Let's bring in Martin Scrowley to break

it down for us.

>> I believe he's here. How you doing,

Martin? Good to see you again.

>> Hey guys, I'm doing great. How are you?

>> Oh, perfect.

>> Perfect.

>> Uh, how's your last

>> take us through it?

>> 24 hours.

>> What's the last 24 hours been like for

you?

>> It's It's been interesting. I do invest

myself, so uh it's been a it's been a

probably one of the craziest months uh

in Wall Street history. Um, I was

talking to some friends last night about

long-term capital management, uh,

Amaranth, uh, other famous liquidity

driven blowups.

>> Mhm.

>> And, uh, this is up there. Uh, and, um,

yeah, it's just a really crazy thing. We

had heard rumors, um, sort of mid last

week and then they really started

crystallizing,

um, last night, um, and this morning.

Obviously, sort of a fatal comple. I

actually think they did a wonderful job

of of keeping it relatively quiet. I

think some players were already

positioning say early in the week Monday

Tuesday looking to do what my old boss

Kramer used to call uh you know shooting

against a fund. So if you know know

somebody has to liquidate the best thing

for you to do unfortunately sadly

Darwinian is to go sell all the

positions you have in common and go

start shorting everything they have.

Yeah. um and it accelerates the the sort

of downfall as quickly as you can and

this is a very common practice when

these things you know happened. Um

certainly not something I I had overlap

positions with them so certainly not

something I would do but know a wide

number of funds that were shorting all

these stocks hoping to cause a panic and

a crash.

>> How do you trace back the start of this

correction? Is it the war? Is it oil? Is

it jitters around open source or just

hyperscaler capbacks? There's so many

different narratives around why the AI

infrastructure trade, the bottleneck

trade might be weakening. At the same

time, it feels like there's some really

solid progress and the models are

progressing along like pretty like as

expected.

>> Yeah. Yeah. You have the labs having

some of the best months in business

history of any companies ever. Yeah. But

then all the infrastructure correcting.

>> Yeah. None of that stuff matters. You

know, [laughter] the only thing that

matters is is the propensity of the

buyer and seller to buy or sell. And

what you had happen was the smart guys

get in early, start buying,

>> see the prices go up, buy some more.

>> And then less smart guys take take note

and say, I want to do that. I want to be

up 400% this year, too.

>> Guys like me started buying right near

the top. [laughter]

was just like, "Hey, this is great. I

love memory. I love bottlenecks."

[laughter]

>> And

uh and then but by the weakest hands are

buying at the top. So they're also the

first to sell.

>> Sure.

>> The first to panic.

>> Yeah.

>> And it just creates this like, you know,

every bubble's sort of the same. You

have this euphoria, this peak, and then,

>> you know, everyone sort of panics at

once. And [clears throat]

>> you know, the fundamentals basically

don't make a difference. you know, I

think they,

>> you know, they sort of drive the

marginal buyer and seller, but

>> you know, the 80 or 90% of the assets

shareholders don't change hands. It's

that 5% of the margin that's deciding

the price. And if that 5% is in the

state where they're they're levered up

3x or 4x as we heard uh SALP is uh was a

4x levered fund, which is that's a lot

of leverage. You know, a 25% draw down

takes you out of business.

>> Yeah. Um, interestingly, we heard that

three firms were bidding on the assets.

So, uh, Jane Street, Millennium, and

Citadel were sort of brought in in a

closed closed circle sort of late Friday

to to bid on

>> the remains of of the the firm and uh,

we got offered uh, a look at $und00

million of entropic stock, which we were

puzzled

>> puzzled by. you know some sometimes you

see these SPVS sort of interest comes

across uh

>> you know here and there and we thought

that was interesting. Um I sort of

raised my eyebrow and it's like is that

Liupold? It's because you know sometimes

when you want to sell four billion

dollars of something you don't come out

and say you want to sell four billion.

[laughter]

>> You come out and you say I want you want

to sell $100 million of it. And usually

a guy who wants to buy a hundred is

enough to buy 500 or more.

>> And you sort of fill them out and say

here's 100. Okay. Do you want five by

any chance? And then you know your

eyebrow starts to raise a little bit

that you know maybe he's got even more.

Um now of course this is a really odd

situation. So, I I we we heard

Millennium did put in a bid. Uh

Citadel's bid was better. You know, I

think Ken wants to be the guy

>> that everyone goes to when they're in

trouble. And that's the, [clears throat]

you know, Buffett is getting older.

>> This is not the kind of stuff Buffett

wants to do anyway.

>> U but you know, Citadel did this in the

Amar deal. You know, when Ameth blew up

uh natural gas futures, I think Citadel

took that portfolio and virtually every

blow up in finance,

>> they come to the rest. Enron where they

just raided all the talent.

>> Yeah, they wanted to do an Enron as

well. I I think Yeah, they just sort of

Ken is a very smart guy. sort of shows

up and says, you know, how can I, you

know, how can I, uh, you know, be a

partner to the Goldman's and the Bank of

Americas when they need to get out, you

know, uh, of a really risky position?

