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.

Palhaçada. (Pah-lyah-SAH-dah)

That’s the Brazilian slang for “clown show,” a helpful noun for those trying to make sense of the election shenanigans in South America’s largest economy this past week.

To briefly recap: Three weeks ago, Flavio Bolsonaro’s conservative (PL) party pulled off a surprise win over Luiz Inácio Lula da Silva’s incumbent socialist (PT) party at the polls. The conservatives won both the house and the senate, in which they maintain strong majorities... for the moment.

But neither presidential candidate crossed the requisite 50% mark to secure victory outright, thus sending voters back to the polls to choose between the two leading candidates this past weekend.

Bolsonaro and his voters were understandably optimistic, having won with 56.1 million votes to Lula’s 53.9 million. Plus, most of the independent candidates (who were eliminated in the first round), were “right” or “center-right” leaning, and threw in against Lula, a career socialist. They carried around 9 million votes between them, most of which were expected to fall to Bolsonaro... or simply stay home.

Betting markets, like Polymarket, had Bolsonaro Jr. the favorite to win by as much as 95-5%.

Then came election day.

He Who Counts

Midway through Sunday’s vote, Supreme Federal Court (STF) Justice Cristiano Zanin granted Lula’s request for a two-hour extension. Zanin, readers will be shocked (shocked!) to learn, served as Lula’s longtime personal defense lawyer.

The final count:

• Lula: 64.1 million votes (+10.2M)
• Bolsonaro: 59.8 million votes (+3.7M)

In other words, Lula apparently found – somewhere beneath the country’s couch cushions, no doubt – over a million more votes than every single independent candidate received in the first round... combined.

Skeptical?

According to an analysis by Paris Group published by Folha:

Flávio Bolsonaro received zero votes in 106 precincts where Lula garnered 14,860. Furthermore, in 3,042 precincts, Flávio reached a maximum of 10 votes, while Lula reached 400,000. Polling experts consider it “statistically impossible.”

After Lula’s unlikely – some would argue, legitimately impossible – victory, Bolsonaro, was ordered to surrender his passports to the federal police.

The order, handed down by Lula’s henchman Alexandre de Moraes, came just seven (7) minutes after the results of the election were officially called, and seemed to make good on a thinly-veiled threat Lula made during a televised debate just days before the event.

“You think you’ve already won the election?” Lula turned to his opponent, before looking directly into the camera to address the viewers. “You prepare. You prepare because on the 25th [election day], you’ll lose your immunity. You’d better prepare yourself. You’ll lose your immunity and you’re going to be in trouble.”

Flight to Safety

Flavio must have felt like it was déjà vu all over again. His father, Jair, had his passports confiscated after he lost to Lula in the last election. He is now serving a 27-year sentence for “plotting a coup to remain in power after losing Brazil's 2022 presidential election to Lula.”

South American politics as usual, in other words…

That said, having one’s travel documents seized without even being charged (never mind convicted) of a crime does appear somewhat at odds with the kind of basic political freedoms for which many in the west still hold a candle.

None too keen on sharing his father’s fate, Bolsonaro skipped over the land border to neighboring Argentina, where he boarded a plane bound for the United States. He disembarked in Miami, with his family, yesterday morning.

Back in the Amazon of Democracy, meanwhile, Lula’s lackeys wasted no time going after his political opponents, rallying the federales and issuing more threats. Here’s PT congressman Jilmar Tatto, saying the quiet part out loud on the House floor yesterday.

“I have information from the Federal Police that they’re going to arrest many Bolsonaro supporters.”

And right on cue, federal deputy-elect Pedro Rousseff (great-nephew of former president and card-carrying Lula apparatchik, Dilma Rousseff), has called for the detention of Congressman Nikolas Ferreira’s passport, citing “an alleged insult against President Luiz Inácio Lula da Silva (PT), in July 2024.”

Comrades-in-Arms

Now, how might you expect such actions to be met by our brave democracy defenders around the world, those ardent champions of voter’s rights and a political process free and fair of corruption and intimidation? Might they have a “tut-tut” in their windy bag of remonstrations, a “tsk-tsk” for their naughty comrade-in-arms? Don’t hold your breath…

Apparently, the authoritarian is not the one in charge of the nation’s security forces, its jails and police, its kangaroo courts, its electoral system, and the state-subsidized media...

It’s not the one whose former personal lawyer changes the rules of the election on the day... or who orders travel bans on his political opponents minutes after the election results are declared...

It’s the guy fleeing the country... his father under lock and key... their party members, who stand to get it in the neck next... and the voters themselves, who are already facing calls for mass media censorship to combat the age-old nemesis of actual authoritarians everywhere: “Misinformation.”

For those vanishing few voters around the world still blissfully unaccustomed to election fraud, intimidation tactics, lawfare, retributive justice, etc. the events of the past few days may come as a shock.

For the rest of us, it’s politics as usual.

Editor’s note: Find more of Joel’s writing at his Substack.

He wasn’t a saboteur. He was Charlie Munger.

Munger figured there were two ways his forecasts could kill a pilot. He could send a plane into ice it couldn’t handle. Or he could send it somewhere it would run out of fuel before it found an open runway. So he fixated on avoiding those two things, and he slept fine.

Next month marks three years since Munger died, about a month shy of his 100th birthday. Until today, I didn’t realize how boring the financial scene has been without him. He’s one of my investing heroes and deserves a place on anyone’s Mount Rushmore of investors.

It’s sad that most people only remember him as Warren Buffett’s cranky sidekick at Berkshire Hathaway. But the man who helped turn a failing textile mill into one of the greatest fortunes in history didn’t do it with spreadsheets.

Old Charlie did it with a handful of ideas he borrowed from every field he could find. He called them his “latticework of mental models.” Luckily, he was generous enough with his models that we can use them every day.

Here are six worth keeping on your desk, in his memory.

1. Invert, Always Invert

That hangar question is Munger’s most famous tool. He borrowed the phrase “invert, always invert” from the 19th-century mathematician Carl Jacobi.

