The 2025 Concern(s)

Here's from our April 11 log entries:

4/11/2025

As/if the data worsen, and the market continues to wane, the inflection point for the administration to do a dramatic turn in rhetoric and start talking up great conversations and trade deals in the works may come sooner than later.

The 2025 concern is the potential for negative momentum (recession risk) to gain steam and, thus, see that typical 40+% (recession) hit to equities before it's over.

Along the way we’ll no doubt see some massive rallies, that -- if indeed this is a bear market -- will sadly suck in unsuspecting fomo-(fear of missing out)-ridden retail investors... Only to break their hearts during the next leg down.

Another point to make would be around the treasury market fears right here... Investors have been caught hugely offside -- treasuries tanking with the stock market was on few people's radar.

Here’s my response to a friend who’s getting rattled by what’s going on with treasuries:

“Yes, there is a demand problem (highlighted by assumptions that the likes of China are unloading some), but right now what you’re seeing is a unique situation that has to do with huge leverage inside of what’s called a basis trade.

Big hedge funds exploit the spread between the cash and futures markets in treasuries... They capture a few basis points, but they do it with huge leverage... As volatility increases, and liquidity decreases, these people are put in a precarious position, potentially forcing them to unload mass quantities of treasuries in a hurry.

This is the kind of thing that could lead to something breaking, but, remember, there’s the Fed.

Make no mistake, if it gets too serious, the Fed is going to jump in and provide all the liquidity that market needs… It’ll be interesting to see how they couch the fact, that, in effect, such intervention will directly cater to hedge funds who got themselves into pickles, by no complete fault of their own.

It doesn’t mean that there shouldn’t be concern, but precedent is set... Just look at the Silicon Valley Bank scenario not that long ago... That could’ve morphed into a banking crisis, if only a crisis in confidence...  The Fed stepped in with half a trillion, let a handful of banks fail, made whole their depositors, even those who had more than 250K, and essentially bailed out the system once again.

I suspect it would have to get a bit scarier (in the treasury market) before we get an announcement that the Fed is stepping in. Which is one of those events that will lead to one of those massive bear market rallies I keep talking about.

We’ll see"