We&rsquo;ve said repeatedly that AI is powerful, it&rsquo;s everywhere and it&rsquo;s here to stay. Still, there are many dangers associated with AI that are being swept under the rug by major frontier AI companies like OpenAI and Anthropic.
One of the dangers in finance is that AI is being used for portfolio management and even to execute specific stock, bond and currency trades.That may produce positive returns initially.
The difficulty is that, as more portfolio managers adopt AI, algorithms trained on overlapping data and built with similar structures could quickly produce herd behavior. This herd behavior could trigger a panic because the algorithms lack human common sense and independent judgment.
Regulators may have to intervene to halt trading until some order can be restored.
In short, AI is the ultimate resonator. In describing the drivers of a potential AI-based market panic, don&rsquo;t ignore the most powerful component &mdash; AI itself can amplify an AI attack.
Many trading and risk management systems used by bankers, brokers and wealth managers have automated or AI functions built into them, whether the user understands them or not.
Most such applications are quite simple and relatively harmless. If a trading system is programmed to detect when a particular stock has dropped 2% in price and warns the user in a soft voice, that&rsquo;s a kind of automated alert system, but not a dangerous one. It&rsquo;s up to the human user to decide what to do once the warning is given.
From there, it&rsquo;s a simple matter to code the system automatically to sell the stock once the 2 percent threshold is hit, without awaiting human instructions. Traders consider such stop-loss features valuable in volatile markets and are relieved not to have to track each stock and make each decision. Systems quickly grow to add new factors, create more complexity, and assume more autonomy.
Some hedge funds are already using AI to make buy and sell decisions without human intervention based on thousands of factors using layered neural networks, deep learning, and millions of pages of training materials. Recent academic research suggests such systems can outperform human analysts and traders.
As such systems proliferate, the danger is that progressively larger percentages of total assets under management are handed over to the robots for pre-programmed trading.
If robots had something like human cognitive diversity even to the point of some robots being more risk averse, trend followers, and still others contrarians, etc. it might be possible to replicate a human-like trading ecosystem in which fear and greed balanced out and a rough equilibrium with bounded volatility could be maintained. This is not the case.
Instead, the input nodes contain mostly the same factors (learned in business schools, economics departments, and Wall Street training programs), edge weights are roughly the same based on regression analysis, the stop-loss limits are the same (as dictated by risk managers using standard tools as ordered by management), and the inputs are identical since we all get the same news at the same time.
<h2 class="centered subhead" style="text-align: center;">Overlapping Strategies</h2>
Many training sets overlap, drawing from the same internet pages. Therefore, it should come as no surprise that the outputs are the same. With no top-down coordination and no desire necessarily to achieve this result, all of the robots are singing from the same songbook. The market results can be fearsome.
These and other dangers will emerge at some point. Experts can already describe them in detail. There are documented tests in which frontier models have behaved deceptively or attempted to circumvent safeguards. But that has not stood in the way of the mad dash to launch potentially enormous IPOs for OpenAI and Anthropic in the near future.
One big mistake humans make is to anthropomorphize GPT (and the AI behind it). We start to treat Alexa and Siri and other robots as friends or confidants. We trust them too much. It&rsquo;s important to realize that there&rsquo;s no real intelligence behind the facade; it&rsquo;s all just math.
Along with the overreliance is the fact that these systems are highly error prone. They can perform amazing analytical tasks, but they also make things up (so-called hallucinations) and get some things flat wrong. It&rsquo;s fine if you&rsquo;re a subject matter expert yourself and you can spot the errors. It&rsquo;s more dangerous if the user is not a subject matter expert and is relying on erroneous output to make key decisions.
<h2 class="centered subhead" style="text-align: center;">The Limits of Artificial Intelligence</h2>
The worst dangers claimed are to the effect that AI will take over the world and destroy humanity. Fortunately, that&rsquo;s hyperbole. That won&rsquo;t happen because superintelligence (or Artificial General Intelligence, AGI) under which humans are to AI what apes are to humans may never be achieved. The AI gurus keep claiming AGI will be achieved and are spending over $1 trillion to prove it, but that money will be wasted.
Computers can&rsquo;t function at that level. They can find existing knowledge and solve complex problems at lightning speed, but whether they can create new knowledge as humans can remains disputed.
The Law of Conservation of Information in search, developed by my collaborator Bill Dembski and others, argues that AI can redistribute existing information, but it cannot find new information. All AI output comes from existing sources or is smuggled into the model through the query. In my view, only humans can create genuinely new information.
Given these and other problems, it is by no means clear sailing for Anthropic and OpenAI. If their IPOs cannot be launched at the valuations targeted (or if they cannot be launched at all), the reasons may be quite mundane.
These include massive operating losses, negative cash flow and crashing prices for &ldquo;tokens,&rdquo; the units of computing power sold by AI companies.
Then there are the mounting legal risks. Lawsuits could arise from harm to other software companies, harm to children and harm to individuals who rely on AI for medical advice, only to suffer serious consequences when that advice proves dangerously flawed.
Another hurdle for the IPOs of Anthropic, OpenAI and other AI aspirants is the competition from China. The Chinese are deploying open-source models, including Kimi, developed by Moonshot AI. This contrasts with the closed, proprietary models favored by leading U.S. AI companies.
<h2 class="centered subhead" style="text-align: center;">China&rsquo;s Cheap-AI Trap</h2>
The Chinese have adopted a clever strategy. They are making their best AI models open source and practically free. That means any company can download the model and run it at prices that can be far cheaper than OpenAI&rsquo;s offerings. Many corporate technology heads may favor the Chinese models on price alone (and their performance is comparable to the best frontier models from U.S. giants).
But there&rsquo;s a catch. Downloading open-source model weights does not mean operating them is free. As an enterprise grows, it may face rising infrastructure, support and integration costs, even if those costs remain below U.S. alternatives.
Here&rsquo;s the hook &mdash; any model requires configuration to other systems for interoperability. If Chinese models become deeply embedded in enterprise systems, their developers could gain influence over software ecosystems and operating standards.
It&rsquo;s like Microsoft from the 1980s onward. In my view, Microsoft software was inferior to UNIX and Macintosh. But Microsoft grew so quickly that the software was locked in at almost every company. You had to keep using successive versions of Windows, all the way to Windows 11, because IT managers did not want to tear down their systems and start over.
Finally, one should consider the leadership of this AI revolution.
<h2 class="centered subhead" style="text-align: center;">Sam Altman&rsquo;s Empire of Promises</h2>
Who is Sam Altman?
We know he&rsquo;s the CEO of OpenAI, one of the AI giants working on so-called frontier models that push the limits of computer processing power and complex algorithms. That&rsquo;s an enormously important project that could affect the future of humanity, and he&rsquo;s in charge of a large part of it. But what do we really know about him?
To begin with, he&rsquo;s not a scientist or an engineer. He dropped out of college and has no degree. That&rsquo;s fine; a lot of smart people drop out of college and do quite well in the world. But let&rsquo;s not assume he has the same technical expertise as the scientists and engineers building the models he promotes.
He&rsquo;s also not a scholar; he has no peer-reviewed research papers to his credit. That&rsquo;s OK too. Entrepreneurs may have better things to do than conduct research.
When you peel back the curtain, it turns out that Altman is really just a promoter. In 2005, he started a company called Loopt that failed to gain traction and was sold to another tech company. In 2011, he joined Y Combinator (YC), a highly successful startup investor in hundreds of tech companies. The founder of YC, Paul Graham, later said that Altman was removed as head of YC because of &ldquo;YC partners&rsquo; mistrust.&rdquo;
Altman went on to co-found OpenAI with Elon Musk and other backers. Peter Thiel was among its early supporters. OpenAI was meant to be a non-profit that would conduct AI research to benefit humanity. Altman pushed it in the direction of a for-profit company earning the distrust of Musk. Musk later sued OpenAI and Altman alleging breach of contract.
So, Altman is a promoter, fundraiser and big talker with a track record of conflicts and alleged broken promises. He&rsquo;s not the worst person in the world. But it&rsquo;s not clear he should be in charge of the AI revolution.
On Oct. 8, reports revealed that OpenAI&rsquo;s annualized revenue was approaching $50 billion, roughly $20 billion below a figure circulated just days earlier. The discrepancy stemmed largely from differences in how AI companies account for sales through cloud partners.
Anthropic and OpenAI are in a race with each other to launch their IPOs. But they&rsquo;re also in a race with regulators, lawyers and skeptical customers to see if they can even launch the IPOs at all.

dr-hero-img-10-21-26

mobile masthead DR

Hard-hitting economic news and market commentary. Each issue features biting market coverage, expert commentary, and in-depth analysis… along with a warm dose of humor and some skepticism.

Daily Reckoning

When the Robots All Sell

Last week, our friend Sean Ring called silver a &ldquo;busted flush&rdquo; on the <a href="https://d2z65klgtz99km.cloudfront.net/PPG-App/">Paradigm app&rsquo;s Daily Feed</a>:
<blockquote>
Silver is a busted flush. Now comfortably trading under $60, silver waits for today's inflation data. It's expected to be higher than August&rsquo;s numbers.
The market seems to be trading off the Fed&rsquo;s expected response, which, if anything, is to increase rates to fight inflation. That&rsquo;s putting pressure on silver and gold, but silver is suffering more.
If trading continues today the way it started, we will have a new daily downside target of $47. That matches is a long-term monthly downside target as well. Of course, that doesn&rsquo;t mean silver will hit the target. But that&rsquo;s the point it will move toward.
</blockquote>
For those who don&rsquo;t play poker, a busted flush isn&rsquo;t great.
A few readers have written in to ask what I think about Sean&rsquo;s take. So here&rsquo;s my reply.
Sean&rsquo;s been right. He sold his silver miners back around <a href="https://rudeawakening.info/posts/take-the-money-and-rotate">February 9th</a>, when silver was trading at $83 an ounce. It&rsquo;s $58 today.
He sold, I stayed long.
Throughout 2025, Sean and I were on the same page on silver (and miners). We were bullish.
But we have different time horizons. I plan to hold my silver for at least the next 10 years. I believe it&rsquo;s going to be a chaotic and inflationary period. And I don&rsquo;t want to have to worry about timing the market too much.
Plus, most of my precious metals investments are in taxable accounts, or storage facilities. So whenever I sell, I have to pay about 40% capital gains taxes on short-term positions, and 20% on long-term investments (over 1 year). Add in fees and commission on physical silver.
Tax efficiency is critical. If all your positions are in protected retirement accounts, that&rsquo;s great. But not all of us are in that boat.
In terms of miners, some of my positions are still up 3x from when I bought them in the spring of 2025. I&rsquo;ve taken about 25% profits, but am still holding the majority of my shares. I want to hold some of these juniors until they become senior miners or are acquired.
Even with today&rsquo;s oil prices, and the fall in silver prices, miners are printing money.
Everybody&rsquo;s situation is unique. I like to hold long-term. Sean is an excellent investor and trader, and his system works for him. He utilizes a lot of technical analysis, which isn&rsquo;t something I use much.
The point is: multiple approaches can work.
<h2 class="centered subhead" style="text-align: center;">Trading vs. Investing</h2>
I&rsquo;ve been clear to readers about what my personal plan is. Hold my silver and other precious metals investments for the next ~10 years. I believe owning PMs and other hard assets is going to be key for wealth preservation going forward.
Long-time readers know we wrote more than a <a href="https://dailyreckoning.com/silvers-3x-upside/">dozen</a> <a href="https://dailyreckoning.com/silver-the-closer-metal/">articles</a> about why silver was a strong buy in the <a href="https://dailyreckoning.com/bathwater-baby-and-silver-2/">$30s</a>.
And in January of this year, when we got up to the $90s, here&rsquo;s what I wrote in <a href="https://dailyreckoning.com/silver-faqs/">Silver FAQs</a>:
<blockquote>
Is it Too Late to Buy?
This is the toughest question.
Let&rsquo;s take a look at the 1-year silver chart.
</blockquote>
<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/67mPVoIJBlrcO4oKJHznYk/002de1e48cf465757f7d0a6898f5a07a/dr-img1-10-20-26.jpg" alt="image 1" />
<blockquote>
What a doozy&hellip; Textbook parabolic move.
So lately, when people ask if it&rsquo;s too late to buy, my answer is probably (for the short-term). I realize that&rsquo;s not satisfying, but it&rsquo;s what I see.
Over the long term, you guys know there&rsquo;s no bigger silver bull than me. Silver is a unique metal, in that it is both industrial and monetary. And demand on both sides is absolutely booming.
But this move just seems like too much, too fast.
So it would be reckless to recommend readers/friends buy here. I suspect we&rsquo;ll get a better chance to buy silver sometime in the next 5 months.
</blockquote>
Silver went on to reach $121 an ounce briefly on January 29th.
<h2 class="centered subhead" style="text-align: center;">Longer-Term: We&rsquo;re Both Bullish</h2>
It&rsquo;s important to note that Sean doesn&rsquo;t think silver is a bad long-term investment. He&rsquo;s simply being patient and waiting to buy the dip on miners.
Here&rsquo;s another post Sean made on our app&rsquo;s <a href="https://d2z65klgtz99km.cloudfront.net/PPG-App/">Daily Feed</a> on October 2nd:
<blockquote>
As I wrote yesterday&lsquo;s Rude, my price target for silver is somewhere around $56. After a brief rally today, we&rsquo;ve crashed back down because the markets don&rsquo;t think Warsh is going to back down.
I think he&rsquo;s going to wind up hiking in either October or December and the market somewhere is going to break&hellip; as a result, the FOMC will start ferociously cutting in 2027.
We are getting very close to wanting to buy back into the silver miners. Again.
</blockquote>
So long-term, Sean&rsquo;s not bearish on silver or silver miners. He&rsquo;s simply trading the charts as he sees them. And it&rsquo;s been working, so good for him.
Personally, I take more of a long-term strategy. And both methods can work. It all depends on your preferences. Are you more of a trader, or a long-term investor? Are you investing in taxable accounts, or 401ks and IRAs (tax shelters)?
<h2 class="centered subhead" style="text-align: center;">Inflation Insurance</h2>
Jim Rickards&rsquo; target for silver is $200 an ounce. He says it could get there next year. I concur. But I don&rsquo;t really care if it takes until 2028, or even later.
Silver is a huge part of my inflation insurance package. And I expect inflation to remain problematic for many years to come. That will drive demand from investors, which was lacking for much of the past decade.
With silver, of course, we also need to consider industrial demand. Solar panels, electronics, weapons systems, medical applications. All are going strong. Solar panels are an especially bright spot.
The current energy crisis is driving countries around the world to install massive solar panel installations, and each panel contains 4 to 20 grams of silver.
Take a look at the size of China&rsquo;s largest solar project:
<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/5lBi6bGCo8TcDdauWAQmg2/3d0f7610bcc83479fa1333e5803d0128/dr-img2-10-20-26.jpg" alt="image 2" />
Source: <a href="https://www.admiddleeast.com/story/worlds-biggest-solar-farm-goes-live-in-china-5gw-can-power-an-entire-country-for-a-year">Architecture and Design</a>
It took a mountain of silver to build that. And solar demand isn&rsquo;t slowing down anytime soon.
<h2 class="centered subhead" style="text-align: center;">Intermission</h2>
In summary, silver mania isn&rsquo;t over. This is the intermission. No investment goes straight up, nor should it.
But that doesn&rsquo;t mean we have to try to trade it. You can, certainly. But personally, my goal is to hold investments I believe in for many years. It&rsquo;s what works for me.
If timing the market works for you, that&rsquo;s fantastic. Just make sure you consider tax implications, and have the experience necessary to trade in and out. Or have someone to guide you, like the top-notch experts we have here at Paradigm.
If you&rsquo;ve been waiting to buy silver, now is a fine time. We might go a bit lower over the short-term, but my confidence over the next 2-5 years is extremely high.
Silver will hit $100 again, then $200, then $300, and beyond. And I&rsquo;ll be along for the ride.

