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Weekly Newsletter
🚨 Situational Awareness Causes AI Sell-Off
📉 GDP And PCE Both Slow Down
🏦 Key Points From FOMC Press Conference
📊 Key Points From This Week’s Earnings
💵 Why It’s Not Easy To Replace The Dollar
QUOTE OF THE WEEK:
“This one from Alan Greenspan: “I know you think you understand what you thought I said, but I'm not sure you realize that what you heard is not what I meant.” I don't think anyone really understood much of the last 45 minutes in the market. Still trying to figure it out. The chairman talked about this market move we've seen in between meetings.” - Jon Ferro, Bloomberg
KEY US ECONOMIC EVENTS NEXT WEEK:
MARKET CLOSE:
WEEKLY MARKET WRAP:
Good Afternoon. Very volatile week due to broad hedge-fund deleveraging earlier in the week. Markets rallied in the last two days after Citadel stepped in to help the troubled hedge fund, which made it clear that the earlier sell-off was not due to any fundamental verdict on AI. Microsoft and Amazon both reported strong results, indicating that cloud demand is surging and that CapEx spending is justified for both.
Below are the key things to note this week:Trump Cancels Iran Attack:
Just a few minutes ago, the news came that the US canceled planned Iran attacks, citing the deal in sight. War is a non-issue for the markets. No one has the appetite to continue this. With the mid-term elections this year, Trump won’t do anything material, in my opinion. This should be a positive catalyst in the short term, but be ready to hear flip-flop on the war front.
Situational awareness behind the sell-off:
AI stocks sold off earlier in the week, and many framed it as evidence that the AI story had finally broken. Commentary focused on excessive valuations, uncertain returns on AI capex, and rising Chinese competition. The market was trying to explain the price action before it knew that a major forced seller was amplifying it.
The clearest casualty was Leopold Aschenbrenner’s Situational Awareness, which was reportedly running gross leverage as high as four times. Its AI-infrastructure longs fell sharply while its software shorts also moved against it. As losses depleted the fund’s equity, mounting collateral pressure forced it to reduce positions, pushing the same stocks lower and triggering further selling. The fund fell 67% in July and sold most of its roughly $16 billion public-equity portfolio to Citadel to eliminate leverage. At four times exposure, an adverse move of roughly 17% across the book is enough to produce a 67% equity loss.
Situational Awareness was the accelerant, not the sole cause. The unwind hit a hedge-fund system already carrying record leverage, with qualifying-fund borrowings reaching $7.46 trillion at the end of 2025—up 32% year over year. The sharp rebound after Citadel absorbed the portfolio suggests that part of the decline was a liquidation discount rather than new information about AI demand. The market initially treated a flow-driven unwind as a fundamental verdict on AI; the real story was about leverage, not demand. As I wrote a couple of times last month, earnings growth is strong, so there was no fundamental reason for the sell-off, and I did not panic-sell any of my AI holdings.
GDP and PCE both slow:The Iran war's fingerprints are all over this week's GDP print: US Q2 2026 growth came in at just 1.5% annualized, down sharply from 2.1% in Q1 and below the ~2.0% consensus, as disrupted Strait of Hormuz shipping and a spike in oil prices (gasoline hit $4.48/gallon in May before retreating) fed through as a classic negative supply shock. However, the PCE inflation also came slightly lower than expected, with core reading droping 0.1% mom. So the news was balanced on the macro front.
For the week:
CNN's Fear & Greed Index now stands at 42 (Fear) out of 100, up 3 points from last week. Details here
The top five trending stocks on Reddit are Micron, SpaceX, SPY, RocketLab, and Microsoft. Read More
Liquidity:
Banking Reserves + ON RRP: Banking reserves remain at approximately $2.9 trillion. ON RRP balance remains immaterial.
Standing Repo Operations: The New York Fed’s standing repo operation (primarily reflecting SRF take-up) is $0.
Here is a summary of this week’s key economic releases:
Target Rate Probabilities for Sept 16th FOMC Meeting:
CURATED INSIGHTS & ANALYSIS:
Dollar Dominance:
There is always talk about de-dollarization. However, it's clearly an exaggeration. Whenever someone says this to me, I ask who can replace the dollar as the reserve currency? N” N” No one trusts China, and Europe is a retirement home and vacation destination for the world, and Great Britain is far from its glory days. Recently, Fortune published an article citing BCG research on why the dollar's demise is overstated, and I totally agree. I strongly believe we will not see the dollar replaced by any other currency in our lifetimes. There may be some diversification in Gold, etc., but there is no way the dollar will have any other currency challenging its crown. So it's better to just ignore any noise on this.
Key points from FOMC press conference:
The Fed held rates steady at 3½–3¾%, but the vote was split 9–3, signaling a more active internal debate.
The Chair emphasized that the Fed’s 2% inflation target is not flexible; “there is no soft inflation target.”
