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Berkshire Adds Google, Delta, Trims BofA, Kroger As Abel Taps Into Record Cash Hoard

While nowhere near as tumultuous as the transformational first quarter in Berkshire's post-Warren Buffett era which saw over a dozen names rotated in and out, in the second quarter there were a few notable changes under Berkshire's new CEO, Greg Abel. 

In a quarter in which Abel spent a net $20 billion on other equities, and repurchased about $4.5 billion of its own stock, leaving it with $365.5 billion of cash at midyear, down from a record $397 billion at the end of March, Berkshire added to its holdings in Alphabet and Delta Air Lines as Greg Abel began tapping into the company’s massive cash hoard. 

After years of relatively subdued deal activity under Buffett, who often bemoaned lofty market valuations, Abel oversaw back-to-back multibillion-dollar transactions in the period.

He spent $6.8 billion to buy homebuilder Taylor Morrison Home, a typical value bet, while also handing $10 billion to Alphabet to support its investments related to artificial intelligence as part of the company's unprecedented ATM offering; the deal represented a new area for the conglomerate which had historically stayed away from most tech names. Here are the other transactions disclosed changes in the Berkshire 13F:

New positions:

• D R Horton (DHI), a tiny new stake worth $580K as of June 30

Raises:

• Alphabet (GOOGL) 48.1MM shares added, or $21.1BN, to $37.8BN as of June 30, making it Berkshire's 3rd largest holding,
• Delta Air Lines (DAL), 17.5MM shares added, or $2.7BN, to $5.4BN
• Lennar (LEN), 3.1MM shares added, to $315.9MM, to $1.2BN
• New York Times (NYT), 553K shares added, or $$169.5MM, to $1.1BN
• Macy's (M), 4.3MM shares added, or $118MMM, to $173.0MM

Cuts:

• Bank of America (BAC), 30.2MM shares sold bringing total down to 483.4MM shares worth $27.5BN as of June 30
• DaVita (DVA), 1.2MM shares sold bringing total to 28.9MM shares worth $6.4BN 
• Kroger (KR), 11MM shares sold bringing total to 39MM shares worth $2.2BN 
• Ally Financial (ALLY), 2MM shares sold bringing total to 27MM shares worth $1.2BN
• Capital One (COF), 4.2MM shares sold bringing total to 3MM shares worth $602MM
• Nucor (NUE), 2MM shares sold bringing total to 1.9MM shares worth $413MM 

Exits:

• Entire position in Constellation Brands (STZ) for $95MM as of March 31. 

Full breakdown:

Source: Edgar

Tyler Durden Fri, 08/14/2026 - 18:50

State Department Revokes Over 175,000 Visas Of Foreign Nationals Accused Of Crimes

Via American Greatness,

President Donald Trump’s State Department has revoked more than 175,000 visas held by foreign nationals accused of crimes since the start of last year, officials said this week, marking one of the administration’s most sweeping efforts yet to remove dangerous individuals from the country.

State Department officials said the majority of revocations targeted foreign nationals accused of assault, drunk driving, theft, drug crimes, fraud, immigration violations and threats to national security.

A significant share of the revoked visas also involved allegations of child abuse, sexual assault, embezzlement and reckless driving.

Among the cases cited by officials, one foreign national lost his visa after being charged with rape and sexual battery of a victim who is mentally disabled. Another had a visa revoked following charges of felony kidnapping, human trafficking and sexual exploitation of a minor.

Other cases included a foreign national arrested for disorderly conduct, resisting arrest with violence, drunk driving and domestic violence, as well as individuals charged with sodomy of a child, aggravated sexual battery, and possession of more than a dozen counts of child sexual abuse material.

One foreign national was arrested for driving with heroin in the vehicle and a blood alcohol level more than three times the legal limit.

A U.S. embassy in North Africa revoked more than 100 visas held by so-called birth tourist parents who officials said traveled to the United States primarily to give birth so their children would obtain American citizenship.

Officials also flagged financial crimes among the revocations, including a foreign national accused of orchestrating a Medicaid scheme that billed more than $5 million for fake services under the guise of a legitimate healthcare business, and another who fabricated company revenue and forged letters to swindle investors and clients while using the false claims to fraudulently obtain a visa.

A foreign national who came to the United States to teach young students was arrested and had his visa revoked after being accused of sexually assaulting one of them.

Several foreign nationals lost their visas after publicly celebrating the assassination of Charlie Kirk, including one who wrote that “when fascists die, democrats don’t complain” and another who said Kirk “died too late.”

Secretary of State Marco Rubio has also moved against foreign nationals deemed threats to national security, revoking the visa of a Cuban national with ties to the communist regime and of Iranian nationals connected to the Iranian government.

Officials additionally revoked the visa of a Laotian child sex offender previously pardoned by Minnesota Gov. Tim Walz, a Democrat, as well as a Kuwaiti national accused of expressing a desire for violence against Trump and referring to Americans as the “enemy.”

Tyler Durden Fri, 08/14/2026 - 18:25

US Accuses Chinese Exporters Of Masterminding "Great Transshipment Scam"

Back in mid-2025, when Trump's renewed trade war with China was all the rage, we said that much of this was hot air and theatrics for the simple reason that many Chinese exporters would find easy ways to evade US tariffs thanks to "transshipments", or using intermediary countries as fake points of origin ...

Why China exports tumbled to the US and rose everywhere else? One word: transshipments pic.twitter.com/y9Pg2ML5ZX

— zerohedge (@zerohedge) May 10, 2025

... and none more so than Vietnam, which quickly emerged as the central nexus in US tariff evasion.

Record Vietnam transshipments by China pic.twitter.com/SBCsRrWLeh

— zerohedge (@zerohedge) August 8, 2025

It appears the Trump admin finally got the memo, and on Thursday it released a sharply worded report accusing Chinese exporters of orchestrating a system of “illegal transshipment” through more than 40 third countries to dodge US tariffs, branding the practice “The Great Transshipment Scam”.

The 25-page document confirms what we reported for much of 2025, and claims Chinese firms systematically diverted goods through lower-tariff jurisdictions since the US kicked off its trade war with China in 2018.

It alleges that exporters use limited assembly, relabelling, repackaging, re-invoicing and false country-of-origin declarations to disguise Chinese-origin products and secure more favourable tariff treatment on entry into the US.

The White House report said that Chinese exporters have “increasingly routed goods through third countries … where limited assembly, finishing, repackaging, relabelling or documentation changes could create the appearance of a different national origin.”

“For years the great transshipment scam has led Communist China to launder its exports through more than 40 countries, rob our treasury of tens of billions of dollars, and steal the paychecks of American workers,” said Peter Navarro, the White House senior counsellor for Trade and Manufacturing.

“This report rips the mask off.”

The Chinese embassy in Washington said that Beijing opposed the “overstretching of the concept of national security” and the use of state power to suppress Chinese enterprises”. It also warned that any “unilateral actions or agreements concerning transshipped goods must not target or harm the interests of third parties.”

“We firmly oppose any party seeking to strike a deal at China’s expense or engaging in baseless economic coercion that severely infringes upon the legitimate rights and interests of relevant enterprises and gravely disrupts the stability of global industrial and supply chains,” embassy spokesperson Liu Chang said adding that “should such situations arise, China will resolutely take necessary measures to safeguard its legitimate rights and interests.”

The 40 countries named as participants in the China-linked “Great Transshipment Scam” include major US trading partners such as Canada and Mexico, as well as allies such as Japan, South Korea, the European Union and Israel. Most Southeast Asian countries are also on the list, among them Indonesia, Malaysia, Thailand, Vietnam, Singapore, Cambodia, Laos, Myanmar and the Philippines. South Asian countries such as India, Bangladesh and Sri Lanka are also named.

The findings come amid tit-for-tat economic actions between Washington and Beijing and one month before Chinese President Xi Jinping is expected to visit Washington for a leader-level summit with US President Donald Trump.

The report cited a range of third-party estimates for the annual value of goods involved in illegal or suspect transshipment, spanning roughly US$40 billion to US$303 billion. 

Assuming $75 billion in annual illegal transshipment, the administration estimates that roughly 450,000 American jobs have been displaced and up to $150 billion of GDP has been lost. These figures are described as model-based illustrations rather than observed counts.

Applying illustrative tariffs of between 25 to 45%, the report estimates annual US revenue losses in the “tens of billions of dollars”.

The report says that the administration will increase the use of artificial intelligence to monitor trade and spot transshipped goods, an initiative it calls the “Detective Border”.

The publication coincides with Washington’s efforts to close what it sees as a major loophole in its tariff regime.

Mexico has drawn particular scrutiny because of its free trade pact with the US and rising Chinese investment and flows of Chinese-made components into Mexican factories. Those concerns are now central to the ongoing joint review of the United States-Mexico-Canada Agreement (USMCA). The US has declined an automatic 16-year extension of the pact, citing issues including concerns over Chinese transshipment.

Navarro termed Mexico as “one of the biggest transshippers,” where China uses the USMCA “tariff rates of nothing” and “sneak stuff in”. 

“Communist China has engaged in an extremely sophisticated set of actions that are designed essentially to transship and thereby evade the tariffs,” Navarro added.

As SCMP notes, an analysis by the Coalition for a Prosperous America, a lobby group for the US manufacturing industry, estimated that about US$14 billion in Chinese trade was diverted and transshipped to the US after the 2025 tariff escalation, with Asean countries accounting for the majority.

Washington has already moved to tighten the rules. A 2025 framework agreement with Vietnam imposed a 40 per cent tariff on goods deemed to have been transshipped, twice the rate applied to ordinary Vietnamese-origin shipments. Similar anti-transshipment provisions have been included in other bilateral arrangements and executive actions targeting indirect shipments.

Asian manufacturing hubs such as Vietnam and Thailand are also under growing scrutiny. Trade data earlier this year showed a roughly $112 billion gap between China’s reported exports to the US and arrivals recorded by US Customs and Border Protection, a discrepancy widely seen as a sign of large-scale tariff circumvention.

Although the report concludes that it “is too early to determine the net effect of the Administration’s tariff and anti-transshipment policies”, it serves as a reminder that the tariff heat remains on.

In July last year, an executive order extended a 40% penalty tariff to goods that US Customs and Border Protection determines were transshipped to evade duties. The penalty is imposed on top of any country-of-origin tariff. The administration has also begun publishing lists of countries and facilities linked to suspected tariff evasion schemes. 

The White House report came a day after Senator Bernie Moreno, a Republican from Ohio, urged Homeland Security Secretary Markwayne Mullin to intensify the crackdown. In an August 12 letter, Moreno called the practice “a deliberate scheme by foreign manufacturers, overwhelmingly based in China, to falsify where their goods are made, launder them through a third country, slap on a new label and dump them into the American market.”

He said that Chinese auto parts routed through Thailand had affected manufacturing in Ohio.

Tyler Durden Fri, 08/14/2026 - 18:00

Democratic Party Committee Advances Resolution Demanding ICE Be Abolished

Authored by Nathan Worcester via The Epoch Times,

Democrats have edged closer to vowing to end Immigration and Customs Enforcement (ICE).

Federal agents monitor protesters in front of Immigration and Customs Enforcement offices in Portland, Ore., on Oct. 4, 2025. John Fredricks/The Epoch Times

At its summer meeting in Austin, Texas, on Aug. 13, the Democratic National Committee's Resolutions Committee approved a resolution that calls for the abolition of ICE, an agency at the center of the Trump administration's immigration law enforcement effort.

It could be approved by the full DNC as Democrats mull their message ahead of the 2026 midterm elections.

The resolution, which passed 25 to 12, was introduced by Michele Johnson, a DNC committeewoman from Louisiana.

In 2024, the website of the New Orleans Democratic Socialists of America described Johnson as a member of its chapter.

"The DNC urges Democratic members of Congress to craft legislation abolishing ICE and enacting immigration reform that provides pathways to citizenship, protects workers, and ensures dignity for all impacted people," the resolution reads in part.

The resolution cited the deaths of ICE detainees and allegations of poor conditions at detention facilities.

An amendment from Idaho's Terri Pickens that would have changed the word "abolishing" to "completely restructuring" was withdrawn.

At the meeting, Johnson said she wanted to go beyond merely calling for reforms.

She said "abolition may feel intimidating or radical," but the death of anti-ICE protester Renee Good in a Minneapolis confrontation with ICE agents and other incidents, as well as White House Deputy Chief of Staff Stephen Miller's call for 3,000 arrests per day, helped motivate her desire to eliminate the agency altogether.

