Sons of a Gun

A signal from the White House orbit... Trading tariff 'refund rights'... It makes you think... A critical time for earnings... The Magnificent Seven, for better or worse... Another warning from insiders...

It seems like they know something...

We've written to you before about the pending lawsuits challenging the legality of the White House enacting "reciprocal" tariffs (based on trade-deficit numbers).

President Donald Trump contends that he can unilaterally impose tariffs on the basis of a national "emergency" and the International Emergency Economic Powers Act of 1977.

The main counterargument, posed by a group of small U.S. businesses in a suit filed in April, is: Are trade deficits, which have existed for decades, a national emergency and an "unusual and extraordinary threat?"

In late May, a relatively little-known federal court – the Court of International Trade – deemed the "Liberation Day" tariffs illegal. But the decision was paused on appeal from the Trump administration "until further notice," as we reported in our May 29 edition.

We haven't gotten the further notice yet... But in recent days, one signal has emerged, via reports about a Wall Street firm with close connections to the White House. It gives us some clues about what the ultimate outcome of this litigation may be.

I (Corey McLaughlin) am not here to take a political position. But when Stansberry Research analyst John Robertson alerted a group of us to this story today, I wanted to loop Digest readers in...

Sons of a gun...

The situation centers around financial-services firm Cantor Fitzgerald. Until this year, current U.S. Commerce Secretary Howard Lutnick had run the company for decades. He's now one of the handful of people directly involved in U.S. trade negotiations with the rest of the world.

Just today, Lutnick discussed how the Trump administration created the framework of its trade agreement with Japan. "I created the big board and put it there," Lutnick said in an interview with Bloomberg.

Here's a report on the story we want to talk about, though, from Wired...

Cantor Fitzgerald, a financial services company led by the sons of US commerce secretary Howard Lutnick, is creating a way for investors to bet that President Donald Trump's signature tariffs will be struck down in court. Traders at the firm's investment banking subsidiary, Cantor Fitzgerald & Co., say they have the capacity to buy the rights to hundreds of millions of dollars in potential refunds from companies who have paid Trump's tariffs, according to documents viewed by WIRED.

Lutnick ran Cantor Fitzgerald for nearly 30 years until he was confirmed by the Senate in February, when he turned over control of the firm to his sons, Kyle and Brandon, who are both in their twenties. Since joining the Trump administration, Lutnick has emerged as one of the most vocal supporters of the president's tariff policies, which Lutnick has said would raise "hundreds and hundreds of billions of dollars" in revenue for the United States, eventually eliminating the need for Americans making less than $150,000 to pay taxes.

But the investment bank that made Lutnick a billionaire is now letting certain clients wager that Trump's tariffs will eventually be ruled unlawful, at which point companies that have paid the import duties can apply to get their money back.

It's a little complicated, but according to this Wired report, Cantor offered to "trade tariff refund rights for 20 to 30 percent of what companies paid in duties."

For instance, say a company has paid $10 million in tariffs. If courts toss Trump's tariffs, it would eventually get back that $10 million after that decision happens. But instead, it could collect $2 million to $3 million in instant cash from Cantor today. Then Cantor could pocket that full $10 million down the road.

More from Wired...

Experts say the deals are a form of litigation finance, an increasingly popular category of investing in which financial firms seek to make money from potential legal settlements. Many lawsuits can take years to resolve, and the structure can allow individuals and companies to get money upfront or their lawyer fees covered. The catch is that investors may only pay a fraction of what plaintiffs could eventually receive, and profit by pocketing the difference.

So, in this deal, Cantor – the firm now run by the sons of one of the lead negotiators on U.S. tariff relations – would stand to benefit the most financially in the long run if tariffs are deemed illegal.

Alternatively, they could lose tens of millions or more if tariffs are upheld, depending on how many trades they make. (They've reportedly made at least one so far, on around $10 million of rights.)

Makes you think, no?...

A spokesperson for the Department of Commerce said that "Secretary Lutnick knows nothing about this decision..." And a spokesperson for Cantor Fitzgerald denied the report outright, saying the firm "is not in the business of positioning any risk or taking views in litigation claims including tariffs."

OK, but it sure looks like somebody knows, or is expecting, or is at least hedging their bets against something.

Frankly, the market has been, too. In our April 15 Digest, we wrote about the initial lawsuits challenging the tariffs...

