1 00:00:05,000 --> 00:00:09,479 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. 2 00:00:10,880 --> 00:00:11,600 Speaker 2: It's Thursday. 3 00:00:11,680 --> 00:00:15,440 Speaker 3: I'm not going to the JP Morgan pub this Thursday week. 4 00:00:15,520 --> 00:00:16,120 Speaker 2: I was fun. 5 00:00:16,480 --> 00:00:17,239 Speaker 1: You were on the roof. 6 00:00:17,400 --> 00:00:19,200 Speaker 2: We went to the roof. It was pretty cool. 7 00:00:19,520 --> 00:00:24,599 Speaker 3: Like the very top part is like this obelisk into 8 00:00:24,680 --> 00:00:26,880 Speaker 3: the sky, so we were gazing up at it and 9 00:00:26,920 --> 00:00:27,600 Speaker 3: it was all that up. 10 00:00:27,640 --> 00:00:28,680 Speaker 2: It was so cool. It was. 11 00:00:30,480 --> 00:00:30,680 Speaker 1: God. 12 00:00:30,680 --> 00:00:33,760 Speaker 2: I wanted to like free solo it, but it was 13 00:00:33,840 --> 00:00:34,479 Speaker 2: so cold. 14 00:00:35,479 --> 00:00:35,839 Speaker 3: It was. 15 00:00:37,800 --> 00:00:38,159 Speaker 1: Rooftop. 16 00:00:38,240 --> 00:00:40,360 Speaker 3: It was so snowy, and I see it was pretty terrified. 17 00:00:40,400 --> 00:00:41,240 Speaker 3: It was totally safe. 18 00:00:41,680 --> 00:00:46,160 Speaker 2: There was a fence. There was a fence. I'm sure 19 00:00:46,200 --> 00:00:47,040 Speaker 2: there is, but. 20 00:00:47,920 --> 00:00:48,680 Speaker 1: You were on the roof. 21 00:00:49,040 --> 00:00:53,360 Speaker 2: I was. It was like a quick a quick lookout. 22 00:00:52,960 --> 00:00:53,120 Speaker 3: You know. 23 00:00:53,159 --> 00:00:56,680 Speaker 2: I waved to New Jersey. Then we got back in. God, 24 00:00:56,720 --> 00:00:59,560 Speaker 2: it was so cool. Though, we have to go. We 25 00:00:59,640 --> 00:01:00,880 Speaker 2: have to You really have to do. 26 00:01:01,160 --> 00:01:04,280 Speaker 1: As you're talking about this, get some email invites being. 27 00:01:04,080 --> 00:01:07,759 Speaker 3: Like come, yeah, well we need to take up one 28 00:01:07,800 --> 00:01:09,080 Speaker 3: of them. 29 00:01:09,400 --> 00:01:11,680 Speaker 2: Yeah, is there anything you got? 30 00:01:12,120 --> 00:01:14,479 Speaker 1: I'm off the week after next Yeah, oh. 31 00:01:14,400 --> 00:01:15,959 Speaker 2: My god, wait what week are you off? 32 00:01:16,280 --> 00:01:16,880 Speaker 1: The sixteenth? 33 00:01:17,120 --> 00:01:18,800 Speaker 2: Yikes, I'm off the week after that. 34 00:01:19,600 --> 00:01:22,240 Speaker 1: Two weeks off. It's like very satisfying to have the end. 35 00:01:22,120 --> 00:01:24,120 Speaker 2: In sight, you know, Yeah, no, I feel that. 36 00:01:24,280 --> 00:01:25,800 Speaker 1: No, of course, I live for my work. 37 00:01:25,800 --> 00:01:28,160 Speaker 2: And we'll be of course where you go. I mean, 38 00:01:28,200 --> 00:01:29,559 Speaker 2: we can talk about this later. 39 00:01:29,880 --> 00:01:32,280 Speaker 1: I'll tell you off, Mike. I'm going somewhere warm. 40 00:01:32,640 --> 00:01:33,840 Speaker 2: I'm going somewhere cold. 41 00:01:33,959 --> 00:01:39,160 Speaker 1: Nice. Yeah, all right, Hello and welcome to The Money 42 00:01:39,160 --> 00:01:42,560 Speaker 1: Stuff Podcast, your weekly podcast where we talk about stuff 43 00:01:42,600 --> 00:01:46,360 Speaker 1: related to money. I'm Att Levine and I write the 44 00:01:46,360 --> 00:01:48,000 Speaker 1: Money Stuff column for Bloomberg Opinion. 45 00:01:48,840 --> 00:01:51,480 Speaker 3: And I'm Katie Greifeld, a reporter for Bloomberg News and 46 00:01:51,520 --> 00:01:53,080 Speaker 3: an anchor for Bloomberg Television. 47 00:02:02,120 --> 00:02:04,400 Speaker 1: We had an under the wire last week that that 48 00:02:04,600 --> 00:02:06,160 Speaker 1: SpaceX and x I high were emerging. 49 00:02:06,360 --> 00:02:09,480 Speaker 3: We were ahead of the curve, so slightly somewhere nearly 50 00:02:10,000 --> 00:02:10,480 Speaker 3: on the curve. 51 00:02:10,560 --> 00:02:11,160 Speaker 1: We're on the curve. 52 00:02:11,280 --> 00:02:13,760 Speaker 2: I was going to say, we're picking up behind the curve. 53 00:02:13,919 --> 00:02:14,560 Speaker 2: We're a little bit. 54 00:02:14,880 --> 00:02:17,360 Speaker 3: We're picking up where we left off though, Yes, and 55 00:02:17,400 --> 00:02:21,079 Speaker 3: that is on h It happened, SpaceX, It happened. 56 00:02:21,360 --> 00:02:24,240 Speaker 1: This is the thing. I come from the world of 57 00:02:24,600 --> 00:02:28,320 Speaker 1: public company mergers, where like, you negotiate a deal for 58 00:02:28,320 --> 00:02:30,160 Speaker 1: a few weeks, and you sign a deal, and then 59 00:02:30,160 --> 00:02:32,040 Speaker 1: you announce the deal and then like six months later 60 00:02:32,040 --> 00:02:35,080 Speaker 1: it closes and the Elon Musk has done that. He 61 00:02:35,160 --> 00:02:39,239 Speaker 1: did the Twitter merger, which took at least forty years 62 00:02:39,280 --> 00:02:43,799 Speaker 1: off my life. But when he decides to merge Xai 63 00:02:43,840 --> 00:02:47,640 Speaker 1: and SpaceX, like from a glimmer in his eye to 64 00:02:48,040 --> 00:02:50,720 Speaker 1: the deal is closed, is like, I don't know what 65 00:02:50,880 --> 00:02:53,840 Speaker 1: four days like, Yeah, it's really incredible speed. 66 00:02:54,240 --> 00:02:57,200 Speaker 3: Well, as you sort of lay out in the newsletter, 67 00:02:57,240 --> 00:03:01,720 Speaker 3: he's negotiating with himself and then signing it himself. 68 00:03:02,120 --> 00:03:04,600 Speaker 1: Yeah, it's great. It'll be interesting to learn from the 69 00:03:04,600 --> 00:03:06,600 Speaker 1: eventual IPO filing. I don't know how much of these 70 00:03:06,600 --> 00:03:09,920 Speaker 1: companies Elon Musk owns, right, But he's not the sole 71 00:03:10,000 --> 00:03:12,000 Speaker 1: shareholder of either one. Right, there's a lot of employees, 72 00:03:12,040 --> 00:03:16,760 Speaker 1: there's outside investors. But it seems like he owns or 73 00:03:16,800 --> 00:03:20,040 Speaker 1: at least a majority of both companies, or at least 74 00:03:20,040 --> 00:03:22,440 Speaker 1: the majority of the voting power of both companies, because 75 00:03:22,480 --> 00:03:24,480 Speaker 1: he could just kind of do the merger himself. He's 76 00:03:24,520 --> 00:03:27,720 Speaker 1: the controlling executive of both, he controls the board of both, 77 00:03:27,760 --> 00:03:29,840 Speaker 1: and he's most importantly the controlling sholder of both. So 78 00:03:29,919 --> 00:03:32,720 Speaker 1: like when the deal is submitted to a shareholder vote, 79 00:03:32,720 --> 00:03:35,280 Speaker 1: it's submitted to him, and he says yes, and so 80 00:03:35,280 --> 00:03:38,640 Speaker 1: you can do it really fast. In addition to him 81 00:03:38,960 --> 00:03:41,880 Speaker 1: being legally the controlling shareholder, also like all of the 82 00:03:41,880 --> 00:03:46,160 Speaker 1: shareholders both love him and fear him. My sense is 83 00:03:46,240 --> 00:03:49,160 Speaker 1: this is true. You can imagine some SpaceX shelders saying 84 00:03:49,560 --> 00:03:54,160 Speaker 1: SpaceX is a very valuable company. It is worth more 85 00:03:54,640 --> 00:03:58,440 Speaker 1: than four times as much as x Ai. They say 86 00:03:58,440 --> 00:04:00,600 Speaker 1: it's a one point twenty five trillion dollars valuation for 87 00:04:00,600 --> 00:04:03,000 Speaker 1: the commanded company, one trillion for SpaceX, I'm two hundred 88 00:04:03,000 --> 00:04:06,000 Speaker 1: and fifty billion for Xai. Those numbers are kind of 89 00:04:06,040 --> 00:04:08,960 Speaker 1: fake because no money is changing hands, so there's no 90 00:04:09,080 --> 00:04:10,120 Speaker 1: actual dollar value. 