Week ended March 27, 2026: market sinks further

I try not to write too much about politics, especially regarding the US, because I don’t want to alienate some of my readers.  However, I am not at all shy about ranting when political missteps affect the global economy or – much closer to home – my own investment portfolio.  

In this respect, global financial markets suffered another week of heightened volatility with few places to hide as the Middle East war drags on.  I sadly suspected from the onset that this war would having staying power, and we can see now that it clearly does.  However, I was also hoping that asset prices would eventually settle (albeit at more reasonable levels) as the war developed some sort of rhythm.  This wish has not materialised because of a president that is full of blustery assertions, often innuendo, not to mention a president that is very accomplished (sadly) at making threats with deadlines that are subsequently extended, leaving investors to think "WtF?".  In fact, I am surprised that a meaningful cadre of investors – certainly enough to move the markets – actually place their bets based on the words coming from the mouth of Mr Trump.  Investors should have learned by now – caveat emptor. 

As Mr Trump continued to negotiate an end to this war with himself last week, markets bounced all over the place based on his latest comments.  However, there is no denying the trends, which are crystal clear:

• US Treasuries are getting clobbered, with yields higher across the curve but most pronounced at the short end as inflation expectations increase,

• Stocks – especially US stocks – are getting hammered, with investors increasingly moving to cash to sit out this nonsense.

You can see in the graphs below what this means for many Americans

higher mortgage rates……..…..

...... and higher prices at the pump.

These are real consumer effects that explain why Mr Trump’s approval ratings are falling so dramatically.

About the only real safe haven at the moment is cash.  Even gold is getting hammered at the moment, too, down nearly 13% since the beginning of the war with Iran.  Normally perceived as a safe haven asset, the reality in retrospect is that gold became a retail darling, almost meme-like as it raced higher early this year.  However, we all know by now that meme stocks can fade fast, and the same has held true for gold. Moreover, there is evidence that some central banks are selling gold to support their local currencies during this crisis as the greenback strengthens, which has been the story apparently with Turkey for example. 

In the summary table below, you can see the damage the fourth week of this war did on investment assets last week.  This is not a pretty picture at all as the first quarter draws toward a close, but frankly, I am shocked it isn’t worse.

War clearly isn’t “working”

As an investor, I understand and can deal with normal business cycles.  However, I struggle to deal with the self-inflicted collateral damage, worsening by the day, of the US and Israeli attack on Iran. 

As I have written before, Iran has wreaked havoc through the Middle East for decades now, and is run by authoritarians that have shown no interest in developing a working relationship with the west, and certainly not with the US.  The regime’s frequently stated objective to destroy Israel is also unsettling, with various militias set up around the region that have been torturing Israel day in and day out for many years.   Somehow, this situation needed to be addressed, especially when there are suspicions that Iran has a clandestine effort to develop a nuclear bomb.  Putting a halt to this is not wrong, but going about it the way the US is at the moment doesn’t seem to be working, at least not yet.

Once again, the US finds itself involved in another conflict in the Middle East without clear objectives.  The Trump Administration is struggling to extract itself from this quagmire now.  Clearly, Mr Trump expected one thing (quick and easy regime change), but is getting something entirely different. 

Although militarily the US is far stronger than Iran and is almost certainly doing significant damage to the country’s military infrastructure, Iran holds important cards, too, including concentrated power in a belligerent regime that seems to keep mutating and reinventing itself even as its leaders are killed one after another.  More importantly from an economic perspective, Iran is holding the world hostage via its control of the Straits of Hormuz, with the US offering no solution aside from inflammatory rhetoric and threats that vary day to day.  The reality is that there are nil real ideas coming from the Trump Administration that might help this situation de-escalate. 

Sadly, I can’t help but ask myself: who are the biggest liars – the Trump Administration or the leadership of Iran?  Both seem completely bonkers to me, and I have stopped believing either.  In fact, I have more faith in the betting markets than I do in the crap coming from either Mr Trump or the Iranian regime (whoever that might be), and Polymarket is saying that this war is going to drag on for several more weeks as you can see in the graph below.

