To say that the world is in turmoil to an extent not seen since the 1960s is an understatement.

The war in Ukraine is now in its fifth year. The war in Iran continues with no end in sight, despite Trump’s optimistic talk. NATO may be nearing the break-up stage as Trump pulls U.S. troops out of Germany.

Energy prices are soaring, inflation has accelerated sharply again, consumer confidence has fallen sharply, debt is at an all-time high and supply chains are breaking down.

Yet the major U.S. stock indices are at or near all-time highs.

What accounts for record stock prices amid almost unprecedented turmoil?

There are a number of key factors supporting stocks. The most obvious is the AI frenzy. This has two aspects. The first is that AI applications can improve productivity. The second is that the build-out of data centers with the most advanced semiconductors has led to a $1 trillion capital investment tsunami as Microsoft, Amazon, Google, Meta, OpenAI, Anthropic and other AI providers build their server farms.

The next factor is related to the first and is often called the picks-and-shovels trade. The idea is that those who benefit in a gold rush are not the gold miners but the merchants who sell tools, clothes, supplies and other goods the miners need.

In the AI gold rush, the winners are electricity suppliers, builders, hardware manufacturers (semiconductors and servers) and small towns where the server farms are located. These suppliers will do well today whether AI lives up to its promise or not.

Passive Aggression

Another major factor is passive investing. An enormous amount of U.S. wealth is held in 401(k)s, IRAs and assets under management by wealth managers.

Relatively few of the account holders (or, for that matter, wealth managers) really understand active stock investing or risk management. Instead, they buy index funds, ETFs or other equity basket products that track the stock market itself or a specified segment.

When money is put into these index funds, the manager buys the stocks in the index. That buying pushes stock prices higher. That attracts more money, more buying and more gains in a positive feedback loop that drives stocks even higher. No Ph.D. is required. You just buy the index, sit back and enjoy the ride.

FOMO and TINA

Two other factors related to the passive investing feedback loop are fear of missing out (FOMO) and the idea that there is no alternative (TINA). It’s difficult to show up at a cocktail party or the country club when all of your friends are touting their stock gains and you’re not in the market.

It’s also difficult to put money in 4% cash equivalents or assets like gold when stocks seem set to deliver 10% returns as far as the eye can see.

FOMO and TINA have nothing to do with fundamental stock analysis. But they are real and powerful drivers of human behavior.

It’s not all fairy dust, however. There are actual fundamental drivers behind stock gains. Corporate profits are coming in strong (despite some high-profile missed estimates). U.S. energy self-sufficiency will keep the lights on in the U.S. and help prevent 1970s-style gas lines — even if we are not immune to the impact of higher prices.

That’s the argument for higher stock prices despite global problems. What could possibly go wrong?

Unrecognized Risks

The greatest threat to higher stock prices is that the market has not fully discounted the impact of the war in Iran and the unprecedented disruption in the supply of oil, liquid natural gas, nitrates for fertilizer, helium, sulphur, aluminum and other critical inputs.

The reality of these shortages has not hit home (with the exception of higher prices for gasoline and oil), but that does not mean the coast is clear.

An enormous amount of oil supply was already on vessels that left the Strait of Hormuz before the war began. That “floating supply chain” took weeks to be delivered to end users. That process has now been completed; the last deliveries have been made. There is nothing else on the way.

Major manufacturing nations like South Korea, Japan, Taiwan and China are now using up reserves. These may last another month or so. The critical point at which reserves are gone, no resupply is on the way and the Strait of Hormuz remains closed grows nearer by the day.

Even if the strait reopens tomorrow, the current shortages will raise prices, disrupt supply chains and possibly lead to a global recession. Markets seem to be ignoring this possibility in favor of a narrative that says the strait will reopen soon and all will be well.

Great Expectations (for AI)

Eventually, it may also occur to markets that AI is not producing any revenue. It’s consuming $1 trillion in capital and promising untold riches, but those riches have yet to materialize. AI is a powerful technology and it’s here to stay. But that does not mean it will be particularly profitable. It may even hurt growth if hundreds of thousands of skilled workers are laid off.

There are serious reasons to believe that AI will not be that productive at all. Output errors (called “slop”) not only cast doubt on the reliability of AI, but are also populating the internet, which AI itself uses as a training set for new applications.

More slop in the training set means even less reliable output than earlier versions. The dream of superintelligence (artificial general intelligence, AGI) is out of reach because of the inability of engineers to code abductive logic.

If the AI bubble bursts (which I expect), it will not only hurt the Mag 7 stocks but also the picks-and-shovels plays around it.

The Private Credit Canary

A separate trigger for a market meltdown is the crisis in private credit. Funds sponsored by top managers like Apollo, BlackRock, Blackstone, KKR, Morgan Stanley and others are severely limiting investor withdrawals.

Complicating matters further, if fund managers try to sell assets quickly, there may be very few buyers unless the seller agrees to slash the price dramatically — sometimes by half or more compared with the stated “book value.”

Supporters of private credit say that this private market is only worth about $4 trillion and that even 20% write-offs will not jeopardize the system. But this calculation ignores the impact of leverage and the effects of contagion. Losses in private credit can trigger runs on mid-tier banks, which then spread to funds that hold those mid-tier bank stocks and so on.

The Dark Side of Passive

But the greatest threat to the stock market may be the dominance of passive investing.

The same buying dynamic that drives stock prices higher can work in reverse. A market drawdown can cause investors to sell their index funds. This causes fund managers to sell the underlying stocks, which takes down the indices, causing more selling by investors and so on.

While passive investing can push markets higher gradually, it can also drive them lower with startling speed and violence.

What’s an investor to do? The positive story for stocks is real, but the downside potential is equally real. The solution is to hedge by diversifying your portfolio. Keep some stocks, but also maintain a slice of cash, a slice of gold and medium-term U.S. Treasury notes.

Gold is the everything hedge. Treasury notes are secure and will rally when the recession goes into high gear. Cash will give you the option to go shopping for bargains when everyone else is dumping stocks.

TINA and FOMO are not your friends. Diversification is.

The post Investing in a World in Turmoil appeared first on Daily Reckoning.

Fuel prices are going to clobber the American consumer. If you think it hurts now, I have bad news… higher prices are coming.

I expect that gasoline prices will break $6 per gallon this summer. The only good news is that high prices cure themselves…it just takes pain and time.

The closest thing I have to compare is the 2008 demand spike right before the global financial crisis. Back then, soaring gasoline prices created massive demand destruction. We all felt the pinch.

So, we stopped driving and conserved when we could.

We carpooled. When we went out to run errands, we ran ALL of them at once. And we changed our plans to accommodate the extra expenses. As you can see in this chart of data from the Energy Information Administration (EIA), the blue line is consumption. The red line is the price of gasoline:

The fuel price rose 90% in a year and a half. Bottom to top, fuel rose 150% in 3.5 years. In response, fuel consumption fell 3.8 million barrels per day (21.5%) from December 2007 to May 2009.

That’s a huge decline in demand. And as the economy cratered during the financial crisis, gasoline price collapsed. You can see what I mean in the chart below:

This is spot price, so it’s a little different from the EIA data, which is a reformulated price. Regardless, the prices went from low to high. Really high. To put that in perspective, $4.10 per gallon in 2008 is equal to $6.34 per gallon in today’s dollars.

