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Intelligence for the Considered Investor
The Clarmond Daily
Friday, 31 July 2026 · Weekend Edition · Est. MMXIV
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The market decided the AI boom was overbuilt, then decided it wasn’t, and ended the week close to where it began. A fund that bet the boom with borrowed money did not get to change its mind.
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On This Day |
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31 July 1790 — 236 Years Ago Today
On this day in 1790, America issued its first patent, signed by President Washington. Not for an engine or a weapon, but for a better way of making potash, the chemical behind soap and fertiliser. The republic’s first protected idea was merely a useful one.
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Markets — Two Moves That Mattered |
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The Fund That Wrote The Bull Case
A $20bn AI fund is broken up
The most vivid casualty of the week was not an index but a person. Leopold Aschenbrenner, a former OpenAI researcher, wrote the essay that became the definitive bull case for artificial intelligence, then built a hedge fund to back it with money. It worked spectacularly — reportedly up more than 400% in eighteen months, swelling towards twenty billion dollars — until it did not. The fund ran about four times levered, so when its crowded AI bets fell and its software short positions moved against it this month, the margin calls arrived from Goldman Sachs, JPMorgan and Bank of America at once. This week it sold its entire public stock portfolio in a single block trade to Ken Griffin’s Citadel, and its assets have reportedly halved to around ten billion dollars. The index recovered by Thursday. The leverage did not get a second chance.
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Equities — The Round Trip
Microsoft leads a violent rebound
The wider market spent the week proving it could not make up its mind. On Wednesday a hawkish Federal Reserve sent the Dow down more than 1,100 points; on Thursday it rose over 600, and the Nasdaq leapt almost 3%, its best day in months, as Microsoft jumped 16% on the strength of its cloud business — the largest one-day rise in the company’s value on record. Apple and Amazon closed out the megacap earnings season after Thursday’s bell. The lesson of the round trip is not that the doubt was wrong, but that conviction is thin. A market that can fall a thousand points and rise six hundred inside two days is sure of only one thing: that it does not want to be the last one holding.
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Risk Markets — Two Stories in Focus |
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I
The war stops pretending to be paused
The lull is thoroughly over, and the war is widening rather than narrowing. American and Saudi forces struck Iran-backed militias across several bases in Iraq — the first time Riyadh has openly fought alongside the United States — and Iraq’s Popular Mobilisation Forces say at least twenty of their members were killed. Iran answered with a fresh wave of missiles aimed at Saudi Arabia. Baghdad, whose bases were hit, is left condemning a strike on its own soil that it had no power to prevent. What began five months ago as a duel between two states has now drawn in a third openly and a fourth against its will. The pause the markets had priced was never a peace — only an intermission.
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II
The catastrophe with no oil price to make us feel it
While the world watched the Gulf and the Nasdaq this week, the gravest disaster on earth carried on almost unwatched. In Sudan, now years into a war between its army and the paramilitary Rapid Support Forces, famine has been formally confirmed in the besieged city of El Fasher and the town of Kadugli, with a score more districts on the edge of it. More than thirteen million people have been driven from their homes, the largest displacement crisis in the world. A new report this month from Amnesty International documents mass atrocities as the Rapid Support Forces took El Fasher. There is no barrel of oil to move a price here, and no index to fall, so it competes for the world’s attention and loses. A famine is not less real for being ignored. It is only lonelier.
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Political Diary — Two Stories in Focus |
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This Week · Tokyo
Japan’s prime minister trades colleagues for time
Sanae Takaichi is discovering how quickly a mandate curdles. Barely five months into her second term, her approval rating has just suffered its sharpest fall yet, and she is preparing to reshuffle her cabinet in the autumn, with the finance ministry and her party’s powerful secretary-general among the posts in play. In Japan, where public opinion moves governments harder than in most democracies, a slide like this is a warning rather than a wobble. She arrived promising firm, conservative rule. A reshuffle this soon is the sound of a leader trading colleagues for time — usually the move of someone running short of both.
