Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This says the Bloomberg
Speaker 1: Daybreak europ podcast. Good morning, It's Friday, the thirty first
Speaker 1: of July. I'm Stephen carollin Brussels. Coming up today. A
Speaker 1: dramatic twenty four hours for a leading AI hedge fund,
Speaker 1: as Ken Griffin's Citadel snaps up billions of dollars of
Speaker 1: Leopold Ashenbrenner's leveraged bets that went sour. Europe's football governing
Speaker 1: body UEPHA says it will boycott the World cop if
Speaker 1: FIFA sells a steak in the tournament. Plus feeling the heat,
Speaker 1: while Europe's unstoppable wildfires are now a terrifying new normal.
Speaker 1: Let's start with a roundup of our top stories. Assets
Speaker 1: at the hedge fund Situational Awareness have plunged from forty
Speaker 1: five billion dollars to about ten billion after margin calls
Speaker 1: forced it to unwind heavily leveraged bets on artificial intelligence.
Speaker 1: The fund, led by former Open AI researcher Leopold Ashenbrenner,
Speaker 1: billions of dollars of stock before Ken Griff and Citadel
Speaker 1: stepped in to buy most of the portfolio with more
Speaker 1: here's Boomberg's Crispit.
Speaker 2: He was hailed as the Nostrodamis of AI, a young
Speaker 2: oracle with a bold prophecy for the future. Before launching
Speaker 2: his hedge fund just two years ago. Leopold Ashenbrenner had
Speaker 2: never managed money professionally. Even so, Wall Street banks were
Speaker 2: willing to lend him up to five times his capital
Speaker 2: as he built giant bets on the AI boom. But
Speaker 2: when technology shares tumbled, those same lenders demanded more collateral,
Speaker 2: triggering a wave of force selling calls went out across
Speaker 2: Wall Street, before Ken Griffin Citadel struck an overnight deal
Speaker 2: to buy most of the portfolio at a discount, ending
Speaker 2: the scramble to rescue the funds positions.
Speaker 1: Yet, as the.
Speaker 2: Dust settles on Ashon Brenner's chaotic week, the twenty something
Speaker 2: appears set to emerge only bruised from the saga. He
Speaker 2: still runs one of the world's biggest equity hedge funds
Speaker 2: in London, Chrispit Bloomberg Radio.
Speaker 1: Well after several bruises days for one of leopol Dashenbrenner's
Speaker 1: biggest holdings, ske Heinix, is helping to lead a record
Speaker 1: reband in South Korea's stock market today, the cost be
Speaker 1: surging as much as seventeen percent, its biggest gain on record,
Speaker 1: while sk Heinix climbed almost thirty percent as investors piled
Speaker 1: back into AI stocks. The rally was helped by Citadel's
Speaker 1: purchase of Situational Awareness's AI portfolio, alongside strong global tech
Speaker 1: earnings and fresh government support for South Korea's AI industry. Well,
Speaker 1: big tech earnies are delivering sharply differing verdicts on the
Speaker 1: race to profit from artificial intelligence. Amazon shares jumped after
Speaker 1: cloud revenue grew by thirty seven percent, while Microsoft added
Speaker 1: a record four hundred and fifty billion dollars in market value,
Speaker 1: following its fastest cloud growth in about four years. But
Speaker 1: Apple fell in after hours, trading by around six percent
Speaker 1: after warning the chip shortages and rising memory costs will
Speaker 1: weigh on sales in the current quarter. Here's Bimbertech's ed
Speaker 1: Ludlow really.
Speaker 3: Fell in after hours has Apple explained that the September
Speaker 3: quarter things are going to get more tough, not just
Speaker 3: because of higher memory prices, but tighter supply.
Speaker 1: The underestimated demand.
Speaker 3: Which means that there is a shortage of leading edge processes.
Speaker 3: It is multifaceted, and that outlook where they see revenue
Speaker 3: growth from nine percent to eleven percent in the September quarter,
Speaker 3: below the streets estimate of above twelve percent, it really
Speaker 3: overshadowed what was a strong June quarter.
Speaker 1: Ed Ludlow. They're dissecting Apple's results and what's proved to
Speaker 1: be a mixed bag for big tech earnings. Meta shares
Speaker 1: fell almost eight percent in yesterday's session after outlining plans
Speaker 1: to commit nearly seven hundred billion dollars to future AI spending.
