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Blain: "Maintain A Health Skepticism Of Everything"

Via Shard Capital's Bill Blain,

Wow... we passed the middle of the first month of the New Year, and the world hasn’t blown up. Phew... that’s a relief... For a moment I thought 2019 might get messy....

Messy is as Messy is:

If you can call the current Brexit mess calm and considered political debate – then we’re in great shape here in UK Plc. If you can also explain the why and what of Mark Carney.. please share.

If you can rationalise the US government impasse and shutdown and the multiple multiplier effects trashing the US economy as insignificant, dismiss the rumours Putin has got Trump under his thumb, ignore the lack of process in the White House, worry not about the emerging rift between actions and words on policy, dismiss the fracture between Fed and Donald, then nothing to worry about in the US.

If you can dismiss the noise from stock indicators screaming “overbought market”, while reconciling analysts saying stocks represent fair value against those yelling sell, and dismiss those that still have buy recommendations on stuff like We Work, then well and good.

If you can sleep easy about the lack of current financing in bond markets, and snore through corporates and banks slamming the hatches closed ahead of a storm, then snooze on.

If you can pass up the opportunity to read an Uber-bear Albert Edwards article predicting the end of everything later this year in a corporate leverage / populism cataclysm, and have a nice cup of tea instead.

If the crash-landing of the EU recovery in France and Germany worries you even less than the coming EU elections and the threat of a populist landside, then relax, and just do it.

If China bothers you not as it pumps liquidity into its economy, while trying to win an destructive trade and tech war, then no worries, be happy…

If you can accept the unwind of global QE and low interest rates is not going to impact financial assets, then carry on believing what you wish to believe.

I could go on...

So much to worry about... And worry is unproductive. I reminded of Chief Vitalstatistix, the indomitable Gaulish Chief who was scared of only one thing: the sky falling on his head. He’s probably running a macro fund somewhere, or more like a macro strategist.. (Hang on, there’s an idea for a great book….)

The bottom line is the global macro narrative sounds awful. Its not. Its just nuanced.

Sure, there are massive distortions and risks out there – but equally there are equal and opposite pluses out there. Market sentiment feels a little omnidirectional at present... Stop, Look and Listen.  

I propose 3 strategies:

1)   Fundamentals – look back at the realities of every investment. Good old-fashioned research. Think about demand, competition, numbers, finance, leverage, funding liquidity, and work it out. Consider the landscape, the environment, regulation, and who might be doing it better. Think about evolution, competition and market niches. What is so yesterday, and what will be so tomorrow. It’s a true for credit as it is for stocks.

I am repeatedly told I’m missing the reality of the new stock market – that it really doesn’t matter how much a company loses today, because its future value is in the stock price. Makes sense right up till the moment you realize Netflix’s future value isn’t about how much its paying for  each new subscriber today, but how many of them will pay more to watch Disney Channel tomorrow. Repeat same exercise on each and every unicorn.

2)   Alternatives.  I recently met a chum managing a very large fund who grinned as he told me his allocation for Alternative has been upped from 5% to 40%. Fantastic – that’s the business I’m focused upon. But it slightly worries me.. if every one suddenly wants to buy off-market, private placement real assets backed by real cash flows, then there are bound to be mistakes, tears and pain. Yield tourism can be a terrible thing. Any approach to Alternatives has to be based on (again) fundamentals – understand the cash flows, the asset, the risk, the threats, etc.

3) Maintain a healthy skepticism of everything. Remember the market has no memory and panics easily. It also tends to be taken in by glib talking salesmen selling snake oil on far to frequent a basis (ask any Landesbank…)

And don’t believe all the doom and gloom. Its never as bad as you think. In fact I’m positive.