Blain’s Morning Porridge 22^nd July 2024: Kamala Harris spells Volatility, The CrowdStrike Event changes Tech, and Rachel Reeves on the Beeb.

“There is nothing so shocking and unexpected as the brutal, unadulterated, truth.”

So much to write about this morning…. Just some of the questions are:

1. How might Kamala Harris and a closer US election change the economic and market calculus?
2. What does the Crowdstrike omnishambles on Friday tell us about the uncertain foundations of global tech and its’ resilience to instabilities?
3. What did we learn about the UK’s economic prospects from Chancellor Rachel Reeves on Sunday Morning’s BBC interview?

 The USA and Democracy

Bitcoin crashed on the news Biden retired. Crypto, in all its nefarious forms, had been perceived to be the big winner of a Trump second-term on the back of Musk, Theil, Ackman, the Winklevosses, and all the other Crypto fanboy/shysters, funding Trump and his VP pick JD Vance with hundreds of millions of dollars. I wonder what they wanted in return for their largesse? (US Readers – Dripping Sarcasm Alert.)

My Republican chums tell me nothing changes. The market had already priced in Biden stepping down, and a clear Trump Victory “obviously” lies ahead. (Nothing spells uncertain panic as obviously as “obviously”.) This morning bond market yields are down, but everyone is talking about rising volatility ahead of November. Obviously.

Kamala Harris clearly has her faults (many, too many?), but the party was swift to rally round her on Sunday. Leading Democrat figures, including key state governors, and (critically) the biggest donors who came in with £50mm, have pledged their support to her. It’s likely she will be anointed as candidate. Polls this morning show she might be trailing Trump by just 2 points. She can win at least one of the key 6 swing states through her choice of VP.

History is full of battles that were lost by mid-morning being won in the afternoon.

This election is now going to get even uglier and bitter. Very ugly indeed – which means choppy waters for markets. The Trump Party (let’s be honest; the Republican Party is RINO – it is the Court of Donald), will scream foul, and call her every name imaginable – except the two they really fear voters will focus on: that Kamala Harris is a successful woman and of colour.

These could be the deciding factors among the 120,000 or so swing voters in the 6 key swing states and districts who will decide the next president on Nov 5^th. Trump has successfully suborned swathes of the traditional Democrat demographics of Black Men, Hispanic/Latinos, and Suburban Mothers (I am not allowed to say Soccer Mums), to his cause. If Harris can reverse his gains and make inroads back into them – as her leadership against the overturn of Roe-Wade abortion law suggests she can with women, and her tireless efforts to woo younger disaffected Gen-Z voters – then the election is back in play.

While Biden was bound to lose, Kamala’s 2-point deficit means she is merely “likely” to lose – at this stage. Importantly for markets concerned Trump V2.0 will trigger a dollar meltdown, inflation and a bond crisis from the rising deficit, she may do enough to stop Trump winning strong majorities in Congress and the Senate – effectively neutering him for 4 years. The prospect of gridlock, government shut-downs and even technical default should not be ignored. What you might win voting for Harris may be lost by not voting for Trump!

Things could become vastly more volatile if Harris starts to over-take Trump in the polls. It would raise the spectre of chaotic electoral-denial, and the threats of insurrection and potential civil war. Or voters may simply accept Trump was only a marginally more attractive than Biden as a geriatric next president. (Have you noticed how many Trump supporters say they go to every single rally – makes you wonder if anyone else cares as much as that tiny cohort who get all the Trump airtime do?)

Harris will put Trump on the defensive. He will get mean and nasty, exposing his inner Trumpness which is likely to repel many swing voters. In contrast, Harris has everything to play for. She might like to consider appealing to the people rather than battling Trump. Let him insult her, and she can respond by ignoring him. Let the voters recall his “pussy-grabbing” comments, and his sexual abuse conviction – their memories boosted and aided by substantial adverting – and she has to say nothing. The debates will be…. “interesting”.

How much Harris reinvigorates and rallies the Democrat troops remains to be seen.

Other “want-to-be” Democrat presidents will likely hold, calculating the political risk of being beaten by Donald Trump remains high, and it’s too late to finance a campaign for this election. They may hold back support if a successful 2-Term Harris might end their political aspirations for high office. Trump will have a $300mm war-chest this time next week. Harris will inherit Biden’s $100mm of PAC funds (from a total of $250mm pledged to him) fund. Any other candidate will have to raise their own funds from a (probably well-prepared) zero base.

