But underneath, something big shifted. The long end of the Treasury market broke higher, and the 10-year yield punched through 5%. That’s not a Fed story.

The Fed may influence the front end (2y), but the long end (10-30y) is where lenders vote on deficits, inflation, and trust. This month they voted no.

Once bond buyers demand a higher toll, every asset that depends on borrowed money pays it.

Small caps and real estate paid. Long bonds got crushed. Gold and silver also took a beating, because rising real yields raise the cost of holding metal. Meanwhile, big tech, oil, and crypto sailed on.

The split wasn’t random. It traced one clean line: who needs the credit market, and who doesn't.

Let’s hit the charts.

S&P 500

A flat month in the headline index is doing a lot of hiding. The cap-weighted top holds huge cash piles and funds itself. The average member doesn’t. When the index goes sideways while the broad market sags, that’s an uncomfortable position.

However, we still have an 8,667 upside target, so the probabilities favor a rally after this sideways move.

Nasdaq Composite

Textbook theory says higher discount rates punish long duration growth. September said otherwise. Hyperscalers are self-funding their AI buildout from operating cash, so the bond market hasn’t reached them yet. The day that capex needs real borrowing is the day this immunity ends.

With a 32,020 upside target, the rally looks likely to resume.

Russell 2000

Small caps are the honest witness here. They borrow at floating rates, refinance often, and have no treasury department to hedge. Their slide this quarter is the interest bill coming due. Watch them for the first sign the revolt is breaking.

The Russell still has a downside target of 2,670.

US 10-Year Yield

This is term premium rearing its ugly head. Lenders are demanding payment for fiscal risk and future inflation, and they’re getting it. A 5% long bond changes the arithmetic for every pension, bank, and buyout model in the country. Nothing in this report matters as much.

Next stop: 5.50%

US Dollar (DXY)

The dollar rose on yield appeal. That’s a different animal from a panic bid. But the effect abroad is the same: dollar debt gets more expensive everywhere at once (especially in the Gulf). America is exporting its tightening again, and the rest of the world resents that it has no vote.

The next upside target is 109.75, and you better hope we don’t get there.

TLT (20Y Bond)

Here is the lesson that every safe (their word, not mine) allocation keeps relearning. Credit risk was never the problem; rates were. Insurers and pensions marked to this price are quietly carrying a hole they can’t discuss on a quarterly call.

The next downside target is 70.50, a disaster for banks, pension funds, and hedge funds holding the “risk-free” asset. If you don’t laugh, you’ll cry.

LQD (IG Corp)

Investment grade credit is a duration product wearing a credit label. The curve inflicted this damage. Buyers seeking a modest yield pickup over Treasuries still got smacked in the mouth instead.

Next stop: 98.50.

HYG (High Yield)

High yield fell less than investment grade, which is the quiet good news in this table. Spreads aren’t blowing out, so this is a rates event, not a default scare… for now. The real test comes when the refinancing wall meets a 5% base rate.

No lit targets as yet, but that doesn’t make me a buyer.

VNQ (Real Estate)

Real estate takes the worst of it, as it must. Property values are priced off the 10-year, so a rising long end hits valuations and refinancing at the same time. Commercial landlords rolling 2021 debt into this market face some brutal math.

We’ll hit 88 and see from there. No big targets to the downside as yet, but they’ll probably come for next month’s report.

WTI Crude Oil

Crude is the engine behind the whole story. A huge year-to-date gain keeps headline inflation sticky, which keeps the long end angry. Energy strength and bond weakness are one feedback loop.

The Donald and The House are trying to get crude down (next downside daily target looks like 67.50), but the weekly upside target remains $148.05. That said, America’s and the world’s stunning lack of refining capacity will keep gas and diesel sky-high for the foreseeable future.

Copper

Copper holding its ground while real estate collapses is a vital tell. If this were a recession scare, the red metal would be the first casualty. Grid buildout and data center demand are doing the heavy lifting, which says that any pain is financial, not industrial.

The next upside target is 7.85.

Gold

Rising real yields raise the cost of owning an asset that pays no dividends. After a parabolic run, that was all the excuse leveraged longs needed. Nothing fundamental broke, and central banks are still buying, they said. But the chart is nearly as broken as silver’s (below).

The next downside target is 3,865.

Silver

Silver wears two hats, industrial and monetary, and it got hit in both this month. That's always the deal: you get the leverage on the way up and the whipsaw on the way down. Anyone sizing it like gold has learned the difference.

The bad news is that we’ve still got more downside to go. The next target is around $57.

The good news is that once we hit there, it may be time to pile back in. Stay tuned.

Bitcoin

Bitcoin rising while gold fell quietly settles an old argument. Right now it trades as a liquidity asset, not as digital gold. The quarter's recovery is impressive, but it still has ground to make up on the year.

Who knows? Even Michael Saylor may get saved…

129,400 is the next upside target. But I’d take that with a grain of salt.

Ethereum

Staking yields now compete with “risk-free” Treasury paper, which should be a headwind. Ether rallied anyway, supported by stablecoin and tokenization flows that keep growing regardless of price. The use case is finally moving separately from the speculation.

Next stop: $3,000.

Summary: Traditional Asset Classes

Summary: Crypto

Wrap Up

Once you step back, the assets sort themselves into two columns.

On one side sit the assets that live on borrowed money: small caps, real estate, long bonds, and investment grade credit. They were all beaten like rented mules.

On the other sit the assets that don't need a lender's permission: mega-cap tech with its cash hoard, oil, copper, and crypto. They all held or gained.

In other words, the bond market is no longer taking orders from the Fed. It’s setting terms for everyone else.

Credit spreads staying calm tells us this is a price-of-money story, not a default story. Well, not yet anyway.

If you’ve spent years saying the bond vigilantes would eventually send the bill, September was the evidence your case needed.

The smart move now is to check every holding you have against two questions.

Who pays the toll?

and…

Who owns the road?

There won’t be a ball drop, like in Times Square. No one will sing “Auld Lang Syne.” But at midnight, the carriage turns back into a pumpkin, as the federal government’s fiscal year ends. Every dollar a Pentagon manager hasn’t spent by then goes back to the Treasury.

And nobody in the Department of War wants to give money back.

Yesterday, I showed you Richard Maybury’s cones. Government money pours into one spot and spreads out from there. The people at the tip get paid first. I also showed you a new cone forming around American magnets and metals, with a fence around it that goes up January 1st.

Now, here’s the part about timing.

Use It or Lose It

Picture yourself as a Pentagon budget manager. It’s late September. You’ve got $10 million left in your account.

