On July 31, I wrote about Canada, and how Donald Trump seems to be channeling his inner Benjamin Franklin. And I received more negative responses to that article than anything I’ve written over the past two decades.

Most critics were from Canada, a place where I’ve traveled and done business for over 40 years. So, perhaps I’ve missed something in my explorations in Canada; or perhaps some Canadians lack a sense national self-awareness.

“Trump-Trump-Trump,” you say?

Well, okay… if you insist: “Trudeau-Trudeau-Trudeau!” And “Carney-Carney-Carney!”

Seriously, Canada. Look inward. What have you done to your country? And now, over this past weekend U.S.-Canada trade talks cratered, and we have a new tariff war. Let’s dig in.

Can Canada Defy the Map?

A few weeks ago, I recalled how, in the 1760s-80s, Franklin was involved with Canada, or what was then called “British North America.” The point was that Franklin viewed North America as a strategic whole: rivers, ports, farms, mines, workshops, shipyards, roads, canals, defenses and markets, all tied together by geography and necessity.

British North America in 1776. Credit: Muir-Way.com.

I suspect that Trump understands this as well. And despite hyperbolic criticism from Canadian readers, my July 31 thesis still stands. That is, the U.S. and Canada are two continent-scale neighbors, deeply intertwined by supply chains and common defense, but now arguing as if geography was just an opinion.

And I’m sorry to break the news, guys & gals, but Canada can’t win a trade war with the U.S.

Sure, Canada can impose counter-tariffs. It can ban U.S. liquor and boo the U.S. anthem at hockey games. But Canada can’t replace the world’s largest economy – located right next door! – with distant dreams of Europe or China. And here’s where Canada’s political class has a huge problem.

Begin with Prime Minister Mark Carney, a globalist in every respect; except that he keeps his money mostly in U.S. investments (look it up!). Then add how much of official Canada, as well as Canada’s mainstream media and academic factions, collectively view their nation as a European country, cruelly condemned by fate to occupy North American real estate. Meanwhile, vast numbers of Canadians want Scandinavian social policy, Brussels-nanny-state regulation, Davos-approved climate virtue, along with wide open American market access, and then — somehow — massive trade with China on Canadian terms.

Yeah, right… Dream much? On China alone, Canadian trade goals are absurd. That is, China doesn’t view Canada as a partner in value-added manufacturing or high tech. China can produce all the steel, aluminum and auto parts it needs, and at far lower internal cost than anything Canada can offer for sale.

Meanwhile, Beijing eyeballs are focused on Canada’s vast, post-glacial landscape of water, energy, minerals, farmland and timber, and a modest-sized (by Chinese numbers) market for Chinese goods.

In purely strategic terms when it comes to China, Canadian trade aspirations risk turning the place into just another of the Middle Kingdom’s worldwide resource appendages: dig, pump, cut and ship; then import back the higher-margin finished products from Asia.

The Benjamin Franklin Frame

It brings us back to Ben Franklin, who would have recognized the problem. He was not a “free trader” in the modern, graduate-seminar sense. He built institutions: libraries, fire companies, postal routes, schools, militias and civic machinery. He understood that prosperity requires production, infrastructure, credit, skills, security, law and the strong habits of serious people.

In the 1760s – 70s, before there was a United States, Franklin saw North America as strategic geography. Then during the Revolution, and later while negotiating the Treaty of Paris, he argued in terms of waterways, boundaries, trade routes and particularly the St. Lawrence. And in 1783 the Articles of Confederation even offered a standing invitation for British North America to join the new American union, but the people up north declined and history unfolded accordingly. Fair enough; Canada is Canada for a reason.

But the fact that, today, Canada is a separate country does not divorce the place from North American reality. The U.S. and Canada share a continent, an oceanic and aerospace defense problem, plus rail corridors, power grids, pipelines, lakes, ports and Arctic approaches. No tariff schedule can repeal the map.

All of this is why Franklin and Trump belong in the same conversation. Tariffs are not just a revenue grab or a fit of pique by the Orange Man. They’re part of a 250-year-old American argument over how trade should serve national development.

In Ottawa’s telling of the tragic trade tale, the U.S. moved the goalposts at the last minute; something about refusing to print French language on the packaging of American goods. Huh? Umm… no, I don’t think so, mate.

In Washington’s telling, Canada has long and openly permitted Chinese goods to enter, and then trans-shipped them down into the U.S. with a “Made in Canada” label. In other words. Canada has distorted trade while expecting privileged access to American markets.

An “American System,” Whether Canada Likes It or Not

After Ben Franklin came Alexander Hamilton in the 1790s, who gave the young U.S. republic a program: national credit, sound money, manufacturing, infrastructure and a legal order friendly to productive enterprise. Later, Henry Clay put a name to it: the “American System.” This meant tariffs, internal improvements, banks, canals, roads, railroads, mines, mills and farms. And these weren’t just isolated policies; they were a method to turn a continent into a powerful nation.

Now, Canada wants not merely to remain independent — which is understandable — but to abjure a school of economic logic that would make North America much stronger. Indeed, one wonders: what’s so wrong with Canadian development, infrastructure, value-added industry, energy abundance, reliable defense, and deep integration with the only market that can absorb that country’s output at scale?

Instead, modern Canada encourages internal policies that, for example, block pipelines, delay mines, litigate ports, tax capital, subsidize favored sectors, protect sacred political cows. Then, people wonder why investment per worker and productivity lag. Where’s the economic growth?

It’s not enough that Canada controls energy resources, minerals, farmland, water, etc. A strong country must build systems that convert resources into durable wealth. And this is the “resource country” question that Canadian elites hate to discuss.

Indeed, Canada’s elite tend to view resource development as an insult, if not a sin. Quite unlike their Chinese friends, Canada’s ruling apparatchiks apparently lack an appreciation for how energy and resources translate into wealth creation and national power, certainly when developed through the downstream levels, to where people can have good-paying jobs.

Industrial Policy Before the Term Existed

Over 40 years, I’ve seen how Canada’s political class tends to be reflexive and defensive, certainly vis a vis America. But really, any serious U.S.-Canada bargain would not reduce Canada to an American gas station or rock quarry; in fact, expect the opposite. Canada can create a trade regime in which it becomes indispensable to a North American system: Canadian energy and minerals; Canadian engineering; Canadian infrastructure from the U.S. border up into the Arctic. The future should be hemispheric.

In other words, let Canada be Canada! But be a Canada built on energy and resource development, along with high tech and modern industry; not Canada as an American colony (and not the 51^st state). Also, definitely, not Canada as China’s mine mouth, nor a far-off Euro-wannabe with fewer people and no old castles.

Meanwhile, the U.S. has its own work. Tariffs can shape economic development, but alone they don’t issue construction permits, build mines and factories, train workers, or launch ships and merchant marine capacity. Industrial policy must be more than a White House press release about tariff rates.

The bottom line for Canada is that access to American markets comes with conditions. If Canada wants favored treatment, then Canada must help build a secure North American production base and not use U.S. access to shoehorn Chinese supply chains across the border, while indulging in European regulatory fantasies.

