So said Baltimore journalist and wordsmith H.L. Mencken (1880 – 1948), who plied his trade in the 1910s through 40s. In other words, people get what they vote for; and, often as not, they inherit consequences that the campaign speeches and brochures conveniently omit.

And America definitely voted last week. The result was a Blue Wave, or as one wag called it, “a Blue Asteroid.”

Should half the country man the lifeboats? Well… let’s not go overboard. America has had a two-party system for a long time, and in some eras Republicans prevail while other times it’s the Democrats. For investors, the mission is not to celebrate or mourn; it’s to figure things out and get ahead of events. So, let’s do just that (and a hint: gold should do well.)

A Mandate Is Not a Blank Check

Unless you’ve been in an isolation chamber, you must know that last week, Democrats captured Congress for the next term. Final tallies are incomplete due to vagaries of ballot counting. But come January, the direction of Capitol Hill politics is unmistakable: Democrat and Democrat Socialist, if not Hard Left.

This fall’s campaign rhetoric offers promises and forecasts. While my inner geologist tells me to respect the terrain, distinguish bedrock from rubble, and get real about what actually happened.

And history is instructive, but it’s not a fortune teller. Begin in 2024 when President Trump’s solid victory returned him to the White House; only for four years, though, not a lifetime commission. Meanwhile, voters have short attention spans; they hire an administration, not an emperor. Which is to say that every mandate must be maintained. Stretch it beyond the public’s general tolerance and the relationship fades fast.

For example, per CBS News, 89% of voters believe that the rising cost of living was a major or crucial factor in the election. So, whatever Trump said about the “greatest economy ever,” blah-blah, most people voted their lived experience. Gas pumps and grocery checkout lines set the pace; plus, rents and mortgages, utility bills, insurance and more.

Or look at it this way: Trump’s political theater won’t pay the bills for Joe Sixpack; and while we’re on the subject, Democrats should take that message to heart as well. Votes against Trump – who was on the ballot only in spirit, not in person – do not automatically endorse every opposition proposal.

Democrats campaigned on a theme of so-called “affordability,” a word concocted by their focus groups. And of course, people want to live better lives. But it’s also fair to say that last Tuesday was distinctly NOT a blank check for taxation, regulation or massive ideological experiments. No bedlam, okay?

The Democrat sweep is real, and it’s the nature of U.S. politics that newly elected politicians tend to stick around for a while. Still, Americans want lower prices for food, fuel, rent and much more; they want more jobs; affordable housing; better schools; access to medical care; and safety on the streets. No problemo, si?

Now, what’s the Democrat plan? Can incoming Democrats deliver any of this agenda via their advertised legislation and policy? Or will raw revenge, fist-pounding hearings and anti-MAGA name-calling become the next substitute for governing? We’ll see, right?

Meanwhile, the Campaign of 2028 has begun; candidates are positioning for President, Senate, House. And the rest of the world gets a vote too, so to speak. What happens with Ukraine, Iran, China, Western Europe, the Global South, energy, trade, industrial output, AI and much more?

Competent governance might consolidate the Democrats’ gains. Or they could spend two years spitting nails at Trump; because that’s what America wants to see, right? Screaming ideologues, devoid of workable ideas, who open the borders, blow out the budget, and flush the country down the sewer. Again, we’ll see.

Hoover’s Historic Downfall

Last week’s election reminded me of 1930 (from what I’ve read; because no, I was not around). And back then, Herbert Hoover’s Republicans lost 52 House seats amid the developing Great Depression.

Post-election, Republicans retained a slim House majority. But death and a subsequent special election changed the balance. So, when the new Congress convened in December 1931, Democrats organized the House while Republicans narrowly retained the Senate. It was a harbinger of things to come: the ground had shifted.

Of course, the lesson of 2026 is not that, ipso facto, we’re in for a mechanical repeat of Hoover in 1930. Today’s economy is challenged in many ways, but not perched upon the cusp of tomorrow’s next Great Depression.

Still, fractured voting patterns in precincts across the land deserve attention; that is, a governing party identified with a booming stock market and prosperity for many has lost credibility with voters from sea to sea.

Another takeaway from 1930 is that prolonged economic disappointment can transform voters’ temporary anger into a durable political reputation. And once that reputation hardens, more or better speeches seldom split the stone. Indeed, after Hoover, it took 20 years and Dwight Eisenhower to return a Republican to the White House.

For now, the way out of the political ditch for Republicans is to rebuild credibility and not blame voters. Meanwhile, future success for Democrats requires resisting the temptation to interpret every newly captured seat as ideological consent for some bizarre version of an American neo-Bolshevik Revolution. (Note: this week is the 109^th anniversary of Russia’s actual Bolshevik Revolution, by the way.)

The point is, winning an election is one thing. Governing and keeping voters on your side is quite another.

Mellon, Money and the Machinery of Power

For a deeper dive into the history of American prosperity versus hard times, consider a recent book by Greg Steinmetz, entitled The President and the Oligarch: Roosevelt, Mellon, and the Triumph of Big Government.

Greg Steinmetz’s new book. Credit Amazon screen shot.

Released in October, this volume follows Pittsburgh banker and industrialist Andrew Mellon through four presidencies – Harding, Coolidge, Hoover and Franklin Roosevelt – and the recurring collisions between private capital and public power.

Mellon served as Secretary of the Treasury under Presidents Harding, Coolidge and Hoover. In his early days as the nation’s Treasurer, he advocated allowing the recession of 1920-21 run its course; which is exactly what happened, and the event ended relatively soon, and led straight into the so-called “Roaring Twenties.”

Plus, Melon advocated for lower taxes, debt reduction and balanced budgets, all in a challenged fiscal environment after the massive expenditures under President Wilson for World War I.

Then in 1929-30 came an economic collapse without recovery. And this led to the election of Franklin Roosevelt in 1932; and his decade of a “New Deal” – and continuing Depression – for Americans.

The Steinmetz book flows well; it’s filled with fascinating vignettes. One learns tales about Mellon at Treasury, plus stories about oil wells, aluminum smelters and the rise of RCA as a market darling (note: Nvidia, anyone?).

The action moves from White House conferences to Mellon’s efforts in London, and by his proxy to the Hermitage in Leningrad, where new American wealth acquired Old Master treasures from the Soviet Union’s Joseph Stalin; paintings which eventually became the nucleus of the National Gallery that Mellon gifted to the American people.

