It's Payrolls Day!
October 6, 2017

Mint - Blain's Morning Porridge

"You're a cop. I had your job once. I was good at it."

For the avoidance of doubt – the Morning Porridge is unrestricted market commentary, it is not investment advice…

It's Payrolls Day! Clue: monthly payrolls are not a particularly reliable indicator, although the data set has acquired a quasi-religious sentiment status despite being an unreliable single look-back data point amongst the deluge of information we can plough through every day. (In fact, pretty much discount today's payrolls: if they are positive they change nothing, negative and they will be dismissed as "hurricane distorted" – look to the next release in November as more meaningful!)

Aside from the jobs report, I'm wondering what else there is to say this morning? The volatility index (VIX) is at yet another record low. S&P sustains a record number of record highs. The market is fully prepared and ready for a December hike. Even Spain rose yesterday – boosted by the perception of a Catalan pullback. My bearish stockpicking chum Steve Previs had to reset his shorts because of the market's resilience...My chums in the financials sector have gone all bullish (again) convinced higher rates are good for banks, "synchronized global growth" means lower non-performing loans, and now we've got potential Federal Reserve Chair candidates actively supporting rolling back regulation. What can possibly go wrong?

Markets feel they are fully invested in the stronger growth and higher stocks arguments. The fact bond markets are going to take a spanking bothers no one. Yesterday's positive US factory orders fuels the mood. Again...when everyone thinks alike...What can possibly go wrong?

I'm told you can't fault the rising sentiment – numbers never lie. It's just sentiment that's fickle...As Donald, not content with winding up El Norte Koreans, the Puerto Ricans and liberals across the globe, pokes the hornet's nest that is Iran...Again, I ask...what can possibly go wrong?

Strange thing is...I'm not an Uber-Bear. Regular readers will know I think the markets are overblown and in need of a short-term correction, but in the long term I'm more bullish. 

In terms of where we are going in the medium term, it's probably worth sharing my outlook – this is based around our macro view, my own doubts, and many of the points will be familiar to Porridge readers.

·        Most major economics are now in recovery with positive output gaps, declining deficits and moving back to full employment. So I'm buying macro bullish in terms of positive macroeconomic policies driving economic performance and pushing financial asset prices higher. Increased private sector expansion on the back on positive polices and the expectation of growth, driving investment and job creation.

·        I'm more than a little concerned about political reality. In a perfect world the prospects for tax reform and cuts in the US, aligned growth in Asia and emerging markets, improvements in France (including closer European alignment) pulling up Europe, and increased global fiscal spending have the potential to drive sentiment and growth higher – but politics remains vulnerable to shocks, populism, speedbumps and surprises of the Cygnus Atratus variety.

·        There are potential shocks ahead: such as the Trump administration being unable to push through policies (critically tax reform), the ongoing uncertainty in Europe – including the likely delays in forming a new German coalition, the referendum in Catalunya, Italian elections next year, and how hollow the Macron-Merkel axis now looks, and the possibility/probability failure in these areas will cause bubbles in bonds/stocks to burst. China, emerging markets, high-yield and spread compression in bond markets could all undo the current rosy outlook.

·        Political shocks will drive market events. And not in a nice way.

·        I'm still very concerned that years of quantitative easing have distorted financial asset values and market transmission mechanisms in ways we don't yet fully comprehend. As these policies are reversed under "normalization", many asset prices could correct on market uncertainty or shocks, and the demand/supply equation driving traders will change utterly.

·        For the UK, the risks are Political and Brexitical – the solutions are practical...Every time the current prime minister Theresa May opens her mouth, sterling tumbles – which could be a very interesting way to control the currency…if it's too strong get Boris to say something. If it's too weak...that's more difficult. Get former UKIP leader Nigel Farage to punch a Eurocrat or two...Real issues for the UK are about the credibility of competitiveness and productivity which need a long-term non-political focus (ie improve training and education) and improved transmission of policy. The idea of encouraging social housing is a great policy – even if it sounds Corbynista - and could be a real multiplier. Plus we think private rental sector is a great space for alternative investment! 

·        Global economic forecasts and outlook are robust leading to positive returns creating a curious situation where risk assets (stocks and alternative investment strategies) will produce much stronger numbers.

