Last night my wife asked about our emergency supplies. Well this is new, I thought.
Then I noticed she was browsing Amazon for dehydrated food.
My eyebrows almost hit the ceiling. This is very unusual behavior for her.
I assured her we were in good shape. But it got me thinking about what triggered the concern.
Over the past few weeks, dozens of governments have told citizens to prepare emergency supplies. That was the trigger apparently.
My wife&rsquo;s not the only one. There&rsquo;s a bit of doomsday-prepper fever breaking out lately.
Authorities warn of risks including: AI cyber-attacks, a Russian invasion, climate change, and industrial sabotage.
Most European countries have put out scary warnings recently. It&rsquo;s clearly a coordinated campaign.
The big question is &ndash; are they actually concerned about their citizens&rsquo; welfare? Or do they have a more sinister agenda?
I suspect the latter, but we&rsquo;re not going to answer that question today. We will, however, keep a close eye on the situation and see what we can learn.
Regardless of what governments say, it makes perfect sense to prepare emergency supplies.
And it can be done relatively cheaply. I view it as an insurance policy. One where the policy pays out in life during worst-case scenarios.
Here&rsquo;s how I go about it.
<h2 class="centered subhead" style="text-align: center;">Food and Fat</h2>
The #1 item for any emergency food stash should be white rice. Not brown rice or jasmine rice. White rice. Stored properly, it can last 25 years. What you want to do is store it in mylar bags, and add in oxygen absorbing packets.
<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/4BmNBHVpdYx1AFu8Bc5kLU/2401660bd674e834dc326d46b4e228fc/dr-img1-10-28-26.jpg" alt="image 1" />
Mylar bags + oxygen absorbers
Or you can buy 25lb buckets of white rice, already in mylar bags with oxygen absorbers from emergency prep companies. Just make sure you buy from a reputable company with good reviews.
One note here. If this prepping trend continues, white rice will become hard to find. This is normal and happens during every big scare. Just wait for it to come back in stock once people settle down.
Dry beans are also a good option, and stored properly they can last 20 years.
But man cannot live on carbs alone. You&rsquo;ll absolutely need some fat in there too. I prefer coconut oil (only virgin unrefined &ndash; the natural antioxidants extend shelf-life). Stored correctly, it can last 3-5 years.
And in my house, we use a lot of coconut oil so I store a few gallons in the basement, and rotate stock. Coconut also happens to produce the healthiest plant-based oil. Yes, it&rsquo;s food. But in a pinch it can be used as toothpaste, mouthwash, moisturizer, and more.
Having some canned protein on hand makes sense too. Cans of tuna can last 5 years or longer if stored properly. Only buy protein you&rsquo;re willing to eat and rotate stock of. Tuna casserole every once in a while isn&rsquo;t so bad.
Dehydrated meals and MREs are also good options, but they aren&rsquo;t cheap. Adjust to your budget as appropriate.
If something gets a year from expiration, and we can&rsquo;t eat it, we donate it to a food bank.
<h2 class="centered subhead" style="text-align: center;">Pure Water</h2>
Water is a big one. There are a number of scenarios which could limit access to clean water.
The most important prep here is having a high-quality water filter. That means a 5 stage reverse osmosis (RO) system that goes under the sink.
RO removes 99%+ of impurities from water. Fluoride, heavy metals, chlorine, radioactive bits, forever chemicals, pesticides, microplastics, etc. Nasty stuff.
<img src="https://images.ctfassets.net/vha3zb1lo47k/431Xpf8OgXwoDFWwJpUKZI/ea30143f5d027a9e69348d2765de3ad4/dr-img2-10-28-26.jpg" alt="image 2" />
The Apec RO filtration system we have - find it at Home Depot, Amazon, etc
A good RO system runs about $200. It&rsquo;s the best investment a household can make, in my opinion. For that price you&rsquo;ll get 50 gallons a day of pure filtered water.
Filters only need to be changed every 2-5 years (different schedules for different types). I always keep a few extra sets of filters around. A filter &ldquo;refill&rdquo; kit costs anywhere from $42 to $75, depending on the brand.
An RO water filter system provides immense ROI, even if nothing bad happens. There&rsquo;s all sorts of crud in our water already.
If you&rsquo;re still drinking and cooking with city water or questionable well water, consider getting an RO system. It&rsquo;s a game-changer. And if the stuff ever does hit the fan, you&rsquo;ll be extra glad to have it.
One last thing on water. Keep some iodine around. It can purify bacteria-contaminated water, and is a key nutrient. Millions of Americans are already iodine-deficient. May as well buy a bottle. I like J. Crow&rsquo;s Lugol&rsquo;s Solution, and take a few drops every month with water.
<h2 class="centered subhead" style="text-align: center;">Don&rsquo;t Forget Guns</h2>
Firearms are a key part of any disaster prep kit. At the very least, every household should own a 12-gauge shotgun. Or two. Or three.
With a shotgun, you can bag a deer if necessary. And if someone breaks into your house, the sound of a pump-action slide chambering a shell is usually enough to send any thief scurrying. If not, well&hellip; There's nothing quite so convincing as buckshot at close range.
You can get a decent pump-action 12-gauge for under $300. Mossberg makes quality shotguns for reasonable prices.
<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/62vpLUDNdEGunAG3Bflnq7/f2fa81100134b7f32333937e1d04f43f/dr-img3-10-28-26.jpg" alt="image 3" />
Mossberg Maverick 88 12-gauge shotgun ($200-$300)
A shotgun should be the bare minimum for a real emergency kit. But if all you can swing is a .22 plinker, that&rsquo;s certainly better than nothing.
Of course, owning handguns and long/assault rifles too is ideal.
As a bonus, well-maintained firearms hold their value well over time. I consider them to be an inflation-hedge with additional benefits (self defense + a fun hobby).
The way I look at it is, if you ever truly need a gun, you&rsquo;re really going to need it. So buy a few.
Firearms are a key aspect of any emergency prep kit. Needless to say, keep them locked up away from kids, etc.
And be sure to get out to the shooting range and practice. My favorite is sporting clays. It&rsquo;s golf with shotguns.
<h2 class="centered subhead" style="text-align: center;">Nothing Will Happen (Probably)</h2>
My goal with today&rsquo;s letter isn&rsquo;t to scare anyone.
In fact, I&rsquo;m skeptical about all these sudden warnings from governments. Why now?
Maybe these governments know something is coming. Maybe they don&rsquo;t, and are just trying to scare us for some secret agenda.
Either way, I&rsquo;m still going to pay the doomsday insurance premium. It really doesn&rsquo;t cost much. Compared to health insurance, for example, it&rsquo;s the world&rsquo;s greatest bargain.
You end up eating most of the food you store anyway, your water gets cleaner, and you have the tools to defend your house.
Nothing wrong with that.

