Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: Hello and welcome to The Money Stuff Podcast, your weekly
Speaker 2: podcast where we talk about stuff related to money. Hi'm
Speaker 2: Matt Levin. I read the Money Stuff column for Bloomberg Opinion.
Speaker 1: And I'm Katie Greifeld. I'm a reporter for Bloomberg News
Speaker 1: and an anchor for Bloomberg Television.
Speaker 2: It's the best day of our lives.
Speaker 1: It is the best day of our lives, which happens
Speaker 1: every day on Fridays. We have a lot to talk
Speaker 1: about today. We have to talk about Elon Musk.
Speaker 2: Of course, we had a whole week with that Elon Musk.
Speaker 1: I think, I know it was weird that we didn't
Speaker 1: get to it in the first week. So we'll talk
Speaker 1: about Elon Musk on that pay package fifty six billion dollars,
Speaker 1: and of course his issues with Delaware. We're also going
Speaker 1: to talk about Jane Street versus Millennium. You just published
Speaker 1: on this.
Speaker 2: By the time you heard this podcast, I will published
Speaker 2: on it roughly twenty four hours ago. Were recording it
Speaker 2: shortly after I published on it.
Speaker 1: It's Thursday right now, and Matt published twenty minutes ago.
Speaker 1: So this is the one I'm least prepared for. As
Speaker 1: we're also going to talk about Hunter Brook, the hedge
Speaker 1: fund that's also a newspaper question mark. Indeed, before we
Speaker 1: get into this week's topics, it's our second episode.
Speaker 2: It's our second episode. We got a lot of feedback
Speaker 2: on the first episode.
Speaker 1: We got a lot of feedback. A lot of it
Speaker 1: was about all of its comment that I made about
Speaker 1: the doped Olympics. Surprise, they already exist and they're funded
Speaker 1: by Peter Teel.
Speaker 2: Well, it don't exist, they're like launching.
Speaker 1: Yeah, the idea is out there, the enhanced Games that
Speaker 1: would have no drug testing. So if you didn't want
Speaker 1: to do it performance enhancing drugs, you could still enter.
Speaker 2: You would just lose, yes, or you could do the
Speaker 2: regular Olympics, which you'll still have drug testing.
Speaker 1: Yeah, and you'll probably still lose.
Speaker 2: I wonder if, like presumably day one, the best athletes
Speaker 2: will still do the regular Olympics.
Speaker 1: Yeah.
Speaker 2: I wonder how long it'll take for the Enhanced Olympics
Speaker 2: to have faster times and it jumps.
Speaker 1: It's a great question because if you're like.
Speaker 2: The tenth best track athlete and you do a lot
Speaker 2: of drugs are better than the best.
Speaker 1: You probably there's only one way to find out.
Speaker 2: Is going to do?
Speaker 1: These games need to happen. The event roster includes individual
Speaker 1: sports such as athletics meaning track and field, aquatics, gymnastics,
Speaker 1: strength and combat. I would watch these, but.
Speaker 2: What we don't have on that list is drissage.
Speaker 1: Trissage Yeah, for the uninitiated, dressage is horse dancing. Effectively,
Speaker 1: just go on YouTube look it up. It's a ridiculous
Speaker 1: sport that, for better or worse, I partake in. I'm
Speaker 1: not sure if when I enter the enhanced games, which
Speaker 1: I will, whether I take the drugs, the horse takes
Speaker 1: the drugs. Do we both take the drugs the drugs?
Speaker 2: Have you or your horse ever been like offered drugs?
Speaker 2: Has ever been a controversy at your dressage?
Speaker 1: We're not that good maybe in higher levels of the sport,
Speaker 1: but what we're doing, it's very loosely dressage. Let's talk
Speaker 1: about the time, moving gracefully along laon Musk. The big
Speaker 1: news this week is that Tesla came out with their
Speaker 1: proxy statement two items of interest. They're going to havesh
Speaker 1: shareholders to vote again on that twenty eighteen pay package
Speaker 1: of fifty six billion dollars that was voided by a
Speaker 1: Delaware judge, and related to that, they're going to vote
Speaker 1: on whether to move Tesla's state of incorporation from Delaware
Speaker 1: to Texas. What do you want to start with?
Speaker 2: They're inter related, yes, right, he got paid a giant
Speaker 2: snack of options in about twenty eighteen. Everyone says they're
Speaker 2: worth fifty six billion dollars. Whatever they're worth, like forty
Speaker 2: billion dollars, fifty billion dollars, just like a conventional number
Speaker 2: that people attached to it because you know, go up
Speaker 2: and down with the stock. But right now they're with
Speaker 2: forty billion dollars and judge took them away in January.
Speaker 2: I said that was too much to pay him, and
Speaker 2: it wasn't properly approved by the shareholders. And so they're
Speaker 2: going back to the shareholders to one get it properly
Speaker 2: approved and two never has to deal with a Delaware
Speaker 2: judge again because they're going to move to Texas.
Speaker 1: Like you said, these are two intimately related issues. But
Speaker 1: sticking with the pay package, which everyone is saying is
Speaker 1: fifty six billion dollars, maybe it's forty billion dollars. But
Speaker 1: the vote is in June. Yeah, are they going to
Speaker 1: approve it again these shareholders.
