Every few years, a crisis arrives and narratives reshape. The pandemic, regional bank failure, inflation shock, trade war, closure of the Strait of Hormuz. Each one was supposed to break something. Each time, the market recovered to new highs within months. By now, the pattern is so well-established that most investors have stopped questioning it.

The reflexive buy-the-dip psychology that was the best investing strategy over the last fifteen years rests on a foundation that is quietly crumbling. We can’t merely look at the stock price, but at the corporate profits and what’s been driving them.

The Numbers That Don’t Add Up

Warren Buffett once said in 1999: “In my opinion, you have to be wildly optimistic to believe that corporate profits as a percentage of GDP can for any sustained period hold much above 6%.” That statement was made months before the dot-com bubble peak, in which price took 13 years to resume higher from that quote. Today, corporate profits stand at 12.1% of GDP, double Buffett’s ceiling.

To put that in historical context: for most of the postwar era, profits as a share of GDP bounced between 4% and 8%. The long-run average since 1947 is 7.4% and post 2010 average is 10.8%. We have been running well above that average for over a decade, and the market has come to treat this as the new normal.

Corporate profits are clearly high, but the important question is why, and for how long.

The Mechanism Nobody Talks About

Most analysts explain elevated profit margins through the lens of technology, globalization, and operational leverage. While real, they are secondary to something far more structural: the Federal Reserve and unprecedented fiscal regime.

Since inception, the Federal Reserve (like any good government agency) has had mission creep. Founded to provide bank stability, it is now a backbone of the global economy. 2000 dot-com bubble paved the way for modern intervention, but the 2008 Financial Crisis was a step change. Zero interest rates, liquidity injections, bond duration manipulation with the treasury, etc.

Money enters the financial system through large banks and flows disproportionately to large corporate borrowers. The Cantillon Effect suggests that those closest to the money receive most of the benefit. Corporations are closer than consumers, thus subsidizing corporations relative to labor. The bailouts are always corporate-first, with the Fed has going as far as buying corporate bonds in 2020.

Kalecki Profit Equation

Profits = Investment − Household Saving − Government Saving − Foreign Saving + Dividends

This equation is an underappreciated macroeconomic tool. When the government runs a deficit, the money has to show up somewhere in the economy (corporate profits).

The United States has run structural deficits averaging 5–7% of GDP for most of the post-2008 era. Those deficits did not just “stimulate the economy” in the abstract. They mechanically subsidized corporate profits.

We know the government is heavily indebted, but so are corporations and consumers. The net national savings measures a nation's net saving relative to its total income, (representing funds available for investment). For most of the post WWII era, the economy saved at 8.2% of GDI, but since 2010, it has averaged 1.8%.

Zero national savings has only occurred in the Great Depression, 2008 Financial Crisis, and now. It means the economy is consuming everything it produces and then some. In the Kalecki framework, this is peak profit extraction. It is not a sign of economic health, but peak structural dependence with little room for growth.

At Whose Expense?

Every dollar of GDP that flows to corporate profits must come from somewhere. The data tells us the unfortunate reality, it came from wages. Queue the rise of populism

In 1970, wages and salaries represented over 51% of GDP. Workers earned the majority of what the economy produced. By 2026, that figure has fallen to 41.9%. Meanwhile, corporate profits have risen from roughly 5% of GDP to over 12%.

This is the structural divergence is what people are now calling the K-shaped economy. Those closest to corporations and own assets are benefiting at the expense of labor. Sentiments like Man North of Richmond, calls to tax the rich, and even Trump’s election are natural consequences.

Globalization arbitrage of cheap labor and manufacturing, rise of corporate stock buybacks, and supply constraint pricing power are all additional factors which have further supported corporate profit margins.

The share of economic value ebbs and flows over time through conflict, social change, economic change, and political change. Regardless of what combinations may arise, the series is not static. Consumers are nearly tapped of credit and savings. This well is running dry, leaving the government to pick up the slack. Social unrest and political extremism during the 1930s followed an economic crisis when this happened before.

Why Estimates Are Rising Anyway

Against this backdrop, analyst earnings estimates for 2026 have been revised upward in a manner that is, by historical standards, genuinely unprecedented. Analysts are all of a sudden more optimistic on earnings now than every before, by a lot.

Earnings are exceptional for the MAG 7 “AI” stocks, and these estimates actually make sense based on recent growth trends. The S&P 493 is not doing much of anything, but the earnings estimates have also been pulled up, which makes less sense. Earnings and GDP are largely being driven by the immense datacenter capex buildout.

The MAG 7 stocks make up 35% of the S&P 500. If their earnings are to continue, you can argue that there is nothing to worry about.

The Reversion Triggers

The sustainability question has two components: can corporate profit margins remain elevated, and can valuations hold given those margins?

For corporate profits, we are relying on the healthy data center capex, government spending, and consumer spending. The S&P 493 we already know is not likely to magically deliver unprecedented earnings which is the first bullet. Second, data center capex in many areas are facing trouble. Third, the liquidity cycle topped in late 2025 meaning monetary conditions may get tighter reducing some benefit on the government side. Fourth, consumer sentiment, savings, and credit delinquency is weak, showing a struggling consumer piece. I am skeptical of the rosy earnings estimates.

Second, the valuation of a company is the price to earnings ratio (P/E). If investors are optimistic they can pay more for given earnings. If the company earnings rise faster than expected, the valuation is lower because of the ratio. Adjusting the ratio for profit margins(MAPE), the story gets even crazier. Now, the valuation investors are paying is higher than the 1929 and 2000 bubbles. Even after a brief reprise in 2022, there has yet to be true mean reversion in the series.

Conclusion

The K-shape economy is real. Consumers are taking a smaller share of every economic dollar over time. This value is being passed to corporations in the form of higher profit margins. The net national savings and our knowledge of the Kalecki equation show us that mechanically the savings of governments, corporations, and consumers is flowing into corporate profits.

I am optimistic that AI will make the world a better place, and could even see how it can boost profit margins by reducing labors share of GDP further. However, the dot-com bubble shows us that even transformative technologies evolve in unpredictable ways, aren’t immune to valuation mean reversion, and take take longer than expected to sort out.

Not only are earnings at risk to mean revert for numerous reasons, the valuation metric (what investors are willing to pay) is also bound to mean revert. Timing is the big challenge, but the risk in the S&P 500 is unprecedented and would be foolish to ignore.

-Grayson

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The model portfolio was made public in July 2025. It has 5 main components: stocks, bonds, cash, real assets, and alternative assets. Last month’s performance have been:

In March, the portfolio weathered the market downturn much better than the SPX. SPX has been on a historic run in April, but we are still up 1.74% and outperforming year-to-date.

This model portfolio is now for paid members and this is the last chance to get the 30% discount! [In just the first 4 months of 2026, a mere $1000 would’ve covered the entire yearly $70 subscription].

There are three themed research articles each month and one paid model portfolio update.

You get up to date portfolio changes, allocation decisions, technical analysis, and synthesis of all the research pieces into an actionable plan. To beat the market and know how to not get destroyed in a bear market, please consider joining with a premium subscription.

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Here’s a preview of two etfs in my real assets bucket.

Natural Gas Companies (FCG) - 5.8%

The Iran conflict started on February 28th. I spotted this promising setup in oil/gas in my article No Love, on February 2nd, around the time it was added to the portfolio (green arrow).

I obviously didn’t know that oil going through the straight of Hormuz would be blocked, sending crude and LNG prices higher. This shows the power of technical analysis and key levels. The news doesn’t matter other than being a catalyst for volatility (i.e good earnings report → stock down). It may seem obvious that the Iran conflict would drive gas stocks higher, but unless you’re an insider, trading the news is a fools errand. Plus, FCG went up 20% before the conflict even happened.

This portfolio position is up 21.96% total. It broke through the resistance level at $31 to finish circle wave iii. It bounced off the perfect circle wave iv support. The target for the next leg higher and take profit zone is $35, with Fibonacci levels and past price resistance in that area. If FCG is going to really push in the long term, $60s is the upper target.

Uranium Miners (URNM) - 6% → 5%

Uranium has been largely moving with precious metals. The past month saw a 5.93% move up off of the ABC correction into the purple wave (4) support.

I added URNM in November and added more December (green arrows). Seeing healthy profits so fast, I trimmed the position in January. The position is up 31.6% in total.

The technical structure I have labeled is ugly and not high confidence. There is a chance it is building out a larger ABC correction so it is prudent to reduce risk and book some of our profits in Uranium.

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What is retirement? Right now, we work and save up enough money in our 401k so we can have enough money in those final years where we don’t have jobs anymore. Older readers may know a different way, where they work for a company for 30 years and collect a pension for the rest of their life. That sounds pretty nice, so what happened?

The whole history is in the figure below, but in the late 1970s, a law was introduced to help structure defined benefit (DB) programs (think pensions). This and other tax laws over time made DBs more burdensome and defined contribution (DC) plans (think 401k) more attractive. Eventually, this evolved into very specific target date funds being the default allocations for 401ks leading to the distorted passive investing conundrum that I’ve discussed previously [1, 2]. Over time, DCs have dramatically replaced DBs.

So what’s the issue? This is more capital efficient and gives employees more flexibility. This worked perfectly from 1980 to 2000 in a raging bull market. In 2000 and 2008, equities took ~50% haircuts. For your retirement to be tied to this is devastating. Many had to delay retirement, rely on housing equity or social security, or suffer a less lavish retirement.