Most people chase success. Munger studied failure. He liked to joke that all he wanted to know was where he was going to die, so he’d never go there.

Try it with your money. Don’t ask, “How do I get rich?” Ask, “How do people go broke?” They borrow too much. They chase whatever doubled last year. They panic at the bottom. They pay fat fees for average results.

Avoid those four, and you’re ahead of most professionals.

2. Show Me the Incentive

Munger said it plainly: Show me the incentive, and I’ll show you the outcome.

He thought incentives were the most underrated force in human affairs. People don’t do what they say. They do what they’re paid to do.

That’s why a broker loves the fund with the big commission. It’s why a politician spends money he’ll never have to repay. Neither man is a monster. Each one simply follows the reward in front of him.

When a policy or a product makes no sense, stop asking whether the people behind it are stupid and ask what they’re paid to do. The answer usually explains everything.

3. Know Your Circle

Munger and Buffett passed on most of the dotcom bubble. They took endless ridicule for it. They didn’t understand those businesses, so they didn’t buy them.

Munger called this staying inside your circle of competence. The size of the circle matters little. Knowing where its edge sits matters a great deal.

You don’t need to understand everything. You need to know what you don’t understand, and keep your money out of it.

4. What Else Could You Buy?

Every dollar you spend has a rival. Munger compared each new idea to the best one he already owned. If the new one wasn’t better, he passed.

Economists call this opportunity cost. Munger treated it as the first filter on every decision.

It sounds simple, but in practice, it’s brutal.

Most of the stocks you’re tempted to buy aren’t better than what’s already in your account. Munger would tell you to sit on your hands. He bought very few things and held them for decades.

5. Beware the Crowd

We’re wired to mimic each other. When we’re unsure what to do, we do what everyone around us does. It’s why Amazon reviews matter so much.

That wiring kept our ancestors alive on the savanna, but it ruins investors. It’s how manias are born. Everyone buys because everyone else is buying, until there’s nobody left to sell to.

Benjamin Graham gave this crowd a face: Mr. Market. Some days Mr. Market is euphoric. Other days, he’s terrified. Munger advised ignoring his moods and buying from him when he’s desperate to sell.

This leads us to our last model, which seems contradictory…

6. The Lollapalooza Effect

What happens when different forces push in the same direction at once?

Together, things like Incentives, crowd behavior, and cheap credit become an exponential force.

The result is the “lollapalooza effect.”

It explains bubbles, crashes, and the occasional miracle. When you see three or four forces lined up behind one trade, pay attention. Something big is coming. Whether it’s good or bad depends on how you're positioned.

So beware the crowd, but watch where it’s going.

Wrap Up

Munger once said he wanted to be remembered for teaching people how to think more than for any stock he bought.

He got his wish. You don’t need Berkshire’s billions to use his tools. You need a pencil, a little patience, and the nerve to ask an uncomfortable question first.

Before your next big decision, take a page from that young weather officer in the hangar. Find out the ways you can fail… and then avoid doing those things.

Rest in peace, Charlie. It’s been a long three years without you.

Have a great day ahead.

Then I noticed she was browsing Amazon for dehydrated food.

My eyebrows almost hit the ceiling. This is very unusual behavior for her.

I assured her we were in good shape. But it got me thinking about what triggered the concern.

Over the past few weeks, dozens of governments have told citizens to prepare emergency supplies. That was the trigger apparently.

My wife’s not the only one. There’s a bit of doomsday-prepper fever breaking out lately.

Authorities warn of risks including: AI cyber-attacks, a Russian invasion, climate change, and industrial sabotage.

Most European countries have put out scary warnings recently. It’s clearly a coordinated campaign.

The big question is – are they actually concerned about their citizens’ welfare? Or do they have a more sinister agenda?

I suspect the latter, but we’re not going to answer that question today. We will, however, keep a close eye on the situation and see what we can learn.

Regardless of what governments say, it makes perfect sense to prepare emergency supplies.

And it can be done relatively cheaply. I view it as an insurance policy. One where the policy pays out in life during worst-case scenarios.

Here’s how I go about it.

Food and Fat

The #1 item for any emergency food stash should be white rice. Not brown rice or jasmine rice. White rice. Stored properly, it can last 25 years. What you want to do is store it in mylar bags, and add in oxygen absorbing packets.

Mylar bags + oxygen absorbers

Or you can buy 25lb buckets of white rice, already in mylar bags with oxygen absorbers from emergency prep companies. Just make sure you buy from a reputable company with good reviews.

One note here. If this prepping trend continues, white rice will become hard to find. This is normal and happens during every big scare. Just wait for it to come back in stock once people settle down.

Dry beans are also a good option, and stored properly they can last 20 years.

But man cannot live on carbs alone. You’ll absolutely need some fat in there too. I prefer coconut oil (only virgin unrefined – the natural antioxidants extend shelf-life). Stored correctly, it can last 3-5 years.

And in my house, we use a lot of coconut oil so I store a few gallons in the basement, and rotate stock. Coconut also happens to produce the healthiest plant-based oil. Yes, it’s food. But in a pinch it can be used as toothpaste, mouthwash, moisturizer, and more.

Having some canned protein on hand makes sense too. Cans of tuna can last 5 years or longer if stored properly. Only buy protein you’re willing to eat and rotate stock of. Tuna casserole every once in a while isn’t so bad.

Dehydrated meals and MREs are also good options, but they aren’t cheap. Adjust to your budget as appropriate.

If something gets a year from expiration, and we can’t eat it, we donate it to a food bank.

Pure Water

Water is a big one. There are a number of scenarios which could limit access to clean water.

The most important prep here is having a high-quality water filter. That means a 5 stage reverse osmosis (RO) system that goes under the sink.

RO removes 99%+ of impurities from water. Fluoride, heavy metals, chlorine, radioactive bits, forever chemicals, pesticides, microplastics, etc. Nasty stuff.

