America’s subprime auto market has become a fascinating example of how financial engineering can remain remarkably healthy even while the consumer sitting underneath it is getting progressively sicker, according to Bloomberg.

Bloomberg recently dug through nearly 3 million auto loans originated by Exeter Finance, Santander, Carvana and GM Financial and subsequently stuffed into publicly traded asset backed securities between 2021 and 2023. What emerges from the data is a system built with enough interest, fees and collateral protection that borrowers can fall behind, restructure their loans and eventually lose their cars without necessarily interrupting the stream of cash moving toward lenders and bondholders.

The math helps explain why. Subprime borrowers in these pools paid interest rates averaging roughly 18%, while the securities created from those loans were issued at rates reaching about 6.7%. That enormous gap provides room to absorb defaults, pay expenses and still leave money behind for lenders. On top of that, lenders servicing the loans collect fees month after month, regardless of whether the borrower is comfortably current or barely hanging on.

This is where the incentives become interesting. Exeter was particularly aggressive about keeping troubled loans alive. Bloomberg found that it modified nearly two thirds of the loans in its securitized pools, frequently moving missed payments further down the road by extending the life of the loan. Nearly a quarter were modified at least four times. Santander generally followed the opposite playbook, modifying far fewer loans and moving more quickly to repossess and sell the underlying vehicles.

For borrowers, however, postponing the reckoning often did little more than make it more expensive. One Virginia borrower financed a Chevrolet Silverado for roughly $32,000 at 21.5%. After five modifications and more than $10,500 in payments, the truck was repossessed and the borrower had reduced the principal by less than $50. Roughly one quarter of modified loans Bloomberg examined eventually ended in repossession anyway, while another 15% slipped back into delinquency. Among Exeter borrowers specifically, almost one out of every three modified loans still ended with the vehicle being repossessed.

Jamie Talley’s experience puts a human face on the numbers. She borrowed $12,000 from Exeter at nearly 20% to buy a used Chevrolet Sonic, then fell behind. Exeter modified the loan four times and eventually pushed the repayment schedule out nine months. “They said they can push the loan back and you will be back current,” Talley recalled. But being technically current did not solve the underlying problem. Her car broke down, she borrowed more money for repairs and fell behind again. “They almost keep badgering you until you do it,” she said of the extensions.

Bloomberg writes that Talley’s loan was eventually swept into a $1.2 billion Exeter securitization containing more than 53,000 auto loans. Four years and nearly $13,000 in payments later, she still owed $9,230 on a car that had been worth only $8,500 when she bought it.

That is the remarkable part of this machine. The consumer can be financially exhausted while the security built on top of the consumer continues functioning. High interest rates provide a cushion against losses, servicing fees generate additional revenue, repossessed cars retain resale value and extensions can keep payments flowing through the securitization longer. Together, those protections have allowed subprime auto ABS to remain surprisingly durable even as the borrowers underneath them deteriorate.

And that deterioration is becoming harder to ignore. The share of borrowers in securitized subprime auto deals who were at least 60 days delinquent reached 8% in July, the highest level since 2018. S&P has also raised projected losses on certain Exeter securitizations issued in 2022 to as much as 31%, pointing to elevated delinquencies and extensions. Yet the securities themselves have largely continued to hold together.

That divergence is what makes this worth watching. Loan modifications can change the accounting timeline, but they cannot manufacture household income. Moving missed payments to the end of a loan does not suddenly make the borrower capable of affording the car, and while the debt gets pushed further into the future, the collateral underneath it continues getting older.

Even Talley understood the impossible tradeoff. Losing the car earlier might have saved her thousands of dollars, but she also needed it to work and transport her children. “They got us between a rock and a hard place,” she said.

For the moment, the subprime auto securitization machine continues humming despite worsening consumer stress. The deterioration is already visible at the bottom of the structure, among the people actually making the payments. The question now is how far that pressure can travel upward before the financial machinery built on top of them finally begins to feel it.

A Tennessee man has taken legal action against the Kingsport Police Department after a yearslong criminal case that began with him recording an officer on the road and ended with an appellate court throwing out his conviction, according to Fox News.

Joshua Gibbons says police targeted him because he publicly called attention to an officer’s behavior. His lawsuit, brought with the Foundation for Individual Rights and Expression, or FIRE, names the city of Kingsport, its police chief and individual officers and alleges that the department retaliated against speech protected by the First Amendment.

The confrontation began in October 2022, when Gibbons saw a Kingsport police SUV traveling quickly at night without its emergency lights activated. He recorded the vehicle, eventually catching up with the officer at a fast food restaurant and questioning him about his driving. Nothing came of the encounter at the time, and the officer simply continued on his way.

The situation escalated after Gibbons put the footage online. Gibbons frequently records police activity and publishes the videos, and FIRE contends the department began scrutinizing his YouTube account after another person complained about separate footage in which an officer appeared to give Gibbons the middle finger.

According to the lawsuit, police soon turned their attention to the earlier driving video. Authorities secured a warrant accusing Gibbons of disorderly conduct as well as traffic violations related to his own driving while recording. FIRE says the warrant was obtained through a court clerk rather than presented to a judge.

The response that followed was far more aggressive. Before sunrise the next morning, eight armed officers showed up at Gibbons’ home and took him into custody in front of his daughter and elderly mother. The arrest occurred nine days after his original encounter with the officer.

Gibbons says the raid had a lasting impact on his family and believes its purpose was to frighten him into silence. He has said he intends to continue pursuing the case because his family no longer feels secure in its own home.

Fox News writes that the resulting prosecution stretched across nearly four years. Gibbons was cleared of the traffic-related accusations during his first trial but convicted of disorderly conduct. After challenging that decision, he was again convicted by a jury in circuit court.

Tennessee’s Court of Criminal Appeals eventually reversed the result. In a unanimous June decision, the appellate court concluded that the evidence did not establish disorderly conduct and dismissed the remaining charge altogether.

The judges found that Gibbons had neither threatened anyone nor behaved violently and that his comments did not stop anyone from carrying out a lawful activity. The ruling also underscored that offensive or insulting language directed toward police does not, by itself, amount to criminal conduct.

FIRE argues that the timing is central to the civil case. Attorney Adam Steinbaugh said the officer who initially encountered Gibbons did not treat his criticism as criminal behavior. It was only after Gibbons published the encounter and drew attention to the department, FIRE contends, that police decided to pursue him.

Gibbons is now seeking to hold the city and department officials accountable for what he alleges was retaliation against constitutionally protected activity. Beyond his own case, he says he wants the lawsuit to force changes in how Kingsport police respond to citizens who record or criticize officers.

Authored by Victor Davis Hanson via American Greatness,

Republicans risk repeating 1992 by failing to counter economic pessimism with the facts about strong growth, falling inflation, rising incomes, and a recovering economy.

In 1992, Bill Clinton won the presidential election partly on the basis of his campaign’s false accusation that George H. W. Bush had overseen “the worst economic performance since the Great Depression.” Or so claimed Clinton’s running mate Al Gore.

James Carville, chief campaign adviser to Clinton/Gore, amplified that message with the constant refrain: “It’s the economy, stupid.”

