Trade War? It's a Capital War

It's the debt, stupid! Be smart enough to know you're dumb.

There are 10^11 stars in the galaxy. That used to be a huge number. But it's only a hundred billion. It's less than the national deficit! We used to call them astronomical numbers. Now, we should call them economical numbers. Richard Feynman, 1987.

I took an unexpected detour into the world of physics and dark matter as I read up on the life of Richard Feynman (someone whom I suspect would have greatly enjoyed meeting), who was very conscious of his ignorance. This resulted in a much longer post than I had intended. If you want to jump to the market stuff, then go to the paragraphs below the share button.

When markets are volatile and the VIX spikes, investors tell themselves that they could and should have made better decisions. We never have enough exposure going up, and then we think we have too much going down.

The problem, of course, is our propensity for risk aversion. We hate every negative notch down twice as much as we value each incremental gain, making corrections and bear markets extra painful. Perhaps we should take a moment. Turn off the screen and contemplate the nature of risk and uncertainty for a few minutes.

David Speigelhalter, who spent a distinguished career understanding and explaining uncertainty, describes uncertainty as the conscious awareness of ignorance.

Significantly, for Speigelhalter, uncertainty differs for different people; like value, it is subjective. If it were objectively determined, everyone would agree on the value of any known risk. But it isn't, and we don't.

We inhabit an unknowable world, facing risks that we all perceive differently. Therefore, we trade risk assets via financial markets to shift risk among participants.

The subjective nature of uncertainty makes gold bullion feel safe. It is real, has excellent time-worn monetary properties, is no one else's liability, and if you drop it on your foot, it hurts. Visible things are comprehensible; seeing them and knowing they are observable to others is reassuring. The price of gold has had its best run in over a decade, partly due to these observable features in a period when other forms of money were less tangible.

Newton's theory of gravity is observable, and Newtonian physics helped engineer our modern world. It enabled remarkable technological breakthroughs that have led to human flourishing over the past two hundred and fifty years. But in the words of the impudent serf in Monty Python and the Holy Grail, when the knights discovered Camelot, it's only a model.

Because of its great success, mid-20th-century economists developed physics envy. They began to mathematise their theories, giving them the veneer of certainty that drew greater interest from politicians searching for policy solutions in an increasingly complex and financialised world. However, its quantification only served to turn economics into a profession capable of making astrology look good.

Richard Feynman, one of the world's pre-eminent particle physicists, understood this dilemma when he reportedly said that his job would be more challenging if atoms had feelings. Feynman highlighted the fundamental difference between understanding the motion of particles and the motivation of human action. If only Lord Keynes, a mathematician turned economist, had listened.

Feynman was a free spirit who enjoyed life. For those who watched the film, Oppenheimer, he was the young bongo-playing physicist at the Los Alamos research facility.

He was no fan of mathematics, saying that physics was to maths as sex is to masturbation; for him, the purpose of doing physics was like having sex; it may have some practical results, but that's not why I do it, he said.

Feynman combined an insatiable hunger for knowledge with an overriding humility. He described the degree of his uncertainty about the world thus,

I have approximate answers, possible beliefs and different degrees of uncertainty about different things, but I am not absolutely sure of anything. There are many things I don't know anything about, such as whether it means anything to ask why we're here. I don't have to know an answer. I don't feel frightened not knowing things by being lost in a mysterious universe without any purpose, which is the way it really is, as far as I can tell.

Feynman knew that despite its past success, Newtonian physics's visible "laws" failed to operate in the less visible realms of the very fast, where Einstein's relativity took over, or the very small, where quantum probabilities replaced Newtonian certainty. Newer theories were infinitely better predictors in these invisible, unknown worlds.

As the British statistician George Box said,

All models are wrong, but some are useful.

Unfortunately, Feynman died in 1988 before physics fully embraced the existence of another challenging concept. The presence of dark matter was first hypothesised in the early 1930s. However, it wasn't until the early 1990s that it became physics' biggest known unknown. Today, astrophysicists think dark matter and its mysterious partner, dark energy, make up over 95% of the known universe; Feynman's humble approach to understanding our world seems as appropriate as ever.

The 1965 Nobel Physics Prize winner said,

I'm smart enough to know that I'm dumb.