"No amount of tinkering at the edges will make the culture change," she said, alleging that the agency "treats all individuals with my skin color and darker like criminals."

The resolution touched off a spirited debate among the Democrats present, with some urging reform rather than abolishment.

Marge Hoffa, the DNC's Midwestern regional vice chair, noted that the DNC previously passed resolutions advocating ICE reforms, including during the same meeting, that fell short of pushing to abolish the agency.

That reform resolution came from the DNC's current chairman, Ken Martin, who, like Hoffa, is from Minnesota.

"We shouldn't contradict ourselves by also introducing a resolution that would now call to abolish something that we have [a] well-established track record of calling to be drastically reformed," Hoffa said.

Ada Briceño, a Californian, voiced support for the resolution, noting that her family and friends included people illegally present in the United States.

"I don't trust this organization, this ICE, with my life, or anybody else's life," she said.

Texas's Jeff Strater said he backed the resolution without amendments.

"I am fully aware that this body has passed resolutions reforming ICE - I voted for them - but I'm also here today to vote in alignment with my state Democratic Party," he said.

Natalie Baldassarre, the national press secretary for the Republican National Committee, criticized the resolution.

"If Democrats had any backbone they'd vote down this dangerous proposal and put American citizens first," she said in a statement, adding that ICE under President Donald Trump has mostly targeted alleged or convicted criminals.

Tyler Durden Fri, 08/14/2026 - 17:40

Investors Sue Selena Gomez Over Mental Health Startup

Authored by Kimberley Hayek via The Epoch Times,

Singer and actor Selena Gomez was sued Thursday by investors who say the “Only Murders in the Building” star committed fraud by failing to fulfill duties to build and promote her mental health startup.

The plaintiffs invested nearly $1.2 million in Wondermind Global, which was launched in 2021 to help users improve their “mental fitness.”

Investors said they put money into the startup believing that Gomez’s involvement would drive growth. Her role as head of marketing was presented as central, and the sheer size of her social media audience—500 million followers—was part of the pitch.

They argue that Gomez and other company leaders did not deliver any of what they had promised, including a mobile app.

“There was no legitimate enterprise in the works, much less a lucrative one,” the plaintiffs said.

They said the company failed to meet “even its most basic obligations, such as timely paying its employees and vendors.”

The lawsuit maintains that shortfalls left no real business. The investors describe an enterprise that never got off the ground.

Investors said they were assured Gomez would actively promote the venture as head of marketing and “chief impact officer.”

The complaint alleges she signed a contract but largely failed to perform those duties.

“Gomez purported to sign a contract obligating her to perform and then ignored it,” the lawsuit said.

The lawsuit also names Gomez’s mother, Mandy Teefey, a co-chief executive, and former business partner Daniella Pierson as defendants, along with Wondermind Global itself. Court papers allege the defendants overstated the company’s 2022 valuation at $95 million and claimed partnerships with firms such as JPMorgan Chase and Fidelity that never existed.

Plaintiffs maintain they remained unaware of operational shortfalls—including late payments to employees and vendors—until a September 2025 article in The Cut described the company’s collapse and related internal conflicts. Teefey previously disputed aspects of that reporting in a statement to media outlets. Pierson, who departed in 2023, denied the claims against her in a statement to news outlets on Thursday and said she welcomes the chance to present financial records.

Representatives for Gomez and Teefey could not be reached for comment.

Wondermind debuted in 2021 to offer newsletter-based mental health resources. The case was brought in Delaware federal court. It seeks a jury trial, repayment of the nearly $1.2 million investment, additional damages, and attorney fees.

Tyler Durden Fri, 08/14/2026 - 17:00

Flock Blinks: Surveillance Giant Slashes Data Retention After 50 Jurisdictions Walk, Cams Destroyed

Flock Safety, the startup that blanketed America in automated license plate readers (ALPRs), announced Thursday that it is dialing back its expansive platform. The company is significantly shortening its data retention windows, requiring police to justify every search, and allowing cities to block neighboring jurisdictions from querying their cameras for immigration enforcement.

Not even (paid?) damage control by Bari Weiss' The Free Press could salvage the situation. 

Today I found out that the person behind this pro-Flock propaganda piece put out by The Free Press, is Bari Weiss.

This is the same Bari Weiss that suppressed a 60 minutes piece on Jeffrey Epstein's banking relationships.

It turns out that, under Bari's leadership, the story… https://t.co/5KGGdca8TI

— Orwell Day (@OrwellDay) August 5, 2026

And with the 'Get the Flock Out' movement in full swing, more than 50 agencies and municipalities have canceled, suspended, rejected, or simply unplugged their Flock contracts since January, according to a tracker maintained by DeFlock. In July, Republican members of Congress filed at least two bills aimed at severely restricting the systems.

Others haven't waited for legislation. A Guardian investigation documented 33 destruction incidents across 23 states - cameras smashed, sawed off their poles, or hauled away entirely. One activist told AFP he has personally disabled roughly 30 devices and posts instructional videos to some 500,000 Instagram followers, while the DeFlock America Facebook group has grown past 600,000 members crowdsourcing camera locations and disabling techniques. In Oregon, six poles were cut down and a note left at the base: "Hahaha get wrecked ya surveilling fucks."

Fusion centers are now monitoring the surveillance state's opponents. Intelligence bulletins obtained by 404 Media through public records requests show law enforcement tracking anti-Flock TikTok and Instagram accounts, flagging "extensive and ongoing chatter on social media" about methods to "physically destroy Flock LPR cameras," and instructing departments to increase patrols around camera sites.

New Policies

Flock operates roughly 120,000 cameras nationwide, recording the plate numbers, makes, models, and bumper stickers of practically every car that passes. Thousands of law enforcement agencies across 49 states can search that data and share it seamlessly across jurisdictional lines.

According to CEO Garrett Langley's announcement, the platform is undergoing several major structural shifts:

• Retention Drops to Seven Days: Default data retention is shrinking from 30 days to just seven. Longer holds will now require data to be explicitly tied to an active case number as evidence.
• Mandatory Case Numbers: Every search query must now be labeled with a criminal case number to proceed.
• Automated Audits: A tool that flags abnormal search behavior is now mandatory for all law enforcement customers. If tripped, the system automatically locks users out pending an internal review.
• Jurisdictional Firewalls: Cities can now restrict what outside agencies are allowed to search their cameras for. Langley noted, "City A could allow City B to search its cameras only for a stolen vehicle, missing person, or violent crime while blocking searches related to immigration enforcement."

So, cities can choose not to help ICE catch illegals.

That feature exists for a reason. 404 Media found Flock's lookup tool aided at least 4,000 immigration-related searches between Trump's inauguration and May 2025 - including queries run in states that had banned local law enforcement from cooperating with ICE.

The policy shift also comes on the heels of a glaring security failure. Langley disclosed that a glitch discovered in December 2025 left some of Flock's AI-powered pan-tilt-zoom (PTZ) cameras exposed to the public internet. "For a brief period of time, third parties were able to access live streams and footage from those cameras," Langley admitted, attributing the breach to a vendor's network configuration error before adding, "We are accountable."

Meanwhile, earlier this month a North Carolina police officer was arrested for allegedly using Flock's plate readers to track her boyfriend's ex-wife. So random cops abusing Flock systems has been another issue. 

An issue at scale, it turns out. The Washington Post reported this month that it found nearly 50 instances of officers charged or accused of using the cameras for unauthorized purposes, many of them tracking current or former romantic partners or family members. Four Richmond County Sheriff's Office employees have been arrested and fired since June for personal searches. This week, six Savannah Police Department employees - including four officers - were fired for searching friends and family and letting an outside agency use the city's cameras. Savannah says it caught them using Flock's audit function - the one that only became mandatory on Thursday.

Bipartisan Backlash

The movement against Flock doesn't break down cleanly along party lines. Lawmakers from both sides of the aisle, civil liberties organizations like the ACLU, and ordinary residents at local town halls have converged on the company.

While ALPR technology isn't new, Flock's hyper-aggressive expansion and easy-to-use search interface made the surveillance uniquely visible. The backlash unites left-leaning advocates concerned about over-policing and civil rights with right-leaning advocates concerned about constitutional privacy and government overreach.

As one surveillance-law scholar told the Associated Press, the "growing community backlash" aimed specifically at Flock has captured a profound cultural shift: people don't want their daily movements tracked.

Tyler Durden Fri, 08/14/2026 - 16:40

Forget CDOs, Meet CCOs: This Isn't A Tech Cycle... It's 2008 With Silicon

In July, the appropriately-named 'Groundbreaker' website laid out a structural diagnosis that most of the market still refuses to confront: the AI boom is not a technology cycle. It is a credit-driven real-estate-like cycle whose financing architecture depends on the second derivative.

Levels (backlogs, gigawatts, revenue, token usage) and the first derivative (growth rates) remain the only numbers anyone watches.

The second derivative - the acceleration of that growth - is where regime change actually lives.

Structures built on the assumption of perpetual acceleration do not require a collapse in demand or a decline in absolute spending to break.

They break when growth merely stops accelerating.

That is the 2008 mechanic, not the 2000 one. And the collateral of this particular cycle is not houses. It is compute.

Six weeks later, Nvidia has made the thesis explicit.

With the $1.8 trillion off-balance-sheet time-bomb still ticking, 'Collateralized Compute Obligations' are the biggest red flag so far...

This week the company signed memorandums of understanding with Apollo, BlackRock, Blackstone, Brookfield, Goldman Sachs, and KKR to stand up independent “compute financing platforms” designed to mobilize more than $500 billion of third-party capital.

The pitch is no longer subtle: Nvidia’s GPUs are now an investable asset class. Chips can be housed in special-purpose entities, pledged as collateral, and financed against the cash flows they are expected to generate - exactly as buildings or toll roads once were.

Jensen Huang has said the quiet part out loud: technology chips have become collateral.

Residual-value support from Nvidia itself (capped, for now, at 25% on certain deals) sits in the background, the modern equivalent of a residual guarantee in a leveraged lease.

This is not a side deal or a customer accommodation. It is the formalization, at half-a-trillion-dollar scale, of the very architecture the July note described: hard assets, long-duration debt, take-or-pay economics, and a financing stack that only remains solvent while the underlying growth rate continues to accelerate.

The bond market and private credit are no longer merely funding the build-out. They are being invited to treat the GPUs themselves as the primary security.

The second derivative was always the only number that mattered. Nvidia has now put a $500 billion price tag on the claim that the market still refuses to watch it.

Here's Groundbreaker's full note from July: (subscribe here)

The Second Derivative: Why No One Understands the AI Boom

The market misremembers 2008. That same blind spot sits at the center of the AI boom.

Ask a portfolio manager what caused the 2008 mortgage crisis and you will hear a tidy causal chain: lax underwriting produced loans that should never have been made, home prices crashed, borrowers found themselves underwater, they defaulted, and the securities written on top of those loans detonated. Prices fell, therefore borrowers defaulted. It has the great virtue of sounding obvious. It is also, as a matter of sequence, wrong. It is the same error the market is making right now about the AI boom.

The subprime machine did not run on prices. It ran on the change in prices, and more precisely on the change in that change. The canonical product of the era - the 2/28 and 3/27 hybrid adjustable-rate mortgage - was not designed to be repaid on its stated terms. It was designed to be refinanced.

A borrower took a low “teaser” rate for two or three years. The implicit underwriting assumption, shared by originator and borrower alike, was that the loan would never reach its reset: rising home values would manufacture equity, the borrower would refinance into a fresh teaser and the clock would start again. The structure was a treadmill, and the treadmill was powered by appreciation. It worked spectacularly while it worked. Nearly four in five subprime hybrid ARMs originated in 2003 had been refinanced away by the end of 2006.

Now watch the timing. National home-price appreciation did not crash in 2006. It decelerated. The year-over-year rate of gain, which had run in the mid-to-high teens through 2004 and into early 2005, began bleeding off - still positive, still printing green, but slowing. Prices were higher than they had ever been. And yet, with prices at their peak and still rising, subprime delinquencies inflected upward.

Delinquencies turned up in 2006 - while appreciation was still positive. The price decline came later.

