It’s Happening

The Federal Reserve is cracking

Bond yields just hit a 17-year high in the US.

Japan just hit a 20 to 30 year high.

UK borrowing costs are surging too.

This is happening everywhere simultaneously and it’s one of the ways things start to break.

What bond yields actually mean

The government needs money. It issues IOUs — bonds. Thirty years, you give us cash, we pay you back with interest.

It’s an auction. The government shows up and says who wants this? Normally countries line up — China, Japan, sovereign wealth funds. Everyone wants the safe guaranteed return.

But if fewer people show up the government has to raise the interest rate to attract buyers. 2% becomes 3% becomes 4%.

Every time that number goes up the cost of running the government explodes. Because the US funds a massive portion of its operations through debt. Higher yields means higher interest payments on tens of trillions in existing debt.

The 30-year yield just hit 5%. Hasn’t been there in 17 years.

At that level with this much total debt the interest payments start eating the government alive.

Why the Strait of Hormuz made everything worse

Previously when yields approached 5% Trump would back off whatever was causing the spike. That’s where the original taco trade came from — markets learning that Trump blinks at 5%.

That dynamic is broken now.

The Strait of Hormuz is closed. 20% of the world’s oil and gas normally moves through it. Trump can say whatever he wants but he cannot physically open the strait with words. Iran is under no immediate pressure to capitulate. Intelligence suggests they can hold out for months.

So yields keep rising. Oil keeps rising. Inflation keeps rising.

The nacho trade — not a chance hormuz opens — is the new framework. Trump’s ability to talk markets down is limited when the underlying problem is a physical blockade he cannot resolve through tweets.

What could actually break the stock market

Three paths.

Bond yields get high enough — say 6% or 7% — that big institutional money starts flowing out of stocks into bonds. A guaranteed 6% return for 30 years becomes genuinely attractive to pension funds and institutional investors compared to volatile equities. That’s a pressure valve that could release a lot of air from inflated stock valuations.

Oil prices get high enough that businesses can’t run profitably. Earnings start cracking. Stock prices follow.

A public failure that becomes an everyone-knows moment. Bear Stearns in 2007 turned vague housing market anxiety into panic overnight. One visible fraud or bankruptcy causes investors to look closely at everything else they own with similar risk profiles. Recursive panic selling follows.

Right now Nvidia just reported another blockbuster quarter. The AI infrastructure companies are printing cash. That third trigger hasn’t happened. But nobody knows when it does.

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Who is actually making money

The AI spending bubble is a massive transfer of wealth from one set of companies to another.

Tech giants are spending hundreds of billions on AI infrastructure. That money flows to Nvidia, TSMC, SK Hynix, Samsung, Micron.

The Korean economy. The Taiwanese economy. Both surging almost entirely on the backs of chip demand from American tech companies funneling cash into their hands.

Nvidia’s margins are extraordinary. TSMC is printing money. The picks and shovels companies in the AI gold rush are walking away with hard cash regardless of whether individual AI applications ever prove profitable.

Workers at Samsung are going on strike. The company could apparently pay every employee a $400,000 bonus and still have their most profitable quarter ever. That’s how extreme the windfall is.

The Anthropic situation

Anthropic just hit its first profitable quarter.

The revenue growth rate is possibly the fastest of any company ever. B2B businesses are so dependent on Claude Code that every major corporation is paying through the nose for enterprise licenses just to make sure they’re not behind.

The Anthropic sales team apparently has the easiest job in the world. Walk in. Kick back. Sign companies up for six-figure licenses. Collect commission. Repeat.

Trump blackballed them from Pentagon contracts over the AI kill-drone issue. That decision backfired completely — it gave Anthropic massive name recognition and pushed them to number one in the App Store. Most things Trump does to punish companies seem to end up helping them.

The teacher with Claude essay

A teacher showed students an essay Claude wrote and bragged about how much better his prompting was than their writing.

Multiple problems here.

Why is a teacher trying to one-up students in the first place?

More importantly — the point of writing a school essay has never been to produce a good essay. Nobody frames your sophomore history paper. The point is to make your brain work. To build the ability to structure an argument, construct a coherent point, and communicate it clearly.

That skill is what you use for the rest of your life when you need to persuade someone of something and screaming and panicking aren’t working.

Getting AI to write the essay is like going to the gym and having a robot arm lift the weights for you.

The weights got lifted. Your muscles did not get stronger.

You were there. The treadmill was on. You were standing next to it.

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So I had to leave out the deeper parts, this was just the surface, the plot thickens ➻ HERE

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