Having struggled with O-level physics, I will hand over to Grok for more information on dark matter and why it is so interesting. (Feel free to skip this section.)

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What is Dark Matter?

Dark matter is a mysterious, invisible substance that doesn't emit, absorb, or reflect light—hence "dark"—but exerts gravitational pull on regular matter, stars, and galaxies. It's not made of the usual stuff (protons, neutrons, electrons) that form atoms, planets, or us. Scientists infer its existence from how it affects gravity and cosmic structure:

• Galactic Rotation: Galaxies spin faster than their visible mass can explain—dark matter's gravity keeps stars from flying apart (Vera Rubin's 1970s work).

• Gravitational Lensing: It bends light from distant objects, revealing unseen mass (e.g., Bullet Cluster, 2006).

• Cosmic Web: It scaffolds the universe's large-scale structure, clustering galaxies into filaments and walls.

What's it made of? Nobody knows for sure. Leading candidates are WIMPs (Weakly Interacting Massive Particles) or axions, but it could be something else entirely—non-baryonic, cold (slow-moving), and stable. It doesn't form stars or planets, just clumps under gravity.

How Much of the Universe Does It Comprise?

Dark matter makes up a hefty chunk of the universe's total mass-energy, quantified by precise measurements like the Planck satellite's 2018 data:

• Percentage: About 26.8% of the universe's total energy density. The breakdown is:

  • Dark energy: 68.3% (drives cosmic expansion)

  • Dark matter: 26.8%

  • Baryonic matter (normal stuff): 4.9%

• Mass Terms: Of the universe's total mass (excluding energy), dark matter is ~85% of all matter (26.8 ÷ (26.8 + 4.9)). Baryonic matter—stars, gas, us—is just 15%.

• Amount: Roughly 10⁵⁴ kg in mass, assuming a critical density of 9.5 × 10⁻²⁷ kg/m³ and a universe volume of 10⁸⁰ m³ (simplified from Planck 10⁷⁰ J total energy).

Evidence and Context

• CMB: The cosmic microwave background shows dark matter's imprint from the early universe, stabilising matter fluctuations post-Big Bang.

• Simulations: Models like Lambda-CDM match observed galaxy formation only with dark matter's gravity—without it, the universe would be too smooth.

• 2025 Insight: No direct detection yet (e.g., LUX-ZEPLIN experiments), but its gravitational effects remain rock-solid, per X posts and astronomy updates.

Final Take

Dark Matter is an unseen heavyweight, shaping the cosmos without shining. It's 26.8% of the universe's mass-energy—five times more than normal matter—holding galaxies together like cosmic glue.

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For those who skipped that explainer (I don't blame you), the truth is that the pre-eminent discipline of the modern age that enabled the mastery of our physical world has no certainty about what comprises 95% of the universe. What we cannot see and do not know about our world is always greater than we assume. We are all ignorant about what we don't know, and the result of our hubris is that we misprice risk. So don’t feel bad; we all do it.

John Stewart Mill said 175 years ago,

There is no such thing as absolute certainty, but there is assurance sufficient for the purpose of human life.

Why am I labouring all this stuff about physics and understanding an uncertain world? Well, I think it's relevant to the only economic subject for discussion in the coming weeks, the only subject in trading room meetings, investor asset allocation decisions, and the only real issue in the business pages: Trump's tariffs and their consequences. Like the world of physics, we tend to focus on what we can see and, of course, what we are told.

But, in this matter, like so many, everything we are told is happening just might not be what is going on. We can only see matter, not the dark matter. We aren't aware of the unknowns (known or unknown) and the dark energy driving them. Call me a conspiracy theorist; call me a Trump apologist.

However, we only see the surface level of changes brought about by forces that we can't see or know about with any certainty. But, as with dark matter, we can deduce they are there.

Most of us thought that Trump was trying to change the terms of trade with the rest of the world. And maybe he is if he can. But the main reason behind the carnage he unleashed on the world last week was for his Treasury Secretary to do what he must do this year: refinance $9tn US Treasury bonds that mature, and most of it before the end of this quarter.

