Blain’s Morning Porridge 10th Jan 2025: Is Elon Musk Engineering a Gilts/Sterling Crisis?
“Democracy is government by opinion poll. When opinion can be controlled, government will follow.”
Hard Hats to the Ready. Is Elon Musk trying to bring down the UK government by undermining sterling and the Gilts market through lies and disinformation on X? Might sound like conspiracy theory – but that’s what it feels like in the market.
Yesterday…. was interesting.
I was making some calls round the City, chatting about plans for the coming year, and was surprised at how negative some of my contacts were on my comments in y’day’s Porridge absolving Chancellor Rachel Reeves for the current instability in Gilts and Sterling. As something of a mini-run on Sterling developed, I was told it was all due to the market’s loss of confidence in Rachel “Thieves” and Labour in general. One young chap linked the imposition of IHT on Farmers, Grooming Gangs, and higher minimum wages as proof positive Starmer and Reeves plan to destroy the UK.
Fair enough. Everyone is entitled to their opinion.
Labour has made critical mistakes – in tone, delivery and especially in terms of boosting confidence, but generally they are trying to play a straight bat on a very sticky wicket…. (badly) I think they should have come in full of sunshine and happiness, used the debt markets to fund a “repair and rebuild” programme, immediately addressed a massive apartment building plan to ease accommodation insecurity for young workers, and made hope for the future their mantra. Instead.. we got “Things can only get… worse.” Not a great motivational tag line.
But then it struck me: It wasn’t the chaps from my generation of city financiers who were angry, but the younger ones – the folk now running portfolios and trading desks. As the pace of the sterling slide accelerated it suddenly struck me: It almost feels like someone is trying to mount a coup against the elected UK government by taking down sterling, gilts and the nation’s confidence.
There is no sign of a disorderly market in Gilts or sterling – yet. But I fear it still might come.
I was a young syndicate manager during the 1992 Black Wednesday collapse in Sterling, which was a huge political embarrassment for then chancellor Norman Lamont. It was the defining moment of John Major’s miserable years in power. Over the course of the day, the UK was forced out the European Exchange Rate Mechanism – and rates briefly spiked to 16%. As we now know, the attack was orchestrated by George Soros, and executed by his then right-hand man, Scott Bessant, who will become Trump’s Treasury Secretary in 10 days time. What I remember of that day is the sense of inevitability as rates shot up and sterling collapsed. The key lesson is it all happened terribly fast. I’ve seen a few sterling crises over my time – but never one like I sense is infolding around us right now.
The sensible media, (so I haven’t opened the Torygraph this morning), all say this crisis is nothing like the Liz the lettuce Truss crisis of 2022. Then gilts crashed a point in a day on the back of her sheer stupidity. Please, please, I would love Liz Truss’s lawyers, Asserton, to send me the same cease and desist letter they did to the Prime Minister, telling me to stop stating the downright bleeding obvious: “she crashed the economy, gilts and sterling. She is definitionally a numpty. She has the financial credibility of rancid whelk.” Sue me. Go on…
The point I made yesterday was the current slide in bonds is a global phenomenon. It’s been triggered by supply and demand concerns on US debt, which are reflected in similar concerns elsewhere. In normal markets, such issues are nothing unusual and will be priced into the market. In fact, the UK’s numbers and debt structure are considerably better than many other heavily indebted nations.
However, the unprecedented degree of “noise” and deliberate “misinformation” around the current market is what makes me feel like a deliberate assault on Gilts is underway. If I’m right and it succeeds, the current anti-government mood in finance, and the political noise around Rachel Reeves, could swiftly turn chaotic. When events chose to unravel, they choose a speed of their own.
Do I think it could happen overnight…? Perhaps. The Global Bond market is vulnerable, and sterling/gilts particularly so here is a prediction for the next 10 days:
- We’re going to have a full-blown Sterling/Gilts crisis kick off this weekend while Rachel Reeves is in China, hitting European Bonds, (France) early next week, before it triggers a full-scale US Treasury Market sell off on Monday Jan 20th – which will be simply delicious timing.