The price fell off so much, so quickly because at the time, 60% of the demand for oil came from personal automobiles. And if we all stop driving, there’s plenty of oil again.

Today, light duty vehicles (cars, SUVs, and motorcycles) use between 52% and 60% of U.S. oil demand. That means personal vehicles still have a major impact on demand. And when driving becomes a luxury, a huge swath of the country will conserve.

However, there will be pain in the short term.

The Strait of Hormuz remains closed. All over the world, governments are burning through strategic oil reserves. The reality is about to come crashing home this summer.

I expect gasoline prices will blow through that 2008 high price. It’s going to be a bad summer for road trips, just like back then. With the benefit of hindsight, there is an answer to that though – invest!

Everyone should do what the big companies do and hedge their fuel expense. That’s a fancy word for buying something that goes up with the oil price. And there’s a simple way to do it.

The United States Gasoline Fund (NYSE: UGA) is a simple, liquid exchange traded fund (ETF) that tracks the gasoline price using options. That’s the only downside to the fund. It doesn’t actually own gasoline… because that’s not feasible.

Another simple way to play this trend is one of the refining ETFs like the VanEck Oil Refiners (NYSE: CRAK). This tracks companies that make money from refining margins. That’s not ideal, because oil prices are going up too.

However you do it, you absolutely must invest now. Rising fuel costs are going to hit every part of our lives. Even if you drive an electric car and have a stack of solar panels on your roof…you’ll still be impacted.

Now is the time to let your investment portfolio offset some of those expenses.

The post How to Hedge $6 Gasoline Prices appeared first on Daily Reckoning.

Chinese have a word – Jingju.

• 京 (Jing) means “capital” or “Beijing.”
• 剧 (Ju) means “drama” or “play.”

Translated, the term Jingju refers to a performance called “Peking Opera,” a traditional form of Chinese theater characterized by elaborate costumes and makeup, with loud singing, spectacular acrobatics, and grand gestures.

But it’s all just an act. And frankly, this is exactly how to process President Trump’s visit to China last week.

Presidents Xi and Trump walk past ceremonial honor guard. Credit White House Press Office.

From beginning to end (well, almost to the end; see below) the visit was one spectacle after another, replete with bands, ruffles, flourishes, honor guards and parades; a state visit to match all state visits. Or was it?

Because looking back, it’s apparent that the trip was cordial but cold; flashy but inconclusive; visually impressive, but mostly ineffective.

All in all, Trump’s recent trip to China was three days of Peking Opera; but in fairness, it did have something of a surprise ending… and for that please keep reading!

So, with this in mind let’s look behind the curtain at five things you probably didn’t see or know.

“My Friend Xi.”

“This has been an incredible visit,” said President Trump to China’s Xi Jinping during a visit to the elegant Zhongnanhai Garden, on his final day in Beijing. “I think a lot of good has come of it.”

Then there was this: “He’s a man I respect greatly. Become really a friend,” Trump said of Xi.

And more: “We’ve known each other now eleven years, almost 12 years. That’s a long time, and we’ve settled a lot of different problems that other people wouldn’t have been able to settle, and the relationship is a very strong one.”

Wow. So much bonhomie on display, right?

Presidents Xi and Trump, putting on the “Bro”-act. Credit Xinhua News Agency.

Not so fast, though, because much is missing from that brotherly narrative. Begin with the fact that even President Trump, like all official U.S. government travelers to China, was told not to bring any personal electronic devices with him, in order to protect his data from intercepts and hacks.

Okay, sure… At one point President Xi showed off a grove of old trees in Beijing’s Garden of Heaven. How touching! But of course, America has old trees too.

Presidents Xi and Trump admire old trees. Credit China XYZ Press.

What matters more than old trees, however, is a nation’s people and government. And Americans have lived as free citizens since 1776 (and okay, we can argue over details but not the Really Big Picture). While China is run by a hardline Communist government that blasted its way to power in 1949, and the country’s resurgent Maosim speaks for itself.

Trees or not, the fact is that before heading off to China, the President and every member of his official delegation was briefed and given strict protocols on what not to take along, which was everything and anything electronic.

No cell phones, iPads, laptops, thumb-drives; not even medical monitoring devices that people use for health reasons, if not routine metabolism checks like blood pressure or heartrate.

Nothing. Zero. Zilch. Leave it all at home. Because Chinese intelligence is just THAT good! And U.S. visitors have been badly burned in the past.

But yes, we’re “friends.” And we both have great old trees.

What’s for Lunch?

Meanwhile, at another point Trump and Xi had a nice sit-down for a chat, accompanied by lunch.

Chinese President Xi Jinping gestures during a meeting with President Trump. Credit New York Post.

And wow… it was quite a menu according to press reports:

• minced codfish in seafood soup
• crispy and stir-fried lobster balls
• pan-seared beef fillet stuffed with morel mushrooms
• kung pao chicken and scallops
• braised seasonal greens
• bamboo shoots, mushrooms and beans
• stewed beef in a bun
• steamed pork and shrimp dumplings
• chocolate brownies
• fruits
• ice cream
• coffee and tea

Yum-yum-yum… And Trump ate none of it. Not one bite.

Every morsel of the president’s food, plus water, his famous Diet Coca Colas – and even the ice cubes for the water and colas – was flown into Beijing either in advance on C-17s, or onboard Air Force One. Plus, every meal consumed by Trump in China was prepared in a U.S. mobile kitchen by an American chef, served on U.S.-supplied plates along with U.S. cutlery.

And just outside the dining area, a mobile U.S. hospital awaited any emergency, fully staffed by U.S. Navy and Air Force medical personnel. Just… in… case… something… happened.

All this was because of U.S. security concerns over Trump either being poisoned or otherwise ingesting some bizarre form of Chinese sci-fi nanotechnology embedded in the food. (Hey, that C0v!d bug of a few years back left an impression.)

Meanwhile, as Trump dined at the fancy luncheon with Xi (or did not dine, so to speak), other top U.S. officials and press received impromptu takeout bags from randomly selected McDonald franchises around Beijing.

No pan-seared beef & morels for the staff and press. Just McDs because that’s how worried U.S. intelligence and security services were about the Chinese government’s food.

Spies, Spies Everywhere

On the second day of the visit, President Xi threw an elaborate state dinner to honor Trump, and the spies were everywhere. Of course, it (almost) goes without saying that invited Chinese guests were all there to gather whatever intelligence they could pick up from the American side. That’s their job.

Meanwhile, Chinese serving staff were also in on the caper, such as this woman army officer who trailed White House adviser Stephen Miller:

How much should you tip the server when she’s a spy? Just curious.

According to Chinese commentator Bin Xie, this woman speaks perfect English. “That’s a must.” And undoubtedly, according to Mr. Bin, this woman and her associates at the fancy dinner are all intelligence agents. “Every one of them graduated either from the Beijing University of International Relations (UIR — 北京国际关系学院) or PLA Foreign Language Institute (解放军外国语学院) — both are China’s top spy schools.”

That’s just how it rolls at these big, elaborate state-sponsored feasts. And it’s just another act in the Peking Opera.

Speaking of Rolling…

Speaking of “rolling,” here’s the Presidential Limo, an armored car that tips the scale at over eight tons. It comes with bulletproof glass, an air filtration system, roll-flat tires, defensive armaments (can’t say much on that), and even a supply of fresh blood to match that of the Commander in Chief.