China Is Not Canada’s Escape Hatch

Let’s revisit the China card, because the fact is that China buys what China needs, on terms useful to China. And China wants Canadian resources and access, not lectures about values and definitely not a partnership in advanced manufacturing.

Beijing already dominates most of the world’s critical, value-added supply chains, which includes just about everything Canada produces. So, why would China invite Canada to move up the ladder when it can buy raw inputs, add value at home, and sell finished goods back to the world? In other words, the “China option” is a mirage (unless it’s a sellout).

Meanwhile, in commerce, geography is destiny and the U.S. is right next door. The roads, rails, pipelines, power grids, legal practices and business relationships already exist. And don’t forget the defense umbrella, under which Canada is well-defended at strategic levels by the U.S.

In fact, if Canada were not located beside the United States, Ottawa would have to spend staggering sums to protect its coastlines, airspace, Arctic approaches and infrastructure. And deep down, Canada’s defense problem is inseparable from America’s.

Obviously, Canada must look after Canada. But this requires a strategy that marries resources and goals. Bashing America may feel good, along with booing the U.S. at hockey games; okay, get it out of your system, kids.

But when the sugar high wears off, it’s time to get productive: develop energy resources, build mines and mills, open ports, shorten permitting processes. Indeed, reverse the trend in which de jure regulation is de facto veto. Lower internal trade barriers, reward investment, rebuild fiscal discipline, and stop confusing bumper-sticker slogans with national development strategy.

At higher levels of policy, Canada is hamstrung by a widespread sense of globalism, especially the so-called “Davos view” of the world. Indeed, too many Canadians frame their nation as some sort of administrative platforms within an agenda of global governance, where energy is a moral problem and industry is a net-zero carbon-accounting nuisance. This kind of worldview is toxic to a country whose natural geologic-geographic strengths are energy, resources, engineering, agriculture, transportation and hard infrastructure.

To be prosperous, Canada must make things: mine stuff, grow crops, produce and refine energy, etc. Oh, and read the map! Canada is in North America. This is not hard.

What a Deal Should Look Like

What should Washington and Ottawa do after this week’s failed talks? First, stop pretending that this sordid tariff drama is an end state.

Tariffs are leverage, but the end state ought to be a continental compact built around industry: secure U.S. access to Canadian oil, gas, uranium, potash and critical minerals; Canadian access to the U.S. market for genuinely North American goods. Plus, tighter enforcement against third-country transshipment (i.e., slapping “Made in Canada” stickers on overseas goods!), along with joint investment in processing, transport, power and defense production.

Second, fix the loopholes. If Chinese steel, electronics or components can just enter Canada, do a paperwork makeover, and then roll into the United States under preferential treatment, it’s not “free trade;” it’s money-laundering. Industrial strategy without border discipline is a euphemism for organized crime.

Third, Canada should choose value-added development. Don’t just sell raw materials cheap and buy back finished goods dear. Instead, climb the value chain inside North America.

Fourth, the U.S. must treat Canada as a strategic partner, not a convenient target to bash at political rallies. After all, Canadian workers from the mines of Yukon to the mills of Hamilton and Quebec City are not America’s enemy; most are exactly the people a renewed North American industrial system needs.

America’s argument with Canada is against a long-evolved, protectionist and self-dealing system that has blocked its own development, while demanding access to American markets for favored sectors.

Tariffs Are Now the Message

So, now we have new tariffs in effect, a regrettable point that should be sobering to both sides. Washington has reminded Ottawa that access to the U.S. market is valuable. And Canada demonstrates how nationalism-theater works in the modern media age. But neither point addresses the larger question.

That is, can North America move ahead as an economically integrated, industrial continent? Or is the Canadian border line just a no-man’s-land where mutual grievances confront each other?

Franklin would have understood the answer: develop energy, increase output, build infrastructure, and create wealth at home in North America, with friends, on terms that don’t leave the continent dependent on long-term adversaries.

Understandably, Canada doesn’t want to be seen as running up a white flag; but neither does barstool rhetoric and political swagger solve any problems. Canada can develop or decline. It can make a deal, enforce rules, build infrastructure, and join an “American System” that is evolving one way or the other. Or not…

Meanwhile, Canada’s alternative is a mishmash; be a boutique-Euro-wannabe, pursue China-trade fantasies, maintain open-immigration policies that swamp the country’s welfare state, and see where it goes. Again… good luck, guys.

Which brings us back to Ben Franklin, whose efforts failed to bring British North America into the new U.S. republic. But still, over the past 250 years the big, continental map has not changed, and Franklin’s ideas still pertain. One way or another, geography rules, and the question is whether today’s leaders understand that, and can build upon reality.

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

The post Dear Canada, Please Read the Map appeared first on Daily Reckoning.

Treasury Secretary Scott Bessent has announced a plan to squeeze Iran economically.

Secretary Bessent warned of an “economic D-Day”, and outlined the plan further in a press conference at 2:00pm ET.

Here’s what Bessent posted on X yesterday:

Source: Scott Bessent on X

That last paragraph is particularly important:

“The President has created the conditions to leverage every agency, every authority and action many assumed we would never summon. Our objective is to sever every economic lifeline that sustains the tyrannical regime until Tehran stands alone.”

Bold words. Especially the part about taking actions “many assumed we would never summon.”

By the time you read this newsletter, Bessent will have already given his press conference. He will almost certainly discuss harsh new sanctions. And maybe a few surprises.

The big question is – will this work on the Iran-China-Russia axis?

Brass Tacks

So what are we talking about here? Sanctions against countries and entities that do business with Iran. These are known as secondary sanctions.

This starts with China, which buys 80% of Iranian crude oil. There are a number of banks, shell companies, ports, and insurers which could be targeted.

It is worth noting that back in May the U.S. announced new sanctions against 5 Chinese oil refineries which process Iranian crude. Normally, China at least nods along and accepts the sanctions (even if they quietly find a workaround).

But this time, they flat-out rejected the sanctions. Fox News:

China has ordered companies to disregard U.S. sanctions targeting Iranian oil, forcing a direct test of Washington’s ability to enforce its crackdown on Iran.

A new directive, issued through China’s Commerce Ministry Sunday, invokes a 2021 “blocking statute” that prohibits firms from complying with foreign sanctions deemed illegitimate. The order applies to several Chinese refiners accused by the United States of purchasing Iranian crude, including major independent processors known as “teapot” refineries.

“This is unprecedented. It’s a major escalation in terms of China’s response to U.S. economic statecraft. It is a measure of defiance by Beijing,” said Max Meizlish, a research fellow at the Foundation for Defense of Democracies.

That was a first. And the May batch of sanctions didn’t work to get China to stop importing Iran’s oil.

If Bessent and Trump believe they can succeed now, they must have something big planned.

Limited Financial Ammunition

When the hot war with Iran was ongoing, weapons stockpiles were a primary concern. We burned through years of production of long-range missiles and defensive munitions in a short time.

Some people might assume our financial ammunition is unlimited. After all, we control the dollar. And that is a very powerful tool. But it’s not perfect.

Every time we sanction a country or confiscate its assets, the dollar loses a bit of its shine. Other countries see themselves as vulnerable to such attacks in the future. So they shift from buying U.S. Treasuries to stockpiling other assets like gold.