In those years, equities only made up 15-20% of household net worth. Today, it is over 25% and rising. On top of that, the switch to target date funds essentially just owning the S&P 500 accelerated after the financial crisis in 2008. Not only do equity bear markets hurt retirement, equities ARE retirement today.

People have once again become complacent with ballooning assets, whether they be stocks or real estate. With record wealth tied to the stock market and retirements entirely tied to the stock market, the risk is larger than it has ever been. Not to sound hyperbolic, but soon to be retirees could have their lifestyles destroyed if they time things wrong.

The Shiller Price to Earnings ratio (also CAPE ratio) is a stock market valuation metric. It essentially shows the price investors are willing to pay for the given earnings a company generates and has to do with confidence and sentiment. The Shiller P/E ratio is the second highest in history behind the dot-com bubble in 2000. However, if we draw a trend channel, it implies 1901, 1929, and 2000 were more expensive historically. The bottom trendline dates are 1920 and 1982.

What this figure shows us is that while stocks are expensive today, they technically could have more upside. There is typically 30 years between tops and bottoms of this series and it doesn’t have to hit the top or bottom trendlines to mark a major reversal point. 1877, 1949, 1966, and 2009 marked minor reversal points, while 1901, 1920, 1929, 1982, and 2000 marked major reversal points.

It has been 26 years since the 2000 peak, within the territory for a minor reversal. With the leading recessionary indicators I’ve discussed previously, this is a possible and likely scenario. I could be wrong, and valuations could soar in a stock blow off top for a few more years into the darker blue box at ~56 in ~2030.

In 1966, most retirement was in DBs, meaning people were insulated from the equity corrections in the 1970s. While inflation still proved burdensome over that decade for those collecting their pension checks, their retirement wasn’t tied to assets.

In 2000, DCs or 401ks were the majority retirement savings vehicle, causing a much larger stir. Some who held retirement equity in their companies who went bankrupt were wiped out, others who held stocks took a significant haircut. While it took years for stock prices to recover, it wasn’t a catastrophe. No bailouts of individuals occurred this time or in 2008, that is reserved for institutions. In 2006, they came up with a wonderful policy, the Pension Protection Act. This made auto-enrollment in target date funds the default, which only makes people more dependent and reliant on equities. In my opinion, this leaves retirees less protected, not more.

In 2000 and 2008, aggressive easy monetary policy re-inflated assets and eventually restored equity prices and retirement balances. This took years though, and anyone switching to withdrawals or nearing retirement had a lot of thinking to do. Even though corporations were bailed out, individuals were left to dry with their impaired portfolios.

History shows that equity repricing at P/E extremes is always painful. At prior peaks, most people had pensions, savings accounts, or social safety nets that existed outside of equities. Today, the retirement system is the equity market. While social security and housing equity may insulate to some extent, individual retirements are tied to the stock market like never before, with another looming extreme P/E reversal.

Here at The Gray Area we are focused on true diversification, to help you not have your hard earned retirement get destroyed, not take unnecessary losses along your wealth building journey, and find asymmetric investing opportunities. If this sounds good to you, join premium subscription to get access to the model portfolio which synthesizes these themes into my investing plan.

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Until next week,

-Grayson

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In 2022, many people thought we were heading into recession, only for GDP to normalize, unemployment to remain stable, and the stock market to recover and push to significant new highs. They were wrong, and here we are a whole 4 years later with everything still jolly and happy.

For the past few years, AI hype has broadly boosted an otherwise mediocre economy. Data center spending boosts some of the cyclical aspects of the economy like construction and manufacturing, while hype boosted asset prices in the space. This disproportionately helped the top stocks, which also see the most passive inflows and dominate the S&P 500 index.

Of course not everything is jolly, as conflict in the Middle East, involving the US, is certainly spooking investors as of late. Oil price spikes, as I predicted before the war, often times lead to serious demand destruction. Now, the predictions for recession are starting to increase again. Will they be wrong again or is there more to the story?

Sure, oil drives the economy, and this is definitely a volatile addition to the economy, but it doesn’t 100% mean there will be a recession (especially if there is a quick resolution). There are plenty of indicators we can look at to check on economic health, oil shocks just accelerate us towards that end point, not necessarily cause it.

Liquidity is a major driver of the business cycle, especially in our credit/refinancing driven world today. Oil lowers liquidity by lowering margins, forcing liquidations of assets, and causing companies to increase hedges. On top of that, Michael Howell’s liquidity index has peaked at the end of 2025. With growing debt burdens being refinanced each year, the debt to liquidity ratio is steeply rising. With tightening liquidity and increasing debt refinancing demands, the risk for credit events is quickly rising.

The Conference Board leading economic indicators have been flashing recession signals since 2022, leaving many people dismissive of them. In reality, there are better ways to measure leading indicators than there measure.

The economy (GDP) is driven primarily (70%) by consumer spending. Since many parts of the economy are not cyclical (ie. healthcare spending), we should focus solely on the cyclical aspects. EPB Research suggests that durable goods orders, residential investment, and business equipment investment are the three best cyclical leading indicators.

Plotting these, we can see it’s historical usefulness, with rollovers predicting the 2008, and 2020 recessions in advance. The series was weak for 9mo before 2008 and 20mo before 2020. The most recent 3 months have shown a stagnation, but not outright decline (equipment investment propped up by data center investments).

The yield curve is the difference in interest rate between two duration bonds (long vs short). Typically the 10 year note has a higher interest rate than a 3 month bill. Economic growth and inflation are taken into account over the longer time frame. Basically, investors have to decide where to place money (stocks, bonds, cash, etc) and depending on the economic environment, it changes. Bond yields adjust over time based on the sentiment/demand for the bonds (higher yield, less demand). Supply also matters, as excessive issuance of short term bonds like we’ve seen can push yields higher.

For brief times in history, short term yields are higher (yield curve inversion or <0), sending strange signals. The un-inversion concludes with short term interest rates dropping faster than the longer term bonds. This means that investors are demanding bills and bonds as safe assets or liquidity, typically during credit crisis and recession.

The un-inversion of the yield curve has always preceded recession going back to the Great Depression. We just un-inverted from the most extreme inversion in history, bigger than the Great Depression and 2008 Financial Crisis. This is another sign that recession is looming. Plus, with some correlation between inversion magnitude and economic impact, it could be a big one.

Even though we are a credit driven economy, savings spur real productivity and provide resilience. Net savings as a percent of gross national income is at scary levels only seen during the Great Depression, 2008 Financial Crisis, and briefly in 2020. This implies the economy has less cushion and would be less resilient to any credit shocks. Further, it implies that the government will have to respond with ever more debt creation during the next crisis.

What is holding everything together is employment. Recession doesn’t start until the unemployment rate is picking up significantly, although this is last domino to fall, and doesn’t help you predict when it will occur. We can look under the hood for clues.

Full time employment is the real driver of income and productivity. Mediocre or declining full time employment characterizes recessionary periods. Currently, full time employment has been not been growing for years, while part time employment has, making the aggregate unemployment rate look steady.

Broken down by sector, there is very little job growth for the majority of industries. Leading cyclical areas like manufacturing and transportation are showing the most weakness, while job growth was primarily driven by the non cyclical healthcare industry.

Finally, credit spreads are perhaps the best clue to tell whether things are really going to hit the fan or not. I’ve written about them extensively previously. In short, junk bonds from questionable companies demand a higher yield to garner interest from investors over safe US treasury bonds. When things are fine, the spread is low, but when anxiety, distrust, and financial issues arise, the spread widens significantly.

Credit spreads between junk bonds and US Treasuries remain at all time low levels, despite the small increase in March (zooming out you can barely notice). The market is not questioning these companies credit-worthiness at the moment. While typically leading, when credit spreads widen, it can happen fast.

The economy is on the precipice of recession, but is not there yet. Headline employment, credit spreads, and liquidity are all fine. However, they are all trending towards recession.

Liquidity conditions have rolled over, heading into record debt re-financing requirements. True leading indicators are finally showing weakness (even more stripping out data center buildout). The yield curve is currently un-inverting from the longest inversion in history, typically resulting in imminent recession. National savings are at record low levels (Great Depression, 2008 GFC). Full time employment has been stagnant, and healthcare is the only sector with meaningful employment growth. Credit spreads are holding up, but can really only go higher from here.

Everything is fine until it isn’t. It is surprising how well the economy and stock market have held up over the last few years but that doesn’t mean we won’t hit a recession. These leading indicators are flashing warnings, which not taken serious can be very detrimental to portfolios.

Economic and stock market trouble correlate, and here at The Gray Area, we are aware and prepared for these contrarian scenarios. The model portfolio is a great way to not get destroyed by a looming bear market, and way to profit from volatility to come. Until next week,

-Grayson

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Well actually, winter is already here…

They say not to time the market. Other than that is just a marketing tactic for you to put your money in their funds and never withdraw it, it is not good advice. If we don’t want to get destroyed in bear markets and want to make real money it is the only way. High performing assets like bitcoin can drive those crazy returns. The problem is, you HAVE to time bitcoin, or be hit with a 70% crash every few years.

Bitcoin has gone down a lot recently, already having crashed 52% off the October 2025 high. Every bear market there’s a lot of talk about it being the end of bitcoin. On the flip side, I’ve seen many people getting so much hope when it rallies trying to call the bottom along the way.

I’m here to give an honest take on what the price will do not built on hope or fear, but mechanics.