Speaker 2: I think, so the proxy quits a lot of letters
Speaker 2: from individual shareholders saying how much they love Elon Musk
Speaker 2: and how they're going to approve it, and also, by
Speaker 2: the way, letters from like Trope Price Right big shareholders too.
Speaker 2: It's interesting if you were a sharelder in like twenty
Speaker 2: twenty one, or even like December of last year, I
Speaker 2: think you would say this pay package was worth it.
Speaker 2: In twenty eighteen, they said we're going to pay you
Speaker 2: on Musk fifty six billion dollars if he takes the
Speaker 2: market cap of Tesla from like sixty billion dollars, like
Speaker 2: six hundred and fifty billion dollars, And at the time
Speaker 2: that seemed like a real stretch goal. And then he
Speaker 2: did it really quickly, and so all the shareholders got rich,
Speaker 2: like they made a lot of money on Tesla, and
Speaker 2: I think they felt the real sense of gratitude, and
Speaker 2: so I think very few shareholders were complaining about his
Speaker 2: pay package, but one did ensued. Right, Yes, I think
Speaker 2: the shareholders were happy with it. But now if you
Speaker 2: go back to them and say you want to approve
Speaker 2: it again, they could be like, we already got whatever
Speaker 2: he did. He did the stuff that made it a
Speaker 2: six hundred and fifty billion dollar company. So if we
Speaker 2: can get those past efforts for free, why shouldn't they
Speaker 2: get it for free? They feel grateful, but do they
Speaker 2: feel fifty six billion dollars grateful? But that's it. If
Speaker 2: you're a Tesla scholder at this point, you're playing a
Speaker 2: longer game, and rightly or wrongly, I think Tesla sholders
Speaker 2: assume that Elon Musk and his continued affection are essential
Speaker 2: to the value of Tesla's stock. And so if they
Speaker 2: vote down this paypack goods, Like will he quit in
Speaker 2: a huff? Maybe he's got a lot going on, right,
Speaker 2: He's got a lot of distractions, so he could quit
Speaker 2: in a huff. And although his mercurial stewardship has not
Speaker 2: been great for the stock price in the last couple
Speaker 2: of years, he quits in a huff, that's going to
Speaker 2: take the.
Speaker 1: Stock think, Yeah, I mean the stock's already down forty
Speaker 1: percent year today.
Speaker 2: Yeah, Like it's been a rough ride. But still I
Speaker 2: think they want him there. It's not like if they
Speaker 2: vote this down, he'll come back and be like, Okay, fine,
Speaker 2: can you be like two billion dollars? Like I think like,
Speaker 2: if they vote this down, he's going to be really mad,
Speaker 2: like really mad.
Speaker 1: I guess I have two kind of related points to
Speaker 1: that to what you're saying, what is the key man
Speaker 1: risk to Tesla? Like, how much does Tesla need Elon
Speaker 1: Musk at this point? Is something I think about all
Speaker 1: the time. This is an established company at this point.
Speaker 2: No, I agree with that, it's an established company that
Speaker 2: could probably operate on its own. It's not like the
Speaker 2: stock has been continuing to go out from strength to strength.
Speaker 2: It's been a rough time. I do think that there's
Speaker 2: probably still a valuation premium for Elon Musk, and I
Speaker 2: think like it's a somewhat retail heavy stocked a lot
Speaker 2: of people who like Elon Musk and the stock, and
Speaker 2: I think if he were to leave, that would be bad.
Speaker 2: But I'm not sure of that in the way that
Speaker 2: I might have been in like twenty twenty one.
Speaker 1: Yeah.
Speaker 2: I also think, by the way, whatever your sort of
Speaker 2: economic calculation, I do think that some of the sholders
Speaker 2: at least are like, we agreed to pay him to
Speaker 2: these options. We voted on it. A court in a
Speaker 2: weird technical opinion struck that down, and we don't think
Speaker 2: that's fair. We think it's like bad for corporate democracy
Speaker 2: and also bad for like fairness to Elon Musk, and
Speaker 2: so we're going to give him that fifty six billion
Speaker 2: dollars back anyway. I think there's probably some of that
Speaker 2: going on among some of the including some of the
Speaker 2: institutional shareholders.
Speaker 1: Even if this is approved, we'll just get avoided again.
Speaker 1: Like how does this work if they approve it again.
Speaker 2: It's a fascinating question, I think, and Tesla thinks the
Speaker 2: answer is that if they approve it again this time,
Speaker 2: it will stick, right, because what happened last time is
Speaker 2: they approved it and the judge found that the shaholders
Speaker 2: were not fully informed of all the conflicts of interest
Speaker 2: involved in setting his pay package. Now they're fully informed,
Speaker 2: in part because, like Tesla went back and gave disclosures,
Speaker 2: but also they just attached the judge's opinion to the
Speaker 2: proxy statement to be like anything that the judge found
Speaker 2: bad here, you can read it, right. So I think
Speaker 2: they have to be fully informed. There's no problem with
Speaker 2: the vote, but the law and this is not super clear,
Speaker 2: and they say in the proxy statement, we're not totally
Speaker 2: sure what the effect of this will be I think
Speaker 2: there's some argument that the disgruntled shareholder can sue again
Speaker 2: and the judge again gets to decide if the pay
Speaker 2: package is fair, and we kind of know she thinks
Speaker 2: it isn't, so it might get stricked down. But the
Speaker 2: other thing I want to say is that I don't
Speaker 2: know what the disgruntl cherold. There's a guy named Richard Tournetto.