Relax. Because I just predicted it… such a crash will not happen… but think about it…
In July, the UK looked the most politically stable nation in the Western Alliance. It should have been able to have pursue any sensible series of economic policies. Prime Minister, Sir Keir Starmer and Chancellor Reeves has just won a massive majority in Parliament – replacing the flolloping Tory government that had been in place since 2010.
They came in sounding very sensible and measured, and walked straight into multiple ambushes while showing little “bend” or resilience to changing narratives. The result has been the swiftest collapse in confidence in UK political history.
Despite the scale of the Tory wipeout at the July poll, the opposition have subsequently proved extremely effective – we’ve had Blitzkrieg Politics since the get-go. Every single action by the new Government was swiftly escalated into direct challenges through effective political counter-attacks. (You have to wonder who has been coordinating it – Kemi Badenough and the Tory rump do not strike me as organised or effective political guerilla fighters?)
- Southport riots – became locking up patriots and “threatening” right-wing journalists like Alison Pearson.
- Pensioner Winter Fuel allowance – became a direct attack on anyone old, although many can afford it.
- Farmer IHT – presented to the electorate as a direct assault on farming, although a tiny number will be affected, and it was an attempt to close a tax dodge used by the rich.
- Min wage and Nat Ins – higher wages should have boosted consumption and undone Tory election bribes, but now proof positive Labour are setting out to destroy the economy.
In a normal world I would be full of admiration for such effective opposition. But this is not a normal world.
What’s changed is the full force of Elon Musk and X is now trained on Kier Starmer. I have senior bankers telling me they can’t believe I give any credence to Musk’s disinformation campaign against Labour, but I fear they don’t grasp just how much the world has changed. Musk, and his strategists, understand the power, reach and influence of social media to change the dialog, and how its amplified in the mainstream. More to the point they are unconstrained and willing to use it.
The thing is it doesn’t matter what I think. It’s what market thinks that matters – and what shocks me is how many 30-40 year old city types absolutely buy what Musk is telling them. Old blokes like me see Musk for what he is…. Many of our younger colleagues believe in him. That is what Musk understands about the power of X – it allow him to project his beliefs.
For a Gilts crisis to occur its not facts that matter – it’s what the market thinks, and I fear what the market thinks is what Musk wants it to think!
My gut-feel is this is going to get dramatically worse because confidence in the political competency of the UK Labour government, and Rachel Reeves in particular, has been undermined. Although markets are orderly – there isn’t the out-of-sight Liability Driven Investment mark-to-market trap underlying a dramatic sell off – it feels like this could spiral into a full-blown sterling/gilts crisis. The way extreme misinformation has taken over and dominates the flow, people are believing what they think they want to believe, driven by the sheer scale of Musk’s efforts to destabilise the UK’s elected govt. That’s why I say this feels like deliberate and intentional destabilisation.
Under the Virtuous Sov Trinity theory – that a nation with a strong currency, sustainable bond market and political competency will thrive – when political competency is blown… then all hell follows. With its massive majority there would be no reason for the Govt to fall, but it will be lame ducked if Reeves is forced to resign… it will leave the UK’s financial competency in tatters.. recovery hamstrung for years. And it would neatly deflect any negative commentary about the USA as Trump takes control.
I would recommend having your hard hats close at hand..
Have a great weekend.. Out of time and back to the day job..
Bill Blain
Author of The Morning Porridge
22 Comments
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I’ve heard a very credible theory that Musk is targeting the UK government because of the (Ofcom’s) upcoming “Online Safety Bill”, which will be a major issue for X as he will need to either increase censorship on the platform, or face huge fines. If not that, then it’s difficult to understand why he would have any interest in this backwater about which he clearly knows very little.
But I totally agree with your sentiment about the danger he poses (to UK and the world).
I believe a new special circle of hell is being prepared for Musk and Zuckerberg…. 8.1 reserved for social media enablers of lies and misinformation….
Bill, while opinions on Musk may vary, the reality of the current tax changes cannot be ignored. The increase in employers’ National Insurance and the reduction of the threshold to £5,000 is placing an additional burden of approximately £1,000 per employee on my small business clients. For those with large part-time workforces—such as my care provider client operating on fixed-price contracts with local authorities—this could be catastrophic, potentially driving them out of business.
As for taxation, the Labour Party made promises that they have since failed to honour using lawyer words to technically justify what they have done.
