Blain's Morning Porridge, submitted by Bill Blain

“Surely we should have clever people in Parliament?”… “Seems like a good idea, why don’t we try it?”

I’ve been writing the Porridge since 2007. I started in finance in 1985, and my career has been dominated by market moves, innovation, central banks, economic direction, and more recently political driven shifts. Through the whole of the Obama presidency I think I might have referred to Barak once or twice, and usually in passing. Since Trump came to power he’s been the single most dominant feature moving markets. Trump is a disruptor. 

Yesterday’s speech to the Economic Club of New York has been covered to death in the press – but the key takeaways are fascinating; renewed trade threats are just one aspect of how Trump is set to continue dominating markets: 

First, forget last week’s much hyped “trade truce” – Trump is still lollygagging about he’s still wondering whether to make a deal, and how China are waiting for him to opine on their options. It’s utter nonsense. A trade deal is at best a 50/50 call. It’s something that could happen, but equally it might not.  On one hand, any trade agreement is subject to Trump’s mood. Markets moving on a capricious president’s whims and hopes of winning an election does not seem like a promising foundation on which to base long-term investment strategies.

The reality is a trade agreement/accommodation with China is not in America’s gift – it’s a two-sided negotiation between two empowered nation states. It is not for Trump to dictate terms on the basis of how it plays to his electorate – Xi and the Chinese increasingly understand.  

Interesting to note the new BoA fund manager survey shows 50% of respondents are worried about the China/US trade war (39%) or a China slowdown (11%).  The reality is China dominates markets. Trump is the factor that can set it off. (16% fear a bond meltdown…)

Second, was Trump’s plea to the electorate via his Wall Street address – read all about it here. He can point to the S&P being 23% higher through 2019 – but we all know the level of the stock market sends

In recent years, hardened bond market cynics snickered when insolvent European nations such as Italy or Greece saw 4, 5, or more times demand for their bond offerings than was for sale, whispering to themselves that such oversubscriptions for potentially worthless debt assure a very unhappy ending. Yet not even the biggest cynics were prepared for what just happened in China.

When Shanghai Pudong Development Bank sold $7 billion in convertible bonds last month, investors placed more than $1 trillion worth of orders, making this a 140 times oversubscribed offering, enough to shock even the most seasoned China investor, the FT reports.

That $1 trillion in bids was almost as large as the entire stock-market capitalisation of Apple or Microsoft — the two biggest companies in the world. "It was a ridiculous amount," said Gerry Alfonso, head of research at Shenwan Hongyuan Securities in Shanghai. It is also a testament to how desperate the world has become in chasing yields and return, as well as just how much excess liquidity there is in the market at the moment

While new issue oversubscriptions have become the norm in recent years, this absurd case had several Chinese market unique characteristics, reflecting a surge in issuance of such equity-linked instruments in China — a rise helped by what the FT called "an unusual embrace of the product by policymakers better known for cracking down on financial innovations to ensure stability."

So far this year, Chinese companies have issued a record $40bn in convertible bonds, up more than 80 per cent from the full-year total in 2018, according to Dealogic.

It now appears that converts have become the latest Chinese bubble due to their hybrid characteristics: while they carry a (lower) coupon payment they also offer investors the right to switch them for equity if a company’s shares rise to a certain price. For companies, convertibles offer a way to raise money more cheaply than by issuing regular debt and do not immediately dilute shareholders’ equity.

Ronald Wan, chief executive at Partners Capital in Hong Kong, said Chinese convertibles had become more attractive to investors thanks to this year’s stock rally, while the government was promoting the instruments as a way to rein

“An Isis jihadist expelled by Turkey to Greece is literally stuck in the buffer zone separating the two countries after Greece’s refusal to allow entry into the territory.”

Stunning video posted the the internet confirms that the man, identified in Turkish and Greek media as 39-year old Muhammed Darwis B. and believed to be a US citizen of Jordanian descent, is walking around inside the few hundred meter long buffer zone between the border crossings, with each side's gates shutting him in.

It's unclear why Turkey would think Greek authorities would let him in, but it's also likely a political stunt by Turkish authorities to underscore its latest threats of what will happen if Europe is unwilling to repatriate the hundreds of European ISIS fighters currently in Turkish custody. 

In one video taken by a Turkish broadcaster, the man appears to shout for help at the camera while standing in the strip of land exactly between the crossings. 

#Turkey left an #ISIS member at the Greek border. #Greece, like the rest of #Europe, refuses to accept these western ISIS members that were captured in #Syria. pic.twitter.com/3Y71Ijjj1z

— Ali Özkök (@Ozkok_A) November 11, 2019

The Guardian has further details which suggest he could be at the center of a developing diplomatic dispute between Ankara and Washington over potential repatriation to the US:

A Turkish official told AFP that he had refused to be returned to the US and instead asked to be sent to Greece. Athens said he was refused entry when he tried to cross the no man’s land between the two countries to the Greek town of Kastanies. He is reported to have spent the night outside and witnesses said he has been trying to shout to reporters on the Turkish side of the border.