91 00:04:10,200 --> 00:04:10,360 Speaker 3: Right. 92 00:04:10,400 --> 00:04:12,120 Speaker 1: Those numbers are like kind of in the ballpark of 93 00:04:12,160 --> 00:04:14,440 Speaker 1: what other transactions have valued the met But this doesn't, 94 00:04:14,480 --> 00:04:17,360 Speaker 1: you know, whatever he wants, but the proportion matters, right, 95 00:04:17,400 --> 00:04:20,119 Speaker 1: Like if you say SpaceX is a trillion dollar company, 96 00:04:20,120 --> 00:04:22,159 Speaker 1: in Xai is a trillion dollar company, then Xai gets 97 00:04:22,160 --> 00:04:24,680 Speaker 1: half the company. If you say you know what they did, 98 00:04:24,720 --> 00:04:28,039 Speaker 1: then Xai gets twenty percent of the company. And you 99 00:04:28,080 --> 00:04:31,520 Speaker 1: can imagine that SpaceX shelter like say an employee or 100 00:04:31,520 --> 00:04:36,599 Speaker 1: former employee saying that's not right like SpaceX is good. 101 00:04:36,680 --> 00:04:39,039 Speaker 1: I like SpaceX, I don't like Xai, which is, you know, 102 00:04:39,160 --> 00:04:42,599 Speaker 1: to some extent the successor of Twitter, and being mad 103 00:04:42,640 --> 00:04:44,920 Speaker 1: about the deal price, but like there's nothing they can do, 104 00:04:45,040 --> 00:04:49,520 Speaker 1: nothing to do at all. I wrote that this is 105 00:04:49,560 --> 00:04:52,119 Speaker 1: made easier by the fact that they are private companies. Yes, 106 00:04:52,640 --> 00:04:55,400 Speaker 1: all of Elon Musks companies either reformed in or have 107 00:04:55,640 --> 00:04:58,760 Speaker 1: kind of moved to Texas, so they're incorporated in Texas, 108 00:04:59,440 --> 00:05:03,360 Speaker 1: and nobody really knows what exactly would happen if these 109 00:05:03,360 --> 00:05:07,159 Speaker 1: were Texas public companies. But Texas does allow you to 110 00:05:07,240 --> 00:05:10,720 Speaker 1: kind of prevent small shareholders from bringing derivative lawsuits. So 111 00:05:10,760 --> 00:05:12,680 Speaker 1: there's some chance that he could do this kind of 112 00:05:12,720 --> 00:05:16,040 Speaker 1: stuff even with two public companies, or there's some chance, 113 00:05:16,160 --> 00:05:19,520 Speaker 1: some chance when he emerges Tesla and SpaceX. 114 00:05:19,640 --> 00:05:20,840 Speaker 2: Yeah, then we'll have there's some. 115 00:05:20,920 --> 00:05:22,440 Speaker 1: Chance that like no one will be able to say 116 00:05:22,480 --> 00:05:23,720 Speaker 1: anything about it. We'll see, we'll see. 117 00:05:23,880 --> 00:05:25,760 Speaker 3: I was going to say, I wish we were about 118 00:05:25,800 --> 00:05:27,840 Speaker 3: to find out in this case, you know, if one 119 00:05:27,839 --> 00:05:30,640 Speaker 3: of them was public. But it's a good point that eventually, 120 00:05:30,680 --> 00:05:34,719 Speaker 3: when we do finally reach the convergence and SpaceX and 121 00:05:34,720 --> 00:05:35,640 Speaker 3: Tesla merged. 122 00:05:35,360 --> 00:05:38,880 Speaker 1: It's going to Ruin to run a vacation of mine. 123 00:05:39,400 --> 00:05:41,920 Speaker 1: I wonder if it's the one in two weeks, but yeah, 124 00:05:41,960 --> 00:05:42,640 Speaker 1: it's gonna be great. 125 00:05:42,920 --> 00:05:43,400 Speaker 2: Yeah. 126 00:05:43,680 --> 00:05:47,560 Speaker 3: I also like the point made in here that you know, 127 00:05:47,600 --> 00:05:51,440 Speaker 3: the narrative has been that SpaceX is going to fund 128 00:05:52,360 --> 00:05:55,120 Speaker 3: building data centers in space, or it's going to fund 129 00:05:55,279 --> 00:06:00,000 Speaker 3: XAI in some form, but it's pointed out that SpaceX 130 00:06:00,160 --> 00:06:03,400 Speaker 3: generated around fifteen billion dollars in revenue last year. At 131 00:06:03,400 --> 00:06:05,919 Speaker 3: this point made by Martin Piers, it's more about the 132 00:06:05,960 --> 00:06:08,039 Speaker 3: fund raising ability of SpaceX. 133 00:06:08,120 --> 00:06:12,920 Speaker 1: Yeah, SpaceX is a self funding company, right. SpaceX has 134 00:06:12,960 --> 00:06:16,360 Speaker 1: done recent employee tenders where the company itself has used 135 00:06:16,360 --> 00:06:19,680 Speaker 1: its free cash flow to buy stockback from employees. And 136 00:06:19,720 --> 00:06:21,680 Speaker 1: so why does SpaceX need to go public? Well, maybe 137 00:06:21,680 --> 00:06:23,960 Speaker 1: they have like some vast new rocket program that they 138 00:06:24,000 --> 00:06:27,279 Speaker 1: need to fund, but like, really it's to fund data 139 00:06:27,279 --> 00:06:28,200 Speaker 1: centers in space. 140 00:06:28,279 --> 00:06:28,440 Speaker 4: Right. 141 00:06:28,680 --> 00:06:34,000 Speaker 1: They don't necessarily need public money to shoot rockets into space. 142 00:06:34,080 --> 00:06:36,599 Speaker 1: They need it to sweep eaxs. 143 00:06:36,760 --> 00:06:38,440 Speaker 2: This is like a little stuff in space. 144 00:06:38,560 --> 00:06:41,880 Speaker 1: Like it probably makes sense from a corporate finance perspective 145 00:06:41,920 --> 00:06:44,720 Speaker 1: for SpaceX as SpaceX to be public, but like it 146 00:06:45,000 --> 00:06:48,360 Speaker 1: really helps to raise money for XAI or for AI 147 00:06:48,480 --> 00:06:51,160 Speaker 1: type activities or data centers in space, and so this 148 00:06:51,320 --> 00:06:53,880 Speaker 1: is a way for Elon Musk to take these somehow 149 00:06:53,960 --> 00:06:57,760 Speaker 1: even more capital intensive business than shooting rockets into space 150 00:06:57,960 --> 00:07:00,400 Speaker 1: and sweeping it into a fundraising are or not. 151 00:07:00,560 --> 00:07:04,120 Speaker 3: It is amazing to me how many people and ourselves 152 00:07:04,160 --> 00:07:06,520 Speaker 3: included kind of are saying data centers in space with 153 00:07:06,560 --> 00:07:09,239 Speaker 3: a straight face. Orbital data centers is also a phrase 154 00:07:09,279 --> 00:07:09,760 Speaker 3: that I've heard. 155 00:07:09,960 --> 00:07:15,239 Speaker 1: Yeah, a lot of people are very very skeptical about 156 00:07:15,280 --> 00:07:18,239 Speaker 1: the idea of data centers in space. 