Over the past 4 years, the world has slowly woken up.

Investors have finally recognized just how unsustainable the debt situation is.

Governments have piled up IOUs steadily since the 1980s. But for a long time, it didn’t seem to matter.

Mainstream economists told us it wasn’t a big deal.

Nobel Prize-winning economist Paul Krugman is a prime offender here. The New York Times columnist has argued the following:

• “No, debt does not mean that we’re stealing from future generations.” Feb 2015
• “Large-scale deficit spending isn’t just OK, it’s the only responsible thing to do.” Oct 2020
• “That is, to act responsibly, we must stop worrying and learn to love debt.” Dec 2020
• “We weren’t and aren’t anywhere close to that kind of crisis and probably never will be.” Dec 2020

Over the years he has ranted and raved about how debt is just money we owe to ourselves. It’s no big deal!

This is the wisdom of the most influential economist in America.

Krugman seems to have assumed we’d have low interest rates forever. Now that rates are soaring, he’s changing his tune a bit.

But still, he assures us there’s no chance of a serious debt crisis, because we can always just print money to pay it off. That’s reassuring…

“The truth is that even fiscally irresponsible nations very rarely have acute debt crises unless they borrow large amounts in foreign currency, because countries that borrow in their own currency can’t literally run out of money — they can print more as needed.”

If a nation’s debt causes it to print gobs of money, which results in problematic inflation, I’d call that a debt crisis.

In fact, I would argue that no matter what we do, a sustained period of high inflation is unavoidable.

The High Rate Path

The U.S. basically has two paths in front of it. One where interest rates stay high.

Peter Schiff recently summed up the first option nicely:

If rates stay high, the debt will rapidly snowball to $50 then $100 trillion. Peter’s post got me curious, so I had an AI agent run the numbers. Here’s what we have, assuming the fed funds rate rises to 8% and stays there:

So by 2036, total federal debt would rise to $89 trillion, from $40 trillion today.

Paying the interest on that debt would cost $6.2 trillion. That’s more than the federal government’s total revenue (taxes etc) in 2026, which will be around $5.8 trillion.

All that money would have to be printed.

If you extend the high-rate simulation to 2046, debt would reach a shocking $240 trillion.

And by the way, this projection uses government spending and revenue estimates (CBO). Those numbers are always too optimistic.

The Low Rate Path

The other path is where the Fed and Treasury work together to get rates back down to near zero.

We had this for almost 10 of the past 20 years. After the housing crash of 2008, and during Covid. And I believe we will return to it.

I ran the same projection using AI, but it assumes the Fed drops interest rates to 1%, and they stay there for 10 years.

In the low-rate scenario, debt “only” rises to $61 trillion, rather than $89 trillion. Interest costs would be a more affordable $1.3 trillion, rather than $6.2 trillion in the higher-rate world.

The difference between the high and low-rate scenarios would grow exponentially over time.

This is the choice facing our central bank and politicians. Technically, the Fed isn’t supposed to concern itself with debt. Its mandate is to maximize employment, and minimize inflation.

But in the real world, they absolutely have to take debt into account. The tables above show why. The Fed certainly did during the financial repression of the 1940s. That was yield curve control, and I believe we’ll see it again.

Real World

These projections are simplified. They don’t account for inflation and a whole lot of other stuff.

But the exercise is worthwhile because it shows just how bad our debt will become if interest rates stay high. In fact, over the long run, inflation may be worse on the high-rate path. The debt snowballs.

We need lower rates. The country can’t even afford these “normal” interest rates. Corporations, people, or governments. We all have too much debt.

Of course, we technically could stay on the high rate path. But we’d have to cut government spending by 40%, raise taxes, and stamp out all the corruption. There’d be a wave of corporate and personal bankruptcies within a few years, as refinancing at higher rates breaks the math.

It’s not realistic. At least not yet.

Of course, artificially low rates have downsides too. Asset price bubbles, savers get robbed, and higher inflation. There’s a reason they call it financial repression.

But it’s more palatable than the alternative.

So I continue to believe that they’ll force interest rates back down towards zero within the next year or two. Even as inflation remains too high. It’s the path of least resistance.

