The VIX traded above 20 for a fifth straight day and is now north of 24. 

That’s the zone where policy-induced shock waves have tended to surface and, notably, where they’ve also been reversed by some degree of policy response.

You can see it in the timeline on the chart: euro and U.K. bond market shocks, the SVB episode, the yen carry unwind, tariff uncertainty.

Adding to the trade war escalation of recent days, today we get some stress bubbling up in the banking complex. The KRE (regional banks) fell more than 6%. Gold rose 2.5%, now up ~11% in nine trading days.

The questions: Is this move in gold the acceleration of the fiat-debasement trade?  Or is it a safe haven bid — on a potential fire where there’s smoke in regional bank credit, or on a broader liquidity issue/shock brewing?

Jerome Powell said on Tuesday, “some signs have begun to emerge that liquidity conditions are gradually tightening.”  Translation: the Fed sees the cracks forming.

The market seems to be sniffing out both scarcity of liquidity and scarcity of sound money.   

Yesterday, we talked about the setup for a potential market correction, led by some negative technical signals, not the least of which come from the most important stock in the world:  Nvidia.

And today, the Trump administration confirmed that the geopolitical trigger that may drive it isn’t going away.

At a press conference this morning, Trade Representative Jameson Greer and Treasury Secretary Scott Bessent laid out, in detail, the severity of China’s rare earth export control threat.

They called it a “global supply chain power grab,” and a form of “economic coercion on every country in the world.”

Greer went on to outline the scope, which would give Beijing effective control over any global product containing even 0.1% of Chinese-mined minerals.

That would cover semiconductors, EVs, batteries, and even basic consumer products.

As he put it, “This gives China control over basically the entire global economy and technology supply chain.”

Bessent followed by framing the moment with the most direct language yet from the administration:

“Make no mistake, this is China versus the world. We and our allies will neither be commanded nor controlled.”

He went on to confirm that the White House is working in close coordination with Europe, India, and the democracies in Asia — all of whom are similarly affected.

Is this the “isolate China” phase we’ve been anticipating?  It’s looking likely.

Importantly, while emphasizing that the U.S. seeks to “de-risk, not decouple,” the message was clear, “if China wants to be an unreliable partner to the world, then the world will have to decouple.”

Add to all of this, in the press conference today, Bessent also revealed this very important nugget about the U.S./China negotiations that have been ongoing for months.  He said in late August, a Chinese trade delegate threatened that “China would cause global chaos if port shipping fees go through.”

These are hefty fees announced last April to be levied against Chinese ships entering U.S. ports — to go into effect October 14th (yesterday!).

So, we have a flashpoint here in the trade war.  And we have to wait weeks for an event that could offer clarity (a potential Xi/Trump meeting, the trade pause deadline, and the China export control effective date).

With the above in mind, the market’s perception of the risk environment is recalibrating.

The VIX has been trading above 20 for four consecutive days.

That tends to come with lower stock prices.

And as we’ve discussed, in recent days, a correction in stocks tends to get a policy reaction from the Fed.  The National Bureau of Economic Research (NBER) did a study on it.  Since 1994, a 10% stock market correction predicted a 32 basis point reduction in the fed funds rate — and a 127 basis point decrease after one year.

In this environment, getting the Fed moving on rates could ignite the needed next leg of the re-industrialization cycle — and with urgency, maybe a new “operation warp speed” to address self-sufficiency in pharma, semis, rare earths, ship building, etc.

Yesterday we talked about the setup for a potential technical correction in stocks, focusing on the S&P. Today, let’s take a look at the Nasdaq — which is telling a similar story.

After the sharp Friday selloff, both S&P and Nasdaq futures bounced on Monday, into technical resistance (the 61.8% Fibonacci retracement).

That resistance held in both key indices today, which means the market correction scenario remains intact.

And at the center of both indices is one stock that now drives much of the market’s direction: Nvidia. 

If you recall, just five months ago, markets were questioning Nvidia’s dominance.  The stock had just fallen 44%.  The triple digit revenue growth days had ended.  China’s DeepSeek model had emerged as a threat.  And the trade war was threatening supply and demand for Nvidia’s GPUs.

But two events reignited the next bull trend in the stock: 1) the de-escalation of the trade war marked the bottom, and 2) news of a $30 billion order from UAE drove a quick $400 billion market cap gain in the stock.

Nvidia shares have since more than doubled from the April lows.

And that brings us to the past four trading days, and two events that (for now) have marked the top in the stock:  1) Nvidia now has approval of the UAE deal (“buy the rumor, sell the fact”), and 2) the trade war has escalated (U.S./China).

Moreover, as you can see in the chart above, the plunge on Friday resulted in a bearish technical reversal signal (an outside day).  And now, we also have a break of the bull trend (the trendline) that comes in from the April low.  

So, we have a bearish technical picture for Nvidia shares. And Nvidia makes up 8% of the S&P 500, and 14% of the Nasdaq 100.

With all of this in mind, this looks like the setup for a technical correction.  And remember, the garden variety 10% corrections of the past two years have resulted in a Fed reaction (either signaling or direct policy action).   

As we close the month and quarter today, let’s take a look at asset class returns for the year.

What’s the takeaway?  Precious metals lead the way with huge gains, while the VIX (also known as the market’s ‘fear gauge’) is down big.

Stocks are at record highs and the VIX is tame.  The run-up in hard asset prices is not about fear.

It’s about the capex boom around AI, and the retooling of trillions of dollars of global computing (i.e. datacenter build-out).

And it’s about owning hard assets as insurance against currency debasement, driven by debt and deficits.

Related, it’s also about a weaker dollar (down 9%), and about a new tech-influenced monetary order — digital currencies.

NYU keeps a table of historical asset returns dating back to 1928.  If we look back at the years when gold was up 40% or more, we get only four years of the past 96 years — 1972, 1973, 1974 or 1979.

If we look at years where gold was up at least 30%, and stocks (S&P 500) up 10% or more, and bonds were positive, it only happened twice — 1972 and 1979.

So we have the 70s, and 1972 is particularly interesting as it involves a new monetary order — the shift to the post-Bretton Woods era and floating exchange rates.

Today, there is a shift.  The monetary system is becoming programmable. 

And policy paths are diverging.  As we discussed yesterday, the U.S. is pursuing private, regulated stablecoins.  And much of the rest of the world is moving down the path toward central bank digital currencies (CBDCs).

The uncertainty on how it plays out is reason alone to hold hard assets as a hedge.  Moreover, those on the CBDC path have to be contemplating the risk of having the government turning their money off.

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