dr-hero-img-10-28-26

mobile masthead DR

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

Daily Reckoning

Soccer Moms are Doomsday Prepping

The election in Brazil didn&rsquo;t go the way we hoped.
Lula, an 80-year old socialist, won the presidential runoff. This will be his fourth term as the country&rsquo;s leader.
Prediction markets had given the right-wing candidate, Flavio Bolsonaro, an 81% chance last week.
Back on October 5th, when it looked like Bolsonaro would win, our favorite Brazilian ETF (EWZ) <a href="https://dailyreckoning.com/post/mbga-make-brazil-great-again">shot up 13%</a> in a day.
But now, with a socialist in power for the next four years, we have to decide whether Brazil is still worthy of investment.
<h2 class="centered subhead" style="text-align: center;">Stocks + Currency Crash</h2>
Brazilian stocks fell across the board today. The largest Brazil ETF (EWZ) is down a whopping 21% as of 1:00 pm ET.
Our beloved Petrobras (PBR, PBR.A), which has done so well for us this year, fell 15% on the day.
The Brazilian currency, the real, fell about 12%. That&rsquo;s a big part of the reason why Brazilian stocks got hit so hard today. When you own stocks in a foreign country, and that country&rsquo;s currency fluctuates, it magnifies the move (up and down).
However, I&rsquo;m not giving up on Brazil. EWZ is still +43% (with dividends reinvested) from our original February 2025 <a href="https://dailyreckoning.com/post/brazilian-stocks-offer-8-yields-at-8x-earnings">writeup.</a>
Petrobras is still +102% (with dividends reinvested) from our first May 12th <a href="https://dailyreckoning.com/post/trading-the-trade-disruptions">writeup.</a>
In South America, politics clearly play a big role in stock market returns. But this selloff looks overdone.
<h2 class="centered subhead" style="text-align: center;">Socialist Fears vs. Capitalist Hopes</h2>
Investors had hoped that a conservative president would rein in Brazil&rsquo;s deficit spending, de-regulate, and make the country a magnet for foreign capital.
Well, there goes that plan. But all is not lost. I plan to continue to hold EWZ and other Brazilian investments, reinvest my dividends, and sit tight.
I have no plans to sell Petrobras. It remains one of the largest positions in my portfolio. If that changes, I&rsquo;ll let you know.
Here&rsquo;s why I&rsquo;m not too worried about Lula. He&rsquo;s been running the country for the past 4 years and it hasn&rsquo;t imploded. Yes, Bolsonaro would have been better for investors.
But Lula should be fine. When he returned to the presidency in January of 2023, he did make significant changes at Petrobras (PBR).
His government steered Petrobras to spending more on new oil production, and less on dividends. Previously, Petrobras paid out about 60% of free cash flow to investors as a dividend. Under Lula, they paid out about 45%.
The changes weren&rsquo;t all bad though. Partially as a result of all the new investment, the company&rsquo;s oil production has soared. Since Lula&rsquo;s return to office in 2023, Petrobras oil production has jumped 27%, the best among all major producers. The company has invested heavily in Brazil&rsquo;s rich pre-salt offshore oil fields, and it&rsquo;s paying off.
So even though Brazil&rsquo;s socialist president tinkered with Petrobras, the company is pumping more oil than ever, and still remains a cash flow machine. Their average all-in cost to produce a barrel of oil is around $35.
The real risk investors fear is a darker sort of government intervention. If oil stays high, Brazil could force the company to sell fuel at a loss domestically.
The Brazilian government ran this playbook from 2011-2014. It crushed confidence in Petrobras and Brazilian stocks, because investors feared it could happen again.
However, I think Brazil learned its lesson from that episode. They fooled around with the country&rsquo;s most popular company, and the stock market didn&rsquo;t recover for more than a decade. I don&rsquo;t think they&rsquo;ll make that mistake again.
Even after today&rsquo;s sell-off, Brazil&rsquo;s stock market is one of the world&rsquo;s best performing over the past 2 years. I don&rsquo;t think Lula is dumb enough to ruin the country&rsquo;s resurgent economy.
But we do have to acknowledge it as a risk. And hey, there&rsquo;s political risk everywhere today. Even here in the U.S.
<h2 class="centered subhead" style="text-align: center;">Common Themes</h2>
French economist Frederic Bastiat famously wrote, &ldquo;The state is the great fictitious entity by which everyone seeks to live at the expense of everyone else.&rdquo;
Bastiat wrote those words in 1848, but they remain highly relevant. This is essentially what happened in Brazil. Lula promised voters more benefits, and he won.
As we approach midterm elections, America faces its own challenges. An increasingly-socialist Democratic party threatens to sweep Congress.
If Dems do sweep, I don&rsquo;t think the S&amp;P 500 will crash 21% in a day like we saw in Brazil. But we should see a steep sell-off.
And it would be the beginning of more socialist America. Higher taxes, wealth redistribution, more censorship, more regulation, endless immigration, Green New Scam 3.0. They could even expand the Supreme Court and fill it with neoliberals. I outlined the risks in <a href="https://dailyreckoning.com/post/president-aocs-first-term">President AOC&rsquo;s First Term.</a>
The U.S. is no longer immune from the political chaos that was once only found in emerging markets. We could have a mini-Brazil situation ourselves soon.
So yes, I&rsquo;m holding onto my Brazilian stocks. This is a long-term thing for me. When you buy quality companies at 9x earnings and fat yields, good things tend to happen in the long run.
I&rsquo;m sticking to the original plan. Hold and reinvest dividends for ~5 more years, wait for the big re-rating, and sell when valuations get high.
Of course, if anything changes, you&rsquo;ll be the first to know.

