Blain’s Morning Porridge Dec 15th 2025: Some Big themes for 2026?
“Santa Baby, one thing I forgot, a yacht and the deeds to a platinum mine…”
The Chinese curse about living in “interesting times” is a boon to anyone fascinated by markets. There is no shortage of excitement coming our way next year – everything from conflict threats, renewed inflation, the return of QE, to the Space X IPO. But the thing is… we really don’t know….. we never have!
Being a market commentator comes with a terrible cost – the numbing fear that strikes at 4 am that there is nothing to write about! Dull, boring, predictable markets might be great for bond investors – but they are the curse of the markets’ chattering classes who seek to describe what’s occurring.
Thankfully…. There is no shortage of stuff to write about these days.
There are so many different levels to markets – from the over-arching macro themes of geopolitics, economics, growth, commodities, liquidity and policy & politics, right down to the individual narratives driving individual stocks and bonds. Then there are the themes that weave across markets – like the “speculation on speculation” that drives the crypto markets, or the effects and consequences of how inflationary expectations will impact markets. And the capacity of people to fool themselves and others never ceases to surprise me.
We may be living in an age where General Artificial Intelligence is nearly upon us, when Quantum Computing may shortly crack the biggest problems of health, wealth and prosperity, and Energy is key to everything, but fundamentally…. We are still a bunch of primates recently (in geological terms) out the trees, whose brains are programmed to fight or flight a pride of lions or the hiss of a snake. We obey emotions triggered by dopamine, serotonin, and hormone FOMO – the most powerful force in the financial markets: the Fear of Missing Out. We crave love and companionship, but worship the crass greed of success.
We are not as clever as we think. On that basis… what to expect in 2026?
On Friday I published my Macro threat warning for the coming year – the rising risk of conflict erupting in the South China Seas as a result of China determining the weak President Trump gives them the best opportunity to use their current military advantages to force the outcomes they want in Taiwan. What will hold them back is the how strong they judge the intent of the now fractured Western Block to resist.
Conflict is not a zero-probability risk. I reckon China vs the USA will be a dominant theme through the coming year, as will be Europe vs Russia. These will have significant consequences on markets, supply chains, energy costs, plus the increasing chaos (as the UK’s chief spook will short warn) that Russia is inflicting upon the West.
As a result of deliberate destabilisation and chaos, the potential trajectory of inflation could become increasingly difficult to predict. Imagine the effects of the Russian’s sabotaging global fibre-optic cables, or the Chinese taking out communication satellites? Yet, even as the world changes as the USA as hegemonic leader is challenged, Chinese stocks may prove far more interesting if China really is winning in terms of new tech?
In 2025 the major threat was perceived to be inflation. Trump’s tariffs in April were expected to trigger a major inflationary shock. Instead, we’ve seen the costs absorbed and the consequences hidden. Rather than an inflation shock, we’ve seen something more akin to a consumption speed-bump where the rising cost-of-living has impacted spending, and the failure of governments to address rising costs, declining services, and the increasing perception immigrants are getting all the resources, has fuelled political populism.
As a result, the market commentariat reckon bond markets are increasingly unsafe – one of the major themes of 2025. To be blunt, I’ve never read such utter tosh and nonsense about bonds through my career in the markets as pundits have described US, UK and European bond markets repeatedly on the verge of collapse. If I had a dollar for every time someone has written “Japan bond yields are the canary in the coal mine”, I’d make Elon Musk look a pauper. Bond vigilantes are a story to threaten naughty children..
But, there remain valid bond concerns. Nations without effective bond market access are vulnerable, and even strong nations will trash their markets on moments of political incompetency. In 2026 the challenge for nations like the UK will be for government to demonstrate not only competency, but also some vision on how to fix a broken – and defenceless nation, which can only be done through the bond markets, as further tax rises and miscalculations will lead to a slowing economy.
The consequences of political interference into the markets will be tested by Trump’s appointee to run the Federal Reserve. Already the Fed has embarked on renewed QE – which will likely increase next year as the Fed bends to Trump’s will to keep rates artificially low – a factor that could boost stocks. I’ve written about the risks of creating a Potemkin society many time – some false and shallow.
I am always concerned about bond markets, because in debt yields there is truth…
In the stock markets, there are fantabulous stories… I don’t know how to play equities. I have the problem that being a bond guy I tend to look through the hype and puff and figure out the enternal bond question – is this firm going to repay me? If I doubt that, then why would I buy the stock? While bond markets thrive on predictable expectations, stock markets rise and fall on sentiment and the price of money – make liquidity cheap and plentiful and folk will dive in… as long as you have a great story to tell.
There are four stock themes I am particularly interested to follow next year:
- Space X – as I predicted a few weeks ago Elon Musk will make himself a paper Trillionaire by taking Space X public. I reckon Space X is a great firm – completely changing the basis of a new space industry, just as Tesla created the EV market. But what’s it really worth and what is it? Trips to Mars and the Moon, or putting data-centres into earth orbit are prohibitively expensive and fraught with engineering and tech difficulties. What would Space X be really be worth vs the hype. I will inevitably say SpaceX is over valued, and the market will pay that price. I will be right, but wrong.
- AI – Artificial intellingence is here and its important because, like the internet, it will change the world – but it’s just evolution. Is it a bubble? It threatens to be. i) The debt required for hyperscale built up is debatable and vulnerable. ii) The US LLM Closed systems are vulnerable to cheaper and nearly as good SLM open system Chinese tech adoption, and iii) What if something more interesting comes along?
- Quantum – for years we’ve been told Quantum is only a decade away, but what if it’s just a few months from happening? What if quantum computing will be commercially normal by the end of this decade? How might that change the world?
- Energy – all economic activity depends on energy. To see the flows follow energy. Its exciting…
Of course, these won’t be the only things I expect to be writing about next year… but they give me hope I’ll never be short of stuff to write about!
Out of time and off to do the day job..
Bill Blain
CEO – Windshift Capital
Author – The Morning Porridge
Partner – Shard Capital
Special Advisor – Spitfire Strategic Capital