157 00:07:18,320 --> 00:07:20,480 Speaker 3: Well, I keep just thinking about where else can we 158 00:07:20,520 --> 00:07:22,920 Speaker 3: put data centers? Why do they have to go in space? 159 00:07:23,160 --> 00:07:27,680 Speaker 3: Would the ocean be easier in terms of weird frontiers 160 00:07:27,680 --> 00:07:29,760 Speaker 3: where we could put data centers? Like how did we 161 00:07:29,880 --> 00:07:32,720 Speaker 3: land on space as a realistic option. 162 00:07:33,320 --> 00:07:34,760 Speaker 1: I don't know that anyone's light it on it as 163 00:07:34,760 --> 00:07:38,320 Speaker 1: a realistic option. But Elon Musk I really like science 164 00:07:38,360 --> 00:07:40,920 Speaker 1: fiction for sure. He references is actually in the space 165 00:07:41,200 --> 00:07:44,440 Speaker 1: XA merger announcement. There's a notion that, like there are 166 00:07:44,440 --> 00:07:50,320 Speaker 1: some civilizations that harness energy from their planet. Just look 167 00:07:50,400 --> 00:07:51,000 Speaker 1: so tired. 168 00:07:51,200 --> 00:07:52,280 Speaker 2: No, I'm here, I'm here. 169 00:07:52,840 --> 00:07:55,920 Speaker 1: There's some civilizations they can harness some large proportion of 170 00:07:55,920 --> 00:07:58,560 Speaker 1: the energy on their planet. But then there are the 171 00:07:58,600 --> 00:08:03,560 Speaker 1: better civilizations that can harness most of the energy of 172 00:08:03,600 --> 00:08:08,200 Speaker 1: the star they orbit, and then they're even better the Sun. Yeah, 173 00:08:08,240 --> 00:08:10,480 Speaker 1: and then they're even better civilizations that can harness like 174 00:08:10,480 --> 00:08:12,760 Speaker 1: whole galaxies of energy. And so if you have all 175 00:08:12,760 --> 00:08:14,480 Speaker 1: of the energy of the Sun at your disposal, you 176 00:08:14,520 --> 00:08:20,040 Speaker 1: can like travel between galaxies or whatever. And so that 177 00:08:20,160 --> 00:08:23,720 Speaker 1: sounds so stupid, but Elon Musk, like one of his 178 00:08:24,200 --> 00:08:27,640 Speaker 1: main dreams is to honest all of the energy of 179 00:08:27,640 --> 00:08:31,160 Speaker 1: the Sun. And to do that, you put I'm sorry, 180 00:08:31,160 --> 00:08:33,040 Speaker 1: you put a shellow satellites around the Sun that like 181 00:08:33,040 --> 00:08:34,600 Speaker 1: take all of the energy from the Sun so that 182 00:08:34,640 --> 00:08:37,640 Speaker 1: they run the data centers, so like you know, a 183 00:08:37,640 --> 00:08:39,560 Speaker 1: little beam of light gets through so that we can 184 00:08:39,600 --> 00:08:41,520 Speaker 1: like live on Earth and the rest of the Sun's 185 00:08:41,600 --> 00:08:43,679 Speaker 1: energy goes to the data centers. So Elon Musk can 186 00:08:43,720 --> 00:08:46,000 Speaker 1: be like the data centers are harnessing the power of 187 00:08:46,040 --> 00:08:46,400 Speaker 1: the Sun. 188 00:08:46,559 --> 00:08:48,320 Speaker 2: This is, honest to God, the first time I've ever 189 00:08:48,360 --> 00:08:49,319 Speaker 2: heard of this. 190 00:08:49,880 --> 00:08:53,320 Speaker 1: Yeah, I learned of it from the announcement that references 191 00:08:53,360 --> 00:08:56,720 Speaker 1: the Russian scientists who who came up with these tiers 192 00:08:56,720 --> 00:08:59,760 Speaker 1: of civilizations and then I read a portion of his 193 00:08:59,800 --> 00:09:05,439 Speaker 1: Wikipedia page and now I'm telling you and you're weeping. 194 00:09:05,760 --> 00:09:08,240 Speaker 3: Well, the thing is, I'm feeling really sick. I'm like 195 00:09:08,360 --> 00:09:11,480 Speaker 3: brewing something right now. I'm also reading this like really 196 00:09:11,600 --> 00:09:16,760 Speaker 3: trippy garbage like magic slash science fiction book right now, 197 00:09:16,880 --> 00:09:18,880 Speaker 3: and like I'm at the point I'm eighty one percent 198 00:09:19,040 --> 00:09:20,600 Speaker 3: of the way through it, so I'm going to finish it. 199 00:09:20,640 --> 00:09:23,800 Speaker 3: But it's basically just like kind of garbage, Like you 200 00:09:23,920 --> 00:09:26,040 Speaker 3: just threw a breath right now, and it's like I. 201 00:09:26,040 --> 00:09:28,320 Speaker 1: Read this badgeic sci fi garbage and then you come 202 00:09:28,320 --> 00:09:29,480 Speaker 1: into work and it's more of it. 203 00:09:29,559 --> 00:09:31,840 Speaker 2: I feel like I'm dissociating. Am I on the pass? 204 00:09:33,200 --> 00:09:33,640 Speaker 3: Yeah like that? 205 00:09:33,840 --> 00:09:35,240 Speaker 1: But anyway, that's why. 206 00:09:34,920 --> 00:09:37,800 Speaker 3: Anyway, thank you for walking me through that. 207 00:09:38,160 --> 00:09:40,960 Speaker 2: I had just realized we're trying to harness the energy 208 00:09:40,960 --> 00:09:41,720 Speaker 2: of the sun. 209 00:09:41,760 --> 00:09:43,760 Speaker 1: So they get a grand sci fi level. That's the 210 00:09:43,760 --> 00:09:46,240 Speaker 1: intention in terms of like, well the data centers work, 211 00:09:46,320 --> 00:09:49,000 Speaker 1: like yeah, I done knows, Yeah whatever, you know who 212 00:09:49,040 --> 00:09:52,040 Speaker 1: I want to spend a minute talking about who Twitter's 213 00:09:52,120 --> 00:09:52,880 Speaker 1: bondle this? 214 00:09:53,760 --> 00:09:53,960 Speaker 3: Yeah? 215 00:09:54,280 --> 00:09:57,920 Speaker 1: Do you remember when people, when people like me were like, man, 216 00:09:58,360 --> 00:10:02,760 Speaker 1: what a bad deal to agree to fund Elon's Twitter 217 00:10:02,840 --> 00:10:05,720 Speaker 1: buyout with debt that like now trade that yeah, back 218 00:10:05,760 --> 00:10:08,160 Speaker 1: then traded like you know, forty cents on the doll. 219 00:10:08,160 --> 00:10:09,480 Speaker 2: A short sighted thing to say. 220 00:10:10,000 --> 00:10:12,640 Speaker 1: Now if Twitter needs to pay back, like it's like 221 00:10:12,679 --> 00:10:18,200 Speaker 1: thirteen billion dollars of debt. Like like that's like you know, 222 00:10:18,320 --> 00:10:21,240 Speaker 1: one minute of fundraising for Twitter, which is now called 223 00:10:21,240 --> 00:10:25,560 Speaker 1: the SpaceX quaint. Anyway, everyone always. 224 00:10:25,200 --> 00:10:26,720 Speaker 2: Wins, Everyone always wins. 225 00:10:27,080 --> 00:10:29,440 Speaker 1: Yeah, I've read about this a little bit this week too. 226 00:10:29,960 --> 00:10:34,280 Speaker 1: The SpaceX IPO team are working on changing the rules 227 00:10:34,280 --> 00:10:38,400 Speaker 1: for index eligibility so that SpaceX can be put into 228 00:10:39,720 --> 00:10:43,800 Speaker 1: at least some big stock indexes earlier than like normally 229 00:10:43,880 --> 00:10:45,480 Speaker 1: for like that and as like one hundred ear the 230 00:10:45,559 --> 00:10:49,120 Speaker 1: SMP three months. Yeah, it's like some some period of months, 231 00:10:49,200 --> 00:10:51,200 Speaker 1: and they want it to be fast. They're going to 232 00:10:51,200 --> 00:10:52,600 Speaker 1: be in the business in the next year of moving 233 00:10:52,640 --> 00:10:56,199 Speaker 1: an enormous amount of stock from like early SpaceX investors 234 00:10:56,240 --> 00:10:59,120 Speaker 1: to index funds, and they want to move that stock efficiently. 