It’s an extreme step, yield curve control. So it might take a painful catalyst to get us there. But I have no doubt it is the destination.

This is why we spend so much time talking about hard assets, inflation hedges, and monetary policy.

Owning them is going to be key to thriving during the next decade.

The post All Roads Lead to Inflation appeared first on Daily Reckoning.

In the energy world, all eyes remain on the Persian Gulf.

Crude oil exports from the region are increasing. But by how much? That question is hotly debated.

An official White House account on X quoted a WSJ article today around noon:

“With flows through Saudi Arabia’s East-West pipeline recently restored, the 10-day average of crude exports from the Middle East has rebounded to 17.5 million barrels a day, or 98% of prewar levels, J.P. Morgan analysts said.”

If JPMorgan is correct, this is a major breakthrough. A return to 98% of pre-war crude exports would mean the U.S. strategy is working.

But 98%? Again, call me skeptical.

Earlier this week, a separate source said oil exports from the region returned to 93% of pre-war levels in September. The problem with that claim is that Saudi Arabia’s primary pipeline was down due to drone strikes for about 2 weeks in September. That alone accounted for about 5 million barrels per day.

The source of much of this new data is tracking firm Kpler. They use satellite images and on-the-ground reports, among other data collection methods.

It’s important to note that Kpler says the September data is both “provisional” and “preliminary”. So it’s essentially an educated guess.

Notably, Kpler also reports that Iran’s oil exports dropped to zero last month, from a peak of over 2 million barrels per day in February.

This claim looks solid. No oil tankers have been spotted filling up at Iran’s Kharg Island in a long time. It looks like their exports are finally cut off. This starts the clock ticking on an economic time bomb, but the fuse may burn for a year or longer.

And it seems that only oil exports are increasing. Bloomberg reports that liquified natural gas (LNG) shipments out of the Gulf are still only about 20% of pre-war levels. Refined fuels are similarly low.

Despite all the good news about oil exports, Brent crude moved up 3.29% as of 12:30pm ET today. Murban crude, which is the UAE’s oil benchmark, moved up 5.46%.

Source: OilPrice.com

The market isn’t fully buying this “98% of pre-war levels” story. At least not yet.

Oil prices are still 55-70% higher than pre-war. This could be partially a transit and processing issue. It takes a while for oil to be refined into usable products, then shipped to its destination.

But there are three other factors we must consider.

1. The optimistic data on oil exports from the Middle East could be wrong
2. Iran continues to hit tankers transiting Hormuz with anti-ship missiles
3. At any time, a volley of drones and missiles aimed at oil infrastructure could spoil the party (again)

Data Wars

Tracking and measuring oil flows is trickier than it may seem. Oil is escaping the gulf today partially through a huge network of ships which transfer oil from one tanker to another.

Many of the tankers “run dark” with their AIS tracking systems turned off. So measuring exports requires detailed analysis of satellite imagery.

Even from space, a picture can tell analysts how much oil is in a tanker. They simply measure the shadow, and can tell how full it is by how deep it sits in the water.

But the problem is, there’s been heavy censorship of satellite images over the Persian Gulf since early March.

So it’s difficult for anyone to confirm Kpler’s data.

A Cornered Animal?

One issue about all of this bothers me most. Iran is still hitting tankers and ships with missiles and drones in Hormuz.

For now, at least some brave captains and crew appear to be pushing through. But how long will shipping companies take the risk? The monetary rewards are great, but there’s a chance that Iran just keeps firing missiles at adversarial tankers.

My fear is that even if our strategy is working, Iran could ramp up attacks on tankers and pipelines. Like a cornered animal, they are most dangerous when seriously threatened.

If they feel like they have no way out, another wave of infrastructure destruction becomes likely.

Don’t get me wrong, more oil is getting out of the Middle East, and that’s a good thing. But for now, I remain cautious.

I believe the reports saying we’re back at 90%+ of pre-war oil exports are far too optimistic. The U.S. just told France and Germany to release their emergency diesel stockpiles, or they’ll stop getting diesel exports from us.

Source: X

Would we be doing this if exports were truly back to normal levels? I doubt it.

