The Deleveraging

Monday's trading floor looked like the aftermath of a party nobody remembers attending. Commodity markets turned ugly. Gold and silver futures recovered from overnight weakness but still flashed red. Metals and cryptos were taken to the woodshed. These are massive deleveraging plays and could reflect some big margin calls coming in.

Silver posted its biggest single-day drop on record on Friday, and bitcoin sank below $80,000 for the first time since April, last trading above $78,000 per token. Bitcoin skidded to 10-month lows, signaling risk-off sentiment.

Then Tuesday arrived with a bounce. Asian stocks bounced back from their worst selloff in more than two months. The MSCI Asia Pacific Index jumped 2.4%, the best day since the recovery from 'Liberation Day' in April last year, when President Donald Trump unveiled his century-high tariffs. Stocks in South Korea — a poster child for artificial intelligence and the world's best-performing index this year — surged 5.1% after plummeting on Monday.

But recoveries in asset markets are one thing. Actual clearing is another. When positions get liquidated at this velocity, somebody's fund just got zeroed. The violence in silver especially — a 36% peak-to-trough wipeout in days after hitting all-time highs — bears all the hallmarks of forced selling, not rational profit-taking. Gold and silver prices rebounded on Tuesday after suffering a historic sell-off. Spot gold was last up about 6% to $4,938.6 per ounce. Spot silver rose nearly 10% to $86.96 per ounce. Silver futures in New York were up 13% at $87.23 per ounce.

This is what leverage unwinds look like when they happen all at once. Not a measured rotation — a stampede.

Meanwhile, in the real economy, things look decidedly less manic. Activity in the US manufacturing sector grew for the first time in a year, signaling unexpected improvement. The Institute for Supply Management's Purchasing Managers' Index expanded to 52.6% in January, above estimates of 48.3%. That's expansion territory. Growth. Yet something doesn't sit right. The ISM report may say expansion, but remember: Over the past three months, factories have typically produced more goods than they have sold to a degree not seen since the global financial crisis back in early 2009. This highly unusual situation is clearly unsustainable, hinting at risks of a production slowdown and a potential knock-on effect on employment, unless demand improves markedly in the coming months.

Build it and they will come? In 2026? Good luck with that.

The Fed's Kevin Warsh nomination dropped Friday, and markets responded with a dollar rally and a bloodbath in precious metals. President Trump would nominate Kevin Warsh to be the next Federal Reserve chair. The dollar index rose 0.4% to 97.41 on Monday morning after the markets opened. The dollar's stabilization comes after the currency declined in the back half of January amid geopolitical concerns around Greenland.

Warsh is a hawk. Or maybe a dove. Depends who you ask and when. What matters is he's not Powell, and the market is repricing what that means for liquidity. While some characterize Warsh as a hawk, his underlying policy bias on interest rates remains dovish. Where markets may be disappointed is in Warsh's more skeptical posture on balance sheet expansion through measures such as quantitative easing.

Translation: rate cuts might happen, but don't expect the printing press to save everything. The actual balance sheet — the Fed's holdings, the liabilities, the reserve management operations that everyone forgot existed until they started mattering again — that's where policy is moving. And if Warsh is less interested in inflating the Fed's balance sheet to backstop every wobble, well, that changes the game for risk assets accustomed to the put.

Crypto investors noticed. U.S.-listed crypto funds led withdrawals as Bitcoin and Ethereum prices slid after Donald Trump's nomination of Kevin Warsh for Fed chair. ETF flows have now flipped negative for the year. What began January with optimism about institutional adoption is now February with outflows and fear.

There's a symmetry here worth noting: just as speculative excess built through December and January — gold at $5,596, silver at $122, bitcoin comfortably cruising in the $90s — it's all unwinding at once. Gold and silver both established record highs at $5,596 and $122 last week before experiencing their steepest declines since 1980 following Trump's nomination of the new Fed chair. Gold witnessed a peak-to-trough drawdown of 17%, whilst the higher-beta silver plunged 36%.

