Blain’s Morning Porridge – October 12^th, 2026: Another Judder Moment as Trump roils the West.

“Be careful if America is your enemy. Be terrified if they are your friend.”

Consequences spread like ripples on a pond. Trump lobbed the bloody great rock of the Iran War into the global economy earlier this year. Now the risks he raised are converging. Inflation, Rates, Trade, Geopolitics and Conflict were thrown into stark relief over the weekend as Trump further roiled markets, and climate risks will be extra spice. How this ends is unclear…

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Key takeaways:

• The consequences of the Iran war are escalating in geopolitics, rising conflict risk, inflation and trade, all putting markets under potential pressure.
• The Super El-Nino threatens a further inflationary spike and could deepen trade instabilities.
• Trump’s comments and US policy have further undermined the confidence and stability of the Western Alliance.
• A Democrat victory in next month’s US Midterms may not solve anything except to ratchet up US political uncertainty.
• Meanwhile, the left-wing in France is proposing to use “Zonk Theory” to manage down France’s unsustainable debt burden. What would work in the UK won’t work in Europe.

This morning’s photo is a container ship She-Who-Is-Mrs Blain snapped while we were sailing over the weekend. It was headed into Southampton, one of the UK’s largest ports. It’s practically empty. There are fewer containers on it than I’ve ever seen in 25 years sailing in the Solent. It may well be it’s come empty from Rotterdam to fill up – but given the state of UK exports… that’s unlikely. Global Trade has shifted. The whole point of container shipping is to stack ‘em high to keep costs down. Since the Iran War kicked off the cost of sending a container from China to Europe has tripled. That is a trade shock the world has not yet fully felt. Throw in shipping bottlenecks (and the possibility the Panama Canal will restrict passage because of drought) … and the outlook is scary.

Small tremblors are a sign of underlying geological instability. Folk living in earthquake zones know the risks but get used to them. But when the scale changes and little tremblors become proper shocks… that’s the Judder Moment. What then might follow?

That was a weekend that was… Ukraine, Saudi, Trump… he never misses the opportunity to roil us all. There will be consequences upon consequences… What might possibly come next?

The Threat Board this morning is looking pretty bleak:

• We face Short Term threats from this week’s inflation numbers – and what these will mean for rates. Central Banks announce their target interest rates, but its markets that determine yields. If inflation continues to present a mounting threat, then demand for longer-dated bonds in already fragile debt markets will tumble, exacerbating the refinancing risks around Government debt. There are doubts government have the wherewithal for further QE if a debt crisis erupts. Put US Treasury and French contagion risks top of board.
• The Medium-Term implications of the Godzilla El Nino in the East Pacific are setting markets on edge for 2027 – threating flood, drought, famine and energy instability on weather events. It raises very real human costs and inflation risks – and bear in mind President Trump declared the climate threat is not real, gutting weather forecasting and emergency response capabilities.
• We had another massive Judder Moment on the Long-Term outlook for the geopolitical alignment of the global economy as Trump lashed out at Ukraine – shocking America’s already deeply concerned allies. The Chinese will be delighted as the Western Alliance crumbles and economic instability mounts. The consequences of Trump’s Iran War are rising and threaten to turn chaotic. The attacks on Saudia Arabia, ongoing war in Ukraine, US Military limitations, and rising instability will increasingly dominate markets. Consequences… consequences.

Two of my colleagues from Spitfire Strategic Capital were in Saudi last week. They saw first-hand how even a well-equipped nation struggles to deal with drone and cruise missile attacks on critical infrastructure. In times of rising instability and conflict – swift, adaptive solutions are critical. Events seem to be moving faster that we have the capability to process or answer. In times like these, markets get tricksy.

