SVET Markets Weekly Update (March 31 — April 4, 2025)

12 Apr 2025 by rate3

On Week 14, Trump’s imposition of tariffs on over 200 countries, crushing all markets by 10–15%, sent shockwaves that were, unquestionably, historical. On the other hand, the ability of BTC and other cryptocurrencies to withstand that blow was absolutely unprecedented.

On Monday, equities rebounded on technicals amid growing uncertainty surrounding the scale and scope of the April 2 tariffs, despite the Texas manufacturing activity index dropping to levels seen in July 2024, primarily due to a drastically deteriorating outlook. It was also noted that the Chicago business barometer showed economic contraction for the 16th consecutive month, though at the slowest pace since November 2023.

World’s Markets:

Major European market indexes tumbled to a two-month low amid expectations of reciprocal tariffs that could target ‘all countries.’ Meanwhile, Italian consumer price inflation accelerated to its highest level in 18 months, while German inflation slowed to 2.2% (a six-month low).
Brazilian stocks fell, led by the mining sector, due to forthcoming tariffs and subdued GDP forecasts.
Japan’s bond yields declined as investors sought safe-haven assets.
China’s factory activity reached a one-year high, suggesting the effectiveness of Beijing’s stimulus measures.
Commodities and Currencies:

Gold reached a new all-time high after Trump signaled broader tariffs starting April 2, while silver aimed for a 13-year high. Oil jumped in response to a 50% sanctions-tariffs threat. Tin soared to a three-year high following an earthquake in Myanmar (the 3rd-largest tin producer), which could cause delays in restarting production in Wa State (70% of the country’s tin output).
Crypto:

BTC, ETH, and SOL are all in the red, continuing to remain in a bearish trend.
The State Of Markets: Mixed, American equities rebounded on technicals, while the rest of the world’s stock indexes were in deep red on expectations of the April 2 tariffs.

Comment: Apocalypse Simplified.

So, what we have as the WH’s “official economic policy” is, as I have already mentioned, the “new mercantilism” or “magantilism”. Basically, it means that previously held economic concepts — 2010s-2020s new-Keynesian — go out the window together with their predecessors — 1980s-2010s Libertarian (or new-Classical, Monetarists), 1950s-1980s Keynesian, and 1930s-1950s Government Led Economy (Planned Economy, Socialism, War-Time Capitalism).

In fact (and in accordance with Generational theory), we are getting back ~100 years to the start of the 20th century, when the First World War began with several “great” imperial powers fighting for prevalence in international markets and grabbing new colonies to ensure an uninterrupted flow of natural resources to their “strategically important” (“patriotic”) manufacturers.

I do not think that the majority of Americans were just “stupid” when they voted the present Administration into the White House 3 months ago. Not at all. I believe that these changes are fundamental, that “maganomics” will continue and will prevail, supported by disillusioned, disenfranchised, and marginalized voters due to unprecedented income and social divides, despite falling markets, abused allies, and growing outcry from the left of the political spectrum. Moreover, these changes will lead in a few years to an absolutely new geopolitical and economic situation.

Let’s start with the long term. We can see that the WH is pushing world leaders to take a stance on whether they are for, against, or “non-aligned” with America. The first kind will be subordinated and given some small economic preferences. The second kind will be severely ostracized and militarily threatened even if it leads to the point of an open military conflict. Among all of those mounting military threats, third-kind countries will be simply forced into submission to one or the other side.

Let’s now look at the medium term (3–5 years). Obviously, it would be a period of stage-by-stage growing worldwide divides, worsening international relations, and, consequently, intensifying trade wars accompanied by the return of government regulations (for most G20 countries) of major sectors of the economy, especially those traditionally associated with strategic resources (including cheap food and lodging to support the poorest strata of the population — the base of the new political regime) and military. All the rest of the economy, first of all, SMEs, will be left alone (hopefully), forced to survive facing growing competitive pressure from politically-wired visionaries geniuses.

So the short term — basically, “detox” out of 30–50% of people’s 401k because of the corresponding fall of major stock indexes — looks very gloomy for perma-bulls. However, traditional portfolio management strategies — that of going into safety — gold — might work better than the rest, including holding Treasuries or cash, because as we all know “detox” includes getting USD weaker and Treasuries more expensive and less yield-bearing.

What to do in the medium term? It looks a little less dark. First of all, the local economy will start to adapt to new prohibitive trade regimes, which will be complemented by government support for key industries to alleviate the effects of falling international and domestic sales, as well as the rise of new industries like military, AI, and crypto (mostly as a result of deregulation and the poorest educated middle-class desperately looking for new sources of income).

Now, long-term portfolio management will include exiting from “risky” assets, repositioning into “strategic,” government-supported industries (military, energy, food), and of course, again growing your gold (and possibly, depending on prohibitive legislation, BTC).

