The Breakdown - The Worst 3 Days in Stocks Since Oct 1987

Starting point is 00:00:00 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 Monday, April 7th, and today we are talking fallout, fallout, fallout of the tariffs. Of course, same thing that everyone in the markets is talking about, but of course coming at it from a Bitcoin angle. 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. Well, friends, it is day three of absolute mayhem in the tariff economy. In fact, just before recording this, I saw Bloomberg's Joe Wisenthal tweet that this was the worst three-day performance for the

Starting point is 00:00:52 S&P 500 since October 1987. Not surprisingly, the introduction of these sweeping tariffs continues to be the biggest story so far during the Trump presidency. Nationwide protests of varying sizes were held on Saturday to oppose the Trump agenda, tariffs and everything else. Meanwhile, the stock market suffered its worst two-day plunge since March 2020 to end last week. Five trillion in value was wiped off the S&P 500 in a 10% drawdown. And for a time amid the turmoil, Bitcoin was actually looking relatively sturdy. It sold off by 7% during Wednesday's announcement, but traded relatively flat throughout the rest of the week at around 83,000. With both major indices down more than 4% on Friday, Bitcoin was actually solidly in the green, up 2%. This led many to believe that

Starting point is 00:01:33 that Bitcoin was acting as a global hedge asset and finally decoupling from stocks. To end the week, Standard Chartered published a note saying, over the last 36 hours, I think we can add U.S. isolation hedge to the list of Bitcoin uses. Bitcoin continued to hold up for most of the weekend, reaching Sunday morning without additional pain. Gemini co-CEO Tyler Winkle boss tweeted, for the first time in history, Bitcoin is not moving in lockstep with the stock market. It's now behaving like a hedge to geopolitical uncertainty. When the stock market plunged during COVID, so did Bitcoin. And this was always the case over the last 10-plus years. But not the this time, despite the market nosediving in response to tariffs, Bitcoin is holding steady at 80K.

Starting point is 00:02:08 It's starting to look less and less like a risk-on asset. We are in new territory. Now, if you had to guess, just cosmically, what would happen next? What would you think? That's correct. As soon as Tyler hit send, Bitcoin began selling off, plunging 6% to a low of 77,000 by the evening. Dragonfly Capitals, Haseeb Qureshi, had previously asked people to thread why Bitcoin was holding up so well, but then on Sunday revisited the takes, commenting, boy, this didn't age well. That said, the hundreds of replies saying, Alts are already oversold or crypto front-ran equities didn't hold up. Lesson? Crypto is weird, but it's mostly correlated to optimism and risk appetite. That optimism is crumbling under Trump's

Starting point is 00:02:45 silence. Travis Kling of Aikai Capital noted that however bad it feels at this moment, things can always get worse, tweeting, just as a reminder for the first cyclers, we did a down 50% in 24 hours for COVID. So that'd be like going and seeing 40K for lunch tomorrow. Have fun. What's more, the weekend featured no signs that the president would back down from his aggressive policy. Interspersed with videos of his golf swing, Trump posted, we have massive financial deficits with China, the European Union, and many others. The only way this problem can be cured is with tariffs, which are now bringing tens of billions of dollars into the U.S. They are already in effect and a beautiful thing to behold.

Starting point is 00:03:18 Administration officials claim over 50 countries have reached out to the White House to negotiate terms. But there's little indication that modifications are being actively considered ahead of reciprocal tariffs going into force on Tuesday night. Speaking to reporters aboard Air Force One on Sunday, Trump said, I don't want anything to go down, but sometimes you have to take medicine to fix something. He added that he's spoken with several world leaders commenting, They're dying to make a deal, and I said, We're not going to have deficits with your country. We're not going to do that because, to me, a deficit is a loss.

Starting point is 00:03:44 We're going to have surpluses or at worse, we're going to be breaking even. In other words, Trump doesn't seem to be negotiating to remove trade barriers. He seems to want foreign leaders to close the trade deficit by proclamation before him make a deal. Hedge fund billionaire Bill Ackman urged to pause, writing on Sunday, by placing massive and disproportionate tariffs on our friends and our enemies alike, and thereby launching a global economic war against the whole world at once, we're in the process of destroying confidence in our country as a trading partner, as a place to do business, and as a market to invest capital. The president has an opportunity to call a 90-day timeout, negotiate, and resolve unfair

Starting point is 00:04:14 asymmetric tariff deals, and induce trillions of dollars of new investment in our country. If, on the other hand, on April 9th, we launch economic nuclear war on every country in the world, business investment will grind through a halt, consumers will close their wallets and pocketbooks, and we will severely damage our reputation with the rest of the world that will take years and potentially decades to rehabilitate. Ackman later called out Commerce Secretary Howard Lutnik for being long bonds, claiming, he profits when the economy implodes. It's a bad idea to pick a Secretary of Commerce whose firm is levered long fixed income.

