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- [00:00]
A
The lesson here is the worst thing you can do in trading, or frankly, in life, is to be dead, right, and sitting on your ass on the sidelines with no exposure because you got kicked out, you got marginalized somehow.
- [00:33]
B
Jonah. Wow, crazy day in the markets. Amazon up 15%. Google up 6. Apple down 10. Leopold blowing up. Fed hawkishly not doing anything. This is, this is a hell of a market. This is the greatest game ever. This is finance at its best. Did Ken Griffin kill Ashton Brenner? Are we done with this sell off? Are we going higher? All of this and more on the podcast.
- [01:05]
A
You know, I'm really glad that it didn't happen sort of by accident on Wednesday. I hope you're okay, by the way, because, man, did a lot happen yesterday. What a wild, wild market we are in. I. First of all, we got to talk about Leo Ashenbrenner. No, Ken Griffin didn't kill. Kill him. He killed himself. The same way that Ken Griffin didn't help. No, I mean, he put it this way, I, I dispute that. I say Ken Griffin helped him more than anybody else helped him. Like I heard Millennium bid on his portfolio as well. Citadel paid the best price, so they, they helped him out, frankly. Right? Like he would be worse off if he hadn't had. Had Ken Griffin in the world. Ken Griffin paid him the best price. But like, this is a story as old as, you know, running 10x leverage on FTX and getting liquidated or Bitmax. This is just if you, you know, people were treating Leo Aschenbrenner like he was Jesus Christ because he was a nerdy guy who, you know, had a good academic and sort of like pedigree on LinkedIn, working for OpenAI. It's like, okay, AI is the thing. This guy uses AI to trade. Let me tell you who uses AI to trade effectively. Ken Griffin uses AI to trade. Renaissance Technologies uses AI to trade. Q Sigma, Jane Street, HRT, they use AI to trade. You don't need to be a 22 year old whiz kid with a weird laugh to use AI to trade. There are pros out there that are a little bit less well known by the people on Twitter, a little bit less memeable, but they're better traders with AI. I mean, I think it's kind of ridiculous that this guy literally just used his reputation to raise billions of dollars and just YOLO'd it all into memory stocks, which still would have been fine if he hadn't levered himself to the hill and gotten impaled. And of course he got Stopped out on the lows because that's always what happens. I read somewhere this morning that Ken Griffin's probably already up 3 or 4 billion on the trade. No, Ken Griffin didn't liquidate what he bought from Leo. Ken probably knew he was liquidating this guy on the lows. And his marks are probably way lower than where it was trading on screen when he liquidated Leo. So he had plenty of cushion to hang on. And it would be. It would have been ridiculous of him not to. I bet those books are up billions today. Three to five billion at least.
- [03:32]
B
I mean, look, the way that, the way that this works is a lot more. Let's call it complicated and also more simple than most people expect. Did. Did Ken Griffin himself, first of all, did Ken Griffin himself do anything? Probably not. Ken's probably on a yacht somewhere sipping champagne. I don't know how. I don't know how active he is in these types of. In these types of decisions. He used to be. He used to be extremely active.
- [03:59]
A
I don't know how active these guys get involved on the big liquidations. Like at drw when we would be liquid, we were big.
- [04:05]
B
Don's sort of a different beast.
- [04:07]
A
Do you think Ken can. Is genuinely involved on something of this size? The way that it works at all the firms I've worked at, including at Don's, was. And I'm sure it's the same at Citadel. I'm sure the way it works is the opportunity comes along usually at the second highest level or the highest level. Like Leo probably contacted, you know, Izzy and Ken directly or through. Through their prime broker. Like maybe Goldman Sachs reached out and. Or JP Morgan, whoever they prime with. Then the top guy will bounce it down to the desk that has the most knowledge about pricing those things that desk is going to be in. It's called a fire drill. Right. You just like do what you got to do to price the whole thing as quickly and as efficiently as possible. Try to win. Then you bounce it. The death. I was the desk at the time. And then guys like me will bounce it right back to the top and they'll put their signature on it and send it off to the counterparty that's going bankrupt or getting liquidated. So I'm sure Ken was involved. There's no way. I mean like this is a.
- [05:12]
B
This is a. I find it hard to believe that he was like deeply involved in the. I mean it's kind of like he
- [05:17]
A
wasn't deeply involved in actually.
- [05:18]
B
Like does it. Does it really matter? Is kind of irrelevant.
- [05:21]
A
The, the an 11 figure liquidation. The CEO of the firm will get involved and sign off on it. But no, he won't be deeply involved. He'll trust his guys. He'll just take a final scan and see if there's a problem.
- [05:34]
B
Look, there are all sorts of questions here, but the key point that I think you were going to make is that, Lev, it's three things that'll always sink you. Like Charlie Munger said, liquor ladies, leverage. Avoid these three things and you will the other side a happier and more verdant human because genuinely it is. These are extremely tempting things to take advantage of. Right. You look at somebody like Leopold, let's not get our words minced. The man is a genius. He is. He wrote a paper two years ago called Situational Awareness that outlined effectively everything that's happening right now in the markets. He mapped out how big AI was going to get before the vast majority of people saw it. But the problem is winning begets arrogance. And I've experienced this too. This happened to me at Blocktower, where we ran up $40 million into a billion. I felt like a God. I remember for the first time watching bitcoin rip from 25k to 50k. And I had levered the firm. Not actually levered, but we were net, I think 130% net long if you include the, the delta of the options that had ended up in the money. And I'm thinking to myself, I'm, I'm invincible. I'm brilliant. I'm, I'm amazing. And that was so much smaller than what Leopold had accomplished. I mean, yeah, sure we made you know, a couple hundred million ducks dollars, you know, a couple hundred million bucks. But Leopold made billions, billions and billions of dollars on a unidirectional bet, basically saying AI is going to eat the world. And guess what?