Philosophically and economically, Bitcoin offers some hope. If possible, getting money out of the government’s hands would undoubtedly be the best thing for humanity. I’ve written about its usefulness in the past (1,2), but I’m not blind to some of the risks and valid skepticisms. It will prove itself over the long run (or not).

On a shorter time frame we can use it as an investment vehicle to generate returns. It has been one of the best performing assets in many years over the past decade. It has blown the S&P500 out of the water, even with its brutal bear markets. Clearly catching the green years would drive meaningful returns, even with small allocations. Timing is important to avoid giving it all back in dramatic red years.

Bitcoin doesn’t have earnings to base valuations on. Commodities have the economics of mining and processing which determine new supply, offering some grounding to the asset. Bitcoin was engineered digitally in a similar way, having real decentralized process to create new bitcoin in a constrained fashion, unchangeable by market participants (can’t instantly mine all the gold or bitcoin).

This is one reason why commodities and crypto have more volatility than stocks. If there’s no cash flow to base the value on, then it is sentiment leading the way. While definitely even more driven by sentiment than the stock market (given the rise in things like astrology and other weird bitcoin predictors), is it merely sentiment driving the bitcoin price?

Mike Green, while generally acknowledged as a bitcoin bear, has done some good work on the asset. He is one of the top flow analysts, with his passive investing thesis explaining some key phenomena in the stock market. He has also shown ETF flows are the dominant driver of BTC.

Flows turned negative at the end of 2025, which predicted the slide in price. Recently, this relationship has fallen, meaning liquidations and other factors were likely driving the most recent price declines, not necessarily that the data doesn’t apply anymore. This could mean that we are closer than not to the bottom, but that is speculation. How can we know?

Michael Howell is a world leading expert on liquidity and global liquidity cycles. He shows that the liquidity cycle has a relationship to bitcoin. This is the next clue that gives us an idea of when there is ample money to chase higher volatility assets and boost ETF flows. He shows that with good correlation, there is a 13 week lag from changes in the liquidity cycle to changes in the bitcoin price.

The current liquidity cycle peaked in late 2025, meaning the growth in liquidity has started to wane. This seems counter intuitive since the fed has had “tight” conditions without quantitative easing or low interest rates, but other methods helped keep liquidity conditions loose and growing in the US. Ironically (now that the Fed started to lower interest rates), financial conditions are expected to get tighter. This helps explain why bitcoin and the stock market have struggled, and could give us clues to when bitcoin may turn.

Right now, bitcoin is at 68k, one deviation below the 200 day moving average and nearing the 200 week moving average. It is oversold on a relative strength basis and could be a good buy here. That could be true for the long term, but we don’t want to mess this up.

You may have heard me refer to the bitcoin “seasons” in my portfolio updates. Spring is green, summer is yellow, fall is orange, and winter is blue. The bitcoin bottoms have been very cyclical so far, occurring every four years. Summer is the exponential move up, while winter is the crash phase. Previous winters lasted between 336 and 420 days and had crashes of 73% to 80%. It has currently only been winter for 168 days with a crash of 52%.

This is not nearly the extent of past cycles, meaning there is more time and correction to come if we assume history repeats. While not always the best assumption, we have mechanistic data to give us clues. With the liquidity cycle turning down and not expected to increase until at least late 2026 or 2027, there will be less liquidity for those ETF flows that drive bitcoin’s price. If the flow spigot is closed, bitcoin should continue to lag.

Technically, there are a confluence of Fibonacci targets around the August 2024 low at 49k which would act as major support. It corresponds to my likely count of wave (v) (purple box) of circle c (orange box) down. It also lines up closely with the 61.8% retracement from bitcoin’s inception to the all time highs. It would also be a 61% drop instead of 52%, closer to historic cycle norms.

Bitcoin isn’t a bad buy here, especially for the long haul, especially if we see a sudden influx in money printing. However, there is likely another 29% flush lower alongside another ~150 days before the bitcoin “spring” starts time-wise. You can hope all you want for bitcoin to go higher, the drivers of price are telling you it is not time yet. These mechanistic factors actually correspond nicely to the bitcoin seasons with the bear market over near the end of this year or early next.

Heed the warning that there is more bear market left, but don’t be convinced the asset is toast. Whether we merely retest support around 80-100k or go on to all time highs, this would drive returns far superior than the general stock market. Real tactical portfolio diversification through bitcoin, commodities, etc are real ways to drive meaningful returns instead of handing your money over to institutions just trying to collect their fee. Until next week,

-Grayson

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Most people think that since the Federal Reserve has had elevated interest rates and has not been performing quantitative tightening (QT), liquidity conditions in the US are tight. This is a policy headfake that is actually not true at all. While not performing full-blown quantitative easing (QE), they have been making other liquidity injections as needed since 2022. The major source of liquidity, though, has been from the US Treasury.

Beginning under Yellen and continuing under Bessent (even though he campaigned on stopping it), the Treasury has been issuing shorter-term debt to fund the government. It’s a bit complicated, but bond duration affects liquidity. By juicing the economy with billions of Treasury bills instead of bonds, it contributes to more liquidity and easier monetary conditions. Combine that with higher interest rates actually helping the pay mega-cap corporations with excess cash, who are driving most economic investment, and things have been pretty good monetarily.

No one knows liquidity cycles better than Michael Howell of Capital Wars. His model below suggests that liquidity has peaked in late 2025 and is only now tightening. Again, it seems counterintuitive that now that the Fed is lowering interest rates, liquidity conditions will tighten. The reasons are a deteriorated reverse repo facility, a strong real economy that pulls money out of the financial economy, and the debt maturity wall and refinancing cycle finally arriving. These are also reasons why recession forecasts have been delayed, because there was more to the story.

Most of the world is on a similar timeline to the US or a little behind. China, on the other hand, has already faced massive deflationary pressures in its housing market in recent years. In Howell’s eyes, China’s money printing is not about currency value and attractive exports, but the debt-to-liquidity ratio. If it is too high, problems occur. Similar to Japan in the 1990s, China is having to print money post-debt crisis.

This means China is on the opposite side of the liquidity cycle. To avoid further calamity in domestic assets and protect their financial system, they are printing huge amounts of money to inflate away the debt. They have had tight conditions and are beginning to loosen them. This is the opposite of the US, which has had loose conditions and is trending tighter. This will soon be what the US does with its enormous debt pile when collateral/liquidity dries up.

There are certainly flaws in this strategy by China, but with capital controls on the Yuan and gold exports, they have effectively blocked the exits. What this means is that the newly printed Yuan can keep a relatively stable dollar exchange rate and freely devalue against gold domestically (a big reason for gold’s recent success). This suggests further upside for gold, as the gold run may not actually be the “debasement” trade, but rather a China liquidity consequence that is likely to continue.

As an investment theme, this means that instead of nearing the danger zone, China is past it. Further, with the capital controls, the domestic monetary injections have to go somewhere. While they are hoping this helps stabilize the Chinese real estate market, it is going into other assets like gold and stocks.

Is the Chinese stock market a good value? Looking at the tech sector (CQQQ), after dropping 73% (Feb 21 to Feb 24), it went up 110% in just 2 years (Feb 24 to Feb 26). This put it near the upper band (upper red line) of its four-year average (middle blue line). This four-year average should act as resistance to bounce off of in a bull market, as seen in 2015/16 and 2019/20. The top and bottom bands' widths are also shrinking, meaning consolidation is happening, often before a more aggressive move. The bottom RSI value measures relative strength (momentum), and is showing that it is not relatively expensive anymore. A little more correction may provide a solid buying opportunity.

Looking at the key levels and Elliott Wave Theory, we can get an idea of future scenarios. Given the chart data, which can be seen below, there are two options: 2021 was the top, or we could challenge new highs again.

If 2021 was the top, you would expect a correction before going lower (below circle 5 of C at 27). This correction is denoted by the large green box. Typically, this would target the 0.5-0.618 retracement. The current retracement (higher) has only gone to the 0.382 level, meaning it isn’t likely over yet. This, however, is the ideal target for green wave A of an ABC pattern up. If the lower support region in grey holds (also near the four year average), then the green C wave would perfectly target near the ideal 0.618 level.

The even more bullish case is if Feb 2024 was the bottom. I would still expect the same further into the grey box and a retest of that four year average. From there, the blue 5 wave move could be on the table which would target the highs around 100. Regardless, there is 70% upside in green, or 120% upside in blue.

How I’m wrong. In the shorter term, if the price follows through below the four-year average and below 34.88, it is likely something more immediately bearish is going on. That is not something I want to be investing in. If lower grey box support holds, my ideal buy would be between 39 and 43. Then there is a great risk-to-reward with a stop loss at that 34.88 level.

Given a bit more of a pullback to retest the four-year average and the wave B/2 support, Chinese tech stocks would be in a nice technical setup. Layer in the macro view of an expanding Chinese liquidity picture, and there might be something there. Some may not want to or be able to invest in China, but it is a promising area to keep an eye on.

-Grayson

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The model portfolio was made public in July 2025. It has 5 main components: stocks, bonds, cash, precious metals, bitcoin, and a flex option. Last month’s construction and performance have been:

Both the portfolio (-4.31%) and market (-5.07%) lagged in March. Year-to-date, the portfolio (+3.01%) is outperforming the SPX benchmark (-5.44%). Overall, we are up 30.11% vs 11.05% for the market since inception.

Over the last month, natural gas companies have rocked, bitcoin showed some courage, and it was not a fun time to be yellow rocks.

Before we dig into the weeds and discuss changes, I’m proud to announce a new change to the website.

