You're watching TVN. Today's Friday, July 31st, the end of the month, 2026. We are live from the TBN Ultra, the template of technology, the fortress of finance, the capital of capital. We have a guest co-host today. Introduce yourself for those who don't know.
He's out again. I'm back.
Yeah, we got Tyler in the Ultradome in the hot seat. Well, let me tell you about Ramp.com. Time is money. Save both. Easy use corporate cards, bill pay, accounting, and a whole lot more all in one place. You're back. You know who else is back? Leopold Aschenbrenner's back. He says, 'You're going to have to drag me out of SALP, out of situational awareness LP, cuz he's down, but not out. Little beat up.' But he shared a letter that's making the rounds thanks to some intrepid reporters on the DBPN team that posted this. He sent an LP letter that clarifies a lot of the questions yesterday. I mean, even internally, we were going back and forth on like, okay, he sold a bunch of the portfolio to Ken Griffin to Citadel. Does this count as a liquidation? Does this count as blowing up? And these are like sort of vague terms. Like what does it mean to blow up? It seems like there was definitely a drawdown. The fund definitely was underperforming that month, but what does it mean? Is the fund gone forever? Is he going to work at McDonald's as some people were trying to make it seem like it was happening? Obviously, that's not going to happen. He's going to have a long career. Lots of people are rooting for him. I'm certainly rooting for him. But there are some facts in this letter that we should read through. So he writes, this is Leopold Aschenbrenner to the LPs of situational awareness LP. We let you down this month. We came closer to permanent capital impairment than is acceptable to us. While we ultimately found a solution that protected the fund and you as investors, that was the sale of the public equity book to Citadel. There was some other structure going on to get liquidity. He said, 'We ultimately found a solution that protected the fund and you as investors. Our intention in running the fund is to never find ourselves in such a position in the first place. Volatility is the price of long-term investment returns. Over the past two years, we have delivered outstanding results.' That's 100% true. It was up what, 1,000% at one point or something like that.
Yeah, something like that. I mean, it got up to what, 45 is the number?
Yeah, 45 billion AUM from an original raise less than two years ago, I believe, up $250 million, which seemed crazy at the time. Like he's a young first-time hedge fund manager, he's got $250 million, that's crazy. Then pretty soon it was like, oh, he's got a couple billion, that's crazy. Then it was like he's got tens of billions, then he's got half a centi-billion. So he says, 'Over the past two years we have delivered outstanding results despite occasional sharp pullbacks.' Probably they're not the first time, there's been other pullbacks in the market and those have probably been amplified but never gotten to this level of actually distressing the fund in this way. He said, 'But our fund must always be structured such that we can take a loss and fight another day.' And that's a recurring theme in this. The writing in this letter is really good, very clear, very direct, not being dodgy, very upfront. I love the way it's written.
Almost kind of like there's the PG advice to like write very clearly. Yeah. I think it was very kind of in that line.
There's a lot of that in here. Yeah. So he says, 'I will make it my mission to ensure that we learn the necessary lessons from this experience.' Here's where things stand. One, the portfolio experienced a significant drawdown over the course of July, which was exacerbated by extreme moves in core positions over the past week. Many AI names drew down by half or more while our positive long short spread reversed violently. While we could say much more about how unusual the month was, we hold ourselves to a higher standard irrespective of market conditions. Two, as these moves proceeded, we started to see increasingly adverse trading in names publicly associated with us. So this is the rumor that Martin Shkreli was talking about yesterday. This idea that there's blood in the water, kind of sniff out if someone's hurting and then short, sell those positions, sell those names, go put some downward pressure on those to actually intentionally hurt that fund. It's a knockout dragout fight there on Wall Street clearly. But that's the game you're playing, that's why you get paid the big bucks if you can pull it off. So these dynamics are essentially similar to a bank run. Crazy to put that word in there. A lot of people would be dodging that, but very, very direct. I love it. Vulnerability begetting more vulnerability. We worked to keep the portfolio within our risk parameters, but gradually this became more difficult as positions rapidly moved against us and market liquidity dried up. On Wednesday night, Thursday morning, we took decisive action to protect LP capital. We traded a portion of our public portfolio in a block transaction to remove all leverage from the fund and prevent further losses. All shorts were closed and reliance on portfolio financing removed. We currently manage a fully paid for public book, long stock and long fully paid for options with no margin liquidity risk. This restored stability and allowed us to preserve our private positions. So this feels like down but not out for sure. Yeah. And he says, 'I take full responsibility for these events.' That's just the full paragraph. He just says, 'I take responsibility.' No equivocating. It's great. To be clear, this should rightly have been a very painful month in terms of the performance of our fund. When AI stocks draw down dramatically while AI technical business fundamentals are improving, you should expect our fund to be down a lot. We embrace volatility, but it should never jeopardize the fund. The fund was not shut down. It was not liquidated or transformed into a private-only fund. This was something that a lot of people were speculating on: is this going to be private only? Are they only going to have their private book? Is it just going to be the Anthropic position that's going to be riding? Or is it just going to be liquidated and they're just going to return capital to LPs and just say, 'Hey, we're going to start completely fresh, do something completely different.' Even like an acqui-hire, like situational awareness becomes like a desk at another fund. None of that's happening. He's very clear about this. Situational awareness is not shutting down. It's not liquidating and it's not transforming into a private-only fund. He says we are continuing 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. I love it. A rallying cry to both the LPs and the employees, I'm sure. In the coming weeks, I will focus on putting in motion the necessary changes across portfolio management, risk team, and vigilance applied across the board to ensure a higher level of resilience going forward. AI may continue to intensify market volatility for years to come. And that is something that is so clear outside of the situational awareness bottleneck trade, long-tail, low market cap, high volatility stocks. Like I have never seen the Mag Seven trading like this where across earnings we're going to get into this with recapping Meta, Apple, Amazon, Microsoft. I mean, I think the stat was Microsoft had the biggest like day ever any public company ever.
