WEBVTT - At The Money: Is SpaceX IPO Breaking Capitalism? 0:00:02.480 --> 0:00:09.680 Bloomberg Audio Studios, podcasts, radio news, and the Times. 0:00:09.320 --> 0:00:35.360 Gave change, and so Gat walks them as. 0:00:33.280 --> 0:00:37.360 Once upon a time, companies went public to raise money. 0:00:37.920 --> 0:00:40.360 You'd go on a roadshow to pitch your story and 0:00:40.479 --> 0:00:44.000 drum up interest. You'd float a big pile of stock, 0:00:44.560 --> 0:00:47.520 and then you're off to the races to go build 0:00:47.520 --> 0:00:51.879 your company. Turns out that's not really the case anymore. 0:00:52.600 --> 0:00:56.080 I'm Barry Retolts, and on today's episode of At the Money, 0:00:56.600 --> 0:00:59.320 we're going to talk about the upcoming I p o 0:00:59.520 --> 0:01:05.440 s for trillion dollar companies like SpaceX, Anthropic, and open Ai. 0:01:06.400 --> 0:01:08.560 To help us unpack all of this and what it 0:01:08.680 --> 0:01:12.360 means for your portfolio, let's bring in Dave Nadig. He 0:01:12.560 --> 0:01:15.959 is president and director of research at ETF dot com, 0:01:16.640 --> 0:01:20.240 and he shares with us how investors should be navigating 0:01:21.040 --> 0:01:24.759 not only these IPOs, but what they're going to mean 0:01:24.840 --> 0:01:28.040 for various indexes like the Nasdaq one hundred and the 0:01:28.200 --> 0:01:31.720 S and P five hundred. So, Dave, you wrote a 0:01:31.880 --> 0:01:38.360 fascinating piece and essentially you claimed SpaceX is breaking capitalism 0:01:38.680 --> 0:01:44.240 and indexing. What is exactly broken? Is it the IPO process, 0:01:44.840 --> 0:01:46.840 the index process, or both. 0:01:47.360 --> 0:01:50.360 I gotta say, I think it's both. Sadly, I think 0:01:50.440 --> 0:01:54.080 it's both. The IPO process, I think most people can 0:01:54.240 --> 0:01:55.960 understand steam's pretty broken. 0:01:56.160 --> 0:01:56.280 Right. 0:01:56.400 --> 0:02:00.760 We now live in a world where the private equity 0:02:00.880 --> 0:02:04.880 space is where most of the growth in capitalism is captured. 0:02:05.000 --> 0:02:05.120 Right. 0:02:05.720 --> 0:02:07.480 If I had a great idea, if Berry, if you 0:02:07.560 --> 0:02:09.920 and I were going to just launch a company tomorrow, 0:02:10.320 --> 0:02:12.519 go raise a bunch of money and do something, we 0:02:12.639 --> 0:02:15.560 wouldn't go to Wall Street. We would go to some 0:02:15.760 --> 0:02:18.760 private equity firm and we would say, hey, we've got 0:02:18.840 --> 0:02:21.800 this great idea, and they would say, awesome, give us 0:02:21.840 --> 0:02:24.560 seventy five percent of your company for a couple million bucks, 0:02:24.880 --> 0:02:26.640 and we'd be off to the races. And then when 0:02:26.680 --> 0:02:28.959 we need more money, we would go back to that 0:02:29.120 --> 0:02:32.079 same private equity person, who would probably connect us to 0:02:32.120 --> 0:02:35.200 their favorite private credit person who would then loan us 0:02:35.240 --> 0:02:37.600 another fifty million dollars for us to do the next 0:02:37.639 --> 0:02:41.280 stage of our business, and so on until we had 0:02:41.320 --> 0:02:46.200 accumulated so many shareholders, so many mouths to feed that 0:02:46.320 --> 0:02:49.400 if eventually we have to go public so that all 0:02:49.480 --> 0:02:52.480 those people can get paid. That is the reality of 0:02:52.560 --> 0:02:56.120 the modern IPO market, which works out pretty well for 0:02:56.240 --> 0:03:00.200 the private equity capital, but no longer really rewards the. 0:03:00.520 --> 0:03:03.720 Public as a public market the way it used to. 0:03:04.080 --> 0:03:09.560 So let's talk about that contrast between old IPOs that 0:03:09.840 --> 0:03:15.520 raised growth capital. You very much imply in your piece 0:03:15.600 --> 0:03:19.160 SpaceX is breaking capitalism and indexing, which, by the way, 0:03:19.200 --> 0:03:23.840 I stole that opening paragraph of you very much imply 0:03:24.080 --> 0:03:30.200 that modern IPOs essentially exist to provide insiders and early 0:03:30.320 --> 0:03:35.000 investors with liquidity. So first, when did this shift occur? 0:03:35.160 --> 0:03:38.600 And second is it an issue? Is it a structural problem? 