The AI Hedge Fund That Blew Up | The Situational Awareness Story

Hello and welcome back to this week's episode where Citadel swoops in to buy former open AI researcher Leopold Ashen Brainer's hedge fund portfolio at a huge discount following a high leverage margin squeeze. And there's actually some parallels to something similar that happened very much like this in 1998. So those of appropriate age listening will definitely know what firm I'm talking about. But for those who don't, stay tuned because it's almost like history repeats itself. Uh at the center of this is us humans who seemingly are highly valuable to uh these types of opportunities and events. And then the other thing is as a segue, this will lead us into the S&P 500. So, with a bit of a clean out of these highly levered AI funds, bit of confidence returning, and the S&P back to record highs. Not only that, we've got a steep decline in oil prices, blockbuster Q2 earnings, and obviously the relentless March higher and recovery of some of the big hyperscalers back in business. Um, but Pier, you look like uh if if anyone's watching this on video, you look like you're backstage at the Oscars, ready to go out onto the uh onto the stage or something. >> My location will remain uh under wraps. >> You you got some sort of new new anthropic release and they've put you in some little TARDIS to uh try things out. Is that is that what I'm >> new It's my new booth. when you shut up, you know, >> let's carry on. [laughter] >> So, so let's start then with situational awareness and so yeah, let let's dive into this. So, who are they? What happened? And then we'll go from there. >> Well, yeah, I mean, obviously, it's an easy one to jump on from a sort of uh you know, ir the irony of the name of this hedge fund. Um it the name actually doesn't come well actually we'll talk about it but it wasn't a hedge fund to start with but situational awareness obviously the huge irony um because the chronic lack of awareness of the situation um absolutely led to their downfall and demise or I should say his downfall and demise because it's really one individual um behind all of this but um basically this is a story of high highly levered positions in, you know, an incredibly narrow set of uh companies. So, a chronic lack of diversification and a monster leveraged position that kind of led to the downfall. But this is um yeah, this is a guy called Leopold Ashen Brener as as you said. Um he's a you know, the backstory on him is very interesting. um a bit of a you might you might say a little bit of a sort of childhood prodigy. Um born in Germany. Um went to university very young. Uh graduated from Colombia actually just at the age of 19. Um did a BA in economics. Anyway, more interestingly, wound up joining OpenAI um in 2023 on their super alignment team, whatever that means. Um, and you know, 2023, well, I don't know when in 2023. I'm not sure the month, but I was just, we were just chatting before we came on air here. It's amazing that, yeah, chat GPT was launched in the autumn of 2022. We're actually nearly 4 years in to this sort of AI revolution, right? It was Chat GPT that dropped that really kickstarted this whole thing. I can't believe it's been 4 years already. Um anyway, back in 23, you know, Open AI was was really the place to be. If you're a young person, um you know, if you got a lot of technical skills and so on, then then in terms of super cool places to work on, you know, in Silicon Valley, that was top of the list, right? Um so, you know, his focus there was basically technical methods to steer and control super intelligent AI systems. Okay, so that's that's 2023. April 24, he gets fired. So, less than a year, I assume, into his kind of role there. And there's a little bit of uh there's two sides to every story, of course. Um but Open AI are saying it was over alleged information security leaks. Um Ash and Brener obviously disputes that and says that um it was basically he was let go after sending a memo to OpenAI's board highlighting security vulnerabilities regarding potential foreign espionage. So, I mean, look, that's a whole other story, right? I don't think we'll go into that now. But look, this guy obviously I think um I well I would say well we maybe we'll talk we'll come on to things like greed and dare I say arrogance. There's a real whiff of arrogance here and maybe ego, but he, you know, as a super young lad gets fired, thinks he's been harshly dealt with and kind of his response was to write an essay, an open essay that he launched onto the into the internet space and and it just kind of caught fire and became viral. The essay was titled situational awareness and it was basically him setting out his thesis about what is this AI revolution what's coming and basically talking about how the current AI progress and this is 2024 and you got to say this essay I wasn't aware of it in 2024 I I missed this but I tell you what he was right well to so far there's still time to go but he was talking about AI progress traeye trajectories. He was saying it could lead to AGI, artificial general intelligence