California is a beautiful state blessed with rich natural resources and a booming tech industry.

It’s a shame they have the dumbest politicians.

In November, the Golden State will vote on a wealth tax.

It would be a “one time” tax of 5% on total billionaire wealth. Not on capital gains, mind you. A tax on net worth. This is a dangerous concept, as we’ll explore today.

Fleeing Billionaires

Thanks to the tech boom, California has (had) plenty of billionaires. But they are rapidly fleeing the state.

The California Tax Foundation estimates that $777 billion of wealth has already left. And that’s only publicly-announced departures.

Among the high-profile names who are leaving or have already left California are:

• Google co-founders Larry Page and Sergey Brin
• Oracle founder Larry Ellison
• Tesla and SpaceX founder Elon Musk
• Uber founder Travis Kalanick
• Billionaire investor David Sacks

Those are just some of the high-profile, wealthy entrepreneurs and investors leaving the state.

Over time, it would cost the state far more in lost revenue than is gained. These billionaires pay tens of millions annually in taxes, invest in local companies, and support massive numbers of high-paying jobs.

But it may happen anyway. Bettors on Polymarket give the wealth tax a 45% chance of passing. That’s up 23% from late last year.

All so billionaires will finally “pay their fair share”. But in the U.S., the top 10% of earners already pay 77% of income tax.

Source: Visual Capitalist

If this bill passes, it will undoubtedly accelerate the financial disaster in California.

And whenever the next recession hits, the “one time” wealth tax would certainly be extended to more people. “First they came for the billionaires, and I did nothing because I wasn’t a…”

The once-golden state is tarnishing and it’s sad to see. Crime is rampant in big cities due to Soros-funded District Attorneys letting perps off the hook for serious crimes. Homeless people get big benefits so they flock to the promised land.

Additionally, as Byron King highlighted this week, California has already closed most of its oil refineries and limited drilling. Diesel fuel is pushing $8 a gallon. And California’s reckless spending has blown a huge hole in the state’s budget.

A wealth tax would be the nail in the coffin.

Chase the Money Out

In 2000, France instituted a wealth tax. Every year, millionaires had to pay up to 1.5% of their net worth. And that was in addition to a 75% top income tax rate!

Needless to say, it was a disaster. At least 42,000 millionaires fled the country. They left for Switzerland, the U.K., and elsewhere.

Tax revenue fell. Entrepreneurs picked up shop and brought their businesses elsewhere.

Why do you think we don’t see many big companies come out of France these days? Because they’re taxed beyond belief, and they’ve chased all the business people out.

In 2017, France finally admitted defeat and killed the wealth tax. But the damage was already done. And tax rates remain ridiculously high, crushing entrepreneurs and growth.

Don’t Give Them an Inch

In 1939 only about 5% of Americans were subject to federal income tax.

By 1945, more than 60% were paying Uncle Sam a portion of their income.

This is how it works. Taxes rise to pay for some emergency, and don’t go down after it’s over.

Before you know it, civil servants are making $200k+ a year. Hiring gets out of control.

The story is playing out across the country.

But it’s particularly bad in deep blue states.

State Matters More Than Ever

Here in Maryland we have some of the highest taxes in the country. And they’re set to rise even more.

Over the past few years, two of my close friends have left for greener pastures in Florida and Texas. One is a surgeon, the other a CPA.

Once our kids are out of school, my wife and I will probably leave too. Paying state income on top of federal, sales, capital gains, and other taxes is beyond absurd. It would be one thing if we were getting amazing benefits from these sky-high levies.

But we’re not. The roads are full of potholes. Corruption runs deep at every level. We constantly have to fight against being re-districted out of our top school system.

The future of high-tax states looks bleak. With underfunded pensions, high debt, and soaring costs, it’s going to get worse.

Eventually we will see a painful reckoning at both federal and state levels. Spending will need to be slashed. Headcount deeply cut. Pension benefits and healthcare, unfortunately, also may need to be cut.

There’s no getting around it.

When that reckoning hits, it’ll be best to be in a fiscally-responsible, low-tax state. It’s unfortunate, but that’s where we’re at.

The post Tax the Rich, Watch Them Leave appeared first on Daily Reckoning.

“You know who’s buried in Grant’s Tomb?” asked Philosopher-Truck Driver John Ring, many moons ago.

After a long and considered think, I replied, “I dunno. Who, Pop?”

“GRANT!”

My father got me with that at least 10 times before I figured it out.

Those were the good old days, when my father, mother, and I would take a ride up River Road, along the Jersey side of the Hudson River. I’d stare in awe at the most majestic skyline in the world, lucky to have seen it before the Hudson Yards developers destroyed the view.

When we’d get to Edgewater, we’d see the tower of the Riverside Church, which sits to the southeast of the General Grant National Memorial, or, as it’s more commonly known, Grant’s Tomb.

And then, the inevitable exchange would occur.

I’m not sure why, but I’ve always preferred the Revolutionary War to the Civil War. I stand in awe of Civil War buffs. And now, after living in England for a decade, my reading of America is slightly more nuanced than a red-blooded, dyed-in-the-wool Yankee or Rebel.

And yet, when Grant’s name came up on Tuesday, on what would have been his 204th birthday, I wanted to find out more.

And since the man deserves far better than I could give him, I thought I’d merely write about 3 things that make him an outstanding American, in the hopes that you’d be curious to explore this patriot in your free time.

So who was this man?

Most folks remember Ulysses S. Grant for one or two things.

He beat Robert E. Lee. And his presidency had some scandals.

That’s it. That’s the whole picture for the average American.

And that’s a damn shame… for the average American.

The truth is, Grant was one of the most remarkable men this country ever produced. A brilliant strategist. A fearless defender of Black rights when it cost him everything. And a dying man who wrote one of the finest books in American history.

It’s time to show you why this quiet Ohioan deserves a spot on your hero list.

