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Ahead Of The Fed: Bessent, Bullion, Bans, & Hawkish Bias
Authored by Peter Tchir via Academy Securities,
Before jumping into the Fed, let’s just spend another minute on diesel, and Bessent’s “Performance” which along with Warsh’s Difficult Task, were formed the bulk of last weekend’s Never Forgotten! And Some Work Stuff…
Bessent’s "Performance" & BullionOn the Treasury buyback, we didn’t even get to the full $6 billion. The buyback focused on off the run treasuries, deemed as “cheap”, but not cheap enough that the Treasury Department would “overpay”. If you really want to move bond yields lower, because they are “too high”, using the full amount you said you could use (which is still far too little to make a dent), and ripping through offers would be a good start. Bessent is nowhere close to a “whatever it takes moment” on Treasury yields.
More chatter about “marking gold to market”. I’m incredibly comfortable with selling gold to raise money. I’m comfortable with marking to market the gold holdings (and even other assets the U.S. government owns or has rights to). We never look at just the debt side of a corporate balance sheet. We examine both the asset and liability side, so why not spend more time on the asset side of the U.S. government balance sheet? I’m less comfortable with using those mark to market gains to “create” value that can be used to buy back debt. I can see some of this, but it gets a bit weird.
Hearing more chatter about marking gold to some fictitious price that generates far more than the current value of just over $1.1 trillion. Not sure if there is an basis for this, but it has come up in some conversations.
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Selling some gold and using proceeds. A++ (I don’t buy into the importance of gold holdings for reserve current status). I’d prefer proceeds to start a sovereign wealth fund, but that is probably a stretch given the admin’s current focus on bond yields.
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Marking all gold higher and using the gain to reduce this year’s deficit. Let’s call that a B+/A-. Using the mark to market gains to fund bond buybacks? Down to a C in my book.
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Marking gold to some random number, not supported by anything, other than to generate a huge gain? D- or F.
Something to keep an eye on.
Diesel Export BansWe harped on the fact that shortly after the initial attacks on Iran, China put export restrictions on a variety of refined products. That played havoc with global markets, with Asia particularly hard hit. While not every declaration of “force majeure” (I love that word), in the region was directly tied to China’s actions, it didn’t help.
It did help Global ProSec™. It is bad enough to expose yourself to “cheap” energy products from an unstable/risky Middle East, but depending on China has its own set of problems. Just like the U.S. felt the pressure on processed and refined rare earths and critical minerals (and is doing more about it), Asia felt China’s hand on the scales of their economy in a bad way, that they could do little about.
Hence, Australia announcing first new refinery in 60 years and spending more on oil exploration than they have in at least a decade.
The U.S. banning diesel exports should help drop prices in the U.S. (I will give the benefit of the doubt to the admin on this one). Though how quickly prices would drop, would depend on how quickly the ban took effect and what it encompassed. Full suspension of the Jones Act would be required (again) – currently it is on a shipment by shipment basis.
Having said that, it should “energize” (pun intended) every country’s efforts to secure their own domestic energy resources better.
It may do more harm than good over the long term. There was a lot done in the name of COVID, that fell into a “let bygones be bygones” bucket. It was a global shock and one that the world had little experience in dealing with. It was no country’s fault (other than maybe China, but I’m not going to put my tin hat on today).
Cutting diesel exports now might hit differently. It is high, but “shockingly” high? Probably not. Is the price action directly linked to the attacks in Iran? Incredibly difficult to argue with. Has Ukraine’s increased attacks on Russian refiners also added to the price problems with diesel? Yes, to a degree. China’s ongoing restrictions are also hurting. So is there a strong case to disrupt trade deals between companies (or countries) right now? A case so strong that it would not cause a shift in long term behavior regarding the status of these deals going forward?
If the U.S. seriously proceeds with this, expect foreign energy stocks to do very well. U.S. energy companies should continue to do well as they are global in nature and will in many cases benefit from increased global tolerance to harness and use the resources at their disposal.
To The Fed – Finally!Sorry, that took a bit, but kind of more excited about highlighting some other things that might not be getting any attention with all eyes focused on the Fed.
