{"id":30141,"date":"2026-08-04T04:00:00","date_gmt":"2026-08-04T02:00:00","guid":{"rendered":"https:\/\/www.thebrokernews.ch\/?p=30141"},"modified":"2026-08-03T09:11:12","modified_gmt":"2026-08-03T07:11:12","slug":"borrowed-time-planet-finance-e-lefebvre","status":"publish","type":"post","link":"https:\/\/www.thebrokernews.ch\/en\/borrowed-time-planet-finance-e-lefebvre\/","title":{"rendered":"Borrowed Time"},"content":{"rendered":"
Charlie Munger's three paths to ruin were alcohol, women, and leverage.<\/span><\/div>\n\n\n\n

The fireworks were at Microsoft, but the real story of the week was borrowed money beginning to break in four places at once: a celebrated artificial-intelligence fund wiped out by a margin call, a Korean market down forty per cent that forced a minister to apologise, private credit bolting its doors, and a currency that swallowed the two largest interventions on earth and barely moved. On the one risk Charlie Munger warned would ruin clever people<\/strong>.<\/p>\n\n\n\n

The fireworks this week were at Microsoft, and they were bright enough to blind almost everyone to the fire. In a single session the company added four hundred and fifty billion dollars of value, the largest one-day gain in the history of Wall Street, and the headlines duly announced that the danger had passed. It had not passed. Beneath the pyrotechnics, in the corners of the market that never make the evening news, borrowed money had begun to break in four separate places at once, and four is too many to be a coincidence. It is a pattern, and the pattern has an old name. Charlie Munger, who spent sixty years watching intelligent people ruin themselves, liked to say there were only three ways a clever person goes broke: liquor, ladies, and leverage. This was a week about the third.<\/p>\n\n\n\n

Regular readers know the conceit this column keeps returning to. On Planet Finance the force that does the work of gravity is the price of money, and when that price rises it is the lightest and most heavily borrowed-against objects that fall first. The price of money is now higher than it has been in a generation, and not in one country but across the whole developed world at the same moment.<\/p>\n\n\n\n

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Those are not the yields of a tranquil world. They are the yields of a world in which governments borrow without apparent limit, inflation declines to lie down, and the central banks that once soaked up this debt have not merely stopped buying but turned seller. A rising cost of money is a slow and remorseless pressure on everything built with borrowed money, which in the summer of 2026 is a very great deal. It is the tide going out, and this week we began to see who had been swimming without a costume.<\/p>\n\n\n\n

The fireworks, and what they hid<\/h6>\n\n\n\n

First, though, the fireworks, because they matter chiefly for what they concealed. Microsoft’s quarter was strong, its cloud division crossing a hundred billion dollars of annual revenue, but that is not what sent the shares up more than fifteen per cent, their best day since October 2008. What did it was a single sentence: management promised that its spending would not rise further and that it would stay cash-generative through next year. The market, which has spent ten months terrified that the oceans of money being poured into artificial intelligence will never come back, exhaled with relief. And notice what that tells you. On the very same evening, one great company after another reported genuinely excellent numbers and was sold anyway.<\/p>\n\n\n\n

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Apple posted the best quarter in its history and fell six per cent; Taiwan Semiconductor, a record and a fall; Meta, a fine result undone by cash flow bleeding into data centres. Only the one that promised restraint was rewarded. The market has stopped funding faith and started demanding proof that the money comes back, which is healthy, but it also means the whole index now rests on a handful of enormous names that carry it on their backs while, on Microsoft’s record day, seven in ten American shares actually fell. A market held up by eight companies and one promise of thrift is not a broad or a sturdy thing. It is a narrow ledge, and the drop on either side is the subject of the rest of this column.<\/p>\n\n\n\n

The oldest way to go broke<\/h6>\n\n\n\n

Consider the fate of Leopold Aschenbrenner, the young prophet of the artificial-intelligence age, whose essay on the coming machine superintelligence was read in every fund in the land and who parlayed his fame into an investment firm that had swelled towards forty-five billion dollars. This week it effectively ceased to exist. A margin call arrived, the fund was forced to dump its entire portfolio of public shares to Citadel in a hurried fire sale, and its assets collapsed towards ten billion, with the buyer, as ever, doing very nicely out of the wreckage. Here is the point worth dwelling on, because it is Munger’s whole warning in a single case. Aschenbrenner was not destroyed by being wrong about artificial intelligence; he may yet prove entirely right. He was destroyed by leverage. He owned his convictions with borrowed money, and borrowed money removes your right to be early. A decline he could have sat through unlevered became, with debt stacked on top, a decline that sold him out at the bottom against his will. That is the third L in one sentence: leverage does not punish bad ideas, it punishes good ideas held on credit, and it collects at the worst possible moment.<\/p>\n\n\n\n

If you want the same lesson written in a national hand, look at Korea, where the calamity was not a single fund but a whole population. Korean households had been shepherded, with official blessing, into exchange-traded funds geared two and three times to the technology stocks that had led the boom. When the boom turned, the leverage did what leverage always does.<\/p>\n\n\n\n

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The main index fell roughly forty per cent over the month, its worst since the Asian crisis of 1997, when Korean citizens queued to hand their gold to the state; something like two trillion dollars was erased; and the country’s finance minister was reduced to a public apology for having let ordinary savers buy the very geared products that were now devouring their pensions. Retail investors laid funeral wreaths at the exchange and promised a reckoning. It is worth stating the mechanism plainly, because it never changes: leverage does not create losses, it multiplies them, and it is precisely the small investor, sold the triple-geared fund at the top, who is standing in the doorway when the building decides to empty.<\/p>\n\n\n\n

