Blain’s Morning Porridge, Part 1 Feb 9th, 2026 – Fire Horses, UK Bond Risk, Conflict Risk, and Emperor’s New Clothes Risk!
“Knuckles to Buckles”
The threat board is looking crowded this morning. From UK political risk, escalating conflict risks, a possible credit burp and what happens next in unsustainable narratives – who knows what further No-See-Ums lurk in the background. Yet markets party on. What can possibly go wrong…..?
This is Part One of the Morning Porridge – there will be a later mid-morning comment on Bitcoin to follow (if I get time to finish it.)
I have to start with the Winter Olympics. The TV has been tuned to Milan/Cervino 24/7 in the Blain household over the weekend. Curling is simply fascinating – who knew it was so tactical. Big Air Snowboarding is stunning. The little Japanese fellow looked a lot better dancing on ice than the American’s backflip. The downhill skiing has been – scary. She-who-is-Mrs-Blain broke her leg and ripped her knee ligaments in a shocking sailing accident last August necessitating a complete knee reconstruction. No skiing this year for her – she has only just started walking without crutches. She screamed as we watched US skier Lindsey Vonn take a terrible fall at the top of the Women’s downhill.
Whether it was sensible for Vonn to compete with a torn ACL is not the point… competing is the point. Who would not have wanted her the shot at a fairytale finish to her skiing career? Respect.
Nothing highlights national pride and passion more than 6 Nations Rugby! Scotland lost the Water Polo in Rome’s drenching rain – utterly failing in the Line Out and demonstrating our uncanny ability to snatch defeat from what could have been victory. But the Azzurri are getting better and better every year – and they deserve it, highlighting that nothing stays the same.
She-who-is-Mrs-Blain is Welsh and suffered terribly as the English murdered them. We will seek to avenge our Celtic cousins next week against the Saeson in Edinburgh, but I think we pretty much know how this year’s championship will play out: Azzurri 4th, Scotland 5th and the Wooded Spoon to Wales. The big one will be France vs England in Paris on March 14th – Blue to win.
Back to the markets.. where we have an interesting week’s play ahead.
I typically have a list of five things to worry about on my chalkboard – imminent risks that may occur to wobble or derail global or local markets. This morning, five things caused me wake early; ranging from political risk in bonds, conflict risk, inflation/monetary risk, a credit burp, and “Emperor’s New Clothes” risk (which I will describe below.) All of them are already in motion….
But let’s step back a moment… and look at markets from a different perspective:
Next week (Feb 17th) sees the start of the Chinese Year of the Fire Horse – a sign associated with volatility, conclusions, and swift change. The 12 animals of the Chinese Zodiac inter-react with the 5 elements (wood, fire, earth, metal and water).
Each Animal and Element occur together each 60 years, roughly in line with the widely accepted Western Economic concept of the 60-year long-term Kondratieff cycle. More significantly we are in a period of the 2K cycle of hegemonic change – as China and the USA challenge each other – which occurs every 120 years or so. Historically these are often periods of increased conflict and risk.
According to one of my Chinese chums, the coming Fire Horse year means elevated risks of dramatic and sudden shifts; war, rebellion, natural disasters and fire! 1666 was a Fire Horse year that saw both London and Edo burn to the ground. Already Australia and California are braced for wildfires. Apparently – a critical date is March 3rd when a total lunar eclipse with see a Blood Worm Moon turn red, heralding… who knows what?
Markets today have enough on their plate already – and probably won’t be paying much attention to Chinese mythology. Yet, the Fire Horse risks neatly encapsulated the current divisions and vulnerabilities of the “West” to external conflict threats, and from being undermined from within – by fake news, political destabilisation, grift, corruption, and the apparent roll towards autocracy vs democracy.
Let’s start with just one of the threats on the board – Political Risk and the UK.
Everyone says Japan is the Canary in the Coal Mine for the Global Bond Markets because of rising yields and the quantum of debt. Yet, Sanae Takaichi won a super-majority win last night to hold the premiership by dint of confidence and credibility. The stock market is on a roll. Yes, she still faces massive issues to shake up the aging moribund economy to play to its potential – but the noises sound right.
What if the harbinger of pain for global bond markets is the UK?
It shouldn’t be. The UK’s Gilts market is in technically strong shape with a decent debt maturity structure, the professionalism of the Debt Management Office manging the programme, solid international and domestic demand, and an economy that’s ok rather than brilliant. The UK’s debt to GDP is better than most nations – except Germany. Yet, the UK is yet again challenging France for sheer political dumbf***ery.
The strategists and media manipulators backing Nigel Farage’s reform will be hi-fiving themselves for destabilising the nation as it looks increasingly likely Sir Keir Starmer will be tumbled as the UK’s prime minister. Moscow will be delighted. A Starmer exit could spin the global bond dials as investors fret about what may follow.
Starmer’s longevity as leader has been fatally undermined by the Mandelson affair – a no-see-um event that sums up the dither since his election 20 months ago. His credibility after appointing Mandy as his Trump Whisperer in Washington has been roasted – Mandelson’s long-term political graft and mendacity has been exposed to be of the highest order. His chief of staff, Morgan McSweeney, has fallen on his sword.
The good news is the UK works: Mandelson has been exposed and he will be tried for it. Yet justice being seen to be done won’t count for much if Starmer’s political fall triggers a collapse in perceptions of the UK’s political competency – which feels increasingly inevitable.
The bad news is a weakened UK and a possible bond market wobble on what might come next could not come at a worse time for the UK and Europe.
I have a very simple model for thinking about the market consequences of politics – The Virtuous Sovereign Trinity. It posits any nation with a stable currency, a sustainable bond market and political competency will be broadly ok. We saw the consequences of breaches when the political incompetency of Liz Truss nearly broke the Gilts market in 2022, and way-back in 1992 when US Treasury Secretary Scott Bessent (then working for George Soros) broke sterling.
