Fu Peng's Latest Market Observation: Observations and Strategic Thoughts on Stocks, Bonds, Gold, and VIX Against the Background of Upgraded Market Game Theory [Fu Peng's Article]

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How Should Strategies Respond in the Context of Upgraded Market Games?

As previously mentioned, the current divergence on Wall Street regarding the AI bubble in U.S. stocks continues to ferment, and market sentiment has remained highly tense since September: whether the valuations of the artificial intelligence sector are high or whether the fundamental outlook is promising, these are not the core contradictions—market volatility arises not only from fundamentals but is also heavily mixed with emotional factors. Any slight disturbance, whether it be a sudden negative policy, excessive clustering in quantitative trading, or a chain reaction from crowded positions, could quickly ignite a "gold coin explosion" similar to last year's U.S. stock market.

Just after issuing a warning, who would have thought this black swan would arrive so quickly: Trump has restarted the trade war with China, announcing significant tariff increases to retaliate against China's restrictions on key mineral exports, ending the fragile truce between the two major global economies. Chinese goods exported to the U.S. will face a 100% tariff, and starting November 1, new export controls will be implemented on "any key software"—only nine days remain until the expiration of the current tariff reduction measures.

After the Texas poker game began in April, as players gradually folded, the number of opponents dwindled. Everyone thought that with only 9 days left, a resolution would be reached, pinning hopes on China and the U.S., but it quickly collapsed. Admittedly, compared to April, the breadth may not be as extensive, but both China and the U.S. are heavyweight players, holding significant cards and massive chips, and their impact is deeper and more concentrated.

The market's reaction will differ somewhat from April; this difference is such that the breadth does not extend globally to as many countries as it did in April, but in the context of a tug-of-war between China and the U.S., where neither side is likely to back down, the time dimension and depth of this concern may be broader.

Rare earths are crucial in the AI industry chain, supporting the construction of AI hardware infrastructure and enhancing computing efficiency and data processing capabilities. The unique properties of rare earth elements (magnetic, electrical, optical, and electrochemical) make them essential for AI electronic components, enabling the miniaturization of high-performance devices that support AI algorithm training, inference, and deployment The logic of the market is very straightforward: rare earths are crucial in the artificial intelligence industry chain, and China, leveraging its existing industrial chain advantages, is strengthening its dominance over the entire chain from mining to separation. In the short term, this will certainly constrain the United States and inevitably drag down the development process of AI in the U.S.—this timing is just right, coinciding with the critical window period for the U.S. to accelerate its AI industry layout. The huge capital investment and expectation gap make the market exceptionally sensitive and fragile; thus, the impact at this time will inevitably amplify the volatility. The root cause of the severe fluctuations in the capital market lies here: investors' concerns about supply chain security are sharply rising, forcing capital to reassess the timeline and cost boundaries of technological iteration, with geopolitical risk premiums deeply incorporated into the pricing logic of the industry chain.

Rare earths are significant, but they are not a universal key. Although this move does not directly block the U.S. AI development path, it can effectively disrupt its development rhythm, forcing opponents to wear down their strategic determination amid rising costs and supply chain restructuring, thereby granting China a critical window period for technological catch-up and countermeasures. The core value of this game lies in winning time—seizing strategic opportunities for China's technological upgrade. Through precise layout, China is building barriers in high-end separation and material preparation fields, making it difficult for external forces to escape dependency in high-performance magnetic materials, precision devices, and other areas in the short term. This competition is essentially a race against time: one side strives to slow down the opponent's pace, while the other side works hard to break through the blockade, competing for developmental advantages in a back-and-forth manner.

In the long run, other countries will certainly accelerate their pursuit of self-controllable paths for critical minerals for national security purposes, promoting breakthroughs in domestic mining and recycling technologies while restructuring global supply chain layouts. This strategic adjustment is not limited to the United States; Europe, Japan, and South Korea will also accelerate the establishment of rare earth reserve systems and alternative channels, further promoting the rise of resource nationalism. The cracks in the global supply chain are rapidly evolving into structural reorganization.

From the rare earth card to the AI industry chain and all assets related to AI, this is the key to the most direct market game influence. Of course, this card significantly suppresses the U.S. AI industry in the short term, especially in the supply of raw materials for high-performance computing chips and smart terminal manufacturing, thereby affecting the pace of AI hardware upgrades.

However, this does not directly destroy the U.S. artificial intelligence industry chain; such destruction may not be an accurate term. It should be said that this card will affect "time - delayed" and "rhythm - not so fast," rather than "he cannot, he is destroyed."

But this is enough to make the U.S. financial market react very violently, as the market's pricing of uncertainty has always amplified fear rather than rational assessment. Moreover, due to the previous wave of AI investment frenzy, capital has already overdrawn growth expectations for the next few years; any delay in technological advancement will be seen as a trigger for a crisis of trust, which significantly amplifies market volatility.

