Episode 968: Martin Predicts What's Coming for the Market. Buy Meta Stock, Kelly criterion 101

**Martin** (0:00)
Month is winding down, earning season is in full swing. We had Meta Report. Somewhat disappointing quarter. Stock is down 10%. I actually think it's worth buying down here. I don't think that there's too much to worry about.
Microsoft had a blowout quarter.
That stock is, let's see, up 9%. Great numbers, great guidance. Both companies talked about CapEx not letting up. So, ready a few CapEx watchers. That's pretty critical. We broke some news about a fund called Situational Awareness LP.
You know, I just want to preface this by saying we want every fund to succeed. You know, nobody has any shot in fraud here. We like the fund and we hope it goes up to the moon. But, you know, Godel is a news company, we do provide news when we hear it. We reported that two different reports in between our reports. The Financial Times also made a report. But basically, we learned that the fund had some large losses. And, you know, it's still unclear exactly what's happening. Situation is fluid, as it were. And the firm is called Situational Awareness, and it has a position called Fluid Stack. So all the more puns here. But in all seriousness, the fund is at down at least 30% for the month, which is pretty substantial loss in the hedge fund world.
We learned the fund was often as much as four times leopard.
The fund is or was about half entropic due to entropic's large gains. The fund may have sold off or pledged its entropic stake. We don't know for sure.
The fund was up substantially before the beginning of this downturn, but we've also heard this is the first report that the fund was down as much as 50 or 80% for the month. I don't think that's right, but I'm not 100% sure.
So we saw the Financial Times reporting that the fund was up as much as 400% at its peak, which I think is probably true, but it feels like the fund has... Public equities have largely been liquidated, but if the firm has redemptions, which is typical in hedge fund land, then the fund could decide to shutter. But if it's liquidated at its entropic stake, then the fund's back in business and can resume buying everything up, perhaps this time with less leverage, I don't know.
That's what we know.
A lot of rumors about how bad this month was for them, anywhere from 30 to 80 percent we've heard. Certainly the private book is marked at last sale, so the private book isn't moving, so the public book would be down double, roughly, what the public book is down, including as much as, you know, potentially the public book being underwater. Now, I don't have any reason to believe that's true, but I'm sharing the information that we're hearing just for transparency's sake. We saw some erratic moves in different stocks. Let's take a look. Bloom Energy in particular. Now, most stocks in this space look like this stock chart. Bloom had a pretty incredible quarter, actually just bought a little bit for transparency's sake here. But you see the stock was, you know, $24 stock. It's one of Situational's largest holdings, got up to all the way to $350. Right around the end of June and began to plummet, you know, down about 50% from the peak. But, you know, not uncommon in bubbles for stocks to behave like this. You know, it doesn't really clear that there's any forced selling here any more than any other stock.
Intel also viciously sold over the last, you know, period here. Also along this stock. But this is the whole sector, so I don't know that one fund, you know, even if levered, if the private part was levered, Forex, that's still $40 billion, which is relatively manageable. There were also many other Leopold copycat funds. So several funds that were, in essence, you know, very similar, levered long bets on AI. And, you know, we're AI bowls over here.
So, you know, we, again, have no ill will towards anybody betting on AI. We think it's the most important technology in history. So we want everyone to win. But not everyone will win, especially, you know, with some of these large moves. And again, we have been told the fund is still up substantially year to date, which we believe is true.
And there is still, you know, time and potential for the company to rebound, potentially bet on a big comeback, potentially raise some new capital. Again, rumor that they have liquidated the aeronthropic stake or pledged it in some way. In that case, the, you know, in that case, you know, again, it's not really clear what's good for the market or what isn't. Sometimes the market, in my experience, whether it's long-term capital management, Amarant, certainly the great financial crisis, the dot-com bubble, market likes to see carnage and likes to see a player carried out before resuming. So in some ways, there was some traders I was talking to sort of were almost relieved not to see another investor go belly up, but we're almost looking for that catharsis of another investor getting liquidated.