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Hey everybody,
This is something I'm trying to get better at.
We don't think about the things that we don't know about. Conflict rises because nations don't properly understand the perspective of their adversaries. This week Russia and Iran met in Bishkek and here's a question I was asking:
Aside from the United States, what did they talk about? Do they have a shared theory of victory? Can we imagine the globe from their perspective? Washington speaks loudly, swings a large stick, but rarely listens carefully.
That's why we investigate.
Let's get to it.
Eric
P.S. If you haven't seen the opening of The World Nomad Games, you're missing out, who knew there was an Irish delegation?
Bottom Line Up Front (BLUF)
Putin and Pezeshkian meet in Bishkek to talk Nukes and victory. Moscow handed Tehran an agreement on small reactors while claiming public support.
Global bond yields enter the warning zone. Gilts at 1998 levels, Bunds at 2011 highs, Japan above 3 percent. Central banks can hike into a war economy or governments can cut. Both paths hurt, and next week picks one.
Israel digs into southern Lebanon in spite of the ceasefire. The Israel Defense Forces (IDF) say they hold the Ali al-Taher ridge above and below ground, the same ridge Iran told Washington was a red line. (Paid)
The Pentagon buys into Venezuela's oil for a century. A 35 percent stake in the company holding 17 fields. Beijing wants its rights guaranteed. (Paid)
Bolivia takes over its own oil company. Ninety-five percent of the diesel is imported, the currency was floated in June, and the treasury cannot carry the subsidy at war prices. (Paid)
1. Moscow and Tehran Talk Reactors in Bishkek
What Happened
Putin and Iranian President Pezeshkian met on September 1 on the sidelines of the Shanghai Cooperation Organization (SCO) summit in Bishkek. Rosatom chief Alexey Likhachev sat in. Two days later in Vladivostok, Likhachev said Rosatom had handed Iran a draft intergovernmental agreement to build small nuclear plants and that Russian staff at Bushehr are back to 42 with a target of 100 by autumn.
Around them, all ten SCO heads of state signed the Bishkek Declaration, which condemns military strikes on Iranian territory without naming the United States or Israel and rejects unilateral sanctions. Modi signed it. Pezeshkian used the same stage to say Iran would match any US move back to the June deal, two days after US aircraft struck launchers on Larak Island.
Why It Matters
Russia is sending nuclear engineers into Iran and backing Tehran in public. This is a full rebuke of the US economic isolation policy and a bet that Iran survives the war to pay for nuclear power.
Meanwhile the US is sanctioning international banks with ties to Iran starting with the smallest ones first. However, Washington is leaving off the only one that matters, China. Beijing is Tehran's largest trade partner, without them, there is no Operation Economic Outcast.
We're seeing US pressure force new alliances together instead of breaking them apart.
What We're Watching For
What kind of forward progress on nuclear reactors are made between Iran and Russia.
The BRICS summit in New Delhi on September 12 to 13. If ever there was a moment to challenge dollar dominance, this is it.
The next target of US sanctions. It might be Turkey, Iraq or the Gulf rather than China.
2. Bond Yields Enter the Warning Zone
What Happened
UK 30-year gilts hit 5.89 percent, the highest since 1998, with two Bank of England hikes now priced by year end. The German 10-year Bund cleared 3.36 percent, its highest since 2011, and French 10-year debt traded above Italy's. Japan's 10-year passed 3 percent for the first time in 30 years. The US 30-year touched 5.24 percent on Thursday, back near the level that forced Treasury to expand its buybacks in August.
Why It Matters
Think of the bond market as the landlord for every government on earth. Rent went up on all of them at once: Brent near $90 because Hormuz is a war zone, Federal Reserve Chair Kevin Warsh telling Jackson Hole the inflation fight is unfinished, and deficits swollen by a pandemic and a rearmament cycle. This is a perfect storm of weakening the dollar.
Five percent on a 30-year is the warning zone. Above it, borrowing to fight a war stops adding up. There are two ways out and neither is painless.
Path one: central banks hike into a war economy. That is what the European Central Bank (ECB) is about to do on September 10 and what the Federal Reserve is being pushed toward on September 16. Every mortgage, factory loan and defense bond gets more expensive. Growth takes the hit.
Path two: governments cut spending, subsidies and transfers. That is what Britain's October budget and France's budget fight are about. Populations take the hit. (This won't happen in the US)
Rich countries get to choose. The rest get pushed down path two . (Story five is what that looks like.)
What We're Watching For
More rate hikes across the board, or any outward talk of austerity.
Friday's US payrolls print and whether it locks in a Federal Reserve move on September 16.
Any repeat of the Treasury buyback intervention, which would tell you Washington thinks the long end is breaking.
Want to support independent analysis and journalism? Join the Under Report for full access. Here's what full subscriptions are reading this week:
"Israel Digs In Despite the Ceasefire"
"The Pentagon Buys Into Venezuela's Oil"
"Bolivia Takes Over Its Own Oil Company"
Eric's Tinfoil Hat prediction 👀
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