You could give it back, saving the taxpayers $10 million.

Only you’d get a smaller budget next year, because you clearly didn't need the money.

Your boss wouldn’t congratulate you on a job well done. Instead, he’d ask why you shrank your own department.

Or… you could spend it.

So you make the only real choice available: spend it.

Two economists, Jeffrey Liebman and Neale Mahoney, studied every federal contract they could find from 2004 through 2009. They discovered that federal spending in the last week of the fiscal year runs 4.9x higher than in a typical week.

Nearly 5x the money in 1 week, because that money ain’t gonna spend itself!

It gets worse. They also checked the quality of year-end tech projects. Contracts signed in that last week were 2x to 6x more likely to earn poor ratings. To the surprise of absolutely no one, managers spent rush money badly.

That’s Hayek’s Knowledge Problem in a nutshell. No price signal tells a manager whether a purchase makes sense. There’s only a deadline.

In a real business, spending money you don’t need to costs you.

In DC’s Swamp, saving money you don’t need to spend costs you.

Furthermore, the researchers found proof. The one agency allowed to roll unspent budget money into the next year didn’t show the spike.

The Second Clock

The spending sprint happens every year. But this year, the second clock changes everything.

As I wrote yesterday, the Pentagon’s new sourcing rule takes effect January 1st. After that, contractors can’t deliver certain magnets, tungsten, or tantalum with a supply chain that runs through China, Russia, Iran, or North Korea. For the most common rare earth magnets, that covers every step from the mine to the finished part.

Let’s put the two clocks side by side.

Tonight, managers race to commit this year’s money. Much of it pays for parts that ship next year. And parts that ship next year must follow next year’s rules.

So a contract signed this week for February delivery can’t lean on a Chinese magnet. The buyer has to find a clean supplier. And there aren’t many.

You can’t build a mine in 90 days. You can’t permit a refinery by Christmas. For the most part, the companies that can meet the rule by January 1st are the ones already present and accounted for.

Why the Small Ones Move

Let’s say a giant defense contractor sells weaponry worth many billions of dollars every year. If the government awards it yet another $50 million contract, its stock wouldn’t budge.

But if the government hands that same $50 million contract to a company worth only $300 million, that's 1/6th of the entire company’s value. The stock would certainly notice.

Same money. Same cone. But it produces a drastically different result. That’s why the tip of the cone favors small companies over large ones.

But remember what I said about Palantir yesterday. The cone tells you where to look. It doesn’t tell you what to buy.

The research I just cited proves the point. The rush money gets spent badly. Some of it will land on companies with mines, plants, and paying customers. Some will land on companies with a drill hole and a press release. The cone rewards the first group and punishes the second.

A good way to play this is with Nassim Taleb’s “barbell.” He thinks investors should keep most of their money in safe, boring places. Then they can put a small slice into bold bets with large upside and survivable losses. If one bet works, it can improve your portfolio significantly. If one fails, it won’t ruin your finances.

Wrap Up

Most investors will read about this rule in January, after the fence goes up and the orders are signed.

You’re reading about it on Fiscal New Year's Eve, with both clocks in view.

That’s the whole game Maybury taught. You don’t need to be the smartest person in the room. You need to know where the money pours and when. The cone shows you where. The calendar shows you when.

Tonight, both point to the same place.

Have a great day ahead.

PLTR traded in the teens back then. Yesterday, it closed at $187.48. If you made that trade and held on, you roughly 10Xed your money.

I’d love to tell you what a genius I am, but sadly, that’s not the case. I just followed a map drawn by a man most investors have never heard of.

His name is Richard Maybury. And rereading his map is about to pay off again.

Uncle Eric’s Cones

Maybury wrote a series of small books told through a wise old uncle named Eric. These little books hold more sound economics than most of today’s Federal Reserve-funded PhD programs.

In The Clipper Ship Strategy, Maybury took an old idea and simplified it.

The old idea belongs to Richard Cantillon, an Irish-French banker from the 1700s. He saw that new money doesn’t spread evenly. The people who get it first spend it before prices rise. Everyone downstream pays higher prices.

That’s the Cantillon Effect.

Cantillon didn’t just discover and describe it. He wielded it.

In 1719, a Scotsman named John Law flooded France with paper money to pump up shares in his Mississippi Company. A banker in Paris at the time, Cantillon stood right next to the all-important money spigot. Cantillon bought early, sold before the bubble burst, and moved his gains out of France. He walked away an obscenely wealthy man while the French public was left holding worthless paper.

Maybury added to the picture. He wrote that the government doesn’t sprinkle money evenly across the land like a soft rain. It pours money into its favorite spots, like water through a funnel. The money lands at the tip of the cone and spreads out from there.

Lower Manhattan is the biggest cone on earth. The Fed’s freshly printed money hits the banks first. That’s why Wall Street booms while Main Street can’t afford a starter home.

Maybury’s advice boils down to one idea: watch where the government pours money, and invest there.

He added 4 rules:

1. Find the cone.
2. Tap into it.
3. Don’t expect it to last.
4. Always look for the next one.

Why Palantir Paid

In 2023, the cone was easy to spot. The Swamp couldn’t stop spending taxpayer funds on spying, data, and defense. Palantir sat right at the tip. Its biggest customers were the Pentagon and the spy agencies. The money didn’t trickle down to Palantir. It landed there first.

Palantir already had a real business. It had contracts, revenue, and software that worked. The government-funded cone acted like Miracle-Gro for its business. To be sure, PLTR didn’t build something from nothing. Its “something” just got a whole lot bigger because the government dumped a load of taxpayer cash in PLTR’s coffers.

But as Reggie Jackson once said, “You’re only as good as your last at-bat.”

That’s where Rule 4 comes in: you need to keep looking. So we kept looking.

Luckily, my friend and colleague Jim Rickards found the next cone, and it’s different from any cone Maybury described.

A Cone With a Fence

Most cones work by adding money. This cone adds an important feature: it removes the competition.

Starting January 1st, Pentagon contractors can’t deliver certain magnets, tungsten, or tantalum if their supply chains run through China, Russia, Iran, or North Korea. For the most common rare earth magnets, the ban covers every step from the mine to the finished part.

Mined there? Banned.

Refined there? Banned.

Melted there? Banned.

That’s a big deal, because China doesn’t just mine these metals. In 2023, it processed about 90% of the world’s rare earth supply.

