A shorter one this time. It’s going out with half an hour of trading left on a Friday, not because anything needs doing today, but because I’d rather you read it over the weekend than first thing Monday.

Anyway, I wanted to give you a heads-up on one of the positions I have the highest hopes for. For most of the past three months it has been trading well above our buy-up-to price. It ran away from us within a few weeks of the recommendation, and it never really came back. Until now.

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I wanted to send you something a little different today. There’s good news on two of our positions, and I’ll get to both of them below, along with where we stand on each. But the reason I’m writing is bigger than either company. If you’ve been watching uranium and rare earth stocks go down for the past two months, as I have, and wondering what went wrong, this is for you, and I think it’s worth a few minutes whether you’re a paid subscriber or not.

Let me start with rare earths, because that’s where the picture is clearest.

A few weeks ago, I wrote to you about the Trump-Xi summit in September, and my point then was simple: it didn’t solve anything. In April of last year, China put dysprosium and terbium, along with five other rare earths, under export licensing. Those two are the ones that let a magnet keep working at the temperatures inside a jet engine, a missile or a submarine’s sonar. There is no substitute for them, and nearly all of the world’s supply comes from China.

Those licenses are still in place today, and they’re decided case by case. And if the buyer has anything to do with a foreign military, there isn’t a case to consider. The Pentagon’s suppliers can’t legally buy these materials from China at any price.

Xi spent three days in Washington, and none of that changed. The Chinese aren’t trading their best card for soybeans.

So what did the market do with all that? It sold. REMX, the fund that owns the sector’s miners and processors, is down about 51% from its high in May.

Now, that’s curious in and of itself. Nothing about China’s grip on these metals changed, and yet the stocks got cut in half. But it gets more curious still when you look at what the people who have to buy the metal did over the same period. They actually paid more for it. Take a look.

Yes, you’re seeing it right. The companies that produce these metals have lost half their value, while the metals themselves have gone up: dysprosium by about 5% since the stocks peaked, terbium by about 8%. That’s a massive disconnect.

If this sounds vaguely familiar, it’s because I’ve written about this kind of gap before, at my former shop. About two years ago it was gold: the metal was making new all-time highs, while the gold miners were still trading at about half of where they’d been at their 2011 peak.

You may remember what happened next. The gold miners didn’t just catch up with the metal. They ran right past it.

I think we’re looking at the same kind of setup in rare earths today.

Because here’s the thing. Even if a deal gets done at the next Trump-Xi meeting (there are two more scheduled before the current truce runs out in January), that won’t be the end of it. That’s because on January 1, a new Pentagon rule takes effect: the U.S. military won’t be able to buy anything with a rare earth magnet in it if Chinese material went into that magnet at any stage, from the mine to the finished part. That’s U.S. law, not a bargaining chip. It would take an act of Congress to undo, and I don’t see that happening. If anything, the Congress that comes out of next week’s midterms will be even less inclined to do China any favors than this one.

Now, the U.S. government knows what’s coming. That’s why it has spent the past year taking equity stakes in mining companies, launching a US$12 billion strategic stockpile, and lending hundreds of millions to the handful of companies that can process these materials on American soil.

I’ll get to how all this relates to our companies in a second. But first, lest you think this is a rare earth story, take a look at the chart below.

What you’re looking at is URNM, the fund that owns the uranium miners, down 47% from its January high, next to the price of uranium itself, which is down about 5% over the same stretch, and the long-term contract price, the one utilities actually sign at when they lock in supply for years, which is up 9%. It’s the same disconnect you just saw in rare earths, in a different metal.

So what happened there?

Well, the uranium miners got bundled into the AI trade this year, on the back of nuclear power for data centers, and when that trade cooled over the past few weeks, they went down with it.

Now, for what it’s worth, we didn’t buy any of these near the top. Our rare earth pick was already down 60% from its high when I recommended it in September, and I said so in the writeup. Our uranium producer was down even more when we started buying it in July. We came in after most of the fast money had already left.

Which brings me to our portfolio.

Some of our positions are in these two sectors, and they went down with everything else. I’m not going to pretend that was pleasant to watch. But here’s the thing: very little of it was about the companies themselves.

And more importantly, it turned out to be an opportunity rather than a problem. That’s because of the way we buy.

You see, we never buy a position all at once. We build it in tranches, into weakness, with standing orders waiting at lower prices, the way I laid out back in June in “Why I Never Go All-In on a Stock.”

So the volatility of the past six weeks did exactly what it’s supposed to do for us. It filled those orders: the second tranche on two of our positions, and the third tranche, the stink bid, on another. Every one of those fills pulled our average cost down, which is the whole point.

Then, this week, the good news arrived, and it sent two of those positions higher.

One got a government to put money behind the mine that feeds its mill, and the stock jumped almost 10% in a day. The other got a date for the permit we’ve been waiting on, days after that stink bid filled. I’ll also catch you up on our gold developer.

Below, I name all three, walk through what happened, and tell you where I stand on each. If you’ve been on the fence about joining the paid side, this is a good week to come inside: even after this week’s moves, all three are still trading below our buy-up-to prices, thanks to the selloff I’ve just described.

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Quick update on our newest recommendation.

