Wall Street's Terrible, Horrible, No Good, Very Bad Week
Sometimes markets act like spoiled brats
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Macro Snapshot/Current News
Here’s What Happened, Why, What’s Next, and Where to Hide Until It’s Over
The stock market had a moment this week. It sold off on Monday and (less) on Tuesday—a bonanza for those whose job is to comment on the markets.
What a perfect picture! I heard comments about rug-pulls, equity outflows, and indices being destroyed. The major stock indices look ready to be down around 4% for the week.
I was short the market in one trading position, not overall short, but on days like Monday, I trade one contract to make up for some of the inevitable losses on long positions that I want to continue to hold.
Long and short have different emotions. You have to be aware of both and be prepared. Know which are trading positions and which are investments. There is a place for both.
Is it gambling or risk management? Shorting the market with a product like SQQQ (a 3x levered inverse ETF on NDX, NASDAQ 100) is less risky than shorting futures.
The downside of SQQQ is the amount invested. With futures, there is no limit to the downside because the leverage is greater, and the downside of the futures position is limited only to the upside of the underlying. For example, if you buy a notional futures contract of $100,000 and post a $5,000 margin, the position could move 10%, resulting in a loss of $10,000.
Why Did This Happen and Who’s to Blame?
I flagged last week that the markets were getting bumpy and that volatility was up in stocks and bonds.
Valuations have been stretched for a while, so this was unsurprising.
The proximate causes were both Trump-related:
Uncertainty about tariffs: businesses do not know how to plan for tariffs if they are on one day and off another—or, in the case of additional 25% tariffs on Canada (retaliation for Ontario imposing tariffs on electricity exports), on and off within four hours.
Trump is not ruling out a recession.
So, here is the picture. The gap on March 10th is…well, what people mean when they say the market “gapped”. Volatility spiked quickly intraday.
Precious Metals: Something Weird; Something Good
This Is The Weird Part
Since November 2023, the U.S. has become a net importer of gold for the first time since 2020 (before that, 2010). Between November 2023 and March 2025, the U.S. has imported approximately 45 million ounces of gold, 15 million ounces since November 2024.
Recently, the delivery time for gold deliveries from the LBMA (London Bullion Markets Association) has widened from T+1 day to T+8 weeks!
Widening the delivery window for LBMA contracts may be the functional equivalent of a run on the bank.
The concern is that, although people are accustomed to thinking of gold as an asset without counterparty risk, that is only true when you hold the shiny metal in your custody.
The ratio of paper claims on gold—ETFs, for example—is estimated to be about 100:1. Exchanges such as LBMA and COMEX (Commodity Exchange) have long run naked short positions in these metals, similar to fractional banking.
Be Careful How You Own Precious Metals - Tax Alert
Because I like the possibility of being able to redeem gold and silver in physical form, I’m considering switching my gold and silver ETFs—GLD and SLV— to Sprott gold and silver trusts: PHYS and PSLV.
GLD and SLV are very liquid but do not allow you to redeem for physical gold. They are also taxed at the collectibles rate of 28%.
PHYS and PSLV allow redemption for physical metal, but only in specified minimum amounts—400 ounces for PHYS (~$1.2 million) and 10,000 ounces for PSLV (~$337,000).
The other thing to remember if you own these trusts is that your tax filings will be more complicated. Since PHYS and PSLV are what the IRS refers to as PFICs (Passive Foreign Investment Companies), you must file Form 8621 for each investment to avoid punitive taxation. It’s called a QEF election and requires reporting any ordinary income and capital gains in the trusts.
The advantage of owning these is that if you hold the investments for over 12 months, you can be taxed at the long-term capital gains rate of 15-20% instead of the 28% collectibles rate. This is a minor inconvenience for an 8% tax saving.
What’s The Big Picture With Precious Metals?
I have written about the secular change in the approach of worldwide central banks to the accumulation of gold rather than USD after the U.S. and Europe sequestered Russia’s USD reserves following its invasion of Ukraine. This explains the movement of physical gold from West to East, mainly China.
Treasury Secretary Scott Bessent's discussion of monetizing the U.S. balance sheet is another factor, along with rumored visits to Fort Knox to audit the U.S. gold reserves.
This is the Good Part - How Can You Trade Gold and Silver?
The chart below shows the historical ratio of gold to silver since 1969 (divide the gold price by the silver price to get the ratio). The green line shows the ratio going above 80, which historically signals to sell gold and buy silver because silver is undervalued.
The orange line shows the ratio below 50, which historically signals a sale of silver and a purchase of gold.
The historical average is around 57 over this period. Right now, it is 88. Silver usually lags uptrends in gold. There are different use cases for silver. It is used in several industrial processes, solar panels, and smart weapons systems. Because of its lower value, it is also a more manageable currency.
The following shows the results of trading this ratio using a strategy of selling gold for silver at a ratio of 80 and selling silver for gold at a ratio of 50, starting with $10,000 in 1969:
See below (Must Read Piece(s) on Today’s Market) for a timely interview on the precious metals market.
You could also apply a similar trading strategy to the oil and gas market:
With the following results:
In The Markets
The chart below is a heatmap showing the KBW NASDAQ Bank Index weighted by the trading volume over the last week. The percentages are the amount up or down, and the second number is the volume of shares traded. The size of the squares represents the relative volume of shares traded.
The predominance of red speaks to the kind of week the banks have had.
BTC continues to be a wild ride. The chart below shows just the last five days.
Precious metals have had a good week, silver more so than gold:
Credit spreads continue to increase, and, with the turmoil in the markets, the yield on the 10-year Treasury continues to bounce around: down on Monday when the stock market was volatile; up as stocks rebounded.
I have long said that credit spreads will tell us when to pay attention to market stress. It’s time to manage risk and reposition.
Must-Read Piece(s) on Today’s Market
This is a great conversation.
always does a fantastic job of interviewing interesting guests, and this one is very timely.This is Lee Zeldin, EPA Administrator, announcing 31 actions to dial back the regulatory framework constraining fossil fuel generation. Expect massive pushback from organizations such as the Sierra Club. Remember, the Sierra Club is still opposed to nuclear power…
On The Horizon
This week was all about inflation data—it came in lower than expected but probably not low enough to make the Fed move rates down next week.
Next week is all about the FOMC meeting: will the Fed move rates down? Probably not. Here’s the CME (Chicago Mercantile Exchange) Fed Watch tool:
97% probability of no change.
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