Spot Markets Live Transcript: 11/07/22

Is anyone out there?

(My usual communing with the other side)

So our sessions are happening every Monday at 11am for now, with a limited controlled live audience until we get the tech up to scratch.

(Regarding Technical issues Graham from Coodash is probably watching – so do keep reporting)

But, soon enough, we will roll things out further. Do spread the word.

Those reading this in transcript form, if you fancy a login to help us expand the test over the weeks to come please email [email protected].

Today, the imitable Neil Collins is back with us. Neil is the former City editor of the Telegraph, FT columnist and now a co-host of the “A long time in finance” podcast with Jonathan Ford.

Hello Neil!

Feeling a little worse for wear.

but not too bad

mainly because my brain feels like it was hacked by a 70s pop sensation experience.

The Abbatars as they are called are really extremely effective. And this is the first time I have actually thought there might be some substance to this metaverse thing.

Yes ! It would be nice to live forever as your bestest self. Neil do you fancy being permanently uploaded into the Finance Hero Journalist Cloud?

But seriously, i do think this tech is coming. ALthough as Jemima said, it all felt a bit peak Post Capitalism.

Last week we had Ben Harrington of Betaville with us. Betaville is a sort of Alphaville tribute band, albeit the Alphaville of old. [The Blind Spot of course is more like a spinoff, though hopefully more successful than when Paul McCartney left the Beatles to form the Wings.]  Betaville has everything bar this live chat. So hopefully Ben will be cooperating with us in the future. He was kind enough to give us a little scoopette confirming the EDF nationalisation that came last week.

The latest on that, btw, is (nice dateline):

AIX-EN-PROVENCE, France, July 10 (Reuters) – The French

government is preparing for a total cutoff of Russian gas

supplies, which it sees as the most likely scenario in its

forward planning, French Finance Minister Bruno Le Maire said on

Sunday.

With about 17% of its supply coming from Russia, France is

less dependent on Russian gas than some of its neighbours, but

the government has been preparing contingency plans.

A cutoff is particularly problematic now because France’s

nuclear power generation would struggle to pick up the slack as

many reactors are currently down for maintenance.

Its business model for Hinkley Point is so successful that it has already been abandoned for Sizewell C

Aveva, Reckitt, Coca-cola HBC and RELX are barely nudging their way into positive territory. Any ideas why?

Reckitt is embroiled in the baby food supply scandal in the US. But don’t know much more about it.

Top losers are the miners, Anglo American, Antofagasta [fears of more China slowdown] and then there’s ABRDN, Smurfit and IAG.

which is nice

Although, European markets are also down because of supply chain fears and Vlad the tank implying rationing is near for Europe.

It does look like the rationing is nearing.

But let’s look at more entertaining M&A news

At the Blind Spot we are nice about giving credit where it’s due, and Matt Levine remains an utter must read

https://www.bloomberg.com/opinion/articles/2022-07-09/elon-s-out

they go up against Crosby Stills Nash and Young

https://en.wikipedia.org/wiki/Crosby,_Stills,_Nash_%26_Young

who sound like an extended legal entity

so what’s your take on Mr. Musk?

Because Levine just thinks for musk this is just an expensive hobby

but with almost infinite funds he could go on fighting until the Delaware counts can’t take any more

and if they were, they’re in deep trouble filing false returns

However, even if the judgment goes against him, I can’t see him paying up $20bn

so who really has the upper hand?

Roger: quite possibly!

Does that remind you of somebody?

mr. BoJo maybe

before we go down the UK politics cesspit

What else has caught your eye today Neil?

what’s the latest?

you spoke with Dan McCrum on your latest podcast right?

lol get it

Credit

The latest twist is an admission that some documents were just straight forgeries

Here’s the FT story

Yeah, so i think the Wirecard story is indicative of what I call “The Entire Economy is Fyre Festival”

and it speaks to my Abba point

because in this day and age, deepfakes, fakes,.. everything is so easy to manufacture and present as real

And any one man band can present themselves like a 500-people plus op

Trust me i cover crypto

yes Neil I’m real

spyware?

anyway, lets get back to base reality and the world of bricks and mortar — although yet, again, following in our theme what is really real and isn’t

Purple Bricks

The price today? 15p

well this is the thing with all the new-fangled disruptive “models” that were supposed to revolutionize everything from taxis to food delivery

when it cuts to the chase, they have failed to be resilient to core market forces

Uber is another one

as is deliveroo

As is German-based Gorillas

Joules is the latest casualty

I wouldn’t say they were fashionable, but they have somehow scrambled back into the mainstream

I also spoke to his colleague William Woods

They think that out of the incumbents, online has only got at best to a margin of 2-3 per cent. Which means overall it’s still margin dilutive.

