| Watching for collateral damage |
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| Last week was all about how advances in artificial intelligence appear to be methodically undercutting the future of a growing number of industries, companies, products and jobs. This week it seems Wall Street's fearful gaze has turned to the potential calamities AI might wreak upon private credit.
Yesterday, Saba Capital's Boaz Weinstein sounded the alarm about private credit. Now it's UBS Group. A few weeks ago, analysts at the bank laid out a worst-case scenario for defaults in the private credit sector. Their outlook just became more grim. UBS strategists said private credit could see default rates surge as high as 15%—two percentage points more than the firm forecast less than a month ago—if AI triggers an "aggressive" disruption among corporate borrowers. Direct lenders that took a lead role in financing software companies in recent years now look dangerously exposed to AI's impact, stirring comparisons to the 2008 financial crisis. "What is new: a clearer catalyst," the UBS strategists said. "Rapid, severe AI disruption." —David E. Rovella | |
What You Need to Know Today | |
| AI star Anthropic has been behind many of the so-called AI scare trades that have upended Wall Street in recent weeks. Now it's had some bad news of its own. A hacker exploited Anthropic's AI chatbot to carry out a series of attacks against Mexican government agencies, resulting in the theft of a huge trove of sensitive tax and voter information. The hacker allegedly breached Mexico's federal tax authority and the national electoral institute. State governments in Mexico, Jalisco, Michoacán and Tamaulipas as well as Mexico City's civil registry and Monterrey's water utility were also compromised. AI has become a key enabler of digital crimes, with hackers using the tools to augment their efforts. Last week, researchers at Amazon said a small group of hackers broke into more than 600 firewall devices across dozens of countries with the help of widely available AI tools. | |
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| Even for a world in which AI doomscrolling is the universal hobby, some possible futures are apparently still too dark for some. You may recall a report from Citrini Research a few days back describing a hypothetical economic plunge in which mass white-collar layoffs create a deflationary cascade that pushes unemployment above 10% while stocks get wiped out. Even with the caveat that it was a scenario and not a prediction, the report did a number on Wall Street, triggering more losses in software and financial stocks. With investors already edgy about the power of AI tools, the report poured fuel on the fire. But now some people are pushing back. In the past few days, experts from Citadel Securities, Deutsche Bank, Fidelity International, Liontrust Asset Management and others have said the thesis is far-fetched at best. | |
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| Stocks exposed to the US housing market plummeted Wednesday amid depressing outlooks from companies like home improvement retailer Lowe's. Investors also reacted to the lack of a housing policy update during President Donald Trump's State of the Union speech. The S&P composite homebuilder index shed as much as 5.2%, the most since last April's "liberation day" market meltdown. Despite Trump's argument last night that neither is an issue, executives at two of the biggest home improvement chains pointed to inflation and affordability as the root cause. Earlier this week, Home Depot's Chief Financial Officer Richard McPhail said that "the homeowner is one of the healthiest customer cohorts out there, but they tell us that uncertainty is growing, that there's concern around housing affordability, around job losses." Meanwhile, Lowe's Chief Executive Officer Marvin Ellison on Wednesday said that "consumer confidence remains subdued given inflationary pressures and overall economic uncertainty." He also flagged high mortgage rates, leading to a "persistent lock-in effect," and slow new home building. | |
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| Bitcoin has been cut almost in half since its October high. By almost every measure, the selloff is the worst since the collapse of FTX. But for some reason, a lot of the would-be smart money is still in there. The institutional scaffolding that was built around the digital asset during the boom hasn't come down with it. The exchange-traded fund money has mostly stayed. Wall Street is still in. And while some tactical investors have headed for the exits, the longer-term holders have proven harder to shake loose. While the bearish case for dropping the coin needs no help, the disconnect between price and market resilience is fueling a contrarian bull case that the selloff has largely drowned out. | |
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| With Trump threatening to attack for the second time in a year without providing any consistent public justification, Iran has been loading oil onto tankers at a rapid pace in recent days. It's seen as a potential sign of the Persian Gulf state's preparations for conflict as US forces mass in the region. Exports from Kharg Island from Feb. 15 to 20 were at nearly 20.1 million barrels. That's almost three times the amount loaded over the same dates in January and the equivalent of more than 3 million barrels a day, far beyond Tehran's usual daily rate. It's unclear what will happen to the ships, but it's possible they will disperse widely if the US does eventually attack, according to Samir Madani, co-founder of TankerTrackers.com, which specializes in analysis of satellite imagery. | |
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What You'll Need to Know Tomorrow | |
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