Ep. 1380: Bubble Time with Michael Covel on Trend Following Radio

Please enjoy my monologue Bubble Time with Michael Covel on Trend Following Radio. This episode may also include great outside guests from my archive. --- I'm MICHAEL COVEL, the host of TREND FOLLOWING RADIO, and I'm proud to have delivered 10+ million podcast listens since 2012. Investments, economics, psychology, politics, decision-making, human behavior, entrepreneurship and trend following are all passionately explored and debated on my show. To start? I'd like to give you a great piece of advice you can use in your life and trading journey… cut your losses! You will find much more about that philosophy here: https://www.trendfollowing.com/trend/ You can watch a free video here: https://www.trendfollowing.com/video/ Can't get enough of this episode? You can choose from my thousand plus episodes here: https://www.trendfollowing.com/podcast My social media platforms: Twitter: @covel https://twitter.com/covel Facebook: @trendfollowing https://www.facebook.com/trendfollowing/ LinkedIn: @covel https://linkedin.com/in/covel/ Instagram: @mikecovel https://www.instagram.com/mikecovel/ Hope you enjoy my never-ending podcast conversation!

• 0:00Speaker 00

  In the age of AI, I am an anachronism, an outdated model. I actually wrote eight books the old fashioned way. That said, me and my team, we experiment with AI. It's quite an interesting tool, but it can't do a lot of what you think it can do. It has no memory. If you start throwing tens of thousands, if not 100,000, or in the case of very large corporations, millions of words at AI, it has no persistent memory. It basically crashes out and fucks up your work almost immediately.

• 0:43Speaker 00

  So if you think that you're going to develop, write, create, for example, a book or maybe a software program, and AI is going to be your assistant sitting next to you with a mind, a memory, it doesn't exist. I mean, it might exist with a massive amount of money being spent inside the bowels of Google's research centers. Yes, I can imagine they have created models and they have the hardware to keep track of hundreds of thousands of words and essentially be that mind. But this is expensive stuff and it doesn't exist for the average Joe, any of us, regardless of how much we want to pay.

• 1:28Speaker 00

  Now, that's just a thought for me about AI. So where are we on AI? And ultimately, from a trend following perspective, does it matter? Are we in a bubble? It sure looks like one to me because if the stuff that's being promoted can't do what you want it to do, and the human mind can imagine, now with the possibility of AI, we can imagine all the things it can't do that we want it to do. I don't know, it doesn't seem like that we're close to, quote, "real artificial intelligence" anytime soon. But again, is it a bubble? How the hell do I know? It doesn't matter. Look, bubbles are not crimes and we've been watching the metals markets.

• 2:14Speaker 00

  They're not crimes, they're not mistakes, they're not moral failures, they're structures. Markets have been producing bubbles for as long as capitalism existed. The problem is not bubbles, the problem is moralizing them instead of understanding them. And again, let's be upfront about something. AI is something that's real. I can see the usefulness. It's definitely not pets.com. It's not a sock puppet. But it's not what we think it is, at least at this moment in time. You know, back in the day during the dot com era, and of course, email, again, pets.com, search, these things were all real. I mean, pets.com really was never real. But email was, search was, bandwidth was real.

• 2:58Speaker 00

  The NASDAQ still collapsed almost 80%. That's the price. The price of the NASDAQ dropping by almost 80%. Even though email, search, video to calm the phones, even though all of this was changing our lives. Bubble up, bubble down. So price doesn't reward technological truth. Price rewards timing, positioning, and behavior. That's the frame. Now, let's think about what people are seeing. They see Nvidia, they see parabolic charts. Gold, silver, trillion dollar market caps. Headlines about AI changing everything, and it probably will. But that's completely different than price.

• 3:40Speaker 00

  So you got the two camps out there. One, it's 1999 all over again. Camp two, this time is different. But don't they both miss the point? Those arguments are about justification, not observation. Markets don't give a shit which camp you're in. They care what you do with risk. Let's go back to 1999. Carefully, not nostalgically. Cisco was not fake. Qualcomm was not fake. Microsoft was not fake. The problem was not technology, the problem was expectations. Outrunning time. I knew in 1994, and especially in 96, putting my first website up. The internet was going to change everything.

• 4:22Speaker 00

  It just wasn't going to do it fast enough to justify the price. But if you're trading the price, it didn't matter as long as you had a system. So there's always this lag between truth and monetization where bubbles live. That lag exists in AI too. That doesn't mean there isn't a trend, of course there is. But it defines its risk. Now here's the first mistake people make. They think about identifying a bubble means avoiding it. No, that belief has destroyed more opportunity than any market crash ever did. Bubbles alone are not dangerous. They are the most powerful trend environments markets produce.

