For readers unfamiliar with the term, 'FAFO' is an abbreviation for 'F— around and find out', which may be the most fitting description of the current global situation.

For readers unfamiliar with the term, 'FAFO' is an abbreviation for 'F— around and find out', which may be the most fitting description of the current global situation.

President Trump's second term has started tumultuously, possibly beyond the expectations of even his most loyal supporters, with investor sentiment affected by his extreme tariff and military negotiation strategies with former and current U.S. allies, leading to continued volatility in the U.S. asset markets, while Wall Street begins to face reality as the government attempts to re-privatize some major sectors of the economy, suggesting an economic slowdown may be on the horizon.

From the major headlines of the past week, Trump's geopolitical maneuvers remain quite chaotic:

Trump cuts tariffs on Canada and Mexico -- WSJ

Trump's erratic tariff policy causes market confusion -- Bloomberg

China imposes retaliatory tariffs on Canadian canola oil and pork -- Bloomberg

Federal Reserve Chairman Powell states there is no rush to adjust interest rates -- Bloomberg

While the market has always been good at ignoring bad news, it struggles to cope with uncertainty; Wall Street has begun to buckle under the Trump administration's fluctuating policy statements and is actively seeking relief.

FAFO -- Stock Market

Since hitting a year-to-date high in mid-February, the MSCI World index has fallen by 4.6%, and the SPX has dropped over 6%, now nearing the 200-day moving average maintained since the end of 2023. The tech-dominated Nasdaq index has fallen nearly 10%, with Nvidia down nearly 20%, while emerging market stocks have significantly outperformed U.S. stocks, achieving the largest advantage in a decade. Does this suggest that the U.S. market's exceptional performance is about to end?

We discussed the often-misunderstood 'Trump put' in detail last week, and Trump recently reiterated this, claiming he 'isn't paying attention to the market at all' and attributing the recent decline to jealous 'globalists'.

"I believe this is caused by those globalists who see America becoming wealthy but do not like it."

"This has nothing to do with the market; I'm not paying attention to the market at all," President Trump stated. -- CNBC

In response, U.S. investors quickly withdrew from crowded momentum trades, leading to widespread liquidation and systemic strategies to deleverage, triggering a rapid factor collapse, with stock return dispersion reaching its highest level since the pandemic, while cross-asset portfolios suffered their largest losses since 2023 due to slowing economic growth, tariff uncertainties, and significant shifts in European fiscal policy.

FAFO -- U.S. Economy

In addition to the capital markets, investors are now realizing that the Trump administration is attempting some non-traditional adjustments to the U.S. economy; the effects of raising tariffs, tightening immigration policies, and DOGE cuts to government spending have surpassed the positive effects of tax cuts and deregulation of corporate oversight. As economic growth forecasts continue to be downgraded, market consensus is gradually shifting, believing that only after the mid-term elections in 2026 will the government begin to implement more growth-stimulating policies, while the current focus must endure short-term pain, waiting for these radical policies to take effect.

The trajectory of economic slowdown has begun to be reflected in recent data. Details from last Friday's non-farm payroll report revealed significant signs of weakness, with the underemployment rate surging to a five-year high, heightening market concerns about a recession, and rate cut expectations brought forward to this summer, further lowering U.S. Treasury yields.

Despite Chairman Powell's attempts to show confidence at last Friday's Chicago Monetary Forum:

*POWELL: The Federal Reserve does not need to rush and can wait for more clear signals

*POWELL: Despite uncertainties, the U.S. economy is still in good shape

*POWELL: Tariffs are pushing up short-term inflation expectations

--Bloomberg

However, Treasury Secretary Bessent took a completely different tone, bluntly stating that the economy currently taken over by the government is beginning to cool down and warning: "As we shift from public spending to private spending, the market will undergo a natural adjustment."

If that statement isn't straightforward enough, he went further to add:

"The market and the economy have gotten used to massive government spending, but now we must go through a detox period." -- CNBC

Regarding the 'Trump put', Bessent firmly stated:

"There are no puts," he said. "If we have good policies, the market will naturally go up."

"This is a necessary course correction," Bessent stated regarding Trump's economic policies, "We will see if there are growing pains," adding, "I believe if we implement the right policies, it will be a very smooth transition." -- CNBC

Essentially, the government claims they are adjusting the economy away from the Democratic era's model, and this process will involve pain, which the market should be prepared for.

FAFO -- Europe's rearmament

The Trump administration's stance on the Russia-Ukraine conflict has shifted, pausing military aid, leading to changes in Europe’s attitude toward defense and fiscal spending, causing shock among investors regarding Europe’s rearmament plan and fiscal spending schemes, with European and German bonds experiencing the most severe sell-off since the euro's inception, and German government bond yields rising by 30 basis points in a single day, breaking previous records.