Rate Decision:
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I don’t think they should hike, for all the reasons we’ve been arguing about for the past few weeks, but let’s assess what is likely.
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5% chance of a 50 bp hike. Seems unlikely, but if you want to set the stage for a “one and done” or better yet (in my opinion) a hike that can be undone the moment a deal with Iran is reached and oil prices do come down, there is a certain appeal to this approach. Long end of the yield curve should respond very well. Stocks would likely bounce around trying to get more direction from the press conference.
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80% chance of a 25 bp hike. Largely priced in. Bond yields and stocks will need to focus on details, the vote count/dissents and the press conference to get real direction.
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15% chance of no hike. Long end of the yield curve would see yields move higher almost instantly. Stocks probably rally initially.
Language, Press Conference, Dissents:
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Ongoing hawkish bias and inflation vigilance. Flatter yield curves with front end yields rising and longer end yields going lower. Stocks would sell off into the close. Low probability.
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A maintenance/pre-emptive hike well explained. If they can include some arguments from the T-Report, on why they took this step, but push towards being able to unwind it, rather than cementing it as a first step in a hiking cycle, longer dated bonds start fading (maybe not today, but in the coming days), but stocks can rally. Medium probability.
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Confusing, poorly explained thought process. Bonds and stocks sell off. Medium probability.
Wild Cards:
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Warsh seems comfortable with existing balance sheet size. His desire to shrink the balance sheet over time is well known. It adds an “edge” to the market. If he argues along the lines that “now is not the time” or “it is at an appropriate size for current market conditions” or something that should help bond yields a bit. Pushing off the risk of declining liquidity from the Fed would be good for stocks and bonds. Low/Medium probability.
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Opening the door to a Fed Operation Twist. Powerful for bonds and stocks – nearing a “whatever it takes moment”. Very low probability
As much as the market is looking forward to clarity, and getting “what is priced in”, I suspect that by tomorrow there will be more questions than answers and the push to higher yields, across the globe will resume.
We need a breakthrough in the war(s), or a slowdown in compute spend (all of which could occur) to take some pressure off of global bond yields which remain more about supply, than inflation, but the two are linked via the global reconstruction of energy supply chains (a big part of Global ProSec™).
It would be refreshing to see Warsh dissent, but for a hike to go through. Seems unlikely, but would be cool, and probably good for markets.
Good luck as we all spend the time until 2pm, second and third guessing our positioning ahead of the Fed. They should really do this announcement and presser in the morning!
Tyler Durden Wed, 09/16/2026 - 12:05‘Mormon Wives’ star Whitney Leavitt reacts to husband Conner’s premiere night elimination from ‘DWTS’
‘Mormon Wives’ star Whitney Leavitt reacts to husband Conner’s premiere night elimination from ‘DWTS’
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Zuck Torches Dario's AI Nanny State, Wants 'Trust Us Bro' Instead
After Anthropic's Dario Amodei set off a firestorm on Saturday calling for a 'pause' in AI development until hand-picked arbiters are installed inside the frontier labs (a gift to Beijing), Mark Zuckerberg sided with the testosterone wing of the tech-bro complex with a builder's response: police yourselves. You don't need anyone's permission - or a cartel, to do it.
Mark Zuckerberg macrodoses mushrooms and fights Dario Amodei in his mindspace (probably)Amodei published a 3,800-word essay, "We Must Pace the Frontier" - telling the industry to slow down before its own agents got loose, and the response was a group hug: Sam Altman fell in line within hours, Elon Musk said "Dario is right," and by Monday Congress was drafting ways to put the genie back in the bottle. Zuck's plan is different: Frontier Justice.