- [07:25]
A
It was.
- [07:26]
B
And it still is. But what he did was he got a little bit too comfortable with winning. And he didn't have, I think senior risk managers around him telling him, hey, you need to, if you're going to long assets that are 120vol and you're even 2x levered, you're going to get into trouble. It's going to happen. So this is a lesson basically to everybody out there to just be careful with the amount of leverage that you put on. Whether it's in, whether it's in crypto, whether it's in equities, whether it's anywhere you can be. Right. But leverage makes your bets entirely path dependent. If you are going to take long term bets on the future of the world. You kind of need your bets to be path independent, especially when they're high volume. Right. You can't put yourself in a situation where you get taken out before your theory actually materializes into reality. That's really the biggest issue now. I think Leo again obviously is incredibly talented. He's going to bounce back from this. The fundamental Prior truck, you know, contrary to popular belief is not done. It's still here and it's still going. He actually the TBPN guys got a letter that he sent to his LPs that I want to read an important part here. The fun. This is part of the letter that he wrote to his LP's post. The fund was not shut down, liquidated or transformed into a private only fund. We continue to operate as a hybrid public private fund as before. However, we will manage our public book on a fully paid for basis while we draw the lessons from these developments. Most importantly, we took the steps that were necessary to fight another day. That last line is the key. We took the steps that were necessary to fight another day. That is what you need. That's the mentality that you need in order to be successful in these markets. You need to be.
- [09:34]
A
I agree.
- [09:35]
B
And taking a broader step back. Vol is through the roof. Amazon, Amazon, Jonah multi trillion dollar company is up 15% today. 15%. Microsoft went up 15% in a day just I think you know, two or three days ago. What's happening, right? What's happening is that the markets are becoming far more volatile. This is one of the reasons why crypto isn't. Can't really catch a bid despite what I viewed as strength and now I view as almost a missed opportunity which we'll get into. I think what we need to start covering is. I mean we need to start covering how to deal with these high volume assets now. I mean it's totally insane. Anyway, I'll stop my rant there because I want to hear what you have to say. I want to do want to dive into the. Did Ken Griffin orchestrate this or was this just a natural extension of what he was. You don't think Ken Griffin orchestrated this?
- [10:43]
A
No, I mean look, I think you touched on something very important in what you just said which is if you have a long term thesis, you probably shouldn't express it with 120 ball stocks and by yoloing 20 or 30 billion dollars into those stocks with forex leverage that's like to me the reason why I watch this and you know I've tracked Leo a little bit. I've watched his lore develop on Twitter. I haven't said anything because I don't know whether he's is who people made him up to be or not. But like to me, I look at this and this is just amateur hour, right? You know, forex leverage isn't the end of the world if you're a retail trader in crypto or you know, just trading levered stocks on, you know, E Trade or Schwab or whatever's out there, Fidelity. But like you lose your ability to dance between the raindrops when you have a 12 figure position, right? When your position is worth more than a hundred billion dollars. You can't like get out and get back in. Get out and like you just. You're. You're too big. You're the, you are the market, right? So this should be obvious. This is amateur hour. Not to do this even with small dollars, but with the biggest dollars in the world. You definitely shouldn't be doing this. So you know, I. To me it seemed a little weird this guy like raising so much money. It seemed like he was raising the money and on vibes and trading it based on like something he put on substack which, you know, let's give him his flowers. It was probably prescient. But if you make a long term prediction, you nailed it. Abhi. You cannot trade liquid short term instruments and just set it and forget it. With forex leverage on $30 billion of capital and $120 billion of market exposure and just hope for the best. You need to not be stopped out before your long term thesis plays out. It needs to be a bottom drawer trade where you don't have to care. And this is again to me, this is like, you know, I'm not going to grave dance because you know, he's probably still got illiquid positions at anthropic and 11 labs and whatever else that he's run up. And he'll probably still be fine. Just like people were grave dancing my former colleague Yao Yao when he had his, you know, speed bump earlier this year. He's going to be fine too. All these guys are going to be fine. But unlike Yao Yao who has, you know, crushed and made billions of dollars for decades. Now this guy like shows up and then like a few months later gets liquidated on, you know. No, Ken Griffin didn't liquidate him or orchestrate this. Ken Griffin just showed the best bid to pick up the pieces after, you know, after this guy made his own mess in a Very, very immature basic way. So I guess the lesson for the rest of us is long term theses like 2x leverage at most. Make sure, make sure you're going to be okay. Even if the market is irrational. You, you have to stay solvent somehow. And the other lesson is, yeah, no, there's no like back room or cabal or Eyes Wide Shut party where like Ken Griffin and Izzy Eglin decide that Leo's going to die. Right? The dude just blew up on leverage because we were, we were in what, we're in a white hot bull market. I'm personally buying a little bit of Micron stock here. I'm dabbling. I wanted to see a bottom and a bounce and I think this, I think the, the market picture is much cleaner now. I think that like realistically these, Izzy and Ken and anybody else who bid on Leo's book recognize that this is a bull market positioning unwind. It is not like a sell off because the AI thesis has been disproven.
