Blain’s Morning Porridge 1^st July 2025: What lies ahead for the second half of a mad, bad dangerous year?

“I tried to make some sense of it all, but I can see it makes no sense at all…”

What an interesting time we live in. Uncertainty, instability, markets hitting new highs as fears plumb new depths. Nothing to worry about. The global economy and markers are changing. Just how we won’t know till we can see it in the rear-view mirror.

Going on a holiday is a dangerous thing. While I missed the daily detail of market moves, and the hammer’s ding-dong of the data describing the global economy in action…. time out gives me time to think. That raises dangerous thoughts on just what is really going on in the global economy and markets – and I don’t just mean recession/stagflation risks from bad trade policies.

I just spent 10 fantastic days sailing – my absolute joy and passion. I was happy, happy, happy…. But…. I come back with very dark thoughts indeed.

We arrived back in the UK’s number 2 airport just before midnight. We were delayed by the heatwave, and then the plane nearly didn’t take off as two belligerent estuarine drunks turned threatening. Finally, a passport hall of broken machines, no escalators to the exit/luggage hall and all the lifts broken, leaving elderly and infirm passengers stuck. The dilapidated motorways have become permanent job creation schemes, with long sections crawling single lanes (even at half past midnight) or shut for repairs (not that we saw anyone working…)

Small things signalling Big Problems.

Crumbling broken Britain is one metaphor of our times. There are few expectations anything much will ever be fixed. We can tinker or we can get radical – but who is listening? The political system is mired in noise, misinformation, lies and fake news, meaning we barely agree on what the priorities are, let alone suggest work arounds. Each year the UK sinks a little more…

Someone must be blamed. The press is united in its hatred of Labour and contempt for prime-minister Sir Keir Starmer, apparently forgetting less than a year ago (361 days) Rishi Sunak was presiding over the last hours of 14 years of Tory rule. Confidence is our politicians has faded, raising false hopes new saviours will emerge. That’s what the right-wing populists see as their opportunity to seize the economy – big on promises, short on reality, and with zero solutions – except blame other people.

The cycle repeats.

In the US Trump’s MAGA Republicans are trying to force through Tax Cuts that will benefit the wealthy and ultimately crush the poor, while fuelling bond market concerns about spending and the deficit. American politics is no longer about good policy – but how effectively the President demonstrates his power to a cowed legislature. Yet we should not dismiss Trump completely – underneath the disruption and destabilisation – a new post-American-Dream is emerging. Give him credit – he’s trying to force change. Is the right sort of change?

What’s really happening…?

Who knows, but as it’s the half-way point of the year, July 1^st, here are some wild guesses…

The big fear for markets is bond yields. (As soon as markets start to worry about a particular threat, ie bond yields, it pretty much means the actual straw that breaks the market’s back will come from somewhere else!) My bet is private capital markets.

We can see the concerns about bonds in the number of economists arguing burgeoning public deficits will trigger default crises. They show how Governments fail to make tough but necessary political choices about what can and what can’t be saved and where public finances can most effectively be directed. This is especially true in the US and also in the UK, where Starmer’s government faces an insurmountable series of spending demands versus an ever-diminishing tax base and increasing concern about how much bond markets will fund.

Democracy does not come with any warranty. You break it, you own it. Experience teaches us broken democracies slide into authoritarianism, corruption, kleptocracy and division. Some bounce back – like France (repeatedly), other sink deeper and deeper, like Russia.

We are at end of an economic era – the 100 plus years of US economic dominance as global hegemon is waning, exactly as any student of Kondratieff economic cycles would show on a chart. What replaces it is unclear – but it will be different, yet likely remain very familiar. The current global noise makes clear the risks of conflict as the new era emerges.

There are two big issues – what might a new global economy look like and how will it be led?

