特朗普为何要对市场投下核弹？| Felix Jauvin

Don't get too bearish. That's all I'll say. Whatever you do, do not get too bearish. At some point, everything is going to start going back up again. Don't worry. This is not about betting on global collapse. This is about figuring out when this particular selloff is going to end.

Jonah, you have the nicest background I think I've ever seen in a live recording that I've been in. Props to that.

Thank you. I live in a nice area. It's really beautiful here. I would say it's definitely a good place to forget about how much money I'm losing.

I would be recording next to the usual white wall, but that area is out of commission at the moment. So you're stuck with me outside with the crappy microphone.

I love it. Jonah, you know the background I miss the most? That butterfly gun.

You need to see it, Felix. I don't know if you've ever seen this thing.

I don't think so.

Jonah, why don't you explain your butterfly gun?

During the crazy flash-crash bear market of 2018, or just before it, I decided to buy a piece of art. It's a North Korean AK-47 covered in dead butterflies, and the bullets are filled with different commodities. I thought, "This is a good commodity-trader art piece."

I commissioned it from the artist and told him I'd pay for it in cash to get a discount. He started working on it, and this was at the peak of a very good year. Then the market basically went down—my P&L went down by 80%—between when I said I'd do that and when I owed the money and got it delivered.

But I didn't flake. I took delivery, and now I have the hardest thing that you could possibly import from London to Los Angeles: a North Korean fully automatic gun covered in dead animals.

Sounds like that could be in the Denver airport. They have that insane graffiti.

Oh yeah, you've heard all the conspiracy theories there.

Oh yeah. It's like the Illuminati.

Okay, I think we have enough people in here that we can stop shitposting and actually get down to the brass tacks. Good to see you guys. It's been a couple of weeks. We all got together at the Digital Asset Summit, and it was a ton of fun.

1. Ads (Kraken OTC and CryptoTax)

It's fun to collide the different worlds of my macro world and your guys' crypto-trading world and see where we intersect. There are a lot of crosscurrents, too. Jonah, you were trading oil when I was probably 5 years old, so there are a lot of different crosscurrents there. I thought it would be fun to chop it up and see how we're thinking about things.

Yeah, man. I thought it'd be fun to just chop it up and see how we're thinking about things. Jonah, you were trading oil when I was probably 5 years old, so there's a lot of different perspective there.

2. Liberation Day

As a guy who has not been through monumental shifts in the global economic order before in my trading career, I have to say this has been one of the more difficult things that I've had to do: navigate this without blowing up. I think a lot of people can sleep on what happened prior to it actually happening. There were a lot of people thinking, "Okay, maybe he'll put tariffs on."

Even heading into Liberation Day, if you had polled the vast majority of market participants, I don't think they would have said, "You're going 20% or 16% straight down in 3 days." That was surprising. I'm curious about your guys' thought process going into that.

I was 50/50 on what was going to happen and was just ready to hit the green button or hit the red button, depending on how things were going to transpire. For myself, we got that initial Wall Street Journal headline. It's just been a nightmare the past week, with news media putting out these headlines and swinging multitrillion-dollar assets in one direction or another.

This all started during that tariff announcement. Wall Street Journal, I think, was the one that came out with the 10% flat tariffs, universal tariffs, which, if you looked at expectations, was pretty strongly on the lower-than-expected side of things. I saw that and hit the green button. Then, pretty quickly, the almighty chart of doom came out and sent everything spiraling in the other direction.

I had to quickly get out of those at breakeven, then just went the other direction and got out of almost everything else I had. It's the beauty of being individual traders, right? We're not—I mean, maybe you guys are trading multibillion-dollar books, but I'm not—so I could just pretty much get out instantly.

It feels like what has happened over the last 3 trading days is everybody else catching up. The pod monkeys, the multistrats, and the CTAs take a lot longer to unwind their books. Friday in particular seemed really interesting in terms of just all-out degrossing. Gold was down, equities were down, and then we started to see rest-of-world equities down, which was a new thing that really hadn't transpired.

It just felt like we finally saw the full-on unwind of all those books. What were you guys thinking about going into it versus what happened?

Let's put it like this: I was not expecting the Trump administration to be calculating tariff rates by dividing imports by exports. To me, that's what made it a very dangerous situation, because it takes away the logic of a lot of it.

If, prior to that, you were thinking, "Okay, Trump is going to put a ton of tariffs on these countries in order to get them to reduce their tariffs," that's a lot easier to solve than the situation that we're in today. Vietnam comes back and says, "We'll go to zero tariffs," and Trump says, "No, no, no. There are all these other things that you're doing."

Vietnam asks, "What can you explain?" And then there's no real explanation for the other things. It's vague accusations of currency manipulation, and we need to export more to you than you export to us. It makes the actual calculus for getting out of this a lot more difficult, in my personal opinion.

I think the idea that this is a negotiation tactic, and that maybe these things are sticking around for a long time, is why the market reacted the way that it did. Prior to Liberation Day, I think even the top 25% of bears were probably thinking this was a negotiation tactic. I think that has shifted a ton now to, "Hey, maybe these things are sticking around for a while."

That's what people are thinking. That's what the bears are thinking. That's what I was trying to articulate. This certainly wasn't in my playbook. I didn't expect this either. I was bullish coming into this whole thing, and I'm happy to own that and tell people how I think about trading when you are wrong and get punched on the chin, because it's very important not to fall into a couple of obvious traps in a situation like this.

If you're somebody like me, I'm not currently trading a multibillion-dollar book. I'm trading my own book, so I don't have a risk manager tapping me on the shoulder and telling me to get out of stuff, which helps.

