WEBVTT - No Nap Rooms: Credit, Peace, 24X 0:00:02.720 --> 0:00:07.240 Bloomberg Audio Studios, podcasts, radio news. 0:00:08.240 --> 0:00:11.640 I'm just saying, like something could like happen, right, something 0:00:11.760 --> 0:00:15.680 crazy could happen, right, Something crazy could happen while we're 0:00:15.720 --> 0:00:18.640 recording this and I have to go talk about it 0:00:18.680 --> 0:00:20.800 in like fifty two minutes. 0:00:21.400 --> 0:00:24.239 Is that exciting? Like you come in here an hour 0:00:24.320 --> 0:00:27.160 before you go on television, and like you turn off 0:00:27.160 --> 0:00:29.240 your phone. Obviously your phone is sitting right in front 0:00:29.280 --> 0:00:31.200 of you, but like, let's pretend you turn off your 0:00:31.200 --> 0:00:33.919 phone and focus entirely on the Money Stuff podcast, And 0:00:34.040 --> 0:00:36.440 like what if something crazy happens and you get out 0:00:36.440 --> 0:00:37.760 of if you're at like two fifty nine and you 0:00:37.800 --> 0:00:40.120 go on air and they're like something crazy happening and 0:00:40.159 --> 0:00:41.640 you're like yeah. 0:00:41.159 --> 0:00:43.879 They're like Katie, quick break this headline about the asteroid 0:00:43.920 --> 0:00:48.280 that took out California, and I'm like, we're receiving reports 0:00:48.800 --> 0:00:49.559 or something like that. 0:00:50.560 --> 0:00:51.960 I think you keep your life exciting. 0:00:52.760 --> 0:00:57.160 I do love adrenaline, like I crave adrenaline, but you know, 0:00:58.440 --> 0:00:59.480 sometimes I get tired. 0:00:59.760 --> 0:01:04.960 Yeah, I'm pretty tired. I was out to a dinner 0:01:05.400 --> 0:01:09.240 until like midnight last nightly six hours later than my 0:01:09.319 --> 0:01:11.880 usual bedtime. So I'm in bad shape. 0:01:12.040 --> 0:01:15.520 Yeah, that's crazy pants. Matt came over at nine in 0:01:15.560 --> 0:01:18.000 the morning with a smile on his face, and I 0:01:18.040 --> 0:01:19.080 was like, how are you upright? 0:01:19.440 --> 0:01:22.399 I had a fun dinner last night, but it was 0:01:22.840 --> 0:01:25.680 way past my bedtime. So now I'm going to do 0:01:25.720 --> 0:01:27.480 this and then collapse. 0:01:27.720 --> 0:01:29.840 No, then you're going to go watch the clothes on 0:01:29.880 --> 0:01:30.800 Bloomberg Television. 0:01:32.600 --> 0:01:34.800 Our body batteries are turning in different directions. You are 0:01:34.840 --> 0:01:38.920 going to you're adrenaline filled asteroid reporting, and I'm going 0:01:38.959 --> 0:01:42.040 to nap. I did go over to you yesterday and 0:01:42.080 --> 0:01:43.520 asked if you knew where the nap rooms. 0:01:43.319 --> 0:01:45.000 At bloom I can't tell you. 0:01:45.080 --> 0:01:46.880 If there's bloom no naprooms at Bloomer. 0:01:46.920 --> 0:01:48.919 If there's Bloomberg people listening, they don't exist. 0:01:49.000 --> 0:01:53.440 No nap rooms. Hello, and welcome to the Money Stuff Podcast. 0:01:53.800 --> 0:01:56.280 You're a weekly podcast where we talked about stuff really 0:01:56.440 --> 0:01:58.880 to money. I'm Matt Levine. Am I right? The Money 0:01:58.880 --> 0:02:01.360 Stuff column for Bloomber opens. 0:02:00.760 --> 0:02:03.400 And I'm Katie Greifeld, a reporter for Bloomberg News and 0:02:03.400 --> 0:02:05.000 an anchor for Boomberg Television. 0:02:06.320 --> 0:02:10.840 Like we're in the like pest control season of the podcast. 0:02:11.680 --> 0:02:12.840 We're talking about book. 0:02:13.040 --> 0:02:15.440 There are like two hundred Bloomberg headlines on the last 0:02:15.480 --> 0:02:16.799 three days about cockroaches. 0:02:17.000 --> 0:02:20.240 Yeah, I feel like the jokes over. We've squeezed as 0:02:20.360 --> 0:02:23.680 much Series a J cockroach as we can, so let's 0:02:23.680 --> 0:02:25.240 give it a rest. It's been like in the title, 0:02:25.360 --> 0:02:27.880 so many newsletters that I've gotten over the past four hours. 0:02:27.960 --> 0:02:29.840 Yes, it will not be in the title of this podcast. 