Portfolio Management 1Q25 and Reflection on the Current Situation
The money is made in bear markets
Hi there, we hope you had a fantastic week !
Please find this brief summary of the topics we are covering today
The Week in the Markets
Our weekly summary with the best charts to understand what happened in the markets in 1 minute, along with explanations for those who want to dive deeper.
Equities, Bonds, Currencies, Alternative Assets, Macro Data, company commentaries, Earnings Season, and much more!
Equity Research
Excelerate Energy – Infrastructure company in LNG (it has the largest fleet of FSRUs in the world) that has made a tremendous deal with the purchase of the Jamaica business from New Fortress Energy. We explain the company, its new capital structure, and the short- and medium-term expectations for it.
New Fortress Energy – Company in a critical situation that is being liquidated this week in the market. We do an analysis of its liquidity path up to the maturity of the 2026 bond. We’ve taken our revenge from this summer, and this time we nailed the timing and the trading last weeks.
Portfolio Management 1Q25
Reflection on the Current Situation – Step-by-step analysis of everything that has happened in the market over the past two days, trying to go a bit beyond the basics (high yield bonds, credit structures, reactions by assets and sectors…) and our point of view on portfolio management in this type of situation.
Portfolio Management 1Q25 – Review of all the companies in our portfolio (with all the changes from the last few days), comments on several companies, and our views.
Investor Resources
Data Center Update
Financial model Updates
Nota: Toda esta publicación está disponible en Español en nuestra web
Disclaimer: This publication is for educational purposes only and should not be taken or considered as investment advice under any circumstances. Please consult with your financial advisor before making any investment decisions.
The Week in the Markets
A week for the History books
The famous liberation’s day arrived, when Trump announced the new U.S. tariffs on the rest of the world, and markets tanked as tariffs turned out to be much harsher than initially expected. S&P 500, Nasdaq 100, and Russell 2000 shared the same fate with drops close to 10%. The last two entered bear market territory (declines of more than 20% from their highs). Among the Mag7, Apple and NVIDIA ended the week with drops close to 14%, while Amazon and Microsoft barely lost 5%.
In Europe and Japan, the situation wasn't very different (hit with reciprocal tariffs of 20% and 24% respectively). China, despite being the country with the highest tariffs (the reciprocal ones plus the 20% applied due to fentanyl), was the one that performed best this week, with losses of barely 2%. We believe it is because the markets are pricing in that stimulus measures will be increased)
Overall, the market’s reaction (judging by the behavior of the different asset classes) suggests that these tariffs will trigger a recession. It’s interesting to see the reaction of the 10Y yields (we’ll go into more detail on this later because it's clearly the objective of the Trump administration with this whole tariff issue), which have dropped to 4% (meaning that the potential recession has weighed more than the potential inflationary impact of the tariffs).
And if we put the word recession on the table, as always, one of the main casualties is oil, which has lost more than 10% this week.
Gold, which initially acted as a safe haven, ended up falling (2.6%) as the sell-off accelerated and began to be treated as a liquidity event (as we’ll comment on later), in which the assets less affected by the declines end up being liquidated to provide portfolio liquidity (think about leveraged portfolios, etc.). What has actually ended up being a safe haven—or at least behaved like one (as did the rest of the crypto market)—was Bitcoin, which at this moment (early Saturday morning) is trading flat for the week.
To no one’s surprise in weeks like this, the big winner was the VIX, which closed above 45. The Dollar, which was heavily hit after the announcement of the new tariffs (another key idea of the new administration is to weaken it to favor exports), ended up acting as a haven and recovering part of the losses amid the ongoing panic on Friday.
In the meantime, there was some good employment data that the market didn’t care about, and huge expectations the upcoming week (when the tariffs go into effect) regarding the Trump administration’s negotiations. We understand that these tariffs are a starting point for a negotiation that could escalate (if the rest impose reciprocal tariffs like those announced by China on Friday) or de-escalate if agreements begin to be reached (such as the first progress in Vietnam, Argentina…).
Macro highlights
Tariffs
The tariffs announced this Wednesday after market close by Trump were significantly higher than the market expected. In fact, the initial part of Trump’s announcement, which hinted that the tariffs would be 10%, caused the market to react positively. But just after that, he showed the table we have in the picture with tariffs like:
European Union 20%
China 34% (+20% fentanyl)
Japan 24%
The formula used to calculate the tariffs turned out to be based on the trade deficit of each country with the United States (imports of goods – exports of goods) / exports, and 50% of that result was applied as the tariff. Those with a positive trade balance were given a 10% tariff.
