Let's try another spot
July 19, 2019

Blain's Morning Porridge

"I don't know, lad. It's like no cheese I've ever tasted. Let's try another spot. "

Tomorrow is the official 50th anniversary of Man on the Moon. Extra points for anyone who gets this morning's moon connected quote.

Back in the Real World

Netflix shook markets yesterday with a wake up and smell the coffee moment. It's amazing how folk have woken up to the reality. Netflix is struggling. FAANG becomes FAAG. Which means Netflix's days as a market disrupter are over.

It pioneered streaming as a business, but now is now facing competitive pressures it can't hope to beat with its current model. Its high content spending to capture subscribers appeared to be working in a competition-free environment, but today's reality is subscribers have choice where to go for quality content.

Netflix's libraries of classics are going back to their owners, and even they admit their current production wasn't good enough to attract new customers. Which means they have a problem going to the market for more money to spend on more content to attract customers – who are going elsewhere. If that all sounds a bit familiar – remind yourself what happened to Blockbuster.

And then there is Boeing. If you think a US$5 billion accounting charge is the end of the B737 Max saga, then think again. That number will cover the costs of the airlines forced to reschedule and cancel flights, replacement aircraft, and other charges from customers, but I don't think it will cover the planned class action suits being envisioned by the families of 346 dead passengers. Nor will it cover potential regulatory fines that may be levied. I suspect $5 billion is just a first number.

The damage is still piling up. There is still no clear timeline to get the plane back in the air. They are piling up on parking lots. They cost lots to build, and Boeing doesn't get its money till they are delivered. US Transportation Secretary Elaine Chao said: "The FAA will lift the aircraft's prohibition order when it is deemed safe to do so. That is the bottom line. There is no timeline."

What's Boeing's problem? Fixing the Max is proving more difficult than ever expected. After years of essentially letting Boeing inspect and certify itself, I'm told the FAA are making sure they are being seen to be involved, and are "supervising" every aspect of the fix.

The company is still working on software patches to solve the issues, but apparently every solution thus far has uncovered more problems. The flight control computers on fly-by-wire aircraft are enormously complex – a software patch isn't a simple solution, which is why Boeing got such heat earlier this year for paying Indian software engineers $9 to write new code!

And then there are the legacy effects. Pilots have made clear they don't want to fly the plane. Passengers are not going to be happy. Boeing have a patch for that as well. If you are going on holiday next year on a Ryan Air flight and your plane looks suspiciously new, and it's got Boeing 737 8200 written on the nose, then you are flying in the B737 Max!

Quick word about Brexit: Arg! The next chapter in this riveting saga of Britain's tearing itself apart might get gory. Yesterday, Parliament voted to take a no-deal Brexit off the table.

That means our new Prime Minister – I shall give my considered view on Monday of whichever one of them wins – has to craft a New Deal with Europe, ask for another extension, or call a general election with the aim of getting a parliament that will support a no-deal. It could also result in a government that revokes Article 50!

Which means…we are exactly where we were a few months ago. There is not a majority in Parliament for any kind of deal. Therefore…a general election beckons. And Boris Johnson (yep, it's looking nailed on) may as well go for it early September. More woe and uncertainty. Excellent. Let's start gaming sterling..

Have a great weekend…New Premier on Monday. I can't wait…. (US Readers.. Sarcasm alert.)

Bill Blain

Shard Capital





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Blain's Morning Porridge

"I don't know, lad. It's like no cheese I've ever tasted. Let's try another spot. "

Tomorrow is the official 50th anniversary of Man on the Moon. Extra points for anyone who gets this morning's moon connected quote.

Back in the Real World

Netflix shook markets yesterday with a wake up and smell the coffee moment. It's amazing how folk have woken up to the reality. Netflix is struggling. FAANG becomes FAAG. Which means Netflix's days as a market disrupter are over.

It pioneered streaming as a business, but now is now facing competitive pressures it can't hope to beat with its current model. Its high content spending to capture subscribers appeared to be working in a competition-free environment, but today's reality is subscribers have choice where to go for quality content.

Netflix's libraries of classics are going back to their owners, and even they admit their current production wasn't good enough to attract new customers. Which means they have a problem going to the market for more money to spend on more content to attract customers – who are going elsewhere. If that all sounds a bit familiar – remind yourself what happened to Blockbuster.

And then there is Boeing. If you think a US$5 billion accounting charge is the end of the B737 Max saga, then think again. That number will cover the costs of the airlines forced to reschedule and cancel flights, replacement aircraft, and other charges from customers, but I don't think it will cover the planned class action suits being envisioned by the families of 346 dead passengers. Nor will it cover potential regulatory fines that may be levied. I suspect $5 billion is just a first number.

The damage is still piling up. There is still no clear timeline to get the plane back in the air. They are piling up on parking lots. They cost lots to build, and Boeing doesn't get its money till they are delivered. US Transportation Secretary Elaine Chao said: "The FAA will lift the aircraft's prohibition order when it is deemed safe to do so. That is the bottom line. There is no timeline."

What's Boeing's problem? Fixing the Max is proving more difficult than ever expected. After years of essentially letting Boeing inspect and certify itself, I'm told the FAA are making sure they are being seen to be involved, and are "supervising" every aspect of the fix.

The company is still working on software patches to solve the issues, but apparently every solution thus far has uncovered more problems. The flight control computers on fly-by-wire aircraft are enormously complex – a software patch isn't a simple solution, which is why Boeing got such heat earlier this year for paying Indian software engineers $9 to write new code!

And then there are the legacy effects. Pilots have made clear they don't want to fly the plane. Passengers are not going to be happy. Boeing have a patch for that as well. If you are going on holiday next year on a Ryan Air flight and your plane looks suspiciously new, and it's got Boeing 737 8200 written on the nose, then you are flying in the B737 Max!

Quick word about Brexit: Arg! The next chapter in this riveting saga of Britain's tearing itself apart might get gory. Yesterday, Parliament voted to take a no-deal Brexit off the table.

That means our new Prime Minister – I shall give my considered view on Monday of whichever one of them wins – has to craft a New Deal with Europe, ask for another extension, or call a general election with the aim of getting a parliament that will support a no-deal. It could also result in a government that revokes Article 50!

Which means…we are exactly where we were a few months ago. There is not a majority in Parliament for any kind of deal. Therefore…a general election beckons. And Boris Johnson (yep, it's looking nailed on) may as well go for it early September. More woe and uncertainty. Excellent. Let's start gaming sterling..

Have a great weekend…New Premier on Monday. I can't wait…. (US Readers.. Sarcasm alert.)

Bill Blain

Shard Capital



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