It took longer than I expected. But the energy crisis we’ve been warning about since March is here.

Oil wells, pipelines, and refineries are being blown to smithereens in the Middle East, Russia, and Ukraine.

In Russia, Ukraine has been hitting oil refineries with drone strikes on an almost daily basis. Here’s the latest:

Source: X

Russia was the world’s second-largest exporter of diesel fuel. Now they’ve banned exports entirely. President Trump went so far as to warn Ukrainian President Zelensky to halt refinery attacks. Even Putin agreed to Trump’s proposed “energy ceasefire”.

Yet Ukraine’s drone strikes continue. Zelensky has gone rogue.

Diesel just hit an average of $6.26 a gallon here in the U.S. In parts of California, the price hit $9.99. It would have been higher, but they need to update the pricing software first.

In Germany, diesel is trading at more than $11 a gallon.

America is the largest exporter of diesel fuel in the world. And now Senate Majority Leader John Thune says he is “open to exploring” a ban on diesel exports. He said it casually, as if there wouldn’t be world-shaking consequences (we’ll explore those more below).

And China, which had been relying on its oil reserves instead of buying in the global market, is now gobbling up crude again. In Shanghai, oil currently trades at $138 a barrel, a $35 premium to the U.S. Typically the premium is around $5.

Meanwhile, strategic oil reserves in the U.S., EU, and Asia are at multi-decade lows. We can’t pull much more from them without risking the caverns collapsing.

The Strait of Hormuz remains about 80% closed. The Bab al-Mandab Strait, another key naval chokepoint, is now completely controlled by the Houthis in Yemen. The Houthis have also struck a number of Saudi oil wells and refineries in recent days with missiles and drones.

Saudi Arabia’s key East-West pipeline has been completely disabled by drone strikes, which apparently originated from Iraq. That’s about 4 million barrels per day, off the market for an indefinite period. Roughly 3.8% of global demand. Erased by a few $20,000 drones.

Source: S&P Global Commodity Insights, Upstream Content

This is the scenario we’ve been warning about since March.

About That Diesel Export Ban…

Diesel remains the lifeblood of modern economies. Trucks, trains, generators, and heavy equipment all rely on this critical fuel.

Unless the situations in the Middle East and Russia are resolved soon, prices will continue heading moonward.

With the U.S. being the largest exporter of diesel in the world, the idea of an export ban may sound nice at first.

The price of diesel here in the States would crash, providing relief to businesses and consumers. Everywhere else in the world, it would soar.

But American oil companies would be hit hardest. Refiners’ profit margins would be crushed.

Investors might lose faith in U.S. energy companies, especially refiners, because at any time the government could smash their profitability.

Just look at Petrobras (PBR), the Brazilian oil giant. The government owns a big chunk of it, and in the early 2010s they forced the company to sell fuel to consumers at a loss. This is why the company trades at a P/E of just 5.4 today with a fat dividend yield. It’s been more than a decade, but the company still trades at a huge discount to the market. Don’t get me wrong, we’ve done extremely well with Petrobras, and I still own a lot of it.

But if a diesel export ban comes to pass, U.S. refiners would see their valuations cut.

A ban on diesel is highly unlikely. If it happens, we’d get temporary relief but the consequences would be felt in capital markets for the next 20 years. It would be a serious hit to U.S. oil equities. It’s not a good or realistic option.

Midterms and POTUS

When a reporter recently asked President Trump when the Iran war will end, he replied, “I think very soon, probably right after midterms.”

But does this mean a deal will be struck after the midterms, or that the war restarts? I suspect Trump means we’ll go in full force after the midterms are over. He hinted as much in a recent interview with Laura Ingraham on Fox News:

Ingraham: “Even the neoconservatives are saying if you’re going to go into Iran, go in full. Just go in and take them out.”

Trump: “Well, maybe I don’t do that because of the elections.”

Our own geopolitical guru Jim Rickards says that after the midterms, it will most likely be back to war. Here’s what he wrote in an August 26th update:

Once the midterm elections are over, expect the kinetic war to return with a vengeance.

Win or lose, Trump will be out to punish Iran. Even with a partial resupply of critical weapons, Trump will be eager to go back on the attack, blaming Iran for its failure to do a deal.

I tend to defer to Jim on these matters. His track record on such matters is disturbingly accurate.

If he’s right, the energy crisis will only accelerate after midterms. A resumption of full-scale war will cause Iran to lash out at Gulf oil and gas infrastructure. And despite what neocons may be telling the president, a quick military resolution isn’t in the cards.

$150 oil and $10 a gallon diesel are becoming increasingly likely, unless something changes soon.

I’m still holding out hope that Trump’s team is able to make a deal. One that will stop Iran from acquiring a nuclear weapon, and re-open the chokepoints. But we’re going to have to make some concessions, and that is not something America is accustomed to.

So I expect energy prices to continue rising. I’m holding onto my energy stocks (Exxon and Petrobras), which combined make up about 11% of my stock portfolio. If you don’t have any exposure to oil, I’d recommend getting at least a little.

If we get a pullback in oil prices this week, I might even buy some calls on USO (United States Oil Fund – it tracks the price of WTI crude).

The post Putin, Persia and a Perfect Storm for Diesel appeared first on Daily Reckoning.

There’s an old Wall Street line: “Buy the rumor, sell the news.”

Well, from the Red Sea, then across Saudi Arabia and into the Persian Gulf, rumors just redrew the map.

The world’s new energy map. Credit Matt Bracken.

This is the new energy and geographic reality, and it won’t soon return to anything like the old reality, if ever (and probably never). So, prepare and invest accordingly. Let’s dig in…

Own Non-Middle East Energy!

No beating around the bush today. Here’s the takeaway: own energy and oil service plays that operate far from the Middle East! If you already own investments like that, good for you. If not, you need to get moving.

Here at Paradigm Press, my editorial colleagues and I have banged this energy and service drum for many months; even years, depending on how far back you want to go:

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

All these and more… We told you so.

And if you’re a new subscriber? Well, you weren’t around but here you are now. And many of our ideas still have legs for the marathon ahead.

The Middle East is ground zero for worldwide energy problems. Since the outbreak of conflict with Iran last February, global energy flows are disrupted. Oil prices have bounced around but are generally rising. And now, after what happened last week with Saudi Arabia and Yemen, they’re really rising, which we’ll address below.

The investment opportunity is that, for many years, markets mispriced risk in a historically volatile region. Meanwhile, it’s not as if people didn’t know the risks. Anyone could have visited a decent library and looked up some history about the Arabian region. But then, there’s what’s called “recency bias.” Many people thought that things seemed to be under control.

But obviously, things are not under control.

Energy is a System of Systems

From the pumpjack in the field to the fuel pump down the street, the story of oil is not “just” geology, and I say that as an old petroleum geologist.

Oil is a system of systems: land and mineral rights; exploration and mapping; capex allocations; roads, rigs and drill bits; pumps and pipelines; refineries, terminals and tankers; harbors and ports; insurance and finance; chokepoints and military power… or lack of it.

Now, we’re watching in real time how a seemingly “local” conflict can trigger a global energy and economic earthquake. In Arabia, it’s Saudis versus Houthis; and most people hear that and say, “Huh?”

Because who has time to learn about arcane tribal issues that go back over a century, to the dying days of the Ottoman Empire, let alone research back even more centuries into the dusty mists of ancient times? Who cares, right?

Well, right now we all care. And the short version is that a well-organized militia in Yemen – called “Houthis” – just mauled Saudi military forces and gained control over a strategic stretch of Red Sea coastline. During the back and forth, a key pipeline in Saudi Arabia was wrecked; apparently, the pump stations are destroyed. So now, Saudi is days away from essentially no oil exports, a loss to global supply in the range of 8 million barrels per day.

