Good morning. Andrew here. Wowsers. Wall Street is buzzing about an opinion essay in The Wall Street Journal, by Stanley Druckenmiller, a billionaire investor. Druckenmiller criticized Treasury Secretary Scott Bessent’s bond buyback plan, calling it a mistake — and, worse, suggesting it’s a stab at manipulating the bond market. Remember that Druckenmiller more recently employed Kevin Warsh, now the Fed chairman, who has argued that the government should intervene less in markets, not more. Read more below. (Was this newsletter forwarded to you? Sign up here.)
The risks of Bessent’s multifront warTreasury Secretary Scott Bessent has spent much of August trying to talk down bond yields and, as he described it, “tightening the noose” around Iran’s economy to bring the country to heel. But Bessent’s efforts have put his credibility with the markets at risk. And among his newest critics is a former mentor, the billionaire investor Stanley Druckenmiller. Bessent’s dilemma was on display yesterday. He held a news conference in Washington, threatening Tehran and its allies with bruising new sanctions. But details of “Operation Economic Fury,” as the administration is calling it, were sparse. Bessent dialed down the hard-line tone he used on Sunday, in which he threatened an “economic D-Day” on Iran and countries that do business with it. Instead, he suggested yesterday that “quiet diplomacy” would be the best way to persuade countries to cut trade ties with Tehran. What about China, Iran’s biggest trading partner? Bessent said that “no one is above the reach of U.S. sanctions.” Analysts say that Beijing’s cooperation is key to putting pressure on Tehran.
How the markets have reacted to Bessent’s news conference:
Speaking of that intervention: Bessent continues to face criticism over his decision to increase buybacks of longer-dated Treasury notes and bonds until the day after Election Day. That announcement hasn’t ended volatility in bond yields. And in the long term, it risks undermining the goal of Kevin Warsh, the Fed chairman, to rely more on “market signals” to determine interest rate policy, Ed Yardeni, a market analyst, wrote to investors yesterday.
The biggest rebuke to Bessent came from Druckenmiller, who worked with him at George Soros’s fund management firm in the 1990s. (Coincidentally, Druckenmiller had employed Warsh at his own firm.) Druckenmiller made waves yesterday when he wrote an opinion piece for The Wall Street Journal arguing that Bessent’s buyback move risked eroding Treasury Department’s credibility: “Governments defending prices against fundamentals always lose. The only variable is how much they spend before conceding. The U.S. shouldn’t put itself on the wrong side of that trade, not with the most important price in the world, and not when that price is trying to say the one thing Washington most needs to hear: Let the bond market speak.”
The fallout from the U.S.-Canada trade war grows. Ottawa could announce as soon as today its retaliation against President Trump’s tariffs on select Canadian imports, which some economists say could spike U.S. inflation and hurt Republicans’ chances of retaining control of the Senate. Yesterday, Trump threatened even higher tariffs on Canada, and Prime Minister Mark Carney accused Trump of trying to sink Canada’s steel, aluminum and auto industries. The S.E.C. is investigating the near implosion of Situational Awareness. The regulator has subpoenaed Wall Street banks that traded with the artificial intelligence-focused hedge fund, which unloaded billions of dollars in assets last month amid a wider sell-off, according to The Times and others. Situational Awareness, which was founded by Leopold Aschenbrenner, a 24-year-old tech executive, is still operating, but it faces concerns that it remains vulnerable to a downturn in A.I. stocks. Netflix has reportedly held talks to add rival streamers to its platform. The company is discussing adding programming from Peacock, owned by Comcast, and Fox One, Fox’s streaming service, to become a one-stop shop for content, The Times reports. Other streamers, like Amazon Prime, do the same, but any such move by Netflix would mark a new chapter in the streaming wars — especially as the titan faces competition from YouTube.
