Important story

NEW: Rosneft deep dive by Bloomberg News

+ Officials at Russia’s largest oil producer are concerned that even a few more months of the war with Ukraine could leave lasting damage across the business.

+ One of Rosneft’s biggest refineries, Ryazan, has been shut for more than half the time since it was first hit by Ukraine in May and has run well below full capacity when operating, according to damage assessments seen by Bloomberg.

+ Another, Syzran, has spent much of the past six months either completely shut or operating at less than a third of capacity, according to data reviewed by Bloomberg. The Tuapse refinery has been offline since April.

+ Ukraine is conducting repeat strikes on the refineries as soon as repairs are completed or nearing completion. The need to repeatedly repair damaged equipment is straining operations and causing costs to pile up to levels that Rosneft officials have privately warned cannot be sustained long-term.

+ Some plants have deliberately slowed repairs as a result, stretching work that should take days into weeks, according to people familiar with the matter.

+ Efforts to protect the facilities with shipping containers, nets and steel cables have proved ineffective against swarms of drones, company plans show.

+ The damage is particularly difficult to repair when strikes hit complex secondary units, whose parts would previously have been sourced from the West. It means relying on Russian-made copies and Chinese imports that can take months to obtain and are not always compatible with existing machinery.

+ It’s put Rosneft into financial trouble. Even before the ramping up of Ukraine’s drone campaign, the company saw a “perfect storm” for its finances. Since then, its profits are down and debt is rising despite what should have been a big windfall from the Iran war.

+ Moscow Credit Bank, which is linked to Rosneft, is showing signs of distress with $8 billion of problem loans. It highlights how both Russia’s energy and banking sectors are coming under strain at the same time, a dynamic causing concern to Russian finance officials.

All this and much more in the full story here: bloomberg.com/news/features/…

Really enjoyed being back on Odd Lots with @TheStalwart and @tracyalloway. Would indeed have been fun to debate perps with Terry Duffy. We clearly have different views…

Following my prediction on last year's recording that in 10 years compute will be bigger than oil, this year I revealed the name we use at DRW for the profit margin between tokens and GPUs: the crunch spread.

Oil into fuel: crack spread. Soybeans into meal and oil: crush spread. Nat gas into power: spark spread. As with those markets, futures on both the GPU hours and tokens eventually will let you trade—and hedge—the crunch.

Listen to Odd Lots on Spotify: open.spotify.com/show/1te7oSFyR…

Listen to Odd Lots on YouTube: youtube.com/playlist?list=…

Listen to Odd Lots on Apple Podcasts: podcasts.apple.com/us/podcast/odd…

The Month I Ran My Hedge Fund from the Local Chase Bank

After Enron went bankrupt in 2001, I decided to start a hedge fund. Until then, I’d spent my entire career at a large company, trading off its balance sheet. I knew how to trade, but knew little about the logistics of fund. Plus I had no peers in Houston who could help guide me through the process.

I found out-of-town legal help. My clearing broker was a NY investment bank, Smith Barney. I knew I needed two bank accounts: one for the business to pay rent, salaries, etc and one for the investor money that supported the trades. I figured, incorrectly it turned out, that I could stay local for the latter.

I figured I needed a national, sophisticated bank so I went to my closest Chase branch and asked to open a business account. They were very accommodating and asked some basic questions. Suffice it to say, they were as new to hedge fund finances as I was. But they were happy to have the new accounts, especially since one would be funded with a 6-figure deposit and the other would eventually be funded with millions.

In the spring of 2002, I opened the first account. I used it to pay for normal business expenses: rent, office equipment, legal fees, etc. All was fine.

In August, I called my external investors and told them to send their funds to join my personal investment in the fund to the second Chase account, the limited partnership account. They did. Chase confirmed they received the funds and had no problem.

Quick aside, energy trades in 2002 could be done on an exchange or over-the-counter directly with a counterparty. Most trades could be executed on exchange and be relatively capital efficient but some instruments only traded directly with counterparties. Today, exchanges clear almost any nat gas product one would want to trade but it was less so back then.