by 2027. So that's the piece we're not quite sure whether he's right on yet or not. But his point was if that were to happen then automated AGI researchers could rapidly accelerate algorithmic progress basically leading to super intelligence. Um he was talking about this is the bit he absolutely nailed infrastructure bottlenecks. So in 2024 he was talking about specifically around power grids, semiconductors, data center buildouts, um then then other stuff around national security risks and so on. But he basically set up a hedge fund to back his thesis this essay situational awareness and this is where the name of the hedge fund comes from. So he set up situational awareness LP. Um, and basically because this essay went viral, all of a sudden everyone's piling money in. I mean, this kid's 22 years old and by the way has trading experience of zero years, zero months, and zero days. And yet he started to attract tens and actually hundreds of millions of dollars. So I think just forget about this individual. This is a great story also about the hype engine around AI and you could say you know those that think this is a bubble. Well this is an absolute classic story to support that thesis for sure. But you know all of a sudden he's raised huge amounts of money and he starts piling it in to his the bets on his thesis. And you know what it was perfect. it was he was one of the best performing hedge funds like out there. In fact, by 2026 before his demise, his fund was up 439%. in two years. Um, so that's the kind of backdrop to this story and it was going amazingly and and I think yeah, here's my my words like greed probably start to come into play because the better it got, the more right he thought he was, the better he thought he was than the rest of the market. And then he started to make some really stupid, you know, naive mistakes that stink of a complete lack of experience. So he just started to lever up and lever up and lever up. So let's just say what is that? What does that actually mean? So you know if you've got if you've got £100 right in your bank account and you're like, okay, I want to I want to place a bet. I want to place a trade. I want to I'm going to buy some Nvidia stock because I think Nvidia is going to go up. My analysis says my Nvidia is going to go up 25% by the end of the year. Okay, let's say that's what I think. Great. I could take my 100, I could buy Nvidia stock and if I'm right, awesome. I make 25% and I cash out at the end of the year and I've got £125. Okay, so I could do it like that or I could borrow money on top of the 100 cash I've got. I could borrow another 100 or maybe I could borrow 200 or maybe I could borrow 300. And then instead of having 100, I borrow three and I buy £400 worth of Nvidia stock. I've borrowed money there, so I've got some interest payments to make on that loan, but you know, they're relatively small. And then at the end of the year, if I'm right, my £400 turns into £500. I cash it all in and I've taken my 100 and I've doubled it minus some interest costs. Right? So that's leverage where you've got a bet and you just lever it up to increase the exposure, ratchet up the exposure to try and obviously amplify your returns. Okay, awesome. Well, it's going well. And that's how you go to 439% up in your fund in 2 years. In that scenario though where you're I mean everything you're saying makes sense. Let's say though he is a little bit more savvy than you think. And whilst on the top level it looks very levered and one-dimensional and naive, what if he's actually using some of the returns to fund private investments into funding rounds in anthropic and he's building up other non-disclosed >> uh holdings because I understand that with this fire sale, which we could talk about, he's actually still got a lot of other private stuff that he's managed to hold on to. So it's not like financial media is like great to throw egg on his face and say what an idiot >> presumably he comes out of this >> this is true >> way richer than he went in. >> So this is true >> and so does all the early investors. >> He made some good decisions and you're absolutely right to singularly pick out anthropic cuz he did pile in and obviously it's hard with a private so you know what's the value of his anthropic holding? Well, we don't know because it's a private company and there's no, you know, there's no way to mark to market the value of that business, especially now as we've seen this, you know, big kind of AI pullback in the month of July. You know, what what is the value? We don't know. But people picking numbers out of thin air, some people think it might be worth as much as 5 billion. In which case, fair dudes to this guy, right? Um, it could be worth a lot less than that, but I think it's going to be worth enough such that he's going to come out of this for sure, you know, a very rich individual. It's just he might well have pissed off the majority of Wall Street, you know, as he's done it. Um, >> so is this like whenever there's like Yeah, I don't smoke without fire is probably the wrong analogy because there's there's