The great bear market of our generation in store?
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Alright, here we are. It is Wednesday, 16th of April 2025, and just me in the studio for a quick solo podcast, but there's so much to talk about. I felt like I needed to record one this week before we head off here in Denmark on our long Easter holiday. Lucky ones here getting Thursday, Friday, and Monday off, so we won't be back until Tuesday at the earliest next week. And again, there's a lot going on here, and I think a lot to run through to update from where we were.

at the prior podcast. So we have the slide deck today. You can follow along. I think there are a couple of interesting charts you may want to consult, especially for some longer term perspectives here. You can find the link to the podcast in the podcast description. So

Coming into this morning, I was quite glad that we were a bit delayed today in getting this podcast out because we've had a new maybe development, maybe non-development. I'll get to that in a second. But the thing, you know, waking up this morning in Europe that hit markets overnight in the Asian session was, of course, the announcement that the U.S. is moving to limit chip exports to China. NVIDIA and talking about this special H20 chip it had designed to sort of skirt the market

sanctions against exporting chips to China will be impacted by this and an estimated, uh, a five and a half billion dollar hit. Uh, I have a good, uh, former colleague of mine that, uh, they think the damage could be actually be far worse than this for NVIDIA, but NVIDIA says maybe hedging that the terms of the deal might, might, uh,

might prove less bad than what this appears to be on the headlines. So maybe this $5.5 billion is a reasonably good scenario for NVIDIA. In any case, that stock was down as much as 7%.

before it bounced a bit overnight and resentment bounced quite a bit when we get this breaking news, if it is news, from Bloomberg. And I put in the quotes from the Twitter account you see there or the X account you see there, Walter Bloomberg, which is neither Walter nor Bloomberg apparently, but one of the more high-frequency squawk services. Have a look at that one.

you know, you get these, these items. China is open to talks. If Trump shows respect and they name a point person and that the China wants Trump to rein in its cabinet members and show more consistency. And they wanted to discuss concerns on Taiwan and us sanctions. Then we find out, or I found out at least according to a reasonable source on X, the Kobasi letter that the source cited in the story was quote, a person familiar with Chinese government thinking unquote. So, you know,

Let's see what this news item is worth. In any case...

I'm not sure it's worth much. I'm not sure it alters the shape of where this is headed. The U.S. and Chinese decoupling, the question is the speed of this nature, the nature and the speed of this relationship deteriorating, in my view at least. And if China is making these kinds of overtures, it could be interesting to see whether this proves just some kind of delaying tactic to disrupt this 90-day period the U.S. is trying to engage in to get

trade deals on board with the rest of the world. And then cue to a couple of the other stories that were impacting markets yesterday and today and where you see where these trade negotiations are headed. You have Besant explicitly, at least according to sources,

Wall Street Journal exclusive, and I think we've pretty much mentioned this before, is as part of the likely shape of things here that this whole U.S. tariff policy is not aimed at having massively high tariffs for the rest of the world, but potentially around making sure that other trading partners are on side with the U.S. priority to keep China out of the equation, both in terms of transshipment, so just simply using your country as a conduit for Chinese goods to be sent along to the U.S. Vietnam was one of the worst actors in that

category at times since the 2018 Trump moves on tariffs. And then the other one, which is equally, if not more important, where you have the case of Chinese building productive capacity in a country like Mexico and driving massive trade surpluses in what is essentially a free trade zone, the USMCA, by skirting the tariffs that way. So

Is the U.S. with its style, especially with Trump at the top and his style, able to extract these types of terms? Or is that a lost cause and we end up with the U.S. that is very isolated and with these high tariff barriers? Don't know, but that is the gambit according to these sources. In reaction to the risk-off and the new sort of friction overnight, we have gold exploding higher.

We were up, I can't even remember the dollar amounts. It's getting quite staggering, well over 2%, well over 3,300. That little Bloomberg story knocking it back a little bit, but it was already rebounding back above 3,300 again when I came in here to record this. And then looking ahead, it is all about sort of the geopolitics here.