To give some context on the scale of the tariffs listed in the previous table, these would be the highest in the last 100 years—even higher than those of 1930, the year after the start of the Great Depression.
In fact, after tariff announcement, the market is expecting up to four rate cuts in 2025, starting in the month of June.
US Employment
Usually, one of the most important macro data points of the month, which this time the market ignored due to the tremendous importance and impact of the tariffs.
In March, the U.S. economy added 228,000 jobs, well above both February’s downwardly revised 117,000 and the forecast of 135,000. Over the past six months, job growth has averaged just over 180,000 per month (However, previous months were revised down by a combined 48,000 jobs)
Key sectors:
Health & Education
Transportation & Trade
Leisure & Hospitality
Despite strong job growth, the unemployment rate rose to 4.2%, its highest since November, slightly above expectations (4.1%), with 31,000 more unemployed, now totaling 7.08 million.
Wage growth showed no signs of acceleration:
Production & non-supervisory workers: +3.9% YoY (down from 4.2% in Feb)
All private sector workers: +3.8% YoY
Interesting Data about markets this week & YTD
In general, it was a bad week for the dollar, but the impact was even greater for emerging markets and Oceania. The big winners were the Euro and especially the British Pound (a country “only” affected by 10% tariffs). Looking at the indices, very few things held up — worth highlighting, as we mentioned earlier, the Chinese stock market due to the expected fiscal stimulus, and the Southeast Asian markets.
Look that despite the negative performance of the main indices YTD, there are many industries that are still in positive territory. How can that be? Because these industries have a much smaller market cap than those that are in the negative, like Semiconductors or Tech. It’s not a direct relationship, but the AUM of these ETFs gives a good approximation of what we’re saying.
VIX structure
Before going into detail, a look at the VIX and a bit of historical context. The current VIX at 45 is already pricing in a recession. In fact, if we compare the spot VIX to the 3-month VIX futures, we can see that the panic is concentrated in the very short term (similar situations to COVID, the Euro crisis, Greece, …).
2Q25 Earnings Season
Almost without a break to digest the end of the previous season and the latest events, the new earnings season already begins this week. As usual, airlines and banks will be the first to report. Tremendously lucky these companies to report in this environment...
Portfolio Management 1Q25 and Reflection on the Current Situation
We’ve been turning the situation caused by the imposition of tariffs over in our heads since Wednesday, as it is truly complex and has blown up financial markets. We’ve read extensively on the topic and have tried, as much as possible, to isolate ourselves from the media bombardment of the past few days. We’ve seen respected economists and admired investors hold quite diverse opinions on the impact of the tariffs, so here we’ll try to address the facts as objectively as possible and focus on Portfolio Management during periods of stress like the current one.
It’s important to be aware that it’s very difficult to know what the market is going to do. In this analysis, we’ll discuss several indicators we use as proxies to assess how stressed the market is.
Analysis of what has happened over the past two days (Tariffs, market reactions, assets, liquidity….)
Outlining the different scenarios we foresee and how to approach Portfolio Management in such situations
Portfolio Management 1Q25, with a review of all the companies in our portfolio and the current situation of each one
Tariffs
We believe that the fact the tariffs are disproportionately high is part of Trump’s negotiation style: aim for the sky and settle somewhere in the middle. Several countries will likely reach favorable deals with the U.S. and end up with tariffs practically reduced to zero (it seems the first to do so will be Vietnam — very important for the retail industry that moved factories out of China during Trump’s first term — and Argentina). But we’ll have to see how Europe positions itself, especially considering that China, on the very same Friday, decided to retaliate with identical 34% tariffs.
The fact that the tariffs are not structured by product is simply nonsensical. It lacks any logic as a semi-permanent policy. This is yet another point that leads us to believe these are being used purely as a negotiating tool.
Lastly, the formula is designed to incentivize the consumption of U.S. products in order to boost American exports to the country and thereby reduce the tariff. However, this would only realistically make sense in high-income countries, as the rest are unlikely to make any significant purchases in dollars. In other words, these seem like tariffs aimed primarily at Europe, Japan, and China — dragging half the world along in the process.
But... what is the Trump administration really trying to achieve with this?
Well, to make investors buy American bonds in order to lower yields so that the Trump administration can refinance the gigantic debt they have (and the high maturities in 2025). And for now, they’re succeeding...