The General Who Outsmarted Everyone

Forget the “butcher” myth. Grant didn’t just throw men at the enemy.

His 1863 Vicksburg Campaign was a work of art.

The city sat on bluffs over the Mississippi River. Confederate guns made a head-on attack suicide. Every Union general before Grant had failed to take it.

So Grant did something nobody expected.

He marched his army down the wrong side of the river. He cut his own supply lines. He crossed the Mississippi south of the city. Then he turned inland and crushed multiple rebel armies one by one before they could join up.

He fought five battles in seventeen days. He won them all.

Then he laid siege to Vicksburg. The city fell on July 4, 1863.

This wasn’t just a battle won. Grant split the Confederacy into two. He gave the Union total control of the Mississippi. The South was cut in half and bleeding.

Grant had proven an army could live off the land and move like lightning.

He was a chess master with mud on his boots.

The President Who Crushed the Klan

Quick question: Which American president was toughest on the Ku Klux Klan?

U.S. Grant, that’s who.

After the Civil War, white supremacist gangs spread across the South. They were ugly racists and political terrorists. Their goal was simple: stop Black Americans from voting and kill anyone who tried to help them.

Most Northern politicians wanted to look the other way. The war was over. People were tired.

Grant refused.

He knew the real fight didn’t end at Appomattox. It just shifted from battlefields to ballot boxes.

So he acted.

He pushed Congress to pass the Enforcement Acts. These laws gave the federal government real power to go after the Klan. He sent federal troops to protect Black voters in the South. He created the Department of Justice in 1870 to prosecute civil rights crimes.

Then he used it.

Federal marshals arrested hundreds of Klansmen. Federal courts convicted them. In parts of South Carolina, Klan violence dropped sharply almost overnight.

This wasn’t easy. It was wildly unpopular up North. Newspapers attacked him. His own party got nervous. But Grant didn’t care.

He had freed men in his army. He had promised them their rights. And that was that.

The “Lost Cause” myth would later paint Reconstruction as a disaster. That’s propaganda. The real disaster was what happened after Grant left office, when the federal government walked away.

For a brief, shining moment, Black Americans had a president who had their back.

The Dying Man Who Wrote a Masterpiece

Grant’s last act might be the most heroic of all.

After his presidency, he got swindled. A business partner cheated him blind. Grant lost everything. He was broke and humiliated.

Then came worse news. Throat cancer. Terminal.

He had no money to leave his wife and children. He was facing a slow, painful death.

So he made a choice. He picked up a pen.

His great friend Mark Twain offered him a publishing deal with an unheard-of 70% royalty on his memoirs. Grant took it. Not for glory. For his family.

He wrote in agony. The cancer made speaking nearly impossible. He took just enough painkillers to keep going, never enough to dull his mind. Some days, he could only manage a few pages.

He finished the manuscript. Just four days later, he died.

Critics still rank Grant’s Personal Memoirs among the greatest books ever written by an American.

Nearly every critic who’s commented on it claims it’s clear, modest, and honest. Grant praises his enemies. He admits his mistakes. He tells the truth about a brutal war in plain American English. It’s now on my reading list.

Grant’s final, Herculean effort paid off. The book sold like wildfire. Grant’s widow eventually received about $450,000 in royalties (equivalent to over $16,000,000 in today’s money). His family was saved.

A dying man, broke and in pain, sat down and wrote a classic to take care of the people he loved. If that’s not heroism, nothing is.

Wrap Up

Strip away the myths. What’s left?

Grant was a general who outthought every rebel he faced. He was a president who wielded federal power to protect Black lives when nobody else would. But perhaps he should be remembered as a family man who turned his last breaths into a legacy.

That’s Ulysses S. Grant.

That’s a great American.

The post The Quiet American Giant appeared first on Daily Reckoning.

In March 2026, the U.S. Department of Energy (DOE) announced it will invest $1.9 billion to accelerate improvements to the nation’s electrical grid. Of course, this program has a stupid acronym: “Speed to Power through Accelerated Reconductoring and other Key Advanced Transmission Technology Upgrades” (SPARK).

What’s important about SPARK is that it will accelerate the purchase of electrical components made in the U.S. from metals like aluminum, steel, and copper. The DOE will announce the recipients of the money at the end of May this year.

To add to the urgency, the White House announced an executive order that marks America’s electric infrastructure as critical to national defense under the Defense Production Act:

The President has issued a determination under Section 303 of the Defense Production Act finding that grid infrastructure –including transformers, transmission lines, substations, high-voltage circuit breakers, power electronics, protective relay systems, capacitor banks, electrical core steel, and related manufacturing equipment – is essential to national defense. The determination finds that domestic industry cannot timely provide these capabilities due to limited domestic production capacity, extended procurement timelines, foreign supply dependence, and insufficient capital investment.

I fully agree with this determination. The American Society of Civil Engineers (ASCE) publishes its Report Card for America’s Infrastructure every few years. In 2021, the ASCE gave the electric grid a C-. In 2025, that grade fell to a D+.

The reason for the lower score is that the demand for electricity rose to a 20-year high thanks to the growth of data centers. As of the publication of that report, a single data center required the same amount of power as about 80,000 homes. That figure is going up every month.

The cost of upgrading America’s massive electrical grid is enormous. The ASCE put a $578 billion gap between what will be spent on maintenance and what needs to be spent on upgrades. There’s only so many bandaids you can put on failing systems. At some point you need to tear it down and fix it. That’s why SPARK and the new executive order are so critical. Right now, the aging grid can’t meet demand. And the electricity costs for average Americans are soaring.

This is another tailwind to our critical metals investment thesis. The U.S. cannot make these upgrades without buying metals. Lots of them. And the focus on domestic supply means our miners will get that money.

