A Disturbing Narrative Is Forming
Speculation can be one of the most personally rewarding businesses to undertake. The possibility of financial reward is the reason every one of us gets into this game initially, but as skills progress and hobby transitions into profession, the realization that there is no better intellectual pursuit for an inquisitive mind gradually becomes apparent with time. The financial reward becomes merely a means to an end – to keep playing the game to occupy the mind.
We all know the importance of a healthy body, but we tend to overlook the importance of exercise for the mind. Winning in this, the greatest of games, strengthens the faculties of the mind like competing in an Ironman contest strengthens the muscles of the body. Part of my “training regimen” for speculation is reading or listening to as many other viewpoints from smart and rich people as I can. Podcasts can be a great way to learn from the smartest traders out there, but I’ve noticed an alarming trend develop in this new alternative media.
Podcasts and YouTube channels that had been a refreshing dose of reality (as opposed to the main stream media outlets that were increasingly becoming a hinderance to developing knowledge) as little as even a few years ago, are now becoming almost as bad as the mainstream media outlets they displaced.
The growth arc of the podcasting business has gone from its infancy to maturity in record speed. We used to be able to find new, refreshing voices and interesting viewpoints that we couldn’t find anywhere else but in the podcasting space. As podcasting became a business in its own right, the best interviewers had to grow, and in order to grow, they had to get “bigger” guests who all sound the same because they come from the same stock of asset managers. Slowly, the entire alt media space has transformed into an echo chamber, and the resounding message they chant in unison seems to rhyme with, if not repeat, the same two diametric viewpoints we get from the mainstream media: either everything is under control, and there is no need to worry, or alternatively, that we are all doomed, and there is no hope…
Listen carefully to any financial podcast or YouTube episode now, and I’m sure you’ll notice this two-choice menu offered to the listener/ viewer. We are being fed two and only two messages. Both of these are disempowering. They are selling either complacency or fear. Complacency makes us intellectually lazy. Fear makes us susceptible to manipulation. Both are poison to the mind of a speculator. Complacency and fear are like the junk food version of the real, unprocessed, whole food version of the true nature of speculation: the conviction to be either bullish or bearish.
We are at all times either bullish or bearish. These are the only two inclinations that we must possess to know how to allocate our irreplaceable capital. Being bullish or bearish is not something that anyone else can convince you to be. To be a genuinely held conviction, it must originate from within your own mind. We can listen to other smart and rich people tell us how they think about reality to begin to form our own view, but those people are becoming increasingly scarce on alt media. Virtually every guest on a podcast is someone who makes their living not from the markets, but from gathering assets and charging a fee. These types of people can and do have some valuable insights, but at the end of the day, they are selling you a product- their mutual fund, ETF, or their investment advice. Their views will always be aligned with getting you to buy whatever they are selling. The true independent thought that winning in speculation requires cannot be provided by people selling you something. We’ve got to build conviction in the bull side or the bear side on our own to know when the time is right to place our capital at risk in the market.
As for me, I’m bearish on stocks. I have worked very hard for almost two decades to build up my trading line to a size that now allows me to live off my winnings, and I’m very protective of my capital. I’m not rich enough to sit back and relax on the beach. I’ve got to continue to show up everyday, turn on my monitors, and decide for myself whether conditions are right to put my capital at risk. I don’t currently see enough of the setups that give me confidence that the market is in a low risk situation, and I’ve explained many times throughout these weekly notes all the signs I see that make me increasingly bearish. However, I’ve tried shorting this market with some wins and some losses that end up in a wash, so I don’t yet view the market as vulnerable to make shorting an appealing position. Indeed, there are few, if any, appealing positions to take in the market right now.