We have a situation where tankers must reroute; insurers must reprice; refiners everywhere are scrambling; and oil, refined products, fertilizer, other petrochemicals, LNG, container goods, food, and much more must now sail on very different routes and schedules.

 California gas station this past weekend. Credit anonymous Paradigm subscriber.

In due course, your cost of living will increase, while your quality of life will decline. Oh, and here (above) is California diesel fuel at $9.99 per gallon. Note how it maxes out the electronic price screen. No doubt, Shell will find a way to fix that problem.

Two Gates Under Pressure

Go back to that map, above. On the eastern side of Arabia sits the Strait of Hormuz, the narrow exit for Saudi, Kuwaiti, Iraqi, Emirati, Qatari and Iranian energy exports, and much else. It’s been in the news bigtime since the Iran conflict kicked off.

On the southwest corner is Bab al-Mandeb (BAM), the “Gate of Tears,” where the Red Sea opens into the Gulf of Aden and Indian Ocean. Plus, BAM is the gateway to Suez, up north, which leads to Mediterranean ports and Europe. It too has been in the news over the past few years, and now drives much of the energy story.

Basically, if somebody closes or restricts Hormuz or BAM, the world changes fast. If both Hormuz and BAM have problems, then we all have big problems.

That is, with Hormuz under restrictions from Iran, oil producers in the Persian Gulf struggle to move energy out. And now that BAM is under threat, the Red Sea-Suez route becomes unreliable.

Plus, with Saudi Arabia’s East-West pipeline shut down, the kingdom’s land bridge from eastern oil fields to Yanbu on the Red Sea ceases to be a reliable source of oil to global markets; and in fact, becomes just another target.

And consider that the Houthi militia need not defeat Saudi Arabia in any sort of major battlefield sense, like some sort of reverse version of Desert Storm of 1991. They only have to make Saudi oil logistics unreliable.

In other words, Houthi militia – literally, “guys in sandals with AK-47s” – don’t require a blue-water navy or modern air force to disrupt global shipping. They just need to control a stretch of Red Sea shoreline, which is the situation now. They can station observers with binoculars (or use Chinese satellite feed), set up drones and low-end missiles, utilize mines or boarding teams, and generally present enough credible firepower to make shipowners and insurers think twice.

The larger context is that global trade – definitely, the energy trade – runs on sailing schedules, credit and confidence. When ships must stop and await an escort, or divert around Africa, the costs appear everywhere: higher fuel burn, inventory shortages or backlogs, delayed delivery times, higher freight rates, war-risk insurance premiums, and higher prices all down the line.

Of course, oil gets the headlines. But the same shipping lanes that host oil tankers also serve vessels that haul refined products, LNG, fertilizers like urea and ammonia, methanol, sulfur, aluminum, industrial chemicals, auto parts, electronics, textiles and ordinary household goods. You name it. Because you’ll pay more for it.

Saudi Weakness, Houthi Leverage

Since the 1970s, Saudi Arabia has spent massive fortunes on aircraft, missiles, air defenses, advisers and command centers. On paper, it looks formidable. But in combat – certainly last week in Yemen – Saudi military power was abysmal.

One problem is that much of Saudi’s ground force is comprised of foreign mercenaries; they are happy to get paid but not much of a war machine. In fact, last week against the Houthis, Saudi troops were defeated in a debacle.

Plus, Houthis have advantages where it matters. They’re fighting on their home field, in their own mountains and coastal approaches. They excel at improvised logistics and can supplement their capabilities with drones and various Iranian and Chinese missiles. At root, they’ve transformed low cost equipment into strong operational leverage. And again, the Houthis need not conquer Saudi Arabia; just make Saudi oil export routes unreliable.

The quick history is that the Saudi-Yemen border is not a clean line; and it never was, not even in the days of the Ottoman Empire. When the Ottomans collapsed in the 1920s, Saudi claimed vast areas of Houthi land. And the result is a long-disputed, ill-defined “tribal” zone along a range of rugged mountains. Another way to say it is that the Saudi-Houthi conflict is based on historic grievances, religious differences and a long-festering, anti-Saudi anger. So, don’t be misled into thinking it’s all a big, so-called “Iranian proxy war.”

In another universe, perhaps Saudi-Houthi is local conflict with little blast radius. But in this world, with global dependence on Saudi oil exports, we feel worldwide shockwaves. Looking ahead, the picture is ugly for Saudi oil exports. Hormuz is restricted; BAM is under Houthi control; and the Saudi East-West pipeline is shut in, with pump stations blasted to ruins.

Saudi East-West Pipeline pumping station. Credit MizarVision.

Hence, markets are repricing oil and much else, likely for the long haul.

Washington Stays Out

It’s worth noting that, per news accounts, Saudi Crown Prince Mohammed bin Salman asked President Trump for U.S. military help against the Houthis, and Trump declined to intervene, at least for now.

Clearly, Trump doesn’t want U.S. forces to become the fire brigade for this fight between Saudi and the Houthis. The U.S. has immense combat power available in the Middle East; but right now, the U.S. military has more problems than available assets. So, Trump and his generals must be selective. The policymaking process is clear: Why should the U.S. get involved? And what does the U.S. get out of the mess?

The Investment Lesson

To restate things: the Middle East risk premium just exploded, literally. Hormuz is restricted, BAM is threatened, Saudi’s bypass pipeline is shut down, and even the Suez Canal can be closed by relatively simple military strikes. So, oil is repricing to a much higher level.

This doesn’t mean that Middle East oil disappears. But it does mean that all oil everywhere – even here in North America! – now carries a price premium based on the Middle East risk. Call it the revenge of geography.

Looking ahead, the necessary evolution for energy users is redundancy and security. Generally, this favors non-Middle East producers, definitely in the Western Hemisphere. Plus, service companies, offshore drillers, and LNG that comes out of secure infrastructure.

Other strong plays will be uranium in stable jurisdictions, critical minerals, grid fuel, storage, pipelines, and related energy services that operate in jurisdictions where the route to market is not controlled by a militia with a century-long grudge.

Sad to say, but in U.S. culture the term “energy security” is more of a political slogan than a foundational strategic imperative. Or else, why has the U.S. misallocated so many resources to dumb ideas that range from the “Green New Deal” to draining the Strategic Petroleum Reserve whenever gas prices bump up a few dimes.

Energy security is geographic, such that it defies the tyranny of distance. It requires strategic focus and discipline at national scale. It’s steel in the ground, equipment, skilled labor, defensive power, and the ability to punish bad guys when the map turns ugly.

Looking ahead, the best investment angle is in companies that produce and move energy without having to ask permission from some tribe in the mountains, or wait for Washington to save a Saudi regime that just displayed to the world its martial incompetence.

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

The post Investing on a New Energy Map appeared first on Daily Reckoning.

One of the persistent debates surrounding the war with Iran concerns the amount of weapons the United States has launched, either in attacking Iran or defending U.S. bases against Iranian attacks.

The question of how many weapons have been used segues into how many weapons remain in U.S. inventories. If those remaining inventories are low, that calls into question the ability of the U.S. to sustain the war in Iran and respond to attacks in hot spots around the world.

President Trump claims that the U.S. has ample weapons to continue the war and meet new threats. That claim is dubious. The truth is that arsenals are almost totally depleted in some cases and dangerously low in others.

Hard data is hard to come by, but we have been able to obtain reasonably accurate figures from sources in the Pentagon and from the weapons manufacturers themselves.