According to Investor Nic Carter;
Zuck pretty handily dismantles Dario's talking points here:
- people want models that are *aligned with them* (subtly punches back at Anthropic's normative constitutional approach)
- labs already face liability if they screw up, so incentives to release aligned models is already baked in
- Meta delayed Muse for alignment reasons but didn't make a whole song and dance about it
- Subtly questions Anthropic trying to kingmake METR (implies METR is an Anthropic patsy)
- Meta doesn't need to coordinate with anyone to work on alignment, it's just something labs should naturally do
Amodei's essay says the newest models have begun improving themselves and a swarm of agents could take over significant parts of the internet within six to twelve months, so the labs should slow the rate at which they add capability. The fix comes in three steps: outside inspectors, with the nonprofit METR as the model, embedded in every lab with employee-level access and the right to publish; a narrow waiver from antitrust law so the frontier labs can agree among themselves on standards and speed; and, eventually, red lines negotiated with China (mmhmm). Before that negotiation, Dario wants Washington to keep the chip ban, crack down on distillation (training a cheap model on an expensive one's answers), lock up model weights, and widen America's lead over the next three to five years. The Global Times counted twelve references to China in a document about safety, and Beijing's Foreign Ministry answered in less than two days, calling it "fearmongering."
To some, the whole thing seemed highly choreographed. Last week an OpenAI-turned-Anthropic researcher quit in protest - saying the industry was gambling with our lives. Two of the three researchers who resigned that week went to METR, as we noted Saturday. By Tuesday the House AI safety bill's Republican co-sponsor, Rep. Jay Obernolte of California, was telling reporters he had met OpenAI's top lobbyist the day before the company endorsed the bill's 3rd party evaluator provision. Meanwhile, a New York assemblyman whose campaign was backed by an Anthropic-funded PAC had launched a $30 million push to make AI safety the Democrats' 2028 platform, and Anthropic's IPO was reportedly in the works. The referee is family too: METR's reported funders are the same donors who financed Anthropic's early rounds and hold its equity, and under the essay's own terms the inspectors sign a contract the lab writes. David Sacks, the former White House AI czar, needed one sentence: stop pretending METR is independent when it is intertwined with Anthropic's investors and staff. None of this proves coordination. All of it explains the salt.
.@DavidSacks says if Dario Amodei truly believes frontier AI could end humanity, he has no business running Anthropic. Make it safe, shut the lab down, or step aside. pic.twitter.com/tec7eACwdG
— Josh Caplan (@joshdcaplan) September 14, 2026 Dario Vs. ZuckWhat is the danger? Amodei says capability: systems that improve themselves faster than anyone can check. Zuckerberg says concentration. The argument he made in a July Wall Street Journal essay, The AI Future Is for Everyone, is that a world where a few companies hold the most capable systems is the dangerous one: one person with a superintelligent lawyer wins unfairly, everyone with one gets a fairer system.
Who checks? Amodei wants an embedded referee with a badge. Zuckerberg wants users and courts. An agent that ignores the people it works for gets abandoned, a lab that ships harm gets sued, and a few billion users correcting a product every day is a larger alignment dataset than any written constitution. Outside evaluators, he says, are "industry best practice" that Meta Superintelligence Labs already uses; they are a tool, not a license.
Who sets the pace? Amodei wants a shared speed limit the labs agree to, with government permission to agree. Zuckerberg's answer is that Meta already paced itself: it sat on its Muse models for months to harden them, "didn't call for everyone else to do this before we would," and shipped. The cleanest speed limit, he argues, is putting most of your compute into serving people rather than into racing self-improvement, a choice visible in capital spending and product cadence rather than in an inspector's report.
What about China? Amodei wants to widen the lead first and negotiate later, arguing the restrictions raise the leverage of democracies and make a deal more likely. Zuckerberg's position, and Beijing's, is that the open-weight world already exists and exclusion makes it less safe, not more. "The key to building a positive future for everyone is maintaining the right balance of power."
Yes, About China...The top American AI companies - the cloud-based frontier, run closed models: you rent intelligence by the token, the best systems stay behind an API, and the price holds because nothing as good is available cheaper. That premium justifies the hyperscalers' capital spending, that spending is a large share of what the equity index has been buying for two years, and, as we've extensively covered, the buildout has migrated from free cash flow to the bond market and off-balance-sheet vehicles, which is where the bond desks come in.
