week learning more and more about the limitations of Blockchain and two things are crystal clear – it doesn't work, and it's an evolutionary dead end that nimbler cryptocurrencies will take the niche of. But I still don't understand why we need them at all? If its central banks you object to, let's have a private cryptocurrency based on gold, or oil, or something else tangible…but based on some computer babble? Not for me.

On the other hand, the long-term possibilities that BTC exploits in terms of Blockchain distributed ledgers are very real. Blockchain applications are going to utterly change finance..

Time to go blab about the EU agreement..

Bill Blain

Head of Capital Markets/Alternative Assets

Mint Partners



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