Those retail investors in South Korea have lost $39 billion so far. But I think probably most astounding is some of the imagery that we're seeing coming out of South Korea. If you go to the National Assembly building in Seoul, South Korea right now, and you go on the sidewalk, you will find a pile of funeral wreaths on the street.
Yeah, I saw that. With a sign that says abolish the single stock leveraged ETF because suddenly everyone is realizing that this stuff is extremely dangerous.
Today's number: 21.4 million. That's how many Americans use marijuana daily in 2025, making it the most frequently used substance, above alcohol at 17.2 million. Ed, I do believe if the entire world got high together for a couple hours, it would be a better place, and then we'd have a global food shortage.
That number blew me away. I mean, granted, it's a great number. I'm 90% of that, but still, what are these young people doing?
It's kind of interesting to me. I feel like none of my friends are smoking weed or eating weed or however they're consuming weed. None of them are really doing it in my friend group. I'm not doing it either. I'm kind of surprised to see it, but I guess it's just the decline of alcohol.
Are they drinking? Are they doing mushroom chocolates? Are they just trying to pay off their student loans from Princeton?
A lot less substance use at this age. I would say like a few years ago there was a kind of uptick in the mushroom chocolates and the psychedelics and all of that stuff, but it does seem like everyone's trying to kind of get to that stage where they're getting their life together and it's like, okay, do I really want to piss away not just tonight, but the several days after with a hangover. Certainly ketamine was a thing back in the day.
Ketamine back in the day. Wow. God, I feel old. I never, I missed that.
Yeah. Well, I say back in the day means 18 months ago.
Last summer at a party in Malibu. Yeah. From the age of when I got out of UCLA, we smoked a lot of pot in college. But from like 22 to 30, I don't think I did much of anything. I was just, you know, working all the time and I don't know, just didn't really drink or smoke or...
That is my criticism of myself right now. I think I need to be having more fun than I'm currently having.
I've got much better criticisms than that. I can help out there. I can make that seem like one of your better qualities. Yeah, I had that kid Jack Raines on the Prof G Media office hours talking about, and his whole thing is, you know, make sure you have some fun in your 20s. You don't want to give up your 20s. But my sense is young people will always find time and a way to have fun. I'm not worried about that.
Are you still a marijuana user?
I do edibles probably once or twice a week when I'm having trouble sleeping, but I don't smoke. I don't really do... I'm taking down my drinking substantially because I do realize a 51-year-old liver cannot process the way it did at 21.
Is the edible, when you take the edible, is it just to go to sleep or are you having fun watching TV, messing around, like, or is it literally just I'm going to take the edible and then I'm going to go to bed and fall asleep?
For me, quite frankly, it just quiets the mind. My mind kind of starts firing at about 11:00 p.m. And so if I feel especially, not anxious, but just awake, I'll take a small, like 5 milligrams of an edible, and this brand I like called Wyld that I get at this dispensary in Aspen, pear flavored, and it just kind of quiets my mind and makes it easier for me to sleep. But I don't ever do... I don't think I ever do drugs outside of the house. I just abuse drugs home alone as I'm playing video games.
It's a good way to do it.
No, but I mean occasionally I'll, you know, I'll watch some stuff on, you know, I'll stream something or watch something on TV, but mostly I just hang out with the dogs and wait till I feel tired enough to get into bed because I find if you get into bed and you're not tired, I just sit there and stare at the ceiling for two or three hours. But I don't, you know, when we were younger, we would do things like, I'm going to see The Odyssey today. When I was a younger man, I'd do it on a Sunday and take an edible and go with a bunch of friends and then watch The Odyssey and whoa, dude, that scene was amazing. And then we'd all go to In-N-Out Burger. But now it's mostly just a sleep aid for me.
It's interesting you say that. I actually have the opposite experience with marijuana where my mind starts racing and I feel like I'm having all of these thoughts, all of these ideas. I'm having a lot of fun, but it's not a sedated state. Maybe it's just a type. I guess there's different variations. But yeah, it would not work as a sleeping aid for me, I don't think. But on a side note, I'm very excited for you to see The Odyssey, as I think I've mentioned to you, one of the best movies I've seen in a long time. It is number two on my Nolan list behind Interstellar, but it beats a lot of his films and it's the best adaptation of that story I've ever seen. So, I'm very excited for you.