dr-hero-img-10-26-26

Black Monday in Brazil

Growing up, my generation was taught simple rules for success.
Get good grades in school. Go to college, pick a sensible major. Have fun, meet your spouse, graduate.
Do that, young man, and you&rsquo;ll be on course for a happy upper-middle class life.
It even worked for some of us.
But that world is dying.
<h2 class="centered subhead" style="text-align: center;">AI, Outsourcing, and Mass Immigration</h2>
These are the 3 horsemen of the white-collar apocalypse.
Together, they have combined to create a gnarly situation.
Let&rsquo;s start with AI, which is rapidly disrupting knowledge work. Intelligence has become a commodity. By using the best AI models, anyone can access the equivalent of a genius-level PhD researcher, in any field.
The importance of this cannot be overstated.
The vast majority of white-collar work is on its way to becoming automated. Either learn to master the tools, or be replaced by someone who does. Those are the new white-collar rules.
<h2 class="centered subhead" style="text-align: center;">Immigration + Outsourcing</h2>
Meanwhile, about 430,000 immigrants come into the U.S. every year on professional visas, seeking out high-paying desk jobs. They&rsquo;re willing to work 60+ hours a week for 35% less money. Unscrupulous American companies are taking full advantage of the situation.
These foreign workers are competing for the same jobs as college grads. This is their path to a green card. Many have fake diplomas and falsified work histories. Once they get into hiring roles at a company, they mostly onboard people from their own countries (kickback schemes are common).
They send 30% of their pay back home, meaning it&rsquo;s useless for the U.S. economy. They vote 75% Democrat. And they&rsquo;re coming after high-paying U.S. jobs. Why are we doing this again?
It will continue until Americans stand up and tell the government no more. No self-respecting nation allows such volumes of immigration. India certainly doesn&rsquo;t.
Thousands more companies are outsourcing their IT, customer support, and coding to other nations. Nevermind that the results are bad. They&rsquo;re saving money (while destroying their brands and customer experience).
AI catches most of the blame, but immigration and outsourcing are making the white-collar world a cutthroat place.
<h2 class="centered subhead" style="text-align: center;">2 New Paths to Success</h2>
We&rsquo;ve entered a new world. Yet most people are still relying on the dusty old college playbook.
Forget about that world. It&rsquo;s gone. Today there are two primary paths to a good career.
The first is going the blue-collar route.
My 17-year old son chose this path. He&rsquo;s working as an electrical apprentice. Technically, he is still a high school senior. But every day, he gets up at 5:30 am and drives to the job site. He runs conduit, digs ditches, and drills holes in concrete. He&rsquo;s also taking two community college courses online, and has electrical class once a week.
He&rsquo;s earning $26 an hour, getting education credits, and learning a valuable trade. In 3.5 more years, he&rsquo;ll be a journeyman electrician at the age of 21. This is a powerful alternative to college.
Here&rsquo;s the shocking part. Among 322 seniors at his high school, he is the only one doing an apprenticeship.
These programs are available across the country. But most people are still betting on a white-collar future for their kids. In this environment, that&rsquo;s a risky bet.
<h2 class="centered subhead" style="text-align: center;">The Entrepreneurial Route</h2>
In the Paradigm Press app this week, our friend Matt Badiali told a fascinating story about a young entrepreneur who used AI to build his business. It makes my point powerfully:
<blockquote>
Yesterday I met a very impressive young man. He was probably in his late 20&rsquo;s. He came to give me an estimate for gutters at my home. He had an impressive app on his iPad that integrated everything for him. He just measured things and plugged in the numbers.
When we sat down to discuss his estimate, I mentioned how cool the app was. His response:
&ldquo;Yeah, I made it myself.&rdquo; I was impressed. This was a polished estimate builder. It was intuitive to use. And the layout was easy to understand.
&ldquo;I did it with Claude. It&rsquo;s 1500 lines of code&hellip;but I&rsquo;m not a coder. It was all &lsquo;vibe coded&rsquo;. I just gave the AI all my old estimates in a folder. Then I asked it to build the app.&rdquo;
I&rsquo;m no AI fanboy. This was the first instance that I came across where I was legitimately impressed. He pays $20 per month for this service. He still has some bugs with it. He fixed one while I watched. He wanted a number pad instead of a box he had to write in. Five minutes later, he had what he wanted.
I&rsquo;m blown away&hellip;and here&rsquo;s why.
The app does a couple things for his business. First, it assures that his guys know exactly what they need, where to go, and what the job scope is. If you worked in a trade, you know how important that is. Nothing&rsquo;s worse than having to run to Home Depot or Gutters R Us to pick up something you forgot at the shop.
But even more important, it allows him to grow the company. Pricing jobs is the most important part of the business. If you mispriced the job, you either don&rsquo;t get it for coming in too high or lose money because you didn&rsquo;t underbid it.
That&rsquo;s why it&rsquo;s so difficult for owners to hire that position. The bidder can make or break the company. But this app that he built is bullet proof. It literally just needs a couple of measurements to populate the entire bid.
In this case, Claude will enable him to grow his gutter business. He&rsquo;ll be able to outcompete his competitors. All he must do now is focus on the execution at the jobsite. Selling the jobs is not a slam dunk.
I hired him for my gutters. And I&rsquo;m going to keep an eye on his progress.
</blockquote>
Amazing. This young man Matt B met is the future. Before AI, it would have cost at least $50,000 to build that app. There&rsquo;s no way a one-man shop could have afforded it.
But this kid built a functional app to run his business. And it cost him $20 a month.
AI has made it so &ldquo;idea guys&rdquo; can become builders. Just tell the AI your idea, and it builds it. And the results are shockingly good if you use the right model (Anthropic&rsquo;s Opus 5.5 is currently tops).
Modern AI agents can put out disturbingly good software and apps, quickly. It does require some work still. Setup, verification, testing, and monitoring. But compared to the pre-AI era? It&rsquo;s 99% cheaper to build software.
Anyone with motivation can learn to build with AI. This is a powerful tool for entrepreneurs.
So the entrepreneurial path is actually becoming more viable. But you need motivation and a good idea.
So. Blue-collar, or business owner. These are becoming the most viable paths to success.
Sure, some college grads will find their perfect role and succeed. But over the coming years, the majority of those roles will go to people who excel at using AI agents.
So kids who do choose to pursue the white-collar path today need to be laser-focused on agentic AI. Master it. Because it&rsquo;s here.
Let&rsquo;s address one thing before we close. Optimists tell us that AI will create more jobs than it destroys.
Maybe that will be true. In 15 years, once the economy has had time to adjust.
Until then, we&rsquo;re going to be in transition mode. And transitions of this scale are never easy.