0:02:29.919 --> 0:02:32.480 Un last week screw up. They're right. So Jamie Diamond 0:02:32.840 --> 0:02:37.160 on the Jape Morion Earnings call used the very conventional metaphors. Yeah, 0:02:37.160 --> 0:02:39.799 but when you see one cockroaches, there probably more. He's 0:02:39.800 --> 0:02:44.240 talking about the First Brands and Tricolor bankruptcys failures. Yeah, 0:02:44.400 --> 0:02:48.880 credit bad things, kabooms, kabooms actually the real word that 0:02:48.960 --> 0:02:51.920 I love. And Mark Rowan said this, he said, it 0:02:51.960 --> 0:02:54.840 does not surprise me that we were seeing late cycle accidents. 0:02:55.080 --> 0:02:56.960 Accident is what you call this. Like the word for 0:02:57.000 --> 0:02:59.760 what happened with First Brands and Tracklor was accident. Yeah, 0:03:00.440 --> 0:03:02.679 you made some loans, you didn't get paid. 0:03:02.480 --> 0:03:04.560 Back, Oops, you spilled the milk. 0:03:04.840 --> 0:03:08.120 Just it's like accident is the term. But yeah, so 0:03:08.120 --> 0:03:11.160 there have been some pretty big accidents in the credit space, 0:03:11.600 --> 0:03:14.359 and one dumb thing that is happening is that there 0:03:14.440 --> 0:03:17.720 is a dispute about whether they exist in the private 0:03:17.720 --> 0:03:20.240 credit space or the public credit space. But I don't 0:03:20.280 --> 0:03:24.760 think it's at all interesting, like at all. But basically 0:03:24.840 --> 0:03:26.280 JP Diamond got on a call and it was like, 0:03:26.800 --> 0:03:29.480 you see the problems with private credit because these you know, 0:03:29.520 --> 0:03:31.519 companies on a bankround and then all the private credit 0:03:31.560 --> 0:03:33.960 guys are like those are like publicly financed banks led 0:03:34.000 --> 0:03:36.800 their deals, Like those are not and like they're not 0:03:36.840 --> 0:03:39.920 like private credit private credit. They're not like direct loans 0:03:39.960 --> 0:03:42.480 from like the classic. They're not like LBO, you know, 0:03:42.560 --> 0:03:45.520 like the core of private credit. Like I don't know, 0:03:45.960 --> 0:03:49.600 they were funded by funds, Like are they private credit 0:03:49.680 --> 0:03:51.800 in some loose sense sure? Or some of them bank 0:03:51.920 --> 0:03:53.760 led and like you know with their bonds Like yeah, 0:03:53.760 --> 0:03:55.600 I don't know whatever. But the point is it's not 0:03:55.680 --> 0:03:58.560 like JP Morgan making bank loans on its packs, and 0:03:58.600 --> 0:04:01.800 it's not like core you know, direct credit. 0:04:01.880 --> 0:04:04.320 Yeah. A funny detail in all of this is that 0:04:04.960 --> 0:04:08.080 Jamie Diamond didn't specifically call out private credit. 0:04:08.320 --> 0:04:10.560 Yeah, though he did talk about like BDC's. 0:04:10.080 --> 0:04:14.240 Being yeah yeah, yeah, I know, but like it's not 0:04:14.320 --> 0:04:17.839 like he said, like, oh, these guys made bad loans, 0:04:17.839 --> 0:04:20.120 blah blah blah. He did talk a little bit about 0:04:20.160 --> 0:04:23.080 you know, BDC's trading at a discount to their NAV 0:04:23.320 --> 0:04:24.640 but I think. 0:04:24.440 --> 0:04:26.880 It's just such as the efficient markets way. 0:04:26.880 --> 0:04:30.720 I'm saying they made right, right, right, But it did 0:04:30.760 --> 0:04:33.520 so happen that Mark Lipschultz of Blue Out was asked 0:04:33.560 --> 0:04:37.039 about his comments and appears that he took them personally, 0:04:37.120 --> 0:04:40.160 and that's where he told, of course JP Morgan to 0:04:40.200 --> 0:04:42.839 look inwards and the banks to look inwards at their loans. 0:04:42.920 --> 0:04:45.279 So it is this fun blame game that has played 0:04:45.279 --> 0:04:47.680 out this week. I feel like we wouldn't be talking 0:04:47.680 --> 0:04:50.479 about it so much had Jamie Diamond not said cockroaches. 