But the instant companies, like Delivery Hero and Gorillas, are going to have even higher overheads and even worse unit economics.

Here’s a quote from my interview

from Bruno

“Grocery ecommerce from the old Ocado style point of view a high asset turn business. If you do it well, you can turn your capital three times better. But given that the industry never makes an excess return (it never makes an excess return because there’s no proper differentiation because you go from the nearest to the cheapest), if you’re lucky supermarkets makes 4-5 per cent Ebit margin and online makes 1-1.5 per cent. That might sound miserably low, but from a returns point of view it is as good or as bad as the old world. So that’s sort of the best to achieve. But this does assume you’re at scale.”

Basically, he also sees consolidation in the big supermarket names

only regulators really standing in the way

And funnily enough, having spoken to a bunch of Swiss finance types, they think that’s why Switzerland is handling inflation better, because the duopolists had a lot more margin to absorb.

https://www.grocerygazette.co.uk/2021/10/25/morrisons-asda-ma/

and do feel free to engage directly

I want to look at the political fallout in the UK

but from a markets POV

I’m most interested in the creeping nationalisation of so many strategic assets. EDF is obviously the big one. [Not directly related to Boris.]

As already noted, this is meaningful for us Brits because Hinkley Point is being developed by EDF and a minority Chinese partner. Can we trust a nationalised French company to run our nukes?

What do you think?

But also interesting to me is the subtle elevation of lots of military bods into positions of power.

It does feel a bit like some sort of military conservatorship is coming our way bit by bit.

Am I crazy?

At the moment, the UK leadership frontrunners are Rishi and Liz Truss depending on what newspaper you read.

But I have a feeling, there is a not-insignificant chance of Penny Mordaunt charging ahead flanked by Tom Tugendhat.

Penny is an active reservist as far as I understand. She’s got the backing of Allison Pearson at the Torygraph.

And Tom was in the actual army.

https://twitter.com/SkyNews/status/1546255108480147457?s=20&t=DdU2gpmDGUb1C1O_YKIvJw

He’s definitely bigging up the army connection

Meanwhile, speaking of military control, a very interesting story is going on with the UK’s fertiliser market. You can go with the Telegraph,

https://www.telegraph.co.uk/business/2022/07/10/bid-fertiliser-factory-heart-british-food-supply-collapses/

Or you can go with Farmers Weekly.

https://www.fwi.co.uk/business/future-of-ince-fertiliser-plant-in-doubt-as-closure-approaches

This fits my “Uk is about to go into a state of military conservatorship” theory

Ince is one of only two fertiliser plants in the UK that are struggling to stay above water because of the increase in gas prices.

They produce carbon dioxide which is essential for meat processing.

The Ince plant is currently due to close in August because its parent company CF Industries doesn’t think it can operate in a viable way.

Ince employs about 300 people.

The government has been encouraging a buyer “and a markets solution” that can keep it operational, but supposedly none of the bids according to CF would be able to do that. Not quite sure why they care about whether the new owner can keep it operational. Surely better to get any money for a loss-making plant than none?

but regardless…

According to the Telegraph:

A spokesman for CF Industries said: “CF Industries has spoken with several parties. In the course of those discussions, at no point thus far have the parameters of any transaction – proposed or outlined – appeared likely to secure the long-term future of the Ince manufacturing facility and its employees.”

Anyway, security and agricultural lobby people are a bit worried this will leave the UK drastically over-exposed to CF Industries’ last remaining plant in Teeside. They’re not wrong.

The government gave CF a loan to maintain carbon dioxide supplies. But now it wants a market resolution.

And……

…..

Part of that resolution was what the Telegraph called an “audacious” bid by former army chief Lord Dannatt, who is apparently into agricultural affairs.