dr-hero-img-10-20-26

The Great Silver Debate

Are you disappointed with President Trump and Republicans? Tired of all the political hot air, drama and emotion? The campaign solicitations? &ldquo;Gimme money, pleeease!&rdquo; Yeah, join the club. But&hellip;
Suck it up, Pilgrims. It&rsquo;s two weeks until Election Day and voting has begun. All across the country, many ballots are already banked, to await their fate on Election Night after the polls close. And as my colleague Jim Rickards has noted, this is a turnout election.
Definitely, many Democrats will vote &mdash; and vote hard! &mdash; because they despise Trump.
And many Republicans, Independents, and even some old-line Democrats may stay home because Trump&hellip; and Congress&hellip; and the Supreme Court&hellip; and You-Name-It&hellip; has disappointed them; they&rsquo;re angry about the Iran war, blowout spending, fuel and food prices, creeping inflation, immigration, foreign visas and more.
But staying home or casting a protest vote means nothing in politics. In fact, when you don&rsquo;t vote, you lose twice because your protest pique passes political power to the Hard Left, which will absolutely make America&rsquo;s problems worse.
Indeed, not-showing-up isn&rsquo;t really a theory of victory because the thrones of political power never remain vacant. At the end of day &ndash; of Election Day &ndash; someone always holds the keys to Capitol Hill, as well as governors&rsquo; mansions, city-county buildings and courthouses across the land. And it&rsquo;s just a question of &ldquo;who&rdquo; wields power.
<h2 class="subhead nbp">For Example, Look at Britain</h2>
In July 2024, British voters were (to borrow a phrase) p!ssed off. They rejected a fumbling, bumbling Conservative government. Millions stayed home or voted Labour. Mostly, they meant to punish the Tories, not endorse a radical regime of rule and ruin.
Instead, the stay-homes and protest-voters handed Keir Starmer an enormous parliamentary majority. So now, in Britain, the left pushes higher taxes, open borders, hostility toward Britain&rsquo;s culture and history, and sweeping economic controls. And if you don&rsquo;t like it and speak out too loudly, the police will pay you a visit. (Look it up.)

<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/pWhfVhKuYjeTOT5qTsGoR/42d908612190c8585b1add7bf34285d6/MR-AISSUELERT-10-20-26-2.jpg" width="540px" />

Boatloads of migrants arrive on British Beaches. Credit BBC.
Currently, Britain showcases the danger of a protest election: voters reject one party, then the Hard Left gets in and declares a revolutionary mandate. That, and works overtime to spend, tax, regulate, close industries, import the Third World, and convert temporary popular anger into permanent left-wing policy.
Looking ahead two weeks, America can make the same mistake if Republicans, Independents and moderate Democrats sit this one out. The no-shows will surrender the House to a coalition increasingly guided by the Democratic Socialists of America (DSA); definitely not a bastion of old-fashioned, FDR-, JFK- or LBJ-style liberalism.
In fact, DSA is openly communist. Its manifestos call for abolishing the Senate, expanding government power via the House, packing the Supreme Court, nationalizing all health care, defunding law enforcement, socializing major industries, and&hellip; ugh (long story).
The DSA agenda runs so far left that Sen. John Fetterman (D-PA) [full disclosure: I knew him when he was Mayor of Braddock, PA; nice guy] has criticized Bernie Sanders (I-VT) for backing DSA candidates against sitting Democrats. Which is to say that DSA uses the Democrat donkey only to ride through the gates and into power. Vote them in, and they have no plans ever to leave.
<h2 class="subhead nbp">France: 45 Years Down the Road to Serfdom</h2>
So, Britain offers an immediate warning; but France supplies the long-term case-study. For roughly 45 years, left and hard-left governments expanded spending, taxes, regulation, subsidies and labor controls while promising nearly everything to everyone.
Each step sounded humane in a French sort of way. And every program rewarded politically important beneficiaries. The tax burden always targeted &ldquo;someone else.&rdquo; It sounded great until the bills arrived.
France now carries immense, unpayable debt, and chronic, massive deficits. Day-to-day, France is barely solvent. Business formation is negligible. Productive people and capital leave. Housing costs have soared. Industry struggles. Public services are breaking down despite record spending. And lately, rioters roam the streets while historic buildings go up in flames.

<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/5b7kBI1tLob5wGoQRJOCjz/86474ff9dd05e99a64897f2e71019e52/MR-AISSUELERT-10-20-26-3.jpg" width="540px" />

Limoges, France: Oct. 17th, city hall burned by rioters. Credit AFP.
Did French voters consciously choose national decline? Not in so many words; but election cycle after election cycle, they chose politicians who promised more regulation, subsidies and taxes on somebody else. And that&rsquo;s exactly how the big state grows bigger. Meanwhile, failure rarely kills a government program; in fact, politicians often use failure to justify their next boondoggle.
Just now, the relevance of the U.K. and France to America is that both nations show how unhinged politics eventually wrecks the balance sheet. High taxes reduce returns. Regulation delays important projects. Energy scarcity raises costs. In short, bad policy breaks things.
<h2 class="subhead nbp">Zito&rsquo;s Lesson: Voting is Not Love</h2>
Recently, a great writer named <a href="https://salenazito.substack.com/p/the-house-is-restless-again-it-has?r=172bv&amp;utm_medium=ios&amp;triedRedirect=true">Salena Zito wrote about how</a> Gilded Age transformation enriched America while it also left millions of citizens on the outside looking in. Railroads, mills, factories, oilfields and electric power remade the country; but financial panics destroyed banks, businesses, jobs, farms and even entire industrial sectors.
In 1888, Republicans narrowly won control of Congress and treated victory as a massive mandate. They spent heavily and nearly bankrupted the country, which mattered quite a bit in the days before the Federal Reserve could just print so-called &ldquo;money&rdquo; to wallpaper the problems.
Voters didn&rsquo;t like what they saw, and punished Republicans in 1890 with significant losses on Election Day. Then in 1892, Democrats captured Congress and the White House, and went wild in their own ways. So, two years later in 1894, Democrats lost 125 House seats.
Which is to say that voters didn&rsquo;t fall in love with either party; they just kept evicting whoever failed. And that political pattern continues today. The House changed hands in 2006, 2010, 2018 and 2022. When Americans don&rsquo;t like what they see, they tend to vote against incumbents; but then they recoil when the winners mistake popular frustration for ideological consent to engage in mega-overreach.
Political scientist Morris Fiorina calls these arrangements &ldquo;unstable majorities.&rdquo; Or stated another way, Americans rarely grant mandates; they hire politicians on probation. But a stay-home protest this year carries high risk because the DSA is not your father&rsquo;s Democrat Party. And DSA won&rsquo;t govern on probation; it will regard a win as permission to proceed with their crypto-Bolshevik revolution.
<h2 class="subhead nbp">Your Portfolio Runs on Power</h2>
On the investing front, this election will shape America&rsquo;s next industrial buildout: mines, mills, factories, aerospace, shipbuilding, electronics, computers, networks and data processing, and much else.
All that buildout requires energy: oil, natural gas, refined fuels, uranium and electricity; plus materials such as copper, steel and innumerable critical metals.
Downstream from rigs, pipelines, mines, mills and refineries, we have artificial intelligence (AI) that intensifies demand. Data centers and AI require transformers, chips, cooling systems, switchgear and miles of wire. The future joins steel with software, copper with semiconductors, and algorithms with megawatts.
Looking ahead, America must build out everything; and if you impede energy and materials, the future of technology slows or stops.
Along these last lines, California shows how a resource-rich economy manufactures scarcity via bad policy. In essence, for many years the (formerly) Golden State has discouraged drilling, closed refineries, tightened regulation and repelled investment.
<a href="https://dailyreckoning.com/california-nightmare-a-looming-energy-disaster/">As I discussed last April</a>, fuel shortages and refining constraints drive California&rsquo;s ongoing energy crisis. And let&rsquo;s apply that mindset nationally, because a DSA-driven House would restrict leasing, slow pipelines, obstruct refineries, harass conventional power, block mines and subsidize favored substitutes.
Plus, and as we&rsquo;ve noted near-countless times in our <a href="https://dailyreckoning.com/the-world-has-oil-but-not-enough-refining/">articles here at paradigm Press</a>, the Green New Scam constrains dependable energy, funds unreliable projects and blames markets when prices rise.
<h2 class="subhead nbp">The Investment Danger</h2>
America can&rsquo;t tax, regulate and litigate its way to wealth creation and industrial leadership. A Democrat-DSA victory would bring higher energy costs, slower permits, heavier taxes and more politically directed capital. In short, DSA policy will hit you straight in the investment side of life.
That is, DSA and so-called &ldquo;Green&rdquo; policies raise costs for electricity, motor fuels, transport, manufacturing and data-processing. Anti-mining policies constrain copper, uranium and rare earths, the very materials behind the grid, reactors, defense systems and AI. Project delays strand capital and send development elsewhere. Subsidies steer money toward favored technologies instead of durable businesses and paying customers.
All along, <a href="https://rudeawakening.info/posts/chinas-touch-of-death">China will keep on mining, refining, manufacturing and building</a> its power systems, and I mean that in every sense of the phrase. Contrast China with how America&rsquo;s energy, pipelines, uranium, copper, nuclear, grid equipment, engineering and data centers form one system. Weaken one link and the whole chain suffers.
<h2 class="subhead nbp">Anger Is Not a Portfolio</h2>
So, yes&hellip; Here we are&hellip; Two weeks from Election Day. And Trump has disappointed many voters. Okay&hellip; Understood&hellip;
But voting isn&rsquo;t like getting married out of love. And stay-home protests won&rsquo;t fix what&rsquo;s wrong in Washington. Sitting this one out only empowers a DSA coalition that is prepared to choke the energy, materials and infrastructure of the U.S. economy; to harm what your investments require to function.
It&rsquo;s alright to be disappointed, and even cynical (ask me how I know). We all want &ldquo;better&rdquo; governance. But c&rsquo;mon, man&hellip; Show-the-hell-up. Don&rsquo;t protest so hard that you give the keys of power to the lefty-lunatics in the DSA.
That&rsquo;s all for now. Thank you for subscribing and reading.

