The Perfect Storm That Clobbered Hedge Funds

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With that guidance and your determination, you can take your business farther and help build a brighter future for your community. Learn more at chase.com/business. Chase for Business. Make more of what's yours. The Chase mobile app is available for select mobile devices. Message and data rates may apply. JP Morgan Chase Bank NA member FDIC. Copyright 2026. JP Morgan Chase & Company. Bloomberg Audio Studios. Podcasts. Radio. News. Hello and welcome to another episode of the Outlots Podcast. I'm Tracy Alloway. And I'm Joe Weisenthal. Joe, I heard with all the the market volatility recently. Yeah. I heard a pod is blowing up. You heard a rumor. I heard a rumor. Is that something being said? Anyone here? Anyone hearing talk of a pod blowing up? Somewhere a pod is always blowing up. No, but I think actually the past week or so for a lot of hedge funds has been kind of historic. So I would say October just from the numbers that we've already got in awful and I would say it was this drip. There's been weakness in a lot of the popular AI adjacent names really since the middle of the summer. Yeah. What is building and building already getting kind of ugly and then maybe with the midterms or something you get this huge wash out and yeah big numbers, big losses. Right. So we're recording this on November 10th and I say the past week because that's when we got all the headlines about October performance for a lot of these funds. But for multi-strats in particular, I mean we've done a lot of episodes on these. These were the hot new funds. They were supposed to be able to manage money in up and down markets instead of relying on like one star investor or one centralized team. You had all these little pods that were supposed to be making bets independent of each other uncorrelated correlation as I always say is one of the trickiest concepts on Wall Street to actually model. And so it looks like there are some questions about the business model. Did everyone basically pile into the same trade implicitly? So this is I think the number one question, which is that could you have made a lot of money in the last 12 or 24 months without implicitly being long AI? Was there some leverage in leverage in leverage long. But like this is like the question, like you can dress up the AI trade in a million ways, right? So you could do it through chips. You could even theoretically create exposure to AI through rates, whatever. But at the end of the day, if you were making money over the last year up until recently, were you doing it by implicitly being long AI and did your boss, the risk manager at your firm, understand that the way you were making money was implicitly long AI if in fact that's what you were doing. Yeah, basically we're multi strats just momentum it dressed up in, I don't know, diversified. Yeah, I am totally. I'm just drawing that metaphor. But I think that is the question. And I am glad to say we have two very special perfect guests. We're going to be discussing the hedge fund performance specifically with Nishant Kumar. He is the chief correspondent for hedge funds over at Bloomberg News. And then we're going to have on Michael Ball who's a macro strategist at Bloomberg News to talk generally about what's going on in markets because there's a lot right now. So why don't we go ahead and get started? Nishant, thank you so much for coming on all thoughts. Thank you for having me. Why don't we start with a basic question. You've been pretty busy in recent days. I think you've written dozens of stories at this point. But how bad was October/early November for a lot of these funds? Well, how busy I was in the last 16 years of covering hedge funds. I never saw a day like last week. Wow. I just took a screenshot of all my stories and posted on Twitter and it got like 750,000 views. So that tells you how busy it was. But in terms of hedge fund performance, look, it was pretty bad. The interesting bit wasn't just that hedge funds lost money. It was that lots of different strategies got hit at the same time. So coming back to your main point that how correlated some of these strategies have become. Take for example, Millennium, Ballyasni, 0.72, Exorers Point. These are all the mainstream pot shops that you, although you know, pots sound like an insult to many of the people in the industry, but that's what they are. And they all lost money together. So these are the hedge funds who have the biggest concentration of assets, biggest concentration of talent. The most sought after hedge funds from investors because they have a track record of making money when the downturn hits. And they all failed together and they lost money last month. Millennium was down 2.3%. Now on its own, this may not sound like a huge loss, but in their own context, they analyze it around 14%. And when they lose 2.3% in a month, that's a lot for a steady vehicle like Millennium. Same story at Ballyasni, same story at Exorers Point, 0.72. So yeah, I would say it was really bad. Normally, you might see equities had a bad month, but macro did well, or credit go ahead or stock because we're fine. But this was like a perfect storm. Everyone failed together. Wait, can you explain to me why down 2.3% is that bad? I mean, it's bad. Well, for a start, it was worse than the S&P 500 in October. Yeah, sure. No, yeah, I get that. But like, explain to the listener and by the listener, I mean me why 2.3% not be it, which doesn't sound like the end of the world is, wow, this is one of the craziest months you've ever experienced as a reporter. So as I said, that again, 2.3 in isolation is not bad. Yeah, but you have a specific purpose in a portfolio. Okay. The value of a hedge fund in a pension fund portfolio or a sovereign wealth portfolio. And we are talking about this 10s of billions of dollars worth of portfolios. Your role in a portfolio is to soften the blow from any market turmoil. Okay, that's the purpose. And you are not expected to match S&P 500 returns in when S&P 500 is surging. That's not what is expected from a hedge fund. But when it goes down, when there is a turmoil, investors look at you to protect you. And that's where the problem is. Did anyone, to be fair, it was bad for pretty much every hedge fund out there. But there was at least one I saw that produced positive returns for October. And that was, I think, Citadel. What did they do differently to others? Or what do we think they did differently? Well, we don't know how, but yes, there were some exceptional winners on the multi-strat side. Citadel