Why Is Trump Nuking Markets? | Felix Jauvin

This episode dissects the market turmoil ignited by Trump's tariff strategy, analyzing the forced liquidations, geopolitical underpinnings, and the unexpected implications for crypto investors navigating the volatility.

Initial Market Reaction & Trader Positioning

• The discussion kicks off by addressing the intense market reaction to the Trump administration's tariff announcements, dubbed "Liberation Day." Felix Jauvin describes his initial 50/50 uncertainty heading into the announcement, prepared to react quickly.
• He notes the whipsaw caused by conflicting media headlines, particularly the initial Wall Street Journal report suggesting lower-than-expected flat tariffs, which prompted a brief "green button" moment before the "almighty chart of doom" reversed sentiment sharply.
• Felix emphasizes the agility of individual traders like himself to exit positions almost instantly, contrasting this with the slower unwinding process required for larger institutional players like pod funds, multi-strategy funds (multistrats), and Commodity Trading Advisors (CTAs) – systematic trend-following funds.
• He suggests the subsequent days, especially Friday, saw these larger players finally catching up and degrossing their portfolios.

Analyzing the Tariff Calculation & Market Logic

• Avi shares his perspective, highlighting that the administration's method for calculating tariff rates—seemingly based on a simple division of imports versus exports—was unexpected and removed a layer of predictable logic from the situation.
• This unorthodox approach, he argues, makes resolving the trade disputes more complex than traditional tariff negotiations aimed at reciprocity.
• Avi points to the Vietnam example, where offers to reduce tariffs were met with vague accusations about currency manipulation and trade imbalances, lacking clear resolution pathways.
• "It makes the actual calculus for getting out of this I think a lot a lot more difficult," Avi states, suggesting this difficulty shifted market sentiment from viewing the tariffs as a short-term negotiation tactic to potentially long-lasting measures, fueling the sharp negative reaction.

Forced Liquidations & Pod Shop Blowups

• Jonah, drawing on his connections, reveals that the recent market volatility, particularly over the last few days, has led to significant stress and even blowups within the "pod shop" world – large hedge funds structured with multiple independent trading teams or 'pods'.
• He notes that gold selling off alongside risk assets like equities is a classic sign of forced liquidations, where funds facing margin calls or portfolio manager terminations must sell whatever they can, regardless of the asset's fundamentals.
• When a portfolio manager is fired from a major fund like Millennium or Citadel, Jonah explains, their book is often liquidated quickly and sometimes sloppily by others at the fund, contributing to indiscriminate selling pressure across markets.

Strategies for Buying the Dip

• Felix explains his rationale for starting to buy equities aggressively on Friday and Monday, citing the evidence of forced selling and deleveraging as signs of potentially irrational price moves.
• He references discussions with veteran traders Tony Greer and Jared Dillian about the necessity of "eating a few shit sandwiches" – enduring some initial losses – when trying to catch a falling knife and anticipate a market bottom.
• Recalling his mistake in March 2020 of waiting too long for the perfect bottom, Felix now advocates for tranching into positions even if further downside is possible.
• Avi contrasts this, stating he's done trying to catch the absolute bottom and prefers to "buy a green shoot style rally" once the market shows signs of grinding higher.
• Avi, however, employs a systematic scaling approach, identifying an extreme downside level (using 460 on the SPY ETF as an example) representing a low probability event, aiming to be fully invested only if that level is reached, while deploying most capital progressively on the way down.

The Nature of the Crisis - Man-Made vs. Exogenous

• Jonah frames the current situation as a unique "man-made calamity," distinct from exogenous shocks like the COVID-19 pandemic or the Global Financial Crisis (GFC).
• Because the crisis stems directly from the actions and rhetoric of one individual (Trump), Jonah posits it could theoretically be unwound quickly with a change in policy or even a tweet.
• This raises a critical question for investors: does the controllable nature of the trigger make this sell-off an easier buying opportunity, or does the perceived unpredictability of the individual involved make it a harder, riskier bet?

Economic Impact & Pre-existing Fragility

• Felix challenges the notion that the economy was perfectly healthy before the tariff shock.
• He argues that signs of a growth slowdown, particularly in the labor market and other "in the weeds" data points, were already emerging in mid-December, making the economy more fragile than widely perceived.
• This pre-existing vulnerability, combined with high US equity valuations and crowded institutional positioning favouring US assets, created a fertile ground for the tariffs to act as a powerful negative catalyst.
• Felix questions whether a potential reversal of some tariffs would fully undo the economic damage already inflicted, such as delayed hiring and capital expenditure plans, though he concedes it would likely spark a significant market rally.

