1 00:00:02,720 --> 00:00:07,600 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. 2 00:00:08,080 --> 00:00:13,680 Speaker 2: Happy Birthday America, Matt, What are you doing for America 3 00:00:13,720 --> 00:00:17,160 Speaker 2: to fifty? 4 00:00:17,320 --> 00:00:19,520 Speaker 1: People have asked me that, and I'm confused. 5 00:00:20,079 --> 00:00:20,720 Speaker 2: What do you think? 6 00:00:20,720 --> 00:00:24,400 Speaker 1: You know? I'm like going to the pool. Yeah, I 7 00:00:24,480 --> 00:00:26,840 Speaker 1: might go to like the riverfront fireworks. I might not. 8 00:00:27,160 --> 00:00:32,720 Speaker 2: Yeah. I'm also I guess the heat dome is descending 9 00:00:32,840 --> 00:00:33,800 Speaker 2: the heat dome. 10 00:00:34,360 --> 00:00:36,280 Speaker 1: The lateness of the fireworks. I want to go to 11 00:00:36,320 --> 00:00:37,919 Speaker 1: the pool and stay on the air conditioning. 12 00:00:37,960 --> 00:00:41,639 Speaker 2: And I love that. The World Cup, Yeah, I think 13 00:00:41,640 --> 00:00:43,920 Speaker 2: I'm going to watch my first match of the World 14 00:00:43,920 --> 00:00:47,240 Speaker 2: Cup tonight, which is Wednesday versus Bosnia. 15 00:00:47,479 --> 00:00:48,120 Speaker 1: Yeah. 16 00:00:48,240 --> 00:00:49,800 Speaker 2: I didn't know that was happening, and then my dad 17 00:00:49,800 --> 00:00:52,080 Speaker 2: informed me of such. Since I'm on my way to 18 00:00:52,120 --> 00:00:55,080 Speaker 2: my parents' house after i do this podcast in anchor 19 00:00:55,080 --> 00:00:58,200 Speaker 2: two hours of television, just so. 20 00:00:58,200 --> 00:01:00,760 Speaker 1: You know, we're watching World Cup tonight. Yeah. I was 21 00:01:00,960 --> 00:01:02,120 Speaker 1: come here with big ideas. 22 00:01:02,440 --> 00:01:04,040 Speaker 2: It was like, it starts at eight pm, so you 23 00:01:04,040 --> 00:01:05,679 Speaker 2: should get here before that. 24 00:01:06,040 --> 00:01:08,880 Speaker 1: I sthized, I really enjoy watching the World Cup with. 25 00:01:08,840 --> 00:01:11,800 Speaker 2: My children, So I'm psyched. I mean that's great. I 26 00:01:11,920 --> 00:01:13,080 Speaker 2: just I like sports. 27 00:01:13,480 --> 00:01:15,280 Speaker 1: I can't believe that you like like sports and have 28 00:01:16,160 --> 00:01:18,520 Speaker 1: not watched any of the I don't know fifty. 29 00:01:18,520 --> 00:01:23,679 Speaker 2: Imagined casual consumer. I have like two niche sports that 30 00:01:23,720 --> 00:01:26,320 Speaker 2: I really care about, and then I'll watch anything you 31 00:01:26,400 --> 00:01:29,200 Speaker 2: put in front of me pretty much. I'm excited to 32 00:01:29,760 --> 00:01:33,480 Speaker 2: make this lobster cake. For some reason, the trend on 33 00:01:33,680 --> 00:01:38,440 Speaker 2: TikTok right now is to cut up strawberries and arrange 34 00:01:38,440 --> 00:01:41,399 Speaker 2: them on cake in the shape of a lobster. The 35 00:01:41,440 --> 00:01:43,560 Speaker 2: algorithm has decided that this is the only thing that 36 00:01:43,600 --> 00:01:45,640 Speaker 2: I need to see. So, like every other video is 37 00:01:46,200 --> 00:01:48,240 Speaker 2: women making lobster cake, so I'm going to try that. 38 00:01:48,600 --> 00:01:51,280 Speaker 1: It's interesting. I don't know you that well. I wouldn't 39 00:01:51,280 --> 00:01:54,160 Speaker 1: have thought of you as a person who, like your 40 00:01:54,240 --> 00:01:56,680 Speaker 1: number one interest is going to be cake decorating, But 41 00:01:56,720 --> 00:01:58,560 Speaker 1: I guess the algorithm knows you're better than I do. 42 00:01:58,680 --> 00:02:00,440 Speaker 2: I don't have a lot going on right now. A 43 00:02:00,440 --> 00:02:03,360 Speaker 2: lot of my normal activities I can't do, which is 44 00:02:03,400 --> 00:02:06,520 Speaker 2: like drinking alcohol and like running a lot, or like 45 00:02:06,600 --> 00:02:11,760 Speaker 2: horseback riding. You know, those are kind of that's the 46 00:02:11,840 --> 00:02:14,000 Speaker 2: kind of stuff I like to do, so I can't 47 00:02:14,000 --> 00:02:16,600 Speaker 2: really do that, so I'm gonna be instead. 48 00:02:16,880 --> 00:02:18,639 Speaker 1: It's like drunk horse back riding, like. 49 00:02:19,080 --> 00:02:20,360 Speaker 2: Don't drink and ride. 50 00:02:21,400 --> 00:02:24,200 Speaker 1: Hello, and welcome to the Money Stuff Podcast, your weekly 51 00:02:24,240 --> 00:02:29,000 Speaker 1: podcast where we talk about stuff related to money. I'm 52 00:02:29,000 --> 00:02:31,000 Speaker 1: Matt Levian and I write the Money Stuff column for 53 00:02:31,000 --> 00:02:31,880 Speaker 1: Bloomberg Opinion. 54 00:02:32,880 --> 00:02:35,480 Speaker 2: And I'm Katie Greifeld, a reporter for Bloomberg News and 55 00:02:35,520 --> 00:02:37,079 Speaker 2: an anchor for Bloomberg Television. 56 00:02:45,680 --> 00:02:51,960 Speaker 1: Jeff yass Quehanna Investment Group, the big options trading market 57 00:02:52,000 --> 00:02:56,600 Speaker 1: making quant firm. I've heard of him, yeah, back in 58 00:02:56,680 --> 00:03:01,480 Speaker 1: nineteen ninety two. He did an interview in Jack Schueger's 59 00:03:01,639 --> 00:03:04,720 Speaker 1: book New Market Wizards. Great great series of books, The 60 00:03:04,760 --> 00:03:08,440 Speaker 1: Market Wizards books. It's like just these great, like super 61 00:03:08,440 --> 00:03:12,440 Speaker 1: informative interviews with edgehund managers and traders. And in that 62 00:03:12,520 --> 00:03:15,600 Speaker 1: interview they talked about Susquehanna being an options market maker, 63 00:03:15,840 --> 00:03:18,440 Speaker 1: and they spent a long time talking about Susquehanna getting 64 00:03:18,480 --> 00:03:22,760 Speaker 1: picked off by insider traders. Susquehanna would get a call 65 00:03:22,800 --> 00:03:25,040 Speaker 1: being like would you make a price and hundreds of 66 00:03:25,040 --> 00:03:27,000 Speaker 1: call options in some company, and they're like, sure, here's 67 00:03:27,040 --> 00:03:29,640 Speaker 1: your price, because they're a market maker and that's what 68 00:03:29,680 --> 00:03:31,799 Speaker 1: they do, and they don't want to say no, and 69 00:03:31,840 --> 00:03:34,400 Speaker 1: they'd make a price and they'd sell a bunch of 70 00:03:34,440 --> 00:03:37,080 Speaker 1: options and then ten minutes later the company would be 71 00:03:37,120 --> 00:03:39,240 Speaker 1: taken over and they'd lose a bucket of money on 72 00:03:39,280 --> 00:03:42,320 Speaker 1: the options. And he discuss this, you know, he gives 73 00:03:42,320 --> 00:03:43,800 Speaker 1: an example and he's like, well, in case, we got 74 00:03:43,800 --> 00:03:46,040 Speaker 1: our money back because the SEC found the guy who 75 00:03:46,040 --> 00:03:47,760 Speaker 1: did it and he immediately gave back the money and 76 00:03:47,800 --> 00:03:50,120 Speaker 1: we got all our money back. And he talks about like, 77 00:03:50,160 --> 00:03:52,960 Speaker 1: you know, in the option of the market, the more 78 00:03:53,120 --> 00:03:55,760 Speaker 1: you can trust the SEC to crack down and insider 79 00:03:55,800 --> 00:03:58,440 Speaker 1: trading and stop insider traders, the better the pricing of 80 00:03:58,480 --> 00:04:00,520 Speaker 1: options will be, the tighter the spreads will be because 81 00:04:01,560 --> 00:04:04,160 Speaker 1: people like jeff Yass, people like sus Queahana won't get 82 00:04:04,200 --> 00:04:06,680 Speaker 1: picked off by insider traders and so they can quote 83 00:04:06,680 --> 00:04:08,360 Speaker 1: type prices because they're not going to lose a lot 84 00:04:08,360 --> 00:04:12,600 Speaker 1: of money getting insider traded against. So that was thirty 85 00:04:12,720 --> 00:04:13,560 Speaker 1: four years ago. 86 00:04:13,800 --> 00:04:15,280 Speaker 2: Yeah, he's still doing it. 87 00:04:15,880 --> 00:04:21,159 Speaker 1: So this week Susquehana sued one hundred anonymous people for 88 00:04:21,440 --> 00:04:24,680 Speaker 1: insider trading against them. I'm like Chinese brokerage options. 