They basically take over the book,

right? So, if you, I'll give you sort of

an example, you're asking the question.

So, let's say, you know, you're at 45

billion, you know, sort of try to trace

this back and you're you're uh, you

know, 10 billion of that is in anthropic

from what we understood. Uh so you have

$30 billion of of cash in your bank

account. Uh and running 4x lever means

you have 120 billion gross market value.

>> Oh.

>> Um so if your GMV drops, I don't know,

25%. That doesn't sound so bad at 120

billion. Uh maybe that's, you know, I

don't know, uh 30 billion. So you're

down to 90 billion. But that's not your

equity. So your equity drops from 35

billion to 5 billion. Yeah. And no no

prime broker is going to let you keep 90

billion of gross market value because

once you dip your equity below zero.

It's their loss, not yours.

>> And they're not going to lose a penny

after archaos and after these other kind

of blowups, that's not their job. And

they kind of have the right to take over

your portfolio,

>> which is is sort of uh,

>> you know, something I hope nobody ever

has to experience. But they basically

call you in and say, "Listen, you know,

these are our our assets now, and you

know, we're we're going to decide what

their what their disposition is going to

be." And the rumor is over the weekend

he contacted about 10 parties to place

Anthropic in an effort to shore up

liquidity, selling the Anthropic stake

for for allegedly that the offer was at

1.1 trillion

>> uh equivalent market cap. Um, which you

know is I think roughly where it's

trading. Uh and um you know it's unclear

whether that was sold or half of it was

sold is what we reported

>> um that that half of it was sold. It's

still a little unclear who bought that

>> what's happening exactly but that's

that's the best we've got. And then, you

know, when it came to um the public, you

know, book, it does sound like um you

know, the the buyer of that book

basically got a from what we were told a

three to four billion dollar insta

markup.

>> So, you they basically now have to work

them they have to work out of of three

to four billion.

>> Yeah.

>> Uh uh more than three to four billion.

Quite a lot more. Uh but in essence if

they work out of these positions without

disrupting the market they'll have

printed 3 to four billion on the trade

>> which you know is unusual and

interesting trade but you know really

exciting. One of the parties reached out

to me last night, one of these three

parties. Interestingly, after my

reporting, and they said that

in essence, at some substance, yes,

Leopold flo flew a little too close to

the sun and your numbers are um are a

little off. And I asked what direction,

and they wouldn't they wouldn't confirm

or deny. I I received a lot of push back

on the reporting to your point uh

privately and publicly that that it's

not so bad and that, you know, he's only

down 30%. 30% you can kind of live with.

Uh but also if anthropic hasn't changed

its mark, that means you were down 60 in

the public book.

>> And if your forex levered, you know,

that means you're sort of down 15 on the

public book.

>> Um which sounds too good to be true. If

you're trading these stocks, they were

down like 15% a day.

>> Yeah.

>> So we've also heard the other other AI

funds are are hurting. Maybe not as as

much as in trouble, but but certainly

hurting as well. Where does the fund go?

>> He gives some good he gives some good

cover to all the funds that were

effectively copy trading him. Oh, sure.

Maybe even being more riskone and later

to these positions because they were

they're naturally just late if you're

trying to copy trade someone and you're

>> trying to catch up, you know.

>> Yeah. You're trying to catch up. Yeah.

Yeah. More leverage. You're you're

you're coming into these trades way

later. Um, do you do you recall uh like

how did you process Ryan Jacob in in

around the year 2000? Because you were

at Kramer's firm. I believe

you joined maybe right before the Ryan

Internet Fund started collapsing.

>> Yeah, there's also the Amarind Fund.

There was a fund in the 60s called the

Manhattan Fund

>> that Warren Buffett criticized

>> for being the go-go kind of like uh fund

was run by a guy named Gerald Sai. And

so like every generation you you've seen

the memes about Kathy, you know, um

every generation has it, you know, the

guy that believes in that cycle and it

goes balls to the walls on on [snorts]

that cycle. And look, I have a lot of

respect for for somebody who's who's

willing to do that. I I I used to tell a

friend who who kind of did the same

thing. He followed this trade but he was

very early so he had sort of Leopold

like numbers

um and he sort of did hedge at at at

what sounds like close to the top. So

sort of a miracle um trader best trader

I know and I joked with him I said you

know if Leopold sells at the top and

turns short like I I will absolutely

agillate him as the greatest of all

time. [laughter]

And it's just that, you know, usually

when you're so spellbound by that

narrative of whatever happening, in this

case, AGI,

>> you know, there are people out there

that say, "Look, AGI is here

slashcoming. When it comes, the entirety

of finance is not relevant anymore."

>> Yeah.

>> You know, we might as well just run it

up and and kind of see the end of days

this way. And of course, to some guy

sitting on a trading desk at Goldman

Sachs, you're like, "These people are

[ __ ] nuts." [laughter] You know, it's

just the stock market deal, you know.