Here’s a summary of the key weapons systems now in short supply, including the quantities requested to replenish U.S. arsenals, anticipated deliveries, annual production capacity and estimated timelines for returning inventories to prewar levels:

• Tomahawk Cruise Missiles: Over 1,000 missiles have been used in Iran to date. The Pentagon’s request for new missiles for fiscal year 2027 is 785 missiles. Anticipated deliveries in fiscal year 2026 are 207. Annual production capacity is between 600 and 1,000 missiles, although the lower figure is more realistic. Inventories at a level prior to the war in Iran are not expected to be achieved until late 2030 or early 2031.

• Terminal High Altitude Area Defense Missiles (THAAD): Approximately 290 missiles have been used in Iran to date. The Pentagon’s request for new missiles for fiscal year 2027 is 857 missiles. Anticipated deliveries in fiscal year 2026 are 92. Annual production capacity is between 96 and 400 missiles, although the lower figure is more realistic. Inventories at a level prior to the war in Iran are not expected to be achieved until late 2029.

• Patriot Interceptor Air Defense Missiles: Approximately 1,430 missiles have been used in Iran to date. The Pentagon’s request for new missiles for fiscal year 2027 is 3,203 missiles. Anticipated deliveries in fiscal year 2026 are 172. Annual production capacity is approximately 2,000 missiles. Inventories at a level prior to the war in Iran are not expected to be achieved until mid-2029.

• RIM-161 Standard Missile 3 (SM-3): A system meant to destroy incoming ballistic missiles in space — approximately 250 missiles have been used in Iran to date. The Pentagon’s request for new missiles for fiscal year 2027 is 214 missiles. Anticipated deliveries in fiscal year 2026 are 52. Annual production capacity is between 156 to 250 missiles, although the lower figure is more realistic. Inventories at a level prior to the war in Iran are not expected to be achieved until early 2029.

• RIM-174 Standard Missile 6 (SM-6): A system meant to destroy incoming aircraft and missiles that can also strike ships — approximately 370 missiles have been used in Iran to date. The Pentagon’s request for new missiles for fiscal year 2027 is 540 missiles. Anticipated deliveries in fiscal year 2026 are 125. Annual production capacity is about 240 to 500 missiles, although the lower figure is more realistic. Inventories at a level prior to the war in Iran are not expected to be achieved until late 2028 or early 2029.

• AGM-158 Joint Air-to-Surface Standoff Missile (JASSM): A cruise missile that can be launched by U.S. Air Force aircraft from a safe distance (standoff) — approximately 1,100 missiles have been used in Iran to date. The Pentagon’s request for new missiles for fiscal year 2027 is 821 missiles. Anticipated deliveries in fiscal year 2026 are 484. Annual production capacity is about 860 missiles. Inventories at a level prior to the war in Iran are not expected to be achieved until mid-2027.

• Precision Strike Missile (PrSM): A new surface-to-surface attack missile — approximately 70 missiles have been used in Iran to date. The Pentagon’s request for new missiles for fiscal year 2027 is 1,134 missiles. Anticipated deliveries in fiscal year 2026 are 70. Annual production capacity is around 680 missiles. Inventories at a level prior to the war in Iran are not expected to be achieved until late 2026.

This data is focused on the most important weapons systems the U.S. uses in Iran, including cruise missiles, anti-missiles and attack missiles.

It does not include other, more mundane but equally important data, including global shortages of 155mm artillery shells. Those shells are not being used in Iran, but they are critical weapons used on the front lines in Ukraine.

The Pentagon’s Math Doesn’t Add Up

Some key facts should jump out at us based on these figures.

The first is the gap between weapons requested by the Pentagon for 2027 compared to the amount of weapons anticipated for delivery in 2026. Requests for Patriot missiles in 2027 are almost 20 times anticipated deliveries this year. Requests for THAAD missiles in 2027 are over nine times anticipated deliveries this year. Requests for PrSM missiles in 2027 are over 16 times anticipated deliveries this year. Similar high ratios prevail for the other systems.

This ratio casts considerable doubt on the ability of weapons manufacturers to meet the Pentagon’s requests. It is true that output is increasing, but these weapons systems are highly sophisticated and therefore sensitive in terms of electronic components, guidance systems, radar seekers and other features that make them effective.

Expanding production is not nearly as easy as expanding output on an automobile assembly line. Some of the work is almost artisanal.

There is also a gross mismatch between the weapons requested and actual production capacity. Patriot missiles requested are 160% of estimated capacity. THAAD missiles requested are almost 900% of current capacity if the lower capacity estimate is used.

This mismatch explains why many of the inventory goals will not be met until 2029 or later. And even those 2029 estimates do not make allowance for expanded attacks in Iran or new wars elsewhere.

The U.S. is dealing from a position of weakness in terms of key weapons systems inventories. Loud claims from the White House won’t change that.

Ukraine’s Bill Comes Due

The biggest disgrace is that our arsenals would not be this depleted if we had not committed so many weapons to Ukraine.

We wrote from the start of that war in 2022 that Russia would win and that Ukraine was a corrupt state with a serious neo-Nazi problem. Those forecasts reflected our assessment of the war from the beginning. The end game is now in play, with Russia pressing its campaign in eastern Ukraine and along the Black Sea coast.

The Patriot missiles and other systems supplied to Ukraine have added to the pressure on U.S. inventories and production capacity. Not all of those weapons came from existing U.S. stocks, and Ukraine is not the only reason inventories are so low now that we are fighting in Iran.

But the allocation of scarce weapons among competing theaters is precisely the problem Washington should have anticipated.

The White House has invoked the Defense Production Act to remove legal, logistical and supply chain obstacles to expanded weapons production. Of course, the situation would not be so dire if Obama and Biden had not spent their twelve years in office running down the military capability of the United States.

Trump could not do much to reverse the situation in his first term because of the Russiagate Hoax and two impeachments led by Democrats. Now, in Trump’s second term, things are beginning to change for the better.

Eight Defense Giants, One Massive Rebuild

The biggest defense contractors in the U.S. (known as the Big Eight) are Lockheed Martin, RTX (formerly Raytheon), General Dynamics, Northrop Grumman, Boeing, L3Harris, HII (formerly Huntington Ingalls Industries) and Leidos.

Lockheed Martin is the prime contractor on THAAD, JASSM and the PrSM strike missile. RTX is the prime contractor on the Tomahawk cruise missile, the Patriot air-defense system, the SM-3 and the SM-6. HII builds nuclear aircraft carriers and submarines.

Northrop Grumman builds the B-2 stealth bomber and is a major partner on the F-35 advanced fighter jet. L3Harris specializes in advanced telecommunications, electronic warfare, night vision capabilities and rocket motors.

Leidos works closely with the intelligence community on cyber operations and mission software. General Dynamics builds the M1 Abrams battle tank and nuclear-powered submarines. Boeing’s space and defense units focus on fighter jets, helicopters and space and satellite systems.

Beyond the Big Eight, other large defense contractors include SAIC, Booz Allen, Textron, SpaceX, Palantir, Anduril and General Atomics. As the Pentagon replenishes its arsenals and invests in new technologies, contracts will flow to both established manufacturers and newer companies.

The Next Defense Boom Starts Here

The dire state of U.S. inventories of weapons systems, as well as the obsolescence of many front-line systems, is a national disgrace.

Patriot air-defense systems can shoot down cruise missiles and ballistic missiles, but the growing threat from advanced hypersonic weapons presents new challenges. Russia has repeatedly targeted Patriot systems in Ukraine, underscoring the vulnerability of expensive air-defense assets to modern missile attacks.

That said, out of past failures come new opportunities.

The Pentagon is determined both to replenish inventories and to build new systems that are better suited to the age of AI, drone swarms and hypersonics. Investors looking to lighten up on the AI boom exposures might consider the defense sector as the next big thing.

