“I am on the right wing of the middle of the road with a strong radical basis…”

Oh er, it’s all getting a bit risk-off again.. Amerika takes the step of having a Russian-Ukrainian “Entrepreneur” arrested in Austria, Merkel reads Putin the riot act, and meanwhile dollar/yen, jobs and stocks are all off. EU ministers are gathering to make very angry noises when the Crimean referendum result is announced Sunday. It’s looking to be an introspective sort of day….

There are lots of points of worry out there – this week’s flash crash in JGBs, the strength of the Euro, next week’s first new Fed meeting, the energy game being played twixt Europe and Russia, transformation in China, and the prospects for global growth and further trade agreements. Any and all can change sentiment.

On the other hand… what’s to worry about..? Credit bond indices (actually my spell check tried to change indices to idiocies.. (does it know something I don’t?)), remain at record levels. New issues continue to sludge out the pipeline. Hmmm….

I am thinking this morning’s soft markets – with bonds being marked down in a thin market – is a buying window. I note CoCos are opening lower this morning – there was a pretty anodyne article in FT a few days back, and the recent supply has been overly tight. The new KBC deal is down to 98.00. Hardly a vote of confidence in a deal that looked a step too-far! Our most recent note on the CoCo market took the stance there is a lot of hair on them, but the critical point is to understand exactly how they work. Understanding what the risks are in terms of potential triggers, coupon deferrals, dividend stoppers, capital cushions and management motivations. The market is growing and can’t be ignored – I’m tempted to say look for bargains. (Happy to share our thinking…)

Meanwhile it’s all going off in Japan as the Nikkei’s 15% decline puts even the worst of the EM collapses in the shade. Meanwhile, the yen rising from 105.50 to 101.65 puts further pressure on the whole basis of Japan’s recovery story. It’s reminiscent of last year’s Japan shockers. My Japan watching colleague, Martin Malone sees the collapse in the NKY reflecting doubts about Abenomics and the failure to mount significant reform, while the currency is about the BoJ and negative rates. Reform is the critical issues – if not, then trouble ahead.  

Reform, Policy and Politics is becoming the theme for 2014. Countries that do it will thrive. Those who do it badly will suffer.

In China Premier Li has warned investors to prepare for a wave of bankruptcies – which should surprise no one following the first corporate defaults. (Does that mean we can start work on a China distressed product suite?) The scale of China’s potential bad debt is vast, but government support for key parts of the economy and keeping the lid on employment and social pressures will make for selective intervention. We don’t go with the “fast deterioration of the Chinese economy” school of thought – managed change and creative shutdowns will be the government approach.

It’s interesting to compare and contrast President Li’s public comments that growth “needs to ensure full employment and needs to help increase people’s income” with the increasingly skewed income polarization in occidental economies and absence of social purpose – globalization, corporate growth and profits are considered the goals with not so much as a mention of making folk’s lives better.... all of which neatly brings us to the announcement of the death of Tony Benn.

I know many of my colleagues in the City (well, those old enough) will regard Tony Benn as a dangerous socialist demagogue, but having met him while a trendy lefty student president, and listened to him many times I could not help but be impressed by his principles and concerns. No doubt he will be remembered as a national treasure in coming days: as he once said: “First they ignore you, then they say you’re mad, then dangerous, then there is a pause and then can’t find anyone who disagrees with you.”

I’ve not really got much more to say this morning, but let me go off-piste for a few moments.

The Fog in London is really quite beautiful. This morning I was treated to a remarkable 2 Suns moment as I walked into Canary Wharf, the shrouded sun shining to the right of the Tower, and reflected in the windows of a building to the left. But.. my phone was out of power. However, I did manage to get an earlier snap – which I attach, taken from my morning constitutional into the Wharf of Little Yellow Birds..

Regular readers will know I am a keen sailor, and that I’ve recently taken up residence on the banks of the Thames. The rest of the time She-who-wishes-to-be-mrs-blain and I live near Southampton, where we can hear the fog signals of ferries, liners, tankers and tramps all night long during foggy periods. But yesterday morning we could hear the ships invisible going up and down the Thames, but nary a single sound signal.

The Col Regs (collision regulations since you ask, the rules of the road) state all vessels should use sound signals in the Fog – whether under way or moored. But I could not hear a single sound signal on the River Thames despite zero viz. I checked the environment agency rules on navigation on the Thames. Boats are supposed to use whistles and vessels under-way should be blasting a prolonged blast every two minutes – as per the rules.

So this morning I was delighted to hear the familiar mournful fog blast as the fast river ferry disappeared into a fog bank.  I was going to write a very angry letter to the Port Authorities telling them just how angry I was that life and limb is being risked in such a cavalier fashion!  Harmony is restored… PFarffffffffff fffffffffffffff!



Bill Blain