Blain’s Morning Porridge, Feb 24 2021: Rising Policy Risk

Tennis, Covid and Supply Chains

Blain’s Morning Porridge 13th September 2021:  Tennis, Covid and Supply Chains

When we have matched our rackets to these balls, we will in France, by God’s grace, play a set shall strike his father’s crown into the hazard.”

This morning: The market is worrying about the potential of an October crash, but what might trigger it? Two suspects: a resurgent Coronavirus and/or a global supply chain cardiac triggering stagflation?

And top tip from my father: teach your kids to Ski, Sail and play Tennis!

I can’t start this morning without referencing the extraordinary success of Emma Raducanu in the US Tennis Open. What a lass! Extraordinary! Magnificent! Such sure-footed confidence. Great credit to the nation, and to the UK’s Lawn Tennis Association for identifying her talent. Hah! Who says Britain ain’t great anymore? Tennis, after all, is historically yet another source of triumph over France – and that’s all that really matters. (Be quiet Stephen…!)

Meanwhile, back in the real world, after a sticky week for stocks over the last five sessions of tumbles, what’s the outlook this week? A bounce back, or further doom and gloom about recession, deflation or inflation, tapers and supply chains? Listening and reading to the headlines there are increasing number of market talking heads pontificating about imminent market collapse, and how overvalued the market is… But with the weight of money still overhanging this market, any dip would quickly prove a buying opportunity – In the absence of anything else.

October would be my pick for a market wobble. Might the trigger be something Coronavirus related? I suspect it might be.

And you thought Covid was beaten?

Here in Blighty, Boris has determined we don’t need vaccine passports, so full steam ahead. Great news, but Boris is not a lucky man. His record at guessing red when it comes up black is fortunately matched by a surefooted ability to about-face on a sixpence. I’m betting Boris telling us its beaten means we could be losing… but hey-ho!

Elsewhere the outlook on Covid remains cautious, and that is causing all kinds of friction. I’m hearing a serious loss of political confidence in Australia and Kiwi. In the US rising Delta Cases and the onset of colder weather triggered some blunt words from President Biden. Yet, telling ‘mericans to get jabbed is a bull/red-rag thang! The societal risks are rising – insisting on vaccines for Federal Workers, no matter how sensible a policy, is like pouring nitro on an already incensed part of the American electorate.

On the other side of that equation, I was listening to a UK nurse on the radio explaining why she’s refused to be vaccinated, and how unfair it is on her that hospital policy means she’s being withdrawn from roles that involve direct patient contact. I’m kind of glad she’s been pulled off the wards – I would not want to be treated by a medical staff who think wearing tin-foil headgear will protect patients. (No doubt some Covid conspiracist will tell me the interview was deliberate BBC “false-flag” propaganda..)

The reality is 16% of US covid deaths today are fully vaccinated cases, up from 8% in June – suggesting vaccine protection is waning. The recent Israeli infection spike is a warning of what may come – vaccine protection declined from 70% to 16% over a 4-6 month time frame! Boosters are needed.

The problem is – we just don’t know what the virus does next… New variants are popping up all the time, and one of them might just turn around the game against us by being more virulent, deadly and overcoming the current vaccines. Just imagine what a new series of new-variant lockdowns could do the global trade this autumn.

According to a recent US survey, the original Covid would have had a natural R number of 2.5, meaning that if you vaccinated 60% of the population, it would have disappeared. We are too late for that. The Alpha variant is more infectious with a current R number of around 3.8, while the more infectious Delta is 5.2. As multiple variants appear the chances of wiping Covid out have become successively smaller.

I read Pfizer is putting together a programme to support giving young children the jab. Children – generally – don’t get very ill on Covid, but they do act as reservoir, and babies may even be an incubation vector for the virus to adapt. Scary.

Global Supply Chains are the second potential source of market weakness.

I was reading Mo The Tash (The ever-interesting Mohamed El-Erian) in the FT: Supply chain issues add to Stagflationary winds. Stagflation on the back of a renewed/ongoing covid recession, soaring supply chain inflation, real world inflation being imported from the inflated financial asset sector, and rising rates on the back of taper (or recalibration as Lagarde calls it), is my biggest strategic concern for the coming years.

One aspect El-Erian focused on was California’s Long Beach – which is absolutely blocked with unloaded shipping, highlighting the weakness in the US’s ports infrastructure. Today’s cover pic is a snapshot from Shipfinder – the app I use to identify shipping about to crush us under-keel while yacht-racing in the English Channel – and sure enough it shows dozens of freighters anchored off. That’s a major blockage in the arteries of the just-in-time global economy. Global trade probably needs a stent, or even a bypass!  

The good news the pretty new Ever Ace, the largest ever Container ship, carrying 23,992 containers, docked in Felixstow in the UK yesterday – yep, a sistership of the ill-fated but smaller Ever Given (blocked Suez) – means there might finally be some garden furniture on the way!

And also from China is news is Ant Group’s Ali-Pay will be broken up with its fin-tech data algos melded into a new state owned credit-scoring, payments and lending business. (It’s been described as a joint-venture, but I guess we all know what that means in China.) Alibaba’s stock took another beasting this morning as a result, dragging Asia lower.

Finally, some more thoughts on Tennis…

After deservedly giving Emma Raducanu top billing on the news, the BBC went a little over-the-top by spending the rest of the programme interviewing some well-rehearsed kids saying cute things about how she had inspired them to practice harder. Hmm.. I once met a very senior person from the BBC who admitted the best perk of the role was spending 2 weeks in the BBC hospitality tent at Wimbledon.

My sport is sailing. Whenever I seek sponsorship for events run by the clubs I’m a member of, I get told Sailing is “too elitist”. My point would be tennis is just another game. Surely we should celebrate all our sporting heroes, especially the BMX and Mountain Bikers who got Gold in Tokyo on their own money, equally?

So.. I did some digging, and much to my surprise it turns out Tennis is actually very popular. I had read somewhere that the BBC’s audience share for Wimbledon was less than the number of people who watched a channel 5 documentary about a motorway service station. But, it turns out more people play tennis (about 900,000) than play golf, and way more that treat Sailing as a sport. 7 million people get on a bike, but a fraction of them cycle as a sport.

My father’s dictum was learning to “Ski, Sail and play Tennis” was critical. He reckoned my brothers and I would benefit from being able to mix with our social betters if we could thrash them at their own sports. I sulked off Tennis after my little brother beat me – but he eventually got onto the Scottish Tennis youth programme that years later produced Sir Andy Murray! I did OK at sailing… winning an offshore championship a few years ago.

I have since added two codicils to dad’s SST dictum. Understanding the constantly changing rules of Rugby – which is impossible – and reverse football snobbery by supporting a no-hoper team. I’ve supported Heart of Midlothian for over 50 years, making me a Jambo, but they are dangerously close to the top of the Scottish Premiership at the moment.. and will therefore inevitably be crushed by Celtic/Rangers duopoly.

Five Things to Read This Morning

FT – Inside the Cult of Crypto

WSJ – US Stock Market Faces Risk of Bumpy Autumn, Wall Street Warns

Torygraph – Investors split over riding Chinese dragon after stock market crackdown

Bberg – Here’s what the next six months of the Pandemic will bring

WSJ – Funds Overseas Cash In on Crypto Boom

Out of time, and back to the day job…

Bill Blain

Strategist, Shard Capital.