- [14:40]
B
It's pure technicals that part 100% agree with. And I want to get back, I want to get there, but I want to take us on a little bit of a journey first. So when you talk about Leopold and how he constructed his book, the reason that we're both sitting here and saying he constructed his book in a reasonably amateurish way is because a lot of people in the, in the hedge fund world go to great extents to conceal their positions. Because if people know what your positions are and they know that you're leveraged, they will hunt you. They will put. It's very easy when you have somebody like Leopold for pod shops to figure out what positions they hold because they're, you know, he's publishing them publicly and he was taking, he wasn't doing anything particularly intelligent to obfuscate his positions. I mean sometimes what, what long cap, what Long Term Capital Management would do as an example of this because it's public and it was in a book, is that they would actually take offsetting positions with different brokers. Slight, some larger, some smaller. And so the brokers sell side talks a lot. One thing sell side can't do is give you exactly the, the amount that you're long something like, like your sell side guy, somebody that works at Goldman is not going to talk to the, to one of their clients and be like hey, by the way that other firm, you know, your competitor firm, they're along 1.2 billion of this stock. All they're going to say is yeah, those guys are bullish that stock, right? There's. There's sort of a level to the amount of information that they can, that they can disclose. And people obviously talk actually more than you might think. But for example, you might take offsetting positions with different brokers. So if you call a Credit Suisse, they might say, hey, Ashton Brenner's long this stock. And you call up Goldman is like, actually, he's not. No, he's not really that long that you know that stock. He's actually kind of shorted. And so you try to obfuscate some of your positions so that they don't come out on the street. So obviously, and people have to, you know, really, really pay attention to your filings and whatnot, which only come out once a quarter, but they can't get updated positions. So that was a big mistake on his part is that he didn't spend enough time obfuscating, obfuscating his positions. And of course, like, we're just kind of nitpicking here. The dudes made a ton of money. He's still up year to date. He's still up 80% year to date, which tells you just how well he was doing despite having a 67% down month and getting margin called still up 80%. So that's impressive. But I'm just sort of walking you guys through the mechanics.
- [17:15]
A
Do you believe that? Do you really believe he's still up 80%?
- [17:18]
B
That's.
- [17:19]
A
Maybe he was up 80%. When did that come out?
- [17:22]
B
That's when he. PVPN published it today.
- [17:26]
A
But the investor letter was from like a week or two ago.
- [17:29]
B
No, the investor letter is from today.
- [17:31]
A
Okay, 80. All right. I don't buy that, but okay, I buy.
- [17:36]
B
I mean, he can't really lie in that unless it was a fake letter. I mean, obviously it hasn't been corroborated yet. Maybe I'll wait for it to appear in the Financial Times because that's real journalism as opposed to this fake journalism, but which obviously I classify as, as fake journalists as well. So no shade to the TV guys.
- [17:54]
A
A fake journalist, we can just say stuff.
- [17:56]
B
Yeah, dude, it's so much better to be a fake journalist. I mean, once you get. Once you go behind the scenes and you figure out what journalists actually have to do in order to put something in print, it's like kind of like. It's just so much work. And actually, at the end of the day, some of it just still ends up being totally wrong and just dumb. I mean, I'm thinking about like the New York Times and. And how, like, they. They actually make people jump through hoops to cite sources for things that end up just being completely incorrect. So, like, it's like they make extra work for no reason sometimes. So I'm just glad that we're actually not, not. Not journalists. But anyway, yeah, sorry. That's a totally different rant for a totally different time. I'm getting way too sidetracked. The main point here is that the way that Ashen Brenner blew up is really, really, really simple. He took on far too much leverage. And when the trend started going against him, when there started to be cracks in the market because people started taking profit, the entire street started smelling blood. And then he made a fatal mistake. He went to the street and tried to raise money to meet his margin calls. That is like going into a. Like, lion's den with a piece of meat and saying, hey, does anyone have any extra meat to spare? I have all. I have a lot here, but. And obviously, the lions are going to attack you. Obviously, they're going to attack you. They're not gonna. They're gonna just take your meat. They're just literally gonna hold you at gunpoint and take it from you. Like, what are you doing? You have to be smarter than that. You cannot go and broadcast your weakness to a bunch of sharks or lions or tigers or what. However you want to characterize these Wall street investors, obviously they're gonna short you. Like, they're gonna short these stocks, and you're gonna get even more pressure at it, to your positions. And that's kind of what happened. And it's like, if I know that a large. This is the same trade, by the way. The same trade as why Bitcoin goes down in front of Sailor. Why Bitcoin went down. When people saw that Sailor was publicly stressed with Stretch. Right. It's the same trade. All the. The only difference, Jonah, is that it happened behind closed doors. You, the. The retail investor. You. The person on Wall that isn't on Wall street cannot and will never know that this stuff is happening until it's too late. You have to be good at reading the tea leaves and figuring out what's happening in the markets. When you get moves like what you saw in memory where things are going down 15% in one day, you have to start thinking to yourself, is somebody getting carted out? Yeah, that's. That's the key, right?
- [20:50]
A
You know what happened? This reminds me. You mentioned behind closed Doors. This reminds me exactly of my call with jo Kwon in 2021. Or 2022. Sorry, like, summer of 2022, when he went behind closed doors and called, like, me at Cumberland and a few other of our cohorts. He was on the. On the Zoom with Kanav Korea Mustache Warrior. And they were trying to raise money to shore up. They're basically their. Their Leo Aschenbrenner hedge fund of crypto, where they were just, like, taking funds and yoloing it into bitcoin. Remember the LFG foundation of Terra Luna? Remember that? It would just buy bitcoin with. With like, anchor protocol money. Anyway. Yeah, sort of. Anyway, basically, like, he called and he was like, hey, I need a hundred million dollars. Can you, like, get me that in.
