Is the Strait of Hormuz open or closed?

Depends who you ask.

Oil bears will tell you that oil is flowing through the Strait, back at 80-93% of pre-war levels. Here Bloomberg oil specialist Javier Blas says Gulf crude oil exports are back to 80% of normal:

Javier is a widely followed energy reporter. But he tends to operate from an “everything’s going to be alright” perspective.

If Javier’s data is correct, it means oil is flowing through Hormuz at high levels. Call me skeptical. But let’s examine the evidence.

Here’s what the Strait looks like currently. It is essentially divided into two paths. The northern route, controlled by Iran. And the southern (Oman) route, controlled by the U.S.

Source: Financial Times

Ships passing through the southern Omani route are often escorted by U.S. fighter jets, which can shoot down and jam drones and missiles.

The Omani path has apparently been dredged out by U.S. forces, to make it passable for large tankers.

And surprisingly, it appears the U.S. soldiers are sometimes on board the tankers. NBC News just reported:

Eight U.S. Marines were injured two weeks ago when an Iranian cruise missile attacked the ship they were operating on in the Strait of Hormuz, according to three U.S. officials.

The Marines were not on a U.S. Navy ship, according to the officials. The officials declined to define what type of ship it was, instead referring to it as a maritime vessel.

Importantly, it was not a U.S. Navy ship. And thankfully all 8 marines were able to return to duty.

But this is a big story. The timeline really jumps out: “two weeks ago”. Why is it just coming out now?

What role do U.S. soldiers have on a ship crossing the Strait of Hormuz? Are they the crew? Or just providing defense assistance? We don’t know, and the details are sparse. But something’s happening here.

Information Wars

It is clear that more oil is sneaking through Hormuz than at the beginning of the war. But exactly how much is a hotly-debated matter.

Before the war, there was about 20 million barrels of oil per day flowing through this chokepoint. Today? I’d guess 7 million, at most.

Some of that shortfall was being made up via Saudi Arabia’s East-West pipeline, but that was hit by drones a few weeks ago, and is only now becoming operational again.

And we need to keep in mind that the newly-repaired pumping stations could be hit again at any moment.

The world’s energy situation remains precarious. And at any time, the war could re-escalate. This is why I can’t get on board with oil bears who are predicting $60 a barrel by the end of the year.

In order for me to get bearish on oil, I have to see a path to resolution to this conflict. And there’s still nothing in sight.

Iran Tells a Different Story

Iranian news agency Fars reported that over the weekend, Iran struck 19 ships in the Hormuz area with anti-ship missiles. At least one video of a burning ship in the area was posted, but the “19 ships” claim is unverified for now.

We’ve covered Iran’s anti-ship capabilities in detail before. This picture sums up their strategy:

Source: National Interest

Thousands of anti-ship missiles, hidden in reinforced tunnels and underground bases across the coast. It’s a very difficult challenge.

Who’s Right?

So who are we to believe? The oil bears, who say that Middle East exports are returning to normal, or the bulls who say it’s not?

Personally, I continue to side with the skeptics. I’m bullish on oil, and bearish on a resolution to this war anytime soon.

We don’t have a good read on how much oil is actually getting out of the Middle East at this time.

Additionally, there are just so many ways the situation could go sideways from here. A few drone strikes, and the East-West pipeline goes down again. A few oil tankers struck, and ship owners may refuse to run the Strait.

Every time we hear about a deal “just around the corner”, it turns out to be another mirage. So when the market continues to react to every supposed peace proposal, I just shrug.

I don’t think Hormuz will return to normal traffic levels until we reach a deal with Iran. At the current pace, that’s going to take a long while.

I worry that all the celebration over a miraculous recovery in oil shipments is premature. The data is far from clear.

So I’m staying long oil for now. If that changes, you’ll be the first to know.

The post The Strait Debate Gets Heated appeared first on Daily Reckoning.

In the hard asset world, gold miners hog the spotlight.

And for good reason. Precious metal stocks can be a great way for investors to hedge against inflation and monetary chaos. And during a bull market, they can soar like few other sectors.

But the mining world is more than just gold and silver. Today we’re going to look at my favorite industrial metal miner. Long-time readers will recognize the name.

Yes, I still own gold and silver miners. But companies focused on “boring” industrial metals like iron tend to have steadier earnings. And they pay juicier dividends, too.

Back to the VALE

In June of 2025, I wrote a piece titled 8%+ Yields from Brazil’s Iron Giant.

In it, we covered Vale (NYSE: VALE), a highly profitable iron, copper, and nickel miner.

At the time, Vale was trading at $9.86. Iron ore prices were low, Brazilian stocks were in the dumps, and the company was still recovering from the 2019 Brumadinho dam disaster. It was a horrible accident where a dam holding back mine tailings broke, killing more than 270 people, and causing widespread environmental damage.

But Vale is now at the tail end of paying for that disaster. Management has spent more than $4 billion shoring up dams, adding containment structures, and instituting better processes. They took responsibility for the accident, and it cost the company dearly. But the worst is now behind them.

We got lucky with the timing of our Vale writeup, because the stock rose from $9.86 in June 2025, to a peak of $17.94 in April 2026. That’s a 81% gain, at the top. Plus about 7% in dividends.

But now, the stock has fallen back down to $13.65. And that looks like an excellent buying opportunity to me. I plan to add more next week.

Here’s why…

Irreplaceable Assets

Vale was founded in 1942 by the Brazilian government. Its purpose was simple: supply iron ore to the Allies fighting World War II.

America and its allies wanted access to Brazil’s rich and pure iron. The low-phosphorous metal was needed to make high-grade steel for artillery, guns, tanks, and armor-piercing shells.

The iron ore deposit was indeed rich and pure, but the location was remote. They needed railways and other infrastructure to transport it. So the U.S. Export-Import Bank supplied $14 million in financing.

By the end of WW2, the company had only shipped a fraction of the desired ore.

But the foundation of a giant had been laid. A unique railway, a rich mine, and valuable ore.

Today, Vale operates two major railways which are essentially impossible to replicate. Building new rail projects is extremely difficult, and this could not be repeated in the modern world.

