Blain’s Morning Porridge 19^th Dec 2025 – Destabilisation and Peak Exuberance

 “There are more things in Heaven and Earth, Horatio, than are dreamt of in your philosophy.”

 Markets are winding down for the holiday break, but the news flow continues to hint at rising destability and noise, hinting the future economic path will get more twisty and difficult. Lower rates and QE fuelled markets (but not growth) in the 2010s, but won’t work when there is a strong inflationary impulse in place!

LINK TO PODCAST

Unless something dramatic happens in the next two weeks, this is the last Morning Porridge of 2025. I will therefore wish everyone a very Merry Christmas, Solstice or whatever, and a Guid and Prosperous 2026. I have a massive pile of interesting books to read, a recovering wife to look after, friends to spend time with, and a damn smart dog, Dinnerjacket Wrigglebottom (DeeJay to his mates), who takes me out for long walks explaining me the economics of treats. Perfect… nothing to distract me for the next 2 weeks, baring interruptions…

I reckon the coming year is going to be more challenging than we expect – I don’t think we understand just how much the world changed in 2025, or how the consequences are yet to play out. Global uncertainty will remain a destabilising theme – every day there is something new, each of seemingly limited import, but which will add up to a mighty noise:

• Last night’s failure by Europe to act decisively by using seized Russian Assets to finance Ukraine for fear of Fitch Ratings (Who???) downgrading Euroclear, confirms the headless chicken dither in Yoorp over the necessity to take ownership of the War.
• The American President went on National TV for 20 minutes to rant at American voters how good the economy is – the WSJ fact checked him and announced 91% of his claims were bogus.
• The Bank of England narrowly voted to cut rates despite inflation fears… Angels on a pinhead…

Regular readers of the Morning Porridge will know that as a dour Scotsman I am seldom mistaken for a ray of Sunshine. I’ve been bearish on overvalued stock markets and the market’s over-active speculation gland since 2010, the beginning of the QE Era. 16 years is a long time waiting for my negativity to finally fall into place – but who knows…. Maybe this time…

Many market outlooks for 2026 are positive. The look forward to AI productivity gains increasing corporate earnings, rising bonds on falling inflation and lower interest rates – generally a benign win/win economy.

What if they are wrong? I gave have a feeling Global Stocks are close to peak exuberance, witnessed by the shenanigans in AI funding circularity and the extraordinary issues around the Warner bid battle. (More on that below.)

What if 2026 sees further collision between politics and markets. Many expect President Trump’s capture of the Federal Reserve will lead to much lower interest rates, and QE bond/bill buying will keep rates low. That sounds like a repeat of the liquidity flood that hit markets from 2009 which triggered what I saw as massive inflation in financial asset markets – but stock pickers think was the exceptionalism of the US Economy. No – through the whole QE era the real economy remained lethargic.

This time it will be different.

In 2010 there was no underlying inflationary pressure in the global economy recovering from the Great Financial Crisis and collapse of Lehman in 2008 (China was exporting deflation around the globe from cheaper manufacturing). As a result, stocks soared and bond prices went stratospheric, as yields headed towards Zero with limited consequences.

The stock market quadrupled in value although the economy ambled slowly along. Ultra-low interest rates didn’t create real growth, trigger the building of new factories, plant or infrastructure investment, but created a boom in C-Suite bonuses as they borrowed to fund stock buy-backs pushing up board level bonuses. That created the massively increased perception of income-inequality, and workers being left behind, that’s driven the rise in populist populism that’s destabilising democracy in this decade.

Ultra-low rates fuelled speculation on a massive scale, and I would suggest over-valuation and a willingness to believe speculative claptrap remains a feature of the market today. You want proof? Look at the extraordinary valuations of Tesla and SpaceX, and justify them without reference to what Musk or his shills say, but what other firms are doing.

Today there is a very different economic vibe. Inflation has been a clear & present danger since the end of Covid as China flexes and supply chains change. The inflationary genie has been loosed. That may not be a bad thing – interest rates of 4-5% are not particularly onerous – and will help growth economies work down debt. (I must do some digging to uncover research on what the optimal rate for an economy should be.)

The real test is going to be steepening yield curves next year and the threat of persistent inflation and higher borrowing costs, plus perceived job losses from AI, triggering a slowdown, creating real job losses, leading to… high rates, persistent inflation, job losses, slowdown = Stagflation.

When rates are too low and liquidity is too plentiful, they trigger financial asset speculation. The opposite will happen as rates stay high and inflation eats away the core rationale of speculative investments from Telsa to Buttcon. At some point rates and returns encourage entreprenuers and corporates to make real investments – such as is happening in US AI infrastructure… (Even if it is happening on a sea of froth and funding circularity… ie Nvidia investing in OpenAI to pay Oracle to buy Nividia chips… or something like that.)

What amuses me more is “peak exuberance”. If I tried to sell the current story of Oracle, Warner, Paramount, AI, SoftBank and The President, as a film script I’d be laughed out the door… but…

Netflix has made a recommended offer for the good parts of Warner. Paramount has bid for the whole firm – through a well-dodgy looking structure constructed around revocable trusts (Danger, Danger, Will Robinson, Danger) to fiddle the taxes. Larry Ellison is supporting his son (Paramount) to make the acquisition based on how much he can borrow from banks secured on his Oracle stock. Back in May, Larry was briefly the richest man in the world on the back of Oracle’s massive orders to build datacentre compute for OpenAI and was the key part of the $500 bln Stargate Project with OpenAI and SoftBank – which was going to fund it all.

And then – curiously exactly as Elon Musk predicted – it all went South. SoftBank has come up with pennies rather than billions of capital to fund the project. Folk have worked out Oracle is already massively leveraged. Someone remembered OpenAI is yet to turn a profit, and might not do so for years… especially as less than 3% of ChatGPT users pay for a subscription. And to cap it all… smart minds in AI reckon LLM Closed-Weight systems (like OpenAI and most other US tech behemoths) are airships – unlike the not quite so comfortable but faster passenger planes the Chinese SLM Open-Weight systems, and LLM-lite like DeepSeek offer. Dang… Competition, Technology and Financing Threats…

And to make it even more fun… Paramount was going to win the bid because President Trump’s Son in law, Jared Kushner’s Affinity Fund was going to invest in the package. Trump therefore favoured the Ellisons. And then Kushner pulled out – meaning no one is worried what Trump thinks any more… Some think Kushner will declare for Netflix!

This morning everyone and their dog is rushing to buy Fusion linked stocks because “The First Family” (blessings be upon them) have scammed their way into an investment through Trump Media and Technology Group (“a company in search of a business”, according to analyst Peter Schiff, who added its value is based solely on “Trump is the President”.) Y’day Trump’s boys bought into TAE Technologies which has been in Fusion since the 1990s, and intends to build a plant to produce Fusion power by 2031.

One day fusion will happen. There are still multiple obstacles and technical challenges to overcome. The US, the UK, China, Germany, France and Japan are all chasing the tech. When it happens…. It will be competitive..

What else is there to say. I will finish 2025 with lines from Greg Lake’s I believe in Father Christmas:

“They said there’ll be snow at Christmas
They said there’ll be peace on earth
Alleluia Noel be it heaven or hell
The Christmas we get you deserve”

Have a fantastic holiday season. The Morning Porridge will be back in early January… till then… stay Frosty!

Out of time, off to catch a train, and then relax…

Bill Blain

CEO – Windshift Capital

Author – The Morning Porridge

Partner – Shard Capital

Special Advisor – Spitfire Strategic Capital