Other reasons have to do with human psychology and the fact that our mental circuitry simply isn’t equipped to handle speculation in fast-moving markets as we have today. One of our main psychological obstacles is the hardwired loss aversion.

The psychology of loss aversion

Trading and investment management should be regarded as a long-term pursuit where performance accrues as the cumulative result of a long series of investment transactions. However, rather than considering every investment as just one of many, we treat each transaction as a departure from the status quo, where our fear of loss looms larger than our desire for gain.

In fact, the logic we apply to decisions about gains is opposite that which we apply to decisions about losses. This phenomenon was first described by psychologists Daniel Kahneman and Amos Tversky, who named it the “failure of invariance.” Through a series of empirical studies, they discovered that we tend to be strongly risk averse with regard to gains, and risk seeking when faced with losses.

Failure of invariance thus predicts that we tend to be risk averse when preserving a favorable status quo, but prone to taking risks when coping with losses. In trading, this creates the disposition to exit profitable trades too soon, and “work” the losing trades too long, even taking on more risk in order to try and reverse the losses.

The pressure to recover losses can lead traders to escalate risk to massive proportions, which can lead to disastrous outcomes. The first concrete, high profile case of this tendency that I came across in the early years of my trading career was that of the hedge fund manager Victor Niederhoffer. In 1996, he was rated the world’s top fund manager, but in October 1997, after 15 years of outstanding performance, his business came to an abrupt end: his entire fund was wiped out in a single day when the market moved against his huge short positions in S&P 500 put options.

The fact that an investor with top-notch credentials, experience and a stellar track record took such massive risk on a single trade was simply astonishing. Mr. Niederhoffer’s fatal trade was partly a consequence of loss aversion: in August 1997 his fund sustained heavy losses on investments in Thailand’s currency and stock market. In September, after recovering some losses, his fund was still down nearly 40% for the year. The pressure to recuperate the losses led him to excessive risk taking, a mistake which he warned against repeatedly in his book, “The Education of a Speculator”.

Let the losses run and cut your profits short

Loss aversion explains why it is so difficult for most people to follow the often quoted formula for successful investing: “let the profits run and cut losses short.” We are strongly predisposed to take profits while they are a sure thing, and let losses run, gambling that the markets will turn in our favor.

In other words, we seem to be hardwired to follow the exact opposite formula – to cut our profits short and let losses run. This creates a strong tendency in most traders and investors to gradually lose ground against the markets.

Loss aversion underscores the fact that our mental faculties simply aren’t suited to the task of speculating in fast moving securities markets. Human brain is the product of our natural evolution, designed to solve problems of survival we confronted through our evolutionary history. During more than 99% of that time, we lived as foragers in small nomadic bands, and in that environment, loss aversion bias did make good sense.

The evolutionary hardwiring

With no refrigerators, bank vaults or stock certificates, most improvements to our natural state had sharply diminishing marginal utility. More food is good, but there’s only so much you can eat or hoard before it starts to become a liability. By contrast, reduced access to food, or an injury could rapidly spell “game over.” MIT professor Andrew Lo formulated this point very succintly when he said that,

“This notion of loss aversion, being more aggressive when you’re losing and more conservative when you’re winning, is a very, very smart thing to do when you’re being hunted on the plains of the African savannah. However, it’s not a smart thing to do when you’re on the floor of the New York Stock Exchange.”

Our mental circuitry, however, did not evolve in modern security exchanges but in environment more similar to the African savannahs, and that circuitry is hardwired and extremely difficult to override.

Trend following to the rescue

I was in my mid-20s when I came across Victor Niederhoffer well before his notorious debacle and read his book. To me, he seemed to be the kind of successful professional I aspired to become, and the news of his failure hit me like a ton of bricks. What is the point of being a successful investor if your career ends in a fatal, humiliating blunder.

If this could happen to Niederhoffer, I reasoned, it could happen to anyone, and it did happen to many rock-star investors including the “market wizard” Staney Druckenmiller and the pair of nobel prize laureates, Myron Scholes and Robert Merton. Indeed, the graveyard of superstar traders is littered with such exalted names.

To sidestep all the pitfalls that caused such capital failures, it was necessary to find a way to isolate the decision-making process from loss aversion and other emotional biases that cause the investor to be his own “chief problem and even his worst enemy,” and make sure that we can let our profits run and cut our losses short sustainably, and regardless of the market environment.

An emotions-free, sound intellectual framework

As our fellow trend follower Warren Buffett put it, “What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework.” I know, someone will counter and say that Buffett is a value investor, but he’s no such thing as I discussed in this article. Either way, that same idea was what guided the creation of I-System, which generates trading decisions purely on the basis of market price fluctuations and trends with zero emotions and zero distractions.

For investors who want to do better than Niederhoffer, Druckenmiller, nobel prize economists, Cathy Wood and other market wizards, systematic trend following offers that alternative and should be used, at the very least, as a reality and a regular source of second opinion on the markets. Perhaps the best part is that the very same intellectual framework that enables us to navigate market trends in stocks and bonds also allows us to trade crude oil, gold, silver, bitcoin or any other market with exactly the same quality of trading decisions.

To learn more about TrendCompass reports please check our main TrendCompass web page. We encourage you to also have a read through our TrendCompass User Manual page. For U.S. investors: an investable, fully managed portfolio based on I-System TrendFollowing is available from our partner advisory (more about it here).

Today’s trading signals

With yesterday’s closing prices we have the following changes for the Key Markets portfolio:

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For one thing, the full text of the agreement has not been made public. Instead, we only have a brief joint statement by the three signatories:

“Guided by the longstanding historical ties among the three states, based on the enduring bonds of brotherhood and Islamic solidarity that unite them, and building upon their shared strategic interests and longstanding defense cooperation, HRH the Crown Prince, the President of Türkiye, and the Prime Minister of Pakistan signed the Makkah Joint Defence Agreement, reflecting the three states’ shared commitment to further strengthening their collective security and to promoting peace, security, and stability in the region and beyond, in pursuit of a secure and prosperous future.

The agreement is intended to strengthen collective deterrence against any act of aggression, and stipulates that any armed attack against any one of the three states shall be regarded as an attack against them all. It further provides for the enhancement of all aspects of defense cooperation among the three states.”

Furthermore, at least for now, the agreement doesn’t seem to foresee a formal organization, headquarters or any joint command structures. In spite of that, the agreement could prove to be one of the more consequential geopolitical developments to emerge from the current Middle Eastern crisis.

A pro-, or anti-Israel alliance?

Given that all three signatories are, at least formally, allied with the United States, many analysts interpreted Friday’s announcement as a creation of a new alliance that would ultimately serve the interests of the United States in the Middle East, and by extension, represent a new bulwark for the defense of Israel. However, I believe that those interpretations will prove mistaken.

One thing all three of these nations have in common is that each has been threatened by Israel in the past. The Eretz Israel, or Greater Israel project has very significant territorial ambitions that include a very large chunk of Saudi Arabia. Here’s one the map of the Zionist leaders’s vision:

As we can see, Eretz Israel also includes a chunk of Turkey, and most of Syria, which Turkey regards as its own strategic sphere of influence. This has put Turkey in the crosshairs of Israeli officials’ escalating war rhetoric.

For example, Israeli Minister of Diaspora Affairs Amichai Chikli said that Israel should prepare for a possible future clash with Turkey, calling a naval encounter “not impossible” and something that “could happen even tomorrow morning.” Defense Minister Israel Katz explicitly warned Turkey against deepening its presence in Syria, and the former Prime Minister Naftali Bennett has called Turkey the “new Iran” and a strategic threat. Prime Minister Benjamin Netanyahu said that he takes President Erdogan’s anti-Israel statements “very seriously,” lobbied the Trump administration against selling F-35 aircraft to Turkey, saying it would destroy the regional power balance.

The ambition to crush Pakistan

That “regional power balance” also set Pakistan in the Zionists’ crosshairs, and in this sense, Israel has already planned hostile actions against Pakistan in collaboration with its ally, India. Already in 2011, Benjamin Netanyahu made the following statement:

“... the greatest mission that we have is to prevent a militant Islamic regime from meeting up with nuclear weapons or from nuclear weapons meeting up with a militant Islamic regime. The first is called Iran. The second is called Pakistan. Because if these radical regimes have nuclear weapons, they will not obey the rules that have been obeyed in the last, almost seven decades.”

The plan to tame and declaw Pakistan is clearly a long-standing one, with full support from Zionist and Indian lobbies in Washington DC. The requisite accusations and war rhetoric have already been doing the rounds in popular media programs, including labelling Pakistan as a state sponsor of terrorism:

Indeed, the fear of an Islamic nation possessing a nuclear bomb is not a new thing: it is why Israel attacked Egypt in 1967 and Iraq in 1981.

Operation Shakti

In 1981, Israel developed a plan to strike Pakistan’s nuclear program. In this plan, India was supporting Israel by providing air bases where Israeli F16s and F15s could land and refuel before the strikes. The Indians named the plan “Operation Shakti” and Israeli pilots already began training for it.

However, Pakistan’s intelligence agency ISI found out about this and the country’s then ruler Zia ul-Haq reacted immediately, warning Israel that if they strike Pakistan’s nuclear facilities, Pakistan would strike Dimona. Ul-Haq also issued a warning to India. Facing the prospect of a wider war against Pakistan, India backed off. Without India’s help, there was no way for Israel to carry out the attack, so the plan was shelved.

A new & improved plan was in the works in 1998. At that time, the Pakistani government received an intelligence report that India and Israel were again planning to carry out a joint attack against the country’s nuclear facilities. Shamshad Ahmad (former Pakistani Foreign Secretary) explained the intelligence report they received:

“Sir, we have just received intelligence report that at an Indian airport, squadrons of Indian and Israeli air forces are positioned and are preparing for an attack on Pakistan’s nuclear installations in Balochistan. Then I called our Ambassador in New York, Ahmed Kamal.

I told him, go... on CNN and say that Pakistan has information that India and Israel are about to launch a joint attack on Pakistan. The Ambassador went live on CNN and it resulted in a good impact because if India and Israel had made such a plan, it would be called off by morning.”

As Israel’s most important non-Western ally, India has relied on a very close collaboration with Israeli intelligence to direct action against Pakistan. Particularly since its humiliation by the Pakistani Air Force during their brief confrontation in May 2025, India has been anxious to support the next Israeli attack against Pakistan.

Last summer, Pakistani journalist Hamid Mir explained what brought this to world’s attention:

“Interestingly, the 12-days’ war [between Israel and Iran] exposed the plans of a new war: Israel and India against Pakistan. Now, the threat of a new war is hanging over South Asia. This threat is not just a flight of imagination.”

Mecca summit signifies the end of US hegemony in Western Asia

In view of all this, it would be hard to imagine why Pakistan, Saudi Arabia, or Turkey would come together to defend Israel. More likely, they would come together to protect themselves from Israel and its Western allies, including the US, UK, NATO, and also, in Pakistan’s case from India.

Judging by the statements from Thran and actions by the Ansarallah in Yemen, they clearly don’t seem to feel threatened by the new alliance. For example, just yesterday Yemen’s Ansarallah launched a drone strike on a Saudi Aramco refinery in Jazan, and followed up by striking at the Saudi-backed forces in Yemen’s Mocha port. This morning, Tehran issued an official statement on Mecca Joint Force Agreement.

Iran’s Foreign Ministry spokesman Esmaeil Baqaei called the pact a sign that regional countries are shifting away from relying on the US for security. He stressed Tehran’s perception that the treaty isn’t aimed against Iran, underscoring the deep historical and religious ties with Saudi Arabia, Turkey, and Pakistan.

I believe that Mr. Baqaei’s statement is correct. He didn’t mention that all three nations and Iran face the common threat and the same enemies. The new “Muslim NATO” signifies the redrawing of the power balance in the region and the emergence of a new security architecture that clearly has no use for either the US, UK, NATO, or Israel.

This view is corroborated by the conspicuous absence of any official statement regarding the Mecca agreement from the Trump administration, suggesting that they were neither consulted nor involved in forging the new defence pact. That silence indicates an embarrassment about being kept out of the loop on such momentous developments by their very allies. But what may be embarrassing to the US administration could be panic-inducing for Israel.

