Blain’s Morning Porridge 20th, July 2026 – A market running downwind hard and fast is a dangerous thing
“The pessimist complains about the wind; the optimist revels in it; the realist adjusts the sails.”
There may be multiple storms and whirlpools on the horizon, but the market remains convinced it will weather them all. That’s a sign of dangerous times. There are times to let the boat run free, and times to trim the sails and slow before something breaks with catastrophic consequences: will it be the AI Bubble, Debt, Iran & Oil, or a No-See-Um?
Sorry for all the sailing allusions today, but we’re sailing for home after a fantastic week on the Solent. Well done Spain! How did Trump stay awake? I didn’t.
You need to be an optimist to play this market. And an optimist you need to be, because market returns are not based on the brilliance of your own utterly brilliant analysis, but on what the whole herd of the market collectively believes – which is “nothing to overly worry about”. Contrarians are only right when the crowd is proved wrong – which doesn’t happen as much as it should (for reasons discussed below.) The best investors are the ones who can strip out the crowd’s noise – often by taking long-term “patient” views on the basis even the market crowd cannot resist the long-term consequences of financial gravity.
I’ve been thinking about it while sailing in the bright sunshine weather on the South Coast of England. I constantly see parallels between reading the markets and the tau of using the weather and tides to drive the boat.
Today there isn’t much wind – but tomorrow will be a completely different day. When the winds and tides are against (blowing from the direction you wish to sail), it’s hard to make “VMG” (velocity made good) – the equivalent of returns. You need to repeatedly tack, sailing as close to the wind as possible. When the wind is at your back, filling the spinnaker, it can be dangerously easy. (Downwind sailing is like a boom market – joy of joys but knowing there are one thousand and one things that might create mayhem.) The best point of sail is a beam reach – the wind about 70-100 degrees to the bow – then you can set the sails and let the boat take off.
Today, despite the multiple storms over the horizon, and the “here be dragons” signs on the market charts, we are sailing downwind… pushed along by the expectations of AI, growth and the benign looking economic numbers. What can possibly go wrong? Lots. The wind can suddenly change triggering a crash gybe or a catastrophic broach, the tide can turn, or something in the rig or the running gear snaps. In milliseconds a perfect day can go to rack-shit.
I guess willy Odysseus knew it. That is why the best sailors are those who are aware and prepared: “perfect preparation prevents piss-poor performance.” Be prepared for the worst and it will likely never happen. (I spent Sunday checking every piece of running and standing rigging, every block and winch, and taping up anything sharp. Every three years I buy new very expensive rescue flares, replace the 3 oldest lifejackets, and service the life-raft. Over the decades I have never had to fire off a pyrotechnic in earnest, the life-raft remains unused, and only once had a man-overboard event. We rescued her!) Yet, in the end, the sea and the Gods still did for Odysseus, his fleet and all his men… (just saying…)
This market is running hard downwind. It remains priced, if not for perfection, but for sustained upside. And I reckon that’s more psychological rather than technical – optimism over reality. There are clear wobbles ahead – the storms over the horizon, and the whirlpool of fantabulous expectations on the chart.
- The thump on tech valuations shows the AI bubble is reassessing the gap between sky-high expectations and the more mundane likely profitability in what is becoming a commoditised competitive market.
- The unwinnable Iran war would have delivered a much bigger inflation shock (and still may). If China hadn’t scaled back oil imports (using coal and its reserves) we could have seen a much larger oil shock.
- Geopolitical challenge remains a threat to trade and supply chains.
- In bond markets there is truth. And when the US debt clock is spinning up $50 bln per day (I’ve been watching) you have to wonder why everyone is tut-tutting about the UK’s not-quite as perilous debt situation.
However; in life, markets and sailing, it’s often not the rocks you can see, or the ones the chart-plotter and economic outlooks are warning of that sink you. It’s the No-See-Um moments that are often the shockers.
No-See-Ums typically fall into three types:
- There are the external shocks – when something exogenous to the boat or the market occurs. It might be unexpected weather. It might be a sudden market shock – like a levered fund suddenly gating.
- It might be an internal shock, which is why I’m fascinated by the number of market commentators now bringing up “the plumbing” of the markets – what happens if something critical breaks, as happened when short-term debt markets choked in 2007/8 triggering a liquidity crisis.
- The third is market resilience – how much can confidence be shaken, and what are the consequences when it does?
That third aspect, the psychology of markets, is going to be critical when (not if) the next No-See-Em strikes. I’ve long been concerned about institutional memory in markets. The bulk of current trading floor/investment desk staff have never experienced a market event like the 2008 Global Financial Crisis. What they’ve learnt in their careers is the “expectation” central banks and the financial authorities will swiftly step into to avert crisis, manipulate interest rates and flood the market with liquidity – pretty much the playbook through QE, the European Sovereign Debt Crisis and Covid.
When I look at market valuations and try to read the mood of the participants I wonder if the greatest consequence of the 2008 crisis is over-confidence in the stability of the system. Markets should reward proven profits with upside, but today it feels that the expectation of stock upside is driving profit expectations, and that there is little pushback to this notion. The money is driving the valuations – which is the wrong way round.
It happens to various degrees across different parts of the speculative markets. In the crypto markets there is still the full-on madness of quasi-religious belief in whatever incredulous thing they can be persuaded to believe in. In the wilder end of the stock markets there is the notion trillions of dollars will be made in space (although the SpaceX rocket-ship has now fizzled, doing the usual tech IPO thing of crashing below its issue price as more stock comes online). The thoughtful part of the tech market is waking up to the reality that too many datacentres are too many and that competition, not dominance, is the likely future.
As for Debt… well the UK is going to be an interesting test-case. Today, the UK gets a new Premier, Andy Burnham. Already the Torygraph is demanding his resignation because he will sink the gilts market, tax everyone to the nth degree, and is a communist/socialist danger to the moral fibre of Olde England… yada, yada, yada. The reality, of course, is Burnham will be hamstrung by the system decades of two-party politics has created and will face difficult choices about what the Government can and can’t afford, and how to split the funding between the risks of bond market or tax-payer revolts.
My guess is Burnham will prove less disappointing than Sir Keir Starmer, and less dangerous and destabilising than Liz Truss… but let us wait and see…
In the meantime… I am about to cast the lines and head off into the blue…
Bill Blain
Author of the Morning Porridge
CEO Windshift Capital
Advisor – Spitfire Strategic Capital
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