We saw this very clearly in 2022, when Russia invaded Ukraine. Biden and the EU recklessly seized assets of Russia’s central bank.

This was the catalyst in 2022 that lit the fire under gold. Central banks around the world began to shift out of U.S. Treasuries and into bullion.

Our own Jim Rickards predicted the effect this would have on gold in April of 2022, when the metal was trading at $1,900 per ounce. From The Stars are Aligning for Gold:

The second reason to own gold is the unprecedented economic war between the U.S. and Russia that’s raging side by side with the shooting war in Ukraine. Economic results always receive some consideration in times of war, but there has never been a war where the economic costs of sanctions are greater and more long lasting than the destruction caused by the actual fighting.

One of these costs is a loss of confidence in the U.S. dollar.

It was fully expected that the U.S. would impose sanctions on certain Russian industries, exports and its oligarchs. It was not expected that the U.S. would seize and freeze the reserve assets held by the Central Bank of Russia.

Now that that has happened, every central bank in the world is reevaluating its dollar-denominated reserves and asking itself if the U.S. will freeze those holdings in some future dispute.

Today gold is trading at $4,665/oz. Largely due to central banks buying gold at a record pace ever since.

So there is a cost to financial warfare. Every time we sanction or confiscate assets, it damages the dollar’s status as world reserve currency a little. It creates new friction in the global economy, costing everyone incrementally.

So how far are Bessent and Trump willing to go? Will they attempt to sever ties between Iran, Russia, and China? Honestly, it seems unlikely.

But they are clearly going to attempt something big here. At least some Chinese banks doing business with Iran will almost certainly be sanctioned.

What about Russia, Iran’s other key ally? Well, they’re already under extreme sanctions, so I don’t know what we could do to further persuade them to end their military partnership with Iran.

Recently, Russian oil tankers have been seized by American and European forces. I suppose we could see more of that, but Russia would almost certainly retaliate. And that’s a dangerous path.

It looks like a new global trade war is beginning. And it extends beyond Iran, Russia, and China. New fronts are opening, such as the ones with Canada and the EU.

It’s going to be a volatile next few months. Gold and silver should continue to do well, but if we do get a broad market crash, they may fall along with everything else at first. But then precious metals should recover fast, and outperform stocks and bonds for years to come.

The post The Economic War Goes Nuclear appeared first on Daily Reckoning.

Today, like a hick at a county fair, we wander through BubbleLand. Our mouth open, we gawk and wonder. We’ve been hunting deer on the ‘back 40’ for years, we ought to be able to hit a few targets and win a stuffed teddy bear, no? Is the ‘Naked Lady’ really a lady? Would a sane person ride on the ‘Death Swirl?’

With so many bright lights and carnival barkers, it’s hard to stay focused on what really matters.

The war with Iran? AI? Midterm elections? Rising interest rates?

We don’t know which of these will bring down the tent. But one of them probably will. On Wednesday, in the early morning, interest rates looked like the frontrunners. MarketWatch:

The U.S. Treasury on Wednesday will be asking investors to hand over another $16 billion for 20 years to help finance the nearly $1.8 trillion U.S. budget deficit so far this year.

The answer from investors probably will be “fine, but you need to pay us close to a 5.28% yield” — the going rate for existing 20-year Treasury debt on Tuesday, and the most it’s cost Washington to borrow this way since the 20-year tenor was auctioned six years ago. With long-term Treasury yields hovering at multi-decade highs, traders have begun asking the uncomfortable question: How much will the U.S. need to pay to convince the world to keep lending it money?

And here’s Barron’s:

30-year yield rises to highest level since 2007 as oil and Treasury supply bite bonds

The Wall Street Journal is on the case too:

Bonds are getting hammered, and Wall Street says the rout won’t end anytime soon

Really? But the bond rout ended before we finished our breakfast. CNBC:

Treasury yields pulled back on Wednesday from multi-year highs seen earlier this week, with the long end of the curve dropping sharply after the Treasury Department announced an upscaled buyback operation of U.S. long-term debt.

The Treasury Department said it will double the size of its government debt repurchases, lending support to longer-dated bonds.

“Repurchase?”

With what money?

The word hides its true meaning. In effect, the feds are going to ‘print’ money in order to buy their own debt, lowering yields…and further inflating the economy. Gold knew what it meant immediately. At 8 am Wednesday, it was selling for $4,416 an ounce. An hour later, the fellow with 10 ounces of gold was $1,000 richer.

And by the end of the day, the dots had come together in a preview of America’s financial future. Reuters:

‘US debt crosses $40 trillion threshold after doubling under Trump and Biden’

The feds can’t stop spending. And they can’t afford to let interest rates rise. Look for more intervention…more debt, and a dollar that shrinks like cotton candy.

Under our financial Big Top, there are two things of most immediate concern. First is the amount of debt hanging over us. Second is the interest rate we have to pay on it. As the two of them rise, so do the odds of major blow-up. The feds can delay it by ‘repurchasing’ their own debt…but they just make it worse, later.

But let’s continue our stroll through BubbleLand and keep our eyes open.

Here’s some ‘good news.’ Charlie Bilello:

S&P 500 Q2 earnings are now on pace to rise 50% YoY, the highest growth rate since Q2 2021. And the 29% upside surprise in Q2 earnings versus expectations at the start of earnings season is officially the biggest upside surprise on record.

Don’t get too excited. These are not real ‘earnings.’ They are bubble earnings. They come from investments the ‘hyperscalers’ have made in other AI companies. And they’re expected to keep coming. Earnings for next year are estimated at twice the ‘normal’ 15% rate. So far this year the S&P 500 has risen 15% — again, twice the normal level. But so many companies have spent so much money on AI that the ‘Death Swirl’ threatens to topple over.

The top ten companies in the S&P are all dependent on the AI bubble. Sandisk, Dell, Seagate and Micron all have gone up more than 200% this year. And overall, stocks are so expensive that the naïve, long term-oriented investor, depending on dividends, would wait a hundred years to break even. This is not a boom based on actual revenues…but on the hope of more capital gains.

Any Wall Street hustler worth his suspenders knows what to do next. That is the thinking behind what might be another Peak Bubble signal that appeared last week. The Street:

Anthropic’s $2 trillion IPO dream rests on staggering revenue bet

Anthropic now prepares the biggest IPO in history. When investors are eager for ‘pie in the sky’…give it to them a la mode.

Editor’s note: Find more of Bill’s writing at Bonner Private Research.

The post A Stroll Through BubbleLand appeared first on Daily Reckoning.

We spend a lot of time talking about gold and silver.

But there is another precious metal worth paying attention to.

It’s 20 times rarer than gold. It has a higher melting point, so it’s harder to refine and work.

But it has some very unique properties. It’s a key ingredient in many anti-cancer drugs, which are prescribed to about 15% of patients.

It doesn’t tarnish or corrode, is non-allergenic, and is highly durable. Hence its popularity in jewelry. And cathodes made with this metal are used in critical applications like pacemakers.

It has unique chemical properties that make it invaluable for certain industries.

If you haven’t guessed by now, it’s platinum.

