MacroVoices #475 Simon White: The Dawn of A New Financial Order

Central banks cannot cut rates as much as they would like because inflation remains more elevated than desired, forcing rates to stay restrictive despite the need for monetary accommodation during tariff shocks and potential recession, creating a policy bind.

“the problem again is that inflation is much more elevated than they would like. So we've got that in the US this week. In fact, we have the the latest CPI data, but that's really a problem for central banks. They they cannot probably cut as much as they would like to.”

Approximately $9 trillion has flowed into US equities since the pandemic, doubling the size, bringing foreign holdings to over $18 trillion or roughly 16% of all US equities outstanding—a substantial capital pool that can exit the market if confidence erodes.

“we've had something like $9 trillion of inflows into US equities since the pandemic. You know, doubling it size. So there's now over $18 trillion that foreigners hold. That's something like 16% of uh the total of US equities outstanding.”

Foreigners hold approximately $18 trillion in US equities, representing 16% of total US equities outstanding, creating a massive potential outflow that could amplify market stress if capital flight accelerates.

“So there's now over $18 trillion that foreigners hold. That's something like 16% of uh the total of US equities outstanding. So that's a lot of potential capital that can come out.”

The basis trade in US treasuries has grown to approximately $1 trillion in size, roughly double the level in March 2020, and primary dealer balance sheets are more congested than during the pandemic, creating systemic risk from basis trade unwind larger than before.

“the basis trade has been around for obviously a long time but it's probably still the key kind of source of potential financial instability...the trade is probably twice the size. Uh it's probably of the order of something like a trillion dollars. And the second thing is that dealer balance sheets, primary dealers are more congested uh than they were back then.”

The global financial tightness indicator (diffusion index of central bank rate hikes) has turned down after suggesting loosening conditions for the past 1.5-2 years, signaling that central banks have stopped cutting rates and some have begun hiking, creating more restrictive conditions when the market most needs liquidity support.

“the chart on the right is the global financial tightness indicator which is essentially diffusion index of central bank rate hikes Again, that had been indicating more loosening conditions for most of the last year and a half, two years. And that too has started to turn down, which means rates are becoming more restrictive.”

The S&P 500 experienced a 17-18% peak-to-trough decline during the tariff shock week, and the average equity selloff in a recession is 30-40%, suggesting the current decline is insufficient to have actually reached recession lows if recession probability is elevated.

“you know the market is down roughly 17 18% now like peak to trough. Um as I say on a close uh to close basis the average recession you know equities will sell off more than that. you know that the average is uh you know at least 30 40% that sort of range certainly more than you know 17%. So we really are at this time of peak uncertainty and peak kind of fragility for the market.”

The use of put spreads rather than outright puts for hedging creates suboptimal outcomes when intended to be tactical (close before expiration) because the time value decay means you only realize a fraction (about 2/3) of the spread's intrinsic value even when the market trades several hundred points below your lower strike.

“I I ended up only realizing about 2/3 of that difference even though the market was trading several hundred points below my lower strike. So, and people who understand options understand why that's the case.”

Trade nationalism and capital nationalism are two sides of the same coin; if capital doesn't return home willingly (due to fiscal stimulus and growth opportunities abroad), governments will use financial repression to force capital to stay and fund domestic fiscal deficits.

“it's the flip side, isn't it? I mean I think I think where trade nationalism and capital nationalism are are two sides of the same coin... there probably will be more capital that will be invested at home... if capital doesn't come come home willingly, then you we're going to see more financial repression. So, we're going to see more insistence that essentially capital comes back to help um this fiscal stimulus, the borrowing that will be needed to run this fiscal stimulus.”

The VIX spike to levels not seen since the financial crisis (only exceeded by COVID) is a fear indicator that signals short-term lows have been established; if VIX consolidates into the 20s and returns to the teens, it would indicate a major bottom; if VIX stays elevated at 25-27% during rallies, it signals lingering distress.

