Even Wall Street Got Caught With Their Pants Down

Happy Sunday,

This ones a lighthearted take on what the heck just happened. It wasn’t just retail getting slaughtered “we are all in this together”.

Lets dig in…

"When Trump was elected, I thought, 'The crash is about to come,'" said Edouard de Langlade, who runs Swiss hedge fund EDL Capital. His prediction initially paid off handsomely—the firm gained 6% in a single day after Trump's "Liberation Day" tariff announcement sent markets into free fall.

But even de Langlade, whose fund is up more than 25% this year, didn't escape unscathed. When Trump unexpectedly delayed most tariffs on Wednesday, EDL lost 1.4% as markets staged their most dramatic rally since 2008.

The past two weeks exposed an uncomfortable truth about the financial top dogs: Even the smartest money on Wall Street couldn't navigate the unpredictability of Trump's trade policies and their ripple effects across global markets.

The numbers tell the story. Trump's initial tariff blitz erased $5.8 trillion in market value from the S&P 500. Then, in a head-spinning reversal, markets rebounded with a $4 trillion gain on Wednesday after the tariff pause announcement.

"Every 15 minutes and 20 minutes or so, I'll wake up and check what's going on," confessed Vineer Bhansali, founder of California hedge-fund firm LongTail Alpha. "These days things move so fast."

The chaos turned trading strategies into confetti. Rob Citrone of Discovery Capital Management had positioned his $2.5 billion fund to be bearish ahead of Trump's tariff announcement, with short positions exceeding long ones by 30%. The move initially proved prescient, earning his fund about 2% in early April.

Then Citrone pivoted toward bullishness—too soon. As the sell-off deepened, Discovery gave back its gains. Another quick adjustment was required, leaving Citrone to describe his investment roadmap as less like an interstate highway and "more like navigating NYC rush hour with Waze constantly rerouting every 30 seconds."

Many hedge funds had actually seen trouble brewing. Goldman Sachs reported that its hedge-fund clients sold stocks in March at the highest volumes, net of purchases, in 12 years. The ratio of bullish to bearish bets reached a five-year low.

But few anticipated how wildly markets would swing when Trump suddenly pumped the brakes on his tariff plans. The result? Wednesday witnessed the largest day of net stock buying for hedge-fund clients of Morgan Stanley since it began tracking such data in 2010. Much of that frantic activity came from funds covering their short positions—essentially buying back shares they had bet against to prevent deeper losses.

Not everyone managed to dodge the bullets. Bill Ackman's Pershing Square Holdings plummeted 12.9% in just the first two weeks of April. Ackman acknowledged his firm had no hedges in place to protect against what he called a "self-inflicted market crash."

Morgan Stanley’s prime brokerage unit estimates that the volatility has left the average hedge fund down about 2.3% month-to-date through Wednesday. That compares with a 2.8% loss for the S&P 500 —the margin is hardly the kind of out performance that justifies their hefty fees.

For all their sophisticated models and exclusive info channels, even the financial world's elite strategists found themselves reduced to anxiously refreshing their phones, awaiting the next market-moving tweet or television appearance that might upend their carefully constructed positions.

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Stay curious, and stay safe out there.

- John