How deep the rabbit hole goes
April 20, 2017

Mint - Blain's Morning Porridge – April 20th 2017

Would you believe it? It seems 7 percent is the new Really Important BIG number to beat! That's what global stocks have returned since the start of the year! Wowser...7 percent is a bigger number than 0 percent bond yields...but in fact even global bonds have returned nearly 4 percent as they've rallied. And all this positivity despite the rising political uncertainty, worries about the apparently failing US reflation trade, and whether the global economy really is out the woods.

Do remember that returns and yields are very different things. My colleague Martin Malone has produced a chart highlighting how the rise in global stocks has produced 64 percent of the rise in financial assets this year. That compares with oil which produced zero returns, but a 1 percent reduction in the total year-to-date rise. Interesting, 13 percent of the total return is attributal to ongoing global quantitative easing/central bank balance sheet ructions – a point worth considering as the unwind approaches. Central bank balance sheets have grown by US$1 trillion – driving the bull bond market!

Martin has also looked at global sectors, and the standout area is technology – accounting for 22 percent of global stock value and up 11 percent. In contrast energy is 6.5 percent and down over 8 percent! The world is changing!

Equally interesting is his snapshot of hedge fund returns – the best have returned a mere 2.5 percent and the macro theme funds have actually lost dosh. Oh dear.

Meanwhile, bringing us back to the reality of just how much the rosy world of buoyant financial assets is due to the largesse of central banks, I am indebted to my colleague Kevin Humphreys on the BGC money markets desk for alterting us to European Central Bank board member Benoit Coeure telling us not to worry yesterday. Coeure told us: "we are very serious about forward guidance… we will be buying financial assets until December or later if necessary, rates will remain low…the balance of economic risks to Europe is by and large balanced.." and the remarkable: "I don't personally see risks to the downside any more...but I just want to instil a sense of caution here.." Whateva..

If he wants a list of the risks he should be cautious about…well perhaps Sunday's French election will give us a Macron/Fillon final and we'll have nothing to worry about...Then again...it might not.

Now, changing the topic a bit…Everyone should be aware of the new MiFID (markets in financial instruments directive) II rules waiting to be introduced. They mean intermediaries will have to charge clients for any analysis or advice they provide. How much clients are willing to pay is a moot point.

I must be missing something…Personally, I can't see how MiFID II or a raft of other regulations that stop people talking to one another creates a more transparent and equal market?

I agree I'm only going to pay for information that puts me ahead of the pack. But, if some investors can afford access to secret thinking (which may influence the price of the asset) then surely that's a form of insider trading if the same information/thinking isn't freely available to all?

There is an old rule in investment banking: "Information is only valuable if you can withhold it." It gives the opportunity to profit from those it is withheld from. If "stuff" is happening and only the privileged few that pay for it are aware, then who is going to question it?

Are we likely to see analysts furtively trying to sell their original research and thinking in dark, smoke-filled speakeasies? Except of course in most of the western world smoking would no longer be allowed in a speakeasy, and smokers would likely be prosecuted more harshly than inside traders…

I thought we'd pretty much established freedom and access to information as a right rather than a privilege in this modern age? I was wrong. The inquisition was right...the Sun revolves around the Earth…

I've pretty much managed these past 30 years to ignore most of the nonsense the investment banks pump out. I've relied on talking to folk and what I've read in annual reports, prospectuses and the smarter papers. (Actually, the truth is probably I've been too lazy to read them and too stupid to understand them..) The point is, the "good" ideas and thinking research produces are quickly fed around the market, filtering down the financial food chain till it reaches us teenage scribblers who write daily market commentaries..

Commentaries don't purport to analyze or give advice on investments, but provide a base which may or may not set investors thinking. For instance "stocks went up, down and sideways" is commentary.

The Morning Porridge is such a commentary. I don't give investment advice or analyze deals – I look at the market and write what I think is happening and try to explain why. I've never asked anyone to pay for it – I'm happy that it stimulates dialogue with clients, building up the confidence to trade with us here at Mint.

It's my understanding that MiFID II won't change the status of The Porridge as unpaid "commentary". (But if I suddenly disappear, or the screens go blank, then it means I might have been wrong and my new office will be the darkest dungeon of some financial Lubyanka…...)