·        Interest rates will remain relatively low, but rising enough to make bonds less attractive with potential negative returns as yields lag inflation. Stocks will continue to post gains reflecting growth in all major economies – any correction, which I expect WILL HAPPEN, is a buying opportunity.

·         Alternatives, including housing, real assets like aviation and infrastructure and private equity, will produce very strong and somewhat de-linked returns.

If that sounds convoluted...that's because it is..

Meanwhile…

Last night I went to the opening night of Blade Runner 2049. Incredible. No spoilers, but the best film I've seen this year. It's faithful to the original – and stays absolutely loyal to its film noir roots. The story is complex yet makes more sense and is more logical than the original, but leaves even more questions. Definitely room for Blade Runner 3 (or even Do Androids Dream of Electric Sheep 3).

It's surprising, but full of little moments of anticipation – like why not an origami unicorn? There were parts I didn't get and plot lines left open and confusing...but...AWESOME. And I don't think it really answers the big question. One quibble might be Los Angeles doesn't seem to have changed much in 30 years, but I suppose that sums up how dystopian the alternative universe of replicants and Blade Runners is. Even the music was true to the Vangelis original.

Have a great weekend!

Bill Blain

Head of Capital Markets/Alternative Assets

Mint Partners





This site, like many others, uses small files called cookies to customize your experience. Cookies appear to be blocked on this browser. Please consider allowing cookies so that you can enjoy more content across globalcustody.net.

How do I enable cookies in my browser?

Internet Explorer
1. Click the Tools button (or press ALT and T on the keyboard), and then click Internet Options.
2. Click the Privacy tab
3. Move the slider away from 'Block all cookies' to a setting you're comfortable with.

Firefox
1. At the top of the Firefox window, click on the Tools menu and select Options...
2. Select the Privacy panel.
3. Set Firefox will: to Use custom settings for history.
4. Make sure Accept cookies from sites is selected.

Safari Browser
1. Click Safari icon in Menu Bar
2. Click Preferences (gear icon)
3. Click Security icon
4. Accept cookies: select Radio button "only from sites I visit"

Chrome
1. Click the menu icon to the right of the address bar (looks like 3 lines)
2. Click Settings
3. Click the "Show advanced settings" tab at the bottom
4. Click the "Content settings..." button in the Privacy section
5. At the top under Cookies make sure it is set to "Allow local data to be set (recommended)"

Opera
1. Click the red O button in the upper left hand corner
2. Select Settings -> Preferences
3. Select the Advanced Tab
4. Select Cookies in the list on the left side
5. Set it to "Accept cookies" or "Accept cookies only from the sites I visit"
6. Click OK

Mint - Blain's Morning Porridge

"You're a cop. I had your job once. I was good at it."

For the avoidance of doubt – the Morning Porridge is unrestricted market commentary, it is not investment advice…

It's Payrolls Day! Clue: monthly payrolls are not a particularly reliable indicator, although the data set has acquired a quasi-religious sentiment status despite being an unreliable single look-back data point amongst the deluge of information we can plough through every day. (In fact, pretty much discount today's payrolls: if they are positive they change nothing, negative and they will be dismissed as "hurricane distorted" – look to the next release in November as more meaningful!)

Aside from the jobs report, I'm wondering what else there is to say this morning? The volatility index (VIX) is at yet another record low. S&P sustains a record number of record highs. The market is fully prepared and ready for a December hike. Even Spain rose yesterday – boosted by the perception of a Catalan pullback. My bearish stockpicking chum Steve Previs had to reset his shorts because of the market's resilience...My chums in the financials sector have gone all bullish (again) convinced higher rates are good for banks, "synchronized global growth" means lower non-performing loans, and now we've got potential Federal Reserve Chair candidates actively supporting rolling back regulation. What can possibly go wrong?

Markets feel they are fully invested in the stronger growth and higher stocks arguments. The fact bond markets are going to take a spanking bothers no one. Yesterday's positive US factory orders fuels the mood. Again...when everyone thinks alike...What can possibly go wrong?

I'm told you can't fault the rising sentiment – numbers never lie. It's just sentiment that's fickle...As Donald, not content with winding up El Norte Koreans, the Puerto Ricans and liberals across the globe, pokes the hornet's nest that is Iran...Again, I ask...what can possibly go wrong?

