Author Archives: Qingtian Zhou

Data Analytics, Investment Analysis, Predictive Analytics, Reflections

Rare Earths, Regime Shifts, and Mispriced Risk: A Case Study

Cross-posted and expanded from LinkedIn Pulse.

Markets are the ultimate validators of structural changes. From late May through mid-October 2025, I tested a thesis on the weaponization of rare earths (REMX)—the material backbone of defense, semiconductors, and electrification.

The hypothesis was simple: China’s tightening export controls and Western re-shoring mandates would reprice resource-sovereignty risk much faster than the market makers’ backward-looking models expected.

To express that view, I built a ladder of call options, buying cheap convexity in an under-theorized geopolitical theme. Through several disciplined rolls, early profits financed subsequent positions, compounding into a 2,904% (29×) return on the initial capital at risk. What began as a sub-$150 experiment became a self-funding proof of concept for structural forecasting.

DateOption ContractMoney Out (Buy)Money In (Sell)Cash Balance
————$137.36
5/30/2025 REMX250620C37-$137.36—$0.00
6/5/2025 REMX250620C37—$494.64$494.64
6/5/2025 REMX250718C41-$157.36—$337.28
6/5/2025 REMX250815C44-$45.68—$291.60
6/18/2025 REMX250718C41—$148.64$440.24
6/18/2025 REMX250815C44—$69.32$509.56
6/18/2025 REMX251121C46-$211.36—$298.20
6/18/2025 REMX260220C47-$167.68—$130.52
7/10/2025 REMX251121C46—$596.65$727.17
7/10/2025 REMX260220C47—$296.32$1,023.49
7/10/2025 REMX260220C55-$477.03—$546.46
7/21/2025 REMX260220C55—$1,065.97$1,612.43
7/21/2025 REMX260220C65-$482.03—$1,130.40
8/19/2025 REMX260220C65—$797.98$1,928.38
8/19/2025 REMX260220C75-$397.02—$1,531.36
10/2/2025 REMX260220C75—$1,146.99$2,678.35
10/2/2025 REMX260515C90-$791.01—$1,887.34
10/13/2025 REMX260515C90—$2,238.99$4,126.33
Structured trade ladder and realized cash flow. True economic return on initial capital = (4,126.33 − 137.36) / 137.36 = 2,904% (29×).

The Diagnostic: Why the Counterparty Was Wrong

The trade’s success was diagnostic. It confirmed a recurring pattern: when volatility stems from a policy regime change, correlation-driven models systematically lag reality.

Market-maker algorithms, calibrated for statistical noise, cannot price strategic intent. They hedge as if governments behave like Gaussians. As a result, they consistently sell volatility too cheaply—just as legacy institutions optimize for equilibrium in systems already undergoing phase transition.

This is the same pathology seen in data analytics and business forecasting: a dependence on historical (co)variance to model fundamentally shifting market conditions.

From Forecasting to Execution

When a thesis converts into an asymmetric payoff, it demonstrates more than market timing. It validates a causal framework for how power, technology, and risk interact. It also proves that structural modeling is not merely theoretical but can be operationalized for effect.

The same causal logic informs strategic advisory and adaptation:

  1. Diagnose Regime Shifts Early. Detect technological, organizational, and financial phase transitions before they are visible in lagging data.
  2. Quantify the Mispricing. Measure the delta between the consensus model (backward-looking, correlation-based) and the emerging structural reality.
  3. Exploit Convexity. Design capital, policy, and operational strategies that convert uncertainty into asymmetry, where disciplined exposure to the right tail compounds advantage rather than risk.

Many firms face the same asymmetry: slow recognition of structural changes creates exploitable inefficiency. However, unlike traders, executives cannot hedge. They must adapt quickly—or risk being repriced by the real world.

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Economic Analysis, News Comments, Reflections

Strange Rocks and Sober Models

The silence of the universe is a data point in search of a theory. Recently, this search has focused on 3I/ATLAS, a newly discovered interstellar object whose anomalous characteristics have prompted speculation. In his blog post, Harvard astrophysicist Avi Loeb explores the hypothesis that 3I/ATLAS could be a technological artifact of hostile alien origin, potentially providing the first evidence for the “Dark Forest” theory.

Loeb notes a series of low-probability coincidences: the object’s retrograde orbit is unusually aligned with Earth’s ecliptic plane; its large size of ~20 kilometers is statistically rare; and its trajectory is timed to hide behind the Sun at its closest approach, the optimal point for a braking maneuver to remain in our solar system.

