Blain’s Morning Porridge April 22nd 2025 – Stage 2 of the Trump Chaotic Meltdown: The Blame Game
“Watching the people get lairy… I predict a riot…”
This week will be about Jay Powell – how will Trump deal with the resolute Fed chairman? Experience suggests badly. As the effects of tariffs on the US economy begin to bite, and the weakness of Trump’s negotiating positions become increasing clear.. fewer and fewer folk will be talking about buying-the-dip.
As we approach 100 days of Trump some market thinkers reckon Trump has learnt critical lessons and will dial down his flippity-flop destabilisation of the US economy. I disagree. I predict the pace of instability and uncertainty will increase – not diminish. We are moving on from Stage 1; Trump’s initial blitz of headline-grabbing orders and executive over-reach into Stage 2: the blame-game – who will be shot because it isn’t working?
Stage 3; “I had to destroy the nation to save it…” might yet follow.
There are plenty of folk walking round markets looking like freshly stunned chickens – not quite believing the headlines, or how all their cosy assumptions about currencies, rates, markets and politics are unravelling. They can’t quite understand how the world has changed – nor how deep the implications and consequences of Trump will reach. Get used to it. It’s happening. The world is changing. This is a once in 100-years event.
Assume the worst, and you are less likely to be disappointed.
We need to be thinking seriously about the likely outcomes and how to play them. At the moment that remains risk-off, gold and do not press the buy-the-dip button. As this develops expect some major investment pivots away from US risk. It would also be a mistake to think this all happens at a steady pace, that markets will take time to analyse and process each Trump policy mistake, giving him opportunities to reverse them (as he did with tariffs).
No…. What happens during times of rising and chronic crisis is markets start to leap forward to second and third tier derivatives and potential consequences – triggering the acceleration of a crisis into a chaotic meltdown – as we saw happen in 2008.
This week will likely be about Jay Powell and the Fed: will Trump “terminate” “Mr Too Late” for daring to suggest the unprecedented impact of Trump’s policies requires rates to remain elevated? US markets made clear what they thought while Europe celebrated Easter yesterday: bond crashed, stocks fell, and the dollar tumbled.
Next week we might be back to Trade concerns, how little China is hurt, and the “startling” absence of any real trade deals. Trade deals are not made overnight – they take months. There is a strong possibility smoke and mirror Potemkin trade deals may be struck to make Trump look good and garner concessions from him.
Or the pressure might come from Trump’s abysmal failures in geopolitics, Ukraine or Gaza – in each case his art-of-the-deal has seen him negotiate himself from a position of strength into weakness.
After that look for the real-world consequences of tariffs and the numbers starting to bite the US economy – rising inflation, job cuts, data showing recession. The consequences will mount and create rising tension. (At some point you would expect the US Congress and Senate to react…. But… has anyone checked if elected Republicans still got a pulse? US voters do.)
Going back to the Fed, the ever-excellent Robert Armstrong in the FT Unhedged Column this morning says: “Trump probably won’t force Powell out, because that would be a fantastically dumb thing to do.”
Which is exactly why it might happen. It is certainly a non-zero risk.
Trumponomics posits self-inflicted inflation & recession (stagflation) can be countered by cutting interest-rates (and how the tooth-fairy can pay down the deficit.) In the real world… we know neither of these to be true.
The brutal reality of the outlook for US rates, and the likelihood Trump continues to wind up Jay Powell, is a likely acceleration of crisis that comes with the end of dollar homogeneity:
- US Rates will rise as inflation rises – negative real interest rates would only further put global money off holding dollar assets.
- Rates will rise as US Treasuries are increasingly seen by global money as subject to rising Trump/Political Risk. A premium will be demanded.
- Rising rates should be good for the dollar – but the mighty dollar is no longer subject to the upside of American exceptionalism. Gold is the beneficiary. New currency crosses matter more.
- Global investment slows as it watches to see how this ends – even as the US will be consumed by its rising internal political division. The rest of the world will get on with building new trade links.
- There is a non-zero risk this all happens much faster than expected a full US rates/funding crisis morphs into a currency, liquidity, banking, private-assets, deficit crisis at speed.
Normally “the adults in the room” would know how to pull the control rods, but Washington insiders say Scott Bessant and Howard Lutnick (who can each spell global markets and a have a passing familiarity with bonds), have apparently been ostracised by the rest of Trump’s cabinet of yes-men. Whoever speaks to Trump last wins any argument – which is why Trade dunce Peter Navarro is apparently camped outside his door. (Great piece in the Garuniad about Navarro this morning – worth a read.) Thing is.. no one really knows who in is or out in Trump-world. How would Trump’s cabinet rally global central bank support in a crisis if he’s at War with Powell?