0:04:50.520 --> 0:04:53.160 I feel like that game is defin a good like 0:04:53.320 --> 0:04:56.040 tangible illustration for us to all seize upon. 0:04:56.360 --> 0:04:58.039 But it is like taking a step back, like it 0:04:58.120 --> 0:05:01.599 is the case that like these accidents, as Mark running 0:05:01.600 --> 0:05:05.279 call them, are like true like bubbly signs like you 0:05:05.320 --> 0:05:08.920 don't make loans to like people who are double or 0:05:09.000 --> 0:05:11.800 triple or one hundred times pledging their assets, which like 0:05:11.800 --> 0:05:13.680 there are some allegation that no one really knows. There's 0:05:13.680 --> 0:05:16.680 some allegations Tray Color and or First Brands were maybe 0:05:16.760 --> 0:05:19.640 you know a little loose with collateral. You don't make 0:05:19.680 --> 0:05:23.800 those loans unless you're really trying hard to make loans, right, 0:05:24.000 --> 0:05:25.960 Like I wrote about, like one thing that I think 0:05:26.040 --> 0:05:28.080 is interesting about first brands is like the people who 0:05:28.160 --> 0:05:29.720 had a lot of exposure. You know, there's like this 0:05:29.839 --> 0:05:33.960 Jefferis run fund. There's this like trade finance origination platform. 0:05:34.160 --> 0:05:37.520 They have like enormous amounts of exposure specifically to first brands. 0:05:38.000 --> 0:05:39.839 Like what does that mean? It means like you're running 0:05:39.839 --> 0:05:42.400 a fund and you're like, you know, ideally you'd like 0:05:42.440 --> 0:05:45.479 to have diversified you know, trade finance receivables or whatever, 0:05:45.520 --> 0:05:48.840 but like you just need to find paper to put 0:05:48.880 --> 0:05:50.600 into the fund. And if someone is like I'm going 0:05:50.640 --> 0:05:52.599 to generate a lot of paper for you, then like 0:05:52.640 --> 0:05:54.640 you'd love to deal with that person, right, Like you'd 0:05:54.640 --> 0:05:55.880 love to deal with the first bend if they're like, 0:05:55.920 --> 0:05:58.000 we can you know, sell you as much as you need, 0:05:58.560 --> 0:06:00.800 And so it create some that is for people to 0:06:00.839 --> 0:06:03.400 sell you as much paper as you need, which means 0:06:04.160 --> 0:06:08.440 either becoming very overlevered to generate paper for you, or 0:06:09.000 --> 0:06:11.800 just like writing fake paper or like you know, triple 0:06:11.800 --> 0:06:14.160 pledging things so that they can like sell you more 0:06:14.200 --> 0:06:16.440 stuff because they sell your stuff and you get the money, 0:06:16.480 --> 0:06:18.479 and like that's you know, that's the trade they're in. 0:06:18.800 --> 0:06:23.560 So it does feel very toppy. Yeah, like Mark Owen said, 0:06:23.560 --> 0:06:26.480 accidents but also late cycle accidents, and like this is 0:06:26.600 --> 0:06:29.560 a private credit thing, just the credit generally these days, 0:06:29.560 --> 0:06:33.360 Like there's a lot of people going around being like, yeah, 0:06:33.560 --> 0:06:38.840 it feels toffee. Yeah, we're going to keep doing it. Yeah, 0:06:39.160 --> 0:06:40.920 you know. I think one of the most insightful things 0:06:41.000 --> 0:06:43.640 ever said about finance was when Chuck Prince in two 0:06:43.640 --> 0:06:46.359 thousand and seven said, as long as the music is playing, 0:06:46.360 --> 0:06:48.920 you've got to get up and dance. Like that's what 0:06:48.960 --> 0:06:49.560 it is, man. 0:06:49.839 --> 0:06:51.360 We all know we're coming to the end of the song. 0:06:52.000 --> 0:06:54.000 Like, if you're in the business of making loans, you 0:06:54.040 --> 0:06:57.080 can't be like we're not making loans. Yeah, too many 0:06:57.600 --> 0:06:59.640 loans are too frisky right now, We're not going to 0:06:59.720 --> 0:06:59.960 do it. 0:07:00.080 --> 0:07:02.880 Yeah, you can't do that yet. A dance, Yeah, got 0:07:02.880 --> 0:07:05.200 a dance, even if it's slate cycle and you know 0:07:05.240 --> 0:07:08.480 everyone's tired. It is interesting. I mean this has been 0:07:08.520 --> 0:07:11.160 held up as an example of we are in a 0:07:11.240 --> 0:07:13.600 toppy environment. So too, I said, we weren't going to 0:07:13.600 --> 0:07:16.400 talk about open Ai, but the open Ai Walmart deal. 0:07:16.520 --> 0:07:18.760 That has been a lot of hay has been made 0:07:18.800 --> 0:07:23.280 on social media about how truly we've reached the top or. 0:07:23.240 --> 0:07:25.280 Someone like the headline and something like, of course it's 0:07:25.280 --> 0:07:25.720 a bubble. 