While Loeb correctly frames this as a low-probability, high-impact hypothesis worthy of consideration under a Pascal’s Wager framework, evaluating the underlying strategic model is more critical than over-interpreting a single, ambiguous data point. The Dark Forest hypothesis, which this observation is claimed to support, remains analytically weak when subjected to strategic and physical scrutiny. A more parsimonious model is one of an “Archipelago of Silence.”

This model reframes the galaxy not as a uniform playing field, but as a vast, empty “Ocean of Irrelevance” dotted with rare “Islands.” The “Ocean” represents the immense interstellar voids where the tyranny of distance makes strategic interaction functionally impossible and economically nonsensical. The “Islands” are local stellar neighborhoods—clusters of systems where actors are close enough for travel and communication to be viable within civilizational timescales. It is only within these dense clusters that game theory becomes relevant, and a localized equilibrium of silent deterrence—cautious surveillance without broadcasting one’s existence—emerges as a rational strategy. The silence we’ve observed is therefore not a single, galaxy-wide policy of fear, but the sound of a mostly empty ocean and a few isolated, wary neighborhoods.

Paranoia vs. Physics

The core failure of the Dark Forest model is its immense descriptive burden. It demands a galaxy-wide convergence on a single, hyper-paranoid Nash equilibrium. It assumes that all technological civilizations will uniformly conclude that stealth and preemption are the only viable strategies. It is vulnerable to a “single point of failure”—just one reckless actor broadcasting loudly would break the equilibrium. It requires invisible enforcement to prevent this—an additional hidden mechanism. This is an extraordinary claim requiring extraordinary evidence.

The Archipelago model, by contrast, is grounded in physical and economic constraints that require no heroic assumptions about alien psychology.

DimensionModel 1: Dark ForestModel 2: Archipelago of Silence
Primary AssumptionUniversal, preemptive hostility is the convergent evolutionary outcome for all technological life.Strategic interaction is geographically constrained by the physics of distance.
Strategic CoherenceAssumes a single, galaxy-wide, total-war game where the only move is to hide or strike first.Posits that non-interaction is the default, while deterrence games are played only in local “strategic neighborhoods.”
Explanatory PowerExplains universal silence as a uniform, deliberate policy.Explains silence as the vast emptiness of the “Ocean of Irrelevance” plus the quiet of local deterrence games.
Falsification PathDifficult to falsify. Receiving a peaceful signal could be interpreted as a lure or the action of a naive civilization, not a refutation of the core threat model.More readily falsifiable. The detection of routine, high-bandwidth communication between causally disconnected “islands” would invalidate the “Ocean of Irrelevance” concept.

Quantitative Sanity Anchors

The strategic landscape of the galaxy is not flat. It is defined by geometry and cost.

  • Spatial Economics: At typical stellar densities, a “strategic neighborhood” might span 10-30 parsecs, encompassing a few hundred to a few thousand stars. At plausible interstellar travel speeds (0.01c–0.1c), crossing this distance takes centuries to millennia—a timeframe within the bounds of civilizational planning. Beyond this, in the vast “Ocean of Irrelevance,” the costs of projecting force become prohibitive.
  • Detection Physics: Absent deliberate, high-powered beacons, signal leakage attenuates by the inverse square law into undetectable noise beyond a few light-years. The default state of the cosmos is quiet. Silence requires no coordination; it is the baseline.

The Dark Forest model ignores these realities. The Archipelago model is built upon them. It requires only sparse life, finite travel speeds, and locally rational deterrence where actors are close enough to matter. It is the more sober and, therefore, more likely explanation.

A Bayesian Update

A Bayesian update is in order. Even if 3I/ATLAS were confirmed as artificial—a claim Loeb himself admits is unlikely—it would not validate a galaxy-wide paranoia. It would be a single data point, more easily explained as an artifact from a civilization within a local “island” than as proof of a universal rule. The most likely outcome, as Loeb notes, is that 3I/ATLAS is a natural object.

The high posterior probability (~80%) must still be assigned to the Archipelago model. The silence of the universe is not the sound of fear. It is the sound of distance. It is the default background sound of a cosmos where the strategic game is local, and most of us are simply too far apart to play. The paradox is not that the universe is silent; it is that we expected it to be noisy.

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Economic Analysis, Reflections

Notes on a Structural Reset: Navigating Chaos, Realignment, and Flux

Cross-posted from Unadorned Notes.

History is not ending, but the rules have changed.

If the last decade was defined by the slow-motion unraveling of hyperglobalization, the past two years have finally made the regime shift impossible to ignore. What once passed for cyclical “trade tensions” or technocratic skirmishes has matured into a structural reset—one whose implications extend far beyond the headline metrics favored by mainstream commentary.

The realignment now underway is not simply a matter of tariffs, regulatory tweaks, or the latest iteration of “America First” or “China Dream.” It is, in every substantive sense, the construction of a parallel world order. The old system—built on the illusion of costless integration and ever-deepening interdependence—is giving way to something far more contingent, more fragmented, and frankly, more interesting.

