Time to Raise Cash? | With The Blind Squirrel

Episode Overview

• This episode explores the critical discipline of avoiding "round trippers"—letting winning trades turn into losses—emphasizing why taking profits in volatile markets is vital for long-term survival.
• Rupert Mitchell analyzes shifting systemic risks, arguing that the "shadow banking" and private credit sectors (specifically Buy Now, Pay Later) are hiding significant solvency issues that could trigger a slow-moving crisis.
• The conversation details a strategic pivot in the gold mining sector, explaining why investors should favor large-cap, institutional-grade miners over speculative juniors to capture the next wave of capital flows.
• Mitchell breaks down the "Atoms vs. Bits" trade, suggesting a rotation away from overvalued software and AI stocks toward physical infrastructure, energy, and commodities required to power the digital economy.
• The discussion covers global market nuance, including the flaws in popular mining ETFs, the hidden value in Japanese equities, and why Chinese tech stocks remain value traps despite low multiples.

Key Concepts

• The "Round Tripper" Risk A "round tripper" occurs when an investor holds a winning position until it reverses into a loss, often driven by greed or conviction. In volatile markets, this destroys portfolio value. The antidote is aggressive profit-taking and position management, acknowledging that selling too early is preferable to holding a winner until it becomes a loser.

• Operating Leverage in Gold Mining Large gold miners have significantly cleaned up their balance sheets compared to previous cycles. They now benefit from massive operating leverage: because mining costs are relatively fixed, every $10 or $20 increase in the price of gold flows almost entirely to the bottom line. This makes the miners potentially more profitable than holding the metal itself during a bull run.

• The "Institutional Beta" Strategy Contrary to the traditional strategy of hunting for "alpha" in small, speculative junior miners, the current opportunity lies in "institutional beta." Generalist funds currently have near-zero exposure to gold. When they eventually enter the sector, they will instinctively buy the most liquid, large-cap names (like Newmont) first. Therefore, the safest and potentially most lucrative trade is front-running these institutions by owning the large producers, not the small explorers.

• Shadow Banking and "Evergreen" Risk Systemic risk has shifted from commercial banks (2008 style) to "shadow banking" and private credit. Much of the capital in private credit is "evergreen" (locked up and cannot be withdrawn), which masks underlying insolvency. Mitchell argues that poor-quality loans, particularly in the "Buy Now, Pay Later" space, are effectively bad debts that haven't been marked down yet, creating a slow-erosion crisis rather than a sudden collapse.

• "Atoms vs. Bits" Rotation The market is undergoing a rotation from "bits" (digital economy, software, AI) to "atoms" (real economy, energy, commodities). While AI is the dominant narrative, its physical constraints—specifically the massive energy required for data centers—will force capital into unloved physical sectors like coal, copper, and power generation infrastructure.

• ETF Inefficiency As sectors like mining mature, broad ETFs (like GDX or GDXJ) become inefficient tools. They often concentrate risk in redundant names or dilute exposure to the highest-quality companies. Investors achieve better results by "lifting the hood"—building their own baskets of stocks that target specific Tier 1 jurisdictions (safe countries like Canada/USA) and avoiding the "trash" often included in passive indexes.

Quotes

• At 3:17 - "Round trippers are the biggest no-no when it comes to risk management." - Highlighting the cardinal sin of trading: letting a profit turn into a loss due to a refusal to sell.
• At 9:44 - "So much of the cash that is funding the private credit complex now is evergreen... It can't be called back. It can't create a liquidity solvency issue... That doesn't mean that that sort of cancer doesn't need to appear somewhere else." - Explaining why the private credit bubble hasn't popped yet (locked-up capital) and why the losses will eventually surface elsewhere.
• At 16:00 - "Every $10-$20 on the gold price is dropping straight to the bottom line of companies that now have very clean balance sheets." - Describing the powerful operating leverage gold miners currently enjoy, where small metal price hikes equal massive profit jumps.
• At 18:25 - "At some stage, actively managed institutional money is just going to reach for the sector... what do they naturally do? ... They're going to reach for the big name like Newmont." - Predicting that the initial surge in gold stocks will be driven by large institutions buying liquid large-caps, not speculative juniors.
• At 21:35 - "Anything that's above the line today is real world... It's atoms today. Bits are doing terribly." - A concise summary of the market rotation out of technology/software and into commodities and physical infrastructure.
• At 35:00 - "The focus is all about using AI... tinkering with the models to make what they do better... they're just not being rewarded for it yet." - Explaining why Chinese tech giants are underperforming; the market rewards selling AI hardware (US chips), not spending money to use AI for internal efficiency.

Takeaways

• Curate Your Own "ETF" in Mining Stop "renting beta" through broad indexes like GDX or GDXJ once a sector rally has started. Instead, build a personal basket of 5-10 high-quality, large-cap miners located exclusively in Tier 1 jurisdictions (USA, Canada, Australia). This avoids the geopolitical risk and "garbage" stocks often dragged along in passive ETFs.

• Apply the "Schmuck Insurance" Rule If a position or sector (like tech or gold) rallies 7-8% in a single month, take chips off the table immediately. Do not let "fear of missing out" (FOMO) keep you in a trade that has become mathematically overextended. Taking a profit ensures you avoid the psychological and financial damage of a "round tripper."

• Invest in "Unloved" Energy Look for opportunities in the "real world" energy sector, specifically thermal and metallurgical coal. Despite the negative ESG narrative, the physical reality of the AI revolution requires massive baseload power that renewables cannot yet fully provide. These stocks are often priced at trough valuations but are essential for the "bits" economy to function.