To learn more about TrendCompass reports please check our main TrendCompass web page. We encourage you to also have a read through our TrendCompass User Manual page. For U.S. investors: an investable, fully managed portfolio based on I-System TrendFollowing is available from our partner advisory (more about it here).

Today’s trading signals

With Friday’s closing prices we have the following changes for the Key Markets portfolio:

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In exacerbating financial, economic and social crises at home, it could turn out that Iran will be for the United States as Afghanistan was for the Soviet Union and iceberg was for the Titanic. The Trump admin continues to promote the positive narrative, but facts on the ground beg to differ.

Incidentally, zero barrels flowing out of Saudi Arabia toward the USA also means zero dollars flowing into US financial institutions to service those financial assets that are based on this trade as collateral. Part of all this is related to the undeniable oil market disruption which has only gotten a lot worse with the closure of the Bab-el-Mandeb Strait, severely reducing Saudi oil exports, including to the United States.

Billions and billions…

To reassure the markets, Trump came out with the compensating narrative that, “We're taking a lot of oil from Venezuela -- billions and billions of barrels of oil. To the victor belong the spoils.” In a way, Trump may be telling the truth, but “billions” of barrels are some figure close to 0.2 billions.

Namely, Nicolas Maduro was abducted exactly 2016 days ago today and since that day, Venezuelan oil production increased to just over 1 million barrels per day. If 100% of that oil was taken by the victors, that could’t be much more than 0.2 billion barrels. That’s a nice loot, to be sure, but Trump’s wording exaggerated it several-fold which doesn’t inspire confidence. Scott Bessent contributed further to the administration’s tall tales by declaring that there would be a deal this week with “freedom of movement.” That, too, was an exaggeration:

Clearly, for all the tough talk and bluster, Trump failed to gain control of the Hormuz Strait. Instead, Iran is still dictating the terms, and the terms just got a whole lot Worse for the US and its allies. According to the latest reports from Reuters, Iran is now pushing for fees calculated as 5–7% of the value of the cargo in transit, and they might have taken that idea from Trump himself, when he floated the idea of the US charging 20% of the value of the cargo.

Even if the Iranians climb down from their maximalist demands, they clearly feel like they’re in control and the result could be an energy cost inflation boost for the American people, many of whom are already struggling with the soaring costs of living. Their discontent seems to be getting real, and with real reasons, which go beyond the price of gasoline at the pump:

Eat ramen, ungrateful proles!

Squeezed between the soaring costs of living and rising taxes, the ordinary people are increasingly struggling and demanding changes, but that only seems to be annoying their devoted representatives in Congress. Texas Republican Dan Cranshaw admonished them to, "Stop whining, get a job, eat Ramen like the rest of us did in college, on a budget with [four] roommates." Again, the ideological clash seems to be shaping up between the reality, as perceived by the ordinary people and the ideology espoused by the ruling establishment.

Since the Americans already live in the freest country in all of history and benefit from the greatest system of free market capitalism ever devised, their struggles can only be explained as a result of their own failures and shortcomings. In the end, their “representatives” start to treat them with cold contempt exemplified by Cranshaw’s dumb rhetoric. President Trump and his core supporters largely share that same contempt.

The geopolitical catalyst and the hollowing base

This is how a class conflict could begin to escalate, moving the whole system toward a civil war or a revolution, in another parallel with the USSR, whose geopolitical blunder only catalyzed the unravelling of the system: the Soviets invaded Afghanistan in 1979. They withdrew by February 1989 and within two years, the USSR collapsed. The defeat in Afghanistan did not cause Soviet Union’s collapse, but it worsened its multiple brewing crises and accelerated the unravelling.

Today, the US is facing a similar precipice, although it is hard to say whether the US crisis is potentially worse than the Soviet one or not. As I mentioned yesterday, the ideology upholding “free market capitalism” may make it seem that the US economy is much more robust and resilient than that of the old USSR, but that is not entirely true.

Gradually, over the last few decades, the US has favored large monopolies and oligopolies while the bedrock of resilience - small and medium-sized enterprises - have been systematically hollowed out. For all the talk of tariffs and re-industrialization under Trump, the results on the ground now seem anemic and could amount to too little, too late.

To learn more about TrendCompass reports please check our main TrendCompass web page. We encourage you to also have a read through our TrendCompass User Manual page. For U.S. investors: an investable, fully managed portfolio based on I-System TrendFollowing is available from our partner advisory (more about it here).

Today’s trading signals

With yesterday’s closing prices we have the following changes for the Key Markets portfolio:

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For example, last November I pointed out my friend Matt Smith’s extraordinary report from Azerbaijan in which he described that nation’s major infrastructure development over the last five years:

By far, the most impressive thing I saw during our visit was the level of construction occurring in the country… the scale of which is almost beyond imagination. … occasionally I could glimpse below in the valley a brand new highway system which included dozens of tunnels. Now this is probably the most difficult terrain possible to do major construction.

And yet what I glimpsed from above was shocking in scale. … along the roads that we traveled, there were endless streams of heavy equipment, hard at work, reshaping the landscape to expand the highway system we were on. There were cement factories everywhere built bespoke to support this ambitious effort.

The scale was so massive, so inorganic, and so out of place, we had a hard time making sense of it. To do something like this in America would be utterly impossible. It would cost trillions of dollars. The thinking required, too big, the manpower, unavailable, the will, long gone. … seeing this scale of construction, the costs I imagined seemed utterly impossible. And so, at my earliest opportunity, I did some research. What I found was shocking.

And what Smith shared next was truly astonishing:

“Azerbaijan had built 4,000 kilometers of highway, 45 tunnels, including the second longest in the world, 447 bridges, 16 viaducts. Much of this over very, very difficult terrain. The project was mostly complete. And the total project time was less than five years. All this they’re doing for approximately $5 billion.

To put that in perspective, on March 26, 2024, the Francis Scott Key Bridge in Baltimore was damaged when a container ship collided into it. Currently, the bridge is expected to be rebuilt by late 2030 (more than six years from its collapse) at a cost that’s estimated at between $4.3 and $5.2 billion. In a recent report I highlighted how China built a high-speed railway hub in Chongqing at a scale of Egyptian pyramids and removed an entire mountain to build it. The whole project took only 38 months and cost $7.8 billion.

The case of high-speed railroads

Consider again the cost and pace of high speed railroad construction. In May of 2024, California High-Speed Rail Authority proudly announced completion of the Fresno River Viaduct in Madera County. Although the viaduct measured only 1,600 feet in length, it took 9 years to complete. Sadly, this was a rather typical example. In the 29 years since its establishment, the California High-Speed Rail Authority built 38 structures, totaling 39 miles at a cost $13.6 billion, nearly $350 million per mile of high-speed railroads that are still not remotely operational.

Across the entire US, in 2024 there were some 30 high speed rail structures under “active construction” totaling 119 miles. Meanwhile, in less than 20 years, China built over 50,000 kilometers (over 31,000 miles) at a cost of between $17 and $21 million per kilometer, or $27 to $34 million per mile. That’s less than 1/10^th of the cost per mile of American high speed rail which might never even become operational.

The AI arms race

Then there’s the AI industry. Some sum nearing $3 trillion was invested in the creation of the leading American AI models and their associated infrastructure. China’s DeepSeek AI spent a total only $6 million to develop a very credible rival offering, the DeepSeek R1 model.

On 23 April this year, OpenAI launched their most advanced model, the GPT 5.5. DeepSeek responded the very next day with their own challenger, the V4 model which nearly matched OpenAI’s model in terms of performance. But again, the real, gaping difference between “Made in USA,” and “Made in China” popped up in terms of cost: DeepSeek is up to 107 times cheaper than GPT 5.5. For heavy users, that difference could add up to tens of thousands of dollars a year, a make-or-break issue in the AI wars, which is driving most American startups to adopt Chinese AI platforms.

It’s pretty much everything…

Then there’s the costs of weapons systems, where Western systems cost 10x or more what the Russian, Chinese or Iranian systems cost. A particularly egregious case is the cost of health care. American people pay by far the world’s most expensive health care system, but they get some of the worst health outcomes of any advanced economy in the world, on almost any metric:

• Health care is the 3rd leading cause of death in the US

• 50% of U.S. adults and 30% of teens have pre-diabetes or type II diabetes

• 40% of 18-year olds have a mental health diagnosis

• U.S. has the highest infant and mother mortality rate in the developed world in spite of spending more than twice as much on infant and maternal care

• 25% of American women are on antidepressants

• One in 36 children have autism (in California, it’s one in 32)

• Rates of myocarditis, pericarditis and cancers among young people are exploding

• Since 2019 life expectancy in the US has been shrinking and is now 7.65% lower than in other developed nations (82.4 years vs. 76.1 years, based on 2021 data)

A stark contrast with Chinese health care was offered recently by an American young woman named Jennifer who posted a short video of her own experience on X. She had no health insurance of any kind in China, but she needed to see a doctor in order to obtain a prescription for some medicines. So, she walked into a public hospital and 19 minutes and $12 later, she walked out with everything she needed. Here is her video:

I could go on enumerating case after case after case exemplifying the value-for-money disproportion between Western economies and those of the unfree world. The picture that emerges is that in Western democracies, the people are consistently and radically short-changed and robbed of their health, their wealth, their freedom and their future, almost as though the whole system was built as an industrial-scale wealth extraction pump that loots the wealth created by the people in a thousand subtle ways, each of which can somehow be denied, or at least justified with some convenient narrative.

On top of that, we have a thick layer of ideology masquerading as economic theory, which insulates us from common sense, inducing a form of Stockholm Syndrome where can convince ourselves that being robbed blind is just glorious because bootstraps, hard work, free market capitalism, Murray Rothbard, Friedrich Hayek, “libertad, carajo,” and similar slogans prevent us from reaching sensible conclusions based on a simple observation of facts.

Instead, discussions often gravitate towards blowing up nations that fail to conform to liberal democracy and free market capitalism. But we really should be asking questions and demanding very concrete answers: why does nearly everything in the West cost double, triple or 10x what it costs elsewhere and what would our lives be like if everything cost 1/10th what it costs now?

To learn more about TrendCompass reports please check our main TrendCompass web page. We encourage you to also have a read through our TrendCompass User Manual page. For U.S. investors: an investable, fully managed portfolio based on I-System TrendFollowing is available from our partner advisory (more about it here).

Today’s trading signals

With yesterday’s closing prices we have the following changes for the Key Markets portfolio:

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Barking up wrong trees

But when we buy into false narratives we find ourselves facing some inexplicable paradoxes: how come the motherships of Western free market capitalism like Great Britain and the United States are chronically in crises, increasingly falling behind on many metrics of economic and social development, while “Communist” China rises and rises, running circles around them?

Gaining a clear and accurate understanding of the opposed systems of governance could be the most important knowledge for us to acquire today, because the conflict between them is now pushing the world into escalating hot wars that could lead to a nuclear world war. And no, it is not a clash between the socialism and the capitalism. The clash is between Western colonialist system and any nation that declines its demand for subjugation. Nations that reject colonial subjugation wish to be independent and chart a sovereign path in their development.

Western colonialism demands what it calls “free trade,” which is only upheld so long as it benefits Western colonial powers. It demands a “rules based global order,” in which rules are dictated by the dominating powers and change arbitrarily at any time it suits them. Independent-minded nations prefer to pursue the national system of political economy. But the most important way to understand the true nature of different systems is to study what they do, as opposed to what they tell us that they ought to do. Free trade should make us all prosperous and rich, but does it?

The track record…

By now we have enough historical track record that we shouldn’t fall for declarations of values or intent, nor for ideological labels. Over the recent weeks I put together a fairly extensive report contrasting the free trade system with the national systems as implemented in places like the US, Germany and Italy, much of it based on materials shared in TrendCompass reports over the years. I will publish my full report soon but meanwhile, a the YouTube version is available below:

To learn more about TrendCompass reports please check our main TrendCompass web page. We encourage you to also have a read through our TrendCompass User Manual page. For U.S. investors: an investable, fully managed portfolio based on I-System TrendFollowing is available from our partner advisory (more about it here).