Starting point is 00:04:41 It's an irreconcilable conflict of interest. Felix Javan of the Forward Guidance podcast wrote, The Bill Ackman Crashout is a very important sequence in bare market lore, referring to the fact that Ackman marked the bottom of every drawdown in the last three years with an epic Twitter rant. He also made a tearful plea for Fed intervention right at the bottom of the COVID crash. Over on Wall Street, the mood ranges from dire to apocalyptic. Jim Kramer was calling for a repeat of Black Monday, the 1987 crash that saw three red days lead into a negative 22% session when markets reopened for the week.

Starting point is 00:05:09 He commented, if President Trump stays intransigent and does nothing to ameliorate the damage that I saw these last few days, I'm not going to be constructive here. I will contain my anger, but only because I lived through 87 and in the end, I came out okay. Kramer did note that changes in circuit breaker rules mean it's impossible to see repeat at Black Monday. If stock indices drop by 13%, level 2 circuit bakers are triggered leading to a 15-minute timeout. 20% drop triggers level 3, ending trading for the day. Nothing above level 1 circuit breakers, which trigger at 7% have ever been used. Now, it's always tempting to fade Kramer, but the international bloodbath in stocks makes that a difficult call. Overnight in the Asia

Starting point is 00:05:43 session, circuit breakers were hit in Hong Kong, Taiwan, Japan, Australia, Singapore, and in the U.S. for the Russell 2000 Small Cap Futures. S&P Futures came perilously close to hitting their limit and ended trading until the morning, and Japan turned off trading in Nika futures after an 8% plunge. Today's episode is brought to you by Crypto Tax Calculator. If you're looking for accurate crypto taxes with no guesswork, check out Crypto Tax Calculator. Get accurate CPA-endorsed tax reports with full support for IRS rules. For those who have fallen down the on-chain rabbit hole, CTC has you covered with more than 3,000 integrations. They have full support for defy staking in NFTs. Import directly to TurboTax or H&R block or share securely with your accountant.

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Starting point is 00:07:35 He made a long-form appearance on the Tucker Carlson podcast and followed up on Sunday on Meet the Press. Besant said, everyone wants to look at the stock market going down. You know what else went down? Oil prices went down almost 15% in two days, which impacts working Americans much more than the stock market does. Interest rates hit their low for the year, so I'm expecting mortgage applications to go up. Pushing back on the idea that tariffs would increase prices, he recalled the 2018 tariff stating, households saw real net wages go up. Interestingly, though, while Besson has been thrust into the limelight as the face of this policy, reports suggest he's dissatisfied with playing this role. CNBC contributor Stephanie Ruhl said, my sources say that Scott Besson is kind of the odd man

Starting point is 00:08:13 out here, and in the inner circle that Trump has, he's not even close to Scott Besson or listening to him. Some have said to me he's looking for an exit door to try to get himself to the Fed, because in the last few days, he's really hurting his own credibility and history in the markets. Michael Green of simplified asset management wrote, If it's being reported that Besson wants out, then it's the first bullish fundamental sign. Besson's reputation on Wall Street is definitely already suffering, with Jay Hatfield, the CEO of Infrastructure Capital Advisors stating, this is unambiguously stupid, it's a five-alarm fire, there's no argument for creating a trade war whatsoever. I thought Bessent was better than this. It's very disappointing. We also got a little more background on the fuzzy math that dictated

Starting point is 00:08:47 absurdly high reciprocal tariffs based on the trade deficit. The Washington Post wrote that in the wake of the inauguration, multiple government agencies developed tariff packages, continuing, after weeks of work, aids from several government agencies produced a menu of options meant to account for a wide range of trading practices, according to three people familiar with the matter. Instead, Trump personally selected a formula that was based on two simple variables, the trade deficit with each country and the total value of its U.S. exports. The newspaper noted this calculation was suspiciously in line with rhetoric from trade advisor Peter Navarro. Seeking comment from a White House official about Trump's view on the situation, the Washington Post got this expletive written quote, stating he's

Starting point is 00:09:21 at the peak of just not giving an F anymore. Bad news stories doesn't give an F. He's going to do what he's going to do. He's going to do what he promised to do on the campaign trail. Still, some in the crypto space are starting to look for the bounce. Real Vision's Raoul Paul commented, ah, the delicious smell of peak fear on Sunday and Monday and Max's noise on X. This too shall pass. I hope you are ready to look for spare cash under the COVID-to-add very, very soon. In a bull market, such opportunities are a gift. In a string of tweets after the Sunday night flush, Lecker Capital CIO Quinn Thompson flipped bullish. He wrote, I can't help but chuckle at the idea of Trump cutting 50 deals next week to lower trade barriers for U.S. companies

