Blain’s Late Morning Porridge March 26^th 2025: Trump is not the Problem. The Economy is.

“There are decades when nothing happens, and there are weeks when decades happen.”

We live in interesting times. Markets are see-sawing on the strum et drang of events. It’s critical to cut through the noise, and figure where this all might be going. Once events are in motion, they become increasingly difficult to control. Change is in the air.

Sorry the Porridge has been intermittent these last few days. I’ve been thinking through the consequences and implications for markets and the global outlook in relation to the current pace of sudden change as described this morning’s opening quote: Vladmir Ilyich Lenin’s famous observation about the suddenality of events…. (Admittedly I did much of my thinking on the ski-slopes – where discussions with market-friends informed many of my conclusions…)

Lenin’s comment has been greatly overused by the press in recent days – but serves as a very timely illustration of the sudden, destabilising acceleration of change around us. We are accustomed to a world that is predictable, understandable, while logically sound and stable. We struggle with apparently irrational disruption and noise. We are programmed to seek stability and safety, but the last two months have become increasingly conflicted. Lenin’s point is how cascading “events” can herald massive changes to the economic status quo – in his reality it began with the fall of the Tsar, and the coup against the provisional government that enabled the Bolsheviks to seize power against all expectations. (All enabled by the Germans who understood the simplest way to undermine Russia was stick Lenin on a sealed train. How well did that work for them? Funny how history resonates.)

Sudden change open opportunities for “events’ to redirect history – and such periods seldom occur with any predictability.

Something similar may be happening now. Maybe there is a grand plan. Whatever… I’m not convinced markets understand what the current pace of change might mean. The cascading pace of “events” shows no sign of slowing; instability in Turkey – the cornerstone of Nato’s Southern flank, the US’s most senior War Planners caught using commercial messaging apps (didn’t Trump want Hillary Clinton tried for Treason for using her private email address?), and now JD Vance’s wife being sent to measure the curtains for the US invasion/acquisition of Greenland.

Stock and bond markets are up, down or side-ways, trying to fathom what it all means. The market is skittish to the nuances of the latest news, number, tweet, comment, or executive order. Markets crave certainty and its weighted opinion, (remember, markets are just voting machines), often exhibits confirmation bias blithely assuming mean reversion to stability.

• I suspect that in times like these mean reversion goes out the window (doing a Russian, as we say.)
• In times like this, markets are oft wrong – especially when they don’t see just how much the global axes are shifting.

Short-term I’ve thought about the impact of Trump’ sudden reordering of economic normality, and concluded there is a serious recession risk as supply chains links are dislocated, the globalisation trend that had driven wealth, prosperity and global growth is sent into reverse, and tariff based tantrums lead to disrupted US growth impacting globally. (Give myself a NSS award for that..)

We are now seeing the consequences of impacts in the US economy: I was sent a fascinating analysis of how “unemployment expectations” have surged in the US – as reflected in the unprecedently poor numbers in the University of Michigan Survey. Bad news drivies the worsening employment sentiment, the increasingly serious chatter about recession, Trump’s trade wars and DOGE. The concept government jobs can be tossed around in pursuit of political point scoring is going down badly with many voters. Government employees are waking up to a terrible realisation – that their job security can’t be taken for granted.

How do consumers react when they realise their job security is at risk? They save against the rising insecurity. They cut back on speculative and discretionary spending. They batten down the hatches.

Yet, recent stock market data shows retail investors, perhaps egged on by Reddit Posts, have been “buying the dip”. Institutional investors continue to cut stock market bets. Traditionally rising insecurity would lead to protective investor behaviours, but I fear retail investors will react to the pressure with speculative gambles – putting their last paychecks on Bitcoin, hoping against all rationality they aren’t the last greater fool. I suspect there will be an awful lot more busted retail investors as this unfolds.

The fear of job losses becomes a self-fulfilling prophesy – as more income is transferred to rainy-day savings, the economy contracts. As a result, more government money has to be allocated to welfare programmes – and discretionary spending slows even faster. Any economist knows that the likely outcome of contradictory policy mistakes. I’m not so sure Republican MAGA politicians do – but I won’t say it publicly for fear of upsetting the economic genius of Trump and finding myself barred from the USA.

Medium-term the main issue for markets will be future value of the “American Exceptionalism” premium. The extraordinary relative value of US Stocks is vulnerable as Trump’s tariffs, transactional demands, and threats to seize Greenland, raise “ugly-American” sentiment around the globe. It’s not just Canada that’s gone off their southern neighbours. Can you imagine the effect and consequences of European sanctions on the US if it were to invade Greenland – it seems unthinkable, but….