And at any time, a few missiles or drones on Saudi Arabia’s pipeline could set exports back 30% again. And if Iran ramps up attacks on tankers transiting Hormuz, then we’re back in an ugly spot.

Then there’s the Houthis in Yemen, who have been firing missiles at Saudi oil infrastructure over the past month. Things have cooled down a bit on that front, but could fire back up at the drop of a hat.

In short, we’re not out of the woods yet. The increase in oil exports is good news, but we don’t know how much is truly getting out. And it may not last.

Some readers may be wondering why I’m spending so much time monitoring the situation in the Middle East.

The outcome will greatly impact our positions in gold miners and oil producers. Gold miners thrive in a low oil price environment, and oil stocks are the inverse.

This is why I recommend owning some of both, at least for now. There will come a time to take profits on oil stocks, but I don’t think we’re there yet.

My base case is that oil exports via Hormuz and the broader Gulf region remain crippled for far longer than most analysts currently project.

The post Lies About Oil appeared first on Daily Reckoning.

In the fall of 1923, a German housewife waited at the factory gate for her husband’s pay.

Back then, workers got paid at least once a day because prices rose by the hour. A wife needed to be ready the instant the cash hit her hand. Then, like a relay runner handed a baton, she sprinted to the shops. The bread she bought at noon would’ve cost more by dinner.

By November 1923, 1 U.S. dollar fetched about 4,200,000,000,000 (yes, 4.2 trillion) Reichsmarks. In 1914, it was worth only about 4.

A German banker stacks Reichsmarks into a wall of worthlessness. Credit: Rare Historical Photos

Most people hear “Weimar” and think “wheelbarrows of cash.” But the real damage was done to the people holding the cash.

What Money Teaches

Every price tells you something, especially the price of money, which we call the interest rate. That rate teaches you the most important lesson of all: whether waiting pays.

Economists call it time preference, the question of sooner or later. A healthy interest rate tells you patience pays. A rate near zero tells you patience is for suckers.

Five years ago, I built a simple spreadsheet to show my graduate students how this works. Picture a $50,000 project that pays back a bit more than $10,000 a year for five years. At a 2% interest rate, it’s worth building. At 5%, it loses about $2,400 in today’s money: same shovels, same customers, same cash. Only the price of time changed.

Interest rates inform businesses and guide personal decisions. They tell a young man whether to save for a ring or blow his paycheck on Friday night. They tell a young woman if a husband and children are realistic.

When the price of waiting falls to zero, or even below it, as it has in Japan and Switzerland, the lesson is simple. Take what you can right now.

Weimar’s Moral Collapse

Germany’s central bank kept lending at rates far below inflation almost to the very end. Borrowers got rich. Savers got wiped out.

This was no victimless crime. The pensioner; the widow living on war bonds; the civil servant who’d put away a little every month for 30 years; the respectable middle class that did everything right; all within mere months, the fruit of their thrift was worth nothing.

Then something worse happened. They drew the obvious conclusion.

If saving is for fools, why save? If the future is a lie, why plan for it? Clerks and cabbies gambled on stocks. Currency speculators became the new aristocracy. Berlin turned into the vice capital of Europe, with cabarets, cocaine, and prostitution on a scale Germans had never seen. Many of the women on those streets came from good families that had simply run out of money.

Dr. Joseph Salerno wrote about this in his essay “Hyperinflation and the Destruction of Human Personality.” He shows how professors and senior civil servants became taxi drivers and waiters almost overnight.

That’s a horrendous outcome, but his conclusion matters to us today: A man builds his character around what he owns and what he’s working toward. If a government kills the money, and private property stops meaning anything, it knocks out the ground a man stands on. Salerno argues that Hitler preyed on exactly those demoralized people.

Weimar’s leaders owed crushing war reparations and controlled a printing press. Every month, printing was the least painful choice. The easy option always wins… until nothing is left to save.

“Weimerica”

I’ve heard that slur from two different people now. But America isn’t Weimar. You don’t need a wheelbarrow to buy a loaf of bread. But look at the incentives, not the numbers.

From 2008 to 2022, the Fed held rates near zero for most of those years. In late 2021 and early 2022, it held them at zero while inflation ran above 7%. For years, savers earned less than nothing after inflation.