89 00:04:24,960 --> 00:04:29,080 Speaker 2: Yeah, it's so cool. The Susquehana is saying that this 90 00:04:29,400 --> 00:04:32,599 Speaker 2: would be one of the largest insider trading schemes in 91 00:04:32,720 --> 00:04:36,679 Speaker 2: recent memory. Sure if it were insider treading. 92 00:04:36,920 --> 00:04:38,000 Speaker 1: Yeah, outsider trading. 93 00:04:38,200 --> 00:04:41,600 Speaker 2: One hundred people is a lot to organize, right right right. 94 00:04:41,839 --> 00:04:46,040 Speaker 1: China announced everyone goes that a crackdown on cross border trading. 95 00:04:46,320 --> 00:04:48,960 Speaker 1: So all these are Chinese brokers firms that did cross 96 00:04:49,000 --> 00:04:53,600 Speaker 1: border trading. Their share prices plummeted on like May twenty second, 97 00:04:53,600 --> 00:04:57,680 Speaker 1: I think, yeah, and this, you know, more or less 98 00:04:57,680 --> 00:04:59,800 Speaker 1: game is a surprise in the market. Like the stocks 99 00:04:59,800 --> 00:05:04,200 Speaker 1: were and then they were low, and some people bought 100 00:05:04,440 --> 00:05:06,440 Speaker 1: short data out of the money, put options on these 101 00:05:06,520 --> 00:05:10,360 Speaker 1: Chinese brokerages, and a lot of them bought them from Susquehanna. 102 00:05:10,480 --> 00:05:14,080 Speaker 1: And Susquehanna's like all those people one had inside information 103 00:05:14,279 --> 00:05:16,599 Speaker 1: and two were part of a coordinated scheme to pick 104 00:05:16,680 --> 00:05:20,120 Speaker 1: us off by insided trading. And so Susquehanna is like, 105 00:05:20,120 --> 00:05:23,039 Speaker 1: please give us the money back. And they went to 106 00:05:23,160 --> 00:05:25,800 Speaker 1: court and they sued these people, but they don't knowho 107 00:05:25,800 --> 00:05:27,600 Speaker 1: these people are. They just put like John Doe one 108 00:05:27,600 --> 00:05:30,800 Speaker 1: through one hundred, and they sued these people, but like 109 00:05:31,040 --> 00:05:33,719 Speaker 1: the real like sort of immediate object of their lawsuit 110 00:05:33,720 --> 00:05:36,880 Speaker 1: is to get the court to order their brokerages to 111 00:05:37,000 --> 00:05:40,640 Speaker 1: freeze their accounts and give up information about them to Susquehanna. 112 00:05:41,080 --> 00:05:43,520 Speaker 1: And so then after that, you know, Susquehanna can like 113 00:05:43,520 --> 00:05:45,000 Speaker 1: go look and see who these people are, and if 114 00:05:45,000 --> 00:05:48,040 Speaker 1: they're like employees of like Chinese regulators or brokerage firms, 115 00:05:48,040 --> 00:05:50,800 Speaker 1: they can be like, aha, you had inside information. Yeah, 116 00:05:50,800 --> 00:05:53,880 Speaker 1: but like also not somebody who's frozen like you know, 117 00:05:55,279 --> 00:05:59,640 Speaker 1: but Suskohada keeps pursuing this lawsuit that people don't necessarily 118 00:05:59,680 --> 00:06:03,680 Speaker 1: show up up because one, probably most of them are 119 00:06:03,720 --> 00:06:06,720 Speaker 1: in China, and two, maybe some of them are insider trading, 120 00:06:06,760 --> 00:06:09,240 Speaker 1: maybe all of them inside. Maybe it was a coordinated conspiracy, 121 00:06:09,320 --> 00:06:11,080 Speaker 1: and if they don't show up then maybe so Kohana 122 00:06:11,200 --> 00:06:13,200 Speaker 1: just gets to give the money. So that seems to 123 00:06:13,200 --> 00:06:13,799 Speaker 1: be the trade. 124 00:06:13,920 --> 00:06:17,640 Speaker 2: Yeah, so in ensuing one hundred, John does is give 125 00:06:18,279 --> 00:06:21,520 Speaker 2: is the idea that okay, maybe half of them were 126 00:06:21,640 --> 00:06:22,800 Speaker 2: actually insider trading. 127 00:06:23,160 --> 00:06:27,560 Speaker 1: Sus Quehanna's complaint suggests that there's evidence that it was 128 00:06:27,560 --> 00:06:30,240 Speaker 1: all part of the same scheme, but like not really 129 00:06:30,560 --> 00:06:33,760 Speaker 1: yeah exactly, Well, they were all on like a few brokerages, 130 00:06:33,880 --> 00:06:36,280 Speaker 1: and they all bought short dated out of the money puts, 131 00:06:36,839 --> 00:06:38,920 Speaker 1: and so yeah, it's all probably inside of trading, but 132 00:06:38,960 --> 00:06:42,039 Speaker 1: like realistically, you know, sus Quehana is an option options 133 00:06:42,040 --> 00:06:45,479 Speaker 1: market maker. They know what they're doing. It's a probabilistic better. Yeah, 134 00:06:45,640 --> 00:06:48,760 Speaker 1: probably half these people were insider trading. Well the half 135 00:06:48,760 --> 00:06:50,560 Speaker 1: can show up and ask for their money back. 136 00:06:50,440 --> 00:06:52,520 Speaker 2: And we'll give it to them by lumping them all together. 137 00:06:52,600 --> 00:06:57,520 Speaker 2: They did get to cite an impressive number seventy dollars. 138 00:06:57,720 --> 00:07:00,599 Speaker 1: The rod Roger rata. Like insider trading cases even smaller 139 00:07:00,600 --> 00:07:01,880 Speaker 1: than this, It's like, well that was one guy who 140 00:07:01,880 --> 00:07:03,760 Speaker 1: actually did the trades. This is like one hundred people 141 00:07:04,080 --> 00:07:06,920 Speaker 1: who are unified only by having bought some put options. 142 00:07:07,040 --> 00:07:11,400 Speaker 2: Yeah. Yeah, I do think it's interesting that. Okay, Interactive Brokers, 143 00:07:11,440 --> 00:07:14,000 Speaker 2: that's where a lot of the accounts were where the 144 00:07:14,040 --> 00:07:18,360 Speaker 2: trades were made, but also Futu Holdings and Tiger Brokers, 145 00:07:18,640 --> 00:07:21,040 Speaker 2: so these were firms that were targeted in the crackdown, 146 00:07:21,080 --> 00:07:24,240 Speaker 2: and these are also platforms where these trades were made. 147 00:07:24,360 --> 00:07:26,840 Speaker 1: Yeah. As well, if you asked me who is likely 148 00:07:26,880 --> 00:07:29,120 Speaker 1: to buy put options on Chinese brokerages, I'd be like 149 00:07:29,440 --> 00:07:32,280 Speaker 1: Chinese retail investors who are customers of those brokerages. Right, 150 00:07:32,280 --> 00:07:34,600 Speaker 1: they've bought out of money bets. It's a good trad 151 00:07:34,760 --> 00:07:36,200 Speaker 1: Like one thing I read about it is that I 152 00:07:36,320 --> 00:07:37,880 Speaker 1: know this is rude, and you're not supposed to say this, 153 00:07:37,920 --> 00:07:40,640 Speaker 1: but like, in a world in which Susquehanna is actually 154 00:07:40,880 --> 00:07:45,400 Speaker 1: making markets in