Geopolitical Endgame - Targeting China?

• The conversation explores the potential deeper strategy behind the seemingly chaotic tariff implementation.
• Referencing analysis by Danny Dean, Felix and Jonah discuss the theory that the ultimate goal is to align Western allies (Europe, Japan, Canada, LatAm) against China, effectively creating a new trade bloc excluding Beijing.
• Jonah outlines a "blue sky scenario" where the US negotiates zero-tariff agreements with allies while imposing extreme tariffs on China.
• The confusing, specific nature of a fake Cointelegraph headline about tariff resolutions is speculated to have been a potential "trial balloon" to gauge reactions to such a differentiated approach.
• This geopolitical lens suggests the tariffs, particularly those on China, might be part of a longer-term strategic realignment rather than a temporary negotiation ploy.

Trump's Negotiation Style & Political Calculus

• Jonah characterizes Trump's approach using analogies like a "Queens New York style real estate negotiation" – starting with an outrageous opening gambit – and quoting the movie Zoolander: "Don't you know I'm Loco man?"
• The idea is that projecting an image of being unpredictable and willing to inflict economic pain might incentivize other countries to negotiate rather than retaliate or wait it out.
• While acknowledging the universal condemnation of the policy within his financial circles, Jonah notes the lack of perspective from Trump's potential blue-collar base and suggests the strategy might be perceived differently outside of coastal/financial bubbles.
• He argues that while hiking tariffs and doing nothing else would be a clear policy error, this initial shock might be a prelude to aggressive deal-making.

Burden Sharing & Geopolitical Leverage

• Felix introduces insights from a speech by Steven Moran, Chair of the Council of Economic Advisors, outlining the administration's view on "burden sharing" for US geopolitical and financial security guarantees.
• Moran listed five ways other nations could contribute: accepting tariffs without retaliation, opening markets to US goods, boosting defense spending (buying US arms), investing in US factories, or, most strikingly, "simply write checks to Treasury."
• This framework, particularly the idea of direct financial contributions or potentially forced buying of US debt (like hypothetical century bonds), is presented as the administration's justification for demanding more from allies benefiting from the US "umbrella."

The China Debt Factor & Controlled Demolition

• Building on the geopolitical strategy and burden-sharing concepts, Avi connects this to the potential for China to sell its large holdings of US Treasuries as a retaliatory measure.
• He speculates that part of the administration's calculus might be a "controlled demolition" – forcing China to offload its Treasury holdings now, under conditions manageable by the US (potentially by compelling allies to buy the debt, as per Moran's framework), rather than allowing China to hold that leverage for a moment of maximum geopolitical vulnerability, such as during a hot war.
• This proactive move could also address supply chain dependencies on China, a vulnerability highlighted during the COVID pandemic that Jonah notes hasn't been fully resolved.

Reassessing the Situation & Political Limits

• Jonah reflects on being caught "wrong-handed" by the severity of Trump's actions, admitting he underestimated the President's willingness to follow through on long-held tariff rhetoric despite the market's initially bullish reaction to his presidency.
• However, looking forward from the current 20% market correction, Jonah maintains his view that Trump lacks the political mandate to allow the stock market to fall significantly further (e.g., >30% down).
• He believes the risk of triggering a "blue wave" in the midterms or even facing congressional veto overrides would likely force a policy U-turn before such levels are reached.

Short-Term Bullish Case for Crypto

• Avi pivots the conversation, expressing a surprising short-term bullishness on crypto, particularly Bitcoin.
• He argues that the current geopolitical environment, characterized by rising nationalism and a move towards deglobalization, inherently increases the value proposition for non-state, globally accessible assets like Bitcoin.
• As traditional pathways for cross-border commerce and capital flow become restricted by tariffs and political friction, Avi believes crypto can capture a piece of the persistent demand for global interconnectedness.
• "If you shut down a ton of different pathways between countries... but crypto still exists, then crypto inherently I think gains a piece of that pie," he explains.

Bitcoin as a Global Commodity & Transshipment Hub

• Jonah expands on Avi's deglobalization thesis, drawing an analogy between Bitcoin and commodities like crude oil in a multipolar world.
• He explains how neutral countries like India can act as "transshipment hubs," buying oil from sanctioned Russia and selling goods to the US, effectively intermediating between conflicting powers.
• Jonah suggests Bitcoin, as a commodity-like digital asset, could serve a similar function – becoming an "alternative reserve commodity/currency" used by nations and individuals to bypass capital controls and facilitate trade and value transfer between increasingly fragmented geopolitical blocs.

