I've long been "Team Finite," holding that market conditions are bad for the moment--and probably will be through early April when Trump finalizes his tariff talk--but that afterwards the market will recover.

My key argument was that tariffs are bad, but no macroeconomic model had these tilting the US into recession on their own. So, hold tight, and get ready to buy the dip.

I've been mostly convinced--by my team--that such a view is still too optimistic. Let's go through the positions.

Interested in watching this article as a video??

1 Team Bull

Team Bull argues that none of the macroeconomic indicators typical of a recession have been flagged. This is a newscycle freakout coinciding with a typical market pull back.

Reply: Events external to regular market conditions (exogenous factors) will never show up in those sorts of indicators first.

Below you can see the credit spread for corporate (BAA) bonds minus the Fed Funds rate. It failed to “predict” COVID’s impact until after the $SPY had dropped better than 15%.

2 Team Finite

Team Finite agrees that this is not a credit cycle induced decline, but resists the inference to full-scale recession because Trump’s tariffs will have a finite impact.

Yes, they’ll cause some GDP drag and that needs to be priced in, but after Mid-April (?) Trump is done with tariffs.

Reply: You are underestimating the destabilizing effects of this tariff chaos on corporate planning--which affects both CapEx spending and hiring rates. If Trump had had a methodical plan, then yes, no recession. But that’s not been the case.

3 Team Bear

Team Bear makes the reply arguments above for a recession. People in this camp divide between those who hold that a recession will begin in Q2, and those who think it will materialize in Q3.

Reply: There’s just not enough hard data for that level of pessimism, but I get the idea.

I'd be fully in this camp if we had more concrete plans about cutting Medicaid, Medicare, and Social Security, but those cuts will require Congress to pass. Maybe a Medicaid reduction is in the works and maybe that is enough ... maybe.

Concluding Thoughts

None of this macro speculation matters to a trader or a quant (like me). We are very clearly in a trader's bear market. The TOTAL 1, 2, and 3 are all below their SMA 200 = risk off environment.

If things turn around, I'll probably be buying $BTC first, then some other high quality alts such as $ETH and $SOL.

If things continue to decline, I'll probably use a derivative dex to short those.

We're not going to know which team is right until about 1 month from now, so it's better simply to have a plan.

DYOR. NFA.

Happy Trading!

-Sebastian Purcell

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