was one, D.U. Show was another. And there were some odd quant funds that did well. But overall, the picture is still still down. Maybe some quants worked out well if someone was shorting heavily. Maybe they were positioned right for last month. But yeah, we don't have portfolio level details to explain what went right or even what went too wrong at certain hedge funds. What's your working, I guess, hypothesis for why everything went wrong for the vast majority of funds? It was a complete mayhem last month. You had AI stocks crashing. You had a surprise election in Brazil. And you have this huge sell-off in the high bond market. And they all combined to create this perfect storm for a lot of different hedge fund industry. You had like the French issues and French bonds going down as well. So there were so many different trades that they were crowded trades and all these hedge funds had piled into them. And one after another, they started to go down. Take, for example, just the AI stocks. We don't know about situational awareness yet, but there was another fun color of Vara. There wasn't rumor that they were piling back into the market, right? Yeah. Tell us about this Vara company. I had not heard of it until someone said it was like a situation all the way. awareness clown. So it was and we wrote a story that how much of an portfolio overlap there was between Vara and situational awareness. So Vara, for example, lost 33% in October. That's like losing a third of your portfolio. But here's a killer statistic. They are still up for the year. So that's how much money they had made before losing. They had a tough month earlier this year as well. So that's the kind of destruction we are seeing in AI stock. If you are crowded and largely concentrated in a few AI stocks, you take whale rock again and equity fund down 12%. So they were these highly concentrated single strategies, maybe single market fund, which lost a lot of money. But then if you look at macro hedge funds, they also lost money. Carcass vault, which has like billions and billions of dollars and they're a macro hedge fund, they lost 6.4%. That was their biggest down month since they started trading. Chris Rokos, another legendary macro hedge fund manager, we just reported today he lost almost 5% last month. So there was really nowhere to hide in this market last month. What's next for virtual assets? I'm Jacob Grease, host of Economy Scale, a series exploring growth in key global sectors. And this episode, we're diving into the digital forces shaping finance. Sean McEw from Dubai based virtual assets registry authority has this to say. We're seeing a lot of in social players come in, digital asset dedicated hedge funds, high-frequency traders and that sort of thing, and folks who service in social clients. As more capital enters the market, adaptive regulation is likely to become increasingly key. Rismarical Ripple says a lot of regulators globally would like to cleat the industry at arms length. That's the opposite here. I think also what you'll find is that regulation and frameworks can come out, but some of them are maybe a slight iteration on some 80 year old policy and not actually in line with what the technology can do and offer. And again, that's very different in Dubai. Listen to the full episode, wherever you get your podcasts. This series is brought to you by Bloomberg Media Studios and the Dubai Department of Economy and Tourism. The world of business is constantly evolving. Every day, new challenges, new opportunities, new ways of working. Comcast business keeps you totally in step with secure AI back, networking, built to power the way modern business gets things done today in more than 100 countries around the world. That's some serious muscle. And get this. Comcast business powers over 90% of the Fortune 500 and millions of small businesses. 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The king of charts. The king of charts, Torson Slocke from Apollo. And his basic thesis is that the market has emerged into the, there's the AI factor and then there's the anti-AI factor. And maybe it like you can't hide because everything is implicitly this trade one way or another. When you look at the results, do you come to the same conclusion that whether you're talking about a macro fund, whether you're talking about a sort of traditional long short, whether you're talking about a single manager, whether you're talking about a strategic one that at the end of the day, if you had been making money in this market prior to October or maybe prior to June or whatever, that you had been making money implicitly via a long AI. Well, if that is the measure, then I don't know who, who is anti-AI because I don't see many winners here. Like, yeah, for the whole industry as a whole. There might be some exceptions, but it doesn't seem to be an equal split or even maybe 25, 75. It looks like the entire industry has piled into this AI theme maybe not directly through stocks, but maybe they have exposure to credit that has exposure to AI or maybe AI has started to impact macro, started to impact interest rates. Yeah, I was just going to say, short treasuries could be an AI trade or a long AI trade, right? Yeah. Well, actually on this note, we did get a really interesting report. We do have some analysis that we can look at to get like clues of what these funds were actually doing. So Pivotal Path put out this report last week saying that hedge funds were basically all crowding into the same names, which again for multi-strats at least was exactly what you were supposed to not see. They were supposed to be diversified and making all these independent bets. Talk to us about what Pivotal Path actually found. So mainly they were arguing for crowded trades that was my reading. And I will separate it from momentum and everything. You can like have 10 very sophisticated hedge funds independently deciding they like the same stock perhaps because they're liquid or maybe the earnings are strong or maybe it fits in their risk framework. That doesn't make the momentum traders, but it does create this problem that if they all change their mind at the same time, which seems to have what has happened maybe last month, then it's a big problem. So Pivotal Path says that 10 largest firms in it started control about 2.2 trillion including borrowed money. That is a massive amount of money. And the capital backing that trade was something like $350 billion. So that gives you a sense of how much leverage is in the system. So the report itself doesn't predict stress, but if you look at another report, which is from