The Fed is trying to rebuild credibility after more than five years of above-target inflation.
The statement remained short and fact-based, with no forward guidance.
Market rates moved sharply higher between meetings, with nominal and real Treasury yields rising materially.
The Chair framed this as intentional: markets are now reacting more to incoming data than to Fed signaling.
Business investment remains the strongest part of the economy, led by AI-related capital expenditures, high-tech equipment, software, and data center spending.
AI investment is supporting growth today, but its supply-side productivity payoff remains uncertain in timing and scale.
Inflation remains the dominant policy concern, especially given repeated supply shocks from tariffs, energy, conflicts, and AI-related demand.
The Committee debated whether recent price increases are isolated shock effects or signs of a broader inflation dynamic.
Labor market conditions remain stable, with job gains keeping pace with workforce growth and unemployment little changed.
The Chair said the Fed is not relying on any single inflation print and is focused on trends, not one-off data.
Policy is now a two-sided debate: if underlying inflation keeps rising, tightening becomes more likely; if inflation falls, easing becomes more likely.
The Chair rejected the idea that the Fed is simply “pausing,” arguing that tighter financial conditions are already doing some policy work.
The main message: the new Fed regime is less guided by dots and speeches and more focused on market signals, inflation credibility, and hard policy trade-offs.
Key takeaways from this week's earnings:
The hyperscalers’ bottom lines now swing on their AI-lab stakes
Microsoft’s net income included a $3.2 billion mark on its Anthropic stake; Amazon’s GAAP EPS carried a large Anthropic markup on top of $1.2 billion in tariff and energy-contract benefits; Alphabet’s figure last week rode a SpaceX gain. The reported beats are increasingly paper gains on venture portfolios, not operations.
The memory shortage is now setting hyperscaler capex
Amazon raised its 2026 capex to $220 billion from $200 billion and named “the higher cost of memory” as the reason. The same shortage has Korean memory makers at record highs, pressuring Apple’s hardware margins this week. One bottleneck is lifting cloud budgets, minting memory makers, and squeezing device makers at once.
Contracted demand, not capex size, separated the winners from Meta
Amazon said its AI capacity is “contracted for at least five-year terms,” with multi-gigawatt Trainium commitments from both Anthropic and OpenAI; Microsoft cited a $627 billion backlog. Meta raised its capex floor to $130 billion, even as Reality Labs continues to lose $4.6 billion a quarter. The market paid for visibility, not for the spending itself.
Meta’s core accelerated; the miss was cost, not demand
Advertising revenue grew 28% and beat estimates, but roughly $3.6 billion in legal and severance charges, plus a $4.6 billion Reality Labs loss, cut operating margin to 31% from 43%. Stripping the one-time items, the ad engine is not slowing; the metaverse and AI bills are stacking on top of it.
Apple’s margin beat was partly a legal windfall
Apple’s 50.1% gross margin drew about two points, and $0.11 of EPS, from refunds on tariffs the Supreme Court struck down. Beneath the record, Services came into light, and Greater China stayed weak. The beat read cleaner on paper than in the underlying business.
FRONT PAGES:
NVIDIA in Talks to Backstop $250B OpenAI Data Center: WSJ reported Sunday that NVIDIA is discussing a ~$250B financial guarantee for OpenAI's planned 10-gigawatt AI campus in Pike County, Ohio — the largest financial guarantee ever discussed between two private companies. Separately, another $350B is being discussed for chip purchases, potentially pushing the project past $500B. The guarantee serves as a substitute for OpenAI's lack of an investment-grade credit rating; SoftBank's SB Energy is developing the site. Read
Aschenbrenner's Situational Awareness Fund Fire Sale: Leopold Aschenbrenner's AI-focused hedge fund — peaked at ~$45B AUM this month, up 1,000%+ since its July 2024 launch — sold its entire leveraged public book to Ken Griffin's Citadel at a discount this week to meet margin calls, cutting AUM to ~$10B. Hit positions included SK Hynix and CoreWeave. Private stakes remain in Anthropic, Fluidstack, MatX, T1 Energy, and Sharon AI. Most high-profile AI-trade casualty yet. Read
US Treasury Buys Yen; First Intervention Since 2011: NY Fed sold euros for yen through Goldman Sachs and Morgan Stanley on behalf of the US Treasury, Friday, per FT — first US-Japan coordinated yen-buying intervention in over 15 years. Treasury Secretary Bessent's Camp David notepad, caught on camera, read "Buy Japanese Yen $5–10 bil." Follows suspected BoJ intervention on Thursday that erased 3% from USD/JPY off 40-year highs. Coordinated US-Japan policy expected next week per Kyodo. Read
ICE to Acquire MarketAxess for $5.7B: NYSE parent Intercontinental Exchange agreed Wednesday to acquire bond-trading platform MarketAxess for $167/share cash — a 33% premium, $5.7B enterprise value, 10.6x LTM EBITDA. All-cash, debt-financed; $100M run-rate synergies; accretive Year 1; expected close H1 2027. Combines MarketAxess's 2,100 institutional investors across 90+ countries with ICE's retail bond franchise across the $145T global bond market. Read
NY Sues Kalshi as Illegal Gambling Operation: AG Letitia James filed suit in Manhattan state court Friday seeking to shut Kalshi down nationwide, force forfeiture of profits, and impose fines equal to 3x gains. CFTC preemptively filed for a TRO in federal court. Kalshi is federally licensed and argues that states have limited jurisdiction. Comes 10 days after Kalshi filed with the CFTC for 24/7 gold, silver, and platinum perpetual futures. Read
EARNINGS UPDATE:
Apple. Revenue $109.4B and a beat; EPS $2.02, up 29% and a beat, its 13th straight. iPhone 17 demand was strong, but Services came in light at $30.7B, and Greater China remained weak, and the 50.1% gross margin was about 2 points lower due to tariff refunds. Shares fell about 7%. A record quarter with soft edges, the market fixed on.