The Apec RO filtration system we have - find it at Home Depot, Amazon, etc

A good RO system runs about $200. It’s the best investment a household can make, in my opinion. For that price you’ll get 50 gallons a day of pure filtered water.

Filters only need to be changed every 2-5 years (different schedules for different types). I always keep a few extra sets of filters around. A filter “refill” kit costs anywhere from $42 to $75, depending on the brand.

An RO water filter system provides immense ROI, even if nothing bad happens. There’s all sorts of crud in our water already.

If you’re still drinking and cooking with city water or questionable well water, consider getting an RO system. It’s a game-changer. And if the stuff ever does hit the fan, you’ll be extra glad to have it.

One last thing on water. Keep some iodine around. It can purify bacteria-contaminated water, and is a key nutrient. Millions of Americans are already iodine-deficient. May as well buy a bottle. I like J. Crow’s Lugol’s Solution, and take a few drops every month with water.

Don’t Forget Guns

Firearms are a key part of any disaster prep kit. At the very least, every household should own a 12-gauge shotgun. Or two. Or three.

With a shotgun, you can bag a deer if necessary. And if someone breaks into your house, the sound of a pump-action slide chambering a shell is usually enough to send any thief scurrying. If not, well… There's nothing quite so convincing as buckshot at close range.

You can get a decent pump-action 12-gauge for under $300. Mossberg makes quality shotguns for reasonable prices.

Mossberg Maverick 88 12-gauge shotgun ($200-$300)

A shotgun should be the bare minimum for a real emergency kit. But if all you can swing is a .22 plinker, that’s certainly better than nothing.

Of course, owning handguns and long/assault rifles too is ideal.

As a bonus, well-maintained firearms hold their value well over time. I consider them to be an inflation-hedge with additional benefits (self defense + a fun hobby).

The way I look at it is, if you ever truly need a gun, you’re really going to need it. So buy a few.

Firearms are a key aspect of any emergency prep kit. Needless to say, keep them locked up away from kids, etc.

And be sure to get out to the shooting range and practice. My favorite is sporting clays. It’s golf with shotguns.

Nothing Will Happen (Probably)

My goal with today’s letter isn’t to scare anyone.

In fact, I’m skeptical about all these sudden warnings from governments. Why now?

Maybe these governments know something is coming. Maybe they don’t, and are just trying to scare us for some secret agenda.

Either way, I’m still going to pay the doomsday insurance premium. It really doesn’t cost much. Compared to health insurance, for example, it’s the world’s greatest bargain.

You end up eating most of the food you store anyway, your water gets cleaner, and you have the tools to defend your house.

Nothing wrong with that.

It is deliciously gloomy. Normally, we go out for a couple of hours in the afternoon to get what doctors call ‘exercise’ and our blue-collar friends call ‘work.’ We are building the stone foundation for a greenhouse...recycling the stones from a ruined farmhouse and the vinyl windows from recently remodeled houses. The only serious expense is for the roof. It could be done in polycarbonate sheets, which would have been cheaper and easier. But double-paned glass will look better, and last for longer than we are likely to enjoy them.

So, the stonemasonry has had to wait. Yesterday, we spent the whole day near the fire, sipping cups of tea, while admiring the lash of the rain and the hula sway of the treetops.

This gave us time to think, a dangerous thing to do in any weather. Specifically, we were wondering about how much the fake, post-1971 dollar has faked up the whole economy...and how hard it is to make sense of it. Every sales number seems to be wearing a false mustache. Every profit goes by an alias. And even the simplest, most obvious trends are counterfeit. As we will see...even inflation itself is not what it claims to be. As synthetic as the vinyl windows, it is useful, but not authentic. (More on that tomorrow.)

First, comes an upbeat report from Charlie Bilello:

Americans now own over $60 trillion in stocks & mutual funds, more than 3x higher than a decade ago.

And here’s more good news, Chosun LBO:

The Wall Street Journal (WSJ), citing data from financial information firm FactSet on the 24th, reported that S&P 500 companies’ third-quarter net profits are expected to rise approximately 30% year-over-year. This estimate combines actual results from companies that have already reported and forecasts from those yet to announce.

The strong performance of NVIDIA and Micron is driven by surging demand for AI semiconductors, particularly memory chips. Suppliers have been able to command higher prices, significantly boosting profits.

Let’s see...a carpenter’s sales can go up when the plumber orders a new worktable. And the plumber’s earnings can increase when the butcher installs a new sink. And the butcher...well...you get the idea. Businesses can increase sales and profits by providing new tools and facilities to each other. Round and round, like a village of laundresses, washing each other’s underwear.

But ultimately, they must sell products and services to consumers...not just to their fellow producers. Paying each other for plant and equipment is just part of the aggregate cost of doing business. Businesses can exchange costs...but only so far as the profits from selling to consumers justify them. You build a new auto showroom...you have to move the wheels! Sure, you might sell a fleet of them to a neighboring delivery firm, but then...consumers still must pay for them.

Oh, if consumers only had the feds’ elastic accounts! Instead, their purchasing power and money are limited. And they are already at the limit. Charlie Bilello:

Real average hourly earnings have now declined on a YoY basis for six consecutive months, falling 0.7% over the past year. The stock market may be near record highs, but that doesn’t mean everyone is participating equally in the gains. Nearly 1 in 5 American families fell behind on debt payments in 2025, the highest share since 2010.

And it’s not as if consumers are expected to have more money any time soon. The Committee for a Responsible Federal Budget:

Social Security is Now Less Than Six Years from Insolvency

The Social Security retirement trust fund is now less than six years from insolvency, according to CRFB’s Insolvency Countdown Clock. Without action from policymakers, beneficiaries will face a deep and abrupt 22% benefit cut when the retirement fund is exhausted in late 2032. That is when today’s 61-year-olds will reach their normal retirement age and when today’s youngest retirees turn 68.