The interesting thing is that I'm pretty well connected in the pod-shop world, and I've heard that a lot of pods have blown up over the course of the last month and a half, particularly in the last 3 days.

Felix, you mentioned gold being down. That shows you that there are forced liquidations going on in portfolios. likely Balyasny, Millennium, or Citadel will fire the portfolio manager, delete their login information, and then somebody else at the fund is responsible for liquidating that particular book, right?

3. Ads (Kraken OTC and CryptoTax)

Yeah, and it can get sloppy. I think that's what you're seeing a lot of right now, which is why everything, including gold, is down.

4. Time to Catch Knives?

Yeah. And so, we can get into some of the frameworks of how we're thinking about this in terms of the economic impact, but that reason is mostly why I've started to buy somewhat aggressively, because Friday—and then also today, in some respects—we've seen a lot of those forced sellers, that forced deleveraging, which we haven't seen in the weeks leading up to Friday when it started.

I think I saw a chart in The Daily Shot suggesting that last Friday, on U.S. exchanges, all of them combined, more shares of equity traded than ever before. It was the most active single day in U.S. equity market history, on just—obviously dollar notional basis, but also shares basis—which really tells you something. So, I think that Avi and I talk about this a lot on our crypto pod: when you see big volumes and a reduction in open interest, that usually gives you a sign that the move is almost done.

Yeah, yeah, exactly.

So, that's why you got to start thinking about how to catch these knives. I hosted the Forward Guidance roundup with Quinn and the Macro Dirt Boys, Tony Greer and Jared Dillian, who are awesome veteran traders. It's just great to discuss these ideas of how you go about catching these knives when you see these forced sellers and you're like, “Okay, this is rational selling.”

When I think about equities down 20%, we're getting into pretty decent pricing of a recession. So, you start to see, on trading around the margins here, that you want to be getting in front of that. And to get in front of that is—the way we put it on that roundup—you have to eat a few shit sandwiches before you really catch that bottom and start to see the other side of things.

I think about the last time that we went through one of these, which was March 2020, and I made the mistake of having a shopping list and getting excited, but always thinking there was going to be the next leg lower. Then that's where I was just going to buy everything all at once, bottom-tick it to perfection, and ride that into eternity. I'll be happy to admit that I missed that perfect bottom because of that reason.

Whereas—and I'm sure you guys can explain how you think about this—you've got to tranche it out and get in front of this thing a little bit at one point, even though you may think that it'll go lower. That's the situation that I feel like we're in right now. I already ate a couple of shit sandwiches on the way down here, and I'm done with that.

Basically, what I'm doing now is I'm afraid to catch this falling knife. I might not bottom-tick it, but I do plan to buy more when the thing looks like it's starting to grind higher, right? I don't want to try and catch the falling knife. I want to try and buy a green-shoot-style rally. Avi always has a slightly different perspective than I do.

5. Bitcoin, Trade Deals & Deglobalization

Yeah, I'm more of a trader like you, Felix. So, I try to wade in when things look like they're imploding. The best thing that any trader can do is buy forced selling, because it's really very scary to buy selling when you don't understand why it's happening. What that means is that somebody else knows a lot more than you, and somebody else is probably selling for a reason that you haven't figured out yet. Then you just end up totally nuked.

But that was actually kind of what tipped me off when everything started going lower. When you have gold lower, when you have—I mean, the bonds started going lower, and equities were going lower, and everything—it was a correlation of 1 on the first day, on Liberation Day, if I remember correctly. That was not the case at all, actually. Gold was up. The market was reacting kind of the way that it was supposed to react, which makes it, you know, okay, I don't know, maybe there's just a massive repositioning. But once everything starts reacting one-to-one, then you can say, “Okay, I'm going to start nibbling.”

Now, the issue is you never know how far that's going to go. So, what you try to do is basically just chip in when things look nuts, and then give yourself wiggle room, right? So that you're not completely out of dry powder. The way that I like to do it is basically I just look at the charts and I go, “This is kind of my line in the sand. This is the most extreme that I think is a 5% chance of this actually happening.” At that point is when I want to be 100% long, and then I'm going to scale in until there.

For me, that was 460 on SPY. That was like, “Okay, that's where I'm shoving absolutely everything in.” Because I say I think it's a 5% chance of that happening, I'll deploy 80% of capital before that point, and then at that point I'm probably only buying 10% or 15%, if that makes sense. I try to do it so I'm never fully filled unless something literally insane happens.

I think that's a bit of PTSD from March 2020, when I just got completely blown out. That was painful, and I think that's kind of stuck with me.

Yanowitz has a great tweet about this today. He tweeted—I don't know whether it's normal or not to—I'm paraphrasing here—feel totally fine about this equity market sell-off. Maybe I've been in crypto too long, but somehow these big jackknives lower in price, when the asset that you trade is as volatile as Bitcoin or, worse, one of these altcoins, somehow this doesn't feel that dire.

6. Macro Outlook

I certainly think Avi and I always talk about trying to maintain a strong balance sheet in either your personal book or your workbook and not be forced to sell. I've heeded my own advice here, so I don't feel that scared. I'm definitely done trying to pick the bottom. I'm going to be buying when it grinds higher again, which I may miss a V-shaped recovery, but I'll certainly catch a U-shaped recovery.

In terms of how this recovers, I would love to get you guys' take, because even though I'm an old man, I'm not as old as Jared Dillian—and he and I both worked at Lehman Brothers—but I'm still pretty old. I've never seen anything quite like this before, because this is a man-made calamity. Everything was just great before Trump decided to royally screw things up.

