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

One of the smartest financial moves you can make is working with a certified financial planner instead of trying to wing it solo.

Domain money CFP professionals don't just hand out generic financial advice, they help people get on track for early retirement, fix messy investment allocations, and figure out the perfect timing for major purchases like buying a house or, gosh, I don't know, growing a family, asking for a friend.

Yes, I am that friend.

In fact, my husband and I actually just talked to Adriana Adams, head of financial planning at Domain on the podcast, and she had this advice around what to do to set our daughter up for financial success.

So there's three things that I would prioritize.

The first one is saving for your own future, because the best gift you can give her is to not be a burden later in life.

And the second thing is life insurance, which I know sounds morbid and is not fun.

I'm a huge fan of cheap term life insurance.

Really, we just want to replace your income in case something happens to you guys so that she is taken care of.

And the third thing is estate planning.

And believe it or not, everybody has an estate plan.

It just depends on if you created it or the government created it for you.

So, as you can probably tell from that, domain gives you something most people never have: a step-by-step financial plan that actually makes sense and does not make your brain hurt.

So, get started today and book your free strategy session at domainmoney.com/slash moneyrehab.

I am not a real client of domain money.

Via money rehab, I receive compensation and have an incentive to promote domain money.

See important disclosures at dmnmny.co/slash x.

I am so excited to head up to Big Sir with my husband this fall.

We are celebrating our anniversary and while I will miss the little mush so much, we are also really excited to have a little parents' time.

We deserve that.

But you know, it got me thinking about this feeling when you walk out of the door for a trip and you wonder what your blaze is doing while you're gone.

Well, it turns out it could be working for you.

I've been hosting on Airbnb for forever now, and I tell all of my friends to do the same because it's an amazing way to make passive income from an asset you already have, your home.

But some of my friends who are super busy worry that hosting on Airbnb would feel like having a second job.

And that's when I tell them about Airbnb's co-host network.

Anything you don't have the bandwidth to do, a co-host can handle for you.

They can create your listing, manage reservations, manage guests, provide on-site support, even handle design and styling.

So, whether you're traveling for work or you're escaping the winter, or if you have a second place that just sits empty way too often, your home doesn't have to sit on the sidelines.

Instead, you can earn a little extra cash without adding another job to your plate.

Find a co-host at airbnb.com/slash host.

I'm Nicole Lapin, the only financial expert you don't need a dictionary to understand.

It's time for some money rehab.

All 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 launch, 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 our 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.

They 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 weapon 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 samarium, 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.

President 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 of 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, but 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 that shut down in 2024 after around $56 million in deposits vanished.

Now 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.

And 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.

economy 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 SP 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.

If you look at the Schiller PE, also called the CAPE ratio, it smooths out earnings over 10 years to show a longer-term picture.

And that is fitting 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.com bubble, the regular PE peaked around 33 and the Schiller PE hit around 44 before the crash.

So no, we're not saying that a crash is guaranteed, but when valuations stretch this far far above average, it means that the market's priced for perfection.

Everything, profits, growth, interest rates has to keep going exactly right.

So 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 founded 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's some money in the windshield wiper business, scaling it was going to take a long time.

But 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 rear view mirrors and decorative gear shift knobs to chains like AutoZone and NEPA.

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.

But 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 two, 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.

They were loans against invoices.

Think of it as a payday loan for corporations.

And where it gets extra messy 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 asks, quote, 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?

Well, 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, $0.

Remember, James Patrick, the founder stepped out.

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.

As 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.

But 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 anytime 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 it straight to the bank.

When it 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.

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

Money Rehab is the production of Money News Network.

I'm your host, Nicole Lapin.

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 MoneyNews 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.