Uh,

>> did you given given that Leopold had had

been at FTX right up until the the the

the fall, did you think that maybe as as

risk on as he was, like maybe he was

like, you know what, I just I can't go

through that again? uh he wasn't

necessarily ti he wasn't necessarily

directly tied to any of the sort of

nefarious activity at FTX, but he did

have to viscerally experience it and and

I believe resign the day of the

collapse. And

>> yeah,

>> uh I would I just would have expected to

not like Yeah. to run it back like

>> so quickly. you would you would expect

even like you know go and do have a

normal you know great career for a

decade or whatever then maybe come back

to leverage and be like I'm ready to

dance again but

>> there's a lot of questions like one

question is what's his carry you know

when a lot of firms in the hedge fund

industry believe it or not they have

clawback provisions for carry

>> like high high water mark provisions

right so you have to clear something

>> everyone has a high water mark but

what's increasingly happened is it is is

a is a carry provision where you have to

return the two and 20 you earned if you

have a severe draw down which you know

could actually end up being a tough

situation. Now as you guys know the

fellow is getting getting married this

weekend as well

>> which is you know a little bit of

tragedy with a a little bit of triumph

mixed in. Um but um obviously you know

uh when this

>> but does every how common are those

clawback clauses because you have to

imagine in this fundraiser he had like

massive massive leverage you know

>> like demand was very high

>> demand was very high that feels like a

term

>> the numbers were so good yeah

>> it's a more institutional thing and I

and you know speaking of which you know

obviously the guy basically had no no

experience um and again you know in

times like this nobody wants to to grave

dance and I'm doing that. But I had some

institutional friends, one of the

biggest fund of funds in New York for

example, who passed on Leopold,

basically laughed at him and said, you

know, there's no way I could invest in

this. And of course, you know, he goes

on this tear, you know, makes like 20x

or whatever it was since inception

>> and does fantastic and he feels sort of

sheepish, but ultimately, you know,

somewhat vindicated after all of this.

So you did have a manager that had no

experience

um kind of a long only or extremely long

biased starts to do privates which for

many hedge funds is kind of the death

nail. Um you you know you know when when

hedge funds put on their VC cap and try

to try try to do uh what those guys do

it it often doesn't end well. And um

that that goes back like you know 50

years basically of hedge fund history.

And um very few people have been able to

do both. And the other thing I'd point

out is we're going to see July numbers

very soon here from from quite a lot of

hedge funds that I think were in the

same trade. Sure.

>> And so this this is not just Leopold's

100 billion gross. It's like that times

maybe five or 10. And the mark while the

market's liquid, that's a lot of

downward pressure in a few weeks. And

you know, it's amazing to see this all

compressed in a month whereas like the

dot bubble took three or four years to

like patiently go up and patiently go

down. Um you know, seeing that compress

instantly is interesting. What's going

to happen next is really going to be

fascinating. There's some theory out

there that, you know, that we see

all-time highs again now that all this

liquidity is out. And there's other

theories there that we actually were

just having this nice big downtrend and

that this liquidity pop will fade and

we'll be back down further and further.

Um, you know, nobody knows what'll

happen, but it's certainly uh while

you're right that, you know, the

anthropics and open ais are having

record business results. So is Microsoft

and Google and Meta for that matter.

>> There's still I think some more

discerning questions about is are is

this capex investment worth it.

>> Sure.

>> Um you know they rewarded Meta Microsoft

for being prudent. They they've punished

Meta and Google for not being prudent.

So one wonders what what the future will

bring there. But

>> yeah about as crazy as things have

gotten on Wall Street in in many years.

uh probably at least since FTX

>> and certainly crazier than the the the

sort of Tiger Soft Bank venture boom of

21

>> and then you know really since then uh

the '08 uh insanity so it's it's um it's

quite a uh spectacle and I think you

know no matter how much people want to

learn the lesson of leverage over and

over and over again we all seem to

repeat it and uh you know it is what it

is but I think the the Jane the Jane

Citadel Millennium kind of like entire

hedge fund complex sort of becoming this

like shadow bank is quite interesting

you know in that like these guys are are

sort of there to normally the banks

would sort of take this on the chin but

now that there's other folks who are

like

>> you know Jane was an LP for example in

fund and reportedly was not interested

in bidding

>> uh which is fascinating may have taken

the anthropic however um really unclear

we're going to learn more obviously as

some days go on here but

>> it's uh it's an unprecedented time and

you know really insane story that uh may

just get more insane as we learn more.

>> Is there a world where the fund

continues? Because I'm just hearing the

numbers and it's like, you know, up at

45 billion. The actual money into the

fund was maybe five billion or something

if you sell the positions. There's a

world where you wind up with like 10

billion in a bank account and the LPS

are like, "Well, we gave you five. Keep

going. Get back in the game." You know,

>> I hope I hope that's the case for the

LPS who are awesome, for the fund

manager who obviously got quite a lot of

whiplash,

>> but you know, at the end of the day, you

know, there's there's this concept on

the street as as you guys know, like

once there's blood in the water, like

these positions would go to zero. Like

we'll send Micron to $5, you know, just

to eliminate this guy at three, right?