Yeah. So you're seeing trillion dollar companies move by 10%, 9%, 15%. It's insane that anything can happen at that scale.
And so clearly there is going to be a lot of volatility. And I think he's right to point out that it is based on the AI trade. There's so much uncertainty about one little number about how the capex is going to trade back. You know, the investors in these large companies, let alone the small ones, are moving the stocks significantly and that makes his job all the harder. He says, 'These were very expensive scars, but I am dedicated to ensuring they will be invaluable lessons for our organization and for myself as we move forward. My core promise to you is that we will not waste the opportunity to learn from these events on the portfolio itself. We are very optimistic about the current investment opportunity set.' Of course, I mean the thesis still holds. The underlying fundamentals are accelerating at the very same time that prices have declined significantly. 'Thank you for your patience and your partnership. I'm fully invested alongside you. Virtually all of my capital is in the fund and I intend to work relentlessly to demonstrate that the events of this month have made me a wiser and stronger investor.' He says he's available for calls but he also says that as an interim update, the current unaudited estimate of net month-to-date performance, this is for all of July basically, negative 67%. Sounds atrocious until you realize that net year-to-date they're still up 80%, which is like better than any investment fund ever. So, people are definitely, you know, maybe down but not out, that there's going to be a second act here, which I think everyone's very excited for. A lot of people were praying for his downfall. It's very unfortunate to see.
I mean, this I think this is really good letter. I mean, this is like instills so much faith. Like, yeah, he's completely level-headed. He's not like freaking out.
You're calling it another billion dollar PDF.
Yeah, this could be the second billion dollar PDF.
It might be. I mean, Schalto agrees. Schalto had a great position. What did he say?
He said, 'Prediction: situational awareness will be bigger than Citadel by the end of the decade. Leopold has predicted the last two years better than anyone else. Now that he can combine that with very expensive lessons in risk, he will be unstoppable. He has my full confidence.'
This is such a wild... Ken Griffin sitting there being like, you got to ride with your boy Schalto, like you take a shot at me like that, bro. Really? Really? You're going to come for me like that? Because I will die before I am not the biggest hedge fund manager in the world. But no, I mean, I love that Schalto is coming out and supporting. Now, interestingly, this is the battle of the Dark Cash guests because Schalto has been on Dark Cash obviously, also roommate, and Leopold's been on, but Augustine Lebron is a little deep cut in the Dark Cash archive. One of the first Dark Cash guests, Augustine Lebron is taking the other side of it. He says, 'Even odds, I'll take the other side. It's a gentleman's bet.' And so they're putting money on the line. How much leverage will they be using? That's the key question. Schalto says, '$1,000 for fun. Anything more is better put in the fund at even.' And Augustine Lebron says, 'Done.' And Schalto says, 'Deal.' And Augustine says, 'It's in my Google calendar.' They're going back and forth now. John Shu wants to get in on the action. Everyone's doing derivative bets on whether or not Leopold surpasses Citadel by the end of the decade. So check back December 31st, 2029, I guess, would be the end of the decade.
Yeah, that counts, right? So when the clock strikes midnight, there'll be a countdown. 10, 9, everyone's going to be new decade.
Tech people are just going to wonder which one's bigger. This is the biggest thing of the decade. Hopefully situational awareness will be taking over Times Square for a ball drop to celebrate being bigger than Citadel. No, I mean, if it happens, it's gonna happen like way before then. It won't be down to the wire, but let's pull up first this ad for Cisco, critical infrastructure for the AI era. Unlock seamless real-time experiences and new value with Cisco. And then let's pull up a live view from the Citadel trading floor because we got some leaked video.
This is not the vibe that Martin was articulating. Ken Griffin's wanting to be framed as like the savior, the lender of last resort, positive force.
This is the guy you want to call.
I guess this guy right here.
Dune. So good. Is this from Dune 1 or Dune 2?
I think this one I want to say Dune 1.
Beautiful. It's very heavy though.
So I think one of the big stories of the last, you know, few days is we've seen all these new Leopold photos. We've never seen these before. Brand new rare Leopolds from Wall Street Journal.
This might be the biggest story of them all.
Yeah. Cuz I mean for a while the only image of Leopold was basically there was like one headshot and then it was just stills from Dark Cash podcast.
And now we're just seeing all these new ones. Like where did these come from?
There was one and then there was a photo that was done I think for the Wall Street Journal, but then the New York Times writes up the whole story of the situational awareness deal with Citadel and they just drop a banger new photo that they just had in the archive that they could have leaked. Let's pull it up. It's here. It's Leopold looking very pensive behind a glass wall. This one's in the Wall Street Journal today. This one's new, too. Everyone's been clamoring for this because the one that goes viral is him in that green suit. This is the one.
I'm pretty sure that's AI.
