Blain’s Morning Porridge November 2nd, 2026 – The Three-Body Problem for Markets
“Fascism is a counter-revolution against a revolution that never took place.”
Rising market instability looks inevitable as the AI meltdown, the US Midterms and European political riots, and the geopolitical risks from the US vs China hegemonic challenge reach crisis points concurrently. It’s a classic Three Body Problem – making it almost impossible to logically predict what happens next. Sit back and watch for the opportunities – they will emerge, but not where you expect them.
Key Takeaways:
- There is rising market contagion risk as the AI bubble implodes, hitting credit spreads, circularity financing, stocks and liquidity.
- A sharp correction will create potential buying opportunities at attractive valuations.
- The US Midterms are unlikely to change much. There will be deeper polarisation and gridlock as Trump will try to push through despite his TACO reputation. The distraction will focus global investment elsewhere.
- European populism is another source of rising instability reducing the prospect of unified action in policy, growth and defence.
- Fermented Geopolitical distractions will keep the West guessing and force investors to look wider for returns.
- The consequential risks of the current instability include rising political unrest, dysfunctional government, an inability of authorities and regulators to address crisis, and rising inflation and recession risks alongside a more fundamental market selloff.
And so, it begins…
An interesting week ahead for markets might be the understatement of all time… Sit back, relax, and let the world as we know it ferment, and wait to see what coalesces around the outcomes…
World events and market cycles come and go. Some are short cycles, some are long, and all cycles follow familiar tracks of rise, peak, crisis, decline and recovery, with consequent impacts on sentiment. Every cycle generates walls of worry for markets, and opportunities for politicians to fret and panic around. Having seen a good number of market meltdowns and crashes… meh! what’s another?
What worries me more is how this market cycle coincides with the peak of a political cycle and a long-term 2K geopolitical cycle. I reckon that spells trouble. It’s a Three-Body Problem. Unlike the relatively simple maths of Two-Body orbital mechanics, such as how the Earth revolves around the sun, the Three Body Problem – how three celestial bodies might interact – is essentially chaotic. (It’s also the title of a fantastic Sc-Fi novel by Chinese Author Cixin Liu)
The headlines this week will be all about the meltdown in AI, the US Midterms, the riots across Europe, and the ongoing theme of global conflict risks. These are the three cycle themes: a crisis in markets (AI), a crisis in politics (Populism), and a global economic crisis in trade and growth (hegemonic challenge betwixt China and the USA). It feels like the three massive themes will crescendo around the same time… about now-ish. (Don’t overthink it though – the sun will still come up tomorrow!)
Let’s consider how the big stories this week might just tip normal market cycles into chaos.
The first is last weeks’ AI and chip meltdown – how it will play out?
The Morning Porridge has consistently been warning about the probability of a contagious, cascading stock and credit, and market liquidity crisis as the cost of AI infrastructure build out relative to probable returns, over-inflated expectations and under-analysed risks from competition and tech innovation, the circularity financing around it, and the degree to which private and public capital was blithely mispricing these risks. It’s happening… and I just awarded myself another No Sh*t Sherlock badge for spotting it.
Sure enough – AI related earnings have disappointed! Wow… who thought that might happen? We have exactly the kind a debt crisis I discussed last month, triggered by concerns over the NeoCloud names, and the spotlight has shifted across the whole Junk sector of ballooning spreads. (A sure sign of a bubble market in credit is always weaker bond covenants, and blithe assumptions of repayment – which is pretty much when the doors are slammed shut.) The circularity of chip makers funding their customers is breaking, and rosy expectations of what AI is worth are now being replaced by how much its overplayed.
It’s a classic market crash scenario – revenues failing to excite, rising doubts as to the market’s scales, rising concerns about debt as interest rates remain stubbornly high (which they are not – 5% is normal), concerns about repayments and defaults, urgent checking of bond prospectuses and documentation standards, project “reassessments”, widening credit spreads, a rush to the exits… full-on market selling.
Excellent.
Check the laces on your buying boots and get your wallet ready. Wait for the screaming to start and be ready for some selective buying as the collapsing dross of mispriced deals drags down the strong and exceptional names of the AI market. There are going to be a host of fantastic opportunities out there.
The second issue is this week’s US Midterms and the rising political unrest across Europe. They are linked – they are all aspects of Political Populism.
Trump is a classic populist – recognising the resentment of his MAGA supporters at being left behind, and framing it too them in terms of blaming the elites, the swamp, the immigrants, unfair trade, etc, etc. The promises across Europe of the Right-Wing populists are effectively the same – blame someone else. In Europe we have the added distraction of left vs right populism.
The degree to which Trump and the MAGA Republicans are spanked in the Midterms tomorrow is unclear. My US Republican chums tell me the polling for MAGA is much stronger than the polls suggest. The reality is the vote will depend on Republican voters – although they believe Trump has been a terrible and corrupt president, to what extent do they believe the “crazed communist lefty radicals” of the Democrats will be worse? Prepare for a deluge of Whataboutism. The degree to which disappointed Republics still vote Red will be critical.
But it doesn’t actually matter that much. Trump has made clear he’s no intention of letting mere democracy stand in his way. He’ll stonewall the gridlock, challenging Democrat leaders to agree deals to keep the country functional. Moreover… what will actually change? The problems of the USA in terms of its massive debt and economic strength are unlikely to be addressed by Republicans or Democrats engaged in destructive polarised politics. Trump does not have the answers – but neither do the Dems.
Which neatly brings us to the Third Issue – the geopolitical third body problem.
The USA and China are engaged in hegemonic struggle for economic dominance. China’s objective is to dominate global trade – to keep its domestic economy strong and fully employed. Under Trump, the USA has chosen an America First retrenchment yet is now fully involved in a costly unwinnable war with Iran which is consuming vast amounts of its war stock inventory, leaving it with limited options to address other geopolitical challenges.
Trump’s brand of diplomacy has diminished NATO – making clear to the once strongest military and economic alliance in history that the USA is no longer a guarantor of European security. China’s goal would be the inclusion and integration of Europe – still a significant slice of global wealth – into the new Chinese co-prosperity trade sphere. It’s an option that looks increasingly attractive the less attractive the USA looks like a strategic partner.
Who knows how it will all play out, but here are some predictions:
- There will be a crash/correction in AI, a wave of market contagion perhaps triggering some big shocks, but fundamentally a reset at which stage the market will increasingly look attractive after an aggressive reset.
- Trump will be tactically beaten in the mid-terms – but will challenge to rule through executive decree and making Gridlock the Democrats problem. Nothing will be solved as both Reds and Blues remain polarized. The Debt risk to the US economy will continue to rise.
- Populism in Europe will dominate into European elections – creating increased political violence and polarisation. After Trump’s political failure in the USA, and his support for Europe’s hard-right, there is a swing toward hard-left politics underway, further destabilising European recovery.
- Global conflicts risks remain very real as Europe and USA are distracted and destabilised by Russian Grey War disinformation and sabotage, and China weighs up opportunities for trade and dominance. (Everyone assumes China is mulling an invasion of Taiwan – what if they simply use the distracted West to woo it with a better deal?)
Interesting times indeed.
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.