We really should not be surprised by Trump’s decision to break the 2022 US laws on buying Russian diesel, his calls for the overthrow of Ukraine’s President Zelensky (and his replacement with someone who will do his bidding), the announcement of ceasefire on Energy targets which neither side had knowledge of (and the Russians immediately broke), and then his threats to pull US intel and Starlink from Ukraine. History is littered with examples of Autocrats caught in bunker mentality, believing in their own genius, ordering Generals to attack with Armies that no longer exist, while the truth is withheld from them by terrified flunkies.

Trump is just another…

The probability markets now predict a 63% chance the Democrats take both House and Senate at the Midterms in just three weeks’ time. In a normal world that would consign Trump to lame duckery and multiple efforts to impeach him. But this is not a normal world – and how weird and destabilising it might get is a massive known unknown. Will Trump use his MAGA PAC to attempt to overturn votes in the court? Will he continue to act the dictator, bypassing Capitol Hill? What might it do to already polarised political opinions?

It must be difficult being one of the many 2024 converts to full on MAGA Republicanism these days. A Republican chum assured me on Jan 6^th, 2021, Trump was finished after the Capitol insurrection. Yet, by Nov 2024 he was fully invested in Trump MAGA. I wonder how he feels this morning as he weighs up the US’s new global reputation, it’s diminished soft and military power, the consequences of Trump on the national finances, or the increased polarisation of the nation?

JD Vance and Marco Rubio must be racking their brains to figure out how they protect themselves when Trump falls – their prospects of succeeding Trump in 2028 are looking “interesting”, but will presidential pardons save the Cabinet from sowing mailbags? After the midterms expect the time-honoured rats and sinking ships simile to appear with monotonous regularity.

I wonder what the many successful hedge-funders, businessmen, founders and conservative voters who decided to come out for Donald J Trump 2 years ago, feel this morning after his betrayal of the Western Alliance, Zelensky and Ukraine over the weekend. It was quite extraordinary – a diesel deal with Moscow? An Energy Ceasefire neither side knew about? And confirmation Trump’s team threatened Zelensky with the withdrawal of US intelligence and Starlink unless he accedes to the President’s demands to stop hurting Moscow.

This is not the America we grew up with… none of this will be easily forgotten. And the consequences that will flow from it point to an increasing unstable geopolitical and market environment.

Meanwhile…A quick discourse on Zonk Theory…

Apparently left-wing French politician and leader of Le France Insoumise, Jean-Luc Melenchon, has been reading the Morning Porridge and what I call Zonk Theory.

The concept of a Zonk Debt write-down is simple. In the UK, the Bank of England holds £500 bln of Gilts as an asset, which are liabilities of the UK Treasury – two sides of the national balance sheet. The idea is to write them off by exchanging these Gilts for a Zero-Coupon Perpetual Asset, which I named Zonk. The Zonk will be a small £500 bln coin with the King’s head on one side. Folk tell me it can’t work because the Gilts have to exist to back the money they created. In practical terms I disagree… the money paid to the nation was created years ago and since nothing is repaid, there is no new cash injection. It’s not a new monetary phenomenon that will trigger new inflation.

Melenchon has suggest this is what France should do. The ECB’s French Branch holds €600 bln of OATs – so to free up that from the national debt would create the headroom he needs to allow everyone French to retire at 60.

However, while such a proposal works fine for the UK, it will not work for France. The UK is a financially sovereign nation. It is in control of its own currency. France is not. Its currency is controlled by the ECB. Any “slightly whoosh” liability management conducted by the ECB to support France would immediately trigger demands the same facility is extended to all Euro member states… at which point it becomes unwieldy, a political rather than accounting football, and the subject of much ill-informed comment in the press.

Were it to happen in the UK, it would be resolved by internal discussion over tea between The Bank in Threadneedle Street and the Treasury in Whitehall… either rejected or quietly agreed and hidden somewhere in The Bank’s quarterly reports…

Out of time, and back to the day job…

Bill Blain

Author of the Morning Porridge
CEO Windshift Capital
Advisor – Spitfire Strategic Capital

Meanwhile, don’t forget about my new book: The Battle for Hamble

You can read a review on the Society of Professional Economist’s website here.