That's AI. But this one is not. This is from the New York Times. They went and shot this and then never published anything. Like the first time Leopold was mentioned in the New York Times was yesterday and they used this photo. And so you have to wonder if they were like working on a profile. But Leopold's been so quiet with his public relations strategy. He's not talking to media, doing photo shoots, doing profiles constantly. He certainly could be doing more in Bloomberg, at Forbes and Fortune, like he could be doing a lot, but he's had a very narrow strategy and I think it's worked very well for him. But it's funny that somehow all the mainstream media just has secret Leopold photos dropping on the timeline. It's a big day. Let me tell you about MongoDB, a strategic reserve indeed. What's the only thing faster than the AI market? Your business on MongoDB. Don't just build AI, own the data platform that powers it. John Arnold is chiming in. He says, 'My philosophy when I used to hire traders was that the optimal number of past blowups was one.' He's not saying zero.
He says, 'You got to learn your lesson.' The question is, how does the FTX Future Fund count? Does that count?
I don't think that counts at all.
That definitely doesn't count as a full blowup.
He wasn't a fund manager of it, right? It wasn't it like for donations and then FTX was just the one that was funding.
Yeah, it was like he was doing stuff.
That seems completely separate.
Is the wedding photo AI or is this real? And is he carrying an American flag? Let's pull up this image.
I saw this one I've never seen before until yesterday as well.
I mean, like if it's the wedding, like the wedding's happening right now, this wouldn't exist. But I'm wondering if this like leaked onto the timeline from someone who was there. Also, this photo hit like Wednesday, and I think the wedding would be over the weekend. But it's cool that he's just rocking carrying an American flag international. Yeah, the real lesson here is never travel internationally because he takes one day off, one weekend off to go to Europe and everything blows up. Now of course this one I was laughing at before the show. Rambo says comparing Leopold Aschenbrenner to Bill Hwang. Hwang is the goat. Bill Hwang's from Archegos. Hwang is the goat of degenerates and Leopold is a sheep compared to him. Did you know that Hwang turned 200 million into 36 billion and it was all personal capital? The guy literally led prayer circles in the conference room before trading days started. He had $160 billion of stock exposure on just 36 billion of capital. It's like five or 6x leverage. That's his blowup happened in two days and he literally caused the collapse of one of the most prestigious investment banks. Banks lost a total of $10 billion combined because of his collapse. Leopold is nothing compared to Bill.
It's so... get your numbers up.
Yeah. No. Yeah, I mean that's the interesting thing here is that like it is this sort of dramatic unwind, but at the end of the day, it is just like an over-the-counter transaction with Citadel for a block of trades and block of equity positions.
Yeah. And the fund is still around. I mean, they still seem to be like probably going to be doing very well.
Citadel will be going to be bigger than Citadel pretty soon.
Any day now. And importantly, all of the prime brokers, the big banks, like they were not affected. There was not like a liquidity crisis, a contagion effect did not take root.
Roy Driscoll says there's nothing to learn from the situational awareness situation about the AI trade. Leo was right in 2024 and based on the Amazon results, he's still right today. Hyperscale capex continues unabated. There's obviously something to learn about risk management. Forex leverage with high beta stocks is a mistake in trading stocks. Half the battle is getting the trend right, but the other half is nailing the portfolio construction.
Well, yeah. I mean, this is what Martin was saying yesterday, right? Like the underlying completely makes sense, but like you get into these crazy psychology things where it's just like, yeah, who's really...
Everyone's focused on the leverage. It does also seem like there were like every time the 13F would drop, it would be like 12 names, which is like not a lot of diversification. So, I wonder like right now the message from the letter is we're not using leverage right now. We're going to be learning the lesson.
Yeah, maybe the lesson is, hey, 2x leverage or 3x or something like that or four in certain scenarios with smaller trades. Not portfolio-wide or something like that. But it will be interesting to see if there's a difference in if the lesson that's learned when the next 13F drops in a couple quarters, we see, oh wow, he has like a hundred names or there's, you know, he's using more options or less options or, you know, whatever. However it changes, that will be interesting to see for sure. So Leopold still has Anthropic, Madox, and Fluid Stack, tier one private companies. He can probably raise two to three billion more. It's not over for him by any means, says Zephyr. And people are going back and forth on this. A lot of people, it is interesting. I'm seeing, I don't know if it's just my algorithm, but I seem to be tuned to I'm seeing more people dunk on people dunking on Leopold than actual people dunking on Leopold. It's like mostly just defending him like yeah he was correct and unfortunate circumstances but...
And a lot of people being like it's important to dance on graves or you shouldn't be so negative. Why is everyone praying on his downfall?
I'm not actually seeing that many people praying on his downfall. I have here and there throughout and earlier in the week there was like the he's working at McDonald's memes and whatever.
Yeah. But, overall it feels like that has been pretty quiet and low. But I do get where those takes are coming from. There's been this vibe of like it's too good to be true.
Tall puppy syndrome, you know, he's the AI wonder kid.
Yeah. People hate to see a young...
A young goat, a young hedge fund manager run it up crazy. Let me tell you about Railway. Railway is the all-in-one intelligent cloud provider. Use your favorite agent to deploy web app servers, databases, and more while Railway automatically takes care of scaling, monitoring, and security. We have Richard Craib from Numerai coming on in 10 minutes. He's been running an AI hedge fund for years now and has been through all sorts of different pullbacks, understands this stuff really well. We opened the show with one of his takes and his analysis of how leverage affects the returns and risk profiles of hedge funds yesterday. So very excited to talk to him. He has been a very interesting voice in the world of tech and finance for years. I've been a fan of his so very excited to have him on the show. So Alexi Guzzi says people keep making fun of Leopold on the timeline but everyone needs to get margin called once in their life. Is this true?
