Just wrapped up another video call with key partners as Trump moves forward with what we are calling the riskiest reengineering project in modern history – lots of alarming headlines out there. As the global sell-off deepens around the world, volatility has climbed significantly.
This is one of those times when a zero return might actually make people happy. On another note, some clients might remember me as the guy who said the world would recover even during the darkest days of Covid-19, when toilet paper was worth more than oil. Turns out, I was right.
Here are some of the key observations and takeaways from our exchange:
1. The Singapore Prime Minister’s recent speech was a hot topic of discussion. He warned about the growing risks from tariffs, highlighting their potential to further disrupt global trade and economic stability. Hope for the best while preparing for anything.
2. Rate cut forecasts by market analysts vary. The US Federal Reserve is facing a balancing act between fighting inflation and avoiding a recession. The Fed has to wake up and pay attention.
3. Dead cat or durable bounce? Without a meaningful policy course correction, the markets remain vulnerable to more positioning shakeouts. On a trailing basis, the S&P’s P/E ratio has dropped rapidly from near 28x down to just over 21x. A shift to some “phenomenal” deals could trigger a rapid recovery in risk asset prices.
4. There will be more stimulus out of China, particularly aimed at propping up its stock market.
5. Some hedge funds are facing their most significant margin calls since the onset of the Covid-19 crisis.
6. Gold is not immune and this points to a classic liquidity squeeze, where even “safe” assets are sold to raise cash.
7. Not all is doom and gloom. Alternative investment funds particularly those with low correlation to traditional markets or flexible global macro strategies have shown impressive resilience.
8. Tariffs and trade tension are compounding an already difficult fundraising environment for private equity. Meanwhile, private credit funds may be heading into unfamiliar waters. Old playbooks may no longer apply.
9. Some cryptocurrencies have rebounded more quickly than the stock markets. Sounds nuts to some people!
10. There will likely be further pressure on emerging market currencies, many of which are already under stress.