Bomb, I'm afraid there will be no peace next.

The public confrontation between Powell and Trump has evolved into a policy game that affects global markets. The Fed chair's tough stance reveals the irreconcilable differences between monetary policymakers and the White House, a rift that is pushing markets into uncharted territory. The Fed currently faces multiple dilemmas—a massive $6.7 trillion balance sheet, core PCE inflation stubbornly stuck at 2.8%, and the potential for a chain reaction in the Treasury market. As the 10-year Treasury yield approaches the 4.5% threshold again and 30-year mortgage rates exceed 7%, Powell's choices reveal his policy priorities: defending the stability of the Treasury market by maintaining high interest rates, even if it means enduring volatility in U.S. stocks.

This policy orientation has met with strong pushback from Trump's team. Recent tariff hikes on Chinese electric vehicles, semiconductors, and solar cells have turned a trade dispute into a geopolitical weapon. More shockingly, the proposed "Mar-a-Lago Agreement" not only considers taxing foreign investors holding U.S. Treasuries but also threatens to delist Chinese stocks. This contradictory strategy exposes the inherent tension in U.S. economic policy: reshaping manufacturing through trade protection while maintaining the dollar's global reserve currency status; needing international capital to absorb Treasuries while trying to prevent foreign investors from reaping excess returns. This "want-it-all" policy mix is creating an unsustainable economic ecosystem.

Markets are facing three overlapping risks. On the liquidity front, the Fed's high-interest-rate policy clashes with the Treasury's year-over-year surge in bond issuance, pushing market absorption capacity to its limits. On corporate earnings, over two-thirds of S&P 500 companies listed tariffs as a clear risk factor in Q1 reports—three times the number during the 2018 trade war. On valuations, the Nasdaq 100's forward P/E ratio and the 10-year Treasury's real yield above 2% show a rare divergence, an inversion of stock-bond valuations seen only three times in the past two decades, each triggering severe market corrections.

The semiconductor industry is a prime victim of this policy clash. Nvidia faces revenue declines due to H20 chip export restrictions, while AMD's MI308 chips are also struggling, with both stocks down over 15% from their peaks. More alarmingly, ASML, the lithography giant, has cut its 2024 revenue growth forecast from 15% to 10% due to plummeting orders from China. These figures confirm the fading benefits of tech globalization, a structural shift not yet fully priced into valuations.

In this complex environment, hedging strategies are crucial.Reducing Nasdaq 100 exposure below 40% is necessary, as high-valuation growth stocks' fragility during policy turbulence has been repeatedly proven. Shifting focus to domestic energy and defense stocks offers dual advantages: benefiting from trade protection and securing government contracts. Gold's safe-haven appeal remains strong despite delayed Fed rate cuts, with its resilience amid high rates reflecting deep market anxiety over escalating political games.

The current policy deadlock is fundamentally a clash of crisis-response logics. The Fed seeks to uphold financial stability through monetary independence, while the White House pursues political leverage via aggressive trade policies. For ordinary investors, this power struggle means volatility will persist. History shows that betting too early on policy outcomes carries high risks. When two power centers exhaust energy on conflicting goals, strategic patience may be the optimal choice—true market turning points often emerge only after both sides pay a heavy price.

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