Delian had a similar take, right? He said basically all the goats on Wall Street have had some sort of blowup earlier in their career, part of the game being a live player on the field.
So, but yeah. Is that true?
I don't think that's actually true. I don't think Warren Buffett ever blew up. I don't even think Ken Griffin ever really blew up. I think he had a really bad year in 2008 during the housing crisis, the financial crisis. But early on, I think he got his start sort of post-dot-com and was doing convertible debt trading and never really like the entity has always been Citadel. There was no precursor to that. But it's a fair take that like clearly people can build back up after there's a...
Yeah, I mean there's a lot of comparisons to PTJ, right? Ethereum and then they're saying, 'Oh, this is also kind of...
Lulu's take, right? Go into VC then you can kind of do the long only thing.
The real hack would be to just raise the smallest hedge fund ever, $10,000, lever it, blow it up, and be like, 'Wow, I'm post-fall.'
Oh, yeah. He's post-fall now.
He's post now. And so, but if you do it with like such a small amount of capital, but you can still be like, 'Oh man, I learned so much. That was really crazy. Those were crazy crazy times. I lost $500. Ready for the real fun now?' No. Leo still made incredible returns. His fund will do incredibly well in the long term. Lots of people coming out in support. One person that's not in support. Joe Weisenthal is going back and forth with Tracy. That's hilarious.
So Joe has been live tweeting this. He's been making a bunch of great points and just illuminating the deeper level of like what's going on with prime brokerages and all these different aspects of what's going on. But so Joe started by sharing the Wall Street Journal article that said that Citadel buys situational awareness stock portfolio after big losses in AI and Tracy says why does he have to get bailed out at all? And this is another question like is this a liquidation? Is this a blowup? Is this a bailout? It would have been a very different conversation if this had been like a government bailout of situational awareness. That's not what happened. But...
Tracy says why can't we just let the speculators fail?
Joe Weisenthal says, 'Who says he's getting bailed out? He entered into a transaction with a willing counterparty.' And Tracy says, 'Isn't that a bailout? Why not just keep managing the fund? Why not be Cathie Wood and have a bad day and live to tell another tale?' Except there were probably too many redemptions, so it was spiraling. Joe says he got margin called. And Tracy says, 'So, it is a bailout. Just let it fail.' But maybe it was too big and could see the contagion. Joe says, 'I don't get what you're saying. Someone gets margin called and they have to pay the broker.' And the way they pay the broker is selling off shares to some other counterparty. How is that a bailout? Like he's just selling. And people associate every sale with a bailout now, I guess. But that's not what this is. This was not the government stepping in. Not...
He was not too big to fail.
I mean, some people are saying that he could have been too big to fail going in, but...
Yeah, it doesn't seem like that's what happened. It seemed like there were significant losses and then they ran an auction and there were three parties bidding and the bids came in above liquidation level. So the fund is not liquidated and it remains. And so Joe after fighting back and forth for several posts says I think we might have a different definition of the term here and I think you do. I think you do. Very fun. Anyway, let me tell you about Shopify. Shopify is the commerce platform that grows with your business, lets you sell in seconds online, in store, on mobile, on social, on marketplaces, and now with AI agents. Yes, this was the post you were talking about from Delian. He says, 'Silicon Valley somehow unaware that basically all of the goats on Wall Street hedge fund land have had some sort of blowup earlier in their career. Part of the game is being a live player on the field. He's obviously talented. Never met, don't know him, and will be back.' So, people are...
In the comments. There's some counter examples. Paul Jones...
I mean, a lot of these people are like wildly different strategies. They're not really like I don't know like there's a whole class of like mutual fund managers that were like by design never using leverage, never hedging anything, never going short. Like and if you never engage in a trade that can blow up on you by definition, you can go way down and just not sell and if you have good relationships and there's not redemptions like the redemptions are locked up. I mean this is like VC funds have never like there's not really any VC funds that have like blown up all of a sudden because it's like okay you invested a billion dollars over a decade and you returned 700 million of that. That's terrible. You lost money over a decade and you completely whiffed on the benchmark and it's a bad result but there's not like a blowup, it's just like a miss. And so...
You're sort of set up for a different thing.
Anyway, let me tell you about Figma agents meet the canvas. Your AI agents can now create and modify your Figma files with design system context. I want to keep going on this. Let's see. Yeah, the fund is still up 80% year to date. That is a crazy crazy stat. This might surprise some but I continue to evaluate Leopold Aschenbrenner as a live player says Sema Bercia. Absence of setbacks isn't a technical criteria for who is or isn't a live player.
Yeah, I mean it is funny like I really can't think of any examples I've seen of people like actually hating on Leo. Basically everyone's defending him.
I think the algorithm might just be tuned to like positivity. I got golden retriever algorithm or something.
This happens all the time where I will see the backlash to the backlash and I don't actually see the first backlash cuz I just see people dunking on like whatever's going on. It's so unacceptable. No, I'm sure it's there. And there's also like you can sort of feel it in the replies and the anons and the snarkier people a little bit. It's out there. This is an interesting scoop from Berber Jin over at the Wall Street Journal related to this. Situational awareness tried to sell a $3.5 billion stake in Anthropic to a group of investors led by Green Oaks and Sequoia. Obviously, there's a lot of demand for the stock. The parties reached a deal late Wednesday, but then situational awareness pulled out Thursday morning. They turned it down. They...