Yeah, I'm excited to see it. But more importantly, let's talk about the South Korean stock market.
Let's do it. Lots to get into in the markets this week. There's been an enormous amount of volatility in the South Korean stock market. Just last week, the Kospi index fell 22%. And then days later, it rose 15%. One of the biggest culprits appears to be a new wave of leveraged ETFs. In late May, the country launched single stock leveraged ETFs tracking two of its biggest chip makers, SK Hynix and Samsung. These funds use borrowed money to multiply the daily return of their target by two, three, or even five times. That means that the gains are amplified when the stocks rise. But so are the losses when they fall. The products quickly became popular with retail investors looking to capitalize on the AI boom. But last week, when AI sentiment briefly soured, the pressure quickly spread to South Korea's chip makers. SK Hynix reported weaker than expected earnings, adding even more pressure. All told, Samsung plummeted 32% and SK Hynix crashed 40%, and the Kospi index fell into a bear market. So Scott, this is really just a fascinating story here. What happened?
The South Korean stock market's down 44%. $2 trillion in market value has been wiped out practically overnight. And the two main reasons for that are, as I said, Samsung and SK Hynix. These two chip companies, which now make up roughly half of the entire South Korean stock market. And those two have tanked in the past month. This stock market crash in South Korea right now, this is the worst they've ever seen since the financial crisis in 2008. So, you know, why is it down so much? The AI trade, as we've been talking about throughout the week, appears to be unwinding. It's not just Samsung and SK Hynix. A lot of the other semiconductor names like Micron and AMD and TSMC, chip stocks lost about $1 trillion in value in the past week. Not because of anything that happened with their earnings reports, which were generally pretty good, but the euphoria is beginning to lose steam because there are these concerns that we have discussed at length, like the extreme debt issuance, like the circular financing, like the SPV mania, and everyone's asking where's the ROI. But in South Korea specifically, there is this other killer ingredient that is crushing their market, and that is the leveraged ETF, specifically the single stock leveraged ETF, which has become the most popular financial instrument in South Korea by a mile. So that was great when things were good, now things are bad and it is total chaos. Scott, your reactions.
It reminds me of that Charlie Munger statement where he said the way smart people go broke is ladies, liquor, and leverage, which by the way are awesome. I had dinner with a podcaster and he was saying that he's been shorting the market or thinking about shorting the market. I said, 'Well, you're under the impression then that you can time the market.' And as a hedge, I get it. And if you're worried about the markets going down, unfortunately, I think hedging or buying puts, it's very expensive because other people have the same ideas. The more boring way, if you think the markets are volatile or you want to lock in gains, is one, diversification, but also lowering your leverage. And to a certain extent, lowering leverage costs something on the upside, but you don't... I don't know if you saw this hedge fund that was all the rage, Situational Awareness, is basically shutting down because of leverage and just buying AI stocks at 5 to 1 leverage. That's not a strategy, or that's just a strategy until it isn't. I think of leverage like divorce in the sense that if you get divorced, the only thing you know about it is it'll happen at exactly the wrong time to sell assets that you're going to have to typically... you have to sell a home, you have to sell some stocks, you know, you start dividing things up and inevitably it happens at the worst time. The way you go broke and just have huge hits to your financial well-being is if you put yourself in a position... what you need to ask yourself is the following: at what point do I or the investments, what is the likelihood at some point we might become forced sellers? Because the market senses you're a forced seller and gives you a shitty price. And I mean, the worst call in history was when Jim Cramer, probably thinking he was doing his viewers a favor, said in the teeth of the crisis, 'If you can't stand the volatility, you should think about selling your stocks.' That was the worst piece of financial advice given in this millennium because basically the NASDAQ recovered within I think something like 14 or 17 months. But if you were levered, you had to sell. If you weren't levered, you just didn't look at your phone and, you know, sooner rather than later, the stocks recovered. Leverage on the way up is a ton of fun. It's ugly on the way down. And my understanding is, talk about a gambling economy, 92% of investors in these products were retail. And so there were two brokerage accounts for every citizen in South Korea. So it was never institutional risk, it was household risk. And Goldman estimates that 3.4% of South Korea's adult population has received a margin call. I mean, that's insane when you think about it. So, the human cost here is so real that South Korea has rolled out a debt counseling hotline as part of its suicide prevention plan. That's a sentence that should give us all pause. And so, the lesson here isn't new. It's just very expensive for every generation to relearn this, and that is leverage doesn't create risk, it removes your margin for being wrong. And I think this is, you know, you miss some upside, it does cost you, but I think once you get to any sort of asset base, one means of protecting yourself, we keep talking about diversification, but it's a good idea to game theory out. And you can use AI for this. Put in all your assets, what your mortgage is on them, what you have pledged against them or you've taken money out on margin, whatever it is, whatever qualifies as leverage. What are the scenarios where you might be a forced seller and you want to give up some upside if and when the market draws down as it always does through cycles, you can ride it out. Your thoughts?