Today’s trading signals

With yesterday’s closing prices we have the following changes for the Key Markets portfolio:

Read more

Last summer, Bitcoin was trading around $120,000 and to many, it seemed like the sky was the limit and the only sensible thing to do was to buy more Bitcoin, whatever its price because it was going to seven digits. I elicited many laughs from my bitcoin enthusiast friends at the time, as I was saying that I would I’d be buying bitcoin, but I preferred to wait for the price to correct back down to around $20,000. Today, that implicit prediction looks more credible. We can start with the technicals:

The picture is remarkably clear: bitcoin’s trend broke. A well defined head-and-shoulders reversal pattern (S-H-S) was completed in January this year when the price broke through the pattern’s “neckline” below $80,000, and we had a full 50% retracement from bitcoin’s $120k peak. It seems that the $60,000 level represents some kind of a psychological support/resistance barrier (see price action in 2021, 2022, 2024 and today), but if that’s breached conclusively, my $20k target could be on the horizon.

Incidentally: from the technical analysis viewpoint, today's bitcoin trade is exactly correct. We're sitting near a support level; downside could be limited and upside open, so a small long trade makes sense at this moment.

The narrative gloss is fading fast

By today, however, I’m not sure that I’d be buying bitcoin at any price. The reason is that the most compelling parts of the bitcoin story turned out not to be entirely true. First, we had some interesting revelations in the Epstein files, suggesting that bitcoin wasn’t entirely the creation of the anonymous genius, Satoshi Nakamoto and that Rothschild family employee Jeffrey Epstein donated hundreds of thousands of dollars to MIT Media Labs to launch their Digital Currency Initiative (DCI), described in correspondence as the “principal home and funding source” for bitcoin at the time.

The DCI used Epstein donations to support bitcoin core developers, including Gavin Andresen, Wladimir van der Laan and Cory Fields. Epstein’s contacts with Gavin Adresen go back at least to 2011. Apparently, the inspirational narrative about bitcoin’s sudden emergence omitted some relevant, but much less inspirational details.

Kidnappings of bitcoin holders

In January of this year, France imposed the requirement on crypto service providers to collect and make accessible the identities, addresses, and other information about their clients under the MiCA (Markets in Crypto-Assets Regulation) and related anti-money laundering rules. In addition, the EU’s DAC8 directive, also effective from January 2026, mandated crypto platforms to report client identities, tax numbers, and portfolio balances to tax authorities, creating centralized records of holders and holdings.

The almost immediate consequence of these changes was a wave of violent kidnappings and extortion attempts targeting cryptocurrency holders or their family members like spouses, parents, or children in France. By mid-April, at least 40 cases were reported. Later updates cited even higher totals such as 77 crypto-linked kidnapping/extortion incidents through the first half of 2026.

The extortion tactics included home invasions, street abductions, or holding victims captive under threats of violence or mutilation to increase pressure. The authorities mainly blamed youth gangs for this kidnappings. If true, we’d have to be impressed with these “youth gangs’” initiative, information access and organization to trace crypto account holders and their family members, kidnap them, and demand ransom in bitcoin. At any rate, this story blew up the part of bitcoin narrative about anonymity and security of owning bitcoins, and it gets worse from there…

LOL, we screwed them Iranians!

The next cold shower came on 29 May of this year, when US Treasury Secretary Scott Bessent spoke at the 2026 Reagan National Economic Forum in California and in subsequent media appearances, including an interview with Larry Kudlow on Fox Business. Bessent seemed quite pleased with himself speaking about the “Operation Economic Fury,” which involved going after the financial assets of the Iranian government and the IRGC.

Among other things, Bessent outright said that, “We have seized about a billion dollars of their crypto. … Just outright grabbed the wallets. Some of them may be typing in right now and might not realize that their wallet has been grabbed.” Well, in that, Bessent blew up the idea that bitcoin is safe from government seizure. If they can empty out IRGC’s bitcoin, they can empty out mine too, whenever they choose to do so.

Coldcard wallet raids

The most recent adverse development for bitcoin has been the flood of reported thefts of bitcoin from individuals’ “cold storage” wallets which, until only a few days ago were considered the most secure form of ownership of bitcoin. Reports of these raids started flooding the social media as recently as 29/30 July. Multiple coordinated attacks followed, and drained hundreds of wallets in a rapid succession.

According to the latest reports (dated 3 August), over $114 million has been looted from 4,500-5,200 accounts. It must have been “youth gangs” again. Apparently, the youth gangs targeted Coldcard hardware wallets made by Canadian company Coinkite which had a flaw in the way they generated seed phrases/private keys.

Whatever the case, it seems that holding bitcoin is a bit less convenient, anonymous and secure than originally thought, especially if the US government has you on the naughty list. Bitcoin holders should also beef up their personal, and family members security against youth gangs and be sure to double check their cold storage wallets for any potential security flaws. It would help if you are a software engineer and security expert. Apart from that, experts insist that owning bitcoin is entirely safe and effective.

To learn more about TrendCompass reports please check our main TrendCompass web page. We encourage you to also have a read through our TrendCompass User Manual page. For U.S. investors: an investable, fully managed portfolio based on I-System TrendFollowing is available from our partner advisory (more about it here).

Today’s trading signals

With yesterday’s closing prices we have the following changes for the Key Markets portfolio:

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However, in an unsurprising turn of events, Trump called the whole thing off. In the evening hours of Saturday, 1st August, he turned to his TruthSocial platform with the following announcement:

“The U.S.A. is locked and loaded and ready to go against the Islamic Republic of Iran at levels of Military Terror, Strength, and Power not seen since World War II. Despite this, we have just been asked by Iran, and other Middle Eastern Countries, to hold off any attack in that the perimeters of a deal has been agreed to. This would include the Immediate, Complete, and Total OPENING OF THE HORMUZ STRAIT, and an end to Iran’s nuclear threat. Based on this request, I have agreed, for the future benefit of the WORLD and, likewise, the survival of a successful and prosperous Iran, to cancel the attack, subject to being able to rapidly make a DEAL. The Country of Israel joins me in this commitment. Get to work, everybody, and get it DONE. Thank you for your attention to this matter! President DONALD J. TRUMP”

Supposedly, just as he was about to obliterate Iran with strength and power not seen since World War II, US Gulf allies and the Iranians begged him to hold off and offered “perimeters of a deal…” For the future benefit of the WORLD, Trump magnanimously agreed to cancel the attack.

Cold feet, not magnanimity

More likely, Trump held off his attack for a number of other reasons. For starters, it would be surreal and surprising if the Iranians offered Trump any deal, especially one that included an “Immediate, Total, and Complete opening OPENING OF THE HORMUZ STRAIT,” as Trump claimed. Why on earth would Iran hand Trump such a massive concession, instantly depriving themselves of their main point of leverage against the US? Of course they wouldn’t, and Iranian official sources denied that any new deal was under discussion.

There may have been more truth in Trump’s claims about the request of his Gulf allies. According to some reports, Saudi Arabia’s Crown Prince Mohammed bin Salman (MBS) placed a call to Trump on Saturday, warning him that Iran would respond to any bombings by directly attacking the energy infrastructure of Saudi Arabia and other Gulf neighbors. MBS spoke on behalf of the Gulf Cooperation Council (GCC) and explicitly demanded that Trump call off his attack on Iran, explaining that the Iranians had already mapped oil fields, refineries, and power plants across all GCC members for an immediate counter-attack, which would destabilize the global energy market for an extended period.

In effect, MBS highlighted two implicit dilemmas for Trump. First, if he refused MBS’s request and pressed ahead, he would bear responsibility for the destruction of the region’s economies and the unforeseeable global fallout from the crisis. Second, if GCC economies were destroyed, their leaders could potentially be deposed and their partnerships and alliances with the US could collapse, switching to the Iran-China-Russia axis. This would cement the eviction of the US from the Middle East. All of the extensive Western investments in the region, including those of the Trump/Kushner dynasties, would be lost.

The question of troops’ morale

In addition, more and more reports from US military units in the region suggest that their morale is alarmingly low, as they almost universally perceive that they are being asked to risk their lives in a war for Israel. One US veteran and reservist who mentors younger officer said, “I’m hearing out of service members’ mouths the words, ’We do not want to die for Israel — we don’t want to be political pawns'…”

According to HuffPost, many service members complained about the “lack of a clear, consistent narrative justifying the Iran war,” and about the prospect of risking their lives in a “poorly planned conflict” for “no identifiable strategic benefit.” Meanwhile, the Center on Conscience and War revealed a 1,000% increase in conscientious objector applications. Apparently, the deadly strike on the girls’ school in Minab has become a breaking point for many US service members.

Flailing with no clear objective or strategy

It would be truly surreal and incredible that it was Mohamed bin Salman’s call that stayed Trump’s hand, that whatever his vassal told Trump was news, something that the Commander in Chief hadn’t considered yet. It all leaves the impression of an administration caught in a trap of its own making, flailing without clear objectives, strategy or any kind of an exit plan. Instead, their exit plans are being made for them by the Iranians, forcing the U.S. to evacuate all of their bases in the Persian Gulf; they are all largely empty now, and their evacuations may be irreversible.

Nonetheless, the narrative Kabuki theatre that seems fully convincing to the capital markets and crude oil traders is continuing. However, the narrative plot is not the same as victory and the happy ending with immediate, total and complete opening of the Strait of Hormuz may now be permanently out of the administration’s reach. If MBS’s call to Trump signifies anything at all, it is that US Gulf allies no longer believe that the US has the capability to impose its own solution on Iran militarily, which constitutes a radical change of reality on the ground, and the Iranians have exactly zero incentive to bail Trump out of his check-mate.

Like his Gulf allies, even the most trusting consumers of White House’s shifting narratives will ultimately stop believing the tall tales and hedge their bets accordingly. This morning, the price of crude oil opened nearly 9% below Friday’s close, as though the markets fully believed Trump’s claims that the Iranians are yet again begging for a deal and that Hormuz will soon be open again.

Conceivably, the markets can be fooled and manipulated indefinitely in this way, and the facts on the ground might prove irrelevant. However, I very much doubt that and this weekend’s rerun of the Hormuz Kabuki show could be the administration’s last narrative hurrah. Ultimately, if the price is pushed too low, the markets will signal the imbalance through shortages. Global shipping could stall, gas stations go empty, inflation will spike, creditors will bail out of US Treasuries and inflation will soar, starting at the gas pump.

No amount of narrative massaging will be able to cover this all up with an alternative reality. For playing stupid games, the Trump team can look forward to some real stupid prizes.

To learn more about TrendCompass reports please check our main TrendCompass web page. We encourage you to also have a read through our TrendCompass User Manual page. For U.S. investors: an investable, fully managed portfolio based on I-System TrendFollowing is available from our partner advisory (more about it here).

Today’s trading signals

With Friday’s closing prices we have the following changes for the Key Markets portfolio:

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Either way, those $2,200 must have been a significant chunk of her savings. Her distress was clearly, very real, as it must have been for hundreds of thousands of other Korean investors who sustained crushing losses over the last few weeks. The reason why this story matters is because it may have been a foreshadowing of what could be coming our way to the Western, particularly American capital markets, and the reasons are related both to the psychological aspects of market speculation and to the structure of risks it is pulling investors into.

The psychology of speculation

Especially for the younger and less experienced cohort, the temptation to try and supplement their income with significant investment returns can be irresistible. We’re all vulnerable to following crowds, especially when we see that, for a period of time, our peers, our friends, and neighbors are crushing it on the stock market.

Many of them will boast about it, and at some point, sitting on the sidelines will just seem silly. More and more people we’ll join the game and put their savings at risk. This, in fact, is the crowd behavior that fuels market trends, and it’s exactly what happened in South Korea. Ultimately however, the herd runs its course, and the buying pressure abates at some point. If many traders in that herd are leveraged, it’s only a matter of time before a pullback in stock prices triggers an avalanche of liquidations.