In terms of what the Western economies will look like, I was struck by this ominous headline in the London Times yesterday: “Entry level jobs plunge by a third since launch of ChatGPT.” I’ve been concerned about “AI” from the get-go. I could write about how all the different bots are now learning from each other. (Yes, 70% of the raw data they digest and then regurgitate as “reasoned thought” is actually filched direct from rival bots…tell me that’s not reinforcing bad data and inaccuracy.)

But how will AI impact global macro? For companies to get rich they need to sell product. That means consumers need to be paid wages in order to consume. Today, companies are valuable because they are extracting higher margins from their products – mainly by keeping wages static. In the future, will it matter if fewer consumers actually have the incomes to consume – will the big, valuable companies, effectively be selling their services to each other… creating value of a sorts, but nothing tangible for society?

Does society matter anymore? At, its most basic, AI replacing workers will further skew inequality. Are today’s AI Tech overlords analogous to the 19^th Century owners of the dark, satanic mills that wage-enslaved the workers of the industrial revolution? Or am I being a luddite?

Or will confidence in markets collapse when Trump effectively reverses the independence of the Fed when he undermines Jay Powell by announcing a new parallel Fed Head? Or will Trump’s battle to overturn Biden’s renewable energy subsidies to return America to a golden age of Gas, Oil and the internal combustion prove a massive mistake as the rest of the global economy snaps up Chinese renewable exports as temperatures soar? (It was damn hot in Greece last week – my Greek chums are very worried about how quickly the switch to extreme heat is happening.)

The second aspect is politics.

I’ve always been convinced that politics are a vital component of markets and the economy. If there is one thing to read this morning, its Mark Blyth’s analysis of the Political/Markets construct in The Atlantic: The World Economy is on the Brink of Epochal Change. Mark is a chum and professor of political economy at Brown University in the US.

He identifies how: “Capitalism’s operating system is due for a major upgrade. How that turns out depends on enormously consequential political choices.” He is not expecting a return to the previous social democratic consensus and political balance, but advises how we need to understand just how the rise of right-wing populist politics will fundamentally change what capitalism looks like, and how the global economy works. It needs a reset. Its already happening.

He terms what Trump is setting out to achieve as “regressive modernisation“, describing it as an: “economic ideal derived from a blend of the 1950s, which saw a huge expansion of manufacturing jobs for men, and the ’40s, when women were pushed out of the wartime jobs and back into the home, and immigration was tightly restricted. This boost for the native labour force is in turn yoked to a 19th-century, mercantilist “spheres of influence” foreign policy.”

He also identifies the Dark Enlightenment of Libertarian Tech Billionaires competing for economic power: “Overinvested in AI and keen to grab government funding that was earmarked for elite research universities, the Silicon Valley billionaires imagine an economy that runs not as a return to hard-hat industry’s glorious past but as a posthuman future of automation and space exploration.”

At the other end of the spectrum we have Congresswoman Alexandria Ocasio-Cortez and Senator Bernie Sanders attempting to rally the left under an anti-oligarch banner. That will be interesting to watch – will it successfully attract young men? (At the risk of being crude, I admit part of my attraction to socialism at University was because the most interesting and clever girls were all Labour supporters!)

Somewhere in the middle ground is where the new American economy is likely to settle – if it can find stability. It will likely be a rebuttal of much of MAGA, where we will shortly see just how many iPhones made in America Apple is selling. Clue: Zero. Or will America become like the UK, gradual decay into a dim memory of earlier glories?

As all these many forces battle for the electorate, its likely to remain a contentious time until a new consensus emerges that meets the needs of the millions of Americans and European who will remain essentially shut-out, alienated and denied a share of the undoubted prosperity new Tech has the capacity to unleash. Who knows what will emerge? Or will something really interesting happen in Central Banking as a lightbulb moment regarding QE, liability management and how to reset economies will lesser inflation risk becomes apparent. I’ve got an idea…

Full Porridge Service restarts tomorrow! Till then… time to play catch up and wash my sailing kit!

Bill Blain

Author, The Morning Porridge

CEO Windshift Capital

Partner Shard Capital