On the one hand, part of me thinks this should be a lot less scary than an exogenous, out-of-left-field thing like a global respiratory virus pandemic or the Global Financial Crisis, which sort of just spiraled out of control. This very much feels in the control of 1 guy, and he could unwind it with a tweet.

I don't know whether that makes this a way easier buy than those previous 2 crises I mentioned, or a way harder buy, because maybe Trump is just so insane that he's just going to keep pushing the envelope. What do you guys think?

Yeah. The issue—this is what I'm debating a lot, too, and I tweeted something along those lines earlier today, mentioning that it's just crazy that this is self-inflicted. If this keeps on for long enough, it scars the economy, regardless of whether we revert back.

There are a few ways you could look at this. We've seen the Atlanta Fed GDPNow, which has been coming out, and it's just completely off the rails and completely skewed by some very, very outlier events that are impacting import data in terms of trade. So, regardless of, say, for example, Trump tweeted out, “Okay, just kidding. Let's turn all these tariffs off. We're all good,” the fact is that there's already a ton of imports that have landed in the economy.

There's already a ton of delays in terms of hiring plans and CAPEX investment plans from companies. There's already all these dynamics happening. You make this point that everything was fine and dandy going into this, but I actually disagree somewhat. In mid-December, I started to talk about a growth slowdown in the economy, and I think I was pretty strong on the camp that it wouldn't be a recession by any means.

I'm still not fully sold on the idea, although it's very close right now. But even if we took out the tariff stuff and the Trump fiscal retrenchment, there were already beginning to be some signs of the labor market slowing and some of these more-in-the-weeds data points that told me that the economy was more fragile than I think a lot of people expected.

So I think that there was that nasty combination—a nasty recipe created from those dynamics, paired with highly overvalued U.S. equities. If you looked at just broad surveys of institutional books, they were all in on the U.S. The idea was, you never need to own rest-of-world equity again. So there were these technical factors paired with that, and I think they set up the ideal catalyst.

So now I think about it: okay, what would happen if we get to Wednesday and learn that a lot of these tariffs—at least, if we say that the 10% is flat and there for good, which I think it is—but the reciprocal-tariff stuff is starting to see some discussions? Do some countries decide to retaliate, like China is doing and Europe is starting to talk about doing, or is it the other side of the boat—the Vietnams? We’ll get into this, I’m sure, but there’s talk of Scott Bessant going to lead the negotiations with Japan as opposed to likely Lutnik, which is very interesting. That was a pretty key signal for me.

But what if we get to Wednesday and this all reverts somewhat? Does that undo the effect on the economy? I don’t think so entirely. But I do think it would be enough to see a very solid bounce and rally. Would it completely revert? I don’t think so. That’s how I’m thinking about it.

7. Tariff Expectations

Yeah, it’s kind of hard to thread that needle. I’ll say that the move today reminded me a lot of the fake ETF headline that Bitcoin had a while ago. Do you remember that? It kind of just cleared out a ton of positioning, and then everyone started going, “Wait a second. If that’s how Bitcoin is going to react to the ETF, I better get in.”

I think that could contribute here to a similar mentality, which says, “Oh, wait. If Nasdaq’s up 7% in 10 minutes because of a fake announcement, imagine what’s going to happen on a real announcement.” I think that’s probably enough for a bear-market rally, which is what I’m betting on.

The issue is that I do think these tariffs are a lot stickier than people are giving them credit for in the long term. If I start with that view and I go, okay, Trump’s been talking about tariffs for 40 years. He’s finally got them in place. He genuinely wants to increase manufacturing output in America. That doesn’t happen in a situation where the tariffs immediately go away.

I think the rest-of-world tariffs might be a negotiating tactic, but the tariffs with China, I’m not so sure about. I think those end up sticking, which is what I’m nervous about. But there’s a lot of potential good news for the rest of the world that could come out in the next, call it, week or so, which I think would send the market up a lot, and you would see an extremely aggressive bear-market rally.

Yeah. Avi, I’m glad you brought up the China thing because I think that’s really important. I spent the hour before this livestream digging into a few different press releases and stuff that happened today. We had a speech from the Council of Economic Advisers chair, Steven Moran, and there were some interesting tidbits in there. Those paired with a free note from a friend of mine, Danny Dean, who’s been on the show a bunch of times. He has a Substack, and he put out this free note where he was gaming out: What’s the big goal here? What are we actually trying to do behind all the chaos and the volatility?

He really thinks that this is about aligning Western countries to go after China at full force. You can start to see that with that Cointelegraph-like headline this morning. It was so specific and so confusing for it to come out and not be real that you’ve got to wonder if it was some sort of trial balloon. Because if it were to occur, I think it does make sense: let’s keep the 10% on everybody, and then the reciprocal stuff—let’s get to the table and negotiate, get those deals done. But China, we’re actually doubling down on you.

I think there’s a lot of focus on completely reshaping the economy. You can set aside your personal opinions of the execution of all of this—and I do think it’s been quite poor—but I think there are some valid pursuits that need to occur in this reordering of the global economic order.

I’m Canadian. I’m the victim of this idea of trying to become the 51st state and this pursuit of Greenland and the Panama Canal. I’m a total geopolitical LARPer, but you just think about what they’re trying to do in terms of solidifying the Western base to go against China in terms of these capital and trade wars. So I do think there’s something there that we need to keep in mind.

And to that point, I don’t think this is something that just reverses randomly, especially for China. I mean, I think the blue-sky scenario for Trump is that you have extreme tariffs against China and negligible tariffs against everybody else. Based on the way things are already going—early reports of Ursula von Lean coming to the table to negotiate a 0% for 0% free-trade agreement with the United States, Japan, and Israel already lowering its tariffs to 0%—it doesn’t seem out of the question to say, hey, in 3 months there could be basically a new WTO that doesn’t include China.