And the moral lesson landed exactly as it did in Berlin.

Young men looked at home prices, did the math, and gave up on marriage and a mortgage. Many retreated into video games and sports betting, which spread like a virus after 2018.

Young women saw the same math and found easier routes to wealth through Instagram fame and, for far too many, OnlyFans.

The birth rate sits near record lows. Some economists blame women’s education and careers. I blame arithmetic, and so would Guido Hülsmann, a German economist. If a young couple can’t make family math add up, they don’t start one.

Meanwhile, the casino owners won. Meme stocks. Crypto. Zero-day options.

The man who borrowed to the hilt looked like a genius. The man who saved looked like a chump.

A whole generation didn’t just wake up degenerate one morning. A price signal is amoral, unfortunately. They read the signal and acted on it.

A Tax on Virtue

Professor Guido Hülsmann teaches at the University of Angers in France. In 2008, he wrote The Ethics of Money Production. It treats cheap money as a moral problem.

He draws on a medieval bishop, Nicole Oresme, who warned French kings in the 1300s that clipping the coinage was theft. Hülsmann carries that logic into the paper money age. He argues that when inflation becomes permanent, people form inflation habits. They borrow first and ask questions later. Debt turns into an albatross people carry around their neck for life. And he warned that inflation “slowly but assuredly destroys the family.”

The old Catholic teachers called the habit of planning “prudence” and ranked it first among the cardinal virtues. Thomas Aquinas taught that virtue is a habit. You build it through practice, like a muscle.

But habits need rewards to become permanent. A money system that punishes thrift for a decade is like a gym that fines you for every workout. Sooner or later, people stop working out.

Cheap money raises the payoff for vice and decreases the rewards for patience, fidelity, and self-control.

Why experts wonder why we get less of the second and more of the first is beyond me.

The Road Back

On September 16th, the Fed raised rates for the first time since 2023. The 10-year Treasury yield is above 5%, its highest level since 2007. For the first time in a generation, a saver can earn a real return on boring Treasuries.

In late 1923, Germany had issued a new currency and turned off the printing press. Prices had steadied within weeks. But the fix came too late for the savers who’d already lost everything.

Wrap Up

America still has time.

Honest price signals rebuild habits that distorted signals eroded. When saving pays again, people will save. When a young couple can see a path to a happy home, they’ll start a family.

The only thing you can do is show your kids and grandkids why it pays to invest and wait for the future rewards.

Keep holding the line. Time’s pendulum is swinging back your way.

The post If You’re a Saver, You’re a Sucker appeared first on Daily Reckoning.

The S&P 500 is sitting just below a fresh all-time high.

Yet 59% of the companies in the index are down more than 20% from their highs. That means 59% of S&P 500 companies are in a bear market.

And it gets crazier. 41% of stocks in the index are down more than 30% from their highs! And 17% of the companies are down more than 50% from their peak.

Source: Don Durrett

This situation is possible due to the market cap-weighting used by the S&P 500.

Let’s take a look at the 10 largest companies in the index. Note the weight column, which tells us what percentage of the index that company makes up.

Nvidia (NVDA) alone accounts for almost 8% of the entire S&P 500. The top 3 companies (out of 500) make up about 20% of the index.

So the S&P 500 can perform extremely well in periods where most of the index is struggling or down. The big boys can drag up the market with their outsized weights and gains.

This is essentially where we are today. Over the past few years, the big AI winners are holding up the entire market.

But make no mistake. This bull-bear market is highly unusual. Yes, it has happened before. I asked ChatGPT to find previous instances, and show market returns in the following 12 and 24 months. Here are the results:

The September 1972 incident was followed by a market crash. The March 2000 one too. Only the May 2023 instance was followed by positive returns (I should note that the returns were very impressive in this case.)

Historically, when a tiny group of companies begin to dominate the market, it’s not long until a crash. The chart below, via Bank of America research, shows concentration bubbles throughout history.

The 10 biggest AI players now make up 41% of the total U.S. market cap. This is the exact same level that top tech stocks hit in 2000.

Weak Market Breadth

Breadth measures how many stocks are participating in a stock market move.

