The bigger they are, the harder they fall

S2N spotlight

I am in one of those Friday moods of contemplation as we witness some of the most explosive market activity we have seen in years, more like decades for the metals.

The stories flying around are epic. I am not only talking about markets; the latest release of The Epstein Files has seen a number of biggies fail, which brings me to the story of a son who flew too close to the sun. If you think that is the end of the story, I have news for you. So let me tell you a story.

The story we think we know

Most people know the story of Icarus.

Or at least they think they do.

His father, Daedalus, was a master inventor. Imprisoned on the island of Crete, he built wings made of feathers and wax so that he and his son could escape. Before they took flight, the warning was simple.

Do not fly too high. The sun will melt the wax.

Do not fly too low. The sea will drag you down.

Caught up in the miracle of flight, Icarus climbed higher and higher. The wax softened. The feathers loosened. The wings failed. And so the story is usually told as a lesson in hubris.

Do not overreach. Do not get too close to the sun. Know your limits.

Except that is not actually how he died.

He did not burn. He drowned.

When the wings failed, he fell into the sea and perished in the water below. The body was never consumed by fire. The end came by drowning in the very thing he had been warned about second, not first.

The danger was real. The warning was valid. But the fatal blow came from somewhere else. Beware, yes. But beware that the thing you fear most may not be the thing that kills you.

But there is another twist in the tale.

The story behind the story

This is the part of the story almost always skipped.

Daedalus was not imprisoned by chance. He was there because of his own invention.

He was the architect of the Labyrinth. The impossible maze built for King Minos to contain the Minotaur. A structure so brilliant that no man who entered could escape.

An innovation that became a prison.

Worse still, Daedalus later helped Theseus escape that same Labyrinth. He gave Ariadne the method. The thread. The solution to the very system he designed. His genius turned to betrayal. His invention turned against its creator. That act is what led to his imprisonment.

So when he builds the wings, he is not just escaping captivity. He is trying to out-engineer the unintended consequences of his own creation. And that is the more telling tragedy.

Icarus dies in the fall. Daedalus has to live with the knowledge that his brilliance built the cage, engineered the escape, and ultimately cost him his son.

Innovation saved them. Innovation destroyed them.

The bridge to today

Which brings us back to markets.

Because we are watching two modern Labyrinths being built in real time.

The first is ideological.

Bitcoin has evolved from an asset into a belief system. A technological breakthrough that promised liberation from the financial maze. Freedom from central banks. Freedom from debasement. Freedom from the old architecture of money. But every belief system builds walls as well as doors. Liquidity cycles, leverage, ETFs, institutional custody. The very machinery Bitcoin sought to escape is now wrapped around it.

The Labyrinth reforms around the innovation.

The second is structural.

Artificial intelligence. Led by firms like OpenAI and Anthropic. Tools initially built to assist software developers. Accelerate code. Reduce friction. Expand productivity.

If you follow the news, you will have seen the panic in the software section of the economy. What happens when the tool designed to help the toolmaker begins to replace the toolmaker?

Developers built the wings that they piloted. Now they are watching them fly without pilots. And markets are reacting the way they always do when innovation turns reflexive. With awe first. Then euphoria. Then fear.

I cannot stress the importance of opening one’s eyes to the future that is now.

S2N observations

I know they say that one should not rejoice at others’ misfortune. They are mostly correct, but I think the karma medicine being dispensed to the Epstein Files’ shamed stars – the Ponzi operator, the drunken Michael Saylor, and the big-hair liar cheerleader Tommy Lee – has an effervescence to it.

Let me start with one of my biggest calls, which is delivering on all cylinders. I said a few weeks ago that Jim Chanos, the greatest short seller I know of, was leaving way too much on the table.

The tipping point I have been waiting for struck this week; MicroStrategy is trading at a discount to its NAV. No more BS “yield” enhancing. There is a gravity to trading at a discount to NAV and torching billions of dollars.

When the green ratio below trades above the 2022 highs, we will be near the end of this trade. Stay the course.

My other big call, which I struggled to articulate in words, is to short the US and long China via the Hang Seng. The reason why I say via the Hang Seng is because I am too nervous to trade with money in China. You may never see it again. I believe the idea is best played out in China, but my proxy is Hang Seng. The thesis is simply manipulation vs a free market.

This trade is also working out; we entered near the top of the green ratio. I see this ratio trading below the mean (red line).

Another trade idea that we have been early to but is playing out as anticipated and, in my opinion, has a long way to still go are the 2 trades below.

Value was less popular than my jokes on a Friday night. Growth is no longer growing.

A more subtle version of the above but more statistically probable is the S&P 500 equal weight index capturing the lost ground to the big boys making up the classic market cap index. I think it is fitting that I end with this one in the light of my subject title. The bigger they are, the harder they fall.

S2N screener alert

I didn’t feel like running my traditional screener today, as an article I read on Bloomberg triggered the biggest pair of nuts sighting I have ever seen.

Bian Ximing made $3 billion in trading profits trading gold futures on the Shanghai Futures Exchange since 2022. Google Earth noticed Bian’s “pair” holding a 450-tonne silver short. He was up 1 billion yuan yesterday before the sell-off.

One of the biggest, possibly the biggest after Satoshi, HODLers sold 11,500 Bitcoin worth $800 million that he/she/it held since 2013.

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