Starting point is 00:09:55 and doing more for American workers in the first hundred days than any president in the last decade. How many straight limit up days with the S&P 500C? Thompson added, The time to panic was weeks ago. Now is not the time to get barehold in a dumer mindset. And while the traders are figuring out when to start catching knives, longer term bitters couldn't be the least bit concerned. Mandrick wrote, I'm here for the short to midterm chaos. Enjoy the mayhem. Long term Bitcoin will prevail. That's why I'm not going anywhere. markets can't scare me. Now, even with our most stalwart attitudes, there are consequences to this market instability. One of them, for example, the plunging stock market seems to have put IPO

Starting point is 00:10:29 plans on the back burner. The brief IPO window appears to be closing with Stubhub, Clarna, and Chime, delaying or canceling their plans. In the crypto industry, the Wall Street Journal reports that Circle is now watching anxiously before deciding what to do. Circle had filed their paperwork last week, but was still months from going public. A handful of other crypto firms are in the earlier stages of IPO planning, including Cracken and Gemini. Campbell of WSPN payments said, all of them will pull. You can't IPO into a market collapsing like 2008. Columbia Business School adjunct professor Omed Malikon noted that Circle's business model could also be in trouble, commenting, there are many moving parts, including the threat

Starting point is 00:11:03 of falling interest rates hurting their profits. FinTech commentator Jason Camilla wrote, that sound, the IPO window slamming shut. Now one question is, can Fed chair Jerome Powell step in and save the day? Well, in comments on Friday, Powell made it clear the Fed is in no hurry to cut rates. He added, our obligation is to keep longer-term inflation expectations well anchored and make certain that a one-time increase in the price level does not become an ongoing inflation problem. We're well positioned to wait for greater clarity before considering any adjustments to our policy stance. During the Q&A session, Powell reiterated, quote, it feels like we don't need to be in a hurry. One member of the audience shouted out, really? With Powell responding, yeah. We'll see if a terrible

Starting point is 00:11:40 Monday can change his tune, but for the moment, it really does seem the Fed doesn't want to react unless it absolutely has to. Bob Michelle, the head of fixed income at J.P. Morgan, thinks that time has come. He commented that last week's crash only had three comparisons. The 1987 crash, the 2008 global financial crisis, and the COVID crash. Michelle said, this is a historic period that would tell you in the other three instances the Fed stepped in immediately and cut rates sizably. The Fed can talk tough, but I don't know if they can make it to the May meeting before they start bringing rates down. This is a serious moment. I do not think the Fed can sit on the sideline. J.P. Morgan's call is now six rate cuts for the year, one at each meeting.

Starting point is 00:12:14 Trump is also calling for an intermeeting rate cut. Just before Powell began speaking on Friday, he posted, this would be a perfect time for Fed Chairman Jerome Powell to cut interest rates. He is always late, but he could now change his image in quickly. Cut interest rates Jerome and stop playing politics. Still, Julia Coronado, founder of research firm macro policy perspectives, commented that the current situation is very different to previous moments of distress, stating, the Fed is in no position to offer the kind of insurance to the economy that they did in the 2018-2019 trade war because inflation is too high and it's above their target. Even if they concluded that they need to cut rates, they're likely to go later and slower than they would

Starting point is 00:12:46 otherwise, because we'll be in the middle of an inflation impulse. The other difference from other crises is that the Fed usually only steps in during market dysfunction. So far, we haven't seen a lot of distress in Treasury markets, although that can always change quickly. It would also be highly unusual for the Fed to respond to government policy rather than an exogenous shock. Markets are currently pricing in a 50-50 chance of a rate cut in May up from 14% at the beginning of last week. An additional rate cut has been priced in for the year, making five cuts the new base case. Commercial litigator Joe Carlos Ari noted that the Fed can't actually do much to fix global trade grinding to a halt, tweeting, the amount of people that think cuts by the Fed means something

Starting point is 00:13:19 in the face of these tariffs is comical. The Fed cutting would change almost nothing. And so, friends, that is the story right now. Even in the time I've been recording, stocks have been whipsawing around up a little down again. So I'm sure we will have much more to talk about in the days to come. For now, appreciate you listening as always. And until next time, be safe and take care of each other. Peace.

The Breakdown - The Worst 3 Days in Stocks Since Oct 1987

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