Like that's, you know, the craziest

thing is like that's that's the nature

of of Wall Street when this happens. and

there's a guy that has to sell a hundred

billion, you'll have a trillion dollars

in front of him just like, you know,

let's let's see this guy cry uncle. And

it's the saddest kind of most

machavelian thing, but like he had he

sort of had to blow up, you know, there

was no other ending sadly. Yeah.

>> Um because of the leverage level. It's

just like one slight, you know, I

remember my old my old boss was a Tiger

uh Tiger portfolio manager reminded me

of the 2000 era where there's this very

slight change in tone from one uh

optical component supplier and that's

like him and his partner from Soros just

decided to go like as as short as they

could [laughter]

this because they knew ultimately these

vulnerable hands were sort of sitting

there after the easy part of the bubble

was over. You had this like okay what's

what's next? things have to get a lot

crazier. You saw Darkeesh's tweet.

Things like that would have to sort of

happen for there to be enough second

derivative for somebody to be surprised.

You know, everyone knows AI is in this

boom. Everyone knows chips are in this

boom. What could possibly shock you to

the upside? Not much. So, if you hear

any little like, h, you know, we're not

going to spend as much, the whole [ __ ]

hits the fan and every it's just too

heavy. So, I I I actually wonder if

we're we're, you know, if we're not in

for a longer, more protracted decline.

Things feel great today.

>> You know, you have this huge boom, uh,

this relief rally. Um, and a lot of the

froth is out of the system, but

>> you know what next? You know, I I I

don't know that, you know, a patient and

calm market is going to emerge because

you had the hyperscalers and the big

companies, they fomoed, too. They fomoed

just as hard as Leopold did, right? If

not harder. So, this isn't just him.

It's the whole world collectively

saying, "Fuck, I got to I got to go all

in on AI." And it's it's and who who had

the guts, you know, other than one man

Tim Cook in the back saying, "Not me.

>> Do nothing."

>> Yeah.

>> Yeah. [laughter]

>> No, really. It was Tim Cook.

>> Yeah.

>> Yeah. The the funny thing, you know, we

we had been joking uh we were joking in

like Q4 when you know there prior to

like coding agents really starting to

rip, you know, OpenAI revenue growth had

like slowed a little bit and like there

was some jitters and and a lot of this

stuff wasn't, you know, public at the

time, but you you could tell some of the

kind of crossover types were like

getting a little nervous, right? They

kind of expected

>> MAU DAOU numbers, you know? Yeah. And

>> really plateaued

>> and and and

then we and then there was a correction

like there was like briefly you know for

a period it was probably like eight

weeks it was like okay like uh and then

it started ripping again and we were

taking like a sort of a um

>> a bit of a a joking like victory lap

being like cool like AI corrected you

know bubble pop we're able to build back

sustainably

we're good from here on out.

>> It's smooth sailing. Yeah, I I

completely agree.

>> I think the most unexpected thing is

would be if we saw brand new all-time

highs

>> for the entire thing. I think almost

everyone on Wall Street is skeptical

this will happen, which means it has a

chance of bullish.

>> So, you're saying there's a chance. I

love it. Can you uh can you give me a

little bit more uh insider baseball on

uh what it takes to unwind a big

position uh as a shareholder? Because uh

a lot of people who are not inside the

hedge fund world uh are sort of uh maybe

confused around, okay, yeah, you own uh

$50 million of a $1 billion uh chip

stock. Can't you just dump that on

retail? Can't you just like sell market

sell that on Erade or Robin Hood? And in

fact, it's much more complicated when

you're at this level even though it's

public markets. There's not just a big

button. Can you walk us through what it

actually takes to like

>> sell a big position when you're at that

level?

>> Yeah, there's there's a lot that goes

into it interestingly. So, the first is

you have this advertisement system. So

if you sell into the into the market,

you can try that and those that's called

selling into the screens. The screens

are the numbers on your screen. Anybody

can buy and sell Robin Hood, whatever.

>> So you don't normally do that if you if

you can help it. Uh selling on the

screens is at least somewhat quiet. You

can just sort of trickle out. There's

always this conspiracy that as I'm

selling on the screens, there's some guy

who's can see my screen and he's like,

"This guy's got a BW market order to

sell 10 million shares. That's not, you

know, I'm going to tell somebody." And

that knowledge would be very very

powerful. And there's even some even

crazier conspiracies uh out there that

quants could actually use different all

kinds of insane you know ideas around

what they can do to sort of sniff out

that this is happening. So there's

people that are scared of that. Then you

can pick up the phone and this is the

way you normally do it and you you call

Goldman and you say, "Listen, I need to

sell five, you know, five million shares

of of Microsoft or something like that

and they say, hm, you know, should we

take it or do we find a guy that wants

to take it?" And they'll sort of try to

decide. Now Microsoft is easy. If you're

trying to sell Sharon AI, a neocloud in

Australia that nobody wants, that's a

tough one. And you own like 10 days of

volume. So, if you try to hit the

screens, you have 10 days of volume. You

you'd have to be the entire volume for

10 days before you'd be out. You'd

probably take the stock down 50% or

more, and you don't want to do that.

