The costliest mistake in responding to panic: treating all declines as the same thing

The 'Epic Fury' operation has been underway for more than three weeks. Khamenei was declared dead in the first round of airstrikes, but the war has not ended.

In the past few days, Iran's missiles struck near Israel's nuclear facilities, Hezbollah joined the conflict, the Strait of Hormuz was substantially closed to the West, and millions were displaced. On March 21, Trump announced a 48-hour countdown to bomb Iran's power facilities. The entire market began pricing this in, but what came on the 23rd was his announcement on social media that military strikes on Iran’s power and energy infrastructure would be suspended for five days, claiming 'very good and productive talks' with Iran.Only to be contradicted again by Iran's official response.。

The back-and-forth plot twists have caused massive volatility across the entire market.

Gold, known as a 'chaos asset,' has fallen for nine consecutive trading days. On the 23rd, it dropped below $4,200 per ounce during trading, approaching $4,100, wiping out all gains for the year; silver fell from $122 to $61, losing half its value. The three major U.S. stock indexes have declined for four consecutive weeks, with the S&P 500 falling back to September levels from last year, and the Russell 2000 entering a technical correction. The Shanghai Composite Index fell below 3,800 during trading, while the Hang Seng Index plunged more than 4%.

It might be premature to call it a bear market, but the carnage is real.。

Aside from crude oil and the U.S. dollar, all major asset classes are underperforming. Safe-haven assets are falling, risk assets are falling, and only the war itself is getting more expensive. The mainstream explanation is that the interest rate logic is suppressing the safe-haven logic: oil prices breaking above $100 per barrel pushed up inflation expectations, and on March 18, the Federal Reserve kept rates unchanged. Rate futures have postponed rate cuts to June 2027, strengthening the dollar and pressuring gold.

But this only explains why prices are falling; it does not differentiate whether this force is temporary pressure or a permanent reversal. As you’ve probably seen on various social media platforms, some believe the TACO trade (Trump Always Caves Out) is imminent, while others think this conflict is destined to escalate further—but no one tells you what to do at this moment.

Think carefully: the explanation of 'interest rate suppression over safe-haven demand' assumes a premise:Oil prices will remain high forever, and interest rates will keep being suppressed—doesn't this assume the war will persist long-term?Yet every few days, the script flips, and no party has the ability to stabilize the situation in any particular state.

Looking back at a simple truth: if the strait is blockaded for a long time, no major country will benefit, meaning that the blockade itself is not a sustainable state. Judgments based on unsustainable premises will sooner or later need to be corrected.

01 Two forces, one premise

Since the outbreak of the war, global stock markets have undergone a round of systemic risk repricing. From US stocks to Asia-Pacific, from large-cap blue chips to small-cap growth stocks, hardly any market has been spared. When all risky assets fall simultaneously, the issue is no longer whether a particular sector is overvalued, but rather whether there is sufficient liquidity across the entire market.

A very typical result is that gold, as a safe-haven asset, experienced a sharp decline for nine consecutive days. The war drove up global volatility, leading to margin calls across assets, and institutions needed cash.This led to the most liquid assets being sold off first.。

In early February, the CME's increase in silver margins triggered a flash crash in precious metals, which was a precursor to this round of plummeting prices. In retrospect, that event was merely a liquidity issue caused by positions within the precious metals sector alone. What’s different this time is that almost every type of position is generating margin call demands. Institutions holding long positions in gold aren’t selling because they are bearish on gold; rather, they need to sell gold to stop the bleeding elsewhere.

Over the past year, gold prices surged from below $3,000 to above $5,500, accumulating a large number of crowded long positions. Once the trend reversed abruptly, the resulting stampede was far more intense than in a normal market. If it were just a liquidity squeeze issue, it would be relatively manageable—after one round of margin calls, the market catches its breath, and what should return will return. The trouble is that while positions are being squeezed, interest rates are also deteriorating.

WTI stands above $100, and Brent closed last week at $112, hitting a new high since the start of the war. Moreover, rising oil prices are not solely due to the strait blockade—Iraq declared force majeure on all foreign-operated oil fields last week, and two Kuwaiti refineries were hit by drones, spreading supply shocks from the strait to surrounding oil-producing nations.

Crude oil production is not like turning on or off a tap; it involves relatively complex procedures for resuming production and assessments.Therefore, what Trump expressed in his recent speeches—that oil prices could crash back to the $50-$60 range once an agreement is reached—will likely be much harder to achieve in the real world. Truly repairing oil prices may require months and the full cooperation of all neighboring countries.

Persistently high oil prices have directly locked down the already loosening monetary policy. On March 18, the FOMC maintained rates at 3.5%-3.75% without change, and interest rate futures pushed rate cut expectations to June 2027, with the market pricing in at least a year of high-interest-rate environment. Gold and interest rates are like two ends of a seesaw; from 'rate cuts delayed by a few months,' it has now become 'possibly waiting until 2027.' Some people still expect that the central bank will flood the market with liquidity in the event of a major crisis, but this time it's different: the war is pushing up inflation rather than deflation, leaving the Federal Reserve unable to act as its hands are tied by oil prices.

In simple terms, liquidity squeeze determines the speed of the decline, while worsening interest rates determine the persistence of the decline. However, these two factors share one common premise:Persistently high oil prices and unrelenting volatility ultimately point to the same variable—how long this conflict will last.。

One known fact is that a prolonged blockade of the Strait of Hormuz hurts all parties involved. Iran’s own oil exports are blocked, Saudi Arabia and the UAE have activated alternative pipelines to bypass the strait, and the US has even temporarily lifted sanctions on 140 million barrels of Iranian oil to ease supply. Now, both the instigators and those bearing the brunt of the blockade are seeking workarounds, making this situation an unsustainable equilibrium.

