Blain’s Morning Porridge 5^th June 2025 – Facts outrank the Noise in Markets

“This massive, outrageous, pork-filled Congressional spending bill is a disgusting abomination.”

The market is full of noise, but the facts are more important. The data suggests slowdown is coming. The noise is getting louder as doubts around spending, bonds, inflation and economic slowdown mount. And to cap it all, a fight between Elon Musk and Donald Trump could massively destabilise US Politics.

There is lots of noise in the current market. There are also meaningful facts:

• Japan just held an appalling 30 year JGB (Bond) auction – weak demand, a poor bid/cover, and a wide accepted bid range. It exposes the dearth of appetite for long dated government bonds in the current environment – which hints of global stagflationary fears, but also declining demand for long-dated bonds in an economy where the demographics have already aged.
• JGBs are the “canary in the coal mine” for the global sovereign bond markets.
• Despite weaker than expected US economic data showing fears of slowing in the Beige Book, a slip into contraction territory in the ISM report, and hints tomorrow’s May Jobs Report will be weak, the US Federal Reserve is unlikely to be bounced into early rate cuts to placate an angry Trump.
• Although US rates will inevitably start to fall later this year – foreign purchases of US bonds are falling into a net sales position. That’s bad news for an economy with a huge $36 trillion debt burden to finance. Remind me; what is likely to happen to US bond prices if there are fewer buyers looking to hold them?

There is a rising risk that facts: economic numbers, confidence reports, data, bond yields, foreign sales, all start to cascade this month.

Cascade is an excellent word – it best describes what is likely to happen if the current global bond edifice crumbles. Think of a steep mountain where a single displaced pebble knocks 2 stones out of place, each of which cause 2 rocks to each shunt a couple of boulders downwards. Cascading markets… ouch. Exciting but painful.

If global bond markets start cascading… that’s when things might get really, really messy. It will impact not only bond holders as bond prices collapse, but could lead to a global liquidity shock as other asset prices react by tumbling. When margin calls are triggered, investors will be forced to sell what they can – their most liquid assets, which will be US treasuries – further accelerating the crisis. Think chaotic dominos.

Of course, it might not be so bad. Maybe just a few dominoes fall…. Till now the dire predictions and warnings from bankers, financiers, analysts and commentators about how Trump’s blizzard of policies will lead to recession, slowdown, inflation/stagflation, and trigger a bond crisis, have been muffled by a series of benign numbers – including inflation remaining resolutely low despite the fears of massive tariff based inflation.

I am sending one of my coveted No Sh*t Sherlock awards to the OECD for warning how the global economic outlook has become significantly more challenging. Really? Who knew?

What happens when the numbers start to seriously deteriorate? That’s when the markets will get really, really noisy.

What happens when Trump finds Xi won’t take his call, and China/US trade continues to tumble off a cliff? How is US Treasury Secretary Scott Bessent going to explain that one – he has already admitted China negotiations are “a bit stalled”? Trump says he spoke to Xi recently – but he didn’t. Xi is “extremely hard to make a deal with” because he knows Trump has utterly misplayed the game. The ball in in Xi’s court, and he is holding all the cards.

Last month Trump presented himself as saviour of the US economy after “securing” massive orders for new Boeings from Gulf airlines. China is about to announce a series of massive aircraft orders from Airbus – around 300 aircraft, a move that will infuriate Trump, confirming his paranoia Europe is the real enemy, and its stealing US orders! It will further strengthen political and trade ties in the developing Asia-Mid East-Europe trading barbell.

Take note when Qatar Airways quietly cancels some its recent Boeing options, and orders new A-350s from Airbus instead. (They will cite delivery times as a reason to scale back the order.) Boeing hasn’t won an order in China for nearly 9 years.

What happens when US businesses realise Trump’s promises to close 90 trade deals with 90 countries by July 4^th shows zero deals – except the one embarrassing framework deal with the UK – and nothing but higher costs to reflect tariffs and supply side nightmares? What will voters conclude? Its highly likely both producer and consumer confidence will tumble – accelerating slowdown/recession.

Nearly every single US economic and debt think tank in the US has come out with estimates between $2.4-3 trillion for the increase the Big, Beautiful Bill is likely to add to the US debt burden – yet, Republicans congressmen and senators are increasingly convincing themselves of the delusional narrative that cutting taxes will cut the debt.. The new mantra is “It’s all about growth” they say.

Growth might prove difficult when confidence is dented, yields are soaring, and the economy is increasingly isolated. The OECD sees growth in the US falling from the 2.2% it predicted in March to 1.6% currently, due to the uncertainty Trump has triggered. That’s lethargic and almost European..

Although TACO Trump has now cemented his reputation for spinning in ever-decreasing-cirlces, don’t expect any policy initiatives to change course. Trump has already convinced himself its the Fed’s fault the economy is slowing, rather than the effect on tariff uncertainty on business decision making.

Meanwhile, it looks as if the long-anticipated Trump vs Musk battle is about to erupt.

It could prove a cataclysmic distraction for the Trump presidency.

• Republican politicians know their political careers advance in direct correlation to their degree of Trump sycophancy.
• They are fearful of Musk’s control of the narrative through Twitter/X. In a straight up Musk vs Trump Truth Social vs X – Trump loses.
• Trumps unpredictability sat well with the perception Musk gets things done.
• The Reds know the Mid-terms will be difficult – although Trump’s poll numbers are improving, they could crash again on a fight with Musk.
• Republican politicians crave Trump’s backing, but need Musk’s campaign donations. Which is more the more powerful call?

The truth of Musk’s exit from the White House is becoming clearer. It appears he wanted to stay in place and in charge of DOGE, but was pushed out by the other members of Trump’s inner circle. There are rumours (low probability) his Black Eye might be the outcome of a physical altercation with another cabinet member! (I doubt these stories… does anyone believe the rumoured big hitter could land a right hook?)

The reality is: Musk was a critical swing factor that guided Trump to victory in Nov 2024 – a vital component winning male voters and orchestrating the campaigns’ reach through social media and podcast strategies. There will be a substantial number of voters annoyed to see him go. It’s likely Musk was pushed now in the hope the furore will have died down by November 2026. I doubt it – Musk may be prickly, but he is not a quitter.

Watch how the Trump/Musk battle plays out…

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