The United States could have agreements with most major trading hubs—Southeast Asia, including Japan, the EU, LatAm, and Canada—just this new sort of trade paradigm where there are no tariffs. And then China could be at 150% tariffs as that sort of trade war escalates. I think that’s what Trump’s endgame is.

I think that a lot of people out there—it’s pretty much a universal consensus among financial-market participants, both on Twitter and among those I speak to in my circles—that Trump has made a terrible decision. My bubble doesn’t really include the opinions of too many blue-collar laborers in middle America, just because I happen to live on one of the coasts, I worked in London, and given my background. I would love to get the take of somebody who’s theoretically a Main Street-type person that Bessent is referring to when he says this is helping.

I’m not sure it helps them. I’m sure they’re in favor of it, but that’s not who we speak to in the Forward Guidance or the 1000x Telegram rooms—more like young, risk-taking types. So it’s not clear to me whether this is a popular decision or not. But I think Trump is taking too much flak from the people that I speak to.

If this is obviously the beginning and the end of his strategy—he just hikes a bunch of tariffs, drops the mic, and goes golfing for the rest of his term—then that’s obviously terrible policy. It’s a huge policy error, and the economy is going to get destroyed. But I think instead of that, my sense is that this is more like a Queens, New York-style real estate negotiation where somebody comes up to Trump and says, “How much for your building?” “It’s not for sale—a trillion dollars,” right? Some crazy, stupid opening gambit.

As I close out this thought here, just one final boomer reference: I don’t know how many of you youngsters have seen the movie Zoolander, but in it, Hansel says, and I quote, “Don’t you know I’m loco, man?” I think that quote is kind of what Trump’s trying to do here. I think he’s just gone so over the top to make everybody think, “Wow, this guy means business. He doesn’t care. He’s golfing today in the midst of all this chaos.”

If you’re a foreign leader who’s just been tariffed and you’re trying to decide between, hey, do I retaliate? Do I just wait this out? Do I try to come to the negotiating table? I think Trump’s crazy enough that maybe it incentivizes coming to the negotiating table.

So, yeah, in that Steven Moran piece I mentioned, they released the remarks, and I'll just read out a couple of points to tie in this whole game theory of getting the Western world together, getting the rest of the world to pay their fair share for these U.S. security guarantees. He says, “In my view, to continue providing these twin global public goods, there needs to be improved burden sharing at the global level. If other nations want to benefit from the U.S. geopolitical and financial umbrella, then they need to pull their weight and pay their fair share. The cost cannot be solely borne by everyday Americans who have already given so much.”

And so he also says, what forms can that burden sharing take? He gave these 5 options. First, other countries can accept the tariffs on their exports without retaliation, providing revenue to the U.S. Second, they can stop unfair and harmful trading practices by opening their markets and buying more from America. Third, they can boost defense spending and procurement from the U.S., buying more U.S.-made goods, taking strain off our service members, and creating jobs here.

Fourth, they can invest in and install factories in America. Fifth, which is the most interesting one for me, he said they can simply write checks to the Treasury that help us finance global public goods.

So you hear all of that, and then you see what's going on in terms of these geopolitical games that we're just speculating on at this point. But a lot of it is: write checks to the Treasury.

Think about what he's saying there. We've heard this talk—and a lot of it came from him—about issuing these 100-year bonds, where other countries need to buy these 100-year bonds. They're zero-coupon bonds; they get no coupon. If inflation goes up, they're going to get wrecked on the price of those bonds. There's just a cost of doing business for those security guarantees. That's their perspective. That's not my own. I'm just saying that might be how they're thinking about it.

8. China & Controlled Demolition

Yeah, I mean, it kind of makes sense from that perspective. I'm just thinking out loud here. If your goal as Trump is to isolate China and attack China, you know what they're going to do? They're going to be offloading a ton of your debt, and you need to figure out how to get people to buy it. Basically, what you're saying and what he's saying is that if you go in there and buy up a bunch of our debt, that's a way to get out of this for you.

So he puts everybody in a tough position. He only wants one person to actually be there, but the selling of the Treasuries that China is doing, because he put everyone else in a tough position, will be absorbed. I think maybe there's a little bit of that game going on.

Yeah, there is this whole idea. Today, Treasury bonds sold off pretty aggressively for where the market was at, and there are some people speculating that it was China selling. I think it was more so just market dynamics. On Friday, the market panic-priced in outright recession, and I think it's just some big players taking some profits, rotating, target-date funds rebalancing from bonds that have been doing well into equities, that sort of thing.

But I think underneath there is also some validity to the idea that, if we're getting into a capital war, the most powerful tool they have is to market-sell bonds. So it's a distinct possibility. I don't think it explains the entirety of the price action today, but it's definitely something to think about.

No, it's something to think about. And I mean, if you go with the angle that he's really thinking about this deeply, the only thing that we've been able to come up with collectively is that he's targeting China and he's targeting that area of the world. And so the idea here would be a controlled demolition. What you don't want to do is have them accumulate all of this leverage and basically sit on it until the moment where they could use it the most, right? Imagine a hot war breaks out, and then suddenly the financing costs on America's debt go through the roof because of what China does. You really don't want that.

9. Trump’s Political Strategy

Might as well force them out now, when it's not the maximum pain to sell it. Think back to COVID, when we saw that supply chains were so dependent on China. That's something that we didn't really solve since then. A lot of this—I mean, there's no shortage of takes on why this is the stupidest economic move in history. The Economist published an entire magazine to that effect.

