The Ice Caps Are Melting, and So Are My Risk Models
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The Ice Caps Are Melting, and So Are My Risk Models
A confession from the trading desk.
Tuesday morning I woke up and checked my phone. Trump had announced 10% tariffs on Denmark, Norway, Sweden, France, Germany, the UK, the Netherlands, and Finland.
For Greenland.
Not minerals. Not rare earth. Not strategic assets we've been quietly accumulating. Greenland. The island nobody wants, including the people living there, but apparently the US presidency now comes with the authority to announce real tariffs on real NATO allies over pretend real estate transactions.
The S&P 500 dropped 2.06%. The Nasdaq fell 2.39%. Worst day since October. The Russell 2000 managed to only drop 0.4%, which tells you everything about where capital was actually positioned: it had already fled the megacaps and was cowering in small-cap value.
My slack lit up.
"Is this priced in?"
"What the actual fuck."
"We're shorting industrials, right?"
"Someone check if this is real."
It was real. Trump had posted it on Truth Social, which somehow remains the most reliable source of geopolitical risk announcements in 2026. You know you've broken something profound when presidential tariff policy is announced on the social media platform for people who got banned from the normal one.
Greenland is a semi-autonomous territory of Denmark that has repeatedly, categorically, and with absolutely no ambiguity stated it is not for sale. Denmark has made it clear that military annexation would end NATO. Greenland's population would rather achieve independence (which they might do) than become a US state (which they will never do). And yet, somehow, real money was repricing real assets on the assumption that we were about to engage in a trade war with eight of our ten military allies.
The VIX hit 20.99.
Let me translate that into human language: we were pricing in actual volatility. Not "tech is a little wobbly," but "the institutional architecture of the trans-Atlantic alliance might be experiencing structural failure."
But here's where it gets weird—and where the past 36 hours stopped looking like a normal Tuesday and started looking like performance art.
Wednesday morning, Trump walked onto the stage at Davos.
He announced a "framework" for a future deal on Greenland. Some vague notion of Arctic cooperation. Lots of words about security and collective defense. Basically the diplomatic equivalent of "we're still negotiating" with extra steps and a PR team.
The tariffs are now suspended.
The S&P 500 bounced 1%+ in seconds. Money came roaring back into tech. Apple, Meta, Microsoft—all the names that had been hammered—snapped back up. The Nasdaq, which had been down 2.39%, reversed.
This is the part that should make you uncomfortable: the market moved violently in both directions based not on new information, but on Trump's mood and the spin cycle of his message.
Tuesday = tariff war imminent = sell industrial stocks and financials.
Wednesday = maybe-framework-possibly-cooperation = buy tech again.
Nothing changed on the ground. Greenland didn't move. NATO didn't move. China's Arctic ambitions didn't move. But somehow, the asset prices moved 1.5-2% inside 24 hours.
That's not market efficiency. That's not price discovery. That's panic in both directions, which is worse than panic in one, because it means nobody—and I mean nobody—has conviction about what anything is actually worth.
Meanwhile, on Friday, the market down-shifted into full apocalypse mode again.
S&P 500 fell another 2.06%. Nasdaq another 2.39%. The Dow lost 1.76%. It was, apparently, the worst session "since October" for all three major averages, which is code for "something broke and we don't know what yet."
Magnificent Seven stocks are down 6-8% on the year now. Apple, Microsoft, Meta—the names that are supposed to be the narrative. The ones that are supposed to power the "AI" economy that everyone agreed was the only investment thesis that mattered.
And just to make it perfect, we got a surprise gift: Bessent told CNBC that Trump is "close" to announcing a Fed chair nominee. Still narrowing down. Still meeting candidates. But sometime maybe next week.
Except we don't know who he's going to pick.
We know Kevin Warsh is in the running. We know that's bad news if you own tech because Warsh has said the Fed's balance sheet is "bloated" and that AI might be deflationary and that we've been accommodative for too long.
We also know that Bessent is supposedly close to a decision, which means the most important monetary policy decision of 2026 could be made with no transparency, no public vetting, and then announced on a weekend via Truth Social at 11 PM.
This is not institutional.
Here's what actually happened to the economy while we were all staring at Greenland:
The yield curve is still broken. Long rates are sticky because inflation in services is still running hot. Goods are flat, which sounds good until you remember that Trump is threatening 10-25% tariffs on pretty much everyone, which will destroy the goods deflation story.
Consumer sentiment bounced to 56.4 in January from 52.9 in December. That sounds good. It's also a rounding error away from "consumer is worried."
Earnings are mixed. Some mega-cap AI infrastructure plays are getting crushed because capex expectations are running into reality. Some industrial plays are holding up because small-cap value got a bid while everyone was panicking about tariffs.
The Russell 2000 has now beaten the S&P 500 for 12 consecutive days. That's the longest streak since June 2008.
Do you know what happened in June 2008? The housing crisis was accelerating. The financial system was beginning its death spiral. The rotation from growth to value was happening because growth was about to get demolished.
I'm not saying we're there. I'm saying the historical parallel is not reassuring.
So what's the actual position here?
The Fed is still paused. Warsh might be the next chair and he might cut rates harder than Powell wanted. That's supposed to be bullish for growth. But growth stocks are getting destroyed, which means either (a) rates don't matter right now because earnings are the problem, or (b) the market doesn't believe Warsh will actually cut rates, or (c) everyone is positioning for a scenario where tariffs wreck the growth story and rate cuts become emergency cuts in 2027.
The tariff situation is unresolved. Trump has announced frameworks and back-channeled deals and "concepts of deals" but there are no actual tariffs that have taken effect yet. That means we're trading the threat of tariffs, not the reality, which means the real pain might not price in until we see actual higher prices in March and April.
The Fed chair is unknown. Which means the single most important policy variable in the financial system is about to change hands without anyone actually knowing what the new sheriff's priorities are.
And Greenland is apparently still in play, because Trump said the negotiations would "continue" and that Vice President JD Vance would "report directly to him," which is code for: we're still probably going to ask for this, just with better PR framing next time.
On Friday, I stared at the market close and realized something:
We don't have a regime. We have a series of shocks, each one priced in violently, each one reversed just as violently, all of it orchestrated by the whims of a president who tweets policy announcements and expects market calming to follow.
The S&P 500 is now up only 0.7% on the year.
The Nasdaq is down 1.2% on the year.
Small caps are up significantly.
This is not a market. This is a roulette wheel with geopolitical outcomes.
And the house always wins.
What matters going forward:
The Feb. 1 tariffs are suspended, but the Jun. 1 tariff escalation could still happen. Watch Congress. Watch whether bipartisan pressure on tariffs actually materializes or whether Republicans fold.
Warsh or whoever the Fed chair is will signal their priorities in their first press conference. If it's rate cuts-happy and balance sheet shrinking, tech bounces. If it's data-dependent and hawkish, everything gets repriced again.
TSMC beat earnings and said they're spending $56 billion in 2026 on capacity. Nvidia's customers still believe in the AI buildout. That's the only thing keeping tech from a full-on death spiral.
The Treasury curve is steep. That usually means either (a) recession fears and a flight to long-term duration, or (b) reflationary expectations and inflation premia. We can't tell which because the signals are mixed.
Consumer holding up. Tariff input costs about to surge. The timing of when price increases hit real inflation data is critical. If tariff pain shows up in PPI in March and CPI in April, the Fed's "pause" becomes much shorter.
And if Greenland suddenly matters again—if Trump tweets something new—you need to be ready to sell, because the capital market consequences of that chaos are becoming exponentially more expensive the longer we go without resolution.
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