Currently, only 44% of S&P 500 companies are trading above their 200-day moving average:

Source: Barchart

That’s the worst since March 2026, just after the war with Iran began. As you can see on the chart, back in mid-August, 72% of companies were above their 200-day moving average.

And note how sharp the drop is in the chart above. That’s just… ugly.

Opportunities Outside the S&P 500

For the past 15 years, the S&P has performed spectacularly. Largely due to the crazy-good performance from big tech and AI.

But the downside is that this index is now heavily weighted towards tech giants. If the AI train slows down, things could get ugly for the standard stock benchmark a while.

It’s funny, because the S&P 500 is supposed to provide diversification, and sometimes it does. Not today.

This trend has reinforced my belief that we should all own some companies outside the S&P 500. And since S&P 500 companies make up about 80% of the entire U.S. stock market, that really leaves only domestic small-mid caps and foreign stocks.

For example, there is only one single gold miner in the S&P 500. That’s Newmont (NEM), the world’s largest precious metal miner. Great company, I own it.

But almost all the other big gold and silver miners are headquartered outside the U.S., so they can’t be part of the S&P. If you own the S&P, you have almost zero exposure to gold miners.

Fortunately you can buy all the top gold miners by purchasing an ETF like the Vaneck Gold Miners ETF (GDX). Or you can follow the advice of experts like the ones we have here at Paradigm Press. Jim Rickards, Dan Amoss, Byron King, and Matt Badiali are all excellent at picking precious metals stocks.

Emerging Markets

Since U.S. tech has done so well over the past 15 years, many other asset classes have been forgotten. Emerging markets are one of them.

Long-time readers know I’ve been extremely bullish on Brazil for the past 18 months. It’s a commodity-heavy economy, trades at rock-bottom valuations, and everyone hated it up until about a year ago.

Buying Brazilian and other emerging market stocks is actual diversification for most investors. Buying the S&P 500 today, however, is essentially a bet on AI.

Many investors believe they are getting broad diversification by buying the S&P. But in today’s conditions, they’re not.

So if you’re all-in on U.S. stocks, consider diversifying into the emerging market world a bit. A few funds I like include the Vanguard Emerging Market ETF (VWO), the iShares Brazil ETF (EWZ), or the Cambria Emerging Shareholder Yield ETF (EYLD).

If and when the AI trend slows down, having true diversification will pay huge dividends. That’s what I’m positioning for today.

The post Frankenstein’s Bull-Bear Market appeared first on Daily Reckoning.

The big news yesterday was this. Interest rates are shooting up. Asia Times:

Japan flashed the first warning, with 10-year yields hitting a 30-year high near 3%. [Last] week, US Treasuries followed, with yields reaching levels unseen since 2007 — traders called it “Black Wednesday.” Thirty-year yields sit at 22-year highs; 10-year yields are at two-decade highs.

Longtime Bonner Private Research sufferers (you have our sympathy) will remember 2020, when the 40-year interest rate cycle finally bottomed out. With the US 10-year note plunging below 1%, it was all risk and no reward, the Big Loss waiting to happen.

The Primary Trend of the credit cycle was now headed to higher priced credit, we guessed. And here we are…six years later, the 10-year yield is over 5%, and bond investors are back in the saddle…demanding higher interest rates to compensate for inflation.

The answer to the question — what’s the big deal? — is right there. There are now $365 trillion dollars’ worth of debt in the world. The 400+ basis points between September of 2020 and September of 2026 represent about $14 trillion annually. That’s how much more it would cost to pay interest at today’s rate on the whole enchilada compared to the rate six years ago.

This brings up the other question you’re probably not wondering about. Hauled out of the water and now flopping on the deck is our catch of the day — the modern warfare/welfare state. A shark fattened on surfers, it’s the government we’ve lived with all our lives. We’re going to cut it open to find out what’s inside…and why interest rates matter so much.

Governments come and never quite go. Among the clickety-clackety of high heels and leather soles in our Capitol city, you can hear the echoes of Greek democracies…the Roman Republic…and the Empire. Socialism, Authoritarianism, Oligarchy, Kleptocracy; the marble walls have heard whispers of them all. The welfare state is fairly recent. But the warfare state is as ancient as the bow and arrow. Donald Trump’s quest to build a monumental arch is just another way of saluting it.