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Quick update on our first recommendation. Some new shares are landing in your brokerage account, and I want you to know what they are.

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As I wrote earlier this week, the Fed went ahead and raised rates by a quarter point, its first hike since 2023.

On paper, that should be bad news for gold. Higher rates make cash and bonds more competitive with a metal that pays no interest. They also tend to support the dollar.

And since gold and silver are major themes in our portfolio, I wanted to send you an update on what this hike means for us.

I’ll get to some of our individual positions below. But first, let’s look at what happened after the decision, because the market’s reaction was telling.

As you may know, gold initially sold off, especially after Fed chairman Kevin Warsh made it clear that another hike could follow.

But then the buyers stepped in.

By Friday, gold had recovered and finished the week up 0.5%. Silver did even better, ending 3.1% higher.

I, for one, find that interesting.

The Fed raised the price of short-term money, which pushed up the yields available on shorter-term Treasuries. In plain English, investors could suddenly earn more by lending money to the government for a couple of years.

Long-term yields, of course, barely moved. The Fed does not control those directly. So the gap between short-term and long-term rates narrowed. That is what people mean when they say the yield curve “flattened.”

That combination is not supposed to be friendly to precious metals.

Yet gold and silver absorbed the hit and finished the week higher anyway.

On top of everything else we have seen this year, that is another confirmation that there is real buying underneath this market. More importantly, it tells me the forces driving this bull market are bigger than one quarter-point rate hike.

Again, that does not mean we will not see volatility and weakness in the weeks ahead. We almost certainly will. That is precisely why I sat down to write this alert.

But because we build our positions in tranches, that weakness is more of an opportunity than a problem. It gives us the chance to add at better prices. (If you need a refresher on how the tranche system works, I laid it all out here.)

Before we get to the individual names, though, we need to understand what the Fed is really up against, and what it can realistically do from here.

The Fed Cannot Print Oil

The official explanation for the hike is simple enough.

Gasoline was up 27% from a year earlier, while producer prices for diesel jumped 24% in August alone. Brent crude pushed back above $100 as the fight over the Strait of Hormuz dragged on.

The Fed saw inflation moving in the wrong direction and decided it had to look tough.

There is just one problem.

The Fed can set the price of money. It cannot produce a barrel of oil. It cannot keep the Strait of Hormuz open, end the war or manufacture the metals the world is running short of.

And this is hardly the first time inflation has outrun the Fed’s promises.

If you take a look at the chart below, you can see just how consistently it has done so. The chart uses CPI rather than PCE, the Fed’s preferred inflation gauge. But whichever official measure you prefer, the basic picture is the same.

Inflation has now been above 2% for six straight years.

Six years.

Remember, the Fed already raised rates by 525 basis points from 2022 to 2023. It still failed to bring inflation back to target.

Now it is raising rates again in response to an oil shock it cannot control. All that can really do is make money more expensive and the economy weaker.

So why do it?

Credibility, at least in part.

After six years of above-target inflation, the Fed cannot simply sit on its hands while prices begin climbing again. A quarter-point hike allows it to show that it is serious, even if it is prescribing the wrong medicine for the disease.

That is how I see this move. It looks less like the beginning of another Volcker-style hiking cycle and more like the Fed trying to prove that it still means business.

It may even hike once more. But one or two hikes are very different from a sustained campaign to force inflation back to 2%.

And there is another, much bigger reason I doubt the Fed can keep raising rates from here.

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Quick update on our second recommendation.

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A quick but important portfolio update. I wanted this in front of you first thing this morning, before the opening bell, so you’d have the full picture before the trading day starts.

This week, two of the companies in our model portfolio reported results, and they could hardly have gone more differently. One turned in a strong quarter that’s pushed its shares higher, and our position is up about 25% since we recommended it. The other had a rough day, selling off close to 18% yesterday.

The good news is the easy part, and we’ll get to it, because good news deserves its moment. But the main reason I’m writing is the one that fell.

Partly to get ahead of it, so you’re not staring at a red screen wondering what on earth happened. (After all, showing up on the down days, not just the up ones, is a big part of what I do here, whether you’re a paid subscriber yet or not.)

And partly to tell you something more useful: a drop like this, on a company whose long-term story hasn’t changed, isn’t a problem for us. It’s an opportunity, all the more so because we came into this name near its lows to begin with, not chasing it at the highs.

And there’s a second reason we’re able to treat a day like this as a chance rather than a threat: how we buy in the first place. If you’ve been with me for a while, you know I never put on a full position all at once. We build them in stages, deliberately, into weakness, the approach I laid out in “Why I Never Go All-In on a Stock.” So when the market slams one of our names, a frightening headline number rarely lands on us the way it lands on someone who bought their whole position at the top. It’s exactly why a stock that just fell by double digits on the screen is barely down in our portfolio.

A selloff like this one, driven partly by a temporary, fixable problem and partly by the market simply misreading a piece of news, is precisely when a patient investor gets to add at a better price. Not everyone managed to fill their full position when we first recommended this name, and days like yesterday are how you get that second chance, at a lower price.

Below, for paid subscribers, I name both companies, walk through exactly what happened to each and why I think the selloff was overdone, and give you my current buy levels. If you've been on the fence, this might be a good moment to come inside.

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