June 7, 2025

 

The S&P 500 rose 1.5% this week. Meanwhile, the Bloomberg Aggregate Bond Index fell 0.5%, Gold rallied 0.5% and Bitcoin fell 0.3%.

The May Employment Report showed job market resilience, beating expectations with strong job adds and a steady 4.2% unemployment rate. The ISM Services Report unexpectedly slipped into contraction at 49.9%, down from 51.6%, a rare non-recessionary dip for this sector. Meanwhile, the ISM Manufacturing PMI edged lower to 48.5% from 48.7%, reflecting ongoing sector fragility. Weakness in both services and manufacturing raises concerns about broader economic momentum. Investors should closely watch next month’s reports for signs of stabilization or further deterioration, as these indicators will shape market expectations and monetary policy outlooks.

 

 

 

The Trump-Musk Split: A Cautionary Tale for Meme Investors

 

 

The swift unraveling of the Trump-Musk alliance this week provided investors with a stark reminder of the perils of personality-driven investing. In less than 24 hours, a web of speculative products tied to these billionaire personalities cratered: Dogecoin plummeted 10%, SpaceX-linked funds dropped 13%, and leveraged Musk-related ETFs lost over 25% of their value. Tesla faced its worst week since 2023 as many investors abandoned the market's biggest meme stock. 

This market chaos perfectly illustrates what happens when investment decisions are driven by narratives rather than fundamentals. As one market observer noted, "Retail traders...they've never really cared much about fundamentals. These folks really believe in the narrative...dependent upon a dream premium and not what they actually do for business".

At Silverlight, we invest with a safety-first approach rooted in fundamental analysis. While personality-driven investing may generate spectacular short-term gains, it ultimately resembles gambling more than investing. Our investment philosophy centers on understanding the intrinsic value of businesses through comprehensive research—analyzing return on equity, free cash flow yields, and sustainable competitive advantages. Charlie Munger wisely observed that "over the long term, it's hard for a stock to earn a much better return than the business which underlies it earns". This week's volatility in Tesla reinforces why we prefer to invest in quiet compounders over loud meme stocks.  

 

 

 

Technical Market Update

 

 

The stock market has been on a wild ride in 2025 but managed to finish this week up 2% year-to-date. Earlier this year, Silverlight was able to successfully risk manage another 20% drawdown in the S&P 500 by getting defensive early. In February, we raised over 20% cash and put on a variety of short hedges that paid off well in March. By April 8, we covered all shorts and had client portfolios fully invested in time to catch the current bottom. Why did we pivot? When the facts change, we change. 

DeMark indicators are one of Silverlight's most important risk management tools. I described how we use them to spot market bottoms in this Forbes article a few years ago. On April 8, the S&P 500 printed a rare DeMark 13 buy signal, indicating the market was showing signs of selling exhaustion that could set the stage for a dramatic bullish reversal. At the time, the CNN Fear Greed Index was near the lowest levels of all-time, and all that was in the news was tariff talk 24/7. Yet, the market bounced right on time and has since rallied about 20%. Now, we are seeing sell 13 exhaustion signals start to pile up across a bunch of major indices. For example, the S&P 500 just printed a TD 13 sell at the end of this week.

This doesn't mean we should immediately sell everything and head for the hills, but it does warrant a higher degree of caution. The S&P 500 is fast approaching the prior all-time high. If stocks can break out to fresh highs on strong breadth, we'll assume the bull is back. There is also potential for stocks to hit a resistance wall and reverse, which is why we recently sold the riskiest stocks in client portfolios and put on a few short hedges. Now we wait to see how stocks respond to the current technical setup.

 

 

 

America's Legal Industrial Complex Is Strangling Economic Growth

 

 

With 1.3 million practicing lawyers nationwide, the United States has created a legal industrial complex that's systematically choking economic innovation.

Per Doomberg, a randomly selected member of Congress is 80 times more likely to be a lawyer than someone from the general population. This means two of our three "co-equal" branches of government are directly in the litigation business, creating a revolving door between lawmakers and the very profession that profits from regulatory complexity. The economic damage is measurable. California's Proposition 65 alone has spawned over 30,000 frivolous lawsuits, costing businesses more than $370 million in settlements since 2000. Patent trolls file thousands of cases annually, exploiting smartphones that contain around 250,000 patents. Even worse, the government actually pays environmental groups to sue it through the Equal Access to Justice Act.

America produces 35,000 new lawyers annually but only 600 petroleum engineers. We're graduating an army of litigation specialists while facing critical shortages in productive industries. The result? Projects like Alaska's Ambler Road—explicitly approved by Congress—remain tied up in legal limbo for 45 years. Every regulatory decision becomes vulnerable to endless litigation, creating barriers that suffocate innovation and drive up costs for consumers.

It's time to ask: who's really running America's economy—entrepreneurs or attorneys?  (By the way, my wife is an attorney, and I’d vote her into Congress in a heartbeat – love you, honey!)

 

 

 

Navigating The Fourth Turning: A Portfolio Protection Playbook

 

 

The Fourth Turning theory, developed by historians Neil Howe and William Strauss in 1997, describes cyclical patterns in human history spanning roughly 80 to 100 years. Each cycle contains four distinct phases, with the Fourth Turning representing a crisis period marked by institutional breakdown and societal transformation. The current Fourth Turning began around 2008 with the financial crisis and is projected by Howe to conclude in the early 2030s. 

We’re navigating a seismic shift in the global economic order, as economic historian Russell Napier explains in a compelling discussion. Napier believes we have entered an era of financial repression and national capitalism, and he urges investors to prioritize wealth preservation over growth. He identifies three core imbalances—record-high debt, wealth inequality, and trade distortions tied to China’s 1994 currency peg—driving today’s volatility. These forces signal the collapse of the post-Bretton Woods monetary system, which means capital will probably flee U.S. markets faster as trade wars unfold. This is why Silverlight believes in international diversification.

Napier also draws parallels to the 1945 - 1970s era of financial repression, where savers suffered but workers thrived. His advice? Avoid bonds, embrace value stocks and gold, and diversify asset custody geographically to sidestep capital controls.

 

 

 

The 5:1 Rule That Could Save Your Relationship

 

 

Psychologist John Gottman's groundbreaking research at the University of Washington has revealed a simple mathematical formula for relationship success: the "magic ratio" of 5:1. After studying over 3,000 couples across multiple longitudinal studies, Gottman found that stable, happy relationships require five positive interactions for every negative one. This isn't just theoretical—Gottman can predict divorce with over 90% accuracy based on this ratio. During conflicts, successful couples maintain this 5:1 balance, while struggling couples often fall to ratios like 1:3 (three negatives for every positive).

Positive behaviors that build relationship equity include expressing appreciation, active listening, showing empathy, using humor appropriately, offering reassurance, and physical affection like gentle touches. These create emotional "deposits" in your relationship bank account.

Negative behaviors to minimize include criticism, contempt, defensiveness, and stonewalling—what Gottman calls the "Four Horsemen of the Apocalypse". Contempt is particularly toxic, serving as the strongest predictor of relationship failure.

The takeaway? Small, consistent positive interactions matter more than grand gestures. Start counting—your relationship depends on it.

 

 

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This material is not intended to be relied upon as a forecast, research or investment advice. The opinions expressed are as of the date indicated and may change as subsequent conditions vary. The information and opinions contained in this post are derived from proprietary and non-proprietary sources deemed by Silverlight Asset Management LLC to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by Silverlight Asset Management LLC, its officers, employees or agents. This post may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any of these views will come to pass. Reliance upon information in this post is at the sole discretion of the reader.​​