“we have not seen a spike of volatility of this magnitude since COVID and then you have to before that go all the way back to the financial crisis... Typically uh this is uh that fear moment in a market where short-term lows are established... whether volatility uh consolidates uh in the 20s or whether or not we go back into the teens. Because if we see volatility go all the way back under 20 down to the 18 or 19 or something like that, then that would actually um increase the likelihood that a major low could be in and that the market is pivoting. But if we see sustained higher levels of volatility where the market is rallying even for several weeks uh and just holding up at these zones but volatility stays at 25 or 27%... then that tells me that uh there's a lot of nervousness in the market”

Volume-based measures of liquidity (excess liquidity) and price-based measures (global financial tightness indicator based on central bank rate hikes) are both declining simultaneously, creating a 'worst of all worlds' scenario where both monetary and fiscal tightening coincide with the tariff shock.

“so we're now in a sort of worst of all worlds that okay we're getting this terrible tariff news which is which would be bad one way the other for stock markets but in a way it's kind of worse because excess liquidity is not there to provide this safety net... price based measures of liquidity are also declining so the chart on the right is the global financial tightness indicator... that too has started to turn down, which means rates are becoming more restrictive”

Treasury yields experienced their second-largest open-to-close rise since the pandemic (nearly 30 basis points), marking an unprecedented move that signals the axiom of treasuries and the dollar as safe havens can no longer be taken for granted.

“Treasury yields saw their second largest open to close rise again since the pandemic. You have to go back to the 17th of March. That was a 30 basis point rise. It's really close to unprecedented. So you know the these are massive moves and and the kind of axiom that treasuries and the dollar are safe havens. Um I don't think we can we can take that as red.”

MSCI World index concentration in US equities reached 75%, an extreme concentration that creates vulnerability and justifies serious diversification into non-US markets despite their previous underperformance.

“the concentration risk in the US was so high um so you know the Msei world got up to 75% uh US waiting which is obviously just this vast it's is huge so there was a huge amount concentration risk so that reason alone would be a reason for thinking about diversification”

In elevated volatility (VIX 30+) environments, buying outright put options is expensive and spreads are more tactically attractive, but spreads only realize their full profit at expiration; tactical investors should either hold spreads to expiration or buy additional spreads to ensure adequate dollar protection when tactical closeouts are needed.

“the VIX still up in the 30s, it is very challenging to just buy a strike a straight out put option like you were suggesting. And you were also talking about some of the downfalls of using spreads.”

When valuations are high and downturns occur (as Simon expects), the US will likely resort to financial repression to force capital to remain invested in Treasuries, meaning investors will face negative real returns rather than avoid losses through diversification.

“if capital doesn't come come home willingly, then you we're going to see more financial repression. So, we're going to see more insistence that essentially capital comes back to help um this fiscal stimulus, the borrowing that will be needed to run this fiscal stimulus. So it will be definitely a lot more siloed world. Um and things like financial repression will be uh you know a tool that I think governments will use and maybe ultimately the US itself will have to use um that if if if the US the overvaluations there you know cause more downturns and the fiscal deficit 11%. You know that that pushes even the US to look at financially repressing to try and bring capital home.”

The Trump administration is less interested in stock market performance than conventional wisdom suggested because the vast majority of stock ownership is concentrated in the richest 10% of households, whereas Trump's base consists of middle-income households whose wealth is in small businesses and real estate, so the administration's focus will be on those assets instead.

“the administration has made quite a few quite clear that the the reason why they're less interested in the stock market than people would have thought we were is ultimately the stock market is owned by way fewer people in the US. So the the vast majority of stocks are owned by like the richest 10% of households. If you look at what matters to, you know, what are probably more likely to be Trump's base, their sort of middle income bracket, it's small businesses, it's real estate, and that's clearly where the the administration are putting their focus on.”

Excess liquidity, measured as the difference between real money growth and economic growth, has a 3-to-6 month lead on equities and acts as a safety net for asset prices; it turned sharply down in mid-January 2025, before tariff announcements, removing the primary prop that has supported the equity rally since early 2023.

“excess liquidity and that's the difference between real money growth and economic growth... the chart on the the left in slide seven, you can see there that excess liquidity has a very good uh lead of about 3 to six months with equities... excess liquidity started to turn up... around then early 2023... at the beginning of this year so I'd say mid January you really start to see a kind fairly sharp decline in excess liquidity”

Gross issuance of Treasury bonds and bills versus stock market performance shows a leading relationship that previously did not exist before the 2008 financial crisis; this is driven by the repo market becoming the principal money market instrument with dramatically increased reples that now function like near-money.

