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Blain’s Morning Porridge

The Macro View

Had history been democratic, their would have been no farming or industrial revolution.. ”

In the headlines this morning

Apologies for lack of Porridge last week.. But, even from the top of the Alps I heard the people cheer as my prediction the ECB would cough up more free money for European banks, (TLTRO III) – come about. While Europe’s economy remains caught on the buffers, how long before the ECB surrenders completely and just hands everyone helicopter loads of money to get Europe working again? Or works out the brutal truth – the Euro is the problem.  Under the current European financial regime, the reality is the ECB will never, ever, never be able to normalise or tighten rates – which is a wonderful thing for markets!

Hand the banks loads of Free Money! As the European economy is so dire, then what else can banks spend their free money on except buying more European Sovereign bonds? We all know the ECB will step up and buy them back in a crisis! So, on with the party hats and buying-boots, and scoop up European bonds. What’s not to like about the ECB’s money tree?

(And with hints the US may be slowing as the deficit rises and job creation wobbles… maybe time to buy bonds anyway…)

Meanwhile, I wonder how much Free ECB Money the new German Megabank – the well signposted merger of Deutsche and Commerz – will need? It’s interesting to see the Germans embrace the modern banking concepts we so conclusively proved pre-2007: 1+1 Bad Banks = 1 Good bank (see HBOS/Lloyds or ABN/RBOS for the mathematical proofs), or the old adage “Big Banks aren’t Too Big To Fail”…. (US Readers – Sarcasm Alert) Next thing the Germans will be recommending some politician to chair the new bank’s board, because that always ends well…. (again.. Sarcasm Alert).

Back in the real world… What’s on the agenda this week? Joy oh Joy, a whole series of Brexit Votes. Pass me the sharpened razor… Please make it stop…

I did try to keep up with Brexit.. but a week on the Italian slopes crystallised some views for me: UK politics has become “Italianised”: 

  • First, parties (or groups within parties) no longer expect to win, compromise is out of reach, so the goals of politicians are to ensure no one else wins either – the result is the politics of chaos. 
  • Second, as politics becomes a zero-sum game, the functions of state fall into the hands of the “uncivil services” whose economic goals are to preserve their status quo in terms of increased wages, job security, high pensions, their degree of regulatory oversight and long-term “capture of the state”. (This works well in countries like Belgium or Holland where years of no-governments have no discernible effect. Doesn’t work so well where the people have voted against the will of the Civil Service establishment..)

I’m hardly the first observer to suggest the UK civil service hasn’t exactly embraced Brexit with enthusiasm. If they did, it would mean welcoming extra work and uncertainty… which are double-plus-un-good as far as bureaucrats are concerned. An article in y’day’s Sunday Times – written anonymously by a civil servant, suggests the inherent inbuilt civil service resistance to Brexit has been deliberate and designed to ensure chaos. It looks like they have succeeded. Sure, it’s an unsigned article – so open to the charge of fake-news – but it did make me think. 

It would appear the Bank of England is equally complicit in the Civil Service State Capture – this morning’s news in the FT that Banks have been told to batten down the hatches, and increase their holding of easy to sell assets ahead off the now “Inevitable Financial and Market Armageddon after March 29th, is just the sort of comments to make everyone happy and secure about the future. Not.

I think I’ve lost sight of whether Brexit is a good or a bad thing for the UK economy – when faced with uncertainty its natural to favour the conservative choice of no-change over risk. While most of the big investors we talk to are pretty sanguine about Brexit and believe it will make little real change – and may be a slight positive for UK – all are now appalled by the implications of broken politics on the UK.






The Macro View

About Bill Blain

Bill Blain

Bill Blain is Strategist for Shard Capital, a leading investment firm. Bill is a well known broadcaster and commentator, with over 30-years experience working for leading investment banks and brokerages at senior levels. He's been closely involved in the growth and development of the global fixed income markets, and pioneered complex financial products including capital, asset-backed securities and private placements. Increasingly, he's involved in the Real and Alternative Assets sector seeking to explain their complexity, how to generate decorrelated returns, and create liquidity in non-listed assets. Bill is a passionate sailor, talentless painter, plays guitar badly, is learning the bagpipes, and built a train-set in his attic.

Articles by Bill Blain

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