Dear Reader,

I’m going to say something that might annoy some of you…

Because I think some of you need to hear it.

A lot of people who follow my work think of themselves as contrarians.

And in many ways, they probably are.

They question the mainstream narratives, and don’t confuse credentials with truth.

Good. That is one of the reasons you’re here.

But there’s a dangerous trap hidden inside that.

Once you start identifying as a contrarian, it becomes all too easy to confuse disagreement with insight.

You start assuming the mainstream is always wrong.

You start assuming the darker view is always smarter.

You start assuming the most bearish take is always the most sophisticated one.

But that’s not thinking critically, it’s just blindly reacting.

If you’re being contrarian for the sake of being contrarian, you’re not a heretic…

You’re Just a Different Kind of Follower

What makes contrarian echo chambers so seductive is that they let you feel like a “special outsider” – the “cool rebel”...

While still giving you the psychological safety and validation of a group that agrees with you.

Sure, that group may be smaller, more knowledgeable, and more skeptical of the “mainstream” narrative.

But if everybody in that group believes the same thing, repeats the same arguments, and expects the same outcome…

Then it is still an echo chamber.

That is what I think is happening to a lot of financially educated skeptics right now.

A lot of them know far more about money, markets, and the economy than regular everyday Americans.

They know about Treasury yields, Fed policy, monetary debasement, and all that stuff.

But because they spend so much time in spaces with people who also know those things…

They start to think everybody is seeing the same thing.

They’re not.

Go talk to normal people.

Most of them haven’t the faintest idea about any of this.

They are not wondering about the connection between inflation and the debt burden.

They are not thinking about the size of the Fed’s balance sheet.

They are not trying to separate real economic growth from money printing.

They are just trying to pay bills, keep their job, maybe add a little to their 401(k), and hope nothing blows up.

You may be far more informed than most people…

But that does not mean you’re not in an echo chamber…

Especially when the algorithms are designed to reinforce your existing worldviews.

And one of the biggest narratives I’m seeing in this “contrarian echo chamber” is:

When Everybody Thinks Everything Is a Bubble

Many people who follow me think everything is in a giant bubble.

It’s one of the most common sentiments I see.

People think everybody is overleveraged, overinvested, and about to lose their shirts in one of the biggest market collapses of all time.

And look, I understand why people believe that.

The government is reckless.

The debt is insane.

The Fed has distorted markets for years.

There are pockets of speculation all over the place.

But there is a big difference between observing all these…

And concluding that the entire system is on the verge of a 2008-style collapse.

So let’s slow down and look at what regular people are actually doing.

Because if the entire country were euphoric, all-in, overleveraged, and overinvested…

We should see it in the data.

And right now, that is not what the data shows.

This Isn’t How Markets Top (The Data)

Take a look at the results of a recent survey by Allianz Life.

Only one in four Americans currently thinks now is a good time to invest.

That alone should make you pause.

Markets don’t usually top when only one in four Americans thinks it’s a good time to invest.

Markets top when everybody thinks it’s a good time to invest.

Because by then, everybody is already in – and there’s nobody left to buy.

Right now, we are nowhere near that.

In fact, 62% of people are worried that a major recession is right around the corner.

71% are concerned that market volatility could hurt their long-term financial plan.

And 50% may change their investments to make them less risky.

That is not euphoria – that is fear.

Markets die of euphoria, not skepticism.

Bull markets climb a wall of worry.

And right now, there is a lot of worry left for it to climb.

It’s not just one random survey saying this either.

According to the American Association of Individual Investors’ weekly market sentiment survey…

Individual investors are currently more bearish than bullish.

You can see the same thing reflected in cash levels.

Household cash as a percentage of total financial assets is near the highest level we’ve seen going back to 1990.

That is not what people do when they are recklessly all-in.

That is what people do when they are being conservative.

So again, ask yourself:

Is the mainstream consensus really “stocks only go up”?

Or is it closer to “I need to hold more cash because something bad is coming”?

Because those are very different environments.

One looks like a top.

The other looks like dry powder for the market to keep running.

Now let’s talk about margin debt.

This is one of those charts people love to use when they want to scare you.

They’ll show total investor margin debt and scream – “Look how high it is!”

But total margin debt by itself tells you almost nothing.

The useful comparison is margin debt relative to the size of the stock market.

Because that tells you how much investor leverage exists compared to total market cap.

And when you look at it that way, we are far from an extreme.

In fact, we are below the midpoint of what has been normal going back to 1997.

For a long stretch from roughly 2007 through 2018, margin debt as a percentage of market cap was much higher than it is right now.

So when someone says investors are wildly overleveraged – that’s just not reflective of the data.

There is a long way for margin debt to rise before it starts looking like a systemic problem.

The next piece is even more important.

The debt-to-asset ratio for U.S. households is at the lowest level going back to 1970.

That is a very big deal.

The financial crisis happened because leverage had reached an extreme.

Debt compared to assets was at an all-time high.

So when prices started falling, people became forced sellers.

They had too much debt, not enough cash, and thus had to sell at prices they didn’t want to accept.

That is how a normal downturn spirals into a liquidation cascade.

Today looks very different.

Households have more cash.

Debt compared to assets is much lower.

Investor margin debt is not extreme relative to market size.

More people than not are afraid to invest.

So where is the pressure for the giant economic catastrophe everybody keeps predicting?

You don’t have the fuel to cause an economic catastrophe without leverage.

No leverage, no liquidation cascade.

That is why these selloffs keep getting bought.

Because there is no mass forced unwinding.

That does not mean stocks can’t fall. Of course they can.

It also does not mean every stock is cheap. A lot of things are expensive.

But a major, years-long economic catastrophe usually requires forced sellers.

And right now, I don’t see the kind of forced-selling setup that made 2008 so brutal.

So this is where you have to ask the uncomfortable question:

Are you bearish because the data points that way…

Or because being bearish makes you feel smarter than everyone else?

Do You Want to Feel Smart – Or Do You Want to Make Money?

Bearishness can be useful.

It keeps you skeptical.

It stops you from blindly buying whatever Wall Street is selling.

But bearishness can also become an identity (see: Michael Burry).

And once that happens, you’re no longer objectively analyzing the market…

You’re protecting your identity as the “smart outsider”.

Remember…

There are ways to make money in bull markets.

There are ways to make money in bear markets.