The Market has Crashed

But when is cheap, cheap enough?

Good Morning Team.

At the start of the year, I penned an opinion piece arguing that the US market had risen to unsustainable highs and would crash in 2025.

Now for clarity, while it was clear that Trump was planning to use tariffs to bully China, I did not think the walking Lush bath bomb would go as completely bananas as he has.

But here’s the thing.

Even if Trump’s tariffs had not tanked the markets, something else would have. Yes, this is a turbocharged crash, but DeepSeek was only five minutes ago. Those jitters were there already and anyone not affiliated with a major investment bank could smell the shit coming from a mile away.

And for the now thousands of people reading this Substack, I have some truly fantastic news.

It’s Sunday.

You have had yesterday, and today, to calm down. Have a couple of beers, walk the dog. Talk your plan through with your significant other (or dog, no judgment here).

This is what I’ve been doing.

Now, to be perfectly clear, my expectation at the start of the year was that the S&P 500 would fall to 4,735 points over the course of 2025 - so for me, it’s been a lot less stressful than for many others. I’m just waiting for my target to be hit. We’re almost there.

And other than several top small cap picks, I’ve been mostly in cash for the past three months.

But now, it’s time to decide when to deploy the capital.

The most important thing to understand here is that unless I’m really lucky, whenever I buy I will almost certainly be sitting on a paper loss - at least initially.

For context, I did not time getting out of the markets perfectly either - though perfect is not the idea. Good enough is.

I sold out of the S&P 500 and all my large cap positions when the index rose to 5,919 points at the very end of 2024 - but it then increased to 6,144 points by 19 February 2025.

It’s great that my conviction has now been vindicated - but the underlying point is that if I didn’t time getting out perfectly, I won’t time getting back in perfectly either.

I do believe that tomorrow (Monday) will be another red day. However, I’d suggest that given the trillions of dollars of lost value - alongside Trump’s inscrutable, chaotic mind - anything could happen to change this. Tariffs rowed back or delayed, ‘deals’ start to get forged, Buffett decides the bottom’s in and lets the world know…

I’m happy to pound cost average in shortly, but would not like to be trading this on leverage. Most will lose when they do this, because timing this volatility is going to be challenging.

Owning a piece of the company you invest in via share ownership is the way to win in the long run.

Yes, my sweet summer child. It’s time to dig Benjamin Graham’s seminal work ‘The Intelligent Investor: The Definitive Book on Value Investing’ out of the bin and learn the basics of fundamental analysis.

And you have a new ISA and SIPP allowance to use :)

Unless it really is different this time.

You will probably have seen charts like this from time to time:

There’s tons out there - basically saying that if you stay invested and buy the dip, that you can’t lose.

However.

These kinds of charts that talk about the average annual returns of the S&P 500 since its modern inception in 1957 being around 10-11% tend to ignore some uncomfortable home truths around real disaster periods.

For example, the index has never been so concentrated on a single sector - tech stocks - and more specifically the MAG7.

And the S&P500 has now dropped 10.5% in just two days. This only happened four times in the last 75 years: October 1987, November 2008, March 2020 & now.

I invite you to consider what happened next the last three times.

Consider Charlie Bilello’s analysis on where the index went following the biggest two-day declines? Stocks were substantially higher over the next one, three and five years every time:

But.

I do believe that each time, the S&P 500 also fell further AFTER the two day drop, before recovering.

Also consider that the VIX ended the week at 45.3, one of its highest weekly closes ever. In the past, stocks then rallied 100% of the time over the next one, two, three, four and five years with returns far above historical averages.

But data can be strange - in the words of Scottish poet Andrew Lang, ‘Most people use statistics like a drunk man uses a lamppost; more for support than illumination.’

For a bearish view, it took the NASDAQ Composite index roughly 15 years to recover from the dot-com bubble crash, finally exceeding its previous high of 5,048 in March 2015 after peaking in March 2000. The index lost 75% of its value between March 2000 and March 2009.

And specific, inarguably high quality stocks, like Qualcomm took longer - a full two decades to get back to the previous levels.

Which brings us to the H2 title of the article:

When is cheap, cheap enough?

I guess this depends on your own risk attitude. I know that’s a cop-out, but it’s true.

If you didn’t sell before the crash, the temptation will always be to try to buy cheaper.

Pigs get fat. Hogs get slaughtered.

You want to say ‘Oink Oink,’ not hear ‘pass the gravy.’

If you’re closing in on retirement, the temptation may be to sell everything and go to the bond market. This, by the way, is exactly what the big decomposing satsuma wants you to do.

