Blain’s Morning Porridge July 1st, 2026 – Where have we been, where are we now, and what’s next?
“It’s not the immediate damage, but the unforeseen second and third order consequences that really hurt.”
2026 has been an interesting year thus far. A number of themes including AI, Geopolitics, Debt and Innovation have driven the flow of markets, which have very high upside expectations and few worries about downside risks. I would remind readers of Blain Mantra No 1: “The markets have but one objective: to inflict the maximum amount of pain on the maximum number of participants”. Hey-Ho, and on we go…
It’s the first of July, and we are at the half-way stage of 2026 – and hasn’t it been fascinating? I thought it might be interesting to skim through what we expected, what happened, and where we might be headed next. Its worth starting from the premise that markets are not enlightened, all-knowing crystal balls, but simply the sum of weighted stupidity – in other words, expectations are based on hopes, while reality is often the result of mistakes.
That said, explaining the whole of the global economy and markets in 2 hours before breakfast and doing my day-job is a tough ask, but there are four very visible market themes that stand out in my mind – and of course, they are all inter-related, and they have all repeated themselves through history. This time it might be different – we live in a very connected world. As someone once said: “A toddler having a tantrum in Washington makes old men smile in Beijing.”
The first theme is AI.
The 2023-2026 AI Bubble might go down in history as a classic Gold Rush. It began when ChatGPT was unleashed in November 2022, becoming the fastest growing App in history. By the end of 2024 we had full on Gold Fever – the certainty AI would literally run the world and generate untold riches. Prospectors flooded the silicon fields, fought (themselves in the case of OpenAI) for dominance and relevance, and talked up every aspect of the market. Vast fortunes were made – although we don’t talk much about the ones that are inevitably going to be lost.
The picks and shovels aspect of the AI gold-rush began to clarify itself in 2024 – first it was the importance of the chips and hence the irresistible rise of Nvidia, which rose over 2000% from 2022 to its peak in May this year! It’s a classic lesson from the California and Yukon gold fields that you don’t get rich from digging the yellow metal, but from selling other folk the means to do so.
2026 began with ongoing optimism on how AI will transform commerce and industry. Markets were convinced corporate profits were set to soar as their businesses became increasingly profitable on the back of AI efficiencies and though headcount cuts reducing costs. But now we were very aware of the rising costs – it isn’t just chips, but the massive infrastructure build-up of everything around the delivery of AI. It’s going to cost trillions – from datacentres, energy and the plumbing, and the sheer scale of the ask could cause market indigestion.
But new themes in AI are emerging:
- How the LLM/Closed Weight AI model the US developers and hyperscalers have favours, and which has driven the US markets higher, is not the only AI solutions. The US firms aim to own AI and charge us all rents to use it. Among the alternatives are open-weight private systems, that effectively do the same with lower costs and slightly lower overall power.
- Returns are less certain. AI is becoming commoditised as firms compete to sell their models and services. Companies are discovering AI is an “interesting” tool but are only now learning to use it – and it’s not cutting jobs, it’s changing them – in many cases improving them. That gives firms choices about how they innovate it – and keeping costs down is a key part of the decision process.
- There is a realisation that AI is a strategic technology that governments will seek to control and even weaponize. Everyone now needs to think about the strategic imperatives and costs of owning AI – which turns it into an industrial capabilities’ arms race.
Put all these bits together alongside the unsustainable valuations in AI and AI adjacent stocks, and the Gold Rush begins to look a tad tired. Throughout history enthusiastic investors have clung to dangerous beliefs like “this time it’s different” and “the upside is unlimited” and bought into bubbles like tulips, pets.com and now SpaceX. We never learn.
The second big theme has been Geopolitics.
The Morning Porridge tends to be more geopolitically flavoured than other market breakfast cereals. The historical ebb and flow of power as nations compete for commercial dominance is one of the major drivers of markets.
The success and exceptionalism of the USA over the past 120 years was due to its inventiveness, its ability to produce at scale, and the depth and efficiency of its capital markets to finance successful firms. But over the 120 years of the American era as global hegemon, the global economy has evolved. The great news is growth raised global prosperity, wealth and happiness – but has it now hit the buffers?
America remains exceedingly wealthy and successful but has morphed into a successful service and tech-innovating economy. That’s enabled the rest of the world an element of catch up, and now its China, the dominant manufacturing power as cheapest to produce, and an exporter of global deflation, that is challenging. Today China leads in an increasing number of technical and consumer sectors and holds many power levers – like rare-earths. Its economy is not perfect, but it is a dominant trading partner, which gives it enormous geopolitical heft.
