Blain’s Morning Porridge 10th March 2026 – Stalemate in Iran, what’s the next risk?
“They make a desert and call it peace.”
Pretty much as was expected Donald Trump has declared his war almost over. Its not. It has destabilised the global economy. What might be roiled in its wake? One area to watch is how a liquidity default-storm in Private Credit could infect global bond and equity markets, causing a global market crisis.
(Quick comment on this morning’s top line quote. I suspect the Caledonian Picts were the Iranians of their age. In 84 AD the Caledonian chief Calgacus became the first Scotsman to be mentioned by name in the history books when he gave his opinion of Emperor Agricola’s invasion of Scotland. For the record – a later Emperor, Hadrian, gave up and built the famous wall, requiring massive Roman resources to police the Caledonian border for the next 300 years.)
Let’s get on to today’s business…
I am indebted to Will Nutting for the quote of the month: “The USA spent 20-years and trillions of dollars replacing the Taliban with the Taliban. Trump has replaced Ayatollah Khamenei with Ayatollah Khamenei in just 9 days and for less than a $100 billion.”
Joy unconfined as Trump speaks to Putin and then declares the war just about won. A massive market rally is on the cards… The mission objectives changed yet again – it wasn’t about regime change or stopping nukes but bringing back down oil and gas prices!
The truth is the attack on Iran is ending in a stalemate.
American/Israeli dominance in the sky leaves Iran struggling to launch missiles or drones. The life expectancy of missile crews is measured in hours. The launch vehicles can be identified from satellite and drone reconnaissance and engaged in less time than it takes to set up the launch and fire. It may prove more difficult to stop Iran mining the narrow Strait of Hormuz shipping channel or attack ships in transit with their speedboats.
The Americans could continue to bomb Iran at will, but to what purpose? It will simply keep running down already scarce war stocks, while leaving the Middle East in a state of heightened tension. It also means US military assets are not available elsewhere. The US has a limited number of carrier groups to throw at problems. The USS Gerald R. Ford has been at sea for nearly 9 months – close to the limit. It will likely be replaced by the USS George W. Bush which is still in pre-deployment out of Norfolk. If it sails for the Gulf, it will leave the USS George Washington, based in Japan, as the only asset available to address any escalation in the South China Seas for at least 4 months.
Last night we heard brave Iranians shouting out from windows calling for “the Death of Mojtaba”, the new supreme leader.
Yet, Trump’s valedictory pre-victory speech/ramble last night did not contain any mention of the people of Iran overturning the Ayatollahs or the IRGC. Regime change has fallen off his ever-changing agenda. He said the military had been weakened, the war was “pretty much complete” and “operations were ahead of schedule”. He told CBS he was thinking about taking over the Strait of Hormuz – which will be a complex operation.
The truth is there is little to celebrate. The major lesson from Ukraine is how quickly attack tactics and operations evolved – the Iranians will adapt. Iran’s ruling regime have even more reasons to hate the Great Satan.
We’ve just witnessed 10 days of profoundly unsettling geopolitical bluster which has achieved little except heighten global instability. The threat of a second energy shock in 5 years has re-awakened inflation fears, the massive shock and awe deployment of power and destructive capability has left everyone wondering why, the destabilisation of the Gulf States has shown up their vulnerabilities (property and package tours to Dubai will get much, much cheaper!), and it’s yet another reminder to Europe of the importance of effective strategic deterrence.
Step back from the Gulf and look at the bigger picture.
I sense a massive shift coming to markets. The threat of stagflation from a continuing energy shock remains high, the possibility of a geopolitical pushback from Russia and China on trade is very real.
But the real crisis could still be in financial asset markets.
The potential vectors come in two forms: 1) the exuberant froth around the AI sector and the infrastructure build-out, and 2) in recent days there has been much talk of a 2026 “Lehman Brothers moment” – a virulent outbreak of credit-flu erupting out of Private Credit infecting the public debt markets and cross contaminating the global equity markets?
The was a classic quote on Bloomberg last week: “Some of the biggest names in private credit split over whether UBS Group’s forecast of a 15% default rate is accurate. It’s “unequivocally coming”, said Marathon Asset’s Bruce Richard, or way too pessimistic: “actually irresponsible,” opined Mike Arougheti of Ares Management.”
The story suggested AI disruption to software companies could be the trigger for a new wave of Private Credit defaults. The first credit cockroaches as Jamie Dimon would call them have already been seen in the defaults of First Brands, Tricolour and most recently in the UK where the well-dodgy Market Financial Solutions (MFS) property bridge lender collapsed 2 weeks ago with a £1 bln collateral shortfall to lenders including Jefferies and Apollo.
If there is a wider Private Credit crash, it will trigger a liquidity event – just like the 2008 Global financial crisis following the collapse of Lehman. One unbreakable rule of markets is when a liquidity event erupts “a bid is a bid is a bid, and you should hit it harder and faster than the proverbial red-headed stepchild”, according to the chap who taught me trading during the great Perp Crash of 1986!
Through Windshift and Shard I am active in the financing of private assets – lining up alternative credit funds willing to finance practically everything from Aircraft to Zoos as long as I can prove they be paid interest and principal back. (Now I find myself spending more of my time on specific projects – like Spitfire Strategic Capital.) In recent years the Alternative Private Credit market has become a very crowded space. It’s great that everyone wants to invest because of the returns, but everyone wants to make fees, which means the “underwriting” (the deals), have gotten sloppier!
I’ve also noticed how private credit was becoming increasingly institutionalised. I kept running into Jefferies, the US bank, chasing the same deals I was working on. Then a mandate I thought I had on an infrastructure deal was suddenly ripped from under me by Goldman – proving again no Corporate Treasurer every lost his job giving a deal to The Vampyre Squid.
Some of the recent hybrid credit deals I’ve seen have been …. challenging for my credit senses. Like financing datacentres using Chips as security. Some of the recent noise around the sector has been… concerning, like the UBS forecasts of 15% private credit default rate – that seems very high indeed, but not outside the realms of possibility.
Hi-yield defaults following the GFC in 2008 were around 12%. Default rates on collateralised debt, mortgage, and loan structures in 2008 were less than 8% overall (that includes around 20% on unrated 2006/7 vintages) to 5.3% defaults on outstanding rated deals in on 2007 vintages. Collateralised deals claim to be risk mitigated structures because they typically comprise a diversified pool of loans or obligations. Private Credit deals are a loan backed by a single pool of homogenous assets or a single asset. That’s why recoveries on defaulted PC deals tend to be closer to zero.
If we were to see a sudden credit implosion triggered by inflation pushing up rates, or a general flight to liquidity – as I believe is already happening as smart CIOs stress test investments on the back of recent fund gatings (a copy of what happened in 2007/8) we could see rising defaults become a self-fulfilling prophesy – very quickly spreading to corporate bonds and then the equity markets.
Watch the private credit space carefully in coming weeks.
Out of time and back to the day job.
Bill Blain
Author of the Morning Porridge
Advisor – Spitfire Strategic Capital
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So Putin talks to Trump – what did he say to make Trump chicken out again?
Because Trump since hasn’t said a word about the nuclear material that Iran undoubtedly has (60% enriched (i.e. on the cusp of weapons grade) + enough for 11 bombs).
Did Putin tell Trump that Iran already has the bomb and thus to back off (in Trump speak, declare victory when there is none)?
I still think that starting this war was an act of complete stupidity. But ending it now, that smacks of pathetic weakness as well.
p.s. What chance that Trump now does a “side deal” with Putin, ending the sanctions and bringing Russia in from the cold, whilst leaving the Ukrainians twisting in the wind? I think quite likely.