• 5:06Speaker 00

  They are where momentum is strongest, where capital concentrates, where careers are made, and where careers are destroyed. But look, trend followers don't avoid bubbles. Hell, we can't predict bubbles. But when you're in the middle of one, you respect it, you ride it, and you exit when behavior changes. Not when the narratives peak. How the hell can you trust a narrative? All you can do is trust the damn price. I mean, think about Nvidia, not as a company, but as a symbol. Nvidia is not being priced as a chip company. It's being priced as an infrastructure choke point. The same way Cisco was priced as the backbone of the internet.

• 5:49Speaker 00

  The same way Qualcomm was priced as the gateway to mobile data. These companies are proxies. They absorb belief, they become vessel. And when that happens, fundamentals become secondary to flow. That's where most people get wrong. They lose their footing. They want valuation to matter now. Valuation always matters eventually, but price does not wait for eventually. Price responds to marginal buyers. And right now, marginal buyers believe AI is non-optional. That belief drives price. You can't argue with it. You can observe it and think about the phrase that people love to use. This is clearly a bubble. I say, so what?

• 6:33Speaker 00

  Every major technological transition has gone through a bubble. Railroads, electricity, automobiles, radio, television, internet, mobile, cloud. All had bubbles, all had crashes, and all changed the world anyway. The crash did not invalidate the trend. It just redistributed the capital. That redistribution is what matters. Because if you know it's going to happen, if you know there's going to be a bubble in something, and you know there's eventually going to be a crash or a redistribution, how the blank are you going to trade that? What are you going to do with it? If you don't have a system, then you are really just saying you're one of these dumpy old ladies,

• 7:17Speaker 00

  dumpy old men in Vegas at the gas station playing slots. That's all you are. I mean, if you can't see by now, going through history, looking at the present moment, this particular pattern that happens in markets, trend up, trend down, and you haven't thought to yourself, well, this seems to happen across all types of markets, this human behavior. It's persisted over history. So what am I going to do? How am I going to handle it? Am I going to step back and look at something like trend following, a system? Am I going to step back and figure out a way to manage these periods? Or am I going to be the jerk off that gets really excited?

• 8:02Speaker 00

  Or just one of the depressing old people sitting at the slot machine at the gas station, smoking camels, like turning their skin to leather, nonstop? Man, we only got one time to live, right? There's only one life. And if you know how things work, then come on, do it the right way. But there's always an unwind. And the unwind doesn't necessarily rhyme or look the same as the prior unwind. And maybe this is something unique to the modern moment of 2026.

• 8:33Speaker 00

  The NASDAQ unwind in the late 90s into the early 2000s, that kind of spread out over time. Modern bubbles just kind of snap. Look at silver, down 30% in a day. Now, how can you justify ever trading that? Quite easy, because you never expected to get the entire move from the bottom to the top. You expected to get a piece of it, a segment of it. And if you're not a greedy MF, and you're comfortable with getting a piece of it, a segment of it, not the exact bottom to the exact top, which is impossible, then you're okay. And if it's not the only market you're trading, you're definitely okay. Now, if it's the only market you're trading, and you're on leverage,

• 9:18Speaker 00

  we know where you are right now today. You could be in the poorhouse, you might be out on the street, you might be the fat Chris Farley character, living down by the river in a van. Now, if you are one market alone on high leverage, you're fucked. So, the question for all this stuff, there's many questions, but how do you participate without becoming emotionally attached? How do you ride the upside without believing the story? How do you exit without needing consensus? Those ain't philosophical questions, they are tactical. They require a framework that does not depend on being right. Being in bubbles, being right too early, feels exactly like being wrong. That's why trend following earns its keep.

• 10:03Speaker 00

  It's not a belief system, it's a behavior filter. Trend following does not give a shit whether AI changes the world. It does not care whether Nvidia deserves its valuation. It does not care whether this ends badly. It cares about one thing, price. That's it. No speeches, no apologies, no heroics. Think about it this way. Once a bubble has been identified, however that's done exactly, the damage is already done. Not to price, but to your judgment. Because the moment people label something a bubble, and I'm guilty of this at various points in time, they stop observing behavior and start arguing philosophy. Now, if I call something a bubble, from my perspective, as a trend following perspective,

• 10:46Speaker 00

  I haven't lost my judgment, because I'm trading price.

