Navigating market inertia and ambiguity
Written by anonymous with editorial contributions from Andrej Berlin
Recent lows or all-time highs
We are living in the land of extremes now, and the markets are in a bipolar, medium-term outcome situation—recession or a Minsky blow-off top. Either Donald Trump´s attempt to govern by Executive Orders will stand with regards to trade, tariffs, immigration, a new monetary order, etc., or, preliminary lower court findings will "percolate" to the Supreme Court, where most of Trump´s EOs will be legally struck down and deemed unconstitutional.
In the former case, markets should retest recent lows, if not lower.
In the latter situation, we return to Bidenomics after it becomes obvious that Trump has merely been staging a high-ratings reality TV show out of the Oval Office, with no impact on actual governance. In this instance, Trump´s days of fantasy emergency executive order la-la-land world governance will evaporate overnight and he will be forced to follow the Constitution and work through Congress, which will render his first three months in office a complete failure. The setback will push any of his desires out to 2026... in the meantime, we would be left with a markets gone wild situation: back to all-time highs and perhaps entering the Ponzi stage, leading to a Minsky blow-off top.
Of course, there is a third scenario, where we get both the former and the latter—a recession followed by a Minsky blow-off top, but that is a longer term scenario that we will deal with in a future piece.
It would be wise in either scenario to fade the Federal Reserve and any fintwit pundits feverishly posting about “liquidity”, “M2”, “QRA”, “QE”, “QT”, etc. These are merely clickbait memes, as the FED is dead and all rests on fiscal flows and the Trump agenda.
It seems a bit absurd to consider any risk-management strategy “reasonable” in the current climate, so we recommend a portfolio positioned for either outcome.
It’s a good reminder here that cash is an actual investment position. Being totally unallocated runs the risk of missing a Minsky blow-off top, and being overallocated is likely not great risk management. Personally, we are investing ~33% of our overall liquidity into fiat currency hedges, with the other ~67% in a cash Euro position in the event harder times are ahead and opportunities arise to add to our positions wisely.
BTC and Gold receive special attention
Gold, the world´s longest-standing inflation and chaos hedge, is sitting at around 3335 USD per ounce, having risen approximately 72% in USD terms in the previous eighteen months. Bitcoin hovers around $104K USD, having risen approximately 170% during the same eighteen-month period.
Bitcoin has been largely trading as a risk-on asset for most of this time, but as of late has entered into a grey zone, where pundits are questioning whether or not BTC is starting the process of de-correlating from risk assets into more of a monetary safe haven play (tbd).
Gold has gone parabolic in recent months, as Trump unveiled his color-coded cardboard display of potential and ever-evolving tariffs.
Trump, and Chinese money printing of their own (brrrrrrrrrr), have unleashed an insatiable gold demand in China on both a public and private level, with the central bank of China and private citizens alike buying gold hand over fist.
We attribute this stockpiling to the evolving nature of the global monetary order given recent actions by the US government.
In five-year-old terms, the US has told China to take its money and go home.
If China reduces exposure to US treasuries and financial assets (tbd), they will have to store it somewhere else. Given the US purposefully eroding trust in the current US dollar system, many are speculating about a future Mar-a-lago accord that would replace the current petro-dollar system that succeeded Bretton Woods.
Russia, China, India, and countries of the like have been stockpiling gold for some time as a hedge against what might happen with respect to a new monetary order. We can also assume given the establishment of the BTC strategic reserve by the US that all large countries are privately accumulating BTC positions as well (but this is not public knowledge for countries like China). In the long term, we view having BTC and gold exposure as vital given the economic and monetary backdrop.
Potential short- and long-term impact
If you have the opportunity to take out a long-term fixed-interest mortgage at reasonable rates, this also acts as a fiat currency short assuming monthly payments do not create unsustainable financial pressure.
In the short term, it would be quite normal, given the parabolic advance for gold and Bitcoin to retrace some of the recent gains and backfill. But of course, this idea has to be moderated with the serious foreign demand for gold and BTC potentially emerging as a hedge to the current environment.
We have no short-term view on either BTC nor gold price action, but think it is entirely reasonable to expect higher BTC and gold prices approaching the November 2026 mid-term elections in the United States.