The trade everyone thought was ironclad — inflation hedges, safe havens, digital gold — turned out to be leveraged positioning wearing a philosophical costume. When the margin calls hit, the philosophy evaporated.

But here's where it gets interesting: Shares of Palantir Technologies jumped about 6% in extended trading after the defense tech company gave strong fourth-quarter financial results and upbeat guidance. Robotics play Teradyne surged 20% after posting a solid outlook for the first quarter. So while commodities and crypto got hammered, actual companies with actual earnings are posting beats and surging.

Tech is bifurcating. Wall Street digested fresh uncertainty around Nvidia and the broader artificial intelligence trade. CEO Jensen Huang played down the chipmaker's pledge to invest $100 billion in OpenAI after The Wall Street Journal reported the plan was on ice. Shares fell over 2%. Yet equity-index futures for the US advanced as Palantir Technologies Inc. posted a stronger-than-expected sales outlook.

The AI narrative is fragmenting into winners and losers based on execution, not just hype. Companies that show revenue growth and margin discipline are getting rewarded. Companies making vague promises about hundred-billion-dollar investments that may or may not happen are getting sold.

And in the background, quietly, almost unnoticed: US shale gas giant Devon Energy will merge with rival producer Coterra Energy in an all-stock deal valued at $58 billion. As crude oil prices have dropped over the past year and legacy shale plays throughout the US have begun to flatline, the deal buys Devon complementary shale acreage to add to the company's portfolio.

Energy consolidation at $58 billion when nobody's paying attention. That's the kind of thing that happens when management teams believe the cycle is turning but the market doesn't care yet.

The week ahead is busy. Assuming Congress gets the lights back on in Washington where a shutdown began over the weekend, it's jobs week. Everything leads up to Friday's motherlode, the January nonfarm payrolls report.

Except, wait. The Bureau of Labor Statistics will not be releasing the January jobs report as scheduled Friday due to the government shutdown. The Employment Situation release for January 2026 will not be released as scheduled on Friday, February 6, 2026. The release will be rescheduled upon the resumption of government funding.

So the most important data point for the market's view of the economy — the jobs report that would tell us whether the labor market is stabilizing or cracking — has been delayed by political dysfunction. The Fed is supposedly data-dependent, but the data is MIA. Powell himself has talked about "driving in the fog." Now somebody stole the headlights too.

What we do know: With 165 or a third of firms in the S&P 500 having reported earnings are up 15.3% year over year on back of revenue gains of 7.4%. Prior to the start of earnings season FactSet called for earnings growth at 8.3% from a year earlier. Corporate profits are crushing expectations.

But corporate profits aren't the economy. They're what happens when companies squeeze productivity, manage costs, and benefit from operating leverage in an environment where labor has limited pricing power. The disconnect between strong earnings and weak job growth isn't a mystery — it's the same story we've been watching for years, just more pronounced.

Energy is far ahead at 14.37% thanks to rising oil prices amid geopolitical turbulence and icy U.S. weather. Materials, buttressed by the metals rally, takes second place. The market is rotating into the stuff that was left for dead: energy, materials, consumer staples. Old economy. Value. The kind of trades that work when growth is uncertain and tech multiples feel extended.

None of this feels like a bull market in the late innings. It feels like a market that doesn't know what it is yet. Deleveraging in speculative assets. Consolidation in energy. Manufacturing showing life but inventories piling up. The Fed on hold with a new chair coming who might or might not keep the liquidity flowing. Earnings strong, but jobs missing.

The only certainty is volatility. And that volatility is telling you something: whatever consensus existed in December is gone. We're repricing everything. The question is what we're repricing toward. Right now, the market doesn't know. Which means neither do I.

But if I had to bet, I'd say this: the violence in commodities and crypto isn't done. Deleveraging doesn't finish in two days. And when the jobs data finally arrives — whenever Congress decides to fund the government again — it's either going to confirm the soft landing everyone wants or reveal the cracks that everyone's afraid to acknowledge.

Either way, it won't be boring.