The post From Empty Stockpiles to Explosive Profits appeared first on Daily Reckoning.

Our daughter sent the news up from South America.

That wasteland that we bought down there has turned into a treasure. Here’s the story from the local paper:

“Gualfin” is our place, the desolate mountain farm we bought twenty years ago, when prices were so low, we couldn’t resist. Since then, prices have stayed low. But now we have found El Dorado in our lonesome patch.

Gold, copper, lithium…this ‘worthless’ land has everything…

And nothing.

“Bill, don’t buy a yacht yet,” cautioned our lawyer. “This is Argentina. The property owner only has the rights to the first 50 centimeters (about 20 inches) of dirt. All the mineral rights belong to the government.

“And the government has the right to give a mining concession to your land whether you want it or not.

“Besides, what they are really looking for is lithium. The rest is probably not worth mining. Your place is too far and too inaccessible. So, unless the deposits are really good, no one is going to bother.

“The exploration company is digging down now to see if the lithium salts are worth a major mining investment.”

Bummer!

In three sentences, we had gone from being a rich mine owner back to being a poor scribbler. And now we will have huge trucks and excavators interrupting our views.

Meanwhile, we keep our eye on Argentina, partly because we have our daughter there…and partly because Argentina is running one of the most fascinating experiments in world history.

Democracy favors the blowhard, the con man and the big spender. Especially the large democracy. People cannot know their leaders personally…and they do not have the time or the experience to evaluate policies intelligently. All they have to go on are soundbites, concocted ‘narratives’ and promises.

The press, too, advertises itself as a watchdog. But it is really more of a lapdog, yapping only to fend off critics. In its simpleminded universe, there are problems…and there are solutions. Most of what it calls ‘news’ merely repeats the press releases when the ‘solutions’ are announced…and then, when the program fails, it barely mentions it.

Most elected governments spend too much, borrow too much, and then ‘print’ too much money. The result is inflation and insolvency, often garnished by war.

Argentina served up the full menu for decades. But along came Javier Milei with the radical idea that a government should be limited and spend no more than it collects in taxes. As far as we know, nothing like it has been attempted in modern times…perhaps with the exception of Roger Douglas’s more modest program in 1980s New Zealand, which ended with mixed reviews.

Instead, democratic governments normally just get larger, more inept and more corrupt – until war, revolution, or economic catastrophe intervene.

So, how’s it going on the pampas? So far, so good…

Inflation is still going down, the BA Times:

Inflation in Buenos Aires City slowed to 1.7% in August

Price hikes in the capital slowed for the first time in two months

The boom continues, too, with the best auto sales in twenty-five years. And Argentina is expected to have the highest economic growth rate in Latin America next year.

But as in New Zealand, the results are not always immediate or easy to spot. While the inflation rate goes down, prices are still going up…albeit at a much slower rate. The problem, during this transition period, is that they are going up faster than wages.

People who are used to a crooked system need time to adjust to a straight one. Milei eliminated the government’s deficits. That meant cutting back on its outlays. But a lot of voters in the poorer barrios relied on subsidies for their daily bread. Consumption in some neighborhoods is actually going down as wages fail to keep up with price increases.

While the public still seems willing to give Milei’s reforms time to work their magic, political pressure is growing. That may be why Milei has pulled the Falklands out of the drawer. The public is patient. But patience is a wasting asset. Patriotic claptrap has a longer shelf life. Milei may be hoping it will give him more time for his reforms to work. France 24:

Argentina’s Milei escalates Falklands dispute in sovereignty push against Britain

Daily Digest:

Milei exploits Trump’s thirst for revenge as he rekindles claim on Falklands

“Your country was not there to help me,” said Trump to Britain, referring to the UK’s reluctance to join his blockade of Iran’s blockade, following the US bombing of Iran and the killing of its leader. Trump says the US will ‘reconsider’ its support for Britain’s claim to the islands.

What happens next?

We’ll wait for the news. And we’ll continue to enjoy our twenty inches of topsoil; it’s all we’ve got.

The post Twenty Inches of Topsoil appeared first on Daily Reckoning.

Is AI set to wipe out humanity? This is the (manufactured) question of the week.

The firestorm erupted after a researcher at leading AI firm Anthropic resigned, saying the big companies are “gambling with our lives”.

This was the post on X (Twitter) which set things off:

The post went crazy viral, generating 157 million views, 756,000 likes, and 155,000 retweets. It’s one of the most popular tweets of the year.

At first, I assumed this was a natural, organic thing. Good for Jacob, standing up for his beliefs.

But then the hits just kept coming.

Next up, Anthropic’s head of alignment (~safety), re-posted Jacob’s message, and threw in an outrageous estimate of the risk.

Source: X

“We really do earnestly believe AI could kill all humans! I personally think it is [greater than] 10% chance within the next decade”.

What?! He sounds so excited about it. And that’s coming from Anthropic’s current head of alignment.

This is what a sophisticated PR campaign looks like. The goal: scare the crap out of the public and pass favorable regulation. Let’s examine the evidence.

Exhibits A, B and C

Yesterday, Anthropic also released a 154-page report about all bad actors trying to use their systems for evil.

According to the company, bad guys attempted to use Anthropic’s AI model Claude to:

• Yemen’s Houthis tried to build hypersonic missiles
• China used it to track Muslim Uyghurs
• Russia hacked Ukrainian targets
• Someone attempted to genetically engineer viruses

Anthropic says they “disrupted every operation in the report.” Disrupted is an interesting word choice here. They didn’t say thwarted, or stopped. They said disrupted. Let’s file that away for the future.

The company implies that the world is only still spinning due to their robust safety measures.

This is one thing you’ll notice about these big AI companies. Only their specific company can be trusted with superintelligence. Everybody else is out to destroy the world with their reckless ways. That’s the messaging from almost all the big guys.

And THEN we got another big hit. Reuters yesterday:

OpenAI pushes for mandatory national AI safety rules

“The prospect of AI-accelerated AI development demands more than voluntary commitments. The United States needs ​mandatory, capability-based national regulation that can evolve as the technology does,” OpenAI Chief Global Affairs Officer Chris Lehane said in ​a blog post.

…OpenAI is urging ​Congress to adopt capability-based national AI safety requirements, including testing standards, independent assessments, cybersecurity protections and incident-reporting rules for the most advanced AI systems.

Now it’s coming together. Some people are probably thinking, Well, gosh that seems responsible! Who could argue against common sense safety laws?

Therein lies the problem. They won’t be common sense rules. They will be designed to crush smaller competitors like bugs, and outlaw open-source models (which cost far less). And probably eliminate online privacy, as well.

An FDA for AI

Most of the proponents of AI regulation advocate the creation of a sort of “FDA for AI”.

The government would conduct trials to make sure new models are safe. Companies would have to pay huge regulatory costs to get their models tested and monitor users. Many smaller startups won’t be able to afford that.

Unless we prevent it, these laws will hand an oligopoly to the existing big players. Primarily OpenAI, Anthropic, and Google.

The tobacco firms ran this playbook back in the 2000s. Philip Morris supported FDA regulation of the industry, because it gave them a big advantage.

Today every new tobacco product has to go through the FDA. So new competitors are few and far between.

Great news for the incumbents. This is one of the reasons I own Altria (MO), Philip Morris’ American division. The company prints money and hands out huge dividends. Competition is limited by law.

But if this happens in AI, it will be extremely bad for the country. Innovation will dry up, and foreign competitors with more competition-friendly systems will eventually win.

To Be Clear…

There may need to be some sort of regulation around AI at some point. But we must not let the leaders of this industry dictate the rules. There are countless examples of why this is a horrible idea.

They will pull the ladder up behind themselves and set up a cozy environment with limited competition. They’ll print money, and have unprecedented influence over the population, and even the government.

