Blain’s Morning Porridge May 5th, 2026 – Who will prove the eventual winners?
“All the perfumes of Arabia will not sweeten this little hand…”
The War/Not War in the Gulf rambles on – and the consequences mount. Careless markets are becoming anesthetised to the news – raising the risks of a shock destabilisation. The big question is what will follow? Who will be the winners from Trump’s misbegotten war?
If anyone is still watching; what’s occurring in Trump’s War on Iran? While I still scan the news wires, nothing much registers anymore.
Most folk in the markets are looking away – it’s just too embarrassing to watch. Trump threatens, postures, and pouts… but who is fooled? What plan? I’ve been told he’s hoping for an internal revolution which could be a long-time coming. What matters is shipping moving through the straits – which (unless you are a Russian Oligarch) generally ain’t happening.
We watch the numbers and listen to the central bankers, concluding rising inflation and rising rates remain the most likely outcome. A sustained higher price for oil is one thing, but it’s more nuanced than that – as OPEC and NATO both unravel the world is changing faster than at any time post 1945.
That’s nothing to panic over. Change is opportunity. There will be winners and losers. It’s getting easier to figure out who they might be.
Could it be Germany?
Trump has announced a cut of 5,000 US troops from Germany as punishment for Chancellor Merz’s comments about “Iran humiliating Washington at the negotiating table”. The reality is German defence spending is set to overtake France and the UK combined. Together with the Euro 90 bln pledged to Ukraine, German spending could prove a catalyst to finally move a common defence policy forward – with Germany exercising a very strong voice in how Europe moves together to ensure its borders in the post NATO world. If Defence becomes a European strength, what else might follow?
Interestingly, Rheinmetall failed to hit targets y’day as the concerns about Europe’s defence weakness haven’t yet translated into orders – that may be about to change as the German’s ramp up. (Yep – I hold the stock.)
While the UK is fretting where any money will come from to fund the reconstruction of defence, and the French are just as bust, Germany has the debt headroom to finance the rebuild of the German armed forces and thus drive the move towards a new common European defence platform with common weaponry across the block. The French have long resisted commonality, unless it based on French defence firms. Across Europe there is considerable defence expertise, but it’s been focused at the national level rather than Europe as a whole. There could be multiple wins.
A European defence renaissance sounds unlikely to involve the UK. The general who wrote the last Defence Review has broken ranks to reveal there is no more money coming down the pipeline to rebuild UK defence capacity. I read HMS Iron Duke, a type 23 frigate, has been withdrawn from service despite a £103 mm 4-year refit! Apparently, there aren’t enough sailors to man her! It leaves the Royal Navy with just 5 frigates to carry out Arctic patrols, harry Rusky Subs and guard the floating targets (the two carriers)!
Interesting to see HSBC in the headlines this morning – a modest $300mm impairment due to losses caused by the Iran War as credit losses escalate. (A number of UK banks took hits related to a dodgy bridge loan lender, Market Financial Solutions). If rising rates and global recession hit, the consequence will likely be rising credit losses.
Or will the winner of the current Trumpian chaos prove to be China?
I read some fascinating stuff over the long May Day holiday. The WSJ carried a piece on China’s rising soft-power – which cited a survey showing a narrow majority of Asian businesses now see greater opportunities dealing with The Middle Kingdom than the USA. That’s an incredible generational shift – just a decade ago the Mouse Empire was the world’s most recognisable cultural icon. What will it be tomorrow?
The Chinese Jaecoo 7, part of Chery, was the best-selling car in the UK in March with over 10000 units sold! A few months ago, I was sorely tempted to buy a sister model, the Omoda 9 – it drove well, was fully loaded, came with zero-interest financing, and was half the price of a base-level Land Rover Defender. After my Range Rover’s engine expired a few months out of warranty, its 10-year guarantee was a factor. I tried to buy a Porsche SUV, but the salesman was insufferably rude, and I now find myself very happy with my Lexus.
The Chinese may not make the best cars, but they make good cheap cars – and that’s the critical issue for Europe: how to compete with the lower costs of state supported Chinese producers and maintain market share? The Chinese are focused on selling PHEV (Plug in Hybrid) to avoid tariffs. Its cars today – what will they be leading tomorrow? Quantum Computing? Med Tech?
