Blow-off or buy the dip?

President Charles de Gaulle once equated being an ally of the United States to sharing a lifeboat with an elephant. The last month has been like sharing a lifeboat with an elephant on ketamine.

Gold epitomizes recent volatility in financial markets. It spiked up to $3,500 per ounce on President Trump’s threat to fire Fed chair Jerome Powell and then plunged when Treasury Secretary Bessent and later Trump moved to placate markets.

Spot Gold

Wall Street flipped to buy mode on Tuesday, without any fresh criticism of U.S. Federal Reserve Chairman Jerome Powell or flip-flops on tariffs from President Donald Trump to disquiet markets again. Indexes reversed Monday’s tumble, hitting session highs following a report that U.S. Treasury Secretary Scott Bessent had said a tariff standoff with China was unsustainable and he expected the situation to de-escalate, raising hopes a bit on U.S. trade negotiations. (Reuters)

Is this a blow-off?

No. The Trend Index shows a sharp rise in volatility since April 9, but these are short-term moves rather than the culmination of a long-term acceleration.

Blow-offs typically occur after a feedback loop in which rising prices attract more buyers, who drive up prices, attracting more buyers. The cycle repeats, with the trend growing increasingly steeper until the market reaches saturation point, when new buyers dry up and the market reverses in a sharp blow-off top.

Similar feedback loops occur in nature–from bushfires and housefires to locust swarms and cyclones–where they start slowly and accelerate into a massive culmination. A bushfire runs out of dry brush, a fire in a room runs out of oxygen, a locust swarm runs out of food, and a cyclone runs out of moist air when it reaches land. All end similarly: expanding rapidly until they consume all available fuel, then suddenly dying.

The weekly chart below shows a typical stock blow-off, experienced by vaccine specialist Moderna (MRNA) during the 2020-2021 COVID pandemic.

Moderna (MRNA)

MRNA gained 2500% in less than two years before the accelerating uptrend ended suddenly, with a shooting star reversal at $500. The stock had more than doubled in the preceding four weeks, with the weekly Trend Index spiking to a high of 5.

In comparison, gold gained 75% over the past 14 months, accelerating to a 16% gain in the past five weeks, with the Trend Index peaking at a high of 1.

Weekly Gold Chart

Conclusion

There is no evidence that rising demand for gold is approaching a culmination. Private demand is growing, and central banks are rapidly converting reserves to gold. Demand is fueled by global uncertainty, and there is no end in sight.

The current pull-back is a much-needed correction after a steep advance. We expect strong support around $3,150 per ounce and will buy the dip. Our long-term target remains $4,000 within the next six months.

Anat Admati: Regulatory reform effort is an unfocused, complex mess

Telling it like it is. Anat Admati is Finance and Economics Professor at Stanford GSB and coauthor of The Bankers’ New Clothes.

Anat Admati

The financial system is not serving society well right now, certainly not as well as it can. It is a drag on the economy. Finance is fraught with governance problems. Free markets don’t solve these problems. Effective laws and regulation are essential.

……the regulatory reform effort is an unfocused, complex mess, both in design and in implementation. Some regulations end up as wasteful charades. They provide full employment and revolving opportunities for numerous lawyers, consultants, and regulators without producing enough benefits for society to justify the costs. Some of the complaints from the industry about these regulations have merit. In this category I put living wills, stress tests, risk weights, TLACs/cocos/bailinable debt (whatever the term for today), and liquidity coverage ratio. I am also concerned that, as implemented, central clearing of derivatives does not reduce, and may even increase, the concentration of dangerous risk. In all these contexts we see the pretense of action, the illusion of “science,” a false sense of safety, over-optimistic assessments of progress, and counterproductive distortions [emphasis added].

Lost in this mess are simpler, more straightforward regulations that would counter the incentives for recklessness and bring enormous benefits to society by making the system safer and healthier, as well as reducing unnecessary, unproductive risk that is a key source of system fragility, and the many distortions……..

Banks are not acting in society’s interests but their own. Not even primarily in the interests of shareholders but those of senior management. And they are doing their best to frustrate, obfuscate and capture regulators.

Finance is about money and power. Money and power can corrupt. So unlike in the airline business, in finance it is possible for the industry, regulators and politicians, to harm and endanger, to spin narratives and cover up the harm, and to be willfully blind, without any accountability. DoJ and the SEC must do their job, but they can’t deal with nonsense and capture.

So the biggest challenge in regulation is political. The details hardly matter if there is no political will. Unfortunately, most politicians put other objectives ahead of having a stable and healthy financial system. Ordinary people, meanwhile, may not be aware of what is going on or get confused by the spin. Not enough people understand why regulation is essential and what type of regulation makes sense.

What can be done? Here are some concrete ideas. First, increasing the pay of regulators may reduce revolving door incentives. Second, effective regulators might be industry veterans who are not inclined to go back. Third, we must try to reduce the role of money in politics.

To fix this, we need to break the feedback loop between Wall Street and government — the revolving door between regulators and the financial sector and between lobbyists and elected representatives. Otherwise the system will remain hijacked to enrich a few at the expense of the many.

Read more at Making Financial Regulations Work for Society: Comments by Anat Admati | Finance and Society INET Conference