The most comfortable trade in the world loses its comfort<\/h6>\n\n\n\n

The grandest instance of borrowed money, though, is not in Seoul or in a New York fund. It is the yen itself. For years the most restful trade in all of finance has been to borrow money in Japan, where it costs almost nothing, and lend it in America, where it pays four and a half per cent, pocketing the difference while the currency you borrowed conveniently sank so that you repaid even less. Free money, and half the world helped itself; hedge funds alone are reckoned to be sitting on some nine and a half billion dollars of bets against the yen. This week the authorities went to war with that trade, and the scale of it belongs in the record books. In a single day Japan bought roughly eight and a half trillion yen, about fifty-three billion dollars, the largest currency intervention in its entire history. And it did not act alone: for the first time since the 1990s Washington joined in, the New York Federal Reserve selling euros to buy yen on the American Treasury’s behalf, with Seoul in the market for its own currency the same night. The two largest chequebooks on earth fired together, on the same day, in the same direction.<\/p>\n\n\n\n

And here is the unsettling part. After all of that, the yen sits near a hundred and fifty-seven to the dollar, a stone’s throw from its weakest level since 1986. The two biggest treasuries in the world emptied a firehose onto the fire and the needle barely moved.<\/p>\n\n\n\n

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Why should a reader in New York or Geneva care about the price of a Japanese banknote? Because of a loop that ties all of this back to the floor beneath everything. To fund a defence of the yen, Japan must lay its hands on dollars, and Japan raises dollars by selling the one thing it owns more of than any other foreign nation on earth: United States government bonds. So the very act of defending the currency forces the world’s largest foreign creditor to dump American debt, which pushes American long-term yields higher, the same yields in the first chart of this column. The defence of the yen is, quietly, an assault on the American bond market. And when the two biggest chequebooks on the planet fire at once and the currency scarcely flinches, the lesson is not that the floor is safe but that the firehose is running dry. The move everyone fears from here is a disorderly unwind of the carry trade that lifts American yields and knocks American shares at the same time. Anyone who was lying on a beach in August two years ago remembers how fast that arrives.<\/p>\n\n\n\n

Behind the currency stands the machine I first flagged in these pages a month ago as the quiet pin under everything: a Japan whose longest bonds now yield more than four per cent, whose central bank already owns more than half of its own government’s debt, whose state owes more than two and a half times what the country produces in a year, and which must now sell America’s bonds to defend its currency with one hand while printing money to buy its own with the other. Two weeks ago I called that the pin. This week two governments spent the largest sum in the history of such things trying to hold it in place, and it barely held. Add the private credit funds that quietly barred their investors from the exit this month, and you have four rooms in the same house where the borrowed money is straining against the walls.<\/p>\n\n\n\n

Why it is all breaking at once<\/h6>\n\n\n\n

None of this is bad luck, and none of it is unconnected. It is all the same event, seen through different windows, and the event is the one in the first chart: the price of money has climbed to a twenty-year high and shows no intention of coming down. What makes the timing worse is that the institution which might once have ridden to the rescue has taken itself out of the game. At its meeting last week the Federal Reserve held rates, but three of its members voted to raise them, the sharpest split in a decade, and its chairman Kevin Warsh spoke for an hour while committing to nothing, hinting only that he no longer much trusts the inflation gauge the Fed itself has treated as scripture for twenty years. A central bank that distrusts its own thermometer, will not say what temperature it wants, and is content to let the bond market do the tightening it dares not own: that is not a safety net. It is an empty chair where the safety net used to sit. The rescue reflex a whole generation of investors treated as a law of nature has, for now, been switched off, and it was that reflex, and the free money behind it, on which all this leverage was built.<\/p>\n\n\n\n

Borrowed time<\/h6>\n\n\n\n

So gather the week onto a single page. Above, at the ceiling, a record firework display lit by eight companies and one promise to spend less. Below, in the foundations, the cost of money at a generational high and a central bank that has quietly folded away its net. And running between the two, borrowed money coming apart in four places at once: a feted fund sold for scrap on a margin call, a nation of small savers ruined by geared funds their own minister was made to apologise for, private credit bolting its doors, and a currency that absorbed the two largest interventions on earth and barely stirred, each of these pulling, through the yen and its Treasuries, on the same American bond market. Charlie Munger’s three roads to ruin were liquor, ladies, and leverage, and only the last has ever taken down the clever and the sober alongside the reckless, because it works on the arithmetic and not the character. I will not pretend to know the hour the bill falls due in full; those who set their watches by it have mostly been carried out early, still insisting they were right. And it remains entirely possible that the central banks reach once more for the tool they never truly put down, and print the problem forward into next year. But strip away the fireworks and what this week revealed is a market balanced on a narrow ledge of borrowed money while the ground beneath it grows dearer to stand on by the day. That is not a moment for fear, which is a poor investor in any weather. It is a moment for holding a little more cash, and a little less faith, than the crowd still believes it can afford.<\/p>\n\n\n\n

Eric Lefebvre<\/p>\n\n\n\n

See also: The Floor, Not the Ceiling<\/a><\/p>\n\n\n\n

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