The EU's rearmament plan is expected to invest 800 billion euros in European defense over the next few years, with 650 billion euros borne by individual member countries. Following the announcement, Germany further declared a significant shift in its fiscal policy, including the establishment of a 500 billion euro special fund for infrastructure spending over the next decade, exempting defense spending from the 1% of GDP limit, and other measures to raise the debt ceiling in the coming years.

As for the implications of a rearmed Germany on the European continent? It's a highly sensitive topic, so we won't delve deeper. But in any case, bond issuance and supply are sure to increase.

FAFO -- Cryptocurrency Strategic Reserve

Cryptocurrency assets experienced a tumultuous week, ultimately ending in disappointment. Previous statements about a cryptocurrency strategic reserve and the highly anticipated White House cryptocurrency summit did not lead to any substantial purchasing plans.

In simple terms, the 'Strategic Bitcoin Reserve' merely counts the BTC seized by the government as reserves without directly selling them in the market. This is akin to viewing 'slower weight gain' as 'successful weight loss,' and is far from the bullish news the cryptocurrency market anticipated.

"The capital for the Strategic Bitcoin Reserve will come from Bitcoin obtained by the U.S. government through criminal or civil asset forfeiture." -- David Sachs via X

The government is attempting to retain a glimmer of hope for the market, suggesting that Bitcoin (and other tokens) may still be purchased in the future, but market confidence has already been shaken. From a legislative perspective, truly pushing for any additional cryptocurrency purchases still faces extremely complex procedures and obstacles, which is not something the current government is capable of advancing.

The U.S. Department of Commerce and the Treasury Secretary 'are authorized to devise budget-neutral strategies to acquire additional Bitcoin, provided that such strategies do not impose additional costs on U.S. taxpayers.' - White House

Additionally, this executive order establishes a 'U.S. Digital Asset Stockpile' consisting of digital assets, other than Bitcoin obtained by the government through criminal or civil asset forfeiture procedures.

Aside from assets obtained through forfeiture procedures, the government will not acquire additional digital assets.

The main purpose of the reserves is to ensure the Treasury manages the digital assets held by the government responsibly. -- David Sacks via X

A series of misfortunes have dampened the sentiment of the entire ecosystem, with token prices falling 10-20% last week. Technically speaking, the price trend has become very negative, and the increase in actual volatility has further deteriorated the risk-adjusted BTC return metrics, leaving almost no short-term bullish factors in the market to support a price rebound.

Meanwhile, due to the broad liquidation in the overall risk market, retail investors are beginning to cut risk exposure, and the fund flows for BTC ETFs are expected to remain weak.

After the strategic reserve topic concludes, the Trump administration is now focusing on rebuilding the digital dollar (Digital USD) and institutional dominance through stablecoin policies.

"I want to express strong support for the efforts of congressional lawmakers who are drafting legislation to provide regulatory clarity for dollar stablecoins and the digital asset market. They are investing tremendous effort into this." Trump stated at a cryptocurrency executives meeting held at the White House.

"We will ensure the dollar's global reserve currency dominance through stablecoins," Bessent stated. -- CNBC

FAFO -- U.S. Government Shutdown Crisis?

So, what can we expect next? Can we take a breather and escape from these FAFO situations?

Risk assets should be nearing conditions for a short-term rebound; the current Fear & Greed Index for the stock market has fallen to extreme lows, and most U.S. stock indices show signs of technical overselling.

Additionally, some creative market analysts have compared the launch of ChatGPT to the birth of the Netscape browser, suggesting that the former has driven the popularity of AI and LLMs, both of which have equally far-reaching impacts.

We do not have a strong opinion on this analogy, but this method of data analysis is indeed quite interesting.

Moreover, as U.S. Treasury yields fall, the financial situation remains quite loose; if not for the market's deep concerns about the impending economic slowdown, this would typically be favorable for cryptocurrencies, gold, and risk assets.

So, is it time to buy the dip? Will the Trump administration temporarily pause and refrain from making shocking statements?

Unfortunately, the market is about to face a debt ceiling stalemate in the U.S. Congress, and given the recent extreme decision-making style of the White House, this negotiation is likely to encounter greater uncertainty. Will it truly lead to a temporary government shutdown due to posturing at the negotiation table by both parties? Or will it end in agreement after repeated tug-of-war like the U.S.-Canada/U.S.-Mexico tariff issues?

From a rational perspective, it shouldn't escalate into a full-blown crisis; the market may consider tentatively rebuilding risk positions in the short term... but who can be completely certain? This may be the ultimate FAFO.

Wishing everyone successful trading this week!