This morning: Markets are celebrating spring, rebirth and recovery. The problem is the pandemic is not over, and may continue to cast is baleful malice over markets for decades. Meanwhile… would you appoint an ESG-compliant, full-on Woke gender & diversity championing Head-hunter to find you the next killer quant-trader?

While markets are basking in the joy of a never-ending spring of new index highs, calm conditions in bonds, soaring expectations for recovery, and rising growth estimates – everyone is finance is happy, happy, happy. What can possibly go wrong? (Rhetorical question – don’t ask! I will only spoil your weekend.)

The big issue remains the Pandemic.

As Europe experiences rising infections (France surpasses 100k deaths), its increasingly becoming clear COVID is going to be a long-term fact-of-life matter rather than a short-term winnable battle. Coronavirus and Chris Whitty are going to be with us, like the flu, for decades. Pfizer and others are warning we will need further booster jabs. New vaccines, like the yearly flu shot, won’t be guaranteed to protect us.

While we all know the death rate from the virus has been low, and was loaded against the elderly and infirm, the next one might be like Spanish Flu 100-years ago hitting the young and fit. The big issue determining future reaction to successive pandemics will be hospitalisations – no Government can withstand the political damage an overwhelmed health service would create. They will therefore likely continue to err on the side of caution with loads of rhetoric about saving the NHS rather than a focus on economic resilience and jobs.

Smart governments – much to my own surprise, I put the UK on that list – will spend whatever it takes to protect and survive, investing in new vaccines, therapies, logistics, and capacity. They will learn. The crisis in the UK is now one of “everything but Covid”, unravelling the 4 million plus treatment queue of procedures put on hold by the pandemic. There are still shocks to come as it becomes clear how many early deaths were accelerated by strokes, heart attacks and cancers missed because of the virus.

I reckon the market has overbought recovery. The economic damage done by the response to Covid isn’t going to be a simple V shape. It’s going to be more nuanced reflecting societal fears and changed behaviours. That’s what critical for today’s market. Every single sector that most impacted by the crisis is now seeing the recovery effect as bonds and stock prices bounce back. It’s an overplayed theme.

Take ocean cruising – reopening as fast as possible as long as passengers can provide vaccination proofs. But, the reality could be different. While tourist destinations will be anxious to welcome the commercial boost and mini-boom a cruise ship visit creates, there will be delays and frictions as health concerns remain. Some nations will refuse visits, others will remain unvaccinated – threats of importing and exporting infections. Where will cruise ships go?

More to the point is the aging customer base; its the same generation most afeared of the virus – realistically what percentage of cruise passengers will return? If it’s only 90% – then that’s still a serious overcapacity issue for the industry.

Having sailed past the Cruise ships anchored off the English coast rusting away (apparently the key thing is to keep their plumbing operating by flushing the loos every day), they aren’t quite as sparkly as they once were. With the cruise firms now cash-strapped and their future demand unclear – who would order new boats now? If the companies aren’t ordering new ships, then what happens to the boatbuilders and their skill-sets? Without new boats the next generation aren’t going to go cruising.

You can make similar arguments about the assumptions being made about the resumption of mass air-travel. How many folk will be happy with hanging around airports waiting for test results? Maybe that staycation looks a less-hassle option. I was chatting to one of my aviation clients last week. We are seeing a number of feelers, testing the waters for new deals – but our conclusion is we face a second dip in the aviation recovery as the future of the sector becomes clearer – and not in an optimistic way.

The reality is our lives and economies are going to adapt. Distancing, virus passports, masks? Who knows… Its not a simple slam-dunk reopening. Some sectors look overbought.

Meanwhile… 

Across markets there is so much going on. Its always good to be busy; rewriting the pitch-book on one deal to reflect the investor concerns we’ve uncovered, scrabbling to close funding on another, and even finding time to go out a learn more stuff I didn’t know while talking to funds about their market expectations – which can be summed up as “nervous about when this party might end”. 

My curiosity knows no bounds.

I even found time to open a Coinbase account and bought a modest slug of Etherium and Cardano – I don’t know what they are, but on the basis no one could explain why any are better or worse than any other cryptos… why not? Since I reckon the Fed is right about the underlying value of cryptos potentially being zero, let’s just say the Blain family won’t be losing the family farm as a result of my little punt on digital currency if cryptos flatline. (Reminds me of the time years ago when I was sucked into going to the casino… At one point I was up the price of a decent new car. I had to borrow cash for a taxi home when I left. Haven’t been back.)

(Actually, to be honest – the real reason I bot into Crypto yesterday was my deeply held belief the Gods of the Markets hate me, and so the easiest way for me to prove my warnings on Crypto are right, is to buy into and lose money like everyone else. I really should set up the Blain Reverse Indicator Fund EFT… A long/short strategy mirroring my own portfolio.)

I read about Scottish Mortgage (the Baillie Gifford tech fund) which studiously ignored all my efforts to pitch them a UK satellite launch capability project based in Scotland. Instead, they have invested in a new blueprint stage US launch system utilising 3D printing to build cheap, efficient and less polluting rockets. Nice – when it works. I guess it ticked more of the tech future-stuff tick-boxes than our scheme which works today on the back of repurposing existing and proven launch technology to get satellites into Low Earth Orbit quickly and cheaply.

But, all-in-all, Thursday was quite a good day. The modern world was starting to make a little more sense. I am beginning to understanding stuff I never previously would have understood.

And then I opened a link celebrating a leading firm of global head-hunters announcing, with great pride, the release of their first ESG report.

Really?

Global head-hunters? ESG? Diversity? Inclusion? Gender politics?

The world has clearly changed.

When was I was young the role of a head-hunter was to go out and ruthlessly secure the best talents to fill the positions its clients needed filled. The best people, who could generate and develop the best deal flow were what made investment banks rich… There were no limits.

I wonder what the role of a head-hunter is today? Is it to offer clients advice on how diversity and inclusion principals will make them more effective organisations? Will it be to ensure client boars exceed diversity pledges? Is it to deliver learning experiences to employees to empower them in their career development? I am quite on board with any company wanting to offset its carbon profile – entirely the kind of thing we should all be doing – but it really shouldn’t take umpteen pages to brag about why, and if I wanted advice on it, it wouldn’t be from a head-hunter.

I should like to deliver the message back to head-hunters in general that pale, male and stale old buffers (just like me) are people too! PMS Lives Matter! We may be old, set in our ways, but we have experience (if only we can remember where we might have left it…)

Out of time, and back to the day job! Have a great weekend.

Bill Blain

Shard Capital