They went off for like 3.5 billion, something like that.
Something like that. And they turned it down just to grind for the public equity book. They sold that to Citadel. That obviously cleared a lot of the risk out and they said, 'Hey, let's keep this position. We're extremely excited about this. We're bullish.' And so I don't know. I think will this be the subject of a book? Will this be the subject of an actual movie? Is it drama enough? Have we gotten the FTX movie yet? Because that's way more dramatic and I don't think that ever happened.
And then there was Infinity M. Not Infinity Machine. There was a Going Infinite. Is that the one?
That was the Michael Lewis book.
Michael Lewis book. But that was written like before the blowup and so it was like sort of it didn't really tell the story like day by day. But like an in the room fly on the wall minute-by-minute account of this would be interesting but it's not that dramatic because it doesn't end with an explosion. It ends with like a...
Okay, we're back in the fight which is cool. I mean it's maybe more positive outcome. And so Augustine Lebron has taken a victory lap because he tweeted a SHA-256 hash December 29th of 2024 saying Leopold Aschenbrenner has terrible instincts and he will fail spectacularly. This is of course the Dark Cash on Dark Cash guest battle that's playing out. And so this is an interesting thing that you can post a cryptic a literal...
I've seen a bunch of people do this. Yeah, they post some prediction. Shouldn't you just post every possible prediction then and then just delete the ones that don't come true and then...
No, I think some people accuse other anons. You just post, you know, one trade and the opposite of it and then you delete it the next day.
Then you look back and wow.
This is another way to get started in the hedge fund game. You start two hedge funds, True North Capital, True South Capital. One goes extremely levered short the market. The other one goes extremely levered long the market.
Yeah. And then after a year, one has exploded, the other one has ripped, and then you wind down the one that didn't work, and you're like, I called it. I'm raising a bigger fund. I'm good.
I don't think that's what Augustine did. I think this is his real take. And maybe he is the example of someone who has been like not so secretly rooting against Leopold or just skeptical. Sure. And he continues to be skeptical because he's betting Schalto $1,000 that Leopold will not be bigger than Citadel. What if Citadel just pivots and just becomes something way smaller? Like it could just spin out, fracture, he could divest something, break up the company.
Like Schalto could win on a technicality here, right?
No, I'm riding with Schalto.
You're riding with Schalto? Okay. Well, let's go through a quick... we have like one minute until Richard joins. So let's just go through some timeline. We'll take you through some Mag Seven earnings later. But the interesting recap is that there's absolutely turmoil in the big tech markets based on earnings. Big tech's AI spending is continuing to produce blockbuster financial results even as investors have become increasingly selective about which companies they're willing to reward. Over the past two weeks, Microsoft, Apple, Amazon, Meta, Alphabet, all reported quarterly earnings that largely exceeded Wall Street expectations. It's very boring when you pull the did they beat on top line, did they beat on bottom line. It's like everyone beats and then the stock goes down 10% or up 10% based on capex forecasts and also just messaging around AI diffusion and AI uptake. So, Microsoft led the group with shares surging after reporting fiscal fourth quarter revenue of $90 billion, up 18% year-over-year and ahead of the 87.4 billion that analysts were expecting. That was the consensus estimate. EPS came in at 4.74 versus expectations of 4.21. So, they beat top line, beat bottom line. Azure revenue accelerated 43% year-over-year.
Yeah. And so they gained 450 billion in one day.
Biggest one day market cap gain for any US company.
That's really really impressive. It's up 25% over the month. Very impressive.
Apple also beat expectations reporting 109.4 billion in quarterly revenue, earnings per share of 2.02. Stock briefly pushed the company market cap above the $5 trillion mark but it has been absolutely tanking today down what 10% today or something like that let's see down 9.47%. We'll go through two more. Amazon has also impressed investors with revenue climbing 20% to 200.6 billion, AWS growing 37% to 42.4 billion, sending shares sharply higher in after hours trading. Here's Amazon. We can pull that up as well. The market is up 13.76% and the day is looking pretty good too, up 15% today. The market's reaction wasn't universally positive. Meta posted stronger than expected revenue of 60.8 billion, up 28% year-over-year, but earnings per share of $6.18 fell short of the $7.22 analysts had expected. Investors focused on the company's 31.1 billion in quarterly capex along with 3.6 billion in one-time legal and severance costs, sending the stock sharply lower. Let's see what Meta is doing. Down just a bit. Alphabet, meanwhile, reported revenue of 119.8 billion while earnings per share of 9.11 comfortably beating expectations while Google Cloud revenue surged 82% year-over-year to nearly 24.8 billion. Even so, investors remained focused on the escalating cost of AI infrastructure as hyperscalers continue pouring hundreds of billions of dollars into new compute capacity. And here's Google. So, we can dig into this more. There's a whole bunch of deeper questions about what is the actual efficacy of Meta spending on AI? How much are they spending on tokens? How much are they spending on headcount? All these things matter, but we will dig into it another time because we have Richard Craib from Numerai here with us in the TV pin. Richard, how are you doing?
Hey, doing great. How are you?
Thank you so much for taking the time. I'm so glad that you had a chance to hop on the show on such short notice. Very excited to talk to you. But could you kick us off with a little bit of background for anyone who's unfamiliar with your career, your business, and why it's relevant to talk to you today.
Yeah. So I am a hedge fund manager. I started my hedge fund Numerai in San Francisco in December 2015.