235 00:10:59,400 --> 00:11:00,920 Speaker 2: It makes lot of sense. 236 00:11:00,920 --> 00:11:02,520 Speaker 1: It does. It can't really fault it. 237 00:11:02,559 --> 00:11:04,800 Speaker 3: I will say it's interesting that like SpaceX in terms 238 00:11:04,840 --> 00:11:06,800 Speaker 3: of private companies is kind of in a league of 239 00:11:06,800 --> 00:11:08,560 Speaker 3: its own, like sort of. 240 00:11:08,520 --> 00:11:10,520 Speaker 1: Like it's becoming more of a thing, right. I mean, 241 00:11:10,640 --> 00:11:12,520 Speaker 1: one reason that it seems like they're having traction with 242 00:11:12,520 --> 00:11:14,840 Speaker 1: like the index companies, there's a backlog behind them of 243 00:11:14,920 --> 00:11:18,160 Speaker 1: other multi hundred billion dollar companies that everyone wants to owner. 244 00:11:18,200 --> 00:11:20,080 Speaker 1: It's like, yeah, this should be in the index as 245 00:11:20,080 --> 00:11:20,520 Speaker 1: soon as they can. 246 00:11:20,640 --> 00:11:22,959 Speaker 2: Well, part of the reason I say this it relates 247 00:11:22,960 --> 00:11:24,880 Speaker 2: back to ETFs. Don't worry for sure. 248 00:11:24,920 --> 00:11:25,120 Speaker 1: Sure. 249 00:11:25,440 --> 00:11:28,640 Speaker 3: Barron Capital which is a firm founded by Ron barn 250 00:11:28,679 --> 00:11:32,080 Speaker 3: who is like a long time Elon Musk investor. He 251 00:11:32,160 --> 00:11:36,160 Speaker 3: loves Elon Musk companies. They recently launched an ETF. The 252 00:11:36,200 --> 00:11:40,880 Speaker 3: ticker is Ron b which I love, and they own 253 00:11:41,280 --> 00:11:45,559 Speaker 3: a pretty sizable chunk of SpaceX in the ETF. The 254 00:11:45,640 --> 00:11:48,440 Speaker 3: number of shares that they hold stays static, but as 255 00:11:48,440 --> 00:11:51,200 Speaker 3: the asset levels of the funds go around, some days 256 00:11:51,200 --> 00:11:53,320 Speaker 3: it'll be like twenty two percent of the fund, some 257 00:11:53,400 --> 00:11:55,480 Speaker 3: days it'll be eleven percent of the fund, which is 258 00:11:55,559 --> 00:11:59,480 Speaker 3: interesting because the SEC has a fifteen percent cap on 259 00:11:59,520 --> 00:12:05,520 Speaker 3: a liquid assets for ETFs, but the company confirmed that 260 00:12:06,240 --> 00:12:10,800 Speaker 3: they classify it as less liquid. There's four liquidity tiers, 261 00:12:11,720 --> 00:12:14,520 Speaker 3: highly liquid, moderately less liquid, and then E liquid. But 262 00:12:15,080 --> 00:12:21,480 Speaker 3: SpaceX for their purposes by their definition is less liquid. 263 00:12:21,600 --> 00:12:23,240 Speaker 1: I don't think pretty quick. 264 00:12:23,360 --> 00:12:25,160 Speaker 2: Yeah, that's the thing that's kind of what I mean. 265 00:12:25,200 --> 00:12:26,640 Speaker 3: It's in like a league of its own. It's a 266 00:12:26,640 --> 00:12:29,920 Speaker 3: private company, but it's pretty liquid and it makes sense. 267 00:12:29,720 --> 00:12:32,760 Speaker 1: That attention to it, and it's like everyone knows that 268 00:12:32,880 --> 00:12:33,640 Speaker 1: IPI is coming. 269 00:12:33,960 --> 00:12:51,360 Speaker 4: Yeah, should we talk about dats? 270 00:12:51,760 --> 00:12:52,120 Speaker 2: Yeah? 271 00:12:52,320 --> 00:12:54,640 Speaker 3: I was wondering when we were going to talk about 272 00:12:54,640 --> 00:12:56,960 Speaker 3: closed end fund activism again, it's been a while. 273 00:12:57,360 --> 00:13:01,280 Speaker 4: Have we talked about think about the dawn of this podcast? 274 00:13:01,360 --> 00:13:01,480 Speaker 1: Oh? 275 00:13:01,559 --> 00:13:04,600 Speaker 2: Yeah, I don't know if we just talked about it 276 00:13:04,640 --> 00:13:07,319 Speaker 2: a lot in for ten podcasts, but I'm pretty sure 277 00:13:07,320 --> 00:13:08,720 Speaker 2: we talked about it on real podcasts. 278 00:13:08,720 --> 00:13:11,920 Speaker 1: You and I have talked microphones about clos and close 279 00:13:11,960 --> 00:13:14,400 Speaker 1: in fund activism, close and fund activism as one, I 280 00:13:14,400 --> 00:13:16,320 Speaker 1: guess we've talked about the Blackmen closed un funds. 281 00:13:17,040 --> 00:13:17,199 Speaker 3: One. 282 00:13:17,240 --> 00:13:20,160 Speaker 2: We've definitely talked about boas Weinstein. 283 00:13:19,720 --> 00:13:23,520 Speaker 1: On the front of the pod. The leading closed unfund 284 00:13:23,559 --> 00:13:25,960 Speaker 1: activists or closing fund activism is like, you know, you 285 00:13:26,040 --> 00:13:29,720 Speaker 1: have a closed end fund, which is a company that 286 00:13:29,840 --> 00:13:32,640 Speaker 1: buys investments and also lists its own shares on the 287 00:13:32,679 --> 00:13:35,319 Speaker 1: public slock market, and like sometimes they closed end fund 288 00:13:36,559 --> 00:13:38,960 Speaker 1: the fund's own shares will trade at a discount to 289 00:13:39,240 --> 00:13:41,839 Speaker 1: the net asset value, and then some activists will buy 290 00:13:41,880 --> 00:13:44,280 Speaker 1: up some shares and run a proxy fight and try 291 00:13:44,320 --> 00:13:46,240 Speaker 1: to kick out the management of the fund so that 292 00:13:46,280 --> 00:13:49,120 Speaker 1: they can liquidate the fund, sell all the underlying stuff 293 00:13:49,120 --> 00:13:51,000 Speaker 1: at net asset value and like return money to the 294 00:13:51,040 --> 00:13:55,240 Speaker 1: shareholders and capture that discount. This is the thing, you know, 295 00:13:55,320 --> 00:13:57,800 Speaker 1: it's like controversial, but as it gets you know, yelled 296 00:13:57,800 --> 00:14:01,679 Speaker 1: at by Blackrock or wherever, sometimes activists wins, sometimes they lose. 297 00:14:02,080 --> 00:14:05,880 Speaker 1: Sometimes the underlying fund managers make the case that there's 298 00:14:06,000 --> 00:14:08,200 Speaker 1: actually some long term value and that it is short 299 00:14:08,240 --> 00:14:12,160 Speaker 1: sighted to liquidate the fund and capture the discount. Sometimes 300 00:14:12,240 --> 00:14:18,920 Speaker 1: that case doesn't work anyway. DATS Digital asset treasury companies 301 00:14:18,960 --> 00:14:21,840 Speaker 1: were all the raids last year, led by Strategy formerly 302 00:14:21,880 --> 00:14:24,040 Speaker 1: micro Strategy, which is you know a huge pot of bitcoins, 303 00:14:24,080 --> 00:14:26,760 Speaker 1: which I know we gotta talk about strategy too, but 304 00:14:26,880 --> 00:14:30,240 Speaker 1: let's talky about activism first. All these companies were formed 305 00:14:30,280 --> 00:14:33,840 Speaker 1: that would buy crypto like bitcoin are you know, different 306 00:14:33,880 --> 00:14:36,800 Speaker 1: companies specialized in different things, and they would make it 307 00:14:36,920 --> 00:14:38,320 Speaker 1: have a big pot of crypto and it would trade 308 00:14:38,320 --> 00:14:40,960 Speaker 1: it like a huge premium to the net asset value. 