The three regular articles each month will remain free public posts, but the model portfolio, synthesizing that research and opportunity into a simple and easy portfolio guide, will now be exclusively for paid members.

My pitch is simple

I’m not trying to rake you over the coals to get your money, but I am already providing value and believe I will provide more as things progress.

I’m beating the market while minimizing drawdowns, finding asymmetric opportunities, and making sure to not get destroyed in a market downturns.

My three free articles are the research, but the model portfolio synthesizes that unconventional research into what I actually do with it.

The cost will be $10/mo or $100/yr. I will also be raising the price again to start 2027 as my track record continues.

However, for the channel OG’s that sign up in the next month, will get it for $7/mo or $70/yr (which comes out to $5.70/mo) which will stay that price forever, and absolute steal.

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Now back to the data for a preview of the analysis and what you’re getting!

Natural Gas Companies (FCG) - 5.9%

The Iran conflict started on February 28th. I spotted this promising setup in oil/gas in my article No Love, on February 2nd (denoted by the green arrow). I obviously didn’t know that oil going through the straight of Hormuz would be blocked, sending crude and LNG prices higher.

Many times news doesn’t matter and price goes the opposite way “it should”. There are many news events or catalysts that could back my thesis, but technical analysis is useful precisely because it ignores news. Events are merely a catalyst to drive the sentiment and supply/demand of prices. It may seem obvious that the Iran conflict would drive gas stocks higher, but that is a trap that will lose money over time.

I did not predict the war, but found a healthy, unloved sector with a good technical setup, and macro tailwinds. The portfolio position is up 26.5% since then. It is testing a resistance level at $31. The next level of resistance is the line at $37 and first target box around $45. If FCG is going to really push, $60s is the upper target.

Uranium Miners (URNM) - 5.4%

Uranium has had a healthy correction alongside precious metals over the past month, but good portfolio management allows you to benefit even if things don’t go perfectly. I added URNM in November and added more December (green arrows). Seeing healthy profits so fast, I trimmed the position in January. Even with the drawdown over the last month, our position is up 19.3%.

We sit at a confluence of traditional corrective targets including wave 4 in purple, wave C in orange, 2024 price high, and the 200 day moving average. The technical picture has become messier, but this would be a beautiful spot to find legs higher. If we break below the B wave low and entry at $50, it is time to reconsider this position.

Precious Metals and Miners (GLTR, GBUG) - 4.3%, 3.2%

Gold/silver have been a staple from the beginning. They have also had a serious correction over the last month. Just like uranium, I have been taking profit all the way up. I even warned about silver’s parabolic rise and the risk for a 30-50% correction in my January update, which turned out to be quite prudent call.

The positions are still up a whopping 75% and 126%, in which we trimmed significantly in anticipation of this recent pullback. There is likely more correction to go before making new highs in metals, but the path is unclear. First, it could take quite a long time to get there as wave 4’s are typically choppy and boring. Second, whether we go directly lower through the purple (wave 4) support directly into the orange box (black ABC), or back higher before lower in the green ABC is yet to be seen. Third, there is always the possibility that this parabolic run has hit its peak already and we won’t see higher gold in a long time.

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Energy consumption encompasses more than just electricity. While renewables accounted for 21% of electricity in 2023, they only account for 9% of total energy consumption. This also includes transportation, heating, and industrial use. While it would be nice to have a perfectly sustainable grid, the reality is different. In this series, I will highlight the roles of various energy sources and their outlook. For the year 2023, fossil fuels accounted for 82%, nuclear 9%, biomass 5.4%, and renewables 3.6%.

This is a series I’m going to do where I will research and update my outlook on each energy industry: renewables, batteries, nuclear, and fossil fuels. This week is about next-generation energy sources.

Geothermal

Most people think geothermal energy is a niche technology, something Iceland does because it sits on top of a bunch of volcanoes. They’re not entirely wrong, as geothermal currently generates roughly 1% of global renewable electricity. The 17 GW of installed capacity worldwide is less than what the US adds in solar capacity in a single year. The US actually has the most operating capacity, followed by Indonesia, the Philippines, Turkey, and New Zealand.

The issue with traditional geothermal has always been geography. To extract heat from the earth economically, you need the right conditions near the surface. You need hot temperatures (volcanic activity), permeable rock, and water. That’s why the US capacity is 95% concentrated in California and Nevada. It is regionally unviable in most of the United States.

That limitation is what next-generation geothermal is trying to solve. Enhanced Geothermal Systems (EGS) are the name for the next-generation geothermal energy. The process involves drilling deep wells, hydraulically fracturing, and pumping water through the fractures to extract heat. By drilling deeper wells, it is possible to tap into hotter temperatures in more areas.

The concept isn’t new, but for decades, it was too expensive and technically unreliable to commercialize. The shale gas revolution sparked the drilling innovation to give the industry hope. They spent trillions of dollars perfecting exactly the drilling techniques. Engineers, often from oil and gas companies, started applying those skills to geothermal as well.

The leading company here is Fervo Energy. Fervo proved its concept in 2023 with a 3.5 MW pilot in Nevada that began feeding power to Google’s data centers. Currently under construction, the Cape Station in Utah is planning on delivering 100MW to the grid this year, with a large 400MW by 2028.

EGS is also being invested in by large oil companies like Exxon Mobil and Occidental Petroleum. The main limitation is cost. Geothermal projects carry capital costs of $3,000–$6,000 per kilowatt, which are roughly double wind or solar, and exploration and drilling alone represent 40–70% of total project costs.

Like most things in the US, permitting can take a long time, especially on federal land. The energy density and novelty will make it difficult and time-consuming to scale to truly make a dent in the overall energy mix. There are also seismic risks and fracking risks that need to be carefully considered, as public opinion can sway negatively if issues arise.

The IEA estimates that with continued cost reductions, geothermal could meet up to 15% of global electricity demand growth to 2050. IEA estimates are not good, but of course, if things progress, it may be a promising area. Geothermal has some of the lowest life cycle emissions of any energy source as well. This makes it attractive from a sustainability perspective as well.

Finally, with rising geopolitical tensions, national security and supply chains are high priorities. Geothermal does not require many strategic resources like batteries, solar, or nuclear.

Geothermal is not going to replace natural gas anytime soon, but EGS is crossing from science project to commercial reality in real time. Cape Station is expected to connect to the grid this year, more than you can say for some advanced nuclear reactors, given how promising those are. Costs are key to commercialization. Keep an eye out for this developing industry and see if it can get over its hurdles.

Fusion

Nuclear fusion is the “holy grail” of energy, providing ~4x more energy than fission without the waste. Both are orders of magnitude more energy-dense than oil. Fusion is the process of combining hydrogen isotopes to produce helium, a neutron, and energy. Technologically, labs have been trying to ignite and sustain the reaction for decades, which has technological, financial, and engineering challenges. While there are plenty of conspiracies that the government is hiding fusion and other free energy generators, academic and private startups are working hard to make fusion work around the world.

For most of the past seven decades, that problem remained unsolved at any useful scale. In December 2022, the National Ignition Facility at Lawrence Livermore achieved a fusion reaction that produced more energy than the lasers used to initiate it. Private fusion investment has gone from $1.9 billion in 2021 to $9.7 billion by 2025, with over $2.6 billion raised in the last year alone.

There are a few types of designs, magnetic confinement (tokamaks and stellarators), which confine plasma and apply a magnetic field. The other type is inertial confinement fusion, which hits compressed fuel pellets with lasers. It is obviously very complicated, but this is a brief overview of the various avenues taken.

Commonwealth Fusion Systems (CFS) was spun out of MIT and is building a demonstration device called SPARC in Massachusetts. Their edge is high-temperature superconducting magnets that are dramatically more powerful than anything previously used in fusion research. SPARC is currently 60% complete, with a commercial facility called ARC planned for Virginia in the early 2030s under a 200 MW power purchase agreement with Google. NVIDIA, Bill Gates’s Breakthrough Energy, and Khosla Ventures are among their backers.

Helion Energy is backed by Sam Altman and $500 million in prior funding rounds, taking a completely different approach using pulsed fusion with direct electricity generation (skipping the steam turbine step). Helion broke ground in July 2025 on Orion, what it’s calling the world’s first commercial fusion facility, in Malaga, Washington. They have signed a power purchase agreement with Microsoft, committing to deliver at least 50 MW of fusion electricity by 2028, which is aggressive to say the least.

TAE Technologies has an unconventional approach using a field-reversed plasma configuration that avoids some of the magnetic containment complexity of a tokamak. TAE merged with Trump Media & Technology Group in a deal valued at $6 billion in December 2025.

The DOE released a formal Fusion Science & Technology Roadmap in October 2025, targeting fusion power on the grid by the mid-2030s. The skeptical reading is that the DOE roadmap also acknowledged critical gaps in materials science, tritium supply chains, and regulatory frameworks that don’t yet exist for fusion.

While fusion might actually be 10 years away instead of 20, there are many challenges. Not only are there scientific and engineering hurdles to overcome, but they will also need to overcome the scale, commercialization, and supply chain hurdles. Tritium supply is problematic, as well as the material degradation of the fusion reactor walls.

The funding is real, the milestones are real, and the scientific progress over the last three years has been genuine. However, fusion on the grid before 2032 requires everything to go right simultaneously. Fusion is much more of a bet on the future, in an industry riddled with skepticism for decades. While further away, progress has actually been made on fusion and is worth keeping an eye on.