Speaker 2: I don't know what he thinks. I don't know if
Speaker 2: he wants to do this again. But you know who
Speaker 2: cares his lawyers who when they won in the dellar
Speaker 2: A court and they streck down this fifty six billion
Speaker 2: dollar pay package. They went to the court and they said,
Speaker 2: we want five point six billion dollars worth of Tesla
Speaker 2: stock as a fee for this win. Right, And their
Speaker 2: theory is we saved shareholders all this money by clawing
Speaker 2: back the fifty six billion dollars from Elon Musk. If
Speaker 2: the shareholders give Elon Musk the fifty six billion dollars back,
Speaker 2: they haven't gotten the fee yet, right, it's still in court. Yeah,
Speaker 2: if they give the money back, what is their argument
Speaker 2: that they save the shareholders any money? Like, yeah, they've
Speaker 2: got a lot of money riding on the argument that
Speaker 2: Musk's compensation actually got clawed back, so they care.
Speaker 1: Yeah, let's talk about the second part of what happened Texas.
Speaker 1: Are they going to run into this problem again in
Speaker 1: Texas moving to Texas? What does that do for Tesla?
Speaker 2: They say that moving to Texas makes sense because they're
Speaker 2: big factories in Texas, their headquarters in Texas. Elon lives
Speaker 2: in Texas, and so they have to bet their incorporation
Speaker 2: to Texas because that just makes sense. No other company
Speaker 2: thinks that, right, Like, that's not really a thing. Like
Speaker 2: every company is incorporated in Delaware, and very few are
Speaker 2: located in Delaware. But it's what they say. The answer is,
Speaker 2: nobody knows. There's a lot of Delaware corporate law and
Speaker 2: there's not a lot of corporate law anywhere else because
Speaker 2: most big companies that have big lawsuits are incorporated in Delaware,
Speaker 2: and so that's where all the cases are. Tesla says,
Speaker 2: and it's proxy that they think the law in Texas
Speaker 2: is mostly the same as the law in Delaware. I
Speaker 2: think it's probably true. But everyone kind of assumes that
Speaker 2: if this had all happened in Texas, and if a
Speaker 2: shareholder had sued Elon Musk in Texas, they get back
Speaker 2: to the fifty six billion dollars, a Texas judge would
Speaker 2: have been like, Nah, Elon Musk can keep that money.
Speaker 2: There's no basis for assuming that nobody knows. It seems
Speaker 2: that way, and clearly Elon Musk assumes it, because as
Speaker 2: soon as the Delaware opinion came out, he's like, we're
Speaker 2: moving to Texas. By the way, that happened, the opinion
Speaker 2: came out and he was like, we're moving to says
Speaker 2: right away, was saying it on Twitter. But Tesla now
Speaker 2: and it's proxy statement has to explain why it's moving
Speaker 2: to Texas, and it describes this very thorough process that
Speaker 2: it did to evaluate moving to Texas. So it formed
Speaker 2: a special committee of independent directors. There's one person on
Speaker 2: the committee.
Speaker 1: Was his name Elon Musk.
Speaker 2: No, No, it's a truly independent director. Her name is Kathleen
Speaker 2: Wilson Thompson. The special committee met sixteen times for more
Speaker 2: than twenty six hours, says the proxy, which is like
Speaker 2: a fun thing to imagine, Like I first imagined it
Speaker 2: as like I met four hours today with the money
Speaker 2: stuff committee. Like I was like typing on my computer.
Speaker 2: I was like, oh, there's a meeting, But in fact
Speaker 2: she met with like her lawyers, so she did. There
Speaker 2: were real meetings, but just she was the only director
Speaker 2: at the meetings. But they the committee evaluated all fifty
Speaker 2: states to decide. It was like throwing darts, being like,
Speaker 2: which state should we move to, and like it just
Speaker 2: so happens that the best state turned out to be Texas. Coincidentally,
Speaker 2: the same thing that Elon Musk was treating about like
Speaker 2: two months ago. It's beautiful, so it worked out nicely.
Speaker 1: Yeah, it's good that it turned out that way.
Speaker 2: By the way, you asked you if the laws move
Speaker 2: with I wrote this before there's some small chance of
Speaker 2: a Delaware judge saying, no, you're not allowed to move
Speaker 2: to Texas because you're only moving to Texas to pay Elon.
Speaker 1: Muskmore and which seems reasonable.
Speaker 2: That is like a violation of your pretty shaddies to
Speaker 2: your Delaware shaholders, so we're going to stop you. I
Speaker 2: wrote that in like January. I thought that was like
Speaker 2: some extremely funny theoretical chance of that happening. Since then,
Speaker 2: there's been like a Delaware court decision that makes it
Speaker 2: less likely, So I don't think that's going to happen,
Speaker 2: but it would be really funny.