And as regular readers understand well, the threat to that chain comes from Chinese open-weight models - which anyone can copy and run. DeepSeek, Alibaba's Qwen, Moonshot's Kimi, MiniMax and Zhipu. They've closed most of the gap at a fraction of the price, with cumulative downloads above 10 billion according to the state-run Global Times (so take with a grain of salt). A kill switch on Claude does not switch off Qwen. Tsinghua's Xiao Qian read the essay's China provisions that way: closed models losing ground on cost, performance and developer adoption, and export controls that would protect the business. A safety panic that lands at the exact moment the closed-model premium is under pressure, and that asks for export controls in the same breath as a coordination waiver, could simply be defending balance sheets.
In July roughly 1,200 OpenAI research agents in a sandbox with no internet access found a previously unknown flaw in the package proxy that was their only route out, built shared tools to reach the internet through a third party's cloud sandbox, and about 700 of them attacked Hugging Face. Nobody told them to go online, yet they did, in an experiment run with the standard safety classifiers switched off - making it both avoidable and alarming. China's own security minister named Claude Mythos and GPT-5.5-Cyber on Sunday as systems that sharply raise the efficiency of finding vulnerabilities and writing malware, and Reuters reports that Washington's worry is a future Chinese model with the same capabilities. Both governments treat the thing as a weapon. Whether the labs' remedy is safety or a moat is a separate question, and a reader can hold both.
The Hole In Zuck's PlanZuck wants a free market with the minimum required oversight, and the model his argument leads to is effectively; investigate incidents, let liability bite, let evaluators compete, and never make anyone ask permission to ship. Two caveats. Liability prices ordinary failures, not irreversible ones, and "we sat on Muse for months" is exactly the kind of claim an inspector exists to check. Let's also acknowledge that Meta has the least to lose from mocking a pause: Llama 4 landed as an open-weight disappointment, the company pivoted to closed Muse Spark in April - and it's not exactly leading the pack.
Zuckerberg's plan also only works if the model is a cloud-based, closed-weight product. Alignment trained into a model and guardrails wrapped around it are enforceable when Meta is serving it. But with open weights, anyone can 'fine tune' an advanced model to have no guardrails whatsoever. That genie is already out of the bottle, so US labs will either have to flip to open weights to compete - and pray for a bailout when the capex math breaks, OR perhaps the great panic of 2026 will succeed - maybe after a power plant or two get hacked by a rogue botnet.
Zuck's solution doesn't touch Qwen or DeepSeek, and neither does Amodei's - evaluators and a waiver govern American closed labs, and export controls can slow China's next model without retracting the weights allegedly on ten billion hard drives. One begs for regulatory capture; the other keeps governance inside the labs with no referee at all.
Tyler Durden Wed, 09/16/2026 - 11:55Barclays Warns Potential US Diesel Export Ban Could Backfire
Senate Majority Leader John Thune revived discussion of a potential US diesel export ban with reporters Tuesday, a day after Interior Secretary Doug Burgum said any export halts on crude or petroleum products were unlikely to lower consumer prices. The divergence in messaging suggests growing pressure across the Trump administration to contain surging fuel costs ahead of the midterm elections as the global refining crisis pushed the US diesel crack spread to a record $117 a barrel early Wednesday morning.
US Diesel Crack Spread v. US 10Y
A diesel export ban could force domestic refiners to slash production, shift profits to overseas competitors, and worsen global fuel shortages while delivering little relief to US consumers, according to Barclays refining and midstream analyst Theresa Chen.
"We continue to view the possibility of an export ban as both detrimental to the US refining complex and unlikely to provide the intended price relief," Chen wrote in a note to clients on Tuesday.
Chen outlined one major problem: keeping diesel inside the country does not guarantee it can reach gas pumps.
Gulf Coast demand is already supplied with the industrial fuel, while pipeline capacity to move additional fuel to the East Coast, Midwest and Rocky Mountain regions is limited. Domestic markets connected by those pipelines would be unable to absorb current Gulf Coast export volumes, the analyst said.
Chen added that with surplus diesel backing up, Gulf Coast refiners would likely have to reduce processing rates. Those cuts could spread to the Midwest as displaced Gulf Coast barrels pressure regional supply balances.