In an irony of ironies, Mellon’s Treasury Department put Al Capone in jail for tax evasion; only later to have that same Treasury Department under Roosevelt pursue Mellon for tax fraud, via charges that were rejected by a series of grand juries and acquittals in various court rooms. In this sense, private wealth, public benefaction and political punishment share the same battlefield.

Another way to interpret the Mellon-Roosevelt contrast – and very personal conflict – is that the appearance of prosperity does not necessarily prove that every policy is sound. Yes, the stock market boomed under Mellon (while many of Roosevelt’s 1920s-era investments lost money!). But for a long list of reasons, Wall Street was rife with fraud, fakery and unrooted share price inflation, which was the setup for calamitous collapse under Hoover.

The market crash of 1929 segued into hard times in 1930. And then, as economic distress spread across the land, came popular demand for government spending. And indeed, that intervention – first by Hoover and then, in much larger ways by Roosevelt – enlarged federal power which was eventually weaponized against convenient culprits. (Sound familiar?)

In short, a government powerful enough to promise everything is also powerful enough to take it all away; indeed, to change the rules by which you earn your living and hold your assets.

Red Ink, Restricted Maneuver

Which brings us to… money! And by now it’s evident that Republicans and Democrats both suffer from a pathological inability to match promises with resources. U.S. spending is out of control, and there’s no stopping this runaway train.

For fiscal 2026, which ended on October 31^st, the Treasury reports roughly $2 trillion in borrowing, and more than $1 trillion in interest costs. This is not a campaign abstraction; it’s a monetary hemorrhage.

Spending restraint would require unpopular choices: cutbacks in Social Security, Medicare, Medicaid, Defense and much more. And meanwhile, divided government produces bargaining only over the scale of additional benefits rather than disciplined retrenchment. Gridlock between Trump versus Democrats might restrain new commitments; it will not eliminate or reduce old ones. The Niagara of deficit and debt will still flow.

Recently, the Federal Reserve indicated that it might raise rates in December; wait and see. But inflation remains elevated; and just last week at a conference in Nashville, our old friend and banker Frank Trotter – of the highly innovative Battle Bank – offered an estimate that real inflation currently runs in the range of 5-7% annually.

Gold has moved up in the past week, to over $4,100 per ounce; evidence that some smart money is de-risking via metallic safety, despite the current 5% rate for bonds. Or to pose the question in a different way, does anyone really trust the government’s ability to stabilize purchasing power?

Buy the Rock, Not the Rhetoric

Looking ahead, there’s likely upside in gold, especially if real interest rates decline and fiscal credibility keeps eroding. The Eric Sprott group opines that current share price valuations for well-run miners do not reflect the companies’ strong earnings, solid balance sheets and capital discipline.

Along these lines, we don’t run a portfolio here; but consider the Sprott Gold Miners ETF (SGDM), or the Sprott Junior Gold Miners ETF (SGDJ) as future calls on better days for gold and the mining sector.

To me, at least, many quality mining names are ridiculously cheap relative to assets and earning power. But be selective because not every battered rock-stock is buried treasure. Always consider project quality, mine life, recovery rates, jurisdiction, sustaining investment and free cash flow. Distinguish a profitable producer from a promotional prospect. Cheap shares can conceal expensive geology.

Metallic gold (i.e., already mined and refined) versus mining equities are different forms of exposure. Operating leverage can amplify gains and losses; political interference and execution failures can overwhelm attractive ore.

History’s final instruction is simple: votes change the roster of players who wield power, but not any true laws of economics, let alone geology. So, keep your powder dry and your facts straight. When political promises meet physical reality, it’s best to own hard assets versus political hot air.

That’s all for now. Thank you for subscribing and reading.

Traders are once again betting the war will end soon. This is a dangerous assumption.

We’ve written from the beginning of the war that it would not be over quickly and the U.S. would struggle to win in the end, despite being able to inflict enormous damage on Iran and its economy. That forecast has proved highly accurate.

Viewed from Iran’s perspective, there has been no regime change. Iran still retains a substantial stockpile of highly enriched uranium and the regime continues to resist U.S. attacks.

It is true that scores of top Iranian religious, military and political figures have been killed. The result is personnel change, but that’s not regime change. The Iranian Revolutionary Guard Corps (IRGC), with a figurehead ayatollah, is still in charge.

Trump has claimed over and over that the war would be done “in a few days” or “a few weeks,” but those claims proved hollow, and Trump’s credibility on the issue is dropping.

There was a “ceasefire” last April, a “Memorandum of Understanding” last June and a string of negotiations, but none of it lasted.

There are negotiations currently underway through Qatar between Iran and the U.S., but the sides are still far apart. I don’t expect that to change. Both sides are playing for time to rest, rearm and prepare to resume the fighting.

There’s a relative lull in the fighting right now, but both sides know that’s just a breather. Major military action will likely resume in a few days, now that the midterm elections are over in the U.S. and parliamentary elections are over in Israel.

An Unwinnable War

U.S. failure to win the war does not mean Iran has achieved a major victory.

Iran can’t win the war except in the sense of the regime hanging on and continuing to block the Strait of Hormuz. The U.S. can’t win either — bombing blows things up but won’t win the war by itself.

The U.S. won’t agree to Iran’s terms involving reparations and withdrawal from the Middle East.

Iran also insists that it will control the Strait of Hormuz going forward, with vessels seeking transit subject to Iranian permission and restrictions. Iran has also sought to impose transit fees based on vessel size and cargo, while reserving the right to waive those fees at its discretion, obviously beginning with its own oil export cargoes.

The U.S. will not agree to any of this.

Iran won’t agree to U.S. terms, including the elimination of its nuclear enrichment facilities and surrender of its highly enriched uranium stockpiles.

The U.S. also wants an end to Iranian support for Hezbollah in Lebanon, the Houthis in Yemen at the entrance to the Red Sea and Hamas in Gaza. Iran will never agree to these terms.

Iran depends on the so-called Shia Crescent that runs from the Strait of Hormuz through Tehran, Iraq, Syria and Lebanon to exert regional influence and keep Israel continually on the defensive.

With neither side coming close to agreeing to the other side’s terms, this war will drag on with no end in sight.

The War’s Economic Kill Chain

Of course, the impact of this war goes far beyond the battlespace.