dr-hero-img-10-24-26

Surviving the White Collar Apocalypse

Intel (INTC) is down 31% today as I write this. Brutal.
Not even during the dotcom bust did Intel have a 1-day fall like this.
And to be clear, the stock is still up 60% over the past year. Impressive. But from its June peak, INTC is now down 55%.
Unfortunately, these types of selloffs can indicate there&rsquo;s more downside ahead. Yes, AI stocks might bounce on Monday. But most of them will still be richly priced, and fragile.
We must recognize this could be the beginning of a real crash.
Valuations, as measured by CAPE ratio, are near the peaks of the 2000 dotcom mania. Debt is soaring. Interest rates are rising. And we&rsquo;re starting to hit fundamental limits on data center expansion.
<h2 class="centered subhead" style="text-align: center;">Changing Fundamentals</h2>
The AI boom has been amazing for U.S. tech. Intel was late to join the party, but has done incredibly well over the past 18 months.
The boom has driven strong demand for its data center CPUs.
But AI is driving up prices for computer parts, especially memory. This is spiking hardware costs. So people and businesses are buying fewer PCs and tightening their belts. This is one of the key reasons Intel fell so hard today. They also issued miserable forward guidance.
These types of booms have all sorts of complex effects on the economy. It&rsquo;s very hard to model them all, because as we can see, nearly every Wall Street analyst missed what was happening at Intel.
Bad news: it&rsquo;s not just Intel.
<h2 class="centered subhead" style="text-align: center;">Broader Problems</h2>
The whole AI trade looks shaky. First of all, it&rsquo;s all fueled by unprecedented piles of debt.
And interest rates are rising. That creates an obvious problem for hot AI stocks. They need to raise more debt to complete their projects, but yields are becoming problematic. Coreweave, a leading &ldquo;neocloud&rdquo; which rents GPUs, has seen the yield on some of its debt rise from 9% to 15%. We <a href="https://dailyreckoning.com/post/a-wrench-in-the-data-center-machine">warned</a> about data center stocks back on September 24th.
If interest rates stay elevated, this alone could spoil the party.
Additionally, there are serious questions about whether we have enough electricity to power more data centers. What will happen to GPU sales as we literally run out of juice? Natural gas turbines are backordered 3-5 years. Industrial-scale transformers are in the same boat.
You can see how this sector is more fragile than it appears. Higher interest rates, energy costs, cheap Chinese models, grid fragility, hacking, etc. It&rsquo;s a potential black swan parade.
Despite the selloff, most AI stocks remain priced for flawless execution going forward. Anything less will be punished by markets.
<h2 class="centered subhead" style="text-align: center;">All Fall Down</h2>
We&rsquo;re in crash mode today. Most sectors are down.
Whether it&rsquo;s related to AI or not, it&rsquo;s getting hammered. This is typical in any major selloff.
Gold and silver miners are certainly taking a hit.
We&rsquo;ve seen this movie before. After the dotcom bust began in 2000, the vast majority of the market sold off. Including miners.
<h2 class="centered subhead" style="text-align: center;">From March 10, 2000 to November 14, 2000:</h2>
<ul>
<li>The Nasdaq fell 38%</li>
<li>The HUI Gold Miner index fell 45%</li>
</ul>
Yes, gold miners actually fell MORE than tech stocks in the initial fallout. But from Nov 2000 to Dec 2003, the sector went on an epic run.
Gold stocks rose 614% over those 3 years. An incredible return. And the precious metal bull market lasted up until 2011.
Meanwhile, the post-2000 Nasdaq wouldn&rsquo;t regain its highs for another 16 years.
The &ldquo;good&rdquo; news is that today, the largest gold miner ETF (GDX) is already down 35% from the highs.
Gold, silver, and miners might have a bit further to fall, but I&rsquo;m holding onto my portfolio allocation (about 15% now). If silver gets down to the $45 level, I&rsquo;m a buyer at those levels. $35 and I&rsquo;m beep-beep-beep backing up the truck.
After the smoke clears, and the big print begins, it&rsquo;ll be off to the races for precious metals once again.