For inexperienced investors used to seeing the markets only go up, this can be very upsetting. Most probably, they will react to the events in ways that will only speed up their losses and seal the outcome. However, nobody should feel smug in observing these failures of inexperience because we are all susceptible to those exact behaviors. As we saw in yesterday’s report, even the professional investors have had a horrible July this year.

Structure of risks

In a similar way to Koreans, most Western investors have gotten accustomed to seeing the value of their investments go up with few interruptions since the global financial crisis ended in 2009. The risks that we are exposed to today could, at some point lead to crippling losses in the near future, particularly since the structure of those risks changed very considerably over the last 15 years. Those changes were not dissimilar to those in Korean experience.

Even if you believe you are safely diversified by owning an index fund tracking the S&P 500, the index’s risk structure has changed very radically. Today the semiconductors represent nearly 20% of the S&P 500’s market capitalization. At the peak of the dot-com bubble they were about 8.5%. Today, an S&P 500 investor holds more than twice the concentration that preceded the worst technology drawdown in living memory, and that sector of the S&P 500 fluctuates by about 6% on an average day.

Given the sector’s fragile financials, at some point, this all could turn into an explosive trigger for a market avalanche. All other sectors in the S&P 500, which should provide investors a diversification buffer, have now shrunk to about 80% of the index weight, down from over 98% a decade ago.

That’s a radically unfavorable, but not sufficiently well understood restructuring of risk. Relative to Korea’s Kospi index, the S&P 500 is still very well diversified, but selling avalanches, once triggered, can take unforeseeable proportions and 20%, 30%, or even 50% corrections can’t be ruled out, particularly in view of the mushrooming margin debt that’s been pushing US stock prices higher. According to the most recent FINRA figures, margin debt in US stock markets rose to record $1.5 trillion in June 2026, up about 50% relative to $1.01 trillion recorded for June 2025.

The role of foreign money

Another way that Korea’s recent experience may be foreshadowing the future of US equity markets is the role of foreign investors, whose appetite for US stocks has surged to unprecedented levels over the past two years:

But as Robert Prechter put it in a recent post, “foreign investors tend to commit heavily to U.S. stocks near major market tops. In 2021, foreigners poured a record $400 billion into U.S. equities - at the time, a historic level. Over the latest 12 months, that figure has more than doubled to $900 billion. Foreign ownership of U.S. stocks now stands at a historic $20 trillion, nearly 20% of the market.”

This could be an issue: when Korea’s stock market started to correct, foreign money massively exacerbated the stampede out of stocks:

Of course, US capital markets may be the most vulnerable to some of these risks, but whatever afflicts the US won’t leave the rest of the world unscathed.

What are the antidotes to all these risks?

In a nutshell, I believe it should be this: reduce risk, diversify, and follow trends. Given the underlying risks and volatility, investors should reduce their market exposure and definitely ditch any leveraged stock plays. Three months ago, my TrendCompass report was titled, “Entering a period of extreme market volatility,” comparing investing to sailing and suggesting that, “the more wind you catch in your sails, the faster you move forward. But a sudden change in wind direction coud capsize your boat.

Another important antidote for risk is diversification and at this stage, the conventional diversifiers might not be sufficient. Risk in “broadly diversifying” stock indexes has been concentrating toward most volatile sectors and for the classic 60/40 portfolios, bonds have not been much help either. I suspect they’ll be even less help going forward. Instead, investors should consider gaining exposure to true diversifiers, including cash, precious and industrial metals, energy and agricultural products.

Always mind the trends!

Last but not least, trend following could prove particularly effective in protecting investors from sustained bear markets in either stocks or bonds by helping them switch from long to short exposure and gaining positive returns on the way down. In that sense, reliable and effective trend following strategies can offer invaluable decision-support.

Even only as a ‘reality check’ or a source of ‘second opinion’ to investors, TrendCompass offers the guidance to navigate markets profitably, with confidence and peace of mind.

To learn more about TrendCompass reports please check our main TrendCompass web page. We encourage you to also have a read through our TrendCompass User Manual page. For U.S. investors: an investable, fully managed portfolio based on I-System TrendFollowing is available from our partner advisory (more about it here).

Today’s trading signals

With yesterday’s closing prices we have the following changes for the Key Markets portfolio:

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On 7 July, I touched on the likely bursting of the Korean equity bubble in “South Korea’s economy enters the Weimar phase?” At the time, Korea’s Kospi equity index was in the initial stages of the correction after a nearly vertical climb that saw the index soar from about 2,500 past 9,000 in barely over 12 months’ time, making South Korea’s stock market the world’s 6th largest by market capitalization.

But the fragility of this bull market was in its structure: it was principally fueled by two companies - memory chip makers SK Hynix and Samsung. These two rose +1,900% and +600% in one year, respectively, becoming as much as 50% of Kospi’s market cap. As always, this generated much “irrational exuberance” among investors until this summer, when the crash came. In 40 days, Kospi collapsed by about 45%, erasing -$2 trillion of its capitalization:

The move was accompanied by an explosion of volatility, which hit an all-time high on Kospi, higher even than during the devastating 1997 Asian Financial Crisis and the 2020 pandemic:

Short term gain for the long term pain

Among the most active and most exuberant participants in Korea’s stock market were young investors in their 20s and 30s. Priced out of South Korea’s real estate market and unable to buy homes, young people ploughed their savings into stocks, hoping that this would enable them to generate enough wealth to realize the aspirations that their jobs and salaries fell short of.

The more Korea’s stock bubble inflated, the more clever this idea appeared and the more popular stock investing became. Eager to take advantage of this bonanza, young investors converted their savings into high-flying stocks. Many Koreans liquidated their life insurance policies to get their money into the hottest issues, and many did so with leverage, by borrowing on margin at 3x and/or buying 2x levered semiconductor ETFs. Margin loans on KOSPI hit record 38.63 trillion won in late June (about $27 billion).

However, as prices started to tank in earnest, all this leverage only accelerated the market collapse as brokers sold investors’ positions to cover their losses. Thus far, they auto-liquidated some 360,000 accounts, which cumulatively lost 2.15 trillion won ($1.5 billion). About 62% of these accounts were owned by young people under 35 years of age.

The personal distress

Getting wiped out in the markets is invariably a devastating experience, as it can potentially destroy a person’s future with much of everything they were hoping to achieve. The personal distress of this blow was exemplified by one of Korea’s most popular young investors and trading live-streamers, Jadoo, who recorded one of her podcast episodes just as her own account blew up.

Jadoo’s position was forcibly liquidated as she was broadcasting her trades live, with thousands of viewers witnessing the devastating scene. She lost over $3 million, and the recording of her emotional breakdown quickly went viral over the internet. Her distress will indubitably elicit much schadenfreude from some observers, but it shouldn’t: this can literally happen to anyone. The temptation of easy windfalls can be hard to resist, especially when people perceive that it’s their only way to build up personal wealth.

Particularly where this venue becomes validated by proving successful for a time, it will create a flood of followers, nearly none of whom are prepared to handle the risks that placing leveraged bets in stock markets entails. In Korea’s case, substantially a whole generation bet on stocks as their only path to wealth, and lost - in many cases everything - in only about six weeks’ time.

Apparently, more than 3% of Korea’s whole population sustained a total loss of their investment portfolios. The gravity of the psychological distress this caused is evidenced by the government’s rush to launch and promote a suicide hotline for trampled investors. Incidentally, Korean investors weren’t uniquely unfortunate of inept amidst events. The month of July was the worst month on record for hedge fund professionals, particularly in the momentum and trend following space:

The purpose of this newsletter

I myself got trampled during the 2000 dotcom bubble. My saving grace was that I had two investment accounts: one where I invested in boring issues for the long haul and another, where I had leveraged positions in hot stocks. I maintained the minimum of discipline required to keep these two accounts separate. Nevertheless, the experience of getting wiped out was what informed the creation of I-System Trend Following and, ultimately, this newsletter.

Helping investors prosper while sidestepping the many fatal traps that lurk among the risks, is the purpose of the signals and articles we produce every day. None of it is sexy, and during long stretches of time it may be as exciting as watching the grass grow. I hope, however, that it can make the difference between preserving and growing your wealth and being counted among the casualties of unexpected surprises.

To learn more about TrendCompass reports please check our main TrendCompass web page. We encourage you to also have a read through our TrendCompass User Manual page. For U.S. investors: an investable, fully managed portfolio based on I-System TrendFollowing is available from our partner advisory (more about it here).

Today’s trading signals

With yesterday’s closing prices we have the following changes for the Key Markets portfolio:

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These make the oil corrosive, toxic, and high in vapor pressure—unsafe for long-distance pipelines or tanker transport. Basically, unstabilized crude generally cannot be exported or stored long-term without major safety and environmental risks. Abqaiq is (was?) the world’s largest crude oil stabilization plant, processing the bulk of Saudi oil production in order to enable KSA’s 5-7 million barrels in crude exports. It handles a large share of Saudi production (historically around 5–7 million barrels per day, or roughly 5–7% of global supply at peak) from fields such as Ghawar.

If all six stabilization units are now offline, this fact alone would constitute a massive disruption to global oil markets. It is, in fact, what took place when the Houthis attacked Abqaiq in 2019, only, at that time Aramco was able to procure specialized equipment to complete the complex repairs needed to restore the damaged units. At present, this could prove far more difficult, delaying the repairs.

But of course, the total disruption in the Middle East is far worse than that: transit through Hormuz and Bab-el-Mande are severely restricted; Aramco refinery at Jizan is still burning; Russian exports are still sanctioned; US Strategic Petroleum Reserves are at historical lows; China is buying up available crude stocks to rebuild their own reserves, and Kazakhstan’s exports of oil have dropped by half.

What’s behind the market’s schizophrenia?

The barrel of crude collapsed over 7% on the very day when Aramco’s Abqaiq facilities were struck, which makes little sense. The following, the damage became discernible, but the price continued to crash. Dr. Chris Martenson posted this illustration summarizing yesterday’s trading, and he is probably right:

As the chart shows, massive sell orders were dumped into the market during the morning trading, collapsing the price with almost no resistance from buyers. A number of market analysts looking at these trades alleged that US Treasury has likely taken the role of Mr. Slammy in an effort to keep energy prices and inflation under control.

Ultimately, however, it doesn’t matter whether Mr. Slammy is Scott Bessent’s Treasury, Larry Fink’s Black Rock, or Jamie Dimon’s JP Morgan. It could be a consortium of institutions, all allied to pursue the same ends. They are effectively taking the same risks to their institutions and could destabilize the whole system.

Risking a “Biblical disaster”

Back in March, Chicago Mercantile Exchange CEO Terry Duffy spoke at a conference in Boca Raton, Florida and reflected on the suspicions that the government was manipulating the market prices. He said that “Markets do not like it when governments intervene in pricing.” Duffy warned that, in doing so, the government was risking a biblical disaster.

If it is true that the US government is interfering in the markets, the obvious question is, why? Why would the government of the United States choose to take such reckless risks - both by starting an ill-advised military adventure in the Persian Gulf, and by engaging in very risky market manipulation games to suppress the consequences of that adventure? Market events have been so extraordinary that it is hard to avoid the suspicion of manipulation. Moreover, it was being done in such an unsubtle way that it seems like they no longer even care about keeping up appearances.

If the war is lost and oil prices surge out of control, US government and whatever other entities may be involved in shorting the markets - could sustain colossal losses on those shorts. That would be a remarkably dumb way to further erode its already unsustainable fiscal position. Perhaps the most egregious aspect of such manipulations is that market manipulation creates a completely gratuitous, unnecessary additional risk for the administration in making it vulnerable to their geopolitical rivals.

Russia, China and other governments are active participants in global markets and have a lot of cash to burn. Taking action that would push the oil prices higher would now be an easy and effective way to further weaken the US government, its financial power and its economy. Perhaps all this adds up to “biblical disaster,” as Terry Duffy called it. For sure, it doesn’t look good, and it doesn’t reflect a confident government under competent leadership. It reeks of over-reactiveness and blind panic.

