Catalunya: definitely not sorted
October 11, 2017

Mint - Blain's Morning Porridge

For the avoidance of doubt – the Morning Porridge is unrestricted market commentary, it is not investment advice…

Catalunya – Most definitely not sorted! Generalitat de Calalunya and Spain bonds rose – slightly. Although the immediate tension was diffused, nothing says screaming buy about Spain, GenCat, or explains the euro rally.  

It was an interesting evening. We watched the news as it unfolded from Barcelona, waiting to hear the "declaration" made. But, after a last moment one-hour delay then some theatricals, Catalan President Carles Puigdemont stepped back from pressing the independence button and held up an olive branch to Madrid offering to negotiate.

Why? There's nothing like some juicy conspiracy theory first thing in the morning…

We're told the reason for the one-hour delay was the separatist leaders meeting to discuss the situation. However, I suspect there were external voices raised as well. I'd love to know who Puigdemont was speaking with (or who was speaking at him!) during the one-hour delay.

Let's think who? Who had a vested interest to ensure the button was not pressed? It's clear from his posture and the look on his face, it hadn't been an easy decision. Compromise doesn't come easy to Iberians. He'd been pressured.

So who did put the full press on Barcelona? I doubt it was Madrid, where Rajoy resolutely refuses to deal with the rebels. Yet, Puigdemont and his team were persuaded to wait for dialogue – demonstrably putting their own position in danger from Catalan nationalists who now feel let down.

As a party with much to lose from European fragmentation, I would hazard a guess Europe might just have been involved in last evening's "negotiations" … That's negotiations in the sense Varoufakis explains and describes them in "Adults in the Room" … 

We're still waiting for a substantive Madrid response – and there will be a cabinet meeting this morning. I'm not sure the language out of Madrid - "irresponsibility to the absolute extreme" - is terribly helpful. Let's wait and see what they say.

No doubt markets will breathe a deep sigh of relief the button wasn't pressed… but let's not be premature. The Spain/Catalan crisis is not yet defused. The game now lies in Madrid's hands – and I doubt they are going to play nice. I am quite sure Rajoy has learnt the "Cameron Lesson": "Never allow a referendum unless you are 100 percent certain of the result." Thus Madrid has absolutely no intention of compromise with the Catalans – and will only accept a complete back down. which the Catalans can't accept.  

Which rather leaves this issue open. If Madrid starts talking, no doubt the market will rally… When Madrid and Barcelona are actually talking to each other (rather than at each other), then a rally may be justified. 

So it's back to worrying about Europe; how Catalunya plays out, the German election bargaining, the looming Italian elections and whatever is going on re Brexit. Nothing changes. 

And there is great comment in the Financial Times this morning pointing out the European Central Bank made nearly EUR 8 billion of profit from its Greek sovereign bond holdings. Europe's central bank released the information in response to a question from a Greek MEP. Think this through for a moment – the profits the ECB has made from Greek bonds are substantial, but are a mere fraction of what they must have made from Spain, Italy, Portugal and even France and German bonds? How is that money being distributed round Europe? Don't bigger countries benefit disproportionately? Interesting…

Back in the real world…It's almost a light comedy moment as I read the Trump twitterstorm of insults directed at his GOP (grand old party) colleague "liddle Bob Corker" for having the temerity to disagree about increasing the deficit. When the credibility of the Trump administration is going to be reset by his tax plans, and requires "all good men to rally" to the party, it's an interesting strategy to start by attacking your own side....

At least it would be funny if it wasn't so serious… I remain concerned the trigger for an equity correction is going to be doubt and uncertainty on US Tax plans.

Finally, I note Walmart announced a US$20 billion stock buyback programme yesterday. What a triumph of management strategic common sense – a company that faces desperate challenges to develop and maintain its relevancy in the internet age versus Amazon, and the best thing its executives can find to do with its cash pile is buy back its own stock (thus boosting their own bonuses and wealth)? I can only applaud. (US readers – profound sarcasm alert.)

Out of time. back to the day job.