Fancy Presidential steel on wheels. Credit South China Morning Post.

This gleaming mini-tank, along with dozens of other vehicles for Trump’s Beijing motorcades, all arrived in China via a squadron of C-17 transport planes a few days ahead of Air Force One.

The president’s mechanized entourage included specially outfitted personnel carriers for armed security agents, plus redundant medical vans, communication vans, the above-mentioned mobile kitchen, and several trucks filled with supplies of presidential food, water, Diet Coke, ice cubes and much more.

Oh, and the U.S. even brought its own gasoline and diesel fuel for the vehicles. Because security dictates that the president cannot risk driving down the road and the engine conks out, a development which would definitely spoil his night at the opera.

Exit, Stage Right

Finally, we come to the last moments of Trump’s state visit, in which the Peking Opera displayed a dramatic, if not thrilling denouement. Some might even say that it was a shocking way for Trump and the U.S. entourage to exit the stage.

Per White House directive all American officials, delegates, staff and reporters on Air Force One were required – openly and notoriously – to trash ALL Chinese goods or items before boarding the airplane. Indeed, the Secret Service and U.S. Air Force obtained and displayed a dumpster for just that purpose, conspicuously labeled “Airport Waste.”

American officials and Air Force One passengers dump out all Chinese items. Credit New York Post.

Everyone on the U.S. side tossed every Chinese item straight into trash cans next to American airplanes. No exceptions. Nothing permitted. U.S. security protocols were airtight.

Not a single thing from China was permitted onboard the presidential jet. This included credential badges, lapel pins, souvenirs, gifts, and all burner phones that any of the U.S. group used during their stay in the country. It all went to trash, and in an astonishing photo, even President Trump himself was seen tossing Chinese items into a bin.

Nice visit, eh? Trump tosses his Chinese stuff. Credit Times of India.

In its own way this was an ultimate geopolitical power move by the Trump administration; truly a public slap in the face to the Chinese Communist hosts.

Based on (mostly) foreign press accounts – cuz almost all U.S. press carefully curated this very dramatic aspect – the astonished looks on the faces of Chinese officials said everything. That is, China invests enormous cultural and diplomatic thought and credibility on the kinds of gifts it presents to foreign leaders and emissaries. As a rule, every item is deliberately selected and thoroughly screened. And returning, let alone trashing, an item is a countermove that lands like a punch in the nose.

In essence, the Trump administration publicly signaled to China that American officials, and all others associated with the visit, would not take a single thing back from Beijing to U.S. soil. And in this respect, it reflects much about the overall outcome of the state visit.

Thank you, but no thank you. Chinese gifts in trash. Credit Times of India.

Indeed, this gift-dump was far more than a security measure. The optics were like a laser beam burning holes in Chinese drones above the oceans. Chinese officials, who no doubt had spent weeks preparing presentations, watched it all get left behind on the runway. All this, while Trump proceeded to his airplane, boarded, flew away and left it all behind without looking back.

President Trump walks towards Air Force One at Beijing Capital International Airport. Credit White House Press Office.

And as the spectacle and Peking Opera of his state visit faded in the rearview mirror, so to speak, Trump headed home, played golf the next day, and – from what we hear – worked on plans to bomb Iran into powder.

I hope you enjoyed the show… And that’s all for now.

Thank you for subscribing and reading.

The post Trump’s China Trip: Five Things You Didn’t Know appeared first on Daily Reckoning.

I saw a fascinating clip on Twitter/X recently.

At the graduation ceremony for the University of Central Florida, the commencement speaker brought up AI.

“The rise of artificial intelligence is the next industrial revolution.”

BOOOOOO! HISS! The new college grads are not fans.

Source: X

Gloria Caulfield, the speaker, was shocked by the negative response. “What happened?”, she asked in a Long Island-tinted accent.

Eventually the speaker continued:

“Only a few years ago, AI was not a factor in our lives.”

And the crowd goes wild cheering at that nostalgic thought. But then…

“And now, AI capabilities are in the palm of our hands…”

The crowd absolutely hated this line. More, louder booing and hissing. The speaker said it hesitantly. She knew it wasn’t going to go over well, based on prior reactions. If this young crowd would have had rotten vegetables handy, a volley of tomatoes and eggplant would have been launched in Gloria’s direction.

Young People (Understandably) Hate AI

Put yourselves in the shoes of a young American for a moment.

Houses are unaffordable. Rent and food are almost as bad. To have children comfortably, you’ll need to be in the upper 10% of earners (depending on the area).

You’re watching the stock market zoom ahead, but have little or none invested.

Your country is importing hundreds of thousands of foreign workers, mostly from India, to fill tech jobs. They’re willing to work 60-80 hours a week for far less pay.

And now, along come AI agents. Autonomous artificial workers who plan, complete, test, and complete complex tasks. Coding is currently the primary target, but agents will rapidly expand to every corner of the white collar world.

Ken Griffin’s Revelation

Billionaire Ken Griffin, founder of giant hedge fund Citadel, has been an AI skeptic. Up until now.

With the latest agents, his team is making a disturbing amount of progress. Ken says he went home on a recent Friday afternoon “depressed” about the societal changes these agents would bring.

An excerpt from Fortune’s reporting:

For Griffin, the most striking proof isn’t in coding or content—it’s in high-end financial research. Work that Citadel would previously have assigned to teams with master’s degrees and PhDs in finance, work that took weeks or months, is now being completed by AI agents in hours or days.

“To be blunt, work that we would usually do with people with master’s and PhDs in finance over the course of weeks or months is being done by AI agents over the course of hours or days,” Griffin said at Stanford.

We’ve entered the disruption stage now. And young people are on the front-lines. The first jobs cut were entry-level, but now AI is eating its way up the food chain.

Fortunately AI is still horrible at picking stocks and writing, which is our speciality. And honestly, I don’t see them getting significantly better anytime soon. AI models are trained on the entire internet, good, bad, and horrible. But anything is possible, and nobody is 100% safe from the coming wave.

Three Paths – Blue Collar, AI Master, or Entrepreneur

As I see it, young people today have three primary paths to choose from.

First, they can take the blue collar route. As I’ve mentioned before, my 16-year old son will be starting an apprenticeship to become an electrician this summer. I’m proud he chose this path, and think it’s a great decision.

Opportunities for plumbers, electricians, welders, mechanics, and other blue collar workers are wide open. It will be many decades before robots replace these jobs.

And of all people, Nvidia CEO Jensen Huang recently acknowledged this trend.

“AI gives America the opportunity to build again. Electricians, plumbers, iron workers, technicians, builders—this is your time. AI is not just creating a new computing industry, it is creating a new industrial era.”

Isn’t it fascinating that the primary beneficiary of the AI boom is touting blue collar work? There’s a good reason for it…

Path #2: AI Masters

The second path young people can choose is a bit riskier, but has a higher upside. They can attempt to become an “AI master”. After all, there will still need to be people in the loop.

We will still need people checking the code AI writes, assigning projects, and overseeing progress.

Over the past few years a saying has taken hold, and it’s worth repeating. There are a few different versions, but here’s mine: “Your job won’t necessarily be taken by AI, but it will be taken by someone using AI better than you.”

Path #3: An Entrepreneurial Boom

The third path, of course, is becoming an entrepreneur. And AI makes this easier than ever. Even non-technical people can write solid code now, so the tech part of building a business has certainly become easier.