“before you know in a sort of pre GFC world you didn't really see this relationship but what's happening now is obviously the government is expanding its fiscal deficit which means issuance has risen marketkedly... we've had this huge kind of revamp or rehaul or overhaul if you like of the repo market. So repo is now the kind of principal money market instrument and we've seen this massive huge increase in reples and the repo market reples are now much more moneylike than they once were.”

This tariff battle is not ending; it is the first of many battles in a war that will likely be waged for years, and Trump and Bessant will continue to deploy similar strategies if they help achieve their restructuring goals, meaning investors need to maintain vigilant hedges not just for the next week or two but for weeks and months.

“This battle does in fact appear to be ending, but it's the first of many battles in a war that will likely be waged for years. And just in case anyone still isn't listening, Trump and Bessant have said clearly they are willing to sacrifice the stock market in order to achieve their goals. If you didn't get that memo the first five times, and I admit that I didn't, it's time to take it to heart now.”

Brexit provides an analogy for Trump's trade policy: both involve renegotiation of trading relationships and taking back control of borders, but the US has the structural advantage of the reserve currency, though that advantage can no longer be taken for granted.

“one kind of analogy that's fairly relevant right now is is Brexit I mean it was almost 10 years ago that the UK voted to leave the uh European Union and the principal motivations behind Brexit were a renegotiation of the relationships with your trading partners and taking back control of your borders and you know that's really not dissimilar to what's happening in the US right now. The fundamental difference is it didn't work out well for the UK certainly in in the first couple of years because capital started to leave but the fundamental difference with the US would normally be that the US is insulated from such effects because the US has the reserve currency”

Trade nationalism and capital nationalism are two sides of the same coin, with capital likely to be invested domestically, but governments will use financial repression to force capital repatriation if voluntary capital flows don't return home to fund fiscal stimulus.

“I mean I think I think where trade nationalism and capital nationalism are are two sides of the same coin. So you know capital will there probably will be more capital that will be invested at home there but there'll be more things to invest in like if other parts of the world are uh boosting their fiscal stimulus...So, there'll be more reasons to bring capital home. And I think if capital doesn't come come home willingly, then you we're going to see more financial repression.”

The original Trump administration (2017-2021) claimed the stock market was their scorecard, but Simon's research found that despite NFIB small business optimism spiking when Trump was elected, actual proprietor equity in small businesses moved in the opposite direction, indicating a hope-reality gap that explains why Trump 2.0 is less focused on stock market performance.

“I remember looking at this back in in January um before this really kicked off to the extent it has. And there was a really interesting chart. Unfortunately, I don't have it in the deck, but it was um you looked at NFIB small business optimism versus the essentially proprietors equity in small business. So, essentially, even though these companies are unlisted, the uh Fed uh measures essentially how how well they're doing is as if they're they did have equity that was on a market and there was a huge uh gap. So, the NF NFIB small business optimism has a huge Trump not even really Republican, it's more like a Trump bias.”

Dollar weakness will amplify the effect of tariffs on US consumers by raising import prices, and the dollar's path downward is the key metric to watch for gauging political pain the administration is willing to absorb; continued dollar weakness gives them a potential exit ramp by allowing them to claim tariff goals are achieved through currency appreciation of other countries.

“the dollar, if it carries on weakening, will amplify the effect of tariffs... you can see, again, going back to the deck on slide three, the chart on the right, you can see there that the dollar leads import prices... if the dollar continues to weaken, you know, that's really going to be an effect on US consumers... obviously that ultimately translates into votes... if the dollar keeps uh selling off it might you know give them a convenient offramp because if the dollar's weaker that means the euro's stronger the yuan's stronger the yen's stronger and you know the the administration can say you know what we've kind of got some of what we want here guys currencies are stronger ours are weaker and therefore we're not going to have some of the more ownorous uh tariff rates”

Latin America may benefit from a geopolitical 'you mind your backyard, I mind my backyard' framework where the US prioritizes its regional backyard (Latin America) in trade, making countries like Colombia and Chile attractive both for valuation and geopolitical positioning.