I had friends at another trading house, Sempra, who fast-tracked a credit arrangement for me to trade OTC there. I would have to post cash as margin to support my trades given I was not a so-called “credit-worthy counterparty,” but it was fine. I wasn’t planning on taking large net positions given my small capital base, though sometimes I might be long on the exchanges and short to Sempra, or vice versa. I would need to post initial margin and maintenance margin both at my clearing broker and with any direct counterparty to account for the daily price swings at both places. This meant I would have to move money between my prime broker, where I kept my exchange trades, and Sempra, several times a week.

The second week of August I started trading. The first thing I needed to do was send more than half of the LP account funds to my prime broker, where most of my trades would be. The neighborhood Chase branch executed this wire with no problem. Trading at first was small. The second week I did my first trade with Sempra. I had to post margin with them. Chase executed that wire with no problem.

By the third week my trades were picking up. I ended up long with Sempra and short on the exchanges. When the market went up, I had a surplus at Sempra and would ask them to send me those funds, as the credit agreement allowed to me to do. I needed that money to cover the offsetting exchange losses. Very quickly I was moving hundreds of thousands through my local Chase branch several times a week. Red flags quickly went off at the bank. Suffice it to say, I had not prepared them for this level of activity.

The following week the market fell. I needed to send money to Sempra hundreds of thousands of dollars. I told my prime broker to send some of my account surplus there to Chase, and asked Chase to send some of that to Sempra. That’s when my 4 week old hedge fund was hit by an almost fatal blow. Chase accepted the wire from Smith Barney, but I found out the next day that they did not send the wire out. Sempra was calling to ask where the margin money was. I didn’t know. I called Chase and they told me there was a hold on it but it would go out later that day. I checked in the late afternoon. It had not gone out.

I was at the bank went it opened the next morning. I explained how I needed this wire to go out. The account had been frozen, they said, until they got a green light from their compliance department. They didn’t properly “know your customer” and froze my account until they could understand what was going on. This level of activity out of a new account of this size was not something this branch had ever seen before. Nor did they understand an energy hedge fund with over-the-counter trades.

I was furious they had not explained this the previous day and asked them to just send out this one wire and then we’d sort it out. I’d move to another bank asap. They declined. I pleaded, just send this one. It wasn’t working.

I panicked. I had failed to meet my Sempra margin call. They could close my trades. I called Sempra from the bank, explained the issue, and convinced them to give me a 24-hour grace period. But if I didn’t meet my cash call by the next business day, they would close my trades. Then I would be imbalanced on the market with my just my short trades on the exchange. With a sharp market move in the wrong direction, my little hedge fund would have been toast within a month of opening.

Throughout this, normal bank customers were flowing in/out of the bank. I told them I wasn’t leaving the bank branch until they sent the wire. It was my money. I started to raise my voice and cause a scene, the best I could. I hoped they would send the wire just to get me to quit disrupting their normal flow of customers. I’m normally a quiet guy but my business, and maybe career, depended on convincing the branch manager to send this wire out. After two hours and a lot of calls with higher-ups, they consented, but they said they had to send a team to my office the next day to inspect my “business.”

The office space I had was nothing to fancy, to say the least. The building was fine, an 11-story class A. The office, a sublease, was 3 rooms. Open the door and you were immediately on the “trading floor”, which was one row of desks where the 5 of us sat. It had a small kitchen and a tiny conference room to the side. There were a lot of computers but of course no receptionist, no art, no waiting area, just a handful of 20 or 30 something year olds in shorts (August in Houston) with a football nearby.

Chase sent 3 bankers in suits. It was… awkward. I led them to the conference room and tried to explain what we did and why the funds had the velocity they did. They quickly told me that they were not equipped to handle my account and I needed to find another bank by the end of the week. I asked them to facilitate the wires for another couple days until I could, which they agreed to.

I called Smith Barney, my broker in NY, and explained the situation. They immediately understood and helped me open a bank account there. In retrospect, I should have had my investment account there from the beginning. I’d already had my business account at the local Chase and figured they were my bank. I had not properly distinguished between local Chase and JPMorgan Chase. I didn’t know any better.

As I later learned more about banking regs and KYC rules, I realized the local branch acted exactly as to be expected given the circumstance. It was my fault. Luckily, it got straightened out and I can laugh about it now. I still think about how naive I had been every time I drive by the bank branch.