Any AI regulation needs to allow startups to compete with the big boys. It needs to allow the use of open-source models, so small companies aren’t stuck paying gobs of money to an oligopoly.

That’s what I’d prefer. But we may not get it. The FDA approach seems likely. Less competition and innovation, higher prices, and malign influence.

What else does the future hold? Probably a digital ID system. This is the elimination of online privacy I mentioned earlier.

To use a sophisticated AI model, you’ll need a digital government ID. It will be tied to your real identity, which will reduce potential for abuse. Eventually, to access the internet at all, you’ll need to authenticate with your biometric data (eye scan, fingerprint, etc). This is inevitable in my view. It will happen soon after the first gigantic AI-powered cyber attack.

Oh yeah, OpenAI and Anthropic are both planning an IPO soon. So the timing on this whole campaign is no accident.

Open-source AI is giving the big guys real competition, and they’d like to eliminate that risk. Will they succeed? I don’t know. But our political system is extremely vulnerable to these types of operations. And with so much money sloshing around, all the wheels will be greased.

More soon.

The post AI Leaders’ Devious Plan appeared first on Daily Reckoning.

The fact that China has a large quantity of gold in its official reserve position is not news. China’s gold reserves have been rising substantially since 2009.

At that time, China’s official gold reserves were 1,054 metric tonnes (mt). Today, those reserves stand at approximately 2,366 mt, an increase of about 124%. But that does not tell the whole story.

The official reserves are reported by the People’s Bank of China (PBOC), the Chinese central bank. But China may also hold gold through other state entities, including the State Administration of Foreign Exchange (SAFE). China is non-transparent about the full extent of its gold holdings. The exact amount of any unreported gold is unknown. Estimates can be formed based on imports from Switzerland via Hong Kong, but those are inexact.

One estimate is that the amount of “hidden gold” held by Chinese state entities is approximately the same as the amount reported publicly by the PBOC. If that estimate is correct, total Chinese gold reserves would be about 4,700 mt, or roughly 58% of U.S. gold reserves of 8,133 mt.

That would make China the second-largest sovereign gold holder in the world after the U.S. and put China ahead of gold powers such as Germany, Italy and France. Still, caution is warranted. Actual official gold holdings in China could be higher or lower than that estimate.

Both the publicly reported gold reserves of PBOC and any hidden state gold reserves are in addition to the amount of privately held gold in China. That figure is even more difficult to estimate. It is widely reported that Indian citizens privately own substantial quantities of gold, with estimates often running into the tens of thousands of tonnes.

China has a population about the same size as India and an equally strong cultural affinity for gold bullion. An estimate of perhaps 10,000 metric tonnes of gold held privately by Chinese citizens seems reasonable, although it cannot be verified precisely.

By any measure, China is a gold powerhouse, even if its reported official holdings still fall short of those of the U.S. But what is China doing with its gold? What is the point of massive gold accumulation by the Chinese government and its people?

The Gold-Backed Yuan Is a Chimera

One thing that is not happening is the creation of a gold-backed Chinese yuan. China may have an enormous amount of gold, but China has an even larger money supply than the U.S. and an enormous debt burden once provincial debt issuance is taken into account.

Traditionally, gold holdings must be between 20% and 40% of the money supply to engender trust in a gold-backed currency system. China’s reported gold holdings are in the low single digits as a percentage of money supply. In my view, there will be no gold-backed yuan for the foreseeable future.

The idea that the Chinese yuan, whether gold-backed or not, can replace the U.S. dollar as the global reserve currency is also nonsense. Official foreign exchange reserves are not simply piles of currency. They are held largely as securities and deposits denominated in a currency. These securities are typically government bonds but can include other assets, depending on the country.

In short, you cannot be considered a major reserve currency unless you have financial markets large enough to absorb global official savings.

A bond market requires underwriters, called “primary dealers” in the U.S., a range of maturities, regular auctions, hedging instruments such as futures, options and when-issued trading, a large pool of institutional buyers and, above all, a strong rule of law.

China has a large bond market, but it lacks the depth, openness, convertibility and legal protections needed to rival the U.S. Treasury market as the foundation of the global reserve system. It will take years to build a system that does. China is simply not in the same league when it comes to reserve-currency status, with or without gold.

The latest IMF data show that the U.S. dollar accounts for about 57% of global foreign exchange reserves. The euro accounts for about 20%.

That leaves all other currencies to share the remaining 23%, with significant portions taken up by Japanese and U.K. securities, along with Australian and Canadian dollars and Swiss francs. The Chinese share is about 2%.

If a gold-backed yuan is a chimera and the yuan as a dominant reserve currency is a nonstarter due to the limitations of its financial markets, why is China buying so much gold? What is the real plan?

Follow the Gold, Not the Yuan

To understand China’s gold acquisitions, we need to look at what else China is doing in the gold market.

Major Chinese banks have recently moved to suspend or restrict individual trading in precious metals linked to the Shanghai Gold Exchange. This was presented as a risk-reducing measure. The restrictions do not prohibit physical gold purchases or ownership through gold funds by everyday Chinese citizens.

In effect, China is curbing certain forms of retail “paper gold” trading while allowing accumulation of physical gold. That’s an amplification of trends already in place.

Hong Kong also launched a new central clearing and settlement system for gold in July 2026. Hong Kong has a better rule of law than mainland China, although it is firmly under the control of the Chinese Communist Party.

This arrangement gives China greater flexibility to develop gold trading and settlement outside the traditional dollar-dominated system. That result is not the same as a gold-backed yuan, but it does lessen China’s dependence on dollar-denominated payment systems with regard to gold.

China also changed its insurance regulations to allow ten major insurance companies to invest in gold, with exposure capped at 1% of total assets. Given the size of the Chinese insurance market, even 1% represents a potentially major increase in demand for gold.

Hong Kong is also expanding its physical storage capacity, with a target of over 2,000 metric tonnes within three years. That would make it one of the world’s major gold storage centers, although the target has not yet been reached.

China’s Golden Escape Hatch

Taken together, these measures show that China — already the largest gold producer in the world based on its mining operations — is building more than a massive gold reserve.

It is positioning itself as a global gold trading center, with infrastructure for investment, retail accumulation, hedging, imports, settlement, clearing and storage.

China is not troubled by the decline in the dollar price of gold between January 2026 and today. The reason is that China is in acquisition mode.

In my view, Chinese policymakers expect the price of gold to soar sooner rather than later. Any buyer accumulating gold favors a lower price for the time being because it means getting more gold for every dollar spent.

The payoff comes later if the dollar price of gold spikes higher. Whoever has the most gold then is the biggest winner.

All of this dollar price action really says more about dollar volatility than it does about gold. That’s one more reason to get out of dollars and into physical gold.

China is looking ahead to the day when a confrontation with the United States could force it to separate from the dollar payments system entirely in order to avoid asset freezes and financial sanctions.

Chinese policymakers are watching the financial sanctions that the U.S. is imposing on Russia and Iran and drawing the appropriate lessons.

China’s solution to geopolitical chaos and financial warfare is to buy physical gold. Investors in the U.S. are well advised to take the same approach.

The post Beijing Preps for Currency Wars appeared first on Daily Reckoning.

It’s Vienna in 1927.

Ludwig von Mises is sitting in his office at the Austrian Chamber of Commerce and has just written the most dangerous paragraph of his career.

Of course, he doesn’t know that. But that paragraph will be clipped, stripped of context, and thrown in his face for the next century. His ideological enemies will use it to smear him. What’s even worse is that some of his supposed friends will use it to claim him.

The book is called Liberalism. Chapter 1, Section 10 of the tome is titled “The Argument of Fascism.”

