We Just Had Archegos Collapse 2.0 | Situational Awareness Liquidated

[00:04] Oh man, it just happened. $46 billion dollar to nearly zero just happened. We basically just had another Argos moment. And we're going to talk about how Liverpool, that German dude who was supposed to be the next great genius of

[00:18] the AI movement who ironically called his fund situational awareness, was not aware that he basically had no downside protection. just got liquidated and

[00:30] protection. just got liquidated and literally marked the bottom for us yesterday. The same day I posted a video literally titled by and we literally in the video talked

[00:43] about wow, you know, there's some dip by opportunities here. Holy smokes. Also aligns with the alpha report we had this morning, especially on AMD. Holy smokes.

[00:55] Kevin.com. Okay, so what happened? A hedge fund worth potentially $46 billion at peak got liquidated. They had to sell all of their stocks and options that were publicly capable of being sold. And it sounds like they're currently

[01:10] leveraging against their existing anthropic position to help bail them out as well as raise they're trying to raise money from uh some of their existing investors to basically help also bail them out. We've got a lot to learn from

[01:23] this. To me, this is really the definition of unguarded, unbridled greed, uh, and literally a slime who should never be able to raise another dollar on Wall Street. I excuse me. I get really really uh defensive uh of the

[01:41] individual investors who lose money investing with clowns like this because investing with clowns like this because these clowns take other people's money, leverage it up, lose it all, and they're like, "Oh, it wasn't my fault. It was it

[01:54] was the market. It was because a memory company in China IPOed at a 5x and took all the attention. Oh, it's because of the SpaceX sucking or Google raised money or Meta raised money or Kevin Worsh was hawkish or, you know,

[02:08] whatever. Uh, you know, they're making DUVs in China. Oh, no. Which aren't anywhere near as uh important as the EUVs from ASML, but yes, China's probably stealing our stuff. But the point is, we're going to point the

[02:22] they leveraged up too much and then got burned and liquidated and lost their investors a lot of money. I find that investors a lot of money. I find that slimy. I think these investors who go

[02:34] viral and then leverage up should not be able to touch leverage. There should be guard rails. But I'm not going to be pedantic here yet or more pedantic yet. Let's actually talk about what just happened. Uh so what happened was very

[02:51] similar actually to the March of 2021 Archagos moment. You might remember Bill Hang uh Archos Capital Management. They literally lost $20 billion in a fire sale. Uh, and part of that was because they went to banks and defrauded those

[03:06] they went to banks and defrauded those banks by saying, "Hey, we have all these public equities. Can we borrow against them?" So, essentially, imagine you have go, "Can we borrow against them?" Uh, and they say, "Sure, we'll give you a

[03:18] margin line at $3 billion." But then you turn around and also go to JP Morgan and They don't know about Bank of America's debt. So they also give you a $3 billion line. I'm just making those examples with those banks. I don't know if it was

[03:32] exactly those banks, but the point with Archagos was the guy way overleveraged, probably to the tune of about 8 to 20x. Uh and then when there were a few bad days in March of 2021, if I remember correctly, it was about the third week

[03:45] of March of 2021. Uh the banks had to sell about $20 billion of his shares in block trades and they actually destroyed $35 billion in value. Now, that is extremely similar to what happened yesterday in my opinion. Now, you might

[04:00] be asking yourself, Kevin, how do $20 billion of block trades cause a $35 billion of block trades cause a $35 billion loss or like value destruction? It's because what usually happens here is these big high-flying winners that go

[04:14] is these big high-flying winners that go all in on one theme, one sector, one concentrated bet to, you know, essentially go viral and get a lot of know, when the bet goes right temporarily, even through a meme

[04:27] obviously there's some fundamentals and semis. I'm not trying to bag on on semis, but when it's so concentrated, you don't have protections. Then when for some reason sentiment shifts or there's a great sucking, stocks fall. As

[04:41] stocks fall, you end up having to sell positions because you not only have a options out that are rapidly bleeding money. Then the stocks fall more because stocks, which leads to margin calls, which leads stocks to fall even more.