Vale operates a vast transportation network. 610 locomotives, 35,868 rail cars, and more than 1,200 miles of railroad. It doesn’t have to pay exorbitant fees to the railway owner. It is the owner.

The company also owns massive ship terminals, piers, loaders, etc. It even owns a number of power plants to juice up its infrastructure.

And this is on top of its primary assets: rich mines, mineral concessions, and expertise.

I can’t even imagine how much it would cost to build another Vale today. An unfathomable amount of money, and at least 30 years.

That’s why I love this mining giant. It’s irreplaceable.

Long Haul Investment

I plan to own Vale for at least 10 years. Longer if things go well.

It’s an ideal dividend-reinvestment stock. I auto-reinvest the dividends back into the stock automatically using a DRIP program (all brokers offer these). This allows for steady compounding.

The next 10 years is sure to be a chaotic period. Inflation, war, and debt crises.

In such an environment, I want to own a lot of hard assets. Companies with inflation-resistant assets, strong cash flow, and preferably big dividends.

Vale fits the bill nicely. It has the potential to be the biggest miner in the world one day.

In 2025, Vale CEO Gustavo Pimenta stated that the company “has to be the biggest mining company in the world because we are sitting on the biggest mining endowment in the world.”

That’s the size of this opportunity. Here’s to hoping they hit that target.

The post Buy the Dip in VALE appeared first on Daily Reckoning.

The U.S. economy relies heavily on AI for growth.

Today we’re going to take a look at how it could all go wrong.

Goldman Sachs says roughly half of current S&P earnings growth is due to the AI boom. Much of the rest is due to high spending from top earners, which is due to soaring stock prices.

So most growth flows back to AI, directly or indirectly.

At the heart of the boom is AI data centers. Absolutely massive projects that require tens or hundreds of billions of dollars to build.

These data centers are being paid for using… creative methods.

Let’s look at Oracle’s massive Jupiter data center in New Mexico. Well, technically Oracle (ORCL) will be the tenant. The owner/developer is a division of Blue Owl Capital (OWL), with financing from a bunch of banks.

Once the data center is up and running, Oracle plans to sell most of the computing power to ChatGPT developer OpenAI.

Here’s a picture of the site from July:

Source: Oracle

It’s a massive site. 1,400 acres. 2.45 gigawatts of electricity (enough to power about 1.8 million American homes). The total cost is expected to reach $165 billion.

And as you can tell, it’s located in a very dry desert. Which could be problematic, seeing how much water data centers require for cooling. But there are other problems to worry about before we get to the drought issue.

First, the site may open later than expected. They need a natural gas pipeline to power their Bloom Energy (BE) fuel cells, and it’s been delayed and redirected multiple times.

The project is too large to connect to the local electrical grid, so they need to generate all their own power on site. That will require a new pipeline, and a ton of Bloom’s fuel cell generators.

For Bloom Energy, it will be roughly 30x larger than any other installation. Can they scale up production in time? So there’s delivery risk here, too.

The Jupiter data center complex was originally set to open in 2028. Now it looks like the gas pipeline may be further delayed. Local opposition to the project is growing.

There’s a risk the site doesn’t open on time. And if it doesn’t, who pays for the delay? That’s the heart of the issue.

Force Majeure

Today, Oracle declared force majeure. This is a legal term that means something beyond their control is preventing them from fulfilling their contractual obligations.

In essence, they’re saying that if the data center doesn’t open on time, they don’t want to pay rent.

Yahoo Finance:

Oracle is taking steps to limit its financial exposure to a massive data center planned for New Mexico as the project faces opposition and regulatory hurdles, according to a Bloomberg report.

The company has notified the project’s developer, a unit of Blue Owl Capital (OWL), that it is invoking a force majeure provision, according to people familiar with the matter.

According to the report, Oracle is seeking to delay payments if the project, dubbed Project Jupiter, is delayed and the facility does not come online in 2028 as planned.

It appears that Oracle is expecting significant delays at Jupiter. This may not sound like a huge deal, but it is. A big chunk of the economy depends on these data centers for growth and higher earnings.

Now, delays are popping up in data center projects around the country. There’s not enough electricity or water. Getting the proper permits can take many years. And locals are pushing back hard in many areas.

What we’re seeing today at the Jupiter site could happen at many other projects in the near future.

Is Oracle the Canary?

In January of 2025, Oracle announced the Stargate program. A bold $500 billion plan to build gigantic data centers to fuel the AI boom. At first, shares soared higher.

But over the past year, Oracle shares are down about 55%.

The stress is showing up in Oracle’s debt and credit rating, too. Financial Times:

However, efforts to offload the debt to a broader group of investors have hit a wall due to concerns around Oracle’s massive borrowing and declining creditworthiness. The debt secured a private investment-grade rating from credit rating agencies.

Oracle’s corporate credit rating currently sits one notch above junk following a downgrade from S&P in July. Banks were now forced to hold more Oracle-linked project debt on their balance sheets than initially planned, the people said.

Oracle is a big company. The current market cap is $437 billion. They’re all-in on data centers and AI.

Oracle has disclosed $288 billion of future lease commitments. That’s why it’s so important they declared force majeure today. What happens if there are more delays?

If they continue to struggle, the stress could spread to other hyperscalers. Widespread data center delays are possible, which would cause serious problems all the way up the chain.

All the data center hyperscalers (Microsoft, Google, Amazon, Oracle, Meta, SpaceX) are using similar unconventional financing (though not as aggressive as Oracle). They’re doing it to keep most of the debt off their balance sheets, so that if something goes wrong, they won’t be fully liable.

But all these big tech companies have plenty of exposure. They’ve already committed to trillions of dollars in leases and equipment purchases.

If more data centers start to see delays, or even cancellations, that could signal the end of the party. It would affect the entire AI ecosystem. Semiconductors, hyperscalers, AI model leaders. Up and down.

We’ll be keeping a close eye on this story. Much depends on the outcome.

The post A Wrench in the Data Center Machine appeared first on Daily Reckoning.

Legend has it that in March 630, Emperor Heraclius rode up to the gates of Jerusalem in full imperial splendor. On his shoulder, he carried the most precious object in Christendom: the True Cross, the wood on which Christ was crucified.