-Grayson

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The stock market is grossly overvalued according to metrics like the CAPE ratio and Buffett Indicator. Even defensive sectors and small value stocks trade at elevated valuations. With the outperformance of precious metals as of late, it seems like there aren’t many places left to put your money. Over the last few months, I’ve been looking for sectors that are neglected or have potential, like Oil and Uranium.

If an investment is exciting and popular, it likely means it is overbought technically and expensive fundamentally. The AI theme fits this bill perfectly, and even precious metals as of late. While momentum can carry those higher (and lower for the neglected ones) eventually, mean reversion will take place.

Today is about agricultural commodities. No one cares about wheat or sugar cane, especially since they’ve crashed roughly 50% in the last few years. There are three reasons to care, though: macro, climate, and technicals.

Macro

Crops today are not grown sustainably, but require copious amounts of industrial fertilizers due to the heavy tax the soil takes. In Phrosperous Land, I dive deeper into these fertilizers. In short, there are a few main elements that plants need to grow: phosphorus, nitrogen, sulfur, and potassium. The dominant phosphorus supply comes from Moroccan phosphate rock deposits, which are then primarily refined in China. Potassium comes from potash deposits, primarily in Canada, Russia, and Belarus. Sulfur compounds are mostly produced in China, North America, Russia, and the Middle East.

The last piece of the puzzle is nitrogen, consisting of urea, ammonia, and nitrates. Ammonia is the backbone of all nitrogen fertilizers, produced via the Haber-Bosch process with natural gas as key input. Anhydrous ammonia is a liquid, so transportation is difficult. Only in localized supply chains can farmers apply it directly. This is mostly a US phenomenon. Treating ammonia with carbon dioxide yields urea, an easier export, which goes to India, Brazil, Southeast Asia, and Africa. Finally, anhydrous ammonia can be treated and turned into nitrate compounds for easier transportation and application. These are primarily used in Europe and the United States. The US actually consumes about a third of each type.

The Middle East is one of the three main ammonia producers(other than Russia and China). Not only does the conflict in Iran affect the safe production of 33% of the world’s fertilizers (sulfur and nitrogen mainly), but the ability to export is also governed by the safe passage through the Strait of Hormuz. Further, disruption to oil and gas infrastructure in the region could disrupt natural gas, the dominant input cost to ammonium production. We stand at a critical time for the spring planting season. Without adequate fertilizers, crop yields will fall significantly. The regions most exposed to import issues are Brazil and India, followed by Southeast Asia, North Africa, and Australia. The US and Europe are protected but still affected.

This story could be nothing if the Middle East conflicts are short-lived like last time. It is never good to be too convinced one way or another when it is political decisions on the line. However, we have seen the deglobalization trends in other key resources like Uranium, base metals, and battery metals. Even if the immediate supply shocks subside for this planting cycle, the ever-divided global economy has the potential to price fertilizers higher. Furthermore, dull prices have caused farmers to project less planting in 2026. Lower crop yields on top of supply disrpution could be a recipe for higher prices if it plays out.

Climate

You’ve heard me talk about climatological impacts on agriculture before. In Not So Bright Pt 2, I discussed how solar cycles impact global weather patterns like the El Niño-Southern Oscillation (ENSO). ENSO events can be reliably predicted using the 11-year solar cycle and significantly affect the weather in South America and Southeast Asia. The effects extend globally, though, also affecting the US, Africa, and Europe.

Currently, European models indicate a +2°C anomaly, indicating a strong to very strong El Niño event. This is expected in the years following a solar maximum, but was not expected heading into this year. The anomaly is accelerating, and the predicted strength has been steadily increasing over the past few months, so it may not yet be fully appreciated.

If we reach +2 by summer as the model suggests, the ENSO anomaly would be one of the strongest in recent history, similar to the 1997/1998 and 2015/2016 El Niños. These periods drove significant food scarcity globally. Southeast Asia/Indonesia, India, and Southern Africa have the highest chance of negative outcomes. Sugar, wheat, rice, palm oil, coffee, and cotton may be affected. Certain crops, like sugar, may be affected in Brazil. El Niño moisture is typically helpful for most crops (i.e., soybeans) in the region, though.

Dufrénot et al studied the climatological impact of stronger ENSO events on commodity price volatility. While they come from the lens of climate change affecting ENSO models, we can also view the statistically significant solar cycle impact as one that directly influences ENSO timing (not strength, except on larger cycles).

Their study suggests that there is a weak correlation between commodity volatility and ENSO during weak cycles; however, during strong ENSO anomalies, there is a significant increase in volatility. This doesn’t tell us price direction, just that prices will likely move more than normal.

Technicals

There are many different agricultural commodities, including sugar, wheat, corn, soybeans, cotton, cocoa, cattle, and palm oil. These differ from fuel commodities (oil, natural gas, coal), base metals (copper, zinc, aluminum), precious metals (gold, silver, palladium, platinum), rare earths, and battery metals. Gold, metals, and recently oil have experienced aggressive moves higher. Conversely, agricultural commodities have largely been oversold and sit below or near their 3yr moving averages.

Sugar, wheat, corn, and soybeans are considered the “cash crops”. Sugar is 2 deviations oversold relative to the 3yr mean, while corn, soybeans, and wheat are trying to breakout past the 3yr mean. Cattle is the opposite, 2 deviations oversold at all-time highs like most metal commodities. Cocoa just crashed from its exponential move higher in 2023. Palm oil has been rangebound for a few years and sits just above its 3yr average.

Relative to other assets in the market and to historic levels, agricultural commodities fit the definition of neglected and cheap. This is hard to come by these days. Below is a chart of the cash crops (sugar, wheat, corn, and soybeans). The chart is busy, but let me explain. The black lines form a price channel that has had range-bound prices since 1970. The green lines represent solar maximum, while the red are solar minimum. The yellow shaded regions represent El Niño anomalies that followed the solar maximum. The green boxes show prices at relative lows following the solar maximum.

Both times this occurred in recent history, prices moved higher. Eventually, both revisited the upper resistance of the channel, appreciating 2-3x in price.

Even the price spikes in the 1862 Civil War time and 1917 WW1 time were off the back of a solar maximum and a strong ENSO anomaly. While these commodity spikes may have been catalyzed by the wars, there were agricultural consequences as well as the psychological impacts I discussed in Not So Bright.

Technically, agricultural commodities are near multi-year lows, under-owned, and already showing supply discipline from producers who can’t profitably farm at current prices. The setup for a mean-reversion from the lower trendline is there.

Fundamentally, the Middle East conflict has disrupted the global fertilizer supply chain at exactly the moment farmers needed inputs for spring planting. If not resolved soon, the full crop production impact of this fertilizer shock won’t be visible until harvest, if there are delays or crop yields are affected.

Climatologically, the solar cycle and current projects put a strong El Niño in front of us, a phenomenon that research associates with significant commodity price volatility. While it could take until next year to play out, together, there is a bullish case for agricultural commodities from here. Like any unloved sector, there could be more neglect, and recession could add further volatility depending on how things play out.

-Grayson

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What if there actually was a way to tell if a recession was imminent? Typically, recessions don’t get bad until consumers and companies start defaulting on loans and going bankrupt. This credit risk is priced on a whole spectrum based on how risky the loan is. On the consumer side, Sally, with a high income and credit score, will get favorable interest rates over Bob, who has a low income and a poor credit score. It is the same for corporations, which is why Apple is given a higher credit rating than GameStop.

The safest loan is a treasury bond from the US government, followed by Apple (AA+), then Gamestop (B/B-). Credit spreads indicate the difference between the interest rates charged for different borrowers. The spread between a treasury and a non-investment grade/junk bond (BB or lower) can give interesting information about the health of the economy.

In a booming economy, a 10yr treasury could pay 4%, whereas junk bonds 7%. Naturally, you are paid more for taking on greater risk. If the economy is struggling, the 10yr treasury could go down to 3%, whereas the junk bond goes to 20% as investors don’t trust these companies to pay them back. The spread between treasuries and junk bonds is shown below, and when the spread goes over 8%, it is the danger zone. These are times associated with financial distress, Federal Reserve intervention, recession, and/or significant market volatility.

Credit spreads can be used as an indicator to get out of the market. To avoid false signals, the red line represents a 2% surge in credit spreads, indicating substantial weakness. These signals typically occur at market tops or during corrections. For smaller moves/corrections during the mid-business cycle, the signal may be less obvious. However, this signal would have gotten you out of the market at the dot-com and 2008 market peaks.

On the flip side, the top in credit spreads often shows the end of the weakness and market bottoms. These signals typically occur at or near market bottoms. In a world where it is extremely difficult to call tops and bottoms, these indicators can be useful for getting you close. The blue is a smaller mid-cycle spike, while the green is a major credit spread spike, coincident with recession.

Obviously, you’re not going to know that credit spreads have peaked and turned down either, so we can place another line when credit spreads retraced 40% of the move higher, providing evidence of a trend reversal into favorable economic conditions. The orange signal basically gives you confidence that the worst is over. Each past orange signal has resulted in favorable stock performance until the next red signal (2% credit spread thrust). You also don’t miss out on too much return off the low either.

Typically, when credit spreads move, they move fast. Caution is still warranted given other factors that lead me to be cautious, such as technicals, leading indicators, labor market fundamentals, yield curves, consumer credit, overvaluation, etc. However, right now, credit spreads are very low, meaning there is little risk priced in (may be surprising). Until that changes, the stock market can continue doing well (or at least not crashing). My gut tells me we get more highs in the S&P 500 before a recession starts, but I could be wrong.