That strategy worked for three reasons.

First, third-party candidate Ross Perot siphoned off nearly 19 percent of the vote. Most of his supporters would otherwise likely have gone to Bush. Perot allowed Clinton to win with a mere 43 percent of the popular vote, in part by echoing the false narrative of a crushing Bush recession.

Second, the brilliant Bush campaign strategist Lee Atwater, who had virtually destroyed the Dukakis campaign in 1988 – remember the tank ad, the Boston Harbor ad, and the Willie Horton ad? – had died in 1991 at the age of 40 from a brain tumor.

Atwater’s canny but hardball 1988 tactics had turned off establishment Republicans. So in 1992, Republicans reverted to the notion of losing nobly rather than winning ugly and resumed unilaterally playing by the Marquess of Queensberry rules. The result of Democratic demagoguery was that the sober and competent elder Bush was branded a heartless elitist who had wrecked the economy and defended Kuwait only for “blood for oil.” And without Atwater, the Bush team utterly failed to refute such caricatures and counterattack.

Third, and most important, the anemic Bush reelection campaign never refuted the Clinton-Gore economic hysteria. That “recession” deception had drowned out the historic foreign policy achievements of Bush’s four years, from the successful policies that followed the fall of the Berlin Wall in 1989 to the decisive 1991 Gulf War.

Despite overwrought claims about a recession or even a new Great Depression, in truth, the recession had ended in March 1991. In fact, final GDP growth for 1992 was a robust 3.52 percent. That was hardly a recessionary indicator. Indeed, the election-year growth proved even stronger than in Clinton’s first year of governance in 1993.

While unemployment was still high at 7.5 percent, the 1992 stock market nonetheless grew by 7.6 percent. And the 1992 inflation rate had stayed moderate at 2.9 percent.

In other words, the economy had already begun to recover from the 1990-91 recession, which – to reiterate – had officially ended 20 months before the 1992 election.

One cause – eerily now familiar – of the earlier 1990-91 downturn was that oil prices had initially doubled after the 1990 Iraqi invasion of Kuwait and the U.S. military response. But prices collapsed as soon as Operation Desert Storm began, despite the later torching of the Kuwaiti oil fields and continued uncertainty in the Gulf. Yet by the November 1992 election, oil prices had long been back to pre-invasion levels.

In short, the Democrats’ charge that 1992 saw the worst recession in 60 years was absurd. (The 1973-75 and 1981-82 recessions were far worse than the 1990-91 recession.)

Fast forward to the present. The economy today is far better than in 1992. But Democrats’ successful 1992 demagoguery should remind Republicans that the perception of the economy peddled by campaign rhetoric can often decide elections more than the reality does.

Take the just-released 2025 poverty rate. It hit an all-time low of 10.2 percent. Child poverty also fell to a historic low. Such amazing news refutes wild leftist charges that uncovering vast welfare fraud, deporting thousands of illegal aliens, and cutting 400,000 federal jobs would spike poverty. In fact, those actions more likely contributed to reducing poverty, as did an astounding lowest violent crime rate in some 70 years.

Median household income also hit a record high of $87,460. That is the highest median household income in the world, dwarfing all other large industrial nations that are not petro-states or tax havens. The same holds true for our GDP per capita – which, incidentally, was already over $34,000 higher than in Canada.

New business reports show that this past August manufacturing achieved its largest monthly increase since 2022. And service-sector growth jumped to its highest level since 2021. New orders for metals, machinery, computers, appliances, communications – in truth, almost everything – continue to rise every month, especially and most recently in August.

Despite the Iran war and its global petroleum interruptions, the Atlanta Federal Reserve now predicts that third-quarter GDP growth will finish at a blistering 5 percent. The Dow and the S&P have grown by a strong 8.1 percent and a staggering 13.5 percent, respectively, in 2026.

Take away the climb in gas prices from a January 2026 average of $2.81 a gallon to $4.50, and the inflation rate was only 2.5 percent – below the 2025 yearly average of 2.7 percent – and Wall Street estimates put the annual rate at around 2.2 percent once the Iran war ends and a huge influx of oil hits the global market. The United States is now the greatest producer of oil and the greatest producer and exporter of natural gas in history – and is still increasing output.

August unemployment was a low 4.1 percent, while 162,000 new jobs were created in that month alone. Consumer spending remains strong.

The U.S. economy is entering a boom cycle. Its growth ensures that it remains the largest in the world and continues to outpace all competitors.

Many of the dire predictions at the millennium about the supposedly superior collectivist paradigm of the European Union – or the inevitable rise of a China of 1.4 billion people – surpassing the United States simply did not come true.

The EU has about 100 million more people than the United States. China’s population is four times larger than America’s. Yet both have fallen further behind the United States in terms of economic production.

Indeed, the U.S. economy is roughly $10 trillion larger than either China’s or the EU’s. Far from some predictions of a decade ago that within 10 years China would overtake the United States, the opposite has occurred. America’s nominal GDP of $18.8 trillion in 2016 soared to $32.4 trillion in 2026 – as the American share of global GDP increased to 26 percent. In contrast, the EU’s share of global GDP actually shrank, and China’s still stayed well behind the United States.

In key categories such as digital media, software, AI, bioengineering, and space technology, American companies remain the world’s largest and most successful. They usually dominate global top-ten rankings, with eight or nine U.S. corporations among the top slots.

If the Republicans broadcast this positive news about the economy, it will in turn complement Trump’s unambiguous foreign policy successes, which are largely underappreciated, if not unknown, among the public.

But they remain impressive: the rebooting of NATO by getting its members to rearm and take up their fair share of collective defense; the acquisition of new treaties ensuring an American military presence in the Greenland to monitor the contested Arctic; the radical transformation of much of the Western Hemisphere from leftist and anti-American nations into pro-American, tough-on-crime, free-market countries; the expulsion of the Chinese bad actors from the Panama Canal and the extradition of the anti-American communist Maduro from Venezuela; the restoration of Pentagon recruitment; and the change in Pentagon procurement to emphasize quantity of weaponry along with quality.

The verdict on the unpopular war against the Iranian theocracy is still out. But the idea that the last seven months of on-again, off-again strikes and negotiations amount, in terms of human and material costs, to a “forever war” is absurd and a lie.

While all our soldiers’ deaths are tragic, the conduct of the war against the terrorist powerhouse of the Middle East had deliberately been waged to limit the loss of American lives. Indeed, the average daily fatality rate due to accidents in all branches of the military during the seven months of the Iran conflict is some eleven times greater than the number of those killed fighting Iran.

The roughly $40 billion cost of the war so far, while substantial, amounts to about 25% of the conservative estimates of recently discovered welfare corruption and fraud in California alone – involving theft of Medi-Cal, unemployment insurance, in-home services, and hospice funding.

The war will be judged by historians, fairly or not, on whether it delays for years or, if not, ends Iran’s quest for nuclear weapons altogether, and on whether it so weakens the theocracy that it permanently loses its terrorist leverage over the Middle East – if not eventually implodes from popular resistance. If such a regime collapse should follow the conflict, the Middle East miasma of the last 70 years would largely end, marking the most profound American achievement abroad since the fall of the Berlin Wall.