dr-hero-img-10-30-26

Crash Mode

Global Crossing. Remember that name?
It was a darling of the dotcom bubble.
Founded in March of 1997, fairly late, the company quickly became a star. It IPO&rsquo;d just 18 months later. That is unbelievably fast for a public offering.
Investors really wanted a piece of this one. And the vision was powerful. Bring fast internet to the world with a huge network of fiber-optic cable.
The investment pitch was tantalizing: we&rsquo;re building the telecom infrastructure of the future.
Investors viewed the company as a toll booth on the internet.
Global Crossing&rsquo;s fiber network soon spanned 27 countries and more than 200 cities. They were indeed connecting the world. Upgrading the people from dial-up to high-speed internet.
In 2001, Global Crossing raised another $1 billion and declared its network was &ldquo;fully funded&rdquo;.
Just 221 days later, the company declared bankruptcy.
The infrastructure Global Crossing built survived, and much is still in use today.
The company&rsquo;s founder, Gary Winnick, managed to sell $700 million worth of stock before the collapse.
Bagholders got $0.
<h2 class="centered subhead" style="text-align: center;">The Breakthrough That Broke Fiber</h2>
At the time Global Crossing was founded, each strand of fiber-optic cable could transmit about 2.5 gigabits of data per second (gps).
By 2000, a breakthrough called DWDM (dense wavelength-division multiplexing) made each cable able to transmit 100 gps.
A 40x increase in fiber throughput capacity. So even though the internet was still growing fast, they built way too much new telecom infrastructure. There was a glut of fiber.
The DWDM efficiency breakthrough played a big role in the dotcom bust.
Could something similar happen today? Of course.
And I believe there will be major breakthroughs which make AI far more efficient, and cheaper. Right now, around the world, there are probably 100,000 of the world&rsquo;s smartest engineers working to hone efficiency and performance on hundreds of AI models.
With so much brain power focused on the problem, I don&rsquo;t think AI will stay as expensive as it is today for long. We&rsquo;re already beginning to see this with the newest Chinese open source AI models, which are perhaps 95% as good as the best American models, but cost 1/10th the price.
Depending on how it shakes out, such a breakthrough could cripple infrastructure companies much like DWDM did to the fiber plays.
And of course, there are also other factors to consider which could threaten the AI boom.
<h2 class="centered subhead" style="text-align: center;">Data Center Stocks Crack</h2>
AI stocks stumbled again today. Hardest hit were data center stocks.
Coreweave (CRWV) is down 9.84% around midday. IREN is down 8.8%. Nebius (NBIS) is down 7.8%. Oracle (ORCL) is down about 4%.
The same concerns we saw in the dotcom are returning to haunt investors.
Too much debt. Not enough revenue.
A week ago Jim Rickards warned readers about data center stocks in the <a href="https://d2z65klgtz99km.cloudfront.net/PPG-App/">Paradigm Press App</a> (available for Android and iPhone).
<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/5BPijuVx3FFZDBJ1lT8U7d/616025f6978cafb72c12481afe11c3d9/dr-img1-10-22-26.jpg" alt="image 1" />
Source: <a href="https://d2z65klgtz99km.cloudfront.net/PPG-App/">Paradigm Press App</a>
Coreweave is indeed the possible canary here. It&rsquo;s the most heavily-indebted and leveraged among the &ldquo;neocloud&rdquo; data center stocks. It essentially buys Nvidia GPUs and rents them out. This is a very popular business model right now, and one that&rsquo;s about to get a ton of new competition over the next year with new facilities going up nationwide.
And that last point Jim raised is important. Rising interest rates.
This is yet another similarity between the dotcom and AI booms. Between June 1999 and May of 2000, Greenspan&rsquo;s Fed raised interest rates 6 times, from 4.75% to 6.5%. He was trying to slow the bubble down, but it just collapsed.
Today we are once again facing rising interest rates and yields. And it could get ugly considering the sheer amount of debt being used to fuel this bubble.
<h2 class="centered subhead" style="text-align: center;">Leveraged to the Hilt</h2>
The AI boom is fueled by debt. Lots of it.
Morgan Stanley says in 2026 alone, companies have raised $466 billion in debt to power the AI buildout.
And there&rsquo;s at least $1.4 trillion in future spending commitments (for example: you build the data center and we&rsquo;ll guarantee a certain amount of rent for 5 years).
There&rsquo;s debt and leverage at every level of the sector. The hyperscalers (like Amazon), the neoclouds (like Coreweave), the landlords, etc.
When something goes wrong, debt amplifies that wrongness. The key risks I see are:
<ul>
<li>Interest rates keep rising</li>
<li>A major efficiency breakthrough lowers AI costs significantly</li>
<li>A flood of new data centers lowers prices and breaks the economics</li>
<li>Chinese open-source models continue to improve and gain market share</li>
</ul>
Of course, it&rsquo;s possible that we&rsquo;re a year or more away from the bubble popping. You never really know with these things. Stocks can often climb the wall of worry longer than a rational person would expect.
But &ldquo;neoclouds&rdquo; and AI data center stocks sure do look risky here. With mountains of debt and locked-in future obligations, these puppies could implode unless everything goes perfectly.
With higher interest rates, not enough electricity, and rising inflation, it&rsquo;s going to be a bumpy road for debt-laden darlings.
Meanwhile, parallels to the dotcom era are becoming unavoidable. We&rsquo;ll continue to seek out investments which will survive and thrive during the bust and beyond.

