The Warsh effect: A monetary policy reset shakes markets

• Stocks decline, Precious Metals get Smoked, Warsh is the Pick.
• VIX surged, Dollar Ripped Higher, Bonds sold off, Cryptos get Crushed.
• Oil is down 5% this morning…..Tensions are ‘easing’ after Trump Sends the Ships to the Persian Gulf.
• UAE tells Trump to ‘slow it down’.
• Try the Creamy Chicken Thighs.

Wake up… it’s go-time — and let me be very clear right out of the gate: Friday was not about stocks. Oh no, no, no…..It was about precious metals and the ‘Warsh Effect.’

It was about policy, credibility, and volatility — sparked by Trump’s pick for Fed Chair, Kevin Warsh. Long viewed as a monetary hawk, Warsh represents something markets haven’t had to seriously price in for a while: a Fed that prioritizes discipline, independence, and a strong dollar. And once that reality started to sink in, the reaction was fast and furious.

The nomination of Kevin Warsh as Fed Chair hit the precious-metals complex like a freight train. Gold and silver were slammed making it one of the ugliest one-day moves in decades. This wasn’t just profit-taking; it was a wholesale repricing of monetary expectations. Look, let’s be honest – the markets had been betting on the debasement trade — weaker dollar, easier policy, endless liquidity — and Warsh’s reputation as a hawk forced investors to confront a very different future for monetary policy and the FED – think stronger dollar, stricter policy and the end of ‘endless’ liquidity. When that rumor became news, the repositioning happened fast… and violent.

Precious metals got punched in the face. The XME lost 6.3%, Gold lost 9%, Silver lost 25.5%, the dollar ripped higher, up just shy of 1% and volatility surged, up 14% as the rumor turned to an announcement…..Ugly? Yes, but can you really say you were surprised? Have you been watching what the precious metals have done since the start of the year? Gold surged by 30%, Silver up 72%. The momo guys couldn’t get enough; traders and investors suffered from FOMO – only adding to the push higher - as they watched the precious metals surge…. Joe Q Public screaming – ‘Hey! Wait for me!’

To be clear – this was NOT a growth scare, an earnings issue, or a stock-market story. It was a monetary policy reset, as investors were forced to unwind the “easy money, weaker dollar” narrative and reprice what a new Fed chair might actually mean going forward. And that hit financial assets hard.

So, it all happened at once – Metals got crushed, the dollar ripped higher – up 1% - its biggest move in months as traders had to recalibrate what they thought was going to happen vs. what happened. Remember – the dollar has been under pressure for more than a year now….and that was just one of the reasons for the precious metal surge. A weaker dollar is like putting gas on a fire for ‘non-yielding’ assets like precious metals, while a stronger dollar is like putting that fire out. And when it is a ‘crowded, leveraged trade – it gets ugly fast!

The growing Warsh narrative means discipline, credibility, and a Fed that protects the dollar — not one that tolerates debasement (decline in the dollar). I guess the reason I am surprised is that Warsh was NOT the dark horse in the race, he had been one of the favorites all along and when Kevin Hasset got sidelined – Warsh did become the ‘defacto’ choice – but I guess no one thought it was true, because if they did – then the parabolic move in precious metals would not have happened.

In fact – the prediction markets – Kalshi – had Rick Reider (the dark horse) as the favorite – and that helped the move in precious metals, but once that narrative got smoked – the initial reaction was to ‘sell’. The “weak dollar / easy money / buy gold forever” trade unwound fast and stocks were just along for the ride.

The Dow lost 180 pts or 0.4%, the S&P down 30 pts or 0.4%, the Nasdaq lost 223 pts or 0.9%, the Russell down 41 pts or 1.5%, the Transports gave back 78 pts or 0.4%, the Equal Weight S&P down 25 pts or 0.3% while the Mag 7 lost 110 pts or 0.3%.

The contra trades won…. the SH up 0.4%, the DOG + 0.3%, the PSQ up 1.2%, the VIXY up 1.7% while the SPXS gained 1%.

And that my friends is what happened. Now let’s address the January effect.

When the S&P 500 finishes January higher, it tends to be a positive signal for the rest of the year – it’s called the January Barometer: “As January goes, so goes the year.” And while it’s not perfect, the stats are pretty compelling. Historically, when January is up, the market finishes the year higher roughly 65–75% of the time, with above-average full-year returns. Now, that said - January being up does NOT mean the ride will be smooth. It doesn’t eliminate pullbacks or volatility. What it does suggest is that the market entered the year with a constructive tone, so if January strength holds, history argues for higher prices over time, even if the path there has ‘moments’ of discomfort.

Bonds ended lower…. the TLT and TLH were down 0.6% and 0.3% respectively. The 10-yr yield is holding tight at 4.23% while the 30 yr is yielding 4.87%. And that only added pressure to stocks on a day that saw anxiety and nervousness surge.

Oil is under pressure this morning — down $3.30, or about 5.1%, and the reasons are pretty straightforward.

