Blain’s Morning Porridge March 18th 2025 – The Joys of Teaching Economics with US Political Competency under the Microscope.
“If you make him unhappy, he responds unhappy.”
Nothing beats teaching the next generation of financiers. I had that honour yesterday at Heriot-Watt’s Edinburgh Business School Yesterday where we discussed Markets, Politics and Economics. There were some great questions from my post-grad students – and one: “Is this a correction and should we buy the dip”, is good example of how much has really changed. The answer is – No.
Yesterday was one of my truly happy days.
I spent the day at The Edinburgh Business School, on Heriot-Watt University’s campus at Riccarton, Edinburgh, where I lectured the post-grad course on Investment Management over the course of a couple of hours on the wide-ranging subject of Markets, Politics and Economics. A few years ago it was the greatest honour to be appointed an honorary Professor by the University – and I hope I deliver them some value in return.
Heriot-Watt is one of the UK’s most successful universities – they’ve got the highest graduate employability numbers in Scotland, and are no 1 in the UK for students who thrive in the private sector, becoming CEOs or MDs. It has opened international campuses in Dubai and Malaysia and gone global. The campus is fantastic. I learnt the head of the Norwegian SWF recently lectured the course – I guess because Riccarton was the seat of the Norwegian government in exile in WW2, and the Nogs love Edinburgh.
The university had the dubious honour of teaching me – I still recall the first words of Professor Kieth Lumsden to my first year Economics Undergrads in 1980: “Economics is the study of SwitchBlade Knives, Horror Comics and Pornographic Literature”. How right he was. My years at the Watt, including a year spent playing student politics as a lefty Student Union President, were some of the most enjoyable and influential of my life.
Talking to and sharing ideas with keen young minds is a great and fulfilling thing to do. If someone offered me the opportunity to leverage my 40 years of financial markets experience as a teacher – I would hit that offer harder and faster than the proverbial red-headed stepchild.
I have a favour to ask the Porridge Readership – the students studying the Investment Management course are some of the best and brightest minds I meet in finance. They are all going to be looking for jobs and openings into the financial markets in the coming year. If you’d like to meet them, and consider them for internships, roles or placements, just send me your details and I’ll let them get in touch with you.
During the chat about Markets, Politics and Economics I touched on my concept of the Virtuous Sovereign Trinity. This is my simple framework to explain good vs bad decisions in Economics. Successful nations will generally have the following:
- A stable currency
- A sustainable bond market
- Political Competency
If any of these three legs fails, or wobbles, the result is going to be instability and crisis.
You can add as many factors are you like to each leg of the VST tripod to explain the importance and function of each, such as currency stability to allow corporates and consumers to plan spending, or the rating factors that might impact how a sustainable bond market allows a nation to finance deficits. The VST framework can be as wide and as encompassing as you want it to be. (I’ve wondered if I can train an AI to opine and analyse it – why not?)
Political Competency is the factor that gets the most attention.
It’s funny lecturing to young people who don’t remember anything about the Global Finance Crisis of 2008, Black Wednesday in 1992, or have any background reference to Big Bang in 1985. As I found myself telling these stories to illustrate markets and politics I had to put them all into context.
I explained to the class how the UK’s Liz Truss is one example of how a Political Competency “event” can lead to swift market retribution. I might surprise readers when I say the Truss was correct; the UK does need to become a low tax economy to truly thrive. Her error was absolute incomprehension (and a complete lack of self-awareness) on how to achieve a new economy without overturning the whole VST apple cart. Her spendathong mini tax-cutting budget in 2022 put the Fear of God into the gilts market, triggering a selloff in sterling and bonds, which triggered margin calls on levered “liquidity driven investments” (LDI) trades than nearly sank the economy.
Swift intervention between the UK treasury (The Debt Management Office) and Bank of England saved the day. Truss was sacked as PM because she was a numpty. Her own party realised it and got rid of her as quickly as they could. The Trusster*uck was was one of the case-studies we looked at yesterday. A close shave for the UK.
I then explained my worry today that the USA is tumbling full speed into an even larger Political Competency event, largely because Trump has captured the Republican Party and no one is prepared to call him what he is – a even more complete and utter numpty. It embarrasses me to listen to my former boss, Howard Lutnick, describe Trump as an economic genius while threatening “dire” retribution on Canada for daring to counter US tariffs. When political competency goes out the window, then there is a greater than even chance the dollar and treasury market will follow it.