>> So, you try to, you know, do this

advertisement process. Um, you know, and

you basically can post in the stock

market that you're a a seller of a stock

and you can post that your your

fourdigit what's called market maker ID

and and so Goldman's is GSCO. So GSCO

would be a seller of say, you know,

Nebius, which was one of his positions.

And so you'd call up, you'd say, "Okay,

Goldman, I'm a client too of Goldman.

Uh, you know, what do you got on

Nebius?" And and the guy would say,

"Listen, we got a pretty big seller

here." You know, and say, "How big? You

know, half a million shares." And you

say, "A lot bigger." You know, and so

you'd say, "Hm, okay." Because they have

to advertise that, you know, they're

working your order. So they have to sort

of tell people that there's a seller. uh

they're they kind of are trying to be

koi about how big, but they're not going

to waste somebody's time either. So, the

guy who's heard that there's a big

seller. Well, he might turn around. He's

not supposed to do this. He sort of

might turn around and say, you know,

there's a huge seller of Nebius out

there and I'm just a little baby fish.

Maybe I could short 50,000 shares and

get in front of this guy. If you're an

actual interested buyer, you might also

still be nervous because you'd say,

"Well, if he's really got a ton of size,

I might have to be judicious about about

how I step in." And so, if you combine

that with the sort of like pressure in

the market and you add it all up and

then usually what you do is you'd have

say, "Oh, I know a guy that works there

and let's see if he's returning calls."

And you know, when you hit up the guy

and he's not on Bloomberg, he's hard to

reach. It's kind of like, well, it

sounds like it could be them selling.

Uh, so it's not too many people that own

that many shares of that security. So,

you look at the holders list and you're

sort of like, who could it be selling 10

million shares? So, you call Fidelity

and they say, no, we're not selling.

>> You call the next guy, no, we're not

selling. Next guy's an ETF. Next guy's a

index fund.

>> You know, it's got to be him. You know,

and so if it's them and they're there's

they're and then you start noticing all

of their positions are down, it gets

really hard. So ultimately the bank

decides because you might say, you know,

I don't want to sell. The bank says, I

don't care what you want. [laughter]

We're we're selling regardless. And

Goldman Sachs is not in the business of

holding AI stocks. You know, we're going

to sell at any price we can because our

board would rather know for sure that

we're down a billion and just take the

rip the band-aid off than to wonder if

we could lose 50. And so it's Goldman's

position that we're just going to just

cut cut this cut the arm off right now

before it metastasizes. And so they'll

do a fire sale. And of course Goldman's

smart. They're going to reach out to a

guy like Citadel or somebody else to

place it carefully. But selling the

whole portfolio in one shot was a very

smart move. Now again we've heard the

discount could have been as as big as

you know 20 to 50% which is you know

mouthwatering discount to buy you know

some quality companies at. Yeah. But to

end it and have finality what was really

to answer the question finally what you

really needed to do is the buyer of

these stocks has to have the liquidity

to hold them for 5 years and do nothing

because the market guys like me and to a

very small extent and guys to much

bigger will sit there and say I don't

think you can hold this and they'll

start shorting it and shorting it and

shorting and trying to make you cry

uncle Kosha in Japan one of Leopold's

holdings also one of mine is trading at

three times earnings you know they

basically forced you you're forcing ing

the guy to to really, you know, uh, to

sell. And if you're going to hold this

stock, you have to make sure that you

can hold it until it's two times

earnings or one times earnings. And the

only player big enough or more powerful

enough to to sort of hold a hundred

billion dollars and not blink is

somebody like a citadel. And even still,

some people there rumors out there,

they're the people who are going to try

to crash your citadel, which I wouldn't

advise, uh, you know, but something like

that where, you know, maybe they'll now

have to suffer the same contagion. So,

it's a very crazy time in the markets

and and I don't think we've seen

everything yet because I do think there

are some large tech funds that have had

the same trade on. I do think

liquidation is over thankfully, but I do

think that there are some funds that are

about to [clears throat] be found out to

be down 30% or down 40% or something.

>> Take me through the mind of Ken Griffin

like a couple weeks ago. There's this

rumor that he was sort of like pushing

or signaling that there might be a rate

hike. But what I'm interested in is if

you suspect that there's going to be a

fire sale on X, Y, and Z companies, is

there a world where you build the hedges

before you acquire those assets, or is

that two 4D chess? Because that I if

they if they wind up acquiring these for

50% 20% off, but they already have

offsets, then they sort of come in

market neutral. Is that possible?

>> I don't think so. So, I'm familiar with

the Citadel's performance uh for this

month, which is surprisingly up.

>> So, I I think they're probably one of

the only hedge funds in the world. It's

up this month.

>> It's up very small.