Goldman, the broader work they have done shows that correlations between multi-strategy funds themselves have straight roughly 0.2, 0.3 ban for years. So that doesn't point to maybe too much correlation, but crowding has become a big issue and it's backed by huge amounts of leverage and then it's concentrated in this tiny little world or maybe not tiny after anthropic IPO, tiny world of AI stocks. So when one thing scrap it leads to like the flood of problems for hedge funds and that's what happened last month. So just on the leverage point, when a funds position start to go down, and I'm particularly interested in multi-stats here, but we can talk about funds in general too, when positions start to go down, what happens next? Is it like the portfolio manager decides to start cutting risk or the centralized risk management team says you have to cut back on risk or you have a volatility model that says you need to trim down exposure or in some famous cases recently, does the prime broker start asking for more collateral and so you're forced to start liquidating positions? Yeah, so let's look at this multi-strategy model. In a way, they are the real hedge fund industry right now, like everything connects to them. In a way, I think about multi-strategy is, they are like a hedge fund supermarket. Instead of one star manager making all the decisions, you have these hundreds of individual portfolio managers or what we call pods, trading different things. One team may be trading US dogs, another macro, another trading credit commodities and so on and so forth. And sitting above all of that is a very powerful risk management machine. At most of the, at all the hedge funds, like this is the key. The firm decides how much capital each PM gets, how much they can lose, how much leverage they can use, how much risk the whole platform wants. If a PM loses money, risk gets cut. So for example, if you have $100 to manage and if you lose 5% of that, so $5, at many of the firms, your capital will be cut into half. If you lose another 2 and a half percent, so total loss becoming 7 and a half, you are closed out. You can be liquidated and you can get fired immediately. And that's why this is a very ruthless risk management arrangement that multi-strats have. And that's what makes them wonderful in a way. This ruthlessness makes the machine work really well, because they don't allow you to lose so much that you become a problem for the whole hedge fund. If the loss is continued, the allocation can disappear and obviously eventually the portfolio manager. The theory here really is that lots of relatively small, uncorrelated return streams are more robust than like one gigantic star portfolio manager putting on a bet. So you are avoiding the key man risk. Like a star manager can make you really, really insanely rich. But if he gets it wrong, he has the ability to all the, also destroy your machine altogether. So as you're, he said, they're very, okay, there's this AI trade, but there's various flavors of how you can express bullishness on AI. And so let's say I'm the risk manager at one of these and Tracy is sort of long chips or maybe long memory. And I would never go on. And Ashunt, you're like short treasure easy, because you think there's going to be a lot of cat packs and that's going to drive inflation, et cetera. Isn't it my job to say like, yes, they're actually making the same trade. This is not diversification. And so it's like, yeah, maybe, maybe I'll fire both of you. But isn't it for having a bad month? Because treasuries have rallied a lot over the last few weeks. But isn't it my fault for not having identified the fact that you were not giving me diversification? You were all making the same trade in different skins. Well, have you seen any risk manager fired? I don't know. Do you ever hear, is that a thing? But shouldn't, if I have a lot of PMs making correlated bets? Isn't it my fault? Well, the beauty of correlation is that it's not visible all the time. Yeah, it goes up and down. And in moments like last month, it really goes up. Yeah. So that interconnectedness, the impact of leveraging the system, how everyone is positioned, it's a very complex mathematics, I think. And it's a complex job. Plus, you can't rule it out. If you see, you know, max seven and all these things, stops going so much. And if you, as a risk manager, come in and say that, okay, let's cut it out. And if you underperform, that's a very hard decision to make. And that's where some of these multistratami to be precise. I mean, they are great at it. They do care about correlation and they do manage it. But eventually, if everything falls together, and it's not that everything fell together, it was first, it was AI, then you sort of kind of rebalance your portfolio, that the bonds go down, then the problem in the credit market, then Brazil, so it happened week after week after week. So that's where I think all the problems started to emerge. Well, I still remember, we did that episode with Krishna Kumar about multistrats, right? This was one of the first episodes we ever did about multistrats. And his characterization of the funds was that they're not maximizing for long-term returns, they're maximizing for short-term returns. So like every macro event that happens or every move, they react to it very quickly, right? And so when you have a succession of all these like idiosyncratic things happening, you could see them sort of cutting positions. I think they cut AI exposure going into the midterms, but then the market started rallying on Wednesday, and so they went back in, and then it falls on Friday. And the Thursday was the day they got it really. Yeah, and so they're just like reacting very strongly to each new day, which I think has posed a problem certainly in recent weeks. So on that note, what do we need to see to know that the multistrats are like piling back into the market, or that leverage limits or exposure limits are starting to go up and they're able to take on risk again? Well, there are many statistics in the market, and banks are in the best position to see that. But this week things have already recovered a lot, it seems. There is already mean reversion, there is buying the dip, it seems. But the problem is we are in November, and 10 days are gone. And a lot of these portfolios are bleeding. On top of that, talking to people, the anecdotal evidence I see is that dozens and dozens of portfolio managers, big risk takers in equity space, in macro space, in credit space, they have been fired, or they have been poached by others, or they are spending their long non-compete