Prices for oil, liquefied natural gas, nitrates, sulfur and distillate products such as gasoline, diesel and kerosene (jet fuel) have risen sharply. This has led to inflation not only in energy costs and home heating but in a large variety of consumer goods.

Everything you buy moves by truck, either to your door, a distribution center or a store. When the cost of diesel to move trucks goes up, the cost of everything on the truck goes up with it.

This dynamic will not change soon.

Matters will soon get worse. Sovereign petroleum reserves, natural gas reserves, fertilizer and chemical stockpiles have all been drawn down over the past eight months since the war began.

Those stockpiles are one reason prices have not gone even higher and shortages have not been more severe. That grace period based on reserves is running out. Many stockpiles are depleted, and further shortages and price spikes may not be far behind.

This supply disruption will play out in inflation, which in turn could drive interest rates higher.

Those higher interest rates affect mortgages, credit cards and other forms of consumer debt. They also add to the cost of servicing the national debt as the U.S. Treasury has to refinance maturing debt at progressively higher rates.

Even the AI infrastructure boom will slow as hyperscalers face higher interest rates on the enormous borrowings and financing commitments they are undertaking to pay for new data center construction.

The process feeds on itself, with supply shortages, higher costs, higher interest rates, slowing investment and ultimately a market crash and recession.

But before the crash and recession, investors will have to endure inflation. The bad news comes in stages, but it’s almost all bad news because of a war that never should have started.

Iran’s Next Targets: Oil, Power and Water

Iran is another “forever war” and looks more and more like Vietnam as the months drag on.

The regime continues to strike oil tankers in the Strait of Hormuz with anti-ship missiles and drones. Over the weekend, at least two full tankers of oil were on fire in the U.S.-controlled southern route.

Via Maritime Executive

If the war restarts at full scale, the Iranian battle plans have been well advertised. When the U.S. begins its new attack, they will not remain passive.

Iran still has a substantial arsenal of missiles and drones. Iranian officials have threatened attacks across the Persian Gulf, warning that nothing is off limits.

That means Iran could attack pipelines, refineries, oil fields, electricity-generating stations, ports and desalination plants.

This presages a humanitarian crisis as Gulf populations dependent on desalination could face severe water shortages within days if critical facilities are disabled.

The news (really propaganda) will be filled with election stories for weeks to come. But Congress will be as dysfunctional as ever, even with new faces in place.

The real story is what’s going on in Iran.

Get ready for more fireworks and higher prices for gas, diesel and everything else as far as the eye can see.

It's a chilly morning in Midtown Manhattan.

Yellow taxis crowd Madison Avenue as thousands of New Yorkers hurry to work. Outside the towering headquarters of Bear Stearns, everything appears normal.

But inside, one of Wall Street's most powerful investment banks is fighting for its life.

Founded in 1923, Bear Stearns has survived the Great Depression, World War II, and countless market crashes.

It's America's fifth-largest investment bank, with nearly $400 billion in assets and a reputation for being virtually untouchable.

Just 14 months earlier, its shares traded above $170.

Now, executives are watching a nightmare unfold as lenders withdraw their money and trading partners lose faith.

The firm is running out of cash, and the Federal Reserve has been forced to arrange emergency funding.

Source: Wall Street Journal Front Page, March 14, 2008

But it's too late.

On Sunday, March 16, JPMorgan Chase agrees to buy Bear Stearns for an initial offer of just $2 a share.

Source: Bloomberg

A Wall Street giant has been brought to its knees, and the news sends shock waves through financial markets worldwide.

Yet the worst is still to come.

Six months later, Lehman Brothers will collapse, pushing an already severe housing and credit crisis into what becomes known as the Global Financial Crisis, one of history's worst financial disasters.

Banks will fail, credit markets will freeze, and trillions of dollars in wealth will vanish. By March 2009, the S&P 500 will have lost nearly 58% from its October 2007 peak.

Why am I taking you back to that fateful weekend?

Because I believe we're approaching another Bear Stearns moment.

Only this time, the company at the center of the storm won't be a Wall Street investment bank.

It will be OpenAI.

In my AI House of Cards series, I've warned about the massive debts, risky deals, and staggering costs supporting the AI boom.

Now, those risks are beginning to show up in OpenAI's own finances.

Today, I'll explain why OpenAI's IPO could fail, why the warning signs are already flashing, and what that could mean for your money.

The Warning Signs Were There

Bear Stearns didn't collapse without warning.

In 2007, two of its hedge funds, loaded with risky mortgage investments, ran into serious trouble. Both eventually failed, revealing weaknesses that extended far beyond the firm itself.

Despite these warning signs, few expected one of Wall Street's most respected firms to disappear.

By March 2008, lenders and trading partners were pulling back, threatening the short-term borrowing that kept Bear Stearns afloat.

As confidence evaporated, so did its cash reserves. Within days, the firm collapsed.

The lesson wasn't simply that Bear Stearns had made bad investments.

It’s that even the mightiest companies can collapse when they need more cash than investors will provide.

And that brings us to OpenAI.

OpenAI's $278 Billion Problem

Think about how the world views OpenAI today.

Led by Sam Altman, the company behind ChatGPT has become one of the hottest names in technology.

Its products are used worldwide, and investors have been willing to value it at more than $1 trillion.

For many, OpenAI represents the future of artificial intelligence.

But being an industry leader doesn't guarantee a sound business model.

In September, the Financial Times reported that OpenAI expects to generate negative free cash flow totaling $278 billion between 2026 and 2030.

In plain English, it expects to spend $278 billion more cash than it brings in over those five years.

That's an astonishing sum, especially considering OpenAI forecasts annual revenue could climb from $36 billion in 2026 to $350 billion by 2030.

The company also reportedly expects to spend roughly $856 billion on computing power and infrastructure through the end of the decade.

Even if OpenAI meets its ambitious sales forecasts, it expects to burn through enormous amounts of cash that must come from outside investors.

OpenAI has already raised huge sums, including a reported $122 billion earlier this year. Yet the same September report says it could exhaust that funding by 2028.

And OpenAI isn't the only company seeking billions.

Anthropic needs enormous funding for its own AI plans.

Meanwhile, Microsoft, Amazon, Google, Meta, Oracle, and countless data center developers are spending heavily on infrastructure.

Many rely on investors and lenders to finance those projects.

But there's only so much capital available, and competition for it is growing.

That's a serious problem for a company that may need hundreds of billions more before its business can support itself.