I expect many young people will take the entrepreneurial path. They may not have much of a choice in the matter, assuming they’re determined to enter the white collar world.

I fully expect a small-mid sized business boom over coming years. And though these businesses won’t hire as many people as they used to, there will still be significant opportunities to hire smart people.

A Breaking System

For many decades, the goal of most parents was to send their kids to college so they can find a good white collar job.

This era is ending. The transition may take another few decades to complete, but we are now headed in a different direction.

The future of white collar work will look like a smaller number of “AI masters” managing fleets of AI agents.

Blue collar work is on the rise. It will become an increasingly popular option. But many people are still stuck playing the status games, where the “rules” say we must send our kids off to university. They don’t want to tell the neighbors that little Billy’s going to be a plumber. This will change rapidly if AI plays out like I expect it to.

Young people today have many things to be upset about. And they’ve thought about these issues far more deeply than we have. So consider reaching out to the young people in your life, and asking them about their plans.

If they seem confused about what to do, ask if they’ve considered a blue collar career. I’m convinced that it’s the best path for millions of young Americans.

The post Why College Grads HATE AI appeared first on Daily Reckoning.

“Nvidia killer.”

That’s the phrase suddenly getting attached to Cerebras Systems after one of the wildest IPO debuts we’ve seen in years.

Yesterday, the company priced its IPO at $185 per share.

Then the stock opened around $350.

Demand reportedly exceeded available shares 20-to-1.

In other words, investors desperately wanted in.

Now naturally, investors are asking the obvious question:

What exactly is Cerebras?

And more importantly… should you buy the stock?

What Does Cerebras Actually Do?

Whereas Nvidia builds chips roughly the size of a Post-it note…

Cerebras builds chips roughly the size of a dinner plate.

This size difference is the key to Cerebras’ entire strategy.

Normally, AI systems rely on thousands of smaller chips working together at the same time.

These chips constantly need to communicate with one another through networking systems called “interconnects.”

(Companies like Broadcom, Credo, Astera Labs, and Marvell supply these interconnects, as well as the chipmakers themselves.)

But as AI models get larger and more complex, all that communication starts creating traffic jams.

Cerebras is trying to eliminate that problem.

Instead of connecting thousands of smaller chips together, the company builds giant chips called Wafer-Scale Engines (WSE).

This allows far more of the work to happen in one place, dramatically reducing the amount of data bouncing around between separate processors.

Cerebras also packs huge amounts of ultra-fast SRAM memory directly onto the chip itself.

Without getting too deep into the weeds, SRAM is much faster than the traditional memory used in most AI systems.

(Companies like Micron, SanDisk, SK Hynix, and Samsung supply traditional memory chips used in most AI systems.)

Cerebras claims its systems can generate AI responses many times faster than traditional GPU-based setups in certain workloads.

Of course, there’s a catch.

Building one giant chip is incredibly difficult and expensive.

If something goes wrong while manufacturing a normal chip, you throw away one small processor.

If something goes wrong on a wafer-scale chip, you could lose the entire dinner-plate-sized processor.

This is what makes Cerebras so fascinating.

The company is attempting something very few semiconductor companies would even try.

The Competition With Nvidia

Let’s slow down a bit on the “Nvidia killer” narrative.

Cerebras has fascinating technology.

But replacing Nvidia is an entirely different challenge.

Here are the biggest reasons Nvidia’s position still looks extremely secure:

CUDA Is Still A Huge Advantage – Almost every major AI developer already builds on Nvidia’s CUDA software platform. That makes switching away from Nvidia extremely difficult and expensive for large companies.

Nvidia Is More Flexible – Nvidia’s chips are used across gaming, AI, robotics, autonomous vehicles, and scientific computing. Cerebras is much more specialized toward massive AI models and ultra-fast inference.

Nvidia Keeps Adapting – Cerebras gained attention partly because of its inference speed. But Nvidia responded by acquiring Groq in late 2025, bringing similar ultra-fast inference technology into its own ecosystem.

This doesn’t mean Cerebras can’t succeed.

But investors should be careful assuming one impressive IPO suddenly means Nvidia’s dominance is coming to an end.

Cerebras Also Has Some Major Risks…

Of course, investors need to understand this stock comes with some very real risks.

And after trading up to $350 following the IPO, these risks matter even more.

Here are the biggest ones I see right now:

The Valuation Is Extremely Expensive – Cerebras generated roughly $500 million in revenue in 2025. And as I type, the company’s market capitalization is around $70 billion. That means the stock is trading at roughly 140x sales. That’s dot-com bubblicious.

Revenue Is Highly Concentrated – Roughly 86% of the company’s revenue came from just two UAE-government-linked entities. That’s a massive customer concentration risk for a newly public company.

Profitability May Not Be Sustainable – Cerebras recently reported its “first profitable year,” but much of that profit reportedly came from a one-time accounting gain rather than normal business operations.

A Large Wave Of Shares Could Hit The Market – Over the next six months, insider lockups will gradually expire, allowing a large amount of additional shares to potentially enter the market. That can create meaningful selling pressure after a huge IPO rally.

In other words, Cerebras may absolutely become an important AI infrastructure company.

But investors should probably expect extreme volatility from here.

So… Should You Buy Cerebras?

Cerebras is a legitimately fascinating company.

This isn’t some random AI startup throwing buzzwords around to attract investors.

The technology is real.

And the company clearly has a unique approach to solving one of the biggest problems in AI right now – moving enormous amounts of data quickly enough to handle larger and larger models.

I also think the broader AI infrastructure boom is still in the early innings.

There’s room for multiple winners here.

Nvidia can continue dominating while companies like Cerebras carve out important niches in the market.

That said, investors need to separate “great technology” from “great stock.”

After the IPO frenzy, Cerebras already trades at an extremely aggressive valuation.

And with insider lockups expiring over the next several months, I’m betting we’ll be able to pick up shares at more attractive prices in the future.

Personally, I’m not chasing the stock after a near-doubling right out of the gate.

But I am putting Cerebras firmly on my watchlist.

Because while the valuation looks overheated, the underlying technology is interesting enough that this could eventually become a very important company in the AI ecosystem.

The post The “Nvidia Killer” IPO appeared first on Daily Reckoning.

Both President Trump and Iranian leaders are standing firm on their red lines.

Before peace negotiations restart, Iran has made 5 demands:

1. Ending the war on all fronts, including Lebanon
2. Lifting all sanctions
3. Releasing frozen Iranian assets
4. Compensation for war damages and losses
5. Recognition of Iran’s sovereign rights over the Strait of Hormuz

Trump called the proposal “TOTALLY UNACCEPTABLE!”.

The President has criticized Obama fiercely for releasing frozen Iranian funds, and hasn’t backed down on that subject.

As far as paying compensation, that’s not going to happen either. Sanctions relief could come in time, but asking for a total end before negotiations restart is a pipe dream.

And ending the war in Lebanon would mean Israel would have to stop bombing Hezbollah and likely give up the 10% of the country it currently occupies.

Nearly every one of these 5 points is a non-starter. And Iran knows it.

To understand the thinking here, we have to apply game theory.

A Mexican Standoff

In the classic Spaghetti Western The Good, The Bad, and The Ugly, there is a classic Mexican standoff near the end.