309 00:14:40,960 --> 00:14:43,280 Speaker 1: And so everyone did this trade like in summer of 310 00:14:43,320 --> 00:14:46,960 Speaker 1: last year, and then it collapsed, like the prices came down, 311 00:14:47,240 --> 00:14:49,320 Speaker 1: but also the premiums collapse, and now a lot of 312 00:14:49,320 --> 00:14:51,760 Speaker 1: these doubts are trading it discounts to net asset value. 313 00:14:51,880 --> 00:14:55,520 Speaker 1: And so now you're starting to see glimmers of activism 314 00:14:55,600 --> 00:14:58,360 Speaker 1: against stats where someone will be like, I can buy 315 00:15:00,040 --> 00:15:02,880 Speaker 1: stock in this pot of bitcoin in the stock traits 316 00:15:02,920 --> 00:15:04,920 Speaker 1: at like eighty percent of none asset value. So if 317 00:15:04,960 --> 00:15:07,000 Speaker 1: I pay eighty cents, I can get a dollar worth 318 00:15:07,000 --> 00:15:09,840 Speaker 1: a bitcoin. And the only problem is I got to 319 00:15:09,920 --> 00:15:11,880 Speaker 1: crack open the pot and take out the bitcoin. And 320 00:15:11,920 --> 00:15:16,600 Speaker 1: so you do things like pressure the management to do 321 00:15:16,680 --> 00:15:19,000 Speaker 1: buybacks or maybe lots of proxy facs. We haven't seen 322 00:15:19,000 --> 00:15:21,680 Speaker 1: proxy fights yet, but like we've seen activist filings, and 323 00:15:22,520 --> 00:15:25,160 Speaker 1: the proxy fights will be so good because if you 324 00:15:25,240 --> 00:15:28,800 Speaker 1: run a digital ASSEID treasury company, like yeah, you kind 325 00:15:28,840 --> 00:15:32,280 Speaker 1: of you know, colorful character, and if you're taking a 326 00:15:32,400 --> 00:15:34,000 Speaker 1: run at them as an activist, you're probably kind of 327 00:15:34,000 --> 00:15:36,040 Speaker 1: a colorful character too, and so there'll be some good 328 00:15:36,040 --> 00:15:36,760 Speaker 1: proxy fights. 329 00:15:36,960 --> 00:15:38,480 Speaker 2: I have two things, maybe three. 330 00:15:38,640 --> 00:15:41,560 Speaker 3: I think this is really fun, like the concept of 331 00:15:41,600 --> 00:15:46,120 Speaker 3: bringing the closed end fund activism playbook to crypto, because 332 00:15:46,480 --> 00:15:50,080 Speaker 3: I feel like crypto market structure and equity market structure 333 00:15:50,200 --> 00:15:53,160 Speaker 3: they blend together in some ways, or at least parallel 334 00:15:53,200 --> 00:15:54,920 Speaker 3: each other, and this is just another way. 335 00:15:55,080 --> 00:15:56,720 Speaker 1: Well, but this is to be clear, just equity, like 336 00:15:56,840 --> 00:16:00,240 Speaker 1: these are companies with stocks. And in fact, I think 337 00:16:00,240 --> 00:16:02,760 Speaker 1: the controversy is that a lot of digital aid treasury 338 00:16:02,800 --> 00:16:05,200 Speaker 1: companists will say, no, no, no, we're not a close 339 00:16:05,280 --> 00:16:08,240 Speaker 1: that fund. We're operating business. We're creating a lot of value. 340 00:16:08,360 --> 00:16:11,080 Speaker 1: For you. To just take our crypto and liquidate it 341 00:16:11,120 --> 00:16:14,760 Speaker 1: to capture the discount is totally destructive of long term value. 342 00:16:14,880 --> 00:16:16,800 Speaker 1: And then other people are like, no, you're a product bitcoins. 343 00:16:16,840 --> 00:16:18,560 Speaker 1: Come on, yeah, we'll see, we'll see. 344 00:16:18,400 --> 00:16:23,720 Speaker 3: Who index classification. They have to be operating businesses. 345 00:16:24,120 --> 00:16:27,240 Speaker 1: Yeah, they argue that they're operating businesses, and so far 346 00:16:27,360 --> 00:16:30,640 Speaker 1: they have more or less with the index classifiers. 347 00:16:30,480 --> 00:16:34,080 Speaker 3: The right to you with the might of the pen, 348 00:16:35,160 --> 00:16:38,120 Speaker 3: a swipe of the keyboard. The other thing is this 349 00:16:39,000 --> 00:16:42,320 Speaker 3: brought back just a myriad of memories of the gray 350 00:16:42,320 --> 00:16:43,320 Speaker 3: scale Bitcoin trust. 351 00:16:43,480 --> 00:16:45,560 Speaker 2: Yeah, sure that did operate as. 352 00:16:45,440 --> 00:16:48,440 Speaker 3: A closing fund, and they are so eager to convert 353 00:16:48,440 --> 00:16:50,040 Speaker 3: it to an ETF so they could get rid of 354 00:16:50,080 --> 00:16:50,720 Speaker 3: their discount. 355 00:16:50,880 --> 00:16:52,520 Speaker 1: Yeah, and they had a weirder governance and so you 356 00:16:52,520 --> 00:16:54,840 Speaker 1: couldn't like just do a proxy fight. But like people 357 00:16:54,880 --> 00:16:57,440 Speaker 1: were mad at them for not closing the discount earlier, 358 00:16:57,440 --> 00:16:59,160 Speaker 1: and then they did, in fact want to convert to 359 00:16:59,160 --> 00:17:01,840 Speaker 1: a and then they did. I know that your next 360 00:17:01,960 --> 00:17:05,600 Speaker 1: sentence will be these dats should convert to eds, but 361 00:17:05,680 --> 00:17:06,840 Speaker 1: I disagree and they disagree. 362 00:17:06,880 --> 00:17:08,080 Speaker 2: So yeah, so I'm very. 363 00:17:08,000 --> 00:17:10,600 Speaker 1: Excited for like a wave of this, in part because 364 00:17:10,640 --> 00:17:12,879 Speaker 1: like one thing that is happening is the price of 365 00:17:12,880 --> 00:17:16,679 Speaker 1: bitcoin is collapsing, Like the premiums of these dats are collapsing. 366 00:17:17,119 --> 00:17:21,760 Speaker 1: And today Thursday, February fifth, Strategy was at least at 367 00:17:21,800 --> 00:17:23,560 Speaker 1: some point trading below net asset value. 368 00:17:23,640 --> 00:17:25,639 Speaker 3: I mean I think their break even or whatever you 369 00:17:25,640 --> 00:17:29,440 Speaker 3: want to call it is seventy six thousand dollars per 370 00:17:29,480 --> 00:17:31,160 Speaker 3: bitcoin or about there. 371 00:17:31,320 --> 00:17:33,600 Speaker 1: Well there's two things. There's like their cost pass yeah, 372 00:17:33,600 --> 00:17:36,320 Speaker 1: which like if they trade below their cost basis, then 373 00:17:36,440 --> 00:17:42,440 Speaker 1: arguably their bitcoin buying has been money losing, right yeah, yeah, 374 00:17:42,480 --> 00:17:44,359 Speaker 1: And like they're proxy for bitcoins. That's fine, like if 375 00:17:44,400 --> 00:17:47,160 Speaker 1: bitcoin goes down, like they'll go down. But the other 376 00:17:47,160 --> 00:17:50,280 Speaker 1: thing that's happening is like their stock at least briefly 377 00:17:50,280 --> 00:17:53,240 Speaker 1: traded below net acid value. The whole point of strategy 378 00:17:53,280 --> 00:17:55,560 Speaker 1: is like paying a premium to own strategy because they 379 00:17:55,600 --> 00:17:58,199 Speaker 1: were doing something that made their pot of bitcoins more 380 00:17:58,280 --> 00:18:01,399 Speaker 1: valuable than just the pot of bitcoins, and now the 381 00:18:01,440 --> 00:18:03,959 Speaker 1: market has completely moved away from that, and now they 382 00:18:04,000 --> 00:18:06,480 Speaker 1: trade it roughly or even a little below the value 383 00:18:06,480 --> 00:18:07,320 Speaker 1: of their bitcoins. 