I was talking with the father of my daughter&rsquo;s friend this week. He couldn&rsquo;t contain his excitement over the midterm results.
The guy was starry-eyed and hopeful about the future. World peace is coming, basically. Well&hellip; let&rsquo;s hope that works out, I managed to say while maintaining a straight face.
I didn&rsquo;t want to burst his bubble. His optimism will be short-lived, so let him have it for now.
Every American deserves to experience brief flashes of political hope. It&rsquo;s important for morale.
But reality will assert itself soon enough.
<h2 class="centered subhead" style="text-align: center;">There is No Anti-War Party</h2>
Most of my left-leaning friends and family are anti-war. So are most on the right. Actually, not many people I know describe themselves as pro-war.
But it&rsquo;s fascinating to watch Democrats this time around. Many believe this Congress will finally bring peace. They seem to believe they&rsquo;ve finally neutralized the evil warmongers, and everything will be rainbows from here on out.
So just for fun, let&rsquo;s explore what recent history says about Dems and war.
The Ukraine conflict, for example, is ultimately Obama and Biden&rsquo;s baby. In 2014 Obama&rsquo;s agencies executed a coup in the country, helping to install a new pro-NATO leader. A huge NATO training center was built in western Ukraine. A war was inevitable from this point, and experts like Harvard&rsquo;s John J. Mearsheimer predicted it perfectly.
In 2022, the Ukraine war began in earnest. It happened on Biden&rsquo;s watch, with his military&rsquo;s funding, intel, and weapons. All while his son Hunter was collecting $50,000 a month from a Ukrainian oligarch&rsquo;s natural gas firm.
Over a million men are now dead in Ukraine. The nation&rsquo;s population is down to perhaps 28 million from 41 million pre-war.
And Israel&rsquo;s most recent &ldquo;war&rdquo; on Gaza began on Biden&rsquo;s watch, too. The Big Guy made sure the IDF was topped off with plenty of 2,000 lb bombs, artillery shells, and other munitions. Trump continued the supply after he took over.
Nobel laureate and Democratic icon President Obama also oversaw the destruction of Syria and Libya, with Hillary of the State Department playing a lead role (isn&rsquo;t the State Dept supposed to do diplomacy?). Both countries are now living nightmares.
For the first time in hundreds of years, there are slave markets in Libya again. Syria is now run by an ex-Al-Qaeda leader. Oh, and about Al-Qaeda. Back in 2012, Jake Sullivan, one of Hillary&rsquo;s cronies at the State Department, famously wrote that &ldquo;AQ is on our side in Syria.&rdquo;
<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/72goIjwsQVeL5pwF8TRp3Z/ba7d13571b64408b978dad6fe0302477/dr-img1-11-13-26-2.jpg" alt="image 1" />
So no, there is no real anti-war party in the U.S. There are only anti-war political campaigns. Slogans. Posters.
Democrats have absolutely no right to claim moral superiority. But neither do Republicans. Look at what the GOP accomplished with control of the Senate, House, and Executive Branch. A decent immigration act, but not nearly strict enough. In the end, the GOP didn&rsquo;t do much besides start a new war and pass a massive spending bill.
When one president starts a war and it inevitably goes south, the other party simply campaigns next time on ending it. And it works. Rinse, repeat. We just keep falling for it.
<h2 class="centered subhead" style="text-align: center;">Deep State, Dark Suits, Black Ties</h2>
In 2017, a French newspaper asked Russian President Vladimir Putin about Russiagate. You know, the theory that Russia somehow got Trump elected in 2016.
Putin&rsquo;s reply was fascinating:
<blockquote>
I have already spoken to three US Presidents. They come and go, but politics stay the same at all times. Do you know why? Because of the powerful bureaucracy.
When a person is elected, they may have some ideas. Then people with briefcases arrive, well dressed, wearing dark suits, just like mine, except for the red tie, since they wear black or dark blue ones. These people start explaining how things are done. And instantly, everything changes. This is what happens with every administration.
</blockquote>
Putin is an odd guy. He sometimes talks in riddles and lectures on history for hours.
But what he&rsquo;s saying here is simple: No, we don&rsquo;t interfere in American elections. And if we did, it wouldn&rsquo;t matter because the deep state maintains control.
Harry Truman said something similar as Eisenhower was beginning his first term in 1952:
<blockquote>
He'll sit here, and he'll say, 'Do this! Do that!' And nothing will happen. Poor Ike &ndash; it won't be a bit like the Army.
</blockquote>
Did Biden and Obama want to start a war in Ukraine? No, probably not. But the deep state did, so it happened. Did Trump truly want to start a war with Iran? I doubt it. It looks like he was bullied into it. Sold a faulty bag of goods.
So here we are. No matter who we elect, the deep state remains in power. Our unelected, extremely powerful block of lobbyists, special interests, appointees, and employees. And it&rsquo;s going to be our greatest challenge to fix.
Eventually, the problem may take care of itself. At least partially. Sometime within the next ten years, massive cuts to government spending are inevitable. Like 30%, to start.
But before much really changes, we also have to get angrier. Our tax money is being taken in thousands of different ways, on a daily basis.
And the deep state&rsquo;s goal is to protect the scams, while accomplishing their strategic goals. Unfortunately they are highly organized, vast, and competent. So it won&rsquo;t be easy.
The deep state&rsquo;s reign will likely continue until a major crisis occurs. Then Americans may finally get fed up enough to effect real change.

dr-hero-img-11-13-26-1

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

Deep State, Dark Suits

I stared at my phone in shock. The numbers didn&rsquo;t change. A simple Southwest Airlines flight from Jacksonville Florida to Baltimore Maryland cost more than $1000.
I checked United&hellip;$990 with a connection. I jumped up and down and said a few four-letter words. Outrageous. Piracy. Theft and mayhem.
That&rsquo;s more than double what I expected to pay. It turns out, this is just where we are today. Airline ticket prices are up 22%+ year over year. Holiday travel for Thanksgiving is up 30%+ according to a CNN report.
I think they are underestimating it. I expected to pay $400&hellip;maybe $450 for that flight. It&rsquo;s 2 hours, straight up the coast. I&rsquo;ve done it four to six times per year since 2005. But I&rsquo;ve never paid anywhere near $1,000 for that flight&hellip;until now.
And that&rsquo;s because flights in general are near all-time highs, according to the St. Louis Federal Reserve data:
<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/1JRmCp3LBMkpswioMQuIp5/796368ad2483c49d334c13e487b453bf/dr-img1-11-12-26.jpg" alt="image 1" />
The root cause of the massive ticket inflation is jet fuel. Ticket prices roughly track the cost of jet fuel. And with the wave of destruction of refining assets in the two wars, the cost of jet fuel spiked. That has impacts in the U.S. because refiners can load jet fuel on ships and send it to markets that will pay. That drives up the cost of jet fuel here, even though we&rsquo;re thousands of miles away:
<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/2WG1Wa87WTvh1cv9sPxw8d/e641fe06131890d18e297c279205ba07/dr-img2-11-12-26.jpg" alt="image 2" />
Southwest Airlines (LUV), my carrier of choice because it&rsquo;s direct, spent an extra $821 million on jet fuel in the third quarter, compared to 2025. That&rsquo;s a 62% jump in cost for the same flights. That&rsquo;s why they pass it on to us.
The four largest airlines saw a $6.3 billion increase in fuel costs, year over year. That&rsquo;s $69 million a day.
In theory, the &lsquo;official&rsquo; inflation number captures that increase. Inflation calculations include airfare, but not energy prices. So, the airlines and passengers pay massive price hikes for the same flights we did last year. But that doesn&rsquo;t really get reflected in the inflation report.
And these higher prices are a challenge for both households and businesses alike. Make no mistake, these higher costs are going to be a drag on the economy. I fully expect to see fourth quarter numbers down on consumer discretionary spending.
I know my college age kids are shopping at Walmart instead of Target now. And the airlines are getting hammered in the same way. Folks aren&rsquo;t flying. Delta Airlines reported a 47% decline in net income in the third quarter. They still turned a profit, but fuel costs cut it way down.
American Airlines lost $114 million in the second quarter and that grew to $269 million in the third quarter. Most of that loss came from much higher fuel costs. Even United Airlines saw its earnings fall $100 million from the second quarter to the third quarter.
Those higher ticket prices are going to blunt travel. Most Americans already locked in travel plans for the holidays this year. But if we don&rsquo;t get a huge reprieve in fuel prices soon, I expect to see a massive backlash in 2027.
And it won't be limited to just airfare, either.