lots of other smokes going off and this one's just happened to blow up. >> What does the do we have any visibility on the degree of which there are other, you know, mainstream people would have never heard of this guy or his fund? >> So, how many other of this guys and their funds are there from what we can tell? Well, I think the events that happened back end of July would have flushed them out and this was the I don't know how many others there are. There's probably others, but they're a lot smaller that we just don't don't is not even worth a headline or whatever, right? But what I can definitely tell you is his trading strategy was not unusual. He might have been early on it and he may well have been one of the kind of loudest cheerleaders for that strategy from an earlier stage back in 2024 but come 2026 almost everyone's on that trade. So actually Bank of America do an annual or actually sorry a monthly survey to their you know block of um asset management clients and 80% of fund managers in that survey in June um responded to that survey basically saying that um they named long global semiconductors as the most crowded trade. So, everyone was in that trade, which actually in of itself is a problem if you're overexposed to it. So, look, it comes back to this leverage thing, right? This is where he went wrong. Fine. He might be okay. Um, what did he say his quote was? I I kind of I live to fight another day. I think his quote was as he kind of sheepishly walked out having uh had his yeah his savior was Ken Griffin which we'll talk about in a second but um it's his leverage right if you're like my example there my simplistic example I've got 100 I'm going to borrow 300 like that's 3x or 4x leverage right the problem is let's say you're 3x leverage and it's hard to know there basically he was between two and four depends how you calculate it and who you're talking to two and four times leveraged. The problem is on the way up great it amplifies your returns. The problem comes when on the way down when the speed of descent is rapid and look some of his if we just talk maybe quickly about some of his holdings of these are his public company holdings right um obviously Anthropic is one of his private company holdings but his his largest holding was actually in Bloom Energy where uh before in Q1 of this year this is the data I've been able to uh he had $879 million worth of Bloom Energy stock. Then SanDisk, $724 million. Coreweave, $556 million. He had who, to be honest, I've never heard of them. Um 400 million. Um Core Scientific 389 million, Applied Digital, 320 million. People all know these names if you've kind of been sniffing around the kind of semiconductor trade, right? But Bloom Energy was his top stock. When he bought that in June 2024, it was trading at $12 per share. Um, the high prior to the big sell-off in July, the high was $351. $12 to $351. That's a $2,800% return, right? Awesome. Especially if you're leveraged on that kind of move. The problem is it dropped 53% in the second half of July. 53. Here's your problem, right? If you're levered 3x. If the stock goes down 10%. Well, you go down 30. If the stock goes down 20%, you're down 60. The stock only needs to go down 33%. Bosch, you're zero. Okay, so this is the problem with leverage is when the wheels come off and markets tank then you are in serious trouble. >> And the analogy is what people say generally is what it's the stairs up and the elevator down in terms of normal price movement. >> So you can't react quick enough essentially to get out of these positions. >> Yeah. And in this case, it was the staircase up and it was like a freef fall plummet off the edge of a cliff down because he's levered. Now here here comes the problem cuz you can't get out cuz if you've got such a monster sized position, if you're holding on to what was $879 million worth of one stock, well, if you have because here comes the problem. Sorry, we need to say one part of the story, which is margin calls. Well, hang on. Who's he borrowing the money off? And who are these lenders who come along and go, "Oh, hang on. I'm worried you're going to go bankrupt. I want my money back now." So, these are prime brokerage divisions of the big bulge bracket banks. Okay. I think um you might have to fact check. Was it JP Morgan and Morgan Stanley? >> The usual >> maybe the lead ones. Yeah, the usual ones, right? So, the prime brokerage divisions kind of basically provide this financing for hedge funds. Okay, so the big banks are exposed to this as well, but they got to kind of manage that exposure. But what happens when the when when ultimately the stock starts to tank then there'll be mechanisms, you know, in the legal lending agreement, mechanisms such that, you know, if you get draw downs of X and Y and zed, well, then we'll have margin calls. This means that you, the hedge fund, you need you need to now wire more cash onto account because the value of your holdings has gone down and and no, you're no longer you no longer have enough cash to cover it. So they basically they say give us you need to wire money now or