But between unsustainable and quickly ending lies a vast gray area. From recent developments, including Trump’s remarks on the evening of the 23rd, it’s clear he’s becoming more measured, with his wording converging toward 'productive dialogue,' trying to find a way out. The issue is that this war, which primarily involves Iran and Israel, is unlikely to unfold entirely according to Trump’s vision. The current deadlock still requires more market-convincing mediation progress.

The direction is certain: blockade is not the endgame. The pace is uncertain: there may be several more months of high-volatility window.At present, the downward pressures on all major asset classes—liquidity tightening, persistently high interest rates, and a strengthening dollar—stem from the same war. And what war brings, besides pain, often includes opportunity.

02 The reasons for the decline will fade, but the reasons for the rise won’t.

On the flip side: if the main causes of the stock market decline are sentiment and liquidity, and the underlying story of the stock market hasn't been broken by the war, then the force currently pressuring gold is also built on a foundation that will eventually repair itself.

One of the core drivers of this round of global stock market rally is the immense imagination brought by AI. The technology cycle driven by AI hasn’t stopped because of the Middle East conflict, nor have the profitability and cash flow generation capabilities of American companies been hit by missiles. While the oil price shock will indeed drag down profit margins in some industries, for cash-rich tech companies that don’t rely heavily on energy costs, this is more about valuation being pressured by sentiment.

The AH market is similar. The main themes of AI, domestic substitution, and policy tools were already at the core of market narratives before the war. Valuations were already heavily compressed, and the war caused another wave of declines, butWhat was hit was sentiment and liquidity, not the industrial logic。

If the underlying logic of the stock market remains intact, then the liquidity squeeze triggered by a stock market crash becomes a self-correcting process. When the stock market stabilizes, volatility falls, margin pressure eases, and the biggest short-term pressure on gold will be alleviated.

Gold also has its own structural support independent of the stock market, none of which have been weakened by the war; in fact, some have been strengthened: central bank gold purchases are driven by cracks in the credibility of the dollar system, with the U.S. striking Iran being just the latest chapter—temporary lifting and immediate reinstatement of sanctions show that rules are being rewritten in real time; U.S. fiscal interest payments have surpassed defense spending, and the war is further exacerbating this burden; gold ETF holdings remain far below their 2020 peak, with Western institutional funds yet to enter the market.

Of course, the fact that the underlying story hasn't changed doesn't mean all assets are safe. There's a key question between these two points:What exactly is causing the decline in what you're holding?？

The most common scenario during panic days is holding a good company with solid fundamentals, but because another highly leveraged position needs margin calls, one has to sell the most liquid asset first. It’s not a problem of judgment but rather a problem of position structure—failing to think ahead about which positions to hold firm and which to exit.

In fact, the market itself is already making this distinction. On March 20, southbound funds net sold 21 billion Hong Kong dollars, which seemed like widespread panic, but upon closer inspection, what was hit were all index-tracking ETFs. Meanwhile, several leading tech stocks were being net bought on the same day. Three days later, on March 23, when the Hang Seng Index fell by 3.5%, southbound funds reversed course, net buying 29.7 billion, with index ETFs being aggressively bought back, while certain tech stocks were being net sold.

What are they choosing? Looking back, the fundamental impact of the war mainly hurt companies sensitive to energy costs, highly dependent on external demand, and with large cyclical exposure—rising oil prices increase production costs, export demand contracts, and a stronger dollar compresses profits. These three pathways primarily hit manufacturing and foreign trade chains, rather than tech companies earning revenue from services and platforms within the domestic market.

Adding to this, the second quarter is traditionally the weakest phase of the domestic credit cycle, and with external shocks compounding, profit expectations for such companies need to be materially downgraded. Tech giants like Alibaba and Tencent, as well as companies benefiting from the domestic AI megatrend, have very low oil cost components in their cost structures and ample cash flow. The harm the war inflicts on them primarily stays at the level of sentiment and valuation, not fundamentals.

The choice made by southbound capital during times of panic essentially distinguishes between these two different types of declines.

Apply this to your own portfolio holdings.If the main reason for the decline is liquidity and sentiment, the core issue isn’t whether you should hold or not, but whether your position structure allows you to endure several months of volatility without being forced to sell your best assets at the worst possible time.If you’re holding companies that are highly sensitive to energy costs, heavily reliant on foreign demand, or exposed to large cyclical risks, then the war’s impact on them is not just an emotional one. 'Just hold on' might be self-comforting; a serious reevaluation is necessary.

03Conclusion

There is no market that won’t experience panic. But people should learn something from it—will they quit entirely and become internet trolls, or seriously draw lessons from every panic?

During the tariff panic in April last year,I sold three key positions that benefited from AI infrastructure development: AGX, CRDO, and CLS.At the time, the reasoning was sound—the escalation of the global trade war brought too much uncertainty, so I decided to exit and secure my profits. Now, AGX has risen from $80 to $470, CLS from $70 to $285, and CRDO from $20 to $105.

In hindsight, did the logic behind AI infrastructure development change because of the tariff panic? Not for a single day. What I sold wasn’t based on a wrong judgment but rather a correct one—I just didn’t withstand the interim turbulence. This is why I’ve spent so much effort discussing 'differentiation.' The biggest mistake on days of panic isn’t buying the wrong asset but selling the wrong one, treating all declines as the same and selling the best assets at the worst prices.

The war won’t last forever; the strait will reopen, oil prices will fall, interest rate expectations will adjust, and liquidity will recover. The question is, what will you still be holding when all this happens? $Hang Seng Index (800000.HK)$$TENCENT (00700.HK)$$Nasdaq Composite Index (.IXIC.US)$

Disclaimer: This article is intended for learning and communication purposes only and does not constitute investment advice.

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