>> They were actually hedged is what you're

saying.

>> Yes. They have a diverse platform of

different businesses, a guy trading

weather, a guy trading rates, a guy

trading stocks, you know, about a

thousand guys trading stocks. And they

have a computer fund uh you know called

Citadel Securities that that is a market

maker that trades a good chunk of the

volume of every instrument of the world.

And

ultimately I think that

the the prime brokers the Goldman's and

Bank of Americas they do so much

business with Citadel and they've done

this before where they know who to go to

just the same way the US government went

to Warren Buffett when they wanted to

shore up Goldman. Yeah. they know that

the right person to call is Ken and he

is really going out of his way to make

himself the guy to call and I think that

is a great brand because um you may not

need to be that guy more than once every

decade but look once a decade to make a

free 5 billion or 10 billion is a great

great guy to be and you know it's it's

sort of like he becomes a dependable

trusted partner to these banks and if he

wants something for the banks he's

helped them

>> because without him they might have had

to sell that uh at a negative number. In

fact, some people think I don't think

this is what happened, but some people

actually think the equity in Liupold's

prime brokerage accounts went negative.

>> Okay.

>> Which I think is uh you know, something

that again gold the Goldman and Bank of

America's try to stop you before you get

there.

>> Sure.

>> But, you know, they also don't want to

sell like I said, share in AI, which is

an illquid, tough to sell security.

Sure. you know, they'll sell out your

micron very fast or you'll sell it out

before then. But if you're left holding

this bag of like a liquid crap that you

have 60 days of volume to get out of,

it's pretty tough to to sit there and

and tell your prime broker, don't worry.

>> Uh which is why again I think he needed

cash. Probably somebody on Monday or

Tuesday tapped them on the shoulder and

said,

>> "Your margin's looking a little thin.

You know, can can you add, you know, a

couple billion here or more?" And things

happened so quickly that there was just

no time. And um yeah, it's I think I

think Citadel learned about this at the

11th hour

>> as every as you're supposed to. You

know, the firm didn't leak out that they

were hurting. Um they didn't have, to my

knowledge, daily performance. In fact,

from what I'm told, um situational

awareness as a young hedge fund was not

so great with communication. Not

surprising. Uh especially with monthly

and quarterly letters. Could have been

more timely on some of those. So it's

small group of a couple of guys. So I

don't think that this was the same.

>> You rewind what was it only a month ago

that the or

>> 13F was late?

>> 13F was like late and everyone was

questioning like work out did he work

out some kind of deal to get it, you

know, keep it confidential, [laughter]

but it it sounded like he just like

didn't get around to it. They had

>> other priorities maybe.

>> Do you think I mentioned uh

>> do you think you can rebuild a career as

a venture investor? Because like in

venture you just you're just like giga

long always like it's like you know one

of the few forms of investing where it's

just so hard to get out of position.

>> That's that's the thing. I mean why

become a hedge fund manager? This is the

I have a friend who [laughter] wants to

to start I have a friend who wants to

start a hedge fund. I told him this is

the most painful horrible business in

the world. Why do this? And if you start

a newsletter business that makes a h

100red million a year uh even 50 million

a year of revenue, you've done better

than almost every hedge on the planet.

Like you do not want to do this job.

[laughter] And the reason, you know, the

the reason people do it, and I did it,

too, and I would never do it again, is

>> it's the sexiest thing in the world. You

think you're,

>> you know, the glorious universe

>> is incredible. Yeah. You're the master

of the universe. And I had friends of

wanting to quit really high-profile jobs

to to be a hedge fund. And I was just

like, you're you're out of your mind.

You don't know what it what this job is.

It's waking up at 3:00 a.m. checking

Korean stock prices and, you know,

waking up back up at 6, you know,

wondering what's what's happening in the

world. Stuff like this. And there's

absolutely no productive thing you're

doing. You know, uh you're providing

capital, [laughter]

you know, but other than that, you know,

you're really playing this high stakes

crazy poker game. And you know, it's

it's certainly fun and interesting, but

when it's painful and and raw,

>> you know, I hope he'll he'll do

something.

>> You know, he's a brilliant person.

Brilliant people like that. I mean,

look, Peter Teal had a hedge fund that

>> didn't quite have this level of

liquidation or anything like that, but

it had a rough last few years. And you

know, Teal was able to obviously not

only continue his venture investing

efforts, creating one of the biggest

funds of all time, one of the most

successful funds of all time, investing

personally, doing amazing, also getting

back into macro trading with Teal Macro,

which supposedly has done well. I do

think there is this like period of a few

years that that you know he can reset

and take the learnings, take whatever

talent, skill, and certainly genius that

nobody denies that he's a brilliant guy

and rebuild. I I don't think it's the

end at all. And um I hope he's

[clears throat] keeping like that even

temperament about this because, you

know, I I I think a lot of people

respect him quite a lot. No matter how

this turned out, you know, he'll be back

and and successful. But it is a little

bit of a humiliation thing that I think

most people on Twitter and other places

are sort of saying well the market tends

to humble you and this is like an

extremely humbling moment from being you

know just two months separated from the

biggest hedge fund on planet earth and

most successful to being forced to to

sort of liquidate that is quite a rapid

sort of you know um reversal. Uh,

>> also just imagining [clears throat] what

the fund looks like in two or three

years if you just survive, right? I can,

you know, he, you know, there there was

a clip that was circulating yesterday

from his, you know, appearance on Dark

Cash where he's like, "Oh, there's

obviously like a 100x, you know, left

before AGI, right?" So, like he was like

up, you know, 20x or whatever, thinking

like I got I got so much room to run but

just couldn't

>> stay in the game. Um, I got

>> extrapolating

>> is always a risk.