The holy grail of all Venn diagrams

sobering moment for the crypto ecosystem as a whole - the frontier of mathematical capabilties is creating an immense surface area for risk

In 2012, Delta purchased a recently shuttered refinery in Pennsylvania for $150 mil, plus another $100 mil in planned capex to restart it. The investment got off to a rough start but lately has been a windfall.

There is a lot of debate about whether/how airlines should hedge their jet fuel exposure. Airlines can add fuel surcharges when prices spikes and pass the added costs to customers. Higher fuel costs are correlated with a stronger economy and higher demand for air travel, providing a natural hedge. And if other airlines choose not to hedge but collectively help set ticket prices, your hedges may not be reducing risk.

In addition, corporate finance experts are highly skeptical of upstream vertical integration, particularly of commodity inputs. It adds unnecessary complexity and is often a poor allocation of capital. Companies typically vertically integrate at the moment of maximum frustration with the supply chain, when asset prices are at their peak, and then divest when markets are loose and asset values are low.

Originally, the purchase was a mess. Superstorm Sandy disrupted the restart. Refinery margins fell. Prices for renewable credits soared.

In these situations, a successor CEO will often unwind the integration. Indeed, the 5 years after the then-CEO left in 2016 were terrible for refineries.

Luckily for Delta, they didn't dump it at the bottom. The successor and still CEO had been involved in the decision to buy it and has stuck with the strategy. And since 2022, it's printed money.

Refinery margins spiked in 2022-23, generating >$1.1 billion in operating income. In 2Q of 2026 alone, it made $351 million. And 3Q results, when released, will be even better.

This case study alone doesn't validate upstream integration. There are still many reasons to be highly skeptical. It is a lesson that if you choose to do so, you have to have long-term commitment to the strategy. Too often, these decisions are made based on the most recent years of performance.

1975 SNL sketch, NBA Hall of Famer Connie Hawkins (who stood 6'8") tracks down musician Paul Simon (who is 5'3") after hearing about Simon's legendary "neighborhood reputation" on the courts. The two face off in a highly mismatched, one-on-one game of pickup basketball.

I started fact-checking Donald Trump 10 years ago this month. Here are 15 thoughts on the nature of his lying, how it is received by the public and how it is covered by the media: cnn.com/2026/09/27/pol…

What makes the Covidian lesbian bar story so appealing is its quintessentially American and specifically New England character: a remote sect of true believers trying to preserve the old faith, but consumed by vicious factional conflicts over how to live up to its strictures…

A week later, I'm still thinking about NHJ's article on NYC schools. It was courageous but a huge missed opportunity to call for real reform.

She blames school choice, inequality, segregation, the wealthy and herself. But she seems reluctant to criticize the actors and policies implicated by the failures she documents, perhaps because those conclusions would be uncomfortable for many of her ideological allies.

- She describes absentee teachers, poor instruction, unresponsive administrators, and students who graduate without mastering the material. But she never calls for greater accountability at the district, school, principal, and teacher levels.

- She documents teachers failing to fulfill basic responsibilities but doesn't explore whether tenure and other employment protections allow chronic teacher absenteeism and poor performance to persist.

- She laments the concentration of disadvantaged students but doesn't consider whether NYCPS should consolidate under-enrolled schools, thus allowing more resources towards instruction and increasing socioeconomic diversity.

- She describes her daughter earning As in honors classes despite substantial gaps in her knowledge. Yet she doesn't consider the value of standardized testing as a check on grade inflation and identifying learning gaps before they compound.

- She describes how experienced teachers choose to work in better schools but doesn't salute the districts that have had “reform superintendents” like DC, Dallas, Denver, and Houston that have used cash bonuses to incentivize the best teachers to work in the most disadvantaged schools.

- She notes that eliminating homework harmed her daughter, but doesn't examine how the movement against homework is largely driven by equity advocates who argue that it can turn unequal home circumstances into unequal academic outcomes.

- She condemns school choice yet uses it to secure a better school fit for her daughter, without noting it’s the only realistic escape valve for families who can’t move or afford private school.

- She describes the “impossible balancing act” of teaching students at vastly different levels but doesn't explore how academic tracking can help students at both ends of the academic spectrum.

- She describes disruptive students who harm the classroom environment but doesn’t ask for stronger disciplinary actions to protect other students.