0:07:25.880 --> 0:07:29.720 Of course are here, we are in a bubble. I 0:07:29.720 --> 0:07:31.520 do want to talk a little bit more about this 0:07:31.560 --> 0:07:35.360 other comment that Mark Lipschultz said, because it seems like 0:07:35.440 --> 0:07:38.240 he did take this very personally. One of the things 0:07:38.240 --> 0:07:40.640 he said, when it comes to market caps, there are 0:07:40.680 --> 0:07:43.840 people who have meaningful interests in the industry not continuing 0:07:43.840 --> 0:07:47.280 to grow and succeed. Blackstone's market cap exceeds the market 0:07:47.280 --> 0:07:50.480 cap of most financial institutions in the world today. It's 0:07:50.520 --> 0:07:53.440 not as if that's not coming from someone, and of 0:07:53.480 --> 0:07:56.320 course there are people who don't like it. Which is 0:07:56.320 --> 0:07:58.840 interesting that he use Blackstone specifically and not Blue asl 0:07:58.920 --> 0:08:01.880 But Blue Aule has a market cap of about twenty 0:08:01.920 --> 0:08:05.400 five billion dollars. Blackstone is somewhere closer to two hundred 0:08:05.440 --> 0:08:08.760 billion JP Morgan is over eight hundred billion. But this 0:08:08.840 --> 0:08:11.160 is the point we've spoken about before, is how the 0:08:11.160 --> 0:08:15.640 stock market values some of these private credit players even 0:08:15.640 --> 0:08:19.520 though their assets are much smaller than like a traditional 0:08:19.520 --> 0:08:22.600 asset manager or even the asset management arms of these banks. 0:08:23.120 --> 0:08:25.160 Yeah. I think the point he's making is like when 0:08:25.160 --> 0:08:26.840 he says that that market cup has to be coming 0:08:26.880 --> 0:08:29.880 from somewhere, it's not like a comparison to the aum 0:08:29.920 --> 0:08:32.280 of banks. It's a comparison to like their lending business. Right, 0:08:32.320 --> 0:08:34.760 It's like, yeah, you know, I think he's making more broadly, 0:08:34.800 --> 0:08:37.720 the point that like the business of making a lot 0:08:37.720 --> 0:08:41.400 of categories of loans is shifting from being a thing 0:08:41.440 --> 0:08:44.360 that banks, yeah, at least intermediate and under it, to 0:08:44.440 --> 0:08:48.520 being a thing that is kind of being led and 0:08:48.559 --> 0:08:52.640 originated and held in the balance sheets of private credit firms. Yeah, which, 0:08:52.800 --> 0:08:54.680 again I don't know how interesting it is to like 0:08:54.720 --> 0:08:57.200 debate about whether the problems you're seeing or like private 0:08:57.200 --> 0:09:01.079 credit problems or bank problems. But like, on the one hand, 0:09:01.120 --> 0:09:03.320 I think the private credit people make a good point, Like, 0:09:03.400 --> 0:09:06.320 for I say this a lot, but like the funding 0:09:06.320 --> 0:09:09.240 model of private credit is a lot more systemically stable 0:09:09.280 --> 0:09:11.800 than the funding model of banks. Right, instead of having deposits, 0:09:11.800 --> 0:09:14.840 you have long term equity capital. That seems good. The 0:09:14.840 --> 0:09:17.680 private credit people will also argue that like they have 0:09:17.800 --> 0:09:21.040 better underwriting incentives because they hold it on their books, 0:09:21.240 --> 0:09:24.040 whereas banks obviously hold a lot of loans on their books, 0:09:24.040 --> 0:09:26.120 but you think about a lot of what they do 0:09:26.280 --> 0:09:29.480 is originate the distribute model, where they maybe have less 0:09:29.880 --> 0:09:32.880 skin in the game on their underwriting. On the other hand, 0:09:33.520 --> 0:09:37.520 thanks are regulated, and you do get the sense that 0:09:38.360 --> 0:09:43.680 it is such a good fundraising environment for private credit firms, 0:09:43.720 --> 0:09:46.280 such a frothy