on the beach. So there are a lot of people who are not in the market, and we are in November just 40 more days left for this year. Do they have courage to get into this market, and take risk and make the most out of the next one and a half month? That is the question, and at the same time, not so many people are out of this market. So next two months is going to be very, very difficult. What will it take traders to take risk now? And if they are wrong, you know, already bad performance can become so worse that they will lose their job anyways. Joe, I just had a great idea for all thoughts, merch. You know, there's religious devotional candles, with pictures of Jesus, whatever. We need to do one that's mean reversion. You light a candle and pray to the God of mean reversion to come save you. That would be good. I think that would be really popular. I just have one last question. Setting aside the performance of October. And this is an industry related question. But setting aside the performance of October, you've just been hearing a lot about sort of like, how many more multi strats or variations on the theme are really necessary? How many more launches can we have that roughly either try to replicate the Citadel model or the Millennium model or whatever it is? Where do we stand with this? Like in your view, is this just sort of saturated? Especially when you consider the cost of, say, acquiring new talent? So I again, in my, in my imaginary world, I want to launch a new multi strad. And I'm going to have to pay up to higher season traders that know what they're doing. Like, where do we see the sort of what inning is this industry in? So we have already seen the problems in the multi strad industry in terms of starting a new multi strad. We saw at Jane Global, we saw at Wall-I cutting parts of the equity stradding. We have seen Eisler shutting down. So that's one side of the story. But in terms of demand for these strategies, why do we need another multi strategy? Or why do anyone try to launch a new multi strategy? Because investors really want this strategy. It lets you run more money, right? Like the more pods you add, the more money you get to run. You can, you can, but there is a limit to that. Like how many ways, if you already have like dozens and dozens of equity portfolio managers, how much an incremental or additional five more equity fund managers will diversify your strategy. So I think there is a cap on that as well. So investors want it. They can't deploy enough capital to these multi strategy hedge funds. So if you look at the top players, all of them are close to new money. One example which shows you how hot these hedge funds are. Millennium wanted to raise about 20 billion dollars in new capital earlier this year. They got demand for more than 30 billion dollars. They took in 22 billion dollars. I don't think more than 2% of the hedge fund industry, or even 1% of the hedge fund industry by number, manage 20 billion dollars. So that's the kind of demand that these. hedge funds have. At the same time, many of these large players are returning capital between D#, 0.72 and Citadel. Almost 35, 40 billion dollars have been returned to investors. Now, those investors need to find a new home for this capital. Where do they put in? This is a 40 billion dollar problem for investors. So, capacity is a real issue. If someone can genuinely build a multi-strat and create decent capacity with reasonable returns, there is demand for another multi-strat. The question whether someone can build it or not is very tough to answer. We have seen many failed attempts and that is the problem. Whether a new hedge fund multi-stratage has one has the right and resources to sort of employ another or approach another trader and what the higher the best people, that is the big question. I don't think they can. I think the obvious takeaway from this is that more teams, more pods, more money does not necessarily translate into more risk-adjusted returns. Every day new challenges, new opportunities, new ways of working. Comcast business keeps you totally in step with secure AI back networking built to power the way modern business gets things done today in more than 100 countries around the world. And get this. Behind it all, network engineers, cyber security specialists, support teams, thousands of experts answering your call at 2 a.m. like its 2 p.m. always on, always ready. And with expert support, dependable service and thousands without a setup fee, creating something thoughtful doesn't mean making it complicated. 4imprint. 4 certain. Whisperflow is a voice-to-text app. Instead of typing, you're talking at types for you. In any app on your Mac, Windows, iPhone, or Android, it takes out the umbs, fixes the typos, and the result sounds like you wrote it. 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Additional restrictions may apply. Please speak with a business banker for more information. JPMorgan Chase Bank NA, member FDIC. The first 30 minutes of trading last Thursday. Two days after the election was the biggest puke for retail investors since COVID. It was the biggest sign of single stock. So again, that is going to be mostly retail from the way we viewed it because we know there has been a decent amount of degrosing getting from the hedge fund community. But look, everyone was involved. I guess guys that were still holding on one way or another whether they're retail or their institutional to some of these single stock names, specifically in growth and tech, really just kind of without really a major macro catalyst, don't that that open Thursday. And it was a sucker punch because Wednesday you saw people rebuilding positions, so fall falling, and it really made it really kind of even more curious to why all the Sun and Thursday morning this happened. Yeah, so this is the big question, right? So people expected a strong turnout for the Dems in the midterm elections, right? I don't think a lot of people expected necessarily the blue tsunami, but like it was leaning Dem for sure. And then on Wednesday, the market reaction was pretty muted. We saw stocks actually go up and then Thursday, everyone seemed to just like wake up and decide that was entirely wrong. What happened? Like what were people thinking? Wednesday was interesting too because the hyperscaler has got a bid because the thought was that more regulation from this blue wave and we saw all these things on the ballot for the AI initiatives would force basically them to pull back on CapEx, who'd be better free cash flow and hence their core businesses would do better. And here we go, the