DHUnplugged #815: Stupid Does Stupid

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Warm-Up
- Things are getting weird - looks like someone is panicking
- The Dumber side of finance - let's dig in (5 top items)
- Cold War and Hot War - Canada, China and Iran
- Economic "D" day - no one cares
- Saying goodbye to Dolly Parton

Markets
- Gold, Bitcoin moving on a lower USD
- Oil starting to settle
- Big Week - NVDA earnings on tap - all eyes!

STUPID IS WHAT STUPID DOES - A DHU One-Time Series On The Dumber Side of Finance

1) LOWER BEEF PRICES
- Trump plans temporary tariff relief for certain ground-beef imports as U.S. beef prices remain near record highs.
- The plan would allow up to 300,000 metric tons of discounted imported ground beef over roughly 90 days.
- Supposedly this will reduce the prices for consumers
- Ranchers and several farm-state Republicans are pushing back, arguing cheaper imports could hurt domestic producers.
---- Question: Tariff reduction is going to reduce prices for consumers? Didn't someone say that tariffs are paid by the companies and exporting countries???

2) IRAN SANCTIONS - BIG THREAT, LIMITED IMMEDIATE ACTION
- Treasury warned countries doing business with Iran that they could face secondary sanctions, calling it an "economic D-Day."
- New sanctions hit about 60 individuals, companies and vessels, but major Chinese financial institutions were not targeted.
- China remains the biggest buyer of Iranian oil, making Chinese banks the potential pressure point.
- Treasury says sanctions could expand into gold, digital assets, aviation, shipping and other sectors.

3) TREASURY TRIES TO TAME LONG-TERM YIELDS
- Treasury will at least double the maximum size of certain long-term bond buybacks to $4 billion per operation.
- The announcement briefly knocked nearly 10 basis points off the 30-year Treasury yield.
- Critics say this treats the symptom rather than the cause - huge deficits, heavy issuance and persistent inflation risk.
------Bessent had to come out on Friday to say "at least" $4B - as bind yields moved back up
-------Maybe there is a concern over the $40TRILLION debt we have amassed as a country?

4) SOMEONE GOT LONG BONDS AT THE RIGHT TIME
- TLT took in roughly $529 million of net inflows on August 18, one day before Treasury's surprise bond-buyback announcement.
- The next day Bessent doubled planned buybacks of 10- to 30-year Treasurys, immediately pushing long yields lower.
- TLT jumped about 1.7% on the announcement.
- No public evidence identifies a single buyer - but the timing of the unusually large inflow is certainly worth noting.

5) DOLLAR GETS HIT BY THE BOND RESCUE
- The dollar weakened as investors questioned Treasury's expanded bond-buyback strategy.
- The concern is that suppressing yields without fixing fiscal problems simply transfers pressure from bonds to the currency.
- The 30-year yield has remained elevated despite Treasury intervention.
- Bitcoin rallied as investors looked toward alternatives to traditional fiat assets.
- PEOPLE: This is NOT Quantitative Easing - Just a move to buy longer dated and issue more short dated

WALMART FLASHES A CONSUMER WARNING
- Walmart U.S. comparable sales grew just 2.6%, its slowest pace in roughly six years and below expectations.
- Shares dropped sharply after the report.
- E-commerce remained strong, while store traffic and discretionary spending showed more weakness.
- Walmart raised full-year guidance but gave a softer-than-expected third-quarter outlook.
- As America's biggest retailer, Walmart's slowdown is an important read on the broader consumer.

VENEZUELA HAS OIL - BUT CAN'T SHIP IT FAST ENOUGH
- Tankers are waiting as long as 30 days to load Venezuelan crude because of aging ports, outages and equipment failures.
- Venezuela has struggled to push exports much higher despite rising production and strong demand.
- The Jose terminal handles about 70% of exports and has become a major bottleneck.
- Venezuela's ports may impose a physical ceiling on production growth until infrastructure is upgraded.

JANE STREET'S $15 BILLION AI HIT
- Jane Street reportedly lost about $15 billion in July as AI and technology positions moved sharply against the firm.
- A major source of the damage was exposure to concentrated AI trades that were forced to unwind.
- Jane Street posted its first negative month of trading revenue since 2016.
- As a reminder: this episode highlights how quickly crowded AI trades can overwhelm even sophisticated risk-management systems.

