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Speaker 1: Welcome to Trallians. An Joelweber and I'm Eric. Eric. There's

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Speaker 1: been some headlines from Washington, d C lately that have

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Speaker 1: been interesting, specifically around UM taxes, which you know, we

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Speaker 1: have a Democrat led House and they and Democrat president

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Speaker 1: and so so we're seeing a lot of talk talk

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Speaker 1: about taxes. And in a recent bill that was put

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Speaker 1: forward by Senator Ron Wyden of Oregon. UM it wasn't

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Speaker 1: initially even in the press release, but uh, it took

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Speaker 1: aim at UH on e t F superpower, which is

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Speaker 1: sort of the tax efficiency that's always been built into UM,

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Speaker 1: the et F structure. Uh So what about that? Uh

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Speaker 1: caught your attention? And then what has been the aftermath

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Speaker 1: in the week plus since? Yeah, I mean there's been

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Speaker 1: a bunch of articles on it. UM and I'll read

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Speaker 1: to the Wall Street Journal headline. It's pretty basic. It

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Speaker 1: says Democratic tax proposal takes aim at et F s

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Speaker 1: and what they're trying to do is potentially tax the

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Speaker 1: in kind creation redemption process UM. That process where and

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Speaker 1: we'll go into this a little more, where you exchange

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Speaker 1: the stocks or bonds for shares of the e t F.

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Speaker 1: There's no cash exchanging so ETFs are able to sort

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Speaker 1: of avoid some of the capital gains distributions that mutual

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Speaker 1: funds have to deal with UM, although mutual funds also

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Speaker 1: have that ability, but largely speaking, in any given year,

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Speaker 1: you might find mutual funds have like, I don't know,

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Speaker 1: six of them distributing capital gains, while only say five

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Speaker 1: percent of e t F do. It's usually in that ballpark.

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Speaker 1: Now that said, you're not avoiding taxes as an ETF investor,

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Speaker 1: you're sort of just deferring them so that when you

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Speaker 1: sell your e t F, you get taxed on those gains.

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Speaker 1: You just don't get a sort of ongoing distribution because

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Speaker 1: of what other people in the funded. So I've always

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Speaker 1: been to the thought that the e t F was

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Speaker 1: like fair um, whereas the mutual fund, if anything, should

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Speaker 1: be given some relief to make it more like an

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Speaker 1: e t F where your tax based on what you do,

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Speaker 1: not based on what someone else does. So hopefully we

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Speaker 1: can dig into this, but that's ultimately one of their

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Speaker 1: superpowers because advisors, in particular, when have clients and taxable accounts,

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Speaker 1: really like the fact that they can kind of sort

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Speaker 1: of have control over that when they're taxed so I

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Speaker 1: would still say that low cost, inter liquidity, transparency, those

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Speaker 1: things still make them a viable force even if this

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Speaker 1: were to go away. But it's a biggie okay. So

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Speaker 1: to walk us through the bill, the e t F

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Speaker 1: industry's reaction to that bill, and then some of the

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Speaker 1: nuances of all things tax, we're gonna be joined by

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Speaker 1: Dave Nadig, who's the director of research at e t

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Speaker 1: F Trends, and Jeffrey Clone, professor of law at Fordham University,

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Speaker 1: whose rees arch on this topic was actually cited by

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Speaker 1: Senator Ron Wyden in the proposed bill this time on

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Speaker 1: trying the e t F S tax nightmare. Professor Cologne,

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Speaker 1: Dave Nateigg, Welcome to trillions. Thanks for having us, Okay, Dave,

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Speaker 1: I want to start with you. Um, the status quo

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Speaker 1: that sort of Eric referred to has been sort of

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Speaker 1: this this thing that has made the et F special

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Speaker 1: for a really long time. UM. And I want to

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Speaker 1: kind of rewind the clock here to to win this

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Speaker 1: news broke because you were at a meditation retreat um

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Speaker 1: that was sort of interrupted I think by this news. So,

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Speaker 1: so a what what happened um at this meditation camp

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Speaker 1: whence uh this headline crusted your It was it was

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Speaker 1: as I was on the way out the door, so

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Speaker 1: luckily it didn't interrupt anything, and I was able to,

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Speaker 1: you know, drop in and find my inner piece for

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Speaker 1: four or five days. But uh, you know, this was

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Speaker 1: a classic Friday afternoon press release. UM. You know, which

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Speaker 1: the fine it's industry is just really addicted to dropping

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Speaker 1: these major ideas on Friday, SIP four thirty. I don't

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Speaker 1: know what it is, um, but you know, the proposal

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Speaker 1: is really pretty straightforward, and and it's actually one that

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Speaker 1: professor suggested in one of his papers, which was just

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Speaker 1: eliminating a single line of the tax code. Uh A

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Speaker 1: f F T two B sex if I can get

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Speaker 1: it off the top of my head, I'm sure something

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Speaker 1: to correct me if I'm wrong, which is a single

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Speaker 1: line in the tax code which exempts mutual funds both

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Speaker 1: the you know, anything that's a registered investment company exempts

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Speaker 1: them from having to effectively worry about the tax issues

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Speaker 1: of in kinding out um or honestly and kind of

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Speaker 1: in uh securities into the portfolio, which is which is

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Speaker 1: a the though way E T s managed to maintain

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Speaker 1: net asset value versus market price. Right that that creation

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Speaker 1: redemption mechanism is why e t F s work. UM.

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Speaker 1: Putting a giant barrier for taxes around that, UM could

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Speaker 1: be interesting and problematic. We're gonna get into that, I'm sure,

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Speaker 1: but that was that was the thing that he dropped

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Speaker 1: out there. UM. And you know whether or not that

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Speaker 1: would raise substantial amounts of revenue, whether or not that's

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Speaker 1: fair to investors, fair to the government, fair to non investors,

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Speaker 1: I think that's probably what we're gonna dig into. And UM,

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Speaker 1: let me just jump in here. You wrote an article

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Speaker 1: about this and you opened up with y R E

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Speaker 1: t S tax efficient. So just as a primer to

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Speaker 1: people who may not understand exactly how they are, could

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Speaker 1: you go through what you expected? Yeah? Sure? So so

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Speaker 1: you know, I think most folks know that e t

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Speaker 1: fs create and redeemed shares pretty much continuously. Uh. A

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Speaker 1: bigger E t F top E t F that's trading

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Speaker 1: every day, you know, like water is going to have

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Speaker 1: multiple creations and redemptions to day. Uh. And one of

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Speaker 1: the things that the issuer gets to do on a

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Speaker 1: redemption is choose which tax lot to hand back out

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Speaker 1: to the authorized participant. In the process of doing that redemption,

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Speaker 1: and of course they always pick the tax plot that

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Speaker 1: has the lowest basis because that's the one that would

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Speaker 1: generate the most gains if they ever had to sell it. Uh,

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Speaker 1: And they hand that back out to the AP. The

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Speaker 1: AP because they're a market maker to just chooses to

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Speaker 1: take to mark to market, which is what every market

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Speaker 1: maker does. UH. That that's a choice that they get

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Speaker 1: in the tax code is to either treat trading as

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Speaker 1: an inventory process or as a trading on your own

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Speaker 1: account process. All market makers choose to do that as

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Speaker 1: an inventory process. So the incoming shares at the market

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Speaker 1: maker come in mark to market and they'll just pay

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Speaker 1: ordinary gains if they then later sell those at a gain,

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Speaker 1: because that's how market making works. The fund doesn't have

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Speaker 1: to book a gain on that lower basis that they

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Speaker 1: handed out to that mark to market UM. So it

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Speaker 1: acts as a form of tax deferral. It's effectively like

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Speaker 1: having a giant four ohn K that is an e

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Speaker 1: t F where you only have to worry about paying

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Speaker 1: taxes on the way out. Okay, Professor Kloon, I want

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Speaker 1: to bring you in. So everything we've talked about, I'm

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Speaker 1: just curious, why why do we need to change anything? Okay, yeah, no,

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Speaker 1: I think uh Dave lighted out very very clearly the

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Speaker 1: benefits for e t F S a couple of things.

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Speaker 1: I think the thing that stimulated this proposal UM had

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Speaker 1: had spoken to Widen's office was actually some reporting that

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Speaker 1: was done by you guys at Bloomberg, you know, Zack

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Speaker 1: Mider and Rachel Evans on Basically I call them pathologies,

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Speaker 1: but using I think in what what you know most

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Speaker 1: tax commentators would say is inappropriate way A fifty two

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Speaker 1: B six, Right, They've kind of built on this. Uh,

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Speaker 1: some transactions that you know, viewed from the lens of

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Speaker 1: UH tax person and even even Congress now are are

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Speaker 1: somewhat abusive, and we will talk about those. Those those

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Speaker 1: are the so called heartbeat trades, right, UM, and I

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Speaker 1: think that's what stimulated the interest UM. And then when

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Speaker 1: they started to look at the potential revenue that that

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Speaker 1: could be raised by this provision. I know that there

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Speaker 1: is a preliminary estimate by the Joint Committee that it's

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Speaker 1: about two hundred billion dollars over the next ten years. Uh.

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Speaker 1: You know, it's preliminary. I and I'm sure that doesn't

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Speaker 1: take into account, you know, adjustments that would be made.

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Speaker 1: But I think the combination of those two things is

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Speaker 1: like reading about the abuses and I know it's been

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Speaker 1: talked about on the Joint Committee for a while, and

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Speaker 1: then also basically the need for revenue to pay for

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Speaker 1: the other items in the in the in the tax proposals, right,

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Speaker 1: So a combination of those two it kind of brought

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Speaker 1: this to the forefront. Um. Uh and that's kind of

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Speaker 1: that's kind of where we are today. Go ahead, I

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Speaker 1: just want to I totally remember that article. We actually

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Speaker 1: had Rachel and Zach on the show. I did, I didn't.