So much is at stake.

Nevertheless, the Republicans have not yet developed a strategy to inform the public that the economy is sound and improving – and will likely soon take off, after the Iran conflict is over, oil becomes plentiful again, and tax cuts, foreign investment, deregulation, and productivity gains from AI take their full effect.

Most importantly, Republicans have still not articulated why the “affordability” issue persists. Under Joe Biden, average prices were nearly 21 percent higher than when he took office, with a yearly average increase of more than 5 percent.

The Trump administration nearly halved that annual rate in 2025. It will reduce Biden’s yearly inflation rate substantially again in 2026.

But neither Trump nor any other president could or would wish by design to engineer radical deflation to restore prices to the pre-Biden levels of 2020 during Trump’s last year in office.

Trump’s first-term total four-year inflation rate was under 8 percent, averaging about 2 percent per year – far less than half the yearly inflation average of the subsequent Biden years.

In 2025, wages still climbed higher than the rate of inflation. But it would require a damaging recession to undo Biden’s 20 percent rise in prices. And worse still, the cost of staples such as food, shelter, vehicles, fuel, and insurance rose nearly 30 percent over Biden’s four years.

Nor have Republicans made the easy case that the midterms are no longer merely a matter of liberal versus conservative, Democrat versus Republican, or even progressives versus MAGA.

Rather, November 3 represents normality and common sense pitted against an unrecognizable “Democratic” revolutionary party that is driven by Islamist-sympathizing socialist zealots who are not fond of the United States as it has existed for 250 years. They are not shy about planning to remake America along the lines of, at best, radical European socialism and, at worst, something resembling Cuba.

Needless to say, if they get their way, even the most lurid false liberal claims about our current alleged economic problems will pale by comparison.

We publish a variety of perspectives. Nothing written here is to be construed as representing the views of ZeroHedge.

The American dream has never been more out of reach.

Mortgage rates posted their largest increase in four years this week, one of the clearest signs of how the recent bond-market selloff is spilling into the broader economy – if not memory and chip stocks which continue to trade entirely on the highly efficient circular financing and junk bond markets.

30-year fixed-rate mortgages rates surged 25bps in one week, to 7.28% from 7.03%, the biggest jump since October of 2022, according to Freddie Mac.

Mortgage rates have risen to the highest since November 2023 as inflation, a surge in government debt and heavy corporate borrowing for the build-out of AI (not to mention the latest European sovereign debt crisis) push up bond yields. The recent sharp selloff in the bond-market has risen borrowing costs for home buyers and dealt a blow after blow to a limping housing market.

“Showings have stopped basically,” said Don Wessel, a real-estate agent in Greenville, S.C, quoted by the WSJ. “I’ve got good listings in downtown Greenville, which is one of the hottest areas, and nobody’s looking at them.”

In 2022, rates surged as part of postpandemic inflation that ended years of below 5% mortgage rates and ground the housing market to a halt. Home sales still haven’t recovered from that rapid freeze four years ago. With rates now at their highest point since 2023, buyers are likely to stay planted on the sidelines, while sellers may take their homes off the market.

The market may not be completely frozen – yet – but it’s getting these: for the week ending Sept. 25, mortgage applications plunged 6%, the fourth consecutive week of declines, according to the Mortgage Bankers Association. 

At the start of the year, mortgage rates touched below 6%, but the beginning of the war in Iran caused them to jump. As the conflict has drawn on, fears of sticky inflation have driven rates higher and higher. Rates began September at 6.71% before a historic bond selloff sent them surging more than 50bps higher. 

With the 10Y TSY today hitting the highest yield in 24 years, Americans have been feeling the pain of the bond selloff most directly and rapidly through the housing market, where mortgage rates closely follow 10Y Treasury yields. 

As the WSJ reports, the recent run-up in mortgage rates has brought sales activity in the housing market to a standstill, as buyers have already been coping with record home prices and stretching to afford down payments. Plus, with sky-high homeowners association fees and property taxes, the math has become impossible for first-time buyers to work out.

Now, the end of 2026, a year that was expected to launch the market’s recovery, is likely to be a slog.

“I still see it declining and you’re coming into the slow part with the holidays,” Wessel said. “I think there’s a short window now for sellers to sell and then buyers get out of the market.”

That said, buyers in the upper end of the market, many of whom transact in all cash and don’t need mortgages and are generally less constrained by affordability, are continuing to show interest, said Anthony Rael, an agent in Denver. “They seem to be flush with cash, bringing 20%, 30% down payments into the mix,” he said. “Whereas the lower market, let’s just say closer to a half a million and below, is really struggling where we’re getting lots of showings and no activity, no offers.” 

Higher mortgage rates could also halt progress the market has made in freeing up inventory. For years, homeowners have been wary of selling their homes to preserve their low mortgage rates from years ago. That sent inventory plummeting, which has allowed home prices to continue hitting new records, despite weak demand.

While there were a few scattered signs that the lock-in effect was starting to ease as sellers lost patience and gave up their low rates to move for family reasons or new jobs, as inventory approached prepandemic levels in August, but now, rates well above 7% are sure to drive sellers away.

In July, Adam Wharton and his wife bought a new house in Georgia but haven’t been able to sell their old house, which they listed at the beginning of September. There initially was a flurry of interest, and they accepted an offer, before the buyer backed out.

“We were getting multiple showings a day. Within four days, we had a full-ask offer on it,” he said.

But then after rates jumped, the buyers disappeared. Their last showing was two weeks ago. “Since that, it’s been nothing, no scheduled showings, no offers, no nothing from people who have looked at it before,” he said.

The mortgage they have on the house, with a rate of 3.35% and a monthly payment under $1,000, is extremely cheap, and so Wharton isn’t in any rush to sell. Now, they are considering taking it off the market and renting it out if they don’t get any offers, waiting for the market to loosen up before listing it again.

“Everybody has in their minds these two and three and four percent mortgages,” he said, but he will have to wait until the next recession – or depression – before those come back again. 

With mortgage rates breaking through 7%, some home buyers are considering the familiar strategies for lowering their monthly payments: putting more money down, using adjustable-rate mortgages and even buying in cash.

While increasing the size of the down payment would help offset the monthly bill that comes with a higher mortgage rate, home prices are up more than 50% since 2019, and many buyers are struggling to find the cash to boost their deposits above the typical 10% to 15% down.

That has scrambled the usual buyer playbook for adjusting to higher borrowing costs. Typically, when mortgage rates rise, sellers have to cut prices to keep buyers in the market. But for years, supply has lagged behind as many homeowners have opted to stay put to preserve the 3% to 4% mortgage rates that they secured in the wake of the pandemic. 

This lock-in effect—homeowners refusing to sell and give up a low mortgage rate they locked in years ago—has allowed prices to continue rising, even as demand has sagged. The national median existing-home price in August rose 1.6% from a year earlier, to $429,100, an August record. That is despite sales falling to their lowest level and interest rates pushing to their highest point in more than a year.