dr-hero-img-10-22-26

The Ghosts of Bubbles Past

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

dr-hero-img-10-20-26

The Great Silver Debate

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

dr-hero-img-10-19-26

A New Chapter with Russia

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

dr-hero-img-10-15-26

The Future of American Drone Warfare

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

dr-hero-img-10-14-26

My Favorite Forever Stocks

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

dr-hero-img-10-13-26

Settle Down and Marry a Nice Stock

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

dr-hero-img-10-10-26

Earth-Shakers: Trading Big Ideas

In the fall of 1917, there was an outbreak of meningitis among soldiers at Fort Riley, Kansas.
Doctors from the Rockefeller Institute sprung into action. They began an experimental vaccination campaign using 3 strains of meningococci bacteria.
The bacteria was heated to 149 degrees fahrenheit to kill it, while leaving the material intact to trigger an immune response. That was the theory, anyway.
4,792 soldiers started the vaccine series, and 3,702 finished it. There were some nasty side effects, and the dose was halved midway through the trial.
A few months later the first cases of &ldquo;Spanish Flu&rdquo; broke out. Fort Riley, Kansas happened to be ground zero. <a href="https://www.history.com/this-day-in-history/march-4/first-cases-reported-in-deadly-influenza-epidemic">History.com</a>:
<blockquote>
Just before breakfast on the morning of March 4, Private Albert Gitchell of the U.S. Army reports to the hospital at Fort Riley, Kansas, complaining of the cold-like symptoms of sore throat, fever and headache.
Soon after, over 100 of his fellow soldiers had reported similar symptoms, marking what are believed to be the first cases in the historic influenza pandemic of 1918, later known as Spanish flu. The flu would eventually kill 675,000 Americans and an estimated 20 million to 50 million people around the world, proving to be a far deadlier force than even the First World War.
</blockquote>
Some of you may be thinking, &ldquo;but the Spanish Flu was viral, not bacterial&rdquo;. The consensus today is that the vast majority of deaths were caused by secondary bacterial infections. The despicable one, Tony Fauci, even co-authored a <a href="https://pmc.ncbi.nlm.nih.gov/articles/PMC2599911/">paper</a> on it:
<blockquote>
&ldquo;The majority of deaths in the 1918&ndash;1919 influenza pandemic likely resulted directly from secondary bacterial pneumonia.&rdquo;
</blockquote>
Was a bacterial vaccination campaign at ground zero, just before the start of the 1918 pandemic a coincidence? Perhaps.
But there are lots of coincidences out there.
<h2 class="centered subhead" style="text-align: center;">Lyme (Disease), Connecticut</h2>
In the 1950s, the U.S. Army established a biological and chemical research facility on Plum Island, New York.
They studied tick-borne diseases on Plum Island. We know that from government-published papers and articles. We don&rsquo;t know much about exactly what they were doing. But there was classified Cold War biological research happening.
And it just so happens that the disease was first discovered in Lyme, Connecticut. Just 7 miles from Plum Island, as the duck (carrying a tick) flies.
RFK Jr, President Trump&rsquo;s Secretary of Health and Human Services, believes Lyme disease likely came from Plum Island. Here&rsquo;s a transcript from a podcast interview where he discussed it:
<blockquote>
And the idea that this may have been is highly likely to have been a military weapon. And we cannot say 100% for sure.
But we do know that they were experimenting with ticks there and that the ticks, as you show, are an epidemic because of what happened in Plum Island and the other labs.
Deer ticks and other species of ticks, lone star ticks, whatever.
We also know they were experimenting with diseases of the kind, like Lyme disease, at that lab and putting them in ticks and then infecting people, testing them with bird vectors.
</blockquote>
Another coincidence? Kind of like how scientists were tinkering with coronaviruses at the Wuhan Institute for Virology at the time of the outbreak. And how they had multiple lab staff infected with a mysterious flu-like disease in late 2019.
<h2 class="centered subhead" style="text-align: center;">COVID-19 and Beyond</h2>
Unfortunately, reckless biological research was not limited to the 20th century. For example, Covid-19 was certainly an engineered virus. Even the CIA now admits it was likely a lab product.
I won&rsquo;t rehash the whole story here, but it was clear from early in the pandemic that this was a product of a highly sophisticated operation involving American and Chinese scientists. Paid for mostly with American tax dollars, by the way. Courtesy of Fauci and his gang of firefighter-arsonists.
For a while, it looked like Fauci and company would get away with claiming Covid had a &ldquo;natural origin&rdquo;. The Biden admin went to extreme lengths to censor anyone who didn&rsquo;t toe the line on social media. Researchers who didn&rsquo;t play ball got no funding.
This time, the truth managed to wriggle its way out of their slimy grip. But how many times have we been fooled in the past? More than a few.
Yet reckless biological research continues. Madmen around the world are doing ridiculous things like aerosolizing ebola.
They&rsquo;re genetically-engineering viruses to make them able to infect humans. Gain-of-function research to make pathogens more deadly. And now, AI promises to make genetic engineering even easier.
In 2012, scientists in the Netherlands modified H5N1 bird flu to enable airborne transmission between ferrets (mammals, like us). Here&rsquo;s a snippet from the <a href="https://pmc.ncbi.nlm.nih.gov/articles/PMC4810786/?utm_source=chatgpt.com">paper</a> they published:
<blockquote>
To address the concern that the virus could acquire this ability under natural conditions, we genetically modified A/H5N1 virus by site-directed mutagenesis and subsequent serial passage in ferrets. The genetically modified A/H5N1 virus acquired mutations during passage in ferrets, ultimately becoming airborne transmissible in ferrets.
</blockquote>
Creating new strains of pathogens in the name of&hellip; disease prevention?! What are we doing?
This madness has got to stop. HHS Secretary RFK Jr. has made some progress. But he&rsquo;s fighting an uphill battle against the bio-swamp, and there&rsquo;s much more work to be done.