And the fallout from them as we look at how the world is shaping up. And it is going to be shaping up, I think, pretty quickly in coming days. And I wanted to mention that in today's podcast as well. We have the U.S.-Japan trade talks supposedly set to kick off tomorrow, Thursday. And we also have Italy's Prime Minister, Giorgio Maloney,

In Washington, my understanding is she's in Washington today. A bit sketchy on what will be set up in terms of meetings, but really watching for the tone between somebody who has been very careful to stay onside with Trump and not come out as somebody that would get on Trump's bad side, that is trying to sort of talk the EU's case to some degree. We'll try to be angling for the EU and the US to have some kind of summit on trade,

Is the U.S. administration open to that? And just in general, what kind of headlines and what kind of tone are we seeing from this relationship on this visit I think is going to have European markets certainly on edge? And then again, with the risk off, we see the NASDAQ 100 rolling over further.

You know, sort of cementing, I think, the notion that this recent top here was – which barely penetrated the sort of the resistance created by the prior major low just above 19,100 in the NASDAQ 100 index. This is really the key resistance point and sort of the bears need to establish their case here and could be the peak of this move barring some kind of huge thaw in what is going on on the geopolitical slash trade front. So –

We have our key resistance in place, and we'll be looking lower, I think, from here. One of the last supports being something like 17,430, which is a 61.8% retracement of the rally, at least on the cash index. It's something more like 17,600 if you're looking and trading the futures. All right, and then I wanted to segue to...

I think one of the key things we need to ask is where are we headed in terms of a drawdown for this market? How does this compare with the prior drawdowns? And I go all the way back to the year 2000. If we look at slide three, talking about what those drawdowns were.

And as we look forward, what will the nature of this drawdown be? And my, I don't know if it's conviction, my concern is that this proves to be one of the great drawdowns, the greater bear markets, and maybe the greatest bear market since the global financial crisis, certainly. But in a popular sense, since the tech telecom bubble. Why do I say the popular sense? You can see on the next slide where I show the NASDAQ 100 drawdowns. It's because the popular participation, that great sort of

popular delusion around a new thing, great new thing being the internet, et cetera, and the crazy bubble that saw widespread retail participation. That was the, of course, the one that ended in 2000 to 2001.

And the global financial crisis drawdown was, of course, horrible, but it did not see as much popular participation. So I think if you're talking about generations of retail investors, what they remember is really nothing. They only remember the drawdowns seeing massive central bank easing coming in and, in some cases, fiscal easing coming in.

And that every dip is something to be bought. And we're seeing that in the scale of, and you see it reported in the media, we see it in terms of, uh, there's a widespread enthusiasm for, for rushing in to, to buy the dip. So it's when you don't see that behavior, you know, you're at the bottom of something, I would say, uh, at least that's, that is my concern. So really this, if this was a, um,

This would be the first bear market that could have legs from a popular participation standpoint. And I've labeled each of the major and in some case only correction drawdowns since then. So you have, of course, the global financial crisis and the 2009 lows. There was a big dollar spike and China's move to sort of devalue and revalue its exchange rate regime in August of 2015 that led to a trough in early 2016 when the dollar was at its height.

And, you know, the move has looked worse in some cases elsewhere. The volpocalypse, so the big volatility risk-off move we saw in, well, first in early 2018 in terms of crazy volatility spikes, but in terms of the actual market drawdown when the Fed overextended itself on the rate-tightening regime later in the year before backtracking in 2019. The pandemic, very, very steep and sharp, but very, very limited in a timeframe, in terms of timeframe.

into, of course, spring of 2020. We all remember that. The Fed on the warpath with raising interest rates to crush inflation. That was the more drawn out bear market that extended into the fall 2022 lows. And here we are with our latest one where the extent of the drawdown, at least these are just in terms of the cash close, something like 17% for the S&P 500. And then again, on slide four, I show the NASDAQ 100 where you see such a crazy increase

chart there because we had that widespread concentrated participation in the top tech names back in 2000 that led to such a bubble that the drawdown was on a staggering degree of more than 80%. And we did not recover those bubble highs until 16 years later. So a very, very different trajectory from what was seen in the S&P 500.