thing that had been driving their earnings growth was now a negative and the things that were kind of more to nunchkin, to nunchkin, we're just on the side. So it was a super interesting setup Wednesday into Thursday. And again, Thursday we didn't have necessary cows. We had our standard micro stories with some AI headwinds, semis and sort of the AI trade on Wednesday had been weak. They had been underperforming. The rotation was back in. We saw equal weight outperforming. We saw value doing well. But then lo and behold Thursday happened. And what happened was once we started breaking levels on the SPX. And this is the Nasdaq was already sort of in correction territory. We'd already had a big negative gamma backdrop, something I can talk about more, which was basically people were positioned on this show. But SPX was still hanging in there. And we were above this sort of 77 hundred level, 76 hundred level range. We'd been in for several months. This rotation that had occurred over the last few months had buffered the weakness we'd seen sort of in the AI trade in October. And subsequently that all sort of fell apart as levels broke and feeding became self-feeding. I started the weakness became self-feeding. This is where the sort of like automatic mechanics of markets come into play. So the idea that like dealers have to cut positions just because they're breaking key levels just because they need to maintain like a certain volatility weight and things like that. So maybe just as a quick background, we already knew in the summer we had a massive loss of momentum from the AI trade. August, we saw a rebuild in that. So what happened here is that basically legacy I calls some of these autocallables, some of these exotic products that you guys have actually talked about. This is why we've been talking. You know, people keep asking us like, why are you doing episodes on structured products? It's because it like impacts the entire market. Yeah. So there was like a clearing event basically in July. And August was a rebuild. And what all this meant was that realize valve got sort of suppressed because the way volatility works is it's supply and demand as well. Obviously, you want to think about buying and selling, driving it. But it's a little more complicated because then other sideers of backdrop and option markets, which supplies basically delta and gamma into the market, which is a fancy way saying vol suppression or vol acceleration. So when people talk about gamma, what they often mean is where the dealers are holding option positioning. Are they long or short options? And effectively, if they're long options, they suppress volatility. And if they're short options, they accelerate the move. So I want to buy a put. I want downside protection. The dealer is short that put. So that delta hedge that as the market goes down, they are selling into the market, which exacerbates that move, which is exactly what happened Thursday. On top of all these other kind of cross-currents, we had obviously some hedge fund news that they were blowing up. People were getting taps on the shoulder. We had sort of leverage ETFs of accelerating that because that's a big market and that has to exacerbate the move as well. That's a negative convexity product. And then all of sudden, the vol control community, some of these systematic guys who are always the boogie man that get blame, but we're actually quite active on Thursday had to jump in because volatility picks up, they have to decrose. And even with sort of the CTAs being more neutral and that's another kind of buzzword that's often thrown around when we see these big market moves where they chase trends, they too, although they were somewhat less long, we're also very active in selling. And that was a perfect storm Thursday that got us basically to break all the ranges we've been in for months and test new lows. To my shame, Joe, we have never actually done a CTA. We've done levered ETFs, we've done vol funds, we've done structured products, all of that stuff, but we should do a CTA. We should do the other thing. Something about CTAs feels very like 2010s. I know. Well, yeah, people used to talk a lot about them in like the mid-2010s. Yeah, I feel like you're a little lucky. But but now we can talk about them again. Well, like they're kind of like the boogie man. Like you always hear them on these volatile days. Oh, it's the CTAs again, rooting the day. CTAs for a lot of trading and visor, you're right. Basically, hedge fund or systematic ways of trading future. Active and most future markets, yeah. People always blame them for gold moves as well, that's the funniest. Okay, so we get this huge sell off on the Thursday after the election. I'm curious if it's like, yeah, you can kind of maybe tie it to the election. But so like two weeks ago or a week and a half ago, we were talking to Alexander Altman over at Barclays. And one of the questions was like, we were already nervous. And it was like, well, why hadn't VIX, why had the VIX been so low, etc. But there were like jitters long before Tuesday, building and building and building. So talk to us like, let's set aside the election and all that. What was this like sort of like building anxiety, I guess starting in the middle of the summer and sort of accelerating in October all about? Yeah, so I guess October really saw that shift in the CapEx narrative. Well, all of a sudden, it wasn't a growth engine anymore. And it was about financing, about free cash flow. And again, about this nimbyism and electricity problems, right? The execution of the CapEx. And we saw that in yields, right? Because all of a sudden, we saw kind of a reversal of how yields were going with oil. Oil was still creeping up because we weren't obviously getting anywhere with Iran. But all of a sudden, we had growth concerns because all AI CapEx next year was going to crater. And then we were going to basically have no growth because that's been the primary driver as the narrative goes. And we saw sort of the 10 year in the curve flattened and basically everyone get more worried about growth. What happened then is like the NASDAQ became much more negative people were buying production on it. Not just in single stock names and AI, but now as an index hedge. But just sorry, just to be clear, was there like this, the whiplash from talking about chip shortage to chip glove? It felt like it happened overnight. And I'm sort of curious like gamma and all that stuff aside. Was there some reason that you could put, was there some earnings call? Was there some event where it's like this suddenly investors started