One of the things that has most struck me this year is how many of my die-hard democrat chums from the Clinton and Obama years told me they would vote for Trump, so shocked they were by Biden’s incapacity. When they tell me they’re back in the fold for Harris – then the US election gets really interesting. This morning, I’m getting these emails: “Harris is the candidate Democrats need to win…” etc..

But, the dice remain heavily loaded against Harris and the Democrats. There is one central theme to this year of global elections – CHANGE.

Voters around the Western Democracies are desperately unhappy, perceiving society has marginalised and forgotten then to favour “the elites”. They, quite correctly, blame politics and bad politicians. Inevitably they are voting for change – hence the success of the Right in Europe, Labour and Reform in the UK, and the attractions of the populist Trump and the “opiate” (as described by no less than VP in waiting, JD Vance) of MAGA in the US.

Under Biden the US economy has done well – domestic growth and the success of the green boost are uniquely American positives at this point, but the inflation and budget deficits Biden is blamed for are global phenomena. Biden’s party left it to the courts to address Trump and his populism, but neglected his promise to present younger Democrat leaders to the American people as the future of a successful and strong America – becoming a Sovietesque gerontocracy instead.

That will remain a talking point in the weeks to come. Keep your eyes on the polls, bond yields and the dollar.

CrowdStrike and Tech Resilience

All around the global economy CTOs will be facing difficult questions this morning – how unstable is global tech infrastructure? How resilient is the tech ecosystem of the Global Economy? And, how vulnerable are their own firms?

Friday’s CrowdStrike takedown of Windows due to a single erroneous line of code (apparently) will set everyone thinking about how to ensure it does not happen again – more importantly, “how do we protect ourselves”. That opens a hoard of questions, and perhaps opportunities (including massive new tech budgets to ensure resilience?):

• Firms will be re-evaluating their systems, their reliance on “the Cloud”, and how vulnerable server-farms and data centres (which is what the Cloud actually is), are to further accidental or deliberate cyber-strikes?
• Should data and servers, (and open vs closed architecture) be brought “OnPrem” to ensure security an operability?
• How vulnerable would the global economy be to critical internet communication nodes being taken down by cyber-attack, or out by hard weapons? (This includes submarine optic cables where the Ruskies have developed a capability.)
• How vulnerable is Microsoft’s open architecture, and thus its Azure cloud product – interesting Microsoft stock has hardly budged? Would closed systems, like Apple IOS, be more secure?
• The tech-driven economy relies on a host of less well-known firms to service the plumbing, but reliable and resilient are they? These Tech service firms are pressured to cut costs and rely on external developers in India, and in many cases, China.
• Tech relies on skilled workers – if the west is outsourcing the intellectual skills from potentially hostile nations…. Then our chances of repairing the damage become thinner.

The CrowdStrike event was significant and shocking, but was a one-off, spotted and addressed within 78 minutes of the flawed update being released. How resilient will the western economy be to a sustained, multi-vector CyberAssault that could presage the next hot or economic War?

Rachel Reeves and Ambulance Chasing The UK economy.

Being grilled by Laura Kuenssberg is no one’s idea of fun, but new UK Chancellor Rachel Reeves came out the experience Sunday morning looking… competent. She was honest – she is going to build homes and infrastructure despite the Nimbys. She is going to pay nurses and doctors more, because that’s the quick fix needed to sort out the waiting lists. She is going to green-light onshore renewables.

Give her credit. The new Labour Government Ambulance just arrived at the crash site and is triaging the victim of the Tory slow motion 14-year car crash. The immediate priority is to stop the body haemorrhaging out. Sticky plasters and bandages at the ready. They are being applied swiftly, and, here, have a painkiller…

These are the short-term fixes.

What I want to hear is the long-term diagnoses, prognosis and treatment plan. How are they going to rebuild UK economic infrastructure, nurture and drive a long-term growth economy, and critically balance the fiscal aspects of the economy. It may be time for some amputations as well – notably the massive costs of bureaucracy and government pensions before they drown the economy.

Out of time, and back to the day job…

Bill Blain

CEO and Founder,

Wind Shift Capital

www.windshift.capital