Speaker 1: The diverging share moves underscore that investors now want evidence
Speaker 1: those investments are generating returns. Anthropic says it's artificial intelligence
Speaker 1: models breached three separate organizations during cybersecurity tests that accidentally
Speaker 1: escaped into the real world. The company says its review
Speaker 1: found three instances in which its claud ai tool gained
Speaker 1: access to the Internet and hacked what it described as
Speaker 1: the real world infrastructure of external organizations. Sharin Gafari, as
Speaker 1: our AI reporter, it found.
Speaker 4: In coordination with one of its partners, that yes, its
Speaker 4: models had actually been able to reach the Internet in
Speaker 4: three different cases involving third party organizations and improperly look
Speaker 4: for ways to sort of do better on internal evaluations
Speaker 4: or achieve internal evaluations.
Speaker 1: Sharen Gafari points out that the disclosure comes just over
Speaker 1: a week after open Ai revealed one of its own
Speaker 1: AI models accidentally hacked another during company or another company
Speaker 1: systems during similar testing. The Bank of Japan has kept
Speaker 1: interest rates unchanged at one percent while maintaining a hawkish
Speaker 1: stance on inflation. The decision came after Japanese authorities intervened
Speaker 1: overnight to support the en whose week This has been
Speaker 1: adding to price pressures. Boj's more optimistic assessment of the
Speaker 1: economy reinforced expectations it could raise interest rates again as
Speaker 1: soon as October. The Spanish government has ordered an emergency
Speaker 1: military deployment to one of its African enclays after an
Speaker 1: illegal immigrant surge. Spanish media have reported that thousands Christs
Speaker 1: crossed in to the city known as Theuta yesterday, mainly
Speaker 1: by sea. The crisis has drawn scrutiny from across Europe,
Speaker 1: including a threat by Italian Prime Minister Georgia Maloney to
Speaker 1: suspend the European Union's freedom of movement agreement with Spain.
Speaker 1: The Spanish Defense minister said in a statement yesterday evening
Speaker 1: that soldiers will be sent to reinforce the security forces
Speaker 1: in THEOTA and Europe's football governing body is set to
Speaker 1: boycott FIFA international tournaments if the group goes ahead with
Speaker 1: controversial plans to seal stakes to private investors. The decision
Speaker 1: by Europe's powerful member association was finalized during a virtual
Speaker 1: crisis meeting to address the sell off. Former FA chairman
Speaker 1: David Bernstein's feels the collaborative approach will get the right
Speaker 1: outcome Igland on it.
Speaker 4: So no, you know, we're a big dation in football,
Speaker 4: but we can't do very much on our own. If
Speaker 4: we try to do something against FIFA. Frankly, they would
Speaker 4: tell us where to go.
Speaker 5: But we do a file.
Speaker 1: We're very very powerful, so I think it's absolutely right
Speaker 1: that we work with UEFA.
Speaker 5: We're part of that.
Speaker 1: David Bernstein, speaking their former FA chairman. The news follow
Speaker 1: significant backlash to FIFA President Gianni Infantino's plans to transfer
Speaker 1: major commercial and tournament operations into a new entity called
Speaker 1: FIFA Forward Enterprise and raise up to four point two
Speaker 1: billion dollars from external investors. UEFA said in the statement
Speaker 1: no ua FA national teams will participate in any FIFA
Speaker 1: competition for so long as these proposals remain alive. And
Speaker 1: those are our top stories on the program. On the
Speaker 1: markets this morning, that jump in South Korea's cost me
Speaker 1: almost seventeen percent at the moment, lifting the broader REMSCI
Speaker 1: specific index by four point three percent. Eurostocks fifty future
Speaker 1: is positive two by eight tenths and Nasdaq futures on
Speaker 1: Wall Street up by one point two percent.
Speaker 5: Two.
