Liberation Day or Liquidation Day?

Reformed Millennials - Learn Earn and Invest

* Market update

* Scenerios

* VIX History

* Black Monday

* Recommendations and Links

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Market Update📈📉

After doom scrolling twitter for the last 60 hours straight, I have come to the conclusion that nobody knows anything.

We’re 3 months into this Tariff war and if someone is claiming to know how this ends, they are either lying or Ignorant.

But im going to trying and piece together the past to help make sense of today and give some scenarios that could play out in the near future.

Trump 1.0’s reaction function was the S&P 500.

Trump 2.0’s seems to be the 10 year treasury yield. And once inflation and the deficit are decisively under control, he will be back to focusing on equity markets.

I’ve been attending a lot of fund manager calls and meetings over the last 2 weeks. HF, LO, Macro.

This is probably the most negative on a forward looking basis I have ever heard such a broad swath of investors in the last 10 + years. Quite something given tech bubble in 2000, GFC in 2008, Covid and 2022.

I think the fragility of this moment is not to be ignored. It would only take one “Truth Social” post backing off tariffs (“we have negotiated some good deals” or “waiting 90 days”) and a little bit of policy stability to start the pendulum swinging the other direction. Or 4/2 being anything other than absolutely terrible.

* Oil down to 58 from 75 since inauguration day.

* Rates are down meaningfully and creeping into the 3’s.

* Truflation at lowest level in 4 years.

* Dollar is down.

* Credit spreads stable relative to any period with similar equity volatility.

There is a massive degrossing in the long leg of the momentum factor; by some measures the sharpest down move ever in this period of time.

The Nasdaq down roughly the same magnitude/velocity as the Covid crash.

FII was less 20 days ago and Trump opened his speech focusing on how much the equity markets were up since his election. I think its reasonable to assume that he still cares despite all the rhetoric to the contrary.

“No crying in the casino,”

It feels to me like there is a little too much confidence that the Trump administration wants a recession. It cant possibly be lost on them the cost of a recession if one were to arise.

Time will tell as ever. Below are some historical charts and scenerios’ to peruse…

Scenerios:

First, the tariff war just started so it’s early, but the bedrock of the “American exceptionalism” trade over the last 15 years has been the virtuous circle connecting stock prices, the allocation of corporate/societal capital, and the US government’s economic policies. This ecosystem generally worked well for most people, and a few weeks of turmoil does not necessarily threaten it. A few months of volatility and ever-lower stock prices, however, risks permanently damaging investors’ confidence in its foundations.

The world isn’t ending. But the rules are changing. For decades, investors benefited from one major tailwind: globalization. Trade was open. Supply chains were efficient. Goods were cheap. That tailwind is fading.

* Worst Case Scenario: The administration is serious about keeping tariffs in place long-term, with the goal of forcing everything back to domestic production and we enter an era of fragmentation. This would mean higher prices for consumers in the short and long term, rising inflation, and a real hit to the average American’s standard of living. We’d likely fall into a deep recession, and the markets could drop anywhere from 30% to 60% in a short period of time.

It’s the classic stagflation scenario — slowing growth and rising prices — and it’s brutal for everyone. No one wins.

* Best Case Scenario: This is all part of a “master plan” — an effort to create global uncertainty and bring countries to the table one by one for better trade terms and concessions on other issues. If that happens quickly (within six months), we could actually see interest rates drop, a recession avoided, and improved trade deals that ultimately benefit U.S. consumers and businesses. In that case, the short-term pain leads to long-term gain. Lots of winners here but its important to sus out the losers.

* Badish Scenario: The intent is negotiation, but it takes more than a couple of quarters. Even if successful, the collateral damage in the meantime sends us into a recession anyway. Supply chains are disrupted, companies hesitate to invest, and consumer confidence erodes before any deals are finalized.

The Market is leaning towards scenario 3 for one main reason in my opinion - The market and its participants believe that the administration lied about the tariffs being 'targeted' and 'reciprocal'. None of the math on their boards made any logical sense and it lacked any intellectual rigor. When Trump said 10% on all nations -- futures rose 1.5% on the news. That win would have raised the $600b (tariff taxes) he wanted/needed for his tax cut AND encouraged companies to reshore.

But instead, he took out his silly billboard of scattered brained math that was arbitrary, and nonsensical. The markets took one look at the China number and reversed the 1.5% gain and shot down 11.5% over the next two days. It’s messy, the tariffs - as they sit - would be devastating if they lasted long, and there’s a lot of uncertainty, but I’m optimistic this wild adventure will come to a conclusion before the summer.

