Blain’s Morning Porridge June 17^th 2025: The Dangers of Complacency as the Tremblors Mount.

“This used to be a helluva town.”

Global Oil Markets have shrugged off the supply threats. Markets seen unfazed by the economic consequences of trade ructions and tariffs. Rising instability elicits little more than yawns. Are we walking into a crisis?

It feels there is a widening disconnect between markets and the real world. Nope. There is a widening gap between what markets expect and rational outcomes – the two are very different investible concepts. There are always consequences…

The headline news this morning is all about how the oil market has shrugged off what the slagging of Iran’s petroleum facilities means for supply and prices, and is downplaying the potential of the Straight of Hormuz becoming the next war-zone. There is an understanding Israel is committed to removing the Iran threat – permanently. Yet, the likely outcome is seen to be the conflict will be contained, and that Iran will seek some form of cease-fire off-ramp – Donald Trump’s deal. Many think the consequences of such a humiliation (and the decapitation of the regime’s military command structures), could lead to rising internal dissent and the possibility of regime change – which would be seen as a massive opportunity by many! (Some comments on that below.)

How the market is viewing Iran outcomes is in complete contrast to the experience of how the War in Ukraine triggered global inflation as Energy prices came into sharp focus and knocked the European economies. Energy insecurity is Europe’s Achilles heel. Oil price inflation will be even more significant and impactful. It is not a low probability outcome. As Ukraine has shown, wars and conflict threats are not simple, rational or predictable, and require a very wide field of vision to fully comprehend.

The best hedge funds and investment managers are like stately swans swimming upriver. They give the impression of considered unconcern above the surface, but down below their feet are paddling furiously. They are thinking outside the market box to figure how just how dangerous this increasingly unpredictable world and markets are. That does not mean they are uber-bears – in fact they may even be bullish on the opportunities they perceive.

The rest of the market… not so smart. They swim easy with the news flow and the up/down of prices – celebrating their calls on stocks and market direction as genius. Remember the market is not clever – it is just the weighted sum of everyone’s expectations.

Off the top of my head I can’t think of a time when the threat board has been so loaded with potential threats to downside:

• Instability in oil supply.
• Regional instability in Yemen (Houthis) and Hormuz (Iran/Israel)
• Geopolitical challenge
• Global supply chain turmoil.
• Tariff and trade threats
• Rising political risks
• Rising global debt sustainability fears

Yet, it feels the market has pretty much decided these are risks, but not significant ones… They heard the economists warning of massive inflation due to Trump’s tariffs, and an economic crash – hasn’t happened…. (yet?) The market’s current weighed thinking is there will be a minor global slowdown, while US stocks will swiftly adjust to modest cost and wage pressures resulting from Trump policies before a solid recovery. Yep – that sounds a positive outcome. Folk buy that! (They might be right…. But if feels unlikely.)

To trade these markets, you need to understand what the market is thinking… how it is led to the current set of beliefs, and for how much longer these will remain sustainable. Trading can be very cynical, but that’s how traders make money; understanding the market’s psychology and betting on how right and wrong it is.

Traders read the mood and buy into what the market believes. Retail, having read all the doom and gloom, see the markets aren’t crashing but are rising, and return with a vengeance fuelled by FOMO – buying into sectors where the smart money is quietly exiting. The result is a market convinced there is not a problem.

I suspect this will all be reinforced in the next few weeks as investment firms start to brag (or hide) their H1 performance. Some will have been wise, some lucky. The rest will be wondering what they missed. Long term, the smarter you are, the luckier you tend to be… except the thing is to define “term”. I suspect winners over the last few months could ultimately be big losers.

But, but and but again…

Does anyone else remember a truly awful summer blockbuster film: “Earthquake”? Starring Charlton Heston, LA is rocked by a tremblor. The hero is concerned it might have caused more damage than is apparent. Even as he’s trying to persuade the authorities of the danger, the Big One strikes…. Yes, all the signs we there, but they chose to believe a little, small on the Richter Scale, tremblor has relieved all the built in tensions in the San Andreas fault..

For Earthquake read Trump? How big is the complacency risk?

Is the market paying sufficient attention as Iran’s refineries burn, the war in Ukraine approaches a summer danger-point as an emboldened Russia looks certain to pour more troops into the meatgrinder, the G7 meeting ends a talk-talk flop with Trump trying to isolate the UK from the rest (yep, that was what Meloni’s eye-sigh was about), indicators point to a Q3 slowdown, and Trump’s trade deadlines approach?

Or are they considering how the consequences of how latest advances in quantum computing are well ahead of the expected timeline, or how strong new Chinese tech looks? Are they thinking the US Mega-tech stocks have matured into Advertising revenue capture mechanisms to make oversize profits rather than be truly innovative and revolutionary businesses?

Or are they concerned about how increasingly rickety political structures could implode with further gains for populist right-wingers vs the the threat that rising inequality will trigger left-wing revolution?

I’ve never believed in a summer shutdown in markets – I know because the number of summers I’ve spent in the markets is way too many. There is always something going on. But this year it almost feels like the market wants easy options as the summer approaches. That makes the markets very dangerous indeed.

The current instability in the global economy caused by conflict/change threats, the disruptions to trade, and the rising political issues are not normal. They are all things we would have called extraordinary a few years ago, but now shrug over as “just what it is.” I am not sensing the same rising sense of wrongness that underlay markets in the run up to September 2008 – the collapse of Lehman Brothers. That summer we were certain what was coming – and it happened. As banks wobbled, it became clear financialisation deals were unravelling, and the global financial system faced a reset. All through that summer we were busy – frantically trying to unwind client positions. This summer… no one seems particularly bothered.

Are traders and investors simply exhausted by the noise? There is certainly an element of getting-comfortable with the disruption – which is eased by the fact the threatened end of the market world hasn’t happened. The Sturm-und-Drang of Trump’s stream of executive orders, liberation-day tariffs and incessant theats to allies, has not created a global crash – it’s a classic things not as bad as we feared kind of mood.

And that might just be a very false sense of security..

PS – thoughts on Iran Regime Change.

Back in the mid-2010s it looked like Iran would be de-sanctioned and invited to rejoin the global economy. Knowing a number of Persians and admiring their history and culture, I was excited to find myself in Paris to meet Iran businesses and infrastructure teams who, we were told, were seeking external investment. They quickly revealed themselves to being as corrupt as hell. They all wanted kickbacks up-front to “introduce” us to the ministry decision makers, and literally to buy their support. If it wasn’t so serious, it would have been funny. We had introducers who wanted fees for introducing us to next introducer.

It soon became clear how Iran worked – it may call itself a theocracy, but the revolution of 1979 has spawned its own kleptocracy. Corruption among the top cadres within Iran is endemic – and these will be the guys who inevitably will float to the surface. Should there be a revolution – don’t be surprised if the “opportunities” are far less “frictionless” than expected.

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