LEAVITT LEAVES THE WHITE HOUSE
- Karoline Leavitt resigned as White House press secretary after returning from maternity leave.
- Trump said she would become a top outside adviser and prominent Republican voice heading into the midterms.
- Looking fior a kinder and gentler replacement? HA! probably not

OFF THE HIGHS

• NVDA - 9% off high
• AMD - 19% off high
• AVGO - 23% off high
  MU - 23% off high
• TSM - 13% off high
• MRVL - 28% off high
• INTC - 35% off high

NVIDIA - THE MARKET'S NEXT STRESS TEST
- Nvidia reports Wednesday - now basically a referendum on the entire AI trade.
- Blackwell demand and hyperscaler spending are the key tells.
- A strong guide could quickly reset tech sentiment.
- A miss would raise the uncomfortable question: how much AI optimism is already priced in?
- Revenue expected around $92.1 billion, up roughly 97% year over year.
- Adjusted EPS expected around $2.09, nearly double last year.
- Data Center revenue expected around $85.7 billion - still the main engine.
- Biggest watch items: Blackwell demand, Vera Rubin timing, China sales and hyperscaler capex.
- Options imply roughly a 5%-6% move after earnings.
- Discussion ....

NVIDIA - AI SERVERS GETTING EVEN MORE EXPENSIVE
- Major Nvidia customers have reportedly been warned that AI server prices could rise more than 15% beginning early next year.
- Higher memory costs are the main driver, affecting Grace Blackwell and upcoming Vera Rubin systems.
- Nvidia is effectively passing higher component costs through despite gross margins around 75%.
- ALWAYS INTERESTING THESE ANNOUNCEMENTS SO CLOSE TO EARNINGS - HMMMM

CANADA-U.S. TRADE FIGHT GETS WORSE
- Canada announced retaliatory tariffs on about $20 billion of U.S. goods after Washington imposed new 50% tariffs on Canadian imports.
- Canada's tariffs range from 15% to 50% across roughly 700 products and begin September 8.
- Canada also announced a C$7.5 billion support package for affected businesses and workers.
- Another escalation that could hit autos, manufacturing costs and cross-border supply chains.

HOUSING - BUYERS KEEP DISAPPEARING
- July new-home sales plunged 10.5% to a 607,000 annual rate, the weakest since January.
- Median new-home price fell to $393,800, the lowest in four years.
- Mortgage rates are still around 6.8%, keeping affordability under pressure.
- Only 5.2% of consumers said they expect to buy a home in the next six months - the sharpest drop in more than five years.

JACKSON HOLE - WARSH GETS THE MICROPHONE
- Kevin Warsh speaks next week at Jackson Hole.
- Markets want to know whether sticky inflation, oil and tariffs are enough to keep the Fed in tightening mode.
- Long yields are already doing some of the Fed's work.
- One sentence could move bonds, the dollar and stocks.
- Friday, August 28 at 10:00 a.m. ET.
--- BUT - Didn't Warsh say less communication is more? They can't keep put of the spotlight.

PCE - THE FED'S FAVORITE INFLATION READ
- "The Fed's preferred gauge/measure of inflation"
- July PCE lands next week.
- Watch for tariff, energy and goods inflation creeping back into the numbers.
- A hot print revives hike fears.
- A soft print gives risk assets some breathing room - especially with long yields already elevated.

THE CONSUMER VS. THE AI BOOM - MORE EARNINGS COMING
- Salesforce, CrowdStrike and Marvell give another read on corporate AI spending.
- Dollar General, Dollar Tree, Best Buy and Ulta test the other side of the economy.
- The setup is getting interesting: companies are still spending aggressively on AI while consumers look increasingly selective.
- If that gap widens, it could become one of the bigger market themes into the fall.

AROUND THE WORLD

EUROPE - QUIETLY GETTING INTERESTING
- European stocks slipped this week, but money has started flowing back into the region.
- Euro-zone business activity is growing at its fastest pace this year, while Q2 earnings growth for STOXX 600 companies is running surprisingly strong.
- CONCEPT: Europe may be turning into the anti-U.S. trade - less AI concentration, cheaper valuations, but more sensitivity to energy.

JAPAN - BETTER DATA, WORSE MARKET
- Japan's Nikkei lost about 4% this week even as the economic data improved.
- August manufacturing PMI jumped to 55.1, with new orders rising at the fastest pace since 2018.
- Semiconductors and AI-related demand are helping drive the factory rebound.
- Stronger growth also keeps the BOJ rate-hike discussion alive - good economy, potentially tougher market.

BIG PHARMA - CHINA'S WEIGHT-LOSS GOLD RUSH
- Lilly, Novo Nordisk and others are aggressively targeting China's obesity market, where obesity rates are projected to top 65% by 2030.
- China bans direct prescription-drug advertising, so companies are using subway ads, gyms, influencers and "disease awareness" campaigns instead.
- China's GLP-1 market could reach roughly 30 billion yuan over the next 5-7 years.
- Interesting regulatory gray area: education campaigns that look a lot like drug advertising without actually naming the drug.

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