Well, the Leopold Aschenbrenner, this Situational Awareness thing is really interesting because for those that don't know, this is this hedge fund that was started by this former OpenAI employee who wrote this paper called Situational Awareness that was all about how the AI revolution is going to change the world and all of these things that we should be thinking about. It went super viral and like many up-and-coming asset managers today, it happened because he went viral and then he kind of launched his hedge fund career off of that and the fund performed unbelievably well. I mean, just looking at this year, from June, it was up 439% on the year and basically all he was doing was investing in AI stocks and chip stocks, all of the names that have just gone absolutely crazy over the past few months. By the way, side note, his wife is the chief of staff at Anthropic. So a lot of people have been saying like, oh my god, this guy's a genius. How does he know when to buy all these stocks? How does he know when things change? And the answer is probably like he's literally married to one of the most inside insiders in Silicon Valley. But last week we learned a truth bomb, which is that it turns out he was 5x levered up. He was then margin called and then he decided, well, not decided, he was forced to liquidate his entire public equity portfolio and supposedly he's also selling his stake in Anthropic too. And it is remarkable because if you've been online, if you've been on Twitter and you're kind of plugged into the investing community, this guy was considered AI Jesus. He was like the savant of our time. He could predict the future. He knew everything that was going to happen. And literally overnight, the whole thing has collapsed. And what is it? It's a story of leverage once again. He was levering up into the hottest stocks, into the hottest momentum trades in the world. Looked really smart until suddenly he didn't. And it is just so fascinating because we have seen this story over and over and over again. We saw it with Michael Saylor and the MicroStrategy play. We saw it with Cathie Wood and ARK Invest yoloing and levering up into Tesla. We saw it with Bill Hwang. We saw it with Long-Term Capital Management. And it's just hilarious to me how we always kind of fall prey to the same game. We see these gigantic numbers and then we assume these people are geniuses. In reality, they're just taking on a lot of leverage. By the way, interesting side note, he sold his entire position, all of his longs, like SK Hynix, by the way. All of his shorts as well, like Adobe. He sold them all to a single buyer. Do you have any guesses at who that buyer was?
I think I read it was Citadel, Ken Griffin.
No, that's right. Ken Griffin.