dr-hero-img-11-12-26

Sticker Shocked

&ldquo;I&rsquo;ve been a Democrat my whole life.&rdquo;
I&rsquo;ll give Alex Karp one thing: he&rsquo;s got brass balls.
The cold-blooded Palantir CEO uttered that quote to Politico on Wednesday. He added that he knows more about being a progressive than almost anybody on the planet. Then he said every one of Palantir&rsquo;s products is &ldquo;essentially progressive.&rdquo;
By one count, Karp used the word &ldquo;progressive&rdquo; eight times in a single interview, as if he were a man practicing a new word in the mirror.
<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/6bQZ00SVOVMkfpq1xPFsqV/b2daaa4eb93848313f8da872314bbe86/mr-issue-11-12-26-img-2.gif" alt="" width="300px" />
And how&rsquo;s that timing? The corpse of the Republican Congressional Majority isn&rsquo;t even cold yet.
Just over a year ago, the same reptile told his shareholders Palantir was &ldquo;the first company to be completely anti-woke.&rdquo; On that call, he bragged, &ldquo;We power ICE.&rdquo; In 2024, he called wokeness a &ldquo;thin pagan religion.&rdquo; In 2025, he told his Democratic friends to &ldquo;grow a spine.&rdquo;
Really.
<h2 class="subhead nbp">The Stock I Loved</h2>
In October 2023, I told you to love Palantir the stock, not Palantir the company. PLTR traded in the teens back then. Yesterday, it closed at $172.40. If you bought then and held on, you&rsquo;ve made about ten times your money.
My thesis was about the Cantillon Effect. Newly printed government money lands in a few lucky spots first. Those spots get rich before everyone else. Palantir sat right at the Congressional committee crossroads of spy and defense budget allocations.
So I&rsquo;m not angry with Karp. I&rsquo;m grateful. In fact, I stupidly sold the stock once it doubled, so I missed a bunch of the upside.
But he just proved my thesis all over again, and with a straight face, too!
<h2 class="subhead nbp">The Vicar of Bray</h2>
Karp isn&rsquo;t the first man to find a new faith right after a change in government.
In 1662, an English churchman named Thomas Fuller told the tale of the Vicar of Bray. Bray is a small parish near Windsor, west of London. Legend says its vicar served under four Tudor monarchs: Henry VIII, Edward VI, Mary, and Elizabeth.
England changed its official religion almost every time the crown changed hands&hellip; and so did the vicar. He was Catholic, then Protestant, then Catholic again, then Protestant once more.
Fuller explained that the vicar had watched martyrs burn at the stake a couple of miles away in Windsor. He decided that fire was too hot for his delicate constitution.
When a critic called him a turncoat, the vicar objected. He said he&rsquo;d always kept one principle, and only one: to live and die as the Vicar of Bray.
Historians now think the legend blends two or three different men, but that doesn&rsquo;t matter. The English liked the story so much they wrote a ballad about it. The chorus boils down to a single vow.
Whatever king may reign, I&rsquo;ll still be the Vicar of Bray.
<h2 class="subhead nbp">Losing His Religion</h2>
Palantir has one giant customer: the U.S. government. NPR reports the company holds about $2 billion in federal contracts. Last quarter, Uncle Sam paid Palantir $953 million. That&rsquo;s a lot of moolah to put at risk over a few old sound bites.
And in January, the parish gets new management.
Senator Ron Wyden will chair the Senate Finance Committee. He&rsquo;s already demanded answers about Palantir&rsquo;s work for Homeland Security. His office says forced testimony is on the table if the company doesn&rsquo;t cooperate.
So on Monday, Palantir hired former Democratic Senator Jon Tester of Montana as an adviser. Tester served 18 years in the Senate as a loud critic of the Patriot Act. He didn&rsquo;t want Big Brother watching anybody. Now he works for a company whose software helped ICE track deportation targets. He told NPR the firm &ldquo;believes in privacy.&rdquo;
Does anyone have any shame anymore?
Then Karp gave Politico his favorite line about his political giving. He said it&rsquo;s split evenly between Democrats and Republicans.
Who needs conviction when you can hedge your bets so easily?
<h2 class="subhead nbp">Why the Vicar Always Wins</h2>
In January, the group that controls Palantir&rsquo;s purse strings changes. A company that lives on government money has no choice but to please whoever holds the purse.
The vicar didn&rsquo;t care about doctrine. He cared about the income that came with the parish. Karp doesn&rsquo;t care about &ldquo;woke&rdquo; or &ldquo;anti-woke.&rdquo; He cares about contract renewals.
That&rsquo;s the real lesson of a Cantillon stock. You&rsquo;re not betting on the party, but on the spigot. It doesn&rsquo;t matter who turns on the spigot.
<h2 class="subhead nbp">What It Means for Your Shares</h2>
In one sense, this is good news if you own PLTR. Management just showed you it will say anything to keep the government money flowing. That&rsquo;s the bet you may have made in 2023.
But the price is another story. PLTR trades at more than 100 times earnings. It sits about 20% below its 52-week high of $212.94. A vicar can switch churches, but can&rsquo;t make the collection plate grow forever.
However, the biggest risk to PLTR&rsquo;s stock may be a general tech stock dump, due in no small part to <a style="font-weight: bold;" href="https://rudeawakening.info/posts/jensen-huangs-himself">Jensen Huang&rsquo;s extramarital activities.</a>
<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/1dxLPzjMuNhfTMRLRX36Lu/46e8fa44a648e051792b7248ca5d941d/mr-issue-11-12-26-3.jpg" alt="" />
PLTR&rsquo;s Weekly Chart, with our buy call back in October 2023
Remember Richard Maybury&rsquo;s rules for riding a government money cone. Find it. Tap into it. Don&rsquo;t expect it to last. Always look for the next one.
<h2 class="subhead nbp">Wrap Up</h2>
One more Tudor story before I go.
Another man served those same four monarchs. His name was Thomas Tallis, a composer and organist in the royal chapel. He wrote music for both Catholic and Protestant services. But most accounts say he stayed Catholic his whole life, at great personal risk.
More than 400 years later, choirs still sing Tallis. The vicar is a punchline.
Still, you don&rsquo;t have to admire the vicar to profit from the parish.
Have a great day ahead.

mr-issue-11-12-26-1

Morning Reckoning

The Vicar of Palantir

How much of the US economy is like a meme stock?
Empty? Worthless? Fake? Motley Fool:
<blockquote>
Nvidia stock has wiped out $1.7 trillion in value since October&hellip;
</blockquote>
Nvidia&rsquo;s business hasn&rsquo;t changed. Same chips. Same customers. Same profits. How could it be worth $1.7 trillion less? And could it shed another $1.7 trillion?
Without the hype...and the frenzy...how much is Nvidia really worth? And how much is it just pumped up...inflated by the AI capex boom and phony credit money?
We&rsquo;ve pointed out before that, according to the famous Buffett metric, comparing stock prices to GDP output, there&rsquo;s about $40 trillion in US listed stocks that never dirties its hand. It toils not. Neither does it spin. Like memes, these stocks can be traded for goods and services. But like memes, their values can also wilt like a lily at a dead man&rsquo;s wake.
The math is simple enough. Up until around 2013 there was almost always at least $1 of output behind each $1 of stock value. Not until mid-ways through the Obama years did stock values go decisively and permanently above 100% of GDP. And now they&rsquo;re about 231% of GDP. Which is to say, stock prices now float high above their real worth. About $40 trillion above, by our back-of-the-envelope calculation.
<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/4jq9URIBMwm5Cg33PTjdT3/82b57cb46b63aa6855a16fe800c4ef41/dr-img1-11-14-26.jpg" alt="image 1" />
Let&rsquo;s begin by reminding ourselves that stocks are evidence of ownership in what are supposed to be profit-making companies. Those profits are the difference between the value of goods and services produced and the cost of producing them.
If the costs are greater than the value of the output, the company is losing money...destroying wealth. Logically, the shareholders should participate in the losses as well as the gains. Sometimes they do.
So, here we have Opendoor Technologies. It is the brainchild of some fellows who thought they could make the housing market more fluid by putting it online. They buy houses online...send out crews to fix them up...and then resell them. In 2021, for example, they bought 37,000 houses. A year later, they sold 7,500 of them at an average loss of $28,000 on each one.
We&rsquo;ve fixed up a number of houses. If someone had asked us about the Opendoor business plan, we would have said that it would never work. You can buy a house carefully, fix it up frugally, and sell it sensibly. And maybe you&rsquo;ll make money. But you can&rsquo;t do it at scale. Because the good deals go to the local guys, who know their trade, have the local knowledge, and often do much of the work themselves. And those guys, who are successful locally, will scale up as much as they can.
&ldquo;Opendoor will lose money,&rdquo; we would have predicted. But we never would have guessed that it would lose so much. It lost $339 million in 2019, $253 million in 2020, $662 million in 2021...and on and on, year after year, up to a loss of $1.3 billion last year.
Total losses are up to $5.1 billion.
How much is a company like that really worth? Back in 2021, it was valued at $18 billion, $28 a share. But in terms of what it was really worth &mdash; a serial wealth-destroyer on a grand scale &mdash; its value was always negative. And now the share price has dropped down to near $1; more than $17 billion of fake value has been wiped out. Wall Street Psychology:
<blockquote>
The irony of flipping houses in a 7% mortgage environment while claiming to be an AI company shouldn&rsquo;t be lost on anyone.
</blockquote>
Opendoor is a gaudy example. But how much of Nvidia is unsupported by real output? Apple? Microsoft? These are real companies with sales and profits. But all through the economy, sales and profits &mdash; and losses &mdash; have been flattered by inputs of &lsquo;money&rsquo; that isn&rsquo;t real money.
As Tom has explained, it is actually debt. Debt is not the same as money. You can pile up all the money you want. You can even lend it out and receive interest on it. But pile up debt and you&rsquo;ll be the one paying interest. Then, more debt is needed just to pay the interest on the old debt. And whee! You are on your way to hyperinflation.
Individual companies or memes can boom and bust...creating false value and then destroying it...all good fun. But when an entire economy does it, the fun stops. People believe they have real wealth. They expect to live on it...to retire on it...to use it to pay mortgages and tuition...and to fund the feds&rsquo; retirement and medical programs.
A few years ago, the feds inflated the economy for pleasure &mdash; it gave them a boost, like a glass of wine before dinner. Now, they inflate it to avoid the pain of a correction hangover.
Time to close the door.

dr-hero-img-11-14-26

Fun House of Cards

Last week, the voters took the car keys back. Damn! Now we won&rsquo;t get that $5,000 payoff from Donald J. Trump.
Like everyone else, we are trying to figure out what the mid-term elections might mean for the country. Most likely, the Democrats will soon have us all in the ditch; they&rsquo;re at the wheel now.
Our political parties squabble over trivia. But when it comes to the essentials, they are both tossing out the same loaded dice. They pretend to solve problems by passing laws, spending money, and bombing foreigners. But in America, as in Europe, the model is exhausted. They have run out of money. Interest rates are going up. Populations are no longer growing. And bombing has never produced much more than enemies &mdash; dead or alive.
In Europe, students, workers, and wreckers are taking to the streets. In the US, they went to the polling stations. One route was marked by rank violence and chaos. The other by solemn claptrap and soothing lies.
What put the Trump Team back in the saddle in 2025 was the Democrats&rsquo; foolish focus on culture war issues &mdash; DEI, they-them, bathroom policies, racism and other claptrap.
In this election just passed, the Democrats wisely avoided mentioning those things altogether. It was as if, in 24 months, they had forgotten the sacred tenets of their faith. They had all been coached to stay on message with a single word: affordability.
And now that they have won, they must recall their promises...and dodge their own treachery. They knew perfectly well that they couldn&rsquo;t do anything about &lsquo;affordability.&rsquo; The only real solution is to cut back on the very thing both parties lust after most &mdash; government power.
The initial skirmish will probably be on the tariff issue. Grosso modo, the feds put a 10% tariff on imports...the price of imports goes up 10%. Logical implication: cut out the tariffs and prices will go down.
Foreign Policy:
<blockquote>
Trump&rsquo;s Next Trade War Could Be with Congress
Trump&rsquo;s tariffs are unpopular, and lawmakers want to claw back their authority.
Dissatisfaction with U.S. President Donald Trump&rsquo;s disastrous, expensive, and self-defeating trade policies were a big reason for the sweeping Democratic victory in the U.S. midterm elections&mdash;and may turn tariffs and trade into one of the crucial battlegrounds of the next Congress.
</blockquote>
Tariffs were always a rookie mistake. They are essentially a tax on US consumers. Like inflation itself, tariffs give the federales more money without exposing any of them to an embarrassing vote.
It was France&rsquo;s First Minister of State, Jean-Baptiste Colbert, who described taxation as similar to plucking a goose. The idea was &lsquo;to get the most feathers with the least squawk.&rsquo;
Tariffs produced relatively little squawk because people thought someone else paid them. But the only correct measure of the burden of government is how much it spends. One way or another, it will have to get the money. The Democratic lawmakers will try the usual potions and panaceas &mdash; rent control, soak the rich, limit executive bonuses, etc.
None of those measures will improve &lsquo;affordability.&rsquo; They may make their voters feel a sense of malign satisfaction, but unless the real costs of government are reduced, the money will have to come out of the very same pockets the politicians pledged to fill.
Cutting out the tariffs is a good idea; it allows the economy to operate more efficiently and gives consumers more bargaining power and choice. But take away the tariffs and the costs of government don&rsquo;t go down...and they have to be paid somehow.
Those costs include the interest on the $40 trillion worth of stuff the feds bought but didn&rsquo;t pay for. And they get bigger all the time, thanks to $2 trillion of budget deficits coming hot and heavy, year after year.
In theory, the Democrats could make good on their promises by simply spending less. Taxpayers would keep more of their money; affordability would take care of itself. DOGE claimed it could cut enough to balance the budget. If it had actually done so, there wouldn&rsquo;t be an affordability problem...and Democrats might not now be in control of Congress. But the DOGE program was a fiasco.
And now, those Democrats &mdash; big spenders, almost every one of them &mdash; can still make good on their affordability promises, but only by doing the one thing they least want to do...actually cutting the size and scope of federal power.
Ain&rsquo;t gonna happen.