Globalization: Not Dead, But Bifurcating

First, a Bayesian update: the hypothesis of global “decoupling” as performative noise should be downweighted. What we are seeing is not the slow death of globalization per se, but a selective rerouting of its arteries. Call it “America with aligned partners, minus China,” or, more precisely, the emergence of blocs built on overlapping interests, credible commitments, and mutual hedging. Capital, talent, and supply chains are reorienting themselves according to a new calculus—one in which political alignment, strategic reliability, and supply resilience supersede the last decimal of cost optimization.

The evidence is no longer ambiguous. Trade corridors are deepening between the U.S., Mexico, India, and Southeast Asia, even as dependencies on China are methodically unwound. In parallel, new institutional frameworks (IPEF, Quad, AUKUS) are quietly laying the rules for this next phase. The fiction of a frictionless global marketplace now serves mainly as nostalgia for a system that no longer exists. What replaces it will not be a return to autarky, but a noisy, iterative process of trial and error—where “allies” and “strategic partners” are redefined in real time.

Permanent Volatility: The Price of Strategic Autonomy

There is also little reason to expect a reversion to the low-volatility, low-inflation equilibrium of the 2010s. The persistent stickiness of inflation, the rolling energy and supply chain crises, and the now-chronic uncertainty in capital flows are features, not bugs, of this new landscape. What central banks once dismissed as “transitory” now seems closer to a permanent tax on naive optimization.

More importantly, the volatility is not random noise—it is endogenous to the system itself. Industrial policy, export controls, and geopolitical hedging have become sources of structural uncertainty. For investors, businesses, and policymakers alike, this is not a temporary dislocation. It is the new baseline, and it is unlikely to abate before the dust settles on this global reset—which, by all accounts, may take several more years.

Defense, Technology, and the Return of State Capacity

One notable feature of this cycle is the blurring of boundaries between public and private R&D. The West’s belated rediscovery of “industrial policy” is not simply a matter of subsidies or procurement budgets. It is a cultural pivot: top-tier technical talent, once allergic to state priorities, is now routinely drawn into defense, dual-use technologies, and the (re)building of “sovereign” supply chains.

The proliferation of AI-centric startups in defense and the renewed emphasis on domestic semiconductor manufacturing are symptomatic. The incentives now point toward speed, resilience, and functional sovereignty, rather than global market share for its own sake. This is not to romanticize the results—bureaucratic inertia and regulatory rent-seeking are alive and well—but the direction of travel is unmistakable.

The Emerging Geography of Opportunity

It is tempting to project yesterday’s power centers onto tomorrow’s landscape, but that would be a category error. China’s relative position is not merely challenged by external tariffs or technology bans; it faces deeper headwinds: demographic decline, structural debt, and the diminishing returns of a state-driven growth model.

Meanwhile, countries that sit at the intersection of credible alignment, operational capacity, and market access—India, Vietnam, Mexico, and certain Eastern European economies—are rapidly gaining share in manufacturing and services. The “China+1” narrative is being realized not as pundit fantasy but as lived economic reality, visible in trade data, FDI flows, and the shifting preferences of global firms. The U.S. itself, by virtue of geography, technological ecosystem, and resource endowments, is positioned to be the “least dirty shirt” in this new order, at least for the foreseeable future.

Final Thoughts: Optionality Over Optimization

The correct response to this structural shift is neither panic nor nostalgia. Rather, it is to adopt a posture of robust optionality. For individuals and institutions alike, the age of “efficient frontier” thinking has given way to the age of “antifragility under constraint.” If the old world rewarded leverage, the new one punishes overextension and prizes optionality—be it in supply chains, alliances, or intellectual capital.

As always, the temptation will be to search for a new equilibrium. But Bayesian realism suggests that the only constant over the next decade is the likelihood of further regime change—strategic, technological, and institutional. It is not so much that the world is becoming unrecognizable, but that the meta-game itself is evolving, faster than most of its participants can adjust. The wise will be those who build systems capable of learning, adaptation, and controlled risk-taking, not those clinging to yesterday’s playbook.

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News Comments, Reflections

Democracy Worked, Lessons Learned

Three years ago, I mused that I would one day write a post on Western liberal democracy and its functioning. With Donald Trump reclaiming the presidency with an even stronger mandate than in 2016, there’s no better time than today to dive into this topic in the current American political landscape.

Critics often argue that Trump supporters, in their loyalty, are acting against their own best interests. This critique usually drips with a mix of disbelief and condescension—how could so many people rally behind such a controversial figure? But reducing Trump voters to caricatures misses the point entirely. For many, voting isn’t just about immediate self-interest; it’s also about the future they envision for their country.

