Blain’s Morning Porridge, Nov 10 2020: Ring The Bells!

“Before Alamein we never had a victory. After Alamein, we never had a defeat”

Wow. Risk on! Sell Gold and Bonds! Pfizer/BioNTech’s announcement of a positive trial of a new mRNA based vaccine was an extraordinary moment. In 35-years I’ve never seen such a complete binary switch in the market narrative and expectation. The Virus will be beaten – Simple as! It’s the first of six vaccines in development, all showing promise. At least two other vaccine groups are close to making similar announcements. Together they are likely to have beaten Coronovirus by mid 2021.

It is brilliant and market changing news.

I feel kind of stupid I wasn’t paying enough attention to the vaccine news flow in recent weeks, and simply hadn’t seen this moment coming so soon and suddenly. My Bad! I was probably too deeply head down in the nonsense of the US Election. Following the news about new drugs, old drugs repurposed, and novel therapies has been an interesting experience. We all got burned by the “Remdesivir” effect – big announcements, big expectations and disappointment as it delivered marginal effectiveness. It taught market watchers to be cautious, and even cynical.

This is different.

Within a few months it looks likely a large enough population will have been vaccinated to effectively create herd immunity – meaning the world reopens! Economic recovery unlimited? It has triggered a massive rotation from the Tech and defensive stocks into fundamental value stocks. Suddenly every single stock that’s been battered lowered by the effects of the pandemic soared – some to ecstatic levels! Beware.

Yesterday was a classic good news market – probably overdone! It’s no wonder the market is fading slightly as reality bites and expectations of the coming recovery are more grounded. Recovery will not be immediate. There will be considerable mopping up to be done, but over the next 18 months we’re looking at final victory.

There are parallels with the great wars – the Axis were effectively beaten at Stalingrad and El Alamein, but it took another 2 1/2 years, millions of deaths and massive campaigns before the fighting was ended. The war against Covid will be won in the same way – Logistics. Delivering the vaccine and ensuring it’s used is the next challenge – which we are more than up to.

There will be issues – how to deliver vaccines that need stored at -80 degrees (some of the others don’t need this), monitoring the new RNA based therapy, and ensuring sufficient takeup and coverage of the vaccines globally. These are more likely to happen than not.

Yesterday’s rally takes many stocks back up to where they were pre-Covid. There is probably better value in stocks and markets which still substantially lag their pre-virus highs. For instance as the S&P came close to a new record, the FTSE is still 20% down on its January high – while the CAC 40 is down 12%.

Another issue is the bond market – yield curves steepened dramatically yesterday. Whatever joy the coronavirus triggered in stock markets, if rates rise and Central Banks don’t act to keep them low (via QE and yield-curve-control), then a host of debt-stressed and zombie companies are going to face an early Götterdämmerung… oh, but it won’t happen… because rates are going to stay low for ever.. ahem…

Yesterday’s winners included all the stocks most heavily impacted by the virus. Banks were in the spotlight. Everyone wants to fly off on holiday. These Cruise liners rusting in Waymouth Bay will get a lick of paint. Aviation markets will reopen as repressed demand for holidays and business flights sees flight schedules resume over the coming year. Hotels will reopen. Oil prices are higher on expectations of recovery.

Woah for one second. We are mortal…

Get real.. And if you are going to buy fundamentals, consider facts. Boeing is still a horrendous financial mess with a hopeless product roster, sustained only by the implicit expectation of Govt support. HSBC is still the hopelessly compromised HSBC. Rolls Royce still has engine problems. IAG and every other airline still have to recover from their massive cash-haemorrage problems, rehire, retrain and re-certify crews. Hotels will reopen – and will have to find staff. But, it will all happen. This evening I will getting my skis, sandpaper and polish out the attic.

It wasn’t all joy. When a crazy day in markets is dominated by furious retail complaining their trading platforms crashed and couldn’t cope with their deluge of orders to buy and buy some more, you just have to suspect this is going to end badly.

If you were a big tech holder, you took a hit. And that’s probably a buying opportunity. The world has changed – Covid accelerated the early adoption of new ways of working and living. I am not going to resume a daily commute to London anytime soon – I’m more productive here in my home office, and I can compress the days I need to see colleagues and have proper lunches with clients into 2 days per week. Nor am I going to stop getting veg boxes, or supermarket deliveries. I’ve found a stack of great programmes on streaming services – and I ain’t going back to being lectured by the BBC.

The world will change – and it won’t be a swift return to pre-lockdown ways of living. The trick will be to figure out how. Lest we forget… The Pandemic is just one issue. We still got a host of other market negatives to consider.


UK Chancellor Rishi Sunak has jumped on the Green Bond bandwagon to announce the UK will shortly launch its own Green Gilt. I am deeply unimpressed. Sunak thinks it will attract new classes of investors, boost public and private debt markets for green companies, and demonstrate the UK’s leadership in environmental protection or some such nonsense.


That was a “Really” dripping with sarcasm and a raised, very arched eyebrow.

Green Bonds are all blather. Its pandering to the green lobby which has spawned its own legion of middling bankers and marketing types who’ve invented this nebulous theme of “Green Bonds” and ESG investing, jumping on the band wagon to boost whatever kind of crap they are trying to sell. “Green” in Green Bonds means diddley squat. There is no definition of what it means. Its marketing pap. Snap Crackle and Pop bonds…

Stickly a bright “new improved” label on a toy makes it irresistible to toddlers, and fund managers apparently. I am sure it will make pensioners ecstatically happy to know their pension provider has bought Green Gilts rather than these nasty horrible Brown Gilts. And sure enough.. as the Germans have discovered when Green Bund yields fell below “normal Bunds”, there are enough gullible fund managers out there who want to demonstrate their green credentials by buying Green Gilts and reducing the return to pensioners by 5 basis points.

Me? I shall buy Brown Gilts all day long.

The government can use the proceeds of its Green Bonds to go hire a bunch of hippies to rehouse crested newts made homeless by a windfarm site, but they will still be using the Brown Gilt dosh to go out an keep the UK working while still meeting their carbon neutrality targets. Or… they could just label all UK bonds Green. Why not..? Because I want to buy Red White and Blue Gilts!!!

Any smart CIO or Fund Manager should have ESG principals at the front and centre of their investment policies without having to stick a label on them. As soon as firms have to justify their ESG principals and start explaining them – they become targets for issuers and funders to arbitrage. Any clever investment manager is always, always, always going to prefer investments that are well managed, that make long-term sustainable profits by treating their staff and customers well. It’s not Rocket Science and it doesn’t need a ferking label. Its uncommonly common sense.

But there are now a legion of investment banking parasites out there earnestly telling borrowers and investors how important their green/ESG principals are. Someone must have given them Sunak’s number…

If Sunak was a smart as the Tory propaganda machine says he is, his response to the Green Lobby should have been along the lines of: “we don’t need to label our bonds Green, the UK government is already committed – and here’s the proof.” You don’t establish leadership with pretty labels.

And I’ve managed to get through a whole Morning Porridge without mentioning Trump or Biden twice!

Five Things to Read This Morning

FT – BioNTech and Pfizer raise hopes of breakthrough Covid-19 vaccine

WSJ – Possible Vaccine Powers Bond-Yield Surge, Adding to Postelection Volatility

WSJ – Vaccine Breakthrough Lifts Distressed, Bankrupt Borrowers

Bberg – Pfizer Vaccine Results Leave Questions About Safety, Longevity

Bberg – Watch for the Fallout From This Extreme Rotation

Out of time and back to the day job..

Bill Blain

Shard Capital