The gate wouldn’t open.

The story says that an angel reminded him that Christ entered this city on a donkey. So the emperor stripped off his robes, removed his shoes, and carried the Cross through the gate barefoot, like a penitent.

The gate had opened for the humbled man.

Historians will tell you the barefoot scene is nothing more than pious legend added centuries later. Maybe. But the core of the story still stands, and it’s one of the greatest comebacks ever recorded.

And yet it’s also a warning that lands uncomfortably close to home in these trying times.

On Monday last week, Catholics around the world celebrated the Feast of the Exaltation of the Holy Cross. Most people never learn how the Cross came home. I, myself, had never heard this story before. So let’s remedy that, because this story holds a lesson about winning nobody in The Swamp wants to hear.

The World Had Fallen Apart

When Heraclius took the throne in 610, the Byzantine (Eastern Roman) Empire was dying.

The Persian Empire under Khusro II had torn through the eastern provinces. Syria and Palestine had fallen. Then, in 614, the Persians had sacked Jerusalem itself, hauled the Patriarch off in chains, and seized the True Cross.

For a Christian empire, this was no mere loss. It was a galactic humiliation. The Cross had become the physical token of God’s protection over Rome. After this defeat, it sat in the Persian treasury.

Things got worse. Persia took Egypt, the empire’s breadbasket. Persian armies camped in Anatolia (the Asian portion of present-day Turkey). The Avars threatened Constantinople (present-day Istanbul) from the Balkans. By the early 620s, that day’s smart money said Rome was finished.

Pride Goes…

Then, Heraclius did something nobody expected.

In 622, he stopped defending and started to attack where the Persians were soft. He marched through Armenia and the Caucasus, straight at the Persian heartland, going around the occupying armies to strike the enemy’s rear.

Late in 627, near the ruins of Nineveh, his army destroyed a Persian force. Then he pushed toward the Persian royal cities and burned Khusro’s palace at Dastagird to the ground.

But Heraclius never took the Persian capital. He didn’t have to. Khusro’s own nobles did the job for him. A king survives only as long as he can pay the small circle that keeps him on the throne. Once Khusro failed, that circle turned. In February 628, his own aristocracy deposed and killed him.

His heir made peace and returned Roman territory and the captives. And most likely in March 630, the True Cross returned to Jerusalem, carried by the emperor himself.

Contemporaries hailed Heraclius as a new David, a new Constantine. He had inherited a corpse of an empire and, in only 8 years, turned catastrophe into the greatest triumph Rome had seen in centuries.

But the good times didn’t last.

…Before the Fall.

The two superpowers of the ancient world had spent a generation grinding each other into dust. Their treasuries were empty, armies were decimated, and their war-torn provinces were broke. People traded back and forth between empires felt little loyalty to either.

Both empires looked mighty on parade day, but they were hollowed out.

These weakened states were so unprepared for what was next that they didn’t even see it coming.

Out of Arabia, armies nobody in Constantinople or Ctesiphon had planned for suddenly attacked.

The Persians were so exhausted, their defeat so complete, their empire simply vanished from history.

And Heraclius, our barefooted hero of 630, lived long enough to watch Syria and Jerusalem fall, all over again, into a new enemy’s hands. His greatest victory turned out to be a funeral parade. He just didn’t know whose funeral yet.

Victory Lap… or Trap?

The most dangerous moment for any power is total victory over an exhausted rival because victory hides its costs.

Though Rome won in 628, it was broke, bled, and brittle.

America held its parade in 1991. The Soviet Union collapsed, and men like Francis Fukuyama declared the end of history. Then we spent 30 years proving we could beat any enemy except our own balance sheet. We’ve had 2 decades of wars in an oversized sandbox. Federal debt went from $5 trillion to north of $40 trillion. We shipped our entire industrial base abroad, only now realizing its true cost.

Like Heraclius, our leaders are running a machine that’s supposed to counter every threat. And every counter drains the treasury a little more.

Meanwhile, the next challenger built ports, factories, high-speed rail, incredible EVs, and supply chains while we argued about the last war.

Armies won’t be knocking at America’s gates any time soon. Still, there’s an obvious pattern: the moment of maximum swagger is often the moment of maximum fragility.

In other words, the turkey is fattest, happiest, and cockiest on the fourth Wednesday in November.

Wrap Up

Whether it’s an empire or an index at all-time highs, ask what the victory cost and who’s exhausted under victory parade’s confetti.

Paper claims on dying empires don’t survive. Own what outlasts The State, not the claims that depend on it.

The city gate opened for a man who carried his own burden. Humility, patience, and low time preference built everything worth keeping, and will keep doing so.

Heraclius got his miracle. He carried the Cross home barefoot while the crowds wept.

Though the empires of his world are dust, we’re lucky that his lesson walked out of the gate with him.

Have a great day.

The post The Last Triumph appeared first on Daily Reckoning.

It’s past time to look beyond the AI hype. The stock valuations of the leading hyperscalers and frontier AI modeling companies are almost certainly in bubble territory. But the market will sort that out in time.

We all know the names of the AI stocks whether from the hardware, software or compute vectors – Apple, Microsoft, Meta, Google (Alphabet), Amazon, OpenAI, Anthropic, NVIDIA and a few others.

Some of these names have valuable core businesses independent of the AI bubble. Others are pure AI plays. All will be hurt to a greater or lesser extent when the AI bubble bursts.

Still, bubbles can get bigger before they pop and they can take far longer to pop than many market participants realize. It’s not prudent to short these names but one should definitely lighten up on long positions. Moving portfolio allocations to cash and hard assets is a good way to weather the coming storm.

Valuations aside, these companies now pose serious risks to national security, critical infrastructure, the financial system and other institutions. These risks need to be considered on their own because they will affect all of us. These dangers are not about stock bubbles. They’re about social chaos.

Geopolitical Catalyst

Two threats in particular stand out. The first is the use of AI models by the Chinese to attack the United States. The second is rogue AI models that work autonomously to attack us on their own.

We’ve seen continuous headlines about the AI race going on between China and the U.S. The elements of the race include massive data centers, high-powered semiconductors and frontier AI models built by U.S. firms such as Anthropic, OpenAI and xAI and by Chinese firms Baidu, Tencent, DeepSeek and Moonshot AI. Other critical inputs in this race include massive amounts of electricity and water required to run the hardware.