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Speaker 1: I think dodge was probably not the right word. I

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Speaker 1: don't know if dirty secret was the right word. That's

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Speaker 1: a debate for another day, but or maybe it is

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Speaker 1: for today. But um, I saw you wrote an article

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Speaker 1: about this before that. That article came out, right, so

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Speaker 1: my article, let me let me just be clear. My article, uh,

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Speaker 1: it came out in two thousands seventeen, but I it

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Speaker 1: was kind of written in two thousand fifteen. So in

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Speaker 1: the article, I didn't discuss the heartbeat trades. I was

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Speaker 1: just looking at this uh um provision. Uh. You know,

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Speaker 1: even even disregarding the herd be trades and the portfolio adjustments. UH.

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Speaker 1: And I just looked at it and said, I didn't

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Speaker 1: really think it was really sound tax policy. And you know,

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Speaker 1: my my point was that it gave et FU an

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Speaker 1: advantage over mutual funds. Basically identical mutual funds. You followed

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Speaker 1: the same structure, sorry, this the same UH index, the

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Speaker 1: same investments, but mutual funds will inevitably end up paying

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Speaker 1: you know, whatever we call a d basis points maybe

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Speaker 1: a hundred basis points more a year in taxes. Right, Um,

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Speaker 1: it's not insignificant for long term taxable investors. And so

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Speaker 1: that I kind of looked at it, and I just

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Speaker 1: kind of critiqued it from a tax policy point of view,

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Speaker 1: and and I didn't really see much justification. So just

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Speaker 1: going back, this provision was originally put in in nineteen

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Speaker 1: sixty nine. Prior to sixty nine, corporations didn't pay tax

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Speaker 1: on distributions of securities appreciated securities. Sixty nine Congress UH

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Speaker 1: starts to curtail that, but exempts mutual funds. So back

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Speaker 1: then it was only s N and open end mutual

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Speaker 1: funds goes along. In eight six Congress says all corporations

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Speaker 1: are going to pay tax on the distribution of appreciated

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Speaker 1: property after six, but they continue the exemption for mutual funds.

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Speaker 1: It just moves to a different part of the of

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Speaker 1: the code. And so this was out there, you know,

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Speaker 1: in eight six. But stay've kind of noticed that mutual

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Speaker 1: funds is rarely rare for them to make in kind distributions. Uh,

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Speaker 1: not impossible, but very rare. Most mutual funds, my understanding,

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Speaker 1: is promised to only make cast distributions for up to

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Speaker 1: like two fifty thousand, which covers you know, all all

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Speaker 1: almost everyone's distributions. But uh, what happened was this was

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Speaker 1: there and then the E t F industry I think, uh,

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Speaker 1: you know the person that invented it. Um, this allowed

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Speaker 1: the E t F industry to kind of grow, right

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Speaker 1: because the creation and redemption process is fundamental. I call

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Speaker 1: it part of the d n A of E t

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Speaker 1: F s because it allows the n a V to

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Speaker 1: kind of stick prettys to the trading price where everyone

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Speaker 1: else is buying. And if it doesn't, people come come

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Speaker 1: in and make profits, and by them making profits, it

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Speaker 1: keeps the n a V uh and market price uh

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Speaker 1: pretty much in line. That makes it then beneficial for

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Speaker 1: people to be able to buy sell short right options

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Speaker 1: on it UM and it eliminates some of the problems

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Speaker 1: that we had with discounts and premiums and closed in

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Speaker 1: fund right. So closed end funds are almost now kind

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Speaker 1: of a footnote in the history of investment companies UM.

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Speaker 1: And so what we have left are, you know, basically

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Speaker 1: open end mutual funds, which you know we'll throw e

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Speaker 1: t f s into there as well. But then ETFs

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Speaker 1: now are kind of uh, you know, everyone knows they've exploded,

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Speaker 1: especially you know over the last ten years. We might

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Speaker 1: not be having this conversation if uh we were we

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Speaker 1: were we were a decade ago, from year two thousand

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Speaker 1: to two thousand ten when there really wasn't much gains. UM.

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Speaker 1: So Dave is entirely correct that it's the games, aren't

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Speaker 1: They don't disappear. Uh, it's a ferral. So the shareholders

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Speaker 1: are deferring tax on kind of these uh economic gains

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Speaker 1: that have arisen at the fund level. And it it's

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Speaker 1: just it's important remember for taxable investors those gains are

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Speaker 1: still there. Uh, they're not going to be UM, they

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Speaker 1: don't disappear However, we know that eventually for deferral benefits

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Speaker 1: mostly benefits higher income people more than lower income people.

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Speaker 1: And then eventually the gains are deferred by for example, death,

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Speaker 1: and then they become forgiven. But that applies to any

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Speaker 1: other game. You're you're hitting the nail right on the head,

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Speaker 1: you know. I think the there are a lot of

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Speaker 1: things that we can unpack here. I think it is

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Speaker 1: important to point out that e t f s were

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Speaker 1: not designed to be a tax deferral vehicle. And honestly,

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Speaker 1: for the first ten years of the e t F industry,

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Speaker 1: nobody even talked about this. This was really when the

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Speaker 1: advisor started finding e t s as a tool for

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Speaker 1: retail allocations. At the advisor, you know, face of the

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Speaker 1: coal mine, they're the ones that really latched onto this.

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Speaker 1: I want to say, two thousand three four five when

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Speaker 1: we start did to see that early adoption by UM

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Speaker 1: by those financial advisors early in the context where we

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Speaker 1: are now, I guess, UM, so so whatever designed to

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Speaker 1: be a tax deferral vehicle. However, without that, there are

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Speaker 1: all sorts of unintended consequences. Um you know, the numbers

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Speaker 1: that are getting tossed around about you know, something like

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Speaker 1: maybe twenty billion dollars a year and new revenue that

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Speaker 1: would come in if you got rid of this tax deferral.

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Speaker 1: I'm very skeptical of that number for a lot of reasons,

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Speaker 1: not the least of which is the industry is very

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Speaker 1: good at figuring out how not to do things like that, right,

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Speaker 1: So I think you would just simply see new structures

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Speaker 1: take place. You would see new investment management philosophies take

254
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Speaker 1: place that UM that will delay and delay and delay

255
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Speaker 1: booking those gains UM. The problems I have, though, are

256
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Speaker 1: that there's this idea that somehow this is taxing the

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Speaker 1: rich UM, and the evidence doesn't actually suggest that e

258
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Speaker 1: t f s have really certainly in the last couple

259
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Speaker 1: of years, when you look at the last few trillion

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Speaker 1: dollars that have showed up in the e t F market,

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Speaker 1: it's pretty easy to point that to the discount brokerage community.

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Speaker 1: That's where that money is coming in. It's coming in

263
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Speaker 1: from people SWAB and TV and FIDO accounts, their e

264
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Speaker 1: trade accounts, the robin Hood accounts. That tends not to

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Speaker 1: be the ultra high net worth investors way of accessing

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Speaker 1: the markets. They're tending to go through private funds, private allocations, uh,

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Speaker 1: you know, other kinds of brokerage accounts that don't show

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Speaker 1: up in those classic discount windows. So you know, the

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Speaker 1: people who are benefiting most from this, I would argue

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Speaker 1: at somewhat unknowable, But I would argue is not the

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Speaker 1: ultra high net worth investor. It's actually sort of the

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Speaker 1: middle class investor who's managed to squirrel away an extra

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Speaker 1: hundred grand outside their four own k. Right, Yeah, you're

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Speaker 1: you raise, you raise a good point. Um. Uh. My

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Speaker 1: one response might be that, um, if we're looking at

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Speaker 1: this is what the I c I has raised in

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Speaker 1: the last couple of press releases that you know, the

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Speaker 1: average southern median household I think is E t F

279
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Speaker 1: s are is about a hundred and twenty tho dollars

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Speaker 1: of taxable income. Uh, and that's certainly not uh not wealthy.

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Speaker 1: How you know. My response would be, let's just assume

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Speaker 1: that this imposes higher taxes on E T f UH

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Speaker 1: shareholders than than now and I think that that that's

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Speaker 1: not an unreasonable assumption. You know. My my response would be, well,

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Speaker 1: those all those households can just put more money into

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Speaker 1: their IRA sep IRA right. The for a household you know,

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Speaker 1: for a very very filing jointly, it's up to about

288
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Speaker 1: hundred nine eight thousand that you can put in. That's

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Speaker 1: twelve thousand, sorry d thousand of yearly annual income UH.

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Speaker 1: And you can put in twelve thousand dollars. So if,

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Speaker 1: for example, E t f s became kind of less

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Speaker 1: tax favored than they are now, which is possible, those

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Speaker 1: investors would certainly to me seem to have more room

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Speaker 1: to to just shift into the tax exempt you know

295
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Speaker 1: investments iras roth IRA's set iras the whole alphabet. But

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Speaker 1: then they're giving up their timing options. Right. The beauty

297
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Speaker 1: of the e t F has been you can actually

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Speaker 1: put a hundred thousand dollars away for your kids college,

299
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Speaker 1: which is in six years, and you can put it

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Speaker 1: away in the SPF A hundred or whatever you want,

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Speaker 1: some balance fund, whatever it is you choose to do,

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Speaker 1: and you don't have to worry about whether or not

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Speaker 1: that's going to get degraded over the next six or

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Speaker 1: seven years because of fund. All of a sudden throws

305
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Speaker 1: off a teen percent capital gain because one giant shareholder

306
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Speaker 1: decided to get out near an institution and therefore the

307
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Speaker 1: fund had to take had to take the hit. If

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Speaker 1: you look at the higher volume e t f s,

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Speaker 1: the implication of all of a sudden taxing all of

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Speaker 1: these gains continuously can be quite profound. A lot of

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Speaker 1: e t f s actually have you know, full turnover

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Speaker 1: implied by their creation redemption mechanism on a monthly basis.

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Speaker 1: So if you think about that, what that would mean

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Speaker 1: is that you effectively be constantly making these streams of

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Speaker 1: distributions to investors simply to make the creation redemption mechanism

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Speaker 1: hold for NAV purposes. So you end up taking the

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Speaker 1: n A V tracking function of e t f s

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Speaker 1: and burdening it with the taxes, which I worry could

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Speaker 1: actually unwind some of what we see beneficial about the

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Speaker 1: NAV tagging structure. Just think about the way the e

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00:17:13,800 --> 00:17:16,399
Speaker 1: t F works. Shouldn't it be based on your action?