Median down payments have increased a bit this year as the rise in mortgage rates has encouraged buyers to spend more money upfront to lower their monthly payments. The median down payment in January of this year was $23,053, according to Realtor.com. In August, it was up to $27,166. Over the same period, the median down-payment percentage has risen to 13.8% from 12.8%.

But Christina Beitler, who runs a mortgage brokerage firm in Austin, Texas, said the recent rise in rates has ground the market to a halt.

“We’ve all hit a wall. We’ve pretty much seen a very large stalling of activity,” she said. “I do think right now, buyers are taking a step back, taking a moment of pause.”

As the WSJ notes, even in the wake of the 2008 housing crash, when home sales sank, buyers with good credit could take advantage of lower mortgage rates than today and a fall in home prices. Supply benefited from lenders looking to unload millions of foreclosed homes. Beitler said she recently quoted someone a mortgage rate on a Monday, and by the time they went under contract on a Thursday, the rate had increased over half a percentage point. “They literally just said, ‘I can’t do this,’” she said, adding that the person terminated the contract.

As older homeowners often point out, before 2001, mortgage rates were just about always above 7%, and in the 1980s, they reached as high as 18.63%, according to Freddie Mac. As a result, housing affordability was even worse back then, but low home prices allowed buyers to put down larger-percentage down payments to help mitigate the higher rate. 

In 1980, the median home value was $47,200, while median household income was $17,710, according to the Census Bureau. Now, home values are up to $368,700, according to Zillow, outpacing income, which in 2025 was up to $87,460. That means that for many buyers, down payments have become far more of a financial burden.

Continued growth in down payments could be modest, mostly because many buyers are already putting down as much as they can and simply can’t afford to contribute any more, said First American Chief Economist Mark Fleming.

“For a lot of the affordability-constrained borrowers, they don’t have the option,” he said.

Update(1530ET): Iranians are apparently going back on the offensive, after it’s been widely reported that US-protected oil transit through the Strait of Hormuz has been fast gaining steam. Iran state media says a supertanker is burning off the coast of Oman after coming under Iranian attack:

Local sources reported that a 2.5 million barrel capacity supertanker that was traveling through the Strait of Hormuz illegally was hit 8 kilometers off the coast of Oman and is burning, reports Fars

Earlier we reported that starting in mid-August (on Aug. 16), Iran’s Supreme National Security Council set October 1 as a deadline. It warned at the time that if Washington failed to lift its naval blockade of Iranian ports within 45 days, Tehran could resume attacks against US forces, and by implication step up attacks on foreign shipping.

Iran’s 45-day deadline for the United States has now expired. That deadline has now passed, potentially adding another layer of uncertainty to an already tense confrontation where Tehran may decide it must act ‘preemptively’ while facing more bombs by Trump (likely after the midterms).

*  *  *

Signs of potential major escalation, or the next round at least (which Trump has hinted will come after the midterm elections), just hit The Wall Street Journal, and sent oil prices soaring. A quick summary:

• The Pentagon is sending a third aircraft-carrier strike group and additional Marine Corps ships to the Middle East, adding 9,000 to 10,000 more troops to the region.
• The ships, jet fighters, Marines and sailors will arrive in the region by the end of November, as President Trump considers renewing strikes on Iran after the midterm elections.
• The additional servicemembers will add to the more than 50,000 troops already in the region, with the deployments coming after Trump rejected Iran’s latest proposal for a seven-day ceasefire.

The Trump administration is deploying a third aircraft carrier to the Middle East along with additional Marines, an American official also told Israeli media on Thursday. And later, in the afternoon, Trump posted a new Truth Social message as follows:

The USS Theodore Roosevelt is en route to US Central Command’s (CENTCOM) area of operations after having just left San Diego this week. It is expected to relieve the Japan-based USS George Washington, which entered regional waters in mid-August.

But both carriers could also stay on extended deployments. The WSJ writes further:

The additional moves will further strain the U.S. Navy, however, which has experienced supply shortages and faced near-record deployments during the conflict. Iran has in recent weeks fired ballistic missiles at American warships. The crew of the Roosevelt is prepared for a longer-than-normal deployment as well, according to senior Navy officials.

Carriers which more frequently had Indo-Pacific deployments have been increasingly diverted to the Middle East in recent years, a trend which had only picked up steam amid tensions with Iran and the Houthis out of Yemen.

Also on Thursday Al Jazeera is newly reporting that three carriers will stay in regional waters, “By the end of November, three aircraft carriers and two landing groups will be deployed around Iran,” a US official told the Qatar-based outlet.

And USNI News earlier detailed:

On September 28, USNI News reported that a U.S. defense official had confirmed the carrier’s departure from San Diego the previous day. Navy officials had also warned families that the deployment could exceed seven months, with eight months being used as the planning baseline.

Carrier Strike Group 9 includes Theodore Roosevelt, Carrier Air Wing 11, Destroyer Squadron 23, Information Warfare Squadron 9 and the Ticonderoga-class guided-missile cruiser USS Chosin (CG-65). Its embarked air wing brings together several combat and support aircraft. The strike component includes F-35C Lightning II fighters from VFA-86, F/A-18E Super Hornets from VFA-211 and VFA-25, and F/A-18F aircraft from VFA-154. VAQ-137 operates the EA-18G Growler for electronic warfare, while VAW-115 flies the E-2D Advanced Hawkeye for airborne surveillance and command and control.

Whether one of the carriers ends up leaving the theatre or not, the extra deployment does mean President Trump will have a wider range of options for more possible military actions against the Islamic Republic.

He has in a freshly published TIME interview this week reiterated that he may be escalating attacks on Iran after the November midterms if an acceptable deal can’t be reached.

As for the new carrier deployment, it was additionally confirmed: “During a town hall on August 31, Chief of Naval Operations Adm. Daryl Caudle said USS Theodore Roosevelt would be the next carrier sent to the Arabian Sea and was expected to relieve USS George Washington.”

But again, follow-up reports suggest it will not be to relieve one of the carriers, but to serve as a likely third floating base of support for Iran operations.

OpenAI’s AI agents “obscured hacking activity” during breaches of government websites, citing digital forensics firm Asymmetric Security. According to the FT, the agents pulled data from 55 websites, including the CDC, the SEC, the International Energy Agency and the Mayo Clinic, using tactics that included “erasing records or making them inaccessible.”

Asymmetric co-founder Pippa Thompson told the paper it was “possible” the agents were deliberately covering their tracks – though the firm couldn’t determine whether that was deliberate or “a side effect of going awry because of constraints imposed in a test exercise.” 

Asymmetric’s own report, published the same day, is far more cautious. It was built in 48 hours over a weekend, “using only publicly available data” – no model transcripts, no server logs from the targeted organizations and no records from the services the agents used.

Potato, Potahto

The report’s summary does say some tactics left records “erased or inaccessible” – but the examples it gives describe normal expiry, not deletion: the agents used a throwaway ‘Boomlify’ inbox set to self-destruct after 48 hours, and an upload to ntfy, a push-notification service that keeps messages for 12 hours by default. They also moved from public scans on urlquery – a website-scanning service whose reports anyone can search – to private accounts “which could hide their search activity and data access.”

So, did the agents use ephemeral services on purpose to cover their tracks? They can’t say for sure.