In it, Mises admitted something most classical liberals wouldn’t say out loud. He wrote that the fascist movements sweeping Europe were full of the best intentions, and that their intervention had, for the moment, saved European civilization.

If you stop reading there, you have the perfect scandal. “Mises praised fascism!”

But if you finish the paragraph, you have context, and hence, the truth.

He ended that section by writing, “Fascism was an emergency makeshift. To view it as something more would be a fatal error.”

Those who don’t argue in good faith never mention that all-important conclusion. Of course, if they did, there would be no argument. Mises was no fascist at all.

What Europe Looked Like From Vienna

To understand what Mises meant, you have to see what he saw.

The Bolsheviks had taken Russia in 1917. The civil war that followed killed millions. The Comintern wasn’t shy about its plans for the rest of Europe: revolution, terror, and liquidating its class enemies. Communist risings had already broken out in Germany and Hungary. Then, Mussolini took Italy in 1922.

From a Vienna office in 1927, none of this was theory. It was the continental neighborhood.

So Mises made a narrow, lawyerly point. When armed men come to overthrow your society by force, you may defend yourself by force. No liberal has to pretend otherwise. The fascist militias had met revolutionary violence with counterviolence, and, in the short run, it had worked.

That’s the entire concession. Self-defense works in the moment.

Then he spent the rest of the section explaining why Fascism would only ever win “the moment.”

The Demolition

Here’s what the quote-clippers on both sides leave out.

Mises argued that fascism couldn’t defeat socialism, because it refused to fight socialism where socialism actually lived: in men’s minds.

Communism is an idea. It’s a horrendous idea, but it’s an idea, nevertheless. You can’t shoot it or jail it. You can ban the pamphlets, shut down the presses, and exile the professors, but the idea bides its time, waiting for the pressure to abate.

Persecution only feeds it. Every jailed agitator becomes a martyr. Every banned book becomes forbidden fruit. Repression converts the curious into true believers.

And what did fascism offer in place of the socialist idea? Nothing. Mises noted that its economic program was interventionist to the bone: price controls, cartels, state direction of industry. Fascism fought socialism with socialism’s own tools while borrowing its methods of force. They were two peas in a pod.

Only a better idea can beat an idea, and Mises had great one: private property, free exchange, sound money, limited government, and peace. It was the decidedly ordinary machinery of liberalism. It didn’t march or wear uniforms. It just worked, which is why there’s no such thing as a rally for capitalism. Everyone who believes it works is, well, at work.

Mises predicted another thing. A movement built on the worship of force at home would worship force abroad. He warned that the fascist powers would drag Europe into wars that would wreck the civilization they claimed to save.

He wrote that 12 years before the Wehrmacht crossed into Poland.

The Makeshift Never Stays Temporary

Now, why does a 99-year-old book section matter to your Thursday morning?

Because the emergency makeshift isn’t a fascist invention, but a permanent temptation that every generation reaches for.

The pattern is always the same. First, a genuine threat appears. Then, fear takes hold. Next, someone offers the shortcut: skip the argument, just suppress the threat.

Or ban the speech at the university, lest we offend the students. Or declare an emergency, grab the state’s power, and swear to the Holy Father above that the new rule is temporary. You know, like they did with the Patriot Act.

But we know the Ratchet only turns one way. Emergency powers outlive every emergency. The censorship built for your enemies spreads domestically. Yes, we scan!

And the bad idea you banned? It’s still there, getting stronger, in fact, because now it can claim it was silenced instead of answered.

Mises lived the endpoint. He fled Vienna in 1934. His books were purged. His seminar scattered across the globe… all the way to NYU.

Then the strangest thing happened. The regimes that banned him died. The empire that embodied everything he fought collapsed in 1991, for the very reasons he’d laid out in print decades earlier. His ideas outlived every man who tried to bury them.

Force lost. The idea won. It only took 50 years, which is roughly 49 years longer than any politician’s patience.

Wrap Up

When you’re told some idea is too dangerous to be heard, or that this crisis requires suspending the normal rules, or that the makeshift will be temporary this time, you’re watching the oldest play in the book. It failed in 1927, and it hasn’t improved with age.

You can’t beat a bad idea with a ban. You can only beat it with a better idea, argued in the open, by people with the patience to keep arguing.

That’s the way for civilization to keep moving forward.

Have a great day ahead.

The post The Emergency Makeshift appeared first on Daily Reckoning.

A friend recently pitched me on his favorite cryptocurrency, XRP.

The core of his thesis was that since XRP trades at just $1.41 per token, it’s a bargain compared to Bitcoin.

Bitcoin trades at $78,600 per coin. So he believed that XRP is wildly underpriced at just $1.41. He told me that buying XRP today is like buying Bitcoin in 2012.

My friend doesn’t have a lot of investing experience, so I explained a key concept to him.

I told him the price of any stock or crypto is meaningless. UNLESS you know how many shares or tokens are out there.

There will eventually be 100 billion XRP tokens circulating in the world. Multiply that by the price of $1.41, and you get $141 billion. That’s the total market capitalization of XRP.

Meanwhile, there will only ever be 21 million Bitcoins in the world. Multiply that by the current price of $78,600 and you get a market capitalization of $1.65 trillion.

On price alone, it appears that Bitcoin is 55,000x more expensive than XRP ($78,600 vs $1.41). But once we factor in the enormous amount of XRP (100 billion tokens), it changes everything.

In reality, Bitcoin is only 11.6x bigger than XRP by market cap (total value).

So no, XRP is not some tiny crypto project which people are getting into early. It is massive. And probably still overpriced (sorry XRP bros).

Stocks Too

The same concepts apply to stocks. Just because a company’s shares trade at $3 doesn’t mean it’s cheap.

Let’s look at two stocks with wildly different prices, but similar valuations (market caps).

Ambev (NYSE: ABEV) is a Brazilian beer company. It trades at “just” $3. But there are 15.5 billion shares outstanding. So its market cap is about $48 billion.

Autozone (NYSE: AZO) is a well-known auto parts retailer and distributor. Its shares trade at $2,902. But there are only 16.3 million shares outstanding. Autozone’s market cap is also $48 billion.

These two stocks trade at wildly different prices ($3 vs $2,902). But investors value them the same ($48B market cap).

All because of a different number of shares outstanding.

We should never buy stocks, or any other investment, simply due to the fact that the price-per-unit is low.

A $1 stock can still be incredibly expensive.

I’ve also had people tell me they would rather own 100 shares of a $1 stock than 1 share of a $100 stock. But if the company does well, it won’t matter.

If it goes up 20%, the gain will be the same either way. You end up with 1 share worth $120, or 120 shares worth $1 each. Same result, a $20 gain on your $100 investment.

Focus on Fundamentals

So we know that the price of an asset tells us nothing by itself.

Much more important are the fundamentals.

We can only judge how cheap or expensive a stock is by looking at its key stats.

• What’s the price/earning (P/E) ratio? Lower is cheaper.
• How does free cash flow look?
• How fast is revenue growing? Earnings?
• What’s the dividend yield?
• Is the dividend sustainable?
• Are there balance sheet problems? Too much debt?
• Is leadership stable? Are they hitting goals?
• What’s the competitive situation? Are they disrupting, being disrupted, or coasting?

We’ll dig further into fundamental analysis soon.

For now, I wanted to clear up this misunderstanding about price vs market cap.

Chasing low-priced stocks is a common error. Don’t get me wrong, occasionally it works. But price should never be what draws us to a stock.

Growth, earnings, yield. That’s what should draw us to a stock. Not a discounted share price.

The post When ‘Cheap’ Assets are a Mirage appeared first on Daily Reckoning.

Over the weekend, I showed my kids a modern classic: The Dark Knight Rises (2008).