Then, they have consistently talked down the state of the economy, and Starmer’s approach to the public often resembles that of a prosecutor with the defence, rather than a leader inspiring trust and collaboration.
Rob – yes Labour have made mistakes and has the communication skills of a brain-damaged gnat. But… at same time they have made tough decisions – courageous in Yes Minister terms (decisions so good they will cost them the next election).
But.. the point is.. do these justify the destruction of the economy by outside forces?
Damn you Bill! This was the outline for my note for this weekend. Very good but back to the drawing board for the 🐿️!!
Squirrel – use it… tell you what, send it in whole to the Blind Squirrel readership (complete with invite to subscribe to the Porridge) and tell them I knicked the idea from you? ;)
Bill
Great post this morning and I couldn’t agree more with you.
It feels as if some very dark forces are out there uk to all sorts of shenanigans.
Lots of uttter bs being pedalled and many people believing it. The whole grooming issue is nasty, with the underlying narrative basically suggesting Starmer et al are defenders of peados and therefore ….
That’s one front. The second is the economy and ‘Reeves the thief’ narrative. The fact that people are now even using these trumpian sound bites that have been adroitly slipped into mainstream consciousness illustrates where our politics is now at; fractious, divided and deeply mis informed.
It’s worrying as this deliberate confusion of the electorate is like something out of a Russian deep ops playbook.
Seemingly governments can now be brought down if you generate enough noise and discontent on social media as this then feeds into mainstream media.
Very disturbing how events are unfolding. I have no idea who the main actors are or what their ultimate intentions are but it would appear they are willing to destroy the country for their own gain.
The new game- instead of debating matters of policy with the best arguments winning out, create echo chambers of noise via social media which, if enough noise is generated, get mainstream media attention, as social media now seems to be much of what the mainstream media now report on. Create anger and confusion to hopefully create crisis of confidence, thus creating a leadership crisis and who knows, maybe triggering calls for a general election. Essentially, a coup.
Salary £25k
2024 2025 Emp NI £2194
2025 2026 Emp NI £3000
Percentage increase in Emp NI payable 36.7%
How could a competent Chancellor not foresee the reaction and consequences to this change? It’s incredible. If they can’t anticipate something like this how can anyone have any confidence in anything else they do?
We can’t, this is the crux of the matter, so there’s a complete lack of confidence in the Government.
There is an awful lot of noise about how damaging the NI hike has been to business. In my own village all the pubs are in trouble..
Yes. It hurts.
But it simply reversed previous Tory cuts.
Does it force business to close or get more efficient? Costs cut be cut by slashing staff or stemming dividends and senior exec pay.
It’s not as simple as you paint.
I don’t think Employer’s NI has ever been as high?
The reason governments begun to focus on it is because people don’t see it on their payslips, so usually they’re unaware of it.
This however is a step too far and very predictable, many more know about it now.
What is beggars belief is how this country has endured 15 years of Tory austerity, evidenced by crumbling schools, NHS waiting lists, pot holes in roads, non existent trains, Tory incompetence, corruption and nepotism, the harshest austerity measures in Europe second only to Spain and Greece post 2008, yet supposedly all our woes are as a result of a six month old Labour government? You may dislike Labour and some of the decisions they have made but please take a step back and reflect on the last 15 years.
I would characterise the current anger slightly differently:
Many people will have blindly (or otherwise) voted Labour last summer in the hope of “change” that might rectify the damage from the previous 15 years of austerity and mismanagement.
It is I believe these people who are most disappointed in New New Labour having discovered that they are going to do absolutely nothing to fix the mess and are in fact hell bent on more of the same austerity with a view to “cutting our way to prosperity”.
People are rightly furious that there will be no money to spend on schools, hospitals, social care, roads, railways, local government services etc. They thought they were voting for “change” not “more of the same”.
This of course reflects the sad state of political and current affairs debate / coverage in this country. Had the electorate read or been properly informed of the p*ss poor, more austerity, same old same old, nothing to see here manifesto (as some of us did) then they would have no grounds for disappointment because we are in fact getting exactly what we were promised by Starmer et al – Sweet F*** All.
Either way, I don’t think you can expect people to be “happy” about it whether they knew it was coming or not. What do they say? Marry in haste…
Very fair point Philip.
