Blain’s Morning Porridge Sept 22^nd 2025 – The looming threat of Octobphobia!

“October is the month of ending and beginning…”

October is coming. It is the scariest month for markets. And there is much to be scared about in Q4; unsustainable narratives driving bubbles, inflation and stagflationary threats, political uncertainty, and a market priced for perfection. I yell “correction”, but in the dying phases of a euphoric market – no one can hear you scream!

Today is the autumn Equinox – the nights are fair drawing in. On my desk are a handful of horse chestnuts, conkers, I picked up while walking the dog – habits formed in childhood never really leave us.

Another Autumnal thing is my deep-seated irrational fear of October – Octobphobia. I guess that’s because I was still in my 20s when I experienced my first real market tumble – the great hurricane of 1987 (which turned Sevenoaks into One-oak) preceded the October 19^th Black Monday Crash.

That ’87 crash was triggered by confluence of factors – but at its heart was a steadily rising market which had created unrealistic expectations and overvalued stocks, with interest rates set to rise due to overheated economies and rising inflation. The positive vibe was suddenly overwhelmed when falling prices triggeried a chaotic unravelling sell signal in then new automated portfolio trading systems, which then triggered panic on the street. It magnified a correction into a deep crash as everyone went desperately looking for the exits. Prices recovered swiftly, emphasising the causes were likely overblown by the failure of the new systems.

Back to today, a quick glance at the markets reveals a picture that couldn’t look rosier.. stock indices at record levels, credit spreads at tightest ever levels, lots of talk about how AI investments are going to supercharge UK, US and European growth, and how lower interest rates are set to fuel extraordinary gains for companies able to invest more to drive higher earnings and stronger returns…

Naturally, I am shaking my head at the madness of it all. Danger, Danger, Will Robinson, Danger is ringing loud in my head… (I understand there is a new Netflix Lost in Space, but the original was best.)

When markets are priced for perfection and not paying attention to multiple outlook challenges and already high PE multiples, I can’t help but be a Cassandra – calling a correction and nobody seems to be listening. And October, which starts next week, is when such events tend to occur…. Maybe it’s something to do with the Celtic Samhain and Halloween…. Who can say?

What will the trigger be time time?

It’s an inflation data hefty week  – what will the numbers tell us about what’s really happening in economies? Rising inflation, falling jobs, and maybe a wobble in the market’s enthusiasm for hyper-scaling spending on the AI bubble, could seriously dent the mood.

According to the excellent Torsten Slok of Apollo, the US is set to collect $350 bln per annum of tariff revenues – around 18% of household income tax. Although some economists still argue importers and foreign companies are absorbing the costs, the reality is Tariffs are many things. One of these is they are a consumption tax on US consumers, reducing the cash in their wallets at a time when inflation is tickling 3% and heading higher.

Even a 0.2% tariff input to overall inflation will be significant for the US economy where the falling dollar, and its declining dominance of global trade, is another inflationary multiplier, and is pushing up bond yields (because of less international dollars to buy T-Bonds.)

What we don’t know is what the cumulative effect of the dollar downtrend and tariffs will be. Prices will rise, but how much? Some of the tariff costs have been absorbed by foreign producers cutting costs (with spillover effects into the own economies), the purchasing behaviours of US consumers will change, and US firms will seek to keep prices low to retain customers. There is some evidence that tariffs have been compensated by lower prices across the supply chain from producer to consumer.

However, tariffs are a blunt instrument. They will trigger multiple effects impacting not just inflation, but earnings and spending. The economy is a very complex machine and needs very careful adjustment. Tweaking one part oft has the effect of utterly misbalancing something else in unforeseen ways.

President Trump has shown a preference to use a very large mallet to tune the delicate engine of state – like an overnight decision to charge $100k for Tech worker visas – its genius…. A direct tax on Tech firms rather than consumers. It will raise billions bringing down the deficit by .. a tiny, tiny percentage. (US reader – convulsive sarcasm alert.)

And then, of course, is the signal Tariffs send to the rest of the world. Who really, (except for Sir Kier Starmer), wants to hob-nob with the leader of a nation intent on destroying other economies for the privilege of exporting to them? My American chums tell me that’s not a problem – it’s a cost foreign nations should be delighted to repay for decades of American support, defence, peace and stability, and subsidies that enabled global growth. Yes…. Of course they are… Not.

Or maybe it will be a credit event – a dramatic sudden failure causing the credit markets to pause and reflect on what rising interest rates in a recessionary scenario – stagflation – might actually mean? I have been told that tight credit spreads are a sign of economic stability. Nope. They are as likely a sign of irrational optimism. My spidey-senses are telling me current credit spreads don’t reflect rising risks – and if there was to be a liquidity event… then all bets are off.

Maybe the trigger will come from PE or the Private Capital Markets? We don’t really know what’s going on private credit – an opaque market where the largest alternative buyers are competing to fund large high-risk deals at the most attractive levels. Every so often we see signs not all is rosy as rumours of extended and renegotiated deals sneak out. The fact firms like Apollo are laying off risk by slicing and dicing their private credit investments into high-grade credit instruments that look just like leveraged CDOs has the whiff of 2007/2008 around it.

And given the increasingly frenetic pace of announcements from the White House in recent days…. If you are a foreign business looking at where to invest and trade… do you really want to gamble on the policy instability that seems to pass for joined up thinking on Penn Avenue these days?

As we wrap up Q3 and head into an uncertain October there will be folk out there calling me a perma-bear. Nope. Just nervous. (And if the market corrects, I will be pulling on my best buying boots to buy the dip!)

Out of time, and back to the day job…

Bill Blain

CEO – Windshift Capital

Author – The Morning Porridge

Partner – Shard Capital