if you don't we're going to have to we have the legal right to forceell your position and liquidate and take whatever money as the lender that we can get from that. Okay. So this is what happened to him. He started to get massive margin calls. The problem was how do you come up with the cash? You can't sell anthropic shares. So you have to sell your Bloom Energy stock or your Sandix disc or your Core. The problem is this market's in freef fall. If you then come into the market with a massive, massive sell order, you're going to collapse the whole thing. Now why is it in freefall? Because there's clever people in the market that are short this stock cuz they know there are highly levered hedge funds that are going to get margin calls and are going to get stopped out. So they're short basically forcing the margin calls in some sense. And so this is he was stuck. He had margin calls. He couldn't sell his stock because they were too large in a plummeting market. And so waltz in your white knight Ken Griffin and actually this is what happens. So obviously the banks know what's going on and they say okay well look we're going to we'll help you. We will auction off your portfolio off market. We will engineer an over theounter trade. So we're not going to touch the market and cause another wave down with huge sellside volume on an order driven system. we're going to organize an off over-the-counter deal with some of our clients. So, they went to Citadel, Millennium, Jane Street, and they held an auction. It's a competitive auction process, and basically Ken Griffin and Citadel won the auction, buying his entire portfolio of public publicly traded stock at a 10% discount to market at that date. 10% discount on what was a market that had just dropped 30%. >> And and like the the kicker of this is I think you alluded to it earlier is that you flush out some of these highly leveled names which makes the broader market sentiment a little bit more comfortable about the AI trade again. And so what what happened shortly after this? It was like the watching the Cosby, the South Korean stock index, >> she see a panic and then the next day it's up almost 20%. >> And so what we've had here is this big rally. We're back to alltime highs pretty much. And what Ken Griffin and Citadel have been sitting riding that puppy all the way back up with these new fresh positions. Yeah, look, be careful here. The [snorts] S&P has made a new all-time high. these stocks. I mean, go and check out like Bloom Energy is definitely not anywhere near its high. It had a massive rebound when Ken Griffin bought, right? So, Ken sat on a nice tidy little profit, but this stock is still I mean, it's way off it. That the high in uh June was 350 bucks. It's still trading 230, having had a big rebound. It's still way off those earlier peaks. Yes, the broader market when you look at the whole S&P index has ticked to a new alltime high, but these stocks, these specific kind of semiconductor plays are still kind of heavily heavily lower. Um, but look, I think with Ken Griffin, well, two things, right? He's almost like the Warren Buffett of our times. You know, there used to be something called the Buffett effect. enough actually if you go back to the financial crisis in 2009 uh 2008 uh Buffett bought an organ arranged a deal with Goldman Sachs to buy Goldman Sachs shares and to buy warrants I think he bought $5 billion worth of shares and then he bought $5 billion worth of warrants to buy another 5 billion in the future at the same price if he wanted and it basically called the bottom of what was a collapsing banking system cuz it was like wow the best investor of all time is buying. Oh well, this must be the bottom then, so I'm going to buy, right? So, it's kind of that herd. He's the leader. It's like Ken Griffin now steps in. Well, if hang on, if Citadel are buying, okay, the bottom's in. That's one thing. The other thing is, well, then the biggest levered short in the system was also now out. So those that were shorting because they thought this fund would have to sell, forcing the market further lower, were then covering their shorts cuz this leverage player in the system is now dealt with. So covering your short means you're buying. So that also meant that's why you got this and actually SK Hindex was up 30% in one day. But I mean it it dropped 60. It was up or 50. It was up 30% in one day. Um >> I did I did have Steven WhatsAppapping me going, "What's happening? What's happening?" when it was on the way down. >> Yeah. >> Keep calm. Carry on. >> Yeah. >> All things will return to normal. We're given enough given enough hours, never mind days. >> Yeah. But I did see that that Citadel the FT were reporting that you you mentioned there last month was a month of two halves almost and you know they all got slammed to a certain degree. Then we've had this most recent bounce in the recent days or week but Citadel along with all of the other hedge funds were struggling cuz they're all in this trade like you were talking about earlier. Um, but they've gone the numbers that the FT were floating was that