Just looking for positives here, to give Trump the benefit of the doubt, even if he doesn't deserve it, it does seem on a number of fronts like there were a lot of Band-Aids that needed to be ripped off that he inherited: debt-fueled deficit spending, major supply-chain deficiencies that, to Avi's point, you wouldn't want to work out in the middle of a hot war, and all this debt ownership in the wrong hands needing to get shifted to the right hands.

If you're looking to just continue with the status quo—which The Economist forecasted would send America into bankruptcy by 2037 or something, all else being held equal—he could have definitely cruised through his term without making any changes. He did get elected on not revolutionary, but kind of big change—big talk about big change. And so, to some extent, I feel a little bit stupid for not sniffing this out, right?

I came into this term feeling very bullish, seeing the bullish reaction to his election as a signal that what he was going to do in his second term was going to be constructive for markets, just like it was during his first term. I didn't quite grasp the monumental nature of what he was saying. To Avi's point, he's been talking about tariffs for 40 years. I didn't really grasp just how serious he was about it and how unabashed he was going to be in his execution.

So I don't necessarily blame him. He's been just like this. This shouldn't be a surprise, and I'm annoyed at myself that I kind of got caught wrong-footed on it. But now that we're here and markets are 20% lower, I maintain the view that we talked about when we were sitting on the floor at DAS in New York, Felix: I do think that he doesn't have enough of a mandate to tank the stock market that much further from here before, basically, the midterms could get a blue wave and maybe a supermajority in Congress could start bypassing his veto if this really becomes unpopular and too destructive. So, yeah, I think we're supposed to expect a U-turn.

Jonah, I felt stupid as well, because if you really think about it, he fooled us in the same way that he's fooled so many people. He says so many outrageous things and then acts on a few of them, but then you don't take any of it seriously. So we kind of just come in and we're like, “Yeah, he's a pro-business president. The stock market's going to go up. All this other stuff that he's talking about—yeah, he's talking a big game. Who knows if they're actually going to do it?” But then he actually does it. And that was painful.

What I will say to bring this full circle back to Bitcoin is that this is actually pretty damn good for crypto. Everyone says mid- to long-term, but I actually think this might be very good for crypto in the short term.

Yeah, like in the next 2 months. Go on, Avi. Go on. Tell me more.

Jonah likes to say he's so bullish he can't see straight. I can still see a little bit, but I'm pretty damn bullish.

Yeah, I’m with you. I’ve been buying some Bitcoin as well. Yeah, let’s talk about that. I also want to pair it with how we’re viewing, as traders, what’s priced in terms of these downsides.

We’ve come in with—obviously, there’s the tail risk of further retaliation cascading, but for the most part, it feels like a lot of what’s out in the market now is marginally the worst possible outcomes. We have 100% tariffs on China on the tape right now, right? So it’s like, do we go to 200%? I don’t know.

You think about that, and then we’re on the other side now. We’ve crossed the Rubicon, and now we’re talking about negotiations. We got Scott Bessant. This was very notable for me because Scott Bessant has not been involved in trade talks. He’s going to Japan to lead the trade-talk negotiations with the U.S. trade representatives.

It’s not Lutnik. They had the Rottweiler out there, bringing the stick out and whacking them, but now they’re bringing in the carrot, potentially. Scott Bessant is a lot more measured in his approach. So we’re getting to that next phase now where the only real headlines are going to be negotiation ones. Are we priced for any sort of negotiation ones? And then looking at how that gets paired, Bitcoin’s been very resilient.

And, quick question, Felix, on what you just said. Did you interpret—you tweeted that Bessent is going to negotiate with Japan instead of Lutnick? I interpreted your tweet to mean that Lutnick is getting sidelined in the Trump administration. Did you instead mean, “Hey, they’ve got the good cop, Bessent, and the bad cop, Lutnick, and they’re sending in the good cop, which means that they want to get a deal done”? What did you mean exactly?

Yeah, I’m 50/50. We don’t fully know. It’s either, “Oh, shit, we got a 20% equity correction and bond yields are still surging. This is not a good trade-off for us. Let’s sideline Lutnik and get Bessant in there.” Or it’s what you say, a good cop, bad cop situation.

It doesn’t really matter what the outcome is. The fact is that we’re going to go marginally from this insane rhetoric to somebody who’s a lot more measured. So I don’t know. I’m 50/50, but I feel like the outcome is still the same on the margin of what’s priced. What do you think?

I’m expecting a bunch of trade deals and the market to go back up, and I’ve been so wrong. I didn’t expect that. I thought this would be one of those little 5% pullbacks that you can buy with both hands, like we’ve seen so many of since the global financial crisis. I did not expect this.

So take what I say with a grain of salt. I’m not selling a dime’s worth of risk assets. I’m not selling crypto. I’m not selling equities. I think from here I tend to believe crypto will outperform equities. The BTC-S&P ratio has been more resilient than I would have expected. It should be very, very, very rare when it goes to the downside. I mean, that outperformance is very rare.

[Speaker?]

Is that what’s making you bullish in the short term, Avi?

10. Fartcoin & Alts

Yeah, just because I’ve been short-term bearish for a while. My framework on crypto—which I’ve repeated so many times that anyone who’s listened to the podcast is going to get sick of hearing this—is value and momentum.

In order for crypto to go up, you either need it to be going up already and people buy into the momentum, or you need people to view it as a, quote-unquote, value price. There are 2 things that can turn Bitcoin into a value buy. The first is price, just simply price itself. Maybe you go back down to $50,000, and psychologically, you haven’t seen $50,000 in such a long time that you think it’s your only chance to ever go buy it. The level gets defended, and then suddenly you’re going back up.