My friend and former Naval aviator Byron King often talks about what military assets like fighter jets need. For example, jet engines and guidance systems need rare earth magnets. If the USG bans the Chinese supply, the demand doesn’t go away.

It gets squeezed through a much smaller hole: a short list of American and allied suppliers who can prove they have clean hands from mine to finished magnet.

That’s the new cone. But this time, DC isn’t just pouring heaps of money onto a cone. It’s putting a wall around the cone.

Incentives Align In Our Favor

I’m no fan of The Swamp picking winners. When I wrote about the tungsten deal the Trump kids made a few months back, I didn’t like how close policy sat to family portfolios. And I still don’t.

But I must learn (and relearn) to separate what I’d like a government to do from what it will do.

Congress first banned Chinese magnets in the defense bill passed in late 2017, during President Trump’s first year. It widened the ban in the defense bill that passed over his veto in January 2021. Then, under Joke Biden, the 2024 defense bill set the final start date of January 1, 2027.

3 defense bills. 2 presidents. 1 big, happy uniparty.

Nobody in DC loses votes by taking a hard line on Chinese supply chains. Defense hawks want it. Factory towns want it. Each party needs both groups to win. The men in charge are just doing what keeps them in office.

Beijing plays the same game from the other side. In December 2024, it banned exports of gallium, germanium, and antimony to America. Neither government can back down without looking weak at home, so neither will.

Where to Stand

The cone exists already. Its fence goes up January 1st.

The biggest winners at the tip won’t be the giants. When a trillion-dollar company lands a new contract, it barely moves the needle. But when a company worth a few hundred million lands the same contract, it changes the company’s fortunes.

One more piece of the puzzle: timing. Money moves on a calendar, and DC’s calendar has a date on it that most investors ignore.

That date is tomorrow, and I’ll follow up on it in tomorrow’s Rude.

Wrap Up

If you followed the PLTR call in 2023, you saw the map.

That map still works. Only the cone has moved from the spy budget to the mine, the refinery, and the magnet factory. Most investors are still staring at Lower Manhattan.

You don’t have to love government policy to see who it pays. I certainly don’t. But you want to be in the right place at the right time: when the money pours in.

Have a great day ahead.

Still, a broken clock is right twice a day.

So what was old Bill moaning about?

Dinner in Athens

Last Friday, The Wall Street Journal reported a story from a private dinner in Athens back in March.

Greek and American officials sat at the table. America’s ambassador to Greece, Kimberly Guilfoyle, was there, as was Stavros Papastavrou, Greece's energy minister.

Talk turned to Romania, where Prime Minister Ilie Bolojan’s government was wobbling. According to one guest and others briefed on the exchange, Guilfoyle said, “We can do that to any country we want. We can do that here.”

“Here,” of course, meant Greece.

Red hot at the implied threat, Papastavrou shot back that America can’t replace a government the Greek people elected.

In May, Bolojan's government fell. The no-confidence vote drew 281 lawmakers.

Now, let’s first be fair. Guilfoyle’s lawyer disputed the account. The quote had rested on one guest and some secondhand retellings. Of course, Romania’s government had plenty of homegrown enemies. Bolojan pushed hard austerity, and the Social Democrats had allegedly walked out of his coalition over it.

Nobody has shown that DC pulled the trigger, though no one ever can.

But a boast like that does its damage whether it’s true or not. What matters is who heard it.

Except, it seems that it’s true. Because this morning on X, someone posted a video showing Guilfoyle meeting with Romania’s Social Democratic Party in a Bucharest hotel on March 31, 2026. (Why a US ambassador to Greece meeting with Romanian politicians in Bucharest is another question… or is it?)

Credit: @Daractenus

So the meeting was about forcing a European country to buy overpriced American energy, economic coercion at its finest.

But since Europe can’t admit it was plain wrong about Russia (yet), and it can’t say no to a dying superpower chucking haymakers, some of those countries, like Italy, have seen France’s relative energy independence and smartly decided to restart their nuclear programs. 

But that’s a column for another day.

This one is about why it’s not at all surprising the Global South is actively cheering for China to take over the world’s hegemony reins.

Ancient History, Modern Application

The Greeks have heard this speech before.

Last time, the speaker was an Athenian, in 416 BC. Athens had the strongest navy on earth, and it wanted the small island of Melos to join its empire. The Melians wanted to stay neutral.

The Athenian envoys didn’t bother with diplomatic niceties. Thucydides records their answer, and it’s the most accurate assessment of power ever written.

The strong do what they can, and the weak suffer what they must.

Melos refused. Then Athens took the island, killed all the men, and sold all the women and children into slavery.

The next year, Athens sailed for Sicily. Two years later, nearly that entire expeditionary force lay dead or was captured. The war turned, and the empire never recovered.

The Greeks have a word for the swagger that comes before that kind of fall: hubris.

The Melian Mistake

When a great power says out loud what everyone already suspects, the mask of beneficence slips. Lack of subtlety isn’t merely a diplomatic faux pas. Hubris invites enmity, jealousy, and an eagerness to find alternatives. That’s why we cheer for underdogs in sports matches.

The Athenians didn’t lose because of their behavior towards Melos. God knows empires are cruel all the time. Athens lost because they sent every neutral city in the Greek world a message about the worth of Athenian friendship. When the Sicily expedition came, too few of those cities wanted Athens to win.

Guilfoyle, who only has an ambassadorship because she’s Don Junior’s ex-squeeze, didn't just talk to one Greek minister at dinner. She spoke to every government official worldwide.

Those folks have much longer memories and historical understanding than the average American doomscroller.

They remember Iran in 1953, when the CIA toppled an elected prime minister. They remember Guatemala in 1954. The Greeks remember 1967, when the colonels seized power, and DC looked the other way. President Clinton admitted as much in Athens in 1999, when he said America had put its Cold War interests ahead of its duty to support Greek freedom.

Clinton’s admission had earned goodwill because it told the Greeks that Americans had learned something.

A threat delivered at a dinner table from an unqualified diplomat to a proud Greek pisses that goodwill up a wall. 

Why the World Roots for China

The 2026 Democracy Perception Index surveyed over 94,000 people in 98 countries. America’s net rating fell to -16. Two years ago, it was +22. China sits at +7. Russia sits at -11. For the first time in the survey’s history, the world views America more darkly than Russia.

Don’t blame that on marketing or bots.

But why China?

Beijing isn’t kind. Just ask Hong Kong, the Tibetans, or the Sri Lankans who handed over a port when their loans went bad. I suspect we’ll be adding Taiwan to the list soon.