basically going from like scratch to looking maybe like a slight dip >> to then flat to up to 5.96% after Ken's come in for Citadel, their flagship fund specifically. >> It's just beautiful from Citadel. You just got to admire it. You just kind of step in and go, "Right, everyone stop. This is the bottom." Um yeah, their fund I mean look he he runs a fund it was about 80 million sorry million billion but then they lever it up as I've just been talking about but um yeah they were flat the whole fund's now up 5.9%. basically because of this trade. Um, >> and like you said, >> and look, it could be like from Citadel's point of view, it could be that they were short some of these stocks and so buying his book means they're covering off and getting out of their short. >> Yeah, off market. Um, so yeah, it's genius play from Ken >> and like you like you said that it's classic Ken that comes from the idea that I think it was in 2006 I had in my notes they bought the entire trading book of Amaranth advisers alongside JP Morgan after that fund blew up from bad bets on natural gas at the time and then another one a similar scenario snapping up the credit portfolio of so would capital management when it collapsed. Money makes money. >> Yeah, he he he he knows what he's doing. But yeah, >> whereas Leopold whereas Leopold does not when it comes to public market trading. >> Do you know what? I like this Leopold character though because I think he's right to be a little bit arrogant and make that offhand comment because he I mean why not level when it's it's it's played out and he can use he can recycle it within the wider AI ecosystem in a private manner like I yeah I I don't think uh I think it's too negative on him. Well, he thought well he wouldn't have been in those levered positions if he thought the market could possibly the stocks he would own would possibly fall 30%. That's where he's naive to think that these stocks can't have a pullback of that magnitude given the huge astronomical exponential gains they've had. That's the naivity of it. >> So he he was born in what 200 two was it? Something like that. Yeah. So >> yeah, >> there was a famous incident happened 4 years before he was born >> which perhaps he was born a little too late. So what what was that one? Cuz you were around and this was probably just about when you started trading. No, >> I'm not that old. Um I started trading in 2002. This happened in 1998. Thanks very much. I was at I just started university. Oh no. Uh yeah, I was I was starting my second year at university when this happened. LTCM, long-term capital management. Um, some of you listening will certainly know about this. You might have also read a book um, When Genius Failed, which I would very strongly recommend, and it's all about this story. But it's basically the same thing. You know, it's a concentrated, you know, correlated bets that are all basically expressing like one thesis, right? as one strategy and you're kind of all in on it. Add in extreme leverage. Um, and then you know you have a monster draw down that forces a liquidation event or margin calls and then your prime brokers come in and basically organize this mechanism of of death as they might call it where basically they're then auctioning your book off and you're and you're dead. you know, long-term capital management didn't own any private company. So, they did go dead, whereas Leopold does live to fight another day with his monster anthropic position. Um, but you know what happened was so back in so they kind of all kind of came to a head in 1998. Um, but actually the pedigree of this fund I mean they were very very wellrespected fund for the first four years of their existence. They never lost money more than two months in a row. So it's basically make it a money printing machine. They were hugely experienced traders unlike Liupold. So they kind of span out of Salomon Brothers um which again most may not have even heard of them but that was one of the old investment banks and they were there for two decades right showing similar great track record. These are seasoned seasoned professionals. You then add in a sprinkling of new directors, two of whom had Nobel prizes for their work on pricing derivatives. Um, like the black shells model for example. Um, and it still all went wrong. Um, and that's because they borrowed too much and they levered up too much and their models didn't account for the 1997 Asian financial crisis. Um, and so this is it. It's like a black, it's these black swan events, right? I don't care how clever you are. I don't care how good you think your model is. You cannot predict the future. And so anything can happen and stuff you can't even imagine could happen which can then result in everything unraveling. It was actually one of their side bets that was their unsticking though. um they actually had some exposure to Russian bonds and basically the trigger came in August 1998 when Russia defaulted on its domestic debt and dramatic devaluation of the ruble and and ultimately this triggered a massive global flight to quality. Everyone rushed to kind of