All three men in the standoff want the gold buried nearby. All are armed and deadly with their weapons. The scene’s tension is legendary. You don’t see filmmaking like this anymore.

I won’t spoil the ending for those of you who (somehow) haven’t seen this excellent movie. But these standoff scenes have become a cinematic staple for a reason.

Here is how Wikipedia defines a Mexican standoff:

“A Mexican standoff is a confrontation where no strategy exists that allows any party to achieve victory. Anyone initiating aggression might trigger their own demise. At the same time, the parties are unable to extract themselves from the situation without either negotiating a truce or suffering a loss, maintaining strategic tension until one of those three potential organic outcomes occurs or some outside force intervenes.”

This is essentially where we are with Iran. Everybody is armed to the teeth, staring each other down, wondering if there’s a resolution that doesn’t involve missiles, bombs, and drones.

With our current situation, however, the world economy hangs in the balance.

Last Man Standing

Early on during the conflict, the U.S. Navy allowed Iranian oil tankers to continue passing through the Strait of Hormuz and deliver their cargoes, mostly to China.

However, on April 13th, Trump ramped up the pressure with a blockade. A few Iranian ships have snuck through, but most are stuck.

Iranian oil is piling up in storage. They are likely close to reaching capacity. And when that storage is full, things get tricky for Iran.

The country’s oil wells are particularly vulnerable to shut-ins (shutting down production). Stopping the flow can seriously damage the wells. We saw this during COVID, which combined with U.S. sanctions, crippled Iran’s oil exports for years:

This was an absolutely devastating blow for Iran. Oil is their biggest industry, by far. Their currency was annihilated, and it’s getting destroyed even worse today. But somehow they buckled down and weathered the storm from late 2019 to 2022.

The blockade is currently costing Iran about $500 million per day. That’s a massive hit. President Trump has also sanctioned Chinese oil refineries for processing Iranian crude, which was a big trade war escalation.

However, it sounds like he may back down on this matter after his recent visit to Beijing. China has essentially told the refineries to ignore the sanctions, which is the first time that’s happened. Another Mexican standoff.

President Trump is betting that Iran will break first. I’m not sure that’s a great bet. This is a country that’s been under harsh sanctions for 47 years, cut off from the world.

And like it or not, the current leadership remains firmly in charge.

Iran vs. The World Economy

I ran some numbers this morning, and it looks like so far, the world has spent about an extra $600 billion on oil, fertilizers, and liquefied natural gas (LNG).

The energy crisis is beginning to work its way through the global economy. Inflation is picking up, as we covered yesterday.

When the price of fuels, plastics, and fertilizers spike, it affects almost everything. And it’s really only just beginning.

Yields on government bonds around the world are spiking. Investors are demanding higher yields to account for higher inflation. This is a bad sign for a debt-bloated world.

So while Iran is under serious pressure, so are the rest of us. Americans are struggling with high energy and food prices, and don’t want another prolonged war in the Middle East.

Last Man Standing

Despite Iran’s economy being put in a vise, I don’t expect them to give in.

For them, this conflict is existential. So they’re willing to accept prolonged economic pain. Or even a return to war.

Are they bluffing? Perhaps. But it doesn’t seem like it. They are united with a certain religious and nationalist zealotry.

Can we say the same? Are we willing to restart the war, or let the Strait of Hormuz remain closed for another few months, or even the rest of 2026?

If Hormuz remains shut, the pain will quickly become extreme. And despite his threats to end Iran as a civilization, I don’t think Trump wants to restart the war. We were the party which asked for a ceasefire via Pakistan. And we know that Iran will strike back at Gulf oil infrastructure and further damage U.S. and Israeli targets in the region.

I hate to say it, but President Trump has painted himself into a corner. It’s a classic Mexican standoff. There are no good exit options.

At the beginning of this conflict, back on March 7th, Jim Rickards made a bold statement.

In a war of attrition, really a war for survival, victory goes to the last man standing. That may be Iran.

At the time, almost nobody else was saying this. The U.S. appeared triumphant and unstoppable. He also predicted that U.S. munitions would become a problem, and they have. The March 7th piece, Jim Rickards’ Most Surprising Iran Takes, is worth a re-read today. He nailed it.

Exit Possibilities

President Trump wants to find an exit that can be spun as a win. Frankly, this is a longshot. So for now, the Mexican standoff will continue.

Eventually we may simply have to withdraw. It’s happened before. Vietnam, Afghanistan.

What that would look like isn’t exactly clear. Would all the U.S. bases in the Gulf be repaired and rebuilt? Even though they’re under threat from Iranian missiles and drones? If not, that’s a sea change in U.S. power projection in the region. If they are rebuilt, that’s going to be a rather expensive proposition, especially considering the new defensive measures which would be required.

Would the Strait of Hormuz remain under Iranian control? That’s another key consideration.

Ultimately, a deal remains the most likely outcome. But it could take years to reach a lasting agreement.

In the meantime the world economy will suffer. Somehow, stocks are just below fresh all-time highs. But I don’t see that lasting as this situation drags out.

This is why every past administration avoided a hot war with Iran. Now President Trump must find a way to salvage the situation. Even if that means making compromises.

If he can put aside his pride and make a deal, my respect for Trump will only rise. But it remains unlikely until the pain becomes unbearable. So buckle up.

The post A Mexican Standoff With Iran appeared first on Daily Reckoning.

Inflation came in hot in April.

The producer price index (PPI) rose 6% year-over-year. That’s the price companies pay for wholesale goods.

The bad news is that consumer inflation (CPI) tends to follow PPI with a lag of around 2 months.

The chart below shows how closely CPI and PPI track (with PPI running 2 months ahead):

Source: Robert infra on X

Note the large spike from back in 2021 and 2022. That was related to post-COVID inflation caused by massive monetary stimulus. And of course in 2022 Russia invaded Ukraine, which compounded the problem by spiking oil and fertilizer costs.

Here’s another chart showing how recent inflation trends (green) match up to the 1970s (blue):

It’s worth noting that official inflation was higher in the 1970s, peaking out at around 12% in the middle wave, and 14.5% in the final move.

Our “middle wave”, which peaked in 2022, rose to a high of around 8.5% inflation.

This is mostly due to differences in how CPI (inflation) is measured today. Now we have fancy tools like “hedonic adjustment” which make inflation appear lower than it truly is.

So in reality, we’re on a similar trajectory to the 1970s inflationary period. The primary difference is the level of debt we have today.

America’s current debt to GDP ratio is around 125%. In the 1970s it topped out around 35%. So we have 3.5x more debt today in comparison to the size of the economy.

Today’s huge debt load severely limits the Federal Reserve’s options.

To kill the 1970s inflation wave, Paul Volcker hiked to a crazy 20% fed funds rate. That is no longer an option due to the huge amount of debt we have.

Even if we see another major wave of inflation, I don’t see the Fed hiking interest rates. The math simply doesn’t work.

The Fed’s Dilemma

President Trump’s nominee, Kevin Warsh, was just confirmed by the Senate.

Tomorrow he will take over from Jerome Powell, who is considered somewhat of an inflation “hawk”, meaning he hiked interest rates to attempt to control inflation.

However, as the chart below shows inflation has remained above the Fed’s 2% target for 62 consecutive months.

Source: Charlie Bilello on X

President Trump has criticized Powell sharply over his refusal to cut rates further. And he’s not wrong.