After the Peace of Westphalia came the glory of the nation state — one people, one place, and one King…typically united by one common language, one God, one law…and the willingness of young men to be shot dead for them.

America was never a nation-state, despite much yearning and pretending on the part of many political leaders. Its people were diverse. They were governed neither by a dictator nor a monarch. And they could talk nonsense in any tongue they wanted.

The US was designed for a modest, inexpensive government…leaving people free to build whatever lives they could. Good, bad…rich, poor – it was none of the feds’ business.

But in this Post-WWII era…this fish morphed from a friendly freshwater carp into an apex, ocean-going predator…a Big Government. The public believes it is in control. Voters think Washington ‘works for us.’ Or, as Hillary Clinton put it, with a straight face, ‘government is all of us.’

The theory seemed to justify the practice. Why not spend money if we were spending it for our own good? Why worry about the debt, inasmuch as we ‘owe it to ourselves?’ These poor lambs actually believe they run the shearing shed.

But butter costs money. And we don’t mean to reveal any state secrets, but the feds are skint…broke…busted…no bread…like nothing.

Counterfeit dollars gave them plenty to spend. For 40 years — 1980 to 2020 — falling interest rates eased the annual carrying cost. And the more they spent, the more The People wanted them to spend…and the greater the damage inflicted on any politician who dared to oppose them. Everybody can see that these pension and medical care programs are dragging the whole country towards a fiscal crisis. But even ‘conservative’ Republicans, if there are any left in ‘public service,’ are afraid to propose cutting back.

So…what happens to these social programs when politicians and central bankers fail to rein them in? They cut themselves back. The politicians continue to pay. But the value of their money goes down…along with the services they promised.

A single percentage point in interest rates takes $3.65 trillion/per year out of the present world economy to pay for the spending of the past. And in the last six months alone the yield on the 10-year note — the diesel fuel of our financial system — went up about 100 basis points (1%). William Pesek continues (in the Asia Times):

Things are likely even worse than the data show. IIF economist Emre Tiftik notes… “as benchmark rates rise, interest expense is set to surge, while structural pressures from healthcare and public pension spending remain largely unaddressed.” At the same time, mature-market governments now spend more on interest expense than the world invests in either artificial intelligence, defense or clean energy.

It’s the unforgiving arithmetic of a Ponzi scheme.

Fewer young people are paying into the system. And many of those who should be paying in, are instead taking advantage of the loose, over-generous programs and getting payouts.

Meanwhile, rising interest rates, marching to the unrelenting cadence of death itself…doom the whole swindle. The feds can still ‘print’ money…but the bond market – once burnt, now doubly shy — sends a bill every time.

The post The Cadence of Death Itself appeared first on Daily Reckoning.

There I was, high on the slopes of Mount Etna, more than 9,000 feet above the Mediterranean tide, with the hills and plains of Sicily spread out far below. And the volcano was venting.

Your editor (minus obligatory hard hat) on Mt. Etna, Sicily. BWK photo.

Above the tree line, there’s no soil; just lava, ash, shattered rock, and a few spots of lichen here and there. Wind, rain, frost, and gravity are all hard at work, but at this moment in geologic time they are losing the race. Mount Etna rises faster than weather and erosion can break the mountain apart and carry it away.

Distant hikers cross a barren volcanic landscape on Mt. Etna. BWK photo.

Near the summit, Etna’s terrain is stripped to elemental colors: charcoal, rust, flashes of sulfur yellow, and vast swaths of fresh, pale-gray ash. Indeed, each step grinds through cinders and loose pebbles. While jagged debris and volcanic bombs litter the slopes; at one time, they were molten blobs and superheated blocks hurled far from the vents and then frozen in flight.

Sixty pounds of basalt, tossed from the mouth of Mt. Etna. BWK photo.

Sorry to say, but we have no mineral deposits here; well, none of any particular value. There’s no gold, silver, copper, etc. Just basalt and volcanic ash for, say, construction; and it’s a long haul down a steep slope to take it anywhere. Still, if you know how to observe things, the geology lessons are priceless in terms of how to find mineral deposits.