MR-AISSUELERT-10-20-26-1

Morning Reckoning

The Protest Vote That Wrecks Your Portfolio

My father drove a truck for 40 years and never once called himself working class.
Pop came home smelling like grease and hard work. He cursed New York drivers with creative flourishes that would make Andrew Dice Clay blush. I used to laugh hysterically while my appalled mother prepared our dinner.
But if you&rsquo;d asked Philosopher-Truck Driver John Ring what he was, he wouldn&rsquo;t have said &ldquo;labor.&rdquo; He&rsquo;d have said, &ldquo;A guy who&rsquo;s doing all right, and whose kid is going to do better.&rdquo;
He was right. His kid went from a kitchen table in New Jersey to teaching bankers in America, Europe, and Asia. Nobody in DC ensured my destiny. &ldquo;Da Union&rdquo; didn&rsquo;t vote on it. A country that didn&rsquo;t care who my father was let his son swing for the fences.
So when that Steinbeck quote came across my screen this weekend, the one about &ldquo;temporarily embarrassed millionaires,&rdquo; I smiled, as I always do when I see it.
Then I checked it for the first time. Much to my sadness, he was misquoted.
<h2 class="subhead nbp">The Quote That Isn&rsquo;t</h2>
In June 1960, Steinbeck published an essay in Esquire called &ldquo;A Primer on the Thirties.&rdquo; He was describing the comfortable, middle-aged Communists he&rsquo;d met during the Depression. They played at revolution the way other people played bridge. He concluded that America had no self-admitted proletarians. He wrote that everyone was a &ldquo;temporarily embarrassed capitalist.&rdquo;
Capitalist. Not millionaire.
And while Steinbeck was poking fun at those Communists, he&rsquo;d also put his finger on something uniquely American: the utter refusal to accept a permanent place on the societal totem pole.
It&rsquo;s such a shame it&rsquo;s so frequently misquoted, because, of course, Steinbeck&rsquo;s original is far superior. (I&rsquo;m disheartened in the same way every time I think Jefferson sacrificed &ldquo;private property&rdquo; for &ldquo;the pursuit of happiness.&rdquo; It may not have been literary, but &ldquo;private property&rdquo; would have settled the argument for socialism before it started.)
The version of Steinbeck&rsquo;s quote on your Facebook feed comes from Ronald Wright, a Canadian writer, in a 2004 book called A Short History of Progress. Wright paraphrased Steinbeck from memory, swapped &ldquo;capitalist&rdquo; for &ldquo;millionaire,&rdquo; and bolted on a line about socialism never taking root. As always, the internet did the rest.
That edit matters because Steinbeck described a people who refused to accept a caste. Wright turned it into a people too dumb to know their place.
I&rsquo;m with Steinbeck, and so are the numbers.
<h2 class="subhead nbp">The Waiting Room</h2>
Of course, America doesn&rsquo;t have a class system.
In a class system, where you&rsquo;re born is where you die. The door is locked from the inside.
Then what is America? It&rsquo;s a waiting room.
In a waiting room, you sit for a while, sometimes a long while, and then your name gets called. Or perhaps, as my friend and colleague James Altucher would say, you choose yourself.
Two economists, Mark Rank of Washington University and Thomas Hirschl of Cornell, tested this. They followed 44 years of income data on the same American households, from age 25 to 60.
By age 60, about 70% of Americans had spent at least one year in the top 20% of earners. More than half had spent a year in the top 10%. And one in nine - that&rsquo;s over 11% of those Americans - had spent at least a year in the top 1%.
One in nine. Not bad. Not bad at all&hellip;
Now the other half of the story, the half that makes it a waiting room and not a club. Fewer than 1 in 160 Americans stayed in the top 1% for 10 straight years.
The rich get called in, and then most of them get called back out. The door swings both ways. Perhaps that&rsquo;s the real problem people have with social mobility.
So my father wasn&rsquo;t deluded. He was reading the odds correctly.
<h2 class="subhead nbp">Is It Still Possible?</h2>
But does that door still swing open? That&rsquo;s the question.
UBS counted 23.6 million American millionaires at the end of 2025. That&rsquo;s over 40% of the world&rsquo;s total, in a country with about 4% of its people. The US added 440,000 new ones last year alone. That&rsquo;s about 1,200 a day.
But UBS also found that median American wealth, the middle guy, fell about 20% after inflation since 2020. The top of the ladder got taller. The bottom rungs got more expensive. That&rsquo;s the price inflation most people suffer.
And yet. Americans filed over half a million new business applications in August. They&rsquo;ve done that nearly every month since 2021. People file for an EIN because they think they&rsquo;re a capitalist whose turn is about to come.
Mises said the consumer is sovereign and the entrepreneur serves him. He never said the entrepreneur had to come from anywhere in particular. Hayek added that no planner can know who the next winner is, which is exactly why the system has to stay open to everyone. The guy who builds the next great American company is in a waiting room right now. We just don&rsquo;t know who that person is. Yet.
<h2 class="subhead nbp">The Virtue in the Joke</h2>
Delusional self-confidence, unfounded optimism, or even plain stupidity don&rsquo;t account for why this belief never dies.
Aquinas defined hope as the desire for a future good that is hard, but possible, to get.
Not easy or guaranteed, but possible. He said hope has two enemies: despair, which says it can&rsquo;t happen, and presumption, which says it already has.
The &ldquo;temporarily embarrassed&rdquo; American sits right between them. He knows he hasn&rsquo;t made it, but knows he might. &ldquo;Yet&rdquo; is a big word. As in &ldquo;He hasn&rsquo;t made it yet.&rdquo; That&rsquo;s what keeping the faith is all about.
Taleb would call it optionality. A country full of people who think they&rsquo;re one good idea away from wealth keeps buying cheap options on itself. Most expire worthless, but the few that pay, pay for everything. (As Elon Musk has paid over $10 billion in tax in a single year, this isn&rsquo;t hyperbole.)
And boy, do the politicians know it!
Whatever party they wear, their coalition is huge and restless. They tax, regulate, and inflate the ladder.
But any leader who tried to padlock the door would lose the only thing that keeps the whole arrangement standing: the belief that the next name called might be yours. The envy pitch has been tried in America for a century. It keeps losing to a guy in a work shirt who thinks he&rsquo;s doing all right.
<h2 class="subhead nbp">Wrap Up</h2>
Steinbeck watched the worst decade in American economic history, the Dust Bowl, the bread lines, and the Okies he put in his own novels. He saw a people who still wouldn&rsquo;t sign the class card. He thought that was the most American thing about them.
He was right then, and the data corroborates his view now. Sure, the door&rsquo;s price of admission is more expensive than it was, and I&rsquo;ll keep writing about who made it so. But it still opens, and it still swings both ways.
My father never became a millionaire. He never thought he was one, nor did he care. He just knew the room he was sitting in had a door, and that his kid would walk through it.
He was right about that, too.

mr-issue-10-22-26-img-1

Temporarily Embarrassed Capitalists

Over the weekend, President Trump made his feelings about Ukraine&rsquo;s President Zelensky clear.
On Truth Social, POTUS wrote a lengthy post about Zelensky and the war. Needless to say, he is furious that Ukraine keeps striking Russian oil infrastructure. It&rsquo;s contributing to higher prices worldwide.
Before the war, Russia was the second-largest diesel exporter. But Ukrainian drones keep blowing up the country&rsquo;s refineries, tankers, and oil storage.
Here&rsquo;s an excerpt from Trump&rsquo;s Truth Social post:
<blockquote>
[Zelensky] could have made a better deal two years ago than he can now. His country is in shambles, a large portion of his land is lost, his oceans and seas are gone, and his male population is low, wounded, and/or dead.
</blockquote>
Harsh but true. Ukraine is running out of options. Weapons, food, energy, and money are all in short supply. Blackouts in Kiev are common. Zelensky&rsquo;s thug-squads roam the streets abducting scarce civilians to fill the trenches.
It is likely that 900,000 Ukrainian soldiers have been killed in action so far. Overall the population has fallen from 41 million pre-war to around 28 million today (mostly due to migration).
Zelensky just demanded another $155 billion from the EU, but European governments have problems of their own right now.
However, if Zelensky doesn&rsquo;t get the money, the country collapses and a new refugee crisis begins. Then Europe ends up paying for it anyway. They are stuck.
The war is not going well for Ukraine. Despite occasional successes, Russia intercepts more than 99% of Ukraine&rsquo;s long-range drones (provided by the EU). Up to 300 drones are launched for a single successful attack on Russian infrastructure. It&rsquo;s not sustainable.
It&rsquo;s going to be a cold and brutal winter in Ukraine. I hope the war ends soon for the sake of its people.
The only positive way to spin this is Trump&rsquo;s statements give me hope that we can finally repair our relationship with Russia.
<h2 class="centered subhead" style="text-align: center;">A Missed Opportunity</h2>
In 2000, Russia tried to join NATO.
A young Vladimir Putin pitched Bill Clinton on the idea, and apparently Slick Willie was initially open to it.
But once President Clinton talked with his &ldquo;advisors&rdquo; (bosses), the answer became clear. Nyet. No deal. Putin continued to pursue NATO for a while, but didn&rsquo;t get anywhere.
If Russia had joined NATO, the world would be a very different place today. For one thing, Putin&rsquo;s alliance with China would never have been necessary.
But America&rsquo;s deep state chose another path. And they drove Russia directly into the waiting arms of China.
<h2 class="centered subhead" style="text-align: center;">NATO&rsquo;s Expansion</h2>
When the Soviet Union collapsed in 1991, much of Eastern Europe was thrown into chaos.
Suddenly, 15 new independent countries were born.
America didn&rsquo;t waste time. Russia could not join NATO. It would be swallowed by it.
The map below shows the expansion of the NATO military alliance. Note how most countries joined in 1990 or later, as the USSR disintegrated.
<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/4k5lY3i5osvxc5PDJY2eRU/24d3ce8dd7f1256917660de98b74393b/dr-img1-10-19-26.jpg" alt="image 1" />
Since this map was published, Finland and Sweden also joined NATO in 2023 and 2024.
NATO&rsquo;s goal was simple. Surround Russia, choke it off economically, break the country up into parts from within, and take it over.
In 1999, the great Pat Buchanan wrote:
<blockquote>
&ldquo;By moving NATO onto Russia&rsquo;s front porch, we have scheduled a twenty-first century confrontation. &hellip; America will face a hellish dilemma: risk confrontation with a nuclear-armed Russia determined to recreate its old sphere of influence, or renege on solemn commitments and see NATO collapse.
Offering NATO memberships to Estonia, Latvia, Lithuania, and, as some urge, Ukraine is rashness bordering on madness.&rdquo;
</blockquote>
Buchanan&rsquo;s prediction came true, of course. The man has an uncanny track record.
<h2 class="centered subhead" style="text-align: center;">The Failed Ukraine Project</h2>
Ukraine was to be the cherry on top of NATO&rsquo;s expansion. The country was to be NATO&rsquo;s front line of defense (and offense) against Russia.
To this end, Obama&rsquo;s State Department executed a <a href="https://www.bbc.com/news/world-europe-26079957">coup</a> in 2014. The Maidan Revolution, which installed a pro-Western government.
But the plan to expand NATO to Ukraine (and Georgia) has been active for a long time. In 2008, NATO officials stated it plainly at the Bucharest Summit:
<blockquote>
&ldquo;NATO welcomes Ukraine&rsquo;s and Georgia&rsquo;s Euro-Atlantic aspirations for membership in NATO. We agreed today that these countries will become members of NATO.&rdquo;
</blockquote>
This was the last straw for Putin. He simply could not allow Ukraine to join NATO, a country just 280 miles from Moscow. That&rsquo;d be like us letting China build missile silos in Mexico.
By the time Putin invaded, a NATO training center in Ukraine had already trained 45,000 Ukrainian soldiers to alliance specifications.
The war Pat Buchanan predicted happened. It has been a horrible tragedy. Ukraine has probably lost 900,000 soldiers killed in action. Russia has probably lost 190,000. These are my best estimates based on open source analysis. Neither side will confirm anything officially.
So&hellip; what now?
<h2 class="centered subhead" style="text-align: center;">A Russo-American Partnership?</h2>
Earlier this month, Trump signed an energy deal with Russia. Putin got sanction relief, and we (hopefully) will be getting 300,000 tons of diesel, to start.
Is this the beginning of a new chapter with Russia? I hope so. Throughout history, Russia has proven to be a good ally and a bad enemy.
The country wants a productive relationship with the U.S. And in those rare instances in history where we worked together, amazing things have been accomplished.
The International Space Station is Exhibit A. Neither country could have done it alone, but together we built something truly remarkable.
<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/3FDfr5jsgjOJgyouCncKpl/60c5d42e38ea8f1f821d7a28f8a8d171/dr-img2-10-19-26.jpg" alt="image 2" />
The ISS. Source: NASA
But powerful forces have consistently spoiled any progress.
Is a breakthrough possible now? I think so. Russia has proven it is not going to be defeated militarily. We&rsquo;re not going to overthrow Putin, and if we did, someone not as nice would replace him. Reality is setting in.
Interestingly, a trade envoy for Putin, Kirill Dmitriev, posted the following message on X recently:
<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/6p3aG5L6411NbkwMz7hsWu/a961728c5d05cdf84dad45c3c847971d/dr-img3-10-19-26.jpg" alt="image 3" />
Source: <a href="https://x.com/kadmitriev/status/2111210293921792284">X</a>
An image of an American Eagle and a Russian bear facing off against the UK and EU? Now that&rsquo;s provocative. The post got more than a million views, and 6,300 likes.
The screenshot shows an article by James Kunstler <a href="https://www.zerohedge.com/geopolitical/things-have-changed">on ZeroHedge</a>. It&rsquo;s an interesting piece about how Russia might make a better ally than the EU or UK.
The article hints that modern Russia is the new Europe. And that modern Europe is the new USSR:
<blockquote>
Europe is now tyrannized by the unelected EU commission, much as the old Soviet Union was tyrannized by its politburo. An Orwellian switcheroo has occurred.
</blockquote>
Kunstler also points out the mess the UK finds itself in:
<blockquote>
And outside the EU - which it voted to exit in 2016 - you have our so-called "mother country," Great Britain (the United Kingdom) committing suicide in the most extravagant way, turning over prime ministers like they were jacks in a game of whist, jailing their own people for impure thoughts, while allowing the wholesale rape of its womenfolk by foreign invaders.
</blockquote>
Wow&hellip; I don&rsquo;t agree with everything Kunstler says in his piece, but it&rsquo;s fascinating food for thought.
The idea of starting a new chapter with Russia is gaining traction. Because it makes all the sense in the world.