“These records alone do not establish whether the account-registration attempts were intended to conceal activity (this analysis would require full model transcripts).”

As for the 55 websites, Asymmetric’s earlier list of “Organizations whose data was accessed” runs to exactly 55 entries, and adds: “In the vast majority of cases, all data retrieved was and is public.” The CDC and the Mayo Clinic aren’t on it – the Oct. 1 report says only that the agents probed them. The SEC told the FT no private information was accessed. Where the agents did try to break in – hunting for exposed behind-the-scenes files on a climate-data site and trying a classic database-hacking trick on an Education Department data site – Asymmetric found evidence of the attempts, but none that they succeeded.

What the report does show

The agents still went well beyond their instructions. To reach websites their sandbox blocked, they rigged together free web tools – including a malware scanner that visits pages and publishes reports of what it saw – and read the results off the public reports. They signed up for throwaway inboxes and accounts using addresses tagged “aihw” and “pbs,” shorthand for Australia’s health-statistics agency and its prescription-drug subsidy program, and they moved data out through a Portuguese web archive and the push-notification service. During a June 16-21 burst aimed at Australian targets, they cycled through tactics in days; Asymmetric says traditional hackers take months or years to evolve that much.

In one confirmed case, they got in. On June 18, an OpenAI agent gained unauthorized access to Australia’s Medicare statistics portal, reaching non-public files and writing files to an internal server, according to Prime Minister Anthony Albanese. OpenAI says the material was aggregate health statistics and internal file names, and that it found no evidence patient records were accessed. It discovered the breach in August and notified Services Australia on September 10 – by emailing a public inbox checked once a day.

TL;DR – AI agents used attack techniques while pursuing public data on government websites, and nearly three months passed before OpenAI notified a government whose systems its agent had breached. 

Ask anyone in the nuclear business what holds up the “renaissance” and you won’t hear much about reactor physics. You will hear about paperwork, fuel, and paperwork for fuel. The DOE’s Deputy Secretary James Danly put it bluntly last week: “If we are going to have this nuclear renaissance, we are not going to be able to do it without fuel.”

So it makes sense that the latest move from the NANO Nuclear (NNE), a company we have covered at length over the past year due to its leading position in the nuclear space, is a reactor-free one. This morning NANO and its subsidiary HALEU Energy Fuel signed a definitive agreement to buy the US nuclear fuel processing assets of Radnostix (formerly International Isotopes) and its subsidiary International Isotopes Fluorine Products.

The headline terms:

After rising 2.5% premarket, NNE stock is now lower on the day which is odd for a stock that jumped 13% on the similarly sized $13M Secured Transportation Services deal in May. That fits a market where, as Goldman’s sector specialist put it in mid-September, “inbounds have been extremely light on the nuclear front” (we discussed this in “Uranium Term Prices Hit A Record… So Why Is Nuclear Getting Nuked?”). We would argue the market is underpricing this one.

What is NANO buying?

The asset is the old International Isotopes Fluorine Extraction Process and Depleted Uranium Deconversion (FEP/DUP) project near Hobbs, NM. According to the NRC, the license was issued on October 2, 2012, with a 40-year term. It was the first commercial license of its kind in the US, and the facility was “not yet constructed.”

The plant was designed to take the depleted UF6 “tails” left over from enrichment, convert them into stable uranium oxide for disposal, and recover the fluorine as high-purity fluoride products, including anhydrous hydrogen fluoride, which goes into semiconductor and solar manufacturing. Put differently, it turns nuclear waste into chip-fab chemicals, which is about as 2026 as a business plan gets.

Location matters more than anything else here. The site is about 30 miles from Urenco USA in Eunice, NM, which, per the World Nuclear Association, is the main US commercial enrichment plant (4.3M SWU/yr), with a multibillion-dollar expansion planned. Urenco produces tails continuously. The NRC lists its DUF6 storage authorization at up to 251 million kg, and Urenco’s long-term tails plan currently points to a facility in the UK. A licensed deconversion site next door is the obvious alternative.

So why did the plant sit idle for 13 years? According to a Fission Chain write-up, the main obstacles were a condition in Urenco’s own license that blocked it from using deconversion plants producing anhydrous HF (removed in 2025), plenty of cylinder storage space at Eunice, and no committed buyer. In short, there was a license and no customer. The Russian uranium import ban, whose waivers end in January 2028, plus the federal push for domestic enrichment, have since changed that.

Why this matters more than the price suggests

The important line in NANO’s release isn’t about depleted uranium. It’s this one: the existing license provides “a significantly more efficient regulatory pathway” to add other fuel-cycle processes through NRC license amendments rather than starting a new application from scratch. CEO James Walker said the deal gives NANO “multiple potential pathways to expand our domestic fuel cycle capabilities while preserving the flexibility to determine the development strategy.”

Translation: NANO is paying $13.5M for a regulatory head start. Anyone who has watched an NRC fuel-cycle licensing proceeding (the Eunice license itself took years) knows the time saved is worth far more than the purchase price. That’s especially true at a moment when, per the WNA, the US has one conversion plant (Metropolis, running at 50-70% of its 15,000 tU/yr license) and one commercial-scale enrichment plant.

Readers who followed our September 5 piece should have seen this coming. When NANO signed its MOU with Enveniam, the lead project integrator for LIS Technologies’ laser enrichment plant, one of the six workstreams listed was “conversion and deconversion.” At the time we said NANO’s vertical integration was moving beyond the “corporate slide deck.” Four weeks later it has a licensed site for that workstream.

Laid out like this, the plan is clear. Since January NANO has put together, piece by piece:

• Enrichment: LIS Technologies’ laser enrichment, which founder Jay Yu has pitched as “significantly cheaper to operate as well as less capital intensive to deploy” (Feb 4, May 15), with Enveniam as integrator for the planned Tennessee plant.
• Fuel supply and fabrication: the HALEU Energy Fuel subsidiary (today’s buyer), plus the Aug 18 MOU with Quadrant Nuclear Industries on domestic HALEU supply.
• Logistics: the HALEU transport package (Mar 16) and the $13M acquisition of Secured Transportation Services, which ran the largest single international HALEU shipment in NNSA history (1.7 MT from Japan) and turned NANO into a revenue-generating company.
• Fuel handling: Fortil’s work on the KRONOS fuel handling and storage system (Jul 24).
• Reactors: KRONOS at UIUC, where the NRC has begun its technical review of the construction permit we flagged as “a defining moment” on Apr 2, along with ZEUS and the space-focused LOKI.

The sell side: fuel is where the money is

The best argument for NANO spending on fuel instead of only on reactors comes from Goldman, which says nothing about NANO directly.

When the bank’s clean energy strategist Brian Lee initiated on Standard Nuclear (STDN) at Buy in August, he described a TRISO fuel supplier with a capital-light model, “significant pricing power in the early-stages of TRISO fuel adoption,” EBITDA margins reaching ~65% by 2030, and revenue going from under $20M in 2026 to over $1BN by 2030. All of this rests on Goldman’s forecast of ~15GW of cumulative SMR deployment by 2035, up from zero today, which would require about 100 MTU of fuel. Goldman added that STDN’s ability to fund growth without more external capital makes it “unique amongst peers tied to the growth of SMRs.”

