Blain’s Morning Porridge, June 10^th 2025 – While America Burns, Watch the Bond Market

“Ten thousand Watsui warriors armed to the teeth with kiwi fruit and guava halves, instead of taking prisoners, we simply made a huge fruit salad.”

Trump has deliberately escalated domestic protests in California into a test of National Will by federalising the Marines. What will it mean for markets? Global Investors will become become increasingly concerned at how distracted Trump is as the Bond Market looks increasingly unsustainable.

Wow. Welcome to the drama triangle….

It’s not as if there isn’t enough excitement in the markets from trade-wars, alliances unravelling, naked greed and corruption, last week’s Musk/Trump handbags, signs of impending recession and slowdown, and rising doubts on the sustainability of the US Treasuries as America’s burgeoning deficit threatens to go stratospheric. And now, Trump seeks to distract from these distractions by opening up an internal second front versus the states he rationalises as defying him. Isn’t that a bit, well, daft?

Trump has chosen this moment to escalate – identifying the enemy within to his MAGA audience. Will he have California Governor Newsom arrested? That would be…. “interesting” in the Chinese sense of the word.

Many parts of the world still see the USA as the hegemonic power, with the power to set the terms of global trade, alliances, and impose its will on conflict. These are all aspects of American exceptionalism and power that TACO Trump promised to deliver. Now he is unleashing US military might on its own citizens, who, admittedly, are armed to the teeth with placards and small rocks, while aggressively taking hostile selfies… What does that say about the USA today?

There is little to laugh about.

What are the implications for markets; the dollar, the investible outlook for US stocks, and the US Bond Markets – wherein lies the ultimate truth? Meh. We’d probably like to look the other way, kind of shocked, trying to pretend it’s not happening. And we will probably have to deal with Trump undermining the US Federal Reserve by announcing Jay Powell’s replacement ahead of the end of his mandate… effectively giving us 2 Fed Heads.

The California National Guard and US Marines on the streets of LA to deal with relatively modest civil disorder should hardly be a surprise to anyone with even a mild interest in what’s happening to American democracy. A show-down with a leading Democrat governor in a blue-state was exactly the opportunity Trump was looking for. In the next few days anti-ICE protests are planned around the USA – and Trump is unlikely to pass-up any opportunity to demonstrate how US power has conclusively shifted to him.

By-passing the supine Congress and Senate, and with the connivance of his tame judiciary, Trump has concentrated power and the narrative in the actions of his Presidency, over-turning the checks and balances of the constitution. It’s the Project 2025 101 playbook: ensure long-term right-wing government by consolidating power in the presidency. That, as we are constantly reminded, is what America voted for.

You can just imagine what happens next. Later this week, some over-enthusiastic protestor will throw a stone at a police car in a Democrat state, and the next thing is Trump justifying how US Troops “courageously” quelled a dangerous insurrection of left-wing progressive jihadists. He will be surrounded by his usual crowd of sycophants praising his vision and foresight. He will be delighted as his programme of “revenge and retribution” begins to pay dividends. It will be Trump’s 1933 Reichstag Fire moment..

But, if you are a leading global CEO – what are you thinking? Are you going to deliver on your pledge to build new US factories….? When the USA seems to be edging closer to internal conflict would you hold fire to see what happens next? Would you look at alternatives – like investing in Europe or South Asia? Would you try to figure out what your future markets look like if America is going to spend the next 30 years distracted by political polarisation and locked in a damaging cycle of political crises, while growth is occurring else where?

If you a global tech PE investor – what are you thinking? That the clampdown on Universities and the ground breaking research they are doing, and how the racist undertones of the administration mean the best and brightest minds in tech are now heading elsewhere to launch the next new, new thing that will leave current US tech initiatives looking tired, jaded and obsolete? Can Asia, China, Europe and even the UK be the nations that nurture the future sparks of the next Tech updrift and revolution?

If you are a Megastock investor – what are you thinking? That European governments, giving up on trying to deal with Trump on trade decide to clamp down on Google, Facebook and Amazon, demanding social responsibility and an end to the monetisation of European citizens by US tech giants?

If you are a bond investor – what are you thinking? That the Trump administration will be completely distracted from resolving the current trade conflicts, that the deficit is headed out of control, that the dollar is being replaced (therefore ending the Treasury markets’ advantage of the proceeds of global trade in dollars being parked in US bonds) and that confidence in the US’s political competency is under threat?

When the bond market speaks – listen. It barely moved y’day… but it will. Blain’s Virtuous Sovereign Trinity theory is an exceptionally simple way to describe how an economy should function: that a state with a stable currency, a sustainable bond market and political competency should do well. The US is now testing all three. That can only end badly.

Out of time, and back to the day job…

Bill Blain

Author of the Morning Porridge

Founder and CEO of Windshift Capital

Partner Shard Capital