dr-hero-img-10-19-26

A New Chapter with Russia

Are you paying attention, dear reader? Another domino teeters and wobbles down this End of the Americas.
But first...
We came to Brazil to take a break, to read and relax, to work on our pre-award winning novel, and to escape the scourge of modern politics for a couple of weeks.
Perhaps we should have looked at the calendar: The very first weekend we arrived, the Brazilians went to the polls for their general elections. On the ballot (we assume): &ldquo;The future!&rdquo; &ldquo;Our children!&rdquo; &ldquo;Democracy itself!&rdquo;
Oh well, we mused, the spectacle of modern politics is usually worth a good chuckle. So we grabbed a beach chair, ordered a stiff caipirinha, and settled in for the show...
As it happens, we were here (also by mistake) for the country&rsquo;s last general election, back in 2022, when lifelong socialist goon, Luiz In&aacute;cio Lula da Silva, nosed out the incumbent (and father of the current contender), Jair Bolsonaro. At the time, there were credible accusations of widespread voter fraud, ballot stuffing, and systemic corruption on both sides... in other words, a presidential election in South America.
Naturally, Bolsonaro Sr. was jailed after his election loss &ndash; par for the course in this part of the world. This past weekend&rsquo;s election pitted Jair&rsquo;s eldest son, Flavio, against Lula the Undead. Four other members of the Bolsonaro family also ran for election in various other governmental races.
To the shock of absolutely nobody, the long-disgraced legacy media... the pollsters and the insiders... thought leaders and quackademics... the usual list of suspect experts and expert suspects... all lined up behind their man in office, one of the last holdouts against a streak of conservative victories that has been sweeping the continent (more about which in a moment)...
Ah, but wait... what&rsquo;s this? A wrinkle in the script?
<h2 class="centered subhead" style="text-align: center;">Spring of the Patriarch</h2>
Lulu&rsquo;s comrades-in-arms over at The Guardian reported the surprise results, through misty eyes and gritted teeth...
<blockquote>
Fl&aacute;vio Bolsonaro poised to win Brazilian presidency after shock first-round victory.
Fl&aacute;vio Bolsonaro is in pole position to win Brazil&rsquo;s presidential election, after a far-right tsunami propelled him to a shock first-round victory over the incumbent, Luiz In&aacute;cio Lula da Silva, leaving progressive voters reeling.
The 45-year-old rightwing candidate received 56.1m votes to Lula&rsquo;s 53.8m &ndash; 47.03% to 45.16% &ndash; meaning the 80-year-old leftwinger has a mountain to climb if he is to bounce back in the second round on 25 October. Never, since the return of democracy to Brazil in 1985, has the first-round runner-up managed to turn the game around and win the second ballot.
</blockquote>
Leaving no hyperbole unturned, no clich&eacute; untapped, no indolent idiotic idiom untyped, The Guardian bravely sallied forth:
<blockquote>
The far-right surge was a triumph &ndash; albeit an incomplete one &ndash; for the Bolsonaro clan and its 71-year-old patriarch, Jair Bolsonaro.
</blockquote>
&ldquo;Far right&rdquo;... &ldquo;tsunamis&rdquo;... &ldquo;patriarchs&rdquo;... one can at least be grateful the authors did not spell &ldquo;clan&rdquo; with a &ldquo;k.&rdquo;
Meanwhile, actual Brazilian voters seemed comfortable enough declaring their fealty for members of &ldquo;the disgraced ex-president&rsquo;s&rdquo; family. On top of Flavio&rsquo;s first round win, Jair&rsquo;s wife, Michelle Bolsonaro, won a seat in the nation&rsquo;s senate, as did his second son, Carlos. His youngest son, Jair Renan, also won a seat in the lower house. So too did Jair&rsquo;s brother, Renato.
The Guardian, soldiering on:
<blockquote>
Across Latin America&rsquo;s biggest democracy, key congressional and gubernatorial races were also won by staunch Bolsonaristas including Tarc&iacute;sio de Freitas, who was re-elected as the governor of S&atilde;o Paulo state, and S&eacute;rgio Moro, who was elected governor of the southern state of Paran&aacute;. Both men were ministers during Bolsonaro&rsquo;s 2018-22 government.
Bolsonaro&rsquo;s Liberal party (PL) will now boast the largest caucus in the senate with 28 of its 81 seats. Combined with the seats of other hard-right parties, that number rises to 43, giving the movement an upper house majority.
</blockquote>
<h2 class="centered subhead" style="text-align: center;">Smart Money Moves</h2>
Betting markets, whose participants would rather see their political arch-nemesis win than personally lose a dime, have swung hard, too. After having Lula ahead by as much as 67% vs 29% in mid-August (with independent contenders making up the difference), Polymarket now has Bolsonaro at 85% vs 15% to win the presidency.
<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/4pNeGYH6BfcZv3kP9c8fI5/a002c618dd759d8a374b9e4078160cf8/dr-img-10-17-26-2.jpg" alt="image 2" />
Regardless of how this country&rsquo;s elections play out two weeks from now, it&rsquo;s at least heartening to see the experts maintaining their unblemished record of complete predictive failure. There are still some things you can count on!
More interesting from a geopolitical standpoint, however, is the regional trend. For those keeping count, there have been seven presidential victories for non/anti-socialist candidates on this continent since Argentina&rsquo;s Javier Milei kicked off something of a South American Liberty Spring with his own win back in November, 2023. A conservative victory here in the continent&rsquo;s largest democracy would make it eight.
Indeed, it is a remarkable coincidence that, since USAID was effectively dismantled in January of 2025, every presidential election in a major South American country has produced a &ldquo;right&rdquo; or &ldquo;center-right&rdquo; victory. To wit:
<ul>
<li>In April, 2025, Daniel Noboa was reelected in Ecuador...</li>
<li>In October, 2025, Rodrigo Paz ousted the collectivists in Bolivia...</li>
<li>In December, 2025, Jos&eacute; Antonio Kast defeated woke moron Gabriel Boric in Chile...</li>
<li>In January, 2026, Abelardo de la Espriella bested the insufferable Petros in Colombia...</li>
<li>And in June, 2026, Keiko Fujimori prevailed for the conservatives in Peru...</li>
</ul>
Setting aside Venezuela&rsquo;s transitional political status (&ldquo;it&rsquo;s complicated&rdquo;), that leaves only the imposing economic powerhouses of Guyana (President Ali), Suriname (President Simons), and Uruguay (President Orsi) on the political left.
If the betting markets are right, and a &ldquo;far right tsunami&rdquo; does in fact sweep Brazil, the continent will have gone from majority left/center-left controlled in 2023, right before Milei&rsquo;s libertarian breakthrough, to overwhelmingly right/center-right controlled in 2026.
<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/4jZViEkljIo9Ge6xpvuzmm/29e6387d52ed340488bf3d491f1e8fbc/dr-hero-img-10-17-26.jpg" alt="image 3" />
<h2 class="centered subhead" style="text-align: center;">Swinging Samba</h2>
Notice, too, the share of the continent&rsquo;s wealth and population that such a drastic transition represents&hellip;
In 2023, roughly three-quarters of South America&rsquo;s population, along with some 60% of the continent&rsquo;s wealth, was governed by left-leaning governments. In 2026, assuming again that Brazil stays the course a fortnight from now, that will have flipped such that 92% of the population and 95% of the continent&rsquo;s wealth is controlled by conservative governments.
<blockquote>
In barely three years, South America has seen a 162-point swing from left-to-right in terms of population, and a 155-point left-to-right swing in terms of wealth. Non-trivial, in other words.
</blockquote>
Unlike the cringeworthy convulsions of the &ldquo;govern me harder!&rdquo; horde, currently begging for repackaged socialism in certain pampered zip codes in the over-privileged north, one gets the sense that this End of the World has in mind a brighter future, one filled with free markets, free minds and free people.
Earlier this year, at his annual speech in Davos, Javier Milei warned a stupefied establishment of entrenched elites that, much to their collectivist chagrin, the ideas of liberty were already taking hold...
&ldquo;The world has begun to awaken,&rdquo; he said. &ldquo;The best proof of this is what is happening in the Americas with the rebirth of the ideas of liberty.
&ldquo;We have a better future ahead of us,&rdquo; he continued, &ldquo;but that better future only exists if we return to the roots of the West&hellip; returning to the ideas of liberty.&rdquo;
Editor&rsquo;s note: Find more of Joel&rsquo;s writing on <a href="https://joelbowman.substack.com/">his website</a>.

dr-hero-img-10-17-26

Brazil’s “Far Right Tsunami”

