Blain’s Morning Porridge April 28^th 2025: The US DATA is undeniable – recession this way comes..

“It’s not the speed that kills you. It’s the sudden stop.”

The fact the US is almost certain to be plunged into a unresolvable recession by the summer, doesn’t mean Trump will be pressured into recanting his economic heresies. Maga voters look likely to double down on him! Meaning an even deeper problems for US firms trying to retain the illusion of their current inflated valuations.

That was an interesting weekend. Strip away the politicking in Rome, or how China is blanking Washington by playing the Long Game with an increasingly beleaguered US President holding a crap hand of cards, or even the sustained tumble in the US$ – the economic reality is becoming increasingly apparent: an increasing number of Western Consumers live in a barely coping society which is about to be tested to the limit.

If consumers aren’t consuming, the inevitable result is economic slowdown and recession.

More Americans than ever before are making minimum payments on their credit cards. It’s not just the USA – nearly 1/3^rd of Brits loose sleep at night, worrying just how tenuous their finances are. The biggest retail growth sector is food-banks as working-class families struggle to put food on the table. Middle class incomes are stretched past breaking point. Family formation is collapsing as young couples figure they’ll never be able to afford to pay their rent, have children and pay for child care. The consequences of these factors will colour Western economies for decades. While a recession moght be deep, it will probably be relatively short-term, while the issues facing consumers; inflation, rising taxes, crashing govt services, declining real incomes, unaffordibility, etc.. will take generations. Yet, solving for consumers – how to make them wealthy enough to consume more – is about the last thing on any politicians mind at present!

Donald Trump and MAGA recognised these dynamics as a route to power – creating a populist political model (that’s being replicated in the UK and Europe), identifying both working and middle class Americans left behind as the economy “victimised” them through unfair foreign competition, and illegal immigrants stealing their jobs.

The reality was these jobs were destroyed by financialization as US firms offshored jobs to cheaper to manufacture domiciles, a rising ownership class of PE leveraging up firms with debt (making them financial zombies dependent on low rates to survive), and billionaire tech bros finding it was cheaper to hire foreign talent than to bother training Americans. As America snoozed in its exceptionalism, foreign competition surpassed US firms in terms of costs and productivity.

Building walls of concrete or tariffs will not stop other nations making better cars or computers, while rising income inequality between a tiny number of empowered billionaires and the rest of the have-nots fuels resentment. Curiously, Trump’s former MAGA strategist, Steve Bannon, seems to be the only MAGA voter to have noticed that Trump has climbed into bed directly with the very financiers who effectively created the conditions that spawned the left-behinds who now vote MAGA!

Yet, the headlines in the papers this morning will not be about struggling consumers unable to pay their water bills. They will be about how much Elon Musk is worth based on whether Tesla is down, or improbably, up. Or how UK capital gains tax have fallen 10% because the rich resent being taxed like the poor, so have fled the country. Or, they might be about a hedge fund manager who just bought a luxury watch maker he quite likes…

Things aren’t great in Europe or the UK, but the US is getting much closer to a tipping point. If the US as much as sneezes, the rest of the world will still catch the flu.

Financial headlines should probably be asking what a 30% tumble in trans-Atlantic air travel to the US means, 60% fewer tourists, the 60% collapse in container shipments from China to the USA, US retail CEOs warning of empty shelves, or a local toy store closing because there is no stock at a price anyone can afford.  Or it might be deeper dives into the number of prominent investors now warning of a dollar crisis, a US Treasury catastrophe in the making, or why their funds are switching out of the US.

Torsten Slok of Apollo lays it out succinctly: containerships stop arriving in May, trucking demand collapses, empty shelves by the end of the month, layoffs across retail and transport by June, and recession by July. Corporate CAPEX will tumble, earnings will be downgraded. No foreign production will be offshored into the US.

The Fed is now modelling a 2% GDP contraction on the back of tariff driven supply-chain frictions, while 5% inflation expectations are in the air. That spells stagflation – meaning higher bond yields as the US struggles to find buyers to fund the President’s tax cuts. Tariffs will not fund the difference in interest costs. Meanwhile, higher rates will make thousands of leveraged US firms unsustainable – finally triggering the long-awaited cull of zombie credits the markets been waiting over a decade for…

All these looming disasters have been precipitated out by Trump in the last 98 days. Impressive how energetically he’s embraced the new, new economy of uncertainty.

Surprisingly – or maybe it’s entirely predictable – Trump’s voter base is doubling down with him – believing he’s making the tough calls necessary to realign politics with democracy. They genuinely believe that in order to save the village it is necessary to destroy it first. Whatever… Fascinating story in The Thunderer this morning: America’s top pollster: What Trump voters think now surprises me. Word of the week is dealignment.

All of which means; when the US tumbles into stagflationary recession in the next few months, you won’t hear Trump’s voters blaming him. It will be someone else’s fault – likely America’s false friends who failed to respond to the Dear Leader’s offer of trade deals and protection in exchange of better Treasury terms. Far from abating, the destabilisation out of Washington will likely continue and even deepen.

This week the market talking-heads will be looking at reasons for stocks to climb higher – looking for a string of MegaTech quarterly earnings to give an upside boost. When folk stop buying iPhones and start buying the cheapest bit of kit instead – only then will markets wake up to reality.  That’s going to be in the headlines by June – the market is not yet pricing it in. Recession and a good chance of further declines in stocks – go read Galbraith’s The Great Crash of 1929.

I am even beginning to worry about my Gold position. Gold does not pay interest. It appreciates. So far it’s been a great bet in an increasingly fervid, uncertain Trump era. But what happens when everything is broken, the last hedge fund has defaulted in a puff or tortured logic, and bitcoin is worth less than $Trump memecoins? Who will be left to buy my Gold then…. ?

There is no point in worrying. Relax it is what is it.

Meanwhile, over the weekend (and most of it was spent sailing in very light winds and strong, strong tides), I’ve been reading the latest book on Elon Musk by Washington Post journalist Faiz Siddique:  “Hubris Maximus: The Shattering of Elon Musk.”

Wowser… made me happy I’m not him. The book is skeptical, critical and dismissive of much of what Musk claims to have achieved – for good reason. I read in wonder that Musk is still solvent in light of so much tangled double dealing. But I don’t need to recite chapter and verse on Musk… I’ve been saying it for 8 years – that Tesla is little more than smoke and mirrors. Musk deserves our sympathy for his personality afflictions rather than our adulation.

(For the record – I am short Tesla.)

Out of time.. and back to finding a day job….

Bill Blain

Author Morning Porridge

Founder Windshift Capital

Partner Shard Capital