It's 1973. Nearly dinner time. I’m having hoops..

 

 Mint – Blain’s Morning Porridge  

Very short Porridge this morning as I’m rushing between a succession of all the various marvellous things I get to do all day. (To sleep, perchance to dream…. Aye there’s the rub..)

The day began in the makeup chair at Bloomberg (where me and the girls chose spaghetti as the word of the day). It will involve a number of investor calls and meetings, and might well end with an on-air comment on how England’s banning from the Yoorp Footie post the Welsh game not only ensures Brexit (British exit from the European Union), but how we will fight a simultaneous three-front war versus the Valleys, Europe and the Russkies at the same time. Schweet.

My new favourite expressions are New Abnormal to describe thin global bond yields, and “Market Perversion”. The new abnormal describes how most of the world’s sovereign bond markets look likely to be stuck in negative territory, and close to the square root of absolutely nothing, for the rest of eternity. Market perversion is the effect of low rates on the value of every other financial asset.

The risk, of course, is that eternity only lasts until it doesn’t.

The Federal Reserve went all dovish on us last night – the market now anticipates a small chance of one hike this year. Many analysts are saying it’s a fundamental change – and it's lower for longer and till eternity freezes over.

Hang on…step back and sniff the coffee. One miserably out-of-kilter US employment number from May, a Brexit vote that’s got everyone in a complete tiz, and a general feeling the global economy is sliding into the end of days. The fact that both US presidential spamdidates are playing the populist card of protectionism (ie, “I won't sign a trade agreement if it costs a single US job”) adds to the woe.

Smell the reality. This morning’s European car sales numbers continue a growing trend of growth (slow, but happening). The weaker dollar engendered by the no-hike language means growth in emerging markets, and that will quickly turn around current weakness (that’s the trend we’ve been watching for the last two years – growth stalling pretty much in line with dollar strength.)

And I reckon the hysterical warnings of chronic financial instability in the wake of the Brexit vote are going to prove another Y2K bug moment – everyone thought planes would fall from the sky and the lights would go out everywhere… They didn’t. The reality is the market knows what to expect, folk are lined up to buy weakness, and global central banks are primed with liquidity.

The reality is we’re likely to see the current economic gloom reverse quite quickly, and that’s when you start to worry about market perversion. Bond rates are not sustainable at these levels – they will sell off. But that doesn’t help much – the money has to go somewhere else, and so much money is chasing so few financial assets the inevitable result is further distortion. Money will flood into stocks even though the economic picture just does not justify it.

Whateva…It's not worth worrying about.. I think…Set the controls for the heart of the sun..

 

And back to the day job…

 

Bill Blain

Mint Partners

44 207 786 3877