safe havens. Everyone rushed out to kind of get liquidity all at the same time. And the problem was that all of their trades across different markets and asset classes and stuff were basically the same as as in it was basically short liquidity and short fear. And basically this episode just triggered this monster monster behavioralled move. And anyway, they lost 550 million in one day and then they lost about 4.6 billion over the next couple of months, you know, before ultimately then they got stopped out and they died at death. Yeah. when genius failed. >> So, so we can be talking about uh you know arbitrage opportunities in the market, complex technical ways of trading, complex technology in the modern sense with AI. >> So that part is interchangeable, >> but the commonality is this pilot, the human who's in control and the behavioral side of investing or trading. Can I ask you, you will never say this publicly and it's a little known fact, but you used to be like the biggest German chats trader like in Europe by volume, whatever the stat line was, but so so obviously this is different scales that we're talking about with these hedge funds, but the psychology I imagine is the same. So, you know, I won't say the numbers, but there were some big trading days back in the day that I remember when you've done a good job. >> So, how do you manage greed? I mean, as a principle, cuz you did it in a trading sense, but a lot of people who listen might invest and they might be on this AI or had been on the gravy train. >> How do you sensibly manage that and be disciplined with it? >> Well, it's one of the hardest things for sure. Um I think to start with it's not you know try and not make it about the money. This is where it's very hard because it's almost impossible to do that. Um but you you know from an analytical point of view it's kind of more about the chart the price chart like Bloom Energy okay you know based on my analysis what price do I think is a you know a realistic target on the upside for that stock and then right if we reach that share price target great I'm going to start to get out of my position rather than looking at your portfolio and going ah wow it's a it's it's it's doubled now it's tripled oh now it's quadrupled oh my god this is amazing. I can't wait till it's 10x and then I'm going to be a millionaire and I'll go and buy my Ferrari. Right? So, you kind of got to you got to be disciplined in exit strategy like you are in, you know, in your entry strategy and try and make it more about the share price and the stock and analyzing the chart rather than the dollar sign in your bank account. Um, that's definitely the most important one. And yeah, exit strategy just like start to trim your position. You don't have to get at it. Look, if you're really if you got strong conviction that it's still going to go and there's more to go on the upside, just start taking slithers off. So, you start to derisk it. You're still in it, but you're d-risking it because that black swan is always just around the corner, right? So, you you kind of just never know. But I final point is when you are big in the market, you can you know you can uh you contribute in a really meaningful way to how that market behaves. And if you know there's other people in the market that need to sell, well then you can make it really really painful for them because you can meaningfully impact the market's direction to the downside and you're basically squeezing you're squeezing other players in the market. That's definitely what happened here. That's definitely what happened in 1998. big hedge funds knowing for a fact there's a massive short position that they're going to have to get squeezed out and they just they bury them, right? You just force the market down and down and down until that's it. The margin call comes and they're out. >> So, what you're saying is that you're you're a bully. You were a bully in the chats market back in the day. I never had you down as a bully. I'm just saying if you're a naive kid who has no experience and you think you're better than the market, the lesson is really painful and he's just had it. Yeah. And it is a great lesson of intelligence cuz yeah, I was reading about him and he he got he got fasttracked through high school like you say. He started at Columbia when he's like 14 or something. does that super quick. So that's not the marker. Like if it was that easy. [laughter] >> If he's really good, if he's really good, right, that this he's just had the most important lesson of his entire life. He's only been alive for 20 odd years, but that will e that will right there be the most important lesson of his entire life. He'll either really humbly learn from that and he'll come back and be the powerhouse that I'm sure he can be. >> He could be a beast >> or Yeah. Or he won't learn from it and this will just basically be the beginning of the end. >> Which is interesting though, just to finish on that point because if you've gone through life and I was reading about it, his parents I think I might misquote are both doctors. So, I'm assuming he's