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Leopold Aschenbrenner’s Situational Awareness Fund turned $225 million into as much as $45 billion. Not bad for a 24-year-old with little experience. In June alone, his fund was up 439% year-to-date. Despite the rapid wild success, last Thursday the fund was forced to sell all of its public investments to satisfy margin calls.

Furthermore, they are trying to sell remaining stakes in private holdings like Anthropic to raise cash. Some pundits estimate the fund fell by 90% or more as a result of excessive leverage primarily employed in the once-hot semiconductor and hardware stocks. Some of the large declines of his favored holdings are shown below, courtesy of Bloomberg. Bear in mind that a 40% decline in a stock with as much as four times leverage wipes out your entire equity and then some.

This event teaches investors two very important lessons.

First, leverage can greatly enhance your returns, but it can just as easily bankrupt you.

Second, investors must understand the difference between an investment and a bet. Aschenbrenner transformed an investment thesis that rested on outsized profits for AI infrastructure companies over many years into a short-term bet. His bet was not based on future revenue and profits but on the daily whims and sentiment of fickle momentum traders. He made fortunes when his holdings doubled and tripled, but like all parabolic price trends, they ran out of steam. His leverage, which produced amazing returns, ultimately sunk him and his investors.

The Week Ahead

As we share below, the earnings calendar will start to lighten up after a busy few weeks. Advanced Micro Devices (NASDAQ:AMD) will provide another angle on data center growth. Additionally, they may also provide some guidance that will be helpful for estimating NVIDIA’s (NASDAQ:NVDA) earnings later in the month.

The economic calendar this week is primarily focused on employment data. JOLTS on Tuesday, ADP on Wednesday, and the BLS report on Friday will be important indicators for the Fed. If the number of new jobs remains below 100k, the Fed has a key factor that, at a minimum, will cause them to pause before potentially raising rates in September. Also of note, PCE prices last Thursday showed the Fed’s preferred inflation gauge fell by 0.1%, and the core PCE rose by 0.1%. Like CPI, the data is good, but it’s only one month. The Fed will want more evidence to believe the worst of the recent inflation spurt is behind us. Furthermore, oil prices have since risen, thus the August inflation data may not be as friendly. The Fed will have two months of inflation and employment data to help them make its policy decision in September.

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