This is why the popular causal story is, in economist Didier Sornette’s phrase, “right mechanically” but “wrong because it takes the fall in house prices as exogenous” - as though the decline simply arrived one day, a meteor from outside the system. It did not arrive from outside. The deceleration was endogenous to the structure; the structure required ever-accelerating prices to keep refinancing its way out of its own reset schedule, and no series accelerates forever.

The second derivative was always going to roll over. When it did, the first derivative followed it down through zero, negative equity spread from the margin inward, and the defaults the market insisted were caused by “falling prices” had in fact begun a year earlier, when prices were still rising but had stopped rising faster.

II. A Short Theory of Derivatives

Let the relevant quantity be S. Three numbers describe it. The level is S itself: how big the thing is. The first derivative is the velocity, S′: how fast it is growing. The second derivative is the acceleration, S″: whether that growth is itself speeding up or slowing down. Markets are instrumented to observe the first two and almost entirely blind to the third. Sell-side models forecast levels. Momentum strategies trade the first derivative. Virtually nobody builds a position around the second derivative.

Yet the second derivative is precisely where information about regime change lives, for a structural reason. When financing embeds a growth assumption - a reset that presumes refinancing, a covenant that presumes rising cash flow, a commitment sized to presumed expansion - the assumption is satisfied not by the level being high but by growth being sustained. Sustained growth at a declining rate still satisfies the headline (“revenue grew 40%!”) while quietly violating the embedded premise (“…but the incremental capacity we committed to assumed it would grow 70%”). The gap between what the headline shows and what the structure needs opens silently.

There is a window - call it borrowed time - between the moment the second derivative rolls over and the moment the first derivative crosses zero. During that window everything looks fine. Revenue is at record highs. Growth is still positive. The press releases are triumphant. And the machine is already broken; it simply has not been told yet.

Borrowed time is dangerous in exact proportion to the convexity of the instruments riding on top of S. A long-dated equity multiple is roughly linear in expectations; it can deflate slowly and reflate, the way the dot-com index took two years to bottom and many survivors simply de-rated. A leveraged credit structure is negatively convex: it earns a fixed coupon on the way up and absorbs unbounded loss on the way down, and its covenants are step functions, not smooth curves. This distinction - between an equity story that can drift and a credit story that snaps - is the difference between 2000 and 2008. It is also the difference between what the market thinks AI is and what AI actually is.

III. The AI Boom is a Credit-Driven Real Estate Cycle

Open any AI bull or bear note and observe what it argues about. It argues about levels - how many billions of revenue, how many gigawatts, how large the total addressable market - and about the first derivative - is growth 200% or 150%, is enterprise inflecting, are tokens-per-minute rising. The bears say the levels are unsustainable; the bulls say the growth justifies them. Both camps are staring at S and S′. Neither is watching S″. And the entire financing architecture erected over the past twenty-four months is a bet on S″ - on the acceleration of demand continuing - dressed up as a bet on the level.

This matters because the dominant analogy in everyone’s head is the wrong one. “Is AI a bubble like dot-com?” is the question being asked, and it produces dot-com answers: maybe the leaders survive and the laggards wash out; maybe multiples compress; maybe we get a 50% drawdown and a recovery. That framing is a category error.

The year 2000 was an equity-multiple event - too much optimism priced into stocks with thin balance sheets and almost no debt. The pain was real but it was equity pain, and equity is patient capital that can simply be marked down and held. The AI build-out is structurally different. It is increasingly financed not by selling overpriced equity but by contracting future cash flows and borrowing against hardware - take-or-pay capacity deals, GPU-collateralized term loans, off-balance-sheet vehicles, asset-backed notes sold to insurers. That is not the architecture of 2000. That is the architecture of 2008.

There is a deeper misclassification beneath the 2000-versus-2008 question, and it is the one that does the real damage. The market is pricing AI as a technology cycle when its actual anatomy is that of a credit-driven real estate cycle - which is precisely why the 2008 mechanics apply - and the two break for entirely different reasons.

Technology cycles are driven by innovation and adoption; their risks are obsolescence and competition; they live or die on whether the product is wanted, and they can de-rate slowly as the future is repriced.

Real estate cycles are mechanical: leverage, hard assets, occupancy - debt-financed construction at scale, commercial leases disguised as take-or-pay contracts, and long construction lags that guarantee supply arrives after demand has turned. Walk down the AI build-out and every feature is a property development in disguise: a data center on entitled land, financed with debt against the structure and leased to tenants on take-or-pay terms. This is not a software business that happens to own servers. It is a real estate business that happens to compute.

Real estate cycles break the same way every single time. Not when demand collapses - it rarely does - but when the rate of demand growth decelerates against the fixed supply the boom has just finished building. The second derivative again, in the one asset class where it has been studied for a century.

And the credit machine does not de-rate gently. It refinances or it seizes. The instruments that seize - take-or-pay leases, GPU-collateralized term loans, asset-backed notes - are each negatively convex. Within this machine, the financing mechanics diverge: the pure-play neoclouds borrow non-recourse debt against a specific tenant’s take-or-pay and collapse into seizure when the tenant can’t pay. The hyperscalers fund with corporate bonds and operating cash flow; for them, a tenant default means impairment and margin compression, not seizure. Oracle sits between them: corporate-funded but dangerously concentrated.

The distinction matters because the seizure and the impairment are two different wounds, inflicted by the same deceleration, and both are hiding inside the same $2.1 trillion backlog. But to price the credit quality of that book, we must look past the total headline RPO to the core structural exposure. Across the big four platforms, the RPO that Wall Street values as forward revenue is, in reality, a concentrated credit exposure to a handful of cash-burning frontier model labs and specialized AI tenants.

The hyperscaler has, in economic substance, extended a concentrated infrastructure credit facility to tenants with no independent operating income. If those tenants default, the backlog evaporates into non-cash impairments, leaving the corporate balance sheet to absorb the fixed costs of customized, rapidly depreciating capital assets.

IV. The Loan Book Nobody Calls a Loan Book

Look past the compute scarcity narrative and see these agreements for what they really are. A frontier lab signs a contract promising to pay a counterparty tens of billions of dollars, over several years, for compute it has not yet consumed. The counterparty - Oracle, CoreWeave, a hyperscaler - books that promise as backlog and borrows against it, raising debt to pour concrete and rack GPUs. Reduce the arrangement to its skeleton and it is a loan: the counterparty advances capital in kind - a building full of chips - against the borrower’s commitment to pay it back, with interest and principal amortization baked directly into the take-or-pay rate. The data center is the collateral. The lab’s contracted payments are the debt service. And the structure performs only so long as the borrower can keep funding those payments - which, for a company with no profits, means only so long as it can keep raising money.

This is precisely why the analogy is 2008, not 2000. AI capital expenditure is not a capital budget. It is a loan book. Leases in form; debt in substance. The capex is the funded principal; the contracted backlog - the remaining performance obligation, in the filings - is the lease receivable. When a hyperscaler or a neocloud reports a record capex figure, the financial press reads it as confidence, as proof of demand. Read it instead as origination volume. Each gigawatt of committed build is a loan extended to whichever tenant has signed the take-or-pay beneath it, and the credit quality of that loan is precisely the credit quality of the tenant. The market is celebrating loan growth and calling it revenue growth.

V. The Borrower With No Income

Every subprime cycle has a borrower who could only refinance, never repay. In this one, that borrower is OpenAI.

OpenAI has committed to pay for compute on a scale without precedent in corporate history: multi-year, take-or-pay capacity contracts whose aggregate obligations run to the hundreds of billions of dollars. Against them sits an operating business that does not yet earn a profit - revenue real, large, and growing quickly, but short of covering the company’s own cash burn and nowhere near covering the contracted payments.

Those payments are therefore not serviced out of earnings. They are serviced out of financing, and financing, for a borrower in this position, is available on a single condition: that each new round price above the last.

For OpenAI the up-round is not a measure of progress; it is the funding event itself -the mechanism by which the prior period’s commitments are paid and the next period’s are made signable. The markup is the cash flow.

A company funded by its own appreciation is solvent not in proportion to how high the mark stands but in proportion to how fast it is still rising - because a burn rate is an accelerating schedule, indifferent to the size of the last round. Each new phase of compute expansion demands an exponentially larger cash injection. When the step-up compresses from 1.91× down to 1.23×, the math breaks: the valuation can print a record at the precise moment the company’s capacity to fund its structural deficit is contracting. This is not a paradox; it is the arithmetic of a borrower whose liquidity is bound to the first derivative of its own price.

And that value is set by the very capital providers who need it to keep rising. OpenAI’s most recent round - reported at roughly $122 billion of fresh capital - set its valuation near $852 billion, with the same names underneath it: Microsoft, SoftBank, Nvidia, Amazon. These are the counterparties whose compute the proceeds will buy. The mark goes up because money came in; more money comes in because the mark went up. The appraiser, the lender, and the buyer are the same three people, passing the same dollar in a circle and marking it higher on each pass. It works gloriously - for a while - for exactly the reason the 2/28 worked: as long as the mark keeps rising, the lab can refinance.

Measured as a level, OpenAI’s valuation is the most remarkable appreciation in the history of private markets - roughly $86 billion in early 2024, then about $157 billion, $300 billion, $500 billion, and approximately $852 billion by the spring of 2026. Measured as a rate of change, the same series inverts: the round-over-round step-up ran 1.83×, 1.91×, 1.67×, 1.70×, and falls to roughly 1.23× implied by the reported public-offering target. Private marks are inherently lumpy - negotiated, episodic, set by a handful of insiders - so no single step is decisive. But the trend is unmistakable: it bends down, and it bends hardest at the one mark set by the deepest, most unforgiving pool of capital - the public market. The implied IPO step-up is both the lowest in the sequence and the hardest to negotiate, and it is the one the structure must actually clear. This arithmetic is also the most probable explanation for OpenAI’s recent IPO delay.

This deceleration is not arbitrary. It reflects the two structural headwinds directly attacking the revenue growth the marks require: token efficiency and Chinese open weights. The industry’s central optimization project - routing simple queries to cheap models and trimming ‘thinking’ tokens - has eroded the token-per-task tailwind that padded revenue. Meanwhile, Chinese open-weight models have repriced the commodity middle of inference to near-zero, capturing over 60% of OpenRouter tokens at a fraction the price. Revenue still grows - adoption is real - but the rate of growth is precisely what is under attack, and the rate is what the next mark needs to clear.

VI. The Lender’s Backlog

Move up one level, from the borrower to the lenders. The credit they’ve extended takes a specific form: remaining performance obligations - RPO - the contracted revenue a company has under signed agreement. The backlog. Wall Street loves backlog; it reads as visibility, as demand pulled forward and locked in.

On the hyperscaler balance sheets that backlog has swelled into the hundreds of billions apiece, and every quarter the growth in RPO is presented as proof that the demand is real and the buildout justified. The larger the backlog, the more secure the story: a company does not build a gigawatt on a hope, it builds it against a contract.

An RPO is not a liquid asset; it is a forward contractual commitment - a promise of future payment in exchange for future compute. And a multi-year commitment is worth exactly the creditworthiness of the entity on the other end of it. When that entity is investment-grade and cash-generative, the backlog is what it claims to be: high-quality visibility, merely deferred. When that entity is a pre-profit company that loses tens of billions a year and can pay only by continuously refinancing its own equity valuation, the backlog is something else entirely. It is a subprime commitment, used to justify massive, un-depreciated capital expenditure, reported to shareholders as structural strength.

Now price the credit quality of that book. Of roughly $2.1 trillion in aggregate contracted backlog across the four big platforms, about half - on the order of $1.05 trillion - is owed by OpenAI and Anthropic. Microsoft’s book is about 49% these two names; Oracle’s is 54%, with roughly $300 billion owed by OpenAI alone; Google’s is 43%; Amazon’s is 51%.

The hyperscaler has, in economic substance, extended a concentrated, unsecured loan to cash-burning tenants. The RPO that Wall Street values as forward revenue is, in reality, a credit exposure to borrowers with no operating income.

Here the bulls raise their strongest objection. Yes, they say, the frontier labs burn cash now - but so did Amazon, so did every great compounding business in its infrastructure-building phase. Burn is investment; the labs will grow into profitability; the borrower of today is the cash machine of tomorrow. Half right. There is no single frontier-lab borrower. There are at least two, and they are not the same credit.

Anthropic is a speculative-grade, but highly insulated, credit. Its revenue is ~80% enterprise - sticky, recurring, contracted seats - and its unit economics are firmly above water, generating $1.70 of revenue for every dollar of compute. Burn converges to a manageable ~9% of revenue by 2027 as gross margins normalize.