●Microsoft. Revenue $90.0B, up 18% and a beat; adjusted EPS $4.74, a beat. Azure grew 43% and crossed the $100B annual run rate, with a commercial backlog of $627B. Microsoft raised fiscal-2027 capex toward $255–260B. Shares rose about 8% after hours, leading a record rally. The demand proof that the market had been asking for.
●Amazon. Revenue $200.6B, the first quarter above $200B, and a beat; operating income $27.5B, up 43%. AWS accelerated to 36.7%, its fastest in 18 quarters, and the chips business passed a $25B run rate. Amazon raised its 2026 capex to $220B, citing higher memory costs. Shares jumped about 15%, its biggest day in over a decade.
●Meta. Revenue $60.8B, up 28% and a beat, but EPS of $6.18 missed on roughly $3.6B of legal and severance charges and a $4.6B Reality Labs loss; operating margin fell to 31% from 43%. Meta raised its capex floor to $130B. Shares fell about 10%. The ad engine accelerated; the bills grew faster.
●Visa. EPS $3.32 versus $3.23; revenue $11.6B, a beat, on steady payment volume and cross-border growth. Shares were little changed on a sharply lower market day. Consistent as ever.
●Exxon Mobil. EPS $3.52, just under the $3.56 estimate; revenue $116.0B, a beat. The Strait of Hormuz disruption crimped refinery throughput, which CEO Darren Woods said “shaped” the quarter. Shares fell about 2%. Execution held; the geopolitics did not help.
●Mastercard. EPS $5.04 versus $4.77; revenue $9.3B, a beat, on resilient consumer spending and cross-border volume. Shares rose about 3%. The quieter of the two networks keeps compounding.
●AbbVie. EPS $3.65 versus $3.61; revenue $17.0B, a beat, as Skyrizi and Rinvoq kept offsetting Humira erosion. Shares slipped about 3%. A beat the market had already banked.
●Chevron. Adjusted EPS $6.06 versus $5.55, a clear beat; revenue $70.1B, a beat. Adjusted profit of $12B was the highest in over five years, helped by the newly integrated Hess assets. Shares edged higher. Scale is starting to show.
●Coca-Cola. EPS $0.97 versus $0.92; revenue $13.4B, a beat, on pricing and resilient global volume. Shares rose about 5%. Pricing power intact where the consumer needed it.
●Procter & Gamble. EPS $1.43 versus $1.41; revenue $21.2B, a shade light. Organic sales grew, but volume stayed soft. Shares fell about 2%. Steady earnings, still waiting on volume.
●Arm Holdings. Adjusted EPS $0.45 versus $0.40; revenue $1.29B, a beat, on record royalty revenue as more chips shipped on its v9 architecture. Shares rose about 7%. Royalties compounding as AI silicon proliferates.
EARNINGS PREVIEW:
Date | Symbol | Name | Time |
3-Aug | PLTR | Palantir | After Close |
4-Aug | CAT | Caterpillar Inc | Before Open |
4-Aug | MRK | Merck & Co | Before Open |
4-Aug | MCD | McDonald's Corp | Before Open |
4-Aug | AMD | Advanced Micro Devices | After Close |
4-Aug | ANET | Arista Networks | After Close |
4-Aug | AMGN | Amgen Inc | After Close |
4-Aug | GILD | Gilead Sciences | After Close |
5-Aug | LLY | Eli Lilly & Co | Before Open |
5-Aug | NVO | Novo Nordisk | Before Open |
5-Aug | SHOP | Shopify Inc | Before Open |
5-Aug | DIS | Walt Disney Co | After Close |
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This newsletter's content is for informational and educational purposes only and should not be considered trading or investment recommendations. All the opinions in this newsletter are personal and do not belong to any organization.