sports bets, they have to kind of 155 00:07:45,400 --> 00:07:48,440 Speaker 1: think of Susquehanna as like not literally a bookie, but 156 00:07:48,480 --> 00:07:50,640 Speaker 1: you know, analogous to running a casino or a sports 157 00:07:50,640 --> 00:07:54,480 Speaker 1: book or whatever. And options market making with retail kind 158 00:07:54,520 --> 00:07:56,920 Speaker 1: of like running a casino, right, Like, you're sort of 159 00:07:56,920 --> 00:07:59,800 Speaker 1: offering people bets and you expect that some of them 160 00:07:59,800 --> 00:08:02,640 Speaker 1: will and some of them will lose, and on balance 161 00:08:03,880 --> 00:08:07,880 Speaker 1: they will mostly lose, particularly after the spread, and so 162 00:08:07,920 --> 00:08:11,880 Speaker 1: you'll make a lot of money. And that's been a 163 00:08:11,880 --> 00:08:14,760 Speaker 1: great business in the last few years because there's been 164 00:08:14,960 --> 00:08:18,440 Speaker 1: a real rush of degenerate gamblers to the options market 165 00:08:19,000 --> 00:08:21,400 Speaker 1: and it seems to be nice first sous Quahanta and 166 00:08:21,480 --> 00:08:25,160 Speaker 1: other big options market makers. And the risk of that 167 00:08:25,360 --> 00:08:29,560 Speaker 1: business is that you'll encounter sharp betters, people who win 168 00:08:29,640 --> 00:08:32,360 Speaker 1: more than they lose. And if you actually run a 169 00:08:32,400 --> 00:08:34,240 Speaker 1: sports book or a casino, like a lot of your 170 00:08:34,280 --> 00:08:37,640 Speaker 1: business is about getting rid of sharp betters, right it's 171 00:08:38,040 --> 00:08:40,240 Speaker 1: tracking who's a good better and if they win a lot, 172 00:08:40,280 --> 00:08:42,160 Speaker 1: then you limit their size or you don't let them bet, 173 00:08:42,920 --> 00:08:46,319 Speaker 1: and you can't do that traditionally in the stock market 174 00:08:46,400 --> 00:08:48,240 Speaker 1: or the options market rely. One thing you can do 175 00:08:48,360 --> 00:08:50,480 Speaker 1: is like one kind of sharp betting, which is maybe 176 00:08:50,559 --> 00:08:53,280 Speaker 1: the main kind of sharp betting and short dated options 177 00:08:53,960 --> 00:08:55,600 Speaker 1: is like insider trading, right, And if you can get 178 00:08:55,640 --> 00:08:59,640 Speaker 1: rid of those people, then like most of the customers lose, 179 00:09:00,040 --> 00:09:02,000 Speaker 1: the customers are win. You're like, no, not paying you. 180 00:09:02,000 --> 00:09:04,080 Speaker 1: You cheated, and like they don't have to prove that 181 00:09:04,080 --> 00:09:05,760 Speaker 1: they cheated. I mean maybe eventually they have to prove 182 00:09:05,760 --> 00:09:07,040 Speaker 1: that they cheated it, but they haven't proved it yet 183 00:09:07,040 --> 00:09:09,000 Speaker 1: and they've managed to keep the money so far. 184 00:09:09,240 --> 00:09:13,360 Speaker 2: I hadn't been you know, reading the tea leaves enough 185 00:09:13,559 --> 00:09:15,600 Speaker 2: going into May twenty second. I mean, you could make 186 00:09:15,600 --> 00:09:18,000 Speaker 2: the case that this was an insider trading that if 187 00:09:18,000 --> 00:09:20,480 Speaker 2: you you know, of course, looked at the body language 188 00:09:20,480 --> 00:09:22,960 Speaker 2: of Chinese regulators, you knew this crackdown was coming. 189 00:09:23,160 --> 00:09:25,400 Speaker 1: Two things. One is like, yes, you might have just 190 00:09:26,280 --> 00:09:29,840 Speaker 1: made an educated bat based only on public information that 191 00:09:29,920 --> 00:09:31,960 Speaker 1: this crackdown is coming. The other thing is, let's say 192 00:09:31,960 --> 00:09:34,520 Speaker 1: there was some insider trading. Right, Let's say that you're 193 00:09:34,559 --> 00:09:37,360 Speaker 1: just like a person, just a regular retail trader, I 194 00:09:37,400 --> 00:09:39,280 Speaker 1: have no insider information, and you're like looking at a 195 00:09:39,320 --> 00:09:42,200 Speaker 1: screen and you see that a lot of people have 196 00:09:42,200 --> 00:09:44,920 Speaker 1: been buying put options on Chinese brokers, just saying you're like, hmm, 197 00:09:45,120 --> 00:09:46,920 Speaker 1: I wonder if that means a crackdown is coming and 198 00:09:47,000 --> 00:09:49,959 Speaker 1: you buy put options. As far as Susquehanna has complained, 199 00:09:49,960 --> 00:09:52,040 Speaker 1: it's concerned you're a part of the conspiracy. Now are 200 00:09:52,080 --> 00:09:55,079 Speaker 1: you justing to tell like, in a sense if you're 201 00:09:55,120 --> 00:09:58,120 Speaker 1: trading based on like public condisha of the conspiracy, maybe 202 00:09:58,160 --> 00:10:00,000 Speaker 1: you are, but like you're not, really, you're not insider trading. 203 00:10:00,080 --> 00:10:02,000 Speaker 2: You're just like, you know, you're following the crowd, following 204 00:10:02,000 --> 00:10:02,360 Speaker 2: the croud. 205 00:10:02,520 --> 00:10:06,120 Speaker 1: Yeah, so it seems unlikely to me that all one hundred. 206 00:10:06,200 --> 00:10:07,719 Speaker 1: By the way, one hundred is a fake number. It's 207 00:10:07,760 --> 00:10:10,240 Speaker 1: just like to say John does one three hundred. But 208 00:10:10,280 --> 00:10:12,439 Speaker 1: like it seems to buzzling me that all one hundred 209 00:10:12,480 --> 00:10:16,920 Speaker 1: of these people are all part of an insider trading conspiracy. 210 00:10:17,040 --> 00:10:18,600 Speaker 2: But wouldn't it be exciting if they were? 211 00:10:18,800 --> 00:10:20,600 Speaker 1: It would be really cool. Yeah, But like if half 212 00:10:20,600 --> 00:10:22,440 Speaker 1: of them are and the other half were innocent. It's like, 213 00:10:22,440 --> 00:10:24,160 Speaker 1: how do you, like, you know, show up and court 214 00:10:24,200 --> 00:10:25,959 Speaker 1: in a foreign country and be like, oh, like, I 215 00:10:25,960 --> 00:10:27,120 Speaker 1: don't know. It's a strange. 216 00:10:27,559 --> 00:10:30,680 Speaker 2: Something that was delightful about this story was a quote 217 00:10:30,679 --> 00:10:34,640 Speaker 2: from Thomas Petterphy of Interactive Brokers at the bottom of 218 00:10:34,679 --> 00:10:37,679 Speaker 2: this article. He was recently on Odd Lots I missed 219 00:10:37,679 --> 00:10:40,800 Speaker 2: the nugget where he was like, actually, there shouldn't be 220 00:10:40,800 --> 00:10:44,320 Speaker 2: any rules at all against insider trading, which is just 221 00:10:45,120 --> 00:10:48,000 Speaker 2: live and let live. It would get information to market faster. 222 00:10:48,520 --> 00:10:50,240 Speaker 1: So this is like a classic thing. I mean people 223 00:10:50,320 --> 00:10:53,520 Speaker 1: in times for decades and like if you just made 224 00:10:53,559 --> 00:10:57,760 Speaker 1: that the rule tomorrow, Susquehanna would adapt. Yeah, it'd be fine. 225 00:10:57,800 --> 00:11:00,559 Speaker 1: Like they charge wider spreads, right, and they'd like do 226 00:11:00,640 --> 00:11:02,680 Speaker 1: more to try to prevent getting picked up. But like, 227 00:11:02,760 --> 00:11:06,040 Speaker 1: you know, there's a price. But you know, as Jeffy 228 00:11:06,240 --> 00:11:09,080 Speaker 1: said thirty four years ago, the cost of insider trading 229 00:11:09,080 --> 00:11:10,840 Speaker 1: is paid by the retail investors, right, because like in 230 00:11:10,880 --> 00:11:15,560 Speaker 1: a world where insider trading was legal, then Susquehanna would 231 00:11:15,600 --> 00:11:18,280 Speaker 1: still sell you short data out of the money call options, 232 00:11:18,559 --> 00:11:21,760 Speaker 1: but they would charge a much wider bid ask spread. 