like if you want to sell your 0:09:46.280 --> 0:09:49.120 private credit firm a lot of like traditional asset measures, 0:09:49.200 --> 0:09:53.360 but it's like you do have some pressures to put 0:09:53.400 --> 0:09:55.400 all this gusher of money to work, and that might 0:09:55.440 --> 0:09:57.040 looseen your underwriting standards as well. 0:09:57.520 --> 0:10:01.280 Can I say one more thing about cockroaches? By all means, 0:10:02.880 --> 0:10:06.760 this is so gross, Yeah, Jamie Diamond. So first of all, 0:10:06.840 --> 0:10:09.840 exactly what he said on the call was my antenna 0:10:09.920 --> 0:10:12.880 goes up when things like this happens. And my first 0:10:12.920 --> 0:10:16.679 reaction was, like an antenna like that on a cockroach. 0:10:17.800 --> 0:10:21.160 You're saying he feels for the cockroaches, Well, it's just 0:10:21.400 --> 0:10:23.240 he can put himself in the shoes of both the 0:10:23.320 --> 0:10:26.160 lender and then he's gonna say the shoes of the cockroaches. 0:10:26.160 --> 0:10:28.800 But perhaps he tipped his hands there. I don't know, 0:10:29.160 --> 0:10:31.839 but cockroaches do have antennas, and so does Jamie Diamond. 0:10:45.520 --> 0:10:50.560 What's a second on your priority list? Yeah, all right, 0:10:51.240 --> 0:10:56.560 I didn't win again. Well, someone won the Nobel Peace Prize, 0:10:56.559 --> 0:10:59.480 but also the Insider Trading Prize, but it wasn't inside 0:11:00.200 --> 0:11:00.800 did somebody? 0:11:01.400 --> 0:11:04.079 Somebody won the Nobel Peace Prize was Maria Corinam, a 0:11:04.120 --> 0:11:10.760 shadow Venezuela and democracyativist. And also somebody won an amount 0:11:10.840 --> 0:11:14.200 of money on polymarket some some Yeah, the sum appears 0:11:14.240 --> 0:11:17.359 to be had fifty thousand dollars, which is like depends. 0:11:17.000 --> 0:11:20.240 On your like, I could find something to do it. 0:11:20.520 --> 0:11:24.239 It's not a bad payday for someone hanging out on polymarket. 0:11:24.320 --> 0:11:27.440 It's not like institutional grade. You know, you can't like 0:11:27.720 --> 0:11:30.880 run a hedge fund by like occasionally by once every 0:11:30.960 --> 0:11:33.880 year making fifty thousand dollars on the Nobel Peace Prize winner. 0:11:34.000 --> 0:11:36.079 But it's something, right, It's like, it's true, it's a 0:11:36.200 --> 0:11:38.960 nice individual person's bet it. But anyway, there were some 0:11:38.960 --> 0:11:40.880 suggestions that it was inside of treading because it was 0:11:40.880 --> 0:11:43.480 done kind of right before the announcement, like in the 0:11:43.520 --> 0:11:45.800 in the you know, hours later ampter then announcement and 0:11:45.840 --> 0:11:48.520 in fact, a spokesman for the Norwegian No Balance Dude said, 0:11:48.920 --> 0:11:51.520 we have noticed that some have made significant financial gains 0:11:51.559 --> 0:11:54.160 by placing bets on this year's prize. We will investigate 0:11:54.160 --> 0:11:57.319 whether this means that someone has unlawfully obtained information from us, 0:11:57.440 --> 0:12:00.240 because presumably they knew before they announced it, right, And 0:12:00.320 --> 0:12:03.559 so if like someone in the circle of trust that 0:12:03.640 --> 0:12:07.640 the Norwegian Nobel Institute went and like placed an anonymous 0:12:07.640 --> 0:12:09.760 crypto trade on polymarket, then would. 0:12:09.520 --> 0:12:12.600 It have been amazing for what it's worth. Oh yeah, 0:12:13.200 --> 0:12:15.280 real sign of the times anyway. 