It’s because Beijing sells one product the Global South craves: the CCP says it won’t touch their governments. Non-interference has been China’s pitch since 1954. It’s a sales slogan more than a moral principle, but it works.

Remember how a ruler of a poor country stays in power. He keeps a small circle of generals, bankers, and party bosses happy. That circle is his whole world.

Now picture two suitors at his door. One brings loans and asks no questions. The other brings loans and hints he could replace you.

I ask you: Who is that ruler incentivized to deal with?

Soft Power Seed Corn

Trust is soft capital.

Like hard capital, it takes decades to build and moments to ruin.

America built its trust the hard way. The Truman Doctrine of 1947 kept Greece free when communists came for it. The Marshall Plan rebuilt a continent that had tried to kill itself. Nations followed America because they wanted what it had. Or, more importantly, they wanted to be like America.

That’s real power.

Pope Gregory the Great called pride “the queen of all vices.” Every other sin grows from it. Nations aren’t exempt. Unfortunately, pride feels more like brute strength than one of the seven deadly sins.

So how much does the rest of the world trust the USG right now?

The world’s central banks have bought more than 1,000 tons of gold in each of 2022, 2023, and 2024, a record run. The World Gold Council (WGC) forecasts total central bank purchases for 2026 to fall between 650 tons to 850 tons.

Considering the annual average purchase from 2010 to 2021 was only 473 tons, I’d say trust has dropped considerably.

Fearing the long arm of The Swamp, governments want the one asset no US politician could freeze.

Wrap Up

Ambassadors come and go. Most of them are forgotten, like Guilfoyle will surely be. Athens outlived Melos, and Greece outlived the colonels.

America will outlive one careless remark at a private dinner. It still has the deepest markets and the best companies. America can rebuild trust faster than anyone, but only once it stops spending it on mic drops.

The Greeks at that table weren’t impressed, because they’ve read Thucydides. They knew how the story ends.

Real strength never has to announce itself. It’s humble.

Have a great week.

America had fought its bloodiest war, printed greenbacks by the wagonload, and endured a roughly 75% surge in prices. And then the inflation went away. Twenty years later, prices had made the round trip.

The dollar went to war and, after a decent interval, came back home.

For most of American history, prices ebbed and flowed normally. But today, it seems that once something gets expensive, it stays expensive. Think of housing, healthcare, and college tuition. Anything the USG gets its grubby, greedy hands on, really.

But since it wasn’t always that way, I thought I’d show you why.

When Prices Fell

Peter Bernstein wrote about inflation his famous 1996 book, Against the Gods. He claimed that from 1800 to 1940, U.S. prices rose only about 0.2% a year and ended just 28% higher.

I love that stat, but then I went and checked it.

The Minneapolis Fed keeps a price index that reaches back to 1800. On that series, prices in 1940 weren't 28% higher than in 1800. They were about 17% lower.

Neither number is the gospel truth, because there wasn’t a national CPI in 1800. (And if the BLS is inaccurate today with all its computing power, just imagine how ridiculously wrong the numbers would’ve been back then.)

Those early figures come from Vermont farm records and older academic studies. The Fed itself calls anything before 1913, the infamous year of its founding, an estimate. So treat those numbers as a sketch.

But every version of the sketch shows the same outline.

Up the Mountain and Back Down

Let’s start with the wars.

The War of 1812 pushed prices up about 24% in 2 years. By 1824, they sat 35% below where the war began.

The Civil War lifted prices by 75%. They were back to prewar levels 20 years later.

World War I doubled prices between 1915 and 1920. By 1932, they had given back nearly 67% of that rise.

Prices had climbed in wars (always an expensive proposition) and booms (thanks to the credit expansion). Then they came back to earth. Between 1800 and 1940, the price index actually fell in more than 50 separate years.

Now, let’s cross over to the other side of 1940.

Prices rose an eye-watering 71% from 1940 to 1948. They never came back down. Since 1948, the index has posted a yearly decline just 3 times: in 1949, 1955, and 2009. Each drop was only 1% or less.

The round trip became a one-way ticket.

Remember, Congress created the diabolical Fed in 1913. In the 113 years before that, prices fell about 42%. In the 113 years since, they've risen more than 30x(!). What cost $1 in 1913 costs about $34 today.

Falling Prices Aren’t Always Bad News

Of course, Keynesian economists think that deflation means depression, and falling prices translate to breadlines.

To be fair, sometimes they do. The early 1930s were brutal. When money and credit collapse, prices fall because the money supply collapses.

But the late 1800s show a different outcome. Prices meandered lower for decades as America built railroads, steel mills, and modern factories. As a result, output soared. Goods and services got cheaper because Americans got better at making them. That’s “economies of scale” at work for you.

We call that “good” deflation. It’s the reward for progress, handed straight to the customer. The dollar bought more each year because the country grew more productive. 

Of course, debtors hated it. Farmers who borrowed in cheap dollars had to repay in expensive ones. At the Democratic National Convention in Chicago in 1896, William Jennings Bryan told a roaring crowd that the country shouldn’t crucify mankind on a cross of gold. He spoke for the borrowers. A rising dollar made every debt heavier. Telling the crowd what they wanted to hear got him the nomination. Same as it ever was.

Keep that in mind, as it explains everything that came next.

Why the Ticket Only Goes One Way

Today, the biggest debtor on earth is Uncle Sam. As you know well by now, US federal debt tops $40 trillion.

So it’s little wonder why The Donald, his administration, and Congress want lower rates and a softer dollar. A dollar that gains value makes that debt heavier every year. A dollar that loses value melts it away. Any leader who wants to keep his job picks the melt.

But more importantly, the borrowers, the banks, and the spenders who keep them in office all want a softer dollar. Paradoxically, nobody in that coalition gains when the common voter’s savings grows on its own.

So the Fed made it official. In 2012, it named 2% inflation as its target. In Fedspeak, “price stability” now means prices that rise forever.

It sounds small, doesn’t it? Except it isn't.

Using the Rule of 72, at a rate of 2% a year, prices double every 36 years. A dollar you save at 30 buys half as much when you’re retired at 66. That’s how cheap money punishes the saver. The Fed’s stated goal actually hurts the citizenry.

Economist Charles Goodhart warned that when a measure becomes a target, it stops being a good measure. The CPI became the target. But now the target is a price level that only climbs… and it’s not even an accurate measure.

Where the Round Trip Still Runs

The round trip still runs wherever markets work freely. That is, when government regulations can’t keep up with innovation. Televisions, phones, and computing power get cheaper year after year. High productivity still drags prices down. Every time you buy electronics, you get more bang for your buck.