Since consumers can’t readily increase their consumption, a business can only increase sales and profits by taking them away from another business. Some win. Some lose. But the total amount of profits cannot, therefore, increase. Where could they come from?

Take the trucking industry, for example. There are about 3.5 million truck drivers in the country. And each one takes home about $51,000. Along comes AI...self-driving trucks. The truck drivers are out on the curb.

Bad news? No, it’s good news. Trucking companies will now save a lot of money. Plus, consumers would benefit from lower shipping costs...ultimately expressed in lower consumer prices. Shippers would be wealthier...and consumers too — since they would now be able to buy more products at cheaper prices.

But look what happens. The trucking firms’ costs go down. They compete for business by lowering their freight charges. Margins soon go back to what they were before.

We’d all be richer, right? But if we are all richer, nobody is really richer. The kind of wealth that everyone cares about is the kind you can flaunt. We’re all richer, in many ways, than the Sun King. But no one puffs out his chest and struts down the street, thinking of how much richer he is than Louis 14th. Increased productivity makes us all better off; it doesn’t get us all on the Forbes ’rich list.’

So, let’s look back at our headlines. Investors now have $60 trillion...3x more than in 2016. Do they really have ‘more?’ Or is this just another disguise?

The Dow was around 19,000 in 2016, with GDP around $19 trillion. Forgetting the zeros, one unit of stocks was worth about one unit of output. Now, the Dow is at 52,000 with GDP at $32 trillion. Investors believe they are richer. But now, each unit of the Dow is worth one unit of GDP...plus another 6/10ths of a unit of output that never gets put out…a kind of ghost GDP that no one ever enjoys.

And then we learn that the companies producing the phantom GDP are increasing their profits at a remarkable 30% rate.

But how could profits grow six times faster than GDP...in an economy trudging uphill at a (nominal) 5% rate, while staggering under more than $100 trillion of public and private debt? Where does the money come from? Consumers are tapped out. The ‘profits’ must come from other businesses...each borrowing and spending in the hope of future sales.

But to whom? The unemployed truck drivers?

I agree. But so-called “Election Day” is next week, and Democrats may or may not retake the House and/or Senate.

Election rhetoric is loud, but the physical economy is louder. That is, politicians and pundits campaign on party loyalty and personalities. It’s a lot of theater.

Yet in the real world, people deal with price shock at the gas station and grocery store, as well as creeping inflation across much of the economy.

Whatever happens election-wise, cars still need gasoline, trucks need diesel and aircraft need jet fuel. Upstream of the pump nozzle, refineries need crude oil, plus exotic catalysts, electric power and heat, skilled labor, and periodic maintenance. Which is to say that any nation that wants to remain strong and prosperous must command vast amounts of dependable energy.

So today, let’s look at three ideas (and later, four names) investors should keep in mind through the upcoming election and afterwards:

• First, the fuel squeeze is a refining problem, not merely an oil problem;
• Second, America’s reindustrialization will favor companies tied to real assets and physical throughput; and
• Third, U.S. military power is first derivative of American energy and industrial power.

These ideas matter regardless of who wins which election next week, and whichever political party dominates. Yes, of course; markets may lurch one way or another based on politics. But molecules, machines and logistics obey harder laws.

We Have Oil, but Refined Fuel Is the Chokepoint

Most people say “oil” when they mean energy. That is like saying the Army or Navy runs on iron ore. Well, only way upstream at the mines in Minnesota. Because obviously, military power comes from finished equipment, which itself runs on refined fuels.

Nobody pours crude oil into cars, pickup trucks, farm tractors, locomotives or airplanes. They buy gasoline, diesel and jet fuel. And between the wellhead in the prairie and the fuel farm at the airport is a sprawling, expensive, temperamental industrial organism; a system of systems that heats, pressurizes, cracks, cleans and recombines hydrocarbons into useful products. Plus, a vast logistical system to move barrels from Point A to Point B.

Most automobiles run on gasoline, and that’s where most people contact the oil biz; but the fact is that diesel is the true red blood of the modern physical economy. Diesel moves freight, mines ore, harvests crops and powers construction. And chemically adjacent to diesel comes jet fuel, which keeps commercial aviation and military airpower aloft.

These middle distillates – diesel and jet – compete for much the same molecules in terms of refining and processing capacity. And as we’ve discussed many times before, when the oil and refinery system tightens, higher fuel costs migrate into nearly everything else.

This is why mere availability of crude oil alone does not guarantee cheap fuel. Indeed, in the U.S. and across much else of the so-called “developed” world, quite a bit of refining capacity has been closed, converted or under-maintained. So, existing plants can run hard, but steel, valves, and a myriad of complex equipment all have limits.

And sure, a cargo or two (ort three) of imported diesel from, say, Russia may help out at the margins of short-term price-setting, yet it cannot repair years of neglected capacity.

The practical response to fuel shortages and pricing is not a fantasy refinery that appears overnight; ha, good luck with that! No, it’s called “debottlenecking;” that is, go to existing facilities and add better heat exchangers, pumps, compressors, catalysts, controls and maintenance; plus, selective expansions at operating sites; and, where economics permit, restarts of idled units. These are unglamorous investments, but also the kind that produce actual barrels.

For investors, watch refining margins, inventories, turnaround schedules and regional logistics, because the U.S. energy problem is not just the quoted price of crude. So, looking ahead, next week’s election promises may deliver all manner of positive and negative sentiments. But only refinery throughput moves fuel.

Reindustrialization Is a Long-Term Play

For decades, America has rewarded financial engineering while allowing physical capacity to migrate, decay or become impossible to permit. U.S. business schools built entire curricula around closing U.S. production, offshoring capacity, laying off workers, importing low-cost visa scabs, and trumpeting it all as some sort of managerial success.

One way or the other, and whatever happens with next week’s election outcomes, the next two years of President Trump’s second term will test whether “reindustrialization” is policy or merely a slogan.

The useful metrics are straightforward: Can projects obtain permits and power? Can pipelines, rail links, ports and transmission expand? Can American education systems train skilled workers? Can capital earn a return without waiting a decade for a bunch of bureaucrats to give permission?

