All about politics and policies

Mint – Blain’s Morning Porridge

I find your lack of faith in the force disturbing....

Lots of stuff on the screens, like the Federal Reserve on Wednesday (nothing expected) the Bank of Japan and European bank stress tests on Friday, and whatever happens next in G20 as they fret about all the same old stuff...

Get over it. It's all about politics and policies. Policies look stable. As the global economy's momentum spirals into apparent zero entropy... negative and zero interest rate policies mean interest rates will remain low forever, and for some time after that. Policies have distorted all financial asset classes. Policies ensure that although the fundamentals say stocks should be pants, they are still on the up. So keep buying. No matter what common sense says. (Except for bank stocks, of course.)

Politics are the...variable. Who knows what happens next? "The doves are coming home to roost" – says one commentator, claiming Friday's weak Purchasing Managers Index data highlight the damage done to UK Plc by last month's Brexit vote. Many now expect the Bank of England will be forced into desperate rate cuts and quantitative easing cubed to save the ailing economy. Arrgh! The front page of the FT screams that 33 percent of UK commercial property transactions since the vote have fallen through.

Steady boys steady; 66 percent of UK property deals are still going through, and with interest I note a large US bank (Wells Fargo) has just agreed a new building on King William Street. Sadly, it's still far too early to say what Brexit will or won't do to the global economy - not least the UK. Speaking to property professionals on Saturday night (long story) it's clear they feel there is lots of opportunity out there. The Bank of England should put on a nice pot of tea and relax. No point worrying today about stuff we might have to worry about tomorrow.

But, I'm beginning to worry if the Brexit fallout is going to become a long-term market drag - a will it/won't it drag on expectations, sentiment and economic activity. Not because the remainers were right about the damage to the economy, but because sentiment is now so plagued with post-Brexit uncertainty. 

And, it's increasingly clear the withdrawal period is going to be a long-term thing. While Prime Minister Theresa The Grey says no Article 50 triggering till next year.. I doubt it even then. France and Germany are caught up in their electoral cycle, and that means no one is making tough (ie pragmatic decisions.) Pressing the button to exit Europe may take even longer than we thought.

The net outcomes are that uncertainty will be roiled by news du jour - such as what does the current hostility of the French mean for the difficult negotiations to come? If Hollande is engaging in some pointless points scoring by slowing down passport controls at Dover - a move designed to punish the UK electorate by making them queue for 20 hours to get into La Belle France. Fine. We can play that way too.. (Er... Actually the queues at Heathrow are always that bad...)

On the other side of the pond...we've got the thrills and spills of the Democratic Philly convention (the city, not the cheese) this week. Hillary and The Demoncrats have got into a right tizz about who supported who and who leaked what. Sadly, it all plays to voters who are increasingly hostile to "big politics". The US election is going to be fought over email leaks and entitlement. And that plays to the non-establishment. I think he's likely to win..

A couple of US chums have taken issue with my rather blasé assertion a Trump presidency couldn't be that bad - warning of the potential negative outcomes as Trump's brand of "civic poison" seeps through the US. While Trump will claim he wasn't being literal about his anti-female, anti-Latino, or anti-alternative lifestyle stances, his redneck supporters will assume it's open season on anyone... "different". “If it's OK for the president of the USA, then it's ok for me.” It's a very dangerous precedent to set.

That’s an investability issue for markets – a non-functional USA changes the global dynamic dramatically. It could set back society decades. While I expect constitutional checks and balances, and the rest of the GOP will keep Trump in check, one US contact told me my : "faith in American institutions is touching, but delusional..."

Out of time..

Bill Blain

Mint Partners

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