Platinum is the magic metal that cleans up nasty diesel exhaust. It converts toxic carbon monoxide to harmless carbon dioxide. It also breaks down toxic hydrocarbons into water.

This is why thieves often steal catalytic converters from cars and trucks. They can contain $500 or more worth of platinum.

Platinum is also used to manufacture nitric acid, a key ingredient for fertilizers.

Here’s a breakdown of platinum’s top demand sources:

Source: World Platinum Investment Council

As you can see, investment (coins and bars) makes up a relatively small part of platinum demand. Up to 14%, and as low as -8% (it goes negative when investors are selling). Then again, if you count jewelry in the investment category, it’s steadier and more significant.

The Volatile Trend

Let’s pull up a 1-year chart of platinum prices.

As you can see, this metal is a hot tamale. One year ago it was trading around $1,363 per ounce.

By early 2026, it had soared all the way to $2,890. Today it’s back down to $1,892.

Sketchy Supply

Why is platinum so volatile? One big reason is where it’s mined. Primarily in South Africa, but also Russia to a lesser extent.

South Africa is a notoriously risky place to do business. And ever since the war in Ukraine kicked off, trade with Russia has been limited.

So that’s a big part of why platinum prices move so wildly. This is a metal for those who are comfortable with high volatility.

But the metal itself has such unique properties that I think most precious metals investors should own at least some.

Investment Options

The simplest way to buy platinum is coins. This is a beautiful 1 ounce platinum American Eagle made by the U.S. Mint:

One of these coins costs about $2,100 today. Less than half the price of an ounce of gold. You can also buy 1/10th oz coins.

For those who prefer ETFs, there’s the Sprott Physical Platinum and Palladium Trust (SPPP). That offers exposure to physical platinum and palladium in a Canadian vault. Sprott is a well-known name in the space and I like their products.

For those with a high risk-tolerance, platinum mining stocks offer even more juice.

Sibanye Stillwater (SBSW) is a South African miner with a nice 4.2% dividend yield. They mine platinum, palladium, rhodium, and gold.

Sibanye is a well-run company, BUT it does operate in South Africa, a notoriously risky country to do business in. So there’s a reason why that yield is so attractive.

I’ve been waiting for a significant dip to buy, but it hasn’t materialized yet. Maybe next week precious metals will take a breather and we’ll get a chance to pounce. I’m kicking myself because in May of 2025, I wrote a piece titled “Is It Finally Time to Buy Platinum?” when the metal was trading under $1,000/oz. Oh well.

Platinum is a nice diversifier for gold and silver bugs. This metal has a bright future. Its catalytic and anti-cancer properties make it utterly unique.

Demand from jewelry and investment is a nice bonus, and once the debasement trade heats back up, it should do well.

For a long time, the metal traded at a premium to gold. But it’s fallen behind over the past few years.

I suspect that platinum still has catching up to do.

The post Gray, Dusty and 20X Rarer Than Gold appeared first on Daily Reckoning.

The date is August 20th, 2032.

We’re nearing the end of Alexandria Ocasio-Cortez’s first term as president.

The wave of naive optimism that swept her into power has faded. But the damage is done. With a majority in both the Senate and House, the Democrats made big moves.

First they eliminated the Senate filibuster. No more 60 votes needed to pass most legislation. Now a simple majority will do. The political equivalent of a nuclear first strike.

Then AOC’s coalition created two new states: Washington D.C. and Puerto Rico. That’s 4 more Democratic Senators, and additional seats in the House.

The Supreme Court was quickly expanded from 9 to 13 justices. The number of justices has changed before, and there’s no hard and fast rule in the Constitution.

Justice Clarence Thomas, the court’s last Constitutionalist, retired in 2028 due to health issues. So the highest court in the nation has 5 new neoliberal judges.

ICE was abolished almost immediately. Immigration, both legal and illegal, is out of control. Another 11 million illegals have entered, mostly from Latin America. And 4 million visa workers. Another 4 million refugees and “asylum seekers” from Africa and the Middle East.

All this immigration undercut American workers’ wages, drove up real estate prices, took over small towns, and drained social welfare programs.

Green cards are now granted to immigrants who have been in the country for 3 years, regardless of how they entered. Citizenship and voting rights after 6 years.

The Democrats quickly set themselves up for a permanent majority.

Fruits of the Revolution

The unemployment rate hit 18% this year, even with all the book-cooking. AI, outsourcing, and poor leadership have taken a toll.

The federal deficit hit $5.3 trillion. The stagflation which began in 2029 shows no signs of letting up.

Inflation is running at a 16% clip. A gallon of gas costs $11.34, and diesel is $15 if you can find it. A third of American oil refineries have been shuttered under new environmental regulations.

Anyone worth more than $1 million faces an annual wealth tax of 3%. Family businesses are sold at firesale prices. Wealthy Americans flee the country, taking their assets with them.

Power blackouts are common in big cities. No new generating plants have been built, and data centers continue to tax the grid. With copper trading at $30 a pound, thieves rip out cabling anywhere they can find it.

The Green New Scam reached new heights. Billions of dollars were handed out to politically-connected crooks to build high-speed rail, electric vehicles, and “carbon-free” energy. It’s a total writeoff.

Biden-era censorship on social media platforms returns.

‘Equality’

Households earning less than $80,000 per year now receive Universal Basic Income (UBI) of about $30,000 a year. Barely enough for a family to live on.

UBI was celebrated by the masses early on. But the lack of motivation to get up and work creates a pervasive malaise across the country. Tent cities sprout up like weeds. The scourge of drug addiction worsens.

DEI returns with a vengeance. All of President Trump’s executive orders were reversed in the first month of AOC’s term. Companies are punished harshly if they have too many white male executives. Diversity quotas are enforced with an iron fist.

Universal healthcare went live in 2030. If you thought the old system was bad, this is a nightmare. Patients often wait a year to see a specialist. Need a scan? Tough luck.

Healthcare fraud reaches new levels as criminals target an exploitable system.

It’s been a tough few years. Yet AOC is still on track to win a second term. Millions of new immigrant voters will be the deciding factor.

Back to the Present

I wrote this piece as a thought experiment, pondering what could happen if Dems sweep Congress and win the presidency in 2028.

Honestly, this scenario isn’t all that crazy. It could well happen.

The Republican party needs to get their act together, quickly.

Trump really needs to resolve the war with Iran before midterms. It’s incredibly unpopular with independents and the libertarian-leaning right. If he doesn’t, the chances of a socialist sweep rise significantly. And as I explained above, the consequences could be catastrophic.

Republicans should not let that happen. Make a deal with Iran and be done with it. Re-focus on the American people. If the war is ongoing and the Strait of Hormuz is still closed during midterms, it’s not going to go well for the GOP. It gives far too much firepower to the Dems.

If a socialist like AOC wins, it’s going to be bad news for all Americans, but especially business owners and investors. Our friend Jim Rickards recently wrote the following:

The rise of socialism inside the Democratic Party is an enormously important political story on its own. But it also has huge investment implications that could affect your portfolio.

Many democratic socialists favor higher taxes on wealthy households, expanded government healthcare and tuition programs and sweeping changes to policing, immigration and other institutions. Some prominent figures on the left have also supported “wealth taxes” — which would tax certain holdings of property, shares, bonds and other assets rather than merely income.