The money spent on the grid will find its way to copper miners through higher domestic copper prices. Another metal that is already soaring is aluminum. And that is a trend we really should be in as well…

The Power Grid Metal

The best aluminum play right now, the one every investor should own, is the giant miner Alcoa (NYSE: AA). It’s already responding to the higher prices, and it’s a great idea to own it in your personal portfolio.

While electric motors must have copper, transmission lines are primarily made of aluminum… and they are old.

According to David Roberts’ blog Volts (one of my favorite reads), power line design dates back to the early 1900s. The “modern” design used by the U.S. today comes from the 1970s. Roberts’ argument (supported by industry experts) is that simply replacing the old lines and conductors with new technology could double the capacity of the existing grid.

We don’t have anywhere near enough aluminum supply.

According to the Aluminum Association, the U.S. needs about five new 750,000-metricton primary smelters to “fully meet current metal needs”. They estimate that the U.S. needs roughly 3.75 million metric tons per year to meet new demand for aluminum. The U.S. currently consumes about 5 million metric tons per year, across all sectors. That includes construction and packaging.

Once again, we’ll be following this trend as a critical investment area.

There are a lot of tailwinds for critical metals. But sometimes the most boring metals (like aluminum) can surprise you with outstanding returns.

The post Grid Emergency = Bullish for Aluminum appeared first on Daily Reckoning.

In the past year, software stocks have gotten crushed while semiconductors soared.

In the chart below, we can see that semiconductor stocks (blue) are walloping software (red) in 2026.

Source: Opening Bell Daily

Software stocks include companies like Microsoft (MSFT), Adobe (ADBE), and Figma (FIG). Fears over AI disruption, combined with silly-high valuations, have caused investors to flee the sector.

Meanwhile, all the money is being made in semiconductors (microchips). Companies like Nvidia (NVDA), AMD (AMD), Intel (INTC), Qualcomm (QCOM), are absolutely crushing it.

Semiconductor firms have been the prime beneficiaries of the AI boom. They are the ones selling picks and shovels in this gold rush.

The hottest semi stock lately is Intel (INTC). It has now risen from an August 2025 low of $19 to its current price of $83.54. For decades, the company was a dog. But ever since the U.S. government invested in the company back in August of 2025, it’s been on a record-breaking run.

After such incredible performance, semiconductor stocks are getting extremely expensive. Take a look at the chart below, which shows the SOX semiconductor index’s P/E ratio (blue, left side) and price/book ratio (white, right side).

Source: Bloomberg

As you can see, semiconductor companies on average are trading at a 60 P/E. And a price/book ratio of 10.

Here’s an easy way to think about P/E ratios. At a P/E of 60, if earnings stayed the same, it would take 60 years for semiconductor stocks to generate profits equal to their market value. That’s a long time. Justifying that valuation means counting on decades of high growth ahead. Could it happen? I suppose anything is possible.

But those are some very bubbly numbers. Reminiscent of the dotcom bubble. Below is a chart comparing the weight of semiconductor stocks over the past 50+ years.

As you can see, chip companies currently make up around 14% of the total stock market value. That’s double what they peaked at in 2000.

Semiconductor stocks look highly overbought at this stage. They’re now more than 40% above the 200-day moving average.

In 2000, it briefly got over 100% of its 200-day moving average. So I suppose we could still have further to go.

But historically, these types of moves end the same way. In a crash.

In 2000, Intel shares reached $75. By 2002, the stock had fallen to a low of around $12. An 83% collapse. Intel just recently surpassed its 2000 peak, 26 years later.

So if you’ve got a lot of exposure to semiconductor stocks, like Nvidia, Intel, or Qualcomm, now might be a good time to take some profits. Honestly, Nvidia looks like the cheapest of the bunch. But still, when this bubble pops, it’ll undoubtedly take a big hit.

I’m confident we’ll get a better chance to buy semiconductor/chip stocks sometime in the next 3 years.

Yes, AI is going to play a big role in the future of tech. And that will require a lot of semiconductors. But AI efficiency is improving by leaps and bounds, and eventually chip production will catch up with demand.

And the bubble will pop. Be sure to take some profits before that happens.

The post The Semiconductor Bubble Goes Nuclear appeared first on Daily Reckoning.

Do you remember the song, California Dreamin’? If you’re of a certain age, it was a hit in the 1960s by a group called The Mamas & The Papas.

The music and lyrics were what was called “California sound.” It was an ode to the West Coast counterculture of the era. Basically, the song was about someone who moved away from sunny Los Angeles and missed the great vibes of the Golden State.

I mention this item of Americana only because right now, California is in deep trouble. And it’s no dream, I assure you. Indeed, we’re looking straight down the barrel of a California nightmare.

California Nightmare of fuel shortages. Courtesy ChatGPT.

Here’s the bottom line: California has maybe six weeks before disaster strikes. By mid-June life as we know it out there will be in turmoil. No doubt – and I’ll lay it out below – California’s looming problems will cross state lines into Nevada and Arizona as well, to make the usual hot summer out West even hotter. And the effects will ripple east, all across the U.S.

Let’s dig in…

A West Coast “Energy Island”

Sure, California has many problems: budget problems, homelessness, water shortages, migration, crime, deteriorating roads, declining schools… But one problem dwarfs all else. It’s immediate, as in the old saying that “the wolf is at the door.”

Right now, meaning today and as you read this, California is running out of gas. Specifically, the state is burning down its gasoline, diesel fuel, jet fuel and a host of other refined petroleum products. The tanks are going dry. We’re looking at true shortages within a matter of weeks.

California fuel shortages in 1974. Courtesy LA Times.

Why? It’s a self-inflicted wound. That is, over many decades, California has created an energy mess for itself. A long list of magical-thinking, energy-challenged, feel-good politicians and bureaucrats have left their fingerprints at the scene of this crime. But for now, let’s avoid naming names and just focus on the problem.

Begin with a broad look at the U.S. pipeline system that moves oil, gas and refined products. This map below shows just some of the oil and refined product lines that crisscross the U.S.