>> I gota um, yeah, I got to say it felt

like a felt like a huge moment for you

and your business just because everyone

the whole finance world was learning

about the situation from your post. I'm

sure a lot of people were glued to your

terminal and it felt like a changing of

the guard because again you were getting

push back. Um you were getting some push

back but then two hours later it was

like Financial Times and Bloomberg and

Wall Street Journal. They're all kind of

clearly they needed a couple hours to

like run it down. Um but you got to it

first and

>> uh yeah I was I was quite impressed.

>> Thank you. Yeah, I mean I think that you

know we've talked about this in the

past. I mean, there is a changing the

guard there. You guys help change the

guard in your space. And I think that,

you know, the folks at the journal, the

folks at Bloomberg, the folks at these

other companies, they're fantastic

reporters, but they're not active or

former players. And you know, we will

hear we will always hear things before

them

>> uh because especially on the street um

because that's just

>> well and the crazy the craziest thing is

you you actually waited until it was

like over effectively to to share,

right? Like you had been hearing about

this.

>> There's a lot that we sit on that we

don't want to, you know, we've been in

that position like hundreds of times

where it's not appropriate to share

anything. And sometimes you're sitting

there being like, I'm really surprised

that like legacy media hasn't picked up

on this story. It feels like it's just

common knowledge and there's there's a

definitely a time and place to just not

not say anything and and let something

work its way through the system. Yeah, I

mean to give the devil their due, the

information is also quite good at, you

know, this type of thing. And they are

particularly good at at scoops on Open

AI, [laughter]

but the uh which I still haven't

unraveled how how, but they're obviously

very good reporters. Uh but a rep a

reporter at a place like that in

traditionally

don't care about burning bridges and

resources or contacts. So they want that

news out yesterday. You know, I do care.

And it also is a conflict of interest

because I don't want to hurt somebody

that's given me good information uh and

betray their confidence because I have

to keep the confidence of these folks if

I want to keep talking to them. But I

also in the case of this situation as

the carnage is unfolding you know

there's sort of a the balancing the need

for everyone to know with the need for

you know protecting friendships and

relationships. You have to make that

judgment call each time. And I I hope

that our customers understand that there

will be things that we know before

others and we can't disclose because we

want to protect uh folks and protect our

friends. Bloomberg, Wall Street Journal,

they'll never do that. They they're

they're always going to serve their

customer who is the reader. We can't

necessarily do that. You'll probably

know things about a litany like you said

hundreds of times, different fundraises

going on, different things like that.

And you have we have to all keep our

lids closed because, you know, that will

be the last time we hear about a

fundraiser. And I think that this was a

situation where it sort of merited

discussion. It was going to happen

anyway. I in fact to your to your point

the thing that got me to publish was my

friend saying everyone is hearing this

now.

>> Once that happened I said all right well

you know it's time to let I can let the

cat out of the bag. It's going about to

be let out anyway. So

>> yeah. Uh I have two more quick questions

if you have a minute. one is uh uh just

about how leverage works at a hedge

fund. I think uh you know again from the

retail perspective from the much smaller

player you might know that you can go to

a uh you know a brokerage and get a

little bit of leverage but what does the

process look like as you're scaling into

the tens of billions of leverage at

certain point you have to go to all of

the banks certain banks who's actually

like what does that process to get

leverage at that scale actually look

like

>> and also let's let's appreciate for the

for a moment moment that I feel like

just a month ago the west coast broadly

was taking this insane victory lap being

like the west coast is eaten Wall Street

[laughter] like the best and biggest

hedge fund is no longer on the east

coast like we just have everything now

finance and technology and then just

deeply humbled uh within the span of of

30 days uh and it turns out turns out

you guys over there you you know a thing

or two and here we are asking you So how

would one go about getting [laughter]

>> so so one of the things that I think is

not well understood is the prime broker

>> make a spread on I think this somewhat

understood is they make they make their

business to make a spread on financing.

