08/09/2026
The markets have been closer to a momentum casino for much of this year and it still isn't totally normal, but with the news of Situational Awareness's public equity portfolio blowing up recently, peak craziness is likely behind us. You may or may not know a lot about Situational Awareness, but it is a hedge fund run by Leopold Aschenbrenner. It essentially was a levered long bet on AI stocks while shorting entire industries that could be hurt by AI, like software, at the same time. The returns were incredible up until July, as the hottest AI stocks began to falter and his shorts moved against him. The public equity portion of his portfolio blew up and was margin called. He ended up selling it to Citadel for a large discount, but from reports it basically was a zero for the fund. The fund also has a large private equity stake in Anthropic which the fund still holds huge unrealized gains in. This private equity stake likely saved him from himself, as he wasn't able to use leverage in private markets the way he did in public markets, in addition to private equity having the inability to move in price so violently in little time. From reading about him, he is obviously brilliant and knows more about AI than 99.9% of people, but his wife works at Anthropic and is within upper management's inner circle. How much of his performance is due to his personal knowledge and how much is due to insider information he learns through his wife is impossible to know. Besides this fund, there were likely many copycat funds that followed his trades and amplified the moves in individual stocks recently.
Overall, the economy remains pretty good. The no-hire-no-fire job market continues. Initial unemployment claims remain very low while overall hiring remains weak. The unemployment rate continues to inch lower recently, but this is due to labor force participation falling so it is falling for a bad reason. The US-Iran situation remains a complete mess, but oil prices are relatively tame and that has the biggest impact on the overall market and macroeconomy. One concern is that interest rates have risen substantially with the 30yr interest rate hitting the highest level since the Great Financial Crisis. The recent monthly payroll report was weak, so that could be a good thing in terms of cooling off interest rates. Big picture, the economy is fine and earning reports across the board have been coming in strong recently. That is usually a good setup for the stock market. There certainly aren't nearly as many deals as there were even a few weeks ago, but a melt-up in the near term is possible as the earnings picture looks good and the positioning reset from the recent washout in the market refreshes sentiment.