Plunging the Labour Party into a repeat of the Game of Thrones that saw multiple increasingly ineffective Tory Leaders over the course of their last 8 years in power will not help the UK. To see the effect – watch Gilts and Sterling. The risk is Labour replace the hapless Starmer with something worse, harking back to the black hole of political common sense and ability that was Jeremy Corbyn.
The thing is Starmer has no-one to blame but himself. He is not a bad person, but his political chops have proved him a disappointing prime-minister. No politician can overcome their personality. Lawyers don’t lead – they make and solve problems. Starmer thinks too much and did too little – failing to present the UK with a discernible vision or roadmap back to growth and relevance. None of the big issues identified before the election have been addressed: Growth, Housing, Defence or reforming the NHS before it devours us all. Confidence was required – instead we got negativity about the budget and “Treasury says No” to solutions.
Starmer now has the look of a rabbit in the headlights. He’s failed to lead his cabinet or party – the backbenchers smell weakness, the only thing he abounds in. He’s overseen bad decisions that have adversely impacted businesses and the economy, and he’s allowed the opposition to dominate the narrative and repeatedly spin his policies against him! After 14 years in opposition preparing to govern, Labour has failed to… govern effectively.
And what will follow?
There is no obvious Labour successor or leader with the talent needed to present and lead the nation towards a vison and plan for growth. We will end up with more middling types who think they can lead, or a left-wing firebrand who will Corbynise the party to put gender and welfare politics ahead of repairing broken and defenceless Britain. The dark forces of the Right-Wing and their Blitzkrieg approach to successfully undermine every utterance of Starmer’s ill-fated government will make a Populist Reform government inevitable – and that is unlikely to impress global investors.
It will not impress me. And I know many of the smarter minds on Gilts desks feel the same way. The Treasury, The Bank and the DMO can only keep the market stable for so long if it all goes to hell in a handbasket.
I suspect I will be writing a lot about the Gilts market in coming days…
Which leads me to my second issue this morning – Political Change and Conflict.
Some readers criticise me for the amount of time and attention I pay to Geopolitics and politics (they are very different things). I do so because Markets tend to react to, rather than anticipate, political changes – which can occur with frightening speed.
Who believed the USA could change so much in the space of 12 months? Love him or loath him Trump has upended the current global systems of alliances while the themes stirred up around him, including Epstein, ICE and the politics of his terrible swift sword of retribution, trigger new and potentially destabilising themes in domestic politics.
Thus far markets have not really reacted to the impact of Trump – blithely assuming the system tends to stay the same, and the world doesn’t suddenly upend itself and become something completely different. But it has. Traders and investors are stunned by Trump, making the mistake it’s just background noise, and his unpredictability, venality, inexcusable disrespect, and TACO row-backs mean it’s just the new-normal and can be discounted. That’s a mistake. We are not in a same-as, same-as world any longer.
Wake up and smell the coffee – the consequences of Trump will be long-term and have massive long-term economic consequences. And Trump is not the only factor – he’s is but a symptom in a far wider change agenda that involves technologies, economies, nations and leaders. There concerns are not eased by Chinese mythology and the coming Fire-Horse year, and its warning about volatility!
(I will be up in Edinburgh later this week lecturing on these rising risks to the global consensus at the Edinburgh Business School and giving a lunchtime outlook at the Library of Mistakes on Friday with Edinburgh based US equity masters Walter Scott. I’ll try to post them both on the Morning Porridge website.)
The unpreparedness of Europe and the other Middle Powers (J-CAKE: Japan, Canada, Australasia and Korea) to defend themselves in the new global reality, and the rupture (not transition) with the USA leave our economies massively vulnerable. I am now spending 50% plus of my time (Windshift Capital and Private Capital Markets) raising capital for Spitfire Strategic Capital.
Let me give you a very quick description of Spitfire – check out the website and email me for a fuller chat:
- Spitfire Strategic Capital is a hybrid VC/PE fund investing in defence – focusing on war winning defence platforms to the (J-CAKE) Middle-Nation democracies to swiftly reestablish strategic deterrence following the USA’s strategic repositioning towards its own hemisphere. The fund’s partners bring a strong track record in PE delivery, and a powerful investment thesis based on an understanding of how conflict is evolving. They are supported by an advisory board of former senior military commanders, intelligence chiefs and diplomats, together with “boots-on-the-ground” technical advisors in flashpoints and conflict zones. Spitfire is investing in innovative, adaptive, deliverable, lethal weapons platforms that will allow to nations to swiftly re-establish full-spectrum deterrence on land, sea, sky, space and the cyber-verse.
My take on investing in defence is very simple. If we don’t defend ourselves, then other investments won’t be worth anything.
A quick final comment – I referred to “Emperor’s New Clothes” risk. That’s the risk we all suddenly wake up from the Asset bubble of current markets with a cold dunk of reality – when we realise much of what we currently accept as gospel truths is utter bunkum.
An example might be Musk. He’s on course to be a trillionaire building robotaxis that barely work, robots we don’t need nor can afford, while telling us he’s going to put Datacentres in space in 2 years – impossible when no one has designed a cooling system, computing systems hardened against solar and cosmic radiation, and his Starship rocket simply doesn’t work and can’t deliver them into geo-synch orbits. (May’s mission to the Moon will go up on a Nasa rocket, not a Starship.) If folk start asking Musk difficult questions about delivery, rather than simply accepting his fantabulations… then the risks to a successful SpaceX IPO later this year start to escalate. Just saying…
Out of time, and off to do the day job….
Bill Blain
Author of the Morning Porridge
Advisor – Spitfire Strategic Capital