- [21:46]
B
Sorry. A hundred.
- [21:47]
A
You need.
- [21:48]
B
He needs a hundred million dollars.
- [21:50]
A
No, he. We were like, how much do you need in total? He was like, well, we're going to raise 1.5 billion. We've already raised, like, 800 million. Do you want to chip in 100? And we were like, well, how'd you come with 1.5 billion? And what are you going to do with it? He's like, we're going to buy Luna. And we're like, well, how'd you come up with 1.5 billion is the right number to spend buying your own token? He was like, well, we just, you know, he had. He had a bit of a lisp. He was like, well, we looked at all the offers. We looked at all the offers on all the exchanges, and it's like less than 1.5 billion. So if we have 1.5 billion, we're going to take out all the offers and scare all the sellers. And then, you know, the. The token's gonna go up and then you get your money back and then some. And I was like, hmm, what if there are other offers that aren't, like, literally just on the exchange? Like a iceberg order or. You know, you don't always. When you want to sell something and you put in a limit order, you don't always show your full size. You thought about that? It's like, yeah, we thought about that and seems unlikely. And I just remember, you know, the answer was obviously, go yourself. And then literally to the point of, like, he walked into the lion's den with a piece of meat, asking for more meat. We went and ate the meat. We shorted Luna. We sold, like, first we sold the what?
- [22:59]
B
And that's exactly. That is why this is the greatest game on the planet.
- [23:05]
A
Yeah.
- [23:06]
B
And you have to think adversarially if you're going to win. There's no world in which you can approach this as a bright eyed, bushy tailed guy and say people are on my side and we can all make money together. Somebody is out there and they're trying to kill you. If you get big enough, if you're small, don't worry, you're worth a million bucks, you're worth 5 million bucks, you're even worth 100 million bucks. Nobody's going to care. But if you're out there running $25 billion and you lever up, somebody's going to try to kill you. When you're.
- [23:42]
A
I bet you, I bet you the way Ken made extra money on this. I bet you Ken shorted Micron. I bet you Ken took this call, shorted Micron stock and the reason why he was able to, to, to be the best bid for the portfolio is because he was short. I bet you that's why. That's what happened.
- [23:58]
B
Absolutely. Absolutely. I think that's it. Well, I think there are two reasons why Citadel was the best bid here. One is that I think the bidding was Jane Street, Millennium and Citadel. Jane Street's not going to be the best bid kind of ever for this kind of stuff. Why? Because AI has a long term time horizon. So if you have any inclination to hold this position for more than 38 seconds, Jane Street's not going to be the best bid because Jane street is just thinking how can I buy and liquidate? In my personal opinion, like they're a trading shop. So you kind of have to. These either have to be complicated, they have to be complicated to price assets. You have to, maybe it's a, you know, debt instruments, some weird, some weird convertible arb might be going on there. If they're complicated to price, if they're a bunch of structured products, then like a Jane Street Hudson river, these trading firms are going to be really good at that and be able to price that really well. But these are just straight long equities that have a very simple thesis and just somehow were held by this guy that needed to meet margin calls. And so it's not as complicated to price Bloom Energy. It's not as complicated to price outright equity of Micron, outright equity of SanDisk. That's not necessarily something that you need high functioning quants that can't speak English. You actually can have English speakers do that. And so what I'm trying to say is that Jane street probably not the best bid for this type of auction. Now when it comes to Millennium and Citadel. Citadel. Actually Ken Griffin went on a pod recently and he said, I think that the next form of Alpha is three to five year Alpha. We've sort of short term trading profits. I think three to five year Alpha is where it's at. So.
- [25:55]
A
Right. That's what we've been seeing too.
- [25:57]
B
And he's correct, he's correct. But that makes him naturally a better bid for these long term assets or assets that could theoretically be construed to have long term theses tied to them. Then a Millennium, which is the Englander, is still more of the short term trading. And I actually think that the risk limits at Millennium are tighter than the risk limits at Citadel in many, in many pods.
- [26:20]
A
Way tighter. Way tighter.
- [26:21]
B
Way, way, way tighter. And so it's just, it's, it's, it's, that's why on this type of fire sale, Millennium or Citadel is going to come in. Like if you had told me a priori, hey, these are the three people bidding, I think I could have guessed Citadel with 90% accuracy. Obviously I didn't know.
- [26:38]
A
Yeah, there's only one.