[04:55] And then the banks come in and literally block trade you where they basically block trade you where they basically say, "Hey JP Morgan, I got to sell a billion dollars, let's just say, worth of SKH Highex, Coreweave, and Enbis

[05:09] combined." Just as an example, you're not going to put that order in on Weeble Weeble, you're literally going to go through the order book and you're going ding ding ding ding ding and the stock is going to trade at like a dollar

[05:23] because you're going to wipe out the entire order book. That is a lesson to entire order book. That is a lesson to know. The order book is just the level of publicly traded securities that are outstanding with ready and willing and

[05:35] able buyers. When you do a block trade, you're calling up a bank saying, "Hey, I got to sell. At what level can I interest you in buying these shares?"

[05:47] And the bank's look and go, "Okay, well, let's see. Intel stock, uh, you know, I don't know. Let's pull up Intel stock for example. Uh, today it's up 13%." Because the pig is out, right? But anyway, yesterday, uh, morning or you

[06:00] go to Tuesday. It's trading for 86 bucks. So, you get a JP Morgan that says, "Look, you know, it's trading for 86 bucks. If these hit the market, you're going to tank it down to 70 bucks. We'll go buy them for $78." Just

[06:13] bucks. We'll go buy them for $78." Just as an example, uh will step in as a buyer. So, they're basically joining the order book so that way you're not actually affecting the real order book entirely. Now, some still obviously hits

[06:26] the order book, but the whole point of it is if you've got a big trade, you because you're going to get destroyed. You're still going to get destroyed with a block trade, but because you are creating a new buyer because you're

[06:38] asking a bank to step in as a buyer at a predetermined discount, the bank feels because then they're going to go around and start selling some of it, right? JPM it a day or two, but they're going to start trying to sell it right away. So,

[06:52] if it's trading at 86, they buy it at 78. They can guarantee a profit. So, they start dumping it. And of course, the price compresses down, right? So, it did it compresses down to $82 and then what a surprise the next day it pops up

[07:05] again as some of that selling pressure fades. Okay, that is the whole concept of a block trade. And that's very important to know because when these people get liquidated, you have to remember that you're not throwing the

[07:17] order in on Weeble. They're getting liquidated with banks and pre-negotiated deals. And it's not like an evil darkpool thing. Uh I'm not saying that doesn't happen. It's because they'd be even worse off if they just threw the

[07:31] order in people. Uh anyway, so that's what we've seen happen over the last few days. Apparently, just to give you an idea of some of this guy's positions, idea of some of this guy's positions, okay, as of March 31st, the guy had $879

[07:44] okay, as of March 31st, the guy had $879 million in Bloom Energy with $55 million in calls. That stock is down 52% to bottom. SanDisk, 724 million in shares, bottom. SanDisk, 724 million in shares, 389 million in call options. Keep in

[07:59] mind, we don't know if those are 30-day call options, 90-day call options, 2-year in the money call options. We don't know. So, that 389 could have evaporated when SanDisk fell 56% to bottom. Coreweave 556 million plus 141

[08:17] bottom. Coreweave 556 million plus 141 in calls down 56 to bottom. Iron down 56 to bottom. Core Scientific 38% to bottom. Apply Digital 52% to bottom. Riot Platforms 36% to bottom. CleanSpark 36 to bottom. Intel call options only

[08:32] 36 to bottom. Intel call options only $459 million worth of those down 42% to bottom, which means those options were obviously and likely down a whole lot more. And I think that's where people have to remember how leverage can be

[08:45] have to remember how leverage can be built. There's talk that this guy was up built. There's talk that this guy was up 400, you know, 38% or 439% year to date through the end of June. So, how do you get liquidated when you're up that much?

[08:57] The way you get liquidated on these levels is because these geniuses keep loading up more as the stocks are memeing. It's kind of like, I hate to say it, but it's kind of like you get Michael Sailor who's like, "Oh my gosh,

[09:10] my fundamental thesis is working. Bitcoin's at $127,000 or whatever." and they're buying more. And then you know what? Let's come up with leveraged funds to keep the buying pressure going. They don't even realize that they're the very

[09:24] buying pressure that is creating that marginal boost in value at the end. It's no longer fundamental. It turns into momentum uh on the upside, which of course can flip to the downside. The guy rumored was up to be uh deep in leverage

[09:40] rumored was up to be uh deep in leverage of about 4x deep at at peak. And what's interesting about that is it's Forex peak in leverage include well in addition to whatever leverage he had on his options. So let's try to make this