Or some good news comes out that is actually beneficial for Bitcoin and beneficial for crypto. I think that’s a little bit of what’s happening right now. Regardless of whether you think the tariffs are good or bad, regardless of the politics, and regardless of whether you think they’re going to stay or go, the reality is that we’ve kick-started a slow roll into a deglobalized world.

The tides of nationalism are rising both politically and geopolitically, from a local level to a national level. People are becoming more concerned with themselves than they are with the global community. Nobody wants to be part of the global community anymore as much as they used to be. You’re seeing this everywhere, but there’s still a tremendous amount of demand to be interconnected globally.

So if you shut down a ton of different pathways between countries and a ton of different valves of commerce between countries, but crypto still exists, then crypto inherently, I think, gains a piece of that pie because there’s still demand to hold cross-border assets, to be part of a global economy. But if that’s getting shut down further over the next 6 to 12 months, and because there are sources of demand that are getting shut down, then Bitcoin goes up in that period. I think it’s also, outside of that, just a fear trade.

Bitcoin went down and gold went down because of what we were talking about—liquidations across the board. But they’re both now geopolitically significant assets.

Let me give you a concrete example of what you just said, Avi. Bitcoin is a commodity. I think we can all agree. It’s also a currency, but it has a lot of commodity-like characteristics. When you enter a multipolar world, commodities become valuable because they can be bartered by independent third-party nations between 2 trade-warring or hot-warring nations.

Take a commodity that I know well, crude oil, and take the country India, right? America and Russia don’t do direct trade with each other anymore. India can buy tons of Russian crude oil and tons of American products. They’re kind of like this transshipment hub in the global matrix of capital flows because they’re able to buy Russian oil, right?

As capital controls are a byproduct of tariffs and trade wars and deglobalization, to use Avi’s word, you need more transshipment hubs, just like what India pulled out of their hat, to intermediate between Russia and America in the middle of that scenario. So I think Bitcoin will end up being kind of an alternative reserve commodity/currency that can intermediate between different geopolitical hemispheres.

11. Short Qs, Long BTC

It makes a lot of sense. That’s so interesting because I am bullish. I agree with all that, but I’m bullish on Bitcoin for some other reasons as well. During the Digital Asset Summit, we did a live roundup, and I asked Quinn and Mike what their 1 trade was if they wanted to put one forth, and I put forth one as well.

The trade I put forth was short Qs, long Bitcoin vol, vega-matched or delta-matched, or whatever you want to call it. The Nasdaq was pulling back, and so was the U.S. economy, on fiscal retrenchment. The economy was slowing, and on the other side of the equation, every other country was beginning to stimulate fiscally because of a reaction function to Trump’s tariffs and negotiations.

At the time, we saw Germany talking about $500 billion in defense spending. Now, if we fast-forward to today, we have headlines sitting on the tape about China front-loading stimulus to offset the tariff wars. Bitcoin is a global reflection of global liquidity and some other things as well, but that’s one way to think about it.

Qs are more specific to the U.S. My idea was to short the Qs because every signal is going in the wrong direction. The Fed was complacent and not doing anything, and they didn’t want to get reactive or proactive—sorry, like they were in September—and start to ease. The fiscal situation was deteriorating, and the economy was slowing.

I was bearish on the Nasdaq, but I thought Bitcoin would outperform, relatively speaking. That’s largely what happened. I had that trade on. I sold it a little too early. It would have been a really great one to sell on Friday, when Bitcoin was doing super well and the Nasdaq was down 20%, but I sold a little early. The thesis remains.

I think that thesis will continue further. Bitcoin is a global liquidity asset, and every other country is going to have to stimulate now to offset the negative growth shocks that come from this. One of the smartest economists I’ve seen is Brad Settzer, who focuses on global trade. The way he framed this whole shock is, imagine global oil rose $70 overnight. You understand what that means, Jonah? The cascading effects are huge, and it does lead to lower growth that needs to be offset.

So for that reason, Bitcoin has a lot of upside, and I think that’s been some of the resiliency. When I put my trader hat on Friday, I was buying equities hand over fist and less Bitcoin because I was worried. That was when everybody was talking about the decoupling thing, and Bitcoin was doing its own thing. Then, pretty quickly, it reverted to $76,000 this morning.

So now that that's complete, I'm a lot more excited about Bitcoin. Good job waiting that out. You were right to wait that out. I won't celebrate too much. I will say I bought a bit on Friday, so I did eat a bit of a shit sandwich, but I did mostly wait until today.

12. Bitcoin vs Equities

No, I think that's a really phenomenal thesis, and I think that's accurate. I do think that'll continue to happen, and China is going to do it in a big way because they're going to have to. The other thing is, given all of that, Bitcoin, just from a trading perspective, is in a great position from a risk-reward perspective.

Basically, who are the sellers of Bitcoin? The sellers of Bitcoin are the people that have made a ton of money on it and want to get out, or they're the short-term traders that want to get out because they think momentum is going down. They're short; they're coming in and shorting the market.

If I go and look at the order books, the order books are just ridiculously stacked from 65K to 70K, from 73K. I'm just talking about flows now. One thing that's really interesting is that I think one of the reasons Bitcoin outperformed is because you had so much momentum and craziness in the equity markets.

A lot of those people that were shorting NASDAQ—three months ago, they would have shorted NASDAQ, or shorted Bitcoin to catch a down move in NASDAQ, or just shorted NASDAQ. That's what I'm trying to say. A lot of the momentum traders were just focused on equities. They were like, “I don't need to go sell more BTC. There's no reason for me to do that, because I can just sell equities and they're down 5%. I mean, this is great.”