- [26:40]
B
And this is, and this is sort of actually irrespective, this is totally irrespective of Ken Griffin getting on and calling for rate hikes. But do I think that this was an orchestrated hit? Because that's a question that we keep getting. And when, when we're done talking about this, we'll talk about why it matters. It absolutely was an orchestrated hit. My personal opinion in that people smelled blood in the water and they attacked and they kind of did whatever they needed to, to attack. I mean, did Ken Griffin go on national television with the Ex and say that he thinks that rate hikes are coming with the explicit belief that he would be able to buy Ashen Brenner's portfolio? Probably not. But did he have it in his mind when he was doing that that it might be helpful? Probably my personal opinion probably had, it was in his mind somewhere that this was a stressed market and that by pushing it he might be able to break it and they might be able to make billions of dollars. Now I don't think he would have gone on TV and burned his credibility saying that unless he somewhat believed it. But let's, I mean, you know, we're not in his mind. Let's say you're, you're a manager and you believe that in the next 12 months rate hikes are going to happen. He didn't frame it. Rate hikes are happening in two weeks. He just said rate hikes could happen. Like, let's, let's, let's let's be nervous. The market maybe should be nervous about rate hikes. It's a very. But why say it now? Right? Like why at that moment go on and talk about it. Yes, before the Fed. But like, I think it's because you wanted to put some pressure on the market. My personal opinion, I have no idea. Now, obviously this leads to a mechanical blow up of the situational awareness fund and so let's talk about what to do. Those types of forced liquidations are often the end of. They're the end, right. Of the total collapse, but they're not necessarily the end of the selling. Why? Because post that you get this mechanical bounce. Things are up 25, 30%, some off, off the bottom in some cases. Today you actually saw sandis up almost 40% from the lows. And then it gets smacked down. And why does it get smacked down is because people, A, there are people that bought the lows, B, there people that are cover massively, that were massively short, that are covering their shorts. And then obviously Citadel has to take some risk off the table. So that's why in my tweet yesterday I put out, I said, I think that we're probably in for some turn. And then the real question is, is it possible to get back to the highs and will we go trade higher and how quickly? Now the answer you can find by diving into the question, if we only got to the highs because of ll, right? Leopold. If we, if we only got up there because of Leopold. Leopold Leverage. That's what LL stands for. It's a new term I coined the ll. Now, we only got to the highs because Leopold added $25 billion to these companies. He, he bought 25, he borrowed $25 billion from the banks and shoved him in. So that's how we got up there. That's why June was such a crate. That's why, sorry, July was such a crazy month for these assets. It's because he was kind of shoving it in on these names. Now if he's wiped out, he's probably not doing that again. So is there $25 billion of capital outside that's willing to come back in and basically pick up the pieces of what Leopold left? My answer to that is it's very likely, yes, but not yet. It's going to take maybe some time, maybe two weeks, three weeks, five weeks. I don't know exactly how long it's going to take, but capital is right now shift going to be shifted around. I mean you can see it capitals in Amazon up 15%. Capitals and Microsoft up 20%. So I think it's going to take some time for the memory stocks to go back up. But the reality, Jonah, the reality is that we're in a secular mega trend. And so I think that this is actually a pretty reasonable time to get in now, unfortunately.
- [31:04]
A
This is, this is what I was waiting for. I'm in. I'm like, yeah, this is, this is
- [31:08]
B
the moment, I think. And, and I sort of, I tweeted this out. I said, look, this is a good time to. I think this was like 10 days ago at this point. I said, look, this is maybe a good time to start nibbling on memory stocks if you haven't been in. And then I said I would be all in. 20% lower. And when I said that DRAM was trading at about 57 and 20% lower from, from 57 is. Let's call it 40, 48, you know. Yeah, you know, 48, 47, whatever. 47. 48 we bought, we went to 44. We went, we went lower. But I think we're still, we're actually still in that area. I think DRAM's trading at 51 now. Like it's kind of, this is, feels like the right time to start reallocating to memory, especially intel, which was one of Leopold's largest positions, which still obviously has those massive national security implications for, for the U.S. i'm, I'm now more allocated to memory than I've been since I told you guys. I think it was two months ago at this point that I was starting to get nervous about the memory market and I had moved away from the memory trade to the biotech trade to the, down to the other downstream trades. Now, candidly guys, the biotech trade hasn't done incredibly well. I think ORCG is up maybe 6% since where? Since when I moved into it. XBI is actually down from when I bought it. So that was an L Blln billion to 1 is up actually quite a bit. I think it's up 20% since, since, since we mentioned it, since I mentioned I was moving over, but my biggest position was xbi. So I think net I'm up like I think blended 3% on these positions. But at least I'm not down massively. My Intel I didn't fully exit, so obviously I went down on, down on that. But now I'm sort of reallocating from my cash back into memory here. I did a little bit yesterday, I'm going to do more today. But I do think that you can accumulate A little bit more slowly because it's possible we test the lows again before we go higher. Now the names that I'm buying, just Ram, Intel, Micron, SanDisk, these are. That's it. I'm not touching anything else. I'm not touching sk, Hynix, I don't know the Korean market, in fact they missed earnings, which we both mentioned was one of the most. That was going to be tough. I think that that was going to be a tell for the collapse of the market. And it's kind of tough because the market's already collapsed. Like the leverage already got wiped out and then they missed earnings. So it kind of, I would, I
- [33:37]
A
would say stay away from South Korean equities. Like I read something crazy. I read something like 5 to 10% of South Korean adults, like of the entire adult population of South Korea got liquidated on this. Something hilariously wild like straight out of squid game. You know, it's like one of those games where a bunch of Korean dudes are like trying to run across a little plank over a giant abyss and like 5% fall off. Like that's basically like the, the Korean economy just got squid gamed. And back to what you were saying earlier about like whether or not the reason why I'm getting involved now in, in Micron, and I'm specific, I'm intentional about Micron. It's here the US of A. I like it. I, I think memory as a physical commodity is, is under supplied by at least 40%, probably 50% for the next 12 months. I think that the price of those modules, the underlying physical is going to triple in that time. That's good for Micron. Not sure about Tynix and Samsung. You can keep it but like Micron's safe, especially at these levels. You're buying a dip in white hot bull market volatility. You're not buying a dip in like crypto in 2022 when it seems like the technology may go away. This technology is not going away. So like I do think this is a good time. Back to what you were saying about Leo and then I'll finally shut my trap on that topic. I think that Ken Griffin threw stones, but I don't think he, he is the cause of Leo's downfall. I really, I'm going to say it again. Leo caused Leo's downfall on this trade. When I worked at Goldman, when I worked at vtol, even when I worked at Cumberland, people were always like, you know when there were big trades going through in the Options Market in 2011 Everybody in the options pit, which still existed back then, would be like, oh, it's Goldman doing the trade. Like everybody wants a boogeyman. Everybody wants like a guy or a team or a firm to assign the big stuff to. In the case of Bitcoin, Saylor may actually be that boogeyman. Which is why I hate, I just hate my bitcoin holdings so much right now, even though I'm not liquidating them because I have a long term thesis. But like, I don't think Ken or Leo was 100% of this AI trade. Right? Yeah, the. So basically I think Ken Thrustones, I think Leo ran it up a little bit, but to the point you made, I think it goes straight back to the highs without them. I do not think that Bitcoin can go straight back to the highs right now without Saylor getting liquidated. So it's very different. It's apples and oranges. Now to the point about, I think the biggest lesson from this isn't leverage. It isn't, you know, amateur hour style portfolio construction. It isn't like, hey, if I have a long term thesis, maybe I shouldn't put on like a, a short term trade. The lesson here is the worst thing you can do in trading or frankly in life is to be dead right and sitting on your ass on the sidelines with no exposure. Right, because you got kicked out, you got marginalized somehow. Leopold was dead right about this trade and I am personally stepping into his poorly expressed trade without leverage myself because of how right I think he was and is. But I'm not going to get booted out because I'm not going to put on leverage and get liquidated by my prime broker or my trading platform. Being right and losing money is the worst feeling in trading being wrong and losing money. Like, okay, if you're never wrong, like something's weird, you're either not taking enough risk or you're running a Bernie Madoff style Ponzi scheme. You're going to lose money on being wrong all the time. Losing money on being right is the worst. It's so unnecessary. And it goes back to Chris Rokos's famous truism. It's, you know, nothing matters more than trade expression.