[09:53] still a relatively unrelatable number for a lot of people. I realize it, but it's it's much more relatable than billions of dollars. Let's say one day you have or you currently have $100,000. Now you go forex leverage that up on TDM

[10:08] Now you go forex leverage that up on TDM trade or whatever. Right now you have trade or whatever. Right now you have 400,000 in buying power. Okay, that's not just stocks. Again, that could be spent on 90-day call options on SanDisk,

[10:21] you've got all this underlying exposure to the stocks, but then you're effectively leveraged up more because of the options. Because you're using debt the options. Because you're using debt to buy options, your effective leverage

[10:35] on the portfolio could be as high as 8 to 10x. So here's how that potentially works. SanDisk drops 30%. I wrote this down just to keep the math right. SanDisk drops, let's say 30%. Now, ordinarily, if you just held the stocks,

[10:50] you'd be down $120,000. A long-term investor on a 400 grand portfolio being down 120 grand is going to be like, "Damn, "Damn, this sucks, right?" But they're not

[11:03] liquidated. They're not wiped out. They're still in the game. They're like, "Whatever. If my long-term thesis is still good, go buy more." And you just DCA over time. And your long-term goal is that over 10 years you're good. The

[11:18] whole premise is don't get wiped out in between. Anyway, now let's say you're not just down 120K because of that 30% fall. You're actually down a lot more because of the leverage from the options. So, you're probably down

[11:32] somewhere between $240 to $300,000 on that 400k position that you, you know, basically bought with margin. That's because you're up with margin and the options, which if you're buying the options while the market's skyrocketing

[11:46] and volatility is going up, you're actually paying even more of a premium for these options. Eventually, volatility chills out after a big wipeout like what we saw yesterday. Uh, and you know, the the the discounts that

[12:00] you probably had to dump those options for as underwriters are assuming, well, these. they're going to be worth even less. You probably had to give away your option contracts almost. But anyway, that is speculation. This example is

[12:15] speculation. But the idea is you could literally be on a $400,000 portfolio down $300,000. So now you're really in the dump. And there were some puts that the company had as well. True, they did have puts,

[12:32] but some of those puts were on companies like Adobe, which in the last 30 days, while all your semis were plummeting, uh, and your, you know, um, compute infrastructure plays were plummeting, Adobe actually rose 36% in the last 20

[12:46] days. So now your protective shorts got hosed and your longs got hosed. In addition, while there were some supposed protective shorts uh in positions like Nvidia or whatever, we don't know what the value of those puts were. See, the

[13:02] media has been calling this $ 8.4 billion protective put he has as, oh, portfolio. But they're using the notional value of what those put options could represent in shares. Real investors know that that means he

[13:19] could have literally spent out of a $46 billion fund $80 million in protective puts. It's not enough to help you. And he also had puts on stocks that went in the wrong direction. Plus, guess what's not disclosed?

[13:34] Not disclosed on these 13F filings, the SEC filings are sold puts. So, if he sold bullish options, right? Sold puts, those aren't disclosed. swaps, which took out Bill Huang, not disclosed. Short sales, not disclosed. Ford

[13:49] holdings not disclosed. And debt not disclosed. So, no surprise, 6 days ago, he releases a letter saying, "We have not been immune to the uh wipeout that's been occurring in artificial intelligence, right? Because now you too

[14:02] are essentially wiped out." Uh as of a few hours ago, we initially heard this morning that they were in talks to raise capital, but the most recent information we have out is that they have sold all of their public securities, which to

[14:14] some extent is sort of like marking a bottom for the stock market, which is alpha report, good timing on the videos. If you want to see the alpha reports, those at meetke.com. We do have a coupon expiring tomorrow on that, so come join

[14:27] us. But what I really want to talk about here is the the what's so important out of all of this is this guy look at this guy's history from him. So the guy was like a validictorian at 19 in college which is amazing. So people think this

[14:40] guy's a genius. He ends up getting hired at FTX and runs a club called effective ultruism at Colombia which is sort of aligned with the Sam Bankman Freed nonsense. The guy was literally an insider. He knew the shy string that was