0:12:15.080 --> 0:12:16.640 A real sign of the times. And then that's what 0:12:16.679 --> 0:12:19.920 they seem to have thought happened, But it probably turns 0:12:19.920 --> 0:12:21.560 out one never knows, because these things are all like 0:12:21.559 --> 0:12:23.880 somewhat anonymous. But like, you know, there's an interview of 0:12:23.920 --> 0:12:25.520 the guy who like allegedly did it, and he's like, 0:12:25.520 --> 0:12:27.199 you know, you can look to the there's all this 0:12:27.360 --> 0:12:30.080 public stuff basically like when they hit the button on 0:12:30.120 --> 0:12:33.480 the announcement, Like there's a lot of assets on the website, 0:12:33.480 --> 0:12:36.079 like there's a picture of my shadow for sure, and 0:12:36.600 --> 0:12:40.680 they upload those assets before they hit the button, before 0:12:40.679 --> 0:12:42.680 they like put out the actual press relief. And so 0:12:42.720 --> 0:12:45.960 if you're like scraping the folder on the website that 0:12:46.000 --> 0:12:48.200 has all the assets. You can see like you know, 0:12:48.320 --> 0:12:50.760 something with her name in the web page, and then 0:12:50.800 --> 0:12:53.800 you can make an informed pat and so that maybe 0:12:53.840 --> 0:12:54.720 what happened. 0:12:54.360 --> 0:12:56.920 Here that is really funny. Also to your point that 0:12:57.000 --> 0:13:00.320 fifty grand is an institutional money, I have to imagine 0:13:00.360 --> 0:13:03.360 that next year this inefficiency in the market won't exist, 0:13:03.720 --> 0:13:06.000 Like maybe they'll hit the button and then they'll upload 0:13:06.040 --> 0:13:06.440 the photo. 0:13:07.320 --> 0:13:09.520 Yeah, there's some of this, like like this is a 0:13:09.600 --> 0:13:14.560 trade that occasionally exists in US public company earnings. Yeah, 0:13:14.600 --> 0:13:18.040 because you can, like, if you know, like the URL 0:13:18.200 --> 0:13:21.360 of like last quarter's earnings, you can just like change 0:13:21.559 --> 0:13:24.640 Q two to Q three in that URL and just 0:13:24.760 --> 0:13:28.200 refresh that page until something pops up, which might be 0:13:28.200 --> 0:13:30.480 before they officially announced earnings. Yeah, and so this is 0:13:30.520 --> 0:13:32.079 like a well known enough trade that companies are a 0:13:32.120 --> 0:13:35.040 little better about not doing that now. So right, you 0:13:35.080 --> 0:13:37.360 think that like they will be a little bit more 0:13:37.440 --> 0:13:40.400 information secure next year, or they won't. I don't know. 0:13:41.640 --> 0:13:43.480 I mean maybe they're not that bothered, but I just 0:13:43.480 --> 0:13:45.960 feel like that that body who. 0:13:45.880 --> 0:13:49.720 Actually, like if you're the Nobel Institute and it turns 0:13:49.760 --> 0:13:53.840 out that some junior staffer was using your information to 0:13:53.960 --> 0:13:56.560 make fifty grand, you'll be annoyed with them. If it 0:13:56.640 --> 0:13:59.160 turns out that someone on the committee that selects the 0:13:59.160 --> 0:14:01.319 winner was betting on it, then you'll be really. 0:14:01.120 --> 0:14:03.439 Annoyed bad because that's like, don't like that. 0:14:03.440 --> 0:14:05.840 That's not insider trading. That's like you know market. 0:14:06.040 --> 0:14:07.520 Right, that's like rigging the game. 0:14:07.600 --> 0:14:09.719 That's rigging the game. It's like instead of betting on 0:14:09.720 --> 0:14:11.360 who's going to win the Nobel Peace Prize, you're like 0:14:11.440 --> 0:14:13.520 giving the Nobel Peace Prize to the person you bet on. 0:14:13.559 --> 0:14:16.520 It seems really really bad. No allegation to that happened. 0:14:17.040 --> 0:14:18.880 But if it's just like someone script your website, like 0:14:18.920 --> 0:14:19.880 who cares? Give them the money? 0:14:19.880 --> 0:14:24.160 Who cares? That's a very Kathy would out of referencing, 0:14:24.200 --> 0:14:26.240 of course, last week's podcast No right. 0:14:26.360 --> 0:14:29.120 No. I know people time out prediction markets. You know, 0:14:29.120 --> 0:14:31.200 I've quoted chain Complain saying it's like their goal is 0:14:31.240 --> 0:14:35.840 to help people understand and price the future, and people 0:14:36.040 --> 0:14:40.440 really want prediction markets to create incentives to make the 0:14:40.520 --> 0:14:43.640 world more informed, and it's like the ideal is like, 0:14:43.800 --> 0:14:45.400 you know, you have a bet. I'm like, will Russia 0:14:45.440 --> 0:14:47.880 invade Ukraine or whatever, right, and like you have people 0:14:47.920 --> 