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Blain: “Difficult To See Where Markets Go From Here”

Courtesy of ZeroHedge. View original post here.

Blain's Morning Porridge, submitted by Bill Blain of Shard Capital

I don’t think I’ve ever started the Morning Porridge with a quote from a politician, but if even Amber Rudd knows it, then why don’t the rest of the Tories get it?

“It is not enough to be told to shut your eyes, cross your fingers, pick up some magic beans and believe in Britain. We need a skill negotiator and dealmaker, not an instruction for more optimism”.

She was supporting… who was she supporting? Not a clue nor any interest really.. And we still haven’t heard Boris speak.

Lord protect us, and pass me a couple of grams of Columbia’s finest export product to make sure I never end up in Parliament…  Enough said about Brexit and the UK Government…

Where is Donald Trump when we need him… ?

Actually, you probably don’t. There is a great in-depth story in Forbes analysing Trump’s business dealings in Moscow. No one will be surprised at the gist of the story: a future US president jumping into bed with developers linked to Putin, apparent bribery and corruption, and a whole strata of Moscow shadies, but the fact Trump Inc (yep, future presidential barbie-doll Ivanka was in on it), was chasing deals that would have brought in literally pennies is the curious thing. Why?

Back in the real world…

After a dose of Donald pimp-slapping the Fed for rates being too high, and telling Xi he has to turn up for G20 trade talks, global markets feel increasingly jaded after the last week of trade non-talk and rate noise. Markets are up, down and twirl it all around… Difficult to see where it goes from here.. I suspect that means we are heading for a very thin summer, the market to start loading up on new fears and non-solutions, and face the next crisis point in Q3. Joy.

There are, of course, a number of threat points. I really need to get on the phone to some of my Italian experts and get the word from Milan on what’s going on in terms of Italy picking a fight with Europe while Draghi is packing his bag, Wiedemann is getting briefed on how to be nice to other Europeans, and the Italians are dreaming up nightmares like Mini-BOTs. Please make it happen so we can have another sovereign debt crisis meaning I don’t have to write about Brexit!

Bloomberg is talking up Raghuram Rajan, ex-Bank of India, as the next Governor of the Bank of England. Lots of people are not going to like it, but it’s a good call. I could say something like the domestic talent for the role isn’t up to much, but I better not as one of them will probably get the job…

Interesting the stories about Foxconn telling investors how it’s got capacity to build all the iPhones it currently assembles in China in the US. That’s an important message about how quickly global supply chains will change as the Trade Spat with China is increasingly characterised as a Trade War and shutters come down.

Which segways neatly into an interesting moment y’day as I was interviewed by Chinese Television about China Threat Theory, Huawei (which I just can’t pronounce properly), and why the West does not trust Chinese IP laws. The Chinese questions – they didn’t send a reporter, just a list of questions for the cameraman to ask – were kind of loaded: Why doesn’t the West accept Chinese IP laws? Are we even aware of the laws passed by China to ensure compliance? Why is the West trying to destroy Chinese IP in the form of Huawei? And why does the west keep pushing the China Threat Theory?

It was very interesting – and I tried not to over-rant. In fact, I’d even claim to have been sane and sensible. On the basis the programme probably won’t like my answers and won’t air them, I thought I might share them here:

The West is distrustful of China IP litigation for a number of reasons including the easy availability – even on official websites – of counterfeit goods, the difficulty in securing convictions due to the inability to collect critical evidence from defendants, and the low importance we feel is ascribed to the crime. There is a suspicion many Chinese businesses regard the possibly of being fined for IP theft as an inconvenience rather that an owner’s right to be respected. We do accept Chinese laws have been introduced and enforcement is improving to protect IP over the past 30 years, but the consensus remains the needs of the state are primary to the rights of foreign IP owners. And, in any historical context, it’s hardly unknown for growing nations to avail themselves of foreign tech on the cheap.  Do we need stronger laws and stricter enforcement? It’s an angle many western IP owners would welcome.

Huawei is an interesting case. The danger is the world splits into two tech regimes. Huawei has been a leader setting standards for 5G – it’s going to take time and prove costly if the West now goes a different direction. Huawei may well be a pawn in the current power play between Washington and Beijing, but it’s also at the crisis line between the surveillance capitalism Beijing has enthusiastically embraced, and the personal freedom and privacy espoused across the West. These two approaches to Tech may be mutually exclusive, thus confirming a split tech world.

Not being an expert in Huawei’s tech, then I have to listen to those who are, and when the experts in our military and tech community say Huawei Tech is not complementary with our own, then I have to respect that. If they say its spyware – who am I to argue?

China Threat Theory is an interesting one. I suspect it’s a label dreamt up in some Cadre Propaganda Office in Shanghai to paint China as the victim to the aggressive West. I’m a great admirer of China’s history and culture – especially Chinese landscape painting, but I can understand the fears and frustrations of the West. This is particularly true economically where initiatives such as the Belt and Road are leading to charges of predatory debt diplomacy, and deliberately loading debt into future client states of the new China. History shows that expansionary mercantile will always brush up against incumbents causing pressures and often conflict. These can be addressed through good governance, intermediation and the mechanisms and institutions of global trade and international law. Or nations can choose to be aggressive in their own regions and attempt to bludgeon their way into international markets through financial aid. At the moment, that is how China is being perceived.   

I was then asked how does America trying to force China into a trade war affect the global economy? I tried to answer quite honestly – the US is current incumbent, China the growing nation. The US is signalling very simple choices, play by our rules (at this point I didn’t mention the treatment of minorities, the environment or democracy) or we shall isolate you. There is no wish to trigger conflict, but it’s in the US interest to have a completely open China market, or to close it off by drawing lines between the US and its allies vs China. Some have said there in nothing like the ideological struggle between capitalism and communism to underlie the new China US divide, but there is a massive gulf between Surveillance Capitalism under the Eye of the State, and the personal liberties and freedoms the West supports.  

I’m going to be very intrigued to see how the Chinese use the interview. I’ll post it on the website if its ever shown…


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