384 00:18:07,440 --> 00:18:09,600 Speaker 3: I'm actually scared to check where bitcoin is right now. 385 00:18:09,640 --> 00:18:11,520 Speaker 3: When we stepped into this recording, it was down like 386 00:18:11,560 --> 00:18:13,640 Speaker 3: ten percent on the day I think to it was like. 387 00:18:13,600 --> 00:18:14,919 Speaker 1: At sixty five thousand dollars. 388 00:18:15,080 --> 00:18:16,480 Speaker 2: Yeah, yeah, yeah, which is. 389 00:18:16,480 --> 00:18:19,320 Speaker 1: Down, Like yeah, it's it's been a b lovebath. I'm 390 00:18:19,320 --> 00:18:22,439 Speaker 1: like part of what's happening. There's reporting of like you know, 391 00:18:22,600 --> 00:18:24,800 Speaker 1: for sty leveraging or whatever, but like one thing that's 392 00:18:24,840 --> 00:18:28,440 Speaker 1: happening is like a big chunk of bitcoin is held 393 00:18:28,440 --> 00:18:33,760 Speaker 1: by strategy particularly and deats in general, and you do 394 00:18:33,840 --> 00:18:35,080 Speaker 1: wonder what will happen with. 395 00:18:35,119 --> 00:18:37,800 Speaker 2: Those, right, I mean I do wonder? Can you tell me? 396 00:18:38,000 --> 00:18:38,280 Speaker 3: Well? 397 00:18:38,320 --> 00:18:40,960 Speaker 1: So, like, for instance, the dat that I wrote about 398 00:18:41,080 --> 00:18:44,000 Speaker 1: this week that faced an activist is a bitcoin one 399 00:18:44,000 --> 00:18:47,040 Speaker 1: called empery, and it has announced that it will either 400 00:18:47,160 --> 00:18:49,080 Speaker 1: take you know, borrow money or sell bitcoming, but it 401 00:18:49,160 --> 00:18:51,919 Speaker 1: might sell bitcoin to byvax stock. I think selling bitcoin 402 00:18:51,960 --> 00:18:54,359 Speaker 1: to buy back stock, if you're adat that trades at 403 00:18:54,400 --> 00:18:57,760 Speaker 1: a discount, is just like a straightforwardly good trade. And 404 00:18:57,800 --> 00:19:00,800 Speaker 1: then like you have Strategy, which is enormous, has huge 405 00:19:00,840 --> 00:19:05,280 Speaker 1: cash obligations you know to pay prefer dividends and stuff. 406 00:19:05,320 --> 00:19:07,960 Speaker 1: Because it's taken out all this debt and preferred stock 407 00:19:08,000 --> 00:19:12,000 Speaker 1: to buy bitcoin. How will they fund that? Well, if 408 00:19:12,040 --> 00:19:14,600 Speaker 1: there's stock trades at a premium to that it's underlying 409 00:19:14,840 --> 00:19:16,600 Speaker 1: as a value, then they should sell stock to fund 410 00:19:16,600 --> 00:19:19,040 Speaker 1: that stuff, which is embarrassing, But fine, if the stock 411 00:19:19,080 --> 00:19:21,359 Speaker 1: trades at a discount, I mean they've sometimes said they 412 00:19:21,440 --> 00:19:24,280 Speaker 1: might sell bitcoin, and sometimes so they won't. But like, 413 00:19:24,280 --> 00:19:26,080 Speaker 1: if you're stocks trading at a discount and you need 414 00:19:26,119 --> 00:19:27,919 Speaker 1: cash to pay your debt, like maybe you sell some 415 00:19:27,960 --> 00:19:31,560 Speaker 1: bitcoin and then like is every dbt you know that 416 00:19:32,240 --> 00:19:34,680 Speaker 1: probably provided a lot of buying pressure on the way up. 417 00:19:34,800 --> 00:19:37,160 Speaker 1: Are they providing selling pressure on the way down? 418 00:19:37,240 --> 00:19:37,800 Speaker 2: Well, that's the thing. 419 00:19:37,800 --> 00:19:41,040 Speaker 3: I feel like if a debt such as Strategy came 420 00:19:41,080 --> 00:19:45,080 Speaker 3: out and sold even like a really insignificant amount of bitcoin. 421 00:19:45,880 --> 00:19:47,240 Speaker 2: What that would be for sentiment. 422 00:19:47,440 --> 00:19:50,280 Speaker 1: Yeah, it's not good. It's potentially a lot of actual volume. 423 00:19:50,280 --> 00:19:52,320 Speaker 1: But yeah, it's a saith don't matter, it's it's great. 424 00:19:52,400 --> 00:19:57,439 Speaker 3: Yeah, I would love if boas Weinstein started dabbling in 425 00:19:57,440 --> 00:19:59,080 Speaker 3: a little bit of debt activism. 426 00:19:59,280 --> 00:20:01,160 Speaker 2: Does it make sense for a plastody. 427 00:20:00,760 --> 00:20:03,439 Speaker 1: It's the same trade, yeah, fun actively, it's the same trade. 428 00:20:04,520 --> 00:20:06,119 Speaker 2: I'm going to send him this podcast, all right. 429 00:20:06,600 --> 00:20:08,440 Speaker 1: I think that one thing that Bo's Wanstein has done 430 00:20:08,640 --> 00:20:11,400 Speaker 1: is he's tilted at funds run by companies like black Rock, 431 00:20:11,440 --> 00:20:13,399 Speaker 1: where black Rock for a long time has talked a 432 00:20:13,440 --> 00:20:15,840 Speaker 1: lot about good governance and Bo has has kind of 433 00:20:15,920 --> 00:20:17,720 Speaker 1: used those words against them and said, like, you're not 434 00:20:17,800 --> 00:20:20,760 Speaker 1: doing good governance. You're like stifling shareholders in your clothes 435 00:20:20,800 --> 00:20:23,560 Speaker 1: and funds. I think you're like moral and political playbook 436 00:20:23,560 --> 00:20:25,360 Speaker 1: would be different with the debt because like they don't 437 00:20:25,400 --> 00:20:26,760 Speaker 1: care about cherholder governance. 438 00:20:27,160 --> 00:20:31,000 Speaker 3: Something else, right, some AI generated and some other him 439 00:20:31,000 --> 00:20:31,920 Speaker 3: on an orange bole. 440 00:20:32,080 --> 00:20:35,399 Speaker 1: Your rhetoric is different when you're taking on a debt CEO. 441 00:20:35,520 --> 00:20:37,680 Speaker 1: But like he should, the trade is they can always 442 00:20:37,800 --> 00:20:55,960 Speaker 1: the trade speaking of bad first sentiment should talk me 443 00:20:56,000 --> 00:20:57,359 Speaker 1: about the god? 444 00:20:57,720 --> 00:21:02,040 Speaker 3: Yeah, I mean software stad. I didn't know that until 445 00:21:02,040 --> 00:21:06,800 Speaker 3: this week. Apparently this I mean, I guess it was 446 00:21:06,840 --> 00:21:10,040 Speaker 3: theoretically started by anthropic I believe it was coming out 447 00:21:10,080 --> 00:21:11,360 Speaker 3: with some tool for lawyers. 