The US has $36.5 trillion of debt - and that doesn’t even consider the >$100 trillion of off-balance sheet liabilities. The 10 year yield in the US has dropped from 4.79% to barely over 4% since Trump took office.

This might not sound like a big deal.

But if he can push enough investor capital to US Treasuries (where panic money goes, alongside gold), he will be able to refinance trillions of dollars of debt, get trillions of dollars of new headroom and usher in a new era of US supremacy.

I’m not sure this administration is that smart, but if this is the game, you could easily see the market hit records highs again later this year.

If you’re young and with time on your side, no matter how terrifying it may feel (and this is not financial advice, I stress), these are the times where a world which is stacked against you financially, is giving you a chance to win.

Don’t risk emergency funds or any cash you cannot afford to lose, but there are some seriously high quality stocks on sale right now. And they may get even cheaper from here.

Perhaps read this letter from Jeff Bezos back in 2000, to inspire some moral fibre:

There are two very important points to be made here.

First, a stock can be punished by wider sentiment even though its fundamentals mean it shouldn’t be. Second, investors have been conditioned into believing that stocks will just jump back from their dips - this does tend to happen - but you might have to tank an 80% hit first.

Can you tank an 80% hit in a stock you have done the research on and know will recover to new highs? It’s easy to say you can until you look at your ISA/GIA balance, trust me.

There’s a reason why they keep falling.

Another key factor to consider is who is selling and buying RIGHT NOW.

At the start of the year, it was clear that retail was buying and insiders were selling. I mean, red flag right?

But retail is still buying.

And you know who’s selling now?

Hedge funds.

Hedge funds, investment banks, family offices…sophisticated investors will all be holding emergency meetings over the weekend to discuss what to do next.

And, generally, they know more than you and control more than you. And while you cannot control the tides, you can surf the waves.

Watch what happens next closely for hints - not what they SAY, but what they DO. Nvidia, Meta and Tesla insiders were all selling en masse a few weeks ago while telling you how great their stocks were.

There are no scruples when it comes to personal profits.

Hedge funds are now almost facing near Lehman-level margin calls. Speaking of, remember when Bear Stearns collapsed on 16 March 2008 - and all was fine in the stock market - before Lehman Brothers filed for bankruptcy on 15 September?

Lehman bullshitted all the way to bankruptcy (much like FTX). European division executive Christian Lawless told investors ‘our balance sheet is better than ever.’

On 9 September, management discussed needing to raise between $3 billion to $5 billion, but in an investor call the next day they said nothing about the problems - with the CFO instead saying ‘Our capital position at the moment is strong.’

Oh and their on book real estate valuations were a complete joke - much like the current US real estate valuations of all major companies in the States right now (because commercial real estate at current interest rates is nowhere near worth what it was five years ago).

The point is this: Silicon Valley Bank collapsed on 10 March 2023, and Credit Suisse nine days later. There was some initial panic (I covered both for various outlets) and then, suddenly JP Morgan had swallowed lots of regional banks for pennies on the dollar and all was fine.

Except - what if with the tide going down, we’re about to see another major institution has been skinny dipping? (To borrow a paraphrase)

By some metrics, Thursday was the largest selloff by hedge funds ever, and also one of the largest days of retail buying ever. $40 billion of stocks were sold in their largest daily selling spree since 2010. Short sales exceeded longs by three times, with North American stocks accounting for 75% of the volume.

Further, Goldman Sachs notes that hedge funds sold the second-largest amount of global technology stocks in 5 years this week. This was only a little smaller than the early August 2024 sell-off.

You know how in the small cap world, some scummy CEO will get their gang into their preferred penny stock, then use the herd for exit liquidity?

Yeah, that’s not just small caps.

Nvidia CEO Jensen Huang kindly tells you that ‘In the near term, the impact of tariffs will not be meaningful.’

But how many Nvidia shares have you sold over the past year, Jensen?

I want to make bags, not hold yours.

What’s everyone’s next move?

We know China has reciprocated. They have warned the US to stop using tariffs as ‘a weapon.’

This is Cold War language.

Other than China - Japan, South Korea, the EU and the UK are the only territories the markets will really care about when it comes to escalation.

Fortunately, our own glorious leader has decided:

The man wants to exude power on the world stage but is made of weak middle management material at best.

You know, the kind of chap who runs a slightly underperforming WH Smith, blames all the problems on the minimum wage employees and is clearly not cut out for area manager.

He can’t even get the bins collected in Birmingham (after our council tax rises that was promised would not happen). Birmingham’s was 7.5%, bypassing the need for a referendum if it goes above the 4.99% compounded cap.

Imagine the rage in that city right now. Sorry, not rage, I meant rats.