Cash is still by far my largest position. It’s the only asset I have confidence in. I’ve taken some shots in a few hard asset names from last week’s note that appear to be nearing a possible wash out low, but only time will tell if this is the low, so I’m keeping every long very small in size. Not so small that I can’t feel how the position is working, but small enough to stay in it as it’s working through rallies and natural declines within the nascent uptrend. The trick is to buy large enough that I can feel any negative feedback when it’s not working, but small enough to avoid the eagerness to take gains prematurely. This will remain my strategy for participating in this market until we get to the next bull phase.
That bull phase will come; it always does. And that moment will be the time to aggressively get long the leading group. Right now, the leaders could be setting up in the pharma stocks. The XPH trade from the October 22 note appears to be working, and the video at the beginning of this note gives my trade update on that name. However, a notoriously defensive group like the medicine stocks is not what we want to see leading after a big rally like we’ve had since 2023. In the past, such a rotation into defensive sectors has been because institutional money that has to always be 100% long wants to be in the safety of stocks that are going to make their earnings numbers even in economic weakness. It’s this economic weakness that we are waiting for to work its way through stock prices. If medicine stocks do end up leading, it’s likely that leadership will last only a short while as the market undergoes a price correction.
Stock prices have this strange tendency to hold up until the very last minute, then collapse all at once. Of course, there are signs that the market gives ahead of time, and I’ve repeated the signs I’ve seen so often in these weekly notes that the reader must be bored to death of hearing about them by now, so I will refer the curious reader to go back to previous week’s notes to get the full details of how I’ve built my bearish conviction.
But once stock prices begin to price in all the negatives that are obviously building, then we have to start expecting the policy response and rebound that is sure to come. I’ve explained before how we are entering an interventionist market, and I don’t think that trend is close to ending.
Now we, as speculators looking to gain from market price movements, must begin to factor in not only the inherent qualities of the stocks we are trading, but policy makers’ intentions for where they want those stocks’ prices to be. This is an extraordinarily difficult position to be in, and it’s one that I don’t believe traders in the past had to face to the extent we must today. Reading Jessie Livermore’s trading anecdotes from the early 20th century, I’m struck by how simplistic his process was. He was able to build conviction on either the bull side or the bear side by merely studying economic conditions, reading the tape, and getting a visceral feel for future market direction. We still do the same process today, but now we must add another dimension: understanding where policy makers will direct market prices through intervention or alternatively, allow price discovery through lack of intervention. Getting this right may be more important now to our P&L than stock analysis or reading the tape. That the stock market is dependent on policy intervention is now being openly discussed in both mainstream and alt media to the point of now being accepted as common knowledge. This is a new phenomenon, and it’s implications are deeply disturbing.
One such disturbing new idea I’m getting from the podcast circles is this notion that at the upper levels of policy makers, there is an understanding that some form of financial crisis is inevitable, so they may as well usher it in on their terms. The idea being that the policy makers will be able to contain the downside with intervention and use the crisis as a means to push through the legislative agenda they want to, but that currently they cannot as long as our federal legislative body is dysfunctional.
The idea that policy makers have grown so confident in their ability to arrest a market decline is deeply disturbing because it may lead them to think it’s a good idea to start a market decline with the intention to stop it at the most opportune time to get their agenda implemented. This idea, while convoluted, does reveal some deeper, collective narrative ( in other words, a “meme”) that I think we, market participants and policy makers alike, are all thinking in our own heads.
Here’s the narrative I’m talking about: we all “know” markets are setting up for a crash, but we all “know” that the Fed will step in to support asset prices. Isn’t that the story we are all thinking? Isn’t that the story that, at least on some level, you’re thinking right now? I know I am. Aren’t we all expecting a correction now and leaning bearish on stocks? If you’re not bearish yet, you should be.
I think we should all be bearish now after seeing how this SMH trades. Is there anyone left that is still genuinely bullish on the AI trade after seeing the declines in all the AI related stocks? NVDA, CRWV, SNDK, etc, their uptrends are all over and the stocks are broken. If you’re still bullish on these stocks, you must get your mind right. The AI story has clearly broken, but Wall St. will push out the Anthropic IPO because they need people to still believe in the AI story. We are entering a truly perilous moment for the stock market and our capital because profitable “investing” has become entirely dependent on big institutions catalyzing a widely held narrative (“meme”) and market participants watching market intervention cause price to validate that narrative and then reinforcing price with their bets.