dr-hero-img-10-08-26

Covid and Other Manmade Pandemics

It&rsquo;s rare to see a nation&rsquo;s stock market jump more than 10% in a day.
But that&rsquo;s exactly what happened in Brazil today. The EWZ Brazil ETF popped 13.67% higher.
What happened? Over the weekend, the right-wing presidential candidate won the first round of voting.
Flavio Bolsonaro, son of former president Jair, is now favored to win the runoff on October 25th.
<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/QtmFvN7tWd0Q9WIJtt5ei/a05ad3cebd7cab869ca84b9dfef51837/dr-img1-10-05-26.jpg" alt="image 1" width="540px" />
Former president Jair Bolsonaro, with his son and current candidate Flavio Bolsonaro. Photo credit: AP
Conservatives also made progress in Brazil&rsquo;s Congress.
For those who don&rsquo;t follow Brazilian politics, this is a big deal. Brazil&rsquo;s current president, Lula, is a hard-core socialist. Flavio Bolsonaro, meanwhile, is running on a capitalist and nationalist platform.
Flavio has promised to slash government spending, cut taxes, lower interest rates, eliminate bureaucracy, and improve management at state-owned companies (like Petrobras).
<h2 class="centered subhead" style="text-align: center;">Game of Thrones, Brazil Edition</h2>
Current President Lula and the Bolsonaros are arch-enemies.
Lula was convicted on corruption charges back in 2017, and spent more than a year in jail.
Jair Bolsonaro was stabbed in the abdomen back in 2018. He was charged with attempting a military coup after his 2022 defeat to Lula.
In 2024, Lula was supposedly the target of an assassination plot by the military.
In December 2025, Jair Bolsonaro was sentenced to 27 years in prison for attempting a coup. Jair alleged election fraud by Lula&rsquo;s party (sound familiar?).
Up until recently, it looked like Lula would easily win the upcoming election. But prediction markets are now giving Flavio Bolsonaro an 83% chance to win:
<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/5OlPCBiQKwMERmv3e6Qppv/e152dd16f3fe98b15baf9aa986c8af4c/dr-img2-10-05-26.jpg" alt="image 2" width="540px" />
Source: Kalshi
If Bolsonaro wins, that&rsquo;d be a major bullish catalyst for Brazilian stocks.
Yes, politics in Brazil are&hellip; dramatic. But hey, that&rsquo;s the case everywhere these days.
<h2 class="centered subhead" style="text-align: center;">Still Cheap and Hated</h2>
I&rsquo;ve posted the chart below before, but it is worth reviewing again. It shows how Latin American (LatAm) stocks have performed vs U.S. stocks since 1985.
As this chart rises, LatAm stocks are outperforming. As it falls, America is winning.
<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/6fHjl82lWvtRqr26Y0Pr1a/1b3a7958ca8f4349ed48b9de9d016da2/dr-img3-10-05-26.jpg" alt="image 3" width="540px" />
Source: <a href="https://x.com/TaviCosta/status/2039098582054105480">Tavi Costa</a> of Azuria Capital&nbsp;
For the past 15 years, it&rsquo;s been a massacre. American stocks have stomped everybody else.
But the cycle is turning. As I <a href="https://dailyreckoning.com/viva-brasil-a-3x-in-the-making/">wrote in April</a>, it appears we&rsquo;ve entered a new period of LatAm outperformance.
If it&rsquo;s anything like the last major bull market, this could go on for another 3 years, at minimum.
The chart below, via Morgan Stanley, shows the 2003-2007 LatAm bull market (blue) compared to today&rsquo;s move (red):
<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/3kA3rjYNg3OvurjN04wnTh/8ad15c28286a9e522a707a3f96018dd6/dr-img4-10-05-26.jpg" alt="image 4" width="540px" />
When emerging market stocks run, they really run. And Brazil remains my favorite EM pick. The easiest way to play it is the iShares Brazil ETF (EWZ). There is also a small-cap Brazil ETF worth owning (EWZS).
When we first bought Brazil back in <a href="https://dailyreckoning.com/brazilian-stocks-offer-8-yields-at-8x-earnings/">February 2025</a>, the market was down in the dumps. The index was trading at a P/E of just 8. The dividend yield was around 8%.
Socialist President Lula was firmly in charge. Investors had lost all faith in the country. But now things are looking up. Political change, a shift in investor sentiment, and valuations are still dirt cheap.
Brazilian large cap stocks trade at a trailing P/E of just 9.9. The forward P/E is 8.6. The dividend yield on EWZ is 5.5%, with room to move up.
With Brazilian stocks today, you get a dividend yield 5.5x higher than the S&amp;P 500. When we first bought in early 2025, the yield was almost 8x higher. The premium attached to U.S. markets today remains at silly levels.
Eventually, of course, there will come a time to lighten up on Brazil and other emerging markets. But my guess is we&rsquo;re at least 3 years away from that point, and hopefully much longer.
This EM outperformance cycle is just beginning. And Brazil still looks to be the best horse to bet on.

