FAFO
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Liberation Day is almost upon us but for now Americans are being liberated from their 401k dollars. The only worse 100 days for markets came after the inauguration of George Bush in 2000, but you can’t really blame him for the popping of the dotcom bubble because that came on Bill Clinton’s watch.
Usually, people overestimate the impact that presidents have on the stock market because starting points and past policies are so important, but in this case I suppose there is no denying the cause of the equity drop. Businesses and consumers are frozen by a relentless machine gun of apoplectic policy. Tariffs and no tariffs and lawsuits against enemies and socialist measures like threatening car companies not to raise prices hours after tariffing them and so on.
The only strong economic activity right now comes from importers frontloading purchases in advance of April 2. The magnanimous view here could be that the administration is smartly and strategically getting the pain out of the way early by letting stocks crater from Day 1, but I can’t simultaneously believe that government is mostly bureaucratic and incompetent and … They are flawlessly executing a 4D chess masterclass… At the same time.
As US and global businesses await the new rules, they stop investing and hiring. Which leads to a collapse in economic confidence. Exhibit A:
Exhibit B:
That red line is lower again as I type this.
I realize I am sounding very political this week but it’s politics driving the markets so I gotta comment on the politics! Even in the reddest of red areas (Texas), businessmen are like wtf. This is from the Dallas Fed:
I can pretty much guarantee you those are not quotes from hapless libs or even from middle of the road Democrats.
The beatings will continue until morale improves.
Stocks hate uncertainty and while I thought April 2 might bring some clarity, I’m less optimistic on this now as Trump and the EU are already talking about negotiating or renegotiating or whatever. If the tariffs were credible and permanent, the negative impact on psychology would be much less severe than a scenario where businesspeople have to wake up every morning and check Truth Social to see if they should declare bankruptcy or double their employee count.
Mixed in with all the malaise this week were a ton of single name stories including a LULU doing the diver pose, GME trying to copy Mike Saylor and looking pretty bad doing it, and automaker stocks spinning out on auto tariffs.
Ferrari raised prices, and presumably their customers don’t care, but GM and Ford will need to eat some of the price increases or risk arbitrary government censure. So you could argue that the stock price moves reflect the negative operating margin impact, by company. Or not. Oh baby, baby, it’s a wild world.
Most importantly, Ferrari’s ticker symbol is: RACE. I usually hate gimmicky ticker symbols but for some reason I love this one. I am more a BMW guy, and M series specifically, but I am clearly not a true superfan because I had never heard of the M3 CS (Competition Series) until a friend of mine told me about it this week.
https://machineswithsouls.com/bmw-m3-cs/
Beauty, eh?
This week’s 14-word stock market summary:
Policy tweaking. AI capex spend is peaking. Equities leaking. FAFO.
It’s hard to know what to do with bonds when you are in a period of potential stagflation. So yields are going up and down but not really doing that much. It’s hard to have a strong view on bond yields when prices are sticky/rising and economic growth is about to dump.
The Fed is not in play. I have a strong view that is against the majority right now which is that the soft data WILL show the way for the hard data this time. I was a vocal proponent of the idea that the soft (sentiment) data was bullshit for most of this cycle because it simply showed that we were coming off an unsustainable boom in 2021, not going into recession. This time, it’s probably showing that we are going to transition from soft landing to recession. This recession will eventually crush prices, but first we need to get through the inflationary psychology fed by tariff policy. So the fall in inflation will come later and bond yields might not go down right away.
The market is permastuck in the old regime / thinking where tariffs were bullish USD. This does not appear to be the case anymore as US economic policy is feeding a massive capital outflow story. After a decade of crowding in, money now wants out of the USA as fast as possible. Peak AI capex, peak MAG7 earnings growth, policy chaos, ally bridge burning, and possibly new taxes on foreign assets are all scaring the heck out of global investors and so money is pouring into European stocks (for example) and out of anything labelled: MADE IN THE USA.
It is EXTREMELY rare for the S&P 500 to go down on the month, and the DAX to go up. In fact, it’s happened only three times since 2000. Some data:
That’s a grid where I took all the SPX monthly moves of -3% or worse, and then sorted by change in the DAX. You can see that this month is a rare bird.
The result of this rotation out of USA and into Europe has been a rise in the euro and broad USD selling. Unless the US administration adopts a completely new strategy, this is probably going to be a fierce USD downtrend similar to the one we saw after the bursting of the dotcom bubble. The USD sold off pretty steadily from 2002 to 2007.
The biggest story in crypto this week was GameStop’s shameless attempt to copy Michael Saylor’s BTC strategy. Here’s how that went:
I have a ton of respect for the crazy moral hazard trade that Michael Saylor has engineered in bitcoin. He started when bitcoin was at $10k and despite buying billons of dollars’ worth of BTC above $100k, his average is $67k. Not too shabby. While there is now rightful concern about the Ponzi-like aspect of the most recent Strife offering, he’s already won, regardless of whether bitcoin goes up, down, sideways, or diagonal from here.
On the other hand, the copycats buying bitcoin for the first time at $88,000 in an attempt to boost money-bleeding operations when their stock is already trading at 2X book value smack more of desperation and a lack of creativity than mad genius, gunslinging, or Cyberhornet awesomeness. There was a reason MSTR captured the zeitgeist and earned a huge premium—they were the first mover, and they were offering a listed bitcoin proxy before there were spot ETFs. Now, MSTR maintains the afterglow of first mover status, but companies like MARA, RIOT, and GME don’t. Also, MSTR trades at 2X book value, so if GME spent all its cash on BTC and converged to the same valuation as MSTR, the stock would go down, not up. Sure, GME is a memestock, but it’s lost its zip over the years.
I hate it.
The big story in commodities is a boom in US contracts fed by frontrunning ahead of tariffs. This is most notable in copper, which is raging to new highs despite tepid global growth and a balance sheet recession in China. There is huge convexity to the downside now in copper, imo, as the tariffs are priced in.
That’s it for this week.
Get rich or have fun trying.
The craziest finish in the history of the NBA, methinks
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How to get free publicity (dinosaurs: shut the fk up)
Sophie Powers on American Idol
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Normally, you want to buy whatever assets the government tells you to buy. This time is different.
This new theme is reminiscent of 2003-2008
