CWS Market Review – August 25, 2026

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The Fed Meets in Jackson Hole

This weekend, the Federal Reserve will host its annual shindig in Jackson Hole, Wyoming. Historically, the Fed has used Jackson Hole to announce major policy changes. Kevin Warsh will be speaking to the conference on Friday.

An important issue facing Warsh is how much information the Fed is providing. Warsh has tried to tamp down on the practice of investors betting on any change in the Fed’s behavior from clues buried in the Fed’s communications. (I remember when people looked at the size of Alan Greenspan’s briefcase for clues.)

For example, Warsh has pared back the regular post-meeting policy statements. He’s also not a fan of the Summary of Economic Projections. I think Warsh is correct on this; however, it’s left critics to say there isn’t enough information coming from the Fed. It’s not that Warsh is trying to hide information. Instead, he wants to downplay the information that may not be so important, or worse, misleading.

Warsh has a firm stance that inflation will get back to the Fed’s target of 2%. That hasn’t happened in more than five years. Personally, I’m not so worried about hitting an arbitrary target, as long as the Fed is broadly opposed to inflation.

Warsh was criticized by some for a shaky post-meeting press conference. Oddly enough, that makes Warsh’s point that investors should not be investigating the press conference for supposedly hidden clues. After Warsh spoke, bond prices dropped.

I will be curious to see if Warsh has anything to say about the Treasury’s plan to buy back long-dated Treasury bonds. What if the Fed raises short-term rates at the same time the Treasury issues larger sales of short-term Treasury bills? Traditionally, the yield curve has been the Fed’s territory.

I also want to hear what Warsh has to say about a potentially slowing economy. Is this a bump in the road, or a larger problem? Overall, I support Warsh’s approach. Of course, he hasn’t faced a serious challenge. At least, not yet.

Should We Walk Away From Our Debt?

The U.S. federal debt recently hit $40 trillion. That’s more than $120,000 per person, including children.

The total debt is a staggering figure, and it shows few signs of slowing down. The debt prompted an unusual essay in the New York Times. Paul Vigna, the author of the essay and a talented writer on all things financial, suggests an old solution. A very old solution.

Vigna suggests an amargi. Nope, I’ve never heard of it either. According to Vigna, ancient societies had an amargi which was “a blanket declaration of public debt cancellation.”

Hmmm. I have to admit that I’m not exactly keen on this idea. In general, I don’t think answers to modern finance can be found in the teachings of the ancient Sumerians (no offense to any Sumerian, ancient or not).

Vigna writes:

About 4,400 years ago, a Mesopotamian king named Enmetena issued an edict. Essentially all public debts, he declared, were canceled. (Amargi typically left debts between merchants in place.) People who had been sold into bondage were freed. Similar edicts gave back land to farmers who had lost it to creditors.

One finance professor called it “Probably the worst op-ed I’ve ever read in the New York Times.” Indeed, debt can be a big problem for any country, and its compounding nature can be especially cruel. Vigna says, “amargi was a relief valve, a final rebalancing tool.”

My concern is that in the modern age, no one can simply will debt away. Debt forgiveness is when both parties agree. If only one party agrees, then it’s called … well, theft. What happens when the U.S., or any country, tries to borrow again? If they try, any future creditor will demand a sizable risk premium which would make their debt problems even worse.

There’s also the issue of credibility. Governments work for the people, not the other way around. If the government makes a promise, which borrowing money is, they should honor it. I realize it’s old fashioned, but to many of us, honor is important.

Vigna writes:

The reason the practice often worked in the first place was because the ancient world understood something about our monetary system we have mostly forgotten: Money is an invented social construct. It isn’t real, not in the way a tree or a stone is real. The system of money and credit is a thing humans made up. It’s a record-keeping device for distributing resources. And since money is a human creation, we can alter it when needed.

It’s true that money isn’t real — it’s a shared fiction — but the actions underlying money are very real. Vigna seems to think we can do away with debt and not have to worry about the obvious ramifications.

People are right to be concerned about the debt, but a better solution would be to manage our finances more responsibly and pay off our debt. We’ve done it before. From 1995 to 2001, the federal debt as a percentage of GDP fell from 65% to 44%, and we did it without the help of King Enmetena. We just have to learn how to say “no”.

The Decline and Fall of Situational Awareness

One of the worst curses that can afflicted a young money manager is to be right and early. That certainly was the case in 2022 when a 24-year-old named Leopold Aschenbrenner started a hedge fund called Situational Awareness. Aschenbrenner had an interesting backstory. He had been fired from OpenAI where he was accused of leaking company secrets.

Situational Awareness was dedicated to AI investments, and the fund was a smash hit. Aschenbrenner raised tons of money and the returns were outstanding. In 2025, the fund made more than 200%.

The fund borrowed heavily to make even larger bets. But when he came to New York, Aschenbrenner faced a cooler reception. He was grilled by seasoned investors and seemed to have little idea that his investments could all go wrong. I guess I’m lucky in that I lived through events that were once thought impossible right up until the moment they happened.

Goldman Sachs told Aschenbrenner to pay back some of the fund’s debt. This was a problem. The only way they could do that was to sell some of their holdings. As a result, the fund had a fire sale of its assets. The mass selling quickly turned popular assets into high-risk dangerous stocks.

For example, the fund shorted Adobe (ADBE), a stock I happen to like. The stock did indeed go down, but it hasn’t been driven out of business as many predicted. In fact, shares of Adobe have had a nice rebound.

Aschenbrenner eventually reached a deal with Citadel, the hedge fund kingpin. Kenneth Griffin agreed to buy Aschenbrenner’s assets at a steep discount. According to a source in the New York Times, Situational Awareness dropped from $30 billion in assets to $8 billion. In my opinion, they got off light. It could have been much worse.

This week, we learned that the SEC is investigating the mess Situational Awareness made. The SEC has sent subpoenas to the banks that the fund worked with. They told the banks to hold on to any information they have regarding Situational Awareness. To be clear, the fund hasn’t been accused of doing anything wrong.

Situational Awareness was a major client of firms including Bank of America, Citi, Goldman Sachs and JPMorgan Chase. The fund still owns Anthropic which will be going public sometime soon.

That’s all for now. Tomorrow, the government will update its report on GDP growth for the second quarter. The initial report pegged Q2 growth at 1.5%. That’s not so hot. I’ll have more for you in the next issue of CWS Market Review.

– Eddy

Posted by on August 25th, 2026 at 4:39 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.