Long-term are the risks the USA’s “Virtual Sovereign Trinity”. The USA is a successful economy gifted with a super-stable currency, a sustainable and strong bond market judged to be the global risk-free rate, and political competency and reach to support its Global Hegemon Status. That is under pressure and is where Lenin’s pithy observation about the speed of events is happening faster than the market sees:

1. The dollar could become increasingly unstable if it loses its status as the global currency commodities, materials, goods and services are priced across – that is already happening as China pushes global renminbi pricing – its already buying its oil from Russia, Saudi and Venezuela in its’ currency.
2. Undermining the dollar’s prime status will reduce the volumes of international dollars funding US Treasuries, pushing up rates and making the USA’s debt less sustainable. If global buyers retreat from Treasuries the USA will have to raise rates and print money – creating stagflation.
3. Trump’s political inconsistencies are accelerating the USA’s replacement as global hegemonic power. Trump is about America first. If every other nation faces the US with the same perspective – everyone loses. Many will conclude its therefore better to deal elsewhere – hence a permanent trade gain for the new Asia as Europe, the Middle East and South America shift. (See earlier Porridge comments about the New European Middle Sea Economy pitched at Middle East and North Africa.)

However, it’s critical to understand Trump is not the problem – he is a merely a symptom.

Trump is a consequence of the economic and market decisions that have got us to this point in human economic history. He is a very successful populist politician, with an acute feel for the opportunity unhappy electorates present. In that respect he’s no different to many, many other large figures from history – the thing they all have in common is the need for an enemy; someone to blame and unite around.

When folk make the binary choice between Trump the Idiot or Trump the Genius, they fail to grasp the why of his success. Trump won the election because the American people craved deep change across their society. Trump’s campaign (through mastery of the new media, podcasts and the panoply of techniques to win voters through influencers and embedded social media messages) eclipsed the conventional and weak Democrat campaign, which failed to overcome a tsunami of negativity around the Biden Presidency.

Today it is impossible to ask Republican’s any serious political question without being floored by innumerable “whataboutisms” about the terrible Biden years.. They are well prepared with talking points about gender politics, Hunter Biden’s lap-top, but little on the reality that Biden left Trump with a strong US economy.

The key factors that enabled Trump’s success are rooted in economics – including rising income inequality, which accelerated dramatically following the Global Financial Crisis of 2008, ultra-low interest rates and the QE era. It led to the wealthy becoming massively wealthier as the mispriced cost of money made risk look cheap. That factor propelled the massive stock price rises of the 2009-2024 bull market.

US stocks remain massively overvalued relative to economy as an ongoing consequence of the easy-money era: over the 15 years between 2007-2023 the US economy grew 91% from $14.5 trillion to $27.7 trillion. Impressive. However, the US stock market (use the S&P 500) has risen by 497% since 2007 – massively outperforming by a factor of 5 the growth of economy! It strongly suggests the value of “American Exceptionalism” wasn’t just technological prowess, but cheap money.

As stocks are held by the wealthy, and the rewards of that excess-money flowed into tech firms and their highly-rewarded staff in the US cities with tech industries and financial services. That left a clear perception in poorer rural and smokestack parts of the US of being skipped over as the rapidly enriched economy felt wealthier. It was the wealth creation effects of QE that created the groundswell behind MAGA – not just China’s expansion into becoming the world’s cheapest manufacturing centre, hoards of immigrants taking jobs, or poor Republican and Democrat economic decisions, that left them feeling left-behind.

With the immediate economic environment so volatile, we struggle to make sense of it. There are broadly two mainstream reactions:

1) There are many who assume this period is some kind of mad aberration – that Trump’s election was some kind of historical accident, and his venal unpredictability will be exposed. (That’s not really anything more than hoping the problem might just resolve itself….. It might, but probably won’t.)

2) There are those who are trying to rationalise the madness and make sense of it. These include prominent Republicans in their public utterences, falling over each other in sycophancy, but also investment banks, strategists and analysts telling us Trump has a grand-overarching plan. They variously say:

• April 2^nd“Liberation Day” will provide sparkling clarity around Trump’s divisive trade-disrupting tariff strategies.
• There are others telling us there will be “the Mar-a-Lago accord”, which has been described as Trump giving the world the opportunity to fund the USA for the next 100-years at 0% while accepting a weaker dollar and opening their economy to US goods in return for US “protection”.
• Others cite the right-wing Project 2025 – which Trump distanced himself from but has pretty much fully adopted in his flood of executive orders since Jan 20^th.

There is a third strand of emerging opinion – that the era of Trump represents the end of Western Democracy in its current form as out of control state spending, infrastructure projects, and massive unsustainable health, social security and welfare programmes create unfixable problems. They say we need “creative destruction” to roll back the state is required. It sounds very Libertarian philosophy, but its gaining ground among many investment managers I speak with.

Suffice to say we are watching as events continue to unfold at a frightening pace.

Out of Time and Back to the Day Job…

Bill Blain

Author the Morning Porridge

Founder Windshift Capital

Partner Shard Capital