In all of this, opportunity reaches far beyond oil. New factories require steel, copper, cement, chemicals, machine tools, transformers, gas turbines, grid equipment and immense volumes of electricity. Data centers look digital, but they are massive physical assets: land, concrete, cooling water, transmission and round-the-clock power. And much of artificial intelligence (AI) may live in the so-called “cloud” (hint: it’s not a real cloud like up in the sky), but it all plugs into the transmission tower grid.

This argues for a different investment lens. Investors should seek productive assets versus narratives. Favor companies that own resources and reserves, extraction and processing systems, technical expertise, equipment and logistics capabilities; things that cannot be conjured or corrupted with a software update.

Reindustrialization will create winners, but it will also expose shortages in power, materials, labor and execution.

Washington can accelerate the trend through permitting reform, favorable tax treatment, defense procurement and selective use of industrial authorities. Yet government cannot repeal laws of chemistry, physics or engineering. Projects still require years, billions of dollars and competent operators. The market will reward firms that already possess valuable systems, and can expand them without betting the company.

In short, expect volatility around the election, but keep your eye on capital spending. Follow the money into pipes, plants, power and production.

Military Power Is Industrial Power in Uniform

Here’s the larger point. Military power is the first derivative of energy and industrial power. A nation converts energy, mines, mills, factories, laboratories, shipyards, refineries and the overall grid into combat-capable forces that can deploy and endure.

A fighter aircraft without jet fuel is just an expensive metal sculpture. A tank without diesel is, first, a pillbox; then, a target and tomb. A missile without electronics, specialty metals and chemical propellants is an expensive tube of nothing-burger. And a fleet without shipyards, spare parts and trained tradesmen becomes a fast-wasting asset.

Modern economies conceal this military foundation beneath a civilian surface. Ports, pipelines, rail yards, data centers, payment systems and communications networks serve commerce in peacetime. In crisis, they become the hidden order of battle. They move fuel, process intelligence, finance procurement and keep logistics alive.

Wars in Ukraine and across the Middle East have made these lessons brutally clear: loss of refineries, power grids, ports and transport links degrade combat power as much or more than taking out soldiers at the front lines. So-called “efficiency” rapidly transforms into catastrophic fragility. Things like “just-in-time inventories,” or concentrated cloud services, or narrow supply chains save money, yes; until disruption arrives and disaster cascades.

National defense, then, is not just the Pentagon’s budget. It includes things like spare transformers, resilient fuel supplies, redundant ports, domestic metallurgy, repair depots, secure data and industrial surge capability. Energy security is not separate from defense policy; it’s the very foundation beneath it.

This is also why the election outcome matters. If political conflict delays infrastructure, discourages investment or treats every industrial project as presumptively illegitimate (cuz it’s a “Trump Thing,” of course), the damage will appear not only in prices and jobs, but in strategic weakness. Conversely, policies that expand dependable energy and rebuild industrial capacity can strengthen both prosperity and deterrence.

What Investors Should Remember

So, here we have three ideas:

• One: Today’s fuel risk sits downstream, where crude becomes diesel, gasoline and jet fuel.
• Two: Reindustrialization favors real assets, disciplined capital spending and operators who can execute.
• Three: National defense rests on energy, industry and logistics long before it reaches a battle space.

Whatever happens next week after Election Day, don’t confuse noise with the true signal. That is, we may see demonstrations or riots, lots of lawsuits, abject and crazy political theater, and likely violent market swings. That’s the noise.

But the true signal is whether America can produce energy, refine it, move it, turn it into industrial output and protect the systems that make all of this possible.

Four Ideas for the Road Ahead

Finally, the Reckoning is not an investment letter; we don’t track a portfolio. But here are a few basic ideas that ought to hold up in the months and years ahead, no matter the politics:

• Exxon Mobil (XOM): An integrated major with scale across production, refining, chemicals and complex projects; it’s well positioned when energy security and dependable supply command a premium.
• Chevron (CVX): A high-quality global producer with durable assets, financial capacity and operating depth suited to a world that still needs abundant oil and gas.
• Schlumberger/SLB (SLB): A leading oilfield-services and technology company that benefits when producers must spend more to find, develop and optimize increasingly difficult resources.
• Valero Energy (VLO): A premier independent refiner offering direct exposure to the scarce capability that converts crude into the diesel, gasoline and jet fuel the economy actually uses.

These companies are not promises of straight-line gains; no investment is. But they allow you to own capable operators tied to the hard economy of molecules, machinery and throughput. Because right now is when the world is rediscovering the true value of hard assets. Tickets on the hard asset railway are still relatively cheap.

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

Lula, an 80-year old socialist, won the presidential runoff. This will be his fourth term as the country’s leader.

Prediction markets had given the right-wing candidate, Flavio Bolsonaro, an 81% chance last week.

Back on October 5th, when it looked like Bolsonaro would win, our favorite Brazilian ETF (EWZ) shot up 13% in a day.

But now, with a socialist in power for the next four years, we have to decide whether Brazil is still worthy of investment.

Stocks + Currency Crash

Brazilian stocks fell across the board today. The largest Brazil ETF (EWZ) is down a whopping 21% as of 1:00 pm ET.

Our beloved Petrobras (PBR, PBR.A), which has done so well for us this year, fell 15% on the day.

The Brazilian currency, the real, fell about 12%. That’s a big part of the reason why Brazilian stocks got hit so hard today. When you own stocks in a foreign country, and that country’s currency fluctuates, it magnifies the move (up and down).

However, I’m not giving up on Brazil. EWZ is still +43% (with dividends reinvested) from our original February 2025 writeup.

Petrobras is still +102% (with dividends reinvested) from our first May 12th writeup.

In South America, politics clearly play a big role in stock market returns. But this selloff looks overdone.

Socialist Fears vs. Capitalist Hopes

Investors had hoped that a conservative president would rein in Brazil’s deficit spending, de-regulate, and make the country a magnet for foreign capital.