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Speaker 1: It just it just seems like that, if anything, the

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Speaker 1: mutual fund. Do you want a mutual fund? Or have

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Speaker 1: you ever gotten to capital gains just from just sitting there.

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Speaker 1: It's that, I think, is what really. It's not like

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Speaker 1: the e t f s dodging or getting away with anything.

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Speaker 1: It's almost just like they're making it more fair and

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Speaker 1: whether that was an accident From the early invention of

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Speaker 1: the e t F, again, they were really looking at

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Speaker 1: how to just protect the investors of the fund from

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Speaker 1: what other investors did. And that is something that Vanguard

332
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Speaker 1: struggle with a lot early on, and that's why they

333
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Speaker 1: actually did not let certain investors in the fund. They

334
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Speaker 1: didn't want to incur costs in the funds. So the

335
00:17:54,440 --> 00:17:58,040
Speaker 1: e t F externalizes costs, and one of those is

336
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Speaker 1: your own taxation is on your actions. That just seems

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Speaker 1: pretty fair to me right now. You're you raised a

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00:18:04,560 --> 00:18:07,680
Speaker 1: good point. Uh, sub Chapter M has you know, I

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Speaker 1: hope that at a minimum that UM at least the

340
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Speaker 1: public discussion of this proposal could kind of, you know,

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Speaker 1: hopefully whatever happens to to this going forward is at

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Speaker 1: least at a minimum stimulate some kind of discussion of

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Speaker 1: how we should kind of rewrite It's it's called sub

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Speaker 1: Chapter M of the Internal Revenue Code, but the rules

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Speaker 1: for taxation of investment company for for some of the

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Speaker 1: issues that that you you UM and also Dave have raised. UM. Uh,

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Speaker 1: it's you know, it's about sixty plus years uh, and

348
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Speaker 1: you know, with all of the changes in the tax code.

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Speaker 1: Outside of this with all of the changes and kind

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Speaker 1: of the investment vehicles, it's just kind of a system

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Speaker 1: that's showing it's it's rust. Totally agree, totally agree. Um, Okay,

352
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Speaker 1: now you know, let's let's just go back to to

353
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Speaker 1: your point here. What pends on me you know, unfortunately

354
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Speaker 1: or or the structure of of uh sub Chapter M

355
00:19:07,000 --> 00:19:12,000
Speaker 1: is that basically the the investment company calculates, right, it's

356
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Speaker 1: tax like a corporation. If it doesn't distribute, it's going

357
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Speaker 1: to pay tax like a corporation. So it calculates all

358
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Speaker 1: of the investment income, including the gains, dividends, short term gains. Uh.

359
00:19:23,080 --> 00:19:26,320
Speaker 1: It calculates all that and then it basically can avoid

360
00:19:26,440 --> 00:19:32,960
Speaker 1: tax by making distributions. Okay, Uh, and uh that's you know,

361
00:19:33,040 --> 00:19:36,240
Speaker 1: that's kind of the system that we have. Uh. Your

362
00:19:36,320 --> 00:19:40,280
Speaker 1: system would be basically basically would make each mutual fund

363
00:19:40,320 --> 00:19:42,679
Speaker 1: investment into kind of like a big era. Right if

364
00:19:42,800 --> 00:19:44,359
Speaker 1: as long as I don't sell, it's kind of what

365
00:19:44,440 --> 00:19:46,760
Speaker 1: we call a consumption tax. Right, as long as I

366
00:19:46,840 --> 00:19:49,119
Speaker 1: don't sell, so it's call it your four oh one K.

367
00:19:49,280 --> 00:19:50,720
Speaker 1: As long as I don't pull it out, I don't

368
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Speaker 1: pay any tax. I'm just not sure we're we're quite

369
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Speaker 1: ready to go there. And then one of the if

370
00:19:56,359 --> 00:19:58,600
Speaker 1: we step back, you know, we're trying to kind of

371
00:19:58,680 --> 00:20:00,680
Speaker 1: do a lot of things. It's like twist right, Eventually

372
00:20:00,680 --> 00:20:03,280
Speaker 1: you're gonna fall down. But you know, the the original

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00:20:03,359 --> 00:20:07,920
Speaker 1: idea behind taxing investment companies mutual funds was that you'd

374
00:20:08,040 --> 00:20:10,560
Speaker 1: roughly get you know, it was designed for the small

375
00:20:10,600 --> 00:20:13,840
Speaker 1: guy to be able to get uh diversification, okay, and

376
00:20:13,880 --> 00:20:16,600
Speaker 1: then you'd roughly get the same tax consequences as if

377
00:20:16,640 --> 00:20:20,639
Speaker 1: you invested directly. So if the investment company gets uh,

378
00:20:20,880 --> 00:20:23,719
Speaker 1: interest income, you get passed through his interest income. If

379
00:20:23,760 --> 00:20:25,879
Speaker 1: they get a long term capital gains, they get passed

380
00:20:25,920 --> 00:20:28,240
Speaker 1: through to you as a long term capital gains. And

381
00:20:28,400 --> 00:20:30,800
Speaker 1: so if you went to is uh what you know?

382
00:20:31,160 --> 00:20:32,920
Speaker 1: I know Dave has made this point. Other people have

383
00:20:33,080 --> 00:20:35,399
Speaker 1: made the point that let's just make sure that if

384
00:20:35,680 --> 00:20:37,520
Speaker 1: if I don't do anything, if I don't receive anything,

385
00:20:37,560 --> 00:20:39,680
Speaker 1: I don't pay any tax. Then it kind of turns

386
00:20:39,720 --> 00:20:42,200
Speaker 1: it into a big IRA And I'm not sure that

387
00:20:42,720 --> 00:20:45,800
Speaker 1: we should distinguish, you know, we should give that benefit

388
00:20:45,880 --> 00:20:49,920
Speaker 1: to investment companies versus individual investing are what Dave alluded

389
00:20:49,960 --> 00:20:53,880
Speaker 1: to this uh kind of direct indexing that's that's potentially

390
00:20:53,960 --> 00:20:56,359
Speaker 1: coming down there. There's a big difference because in an

391
00:20:56,440 --> 00:20:58,879
Speaker 1: ira A, one of the reasons you get tax deferl

392
00:20:58,920 --> 00:21:01,119
Speaker 1: in an ira A is because you should be making

393
00:21:01,200 --> 00:21:04,760
Speaker 1: transactions over time. Right, So if I'm a equity as

394
00:21:04,760 --> 00:21:08,040
Speaker 1: a thirty year old, I definitely should be selling down

395
00:21:08,200 --> 00:21:11,800
Speaker 1: some of that equity as I approach. So there isn't

396
00:21:12,119 --> 00:21:15,200
Speaker 1: there's a societal good and saying, hey, you know what,

397
00:21:15,440 --> 00:21:17,840
Speaker 1: mr six year old, We're gonna let you sell down

398
00:21:18,040 --> 00:21:21,359
Speaker 1: some of your highly appreciated stock so that you can

399
00:21:21,400 --> 00:21:23,639
Speaker 1: do a better thing and get a little bit safer

400
00:21:23,760 --> 00:21:26,280
Speaker 1: in your allocation. That's a little different than what we're

401
00:21:26,320 --> 00:21:29,719
Speaker 1: talking about here with what happens inside in e t F, right,

402
00:21:29,760 --> 00:21:32,800
Speaker 1: because the main benefit to society of E t F

403
00:21:33,200 --> 00:21:35,959
Speaker 1: tax deferral is the fact that when those things are

404
00:21:36,040 --> 00:21:38,679
Speaker 1: eventually taxed, they will most likely be taxed at ay

405
00:21:38,760 --> 00:21:42,040
Speaker 1: much higher level because all of the gains have instead

406
00:21:42,240 --> 00:21:45,639
Speaker 1: been embedded into the fund and thus invested on behalf

407
00:21:46,040 --> 00:21:49,240
Speaker 1: of the government who will ultimately tax them. So there,

408
00:21:49,600 --> 00:21:51,640
Speaker 1: I get what you're saying, but there is a there's

409
00:21:51,680 --> 00:21:55,080
Speaker 1: a different reason for it. In uh in an ira,

410
00:21:55,320 --> 00:21:59,720
Speaker 1: which is to engender actually useful behavior for society. We're

411
00:22:00,080 --> 00:22:02,320
Speaker 1: versus the E T F, which I've always argued as

412
00:22:02,480 --> 00:22:04,760
Speaker 1: like Eric was saying, it's much more about tax fairness.

413
00:22:04,840 --> 00:22:07,120
Speaker 1: It's much more about not getting hit with the tem

414
00:22:07,160 --> 00:22:09,680
Speaker 1: per cent you know, you know, capital gains distribution a

415
00:22:09,760 --> 00:22:11,800
Speaker 1: week after you put your money in, which I've gotten

416
00:22:11,840 --> 00:22:15,000
Speaker 1: those emails from advisors before, believe me. And and that's

417
00:22:15,040 --> 00:22:17,840
Speaker 1: a that's a genuine hit. So there's always this robbing

418
00:22:17,880 --> 00:22:20,520
Speaker 1: the future to pay for the past, or to robbing

419
00:22:20,600 --> 00:22:22,760
Speaker 1: the robbing the present to pay for the future, and

420
00:22:22,840 --> 00:22:25,240
Speaker 1: vice versa, and Washington loves to do that, and you

421
00:22:25,280 --> 00:22:28,359
Speaker 1: know that never works out well anyway. Um I what

422
00:22:28,520 --> 00:22:33,280
Speaker 1: I worry about is simply eliminating the single line item

423
00:22:33,400 --> 00:22:37,560
Speaker 1: here without as you pointed out, Jeff, a comprehensive review

424
00:22:37,720 --> 00:22:40,720
Speaker 1: of of all of the implications of this taxation is

425
00:22:40,800 --> 00:22:43,439
Speaker 1: exactly the kind of hand handed move we get out

426
00:22:43,480 --> 00:22:46,320
Speaker 1: of Washington all the time that has tons of unintended

427
00:22:46,440 --> 00:22:49,199
Speaker 1: consequences that nobody has even done the map on right now,

428
00:22:49,320 --> 00:22:51,359
Speaker 1: I think, and also I think a lot of normal

429
00:22:51,440 --> 00:22:53,840
Speaker 1: people look at this and they go, Okay, I get it.