The Deleveraging

Monday's trading floor looked like the aftermath of a party nobody remembers attending. Commodity markets turned ugly. Gold and silver futures recovered from overnight weakness but still flashed red. Metals and cryptos were taken to the woodshed. These are massive deleveraging plays and could reflect some big margin calls coming in.

Silver posted its biggest single-day drop on record on Friday, and bitcoin sank below $80,000 for the first time since April, last trading above $78,000 per token. Bitcoin skidded to 10-month lows, signaling risk-off sentiment.

Then Tuesday arrived with a bounce. Asian stocks bounced back from their worst selloff in more than two months. The MSCI Asia Pacific Index jumped 2.4%, the best day since the recovery from 'Liberation Day' in April last year, when President Donald Trump unveiled his century-high tariffs. Stocks in South Korea — a poster child for artificial intelligence and the world's best-performing index this year — surged 5.1% after plummeting on Monday.

But recoveries in asset markets are one thing. Actual clearing is another. When positions get liquidated at this velocity, somebody's fund just got zeroed. The violence in silver especially — a 36% peak-to-trough wipeout in days after hitting all-time highs — bears all the hallmarks of forced selling, not rational profit-taking. Gold and silver prices rebounded on Tuesday after suffering a historic sell-off. Spot gold was last up about 6% to $4,938.6 per ounce. Spot silver rose nearly 10% to $86.96 per ounce. Silver futures in New York were up 13% at $87.23 per ounce.

This is what leverage unwinds look like when they happen all at once. Not a measured rotation — a stampede.

Meanwhile, in the real economy, things look decidedly less manic. Activity in the US manufacturing sector grew for the first time in a year, signaling unexpected improvement. The Institute for Supply Management's Purchasing Managers' Index expanded to 52.6% in January, above estimates of 48.3%. That's expansion territory. Growth. Yet something doesn't sit right. The ISM report may say expansion, but remember: Over the past three months, factories have typically produced more goods than they have sold to a degree not seen since the global financial crisis back in early 2009. This highly unusual situation is clearly unsustainable, hinting at risks of a production slowdown and a potential knock-on effect on employment, unless demand improves markedly in the coming months.

Build it and they will come? In 2026? Good luck with that.

The Fed's Kevin Warsh nomination dropped Friday, and markets responded with a dollar rally and a bloodbath in precious metals. President Trump would nominate Kevin Warsh to be the next Federal Reserve chair. The dollar index rose 0.4% to 97.41 on Monday morning after the markets opened. The dollar's stabilization comes after the currency declined in the back half of January amid geopolitical concerns around Greenland.

Warsh is a hawk. Or maybe a dove. Depends who you ask and when. What matters is he's not Powell, and the market is repricing what that means for liquidity. While some characterize Warsh as a hawk, his underlying policy bias on interest rates remains dovish. Where markets may be disappointed is in Warsh's more skeptical posture on balance sheet expansion through measures such as quantitative easing.

Translation: rate cuts might happen, but don't expect the printing press to save everything. The actual balance sheet — the Fed's holdings, the liabilities, the reserve management operations that everyone forgot existed until they started mattering again — that's where policy is moving. And if Warsh is less interested in inflating the Fed's balance sheet to backstop every wobble, well, that changes the game for risk assets accustomed to the put.

Crypto investors noticed. U.S.-listed crypto funds led withdrawals as Bitcoin and Ethereum prices slid after Donald Trump's nomination of Kevin Warsh for Fed chair. ETF flows have now flipped negative for the year. What began January with optimism about institutional adoption is now February with outflows and fear.

There's a symmetry here worth noting: just as speculative excess built through December and January — gold at $5,596, silver at $122, bitcoin comfortably cruising in the $90s — it's all unwinding at once. Gold and silver both established record highs at $5,596 and $122 last week before experiencing their steepest declines since 1980 following Trump's nomination of the new Fed chair. Gold witnessed a peak-to-trough drawdown of 17%, whilst the higher-beta silver plunged 36%.

