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Blain: "Are We Backing The Wrong Country In The Saudi-Iran Race"


Where do we go from here?  

I've said it a few times already – 2019 is likely to see the start of the New Market Reality. Although some pundits claim yesterday's sell-off was due to automated algo's triggering a crash because they misread the US yield curve inversion – bad programming they claim - the reality is markets are extremely nervous: of the recessionary signals the inversion shows, slowing economic numbers, the prospects for trade war accelerating recession, etc. The US economy may be a full employment and growing, but where does it go from here as the rest of the globe falters, housing collapses, Auto sales plummet and everyone worries just how they are going to pay off student loans, mortgages and credit cards?

Markets have reversed polarity on Trump.

Peak Trump Bullshit means we just switched from positive to negative. Don't think about what can go right as Trump forces through trade deals, tax cuts, a compliant Fed, etc. Think about Trump negatives – forget the FED put. Forget overly-optimistic valuations based on rosy global growth projections, and the belief very smart people will make bright shinny things brighter and shinier. Next year is going to be about real stuff, like how you going to sell this commodity (be it an electric car, swanky mobile phone with a fruit logo, or avacados. Why avocados…? because.. just because.) Consumption vs recession. Ouch.

Markets are being roiled by politics, soiling themselves on trade war panics, scared witless by mounting populism and its pay-off: massive policy mistakes, and waking up to the horrendous unintended consequences of the last 10-years of monetary experimentation and over-regulation, working out that every single financial asset (by which I mean listed stocks and bonds) is price-distorted. In fact; every aspect of modern finance is distorted!  Sentiment is bruised which means the global economy is vulnerable to being pushed over the edge as the current fears of recession in 2019 become a self-fulfilling prophesy.


When all around are losing theirs, keep yours. Time to get your buying boots ready. There are going to be some fantastic bargains. There always are when it goes wibbly-wobbly/topsy-turvy. (The danger, of course, is there are so many people thinking it's about to get cheap, that it never does….)

Remember Blain's Mantra No 1: The market has but one objective: to inflict the maximum amount of pain on the maximum number of participants.  Just make sure you aren't on the wrong side. Contrarian time.

Take Thomas Cook – massive equity crash and bonds massively wider as they admit they got 2018 horribly wrong. Expected to default. The UK holiday airline really could not have done a worse job. Turned a passable holiday carrier into the proverbial plane wreck. The management should be hung, drawn and quartered for screwing up so thoroughly. But is it about to go bust? Nope. They can't raise equity at these levels, but it's not got a big bond redemption for 3 years, which might be time to put the broken parts back together again. Again. (They been here before!) It's a risk, but when its trading like distressed junk and we're about to have a great ski season.. maybe time for a punt?

And there have to be thousands of similar opportunities out there..

Financial Reality will work both ways.

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