The market narrative is transforming from “AI boom” to “intervention will save us.” This narrative has cemented itself because, after many iterations of playing this stock market game since the QE era began in 2012, everyone “knows” the following: 1) the market has to correct eventually, 2) policy makers can control a market decline and foment a powerful rally through intervention, and 3) asset prices have to inflate higher over time so we must own things like stocks, gold, and crypto. This is a truly dangerous position to be in as a speculator, because our success increasingly depends on which narrative we choose believe in.
As for me, I choose to believe nothing that my own analysis doesn’t lead me to. My analysis is formed from studying the history books of the past and deciding for myself what types of businesses I want to own, even if the market shuts down for several months, and I can’t see a price quote the whole time. My own analysis leads me to believe that we have systematically underpriced natural resources as our economy became increasingly globalized since the 1980’s. As US large cap companies sought higher margins, they sourced the globe for the cheapest inputs of labor and raw materials. The age of globalization made it possible for corporations to have incredibly long supply chains that stretched across the globe to make the cheapest product in mass quantities. All production that we in the developed world consumed was made possible by an unfathomably complex chain of people working together in the developing world to bring cheap goods to market. That world is now visibly crumbling before our eyes. We see it in the 2020 supply chain inflation, with tariffs and protectionism in 2025, with the Iran war in 2026. All of these events are proof that the low cost natural resources and labor that brought us those goods are now disappearing as the developing world competes for consumption with the developed world.
Natural resources is where great value potentially resides, but we are at a cyclical peak in the economy so buying them now is fraught with risk. As the business cycle works through the contraction phase, the demand for raw materials plunges and their price adjusts downward violently. We have begun to see this with the metals and mining stocks and some of the energy stocks as they peak out and drop in with every new Iran headline.
I’m in the awkward position of being bullish on natural resource stocks for the long term, but unwilling to buy them in any size at current prices. In other words, I need a pullback to put my cash to work safely. The market may not be willing to accomodate my needs, so I’ve got to put out small bids for the stocks I want to own under the market and be content with any fills I get but stay patient if the market bounces before I get filled.
This is not an ideal situation for growing wealth, but it is what the market is offering at the moment. All I can do is perform the work necessary to know what I want to own and put out bids at the price I want to own it.
Anything can happen now at this phase of the market. All bear markets eventually end, and those of us with capital and a positive mindset at the end of this bear will be well positioned to take advantage of the next bull market wherever it shows up. I think the probability is high that natural resources will be the next big bull market, but I’ve learned over the years that an idea is not enough to win. Execution is what matters to the P&L, and that requires getting the timing right. While the next big bull market is slowly but surely coming into view, it’s nowhere near ready to be pursued with the aggressive abandon that real wealth creation requires. But that time will come, and I’ll let you know as soon as I feel it coming.
Lastly, a word of caution: please do your own research before placing a dime of your hard earned money into this market. Everything I write can only be considered as data for your own analysis. Nothing you have read here is investment advice, which is personal to your own circumstances that you should discuss with a trusted advisor. I am a speculator, and I take risks with my own capital that I would NEVER suggest others to take.
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By: Patrick G. Full-time independent trader in Atlanta, GA.
Patrick G is a full-time trader. Worked for a decade in a money management firm as a trader for high net-worth individuals.
He invested his and his family’s net worth into gold and mining stocks before the Covid money printing. Gold and commodity runs of the past 3 years allowed Patrick to trade full-time due to his gains.
Past performance does not guarantee future results. Trading involves significant risk of loss, and individual results vary. Positions mentioned are the author’s own, disclosed for transparency — not individual investment advice.
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