Bitcoin vs. Nasdaq & Global Liquidity

• Felix introduces another angle supporting Bitcoin's relative strength: the divergence between US economic headwinds and potential stimulus elsewhere.
• He revisits his earlier trade idea (short Nasdaq/long Bitcoin volatility), premised on US fiscal retrenchment and slowing growth versus anticipated fiscal stimulus in other countries (like Germany and China) reacting to Trump's policies.
• Since Bitcoin is often seen as a reflection of global liquidity (referencing Michael Howell's work), while the Nasdaq is more US-centric, this dynamic favors Bitcoin.
• Felix notes Brad Setser's framing of the tariff shock as akin to a sudden $70/barrel oil price hike, implying a significant global growth impact that necessitates offsetting stimulus, further boosting global liquidity potentially captured by Bitcoin.

Crypto Market Structure & Flows

• Avi delves into the trading dynamics, suggesting Bitcoin sellers might be temporarily exhausted.
• He observes that order books appear heavily stacked with bids below the market (between $65k-$73k).
• He also posits that many momentum traders who might typically short Bitcoin during risk-off moves were preoccupied with the dramatic sell-off in equities ("I don't need to go sell more BTC... I can just sell equities.")
• Avi interprets the Bitcoin sell-off over the weekend as hedge funds using the liquid, 24/7 crypto market as a proxy to bet on lower equity openings on Monday morning. The rapid buy-up of the dip on Monday morning reinforces his view of strong underlying demand.

Altcoin Opportunities & Market Bottoming

• Focusing on trading tactics near potential market lows, Avi shares his strategy of buying altcoins against Bitcoin (BTC) and Ether (ETH) during the sharp sell-off on Friday.
• His rationale is that altcoins, being higher beta and often the first assets liquidated in a panic, tend to bottom out earlier and bounce harder than majors like BTC when sentiment reverses.
• "If you're expressing a view that you think you're close to the bottom, it's actually historically an extremely good trade to try to buy alts and short Bitcoin and ETH against them," Avi explains.
• The discussion highlights Fartcoin's surprising 20%+ rally as a potential, albeit speculative, indicator of retail sentiment turning positive, though Jonah cautions it's unlikely to attract institutional capital due to reputational risk.

Inflation Outlook & Fed Policy Implications

• The speakers generally agree that despite the direct price-level impact of tariffs, the broader inflationary threat is likely diminished due to the significant economic cooling effect of the market sell-off and associated uncertainty.
• Felix argues the 20% equity hit might be the "last shoe to drop" needed to bring inflation sustainably back to target, especially combined with falling oil prices.
• Jonah concurs, providing oil market analysis suggesting further downside potential for crude absent a major geopolitical flare-up in the Middle East, noting the unusual backwardation (front month price higher than next month) despite the sell-off might indicate OPEC+ struggling to prop up prices.
• They discuss the Federal Reserve's position, with Felix suggesting Powell might be engaging in "Fed theater," maintaining a hawkish stance publicly to ensure inflation expectations remain anchored while welcoming the market correction, potentially setting the stage for rate cuts later (perhaps starting May) once lower inflation data is confirmed or if markets deteriorate further.

Trader Mindset & Final Thoughts

• The conversation concludes with reflections on trader psychology in volatile markets.
• Felix reiterates that extreme conditions, like the VIX (volatility index) hitting 50 and equities down 20%, often present tactical buying opportunities, even if they turn out to be bear market rallies.
• Avi emphasizes the "TINA" (There Is No Alternative) aspect for capital, suggesting that with global assets selling off, cash eventually needs to be redeployed, likely back into US equities given the lack of appealing alternatives.
• He also notes that a large percentage of Americans own equities, creating political pressure against prolonged downturns.
• The final advice is a strong warning against becoming paralyzed or "beached" by fear: "Don't get beached... this is not about betting on global collapse, this is about figuring out when this particular show is going to end."

Conclusion

This episode highlights how Trump's tariff strategy, while destabilizing traditional markets, may accelerate deglobalization and boost crypto's unique value proposition. Investors and researchers should closely monitor negotiation outcomes and global liquidity shifts for tactical opportunities in Bitcoin and potentially oversold altcoins amidst the ongoing volatility.