Out of time

Bill Blain

Head of Capital Markets/Alternative Assets

Mint Partners





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Mint - Blain's Morning Porridge – April 20th 2017

Would you believe it? It seems 7 percent is the new Really Important BIG number to beat! That's what global stocks have returned since the start of the year! Wowser...7 percent is a bigger number than 0 percent bond yields...but in fact even global bonds have returned nearly 4 percent as they've rallied. And all this positivity despite the rising political uncertainty, worries about the apparently failing US reflation trade, and whether the global economy really is out the woods.

Do remember that returns and yields are very different things. My colleague Martin Malone has produced a chart highlighting how the rise in global stocks has produced 64 percent of the rise in financial assets this year. That compares with oil which produced zero returns, but a 1 percent reduction in the total year-to-date rise. Interesting, 13 percent of the total return is attributal to ongoing global quantitative easing/central bank balance sheet ructions – a point worth considering as the unwind approaches. Central bank balance sheets have grown by US$1 trillion – driving the bull bond market!

Martin has also looked at global sectors, and the standout area is technology – accounting for 22 percent of global stock value and up 11 percent. In contrast energy is 6.5 percent and down over 8 percent! The world is changing!

Equally interesting is his snapshot of hedge fund returns – the best have returned a mere 2.5 percent and the macro theme funds have actually lost dosh. Oh dear.

Meanwhile, bringing us back to the reality of just how much the rosy world of buoyant financial assets is due to the largesse of central banks, I am indebted to my colleague Kevin Humphreys on the BGC money markets desk for alterting us to European Central Bank board member Benoit Coeure telling us not to worry yesterday. Coeure told us: "we are very serious about forward guidance… we will be buying financial assets until December or later if necessary, rates will remain low…the balance of economic risks to Europe is by and large balanced.." and the remarkable: "I don't personally see risks to the downside any more...but I just want to instil a sense of caution here.." Whateva..

If he wants a list of the risks he should be cautious about…well perhaps Sunday's French election will give us a Macron/Fillon final and we'll have nothing to worry about...Then again...it might not.

Now, changing the topic a bit…Everyone should be aware of the new MiFID (markets in financial instruments directive) II rules waiting to be introduced. They mean intermediaries will have to charge clients for any analysis or advice they provide. How much clients are willing to pay is a moot point.

I must be missing something…Personally, I can't see how MiFID II or a raft of other regulations that stop people talking to one another creates a more transparent and equal market?

I agree I'm only going to pay for information that puts me ahead of the pack. But, if some investors can afford access to secret thinking (which may influence the price of the asset) then surely that's a form of insider trading if the same information/thinking isn't freely available to all?

There is an old rule in investment banking: "Information is only valuable if you can withhold it." It gives the opportunity to profit from those it is withheld from. If "stuff" is happening and only the privileged few that pay for it are aware, then who is going to question it?

Are we likely to see analysts furtively trying to sell their original research and thinking in dark, smoke-filled speakeasies? Except of course in most of the western world smoking would no longer be allowed in a speakeasy, and smokers would likely be prosecuted more harshly than inside traders…

I thought we'd pretty much established freedom and access to information as a right rather than a privilege in this modern age? I was wrong. The inquisition was right...the Sun revolves around the Earth…

I've pretty much managed these past 30 years to ignore most of the nonsense the investment banks pump out. I've relied on talking to folk and what I've read in annual reports, prospectuses and the smarter papers. (Actually, the truth is probably I've been too lazy to read them and too stupid to understand them..) The point is, the "good" ideas and thinking research produces are quickly fed around the market, filtering down the financial food chain till it reaches us teenage scribblers who write daily market commentaries..

Commentaries don't purport to analyze or give advice on investments, but provide a base which may or may not set investors thinking. For instance "stocks went up, down and sideways" is commentary.

The Morning Porridge is such a commentary. I don't give investment advice or analyze deals – I look at the market and write what I think is happening and try to explain why. I've never asked anyone to pay for it – I'm happy that it stimulates dialogue with clients, building up the confidence to trade with us here at Mint.

It's my understanding that MiFID II won't change the status of The Porridge as unpaid "commentary". (But if I suddenly disappear, or the screens go blank, then it means I might have been wrong and my new office will be the darkest dungeon of some financial Lubyanka…...)

Out of time

Bill Blain

Head of Capital Markets/Alternative Assets

Mint Partners



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