- She documents a school that lowered academic expectations in pursuit of equity but doesn't acknowledge how doing so perpetuates the very achievement gaps those policies seek to eliminate.

Hannah-Jones’ story was powerful. She supplied the evidence for a broad examination of why schools are failing disadvantaged students. It could have been the strongest call in a generation for urban school district reform.

Segregation and poverty are real obstacles. But they cannot become explanations that absolve everyone else of responsibility. We can’t wait to solve all societal issues before demanding higher performing schools.

Bloomberg just dropped the most disturbing investigation I have read this year, and every AI builder should read it and take it seriously.

On February 28, two Tomahawk missiles hit an elementary school in Minab, a small town in southern Iran. 156 people died. At least 123 were knew within hours that it had bombed a school.

The school had its own website. It was labeled on Google Maps. You could see the soccer pitch from a satellite view. You could see the brightly painted walls. Any 12-year-old with a browser could tell what the building was.

The AI system could not.

Inside US Central Command, personnel were using Palantir's Maven Smart System. It is an AI targeting platform running on a $1.3 billion Pentagon contract, and embedded inside it is Anthropic's Claude.

On day one of the war, more than 1,000 targets went through it in 24 hours. Work that used to take a team hours per target got compressed into minutes.

The satellite imagery Maven was pulling from was seven years old. The site was still tagged in the database as an Islamic Revolutionary Guard facility.

The system spat it out as a recommended day-one target. Humans signed off. The first missile flew. Then a second one landed minutes later to hit the people who came to help.

Investigators later found that some Central Command staff had assumed Maven would flag stale intelligence for them. It did not. Nobody had told it to.

Palantir told Bloomberg the government is responsible for the underlying data. The Pentagon's civilian harm mitigation team, the people whose actual job is to catch a target like this, had been cut back before the war started.

This is not AI going rogue. This is the opposite.

This is AI doing exactly what it was built to do at exactly the speed it was built to do it. And a school full of little girls got vaporized because the humans in the loop trusted the machine more than they trusted their own eyes.

I keep thinking about the version of this story that comes next. What happens when the system is faster. When the target list is not 1,000 in a day but 10,000. When "review" becomes a button the operator has three seconds to hit before the next target loads. When there is no human left slow enough to notice that a soccer pitch is not a helipad.

We are not talking about a spam filter mislabeling an email. We are talking about a system that turned a seven-year-old database entry into two cruise missiles landing on children in the middle of a morning class.

A UN-backed panel has now called it a potential war crime.

In terms of children killed, it is the deadliest American targeting error of the entire 21st century. And according to Bloomberg, some of Defense Secretary Hegseth's own advisors are worried that too much public scrutiny of Maven might slow down its adoption inside the Pentagon.

Read that last line again.

If you build this stuff, you own what it does. You do not get to hide behind "the government owns the data." The whole pitch of your product is that speed and integration save lives. When it takes them instead, that is also on you.

I am not against AI in defense. I am against AI in a hurry. Speed is the entire mechanism that made Minab possible. Every guardrail we already know how to build takes time, and time is exactly what the system was designed to eliminate.

So here is the question I have not been able to stop asking, and I genuinely want to know what you think.

If a piece of software helped kill 123 children in a single morning while behaving exactly as designed, what does "responsible AI" even mean anymore?

🚨 Jurgen Klopp on whether he misses his rivalry with Pep Guardiola after taking charge of Germany:

“I had my first proper sessions with Germany and afterwards I was sitting there thinking, ‘Okay… this is different.’

Then somebody asked me if there was anything I missed about nately, I thought of Pep. [laughs]

I spent years trying to get away from this man. You win 10 games, you look at the table and City have won 11. You get 97 points and somehow you’re 2nd. Before playing them you spend 3 days thinking about what Pep might change, then the game starts and he’s put a midfielder at left back for some reason.

It was exhausting.

But I miss it.

Because we believed in football differently. Pep wanted control. I wanted the game to become something nobody could control. He wanted 25 passes before hurting you. Sometimes I wanted three.

Neither of us changed for the other one. We just kept trying to prove our football could beat the other’s.

And I think that’s why those Liverpool-City games felt different. It wasn’t only two great teams. It was two completely different answers to the same question.

Now I’m with Germany and maybe one day Pep takes a national team.