dr-hero-img-11-11-26

Solemn Claptrap, Soothing Lies

By now you all know about Nvidia CEO and founder Jensen Huang&rsquo;s situation.
This is the biggest story in the world, so we won&rsquo;t rehash it. Instead let&rsquo;s explore the why now.
Back in May of this year, a short seller reported much of the same story in a widely-read report.
<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/1deKq90U9InsuzAo0w6e3q/94309bc506daac5efe67ecfab128fa55/dr-img-11-10-26.jpg" alt="image 1" />
<a href="https://x.com/CulperResearch/status/2054623784452120917">Source: X</a>
They nailed most of the story back then. The relationship with Alice Huang, smuggling GPUs to China, etc.
And few mainstream outlets picked it up.
So why is this suddenly breaking news right now?
To explore it properly, we first need to cover some key aspects of Jensen&rsquo;s relationship with China.
<h2 class="centered subhead" style="text-align: center;">One Chipmaker to Rule Them All</h2>
When an AI company builds a model, they do it on a specific piece of hardware. Nvidia GPUs are the most popular worldwide.
Nvidia has constructed a powerful software system around their world-leading hardware. This is a big part of their moat against competitors.
Builders become experts in the entire Nvidia ecosystem.
Nvidia has become the industry standard. And Jensen doesn&rsquo;t want anything to interrupt that. Ever. It&rsquo;s the most profitable product in history.
Nvidia&rsquo;s greatest fear has always been China building their own competing system. Because we&rsquo;ve seen what happens when China runs this playbook.
Chinese hardware giant Huawei was one of the first companies to begin building 5G telecom equipment at scale. They rolled it out throughout China first, then began exporting it to the world. Today Huawei is now the largest 5G network equipment provider in the world, by far.
Huawei is doing the same thing with AI hardware. As Jensen said in June of 2025:
<blockquote>
&ldquo;Once [China] has built that entire complete [AI] stack, they&rsquo;ll export it as quickly as you could imagine.&rdquo;
</blockquote>
China&rsquo;s AI hardware, mostly made by Huawei, is still not as good or efficient as Nvidia. But they&rsquo;re cheaper, and improving rapidly. They are set to become an extreme threat to American chip dominance.
Nobody else in the world builds at the scale China does. So now that they&rsquo;ve entered the AI hardware race, Jensen is concerned. He should be.
For many years, China was happy to buy American equipment. But when Biden cut China off from Nvidia GPUs in August of 2022, they started a Manhattan-Project-scale effort to accelerate their own chip ecosystem.
And they&rsquo;ve made a disturbing amount of progress.
<h2 class="centered subhead" style="text-align: center;">Discrediting Jensen</h2>
Fundamentally, I believe Jensen was right. The American economy would have been better off if we never stopped selling GPUs to China. Sure, a bunch of Nvidia GPUs were smuggled into China, but millions more would have been sold without the ban.
The world&rsquo;s AI developers would have stayed loyal to Nvidia. It&rsquo;s a great system, and it works. We forced them to focus on their own.
Without the Nvidia export restrictions, China wouldn&rsquo;t have had such a strong incentive to build their own. Now they&rsquo;re building their own advanced chips, which work well, and will be selling them to the entire world within a few years.
The goal was to cripple China&rsquo;s AI progress. It didn&rsquo;t work.
As a result, Nvidia and the entire American AI sector is about to get a lot more competition.
Huawei and other Chinese companies have tens of thousands of their top hardware engineers working nonstop on this. Huawei is a particularly strong up-and-coming competitor. They have global scale, and compete directly with:
<ul>
<li>Nvidia</li>
<li>Cisco</li>
<li>Apple</li>
<li>Dell</li>
<li>Tesla</li>
</ul>
And the disturbing part is, their products are really good. Huawei is a dangerous company to American interests. And all our efforts to kill them have failed. They just keep getting stronger and leaner from the hardship.
The current plan, hatched by the Biden admin, is failing miserably.
<h2 class="centered subhead" style="text-align: center;">Spycraft?</h2>
Was the woman Jensen cheated with a spy? I&rsquo;m skeptical. He&rsquo;s too smart for that, and even if she was, he&rsquo;d never reveal secret info to a potential competitor.
The only source on the claim she was &ldquo;passing information to Beijing&rdquo; is the New York Times, citing unnamed U.S. officials.
I think she was probably just a middleman, out to make money. Her company, Megaspeed, bought Nvidia GPUs supposedly for use outside China, and made them available to Chinese companies.
Black markets are highly profitable, after all.
Everybody knew GPUs were being smuggled into China, or bought by Chinese companies and operated overseas.
But officials looked the other way, because it was great for Nvidia and the broader U.S. stock market.
At one point, the tiny island of Singapore accounted for 22% of Nvidia sales. Nobody believed a country of 6 million people was buying 22% of global GPUs. That would be completely ridiculous.
Lots of us noticed this fact, and next quarter, guess what? Singapore was no longer listed as a separate line item on Nvidia reports. So the data disappeared.
The smuggling was still happening, of course.
<h2 class="centered subhead" style="text-align: center;">The Real Purpose</h2>
Jensen was the biggest advocate for selling U.S. chips to China. He can no longer do that.
They&rsquo;ll accuse him of being a Chinese plant, a spy, contaminated by exposure.
So it looks like somebody wanted to stop Jensen&rsquo;s advocacy for tech trade with China. And they probably have, for now at least.
The question is: What&rsquo;s the plan? China is building their own AI hardware, and it&rsquo;s pretty darn good. Roughly equivalent to Nvidia&rsquo;s H200, which was released 3 years ago. That&rsquo;s still a very capable piece of AI hardware. And China has none of the electricity shortage concerns we do.
So once Huawei and other Chinese players scale up&hellip; It&rsquo;s going to be ugly. They will drive hardware prices into the dirt (like they have with steel, cars, solar panels, and much more).
All because we thought we could cut off China, and cripple their AI efforts. Mission status: failure.
Yes, China is a threat to our AI companies. But attempting to stop them from buying our products has backfired spectacularly. And it will only get worse if we do it again.
Unfortunately, I think the Jensen cheating/spy scandal is an attempt to further restrict exports to adversaries.
It will be bad for American AI companies. Especially Nvidia, which may eventually lose 10% or 20% of its sales. As a result of these policies, NVDA has gained a massive, powerful competitor in Huawei.
In China, a new AI hardware ecosystem is being born. Mostly thanks to short-sighted American trade policies which backfired.

TTF-issue-111026-1

Nvidia’s Worst Fear is Here

&ldquo;Democracy is the theory that the common people know what they want; and deserve to get it good and hard.&rdquo;
So said Baltimore journalist and wordsmith H.L. Mencken (1880 &ndash; 1948), who plied his trade in the 1910s through 40s. In other words, people get what they vote for; and, often as not, they inherit consequences that the campaign speeches and brochures conveniently omit.
And America definitely voted last week. The result was a Blue Wave, or as one wag called it, &ldquo;a Blue Asteroid.&rdquo;
Should half the country man the lifeboats? Well&hellip; let&rsquo;s not go overboard. America has had a two-party system for a long time, and in some eras Republicans prevail while other times it&rsquo;s the Democrats. For investors, the mission is not to celebrate or mourn; it&rsquo;s to figure things out and get ahead of events. So, let&rsquo;s do just that (and a hint: gold should do well.)
<h2 class="subhead nbp">A Mandate Is Not a Blank Check</h2>
Unless you&rsquo;ve been in an isolation chamber, you must know that last week, Democrats captured Congress for the next term. Final tallies are incomplete due to vagaries of ballot counting. But come January, the direction of Capitol Hill politics is unmistakable: Democrat and Democrat Socialist, if not Hard Left.
This fall&rsquo;s campaign rhetoric offers promises and forecasts. While my inner geologist tells me to respect the terrain, distinguish bedrock from rubble, and get real about what actually happened.
And history is instructive, but it&rsquo;s not a fortune teller. Begin in 2024 when President Trump&rsquo;s solid victory returned him to the White House; only for four years, though, not a lifetime commission. Meanwhile, voters have short attention spans; they hire an administration, not an emperor. Which is to say that every mandate must be maintained. Stretch it beyond the public&rsquo;s general tolerance and the relationship fades fast.
For example, per CBS News, 89% of voters believe that the rising cost of living was a major or crucial factor in the election. So, whatever Trump said about the &ldquo;greatest economy ever,&rdquo; blah-blah, most people voted their lived experience. Gas pumps and grocery checkout lines set the pace; plus, rents and mortgages, utility bills, insurance and more.
Or look at it this way: Trump&rsquo;s political theater won&rsquo;t pay the bills for Joe Sixpack; and while we&rsquo;re on the subject, Democrats should take that message to heart as well. Votes against Trump &ndash; who was on the ballot only in spirit, not in person &ndash; do not automatically endorse every opposition proposal.
Democrats campaigned on a theme of so-called &ldquo;affordability,&rdquo; a word concocted by their focus groups. And of course, people want to live better lives. But it&rsquo;s also fair to say that last Tuesday was distinctly NOT a blank check for taxation, regulation or massive ideological experiments. No bedlam, okay?
The Democrat sweep is real, and it&rsquo;s the nature of U.S. politics that newly elected politicians tend to stick around for a while. Still, Americans want lower prices for food, fuel, rent and much more; they want more jobs; affordable housing; better schools; access to medical care; and safety on the streets. No problemo, si?
Now, what&rsquo;s the Democrat plan? Can incoming Democrats deliver any of this agenda via their advertised legislation and policy? Or will raw revenge, fist-pounding hearings and anti-MAGA name-calling become the next substitute for governing? We&rsquo;ll see, right?
Meanwhile, the Campaign of 2028 has begun; candidates are positioning for President, Senate, House. And the rest of the world gets a vote too, so to speak. What happens with Ukraine, Iran, China, Western Europe, the Global South, energy, trade, industrial output, AI and much more?
Competent governance might consolidate the Democrats&rsquo; gains. Or they could spend two years spitting nails at Trump; because that&rsquo;s what America wants to see, right? Screaming ideologues, devoid of workable ideas, who open the borders, blow out the budget, and flush the country down the sewer. Again, we&rsquo;ll see.
<h2 class="subhead nbp">Hoover&rsquo;s Historic Downfall</h2>
Last week&rsquo;s election reminded me of 1930 (from what I&rsquo;ve read; because no, I was not around). And back then, Herbert Hoover&rsquo;s Republicans lost 52 House seats amid the developing Great Depression.
Post-election, Republicans retained a slim House majority. But death and a subsequent special election changed the balance. So, when the new Congress convened in December 1931, Democrats organized the House while Republicans narrowly retained the Senate. It was a harbinger of things to come: the ground had shifted.
Of course, the lesson of 2026 is not that, ipso facto, we&rsquo;re in for a mechanical repeat of Hoover in 1930. Today&rsquo;s economy is challenged in many ways, but not perched upon the cusp of tomorrow&rsquo;s next Great Depression.
Still, fractured voting patterns in precincts across the land deserve attention; that is, a governing party identified with a booming stock market and prosperity for many has lost credibility with voters from sea to sea.
Another takeaway from 1930 is that prolonged economic disappointment can transform voters&rsquo; temporary anger into a durable political reputation. And once that reputation hardens, more or better speeches seldom split the stone. Indeed, after Hoover, it took 20 years and Dwight Eisenhower to return a Republican to the White House.
For now, the way out of the political ditch for Republicans is to rebuild credibility and not blame voters. Meanwhile, future success for Democrats requires resisting the temptation to interpret every newly captured seat as ideological consent for some bizarre version of an American neo-Bolshevik Revolution. (Note: this week is the 109th anniversary of Russia&rsquo;s actual Bolshevik Revolution, by the way.)
The point is, winning an election is one thing. Governing and keeping voters on your side is quite another.
<h2 class="subhead nbp">Mellon, Money and the Machinery of Power</h2>
For a deeper dive into the history of American prosperity versus hard times, consider a recent book by Greg Steinmetz, entitled The President and the Oligarch: Roosevelt, Mellon, and the Triumph of Big Government.