Folk voted Labour believing they would magically reverse the wasted 14 years of Toryism… and when they didn’t they are now upset.
Last night – in the yacht club – I was told King Charles should use his power to dismiss parliament (I don’t believe such a power exists, but when I said so was told, the military will support him.. FFS!) and appoint a new government. Really? C’mon….
Of who?
The reality is the UK needs to be fixed. And that means lots of very hard decisions.
Would you appoint Kemi Badenough to not spend the money we dont have? Or Nigel Farage to not fix anything? Or Ed Davies to smile his way through doing nothing?
There are no easy answers, but I do believe we need to set priorities: That requires agreement not polarisation.
1) Accommodation for young workers in inner cities- so they can work and begin creating families. 2 bed flats at speed. Massive consequences.
2) Defence –
3) Reform Govt Pensions – before the costs overwhelm the economy and are 120% of tax take. If half the civil service leave – so be it.
4) Sorting the NHS – to save the village we had to destroy it.
5) Energy Policy
6) Infrastructure
BB
Bill,
Excellent porridge this morning.
Amused myself by delving into the MP archives to remind myself of:
1) 29/10/24 MP – “Has someone got it in for the GILTS market” – prescience or what?
2) 4/9/24 – “Blow out Gilt success” – 4.375% (3/8ths to me) 2040 Gilt issue 14x covered at 4bps over secondaries. Bet Ms Pulay doesn’t think it is quite so easy now?
Let’s see what the weekend brings.
That’s a very good point I should have raised in the MP on Friday.
Recent gilt auctions saw one did not do terribly well – on Tuesday I think – but the others did very well. Even the poor one would have counted as OK in normal circumstances. This suits the narrative this is just noise.
However, I do sincerely believe this gets worse as Musk doubles down the assaults on the market!
Bill,
I had a sad little smile on my face reading your lamentation about the lies on X, and enduring the fallout from such. Don’t you remember C-19 era twitter? And as far as lying to the public, OMG, you don’t have to look far into the windows of the White House to see the staff trying to cover all traces of how they lied about Biden for the entire term. Apologies, I imagine this is tempest in a teapot in the colonies in your eyes but seems a little pot and kettle calling. I always appreciate your levelheadedness, so will take you at your word when you issue the warning, but seems like we’ve been talking about some kind of reality check on markets and the economy for years now, only waiting for a trigger? If the young guns haven’t endured this kind of thing, well, get out the Kleenex, lock the windows, and find a dusty bottle of something stiff to help soften the blow.
There is a particularly nice bottle of something aged from the Pomerol’s bank that will meet its destiny this evening. I will be decanted and enjoyed… even as the baying mobs are smashing down the gates…. and ripping down the foundations of the state….
Twas ever thus..
Bill,
There is a lot I agree about in this article , Labour has shot itself and long end gilt yields in the foot with the above current inflation pay rises to the public sector, and by implication future index linked unfunded pensions. Add to this the raid on private sector employers NI contributions and increase in minimum wage. To me who started in the City in 1976 I can see a few similarities with the late Dennis Healey as chancellor. hopefully we won’t need the IMF this time!.. Markets particularly longer Gilts are vulnerable unless future public sector pay increases go hand in hand with downgrading of their pensions over a period of time.Perhaps the Australian system may work for us ,and provide better value for the private sector tax payer…
Thought-provoking as ever, although I think you’re in a minority defending the competence of Reeves et al. But what was very interesting was not only the FT piece by Peter Thiel today, but the comments section. This was full of people not just clutching their pearls but massively hyperventilating, which must tell you something about the new world we’re living in. This is a convoluted way of saying your instinct that weird stuff can happen very quickly in 2025 if the right/wrong stars align on social media is quite possibly bang-on. Revolutionary times, now the trainer-wheels and guardrails have been removed(which was the point of Thiel’s piece, as I read it.)
Peter’s piece: a time for reconciliation – https://www.ft.com/content/a46cb128-1f74-4621-ab0b-242a76583105
Nails it
https://youtu.be/diHcpZvBjT0?si=Zh3hoiYY3m8yX9jy
Yes. Ian Hyslop and Andrew Marr are excellent. The problem is anyone pointing this out is howling against the Gale!