430
00:22:54,080 --> 00:22:57,000
Speaker 1: Only half the country actually owns stocks at all, so

431
00:22:57,119 --> 00:22:59,159
Speaker 1: you are looking at just one half of the country

432
00:22:59,240 --> 00:23:01,960
Speaker 1: benefiting here. I get that a lot of the lower

433
00:23:02,040 --> 00:23:04,680
Speaker 1: income folks don't get this benefit, and that's that's a

434
00:23:04,720 --> 00:23:08,600
Speaker 1: fair point. That said, when you turn it relativity in

435
00:23:08,600 --> 00:23:11,280
Speaker 1: another way, I think a lot of people are like, well,

436
00:23:12,320 --> 00:23:14,760
Speaker 1: why mess with small investors using e t F. There

437
00:23:14,800 --> 00:23:18,880
Speaker 1: are much bigger fish to go after on the tax front.

438
00:23:19,640 --> 00:23:22,160
Speaker 1: There's a lot of loopholes to go after. So there's

439
00:23:22,200 --> 00:23:26,359
Speaker 1: also the relativity issue as well, looking at it versus

440
00:23:26,480 --> 00:23:31,680
Speaker 1: other situations where some really really rich people institutions get

441
00:23:31,680 --> 00:23:35,639
Speaker 1: away with not paying taxes or just direct indexing, right.

442
00:23:35,640 --> 00:23:38,240
Speaker 1: I mean that to me would be the immediate impactly

443
00:23:38,280 --> 00:23:40,680
Speaker 1: at the switch on this, every hundred thousand dollar plus

444
00:23:40,760 --> 00:23:43,959
Speaker 1: investor would immediately become a direct investing. Your client end

445
00:23:44,040 --> 00:23:46,119
Speaker 1: up with better tax treatment than they're getting out of

446
00:23:46,119 --> 00:23:48,000
Speaker 1: the e t F honestly, because for the most part

447
00:23:48,040 --> 00:23:50,760
Speaker 1: they'll be able to carry tax losses forward, which is

448
00:23:50,840 --> 00:23:54,080
Speaker 1: not something the average dollar investors spends much energy on.

449
00:23:54,640 --> 00:23:57,159
Speaker 1: So if anything, I'm removing this from the e t

450
00:23:57,280 --> 00:24:00,400
Speaker 1: F would shove everybody in that sort of mass affluent

451
00:24:00,480 --> 00:24:02,639
Speaker 1: market out of e t F s, which would be

452
00:24:02,760 --> 00:24:04,439
Speaker 1: bad for the E t F market, would be bad

453
00:24:04,520 --> 00:24:07,719
Speaker 1: for individual investors, for whom that is their best option

454
00:24:08,680 --> 00:24:11,639
Speaker 1: at the benefit of you know, the parametrics and the

455
00:24:11,720 --> 00:24:14,320
Speaker 1: canvases of the world. Yeah. No, I I would I

456
00:24:14,359 --> 00:24:17,920
Speaker 1: would agree that something like this could stimulate uh, you know,

457
00:24:18,440 --> 00:24:20,800
Speaker 1: I mean, but that that's already on the horizon, right,

458
00:24:20,880 --> 00:24:23,760
Speaker 1: you know, JP Morgan, Vanguard, black Rock, They're already looking

459
00:24:23,800 --> 00:24:26,760
Speaker 1: at uh direct indexing direct I call it direct investing.

460
00:24:27,000 --> 00:24:29,800
Speaker 1: Dave calls it direct indexing right where you would be

461
00:24:29,880 --> 00:24:33,960
Speaker 1: treated as a holding those shares directly, right, and so

462
00:24:34,440 --> 00:24:37,280
Speaker 1: you could do the tax loss harvesting. Um, you could

463
00:24:37,320 --> 00:24:40,840
Speaker 1: defer the gains. You would make an essence that decision

464
00:24:40,920 --> 00:24:44,919
Speaker 1: subject to the robot and whatever rules you've set up. Um.

465
00:24:45,560 --> 00:24:48,000
Speaker 1: And I think that that's an important thing to kind

466
00:24:48,040 --> 00:24:51,320
Speaker 1: of look at. UM, let's kind of look you know.

467
00:24:51,359 --> 00:24:54,040
Speaker 1: I think it's important to talk about the real stimulus

468
00:24:54,119 --> 00:24:57,399
Speaker 1: for this. I think was again the article in Bloomberg

469
00:24:57,480 --> 00:25:01,040
Speaker 1: and by another financial journalists at Facts, said Elizabeth Kashner

470
00:25:01,359 --> 00:25:04,119
Speaker 1: that talks about the heartbeat trades, right. Um. And so

471
00:25:04,240 --> 00:25:06,720
Speaker 1: if we separate just the in and out, here's the

472
00:25:07,080 --> 00:25:09,800
Speaker 1: SMP five hundred. We go in and out, in and out,

473
00:25:09,880 --> 00:25:13,280
Speaker 1: there's no changes. I'm almost you know, saying, well, that

474
00:25:13,440 --> 00:25:15,920
Speaker 1: might not be a horrible thing, right, If we have

475
00:25:16,080 --> 00:25:19,600
Speaker 1: no change in the underlying portfolio, fine we we let

476
00:25:19,760 --> 00:25:22,280
Speaker 1: we let it run, right. Um, And that's that's roughly

477
00:25:22,760 --> 00:25:25,240
Speaker 1: if I just held the underlying SMP five hundred shairs,

478
00:25:25,320 --> 00:25:28,320
Speaker 1: nothing change. We just let it run until I, like

479
00:25:28,600 --> 00:25:31,960
Speaker 1: Eric says, until I sell. The problem is, uh, these

480
00:25:32,119 --> 00:25:35,359
Speaker 1: things that are referred to as heartbeat trades, and just

481
00:25:35,640 --> 00:25:39,560
Speaker 1: for the listener, they're basically is a fund has to

482
00:25:39,680 --> 00:25:42,320
Speaker 1: sell some of its securities or disposed of them. If

483
00:25:42,359 --> 00:25:44,520
Speaker 1: it sold them, it would have gain, which should be

484
00:25:44,600 --> 00:25:48,080
Speaker 1: tax then to all shareholders. Um. What it does then

485
00:25:48,800 --> 00:25:52,320
Speaker 1: is as reported, is that a market maker a bank

486
00:25:52,400 --> 00:25:54,920
Speaker 1: will come in and fund will say, oh, I have

487
00:25:55,000 --> 00:25:57,200
Speaker 1: to get rid of shares that are worth a billion

488
00:25:57,320 --> 00:25:59,600
Speaker 1: dollars and you know I have a billion dollars of

489
00:25:59,680 --> 00:26:01,639
Speaker 1: gain if I sell them. There's a billion dollars of

490
00:26:01,720 --> 00:26:05,000
Speaker 1: game for everyone. So two days before or three days

491
00:26:05,080 --> 00:26:08,919
Speaker 1: before someone will deposit, Uh, they'll create a billion dollars

492
00:26:08,960 --> 00:26:12,600
Speaker 1: worth of shares um with the basket. And then you

493
00:26:12,720 --> 00:26:16,880
Speaker 1: know at the rebalanced date, A billion dollars goes out

494
00:26:17,080 --> 00:26:19,800
Speaker 1: to in a redemption, but the shares that go out

495
00:26:19,880 --> 00:26:22,200
Speaker 1: are not a pearl rata share of all of the

496
00:26:22,680 --> 00:26:25,160
Speaker 1: UH shares in the SMP five hundred, but the ones

497
00:26:25,240 --> 00:26:28,159
Speaker 1: that have the gain. So if you step back and

498
00:26:28,240 --> 00:26:30,520
Speaker 1: look at this, I think most tax people would say, well,

499
00:26:30,720 --> 00:26:33,560
Speaker 1: what's really happened is the market maker has just exchanged

500
00:26:34,040 --> 00:26:37,719
Speaker 1: a portfolio of shares one through four hundred and ninety

501
00:26:38,320 --> 00:26:42,920
Speaker 1: for a portfolio of shares four five hundred. We just

502
00:26:43,040 --> 00:26:45,840
Speaker 1: swap shares. I think it's actually worse than you think

503
00:26:45,880 --> 00:26:47,760
Speaker 1: it is. I mean, if you if you're if you're

504
00:26:47,760 --> 00:26:50,240
Speaker 1: approaching this as some sort of abuse of the system,

505
00:26:50,480 --> 00:26:53,480
Speaker 1: there's actually no requirement anywhere in there that that it's

506
00:26:54,800 --> 00:26:57,359
Speaker 1: versus one. It can be five hundred and five hundred

507
00:26:57,400 --> 00:27:00,200
Speaker 1: in both directions as long as there's enough space in

508
00:27:00,320 --> 00:27:03,400
Speaker 1: between that it can be deemed as having economic risk.