Even though on paper the Fed “should” be raising interest rates, it would be extremely destructive to do so.

We have reached a point in this debt cycle where just paying the interest on the federal government’s debt costs $1.2 trillion per year. Here’s a 10-year chart:

Source: St. Louis Federal Reserve

In 2020, when interest rates were lowered to near-zero, interest costs got as low as $500 billion. Now that cost is $1,218 billion annualized ($1.2 trillion).

In 2025, total U.S. tax revenue was about $5.2 trillion. So 23% of taxes are being spent to pay interest on our debt. It’s outrageous.

At this point, higher interest rates would be devastating. We’d rapidly be paying $2 trillion in interest. Then things would rapidly snowball out of control.

In a perfect world the Federal Reserve is supposed to be “independent”. They are only supposed to adjust interest rates to cap inflation at 2% and keep employment high.

In the real world, they need to think about our country’s debt situation. And that means that in the mid-long term, rates need to be lower.

Financial Repression

This brings us back to the concept of “financial repression”. My belief is that the Fed will be forced to cut rates even as inflation is well-above target. They will have to buy large quantities of U.S. debt, essentially financing government excess.

Eventually they will institute “yield curve control” and keep rates artificially low, even if inflation is out of control.

I’ve been focusing on this topic so much lately for a reason. We’re approaching the point where drastic measures are going to become necessary to control the debt spiral.

Kevin Warsh will soon begin his term as Fed Chair. I believe he will go along with Trump’s wishes and cut rates, even if inflation is high.

Rate cuts may not happen immediately, but we need to start lowering this year. The debt situation is becoming urgent. And that will take precedence over inflation, as uncomfortable as it may be.

Starting as early as next year, more drastic measures will likely become necessary. Massive QE (quantitative easing), eventually leading to yield curve control.

During times of financial repression, hard assets and natural resources are key to preserving and growing wealth.

I want to own miners with huge projects that will last another 20 or 30 years. I want to own the best oil producers with billions of barrels of oil in the ground. Companies with real assets that will grow in value no matter how crazy things get.

We will continue to explore ideas to help readers navigate the coming storm.

The post The Next Inflation Wave is Here appeared first on Daily Reckoning.

By now, everybody knows the U.S. government has a debt problem.

But the chart below offers a new angle, because it is inflation-adjusted.

Source: U.S. Treasury Dept

This chart is about 6 months old, so it’s already outdated. The current federal debt total is up to $39 trillion. And growing at $2 trillion a year, which could rise to $2.5 trillion soon. And much larger when we get a recession.

The point is that even once we adjust for inflation, debt is a big problem. It’s not a good sign when debt charts go parabolic.

Besides the obvious, there are a few interesting things to note in the image. First, look at the bump in 1945 from World War II. It looks so tiny once you adjust for inflation.

Second, look at what happened after WW2. The debt load came down, and was steady for around 40 years.

Then in the 1980s, government spending jumped. Around 2008, the debt goes almost vertical.

That’s what most people think of when they think of our country’s financial problems. And it’s a real, big thing. Oh yeah, and let’s add in another $7 trillion for state and local debt.

But there’s another black swan lurking out there. One many people aren’t aware of.

Unfunded Liabilities

Social Security and Medicare. The two horsemen of the unfunded fiscapocalypse.

The American government has promised huge benefits for these programs going forward.

And for a while, when baby boomers were at their earnings peak, we had huge surpluses. All that money should have been saved for the future, when baby boomers were set to retire.

But those surpluses were spent by stupid politicians. So now we have massive unfunded liabilities.

Here’s the broad overview:

Medicare is the biggest unfunded liability. Healthcare costs (and fraud) are absolutely surging.

Take a look at the chart below. It shows the percentage of Medicare spending which is funded by payroll taxes.

Source: Peterson Foundation

In 1974, payroll taxes paid for 71% of Medicare expenses. Only 18% came from the government’s “general revenue” fund. Not bad, almost sustainable.

But today payroll taxes cover less than 35% of Medicare expenses. The rest is paid with general taxes and deficit spending. So despite having massive payroll tax revenue, Medicare is still underwater.

According to the Medicare Trustees Report, the program’s Hospital Insurance Trust Fund will be depleted by 2033.

The situation looks bad based on government projections. But those projections tend to be far too optimistic.

Medicaid is a whole separate issue, and isn’t considered an “unfunded liability” due to the fact that it’s paid out of general revenue (no trust fund). But it’s also a huge problem.

Together, Medicare and Medicaid account for about 6% of GDP. A massive, ridiculous number.

$100 Trillion+

Add in another $8.2 trillion for underfunded federal pensions and Veterans Affairs costs.

And we get a number that dwarfs U.S. debt. Let’s call it $100 trillion.

These are America’s unfunded liabilities. Money we have promised but haven’t budgeted for.

In short: Medicare, Medicaid, Social Security and other unfunded liabilities will remain a drag on the economy for many decades to come.

Unless there’s major reform. Cost-cutting, benefit-slashing. But that is a very hot political issue. Too hot for any sane politician to touch. President Trump has announced a major fraud task force, and hopefully something comes of that. Because fraud in Medicare and Medicaid is absolutely out of control.

But the fundamental problem will remain. Too many benefits promised to too many people, and not enough money to pay for it all.

How will we solve these issues?

Money will be printed to cover shortfalls. It’s the only realistic political outcome.

The Next Decade is Key

These big debt/liability situations always take longer to play out than it seems like they should.

But I believe the debt + unfunded liability situation will reach a tipping point within the next decade. We have already passed the “event horizon”, where there’s no turning back. It’s impossible to pay off the debt and fully fund the liabilities with fully-valued dollars.

The debt will need to be paid off with devalued money. The liabilities will be paid for in “full”, but they won’t be worth what they should.

In other words, inflation will eat up a large portion of our debts and liabilities. Which means the people holding U.S. debt (Treasury bonds, bills, notes) will likely get hosed.

At some point people expecting to live off social security will have to lower their expectations. Sure, your check will come every month, but it won’t come close to meeting your needs. Inflation will eat up the purchasing power (cost-of-living adjustments won’t match true inflation).

It’s a bummer, but I don’t see any way around it.

When will we hit this turning point? There are hundreds of factors to consider, so it’s very difficult to say. But we are approaching the “snowball” period on our debt, where interest payments are becoming a huge portion of overall government spending. Not a good sign.

And as far as unfunded liabilities go, Medicare is probably more of a concern than even Social Security. Healthcare costs are simply rising too fast, with no signs of slowing down.

DOGE Never Stood a Chance

Even if DOGE (President Trump and Musk’s plan to slash government spending) had worked, it would have only delayed the inevitable.

But it didn’t work. The swamp remains undefeated. Our political system has become an enrichment scheme for fraudsters and special interests. Call them whatever you want. The deep state, the swamp, or much worse.

No matter who’s in power, unfunded liabilities and debt will continue to grow. It’s a structural part of our economy now. The ponzi must go on.

So the train is accelerating down the mountain with no brakes. And it’ll probably avoid derailing for longer than we expect.

But eventually the bill comes due. And when it does, the Federal Reserve and Treasury Department will go to insane lengths to engineer a “solution”. We’re approaching that point now.

Hint: their solutions will involve lots of money printing, debt monetization, and financial repression. And given the size of the problem, it’ll take at least a decade, and probably longer, to fix.

