Wall Street News Roundup: Recession Watch, Escalating Tariff War and a Missing $2 Billion

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2:32All right, it is time for a roundup of the biggest stories on Wall Street and how they're going to affect you and your wallet. Today, we're talking about tariffs, recession watch, potential insider trading in the crypto world, and a big Wall Street cautionary tale that has added up to a missing$2 billion. We'll follow the money trail after I tell you about some of partners. Let's start with China. Last week, China announced that on December 1st, it will be limiting the export of rare earth minerals to the United States. And a quick reminder, because I've talked about this before on the show, so-called rare earths aren't that rare.

3:07They are just a nightmare to mine. The process is dirty, toxic, and massively harmful to the environment, which is why most countries outsource it to China. But these minerals are essential. They are the backbone of everything from smartphones to microchips and advanced weapons systems. So in other words, they power our everyday lives and modern warfare. China says the move is about national security, and the concern is rare earth elements in U.S. military applications. Like Sumerium, for example, It's a rare earth element used in the production of U.S. F-35 fighter jets and missile systems. China also announced new restrictions on exporting the equipment used to make EV batteries, a not-so-subtle move to protect its dominance in the global electric vehicle market.

3:57President Trump fired back with a threat of 100 % tariffs on Chinese imports. For context here, the current tariffs are sitting at around 20%, Plus, all of Trump's tariffs are under review by the Supreme Court, and they'll hear arguments on November 5th. So will we see a 100 % tariff? Honestly, probably not. This will be the return of the taco trade. Plus, between the Supreme Court and how badly the economy does not want a 100 % tariff on goods for China, this proposed tariff is probably just a bargaining chip. Now, I want to hit pause on the story right here. We'll get back to the wild market ride that followed.

4:37But this exact moment when Trump fired off that Truth Social post about a 100 % tariff is also a key moment in another story. Just minutes before his post went live, an account on the crypto exchange Hyperliquid opened a$700 million short position on Bitcoin and Ethereum. The Truth Social post went live. The price of crypto coins and the stock market in general began to tank. and the trader began closing out their positions. Estimates vary, but the trader seems to have made at least$160 million off the trade. The infamous trader reports are saying it's Garrett Jinn, a crypto guy who ran BitForex and shut down in 2024 after around$56 million deposits vanished.

5:22Now he's back in the headlines with this trading story. He says there was no insider trading and that he's not even connected to the Trump family. He said that everyone throwing around insider trading allegations are ignoring the reality that we are escalating tensions between the United States and China. He just made a good smart bet. TBD on that. The reason the short trade did so well was because the market did not like Trump's announcement of 100 % tariffs. On Friday, the Dow fell nearly 2%, the S &P 500 dropped nearly 3%, and the Nasdaq fell 3.5%, which was not amazing. But then on Sunday, President Trump posted on social, don't worry about China, it will all be fine, exclamation point.

6:08And Treasury Secretary Scott Besant said that the trade talks between the U.S. and Chinese negotiators were ramping up. The stock market came roaring back on Monday, having one of its best days of the year. And then another bump on the roller coaster. On Tuesday, the United States and China began charging additional port fees that affect everything from manufactured goods to crude oil, and that made markets stumble again. So even with these setbacks, the market has hit high after high, and it's making some people wonder if there is anywhere else to go but down. A clip of the financial journalist Andrew Ross Sorkin is making the rounds right now that he's pointing out parallels between the U.S.

6:50economy and the economy right before the Great Depression and saying, quote, prices might not feel stable. Let's decode this for a second because it sounds no bueno. When he says prices, he's talking about valuations, how expensive stocks are now compared to what companies actually earn. The simplest way to measure that is a price to earnings ratio or PE. Right now, the S &P 500's PE is about 28 times earnings. That means that investors are paying$28 for every$1 of profit companies are making. Historically, the average has been closer to$15 or$16, so today's market is almost twice as expensive as normal.

7:29If you look at the Shiller PE, also called the CAPE ratio, it smooths out earnings over 10 years to show a longer-term picture, and that is sitting around 39 to 40 times earnings right now. For comparison, the only other times it's been that high, 1929, 1999, 2021, all followed by major pullbacks. In the late 90s dot com bubble, the regular P.E. peaked around 33 and the Shiller P.E. hit around 44 before the crash. So no, we're not saying that a crash is guaranteed. But when valuations stretch this far above average, it means that the market's priced for perfection. Everything profits, growth, interest rates has to keep going exactly right.