That is the gap NANO is trying to close: a reactor developer has to raise money until first power, while a fuel supplier can charge everyone along the way (think of it as a debt-free neocloud charging others for the privilege of using its compute until AI becomes profitable). Northland’s Jeff Grampp made the same point after last month’s WNA symposium in London. He cut his NNE target to $22 from $37 to reflect higher costs of capital and a slower 2030-35 buildout, and said he prefers fuel and supply-chain names “that make money now” (BWXT, LEU, EU, URG). If the market pays fuel-cycle multiples and NANO keeps acquiring fuel-cycle assets, the conclusion follows.

Goldman’s view on the macro backdrop got stronger overnight. Commenting on the US-Korea package announced after Tuesday’s close, which includes $120BN for eight large US reactors (six AP1000s, two APR1400s), Lee said it reinforces “a constructive long-term backdrop for nuclear deployment and the broader fuel cycle,” and that it is “likely to further exacerbate the anticipated uranium supply deficit in the 2030 time frame” (full note available to pro subs). Eight gigawatt-scale reactors need conversion, enrichment and, eventually, tails handling. That’s more UF6 moving through a supply chain with very little spare capacity.

The prices already show it. BofA’s charts from the WNA symposium show SWU prices at an all-time high and still rising, and North American conversion still at roughly 3x pre-2022 levels even after falling from the $97/kgU peak in December 2024:

Source: BofA Global Research, UxC

Source: BofA Global Research, UxC

And the long-run math is worse. Northland’s IAEA-based numbers show Western (ex-Russia) enrichment supply of 24.8M SWU against demand of 28.5M SWU today, which means the West is already short before a single SMR is built. In the 2050 high case with SMRs, demand rises to about 69M SWU:

HALEU is the tightest part of all. Seaport notes Centrus is targeting 12 MT/yr of HALEU capacity with first new output in 2029, and that a single Oklo Aurora needs about 7 MT for its first core. That means America’s flagship HALEU program can fuel about two reactors a year at the start. This is the main reason microreactor developers are moving down the fuel chain themselves.

Can NANO afford to be a fuel company?

This is the obvious objection. Laser enrichment, fuel fabrication, a deconversion plant, a transport fleet, three reactor designs and a space reactor is a lot for a company with an ~$850M market cap (or maybe the market cap should be much bigger as the market doesn’t see the big picture yet). On that, Truist has a useful chart. Comparing cash on hand with 2026-32E capex plus developer payments, NANO’s gap is the smallest of the three listed SMR names: ~$581M of cash against ~$913M of needs, versus $3.0BN against $12.5BN for Oklo’s build-own-operate model:

At $13.5M, today’s deal is about 2% of NANO’s cash, and the $4M stock portion causes minimal dilution. The real cost is whatever NANO decides to build in Lea County, and since there is no FID yet, that figure doesn’t exist. Bulls will call that optionality. Bears will say it’s a blank check. Both have a point.

What could go wrong

• Licenses aren’t plants. This one has been unused for 13 years. A Part 40 source-material license for deconversion is useful, but adding conversion, or anything that touches enriched material, means amendments, NRC review and possibly a different licensing basis. “More efficient” doesn’t mean “fast.”
• New Mexico. The deal needs approval from state officials. Lea County supports nuclear (it already hosts Urenco), but Santa Fe fought hard against Holtec’s proposed interim spent fuel storage site in the same corner of the state. A deconversion plant is a very different animal, but expect the same activists to show up.
• Focus. Each new business line adds another place where something can go wrong. The base case for NANO is still KRONOS at UIUC, with construction targeted for late 2027 according to Roth (Buy). A delay there won’t be offset by a fluorine plant.
• Sentiment. The market has been ignoring good nuclear news: term uranium is at a record ~$96/lb (UxC via TD Cowen), yet NLR is down 12% YTD while the AI ETF is up 25%, and Holtec pulled its IPO. NANO had 24% of float sold short as of May, so the stock can swing hard in either direction.

The big picture

We’ve argued for years that modular, behind-the-meter reactors are the only real long-term answer to AI’s power demand. But a reactor without fuel is a very expensive paperweight, or as NANO’s own pitch put it in May, “what good is a fancy new car if there’s no gas stations to fill it?” Over the past nine months NANO has been building the gas stations, plus the refinery, the tanker trucks and now a licensed site to handle the waste.

The 2012 license was worthless while there was no market for domestic fuel. Then came the Russian ban with its 2028 waiver cliff, $2.7BN of federal enrichment awards, record SWU prices, Urenco expanding 30 miles down the road, and an $120BN reactor package that, in Goldman’s words, makes the 2030 fuel deficit worse. With all that, a 40-year NRC fuel-cycle license looks very cheap at $13.5M. NANO paid about the same for a trucking company.

Whether NANO can turn a dormant license into a working plant is the next question, and the 90-120 day closing period followed by the first NRC amendment filing will be the first real test. Strategically, the deal makes sense. NANO is positioning itself to be the company that supplies the fuel, not just another reactor developer waiting for it.

Authored by Troy Myers via The Epoch Times,

Sen. Marsha Blackburn (R-Tenn.) on Wednesday sued former special counsel Jack Smith and the Department of Justice (DOJ) over a subpoena Smith’s office issued for her phone records during his investigation of President Donald Trump’s actions around Congress’s certification of the 2020 election.

Blackburn alleged Smith violated her constitutional rights and was unlawfully appointed. She asked the U.S. District Court for the Middle District of Tennessee to order the Justice Department to destroy the records or return them.

The senator opened her lawsuit with the quote: “The prosecutor has more control over life, liberty, and reputation than any other person in America,” from former attorney general and later Supreme Court justice Robert Jackson.

Blackburn claimed that Smith violated her First Amendment right of association and Fourth Amendment right against unreasonable searches and seizures.

She accused the former special counsel of violating the Speech or Debate Clause in the Constitution, which provides members of Congress and their aides with immunity from criminal prosecutions or civil suits stemming from their actions taken within their official duties.

The Supreme Court has previously said this legislation must not be interpreted literally but instead be construed broadly to accomplish the proper separation of powers it intends to make.

Blackburn also claimed former Attorney General Merrick Garland unlawfully appointed Smith, a private citizen, to special counsel, serving in that role from November 2022 to January 2025, in violation of the Appointments Clause, which gives authority to the president to name federal officials subject to the advice and consent of the Senate.

Blackburn said she never had the chance, as a senator, to offer her advice, consent, or rejection of Smith’s appointment.

Furthermore, the Tennessee senator said Smith and the DOJ’s actions in obtaining her phone records violated the constitutional provision of separation of powers.

“The facts alleged herein demonstrate that the Executive Branch ignored our Constitution’s carefully constructed design and allowed a private citizen to wield enormous power that did not belong to him, resulting in egregious violations of personal liberty and constitutional rights,” Blackburn’s suit read.