Well, there goes that plan. But all is not lost. I plan to continue to hold EWZ and other Brazilian investments, reinvest my dividends, and sit tight.

I have no plans to sell Petrobras. It remains one of the largest positions in my portfolio. If that changes, I’ll let you know.

Here’s why I’m not too worried about Lula. He’s been running the country for the past 4 years and it hasn’t imploded. Yes, Bolsonaro would have been better for investors.

But Lula should be fine. When he returned to the presidency in January of 2023, he did make significant changes at Petrobras (PBR).

His government steered Petrobras to spending more on new oil production, and less on dividends. Previously, Petrobras paid out about 60% of free cash flow to investors as a dividend. Under Lula, they paid out about 45%.

The changes weren’t all bad though. Partially as a result of all the new investment, the company’s oil production has soared. Since Lula’s return to office in 2023, Petrobras oil production has jumped 27%, the best among all major producers. The company has invested heavily in Brazil’s rich pre-salt offshore oil fields, and it’s paying off.

So even though Brazil’s socialist president tinkered with Petrobras, the company is pumping more oil than ever, and still remains a cash flow machine. Their average all-in cost to produce a barrel of oil is around $35.

The real risk investors fear is a darker sort of government intervention. If oil stays high, Brazil could force the company to sell fuel at a loss domestically.

The Brazilian government ran this playbook from 2011-2014. It crushed confidence in Petrobras and Brazilian stocks, because investors feared it could happen again.

However, I think Brazil learned its lesson from that episode. They fooled around with the country’s most popular company, and the stock market didn’t recover for more than a decade. I don’t think they’ll make that mistake again.

Even after today’s sell-off, Brazil’s stock market is one of the world’s best performing over the past 2 years. I don’t think Lula is dumb enough to ruin the country’s resurgent economy.

But we do have to acknowledge it as a risk. And hey, there’s political risk everywhere today. Even here in the U.S.

Common Themes

French economist Frederic Bastiat famously wrote, “The state is the great fictitious entity by which everyone seeks to live at the expense of everyone else.”

Bastiat wrote those words in 1848, but they remain highly relevant. This is essentially what happened in Brazil. Lula promised voters more benefits, and he won.

As we approach midterm elections, America faces its own challenges. An increasingly-socialist Democratic party threatens to sweep Congress.

If Dems do sweep, I don’t think the S&P 500 will crash 21% in a day like we saw in Brazil. But we should see a steep sell-off.

And it would be the beginning of more socialist America. Higher taxes, wealth redistribution, more censorship, more regulation, endless immigration, Green New Scam 3.0. They could even expand the Supreme Court and fill it with neoliberals. I outlined the risks in President AOC’s First Term.

The U.S. is no longer immune from the political chaos that was once only found in emerging markets. We could have a mini-Brazil situation ourselves soon.

So yes, I’m holding onto my Brazilian stocks. This is a long-term thing for me. When you buy quality companies at 9x earnings and fat yields, good things tend to happen in the long run.

I’m sticking to the original plan. Hold and reinvest dividends for ~5 more years, wait for the big re-rating, and sell when valuations get high.

Of course, if anything changes, you’ll be the first to know.

Get good grades in school. Go to college, pick a sensible major. Have fun, meet your spouse, graduate.

Do that, young man, and you’ll be on course for a happy upper-middle class life.

It even worked for some of us.

But that world is dying.

AI, Outsourcing, and Mass Immigration

These are the 3 horsemen of the white-collar apocalypse.

Together, they have combined to create a gnarly situation.

Let’s start with AI, which is rapidly disrupting knowledge work. Intelligence has become a commodity. By using the best AI models, anyone can access the equivalent of a genius-level PhD researcher, in any field.

The importance of this cannot be overstated.

The vast majority of white-collar work is on its way to becoming automated. Either learn to master the tools, or be replaced by someone who does. Those are the new white-collar rules.

Immigration + Outsourcing

Meanwhile, about 430,000 immigrants come into the U.S. every year on professional visas, seeking out high-paying desk jobs. They’re willing to work 60+ hours a week for 35% less money. Unscrupulous American companies are taking full advantage of the situation.

These foreign workers are competing for the same jobs as college grads. This is their path to a green card. Many have fake diplomas and falsified work histories. Once they get into hiring roles at a company, they mostly onboard people from their own countries (kickback schemes are common).

They send 30% of their pay back home, meaning it’s useless for the U.S. economy. They vote 75% Democrat. And they’re coming after high-paying U.S. jobs. Why are we doing this again?

It will continue until Americans stand up and tell the government no more. No self-respecting nation allows such volumes of immigration. India certainly doesn’t.

Thousands more companies are outsourcing their IT, customer support, and coding to other nations. Nevermind that the results are bad. They’re saving money (while destroying their brands and customer experience).

AI catches most of the blame, but immigration and outsourcing are making the white-collar world a cutthroat place.

2 New Paths to Success

We’ve entered a new world. Yet most people are still relying on the dusty old college playbook.

Forget about that world. It’s gone. Today there are two primary paths to a good career.

The first is going the blue-collar route.

My 17-year old son chose this path. He’s working as an electrical apprentice. Technically, he is still a high school senior. But every day, he gets up at 5:30 am and drives to the job site. He runs conduit, digs ditches, and drills holes in concrete. He’s also taking two community college courses online, and has electrical class once a week.

He’s earning $26 an hour, getting education credits, and learning a valuable trade. In 3.5 more years, he’ll be a journeyman electrician at the age of 21. This is a powerful alternative to college.

Here’s the shocking part. Among 322 seniors at his high school, he is the only one doing an apprenticeship.

These programs are available across the country. But most people are still betting on a white-collar future for their kids. In this environment, that’s a risky bet.

