Today let me offer up one of my patented periodic reminders to do your own work.
As many have already pointed out, there was something almost too neat about Citadel’s timing before the Situational Awareness blowup. In late June, Citadel Securities published a market-structure review warning that U.S. equities had become unusually concentrated, that investors were increasingly expressing bullishness through leverage, and that leveraged exposure was piling particularly aggressively into technology and semiconductors. They also warned of a rate hike possibility.
Leveraged ETF assets had reached roughly $218 billion; semiconductor exposure in those products was up 175% since the end of March. Financing was getting more expensive too. It was not a prophecy about one hedge fund, but it was a pretty good description of the tinder.
Then July supplied the match. Situational Awareness, the spectacularly successful AI fund run by Leopold Aschenbrenner, got caught in the semiconductor selloff with a leveraged and concentrated book. Its portfolio fell 67% in July. Margin pressure followed, most of the public-equity portfolio had to go, and the fund that had looked like a genius machine suddenly discovered one of finance’s oldest technological breakthroughs: the margin call. Aschenbrenner did what, in my opinion, all market cowards unable to accept responsibility do: blamed short sellers.
The interesting bit is who showed up with a checkbook after. Citadel, Ken Griffin’s hedge fund, bought most of Situational Awareness’s roughly $16 billion public-equity portfolio. Some positions were acquired at discounts of more than 10%. Within weeks Citadel had already eliminated more than 80% of the aggregate risk it had taken on, including through nearly 100 block trades worth more than $4 billion. Citadel gained roughly 6% in July while quite a few AI tourists were discovering the difference between conviction and collateral.
To be precise, Citadel Securities and Citadel the hedge fund are separate businesses. There is no evidence that Citadel Securities issued its market-structure warnings because Citadel wanted Situational Awareness’s assets on the cheap. That would be a much more exciting story, unfortunately requiring the minor inconvenience of evidence.
But it’s definitely worth…noting. And that’s what this piece is about. You don’t need a conspiracy theory to notice the lesson. Citadel Securities warned that a particular market structure was fragile. That structure cracked. Forced sellers appeared. Citadel then had the balance sheet and trading machinery to buy what those sellers could no longer hold. The warning and the purchase did not appear to be contradictory. They looked to me to be two different moments in the same trade. But there’s no evidence of that.
Still, that makes it worth remembering now that Citadel Securities is warning about the Treasury market. Its latest note, “Hard Choices,” attacks Scott Bessent’s expanded buybacks of long-dated Treasury securities, describing them as “financial repression at the margin.” The argument is that Treasury is trying to lean against long-term yields without addressing the reasons those yields are high in the first place: deficits, inflationary pressure and an economy already running hot enough to make additional easing questionable.
Citadel’s argument is straightforward. If policymakers prevent the adjustment from happening through lower bond prices and higher yields, the pressure does not politely disappear. It goes looking for another door. Citadel thinks that door may be the dollar: constrain the adjustment in Treasuries, weaken the currency instead, loosen financial conditions, import some more inflation, and congratulate yourself on having successfully moved the fire from the kitchen to the living room.
Read literally, this is a warning against long-duration Treasuries. But after Situational Awareness, I feel like there should be another way to read it. Maybe the most useful question is not whether Citadel is right that bonds are vulnerable. Maybe the useful question is what happens if Citadel is right enough to create the kind of price Citadel would eventually want to buy bonds at…
That is the distinction Wall Street macro commentary regularly obscures. “This market is dangerous” is not remotely the same statement as “this asset will be unattractive at every price.” A 30-year Treasury at one yield can be an awful proposition. The same instrument after a violent liquidation and another hundred basis points of yield is literally a different investment.
Suppose Citadel is correct. Treasury intervention fails to resolve the fiscal problem. Long yields rise and bond funds take losses. Leveraged players reduce positions, risk managers demand smaller books, and everyone who was reaching for duration six months earlier suddenly explains that they were always fundamentally a cash investor. At some point the sellers stop being people with opinions and become people with instructions. That is usually when the interesting buyers arrive.
That was the interesting part of Situational Awareness. The warning “leverage and concentration are dangerous” ultimately led not to “never own these assets,” but to a moment when somebody very sophisticated was delighted to own them at somebody else’s distressed price. This is the way investment-bank macro should be read: not backwards in the childish sense that Goldman says buy, therefore sell, but structurally backwards. If this thesis becomes consensus, what positions does it create? What liquidation could it eventually force? And who gets the much better entry after everybody obeys it?
There is a mildly uncomfortable possibility here. A macro analyst can be completely sincere, analytically correct and still produce a conclusion that eventually becomes most valuable in reverse. “Bonds are vulnerable” can eventually mean bonds are becoming cheap. “The dollar is doomed” can eventually produce a very crowded short. “Credit is too tight” can cause spreads to blow out until lending becomes attractive. Markets are annoying that way. They insist on changing the price after everyone agrees on the story.