Speaker 1: So I have one point, and I also have a question.
Speaker 1: I guess I'll start with the point, and that is
Speaker 1: that there is like a human psychology component to this,
Speaker 1: because I remember when this happened in January that it
Speaker 1: was voided this pay package. My suggestion to Elon Musk
Speaker 1: would be, why don't you just have Tesla do a dividends.
Speaker 1: Mark Zuckerberg did that with Meta. Now he's going to
Speaker 1: make like seven hundred million dollars a year. Mark Zuckerberg
Speaker 1: obviously owns a lot more Meta share, so it makes
Speaker 1: more sense there. But you made the point to me
Speaker 1: that Elon mus isn't trying to make normal extremely wealthy
Speaker 1: man money. He has like insane aspirations that he needs
Speaker 1: all this money for.
Speaker 2: He owns a minority of Tesla. He's a controlling Cheryl
Speaker 2: everbody owns like twenty percent of the stock, so a
Speaker 2: dividend would go mostly to other people, and like they're
Speaker 2: not so rolling in cash, they could pay it like
Speaker 2: tens of billions of dollars or dividends. Mark Zuckerwood gets
Speaker 2: a dividend because he likes to go water skiing or
Speaker 2: whatever it is that he does, right, hoverboarding, He.
Speaker 1: Has cows, right house, Yeah.
Speaker 2: Archery, I don't know, all sorts of normal things hobbies, Yeah,
Speaker 2: like moderately expensive hobbies some of them. But Elon Musk's
Speaker 2: hobbies are like brain implants, going to Mars, buying Twitter.
Speaker 2: I'm forgetting a few, but like, he's not like looking
Speaker 2: to spend money on a nice vacation. He's looking to
Speaker 2: have tens of billions of dollars to fund going to Mars,
Speaker 2: and so he needs these giant pay packages every now
Speaker 2: and then to pursue his next ambition.
Speaker 1: You're not going to get that from your dividend checks.
Speaker 1: And then my question for you is what do you
Speaker 1: think is the most interesting way that this proxy vote
Speaker 1: could turn out? What would be the most interesting chain
Speaker 1: of events for you?
Speaker 2: Look, I love the idea of a Delaware court preventing
Speaker 2: Musk from leaving for Texas. I think that would be
Speaker 2: extremely funny. But I actually think the simpler answer is funnier,
Speaker 2: which is, if the shareholders vote this down, that's wild,
Speaker 2: Like he'll quit it a huff on Twitter like that day. Yeah,
Speaker 2: it'll be an amazing thread of tweets and it will
Speaker 2: be an amazing corporate tobaccle. Whatever time he's devoting to Tesla,
Speaker 2: he'll go and devote to some other wild thing and
Speaker 2: that'll be wild, and Tesla will like find its way,
Speaker 2: as you know, it'll get back that fifty million dollars
Speaker 2: and find its way as a company not controlled by
Speaker 2: a wild, wild sequence of events.
Speaker 1: Now, in my mind would be the most interesting scenario
Speaker 1: as well, and then we could truly find out what
Speaker 1: the Elon Musk premium.
Speaker 2: Is the thing about Elon Musk companies is that if
Speaker 2: you're an investor in Elon Musk companies, like you like
Speaker 2: Elon Musk, like that's just how it goes, right, Like
Speaker 2: you're not there because you like the assets but think
Speaker 2: they're mismanaged, Like you're there because you like Elon Musk.
Speaker 2: It would be really shocking for the investors in an
Speaker 2: Elon Musk company to vote against them in such a
Speaker 2: striking way.
Speaker 1: Do you want to talk about Elon Musk for like
Speaker 1: twenty five more minutes or do you think we should
Speaker 1: move on?
Speaker 2: I saw your look of like I have wrapped this
Speaker 2: up so nicely. And then Matt comes in with more stuff.
Speaker 2: I have some more stuff, but I'm gonna wrap it up.
Speaker 2: Never mind, Stay tuned, Stay tuned. There's always more, love, Katie.
Speaker 2: You're so impatient to get to James sain Street. Yeah.
Speaker 1: I don't really know why not that it's not super
Speaker 1: interesting set the scene for us, what's going on?
Speaker 2: So I wanted to talk you about this because Jane
Speaker 2: Street sued Millennium. Two Jane Street traders left Jane Street.
Speaker 2: They went to Millennium, and Jane Street thinks they took
Speaker 2: a complicated secret trade with them and are now making
Speaker 2: money for Millennium at the expensive Jane Street, and so
Speaker 2: they sued. I wanted to talk about it because the
Speaker 2: complaint is public, but it's heavily redacted because Jane Street
Speaker 2: is like, we have the secret trading strategy that's being
Speaker 2: ruined by someone else copying it. They don't want to
Speaker 2: say what the strategy is, right, but they have to
Speaker 2: say what it is. They just have to black it
Speaker 2: out in the publicly filed version.
Speaker 1: Yeah.