The U.S.-China AI race is usually framed in existential terms. Whichever country gets to superintelligence first will control global AI and possibly the world. Even in less grandiose terms, there are critical outcomes in areas of national security, encryption, digital payments, weapons systems and curing disease that depend on the winner of the AI race.

Yet, the competition is far from fair. The U.S. relies on massive investment in fixed assets, superior technology and access to the fastest semiconductors.

China has some of these tools but they rely more on theft of intellectual property from the U.S., using output from U.S. AI apps as curated input on their own apps (to increase processing speeds) and smuggling advanced chips through third countries. China may not be leading the AI race but they are certainly keeping pace.

AI Recon

Now a new threat has emerged. China is using the most advanced AI models including Claude from Anthropic to process information scraped from a wide variety of open sources in the U.S. including military photographs, ship transponder signals, commercial satellite images and other information combined with Chinese satellite images to determine the exact locations and movements of U.S. naval vessels.

That AI-generated information is then passed to Iran, who use it to fire missiles at U.S. Navy vessels near the Strait of Hormuz and the Arabian Sea.

So far, no U.S. vessels have been hit but that may just be a matter of time. China is using U.S. AI technology to help attack the U.S. Navy at sea. Just days after this revelation, a Chinese spy satellite blew-up in space.

No one has taken responsibility for it. But it’s not a stretch to infer that the U.S. used a space-based weapon to destroy the Chinese satellite that was used to help Iran attack the U.S. Navy.

The AI wars are becoming star wars in real time.

Regulatory Capture

As a separate threat, the media is flooded with stories about an AI Apocalypse in which AI apps from frontier developers like OpenAI and Anthropic achieve superintelligence, join forces and take over the world putting humans in the same position relative to the AI systems as apes are to humans. Other versions of this AI dystopia involve gangs of AI apps working together to shut down the power grid, loot banks and brokers and cause chaos in civilized society.

This wave of panicked propaganda began with an essay by Anthropic CEO Dario Amodei. The Amodei essay was amplified by Anthropic researcher Jacob Coxon who publicly resigned from Anthropic and issued a warning that AI could “kill all humans” within a decade. The Amodei and Coxon warnings were then taken up by the media, politicians and tech experts in what became a cascade of doom and gloom.

But let’s put these warnings in perspective. Whenever you see the same talking points coming from multiple insiders at once, one should be suspicious that a psychological operation (or “psyop”) is being conducted to sway public opinion. In this case, the message is that regulation is needed to protect the world against AI going rogue. This regulation would involve government rules, internal compliance departments, auditor inspections, testing and periodic safety certifications.

How convenient for Anthropic and OpenAI. The kind of regulation they envision is extremely expensive. The giant AI developers can afford it but their newer and smaller competitors cannot. Anthropic and OpenAI are planning $1 trillion plus IPOs later this regulatory moat around their franchises to keep out competition with help from the year. The scaremongering about rogue AI could be nothing more than a tactic to build a government-enforced oligopoly.

My own research indicates that superintelligence can never be achieved because it is impossible to program abductive logic (in contrast to inductive and deductive logic) which can be summarized as gut feel or common sense.

Still, AI is powerful and needs guardrails. But it is not as potentially dangerous as the scaremongers insist. Trump was smart to resist calls for more government regulation. The real enemy in the AI world is not superintelligence – it’s China.

The post The Real AI Threat: China appeared first on Daily Reckoning.

The UK is preparing for war with Russia.

Russia. You know, that country with 5,400 nuclear warheads.

The one that has honed its military craft over the past 4.5 years, and now has the most experienced army in the world. By far. Along with the most advanced drones, air defenses, missiles, and glide bombs.

Russia, the country that sacrificed 25 million of its citizens’ lives during World War 2. The same country that defeated Napoleon, and countless others.

Exactly how ridiculous is the idea of Britain fighting Russia? Downright daft. Even if we exclude nuclear weapons, the UK is in no position to invade Bermuda, let alone fight Russia (more on this in a bit).

Yet British politicians and pundits are telling citizens to prepare for war, and death. The government just told citizens to stockpile canned food and water, due to rising threats from Russia and… climate change.

Paul Richards, a Labour Party stooge, recently said the following on British TV:

“The British would rise to greatness against Russia. We would have to lock a few people up, pro-Russian voices. We’d have to have conscription as well.”

You’d “rise to greatness”, eh old boy? And lock up anyone who opposes your war? What a rat.

The man is a professional socialist politico. Even GB News, the network he was on, was apparently embarrassed by his words. They removed the video from their Youtube channel. Fortunately it was downloaded by a savvy media watcher.

Meanwhile, former UK Prime Minister Boris Johnson says the country should send some “peaceful” soldiers to Ukraine to… “show their support”. What could go wrong? Only everything.

Boris has been a key player in the Ukraine war, by the way. And he is the one credited with “successfully” preventing a peace deal in 2022. He jetted over to Kiev and told Zelensky not to sign the deal under any circumstances. Both sides say that prior to his intervention, the deal was essentially done.

And There’s More!

Another member of the political establishment, Jacob Rees-Mogg, said this in a recent social media video:

“We may even face circumstances where people have to die to save their country, as they did in the first and second world wars… Duty is a noble thing.”

Let’s just say the British public’s reaction has not been positive:

Source: X

Jacob here is telling his fellow citizens to “bring back the stiff upper lip”. Look at this man. He doesn’t look like he has a functional spine, let alone a stiff upper lip.

By the way, a recent YouGov poll found only 6% of UK residents would volunteer to fight an “imminent invasion”.

This is what happens when you open your country’s borders, ignore your own population, and spend their tax money on Ukraine, refugees, and immigrants. It’s only natural that your own people are unwilling to fight a fantasy war against Putin.

A Sad State

The once-great British military is in a sorry state.

General Sir Richard Barrons, a retired top British military commander and co-author of the Britain’s 2025 Strategic Defence Review, stated it plainly:

“Today’s army frankly could do one very small thing, essentially it could seize a small market town on a good day.”