I do think there's actually a lot of that. A lot of the pod shops will use Bitcoin, which is why Bitcoin started selling off on Sunday, in my personal opinion, and over the weekend. People wanted to bet—like, all these momentum guys wanted to bet—on equities opening lower. How are you going to express that bet on a Sunday? You're going to sell Bitcoin. That's why Sunday morning it starts collapsing.

Yeah. Bitcoin as weekend spoof. But if Felix is right and Bitcoin starts to basically decouple from Qs and outperform to the upside—oh my God. So, yes, Bitcoin is decoupling, but I think it's front-running liquidity.

Well, yeah, front-running for sure. So basically, the whole point of this rant was that I think the sellers have sort of exhausted themselves for this particular market right now, and there are clearly a lot of buyers waiting. The dip on Monday just got eaten up so fast. I'm of the opinion that Bitcoin has all of the positive things we just talked about and, from a flows basis, looks really good.

Yeah, I mean, value-momentum framework. I talked some shit, dude. As a crypto trader that expresses edge, I'm just somehow much better at trading crypto than I am at trading equities. I obviously think it's an easier market. I was buying alts hand over fist on Friday against ETH and BTC. I was actually shorting the hell out of ETH and buying a ton of alts when they had that massive collapse in on themselves. That's done extremely well today.

What you have to look for in these types of situations is that alts to Bitcoin are what Bitcoin is to equities. They'll often actually bottom before Bitcoin does because everyone sells that first. Everyone gets out of that first. A lot of comments are saying, “Fartcoin coded.” It is Fartcoin coded.

If you're expressing a view that you think you're close to the bottom, it's historically an extremely good trade to try to buy alts and short Bitcoin and ETH against them, because they tend to bounce way harder on the way up. Everyone's always worried about the downside, but if you're close to a bottom, you actually have limited downside in alts, in my personal opinion—or if you view that you're within a day or 2, because they've run out of sellers relative to BTC and ETH. That's actually what happened.

Fartcoin is an incredible asset to trade. All the attention is consolidated. When you want high beta in crypto and you don't want to go on perp, you just go buy Fartcoin. It is crazy. I don't understand it, to be completely honest. I did not buy any Fartcoin, and it was just nuts. I'm looking at it—it's up 23%. This thing is crazy. Fartcoin is the greenest thing on my board today.

Also, I think just because of what it is, it will never be an institutional asset. Imagine buying Fartcoin at Millennium, losing money on it, and then your division manager, your boss, comes up to you and says, “You lost money on what?” That prevents that skew: if you make money on it, who cares? But if you lose money on it, you're just out the door. You're sent packing.

So I don't think anyone at any company, even a crypto trading company, will buy it. It's really just purely a metric of retail sentiment. If that thing is bouncing 25% today, it's up more than any other major altcoin. Maybe the degens online have finally drawn a line in the sand and decided to buy stuff.

I take your point, though, Felix. You bring up a very solid observation that crypto in general—Bitcoin in particular—is really just a reflection of global liquidity, maybe lagged 3 months. M1 money supply is 3 months ahead of Bitcoin prices, and M1 money supply bottomed out and started rallying pretty meaningfully about 3 months ago. So, hey, maybe if rates get cut from here, plus that, maybe we are in a more constructive general environment for Bitcoin.

13. Liquidity, Inflation & Oil

And to Avi's point, maybe the altcoin apocalypse is finally over. We've been talking a lot about how inverse alt season is the new alt season: just be short everything. Looking at the prices of some of these coins, even though most of them are completely useless, I wouldn't want to be short anymore. You're playing with fire at these levels. I think this is just for flipping around. Sorry, what were you saying, Felix?

Yeah, I was just going to say that the framework I have is that we can get a Bitcoin all-time high just on this marginal improvement of global liquidity. But I think for meaningful breakouts in Bitcoin, and for alts to really start to perform, we do need the US to start to play ball. The picture from the Fed side of things and the liquidity side of things is a bit hairier.

I interviewed Michael Howell, who's the liquidity guy, a week ago, and he has some really interesting statistical analysis of Bitcoin's correlation to global liquidity. He thinks there's an interim upside tailwind for it, but things get really hairy in the spring and fall. I agree with that.

Now what we have to piece apart is that, okay, if we have markets totally falling apart, the reason they're not meaningfully moving is because they're scared of inflation. But if you look at forward-facing inflation metrics, the one good part about a hit of 20% to equities, in my opinion, is that it's the last shoe that needed to be dropped for inflation to come back down to target, paired with oil breaking down meaningfully.

It really broke a key level. I think it's around 60 bucks now and could trend lower. I don't know if you have thoughts on that, Jonah.

But overall, you pair those dynamics, and inflation is done. There's going to be a price-level increase from tariffs up front. But if you look at, say, the inflation swaps market, the 1-year inflation swaps are a bit higher, but every other swap—10 years or past that—they're all cratering. So, yeah, inflation is pretty much done.

You could see them start to ease a bit more, but I think they need to wait for that to come out into the hard data, unless markets fall apart even further and then they have to intervene quickly. There's really only 1 threat on the table for higher oil prices, and it's still just some kind of flare-up in the Persian Gulf, some sort of kinetic warfare, maybe an American-Israeli operation to take out Iranian nuclear sites and subsequent retaliation. But absent that, oil's going down another 10 or 20 bucks.

The front spread is still in backwardation, meaning that the front future's price is higher than the price of the second future. That's called backwardation. It's a sign that the market's still a bit constrained, which is bizarre because the price of oil has sold off so much.