In this morning’s Sunday Telegraph (I know, a Labour PM in the Telegraph), he notes that ‘We stand ready to use industrial policy to help shelter British business from the storm…Some people may feel uncomfortable about this – the idea the state should intervene directly to shape the market has often been derided.’

I’m a small business owner.

In the past few years, corporation tax has gone from 19% to 25%. The dividend allowance has shrunk from £5,000 to £500. Dividend tax has gone up. Business Asset Disposal Relief has gone up. Employer National Insurance has gone up. The cost of literally everything has gone up.

Much of this under the last government, but if you want to help, either cut taxes or - if you’re not smart enough to have got there yet - for the love of god, just move out of the way.

I have zero confidence that either Starmer or Reeves has any chance of helping given the political skill required to navigate a global trade war.

Starmer and Macron - whose response to the US will clearly come in the form of a barely lubed baguette - have spoken over the weekend. The consensus is that nobody wants a trade war, but reading between the lines, they’re not going to take tariffs on the chin either

Zut alors!

Anyway, the European Union has also yet to respond to US Commerce Secretary Howard Lutnick who believes that the ‘European Union won't take chicken from America ... they hate our beef because our beef is beautiful and theirs is weak.’

No, it’s not that. Your husbandry standards are not fit for dog food, you consummate blowhard. Disagree? I reckon you wouldn’t want to bet on it.

Japan and South Korea will say they’re doing nothing until the EU moves. Then - remember they said they would co-ordinate with China - they will go in for the kill.

As for Trump?

He’s posted on Truth Social:

I hope he doesn’t want to buy a Land Rover. Or any other car anytime soon - they’re going to cost tens of thousands of dollars more - whether built in the US, new or second-hand.

Unless it’s second-hand Tesla of course. Those are being given away for free :)

Spare a thought for poor old Elon. Chatting to Italy’s Deputy PM Salvini, he notes:

‘I hope it is agreed that both Europe and the United States should move ideally, in my view, to a zero-tariff situation, effectively creating a free-trade zone between Europe and North America.’

I think he might finally be starting to regret this nonsense. But he helped recrown Donald and let him and his fleas sit on the sofa - it’s too late to put a leash on the old dog now.

And Trump has also told his cult that ‘In my first term... the stock market went up more than any other president... I think in my second term we will blow that away.’

Looks like nobody’s backing down anytime soon - though as always, looks can be deceiving.

Make no mistake, this is a cult. If any other President pulled this shit, they’d be impeached faster than you can say ‘woke liberals.’

But Trump has tapped into the anger in the rust belt, and now wants to expand into the wider anger felt by the diminished American middle classes. I suspect the messaging resonates across the western world, where acquiring housing, children and financial security feels like the trials of Tantalus or Sisyphus.

You have some online asking why people are ‘getting mad that President Trump put tariffs on countries that already charge the US the same amount if not more in tariffs?’

….

Or others.

Consider this viral comment:

While the US Treasury Secretary desperately seeks an exit - this must be excruciatingly embarrassing for the man - he notes that ‘the American trading system will be fair to our workers again, we are revitalizing the American dream.’

You could also consider that video Trump reposted, talking about crashing the stock market on purpose. Whether it was on purpose or not, they’re running with a man of the people angle:

But these angry posters - whether psyop or genuine (and they have every right to be genuinely angry), don’t seem to understand that if bank stocks keep tanking, mortgage lending will stop. That if stocks crash, your jobs will go, you won’t be able to afford your bills, and everything you own will end up in the hands of the rich.

This is what happens in recessions.

If you own nothing?

The recession ends and it becomes even harder to get anything for yourself.

JP Morgan has slashed the US GDP forecast from +1.3% to -0.3% Unemployment is projected to rise to 5.3%. Inflation has been revised higher and the bank fully expects a recession.

It won’t be pretty.

And the tariffs that are going to enrich the USA?

Let’s forget that only 14% of US GDP is imported goods and services for a moment.

70% of the shit you buy on Amazon is made in China. Much of the remaining 30% relies on components from China. So you want to buy cheap crap on Amazon? Include tariffs from the start of the year and it’s going to be 54% more expensive.

And there is no leeway.

If you were going to buy a $100 microwave, it’s now going to cost $154. Because the average Amazon seller (and Amazon itself) operates on roughly a 15% profit margin. They cannot absorb this. It’s just not going to happen.

And Chinese producers are usually operating on a 5% profit margin so they can’t discount either - and will also be squeezed as the tariffs are now two ways.

So it’s the US consumer who’s fucked - and when they can’t afford anything anymore, the rich will hoover up the crumbs.

Worse, when prices go up, they don’t go back down again - even if the tariffs go. Profiteering continues.