Of course, prices only increase when the government intervenes: college, health care, and housing. Stacking interventions on top of each other is an expensive habit indeed.

Gold tells the same tale. From 1834 to 1933, the government fixed an ounce at $20.67. For a century, the price barely needed to move, because the dollar held still. As of writing, gold trades at $4,275. Gold didn’t get more valuable. What you buy the gold with got less valuable.

Wrap Up

My grandfather used to tell me his popcorn costs 5 cents a bag. Since my popcorn cost $5 a tub, I thought my popcorn must’ve been better.

But popcorn is just popcorn. The truth is his dollar was far better than mine.

For most of America’s history, a saver could expect his money to hold its value. Sometimes it grew just by sitting still.

The people who understand the one-way ticket stop mistaking it for prosperity. Now you're one of them.

Have a great weekend.

At this point in last year’s governor's race, 5,075 modeled Republicans had cast early ballots. This year, 2,275 have, a 55% drop.

Democrats fell too, from 6,665 to 5,544, a 17% drop. Swing voters fell by 33%.

Christian Heiens, who tracks early-vote data, posted the figures this week. His read is simple. Nobody is storming the polls to punish Republicans. So, for now, stories of a “Blue Wave” are lamestream media fairy tales.

However, there’s still a massive issue coming up in midterms: The GOP base isn’t showing up, and now we’ve got some data points to prove it.

But first, a caveat: these numbers come from precisely 1 district, early in the count. “Modeled” means an educated guess about each voter’s party.

And importantly, Republicans tend to vote on Election Day. So treat this as a flashing warning light, rather than a verdict written in stone.

But the warning light matches the national dashboard.

The Tide Goes Out

Sailors fear the ebb more than the storm.

A storm announces itself. Sailors see it coming. They reef the sails and run for port.

But the ebb is quiet. The water slips away a few inches at a time. Then one afternoon, the rocks they sailed over all summer are sitting under their keel.

That’s what’s happening to the Republican coalition. A sort of Red Ebb, if you like.

The pundits are watching the horizon for a blue wave, but they're looking for the wrong tide. Democrats aren’t surging. Instead, the Republicans are draining away. Unfortunately, the math works out the same either way.

The national polls agree. In a Washington Post-ABC poll this spring, 52% of Republicans called this midterm more important than past ones. In September 2022, 72% said so. In October 2018, 63% did.

Republicans lost the House in 2018. With that kind of enthusiasm on display, it looks like they’re heading for defeat in 2026.

Why the Base Is Sitting Out

Every leader rules through a coalition. If they reward that coalition, it keeps them in power. If they let it down, the coalition doesn’t have to switch sides. It can merely stay home and not vote.

The 2024 coalition that got The Donald back in the White House was broad. Farmers, Catholics, rural families, and the young men who listen to Joe Rogan all came aboard. Each came for something.

Farmers came for markets, but they got tariffs, war-driven high-priced diesel and fertilizer bills, and cheap beef imports from Argentina and Brazil. Trump's approval among rural voters has dropped significantly since he took office. The vice president of the Iowa Farmers Union said he has never seen farmers angrier. Who can blame them?

Catholics came for respect. Then the president picked a public fight with the first American pope. For better or for worse, the increasingly liberal Pope Leo XIV holds an 84% approval rating among Catholics. Not even a pugilistic politician like The Donald wins the fight.

Rogan’s listeners came for “no more wars.” Seven months into the “two weeks to flatten the Iranians” war, Rogan told his audience something they already knew: “A lot of people feel betrayed.”

None of these voters has become a Democrat. But voters are suffering from acedia, which the desert monks called the noonday demon. It isn’t hatred of the good. It’s a weariness with it. They still believe, but they just can’t get off the couch.

That’s the Red Ebb. But in this case, fatigue is numerically equivalent to rebellion.

The base hasn’t sunk. It’s merely running silent, like Captain Ramius’ submarine in The Hunt for Red October. It won’t show up on sonar until someone gives it a reason to surface.

But it looks like the President doesn’t want to give them a reason.

“I’m Not Running”

That brings me to the president’s recent speech at the UN.

Talking about Iran, he said Tehran is “waiting to see how I do on the midterm election. The Republican Party is running, and I’ll be helping them, but I am not running.”

His name may not be on the ballot, but he’s certainly running. This is about reconfirming a mandate (through Congressional elections). Incumbents always have a tough task come midterms. But The Donald’s reckless policies, both foreign and domestic, have made the goal of winning damn near impossible to achieve.

Back in January, he told House Republicans what was at stake. If they lost the midterms, he said, “they’ll find a reason to impeach me.” Let’s face it, he’s making that far too easy for the Democrats.

I don’t read the UN line as indifference. Every second-term president faces the same trap. He’ll never personally face voters again, but his coalition still has to. When the man at the top says he isn’t running, some of his voters may hear that as permission to sit this election out.

The Cost of an Ebb

If the tide goes out on November 3rd, here are 5 disastrous consequences.

Impeachment. A Democratic House can impeach with a simple majority. But Trump’s actual removal will take 67 senators, and that’ll never happen. However, a trial would eat months of the calendar and most of the agenda. The third time won’t be the charm for the Democrats, but it’ll wreck the remainder of Trump’s presidential term.

The Supreme Court. Republicans hold 53 Senate seats. Democrats need 4 more to take control. Clarence Thomas is 78 years old. Samuel Alito is 76. If a seat opens under a Democratic Senate, it can sit empty until 2029. This would be the Merrick Garland saga in reverse. The next president would fill the vacancy. If that next president is a Democrat, we’ll get a justice who reads the Constitution nothing like Justice Scalia did… for 30 years. Look upon Ketanji Brown Jackson and despair!

Subpoena season. Every committee gets a new chairman with a gavel and a grudge. The war, the family business deals, and the Epstein files would each get a congressional hearing.

The purse. Congress funds the war and could end the tariff emergencies. A Democratic House would have veto power over both. Tehran knows this, and that's why they’re not suing for peace.

A stage for the Left. After Zohran Mamdani won New York's mayoral race last year, Trump said the choice was between “communism and common sense.” A Democratic House will hand its most energetic wing the microphone and the committee seats. Ideas that once lived in liberal university faculty lounges will get a hearing, then a bill, and then a budget line. Socialism will have arrived in America by committee, without a shot fired.

And The Donald will be a two-year lame duck, with an early and ugly fight over the party’s future.