233 00:11:21,800 --> 00:11:24,400 Speaker 1: So like every other retail investor would lose more money 234 00:11:24,520 --> 00:11:28,600 Speaker 1: trading options to subsidize the profits of the insider traders, which, 235 00:11:28,640 --> 00:11:30,000 Speaker 1: by the way, it's fine because it's just gambling. 236 00:11:30,000 --> 00:11:51,600 Speaker 2: But whatever, All right, do you want to talk about ETFs? 237 00:11:51,640 --> 00:11:52,920 Speaker 1: Now, yeah, let's do it. 238 00:11:53,040 --> 00:11:54,760 Speaker 2: Okay, good, and you don't want to say it's so 239 00:11:54,800 --> 00:11:56,000 Speaker 2: good that you don't want to save it for the 240 00:11:56,120 --> 00:11:58,280 Speaker 2: end of the podcast, because usually the ETF stuff we 241 00:11:58,360 --> 00:12:01,000 Speaker 2: sort of, oh, no, this is great stuff, this is 242 00:12:01,200 --> 00:12:02,480 Speaker 2: pretty good stuff. 243 00:12:02,559 --> 00:12:06,439 Speaker 1: Okay, so no, it's not. ETF stuff is boring, but fine. 244 00:12:06,520 --> 00:12:10,800 Speaker 1: Sports gambling ETFs are my white whale. I've been writing 245 00:12:10,800 --> 00:12:13,880 Speaker 1: since March twenty twenty five. I think it's March eighteenth. 246 00:12:13,960 --> 00:12:16,840 Speaker 1: Maybe that within two years there will be sports gambling 247 00:12:16,840 --> 00:12:19,959 Speaker 1: ETFs in the US. I've written about there's this guy 248 00:12:20,000 --> 00:12:24,240 Speaker 1: named Mike Wall who in the early twenty tens ran 249 00:12:24,720 --> 00:12:27,600 Speaker 1: a sports gambling fund because he like wrote a paper 250 00:12:27,600 --> 00:12:29,520 Speaker 1: when he was like a student at Warton about like 251 00:12:29,520 --> 00:12:34,200 Speaker 1: if you bat moneyline bets on huge favorites in college football, 252 00:12:34,240 --> 00:12:36,000 Speaker 1: like teams that are favored to win by thirty points, 253 00:12:36,160 --> 00:12:37,959 Speaker 1: if you just bet on them to win, they win, 254 00:12:38,120 --> 00:12:40,160 Speaker 1: like you know, ninety four percent of the time, and 255 00:12:40,200 --> 00:12:42,720 Speaker 1: you get some money from these winning bets. Like it's 256 00:12:42,720 --> 00:12:44,120 Speaker 1: not you know, you know, double your money, but you 257 00:12:44,120 --> 00:12:46,800 Speaker 1: get some money. And if you do that on like 258 00:12:46,880 --> 00:12:50,840 Speaker 1: every huge favorite, you pretty reliably make like a you know, 259 00:12:51,480 --> 00:12:55,320 Speaker 1: low double digit ish sort of return. And so it's 260 00:12:55,400 --> 00:12:58,600 Speaker 1: like a bond fund that is uncorrelated to the rest 261 00:12:58,600 --> 00:13:03,480 Speaker 1: of the market because you're turns come from football favorites winning, right, 262 00:13:03,520 --> 00:13:05,720 Speaker 1: And so he ran a fund for a while doing 263 00:13:05,760 --> 00:13:07,440 Speaker 1: this and like you did, okay, but like you can't. 264 00:13:08,280 --> 00:13:10,000 Speaker 1: This was in the dark age. It's when like you 265 00:13:10,080 --> 00:13:12,320 Speaker 1: had to go to a bookie at like in like 266 00:13:12,400 --> 00:13:12,959 Speaker 1: Las Vegas. 267 00:13:13,040 --> 00:13:14,160 Speaker 2: Can you imagine your. 268 00:13:13,960 --> 00:13:19,080 Speaker 1: Sports bets but now make sports bets on a regulated 269 00:13:19,840 --> 00:13:24,320 Speaker 1: US commodities future exchange and so like, of course people 270 00:13:24,760 --> 00:13:28,160 Speaker 1: want to launch sports gambling ETFs. Like one thing you 271 00:13:28,160 --> 00:13:30,040 Speaker 1: can do is that can actively manage the sports scambling 272 00:13:30,040 --> 00:13:31,800 Speaker 1: ETF where like you hire a really good gambler and 273 00:13:31,840 --> 00:13:34,080 Speaker 1: he makes really good bets, right, But one thing you 274 00:13:34,080 --> 00:13:36,400 Speaker 1: do is just bet the huge favorites and like achieve 275 00:13:36,480 --> 00:13:39,360 Speaker 1: a bond like return with like no correlation to the 276 00:13:39,400 --> 00:13:41,240 Speaker 1: market and be like haha, what a great product I 277 00:13:41,280 --> 00:13:45,079 Speaker 1: have and sell that to like institutions and retail people 278 00:13:45,120 --> 00:13:47,600 Speaker 1: definitely want to do it, and I definitely want them 279 00:13:47,640 --> 00:13:49,720 Speaker 1: to do it because one I've like put a marker 280 00:13:49,760 --> 00:13:52,080 Speaker 1: down that I've predicted it until it's just funny, it's 281 00:13:52,160 --> 00:13:52,840 Speaker 1: just good comedy. 282 00:13:52,880 --> 00:13:54,080 Speaker 2: Well, you've got one big hurdle. 283 00:13:55,200 --> 00:13:56,600 Speaker 1: We have one medium sized hurdle. 284 00:13:56,800 --> 00:13:59,960 Speaker 2: It's the SEC. I mean it's it's a size hurdle. 285 00:14:00,200 --> 00:14:04,480 Speaker 1: Yeah, the SEC did say, whoa, they're slow down. We 286 00:14:04,520 --> 00:14:11,640 Speaker 1: have like, however many I say sports. They have applications 287 00:14:11,640 --> 00:14:12,560 Speaker 1: for prediction marketing. 288 00:14:12,679 --> 00:14:14,560 Speaker 2: Yes, thank you. I don't think I mean, I don't 289 00:14:14,559 --> 00:14:15,800 Speaker 2: think it's all sports gambling. 290 00:14:16,200 --> 00:14:20,560 Speaker 1: I'm not sure any of it sports ye, sportsling. But right, well, 291 00:14:20,600 --> 00:14:23,120 Speaker 1: the Republicans think the House ETF who cares? Who cares? 292 00:14:23,600 --> 00:14:28,880 Speaker 1: Some people not you interesting, but yes, they have applications 293 00:14:28,880 --> 00:14:32,080 Speaker 1: for prediction markets and they have been like whoa, they're 294 00:14:32,400 --> 00:14:34,840 Speaker 1: slow down. And so this week they put out a 295 00:14:34,880 --> 00:14:39,440 Speaker 1: request for comments on just sort of like weird ETFs. 296 00:14:38,920 --> 00:14:40,680 Speaker 2: Generally, Yeah, there's a lot of them. 297 00:14:40,880 --> 00:14:44,600 Speaker 1: Yeah, it's like they have this process for approving well 298 00:14:44,800 --> 00:14:46,120 Speaker 1: ETFs and they don't like it. 299 00:14:46,360 --> 00:14:49,040 Speaker 2: That's the thing. It's not necessarily a process for approving 300 00:14:49,080 --> 00:14:53,160 Speaker 2: the way that the SEC handles ETF applications is that 301 00:14:54,000 --> 00:14:58,600 Speaker 2: rather than formally approve or reject, basically you're just you 302 00:14:58,680 --> 00:15:03,040 Speaker 2: go effective and if the SEC doesn't want you to 303 00:15:03,160 --> 00:15:06,000 Speaker 2: go effective and like bring this to market, they'll probably 304 00:15:06,040 --> 00:15:11,479 Speaker 2: backchannel that to you and you'll politely withdraw your application. 