The Entrepreneurial Route

In the Paradigm Press app this week, our friend Matt Badiali told a fascinating story about a young entrepreneur who used AI to build his business. It makes my point powerfully:

Yesterday I met a very impressive young man. He was probably in his late 20’s. He came to give me an estimate for gutters at my home. He had an impressive app on his iPad that integrated everything for him. He just measured things and plugged in the numbers.

When we sat down to discuss his estimate, I mentioned how cool the app was. His response:

“Yeah, I made it myself.” I was impressed. This was a polished estimate builder. It was intuitive to use. And the layout was easy to understand.

“I did it with Claude. It’s 1500 lines of code…but I’m not a coder. It was all ‘vibe coded’. I just gave the AI all my old estimates in a folder. Then I asked it to build the app.”

I’m no AI fanboy. This was the first instance that I came across where I was legitimately impressed. He pays $20 per month for this service. He still has some bugs with it. He fixed one while I watched. He wanted a number pad instead of a box he had to write in. Five minutes later, he had what he wanted.

I’m blown away…and here’s why.

The app does a couple things for his business. First, it assures that his guys know exactly what they need, where to go, and what the job scope is. If you worked in a trade, you know how important that is. Nothing’s worse than having to run to Home Depot or Gutters R Us to pick up something you forgot at the shop.

But even more important, it allows him to grow the company. Pricing jobs is the most important part of the business. If you mispriced the job, you either don’t get it for coming in too high or lose money because you didn’t underbid it.

That’s why it’s so difficult for owners to hire that position. The bidder can make or break the company. But this app that he built is bullet proof. It literally just needs a couple of measurements to populate the entire bid.

In this case, Claude will enable him to grow his gutter business. He’ll be able to outcompete his competitors. All he must do now is focus on the execution at the jobsite. Selling the jobs is not a slam dunk.

I hired him for my gutters. And I’m going to keep an eye on his progress.

Amazing. This young man Matt B met is the future. Before AI, it would have cost at least $50,000 to build that app. There’s no way a one-man shop could have afforded it.

But this kid built a functional app to run his business. And it cost him $20 a month.

AI has made it so “idea guys” can become builders. Just tell the AI your idea, and it builds it. And the results are shockingly good if you use the right model (Anthropic’s Opus 5.5 is currently tops).

Modern AI agents can put out disturbingly good software and apps, quickly. It does require some work still. Setup, verification, testing, and monitoring. But compared to the pre-AI era? It’s 99% cheaper to build software.

Anyone with motivation can learn to build with AI. This is a powerful tool for entrepreneurs.

So the entrepreneurial path is actually becoming more viable. But you need motivation and a good idea.

So. Blue-collar, or business owner. These are becoming the most viable paths to success.

Sure, some college grads will find their perfect role and succeed. But over the coming years, the majority of those roles will go to people who excel at using AI agents.

So kids who do choose to pursue the white-collar path today need to be laser-focused on agentic AI. Master it. Because it’s here.

Let’s address one thing before we close. Optimists tell us that AI will create more jobs than it destroys.

Maybe that will be true. In 15 years, once the economy has had time to adjust.

Until then, we’re going to be in transition mode. And transitions of this scale are never easy.

So many deals are being discussed, with some already announced, that it’s a challenge to keep abreast of the news. All of these deals have implications beyond the four corners of each.

Despite the blockage in the Strait of Hormuz, the world is not running out of oil. There’s plenty of U.S., Russian and Venezuelan oil around and substantial amounts are making it out of the Persian Gulf, albeit at higher prices due to insurance costs.

But we don’t put oil in our cars and trucks. We use gasoline and diesel. Planes use jet fuel, which is derived from kerosene. Those are all refined products. The real bottleneck is not in the Persian Gulf — it’s in the refineries.

Ukraine has been blowing up Russian refineries using swarms of drones that are relatively easy to manufacture. Russia is a major exporter of refined products, as are the Persian Gulf countries. Damage to Russian refineries, combined with limited exports of Persian Gulf refined products, is reducing the world supply of diesel and keeping the world price high.

In turn, higher diesel prices get passed along to consumers because trucks transport much of the nation's goods and supplies.This is the real source of current U.S. inflation and is a huge political problem for Republicans in the coming midterm elections.

Trump wants Ukraine to stop attacking Russian refineries. That’s ironic because Ukraine is using geolocation and satellite intelligence supplied by the U.S. to launch its attacks. If Trump simply cut off intelligence sharing with Ukraine, that could go a long way to stopping the Ukrainian attacks on Russia because Ukraine relies heavily on outside satellite imaging and targeting information. Trump recently threatened to do just that.

The U.S. is finally moving on the diplomatic front to reach deals with Russia. One deal would allow U.S. investors to buy assets of Lukoil, a major Russian energy company with a retail gasoline and diesel network. The U.S. could offer partial sanctions relief, allowing Lukoil's Russian energy output to reach its distribution network.That’s another step in the direction of lower prices for gasoline and diesel at the pump.

Natural Gas Too

Another deal under discussion would allow U.S. investors to invest in the Nord Stream natural gas pipelines. These are pipelines that bring natural gas from Russia to Germany. This relatively cheap natural gas was critical to Germany’s success as a manufacturing and export powerhouse as Germany phased out nuclear power and reduced its reliance on coal-fired plants as part of the green new scam.

A covert operation, probably conducted by the CIA and MI6, blew up a section of Nord Stream in September 2022 as a way to choke off revenue for Russia after the start of the war in Ukraine. Russia found other markets for some of its gas, but German manufacturing became globally uncompetitive due to high energy costs.

Getting U.S. investment in Nord Stream could lead to a repair of the pipelines and get natural gas flowing back into Europe from Russia. In exchange for allowing these investments, Russia would get sanctions relief from the U.S.

The net effect would be to increase the supply of diesel and natural gas and to lower world prices. Ukraine would be a big loser, but they’re losing their war anyway. Some kind of detente between Russia and the U.S. would help get the Ukraine war over sooner. As an added bonus, Russia could help the U.S. pressure Iran to end the war there.