“Latin America, I think, is actually interesting in its own right from a more of a geopolitical perspective... I think there's a sort of a notion that we're going to have a kind of you know you mind your backyard, I mine my backyard kind of world uh where China has its backyard and Europe has its backyard and the US has its backyard and part of the US's backyard is is Latin America. Um so maybe there's a kind of notion that these countries might kind of ultimately end up benefiting from US trade in a way that other parts of the world aren't.”

The S&P 500 has declined 377 basis points to 5457 as of Wednesday, April 9th, 2025, with peak-to-trough volatility exceeding 15%, followed by the third-largest single-day recovery since 1990 on Wednesday.

“The S&P 500 index down 377 basis points, trading at 5457. This poorly reflects the historic volatility experienced throughout the week. peaked to trough. We saw more than a 15% drop followed by a strong Wednesday recovery seeing the third largest single day since 1990.”

Copper's 25% decline in two weeks represents a classic recession signal via 'Dr. Copper', but the move may be distorted by traders front-running and reacting to tariff announcements rather than fundamental recession risk, so copper's recovery pattern relative to equities will be the key test of whether this signals real recession.

“On one hand, Dr. Copper is one of the most reliable recession signals that there is. And after 25% down in 2 weeks, that's a screaming loud recession is imminent signal if ever I saw one. But wait a minute, there can be no question that what got us all the way up to 550 on copper in the first place was traders front running Trump tariffs. And what got us all the way down to 420 was traders reacting to Trump's tariff tsunami. So, was that a real recession signal that we should take seriously... Or was this so distorted by traders gaming the tariff announcements that it doesn't really count as a fundamental recession signal?”

Trump and Bessant have been clear that they prioritize getting the dollar down and long-term Treasury yields down, and they explicitly stated they don't care what happens to the stock market, contradicting market assumptions of a Trump put; therefore there is no put, and markets are currently discovering this through testing the strike price.

“President Trump has actually been very clear saying and actually Secretary Bessant as well have said, "Look, we've got a certain set of goals. We want to get the dollar down. We want to get long-term Treasury yields down. We don't care what happens to the stock market."”

The rumor of a 90-day tariff ceasefire that caused a 512% spike in S&P 500 futures in 6 minutes followed by complete retrace was likely an intentional trial balloon by the Trump administration to test market response, as evidenced by the fact that the exact ceasefire announced on Wednesday was identical to the 'fake news' rumor from Monday.

“someone leaked a rumor that Kevin Hasset, director of the National Economic Council, supposedly said on Monday that Trump was mulling a 90-day ceasefire on tariffs. The S&P shot up over 300 S&P points in 6 minutes. Then, when soon as the White House said it was fake news, the S&P retraced the first 200 points downside in six more minutes... when you consider that the exact thing that Trump really did announce on Wednesday was identical to the supposedly fake news that we had on Monday, it seems highly suspect”

Emerging markets showing the lowest correlation to global markets (Indonesia, China, Korea, Latin American countries like Colombia and Chile) offer the best diversification, have significantly cheaper valuations (lower P/E ratios) than the US, and have structurally cheap currencies that could provide currency appreciation upside from structural undervaluation.

“the ones that popped up as being the kind of the most anti-correlated to the general markets... were things like Indonesia and China uh Korea and also Latin American uh countries too... a lot of these as well they have much cheaper valuations than the US. So just looking at things simply like P ratios again like Indonesia, Colombia, Korea, China much cheaper than the US... some of the cheaper currencies that popped up there, Korea, Indonesia, Chile, you know, if you look, this is from a structural perspective. So looking at the real effect of exchange rates on a long-term basis, these currencies are very cheap unlike the US.”

Primary dealer balance sheet inventory of treasuries and other bonds is much higher than in March 2020, suggesting dealers are 'lumbered' with off-the-run debt possibly due to reduced foreign demand for bonds and illiquidity in older treasury issues; this constrains dealer capacity to absorb a basis trade unwind.

“dealer balance sheets there now a lot of inventory on their balance sheets. I think I'm not quite sure 100% the reason but it's partly to do I think with uh less foreign demand for bonds. So they they obviously have to go there and they have to backs stop the auctions and also these the illquidity and off the runs as well. Maybe they're getting lumbered with more uh off ther run debt.”