The Honest Counterpoint

Markets often like gridlock. After all, a Congress that can’t pass anything can’t break anything either. Stocks did fine in 2019.

But 2019 didn’t have a hot war in the Gulf, $40 trillion in debt, and the bond vigilantes daily smacking Scott “The House” Bessent in the mouth. Gridlock is cheap when nothing’s happening. It would be prohibitively expensive in the midst of a market meltdown.

Wrap Up

If you need a reason to look on the bright side, here it is: Ebbs don’t last. The tide turns.

And unlike the ocean, this tide answers to people. Americans over 55 are the most reliable midterm voters in the country.

Pollsters say the enthusiasm gap is closing as Election Day nears.

The pundits will spend 6 weeks staring at the horizon for a wave. Instead, they should be watching the waterline.

On a clear day, they can probably see each other’s flags without the spy tech.

I wonder if the Chinese Navy ever orders from Pizza Hut. Credit: Google Maps.

Both militaries are parked here for the same reason, and it ain’t the Hut Crust. They’re watching the same gateway: the Bab al-Mandab Strait, the southern door of the Red Sea, about 20 miles wide at its mouth.

And get this: “Bab al-Mandab” is Arabic for “Gate of Grief.”

Who says the Arabs don’t have a sense of humor?

The only thing funnier is the Houthis taking the strait right out from under the noses of the world’s two largest militaries.

Good Grief!

Before The Donald started this unforced error of a war, about 12.5% of world trade and 33% of global container traffic squeezed through Grief’s own gateway. Then, to the shock of America’s best and brightest, Iran shut the Strait of Hormuz, and the Grief Gateway became the escape hatch. Saudi Arabia has - or had - been moving millions of barrels a day through the east-west Petroline to the Red Sea and out through the strait.

Two superpowers. One throat. Yet neither of them controls it.

The Militia at the Gate

On September 10th, Houthi forces swept down Yemen’s Red Sea coast. They took Hays. They took Al Khawkhah. They took the old coffee port of Mocha. Over the weekend, they overran Mayyun Island, better known as Perim, the rock in the middle of the strait that splits it into two shipping channels.

Now, the Houthis control Yemen's entire Red Sea coastline. Their fighters stand about 12 miles from Africa.

Armed with Iranian drones and anti-ship missiles, the sandal-clad militia holds the gate that the world's two most expensive navies built bases to guard.

The shipping press has noted tanker owners now demand war risk premiums that have pushed daily charter rates past $1 million. Shippers who can't bear that cost are sailing around the Cape of Good Hope, adding 2 weeks and a small fortune in fuel to each voyage.

Either way, they pay, as do we. The chokepoint tax lands on every container of shoes, barrel of crude, and bag of fertilizer.

The Strait Jacket

Both hands are wrapped around the same throat, yet neither can squeeze.

America needs the strait open, as does China. Their interests converge, but their commands don't speak. Any strike near the gate risks hitting the other’s ships, or worse, the other’s base. 

Beijing won’t shoot at Iran’s proxies while it buys Iran’s oil. DC is already stretched across a 7th month of war with Tehran. So each giant waits, watches, and hopes the other blinks first.

Just the way the landlord likes it!

Djibouti’s government collects rent from everyone.

The Americans alone pay about $60 million a year for Camp Lemonnier. France, Japan, and Italy pay, too.

China paid differently: it built the port, financed the railway, and, after Djibouti expelled Dubai’s DP World from the main container terminal, a Chinese state firm moved in.

Djibouti’s president couldn’t give a flying fig if the strait is secured. He wants - needs, really - his tenants paying because his survival depends on rent. So the president’s best move is to host everyone and commit to no one.

How would the kids say it? “Chillin’ like a villain,” I think. Djibouti’s president is incentivized to throw the biggest beach party he can… for as many guests as he can, while keeping them happy and in neutral corners.

On the Far Bank

So it’s not at all surprising that on September 18th, the Treasury lifted sanctions on Eritrea’s ruling party, its army, and the Red Sea Trading Corporation, the firm that controls most of the country’s trade. Those measures dated back to the 2021 Tigray war and expired 8 days after the Houthis took the strait.

Let’s zoom in on the map.

Eritrea owns more than 600 miles of Red Sea coastline. Its southern port, Assab, sits just up the coast from the strait's mouth (circled in red on the left bank on the map). The UAE ran an airbase there during the last Yemen war before packing it up.

Eritrea is Djibouti’s northern neighbor. Credit: Google Maps

One more piece. Haaretz reported this weekend that Eritrea’s diaspora opposition, hundreds of thousands strong across Israel, Europe, and America, is organizing openly from a warehouse in south Tel Aviv. They promise a revolution against Isaias Afwerki, the man who has ruled Eritrea since 1991.

I can’t tell you whether that movement is organic or assisted (but I can surely guess which). Nobody outside a few rooms in DC, Abu Dhabi, and Tel Aviv knows.

But I can tell you this: When a dictator’s army comes off the sanctions list the same week his coastline becomes the most valuable real estate on Earth, that’s a bid.

The Swamp & Co. want a position on the African bank of the strait. It will get one through Isaias, or through whoever replaces him. The 80-year-old dictator knows it, which is why he’s suddenly the most courted pariah in Africa.

Wrap Up

Governments can print money, but they can’t print a strait. Real estate is the hardest asset there is, and right now the world's hardest geographical asset is 20 miles wide and on fire.

A few things follow.

Energy will stay bid. WTI is up over 80% this year, and every Houthi attack raises the floor. The boring, profitable, asset-heavy energy names we’ve favored all year long will keep working.

Shippers will continue to get paid. Scarce tankers, war premiums, and Cape routings make for fat rates.

The chokepoint tax will hit your grocery bill with a lag, though I’m not sure the lag’s not already over. Either way, the experts will call it “inflation,” and politicians will demand more government to fight it.

But rising prices from a strangled strait aren’t a monetary event. They’re a supply event wearing inflation’s mask, and no committee in The Swamp can print it away.

Gold remains your insurance against all of the above.

While the herd sees Houthi headlines, you see the strangle: two superpowers standing at the gate, a not-so-ragtag militia holding it, and a quiet American bid for the far bank.

Watch Assab. If Emirati transport planes or American engineers show up there, you’ll know the next phase has begun.

Have a great day ahead.

We’ve all seen oil prices move from $70 per barrel to over $105 per barrel in a matter of months, with much of the latest surge occurring in a matter of days.

We understand the implications of that for the price at the pump and inflation more generally, since higher fuel prices are passed through to the price of everything that moves by truck. But the situation is worse than the headlines reveal.