While the war with Iran might be nearing a resolution, the war in Ukraine is heating up.
Whether this is the next stage in escalation, or the grand finale remains unclear. But lessons continue to emerge from this conflict, and world powers are beginning to act on them at scale.
Ukrainian long-range drones continue to hammer Russian energy and military sites. Targets up to 1,700 kilometers inside Russia are being hit.
<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/3yx4YBpnAW4bdA1134DOXP/088bce5531abda0f6aac7dc6c36f9e06/dr-img-10-15-26-1.jpg" alt="image 1" />
A Ukrainian long-range drone. Source: <a href="https://www.ap.org/news-highlights/spotlights/2025/a-ukrainian-startup-develops-long-range-drones-and-missiles-to-take-the-battle-to-russia/%23defb8a6696-4">AP</a>
These strikes are causing serious economic damage to Russia, not to mention the environmental harm. Here&rsquo;s a screenshot of recent fires at Russia&rsquo;s Rosneft facility on the Black Sea after Ukrainian drone attacks.
<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/uJoQR3v7QYsk64dRUYDv1/08b7dfe9668b770ee728f0c4e29c40c8/dr-img-10-15-26-2.jpg" alt="image 2" width="510px" />
Source: <a href="https://x.com/runews/status/2046129975665770876">X</a>
Earlier this week, President Trump expressed his anger at Ukrainian President Zelensky, "It's time for Ukraine to get a NEW PRESIDENT!"
Ukraine&rsquo;s strikes are hammering Russia&rsquo;s fuel production, and causing shortages worldwide.
On the front lines, short-range drones are now Ukraine&rsquo;s primary weapon holding back Russian advances. Most of these are small drones with anti-tank RPG warheads attached.
<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/50hyzc7ZyxsSXXBSmgGL7w/e949dbbd6279a7e5ecde9fb08981fedf/dr-img-10-15-26-3.jpg" alt="image 3" />
Crude, but highly effective. There are also bomber drones which drop grenades, mortars, and improvised munitions. Interceptor drones roam the skies, looking to foil enemy attacks.
Both sides are using <a href="https://x.com/GrandpaRoy2/status/1994286890913325413">flamethrower drones</a>, which drip molten thermite to melt anti-drone netting and ignite enemy structures.
Meanwhile Russian long-range drones and missiles are increasingly hitting military sites in the capital, Kiev (Kyiv). And across the rest of the country. Glide bombs are devastating the front lines. And Russia is using at least as many short-range drones as Ukraine is.
It is estimated that up to 15,000 drones are being used in Ukraine per day. And that up to 90% of casualties are caused by these terrible little machines.
Traditional maneuver warfare is extremely difficult in these conditions. Advances crawl forward at a snail&rsquo;s pace.
Tanks and IFVs are increasingly irrelevant on the battlefield. Even artillery, the &ldquo;God of War&rdquo;, has become an afterthought.
In just a few short years, this new class of drones have changed warfare forever. The question is: are American defense contractors ready for this new world?
<h2 class="centered subhead" style="text-align: center;">Petraeus&rsquo; Warning</h2>
Former Army General and CIA Director David Petraeus is <a href="https://x.com/clashreport/status/2058992487553990804">out</a> with a new warning about drone warfare. I&rsquo;m not a fan of the man, but what he says here is true.
<blockquote>
&ldquo;We have not remotely learned all the lessons we should have from the war in Ukraine.
That is the future of war right now. Ukraine is using 10,000 drones a day.
Ninety percent of the casualties on the Russian side are caused by drones. Tanks can&rsquo;t manoeuvre anymore. They can&rsquo;t survive. Armored vehicles can&rsquo;t survive.
And by the way, there&rsquo;s more coming. Within a year or two, we&rsquo;re going to see unmanned systems that are not remotely piloted.
In the future, we&rsquo;re going to see autonomous systems &mdash; truly autonomous &mdash; that do not require a pilot to remotely operate them.
Then you face drone swarms. And that is something for which we really don&rsquo;t have a solution.&rdquo;
</blockquote>
<h2 class="centered subhead" style="text-align: center;">Weapons Giants Fall Behind</h2>
America&rsquo;s largest defense contractors, Lockheed Martin (LMT) and Northrop Grumman (NOC), have traditionally focused on gigantic programs. The F-35, naval ships, helicopters, cruise missiles, and big drones costing $30-90 million a piece.
These contractors have been forced to build their supply chains and manufacturing around getting support from specific political districts.
Elon Musk has been especially critical of U.S. defense firms, singling out manned fighter jets like the F-35 as &ldquo;obsolete in the age of drones.&rdquo;
<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/6wMymcaLeJOCuYRJ5LkOGc/5f702ad2e80173c2f1c02a37457f5a44/dr-img-10-15-26-4.jpg" alt="image 4" />
Source: <a href="https://x.com/elonmusk/status/1861070432377737269">X</a>
I&rsquo;m not sure fighter jets are obsolete just yet. But tanks and other traditional weapons systems do seem to be moving in that direction.
The point is that making cheap disposable &ldquo;kamikaze&rdquo; drones at scale is outside the wheelhouse of big defense firms.
Now that the U.S. military wants low-cost attack drones, they are doing something unusual: going to smaller firms in search of innovation.
<h2 class="centered subhead" style="text-align: center;">New Drone Depots</h2>
The U.S. military is converting 6 Army depots into drone production facilities across the country. <a href="https://thedefensepost.com/2026/10/09/us-mcalester-plant-drone-munitions/">Defense Post</a>:
<blockquote>
The McAlester Army Ammunition Plant (MCAAP) in Oklahoma is adapting its munitions production to support modern drone warfare through a new partnership with Perennial Autonomy.
</blockquote>
<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/25I1P7gcB76vPepbZALRbb/ba413af3068307dc0595c09a44d8a76a/dr-img-10-15-26-5.jpg" alt="image 5" />
They&rsquo;re partnering with various private companies to build drone manufacturing capabilities domestically. Beefing up our drone production base is key to modernizing the military.
Especially because the government&rsquo;s requirements call for doing it without any Chinese parts.
That in itself is a huge challenge, because today China makes about 85% of the world&rsquo;s commercial and personal drones. China&rsquo;s supply chains are already incredibly developed, and it will take time to build out our own. The vast majority of Ukrainian and Russian drones used are either Chinese, or built with Chinese motors, batteries, servos, and other parts.
<h2 class="centered subhead" style="text-align: center;">The Drone Dominance Program</h2>
It&rsquo;s been nearly 5 years since the war in Ukraine began, and the disruptive potential of drone warfare became clear.
The U.S. Department of War is now beginning to ramp up drone programs. In Iran we saw the debut of the LUCAS attack drone, based on Iran&rsquo;s Shahed-136.
Now the American military is looking to build 300,000 attack drones by 2028. That may sound like a lot, but it&rsquo;s 15 days of supply for Russia and Ukraine.
The Drone Dominance Program (DDP) is a fascinating development. The Department of War is tearing up the old playbook of 10-30 year development cycles and trying something fresh.
Dozens of companies were invited to participate in a series of trials. Various drones are tested for accuracy, speed, resistance to electronic warfare, and other objectives.
And the Department of War has an online leaderboard showing the top performers:
<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/25UBGwMcpfBFp2XRnN0IsL/64a59d33cd80cf3914aebc33f8d735e0/dr-img-10-15-26-6.jpg" alt="image 6" />
Source: <a href="https://drone-dominance.io/leaderboard.html">Drone Dominance official site</a>
Note the complete absence of any big defense contractors. The leading performer, Skycutter, is a small private U.K. company with plenty of frontline experience in Ukraine.
We are early in this new age of drone warfare. But it is set to shake up America&rsquo;s stale defense contracting business. New players are emerging.
The legacy defense giants have been slow to adapt to this reality. They remain focused on cash cow programs.
And for a while, that playbook will work. But the future of warfare looks like it will be dominated by unmanned systems. And the big, slow, expensive drones they make today are clearly not cut out for this new world.
American defense giants have coasted for decades on gold-plated billion-dollar contracts. They have failed to produce effective hypersonic missiles and affordable attack drones. Their reign won&rsquo;t last forever.
I&rsquo;ll be watching to see which companies emerge as leaders in this new tech. Many of them are private startups at this point, so aren&rsquo;t investable (yet).
But disruption is finally coming to the defense industry. It&rsquo;s about time.

dr-hero-img-10-15-26

The Future of American Drone Warfare

Everett Stern slept on a camping cot because he did his job.
In 2010, he was a compliance officer at HSBC, working out of a back office in New Castle, Delaware. He watched billions move to drug cartels, sanctioned regimes, and terrorist groups. He wrote it up, then escalated it. When the bank sat on its hands, he walked into the FBI.
The result was a $1.92 billion settlement in 2012. By Stern&rsquo;s math, that was about five weeks of HSBC&rsquo;s profit. Not one banker was charged, let alone went to prison.
Stern lost his career, savings, and every friend he had in finance. He couldn&rsquo;t afford a bed, so he slept on a cot in a 300-square-foot apartment and waited tables at P.F. Chang&rsquo;s.
This week, he wrote an open letter to Treasury Secretary Scott Bessent. It went viral on X, and for good reason.
<h2 class="subhead nbp">Fourteen Years Later&hellip;</h2>
On Tuesday, the US Treasury hit Bank of America with $1.2 billion in penalties. It&rsquo;s the third largest in the Treasury&rsquo;s history. The $750 million slice that goes to the Office of the Comptroller of the Currency is the biggest fine that regulator has ever levied.
The bank admitted it willfully violated the Bank Secrecy Act. It failed to report more than $5 billion in suspicious transactions on time. Over $1 billion of that touched what the Treasury calls priority national security risks: Chinese money laundering networks, fraud, and trade-based laundering with a heavy footprint on the southwest border. A separate $11.6 million settlement covered apparent sanctions violations involving Iran, Russia, narcotics, and global terrorism.
Treasury also said the bank failed to fix the problems after it signed a cease-and-desist order in 2024. In plain English, it got caught, promised to clean up, and didn&rsquo;t.
Bessent said the action sends a clear message that even the biggest institutions aren&rsquo;t above the law.
And yet, not one individual was charged.
Stern&rsquo;s reply to the Secretary was polite and brutal: fines aren&rsquo;t working.
<h2 class="subhead nbp">The Twelve-Day Fine</h2>
Let&rsquo;s do the arithmetic Stern did for HSBC.
Bank of America earned $9.1 billion in the second quarter of this year. That works out to about $100 million a day. A $1.2 billion penalty is twelve days of profit.
Twelve days, for five billion in unreported transactions. By Treasury&rsquo;s own findings, those transactions were executed for people who sell fentanyl to American kids.
The fine comes out of the bank&rsquo;s capital, which belongs to shareholders like pension funds, index funds, and your 401(k). Nobody who decided the 2024 order could wait pays a dime. On the earnings call next quarter, they&rsquo;ll be talking about operating leverage.
<h2 class="subhead nbp">How the Toll Booth Works</h2>
Fines are spread across millions of shareholders. No one feels it. The board doesn&rsquo;t have to revolt. The regulators got their check and their press release.
Compare that to one executive in handcuffs. That changes the math for every other executive in every other bank, overnight. That&rsquo;s Stern&rsquo;s point, and it&rsquo;s the right one. He says one banker in cuffs would do more than every fine in Treasury&rsquo;s history combined.
So why does The Swamp keep choosing the toll?
In a word: fear.
In 2013, Attorney General Eric Holder told the Senate that some banks had grown so large that prosecuting them could hurt the economy. He later walked back his comments, but &ldquo;too big to fail&rdquo; turned out to be a Frankenstein&rsquo;s Monster.
And since Bank of America is loaded with $109 billion of unrealized losses from its Treasury bond holdings, that concern is even more acute.
Also remember that a fine is revenue. Treasury booked a tidy $1.2 billion on Tuesday. Like war, prosecution takes years and costs millions. A settlement is a guarantee with a big bow.
Finally, see the incentive for what it is. Each fine justifies a bigger compliance bureaucracy, inside the bank and the agency. Both a bank&rsquo;s compliance staff and the government&rsquo;s grow.
Sadly, the fine isn&rsquo;t the cost of doing business. It is the business. The government sells the pass, and the bank buys it.
<h2 class="subhead nbp">Tetzel&rsquo;s Price List</h2>
History tells us the Church learned this the hard way.
In 1517, a Dominican friar named Johann Tetzel toured Germany promoting indulgences. Catholic doctrine held that an indulgence remitted temporal punishment for sins whose guilt had already been forgiven.
It was never supposed to be a license to sin. But Tetzel&rsquo;s fundraising pitch made spiritual relief sound suspiciously like something you could buy. Part of the proceeds helped finance the rebuilding of St. Peter's Basilica in Rome.
A monk in Wittenberg objected. Luther&rsquo;s Ninety-Five Theses helped ignite the Protestant Reformation and split Western Christendom.
The Church eventually confronted the abuse. At the Council of Trent, it reaffirmed the doctrine of indulgences but condemned the financial abuses surrounding them. In 1567, Pope Pius V abolished indulgences tied to payments.
DC has learned no such lesson. It still collects the money and leaves the sinners in business.
Indeed, the Treasury&rsquo;s arrangement is worse. An indulgence was never meant to excuse future sins. A bank fine that leaves the responsible executives untouched encourages the next offense.
And everyone watching learns that consequences are negotiable, as long as you&rsquo;ve got the money.
<h2 class="subhead nbp">The Last Whistleblower</h2>
So why did nobody inside Bank of America come forward the way he did?
Stern answered that question: because everyone in American banking knows what happened to him.
That&rsquo;s the quiet cost of the toll booth. It releases the guilty and publicly punishes the honest. The next honest man shrugs and shuts his mouth.
<h2 class="subhead nbp">Credit Where It&rsquo;s Due</h2>
This fine is bigger than any of Bessent&rsquo;s predecessors managed. The Treasury forced the bank to admit willful violation in writing. That&rsquo;s more than HSBC ever conceded.
But fines are the limit of what he can do. The Justice Department must prosecute. Stern knows this, which is why his first ask is a referral, not a conviction.
The good news is that Stern&rsquo;s three fixes are all within reach of this administration:
<ol>
<li>Refer the executives who set the thresholds, not the analyst in the queue.</li>
<li>End too big to jail, since a bank can&rsquo;t be too big to fail and too big to jail at once.</li>
<li>Finally, if a bank with America in its name won&rsquo;t act like America&rsquo;s bank, review its charter.</li>
</ol>
These fixes only require a Secretary willing to take down the toll booth.
<h2 class="subhead nbp">Wrap Up</h2>
Before Stern walked into the FBI building in 2010, he stopped at the Great Seal in the lobby and read the words under it: Justice is the defense of our liberty.
He believed it then. He says he still wants to believe it now.
Don&rsquo;t take my word for how this works. Take his.
He paid for the privilege with everything he had, and he wrote it down for the man who can change it. <a href="https://x.com/EverettStern1/status/2110385405858111510?s=20">Read the letter</a>, then decide for yourself whether Tuesday&rsquo;s fine was a punishment or a receipt.
A nine-figure bank fine is just a toll. It&rsquo;ll stop being that when bankers get perp-walked out of their shiny glass towers.