Bill Blain

Head of Capital Markets/Alternative Assets

Mint Partners





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Mint - Blain's Morning Porridge

For the avoidance of doubt – the Morning Porridge is unrestricted market commentary, it is not investment advice…

Catalunya – Most definitely not sorted! Generalitat de Calalunya and Spain bonds rose – slightly. Although the immediate tension was diffused, nothing says screaming buy about Spain, GenCat, or explains the euro rally.  

It was an interesting evening. We watched the news as it unfolded from Barcelona, waiting to hear the "declaration" made. But, after a last moment one-hour delay then some theatricals, Catalan President Carles Puigdemont stepped back from pressing the independence button and held up an olive branch to Madrid offering to negotiate.

Why? There's nothing like some juicy conspiracy theory first thing in the morning…

We're told the reason for the one-hour delay was the separatist leaders meeting to discuss the situation. However, I suspect there were external voices raised as well. I'd love to know who Puigdemont was speaking with (or who was speaking at him!) during the one-hour delay.

Let's think who? Who had a vested interest to ensure the button was not pressed? It's clear from his posture and the look on his face, it hadn't been an easy decision. Compromise doesn't come easy to Iberians. He'd been pressured.

So who did put the full press on Barcelona? I doubt it was Madrid, where Rajoy resolutely refuses to deal with the rebels. Yet, Puigdemont and his team were persuaded to wait for dialogue – demonstrably putting their own position in danger from Catalan nationalists who now feel let down.

As a party with much to lose from European fragmentation, I would hazard a guess Europe might just have been involved in last evening's "negotiations" … That's negotiations in the sense Varoufakis explains and describes them in "Adults in the Room" … 

We're still waiting for a substantive Madrid response – and there will be a cabinet meeting this morning. I'm not sure the language out of Madrid - "irresponsibility to the absolute extreme" - is terribly helpful. Let's wait and see what they say.

No doubt markets will breathe a deep sigh of relief the button wasn't pressed… but let's not be premature. The Spain/Catalan crisis is not yet defused. The game now lies in Madrid's hands – and I doubt they are going to play nice. I am quite sure Rajoy has learnt the "Cameron Lesson": "Never allow a referendum unless you are 100 percent certain of the result." Thus Madrid has absolutely no intention of compromise with the Catalans – and will only accept a complete back down. which the Catalans can't accept.  

Which rather leaves this issue open. If Madrid starts talking, no doubt the market will rally… When Madrid and Barcelona are actually talking to each other (rather than at each other), then a rally may be justified. 

So it's back to worrying about Europe; how Catalunya plays out, the German election bargaining, the looming Italian elections and whatever is going on re Brexit. Nothing changes. 

And there is great comment in the Financial Times this morning pointing out the European Central Bank made nearly EUR 8 billion of profit from its Greek sovereign bond holdings. Europe's central bank released the information in response to a question from a Greek MEP. Think this through for a moment – the profits the ECB has made from Greek bonds are substantial, but are a mere fraction of what they must have made from Spain, Italy, Portugal and even France and German bonds? How is that money being distributed round Europe? Don't bigger countries benefit disproportionately? Interesting…

Back in the real world…It's almost a light comedy moment as I read the Trump twitterstorm of insults directed at his GOP (grand old party) colleague "liddle Bob Corker" for having the temerity to disagree about increasing the deficit. When the credibility of the Trump administration is going to be reset by his tax plans, and requires "all good men to rally" to the party, it's an interesting strategy to start by attacking your own side....

At least it would be funny if it wasn't so serious… I remain concerned the trigger for an equity correction is going to be doubt and uncertainty on US Tax plans.

Finally, I note Walmart announced a US$20 billion stock buyback programme yesterday. What a triumph of management strategic common sense – a company that faces desperate challenges to develop and maintain its relevancy in the internet age versus Amazon, and the best thing its executives can find to do with its cash pile is buy back its own stock (thus boosting their own bonuses and wealth)? I can only applaud. (US readers – profound sarcasm alert.)

Out of time. back to the day job.

Bill Blain

Head of Capital Markets/Alternative Assets

Mint Partners



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