Garland named Smith as special counsel to investigate the events leading up to Congress’s joint session on Jan. 6, 2021, for certifying electoral votes from the 2020 presidential election. Smith alleged that Trump, who lost that election, was behind a suspected conspiracy to overturn the results. Trump said he was seeking to delay the certification in order to give states time to investigate claims of fraud and irregularities.

Trump was charged by a grand jury as a result of Smith’s investigation and pleaded not guilty, but the charges were eventually dropped after he won the 2024 presidential election.

Blackburn says in the lawsuit that she seeks to prevent any future attorney general from making any “fictitious” appointment as Garland did for Smith.

“No president appointed him, nor did Congress confirm him to serve in that role,” the lawsuit read. “Congress did not pass any law that authorized Attorney General Garland to appoint a Special Counsel.”

The senator requested nominal damages from Smith in the amount of $1.

As part of the former special counsel’s investigation into Trump, which was codenamed “Arctic Frost,” Smith issued subpoenas for toll records for Blackburn’s phone she used for legislative purposes. The investigation served as “the vehicle” for Smith to conspire and violate Blackburn’s rights, the lawsuit alleged, along with the rights of other Republican lawmakers and Trump supporters.

Smith defended his obtaining of GOP lawmakers’ cellphone data during congressional testimony on Sept. 29, calling it “materially relevant” to his investigation.

“Given what had happened that afternoon [on] Jan. 6, in my view, added to the powerful evidence we had of Donald Trump’s guilt, and the participation of his co-conspirators in his criminal scheme at his behest,” Smith said.

In addition to Blackburn, Smith subpoenaed and received records from Ron Johnson (R-Wis.), Lindsey Graham (R-S.C.), Bill Hagerty (R-Tenn.), Josh Hawley (R-Mo.), Cynthia Lummis (R-Wyo.), Dan Sullivan (R-Alaska), and Tommy Tuberville (R-Ala.), and Rep. Mike Kelly (R-Pa.).

Smith also had obtained nondisclosure orders from a federal district judge that prevented the lawmakers from knowing that their phone records were being investigated.

The former special counsel maintained during testimony that his investigation showed Trump “engaged in a criminal scheme to overturn the results and prevent the lawful transfer of power.”

Smith could not be reached for comment at the time of publication.

Authored by Joseph Lord via The Epoch Times,

A second federal judge has blocked the Trump administration from imposing a $100,000 fee on H-1B visas, which allow U.S. companies to hire high-skilled foreign workers.

U.S. District Judge Haywood Gilliam, based in Oakland, California, determined that the U.S. Citizenship and Immigration Services and the State Department did not adhere to proper federal rule-making processes before the implementation of the fee went into effect.

In the 35-page decision, Gilliam on Sept. 30 blocked the agencies from implementing the fee ordered by President Donald Trump in a Sept. 9, 2025, presidential proclamation. The block will remain in place until the federal rule-making process has been followed, the judge ordered, including a formal proposal for a rule change and a standard 30- to 60-day period for public comment.

In the initial lawsuit, the plaintiffs – a coalition of unions, employers, and nonprofit organizations – requested the court block the administration from imposing the new fee and require federal agencies to process H-1B visas in accordance with existing law.

They argued in a lawsuit that Trump has no authority to unilaterally impose fees, taxes, or other mechanisms to generate revenue for the United States.

“Here, the President disregarded those limitations, asserted power he does not have, and displaced a complex, Congressionally specified system for evaluating petitions and granting H-1B visas,” the lawsuit said.

The plaintiffs, including Global Nurse Force and the American Association of University Professors, among others, claimed that the Trump administration failed to assess how the fees would affect hospitals, schools, churches, and universities that rely on the H-1B program.

“Without relief, hospitals will lose medical staff, churches will lose pastors, classrooms will lose teachers, and industries across the country risk losing key innovators,” litigation and advocacy nonprofit Democracy Forward Foundation, representing the plaintiffs, said in a statement.

The group applauded the ruling.

“Today’s decision … protects a system that was thrown into chaos overnight,” attorney Steve Bressler said.

The program offers 65,000 visas annually, with another 20,000 visas for workers with advanced degrees, approved for three to six years.

The White House did not immediately return a request for comment.

In past statements, the administration has defended the legality of its program reforms.

According to a White House fact sheet, the proclamation was to address the misuse of the H-1B program, which Trump said had been exploited by companies to replace American workers “with lower-paid, lower-skilled labor.”

White House spokeswoman Abigail Jackson said the fee requirement is legal and that it was aimed at “discouraging companies from spamming the system and driving down American wages, while providing certainty to employers who need to bring the best talent from overseas.”

In June, a federal judge in Boston also temporarily blocked the fee. In July, the First U.S. Circuit Court of Appeals declined to pause the ruling.

The U.S. Chamber of Commerce is also suing to challenge the fee. A district judge rejected its claims that Trump lacked the constitutional authority to set the fee, and the Chamber of Commerce is now seeking a review of that decision by an appeals court.

What do you get when you put the world’s first trillionaire, the man who builds killer drones in Ohio, and a former House Speaker in a room and ask them to design the next century of warfare? According to Pete Hegseth, you get “Project Meridian.”

In a sprawling “State of the Force” address to junior officers and enlisted troops at Marine Corps Base Quantico on Wednesday, the Secretary of War announced that Elon Musk, Anduril founder Palmer Luckey and Newt Gingrich (all three were in the audience) will lead an initiative “focused on discovering, developing and fielding the weapons and systems that our children and our grandchildren will need in their lifetimes.”

“Its purpose is to creatively look to the future and identify the domains that we must conquer and capabilities we must master,” Hegseth said, adding that “the best forecasters of future conflict” do “not solely reside inside the Pentagon.”

The project will be overseen by Emil Michael, the former Uber executive who is now the Pentagon’s top technology official. Bloomberg said Hegseth offered no further details, although Axios reports that the trio is expected to deliver its findings within 120 days, in both a public and a classified version.

The Customer Asks The Suppliers What It Should Buy

One does not need to be a cynic (although it helps) to notice that two of the three people now advising the Pentagon on which “capabilities we must master” also happen to run two of the companies most likely to sell those capabilities.

Musk’s SpaceX handles national security launches and has been a public company since its blockbuster June 12 IPO, which made Musk the planet’s first trillionaire. Luckey’s Anduril, meanwhile, has gone from defense upstart to prime-in-waiting in record time: it landed a $20 billion Pentagon contract in March, followed in May by a $5 billion raise at a $61 billion valuation, and it also builds the software for Golden Dome together with Palantir. As for Gingrich… Bloomberg notes he “has written a book on technology and entrepreneurism,” which is presumably what counts as a defense credential in 2026.

Then there is the Musk comeback. More than a year after the ultimately unpopular DOGE effort and the very public falling out with Trump, which at one point had the administration weighing shutting SpaceX out of Golden Dome, Musk is baaaack. In the past week alone he attended the Trump-Xi state dinner and was slated for a White House AI lunch, and now has his first formal advisory role since DOGE. Some feuds age like milk, others like fine wine; this one appears to have aged like a Pentagon contract.