More importantly, Anthropic’s liabilities are protected by a classic 2008 “monoline wrap” maneuver. In the ~$35B Apollo/Blackstone TPU facility, Anthropic’s paper borrows the rating of its investment-grade backers: Google guarantees lease shortfalls, and Broadcom guarantees the residual value of the silicon on the ~$31B senior tranche. The co-signers are standing behind the bills and protecting Anthropic’s counterparties.

OpenAI is the “naked” borrower, making it the weakest and most volatile credit in the ecosystem. Its revenue mix is fragile - ~60% consumer. With burn hovering at a crushing ~57% of revenue through 2027 and cumulative cash destruction marching toward $115B by 2029, OpenAI has no path to positive cash flow this decade.

Worse, OpenAI has no real co-signer. While the market long priced in an implied Microsoft backstop, Microsoft stripped away every structural strut in April 2026 - ending the revenue share, dropping exclusivity, and surrendering its right of first refusal to supply compute. Microsoft kept its 27% equity upside but walked away from OpenAI’s bills. SoftBank, the other great OpenAI backer, is itself now trying to raise a $10B margin loan against its OpenAI stake - offering a personal guarantee after lenders balked at the collateral. Even the co-signer has no co-signer.

Microsoft’s own behavior is the signal. The most informed counterparty in the complex - the one that saw OpenAI’s books from the inside for years - has recognized the credit risk. Rather than building its own compute on fifteen-year leases that outlast the chips, it foresaw the commoditization of frontier models and committed over $60B to neocloud providers through shorter, five-year capacity agreements: renting at the peak to avoid owning through the trough. That is not a bet on OpenAI’s durability. It is a lender shortening duration on a borrower it has decided not to underwrite - the same subprime credit this section describes, priced by the party that knows it best.

The critical divergence here is counterparty risk. When an investor or lessor underwrites Anthropic, they are ultimately looking through the structure to underwrite the pristine balance sheets of Google and Broadcom. The credit risk is synthetically lifted to investment-grade. When underwriting OpenAI, there is no look-through. Counterparties are exposed to a naked, standalone start-up sitting on an underwater unit economic model. Without a parental balance sheet, OpenAI is entirely dependent on a continuous refinancing treadmill - servicing each old obligation with the proceeds of the next, larger equity raise. That is the counterparty risk hiding inside roughly half of the $2.1 trillion backlog the market has priced as bankable.

VII. The Reflexive Flip

The take-or-pay contracts are the structural foundation - the collateral that makes the borrowing possible. But they are not a passive constraint. The Nash equilibrium is what pushes the hyperscalers to sign those contracts in the first place, and to sign them at ever-larger scales. The race does not bypass the loan book; it writes the loan book. To justify the next gigawatt of spend, a hyperscaler needs the next gigawatt of backlog - so it pushes its tenants to commit further forward. The $2.1 trillion backlog is not a pre-existing limit on the arms race; it is the arms race’s own paper trail. The contracts are the collateral; the race is the demand for more collateral.

Once that collateral is signed, it must be converted into infrastructure before the cash arrives. That conversion - the act of turning a signed contract into a live data center - is what drives the capex machine. And that machine is now consuming cash faster than the backlog can validate it.

The year the cash runs out - capex converges on 100% of operating cash flow.

Aggregate capex as a share of operating cash flow ran near 30% in 2022, roughly 42% in 2023, about 50% in 2024, and approximately 60% in 2025; on consensus spending it reaches 100% in 2026. Above that line, by definition, every marginal dollar of capacity is funded not from internal cash but from the balance sheet - debt or equity. The “fortress balance sheet, self-funded” story is true only below 100%, and the consensus path crosses 100% this year. The fortress is not being defended; it is being spent.

Past 100% of cash flow, accelerating capex means borrowing more, faster, every quarter, against a rating that only has so many notches left. Hyperscaler debt issuance has to climb steeply over the coming year - the bond market becomes the marginal funder of the entire build.

Why are hyperscalers betting over 100% of operating cash flow on an uncertain return?

Because, until now, they have been paid to. Capital expenditure has gone vertical: roughly $150 billion in 2023, $226 billion in 2024, $410 billion in 2025, an estimated $725 billion in 2026, and approaching $1.1 trillion in 2027. As a level, it is the largest private capital-formation event in history. As a first derivative, the growth rates read +51%, +81%, +77%, +52%. And as a second derivative, the acceleration peaked at roughly +30 percentage points into 2025 and has turned negative: about −4 points, then about −25. The level is at records. The velocity is still high. The acceleration has already rolled over.

There is a recursion here that the headline numbers obscure. Hyperscaler capex in this cycle is not primarily a response to AI demand. To a substantial degree, it is the demand. The labs’ revenue is, in large part, hyperscaler spending recycled - cloud credits, compute commitments, equity-funded consumption. Nvidia’s revenue is hyperscaler capex. The neoclouds’ revenue is hyperscaler capex, levered.

Strip out the spending and the demand it manufactures, and the organic, capex-independent demand is a fraction of the headline figure. Which means the single most important growth rate in the system is the second derivative of hyperscaler capex - and it has already gone negative while every level chart still points to the sky.

The reflexive flip - the market reprices the payoffs and the dominant strategy inverts.

The capex arms race is a Nash equilibrium, but a conditional one: it holds only while the market rewards the next dollar of spending as a call option on growth. In that regime - the boom regime - the dominant strategy for every hyperscaler is to spend, because the alternative is to be the one player who blinked and ceded the future. Mutual escalation is stable precisely because the market applauds it. Each CFO spends because every other CFO is spending and the multiple rewards the spender.

Morgan Stanley caught the psychology exactly when it described 2027 capex estimates leaping thirty percent in a single quarter, toward $1.1 trillion, as the dynamics of an auction. An auction is the right frame, because in an auction the price is set by the most optimistic bidder and the act of bidding is itself the signal - the applause, the proof of seriousness. Keynes’s beauty contest, with chips: you are not spending on what you think the compute is worth; you are spending on what you think the market will reward you for being seen to spend.

That equilibrium is not anchored to anything physical. It is anchored to a belief - the market’s reading of what the next dollar of capex means - and beliefs reprice. The flip comes the first time a hyperscaler announces a capex cut and its multiple expands on the news rather than contracting. The instant discipline is rewarded instead of punished, every payoff on the board rewrites. Spending, formerly the dominant strategy, becomes the move that gets you punished alone; holding, formerly surrender, becomes the move that gets you re-rated. The Nash equilibrium inverts from “everyone spends” to “everyone cuts” - and because it is a coordination equilibrium, the inversion is not gradual. The first mover rewarded for cutting gives every other CFO both the cover and the incentive to follow, and discipline cascades as fast as the spending it replaces. The day the market cheers a cut is the day the arms race ends.

Goldman’s head of Delta One trading put it as plainly as it can be put:

“The first hyperscaler to signal that it can slow the pace of spending will likely see its share price rewarded (and will crush semiconductor stocks). If that happens, others will take notice. That is the reflexivity that ultimately stalls the capex cycle - not a lack of demand, but investors deciding that incremental returns on the next dollar of spend are no longer attractive.”

The cruelty of the flip is what it does to the contracts. In the boom regime, a signed take-or-pay commitment is an asset to everyone who touches it: forward demand for the hyperscaler, bankable backlog for the neocloud, collateral for the lender. In the repriced regime, the identical contract is a liability for all of them simultaneously.

The lab cannot fund the payments it locked in; the hyperscaler holds a receivable from a visibly distressed counterparty; the neocloud is left servicing debt against data centers it financed on a contract now worth less than the debt. This is negative convexity wired directly into the demand side: the same instrument is an asset on the way up and a liability on the way down, and the transition between the two states is a repricing of belief, not a change in the underlying hardware. Nothing physical has to break. The market only has to change its mind.

It lands hardest on the frontier labs, who can carry these contracts only by raising more capital - and the flip closes that window. What follows is not a clean default but a negotiation - volumes cut, schedules stretched, contracts restructured. The contracts do not vanish; they reprice - beginning with the borrower who needs the next round most.

VIII. Who Blinks First

Every reflexive cascade needs a first mover. So which hyperscaler cuts first? Who blinks?

The instinct is to say the weakest balance sheet, and the instinct is wrong. The first to cut will be the one with the best information, the credibility to reframe the cut as strength, and the balance-sheet room to be rewarded rather than punished for it.

Zuckerberg holds dual-class control. He has run this exact playbook before and was rewarded with a tripling of the stock; and of all the hyperscalers Meta has the weakest direct monetization of its AI capex - no public cloud to sell the capacity into - which makes its spend the hardest to defend and the easiest to cut. The only reason it has not cut yet is the Nash equilibrium - Zuckerberg is waiting for the market to tell him it is safe to stop spending.

The others array predictably. Google will not blink - it builds TPUs at a structural cost advantage and reports a cloud backlog north of $460 billion, so it benefits if rivals retrench. Oracle cannot blink: at roughly 86% of sales going to capex, with a balance sheet stretched around Stargate, its stress will surface as a credit event. Amazon may have its hand forced from the other direction - free cash flow already turning negative under the build. Negative free cash flow is the kind of thing capital markets eventually vote on, whether management calls the election or not.

The numbers tell the same story. Morgan Stanley pegs hyperscaler investment-grade leverage at roughly 1.8 turns of gross debt - double what it was a year ago and now higher than the entire energy sector. That figure does not count the hundred-billion-plus parked off the balance sheet in the vehicles. What stands in its place is a leveraged, hard-asset, refinance-dependent balance sheet - and the marginal gigawatt, the thing cut first, is the most discretionary line on it.

IX. The Blast Radius

Let’s say OpenAI is subprime, the regime shifts, belief reprices, the capital window slams shut, and a hyperscaler cuts that marginal gigawatt to protect its own leverage. Who is exposed?

OpenAI is the single largest customer - by direct contract or one counterparty removed - of very nearly every name that sells into the AI build. Oracle’s contracted backlog is more than half OpenAI; CoreWeave’s book - once its Microsoft-routed capacity is traced through to the underlying tenant - runs to roughly two-thirds OpenAI; SoftBank’s commitments, through Stargate, are almost entirely OpenAI.

This is precisely the structure that made 2008’s senior tranches lethal: thousands of individual mortgages, geographically dispersed, statistically independent - until the one macro variable they all depended on, national home prices, turned, and the correlation the models had assumed away revealed itself to be one. Here the single variable is not home prices. It is whether OpenAI can clear its next mark. That is why chip stocks fell when OpenAI signaled it may delay its IPO from 2026 to 2027.

A correlation of one is invisible until it is tested. Then it is a transmission line. When the borrower at the center cannot clear its next mark, the loss does not stay put - it runs the length of the chain, into every counterparty that booked its commitment as demand. The naked borrower is not merely the weakest credit in the complex. It is the credit the complex is wired to.

Each major supplier’s AI book, by share ultimately tied to OpenAI. No counterparty is all-OpenAI - but OpenAI underlies a piece of every one, directly or through look-through exposure routed via another party.

That correlated exposure is now being securitized. In May 2026, CoreWeave closed its DDTL 5.0 facility - $3.1 billion, issued through a bankruptcy-remote financing subsidiary. CoreWeave disclosed that the underlying capacity serves two large, non-investment-grade customers: OpenAI and Cohere. But the distinction that matters is structural: DDTL 5.0 was the first publicly syndicated GPU-backed facility, built to trade in the secondary market. The paper has left the originator’s balance sheet and entered the broad credit complex - the distribution step, the moment originate-to-distribute stops being a metaphor.

The DDTL isn’t serviced by OpenAI’s earnings; it’s serviced by OpenAI’s ability to keep raising, which is underwritten by the AI capex narrative continuing to compound.

X. The Refinance of Last Resort

Trace the refinancing chain to its end and you arrive at the public market. Private capital is deep but finite: SoftBank, the sovereign funds, the hyperscalers, the megafunds - each can absorb a round or two, but the labs’ burn is measured in tens of billions a year and compounding, and at some point the only pool of capital large enough to keep refinancing it is the one the index funds and the retail bid sit in.

The IPO is not an exit in this structure. It is the refinancing of last resort - the final, deepest teaser into which the whole edifice expects to roll once the private rounds can no longer carry the burn. Which is why news of OpenAI’s delayed IPO matters far more than the market initially understood.