It might even be Defence – apparently the Chinese are testing the first 6th Generation Combat Plane, the J-37. The first US Gen 6 will be the F-47 (yep, numbered for Trump), but it is still on the drawing board. The J-37 is big, with three engines to supply the massive amounts of electrical power to fire up directed energy weapons and new sensor platforms. It looks like it’s designed to fight as a network-centric platform using long-range hypersonic missiles and drone wingmen to extend China’s battlespace control to the Second Island Chain into the Pacific and be able to take out AWACs and Tanker aircraft from hundreds of miles away.
Much is made of the apparent weakness of the Chinese economy – can China truly become the next global economic hegemon when domestic consumption remains weak? Is that the right question to be asking? US consumers are also hurting as petrol (gas) prices hover above $4. While the US has become the global swing oil supplier while the straits are closed, the bottom line is America does not make stuff the rest of the world is buying. Aside from Boeings – which are struggling with massive delivery delays, and weapons which aren’t being delivered as the US struggles to rebuild depleted arsenals and to keep Middle East states happy, what else was the USA selling aside from services?
The Chinese remain focused on making and selling stuff. They can build stuff we can only dream of. How long before we find a Chinese Investment Bank leading deals in Europe? Now that really would be a shock.
Out of time, and back to the day job….
Bill Blain
Author of the Morning Porridge
CEO Windshift Capital
Advisor – Spitfire Strategic Capital
Please don’t forget about my new book, The Battle For Hamble. It’s a proper grown-up examination of how bureaucracy has failed: a tale of Greedy Corporates, Bad Planning and Economic Illiteracy. It explains how a wholly unnecessary Gravel Quarry will be dug in middle of a prosperous village – putting 6000 jobs at risk. The truth is no one wants gravel, and the quarry company understands it’s not what you dig out, but what you stuff back into a hole in the ground that matters. Gravel sells for £30 a tonne – Landfill earns £150 a tonne to bury. Go figure.
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Perhaps this is what happens, perhaps it’s deliberate. An intentional dislocation from reality. Money isn’t really real- we use credit cards and phones. Bit coin and crypto are now considered stores of value. Anytime there’s a major crisis, we expect governments to intervene. Most earners, except the poorest, don’t lose their homes. Through technology we’ve all become a bit disconnected from reality. We’ve become apathetic to major events that don’t directly affect us because we also feel quite powerless. Individuals are constantly being told they’re the ‘agents of change’ yet when faced with the reality of power, we soon become aware of our own impotence. Nobody believes they can change anything anymore and so meekly accept abuses of power, as if they are the norm. But what happens when the illusion of power collapses ?
Yet, I have never felt such concern among my friends in my cohort, increasingly worried about their jobs, their retirements, their futures and their kids. I am hearing so many brutal stories about folk burnt out in their early 50s dropped onto the heap, of ladies in menopause bullied out of jobs by their male bosses performing to make RIFs to impress their male bosses. These are all signs confidence in our societal structure is being tested. We increasingly adopt and ape the success of frankly bad people – thinking skeevy grifters like Altman, Musk, Bezos et al are worthy of our praise, and not our contempt for the way they treat people and shark their lives…
I fear society is seriously unbalanced and a reckoning is coming..
What actually matters… being remembered as a bad person or doing something good?
I quite agree Bill. I’m in my forties. Already burnt out. Decent enough income yet not enough to allow to me move. As for pension, can’t even see myself getting there without changes in its current form. The truth is, we’re all ( well, most of us) getting poorer. Rentier capitalism is milking society from within.
Jason
I was at the gym last night. My trainer is 34. He’s a lovely chap. Married a farmers daughter and they just had first kid. He is chucking it in to go live on his wife’s dad’s farm. She is going to take it over – reengaging with the land. They want that for their kids. I envy him so much. I know nought about farming, but 40 years of working for the man near killed me.
The last few years of working solely for me, doing what I want, saying what has to be said, is really something worthwhile, even though I’ve made zip all money.
Better to live fulfilled.
I was walking with Dinner Jacket y’day, our Cockapoo. DeeJay understands that a pinecone chased is a life well lived. He is a very happy monkey in a dog-suit.
🤣🤣👍 well said 👏👏