Major U.S. oil & gas pipelines. Courtesy US Dept. of Energy.

To be clear, it’s difficult to obtain comprehensive maps of U.S. pipelines and related systems because exact details add up to critical national infrastructure. And federal, state and local governments want to keep things like this under wraps, and not make life too easy for potential saboteurs or criminals. It’s totally understandable.

Still, the map above is revealing, certainly with respect to California. Notice how few pipelines go into or out of the state. While in contrast, much of the U.S. Midcontinent and East is well-served by pipelines.

California only has a few lines that enter the state at the north and south. One reason is just plain geography. From down south at the Arizona border, and northward to Oregon, eastern California follows the Sierra Nevada Mountains, and no one has ever tackled that engineering challenge by laying pipe. It’s not worth the trouble or investment.

Up north a few pipelines cross from mountainous regions of Oregon and Nevada, with the same engineering challenges for oil or refined product movement from Midcontinent. It’s tough.

In southern California, a few lines cross from/into Arizona, itself a mountainous and challenging place to build anything; but yes, there’s at least there’s some connectivity at a relatively small scale to Texas.

The point is that California is what’s called an “energy island.” Sure, it’s a big state connected to the North American continent. But it’s isolated from the rest of the U.S. oil, gas and refined product infrastructure.

California, the Former Energy Powerhouse

This last point raises the question of how California prospered so mightily over the past 150 years or so, if it’s not connected into a national-scale energy system of pipelines for oil and refined products.

The answer is that California has long been an energy powerhouse in its own right.

In fact, oil production in California dates to the late 1860s, and the arrival of oil prospectors and drillers from back East, post-Civil War. California’s first big, home-grown oil company was the old Union 76 brand (from 1876, the U.S. Centennial), which is now part of Chevron (CVX).

And Chevron is the former Standard Oil Company of California, spun out from John D. Rockefeller’s Standard Oil Trust in the early 1900s. Indeed, this West Coast part of the Standard Oil family was so important that President Theodore Roosevelt’s trust-busters allowed it to operate independently, to serve the fast-growing California economy.

There’s plenty more history and geology regarding California oil, which I’ll skip except to say that the state has long been a prolific oil producer. The place has petroleum-bearing rocks, plus oilfields, well systems, pipeline gathering complexes, and of course associated refineries.

Indeed, until the early 2000s California produced most of its own oil, supplemented by output from Alaska and an occasional tanker from abroad. But not anymore, as you can see from this graph of oil supply published by the California Energy Commission.

Oil supply to California refineries. Courtesy California Energy Commission.

As this image shows, California has steadily used less and less self-produced oil, with less oil available from Alaska. And the difference has been imported oil, much of it from the Middle East; that is, for many years tankers from the Persian Gulf have been making an almost 90-day voyage across the Indian and Pacific Oceans to unload oil at California terminals.

But since February 28, 2026, and the start of the Iran conflict, no tankers have left the Gulf bound for California. And the few tankers that remain on the high seas – those late February sailings – will soon dock, unload, and then there’s nothing else coming in. Very soon, the view from California’s oil unloading terminals will be just big, blue, empty Pacific Ocean.

So, are you beginning to sense why California is about to experience an energy nightmare?

Lack of Refineries and Fuel

Then again, California’s energy problems are not really due to the Iran conflict. Many issues are purely internal. Just consider how, over the past quarter century, California has taxed, litigated and regulated primary oil exploration and production down to bare bones, despite significant hydrocarbon potential in the state.

This makes for another long story, but in essence California has many still-prospective areas for oil, both traditional production and fracking, let alone offshore. But state politics and environmentalism have shut it in. The state’s problem is politics and culture, not geology.

And then there’s the California refinery story, another key element of the state’s looming energy disaster. That is, in the 1980s California hosted 42 oil refineries and produced almost all of the liquid fuels and related products that the state consumed. The above-noted energy island was self-sufficient.

Today, however, California hosts a mere 7 refineries, with two of them devoted to recycling garbage (i.e., materials like used cooking oil) into so-called “biodiesel.” And for many reasons, those biodiesel plants are unprofitable, only kept alive by state subsidies and tax credits.

As for the dozens of closed refineries, the story is a typical California tale: environmental regs, taxes, litigation, punitive business climate, etc. Indeed, in recent years Chevron, Conoco Phillips (COP), and Valero (VLO) have closed and written off major refinery investments in California; it’s impossible for them to do business.

In fact, California state policy is blatantly anti-oil: to go total “net-zero” by the mid-2030s, which means that regulators want to close down all remaining refineries, and somehow California will run on batteries, and so-called “renewable” power and charging. It’s Green New Scam lunacy, some might say; but that’s what you have out there.

Meanwhile, the current refinery and fuel segment of California’s GDP is about 8%. To which, again, some might wonder how the other 92% will get along without gasoline, diesel, jet fuel, etc. But policymakers and regulators live in their own world, where such doubts are forbidden.

Of the five remaining oil refineries in California, the total output is about 40-50% of total fuel usage in the state, depending on whether it’s gasoline, diesel, or jet fuel. And that’s not enough to run things, so the difference is made up of imports via tankers.

For example, about 40% of California’s jet fuel comes from South Korea; 20% of gasoline recently arrived from Indian refineries; and a new source of gasoline and diesel, of as-yet-unknown percentage, is from… yes… Russia.

But not so fast, Grasshoppers… Because India and South Korea refine fuels from petroleum that also sailed (past tense) out of the Gulf on tankers, and obviously these nations have their own issues now. Hence, neither of these nations are currently exporting fuel to California, nor will they do so anytime soon. And Russian sourcing is problematic, also for obvious reasons.

High Prices, Shortages, Rationing

California has long been burdened with relatively high fuel prices, certainly versus the price back East. And right now, prices out there are going through the roof. For example, gasoline in SoCal is in the range of $6 per gallon and more; while diesel fuel in California is up around $8 per gallon, with some stations up at $10.