To learn more about TrendCompass reports please check our main TrendCompass web page. We encourage you to also have a read through our TrendCompass User Manual page. For U.S. investors: an investable, fully managed portfolio based on I-System TrendFollowing is available from our partner advisory (more about it here).

Today’s trading signals

With yesterday’s closing prices we have the following changes for the Key Markets portfolio:

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For context, KSA waged a very ruthless and devastating war against Ansarallah for seven years (2015-2022) with full Backing by the United States and United Kingdom and in coalition with the UAE, Bahrain, Kuwait, Egypt, Jordan, Sudan and Morocco. The war was devastating for Yemen, with over 25,000 air raids and a naval and air blockade of Ansarallah-controlled areas of the country. This all created one of the world’s worst humanitarian disasters with nearly 400,000 casualties. Most of the Yemeni deaths were the consequence of disease and hunger.

The war effectively ended in 2022, but never formally. The KSA-led coalition failed to achieve its key strategic objectives and Ansarallah not only survived intact, it is today considerably more powerful than it was in 2015 and it holds a very major grudge against KSA. Fast forward to 2026 and it looks like their bill is coming due.

The new escalation

On Monday, 20 July, Ansarallah announced a naval/maritime blockade (or embargo) targeting Saudi Arabia and two days later they caried out missile and drone strikes on two Saudi-flagged oil tankers, MT Encelia and MT Layla in the Red Sea. On Saturday, 25 July they launched coordinated attacks with dozens of ballistic and cruise missiles and drones on Aramco’s flagship sites in the Red Sea coastal cities of Jizan (Jazan) and Yanbu. Ostensibly, this was a retaliation for the recent Saudi airstrikes on Houthi-controlled Hodeidah.

The strikes on Aramco’s Jizan facilities appear to have caused substantial damage, which apparently has not been contained as of yesterday. Satellite images show the smoke billowing from the struck facilities now stretching for over 70 km along the Red Sea coast. Yesterday, on 27 July, Ansarallah launched additional drone strikes on oil transport infrastructure along the east-west crude pipeline from eastern oil fields to Yanbu. Iraq-based militias launched further strikes targeting KSA’s Eastern Province Aramco facilities near Abqaiq causing some damage and fires.

Markets: everything’s AWESOME!

By disrupting maritime trade through the Strait of Hormuz and the Bab-el-Mandeb Strait and inflicting substantial damage on the region’s energy facilities, the escalating war in the Middle East has massively upset the global oil trade, although estimates of that damage vary. The consequences of the initial clash between Iran and the US/Israel coalition were partly mitigated by reorienting some of KSA’s oil exports to the Red Sea.

But with the closure of Bab-el-Mandeb, this export route is no longer viable and the worst oil market disruption in history certainly got substantially worse. Naturally, “the markets” reacted to last weekend’s grave events by selling off the oil, crashing its price by over 10% (with this morning’s trading”) which, apparently makes complete and total sense.

Recall, in 2022, after Russia launched its Spec. Military Operation against Ukraine and Western powers responded with severe sanctons, global oil markets feared that Russia’s 4.7 million barrels/day in crude exports by pushing the price past $120/bbl. Nearly seven years ago, when Ansarallah struck Aramco’s Abqaiq oil production facilities on Saturday, 14 September 2019, Brent crude oil sustained the largest-ever one-day price jump and closed $8.42/bbl above previous Friday’s price.

These days, it seems that the markets can’t get enough disruptions and negative is the new positive. Wars are raging with no end in sight, world’s #1 oil producing region is in flames, Russian oil exports are sanctioned to the hilt, strategic petroleum reserves are progressively dwindling and now China is apparently chasing after every barrel it can buy to restore their reserves. Clearly, the price of oil must go down, which is now the new up.

The markets will ultimately sober up

There are a number of theories out there, offering plausible explanations for the oil market’s schizophrenia, but regardless of which theory strikes closer to the truth, the laws of economics are remorseless and over the long haul, inviolable. Many empires focused their power attempting to bend price levels to their will, and all ultimately they all failed. The current empire will probably succeed like nobody’s ever seen before, which is the new fail.

To learn more about TrendCompass reports please check our main TrendCompass web page. We encourage you to also have a read through our TrendCompass User Manual page. For U.S. investors: an investable, fully managed portfolio based on I-System TrendFollowing is available from our partner advisory (more about it here).

Today’s trading signals

With yesterday’s closing prices we have the following changes for the Key Markets portfolio:

Read more

“Thus we are led to the insight that dealing with the uncertain conditions of the unknown future—that is, speculation—is inherent in every action, and that profit and loss are necessary features of acting which cannot be conjured away by any wishful thinking.”

This is one of life’s universals; practically every worthy endeavor we undertake in life departs from a decision that is, in essence, speculative. Buying a house; going to war; acquiring a new skill… It all involves speculation and often, our perception of trends affect our decisions.

Trends and the school of life

For a long time now, the experience of trend following struck me as a very valid school of life in general. Advancing in life, achieving any positive departure from the status quo depends on the quality of our decisions and our commitment to those decisions. What we think, feel, discuss or imagine makes little difference; it is the decisions that count: the ones we actually take and execute.

Decisions are life-changers in ways we can seldom predict. They often lead to unforeseen consequences and at times, outcomes that are opposite to those we intended or desired. Regardless, taking those risks is integral to every departure from the status quo, which is itself not a fixed position but usually a state of gradual but steady decay.

As with trend following, advances in life tend to be won not in a straight line but in discrete, sudden leaps where things happen all of a sudden and “seemingly out of nowhere,” followed by long stretches of time marked by a sort of, “one step forward, two steps back” footwork that can seem interminable and exasperating.

Those discouraging flat patches are a test of determination and perseverance. They tend to eliminate those who are less than committed, disciplined and patient in their pursuits. In a way, the sudden leaps forward are rewards for the risks taken and efforts expended in the face of uncertainty. I believe this is all rather straightforward and most of us can identify with that characterization of life. What’s a lot less straightforward is the way we arrive at the decisions to venture and take risks.

The inner works

Particularly with respect to any speculative endeavor, our decisions stem from our conscious theorizing about our situation, weighing the risks, the pros, the cons, the anticipated consequences of our actions, and so on. It’s important to note that our conscious deliberation and even our internal monologues, the thoughts we think only to ourselves, are always formed in language, and this is where things get slippery.

While our internal monologue largely defines our relationship to the outside world, that monologue is predominantly the product of our brain’s language-heavy left hemisphere which has certain important handicaps when it comes to speculative decision making.

The discovery of the differences between the left hemisphere (LH) and the right hemisphere (RH) of the brain has been the single greatest advance in neuropsychology in over 50 years. These differences are relevant to every aspect of human experience and an understanding of these differences has even become part of our popular culture: it’s the contrast between the rigid, rule-abiding LH vs. the artsy, freewheeling RH.

But Dr. Iain McGilchrist, arguably the world’s greatest authority in this domain, maintains that almost everything we thought we knew about this dichotomy is wrong. In his book, “Master and his Emissary,” he covers the differences between the two hemispheres in painstaking detail. Here are only a few examples relevant to decision making:

• LH tends to rely heavily on logic, even if its logic could be highly flawed

• LH deals with individual bits of information in isolation, ignoring the broader reality. In this it creates a self-reflexive virtual world which is decontextualized and mechanistic.

• LH tends to focus on single solutions that seem like the best fit to what it already knows and latches onto it. Any discrepancies that fall outside its pre-existing conceptions tend to get ignored or rejected.

• LH has difficulty disengaging: once it’s contrived a pattern in its thinking it tends to keep with it and resist any changes that are at odds with its internal logic. Anomalies are ignored, not highlighted.

• LH is obsessed with being right and being in control. It abhors uncertainty.

• LH is quick to draw conclusions from limited information and then stubbornly insist on their correctness.

This is clearly not the optimal circuitry for making decisions in the face of uncertainty. I know, someone will object: then how come we survived and thrived during most of these past 200,000 years or so? I am not questioning our ability to navigate the natural world which has been stable during most of our evolutionary past. I am questioning our ability to navigate the financial markets which are much more unpredictable.

Making our way in this abstract environment of heightened uncertainty obliges us to rely on theoretical models and conscious theorizing about the way things work or should work. The problem is that our conscious theorizing is almost entirely dependent on our LH circuitry which, at the same time, is very prone to error and as reluctant to acknowledge it.

Reign of error

In his bestseller, “How the Mind Works,” Steven Pinker cites empirical research that shows just how easily we go off the rails when conceptualizing certain types of problems. For example, when college students were asked to describe the trajectory of a ball shot out of a curved tube, a “depressingly large minority” of students, including many who studied physics, guessed that the ball would continue in a curving path, and were even quite prepared to provide scientific explanation for this.

Other researchers asked similar questions about the motion of spinning tops, wheels rolling down ramps, colliding balls, or solid objects displacing water. They found that even physics professors often got their answers wrong unless they were allowed to fiddle with equations on paper. Pinker noted that cognitive misconceptions run deep and that errors tend to arise from “conscious theorizing.”

But when it comes to the motion of physical objects in space, we can rely on objective reality and mathematical formulae to test our theories. With financial markets and economics, theories are basically all we have and it should therefore come as no surprise that our top experts in this domain have a less than 50/50 track record for successful forecasting and that professional money managers have such a strong tendency to underperform.

One might ask, how is trend following any different in that sense? It is very different because trend followers sidestep trying to interpret markets, theorize about the conditions or forecast future events. Trend following is strictly about reacting to market price fluctuations whether economic theory or fundamentals data support it or not.

The compass and the navigator

This newsletter evolved over the years, from sharing strictly the trading signals with zero commentary on world events. It was meant to be simply a market compass. However, as it was becoming increasingly clearer that we’ve entered an unprecedented period of political, economic and social transition, the role of the navigator may be more important, including the navigator’s awareness of his/her own limitations and flaws.

The compass should be the foundation of our decision making, but experience, and a certain breadth and depth of knowledge, perceptiveness and subtle judgment may be as important. In that sense, I hope that the commentaries in these reports provide an added value - it’s something I’m never too sure about.

To learn more about TrendCompass reports please check our main TrendCompass web page. We encourage you to also have a read through our TrendCompass User Manual page. For U.S. investors: an investable, fully managed portfolio based on I-System TrendFollowing is available from our partner advisory (more about it here).

Today’s trading signals

With Friday’s closing prices we have the following changes for the Key Markets portfolio:

Read more

All this has enhanced humanity’s collective knowledge and understanding to the point where it must be orders of magnitude greater than it has ever been in our history. In that sense, digging up the dirt has offered an incalculable potential benefit to humanity.

However, in addition to accurate diagnosing of our challenges, we also need effective remedies, which are much less prevalent in all this chatter. To be sure, they’re out there, but solutions require creative thinking, hard work and relentless drive, which is much harder to come by than just being a learned observer of events.

Heroes walk their talk…

One of the few people I know who has diagnosed many of our society’s issues far ahead of most of us, and has also cleared much of the path forward for us through sheer drive and passion, is my friend Charles Kovess. I met Charles during the early months of the plandemic, through our regular “Medical Doctors for Covid Ethics International,” Zoom calls.

The organization was co-founded by Dr. Stephen Frost, and over the years, it has hosted lectures and presentations by many authorities in health-related domains including Carrie Madej, Pierre Kory, Robert F. Kennedy Jr., Sucharit Bhakdi, Wolfgang Wodarg, Peter McCullough, and many, many others.

Charles invariably moderates these calls and his participation and many incisive interventions caught my attention. At one point, he mentioned that he was involved in the hemp industry and ever since, I’ve been wanting to talk to him about it. Better yet, I thought I should make it into an interview available to all, which I’ve now done at long last. It turned out about 60 min. long and I will upload it to my personal substack publication and you can visit it at this link.

The transformative potential of industrial hemp

Years ago, I saw a documentary about industrial hemp and how it’s been made illegal to grow in 1937 - not only in the United States, but in many countries around the world. Mind you, the prohibition didn’t just prohibit the Marijuana plant but also the industrial hemp, which is strange and Charles explained what that was about.