And General Barrons, as quoted in a 2024 government military review, said he’d be surprised if Britain had enough munitions for a week of real fighting.

In a war game, British forces ran out of munitions on day 8 of a 10-day exercise. The country has very little industrial capacity.

RUSI, a leading British military think-tank, stated the following:

“The Ukrainians trying to defend Bakhmut lost 10,000 people… and that would almost be the entire infantry force in the British military.”

The entire UK Army is about 76,000 people. Including medics, tech staff, logistics, mechanics, etc. On short notice, they might be able to field 10,000 combat soldiers.

In Ukraine alone, Russia has about 760,000 soldiers.

But fear not, the UK elites have a plan. Citizen armies! Sky News:

British citizens should be “trained and equipped” to fight in a potential war with Russia – as Moscow plans on “defeating our system and way of life”, the head of the British Army has said.

General Sir Patrick Sanders, the outgoing Chief of the General Staff (CGS), said increasing army numbers in preparation for a potential conflict would need to be a “whole-of-nation undertaking”.

In 2024, General Sanders also said, “Regular armies start wars; citizen armies finish and win them.” So the first 8,000 will be professionals. Everyone after that would presumably be conscripts.

What a novel idea! Having British civilians fight war-hardened Russian veterans. Oh, and hopefully Ukraine can equip them, because the UK has essentially none of the military hardware required to fight a modern war.

Bringing Rifles to a Drone War

The UK military is a shadow of its former self. The navy is tiny and ineffective. No long-range ground-launched missiles. Limited drone capabilities. Electronic warfare, who needs it?

Sure, the UK has about 150 active combat aircraft. They would be useless in Ukraine. Russian air defenses are the best in the world, and can strike targets from more than 200 miles away.

This is why the F-16s Ukraine has received are relegated to low-altitude air-defense duties 99% of the time.

Besides, all of this should be a moot point. Both the UK and Russia have nuclear weapons. In theory, this should limit direct confrontations. But the way the UK leaders are talking these days is a major concern.

How could the situation escalate from here? I suppose the UK, and other European countries, could begin sending active-duty soldiers to Ukraine. It would be a major escalation, and might trigger direct retaliation from Russia. But Ukraine is losing the war, and its key backers are getting extremely nervous. Anything can happen at times like these.

Sadly, these British elite hawks are mentally stuck in a world where the UK is still a great military power.

In reality it is a small, fading power with little economic or military might. And there’s nothing wrong with that! Powers rise and fall. But once they fall, they need to recognize the fact, or else their mouths write checks the military can’t cash.

I’m so sick of these politicians and bad actors instigating potential nuclear wars. At the very least, it will probably lead to both sides launching cyber-attacks, industrial sabotage, and cutting off trade.

And of course, it has the potential to go much further.

The post The British are Coming! (LOL) appeared first on Daily Reckoning.

“The world runs on diesel,” goes the saying.

And “Houston, we have a problem,” goes another saying.

So today, we’ll discuss diesel (and its molecular cousin jet fuel). But first we’ll talk about oil. And oh by the way, when was the last time you bought a barrel of crude oil? Probably never.

Let’s dig in…

What’s In Your Tank?

You don’t buy crude oil. You buy gasoline or diesel, right? And lubricants like motor oil. And items made of plastic (almost everything anymore) or other petrochemicals. Or when you fly, a big whack of the ticket price is jet fuel. Plus, much of the food in grocery stores was fertilized in the field or bug-sprayed with goop made from oil or natural gas derivatives. I could go on but you get the idea.

So, you use oil products; but no, you never buy crude oil. Your purchases are far downstream from the pumpjack out in the prairie. Still, people watch the price of crude oil because it’s the headline number. But again, crude is only raw material.

This distinction matters because the world is not “running out of oil,” or some variation on that scary headline. The world is short of refinery capacity; turning crude oil into products that people actually buy.

Another way to say it is that the economic motive force of the Oil Biz is what happens after crude moves through a refinery and comes out as diesel, jet fuel, heating oil, lubricants, naphtha, petrochemical feedstocks, asphalt and hundreds of other necessary materials.

Refining is a business, of course. And refiners watch the price spread between crude and finished fuel because that’s where the money is made or lost. Specifically, people watch what’s called the “crack spread,” which the U.S. Energy Information Administration describes as the difference between the purchase price of crude oil and the selling price of finished products such as gasoline and distillate fuel.

Along these lines, one common refining metric is “3-2-1,” which is a way of explaining how three barrels of crude become two barrels of gasoline and one barrel of distillate. (Although any chemical engineer can tell you long stories about what really happens in those cracking towers.)

The 3-2-1 idea seems simple, but behind it is the uncomfortable fact that the energy-conversion system – aka refineries – has been thinning out for many years. For example, between 2009 and 2024, Europe closed roughly 30 refineries, with more capacity scheduled to disappear this year and next.

The U.S. has also closed refineries, with California in the lead; from over 40 refineries in the Golden State in the 1980s, to seven today (two of which are biodiesel that process French fry grease and similar). Indeed, as I’ve discussed in the past, California is a fuel island, tied to a limited set of local plants and distant replacement cargoes.

Goldman Finds the Choke Point

That brings us to a “choke point” issue that Goldman Sachs flagged in a recent note: the world’s biggest energy problem is not lack of crude in the ground or at wellheads, but refined products coming out of the world’s refineries.

Goldman’s conclusion was that diesel sat “at the epicenter of the supply squeeze.” And this past summer the reality of global energy markets has proved the theory. Consider how Russia has “temporarily” halted diesel exports after repeated refinery strikes and its own domestic fuel shortages; this is on top of previous Russian diesel and gasoil restrictions for export.

Absent Russian energy exports, European diesel prices rose roughly 40% during the past summer price squeeze, and now prices are sky-high just as harvest demand and the winter heating-oil season approach.

Plus, just in the past two weeks Saudi oil and refined fuel exports have been essentially shut off due to conflict with Houthis in neighboring Yemen; I discussed this last week. In fact, Saudi has told buyers in Europe to expect zero oil and fuel for the rest of September and into October; which means a dramatic shortage of refined products by November.