When you pair this suit with what we've heard recently about tariff "flexibility"... exemptions... and expected trade deals with more than 10 foreign partners to be announced in the future, it sure sounds like the tariff war is losing its teeth.

I could be wrong. But all of this could mean more "less bad" news for the market...

Since then, the major U.S. stock indexes have recovered losses from the first part of the year. More and more investors have stopped anticipating the worst-case scenario for tariff policy on corporations.

And now the sons of Lutnick – one of a handful of folks in the White House involved directly in trade talks – are allegedly offering U.S. businesses a chance to hedge their bets about this ultimate outcome.

Take that for what it's worth.

At the very least, it's an interesting signal to think about. At the most, it's a glaring heads-up about what might happen in the future... new tariffs essentially being refunded to corporations, plus an example of Wall Street insiders profiting the most.

Conflicts of interest aside, this might sound like good news for the overall market. But we still have some concerns in the short term, as my colleague Nick Koziol explains...

The most important part of earnings season is getting underway...

We're about to see reports from the Magnificent Seven companies. And today after markets closed, Alphabet (GOOGL) and Tesla (TSLA) became the first two of the seven to report. (These details hit the wires as we were already preparing to send out today's Digest, but we'll cover the reports tomorrow.)

These companies hold more weight in the major U.S. stock indexes than at any other time. The 10 largest companies in the market-cap-weighted S&P 500 now make up 37% of the total index. That matches the all-time high for market concentration set earlier this year.

As we wrote in the June 30 Digest, that's for better or worse. When these select few stocks are roaring higher, the concentration is a good thing for the broader market – even if other companies are not doing as well.

But the size of these companies can work against the performance of the broad market, too, like we saw earlier this year.

The Mag Seven peaked first and entered a bear market in March, and the tech-heavy Nasdaq Composite Index and the S&P 500 more or less followed before and after Liberation Day in April. (The S&P 500 ended up less than a percentage point away from falling 20% from its previous high, Wall Street's official definition of a bear market.)

In that case, the heavy concentration in mega-cap tech names was a catalyst that pulled the rest of the market lower, before the tariff threat sent investors into a panic.

Since then, the Mag Seven in general have recovered. So have the Nasdaq and S&P 500, which have been making new all-time highs in the past few weeks.

The Roundhill Magnificent Seven Fund (MAGS) – which tracks the group on an equally weighted basis – is up about 42% from its April 8 low, led by an 80% rebound in Nvidia (NVDA) shares. For comparison, the S&P 500 is "only" up about 27% from its April lows.

So now: Beware any stalls in Mag Seven earnings...

For now, the Mag Seven are growing earnings at an impressive rate. As we shared on Monday, Wall Street expects the seven companies to report a combined 14% in earnings growth in their results over the next week or so.

Meanwhile, as a whole, the S&P 500 is on track to deliver 5.6% earnings growth this quarter, according to FactSet's weekly Earnings Insight report. And taking out the Mag Seven from that 5.6%, the index's other 493 companies are only expected to grow earnings by about 3%.

The AI trend has been the underlying force for growth in the Mag Seven for a few years now. So if these investments don't go as planned in the short term, or the companies hit other hiccups, they could stop propping up the broader market's earnings growth.

That could already be around the corner...

Looking ahead, after 14% growth in this quarter, analysts surveyed by FactSet expect Mag Seven earnings to grow by "just" 9.5% to 11.2% over the next three quarters.

Also, if we do see 5.6% earnings growth for the S&P 500 this quarter, it would be the index's lowest year-over-year growth since the fourth quarter of 2023. Slowdowns from the popular tech names would only push that overall growth rate lower.

Slowing earnings growth would challenge the S&P 500's ability to command a historically expensive multiple. As our colleague Dan Ferris has written about many times, markets have only been this expensive at a few (worrying) times.

From Dan's July 11 Digest, for example...

You see, the S&P 500 Index is currently trading for a cyclically adjusted price-to-earnings ("CAPE") ratio of about 38 – one of its highest levels since 1871.

The other three most expensive moments were in September 1929 (at 32.6), December 1999 (44.2), and November 2021 (38.6). December 1999 is still the most expensive moment in U.S. stock market history.

Only time will tell if today's expensive market turns into a period of disappointing returns for investors like the other peaks.

Another warning from insiders...