OpenAI’s Funding Squeeze

Now we're seeing evidence that the money is getting harder to find.

Last Friday, October 30, the Financial Times reported that OpenAI had slashed its latest fundraising target from $30 billion to $20 billion.

That's a one-third reduction.

The company also reportedly lowered its desired valuation from $1.4 trillion to $1.25 trillion, a $150 billion cut.

But here's the most troubling part.

OpenAI had set October 30 as the deadline for investor commitments. Yet some major backers reportedly reduced their planned investments.

According to The Wall Street Journal, OpenAI had secured only about $11 billion in initial commitments and was preparing to seek additional funding from wealthy individuals and family offices.

Source: Wall Street Journal

One of the hottest companies on the planet has so far fallen well short of its original fundraising goal and is reportedly looking beyond traditional institutional investors to fill the gap.

These aren't hypothetical warning signs. They're appearing right now.

OpenAI still has powerful backers and access to enormous sums of money.

But if it's already struggling to raise $30 billion, what happens when it needs the next $30 billion?

Or the next $50 billion?

There's another complication.

OpenAI's biggest rival, Anthropic, is preparing to go public. Its IPO filings have exposed huge losses and spending commitments, while recent changes have invited further scrutiny.

I believe Anthropic will make it through its IPO, perhaps barely. But its disclosures could make investors even more wary of OpenAI's finances.

I'll return to Anthropic's IPO saga in a future issue.

For now, OpenAI faces a more urgent question.

What happens if the public markets refuse to give it the money it needs?

What If OpenAI's IPO Fails?

OpenAI is reportedly pursuing a stock market listing in 2027.

I believe that IPO could fail, not because ChatGPT suddenly stops working or demand for AI disappears, but because building the technology has become so expensive.

OpenAI's future depends on billions of dollars in computing infrastructure.

If investors refuse to finance those plans, the company may have to delay projects, renegotiate contracts, or accept funding on far worse terms.

In a more severe scenario, OpenAI could need an emergency rescue from a major backer. If funding dries up while substantial obligations remain, bankruptcy could become a real risk.

And the damage wouldn't stop at OpenAI.

Its spending plans support an enormous network of chipmakers, cloud providers, data center developers, and lenders.

Nvidia sells the chips powering the AI boom, while Oracle and other infrastructure firms are investing heavily in computing capacity.

Lenders are financing projects based on expectations of continued AI demand.

Now imagine OpenAI announces that it must sharply reduce its spending plans.

Suppliers expecting years of rapid growth could face weaker demand. Data center projects might be delayed, while lenders begin questioning whether the cash flows supporting their loans will materialize.

Investors could then start cutting the prices they're willing to pay for AI stocks.

I've warned about these risks throughout my AI House of Cards series. But OpenAI could become the event that brings them into focus.

The technology itself may keep advancing. The problem is that investors could discover they've paid enormous prices for growth that cannot be financed forever.

The Next Bear Stearns Moment

In March 2008, Bear Stearns' collapse stunned Wall Street.

Six months later, Lehman Brothers collapsed, and the financial crisis entered its most destructive phase.

Bear Stearns didn't cause every disaster that followed. It revealed how fragile the financial system had become.

I believe OpenAI could play the same role in the AI bubble.

That's why I'm paying such close attention to its next fundraising round and plans to go public.

For investors, the danger isn't limited to OpenAI itself.

It's the possibility that a funding crisis at one company could trigger a much broader selloff in AI stocks, including those held in millions of retirement accounts.

I'll continue tracking these developments and alert you as new risks emerge. Because if my Bear Stearns comparison proves correct, the time to prepare is before the rest of the market recognizes the danger.

Bear Stearns was the warning shot before the worst of the Global Financial Crisis.

I believe OpenAI could play the same role in the coming AI crash.

And the clock is already ticking.

I was watching Tucker Carlson’s livestream from Mar-a-Lago, and as it became clear that Trump was going to win, he and Elon Musk were ecstatic. It was contagious. I was ecstatic too.

The Biden admin had trampled all over the Constitution, working with big tech to crush dissent online.

Anyone questioning the official Covid narrative was banned across Facebook, Twitter (pre-Elon), Youtube, and more.

President Trump himself was banned from social media as his first term ended. This wave of censorship, directed by the government, was a blatant violation of the First Amendment.

Free speech was legitimately dying.

This is a big part of what powered Trump’s landslide victory. And to his credit, these censorship policies were quickly reversed.

But Trump’s second term hasn’t gone the way some of us hoped.

The Changing Face of MAGA

By now, most people have accepted that starting a war with Iran was the key factor in the midterm massacre (even JD Vance, as we’ll discuss shortly).

The war caused a portion of Trump’s base, and many of his key influencers, to abandon ship. The Daily Caller created a graphic which sums up the shift.

Trump’s anti-war supporters felt betrayed. I certainly did. He swapped us out for neocons. And seemed happy about it.

It was exactly what he had campaigned against.

JD Vance’s Post-Mortem

Yesterday, JD Vance wrote a long post on X (Twitter). In it, he discussed what went wrong in detail.

And he didn’t pull punches. I encourage everyone to read the whole post, but here’s the important part:

Another pollster—one of the smartest people I know in politics, told me yesterday we’d lose the generic ballot by 13 points. I felt negative going into Tuesday, but even I was shocked by this. In his polling, he saw that a lot of Trump 2024 voters were angry and planning to vote for Democrats. He asked those voters who had abandoned us what would cause them to come back on our team. The top four answers, accounting for nearly all of the responses were:

1) End the war

2) Focus on cost of living/inflation

3) Put America First

4) Change our relationship to Israel

Our voters showed up. And the above four reasons are why many of them voted for Democrats.

Better late than never. But can the GOP regain its lost supporters by 2028? It’s going to take serious changes.

Losing the Dissident Vote

By starting a war with Iran, Trump lost the right-wing dissident vote.

He then dismissed inflation and affordability concerns. It was worth it, he told us.

As millions of people couldn’t find a decent job, or pay their rent, his administration repeatedly dismissed their concerns.

Iran, inflation, and how Trump handled it is why Republicans lost so horribly. Pretty simple. The sooner Republicans fully accept this, the better.

The silver lining here is that neocons and neolibs have completely blown their credibility. Politicians are beginning to realize that listening to their advice on foreign policy is electoral suicide.