come from a fairly decent background, good schooling, smashed it, left, right, and center academically. >> Yeah, >> he's he's got bumped out of open AI. He's felt a bit bit fcked off with that. >> Started his own fund, which in itself shows the degree of the type of person he probably is from a personality perspective. >> Yeah, it it's interesting how he could deal with this cuz it is public. So public does it either go screw you lot I'll show you or the words come off a bit if you what I'm saying is if how resilient are you if you never failed in your life >> right >> indeed I don't know but I don't know him obviously and we've only had a few sound bites out of him but you know it sounds like he's >> he's taken this one on the face and taken I guess the first part is just accepting responsibility >> for what happened. It was your fault. It wasn't the market's fault. It was absolutely your fault. >> Isn't this what you traders? >> Let's learn. >> Isn't this what you traders used to do? Like the five stages of grief or something of that? >> Yeah. Well, that's right. Yeah, indeed. >> All right. Well, look, just to finish then, because whilst all of this has been such a a cool story to talk about, as I was saying, the S&P 500 this week is back to record high. The Dow's just hit 54,000. I thought very quickly, just a couple minutes, we could just break down why that's happened because there are a few parts. We've kind of talked about the the house cleaning, the spring clean if you like, or the summer cleaning of the AI levered trade. So, what else has been driving this move? >> Uh, well, earnings season in short has been stellar. Um, so I think what's the stats you I think of of there. So, this is earnings season, right? So quarter 2 earnings April, May, June basically. And right so we've had 372 of the 500 S&P 500 companies report um 87% have beaten analysts expectations. Um and 69% of companies have positively surprised on sales. So these are stellar numbers. So just park the semiconductor saga to one side for a second and the majority of businesses are really on fire. you know this is this is strong right we've also had you know continued AI infrastructure momentum um so like capital expenditures on AI infrastructure is continuing that's the news we've heard from you know the hyperscalers so when it comes to the Nvidias and the broadcoms and the microns although micron has been caught up in this big tumultuous semiconductor play but it has rebounded but look the news is these hyperscalers are going to carry on spending And so that's the kind of backdrop as well as then some geopolitical you know positive news yet another ceasefire agreement yet another deal to open the straits of Hormuz I mean oil prices dropped for now right so the timing of that with earnings season with the semiconductor rebound has led to the S&P breaking out of what has been like a 3 month 3 month sideways range the S&P's been been going nowhere for 3 months. May, June, July, just flat and now pop, it's gone up through the top. Um, so and actually it's been a bit of a risk on trade because you can see that if you look at some of what we kind of weirdly call the safe havens and the defensives cuz Apple is now in that category and it's because it's an anti- AI tech trade, you know what I mean? It's so if if you get the semiconductor AI rebound, well, it's Apple that kind of suffers from that because that's where you go when you're worried about that AI play, right? So, Apple's off, pharmaceuticals down, Walmart down, big tobacco down, you know, these big kind of safe haven stocks have come off. But, of course, the way that the S&P 500 index is geared up, you know, very heavily leaning towards the tech sector, for example, then this is this has been enough these factors. So the earnings season, good news geopolitically, semiconductor rebound together all in the same week essentially has been enough just to pop that index up through the top. >> Yeah, we've still got the Labor report to come. But I guess the general consensus is that that's got to do something pretty spectacular to shift the dial over expectations on on rates. But economic metrics in the US, I mean just generally speaking, steady expansion without overheating, oil prices back down, >> what does that mean for inflation? I know it's a changeable scenario in the Persian Gulf, but that's a big drop we've just seen in oil in the past week or so. So is that also the fact that there's a little bit more okay Fed's probably not going to do anything crazy anytime soon and that's another supporting factor. >> Exactly. I mean oil you say big drop it touched 100 bucks. Um now it's trading below 80. >> That's crazy. >> These are massive massive moves. I'm just talking in the last two weeks it hit 100 bucks on the 23rd of July. Right now it's 80. So look, yeah, I think from an interest rate perspective, which is always the biggest, you know, just that underlying beast of a force on markets is right, interest rate expectations. And I think that that beast is just being kept dulled and quiet and we're not expecting the Fed to hike this