I will be watching credit spreads closely. Once we get another red signal, where credit spreads widen by over 2%, that will warn me that the top for stocks could be imminent or in the past. This will impact things like the model portfolio and serve as a warning to investors of looming labor market and stock market weakness.

-Grayson

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If you were asked what the most important energy source in the future is, what would you say? Your answer may depend on your political leanings: Fossil fuels or renewables. Another source stands out, unconcerned with these debates. Nuclear energy is a staple in the US, providing 21% of the grid’s electricity. As I discussed in What’s Up With Nuclear, it has become safer than its reputation suggests, is orders of magnitude more energy-dense, and has some exciting technological developments.

One important takeaway from that piece, given geopolitical tensions, is the foreign dependence of uranium oxide and refined uranium fuels. Nearly 100% of uranium oxide, high-assay low-enriched uranium (HALEU), and 80% of low-enriched uranium (LEU) come from foreign suppliers.

Last month, the Department of Energy announced $2.7 billion to strengthen domestic enrichment over the next ten years. Deglobalization trends and geopolitical tensions have brought new demand for metals for strategic purposes.

The bullish case for uranium prices comes down to supply and demand. On the demand side, you have geopolitics/deglobalization, data center/AI, increased global interest in nuclear, nuclear powerplant extensions, and bipartisan support. On the supply side, you have questions as to whether current supplies can manage and how quickly new supply comes online.

The largest uranium miner in Kazakhstan, Kazatomprom, announced a reduction in their forcasted mining quantity for 2026, despite the rise in prices. Other uranium mines are relatively small and take time to come online (AZ, UT, and more), leaving the supply potentially unable to keep up.

Technically, uranium oxide prices have strong bullish momentum. While pulling back from recent highs, a breakout could see prices as high as $150/lb. This is a conservative estimate; if impulsive, the price could go as high as $300. The b-wave correction into the spring 2025 low retraced in the standard support region. If my analysis is correct, we are in the c-wave higher now. On the smaller time frame, there is a 5-wave move within the c-wave. Wave 2 could come as low as $72 and still be in this bullish scenario.

Uranium mining companies (URNM) in the model portfolio have also been in a bullish price pattern. We are very possibly in a strong circle wave-3 higher with a target around 105.

URNM, compared to the stock market (SPX), did well last year after a poor 2024. If it can continue this trend, it too could make a move higher. Conservatively, if it can break out like it is testing, the ABC would target a 30-50% outperformance relative to the stock market.

This bullish case doesn’t have to happen, but there are fundamental and technical reasons why it can. If a nasty recession strikes sooner rather than later, most assets get liquidated under that scenario. The price of uranium and stocks got pummelled in 2008. Whether uranium and the mining companies are a good investment from today remains to be seen. In a world of expensive assets, it is a good option. Regardless, nuclear energy remains a developing story and is poised to be an even more vital energy source going forward. Until next week,

-Grayson

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To start the year, I released an article called Not So Bright, an unconventional piece. In it, I discussed how solar cycles and “space weather” have an uncanny correlation with the economic business cycle, stock market volatility, and major global events. The science behind geomagnetic storms (a greater chance at solar maximum) affecting human health and behavior is beautiful. The connection to global events is admittedly far from proven, but the heavy correlations and potential causation are certainly there.

In short, a solar maximum is characterized by increased solar magnetic activity. This manifests in greater sunspot numbers, more solar flares and geomagnetic storms (auroras), more radiation and particle bombardment from the sun. While a maximum this can pose a risk to electronic infrastructure, a solar minimum can pose challenges for other reasons.

While we get less bombardment from the sun, the sun deflects galactic cosmic rays entering the solar system. Solar minimum does not modulate these rays as much, meaning more particles hit Earth, despite those increased risks from our own star spitting out particles and radiation.

Long story short, the solar cycle has an impact on temperature, which is substantiated by scientific literature. While I’m not here to argue the merits of climate change and carbon dioxide forcing (that gets you in trouble these days), I’m merely pointing out the effects that the solar cycles do have (the extent to which climatological forces dominate is debated and not my purpose). There is a cooling effect at sunspot minimums, but the mechanism is more complicated than it seems.

[Science] There is less visible and infrared radiation during solar minimum, which reduces the total solar irradiance, but this effect is surprisingly small. Less ultraviolet light means less effect on stratospheric ozone, which has coupling effects with oceans, wind, and surface temperature. Finally, the atmosphere is a big electric circuit, meaning changes in charged particles can impact things like storms (why unusual weather follows geomagnetic storms, like the polar vortex recently). During solar minimum, the increase in cosmic rays or galactic charged particles hitting Earth and attracting water vapor, which contributes to cloud seeding. Greater cloud cover increases solar reflectivity, and less solar radiation reaches the surface, thus causing a cooling effect.

Right now, you are probably thinking that these solar cycles occur every 11 years and global temperatures have been rising steadily for the last 55 years, so what is the point? It turns out we have to think larger than our own lives. The sun, in its magnificence, undergoes magnetic cycles on a timescale longer than just 11 years. These cycles just track the intensity of groups of 11-year cycles.

• Schwabe cycle ~11 years

• Gleissberg Cycle ~100 years

• Suess-DeVries Cycle ~200 years

• Hallstatt Cycle ~2400 years

Solar activity can be traced through tree rings, ice cores, and isotope data. The Suess-DeVries Cycle minimums correlate to the Maunder minimum from 1650-1710 and great depression era around 1900-1930. The Gleissberg cycle lines up with the Dalton minimum, great depression era, and we should be entering one now.

The 200-year Suess-DeVries Cycle is statistically significant, as shown by the paper below. The peaks in the figure below track with the Suess-DeVries Cycle minimums and go back 1000 years of data. We are currently at a high in this cycle.

The ~100-year Gleissberg Cycle is also shown to be significant. Past minimums correspond to the early 1900s, early 1800s, and early 1700s. While we are at maximum in the Suess-DeVries cycle, we are at a minimum in the Gleissberg Cycle.

We know that solar forcing has an impact on ocean temperatures and wind patterns, so it shouldn’t be a surprise that the ENSO events (El Niño, La Niña) correlate with solar cycles. Typically, following a solar maximum, there is a 1-4 year lag to El Niño and a subsequent lag from minimum to La Niña.

El Niño typically brings wetter conditions to the southern US, with warmer, drier conditions to the north and middle. La Niña is typically the opposite, yielding drier conditions in the south and colder/wetter conditions in the middle/north.

It should be clear why these cycles may matter. If the small solar cycles have a significant impact on weather, then the long ones should too. The weather affects one of the most important things: agriculture. While more important during agrarian societies without industrial fertilizers, it is still vital today and has effects on the US in recent cycles too.

The Dalton minimum of the early 1800s brought colder conditions and agricultural hardship to North America. This period is famous for 1816, the “year without a summer.” There were widespread crop failures, food shortages, and commodity price spikes.

Most of you are likely more familiar with the last Gleissburg minimum, the Great Depression era. World War I and the economic depression brought significant volatility in commodity prices. The Dust Bowl was a core issue exacerbating economic hardship during this time. Widespread crop failures and agricultural displacement took place during this time period.

We are at the next Gleissburg minimum now. This is further evidence to suggest volatile commodity prices. With modern technology, food systems, and a non-agrarian economy, we thankfully may be more insulated from its effects. On the flip side, we may be less resilient to its effects and not expect it.

The Midwest is the breadbasket of the world, and a significant centralization of our food supply has already occurred. It may not be unreasonable to suspect a second Dust Bowl or agrarian issues due to colder, not hotter, than expected temperatures.

Gold, silver, uranium, and industrial metals have seen incredible volatility over the last year. Wheat and agricultural commodities, while experiencing volatility in 2022, have not joined this move. We are a technology-driven world, not bothered by boring real-world sectors of the economy like energy or commodities. A boring sector like agriculture may gain a greater share of importance and investment if weather/economic challenges do take place. Until next week,

-Grayson

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In the past, I’ve outlined where I think risks in the market are. US stocks, driven by passive investing flows (think 401k, etf inflows, foreign capital inflows, etc.), corporate share buybacks, and excessive speculation similar to 1929/1999. If stocks are expensive and warrant caution, what can you actually buy for value?

A quick search will tell you that the sectors representing the smallest share of the S&P 500 are materials, utilities, and real estate. I’ve been suggesting how attractive materials are for a while, due to debasement, mean reversion, strategic importance, and technological trends. Recently, these companies have done extremely well, which could indicate corrections even if in longer uptrends.

While representing a small share of the index, the real estate price to income ratio is abhorrently high, meaning it is expensive. This is not a sector I am touching for the time being until prices fall. Utilities are underloved compared to the market and may perform better relatively if big tech begins to falter.

Today’s article is not about any of them, however. The fourth least-represented sector in the S&P 500 is energy. Energy’s share of the S&P 500 has withered from 14 percent in 2011 to under 3 percent today. Oil has done practically nothing since the summer of 2022, when fears of the Russia/Ukraine war were subsiding. The largest energy sector etf, XLE, has performed well this month, up 15%. It has suffered from the same trend as oil prices since the summer of 2022, though.