Before that I studied mathematics and I was very very interested in AI from a very early age. And in 2012 some of the key breakthroughs happened with self-driving cars and things like that. You could really see that this would be a really good thing to kind of bet on in the future. But Numerai, you know, we're a quant hedge fund. So we trade stocks using AI. We don't simply invest in AI companies.
Although pretty much every company is in some way entangled with AI. So, you know...
It has a lot to do with us. And in terms of like the fund structure, how similar or different is it to what we're talking about with situational awareness where there's like a few LPs, maybe some institutions invested, how broad is the LP base? How concentrated are the bets? How big is the investment committee? How are investment decisions made?
So yeah, I mean we're trying to make alpha which is a kind of a technical term like we can't take any market risk. We can't take any factor risk. We can't go off on anything we think is, you know, something's going to be big. Okay, we can't invest in that except for through our strategy which is a low volatility strategy. The fund has been growing a lot. Assets are up 100% a year for two years now.
Remember that's a lot of AUM growth and...
But you know the point of the company is to make this kind of thing called alpha which I feel like is a term that gets abused a lot. And we're trying to make sure that our investors can make a better portfolio by holding a piece of us.
Yes. So, help me understand alpha in the context of situational awareness because I've heard a lot of people throw around it's just levered beta. It's beta. But when I think about situational awareness and the ideas and the thesis that was contained in that PDF that was released almost two years ago, that felt contrarian. It felt like alpha in the sense that you can understand the future in a way that other people can't. Is that not alpha?
Yeah, it is. It is. It kind of isn't in a naive sense. It is. And obviously the situational awareness blog post that came out was sort of super visionary and fun. I mean I read the whole thing. We had a mutual friend. I think we were at Joey's wedding together.
In Vienna and Joey I said, 'Oh, Joey, can you please introduce me to Leopold? This is so cool.' So, you know, there's a place for that type of fund where you're going to take a big bet with a lot of risk. And those types of funds can obviously produce extraordinary returns, but the trouble is the driver of the return is the risk.
So the alpha is there, but the driver of the return is the risk.
And so when people retreat to a more classic example of alpha, what are we talking about? What is the purest source of alpha?
Yeah. So, I mean here's the naive way to have alpha, right? If you beat the market, you have alpha. People say so natural. Why what's so hard about that? If my portfolio is up 20% but the market's up 9%, I have alpha.
But that's actually still kind of...
Missing the point in actually a very deep way.
And so the problem is there's not just one factor. You don't have to look at do you beat the market.
You have to look at do you beat all the factors that there are in the market. So there's a factor called momentum. There's a factor called technology. There's a factor called US technology. There's a factor called momentum times beta.
Okay. All of these things, as a term of art in quantitative finance, you call them risk premia. They might be risks and they might have a premium, but they're actually not the types of things you would call alpha.
And so a fund like Numerai, we're trying to hedge so many things, thousands of different risks, so that if someone ever looks at our portfolio and wants to say do you have an alpha or are you making money just from risk, they can't argue that. It's very hard to say that. So that's the goal, and that's the goal of all hedge funds, a Citadel or a Millennium, they're trying to make this kind of alpha.
How much should I, if I'm trying to understand, if I'm looking at a fund's returns over a number of years, how much should I be able to identify alpha purely by uncorrelated results with the broader market? Like if the market goes down 10% and the fund goes up 20%, then the market goes up and the fund goes down, is that giving me like a sense of alpha that at least this fund is searching for that, or is that just uncorrelated returns and they're just throwing darts in the dark?
So if you're uncorrelated from all the factors, you have alpha.
But I think there's a sort of sleight of hand that discretionary investors, hedge fund managers tend to pull, which is they say, well, look, we believe in the US, we believe in AI, we want to take that factor risk because that's part of our return. And to which a sophisticated investor would say we can take that risk ourselves without paying fees.
There is nothing stopping any LP of Situational Awareness from buying Anthropic shares themselves, right? There's nothing stopping them from going long MicroStrategy or something. It's really like almost childish to think that a sophisticated investor wouldn't be able to pull those trades themselves.
And so to take a personal example, here's a fun thing. So I bought, it's a good day to say this, I bought some Amazon options. I bought some call options on Amazon. I'm a hedge fund manager. You know, I don't really trade very much, but I just think it's a cool company and it's going to benefit from AI, and one of my friends said it would be a good thing to buy. That's it. Now, my call options are up whatever 300% today.
Whatever it is, does that mean I'm on a generational run? Does that mean I'm a genius investor? No. It just means a gamble I took paid off, and it paid off actually probably appropriately for the risk I took. So in the hedge fund industry, you know that the banality of that is extreme. No one at Numerai is talking about how I bought Amazon options and made money. This is like so boring.
But so even the timeline, like the length that Leopold was, you know, it was like a year and a half, he was on this like generational one as people say. Is there no difference between that and just... when does a generational run start? How do you define... is it 11 months and 30 days?
I think it takes a generation actually. I think that's how you measure the investment performance of someone over a very long time.
So that's why it's kind of a funny term.
Okay. So wait, but what do you think about the idea that certain managers, it might be possible in theory to like copy them, but they are getting paid to do something that you might emotionally not have the resilience to do. I'm thinking of this Jeremy Grantham post. He says people really miss that buy and hold means the ability to buy and hold, not that you should buy and hold. And he quotes this screenshot from the Financial Times. It says since 2010, Warren Buffett sold his entire holdings in 63 positions with an average hold time of four years and three months. Two other managers exited 48 stocks holding for just two years and 10 months. And so even though we all know buy and hold, buy low sell high, psychologically it's hard to do. So that's maybe what some hedge fund managers are getting compensated for. Sure, I might have read Situational Awareness, agreed with Leopold, but do I have what it takes to actually go and buy on margin and do all this crazy stuff and not paper hands?