The terminal refinance carries a trap the private rounds did not. To reach the public pool the borrower must file an S-1 - and the S-1 discloses exactly the fragility that made the refinance necessary: audited losses, customer concentration, the full $600 billion-plus of take-or-pay obligations laid out for any reader. The document that unlocks the capital is the same document that prices the risk.

OpenAI needs the market’s money and cannot fully afford the market’s scrutiny - the bind of a company whose story is better than its statements.

Now do the arithmetic the delay is hiding. The step-up from roughly $852 billion to the reported >$1 trillion target is the next hurdle - barely 1.23×, the lowest step-up in the entire sequence, and far below the 1.7×–1.9× multiples that funded the prior burns. It must do two incompatible things at once: clear at a level the public market will actually pay, and raise enough to retire a cumulative burn approaching $115 billion. The implied step-up cannot do both: the price that clears the market does not retire the burn, and the price that retires the burn does not clear the market. The refinance of last resort is failing quietly - pricing below the mark the structure requires, and waiting.

XI. How It Breaks

The trigger is narrow and specific: the next mark fails to clear at the required step-up - not a collapse, merely a deceleration below the threshold the structure needs. This is the 2006 dynamic replayed: the velocity rolled over while the level was still climbing.

From there the sequence runs in order:

(1) The terminal refinance prices below the required mark - the step from about $852 billion to more than $1 trillion does not clear, or clears at a level that cannot retire the burn; the delay is the signal. 

(2) The borrower pulls back on compute commitments to conserve cash - and a pull-back on a take-or-pay obligation is a covenant breach against the provider whose debt is collateralized by that commitment. 

(3) The breach lands first and hardest on the neoclouds - CoreWeave, Lambda, Crusoe - whose entire business is the spread between borrowed money and resold compute. A neocloud is not a business so much as a spread trade with no balance sheet to warehouse the risk: when the spread inverts, it is insolvent by definition, not by choice. Oracle, corporate-funded but dangerously concentrated, takes the next blow - its impairment deeper than the hyperscalers’, but it does not seize; it bleeds. A hyperscaler can fund a missed payment out of Search, or Windows, or Retail; the neocloud has no second cash flow. 

(4) Credit freezes across the complex: RPO reprices from forward demand to counterparty risk, GPU-backed notes cannot roll, the originate-to-distribute machine seizes. 

(5) Equity decimates - negative convexity in reverse, capex repriced from option to cost, multiples compressing across every name in the chain. 

(6) The strong survive: the best-capitalized actors with the least exposure buy stranded data centers for pennies and backstops the leases that must endure.

A necessary concession: I do not know when. The trigger could be quarters away or further; the borrowed-time window between the second derivative rolling over and the first derivative crossing zero can stretch further than any short-seller’s patience. There are three stretches that can extend it: a larger-than-expected private round, a sovereign or strategic backstop that postpones the terminal refinance (like an Intel-style federal equity stake), and the hyperscalers’ continued ability to lever up - borrowing against the very backlog this article has described.

The last of these is the most powerful near-term stabilizer, because the hyperscalers have real balance sheets, real cash flows, and real access to debt markets. But it is not infinite. Investment-grade leverage across the group has already doubled in a year and the rating agencies have only so many notches left. The sequence above is not a calendar; it is a mechanism, conditioned on a single variable - whether growth decelerates below the rate the refinance requires. But with OpenAI’s IPO already delayed, the clock is ticking.

XII. The Strongest Case Against This

Grant the bulls their strongest case: demand is real, backlogs are exploding, inference is in its infancy, and the risk of underbuilding a generational platform is acute. Supply is locked years out, and even skeptics see paths to $1.4 trillion in annual capex. I take this case seriously - but it does not save the structure.

Every bull claim is about the level or the first derivative: backlogs, inference ramping, supply growth. Not one speaks to the second derivative. I do not need demand to fail. I need the rate of capex growth to flatten - and a structure this levered and dependent on perpetual acceleration breaks on the flattening alone. Grant every level argument. Housing demand was real in 2006 - and the financing detonated on deceleration, not the level.

There are three bull cases to address.

• First, the fortress balance sheet. Hyperscalers generate enormous cash flow; a tenant impairment is absorbable. This misses the wound. The impairment is accounting; margin collapse is structural. AI capacity carries a massive fixed-cost base - depreciation, power, interest - that does not flex when a tenant defaults. Utilization drops, but opex does not. Revenue falls, yet costs remain anchored to the peak build. The same operating leverage that supercharged profits now destroys margins on the way down.

• Second, the cross-subsidization defense. If AI margins crater, Search and Windows cash flows carry the division. The rebuttal is the conglomerate discount. Investors buy hyperscalers for growth, not to subsidize perpetual losses. If AI consumes tens of billions without profitability, consolidated ROIC declines. A high-ROIC growth compounder that becomes a low-ROIC capital-intensive operator loses its growth premium and trades down to a utility multiple. Worse, legacy cash cows are not infinite engines. Search faces structural erosion; Retail operates on thin margins; Windows is mature. Using shrinking profits from declining units to fill vacancies is not patient capital - it is value destruction. The conglomerate trades as a utility with a venture capital problem, commanding a lower multiple.

• Third, the physical rebuttal: if OpenAI defaults, the provider re-leases the capacity. This is the “housing never loses value” argument of 2006. An OpenAI default will not occur in isolation - it will coincide with a broader deceleration, meaning hyperscalers bring gigawatts online into a softening environment. You do not re-lease into a glut; you compete on price, and the clearing price falls below the debt-service coverage ratio. The replacement tenant, facing the same decelerating demand, will demand a 30–50% discount and a shorter commitment, turning a long-duration, high-yield asset into a distressed instrument. Re-leasing merely transforms a clean default into a prolonged vacancy crisis - the same mechanism that turned 2007’s subprime “re-performance” hopes into a five-year grind.

The bulls and I do not disagree about AI. We disagree about which derivative the structure is written on. They are watching the level. I am watching its acceleration. That is not a difference about technology. It is a difference about arithmetic - and arithmetic, eventually, does not take opinions.

XIII. The Number Nobody Watches

Three errors, stacked, recreate 2008. The market is pricing AI as a technology cycle when its financing is the machinery of a credit-and-real-estate cycle. It is watching the level and the velocity while the structure breaks on the acceleration. And it is treating a concentrated, single-borrower loan book as though it were diversified forward demand. Each error alone might be survivable. Together they reconstruct, feature for feature, the conditions of the last great credit event - the same negatively convex structures, the same originate-to-distribute plumbing, the same correlation-of-one hiding inside the appearance of diversification, the same blindness to the one derivative that matters.

The law from the opening sections holds, unchanged: any structure whose serviceability depends on refinancing into growth does not need a decline. It needs only a deceleration. That deceleration is already happening.

The market remembers 2008 backwards. The defaults didn’t come when prices fell. They came when prices stopped rising faster - and this build-out is engineered, with exquisite precision, to break on the one number nobody watches.

The Second Derivative...

*  *  *

And, as we noted yesterday the credit market is reading the tea-leaves of plunging Token Costs...

...while the equity market remains blinkered by the propaganda.

Can 'Collateralized Compute Obligations' (CCOs) keep the (second derivative alive) game going for a little longer (like CDOs in 2006-2009) or will investors baulk?

Tyler Durden Fri, 08/14/2026 - 16:30

America Enters FAFO-Land: Election Sabotage & Blue-State Mutiny As Communist Jihad Escalates

Authored by James Howard Kunstler,

Things Get Spicy

“The left are incompetent biotrash who purge everyone too attractive, too capable or too intelligent to uncritically accept their retarded worldview.”

- Aimee Terese on “X”

And so, all of a sudden, having failed to subvert or assassinate the president they abhor, and foil his attempt to repair our country, the combined forces of the Democratic Party, the seditious news media, and a traitorous government bureaucracy resort to communist jihad in their crusade to wreck the USA. That’s a great combo, all right: history’s worst system for managing human affairs paired with a cult of bloodthirsty conquest. They’d decapitate the Beach Boys singing Fun, Fun, Fun if they could time-travel back to 1964, and stuff anyone who objected into a gulag.

The Jihad for Lunch Bunch Sends Greetings to Infidel America

There’s a sort of last-gasp feeling about all this. Michigan Senate candidate Abdulrahman el Sayed put it nicely the other day when he said of his opponents, “When they go low, we go lower.” True dat.

And you can see where things go from here: election clean-up comes on no matter what, SAVE Act or not, probably via a comprehensive PDJT National Security Executive Order yet to be declared. There’s already a fair chance that SCOTUS will clear the way for the US Postal Service to regulate “uniform standards” for the distribution of mail-in ballots (from a March, 2026 previous exec order #15399 — “Ensuring Citizenship Verification and Integrity in Federal Elections.”

Cue the communist jihadis to stage street-actions (a.k.a. “riots”) this fall in their captive cities and states. Since they can’t win elections without massive fraud, they will opt to do whatever is necessary to make the election impossible, and chaos is their go-to tactic in this contest of wills. The catch is, the communist jihadis are still a very small demographic.

The president is not going to allow a replay of the savage and ridiculous 2020 BLM riots. This time around, they get briskly squashed.

If the big red states like California, New York, and Illinois try something funny, like refusing to open polling places and allow the election to happen, then you will see Gavin Newsom, Kathy Hochul, and JB Pritzker marched straight into jail. The USA will temporarily become FAFO-land. The Communist Control Act of 1954 (50 U.S.C. §§ 841–844) is still on-the-books. It defines the Communist Party (or a party that quacks like one) to be “an instrumentality of a conspiracy to overthrow the Government of the United States.”

The scene begins to look like a civil war or a state of siege, constraining the president to use the military to enforce civil order where the civil authorities have failed, demurred, or revolted.

It would be extraordinary and nauseating, but arguably necessary to purge the extreme political illness that holds the nation in thrall. This disease has been allowed to worsen and rage for ten years. We are good and goddam sick of it.

As for Jihad, the first amendment prohibits religious persecution, of course, but under section 219 of the Immigration and Nationality Act, (8 U.S.C. § 1189) the State Department can designate political groups as “foreign terrorist organizations.” Nominees for that might be: the Muslim Brotherhood and any of its offshoots, the Council on American-Islamic Relations (CAIR), the Islamic Society of North America (ISNA), Muslim Students Association (MSA / MSA National), American Muslims for Palestine (AMP), and others, if their spokespeople have called for the establishment of Sharia law, or advocated jihad for the purpose of capturing territory here in the USA.

While the aforesaid so-far-hypothetical events spool out around the election, something else pretty big will probably get underway this fall: the long-awaited commencement of prosecutions against former government officials (and perhaps some current ones) for their parts in the ten-year-long coup against the two-term president Donald Trump, as well as the criminal operations conducted under the sham president “Joe Biden” between those two terms.

That would have to include Dr. Anthony Fauci — with his active criminal referral already in-process at DOJ — and many of his colleagues at the public health agencies who perpetrated the Covid op. New scandalous details about it emerge from Dr. Fauci’s captured communications from the period 2020 to 2025. This week you learned that he hid crucial facts from the public about the Covid vaccine causing an alarming rate of miscarriage among pregnant women who received the shots. It’s right there, in black and white, in his texts and emails between himself and former CDC director Rochelle Walensky.

It’s also interesting to see that former FBI director Christopher Wray is coming back on the radar screen after lying low for eighteen months. You know he was involved in almost every aspect of the ten-year-long coup. He took a hand-off of the RussiaGate baton from James Comey in May of 2017 and ran with it through a dozen related ops including the FISA abuses, the Steele Dossier, Lawfare against Trump appointees (the abuse of Rudy Giuliani and others), fake impeachment # 1, the Jan. 6 capitol riot, the Mar-a-Lago raid, and much more. He probably lied to Congress a dozen times. You have to wonder how many trips he has been summoned to make to the grand jury in Fort Pierce, Florida. No leaks from down there. . . everything is sealed.

So, while the summer breeze still wafts over the barbeque in the briny air, and an unnerving stillness persists, forces are moving and roiling under the surface. Enjoy at least the appearance of calm seas while you can because it’s going to roughen up in the weeks ahead.

Tyler Durden Fri, 08/14/2026 - 16:20

Former Cambridge Professor Jason Arday Found Dead at 41

Jason Arday, the former University of Cambridge professor who recently resigned amid controversy, has been found dead at the age of 41.