In his conversation with Tucker Carlson, Scott Bessent clarifies that he is now the US's biggest bond salesman. When Carlson asked what he worried about, he said the 10-year bond yield. Here is a man who understands risk and uncertainty and likened refinancing the US Federal debt to putting security doors on US commercial aeroplanes before 9/11.

He sat alongside some of the biggest and most successful macro hedge fund investors the world has seen. He ran the London office of the Quantum Fund when George Soros broke the banks of England as FX volatility forced it from the European Exchange Rate Mechanism.

Bessent is the real deal. This is no reheated central banker, academic or policy wonk. He understands capital, how it flows and the importance of liquidity. He has a practical understanding of the dark matter of the global economy and the financial markets that drive it. He might not control what Trump does, but he has delivered to him the message of prioritising the bond market over the stock market.

He told Carlson how, since his confirmation to post at the end of January, the benchmark 10-year Treasury bond yield has fallen 100 basis points, saving the Treasury an annualised $100bn in interest costs. He does so in his folksy Carolina drawl, but this guy is seriously well-connected, and there is more going on here than he reveals.

Just as Trump finished placing a bomb under the outlook for world trade in the White House Rose Garden last Wednesday, Reuters reported

Eight OPEC+ countries unexpectedly agreed on Thursday to advance their plan to phase out oil output cuts by increasing output by 411,000 barrels per day in May, a decision that prompted oil prices to extend earlier sharp losses.

Oil, which was already down over 4% on US President Donald Trump's announcement of tariffs on trading partners, extended declines after OPEC updated its plans in a statement, with Brent crude dropping over 6% to below $70 a barrel.

As energy analyst Doomberg summed up a piece called Punctuated Equilibrium:

The US, Russia, and Saudi Arabia—the three largest hydrocarbon producers in the world—have been engaged in high-stakes diplomacy since the outset of Trump's return to office. The headline justification for this flurry of activity has been the war in Ukraine, but history teaches that punctuating decisions like these are often cloaked in misdirection. Trump wants $50 oil, and he looks likely to get it. What has been given in return is not yet known, but OPEC's decision to pour oil on Thursday's burning tape hardly feels like a coincidence.

These next few weeks will be a test of nerves for all financial market participants. There will be deleveraging and an inevitable short-term rush for liquidity. We will start to see some financial debris rise to the surface. However, the main narrative will focus on the impending trade war of the visible world. Meanwhile, as Barry Norris of Argonaut Capital says, focusing on the prospect of capital wars is more important.

Le Shrub (the second reference to Monty Python and the Holy Grail in this overly long post) also majors on the prospect of financial repression being bundled up into the next phase of this new era of National Capitalism. As he puts on his excellent Shrubstack. (Klaus is his pet term for German pension fund managers).

Since 2019, there have been $10 trillion in inflows from abroad into US Equities. Who accounted for the majority of those flows? Yep: KLAUS!!!

Klaus left his finger on the “BAG7 Buy button” since 2020…

In Europe, there is growing political support to bring Klaus “back home”.

The politicians are waking up and they want to bring back home these funds, in order to support their own agendas. THIS COULD BE BIG…

As a Cypriot, I witnessed the EU “haircutting” the deposits and savings of my country back in 2013, so forgive me when I say that I am scared of the incompetence of European bureaucrats when they make such statements! Ursula, I will give you the benefit of the doubt for now, and assume you want to give us Europoors incentives to invest in Europe, rather than just steal our savings. Right? RIGHT?!

By the time it is safe to come out, the new US growth narrative will have been in production for some time; it will centre on a collapsed oil price, lower interest rates, an extension of the 2017 Trump tax cuts, some DOGE successes and significant supply-side reforms, including evidence of substantial inward investment into the US economy.

We might call it the end of the End of American Exceptionalism.

Of course, none of this is certain or even sure to work; otherwise, investors would be happy to hold their nerve. They aren’t; they are selling, derisking, or worse, being margin-called and taken out of the game.

The new US administration has achieved its objective of removing the Trump Put on NASDAQ. It now needs to collect sufficient funds into its safe-haven Treasuries before it executes a pivot back to risk. This is no small task.

Every stage of this process is fraught with the danger of things we will all remain ignorant of. For that is the nature of risk in our uncertain world. If it’s all too much, why not play some bongos and know you're smart enough to know you’re dumb?