We have seen a – there's been an echo this time around, but because a lot of those same companies are in S&P 500 and have driven the extreme performance in the S&P 500 as well, I think the differences between the two indexes will not be by any means as great this time around if we are headed towards some bigger unwind.

Now, in terms of earnings, we've got an interesting name coming up besides the banks, which are having a great time, especially on the activity, of course, in equity trading, seeing some good results there. We have up tomorrow, we have Netflix out. We had ASML, by the way, today, Chip.com.

sort of chip foundry equipment, this very highest end etching of chips, the Dutch company ASML. Market disappointed with its outlook that those shares got punished a bit today.

But tomorrow we have Netflix, a very contrasting company. Is this a company that is going to continue to fire on all cylinders in terms of its execution? Is it bulletproof in terms of recession fears? Yes, we're off the highs, but we saw a big 5% sprint yesterday as the company comes out before earnings saying it wants to become a trillion-dollar company. Is this hubris? Is it not?

Certainly the company has been one to be greatly admired. I would say the chief risk with the outlook would be something like this U.S. trade attempt to establish new terms of trade with the world fails and we get some kind of profound anti-U.S. move. That would be one area because they do have quite a –

Quite exposure, big exposure to the rest of the world outside of North America in their profitability, something like 56% of where their profits are derived. But the story there, and I put a little chat GPT prompt because it's a pretty interesting story how Netflix has managed to grow not only the top line, but really expanding its margins has been a key part of the story.

And how it's valued, yes, you can say it's growing at 12% to 13% right now, but why the heck is it valued at in terms of the top line? But it's valued at 50 times earnings. And one way to look at that is if you look at it

It's valuation versus anticipated 2029 net income, something like 20 times that. Would not be a crazy valuation, assuming, of course, it can grow at the needed pace, which would be an anticipated revenue increase of something like 70% from here to there. So the next five years, if you include this year as one year. But a net income increase of 128%, and that is that margin expansion driven by a number of factors.

execution, recycling local content to the globe. So you make a nice production in South Korea like Squid Game and it becomes something that impacts their business worldwide without even having to do some new version of it in a new language. They just put up subtitles. Pretty spectacular company, but it is priced for some pretty aggressively strong outcomes. And it'll be interesting to see if

Because it's a relatively low-cost item, it's a Netflix subscription month-to-month. If this is something that is indeed recession-proof, if we're headed for a recession.

And then I put in a little blurb there as well. And one of the things I'll be talking about, I think, for a long time is the risk to these, especially the MAG-7, the U.S. Infotech giants, if terms of trade cannot be agreed on the status of their global profits in a more hostile world for U.S. companies.

And it's basically the EU saying it's at the ready. If talks fall through on trade, it's at the ready with digital services taxes that could lead to some pretty interesting retaliatory measures, but certainly would inflict considerable damage on profitability in these countries. I think more important, though, as a long-term risk for the excessive profit-making and profit-taking measures

these large companies is how useful are they to what Michael Every calls the economic straight craft? How useful is it that all of your profits or such a high percentage of your profits are accruing to monopoly companies that aren't really driving anything productive in your economy and the imperatives and goals you have for your economy from

building ships to reshoring production to everything else. And that very specific point was actually made in the podcast I've linked to.

I don't know how it didn't reach my level of awareness until very recently, but it's from April 1st, but still very, very, very relevant in terms of the long-term themes discussed in there. The U.S.-Canada relationship and why it is shaping up as it has, et cetera, is just a great conversation. And it's with Michael Kao, one of my KAO Kao colleagues.

One of my more interesting recent follows that I hadn't discovered before, both he and Grant Williams interviewing Michael Every on that podcast. You can see that in the appendix further down in the slide deck. And then with, of course, a risk off move, we get volatility across markets. And that includes into FX where we're seeing the dollar weakened versus the recent safe havens of note and this type of trade friction trend.