305 00:15:11,720 --> 00:15:15,640 Speaker 2: But it doesn't outright reject ETFs, but. 306 00:15:15,640 --> 00:15:19,000 Speaker 1: It can suspenetrating, Yeah, which is rejecting. 307 00:15:19,200 --> 00:15:22,640 Speaker 2: But the ETF was created. They can't get an application 308 00:15:22,640 --> 00:15:25,280 Speaker 2: and be like this is a hank of junk. You 309 00:15:25,280 --> 00:15:26,000 Speaker 2: can't launch this. 310 00:15:26,640 --> 00:15:29,200 Speaker 1: Yeah, right, So they want to like fine tune their 311 00:15:29,240 --> 00:15:31,600 Speaker 1: process for they want to be able to approve. They 312 00:15:31,600 --> 00:15:32,360 Speaker 1: want to be able. 313 00:15:32,200 --> 00:15:36,280 Speaker 2: To well that's the process that's not for some to be. 314 00:15:36,400 --> 00:15:38,800 Speaker 2: I mean, there's this is a great story coming from 315 00:15:38,840 --> 00:15:43,160 Speaker 2: Bluebird News. Basically, they're thinking about how they oversee the 316 00:15:43,200 --> 00:15:46,880 Speaker 2: ETF industry in general. One of the things they're asking 317 00:15:46,960 --> 00:15:50,200 Speaker 2: is whether there should be additional circumstances under which they 318 00:15:50,240 --> 00:15:54,400 Speaker 2: could suspend the effectiveness of an ETF so launching. The 319 00:15:54,440 --> 00:15:56,640 Speaker 2: way that ETF filings work right now is that once 320 00:15:56,680 --> 00:15:59,720 Speaker 2: you file something, once you file an application, everyone can see. 321 00:15:59,760 --> 00:16:03,200 Speaker 2: It's open to the public. It's not dramatic. But when 322 00:16:03,240 --> 00:16:07,360 Speaker 2: you have all these new categories being dreamed up, when 323 00:16:07,440 --> 00:16:13,120 Speaker 2: one person files for a new ETF prediction markets ETF, 324 00:16:13,120 --> 00:16:17,440 Speaker 2: you see this like dog piling among issuers with copycat filings. 325 00:16:18,000 --> 00:16:20,880 Speaker 2: And now they're asking, maybe this should be a confidential. 326 00:16:20,280 --> 00:16:25,040 Speaker 1: Process, right, because like when someone other than me, yeah, 327 00:16:25,120 --> 00:16:28,360 Speaker 1: dreams up the mousetrap of like what's bet on sports favorites? 328 00:16:28,960 --> 00:16:30,560 Speaker 1: You want that to yourself. You don't want everyone to 329 00:16:30,560 --> 00:16:31,480 Speaker 1: copy before you long? 330 00:16:31,640 --> 00:16:34,560 Speaker 2: Yeah, I mean it's like some of these it's like 331 00:16:34,600 --> 00:16:37,000 Speaker 2: this copy and paste mentality of you know, we just 332 00:16:37,160 --> 00:16:40,320 Speaker 2: we need to get our filing into so that we 333 00:16:40,400 --> 00:16:46,120 Speaker 2: can maybe capture a first mover advantage exactly. Yeah, wouldn't 334 00:16:46,120 --> 00:16:48,240 Speaker 2: it be sweet if you had the second or the 335 00:16:48,320 --> 00:16:50,040 Speaker 2: first instead of the seventh. 336 00:16:51,000 --> 00:16:52,920 Speaker 1: Wow, this is like not my problem, right, I get 337 00:16:52,960 --> 00:16:55,280 Speaker 1: to just a box like there should be a sports 338 00:16:55,280 --> 00:16:57,920 Speaker 1: gambling ETF to someone else to be the first mover 339 00:16:58,000 --> 00:16:58,960 Speaker 1: in the sports gambling ETF. 340 00:16:59,040 --> 00:17:01,480 Speaker 2: Well you say that, and then there's a blood bath 341 00:17:01,600 --> 00:17:03,400 Speaker 2: to get your filing to the SEC. 342 00:17:03,640 --> 00:17:05,000 Speaker 1: I don't care about that. That's their problem. 343 00:17:05,480 --> 00:17:07,720 Speaker 2: Well, that's what the SEC is a little bit concerned 344 00:17:07,720 --> 00:17:08,160 Speaker 2: about here. 345 00:17:08,240 --> 00:17:10,600 Speaker 1: You know, the proposal is not just about the process. 346 00:17:10,640 --> 00:17:13,800 Speaker 1: That's also like wonder you. Thing is like these things 347 00:17:13,840 --> 00:17:17,600 Speaker 1: are investment companies under the regulation of investment companies, and 348 00:17:17,640 --> 00:17:20,200 Speaker 1: like I think investment companies traditionally, the core of them 349 00:17:20,240 --> 00:17:22,600 Speaker 1: is they invest in securities and none of the stuff 350 00:17:22,600 --> 00:17:25,879 Speaker 1: of securities. I mean, like leverage singles like scuries, but 351 00:17:25,960 --> 00:17:32,520 Speaker 1: like bitcoin, gold, sports bets, other prediction market bets all 352 00:17:32,600 --> 00:17:34,880 Speaker 1: not securities. And so the sec is like, are these 353 00:17:34,920 --> 00:17:38,760 Speaker 1: even ETFs? Yeah, I know that doesn't trouble me that much. 354 00:17:38,800 --> 00:17:42,120 Speaker 2: I feel like I'm glad, I'm glad they're thinking about it. 355 00:17:42,160 --> 00:17:44,679 Speaker 1: Sure, I have to say, like is this at all legal? 356 00:17:45,119 --> 00:17:48,520 Speaker 2: It's like a worthy topic for a regulator to engage 357 00:17:48,520 --> 00:17:50,080 Speaker 2: with philosophically, but. 358 00:17:50,040 --> 00:17:54,639 Speaker 1: Like guess what, Yeah, great, sure, sure, I don't know. 359 00:17:54,640 --> 00:17:57,639 Speaker 1: I mean, like the fact that they did pause the 360 00:17:57,680 --> 00:18:02,040 Speaker 1: prediction mar thank you, there's some chance that they, in 361 00:18:02,119 --> 00:18:05,320 Speaker 1: their secret sec heart of hearts, are like, actually, this 362 00:18:05,560 --> 00:18:07,600 Speaker 1: sports gambling stuff has gone too far, But like, I 363 00:18:07,640 --> 00:18:09,720 Speaker 1: don't know, man, there's no other indication of that. Like 364 00:18:09,720 --> 00:18:11,760 Speaker 1: everything else is like full speed out on sports gambling. 365 00:18:12,080 --> 00:18:15,640 Speaker 2: Yeah, So, I mean, I don't know the fund design 366 00:18:16,280 --> 00:18:19,280 Speaker 2: of these ETFs seems a little bit tricky. 367 00:18:19,480 --> 00:18:25,800 Speaker 1: Of course, that's what's fun. Their problem that the fund 368 00:18:25,880 --> 00:18:30,520 Speaker 1: design is tricky, Like, that's the forsures probably the business. 369 00:18:30,800 --> 00:18:33,159 Speaker 2: Aren't they in the business of protecting those investors? 370 00:18:33,760 --> 00:18:37,240 Speaker 1: They should be like all these double you know, triple 371 00:18:37,320 --> 00:18:40,399 Speaker 1: Leopard singles, nikes, like are they Yeah, this is not 372 00:18:40,440 --> 00:18:44,280 Speaker 1: investing advice. I would rather invest in anything at all, 373 00:18:44,320 --> 00:18:48,760 Speaker 1: the favorites college football ETF, than like a double levered 374 00:18:48,760 --> 00:18:50,199 Speaker 1: micro strategy ETF. 375 00:18:50,600 --> 00:18:53,240 Speaker 2: Brave, that's brave, right. 376 00:18:53,080 --> 00:18:55,600 Speaker 1: It's just an arbitrary dividing line between like what's a 377 00:18:55,720 --> 00:18:58,440 Speaker 1: quasi legal investment company and wants sports? 378 00:18:59,200 --> 00:18:59,760 Speaker 2: Yeah? 379 00:19:00,080 --> 00:19:02,560 Speaker 1: Did you imagine ten years ago that financial markets would 380 00:19:02,560 --> 00:19:04,919 Speaker 1: be like sports gambling ets? 381 00:19:04,960 --> 00:19:07,560 Speaker 2: I didn't have. The thought was not close to my mind. 382 00:19:07,600 --> 00:19:10,840 Speaker 2: I have to say, I am excited to leave here 383 00:19:10,960 --> 00:19:14,680 Speaker 2: for six months and see what happens. I know, right, 384 00:19:14,720 --> 00:19:17,080 Speaker 2: it's going to like I feel like the world's going 385 00:19:17,160 --> 00:19:17,960 Speaker 2: to change. 