Emergency services were called to an address in Battersea, south London, on Friday afternoon, where Arday was discovered unresponsive. The London Ambulance Service arrived shortly after 3:00 p.m., deploying an ambulance crew, an advanced paramedic, and a Hazardous Area Response Team. He was pronounced dead at the scene.

The Metropolitan Police stated that while the death is unexpected, it is not currently being treated as suspicious. Arday's next-of-kin have been informed and are receiving support from officers. The Met’s Central South Command Unit is handling the investigation, and a file is being prepared for the coroner.

Arday's sudden passing comes just over a week after he stepped down as Cambridge’s professor of sociology of education. He resigned on August 5, citing an "unrelenting level of public scrutiny," merely hours after the university announced an investigation into his appointment and tenure following allegations of plagiarism. The ongoing inquiry is expected to inform a broader review of Cambridge's hiring processes for senior academic roles.

Before his resignation, Arday made history as Cambridge’s youngest-ever black professor. His impressive academic ascent began with undergraduate and postgraduate studies in education, followed by a PhD from Liverpool John Moores University. He subsequently held academic posts at the University of Roehampton, Durham University, and the University of Glasgow, where he was named a professor in 2021.

His recently completed memoir, Great and Unfortunate Things, was published in the United States earlier this week. It is scheduled to be released in the UK by Simon and Schuster on August 27.

Memoir Fabrications and "Inconsistencies"

As we noted earlier this week, advance copies of Arday's memoir and its initial book proposal contain wild discrepancies and impossible claims.

• The "Conscious Coma": In his book proposal, Arday claimed he was hit by a car, spent months in a "conscious coma," and had to relearn how to walk and talk. This entire traumatic event is completely omitted from the final book.
• Shifting Illnesses: The proposal states he battled testicular cancer. The final book, however, changes this narrative, claiming he grappled with two brain tumors instead.
• The Brazilian Shaman: Arday writes about encountering a "shaman woman" in Brazil who accurately prophesied his future struggles and triumphs. The article notes a glaring issue with this story: Arday has apparently never been to Brazil.
• Time Travel: He somehow claimed to have appeared on the British documentary series Seven Up more than 20 years before he was even born.
• Superhuman Athletics: He claims to have run an astonishing 30 marathons in 35 days.

Plagiarism and Academic Integrity

Beyond the memoir, the article highlights severe allegations regarding his academic work and professional conduct.

• The Doctoral Dissertation: The London Telegraph reportedly found more than 100 passages in Arday's PhD dissertation that were "identical or nearly identical" to a 2009 thesis by a Brunel University student named Paula Zwozdiak-Myers.
• AI-Generated Resignation: After the plagiarism allegations surfaced, Arday resigned. The article notes that an enterprising blogger ran Arday's resignation letter through an AI detector, which concluded with "high confidence" that the letter was fully generated by Artificial Intelligence.
• Inflated Credentials: Arday was widely billed as a "professor of sociology," but his actual academic degrees are in education.

It seems getting caught was just too much for Arday. And the left is already blaming people for noticing...

I tweeted this out last Friday. Care to apologise :
‘This just gets worse and worse. There needs to be an intervention by family, social services, colleagues, university specialists. The poor chap is obviously in serious need of help. I hope he gets it. I fear what might happen… https://t.co/SHAqSrCWf0

— Andrew Neil (@afneil) August 14, 2026 Tyler Durden Fri, 08/14/2026 - 16:01

Bessent: US Readies Economic Isolation Of Iran "Like The World Has Never Seen Before"

Treasury Secretary Scott Bessent told Newsmax Thursday night that the Trump administration will announce unprecedented economic measures against Iran next week, signaling that a sharp escalation in economic warfare is just ahead as negotiations to reopen the Strait of Hormuz remain stalled. The warning comes as Tehran-linked Houthi rebel forces resume attacks on Saudi Aramco energy infrastructure, raising concerns that the conflict is spreading geographically and pushing Brent crude futures higher.

Bessent told Rob Schmitt of Newsmax:

And, you know, at the president's orders, we have raised the level even again, and watch this space for more announcements coming next week because we are going to apply measures like have never been seen in the history of economic isolation on a country. And I think the reason we are succeeding is because it is a one-two punch.

People say, well, you know, Cuba lasted a long time. Venezuela lasted a long time. Venezuela immediately crumbled when we put the blockade on. So, it will be a combination of economic isolation like the world has never seen before and the continued blockade in the Strait of Hormuz that will keep anything from going in or out of the Iranian ports.

Watch Bessent

US Treasury Secretary Scott Bessent announced upcoming unprecedented economic measures against Iran amid ongoing blockades of its ports pic.twitter.com/OV3etgd2k0

— Chay Bowes (@BowesChay) August 14, 2026

By the midpoint of this week, we explained that, with US-Iran talks stalled, President Trump was more than likely to "opt for economic siege warfare, as the US military campaign is on hold."

Trump recently told Axios that he is "low-keying it" with Iran. "We are just watching Iran with its huge inflation and the fact they have no money," he said.

Washington has imposed roughly 2,200 sanctions-related designations on Tehran since 2018, according to Jeremy Paner, a partner at Hughes Hubbard & Reed who tracks Iran's energy industry. The scale of the existing sanctions architecture underscores the challenge facing the Trump administration as it seeks to exert additional leverage on Tehran.

"If 47 years of sanctions haven't broken Tehran's will, more of the same is unlikely to produce any changes," according to a Bloomberg Economics report led by Jennifer Welch. She noted that the most likely scenario is that Trump stays on the same path as before, maintaining sanctions and the blockade.

The Trump administration's accelerated pivot toward economic warfare, rather than renewed strikes on Iran's missile and drone capabilities along the Hormuz chokepoint or an operation against Kharg Island, likely reflects growing concern over the "perfect storm" developing in refined-products markets. With the global diesel crisis intensifying and crack spreads approaching $100 level, further strikes risk triggering a severe supply shock to the fuel that powers global industries. It would also be a political disaster if gasoline and diesel prices at US pumps soared even higher with just 81 days left until the midterm elections (read diesel crisis report). 

Tyler Durden Fri, 08/14/2026 - 16:00

No Illegal Immigrants Released At Southern Border In 15 Months: CBP

Authored by Naveen Athrappully via The Epoch Times,

U.S. Border Patrol in July released zero illegal immigrants from the southern border into the United States for the 15th straight month, U.S. Customs and Border Protection (CBP) said in an Aug. 13 statement.

Illegal crossings last month remained “historically low,” CBP said. Apprehensions of illegal immigrants by Border Patrol along the southwest border in July were 94 percent lower than the monthly average under the prior administration.

The number of illegal immigrants apprehended in the current fiscal year through July is lower than the average of just a single month between fiscal years 1992 and 2024.

“Again this month, the results are clear: President Trump’s border security agenda is restoring order and putting the safety of the American people first,” Department of Homeland Security (DHS) Secretary Markwayne Mullin said in the statement.

“DHS remains focused on enforcing our immigration laws, securing the border, and ensuring those who enter our country illegally are removed swiftly.”

According to the CBP, the continued decline in border crossings and apprehensions reflects the impact of “robust enforcement policies.”

CBP Commissioner Rodney S. Scott credited clear policies, strong enforcement, and the work of frontline personnel for delivering positive results at America’s borders.

CBP data show there were 103,028 enforcement encounters at the southwest land border between October 2025 and June this year.

In the entirety of fiscal year 2025, there were a total of 443,671 encounters, less than the more than 2 million encounters registered in each of the previous two fiscal years under the prior administration.

According to Border Patrol’s 2025–2029 Strategy report, the agency’s plan to tackle illegal immigrants includes expanding physical infrastructure, such as checkpoints, barriers, and permanent towers, across all regions of the United States.

The strategy details plans to deploy advanced autonomous surveillance systems in order to detect and identify illegal immigrants.

Illegal immigrants from Mexico and Guatemala are apprehended by U.S. Border Patrol officers after crossing a section of border wall into Ruby, Arizona, on Jan. 4, 2025. Brandon Bell/Getty Images

While Border Patrol works to counter the inflow of illegal immigrants in the country, the agency’s workforce has seen strong growth.

In June, the CBP said that 21,471 Border Patrol agents were serving on America’s front lines, the highest number in the agency’s 102-year history. CBP credited the One Big Beautiful Bill Act, signed into law by President Donald Trump last year, for fueling “increased applicant interest” as well as enabling the agency to attract top talent.

Members of U.S. Border Patrol at the U.S.-Mexico border in Eagle Pass, Texas, on March 5, 2025. Brandon Bell/Getty Images

Illegal Immigrant Crackdown

Immigration and Customs Enforcement (ICE) is cracking down on criminal illegal immigrants across the country.

In an Aug. 7 statement, ICE said it arrested more than 1,200 illegal immigrants across Georgia under Operation Safe Community—Atlanta, which targeted people with criminal histories, including charges of aggravated assault, sex crimes, assault and battery, and crimes against children.

“Removing these criminal alien offenders from Georgia neighborhoods makes for much safer communities,” ICE Enforcement and Removal Operations acting Assistant Director Patricia Hyde said in the statement.

ICE said on July 14 that its Harlingen division arrested 238 illegal immigrants in a single day, setting a record for Texas’ Rio Grande Valley. Among the arrested were alleged criminals with convictions for sexual battery, attempted kidnapping, and drug possession.

U.S. Immigration and Customs Enforcement personnel at George Bush Intercontinental Airport in Houston, Texas, on March 23, 2026. Ronaldo Schemidt/AFP via Getty Images

The Trump administration is also imposing heavy fines on illegal immigrants. In a July 23 statement, DHS said that more than $84 billion in civil fines have been imposed on such individuals. This includes a $998-per-day charge levied on any illegal immigrant who does not leave the country despite a final order for removal.

A group of Democratic lawmakers criticized the fines, accusing the Trump administration of improperly using immigration penalties to “intimidate law-abiding immigrants,” according to a July 20 statement from the office of Sen. Alex Padilla (D-Calif.).

In a July 17 letter to DHS and DOJ officials, the lawmakers said that in assessing fines against illegal immigrants, the departments “appear to have abandoned critical safeguards that have long prevented law-abiding immigrants from being improperly targeted with unreasonable penalties.”

In June 2025, when DHS announced streamlining the process for fining illegal immigrants, then-DHS Assistant Secretary Tricia McLaughlin justified the need for such fines.

“The law doesn’t enforce itself; there must be consequences for breaking it,” McLaughlin said in a statement at the time.

Tyler Durden Fri, 08/14/2026 - 15:40

Energy Drinks Overtake Coffee As Gen Z's Primary Caffeine Source

Filippo Falorni, Citi’s lead US equity-research analyst covering beverages and household and personal-care companies, published his latest survey of 2,400 US energy-drink consumers, revealing a significant generational shift in caffeine consumption.

Energy drinks, led by category giants Red Bull, Monster, and others, have overtaken coffee as the primary caffeine source among Gen Z consumers. In other words, younger Americans are increasingly abandoning the morning cup of coffee, even as Millennials, Gen Xers, and Baby Boomers continue to rely on it for their daily boost.

Among respondents aged 16 to 24, 30.6% now identify energy drinks as their primary caffeine source, up from 20.6% last year. Coffee fell to 27.3% from 40.4%, meaning energy drinks have overtaken coffee among the youngest cohort surveyed. Across all older age groups, coffee is the primary source of morning caffeine.

Falorni added more color: 

Based off our survey results, younger consumers are increasingly comfortable with using energy beverages as their primary caffeine source, with 30.6% and 24.3% of 16-24 and 25-34 year-olds, respectively, reporting energy drinks are their primary source of caffeine, up markedly from 20.6% and 19% in our 2025 survey and above the 23.6% for total respondents (vs. 16.6% in 2025) and only 12% for the 55+ age group (vs. 7.7% in 2025). We also highlight that coffee consumption is lowest for the youngest demographic we surveyed, with only 27.3% of 16–24-year-olds stating coffee was their primary caffeine source (down significantly from 40.4% in 2025) vs. 40.8% for total respondents (also down from 47.4% in 2025) and 60.4% for the 55+ age group

Looking specifically at energy drink consuming respondents, we can see the coffee category has been the largest share donor to energy beverages across all age groups, with 45% of all respondents reporting coffee was their primary source of caffeine before switching to energy beverages vs. 30% for soft drinks and 10% for tea. 