0:14:51.360 who are really informed geopolitical analysts making bets, and then 0:14:51.400 --> 0:14:54.000 you have like a Russian general making bets, and then 0:14:54.080 --> 0:14:56.560 like you actually know right, and then like the market 0:14:56.800 --> 0:15:01.000 implied odds are really informative, and so people can make 0:15:01.120 --> 0:15:04.560 economic decisions based on this like probability that exists in 0:15:04.600 --> 0:15:07.360 a prediction market. Like that's kind of an interesting ideal 0:15:07.520 --> 0:15:11.000 and would be useful in a lot of purposes. And 0:15:11.480 --> 0:15:13.160 you know, as we've talked about here, the problem with 0:15:13.240 --> 0:15:15.560 that is like it's not clear. There is a lot 0:15:15.640 --> 0:15:19.200 of dumb money on like yeah, the market of like, well, 0:15:19.280 --> 0:15:22.720 Russia invade at Ukraine, and so it's hard to make 0:15:22.760 --> 0:15:25.000 a lot of money. It's hard to be institutional grade, 0:15:25.000 --> 0:15:27.800 and so like if you're a Russian general, you might 0:15:27.880 --> 0:15:29.880 be like, well I can make ten thousand dollars and 0:15:29.960 --> 0:15:31.760 possibly be shot, so I won't do it right. So 0:15:31.840 --> 0:15:34.640 it's like it's like hard to incorporate information. And then 0:15:34.720 --> 0:15:36.480 like you have examples like this where it's like whoever 0:15:36.560 --> 0:15:39.240 this is like put a lot of work into figuring 0:15:39.320 --> 0:15:41.320 out who was going to win the Nobel Prize twelve 0:15:41.360 --> 0:15:45.440 hours early, and like one is that the sort of 0:15:46.160 --> 0:15:51.760 fact that will inform anyone's economic decisions about like the 0:15:51.840 --> 0:15:53.760 one's hedging who's going to win the Nobel Prize right. 0:15:54.280 --> 0:15:57.560 Two is knowing it twelve hours early? That useful? And 0:15:57.560 --> 0:16:00.560 then three like the reaction might be that they just 0:16:00.560 --> 0:16:02.960 stop putting these assets on the web twelve hours early, 0:16:03.000 --> 0:16:03.440 and then it's like. 0:16:03.440 --> 0:16:06.440 Well, okay, yeah, the trade is something like you haven't. 0:16:06.280 --> 0:16:08.360 Made anyone more informed about anything in any useful way. 0:16:08.400 --> 0:16:09.600 It's just yeah, you get the money. 0:16:09.760 --> 0:16:11.560 Yeah, well to that point, I mean you write in 0:16:12.320 --> 0:16:14.760 your newsletter that the point is that the Nobel Peace 0:16:14.840 --> 0:16:17.200 Prize prediction market is working the way it is supposed to. 0:16:17.480 --> 0:16:21.680 It incentivizes people to find out information and incorporate it 0:16:21.800 --> 0:16:25.640 into prices, which I agree with, but it feels kind 0:16:25.680 --> 0:16:30.240 of unsatisfying because you think about the example of you know, 0:16:30.360 --> 0:16:34.360 equity markets and a hedge fund analyst scraping a website 0:16:34.400 --> 0:16:37.880 for earnings. Makes that market a little bit more efficient, 0:16:37.960 --> 0:16:42.880 and then it informs how companies invest capital and allocate capital, 0:16:42.960 --> 0:16:46.240 whereas here it's just someone now knows this early and 0:16:46.440 --> 0:16:49.200 like there's no follow through on that, which is satisfying. 0:16:49.640 --> 0:16:51.760 People care about who in the Nobel Prize, but it 0:16:51.880 --> 0:16:55.520 doesn't have like economic consequences. They're not a lot of hedgers. 0:16:55.840 --> 0:17:00.400 Yeah right, yeah, but you know this is like what 0:17:00.440 --> 0:17:02.600 I've said about sports campling too. Right. It's like, if 0:17:02.640 --> 0:17:06.119 you like create an ecosystem where people professional and like 0:17:06.200 --> 0:17:10.159 semi professional and like just hardworking and smart people are 0:17:10.440 --> 0:17:15.440 dabbling in prediction markets, then like there's possible spillover to 0:17:15.520 --> 0:17:19.359 like economically meaningful prediction markets. Right, There's some possibility that 0:17:20.359 --> 0:17:24.240 the people who spend eight hours building some scraping tools 0:17:24.280 --> 0:17:26.399 to predict the novel PCE prize will then go on 0:17:26.600 --> 0:17:30.000 to spend sixteen hours building scraping tools to predict the 0:17:30.080 --> 0:17:36.040 next Russian invasion, right, because like the similarish skill sets. Maybe, yeah, maybe, 0:17:36.280 --> 0:17:40.000 like maybe Russia's uploading its battle plans to a website. 