Starting us off on this Saturday edition, reports have surfaced that over the summer JPMorgan cut off lending to Situational Awareness, the AI-focused hedge fund run by the young turk, Leopold Aschenbrenner. An AI maximalist who predicted AGI by 2027 and helped kickstart a trillion-dollar investment race for compute.
The fund’s blow-up became a cautionary tale of leverage versus conviction. The thesis seemed correct: AI capex went and continues to go parabolic, perhaps even faster than Aschenbrenner anticipated. What the original essay did not dwell on was the violence of market timing. A compelling long-term view can still be a death sentence when expressed through leverage and concentrated options positions in a sector that can lose 20% in the blink of an eye.
Well, grab your popcorn, cos our man is back.
Aschenbrenner has reportedly returned to the market and, notably, appears to be pursuing much the same strategy: expressing bullish views on AI through options and targeted exposure to the companies building the infrastructure of the intelligence boom.
That raises the more interesting question. Was the lesson from the summer that the AI thesis was wrong? Or simply that he was too early, with too much leverage?
Despite what the doomers think, I probably fall into the second camp on this. While I don’t believe that the same returns we have seen over the past 18 months will necessarily be repeated again, it still feels early in the AI buildout, and the hyperscalers are showing no signs of slowing down!
Meanwhile, the geopolitical story developing in energy markets may be even more remarkable.
Most coverage will run some version of: “Houthis seize Red Sea island, oil jumps.” Accurate, but it understates what is actually unusual about this. It doesn’t have “situational awareness”, if you see what I did there!?
Houthi forces have now completed effective control of the Bab el-Mandeb strait, capturing Perim Island (Mayun) a day after seizing the port of Mokha, with Yemeni government forces withdrawing rather than fighting. At the same time, the Strait of Hormuz remains separately contested by the live US-Iran conflict.
The two most important oil-shipping chokepoints being under active military pressure simultaneously is something markets have never really had to price before.
More striking still, the two waterways are behaving very differently. Hormuz continues to flow, although the volumes are widely debated, while traffic through Bab el-Mandeb has collapsed by almost half in just 48 hours, now that the Houthis effectively control territory on both sides of the strait.
That may be the real story: not merely higher oil prices, but a market discovering that some chokepoints are financial risks, while others can become physical constraints overnight.
What does this mean for crude prices? Your guess is as good as mine… But I have a sneaky suspicion that we won’t be revisiting the ca.$70 level that WTI and Brent saw in July anytime soon.
GLA + DYOR
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