Other compelling findings in the survey:

• Women accounted for 58% of consumers who entered the category during the past year, compared with only 29% of consumers who have been drinking energy beverages for six years or longer.
• Zero-sugar products now represent about 49% of US energy-drink sales, up from 37% in 2021.
• Energy-drink prices have risen only 4.9% since late 2021, compared with 42% for soda and 47% for coffee, giving Monster and Red Bull considerable room to raise prices.
• About 40% of respondents increased their energy drink consumption over the past year, while just 20% reduced it.
• Brand loyalty is soft: 51% switched their primary brand during the past year, making flavor innovation and shelf space critical.
• Monster and Red Bull control about 70% of the market despite a surge of challenger brands.

In markets, Monster is outperforming Celsius year-to-date: 

Our latest coverage in the space includes the report that Rockstar founder Russell Weiner has accumulated a roughly $300 million stake in Celsius Holdings and is preparing an activist campaign aimed at accelerating the company's turnaround. Read the full report here.

Tyler Durden Fri, 08/14/2026 - 15:20

US Lost 25% Of Its Reaper Drones In Iran War, Officials Estimate

Amid a recent avalanche of media headlines warning of significantly depleted US weapons stockpiles, The Washington Post is out with another fresh report Thursday which sounds the alarm, this time over advanced drones.

The US military lost at least 45 MQ-9 Reaper drones during the Iran war, American defense officials were quoted as saying. The same officials estimate that this constitutes roughly 25% of the Pentagon's fleet.

2024 image of American MQ-9 Reaper UAV brought down in Yemen’s Marib. ClashReport/X

If these were the type of small, cheap drones which have been prevalent in the Russia-Ukraine war, no one would see this as much of a problem, but Reapers are highly advanced surveillance systems and also hunter-killer aircraft, capable of flying for 27+ hours straight, and with some variants able to push past 40 hours. 

Made by General Atomics, each drone costs between $30 million to $50 million. With 45 drones wiped out, this means that well over one billion dollars in hardware was either shot out of the sky or crashed in the context of Iran war operations.

The US has also at times lost parked aircraft at bases that came under Iranian attack in the Gulf. This was especially true of even pricier large aerial refueling tankers.

The Washington Post explains why the Reaper has been vulnerable to shootdown by Iranian forces over the past several months in the following:

The aircraft have seen heavy use around the Strait of Hormuz, the vital shipping route that has become a major flash point in the conflict — and a key obstacle to negotiating a lasting peace deal. But the drones fly slowly and often at low altitudes, making them relatively easy targets for Iran’s military and its regional proxies in Yemen and Iraq.

A fourth U.S. official, who like the others spoke on the condition of anonymity to discuss Pentagon data, said that not all of the lost Reapers were shot down. An unspecified number crashed after their operators’ communications link to the drones failed, the official said.

That latter scenario constitutes quite a costly communications error scenario. It's unclear whether there may have been some instances that the comms were intercepted or hacked.

As we featured earlier in the US-Iran conflict, the MQ-9 Reaper drone is being gradually phased out by the US military, although General Atomics continues to produce it for foreign customers.

Prior rare battle footage of Reaper in action over Middle East skies:

Footage of a US Air Force MQ-9 Reaper UAV engaging an Iranian missile launcher with an AGM-114 Hellfire via @hey_itsmyturn. pic.twitter.com/vwjePW6ivU

— OSINTtechnical (@Osinttechnical) March 1, 2026

Iran's proven ability to shoot down MQ-9 Reaper Drones is another demonstration of how it has managed to deploy some air defense, despite prior long-running claims from President Trump that the country's defenses had been "obliterated".

Tyler Durden Fri, 08/14/2026 - 14:40

Kennedy Center Votes To Put Trump's Name On Building, Close For Renovations

Authored by Jackson Richman via The Epoch Times,

The John F. Kennedy Center’s board voted on Aug. 13 to close the venue for renovations and place President Donald Trump’s name on the building.

“In its meeting today, the board voted to change the front of the ​building’s facade to read ‘The John F. Kennedy Center for the Performing Arts Restored and Renovated ⁠By President Donald J. Trump,‘ and renamed the physical site ’the President Donald J. Trump Plaza,’” said Democratic Rep. Joyce Beatty (D-Ohio), an ex ​officio member on the iconic performing arts center’s board.

The final decision, however, will be up to U.S. District Judge Christopher R. Cooper.

While the board voted to close the main building for renovations, the REACH, a separate building on the campus, will stay open for limited programming.

It is unclear how long the renovations will take. The Epoch Times has reached out to the Kennedy Center for comment.

President Donald Trump announced in February that the Kennedy Center would be closed for a two-year renovation.

Cooper blocked the planned move on May 29 and ordered that Trump’s name be removed from the institution.

On June 11, the Trump administration appealed the ruling, only to be denied.

The Kennedy Center requested that the court give it more time to follow the order, citing that its management planned to present options to the board for a mid-July vote.

The choices included a full closure with no ongoing programming, a partial closure that would allow “some continued public access and limited programming in spaces unaffected” by the construction work, and executing “a highly limited series of phased closures” to fix the building’s most critical infrastructure needs while having a full slate of programming.

The venue claimed the court order “did not affirmatively require the board to reschedule programming that had previously been canceled or to seek new programming,” and did not stop the board from giving the green light for closing the building.

“Center management currently intends for the center and its building to maintain an operational model past the originally planned closure date of July 5,” the filing reads.

“That model, which the center is currently following, contemplates continued public access to the center’s public spaces and to the living memorial for President Kennedy.”

Trump implemented multiple changes to the Kennedy Center last year, including firing the board and its president, David Rubenstein, whom he said did not share his “vision for a Golden Age in arts and culture,” and renovating the institution, which he called “tired, broken, and dilapidated.”

Trump replaced the board with new appointees, alongside existing ex officio members designated by Congress. The new board then elected the president as chairman.

In a May 29 Truth Social post, after the court blocked the building’s planned two-year closure and renaming, Trump said the venue was originally scheduled to undergo “large-scale renovations and construction due to years of neglect, decay, and poor maintenance.”

The court ruling blocking the name change and closure was in response to a lawsuit brought by Beatty.

Tyler Durden Fri, 08/14/2026 - 14:20

FBI Seized Mark Walter's Devices Months Before Record $12.5 Billion Lakers Sale

Summary:

• Thursday: Yahoo Sports reporter Jack Baer said, "Mark Walter is reportedly facing a cash crunch."
• Thursday: FT reports that the FBI seized devices belonging to Mark Walter last year as part of an investigation.
• Wednesday: Josh Kushner and Bob Iger stun the sports world with a record-shattering $12 billion Lakers takeover deal.

FT Reports Has Probed Mark Walter's Empire 

One day after billionaire Mark Walter announced the record $12.5 billion sale of the Los Angeles Lakers to a group led by Josh Kushner and former Disney chief Bob Iger, the Financial Times reported that the FBI seized the phone of Guggenheim Investments President Dina DiLorenzo last year as part of a federal investigation into entities controlled by Walter.

DiLorenzo's device was taken the same day federal agents seized Walter's phone and laptop in September, according to people familiar with the federal probe. Important to note, Walter is the co-founder and CEO of Guggenheim Partners. 

They noted that prosecutors focused on whether Guggenheim Investments properly recorded revenue within Guggenheim Private Investments.

Guggenheim said auditors issued "unqualified opinions" on the 2024 and 2025 financial statements of the subsidiary that owns the private-investments business. Walter-controlled insurers previously disclosed subpoenas from the Manhattan U.S. Attorney's Office and the Securities and Exchange Commission.

The report continued:

Insurance companies controlled by Walter disclosed in June that they had received subpoenas in connection with investigations by the US attorney's office in Manhattan and the Securities and Exchange Commission. The US attorney's office declined to comment. The FBI did not respond to a request for comment.

While the scrutiny of the insurers has been publicly disclosed, the seizure of DiLorenzo's phone suggests authorities have also examined Walter's other companies, including Guggenheim, the securities firm and asset management giant. It was not clear what stage of the investigations authorities were at.

. . .

Walter's holdings, including insurers Delaware Life and Clear Spring Life and Annuity, now sit inside TWG. The insurers disclosed in June that they held more than $20bn of investments in affiliated entities, which they had previously marked as unaffiliated. They are now seeking to divest or restructure these holdings to bring down their percentage of related-party investments.

Yahoo Sports reporter Jack Baer noted earlier, "Mark Walter is reportedly facing a cash crunch." 

Wall Street Journal noted the same:

The closeness of the federal investigation to the abrupt sale announcement puts new scrutiny on Walter's decision to sell the Lakers in one of the largest transactions in sports history. 

Josh Kushner, Bob Iger Stun Sports World With Record-Shattering $12 Billion Lakers Takeover Deal

The Los Angeles Lakers are being sold to billionaire venture capitalist Josh Kushner, founder of Thrive Capital, and former Disney CEO Bob Iger for a record-breaking $12 billion, according to a new ESPN report.

The sports news website said:

The businessmen were involved in the expansion process in Las Vegas, but in a stunning turn, they pivoted to make an aggressive offer to buy the Lakers from Mark Walter, who had purchased a controlling interest in the team from the Buss family last year for a franchise valuation of approximately $10 billion.

The $12 billion buyout price implies an increase of at least 20% in the Lakers' value in less than a year.

Josh Kushner, the younger brother of Jared Kushner, and Iger released the following statement:

"As lifelong NBA fans, we are deeply honored for the opportunity to become stewards of the Los Angeles Lakers, one of the most iconic sports franchises in the world. We have immense respect for the leadership and vision of Jerry and Jeanie Buss.

"Our long-term commitment is to build on that foundation, compete at the highest level, and serve this extraordinary team, its fans, and the city of Los Angeles."

TWG Global CEO Mark Walter, who purchased control of the Lakers from the Buss family last year at a valuation of about $10 billion, has a sports holdings portfolio that includes stakes in the Los Angeles Dodgers, Los Angeles Sparks, Chelsea Football Club, the Professional Women's Hockey League and several auto-racing teams, including Cadillac Formula 1.

"Owning the Los Angeles Lakers has been one of the great honors of my life, an extraordinary investment, but what I will carry with me is the community, the fans, and a city that treats this team as family. I am grateful to Jeanie Buss, the Buss family, the players, and the staff for welcoming me into this chapter. The Lakers belong to Los Angeles, and I have every confidence the best is still ahead," Walter said in a statement.

Tyler Durden Fri, 08/14/2026 - 14:10

Panama Canal Fees Hit Record As El Nino, Hormuz Crisis Choke Global Shipping

Panama Canal transit auction prices have surged to record highs this summer as an intensifying El Niño and disruptions in the Strait of Hormuz upend global shipping routes. 

A Bloomberg report Friday morning said a supertanker paid a record $4.6 million at auction to bypass the growing queue and secure an earlier transit slot next week. The spike in canal fees and vessel wait times threatens to further raise freight costs, reinforcing growing concerns about inflationary pressures across global supply chains.

Daily auctions for August passage through the canal's busiest locks have averaged about $1.1 million, more than 16 times the average during the same period last year, according to the Financial Times, citing Argus Media. Recent auctions for the larger locks averaged a record $2.5 million. 

Bloomberg said that the liquefied petroleum gas supertanker G. Arete paid a staggering $4.6 million to skip the line, topping an earlier auction this week that exceeded $4 million.

At the same time, the Hormuz chokepoint disruption has pushed Asian buyers toward crude oil and petroleum products at major US export terminals in the Gulf of America, increasing demand for canal passage. Meanwhile, falling canal water levels linked to intensifying El Niño weather conditions, such as drought and limited rainfall, are constraining traffic, which are the main drivers behind rising transit costs. 

"The problem right now is the water levels are dropping steadily, and it's not supposed to be doing that from May to December," said Ross Griffith, head of Americas freight pricing at Argus, who the FT quoted. This year's El Niño has already disrupted marine traffic on European rivers such as the Rhine and Danube, leading to cruise cancellations and freight rerouting.

More color from the FT:

The Panama Canal Authority told the FT that some vessels that recently transited have paid amounts exceeding $1mn at auction to meet their specific market needs and reflected "temporary market fluctuations", not a tariff set by the Panama Canal.

"The announced draft adjustments will not reduce the number of daily vessel transits," an authority spokesperson said. But depending on how conditions change, the authority could impose further restrictions, the spokesperson added.