Much of the California fuel price is legacy regulation. That is, high prices trace back to massive environmental regs, especially from an entity called the California Air Resources Board (CARB). The idea is “clean air,” right? Although CARB jurisdiction doesn’t extend to, say, polluting refineries in India or South Korea, let alone to oil-burning tankers that traverse entire oceans.

Then again, CARB or no-CARB, California’s problem right now is insufficient state oil production or refinery capacity, and fast-dwindling imports via tankers.

So, what happens over the next month? Well… Stand by for the Nightmare.

We’ll see an unfolding energy disaster as California fuel stocks drain down, with not enough replacement fuel from state refineries, let alone imports from distant sources.

And note that California refineries and tank farms supply Nevada and much of Arizona, which means that these two states are about to get walloped by fuel price increases and shortages as well.

Here’s a summary of California’s energy predicament:

• Not enough in-state oil production.
• Loss of oil imports from the Middle East.
• Not enough refinery capacity.
• Loss of refined products from South Korea, India and other pre-Iran sources.
• Looming shortages of gasoline, diesel, jet fuel and related refined products.
• High and higher fuel prices are a given; the next issue will be physical availability.
• Military will get first call for fuel; that’s just the way it works.
• Look for fuel shortages and non-availability; even gas lines and rationing.
• Diesel shortages will affect agriculture and trucking, key parts of the California economy.
• Agricultural and trucking problems may lead to food distribution issues.
• Other trucking problems will affect cargo from California import terminals like Los Angeles and Long Beach.
• Freight rail and commercial air travel will also be affected, with likely serious ripple effects across the entire U.S. economy.

Wrap-Up

California is beyond an energy mess. We’re not California Dreamin’ here; no, it’s a real Nightmare.

On the “plus” side, last week the Trump administration applied the Defense Production Act (DPA) to domestic oil and gas development. This means that the federal government can begin to make energy policy from a national security perspective. In essence, the Departments of War and Energy can exercise wartime-level control over oil production, refining, imports and distribution.

DPA is not “nationalization” of oil or refining, etc. But it is an effective way to put California’s disastrous regulators on the bench – especially CARB – so that they can do no further harm to the overall energy situation. And harm they have done…

Where does it go from here? Well, California’s Energy Nightmare will become a dynamic situation. Fuel shortages, gas lines, high prices, and ripple effects across America. So, prepare as best you can. It’ll be a long, hot summer…

And we’ll have more for you as it all unfolds. But that’s all for now.

Thank you for subscribing and reading.

The post California Nightmare: A Looming Energy Disaster appeared first on Daily Reckoning.

COVID is a time many of us would like to forget.

But there are lessons buried in this chapter of history. Ones that are surprisingly relevant today.

Let’s explore how stocks reacted to the pandemic, and see what we can apply to today.

The Beginning

On January 23, 2020, China completely locked down the city of Wuhan, home to 11 million people.

Wuhan was where the virus originated. And with hindsight, we can see this lockdown was a sign of things to come.

Take a look at the chart below. It shows the S&P 500 performance from Dec 31st 2019 to March 22nd 2020. The dawn of the pandemic.

Source: Yahoo Finance

Throughout the early part of 2020, COVID-19 was widely known. But it was thought to be a Chinese problem. We shut down most flights from China, and investors considered the problem solved.

The selloff in U.S. stocks didn’t begin until February 20. Interestingly, the market peaked just one day before stocks began to crash.

What was the catalyst for the market collapse? COVID cases soared in Italy, Iran, South Korea, and elsewhere. The market began to realize that this virus was going to cause problems on a global scale.

Here’s a longer-term chart, which shows just how sudden and violent the COVID crash was.

Source: Wolfstreet.com

About a third of the S&P 500’s market cap was wiped out in a month. It was one of the most brutal selloffs in history.

Of course, the recovery was also remarkably fast. The Federal Reserve slashed interest rates to zero in record time. The U.S. government gave out trillions of dollars in PPP loans. Stimulus checks went out.

The S&P 500 had fully recovered within 4 months. And it went on to continue to set new all-time highs, despite the lockdowns causing massive economic damage.

We entered a period of wild speculation which led to meme stocks, a crypto revival, and an explosion in the popularity of gambling.

COVID Learnings

So, what lessons can we take away from COVID?

The first is that it can take a while for markets to digest things. China locked down the entire city of Wuhan on January 23rd. It should have been clear from that point that this virus was going global. But it would be another month before stocks began to fall.

Secondly, governments can make a bad situation worse. The COVID lockdowns had limited effectiveness. 97% of people ended up getting the virus anyway. Gobs of money printing cushioned the shutdowns, but also spiked our debt and caused the highest inflation we’ve seen in decades.

Third, modern stock markets are psychotic. Despite the fact that the entire world was shut down for more than a year, stocks repeatedly soared to all-time highs. We’re in an extended mania period.

Below is a longer-term chart, covering the COVID period to today. Note how the pandemic crash looks like a tiny little dip in the rear view mirror.

One interesting note is that in 2022, markets crashed again, with the Nasdaq falling around 36%. But then ChatGPT came along, spawned the AI bubble, and today we’re even higher.

My feeling today is that we should not attempt to fight this market by being overly bearish. I have a few hedges (long-dated puts) in my portfolio, but as I’ve said, they are a very small allocation (around 1%). I view small hedges like this as an insurance policy. If they’re ever needed, it’ll be much appreciated.

But still, this market is clearly irrational. Trying to time its downfall is tricky. So having too much downside protection is risky.

The bulk of my preparation isn’t puts and shorts. Over the past few years I have significantly reduced my exposure to most American stocks, which remain at nosebleed valuations. In crashes, more expensive stocks tend to fall a lot more.