Speaker 1: Oil prices are lower this morning one point six percent,
Speaker 1: eighty seven dollars and sixty four cents. As we are
Speaker 1: watching the Japanese yen after the Bank of Japan held
Speaker 1: interest rates at one hundred and sixty sixty three, so
Speaker 1: holding on too much of yesterday's strength after the intervention
Speaker 1: by Japanese authorities in the markets. Well, in a moment,
Speaker 1: we'll bring you more on the incredible story of the
Speaker 1: AI bets that went sour for one hedge fund, plus
Speaker 1: why climate change is making Europe's wildfires more extreme and
Speaker 1: more difficult to control. First, a word on other story
Speaker 1: that I've been reading this morning on what to do
Speaker 1: with grand government buildings the state no longer needs Sarah
Speaker 1: Rappaport from Bloomberg Pursuits has been writing about the latest
Speaker 1: conversions in London. So we had the Old War Rooms
Speaker 1: becoming a Raffles hotel, the former US Embassy becoming the
Speaker 1: Chancery Rosewood. Next up in terms of high profile conversions
Speaker 1: is the Admiralty Arch between Trafalgar Square and the Mall,
Speaker 1: which will reopen later this year as a wald office story.
Speaker 1: Now it closes an office building back in twenty eleven.
Speaker 1: It was sold by the UK government for some sixty
Speaker 1: pounds in twenty twelve. It's going to reopen as a
Speaker 1: hotel this year. Series and speaking to some of the
Speaker 1: developers and architects who've been working on these designs and
Speaker 1: it does seem like hotels are a good fit for
Speaker 1: these buildings. Companies don't want them as offices because they're
Speaker 1: technically complex. They're often not very energy efficient. The government
Speaker 1: doesn't want to pay for the upkeep renovating them as
Speaker 1: complex and expensive, so you need deep pockets. Just one
Speaker 1: example cited in the pieces from the renovation of the
Speaker 1: Old War Rooms that cutting a new doorway in the
Speaker 1: building needed planning permission from local authorities. Selling them of
Speaker 1: course does raise revenue for the government as well. They're
Speaker 1: not entirely uncontroversial though as sales of course, questions about
Speaker 1: whether or not they're selling off part of the country's heritage,
Speaker 1: although the heritage body Historic England, who Sarah spoke to
Speaker 1: for this piece, said that the compromises are often preferable
Speaker 1: to watching landmark buildings fall apart or full vacant. I
Speaker 1: should say as well, really interesting piece on the transformation
Speaker 1: of our city centers and what exactly they're being turned into.
Speaker 1: I've been in the old war rooms. It's pretty fancy,
Speaker 1: so at least there is a chance that you can
Speaker 1: go in there as a regular person, which perhaps he
Speaker 1: might not have been able to do when it was
Speaker 1: a government building. So an interesting piece and we'll put
Speaker 1: a link to it in our podcast show notes. Let's
Speaker 1: bring you more now though, on the dramatic twenty four
Speaker 1: hours for the hedge fund, Situational Awareness forced to sell
Speaker 1: billions of its technology investments this week to Citadel at
Speaker 1: a massive discount. Our market supporter Anthony Stevens joins us
Speaker 1: now for more. Anthony, first of all, can you give
Speaker 1: us a bit more background on Situational Awareness and its
Speaker 1: founder Leopold Dashenbranner.
Speaker 5: Yeah, Leopold is actually a really closely followed member of
Speaker 5: the hedge fund community, especially by retail. He has some
Speaker 5: very deep thoughts on AI that are very famous because
Speaker 5: he's authored a pay per in twenty twenty four highlighting
Speaker 5: how we would get to artificial general intelligence, which is
Speaker 5: the holy grail off AI. He has a deep technology
Speaker 5: background and is just generally a really bright guy. He
Speaker 5: grew a two hundred and twenty five million dollar hedge
Speaker 5: fund up to ten billion dollars, so that is his
Speaker 5: track record until this laterst wipeout, and he's done it
Speaker 5: through very concentrated bets across the AI supply chain, whether
Speaker 5: you're talking about energy or chips of this plane lllms
Speaker 5: in the case of anthropy in the private market. So
Speaker 5: he's invested across the supply chain and done really quite well.
Speaker 5: It appears though, that he's been caught off guard with
Speaker 5: the big change in direction over the last couple of
Speaker 5: months when he was at his maximum size, and that's
Speaker 5: what's caused the problem here.
Speaker 1: So I suppose talk us through exactly what happened when
Speaker 1: things started to go wrong and how did sitad Alan
Speaker 1: ken Griffin get involved.