Even if tariffs do by some miracle increase production in the US, it’s going to be mostly automated (no new jobs). And it will take years to get back online.

It gets worse though.

For China, this is the new Cold War.

For countries like Madagascar or Lesotho, it’s existential. And imagine being Myanmar - riddled by civil war, hit by earthquake and then Trump comes along to stick the boot in.

I’ve been to several poorer countries for work. Most in the west have no idea what most of the world lives like. You understand the concept of living on a couple of dollars a day - but there’s the intellectual knowledge, and then there’s seeing it in person.

These countries can’t even do anything about what Trump’s primary school unmarked ChatGPT homework considers to be a deficit. Others have covered this in depth, but consider:

The US imports $236 million of goods from Lesotho each year, mostly diamonds and textiles. It exports $7 million of goods to Lesotho. More than half of Lesotho’s population earns less than $3.65 per day.

They can sell you their diamonds but can’t afford iPhones you clueless incompetents.

What about Madagascar? The island is poor. They also can’t buy American goods. But the island can produce vanilla beans because the climate is just magically good at that.

It’s a similar story with coffee and cocoa - and dozens of other products.

The US cannot grow these things. Every American who drinks a cup of Joe or eats a chocolate bar is about to get whacked with a very direct tax, caused by tariffs on very poor countries that sell these soft commodities to the US for very little - and no US farmer can grow these crops.

It’s perfect political red meat -and you know what? Good luck getting that custom back when the farmers and countries sign multi-year contracts elsewhere.

Though given the state of American chocolate, this may actually be a consumer plus.

Even if you do shift production to the US - listen to the experts. It doesn’t matter whether it’s your iPhone or your Nike trainers, even with tariffs it will still be cheaper manufactured abroad - so the US consumer is just going to be hit by a massive fuck-off tax - the largest in decades.

Where to go bargain hunting?

Bitcoin?

Mmmm…

It’s doing fine. But I’m not sure whether this is a status symbol given that Fartcoin is also surging.

I do like the look of Nike down here, but suspect the recent rise will be short-lived. On the watchlist though. JD Sports rose for the same reason as Nike - tariff hopes for Vietnam - but again this may prove temporary.

GameStop also rose last week. It’s good to know there’s at least one store of value.

Silver is interesting. COMEX silver is now trading under $30 per ounce, but in China, silver bars are selling for $40 per ounce. You can check the major sites yourselves.

And gold? Bessent was very recently recorded saying that:

‘Gold also has other applications, a lot of applications, jewelry in India, but it's something that historically people have all agreed on. And gold does not have, gold can't have a fiscal problem. Gold cannot have a gigantic budget deficit. Gold cannot have a war, so just the fact that it is this isolated thing makes it very interesting. And the fact the entire global trading system until Richard Nixon took us off was tied to gold. Carlson: So you're not anti-gold?…Oh no, no, when I had my fund, I think people might've called me a gold bug.’

I still think the gold standard may be making a comeback (though fully recognise this is about as outside a view as is possible).

However, I do think gold will dip perhaps to $2,800 before returning to record highs. All boats toss in the storm.

Legal & General looks like a very tasty choice given the dividend yield. It goes ex-dividend in three weeks as well and barring any major insurance event is very well covered. It’s the perfect example of a high quality stock beaten by external events.

In the MAG7 - Apple is going to test brand loyalty to its limits with pricing. Avoid.

Amazon sellers are going to struggle. However, it’s now trading at 15x operating cash flow - its lowest in history and previously advised that free cash flow will increase by 33% a year for the next five years. And the lion’s share of profits comes from AWS…

Buy.

Alphabet and Meta live on advertising, and this is the first thing that gets cut in a recession.

Tesla is well and truly fucked.

Nvidia is high risk high reward, dependent on what happens to the global trade of semiconductors. The US will now almost certainly prevent the company from selling to China through Singapore, and China is going to get even more annoyed. Taiwan (home of TSMC) is pissed, as is the Netherlands (ASML Holdings).

If you don’t know about these two, you should read up.

This leaves Microsoft. It’s least affected by events, so least affected in share price. But I suspect it’s the best from a risk-reward perspective if you like the US.

In the small cap world, you know my picks - but shout-outs to US-based explorers and near-term producers like Guardian Metal or Helix Exploration.

I also LOVE Sovereign Metals down here - as does the Oak Bloke.

Trump’s Achilles heel is critical minerals & gases. The administration is about to go hell for leather - and anything outside of both China and the West is getting far more valuable (even though share prices might have to hurt first).

The past five years of covering this sector is about to pay off.

Of course, Trump could also change his mind at any moment…

Have a great week. And a whisky.

You’re going to need it.