Investors should understand how all of these matters are connected: energy, money, sanctions, Ukraine, Iran, Russia and the U.S. are in a multi-tiered, multi-vector mélange that could bring peace and prosperity if handled diplomatically.

In addition to Ukraine, another big loser would be China if the U.S. and Russia join hands to isolate the Chinese Communist Party (CCP). One of the big impediments to this kind of multi-part deal is Western Europe and the UK, which seem to have a death wish to go to war with Russia (they would lose).

Chokepoints

Investors are familiar with the idea of chokepoints in the geographic sense. Important global chokepoints in seaborne transportation include the Strait of Hormuz, the Straits of Malacca, the Suez Canal, the Bab al-Mandeb Strait at the mouth of the Red Sea, the Panama Canal and several others.

Arctic shipping lanes that pass Greenland are an emerging chokepoint. But there are other supply chain chokepoints of global significance that are not strictly geographic. The Nord Stream pipeline is one. Diesel refineries are another.

Russia plays a critical role in Arctic shipping, the Nord Stream pipeline system and global refining operations. China is vulnerable to interdiction of every geographic and supply chain chokepoint noted because of its dependence on energy imports to drive its economy.

The U.S. already has influence over many of these chokepoints and could extend that influence in cooperation with Russia. This would leave China on its own against the combined power of the U.S. and Russia exercised through the chokepoints.

Let’s give this time. These energy and geostrategic plays won’t solve inflation problems or increase growth overnight. But they do represent important steps in the right direction. Trump and Putin both know exactly what they’re doing.

It was a darling of the dotcom bubble.

Founded in March of 1997, fairly late, the company quickly became a star. It IPO’d just 18 months later. That is unbelievably fast for a public offering.

Investors really wanted a piece of this one. And the vision was powerful. Bring fast internet to the world with a huge network of fiber-optic cable.

The investment pitch was tantalizing: we’re building the telecom infrastructure of the future.

Investors viewed the company as a toll booth on the internet.

Global Crossing’s fiber network soon spanned 27 countries and more than 200 cities. They were indeed connecting the world. Upgrading the people from dial-up to high-speed internet.

In 2001, Global Crossing raised another $1 billion and declared its network was “fully funded”.

Just 221 days later, the company declared bankruptcy.

The infrastructure Global Crossing built survived, and much is still in use today.

The company’s founder, Gary Winnick, managed to sell $700 million worth of stock before the collapse.

Bagholders got $0.

The Breakthrough That Broke Fiber

At the time Global Crossing was founded, each strand of fiber-optic cable could transmit about 2.5 gigabits of data per second (gps).

By 2000, a breakthrough called DWDM (dense wavelength-division multiplexing) made each cable able to transmit 100 gps.

A 40x increase in fiber throughput capacity. So even though the internet was still growing fast, they built way too much new telecom infrastructure. There was a glut of fiber.

The DWDM efficiency breakthrough played a big role in the dotcom bust.

Could something similar happen today? Of course.

And I believe there will be major breakthroughs which make AI far more efficient, and cheaper. Right now, around the world, there are probably 100,000 of the world’s smartest engineers working to hone efficiency and performance on hundreds of AI models.

With so much brain power focused on the problem, I don’t think AI will stay as expensive as it is today for long. We’re already beginning to see this with the newest Chinese open source AI models, which are perhaps 95% as good as the best American models, but cost 1/10th the price.

Depending on how it shakes out, such a breakthrough could cripple infrastructure companies much like DWDM did to the fiber plays.

And of course, there are also other factors to consider which could threaten the AI boom.

Data Center Stocks Crack

AI stocks stumbled again today. Hardest hit were data center stocks.

Coreweave (CRWV) is down 9.84% around midday. IREN is down 8.8%. Nebius (NBIS) is down 7.8%. Oracle (ORCL) is down about 4%.

The same concerns we saw in the dotcom are returning to haunt investors.

Too much debt. Not enough revenue.

A week ago Jim Rickards warned readers about data center stocks in the Paradigm Press App (available for Android and iPhone).

Source: Paradigm Press App

Coreweave is indeed the possible canary here. It’s the most heavily-indebted and leveraged among the “neocloud” data center stocks. It essentially buys Nvidia GPUs and rents them out. This is a very popular business model right now, and one that’s about to get a ton of new competition over the next year with new facilities going up nationwide.

And that last point Jim raised is important. Rising interest rates.

This is yet another similarity between the dotcom and AI booms. Between June 1999 and May of 2000, Greenspan’s Fed raised interest rates 6 times, from 4.75% to 6.5%. He was trying to slow the bubble down, but it just collapsed.

Today we are once again facing rising interest rates and yields. And it could get ugly considering the sheer amount of debt being used to fuel this bubble.

Leveraged to the Hilt

The AI boom is fueled by debt. Lots of it.

Morgan Stanley says in 2026 alone, companies have raised $466 billion in debt to power the AI buildout.

And there’s at least $1.4 trillion in future spending commitments (for example: you build the data center and we’ll guarantee a certain amount of rent for 5 years).

There’s debt and leverage at every level of the sector. The hyperscalers (like Amazon), the neoclouds (like Coreweave), the landlords, etc.

When something goes wrong, debt amplifies that wrongness. The key risks I see are:

• Interest rates keep rising
• A major efficiency breakthrough lowers AI costs significantly
• A flood of new data centers lowers prices and breaks the economics
• Chinese open-source models continue to improve and gain market share

Of course, it’s possible that we’re a year or more away from the bubble popping. You never really know with these things. Stocks can often climb the wall of worry longer than a rational person would expect.

But “neoclouds” and AI data center stocks sure do look risky here. With mountains of debt and locked-in future obligations, these puppies could implode unless everything goes perfectly.

With higher interest rates, not enough electricity, and rising inflation, it’s going to be a bumpy road for debt-laden darlings.

Meanwhile, parallels to the dotcom era are becoming unavoidable. We’ll continue to seek out investments which will survive and thrive during the bust and beyond.