Time will tell, but the disruption and economic destruction that this conflict is causing will filter through to both inflation and growth, setting the world up for a classic dose of stagflation.  Those countries closest to the conflict zone and most reliant on the Middle East for oil are feeling it the worst, but the US cannot avoid the effects of sharply higher oil prices, either.  This will inevitably show up in terms of higher inflation and slower economic growth, with high oil prices acting as a headwind to economic growth.  

President Trump is in a real pickle because no matter what he says he might do or what might happen, it takes two to Tango.  It is clear that the Iranians are getting more emboldened by the day.  And the story from the Trump Administration changes every day, often several times.  I am shocked that the Republican members of Congress have simply stood there as they get splattered by Mr Trump’s poor decision to start a war with unclear objectives, and without Congressional approval.  The Trump Administration seems to be drifting further and further from the central themes of the Grand Old Party (“GOP”), and this is a shame.  At some point, when their balls reappear, I suspect there will be a revolt in the GOP.  But for now, it’s mostly the same – “kiss the ring.”

And since I am on a roll….why can’t Mr Trump keep his hands off the Fed?

Although I am not sure why this surprises me, I was shocked to hear the completely stupid stuff coming out of the mouth of Mr Trump on Thursday regarding the Federal Reserve.  The President clearly doesn’t understand economics, and is hell-bent on retribution against the head of the Fed (Chairman Powell) who – unlike Mr Trump – has integrity, a moral compass, and certainly much more common sense.   If you can stomach it, this #FT article sums up Mr Trump’s ridiculous comments nicely (for FT subscribers)    

Jury finds META and Alphabet negligent

On Wednesday, a jury in California found for the plaintiff to the tune of $6 million in a legal suit against META (Facebook, Instagram) and Alphabet (YouTube).  The suit was related to the 20-year old plaintiff saying that her addiction to social media apps at a young age caused severe mental health issues.  The stocks of META and GOOG hardly moved on the news, rather surprising to me because this could be the tip of the iceberg as far as similar suits to follow.  I suspected this sort of claim might surface at some point which is why I have shied away from META in spite of its good performance.  However, GOOG is a significant position in my portfolio, although the company is fortunately not just a social media company (like META).  There will be those in US Congress on both sides of the aisle (and in other countries) that will seize this opportunity to turn up the heat on social media companies.  I suspect the outcome in the US might be some sort of age gating, as we have seen in other countries.  This verdict is one more kick in the knees of tech companies, already under pressure from AI capex.

And if you’ve made it this far reading my gibberish….

I was blessed that as I was approaching my “formative years” when I would have been eligible to be drafted, the Vietnam War ended.  However, I still recall the fear I had of being sent to Vietnam when I was a young boy lying in bed at night trying to go to sleep, just old enough to know that this was not good..  My anxiety increased further after a chap from my small hometown was killed in action in Vietnam, a feeling that has stayed with me my entire life even though I did not know the guy personally. 

I did not serve in the military, so this makes it impossible for me to fully comprehend the emotions of the brave soldiers that are on the front lines of any war.  I have enormous respect for the men and women that put their lives at risk for America (or for any other country for that matter).  My lack of armed services experience is perhaps the main reason I so respect what former military leaders have to say about what is going on Iran.  I especially like to understand the views of former American military leaders that have served in Iraq and Afghanistan.  In this respect and if you are interested, there is a very interesting interview with General Stanley McChrystal by David French (also former military) in The Opinion, which you can find in podcast format on Spotify, Apple or Amazon Music, or (for NYT subscribers) you can read the transcript here.  To whet your appetite, here’s the leader for the interview from The Opinion:

MARKET DATA AND TABLES

Below are tables of key indices and asset prices that have been updated for the past week.

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