The Forge of Hephaestus

Ancient Phoenicians had a word, “attuna.” It translates as chimney, likely the root of Etna’s name. And it’s a fitting description of the smoking landmark they saw from afar, long ago.

Later, Greek explorers and settlers framed the massive mountain as the seat of Hephaestus, god of the forge. Certainly, it makes sense because Etna supplies perfect imagery: furnace-like heat rising from below, tremors that remind one of hammer blows, smoke and sparks at the vents, and black slag draped across the flanks.

Recent lava flow from Mt. Etna. Credit Geological Survey of Italy/Italian Institute for Environmental Protection and Research

Even today, and for all the accumulated knowledge of geological science, walking amidst the ash beds of Etna, Hephaestus feels less like myth than an actual field observation. Which leads to a particular physical truth; namely, that Etna’s summit is the topmost, smoky outlet of a complex system that channels energy and mass from deep in the Earth, upwards toward the surface.

Tectonic map of Sicily/Mt. Etna and Ionian Sea. Credit NATO.

Measured from sea level, Etna towers over Sicily at 3,403 meters (11,165 feet). But trace its structural foundations eastward, along a massive fault system and down toward the floor of the neighboring Ionian basin and Calypso Deep, at 5,267 meters (17,100 feet) below sea level. Do some math and the true scale of this tectonic edifice becomes larger still.

Another way to explain the geological story is that, from near the summit and then down-down-down to far beneath my boots, Etna is a series of stacked lava flows, feeder dikes, intrusions, faults, and magma pathways. It’s the buried machinery of Hephaestus’s forge that channels heat and mass from the depths. And in fact, what looks like a single mountain is really the exposed crest of a three-dimensional, northwest-southeast trending, energy-mass transport system rooted far down in the planet’s mantle.

A Geology Lesson Between Tectonic Plates

One of my jobs at Paradigm Press is to look at mining company plays and figure out their advertised mineral systems and ore deposits. Then, if it’s the real deal, I assess exploration and development potential to turn interesting science into cash-flowing operations. Over the years, I’ve traveled the world, from Alaska to South Africa, from Chile to Kyrgyzstan, to look at mineral and mining ideas. And I’ve found some great ones, along with more than a few that never panned out.

With mineral deposits as in life more broadly, you must look before you can find. Nothing is ever handed to you. And when you look, it helps greatly to understand what you see. Which is why I routinely take opportunities to visit just plain “geology” jurisdictions; to maintain basic field competencies and relearn – or learn anew – some aspect of science that can help me find the Next Big Thing.

And the opportunity to see an active Mount Etna up close is what took me recently to Sicily, a geology classroom set above the collision zone between the African and Eurasian Plates. Plus, it’s worth mentioning, about a year ago I was in Iceland where the North American and Eurasian Plates diverge. Also, this past summer I was in the Canary Islands, part of Spain but offshore of Morocco, atop a fascinating volcanic feature of the African Plate.

Tourism aside, the geologic lessons of these volcanic features involve plate convergence or divergence, subduction, slab-edge processes, regional extension, crustal faults, thermodynamics and mantle flow interactions.

Together, they show how tectonic forces channel energy, create pathways, move mass from deep within the planet, and set up chemical conditions that form mineral deposits. And understanding this aspect of earth dynamics – if not just plain old volcanism – is how geologists learn to find the good stuff; namely, the valuable minerals (although some say that “it’s all good”).

Along the way, I saw much of a type of rock called basalt, which to a geologist is a start but definitely not a diagnosis. That is, to understand what builds a volcano, and where and how mineralization may occur, it’s necessary to reconstruct the geologic history, the “deep time” aspects, the tectonic engine, magma sources, and structures that guide mass through the crust.

Follow the Energy, Then Follow the Mass

Mount Etna is currently active. It attracts tourists, which is good for Sicily’s economy; but on occasion, its eruptive ash clouds close entire sectors of Mediterranean airspace to flight traffic, lest jet engines ingest the volcanic emissions and, basically, seize up mid-flight.

And to be sure, for obvious reasons of public safety, access to the actual explosive vents is restricted by Italian authorities.

