The Breakdown - Markets Get Spooked By Recession Possibility

Episode Date: March 12, 2025

NLW explores macro turmoil, including the growing (at least in analysts' estimation) possibility of a recession. He also looks at how it's impacting the crypto markets. Sponsored by: Ledger Ledger, the world leader in digital asset security, proudly sponsors The Breakdown podcast. Celebrating 10 years of protecting over 20% of the world’s crypto, Ledger ensures the security of your assets. For the best self-custody solution in the space, buy a LEDGER™ device and secure your crypto today. Buy now on Ledger.com. Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/nathanielwhittemorecrypto Subscribe to the newsletter: https://breakdown.beehiiv.com/ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. What's going on, guys? It is Tuesday, March 11th, and we are talking about how everyone is down bad. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. It has been rough out there, friends, in market land, not just in crypto, although obviously we've been following that closely, but just everywhere. If last week's macro picture was

uncertainty around tariffs, this week the message has become clear. Recession fears are coming into focus, with stocks accelerating to the downside. The S&P 500 sold off by 2.7% yesterday, while the NASDAQ saw a 4% single-day collapse. More than a trillion dollars in value was ripped from the tech-heavy index as the Magnificent 7 dropped by 5.4%. This was the worst day overall for the NASDAQ since 2022. And with the index now 8.6% off the highs, we are almost halfway to bear market in U.S. tech stocks. The Mac 7 crossed that technical threshold on Monday, now down 20% from their December peak. The mood has shifted from concern to fear, and the breathless quotes are starting to fill the financial press.

Michael Bailey, Director of Research at Fulton-Breekfield Broneman said, Sell your winners, embrace the bear case, and duck in cover. Amy Wu Silberman of RBC Capital Market said, to be a period where I think it's going to be panic at the disco. We haven't gotten there yet, but as these levels climbed, there will be unwinds and more uncertainty that triggers even more. Now, clearly, this is all about the new White House and its agenda of global economic reform. While some were optimistic about regime change and a realignment towards America First policy, the narrative is becoming murkier. Michael Rosen, CIO of Angelus Investment Advisors, said,

it took a few weeks for Trump to break the international economic regime, presumably with a plan to fix and replace it with something better. Absent a clear idea of what better is, investors are just left with a detritus of the broken global economic framework. Unless and until we see what replaces it, investors will be cautious at best. Investor David Banson echoed this vote of no confidence, adding, I do not believe the administration knows how the tariff situation will play out. But if I were a betting man, I would say that it will persist long enough to do damage to economic activity for at least a quarter or two and ultimately result in a deal with different countries that makes everyone wonder why we went through all the fuss. Now certainly, there are some people who are representing

the longer-term view, or at least extending their time horizon past a few weeks. Gina Bolvin of Bolvin Wealth Management basically argued that this is a buying opportunity. She commented, we've gone from animal spirits to what are the odds of a recession. This is a headline-driven market, one that could change in an hour. Sit tight, buckle up. We finally have the correction we were waiting for, and long-term investors will be rewarded again. Nate Garassi, the president of the E.T.F store commented, if you can't stomach a 10% decline in stocks, you probably shouldn't be in stocks to begin with. would say the same thing about a 20% decline, by the way, or 30%.

It's the price of admission of pursuing longer-term returns, in my opinion. Now, it's clear no one wants to step in front of this freight train, but we're not yet at the point where investors are abandoning U.S. companies. Remember, the Mag 7 had more than 65% gains last year and were priced to perfection, and so one could argue that this is an overstretched market coming back to Earth. The real issue is that valuations are snapping back rather quickly and at risk of overshooting to the downside. Bloomberg called yesterday's market action the falling knife that no one wants to catch.