Yeah. And by the way, Ken's going to make a lot of money. If you could find a fund that said we're buyers of nothing but assets from forced sellers, those are the... I think the greatest investment trade was when Bill Ackman... there was a family that owned all of these malls. I think it was called GGP. Anyways, General Growth Properties, GGP, and they got caught in a down cycle. I think it was '08, and basically they couldn't make their debt payments. He came in and basically squeezed them and bumped them into bankruptcy. If they had been able to hold on for literally like 3 months longer, they would have been fine. And he got something like a 35,000% return on it. Just an insane amount of return. And that's again, it's really easy in good times to mistake leverage for IQ. I was just talking to my tax advisor and she said, 'We should put some leverage on your real estate.' At my age, I've had my eyebrows burned off and my fingers, like not burned, but chopped off a couple times in the market. So I don't like any leverage at all. And she convinced me that a little bit of leverage is actually healthy and strategic. So again, it's like, you know, it's like I don't know what the term is, prescription drugs as taken as prescribed can be very good for you. Too much of anything is going to kill you. So I think leverage is something you need to understand. You need to understand... I was thinking that like what could we do at the University of California, like how does the curriculum need to change? And I was thinking going back into high school, how does it change? And I'd take a course on adulting that spent a decent amount of time talking about leverage, whether it's the mortgage on your house, what margin is, credit cards are essentially leverage on your lifestyle, or taking leverage out, but understanding the concept and what is the healthy zone of leverage. Very few people can buy a home for cash. I'm in a position of privilege, so what is a healthy amount of leverage?
Yeah, and I think the South Korean stock market story is the perfect example of leverage gone wrong. And I think it's a good warning against the downsides because it looked like, I mean, a lot of people in South Korea, a lot of retail investors probably convinced themselves that they were geniuses. They probably convinced themselves that they were the new Leopold Aschenbrenner. And we saw the inflows into those leveraged ETFs, these single stock leveraged ETFs, which is basically just a levered up version of SK Hynix and Samsung. And that's basically it because those two stocks are the only stocks that mattered in the market. The assets under management of those ETFs tripled in one month in South Korea. And I think as you mentioned, 92% of the investors in those ETFs were retail investors. Now we look at the damage. Those retail investors in South Korea have lost $39 billion so far. You mentioned the craziest stat I think, which is that more than 3% of the adult population has now received a margin call in South Korea. But I think probably most astounding is some of the imagery that we're seeing coming out of South Korea. If you go to the National Assembly building in Seoul, South Korea right now, and you go on the sidewalk, you will find a pile of funeral wreaths on the street.
Yeah, I saw that. With a sign that says abolish the single stock leveraged ETF because suddenly everyone is realizing that this stuff is extremely dangerous. There are literally thousands of people who have lost their life savings because they convinced themselves that this was the way to do it. This is how they were going to get rich. I mean, if you look at the amount of people in South Korea that are in the red on those two names, on SK Hynix and on Samsung, it comes out to around 70%. That is according to the Korean stock market regulators. The response from regulation, from the people in charge of South Korea's version of the SEC, is they're going to just stop allowing these new listings of the single stock leveraged ETF. They realized, wow, this was probably a bad idea. And you listen to some of the quotes that are coming out of South Korea right now. One of the parliament members said that the country has turned into a casino. Another said that the launch of the leveraged ETF was a quote, 'man-made disaster.' The chief of the FSS, which is one of their securities regulators, said quote, 'I should have laid down to protest the launch of the leveraged ETF by any means necessary.' So, they're suddenly realizing, 'Oh my god, why did we allow this to happen? Why did we encourage this? Why didn't we put out more protections, put out more regulations?' All of the things that I think you and I have been advocating for in America, but which we kind of get a lot of shit for because everyone's like, you know, you're patronizing investors, like let people do whatever they want to do. We're now seeing the downside. We're now seeing that people are taking to the streets and saying, 'Why didn't you ban this? Why didn't you stop me from myself?' And it's a really good warning story for America where we're seeing trends brewing in the same direction. And South Korea is an example of where it went wrong.