509
00:27:03,920 --> 00:27:07,720
Speaker 1: So so, But but the problem is is the is

510
00:27:08,440 --> 00:27:11,159
Speaker 1: in the US five hundred. That happens every day, right,

511
00:27:12,840 --> 00:27:14,719
Speaker 1: But my point is there are plenty of funds out

512
00:27:14,760 --> 00:27:18,200
Speaker 1: there who don't have an exogenous reason to be unloading

513
00:27:18,240 --> 00:27:20,639
Speaker 1: any of their shares and are simply doing this to

514
00:27:20,800 --> 00:27:24,600
Speaker 1: watch their tax liabilities away, and they're they're basically doing

515
00:27:24,680 --> 00:27:27,159
Speaker 1: a creation for a hundred securities, and then they're doing

516
00:27:27,280 --> 00:27:29,720
Speaker 1: redemption for all hundred securities and they're just swapping the

517
00:27:29,800 --> 00:27:32,480
Speaker 1: tax lot. I'm saying, let's assume that that's okay, right,

518
00:27:32,480 --> 00:27:36,400
Speaker 1: because the underlying portfolio stays the same at the fund level,

519
00:27:36,480 --> 00:27:38,440
Speaker 1: we get rid of the games. Okay, let's let's just

520
00:27:38,560 --> 00:27:41,760
Speaker 1: make an assumption that that's fine. My problem comes is

521
00:27:41,880 --> 00:27:45,080
Speaker 1: when that you're taking out one share ten shares uh

522
00:27:45,560 --> 00:27:48,879
Speaker 1: that otherwise have gain. You've just swapped one basket for

523
00:27:48,920 --> 00:27:51,399
Speaker 1: another basket. If you and I did that, Dave, you

524
00:27:51,520 --> 00:27:54,480
Speaker 1: know it's taxable. If I swap you Microsoft for Amazon,

525
00:27:54,680 --> 00:27:57,840
Speaker 1: it's taxable. If I swap you Microsoft for Microsoft, it's

526
00:27:57,880 --> 00:28:00,879
Speaker 1: not taxable. But our basis would stay the same. My

527
00:28:01,040 --> 00:28:05,240
Speaker 1: concern is that the heartbeat trades um allow for an

528
00:28:05,320 --> 00:28:07,920
Speaker 1: e t F, but really not a mutual fund to

529
00:28:08,040 --> 00:28:10,800
Speaker 1: adjust as portfolio. So me, as an investor in the

530
00:28:10,880 --> 00:28:14,600
Speaker 1: e t F, my portfolio is actually changing, right. So

531
00:28:15,119 --> 00:28:18,920
Speaker 1: it's so Eric. It's it's not as if my view

532
00:28:19,000 --> 00:28:22,040
Speaker 1: is you shouldn't be able, you should you should be taxed. Now,

533
00:28:22,440 --> 00:28:25,520
Speaker 1: when those portfolio changes happen if you held the shares

534
00:28:25,840 --> 00:28:27,560
Speaker 1: and you wanted to get rid of your tenant or

535
00:28:27,600 --> 00:28:30,639
Speaker 1: fifteen shares, that's a taxable event. But yeah, but but

536
00:28:30,800 --> 00:28:34,320
Speaker 1: but but that's not KAT, that's just custom baskets. Yeah. Yeah,

537
00:28:34,680 --> 00:28:36,760
Speaker 1: but we we just we just encoded that in a

538
00:28:36,840 --> 00:28:38,440
Speaker 1: new law. I don't think we're gonna get rid of

539
00:28:38,480 --> 00:28:40,880
Speaker 1: that part. Yeah, I see what you're saying. Like you're saying,

540
00:28:40,920 --> 00:28:42,760
Speaker 1: if you go into a mutual fund, you're a pool.

541
00:28:42,840 --> 00:28:45,920
Speaker 1: You're with a pooled it's a pooled investment. So therefore

542
00:28:46,480 --> 00:28:50,280
Speaker 1: you guys are all that the portfolio manager, you're with them,

543
00:28:50,960 --> 00:28:53,080
Speaker 1: and you're buying and selling stocks, you should get text.

544
00:28:53,360 --> 00:28:55,440
Speaker 1: I think generally people though, they don't look at it

545
00:28:55,520 --> 00:28:58,320
Speaker 1: that way, and maybe that's the problem. They just see

546
00:28:58,880 --> 00:29:01,120
Speaker 1: if I buy and sell shares Microsoft, I get tax

547
00:29:01,200 --> 00:29:03,440
Speaker 1: when I do that, And in e t F is

548
00:29:03,520 --> 00:29:06,080
Speaker 1: like that where I think people don't go and actually

549
00:29:06,160 --> 00:29:08,640
Speaker 1: put themselves inside the fund as if they're in this

550
00:29:09,360 --> 00:29:11,720
Speaker 1: nice little club of people who are all buying and

551
00:29:11,800 --> 00:29:14,520
Speaker 1: selling stocks together because the PM is doing it, and

552
00:29:14,600 --> 00:29:16,120
Speaker 1: so all they know is they just get hit with

553
00:29:16,160 --> 00:29:18,640
Speaker 1: the tax bill. So I don't know, I think there's

554
00:29:19,040 --> 00:29:20,840
Speaker 1: I know what you're saying, but don't you think people

555
00:29:20,920 --> 00:29:23,600
Speaker 1: just are more thinking that it should just be like

556
00:29:23,680 --> 00:29:26,920
Speaker 1: when you buy and sell a stock on your own. Yeah,

557
00:29:27,080 --> 00:29:29,800
Speaker 1: but I don't think you should be able to accomplish

558
00:29:29,880 --> 00:29:32,400
Speaker 1: something through an e t F indirectly what's happening with

559
00:29:32,840 --> 00:29:35,320
Speaker 1: Dave called them custom portfolios. Yeah, it's just a I

560
00:29:35,440 --> 00:29:38,640
Speaker 1: call them it even another variation of the heartbeat that

561
00:29:38,840 --> 00:29:43,680
Speaker 1: you shouldn't be able to adjust your portfolio without having

562
00:29:43,840 --> 00:29:48,400
Speaker 1: making it a taxable event. Right. So when Bloomberg reported

563
00:29:48,440 --> 00:29:49,920
Speaker 1: on this about a month ago when there was a

564
00:29:49,960 --> 00:29:53,160
Speaker 1: big rebalance, right, was that the Russell Russell three thousand, right,

565
00:29:53,240 --> 00:29:56,160
Speaker 1: forty or fifty shares? Uh? And and they just reported

566
00:29:56,200 --> 00:29:59,080
Speaker 1: everyone's doing heartbeat trades, right, And I said, well, wait

567
00:29:59,120 --> 00:30:01,160
Speaker 1: if I if I'm a share learn Russell three thousand,

568
00:30:01,480 --> 00:30:03,680
Speaker 1: and all of a sudden, now I have a different

569
00:30:03,880 --> 00:30:07,120
Speaker 1: economic exposure. Um, you know, I think that that's an

570
00:30:07,160 --> 00:30:10,719
Speaker 1: appropriate time to pay tax. So one, you know, if

571
00:30:10,840 --> 00:30:13,360
Speaker 1: if if if if, if we could agree so on

572
00:30:13,520 --> 00:30:15,760
Speaker 1: one issue would be if Congress says, well, the in

573
00:30:15,920 --> 00:30:19,200
Speaker 1: and outs for the baskets, right, a whole basket in

574
00:30:19,280 --> 00:30:23,560
Speaker 1: and out representative basket in and out. We could nothing's changing,

575
00:30:23,640 --> 00:30:27,160
Speaker 1: my economic exposure isn't changing. That you know seems to

576
00:30:27,240 --> 00:30:30,320
Speaker 1: be Uh. I could see making an argument for not

577
00:30:30,520 --> 00:30:32,920
Speaker 1: making that a taxable event. But when the e t

578
00:30:33,120 --> 00:30:36,680
Speaker 1: F s um underlying portfolio changes, uh, and then they

579
00:30:36,800 --> 00:30:40,160
Speaker 1: use it, they basically swapped those shares for shares from

580
00:30:40,200 --> 00:30:43,200
Speaker 1: a market maker. I think that there's you know, there's

581
00:30:43,480 --> 00:30:48,719
Speaker 1: under tax common law that's that's permissible. Dave correctly stated

582
00:30:48,760 --> 00:30:51,360
Speaker 1: that the SEC allows these custom portfolios. But just because

583
00:30:51,400 --> 00:30:54,400
Speaker 1: the SEC allows it doesn't mean that they don't determine

584
00:30:54,440 --> 00:30:57,600
Speaker 1: the tax benefits. So I which that's to me. Then

585
00:30:57,680 --> 00:30:59,920
Speaker 1: none of the issue here is right. We now codified

586
00:31:00,600 --> 00:31:02,560
Speaker 1: a whole bunch of things that when you wrote your paper,

587
00:31:02,800 --> 00:31:05,080
Speaker 1: you you very carefully go through and point out, these

588
00:31:05,120 --> 00:31:07,240
Speaker 1: are from exceptions, this is what you know, this is

589
00:31:07,280 --> 00:31:09,440
Speaker 1: the rule you need an exemption from to do this right.

590
00:31:09,720 --> 00:31:12,320
Speaker 1: Most of that's all gone away because the f E

591
00:31:12,440 --> 00:31:15,400
Speaker 1: t F rule. So we cleared up the operational side

592
00:31:15,520 --> 00:31:18,480
Speaker 1: quite dramatically, and to your point, we've done nothing on

593
00:31:18,560 --> 00:31:20,440
Speaker 1: the tax side. So the tax side is just the

594
00:31:20,520 --> 00:31:23,520
Speaker 1: same as it ever was. Um. It's interesting to hear

595
00:31:23,800 --> 00:31:25,640
Speaker 1: you say that you actually think the sort of custom

596
00:31:25,680 --> 00:31:29,480
Speaker 1: basketting issue is more problematic than the full basket heartbeat trading,

597
00:31:29,480 --> 00:31:32,480
Speaker 1: because the full back basket heartbeat trading is actually the

598
00:31:32,560 --> 00:31:34,680
Speaker 1: thing that Elizabeth has been writing about and that I

599
00:31:34,720 --> 00:31:36,960
Speaker 1: think is actually caused the most fear, which is the

600
00:31:37,040 --> 00:31:40,200
Speaker 1: idea that you can have a non economic activity, i e.