Meanwhile, and beyond providing a stunning spectacle for tourism, Mount Etna – and any volcano, when you get around to it – is the surface expression of deep-earth energy and mass in motion. And mineral deposits are not isolated anomalies; they are products of a dynamic set of systems that move heat, rock, fluids, and dissolved elements from one place to another.

The earth’s inner heat drives melting. Buoyant magma rises through fractures and crystallizes in intrusions. Gases and hot fluids separate from the melt and react with the surrounding rock. As temperature, pressure, chemistry, and permeability shift, metals may remain in an intrusion or accumulate in veins, breccias, replacement zones, and alteration halos.

Again, I’ve seen this all over, from the gigantic platinum deposits of Rustenburg, South Africa to volcanic-massive sulfide (VMS) deposits in the Andes, or up in the “golden triangle” of British Columbia. I recall visiting a county-sized lead-zinc-silver deposit at the base of the Tien Shan mountains of Kyrgyzstan, and then there’s the gold-silver arc of southern Idaho, created by North America sliding over a mantle hotspot which now sits directly beneath Yellowstone Park, in Wyoming.

Finding new ore deposits is why the study of active, youthful volcanoes matters to exploration efforts, even exploration in much older terrain. Sure, the volcanic thing may have occurred long ago; but that’s the idea! Chemistry and physics played out and created ore deposits, and subsequent deformation and erosion removed the upper reaches of an ancient system, while deformation or metamorphism may have scattered the evidence.

Yet parts of the old geological plumbing can survive; namely, feeder dikes, intrusive centers, fault corridors, hydrothermal alteration, and mineralized structures. And it happens everywhere, on every continent; too many places to name.

Then come the practical questions: What supplied the heat? What carried the magma and fluids? Which structures focused their flow? Where did physical or chemical conditions change enough to deposit and preserve minerals?

To me, at least, basalt-oriented volcanic systems and islands make those relationships easier to read. The rift zones, calderas, lava fields, dike systems, geothermal areas, collapses, and age-progressive landscapes expose different parts of the same planetary machinery. It’s quite a textbook if you read it.

The Point of the Journey

I could take my “basalt bucket list” to thoroughly nerdy levels, but I’ll spare you. The essential point is this: finding the right kinds of mineral and ore deposits begins with understanding the nearly infinite geological experiments our planet has run.

Mount Etna, Iceland, the Canary Islands… Read together, these landscapes turn black rock into a record of plate motion, energy flow, mantle melting, magma movement, fluid circulation, and chemical concentration. That record is more than an academic illustration of how the Earth works; it is a guide to where mineral wealth can form.

These volcanic systems teach geologists to reconstruct ancient movements of energy and mass. That, and to recognize where those forces concentrated mineral wealth, where time and tectonics concealed it, and where evidence to find it may still remain.

And that’s the point of the journey to Mount Etna. When you learn to read the rocks, they can lead you to the next great discovery.

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

The post Fire to Fortune: A Year of Living Volcanically appeared first on Daily Reckoning.

Is the Strait of Hormuz open or closed?

Depends who you ask.

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

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

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

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

Source: Financial Times

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

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

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

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

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

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

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

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

Information Wars

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

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

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

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

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

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

Iran Tells a Different Story

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

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

Source: National Interest

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

Who’s Right?

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

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

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

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

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

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

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

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

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

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

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

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

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

Back to the VALE

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

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

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

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

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

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

Here’s why…

Irreplaceable Assets

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

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

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

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

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

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

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

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

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

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

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

Long Haul Investment

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Here’s a picture of the site from July:

Source: Oracle

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

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

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

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

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

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

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

Force Majeure

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

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

Yahoo Finance:

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

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

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

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

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

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

Is Oracle the Canary?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The gate wouldn’t open.

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

The gate had opened for the humbled man.

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

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

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

The World Had Fallen Apart

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

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

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

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

Pride Goes…

Then, Heraclius did something nobody expected.

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

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

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

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

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

But the good times didn’t last.

…Before the Fall.

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

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

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

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

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

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

Victory Lap… or Trap?

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

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

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

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

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

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

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

Wrap Up

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

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

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

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

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

Have a great day.

The post The Last Triumph appeared first on Daily Reckoning.