Blain’s Morning Porridge – Sept 28 2020 – Storm in a Teacup?

“You can’t buy happiness but you can buy tea, and that’s kind of the same thing..”

There are some weekends when its best to just not open a newspaper, listen to the wireless, or watch the BBC. If you did you are probably near-suicidal by now at the bleakness predicted ahead. The government is completely and utterly hamstrung by the Pandemic Fear it’s created versus the need to reopen the economy. They are tripping up over everything in a storm of confusion. After imploring us to save the NHS the reality is national economic suicide will close it down even faster. Our mop-top premier is nervous and conflicted. A poll at the weekend put Labour ahead in the polls. Well done Sir Kier. Keep hoping Boris trips over his laces for the next 4 years and you will do just fine… As national treasures like Rolls Royce desperately seek funding from overseas, it feels like panic is mounting…


This is the just the way we do things in the UK. We like to fret, panic, tear our hair out.. and then have a nice cup of teaand not worry about it anymore. There, there… it will all be better tomorrow. And sure enough… the sun will eventually rise… On a broken dystopian ruined landscape of economic destruction or a bright new technology-led Britain?

Personally.. I favour the latter… but fear the former.

Top of the madness list is Students being charged £9,000 per annum for not being taught and charged £200 a week to be locked up in solitary confinement because nobody thought they might socialise? Next week it will be something else equally ill-considered and barmy.

There are always pragmatic solutions. The right thing to do with students would be to tell them: Sorry, you can’t go to pubs, discos, or bars, or use public transport, but the student unions will be open all night and the drinks are on us. You are all going to catch it whatever we do so catch it together, stay on campus don’t spread it, and when you recover (as you surely shall), we can get on with business of teaching you… Party On! Nope. The government’s policy is to create a new generation of non-students whose happiest days will be their most suicidal. Not good.

Students matter. The UK has excellent prospects. We’ve always been inventive, bright and innovative which a national penchant for being inquisitive – which is what matters. Exactly the right characteristics for a tech-savy future economy – if we can find the trained engineers, computer geeks, doctors and all the rest to make it happen. But if you crash education – our economic future will stall.

I think I came to understand the problem on Friday evening watching the news. Some gormless acne’d creature was lecturing the BBC’s reporter about how anyone without a mask or wasn’t social distancing clearly didn’t care about anyone else, was willing to murder their own family and others, and should be locked up. It is all government’s fault for not completely locking down the economy again – he loudly told viewers. These words of wisdom were delivered from a packed table of equally spotty youths sitting in a pub.

Stupidity rules.

The UK has become a nation of scared idiots with the bleak reality of the Chancellor being “unable to save every job” means about a million unemployed by Christmas and penury for large parts of the UK’s small business and gig-economy sectors because they haven’t been getting equal access to support.

The sheer misery of it all… it’s enough to turn one to drink.  (It works. I have the answer: Apples. Especially apples in their fermented state. My chum Jonnie and I found a good bottle of Calvados on Friday evening in the “special cupboard”. It was so good it literally kept my spirts up right through till Sunday afternoon when we celebrated the end of summer with a delicious pig and some excellent Cider.) Thank goodness for alcohol. Without it.. one might get a tad depressed at the UK Narrative.

Winter is coming…. (but Spring will surely follow….)

I really would like the name of Monetary Policy Committee (MPC) member Silvana Tenreyro’s drug dealer. In a wide-ranging Sunday Torygraph interview she said the evidence from other countries on the effectiveness of negative rates is “encouraging”. “We have been discussing our toolkit in recent months, including how effective negative rates might be in the current context,” she says. “The evidence has been encouraging.”

Even Andrew Bailey, the Man at the helm of the Bank, thinks that evidence is a “mixed bag”. Andy Haldane, chief economist must have found an even better pharmaceuticals supplier as he apparently still believes in the V-Shaped recovery…

Tenreyho added;“Banks adapted well – their profitability increased with negative rates largely because impairments and loss provisions have decreased with the boost to activity and the increase in asset prices.” Really? (US readers – that’s a loaded comment oozing with sarcasm implying scepticism.) European banks are being paid billions by the ECB to borrow cash, but still aren’t lending because they fear losses, while low rates are killing their margins. And economies aren’t working.

As a Harvard professor I’m not sure if Tenreyho is a member of the Bank’s pension scheme – which will no doubt be based on final salary. For those of us living in the real world and seeing the returns on our self-funded pension pots unlikely to fund any kind of retirement, zero rates means we’ll be working till we drop.

As for the effectiveness of ultra-low rates… I am looking at Japan (a bit of a special case) and Europe (a basket case) and wondering just how successful NIRP (Negative Interest Rate Policy) will prove for economic regeneration when its only success thus far has been to prop up legions of zombie companies and not create many new jobs. If negative interest rates are so effective…. why has the occidental economy been bouncing along so weakly and skirting recessions these last 12 years? For all the talk of low rate and synchronous recovery – growth has been lethargic for years..

Here’s a challenge for Porridge readers. Find me a single market economist who thinks negative interest rates will trigger economic growth and explain to me how?

Negative interest rates do not obey the conventional physics of money.  As rates approach zero – behaviours change. The controls reverse.

NIRP acts as a disincentive to considered growth investment. Investors are forced to take increased risk to make any kind of returns, while the normal invisible hand effects on markets to efficiently allocate capital within an economy flatline. Zero rates cause the normal flow of money in an economy to hit stall speed.


When money costs nothing it is worth nothing. Which partially explains why companies don’t invest in plant, output, new jobs or capacity through low rate periods, but see the greatest returns from leveraging themselves up with ultra-cheap debt to convert equity into debt via stock buybacks. To management it’s the most “efficient” use of capital and meets the Miltonian diktats of all value being created for the benefit of the owner in a Shareholder Economy. (Plus, it ensures the largest bonuses for clever management who’ve been able to raise the stock price..)

Investors know companies buying back their own stock are creating zero-value-added, but favour these companies only because they expect the stock price to rise. Rational investment objectives in terms of wealth creation via growth strategies (ie new products or factories) are corrupted by zero rates – away from growth maximisation towards financial asset growth.

The second part of the equation is that any economy using negative interest rates is clearly in trouble, is low growth, and therefore not worth investing in.

The end result is negative interest rates directly fuel financial asset inflation while adding zero to economic value or growth. That creates 2 effects: 1) ever increasing government intervention which is inherently distorting, and 2) distorted entrepreneurial spirits and investment objectives aimed which ultimately destabilise society as the rich owners of financial assets get richer, while the toiling classes see less and less.

Of course.. I might be wrong. When a distinguished Harvard Economics professor and member of MPC says NIRP is a good thing… whom am I to argue…

Meanwhile… if there is one article you should read ahead of November’s US election.. then this is the one: The Election That Could Break America

Five Other Things too Read This Morning

NYT- Long-Concealed Record Show Trump’s Chronic Losses and Years of Tax Avoidance

WSJ – Investors Ramp Up Bets on Market Turmoil Around Elections

BBerg – SMIC Joins The Big Bath of China Threats

FT – Low Rates and lofty stocks offer case for Alternatives

Forbes – Electric Truck Maker Hyliion Goes Public

Out of time, and back to the day job..

Bill Blain

Shard Capital