386 00:19:17,960 --> 00:19:19,080 Speaker 1: A steaming waistlet. 387 00:19:19,760 --> 00:19:23,439 Speaker 2: I'm not going to recognize the kind. 388 00:19:23,280 --> 00:19:26,760 Speaker 1: Of a beard done to my knees like that. 389 00:19:26,800 --> 00:19:27,960 Speaker 2: What the heck happened to you? 390 00:19:29,000 --> 00:19:29,800 Speaker 1: Sports gambling? 391 00:19:48,040 --> 00:19:49,400 Speaker 2: You mentioned micro strategy? 392 00:19:49,560 --> 00:19:52,399 Speaker 1: Oh yeah, make a strategy. How are they doing not. 393 00:19:52,320 --> 00:19:56,600 Speaker 2: Great fives aren't great, man. The main problem is I've 394 00:19:56,640 --> 00:20:01,560 Speaker 2: identified it is that big point Bitcoin continues to fall 395 00:20:01,600 --> 00:20:03,480 Speaker 2: and they have a problem. They have a lot of 396 00:20:03,520 --> 00:20:06,040 Speaker 2: it though, okay, but like it's a big problem. 397 00:20:06,160 --> 00:20:08,919 Speaker 1: Okay, But like simply owning a lot of bitcoin that 398 00:20:08,920 --> 00:20:11,159 Speaker 1: has gone down is not a problem. The way that 399 00:20:11,200 --> 00:20:13,719 Speaker 1: it becomes a problem for a company or for anyone 400 00:20:14,240 --> 00:20:18,640 Speaker 1: is when you have leverage. And it becomes a particular 401 00:20:18,640 --> 00:20:21,200 Speaker 1: problem if you have borrowed money for two reasons. One 402 00:20:21,280 --> 00:20:23,960 Speaker 1: is that you have to pay interest on the money 403 00:20:23,960 --> 00:20:26,560 Speaker 1: you borre for sure, to make a strategy, borrowed so 404 00:20:26,640 --> 00:20:29,560 Speaker 1: much money to buy bitcoin, and now it has to 405 00:20:29,600 --> 00:20:32,679 Speaker 1: pay so much interest on that money. And it like 406 00:20:32,840 --> 00:20:35,160 Speaker 1: it has a software bus that generates some. 407 00:20:35,160 --> 00:20:37,080 Speaker 2: Money, which I love to think about it. 408 00:20:37,160 --> 00:20:40,800 Speaker 1: Yeah, sure they don't. But like it doesn't naturally generate 409 00:20:40,880 --> 00:20:43,159 Speaker 1: tons and tons and tons of cash flow too, for instance, 410 00:20:43,240 --> 00:20:45,320 Speaker 1: pay interest on it's billions and billions of dollars of 411 00:20:45,320 --> 00:20:49,200 Speaker 1: perferret stock. So that's one problem mm hmm. The other 412 00:20:49,240 --> 00:20:52,400 Speaker 1: problem is that it did a lot of this borrowing. 413 00:20:52,920 --> 00:20:54,840 Speaker 1: They say borring. It's all preferred stock, but it's like 414 00:20:54,920 --> 00:20:57,040 Speaker 1: it's essentially borring. They call it a credit instrument. They 415 00:20:57,080 --> 00:20:59,440 Speaker 1: think of it as borrowing. That a lot of this 416 00:20:59,520 --> 00:21:03,160 Speaker 1: borrowing for this thing called a stretch, which is absolutely magical. 417 00:21:03,600 --> 00:21:06,520 Speaker 1: It is like it has been widely reported that Michael Saylor, 418 00:21:06,800 --> 00:21:10,000 Speaker 1: he's not the CEO, he's the eminence behind micro Strategy, 419 00:21:10,080 --> 00:21:12,480 Speaker 1: like that, he's the chairman, He's the he's the guy. 420 00:21:13,600 --> 00:21:14,600 Speaker 2: Was is he the founder? 421 00:21:15,280 --> 00:21:18,840 Speaker 1: Sure, let's say he's the guy. Has been widely reported 422 00:21:18,840 --> 00:21:21,680 Speaker 1: that he asked Chad Gpt to design the security for him, 423 00:21:21,680 --> 00:21:25,200 Speaker 1: and Chad Gpt did a bang up job. It prefers 424 00:21:25,240 --> 00:21:28,480 Speaker 1: thought that it's dividend rate resets every month and they 425 00:21:28,520 --> 00:21:31,960 Speaker 1: reset it at their own discretion. But they said when 426 00:21:31,960 --> 00:21:36,320 Speaker 1: they issued it eleven and a half months ago, issued 427 00:21:36,359 --> 00:21:38,680 Speaker 1: this in July of twenty twenty five. They said when 428 00:21:38,680 --> 00:21:41,800 Speaker 1: they issued it that our current intention, which is subject 429 00:21:41,840 --> 00:21:44,240 Speaker 1: to change in our sole and absolute discression, is to 430 00:21:44,280 --> 00:21:46,359 Speaker 1: adjust the regular dividend rate in such a manner as 431 00:21:46,359 --> 00:21:49,480 Speaker 1: we believe will maintain stretched stocks trading price add or 432 00:21:49,520 --> 00:21:51,520 Speaker 1: close to its stated amount of one hundred dollars pressure. 433 00:21:51,680 --> 00:21:55,280 Speaker 1: So basically, the dividend floats every month to make a 434 00:21:55,359 --> 00:21:59,240 Speaker 1: trade at par, which makes it basically a monthly data 435 00:21:59,240 --> 00:22:02,120 Speaker 1: instrument that roll over every month, like automatically rolls over, 436 00:22:02,200 --> 00:22:04,360 Speaker 1: but like if your borrowing costs go up, you pay 437 00:22:04,400 --> 00:22:07,040 Speaker 1: more on the stretch, right, And that is like a 438 00:22:07,080 --> 00:22:10,360 Speaker 1: bank deposit. They like use bank deposits to buy bitcoin, 439 00:22:10,400 --> 00:22:14,520 Speaker 1: which is crazy on so many levels. A career Bloomberg 440 00:22:14,520 --> 00:22:16,479 Speaker 1: reported in May that they were the majority of corporate 441 00:22:16,520 --> 00:22:19,920 Speaker 1: and ETF bitcoin buying for the year. They were buying 442 00:22:19,960 --> 00:22:22,280 Speaker 1: like all the bitcoin, and they're doing it funny with stretch, 443 00:22:22,480 --> 00:22:28,600 Speaker 1: like issuing like short dated par liabilities to buy all 444 00:22:28,640 --> 00:22:31,159 Speaker 1: the bitcoin you could sell them. Crazy thing to do, 445 00:22:31,680 --> 00:22:36,679 Speaker 1: and then everything went bad. And now their market clearing 446 00:22:37,400 --> 00:22:40,840 Speaker 1: interest rate on stretches fifteen percent on billions and billions 447 00:22:40,840 --> 00:22:43,639 Speaker 1: of dollars, which means that like hundreds of millions of 448 00:22:43,680 --> 00:22:47,000 Speaker 1: cash cost yeah, that they have to pay from somewhere. 449 00:22:47,600 --> 00:22:49,879 Speaker 1: So this week they announced the series of measures to 450 00:22:50,040 --> 00:22:53,840 Speaker 1: fix that, one of which was never mind where you're 451 00:22:53,840 --> 00:22:56,560 Speaker 1: not going to keep stretch at par. They raise the dividend. 452 00:22:56,640 --> 00:22:58,080 Speaker 1: It was at eleven point five percent. There is it 453 00:22:58,119 --> 00:23:01,439 Speaker 1: to twelve percent, which is lot market clear and doesn't 454 00:23:01,800 --> 00:23:03,919 Speaker 1: to trade a part's trading the eighties. Now they're no 455 00:23:04,000 --> 00:23:06,240 Speaker 1: longer trying to keep it at par. They had said 456 00:23:06,240 --> 00:23:08,720 Speaker 1: when they issued it less than a year ago, our 457 00:23:08,720 --> 00:23:10,760 Speaker 1: intention is to keep it at par with no guarantees. 458 00:23:10,800 --> 00:23:13,360 Speaker 1: And now they've already been like yeah, sorry, never munch. 