dr-hero-img-10-05-26

MBGA: Make Brazil Great Again

Over the past 4 years, the world has slowly woken up.
Investors have finally recognized just how unsustainable the debt situation is.
Governments have piled up IOUs steadily since the 1980s. But for a long time, it didn&rsquo;t seem to matter.
Mainstream economists told us it wasn&rsquo;t a big deal.
Nobel Prize-winning economist Paul Krugman is a prime offender here. The New York Times columnist has argued the following:
<ul>
<li>&ldquo;No, debt does not mean that we&rsquo;re stealing from future generations.&rdquo; Feb 2015</li>
<li>&ldquo;Large-scale deficit spending isn&rsquo;t just OK, it&rsquo;s the only responsible thing to do.&rdquo; Oct 2020</li>
<li>&ldquo;That is, to act responsibly, we must stop worrying and learn to love debt.&rdquo; Dec 2020</li>
<li>&ldquo;We weren&rsquo;t and aren&rsquo;t anywhere close to that kind of crisis and probably never will be.&rdquo; Dec 2020</li>
</ul>
Over the years he has ranted and raved about how debt is just money we owe to ourselves. It&rsquo;s no big deal!
<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/3USM4pgpH2Prpo6KvWscWp/82efc684926fdbabfba95ee33638a52f/dr-img1-10-02-26.jpg" alt="image 1" width="400px" />
This is the wisdom of the most influential economist in America.
Krugman seems to have assumed we&rsquo;d have low interest rates forever. Now that rates are soaring, he&rsquo;s changing his tune a bit.
But still, he <a href="https://paulkrugman.substack.com/p/what-are-bond-markets-telling-us?utm_source=chatgpt.com">assures</a> us there&rsquo;s no chance of a serious debt crisis, because we can always just print money to pay it off. That&rsquo;s reassuring&hellip;
<blockquote>
&ldquo;The truth is that even fiscally irresponsible nations very rarely have acute debt crises unless they borrow large amounts in foreign currency, because countries that borrow in their own currency can&rsquo;t literally run out of money &mdash; they can print more as needed.&rdquo;
</blockquote>
If a nation&rsquo;s debt causes it to print gobs of money, which results in problematic inflation, I&rsquo;d call that a debt crisis.
In fact, I would argue that no matter what we do, a sustained period of high inflation is unavoidable.
<h2 class="centered subhead" style="text-align: center;">The High Rate Path</h2>
The U.S. basically has two paths in front of it. One where interest rates stay high.
Peter Schiff recently <a href="https://x.com/PeterSchiff/status/2105652735165022417">summed</a> up the first option nicely:
<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/6pJjQYlDC7jJd3FF7NJTG9/59dd58b1b90eb54549bd92a7d1f5d2fe/dr-img2-10-02-26.jpg" alt="image 2" width="540px" />
If rates stay high, the debt will rapidly snowball to $50 then $100 trillion. Peter&rsquo;s post got me curious, so I had an AI agent run the numbers. Here&rsquo;s what we have, assuming the fed funds rate rises to 8% and stays there:
<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/1yNU8x1LTH4RitVlw40A2P/5433eb76e48ec5b273a02de0b664b1b3/dr-img3-10-02-26.jpg" alt="image 3" width="540px" />
So by 2036, total federal debt would rise to $89 trillion, from $40 trillion today.
Paying the interest on that debt would cost $6.2 trillion. That&rsquo;s more than the federal government&rsquo;s total revenue (taxes etc) in 2026, which will be around $5.8 trillion.
All that money would have to be printed.
If you extend the high-rate simulation to 2046, debt would reach a shocking $240 trillion.
And by the way, this projection uses government spending and revenue estimates (CBO). Those numbers are always too optimistic.
<h2 class="centered subhead" style="text-align: center;">The Low Rate Path</h2>
The other path is where the Fed and Treasury work together to get rates back down to near zero.
We had this for almost 10 of the past 20 years. After the housing crash of 2008, and during Covid. And I believe we will return to it.
I ran the same projection using AI, but it assumes the Fed drops interest rates to 1%, and they stay there for 10 years.
<img class="aligncenter" src="https://images.ctfassets.net/vha3zb1lo47k/6ddxK9mbEqECbtvCaYO1D1/521521aca3b0d529e646331275d43677/dr-img4-10-02-26.jpg" alt="image 4" width="540px" />
In the low-rate scenario, debt &ldquo;only&rdquo; rises to $61 trillion, rather than $89 trillion. Interest costs would be a more affordable $1.3 trillion, rather than $6.2 trillion in the higher-rate world.
The difference between the high and low-rate scenarios would grow exponentially over time.
This is the choice facing our central bank and politicians. Technically, the Fed isn&rsquo;t supposed to concern itself with debt. Its mandate is to maximize employment, and minimize inflation.
But in the real world, they absolutely have to take debt into account. The tables above show why. The Fed certainly did during the <a href="https://dailyreckoning.com/gold-smells-a-rat/">financial repression of the 1940s</a>. That was yield curve control, and I believe we&rsquo;ll see it again.
<h2 class="centered subhead" style="text-align: center;">Real World</h2>
These projections are simplified. They don&rsquo;t account for inflation and a whole lot of other stuff.
But the exercise is worthwhile because it shows just how bad our debt will become if interest rates stay high. In fact, over the long run, inflation may be worse on the high-rate path. The debt snowballs.
We need lower rates. The country can&rsquo;t even afford these &ldquo;normal&rdquo; interest rates. Corporations, people, or governments. We all have too much debt.
Of course, we technically could stay on the high rate path. But we&rsquo;d have to cut government spending by 40%, raise taxes, and stamp out all the corruption. There&rsquo;d be a wave of corporate and personal bankruptcies within a few years, as refinancing at higher rates breaks the math.
It&rsquo;s not realistic. At least not yet.
Of course, artificially low rates have downsides too. Asset price bubbles, savers get robbed, and higher inflation. There&rsquo;s a reason they call it financial repression.
But it&rsquo;s more palatable than the alternative.
So I continue to believe that they&rsquo;ll force interest rates back down towards zero within the next year or two. Even as inflation remains too high. It&rsquo;s the path of least resistance.
It&rsquo;s an extreme step, yield curve control. So it might take a painful catalyst to get us there. But I have no doubt it is the destination.
This is why we spend so much time talking about hard assets, inflation hedges, and monetary policy.
Owning them is going to be key to thriving during the next decade.

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All Roads Lead to Inflation

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Articles by Adam Sharp