<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/JP0kwHzR5cRhT4UXtddw2/6195de2d2b7884f5f4119fb64c3cf832/MR-issue-11-10-26-2.jpg" width="350px" />

Greg Steinmetz&rsquo;s new book. Credit Amazon screen shot.
Released in October, this volume follows Pittsburgh banker and industrialist Andrew Mellon through four presidencies &ndash; Harding, Coolidge, Hoover and Franklin Roosevelt &ndash; and the recurring collisions between private capital and public power.
Mellon served as Secretary of the Treasury under Presidents Harding, Coolidge and Hoover. In his early days as the nation&rsquo;s Treasurer, he advocated allowing the recession of 1920-21 run its course; which is exactly what happened, and the event ended relatively soon, and led straight into the so-called &ldquo;Roaring Twenties.&rdquo;
Plus, Melon advocated for lower taxes, debt reduction and balanced budgets, all in a challenged fiscal environment after the massive expenditures under President Wilson for World War I.
Then in 1929-30 came an economic collapse without recovery. And this led to the election of Franklin Roosevelt in 1932; and his decade of a &ldquo;New Deal&rdquo; &ndash; and continuing Depression &ndash; for Americans.
The Steinmetz book flows well; it&rsquo;s filled with fascinating vignettes. One learns tales about Mellon at Treasury, plus stories about oil wells, aluminum smelters and the rise of RCA as a market darling (note: Nvidia, anyone?).
The action moves from White House conferences to Mellon&rsquo;s efforts in London, and by his proxy to the Hermitage in Leningrad, where new American wealth acquired Old Master treasures from the Soviet Union&rsquo;s Joseph Stalin; paintings which eventually became the nucleus of the National Gallery that Mellon gifted to the American people.
In an irony of ironies, Mellon&rsquo;s Treasury Department put Al Capone in jail for tax evasion; only later to have that same Treasury Department under Roosevelt pursue Mellon for tax fraud, via charges that were rejected by a series of grand juries and acquittals in various court rooms. In this sense, private wealth, public benefaction and political punishment share the same battlefield.
Another way to interpret the Mellon-Roosevelt contrast &ndash; and very personal conflict &ndash; is that the appearance of prosperity does not necessarily prove that every policy is sound. Yes, the stock market boomed under Mellon (while many of Roosevelt&rsquo;s 1920s-era investments lost money!). But for a long list of reasons, Wall Street was rife with fraud, fakery and unrooted share price inflation, which was the setup for calamitous collapse under Hoover.
The market crash of 1929 segued into hard times in 1930. And then, as economic distress spread across the land, came popular demand for government spending. And indeed, that intervention &ndash; first by Hoover and then, in much larger ways by Roosevelt &ndash; enlarged federal power which was eventually weaponized against convenient culprits. (Sound familiar?)
In short, a government powerful enough to promise everything is also powerful enough to take it all away; indeed, to change the rules by which you earn your living and hold your assets.
<h2 class="subhead nbp">Red Ink, Restricted Maneuver</h2>
Which brings us to&hellip; money! And by now it&rsquo;s evident that Republicans and Democrats both suffer from a pathological inability to match promises with resources. U.S. spending is out of control, and there&rsquo;s no stopping this runaway train.
For fiscal 2026, which ended on October 31st, the Treasury reports roughly $2 trillion in borrowing, and more than $1 trillion in interest costs. This is not a campaign abstraction; it&rsquo;s a monetary hemorrhage.
Spending restraint would require unpopular choices: cutbacks in Social Security, Medicare, Medicaid, Defense and much more. And meanwhile, divided government produces bargaining only over the scale of additional benefits rather than disciplined retrenchment. Gridlock between Trump versus Democrats might restrain new commitments; it will not eliminate or reduce old ones. The Niagara of deficit and debt will still flow.
Recently, the Federal Reserve indicated that it might raise rates in December; wait and see. But inflation remains elevated; and just last week at a conference in Nashville, our old friend and banker Frank Trotter &ndash; of the highly innovative <a href="https://battlebank.com/">Battle Bank</a> &ndash; offered an estimate that real inflation currently runs in the range of 5-7% annually.
Gold has moved up in the past week, to over $4,100 per ounce; evidence that some smart money is de-risking via metallic safety, despite the current 5% rate for bonds. Or to pose the question in a different way, does anyone really trust the government&rsquo;s ability to stabilize purchasing power?
<h2 class="subhead nbp">Buy the Rock, Not the Rhetoric</h2>
Looking ahead, there&rsquo;s likely upside in gold, especially if real interest rates decline and fiscal credibility keeps eroding. The Eric Sprott group opines that current share price valuations for well-run miners do not reflect the companies&rsquo; strong earnings, solid balance sheets and capital discipline.
Along these lines, we don&rsquo;t run a portfolio here; but consider the Sprott Gold Miners ETF (SGDM), or the Sprott Junior Gold Miners ETF (SGDJ) as future calls on better days for gold and the mining sector.
To me, at least, many quality mining names are ridiculously cheap relative to assets and earning power. But be selective because not every battered rock-stock is buried treasure. Always consider project quality, mine life, recovery rates, jurisdiction, sustaining investment and free cash flow. Distinguish a profitable producer from a promotional prospect. Cheap shares can conceal expensive geology.
Metallic gold (i.e., already mined and refined) versus mining equities are different forms of exposure. Operating leverage can amplify gains and losses; political interference and execution failures can overwhelm attractive ore.
History&rsquo;s final instruction is simple: votes change the roster of players who wield power, but not any true laws of economics, let alone geology. So, keep your powder dry and your facts straight. When political promises meet physical reality, it&rsquo;s best to own hard assets versus political hot air.
That&rsquo;s all for now. Thank you for subscribing and reading.