flipping their perspective on the compute. You guys have been doing this as long as me, like you know how narratives can finally like enough needles on the camel's back. I don't really have one in mind to your point. I think the supply and the credit markets finally caught up to everything. The supply of actually equity paper whether it was from anthropic or from all these secondary issuances. To me, like the moment that sticks out in my mind is the core we've guys interview in the FT where he basically talked about raising all the capital in the world. Like you hear that from a senior executive at one of the most like prominent neoclouds out there. That to me is like the big flashing warning. Elon said something to his SpaceX, you know, three to $13 trillion ultimately of capital raises. So it became this sort of bifurcated story where everyone was comfortable going into health care and to quality and to sort of even staples and basically hiding out there, which was holding up the index while just selling and degrosing in sort of tech. Elon hit a tweet about like just one tweet was something about like questions about hyper or sorry about neoclouds. And I'm curious whether it's like is his view like create some fun around non mega scale players or their ability to deliver. I mean, I don't know. I think I don't want to like sidetrack. I think one of the bigger stories was also the the micro compute story where people would have it at their desktop level. So you wouldn't need the hyperscalers and the data centers because that. But I don't know about any of the price of nothing changed on there. Yeah, I don't really know what to your point like there's there was a multitude of headwinds all. Yeah. And then again, the credit markets were basically saying enough. Well, actually on this note, again, we're recording November 10th. Should I say the time? Is it one of those days? No, it's gonna mild today. All right, we just had the CPI data out and we also had Waller doing a lot of forward guidance much much too. Worsh's Shagrin, I guess, in talking about maybe even a 50 basis point rate hike in December. If you look at the Neo clouds right now, these are companies that are borrowing a lot of money and are sort of like getting very leveraged. Surely a lot of the stocks are up this morning. Surely rate hikes higher interest rates would be bad for that business model. Yeah, I heard you I wrote about them yesterday because I ran came out last week and said basically the prepayments from customers was quite good. So the free cash flow is looking better for that particular name and their borrowing needs may need to go down. Thanks for everyone's waiting for core weave, which has a little bit of a different leverage profile and a little more in the hole there. And then I guess we get Navias too, which is more like iron. So there seems to be also like a little bit of Mamie differentiation now even in that neoclass kind of sub world. Because if people are prepaying quicker, then obviously it's not as much borrowing. We know that's that simple. Let's see what core weave does. Also, again, they're massively over so that index is down 70%. These are all sitting very negative positioning as well and that positioning is very expensive to hold if volatility collapses or if the skews starts to change against you. So basically if you didn't get out now and you're waiting for the next catalyst, maybe that's core weave after the bell. But you just need constant negative news for this sort of negative gamma dynamic to hold or you get bled out effectively out of the option positions. The premium is just a K. Big core weave is reporting today. Yeah, after the bell. Okay, so by the time listeners here will be out, but I think that's a bigger risk event in some ways. And CPI obviously while they're coming out, upping the odds into the CPI was kind of not helpful and you're seeing the two-year kind of sell off the notably and react to that. But overall, I think the AI story really needs to stabilize and we may not get that until we get through some of this regulatory ninbyism worries and I may take many months. But the actual position needs to stabilize. We need to see some rebuilding there because quite frankly everyone's almost flat to short and there's a lot of room now for a kind of new guys to step in. Iron, actually literally November 2025 is $77 stock today. It's a 21 dollar, but this is one of the ones that was like a Bitcoin mine that that is like we have some like access to the electricity grid. Maybe there's something more valuable. Hey, people were into it like six months ago. Maybe there's something we could be doing with it that's different. I mean, the numbers were impressed. I'm digging as much as I can into the actual earnings calls of not only sort of the hyperscalers, but the neoclass and also the pick and shovel guys at the industrial level. Everyone's backlog is pretty impressive. Iron's compute demand was very impressive. The growth there, obviously lots of leverage, lots of headwinds there and very rate sensitive in a lot of ways, but overall like I still feel like the story was over done when you see these 70% drawdowns. Now I don't, I'm like ball the macro strategy at Bloomberg, so other heads can weigh in. It does seem like there's been a notable drawdown and now the position is cleaned up. There are questions with some of these new clouds. There are lots of questions, but also about like tenant quality, right? So like I could be a customer of iron and I'm like, yeah, I'm going to, I'm going to spend with you over this, but like, that's not guaranteed, right? Like the quality, I'm not saying I don't know like who they are, but these are all concerns that start to creep in about like how good are your, I mean, I do think of them as real estate. How good are your tenant 100% I think that's why the question now isn't necessarily 27, which looks more secure for a lot of these guys as far as the backlogs, the prepayments. In the sort of confidence we have in the earnings, it's 28, like the whole story on 28 after the blue wave change because projects in kind of under already being done, aren't really at risk of being canceled in Texas. Now we got to hear from Ohio Georgia, obviously we have New Mexico, Arizona. There's many states that will have many varying things, but like the worries and necessarily the things that are already on the ground being worked on, the worries new projects. And that means 28 earnings and that obviously affects the needle clouds in that sense, because how much does then their costs equate to compute costs? Well, also on the compute