Jim nails it, per usual. Much is at stake. If someone like AOC wins, our country might not recover for decades. If not longer.

The post President AOC’s First Term appeared first on Daily Reckoning.

Do me a favor. Open your brokerage app. Look at your shares. Your Apple. Your silver miners. Your index funds.

Now here’s the fun part: you don’t own them. Not the way you think you do.

The legal owner of nearly every share listed in America is a partnership you’ve never heard of. It’s called Cede & Co. It sits inside the Depository Trust Company in Lower Manhattan. On paper, and paper is what counts, Cede & Co. holds almost the entire US stock market.

You own an IOU. The lawyers call it a “security entitlement.” Your broker owes you shares. Your broker’s custodian owes your broker. The Depository Trust Company (DTC) owes the custodian. You sit at the end of a long line of promises, 3 ledgers away from the actual asset.

It seems strange. Or is it?

Let me tell you how we got here, who runs the machine, and why the firms that hold everything are the most powerful banks you never think about.

The Day Wall Street Drowned in Paper

Until the late 1960s, stocks were paper certificates. Sell your shares and a courier physically hauled the certificate across Manhattan. Then trading volume exploded. Back offices buried themselves alive. Failed trades piled up. It got so bad the NYSE closed every Wednesday just to catch up on paperwork. Brokerages died of clerical error. They called it the Paperwork Crunch.

The fix was elegant. All they did was lock the certificates in a single vault and register them under a single nominee, Cede & Co. Then ownership changes hands via bookkeeping entries. The Depository Trust Company opened in 1973. From that day on, the stock market stopped being a paper market and became a database.

And somebody has to run the database.

Enter the Custodian

That’s what a custodian bank does. It runs the database, or, more clearly, holds assets for investors. Safekeeping, settlement, dividend collection, recordkeeping, all the plumbing. It doesn’t lend your assets to condo developers. Client assets sit off the bank’s balance sheet, segregated, out of reach of the bank’s own creditors. The custodian isn’t betting your money. It’s charging tolls on it.

The tolls are staggering. Alexander Hamilton’s bank, BNY, was founded in 1784 and is the oldest in America. It’s the custodian of about $62 trillion in assets. That’s roughly 20% of every investable asset on Earth. State Street, JPMorgan, and Citi, along with BNY, control the books for most of the world’s wealth.

It gets better. BNY is the sole clearing bank for US Treasuries. Every day it runs the “tri-party repo” machine. That’s the overnight lending market where money funds lend cash to dealers against Treasury collateral, with BNY in the middle holding and valuing the collateral for both sides. That market is measured in trillions… every single day.

If BNY’s systems went dark one morning, Wall Street’s short-term funding would seize up. We got a preview in 2023, when hackers hit the US arm of China’s biggest bank. Its operations staff had to settle Treasury trades the old school way, allegedly walking a USB stick full of trades across town. The financial system runs on a handful of pipes, and the custodians own the pipes.

Custody Is Power

If your ownership is an entry on someone else’s ledger, then your ownership is, at the limit, a permission slip. Just ask old Vlad Putin. After his tanks rolled in 2022, some $300 billion of Russia’s reserves were frozen with Western custodians, the largest share held by Euroclear in Brussels. Russia still “owns” those assets the way you “own” your shares.

Gold investors have known this forever. Allocated gold means specific bars with your name on them. Unallocated means a claim on the bank’s pool.

The crypto kids rediscovered it and made a bumper sticker: not your keys, not your coins. (They think they invented it, like everything else.) But it’s the oldest rule in finance, and the entire modern market is built on the other side of it.

Finally, notice who sits closest to the ledger. The ledger’s keepers never lose. Custodians get paid per asset, trade, or corporate action, whether in a bull or bear market. They’re the tollbooths on the highway of capital. The market can crash 40%, and the tollbooth keeps ka-chinging along.

Now that’s using The Cantillon Effect to great effect!

Wrap Up

I’m not telling you the vault is about to fail. The dull truth is that custody exists because it works. Segregation is why customers of a failed brokerage generally get their assets back. The machine settles trillions daily with boring reliability. Boring is the product.

One more thing. If custodians are tollbooths that collect in every market weather, that’s worth remembering when you look at the banks everyone ignores because they don’t do anything exciting.

Excitement is for the customers. The house prefers fees.

The post You Don’t Own Your Stocks appeared first on Daily Reckoning.

Boom! It was another great day for gold, silver, and miners.

The GDX gold miner ETF is up a whopping 9% as of mid-day.

Gold moved up 3.5% and crossed the $4,500 level. Silver also popped 3.5% to $66.43.

So… what the heck happened?

We got another signal that the U.S. government is desperate to get debt yields lower. And this is a great sign for gold bugs.

And before you protest, I know. Bonds, interest rates, and yields are boring. But this is critical stuff for anyone who owns precious metals, hard assets, foreign stocks, or fixed-income. So hang with me for a moment.

Here’s a 5-year chart showing the yield on the U.S. 10-year Treasury bond:

Source: CNBC

As you can see, 5 years ago the yield was a tiny 1.3%. That meant the government didn’t have to pay a lot in interest back then. Today it’s 3.5x higher at 4.66%. The bond vigilantes have awoken from their multi-decade hibernation.

In 2022 post-COVID inflation caused the Fed to raise interest rates. That was the first leg of the move.

But the last interest rate raise was in July of 2023. Yields have continued to move higher since, even despite six rate cuts.

For the government and Federal Reserve, paying high yields on debt is horrible. In 2026 alone, the Treasury Department will need to refinance about $9 trillion worth of debt, plus issue another $2 trillion to cover the budget deficit. That’s a lot of Treasuries hitting the market at high yields.

If yields stay at current levels or continue to rise, we’re going to be in a world of hurt. The debt snowball will accelerate dramatically.

The Catalyst

Today’s impressive move in precious metals was driven by the Treasury Department announcing they would double the size of their bond buyback program.

Basically, they’re buying long-term (10-30 year) bonds in an attempt to cap yields.

The announcement itself wasn’t even that big. Buybacks will at least double from $2 billion to $4 billion per operation (every few weeks). By itself, the program doesn’t seem too consequential.

But this move, combined with the intervention in Japan, sent a powerful message. The government and central bank cannot tolerate interest rates at this level.

Soon, the government will have to ramp up QE (quantitative easing, AKA money printing) to further keep a lid on rates.

And after that stops working, more… creative measures will be required.

End Game: Crushing Financial Repression

So our government and central bankers are clearly getting uncomfortable with rising yields and deficits.

And investors are finally figuring out that the “solution” to our problems is going to involve endless money printing.

Between the Treasury Dept and the Federal Reserve, there are now a number of active programs in place to lower yields on our debt.

But we are still in the early stages. For years, my theory has been that the Fed and govt will eventually need to institute brutal financial repression in the form of yield curve control.

This simply means that yields on government bonds will be kept low, even if inflation is high. I’ve shown this chart from the 1940s a few times now, but there’s a good reason for it. This is not just our past, but our future too.

The blue line shows inflation, while the red line is the yield on a short-term Treasury bill.