Obviously, owning the top stocks has been the best strategy for the last decade. Overall, energy relative to the S&P500 (XLE/SPX) has been a terrible investment strategy since 2008, as seen below. Energy is an underloved asset and may be poised to go higher. Comparison charts aren’t the most trustworthy for technical analysis since they aren’t traded directly, but they can indicate relative sentiment and overbought/oversold conditions. From a technical perspective, though, we have seen an impulsive 5-wave from the 2021 low and an abc correction into the standard support region. The first target for a move up would be into the orange box, completing a C wave.

In a similar vein, natural gas companies are even more undervalued than oil companies. I had to put FCG/SPX in log scale just to see the price movement, as it had essentially drifted down/sideways since 2016. This represents an even greater reward/risk if the upside scenario plays out.

Oil and natural gas prices are low considering their long-term trend, priced in both US dollars and gold. You’ll also notice that these relationships tend to do well preceding a recession. Energy tends to do quite poorly during/after a recession. While not my highest conviction view, there could be a spike or run-up in oil prices on news or short squeezes preceding a looming recession. Overall, if recession, unemployment, and demand destruction ensue, I would not want to be holding oil and oil stocks in the short term. Natural gas may hold up better in this scenario due to its demand in residential electricity, liquified natural gas export demand, and data center buildout.

Fundamentals

Despite every analyst predicting the death of fossil fuels for the energy transition, oil demand remains robust, exceeding IEA estimates year after year. From a high-level long-term view, the thesis is that oil/gas are strategic resources for wars/de-globalization, with peaking production domestically, have larger than expected moats for future demand (data center, less EV hype), and are cheap relative to other assets.

I wrote in What’s Up With Oil that the number of oil wells has been declining in the Permian basin, the largest oil/gas region of the US. This leaves the US more vulnerable and less responsive to changes in demand. It is a little confusing; an active rig drills wells, but those wells sit idle until they are completed. Completion means that they are now producing oil. The drilled but uncompleted wells are at all-time lows, while production is robust. This means that production is coming from existing drilled wells, not new drilling investment.

The newly completed wells below are misleading, knowing this. The investment into drilling the well has already been made, and the companies are merely completing it to produce oil. This is cheaper than drilling a new well from scratch and beginning production. Higher prices are the only thing that can incentivise them to use their active rigs to drill new wells.

Overall production has peaked for Permian oil and gas. This isn’t doomerism for peak oil, as I think that humans will always find creative ways to produce energy, but merely noticing a trend. Is this trend driven by oil companies sensing economic weakness or by less efficient production?

People view lower rig counts and higher production as greater efficiency. This is misleading. Oil companies are drilling existing wells more, meaning drilling further horizontally. The geological productivity of wells is actually decreasing, meaning production is losing efficiency.

One reason for this is that older Permian wells deliver a higher share of gas than oil. This means the robust nature of gas/oil liquids production is offset somewhat by the nature of drilling older wells. Further in the weeds, natural gas liquids can be refined into oil products. This is one additional factor that has helped maintain oil production.

Oil prices have been consolidating since the summer of 2022, with each spike quickly suppressed. A big wedge pattern has formed technically, and any substantial break above this trend line could cause a price spike. Price spikes may not be easily absorbed by producers and potentially exacerbate into a short squeeze in the short term. Long-term, higher prices will be required for companies that have been burned by negative and lackluster oil/gas prices to activate rigs and drill more wells.

Oil/gas may do well in the short and long term and suffer in the medium term if I am 100% right. This scenario is a short-term spike higher, followed by recession bringing prices lower, then steady prices higher, similar to the 2008 period. If economic weakness takes hold sooner, we could see an immediate breakdown of the above wedge pattern and see lower prices.

The US will always find creative ways to find more oil/gas. It may be technological improvements, system-level energy changes/transitions, invading oil-rich countries (Iraq, Venezuela, Iran, etc.), higher prices, or a combination. All have been used and may be used again. These are solutions to economic problems. These economic problems are those associated with oil and gas production in the US today I’ev discussed. Layer on top technical price possibilities and the macroeconomic environment, and the energy sector is looking interesting. Until next week,

-Grayson

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Buying a house is one of the most important milestones in young families’ lives. Recently, young Americans have been having a hard time affording homes. Some believe there are structural factors handicapping millennials and Gen Z. Others think that it is as simple as budgeting and lifestyle expectations. The complicating fact is that both can be true. Perhaps young people need to buckle down, live below their means, save as if their lives depend on it, and ignore social media. Even with this lifestyle change, comparing housing costs to average incomes paints a bleak picture for affordability.

So who’s buying homes? The median age of all homebuyers in 1981 was 31. As of 2023, it was 49. Some have claimed there are more home sales from > 70-year-olds than < 35-year-olds. The US demographic picture is an aging one. The share of eldery to the working age population is increasing. Some can be chalked up to that, but it is not a healthy long-term trend. Formative early years for families to buy homes, have kids, and secure careers to grow the economy are being delayed. The percentage of married households with kids has been cut by over half since the 60s.

One striking divergence is between new home sales and existing home sales. Historically, these have tracked each other in relative movement. The new home sale market is much larger than new, but new home sales have remained steady post pandemic, whereas existing home sales (the bulk of transactions) have dropped significantly.

The reason is that new homes are cheaper than existing homes now, which doesn’t make sense. This is because homebuilders need to turn over inventory. In order to do this, they are buying down mortgage rates or selling for discounts in order to move houses. People selling homes (the existing home market) have not woken up to the fact that the market rate for their houses is already lower than they think.

The housing market has not crashed, but the bubble has popped. The US is currently split, with some states increasing prices and others showing declines. Florida, Arizona, Texas, and Colorado have seen significant price declines in housing already. It is regional, but I think that housing prices will come down further in the looming recession.

Many argue not to worry, as the boomers, with all the wealth, will transfer these assets over to younger generations. Tens of trillions in housing are expected to be transferred to younger age cohorts in the coming two decades. I do not share this optimism, unfortunately.

First, the wealth people feel from their houses going up in price is phantom value. If you cannot afford to move into another house in your same neighborhood, your house isn’t worth what you think it is. Further, if your house went up the same as everyone else, you did not get any wealthier. Housing, like stocks, is in a bubble of overvaluation. Like many mathematical series, mean reversion is a question of when, not if. Mean reversion in the housing market would bring down housing prices nationally by 20%, in some areas, more, and in others, less. 2007 and for a brief moment in 2022 were the last times home prices peaked from overvalued levels. March 2025 was the current peak, and prices have since been in decline.

If ‘boomer’ wealth were cut by 20% from housing and an additional haircut in stock assets, there wouldn’t be as much wealth left to transfer. Further, demographics and current trends suggest that the demand and price of elderly care will increase. Much of this ‘boomer’ wealth will also be siphoned by healthcare companies. You may have feelings about universal healthcare, breaking up corporations, or other ways to solve healthcare issues, but the reality of supply/demand suggests there is more demand for elderly care than ever before due to demographics. For every extra $100/$1000 reluctantly forked over to retirement homes and hospitals is money not transferred to the next generation.

Something must change for young people to get into houses and start their lives. That is already happening, and it is prices coming down. This will be good news for younger generations, but terrible news for current asset holders. The biggest asset most people own is their house, and there is currently a nationwide hallucination that houses are worth more than they really are.

Of course, this is not the mainstream view, and instead of letting market forces work, brilliant politicians are proposing other ways to get people into homes. This comes in the form of previous strategies like lowering lending standards and increasing government programs. They are getting more creative these days, too. The Trump administration has proposed a brilliant new way to afford down payments, by allowing 401k balances as collateral. While the details are yet to be proposed, what happens if the stock market goes down 20%, do you lose your house?

Overvalued assets will have a reckoning at some point. That means stock prices and housing. Housing hits closer to home, as that determines much of household wealth and family creation. Many believe the younger generations will simply inherit the wealth of the older ones in a smooth transition. I argue that wealth will be destroyed through deflation and elderly care, which will not be as pleasant. Younger generations won’t get into houses until prices come down further, much further. It has already begun. Until next week,

-Grayson

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Thank you, readers, and everyone who has liked, commented, or sent messages on my articles. It means a lot, and boy, did 2025 fly by. It was a busy year for me, sometimes it was difficult keeping up the weekly article pace.

Over the past year, I’ve discussed things like economics, the markets, energy, silly policies, and introduced a new model portfolio. Thank you again, and hopefully you all have a great 2026!

Here are some of my highlights and favorites from the past year. Check them out if you haven’t yet!

Most Liked

What’s Up With: Natural Gas - Sep 17

My What’s Up with series covered all you need to know about the different energy sources. Natural gas may be the most important energy source right now.

Pat on the back

Very Waste, Much Spend - Feb 12

I called that DOGE would be useless.

Enemy Of The State

The US is and has been a bully, and I called that Gold would be a good asset to own ($2800 → $4500 since).

Cracks In The Economy

A Ploy Meant For You - Jan 15

Invest In Yourself - Pt. 1 - May 28

FH Pay - Mar 19

The economy is STILL holding on, but full-time employment, student loans, and FHA mortgages are telling a cautionary tale.

The Good Ol’ Days

Made In America - Sep 3

This is why Trump is president.

Your Turn - June 18

Beware, we are in a chaotic fourth turning.

Hot Takes

Twin Chains - Sep 24

1913, the worst year in American history.

Off Track - Oct 18

AI is a bubble, no different than routers and railroads.

Model Portfolio

December Update - Dec 31

Guess who beat the market in 2025?

Here’s to more in 2026! See you next week,

- Grayson

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When you think of the sun, what things come to mind? Maybe it means going to the beach, just a beautiful day, or perhaps you think about space and the stars. Whatever you thought of, I’d be willing to bet it wasn’t your stock market portfolio. What if I told you the sun, or specifically incoming solar radiation, affects your precious market returns?