In this environment, I much prefer natural resources, emerging markets, and precious metals. Hard assets that will hold value through inflation and market chaos.

If we do get a crash, these assets should fall a lot less. And the upside remains strong.

2026: Energy Crisis Edition

Today feels a bit like the early weeks of COVID.

Everyone knows there’s a potentially massive disaster a few months out. But the market is partying like it’s 1999.

The Strait of Hormuz remains closed. The war with Iran could restart at any time.

We know the energy shock will hit Asia and Europe first. They import a huge portion of their energy from the Middle East, and the bulk goes through the Hormuz.

Americans assume we’re bulletproof because we produce our own energy. This simply isn’t true. Higher fuel prices are already hitting American consumers hard.

And in today’s globalized world, everything is interconnected. Fertilizer plants in the Middle East and Asia are shutting down due to a lack of feedstock. As are plastics plants. This WILL affect us.

The world economy is teetering. And stocks are soaring to new highs. Meanwhile U.S. consumer sentiment just hit a new all-time record low.

It makes me extremely uneasy.

But for now, all we can do is prepare our portfolios for what may lie ahead. For me, that means a healthy amount of cash, and plenty of investments which should fare well in an inflationary environment. Assets that will hold up better in a crash scenario.

We’ll continue to explore this strange market in the days and weeks ahead.

The post COVID Crash Curriculum appeared first on Daily Reckoning.

Last week, President Donald Trump commemorated income tax payments being due by having DoorDash deliver food from McDonald’s to the White House. The delivery was intended to highlight the first year of tax-free tips. Removing tax on tips was part of the 2025 Big Beautiful Bill (BBB).

As the sponsor of the first No Tax on Tips legislation introduced in Congress, I was obviously pleased to see this change in tax laws included in the BBB. The bill also included other good tax changes such as removing tax on overtime and extending the 2017 tax cuts. Unfortunately, the bill also increased federal spending and debt.

Supporters of the income tax implicitly endorse the idea that our rights are gifts from government and, thus, can be revoked by government at the will of our rulers. Adoption of the income tax signified the abandonment of the belief that individuals have inalienable rights granted them by the Creator.

Therefore, those who believe in natural rights must reject income taxation. It is also a violation of the people’s rights when the central bank reduces the value of the dollar, and thus the people’s purchasing power, via the hidden inflation tax.

The income tax system’s rejection of natural rights is exemplified by withholding that gives government first claim on an individual’s earnings. The government then may return, via what it calls a refund, some of what was taken. However, a normal refund is when a business returns a customer’s payment because the customer is dissatisfied with the good or service he received, not when a thief returns some of what the thief stole.

Withholding was implemented during World War Two as a “temporary” wartime measure. Yet, it is still with us decades later.

Milton Friedman, as a young economist, played a role in the US government’s development of withholding. Of course, Friedman went on to become a leading advocate for free markets. He also redeemed himself for his work on withholding by becoming a prominent advocate for ending the military draft.

The draft is the worst example of how the government has rejected the principles of the Declaration of Independence. The draft gives government power to force young men (and possibly young women) to join the military and kill or be killed in a war. Contrary to the beliefs of some progressives, support for the draft is not justified by allowing individuals to choose between serving in the military or performing some other form of mandated “service.”

While the US does not have a military draft, the infrastructure for the draft remains in place via Selective Service registration. A provision in this year ‘s National Defense Authorization Act (NDAA) allows Selective Service to automatically register all men between the ages of 18 and 25. This makes it easier than ever for government to reinstate a draft.

Income taxes, along with the military draft and other types of mandated “service,” are incompatible with a free society and should be opposed by all who value liberty and peace. As Ronald Reagan said in a statement that could be modified to apply to income taxes, the draft “rests on the assumption that your kids belong to the state…. That assumption isn’t a new one. The Nazis thought it was a great idea.”

Editor’s note: This article was originally published at the Ron Paul Institute for Peace and Prosperity.

The post America: Land of the (Not Really) Free appeared first on Daily Reckoning.

Over the past 15 years, Latin American stocks have performed horribly compared to America.

Below is a chart showing how LatAm stocks have fared versus the S&P 500 since 1985.

As this chart rises, Latin American stocks outperform. When it falls, U.S. stocks are winning.

Source: Tavi Costa of Azuria Capital

Over the past 15 years, U.S. markets have absolutely crushed Latin America.

But notice how between 2000 and 2009, Latin American stocks walloped the U.S. Then between 2009 and 2024, LatAm was the dog again. We saw the same pattern from the late 1980s to the mid 1990s.

It’s a cycle. And we’ve just begun a new one. A fresh start where Latin America, and especially Brazil, is set to outperform dramatically.

Here’s a fascinating chart I pulled from a recent investment bank report. It shows how incredibly well Latin American stocks did from 2003 to 2007 (in blue) , and compares it to the current move (in red).

Source: Morgan Stanley Research

This chart shows that LatAm stocks could have years left to run. And another ~3x in gains could lie ahead.

Brazil is currently the cheapest Latin American market, and has been the strongest performer over the past year. The country has incredibly rich natural resources. Oil, iron, gold, copper, silver, rare earths, and plenty of natural gas. Additionally, about 70% of its electricity comes from ultra-cheap hydro power.

Brazil remains my favorite way to play the LatAm boom.

Viva Brasil!

Since we first highlighted Brazil as a buy in February of 2025, the iShares Brazil ETF (EWZ) is up about 66%, plus some nice dividends.

If this cycle is anything like previous ones (see chart above), the move is just getting started.

Additionally, the big investment firms are just now getting on board the Brazil train. Here’s a recent research report by Bank of America titled: Brazil: the new gold?

Source: Bank of America Global Research

Morgan Stanley analysts also single out Brazil as their favorite opportunity in South America.

Brazilian stocks remain very cheap, trading at an average forward P/E of 9.