So in 1942, inflation hit 13%. In a free market, bonds would fall in value and the yields would rise to adjust. After all, bond owners don’t like losing purchasing power.

But the Fed didn’t give them a choice. They got a 1% yield while inflation reached as high as 13 to 20%. Savers and those on fixed income got wrecked.

My prediction is that we’ll find ourselves in a similar situation in the near future.

When a country has a massive pile of unpayable debt, there are limited options. Printing money to patch things up is always the easiest choice, so politicians will default to that.

If this scenario plays out, U.S. Treasuries will initially do well. As yields are crammed down, bond prices will soar.

But when inflation hits 10%, and you’re only getting 1% on your Treasuries, it’s going to sting. And if this inflationary period lasts as long as I think it will, the real value of those Treasuries after 10 years will be minimal.

Sure, you’ll get paid back “in full”, but those dollars will be worth a tiny fraction of what they once were.

What WILL Work

Back in April, I wrote another piece on this topic titled Sounding the Alarm on American Debt. Here’s an excerpt about how investors can prepare for what lies ahead:

Gold wasn’t an option in the 1940s, at least in the U.S. Owning bullion was illegal for American citizens. And the price was capped at $35/oz regardless.

Fortunately today Americans can own precious metals. And they will be key to preserving wealth going forward.

So what did work in the 1940s? Commodities. Hard assets. Industrials. Defense.

I believe a return to yield curve control is inevitable. It probably won’t happen for a few years. If and when it does, you’ll want to have plenty of exposure to select foreign stocks and natural resources.

We are fortunate that today we have precious metals as an investment option. Imagine those investors in the 1940s, facing waves of inflation with no option to buy gold.

In the 1940s investors also couldn’t easily buy foreign and emerging market stocks, which is going to be key to escaping the coming financial repression.

We have more tools available today, and that’s a very good thing. We’re going to need them.

A 60/40 portfolio made up of U.S. stocks and bonds has done incredibly well over the past 40 years. My expectation is that it will struggle greatly over the next few decades.

The post Gold Smells a Rat appeared first on Daily Reckoning.

Back in the 1980’s, there was a pizza place outside the Tropicana Casino in Atlantic City. That is where I learned all about casino games. I’d sit in a booth eating a greasy slice of pizza, while my uncle waxed on about blackjack hands or craps odds.

My uncle skipped college and went to dealer school. I used to sit in my grandmother’s kitchen and watch him practice shuffling multiple decks of cards. He always had big red dice or decks of cards with holes drilled through them.

From those late-night sessions, I determined that gambling was entertainment. As in, it cost me money to play. And even when I won, it wasn’t enough to cover my losses.

I still like to sit at a table occasionally because it’s fun. But I’d never consider it a retirement plan.

And yet, we have an entire generation doing exactly that. According to a St. Bonaventure University poll, 27% of all Americans and 52% of American men between the ages of 18 and 49 have sports book accounts.

Of those people surveyed, 85% think that they can make money doing it. In fact, only about 4% of betters made money in the long term. According to a study from the Rady School of Management at the University of California San Diego, 96% lost money. And the survey’s lead researcher said this:

“Only 4% made money from online betting. That is by design. Online gambling platforms often ban or throttle frequent winners’ accounts. There is no right to gamble.”

Seems like a good business. And the marketing is everywhere. I don’t know about you, but I see and hear gambling app ads constantly. Every sporting event on tv, podcasts, YouTube videos, popups, you simply can’t avoid DraftKings, Hard Rock Bets, Fan Duel, etc. And now we have apps like Kalshi, that let you bet on anything.

It’s way too easy to gamble today. And there is a reason for that. Remember the old saying, if you don’t know who the “fish” is at the table…then you are the fish. The fish is the inexperienced player that ends up losing money. In these betting apps, you are always the fish.

There’s a reason those apps are easy to get. They want your information. Just like every other online subscription you have, you become the commodity when you sign up.

Some of these apps will even pay you money to subscribe. I saw an add this week that offered $100 in bets if you put $10 in your account. If you think they are giving you that money out of the kindness of their hearts, well…as we say down here in the south, “Bless your heart”.

These gambling sites make so much money that they can afford to take a small loss to get you in. They know that they will make far more money over the long run. You see, they take a cut from every bet you make. It’s called the hold or the vig.

For a big, liquid bet on a football or basketball game, the vig is about 4% to 5%. When you move into player prop bets, the vig jumps to double digits. Futures markets’ bets can go from 15% to 30%.

That’s why gambling apps are not investments.

Money managers’ fees on big managed funds range from 0.01% to at most 1.5% on very active funds. An easy rule of thumb for most funds is less than 0.75%. If the fund charges you 1%, it better be actively managed or have some justification.

If you pay more than 1% management fee, the fund is expensive.

Bets are way more expensive. Remember, you pay at least 5% on any bet with -110 odds. The math on that is not great. Here’s what I mean…

Let’s say you make 100 bets at $110 per bet at -110. If you win half of those bets, you are down $500, because of that vig. Just to break even, you must win 53 of those 100 bets. And that’s just on the basic bets. According to Fox Sports, here are the common vigs you’ll pay on betting apps:

Look, I can’t emphasize enough, how impossible it is to “invest” with gambling apps. This is fun. It’s speculation…but it is not investing.

Imagine you put $100,000 into a fund that pays 7%, and you leave it there for 30 years. If the fund charges you 0.1%, you earn 6.9% and your investment becomes $740,000. If the fund charges you 1%, you earn 6% and your investment becomes $574,000.

This is the kind of math a serious investor uses. And I’ve seen grown men get absolutely irate over a quarter of a percentage point in fees on funds. That’s because a quarter of percent point becomes serious money over thirty years. That’s why you can’t pay 10% per bet and consider it investing.

Online gambling is a huge business that’s growing quickly. According to multiple sources, online gambling will grow about 12% annually through 2033. The market currently is around $100 billion. That could hit $279 billion by 2034, according to Polaris Market Research.

To put that in perspective, the global copper market is only $260 billion. And online gambling could exceed that in less than eight years.

The best bet here is to take the bulk of your betting money and buy the stocks instead. You can do that through funds like the Roundhill Sports Betting & iGaming ETF (NYSE: BETZ).

Here are the top holdings of BETZ:

• Evolution AB: 7.2%
• Futter Entertainment: 7.1%
• DraftKings: 6.5%
• Allwyn AG: 6.5%
• Light & Wonder: 5.4%
• Lottomatica Group SpA: 5.2%
• Super Group: 5.1%
• Entain PLC: 5.0%

And the fund managers only charge you 0.75% in vig for BETZ. That’s a solid bet. Certainly better odds than you’ll find on these companies’ apps.

As I said, I’m not fun-shaming anyone. If you love to gamble, go for it.

My grandpop played the numbers every week for as long as I can remember. We would all sit on the couch when they pulled the ping pong balls out of their cages. He was always one number off. We always laughed. It was pure entertainment. At no time did he think it was a retirement plan.

The post Suckers Bet, Winners Invest appeared first on Daily Reckoning.

Today, let’s discuss aircraft carriers; namely, recent news accounts about poor food and living conditions aboard the long-deployed USS Abraham Lincoln (CVN-72), as well as President Trump’s recent order about future vessels using steam catapults versus something called an electromagnetic launch system (EMALS).