[14:57] going on yet to protect himself even though he was on the inside likely participating. We don't know this with certainty. Don't sue me, bro. It's inside knowing the fraud that was going on, which people on the outside like you

[15:12] and me, we had no idea. So, we're on the outside. This guy's on the inside a at FTX and to pretend that he was not part of and to pretend that he was not part of the collapse. The guy resigns from FTX

[15:27] the collapse. The guy resigns from FTX the same day FTX files for bankruptcy. So that way he could put on his resume, I left FTX before the bankruptcy. I left FTX before the bankruptcy. He doesn't conveniently tell people that

[15:41] he left the same day of the bankruptcy filing. So this way he can look like he filing. So this way he can look like he was a genius for leaving FTX. Joins Open AAI, then gets fired at OpenAI for leaking internal

[15:56] metrics and disclosures around how Open AI works and vulnerabilities or AI works and vulnerabilities or otherwise. The guy has a serious otherwise. The guy has a serious disregard for the rules, for respect,

[16:09] possibly for fraud. We don't know that. And it is almost karmic justice to see somebody like this get wiped out. I just feel bad for all the investors who trusted in this genius who then ended up getting wiped out. Now a lot of people

[16:24] say but Kevin but Kevin you know you raised money with house hack. Well, we're not raising money right now, but something to know about Houseack, and this is what I've built the company on, is we purposefully, I will even say me.

[16:37] I'm purposely building this company to make sure that we could survive a make sure that we could survive a recession, a depression, anything. We owe banks nothing, zero dollars in bank debt because the banks will slime and

[16:51] debt because the banks will slime and scam you. Like I feel like JPM, and this don't want to get too tangential about this, but you know, I got whined and dined by JPM for a long time. You know, they'll take me on boat rides, dinners,

[17:05] they'll take me on boat rides, dinners, breakfast, champagne, caviar, you know, fancy platinum cards, the $10 million credit card, y whatever, all this bull crap, right? And then it's like, "Hey, y'all want to lend on some real estate?

[17:19] terms." And I'm like, "Are you kidding me? This is a horrible deal for me. Whoever takes this is an idiot." Or, "How about a loan on a plane?" What? You're going to write in an annual margin call on an aircraft, which

[17:36] historically equipment goes down in value every year, and you're going to write a margin provision in on that? F that. So, you had all the wine and dining going on, but then all the actual business contracts were written in the

[17:51] business contracts were written in the bank's best favor. So, in my opinion, bank's best favor. So, in my opinion, all of that was just a wolf in sheep's clothing. They'll cuddle up to you. They'll make you feel like you're safe.

[18:04] And if you don't have the balls to go to these banks and say, "F you. No, I will these banks and say, "F you. No, I will not be your slave. I will not succumb to your terms. you will end up wiping out all of your investors money. And that is

[18:19] something where I want to I mean house hack right now probably if you look at right now is completed and you take the value of that completed development plus whatever we have this is this company cash value market value is worth over

[18:35] cash value market value is worth over $und00 million that is hard equity right like in my opinion that's really good and that's you know so just to be clear because I I I don't want to send any wrong signals or get in trouble or

[18:49] whatever. That assumes we get into, you know, the beginning of next year, let's development is done because we have some convertibles with some of our investors, right? But we don't owe banks anything. And I think that is a lesson in this

[19:03] And I think that is a lesson in this that people who fall I mean I'm not of fell victim to his own stupidity for not reading into how unguardile he

[19:15] that his company was called situational awareness. He was not situationally literally bails out of a company, a sinking ship right before the sink ships

[19:27] sinking ship right before the sink ships is kind of like, you know, who was a the know, he didn't go down with his ship to make sure people were getting off and surviving. The guy hops on an early lifeboat to get off and he's on the

[19:40] Italian Coast Guard going, "Get the f It's ironic maybe that I'm saying that while on a cruise ship here. Uh but while on a cruise ship here. Uh but anyway, um to me there are a few lessons

[19:55] in this. Number one, you need to understand how exposed you could be with the banks. Very dangerous. Everything that they do is almost designed to f you. And it happens way faster than people think. So

[20:12] you the only way to take on debt in my opinion should be on your terms. My take opinion should be on your terms. My take on that. Okay. Then uh you've got to on that. Okay. Then uh you've got to look at this as a good thing, a clearing