459 00:23:14,400 --> 00:23:16,399 Speaker 1: They've also like announced that they're going to sell some 460 00:23:16,440 --> 00:23:19,760 Speaker 1: bitcoins they did to raise some cash to these dividends. Yeah, 461 00:23:19,840 --> 00:23:24,280 Speaker 1: they're going to increase their cash reserves. They're trading it 462 00:23:24,359 --> 00:23:28,080 Speaker 1: like around m I think on Friday they were below MNF, 463 00:23:28,160 --> 00:23:30,200 Speaker 1: so like they were the value of the company is 464 00:23:30,280 --> 00:23:31,320 Speaker 1: less than the value of the bitcoin. 465 00:23:31,440 --> 00:23:33,480 Speaker 2: They did break the book at one point, broke the buck. 466 00:23:33,560 --> 00:23:36,040 Speaker 2: It's just like it's a sad story. 467 00:23:36,800 --> 00:23:39,359 Speaker 1: It's sad. You know, We've talked about it, and I've 468 00:23:39,359 --> 00:23:41,800 Speaker 1: written about like a bunch of dats, like Digital Aid 469 00:23:41,800 --> 00:23:45,280 Speaker 1: Treasure companies have also broken the buck. Yes, I have 470 00:23:45,359 --> 00:23:49,119 Speaker 1: various problems and various solutions, including you know, selling crypto 471 00:23:49,160 --> 00:23:51,199 Speaker 1: to buy back your stock or like activists have been 472 00:23:51,200 --> 00:23:53,200 Speaker 1: trying to get them to do that. But that's all 473 00:23:53,600 --> 00:23:57,240 Speaker 1: the minor leagues, like Strategy, the original dat the biggest 474 00:23:57,280 --> 00:24:00,680 Speaker 1: that the one that was like we'll never all bitcoin 475 00:24:01,600 --> 00:24:05,480 Speaker 1: traded above that asset value for much longer than the 476 00:24:05,480 --> 00:24:09,400 Speaker 1: other ones and really really like, look like they might 477 00:24:09,680 --> 00:24:11,560 Speaker 1: be able to weather the storm, but now it is 478 00:24:11,640 --> 00:24:13,200 Speaker 1: not great. Not great. 479 00:24:13,600 --> 00:24:17,000 Speaker 2: I mean the natural question is, how does this story end? 480 00:24:17,600 --> 00:24:20,000 Speaker 2: If bitcoin rips from here, let's say it goes back 481 00:24:20,000 --> 00:24:22,520 Speaker 2: to all time highs, does that solve a bunch of 482 00:24:22,560 --> 00:24:23,840 Speaker 2: these problems. 483 00:24:24,000 --> 00:24:26,959 Speaker 1: One, yeah, not necessarily all of them. Right. One thing 484 00:24:26,960 --> 00:24:28,840 Speaker 1: that happened as bitcoin went down. Another thing that happened 485 00:24:28,920 --> 00:24:32,840 Speaker 1: is like the whole dat story of like where's he 486 00:24:32,880 --> 00:24:35,800 Speaker 1: going to have any Like they called it a creative dilution. 487 00:24:35,880 --> 00:24:38,000 Speaker 1: Will always like issue stock to buy more bitcoin, which 488 00:24:38,000 --> 00:24:40,000 Speaker 1: will be a creative because we're issuing stock at a premium. 489 00:24:40,080 --> 00:24:41,680 Speaker 1: Like that story doesn't work anymore because you're no longer 490 00:24:41,720 --> 00:24:45,000 Speaker 1: issuing stock at a premium. So even if bitcoin rips, 491 00:24:45,080 --> 00:24:48,120 Speaker 1: people might be like, well, why bitcoin instead of buying strategy? 492 00:24:48,119 --> 00:24:51,320 Speaker 1: But like, for the most part, bitcoin ripping doesn't hurt. 493 00:24:51,440 --> 00:24:57,080 Speaker 1: Probably helps, but that's not necessarily exogenous. Like strategy is 494 00:24:57,080 --> 00:25:00,520 Speaker 1: buying the called the bitcoin, right yeah, wh and bitcoin 495 00:25:00,600 --> 00:25:03,800 Speaker 1: is down, it's strategy. It's not buying all the bitcoin anymore. Yeah, 496 00:25:04,040 --> 00:25:07,040 Speaker 1: you have like conspiracy theories about how big a influence 497 00:25:07,200 --> 00:25:09,080 Speaker 1: strategies buying is, but none. 498 00:25:09,160 --> 00:25:12,639 Speaker 2: Yeah, I mean, especially from a sentiment perspective as well. 499 00:25:13,160 --> 00:25:15,520 Speaker 1: Yeah, Michael Steeler's that ever being like, yeah, I bitcoin 500 00:25:15,600 --> 00:25:16,120 Speaker 1: like it's bad. 501 00:25:16,240 --> 00:25:18,760 Speaker 2: I haven't checked his X in a while. I don't 502 00:25:18,800 --> 00:25:21,280 Speaker 2: know if he's still posting those AI generated photos of 503 00:25:21,359 --> 00:25:25,960 Speaker 2: like him as a bear, like a big b across 504 00:25:25,960 --> 00:25:26,360 Speaker 2: his chest. 505 00:25:26,560 --> 00:25:27,600 Speaker 1: There's so much like. 506 00:25:27,960 --> 00:25:31,840 Speaker 2: Or no, he's slapping a bear, yeah with a bitcoin. 507 00:25:33,400 --> 00:25:33,560 Speaker 1: Well. 508 00:25:33,600 --> 00:25:36,560 Speaker 2: Another sad part of the story is that, I mean, 509 00:25:36,600 --> 00:25:40,879 Speaker 2: they bought all the way up, like just every and 510 00:25:40,920 --> 00:25:42,560 Speaker 2: now they're selling all the way down. 511 00:25:43,440 --> 00:25:46,640 Speaker 1: That's life bad. It's not a life as a leverage investment. 512 00:25:46,800 --> 00:25:48,320 Speaker 2: Oh you're supposed to do, man. 513 00:25:48,359 --> 00:25:49,760 Speaker 1: I thought what you're supposed to do? 514 00:25:50,280 --> 00:25:50,520 Speaker 2: Yeah. 515 00:25:50,960 --> 00:25:53,720 Speaker 1: The reason markets have cycles, and it's because everyone does that. 516 00:25:54,119 --> 00:25:57,840 Speaker 2: So how does this potentially end? Assuming that bitcoin doesn't rip, 517 00:25:58,280 --> 00:26:00,920 Speaker 2: we don't break one hundred thousand dollars in short order. 518 00:26:01,200 --> 00:26:02,440 Speaker 1: So as you used to say, and I used to 519 00:26:02,440 --> 00:26:04,320 Speaker 1: agree with them, that they had really good leverage because 520 00:26:04,560 --> 00:26:08,280 Speaker 1: it's all long dated, most of its perpetual. You know, 521 00:26:08,359 --> 00:26:11,240 Speaker 1: now most of their leverage is perpetual preferred, which means 522 00:26:11,560 --> 00:26:13,080 Speaker 1: they never have to pay it back and they never 523 00:26:13,119 --> 00:26:14,480 Speaker 1: have to pay interest. They can just be like we're 524 00:26:14,480 --> 00:26:16,879 Speaker 1: skipping the dividend this month on stretch and they just 525 00:26:16,960 --> 00:26:20,320 Speaker 1: do that. There's no contractual obligation to ever pay out 526 00:26:20,320 --> 00:26:22,800 Speaker 1: any cash. So like one thing they could do is 527 00:26:22,880 --> 00:26:24,840 Speaker 1: hybern it and just be like, we're gonna keep this 528 00:26:24,840 --> 00:26:27,000 Speaker 1: bitcoin until it rips up again, and then when it does, 529 00:26:27,040 --> 00:26:28,960 Speaker 1: we'll turn the dividends back on and sell more stock 530 00:26:29,000 --> 00:26:31,720 Speaker 1: and it's going to be great. That's not a preferred 531 00:26:31,720 --> 00:26:32,639 Speaker 1: outcome for anyone. 