So, overall, our proposed portfolio strategy to navigate the next years can be presented as Out-In-Out.

Please note that the above is not investment advice. Moreover, the future is unpredictable by definition. So this portfolio strategy is purely speculative. It can be completely changed by myself in the future as the real situation on the ground evolves.

On Tuesday, stock indexes are mostly in the red ahead of the April 2nd self-inflicted tariffs. Factory activity contracted for the first time in 3 months, while prices soared to their highest levels in 3 years. Additionally, there was the sharpest deterioration of business conditions in 2 years, alongside a drop in job openings.

World’s Markets:

European inflation eased to 2.2%, with a notable drop in energy prices, while food prices surged. At the same time, unemployment continued to fall to 6.1%, with the lowest level reached in Germany (3.5%) and the highest in Spain (10.4%). Meanwhile, the EU manufacturing sector has been improving for the past four months but still remains in contraction territory.
Spanish manufacturing fell to yearly lows (49.5) due to new orders as factory owners reduced their inventories in anticipation of lower sales ahead of the tariffs.
The situation in the manufacturing sector is even more severe in Italy, where production has continued to decline for 12 straight months.
France is in a slightly better position, supported by purchases from Africa and Asia; however, its production sector has also been in contraction for the past two years.
German producers are similarly stuck in a two-year downturn, although their situation is slowly improving as well.
Brazilian manufacturing continued to expand, albeit at a slower pace, as higher interest rates eased demand.
China’s manufacturing rose to its highest level since November, with foreign sales growing the most in 11 months.
Commodities and Currencies:

Gold climbed to a new record of 3130 before easing on profit-taking, marking its best quarterly performance in 40 years (since 1986).
Crypto:

BTC, ETH, and SOL increased amid general confusion in the markets prior to the April 2 tariff disaster, which is expected to exceed the scope of the 1930 Smoot-Hawley tariffs that halved the country’s exports, led to multiple bank insolvencies, and essentially started the Great Depression.
The State Of Markets: Mixed, the world’s markets lack direction ahead of the April 2 tariffs announcement. Some traders are ‘buying the news,’ while most investors continue to de-risk in anticipation of a worldwide recession.

Details

FYI: The Smoot-Hawley Tariff Act of 1930 was a U.S. federal law that significantly raised import duties on a wide range of goods. The primary goal was to protect American farmers and industries from foreign competition during the early stages of the Great Depression. It was sponsored by Senator Reed Smoot and Representative Willis Hawley. The act was signed into law by President Herbert Hoover on June 17, 1930. Despite widespread opposition from economists who warned of its potential negative consequences, the bill passed. It dramatically increased tariffs on thousands of imported goods. Other countries retaliated by imposing their own tariffs on American goods, leading to a significant decline in international trade. While it didn’t cause the Great Depression, the Smoot-Hawley Tariff Act is widely believed to have worsened its severity. The most significant impact was the sharp decline in international trade. Estimating the exact USD loss is difficult due to the complexity of the global economy at the time. However, it is known that U.S. exports fell from roughly 7B USD in 1929, to roughly 2.5B USD in 1932. This drastic drop shows the impact. Tariffs raised the prices of imported goods, making them less affordable for consumers. The decline in trade contributed to bank failures, particularly in agricultural regions. The act further strained the global economy, which was already struggling. The act was intended to protect domestic industries, and in the very short term, some industries may have seen temporary benefits. However, these were greatly outweighed by the negative consequences.
Comment: What’s Wrong With DEMs?

Ils n’ont rien appris, ni rien oublié. This phrase is attributed to Charles Maurice de Talleyrand-Périgord, a French diplomat, in reference to the Bourbon Restoration after Napoleon’s fall. It critiques the returning Bourbon monarchy’s inability to adapt to the changes brought about by the French Revolution and Napoleonic era.

It’s fully applicable to DEMs in all the latest election cycles, including the recent one. If you listen to the explanation that DEM-leaning media are giving now for their catastrophic performance in the 2024 elections, you’ll hear that DEMs still think that everything they were doing was perfect — the only mistake they made was being unable to communicate their “achievements” to certain electoral groups.

As the Bourbons, DEMs have absolutely not recognized that their agenda, especially as they treat new independent, uncensored media and new sources of income (like cryptocurrencies), is simply out of date. Their approach to policing media and restricting access to blockchain, and generally their desire to put bureaucracy first, ahead of people — that is what put them down.

However, despite that being up in their face, DEMs once again demonstrate that “They have learned and forgotten nothing.” This adds to my certainty that “maganomics,” together with “magapolitics,” is here to stay for a very long time.

On Wednesday, markets all over the world were volatile in anticipation of tariffs that were to be announced after the closing. Trump imposed a 10% universal tariff, along with additional levies on 60 nations, and 25% duties on auto imports. Many countries, including the EU and China, issued statements criticizing the tariffs as violations of trade rules, calling them an act of ‘bullying.’ The dollar index plunged, and oil also declined as markets became risk-averse following the higher-than-expected tariffs. Gold hit a new ATH. BTC, ETH, and SOL are in the red after fluctuating widely.