USS Abraham Lincoln (CVN-72) Credit U.S. Navy.

These are not just “Oh-yeah-military-stuff” stories. Indeed, these stories open the door to several Very Big Pictureissues: war, peace, operational tasking, military procurement, supply chains and industrial base (or lack thereof). And it’s all far beyond gossipy, political hit-job soundbites. So, let’s dig in…

Napoleon and Me – Same Ocean, Different Remote Islands

First, I’ve been traveling. In fact, I just spent two weeks on an arid volcanic island out in the Atlantic Ocean. It’s kind of like what happened to Napoleon, except I didn’t invade Russia or lose the Battle of Waterloo.

Indeed, I traveled to the far-off island of my own free will, to study geology; to observe and examine basalts, ash deposits, pyroclastics, aka “oceanic plate shield volcanoes.” My goal was to learn about mantle hotspots and energy/mass transfer from deep inside the earth to the upper crust.

To me, this kind of continuing education effort is “scientific” geology that helps me improve on the industrial side. That is, if you understand how energy and mass flow around in the earth’s crust, it helps to decipher why and how certain minerals form in certain ore deposits. And of course, that helps to find more gold, silver, copper, etc.

On the island, I had cell phone coverage and Internet, but I was kind of busy. Along the way I saw some headlines about how U.S. sailors are allegedly getting bad food and live in stark conditions aboard a deployed aircraft carrier, USS Lincoln.

And yes, this Navy news caught my eye… cuz I’m an old Navy guy with a few aircraft carrier deployments in the logbook (see below). But I was preoccupied with my own geology work and besides, I’m far from the facts of the story. The Lincoln is in the North Arabian Sea, and I was a continent and more away, out in the far Atlantic. Plus, I don’t receive Navy message traffic and absolutely can’t say what’s in the food storage lockers of Lincoln, or any other Navy warship or logistics vessel in that theater.

But over the past weekend I flew home, and the vagaries of airline travel put me in Switzerland for a day, where I had a chance to catch up on the “news.”

And in my humble assessment, there’s something quite wrong with what the public is being told. So, let’s put it all into more perspective…

I Know a Few Things

Begin with the fact that I – like hundreds of thousands of other current and former Navy people! – know a few things about aircraft carriers and long deployments to distant places. In 1985 I pulled a seven-month haul on the long-gone ex-USS Constellation (CV-64), across the Pacific and Indian Oceans and up into the North Arabian Sea. And we sailed all the way back, I’m pleased to say.

In 1990-91, I worked in what’s called “combat logistics,” and supported wartime carrier operations in the Mediterranean and Red Seas during Desert Shield and Desert Storm. That is, my job was to move stuff from Point A ashore to Point B, a gray hulled vessel making a wake out in the middle of some vast body of water. There’s nothing easy about it.

In the 90s, I sailed the Atlantic aboard ex-USS Enterprise (CVN-65) and later crossed the blue Pacific out of Japan, aboard ex-USS Independence (CV-62). And I have the flight jacket to prove it.

Your editor’s flight jacket. BWK photo.

Then in the early 2000s, working in the Med region, I did more of that combat logistics stuff in the early days of the wars in Afghanistan and Iraq. Long stories; not here.

So, I’ve sailed on a few aircraft carriers to a few places, and I know a few things. Now, any questions? Okay, you… in the front row.

• Are long deployments mentally tough and stressful? Yes, absolutely, totally. And like it or not, however down-in-the-dumps you might feel at times, you’re surrounded by 5,000 other people. Do you want some privacy? No way… But do you want some friends? Well, they’re not too far away either.
• Do sailors try to commit su!c!de by jumping off ships? Actually, yes, sad to say… It’s been happening since the days of sailing ships. Modern-Navy-wise, every couple of deployments there’s a story about some guy who jumps over the side. Take 5,000 people, age 18 to about 40 or so; put them under high stress for six months or more, somebody cracks and you get an “Oscar” – slang for “man overboard.”
• What about the news accounts of a guy who jumped off Lincoln, bobbed in the water for an hour, and was rescued? Well… it seems to be true and hey, miracles happen. That is, again per news accounts, somebody jumped; and at night I hear, which makes it very hard to find him. And in the middle of fighting a war, ships and helicopters diverted, located the individual and pulled him out. He’s now receiving psychiatric counseling.
• Frankly, this dude is lucky he didn’t get eaten by sea snakes and jellyfish. That was a huge fear when I flew in the North Arabian Sea arena. The intel officers briefed us that there were sea snakes and jellyfish in the water, and that’s all I needed to hear. The last thing I ever wanted was to get wet and become jellyfish food. Meanwhile, oceans are big and people are small; so, when you go into the briny sea your only true hope is that somebody misses you and sends help. Which is EXACTLY what happened here. In other words, we have a system for finding lost souls and in this case it worked as advertised.

More questions? Yeah, you in the second row:

• Do ships run out of fresh produce and milk? Absolutely… after about a week at sea! After that, it’s whatever can be canned, frozen, powdered, freeze-dried, boil-a-bag, preserved in plastic bins, etc. It’s been that way for a long time.
• Can all this preserved food become bland and boring? Yes, definitely. Just hope that you have some creative minds at work in the ship’s galley.
• Does the Navy resupply food to ships at sea? Of course! Since… like… the Civil War. And today, there’s food along with jet fuel, spare parts for airplanes and other ship functions, ammunition and related items like fuses and guidance kits, mail and packages, and much else. It’s a very complex operation.
• Do Navy ships keep food preparation spaces and mess decks clean? Yes, because nothing degrades combat effectiveness like hundreds of people getting food poisoning. So, cleanliness of food prep is a maniacal fixation on Navy ships.
• What about news accounts of crummy food, or not enough food? Well, I’m not there onboard USS Lincoln, but it doesn’t shock me that there might have been (or still are?) problems; I’ve experienced similar issues in my own past. But I’m inclined to think that if Lincoln had food prep issues, it’s been on occasion, due to vagaries of high-tempo operations in a war zone where resupply at sea is not at all easy. Because systemically, the Navy does have entire programs to move food and mail to ships at sea.
• So… What’s the problem with Lincoln? Why the headlines about crummy food and terrible conditions? Well, we’re here, not there on the ship; and we don’t know the facts, and news media sometimes twist a small amount of truth into a big lie. We’ll find out eventually, when more “real” news comes out. But for now, don’t discount raw politics and the creation of negative, emotion-triggering narratives in the current American cultural climate. Which leads to another discussion…

U.S. Has Very Deep Problems

Okay, enough day-to-day news. Let’s define a deeper problem: thirty-five years of high level, strategic failure in Washington, D.C. Yes, shocking. I know…

First, why are aircraft carriers – and do NOT forget the other ships in the battle group! – on these long-long-long deployments? Eight months, nine months, ten months… Because the Navy, and of course Congress and a long string of U.S. presidents, did not build enough ships, that’s why.

Long ago, the Navy had 18 large-deck aircraft carriers; then 16, 14, 12, and now “11” although it’s really 10 because USS Nimitz (CVN-68) is soon destined for decommissioning.