Trump has vented his fury that Europe is going to use the deflationary impulse from US/China tariffs to continue easing the ECB rate, while Jay Powell may be forced to simultaneously raise Fed Funds. The temptation to sack Powell will be strong. Armstrong warns Trump might announce a new Fed Head well ahead of Powell’s May 1st 2026 end of term, raising the prospect that competing Fed-in-Waiting guidance will only deepen the growing global perception the USA has gone to hell in the proverbial hand basket.
The bottom line is simple: No one will be queuing up to fund the burgeoning, out-of-control US deficit at negative real interest rates while Trump and his confederacy of dunces continues to trample the US constitution, insult allies, and decry economic reality.
Many of my US republican chums are going dark – privately admitting this is not going well. When they do speak, their justifications for the damage Trump has done to the structure of the US government are phrased in improbably whataboutisms – blaming Hunter Biden’s laptop for the chronic failures and weaknesses in Trump’s negotiating positions.
Meanwhile, back in the real world… CATL, the Chinese battery maker, the largest supplier of batteries to the leading EV makers, including Tesla, has unveiled a host of new battery tech innovations: cheaper, lighter, higher-ranged, faster-charging and sodium-ion batteries for cold resistant travel. 5 minute super-charging to achieve 320 miles range at a price inside conventional ICE vehicles would be a game changer for unevolved petrol heads like myself.
The point is… CATL and BYD now own the pace of EV innovation and evolution. BYD is outselling Tesla 4:1. Deepseek has served notice that US driven AI is prohibitively expensive.
China is rising. Trump has demonstrated America is unreliable. Over the next few months, as political incompetency dominates market thinking, don’t be that surprised as the myth of American exceptionalism is replaced by global money pivoting to Europe and Asia.
Every morning I pray inspiration will hit me with something else to write about… but for now its Trump…
Out of time and back to the day job..
Bill Blain
Author Morning Porridge
Founder Windshift Capital
Partner Shard Capital
4 Comments
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What’s funny is I generally agree with you regarding this post, that is, things may happen much quicker than we are used to, and Trump is going to continue to be Trump. I’m still strangely fascinated at your insistence that China will ultimately be the beneficiary. Trump is chaotic in his megalomania, but Xi is calmly serious about being essentially an emperor. What Trump may hope to do (or be accused of doing) in 100 days, China has been doing since Mao, and even previously when there truly was an emperor. The West has always had strange attraction to China, and I’m wondering if there isn’t a bit of Standard Oil hope? That huge market is too juicy to resist, but at what cost?
Honestly, this is the moment for the people of the EW(U), and chance for you Brits, to step into the void and vacuum up some well needed help with your cat-herding. Good luck with that.
Perhaps we are seeing the apex of US power and influence. Your headline is about the blame game. The Democratic Party has only itself to blame for Trump, both times he won. All they had to do was put forward someone “normal” to win, but they chose H. Clinton and K. Harris. Apologies to those easily triggered, but they are not perceived as normal, and it has nothing to do with race or gender. My preferred candidate is a black woman, but she’s too smart to run.
China will out-survive everyone until they lose control over their ethnic diversity. As Kaplan has said, it will make the Balkans look like a skirmish. I don’t think, though, that the RMB will soon become the choice for international trade, even with the Saudis getting on board recently. Any Fed Charmain blushes to think of what they could do given Xi’s ability to control things, and this is what will ultimately put a kind of cap on that currency.
As for the markets, well, the bubble that’s been inflated since 2010 has only been waiting for a prick. There you go, and thank you Democratic Party. Let’s see what they come up with for 2028.
I agree to an extent. The Democrats have failed America by being poor in power, and invisible as an effective opposition.
The law of Unintended conseqences comes to mind.
Great post today and comment by Steven. As far as Ds and Rs are concerned, a pox on all of their houses for the sheer incompetence of both parties at managing the political process. A double pox on the Rs for their, once again, inability to govern.
Probably not terribly original, but my basic view on this is that Trump’s psychological makeup is going to drive markets. He is an aging, instinct driven, self satisfied person that doesn’t think too deeply and has a profound aversion to “intellectually” driven discussions. Mix in there a messianic complex from the near miss assassination attempt. Lastly, add in a mental model of the world that he needs to generate TV ratings with some some sort of weekly stunt (with a side benefit of a dopamine hit) and that completes the trading picture for me. Weekly and monthly cycles of shock events driving things down with periodic relief rallies when he backs off a bit. At some point the wear and tear on the system will cause something to seriously break. When the market rallies, I buy cheaper puts, metals, and certain currencies. When it plunges, I write puts against my open positions. For now that works for me.