On Thursday, Stocks saw their worst drop in over two years, with major indices plummeting. The S&P 500 experienced its biggest fall since 2020 — wiping out around $2 trillion in value. Investors were spooked by Trump’s proposed tariffs, fearing global retaliation and economic damage. Tech stocks led the sell-off, with Apple, Nvidia and retailers Nike and Dollar Tree each fell about 10%. Despite the steep losses, trading remained orderly, though inflation and volatility concerns grew. With tariffs set to start April 5 and more expected, market uncertainty is likely to persist. BTC, ETH, and SOL also dipped but less sharply..

The State Of Markets: In red, the unprecedented tariff war launched by the White House on April 2 weighed heavily on stocks around the world.

Comment: What’s Up With Tariffs?

Trump’s “reciprocal” tariffs are based on the country’s trade deficit divided by imports (which is essentially a measure of the proportion of imports that are not offset by exports in a bilateral trade relationship), rather than actual foreign tariffs (WTO):

The administration emphasized the trade deficit as a sign of unfair trade practices so the Trump administration’s approach considered the trade deficit as a key factor. This method reflects a focus on “reciprocity” as a way to reduce the trade deficit, rather than on matching actual foreign tariff rates.

Trade Deficits Are Not Inherently Bad:

A trade deficit simply means a country imports more than it exports. It’s not necessarily a sign of unfair trade or economic weakness.
Trade deficits can arise from various factors, including:
Strong domestic demand for imports.
Currency exchange rates.
Differences in economic growth rates.
Investment flows.
A trade deficit is not a measure of how fair trade is.
Tariffs Distort Markets:

Tariffs raise the price of imported goods, making them less competitive.
This distorts market forces and leads to inefficiencies.
Consumers pay higher prices, and businesses face increased costs.
Tariffs can lead to retaliatory tariffs from other countries, harming exports.
Focus on Reciprocity vs. Efficiency:

The “reciprocal” approach focuses on matching trade imbalances, not on maximizing economic efficiency.
Economists generally advocate for free trade or trade based on comparative advantage, where countries specialize in producing goods they can make most efficiently.
Ignores Complexities of Global Supply Chains:

Modern supply chains are highly complex, with goods often crossing borders multiple times.
Tariffs can disrupt these supply chains, causing significant economic harm.
Focus on the trade deficit is misleading:

The trade deficit only measures goods, and does not measure services.
On Friday, the DOW, S&P, and Nasdaq have experienced a decline reminiscent of decades past; oil plunged to a three-year low, and gold dropped sharply as investors sold it to meet margin calls, while BTC and even ETH are not budging. It is unprecedented. Partially, this might be explained by the very high volatility of the USD and gold. This has prompted many traders to diversify into alternative asset groups. However, it might just be a short-term reaction, especially given that Powell explicitly warned the markets about inflation and stated that the Fed will react to Trump’s tariffs. Still, BTC being in the green while all the world indexes are in freefall (e.g., the entire Italian market dropped almost 8% in just one day) is a historic event.

The State Of Markets: Absolutely in the red, all the world’s markets and almost all major commodities are in deep decline, responding to an overnight revamp of the 80-year-old global trade system. Crypto has historically stood strong.

On Week 15, markets eye trade war fallout, inflation, and Fed minutes. Europe’s retail and industrial data, plus UK GDP, are due. China’s trade and India’s policy also loom.

Comment: What’s Up With Tariffs? (2)

It would not be a stretch to say that in the past 200 years or so of capitalist market history, all of the accumulated economic experience and theoretical knowledge have taught us a lesson: that even if tariffs work, it’s only short-term, and the negatives massively outweigh the positives. Basically, a “trade war” is 90% the “war,” and only 10% is “trade.” Tariffs are highly disruptive and counterproductive, not only economically but also socially and politically. Bottom line, they should not be used as a tool in the contemporary, modern, open world’s economy at all.

The way it’s currently done by the White House is absolutely and even ridiculously grotesque. It signals the end of international trade as we have known it. Most economists estimate it costs between $2,000 and $5,000 per person per year. This includes both inflation and rising costs. That’s the price each individual will have to pay for a couple of thousand manufacturing jobs returning to the mainland, and also for some politicians feeling “secure” about “national economic security.”

However, all of that said, hasn’t everyone in crypto (myself included) been crying out for at least the past 10 years (pretty much since the advent of BTC on world’s economic scene) about how the current “new-Keynesian” economic paradigm, which is based on heavy bureaucratic regulation of all markets and increasingly less freedom for entrepreneurs and innovators, is unsustainable? Yes, we have been lamenting the new-Keynesian model, but only now has that model been challenged on practice.