mr-issue-10-15-26-img-1

Too Big to Nail

Yesterday we explored the archaic concept of long-term investing.
In a world where the average investor holds a stock for 3 minutes, I believe it&rsquo;s wise to be contrarian here.
Today, we&rsquo;re going to cover my favorite forever investments. Stocks I plan to hold for the next 10 years or longer.
Without further ado, let&rsquo;s get started.
<h2 class="centered subhead" style="text-align: center;">Oil &amp; Gas</h2>
At its peak back in 1980, the energy sector (oil and gas) made up a whopping 30% of the S&amp;P 500. Today it&rsquo;s about 3.5%.
I first <a href="https://dailyreckoning.com/billy-bob-vs-stop-oil-lunatics/">posted</a> the chart below back in June of 2025. Energy has since moved up to about 3.5%. Still a drop in a bucket.
<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/6AvfPlAdQj2mGoreHvCkni/77b5fa4f27b9786aa6961b279a83e1fc/dr-img1-10-14-26.jpg" alt="image 1" />
Source: <a href="https://x.com/TaviCosta">Tavi Costa</a>
Meanwhile, the Magnificent 7 tech giants make up 35% of the S&amp;P 500. Out of a 500-stock index, just 7 of them make up 35%. And if you combine the top 41 AI companies, it moves up to 49% of the entire index. Talk about concentration risk&hellip;
The 3% stat got my attention. And as I dug in, I realized that the world hasn&rsquo;t invested nearly enough in oil production over recent decades. Large oil discoveries have plummeted by about 60% since the early 2010s, when shale was booming.
There&rsquo;s a widespread perception that oil is the past, and green energy is the future. This is bogus. Oil demand is still rising, and alternative sources are nowhere near ready to replace it.
Much of the world&rsquo;s easy oil has already been extracted. Additionally, the green new scam and other ESG mandates have caused many asset managers to quit oil and gas entirely. They call it divesting.
I call it an opportunity.
<h2 class="centered subhead" style="text-align: center;">Oil Picks</h2>
No surprise here. My favorite long-term oil stock remains Petrobras (PBR or PBR.A).
Brazil&rsquo;s Petrobras is the cheapest major oil company in the world, by far. And there is some political risk with the government owning a big chunk of the firm.
But I believe the juicy dividend yield and low price more than make up for the potential downsides. Besides, Brazil is experiencing a stock market boom and if they mess with PBR shareholders, that&rsquo;s going to end. Additionally, it looks like the country will soon have a conservative/capitalist president.
To be clear, I wouldn&rsquo;t aggressively buy Petrobras here. It has more than doubled since we first <a href="https://dailyreckoning.com/trading-the-trade-disruptions/">featured</a> it last year, and we&rsquo;ve been banging the drum on this stock for 18 months.
But if the wars in Iran and Ukraine end, and the price drops, that&rsquo;ll be an ideal time to pounce. Petrobras can profitably sell oil at $35/barrel. As a bonus, they&rsquo;re insulated from chaos in the Middle East. In fact, the company benefits from it. They also operate 11 oil refineries.
My plan with this one is simple. Reinvest the dividends and let it grow for decades.
If you&rsquo;re looking for a safer U.S. oil stock, ExxonMobil (XOM) is also solid. I own that one too.
And if you belong to any of Jim Rickards&rsquo; services, keep a close eye on their energy picks. Jim and Dan are on fire lately. These guys understand this sector like few analysts do.
<h2 class="centered subhead" style="text-align: center;">Emerging Markets (EM)</h2>
Long-suffering readers are rolling their eyes right now. Emerging markets, again?!
Yes. I enjoy buying growing companies at under 10x earnings, with 5% yields and <a href="https://dailyreckoning.com/buy-the-dip-in-vale/">irreplaceable</a> assets. And the only place you can reliably do that today is EM. The S&amp;P 500 yields a pitifully small 1% today. That&rsquo;s a giant red flag for me. Too expensive.
I&rsquo;ve talked enough about Brazil lately (<a href="https://dailyreckoning.com/viva-brasil-a-3x-in-the-making/">read this</a> if you need to get caught up). So I&rsquo;ll make the pitch quick. The iShares Brazil ETF (EWZ) is the simplest way to play it. I plan to hold my Brazil positions for years to come, and hopefully longer.
Caveat: if our Brazil picks pull off a 4x in 4 years, it may make sense to take some profits early. Still, I hope to hold some of my Brazilian positions essentially forever (namely PBR and VALE).
My other favorite EM &ldquo;forever investment&rdquo; is the Cambria Emerging Shareholder Yield ETF (EYLD). This is a unique &ldquo;shareholder yield&rdquo; ETF. It selects companies based on their total shareholder yield, which is a combination of dividends, buybacks, and debt paydowns.
The fund owns 108 companies from across the world, but they are concentrated in Asia. Vietnam, South Korea, Taiwan, and about 16% China. These are mostly industrial companies that don&rsquo;t even trade in the U.S. So it offers excellent diversification.
I&rsquo;ve owned this fund for more than 8 years. Even when EM wasn&rsquo;t doing well, it always generated a nice yield, which I reinvested in more shares. The dividend yield is around 4.3% currently, and the expense ratio is 0.6% per year.
I plan to buy more EYLD in my 401k throughout this year.
Those are my favorite forever investments today. If I add anything else to the list, you&rsquo;ll be the first to know.

dr-hero-img-10-14-26

My Favorite Forever Stocks

Most investors have horror stories from their early trading experiences. I certainly do.
My weapons of choice were trashy penny stocks and 10x leverage.
No, my investing career did not begin in a blaze of glory. But the truth is, almost nobody&rsquo;s journey does.
For better or worse, mistakes are how we learn.
<h2 class="centered subhead" style="text-align: center;">A Glimmer</h2>
Before my writing career, in the early 2000s, I ran a one-man marketing consultancy. My specialty was building Google advertising campaigns for small companies.
It was a nice little business. And I got to know Google&rsquo;s systems very well. They had a truly revolutionary product, and most people didn&rsquo;t realize it.
Google IPO&rsquo;d in 2004 at a split-adjusted price of $2.13 per share. I ended up buying in 2005 at around $5.25 per share.
As the years went on, I bought more Google on dips. I knew this company was going to be a monster, because I worked with their products every day. I fell in love with GOOG.
In the end, I held onto those Google shares for 15 years, selling (too early) in 2020. At one point Google was over 60% of my portfolio. But that was fine, because I knew the company inside and out.
This is what I mean by &ldquo;marrying&rdquo; a stock. You buy a company you understand deeply, and add to it on dips. This is the ideal stock market relationship.
Warren Buffett famously said his ideal holding period for an investment is &ldquo;forever&rdquo;, and the older I get, the more sense it makes.
<h2 class="centered subhead" style="text-align: center;">Lessons</h2>
After those first few years of &ldquo;investing&rdquo;, I had to stage an intervention with myself.
I looked at the results from my IRA (long-term) account and compared it to my trading account. The difference was stark.
One was growing steadily, and the other appeared to be some sort of black hole for money.
Truth is, I had no business trading back then. I was in my early 20s and didn&rsquo;t have the knowledge, patience, or skills required. This is the biggest mistake investors make, especially new ones. Frequent trading by amateurs almost always leads to account implosion.
For the next 7 years, I didn&rsquo;t trade at all. Only long-term investments. And it worked.
Eventually I started dabbling again with trading, but with caution and strategy this time. Here&rsquo;s how I maintain balance these days.
<h2 class="centered subhead" style="text-align: center;">A Smarter Path</h2>
In 1960, the average holding period of a stock investment was 8 years and 7 months. Today it&rsquo;s just 7 months. Almost nobody holds investments long-term these days.
This is one of those times where it pays to go against the grain.
I believe that the core of every portfolio should be long-term positions.
When you hold investments for long periods, it gives them time to compound without taxes constantly interrupting the gains. And it removes human emotion from the equation, which is a great thing in the investing world.
About 83% of my portfolio today is in long-term investments. The other 17% is cash, which I use to fund occasional trades. But an individual trade is never more than 1% of the total, and usually far less.
Regarding &ldquo;long-term&rdquo; investing, some of you are thinking &ldquo;I don&rsquo;t have that much time to wait&rdquo;. I understand. Inflation is problematic, the job market is terrible, and the future uncertain. A lot of people have catching up to do.
But don&rsquo;t go out and risk everything on half-baked ideas. If you&rsquo;re determined to trade, take advantage of the experts we have here at Paradigm Press.
We have world class traders here, and they&rsquo;ll make your trading journey far more enjoyable. Attempting to do it on your own is going to be tough sledding. The tuition to become a successful trader on your own is steep. Most people never make it.
But don&rsquo;t forget about the long haul part of your portfolio. Statistically, that&rsquo;s where most of the magic happens.
This week we&rsquo;ll discuss which stocks I consider to be marriage material today.

dr-hero-img-10-13-26

Settle Down and Marry a Nice Stock

The title says it all: Boulder wants your money.
Oh wait&hellip; You don&rsquo;t live in Boulder, or even Colorado? Too bad. Fork it over.
At least, that was the argument last week in the U.S. Supreme Court, in a case called Suncor Energy v. Boulder County. If Boulder prevails, consumers everywhere will pay big-time. And if you&rsquo;re worried about so-called &ldquo;climate change,&rdquo; this case won&rsquo;t change even one raindrop or gust of wind in the weather. Because the idea is to take your money!
<h2 class="subhead nbp">A &ldquo;Local&rdquo; Lawsuit with YOU as Unnamed Defendant</h2>
In 2018, Boulder sued Suncor Energy Inc. (SU) and ExxonMobil (XOM) for damages related to future costs from heat, drought, wildfire and flooding. That is, Boulder sued for fanciful things that have not yet occurred. There was no oil spill, refinery fire, or any other definable, direct injury to people or property.
In essence, the lawsuit claims damages because Big Evil Oil Companies produce hydrocarbons, which are alleged to cause&hellip; Climate Change!
So, Boulder named the two oil companies as defendants in a state court case and now wants them to write huge checks. But what it really means is that Boulder wants YOU to pay because any monetary damages will flow through the companies to what they charge at the pump for gasoline, diesel, jet fuel and a myriad of other hydrocarbon products.
&ldquo;But wait,&rdquo; one might say. &ldquo;Even if the so-called &lsquo;climate&rsquo; is changing, isn&rsquo;t that a global issue?&rdquo;
Well, yes&hellip; It&rsquo;s not as if Colorado has its own air, let alone Boulder. And it&rsquo;s not as if any given molecule of carbon dioxide comes with a blockchain ID on it. Nobody can trace the source of atmospheric CO2 directly back to Suncor, Exxon, or any of a near incalculable number of global producers of oil, gas, coal, wood, other biomass, or even <a href="https://dailyreckoning.com/fire-to-fortune-a-year-of-living-volcanically/">natural sources of CO2 like volcanoes</a>.
Meanwhile, why Boulder? Who appointed Boulder as King of the World, let alone Czar of the Climate? Why can Boulder sue two oil companies in state court over CO2? And really, what about me? What about you? Where&rsquo;s my lawsuit? And where the hell is MY money?
Okay, just kidding&hellip; sort of. But you see where this goes, right? If Boulder shakes down Suncor and Exxon, then the costs get spread across those companies&rsquo; operations. Maybe they go out of business (which I doubt, although that is one key goal of the Green-Left); or&hellip; maybe we all pay more at the pump and furnace, while Boulder cashes the checks.
And perhaps you&rsquo;ve never set foot in Colorado (full disclosure: I&rsquo;ve been to Colorado). But that doesn&rsquo;t matter. If you buy or use fuel, electricity, food, plastic packaging, medicine, airline tickets, anything delivered by truck, and much else &ndash; pretty much everything in the entire economy &ndash; then Boulder&rsquo;s local lawsuit picks your pocket. You are simply the unnamed defendant here.
<h2 class="subhead nbp">From Activism to Lawfare</h2>
Several years ago, my colleague Jim Rickards coined the phrase &ldquo;Green New Scam&rdquo; as a shorthand method to describe much of what passes for environmental policy in certain sections of American and global politics. Indeed, what we have here, with Boulder, is a local climate scam acting via pure, unadulterated lawfare; that is, Boulder is using litigation to obtain what activists and their political lapdogs have not secured through federal law.
Boulder seeks what it calls a &ldquo;fair share&rdquo; of &ldquo;adaptation costs,&rdquo; which are undefined in any meaningful legal sense. At root, it&rsquo;s an exercise in speculation; a shakedown aimed at deep-pocketed companies that are &ndash; in some quarters &ndash; politically unpopular. So, they sue Big Oil in state court; versus seek a remedy against entire nations like China and India, which burn immense amounts of coal and oil; let alone sue billions of people around the world who use hydrocarbons every day.
In one sense, Boulder&rsquo;s lawsuit is a classic courthouse pressure campaign. Sue somebody and demand Big Buck$ under broad, arm-waving legal theories. Create legal bills and litigation exposure. All along, the process is the punishment, while setting up leverage for a payoff-settlement.
And one lawsuit may be leverage, but if Boulder blazes the trail here we can expect dozens more such suits. It&rsquo;s the beginning of a vast system of rent-seeking against the energy industry. In fact, per briefs filed in the Suncor case, over 60 local governments have brought similar lawsuits across the U.S., and thus this particular case is not a mere one-off.
If Boulder&rsquo;s lawsuit moves ahead, a barrel of oil, refined fuel, or other downstream feedstock will be priced not just based on internal costs such as finding, development, lifting, transport, refining and movement to point of use. Instead, that barrel will carry a massive markup for bottomless, endless litigation and claims under a constellation of different state laws.
<h2 class="subhead nbp">Litigating the Global Atmosphere in a County Courthouse</h2>
Boulder&rsquo;s lawsuit against Suncor and Exxon alleges nuisance, trespass, unjust enrichment, conspiracy and other state-law claims. Boulder says the companies produced and promoted fossil fuels while misleading the public about climate risks, leaving taxpayers with those ill-defined &ldquo;adaptation costs.&rdquo; The companies deny liability and argue that federal law forecloses claims rooted in global emissions.
Procedurally, Suncor and Exxon petitioned to do what&rsquo;s called &ldquo;remove&rdquo; the state case to federal court. And after a convoluted pathway of litigation, the case wound up still in the hands of Colorado courts, so the defendant oil companies petitioned the Supreme Court to hear arguments and make a determination on what&rsquo;s called &ldquo;venue.&rdquo; And that&rsquo;s where things stand now, with arguments last week.
Of interest, Justice Alito recused himself, presumably because he might own stock in SU or XOM (he didn&rsquo;t say). Thus, the outcome of the case will be determined by eight justices, versus nine, and there&rsquo;s a distinct possibility that Court politics will deliver a 4 &ndash; 4 vote; which means that the case stays in Colorado courts.
Again, CO2 in Colorado is chemically identical to that from China, India, Russia, Europe, ships at sea, aircraft in the sky, and factories, farms and billions of vehicles everywhere. There&rsquo;s no true accounting for what&rsquo;s in the earth&rsquo;s atmosphere. But welcome to American jurisprudence, where a small jurisdiction like Boulder can claim damages for planetary conditions related to the world&rsquo;s massive, globalized economy.
<h2 class="subhead nbp">What, Exactly, Is Defective?</h2>
During oral arguments last week, Boulder&rsquo;s lawyer compared the case to ordinary product liability. Really? Then what&rsquo;s the defect? That is, tort law creates a claim where, say, a defective brake fails to stop a car, or contaminated food makes you sick. Traditional product liability links back to an identifiable flaw, product and injury.
But hydrocarbons from Suncor, Exxon or anybody else do exactly what buyers expect. Gasoline powers engines; diesel moves freight; jet fuel lifts aircraft; natural gas heats buildings and feeds chemical plants; petroleum becomes asphalt, plastics, lubricants, fertilizer inputs, medical supplies and thousands of useful materials.
Liability-wise, Boulder&rsquo;s alleged &ldquo;defect&rdquo; is not some malfunction of refined products. Indeed, Suncor and Exxon can rightfully brag that their products work as intended and are successfully used every day at continental and intercontinental scale, with CO2 as a well-known product of combustion.
The long and short is that Boulder has no claim for ordinary product liability. Boulder is just bellyaching about the long-term, cumulative consequences of modern civilization&rsquo;s entire energy system. And that&rsquo;s hardly an issue for a state court anywhere. Aside from the money. Which will be paid by YOU, did I mention?
<h2 class="subhead nbp">Colorado&rsquo;s Courts Are Knocking at Your Front Door</h2>
And let&rsquo;s make this easy: follow the money! Because a legal victory for Boulder will create open-ended liability against energy companies everywhere, tied to weather, infrastructure and this ill-defined &ldquo;future adaptation&rdquo; thing. No oil company manager, business executive, lender or insurer could know which city would sue them next, let alone what conduct triggers liability, or even how many times the same emissions might be counted.
At the very least, Boulder&rsquo;s legal theory means that fewer energy projects be developed by U.S. companies, although America&rsquo;s energy demand will still remain, which is a recipe for higher prices. We&rsquo;ll all pay more for motor fuel, heat, electric power; and on and on and on&hellip;
And how much is enough? Ha! From long, personal experience I know that environmental activists live in their own world. To the extent they consider energy costs (especially costs paid by others), it&rsquo;s an abstraction. At the end of the day, Boulder&rsquo;s lawsuit is local lawfare that transforms into a national-scale, deeply regressive, so-called &ldquo;net-zero&rdquo; energy surcharge.
Meanwhile, Boulder&rsquo;s lawsuit will not remove a single molecule of CO2 from the atmosphere. Specifically, the world runs on hydrocarbons: about 83% of total global energy output comes via hydrocarbons (look it up). And the world will run on hydrocarbons long into the future.
If Suncor and Exxon sell fewer barrels, China, India, and the entire rest-of-the-world will still fire up their furnaces and engines. And if American companies exit the energy biz, somebody else will develop the oil and gas, and sell it to willing users.
Of course, that &ldquo;somebody else&rdquo; will be an overseas producer, far away from the nettlesome legal reach of Boulder, Colorado. And those foreign actors will laugh and scoff at the utter stupidity of not just Boulder and its crackpot lawyers, but at ridiculous American courts, and gullible voters who allow this kind of legal lunacy to handicap America&rsquo;s entire energy and economic system.
<h2 class="subhead nbp">Bottom Line</h2>
If Boulder prevails, activists will celebrate their victory over Big Oil. But the practical victory will belong to trial lawyers, foreign producers and every municipality that copies the complaint.
The losses, of course, will hit everywhere: costlier capital, fewer domestic energy projects, tighter supply, weaker industrial capacity, lower returns, more expensive food, power, transport and goods. None of this will respect Boulder&rsquo;s boundary line, and all of it will trespass on your wallet, bank account and investment array.
The so-called &ldquo;defect&rdquo; in this case is not in the gasoline, diesel, jet fuel or other hydrocarbon products. Every day, all around the world, these molecules deliver their promised energy and feedstock. No, the real defect is in a demented legal system that might transform worldwide energy use into a local cause of action, and then assume that the invoice stops with a corporate defendant.
Ideally, the Supreme Court will toss out Boulder&rsquo;s case and issue a strong opinion that clamps down on future copycats.
But if not? Well, the first check might come from Suncor or Exxon, but all along the money will come out of your pocket. So, and as noted above, fork it over.
That&rsquo;s all for now. Thank you for subscribing and reading.