The tariff announcements were worse than markets expected, and the notion of a Trump put has a strike price not near where people thought it might be, indicating significant mispricing of tail risk in equity valuations.

“the tariffs were kind of worse than people expected and the notion of a a Trump put is clearly you know the strike price is not kind of near where people thought it might have been”

The dollar has reversed most of its post-election rally because massive inflows of capital into US equities are being overwhelmed by the tariff shock, suggesting the structural short in the dollar from its funding currency role is no longer being reliably covered during risk-off events.

“when you had so much capital coming into the US and the numbers are huge that can easily overwhelm any any short covering that you you know structural short covering that you might normally see and I think that's kind of what we've been seeing. So you know that the DXY has reversed most of its uh you know post election uh before the election and after rally”

Excess liquidity, measured as real money growth minus economic growth, provides a 3-to-6 month leading indicator of equity performance, and this measure began declining sharply in January 2025, removing the safety net that supported the 2023-2024 rally.

“excess liquidity has a very good uh lead of about 3 to six months with equities...So it's not just a case of like liquidity being created...It's only when that liquidity is growing in excess of what the real economy is eating up that it then leads to higher asset prices”

A Brookings paper has proposed the Fed introduce an explicit facility to backstop the basis trade unwind, either by taking the other side directly or giving hedge funds direct access to the standing repo facility, representing a controversial direct hedge fund bailout unlike previous indirect interventions like LTCM.

“a Brookings paper came out with a very controversial suggestion that maybe the Fed has to introduce a explicit facility to backs stop the basis trade...either they would go into the market and take the other side of the basis trade...or they could give uh hedge funds direct access to the standing repo facility. But either way it's it's kind of crossing the Rubicon...the Fed has obviously done indirect bailouts of hedge funds. LTCM being one of the most famous examples...but they've never done a direct bailout of of hedge funds.”

Dollar weakness amplifies the effect of tariffs on US consumers through higher import prices, and the administration's focus on consumer impact (rather than equity market damage) means they are monitoring dollar weakness as a constraint on tariff policy, potentially using currency weakness as a negotiating offramp.

“the dollar, if it carries on weakening, will amplify the effect of tariffs. And you can see, again, going back to the deck on slide three, the chart on the right, you can see there that the dollar leads import prices. So if if the dollar continues to weaken, you know, that's really going to be an effect on US consumers...there's way more US consumers than people that own equities in the US. And obviously that ultimately translates into votes.”

The policy framework appears to involve intentional market whipsaws as a negotiating tactic, with the Monday fake news rumor about tariff ceasefire followed by the Wednesday ceasefire announcement suggesting the administration tests market responses to proposed policies.

“I for one don't believe that that was fake news. I think it was an intentional trial balloon intentionally staged by the Trump administration to test how the market would respond to a 90-day ceasefire on tariffs announcement. That's speculation on my part and I certainly can't prove it. But when you consider that the exact thing that Trump really did announce on Wednesday was identical to the supposedly fake news that we had on Monday, it seems highly suspect to say the least.”

The definition of TINA (There Is No Alternative) no longer applies to US markets because alternatives now exist, and when combined with concentration risk, current account deficits, and loss of dollar neutrality, diversification becomes rational.

“I mean, what what prompted this piece was a lot of what we've discussed today in that the dollar is no longer, you know, what it was. I'm not saying it's uh people can completely divest out dollars. Obviously, it's still the biggest market, but it's not the the TINA uh does not apply anymore. There is no alternative to the US does not apply anymore.”

The outcome of tariff policy depends fundamentally on whether the administration aims to close trade deficits partially (allowing for negotiated deals) or to close them altogether (more ideological), which remains unclear and creates the uncertainty driving market volatility.

“I mean my initial thinking was when you know the tariffs were announced the aim was to reduce trade deficits. So for the US to reduce the trade deficit but I'm wondering really if they want to close them all together which is obviously a very different uh set circumstances...there are definitely some more ideological people within the Trump administration obviously Navaro for one of them and they maybe do look uh to close the trade deficits alto together whereas you know Trump obviously is renowned for being open to deals”

Gold's $150 recovery off lows in two days reflects the financial system falling apart at the seams and dollar reserve currency status coming under risk, rather than a celebratory opportunity, though being long gold is still preferable to being short.