- [37:38]
B
It's true. And also position sizing. This is something that, that's part of expression. I'd say. Yeah, no, for sure, for sure. It's, it's a sub, it's a subcategory of expression. But I think the problem also is that the assets that Leopold was trading, not that not in the grand scheme of things. Not big enough for his position sizing. I think he was 25% of, of NBIS, he was like 5% of some of these others. But he was in terms of market cap and really you need to be looking at adv. You need to be looking at average daily volume. Like generally the guideline, I think, yeah, it's 10% of adv. You don't want to be more than 10% of adv. That's the general guideline. So. And some of these general guidelines actually exist for a reason. I think a lot of the times people, especially in this industry, they think to themselves, well, conventional wisdom is dumb. And in order to be successful, I need to move away from conventional wisdom. And I'm here to tell you that's kind of true, but mostly not true when it comes to statistics. When it comes to math, it's not true. And so the conventional wisdom of the wonderkind almost always blows up. Like almost everybody who is the best performing fund in any given year is going to have a blow up moment. Why? Because in order to be the best performing fund, you probably need to be taking excess risk. You probably need to be ignoring portfolio construction. You probably need to have a ridiculously high volume portfolio. It's very rare that the in an individual fund is the best performing fund of that year and isn't taking on excess risk.
- [39:38]
A
How many down years have you had in your career? I've had three. As a professional money manager.
- [39:44]
B
As a professional money manager, I've had two. But you were managing money longer than I was.
- [39:50]
A
Yeah, well, what I'll say on that very quickly is I think the only guy who's ever done it at scale without a down years Druck. Right? And that's why he's the goat that just. There's never been better, there never will be better. I don't really count Jim Simons and Rentech because that's like trillions of little agents trading together and cumulatively making money. But like in terms of just a guy with an opinion, Druck is the only guy, right? He's, he's just the legend. Now I think every other amazing trader I've ever met has always had one epic, epically bad year and at least a couple of other marginal bad years. And you know, maybe this is just that year for Leo. So be careful grave dancing on this guy.
- [40:40]
B
I hope to be fair, he's still up this year. He's still up. It's just the drawdown that was big.
- [40:45]
A
Now I want to talk about successful venture trader. Venture capitalist does not make you a successful trader. We need to differentiate. So I'm, I'm skeptical of that. Up 80%. But if you got, if you got lucky on some locked anthropic and you got liquidated on your public markets portfolio, let's separate the venture capitalist, which he may be the greatest of, from the trader, which he, I, let's, let's call a spade a spade here. He's not up on liquid markets this year. No way.
- [41:16]
B
I don't know. I, the, the answer to that is I don't know. All I'll say is that he has been. And this is the last point because I want to stop talking about Leo. I think it's, that topic has been beaten to death now at this point. But I think that you can't count him out and that I'll be watching his career with great interest. I hope he does well. This is not a grave dancing podcast. We are positive supporters. We are positive people. If you have lost money in the last month, just know that you're in great company and don't feel too bad about it. There are a ton of people that have lost, that have lost money. Now in the future, maybe, you know, you can, you can listen to this pod and we'll, we'll help you hedge a little bit. I think that was one thing that we did well as we, we, we, we rang, we rang a little bit of the, of the bell. It's like, hey, this trade looks like it might. I remember that story, Jonah, that I told you a while ago where I went to a event and there was a kid there that was buying memory stocks. And I said, this is kind of scary. That was actually pretty close to the top. Now then, what I need to get better at is I need to get better at my public Twitter and reflecting what I'm saying on the podcast, because sometimes I'll tweet something and forget to follow it up because I did tweet about the Micron earnings and people took that to mean that I was still ridiculously bullish on memory in general. But on the pod, obviously we're talking about, hey, maybe we need to be a little bit, a little bit more careful now. What do I think is going to happen here? I do genuinely think that because it might take some time to get back to get this rally started again in memory because you might see some profit taking. You can probably stay in the mags. I think the Mag 7 actually might do so well. Ex Apple. Apple down. Apple down. 10% today because they're basically forecasting lower revenue guidance in for, for, for September and Q&Q3 down 9%. I mean these moves are massive and I think what the market is starting to really come around to is that there was a moment there where people are, where people were saying wow, maybe these companies like Amazon and Microsoft are spending far too much money and Meta are spending far too much money on capex. And it actually just doesn't, that doesn't seem to be true in any meaningful way. It's like Apple is still struggling, right? Despite spending, despite spending zero money on capex. And so I think the issue that
- [44:00]
A
logic doesn't follow Avi. It doesn't follow tell me why Apple spend. Apple's struggling because they spent nothing does not mean that Google and Meta spending a bunch of money is not also bad.