448 00:21:11,640 --> 00:21:14,440 Speaker 1: There's like some catalyst moment, but it's just been like 449 00:21:14,480 --> 00:21:18,199 Speaker 1: a drumbeat of like AI doing stuff that used to 450 00:21:18,200 --> 00:21:20,800 Speaker 1: be sort of hard specialized. It's like the thing people 451 00:21:20,880 --> 00:21:22,480 Speaker 1: used to say about like Google and Apple that like 452 00:21:22,520 --> 00:21:24,399 Speaker 1: you thought you'd built a business, but actually built like 453 00:21:24,400 --> 00:21:26,840 Speaker 1: a button, you know. Like it turns out that a 454 00:21:26,840 --> 00:21:31,520 Speaker 1: lot of like business the business software is a thing 455 00:21:31,600 --> 00:21:36,040 Speaker 1: that AI can either replicate, you know, individually for each 456 00:21:36,040 --> 00:21:38,080 Speaker 1: company or just like you know, do the functions of 457 00:21:38,640 --> 00:21:40,840 Speaker 1: And so there's a lot of worry about a lot 458 00:21:40,840 --> 00:21:43,679 Speaker 1: of software as or service companies that they might not 459 00:21:43,840 --> 00:21:46,000 Speaker 1: be competitive in a world of AI. 460 00:21:46,359 --> 00:21:50,399 Speaker 2: Yeah, which I get, you know, like that's a real fear. 461 00:21:50,680 --> 00:21:53,200 Speaker 3: Can you talk to me about the private equity angle, 462 00:21:53,280 --> 00:21:56,280 Speaker 3: because that's been the other thing BDCs have been absolutely 463 00:21:56,280 --> 00:21:59,080 Speaker 3: in the toilet amidst this SaaS apocalypse. 464 00:21:59,280 --> 00:22:02,960 Speaker 1: Yeah, because like for a while, SaaS seemed like a 465 00:22:03,000 --> 00:22:07,919 Speaker 1: really good business. Where you sell software at a company 466 00:22:08,040 --> 00:22:13,040 Speaker 1: is you charge them recurring license and so you had 467 00:22:13,040 --> 00:22:16,000 Speaker 1: this really good stable cash flow. And when you have 468 00:22:16,080 --> 00:22:18,399 Speaker 1: a business with really good stable cash flow, what happens 469 00:22:18,480 --> 00:22:20,600 Speaker 1: is private equity wants to buy it and they want 470 00:22:20,640 --> 00:22:23,800 Speaker 1: to lever it up because stable cash flows are good 471 00:22:23,800 --> 00:22:27,080 Speaker 1: for servicing debt and becoming good private equity businesses. And 472 00:22:27,119 --> 00:22:31,280 Speaker 1: then you have this problem where private equity and private credit, 473 00:22:31,359 --> 00:22:36,120 Speaker 1: which like provides the leverage, are overweight sort of SaaS 474 00:22:36,200 --> 00:22:39,360 Speaker 1: companies because they're the safe companies, and then it turns 475 00:22:39,400 --> 00:22:43,719 Speaker 1: out they're not safe, like all of this stuff that is, 476 00:22:43,880 --> 00:22:45,480 Speaker 1: you know, it was meant to be like sort of safe, 477 00:22:45,480 --> 00:22:49,600 Speaker 1: stable recurring revenue like conservative investments, and now turns out 478 00:22:49,640 --> 00:22:50,359 Speaker 1: to be kind of risky. 479 00:22:50,480 --> 00:22:50,640 Speaker 3: Right. 480 00:22:50,680 --> 00:22:52,879 Speaker 1: The Bloomberg story about this is that software is the 481 00:22:52,960 --> 00:22:57,560 Speaker 1: largest sector exposer for BDCs, so like credit business development companies, 482 00:22:57,640 --> 00:22:59,200 Speaker 1: it's around twenty percent of portfolios. 483 00:22:59,240 --> 00:22:59,359 Speaker 3: Right. 484 00:23:00,400 --> 00:23:03,760 Speaker 1: Credit under like you're underwriting weird companies, like you're underwriting biots, 485 00:23:03,800 --> 00:23:05,480 Speaker 1: and you're like, oh, this company, like you know, can 486 00:23:05,800 --> 00:23:08,159 Speaker 1: show me their contracts where they have like all this 487 00:23:08,280 --> 00:23:10,800 Speaker 1: like very stable recurring revenue, and so you're happy to 488 00:23:10,960 --> 00:23:13,359 Speaker 1: underwrite that and have it in your portfolio, and that 489 00:23:13,560 --> 00:23:14,040 Speaker 1: maybe is. 490 00:23:14,000 --> 00:23:16,160 Speaker 3: Not that the table Well, on that twenty percent figure. 491 00:23:16,200 --> 00:23:18,520 Speaker 3: I think that came from Barclays. The story also points 492 00:23:18,560 --> 00:23:22,960 Speaker 3: out that it's possible slash maybe probable, that it's higher 493 00:23:23,040 --> 00:23:25,200 Speaker 3: than that because you think about and this is a 494 00:23:25,280 --> 00:23:28,000 Speaker 3: quote from an analyst at Raymond James. If your software 495 00:23:28,000 --> 00:23:30,919 Speaker 3: business is in healthcare, the fund classifies it as a 496 00:23:30,960 --> 00:23:34,440 Speaker 3: healthcare exposure. The software exposure is meaningfully higher than it looks. 497 00:23:34,560 --> 00:23:37,920 Speaker 1: Yeah, so because like every business of a. 498 00:23:37,880 --> 00:23:41,439 Speaker 3: Software Yeah, it's kind of been where we've where the 499 00:23:41,480 --> 00:23:43,960 Speaker 3: tide has been going over the past however many decades. 500 00:23:44,320 --> 00:23:47,040 Speaker 1: Right, it's not software, right, it's like how much of 501 00:23:47,119 --> 00:23:49,280 Speaker 1: like all of business will be eaten by AI? Right, 502 00:23:49,320 --> 00:23:51,560 Speaker 1: how many businesses would become irrelevant? Right? I mean we've 503 00:23:51,600 --> 00:23:55,840 Speaker 1: talked about like consulting and investment banking, right, and certainly journalists, right, 504 00:23:55,960 --> 00:23:58,520 Speaker 1: certainly all these things. Right, And so like a lot 505 00:23:58,520 --> 00:24:01,440 Speaker 1: of businesses these days are more less software businesses, and 506 00:24:01,960 --> 00:24:03,840 Speaker 1: it's the extent they're put out of business by AI, 507 00:24:03,960 --> 00:24:09,720 Speaker 1: then that'll be bad for their shareholders and lenders. 508 00:24:09,760 --> 00:24:09,920 Speaker 4: Right. 509 00:24:10,160 --> 00:24:13,159 Speaker 1: Yeah, I don't know. This is kind of like the 510 00:24:13,200 --> 00:24:15,000 Speaker 1: AI thing that people are wonnering about, right. 511 00:24:14,920 --> 00:24:18,880 Speaker 3: Yeah, the existential Oh my god, I have to say 512 00:24:18,920 --> 00:24:21,720 Speaker 3: it's interesting. I mean the story on the terminal, which 513 00:24:21,760 --> 00:24:24,359 Speaker 3: is great private equities giant software bet has been up 514 00:24:24,480 --> 00:24:27,280 Speaker 3: ended by AI. It points out that some firms have 515 00:24:27,359 --> 00:24:30,360 Speaker 3: hired consultants to check their portfolios for businesses that could 516 00:24:30,400 --> 00:24:31,480 Speaker 3: be vulnerable. 517 00:24:31,600 --> 00:24:33,600 Speaker 1: They don't know, man, But also they could just ask, 518 00:24:34,240 --> 00:24:35,639 Speaker 1: like me, it's me, I'm vulnerable. 519 00:24:36,000 --> 00:24:38,480 Speaker 3: They could ask chatchibt to do that analysis for them. 520 00:24:38,760 --> 00:24:42,760 Speaker 3: Also they've been i mean, private credit in particular has 521 00:24:42,800 --> 00:24:45,960 Speaker 3: been you know, funding the AI build out, Like. 522 00:24:47,800 --> 00:24:49,919 Speaker 1: The AI isn't one of these things will work out. 523 00:24:49,840 --> 00:24:51,639 Speaker 3: But it's not a new concept to them. It's just 524 00:24:51,800 --> 00:24:54,000 Speaker 3: weird that it seems like the way that the market 525 00:24:54,040 --> 00:24:57,320 Speaker 3: is now positing that you know, none of these alternative 526 00:24:57,320 --> 00:25:01,720 Speaker 3: asset managers have questions whether I'm not holdings are maybe vulnerable. 