Survival OS for Humanity

Before the development of formal writing, early humans who developed the ability to identify recurring events in nature had a distinct advantage.

• The ability to recognize the shape of leaves, color, and smells allowed gatherers to reliably avoid poisonous plants.
• The ability to differentiate the tracks allowed hunters to reliably engage prey and avoid predators.
• The ability to remember landmarks and geographic patterns made it possible for safe and timely navigation of communities to sources of food, water, and animals.

Pattern recognition is innately human.

Sell America Trade

The futures ended up underselling how aggressive the selling would be today. While we’re off the lows as of 1100 ET, today’s trade — catalyzed by all sort of rhetoric on Greenland and the “Board of Peace” — looks like a milder version of the Sell America Trade witnessed last April.

Last April, economists ushered out their doomsday forecasts to account for the impact of the tariffs that Trump broadcasted on his cardboard billboard of nonsense. By citing the Smoot–Hawley Tariff Act of 1930, economists were effectively leaning on pattern recognition.

They likely would’ve been correct if the pattern cited was allowed to play out. It wasn’t. Trump pivoted 180 degrees, breaking the pattern.

Due to pattern recognition’s place in the human psychology, it can be incredibly difficult to erase a pattern from your mind. But, once it is broken, you need to fight that instinct, dismiss the early signs, and reassess.

3 Tiers of Opportunity

If Trump and the EU do not back down, then the only opportunity is on the sell-side. However, MAED (mutually assured economic destruction, silent E until I settle on pronunciation) likely doesn’t align with the interests of either side. As such, my base case is for a milder version of the Tariff Tantrum to play out, implying a resolution to the upside. That said, it is possible that escalatory rhetoric creates a 5-10% downside move in the S&P 500 before then.

A Tier: Healthcare, Materials, Financials

Tariffs suck, but I don’t see this names as being caught in the direct crossfire. I view these areas as getting dragged down with the market as opposed to dragging down the market. Materials also fall into the Contra-Dollar Basket, which is doing well as the USD falls.

B Tier: Technology, Discretionary, Industrials

These are the names dragging down the market. While you’ll get the biggest snap back from a TACO-moment, it is hard to time. Although the upside is richer here, the difficulty of timing is what makes this B-Tier.

C Tier: Energy

80% of this move is news of an “Artic Blast” promising cooler temperatures. While the Greenland-EU-Trade Bazooka could multiply the move we’re seeing in Nat Gas, I would skip this one. These rallies can go as quickly as they come.