Yeah. And I'm curious if you agree with this, but there's a balance between infantilizing people and also protecting them, right? A government has a paternal or a maternal feel to it. We don't, you know, we make it illegal for people to take, you know, you can kill yourself by eating ice cream or going to Oregon for assisted suicide, but we put a lot of regulation and friction in between those things, saying that, okay, on certain levels, we do know better than you. And this to me feels like an example where we know what's going to happen here. We get regulated backwards. We wait for retail investors to absorb the downside of financial engineering which likely had really juicy fees for the middleware. We then apologize and then we regulate it. And the apology should come before these products launch, priced into the approval process with friction that says, 'Okay, retail investors, and this isn't infantilizing them, should probably not have access to products with 5x leverage.' That just presents an existential risk. And our population probably doesn't have the maturity, the experience, or the knowledge to realize you're putting nuclear weapons in their hands that seem to be endorsed by ads on CNBC. South Korea. So it feels to me like this probably is, there probably is regulation that's required here that says, okay, at some point when you're putting in place products that are subject to a cyclical downturn, which you know happens in cycles, that would wipe out the household wealth potentially of millions of households. We're not going to let them do it. Just as we wouldn't allow certain products, the availability of certain products that are dangerous. I mean, these products are dangerous. And at a minimum, you know, I don't think warning labels are enough here. If you're selling on the Kospi and by major brokerages that have ad campaigns of 5 to 1 leveraged product, it's not if it's going to blow up, it's when it's going to blow up. So good regulation is prophylactic. So anyway, I'm curious to get your take because at the same time what you're doing is saying institutional investors have access to more products and more leverage than retail investors. But at the same time, you know, there is a need for protection, if you will. Do you think it's from your generation's viewpoint, do you think it's buyer beware? Don't infantilize me. I'm comfortable taking my own risk. You just want to sequester greater returns to yourself with access for wealthy people and corporations for access to a product universe that we don't have access to, or do you think the government has a role here in kind of being more paternal and saying no, we're not going to give you access to these products?
I think it's a balance. I think that you need to... there are things that you can do to protect investors from themselves. You can limit the amount of leverage that they can actually take on. You can increase the minimum deposit requirements. There are things that you can do, which we used to do in America but increasingly seem to not be interested in doing because we've swung so far into this infantilization argument, which I think has gone way out of control. But also the education, as you say, the warning label, we don't have nearly enough of that. And part of the problem is that there is a coordinated campaign by people who make money selling these products and executing the trades on these products to blur the lines as to what is leverage and what is gambling and what is risky and what isn't. And I think what we're seeing is a proliferation of a lot of these financial instruments that are kind of just taking these weird side routes around the law and around regulations. The perfect example would be these perpetual futures which have become the most popular form of trading cryptocurrencies today. They made up 70% of all Bitcoin trading volume last year. And it's basically a way to lever up by like a hundred times or even in some cases a thousand times on crypto with no actual expiration date. It's basically just a bet on whether the price is going to go up or down tomorrow. And it's wiped out a lot of investors. Again, these are the stories that you don't hear because everyone brags when they're up a thousand percent. They never brag when they're down and they lose all of their investments. But it's things like that. It's like the perpetual futures. It's the single stock leveraged ETF. It's the DeFi yield farming. It's all of these products that we are presenting to young people as if they are a legitimate financial product that is very complex and sophisticated. And if you can figure out how to do it, then that means that you're smart. And a lot of people get lured into this stuff. And so I think we could be doing a way better job of describing to people what it really is. Another example would be buy now pay later. It's a little different, but what we had when that industry exploded was you had these companies going around and saying, 'Hey, this isn't credit. We know that you guys don't like credit cards. We know that you guys don't like debt. This is a new thing where you buy it now and then you just separate the payment up into little increments and you pay it later.' And this was the story that they told us. They said that we were the debit generation. We don't like credit, so we'd prefer to do buy now pay later, which is literally the definition of credit. And eventually our regulators kind of stepped up. But honestly, it was a little bit too late. And they said, you need to be clear with people about what your product actually is. It is credit. It is debt. It is leverage. It is not a form of debit. It is not just taking it out of your checking account. So it's issues like that I think we need to be a lot more serious about making sure that people know exactly what they are buying, what the risks actually are. We could actually put these warning labels. Another example would be event contracts in the prediction markets. Are we going to step up and start explaining to people what these instruments actually are? But we've decided no, we don't want to do that, or at least this SEC has decided they don't want to do that. So, I think there's a lot of work that is to be done. I have another angle on this South Korea story which I think is very interesting, but before I do that, I'll just get your response.
I agree with everything you've said. Don't tease us. Don't be Rachel Maddow-ing me.