“This correction appears to be over to say the very least, with gold now up more than $150 off its lows in just two days. But let's not forget Rick Rule's famous words on gold. When gold is doing this well, it's nothing to celebrate, even for those of us who are fortunate enough to be profiting from being long on the trade. What it means when gold does what it's doing right now is that the financial system is falling apart at the seams and the dollar's reserve currency status is at risk.”

Scylex, an Australian-based laser enrichment company building a uranium enrichment facility in Kentucky, represents experimental but exciting technology replacing centrifuge enrichment, though technology risk remains.

“I also couldn't resist buying more Scylex at 280. Cylex is the laser enrichment company based in Australia that's building the um the big laser enrichment facility in Kentucky in the United States. Laser enrichment is the new replacement for centrifuges. Experimental stuff, but super exciting.”

Eric Townsend failed to adequately hedge his portfolio against the tariff shock despite explicitly understanding and publicly criticizing other investors for dismissing Trump's clear warnings, demonstrating that even sophisticated investors struggle with ex-ante hedging discipline.

“I for one feel like a complete fool. I fully understood all of this. I made fun of other people for not taking Trump seriously and then I didn't hedge adequately for what just happened.”

Unemployment claims data by state, coming weekly, is the most frequent hard economic data point and will be crucial for determining whether negative feedback loops are developing, particularly when analyzed by state rather than national aggregate.

“the key data points are the ISM and the PMIs uh to gauge sentiment and the unemployment claims because that's your kind of most frequent hard economic data point given it comes out uh weekly. Um, so and and as I say, I would look at that by state, you know, not not just the headline number, but also what's happening by state.”

Eric Townsend hedged his equity risk with put spreads with a 5250 strike rather than outright puts, believing technical analysis could identify the bottom, but this was a mistake because the Trump put is worthless and technical levels are irrelevant when a political actor (Trump) is actively overriding market mechanics with his tariff agenda.

“I hedged downside risk in my portfolio, but I did that with put spreads rather than outright puts and with a lower strike price of 5250... the reason that we sometimes get fancy and use put spreads rather than outright puts is because we like to tell ourselves that we're smart enough as professional investors to use technical analysis to tell us what the downside targets going to be... Well, that line of reasoning ignores the true nature of the risk that we're hedging against. The name of the bull in this China shop is Donald Trump. Anyone who thinks that technical analysis is going to determine where a market move ends in reaction to Donald Trump prosecuting his agenda... you're crazy.”

Russian asset seizures during the Ukraine crisis and discussions about potential Mara Lago accords have undermined confidence in the dollar as a politically neutral instrument, creating systemic risk among both adversaries and allies regarding reserve currency safety.

“Russia's assets reserve assets were seized and then that confidence in the dollar was kind of further undermined with the recent rumblings we've had about a Mara Lago accord essentially you know you cannot take it for granted that the dollar is a politically kind of meddle meddalfree any instrument anymore. So that's really kind of um scared the horses not just amongst emerging markets and people that might be considered foes of the US but also amongst friends too.”

Treasury yields saw their second largest open-to-close rise since the pandemic in a single session (matching or exceeding the March 17, 2020 30-basis-point move), indicating unprecedented stress in the bond market plumbing.

“we had this uh massive move in uh treasury yields. So Treasury yields saw their second largest open to close rise again since the pandemic. You have to go back to the 17th of March. That was a 30 basis point rise. It's really close to unprecedented.”

The S&P 500 is down 377 basis points for the week as of Wednesday, April 9th, 2025, with peak-to-trough volatility exceeding 15%, though this was followed by a strong Wednesday recovery that was the third largest single day since 1990.

“The S&P 500 index down 377 basis points, trading at 5457. This poorly reflects the historic volatility experienced throughout the week. peaked to trough. We saw more than a 15% drop followed by a strong Wednesday recovery seeing the third largest single day since 1990.”

The dollar index established a clear downtrend with all rallies failing and support coming at measured move levels that align with previous lows; a dollar index decline to the 100 handle would be natural and would correspond to EUR testing 112-113 areas, testing whether dollar is entering a bear market.

