DHUnplugged #821: Gold Standard Ahead

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Sellers and Buyers

HERE WE GO: BE NICE TO CLAUDE
- Anthropic prohibits sustained, needless cruelty toward its models; ordinary frustration, pushback and testing are exempt.
- Claude ending abusive conversations remains the main response; account restrictions or suspensions remain possible.
- The policy also removes blanket restrictions on personalized political targeting while retaining bans on deception and voter suppression.

TANKER MAYHEM
- US-to-China tanker hire: about $80 million, versus $74 million for a Falcon 9 launch.
- One US booking reached $41 per barrel in freight, versus $4.50 last year.
- Hormuz shuttle transfers, damaged ships and Africa detours are tying up the fleet.
- Inflation-adjusted tanker rates are the highest since the 1960s, squeezing refinery margins and raising delivered oil costs.

FRANCE SHAKES THE EURO
- France's borrowing premium over Germany reached its highest since the eurozone debt crisis; the euro hit a 17-month low.
- Heavy government spending and political obstacles to fiscal repair are pushing investors toward safer German and Swiss assets.
- Pressure extends into French stocks and corporate credit, while high energy costs add to Europe's economic strain.
- FIGS - Starting to ware on Italy and Greece too.... (Used to be PIIGS)

SOFTWARE MOATS - MEET THE SHOVEL
- REA lets AI agents inspect apps and binaries without source code, understand features and help build comparable versions.
- Potential threat to proprietary software pricing: functionality that took years to develop becomes cheaper to reproduce.
- SaaS still has data, integrations and switching costs; the software itself may become less defensible.
- Not a universal software copier; whether markets have priced in this threat remains an open question.

JAPAN - CYBER EMERGENCY
- Japan issued an emergency cyber warning after widespread attacks on major businesses; Times Car's breach affected 6.6 million accounts.
- AI can lower the cost and skill needed for attacks and help foreign hackers overcome Japanese language barriers.
- AI involvement in this particular wave remains unconfirmed; exposed personal information includes identification and payment details.

FRANCE - HACKERS COOK THE GROCERIES (FAV STORY)
- Hackers hijacked supermarket refrigeration controls, heating units to 122 degrees Fahrenheit; Intermarche initially reported around 150 stores hit.
- Multiple chains suffered spoiled food and reported fires; affected inventory had to be discarded.
- Danfoss said affected refrigeration controllers ran outdated firmware; a shared equipment vulnerability exposed multiple retailers.
- No ransom demand or claim of responsibility had surfaced in the latest report.

JUNK FLASHING YELLOW
- High-yield yields climbed to 8.1%, from 7.22% a month earlier.
- Overall spreads reached 315 basis points; CCC-and-below spreads approached 1,250.
- BB-rated bonds represent over 60% of the market, versus 38% before the financial crisis.
- The warning to watch: widening spreads spreading from weak borrowers into stronger businesses.

CONSUMER DEBT CRACKS
- Nearly 20% of families reported being behind on loan payments, up from about 12% in the prior Fed survey.
- Buy-now-pay-later usage increased from 7% to 12%; median debt payments consumed 15.4% of income.
- Some 8.6% of families spent over 40% of income on debt payments, the highest share since 2013.
- Median real income rose 7%, but median wealth gained only 2%; these are three-year survey comparisons.

TRADE GAP WIDENS
- The monthly US trade deficit widened 13.7% to $105.6 billion, versus $102 billion expected and a revised $92.8 billion previously.
- The goods deficit reached $136.6 billion, offset partly by a $31 billion services surplus; imports grew faster than exports.
- The gap is the widest since the pre-tariff import surge and can weigh on GDP; imports alone do not establish weak domestic demand.
- So much for leveling the playing field - clearly still cheaper to buy goods that are NON US and NO incentive for outher countries to by US

BESSENT'S NEW ADVISER
- Judy Shelton joins Treasury as counselor, advising Scott Bessent on currencies and China's financial conditions.
- Trump's unsuccessful former Fed nominee has advocated a gold standard and questioned traditional Fed independence.
- The appointment gives her a Treasury advisory role without a vote on Fed interest-rate decisions.
- WHY NOW? GOLD STANDARD AGAIN?

