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Hey guys, this is VJ Arjan with a quick ConCap Advisory market update for you.
I was actually working on one of those longer form versions, and that’s still going to come out probably in a couple weeks, week or 2 from now. But given today’s market action. I thought it was probably a good idea to send something quick out so you guys know what’s going on. But there’s really no way to sugarcoat this, but the market had a pretty bad day today. Uh, pretty bad sell off and it accelerated. And I wanted to kind of keep you posted on what’s happening that might be causing this.
One of them is more obvious, the other one is not as obvious. A couple other ones are not as obvious, but the obvious answer is that, um, there was a meeting scheduled between President Trump and President Xi, and they were going to kind of iron out their trade problems, and there’s always been this issue about China has a lot of rare earth materials which are needed for a lot of our technology. I mean, iPhones and chips and, I mean, the Nvidia Blackwell chip, different things like that. There’s like a lot of rare earth materials that China kind of has the mines out there. And so they were kind of using that as a bargaining chip. And uh, they were going to meet. President Trump, President, they were going to meet. And there were some kind of stumbling blot that showed up and today, President Trump’s like, okay, I don’t want to meet him anymore. I don’t want to meet President Xi anymore. Don’t think it’s worth it. And so the, I don’t know. Let’s just hope it doesn’t get to that point, but the implication might be that we go back into trade war mode, which would not be a good thing. So, you know, if they don’t meet anymore, if you recall back during the whole liberation day thing, it was, well, I’m going to, you know, tear a few this much. Well, you don’t like this, I’m going to tear a few double that. And you don’t like that, I’m gonna tear a few double it. It was just, it was just a really bad situation, and of course, nobody wanted another war. But that’s why the market is kind of spooked.
So we’re having this, this uh, this potential trade war reigniting in the background. And for all that I know, guys, it might get worse. I really don’t know how this is going to end. I mean, the last time it happened. It got really bad, and then all of a sudden he just switched on a dime and said, okay, trade war is over. We going to kick the can down the road and Off to newer highs. We going to go switch the agenda to the big, the big ugly bill. The tariff 4s. It’s kind of in the back burner. So, who knows, maybe it happens like that again this time. Maybe get worse. It gets worse. I really don’t know.
If it gets worse, of course, we’ll make some risk management adjustments in your portfolios, but uh, at the moment, I’m not expecting like a major, major, like sell off, correction or whatever. We have had a long run since the whole tariff thing in, in, in May. It’s been kind of a straight run up for a while. And so I wouldn’t expect that a 3 to 5 or maybe 6 or 7% correction is in the cards at this point. It usually happens around September, October anyway. So maybe this is the one.
But I do expect at some point, we’re not going to go back, I hope, at least, to that whole trade war, reciprocal trade war stuff back then in April and May. So I do expect that cooler heads will prevail. So let’s see what happens.
But, uh, the less obvious causes of the sell off are, um, there are some geopolitical rumblings that are going on around the world, and, uh, I think this is indicative of what’s happening with the price of gold these days. So just some things to, you know, to note, France, their government’s collapsed. They had a prime minister in there. He only lasted a month, and he resigned. And Macron is looking for a new prime minister. But, you know, I mean, uh, this is not good looking good for him. He’s probably going to have to call elections in France. And, uh, he’s going to probably go up against um, Marie Lepin, Marie Lepin, or Marie Lepin. I can’t remember how to pronounce her name, but she’s the far right candidate that, uh, and, uh, you know, that, that’s, uh, we’re talking about, you know, she’s anti-EU and uh, anti- uh, uh, trade into immigrant. I mean, it’s there’s a whole new policy ship that might occur in France and who knows maybe the greater Eurozone. But there’s rumblings there. So, um, that’s happening, and of course, in South America. I think if I’m not mistaken, it’s Peru. I can’t think, I think it’s Peru or…Bolivia, it’s one of those 2 countries or something like that, but, uh, there’s a major rights and there’s, uh, these, the Gen Z folks are trying to overthrow the government there. And um, so, you know, of course, and we also have, you know, potentially the Israel Hamas situation getting resolved. But at the same time, we have the Russia Ukraine situation, which almost nothing has happened there. So just keeps continuing. So there’s a lot of geopolitical stuff going on that might be causing fuel to be added to the fire here.
Now, there’s one more thing that I wanted to add, which isn’t getting a lot of news. It’s not getting a lot of press right now, but it’s something I read recently. Um, I think it was, uh, I think it was in the Wall Street Journal, if I’m not mistaken, but, um, I’ve always had this thing in my, in the back of my head that, uh, something bad will eventually happen in private credit because it’s kind of a black box. It’s not mark to market. So whenever bad things happen, it can take a while before it’s, like, it’s not like there’s like quarterly calls or, you know, analysts constantly looking at it. I mean, it’s kind of behind, it’s private, right?
So, uh, there was a story recently run about a hedge fund, which was taking these major, like massive, massive bets. On treasuries, and we’re talking like, you know, normally, uh, normally leverages like 10 to one or 20 to one. I mean, these guys were doing like 10,000 to one or something crazy like that. And, uh, you know, of course, you can make lots of money doing that, but uh, if you’re on the wrong side of that kind of bet, you know, you’re going to get wiped out pretty quick. And so they got wiped out. And there were a lot of banks that were on the hook for the money that they lent this hedge fund. And I don’t know what the tally is.
We just don’t know. Now, earnings are coming out next week. I’m sure that some of the banks who are exposed are going to tell everybody about what’s going, you know, what the numbers look like or whatever, but at the moment, it’s to the tune of a few billion. But who knows? I mean, it could be. I mean, if you’re going 10,000 to one leverage on treasuries. I mean, I could easily see 10s of 1000000000s of dollars that just got wiped out. I mean, nobody really knows at this point. And um, it just happened, so it’s still fresh.
But guys, you know, this is one of those Warren Buffett moments, right? You know, something that’s hard-coded into my DNA. You know, I’ve been there a dozen times and he talks about the tide, right? When the tide recedes, he’ll know who’s swimming naked and the tide is liquidity. So liquidity, which is driven the market to these absurd valuations, which, of course, I’m going to go into detail more about it in this, uh, in the more extensive market update that we have coming out in, uh, in a couple weeks. When the, when that liquidity tide goes out, you got to watch out. And I don’t know if this is not catalyst at the moment. You know, I think people are still in wait and see and find out mode. So anyway, I keep you guys, you know, posted on that, uh, on what happens there.
So anyways, guys, that’s your quick market update. Like I said, there will be a more extensive one coming out here in the next couple weeks. But in the meantime, you know, enjoy your weekend. I’ll keep updating you in fast marketing conditions. Take care everybody. This is VJ Arjan.
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