You cannot prove that an investment bank secretly believes the opposite of what its strategist publishes, and in most cases that is probably the wrong framing anyway. Giant financial firms do not possess one brain and one position. The research desk, market maker, trading desk, clients and asset-management businesses can all have different exposures simultaneously. Asking “what does Goldman really believe?” is often like asking what all of New York City thinks about lunch.
But the broader lesson goes well beyond Citadel, Goldman, JPMorgan or any particular investment bank. And the lesson applies to not just macro, but also sell side equity research: trust no one on Wall Street. Not because everyone is lying. That would actually make things easier. The problem is that everyone is talking from somewhere. Everyone has a book, a mandate, a time horizon, clients, incentives, constraints and a definition of risk that may bear almost no resemblance to yours. The billionaire telling you an asset is dangerous may be able to withstand a 40% drawdown that would liquidate you. The bank telling you something is attractive may be simultaneously financing the people selling it. The hedge-fund manager predicting disaster may simply be describing the event that would give him his dream entry price.
And don’t be hypnotized by the number of zeroes involved. Managing $10 billion does not make somebody ten times more correct than somebody managing $1 billion, and working at an institution overseeing trillions does not confer access to the tablets from Mount Sinai. Large institutions possess extraordinary data, talent and market access. They also produced Long-Term Capital Management, the mortgage crisis, Archegos, countless consensus trades and enough catastrophic “research notes” to fill the East River. Capital is evidence that somebody has successfully accumulated or attracted capital…it is not a certificate of omniscience.
The correct response is not cynicism for its own sake. It is independence. Listen to everyone precisely because you trust no one. Go ahead, read Citadel and Goldman. Read JPMorgan, the Fed, the bears, the bulls and the lunatics on X. Hell, read it all. That’s why you’re reading *this *after all, right? Then, steal their facts, inspect their arguments, understand their positioning where you can, and then make the irritatingly adult decision yourself.
Because the most important question in markets is rarely “Who is right?” It is: right about what, at what price, over what time horizon, with how much leverage, and with whose money? Two investors can hold opposite positions and both make money because their constraints are different. Two investors can believe exactly the same thesis and one can go bankrupt because he borrowed too much to express it.
I read Citadel’s Treasury warning carefully. They may be exactly right about the underlying problem. Long-term yields may need to rise. Treasury buybacks may merely relocate the pressure. The dollar may ultimately have to absorb some of the adjustment. But then read the warning again and ask the question Situational Awareness makes impossible to ignore: if this goes badly enough, who is waiting to buy?
Trust no one. Do your own work. And whenever Wall Street tells you what you should desperately want to sell, at least ask what price would make Wall Street delighted to buy it from you.
QTR’s Disclaimer**:** Please read my full legal disclaimer on my About page here.
This is not a recommendation to buy or sell any stocks or securities, just my opinions. I often lose money on positions I trade/invest in. I may add any name mentioned in this article and sell any name mentioned in this piece at any time, without further warning. None of this is a solicitation to buy or sell securities. I may or may not own names I write about and are watching. Sometimes I’m bullish without owning things, sometimes I’m bearish and do own things. Just assume my positions could be exactly the opposite of what you think they are just in case. If I’m long I could quickly be short and vice versa. I won’t update my positions.
As of May 20, 2026 I am attempting to no longer actively trade as much as I once did ( read my story here). My eventual goal is for investing/saving to be mostly done by recurring contributions mostly to sector ETFs and a few select equities, trusted third parties who oversee my accounts, and advisors. Such advisors or funds, through individual equities, options, index funds, mutual funds, ETFs, or other securities, may have positions in, exposure to, or holdings of names mentioned herein that I know nothing about. Basically, via index funds, ETFs and individual equities it is possible I could own, have exposure to, or not own anything at any point. As of the same date, May 20, 2026, in an attempt to lead a healthier lifestyle, I’ve also excluded myself from fantasy sports, sports betting, online and in-person casinos and prediction markets.
And all positions can change immediately as soon as I publish this, with or without notice and at any point I can be long, short or neutral on any position. You are on your own. Do not make decisions based on my blog. I exist on the fringe. If you see numbers and calculations of any sort, assume they are wrong and double check them. I failed Algebra in 8th grade and topped off my high school math accolades by getting a D- in remedial Calculus my senior year, before becoming an English major in college so I could bullshit my way through things easier.
The publisher does not guarantee the accuracy or completeness of the information provided in this page. These are not the opinions of any of my employers, partners, or associates. I did my best to be honest about my disclosures but can’t guarantee I am right; I write these posts after a couple beers sometimes. I edit after my posts are published because I’m impatient and lazy, so if you see a typo, check back in a half hour. Also, I just straight up get shit wrong a lot. I mention it twice because it’s that important.