Speaker 2: So I want to read the complaint and all.
Speaker 1: The biopes go for it.
Speaker 2: Okay, I'm not really going to read the whole complaint,
Speaker 2: but they did a trading investigation. They had this idea
Speaker 2: and they like tested it out, and the results confirmed
Speaker 2: Jane Street's initial findings, notwithstanding their facial improbability, and revealed
Speaker 2: that the market was bibe for certain classes of trades
Speaker 2: in the presence of specific market signals and underline conditions.
Speaker 2: Probably we could have, like a podcast producer put a
Speaker 2: real beep over that, but I think I think I
Speaker 2: did a pretty pretty good peep.
Speaker 1: Yeah, No, that definitely was a beeB anyway.
Speaker 2: So, yeah, they have this trade. Yeah, we don't know
Speaker 2: what it is.
Speaker 1: I want to know what it is.
Speaker 2: So what we know about it is one that makes
Speaker 2: money like reliably for like some number of months at least.
Speaker 2: And two it's weird. Yeah, they really emphasize that it's weird.
Speaker 2: It's facial improbability, and they say that it was counterintuitive, unexpected,
Speaker 2: and initially met with significant skepticism and incredulity internally at
Speaker 2: Jane Street. It's really tantalizing. They're like, we found this
Speaker 2: trade that you would not believe. It's so crazy. They
Speaker 2: like discovered it in like the data and they all
Speaker 2: sat it on and being like this can't be real.
Speaker 2: And then they tested it for like a year and
Speaker 2: they go, wow, it's real.
Speaker 1: This is kind of silly. But reading about it and
Speaker 1: reading that line specifically made me think of like Rudolph
Speaker 1: the Red Nose reindeer, how everyone made fun of him
Speaker 1: and then his nose actually lit up and illuminated the
Speaker 1: night sky and they were like, Wow, this works. It's
Speaker 1: sort of a similar situation. Yes, something else in the
Speaker 1: Bloomberg News article, apparently Jane Street saw evidence that one
Speaker 1: of the traders who left in February he was using
Speaker 1: the strategy. They figured it out because Jane Street said
Speaker 1: that its profits from using the strategy fell by fifty
Speaker 1: percent in March, a drop, it said, could only be
Speaker 1: attributable to quote, the entrance of a competitor using the
Speaker 1: same strategy. What is this trade?
Speaker 2: It's apparently a trade where there's like capacity to make editor.
Speaker 2: I'm going to make up a number, make a million
Speaker 2: dollars a day, right, And Jane Sat was doing it
Speaker 2: and making a million dollars a day, right, and then
Speaker 2: Millennium starts to do it. Now that each make half
Speaker 2: a million dollars a day.
Speaker 1: Right. Yeah, Because it's not like they lost money because
Speaker 1: someone else started doing it. They're just they're not the
Speaker 1: only person in this market anymore. Whatever this market is.
Speaker 2: It's some sort of options market. It seems clear it's
Speaker 2: like some sort of options trade. Rumor is that it's
Speaker 2: not in the United States, but it is.
Speaker 1: How does this work? Are we ever going to find
Speaker 1: out what the trade is? Or is it just a secret?
Speaker 2: I'm going to keep asking. One of my favorite things
Speaker 2: about this complaint is that one of these traders leaves
Speaker 2: Jane straight from Millennium, and the complaint mentions how much
Speaker 2: money he's getting, because they're making the point like he's
Speaker 2: getting paid so much money. It can't be just because yeah,
Speaker 2: he's like whatever experience, whatever skill, he wouldn't be making
Speaker 2: that much money. He's getting paid that much money because
Speaker 2: he's bringing this Chaine Street trade.
Speaker 1: To the millign people.
Speaker 2: How much he's making, Yeah, the complaint says, based on
Speaker 2: conversations between shadow Wald and his colleagues at Jane Street,
Speaker 2: his companies from MILLENNAUMO, but so they don't know. He
Speaker 2: told his friends at Jane Street and then like Jane
Speaker 2: Street asked his friends how much he was making. They're like,
Speaker 2: all right, man, he's getting and then they put that
Speaker 2: thing complaint.
Speaker 1: I can't imagine telling people so casually what I make,
Speaker 1: especially if it's a lot of money.
Speaker 2: I can like, he's leaving, he's leaving a financial firm
Speaker 2: for another financial firm, and like he goes out to
Speaker 2: drinks with his friends and they're like, oh man, what
Speaker 2: are they giving you? And he's like boob right, like
Speaker 2: like that's why he's leaving, right, Like, it's not like
Speaker 2: this is a very mercenary business.
Speaker 1: I don't know. He should have just bought a huge
Speaker 1: apartment and let that speak for itself. That is how
Speaker 1: much I'm making.
Speaker 2: Well, he hadn't made it yet. I feel like the
Speaker 2: day of he's like, oh my, look at how much
Speaker 2: money I'm making. I also love the best possible amount
Speaker 2: of money to make is boob right, Like a number
Speaker 2: is so big that they can't publicize it.