- [44:14]
B
I'm saying that, well potentially that that's true but I'm saying that if, if we generally have considered these stocks reasonably correlated which we have in the past generally Apple tends to move with Google tends to move with Amazon tended to move with Microsoft. They tended to have high correlations. Now there's actually some quite, quite, quite dispersion in these, in, in stocks and actually dispersion from each other. And so I think the, the, the, the, the point here is that Apple is doing poorly relative to the rest of the Mag 7 right now despite spending no money on capex and Amazon is doing did very well today despite spending a lot of money on Cat like, like there. The free cash flow of these companies are coming down whereas free cash flow for Apple is still quite high. And so basically what I'm saying is we have to unpack. There might be something else going on. Like what, what, what was driving the underperformance of these stocks is the question. Right? Yeah, that's that, that's, that's the question that I'm trying to answer is why was Google underperforming? Why was Amazon underperforming? Why were all these other things underperforming for so long? Was it due to capex or was it due to something else? If Apple's also underperforming, maybe it's not solely due to capex. Maybe there's something else going on. And my answer is that it was a flows based issue.
- [45:35]
A
I think it's apples and oranges, no pun intended. I think Apple is underperforming because they seem, they haven't innovated anything since the iPhone basically, okay, the iPad, whatever and they don't even seem to be Trying. They seem to have just like admitted defeat, planted the white flag and they're just sitting and watching idly buy while Siri is a piece of shit. And the AI thing takes off. They have this incredible opportunity in front of them and they just seem kind of lost. They don't know what to do with it. They're like, well, we're going to optimize our supply chain and cut costs. That's what Tim Cook basically molded this company to do. But they're really missing a Steve Jobs right now and this new guy probably isn't it. So I think if Apple's underperforming, it's because they're a company without a vision in an era that's like, that they have ample opportunity to participate in and they just don't even seem to be trying, which is pathetic and weird. As far as Google, Google printed its first quarter of negative free cash flow since like decades ago. And that's why Google stock shanked. And that's a very different thing. It's not like Google sitting on the sidelines trying to just not giving a shit. Right? They're competing in every arena where AI is where AI matters. And they're competing really effectively too. Like Gemini is a great product. I think the reason why Google's underperforming is because participants are just saying like, holy moly. We assigned a sort of a software margin multiple to this basically the best business in the history of the world search. The margins are supposed to be enormous. What's going on here? Now this looks more, less like a software company and more like a manufacturing company where they're just like buying tons of hardware and to manufacture tokens. And those tokens like aren't necessarily bringing value back to the bottom line, otherwise the free cash flow would still be positive. So like, I think that's, that's like an equity research type situation that's driving the underperformance of Google stock. It's just analysts rerating and re underwriting the situation there. As far as meta, Meta, like, you know, I'll, I'll, I'm out of meta now. I had a bold thesis on them. I made less than I should have on it and got out. But like, basically the thing about meta is they also have an incredible opportunity in AI, but I would place them more in the Apple category than in the Google category. They're kind of in between. They're, they're in the middle of that spectrum. They're sort of trying to compete. They, it should be a layup for Them because they have, you know, billions and billions of people using their products every day. So they have the easiest sales funnel to build consumer AI. And they can't figure it out no matter how much money they spend. They just can't figure it out. So they're between Apple spending no money and Google spending infinity money. They're spending a lot of money, but they are neither figuring it out nor are they like not trying. It's like a weird purgatory limbo for them. So I think it's like a very, very bad situation for those three companies. Amazon, on the other hand, like, happy days over there. Like, whatever they're doing, they're doing it right. And I'm not exactly sure why, to be honest.
- [48:44]
B
What do you mean you're not exactly sure why? They're just like, they just keep printing money hand over fist.
- [48:50]
A
Yeah, like, and I don't know how, like, I, I guess, I guess what we're learning here is that atoms are starting to matter more than bits. Right? Like the.
- [48:58]
B
Oh. I mean, that's the entire thesis behind Kalanick's new company. Right? Is, is that. And that's the whole. That's actually. Amazon has always thought this in many ways. I mean, even though obviously they were Internet first company, what they really built is they, they built physical hardware in AWS and they built logistics to deliver physical items. And this is actually why Bezos has been started, effectively started a new company or seeded a new company called Prometheus. And it is supposed to be an AI. Basically, the idea of Prometheus is that you. I'm sure you all have heard the story, the famous Greek story. Prometheus is the man who ended up bringing fire from down from the heavens, from Mount Olympus to the average person and giving humanity the ability to grow and create. The gods punished him massively for it. They actually chained him to a mountain and had an eagle eat his liver every day because his liver would regrow. But long story short, what Prometheus does is it tries to lower the cost for the production of physical goods. This has always been Jeff Bezos's approach. And I think that that obviously is going to be quite valuable.