First, the stronger dollar is acting like a headwind, pressuring all USD-priced commodities. Second, OPEC+ left output unchanged, removing any supply-side catalyst the market might’ve been hoping for. And third, geopolitical risk — at least for now — is easing. Reports that the U.S. is engaged in talks with Iran have taken some of the fear premium out of crude, especially after the Ayatollah’s earlier threat of a “regional war” if the U.S. didn’t back off. Less fear, more supply certainty, and a stronger dollar – all helping oil retreat.

Gold is trading at $4,717 this morning — down sharply from Thursday’s high of $5,595 — a brutal 16% drop in just three days.

Overnight, it broke cleanly through key trendline support at $4,484 and traded as low as $4,400, marking a full 21% air-pocket move from the highs. That kind of action doesn’t happen in a vacuum — it’s the sound of a crowded, leveraged trade being unwound. So naturally, the big question now is: what’s next for precious metals? And the answer hinges less on inflation data and more on Washington.

Specifically, it depends on how quickly Kevin Warsh gets confirmed as Fed Chair. The longer the process drags on, the more room there is for volatility and narrative whiplash. Lizzy Warren, along with several others, is already pledging to slow the confirmation — not over policy specifics, but simply because Trump nominated him. Call it what it is: more TDS. Enough already. Markets don’t need political theater right now — they need clarity.

The dollar is all over the place this morning. As of 6:15 a.m., it’s essentially flat at 97.07, but don’t let that fool you — overnight it traded as high as 97.27 and as low as 97.03, highlighting just how choppy and indecisive the tape really is. This is a market wrestling with shifting expectations, not one that’s found its footing yet.

Technically, all three major trendlines are now converging near 98.54 — roughly 1.5% higher from here — and that level is going to matter, if and when we get there, it’s likely to be a battle. That doesn’t mean the dollar can’t break through it, it just won’t be easy. Expect resistance, volatility, and a lot of noise around that level.

The cryptos continue to break down – Bitcoin trading at $77,700, Ethereum is at $2,288 and Solana is at $103 – all at levels that many analysts are calling a bottom…. Buyer beware!

European markets are pushing higher this morning — the UK is up about 0.1%, while markets across the continent are firmer by roughly 0.4%. The U.S., however, is telling a different story. Futures are under pressure — Dow -53, S&P -32, Nasdaq -215, Russell -14 — and yes, it feels uncomfortable again.

Now that we know Kevin Warsh is the guy, it could get uglier before it gets better. Markets are going to test him. They’re going to test Donald Trump for nominating him. And they’re absolutely going to test the confirmation process itself. Layer in uncertainty around the midterms, and you’ve got a clear recipe for volatility. But let’s be honest — we talked about this. No one should be surprised. And that does not mean you run for the door. Quite the contrary. This is when you stay disciplined, methodical, and strategic. You stick to the plan — because emotional decisions in volatile markets are how long-term strategies get derailed.

Eco data today includes January ISM Manufacturing PMI – and it is expected to be 48.5 – below neutral but up from the prior read.

It’s also another big earnings week…. today DIS, Tuesday – AMD, PFE, PYPL, Wednesday – GOOG, UBER, LLY and ABBV, Thursday is AMZN, QCOM & COP.

This week’s earnings is about influence. Reports from GOOG and AMZN will serve as the key macro tech data points, offering the best real-time read on AI monetization and cloud demand. At the same time, AMD, PYPL & EA will give us early insight into tech spending, chip demand, gaming activity, and fintech trends. And rounding it out, DIS, PEP and PFE will help gauge the health of the consumer and demand trends across healthcare.

The S&P closed at 6,939 —down 30 pts. Trendline support is at 6,860 – down 1.1% from here….Futures are suggesting a loss of 40 pts – so that’s halfway there…..All we need is one more negative headline and boom….we will be sitting right on it…..My sense is that it will fail to hold and if that happens, the algo’s will go into overdrive – sending stocks lower….Intermediate support is at 6,782. Only time will tell if that holds.

One pot creamy chicken thighs

You need bone in Thighs – skin on, olive oil, butter, diced shallots, sliced garlic, s&p, lemon zest and rosemary, heavy cream, Dijon mustard and lemon juice.

Start by seasoning the thighs with salt.

Melt a dollop of butter and olive oil in a frying pan – when hot – add the thighs skin side down and let them brown. Once they are nice and browned, flip and brown for another 3 mins. Now transfer to a baking dish and put in a 375-degree oven for 20 mins.

Back to the frying pan, add the diced shallots and garlic -next add in some lemon zest and rosemary – cook for 3 mins…. Now add a ¼ c of water, ½ c of heavy cream, a tsp of Dijon mustard and a squeeze of lemon juice. Mix well and allow to thicken.

Now remove the chicken from the oven. Place thighs on a plate – use a bit of water to deglaze the roasting pan – add that juice to the frying pan. Mix well and allow to thicken.

Serve this over a bed of rice. Place the chicken on top and spoon the sauce over the thigh.