601
00:31:40,320 --> 00:31:42,000
Speaker 1: I'm going to give you all five hundred, You're gonna

602
00:31:42,000 --> 00:31:44,400
Speaker 1: give me all five hundred back in three days. That's

603
00:31:44,560 --> 00:31:47,840
Speaker 1: clearly not a particularly economic activity that can have huge

604
00:31:47,920 --> 00:31:52,280
Speaker 1: implications on the tach ight. The reason I'm not as

605
00:31:52,360 --> 00:31:57,040
Speaker 1: concerned about the entire baskets is you're correct that would

606
00:31:57,160 --> 00:31:59,680
Speaker 1: lower the game. They're using it just to lower the

607
00:31:59,720 --> 00:32:02,000
Speaker 1: part cential gain inside the t F. But if E

608
00:32:02,120 --> 00:32:04,120
Speaker 1: t F never sells, that gain is never going to

609
00:32:04,200 --> 00:32:07,920
Speaker 1: be realized. Right. Um. That's why I don't have quite

610
00:32:07,960 --> 00:32:10,240
Speaker 1: as much problem you know, from you know, it's not

611
00:32:10,440 --> 00:32:12,760
Speaker 1: pure good tax policy, but I don't have quite as

612
00:32:12,840 --> 00:32:16,680
Speaker 1: much problem with that because all we're doing is lowering

613
00:32:16,720 --> 00:32:18,840
Speaker 1: the gain inside the E t F. But but if

614
00:32:18,880 --> 00:32:21,960
Speaker 1: the gain that never has intractable because how would you

615
00:32:22,080 --> 00:32:25,800
Speaker 1: possibly track that. Virtually every basket is optimized, like almost

616
00:32:25,840 --> 00:32:29,080
Speaker 1: literally every single creation basket ever done, has been optimized

617
00:32:29,360 --> 00:32:32,920
Speaker 1: at least at one share level. Right, so we talk

618
00:32:33,000 --> 00:32:36,160
Speaker 1: about replication, but we don't do this in half shares.

619
00:32:36,840 --> 00:32:39,240
Speaker 1: Every basket is wrong. But but one thing you could

620
00:32:39,440 --> 00:32:42,360
Speaker 1: you could say is that we have a fifty two

621
00:32:42,440 --> 00:32:46,560
Speaker 1: b six. This provision continues, except that unless you distribute

622
00:32:46,600 --> 00:32:50,840
Speaker 1: a if you distribute a custom basket, you get taxed, right. Uh,

623
00:32:51,320 --> 00:32:54,000
Speaker 1: obviously within reason if you if there are derivatives inside,

624
00:32:54,040 --> 00:32:57,320
Speaker 1: you can't transfer those within reason doesn't play very well.

625
00:32:57,400 --> 00:32:59,600
Speaker 1: And just like there's mostly not a lot of reason

626
00:32:59,640 --> 00:33:01,280
Speaker 1: and these it's got to proportion them out right. You

627
00:33:01,360 --> 00:33:03,800
Speaker 1: have to distribute you know, you know the rulings that

628
00:33:03,880 --> 00:33:07,480
Speaker 1: they've given UH for closed end funds. So closed end

629
00:33:07,520 --> 00:33:10,320
Speaker 1: funds don't get this rule, right they but the I

630
00:33:10,480 --> 00:33:13,080
Speaker 1: r S has allowed them in private letter rulings but

631
00:33:13,160 --> 00:33:16,040
Speaker 1: not not recently UH to get the benefit of this rule.

632
00:33:16,080 --> 00:33:19,360
Speaker 1: By the statute, they don't issue redeemable securities, um. And

633
00:33:19,480 --> 00:33:22,080
Speaker 1: so they just required that you basically have to distribute

634
00:33:22,120 --> 00:33:24,360
Speaker 1: a proad of share of each security with it with

635
00:33:24,480 --> 00:33:27,480
Speaker 1: some exceptions, and then a basically a proad of share

636
00:33:27,520 --> 00:33:30,200
Speaker 1: of the basis right that goes out Um. You know,

637
00:33:30,360 --> 00:33:33,760
Speaker 1: something like that maybe maybe acceptable. Uh, And then the

638
00:33:33,840 --> 00:33:36,400
Speaker 1: only thing that would be hit were what are the

639
00:33:36,480 --> 00:33:38,880
Speaker 1: kind of the trades that were talked about in the

640
00:33:38,920 --> 00:33:44,000
Speaker 1: Bloomberg article. Um, again, when there's a taxable acquisition. Uh,

641
00:33:44,280 --> 00:33:46,040
Speaker 1: you know, mutual funds have to pay tax on that.

642
00:33:46,160 --> 00:33:48,160
Speaker 1: But E t f s heartbeat their way out of that.

643
00:33:48,640 --> 00:33:52,200
Speaker 1: And that's something that I I think I don't think

644
00:33:52,240 --> 00:33:54,520
Speaker 1: that there's much defense at all for that. When that

645
00:33:54,680 --> 00:33:58,000
Speaker 1: article came out, and you know, one of the things was, well, um, Vanguard,

646
00:33:58,280 --> 00:34:01,440
Speaker 1: black Rock, these companies look at it as their fiduciary

647
00:34:01,560 --> 00:34:04,360
Speaker 1: duty to protect their investors. So that would be the

648
00:34:04,440 --> 00:34:10,520
Speaker 1: defenses if they don't tax loss harvesting an advisor. This

649
00:34:10,640 --> 00:34:14,200
Speaker 1: is what all fiduciaries do. No, I understand that argument.

650
00:34:14,239 --> 00:34:15,960
Speaker 1: But then then the real question is, though what should

651
00:34:16,000 --> 00:34:19,440
Speaker 1: be the rule? Well, yeah, and I think that's a

652
00:34:19,480 --> 00:34:30,680
Speaker 1: reasonable conversation. Okay, So, Dave, how existential is this for

653
00:34:31,320 --> 00:34:33,759
Speaker 1: the E t F as we know it. I don't

654
00:34:33,800 --> 00:34:35,839
Speaker 1: think it's I don't the only place that could become

655
00:34:35,840 --> 00:34:39,359
Speaker 1: an existential crisis. It's really messes up the market maker

656
00:34:39,440 --> 00:34:42,839
Speaker 1: incentive to do creation redemption. So if if all you're

657
00:34:42,880 --> 00:34:47,040
Speaker 1: doing is going to the structure of the forty Act

658
00:34:47,200 --> 00:34:49,799
Speaker 1: fund that is the e t F and saying, hey,

659
00:34:49,880 --> 00:34:51,560
Speaker 1: you know what, we're going to change the rules a

660
00:34:51,600 --> 00:34:53,440
Speaker 1: little bit on what you have to distribute out to

661
00:34:53,560 --> 00:34:57,799
Speaker 1: your shareholders like on the regular that's not that big

662
00:34:57,840 --> 00:34:59,920
Speaker 1: a deal. If what they instead do is try to

663
00:35:00,120 --> 00:35:03,440
Speaker 1: come back at this through the AP and market making system,

664
00:35:03,640 --> 00:35:06,840
Speaker 1: that actually has some really scary implications. Now that's not

665
00:35:06,960 --> 00:35:08,960
Speaker 1: what's being talked about. What's being talked about is simply

666
00:35:09,000 --> 00:35:12,319
Speaker 1: removing this at the at the Ford Act level. Um,

667
00:35:13,400 --> 00:35:15,279
Speaker 1: it's not existential. I don't think e t f s

668
00:35:15,320 --> 00:35:19,000
Speaker 1: go away. The liquidity, the access, the cost advantages, none

669
00:35:19,000 --> 00:35:21,840
Speaker 1: of those get changed at all. Um. The certainly the

670
00:35:23,120 --> 00:35:26,640
Speaker 1: sort of public acceptance doesn't just reverse all of a sudden.

671
00:35:26,680 --> 00:35:28,239
Speaker 1: People don't all of a sudden go back to trying

672
00:35:28,280 --> 00:35:31,319
Speaker 1: to find an SMP five mutual fund because now all

673
00:35:31,320 --> 00:35:33,239
Speaker 1: of a sudden they don't get a tax advantage in

674
00:35:33,280 --> 00:35:36,480
Speaker 1: their sp t F. It would simply put them at parody,

675
00:35:36,640 --> 00:35:39,760
Speaker 1: and at parody most mutual funds still looks substantially worse,

676
00:35:40,239 --> 00:35:43,600
Speaker 1: both on a cost basis, attracting basis, like you name

677
00:35:43,680 --> 00:35:45,520
Speaker 1: it right, just just the fact they have to hold

678
00:35:45,600 --> 00:35:48,160
Speaker 1: cash to meet redemptions means that in general, most mutual

679
00:35:48,200 --> 00:35:50,239
Speaker 1: funds are going to still look course. And and the

680
00:35:50,360 --> 00:35:52,680
Speaker 1: trend that we've seen and talked about on the podcast

681
00:35:52,760 --> 00:35:56,520
Speaker 1: before of mutual funds converting into e t s would

682
00:35:56,520 --> 00:35:59,200
Speaker 1: we do you think we'd see any changes there or

683
00:35:59,320 --> 00:36:02,960
Speaker 1: you really more funds would continue to become ets. I

684
00:36:03,040 --> 00:36:05,759
Speaker 1: think the tax advance, the tax efficiency of ets has

685
00:36:05,760 --> 00:36:08,000
Speaker 1: always been a bit of a nice to have for

686
00:36:08,360 --> 00:36:10,920
Speaker 1: some investors. It's a huge deal, right if you happen

687
00:36:10,960 --> 00:36:14,520
Speaker 1: to be a multimillion dollar taxable investor who has exhausted

688
00:36:14,600 --> 00:36:17,600
Speaker 1: all of your other ways of squirreling money away, Yeah,

689
00:36:17,680 --> 00:36:20,240
Speaker 1: the ET has been really helpful for you. But ETFs

690
00:36:20,280 --> 00:36:23,279
Speaker 1: are increasingly used by huge institutions who don't care about this.

691
00:36:23,480 --> 00:36:25,840
Speaker 1: They're actually even being used inside a lot of rs

692
00:36:25,840 --> 00:36:28,000
Speaker 1: and borrowing ks at this point, and people don't care.