We've covered open market purchases (and selling) from corporate insiders several times in the Digest in recent months. Put simply, these are company executives, folks who should know the most about a company's operations and outlook.

So what they're doing with their own money can be an indication of how the company will perform, and their optimism about returns.

Right now, we see a telling behavior: Insiders are sitting on the sidelines. Just take a look at this chart from the Insider Sentiment Dashboard website...

Only about 10% of publicly traded companies are seeing net buying (purchases larger than sells) from corporate insiders. That's the lowest level in at least 10 years, according to Insider Sentiment's data.

So insiders clearly don't think that shares are undervalued today. They're staying on the sidelines until they see a better entry point (like the sell-offs in 2020 and 2022 that led to the spikes in insider buys on the above chart).

The story is the same when we look at Mag Seven execs... Only one of the seven companies (Tesla) has seen any open-market purchases from insiders over the past year, according to data from FinViz.

As we noted earlier this month, on balance, insider sellers are far outweighing the buyers. From the July 9 Digest...

According to data from FinViz, insiders have sold more than $630 million in stock over the past 12 months. More than one-third of that selling came during May's rally. And in the past year, insiders have collectively bought just $1 million worth of shares.

And that includes the 30% decline in the Mag Seven index from earlier this year. Hardly any insiders thought that sell-off presented a buying opportunity. That makes us wary of rushing out and buying up shares of mega-cap tech companies around this earnings season.

Still, though, the market continues to push higher for now. It was another day, another set of new all-time highs. The benchmark S&P 500 gained 0.8%, and the Nasdaq rose by 0.6% to a record close.

New 52-week highs (as of 7/22/25): Agnico Eagle Mines (AEM), Valterra Platinum (ANGPY), Barrick Mining (B), Alpha Architect 1-3 Month Box Fund (BOXX), CBOE Global Markets (CBOE), Crispr Therapeutics (CRSP), WisdomTree Japan SmallCap Dividend Fund (DFJ), Dimensional International Small Cap Value Fund (DISV), Cambria Emerging Shareholder Yield Fund (EYLD), Cambria Foreign Shareholder Yield Fund (FYLD), VanEck Gold Miners Fund (GDX), iShares Convertible Bond Fund (ICVT), Kinross Gold (KGC), Newmont (NEM), NetEase (NTES), OR Royalties (OR), Ormat Technologies (ORA), Sprott Physical Gold Trust (PHYS), Planet Fitness (PLNT), Sprott Physical Silver Trust (PSLV), Rithm Capital (RITM), ResMed (RMD), Skeena Resources (SKE), iShares Silver Trust (SLV), Synopsys (SNPS), UGI (UGI), Wheaton Precious Metals (WPM), and Utilities Select Sector SPDR Fund (XLU).

In today's mailbag, thoughts on the state of the U.S. economy, stemming from the discussion around tariffs from our readers... and a quip about the return of meme stocks that we mentioned in yesterday's edition... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"Subscriber E.G. [in yesterday's mail] states the U.S. is the richest nation in the world. How can the U.S. be the richest nation when it is $38 trillion in debt with some estimates up to $200 trillion in unfunded liabilities in entitlement programs? How is E.G. defining wealth?

"If it's Net Worth then the U.S. has to be close to a $0 net worth. If it's borrowing money and creating it out of thin air to purchase a large amount of consumer goods and leisure activity rather than capital investment, then the U.S. is wealthy.

"I doubt anybody assumes the second definition is a true measure of wealth." – Subscriber Philip M.

"Congratulations, Corey! I believe you just coined a future famous stock market quote: 'I thought we were done with this.' [about meme stocks]. I believe it can join, if not surpass, the well-known 'this time is different' in the pantheon of oft-repeated bubble phrases. I encourage all Stansberry readers and staff writers to have this at the ready to pull out of their quivers when appropriate.

"C'mon, let's get Corey to the top of the algorithms!" – Subscriber Gary S.

Corey McLaughlin comment: Thanks for the laugh, Gary. You lead this charge, and we'll see if it sticks...

Also, for the record, the return of "meme-stock mania" continued today with wild action in doughnut maker Krispy Kreme (DNUT) and the wearable-camera company GoPro (GPRO). Yesterday's favorites – Opendoor Technologies (OPEN) and Kohl's (KSS) – lost more than 20% and 15%, respectively.

All the best,

Corey McLaughlin and Nick Koziol
Baltimore, Maryland
July 23, 2025