Blain’s Morning Porridge Jan 20^th 2025: The Big Day – $TRUMP, Bonds, China and what next for the UK?

“Let us be lovers, we’ll marry our fortunes together, I’ve got some real estate here in my bag..”

 Trump’s inauguration will come and go. Lots of noise, 100 executive orders. No doubt we will be shocked. Then everything will settle and we will focus on the US/China Relationship and the US Treasury Market. The UK will be left wondering what, if anything, the “special relationship” now means.

Today is the day… All the speculation about how wonderful, transformational, destructive or terrible the next 4 years will be, will be replaced by the fact it’s actually happening. Get over it…. Rule 1 in trading is: buy the rosy expectations, sell the brutal actuality. In terms of Blain’s market mantras, I cite No2: “Things are never as bad as you fear, but seldom as good as you hope.”

I guess the launch of the Trump Meme-coin on Friday says it all.. the $TRUMP coin soared to $70, making it worth $14 bln for Trump’s crypto venture World Liberty Financial. $TRUMP was briefly one of the top performing meme-coins, until it was followed by $MELANIA from his wife on Sunday – which apparently confused the market, causing $TRUMP to fall from $70 to $30! $MELANIA was worth $13 bln at one point. One Crypto commentator said.. “That’s insane..” You’re telling me…

Markets will probably not crumble and fall, or boom overnight. We will get used to a different pace and direction in the games of politics – which may impact bond markets and thus the price of all assets. I’m actually looking forward to the Consequences of Donald J Trump v2 on global markets. If nothing else, I will have plenty to scribble about.

So, relax… enjoy the show.

Things will probably be fine. I’m pretty sure Trump will do and say things that absolutely incense myself and many others not bought into his world view. I am equally sure he will embarrass my many US friends who do support him. But on that basis, I am also quite prepared for the possibility Trump may actually be a good thing – shaking up moribund societies hobbled by over-regulation and wokist death cults. On the other hand, creating jobs to give people meaning and lift society would be an even greater success.

I suspect the next four years will see the US continue to thrive, but there will remain enormous inequalities across the great society which will continue to fester and blight the American dream. You want to Make America Great Again? Then give back the sense of equality of opportunity the USA once represented. A nation dedicated to increasing the wealth of its billionaires would be no success – it would be a shame to watch the USA morphing into a capitalist version of the former USSR’s oligarchy.. but it feels like it could happen.

What should we be watching the next 4 years? Two things stand out: China and the Bond Markets.

Emperor Xi of China was invited to the inauguration and will be represented by his VP. The invite is a clear signal the door to jaw, jaw is open. The relationship between China and the USA is set to define the next 4 years, not just in terms of geopolitical shifts, but global trade and influence. The prices of resources, energy and commodities, and hence rates and stocks depend on how that develops.

My perspective is Xi will be keen to find a re-engagement with Trump’s America – and understands the tariff threats are a negotiation ploy. The Chinese economy requires real growth – which will be boosted by re-enabling trade with the markets of the west, opening up Chinese markets, and engaging on tech. The alternative perspective is China wants a destabilised West to give it the opportunity to take Taiwan – but that would come at enormous cost to trade and growth, which could destabilise Xi. That seems unlikely when both Trump and Xi see the advantage of a deal.

However, I suspect even the US state department misses is just how little the rest of the world cares about who is US President. The US defines the world broadly in terms of i) Allies, ii) nations we trade with, and iii) Enemies. Here in the West we might feel unloved and shocked by Trump, but the developed and oft wealthy nations of group ii;  in the Gulf, South Asia and Latin America are as transactional as Trump. They want access to tech, wealth and prosperity – and are happy to trade with China as with the West. The days of the US/The West dictating trade to group ii emerging nations is over.

The very “concept” of the Western alliance could be the biggest loser under Trump. The degree to which Europe believes in the NATO shield has slumped. Even we Brits no longer expect the US cavalry will coming riding to our Rescue from the Russian bear. However, the reality is neither Russian, North Korea nor Iran is going to move without a nod from China. Their own economies are too instable without Chinese backing. Trumps’ promise to impose peace upon Ukraine will reflect that reality. To some degree NATO and Europe may become a side-show.

The chances of trade engagement are high if Trump engages in global trade negotiations around his tariff threats – which looks more and more likely as he listens to his new court of tech-lords and hedge-funders. The US economy looks resilient and strong. The Chinese – less so as China experiences its own internal crisis akin to 2007 GFC in the West. That’s likely to see China continue stimulus and the restart of growth – which could once again be a deflationary stimulus for the West, but only if trade resumes and grows again.

The big issue for markets will be US Bonds. Where is the Treasury market headed?

The bond fundamentals don’t look good. Treasury Secretary Scott Bessent has made Trump’s demands for further tax cuts core to his programme. The budget deficit will continue to rise – it’s unlikely Musk’s DOGE efforts to cut US spending will find much success. The strength of the dollar has been a significant factor keeping US Bond yields down. Higher oil and energy prices – a factor triggered by new Biden sanctions on Russian oil exports – will keep inflation in focus. At present the dollar and treasuries remain in balance. What happens if they aren’t?

Where US bond yields head will be the best indicator of what the world really thinks of Trump.

Finally, what about the UK?

How will the UK’s “special relationship” with the US stand up to Trump V2? What special relationship? Starmer’s Downing Street and Trump’s White House are singularly lacking much sense of connection. How big a problem is that? A recent poll found less than 11% of Brits would vote for Donald Trump. Elon Musk’s attempts to destabilise the govt have not gone down well. Neither Musk not Trump is.. as they say, our cup of tea. Because the American president, and his sidekick, so dislike the UK electorate’s choice of leadership, does that mean US businesses will stop dealing with us and US Tourists will stop coming? Probably not.

Recently one of my chums in the City declared it was an absolute disgrace that Sir Keir Starmer was not invited to the inauguration when political fellow-travellers like Giorgia Meloni of Italy, Viktor Orban of Hungary, and Javier Milei of Argentina have been. Traditionally, foreign leaders don’t attend inaugurations – sitting around on a cold January day is what you pay ambassadors to do.

Despite that antipathy between MAGA and Labour,  I am greatly amused at the number of great and the good of the UK’s Right Wing who are in Washington for Trump’s coronation. It’s quite embarrassing watching them clamour for preferment from the new King of the Western World. It is likely Starmer’s lack of connection to Trump will become a UK political issue – there is probably already a Torygraph article; “Starmer not invited to meet Trump, he should resign immediately.”

Boris is in Washington today. Liz Truss will be in attendance – still screaming we were all wrong and she is right.. (she might be, but she is still Liz Truss). Pritti Patel – my whole being shudders in fear of what she might say next. Nigel Farage, Nick Candy (but not Aaron Banks who is barred from entry to the US because of his basic dodginess) and a bunch of Reformista’s are there begging for Musk’s money. (Doesn’t Candy have enough of his own?)

Cruella Braverman, the former UK Home Secretary, and her chum Lawrence Fox (conspiracist par excellence, who like Musl has weaponised accusing his enemies of being paeodophiles, and leader of out-there political party “Reclaim”), are also there. Gushingly she told the TV: “Listen, I’ve got the Make America Great Again hat. And listen, it’s an honour to be here and I’m very grateful for the invitation for the inauguration.” She tried to get nominated for the parliamentary seat I live in…. in which case I would be asking questions about who she thinks she is representing?

Out of time and back to the day job…

Bill Blain

Author of the Morning Porridge

www.windshift.capital

billblain@morningporridge.com