“on page four, I have that chart of the dollar index. And one thing that is very evident technically is the distribution continuing. All rallies are failing uh in the path of least resistance remains to the downside. Uh number of these different measured moves line up perfectly with all the previous lows. So at this stage uh a dollar index going back down to the 100 handle uh would be very natural and that would be uh a euro testing the 112 113 areas up above.”

Emerging markets including Indonesia, Korea, Colombia, and Chile show the most attractive combination of low correlation to global markets (highest anti-correlation), cheap valuations on P/E ratios, structurally undervalued currencies, and balanced current accounts, making them candidates for diversification.

“the ones that popped up were things like Indonesia and China uh Korea and also Latin American uh countries too...these are interesting and and a lot of these as well they have much cheaper valuations than the US...Indonesia, Colombia, Korea, China much cheaper than the US...And the second thing as well is that uh currency effects are often boost emerging market terms...Korea, Indonesia, Chile, you know, if you look, this is from a structural perspective...these currencies are very cheap unlike the US...countries that are fairly balanced overall and things like, you know, again, Indonesia and Latin American countries like Chile and Colombia come up.”

The 15% intraday decline followed by strong recovery in equities this week does not indicate the establishment of a bottom or discovery of a 'Trump put' strike price, but rather reflects the beginning of a multi-battle war where volatility and downside risk will persist for months.

“This battle does in fact appear to be ending, but it's the first of many battles in a war that will likely be waged for years. And just in case anyone still isn't listening, Trump and Bessant have said clearly they are willing to sacrifice the stock market in order to achieve their goals.”

Technical analysis and put spread hedges are inadequate for hedging against policy-driven market moves engineered by actors like Trump, and outright puts are necessary despite higher cost because they provide unlimited downside protection.

“we like to tell ourselves that we're smart enough as professional investors to use technical analysis to tell us what the downside targets going to be, knowing that it can't go any lower than that...Well, that line of reasoning ignores the true nature of the risk that we're hedging against. The name of the bull in this China shop is Donald Trump. Anyone who thinks that technical analysis is going to determine where a market move ends in reaction to Donald Trump prosecuting his agenda...you're crazy.”

WTI crude oil declined to the $55 handle peak-to-trough, but notably maintained modest backwardation in the forward curve even at that price level, signaling that supply remains relatively tight despite the severe price decline and suggesting $55 was an attractive buying level.

“we got all the way down to a $55 handle on WTI before Wednesday's ceasefire news obviously turned everything around...even at $55 WTI, we still had modest backwardation across the first year of the forward curve. That's really saying something. After a flat price sell-off this pronounced, the term structure usually collapses into contango.”

Uranium is overweight in the portfolio but remains attractive long-term due to superior fundamentals, though technical trends are still downward and waiting for technical confirmation before making additional purchases would be prudent.

“I tried to promise myself not to buy any more uranium because I'm already ridiculously overweight and the trend was obviously already down, but I just couldn't resist another million shares of Lotus Resources at 13...Anyway, uh as much as I I shouldn't be buying more uranium because I already have too much, I I couldn't resist. Another round of Trump tariff mayhem could easily easily take us to lower lows. The trend is definitely still down. We have not yet seen any uh any technical signs of a reversal yet.”

A controversial Brookings paper proposed that the Federal Reserve may need to introduce an explicit facility to backstop the basis trade during systemic events, either by taking the other side of the trade or giving hedge funds direct access to the standing repo facility, which would represent a direct bailout of hedge funds—something the Fed has never done despite indirect bailouts like LTCM.

“a Brookings paper came out with a very controversial suggestion that maybe the Fed has to introduce a explicit facility to backs stop the basis trade. So either they would go into the market and take the other side of the basis trade if there was a you know a a systemic event or they could give uh hedge funds direct access to the standing repo facility. But either way it's it's kind of crossing the Rubicon. I mean that the Fed has obviously done indirect bailouts of hedge funds. LTCM being one of the most famous examples and obviously you can argue what happened in March 2020 was an indirect bailout, but they've never done a direct bailout of of hedge funds.”

Latin America may benefit from a geopolitical shift toward regional trade blocs where the US focuses on its sphere of influence, positioning Latin American countries as potential beneficiaries of US trade preference relative to other regions.