Speaker 1: That is pretty amazing. So I guess, yeah, the two
Speaker 1: things I want to know what the tradear how much
Speaker 1: this guy is making? Also, is this an unforced error
Speaker 1: by Jane Street which doesn't have non competes? Like could
Speaker 1: this all have been avoided had they had a non compete?
Speaker 2: There are really like two different things, right, There's a noncompete,
Speaker 2: which usually it's like time limited. You can't go to
Speaker 2: another firm for six months, a year or two years. Yes,
Speaker 2: I think that would avoid that here, because what's it
Speaker 2: going to be like in a year, Like it seems unlikely.
Speaker 2: I don't know if the strategy is, but it seems
Speaker 2: unlikely Jane Street will still be making a lot of
Speaker 2: money on the strategy in a year because someone will
Speaker 2: notice it. Somehow Alpha gets competed away all over the place.
Speaker 2: Whatever this weird counterintuitive strategy is, Like, probably it'll decay.
Speaker 1: I have an idea, what maybe it's uh, this is
Speaker 1: half a joke. This is a joke. Actually closed end
Speaker 1: fund arbitrages.
Speaker 2: Oh man, you love closed end trying evertise, I'm thinking
Speaker 2: it's not that, but right, so if you have a
Speaker 2: non compete and like the guy goes and sits on
Speaker 2: a beach for a year and then he comes back,
Speaker 2: whatever he knew a year ago is just not valuable anymore.
Speaker 2: It's not as valuable, and so that solves the problem. Now,
Speaker 2: it doesn't always solve every problem, because you know, you
Speaker 2: do have like a confidentiality agreement about IP because like
Speaker 2: there's some stuff that has value longer term, like if
Speaker 2: you really know how, like Jane Street Systems, there's some
Speaker 2: chance that two years from now you could sell that
Speaker 2: to someone and it would be valuable to them. Right.
Speaker 2: So Jane Street does not have non competes, but they
Speaker 2: have confidentiality agreements. That's how you can't use what you
Speaker 2: learn here somewhere else. You know. They say in the
Speaker 2: complaint like, well, it's typical for people to take some
Speaker 2: time off between firms. This guy didn't. It's like, it's
Speaker 2: not typical. It's not like people just feel like taking
Speaker 2: some time off. They do. Yeah, I would, but a
Speaker 2: lot of people don't. It's typical because usually firms have
Speaker 2: non competes that require them to take time off. Yeah,
Speaker 2: and he didn't. And so the impression from the complaint
Speaker 2: is that he had a real time sensitive trade and
Speaker 2: he's like I got to start the next day to
Speaker 2: make as much money as I can from.
Speaker 1: This trade, and that's what he did allegedly.
Speaker 2: I don't. I think it's interesting because, like the non
Speaker 2: compete is a really good solution because like it's clear,
Speaker 2: m you know that whatever the time period is, so
Speaker 2: let's say it's a year, you know, you can't go
Speaker 2: work for the competing firm for a year, and then
Speaker 2: after that you can What's interesting here is Jane Street
Speaker 2: is arguing that these guys stole their intellectual property. As
Speaker 2: of today Thursday, we don't have Millennium's response, but I
Speaker 2: assume their response be something like, no, we didn't, we
Speaker 2: didn't steal their intellectual poverty. But there's like this wide
Speaker 2: overlap where if you work at a financial firm doing
Speaker 2: closed un fund arbitrage, right, and then you leave and
Speaker 2: you go to another financial firm, and you're like, I'm
Speaker 2: going to close in fund.
Speaker 1: Arbittrge, I'm going to find closed on funds with huge discounts. Right.
Speaker 2: You're not gonna like forget everything you learned at the
Speaker 2: first firm, right, Like there's some amount of just like
Speaker 2: general skills and knowledge building and just like market experience
Speaker 2: that everyone understands is portable and goes with you, Like
Speaker 2: if you like download the code from your first firm,
Speaker 2: like that's bad, right, But a lot of stuff it's
Speaker 2: like the general experiences that you have at one firm
Speaker 2: are going to inform what you do at the next firm.
Speaker 2: And it's I think sort of hard to tease out
Speaker 2: which is which Sometimes which is why gardening leave is
Speaker 2: such a good solution, because it's like you do nothing
Speaker 2: for a year, and then after that it's like we
Speaker 2: don't have to worry about it. Here, Like Jane Street
Speaker 2: makes it sound like this is a very complicated, very
Speaker 2: counterintuitive and weird trade that like is their secret sauce.
Speaker 2: But what if it's just like noticing that the price
Speaker 2: is if some options are like too low, and like
Speaker 2: clicking on them right like then like kind of weird
Speaker 2: to say, like you have to forget that you noticed
Speaker 2: that when you moved to another firm.
Speaker 1: My heart always hurts when I'm in a conversation about
Speaker 1: gardening leave because I've never been on gardening leave. I
Speaker 1: will never be on gardening leave. It sounds idyllic.
Speaker 2: When I left investment banking for deal Breaker, the Great
Speaker 2: Wall Street comedy blog, I had, I want to say,
Speaker 2: three months of.
Speaker 1: Gardening leave sounds great.
