The bad news is that the economic news was good.

The Fed Put vs. Trump’s War Put

When good is bad and bad is good, the perversion is complete.

The Fed Put: an ever-present perversion.

The Fed Put is a stop-loss insurance policy with no premium, gifted to asset holders (chiefly those investing in the stock market). The name is an options analogy: a put option gives its holder the right to sell an asset at a pre-set price no matter how far the market falls. After the 1987 crash, when Alan Greenspan flooded the system with liquidity to arrest the fall, investors started to assume the same protection would be granted for free to the entire stock market. If stock prices drop far enough, the Federal Reserve will arrive to deliver rate cuts and cheap money to put a floor under them. The investors’ assumptions proved correct. Greenspan first handed it out; Bernanke, Yellen, and Powell renewed it through every panic since. It became known as the Fed Put.

A real put option is bought by an asset owner, who assesses the cost-benefit ratio before paying a premium to buy the put to protect himself (for a limited term) from a decline in the value of the asset. But with a Fed Put, no one pays the Fed a premium, there is no limited term, and the Fed doesn’t take on risk. Instead, the Fed transfers the risk of asset decline from the asset owners to everyone else. And by everyone else, I mean taxi drivers, Joe the Plumber, bakers, candlestick makers, doctors, lawyers, and Indian chiefs. People who were never involved or interested, who don’t know what the asset is, don’t have money in the markets, and don’t even know they are insuring someone else’s wealth against loss.

It’s no wonder that when a victim of this racket learns what’s going on, he gets angry and wants to Occupy Wall Street or Audit the Fed.

But while the Occupiers and Auditors blow off steam, the market keeps going full steam as risk-takers stay insulated from their downside and buy too much stock.

Note: this is perverted, but not irrational. Indeed, the market actors are responding rationally to a centrally planned, inflation-riddled, central banking economy.

Trump’s War Put

Here’s where things get irrational.

Since February 28, when he started a war with Iran, Trump has issued his own puts. Every time the war pressures the markets (and war should pressure markets), out come the platitudes. Talks are proceeding nicely. A deal is days away. (We’ll note but otherwise ignore the occasional threats to end Persian civilization.)

Akin to the confidence in the Fed, the market has been putting confidence in Trump’s empty assurances. Trump’s War Put has reassured investors that they can take the risks needed to push asset prices higher. Despite a shooting war in the Gulf and the Strait of Hormuz closed to Western shipping and commodity prices rising, the S&P 500 has climbed about 10% since the fighting began and hit one all-time high after another. It’s as if the war and its supply disruptions aren’t happening.

The market has been pricing a promised imminent peace, not the active war.

The Fed can and does perform on its Fed Put. But peace is not Trump’s to deliver, at least not alone. It takes two to tango, or in this case a third — Israel — whose leaders don’t feel obligated to listen to Trump. Functionally, the Strait reopens to Western shipping when insurance underwriters believe Iran won’t sink the ships. I doubt a Truth Social post will convince them.

At this point, it is irrational to place much trust in yet another statement from Trump that peace is imminent.

What is going on with the precious metals?

On Friday, the mob spent the day stampeding out of the markets and into the US dollar. This isn’t a run to quality. It’s a run to liquidity.

A Gulf war with the Strait closed should be a textbook moment for gold and silver to shoot upward and the miners’ values to climb too. They are doing the opposite, because in their rush for liquidity, they also sold gold and silver and quality mining stocks.

Sure, gold and silver had a good run last year, as did the miners. So perhaps part of the story of the decline in 2026 is that people have been taking profits from their successful speculations (a reasonable thing to do), in order to chase the broader, war-defying, market rally (less reasonable).

This morning, gold sat near $4,300, more than 20% below its January record. Silver is off about 19% since the war began. The gold-miner funds, GDX and GDXJ, have shed roughly 30% from their spring highs.

Friday’s good economic news led to a broad market sell-off because good news is bad news. The declines across the precious metals and mining sector on Friday sure felt like bad news for us.

But bad news is good news. The assets we most trust to protect our finances from the whims of politicians, the disruptions of war, and central bank debasements, are now on sale. That’s good news for those of us wanting to increase our positions.

Of course, it’s not good for those needing to sell now. For those folk, let’s hope that Trump’s War Put is effective again.

So what are the action items?

Take a look at stocks that you wished you had bought at lower prices. If you have sufficient dry powder without dipping into your emergency cash, this is an opportunity to buy a little. In this highly volatile market, there will be more good (or bad) news that will lead to more opportunities.

Although no one knows what will happen to the prices in the short term, an ounce of gold will always remain an ounce of gold that will continue to serve as a risk-off, inflation-resistant asset. The miners that produce gold should do well as investments, and selected junior explorers can be good speculations.

After a big run-up, they are on sale again. Until Trump’s next War Put lands today.

Please share our commentary with people you care about.

Sincerely,

John Hunt, MD