I love that discussion. I think there's a sort of feeling that he was the one with the courage to take all this risk or something. But even that falls flat on a hedge fund manager, I'm afraid.
Because it's like, you know, it's like someone goes all in with pocket sevens and he doubles his money. Have you learned anything about his courage or his skill? Really, it's a bit like, it's a bit foolish really.
So it's basically like, I also used to actually think this. I was a young hedge fund manager. I feel like I'm maybe aging out now, but I was a 28-year-old hedge fund manager and I did also have this perception that surely these big hedge funds are just so risk averse that it's almost like for psychological reasons they refuse to take enough risk.
And I've come to learn that they're taking nearly the exact amount of risk that you should take because these things are mathematical. There's a right amount of risk to take if you have a certain Sharpe ratio. And those numbers are smaller than you think if you want to run money for a very long time.
Right. So you know Leopold was up 400% in H1 of 2026. Well, Warren Buffett was up 5 million percent by basically being sensible for a very long time.
So do you want to do the 400 and then lose everything, or do you want to do the 5 million but it takes 30 years? So I think that's kind of like the orientation you have to think about.
So it's not that some people are unwilling to take risk. It's that they are already taking that risk. It's just a small part of their portfolio. So there's no doubt that in the markets, Numerai's AI models that are trading thousands of stocks at all times, that we intersected with Situational Awareness and we bought some of their positions and sold some of their positions.
And maybe had similar alpha if you constrain our portfolio to just look at that segment of the market. But we didn't do it at the wrong size, you could say.
You actually ran the numbers on, or you had Claude run the numbers on how likely a catastrophic drawdown would be based on a certain leverage ratio. What does that math say is the optimal amount of leverage, the optimal amount of risk? Is it all based on the timeline? If you think, okay, well, I want to be the next Warren Buffett. He's been investing for 60 years. I need to work backwards from that number. And then is that different than if I say, look, I actually believe the singularity is going to happen in 2030. And so I only need to survive another four years and then I'm done because it's whatever the singularity is.
Yeah. Well, that's in some ways almost the problem. You really have to have a long horizon for investing. You know, the market is not pricing that the world ends in 2030.
In fact, the market's pricing... I mean, just not like amp on every level. If the world was going to end, you know, the volatility of the stock market would be as high as Situational Awareness's fund.
So it's like, you know, we basically have to have this orientation of long-term, and if you don't have that orientation, kind of all bets are off. I mean, if you're gambling and you're playing poker and it's late at night and you only have 30 minutes left to play before you have to catch a flight... okay, let's up the risk.
Yeah, I mean there is an element, I'm not saying that this is what's happening there, but there is an element where you're like if I believe that the world is ending in four years, I want to spend the next four years on a yacht and so I need to get as much liquidity as possible in the short term. Sort of like, you know, you have what was that meme? You have like six months to escape the permanent underclass. Sort of like the hedge fund version of that, I suppose.
But you clearly don't believe in that. What are your beliefs about the future technology, the financial markets broadly, like how are you feeling? Is that even something that you interrogate, or are you preoccupied with other sources of alpha that are less like macro and long-term like trend-based?
Well, any long orientation. So if you're long the stock market, the problem is all of our investors are already long the stock market. You don't have to tell them, you know, it's a good idea to buy stocks.
And so, you know, if I was running a fund and maybe this personal trade of buying Amazon, if I had sold that to an investor, they'd be like, well, bro, we already had Amazon and we already sized the risk appropriately, so all you did was add risk and not any reward. Really, it's that kind of tension that forces all these issues.
But you know, I also want to say, I mean, I think one of the first things I said in my post is I think there's a place for these kinds of funds. So I've invested in funds like this. So there was a fund, it was basically the crypto version of this was a fund called Polychain and I was a big LP in that. In fact, the first LP and I think the biggest one for a while.
But I guess I never got that enthusiastic that if someone had made a thousand percent over the past two years or whatever it was that this would be some permanent property of that manager. Do you see what I mean? Like if there's no amount of looking back on a track record of a manager that's just buying risk will basically be able to overcome the realities of investing, which is that it's always going to be hard to make money.
So let me defend the situation more. Not just that these funds are cool because I invested in one, but I think they're cool because many investors want a high return on the risk that they're taking.
Because they already have their portfolio entangled in all these investments. So they have, you know, bonds and stocks and all this stuff. And this marginal 500 million that they're going to give to a small fund, they want that fund to kind of kick ass with that money.
And so that's where I would say I don't think it's right to say Leopold did something wrong. In a certain sense it was very likely to go badly, but I don't think it's intellectually wrong for any LP to have invested in that. In fact, maybe I would have invested in it or something if I could have understood it a bit more and so on.
But obviously there were a lot of red flags and the fact that the volatility was obviously much higher than 100%. You can't make 400% in six months without having that kind of volatility. Then you're basically saying we're literally doing a coin flip here. And I just hope that all the investors knew that.
And by the way, if you're a huge investor, you put 500 million in and you lost it all on the very day you lost it all, you might still be up on your portfolio because your other stuff went up. And so that's how investors should be managed. It's on their whole portfolio.