year and that oil price coming off so sharply definitely helps with that. Um, so that's all good. But you know what I would say is again this this rally in the S&P it is very narrow still. So we have made new all-time highs but you know what 90% of the move 90 is because of 13 stocks. So there's always but that's a concern we've had for like 12 months the narrowness of the rally. But Microsoft the big gun at the front of that. They've been a little bit kind of unloved in 2026, trading down on the year, but all of a sudden they've whipped up. Amazon's up, Alphabet's up, Nvidia's up, Broadcom's up. You know, those big guns, they're the ones that are really doing the heavy lifting as the index goes new highs. >> Yeah, it's such a it's such a classic psychology of it. I was looking at Microsoft uh in my account the other day and I was like, "Wow, it's just really compared to the others." But you're like, "Look, whenever I've been in my career long enough that in the 1990s, Microsoft at the top. In the 2000s, at the top, 2010, at the top, don't panic with Microsoft." [laughter] >> Yeah, >> absolutely. >> Um, what about final close? Any thoughts on SpaceX? Did you see any of that that came out? um >> basically beat on revenue. First look under the bonnet. The AI spend is like ginormous. >> Stock dropped. >> Yeah. >> But at these levels, >> are we still in the wash out exploration like the price discovery phase? Are we beyond that now? >> 100%. I think we're definitely definitely still in that. We're trading at $108. >> Remember it IPOed at 135. It opened on the NASDAQ at 150. It rallied to I mean I can't even remember now. 200 $220 was it? >> Um and here we are down at 108. So it's more than haveved >> off the top. >> I don't know. It's obviously easy to sit here and say, "Oh, I'm not surprised given the valuations on this thing." Um but look, it's still I definitely say we're still in the price discovery phase for sure. Is it a good buy at 108? I have no idea. Could it go below 100? Yeah. Could it rebound sharply? Yeah. I mean, you know, I don't know. Elon Musk did say on the earnings call, and this will be something that might move the needle. He said, "Data centers in space, that's not lot that's not like a something in the future thing. We're going to start shipping that stuff in 2027." If that happens then okay maybe that's going to be an interesting maybe SpaceX is ahead of the kind of schedule if you like with a monster pinch of salt which is Elon Musk's kind of prediction on time scales for delivery of product is very famously he's ultra aggressive with his timelines and tends to be way off the mark and things get shipped way later. I need to book my cyber cab because my humanoid at home's just cooked me dinner. So, uh, I need to shoot. >> Oh, no. It's not happened yet. No, >> no, not yet. >> I put my delivery order in two years ago. So, >> however, when I was in New York last week, >> I just sat there having a coffee with a colleague >> in this cafe and do you know how many cyber trucks drove past us? Bearing in mind we were in uh Midtown up by Central Park where all the >> Yeah. action is >> headed country. >> So, how many cyber trucks do you think we saw over a 15minute coffee? >> Three. >> Correct. Three. And they were different drivers cuz when it went past the second time, I was like, is that the same person? It was different drivers. I was like, people actually bought those >> or is and I said to my my colleague, I was like, surely >> given where we are locationwise, that's marketing and they're just people driving around from Tesla. >> Yeah. Wow. people who own these things. Surely >> driving around Manhattan. >> It's a good point. It's a good point. >> Yeah. But here we go. >> It's like It's like Manhattan's Chelsea tractor. >> I mean, these things when you see them, you're like, are you for real? >> That car still blows my mind. But anyhow, look, thank you everyone for listening. If you're not subscribed to the show, make sure you do. We've got another episode, just a reminder, dropping at the beginning and the end. So, bookended on the weeks. We have a global macro like we've just chatted about major market events that have happened backward looking for the week and then at the start of the week we have what were the biggest deals in M&A private equity uh and so on. A really interesting episode where we talk about the Argus spin-off by sainsburries. Are you Argus fan or not? Pier >> spend much time down at the Argus perusing the catalog. There is one about 100 meters from my house actually and uh I never go in it. So there you go. There you go. Well, don't listen to our upcoming episode. Uh I'm like a I'm like a super fan. [laughter] You even spoiler get to see my last Argus purchase live >> on the episode that's going to drop day. >> Yep. >> Wow. Okay. >> Just wait for it. Okay, >> I'll leave it there. >> I know. Now my mind's now going on a hyperdrive to try to think what the product is that you might have bought. >> Yeah, I'll leave you. All right. Thank you, Pier, and thank you everyone for listening. Have a great weekend. Cash later.