Two Reuters sources have been informed that Air Arabia, an Emirati low-cost airline, will abandon its interest in Boeing 737 MAX jets and order over 100 Airbus A320 jets as soon as next week.  

The decision comes after Boeing's 737 MAX jet remains grounded worldwide following two fatal crashes. 

The sources said the Emirati budget carrier would likely order 120 jets from Airbus at the Dubai Airshow next week. 

The order would more than double the size of the carrier that currently operates 55 narrowbody aircraft. 

The sources said Air Arabia was divided between Airbus and Boeing, but the two 737 MAX crashes created too many uncertainties for the carrier that had to side with Airbus for fleet expansion.  

Last month, Florida-based Spirit Airlines was assessing if it should buy Airbus or Boeing planes. It decided to order 100 new Airbus A320s over the 737 MAX. 

Airbus is on track this year, for the first time since 2011, to outpace Boeing in annual deliveries amid the 737 MAX groundings. 

Airbus expects to deliver 571 jets in the first nine months of 2019.

Delivers for A321 Neo jumped 57% for the first nine months, hitting a four-month high in September.

Boeing has since halted 737 MAX deliveries and cut production by 20% to 42 per month. 

The 737 Max crisis has allowed Airbus to take in a flood of new orders. 

Boeing is dealing with the company's most massive crisis in 100 years.

The backlashing against Boeing is only in the beginning innings. 

Entirely to be expected, a new report in The Wall Street Journal has found that Turkish-backed Syrian forces currently fighting US-backed Kurdish groups as part of 'Operation Peace Spring' are guilty of war crimes, including summary executions of Kurdish civilians. 

"U.S. military officials watched live drone feeds last month that appeared to show Turkish-backed Arab gunmen targeting civilians during their assault on Kurdish fighters in northeastern Syria, attacks the Americans reported to their commanders as possible war crimes, according to current and former U.S. officials familiar with the incidents," reports the WSJ. 

What the report fails to mention, however, is the blatantly obvious and relevant recent history that the Islamist militants carrying out such atrocities are the very same militants which were a few short years ago funded, armed and trained by the CIA and Pentagon.

Erdogan's proxy ground invasion force known as the Turkish-backed Free Syrian Army (TFSA), more commonly called the Syrian National Army, has even recently been filmed deploying CIA-supplied TOW missiles against the Kurdish-led Syrian Democratic Forces (SDF), as we previously detailed.

It's also been well-documented that the Turkey invasion forces of Syrian National Army are stacked with former ISIS, Nusrah, and FSA jihadists… who clearly brought their CIA toys with them.

And oh the Pentagon now wants you to know that US officials have suddenly become aware of their war crimes, despite the very same groups having carried out similar crimes against Syrian civilians for years as they fought pro-Assad forces. 

Washington "won't stand for it" now that the FSA jihadists are no longer playing for 'Team America' per the WSJ report:

“The U.S. won’t stand for it, and we’ve made that position

More than 50,000 Polish nationalists paraded on the streets of Warsaw for this year's Independence March on Monday.

Tens of thousands of people, waving Polish flags, were young and old, of all walks of life, with whole families took to the streets. 

Tens of thousands of far-righters march in ‘independence’ parade calling for ‘Polish Intifada’
Source: RUPTLY#Polish #IndependenceDay pic.twitter.com/c7R9GBtkjp

— Di?p Thành Lâm (@DiepTLam) November 12, 2019

The people participating in the march branded themselves as patriots (the word which in Poland still has positive overtones) paying tribute to the fallen heroes.

Tens of thousands of #Poles from #Warsaw and across the country participate in the #IndependenceMarch that takes place on the streets of the #Polish capital city on the Nation’s #IndependenceDay.#Poland #independence
More:https://t.co/Rg2uPz3cp2 pic.twitter.com/nt3CZsB9NJ

— Poland In (@Polandin_com) November 11, 2019

Thousands sang "Take care of the whole nation," which are lyrics from a Polish Catholic song, asking the Virgin Mary to defend the country.

Others waved patriotic flags and chanted "No to the European Union" and "God, honor, homeland!"

United; that's what Poles were today, united in patriotism, mothers, sons, fathers, daughters, the old, the young, together celebrating our #IndependenceDay #?wi?toNiepodleg?o?ci
Long live Poland!
Spread it out ???????? pic.twitter.com/izzIAAuoX5

— Marcin Czapli?ski (@czaplinskiii) November 12, 2019

To the western media, these are Nazis, racists, anti-semites, and islamophobes. An abomination for the European Union.

About 50,000 people attended the annual march said local government officials, but the Independence March Association said the figures were likely 150,000.