MR-issue-11-10-26-1

Blue Asteroid, Gold Bullion

The price of oil has dropped sharply over the past few weeks.
Traders are once again betting the war will end soon. This is a dangerous assumption.
We&rsquo;ve <a href="https://dailyreckoning.com/post/jim-rickards-most-surprising-iran-takes">written from the beginning</a> of the war that it would not be over quickly and the U.S. would struggle to win in the end, despite being able to inflict enormous damage on Iran and its economy. That forecast has proved highly accurate.
Viewed from Iran&rsquo;s perspective, there has been no regime change. Iran still retains a substantial stockpile of highly enriched uranium and the regime continues to resist U.S. attacks.
It is true that scores of top Iranian religious, military and political figures have been killed. The result is personnel change, but that&rsquo;s not regime change. The Iranian Revolutionary Guard Corps (IRGC), with a figurehead ayatollah, is still in charge.
Trump has claimed over and over that the war would be done &ldquo;in a few days&rdquo; or &ldquo;a few weeks,&rdquo; but those claims proved hollow, and Trump&rsquo;s credibility on the issue is dropping.
There was a &ldquo;ceasefire&rdquo; last April, a &ldquo;Memorandum of Understanding&rdquo; last June and a string of negotiations, but none of it lasted.
There are negotiations currently underway through Qatar between Iran and the U.S., but the sides are still far apart. I don&rsquo;t expect that to change. Both sides are playing for time to rest, rearm and prepare to resume the fighting.
There&rsquo;s a relative lull in the fighting right now, but both sides know that&rsquo;s just a breather. Major military action will likely resume in a few days, now that the midterm elections are over in the U.S. and parliamentary elections are over in Israel.
<h2 class="centered subhead" style="text-align: center;">An Unwinnable War</h2>
U.S. failure to win the war does not mean Iran has achieved a major victory.
Iran can&rsquo;t win the war except in the sense of the regime hanging on and continuing to block the Strait of Hormuz. The U.S. can&rsquo;t win either &mdash; bombing blows things up but won&rsquo;t win the war by itself.
The U.S. won&rsquo;t agree to Iran&rsquo;s terms involving reparations and withdrawal from the Middle East.
Iran also insists that it will control the Strait of Hormuz going forward, with vessels seeking transit subject to Iranian permission and restrictions. Iran has also sought to impose transit fees based on vessel size and cargo, while reserving the right to waive those fees at its discretion, obviously beginning with its own oil export cargoes.
The U.S. will not agree to any of this.
Iran won&rsquo;t agree to U.S. terms, including the elimination of its nuclear enrichment facilities and surrender of its highly enriched uranium stockpiles.
The U.S. also wants an end to Iranian support for Hezbollah in Lebanon, the Houthis in Yemen at the entrance to the Red Sea and Hamas in Gaza. Iran will never agree to these terms.
Iran depends on the so-called Shia Crescent that runs from the Strait of Hormuz through Tehran, Iraq, Syria and Lebanon to exert regional influence and keep Israel continually on the defensive.
With neither side coming close to agreeing to the other side&rsquo;s terms, this war will drag on with no end in sight.
<h2 class="centered subhead" style="text-align: center;">The War&rsquo;s Economic Kill Chain</h2>
Of course, the impact of this war goes far beyond the battlespace.
Prices for oil, liquefied natural gas, nitrates, sulfur and distillate products such as gasoline, diesel and kerosene (jet fuel) have risen sharply. This has led to inflation not only in energy costs and home heating but in a large variety of consumer goods.
Everything you buy moves by truck, either to your door, a distribution center or a store. When the cost of diesel to move trucks goes up, the cost of everything on the truck goes up with it.
This dynamic will not change soon.
Matters will soon get worse. Sovereign petroleum reserves, natural gas reserves, fertilizer and chemical stockpiles have all been drawn down over the past eight months since the war began.
Those stockpiles are one reason prices have not gone even higher and shortages have not been more severe. That grace period based on reserves is running out. Many stockpiles are depleted, and further shortages and price spikes may not be far behind.
This supply disruption will play out in inflation, which in turn could drive interest rates higher.
Those higher interest rates affect mortgages, credit cards and other forms of consumer debt. They also add to the cost of servicing the national debt as the U.S. Treasury has to refinance maturing debt at progressively higher rates.
Even the AI infrastructure boom will slow as hyperscalers face higher interest rates on the enormous borrowings and financing commitments they are undertaking to pay for new data center construction.
The process feeds on itself, with supply shortages, higher costs, higher interest rates, slowing investment and ultimately a market crash and recession.
But before the crash and recession, investors will have to endure inflation. The bad news comes in stages, but it&rsquo;s almost all bad news because of a war that never should have started.
<h2 class="centered subhead" style="text-align: center;">Iran&rsquo;s Next Targets: Oil, Power and Water</h2>
Iran is another &ldquo;forever war&rdquo; and looks more and more like Vietnam as the months drag on.
The regime continues to strike oil tankers in the Strait of Hormuz with anti-ship missiles and drones. Over the weekend, at least two full tankers of oil were on fire in the U.S.-controlled southern route.
<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/5akwNMZKJXFVQ1mjPBi7PR/35a640c2570b24e00713ca7869886b79/dr-img-11-09-26.jpg" alt="image 1" />
Via Maritime Executive
If the war restarts at full scale, the Iranian battle plans have been well advertised. When the U.S. begins its new attack, they will not remain passive.
Iran still has a substantial arsenal of missiles and drones. Iranian officials have threatened attacks across the Persian Gulf, warning that nothing is off limits.
That means Iran could attack pipelines, refineries, oil fields, electricity-generating stations, ports and desalination plants.
This presages a humanitarian crisis as Gulf populations dependent on desalination could face severe water shortages within days if critical facilities are disabled.
The news (really propaganda) will be filled with election stories for weeks to come. But Congress will be as dysfunctional as ever, even with new faces in place.
The real story is what&rsquo;s going on in Iran.
Get ready for more fireworks and higher prices for gas, diesel and everything else as far as the eye can see.

dr-hero-img-11-09-26

The Peace Trade is a Trap

Friday, March 14, 2008.
It's a chilly morning in Midtown Manhattan.
Yellow taxis crowd Madison Avenue as thousands of New Yorkers hurry to work. Outside the towering headquarters of Bear Stearns, everything appears normal.
But inside, one of Wall Street's most powerful investment banks is fighting for its life.
Founded in 1923, Bear Stearns has survived the Great Depression, World War II, and countless market crashes.
It's America's fifth-largest investment bank, with nearly $400 billion in assets and a reputation for being virtually untouchable.
Just 14 months earlier, its shares traded above $170.
Now, executives are watching a nightmare unfold as lenders withdraw their money and trading partners lose faith.
The firm is running out of cash, and the Federal Reserve has been forced to arrange emergency funding.
<img src="https://images.ctfassets.net/vha3zb1lo47k/4QqCQyOC9Qv1TfsVQ0ySmm/f4cef210b1ca492e8131326b3b42a381/dr-img1-11-06-26.jpg" alt="image 1" />
Source: Wall Street Journal Front Page, March 14, 2008
But it's too late.
On Sunday, March 16, JPMorgan Chase agrees to buy Bear Stearns for an initial offer of just $2 a share.
<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/7eHMj8Si0OOr4HlWlcDTcm/2b9e8fd9112dccc2486d046feeec4635/dr-img2-11-06-26.jpg" alt="image 2" />
Source: Bloomberg
A Wall Street giant has been brought to its knees, and the news sends shock waves through financial markets worldwide.
Yet the worst is still to come.
Six months later, Lehman Brothers will collapse, pushing an already severe housing and credit crisis into what becomes known as the Global Financial Crisis, one of history's worst financial disasters.
Banks will fail, credit markets will freeze, and trillions of dollars in wealth will vanish. By March 2009, the S&amp;P 500 will have lost nearly 58% from its October 2007 peak.
Why am I taking you back to that fateful weekend?
Because I believe we're approaching another Bear Stearns moment.
Only this time, the company at the center of the storm won't be a Wall Street investment bank.
It will be OpenAI.
In my AI House of Cards series, I've warned about the massive debts, risky deals, and staggering costs supporting the AI boom.
Now, those risks are beginning to show up in OpenAI's own finances.
Today, I'll explain why OpenAI's IPO could fail, why the warning signs are already flashing, and what that could mean for your money.
<h2 class="centered subhead" style="text-align: center;">The Warning Signs Were There</h2>
Bear Stearns didn't collapse without warning.
In 2007, two of its hedge funds, loaded with risky mortgage investments, ran into serious trouble. Both eventually failed, revealing weaknesses that extended far beyond the firm itself.
Despite these warning signs, few expected one of Wall Street's most respected firms to disappear.
By March 2008, lenders and trading partners were pulling back, threatening the short-term borrowing that kept Bear Stearns afloat.
As confidence evaporated, so did its cash reserves. Within days, the firm collapsed.
The lesson wasn't simply that Bear Stearns had made bad investments.
It&rsquo;s that even the mightiest companies can collapse when they need more cash than investors will provide.
And that brings us to OpenAI.
<h2 class="centered subhead" style="text-align: center;">OpenAI's $278 Billion Problem</h2>
Think about how the world views OpenAI today.
Led by Sam Altman, the company behind ChatGPT has become one of the hottest names in technology.
Its products are used worldwide, and investors have been willing to value it at more than $1 trillion.
For many, OpenAI represents the future of artificial intelligence.
But being an industry leader doesn't guarantee a sound business model.
In September, the Financial Times reported that OpenAI expects to generate negative free cash flow totaling $278 billion between 2026 and 2030.
In plain English, it expects to spend $278 billion more cash than it brings in over those five years.
That's an astonishing sum, especially considering OpenAI forecasts annual revenue could climb from $36 billion in 2026 to $350 billion by 2030.
The company also reportedly expects to spend roughly $856 billion on computing power and infrastructure through the end of the decade.
Even if OpenAI meets its ambitious sales forecasts, it expects to burn through enormous amounts of cash that must come from outside investors.
OpenAI has already raised huge sums, including a reported $122 billion earlier this year. Yet the same September report says it could exhaust that funding by 2028.
And OpenAI isn't the only company seeking billions.
Anthropic needs enormous funding for its own AI plans.
Meanwhile, Microsoft, Amazon, Google, Meta, Oracle, and countless data center developers are spending heavily on infrastructure.
Many rely on investors and lenders to finance those projects.
But there's only so much capital available, and competition for it is growing.
That's a serious problem for a company that may need hundreds of billions more before its business can support itself.
<h2 class="centered subhead" style="text-align: center;">OpenAI&rsquo;s Funding Squeeze</h2>
Now we're seeing evidence that the money is getting harder to find.
Last Friday, October 30, the Financial Times reported that OpenAI had slashed its latest fundraising target from $30 billion to $20 billion.
That's a one-third reduction.
The company also reportedly lowered its desired valuation from $1.4 trillion to $1.25 trillion, a $150 billion cut.
But here's the most troubling part.
OpenAI had set October 30 as the deadline for investor commitments. Yet some major backers reportedly reduced their planned investments.
According to The Wall Street Journal, OpenAI had secured only about $11 billion in initial commitments and was preparing to seek additional funding from wealthy individuals and family offices.
<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/5wflJTkVP8ZCzB8TgMlyE8/121b50c6f868ffd2f1b1cedd86c22844/dr-img3-11-06-26.jpg" alt="image 3" />
Source: Wall Street Journal
One of the hottest companies on the planet has so far fallen well short of its original fundraising goal and is reportedly looking beyond traditional institutional investors to fill the gap.
These aren't hypothetical warning signs. They're appearing right now.
OpenAI still has powerful backers and access to enormous sums of money.
But if it's already struggling to raise $30 billion, what happens when it needs the next $30 billion?
Or the next $50 billion?
There's another complication.
OpenAI's biggest rival, Anthropic, is preparing to go public. Its IPO filings have exposed huge losses and spending commitments, while recent changes have invited further scrutiny.
I believe Anthropic will make it through its IPO, perhaps barely. But its disclosures could make investors even more wary of OpenAI's finances.
I'll return to Anthropic's IPO saga in a future issue.
For now, OpenAI faces a more urgent question.
What happens if the public markets refuse to give it the money it needs?
<h2 class="centered subhead" style="text-align: center;">What If OpenAI's IPO Fails?</h2>
OpenAI is reportedly pursuing a stock market listing in 2027.
I believe that IPO could fail, not because ChatGPT suddenly stops working or demand for AI disappears, but because building the technology has become so expensive.
OpenAI's future depends on billions of dollars in computing infrastructure.
If investors refuse to finance those plans, the company may have to delay projects, renegotiate contracts, or accept funding on far worse terms.
In a more severe scenario, OpenAI could need an emergency rescue from a major backer. If funding dries up while substantial obligations remain, bankruptcy could become a real risk.
And the damage wouldn't stop at OpenAI.
Its spending plans support an enormous network of chipmakers, cloud providers, data center developers, and lenders.
Nvidia sells the chips powering the AI boom, while Oracle and other infrastructure firms are investing heavily in computing capacity.
Lenders are financing projects based on expectations of continued AI demand.
Now imagine OpenAI announces that it must sharply reduce its spending plans.
Suppliers expecting years of rapid growth could face weaker demand. Data center projects might be delayed, while lenders begin questioning whether the cash flows supporting their loans will materialize.
Investors could then start cutting the prices they're willing to pay for AI stocks.
I've warned about these risks throughout my AI House of Cards series. But OpenAI could become the event that brings them into focus.
The technology itself may keep advancing. The problem is that investors could discover they've paid enormous prices for growth that cannot be financed forever.
<h2 class="centered subhead" style="text-align: center;">The Next Bear Stearns Moment</h2>
In March 2008, Bear Stearns' collapse stunned Wall Street.
Six months later, Lehman Brothers collapsed, and the financial crisis entered its most destructive phase.
Bear Stearns didn't cause every disaster that followed. It revealed how fragile the financial system had become.
I believe OpenAI could play the same role in the AI bubble.
That's why I'm paying such close attention to its next fundraising round and plans to go public.
For investors, the danger isn't limited to OpenAI itself.
It's the possibility that a funding crisis at one company could trigger a much broader selloff in AI stocks, including those held in millions of retirement accounts.
I'll continue tracking these developments and alert you as new risks emerge. Because if my Bear Stearns comparison proves correct, the time to prepare is before the rest of the market recognizes the danger.
Bear Stearns was the warning shot before the worst of the Global Financial Crisis.
I believe OpenAI could play the same role in the coming AI crash.
And the clock is already ticking.