Will the GOP recover and make the necessary changes? I hope so. Paying even higher taxes, watching DEI take back over, censorship, and endless immigration sounds absolutely terrible.

If Democrats win the presidency in 2028, it’s going to be a very tough road. The damage they will do will echo for decades.

Sure, the left is sure to muck things up terribly again. That will help the GOP in the next presidential election.

But that will only go so far. The GOP needs to get its own house in order, quickly. Pay attention to right-wing dissidents and Independents. Ignore the neocons completely, on every issue. That’s the lesson.

I used to walk around the British Museum and National Gallery in London (another great one) to ease my hangovers on the weekends in my 20s and early 30s. Looking at beautiful paintings, sculptures, and armor soothed my sore head.

But this weekend in the Big Apple, I was sober as a judge. I wanted to get my 10,000 steps in and enjoy myself while I was doing it. But, of course, my curiosity got the better of me.

It’s the ownership panels every time. For a finance guy like me, seeing a benefactor or a patron on a museum plaque doesn’t make me think, “Oh, what a generous person!” Instead, I think something more along the lines of “What proceeds were they turning into respectable transfer mechanisms?”

It’s not money laundering, per se. It could simply be a case of making incomes from landed properties more mobile. I came across two Canova sculptures that were especially interesting from that perspective.

Stone Turned Into Life?

It’s Rome, in 1804. A Polish countess named Valeria Tarnowska walks into a sculptor's studio. She wants a hero.

She doesn’t want a portrait, but a scene. Perseus, fresh off killing Medusa, holding up the severed head like a trophy. Clash of the Titans, but early 19th-century style.

She visits Antonio Canova, the most famous sculptor in Europe. Medusa may have turned men to stone, but Canova turned stone into sculptures that seem to breathe.

What did Tarnowska actually buy?

She had had land rents and cash, which are boring, forgettable, and hard to move. She turned that capital into eleven feet of marble everyone in Europe would recognize and admire.

You can't smuggle rental income across a border. But you can transport a famous statue.

You see, art isn't just decoration. It's dense, portable, and murky. Nobody quite knows what it's worth, or who really owns it. High value, easy to move, thick layers of dealers standing between the buyer and the money. The U.S. Treasury has studied this exact combination. It's the same profile that makes a painting a great place to hide a fortune today.

Canova himself wasn't laundering money. But he turned wealth into a shape that could cross a border, something no farm or a factory could. And he made the new owner look good for owning one of his sculptures, to boot.

The Second Statue Hides a Cap Table

A few rooms over sits another Canova: Paris, the mythic judge who started the Trojan War with one bad verdict. Same sculptor. Same era. A better story.

Napoleon's wife, Joséphine, commissioned the original Paris in 1807. It was imperial French cash, spent on a vanity project. When she dies, the statue didn't vanish into a warehouse. Tsar Alexander I of Russia bought it and put it in the Hermitage. It was part trophy, part power move. Empire handed it to empire, and the story attached to it only grows.

Canova's workshop did what any studio does with a hit: it made another copy. The Marquess of Londonderry bought one on a trip to Rome in 1823. He shipped it home to London, where it sat in his townhouse for over a hundred years. Long after his house is gone, a donor gave the statue to the Met. A private trophy became part of a public collection.

Look at this lineup:

• Founder: Joséphine, French imperial cash
• Buyer: Alexander I, Russian imperial collection
• Second buyer: Londonderry, British aristocratic money
• Exit: a modern bequest, American museum ownership

The statue never changed, but the wealth transferred. Napoleon fell to Wellington at Waterloo. Empires rotate, as they always do, around the world. Old money faded into museum bequests.

Marble makes good collateral across centuries. It's an asset that survives every regime change.

Same Play, New Paperwork

Today's art laundering cases follow the same script as Joséphine and Alexander. The people are worse, but the lawyers are better. That's the only real difference.

Modern versions look like this:

• Sanctioned buyers route cash through shell companies to acquire blue-chip art, so nobody can trace who really owns it.
• Criminals pledge art bought with dirty money as collateral for a "clean" loan from a lender who doesn't ask questions.
• Free ports, those tax-free storage warehouses dotted around the world, let art sit unregistered for years, changing hands quietly.

None of this needs fake art or stolen art. It just needs art that's genuinely valuable and hard to price. That describes a 200-year-old Canova as well as it describes a painting nobody can compare to a recent sale. You know, like a Hunter Biden special edition.

The real engine here is what dealers call the story premium. It never shows up on a balance sheet, but it does most of the work.

A Perseus in your front hall says: “I have taste,” “I have history,” or “I have won something.”

A numbered bank account in Geneva is silent.

A marble hero is loud money, capital that screams victory while quietly moving somewhere new. For the right buyer, that's the whole point of buying it.

Wrap Up

If you walk through the Met, you’ll see the little labels that give you dates and donor names. But most people don’t realize they’re standing in front of a five-century paper trail.

In more recent times, grand imperial names became more mundane things. Joséphine and Alexander became oligarchs and sanctioned officials. Canova's studio became a shell company in the British Virgin Islands or a free port in Geneva.

But the trick hasn't changed: park your wealth in something beautiful, portable, and nearly impossible to price, and watch it cross borders that cash never could.

Perseus is still holding up that head. He's also been quietly holding six empires' worth of money for two hundred years.

The culprit was severe weather. This is normally the start of the calm dry season for Florida. But that storm dropped over 16 inches of rain in a day. That’s nearly unimaginable.

It was one of five “1,000 year” flood events. Henderson Nevada, Pearl River County Mississippi, Palm Beach Gardens Florida, San Luis Valley Colorado, and Southern Brevard County Florida all saw massive rainfall in the past few days.

These anomalies are part of a massive weather disruption. This is the result of an observed climate phenomenon that dates back tens of thousands of years. El Nino is the name for a periodic warming of the equatorial waters of the Pacific Ocean off Peru.

That red area is tongue of about 620,000 cubic kilometers of Pacific Ocean. It is much warmer than normal. Here’s the crazy thing…even a 1 degree increase in temperature across that much water stores heat equal to about 80,000 years of output from a one-gigawatt power plant. A 2 degree increase puts that at 161,000 years.

As you can see, a large swath of that water is over 3 degrees warmer than normal. And a 3-degree increase would need 241,000 years of that power plant output.