And of course, when Wall Street views U.S. stocks as a falling knife, they view Bitcoin as a plummeting circular saw. Investors have been abandoning Bitcoin ETFs in droves. The fund saw over 750 million in outflows last week, adding to $2.6 billion from the week prior. A further $189 million was withdrawn on Monday as the sell-off continues. Overall, assets under management are down 16% after four consecutive weeks of outflows, the largest drop since last April. Julio Moreno, the head of research at Crypto Quant, wrote, U.S. spot ETFs are now net sellers of Bitcoin so far this year. At this point, last year, they had purchased net 165K Bitcoin. Developer Lawrence Day tweeted, Uber has no cars, Airbnb has no

hotels, Bitcoin has no bids. Welcome to the new economy. Hello friends, I am thrilled to share that Ledger is once again partnering and sponsoring with The Breakdown. Many of you know, but for those of you who don't, Ledger is the most secure hardware wallet for your crypto and logins. It's trusted by 7 million users and secures 20% of the world's digital assets. What's more, Ledger is a lot more than wallets. Over the recent years, they've built a comprehensive ecosystem of products and services, all of which are designed to make digital ownership more secure and accessible. You can buy your Bitcoin with Ledger and Ledger Live and so much more. Basically, not only did they want to keep your assets secure, they want you to be able to do more with them. Ledger's newest devices,

the Ledger Stacks and Ledger Flex introduced the world's first secure touchscreens, making it easier and safer to manage your transactions and assets. Alongside Ledger Stacks and Ledger Flex, the company also launched the ledger security key app, offering a safer alternative to traditional passwords and enhancing your digital security. If you are in this space, you owe it to yourself to at least check out Ledger and their ecosystem what they have available to you. So thanks, once again, to Ledger for sponsoring the show. Now, zooming out, the big shift happening this week is that recession fears are crystallizing. Sunday saw dueling opinions out of the administration. In a televised interview, Trump declined to rule out the possibility of a recession. Although, as I mentioned yesterday,

I think that the reporting around that kind of overstated his implication. However, later that day, Commerce Secretary Howard Lutnik declared there's going to be no recession in America. This back and forth did little to calm nerves, largely ensuring that every front page on Monday featured the word recession. What's more, forecasters are walking up their odds of a recession this year. Mark Zandi, the chief economist at Moody's raised his probability to 35 percent, stating, that's uncomfortably high and it's rising. Fitch rating said the threat of a recession is real. It's a threat you can't ignore. Goldman Sachs increased their odds from 15 to 20% earlier this week, and J.P. Morgan is now at 40%.

Stefan Weiler, an economics professor at Colorado State and former Fed researchers said, we went from a very low probability in January to a realistic possibility at this stage just weeks later. The R-word is popping up all of a sudden. Now, to the extent that anyone in the administration is explaining what the plan is, your best bet is to listen to Scott Besson. The Treasury Secretary has made multiple appearances over recent days to give his views on the economy and indicate his stance on looming weakness. Besson didn't mince words a Friday appearance on CNBC, stating, could we be seeing this economy that we inherited starting to roll a bit? Sure. Look, there's going to be a natural adjustment as we move away from public

spending. The market and the economy have just become hooked, and we've become addicted to this government spending. There's going to be a detox period. Referring to the Trump put, a line in the sand where the government will put a floor under the stock market, Besson added, there's no put. The Trump call on the upside is, if we have good policies, then the markets will go up. Essentially, Besson is trying to say that there would be no government intervention to protect the stock market. Policy direction won't be knocked off course by panic on Wall Street. Rounding out his comments on the market, Besson reiterated that the administration isn't looking at the stock market as a measure of success, stating, the market was up 20% last year, 20% the year before. Did the Biden administration

succeed? The American people weren't buying it just because the market was up. They voted out the Democrats. Speaking to the Economic Club of New York later on Friday, Besson declared, access to cheap goods is not the essence of the American dream. The American dream is rooted in the concept that any citizen can achieve prosperity, upward mobility, and economic security. For too long, the designers of multilateral trade deals have lost sight of this. International economic relations that do not work for the American people must be re-examined. By the way, for those of you who are interested, I think that we are going to do an interesting kind of different Long Read Sunday this week, where I read a long thread from Balaji Shrinivasan that talks about how his take on how the Trump administration is getting this

