So Feb 2025 was the worst month since the Aug 2024 “Ueda Shock” sell off.

Market sentiment is at its lowest, with fear index exact same as the lowest point in Aug 5th, 2024.

From looking at the previous fear cycle, it took less than 1 month to recover to “greed” and 3 months later back to “extreme greed”.

So I want to outline my prediction and outlook here for the next few months.

Sustained downturn or a temporary pullback?

First my conclusion – this sell off is a temporary pull back, and the market will recover within 2-3 months at most. (otherwise it’d cause a prolonged downward sentiment and the stock market itself can trigger a recession)

First and foremost is definitely the Trump tariffs right now. If 25% tariffs on all goods from Canada and Mexico really takes place permanently, the effects can be huge and it can certainly cause a recession.

BUT – I don’t think it will happen.

People thought it was a bluff to get canada and mexico to agree to some terms … and the tariffs did get delay by 1 month back in Feb.

However this time March 4th, it really took place.

People are now scared that this will be permanent and Trump has gone crazy.

The Trump Put

With that said, it is my opinion that, Trump has not gone crazy. And if a recession does happen in the next few months, it’ll be super obvious that he caused it.

He is too egotistic to accept the blame for an upcoming recession.

So the fact that it did go into effect, is to show other countries that he is serious and won’t back down just because the market is falling.

But eventually he will make concessions and maybe get what he wanted from the other countries.

The tariffs will either mitigate or go away.

Then the market will stabilize again and the V-shape recovery will happen.

And it should be in either March or latest April, because the economy and the market can’t afford to be dragged on for so long.

Also Trump said that he “isn’t even looking at the market” when making the tariffs decisions. That’s probably a flat out lie. He just said it to make the other country’s leaders take him seriously.

He uses the market as a scorecard for his performance, and he as well as many officials are market participants which will be hurt by a falling market and a recession, so the Trump administration is very unlikely to allow a market crash to happen.

The Fed Put

Previously, the market concerns were that tariffs will bring inflation back.

But the fact is, the DXY and 10-yr rate has been falling. Not for good reasons though because there is a growth scare and some recession fears now.

However right now the Fed’s fund rate is way higher than what they would consider “neutral”.

The only reason they haven’t brought it back down is because of inflation concerns.

It is my opinion now that tariffs are very likely not inflationary – the market has voted the other way already.

And in that case, inflation numbers will come down and the Fed will be able to cut more than 1-2 times this year.

A conspiracy theory says that Trump is perhaps “manufacturing” a growth scare to bring down growth thus allowing the Fed to cut more, and the govt to save money on interest payments on the debt.

Whether true or not, in any case, the Fed wants to cut, and they have so much room to cut if there is a downturn, which will give downside protection and help the market recover the other way.

The Fundamentals

Also back to the fundamentals – if it were not for the tariffs, things are actually going fine.

Q1 earnings reports were mostly great. Growth is fine, they are spending more on capex (despite the deepseek scare), and things are humming along smoothly.

The consumer still looks strong as well and the only thing dragging them down is tariff scares.

Employment data is also looking just fine.

So unlikely the yen-carry unwind last year where there were really concerns over employment and growth situation, right now it’s just all tariffs.

And it’s my opinion that the sell-off is an over-reaction which will make this a buy-the-dip opportunity.

Prediction and Outlook

The S&P500 is now around 5700-5800, which is basically exactly same as pre-election level.

But unlike pre-election where the fear index was “neutral” to “greed”, right now it’s “extreme fear”.

The fact that it’s extreme fear but the market is holding off these levels, is an indication that the market is still strong.

Another signal by the way, is that the global stock market is pretty much all up this year. China and Germany are up a LOT.

If there is real extreme danger of a recession in the US, there is no way it won’t spill over globally with US importing so much stuff.

So my prediction is that this is a “correction” which will be contained to within 10-15% pullback max, and with a duration of 2-3 months max until it stop dropping.

The S&P has already pulled back 7%+ and the nasdaq100 close to 10%, so I think this is almost the bottom.

And I believe we are in a secular bull market and also a current bull cycle so I believe it will recover back to all-time-high within 6-9 months after the trough.