Speaker 2: I sat on my catch being terrified. I regret it
Speaker 2: so much. I really wasted my gardening leave because I
Speaker 2: was like, I have made this huge career change. I'm
Speaker 2: getting paid so much less money. This is around the
Speaker 2: time that like Goldman had that programmer who still code,
Speaker 2: they had him prosecuted for still encoding. He went to
Speaker 2: jail for a while, and so I spent some of
Speaker 2: my time thinking Goldman's going to kill me eventually. Like
Speaker 2: my last week of gardening leave, I talked to like
Speaker 2: a Goldman PR person. He's like, no, this is great,
Speaker 2: We're excited for you. It was like so worried. But
Speaker 2: in any case, I spent my gardening leave being nervous
Speaker 2: and not partying.
Speaker 1: Oh I hate that.
Speaker 2: Yeah, yeah, it's really a shame. I did get to
Speaker 2: experience gardening leave once, but I didn't get to really
Speaker 2: enjoy it.
Speaker 1: Gardening leave wasn't that great. Take a big sip of water.
Speaker 1: Let's get into hunter Brook. This is a meati.
Speaker 2: One hunter It's a hedge fund.
Speaker 1: Yeah, this is something that you and I have talked.
Speaker 2: About a lot in our private conversation.
Speaker 1: In our private conversations. Maybe explain what hunter Brook is
Speaker 1: and we're pronouncing it with vowels.
Speaker 2: Yes, the thing is called hunter Brook. Their website is
Speaker 2: it's h n t rb rka hunter Brook is. I
Speaker 2: don't know how to describe it. Say it's a headphone.
Speaker 2: That's also our newspaper. Sometimes I think it's a activist
Speaker 2: short hedge fund that is very good at getting me
Speaker 2: to pay attention to it.
Speaker 1: Yeah, I don't know if I've seen it anywhere else,
Speaker 1: but maybe I'm just not looking at this.
Speaker 2: No. How to Work is is a media organization that
Speaker 2: does like investigative reporting around the world to find interesting news,
Speaker 2: and it funds its reporters by they take their scoops
Speaker 2: and they give them to its affiliated hedge fund. And
Speaker 2: if the hedge fund is like this is a market
Speaker 2: moving scoop, then they trade on it and then they
Speaker 2: publish the scoop and then the stock goes up or
Speaker 2: down or whatever it's about. The market moves, and then
Speaker 2: the hedge fund makes money, and it gives some of
Speaker 2: the money to the reporters to pay for the continued reporting.
Speaker 2: It's not a typical journalistic business model.
Speaker 1: True.
Speaker 2: All journalistic business models involve some conflicts of interests.
Speaker 1: True.
Speaker 2: Possibly it maybe involves a little bit more conflict of ventures. Yeah,
Speaker 2: because like your incentive is to make your story as
Speaker 2: market moving as possible. If you find some like bad
Speaker 2: stuff about a company, and then I'll see you find
Speaker 2: some good stuff about the company, and like also it's
Speaker 2: like not that bad and like there's some mitigating factors.
Speaker 2: You're tempted to just be like, this is the worst
Speaker 2: company in the world, or this is the best company
Speaker 2: in the world, because you're on the move the stock
Speaker 2: price as much as possible. Yeah, So it is a
Speaker 2: conflict in that way.
Speaker 1: I guess the part that feels strange to me is
Speaker 1: that the hedge fund sees it first before it's published.
Speaker 2: And that's the whole part I know, there's no other part.
Speaker 2: That's how they make money.
Speaker 1: Well, in terms of like how they report things out,
Speaker 1: they don't talk to insiders. They can't talk to insiders.
Speaker 2: If you're like a regular journalist at a regular journalistic publication,
Speaker 2: you can like call an insider at a company and
Speaker 2: be like, hey, is it doing fraud. If the insiders like, yes,
Speaker 2: it's doing fraud. Here are some secret documents proving it,
Speaker 2: you're like, oh my god, this is a great scoop, right,
Speaker 2: But if you're a Hunter Book and you do that,
Speaker 2: then you're like, oh, no, this is inside information. We
Speaker 2: can't trade on it. So they try to stay away
Speaker 2: from information underli on published sources.
Speaker 1: So let's talk about what Hunter Book has done so far.
Speaker 1: They officially debuted in early April. I believe their first
Speaker 1: article was on United Wholesale mortgage. Now they've come out
Speaker 1: with another splashy report that you wrote about. I'm impressed,
Speaker 1: honestly by the volume so far, because there's a lot
Speaker 1: of work that goes into investigative journalism of this degree.
Speaker 2: Also like into activist short selling, the sort of like
Speaker 2: well known activist short selling funds. You know, every so
Speaker 2: often they'll put up a short report, but it's not
Speaker 2: like a daily news meeting to figure out what's going
Speaker 2: to go on. The real meeting is like somewhere in between.
Speaker 1: Right.
Speaker 2: My question when they launched was like, what's it going
Speaker 2: to look like on the second day, because the first
Speaker 2: day it launches the big investigation. The second day is
Speaker 2: that like bumped down the feed so they can do
Speaker 2: like more local news, and that's there is no kind
Speaker 2: of looks like a short seller's website where it's like
Speaker 2: that big report is on top for a week or so.