tenants, like just going back to the conversation we had with Nashant about multi-strategy hedge funds, diversification would seem to be an issue too, right? If all of your tenants are in one way or another exposed AI, which I'm guessing they probably are, right? Well, I really got hit because Microsoft, Microsoft wanted them to upgrade their chips apparently, which was a setback for a project, because now the chips are moving faster than the projects can get done. So there's a lot of, like again, you guys have been covering this well, super complicated and very hard to get one narrative story, but it's all operational risk now. Just curious, were you a little bit surprised that, and we're going to record an episode on this ASAP, but the Jensen scandal did not have ripples outside of Nvidia? I mean, there's actually three pertinent things, Nvidia was not done that much. Nvidia had been down, is having a ban here. It's way off its highs like many of these other names. The news is not totally new, Bloomberg, like a lot of this was basically out there at all just sort of became top of mind at once, but like are you a little surprised at this point that like here's the crown jewel of the AI infrastructure story, and like we really don't know much about how it's going to be managed in a few months. I go back and forth in this, and this has been obviously the debate we've all been having for 24 hours now, since it broke this weekend, and literally I think the AI trade now has become bigger than the anthropics and videos, and I get that Nvidia scene is central for the financing, but I also push back that that's going to change if the CEO changes, maybe the growth trajectory as far as the advancements of new chips and where they take kind of M and A and like how they expand that sense will change of Jensen leaves, but overall as the cornerstone, and I'm not yet seeing anything going to make me think that's shaky. Again, yesterday was really a pain trade of everyone getting squeezed out of shorts and covering puts, so like the fact that everything else went up in the semis and sort of AI picking was more mechanical again. That's sort of what what the main point should be the last sort of three or four days since Wednesday literally have been just mechanical versus sort of AI narrative shifting a lot in my opinion, that's just my been. I guess we should talk about the anthropic IPO as well, which is the other, I guess, event risk that's sort of coming up on the horizon. So they released, I guess, their preliminary valuation $1.4 trillion that they're aiming for, which is down from what a lot of people were expecting just even a few weeks ago. Two, yeah. When you have all this new equity supply, I guess coming into the market, would you expect to see that have an impact on other AI stocks? Yeah, I think so. And I think obviously people have to sort of rebalance. I think two, there's two broader things. One, this year has been one of the first years where actual broader equity supply is no longer shrinking. Buybacks, as we know, were primarily being driven by hyperscores, which free cash flow now has shrunk enough that that buyback pulse, at least for 27, is totally under question. And it's come off this year. And when you take employee compensation, it's even less. You know, we had three years there since basically 24 where equity supply was actually shrinking. So that was very good as you still had massive passive flow coming from even outside the corporate buybacks. Now to your point, like, yeah, it's going to crowd out. But what that said, like, it's 80 billion. It looks like that's kind of the number they're throwing around. I mean, SpaceX was absorbed well. And I'd say that was a more risky proposition in some ways, although we can debate that as well. And probably a higher valuation. We don't need to debate that. Yeah. But I guess, look, these are big numbers in theory, but the market's pretty big. And it can absorb this as long as the story behind it is compelling, which I think it is. And valuations come off now. Like it was that two trillion, I probably would be more worried. So almost like, let's get through the risk event and then what's move on to the next part of the story. And that's kind of where I'm at as far as clearing event. Can we talk about the hyperscalers themselves? I was thinking about this. Like if I think of a company like alphabet and meta, these are the two examples, I feel like I could bucket them into three distinct businesses. And here's what tell me if this is crazy. There is a legacy business that prints money. Let's just say we're talking about alphabet. There is a legacy business that prints money and that is search and it is still a huge moneymaker. There is a capital intensive business, but is also quite profitable in unit economics. And that is building clouds either for themselves or for others. And then there is maybe like a call option, which is will Gemini itself become a really valuable AI model in itself. Anyway, other models or is it just going to be sort of in the pack? I'm curious like how the street thinks of the hyperscalers right now, because it feels like there are a few different economics embedded within each one. I think it's a great question. I think also for your example, you can say are the TPUs going to meaningfully and that could also be sort of a call option, like could, especially like within video. It's like maybe, yeah. That certainly prices the multiples you want to sign on the different business segments. I think the interesting thing was the hyperscalers didn't do very well because the traditional businesses struggle. And I think they struggle for reasons outside like Amazon had some issues, Microsoft had some issues and Google had some issues. Actually, Microsoft did quite well to be clear, but Google had some issues with search, which makes perfect sense because search weakness. I'm using cloud more than I'm using Google probably to the detriment of token usage and I shouldn't be, but we're all learning how to kind of adjust to this new tech. And that's probably going to be a little bit of a jitter for traditional businesses like search. So it doesn't make sense, but I think the cloud business and the growth and the monetization of the cloud business is the cornerstone getting back to kind of your question of the story of the story of the number one clue pie has to keep growing. And it's actually growing quite impressively still. And that's why we all get kind of lost in the narratives like token prices or, you know, financing or even like competition and an in-biasm. But as long as