0:17:40.000 --> 0:17:44.080 Who knows. There's some notion that if prediction markets get 0:17:44.160 --> 0:17:49.800 bigger and attract capital and skill, then ultimately the thing 0:17:49.880 --> 0:17:54.000 you really want, which is that they inform people about 0:17:54.080 --> 0:17:57.760 the probabilities of economically meaningful future events. Some possibly that 0:17:57.840 --> 0:18:02.520 will come true. And like it's not in a straightforward 0:18:02.560 --> 0:18:05.360 linear way where it's we start with the most important 0:18:05.400 --> 0:18:08.320 markets and get really sos they get people to really 0:18:08.359 --> 0:18:10.800 get predictions of the most important markets. It's we start 0:18:10.840 --> 0:18:12.960 with places where you can make money, and then that 0:18:13.080 --> 0:18:15.320 attracts money, and then that attracts more sophistication. 0:18:15.680 --> 0:18:19.359 It probably also informs your behavior in other markets. Like 0:18:19.480 --> 0:18:22.359 if the prediction market for who is Russia going to 0:18:22.480 --> 0:18:27.440 invade next gets really informative and liquid, and you could 0:18:27.520 --> 0:18:30.320 imagine watching that and then going and buying a bunch 0:18:30.320 --> 0:18:31.119 of calls on oil. 0:18:31.760 --> 0:18:35.240 Oh absolutely, although I mean right now, surely the oil 0:18:35.320 --> 0:18:37.960 market is more predictive of geopolitical events. No, you know, 0:18:38.119 --> 0:18:39.399 most prediction markets, but I don't know. 0:18:39.520 --> 0:18:42.640 The frustrating thing about oil, it's my least favorite commodity 0:18:42.720 --> 0:18:47.000 to talk about. It never prices in a sustainable risk premium. 0:18:47.359 --> 0:18:50.040 So maybe you wouldn't buy calls on oil, or maybe 0:18:50.080 --> 0:18:52.920 you would, I don't know, buy treasuries. 0:18:53.960 --> 0:18:55.760 Right This is one of the arguments for prediction markets. 0:18:55.800 --> 0:18:58.960 There's a lot of ways to implement predictions about future 0:18:59.040 --> 0:19:03.119 geopolitical events. And what that means is that you can't 0:19:03.200 --> 0:19:05.520 look at the price of oil or the price of 0:19:05.600 --> 0:19:08.800 treasuries and read out a prediction about future events because 0:19:09.200 --> 0:19:12.280 they kind of reflect a lot of different possible events. Yeah, 0:19:12.320 --> 0:19:15.439 whereas if there's just like a contract, will Russia invade wherever, 0:19:16.000 --> 0:19:18.560 then you can look at that contract and read off 0:19:18.600 --> 0:19:19.720 the probability. Yeah. 0:19:19.920 --> 0:19:23.040 It's like very pure pleasure. Yeah right, congratulations to. 0:19:25.200 --> 0:19:29.240 Yeah, fifty grand probably less than the Nobel Peace Prize price. 0:19:29.800 --> 0:19:30.399 How much is it? 0:19:30.520 --> 0:19:32.560 I don't know. You get a gold medal. 0:19:32.960 --> 0:19:35.360 That's pretty good. Yeah, A look at the satisfaction. 0:19:36.000 --> 0:19:37.040 Yeah, it's pretty good. 0:19:37.280 --> 0:19:37.520 Yeah. 0:19:38.600 --> 0:19:40.359 I feel like winning the Nobel Piece prisence is in 0:19:40.440 --> 0:19:43.280 some ways the worst. It's like, there's a decent chance 0:19:43.359 --> 0:19:44.960 that you're like imprisoned or exiled. 0:19:45.400 --> 0:19:49.320 That's true. But in the event that you're not, imagine 0:19:49.520 --> 0:19:53.240 all the speaking engagements and fees that you can command. 0:19:53.440 --> 0:19:56.720 That's okay, that's fair, that's fair, lucrative business winning a 0:19:57.040 --> 0:19:57.520 piece press. 0:19:57.840 --> 0:19:59.720