dr-hero-img-11-06-26

OpenAI: The Next Bear Stearns

I remember election night in 2024 so clearly. After 4 years of Biden&rsquo;s tyranny, censorship, dementia, and bad policy, Republicans and Independents turned out in force to vote for Trump.
I was watching Tucker Carlson&rsquo;s livestream from Mar-a-Lago, and as it became clear that Trump was going to win, he and Elon Musk were ecstatic. It was contagious. I was ecstatic too.
The Biden admin had trampled all over the Constitution, working with big tech to crush dissent online.
Anyone questioning the official Covid narrative was banned across Facebook, Twitter (pre-Elon), Youtube, and more.
President Trump himself was banned from social media as his first term ended. This wave of censorship, directed by the government, was a blatant violation of the First Amendment.
Free speech was legitimately dying.
This is a big part of what powered Trump&rsquo;s landslide victory. And to his credit, these censorship policies were quickly reversed.
But Trump&rsquo;s second term hasn&rsquo;t gone the way some of us hoped.
<h2 class="centered subhead" style="text-align: center;">The Changing Face of MAGA</h2>
By now, most people have accepted that starting a war with Iran was the key factor in the midterm massacre (even JD Vance, as we&rsquo;ll discuss shortly).
The war caused a portion of Trump&rsquo;s base, and many of his key influencers, to abandon ship. The Daily Caller created a graphic which sums up the shift.
<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/2a3vrA3Zn1uFLbnZXbSlku/c3d9d950381c979d97a7022c139a9247/dr-img1-11-05-26.jpg" alt="image 1" />
Trump&rsquo;s anti-war supporters felt betrayed. I certainly did. He swapped us out for neocons. And seemed happy about it.
It was exactly what he had campaigned against.
<h2 class="centered subhead" style="text-align: center;">JD Vance&rsquo;s Post-Mortem</h2>
Yesterday, JD Vance wrote a <a href="https://x.com/JDVance/status/2118004988433641835">long post on X</a> (Twitter). In it, he discussed what went wrong in detail.
And he didn&rsquo;t pull punches. I encourage everyone to read the whole post, but here&rsquo;s the important part:
<blockquote>
Another pollster&mdash;one of the smartest people I know in politics, told me yesterday we&rsquo;d lose the generic ballot by 13 points. I felt negative going into Tuesday, but even I was shocked by this. In his polling, he saw that a lot of Trump 2024 voters were angry and planning to vote for Democrats. He asked those voters who had abandoned us what would cause them to come back on our team. The top four answers, accounting for nearly all of the responses were:
1) End the war
2) Focus on cost of living/inflation
3) Put America First
4) Change our relationship to Israel
Our voters showed up. And the above four reasons are why many of them voted for Democrats.
</blockquote>
Better late than never. But can the GOP regain its lost supporters by 2028? It&rsquo;s going to take serious changes.
<h2 class="centered subhead" style="text-align: center;">Losing the Dissident Vote</h2>
By starting a war with Iran, Trump lost the right-wing dissident vote.
He then dismissed inflation and affordability concerns. It was worth it, he told us.
As millions of people couldn&rsquo;t find a decent job, or pay their rent, his administration repeatedly <a href="https://dailyreckoning.com/post/the-gops-affordability-problem">dismissed</a> their concerns.
Iran, inflation, and how Trump handled it is why Republicans lost so horribly. Pretty simple. The sooner Republicans fully accept this, the better.
The silver lining here is that neocons and neolibs have completely blown their credibility. Politicians are beginning to realize that listening to their advice on foreign policy is electoral suicide.
Will the GOP recover and make the necessary changes? I hope so. Paying even higher taxes, watching DEI take back over, censorship, and endless immigration sounds absolutely terrible.
If Democrats win the presidency in 2028, it&rsquo;s going to be a very tough road. The damage they will do will echo for decades.
Sure, the left is sure to muck things up terribly again. That will help the GOP in the next presidential election.
But that will only go so far. The GOP needs to get its own house in order, quickly. Pay attention to right-wing dissidents and Independents. Ignore the neocons completely, on every issue. That&rsquo;s the lesson.

dr-hero-img-11-05-26

Revenge of the Dissidents

I was staying at a hotel in Midtown Manhattan recently. I strolled up Fifth Avenue&hellip; all the way to the Metropolitan Museum of Art. Along with the Louvre, the British Museum, the Uffizi, the Vatican Museums, and the Hermitage, it&rsquo;s one of the world&rsquo;s great museums. (The only one I haven&rsquo;t been to is the Hermitage. Perhaps I&rsquo;ll remedy that when Europe and Russia kiss and make up.)
I used to walk around the British Museum and National Gallery in London (another great one) to ease my hangovers on the weekends in my 20s and early 30s. Looking at beautiful paintings, sculptures, and armor soothed my sore head.
But this weekend in the Big Apple, I was sober as a judge. I wanted to get my 10,000 steps in and enjoy myself while I was doing it. But, of course, my curiosity got the better of me.
It&rsquo;s the ownership panels every time. For a finance guy like me, seeing a benefactor or a patron on a museum plaque doesn&rsquo;t make me think, &ldquo;Oh, what a generous person!&rdquo; Instead, I think something more along the lines of &ldquo;What proceeds were they turning into respectable transfer mechanisms?&rdquo;
It&rsquo;s not money laundering, per se. It could simply be a case of making incomes from landed properties more mobile. I came across two Canova sculptures that were especially interesting from that perspective.
<h2 class="subhead nbp">Stone Turned Into Life?</h2>
It&rsquo;s Rome, in 1804. A Polish countess named Valeria Tarnowska walks into a sculptor's studio. She wants a hero.
She doesn&rsquo;t want a portrait, but a scene. Perseus, fresh off killing Medusa, holding up the severed head like a trophy. Clash of the Titans, but early 19th-century style.
She visits Antonio Canova, the most famous sculptor in Europe. Medusa may have turned men to stone, but Canova turned stone into sculptures that seem to breathe.
What did Tarnowska actually buy?
She had had land rents and cash, which are boring, forgettable, and hard to move. She turned that capital into eleven feet of marble everyone in Europe would recognize and admire.
You can't smuggle rental income across a border. But you can transport a famous statue.
You see, art isn't just decoration. It's dense, portable, and murky. Nobody quite knows what it's worth, or who really owns it. High value, easy to move, thick layers of dealers standing between the buyer and the money. The U.S. Treasury has studied this exact combination. It's the same profile that makes a painting a great place to hide a fortune today.
Canova himself wasn't laundering money. But he turned wealth into a shape that could cross a border, something no farm or a factory could. And he made the new owner look good for owning one of his sculptures, to boot.
<h2 class="subhead nbp">The Second Statue Hides a Cap Table</h2>
A few rooms over sits another Canova: Paris, the mythic judge who started the Trojan War with one bad verdict. Same sculptor. Same era. A better story.
Napoleon's wife, Jos&eacute;phine, commissioned the original Paris in 1807. It was imperial French cash, spent on a vanity project. When she dies, the statue didn't vanish into a warehouse. Tsar Alexander I of Russia bought it and put it in the Hermitage. It was part trophy, part power move. Empire handed it to empire, and the story attached to it only grows.
Canova's workshop did what any studio does with a hit: it made another copy. The Marquess of Londonderry bought one on a trip to Rome in 1823. He shipped it home to London, where it sat in his townhouse for over a hundred years. Long after his house is gone, a donor gave the statue to the Met. A private trophy became part of a public collection.
Look at this lineup:
<ul>
<li>Founder: Jos&eacute;phine, French imperial cash</li>
<li>Buyer: Alexander I, Russian imperial collection</li>
<li>Second buyer: Londonderry, British aristocratic money</li>
<li>Exit: a modern bequest, American museum ownership</li>
</ul>
The statue never changed, but the wealth transferred. Napoleon fell to Wellington at Waterloo. Empires rotate, as they always do, around the world. Old money faded into museum bequests.
Marble makes good collateral across centuries. It's an asset that survives every regime change.
<h2 class="subhead nbp">Same Play, New Paperwork</h2>
Today's art laundering cases follow the same script as Jos&eacute;phine and Alexander. The people are worse, but the lawyers are better. That's the only real difference.
Modern versions look like this:
<ul>
<li>Sanctioned buyers route cash through shell companies to acquire blue-chip art, so nobody can trace who really owns it.</li>
<li>Criminals pledge art bought with dirty money as collateral for a "clean" loan from a lender who doesn't ask questions.</li>
<li>Free ports, those tax-free storage warehouses dotted around the world, let art sit unregistered for years, changing hands quietly.</li>
</ul>
None of this needs fake art or stolen art. It just needs art that's genuinely valuable and hard to price. That describes a 200-year-old Canova as well as it describes a painting nobody can compare to a recent sale. You know, like a Hunter Biden special edition.
The real engine here is what dealers call the story premium. It never shows up on a balance sheet, but it does most of the work.
A Perseus in your front hall says: &ldquo;I have taste,&rdquo; &ldquo;I have history,&rdquo; or &ldquo;I have won something.&rdquo;
A numbered bank account in Geneva is silent.
A marble hero is loud money, capital that screams victory while quietly moving somewhere new. For the right buyer, that's the whole point of buying it.
<h2 class="subhead nbp">Wrap Up</h2>
If you walk through the Met, you&rsquo;ll see the little labels that give you dates and donor names. But most people don&rsquo;t realize they&rsquo;re standing in front of a five-century paper trail.
In more recent times, grand imperial names became more mundane things. Jos&eacute;phine and Alexander became oligarchs and sanctioned officials. Canova's studio became a shell company in the British Virgin Islands or a free port in Geneva.
But the trick hasn't changed: park your wealth in something beautiful, portable, and nearly impossible to price, and watch it cross borders that cash never could.
Perseus is still holding up that head. He's also been quietly holding six empires' worth of money for two hundred years.

