Blain’s Morning Porridge June 2 2025: Uncertainty dominates unconvinced markets – get used to it as the World changes.

“June is bursting out all over….”

Markets and the global economy are subject to how the world is changing – get used to it. Trump is not the cause – he just one symptom of how geopolitics, politics and technology are all undergoing periodic change.

A week spent holed up in France because of the weather, working from the boat, gave me some much-needed time to think….  Everything in markets is about expectations and confidence – are they going to lead to upside or downside? Seldom have markets felt so unconvincing as they do now. Look at frothy stock markets and try to fathom why they are so high. Look at bond markers and figure out the wobbles. As I’ve said so many time before; if you are looking at stocks you are looking at the wrong thing – in bond markets there is truth!

You can read that almost daily in the comments of bankers and financiers such as Jamie Dimon of JPM warning of trouble ahead. It feels like we have multi-faceted uncertainties across all aspects of markets and future outcomes. What is clear is how much the world has changed – which means we might be under-appreciating how much it really remains the same, and what the opportunities may be!

Trump is not the sole cause of current change and instability – he just one of many symptoms. There are multiple uncertainties – and their effect on markets are closely interlinked. This morning I’ve tried to boil it down to three things:

1. Geopolitics

The potential for conflict from geopolitical tension at the end of the American era and what comes next is high. These fears have been fuelled by the failure and weakness of “The West” to confront Russian aggression in Ukraine, constrain Isreal over Gaza, resolve instability in Africa and the Horn, and the fear that China may go “outward bound” in the South China Seas. (My view is Emperor Xi wants to keep us guessing and nervous, but has little intention of risking China’s economy in an unnecessary invasion.)

Historically, such tensions are not unusual. Usually points of friction are resolved – witness France and the UK squaring off in Africa in the decades before WW1 – but not always. The reason we are so scared of conflict today is because we don’t rate our current politicians highly enough to solve the current tensions.

One component of the current fear-level is the long-term rise and fall of nations, a repeating economic cycle. In the early 20^th Century, a reluctant USA was able to step into the shoes of the then declining British Empire with the advantage of close alliances and market dominance following its’ role as the Arsenal of Democracy – continuing the familiar previous theme of an Anglo-Saxon based global economy.

The assumption is China is set to become the next dominant economic power, but it will be in a very different position than the USA found itself in – being seen as the outsider and a threat by the West, while facing the challenge of building and maintaining its new role in a now very competitive global economy.

For the record – I am convinced the coming global economic nexus will be China/Asia. The Chinese will just be an important part of an increasing powerful Asian economy driven by India, Japan, Korea and China. Taiwan will very much be part of that. Understanding the potential of a new Asia will be critical to future investment success.

Much of the current fear of geopolitical war boils down to uncertainty about how trade will develop as Asia, the Middle East, Latin America and especially Europe develops, and how the global economy reacts to the accelerated pace of the end of the US Era precipitated by President Trump.

2. Politics

The degree of dissatisfaction across the populations of the Western World with current governments has never been so high. That’s led to the rise of populism – which boils down to the art of winning elections with undeliverable promises. It’s happened most clearly in the USA under Trump. It now threatens across Europe as populist political parties loudly proclaim they are the only solution to all the wrong issues. Here in the UK reform has convinced a large part of the electorate that 1000s of illegal immigrants crossing the Dover Straights in small boats is the greatest threat since the Luftwaffe – in the grand scheme of things, they are largely irrelevant – except in terms of headlines.

Where the West is breaking down is the weakness of conventional politics, and the foolishness of populists. None of them have workable solutions to the multiple issues that have diminished the confidence of western electorates in their politics, or policies radical enough to address them:

• Real wages have crashed while economies have clearly become richer – rising inequality between workers and the wealthy who own the assets. It’s the fear they’ve missed out while others are garnering the benefits that makes populism so attractive.
• Younger generations are finding themselves priced out the housing market, unable to find secure accommodation, and are therefore unable to form families, accelerating demographic decline, while backing out the jobs market which is loaded against them.
• Rising debt loads being un-financeable except through punitive taxes – which the rich are determined not to pay – witness the current Big Beautiful Bill in the USA which hands money to the wealthy while cutting services to the poor.
• Collapsing national infrastructure, declining govt services, rising corruption, and weakening defence has been a feature of nations in decline since before the fall of the Roman empire.

Key to political weakness is the Bond Market. They key elements of a successful economy (according to Blain’s Virtuous Sovereign Trinity Theory) are: a stable currency, a sustainable bond market, and political competency. What we are clearly seeing across the West is rising doubts from investors – call them bond vigilantes if you must – about the sustainability of debt when politics has lost its way.

Bond markets are right to be concerned.

Trump’s plans to address the US budget deficit by cutting tax revenues by some $3 bln is simply unsustainable. He’s fortunate to have Treasury Scott Bessent (someone who clearly understands bonds and the importance of the narrative) to explain the USA is not going to default on its debt. No… it won’t.. it can always print more money – but that will have consequences on the currency, inflation, employment and trade, hastening the decline of the economy. The problem is the US may not default (it might technically if its fractured political system fails to agree a debt ceiling), but it can still go bust.

3. Technology and Innovation

Which brings us the third source of uncertainty – technology. The narrative the Tech market has successfully promoted is that AI is set to massively boost the value of the economy, making businesses more efficient, and generating enormous wealth from the innovators of AI solutions.

It’s a trait of all technological revolutions – attracting money to finance their growth from the promise of massively overhyped outcomes. That is as true of AI as it was of the dot.com boom, the digital economy and dead-ends like the Metaverse and NFTs. AI will change the world – but less than the hucksters claim. Its also clear the belief only America can innovate technological revolution is unfounded. China has shown it can develop AI. Over the weekend I was reading how Chinese Med-Tech firms are outstripping the west in areas like cancer cures.

The real issue around AI is the potential social effects – further eroding the relationship between the owners of business and employees. It is being made clear to literally billions of middle-class “professional” workers how their jobs can be replaced by AI (er, probably not) and thus they “must” accept lower terms and conditions to remain competitive, while the inequality between owners and workers widens.

Such inequalities tend to correct themselves.

Either society demands it through the ballot-box, and finds a way to redistribute wealth more fairly around society in terms of taxation to fund better welfare states and effective infrastructure – all of which make for more stable, happier and ultimately richer nations….

Or, they are resolved in conflict and social revolution.. which I suspect is in the minds of the Tech billionaires who effectively bank-rolled Trump and demanded he take on their appointees, JD Vance, as his Vice-President.

And on that bombshell….

Out of time and back to the day-job…

Bill Blain

Author of the Morning Porridge

Founder and CEO of Windshift Capital

Partner Shard Capital