mr-issue-10-13-26-img-1

Boulder, Colorado Wants Your Money

It&rsquo;s Columbus Day, a federal holiday: no mail, no banking, courthouses and most government offices are closed, as well as bond markets. But stock markets were open for trading.
And Columbus Day brings out the usual arguments. One side honors the mariner whose 1492 voyage pioneered sustained contact between two hemispheres. The other side condemns him due to what happened later: conquest, enslavement, disease, and dispossession.
Of course, history is what it is. And pro-Columbus or not, his efforts are worth recalling because reflection is neither indictment, acquittal or canonization. Whatever you think, no one can deny that Columbus&rsquo;s first voyage marked a unique moment in time that opened a vast new door in human history.
And to all you Vikings out there: Yes, Norsemen reached North America pre-Columbus, around 1000 A.D. and established a short-lived settlement at L&rsquo;Anse aux Meadows in Newfoundland. But their adventure left a near-negligible archaeological footprint. They were here and gone, with no durable corridor of migration, commerce, or exchange. Which makes Columbus&rsquo;s distinction even more important.
So no, Columbus was not the first European across the Atlantic. But he developed a workable method to cross that mighty sea, and I mean both ways! That&rsquo;s what was important. He sailed southwest from Spain to the Canary Islands, then west to the Caribbean; and returned to Europe via the southern rim of the Gulf Stream. He invented the transatlantic round trip.
<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/11GvZrRyyM1zytbn4dbU77/6d8b36982b3f916146d4b6393dd7abf3/dr-img1-10-12-26.jpg" alt="image 1" width="540px" />
Route of Columbus&rsquo;s first voyage: Canaries to Caribbean.
Columbus&rsquo;s 1492 mission charted a route based on favorable trade winds and oceanic currents. It was repeatable by others, and this is what transformed his voyage into a hinge of world history, which is also where Columbus&rsquo;s critics get things wrong.
That is, Columbus was an explorer who redrew Europe&rsquo;s maps. But he didn&rsquo;t write the script for subsequent events. His voyages set vast forces in motion, and many things happened that were disruptive if not brutal. But beware thinking in terms of post hoc ergo propter hoc; because it does not follow that Columbus personally created or intended the next 500 years of what ensued.
Plus, keep in mind that the world that evolved from Columbus&rsquo;s voyages &ndash; migration, exchange, conflict, discovery, and adaptation &ndash; is the only world we have. So, on Columbus&rsquo;s Day the question is not whether he was a modern man with modern values. (Hint: no, he was not.) It&rsquo;s why his voyage changed history.
<h2 class="centered subhead" style="text-align: center;">Morison&rsquo;s Test: Columbus the Sailor</h2>
At root, the triumph of Columbus begins with seamanship, geography, and the Canary Islands, where an audacious idea became a successful, repeatable Atlantic passage.
In the late 1930s, Harvard historian (and sailor) Samuel Eliot Morison retraced Columbus&rsquo;s routes under sail while researching what became his Pulitzer Prize-winning 1943 book, Admiral of the Ocean Sea. Morison wanted to test the story of Columbus&rsquo;s voyage against the realities of wind, current, rig, speed, landfall, and navigation. And the result was a portrait of Columbus as an ambitious and fallible man, and also a first-rate mariner.
Columbus&rsquo;s three ships &ndash; the Santa Mar&iacute;a, Pinta, and Ni&ntilde;a &ndash; left Spain on August 3, 1492, and reached the Canary Islands six days later. There, his crew made repairs, took on water and provisions, spoke with other sailors who had ventured into the open Atlantic Ocean, and waited for the winds. Then on September 6, Columbus sailed west.
<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/4ve0LjVyu11koCOetTlBPo/e867b08f1abe652f804ad03ef470429d/dr-img2-10-12-26.jpg" alt="image 2" width="540px" />
"Les Grand Voyages" by Theodore De Bry. Credit Paulus Swaen &amp; Co., Mapmakers.
In Morison&rsquo;s telling, Columbus was a man of human scale, doing his best with what was available. Columbus compared conflicting reports, read the weather, understood his ships, kept his anxious crews focused, mapped a dead-reckoning track, and decided when to press on.
Columbus&rsquo;s error about reaching Asia, versus &ldquo;merely&rdquo; the Western Hemisphere, doesn&rsquo;t erase his nautical or leadership qualities. He didn&rsquo;t just drift with the sea. He led a fragile expedition across a vast and unknown ocean, and by doing so helped swing open a door between worlds that would never again be closed.
<h2 class="centered subhead" style="text-align: center;">How Basalt Islands Became Atlantic Infrastructure</h2>
While we ponder Columbus&rsquo;s voyage, keep in mind the Canary Islands; a tourist destination today, but not mere beaches and scenery back then. In fact, those protruding rocks offshore of Africa were the launch point that made Columbus&rsquo;s westward crossing both possible and repeatable. Couple the islands with ocean currents, and here&rsquo;s the geographic and logistical secret to Columbus&rsquo;s success.
The Canary Islands are volcanic mounds piled upon relatively old oceanic crust within the African Plate, and far from any active plate boundary. They&rsquo;re the result of a deep-earth, long-lived hotspot in the mantle. For about 20 million years, fractures and stresses in the African plate have fed repeated eruptions, mostly basalt.
<img src="https://images.ctfassets.net/vha3zb1lo47k/RvGb6U02QgSoRmJPTb2GU/83778adc91f2042abeafe46e95f2b4e3/dr-img3-10-12-26.jpg" alt="image 3" width="540px" />
Canary Islands, offshore Africa. Credit University of Minnesota.
The Canaries make for an unusual geologic setting; they don&rsquo;t present the smooth eruptive and age progression of, say, the Hawaii island chain. Instead, with the Canaries, the slowly moving African Plate allowed old magma pathways to pause, revive, and overlap, producing older eastern islands and generally younger western ones without a conveyor-belt sequence.
Eruption after eruption raised durable basalt above the deep Atlantic seafloor, resulting in tall peaks visible from far offshore. And this high ground has long shaped cloud patterns and local winds, while lee shores offer shelter from exposed coastlines. Add in other aspects of eroded volcanic terrain and you have communities, farms, fresh water, labor, anchorages and places to repair ships.
In short, ancient geology created the platform. Human settlement made it useful. And location completed Columbus&rsquo;s advantage. His small, square-rigged vessels could sail southwest from Spain, replenish in the Canaries, then turn west with the trade winds.
Then, the return track required a different course; north into what we now call the Gulf Stream, and east toward Europe. And certainly, the shortest line on a map was not the fastest route at sea. Had Coumbus sailed straight west from Spain, he&rsquo;d never have accomplished anything and we&rsquo;d never have heard of the guy.
Instead, Columbus&rsquo;s achievement was to combine basalt, latitude, wind, currents, and island logistics to remarkable effect. His choice of geography became what we now call infrastructure, and his use of wind and waves supplied the energy.
Critically, Columbus created a repeatable crossing pattern for others. And repeatability was decisive because it transformed raw exploration into a durable, low(er)-risk form of passage. And thus, people, goods, ideas, faiths, ambitions, and conflicts reshaped the world.
<h2 class="centered subhead" style="text-align: center;">Post-Columbus, an &ldquo;Atlantic&rdquo; World</h2>
Later voyages confirmed Columbus&rsquo;s pattern. In 1493, a much larger Spanish fleet &ndash; 17 ships &ndash; staged through the Canaries, carrying settlers, animals, seed, tools, and institutions westward. Then again and again, through one expedition after another, the Canary Islands served as workshop, storehouse, lookout, and point of departure westward.
Post-Columbus, other navigators followed the same wind-and-island geometry. Voyages became routes; routes became settlements and commercial circuits; those circuits moved plants, animals, soldiers, settlers, technologies, beliefs, capital and enslaved people among Europe, Africa, and the Americas.
All along, the Canaries were a geographic and logistical hinge, and Canarian sailors and settlers became part of communities across the Caribbean and well into the mainland Americas. In this sense alone, Columbus Day remains relevant because this vast, mixed, creative, violent, and irreversible Atlantic world did not simply appear; it emerged through a unique oceanic channel that Columbus opened.
Again, keep in mind that historical consequence is not the same as personal authorship. Columbus was a skilled sailor who opened a route to the New World (well, new to Europe). Governments, merchants, soldiers, colonists, clergy, and countless later generations chose what else to move through that door, and they themselves determined what to do on the other side.
<h2 class="centered subhead" style="text-align: center;">The World After Columbus&mdash;and the World Ahead</h2>
To sum up, Columbus did not create the modern world, and he alone is no explanation &ndash; let alone a scapegoat &ndash; for its flaws or evils. To disdain him as the root cause of slavery, disease, war, or empire is lazy thinking that gets us back to that line about post hoc ergo propter hoc: it confuses sequence with causation. Indeed, the worst one can say of Columbus is that his efforts created the first true template for sustained transatlantic contact.
<img src="https://images.ctfassets.net/vha3zb1lo47k/5rKJCdQWImylsyMNUuk737/2d440f2f7582d783a38aed7f87ec1028/dr-img4-10-12-26.jpg" alt="image 4" width="540px" />
Christopher Columbus statue. Credit City of Barcelona, Spain.
The world after Columbus is the world our ancestors made and which we inherited. And like it or not, there&rsquo;s no reversing history with all its encounters, discoveries, explorations, migrations, exchanges and even crimes. We can only understand how they came together, judge them honestly, and decide what to do with the inheritance.
In this sense, Columbus Day offers a recurring civic occasion to think: to remember the mariner without denying what followed, and to study his mission without pretending that its consequences were simple.
And no&hellip; remembering Columbus is not to declare him flawless or to excuse anything that followed. It&rsquo;s more to recognize that history can turn on vision, skill, courage, error, and consequence all at once.
As with the Atlantic Ocean in 1492, our own future will not deliver perfect people or absolute certainty. Really, &ldquo;AI&rdquo; anyone? Where is that going?
But it&rsquo;s fair to say that the future belongs to those with enough vision to see beyond the known horizon, enough skill to navigate, and enough responsibility to answer for the world they help set in motion.
That&rsquo;s all for now. Thank you for subscribing and reading.