• 10:51Speaker 00

  But a lot of people do. They start asking whether it should go higher. Markets don't care. The real risk arrives when behavior changes while narratives stay confident. That's where bubbles actually mature. And that's the phase we need to understand with precision because this is where smart people usually fail. Taking a step back here, if you have no system and you're in the middle of one of these big moves, these crazy moves like silver, you're already just the old lady gambling at the casino gas station somewhere in Reno or Vegas. And you know, once people start talking about buying the dip, when they start talking about the earnings or this or that or whatever,

• 11:34Speaker 00

  you just know something bad is going to happen. I mean, from a trend following perspective, is there anybody that was remotely surprised, given the size of the move in silver, that it collapsed 30% in a day? Is anyone surprised? And what do you do then? Because if you spent all of your time talking about silver and it's part of tech or something and you needed to make electric vehicles and you had that all deep in your blood and you believe that, and then you get your face ripped off, your account's dead, and now you think, what do I do? I still want to make money.

• 12:19Speaker 00

  I still want to get ahead, but I just got burned big time playing a silver hero. I mean, all you can do is step back. You can step back and say to yourself, how do the best do this? And the best accept the 30% drop in a day. They don't argue with the price. They respond to it. I mean, the hard truth about these bubble times for most people is the most dangerous moment is not necessarily when everyone is euphoric. It's when confidence becomes procedural. When buying dips is no longer a choice, but a reflex. I mean, we're assuming this particular person that I'm talking about right here, which could be you. Buying dips, no longer a choice, but a reflex.

• 13:04Speaker 00

  That reflex is visible in price. And when it stops working, the unwind begins. Or the unwind doesn't begin. But from a trend following perspective, you just stick with the approach. Trying to predict outcomes, useless. Outcomes are unknowable. Behavior, which means price is observable. And let me give you something tangible to think about if you are one of these people that has no system, but you happen to be in the middle of a quote "bubble." Your exit strategy is not about calling tops. It's about accepting ambiguity. It's about acting when certainty is lowest. That's the price of survival. And the great thing about price, and where most people blow it,

• 13:49Speaker 00

  they want confirmation from the fundamentals, from earnings, from analysts, from media. If I could just flip on CNBC and Kernan and Faber, "Tell Me Something," or Kramer. They need that. Because price, just the number on the screen, I can't possibly believe that. The confirmations that you want always come after price has already done its dirty work. Let's think about what I've established today. AI is real, the trend is real, the risk is real, the bubble question is secondary. The primary question is how behavior shifts when reinforcement weakens. That shift will not announce itself, it never does. It arrives quietly through failed rallies,

• 14:32Speaker 00

  through deeper pullbacks, through leaders breaking first, through volatility expanding. And when it happens, the right response will feel wrong. I mean, unless you're a trend following trader. Your response will feel premature, cowardly, like you're missing out. That feeling is the signal. Exits never feel good necessarily with trend following because you're giving something back. It's lonely, it's uncertain. Here's the deal. The final mistake that people make is assuming that an exit requires catastrophe. They don't. They require discipline to follow rules. Think about it this way. Bubbles train people to ignore risk. Because risk doesn't get paid.

• 15:16Speaker 00

  Dip buying works until it doesn't. Conviction is rewarded until it isn't. Confidence becomes your muscle memory. And muscle memory is freaking dangerous when conditions change. This is why trend following exits often come from boredom, not fear. Boredom is when the markets stop paying you for patience. That's a signal. That's price. Let's think about how this ends. Whatever this is, whatever particular market we're talking about, bubble or not, not with a verdict on AI, not with a call to buy or sell, but with a recognition. Bubbles are not mistakes. This is us.

• 16:01Speaker 00

  This is human behavior interacting with capital. That's going to happen again and again and again, our entire lives. It ain't going anywhere. The only edge is not avoiding them. It's knowing how to participate without believing the story and how to leave without needing to be right. That's the entire trend following game. It's always been the trend following game. It's never going to stop being the trend following game. It never changes, even when the tech does. The tech can keep coming forever. Ladies and gentlemen, keep throwing tech at us, more and more tech.

• 16:45Speaker 00

  But there's always going to be multiple generations, because we don't have life extension yet, multiple generations with different desires and different needs, all in the marketplace, all playing, all essentially trying to get rich. And how many of those people do you think have a plan? And if you have a plan, how much of an edge do you have? A big freaking edge. Hats off to trend following. What an amazing way to deal with the human condition. See you again next week.

• 17:27Speaker 00

  I see a time when those awake will understand how to make money in up, down, and surprise markets. Whether a new trader or experienced, college student or financial advisor, protecting against a crash or just trying to make a lot of money, trend following offers everyone an answer in uncertain times. To get started immediately, send me an email, [email protected]. I will send you the right trend following steps to take along with my free video. But if you want to buy and hold, trust the government and trust Wall Street, this is absolutely not for you.