The price you read about is typically a futures contract price based on either West Texas Intermediate or Brent crude oil. Those are the two leading oil benchmarks. They refer to specific grades, delivery terms and locations of oil, and they are legitimate market prices.

But the widely quoted futures contracts are basically bets about where oil prices will be at the time of delivery in the weeks and months ahead. They reflect a mix of hedging, speculation and expectations about future supply and demand. But they are not necessarily the price of actual oil available for immediate delivery.

If you want physical oil delivered to your refinery next week, you have to enter the physical market and buy an available cargo, including cargoes already underway at sea.

What’s the price of these wet cargoes on the physical market? Depending on the grade, location, freight costs and availability, physical crude can trade at substantial premiums to benchmark futures.

Another measure is the so-called crack spread, named for the process of “cracking” crude oil into refined fuels. The crack spread is the difference between the price of crude oil and the value of refined products, including gasoline, kerosene (jet fuel) and diesel.

Normally, refining margins are much tighter than we’ve seen recently.

Diesel has traded at the equivalent of roughly $180 per barrel or even higher during this year’s disruptions, while crude prices have been far lower. At times, that has produced extraordinary crack spreads approaching $100.00 per barrel.

Put differently, physical market activity is telling us the cost of crude oil is much higher than the futures prices you read about in the headlines. That’s the reality behind higher inflation, and it’s not going away soon.

Since the war in Iran started in February, Trump has had no good options for ending it. Iran is winning the war not by invading New Jersey, but simply by living to fight another day.

Iran’s regime is still intact. Iran still has highly enriched uranium (HEU). And Iran has retained a substantial ballistic missile arsenal and thousands of drones, with the ability to manufacture more.

The Strait of Hormuz remains severely disrupted. The diminished supply of oil, natural gas, nitrates, sulfur, helium and other critical commodities is damaging to Western developed economies, albeit reduced oil exports are damaging Iran’s economy as well.

As for Trump’s options, he could agree to Iran’s demands to end the war. But those demands include withdrawal of U.S. forces from the Middle East and billions of dollars in reparations and war damages.

Trump could finesse some kind of unofficial ceasefire until after the election, but Iran won’t cooperate. Iran keeps attacking tankers even as Trump tries to demonstrate he’s amenable to a time-out in the shooting.

Finally, Trump could escalate attacks. On September 8, the U.S. destroyed five Iranian crude oil carriers after the IRGC targeted a U.S. Navy warship with ballistic missiles. More attacks by the U.S. and Iran have happened in the days since.

Escalation of this type, however, won’t work in the long run. Bombing did not win the Vietnam War, for instance, even after years of sustained air campaigns.

It would take a major land invasion, perhaps involving 100,000 or more U.S. troops, to attempt to occupy significant Iranian territory. That’s not happening. So, the war will drag on. And energy prices will remain high as a result.

One persistent question is why the world is not suffering even more economic dislocation, given the amount of critical energy and chemical resources that come out of the Persian Gulf.

There are three reasons for this: The U.S. and Russia have increased energy output. The world has drawn down strategic oil reserves. And some countries have been able to substitute one resource, such as coal, for another, such as oil.

But all of those strategies have limits. Reserves eventually run low, oil production can only be increased so much and substitutes such as coal can only fill part of the gap.

One strategy that kept the oil flowing was for Saudi Arabia to divert exports from tankers leaving the Persian Gulf to its East-West Pipeline, which runs across the Saudi Arabian desert to the Red Sea port of Yanbu, with no need to transit the Strait of Hormuz.

That pipeline can carry roughly 5 million barrels per day and became a critical alternative to the roughly 20 million barrels per day of total oil and petroleum-product flows that historically transited the Strait.

But Iran-aligned militias operating from Iraq launched drone attacks on the Saudi pipeline. That pipeline has now been disabled and the Saudis have shut it down. Even if they can repair it, there’s nothing stopping Iran from attacking again.

All of which makes Trump’s promises about the war increasingly difficult to believe.

Early in the war, he said it would be over in weeks. Later, he modified that to say the U.S. would win “in a few days.” He said the Strait of Hormuz was open and also said the Strait was under U.S. control. Events since then have not supported those claims.

The war is more than six months old and is turning into another forever war. The Strait remains closed, with no end in sight.

Trump now says the war will end immediately after Election Day on November 3.

I wouldn’t count on it.

Trump wants a time-out in the war, but Iran won’t give it to him. The full impact of the war on the economy has been delayed, but not eliminated. It’s hitting home now.

Yandle had worked inside the federal regulatory machine. He kept noticing the same strange bedfellows. Every Sunday liquor ban in the South had two sets of backers.

The Baptists genuinely wanted the ban to save souls. They gave the law its moral glow.

The bootleggers genuinely wanted to kill their legal competition. For 1 day every week, they had the market all to themselves.

The Baptists preached. The bootleggers profited. Of course, the politicians wanted to please both of them.

Yandle named the pattern Baptists and Bootleggers. I must warn you, though: once you use this lens to see the world, you’ll notice it everywhere, like a commercial jingle you can’t get out of your head.

This week, none other than the Wall Street Journal put it front and center.

Wall Street’s Mouthpiece Does Its Job

The Journal ran a piece titled "U.S. and China Agree AI Needs Guardrails. Their Ideas Are Very Different."

The framing was something else. It goes like this: America wants guardrails to protect humanity from runaway machines. China wants guardrails to protect the Communist Party from its own people.

Good DC, Bad Beijing.

I had to read it twice.

Yup, even the second time it read like, “America is trying to save humanity. The CCP only wants to save itself.”

Seriously. Do me a favor.

A newspaper that covers The Swamp and its Wall Street handlers for a living should know better. Both capitals are doing the same thing. They're protecting the coalitions that keep them in power.

One of them is more honest about it, and it ain’t America.

Beijing says its guardrails exist to keep the Party in control. Crude, but true.

DC says its guardrails exist for the good of mankind. That’s true, if you define “mankind” as the “kind men” who are donating pallet loads of cash to Super PACs, live within driving distance of San Francisco, and begging for regulation to mask their woeful malinvestments.

Follow the Guardrails

What are American guardrails anyway?

The first guardrail is export controls that ban China from buying advanced chips. Allegedly, that’s a national security issue. But really, it’s because if Chinese open source AI systems had American chips, the game would already be over.

Another set of guardrails is licensing and evaluation standards that only the biggest labs can afford. Outstanding innovation should build business moats, not the regulators protecting the home team.