🗣️ Reporter: “You actually want that?”

🗣️ Klopp: “Of course.

Give him Spain. Give him Brazil. Give him whoever he wants.

Then maybe we meet in a World Cup semi-final and spend another week pretending we’re enjoying ourselves. [laughs]

I think football deserves one more.

Pep once said he’d sleep better when I left Liverpool.

He’s had enough sleep now.”

There's a belief that college sports is awash in money. In reality it's hemorrhaging resources in a zero sum game. Schools can't grow their way out of this. Without real spending constraints, the bigger the system, the greater the losses.
cantwell.senate.gov/imo/media/doc/…
8/8

MIT published a brutally honest report on what AI is doing to students.

A committee of professors and students spent five months studying how AI changed learning on campus, and the findings read like a warning to every university on the planet.

Study groups are disappearing. ng out. Problem sets and take-home exams no longer prove anything, because AI can produce credible solutions to almost any written assignment in the undergraduate curriculum. Students who lean on chatbots lose mastery and confidence, and some slip into what the report calls cognitive surrender, reaching for AI at the first hint of struggle.

The numbers are rough. 46 percent of surveyed MIT undergrads use LLMs daily. 90 percent worry about their own overreliance. Undergrads who feel AI makes them replaceable now outnumber those who feel it makes them capable.

The committee's answer surprised me. They refused to fight AI with surveillance. The report calls AI detectors unreliable, says lockdown browsers feel like spying, and warns that policing students builds a classroom atmosphere of mutual distrust.

Instead, MIT wants to rebuild education around the things AI can't replace. That means oral exams, semester portfolios, in-person project work, and a required social component in every subject. The report even floats the idea of rethinking grades entirely, since without a GPA to optimize, much of the incentive to cheat with AI evaporates.

The committee warns professors against replacing undergrad research assistants with AI agents just because they're cheaper, because a university exists to grow people, not output.

The most famous tech school on earth admitted the machines broke its way of teaching. Its answer is more humans, not more software.

The Threat Intelligence Report from @AnthropicAI shows a range of pretty shocking attacks that adversaries attempted to carry out through Claude.

One of them is specifically about elections and politics, and is worth paying attention to. This is far from the only way o try to use AI to interfere with the political process, and it's a canary in the coal mine for this kind of stuff.

The Tribute in Light illuminates the New York City skyline tonight in honor of those who lost their lives on 9/11 – and reminds the world of the strength and unity New Yorkers showed in the days that followed.

This post (and the METR/Redwood report it discusses) has made me significantly more worried about AI.

“The Odyssey, but it’s Milo Yiannopoulos being deported back to Greece.”

Gambling addiction is a huge and pernicious problem in the US.

I was a college student during the poker boom around ~2004. A dozen of the Penn undergrads I played with ruined a chunk of their lives falling into addiction. This included some of the brightest academic superstars (and some of the best poker players in the school.)

I had moments of “degeneracy” but never fell down the slope into the chasm. I was never drawn to volatility for its own sake; I needed to think I had “edge” in every bet, and was honest enough with myself to not fool myself for very long when that wasn’t the case.

For many others, they craved the “gamble” itself. The common pattern was first they’d chase the allure of easy money and quick ego wins. As losses accumulated, that turned into deceptive behavior, to their families and friends…and to themselves. In the most extreme cases, stealing from friends and family.

The reality is that 95%+ of gamblers (including poker players) lose. The house’s small edge adds up bet after bet eventually leaving most bettors with nothing.

How did I do in poker? My headline results were good for an amateur college student. I made $25k a year doing it as a hobby in college. But…that “hobby” cost me ~500 hours a year; while my parents paid for an elite and expensive college. A pretty bad return on time in my context.

I installed software that tracked my poker results closely in my last year. The astounding result - I made $30k in profit…while paying online casinos $120k in rake.

In hindsight, I’d still have played poker, but I’d have cut the hours by 90%. Poker taught me a ton about game theory, probability, psychology, and…life. It led directly to my first (great) job out of college at a trading firm. But all of that good came from the first 100 hours. I wasn’t learning or gaining anything playing for the 16th hour straight at 3 am.

Celebrating degeneracy is either cope, or just marketing for the casino.

espn.com/sports-betting…