Speaker 2: But now it looks a little bit more like a
Speaker 2: news organization where like they've had two like big stories
Speaker 2: in the sense of like kind of short investigations this week,
Speaker 2: but there's like a spinoff story for one of them.
Speaker 2: It's like they's the other stuff. So one of the
Speaker 2: stories this week was like an oil company that has
Speaker 2: been telling investors it's going to reopen a trilling platform
Speaker 2: and Hunter Bruk thinks they're not. And it's just like
Speaker 2: a very straightforward kind of small short bet. It's like
Speaker 2: this company is going to have like a little bit
Speaker 2: worse news than the market expects, you know, So they
Speaker 2: traded on that. I don't know. That almost feels like
Speaker 2: something like a hedge finanalyst would come up with and
Speaker 2: trade on and not bother to publish. It's just not
Speaker 2: that interesting a news story, right. But the other one
Speaker 2: they had was about Pasco, the big Korean like steel
Speaker 2: company and Conglomberate doing a lot of work with very
Speaker 2: unpleasant military hunter and Myanmar, and that one they didn't
Speaker 2: trade on. Yeah, they said they did this big investigation
Speaker 2: and they said, we're not trading on this, and I
Speaker 2: was curious why. And I think the two leading answers
Speaker 2: are one that it might not be that market moving,
Speaker 2: which is like you can think of that as being
Speaker 2: like a depressing story of like complicity and human rights
Speaker 2: abuses actually doesn't matter to share.
Speaker 1: Olders, Cold Embrace of capitalism.
Speaker 2: Or you can be like you know, one reader email
Speaker 2: to be like Posca's involvement in Men war has actually
Speaker 2: been known for a long time. It's like been on
Speaker 2: an ESG exclusion list. Like it might not be market
Speaker 2: moving because like it's news to you, it's news to
Speaker 2: many people, it's news to many of your general interest readers,
Speaker 2: but it may not be news to the market.
Speaker 1: Right.
Speaker 2: The other explanation for why they didn't short Pasco that
Speaker 2: I find much funnier is that South Korea has banned
Speaker 2: a short selling.
Speaker 1: Maybe like the winner there, it could be.
Speaker 2: It could honestly be either because like it's not like
Speaker 2: it's huge market moving news.
Speaker 1: I don't know. It seems like a hard business journalism. Yes,
Speaker 1: it's bone crushingly hard, but also short selling is super
Speaker 1: hard too, especially in this market. But also there's the
Speaker 1: question of like, even if you are right, your thesis
Speaker 1: is right, there's no guarantee that the stock is going
Speaker 1: to do what you think it's going to do. And
Speaker 1: I think that's happened to a lot of short sellers
Speaker 1: in recent history.
Speaker 2: People hate short sellers, Yeah, it is part of it,
Speaker 2: and in particular, like when you talk about recent history,
Speaker 2: Like since like the memestock era, if it gets out
Speaker 2: that you are short a stock, that stock could go
Speaker 2: to the moon just because people are mad at you,
Speaker 2: to the point that, like some number of activist short
Speaker 2: sellers have gotten out of the business or said they'd
Speaker 2: get out of.
Speaker 1: The business, have gone underground.
Speaker 2: Gone underground because like it used to be that if
Speaker 2: you found a company that you thought was a fraud
Speaker 2: and you published a report saying it's a fraud, people
Speaker 2: would read it, and if you were right and convincing,
Speaker 2: then the stock would go down. Now, if you think
Speaker 2: of company's a fraud and you publish that report, people
Speaker 2: on Reddit might say, we have to make that stock
Speaker 2: go up to punish the evil short seller. So it's
Speaker 2: just not as worth it. One possible advantage of the
Speaker 2: Hunter Brick business model is like, to the extent they
Speaker 2: convince people that they're a media company and not a
Speaker 2: short seller, you like somewhat avoid that. Instead of instead
Speaker 2: of being like, ah, this hedge fund is shorting the stock,
Speaker 2: let's make it go up, you're like, oh, they've published
Speaker 2: this media company published a report about human rights abuses.
Speaker 2: That's bad, right, Like, yeah, there's some chance of you
Speaker 2: like getting a little bit more of a sympathetic audience.
Speaker 1: Well, we'll see if they do take a shot at
Speaker 1: a stock that has any.
Speaker 2: It'd be amazing if they were like game Stop, not
Speaker 2: a very good company.
Speaker 1: I'm gonna say, like, if they come after a company
Speaker 1: that has any chance of becoming a meme stock, like
Speaker 1: I think about United Wholesale Mortgage, I don't even think
Speaker 1: Wall Street Bets could get excited about that one. It
Speaker 1: just it doesn't have that curb appeal.
Speaker 2: That's right. The oil company they went after this week
Speaker 2: is interesting just because it's like a six hundred million
Speaker 2: dollar market cut. Like you're not playing in territory where
Speaker 2: like Ro Street Bets gonna have some fun.
Speaker 1: Did you want to talk to you on musk worn.
Speaker 2: And that was the Money Stuff Podcast.
Speaker 1: I'm Matt Levian and I'm Katie Greifelt.
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