Speaker 5: So what happens when a large fund like this is
Speaker 5: on leverage is that they get that money from a
Speaker 5: prime broker. Now, when those holdings are worthless, the prime
Speaker 5: broker needs their money back because they've lent you the
Speaker 5: money in the first place, and they're getting, you know,
Speaker 5: thirty forty percent marked down in the value of the holdings.
Speaker 5: So these prime brokers came to Situational Awareness for money,
Speaker 5: and to raise that money you would need to sell
Speaker 5: in the market, and there's been some of that pressure
Speaker 5: on the holdings recently. But in the end, you want
Speaker 5: to kind of get the money quicker instead of selling
Speaker 5: it in market, and that's where Citadel comes in. Citadel
Speaker 5: is a block player. They would have charged a discount
Speaker 5: for the liquidity that they are providing for Ashon Brenner
Speaker 5: and Situational Awareness to get out of these positions. Once
Speaker 5: that's done, you can see the selling pressure alleviate in
Speaker 5: the portfolio of names that they own, and most of
Speaker 5: those names up fifteen to twenty percent. That includes the
Speaker 5: Skehenix ADR where Situational Awareness was a cornerstone player in
Speaker 5: the Ada launch. So that's one of the reasons COREA
Speaker 5: is on fire.
Speaker 1: Today, So what does the future look like then? For
Speaker 1: situational awareness and I suppose what's the lesson from this
Speaker 1: story and the volatility of these investments.
Speaker 5: Well, to start with the lesson first is just a
Speaker 5: combination of leverage and voltaity. It never goes well. Seeing
Speaker 5: that even in Korea with the retail investors and their
Speaker 5: leverage ETFs, that combination has not worked out in the
Speaker 5: last couple of months and there's some step losses there
Speaker 5: because the risk management quite frankly you know, is a
Speaker 5: bit stretched.
Speaker 1: In terms of the future.
Speaker 5: He is sitting on very large positions in private markets,
Speaker 5: in most notably in Anthropic and other names in the
Speaker 5: AI space, So how he monetizes that or whether he
Speaker 5: gets to hang on to that is a point of conjecture.
Speaker 5: Reporting suggests that he looked to sell those stakes as
Speaker 5: well before changing his mind after he got the public
Speaker 5: markets liquidity. The next step is he's looking to raise
Speaker 5: new money now. It will be very interesting how whether
Speaker 5: his early LP's limited partners, who did really well with
Speaker 5: him at the beginning, choose to reload, and if they do,
Speaker 5: what does he choose to reload in will he stick
Speaker 5: with the original beds or has his investment thesis changed,
Speaker 5: so when he comes back with new money, his thirteen
Speaker 5: F filings of what he's bought will be super interesting.
Speaker 1: Certainly. Well, Anthony, thank you very much for bringing us
Speaker 1: the background to this fascinating story and also where it
Speaker 1: may go next. That's our Markets reporter Anthony Stevens. Stay
Speaker 1: with us. More from Bloomberg Daybreak Europe coming up after
Speaker 1: this now. Wildfires are continuing to burn in many parts
Speaker 1: of Europe, with hundreds of thousands of people forced from
Speaker 1: their homes in France and in Spain. Scientists say that
Speaker 1: climate change is making fire weather more common and more extreme.
Speaker 1: Our reporter and either Azuke joins us now from Paris
Speaker 1: for more. Now, first of all, you were in Bordeaux
Speaker 1: this week reporting for this story. What is the situation
Speaker 1: like there now?
Speaker 6: Thank you for having me. It was actually a sad
Speaker 6: site to tour the Bordeaux area, which is normally full
Speaker 6: of happy tourists who come to the area to visit
Speaker 6: the beautiful old town. You know, there are camping sites,
Speaker 6: normally upscale resorts like cafet where people come to enjoy
Speaker 6: the oysters. You know, at the end of the day.
Speaker 6: My thought was scratching. You know, even areas where there
Speaker 6: are no fire, it's kind of hard to breathe and
Speaker 6: walk around. I saw people wearing masks. Basically, the firefighters
Speaker 6: are still battening the flames on all fronts, you know,
Speaker 6: in the Bordeaux area, in other places in France and
Speaker 6: also in Spain. They are truly unprecedented wildfires. You know,
Speaker 6: across France and Spain, we've had more than three hundred
Speaker 6: and twenty thousand people evacuated, which is like the largest
Speaker 6: wildfire evacuation operation in Europe possibly ever. Now thousands have
Speaker 6: started to return to areas where the flames are now
Speaker 6: under control. But you know, the largest fire in the
Speaker 6: Bordeaux region continues to you know, continues on and we've
Speaker 6: had more than forty two thousand hectars roughly, if you want,
Speaker 6: four times the size of Paris burnt. Already since January,
Speaker 6: we've had more than one hundred thousand hectars burnt in
Speaker 6: the country, which is very significant. You know, we have
Speaker 6: fires also on hills overlooking the Mediterranean and also in
Speaker 6: the island of Corsica. So basically twenty twenty six is
Speaker 6: already the worst wildfire season on record in France.