You see the point, yes? The energy problem is no longer as simple as “we just need more crude oil.” It has moved downstream to the refinery level. When refinery output falls in Russia, when Persian Gulf facilities or shipping lanes are disrupted, and when aging Western plants shut for good, the world does not merely lose barrels on paper. It loses diesel for trucks and tractors, jet fuel for aircraft, heating oil for winter, lubricants for engines and factories, and feedstocks for plastics, solvents, resins and chemicals.

This is why the story is bigger than one trade, meaning the price of a barrel of petroleum. It’s a warning about global energy flows tightening at the refined-product level.

Why This Is Bigger Than Diesel

At the beginning, I cited the old saying that the world runs on diesel. And right now, the shortage of diesel and jet fuel is the brightest distress flare in the sky when it comes to energy. Diesel powers freight, farms, construction, mining and backup generation. In much of central and northern Europe, as well as in New England here in the U.S., the same middle portion of the barrel also supplies heating oil.

Meanwhile, jet fuel and kerosene compete for many of the same molecules down at the refinery. Push airline demand higher, and refiners may favor aviation margins while leaving the diesel pool thin.

And don’t forget lubricants, which depend on specialized base-oil units and cannot be replaced by simply pouring extra crude into a tank. Then come asphalt, waxes, sulfur, naphtha and the chemical intermediates behind packaging, synthetic fibers, fertilizer and industrial materials.

That is what insiders call the Diesel Floor. If the truck that hauled your groceries paid a fortune for fuel, the extra cost arrives on the shelf as supermarket sticker shock. If the aircraft carrying high-value freight pays more for jet fuel, the bill moves through logistics. If a mine, steel mill, railroad or machine shop cannot source the proper lubricant, equipment overheats or stops. Scarcity in these products is not cosmetic. It is a tax on motion.

Russia and the Middle East Are the Same Problem

Now, we get to geography and the world’s missing barrels. Think of conflict in Russia and the Middle East as two parts of the same problem. And don’t be confused: much of the media wants to separate these two stories. That is, Middle East troubles are treated as a crude and shipping problem due to Houthis, a subset of U.S.-versus-Iran. And Russia is treated as a sanctions and war problem.

But for diesel and downstream materials, Russia and the Middle East are the same problem; namely, conflicts that result in lower flows of fuel to world markets. Russia’s refinery damage and export restrictions squeeze one major stream of middle distillates. Gulf conflict squeezes another.

All this, while tanker traffic through Hormuz has remained dangerous and disrupted; and attacks on Saudi energy infrastructure have shown that bypasses like the East-West pipeline are not magic solutions. Add to the fact that numerous of Saudi’s giant refineries have been repeatedly attacked.

India and the U.S. can still send barrels to thirsty markets. But first, you need tankers which are, just now, hard to find. Plus, shipping oil or products from a distant refinery raises fuel costs, plus extra for insurance, financing and transit risk. And the crude oil or refined product may also be the wrong specification for a particular local market. That is how a regional outage becomes a global price: the marginal buyer must reach farther, wait longer and pay more.

Germany Shows What Tight Energy Flows Do

Germany shows what tight energy flows look like; in essence, scarcity can choke a major industrial economy. Across Deutschland, thousands of small, medium and large businesses are scaling back or closing due to energy costs and availability. Volkswagen, for example, is laying off over 100,000 workers.

Plus, Europe now enters winter months when its industries need gas and power, while its freight system, farms and many heating systems need middle distillates. If diesel is already expensive before furnaces come on, winter demand adds stress to the system; indeed, it reveals how little slack there was all along.

That pressure shows up everywhere: at the pump, in power prices, in chemical plants, in plastics, in fertilizer, in logistics and in the auto supply chain. And to be fair, energy is not the only source of German industrial stress (i.e., Chinese imports are causing problems); but energy is the cost floor under the entire system.

Now connect that back to Russia and the Middle East. If Middle East trouble lifts oil and refined prices, or LNG prices, or simply threatens tanker routes, Germany pays. If Russian refinery outages and export restrictions remove diesel from the global market, Germany pays. If global crude-derived feedstocks tighten, Germany’s manufacturers pay before the average consumer even notices. This is how the shortage moves: from pipeline to tanker, from refinery to truck, from fuel invoice to factory gate.

Why the Fed Cannot Print Diesel

And this is not to beat-up on Germany; but that nation’s industrial policies and so-called “green” politics has a dire message for everyone else: when fuel, gas, feedstocks and freight all rise together, inflation stops being a monetary abstraction and becomes a physical bottleneck.

Central banks can print money, but they can’t print diesel fuel. Brussels can coordinate stock releases, subsidize bills and ask consumers to conserve. European Commission President Ursula von der Leyen put the fallback plainly in April: “The least expensive energy is of course the energy we do not use. We should reduce demand.”

Well, okay; but try telling a farmer to harvest without fuel, an airline to fly without jet fuel, or a machine shop or factory to run without lubricant for the rotating equipment. And yes, food is cheaper when you don’t eat it. And didn’t Marie Antoinette say something about, “If the peasants have no bread, then let them eat cake”? (Hint: didn’t work out too well for her.)

So, here’s the takeaway: we like oil companies that operate away from the Middle East, as well as refiners; and toss in service companies and offshore drillers. I mentioned some last week:

ExxonMobil (XOM). Chevron (CVX). Petrobras (PBR). Schlumberger (SLB). Halliburton (HAL). Cenovus Energy (CVE). Syncrude/Suncor (SU). Transocean (RIG). Oceaneering International (OII). Valero Refining (VLO).

The trade may be crowded, and some stocks may pull back if demand weakens. But the larger argument does not depend on one quarterly earnings cycle. The point is that global energy flows have tightened in products people actually use, which leads us all to an era of higher energy prices and higher downstream costs.

Wrap Up

The headline price of crude still matters. But in this market, the deeper question is whether the world can turn crude into products required where and when they are needed. That’s a refinery question, a shipping question and increasingly a national-security question.

So, watch crack spreads, refinery outages and middle-distillate inventories alongside crude. Watch jet-fuel margins, base-oil availability and heating-oil stocks. Those gauges tell you whether the world has enough useful petroleum, not merely enough raw crude.