mr-issue-11-05-26-img-1

The Marble Ledger

Have you noticed how weird weather patterns are right now? A Learjet just dropped out of the sky about 8 miles from Mara Lago.
The culprit was severe weather. This is normally the start of the calm dry season for Florida. But that storm dropped over 16 inches of rain in a day. That&rsquo;s nearly unimaginable.
It was one of five &ldquo;1,000 year&rdquo; flood events. Henderson Nevada, Pearl River County Mississippi, Palm Beach Gardens Florida, San Luis Valley Colorado, and Southern Brevard County Florida all saw massive rainfall in the past few days.
These anomalies are part of a massive weather disruption. This is the result of an observed climate phenomenon that dates back tens of thousands of years. El Nino is the name for a periodic warming of the equatorial waters of the Pacific Ocean off Peru.
<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/5urJsXqmRzakf8oK5D1txL/c0097415a7ee53424a458dc6bdb5755f/dr-img1-11-04-26.jpg" alt="image 1" />
That red area is tongue of about 620,000 cubic kilometers of Pacific Ocean. It is much warmer than normal. Here&rsquo;s the crazy thing&hellip;even a 1 degree increase in temperature across that much water stores heat equal to about 80,000 years of output from a one-gigawatt power plant. A 2 degree increase puts that at 161,000 years.
As you can see, a large swath of that water is over 3 degrees warmer than normal. And a 3-degree increase would need 241,000 years of that power plant output.
And what all that heat does is change the weather. All over the world. But we can&rsquo;t forecast it with much authority because we&rsquo;ve never seen an El Nino like this one. What we do see, here in the U.S. is an unusually active southern jet stream. That&rsquo;s the one that brings moisture in from the Pacific and up from the Gulf of Mexico.
During warm months, the jet brings historic flooding rain. But in the winter it depends on the temperature. If the weather is warm, it&rsquo;ll just rain. But if it&rsquo;s cold, you get massive blizzards. That&rsquo;s where the potential for a run on natural gas comes in.
Because another weather pattern just emerged that will have a direct effect on the U.S. this winter &ndash; disrupted polar vortex.
We usually hear stories about the polar vortex in the winter, just before we get a major cold snap. But this year it happened in October. Normally, we would see the polar vortex strengthening. Days are shorter and colder. The vortex strengthens. The strong winds circle the globe close to the pole.
But instead, we see a disrupted pattern today. weak winds and stratospheric warming. The normal seasonal strengthening gets derailed. And while this doesn&rsquo;t signal an unseasonable cold snap now, it does increase the chances of major cold snaps this winter. And that creates the potential for outsized snowstorms in the mid-Atlantic states.
Normally, these events increase the chance of persistent winter weather patterns. Cold outbreaks in Europe, Asia, and the Eastern U.S. It also sets up blocking patterns that change storm tracks. For example, the Atlantic storms track further south. That leaves colder, drier conditions in Northern Europe.
That&rsquo;s where we may have a huge opportunity this year. Because a cold Europe and Eastern U.S. means increased demands for natural gas.
Now not every stratospheric warming event increases natural gas demand. But this is an exceptional year. All the events seem to be larger. And so could the cold events.
In Europe, a study found that extreme electricity demand spikes are 1.5 to 3 times more likely during these events. In 2018, there was a massive spike in natural gas demand from a polar vortex.
The opportunity here is that natural gas is cheap and we have an unprecedented weather phenomenon going on.
As you can see, natural gas prices just bounce off their lowest price since April. And the April low was its lowest since 2024. We do have a lot of natural gas in the U.S., thanks to record U.S. oil production.
<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/4HGVTb2sqgBHi0u4fWSgd/7cb60dbf4d4f4951893653af6d389783/dr-img2-11-04-26.jpg" alt="image 2" />
However, we are exporting far more gas than ever before. In August 2026, the U.S. exported 841 million cubic feet of natural gas. In the first six months of 2026, we exported 74% of the total for 2025. A per month average looked like this:
<ul>
<li>2024: 642 million cubic feet per month</li>
<li>2025: 747 million cubic feet per month</li>
<li>2026: 827 million cubic feet per month</li>
</ul>
These are export numbers. And they represent about 30% of domestic consumption today. And while export volume is up dramatically, domestic demand is relatively flat.
Demand for exports is soaring thanks to the wars in Ukraine and Iran. And that&rsquo;s fine right now. But if we get a big spike in demand here in the U.S., prices will jump.
It happened last January with Winter Storm Fern. It sent natural gas futures up as much as 75%. The United States Natural Gas Fund (NYSE: UNG) saw shares jump from $10.30 to $17.00 per share in just a few weeks:
<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/4sRg8kHc4vf86QY59HxKqk/3f819341e7599de1afa511219ebc0f47/dr-img3-11-04-26.png" alt="image 3" />
This winter has that potential as well. And UNG is at its lowest price ever. While this fund is an imperfect vehicle for playing natural gas prices over the long term, it&rsquo;s perfect for a short-term winter trade.
We should buy it now and hold it through March 2027. It should be an easy 60% to 100% gain if we get the kind of snowstorms that look likely, thanks to El Nino.

dr-hero-img-11-04-26

My #1 Freak Weather Trade

Somehow, Apple has regained its crown.
With a market cap of $4.84 trillion, it is once again the largest company in the world.
But frankly, this stock looks a bit mushy. Under its shiny silver skin, there are worms tunnelling.
In its latest quarterly report, Apple posted 12% YoY revenue growth. Not bad, not great. But it&rsquo;s only forecasting 7-10% growth over the next year. Growth is decelerating.
The valuation is where I get completely lost. Today AAPL trades at 37x earnings (P/E). And it&rsquo;s valued at a shocking 10.3x revenue (price-to-sales).
The only time in its history Apple had a higher price-to-sales ratio was on its IPO day in 1980. Back then, when the company was worth $1 billion, it traded at 13x sales. But revenue was growing 145%! 10x higher than today.
Meanwhile the dividend yield is now a tiny 0.32%. The company spends most of its cash flow on share buybacks, which helps keep the price inflated.
This is an extremely rich valuation. If I buy a stock priced like that, I expect big growth going forward. At this point, Apple isn&rsquo;t going to deliver that.
I built the table below to show just how crazy things have gotten. During Apple&rsquo;s rapid iPhone growth phase, the company was far cheaper than today.
<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/Sl9DUjTGeNBY2ZEs1VHSI/66c2a3aabbdd21956a658863cfcc1254/dr-img1-11-03-26.jpg" alt="image 1" />
So in 2011, when Apple was growing revenue at 66% a year, it traded at 14.5x earnings. Back then, the stock traded at 3.5x revenue.
In 2011, the company was growing 4.4x faster. Yet it was far cheaper.
Here&rsquo;s a longer-term view of Apple&rsquo;s price-to-sales ratio.
<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/6NexKivYpYjin6K2bR7U7V/bf2fcb39c27ddfd288eb8d0c395a3d62/dr-img2-11-03-26.jpg" alt="image 2" />
Source: <a href="https://www.macrotrends.net/stocks/charts/AAPL/apple/price-sales">Macrotrends</a>
As you can see, before Covid, Apple always traded at a fairly reasonable valuation (under 5x revenue). But ever since, the old valuation rules have been thrown out the window.
With only 12% annual revenue growth, and little innovation, why are people paying such a premium to own this company?
<h2 class="centered subhead" style="text-align: center;">Tech: The New Safe Haven?</h2>
It seems to me that investors are treating big tech as the new safe haven. These stocks have done so well for so long, that many people have come to view them as the safest asset in the world.
Take a look at the chart below, shared by WisdomTree&rsquo;s Jeff Weniger a few months back:
<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/2pYUfuPY3S2jH44bCV3ere/492b00600bc4ffae8713114562c1fbd7/dr-img3-11-03-26.jpg" alt="image 3" />
So 51% of the S&amp;P 500 trades at more than a 10x price-to-sales ratio. This is not normal, or healthy.
A 10x sales multiple is extreme. When you buy a mature stock at a valuation like this, be prepared for disappointment unless everything goes perfectly.
<h2 class="centered subhead" style="text-align: center;">&ldquo;What Were You Thinking?&rdquo;</h2>
Sun Microsystems was one of the hottest hardware stocks during the dotcom boom. From its 1986 IPO to the peak in 2000, it soared 257x.
It was a beautiful growth story. But eventually investors got overly excited and bid the shares up to silly prices.
After the dotcom bubble burst in 2000, Sun shares collapsed 96%.
In an interview with Business Week, Sun&rsquo;s CEO Scott McNealy admonished shareholders for buying the stock at such a ridiculous price. It&rsquo;s one of the most fascinating pieces of the entire dotcom bubble saga.
And it really spells out exactly what it means when you buy a stock at 10x revenue:
<blockquote>
At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders.
That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees.
That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&amp;D for the next 10 years, I can maintain the current revenue run rate.
Now, having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those basic assumptions are? You don&rsquo;t need any transparency. You don&rsquo;t need any footnotes. What were you thinking?
</blockquote>
So. Here we are, with over half of the S&amp;P 500 trading at more than 10x revenue.
Human nature hasn&rsquo;t changed since the dotcom boom. It just took a while to forget the lessons we learned from that crash.
This is how the cycle works. Breakthrough, boom, bubble, bust. Rinse, forget, repeat.
Investors are still ruled by the same animalistic spirits. We are impulsive, emotional, and vulnerable to FOMO.
Every so often, we have to re-learn the bubble lesson. It&rsquo;s simply part of the game.

dr-hero-img-11-03-26

A Mushy, Wormy AAPL

Today is so-called &ldquo;Election Day.&rdquo; I use quote marks because voting is now a season, and campaigns are permanent. Tonight, people will tally the ballots and tomorrow &mdash; or next week, or maybe December, cuz&hellip; California &mdash; we&rsquo;ll know more about who will hold power in Washington come January 2027.
So, let&rsquo;s NOT discuss current politics. That&rsquo;s for others, and other days.
Instead, let&rsquo;s discuss 1859.
<h2 class="subhead nbp">The Colonels Who Changed the World</h2>
In an odd coincidence of time and geography, in 1859 two American colonels stepped onto history&rsquo;s stage. One used rank as a promotional title: Edwin Drake, a former railroad conductor whose backers understood marketing, even if their guy wasn&rsquo;t a real O-6. But the other was the genuine article: Robert E. Lee, a West Point-trained Army officer, battle-tested in Mexico.
At Titusville, Pennsylvania, Drake changed the world; and at Harpers Ferry, Virginia, Lee confronted a national crisis. (Note: In 1859 Harpers Ferry was part of Virginia; West Virginia was created later, during the Civil War.) These places are just 190 miles apart as the crow flies across the Appalachians; and each in its own way, they led to two very different kinds of upheaval.