So I don't want to say anything bad about anyone who invested in that fund. I'm sure they're some of the best wealthiest investors out there. So I'm sure they're fine. And I mean, from the letter that he sent today or yesterday, it seems like the Citadel deal put a lot of new cash on the balance sheet, cleared a lot of things out, and that there might not be permanent capital impairment, as he put it in the letter. So there he is living to fight another day.
What do you make of this idea that the optimal number of blowups for a hedge fund manager is one? Not zero, not five. But do you agree?
We had one losing year so far with Numerai, right? So we are not... you know, if you're in the business of being an investment manager you're almost putting yourself on the hook to be like yeah one time we lost money. In fact about 50% of days we'll lose money, right? So you really don't want to be negative about that.
So I think that's one very important piece. I would say the key thing that I think matters is not just leverage, which I think people are saying, oh, you use leverage, you lost money.
We use leverage. I'll bet you we use way more leverage than Situational Awareness.
We're not levered long. We're not levered factors. So we leverage... if you were to plot our performance on a graph, you would see and you would say show me the unlevered performance. It would basically look like the x-axis, you wouldn't even notice it.
It's so much kind of risk constrained that it requires leverage to get to appropriate vol.
So with more leverage than Situational Awareness, we have one-tenth of the volatility, and risk is volatility squared. So if they have 150 squared units of risk and we have 10% squared, it is a whole different ballgame. So I was mostly critical about the high volatility. I think that was the mistake, not the leverage.
Interesting. Where do you think the fund goes from here? It feels like he's set up for a second act. The fund is not liquidated, not private only, not converted. How do you think this evolves? Like what is the lesson to learn?
I think first of all I don't think that we should have a culture of thinking people are intelligent anymore because AI is smarter than all of us.
So if one of the reasons is you think there's like a super genius investor out there that's clearly got something like the same type of reason you might have invested in SBF, he's clearly doing so well, don't do that. Don't do that hero worship thing. Just take out your pocket calculator and calculate the risk of ruin.
And then you'll probably avoid a lot of these types of mistakes.
But I think, you know, I really believe in AI. And I'm a singularitarian. I mean, I'm seriously a believer. I'm not moderate about it.
But because of that, guess what? AI is in the stock market. You know, AI is in Citadel. AI is in Numerai.
So if someone comes up and says, oh, my thesis is we're going to buy AI stocks because AI is going to be big. Okay. The stocks are in the market. The market is an artificial intelligence.
So don't take it lightly, man.
What is the process psychologically for dealing with a career where 50% of your days are going to be bad days? There's a lot of people in most careers, I feel like, can show up and have a day that's successful. Like, they moved the needle forward. They didn't make backward progress. And yet with the job of a fund manager in your role, half the time you're going to wrap up your day and you're going to be worse off than the day before, right?
I think... well, you see my Terminator hand in the back, right?
I think you need to lean on math and AI. You need to basically say, you know, if you know what volatility means and you know what your volatility is, can there be anything to shake you if you can just rest on that mathematics?
So when our fund had a down year, we lost a bit more over the whole year, a bit more than one standard deviation of volatility.
But guess what? That happens to practically any investment. You're guaranteed to lose one standard deviation, one unit. You're guaranteed to lose your volatility. So the question is, were we running 100% volatility when that happened? No, we were running a survivable amount.
So we didn't lose everything. But yeah, so I think there's really a lot of comfort to be had in math and AI and just kind of trusting that things will work out.
You know, all you need to do to be Warren Buffett is just get 9% alpha per year, right, and add that to the S&P. So if you have a hedge fund that's making 9% alpha per year and they can repeat that, they're going to make 5 million percent return, and all the people taking too much risk are going to lose it all over and over again.
And so that's how you have to think about it.
Last question and we'll let you go. Retail froth. There's an interesting arc here and I want to know if you think it's real or the shape of it, but it feels like when the Situational Awareness PDF drops, no one's thinking about bottleneck stocks or memory, the smart money gets in.
I would say everyone in Silicon Valley was already thinking about that.
Yeah, but that's like maybe the smart money and then it gets bigger and bigger and then pretty soon it's like retail meme stock and it feels like one of the knock-on effects of that is just more volatility, like the last little leg up can be more tumultuous. Is that the way to think about that? Is it important to think about like the meme stockification of a particular asset class as a factor and then how to deal with it?
Yeah. Our fund was operating with high leverage during 2021's meme stock rally.
And it is a phenomenon, and Cliff Asness of AQR talks about how the internet is sort of making the market less efficient because there's so many people who almost get the same message at the same time with the same media and then have the same trading account systems like on Robinhood or whatever that can instantly express that.
But I don't think that's something to lose sleep over. It's very easy to handle that type of thing. What happened to Leopold wasn't something extraordinary. It was banal. You had high volatility and you had a standard deviation drawdown.
It's going to make for a bad movie then.
Well, it'll be a great movie, I'm sure. The movie won't have any math in it, though, but it probably...
It should. It should. Well, thank you so much for taking the time to come chat with us. Have a great rest of your week, great weekend, and hope to talk to you soon. Thanks so much.
We'll talk to you soon. Goodbye.
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We have Trae Stephens, the co-founder of Anduril, general partner at Founders Fund. Trae, how you doing?
Welcome back to the show. I don't know if you've met Tyler before. Jordi's out today. Jordi's out sick. So we have a guest co-host, but great to see you. How you doing?