I have previously mentioned that in my system, I treat BTC as a comprehensive AI index. As the AI stocks in the U.S. stock market were severely impacted, BTC was also not spared from this systemic adjustment, and its price fell sharply. In fact, the price of 12,000 is already at the edge of the critical point, just as everyone describes the valuation of U.S. AI stocks as expensive; the market's fragility is very high. Once expectations reverse, liquidity will quickly withdraw, and risk assets will be the first to bear the brunt The decline of BTC is not an isolated event, but a reflection of the weakening confidence in the AI industry chain on the financial side. The market has shifted from chasing growth to avoiding uncertainty, putting collective pressure on high-valuation assets. This interconnectedness highlights the fragile balance under the current deep binding of technology and capital.

Moreover, we see that as the volatility of anchor assets BTC and ETH in NEW MONEY assets surges, various other "coins" with a higher degree of financial leverage are essentially experiencing 50 times, 100 times the volatility of the higher new money crowd, with even excessive leverage instantaneously exploding in extreme market conditions. NEW MONEY is facing significant liquidity issues, with chain liquidations and liquidity exhaustion; the fragility of this high leverage is infinitely amplified in an environment of increasing volatility.

The decline of the Australian dollar and crude oil certainly reflects the potential demand shock that may arise from this intense backdrop. The market's concerns about the restructuring of the global supply chain are rapidly transforming into pessimistic expectations for growth prospects.

However, unlike in April, Japan and Europe next door have already left the table, watching from behind. Of course, the outcome of this game may indeed be very important, because those who have left the table will either see Trump win and quietly rejoice in their discarded cards, or see Trump lose, which may cause those who discarded their cards to quickly turn into fence-sitters.

The current exchange rate is not reflecting extreme movements for this reason as well. As mentioned before, the market game between China and the U.S. is the most direct reflection between the two (U.S. stock market, Chinese demand), while the exchange rate is relative to the euro and yen. Although the yen has a safe-haven push, the same high uncertainty (the exit of the Komeito party from the Liberal Democratic Party's coalition) also means that the yen needs time at 155. The euro is currently influenced by the political and fiscal situation in its region, ultimately leading to a 1.66% weekly increase in the dollar index, the largest weekly gain since September 2024. This is a relative asset, not an absolute asset.

We cannot know the progress of the deepest market game between China and the U.S. in real-time, which leads to a lack of many trading bases, relying solely on market sentiment. Overly pessimistic approaches can be attempted, while overly optimistic ones require caution. We can still use our old methods, referring to our vigilance before NVIDIA's explosive gold coin last year, and how I used the structure of VIX to judge the peak of sentiment during the explosive gold coin phase. Currently, the volatility of U.S. stocks has just turned back, and the near-month premium of the previous VIX curve has not yet reached extreme levels, indicating that the current sentiment may not have fully released, and the emotional outburst is still in the middle stage. The market has not truly priced in the worst-case scenario; acting now is no different from gambling, and the margin of safety is still insufficient.

VIX Signals

Update on VIX (October 17): The Back structure of VIX has increased, indicating that implied market risks are intensifying. The renewed tariffs on CNUS (rare earths) and recent comments from Benson about "decoupling" have heightened market concerns. The already tense market nerves (worries about high valuations) have been exacerbated, and with U.S. Treasury yields falling below 4%, there are growing fears that risks could lead to a recession. As we approach the end of the month (whether there will be a meeting and discussions), this will be a critical moment. If the U.S. and China continue down this path, expectations may turn into reality.

The massive convergence triangle of BTC formed over two years shows that each support point corresponds to a spike in VIX volatility. From Nvidia's explosive gains last July to the tariffs in April and the recent G2 tariffs on rare earths, panic does not actually drive BTC; rather, it reflects the high correlation between BTC and the AI industry (after all, the main asset weight in the benchmark market for VIX is AI assets). We are at a very critical moment; the technical analysis support line is in place. If recession risks further increase, with U.S. Treasury yields already at 4%, it solidifies the recession narrative. The collapse of demand expectations will be a heavy blow to massive AI capital expenditures. If volatility continues to rise, BTC may accelerate its flash crash. In just a few days, we will see whether the U.S. and China are merely playing a game of bargaining before negotiations or if they are truly "decoupling."

How to view gold under high volatility?

Previously, gold experienced low volatility and was at the end of a sideways converging triangle. We employed a "straddle" strategy to capture the amplification of volatility. Ordinary investors could also achieve corresponding returns through a long-short dual opening (breaking the position to balance one leg). The acceleration in price movement is also behind the continuous expansion of volatility.

Now, we should consider what to do under high volatility. High volatility means increased costs, so it is advisable to take profits first and then observe the market. If it continues to move sideways and volatility decreases, it still indicates an upward trend, and there may be opportunities for another low volatility phase to initiate. However, if volatility is very high and adjustments are severe without a decrease in volatility, we need to be cautious about whether a turning volatility characteristic may emerge.

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Risk Warning and Disclaimer

The market has risks, and investment requires caution. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investment based on this is at one's own risk