The march began on Monday afternoon in central Warsaw with lead organizer Robert Bakiewicz telling attendees that "We have to return to our roots. Our world has abandoned God and Christianity. We will die as the nations of western Europe are dying."

Poland shifted towards nationalism when Law and Justice (PiS) party came to power in 2015. 

Authored by Ana Palacio via Project Syndicate,

China has begun to build a parallel international order, centered on itself. If the European Union aids in its construction – even just by positioning itself on the fault line between China and the United States – it risks toppling key pillars of its own edifice and, eventually, collapsing altogether.

Two months ago, in his address to the United Nations General Assembly, UN Secretary-General António Guterres expressed his fear that a “Great Fracture” could split the international order into two “separate and competing worlds,” one dominated by the United States and the other by China. His fear is not only justified; the fissure he dreads has already formed, and it is getting wider.

After Deng Xiaoping launched his “reform and opening up” policy in 1978, the conventional wisdom in the West was that China’s integration into the global economy would naturally bring about domestic social and political change. The end of the Cold War – an apparent victory for the US-led liberal international order – reinforced this belief, and the West largely pursued a policy of engagement with China. After China became a member of the World Trade Organization in 2001, this process accelerated, with Western companies and investment pouring into the country, and cheap manufactured products flowing out of it.

As China’s role in global value chains grew, its problematic trade practices – from dumping excessively low-cost goods in Western markets to failing to protect intellectual-property rights – were increasingly distortionary. Yet few so much as batted an eye. No one, it seemed, wanted to jeopardize the profits brought by cheap Chinese manufacturing, or the promise of access to the massive Chinese market. In any case, the thinking went, the problems would resolve themselves, because economic engagement and growth would soon produce a flourishing Chinese middle class that would propel domestic liberalization.

This was, it is now clear, magical thinking. In fact, China has changed the international system much more than the system has changed China.

Today, the Communist Party of China is more powerful than ever, bolstered by a far-reaching artificial intelligence-driven surveillance

Until then, however, US futures and global stocks are a sea of red after Trump threatened to “substantially” increase tariffs if China failed to agree a trade deal and said there may also be tariffs to come for other countries “that mistreat us”, while European stocks followed Asia into the red following a subdued start, with Hong Kong tensions also denting sentiment.

"The market was anticipating something more positive from Trump, but he didn’t deliver,” said Legal and General PM Justin Onuekwusi. “In recent weeks, we saw the balance of probabilities shift to the positive side, risks being taken off the table, but people have realized that risk is still there,” Onuekwusi said. He’s been reducing his equity allocations.

The Eurostoxx 600 dropped 0.6% from four-year highs with banks and auto sectors weighing, while Treasuries led a bond rally, with the 10Y yield sliding from 1.94% to 1.87% one day after Dennis Gartman said the 30Y TSY bull market has run its course.

The value/momentum reversal is over, buy TSYs:

"the case can be made that the three decade long bull run in 30 Year Treasuries has run its course to the end." – Gartman

— zerohedge (@zerohedge) November 12, 2019

Wall Street was set to open weaker as well, equity futures showed, with the S&P 500 index indicated 0.5% lower; the S&P 500 backed off record highs after Trump spoke. Nasdaq and Dow Jones futures were also down 0.5%. The S&P 500 has risen 2% this month and 23% so far in 2019 thanks to interest rate cuts, trade hopes and NOT QE by the Fed even as the S&P is now officially in a profit recession.

Besides Trump slamming

Authored by Irina Slav via OilPrice.com,

The number of shares, the price and date of the listing remain shrouded in mystery today, even after Saudi Aramco released its long-awaited IPO prospectus.

What the 658-page document does say is that Aramco will list just 0.5 percent of its total stock to individual investors, and that the listing will begin on November 17 and end on December 4. This should imply Aramco shares will start trading on the Tadawul exchange in early December. This is also when Aramco will make public the price per share and the number of shares it will offer up for sale.

Investors, the prospectus also said, have until November 28 to request shares.

The Saudi state oil company has been making strides in its preparation for going public after months of uncertainty and doubts whether it would list at all and if it does, which overseas exchange it will choose. For now, the listing will be on Tadawul only, with the international one planned for a few years later, according to comments from Riyadh officials.

The 0.5 percent Aramco will offer in early December as per its schedule is a small portion of the 5 percent it plans to list, meaning the bulk of the shares will target institutional investors. At one point, there was even talk of doubling this to 10 percent, possibly based on doubts about the $2-trillion valuation of the company that Crown Prince Mohammed is aiming for.

Calculations of Aramco’s value from various banks put it in a rather large range of between $1.2 trillion and $2.3 trillion.

Last month, Aramco reported a net profit of $68 billion for the first nine months of the year at the same time as it announced an intention to float on the local stock exchange. In the same statement, the company said it planned to distribute $75 billion in dividends next year.