Parash Jain, managing director and HSBC's global head of transport and logistics research, told clients earlier this week that concerns are mounting that other key waterways around the world are also facing lower water levels, constraining shipping:

El Niño increases both drought and flood risks by shifting rainfall patterns, accelerating evaporation, and lowering river levels at key gateways such as the Panama Canal and Rhine River, while creating floods in Asia and South America, reducing harvests. Authorities respond with draught limits, caps on daily transits, and tighter slot availability, which forces vessels to load less, wait longer, or split cargoes, thus reducing effective capacity and supporting freight rates. Indeed, from 26 August, The Panama Canal Authority is lowering the maximum draft for the largest vessels transiting the canal, preparing for El Niño (6 August, Maritime Executive).

The strengthening El Niño episode poses risks well beyond shipping. As major institutional desks have warned, drought, flooding and disrupted harvests could tighten agricultural supplies and place renewed upward pressure on global food prices

Tyler Durden Fri, 08/14/2026 - 13:20

Boeing Unveils Cheap Radar Seeker Built From Off-The-Shelf Parts

By Michael Scanlon of Defense News

Boeing revealed an ultra-low-cost radar seeker Tuesday as this year’s Space and Missile Defense Symposium kicked off in Huntsville, Alabama, pitching it as a way to get missile guidance on more weapons for less money.

Installed in the nose of a missile or bomb, the seeker locates the target and guides the weapon toward it. Seekers are among the most expensive parts of a guided weapon, and Boeing’s argument is that their cost is what limits how many the military can buy.

Boeing’s Ultra Low-Cost Seeker, or ULCS, is an active seeker, meaning it emits its own radar signal rather than relying on one from an aircraft or a ground station. Boeing built it largely from commercial parts adapted for military use, and it is still in development.

The company said it is looking at using the ULCS in its air and missile defense interceptors, its guided bombs and its cruise missiles, because its design allows for reuse across all three rather than requiring a different seeker for each weapon.

Boeing said the seeker is designed for strikes from the air, land or at sea, in any weather and against moving targets. The company ran several tests on the ULCS earlier this summer.

Engineers checked the sensor design in an anechoic chamber, which absorbs stray signal reflections. The seeker also flew aboard a Beechcraft 1900 over land and water, where Boeing said it found and tracked targets as expected.

At Spaceport America in New Mexico, the seeker tracked a passing drone from a fixed position on the ground. Boeing then mounted it on a rocket standing in for a missile and launched it at a second drone carrying a reflector, which bounced radar back as a full-size target would. Boeing said the seeker survived the acceleration and vibration of every test, and detected and tracked its targets each time.

Reuse across weapons is the major selling point, according to Boeing.

“We are developing ULCS with the goal of sharing a common sensor architecture across several of our programs,” said Bob Ciesla, vice president of Boeing Precision Engagement Systems. He said the seeker is modular and built to an open standard so Boeing can fit it to different weapons and change it later without redesigning it.

Boeing already builds seekers for other weapons, some of them for competitors. The company makes the active radar seeker for the Lockheed Martin PAC-3 Missile Segment Enhancement interceptor and said it drew on that work for ULCS while aiming to build something cheaper for use against less sophisticated threats.

Steve Wright, Boeing’s senior manager for weapon sensors and advanced guidance, said work remains to be done.

“We still have more work to do, but the rapid testing our teams have completed prove[s] that this capability is real and will fundamentally change how we look at seeker affordability across our programs,” he said.

Boeing said its teams are studying the test data and using the results to shape the next round of work, including several flight tests in 2027 that will attempt to more closely replicate real-world scenarios.

Boeing is not alone in its attempts to exploit modularity. On Aug. 10, Lockheed Martin announced Strigo, a line of radio-frequency sensors, missile datalinks and seeker technologies built around the same modular premise, designed to serve a variety of weapons.

Boeing did not say whether its ULCS is being funded internally or attached to any existing funded weapons program. Nor did it say just how ultra-low the cost of its new seeker will be.

Tyler Durden Fri, 08/14/2026 - 13:00

"We Do Bad Things To Bad People": Hegseth Unveils New Motto For Counter Cartel Coalition

Via The Libertarian Institute 

Secretary of War Pete Hegseth declared that the new motto of the Americas Counter Cartel Coalition (ACCC) is "we do bad things to bad people."

"The new motto of the ACCC is 'we do bad things to bad people.' That’s the mentality I want to have inside this room," he said on Wednesday. "Ultimately, we’re dealing with bad people that have done a lot of bad things to a lot of good people for a very long time. And they’re about to meet a new sheriff in town in the ACCC."

Under President Donald Trump and Hegseth, the Department of War has significantly expanded military operations in South America. The US has bombed dozens of vessels it claims are operated by cartels. Additionally, the US has attacked Venezuela and kidnapped the country’s president, and Trump is threatening that Cuba is next. 

The ACCC is an American-led coalition that Hegseth says will target "narco-terrorists" and drug traffickers. US Southern Command (SOUTHCOM) has conducted dozens of strikes, killing over 200 people. The Pentagon has labeled the dead as narco-terrorists. However, several family members of victims have asserted the dead were engaged in fishing or other legal activities. The DEA says the operations have not impacted the flow of drugs into the US.

Last month, The Washington Post reviewed a DEA assessment that found the strikes on vessels operated by alleged narco-terrorists have not changed the amount or price of cocaine entering the US. US military officials also admitted to Congress that the operations have had no impact on purity.

The DEA said that cartels have designed new methods to smuggle drugs into the US. Cartels have bribed Colombian officials to get the location of US warships and used small aircraft for alternative routes to traffic cocaine into the US. 

"When you squeeze the balloon on one side, it always expands on the other side," one DEA official told The Post. "They always find the weak spots and exploit them."

A senior Colombian official also told the outlet that the US military operations have had little impact on the cartels. "There was a dissuasive effect in one type of transportation," the source explained.

"So it has forced them to seek out other methods. Taking the drugs out through ports has increased, stockpiling it on large ships," the official added.

Hegseth travels to Panama, calls narcoterrorists and traffickers 'the ISIS and al-Qaeda of the Western Hemisphere' at conference https://t.co/wUYUJIhqpy via @OANN

— Terrie Lake (@terrielake) August 13, 2026

Congress has not authorized the President to wage war against foreign drug cartels. The White House has attempted to justify the lethal operation by designating the cartels as narco-terrorists. However, drug smuggling is a criminal act, not an act of war. Senator Rand Paul has argued the strikes amount to extrajudicial killing. 

Tyler Durden Fri, 08/14/2026 - 12:20

Russia To Intensify Attacks On Sources Of Western Support In Ukraine: Lavrov

At the end of June, Ukrainian President Volodymyr Zelensky in an unusual move declared the start of a 40-day intensified pressure campaign against Russia, designed to force Moscow to the negotiating table and agree on terms favorable to Ukraine to end the war.

This was an effort seize on the momentum of repeat drone hits on Russian refinery and energy infrastructure - a reality Russia has suffered over many months, leading to an ongoing fuel crisis spanning dozens of cities and regions, and especially Crimea, which earlier in the summer had to temporarily halt fuel sales to common citizens for a time.

In mid-June, Ukrainian Defense Minister Mykhailo Fedorov proclaimed  "Hell is beginning," for Russia and its military. "Logistics are being cut off. Crimea is being isolated," he said at the time. From there, drone attacks across the Moscow region greatly intensified.

But Russia in turn responded with its own major campaign. In response to major nightly long-range Ukrainian drone attacks deep into its territory, Russia sent more and more ballistic missiles on Kiev - and even the far West areas of Ukraine.

On Friday Foreign Minister Sergey Lavrov has essentially declared Zelensky's 40-day campaign to be defeated and moot. He described in a fresh media interview that not only will Russian forces implement a tougher response against Ukraine, but will go after the sources of Western support. He specifically raised the issue of the United States and its role.

via Associated Press

"We have submitted a series of questions to the State Department requesting comment, including on the matter of intelligence data and the fact that the US is far more deeply involved in organizing and executing strikes deep within Russian territory against civilian targets. We await a response," Lavrov told state television, as quoted in Reuters.

"Russia will intensify its military campaign in Ukraine and seek to destroy every element used by the West to sustain Kiev’s war effort," the top diplomat said.

The Foreign Ministry has of late accused Ukraine of "brazen acts of ​terrorism" against shipping in the Black Sea, amid tit-for-tat ongoing attacks which have disrupted energy and grain shipping.

"We will not sink to their level. Instead, we will adopt much harsher methods to destroy everything that enables the West to fuel Kiev’s war machine. We are already doing this, and they are already moaning," Lavrov asserted.

On the question of initiatives toward peace which Washington once prioritized (but now no longer seems to), Lavrov quoted Putin as saying while alluding back to the Alaska summit:

"Donald, you sent ​us proposals, and I’ve given them some thought. There are matters that require compromise. But I ‌accept ⁠your proposals in the form you sent them to me."

As for Lavrov's questions on Washington's covert targeting support to Ukraine, the Trump administration is unlikely to give a direct response or acknowledgement to the query. 

President Trump at this start of his term vowed repeatedly to find a swift end to the war and a lasting peace, but this has remained elusive, and instead it appears he has kept up US intelligence and weapons support to Kiev - something that many MAGA supporters wanted to see a halt to.

Tyler Durden Fri, 08/14/2026 - 12:00

'I Shot Brian Thompson': Luigi Mangione Pleads Guilty To Federal Charges In UnitedHealthcare CEO Killing

Luigi Mangione, the 28-year-old accused of assassinating UnitedHealthcare CEO Brian Thompson, pleaded guilty in Manhattan federal court on Friday to the federal charges against him - admitting that he went to New York with the intent to kill Thompson.

Luigi Mangione attends a pre-trial appearance at Manhattan Criminal Court on August 11, 2026 in New York City. David Dee Delgado/Pool/Getty Images

The plea came during an 11 a.m. hearing before U.S. District Judge Margaret Garnett, added to the calendar at the last minute this week at the joint request of prosecutors and Mangione's defense team.

"I shot Brian Thompson," he told Garnett.

Members of Brian Thompson's family were present in the courtroom. Outside, a crowd of Mangione supporters gathered - a fixture of his court appearances since his arrest.

Abril Rios, a self-proclaimed "Mangionistas" waits for the hearing, set to start at 11 a.m. Lone Pine Press The charges

Mangione was charged with two federal counts: interstate stalking resulting in death, and stalking through the use of interstate facilities resulting in death. Each carries a maximum sentence of life in prison.

Judge Garnett dismissed a federal murder charge in January 2026 that would have carried a potential death penalty, removing capital exposure from the federal case.

A senior Justice Department official told Fox News on Thursday that "there is no deal" - meaning Mangione would be pleading guilty without a negotiated sentencing guarantee.

The plea is the latest milestone in a case that has gripped the country since December 4, 2024.

Onlookers obsessed with the case hope to get a peek of accused murderer Luigi Mangione inside the courtroom. AFP via Getty Images

Thompson, 50, a father of two, was gunned down on a Midtown Manhattan sidewalk outside the Hilton, hours before UnitedHealth Group was set to host its annual investor conference at the hotel. After a five-day, multistate manhunt, authorities apprehended Mangione at a McDonald's in Altoona, Pennsylvania.

Investigators recovered a manifesto criticizing the American health insurance industry - a discovery that split public reaction sharply. While many condemned the killing as a cold-blooded assassination, others treated Mangione as a dark symbol of mounting public frustration with the U.S. healthcare system.

A looming state battle

Friday's federal plea does not close the book. Mangione still faces a parallel state prosecution in New York for second-degree murder and weapons offenses, with trial scheduled to begin next month. Earlier terrorism-related counts in the state case have been dismissed.

The federal plea is expected to trigger an immediate clash over the state trial. Mangione's defense team is expected to argue the state case should be dismissed on double jeopardy grounds, contending he cannot be prosecuted twice for the same conduct.

"One-plus-one is two. Double jeopardy, by any common-sense definition," he shouted during a February court appearance.

The Manhattan District Attorney's Office has signaled strong opposition, arguing the federal and state charges address distinct legal harms. Legal experts have called the question genuinely open. "It is incredibly complicated," defense attorney Paul Shechtman told the New York Times earlier this month about New York's double jeopardy statute.

Retired NYPD inspector Paul Mauro suggested a plea without a deal could still serve Mangione: "He gets to serve his time in federal prison, where conditions are better, and he is hoping that the New York state double jeopardy law will knock out the state case."

Tyler Durden Fri, 08/14/2026 - 11:43