527 00:25:01,880 --> 00:25:05,080 Speaker 1: I think that like people have different views on the 528 00:25:05,160 --> 00:25:08,400 Speaker 1: timeframe of like AI disrupting every industry, right. 529 00:25:08,480 --> 00:25:08,720 Speaker 2: Yeah. 530 00:25:08,800 --> 00:25:12,080 Speaker 1: The thing that happened this week is like particular cloud 531 00:25:12,119 --> 00:25:15,199 Speaker 1: products are introduced that look like they're further ahead than 532 00:25:15,240 --> 00:25:17,479 Speaker 1: people thought, and that they could replace the faster than 533 00:25:17,480 --> 00:25:19,960 Speaker 1: people thought. I think people had a mindset of, like 534 00:25:20,040 --> 00:25:23,239 Speaker 1: we are financing this huge data center build out so 535 00:25:23,280 --> 00:25:27,000 Speaker 1: that in X years AI will eat the world, right, 536 00:25:27,400 --> 00:25:30,880 Speaker 1: and like for the next few years, nothing will be eaten, right, 537 00:25:30,920 --> 00:25:32,520 Speaker 1: and it's like, oh, things might get eaten. 538 00:25:32,359 --> 00:25:33,360 Speaker 2: Fast than you think. 539 00:25:33,840 --> 00:25:36,280 Speaker 1: Also, by the way, if your conclusion from this week 540 00:25:36,359 --> 00:25:40,159 Speaker 1: is AI has actually already completely eaten all of the 541 00:25:40,200 --> 00:25:43,000 Speaker 1: software sector, then like maybe you could slow the data 542 00:25:43,040 --> 00:25:45,159 Speaker 1: center build out because you've accomplished a lot with the 543 00:25:45,240 --> 00:25:46,040 Speaker 1: data centers we have. 544 00:25:46,240 --> 00:25:48,040 Speaker 2: Yeah, maybe we are overbuilding. 545 00:25:48,280 --> 00:25:49,880 Speaker 1: That could be a takeaway. And I don't think that's 546 00:25:49,920 --> 00:25:50,880 Speaker 1: the band takeaway here. 547 00:25:50,960 --> 00:25:55,120 Speaker 3: Everyone's too busy selling software. Yeah, so Areas in Blue 548 00:25:55,160 --> 00:25:57,560 Speaker 3: al and also a whole host of these other bdceizures 549 00:25:57,560 --> 00:26:00,800 Speaker 3: that are just getting crushed did report earnings, and are 550 00:26:01,040 --> 00:26:03,720 Speaker 3: CEO made the point that only about nine percent of 551 00:26:03,760 --> 00:26:07,640 Speaker 3: ares Is loan assets were two software firms. So everyone's 552 00:26:07,680 --> 00:26:10,000 Speaker 3: coming out and trying to say that their actual risk 553 00:26:10,040 --> 00:26:13,679 Speaker 3: here is pretty low. It is interesting that this just 554 00:26:13,720 --> 00:26:16,920 Speaker 3: feels like very much. Let's just throw out the whole bathtub, 555 00:26:17,040 --> 00:26:19,320 Speaker 3: all the babies put them in it, and let's throw 556 00:26:19,359 --> 00:26:19,960 Speaker 3: it out the windows. 557 00:26:20,080 --> 00:26:21,680 Speaker 1: Yeah, I mean, you know, one thing we've talked about 558 00:26:21,720 --> 00:26:23,879 Speaker 1: and I've written about a lot is private credit is 559 00:26:24,000 --> 00:26:28,280 Speaker 1: structurally a pretty safe business, right, like structurally pretty safe 560 00:26:28,320 --> 00:26:31,680 Speaker 1: right on. Nothing's perfect, right, but they have equity funding, 561 00:26:31,680 --> 00:26:35,439 Speaker 1: they have long term funding. They don't they don't have 562 00:26:35,480 --> 00:26:39,080 Speaker 1: maybe quite the marked market discipline that some other investment 563 00:26:39,080 --> 00:26:42,720 Speaker 1: firms might have. And so it is true that like 564 00:26:42,800 --> 00:26:46,399 Speaker 1: if there is a three week panic about software and 565 00:26:46,400 --> 00:26:49,359 Speaker 1: then everyone's like, actually we go overreacted, the private credit 566 00:26:49,400 --> 00:26:52,359 Speaker 1: firms can really ride that out like quite easily, right, Yeah, 567 00:26:52,400 --> 00:26:54,800 Speaker 1: Like the BDC's thought prayer goes down, comes back up. 568 00:26:55,320 --> 00:26:58,239 Speaker 1: There's no like run on banks, right, there's no like 569 00:26:58,560 --> 00:27:02,280 Speaker 1: loss of funding. So this is just like try to 570 00:27:02,359 --> 00:27:05,919 Speaker 1: manage perception and tough it out right now, it could change, right, 571 00:27:05,960 --> 00:27:08,679 Speaker 1: but like, for now, it's a fairly safe funding model. 572 00:27:09,080 --> 00:27:10,440 Speaker 1: But at the end of the day the LENDSI to 573 00:27:10,440 --> 00:27:13,880 Speaker 1: pay over, they don't, right, Yeah, Like it's a safe 574 00:27:13,880 --> 00:27:17,159 Speaker 1: funding model, and it seems like SaaS company should be 575 00:27:17,160 --> 00:27:20,080 Speaker 1: a fairly safe credit to invest today. But if that 576 00:27:20,119 --> 00:27:21,520 Speaker 1: turns out to be row, it's bad. 577 00:27:22,119 --> 00:27:25,280 Speaker 3: Well there's a whole bunch of them on sale right now. 578 00:27:25,440 --> 00:27:27,800 Speaker 2: So go Nuts definitely won. 579 00:27:34,080 --> 00:27:35,640 Speaker 1: And that was the Money Stuff podcast. 580 00:27:35,960 --> 00:27:38,280 Speaker 2: I'm Matt Levine and I'm Katie Greifeld. 581 00:27:38,359 --> 00:27:40,440 Speaker 1: You can find my work by subscribing to the money 582 00:27:40,440 --> 00:27:42,400 Speaker 1: Stuff newsletter on Bloomberg dot. 583 00:27:42,240 --> 00:27:45,760 Speaker 3: Com, and you can find me on Bloomberg TV every 584 00:27:45,840 --> 00:27:48,919 Speaker 3: day on the Clothes between three and five pm Eastern. 585 00:27:49,000 --> 00:27:50,840 Speaker 1: We'd love to hear from you if you can send 586 00:27:50,840 --> 00:27:54,000 Speaker 1: an email to money Pod at Bloomberg dot net, ask 587 00:27:54,080 --> 00:27:56,240 Speaker 1: us a question and we might answer it on the air. 588 00:27:56,680 --> 00:27:59,280 Speaker 3: You can also subscribe to our show wherever you're listening 589 00:27:59,359 --> 00:28:01,200 Speaker 3: right now and leave us a review. It helps more 590 00:28:01,240 --> 00:28:02,080 Speaker 3: people find the show. 591 00:28:02,640 --> 00:28:06,480 Speaker 1: The Money Stuff Podcast is produced by Anam Maserakas Moses 592 00:28:06,520 --> 00:28:08,600 Speaker 1: Onam and Alexis. 593 00:28:08,119 --> 00:28:11,680 Speaker 2: HoTT Our theme music was composed by Blake Maples. 594 00:28:11,960 --> 00:28:15,560 Speaker 1: Amy Keen is our executive producer. Thanks for listening to 595 00:28:15,560 --> 00:28:18,080 Speaker 1: The Money Stuff Podcast. We'll be back next week with 596 00:28:18,240 --> 00:28:18,920 Speaker 1: more stuff.