computes growing, they can probably power their way through this. And that's what we're hearing. And when I look to some of the experts on the street like the Gavin Bakers and these guys who put out quite a lot, it's really about watching that metric. And so far, there really isn't any flinch. We're still in a decent part of the S curve there. Okay. I feel compelled to ask this even though I don't know if it feels like this isn't really in the zeitgeist of the market anymore. But it is at the same time driving a lot of market moves. So I don't know how to square that, but oil, right? So we've seen oil. Some of the pressure come off recently. People are speculating that maybe we're going to see an end to the Iran conflict. How much of a factor is oil at the moment? Yeah, it's big. And I mean, it's decoupled from rates again, which was nice. I mean, yesterday was interesting. That's Monday. In fact, we equities were ripping. Yields were sort of rising because all of a sudden the growth picture was getting better and that traditional kind of balance between rates and the equity had kind of resumed, but oil had fallen massively. And usually oil would drag down sort of yields and treasuries and we didn't get that. So people were again rechanging sort of the calibration correlations across asset. But as far as oil, like the backdrops actually positive, if we can sort of end this kind of overhang of geopolitical risk premium, barrels are getting out. I think JP Morgan up their surplus for even this year to 1.5 million barrels. And the product markets actually loose and nice. So crack spreads and all that have come off. And even in Europe, like the Dutch gas market has come off nicely and that's helped European stocks. So the energy pulse as we just saw in CPI today had been materially starting to come into core, changing our fed calculation. So anything now with oil falling down, and I don't know where the range is because there will be a higher premium. And there's still a lot of inventory to be rebuilt. And there's still obviously a lot of things lurking with not only the Gulf, but Ukraine and Russia, which could change some of that. But the price will be higher. But it looks like now the skew is funny enough lower, although it'll be a bumpy path. Because again, now we're a little bit over. So we just moved about $10, $15 in a short amount of ore period, our size or oversold option position, funny enough yesterday picked up. People were buying calls again. You could see $100 Brent being kind of a point where people thought we'd get back to. Yeah, I hadn't read so much cracks had come down. Yeah, yeah, 70. It's pretty surprising, actually. The price of the pump, as we all know, is lagging that, but it should fall it fully. I don't think it would have the Republicans this time around. He promised to oil would fall off to the election. Yeah, I think they should have campaigned on lower crack spreads. Trust it. The crack spreads are coming down. We promise that they'll trick out through to the pump, too. That's the ball. Thanks for coming on the applause, guys. Thanks so much, Michael. Joe, I thought that was a really good overview of what's been going on. Like, to me, last week was sort of the mechanics of markets on full display. Yeah. Again, the reason we've been doing so many episodes on things like structured products, these strats, levered ETFs, is because you do have them. It seems adding to volatility or adding to the selling pressure when we start to get a down market, which I think is what we saw last week. And again, when it comes to multi strats, I think this puts a pretty big question mark around a lot of the business model and the defining feature of multi strats, which is the focus on short-term returns. Yeah. And so again, when you have an environment where things are flipping basically on a daily basis, and they're trying to chase those trends, it feels like a react to them. It again adds to the force of the selling or the buying. Yeah. Completely agree. And yes, listeners, listen to our technical episodes, because I'm sorry. Am I being too to ham? No, not at all. Not at all. I think that's right. And I think, like, Nishant said about like, okay, why is it to put a down 2.3 month bad, right? But it's, all right, no one likes to lose 2% of their money period. Every hedge fund will have down months, like in down quarters, that's everyone has always had it. But if you think about like an institution, start from the level of the endowment or the pension or whatever, if you have a lot, you're inherently long risk assets. You have to be. You're paying for the hedge. It's in the name. You're paying your, you're inherently long risk assets. Most of your money isn't going to be things going up over time. So then when you have an allocation to the hedge and it doesn't serve as a hedge in a terrible month or in a really brutal month, you can see why a bunch of people like get their hair on fire and get fired and stuff like that. It's not the losing money per se, it's not even the losing money. The size, it's the fact that it did not serve its purpose in that particular month from the perspective of the broader portfolio. They paid for the hedge. They didn't get the hedge, right? Like, it's that simple, but actually that reminds me, I want to know what Citadel did in October. Yeah, I do too. To e-cout a positive return. So open invitation to Citadel if they want to come on the show and I guess, you know, lord it up over everyone else. Tell us all of the skews of all of your, tell us all of your Q-sips and all your equity hold. That was October. It's November now. Yeah, just tell us. Why not? Shall we leave it there? Let's leave it there. This has been another episode of the All Thoughts podcast. I'm Tracy Alley. You can follow me at Tracy Alley. And I'm Jill Wyzenthal. You can follow me at the stalwart. Follow our producers, Carmen Rodriguez, Ed Carmen Arman, Dashobendant, and Dashbot. Kale Brooks and Kale Brooks and Kevin Luzano at Kevin Lloyd Luzano. And of course, you can chat about all these topics 24/7 in our discord discord.gg/hotlots. And from our AdLots content, check out our daily newsletter, which you can find at bloomberg.com/hotlots. And if you enjoyed this conversation, if you like it, when we do these market checkups, then please leave us a positive review on your favorite podcast platform. And if you're watching on video, then please like or leave a comment, or better yet, subscribe. And remember, if you're a bloomberg subscriber, you can listen to all of our episodes absolutely at free. 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