The trade everyone thought was ironclad — inflation hedges, safe havens, digital gold — turned out to be leveraged positioning wearing a philosophical costume. When the margin calls hit, the philosophy evaporated.

But here's where it gets interesting: Shares of Palantir Technologies jumped about 6% in extended trading after the defense tech company gave strong fourth-quarter financial results and upbeat guidance. Robotics play Teradyne surged 20% after posting a solid outlook for the first quarter. So while commodities and crypto got hammered, actual companies with actual earnings are posting beats and surging.

Tech is bifurcating. Wall Street digested fresh uncertainty around Nvidia and the broader artificial intelligence trade. CEO Jensen Huang played down the chipmaker's pledge to invest $100 billion in OpenAI after The Wall Street Journal reported the plan was on ice. Shares fell over 2%. Yet equity-index futures for the US advanced as Palantir Technologies Inc. posted a stronger-than-expected sales outlook.

The AI narrative is fragmenting into winners and losers based on execution, not just hype. Companies that show revenue growth and margin discipline are getting rewarded. Companies making vague promises about hundred-billion-dollar investments that may or may not happen are getting sold.

And in the background, quietly, almost unnoticed: US shale gas giant Devon Energy will merge with rival producer Coterra Energy in an all-stock deal valued at $58 billion. As crude oil prices have dropped over the past year and legacy shale plays throughout the US have begun to flatline, the deal buys Devon complementary shale acreage to add to the company's portfolio.

Energy consolidation at $58 billion when nobody's paying attention. That's the kind of thing that happens when management teams believe the cycle is turning but the market doesn't care yet.

The week ahead is busy. Assuming Congress gets the lights back on in Washington where a shutdown began over the weekend, it's jobs week. Everything leads up to Friday's motherlode, the January nonfarm payrolls report.

Except, wait. The Bureau of Labor Statistics will not be releasing the January jobs report as scheduled Friday due to the government shutdown. The Employment Situation release for January 2026 will not be released as scheduled on Friday, February 6, 2026. The release will be rescheduled upon the resumption of government funding.

So the most important data point for the market's view of the economy — the jobs report that would tell us whether the labor market is stabilizing or cracking — has been delayed by political dysfunction. The Fed is supposedly data-dependent, but the data is MIA. Powell himself has talked about "driving in the fog." Now somebody stole the headlights too.

What we do know: With 165 or a third of firms in the S&P 500 having reported earnings are up 15.3% year over year on back of revenue gains of 7.4%. Prior to the start of earnings season FactSet called for earnings growth at 8.3% from a year earlier. Corporate profits are crushing expectations.

But corporate profits aren't the economy. They're what happens when companies squeeze productivity, manage costs, and benefit from operating leverage in an environment where labor has limited pricing power. The disconnect between strong earnings and weak job growth isn't a mystery — it's the same story we've been watching for years, just more pronounced.

Energy is far ahead at 14.37% thanks to rising oil prices amid geopolitical turbulence and icy U.S. weather. Materials, buttressed by the metals rally, takes second place. The market is rotating into the stuff that was left for dead: energy, materials, consumer staples. Old economy. Value. The kind of trades that work when growth is uncertain and tech multiples feel extended.

None of this feels like a bull market in the late innings. It feels like a market that doesn't know what it is yet. Deleveraging in speculative assets. Consolidation in energy. Manufacturing showing life but inventories piling up. The Fed on hold with a new chair coming who might or might not keep the liquidity flowing. Earnings strong, but jobs missing.

The only certainty is volatility. And that volatility is telling you something: whatever consensus existed in December is gone. We're repricing everything. The question is what we're repricing toward. Right now, the market doesn't know. Which means neither do I.

But if I had to bet, I'd say this: the violence in commodities and crypto isn't done. Deleveraging doesn't finish in two days. And when the jobs data finally arrives — whenever Congress decides to fund the government again — it's either going to confirm the soft landing everyone wants or reveal the cracks that everyone's afraid to acknowledge.

Either way, it won't be boring.