[20:25] event for the market. Now that this guy is gone, you have this opportunity for the market to recover. My vacation's coming to an end. So maybe

[20:37] it was all conveniently timed and meant to be. I think we'll have a nice rally. Uh, you know, I made my buy video yesterday. Very convenient timing. I think markets can recover once we get through. Now, we've got Apple and Amazon

[20:52] coming up and we could, you know, slowly get back into recovery mode, which is obviously still have geopolitical issues, but this guy being gone is a great thing for markets because it reduces volatility when these clowns get

[21:07] out because they make these stocks more expensive for you on the up and then they screw you on the way down. And so I'm glad somebody like this sounds like completely out. I hope they can't raise money anymore because they make markets

[21:21] worse with this sort of leverage and yolo betting at the tune of billions of dollars. Now, what we're going to do is we're going to do uh since uh people video, just to keep this as simple as possible, uh we're going to do a uh new

[21:35] possible, uh we're going to do a uh new verse pro uh of this and uh we'll uh we'll break down some of the components um of what's going on here. All right. um of what's going on here. All right. So,

[21:49] Leo over at Situational Awareness can't go bankrupt. The guy's up 439% through the end of June. He's a genius 19-year-old previous validictorian, now

[22:02] a mid20year-old brilliant guy. He can only make money betting on the future. The pro looks and says the guy probably had exposure of 4 to 10x

[22:16] debt for every dollar of equity that they had. So when markets finally shifted and his main stocks, his longs were down 40 to 50%. His 400% year-to-

[22:30] date return propped up by leverage was probably completely eradicated. And so it's no surprise that they have now exited every single one of their public stock and options bets. And it sounds like they're having to leverage against

[22:45] their illlquid anthropic holdings just to survive. And it shows you how expectations don't always align with reality. People bragging about their performance one month could be levered up to the you know what only to get

[23:01] wiped out in the next month. Okay. Uh let's do uh another one. Let's go with uh yeah. Okay. The I I think it would be interesting to do a new verse pro for us

[23:14] on uh frankly the block trades. All right. All right. So, let's do a block trade one. The noob says, "Block trades are illegal and scammy mechanisms that exist in the market for the suits to profit off of

[23:29] you." The pro says, "You're right. The suits are trying to profit off of, not suits are trying to profit off of, not you, but really stupid, highly leveraged hedge fund managers like the guy at Situational Awareness who just got wiped

[23:42] out. They get a phone call in panic going, "Yo, I'm getting margin calls. I of stock. The pro knows you're not going to put that order in on Weeble. You're going to call up a bank and go, "Can I sell you these stocks off the books

[23:55] essentially at a 10% discount?" The bank's like, "I'll take a 10% discount." Sure. They get bailed out of their margin position. And then the bank slowly feeds that crap back to the market. That takes time to clear and it

[24:07] creates bottoms. These leveraged people create buying opportunities. And the pros know that. Uh, okay. Good. So, uh, that's fun. Uh, then, so we got that, we got how leveraged he was, we got the block trade explanation.

[24:23] Um, we should do a little bit on the guy's history and just sort of a new vers pro overall overarching view here on um on the guy. So, how does a guy that at peak could have been worth $46 billion as a hedge fund

[24:40] potentially get wiped out? Well, it just Situational Awareness. The noob says, "Nah, man. He's gonna raise money. He's gonna come back." The pro looks at this and says, "This was a young guy who just

[24:53] didn't know how bad leverage could get." four to 8x leveraged his portfolio, bailed out of FTX the day of their bankruptcy filing so he could say he left before the bankruptcy. Got fired from OpenAI, created an all-in bet on

[25:10] artificial intelligence that went great until we had a six-w week period of hell in markets and his leverage wiped out the firm. The firm has now reportedly sold all of their public holdings in stocks and securities. And it sounds

[25:26] like they're leveraging up their private holdings and trying to raise new capital just to stay afloat. The pro does not give this guy another dollar. They don't understand risk management if it hit him in the face and they just got punched in

[25:39] the face. So with all of that said, I'm going to go back to enjoying the cruise. I hope you enjoyed this video and I will see you in the next one. Goodbye and see you in the next one. Goodbye and good luck.