Paradise Lost?
“When the pendulum swings, it doesn’t stop in the middle.”
What a week... and I still don’t know where to begin.
Markets are in free-fall. Politics are on fire. Volatility’s back in the driver’s seat. And people are losing their minds.
I sat down on Saturday to record my weekly podcast and thought, “Do I talk about Powell? Politics? Populism? Passive investing? Panic?” Then it hit me... why not talk about all of it?
They all start with “P” anyway.
Let’s dive in.
Pandemonium Returns
You want a word for what’s happening out there? Pandemonium fits like a glove.
We just had our worst week since COVID. A lot of the gains from 2024... poof... gone. And if you’ve been following me, you know I’ve been saying this was coming.
By the way... “Pandemonium” is the capital of Hell in Milton’s Paradise Lost.
Couldn’t be more fitting. Feels like half the market’s been relocated there.
Portfolios are bleeding, sentiment is shot, and people are starting to ask whether we’re watching America’s rebirth... or its funeral.
Both sides claim the moral high ground. But out here in market land, moral victories don’t pay the bills.
Populism Ain’t Pretty
Let’s get to the meat of it. Markets aren’t falling because of a virus or an interest rate hike.
They’re falling because Trump means it this time.
For years, people said he was bluffing.
That he’d back down the minute the Dow dropped 1,000 points. He’s a “market guy,” after all... a showman... the ultimate winner... right?
Wrong.
He’s serious. His supporters are serious. And this populist wave he’s riding? It’s not a ripple... it’s a tsunami.
He’s got a mandate from flyover country... the folks who didn’t go to Harvard and don’t read the New York Times.
They’ve had enough.
From Bush to Obama to Biden... they were promised prosperity and got deindustrialization. They’re not asking for tweaks... they want the whole system re-wired.
And Trump?
He wants to be remembered as the guy who pulled it off. The greatest president of all time.
That’s his goal... and he doesn’t seem to care how messy it gets along the way.
Paradise or Pothole?
Here’s the thing... Trump and his team (including the very sharp Scott Bessent) are fully aware that this will hurt in the short term.
They’re betting it’s worth it.
Tariffs? Check.
Dollar suppression? Check.
Push to rebuild domestic manufacturing? You bet.
They believe we’ve hollowed out our economy and left ourselves strategically vulnerable. And they’re right.
The path to a “new golden age,” as they see it, runs straight through volatility.
They’re pulling a Tiger Woods... tearing down the old swing to build a better one.
There’s going to be shanks. There’s going to be triple bogeys. But if it works... they’ll come out stronger.
And if it doesn’t? Well... at least they tried something big.
But what happens when the pendulum keeps swinging…and hits markets right in the teeth?
The Pendulum’s Path
Let’s not kid ourselves. The pendulum has swung far... maybe too far.
For years, the top 1% got rich while the bottom half worked harder for less. Stock markets boomed while real wages stagnated. The pressure built... and Trump opened the valve.
Now the pendulum is swinging the other way. Fast.
I don’t like the pain its causing. I feel bad for those impacted. But it doesn’t really matter what I’d like to see.
My job is to see the world as it is…prepare…and if opportunity presents itself, react.
And right now, markets are reacting violently.
Even Trump’s own allies are getting nervous.
Some Republicans are whispering that if this keeps up, midterms could be a bloodbath.
Wall Street assumed volatility would scare Trump off. It didn’t. He’s digging in.
According to Bessent... Wall Street had its run. It’s Main Street’s turn now.
Portfolio Pain
Let’s break down the damage.
The S&P is off 17%.
Nasdaq? Down 22%.
Gold dropped $100 in a single day.
Silver’s off $4 or $5.
Copper’s down 20% in two weeks.
Bitcoin’s hanging in there around $82,000... but it’s holding on by a thread.
It’s not just that assets are falling... it’s that they’re all falling together.
Why?
Two words: passive investing.
About 45% of all assets are in passive vehicles. These funds don’t think... they just follow flows.
When money comes in, they buy. When money goes out, they sell. And they don’t care what price they get.
That helped juice the rally... now it’s accelerating the crash.
Patience... or Pain?
And then there’s Powell.
On Friday, he took the stage... and gave the markets nothing. No pivot. No hints. Just the word “patience.”
Patience?
We’re in a regime shift and the Fed’s playing therapist.
His commitment to “staying above politics” is noble... but naïve.
When the economy’s being fundamentally restructured by the executive branch, the Fed won’t be able to remain a bystander.
It’s not about being political. It’s about being relevant.
And stepping in during a crisis is their mandate. To be clear, I’m not advocating. I’m merely acknowledging their role.
It is what it is…
Put Protection Pays
This is why we hedge.
Last July, we bought puts when markets were euphoric. Sold them in August when things got shaky. That trade covered our downside... and then some.
And we reupped them late last year and early this year when the Vix was hanging out in the teens.
Right now? It’s too late.
Put options are through the roof. Six months of protection used to cost 1%... now ten days will cost you 3%. That’s not insurance... that’s triage.
You want to be the calm trader when everyone else is panicking?
Get protected before the bomb goes off. Not after.
And how do you do this?
By having a disciplined process…not following headlines.
Short-Term Outlook
Where do we go from here?
Short-term, I expect a bounce. Sentiment’s in the basement. RSI is below 25. Stochastics are screaming oversold.
We’re probably 2% to 3% away from short-term support on the Dow.
I wouldn’t be surprised to see a relief rally over the next week or two.
But don’t mistake it for a bottom. This isn’t over.
It’s 2022 all over again. A long, painful decline... interrupted by brutal bear market rallies.
Stay nimble.
Where I’m Looking
There are a few places I’m watching closely:
Copper has been slammed... down 20% from the highs. Geopolitical tensions could snap it back fast.
Gold and silver got punched... but commercial short positions are now being unwound. That’s something to watch.
We had a great start to the year. Our hedges paid off. We’re in no rush to go bargain hunting. But the time will come.
And when it does, I’ll be ready.
Peace of Mind is Priceless
If you remember one thing from all this... remember this:
Dry powder is peace of mind.
Yes, it feels like a drag when markets rip higher and you’re sitting on cash. But when the puke comes... and it always does... cash becomes a weapon.
You think clearly. You act rationally. And you get to play offense while everyone else is still cleaning up.
That’s the game.
Final Thoughts... for Now
We’ll keep watching Trump... Powell... the pendulum. Maybe Trump pivots. Maybe the Fed caves. Maybe everything works out.
But I’m not in the prediction business.
I’m in the preparation business.
And this week... this wild, noisy, chaotic week... is exactly why.
Stay sharp. Stay patient. And above all...stay protected.
See you next week.
Sincerely,
Brent Johnson
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