In December 1994, I was forced to cancel my Christmas trip to see family, thrust into my first portfolio crisis by the Mexican peso devaluation. As a 27-year-old, I survived on little sleep, toughed it out, and banked the experience. Four years later, living in Brazil when the emerging market and LTCM crisis hit in 1998, that hard-earned lesson kept me grounded—I stayed rational amid the storm. Survival in that crisis changed my career path. Having navigated countless global crises since then, I’ve learned they’re always unnerving but never as dire as they seem in the moment. One truth stands out: these times, if you can see past the fear, offer the best investing opportunities—much like the life lesson we impart to our kids that nothing worth having comes easy. When panic like the last three days occurs, stop extrapolating your worst fears and look for the opportunities, because I believe six months from now, we’ll look back, realizing it was just the normal market positioning adjustments at the beginning of a new macro regime. Yesterday’s lows occurred with people calling for Black Monday and bad news so although we are likely to retest them soon, I think yesterday was a pivot day for the market and a time for offense.
This insanity of the past week took me back to those late-’90s days in Brazil during the emerging market turmoil, and that memory brings a smile as I watch the panic unfold since last Wednesday’s Rose Garden announcement. Like everyone else, I tuned in, expecting clarity on policy amid peak uncertainty, only to see colored cardboard and random numbers rolled out like a Saturday Night Live skit—it was surreal. No surprise the S&P 500 tanked over 10% across Thursday and Friday. This was a self-inflicted sell-off, met with a blunt “I don’t care” from the administration. The irony? Wednesday should not have been that big of a surprise to us. It seems many doubted his tariff resolve, given his campaign promises, first-term actions, and self-proclaimed “Tariff Man” persona, reiterated with steely consistency since the election. Naming Stephen Miran, author of the November 2024 paper “A User’s Guide to Restructuring the Global Trading System”, as Chairman of the Council of Economic Advisers only solidifies tariffs as the bedrock of his new economic vision.
We doubted him on tariffs, but now many assume that the man who wrote The Art of the Deal has no interest in making a deal? I think what has confused people in the market is the strategy to get to the deal, but honestly, if you strip away the cardboard and the tariffs on penguins, the strategy to secure the best deal in a global reset is to act crazy. I believed going into Wednesday that we’d hit peak uncertainty, and even with the cardboard presentation, I still believe that was the peak; however, asset prices had to price in a higher tariff rate than expected and, most importantly, reflect the grade the presentation deserved. He’s creating fear and doing a very good job of it. It reminds me of Heath Ledger as the Joker with the line, “Do I look like a guy with a plan? … I’m a dog chasing cars—I wouldn’t know what to do with one if I caught it!”
President Trump has said he wants “phenomenal deals.” He claims he already has 7 trillion dollars in commitments for investment in America. He predicts the stock market will boom after the tariffs. He promises to fast-track power for AI. This all feels like intentional turbulence—not an attempt to spark a trade war, pick up the Risk game board, and throw the pieces all over the floor to reset the world into a depression. To me, this intentionality suggests a negotiation at play rather than reckless disruption—unless, of course, he doesn’t truly believe his own rhetoric, which seems unlikely given his track record. Couldn’t this be Trump angling for the best deal possible, leveraging shock to extract concessions? Deal-making is his hallmark—nobody should be surprised by this approach—and with Scott Bessent, his Treasury Secretary who has seen enough market cycles to explain the history of the market to him, including the dangers but also the ability to handle sharp short-term falls without plunging into a deep recession, there’s at least some savvy behind this. Sentiment can snap back fast, as Bessent knows, and this gambit might just be the opening bid in a high-stakes trade poker game. Bessent reinforced this yesterday, noting Trump “gave himself maximum negotiating leverage—and just when he has achieved the maximum leverage, he’s willing to start talking.” This approach is dangerous, but the market has now built in a bad outcome.
However, let’s assume he was serious and no deals are coming. People seem to doubt the stock market’s power over government officials when their plans don’t work the way they want. In every crisis I’ve seen, leaders insist, “The market is wrong, and it will be fine.” Not one in my career has been an exception. Scott Bessent knows this, as do seasoned investors, which is why many posted on X over the weekend about the danger of this plan. The markets know more about the future than any of us, and the magnitude of this sell-off—with the SPX dropping over 10% in just two days following the tariff announcement—stands out as a rare and jarring event in market history. It ranks as the fourth largest two-day decline in the SPX since the end of World War II, trailing only the 1987 stock market crash, the Global Financial Crisis after Lehman Brothers’ collapse in 2008, and the COVID-19 panic in March 2020. That a drop of this scale is the fourth largest in over 80 years underscores its significance, placing it among the most extreme market shocks of the modern era. Yet, this is where we glimpse a little light. History offers a silver lining: in each of those prior three instances, the market was higher three and six months later and never looked back. In each case, there was assistance from the Fed and government—not the case now—but given this is self-inflicted, let’s just say a pivot is needed, and Bessent getting more involved, to me, looks like that pivot. This pattern suggests the current plunge, while unnerving, may once again present a rare buying opportunity for investors willing to weather the storm.
Economists, ever timely, with the SPX having fallen 20% from its highs, are now sounding the recession alarm. Could we see a mild downturn? Sure, it seems to be happening now. Yet history reveals a compelling truth: the best buying opportunities often arise when recession fears peak or when you’re already knee-deep in one. With Q1 GDP likely slipping into negative territory and economic activity currently frozen—potentially dragging Q2 down as well—we might already be in a mild recession, mirrored by the market’s sharp plunge. Reflect on past two-day 10% sell-offs: after the GFC’s nosedive, the U.S. lost nearly 6 million jobs over months; the COVID crash erased 13 million in a single quarter—yet stocks roared back within six months in both cases. Even in 1987, with no major job cuts, the market rebounded swiftly. The S&P 500, a forward-looking beast, is flat year-over-year and has endured its fourth 20% drawdown since 2018. Since December 2019, M2 plus money market fund assets are up 52%, while the SPX is up only 56%. I view the SPX growth as 70% money supply and 30% innovation or profit margins. This suggests the market’s already discounted a lot of risk, setting the stage for opportunity amid the gloom.
It was only four months ago that investors were too optimistic, and now the pendulum has violently swung the other way—all on a campaign promise amplified by a color-coded cardboard presentation. For what it is worth, I believe this shakeup in global trade actually needed to happen. I prefer this chaos to a failed auction a year from now with 10 year rates at 6%. The whole world loses in that situation so attempting to deal with it now in this way is more controllable in my opinion. I also think people should enter into their minds the possibility that China and the US actually make a deal and it is viewed as positive rather than negative. It is not a zero probability which is where assets are priced.
In Trump’s first term, the market rallied on tax cuts in 2017, then fell 20% on tariffs in 2018. This time, we’re tackling tariffs first, with tax cuts and deregulation to follow. Most importantly, this turbulence has made people forget the acceleration of AI and the impact it will have on all our lives. This will be the most breathtaking innovation the world has seen. Remember the iPhone was born out of the GFC so remember to focus on the future and not on the fears. We’re consumed with tariffs and the specter of a trade war dragging us into a depression. I’m channeling my EM experience from a young age to see that there are more potential outcomes than the worst-case scenario. With positioning dramatically different from how the year started and AI progress making each month feel like a year, I’ll bet this three-month sentiment shift will look very different by the time Labor Day ends the summer. By then, the light at the end of this turbulence will be undeniable.