We are currently witnessing Brazilian stocks re-rating higher. I expect it will continue for years.

Eventually, the LatAm and emerging market party will end. But if history is any guide, stocks will be a LOT more expensive when that happens.

Emerging market cycles are like any other. They start off cheap and hated, and become overpriced and loved. It’s not time to sell until they’re eye-wateringly expensive. We have a long way to go on that front.

Why So Cheap?

So why were Brazilian stocks so cheap, anyway? Partly because the country’s tax system and bureaucracy has been a disaster for companies to navigate.

Brazil was seen as hostile to capital, and not a great place to invest.

However, Brazil just completed the largest tax reforms in its history.

According to Drew Crawford, an American investor living in Brazil, these tax reforms will be hugely beneficial. Here’s an excerpt from a recent post on X:

Before this, a Brazilian company spent 1,501 hours every year just filling out tax paperwork.

That is five times the Latin America average and ten times the OECD rich country average.

Five separate taxes stacked on top of each other (PIS, COFINS, IPI, ICMS, ISS).

Some of these taxes were calculated on the price that already included other taxes.

A tax on a tax on a tax.

The reform wipes out all five and replaces them with two clean VAT-style taxes (CBS at the federal level, IBS at the state and city level).

Brazil tried and failed to pass this for roughly 40 years.

It is now done.

This is big news for Brazil. They’re finally enacting pro-business legislation.

Foreign investment should continue to flood into the country, fueling a cycle of higher growth and a positive re-rating of stock valuations.

I love Brazil going forward. EWZ remains the easiest way to play it. We’ve also highlighted Petrobras (PBR, PBR.A), Vale (VALE), and Nubank (NU), which have all done extremely well.

We’ll continue to explore more emerging markets ideas. I believe strongly that EM will be key to achieving alpha (outperformance) over coming years.

Emerging markets are still wildly under-owned. And we’ve just begun what is likely at least 5 more years of outperformance. This is no time to take profits.

It’s a time to hold, reinvest those dividends, and wait for everyone else to come join the party.

The post Viva Brasil! A 3X In The Making appeared first on Daily Reckoning.

In October 1973, Arab oil producers slashed exports to the U.S.

This was in the middle of the Yom Kippur war, a brief but intense conflict between Israel and a coalition of Arab states.

Saudi Arabia and other Arab OPEC members were angry about America’s support for Israel. So they refused to send oil to us for a while.

The price of fuel jumped. Here’s a chart of oil prices from 1950 to 2000 (note: this chart is inflation-adjusted, but shows the spike in 1973 clearly).

Oil prices quickly doubled. At peak, the price of a barrel increased more than 4x from early 1973 levels.

Oil never returned to pre-embargo levels, except for a brief dip around 1998 (in real inflation-adjusted terms). Despite the embargo only lasting 5 months.

Chaos in the Middle East tends to create… more chaos. After the Yom Kippur war, there was the 1979 Iran revolution, which kicked Western oil companies out of the country (and set the stage for today’s confrontation).

Then we had the Iran-Iraq war, which severely disrupted production and shipping once again. Then the first Gulf war against Iraq, and then the Global War on Terrorism.

The 1973 crisis was caused by about a 5% drop in oil supply. What we’re looking at today is a roughly 13% decrease. Which could rise to 20% if the Houthis shut down the Red Sea as well.

Of course, we’re just now approaching two months into this disruption. But if it goes on much longer, the impact will be far more significant than the ‘73 embargo.

Stocks: A Delayed Reaction

During the five months of the 1973-1974 oil embargo, the S&P 500 fell about 10%. Investors weren’t too concerned, at first.

What’s interesting is that stock markets fell sharply after the embargo was lifted. It almost looked like a classic “sell the news” reaction:

In the 6 months following the embargo being lifted, U.S. stocks fell another 35%. Oil prices remained high, and pre-existing problems didn’t magically disappear.

The economic damage was ongoing. Investors just hadn’t digested it yet. Government measures such as price controls ended up making things worse.

Inflation led to less consumer spending, which caused economic slowdowns, which led to the Federal Reserve printing gobs of money, and cutting interest rates prematurely.

This was the 1970s stagflation story in a nutshell. It lasted 7 years after the embargo ended.

Not Out of the Woods Yet

Whenever this mess is over, let’s hope oil doesn’t continue rising like it did after the 1973 embargo. But prices will stay elevated for longer than most investors expect.

In the best case scenario, if this ends soon, we’re still looking at significant damage to oil infrastructure, and pent-up demand.

Nations will have to rebuild strategic petroleum reserves. And many will greatly expand their emergency fuel storage capacity, then fill it up. This alone will keep a bid under oil for a while.

And in a less rosy scenario, the war resumes and escalates. Unfortunately, this looks increasingly probable.

Jim Rickards has been warning about this for a while. In Monday’s Five Links, he told Strategic Intelligence readers that America and Iran are incredibly far apart on their deal expectations. And warned:

The U.S. is surging special forces, aircraft carriers and Marine amphibious landing units to the area.

Does this sound like the war is ending?

All signs point to more fighting, escalation, higher energy prices, energy scarcity and a major global recession or worse. Trump’s cheerleading won’t change that. Markets need a reality check. They may get one soon.

The man has a point. Another U.S. aircraft carrier strike group is heading to the Middle East as we speak. Missiles, bombs, and planes are being flown and shipped in from bases around the world.

And negotiations are going nowhere. We’re back to “passing notes” through Pakistan. When the two sides of a conflict can’t even negotiate directly, it’s unlikely a deal is near. Distrust runs high on both sides.

So it’s possible this ceasefire is nothing more than an intermission, as we discussed a few weeks back.

I truly hope that’s not the case. But for now the Strait of Hormuz remains closed to 99% of traffic. And as Jim Rickards noted today in the Paradigm Press app’s Daily Feed, that’s the only signal that truly matters. Everything else is noise.