<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/7tOnKtcvBwr17MxXf64xwY/ac4ec6e710c17468866a0e912a2f5936/mr-issue-11-03-26-2.jpg" />

Edwin Drake and Titusville oil well. Credit National Archives.
On August 27, 1859, Drake&rsquo;s rig struck commercial amounts of oil at a depth of 69&frac12; feet. If you&rsquo;re wondering, he wasn&rsquo;t &ldquo;drilling&rdquo; a hole with a rotating bit; he was pounding a hole into rock with a cable-tool device (long story; not here). The point is, Drake dug to very modest depth and created very immodest consequences.
Seven weeks later, on October 16, militant abolitionist John Brown and his followers seized the federal arsenal at Harpers Ferry. And the U.S. government sent Army Col. Lee with a contingent of U.S. Marines &ndash; they were handy and immediately available, so he grabbed them &ndash; to end the raid.

<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/1k8i76VVaD09Rbjq7H3zQ6/2f9e81856935cee5dce453275fdae164/mr-issue-11-03-26-3.jpg" width="300px" />

Col. Robert E. Lee, U.S. Army, 1859. Credit National Archives.
One event opened an entirely new age of energy for mankind. The other intensified a political crisis that led to America&rsquo; Civil War and remade the Union.
Two colonels. Two revolutions. One quiet, one loud. And both are still with us.
<h2 class="subhead nbp">The Courtesy Colonel and the Rock</h2>
Even in 1859, petroleum was no novelty. Native Americans had gathered seep oil for centuries; bottled oil later found a market as medicine, salve and waterproofing. But collecting what leaked onto the surface of creeks and streams was one thing. Delivering a dependable industrial supply was another.
Below ground, oil occupies pores and fractures in rock, not some vast subterranean lake. Seeps are clues to a buried system. Drake&rsquo;s practical question was whether he could tap in and lift oil in useful quantities.
The answer was fieldcraft, not grand theory. Drake borrowed a method from salt-well drilling and used steam power to raise and drop a chisel-like tool suspended from a cable. Then, he ran iron pipe down the opening to prevent loose material from collapsing into the hole. That is, Drake utilized existing tools and tech, rearranged for a new purpose; aka &ldquo;innovation.&rdquo;
Oh, and Drake was persistent. His backers&rsquo; money was nearly gone; local confidence had evaporated. The enterprise was called &ldquo;Drake&rsquo;s Folly,&rdquo; right up until the well filled with oil and everyone then wanted in on the action.

<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/2QLjFZuJuQCtZTOiD2hExb/22552b63ea86bbd2d0ccf8f01a54be6f/mr-issue-11-03-26-4.jpg" />

Early oil well, flowing crude into a vat. Cradit National Archives.
The breakthrough created a business proposition: drill, produce crude oil, sell it to refiners, and they in turn could sell useful products to customers. A geological occurrence became an industrial resource. The rock had not changed; but the tech and economics had evolved.
The first benefit from oil was illumination via kerosene, which pushed back the night. Then came petroleum lubricants which helped an increasingly mechanized economy turn its wheels. Decades later, refined fuels enabled internal-combustion engines. Plus, oil led to an array of industries built around petrochemicals, plastics, synthetic fibers, asphalt and much else that modern life takes for granted.
Think of petroleum as a geological inheritance: organic matter buried in sediments, transformed by heat over immense spans of time, during which hydrocarbons migrate into reservoir rock. And Col. Drake tapped that inheritance with a shallow hole and nineteenth-century machinery. He put ancient, stored energy within reach of human enterprise.
<h2 class="subhead nbp">The Real Colonel and the Arsenal</h2>
Seven weeks after Drake&rsquo;s well came in, John Brown and 21 followers attacked and seized the federal arsenal at Harpers Ferry. Brown et al intended to distribute weapons and ignite an uprising. Instead, he and his gang were trapped in the armory&rsquo;s engine house, with hostages.

<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/1XV0oUkGym8QiBVv8IpF5x/dfd7237ac63c9d2c025ac999d382a467/mr-issue-11-03-26-5.jpg" />

Brown&rsquo;s raid at Harpers Ferry. Credit National Park Service.
Col. Lee and his Marines rode from Washington, D.C., confronted Brown and demanded a full surrender. When Brown refused, Lee&rsquo;s Marines stormed the building and captured him. The raid was crushed, but the fuse of national rebellion was lit and burning.
Harpers Ferry terrified the slaveholding South, while Brown became a martyr to many Northern abolitionists. And at this stage of American development, slavery &mdash; the South&rsquo;s so-called &ldquo;peculiar institution&rdquo; &mdash; was a fault line that political compromise could no longer bridge.
Indeed, and as is the case with true geological faults, apparent stability can conceal immense levels of built-up stress. So, while it&rsquo;s not accurate to say that Harpers Ferry &ldquo;caused&rdquo; the Civil War, the episode revealed how close the country stood to fracturing.
The war of 1861&ndash;65 settled secession by force. Wartime emancipation and post-war constitutional amendments abolished slavery and expanded citizenship and federal reach. A more consolidated Union emerged, purchased at catastrophic cost.
And here comes the irony. At Harpers Ferry, Col. Lee of the U.S. Army enforced federal authority. Then less than two years later, in 1861 he resigned his commission and took up arms for Virginia and the Confederacy against that same United States. The man who suppressed one rebellion joined another.
<h2 class="subhead nbp">After the Revolutions</h2>
The lives of Drake and Lee offer another lesson; namely, that being a change-agent of history is no guarantee of a comfortable retirement.
Drake launched an industry that created immense fortunes, yet he captured very little of the wealth. He failed to patent his methods. And bad investments and poor health followed; although Pennsylvania eventually granted him a pension. He died impoverished, in Bethlehem, Pennsylvania in 1880.
Later, Standard Oil&rsquo;s Henry Rogers funded a grand monument at Woodlawn Cemetery in Titusville. In 1901, Drake&rsquo;s remains returned to oil country, honored by wealth his work helped create for others. So, the industry remembered him&hellip; eventually.

<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/36Qog2P4ZSMPcHRnRyysOS/20095e36e07ebb88bbfc5fdeb134572c/mr-issue-11-03-26-6.jpg" />

<h2>Drake&rsquo;s Tomb. Credit Commonwealth of Pennsylvania.</h2>
Lee went from military prominence to Confederate defeat, then spent his final years as president of Washington College in Lexington. He urged his former soldiers to accept the results of Appomattox, return home and rebuild. Lee focused on education and reunion, not another campaign. He died in 1870 and is interred within a college chapel on today&rsquo;s Washington and Lee campus.

<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/6flrscNMOGnPyTZc9u6RTD/5d8609f301c9bdba6c132d23a094bf24/mr-issue-11-03-26-7.jpg" />

Tomb of Robert E. Lee. Credit Washington &amp; Lee College. 
So, Drake&rsquo;s handsome monument speaks to a new and world-changing industrial order; while Lee&rsquo;s elegant tomb sits amid the contested memory of a nation he first served, then fought against, and afterward finally sought to reconcile.
<h2 class="subhead nbp">Then and Now</h2>
Today, the world still changes in ways both dramatic and quiet. Headlines blare, &ldquo;Blah-Blah-Blah!&rdquo; While other truly important work proceeds quietly in labs, machine shops, data centers and resource-development companies.
New energy technology, especially, does more than substitute one fuel for another. It reorganizes power. As history shows, after 1859 petroleum remade transportation, agriculture, industry, finance and foreign policy. Looking ahead, it&rsquo;s apparent that new systems will again leapfrog past material limits; we&rsquo;ll get around ore grades, mineral processing, fuel supplies and the infrastructure needed to connect resources with customers.
Slick-talking politicians can announce a new, say, &ldquo;energy policy&rdquo; in about one minute. But developing a mineral deposit, building a mine or plant, or replacing a fleet is another matter. Geology doesn&rsquo;t read press releases. Nor does engineering bend automatically to election returns.
As you watch developments, keep first principles in mind. Harpers Ferry exposed a moral and constitutional crisis that Drake&rsquo;s new form of energy and improved process could not cure. Or in more current terms, a nation may possess splendid technology yet still divide bitterly over what people ought to do, and how to run the place. See Harpers Ferry.
Also remember that information is not understanding, let alone wisdom. Today, news arrives fast in a world where attention is scarce. Collectively, we know more sooner; but often as not, people understand less and less. The challenge is to distinguish durable change from daily noise.
With this, let me offer a few takeaways:
<ol>
<li> Look for the marginal experiment. The next consequential enterprise may appear as folly before it transforms into investment. And always ask what stubborn problem it solves.</li>
<li> Follow material constraints. Ambitions require energy, resources, machinery and time. Look beneath the slogan to the supply chain; and peer past the supply chain to the rocks and reservoirs.</li>
<li> Think beyond the immediate moment. Drake&rsquo;s disappointment and Lee&rsquo;s defeat remind us that achievement is only one chapter. Persistence, humility and rebuilding matter afterward.</li>
</ol>
<h2 class="subhead nbp">Our Future Is Rising Through the Pipe</h2>
So now, back to 2026; we live in a country &ndash; and a &ldquo;Union&rdquo; &ndash; still formatively shaped in 1859; remade by its long-ago Civil War and the industrial world petroleum helped build.
And as for the elections? Look beyond today&rsquo;s campaign noise and tonight&rsquo;s vote counts. Because somewhere out across the dark plains of the Republic, someone is adapting an old tool, testing a new idea, and solving a problem that experts long ago wrote off. It&rsquo;s just another &ldquo;folly,&rdquo; perhaps, until it works&hellip; and everyone wants in on the action.
Indeed, as was the case with Drake&rsquo;s oil well long ago, the future may already be rising through the pipe.
That&rsquo;s all for now. Thank you for subscribing and reading.

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A Tale of Two Colonels: Drake, Lee and the Two Revolutions of 1859

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