The real strength of the US economy is not its military or the dollar’s exorbitant privilege, but the depth of its capital markets - which have financed the most successful economy in history. The risk is not how large the US deficit is, but how sustainable are America’s capital markets to mounting fiscal pressures, market shifts and geopolitical forces?

The tide of American Politics has turned dramatically extreme in recent days. The narrative is no longer about why Trump is haemorrhaging electoral support but has shifted to whether the Democrats can unite to win the Midterms in November and present a credible challenge to Trump’s MAGA successor in the 2028 presidential election. The coming gladiatorial contest between Right and Left populists will be watched closely by concerned global investors.

Markets are all-a-wobble as the AI revolution morphs from a picks and shovels Klondike into a “who is going to make most money” proposition. About time. Who will be the winners and losers in the long-term. In the short-term there is going to be pain and losses as the current high-water retreats.

The UK has 6 relatively new “mega” Local Government Pension Schemes. They are investing in the UK and globally. But are they focused on the right things? Less than 10% of their significant PE assets are managed by UK based firms. They are giving their money to US firms – further deepening the negative feedback loop diminishing UK capital markets.

The next few months are going to get interesting as markets react to the ongoing mess that is the Gulf, rising oil prices, wobbling stocks, rising bond yields, broken supply chains, and the reassessment of the AI “revolution”. Meanwhile, the US political cycle goes into the Mid-Terms. I would suggest everyone reads Regime Change, the new book on Imperial Trump, to understand what the last 18 months has been about.

It’s a wake up and smell the coffee sort of morning in the AI markets. AI is here to stay. Everyone is using it. Why are prices tanking? It’s about competition, adoption and data sovereignty. Maybe it’s time for a rethink? How did it get so huge so fast? That’s a question about overly cheap liquidity and speculation, which is why Tesla’s numbers are so interesting.

NATO has been the core of the Western Alliance and Transatlantic Economy. The men in the ill-fitting Florsheim dress shoes have broken it. What will follow is uncertain, but will clearly impact global markets and geopolitics to an enormous degree. The deepening Atlantic rift puts the need for European defence, sovereignty and resilience right at the top of the priority list.

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...

The success and depth of US capital markets to finance entrepreneurs and successive tech revolutions has been extraordinary – fuelling the exceptionalism of the US economy. In contrast, the UK is more risk adverse towards start-up opportunities. That’s largely cultural, a reflection of the more mature, later-stage British Economy. What will happen when the US economy is also past its top, and following the UK into maturity?

Western economies succeed because bond and stock markets work together. Bond markets enable governments to finance the optimal conditions for invention and innovation, enabling growth and prosperity. Sometimes Markets fall out of line, while Politics are ruled by votes rather than experience – and that’s where the wobbles start to multiply.