Remember the scene where Batman interrogates the Joker?

Batman gruffly demands to know, “why do you want to kill me?”

The madman replies, “I don’t want to kill you! What would I do without you? Go back to ripping off mob dealers? No, no, NO! No. You… you… complete me.”

Something clicked in my mind, and the dialogue reminded me of our relationship with China.

The Joker craves a worthy adversary, because he realizes it brings out the best in both of them. Steel sharpens steel.

So yes, China’s growing industrial power is a threat to our economy.

But without them, who would give us the motivation to push forward? To make technological breakthroughs?

Not Europe, that’s for sure. Innovation is on life support in the EU.

Japan is past its prime. South America? No, they’re more of a resource-based economy. Canada? Mexico? No, no.

China is our prime competitor for the foreseeable future. And if we play it right, both countries can benefit from this rivalry. Yes, there will be some pain and adjustment.

But capable adversaries bring out the best in people. And in a tight spot, nobody is more dynamic than Americans.

Fruits of the Space Race

Beep… Beep… Beep…

On October 4th, 1957, the Soviets launched the world’s first satellite into orbit. Sputnik shocked the world.

Americans wondered, how the heck did the commies beat us to space?

The U.S. government didn’t waste time. Within a year, it had:

• Created NASA
• Created ARPA, which became DARPA
• Increased engineering and science programs
• Expanded scientific research and education
• Increased government spending and grants for space and industrial research
• Expanded early computer research

The government’s rapid reforms helped us catch up and then surpass the Soviets in space tech.

And the research which started after Sputnik led to incredible breakthroughs like the Apollo Guidance Computer, which was among the first to use integrated circuits. This helped pave the way for the modern electronics age (for better or worse).

The idea that the Soviets were outcompeting us lit a fire underneath the entire country. Government, corporations, and people. All working together to ensure we don’t fall behind.

Intense rivalry is absolutely critical to these types of breakthroughs. We saw it in World War II as well, of course. The British would never have created the first radar network without the threat of German bombers overhead. Turing never would have had the funding or motivation to create early computers, if not for the fact that we really needed to crack the Germans’ Enigma encryption machine.

Of course, I do NOT think we’re going to go to war with China in a kinetic sense. This will stay a purely technological race. Mostly because we’re both armed with nuclear ICBMs (a product of the space race, ironically).

It will be difficult. But if we play it right, there will be truly miraculous, and disturbing, technological breakthroughs going forward. All driven by a fierce competitive spirit.

The AI Race, Too

OpenAI released its first public version of ChatGPT on November 30th, 2022. We’re less than 4 years into this madness.

And the competition with China is heating up. For a long time, Chinese AI models couldn’t compete with America’s.

But in the past year, this has changed. Chinese AI now offers genuine competition to our best.

The rivalry is keeping the big American AI leaders on their toes. We’ve seen a consistent pattern. An American AI leader, usually either OpenAI or Anthropic, will release a new breakthrough model.

China will soon release an AI model 95% as good, but for a much lower cost. Rinse and repeat.

This cycle is what’s driving the huge gains we’re seeing in AI today. And it’s not just software, it’s hardware too. Servers, GPUs, network infrastructure.

For a long time, Nvidia was really the only game in town for building and running modern AI models. But AMD, another American firm, has stepped up its game.

And in China, there’s a hardware renaissance happening. We cut them off from Nvidia’s best AI hardware, so they had no choice but to build their own domestic alternatives.

Now Nvidia is feeling major competitive pressure, particularly from China. So they’re pushing hard to make new breakthroughs. And succeeding.

My point is that we need to use China’s tech progress as motivation to keep our foot on the gas.

And it goes far beyond AI and manufacturing. Pharmaceuticals, R&D, nuclear energy, space tech, and much more. China is challenging us in all these areas.

Having a strong competitor will drive both sides to innovate.

With this rivalry, technology and medicine are set to leap forward in unpredictable and disruptive ways. At times it’s going to be overwhelming, even frightening.

But ultimately, steel sharpens steel. We need a capable adversary to really push the needle. China fits the bill.

Now let’s make sure we win this upcoming phase. In June, I laid out the steps we must take in How We Can Win vs China.

The post The Joker to Our Batman appeared first on Daily Reckoning.

Last week the Supreme Court issued an arcane, procedural order that looks narrow but holds the potential to explode in the future like a buried bomb beneath the national roadbed.

Typical headline on “Ballroom” issue. Credit Associated Press.

I’m talking about President Trump’s so-called “Ballroom,” or more accurately the ballroom-and-buried-bunker complex that the Orange Man is building adjacent to the White House.

Or as the Associated Press (AP) framed the matter:

WASHINGTON (AP) — A divided Supreme Court on Monday (August 31; BWK) allowed the White House to continue construction on a $400 million ballroom project as lawsuits play out, a win for President Donald Trump as he flexes unprecedented executive power and remakes the capital in his image.

Most imagery of the new structure shows a spacious building with prominent pillars, glass, and the usual gilded glitz of a Trump-brand hotel.

Proposed interior of new Ballroom. Credit White House.

But wait, there’s more! Because, per court filings, apparently the above-ground edifice will cap a deeply buried military complex of nuclear-hardened spaces, communications capacity, medical facilities, and more of the super-secret stuff that supports what people in Washington call “continuity-of-government.”

Marble above. Bunker below. Versailles sur Cheyenne Mountain, one might say.

Does Standing on the Sidewalk Convey “Standing”?

No doubt, you’ve heard the story. Last year Trump ordered that the 1940s-era East Wing be demolished. He then presented drawings for a “Ballroom.” And of course, the usual suspects squealed like stuck hogs.

Naturally – cuz it’s Trump! – a so-called “historic preservation” group sued and argued that the Chief Executive could not reconstruct the White House grounds absent bureaucratic review, if not congressional authority. Then, naturally, a D.C. district judge and two D.C appellate judges took the claim seriously and ordered work halted as the concrete was setting.

Trump’s lawyers appealed and, in a 5–4 decision, the Supreme Court allowed construction to continue while litigation proceeds. The unsigned majority order stated that the court was not deciding whether Trump’s reconstruction project is lawful. Indeed, the outcome rests entirely upon whether the plaintiff has what’s called “standing” to bring suit in the first place.

Standing sounds like a term from the legal weeds but is, in essence, the key to the door of the courthouse. That is, if I’m standing on the sidewalk and your tree falls on my head, arguably I have standing to sue you because I was injured. But if I’m standing on the sidewalk and I don’t like the paint color on your house, I’m not really “injured” enough to have standing to sue, right?

Basically, if you show standing, you can sue; if you lack standing, you can’t file. And in this case, per the Supreme Court, absent standing by the preservation group, Trump and his construction crews can continue to erect steel and stone.

Which returns us to that vote, 5–4. Four justices, including Chief Justice Roberts (full disclosure: a classmate of mine at Harvard), apparently believe that the plaintiff has enough stake – aka standing – in the White House project to keep the case alive. Plus, Roberts and the court’s three liberal justices opined that the construction was “likely unlawful.”

But five justices thought otherwise. Which means that only one vote separates “likely unlawful” construction from the ancient legal concept of “pour more concrete.”

Is this crazy, or what? We’re not talking about patching potholes in Pittsburgh. This is the White House, easily among the most recognizable buildings in the world. And the lawsuit is about presidential power to build and rebuild without bureaucratic and legislative signoff.

Five justices said the plaintiff cannot sue the president. But four justices said that a guy walking his dog outside the fenceline can seek judicial remedies and slam the brakes on further construction.

