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Bill Blain: "The US Is Now Looking Like A Deflated Drunken Uncle"

By Bill Blain of Mint Partners

Blain’s Morning Porridge – July 18th 2017

“Man there’s an opera out on the Turnpike, there’s a ballet being fought out in the alley...”

Bit messy in Washington this morning as yet another flagship policy of the Trump administration spirals down the plughole. Last night’s abysmal demise of his Obamacare repeal and replacement puts all his grand visions of economic stimulus, tax reform, and fiscal policy back under the cosh. Jamie Dimon, CEO of JP Morgan, hit the nail on the head when he said last week Washington has become a national embarrassment.

(Jamie – it’s not just you. Our guys might just be worse. That photo of “our team” in Brussels yesterday was a hoot. That they looked like a team of elderly accountants on day-release with not a single briefing document between them says it all. If their materials were really in their briefcases – why did the guy at the end have a brand new unused notebook and his daughters yellow flower-fairy pen laid out neatly on the table? Plus Dodgy Davies apparently only lasted a few hours before heading back to London… Nice to know they take the Brexit negotiations seriously. The ghost of Margaret Thatcher must be spinning at Warp 5.)

I’ll be chatting to my US chums later today to try and get a steer on where the Republicans and Trump go from here. The dollar, stocks and bond yields all fell. The markets will read it as further confirmation of lower for longer – and a Fed hike maybe in December.

Bloomberg are warning of a “Turnaround Tuesday – it’s apparently the most prevalent day for a 180 degree sentiment flip.  Time for a dollar shock? Possibly. It says Hedge funds are now short the dollar. Trumpflation trades have died. The rate hike cycle is dead. Hmm.. you have been warned.

And with the US now looking like a deflated drunken uncle, the focus is firmly fixed on what Mario Draghi says on Thursday at the ECB meeting. Does he confirm Euro strength with a bullish assessment of Eurozone recovery, and hint at an early taper and normalisation… Or does he step back, go soft and mushy, and make some “kick that can down that strasse” comments?

According to a number of Central Bank commentators – Draghi is going to do the big reveal on ECB policy at the Jackson Hole conference in late August. Meaning, markets waiting for big hints of direction this week will be left disappointed and flolloping.

And whatever you do this morning just don’t anything in the UK press about China. Seriously. Don’t. It will only upset you, make you nervous and unsettle the rest of your week. You don’t want to start worrying about how much Chinese rail companies have borrowed, or their failed overseas projects as reported in the FT. You certainly don’t want to open the Torygraph and get spooked by headlines like: “Shock Rise in China’s Shadow Banking Enrages Xi Jinping”. (Apparently the size of off-balance sheet lending is about double what the party thought it was – its apparently over 110% of on-balance sheet bank lending (where bank assets are some $39 trillion!)

The conventional wisdom on China is to Relax.

Stay Calm.

It will always be all right. China is a sophisticated financial player, knows what it’s doing and Occidentals like us always suspect the worst and make wrong assumptions.. No need to panic. 6.9% growth and rising consumer sales as domestic consumption kicks in.. No need to worry about the implicit expectation the Government is always there to bail-out unwise lending..  

In other words – time to check your hard hat is close at hand, be suspicious and wonder just how leveraged on the sand the economy might be. Hope for the best, but assume the worst, because Hope is Never a Strategy.

And to add a futher smatter of economic joy to the picture this morning, let’s look at the UK:  PriceWaterhouse say there is trouble coming to the UK housing market which is likely to stall – slowdown rather than recession they say. The chat around the office and at dinner parties is it’s already happening in London.

The policy risks are significant: UK house prices are a key “feel good” factor driving confidence and consumption for the affluent home-owning classes. Any significant slowdown, at a time when the whole country is reeling from Brexit uncertainty, could prove magnified in its impact.

Some analysts claim we underestimate the importance of consumption on the UK economy – especially at the higher end. When 98% of UK businesses report Brexit concerns that’s bound to impact the AB classes spending decisions. If their main source of tangible wealth is diminishing in value.. bunker down.   

And on the subject of the middle-affluent classes; another story that caught my eye this morning is the growing success of Svenska Handelsbanken in the UK. It’s something the big banks should take note of – they actually do something called “Customer Service”.

Even as the rest of the world regards Britain as a toxic Brexit wasteland, the Swedes have been growing their share of the affluent UK retail and commercial banking sector because they see opportunity from a massive swathe of the top-end retail market that’s poorly served.

Svenska’s secret is to be everything the UK banks aren’t. It’s built a market niche for its “church steeple” brand of banking – everything the local management can see from its local church it makes decisions on in the local branch.

It’s an approach that makes far more sense than the centralised, computer says no, version of “Premium” banking the big UK banks pass off as client-service for their affluent AB1 clientele.

Our own experience has been remarkable. When we’ve been in to see our big bank “account executive”, he/she (we’ve never spoken to the same one twice) looks at our numbers, tells us they’re excellent and send off the file for approval to some computer centre in Birmingham or India – who knows. He/she smiles and says it will only take a moment. And then says, oh.. Because She-who-is-now-Mrs-Blain is a self-employed businesswoman running her own successful consultancy, our High-Street Bank’s centralised lending platform has decided her borrowing income is zero.

Fortunately there are plenty of other lenders desperately keen to take Blain credit risk. When it comes to our plans to re-build Blain Manor later this year, I very much doubt we’ll even bother chatting to our UK bank.

Now, where is that “Teach Yourself Swedish” book..