Hemp is one of the most productive, fertile plants known to humanity; it grows about 4 centimeters (1.5 inches) a day and farmers can harvest as much as ten tons of hemp every 100 days. More than 25,000 products can be made from hemp. For example, once upon a time Ford Motor company built cars whose body was made out of hemp, with an engine powered by hemp-derived ethanol. During our interview, Charles showed a structure entirely made out of hemp that’s even stronger than steel! Furthermore, for diversified farms, hemp is also the perfect rotation crop.

Solutions should be perpetually sustainable

Contemplating the polycrisis that’s gathering upon us, and which could turn out to be significantly worse than the 1930s depression, we’ve heard much talk about protecting oneself and family by investing in gold and silver, crypto currencies, commodity stocks or real estate, etc. But these types of investments aren’t really solutions - they’re merely temporary refuges.

Real solutions should preferably be perpetually sustainable, and nothing is as sustainable as a fertile, diversified farming operation and hemp could be the ideal crop to cultivate. During our conversation Charles shed much light on the great potential of hemp farming and processing. Our chat led to another related problem and the way hemp farming (and other types of farming) could be the perfect solution…

Emancipating humanity from banker tyranny

Our bank balances represent one of our greatest vulnerabilities to “the system.” The threat of being sanctioned (losing access to your bank accounts) or debanked is enough to get most of us to think twice before committing any thought crimes. It follows that getting our money out of the banking system is a way of reducing that vulnerability. But money eventually runs out. Preferably, it should be put to a productive purpose.

As Charles pointed out, a good way to put money to productive use can be share farming. For anyone who can’t buy a hectare of land and do their own farming, they can invest in a collective farming operation. Our farmers are often forced to rely on bank loans to fund their operations. In the process, they usually have to mortgage their farms and end up working as serfs for the banks. In many cases, they lose their farms.

But if farmers need funds and people need sustainable investments, a happier solution could be people investing in diversified farming operations in exchange for a share of the farm’s produce. The farmer gets their funding and the investor gets farm produce, every season and every harvest, making the arrangement a real solution, not just a temporary refuge. The best part: all this can bypass the banking system completely, and everyone can live happily ever after.

Links and resources

I was privileged to discuss all this and much more with Mr. Charles Kovess whose expertise, as one who has been an active participant in hemp farming for some three decades, is second to none. To see the interview, which I’ll post shortly, please visit my personal substack.

If you wish to learn more about hemp, hemp farming and proessing you can visit the Federation of International Hemp Organizations (at link). To reach out to Charles, he has a website: CharlesKovess.com

Last but not least: Charles uploads all the Medical Doctors for Covid Ethics International zoom calls - the presentations, discussions and all - to his Rumble channel. It is a massive treasure trove of knowledge on health and related issues. I highly recommend visiting and bookmarking it: https://rumble.com/search/video?q=charles%20kovess

To learn more about TrendCompass reports please check our main TrendCompass web page. We encourage you to also have a read through our TrendCompass User Manual page. For U.S. investors: an investable, fully managed portfolio based on I-System TrendFollowing is available from our partner advisory (more about it here).

Today’s trading signals

With yesterday’s closing prices we have the following changes for the Key Markets portfolio:

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I like to look at this chart starting with 2021, which was when the great bonds bear market began. Bonds peaked in August 2020, reaching the highest price point after a nearly 4 decade bull market, accompanied by lowest interest rates recorded in centuries. The first major correction came in February/March 2021, but after that point, all the major inflection points seemed to be driven by geopolitical developments.

The first was in August 2021 when the US announced its withdrawal from Afghanistan. British, American and European bonds staged a sharp correction almost immediately. In February 2022, when Russia launched its Special Military Operation into Ukraine, the bonds crashed, then briefly rallied as Western powers announced their massive sanctions against Russia. But the hope that this would collapse the Russian economy and help overthrow Vladimir Putin’s government quickly evaporated and the next, steeper stage of the correction ensued.

After 2022, British, European and American bonds began a long and at times very volatile period of consolidation in something of a sideways price drift. British and German bonds drifted gradually lower and the American bonds gradually higher, but without breaking into another bull market. Japanese Government Bonds still seemed entirely stable and unassailable - until they didn’t, that is: in 2024 their very gradual drift downwards started to accelerate with only a few upward corrections.

President Trump’s ill-advised February attack on Iran coincided with another downward push for government bonds with European and British ones setting new three decade lows. I remain of the opinion that this trend could prove to be one of the trades of the decade and that a new leg of that bear market has only just begun. It will continue to be led by British and European government bonds, but the JGBs could soon catch up too.

Trend following is only beginning to catch this wave

Treasury bonds were among our top performers in 2021 and 2022. However, the 4-year period of sideways drift was difficult as our positions shifted from long to short, getting whipsawed in directionless volatility. This is not unusual: recall, systematic trend following relies on algorithms and has no “opinion” about geopolitics or economic fundamentals. Instead, it will continue to recommend positioning in accordance with the recorded price fluctuation dynamics in order to catch the next trend, which might be up or down.

This is why trend following tends to generate strong returns when strong trends do emerge. Performance tends to resemble the following dynamic:

With respect to the Treasury bonds LSPE in 2021/22, that was the period in which we generated significant windfall gains. The four years that followed were again a “positioning” period - an opportunity to practice discipline and patience. Starting in February of this year, I believe we may be in for another windfall. This, broadly speaking, is the dynamic that’s always associated with trend following and the remedy to the long periods of positioning is diversification. Even as we were awaiting results from Treasury bond trends, in 2024 and 2025 we enjoyed windfalls from precious metals trends.

In sum, the success of trend following entails, first and foremost, effective trading strategies, discipline, patience, and broad diversification. This, thankfully is relatively easy to achieve since the strategy allows us to trade in any market, even if we have zero expertise in it. The only expertise we rely upon is that of interpreting the price fluctuations, regardless of what that price represents: it can be coffee, crude oil, treasury bonds or soybeans.

No light at the end of geopolitical tunnel

It doesn’t seem that there’s light at the end of the current geopolitical tunnel. Today, Secretary Marco Rubio met with his Russian counterpart, Foreign Minister Sergei Lavrov and we’ll learn about this meeting very soon. There’s reason to believe that it will lead to some positive outcomes, but in the short run, the weight of geopolitical events still revolve around Iran, where Trump administration is well and truly caught in the escalation trap with no politically acceptable off-ramps.

Therefore, the cascading events that are now steadily depressing western powers’ treasury bonds (and boosting interest rates) are likely to continue for the time being, possibly until a substantial withdrawal of the United States from the Middle East.

To learn more about TrendCompass reports please check our main TrendCompass web page. We encourage you to also have a read through our TrendCompass User Manual page. For U.S. investors: an investable, fully managed portfolio based on I-System TrendFollowing is available from our partner advisory (more about it here).

Today’s trading signals

With yesterday’s closing prices we have the following changes for the Key Markets portfolio:

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The collapsing collateral and trade cash flows

US allies in the Middle East are rapidly learning what Henry Kissinger meant when he said that being an enemy of the United States was dangerous, but being a friend is lethal. But the geopolitical aspects of the war will have a substantial financial impact. This may not yet be apparent, and it is not discussed, but it is certainly worsening in terms of the loss of collateral and the drying up of vast cash flows moving from the region’s trade toward Western banking institutions. This all is progressively hollowing out those institutions’ balance sheets and obliging central banks to ramp up the money printing presses.

As we saw in yesterday’s report, the war being fought in the Middle East was meant to also further US attempt to ensure primacy in the Artificial Intelligence sector, but that part of the story isn’t going well either.

Big tech’s secret debts

Another story that exploded this week is related to US Big Tech’s financials. Namely, a Nikkei investigation found that Alphabet, Microsoft, Amazon, Meta, and Oracle have $1.65 trillion in debt that doesn’t appear on their balance sheets, more than the $1.35 trillion they officially report. Their “shadow borrowing” was concealed from the markets and from the public using some of the same accounting gimmicks that had wrecked Enron. The fact that none of the five companies responded to Nikkei’s request for a comment, is not reassuring.

The debts stem from AI-related investments like GPU contracts, data center leases, and joint ventures that don't count as debt under accounting rules until the facilities go live. Meta's hidden debt is $420 billion, triple its reported debt. Oracle's grew 30-fold in four years. In all, these firms’ debts mushroomed 8-fold relative to where it was only four years ago.

It’s astonishing that these companies owe more off their balance sheets than on them, and the accounting rules allow this until the data centers they’re building go live. Four of these five companies will report earnings in the next two weeks and it will be interesting to see whether markets will acknowledge these new revelations or pretend that everything is awesome. The reported debt will look manageable. The $1.65 trillion will be in the small print. Bloomberg TV and CNBC will probably put up a good cheerleading effort, but an Enron-y reckoning could be in the offing.

Thankfully, these five firms make up only around 26%-28% of the Nasdaq’s $41 trillion market cap, so even if they went bankrupt and their stock prices collapsed, everything would still be immutably and permanently awesome!

Losing the AI war to China

Big tech companies were inclined to go big in order to win the battle for global AI dominance. Their managers couldn’t afford to be economic girly-men by taking the prudent and conservative approach in this winner-take-all struggle. Unfortunately for them, it seems that the winner-take-all war is now being lost, and lost quite bigly:

Part of the reason for this trend is that Chinese AI companies have closed the performance gap with those of their US rivals while offering their services at a fraction of the costs and many fewer restrictions. Last week, Beijing startup Moonshot AI, released their new model, Kimi K3. It beat Anthropic's Fable 5 and OpenAI's GPT-5.6 Sol on coding tests, and outperformed Opus 4.8 on broad rankings while costing 40% less. Then came a crushing blow to US-based AI offerings: on 27 July Moonshot will be giving Kimi away as an open-weight suite, so any company or government in the world can download it and run it on their own hardware - no restrictions and no subscriptions necessary.

This could well be a hydrogen bomb launched by China and striking all of those US-based $1.65 trillion data centers and it prompted the US to consider a Soviet-style response. Namely, according to Axios, the Trump administration is considering an executive order to ban Chinese open-source models within in the United States. US Commerce Department is considering adding Chinese AI labs to the Entity List.

Curbing competition tends to have predictable results: the protected companies get to relax and, rather than producing winning innovations, they innovate at how best to skin their customers. But the reason why the government might respond in this counterproductive way could be exactly because of the colossal investment US companies already sunk into their fight for AI primacy.

The above doesn’t even begin to exhaust the list of headwinds facing the Trump administration and their friends and allies in the world. The war in the Middle East has escalated, Yemen’s Asarallah have closed the Bab-el-Mandeb Strait to Saudi shipping, oil price has added more than $20/barrel over the last three weeks, interest rates are rising across the board, inflation seems to be picking up again, and Argentina lost the World Cup to Spain.

To learn more about TrendCompass reports please check our main TrendCompass web page. We encourage you to also have a read through our TrendCompass User Manual page. For U.S. investors: an investable, fully managed portfolio based on I-System TrendFollowing is available from our partner advisory (more about it here).

Today’s trading signals

With yesterday’s closing prices we have the following changes for the Key Markets portfolio:

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Varsavsky presented a thesis that recent geopolitical events (2022–2025) form a deliberate, sequenced American grand strategy to dismantle alternative energy networks and establish an unchallenged U.S. dominance over global oil, gas, and LNG supplies. Effectively, this would enhance the petrodollar system into a “petro/LNG dollar” system in a winner-takes-all gambit to secure American energy, monetary, and technological supremacy, especially in the race for artificial superintelligence (ASI).

The Four Moves

The empire’s first move was to get the war in Ukraine going. That conflict included the plan to destroy Russia’s Nord Stream pipeline system and cut down Russian gas to Europe from 150 to 40 billion cubic meters. As a result, the U.S. became Europe’s dominant LNG supplier (rising from 28% to 58% of Europe’s imports) and turning Europe into a captive dollar-based market.

The next step was to capture Syria. The removal of Bashar Al Asad would sever China’s Belt and Road overland corridor (Iran–Iraq–Syria), isolating Iran and blocking a key bypass of U.S.-controlled maritime chokepoints. Then came Venezuela: U.S. control of the world’s largest heavy crude reserves allows American Gulf Coast refineries to process Venezuelan oil, removing another major non-dollar oil channel to China.