- [50:11]
A
No, no, I got, I got one last thought. I got to share. So, okay, back to Apple. The spectrum between Apple and Google and Meta in between. Okay, so AI, The US used to be ahead in software. That was sort of like the Internet was our thing. And we outsourced atoms to other countries where labor was cheaper. And now we're sort of behind China, but it's not behind most other countries in that, in that regard. AI has basically commoditized software leaving the US Sort of, you know, like the tide has gone out and the US isn't really wearing any clothes there. So you know, obviously now there's this big race to capitalize on atoms. Elon Musk in his Walter Isaacson biography, which I recommend everybody read or listen to, Elon Musk has this thing in his company, it's called the Idiot Index. And the Idiot Index is like what is the cost to buy a product to put into my spaceship or optimus robot or Tesla, like an actuator or a pipe connector or a chip or anything? What's the difference between what it costs to make that product and what it costs me to buy that product? Like the, the, the sum cost of the raw materials, the, the input commodities versus the output price. That's the Idiot Index. So Elon is willing to buy parts that have a low Idiot index and he makes parts himself where the purchase price reflects a high Idiot index. And basically Jeff is trying to bring down the Idiot index for American parts because that's basically where we've fallen behind. And it's technically our national security's like biggest short, biggest problem. America's national interest is most exposed as software gets commoditized because there's nothing to cushion P and L anymore here. Nothing to cushion the GDP without, without that sort of prowess in the world of Adams, that's Travis's thesis too. I think the way that you express this in your trading and your daily life is by exposing yourself to atoms as much as you can and distancing yourself as much as you can from knowledge based outcomes. Google juries out at Apple. Apple has basically a monopoly on the atoms in every rich person's pocket in the entire world. They're doing nothing with it. Which is fricking crazy in my opinion. Meta is like in this weird middle ground between human, between like sort of IP and atoms. And I think they're, I think they're sort of not a lost cause, but I think that they have some real soul searching to do at the top of that company. I'm hoping for bold action from Zuck before I try to reinvest in that one.
- [52:49]
B
I think that's as, that's as good a place as any to wrap it for the day.
- [52:53]
A
Well, I did promise the chat room, the Telegram chat room, which you should all join the thousand x Niger Delta Avengers chat room. I promised the people in there that I would talk about Bitcoin Briefly and custody risk. There's been some sort of hacks on Bitcoin recently involving multi sig wallets. There's some structural risk. Basically my opinion, I think that there was a firmware bug with one particular type of cold wallet that resulted in a drain. I think if you go with one of the majors, ledger or Tezos and you self custody and you keep your seed phrase in a bank vault or someplace safe, you're good or in your head. Best of all, I really, I still believe not your keys, not your crypto, just self custody. Don't use a wallet with lots of software on top of it. Use one of the OG wallets. I also think you're fine just like storing your crypto on Kraken with a passkey. They're probably proven enough at this point to be trusted with your funds. If you can't self custody without losing your seed phrase or, you know, if you don't have a bank vault, you know, I think Bitcoin is going to be in no man's land until this AI trade cools off or rates come down. Rates probably won't come down in the near future. So I think. Well, basically my, my. In response to the thing that I said I would talk about on this podcast as a promise to the chat room, it's basically focus on what we talked about on this podcast. If you're capable of self custodying with one of the OG wallets, do it in terms of trading Bitcoin, stash it for a decade and don't think about it right now. That's my response.
- [54:35]
B
Look, I have a slightly different take on this, which is that for the vast majority of people out there, unless you're technical, because it actually does still take some level of familiarity, it's like just hold your crypto on Coinbase. Like hold your crypto. And I mean no. Or Kraken or like a us not. Not a. I wouldn't even say US based exchange. I don't know if I trust Gemini or you know, these are these other exchanges. But basically I think if you hold it on Coinbase, you're kind of mostly fine. If you want, you should, you can teach yourself how to use. I wouldn't use a Treasure. I'd literally just use a ledger too because I think there have been some issues with Trezor in the past and I think ledger just has better people working on it. You can try to teach yourself to use it with a small amount and then if you really feel comfortable with it, do. But I've also heard horror stories with Ledger and that's like if you're not a particular, if you're not somebody that is high, that is highly detail oriented, it can be very easy to lose your crypto regardless of whether you get hacked or not. There are so many other ways to mess it up, from losing your seed phrase to, you know, losing, losing the actual ledger itself and then having to, you know, it's just a, it's a, it's, it's a problem. So I mean, my take is that the average person is probably better off holding it on some sort of platform. Like even as long as you enable Robinhood. Robinhood. Because Robinhood, by the way, if Robinhood ever gets hacked, they're for sure gonna have to reimburse people.
- [56:13]
A
Enable multi factor authentication though if you store it on Robinhood or Coinbase like
- [56:19]
B
do the two FA for sure with that. It is Friday, so to all the Jews and non Jews out there, Shabbat Shalom I hope.
- [56:31]
A
Shabbat Shalom.
- [56:32]
B
I hope you have a wonderful and restful weekend. Take some time off and just relax. We'll be back with you. We'll be back with you soon with a new episode on Monday and then back to our regularly scheduled programming on Wednesday.
- [56:46]
A
Great to see you, AI.
- [56:47]
B
Great to see you too. Take care, Jonah.
- [57:06]
A
Nothing said on the Thousand X podcast is a recommendation to buy or sell any investments or products. This podcast is for informational purposes only and the views expressed by anyone on the show are solely their opinions, not financial advice or necessarily the views of one KX Media. Our hosts, guests and the one KX team may hold positions in the company's funds or projects discussed.
- [57:29]
B
Sam.