Before you brush it off as pseudo-science mumbo jumbo, you must remember that the stock market is an accumulation of human emotion. Anything that affects human emotion, whether it be the weather, hormones, stress, relationships, your job, or maybe even the moon, can make a difference.

The sunspot cycle is a scientifically established phenomenon in which the number of sunspots and the sun’s magnetic activity rise in 11-year cycles. During this time, higher amounts of light radiation (UV, radio, X-ray, even Gamma) are hurled towards Earth. In addition to light, coronal holes cause increases in solar wind, sending charged particles and plasma towards Earth. NOAA believes the latest solar maximum has peaked, and we are waning into solar minimum. The next solar maximum will be ~2036.

With sufficient size and complexity, sunspots are what cause solar flares and coronal mass ejections, which may send large amounts of plasma and charged particles towards Earth, causing geomagnetic storms. These storms are what cause auroras to be visible in lower latitudes and can cause damage to electrical infrastructure. The initial energy from CMEs can cause damage to satellites, be of concern to astronauts, and even disrupt some radio communication. The sun must release really strong CMEs to affect us down at the surface because the Earth’s magnetic field deflects these charged particles and flings them away towards the poles (why Northern lights are near the poles).

Currently, the Earth’s magnetic field is weakening and has shown significant deterioration since 2014. The Earth’s magnetic field not only shows slight changes in strength, but it has also had extreme changes in the past. With the weakening magnetic field in addition to the sunspot maximum, more solar radiation and charged particles make it past the magnetic field and reach Earth’s surface.

Taken to the extreme, the concern is a Carrington-level event, which at the time destroyed much of the telegraph infrastructure. Today, blackouts and damage to the grid have been seen with strong enough flares, like the Quebec 1989 blackout.

One consequence is more intense/frequent low latitude auroras, like the ones visible in the US in November 2025. Another is more grid issues or anomalous events like the one in Spain last Spring. Another is changes and effects on human biology.

There are numerous scientific articles linking geomagnetic storms to things like the central nervous system of mentally ill patients, happiness levels, mood, depressive episodes, heart issues, lung issues, decision-making ability, white blood cell count, circadian rhythm, and more.

Historical correlations are pretty uncanny as well. Going back 80 years, 6 out of 7 sunspot maximums marked a turning point in the unemployment rate. Recessions typically cluster following a sunspot maximum. Only the last 2014 solar cycle failed to follow the trend. In recent history, the 2008 recession and the brief COVID unemployment spike occurred at solar minimum. While atypical, there was also a solar minimum recession in the 1970s. This data suggests that it’s more likely than not that we are near a recession and a pickup in unemployment.

In addition to economic health, stock market performance is also of keen interest. Following the sunspot maximum, there is typically market volatility. Out of the last 14 solar cycles going back to 1870, only two (1948, 2014) avoided significant negative market volatility. Solar maximum was coincident with some of the most brutal economic periods in history, including the dot-com bubble, the 1970s, great depression, and the Panic of 1873.

Wars can also be linked to these sunspot maximums. With some of the scientific literature, we can postulate as to why. I am not arguing causation where there may only be correlation, but there may be some scientific factors to support. If mood, decision-making, and happiness levels are impaired by the increased solar forces, this may push leaders to make more rash decisions. Further, if exuberance and confidence wane, this could explain some market volatility. Investors and businesses may make poorer and more volatile decisions during these time periods, contributing to recessionary forces.

This is unlikely to be proven with any scientific rigor, but the trends are there for us to heed the warning. We are currently in a period where we would expect a rise in the unemployment rate and increased stock market volatility. I’ve mentioned fundamental and technical reasons to expect a recession in the past; we add behavioral forces exacerbated by the sun to the mix. Until next week,

-Grayson

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Energy consumption encompasses more than just electricity. While renewables accounted for 21% of electricity in 2023, they only account for 9% of total energy consumption. This also includes transportation, heating, and industrial use. While it would be nice to have a perfectly sustainable grid, the reality is different. In this series, I will highlight the roles of various energy sources and their outlook. For the year 2023, fossil fuels accounted for 82%, nuclear 9%, biomass 5.4%, and renewables 3.6%.

This is a series I’m going to do where I will research and update my outlook on each energy industry: renewables, batteries, nuclear, and fossil fuels. This week is about batteries.

Grid

Batteries are a medium of energy storage, not generation. While coal, oil, nuclear, and renewables generate electricity, batteries store it for specific applications, including the grid, cars, and devices. With the increased popularity of intermittent renewable energy generation, batteries arise out of necessity and utility. As energy is overproduced when it is sunny/windy, this energy is stored when prices are low and discharged at night/low wind when prices rise. Some argue that renewables/batteries are the future of the grid, and critics argue the exact opposite.

Energy is a politically divided topic, making discourse extra challenging. Nuclear is the least divided, with both sides supporting it. Renewables are also supported bipartisan, but much more by democrats. Fossil fuels are politically opposed. I would assume we can lump batteries in with renewables, as on average, republicans are vaguely in support of or indifferent to the expansion of wind/solar/batteries for the grid.

There are other forms of electrical energy storage, including thermal, compressed air, and flywheel. Batteries are by far the largest, most mature, and commercialized energy storage market. Within batteries, Li-ion batteries (LIBs) are used in the utility side as well as EVs. Many don’t realize that traditional LIBs are near their theoretical limit for energy density and performance. Anyone marketing exponential improvements in batteries is misinformed or lying. Further, even taking higher engine efficiency into account, oil is an order of magnitude more energy-dense as a fuel than the best LIB. Other batteries include sodium-ion, solid-state, flow, or metal air. While addressing certain limitations to LIBs like energy density, safety, duration, or cost, they are still in the development stage.

LIBs for utility-scale storage and power are a small but growing market. As of 2024, there was 26GW of installed utility battery storage capacity. This represents 2% of all energy capacity in the United States.

While folks like to include hydroelectric in renewables and pumped hydro storage (PHS) in the electric storage, I don’t think it belongs. While technically renewable, they are highly geographically dependent and not infinitely scalable like wind/solar, so they should not be in the same category, in my opinion. Further, most PHS were built in the 60s/70s, with the last one in 2012, so it is misleading to present it as a developing technology.

California and Texas have by far the most installed battery storage. These are the same states adding wind/solar at the highest rates, meaning that batteries are being built alongside. The battery capacity is smaller than the renewable capacity, meaning the energy is not backed 1:1, so only limited backup generation is available (hours). In some cases, batteries are used for frequency regulation. This is jargon for making sure the grid stays running without disruptions. For more information, you can read my piece, Just Keep Spinning.

EVs

The other major source of batteries is electric vehicles (EVs). Many predicted a meteoric rise in EVs, while others say that no one buys EVs. The reality is somewhere in the middle, as the EV industry has seen steady growth, but not as much as anticipated. This is seen clearly as Ford recently announced it is canceling much of their EV division. Political, economic, and business factors all contribute to this decision. Despite this, more EVs are being sold each year, with 2025 setting records.

Regardless of what you think about Elon, Tesla sells the best EVs in the US. It is evident in the sales figures as well, as Tesla represents 61% of all EV sales in 2023. The primary hurdles for purchasing EVs are cost, performance, and charging. It is true in the US that cost is the top factor, followed by the inferior charging network and speed.

The top cost of an EV is the battery pack, which has been coming down year over year, other than a brief hiccup in 2022. This is driven by raw material costs coming down, an industry shift from NMC to LFP (cheaper), manufacturing improvements, and excess cell manufacturing. In my opinion, it is not covered enough that the economic slowdown and the pre-recession phase we are in are also reasons for prices to come down in things like oil and batteries.

Critical Materials

We can’t have a battery article without talking about the key materials: nickel, cobalt, lithium, and graphite. China dominates every step of the way, from raw material production, active material synthesis, cell manufacturing, pack assembly, and recycling. While the Trump administration doesn’t care much about batteries in the public political sphere, his themes of re-industrialization overlap to some extent. While he has shown great disgust over things like the Inflation Reduction Act, which had many supports for battery production, the government has taken a stake in a lithium mining company. There has been a strategic focus on the critical materials, which include battery materials, through executive actions, discussions around Canada/Greenland, trade/tariff deals with other countries, and mineral deals with other countries.

Battery metals were in a bubble in 2022, which has since collapsed. Mineral scarcity fears and EV exuberance led it on. While the scarcity fears given the 2022 projections were true, the projections were not. EVs and renewables did not grow as fast as projected. Alongside demand, prices came down. In addition, economic weakness does not help prices for goods, especially higher-end products like EVs, which may be out of budget for many households.

Outlook

The battery industry is not dead, and will keep on going alongside renewable buildout and EV sales. Before the AI craze, these were the last bubble themes of 2021/2022. The hype has not been realized, leading to a massive price correction in battery metals prices and slower demand. Steady growth remains in the sector, but no one cares anymore.

The US will never be a manufacturing hub again, but that doesn’t stop each administration from pretending to care about certain sectors. Batteries are tied to the growth of renewables and EVs in the economy. Ironically, Trump has the potential to do more for EVs than his predecessor if he really clears the path for small/tiny car production in the US since cost is the key concern for households. Unfortunately, renewables/EVs are not technologically superior, so as goes those, as go batteries. Next week is off for the holidays. Merry Christmas!

-Grayson

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