actually slightly wrong. It was a super interesting thread, whether you agree or not, so I am looking forward to sharing that one with you guys in a couple of days. In the meantime, this Besson's speech really underscored that this is an intentional economic shift and a fundamental rejection of the global economic contract that was struck in the Clinton era. The bargain with American workers for allowing China into the World Trade Organization and signing NAFTA was cheap goods in exchange for offshoring manufacturing. Unwinding this deal is ideologically consistent with the America First Policy. The big issue is that we don't have any indication of what the new social contract with American citizens and American economy will be, leading to the feeling among

many, that the Trump administration is removing cheap goods and replacing them with nothing. A big overarching question hanging over the economy is whether all of this chaos and panic will get the Fed out of their current bind. Rates have been on hold for the last two meetings, and until recently, it seemed like higher for longer was going to drag on for another year. Fed expectations have dipped a little, with three cuts now priced in for the back half of this year. The administration has made it clear that they want to bring rates down, but the Fed won't be able to cut unless inflation is snuffed out. Still, there's a pathway here with Bob Elliott of unlimited funds commenting, wrecking the economy is certainly one approach to create disinflation,

$7 trillion or one-third of the national debt needs to be refinanced this year, with Besson on record that he would like to issue longer-term debt. The Treasury then is on the clock if they want to achieve this and will need rates to head lower in a hurry. However, that process has stalled out a little. Despite market tumult, the 10-year bond rate is at the same level it was at the beginning of last week, around 4.2%. Fed Chair Jerome Powell also doesn't seem to be in any rush to adjust policy. speaking at a University of Chicago event on Friday, he said, despite elevated levels of uncertainty, the U.S. economy continues to be in a good place. Sentiment readings have not been a good predictor of consumption growth in recent years.

Continuing, he added, as we parse the incoming information, we are focused on separating the signal from the noise as the outlook evolves. We do not need to be in a hurry, and we are well positioned to wait for greater clarity. Frankly, this sounds like classic Powell. The chairman's term has been consistently about waiting for confirmation before acting. At the moment, the big question is whether tariffs will be inflationary or deflationary, and there isn't a particularly good way for the Fed to know until the results show up in the data. Dario Perkins, the managing director of Global Macro at T.S. Lombard, tweeted,

if you want to do fiscal consolidation and not have a recession, you need a monetary offset. Fiscal consolidation in tariffs is a particularly silly combination, because the tariffs tie the central bank's hands, at least until they see the economy properly deteriorate. And that's exactly when the central bank is in danger of falling behind the curve. analyst Noelle Atchison isn't holding her breath for cuts, commenting, Fed officials are dropping heavy hints that they will prioritize controlling inflation over easing to boost the economy. And for now, inflation looks sticky even before the impact of tariffs. I think the market is way overestimating the possibility of cuts.

Powell has made it clear that he's going to sit back and watch the outcomes of White House policy rather than getting in the middle and pushing it. That doesn't mean the central bank will allow the economy to fall off a cliff while holding rates at 4.5%. if this isn't the type of stock market drawdown that will spur emergency rate cuts in QE. In fact, there doesn't even seem to be signs of stress in the financial system. Every macro analyst is watching credit spreads like a hawk for a sign of crisis, and so far, they haven't budged. This economic slowdown and stock market drawdown is only strange in that it's happening very

quickly, but we're still in the realm of a fairly normal correction in a softening economy. It could get worse, but we also could be witnessing a massive overreaction on Wall Street after a couple of very hot years. Commercial litigator and Bitcoiner Joe Carlos R.A. commented, people calling for emergency rate cuts for a big print fundamentally misunderstand what this is. This is a controlled demolition, not a systemic risk. Now, recording this on Tuesday, President Trump was set to meet with top CEOs in Wall Street leadership this morning, so we'll see what comes with that meeting.

Will President Trump be able to sell a vision of the future and get the big players in the economy on board for what's looking like a rough adjustment period, or are these economic power brokers going to try to put their foot down and demand a change in direction? You can pretty much guarantee that that is something that we will be talking about on tomorrow's show. But for now, that is going to do it for today's breakdown. Appreciate you listening as always. And until next time, be safe and take care of each other. Peace.