So if you go to a prime broker and say

I'm never going to use leverage

>> uh never [laughter] they say I'm never

going to use leverage and I'm never

going to really trade a lot with with

with your firm. they're just going to

just sit there and say like we'll still

take the assets because we can

rehypothecate them and and lend them to

the the guys that are going to take

leverage, but in general that's not a

great customer. So if they're making a

1% spread, which actually would be is is

a relatively huge amount,

>> and you're borrowing 4x, you're actually

giving them 400 basis points of free

money,

>> which is uh sort of fantastic. Um in

fact, you know, their borrowing costs

are probably less than uh so far. So,

you know, they may be getting as much as

600 or 800 bips of of free money on huge

amounts of capital. So, uh, leverage is

the best friend to a prime broker. Now,

the risk guy is sitting there saying,

"Well, wait a second. You know, I I I

love lending, but I don't like lending

to concentrated portfolios. I don't like

lending to short sellers. Uh, you know,

short sellers can can get big big big

uh, you know, leaps in their like

GameStop, for example. So, the most a

long can lose is 100%. But if a forex

lever the most long loses is 25%. So you

know there's sort of this mix of of of

things you have to think about. I think

the getting into the privates is usually

like for me a lot a really bad sign for

almost every fund because it's as as

tantalizing as private companies are

there is a whole group of people on the

west coast who are much better at that

that than the guys in the east coast.

And of course there are funds now like

alimter and co and others that that are

doing both and doing both. And what made

that what made it so tempting obviously

for Liupold to just how close he is to

like he couldn't be closer to anthropic

and it's a company that over the last

six months has had 100x the demand

relative to the allocation right so it

just felt like you know and I don't know

who who knows what the what the

structure on those investments look like

but it's like if you're going to break

your rule and do privates like then

that's the company to do it with but

then you still get into a situation

where you're like, "Wow, I really wish

this was more liquid.

>> Yeah, I can't press this all button."

>> Uh, give us an update before you leave

on on Korea broadly because uh, you

know, a lot of people are uh, commenting

on on on just how similar Leopold's

approach is to Korean retail. I don't

know how true that is, but I can imagine

like it's uh there's blood in the water

over there and the whole country is

probably in shambles.

>> Yeah, I think so. I I made a Cali

criterion calculator and like a little

portfolio simulator tool that you know

basically and Paul Trader Joe said this

a while back and I had a problem with

this. Every single trader out there

makes makes one seems to make the same

mistake over and over again, which is

their position size is probably two to

10x more than it should be. And if you

actually, you know, so it sounds nuts,

right?

>> Yeah.

>> But if you actually run the simulator

and we ours

Kelly, so Kelly was a a guy at Bell

Apps. He was a member of the technical

staff. He's original OG uh uh MS. And uh

and so Kelly came up with the proof

called famously the Kelly criterion

which gamblers use mostly was a gambler

thing before a uh finance thing and it

it proves the optimal bet size and the

optimal bet size is your edge subtracted

by the reciprocal of it. So if you have

55% edge your optimal bet size is 10%.

That's still quite volatile for folks

and so people do half Kelly or quarter

Kelly. Most most folks don't actually

don't have an edge when they trade, but

they're if if they did have an edge,

they're trading as if they had a 4x or

5x Kelly edge, which is interestingly

like you might sound okay, well that

just sounds squashbuckling and like guy

takes a lot of risk. No, if you run the

simulator, you will go to zero each

time. And the simulator is a really cool

tool that shows you even with a 6040

edge on every trade you make, you'll go

bust if you bet, if you overb.

>> And it's it's an eye openener. We might

say, who has a 60/40 edge in the stock

market? Nobody has 6040 edge. Um, but

you will absolutely go bust if you don't

size correctly. And it's something that

I've had to learn very painfully, very,

you know, over over the years, uh, that

I'm almost always overbedding. And I

think every fund is is sort of the same.

And certainly every retailer is the

same. And it's just sort of this weird

variance math game that very few people

actually map out and say, can I simulate

portfolio and just to see what is the

sort of the right thing to do? uh in

most cases. And in fact, I I had a uh

after I left the Tiger Cup I worked at,

I worked in the uh briefly in in the

office of a guy who worked at at uh SACE

Capital, now called Point 72, for years,

and he was one of the best managers

who's quiet guy nobody's ever heard of,

kind of retired. But I got to watch him

before I set up my own hedge fund and

did the exact opposite, way over bet on

everything. Uh I got to sit with this

guy for a few few months and I was

astounded. So what I found is that you

know he was managing I don't know three

or 4 hundred million of his own

basically he almost never used the

capital

>> you know 80 90% of the capital was just

cash and he would just make these tiny

trades and the guy had almost never had

a down I think his record was he never

had a down quarter

>> in 20 20 something years of trading and

he had like 20 30% returns which is

great and the guy just kind of you know

just did these little little nibbles and

he never lost money and it was this

incredible thing and then of course the

second I get the chance to get some

capital, I'm 8x [laughter] leverage,

you know, and it's just like, you know,

it's the dumbest thing in the world, you

know, and and you live and you learn.

>> Psychology. Psychology. Well, thanks so

much for coming on the show and breaking

down. This is always a great time.

>> Yeah. Looking forward to uh

>> seeing where we go from here. Have a

great week. Have a great weekend. We'll

talk to you soon. appears murdered by