532 00:26:32,960 --> 00:26:35,640 Speaker 2: No, I can't imagine, because like in. 533 00:26:35,680 --> 00:26:37,680 Speaker 1: Theory, if you do that, you can really never sell 534 00:26:37,720 --> 00:26:41,840 Speaker 1: preferred stock again. In theory, memories are short, and maybe 535 00:26:41,840 --> 00:26:44,560 Speaker 1: if like some new part of the story comes in, 536 00:26:44,600 --> 00:26:46,560 Speaker 1: maybe there's something there, But like, that's not what they're doing, right, 537 00:26:46,560 --> 00:26:48,560 Speaker 1: I Mean, what they're doing is they're buying back stretch 538 00:26:48,680 --> 00:26:50,919 Speaker 1: to try to you know, the answer to how does 539 00:26:50,920 --> 00:26:53,040 Speaker 1: this end is it's like it's it's just the inverse 540 00:26:53,040 --> 00:26:54,400 Speaker 1: of what they did on the way up. Right, It's 541 00:26:54,400 --> 00:26:59,440 Speaker 1: like selling bitcoin, buying stock, paying down preferred just reversing 542 00:26:59,440 --> 00:27:02,240 Speaker 1: all the trades that they did. And you know, there's 543 00:27:02,960 --> 00:27:05,919 Speaker 1: a huge frictional cost in reversing all those trades, right, 544 00:27:05,920 --> 00:27:07,200 Speaker 1: because you buy on the way up and you sell 545 00:27:07,200 --> 00:27:09,639 Speaker 1: on the way down, there's a lot of money for 546 00:27:09,680 --> 00:27:11,840 Speaker 1: sharel there's and then the question is how long does 547 00:27:11,880 --> 00:27:14,520 Speaker 1: that continue until you know something better happens. 548 00:27:14,600 --> 00:27:17,280 Speaker 2: I'm looking up right now how many employees Strategy actually has. 549 00:27:17,520 --> 00:27:20,639 Speaker 2: It's over a thousand. We've talked about this before. I 550 00:27:20,680 --> 00:27:22,359 Speaker 2: want to know what they do. I want to know 551 00:27:22,400 --> 00:27:25,959 Speaker 2: what they all do. If you be yeah, but if 552 00:27:26,000 --> 00:27:29,520 Speaker 2: you're if you're the average employee at Strategy, and I 553 00:27:29,560 --> 00:27:31,560 Speaker 2: don't know what that looks like, how do you feel 554 00:27:32,119 --> 00:27:35,199 Speaker 2: right now? Entertained, scared? I don't know. 555 00:27:35,400 --> 00:27:38,280 Speaker 1: I don't know, but like this has been going on 556 00:27:38,320 --> 00:27:40,679 Speaker 1: for a while in some form, right, Yeah, you have 557 00:27:40,760 --> 00:27:42,399 Speaker 1: to have made your piece with like this is a 558 00:27:42,400 --> 00:27:45,600 Speaker 1: weird bitcoin company now and like you have to like 559 00:27:45,640 --> 00:27:47,080 Speaker 1: wear orange to work and stuff. 560 00:27:47,200 --> 00:27:49,720 Speaker 2: It's like that is that for real? I don't think, 561 00:27:51,240 --> 00:27:54,000 Speaker 2: but like a little bit, I feel like you could 562 00:27:54,000 --> 00:27:56,560 Speaker 2: make that piece and enjoy it while the times were 563 00:27:56,600 --> 00:27:57,840 Speaker 2: good and the line was going on. 564 00:27:58,320 --> 00:28:02,360 Speaker 1: Yeah, all right, maybe you don't know now you're like, ah, 565 00:28:02,480 --> 00:28:06,160 Speaker 1: like no one told me that the line could go down? Yeah, 566 00:28:07,440 --> 00:28:09,359 Speaker 1: you just do you feel like it's amusing on the 567 00:28:09,400 --> 00:28:11,840 Speaker 1: way up, it's amusing on the way down. Yeah, probably 568 00:28:11,920 --> 00:28:13,760 Speaker 1: less so if you own a lot of stock options. 569 00:28:13,960 --> 00:28:16,359 Speaker 2: Yeah, well it'd be fun to see how this all 570 00:28:16,400 --> 00:28:20,320 Speaker 2: happens again six months from now. Who knows what strategy 571 00:28:20,359 --> 00:28:20,879 Speaker 2: will look like. 572 00:28:21,680 --> 00:28:25,440 Speaker 1: Yeah, Like for a while, they're really like shooting out 573 00:28:25,480 --> 00:28:26,800 Speaker 1: weird capital markets instruments. 574 00:28:26,800 --> 00:28:29,399 Speaker 2: I wonder if they're and you were living for it, I. 575 00:28:29,440 --> 00:28:31,679 Speaker 1: Know, And like now, as I said, like the thing 576 00:28:31,720 --> 00:28:33,280 Speaker 1: that's going to happen, as they're going to reverse that 577 00:28:33,320 --> 00:28:35,200 Speaker 1: and buy back all these crazy instruments. But like maybe 578 00:28:35,240 --> 00:28:37,400 Speaker 1: they'll find something else. Yeah, this is like I used 579 00:28:37,440 --> 00:28:40,680 Speaker 1: to be a corporate acority derivative structure, so like this 580 00:28:40,760 --> 00:28:43,000 Speaker 1: is near and dear to my heart. You know, there 581 00:28:43,000 --> 00:28:45,640 Speaker 1: are people at banks are getting calls from like the 582 00:28:45,680 --> 00:28:48,920 Speaker 1: people who cover MICROE Saler being like, could we find 583 00:28:49,200 --> 00:28:51,320 Speaker 1: some kind of new preferred stock for them to issue 584 00:28:51,480 --> 00:28:54,000 Speaker 1: now when they're treading below MNEV and their stock of 585 00:28:54,080 --> 00:28:56,400 Speaker 1: going down? Like is there something that could we could 586 00:28:56,400 --> 00:28:56,920 Speaker 1: work with here? 587 00:28:57,080 --> 00:28:58,760 Speaker 2: Like just wrestle something together. 588 00:28:59,240 --> 00:29:02,280 Speaker 1: So I hope that the corporate decretat to it as 589 00:29:02,320 --> 00:29:06,520 Speaker 1: bankers are burning the midnight oil to think up weird 590 00:29:06,560 --> 00:29:08,800 Speaker 1: transfer Michael Salator do, and I hope they find one. 591 00:29:08,960 --> 00:29:10,800 Speaker 2: I hope they're having fun and think of one. 592 00:29:11,080 --> 00:29:13,080 Speaker 1: Yeah, does not a lot makes sense here, but like 593 00:29:13,120 --> 00:29:14,480 Speaker 1: you know, maybe I'll think of something. 594 00:29:14,280 --> 00:29:17,240 Speaker 2: Maybe some of a noodle on over the long weekends. 595 00:29:17,600 --> 00:29:22,760 Speaker 1: Yeah, America's real, real way to celebrate America's birthdays time. Yeah, 596 00:29:23,160 --> 00:29:34,720 Speaker 1: find the new preferred stock for my consolidation. And that 597 00:29:34,840 --> 00:29:36,040 Speaker 1: was the Money Stuff Podcast. 598 00:29:36,320 --> 00:29:38,440 Speaker 2: I'm Matt Levine and I'm Katie Greifeld. 599 00:29:38,640 --> 00:29:40,560 Speaker 1: You can find my work. I subscribe me to the 600 00:29:40,600 --> 00:29:42,800 Speaker 1: Money Stuff newsletter on Blomberg dot. 601 00:29:42,640 --> 00:29:45,400 Speaker 2: Com and you can find me on Bloomberg TV every 602 00:29:45,440 --> 00:29:48,600 Speaker 2: day on the Clothes between three and five pm Eastern. 603 00:29:49,320 --> 00:29:51,320 Speaker 1: We'd love to hear from you. You can send an 604 00:29:51,320 --> 00:29:54,560 Speaker 1: email to money Pod at Bloomberg dot net. Ask us 605 00:29:54,560 --> 00:29:56,600 Speaker 1: a question and we might answer it on the air. 606 00:29:56,920 --> 00:29:59,520 Speaker 2: You can also subscribe to our show wherever you're listening 607 00:29:59,560 --> 00:30:01,720 Speaker 2: right now. Leave us a review. It helps more people 608 00:30:01,760 --> 00:30:02,240 Speaker 2: find the show. 609 00:30:03,040 --> 00:30:07,400 Speaker 1: The Money Stuff Podcast is produced by anamazerakas Moses Andam 610 00:30:07,800 --> 00:30:09,760 Speaker 1: and Alexis HoTT Our. 611 00:30:09,800 --> 00:30:11,840 Speaker 2: Theme music was composed by Blake Maples. 612 00:30:12,600 --> 00:30:16,000 Speaker 1: Amy Keen is our executive producer. Thanks for listening to 613 00:30:16,040 --> 00:30:18,440 Speaker 1: The Money Stuff Podcast. We'll be back next week with 614 00:30:18,720 --> 00:30:19,240 Speaker 1: more stuff