8:08So when Andrew says that prices might not feel sustainable, he's saying that the market is running hot and the higher it climbs, the thinner your safety net gets. Now, the case of the missing$2.3 billion. It starts in 2013. A guy named James Patrick found an auto parts company in Ohio called First Brands Group, or FBG. FBG is the kind of place that sells those DIY replacement windshield wipers to AutoZone and Walmart. If you have ever been broke like I have, you know those ones. You can replace your windshield wipers yourself. You just clip them on, save yourself a stop. Anyway, Patrick quickly realized that while there was some money in the windshield wiper business, scaling it was going to take a long time.

8:55But he had found a cheat code. There were lots of other little businesses, just like his around the country, selling these niche parts that you don't really think about, like windshield wipers, replacement rearview mirrors, and decorative gear shift knobs to chains like AutoZone and Epo. Patrick discovered that the real money wasn't in selling more product than his competitors, but by buying out his competitors and selling more product that way. So FBG spent the last decade buying up almost all of its competitors, and he crushed it. Last year, it sold its products in-store and directly to customers on five continents, supplied major auto part manufacturers, and employed 26 people, also did $5 billion in sales.

9:37But like I mentioned, there's not a lot of money in windshield wipers, and yet he expanded. So how did he do it? Well, he funded his major acquisition spree with credit, a lot of credit. This included$6 billion in junk bonds, which sounds sketchy, but really aren't. Junk bonds aren't always junk. They're just high yield interest rate debt. And for a company with its sales and rapid expansion, it seemed like a reasonable amount of credit and debt. Cut to, over the summer, the company hired an investment bank to help it negotiate the terms of the debt. During that process, the investment bank discovered that FBG had several billion dollars more in loans from private creditors, and many of those weren't normal loans.

10:22They were loans against invoices. Think of it as a payday loan for corporations, and where it gets extra messy is that FBG was selling the same invoice, or really a tranche of invoices, to different lenders, which you cannot do. The math is not going to math that way. The result is that as much as$2.3 billion remains unaccounted for. And when I say unaccounted for, I do really mean that they are just the corporate equivalent of the shrug emoji. One of the parties to the bankruptcy asked, First, do we really know whether FBG actually received$1.9 billion, no matter what happened to it? Second, would you tell us how much is in the segregated accounts in respect of the factored receivables as of today?

11:09Well, a lot of jargon there, but the lawyer for FBG responded to the email, and this is a direct quote. Number one, we don't know, and number two, zero dollars. Remember James Patrick? The founder stepped out. So that's how it's going. Lastly, the government is still shut down, and the longer it is, the more effects it will have. The latest impact is in the coastal housing market. To get a mortgage on a house in a flood zone, you must have flood insurance because it is just so risky. Most private insurance companies simply do not offer flood insurance. If you want it, you probably have to get it from the federal government via the National Flood Insurance Program.

11:48As of October 1st, that program has lapsed, meaning they are issuing no new policies and not renewing existing ones. The National Flood Insurance Program is not able to fund itself from the sale of insurance policies. There are solid economic reasons why most private insurance companies won't offer these policies. So this means that in some places, prospective homeowners can buy policies from private insurance companies or get their policies extended. but in many places, these transactions are simply on hold. The National Association of Realtors estimates that around 1 ,400 transactions will be disrupted each and every day of the shutdown.

12:28But even more problematic is that flood insurance policies last for one year. That means that policies are also expiring every day without being renewed. This can leave homeowners scrambling. In a few places, policies can be replaced with more expensive private policies, but that option doesn't exist everywhere. So if you're expecting your policy to expire any time in the next month, you do need to think about starting to come up with some strategies to cover the gap right now. For today's tip, you can take straight to the bank. When it comes to insurance, don't set it and forget it. Flood insurance might be out of your hands, but other policies are totally negotiable.

13:07Check in every year or so to make sure that your coverage actually fits your life and your wallet.

13:15Money Rehab is a production of Money News Network. I'm your host, Nicole Lappin. Money Rehab's executive producer is Morgan Lavoie. Our researcher is Emily Holmes. Do you need some money rehab? And let's be honest, we all do. So email us your money questions, moneyrehab at moneynewsnetwork.com to potentially have your questions answered on the show or even have a one-on-one intervention with me. And follow us on Instagram at Money News and TikTok at Money News Network for exclusive video content. And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in yourself, which is the most important investment you can make.