VIX History:

Closes above 40 are rare (occurring just 2.3 percent of the time) and always signal a crisis that demands an immediate policy response. Below is a list from DataTrek of every time the VIX closed above 40, the reason why it was so high, and what happened thereafter:

* August - October 1998: Hedge fund Long Term Capital fails, Fed arranges a private sector bailout.

* September 2001: America hit with 9/11 terror attacks, incremental fiscal and monetary policy supports US economy.

* July – October 2002: Lead up to Gulf War II (2000 – 2002 bear market ended in October 2002, when Congress approved military action against Iraq).

* September 2008 – April 2009: Financial Crisis led to government bailout of US banking system (Q4 2008) and Great Recession spurred Congress to pass the American Recovery and Reinvestment Act (February 2009). Stocks eventually bottomed in March 2009.

* 2010 – 2011: Aftershocks from the Financial Crisis, made worse by the Greek Debt Crisis, which was eventually resolved by an EU bailout.

* 2020: Pandemic Crisis leads to $5 trillion in US fiscal stimulus and Fed taking rates to zero.

The VIX is currently +40 because of US government policies that have created a crisis in investor confidence similar to wars and major disruptions to the global economy, and only a change in those policies will force volatility lower and stabilize stock prices. History is crystal clear on this point.

The only times the VIX has closed higher than Friday’s ending level were in 1998 (1 day), 2008 – 2009 (80 days), 2010 – 2011 (3 days), and 2020 (22 days). In every instance, changes in government policy were needed before volatility declined.

Takeaway: We are now in the chapter of the VIX Playbook where policymakers should be listening to the market and crafting a solution that reduces volatility. It has always worked that way in the past, but government policy itself was never the catalyst for a crisis. This time it is, which makes a speedy resolution more difficult but does not alter the fact that policy must change, or stocks will continue to be under pressure.

Source: CME Group

How were thinking:

For anyone 55 or younger and is accumulating assets, this is an incredible opportunity to buy stocks cheaper than we have seen in 4 years.

For anyone thinking of selling and getting out to wait for clearer skies I want to point to the best and worst market days data below.

The problem with wanting to avoid the bad days is that half of your market return is clustered around the worst and best days in market making it nearly impossible to time.

Currently we are in the heat of a ruthlessly swift bear market sell off. The below stocks are the best performers in 2025 so far that are just starting to roll over into no mans land.

In a bear market, you can't really hide.

First instinct for many is to hedge by buying puts or shorting the stocks that have performed the worst. Unfortunately, that usually bites you in the butt because those are the stocks set to rally the hardest in the event of a policy change.

The VIX is likely going to hit 80 today.

There is no fundamental price to pay attention to during panics like these.

Technicals is all we have.

Some of the levels I am paying attention to: 4907 and 4623.

On Thursday the market tried to bottom at 12:00 and then it rolled over. Friday, the market tried to bottom at 12:30 and then rolled over.When we compare that to 1987, we start to see a possible Wednesday for a near term bottom.

With all that in mind, I think there is good reason to degross your portfolio on 4-5% rallies.I will be focusing the portfolio allocation on the following themes:

* Strong FCF and Dividend Growth.

* Compounders.

* Mexico, Canada and USA.

Twitter links from the pod:

* Stan Druckenmiller on tariffs and markets

* 6 more takes - Joe Wiesenthal

* First 8 takes - Joe Wiesenthal

* The Long View on what trump and his team really wants - Link

Podcast & YouTube Recommendations🎙

* B2G Podcast was a great conversation.

* Ezra Klein on the current moment:

Best Links of The Week🔮

* “The Trump administration will remain steadfast in its reciprocal tariffs on major U.S. trading partners even in the face of a global stock market sell-off, Commerce Secretary Howard Lutnick told CBS’s “Face the Nation” on Sunday. Stocks have sold off heavily in the U.S. and around the world after President Donald Trump rolled out broad-ranging tariffs on April 2. In addition to a 10% duty on all imported goods, Trump announced higher levies on imports from 57 countries, which are set to take place on April 9.” CNBC

* “Federal Reserve Chair Jerome Powell... emphasized the central bank doesn’t need to hurry to adjust interest rates as policymakers wait for more clarity on the administration’s policies and their impact... [he also] said the economic impact of new tariffs is likely to be significantly larger than expected, and the central bank must make sure that doesn’t lead to a growing inflation problem.” Source: Bloomberg

* The downside risks to the S&P 500 as a result of foreigners selling are potentially significant. Apollo Academy

* John Gruber explains why the delayed announcement of a new Siri could mark a key moment in Apple’s history. Daring Fireball

* Shortly before Daniel Kahneman died last March, he emailed friends a message: He was choosing to end his own life in Switzerland. WSJ

* J.P. Morgan Asset Management - Guide to Retirement

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