Long ago, the Navy had enough carriers to cover operational assignments in a way that allowed for six- and seven-month deployments. Now? Too many commitments, which is why we see these 8-, 9-, 10-month hauls.

Plus, add the task of fighting a war against Iran, with a high operational tempo. And include the important military fact that Iran shoots back at the carrier and its associated ships. My war-planning days are behind me, but fighting Iran ought to require six or more carriers (and air wings), which obviously will not happen.

Meanwhile, how long does it take to build an aircraft carrier? Well, try 18 years. Yes, 18 years. No typo.

Pre-Commissioning Unit John F. Kennedy departs Newport News for acceptance trials. Credit: HII.

In fact, just last week the USS John F. Kennedy (CVN-79) left Newport News Shipbuilding, a division of Huntington Ingalls Industries (HII). The ship is undergoing what are called “acceptance sea trials,” the final major evaluation phase before the vessel is handed over the Navy for commissioning, currently projected for March 2027.

From authorization to commissioning, this new JFK vessel took 18 years to build and bring to the fleet. Or ask the question another way: are there any fast fixes to add more aircraft carriers? Umm… nope. Things like this don’t get built fast. It’s called an “industrial base” issue

Meanwhile, why can’t the Navy bring enough supplies to its deployed ships? Because for 35 years the Navy – and Congress and a string of presidents – have failed to buy and build enough “combat logistics” vessels; the ships that haul fuel, ordnance and other supplies, certainly food.

Right now, in the North Arabian Sea arena, the Navy has just four combat logistics vessels to shuttle food and other cargo from ports in East Africa, Diego Garcia and South Asia, into the theater to replenish Lincoln and numerous other smaller vessels. Plus, a couple of “oilers” that haul jet fuel and other odds and ends. Overall, it’s not enough so the immediate workaround is to hire third party vessels, but now we confront restrictions on how suitable non-military ships are for military logistics (another long story).

I could continue, but… The story is “not enough” industrial base, supply chains, shipyards, skilled tradespeople, ships and sailors; plus, too many tasks for the Navy, and not enough steel and people to cover the long waterfront. It’s not that Navy people – from deckplate sailors to bigshot admirals – don’t know what to do out on the water. They just can’t cover all the missions with the available resources, and the system is stretched thin.

Right now, President Trump and his senior people are the political targets (and what else is new?). But the root of the problem goes back many decades, to a country and governing class that became strategically lazy, if not kind of stupid about reality.

Policymakers blew off kinetic issues like having “enough” ships and people to do the jobs. Presidents and Congresses failed to fund procurement. Institutional Navy didn’t fight for its long-term interests. And people write books about these things.

The EMALS Issue

One last item. Last week, President Trump signed a memo that instructed the Navy to investigate going back to steam catapults on carriers, versus continuing with EMALS. Among other journalistic malpractice, no less than the Wall Street Journal presented it as a cavalier dictate about “ripping out” entire sections of ships to replace EMALS with steam.

No, no, no… WSJ is completely wrong. Trump signed an order that gives the Navy 60 days to explain the virtues of EMALS over steam, now after several years of operation. This might impact construction of one carrier (CVN-81, future Doris Miller), which is in the very preliminary stages of construction, with a few keel-pieces in place and not much else.

If Navy does go back to steam, it will require long-lead buys of numerous systems and machinery, but HII certainly knows how to build these things after all the Nimitz-class vessels it has constructed.

Again, the EMALS controversy is just the news media and political hacks looking for click-bait stories. Don’t be fooled.

And that’s all for now. Thank you for subscribing and reading.

The post What’s Going on With Our Navy? appeared first on Daily Reckoning.

China is running their favorite playbook on AI.

The same one they ran on metals, rare earths, cars, solar panels, and manufacturing in general.

It’s a simple model. Build stuff for cheaper than everyone else, and undercut the world on price.

We’ve been watching this play out in manufacturing for a long time. Now, China is coming for American AI companies’ market share.

Rising Competition

For a while, it seemed like America’s AI lead could last forever. We had the best models, the best hardware, and China was restricted from using Nvidia GPUs.

But those days are over. Chinese AI models are approaching the top U.S. offerings in terms of quality. And cost is where it gets scary.

Chinese models cost anywhere from 60-90% less than the top American ones. Here’s a table comparing a few frontier models.

The latest Chinese AIs are 95-98% as good as ChatGPT and Claude (better in a few areas), and offered at a huge discount.

This is proving to be highly disruptive to top U.S. labs like OpenAI, Anthropic, and xAI.

After Chinese company DeepSeek released their latest open source AI model, DeepSeek v4, OpenAI cut the cost of their top model by 80%.

Rubbing salt in the wound is the fact that China’s models are almost all open-source, meaning they can be downloaded and modified by anyone. And used for any business purpose.

So they’re becoming extremely popular, as shown in the chart below.

Source: Financial Times

The chart shows AI model use by country, on OpenRouter, a service that developers use to access AI models. I should note here that OpenRouter doesn’t include developers who use American models directly with the provider.

So American AI is still doing well, but China is a real rising threat.

The trend is the important takeaway. Note how U.S. models (blue line) started the year with a huge lead over Chinese offerings on OpenRouter. And now China’s offerings are soaring in popularity.

Intelligence, Commoditized

The cost to run top-tier AI models is falling as competition rises. That’s good for users, at least.

I saw a post the other day where someone used DeepSeek V4 to create an entire functional video game for 7 cents. And it looked pretty good.

This is crazy. New territory. Never before has it been so effortless and cheap to create digital products. We’re going to see some crazy developments in the coming years.

And coding is just the first sector to feel the heat. Soon, AI agents will be capable of handling most white-collar tasks.

This is the commoditization of intelligence. And we’re less than 4 years into this madness.

Extreme Options

If Chinese models continue to improve at this pace, things could get ugly. I can see the U.S. completely banning Chinese AI models. After all, China banned our models very early on.

The tricky part is that most of China’s top offerings are open-source, meaning they can be downloaded and used anywhere. Effectively stopping companies from using them would be very difficult, and intrusive.

Unless we somehow ban Chinese models completely, which doesn’t seem realistic, this is going to put severe pressure on our leading firms.

The U.S. economy today depends on AI for the majority of its growth. If the pace of investment falls, or expected returns fail to materialize… That’d be bad.

With Chinese AI on the rise, American leaders are feeling the pressure. Hopefully they can buckle down and keep the breakthroughs coming.

The one positive about this competition between East and West is that it fuels innovation for both sides.

We’re going to see some miraculous, and terrifying, developments over the next few years. The cost of intelligence will continue to plummet.

For the first time in a long time, we have a real tech competitor in China. That’s good for breakthroughs, and healthy for the system as a whole, but it could be problematic for top American AI firms, many of which are valued at more than $1 trillion.

Eventually it could also be problematic for AI hardware firms like Nvidia. After all, China is banned from buying their GPUs, and is busy developing their own ecosystems.

In the long run, more competition is good. It keeps everyone frosty and on their toes. But in the short run, China’s emergence as a peer threat could have some brutal effects.

The post China Aims to Spoil the AI Party appeared first on Daily Reckoning.