What Goldman Says About The “Affordable Mass” Pitch

To be fair, there is a real case for letting outsiders shake up how the Pentagon buys things, and few have laid it out better than Goldman’s A&D analyst Noah Poponak, who sat down with Anduril’s management in June. Goldman’s diagnosis was that the legacy defense industry produces “low numbers of expensive, bespoke assets” that are hard to scale, while Anduril designs for “affordable mass” through selective vertical integration, common components across product lines, designs simple enough to automate, and flexible factories that can switch products quickly.

The economics also explain why everyone wants in. Per Goldman, Anduril targets a near 25% total company operating margin over time and gets roughly 70-80% of its revenue from fixed-price work, well above what the traditional primes earn. Poponak also saw “early signs of progress” in Pentagon acquisition reform, including multi-year frameworks and open-testing programs such as Drone Dominance. One of the architects of the “affordable mass” model will now help write the Pentagon’s wish list, which is either the most efficient procurement reform in history or the most efficient sales pitch. Possibly both.

Goldman is also constructive on the listed drone names. In his AeroVironment notes this month, Poponak noted that funded backlog rose 37% y/y and 23% sequentially and that AVAV “has exposure to faster growing portions of the defense budget.” He pointed to demand for its LOCUST directed-energy counter-drone system (first international order: more than $50mn) and the low-cost Freedom Eagle interceptor, which offers “a significantly lower-cost alternative to traditional missile defense systems.”

Enter AutoWarCom

Meridian was not the only new acronym. Hegseth also unveiled a new four-star Autonomous Warfare Command (yes, “AutoWarCom“) with “service-like authorities” over drones, AI and command-and-control. It is set to be operational by October 1, 2027. Until then, an interim effort called Project Agincourt will draw on the Defense Innovation Unit and the Drone Dominance program, pairing “operators with entrepreneurs in rapid adaptation cycles.” Existing programs such as the Collaborative Combat Aircraft and the Navy’s MQ-25 unmanned tanker are being folded in. Hegseth called it “the fastest peacetime shift in modern military history.”

The money was already lined up. As we reported in April, the Pentagon’s FY27 request seeks $54.6 billion for the Defense Autonomous Warfare Group, up from $225 million in FY26, a 243x increase that would make even a Silicon Valley VC blush.

Add the $1.1 billion Drone Dominance initiative to stockpile 300,000 sub-$5,000 attack drones by the end of 2027 (which sent drone stocks soaring in May), plus the Army’s $500 million FPV award to Neros in July, and the direction of travel is pretty clear.

…So Why Are Defense Stocks Puking?

You would think a four-star command dedicated to drones, a 243x budget request and the world’s richest man drafting the shopping list would be manna for defense stocks. Instead, the SPDR S&P Aerospace & Defense ETF (XAR) is down 22% from its August 14 peak and in a bear market, and as of Wednesday it is on track for a seventh straight weekly decline, the longest losing streak since the fund launched in 2011. XAR is now down 4.1% YTD while the S&P is up almost 12%.

The explanations are familiar to ZH readers:

• First, peace is breaking out, or at least the possibility of it: on September 22 reports surfaced that Iran offered to reopen the Strait of Hormuz in exchange for an easing of US military pressure, while Trump floated a negotiated end to the conflict at the UN (that didn’t quite work out as expected, although the downward momentum was already in there).
• Second, the budget is stuck. Neither chamber has passed appropriations, and a stopgap through December 11 would freeze spending at 2026 levels. “The budget is stalled,” said Bernstein’s Douglas Harned, noting that defense stocks have gone from a 15% premium to the S&P 500 in February to a 12% discount.
• Third, the midterms: as we wrote two weeks ago, UBS’s Allyson Gordon said investors “remain reluctant to add exposure… until after the midterms,” and the Polymarket odds on Senate control are the reason why. Whoever controls Congress controls appropriations.

But the most interesting part is who is getting hit. Goldman’s US Industrials desk (Ryan Novak) put it bluntly in late August: defense tech “is definitely a tale of haves and have nots,” and “the day to day in SPCX is having impacts on the broader ‘space’ but specifically drone names.” The six weeks since have proved the point. The pure-play drone names have been crushed (Red Cat -42%, Kratos -34%, Unusual Machines -28%, AeroVironment -26%), while SpaceX and Palantir are both up roughly 8% since the sector peaked. In other words, the market has already picked its winners, and the biggest of them now has its CEO sitting at the Meridian table.

“Behind The Meter” Comes To Fort Bragg

Buried in the speech was one item ZH readers will recognize. Hegseth said he wants every major US military installation to generate its own power, so that bases keep running if a cyberattack takes down the grid. That will come in the form of nuclear microreactors, with the first targeted to be operational by September 2028 and Eielson AFB in Alaska leading the Air Force effort.

This has been building for a while. The Army launched its “Janus” microreactor program last October, and in August it picked five companies under agreements worth up to $2.2 billion: Antares (Fort Bragg), BWXT (Fort Campbell), General Atomics (Fort Hood), Radiant (Fort Benning) and Westinghouse (Fort Drum). Meanwhile, the Air Force has its own microreactor pairings at three bases and has also been working with NANO Nuclear: AFWERX gave the company a $1.25 million contract last September to study putting its KRONOS microreactor at Joint Base Anacostia-Bolling in Washington, and in July it followed up with a second award to adapt KRONOS for military installations more broadly.

Long-time readers know where we stand. Back in November we argued that every data center must have its own “behind the meter” onsite power generation, and in December we put it more simply: “Make ‘behind the meter’ mandatory.” We have also long said that small modular reactors are the only real long-term answer to America’s power crunch. It is nice to see the Pentagon get there too, even if it took the threat of a grid-killing cyberattack rather than a hyperscaler’s electricity bill.

And The Rest

In case that wasn’t enough for one morning, Hegseth also:

• Confirmed that general and flag officer billets will be cut by 20%, double last year’s 10% (as we previewed on Tuesday), with the reductions due by January 1, 2027;
• Announced the first new US military base in four decades, a “Next Great American Base” for 15,000-plus troops built in “timeless classical architecture,” with states invited to compete to host it, as the Pentagon weighs large troop cuts in Europe;
• Created an Office of Religious Affairs reporting directly to the Secretary;
• Launched new “corps of cadets” partnerships with Hillsdale, Liberty, LSU, Mississippi State and Tuskegee; and
• Accused US media outlets of “treason” over their coverage of the Iran war, a few weeks after Thomas Massie forced a House vote on impeaching him.
• Oh, and he clarified who may serve: “No fatties…No trannies…No beardos….No weirdoes…No wimps.”

No fatties.
No trannies.
No beardos.
No weirdoes.
No wimps.
No radicals — JUST WARRIORS. pic.twitter.com/mDktwOmn6F

— Pete Hegseth (@PeteHegseth) October 1, 2026

The bottom line: the Pentagon is reorganizing itself around drones, autonomy and AI, putting the people who build those things in charge of deciding what comes next, and asking for the budget to match. The market isn’t buying it yet. Not because the story is wrong, but because nobody wants to own the stocks until Congress, the midterms and Iran give them a reason to. When that changes, the “haves” are already obvious. The have-nots, at 40% off, may turn out to be the more interesting trade… assuming Meridian’s 120-day report leaves any room for them.