ANOTHER BESSENT BLUNDER
- Citi expects Bessent to cut long-bond auction sizes and possibly eliminate 20-year sales; its base case is $3 billion less per auction for both 20- and 30-year bonds, replaced with Treasury bills. Cancellation is not confirmed.
- The aim would be to reduce long-term borrowing costs, but BNP Paribas warns scrapping the 20-year could look like panic, hurt liquidity and push yields higher.

CHINA'S BANK CLEANUP
- China closed 670 lenders last year through mergers and dissolutions aimed at creating larger, better-capitalized institutions.
- Rural-bank bad loans reached 2.8%, versus 1.5% industrywide; thin capital and weak governance remain concerns.
- Closures include consolidation into other lenders; the count does not represent hundreds of simultaneous bank failures.

EARNINGS OPTIMISM RECORD
- Among 116 S&P 500 companies issuing quarterly EPS guidance, 72 guided above consensus and 44 below.
- Technology supplied 44 positive outlooks, led by software and semiconductors; projected tech earnings growth is 65%.
- Positive guidance hit a tracking record; the 62% share applies to guidance issuers, not the entire S&P 500.

EARNINGS TAKE CENTER STAGE
- Tuesday: JPMorgan (JPM), Goldman Sachs (GS), Citigroup (C) and Wells Fargo (WFC); watch loan demand, credit losses, deposit costs and trading revenue.
- Wednesday: Bank of America (BAC), Morgan Stanley (MS) and ASML (ASML); bank outlooks meet a key test of semiconductor equipment orders.
- Thursday: Taiwan Semiconductor (TSM); focus on AI demand, margins, capital spending and guidance after its record quarterly revenue.
- Banks must show whether higher rates are helping profits or hurting borrowers; chipmakers must show whether massive AI spending keeps translating into orders.

GOLDMAN'S BONUS JACKPOT
- About 20 executives are positioned to receive equity awards exceeding $500 million; Solomon's share tops $100 million.
- Waldron and several business heads also benefit from five years in which Goldman outperformed most rivals.
- Previously granted performance awards are reaching payout; this is not a new $500 million annual cash-bonus pool.

TIGER'S PAPER BILLIONS
- Tiger Global could book a $5 billion paper profit as OpenAI discusses raising $30 billion at a $1.4 trillion valuation.
- Tiger initially invested $150 million at a $15.7 billion valuation before ChatGPT launched.
- It added to the position later; the projected profit is not solely on that original investment.
- The financing remains under discussion and gains unrealized; Tiger's hedge and crossover funds gained 9.4% and 19.3%.

BROADCOM FINANCES ITS CUSTOMER
- Broadcom agreed to provide Anthropic up to $42 billion in financing.
- That covers roughly one-third of a $125.2 billion, five-year TPU computing lease commitment.
- Anthropic is expected to become Broadcom's largest chip-design customer next year; financing can convert into equity.
- Anthropic disclosed potential conflicts; certain defaults could accelerate lease payments while restricting financing access.

ANDURIL BUILDS BIG - SUBS
- Anduril plans a $3.7 billion, two-million-square-foot Maryland shipyard for Virginia-class submarine components and assemblies.
- More than 3,100 permanent jobs are targeted as the Navy supply chain struggles to deliver two submarines annually.
- Gecko Robotics will supply robotics, AI software and automated quality assurance; the expansion is still planned.

APPLE WANTS YOUR HOUSE
- Apple reportedly helped LG develop a video doorbell, thermostat, deadbolt lock, temperature sensor and indoor, outdoor and floodlight cameras.
- LG will build and brand the accessories, expanding Apple's ecosystem without Apple producing and supporting every device itself.
- Several devices support Matter and Thread; the lock adds ultra-wideband for proximity-based unlocking, putting the lineup against Ring, Nest and SmartThings.
- LG filings confirm the hardware but do not name Apple; its development role is reported, and accessories remain months away.

AI PRICES YOUR BIG MAC
- McDonald's AI recommends store-level prices using millions of transactions across roughly 14,000 US restaurants.
- Demand and competitor prices feed recommendations; franchisees retain authority, but some describe pressure to follow them.
- Headquarters tracks deviations, nearby stores can charge different prices, and McDonald's warns franchisees about antitrust risks.