693
00:36:28,040 --> 00:36:32,040
Speaker 1: They're either um and obviously the hardcore trading community doesn't

694
00:36:32,040 --> 00:36:33,560
Speaker 1: care about any of this because none of them are

695
00:36:33,560 --> 00:36:35,480
Speaker 1: holding for long enough for these things to matter. So

696
00:36:35,920 --> 00:36:39,960
Speaker 1: it's this narrow slice where yeah, they'd really care, but

697
00:36:40,120 --> 00:36:42,200
Speaker 1: that slice isn't gonna go to mutual funds. They're just

698
00:36:42,239 --> 00:36:44,839
Speaker 1: gonna direct index. Yeah, and let me jump in here.

699
00:36:44,880 --> 00:36:50,640
Speaker 1: I you know, you know it's killing Majol do these

700
00:36:50,680 --> 00:36:52,600
Speaker 1: pans with Dave all the time, and I love riffing

701
00:36:52,640 --> 00:36:54,600
Speaker 1: off of him. I feel like we could just sit

702
00:36:54,680 --> 00:36:57,920
Speaker 1: here and go off for hours. But um, okay, a

703
00:36:57,920 --> 00:37:00,880
Speaker 1: couple of things. Conversions. There was a version today actually

704
00:37:01,160 --> 00:37:04,440
Speaker 1: a pot et FU converted to our pot mutual fund

705
00:37:04,480 --> 00:37:06,800
Speaker 1: converted to an e t F. I don't think that

706
00:37:06,920 --> 00:37:09,680
Speaker 1: was for tax tax reasons. It had been out performing

707
00:37:09,760 --> 00:37:11,880
Speaker 1: the pot e t f s and nobody was buying it.

708
00:37:12,040 --> 00:37:14,480
Speaker 1: I think ETFs are just worth of fisher biting. But

709
00:37:14,600 --> 00:37:17,440
Speaker 1: I do think the tax could help some mutual fund conversions.

710
00:37:17,560 --> 00:37:21,520
Speaker 1: Um that's one feature. Um. I was telling Jroll earlier

711
00:37:21,640 --> 00:37:24,800
Speaker 1: that tax the tax efficiency of ETFs is sort of

712
00:37:24,920 --> 00:37:28,480
Speaker 1: like Superman's X ray vision. You know, it's he can

713
00:37:28,520 --> 00:37:30,799
Speaker 1: still fly, he can still do you know what he does,

714
00:37:30,920 --> 00:37:33,320
Speaker 1: but he you know, he's he's gonna lose something. And

715
00:37:33,400 --> 00:37:36,480
Speaker 1: I agree. I think direct indexing is the natural benefactor

716
00:37:36,640 --> 00:37:39,759
Speaker 1: of those really wealthy people. That's who I think is

717
00:37:39,800 --> 00:37:43,839
Speaker 1: really gonna just avoid it anyway, is the really wealthy people.

718
00:37:43,920 --> 00:37:45,880
Speaker 1: They're gonna But that's part of The problem is the

719
00:37:46,719 --> 00:37:51,040
Speaker 1: billion dollars were theoretically talking about when it's actually collected

720
00:37:51,080 --> 00:37:53,799
Speaker 1: in three. Like if you eliminated it today and say, okay,

721
00:37:53,880 --> 00:37:56,120
Speaker 1: let's take a look in four and see how much

722
00:37:56,160 --> 00:37:59,080
Speaker 1: money we made, it's gonna be like five, not twenty,

723
00:37:59,160 --> 00:38:01,759
Speaker 1: because the industry is very smart at figuring out how

724
00:38:01,840 --> 00:38:04,319
Speaker 1: to get people out of this situation. And I think, um,

725
00:38:04,960 --> 00:38:08,240
Speaker 1: who would probably be the biggest loser would be active

726
00:38:08,480 --> 00:38:10,920
Speaker 1: e t F s like an ARC or a high

727
00:38:11,280 --> 00:38:14,960
Speaker 1: turnover smart beta e t F because a Vanguard ETF

728
00:38:15,200 --> 00:38:18,000
Speaker 1: is just not turning over that much anyway. Um, you know,

729
00:38:18,560 --> 00:38:22,439
Speaker 1: Vogel always said index mutual funds are almost as tax

730
00:38:22,480 --> 00:38:24,800
Speaker 1: efficient as an e t F even with that special

731
00:38:24,880 --> 00:38:27,320
Speaker 1: thing you guys have, because we just don't trade so

732
00:38:27,600 --> 00:38:29,440
Speaker 1: many ways. This is what blows my mind. There's so

733
00:38:29,600 --> 00:38:31,640
Speaker 1: many ways around it. You run the whole thing through

734
00:38:31,680 --> 00:38:34,640
Speaker 1: a twenty percent Cayman subsidiary, it all goes away done.

735
00:38:34,880 --> 00:38:37,640
Speaker 1: Like I mean, there's so many ways around that problem

736
00:38:37,920 --> 00:38:40,440
Speaker 1: that if I wanted to run a three active equity

737
00:38:40,520 --> 00:38:42,719
Speaker 1: fund in an e t F structure and all this

738
00:38:42,840 --> 00:38:45,080
Speaker 1: went away, I can think of three or four ways

739
00:38:45,160 --> 00:38:46,719
Speaker 1: that I can do it. Right now inside the four

740
00:38:46,760 --> 00:38:50,040
Speaker 1: D act that nobody's even talking about. So, Professor Cologne,

741
00:38:50,239 --> 00:38:55,759
Speaker 1: you've clearly kicked the hornets nest. Are you surprised? Um? Yeah?

742
00:38:56,280 --> 00:38:58,239
Speaker 1: And have you have you gotten emails? Like what kind

743
00:38:58,280 --> 00:39:00,480
Speaker 1: of feedback have you gotten from all this? It's funny

744
00:39:00,560 --> 00:39:03,600
Speaker 1: this article when I when I wrote it, um, uh,

745
00:39:04,440 --> 00:39:06,279
Speaker 1: Dave was they would probably laugh. You guys will laugh.

746
00:39:06,400 --> 00:39:08,040
Speaker 1: Is this is the only article that people wrote me

747
00:39:08,160 --> 00:39:11,040
Speaker 1: emails about. It wasn't a criticism, but it was like, Oh,

748
00:39:11,160 --> 00:39:14,359
Speaker 1: my name is uh Joe Smith. I have a ten

749
00:39:14,440 --> 00:39:17,880
Speaker 1: million I run ten billion dollar family foundation in uh

750
00:39:18,120 --> 00:39:20,040
Speaker 1: San Francisco. Do you have any ideas and how we

751
00:39:20,120 --> 00:39:23,560
Speaker 1: could use this? Uh? Tons of those emails actually, so

752
00:39:23,640 --> 00:39:25,719
Speaker 1: people looked at it. Oh I didn't know about this?

753
00:39:26,400 --> 00:39:28,960
Speaker 1: How can I now build up on it? And three

754
00:39:29,080 --> 00:39:32,120
Speaker 1: three points? Basically, you know, Dave kind of alluded this,

755
00:39:32,200 --> 00:39:34,239
Speaker 1: and I think Davi would have better information than I would.

756
00:39:34,719 --> 00:39:36,719
Speaker 1: I don't think E t F s uh. You know,

757
00:39:36,880 --> 00:39:38,719
Speaker 1: this is a little bit of a roadbump for them.

758
00:39:38,920 --> 00:39:41,360
Speaker 1: But if we look at the universe of investors, we

759
00:39:41,400 --> 00:39:44,359
Speaker 1: have the foreign investors, uh, you know, offshore pedge funds.

760
00:39:44,440 --> 00:39:48,440
Speaker 1: We have endowments, we have UM pensions, we have four

761
00:39:48,480 --> 00:39:50,400
Speaker 1: O one case four or three bs that are now

762
00:39:51,239 --> 00:39:55,280
Speaker 1: allowing purchases of ETF So there's just a huge universe

763
00:39:55,600 --> 00:39:58,759
Speaker 1: of tax exempt money out there that this is irrelevant. Right,

764
00:39:58,800 --> 00:40:00,680
Speaker 1: So if any of the listeners say, oh my god,

765
00:40:00,760 --> 00:40:02,440
Speaker 1: this is gonna I have E t f s in

766
00:40:02,520 --> 00:40:04,960
Speaker 1: my era or anything like this, this will not affect

767
00:40:05,040 --> 00:40:08,080
Speaker 1: you one iota, right, And I just think that this,

768
00:40:08,360 --> 00:40:11,480
Speaker 1: you know, worse comes to worse. It just makes E

769
00:40:11,560 --> 00:40:13,800
Speaker 1: t f s a little bit the proper what we

770
00:40:13,880 --> 00:40:16,840
Speaker 1: call tax clientele where you're gonna be late lyast taxes,

771
00:40:16,960 --> 00:40:20,200
Speaker 1: the tax exempts will will move more into this UM

772
00:40:20,560 --> 00:40:22,759
Speaker 1: and then the taxable people may move to the extent

773
00:40:22,840 --> 00:40:26,960
Speaker 1: that you can away from this now that um. Dave

774
00:40:27,040 --> 00:40:30,320
Speaker 1: Rais is a good point about the upcoming wave of

775
00:40:30,440 --> 00:40:34,520
Speaker 1: direct indexing. Direct investing, the heartbeat trades, which allow you

776
00:40:34,640 --> 00:40:37,280
Speaker 1: to basically get rid of one or two or five

777
00:40:37,680 --> 00:40:42,760
Speaker 1: securities without paying tax via redemption creation. When you're direct indexing,

778
00:40:42,800 --> 00:40:44,800
Speaker 1: you won't be able to do that, right, And so

779
00:40:45,040 --> 00:40:46,960
Speaker 1: that just kind of tells you if you can't do

780
00:40:47,080 --> 00:40:49,600
Speaker 1: it directly owning the shares, why should you be able

781
00:40:49,640 --> 00:40:52,399
Speaker 1: to do it indirectly via an E T F Right.