Of course, the incumbents cheer the loudest.

Let us remember Milton Friedman for a moment:

One of the reasons why I am in favor of less government is because when you have more government, industrialists take it over, and the two together form a coalition against the ordinary worker and the ordinary consumer.

Indeed they have, Uncle Miltie. Indeed they have.

The big American AI labs restrict access in China, lobby DC to keep the chip bans, and publish essays warning that the race is dangerous and must be slowed.

Who’s Who?

Here's where Yandle comes in. The safety people may be sincere. Many of the researchers warning about AI risk believe every word. They're the Baptists. Their sincerity is what makes them valuable. (I vehemently disagree with them, for reasons I’ll write about in a future Rude.)

Standing right behind them, nodding along with their furrowed eyebrows, are the bootleggers. The trillion-dollar incumbents who understand that every new rule raises the cost of entry to the industry, and they're the only ones who can pay it.

Regulation is a fixed, exorbitant cost. (Just ask anyone who tries to build a new bank.) Fixed costs crush small startups that can’t make a profit, while blessing the large behemoths, who can easily cover what, to them, is a relatively small cost. That cost is certainly worth it to keep out more innovative, nimble companies.

Instead of fighting guardrails, the giants’ lobbyists are helping Congress draft them.

Politicians complete this unholy trinity. They pose as people working to save humanity from Skynet while their donors get a legal monopoly.

The Donald says whichever nation leads on AI “wins.” Treasury Secretary Bessent says America needs more open models to counter China.

Politicians are doing what they always do: keeping their coalition paid and loyal. In Beijing, that coalition is the Party. In The Swamp, it's the donor class and the military-industrial complex. Of course, neither one of those answers to your grandchildren.

The Mirror Nobody Wants to Hold Up

If you line up both proposals in English, without their flags attached, they look remarkably similar.

China wants state officials deciding which models run and who gets compute. America wants federal agencies deciding which models are safe and who gets chips.

China wants to protect its champions from foreign competition. America wants to protect its champions from Chinese competition.

China accuses America of seeking an AI monopoly. America accuses China of stealing to break that monopoly. Stealing… you know, like Sam Altman, who stole the entire internet.

You can’t make this stuff up.

Two governments. One playbook. The only difference is enforcement. Beijing commands its tech sector. DC has to negotiate with its tech sector, which is why the sector writes so many of the rules itself.

Of course, The State loves this because every intervention creates a distortion. Then the market gets blamed for every distortion. As always, the "fix" is another intervention.

The sun never sets on this AI safety stuff!

Wrap Up

First, regulation protects industry (and the government’s tax base), not consumers. When DC builds guardrails, the megacap chipmakers and labs get a moat built by The State.

Second, that very intervention breeds clustered malinvestment. A trillion dollars’ worth of AI capex, tacitly blessed by The State, is exactly the kind of synchronized bet that ends with a big butcher's bill, if not an outright market crash.

Third, keep this lens handy. Every time you read the word “safety” in a policy story, ask three questions.

Who’s the Baptist?

Who’s the bootlegger?

Who’s writing the legislation?

If you can't find a bootlegger, keep looking. He's there.

The Journal wants you to believe this is a morality play: America, the shepherd, and China, the wolf.

But really, it’s two wolves fighting over who gets to eat you.

Then, this afternoon I went to pick up my wife and passed that same gas station. Now the sign read Regular 87: $4.39 per gallon.

This is something I’ve never seen before. Prices spike like this in a week or two…but in a day, holy cow. It was probably a “catch-up” adjustment. But it reflects the massive reduction in global refining capacity.

War… What’s It Good For?

The wars in Iran and Russia knocked out about 7% of global refining capacity. That’s a reduction of roughly 7 million barrels per day of gasoline and diesel fuel. And because, like oil, you can ship refined fuels anywhere, prices are soaring in the U.S. 

The national average is around $4.35 per gallon, so that’s probably the replacement cost for the station’s fuel.

According to GasBuddy.com, this isn’t the highest price we’ve seen this year. That was set back in May:

This is a damning chart. Gasoline prices have gone up over 40% since this time last year. And that hurts. But it isn’t just gasoline. Diesel prices are another issue I’ll get to in a minute. And giant retailer Costco just limited motor oil sales.

The Fuel Problem

We use about 400 gallons of gasoline per person, per year. That’s the average gasoline consumption for every man, woman, and child in the U.S. And when the oil price jumps $1.30 per gallon in a year…it adds $500 per person to the household bill. 

For a family of four, that’s an extra $2,000 per year just in fuel costs. And that’s not the only extra cost. Oil changes are up 40%, depending on where you live. 

Costco’s Kirkland 10-quart synthetic oil package jumped from $35.99 in December 2025 to $57.99 today. That’s a 61% increase in a standard oil change. 

Another area that will hit U.S. consumers this winter is heating oil. It just broke all-time highs:

But that’s just what the consumers feel directly. Another, more subtle cost increase comes from diesel. It continues to hit all-time highs.

A gross estimate of the impact of high diesel prices is that every $1.00/gallon increase adds about $120 million per day. That works out to be about $44 billion over a full year. And that’s just the extra cost of fuel for transportation companies like UPS, FedEx, J.B. Hunt, etc. 

And don’t for a second believe that they will eat those costs and save us the expense. We call that “inflation.” And I expect it to continue for at least another 12 to 18 months. You simply can’t restart wells and rebuild oil infrastructure in any less time. 

We also face a major oil shortage over the next year or more. The International Energy Agency (IEA) published a September Outlook that projected a 5.7 million-barrel-per-day supply cut. That’s almost a 10% drop in global supply. 

However, here in the U.S., the oil continues to flow at record levels. You can see in the chart below. That’s where investors can hedge against higher gasoline and diesel prices. 

We could easily see a record high in crude oil prices before the end of the year. And we’re already seeing all-time highs for refined fuel prices.

Wrap Up

We can use this to our advantage in two ways.

First, buy domestic refiners like Valero (NYSE: VLO) or Phillips 66 (NYSE: PSX). An easy way to play refining is to buy the VanEck Oil Refiners ETF (NYSE: CRAK). 

A second way to play this whole process is to buy integrated super-majors like ExxonMobil (NYSE: XOM) and Chevron (NYSE: CVX). These are the largest U.S. oil producers. They also own their own refiners. The final way to play this trend is the State Street SPDR Oil & Gas Exploration and Production ETF (NYSE: XOP). 

These sectors are already moving up quickly. The best way to hedge our costs at home is to own the companies that will make a fortune.