Every 120 years, the 2K cycle, we tend to have hegemonic challenge between the leading nations. That’s often a time of increased tension and conflict risk as the leading nations compete for power and influence, and that is very much the case today. Around the globe, the non-challenging nations are watching to figure out how their future trade and alliances will develop.
2026 has been fascinating from the perspective of Geopolitical Shifts across friction points. Generally, China has been pulling its’ strings quietly, while President Trump has been full-on to demonstrate the USA is still top dog. Emperor Xi of China chose not to interrupt as Trump made mistakes.
In 2025 Trump decided to bully the rest of the World to America’s will – imposing draconian trade tariffs while threatening its allies with a loss of the American defence umbrella unless they fell in line. Generally, they humoured him with fake praise and state visits. In 2026 Trump flexed his military muscle in Venezuela, demonstrating just what American exceptionalism can do to cow a small nation to its will. But, when he tried the same trick in Iran it backfired massively, triggering huge economic consequences from the apparently unanticipated closure of Hormuz and demonstrating America has the power to turn rubble into dust, but not to close out a war – which would require boots on the ground.
The consequences of the US losing the Iran War, its kow-towing of Moscow over Ukraine, the farce of the “Board of Peace” and a host of other embarrassing moments raise questions about the global reach, power and influence of America as hegemon. The downside consequences could be massive. Although markets have welcomed the apparent peace in the Gulf, the effects of rising oil prices and broken supply chains could take months to work through, and it’s unclear what else will change in terms of alliances. The biggest issues could yet prove to be on the US dollar’s “exorbitant privilege” and what that means for the US Treasury market.
Later this year is the possibility Trump will be neutered by the US mid-term elections, leaving him a lame duck with a bark and no bite. That could dramatically change political and investment perspectives towards the USA – especially if the nation becomes even more deeply mired in political polarisation and electoral conflict as the focus shifts to the 2028 election.
The lesson from geopolitics is that the world keeps changing as nations have risen and fallen throughout history. Everything changes. Valar Morghulis.
Theme 3 is the bond markets.
Under Trump the US Debt Clock is heading for $40 trillion of debt at speed. In the UK the government is beholden to keeping the bond market happy though fiscal austerity. Debt quantums are huge, but in the face of rising risk, geopolitical tension, political populism and rising energy demands, the big questions are all about how do nations keep paying for it all, when rates stay high and the economy suffers a market shock – like a sell off of overvalued tech and AI stocks triggering a general crisis?
The good news is: “things are never as bad as we fear, but seldom as good as we hope.” Economies find ways through crisis and trouble. The bad news is that nations going bust face difficult choices. History is littered with examples of how debt destroyed great empires, usually accompanied with a breakdown in the rule of law, rising corruption, social inequality and ultimately a form of revolution. Just saying…
Theme 4 is innovation and threat.
The war in Ukraine has been a terrible thing, but it illustrates hope in terms of how Ukraine has been able to defend itself (and is now even looking a potential winner) through innovation and adaptability. Ukraine has now established itself as the go-to-nation on modern defence, leading in drone warfare, defence procurement platforms and “good-enough” logistics.
What if the next threat isn’t conflict, but a forgotten No-See-Um?
This morning its nice and chilled as I write the Morning Porridge. Last week I was baking as temperatures hit record highs. It looks likely Europe will be hit by further heat domes through the summer. We’re talking about a Super El-Nino event trigger further heat, drought and storms, impacting wild fires and the risk of famine. It’s possible the next few years are going to see Climate Change, Heat and all the consequences thereof hit already stressed economies.
How will Northern Europe address the challenges of cooling homes without Air-con, or the world feed starving masses – the problems could be endless. If we have sudden climate crisis, or who knows what other No-See-Um might hit, then it’s going to be human invention, innovation and adaptability that will provide the solutions – and the opportunities!
We are an inventive, adaptable species… which is why I keep smiling even when I write about how awful things may get….
Out of time and back to the day job!
Bill Blain
Author of the Morning Porridge
CEO Windshift Capital
Advisor – Spitfire Strategic Capital
Meanwhile, don’t forget about my new book:
The Battle For Hamble is a proper grown-up examination of how bureaucracy has failed: a tale of Greedy Corporates, Bad Planning and Economic Illiteracy. It explains how a wholly unnecessary Gravel Quarry will be dug in middle of a prosperous village – putting 6000 jobs at risk. The truth is no one wants gravel, and the quarry company understands it’s not what you dig out, but what you stuff back into a hole in the ground that matters. Gravel sells for £30 a tonne – Landfill earns £150 a tonne to bury. Go figure.
