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Welcome, everyone. Today, we are going to dig into a thrilling and spine-chilling financial thriller that unfolded right in the heart of Wall Street. This is the story of those who, amidst arrogance, extreme fear, and a storm of bloodshed, turned a tremendous fire through ruthless calculations. Let's delve deep into the Situational's Margin Call tragedy and the Citadel's unprecedented hyena tactics.
Alright then, shall we get started right away? Everyone remembers the market from last July, right? The global stock market was truly a nightmare . Countless fund managers were throwing away their stocks in shed tears of blood out of sheer terror. Just when market volatility was running wild, someone was quietly smiling while licking up the blood that others were spilling as they cut their losses .
How on earth was this massive predator of Wall Street able to swallow up the crisis and become a billionaire when everyone else was fleeing in terror? At the starting point of this incredible story is a young genius. It is Leopold Ascensembrenner, who founded the fund called Situational Awareness . Wow, surprisingly, this friend was only 24 years old.
I did n't even have any experience trading professionally on Wall Street. However, relying solely on his exceptional insight into the future prospects of AI, he succeeded in raising enormous funds in an instant and establishing a massive fund. But the investment strategy this friend chose is really extreme yet interesting.
Imagine a heavy supercar and a huge rock precariously balancing on a very thin rope . Here, this massive rock is precisely the massive scale of banklight, or leverage. They borrowed an astronomical amount of money from the bank and placed a strong buy bet on stocks benefiting from AI infrastructure, while conversely placing a short bet on software companies expecting a decline .
He didn't have much of his own money, but he made a truly extreme all-out bet using the massive rock of debt. What was it like in the beginning? This seemingly reckless strategy turned out to be a massive hit. As the market heats up with the AI craze, this consecutive betting generates an astonishing performance rate of 270% as of May 2024.
That's a really crazy figure. The market was completely blown away, and it looked like the perfect victory of this young genius . Thanks to this explosive growth, the fund's assets under management stood at approximately $4.5 billion as of early July. So, it is snowballing into anxiety on a scale of a whopping 6 trillion won.
With famous former quant traders joining as executives, this 24-year-old man truly became a new legend and living myth of Wall Street overnight . But, everyone, there’s no way the stock market will have clear skies forever . From July, strong winds and rain gradually begin to rage. As the macroeconomic downturn shook the market, even AI stocks, which seemed unshakeable, bowed slightly.
Actually, for an average investor, it was at a level where they could just endure it, thinking, "Oh, it's a light struggle." However, for Situational, who was carrying that huge ball of rain just above a precarious critical point, this small wave turns into a fatal tsunami . If you have ever borrowed money to invest here, the word you fear the most is a margin call.
As stock prices plummeted, the banks that had lent money mechanically started strangling them, demanding that they bring in additional cash immediately . It was a final ultimatum stating that since the collateral value had dropped, they would either deposit more money or forcibly sell all the stocks they held.
A terrible cycle of vicious twists and turns began to turn, in which assets were forcibly liquidated completely against the fund's will . Now, here, this fund falls into a suffocating trap . If you need to secure cash immediately due to bank pressure, you have to sell the stocks you hold during trading hours, right?
However, because the volume they hold is so massive, they fell into a huge dilemma where the moment they dump those shares onto the market, the stock price would plummet even further under the weight of their own sell-off bomb . The more I sell, the more it strangles me . Ultimately, they are driven to the brink of a precipice where they must sell off their holdings with tears of blood.
The most chilling part at this point is the meeting of two completely opposing forces . On one side is a 24-year-old fund suffering from a severe cash drought, gasping for breath while holding a cyanide bomb set to explode tomorrow . On the other side was the Citadel, Ken Griffin's massive empire that miraculously blocked the smell of blood and emerged from the darkness .
The Citadel had plenty of cash on the day, so there was absolutely no need to rush. As the rulers of the market, they toss very harsh conditions at this desperate prey. This is exactly how Citadel executives whisper to a fund in crisis . We'll buy your entire portfolio . But sell it for 10% off the current market price .
Chairman Ken Griffin, who was in London at the time, personally led all-night negotiations and easily crushed the restrictions of other competing funds. In the end, he pulls off a ruthless deal, sweeping up all the lucrative AI stocks in the over-the-counter market with a 10% discount before the supply could even flood the market .
I licked up the blood spilled by others to secure immediate, guaranteed profits without any risk. This entire process unfolded at a truly breathtaking speed. The fund, which hit a 270% peak in May, fell into a fatal margin call swamp with just one shallow market shake in July . And just before the market opens on Thursday, July 30, the situation comes to an end as Citadel swallows up this fund, which was driven to the brink.
It took less than two months from success to ruin and the predator's hunt . Wow, isn't Wall Street really scary ? The fallout from this forced sale was too harsh for the young genius. Situational funds, unable to withstand short-term volatility like shattered glass and handing over assets at bargain prices, suffer a complete mental breakdown .
Of course, thanks to other assets invested previously, the overall annual return was defended, but the scars left on the fund and the market by this crisis were indelible. A single number perfectly demonstrates the dangers of leverage . -67% In just one month of July, unable to withstand even a single instance of market volatility and margin calls, two minutes of the account simply evaporated into thin air .
It is very clear evidence of how violently the market turns out when liquidity collapses . Now, conversely, what about the Citadel faction, which snatched up blood-stained assets at a bargain price? The champagne for the toast truly popped open . As the Citadel takes on the entire volume, the fear of price gouging that was weighing down the market vanishes like magic .
So, the suppressed AI stocks will skyrocket like crazy as if nothing ever happened, and generate massive returns. As a result, the Citadel rakes in profits that will truly go down in history . Pitadel equity funds surged a whopping 14% during the month of July, and its flagship Wellington fund rose 6%, breaking its best monthly performance since 2022.
Tactical trading funds surged by a whopping 11%, achieving their highest returns ever. While other hedge funds were wailing over the bear market, they fed on the fear of others to throw away the largest money feast in history . The message this incident conveys to us is very clear. The real ruler of the stock market is not just the person who analyzes companies well and successfully executes the future of AI technology .
Even if fundamental values remain unchanged, the fact is that what truly dominates the market is the massive cash liquidity capable of delivering sables to parched land during a crisis, and the thick guts to snatch up falling collars with bare hands. True predators view the market exactly like this.
Market fear is just a 10% discounted price tag to some. I mean the harsh truth that when the masses—the novice investors—panic, lock in their losses, and flee, a thoroughly prepared giant takes advantage of it as the safest and sweetest bargain opportunity . So, everyone, what were your thoughts after today's spine-chilling Wall Street story ?
When a crisis strikes and the economy turns pale, will you become prey to be thrown away in fear at a pittance? Or will you become a lion that pierces through the essence of the volatile market and snatches up the opportunity? When investing in the future, please make sure to check not only the value of the company but also whether your capital has the sustainability and patience to withstand the crisis. We will be back next time with more interesting and informative stories.
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