Safe haven seeking, although this time without the treasury market volatility, which I thought was quite interesting. So we have the Swiss franc leading the pack and it's developing some quite strong trending readings, the strongest among the currencies really.

followed by the euro and the Japanese yen, which has lagged a bit more than I would have expected, but there you have it. The dollar on the weak side again, the Chinese renminbi, supposedly even weaker, but that is a volatility-adjusted measure, the trending measure on the FX board there you see on slide 6. So it just means that the CNH is more consistently trending at a greater rate

in a greater trending fashion than what the dollar has been doing lately. So very interesting to see this constant behavior of the Chinese renminbi effectively tracking the direction of the U.S. dollar with some kind of beta in these types of moves, certainly making Europe less comfortable from a competitiveness standpoint. And we're very concerned about the outlook for Europe through all of this, that fiscal coming on board, eventually the repatriation

A theme as U.S. exceptionalism is unwound is, yes, it's all very positive, the euro, but what about the profitability of European companies, et cetera? So some concerns around the European market for sure. And we'll have Jacob on here soon again to talk about the outlook for European profitability if you look across the board, looking a bit weaker.

And then a couple of things also on Europe and the euro, specifically a near-term risk, I think, for the euro is a bearishness from the ECB, taking into account everything I said. You've got energy prices dropping like crazy recently, especially if you look at that in euro terms. So there's been a huge drop in, for example, crude oil prices in dollar terms, and we've had a spike in the euro. So that, of course, means in euro terms, they've spiked even more to the downside.

Does this give the ECB some insurance buying instincts at its meeting tomorrow? I think there's decent odds of a 50 basis point cut, even though the market is only priced for 25. That's not saying that I'm 100% convinced. I'm just saying they have the green light for it if they wanted to do it. Certainly, I think the base case is they cut, of course, the 25 as expected, but

And they'll be sort of shape up for a much firmer odds of another 25 basis point reduction at the June meeting, which is only about 50-50 priced in. So, you know, be careful with trading the euro around that meeting tomorrow. I think the ECB would do well to cut 50, but will they? I don't know. I think they're going to be leaning dovish regardless.

And as mentioned, the macro calendar overview, by the way, on slide seven. Some other risks today. Most of you will be hearing this after the fact, but we have those March retail sales from the U.S. We think the consumer is under tremendous pressure and even at the high end as well with all this volatility in March.

Asset markets probably starting to have a wealth effect very soon, a wealth effect in terms of also a spending willingness effect, so a negative wealth effect impacting sentiment. And we just saw those spectacular preliminary sentiment numbers from the University of Michigan Sentiment Survey as well last week. Bank of Canada decision, no change expected there. Really curious to see how the election shapes up on April 28th.

Just staggering the way that Trump's posturing impacted the political environment there. Does that hold? I mean, is it volatile enough to where this becomes a nail biter? I don't know. But that's something I'll be watching and we'll be talking about more probably next week. And then the NAHB housing market index, quite interesting as inventories of new homes in the U.S. are really, you know, ratcheting higher.

And what is the confidence in the housing market when that's the case with these much higher mortgage rates we've seen? So I have to keep an eye on that. Fed Chair Powell speaking. I don't think he has much to add to the conversation. More about Besant and the program for tariffs and how those negotiations are going on right now.

Again, tomorrow, the U.S.-Japan trade talks, and then Friday, we have a CPI number from Japan. And that'll lead me to the links. Check those out on slide eight. There's the most recent interview with Secretary of Treasury Besant as he sits down with Yahoo Finance. If you just want to get a sense of the man and the focus of

He says the focus is on Main Street more than it is Wall Street. I think we need to read that signal and something that's very serious for sure. And if you have access to Wall Street Journal or if you're a Saxo client, you get this news on platform, at least for English language, that article on how the U.S. plans to use trade negotiations to isolate China. What will China's response be? Does it feel it's existentially threatened by this and moves more aggressively rather than less aggressively before the U.S. can build up its...

its strategic ability to produce, to get other countries on side, et cetera. Massive questions, way more questions than answers here. And then, of course, the latest interview of Michael Every with Grant Williams and Michael Cowell. Some great discussions there about the longer-term new era we are in called the U.S. and its considerations around economic statecraft.

All right, I think that is going to do it for today and for this week ahead of the longer Easter break. Stay very careful out there. Let's see where things stand next week when we're back with the next Saxo Market Call.