You would normally expect prices to fall in a surplus market, which is associated with contango, meaning price now is cheaper than price later. It's weird that you're getting a sell-off in backwardation. I think that tells you that the OPEC+ countries of the world are still trying to prop the thing up, which means they can eventually get stopped out of their trade, as they often let a bunch of excess supply into the market, and then prices really tank.

So, from just a fundamental supply-and-demand perspective, the story of oil is the story of many commodities. The Bloomberg Commodity Index had its biggest 3-day drop in a while over the last 3 days. I think inflation is done. Unless you get a hot war, it's really hard to imagine inflation coming back here. 100%.

14. Fed Rate Cuts

So when's the Fed going to cut? When are they going to cut rates to 0 and pump our bags? What's going on here?

Well, that's the thing. This is the whipsaw in the bond market and in the STIR market—the short-term interest-rate market. On Friday, they priced 4.5 cuts pretty quickly. We didn't quite get there for a May cut. I think that's still a ways away, honestly.

I think we may see language that gets us pretty close to a May cut, or at least some language in that May meeting that'll lead to some meaningful cuts. But let's just look here: the 2-year yield is actually interesting. It reverted a lot, but it's still at 3.78%, and Fed funds is at 4.33%. There's quite a bit of cuts being priced in versus the rhetoric that came when Powell had a speech on Friday. He sounded like he was not interested at all in cutting, but the market's fading that.

I think we're back to around 3.5 cuts priced, which seems fair if we're not going into a recession. That's sort of the battle going on in bond markets right now.

Exactly. Well, that's 80% or something—75% this year. Can you help me understand what JP is thinking? Why wouldn't he cut?

I think—yeah, I think he's ecstatic about a 20% hit to equities because Catrini, if you guys read him, has some really incredible analysis. He's been doing a lot of work on this idea of the economy being propped up by the top 1%—really, the asset owners of the world—in this K-shaped world. The bottom 80%, or whatever, have been in a soft recession for a few years now. Consumption is not coming from them. It's coming from asset owners who keep getting richer and then keep spending because assets keep going up, and they're also getting 4.5% on their cash.

So I think the biggest reason we haven't seen inflation come back down to target is literally stock prices. Fiscal deficits as well. But we're seeing both of those revert now. It reminds me a lot of 2018, where Nasdaq equities went down 20% and then Powell pivoted. I think he didn't want to do that pivot on Friday because he has optionality until May. But he needs to hold that line and make sure inflation stays durably low here, because if he starts talking dovish now, a month and a bit before the meeting, that's not really going to do anything useful for him.

But if he can make sure inflation gets durably bottomed out, he can then come in with confidence in May and onward. So I think he's just playing a fake game in the meantime, just to make sure that this is the one that actually kills inflation. That's a non-consensus view versus a lot of people who think tariffs are going to create this huge amount of inflation. I just don't see it.

15. Final Thoughts

That's a really helpful take. I hadn't thought of it that way, like he's kind of playing Fed theater, but it makes a lot of sense. I agree with you. I also think that even though sticker prices will go up on certain foreign goods as a result of these tariffs, I don't think we're going to see broad-based inflation as a result of it. If anything, I think the economic cooling effect will result in the opposite.

Yeah. Yeah. I mean, you could walk us through different oil shocks, but if you see oil rise $70 overnight, yes, that'll hurt some inflation initially, but really it's a growth thing that comes afterward, right?

Yeah. Yeah. I think we're in for a lot of volatility. So, to borrow one of Bobby's ideas, cash is worth a lot more right now than it was 3 weeks ago. Play the highs and the lows. I don't believe Larry Frink when he says that markets could drop another 20%. I think that if SPY is down 20% from here, it's like Trump is a lame duck for the next 3.5 years. And that's not what he wants. I think he realizes that he's got that intuition.

Now, I didn't expect things to get this far, but we're kind of flirting with the lows that I was predicting a few weeks back as a worst-case scenario. I thought this was a 5% probability, but possible, and I thought that anything below here was just sort of out of the question. I kind of maintain that belief. I just don't think there's enough political capital in the world for a president to tweet the stock market down more than 30%. Come on.

Yeah. And getting back to the trader mindset part, we can do all this big-brain talk of 4D chess, game theory, geopolitical stuff, but if you get a VIX at 50 and equities are down 20%, you sort of just have to buy a bit. Those are just times when you buy a bit, and yes, it can turn into a bear-market rally. I'm pretty closely watching whether that's the case to get out of those.

But I do feel like you just need to get in front of this thing and eat those shit sandwiches for a bit.

I agree wholeheartedly. TINA—there is no alternative. Where's the cash going to go? It has to go somewhere. Cash keeps getting generated, and people aren't going to put it into foreign equities. They're down 20% too.

The other thing that people talk about all the time is that Trump's not doing this for the rich, for Wall Street. He's doing this for Main Street. But I think 60% of Americans own equities. It's a clear majority that own equities. If equities are off too far for too long, I mean, the recessions are going to be horrific, because, like you were saying, all of the consumption comes from the top 20%. I do think that there's a point where even Trump feels pain.

Yeah. But I agree: VIX at 50, equities down 20%—take a stab. Don't be a [__]. Just buy a little bit. Just get in front of it, man. This is what we live for. This is what we do.

Just stop. Don't get beholden. That's all I'll say. Whatever you do, do not get beholden. At some point, everything's going to start going back up again. Don't worry. This is not about betting on global collapse. This is about figuring out when this particular show is going to end.

All right, guys. Well, that was a lot of fun. It's good to catch up again.

Yeah, this was great. Thanks for having us on.

Yeah, likewise. Always good to do these collabs and chop it up. Thanks, everybody, for watching, too. That was awesome.

Thanks. Yeah, thanks for dropping by. Adios.