Yet stocks continue on as if everything’s normal. In 1973 we saw a similar reaction, at first. Then stocks dropped 35% in 6 months.

We could see something like that play out again. At this point, downside risks far outweigh upside potential in most U.S. stocks. They’re too expensive to buy here for anything other than a trade.

In my long-term portfolio, I continue to have oversized allocations to hard assets, precious metals, and cheap high-yield emerging market stocks. More on those soon.

The post Delayed Impact appeared first on Daily Reckoning.

“Are you going to be the president’s human sock puppet?”

That was Senator John Kennedy, the Louisiana Republican who talks like a small-town lawyer and punches like one, too. He lobbed that grenade at Kevin Warsh on Tuesday, during Warsh’s Senate Banking Committee confirmation hearing to become the next Chairman of the Federal Reserve.

Warsh’s answer: “Senator, absolutely not.”

Welcome to yet another DC circus, dear reader.

Trump picked Warsh because he wants rate cuts. Warsh convinced Trump he broadly shares that view. The current effective federal funds rate sits near 3.64%, and Trump has said in public that he’d be “disappointed” if Warsh doesn’t move quickly to cut once confirmed.

So Warsh strode into that hearing with a very narrow path to walk. He had to channel his inner Paul Volcker to sound serious on inflation. He had to avoid sounding like Arthur Burns to prove he’d act independently of the White House. But, perhaps like Alan Greenspan, he couldn’t sound so independent that the man who nominated him pulls the rug.

He mostly pulled it off. Mostly.

The Independence Two-Step

Warsh’s opening statement told you everything about how he plans to handle Trump. He called central bank independence “essential.” Then he defined independence in a way that quietly lets Trump off the hook.

“I do not believe the operational independence of monetary policy is particularly threatened when elected officials — presidents, senators, or House members — express their opinions on interest rates.”

Read that again. It’s a permission slip. Trump can jawbone the Fed all day long, and by Warsh’s definition, that’s fine. Independence, in Warsh’s telling, is “self-enforced.” The Fed protects itself by acting well. What politicians say from the sidelines doesn’t matter. And if the Fed actually performed that well, he’d be correct.

Nevertheless, it’s clever. It lets Warsh keep his job prospects alive without saying anything he’d have to eat later.

He also threw a bone to the inflation hawks. He pointed out that inflation has picked up again. He said the Fed’s job is to “act in the nation’s interest.” He even took a shot at the current Fed: “The Fed’s struggle to bring inflation back to 2% reflects policy errors in 2021 and 2022, when the Fed was too slow to raise interest rates as inflation began to rise.”

Amen to that!

Between the lines, Warsh is stating, “Powell blew it on the way up. I won’t blow it on the way down.”

Fauxcahontas Strikes Again!

The insufferable Senator from the great state of Taxachusetts, Elizabeth “1/1,024th” Warren, came in chucking haymakers at windmills. She asked Warsh who won the 2020 election.

Warsh gave the safest answer you can give: “Congress certified the 2020 election.” Not “Biden won.” Not “Trump lost.” Just a procedural fact. Nobody can yell at him for saying it, and nobody can use it against him later.

Warren also previewed the Democratic line of attack for the full floor vote. Without the slightest hint of self-awareness, Warren said Warsh is “uniquely ill-suited” for the job. Her case: he has a nine-figure personal portfolio with positions he won’t fully disclose, and he got the nomination by telling Trump what Trump wanted to hear on rates. Apparently, having only an eight-figure net worth brings out the cattiness in Warren.

However, I must give Warren some credit. On the money question, the Office of Government Ethics has given Warsh a provisional pass. He’s agreed to sell a few dozen holdings if confirmed, but some of those are allegedly tied to Jeffrey Epstein. My question is this: why on Earth does he hold those assets now? And why is everyone in DC seemingly somehow connected to Epstein?

The Tillis Swerve

Here’s the one that actually matters for the whip count.

Senator Thom Tillis of North Carolina, a Republican, says he’s currently a “no.” Not because of Warsh. Because of the Justice Department’s “frivolous” ongoing investigation of Jerome Powell over Fed building renovations. Tillis called the probe “bogus” and said, “Let’s get rid of this investigation so I can support the confirmation.”

That’s not a policy position. That’s a hostage note. Tillis is using his vote to pressure the DOJ to drop the Powell case. If the White House wants Warsh confirmed quickly, someone has to cut a deal.

Fed watchers still expect Warsh to clear the committee and the full Senate. But Tillis can drag the timeline out for weeks. And every week of delay is a week of market uncertainty about who’s running the Fed.

Wrap Up

Here’s the takeaway for your portfolio.

Warsh is not going to walk in and cut 100 basis points on Day 1. Trump wants him to. The hearing made clear he’s not promising it. He kept repeating that the Fed must act “in the nation’s interest” and that “inflation is a choice, and the Fed must take responsibility for it.”

That’s hawkish language dressed up for a dovish president.

So the market’s assumption that Warsh means fast, deep cuts is probably wrong. He’ll cut, eventually. But he’ll cut slower than Trump wants, and he’ll talk tough about inflation the whole time. That’s the only way he keeps the job and keeps the Fed’s credibility.

For gold and miners, that’s still good. Any cuts from the 3.5-3.75% band are tailwinds, even slow ones. For the dollar, it’s mixed. A cautious Warsh means less downside for the greenback than a Warsh who slashes on arrival.

And for bonds? Watch the long end. If the market starts pricing Warsh as a fast cutter, long rates may actually rise on inflation fears. That’s the opposite of what Trump wants. It’s also the scenario where Warsh’s “I’m not a sock puppet” routine gets its real test.

Senator Kennedy’s sock puppet line was a gift. It let Warsh deny the charge in public, on the record, and move on.

But Trump was watching, too. And Trump remembers.

The post Warsh Games appeared first on Daily Reckoning.