And what all that heat does is change the weather. All over the world. But we can’t forecast it with much authority because we’ve never seen an El Nino like this one. What we do see, here in the U.S. is an unusually active southern jet stream. That’s the one that brings moisture in from the Pacific and up from the Gulf of Mexico.

During warm months, the jet brings historic flooding rain. But in the winter it depends on the temperature. If the weather is warm, it’ll just rain. But if it’s cold, you get massive blizzards. That’s where the potential for a run on natural gas comes in.

Because another weather pattern just emerged that will have a direct effect on the U.S. this winter – disrupted polar vortex.

We usually hear stories about the polar vortex in the winter, just before we get a major cold snap. But this year it happened in October. Normally, we would see the polar vortex strengthening. Days are shorter and colder. The vortex strengthens. The strong winds circle the globe close to the pole.

But instead, we see a disrupted pattern today. weak winds and stratospheric warming. The normal seasonal strengthening gets derailed. And while this doesn’t signal an unseasonable cold snap now, it does increase the chances of major cold snaps this winter. And that creates the potential for outsized snowstorms in the mid-Atlantic states.

Normally, these events increase the chance of persistent winter weather patterns. Cold outbreaks in Europe, Asia, and the Eastern U.S. It also sets up blocking patterns that change storm tracks. For example, the Atlantic storms track further south. That leaves colder, drier conditions in Northern Europe.

That’s where we may have a huge opportunity this year. Because a cold Europe and Eastern U.S. means increased demands for natural gas.

Now not every stratospheric warming event increases natural gas demand. But this is an exceptional year. All the events seem to be larger. And so could the cold events.

In Europe, a study found that extreme electricity demand spikes are 1.5 to 3 times more likely during these events. In 2018, there was a massive spike in natural gas demand from a polar vortex.

The opportunity here is that natural gas is cheap and we have an unprecedented weather phenomenon going on.

As you can see, natural gas prices just bounce off their lowest price since April. And the April low was its lowest since 2024. We do have a lot of natural gas in the U.S., thanks to record U.S. oil production.

However, we are exporting far more gas than ever before. In August 2026, the U.S. exported 841 million cubic feet of natural gas. In the first six months of 2026, we exported 74% of the total for 2025. A per month average looked like this:

• 2024: 642 million cubic feet per month
• 2025: 747 million cubic feet per month
• 2026: 827 million cubic feet per month

These are export numbers. And they represent about 30% of domestic consumption today. And while export volume is up dramatically, domestic demand is relatively flat.

Demand for exports is soaring thanks to the wars in Ukraine and Iran. And that’s fine right now. But if we get a big spike in demand here in the U.S., prices will jump.

It happened last January with Winter Storm Fern. It sent natural gas futures up as much as 75%. The United States Natural Gas Fund (NYSE: UNG) saw shares jump from $10.30 to $17.00 per share in just a few weeks:

This winter has that potential as well. And UNG is at its lowest price ever. While this fund is an imperfect vehicle for playing natural gas prices over the long term, it’s perfect for a short-term winter trade.

We should buy it now and hold it through March 2027. It should be an easy 60% to 100% gain if we get the kind of snowstorms that look likely, thanks to El Nino.

With a market cap of $4.84 trillion, it is once again the largest company in the world.

But frankly, this stock looks a bit mushy. Under its shiny silver skin, there are worms tunnelling.

In its latest quarterly report, Apple posted 12% YoY revenue growth. Not bad, not great. But it’s only forecasting 7-10% growth over the next year. Growth is decelerating.

The valuation is where I get completely lost. Today AAPL trades at 37x earnings (P/E). And it’s valued at a shocking 10.3x revenue (price-to-sales).

The only time in its history Apple had a higher price-to-sales ratio was on its IPO day in 1980. Back then, when the company was worth $1 billion, it traded at 13x sales. But revenue was growing 145%! 10x higher than today.

Meanwhile the dividend yield is now a tiny 0.32%. The company spends most of its cash flow on share buybacks, which helps keep the price inflated.

This is an extremely rich valuation. If I buy a stock priced like that, I expect big growth going forward. At this point, Apple isn’t going to deliver that.

I built the table below to show just how crazy things have gotten. During Apple’s rapid iPhone growth phase, the company was far cheaper than today.

So in 2011, when Apple was growing revenue at 66% a year, it traded at 14.5x earnings. Back then, the stock traded at 3.5x revenue.

In 2011, the company was growing 4.4x faster. Yet it was far cheaper.

Here’s a longer-term view of Apple’s price-to-sales ratio.

Source: Macrotrends

As you can see, before Covid, Apple always traded at a fairly reasonable valuation (under 5x revenue). But ever since, the old valuation rules have been thrown out the window.

With only 12% annual revenue growth, and little innovation, why are people paying such a premium to own this company?

Tech: The New Safe Haven?

It seems to me that investors are treating big tech as the new safe haven. These stocks have done so well for so long, that many people have come to view them as the safest asset in the world.

Take a look at the chart below, shared by WisdomTree’s Jeff Weniger a few months back:

So 51% of the S&P 500 trades at more than a 10x price-to-sales ratio. This is not normal, or healthy.

A 10x sales multiple is extreme. When you buy a mature stock at a valuation like this, be prepared for disappointment unless everything goes perfectly.

“What Were You Thinking?”

Sun Microsystems was one of the hottest hardware stocks during the dotcom boom. From its 1986 IPO to the peak in 2000, it soared 257x.

It was a beautiful growth story. But eventually investors got overly excited and bid the shares up to silly prices.

After the dotcom bubble burst in 2000, Sun shares collapsed 96%.

In an interview with Business Week, Sun’s CEO Scott McNealy admonished shareholders for buying the stock at such a ridiculous price. It’s one of the most fascinating pieces of the entire dotcom bubble saga.

And it really spells out exactly what it means when you buy a stock at 10x revenue:

At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders.

That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees.

That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate.

Now, having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those basic assumptions are? You don’t need any transparency. You don’t need any footnotes. What were you thinking?

So. Here we are, with over half of the S&P 500 trading at more than 10x revenue.

Human nature hasn’t changed since the dotcom boom. It just took a while to forget the lessons we learned from that crash.

This is how the cycle works. Breakthrough, boom, bubble, bust. Rinse, forget, repeat.

Investors are still ruled by the same animalistic spirits. We are impulsive, emotional, and vulnerable to FOMO.

Every so often, we have to re-learn the bubble lesson. It’s simply part of the game.