Strange thing is...I'm not an Uber-Bear. Regular readers will know I think the markets are overblown and in need of a short-term correction, but in the long term I'm more bullish. 

In terms of where we are going in the medium term, it's probably worth sharing my outlook – this is based around our macro view, my own doubts, and many of the points will be familiar to Porridge readers.

·        Most major economics are now in recovery with positive output gaps, declining deficits and moving back to full employment. So I'm buying macro bullish in terms of positive macroeconomic policies driving economic performance and pushing financial asset prices higher. Increased private sector expansion on the back on positive polices and the expectation of growth, driving investment and job creation.

·        I'm more than a little concerned about political reality. In a perfect world the prospects for tax reform and cuts in the US, aligned growth in Asia and emerging markets, improvements in France (including closer European alignment) pulling up Europe, and increased global fiscal spending have the potential to drive sentiment and growth higher – but politics remains vulnerable to shocks, populism, speedbumps and surprises of the Cygnus Atratus variety.

·        There are potential shocks ahead: such as the Trump administration being unable to push through policies (critically tax reform), the ongoing uncertainty in Europe – including the likely delays in forming a new German coalition, the referendum in Catalunya, Italian elections next year, and how hollow the Macron-Merkel axis now looks, and the possibility/probability failure in these areas will cause bubbles in bonds/stocks to burst. China, emerging markets, high-yield and spread compression in bond markets could all undo the current rosy outlook.

·        Political shocks will drive market events. And not in a nice way.

·        I'm still very concerned that years of quantitative easing have distorted financial asset values and market transmission mechanisms in ways we don't yet fully comprehend. As these policies are reversed under "normalization", many asset prices could correct on market uncertainty or shocks, and the demand/supply equation driving traders will change utterly.

·        For the UK, the risks are Political and Brexitical – the solutions are practical...Every time the current prime minister Theresa May opens her mouth, sterling tumbles – which could be a very interesting way to control the currency…if it's too strong get Boris to say something. If it's too weak...that's more difficult. Get former UKIP leader Nigel Farage to punch a Eurocrat or two...Real issues for the UK are about the credibility of competitiveness and productivity which need a long-term non-political focus (ie improve training and education) and improved transmission of policy. The idea of encouraging social housing is a great policy – even if it sounds Corbynista - and could be a real multiplier. Plus we think private rental sector is a great space for alternative investment! 

·        Global economic forecasts and outlook are robust leading to positive returns creating a curious situation where risk assets (stocks and alternative investment strategies) will produce much stronger numbers.

·        Interest rates will remain relatively low, but rising enough to make bonds less attractive with potential negative returns as yields lag inflation. Stocks will continue to post gains reflecting growth in all major economies – any correction, which I expect WILL HAPPEN, is a buying opportunity.

·         Alternatives, including housing, real assets like aviation and infrastructure and private equity, will produce very strong and somewhat de-linked returns.

If that sounds convoluted...that's because it is..

Meanwhile…

Last night I went to the opening night of Blade Runner 2049. Incredible. No spoilers, but the best film I've seen this year. It's faithful to the original – and stays absolutely loyal to its film noir roots. The story is complex yet makes more sense and is more logical than the original, but leaves even more questions. Definitely room for Blade Runner 3 (or even Do Androids Dream of Electric Sheep 3).

It's surprising, but full of little moments of anticipation – like why not an origami unicorn? There were parts I didn't get and plot lines left open and confusing...but...AWESOME. And I don't think it really answers the big question. One quibble might be Los Angeles doesn't seem to have changed much in 30 years, but I suppose that sums up how dystopian the alternative universe of replicants and Blade Runners is. Even the music was true to the Vangelis original.

Have a great weekend!

Bill Blain

Head of Capital Markets/Alternative Assets

Mint Partners



Free subscription - selected news and optional newsletter
Premium subscription
  • All latest news
  • Latest special reports
  • Your choice of newsletter timing and topics
Full-access magazine subscription
  • 7-year archive of news
  • All past special reports
  • Newsletter with your choice of timing and topics
  • Access to more content across the site