dr-hero-img-10-12-26-1

Admiral of the Ocean Sea: Columbus and the Hinge of History

A tiny ETF is up 5,081% (51x) since the beginning of the year.
It&rsquo;s a niche fund that owns oil tanker freight futures. So when the cost of shipping crude oil rises, so does this ETF.
And since the war with Iran, the cost to rent a tanker has gone vertical.
In 2025, the average rate to book a VLCC oil tanker was about $65,000 per day. Today it has risen to $1.6 million.
<h2 class="centered subhead" style="text-align: center;">A Simple Trade</h2>
The ETF is the Breakwave Tanker Shipping ETF (BWET). As I mentioned, it owns futures contracts which track the cost to ship oil around the world. Here&rsquo;s a look at their top 5 holdings.
<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/21HaP0kF5PJWR0IgaO6q8V/30c6f94e45b03ba89d52e15ef8be2548/dr--img1-10-10-26.jpg" alt="image 1" width="540px" />
Source: Breakwave
And please, don&rsquo;t go out and buy BWET now. It&rsquo;s already up 51x this year, and whenever the Iran and Ukraine situations get resolved, the fund is practically guaranteed to crash. It may go higher first, but eventually gravity will return. I mean, just look at the chart.
<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/3oU715iIMqpucLcYQBdQ0O/7028cdb0aa910db07d6da2a50bd09f34/dr--img2-10-10-26.jpg" alt="image 2" width="540px" />
In hindsight, however, BWET was an obvious trade. We knew early on that Iran had significant anti-ship missile capabilities, and wrote about it frequently. Their strategy depends on preventing tankers from freely crossing the Strait of Hormuz. We knew this <a href="https://dailyreckoning.com/jim-rickards-most-surprising-iran-takes/">early on.</a>
Oil tanker rates were bound to rise along with the danger of transiting the Strait of Hormuz. As soon as they started blowing up full VLCC tankers, that should have been the cue to look for ways to play the shift.
BWET was the ideal play. All it would have taken to find it was a simple AI query. &ldquo;Hey ChatGPT, how can I bet on rising oil tanker rates?&rdquo;&nbsp;
AI can be an extremely valuable research tool. Just don&rsquo;t ask it what to buy, or when. AI is NOT good at generating unique ideas, and even today&rsquo;s top AI models are horrible traders. You need to provide the spark. But for brainstorming and research, it can be a very useful tool. I view AI as a valuable research assistant, but never a stock picker.
Anyway, missing the tanker trade has inspired me to perform better and deeper research when these earth-shaking events like the Iran war happen.
They always bring opportunity. And sometimes, it&rsquo;s downright massive.
<h2 class="centered subhead" style="text-align: center;">What&rsquo;s Next?</h2>
The world is in a crazy place today. War, inflation, AI disruption, debt, trade and currency wars. We&rsquo;re essentially living in the scenario Jim Rickards laid out in his books and other work over the past 15 years.
But amongst the chaos, there exist rare opportunities for investors.
Here are 4 earth-shaking events I&rsquo;m watching closely.
<ul>
<li>Ukraine will lose the war against Russia, probably next year.</li>
<li>The global debt situation has reached a tipping point. Yields are soaring.</li>
<li>AI will disrupt white collar work in unprecedented ways.</li>
<li>America&rsquo;s higher education system will die and be reborn over the next 15 years.</li>
</ul>
The implications for each of these are huge.
Let&rsquo;s think about the Ukraine vs. Russia war quickly. When Ukraine loses, the world will change. NATO put its full support behind Ukraine. Tanks, planes, bombs, missiles, drones, refugee support, directly funding the government, covert on-the-ground assets, and most importantly &ndash; intelligence, satellite and recon (ISR) assistance. Without our eyes in the sky, Ukraine would have lost in the first year.
Between NATO and Europe, about $650 billion has been spent to support Ukraine during the war. When Ukraine loses, and the scale of it all becomes apparent, I believe it will speed the breakup of NATO, and possibly the EU as well.
More than a million lives will have been wasted. And Russia will end up with Ukraine&rsquo;s most valuable territories.
Confidence will be lost in European and NATO leadership, as it should. Fortunately President Trump has distanced us from Ukraine somewhat, and tried to take a more even-keeled approach to ending the conflict. But the Ukraine war truly began in 2014, when Obama&rsquo;s intelligence services executed the Maidan Revolution (coup). NATO is deep in this war.
I&rsquo;m still searching for how to trade the end of the Ukraine war. It&rsquo;s a sad situation all around. But as investors we have to distance ourselves from emotion.
Some of these other earth-shakers are easier. The debt crisis trade is pretty simple, and we&rsquo;ve been discussing it for years now. Hard assets, foreign stocks, precious metals. That&rsquo;s more of a decade-long investment than a &ldquo;trade&rdquo;, for me at least.
The bigger point is this &ndash; I&rsquo;m going to look even harder for big idea opportunities. When the world is changing this fast, there are inevitably some incredible opportunities for those who are paying attention.
Of course, I&rsquo;ll share the best ideas with you all as I find them.

dr-hero-img-10-10-26

Earth-Shakers: Trading Big Ideas

President Trump hosted Chinese President Xi Jinping for a multi-day state visit beginning Sept. 23. There were a number of interesting aspects to this summit that call for closer examination. And they&rsquo;re not the features most analysts explored.
Xi is the president of China, but that&rsquo;s not his most important role. He&rsquo;s also the General Secretary of the Central Committee of the Chinese Communist Party (CCP) and Chairman of the Central Military Commission.
In China, the state ranks third after the party and the military when it comes to power. Americans tend to gloss over Xi&rsquo;s CCP role, but in China, nothing is more important. The party is what matters. Government is simply a means to an end, which is the perpetuation of the CCP.
The summit took place in Washington, D.C. That&rsquo;s not surprising for a visit by Xi to see Trump, except for the fact that the annual U.N. General Assembly (UNGA) meeting was taking place in New York at the same time. Xi did not bother going to the UNGA, even though New York is only about a 60-minute plane trip from Washington.
Xi&rsquo;s itinerary says something about the rise of a multipolar world and the unilateral power of the U.S. and China, in contrast to the globalized worldview that prevailed from 1994 to 2018. The one-world view promoted at the U.N. is becoming irrelevant, even as the superpowers (China, the U.S. and Russia) go their own way and ignore the U.N. except when some U.N. resolution proves convenient.
<h2 class="centered subhead" style="text-align: center;">When Ceremony Is the Substance</h2>
One critique of the summit offered by the legacy media (bearing in mind the media attacks almost everything Trump does) is that it was heavy on ceremony and light on substance.
We&rsquo;ll look at the substance next, but that critique misses the point and reveals the media&rsquo;s ignorance about how things work in China. In China, the ceremony is the substance. Putting on a good show offers respect for the visitor, casts the host in a favorable light and allows the guest to gain face. These matters are not trivial.
I&rsquo;ve spent extensive time in China, Japan and South Korea over the past 40 years. I&rsquo;ve visited over a dozen cities in China, including cities in the western and northern regions far from Beijing and Shanghai. I understand the importance of face.
We don&rsquo;t have an exact cultural equivalent in Western culture, but it&rsquo;s a unique blend of respect and status. By offering face to Xi, Trump was able to solidify the working relationship between the two greatest powers on Earth.
Trump did several things along these lines. He met Xi as he disembarked from his plane at Joint Base Andrews. Typically, a foreign leader is met at the airport by a delegation and is greeted later by the president at the White House. The symbolism behind the airport greeting was huge.
Trump then personally escorted Xi through the West Wing of the White House and gave him a tour. I&rsquo;ve been in the West Wing on official business a number of times dating back to 1974. It&rsquo;s a lot smaller than people imagine, definitely smaller than the sets you see on TV.
Trump organized a photo gallery of past presidents. When you get to the place for Biden&rsquo;s photo, there&rsquo;s no headshot. Instead, there&rsquo;s a picture of Joe&rsquo;s autopen. Xi and Trump had a laugh about that. (Seems likely that Jill Biden was not amused.)
This was all topped off with an elaborate state dinner in the East Room of the White House. (Trump&rsquo;s new ballroom on the site of the former East Wing is not finished yet, but it&rsquo;s going up fast.)
Not every leader gets a state dinner. Most leaders get a photo op in the Oval Office, a little face time with the president and that&rsquo;s about it. Xi got the Full Monty.
There is little doubt that Xi was suitably pleased with his reception and the hospitality extended during his visit to Washington, D.C. There is enormous tension in the U.S.-China strategic relationship at the moment. Taking steps to reduce the tension and improve communications was well advised.
Beyond the ceremony, there was some substance to the summit. Just ahead of the meetings, Treasury Secretary Scott Bessent announced that an existing trade truce between the U.S. and China that was set to expire on Nov. 10 will be extended until Jan. 10, 2027.
By itself, that extension does not resolve open issues, but it does prevent trade relations from getting worse in the meantime.
The U.S. and China also agreed on a framework that could provide more favorable tariff treatment for about $30 billion of imports in each direction. The agreement covered mostly &ldquo;non-sensitive&rdquo; goods.
For U.S. imports, those goods include consumer products such as small appliances, toys, holiday decorations and children&rsquo;s car seats. For U.S. exports, they include agricultural goods, fish and seafood, logs and wood products, cosmetics and medical devices.
Still, these tariff concessions were underwhelming. They did not resolve the most contentious trade issues involving rare earths, high-tech magnets, soybeans, semiconductors and other advanced technologies.
One potentially important development involved NVIDIA&rsquo;s RTX Pro 5500 chip. China was reported to be considering allowing domestic companies to purchase the chip, although approval had not yet been confirmed. Interestingly, NVIDIA CEO Jensen Huang attended the White House state dinner for Xi.
The most politically sensitive issues, including weapons sales to Taiwan and Iranian oil sales to China, either produced no publicly announced breakthroughs or were not the subject of any public acknowledgment.
So, the accomplishments at the summit were modest, even if the protocol was brilliant. The main accomplishments were the things that didn&rsquo;t happen. Relations did not get worse and the trade truce did not end. The two sides are still talking, and that&rsquo;s a positive result in itself.
<h2 class="centered subhead" style="text-align: center;">The Truce Lasted About a Week</h2>
That said, the improved vibe didn&rsquo;t last long.
Just one week after the summit, Chinese refiners suspended exports of gasoline, diesel and jet fuel to destinations outside Hong Kong and Macau as Beijing moved to protect domestic supplies. It was not immediately clear how long the restrictions would remain in place or whether exports would resume after China&rsquo;s Golden Week holiday ended Oct. 7.
That move was not specifically aimed at the United States. There is a global diesel shortage. Russia has also sharply restricted exports of diesel and other refined fuels as Ukrainian attacks have disrupted Russian refining capacity and Moscow has moved to protect domestic supplies.
Trump had also floated the possibility of restricting U.S. diesel exports as prices surged, although on Oct. 2 he said there would be no U.S. diesel export ban.
Still, there is direct damage to the United States. Diesel trades on a world market, so reduced supply anywhere can translate into increased prices everywhere. The Chinese move could exacerbate inflation in the U.S. and hurt Republican election chances in the midterm elections on Nov. 3.
Meanwhile, U.S.-China tensions remain high around a long list of issues, including Chinese military maneuvers near Taiwan, China building artificial islands by dredging in the South China Sea, U.S. restrictions on high-end chips going to China and Chinese restrictions on rare earths going to the U.S.
There will be more Trump-Xi summits in the months ahead. It&rsquo;s unclear if the most difficult issues can be resolved. A return to full-scale trade and currency wars is certainly possible.
The best that can be said for the recent summit is that things did not get worse and the two sides are still talking. For now, that&rsquo;s as good as it gets.

dr-hero-img-10-09-26

Face-Off: Trump vs. Xi

DR Signup Form

Economic News, Markets Commentary, Gold, Oil and Investing Strategies.