So, let’s NOT discuss current politics. That’s for others, and other days.

Instead, let’s discuss 1859.

The Colonels Who Changed the World

In an odd coincidence of time and geography, in 1859 two American colonels stepped onto history’s stage. One used rank as a promotional title: Edwin Drake, a former railroad conductor whose backers understood marketing, even if their guy wasn’t a real O-6. But the other was the genuine article: Robert E. Lee, a West Point-trained Army officer, battle-tested in Mexico.

At Titusville, Pennsylvania, Drake changed the world; and at Harpers Ferry, Virginia, Lee confronted a national crisis. (Note: In 1859 Harpers Ferry was part of Virginia; West Virginia was created later, during the Civil War.) These places are just 190 miles apart as the crow flies across the Appalachians; and each in its own way, they led to two very different kinds of upheaval.

Edwin Drake and Titusville oil well. Credit National Archives.

On August 27, 1859, Drake’s rig struck commercial amounts of oil at a depth of 69½ feet. If you’re wondering, he wasn’t “drilling” a hole with a rotating bit; he was pounding a hole into rock with a cable-tool device (long story; not here). The point is, Drake dug to very modest depth and created very immodest consequences.

Seven weeks later, on October 16, militant abolitionist John Brown and his followers seized the federal arsenal at Harpers Ferry. And the U.S. government sent Army Col. Lee with a contingent of U.S. Marines – they were handy and immediately available, so he grabbed them – to end the raid.

Col. Robert E. Lee, U.S. Army, 1859. Credit National Archives.

One event opened an entirely new age of energy for mankind. The other intensified a political crisis that led to America’ Civil War and remade the Union.

Two colonels. Two revolutions. One quiet, one loud. And both are still with us.

The Courtesy Colonel and the Rock

Even in 1859, petroleum was no novelty. Native Americans had gathered seep oil for centuries; bottled oil later found a market as medicine, salve and waterproofing. But collecting what leaked onto the surface of creeks and streams was one thing. Delivering a dependable industrial supply was another.

Below ground, oil occupies pores and fractures in rock, not some vast subterranean lake. Seeps are clues to a buried system. Drake’s practical question was whether he could tap in and lift oil in useful quantities.

The answer was fieldcraft, not grand theory. Drake borrowed a method from salt-well drilling and used steam power to raise and drop a chisel-like tool suspended from a cable. Then, he ran iron pipe down the opening to prevent loose material from collapsing into the hole. That is, Drake utilized existing tools and tech, rearranged for a new purpose; aka “innovation.”

Oh, and Drake was persistent. His backers’ money was nearly gone; local confidence had evaporated. The enterprise was called “Drake’s Folly,” right up until the well filled with oil and everyone then wanted in on the action.

Early oil well, flowing crude into a vat. Cradit National Archives.

The breakthrough created a business proposition: drill, produce crude oil, sell it to refiners, and they in turn could sell useful products to customers. A geological occurrence became an industrial resource. The rock had not changed; but the tech and economics had evolved.

The first benefit from oil was illumination via kerosene, which pushed back the night. Then came petroleum lubricants which helped an increasingly mechanized economy turn its wheels. Decades later, refined fuels enabled internal-combustion engines. Plus, oil led to an array of industries built around petrochemicals, plastics, synthetic fibers, asphalt and much else that modern life takes for granted.

Think of petroleum as a geological inheritance: organic matter buried in sediments, transformed by heat over immense spans of time, during which hydrocarbons migrate into reservoir rock. And Col. Drake tapped that inheritance with a shallow hole and nineteenth-century machinery. He put ancient, stored energy within reach of human enterprise.

The Real Colonel and the Arsenal

Seven weeks after Drake’s well came in, John Brown and 21 followers attacked and seized the federal arsenal at Harpers Ferry. Brown et al intended to distribute weapons and ignite an uprising. Instead, he and his gang were trapped in the armory’s engine house, with hostages.

Brown’s raid at Harpers Ferry. Credit National Park Service.

Col. Lee and his Marines rode from Washington, D.C., confronted Brown and demanded a full surrender. When Brown refused, Lee’s Marines stormed the building and captured him. The raid was crushed, but the fuse of national rebellion was lit and burning.

Harpers Ferry terrified the slaveholding South, while Brown became a martyr to many Northern abolitionists. And at this stage of American development, slavery — the South’s so-called “peculiar institution” — was a fault line that political compromise could no longer bridge.

Indeed, and as is the case with true geological faults, apparent stability can conceal immense levels of built-up stress. So, while it’s not accurate to say that Harpers Ferry “caused” the Civil War, the episode revealed how close the country stood to fracturing.

The war of 1861–65 settled secession by force. Wartime emancipation and post-war constitutional amendments abolished slavery and expanded citizenship and federal reach. A more consolidated Union emerged, purchased at catastrophic cost.

And here comes the irony. At Harpers Ferry, Col. Lee of the U.S. Army enforced federal authority. Then less than two years later, in 1861 he resigned his commission and took up arms for Virginia and the Confederacy against that same United States. The man who suppressed one rebellion joined another.

After the Revolutions

The lives of Drake and Lee offer another lesson; namely, that being a change-agent of history is no guarantee of a comfortable retirement.

Drake launched an industry that created immense fortunes, yet he captured very little of the wealth. He failed to patent his methods. And bad investments and poor health followed; although Pennsylvania eventually granted him a pension. He died impoverished, in Bethlehem, Pennsylvania in 1880.

Later, Standard Oil’s Henry Rogers funded a grand monument at Woodlawn Cemetery in Titusville. In 1901, Drake’s remains returned to oil country, honored by wealth his work helped create for others. So, the industry remembered him… eventually.

Drake’s Tomb. Credit Commonwealth of Pennsylvania.

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

Tomb of Robert E. Lee. Credit Washington & Lee College.

So, Drake’s handsome monument speaks to a new and world-changing industrial order; while Lee’s elegant tomb sits amid the contested memory of a nation he first served, then fought against, and afterward finally sought to reconcile.

Then and Now

Today, the world still changes in ways both dramatic and quiet. Headlines blare, “Blah-Blah-Blah!” While other truly important work proceeds quietly in labs, machine shops, data centers and resource-development companies.