The fourth move was the attack on Iran: Israeli strikes on Iran’s South Pars gas field, Iranian retaliation on Qatar’s Ras Laffan (knocking out ~17% of Qatar’s LNG capacity for up to 5 years). The disruption of oil exports through the Strait of Hormuz could ultimately raise energy prices very considerably and leaves the U.S. as the only scalable, reliable oil and LNG supplier. If the US managed to capture Iran, America would effectively control ~40–45 million barrels per day of global production.

Strategic outcomes

The ultimate result of all this is that Europe, Japan, South Korea, and Taiwan would become locked into long-term U.S. energy contracts with no viable alternatives. This would boost demand for US dollars. The United States would become the world’s swing producer, rendering OPEC irrelevant. However, this is just the bottom layer of the empire’s grand strategy. Varsavsky argued that its ultimate objective is achieving unassailable AI supremacy.

AI requires massive baseload power (mostly natural gas) and specialized inputs like helium. By disrupting Middle Eastern supplies and chokepoints, the U.S. (now energy self-sufficient with Venezuelan reserves) degrades China’s ability to power data centers and fabricate chips. China loses its overland energy bypass via Iran, leaving it vulnerable to the Malacca Trap. Russia is next—pressured economically and forced toward a Ukraine settlement.

In all, Varsavsky argued that US tried to consolidate control over energy corridors + monetary system + compute infrastructure, positioning itself to win the ASI race against China. Short-term costs in terms of higher prices and regional instability may be acceptable collateral damage in US quest for global dominance.

Best laid plans of mice and men…

With hindsight, Varsavsky’s thesis makes sense: it connects the dots of events we’ve been observing to trace a coherent strategy and the grand prize that would make all the trouble worthwhile. Even Treasury Secretary Scott Bessent’s recent statements in this regard confirm that preserving and enhancing the Petrodollar system is the core objective of the American foreign policy.

“Dollar dominance is essential to everything President Trump is doing here. If you look, the new Venezuela is going to be invoicing in dollars, they’re coming back onto the dollar system. They’ve been sanctioned, they were not allowed to transact in dollars, and now the dollar is going to be the centerpiece of their trade. They were selling discounted oil to China and not getting dollars.

We’re seeing in Iranian negotiations, the Iranians will be invoicing in dollars, so everything we are doing is pushing the dollar back… as the centerpiece of the global currency system, but we’re reinforcing it. I would anticipate that when the Russia-Ukraine conflict ends, that Russia will want to come back in the dollar system because again, the dollar, it’s our liquidity, it’s our capital markets… Everyone wants to be here.”

Bessent’s statements probably gave away more than he intended. Decapitating regimes, starting regional wars and risking nuclear Armageddon in order to force the world “to come back in the dollar system,” is not a good good optics for his administration or his president. Bessent also looked far from confident in delivering these remarks.

The US may have successfully regime-changed Venezuela, but their control will probably prove slippery and short-lived. The wars in Ukraine and in Iran are not going well for the empire and European political winds, particularly in Germany and Eastern Europe are blowing in favor of better relations with Russia and reconnecting the Nord Stream pipelines. Even the American $1 trillion-plus gamble on artificial intelligence supremacy has already been lost to China.

And then, why would Russia “want to come back into the dollar system?” They have been sanctioned to the hilt and still have close to $300 billion in their assets “frozen.” Other nations have noticed too, and if they “want” something of this dollar system, it is to diversify out of it. That, in fact, is why they have to be bombed and regime-changed to stay in.

The empire’s grand strategy is a crude, ruthless, blood-drenched grab for global dominance. Its success hinged on everything working out just right, along the lines of best-case scenarios. In reality, nearly every part of this construct is a house of cards, pushing the US and her allies farther down the road to final imperial collapse. The short-term benefits of bludgeoning the whole world to submit to their dollar system would accrue to the global financial oligarchy and their corporate clients, but the mounting costs of all this, which includes heavy military expenditure, would ultimately be paid by the taxpayers.

As the Scottish poet Robert Burns wrote in his 1785 poem

“In proving foresight may be vain:
The best laid plans of mice and men
Often go awry,
And leave us nothing but grief and pain,
For promised joy!”

To learn more about TrendCompass reports please check our main TrendCompass web page. We encourage you to also have a read through our TrendCompass User Manual page. For U.S. investors: an investable, fully managed portfolio based on I-System TrendFollowing is available from our partner advisory (more about it here).

Today’s trading signals

With yesterday’s closing prices we have the following changes for the Key Markets portfolio:

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At the same time, Iran has been inflicting considerable damage to US assets in the region, including the Muwaffaq Salti Air Base (Al Azraq) in Jordan, Camp Arifjan and Ali Al Salem Air Base, as well as a power and desalination facility in Kuwait, Sheikh Isa Air Base and a data center in Bahrain, and a range of targets in Saudi Arabia, Qatar, Oman and UAE. The US allegedly sustained some casualties in these strikes, including 3 or 4 killed soldiers and a handful of injuries.

Advantage Iran

In spite of Trump’s claim that they are hitting Iran “very hard,” and that Iran will be defeated very soon, this seems to be a sharp downgrade from his repeated claims since March that Iran has already been defeated. The reports of damage inflicted on Iran’s military assets are very mixed; some independent military analysts claim that the US doesn’t have good targeting intelligence, that they are repeatedly bombing the same facilities and that the strikes have been very ineffective.

Let’s recall, in March of 2025 Trump launched the Operation Rough Rider and started bombing the Ansarallah in Yemen “like nobody’s ever seen before.” The operation’s objective was to stop Ansarallah movement from interfering with the Red Sea maritime traffic. In that, it was basically the continuation of the Operation “Prosperity Guardian,” which started in December 2023 and achieved close to nothing. In the end, Trump was forced to retreat and conclude a ceasefire with Ansarallah. Apparently, the Yemenis have studied American art of war carefully and understand their military capabilities. As a result, they’ve been able to largely insulate their military assets from American bombs and missiles.

If Ansarallah immunized their armed forces from American air power, we should assume that the Iranians, at the very least, have done the same. Whatever US bombs and missiles are blowing up in Iran has obviously not dented Iranians’ capability to strike back. Furthermore, by fighting on their home turf, it’s relatively easier for Iran to repair any damage sustained and restore their fighting capacity than it is for the US which is fighting ten thousand miles from its industrial base and vulnerable to fragile logistics chains to resupply their troops and rotate them.

Iran has proven that it has a very powerful military; the effectiveness and precision of their strikes has surprised western military analysts as well as American commanders, and the US doesn’t seem capable to substantially dull Iran’s sword or turn the course of the ongoing conflict in their favor. The difficulty of fighting a war thousands of miles away from the home base was exemplified also in American military’s inability to prevail in Afghanistan after 20 years of trying against an adversary that was far less powerful and far less prepared than the IRGC.

Trump’s Vietnam

In all, Iran war is shaping up to become Trump’s Vietnam, only much, much worse given the global economy’s exposure to the region’s resources and trade. The Middle East supplies as much as 30-32% of global crude oil supplies and about a fifth of natural gas and LNG supplies. One of the adverse results of Trump’s excellent adventure in Iran is that US Strategic Petroleum Reserves have now dropped to their lowest level in 45 years, worth only only 43 days’ worth of US oil demand.

But the energy shock that’s almost inevitably in the making is only one part of the problem. The fertilizers produced in the Middle Eastern region (nitrogen, phosphorus, potassium) support between 40% and 60% of global crop yields and food production, which could make the consequences of US war against Iran dwarf those of US defeat in Vietnam.

Neither side will retreat (yet)

These risks are easily discernible to any thoughtful observer but Trump has walked into an escalation trap and he can’t retreat; it would amount to a humiliating defeat. At the same time, the Iranians are perfectly aware of the advantageous position they’re in and they have no reasons to gift Trump anything more than a strategic defeat. The result, unfortunately, is that the hostilities are likely to continue through this summer.

Through it all, global capital and commodities markets have coasted along like everything will be fine, which is something of a mystery. It is hard to observe the way markets have been reacting to bad news like they’re great news and not wonder if large-scale market manipulation was a part of that mystery. Whatever the case, the reckoning is only a matter of time and we must be prepared to see much higher interest rates, commodity prices and the rate of inflation.

To learn more about TrendCompass reports please check our main TrendCompass web page. We encourage you to also have a read through our TrendCompass User Manual page. For U.S. investors: an investable, fully managed portfolio based on I-System TrendFollowing is available from our partner advisory (more about it here).

Today’s trading signals

With Friday’s closing prices we have the following changes for the Key Markets portfolio:

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However, empirical evidence simply doesn’t support this. At the very least, real-life experience suggests that not all private enterprises are superior, nor are all state-run enterprises inferior. In the past, I shared the experience with the trash collection services in Croatia. During the socialist era, trash collection was run by state companies, and our towns and cities were clean and orderly. I remember that many foreign visitors would remark how our cities were remarkably clean, and they really were.

But then, in the early 2000s, the service was privatized and the magic of private, free market capitalism took effect. Today, trash collection is much more expensive than before, private owners reduced the number of collection points, forcing everybody to carry their trash farther (effectively working for trash collectors for free), and the cherry on top is that our cities are no longer clean and orderly. Here’s what my home city of Rijeka often looks like:

What the images above can’t convey is that this doesn’t smell like roses either. Here’s a recent photo from Zadar, a beautiful medieval town on the Adriatic coast, one of Croatia’s top tourist destinations:

The amazing case of UK’s Thames Water

Another fascinating case of the wonders of private enterprise has been making front-page news in Britain these days. Earlier this week, Thames Water, Britain’s largest water utility company, disclosed that they were about to run out of money and their annual results showed that they’re £18.5 billion in debt. The independent online news publication, OffGuardian, appropriately commented:

“You are a monopoly. You are selling something literally everyone needs for literally everything they do literally every day and that falls from the sky for FREE. How in the hell are you not making money?”

To make the very long story short, Thames Water was privatized in 2006. It was acquired for about £8 billion by an investment consortium led by the Australian merchant bank Macquarie. The following year, Thames Water made £241 million in profits. So far, so good - yay, free market capitalism! But the new owners paid themselves £656 million in dividends in 2007, nearly triple the profits the company earned. Thames Water continued to pay its owners over £200 million in dividends every year for seven consecutive years.

When it was privatized in 2006, Thames River had zero debt, but already in the first year under its new owners, the company’s debt load went to £3.4 billion. By 2017 it soared to £10.8 billion and by 2026, as we saw, to £18.5 billion. That raises an obvious question: why did this profitable monopoly need to borrow that much money? To answer that question, we must keep in mind that a client’s debt is its banker’s asset; which the bank conjures from thin air, and which has to be serviced from the client’s cash flow. It’s a neat business - a legalized, open-ended looting operation.

Macquarie dressed up all those debts as legitimate investments; addressing the mounting scandal in 2024, the bank’s spokesperson said as follows:

“We have had no influence over the decisions taken at Thames Water in the seven years since our managed funds sold their final equity stake. During the 11 years in which our funds were shareholders in Thames Water, we oversaw the largest investment programme in the company’s history and the highest rate of investment per customer in the industry.”

Whatever this largest investment programme, highest per customer in the industry was, it was NOT done to improve the service it provides to its customers. To the contrary, in private ownership, Thames River service deteriorated spectacularly. Macquarie was perfectly aware of this, and knew to get out just in time. Only eight days after Macquarie sold its stake to Omers and the Kuwait Investment Authority, Thames River was slapped with a record £20.3 million penalty, imposed for huge leaks of untreated sewage into the Thames and its tributaries. This had serious adverse impacts on residents, farmers and wildlife, including a mass killing of birds and fish.

That incident and the fine was only the first of many that followed, as the company’s infrastructure was neglected and left to crumble under its private owners. In the four years after Macquarie’s exit, Thames River was fined £32.4 million for 11 water pollution cases involving recurring spills of untreated sewage into streams, rivers and the sea. Thames Water wasn’t the only private utility polluting Britain either: between 2015 and the 2023, there were 59 prosecutions of water companies in England.