The investable lesson is that a barrel underground is potential; but a functioning refinery turns it into mobility, heat, food, freight and industrial output.

After decades of refinery closures, underinvestment and now these recent physical attacks, the oil-to-product conversion step has become the scarcest asset. And yes, the world may even have sufficient oil, but what it lacks is cracking towers down at the refinery.

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

The post The World Has Oil, but Not Enough Refining appeared first on Daily Reckoning.

A friend recently inherited a huge stamp collection.

His father-in-law, Fred, spent 70+ years collecting, preserving, and trading stamps. Fred had told my friend that the stamps would be a windfall for the family when he passed.

Well, it turns out the stamps aren’t worth nearly as much as he hoped.

Stamp dealers are flooded with supply. Many won’t even look at a collection unless it’s known to contain ultra-rare specimens. A stamp book that sold for $2,000 in the 1990s might fetch $200 today, if you can find a buyer.

Unless a stamp is pre-1900, in perfect condition, and extremely rare, the value is likely low.

The dynamic is straightforward. Stamps are mostly a hobby of baby boomers. That generation is nearing the end of its reign, and many people in the group are downsizing.

Younger generations have little interest. That’s the thing about collectibles. They are usually specific to a generation.

I had a similar experience with my mother-in-law recently. She still lives in the house my wife grew up in, but is finally starting to downsize.

She announced that it was finally time to sell her precious Hummel collection (porcelain collectible figurines from Germany). The family jewels, as they were. That should generate a tidy pile of cash, she told us. Especially since she has all the original boxes.

Hummels

My wife and I exchanged a look. “Mom, the Hummels aren’t worth much. We looked into it.”

In truth, it’s worse than that. Only the rarest Hummels are worth anything these days. On Ebay, most Hummel auctions get zero bids. The price will trend to zero over the next decade. I didn’t have the heart to tell my mother-in-law just how bad it was. Just that we’d take care of selling them.

My daughter picked a few favorites to keep in her room. There’s still sentimental value there, at least.

This is how we should think about collectibles. A fun hobby. Sentimental family heirlooms, even.

But never an investment.

Collectibles: Almost Always A Bad Buy

As a kid, I “invested” heavily in baseball cards and comic books. I had read the stories about that Mickey Mantle rookie card, the Action Comics #1. I wanted a piece of the action.

Needless to say, the $1,000+ I put in 30+ years ago is worthless today. The card and comic companies took advantage of a generation of young speculators, and printed millions of copies to keep up with demand.

That’s the thing about collectibles. If everyone buying them is doing it to make money, it’s basically guaranteed the price will eventually fall. There will be too many printed, and too many people keeping them in mint condition. Supply and demand. Simple economics.

The reason that Mickey Mantle rookie cards are so valuable today is that only the most die-hard baseball fans collected them, and there weren’t many to collect. Nobody had an idea they’d be worth millions one day.

Generational Change

The hottest collectible in the world today are Pokemon cards, a table-top game.

A 1998 Pokemon Pikachu card sold for $5.3 million at auction

The leading card-grading company, PSA, says that 71% of all its card ratings done today are Pokemon and other card games. Baseball cards are out, game cards are in.

The rare older Pokemon cards are worth so much because nobody expected them to be valuable. 99% of people actually used the cards in games.

Today, however, people are still spending billions on new Pokemon cards, expecting the same results in 20 years. They will be sorely disappointed.

This year, about 20 billion new Pokemon cards will be sold. At least 90% of people buying them are doing so to make money. This will end badly.

Hummels. Precious Moments. Beanie Babies. Comics. Baseball cards. NFTs. Labubus. Soon we’ll add Pokemon cards to the list.

It seems that every generation must learn this lesson for themselves.

The post A Bear Market for Stamps appeared first on Daily Reckoning.

The ferry back from Cherbourg to Dublin was pleasant…and restful. The gentle heaving of the boat put us into the deep sleep of a man who can’t remember what he did wrong.

But the next day, we picked up a package of snacks for the drive back to our home and strained our eyes to read the contents. Even with our glasses on, up to the light…our arm outstretched or held to the nose…the type might have been used to inscribe the Lord’s Prayer on a grain of rice; we couldn’t make it out.

Thus begins our bellyaching. Today, we take on the Problems of Our Time, our long litany of quibbles…gripes…and kvetches.

This is not a specific criticism of the snack company. It is practically universal. For some unknown reason, typefaces are getting smaller…harder to read.

That is not all. Stairs seem to be getting steeper. Buttonholes are smaller. Packaging and childproof caps must have been designed by sadists. How many people starve to death trying to open a vacuum packed, ready-to-eat meal?

People seem to be talking faster…and driving faster, too. Film producers seem to be speeding up the action. Sometimes the plots move so fast, we have a hard time keeping up with them. We get to the denouement and have to ask: did we miss the second act?

Even when they speak more slowly, people lower their voices…as if conspiring against us…as if they didn’t want to be heard. Even on TV, they mumble and muffle. We have to turn the volume up…or put on subtitles…to understand what they are saying.

Even with old friends and family, we now have to remind them. Where they once spoke clearly and loudly, now they mutter.

‘Speak up,’ we say.

On the other hand, in restaurants, where they have stripped away the drapes, upholstery, and rugs, the noise level is atrocious. In the cacophony, we can’t make out anything distinctly. And the background music! It is nothing but boom-boom noise, further obscuring any real communication or harmony.

‘May we have a menu,’ we ask.

‘It’s on the QR code,’ replies the young man with the nose ring.

‘Huh?’

When the waiter comes back with an ancient paper menu, greasy and thumbed from the Eisenhower era, it is so worn from wear, you’d think it was a directory to the town’s bawdy houses.

‘It’s out of date,’ we are told. ‘So, we might not have the same things. And the prices won’t be the same.’

‘Thanks.’

When we finally get something to eat, it often has no flavor or smell; the food industry has turned against us too.

But our complaints do not stop there. Where once they put the screw-on caps — on jars of jam or even water — so that you could take them off easily, now…they have tightened them up, as if to preserve the mustard formula for future archaeologists. We have to pull out a pair of pump pliers to get them off.