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This Week · Caracas & Tehran
A crack opens in the axis of the aggrieved
A rare and public rift has opened between two of Washington’s loudest adversaries. Venezuela has summoned Iran’s ambassador to protest remarks by the Iranian foreign minister, who reportedly sneered that Iran, unlike Venezuela, would not be cowed by the United States. The jibe stung because it was near enough true: since American forces captured former president Maduro in January, Caracas has quietly turned towards accommodation, holding US-supervised talks and cutting deals over its oil. Iran, still fighting its own war, has little patience for an ally that folded. It is a useful reminder that the so-called anti-Western bloc is no bloc at all, only a set of governments that dislike Washington until the price of defying it comes due.
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Noise Cancellation — The Week, Filtered
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The week threw a great deal at you, most of which changes nothing. Here is what actually does.
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MovedThe round trip. The Dow fell more than 1,100 points on Wednesday and rose over 600 on Thursday, rescued by Microsoft’s cloud results. The level barely changed on the week; the message did. The market will now sell the AI spending it doubts and buy the AI spending it believes.
MovedLeverage. A twenty-billion-dollar AI hedge fund was broken up and sold to Citadel after margin calls. The index round-tripped; the borrowed money did not. When a crowded trade is financed four-to-one, the way out is a doorway, not a hall.
MovedThe war. It widened. Saudi Arabia openly joined American strikes on Iraqi soil, Iran fired back, and the “pause” that markets had priced is gone. Watch the oil price, not the war communiques.
UnmovedInterest rates. The Federal Reserve held, and sounded hawkish, but did not actually move. Nothing you own has to change because of a meeting that changed nothing.
NoiseThe nightly earnings scoreboard. A beat here, a miss there, a stock up eight percent after hours and forgotten by the next open. The season’s one lasting lesson is simple: the market now rewards AI spending only when the revenue turns up to justify it. Hold onto that and you can ignore the rest.
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Carry two things into Monday: whether the leverage unwind is truly finished — forced selling has a habit of arriving in waves — and the oil price, now the honest gauge of a widening war. The rest can wait.
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Enjoy the weekend. The market will still be here on Monday — you don’t have to be.
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The Back Page |
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Where the week’s noise ends, a longer story. Twenty-eight years ago, the cleverest men on Wall Street proved that being right is worth nothing if you have borrowed too much to survive being early.
Greenwich, Connecticut · 1998
The men who were too clever to fail
In 1994 John Meriwether, a legendary bond trader from Salomon Brothers, gathered some of the finest minds in finance into a single hedge fund, Long-Term Capital Management. Two of his partners, Myron Scholes and Robert Merton, would win the Nobel Prize in economics in 1997 for the formula the whole industry used to price risk. This fund did not guess. It calculated. Its trades were arbitrages: small, near-certain gaps between prices that history said were bound to close.
The catch is that near-certain pennies are only worth chasing at enormous scale, and scale meant borrowing. LTCM borrowed on a staggering level, at times more than twenty-five dollars for every dollar of its own, and stacked derivatives on top with a face value beyond a trillion. On paper it was the safest machine ever built: diversified, hedged, modelled to the decimal place. For three years it returned around 40% a year, and the banks queued up to lend it more.
Then, in the summer of 1998, Russia defaulted on its debt — an event the models had rated as all but impossible. Frightened money everywhere ran for the same few exits at once, and the small, reliable gaps LTCM had bet would close instead flew violently apart. Because half of Wall Street held versions of the same trade, there was no one left to take the other side. The fund lost 4.6 billion dollars in under four months. Its genius had not been wrong; its borrowing had been fatal. Being right about the destination is no help when you are forced to sell at the bottom of the valley.
LTCM was so large, and so tangled up with every bank that had lent to it, that its failure threatened to pull the whole system down. That September the Federal Reserve Bank of New York summoned fourteen banks into a room and pressed them to put up 3.65 billion dollars to take the fund over and unwind it slowly. The men who were too clever to fail were rescued in the end not by their formulas, but by the fear of what their collapse would do to everyone else.
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The lesson of Long-Term Capital was never that its partners were fools; they were, by any measure, brilliant. It was that brilliance and leverage make a treacherous pair, because leverage strips away the one thing every clever trade depends on, which is time. The market can stay irrational, the old line runs, longer than you can stay solvent. The cleverest people in the room learn it the same way as the dullest: all at once, and too late. ■
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