Might be quicker though once the tariff cloud clear up, it could be a quick recovery. On the other hand, if some bad data comes out meanwhile to confirm that tariffs are hurting the economy, it might make the recovery a bit slower.

Nevertheless once a full confirmation of no-recession is here, and the rates are down, it’ll be all fireworks and champagne, and I think the previous ATH wont be hard to break this year.

The difficulty of conviction and discipline

Anyway it’s all just my guess and prediction based on observation and logic.

I can be completely wrong on my hypotheses, and also something could happen that I haven’t anticipated.

In any case, it is easy to ask “how far will it drop” or “what if I am wrong”

And also it’s not pretty looking at the numbers. I am down -HKD260,000 for the month. (although it’s actually quite normal with AUM $3.6M + 400k margin. It’s only a -6%… I just need to get used to these big numbers)

A recovery should get me a +200k or +300k months easily.

Also looking back at the positions I’ve added during the higher prices, I don’t regret adding them because it’s all part of my “allocate and rebalance” strategy.

I thought the market was quite frothy in January when I came into the $1.3M so I had already bought slower. I also couldn’t afford the market going way higher while I sit on too much cash.

Anyway I just need to keep in mind the “superior asset” mindset – US stocks, bitcoin, gold … these are all “better” assets than cash. Sure in the short term the market might price these assets for a lower USD amount previously.

But because there is no bottom to the devaluation of the USD (and other fiat currencies), there is no top to how high assets can go. And the riskier the asset, usually the better it performs over the long term (ie bitcoin, TSLA, tech growth stocks etc.)

As long as I manage the risks carefully and make sure I won’t go bust even in a -50% or -70% market, no matter what the drawdown is, it will 100% recover and make new ATHs eventually. And history have shown us, it usually won’t take too long.

It takes patience and discipline to keep buying when its going down, and to buy without fear – or at least buy amidst of the fear, is the key to long term investing success.

Mid March update – still down but more signs of bottom

It’s March 16 now and I feel like I have seen more signs that the bottom is quite near, if not bottomed already.

The market went down even more early March, creating new lows until recovering a bit last week.

First what was already said – the fear gauge is at its max, meaning without more bad news, there should be limited downside from here.

And recently I just saw the USDJPY IMM futures position – the net position was around zero on Jan 28th, and USDJPY was around 155.

Now on Mar 4th the net position is +133k long JPY, meaning a lot of people are betting USDJPY will go down from here.

With a looming recession and lowering US rate, I can see why people are holding such positions.

But reality is there is a cost to short USDJPY – and if an unwind happens, they will need to sell JPY to cover their USD shorts and if the whole position is unwounded, USDJPY would probably already be back at 155, possibly higher.

Also looking at the past year, this is a historic high for JPY long positions. Can it go higher? maybe. But it’s probably quite stretched already.

Which aligns with the fear gauge as well. It can get worse but it’s already quite stretched.

So without a recession coming, everything will rebound with a vengeance – USDJPY, US stocks, and bitcoin.

My action mid March

First, I realized I got scared by the sell-off and wrote down my yen short from -15% to -14%. I’ll bring that back to -15% first, and currently it’s -13.3% so I will get that to close to 15 immediately at market open tomorrow.

Also I set US stocks to 36 down from 38 this month because I also got scared about the prospect. I will up that back to 38 and my current position is 34.3% so I will get that to close to 35 immediately at market open tomorrow.

Since the announcement of the strategic bitcoin reserve last week, I also think bitcoin can deserve a higher % and I will up that to 16% up from 15%. It already went up to 15.6% on its own because US stocks got beaten down so much, so I will stay put there.

If the market goes down even further without a recession, and I see more reasons to add, I will rotate the remaining 3% of JP stock out and increase the JPY margin just a tiny bit.

Mar23 – another slight update. I’ve decided that the US strategic bitcoin reserve is so bullish for bitcoin, and given the US stock market could have such big volatility (almost comparable to bitcoin), reallocating a bit more US stocks to bitcoin makes sense. I am tuning down US stocks to 36% and moving up bitcoin to 17% for now.