Speaker 1: And why are these fires proving so difficult then to control?
Speaker 6: It's really a combination of different factors. Firstly, you know,
Speaker 6: we've seen repeated heat waves. We are at the fourth
Speaker 6: heat wave this year and we're not even in August yet,
Speaker 6: so that's one thing. The temperatures are exceeding forty degrees
Speaker 6: celsius in many parts of France but also in southern
Speaker 6: Europe where you are seeing all these fires. There is
Speaker 6: also another factor where we are having very wet winters
Speaker 6: which allow shrubs to grow, and then you have weeks
Speaker 6: of heat waves and hot, dry weather which make all
Speaker 6: these very bustable in forests and vegetation. And the third
Speaker 6: factor is really strong winds, which you know, allow fires
Speaker 6: to spread very rapidly and change direction with very little warning.
Speaker 6: These can create something which is called in firefighting slang
Speaker 6: pyrocumulon limbus clouds, which are fire clouds that you know,
Speaker 6: generate their own weather. They can have like powerful updrafts
Speaker 6: and unpredictable winds can make these firefighting operations very difficult.
Speaker 6: Firefighters also speak about something called zombie fires, which is
Speaker 6: basically that the fire continued to burn underground without being visible,
Speaker 6: and then they can flare up several days or even
Speaker 6: weeks later. This happened in twenty twenty two. You know,
Speaker 6: there were big fires and it took months in some
Speaker 6: areas years to put them out completely because they continued
Speaker 6: to burn underground.
Speaker 1: Yeah, frightening scenes that we've seen beamed around the world
Speaker 1: from France and Spain and elsewhere as well. In a
Speaker 1: moment like this, it's very difficult, of course, to talk
Speaker 1: about the economic consequences, because this is a live situation
Speaker 1: for those both fighting it and those who are worried
Speaker 1: about the future of their homes. But what do we
Speaker 1: know about what all of this will mean for the economy,
Speaker 1: given that you know, climate change seems to be indicating
Speaker 1: this could be a recurring event.
Speaker 6: So the economic impact will almost certainly amount to billions
Speaker 6: of euros. There are no accurate figures for now, but
Speaker 6: it's surely in the billions of euros. You know, the
Speaker 6: in France's Johonne there are more than thirteen thousand businesses
Speaker 6: that have been disrupted by evacuation orders, affecting more than
Speaker 6: one hundred and fifty thousand workers. You know, you've had
Speaker 6: major industrial and defense sites, including from companies like tals
Speaker 6: and Erbus and Thatsaw Aviation, which have temporarily reduced or
Speaker 6: suspended operations. They evacuated some sites. You know, tourism has
Speaker 6: been taking a very significant hit during the peak holiday season.
Speaker 4: You know this.
Speaker 6: We are in July and August. You know, we have beaches, campsites,
Speaker 6: roads closed. In the Bordeaux area. I saw empty restaurants
Speaker 6: on piazzas normally full of tourists. Hotels are at thirty
Speaker 6: percent occupancy when they are normally at above ninety percent.
Speaker 6: You have agriculture which is suffering from burned forests and
Speaker 6: livestock losses, smoke affecting vineyards and crops. You know, this
Speaker 6: is like the top whining region in France with cint
Speaker 6: Emilion and other areas. And that's not counting the huge
Speaker 6: cost of emergency response, you know, helping people return home,
Speaker 6: rebuilding the homes, the roads, the infrastructure, and insurance claims.
Speaker 6: You know, only maybe ten percent of climate related economic
Speaker 6: losses in Europe are typically inshored, so the rest will
Speaker 6: fall on governments and businesses and local communities.
Speaker 1: Thanks for listening to Bloomberg Daybreak Europe.
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