782
00:40:52,520 --> 00:40:55,239
Speaker 1: So I'm a I'm you know, I think this direct

783
00:40:55,320 --> 00:40:58,640
Speaker 1: indestining is a great thing, and allow the tax lost harvesting. Um.

784
00:40:59,280 --> 00:41:02,239
Speaker 1: But at the same time time for portfolio adjustments, Uh,

785
00:41:02,600 --> 00:41:05,920
Speaker 1: they will be taxable. Uh if there are gains, right again,

786
00:41:06,040 --> 00:41:09,000
Speaker 1: you'll be able to tax loss harvest to mitigate some

787
00:41:09,160 --> 00:41:11,759
Speaker 1: of that. Knowing what we know about d C and

788
00:41:11,800 --> 00:41:14,279
Speaker 1: how this has gone down, Professor Colin, what are the

789
00:41:14,360 --> 00:41:16,640
Speaker 1: odds that you think that this bill becomes a lot

790
00:41:18,520 --> 00:41:24,680
Speaker 1: I'm gonna say not great because the uh there's eight

791
00:41:24,960 --> 00:41:27,960
Speaker 1: neutral funds and ETFs are everywhere, so you're stepping on

792
00:41:28,120 --> 00:41:31,840
Speaker 1: everyone's toes. I would hope at a minimum. Uh, you know,

793
00:41:31,840 --> 00:41:34,040
Speaker 1: I'm not giving you an answer. I will see what

794
00:41:34,120 --> 00:41:35,600
Speaker 1: happens in the Senate. I don't think it was in

795
00:41:35,680 --> 00:41:38,960
Speaker 1: the House bill on Friday, right, it didn't get in there.

796
00:41:39,320 --> 00:41:41,160
Speaker 1: I know that the White House is looking at this,

797
00:41:41,640 --> 00:41:43,400
Speaker 1: but we'll so we'll see what happens in the Senate.

798
00:41:43,680 --> 00:41:47,680
Speaker 1: I'm I can't give you a percentage, but at a minimum,

799
00:41:47,680 --> 00:41:49,839
Speaker 1: I hope it kind of stimulates a discussion of how

800
00:41:49,880 --> 00:41:52,239
Speaker 1: in the US, you know, we can kind of fix

801
00:41:52,320 --> 00:41:57,040
Speaker 1: the taxation of kind of public investment companies for for everyone. Okay,

802
00:41:57,480 --> 00:41:59,799
Speaker 1: try and put some odds on that. Oh I'm gonna

803
00:42:00,000 --> 00:42:04,400
Speaker 1: I wanna say, under Okay, and and and Dave, how

804
00:42:04,400 --> 00:42:07,239
Speaker 1: about from your perspective, I think there's no chance that

805
00:42:07,360 --> 00:42:11,360
Speaker 1: a straight up recision of a fifty two six happens

806
00:42:12,360 --> 00:42:15,480
Speaker 1: in this Congress. I don't. I would give that essentially

807
00:42:15,560 --> 00:42:17,400
Speaker 1: zero odds have happened. I think we'll get a bitcoin

808
00:42:17,440 --> 00:42:21,680
Speaker 1: et f first. Um. As far as the broader issue, UM,

809
00:42:21,840 --> 00:42:25,719
Speaker 1: I think if we actually ended up with a I

810
00:42:25,760 --> 00:42:29,360
Speaker 1: mean to too crazy scenarios, either a clear mandate for

811
00:42:29,560 --> 00:42:33,759
Speaker 1: one party in every branch of the Congress and White House,

812
00:42:33,800 --> 00:42:36,279
Speaker 1: which I don't think it's gonna happen anytime soon, or

813
00:42:36,600 --> 00:42:39,560
Speaker 1: actual bipartisanship to try to solve some real problems. I

814
00:42:39,600 --> 00:42:42,000
Speaker 1: don't think that's gonna happen anytime soon either. But with

815
00:42:42,200 --> 00:42:44,840
Speaker 1: one of those two priors, then yeah, I think a

816
00:42:44,960 --> 00:42:47,520
Speaker 1: full re look at what we do in investment taxation

817
00:42:47,560 --> 00:42:50,120
Speaker 1: would be phenomenal because it's a mess. Right. We haven't

818
00:42:50,160 --> 00:42:53,320
Speaker 1: had substantial look at that since what camera what was

819
00:42:54,000 --> 00:42:56,040
Speaker 1: s right, that was the last time we actually looked

820
00:42:56,080 --> 00:42:57,840
Speaker 1: at the tax code and did anything useful to it,

821
00:42:57,920 --> 00:42:59,759
Speaker 1: in my opinion, and since then all we've done is

822
00:42:59,880 --> 00:43:03,000
Speaker 1: or poke around the edges as a political football. But

823
00:43:03,120 --> 00:43:05,719
Speaker 1: the the Investment Task codes at nightmare, and so I'm

824
00:43:05,719 --> 00:43:08,759
Speaker 1: all for cleaning it up. Is this repeat? Like, if

825
00:43:08,800 --> 00:43:10,880
Speaker 1: I'm looking at this massive tax bill, say, I'm like

826
00:43:11,160 --> 00:43:13,640
Speaker 1: Senator Joe Mansion from West Virginia, who he's got a

827
00:43:13,680 --> 00:43:16,239
Speaker 1: lot of power, right, and I look at this tax bill?

828
00:43:16,680 --> 00:43:20,080
Speaker 1: Is that line really? Do I even know what that is?

829
00:43:20,239 --> 00:43:22,359
Speaker 1: Is that a deal breaker for most people? Or are

830
00:43:22,400 --> 00:43:24,920
Speaker 1: there other things in the bill that would be deal

831
00:43:25,000 --> 00:43:27,440
Speaker 1: breakers and need to be taken out and amended. I'm

832
00:43:27,520 --> 00:43:31,080
Speaker 1: wondering if the all the horse trading they do doesn't

833
00:43:31,120 --> 00:43:34,359
Speaker 1: involve this, but this just stays in and everybody's happy

834
00:43:34,400 --> 00:43:37,399
Speaker 1: and it does go through. I think it's hard to tell.

835
00:43:37,800 --> 00:43:39,480
Speaker 1: Early on in my career I worked in d c

836
00:43:40,000 --> 00:43:43,200
Speaker 1: UH and and saw some from the inside some some

837
00:43:43,280 --> 00:43:46,600
Speaker 1: of the way the tax legislation gets past UH. It's

838
00:43:46,640 --> 00:43:48,680
Speaker 1: not pretty. That's why I just didn't really want to

839
00:43:48,719 --> 00:43:52,120
Speaker 1: give any any predictions. You know. The one thing that

840
00:43:52,280 --> 00:43:53,960
Speaker 1: kind of keeps it I think a little bit bigger

841
00:43:54,000 --> 00:43:57,279
Speaker 1: than than day zero, than than Dave's view is is

842
00:43:57,360 --> 00:44:01,319
Speaker 1: the revenue associated with it a poker full are not imaginary?

843
00:44:01,440 --> 00:44:05,920
Speaker 1: Not um, just because they're gonna need revenue offsets, right, um,

844
00:44:06,280 --> 00:44:08,360
Speaker 1: and for the pay for all of this. And so

845
00:44:08,480 --> 00:44:10,680
Speaker 1: I think in a normal year I would say it

846
00:44:10,760 --> 00:44:13,640
Speaker 1: had very little chance. But this year I think it

847
00:44:13,840 --> 00:44:17,160
Speaker 1: definitely has some chance of staying in. That's fair, That's fair.

848
00:44:17,560 --> 00:44:20,200
Speaker 1: I have a cruel joke. I have a cruel joke.

849
00:44:20,280 --> 00:44:26,200
Speaker 1: You mean that has a heartbeat. Eric's Eric's gonna kill

850
00:44:26,280 --> 00:44:28,640
Speaker 1: me for that. He's way too proud of himself. I

851
00:44:28,680 --> 00:44:32,480
Speaker 1: can tell I'm looking at him, Okay, Professor Cologne Um.

852
00:44:32,719 --> 00:44:34,960
Speaker 1: Final question, which is the final question we ask of

853
00:44:35,040 --> 00:44:37,480
Speaker 1: everyone um on the on the podcast, what's your favorite

854
00:44:37,520 --> 00:44:40,239
Speaker 1: e F F ticker? Oh e t F ticker? Oh

855
00:44:40,320 --> 00:44:42,840
Speaker 1: my goodness. I will admit I don't own a d

856
00:44:42,960 --> 00:44:45,960
Speaker 1: t F uh. We we don't allow them through our

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Speaker 1: retirement plan at Fordham. UM, but probably probably spy. I

858
00:44:51,280 --> 00:44:54,880
Speaker 1: have some familiarity with that. And Dave, I think, I know,

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00:44:55,239 --> 00:44:57,319
Speaker 1: I think I've heard yours before. But what's your soup?

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Speaker 1: What's the soup? R? I'm still go move van Agri business.

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Speaker 1: I still think it's the I mean for an amount

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Speaker 1: of tia. I mean, come on, all right, Dave, Dave uh,

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Speaker 1: Professor Cologne, thank you so much for joining us on Trillions.

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Speaker 1: Thank you right, thank you, Joel, thank you all right.

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Speaker 1: I never pleasure Dave speaking. Thanks for listening to Trillions.

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Speaker 1: Until next time. You can find us on the Bloomberg terminal,

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Speaker 1: Bloomberg dot com, Apple Podcast, Spotify, and wherever else you

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Speaker 1: like to listen. We'd love to hear from you. We're

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Speaker 1: on Twitter, I'm at Joel Weber Show. He's at Eric Faltunist.

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00:45:37,200 --> 00:45:40,000
Speaker 1: You can find Dave Natick at Dave Natick, and you

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00:45:40,040 --> 00:45:43,040
Speaker 1: can find Professor Cologne at Fordham Law n y C.

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Speaker 1: This episode of Trillions was produced by Magnus Hendricks. Francessica

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Speaker 1: Levie is the head of Bloomberg Podcast. Bye.