Political competency in the US is not about one man – it has become a mind-set problem. It worries me when good Republican friends seem to have utterly lost the plot. When asked to explain Trump’s attacks and hostility towards US law firms that have worked on prosecutions against Trump, his press office banning question reporters, or his claim Biden’s presidential pardons aren’t valid, I’ve heard some of the smartest minds in finance tumble into “Whataboutism”, arguing nonsense about Hunter Biden’s laptop as justification for the end of the independent judiciary in the USA.
At that point in my lecture yesterday I had a fantastic question from one of my Post-Grad Students: “Is this just a correction, should we buy the dip?”
I thought about and said No.
There are three things going on around Trump and the US economy we should be aware of:
- The current “correction” is not due to a single bellwether stock posting a miss on its numbers, or a disappointment on an influential company’s sales figures. This “sell-off” is because business-focused American and Global investors are watching the US government, in the persona of Trump, make fundamental errors and mistakes (against all economic logic) that are likely to result in recession or even stagflation. If the FED was torpedoing the US economy as destructively as Trump is doing to supply chains and global markets, there would be uproar.
- This is not about doubts or concerns about how the broad Tech sectors are likely to continue growing, or how the focused AI industry may be undergoing “cognitive dissonance” (buyer’s remorse), but about the fundamental unravelling of globalised trade and supply chains – which have driven global trade and growth for the last 40 years.
- This is not about changing US politics choosing slightly different approaches to taxation and growth, but a fundamental change in the way the US is governed – moving from democracy to autocracy as Trump challenges the courts and precedent, using threats to muzzle the press and patronage to turn dedicated Republicans into peanut brains. It will unravel our foolish notions about “American Exceptionalism.”
Recently a number of readers have told me to “lay-off” my hostility to Trump. I am not hostile. I just know he is wrong and think I know why he is wrong – clue: his personality. If it was just Trump destroying yet another of his own businesses, no concern of mine and I will happily watch him do it. But Trump and his minions are destroying the fundamentals of the global economy – and that affects us all.
That means we need to make decisions, and the one Europe should probably be making now is to walk away. Trump has demonstrated he is transactional and does not ascribe value to alliances or Nato. When he goes into a blind fury that Canada dares to reciprocate tariffs on US goods… let him rant and ratchet them higher… and walk away faster.
Trump plans to “codify” or something his global tariff regime on April 2nd. My US contacts are telling me that will be a very, very big day. Big deal. We should set April 2nd as a target for initiating new discussions with China about how to make the new and balanced Asia Middle-Sea European Trade Zone work by then.
Out of time, and back to the day job…
Bill Blain
Author the Morning Porridge
Founder Windshift Capital
Partner Shard Capital
5 Comments
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Great article and I find it astonishing that so many intelligent Republicans have their heads in the sand. Good for you for sticking to your guns. Great to hear about your time at Heriot Watt
thanks Flemming.
Sincerely ask financial firms to think about taking these Students’ CVs!
Flemming and Bill, I’m just as astonished, and also astonished that so many Democrats and Folks from Labor have their heads in the sand regarding their garbage that’s been promulgated and shoved down the throats of ordinary people for over 50 years.
It’s spelt Labour… (thats how we know Satoshi Nakamoto was not a Sherman.)
What is astonishing? That any mildly competent economist, market strategist and observer of the human condition can see that globalisiation had winners and losers, created enormous wealth for some, and has generally moved billions of people from poverty to higher standards of living, while making the connection that unravelling trade through protectionist tariffs and breaking long-standing alliances is likely to remove the benefits of free trade from the American economy? Is that not identifiable risk?
And is it so ridiculous to suggest that a President whose mores are so far outside the normal bounds is likely to pose a higher risk of bringing recession and even stagflation to his land? I think not.
This morning I received this:
“What you assert is political….now you can challenge the tariff policy for your reasons but there is no difference (actually better apart from deporting the muslim dude but that is Israeli) in a democracy…actually trump believes in much more freedom than the previous regime which was cancelling elections etc…..previous was ideological autocracy…..trump is freedom with small elements of popularism….usual globalist propaganda…..”
What does that gibberish babble of words actually mean???
If one is going to ‘buy the dip’ one has to be able distinguish between a dip (temporary) and the beginning of a slide into the depths (long term pain, hic sunt dracones). It is dangerous to predict, but it looks like a long and frightening slide to me.