The choice transcends standard ideological labels. It stems from a deep distrust of a political elite and establishment seen as out of touch, self-serving and unaccountable. Much of this frustration is directed at the current Democratic Party, which has moved further away from its working-class roots and is increasingly influenced—or even captured—by a “progressive” left wing.

In 2020, Joe Biden was elected not because of overwhelming enthusiasm, but as a way back to “normalcy”. But the party has taken its narrow majority as a sweeping mandate, using the nation’s need for stability to push through broad top-down initiatives and social agendas that are driven by ideology and divorced from reality. This misreading of public sentiment has further eroded confidence in Democratic leadership.

Trumpism therefore goes beyond a cult of personality or conservative populist rhetoric; it resonates with Americans who feel that certain ways of life, such as economic opportunities, freedom of speech, and protection from government overreach, are under siege. Voting for Trump thus becomes a symbolic middle finger to the Democratic Party. His appeal lies in his role as a disruptor, a challenge to both the complacency of the establishment and the ideological excesses of the Democratic Party. For many, accepting Trump’s many flaws is a price they’re willing to pay because they believe he offers the best counterbalance to the political elite and the “progressive” left’s erosion of their country’s future.

Against this backdrop of disillusionment and defiance, the democratic process has worked just as expected. There is no hidden cabal pulling the strings; every citizen gets a vote, and those votes add up to shape the collective will of the nation. Democracy functions as a source of political truth. This election revealed that fundamental truth, no matter how much it may defy the conventional narrative.

If the Democratic Party wants to reverse this trend, it must first own up to its mistakes. The party must acknowledge it has ignored and deviated from the values of the everyday Americans it purports to represent. Without a real course correction and a sincere attempt to reconnect with these voters, Trumpism will remain a potent force in American politics for years to come. But that is a feature, not a bug, of American democracy.

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Announcements

Introducing My Newsletter

I’ve always been passionate about keeping up with current events, which has inspired me to write and share my perspectives. In the past, I found a playground for my thoughts on platforms like Zhihu, despite the restrictive nature of the Chinese internet. As restrictions and censorship further tightened, I shifted my focus to writing in English, focusing on academic, business, and geoeconomic issues. I’ve also maintained this blog, a personal space for reflections, although I haven’t posted as often as I’d like.

The recent arrival of large language models (LLMs) and generative AI, such as ChatGPT, has revolutionized the field of writing. For non-native English speakers like me, these advancements have vastly streamlined tasks such as summarizing and copyediting. So it is with great excitement that I introduce Unadorned Notes, my newsletter and latest venture into the world of writing and information sharing. The name captures the essence of this project—simplicity and clarity without unnecessary decoration. It’s a learning journal, a collection of current events, and a repository of insights that I want to share with like-minded people.

With the launch of my new newsletter, this blog will continue to be the home for my more original and personal musings. But for now, Unadorned Notes welcomes your subscription if you, too, are interested in better understanding the world day by day.

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Economic Analysis, News Comments, Reflections

The Curious Case of the “Chinese Spy Balloon”

In February 2023, the world was abuzz with the now-infamous “Chinese spy balloon” incident, which quickly dominated the news cycle. At the time, I lightly remarked on one of my social platforms that this might be more spectacle than substance. I even half-jokingly came up with an economic model where one player had the option to “spy” or “not spy” and the other had the option to “shoot” or “not shoot”. Both the Nash equilibrium in the static game and the subgame perfect equilibrium in the sequential game pointed to the outcome “not spy, shoot”.

Fast forward seven months to a recent revelation by Gen. Mark Milley, the chairman of the Joint Chiefs of Staff. Speaking to CBS News, Milley explained that the balloon was unintentionally diverted from its original route by winds and ended up drifting over the continental United States. The device, it turns out, did not collect any intelligence or transmit any data to the PRC.

Regular readers of this blog are well aware of my views on China. While I’ve always maintained a nuanced perspective on the challenges posed by the PRC to the U.S. and the Western world at large, this balloon episode stands out as an interesting example of how narratives, once established, can overshadow reality. Ironically, the media’s uncritical role in the entire scenario bears a striking resemblance to China’s state-sanctioned propaganda within the Great Firewall.

The “Chinese spy balloon” downfall (pun intended) serves as a stark reminder of two non-negotiables: first, the primacy of evidence over emotive spin; second, the obligation to maintain strategic composure amid narrative churn. In navigating a geopolitical environment characterized by noise, distortion, and runaway feedback loops, discernment and deliberation become prerequisites for any meaningful response. When the stakes are so high, clear-headedness is not only a virtue, it’s a necessity.

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