Fortunately, the wine corks still work the way they used to. And with a good corkscrew you could break into Fort Knox. But the winemakers, too, seem to be joining the conspiracy. Even good wines now might have a screw-off cap, rather than a cork.

“They should be called ‘screw-you’ caps,” says a cynical neighbor.

Same thing with simple packaging, such as a bag of chips. ‘Tear here,’ it might say, at a place where it has been reinforced with nylon to make it especially frustrating. Recently, given a bag of pretzels on a short airplane ride, we tried everything to get it open…from no angle would it yield. With no knife or screw-driver available, we gripped it with our teeth to rip it apart.

But no; it was as tough as a Cossack. Finally, with our testosterone count headed to zero, a stewardess came to our aid. Using some trick known only to people under 60, she politely opened the dreadful sack and returned it to us.

Another kvetch: friends are becoming less reliable.

“I wrote to John two weeks ago. No reply,” you complain to your wife.

“Don’t you remember?” says the keeper of all useful info. “He died last year.”

A related phenomenon is the way in which we are asked to interact with new technology. You go to the airport. You are expected to check in with a machine…deliver your bags to a machine…and get checked out by a machine before you are allowed on the plane.

Often, the directions barked at you by the machine, trained to be criminally unhelpful, are incomprehensible. ‘Turn your passport in the other direction,’ it might say. What other direction, you wonder. ‘Enter your six-digit code.’ What six-digit code?

The problem is even worse when dealing with ‘automated customer service.’

‘Press one if you are being attacked by a grizzly bear.’

‘Press two if you want to refinance your mortgage.’

‘Press three if you want to answer the question: 1 + 2 = ?’

‘Press four if you are about to leave town and can’t turn off the toaster.’

‘Press 124 if you have an uncle in the Himalayas who is currently experiencing homelessness.’

You realize that none of the options describe your real concern — you just want to unblock a credit card — so you press 55 to talk to a Human Being.

After a wait of 15 minutes, a voice, with an almost incomprehensible subcontinental accent, comes on…

“Hello, my name is Samira, how can I help you?”

Your heart leaps. Finally, a live person…someone who will cut through the millions of possible options and resolve your problem.

You explain.

“First, we have to confirm your identity. What color were your first- grade teacher’s eyes,” she asks.

“What…?”

“What is your favorite way to prepare tofu?”

You pass the phone to your wife.

And there…on the highway of life, is an old gentleman. Both hands on the wheel, he looks into the oncoming glare, and curses the damned fools headed the wrong way.

The post Tough as a Cossack appeared first on Daily Reckoning.

Last week, I was at the Java Connection in Whitehorse, Yukon. I was in town on my way to see two projects up above Dawson City. Two men sat down at a table next to me.

I couldn’t help but overhear their conversation. It focused on the Eagle Mine and the continued fallout from the disaster.

The conversation highlights some risks to investors in Yukon mining companies.

In 2024, gold producer Victoria Gold’s heap leach pad collapsed at its Eagle Mine. The collapse broke through the containment area and allowed cyanide laced ore to enter Haggart creek. Haggart creek leads to the Yukon River, a major artery in the region.

Sounds horrible doesn’t it?

Ranj Pillai, the Yukon Premiere at the time, indicted the mining industry at large:

The mining sector has had its fair share of bad actors, unfair practices, and the inherent desire – driven by the greed of corporate executives and shareholders – to cut corners, shirk responsibilities, and break the law.

He compared Eagle to the Clinton Creek mine. That was a true environmental disaster. A bankrupt asbestos mine that the operator abandoned. It cost the taxpayers millions of dollars in cleanup.

The comments fanned the flames of community anger. The politicians rode the wave of emotions and threw the company to the wolves.

The implication was that Victoria Gold was greedy and negligent. That they’d made their money and would stick the cleanup on the People of the Province.

That’s not the case.

The collapse at Eagle wasn’t the waste pile. It was the leach pad. That’s where all the gold gets produced. The miners stack the ore on a super-thick pool liner. Then they spray a diluted sodium cyanide solution on it. The cyanide grabs gold ions as it passes through the layers of ore.

The solution, now “pregnant” with gold, gets piped off the bottom of the pad and treated. They remove the gold and recycle the solution back to the leach pad. This is a simple, proven process for gold mining.

The collapse at Eagle was the leach pad. There was about 265,000 ounces of gold in the material that collapsed. That’s worth over a billion dollars today.

If there was negligence, it wasn’t greedy corporate executives. They would take the money first and leave the cleanup costs.

Rather, it’s a legitimate accident that cost the company everything. At the time, the company was worth C$500 million in market value. After the collapse, Victoria Gold went bankrupt.

The boogeyman in all this was the cyanide used to process the gold ore. And while you don’t want it in the environment, it’s the least bad chemical to deal with. If you have to have a chemical release, cyanide is a good option.

As long as it doesn’t get into the ground water, it will break down in a few weeks. That’s the case at Eagle. The collapse happened in June 2024. It killed fish and introduced cyanide to the local watershed. The government monitoring program stopped finding cyanide by August the same year.

That’s because a cyanide molecule is one hydrogen ion, one nitrogen ion, and one carbon atom. Sunlight and oxygen quickly break it down into inert byproducts. That’s far better than pollutants like mercury or arsenic, which last decades.

The result of the collapse, Victoria Gold went bankrupt. Price Waterhouse Coopers received all the assets. They are actively selling them off now. So, the mine isn’t gone, just the company. And the rumor is that a Singaporean mining company will buy Eagle and put it back into production.

Since the Eagle Mine collapse, the government turned over. The new Territorial Government has yet to fully approve a new mine. In April 2026, the government issued conditional approval to BMC Minerals for its Kudz Ze Kayah lead zinc mine. There are 52 conditions that the company must meet. And it still needs two more permits to begin construction.

The shadow of Eagle hangs over the industry in Yukon. Until the territorial government fully approves a new mine, the political risk remains.

Make no mistake, there are fantastic opportunities for mining investors in Yukon. However, we are sticking to exploration companies and producers for now.

The government must fully approve a new mine before we jump into development projects. There’s simply too much regulatory and political risk.

The post The Politics of Gold Mining Stocks appeared first on Daily Reckoning.