This is why we own hard assets.

The post Nothing Stops This Train appeared first on Daily Reckoning.

A dear reader, planning to move here from Australia, wrote to ask if we thought this would be a good time to buy property in Argentina.

Context: Argentina is the most fascinating experiment in government and finance since the Bolsheviks took over Russia in 1917. Back then, the collectivists were determined to prove that they could do a better job of running a country than free people could do on their own. They failed.

In Argentina a similar, but less dramatic, experiment began in the 1950s, led by the Big Man, Juan Peron, and continued for the next 70 years. They wrecked the economy, too. Now, Javier Milei wants to show that the free market can fix it.

The first two things we noticed when we got to the airport in Buenos Aires was a major remodeling on the international terminal…and a cup of coffee cost 6,600 pesos.

Some quick math tells us that the dollar cost of the coffee was a little less than $5. That is about what you pay in most places.

We are staying in the old, elegant ‘Recoleta’ neighborhood…in the old, elegant Alvear Hotel. We had heard that things were getting pricey. But you wouldn’t know it from the local real estate listings. At a glance, you could buy a decent two-bedroom apartment for around $250,000. Not much more than it was a few years ago, the last time we looked. That seems cheap to us…too cheap to be the top of the market. But there are few fixed-rate, long-term mortgages in Argentina. The lack of credit keeps prices low.

But the quality of life, at least here in this upscale neighborhood, is high. Yesterday, we went for lunch at La Rambla on Posadas. It’s a classic corner café where we’ve gone for many years. The waiters are professionals…dressed properly with black jackets and white shirts. The food — mostly pieces of beef in various ‘sandwiches’ — is excellent. And the décor — warm woodwork throughout, with wrap-around glass in front — was inviting and restful. As for the loud music that ruins most US restaurants, there was none. We sat and sipped our coffee, happily thinking that if there were a major nuclear war, we here in the Southern Hemisphere, would be among the last to die.

Ah yes, Buenos Aires, mi querido!

Small things. But a life is passed in small increments. Minutes…hours…days…full of sights, sounds, tastes, touches and words. Let the economists worry about GDP growth; we just want a quiet place to have a cup of coffee.

Beyond these initial impressions, we turn to two old friends who follow events in Argentina more closely than we do. Joel Bowman, for example, is on the case and on the numbers:

• Country Risk: down from 2,700 to 510
• Poverty: down from 57% to 28%
• Annual Inflation: down from 211% to 30%
• Debt: down $30 billion USD
• Public Spending: down 30%
• Public Employment: down 65k positions
• Budget Surplus since 2024
• Reserves: up $28 billion USD

Those numbers describe a major turnaround. But Doug Casey has a word of caution. He lists some ‘unforced errors’ committed by the Milei government:

‘When he was elected, one of his central propositions was abolishing the Central Bank. That hasn’t happened so far. In fact, he’s no longer talking about eliminating the evil institution.’

‘Argentina should have defaulted on its debt, which was run up by past criminal regimes. Though much of that money was stolen, it’s now a liability of future generations of young Argentines. But instead of defaulting on what they have, he’s gone back to the IMF to borrow more.’

‘Milei said that he wants to join NATO, a truly stupid and pointless desire. He supports the criminal Zelensky regime in the Ukraine. He wants to take sides in the conflict between the Israelis and the Palestinians.’

‘And…Argentina, a bankrupt country, bought 24 used F-16s from Denmark for about $300 million, which makes no sense.’

The errors are costly. But probably not fatal. A bigger threat probably comes from politics. Cutting off government giveaways helps an economy in the long run, but it causes pain to voters in the short run. They may lose patience. We consulted our own expert source:

“Milei is doing the right things,” said the cab driver. “You know, we had thousands of people we called ‘gnocchis.’ They were on the government payroll but they never came into work. Milei is getting rid of them. But it takes time. Probably two generations. You need to get rid of a whole mindset, where people think they can live off the government…. But I think this is the time to buy here in Argentina. It is a country on the way up.”

Hmmm…two generations is a long time to wait.

We’ll be here in Buenos Aires for a few days. Then, we’ll head up to Paraguay.

Stay tuned for a report.

Editor’s note: read more of Bill and his team’s work at Bonner Private Research.

The post The free market can fix it appeared first on Daily Reckoning.

LA politics burned down his house. Now, he’s burning LA politics.

“I’m not running to be a politician,” said Spencer Pratt, former television personality and now a candidate for Mayor of Los Angeles.

“I’m running because the current mayor (Karen Bass) let my house burn down.”

Spencer & Heidi Pratt amidst debris of former home in LA. Courtesy Pratt for Mayor 2026.

Kaboom! Great line.

It’s no wonder that Pratt is soaring in polls. He’s honest, serious, straightforward, sincere, sympathetic, original, energetic and refreshing; plus, he’s funny and totally incisive. Definitely, this guy resonates with voters. Hence, Pratt is raising funds, gaining endorsements, and remaking California politics, if not America’s.

Will Pratt be the next mayor of America’s second-largest city? Can he salvage LA from its trashy level of decline and urban implosion? Just now, it’s hard to say because strange things definitely happen on election days anymore.

Still, it’s “America 250,” and what better way to celebrate the country’s quarter-millennium than to liberate a formerly great city from the seedy, greedy grip of long-term, left-wing, progressive political dysfunction, corruption, incompetence and cronyism.

Meanwhile, the tale of Pratt’s political journey pertains not just to the Golden State, but offers a teachable moment to the entire nation. Let’s dig in…

Reality TV Meets LA Reality

At first blush, 42-year-old Spencer Pratt is an unlikely candidate to run a city, let alone a really big place like Los Angeles.

Still, he begins with solid bones, so to speak. Born and raised in LA, he’s a home-boy USC grad who went into a local industry, namely the entertainment business. There, Pratt played roles that portrayed him as a bad guy; although, of course, in Hollywood that’s also what actors call “work.”

“Yes, I was a bad guy,” Pratt explained in one interview. “That was my job. I worked with show-creators, producers and scriptwriters to be a bad guy. And I made good shows that people wanted to watch, which led to good ratings.”

(Note – Pratt discusses his career in a recently published book entitled The Man You Love to Hate: Confessions from a Reality TV Villain.)

Meanwhile, ratings are the cash register of the entertainment biz. And Pratt’s strong ratings led to more than a few handsome paydays. During one stretch, Pratt’s income was so good that he and his wife Heidi bought a multimillion-dollar home in tony Pacific Palisades. (Well, back then it was tony. Not anymore, as we’ll discuss below; and see here for a related article I wrote last year.)

For Pratt, his home and former life amidst the LA show biz crowd burned down on January 7, 2025, at the beginning of several weeks of massive wildfires that scorched the region.

Pratt’s house went up in flames, along with much else. In fact, those LA fires burned about 90 square miles, destroyed more than 18,000 homes and structures, killed at least 31 people and forced more than 200,000 to evacuate. Insurance estimates placed losses north of $250 billion.

Pacific Palisades post-fire, January 2025. Courtesy ABC News.

During the conflagration, flames jumped from building to building. But in many neighborhoods water mains were empty and fire hydrants didn’t work. Not that it mattered because several of LA’s key reservoirs were empty, drained and never refilled by officious, know-it-all bureaucrats.