In 2018, then environment secretary, Michael Gove said that the companies had been “playing the system for the benefit of wealthy managers and owners, at the expense of consumers and the environment”, concealing their looting operations “behind complex financial structures.” Indeed, one of the first things Thames River’s owners did after they acquired the company was to set up offshore subsidiaries in the Cayman Islands. This is not normally required to improve water treatment service for customers in England. What it does do, however, is facilitate large-scale looting of public wealth and money laundering. Even Thames River employee pension scheme wasn’t spared: in 2008, the company’s pension fund had a £26.1m surplus. By 2015, it was £260 million in deficit.

Pensions are often Exhibit 1 entitlement for those who like to rant about “socialism” and how it is ruining the world because it’s too generous an entitlement, because socialist politicians cater to people’s desires to get free stuff, etc, etc… But Thames River’s pension fund was fine until the non-socialist private owners took charge. First they loot people’s savings, then they blame the victims and demand purer forms of private enterprise capitalism as a solution to the problem they created. Epic!

Who’ll take out the trash?

The evidence from countless real-life experiences from around the world is very abundant and it suggests that private ownership of businesses isn’t remotely a guarantee that they will be net value creators. In many cases, they prove to be net value destroyers. Investing in quality of services and products a significant cost item, and private owners are always incentivized to cut costs. They are also incentivized to extract as much wealth from the enterprise as possible, often hollowing out the systems that were built up and developed on public purse over decades.

Defending this invariably falls back on ideology, and the ideology often has to be correspondingly insulting and stupid. For example, the widely admired titan of Western thought, Murray Rothbard argued in favor of free market capitalism by simply mocking socialism, not on the basis of any evidence, but on pure conjecture:

“If... everyone under socialism were to ... produce ‘according to his needs,’ then, to sum it up in the famous question: Who, under socialism, will take out the garbage? That is, what will be the incentive to do the grubby jobs, and, furthermore, do them well?”

Many will knowingly nod and agree: so true, so true… Nobody’ll take out the garbage under socialism so let’s ignore the evidence of our lying eyes. After all, who are we to question the venerable Murray Rothbard. Again, the argument devolves to ideology and to justify absurdities, it has to devolve to absurdities as the above quote.

Under socialism, trash did get taken out. Under state control, British water utilities ran better than they did under private ownership. In fact, the argument is not over socialism vs. capitalism; it is about systems of incentives that determine the performance of enterprises and the ultimate outcomes.

It’s not about socialism…

This could be a complex task but the very least, real-life evidence should prompt us to question what we think we understand about human economic activity and its ultimate objectives. Both water treatment and trash collection are extremely important to human communities, since they impact their quality of life, as well as public health. Untreated sewage in our waterways is obviously a highly undesirable problem. Uncollected trash is food not only for seagulls, but also for maggots, cockroaches, mice, stray cats and rats. Potentially, it can lead to outbreaks of infectious diseases at a massive cost to society. Turning the job over to private, for-profit enterprise can come with a catastrophic cost for nearly everyone involved.

The point here is to sidestep ideology in favor of simple clear thinking and pragmatic solutions that are in everyone’s best interest. Things like social services, infrastructure, public health, and education shouldn’t be regarded as profit centers but as foundations of a healthy and well-ordered society. There are compelling arguments in favor of treating also transport, health care, education, infrastructure, communications and credit allocation in the same way. These ideas should be analyzed and discussed with an open mind. All too often, even educated people simply fall back to labels and dismiss whatever they think falls under the wrong label (you’re a damn socialist!).

At the very least, we can all agree on the obvious: we want our trash taken out regularly; we want our towns to be clean and orderly; we want clean water supplied to our homes and our trains to run on time. Rather than obsessing iver ideology, we should simply ask, how do we get those values in the most reliable, efficient way possible? It’s not complicated, and it definitely doesn’t require Cayman Islands subsidiaries.

To learn more about TrendCompass reports please check our main TrendCompass web page. We encourage you to also have a read through our TrendCompass User Manual page. For U.S. investors: an investable, fully managed portfolio based on I-System TrendFollowing is available from our partner advisory (more about it here).

Today’s trading signals

With yesterday’s closing prices we have the following changes for the Key Markets portfolio:

Read more

We’re gon’ need a bigger budget!

However, over the past few days, different statements from the Federal government do suggest there’s some anxiety over financial issues. First, on 24 June, the White House sent Congress an $87.6 billion supplemental request. About one-third of this amount is attributable to the mounting costs of the Iran war. Recall, the war was supposed to be a 3-4 day blitz, collapsing the Iranian government and installing some version of Iranian Zelensky government. Well, that failed and the costs are mounting.

Three weeks later, it turns out that the White House needs a bit more than $87.6 billion: this week, Trump’s Department of War requested an additional $350 billion needed to strengthen US national security. The money is needed for “fighting communism on our own shores,” as well as the “evil terrorists and tyrants around the world.” That comes on top of the $1.1 trillion defense spending bill already approved by the House Appropriations Committee, significantly increasing the administration’s requested military funding.

Again, it’s not the question of whether the Fed can print up an additional $350 billion - of course it can. But the Pentagon’s request must go through a Congressional procedure. More importantly, the compounding costs of war are real - this is not about just burning up Monopoly money. The total sum needed by Hegseth’s Department of War adds up to $1.45 trillion for this year. That number may seem abstract, but on a per-household basis, it adds up to about $11,000. Pentagon’s supplemental, $350 billion request amounts to $2,655 per household. Most households probably won’t mind spending extra money since it’s for such great causes as fighting communism on our own shores and evil terrorists abroad.

Markets don’t like losers

Unfortunately for the administration, what US households think about paying for Trump’s war machine is only a part of the problem. The other part is what capital markets think. As we’ve seen in yesterday’s report, losing wars tends to be extremely costly and the capital markets (soon to be labelled, evil foreign speculators) are among the quickest to react. The chart below shows the weekly price chart of US 10-year Treasury Notes:

In case the image is hard to read: we had two sharp price drops in 2021 and 2022, which set off the “bonds armageddon” - the greatest bonds bear market in the history of US bond markets, with records stretching back 240 years. The first event marked above was the US withdrawal from Afghanistan in August 2021. The second was the start of Russia’s special military operation in Ukraine. The 2021/22 bonds market crash stabilized over the last three years and since 2025, US bonds even started to move higher, diverging from European, British and Japanese government bonds.

But exactly after Trump launched his Operation “Epic Fury” on 28 February of this year, US Treasury debt started sliding again. Let’s zoom into the daily chart:

Price of the US 10-year Notes peaked at just above $114 on Monday, 2 March 2026. That was the first trading session after the launch of Operation Epic Fury. At that price, the interest rate on US 10-year Notes was around 3.96%. Today, the price dropped to about $109.16 and the interest rate rose to 4.55%: a 60 basis point rise since Epic Fury. In other words, Trump’s military misadventure in the Middle East has raised the cost of debt servicing for the US government by 60 basis points on 10-year Notes.

This will add an estimated $192 billion to the cost of running the Federal government. That may sound like a lot of money, but it’s only $1,460 per household per year - only on the 10-year Notes! To be sure, it’s a small price to pay to fight communists at home and evil terrorists abroad! And it’s not like the Fed doesn’t have the printing press that can conjure all that money, and more.

This leads to mass impoverishment

Unfortunately, printing money usually correlates with price inflation which is another way the American people will pay for the war they didn’t vote for. Prices of food, energy and many consumer items will also rise and they’ll probably continue to rise for a long time. Inflation rate might even accelerate, making the ultimate costs of America’s forever wars incalculable.

It may not be necessary to calculate them: the defeat and collapse of imperial systems invariably leaves populations utterly impoverished - printing presses or no printing presses. For all those who refuse to study and learn from history, I’ll just post Germany’s 3% imperial bond chart one more once - there is a lot to ponder in this image:

To learn more about TrendCompass reports please check our main TrendCompass web page. We encourage you to also have a read through our TrendCompass User Manual page. For U.S. investors: an investable, fully managed portfolio based on I-System TrendFollowing is available from our partner advisory (more about it here).

Today’s trading signals

With yesterday’s closing prices we have the following changes for the Key Markets portfolio:

Read more

Sixteen years later, Japan is still scraping by and surviving. However, Japanese economy hasn’t improved; to the contrary, the “large and gathering imbalances” have only been getting larger, moving closer to an eventual fallout, not away from it. The fact that sixteen years (and more) passed from the time these imbalances became obvious without causing an acute, major crisis is itself a teachable moment in history.

The “levitating” crisis

Namely, as individual observers, we often expect that events will start to happen about as soon as we become aware of the conditions that should cause those events. In reality, crises can “levitate,” causing little more than a chronic condition - a gradual deterioration that we might even get used to and eventually assume that, since nothing really bad happened thus far, the chronic condition can persist indefinitely.

This is yet another reason why I trust trend following far more than I trust my own capability to predict future events. But so far as Japan’s chronic crisis is concerned, we have to keep in mind that it has been persisting in spite of endless economic stimulus packages, more than two decades of free money (zero interest rate policy), and almost unlimited quantitative easing programs that started as early as 2001 and turned Japan into the world’s worst debt zombie.

By today, Japan’s debt-to-GDP stands at about 240% and nearly half of it - fully 115% of her GDP - is owned by the Bank of Japan (BOJ), suggesting that Japan’s central bank has been monetizing government debt at colossal scale. Not long ago, that fact would have scandalized any believer in free market capitalism, but today it merely elicits shrugs.

It’s all a part of the chronic, gradual deterioration that’s become our new normal, and we’ve learned to tolerate it, or even admire our central bankers for getting away with highway robbery (QE amounts to stealing purchasing power from ordinary people and companies in the economy). But such things can continue until, at some point, they can’t. One of the most instructive cases of this was the similarly gradual, crawling crisis in Weimar Germany. The chart below, which I’ve shared here before, illustrates its progression:

The bond’s price peaked around the mid 1890s and up until the outbreak of World War I, its decline was slow and gradual. It then took a nosedive in 1914, but even during the war, the bond price remained relatively stable, even rallying from 1917 until early 1918. The reckoning only came after the war had ended and from that point on, the bond price went into free fall, which spanned the following ten years. Clearly, Germany’s defeat in World War I was the catalyzing event, but the bonds bear market predated the war and spanned more than three decades. During most of that time, the collapse consisted of a number of discrete events, in between which the prices may have seemed almost stable.

Today’s events may bear little resemblance to those at the outset of the 20th century, but we should probably expect similar dynamics to play out going forward. The markets might not react to the underlying economic and fiscal imbalances in a linear fashion, but rather in a succession of discrete events separated by months or even years of seeming stability. When those discrete events might unfold, and how significant they’ll be will remain entirely unpredictable.

The Iran war and Japanese inflation

In all likelihood, the current hostilities in the Middle East will have a significant impact. For example, just last week we learned that Japan’s producer price index (PPI) suddenly spiked to 7.1% year-on-year, fueled by the shocking 29.7% surge in import prices and rising energy costs. Japan is almost entirely dependent on foreign imports for their supplies of oil and natural gas, and their prices are likely to surge over the coming years.

Coupled with the declining purchasing power of the yen, as well as soaring interest rates, this could prove particularly devastating for the Japanese economy. Bank of Japan will have no choice but to respond with continued quantitative easing and further monetization of government debt, paving the way toward an ultimate hyperinflationary unravelling of Japan’s “large and gathering imbalances.”

At present, I-System strategies in this portfolio are correctly positioned for these developments: we are short the yen (long USD vs. yen), long the Nikkei (central bank infusions of liquidity into financial markets tend to gravitate toward equity markets) and short the Japanese government bonds (JGBs). Over the coming years, this trade should produce a very substantial windfall for the disciplined and patient trend followers.

To learn more about TrendCompass reports please check our main TrendCompass web page. We encourage you to also have a read through our TrendCompass User Manual page. For U.S. investors: an investable, fully managed portfolio based on I-System TrendFollowing is available from our partner advisory (more about it here).

Today’s trading signals

With yesterday’s closing prices we have the following changes for the Key Markets portfolio:

Read more