All Good In Crazy Land
It's been a mere two weeks in Trump Crazy Land. But it feels like two years already...
Friday morning, Barron's wrote that Trump had reiterated his threats of trade war with Canada, Mexico and China, but markets were not believing him. It turns out that markets were partially wrong and partially right to suspect Trump's veracity. Just before the close on Friday Trump confirmed tariffs were a done deal and he signed them into effect on Saturday.
Overnight Sunday, global markets crashed. I was watching Bloomberg Monday pre-open and the commentators openly questioned whether or not the tariffs would actually take effect on Tuesday. I relayed that thought on Twitter - that this could be just another Trump headfake. Sure enough by ~10am Trump had reached a deal with Mexico to defer tariffs by one month. Then he went to play golf, took a nap, and resolved another global trade war with Canada, all before dinner. The overnight futures ripped straight back up to close the gap like nothing had ever happened.
So, it's all good in crazy land, right?
Let's see about that.
This chart of Tech stocks tells the tale of 2025. A straight line crash to start the year, on fears that Trump's policies will be inflationary, that ended on Monday January 13th. Then a two week rally which peaked with Trump's announcement of a U.S. backed "Stargate" AI initiative. Followed by another Monday crash a few days later on news that China had developed an AI model that costs pennies on the dollar compared to the U.S. The financial press called it the "Sputnik moment" for AI. But once again the low was Monday and markets trudged back up to this past Friday even though the FOMC confirmed they will be more hawkish this year than expected.
And then came the mock trade war crash yesterday with the low at 10am.
It's all good in crazy land. But notice that the trend is lower and the rallies are growing smaller and shorter. When this rally ends, it will be the fourth lower high for Tech stocks.
The real damage from Trump's market gyration was inflicted on Crypto land, in particular outside of Bitcoin. Over the past year Bitcoin has been increasingly adopted by Wall Street and therefore it's less volatile than the rest of the Crypto space. Nevertheless, it is now the most overvalued relative to Alt-Coins since 2021, which preceded a Bitcoin collapse as well. As we see below, this nascent global bear market is following the same path as the one in late 2021 early 2022. Led down by Momentum Tech stocks and alt-coins which are the riskiest parts of the market.
Here we see the Dow Transports are confirming the 2022 analog:
Funny how a bear market can repeat without anyone noticing.
That's called willful denial.
My hypothesis is that interest rates have peaked and will soon crash. First due to a global RISK OFF rally in bonds, followed by panic Fed rate cuts in the midst of an incipient global recession.
In the chart below we see that long-term rates peaked over a year ago.
In summary, no one saw it coming.