Even adjacent to the Pacific Ocean – absolutely, an aqueous firefighting resource – many areas burned to the ground for lack of equipment simply to pump seawater ashore and squirt it from a hose.

LA burned to the waterline; i.e., the Pacific Ocean! Courtesy U.S. Army Corps of Engineers.

On streets across the city, the LA fire department lacked sufficient firefighting trucks. In its fiscal wisdom, the city had retired equipment without replacement; or the fire department lacked funds for normal maintenance after the Bass administration raided the budget to fund so-called “homelessness” programs and other boondoggles.

And while LA burned, Mayor Bass was on a political junket to Africa, in Ghana to be exact, and nowhere to be seen in the early days of flaming disaster.

Burned Again, After the Fires

Immediately after the fires, politicians lined up and promised help. Clear the debris! Rebuild fast! Permits forthcoming! Blah, blah, blah. Yeah, right…

A year later, per Fox News, a mere 12 building permits were issued for reconstruction in Pacific Palisades. And in the past 17 months, just two new houses have been erected amidst the ruins, one of which is a “spec” by a builder who bought land from a seller who just wanted to cash out and get away from the entire mess.

Instead of helping citizens who lost homes rebuild, the Bass administration and her LA city bureaucracy placed roadblock after roadblock: new zoning and land use rules, extensive permits, costly filing fees, architectural reviews, endless checklists. And this is on top of how property owners must battle insurance companies over the amount of fire coverage (long story).

Along the way, several thousand displaced people have simply sold their former real estate to insiders, speculators and developers, more than a few of which are foreign corporations, and some apparently funded from Chinese sources.

Downtown, at City Hall, and up north in the state capital of Sacramento, the prevailing push is to rebuild Pacific Palisades with a large element of so-called “low-income” housing.

In other words, we see here a political land grab from former homeowners. The system ties up burnt-out homeowners in red tape, waits them out, wears them down, and then takes their property to advance the cause of Social Justice and the Nanny-Welfare State. It’s a massive racket between well-connected developers and local, county and state government.

Meanwhile, as things currently stand in California, multi-billions of dollars per year are already dedicated to… ahem… “housing the homeless,” and yet the numbers of people on those LA mean streets never seem to decline. (Long story; scandalously long.)

Campaigning for Competency

Pratt’s frustration with unaccountable, incompetent, uncaring government prompted led him to toss his hat into the political ring. “I saw who was running,” he said, “and it was the same exact people who caused the problems in the first place. So, I stepped up.”

Now, Pratt is staging a fast-growing, populist-style campaign, and in California no less; a state defined – and ossified – by two decades of single-party political dominance, certainly in LA.

“I’m running against incompetency,” Pratt said. “I’m running against complacency. Against the idea that these politicians are entitled to power, and to spend taxpayer money on whatever they want, no matter how bad the result. My campaign platform is common sense.”

Asked about his lack of past political experience, Pratt quickly notes, “The people who run things have all this supposed ‘experience,’ and look where we are.”

He explains that his campaign has been working with a long list of outsiders who will be pleased to step up and play roles in bringing better governance to LA if (when) he wins the election.

Pratt points out that, “California is home to some of the smartest people in the world. Many of them live in or around LA. And none of them seem to be working in the Bass administration.”

Meanwhile, “The LA region is among the wealthiest spots on the face of the earth,” he says. “We ought to be an economic powerhouse, gleaming like Dubai or Singapore. But instead, we have miles of homeless camps. We have drugs everywhere. Feces on the sidewalks. Crime. Bad schools. Broken infrastructure. Boarded up buildings where nobody can start a business.”

In a recent interview with CBS News, Pratt was filmed at his current abode, a trailer parked on the site of his burnt-out home in Pacific Palisades. “My opponent lives in a three-million-dollar home. I live in a trailer, a year after my house burned down. And after my parents’ house burned down. And my friends’ houses. And ten thousand other people’s houses.”

But neither is Pratt a single-issue candidate. For example, in another discussion he explained how LA is unprepared for a mass-casualty event.

“It’s not just last year’s fires,” he said. “Already, much of the underbrush has grown back and the city isn’t clearing fire breaks. And LA is unprepared for even a modest earthquake, and we know what kind of damage that would cause because we’ve seen it before.”

Plus, Pratt has a more than respectable approach to many other basic issues of city governance: how to deal with homeless people, drugs, crime and criminals; how to promote growth and economic development, repair infrastructure, and much more.

Indeed, it’s fair to say that Pratt has as much of a campaign package as anyone else, if not more. But it doesn’t matter if he doesn’t win.

Shock & Awe Social Media

So, what’s Pratt’s pathway to the mayor’s office? Well, here’s where his bad boy, reality TV past comes in handy.

Pratt understands that the way to break through the California media market is with some level of spectacle, but not just gratuitous sound and light. Thus, his ads are creative gems that offer a sharp, honest, reality-based, easily understood political point, delivered with pithy humor.

One of Pratt’s first ads was a homemade effort that required about six hours to devise and has already amassed over 20 million views. Numerous other Pratt ads are similarly impactful: a mix of funny sketches that include devastating political points about how out-of-touch is the current political class. (These ads are easily located with a simple You Tube search.)

Pratt eschews typical political pabulum. He knows that California is a one-party state run via a tight, mostly closed political-media system that maintains the Left in power. In other words, it’s next-to-impossible for an outsider to break through to the public by conventional means; other candidates have tried in the past and spent hundreds of millions of dollars on losing campaigns.

With this in mind, Pratt’s road to success is to mobilize public opinion via social media. His ads must land hard, and then go viral; that is, go over, under, and around the roadblocks of conventional television, radio, print and even established online venues.

Pratt’s anchor-narrative – and it will continue, no doubt – has been the loss of his house to the Palisades Fire: “Karen Bass let my house burn down.” Yes… very emotive.

But now that Pratt has people’s attention, his narrative is expanding. He can’t just be the “burned house” guy. So, he campaigns honestly on issues that quickly relate to other, widespread levels of dissatisfaction: homelessness, crime, drugs, urban decay, etc. That, and massive waste of billions of taxpayer dollars on failed boondoggles. At root, Pratt tears the mask away from standard California zombie-party politicking.

For Pratt, the political idea must be to mobilize and build a voter base via social media. Clearly, he has caught the wave of broad public opinion that’s dissatisfied with progressive, expensive, thoroughly ineffective Left-wing government.

Serendipitously, Pratt’s engaging ads have sparked a cottage industry of creative, independent imitators and spinoffs, many of them constructed from astonishing displays of visual AI. One ad depicts Pratt as Batman fighting crime, and thoroughly mocks the current crop of California political frauds.

So, Spencer Pratt is a blast of fresh air; but can he prevail? Will he be the next mayor? Well, he’s coming on strong right now. And the California primary is June 2^nd. We’ll see, of course, and then we’ll see what happens in the November elections.

But clearly, Pratt is out to change Los Angeles, to recapture governance, kick out the hard Left, and bring some basic honesty and sanity back to the streets.

At an even higher level, LA offers hope to the nation. Because if the City of Angels can come back from the brink of Perdition, it says much about many other American jurisdictions where political dysfunction, corruption, grift, graft and incompetence also run deep.

Spencer Pratt. Bad guy. But you can call him “Mr. Mayor.” Indeed, maybe even America’s Mayor.

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

The post Spencer Pratt appeared first on Daily Reckoning.