About two weeks ago a YouTuber called Wall Street Ajae posted a video analyzing the Situational Awareness fund and its founder Leopold Aschenbrenner.
The content is qualitatively different from what the so-called stock experts who show their faces here and there say about this fund, so do watch it once.
Now that everyone knows the outcome, I think this fund's weakness can be summed up as: the big direction was right but the timing was wrong. And at the root of that wrong timing lies excessive use of leverage.
He got most of the earlier periods right, but this last position alone sat exactly opposite the market, so being driven to the brink of liquidation was inevitable.
Even the hedging with put options along the way is all revealed in the 13F, and up until participating as an anchor investor in the Hynix ADR listing on July 10 it seems he could still hold on.
Given the nature of a hedge fund there could not have been zero leverage, but if he had not used leverage as excessively as four times, he could well have held out over time.
This is not about "single-stock leverage ETFs".
Speaking of which,
restrictions on single-stock leverage ETFs began on July 31.
Well, only two trading days have passed, but has market volatility (up or down) fallen as public opinion, the market and the government claimed, or has the persistent fall of Samsung and Hynix repeated over the past few weeks, as again today, subsided?
The trading value of single-stock leverage ETFs has clearly shrunk to less than a sixth of what it was.
As I have argued repeatedly, the market has proved that the cause of high market volatility and falling share prices was not single-stock leverage ETFs.
The government has to correctly identify the cause of the problem before it can operate or overturn anything, but pushed by public opinion nobody is trying to look at the essence and they hurriedly put out only misplaced stopgaps.
So I have no expectations going forward either.
I think that if even a few of the measures below had been carried out, individual investors' losses in this downturn might have been limited.
1) If, instead of limiting single-stock leverage ETFs to the two names Samsung Electronics and Hynix, they had expanded them to around the top 20 by market cap and launched them simultaneously, the excessive concentration into Samsung and Hynix, which already account for a large share of market cap, would have been prevented and resources would have been appropriately dispersed
2) A temporary restriction on short selling
3) Restrictions and sanctions on foreigners' high-frequency trading (HFT) - only over last weekend did a few experts start mentioning this issue.
4) Temporary restrictions on the various forms of financial leverage individuals can easily access across all stocks (margin, credit and so on). It is hard to grasp even the loans individuals bring in from outside the market, but within the market restrictions could have been imposed at will.
For Leopold Aschenbrenner too, had it not been for leveraged money, time would most likely have been on his side.
As semiconductor share prices fell because of macro factors and various noise, and individuals' money concentrated in single-stock leverage ETFs was continuously wiped out, public sentiment turned ugly, and since people lost 2 or more where they would have lost 1 without it, it felt as if a riot might break out. - For about three weeks after the May 27 listing nobody raised any complaint. Why? Because Samsung Electronics and Hynix were heading toward their highs.
I lost money, and of all things my loss was aggravated by a single-stock leverage ETF the government approved, so take responsibility!
Does that even make sense.
If I post this on the free board, or even under this very post, comments will probably again mindlessly say "single-stock leverage ETFs are the cause of the problem!"
This is why public opinion is truly frightening.
The end.
PS. What is genuinely funny logically is: "because of leverage ETFs listed in Hong Kong and elsewhere with domestic stocks as the underlying asset, dollars are flowing out excessively. So let us launch these domestically" - if that is true, then it is proof that trading those leverage ETFs day and night barely affects trading in the underlying shares, no?
But then again, they say "single-stock leverage ETFs caused a wag-the-dog phenomenon that created excessive volatility". If that is right, does it not mean that most of the ETF purchase money that flowed abroad, minus fees, eventually flows back into the Korean market? Then what dollar outflow???
In other words, mutually contradictory claims were being spouted by the very same actors (the market, public opinion, the government). Nobody talks about the contradiction between these two claims.
Even an ordinary person like me senses something is off, yet not a single one of the market's clever people and experts points out this contradiction, which is really...
