Market Commentary
Joe Tigay

When Everyone Calls It a Bubble, It Probably Isn’t

By Joe Tigay, Portfolio Manager of the Rational Equity Armor Fund and former VIX and SPX pit market maker

The Paradox of Market Fear

The chatter is everywhere: stocks are in a bubble. Turn on financial television, scroll through market commentary, check the sentiment surveys—the warnings are relentless. But here’s the uncomfortable truth that separates profitable investors from perpetual skeptics: the time to be truly afraid is when stocks are soaring and nobody thinks it’s a bubble.

Markets called bubbles rarely are. Markets ignored as safe havens often become the next spectacular implosion.

My Investment Thesis

The definitive, long-term appreciation of equities dictates a bullish strategy, which is optimized by actively capitalizing on the short-term, mean-reverting spikes in volatility—specifically, by harvesting the profits from selling market fear high to systematically fund the purchase of stocks low during market dislocations.

Let me unpack that.

The Unchanging Reality: Stocks Go Up

Strip away the noise, and one fundamental truth remains: over an extended period, stocks will always go higher. This isn’t optimism—it’s mathematics. Central banks worldwide continue policies that effectively devalue their currencies, creating persistent asset appreciation. Companies generate earnings. Innovation compounds. Population grows. The tide rises.

But this long-term trajectory is punctuated by violent, short-term volatility. And therein lies the opportunity.

The Two-Asset Strategy

My approach rests on two pillars:

  1. Equities have positive long-term expected returns
  2. Volatility has zero long-term expected returns—it mean-reverts

Here’s where it gets interesting: these two assets exhibit a powerful short-term negative correlation. When stocks plunge suddenly, volatility (measured by the VIX) spikes dramatically. This creates a repeatable pattern:

  • Market drops sharply → VIX explodes to extremes
  • Sell volatility high (via options, short VIX products, systematic strategies)
  • Use proceeds to buy equities low during the dislocation
  • Volatility reverts to mean, stocks recover, portfolio compounds

This isn’t market timing—it’s systematic rebalancing funded by volatility harvesting. You’re letting market panic pay for your stock purchases at discounted prices.

Bubble Mechanics: A Reminder

Nobody possesses a crystal ball. No analyst or charting expert can definitively predict the market’s next turn. But we can observe patterns.

Bubbles rarely pop immediately. They follow a progression:

  1. Early stage: Asset begins rising, attracting doubters and skeptics
  2. Acceleration: Momentum builds, skeptics fade or capitulate
  3. Parabolic phase: Rapid vertical rise driven by evangelicals who believe it’s a new paradigm
  4. The pop: Occurs only when everyone is fully bought in and protection is abandoned

The discussion of equities being in a “bubble” is not new—it appears during every significant rally. Critics are occasionally right and the market suffers a correction. But most of the time, the market ignores the noise and continues higher. When everyone is calling it a bubble, positioning cautiously, and buying protection—that’s usually not the top.

Gold: A Real-Time Case Study

Which brings us to the most instructive setup in today’s market: gold.

For the past two years, gold has been on a remarkable run. The metal has transitioned from a safe-haven asset to a momentum trade. And now, the technical signals are flashing warning signs that look nothing like the “bubble” everyone sees in equities.

What We’re Observing in Gold:

  • Parabolic price acceleration after a multi-year rally
  • Put-call ratios at historic extremes—showing virtually no put buying (no protection)
  • Aggressive, one-directional call buying (pure upside chasing)
  • Narrative evolution from “inflation hedge” to “can’t-lose trade”

This is what late-stage bubble behavior actually looks like. Not caution. Not hedging. Euphoria with no safety net.

Chart from Jesse Felger

Compare this to equities, where sentiment surveys show elevated fear, put-call ratios remain elevated, and every 3% dip brings proclamations of the coming crash. The asset everyone calls a bubble shows defensive positioning. The asset nobody calls a bubble shows reckless optimism.

Why We’re Watching Gold

I’m not predicting gold will crash tomorrow, next week, or next month. Bubbles can remain irrational far longer than seems reasonable—which is precisely why we don’t short them.

But we watch them.

Over the coming weeks and months, gold serves as our real-time case study in bubble mechanics. If the pattern holds:

  • The parabolic rise will accelerate further (classic final stage)
  • A trigger will emerge (narrative break, technical failure, external shock)
  • The reversal will be sharp and unhedged—because nobody bought protection
  • Capital will rotate back toward undervalued assets (hello, equities)

Whether it plays out this way or not, the exercise is instructive. These are the technical and behavioral signatures worth monitoring. These are the signals that distinguish genuine euphoria from overcautious rallies.

The Rotation Thesis

Here’s the tactical setup: gold runs first, reaches a psychological peak, and gets deemed overvalued. Investors then look back to equities—which have spent the entire rally being called a bubble—and realize they’re actually reasonably valued with room to run.

If and when gold breaks, expect:

  1. A volatility spike as risk-off behavior returns
  2. An opportunity to sell that volatility spike at elevated levels
  3. A chance to buy equities during the dislocation
  4. Capital rotation from gold back into stocks

The self-funding mechanism activates exactly when it should.

The Only Strategy That Works

No one knows what happens next. The gold case study might play out exactly as described, or gold might continue its run for another year while defying gravity. The equity “bubble” might correct 20%, or it might grind higher for years while skeptics wait for a crash that never comes.

This is why prediction is pointless and strategy is everything.

The approach that survives all scenarios:

  • Stay long equities for their structural, long-term appreciation
  • Harvest volatility spikes to fund purchases during dislocations
  • Watch for actual bubble signals (like gold’s current setup) rather than getting spooked by overcautious sentiment
  • Remain systematic, unemotional, and focused on the only timeframe that matters: the long term

The market will continue doing what it always does—climbing a wall of worry while everyone calls it a bubble. Meanwhile, we’ll keep watching for the assets where nobody is worried at all.

Those are the ones that actually pop.

What are your thoughts on the current setup? Are you watching gold as closely as we are? Let me know.

About the Author

Joe Tigay is the Portfolio Manager of the Rational Equity Armor Fund and a former VIX and SPX pit market maker. With decades of experience trading volatility in the Chicago trading pits, Joe brings a unique perspective to systematic equity and volatility strategies. Learn more about Joe’s background.