At which point, this whole thing is NOT about marble, fancy pillars and gold gilt, let alone the bomb shelter. It’s about the rules of political combat in our Republic. That is, who may sue whom? Over what? And when is a claimed “injury” sufficient to open the big bronze doors of the courthouse?

Meanwhile, in terms of Supreme Court jurisprudence, when does the so-called “highest court in the land” determine that a dispute is too radioactive? And then bury the Geiger counter beneath the doctrine of standing?

The Trapdoor of Standing

If this issue seems familiar, recall December 2020 when the State of Texas filed what’s called an “original jurisdiction” action in the Supreme Court against Pennsylvania, Georgia, Michigan and Wisconsin over election procedures from that year. Sixteen other states joined the case.

Under the Constitution’s original jurisdiction language, the Supreme Court is the forum for disputes between states. And Texas’s filing was no jailhouse missive scrawled on some yellow legal pad. In fact, Texas had a long list of claims, and soon the docket was packed with related, supplemental filings, including many well-crafted “amici” briefs from serious players. And of course, the defendant states filed answers.

Whatever one might think of the Texas allegations, at an institutional level the question was national and Constitutional, regarding a presidential election and original jurisdiction.

But the Supreme Court dismissed Texas and the other states – one third of the states of the Union – with two sentences. Namely, that Texas lacked standing because it had not shown a “judicially cognizable interest” in how other states conduct elections. And all other motions were moot.

To their credit, in 2020 Justices Alito and Thomas argued that the Supreme Court lacked discretion to refuse an original jurisdiction case. But still, the Court summarily ended the matter based on one magic word: standing, aka the trapdoor of the courthouse. By dismissing the case, the Supreme Court avoided addressing Texas’s arguments, while coming off as merely controlling the keys to the front door.

So, here we have two cases about standing. One dismissed an original jurisdiction action, a legal pathway clearly written into the Constitution; the other was a close call – one vote! – about a case filed by some guy who walked his dog in front of the White House and claimed “aesthetic” injury.

Which is it? Is there no more original jurisdiction? Or does a guy in the street almost – by four votes out of nine – have standing to stop a White House military bunker with a Ballroom on top? Or are both cases simply occasions when the Supreme Court avoided inconvenient matters?

At root, the idea of standing prevents courts from becoming debating clubs. And it’s probably prudent to avoid ugly politics. Yet at some point we don’t have neutral law anymore, either.

The Price of Legal Fog

The Ballroom litigation is not just an argument about Donald Trump, the East Wing or the emotions of 2020. Because federal courts are part of the operating system of the Republic.

If standing is too tight, genuine injuries go unheard. If standing is too loose, anyone with an attitude can jam the gears. Either way, confusion is costly: projects and progress halts; political actors preen and posture; lawfare body shops seek plaintiffs; and capital fails to move because legal uncertainty is a tax, but no one knows the exact rate.

This is how a modern empire declines and falls; not through one grand Constitutional crash, but via thousands of acts of ambiguity. Do you have standing or not? After a while no one knows where the lines are, so everybody sues if only to preserve leverage.

The irony is that the Supreme Court claims to stay out of politics. Yet clearly, the Constitution assigns certain disputes by design. Meanwhile, federal governance is a priori political. And obviously, the presidency is political and every justice on the Court reached the bench through a political process. So, when the Court sanctimoniously pretends to be apolitical, it doesn’t purify a quarrel; it just relocates the knife fight to a darker alley.

And no, the Court can’t decide every national p!ssing fight. It’s not a council of elders. But when it defaults to “lack of standing” to avoid hard questions, it owes the country some bright lines. Otherwise, standing is not a constitutional doctrine. It’s more like a judicial mood gauge.

From Permits to Political Risk

Carry this idea beyond the courthouse. Pipelines and mining roads cross federal lands. Ports and rivers must be dredged. Defense sites and shipyards may need to expand. And in countless other ways, many ambiguities arise that are not distinctly addressed in law and regulation, such that someone somewhere claims injury. And the question of who can sue becomes almost as important as who is right.

When legal thresholds are obscure, project sponsors lack certainty. Permitting is provisional, final agency action is in “quotation marks,” litigation looms, and capital formation slows because investors can’t model whether a permit ends the process or merely determines who files the appeal. Infrastructure and economic development transition from asset creation to hostage negotiation. In their own bizarre way, court dockets become part of the overall capital portfolio.

The fog of legal uncertainty favors the side that willingly litigates. It rewards delays and allows public officials to recast policy disputes as jurisdictional puzzles. It turns every development project into a law-school exam.

In this sense, the 2020 “lack of standing” dismissal against Texas still stings. Set aside the personalities and election outcomes. If Texas and 16 other states believed that sister states altered voting rules to distort the legitimacy of our federal compact, where else can this kind of dispute go? We’ve already tried Fort Sumter.

Perhaps Texas deserved to lose on the merits; but we’ll never know because the 2020 dismissal was based on catch-all “lack of standing” procedure. So, instead of clarifying law, the Supreme Court bred further suspicion.

Likewise, if Congress must authorize Trump’s Big Beautiful Ballroom, then say so. If executive control of the White House grounds prevails, say that. But draw some boundaries because restraint without explanation is not wisdom. Evading hard calls comes with costs.

The Holy Roman Warning

Perhaps our nine justices simply don’t want to arbitrate a fractured Republic. Or in a manner of speaking, nobody wants to referee the Holy Roman Empire, and this point is more than a joke.

The Holy Roman Empire was a loose mosaic of kingdoms, duchies, bishoprics, counties and imperial cities. Its emperor was elected. Authority was layered, with many overlaps. The emperor possessed majesty but limited powers. Local rulers guarded sovereignty like family silver. And this concoction of a political entity endured for centuries, which is no small achievement. But it also produced jurisdictional complexity, from the days of Charlemagne to governance under Napoleon.

The lesson is not that federal systems are doomed. Indeed, ambiguity can help preserve order by allowing every faction to tell itself a tolerable story. But confusion compounds, and over time every quarrel becomes a legal fight that drags out and locks up the gears of society.

With a dismissal based on “lack of standing,” the Supreme Court justices may think they’ve avoided ugly politics. But actually, they create an imperial, jurisdictional maze within which every elector, governor, politician, agency and lawfare mill reads a different map. Last week, the Court saved itself a bitter decision on the merits; but now hands the country a future of procedural wars.

Law, or Oracles?

Done right, the doctrine of standing disciplines litigation. It prevents generalized grievances from becoming federal cases and prevents judges from issuing advisory opinions. Courts remain a forum for real disputes brought by parties with real stakes.

But unpredictable “standing” doctrine – whether dismissing Texas or a 5-4 decision about Trump’s Ballroom – does the reverse. Now, we’ll see more lawsuits because nobody knows the boundaries. The Court has politicized procedure because its denials look selective. Meanwhile, the Court invites forum shopping, bizarre claims and emergency applications.

When the courthouse is open only according to the heat map of a dispute, the Court reveals its institutional discomfort with the power of the Constitution. And sorry, but America can’t run on judicial avoidance.

Indeed, over 250 years – okay, since 1789 – the Republic has survived bad rulings, even foolish ones. But what it cannot survive is an elite legal culture that turns access to court into some sort of petition to the oracles. You ask whether you may sue; the oracle studies goat entrails, sniffs the political winds and replies: “Yes, but only maybe; and not exactly now, but possibly next time.”

That’s not law; it’s judicial ambiguity. It weaponizes procedure and leaves citizens and states wondering whether the Constitution has become another museum piece: admired and revered, protected by thick glass at the National Archives, and increasingly irrelevant.

With the Ballroom decision, the justices may think they acted in restraint. But I suspect that history will frame it as a warning sign of deep, structural problems that precede the so-called “decline and fall,” if not disaster.

And on that note, I rest my case.

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