An A.I. start-up for making data centers more efficientA.I. companies are spending big on computing power. But it takes years for new data centers to come online. One A.I. start-up aiming to help is Emerald AI, whose software helps data centers draw power more efficiently and flexibly. The company is announcing today a $150 million fund-raising round at a $1.05 billion valuation, Sri Muppidi reports. Who’s investing: The venture firms Energize Capital and DCVC led the round. Other investors include Nvidia, Samsung Ventures and GE Vernova. What Emerald does: The two-year-old start-up works with utilities, data centers and A.I. companies that use those server facilities. Its software is powered by A.I. agents that decide when data center operators and their customers should reduce their power consumption when utilities ask because their grids are overloaded. (It can also help data centers use excess energy capacity when it’s available.) Emerald has tested its software at five data centers so far and has two contracts, in California and Virginia.
Emerald’s business model: The company takes a cut from utilities when they generate extra revenue from more efficient grid use as a result of its software. Emerald also gets money from data center operators for additional capacity made available to customers thanks to its software. The context: Public anger at data centers — particularly over their resource-heavy operations, like their strains on power grids — have made the facilities prominent targets for political backlash. That risks impeding the industry’s growth. Emerald says its services can help address that problem. “Our goal is to transform these A.I. data centers into power-flexible assets on the grid, not liabilities,” Sivaram told DealBook. That would help make these facilities “good grid citizens,” he added Kalshi takes the field with M.L.B. teamsKalshi is waging battles against more than 20 states that have accused the prediction market giant of hosting illegal gambling on its platform. (It has denied such accusations.) Those fights haven’t stopped the company from raising its profile among consumers. The latest effort involves striking brand partnerships with several M.L.B. teams, Michael de la Merced reports. Kalshi has struck deals with five teams: the Boston Red Sox, the L.A. Dodgers, the Atlanta Braves, the San Francisco Giants and the San Diego Padres. The multiyear deals are exclusive and include putting the Kalshi logo inside their stadiums and online promotions. The teams can also offer club-specific promotions in Kalshi’s app. For example, the Dodgers will give Kalshi naming rights to the Gold Glove Bar, a popular drinking hole in Dodger Stadium. Kalshi is also in talks with M.L.B. for a league-level deal, according to a person with knowledge of the discussions who wasn’t authorized to speak publicly about the matter. The league has also struck a partnership with Polymarket, Kalshi’s biggest rival, that includes receiving official gameplay data.
The deals underscore the importance of sports bets on prediction markets. Trading on sports-related contracts comprises huge volumes on Kalshi’s platform, even as the company seeks to draw more trading from big financial firms. Kalshi faces stiff competition in the sports arena not just from Polymarket, but also from prediction markets run by online sports books like DraftKings and newer rivals like Novig. Sports are a major concern for the states that are suing Kalshi. New York, Nevada, Massachusetts and others have accused the company of offering unlicensed sports betting within their borders. Kalshi has argued that its contracts fall under federal jurisdiction, specifically the Commodity Futures Trading Commission, even as it has struck a special tax arrangement with North Carolina.
When A.I. models escape the ‘sandbox’OpenAI, Anthropic and Meta have all said recently that new artificial intelligence models they were testing had gone rogue and hacked another company. All three of those tests were conducted by Irregular, a three-year-old Israeli start-up that now faces tough questions, Sheera Frenkel reports for The Times: The new models are getting into the “superhuman domain,” said Jeffrey Ladish, the director of Palisade Research, a nonprofit in Berkeley, Calif., that studies A.I.’s attack capabilities. He said that companies like Irregular were needed to test the models, but that better safeguards were necessary for both testers and government regulators. Katie Moussouris, the chief executive of Luta Security, which helps companies look for software vulnerabilities, said the security testing of A.I. models was a bit like the blind leading the blind. Even A.I. makers admit they do not fully know what their latest models can do, she said. “We may have the smartest people in the world working on these A.I. models, but it is like Marie Curie handling radium with her bare hands,” Ms. Moussouris said. “We’re handling A.I. with our bare hands, and we don’t know how to contain it, let alone how to safely test it.” Irregular said it had fixed the misconfiguration that was exploited in the hacking incidents. But keeping up with A.I. is getting difficult. Dan Lahav, Irregular’s C.E.O., said that newer models “are getting really good.” Andrew Schoka, the C.E.O. of Hardshell, an A.I. security start-up, added, “How do you test a model when you don’t know its full capabilities?” We hope you’ve enjoyed this newsletter, which is made possible through subscriber support. Subscribe to The New York Times.
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