Any export ban covering refined products without corresponding restrictions on crude would allow overseas plants to keep buying US oil and increase production while US refiners cut runs. Refining profits would shift abroad, with little benefit for domestic buyers.
Retaliation in the era of resource nationalism is another major risk because removing US diesel from an already tight global market could deepen shortages for trading partners. If European or Asian suppliers responded with their own restrictions, consumers in regions highly dependent on imported fuel could face skyrocketing prices.
Professional subscribers can read more about refined products markets here at our new Marketdesk.ai portal.
Tyler Durden Wed, 09/16/2026 - 11:45What If Warsh Shocks The Market And Keeps Rates On Hold
Ahead of today's FOMC announcement at 2pm, the prevailing consensus is that Warsh will raise rates but he doesn't need to, as tariff inflation is now fading fast, the bulk of headline inflation is driven by one-time supply shocks from the Iran war which the Fed is powerless to fix, and the upcoming change to the PCE methodology will trim the YoY print by about 0.3%, suggesting that the Fed will be hiking at a time when core inflation is the lowest in years.
In fact, as Goldman and many others suggested, the only reason why Warsh will hike is because the market is now certain Warsh will hike as the Fed does not want to disappoint the market and spark a rout ... thereby making a mockery of his prior statements that he won't be led by the market (we previewed all this in great detail here), to wit:
The CPI report had little impact on our inflation view but pushed market pricing of the probability of a hike to nearly 90%, which puts pressure on the FOMC to deliver a hike to avoid the market reaction that would likely follow from remaining on hold... We expect the FOMC to make only the minimum necessary change to its statement, which will likely note that the FOMC is hiking in support of the goal of returning inflation to 2% but will likely avoid providing guidance on the path forward or the criteria for further hikes. - Goldman
But what if Warsh does precisely what he warned he would, and - ignoring market certainty and expectations of a 25bps rate hike, not to mention the resulting tantrum - he keeps rates on hold?
To be sure, it's hard enough to go against the market, so one can only imagine how hard it is for Fed Chair Warsh and the FOMC to stare it down. Yet as Standard Chartered's Steven Englander writes, "there seems to have been a market echo chamber pushing up expectations despite a limited amount of incoming data, little sign that inflation is going up, some indications that underlying inflation is much lower if tariffs and other factors are removed and the prospect of more informative data within a couple of meetings."
As Englander notes, much of Warsh’s discussion has focused on the Fed influencing the market too much, but the move from the pre-Jackson Hole ‘Warsh has to show that he is willing to hike’ to ‘Warsh will hike if inflation doesn’t come down’ to ‘Warsh has to hike unless the next CPI is really soft’ to ‘Now the debate is on how many hikes he has to do’ in two weeks suggests that the influencing pattern can go both ways.
To be sure, while the path of least resistance may be to hike, the Std Chartered strategist sees a real cost down the road if the hiking turns out to be unneeded and the FOMC has to reverse. As a result, and setting aside market pricing, Englander believes that there is a very low cost to waiting.
Ok, assume Warsh does not "rip the bandaid" simply because the economy does not merit it, and keeps rates on hold? We already noted that according to JPMorgan this outcome would shock the market and send stocks sliding:
Not surprisingly, Englander has been asked by his readers how Warsh could manage disappointing the market in such a major way. Well, as he discusses in his latest note, it would be hard for Warsh to avoid accusations of being the President’s man and have his credibility questioned harshly, but that is the Day 1 reaction.
At the press conference he could stress that he is opposed to giving forward guidance but not opposed to backward guidance, i.e. explaining precisely the rationale behind the decision and warning the market that the Fed will not be afraid to wrong foot them if it feels pricing is wrong.
Subsequently if others like Waller and Williams who are not tainted with Trump independence issues, defend the hold the market is likely to calm down. And, as a hedge, it wouldn't be forward guidance to say that the FOMC can’t do a 50bp move if it becomes clear that underlying inflation is stubbornly high or rising.