New energy technology, especially, does more than substitute one fuel for another. It reorganizes power. As history shows, after 1859 petroleum remade transportation, agriculture, industry, finance and foreign policy. Looking ahead, it’s apparent that new systems will again leapfrog past material limits; we’ll get around ore grades, mineral processing, fuel supplies and the infrastructure needed to connect resources with customers.

Slick-talking politicians can announce a new, say, “energy policy” in about one minute. But developing a mineral deposit, building a mine or plant, or replacing a fleet is another matter. Geology doesn’t read press releases. Nor does engineering bend automatically to election returns.

As you watch developments, keep first principles in mind. Harpers Ferry exposed a moral and constitutional crisis that Drake’s new form of energy and improved process could not cure. Or in more current terms, a nation may possess splendid technology yet still divide bitterly over what people ought to do, and how to run the place. See Harpers Ferry.

Also remember that information is not understanding, let alone wisdom. Today, news arrives fast in a world where attention is scarce. Collectively, we know more sooner; but often as not, people understand less and less. The challenge is to distinguish durable change from daily noise.

With this, let me offer a few takeaways:

1. Look for the marginal experiment. The next consequential enterprise may appear as folly before it transforms into investment. And always ask what stubborn problem it solves.
2. Follow material constraints. Ambitions require energy, resources, machinery and time. Look beneath the slogan to the supply chain; and peer past the supply chain to the rocks and reservoirs.
3. Think beyond the immediate moment. Drake’s disappointment and Lee’s defeat remind us that achievement is only one chapter. Persistence, humility and rebuilding matter afterward.

Our Future Is Rising Through the Pipe

So now, back to 2026; we live in a country – and a “Union” – still formatively shaped in 1859; remade by its long-ago Civil War and the industrial world petroleum helped build.

And as for the elections? Look beyond today’s campaign noise and tonight’s vote counts. Because somewhere out across the dark plains of the Republic, someone is adapting an old tool, testing a new idea, and solving a problem that experts long ago wrote off. It’s just another “folly,” perhaps, until it works… and everyone wants in on the action.

Indeed, as was the case with Drake’s oil well long ago, the future may already be rising through the pipe.

That’s all for now. Thank you for subscribing and reading.

The biggest crypto hack in history took place.

Binance, the massive crypto exchange, was robbed for $6.3 billion. Fortunately, Binance is one of the most profitable companies in the world. So they’ll be able to cover the damage from their own pockets.

But the implications are stunning. Elon Musk summed it up cleanly on X:

The “zeroday” Elon refers to is a zero-day vulnerability. These are undiscovered bugs in computer systems which can be exploited.

Zero-days used to be a rare commodity. Hackers would sell them for crypto on the dark web. Intelligence agencies would stockpile them, and deploy only when needed.

A zero-day was once a precious thing. It can often only be used once. After the exploit is discovered, it gets fixed.

But today almost anyone can discover a zero-day using AI.

This trend isn’t going away anytime soon. The shocks will ripple around the world over coming months and years.

You’ve heard about “vibe-coding”, the ability for anyone to create software. Get ready for “vibe-hacking”.

The No-Guardrails Loophole

Modern AI models are hacking geniuses. In an hour, a swarm of agents can accomplish what previously would have taken months for the world’s best hackers.

Because of this, every big AI company builds its models to refuse illegal actions, including hacking. These guardrails work pretty well.

If you tell a normal AI agent to hack a website, it will refuse. “Sorry, I can’t help you with that”. It might even trigger a manual review. If you look suspicious, the company can refer the matter to law enforcement.

But there’s a loophole. By now you’ve probably heard about “open-source” AI models. These are agentic AIs that anyone can download, modify, and use on their own private servers.

Open-source models start out with guardrails. The same “sorry, I can’t help with that” rules are baked-in.

But devious minds have figured out how to remove those guardrails. In essence, they perform “brain surgery” on the AI, and remove its moral compass.

So today you can download an open-source model, like DeepSeek’s 4.1 Flash, with absolutely no guardrails. This is… a disturbing development.

It’s truly a hacker’s dream. A model nearly as powerful as the best American ones, with absolutely no rules. Tell it to hack a company, and it will try its best. And probably succeed.

These models are known as “abliterated” AIs. And you’ll be hearing about them a lot going forward. There’s a 99% chance they were used in the recent high-profile hacks.

Law and Order

Around the world, hackers are toasting their good fortune. A powerful new toolkit has been handed to them on a silver platter.

Abliterated open-source models are the main course. A feast for bad actors. I call them rogue agents.

And once things get bad enough, governments will step in. It will be all-hands on deck to stop the cyber-pandemic.

Soon, I believe digital IDs will be required to use AI agents. A whole new security framework will need to be constructed. Eventually, you may need to use a digital ID to access the internet at all. Everything you do online will be tied to your real identity.

Governments may even attempt to ban open-source models. Possessing abliterated versions of them certainly will certainly be outlawed. But enforcement will be the tricky part. It will require invasive digital surveillance.

So there will be a price. We will pay with our privacy and liberty. And if the cybersecurity situation gets as bad as I expect, most people will gladly pay it.

The age of a free, open, and anonymous internet will end. Sadly, I don’t see any way of getting around it.

But to get to that stage, first we’re going to have to go through some trials and tribulations. The hacks will continue until things hit a breaking point. Then global governments will step in, and everything will change.

Later this week, we’ll discuss simple measures we can take to protect ourselves. Because for now, it’s still the wild-wild west out there.

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’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’re starting to hit fundamental limits on data center expansion.

Changing Fundamentals

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’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’s not just Intel.

Broader Problems

The whole AI trade looks shaky. First of all, it’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 “neocloud” which rents GPUs, has seen the yield on some of its debt rise from 9% to 15%. We warned 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’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.

All Fall Down

We’re in crash mode today. Most sectors are down.

Whether it’s related to AI or not, it’s getting hammered. This is typical in any major selloff.

Gold and silver miners are certainly taking a hit.

We’ve seen this movie before. After the dotcom bust began in 2000, the vast majority of the market sold off. Including miners.

From March 10, 2000 to November 14, 2000:

• The Nasdaq fell 38%
• The HUI Gold Miner index fell 45%

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’t regain its highs for another 16 years.

The “good” 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’m holding onto my portfolio allocation (about 15% now). If silver gets down to the $45 level, I’m a buyer at those levels. $35 and I’m beep-beep-beep backing up the truck.

After the smoke clears, and the big print begins, it’ll be off to the races for precious metals once again.