I mean, it’s always been a cliche that army folks go into the city after leaving the army.  But the idea of Dannatt running a bid to secure the future of Ince does feel meaningful. For now the bid has failed.

But this note from Edward Burke in 2016 to the FT seems relevant:

https://www.nottingham.ac.uk/politics/people/edward.burke

Sir, The article “Generals caught in US election crossfire” (September 10/11) on ex-US military leaders meddling in US politics is newsworthy. Why does such interference not merit the same attention when it occurs in the UK? When General Sir Richard Dannatt attended a Conservative party conference in 2009 while still a serving military officer and criticised the Labour government, neither the FT nor other respected titles saw this as undermining British civil-military relations. Britain is not immune to such tensions; but they are rarely commented on.

[In response to comment] Like I said, I’m not a military expert, and it’s not like there hasn’t always been a revolving door between military service and city activity. But.. if Penny gets the job,… in a time of renewed Cold War anxiety, I think it’s all becoming a bit meaningful.

I met Penny at some point I think in 2019 or earlier. She was doing the local political rounds. She definitely has stature. But what do I know?

[In response to comment] 11:54 I don’t see the gas price coming down any soon, and the issue isn’t really resolvable with higher prices.

We are basically in a transition from a market economy to a war economy

A war economy can keep unviable assets going with things like rationing, a market economy can’t.

Productivity isn’t really the issue, and even if it was that’s not going to get us through the Summer of discontent, in my opinion.

which is likely to become the year of discontent by 2023

This isn’t the only supply chain shock coming our way btw:

https://www.telegraph.co.uk/business/2022/07/10/britain-edge-dairy-shortage/

Britain is on the edge of dairy shortages as a crippling lack of workers forces farmers to slash production, the country’s biggest milk and butter maker has warned.

Arla Foods, the company behind Lurpak butter and Cravendale milk, also predicted that dairy prices will surge even higher with grocery bills already rising at the fastest pace in 13 years.

Rationing is coming. I was a bit over zealous in calling this in Feb in terms of the timings, but i don’t think I was fundamentally wrong.

Germany has already started rationing hot water and dimming street lights

and this is THE SUMMER. [Wait till winter.]

On the tech front: Do keep letting us know about the trouble you may or may not be having

To finish off I will just remind everyone that US CPI is out this week.

It’s expected to reach a new high of 8.8 per cent year on year.

There’s this big Uber investigation out by the ICIJ

Leaked Uber docs reveal bare-knuckle expansion tactics:

investigation

– Leaked Uber files detail how politicians helped ride-sharing

giant’s global rise – Axios

But frankly, I think this is yesterday’s news and a bit overhyped. The formatting on the story is horrible too.

What is worth watching is that China’s State Administration for Market Regulation announced 28 cases involving merger deals that were not reported for antitrust reviews.

Offenders, which also include Bilibili and Weibo, have been fined nearly US$75,000 for each case, some dating back as early as a decade ago

https://www.scmp.com/tech/big-tech/article/3184857/tencent-alibaba-and-didi-fined-china-antitrust-watchdog-unreported?utm_source=feedly_feed&utm_medium=email

And last and not least, I am going to start Nationalisation Watch.

Uniper (UN01.DE) flared on Saturday as its Finnish main shareholder rejected a call from a senior German minister for further help in bailing out the ailing company.

Uniper, Germany’s biggest importer and storer of gas, this week asked for a German government bailout, warning losses due to reduced supplies from Russia and soaring gas prices could reach 10 billion euros ($10 billion) this year. read more

It’s everything Jeremy Corbyn wanted but failed to get, but being driven by market economics not socialism.

12:04 Another thank you to Neil again, and just a quick housekeeping note.

I am taking a break next week (not in Germany). And since it is the summer rather than outsourcing this to a third party, what I might do is just shutter SML until my return in August. We have enough data on the problems, so this will give us a chance to optimise everything. And what I think will be a wise thing to do is keep the system on standby for emergency markets sessions if and when anything drastic and unexpected does happen over the rest of July.

I’m hoping by September to recruit an experienced pro to operate this on a daily basis though.

On that note, I’m outta here. And do stay safe in these choppy waters.