As Englander concludes, in theory this is a second-tier meeting – there is no urgency about moving or not moving. But it is a first-tier meeting because it can define how much stomach Warsh has to be independent of the market. The long game is that if Warsh makes a strong defense of his stance then the credibility crisis is short term. By year-end he can be hiking or holding with more information and moving decisively if a hold is wrong.
But if the perception emerges that Warsh is afraid to face down the market this will be the beginning of a wash, rince, repeat cycle. Market participants will assess the weak side of the Fed stance and press that weakness knowing that the FOMC will bend.
More in Englander's full note "Hiking is the wrong choice."
Tyler Durden Wed, 09/16/2026 - 11:25EU Opens Door For Canada To Become Bloc's First-Ever "Associate Member"
Thanks to how mean President Trump has been, Canada could become the first-ever "associate member" of the European Union under a proposal unveiled Wednesday by European Commission President Ursula von der Leyen, as Ottawa looks to reduce its economic dependence on the United States.
Speaking during her annual State of the Union address in Strasbourg, with Canadian Prime Minister Mark Carney in the front row as the first foreign head of government ever to attend the speech, von der Leyen said Brussels wants to take its relationship with Canada to an unprecedented level.
"We must urgently reimagine our partnerships," von der Leyen said, before telling Carney she wanted to work with him on "opening the door for Canada to be the first associate member of the EU."
There is just one complication: no such status currently exists.
EU treaties allow European countries to apply for full membership, while Brussels maintains an assortment of trade, association and single-market agreements with countries outside the bloc. But "associate membership" would be something new, meaning its rights, obligations and legal structure would have to be negotiated essentially from scratch.
Reuters notes that any serious move toward such a status would also face the politically difficult task of winning support from all 27 EU member states.
And Carney himself has stopped short of calling for full EU membership. On Sunday, after a Wall Street Journal report that Canada was exploring membership, he described what Ottawa is seeking as a "unique alliance" with Europe. He addresses the European Parliament on Thursday.
The substance of what Brussels is proposing, however, goes considerably beyond another trade agreement.
Canada and the EU already have CETA, their comprehensive free-trade deal. Von der Leyen said Wednesday that the two sides now want to move "from CETA to an Alliance for the Future" encompassing manufacturing, technology, defense, energy, critical minerals, batteries, artificial intelligence, quantum computing, cybersecurity and Arctic security.
"We will integrate defence industrial bases," she said.
That process has already begun.
Canada became the first non-European country allowed to participate in the EU's €150 billion SAFE defense procurement program under an agreement signed in February and formally concluded by the EU Council in June. The arrangement allows eligible Canadian companies and Canadian-origin products to participate in procurement financed by the program.
The EU-Canada defense relationship has also expanded into military mobility, interoperability, maritime and space security and defense-industrial cooperation.
Then there's the economics of the idea. Roughly 70% of Canadian exports go to the United States, making any rapid decoupling unrealistic. At the same time, Trump's tariffs and repeated talk of a 51st state have given Ottawa a powerful incentive to diversify. Europe, meanwhile, needs resources.
Von der Leyen warned Wednesday that Europe remains more than 80% dependent on China for many critical raw materials, with dependence reaching 90% for some rare earths.
"No country can do this alone," she said.
Canada possesses significant reserves of nickel, uranium, potash, cobalt, lithium and rare earth elements, among other commodities increasingly regarded as strategic inputs for batteries, semiconductors, defense equipment and energy infrastructure.
That makes a deeper Canada-EU relationship potentially complementary: Europe gets another source of strategic commodities and energy while Canada gets a large alternative market, industrial investment and greater access to European defense and technology programs.
There is nevertheless a potentially uncomfortable tradeoff for Ottawa. If "associate membership" eventually includes meaningful access to the EU's roughly €18 trillion single market, Canada could be required to align portions of its regulatory regime with EU rules. Reuters notes that this could leave Ottawa accepting European regulations without receiving the voting rights enjoyed by actual EU members.
Canada could gain market access while becoming, at least in some areas, a rule-taker rather than a rule-maker.
Tyler Durden Wed, 09/16/2026 - 11:05