“I think there's a sort of a notion that we're going to have a kind of you know you mind your backyard, I mine my backyard kind of world uh where China has its backyard and Europe has its backyard and the US has its backyard and part of the US's backyard is is Latin America. Um so maybe there's a kind of notion that these countries might kind of ultimately end up benefiting from US trade in a way that other parts of the world aren't.”

Corporate profits and profit margins have been supported by large government fiscal deficits via the Kalecki levy profit equation (corporate profits are a function of government deficits, household savings, and investment); as the fiscal impulse fades, profits will compress, providing another downward driver for equities.

“there's a uh the keki levy profit equation which basically shows that um the savings of households and governments uh along with corporate investment dictates corporate profits. Now uh households have been on net saving but the government has been doing the opposite and obviously if it wasn't for the government after the after co after the pandemic we would be in a very very different situation but the government has been spending handover fist to say he's been running these very large deficits and that's enabled uh profits and profit margins to be larger than they otherwise would have.”

The administration's focus on small business, real estate, and middle-income bracket constituents means the stock market, which is 90% owned by the top 10% of households, is a lower priority than metrics affecting small business equity and real estate values.

“the stock market is owned by way fewer people in the US. So the the vast majority of stocks are owned by like the richest 10% of households. If you look at what matters to, you know, what are probably more likely to be Trump's base, their sort of middle income bracket, it's small businesses, it's real estate, and that's clearly where the the administration are putting their focus on.”

Patrick expects crude oil to bounce from lows toward 63-65 initially, but when oil approaches the previous six-month low of $66, that level will act as overhead resistance (since broken support becomes new resistance), suggesting crude will settle at lower levels for months until dust clears on tariff and recessionary impacts.

“I would not shock me here, Eric, if we got back to 63 to65 on crude oil. But there's a rule in technical analysis where what were all the previous lows when broken act as overhead resistance. And it is very likely uh that uh when oil approaches that $66 area where the lows over the last six months were being established, that will now act as an overhead resistance and oil will likely be at this new lower level for at least a few months into the summer uh until we see uh the dust clear in terms of the prevailing trends”

The key test for whether Thursday's low in Treasuries was a one-time stress event or the start of a new selling phase will be whether bonds quickly recover or whether they continue to deteriorate, indicating ongoing stress from basis trade unwinding.

“one of the big things for me will be will we see this quickly recover? You know, maybe it was a a bit of stress from the basis trade unwinding uh and uh and then when settled down, will we see u these bonds recover or is this the start of some new round of selling?”

Crude oil dropped $17 from peak to trough before the ceasefire announcement recovery but was still in backwardation at the $55 level, indicating reasonably tight supply despite the sharp decline, making $55 an attractive level had it been bought.

“We got all the way down to a $55 handle on WTI before Wednesday's ceasefire news obviously turned everything around... what I think is really profound though is not how low it got, but even at $55 WTI, we still had modest backwardation across the first year of the forward curve. That's really saying something... the fact that it was still in backwardation at 55 made 55 all the more attractive.”

Whether bonds recover quickly from the sell-off or begin a new downtrend will be a critical indicator of systemic stress, potentially related to basis trade unwind, and requires close monitoring over the next week to assess durability of price moves.

“one of the big things for me will be will we see this quickly recover? You know, maybe it was a a bit of stress from the basis trade unwinding uh and uh and then when settled down, will we see u these bonds recover or is this the start of some new round of selling? uh a little premature to jump to a conclusion, but this is a very interesting moment that we have to watch carefully uh to see uh how bonds react in the next one week.”

Uranium trend remains structurally down despite attractive long-term fundamentals and recent purchase of Lotus Resources at 13 cents (potential quadruple) and Sylex (laser enrichment) at 280 cents; technical reversal signs are not yet present so buying is early despite fundamentals being exceptional.

“I tried to promise myself not to buy any more uranium because I'm already ridiculously overweight and the trend was obviously already down, but I just couldn't resist another million shares of Lotus Resources at 13... the longerterm fundamentals just couldn't be better. But the technical trend is still down. So, uh probably the smart thing to do here is wait for clear signs of a new uptrend. But boy, when this thing starts to go, there's going to be tremendous upside.”