Is the weather trying to tell us something?

Mint – Blain’s Morning Porridge

But never till tonight, never till now, did I go through a tempest dropping fire. Either there is a civil strife in heaven, or else the world incenses the Gods to send destruction.…

After being rudely awoken by the thunder and lightning last night, do you think the weather is trying to tell us something? I’m going with a 55%+ Remain vote. But, this morning’s biblical rains in London will keep many Status Quo voters from the polls. Early doors, I waded through the floods to the polling station and stared at the question… and stared and stared. I ran through the arguments in my mind again.

Of course, it's madness we’re having the referendum in the first place – a first class failure by Prime Minister David Cameron. Rule one: never hold a vote you might lose. He should have sent a stronger message to Europe: reform your system and your failed Euro, create jobs and growth, or else. But, no one has a voice to lead like that in Europe.

I stared harder at the question. Do I do the sensible thing and vote remain? What’s the harm in taking the free option to back out later if Europe does not reform? Or do I vote to exit a failed economic theory?  Undo the damage of the euro, and back up monetary experimentation with some good ol’ fashioned growth strategies (aka: let’s get Fiscal! (To the Olivia Neutron-Bomb tune).

What I really, really want, I suppose, is a very close remain vote that sends a clear signal to Europe about how thin the ice they are skating is. But will Europe even notice? Tomorrow Europe will be hailing a decisive vote in favour of ever closer union, or we face another Spitfire summer. So eventually I made my cross on the paper.. and lo and behold, the rain did stop and the clouds parted.

Let us leave that sorry mess behind. On the basis I expect sweetness and light, let’s ignore the pachyderm in the corner. Why worry today about what we might not have to worry about tomorrow? Speaking of which, I will be in the office from 2 am tomorrow morning.. just in case…

Let’s focus on what’s coming. Is the global economy as bad as markets, central bankers, and the press all think? Is it so weak it can’t handle a squabble between small nations? Far less bad than you might think methinks. If, as we expect, the unpleasantness betwixt ourselves and Yoorp (Europe) is resolved tomorrow, will the global economy slip back on path?

While the market has been fixated with the prognostications of our small island on the unfashionable northern extremity of Yoorp, Brexit (British exit from the European Union) has successfully drowned out most of the noise on China, oil prices, US employment numbers, European growth signals, commodity ructions and anything else..

My macro colleague Martin Malone makes a fundamental point: “the current macro backdrop is more solid than widely recognised, and in fact, is much better than average levels of the past decade..”

Whether we move forward from here rather depends on policy moves. I have deep doubts on some aspects (like anything in Japan) and worry about the lack of fiscal stimulus in Europe. But the risk-off factors (those listed above) are decreasing. Even in Europe we’ve been seeing slightly better numbers. So, if we’re right and the global economy can now move forward.. (remember, there is a risk we’re looking at markets in too rosy a way because we think the wolf has left the door), then what are the upside trades?

Bonds: I’m afraid it’s not going to be good news for bond players. We are likely to see stronger numbers across the second half of the year translate into the long-expected bond reversal. Inflation? Will simply exacerbate the losses at the long end. However, we’re likely to see markets deluged in new supply in coming days – remember, it's only a few days to till the traditional summer slowdown.

Stocks: I’m told its time to be buying stocks again. Perhaps. I rather expect the currently robust stock markets contain a large element of QE (quantitative easing) distortion in their high valuations.

But, I also believe we’re on a long/medium-term new normal slow growth – which means a few years of steady slow uptick… low rates (a massive continuing problem for asset managers, especially those with long-term liabilities). And I suppose that’s why I’m going to keep smiling – it means alternative assets, anything out of the ordinary or “special situation-ish” that creates uncorrelated proper returns looks a winner.

So, for the rest of 2016, assuming no shock tomorrow, don your risk-on hat, sell bonds, buy stocks and talk to me about uncorrelated risk-on investments..

          A happy future awaits..

          (Meanwhile.. have you read Macbeth…? Duncan says: “This castle hath a pleasant seat, the air recommends itself to our gentle senses..” shortly before McB murders him in his sleep…)

Bill Blain

Mint Partners

44 207 786 3877

07770 881033