0:03:39.760 --> 0:03:41.920 I think we can trace this back to pretty much 0:03:41.960 --> 0:03:44.880 every IPO since the Great Financial Crisis. I mean, I 0:03:44.920 --> 0:03:48.720 think any IPO in the last fifteen or twenty years 0:03:49.120 --> 0:03:52.720 has followed a pretty similar pattern. We've seen the steady 0:03:52.840 --> 0:03:56.440 growth of the size of IPOs. They're bigger and bigger 0:03:56.480 --> 0:03:59.320 and bigger companies. Now we're talking about trillion dollar IPOs. 0:04:00.000 --> 0:04:02.760 So when I went in the dotcom era, the average 0:04:02.800 --> 0:04:05.840 IPO was about one hundred and twenty million dollars. That 0:04:06.040 --> 0:04:09.360 was the value of the company post IPO, and the 0:04:09.400 --> 0:04:12.680 amount being floated averaged around thirty or forty percent. So 0:04:12.960 --> 0:04:17.360 big chunks of these companies went public, people could assess them, 0:04:17.480 --> 0:04:20.799 they traded for a significant period of time, sometimes profitable, 0:04:21.160 --> 0:04:23.960 sometimes not profitable, and then they would end up in 0:04:24.000 --> 0:04:25.880 the hands of the public in an indexes and that 0:04:26.040 --> 0:04:28.480 was a that was a lengthy process. It took, you know, 0:04:28.600 --> 0:04:31.280 a year or two of being a public company for 0:04:31.400 --> 0:04:32.720 people to get familiar with you. 0:04:33.160 --> 0:04:33.600 That's all. 0:04:33.880 --> 0:04:36.080 That's all gone now and so now what we have 0:04:36.400 --> 0:04:40.600 are these sort of headline making IPOs of big companies, 0:04:40.920 --> 0:04:44.560 whether they're you know, a Karna or a Reddit or 0:04:44.720 --> 0:04:48.200 now a SpaceX. And so everybody now feels like these 0:04:48.240 --> 0:04:50.560 are lottery tickets that you want to get in super 0:04:50.640 --> 0:04:54.160 early on the ipo, get some purported pop, which no 0:04:54.320 --> 0:04:58.680 longer really happens, and that that is your key to riches. Increasingly, 0:04:58.720 --> 0:05:01.760 what actually happens is the op deposite. Companies come public, 0:05:01.880 --> 0:05:06.240 they trade down initially, sometimes they ramp up. Tesla famously 0:05:06.360 --> 0:05:09.600 had a great first year after the initial selloff. So 0:05:09.680 --> 0:05:12.280 it's not that all IPOs go this way, but it 0:05:12.400 --> 0:05:12.640 is no. 0:05:12.760 --> 0:05:14.160 Longer like the dot com era. 0:05:14.839 --> 0:05:19.320 So you mentioned SpaceX. People have described this company as 0:05:19.480 --> 0:05:24.280 kind of unique, in part because it involves commercializing space, 0:05:25.200 --> 0:05:29.440 in part because Elon Musk still despite the past couple 0:05:29.480 --> 0:05:34.280 of years, has a cult following courtesy of his work 0:05:34.320 --> 0:05:39.359 at Tesla, and then also because it's just an immense valuation. 0:05:40.600 --> 0:05:42.960 What makes SpaceX unique. 0:05:43.080 --> 0:05:44.600 Or is it not unique? 0:05:45.080 --> 0:05:47.520 Well, I don't want this to be about whether SpaceX 0:05:47.600 --> 0:05:50.279 good or SpaceX bad. SpaceX is unique for a bunch 0:05:50.320 --> 0:05:54.719 of structural reasons. It is already a multi business conglomerate. 0:05:54.960 --> 0:05:57.640 It's pretty rare we see a multi business conglomerate come 0:05:57.680 --> 0:05:59.720 out as an IPO that tends to be what you 0:05:59.839 --> 0:06:04.000 do after UIPO and start accumulating new companies. So inside 0:06:04.080 --> 0:06:08.160 the SpaceX wrapper, we've got Twitter X, We've got Grock 0:06:08.240 --> 0:06:11.320 and Xai, which is increasingly now a data center story, 0:06:11.400 --> 0:06:14.400 I guess unless a development of AI story. We've got 0:06:14.600 --> 0:06:18.680 the providing commercial internet right nine million startlink subscribers. That's 0:06:18.720 --> 0:06:21.840 a very real business that makes real money. And then 0:06:22.000 --> 0:06:26.440 the near monop monopoly on at least United States Space 0:06:26.560 --> 0:06:32.320 Launch is virtually completely monopoly now for SpaceX. So whether 0:06:32.360 --> 0:06:34.720 that's a great business or not, that makes it a 0:06:34.800 --> 0:06:37.640 bit unique already out of the gate. But more unique 0:06:37.680 --> 0:06:39.960 is how it's coming to market. It's only floating five 0:06:40.000 --> 0:06:42.320 percent of its stock, so ninety five percent of this 0:06:42.440 --> 0:06:46.560 company will still be privately held after they float the IPO. 0:06:47.360 --> 0:06:52.000 And yet despite that very very thin float, it's getting 0:06:52.040 --> 0:06:55.160 accelerated entry into the NASTAQ one hundred and is being 0:06:55.240 --> 0:06:58.039 considered for accelerated entry into the S and P five hundred. 0:06:58.120 --> 0:06:59.520 So we're breaking all sorts of rules. 0:06:59.760 --> 0:07:03.880 So let's talk about the Nasdaq one hundred. If you've 0:07:03.920 --> 0:07:07.480 been an investor in the queues as they're known, uh, 0:07:08.240 --> 0:07:13.120 the Nasdaq one hundred index ETF, you have done tremendously 0:07:13.240 --> 0:07:16.040 well over the past fifteen years outperform the S and 0:07:16.120 --> 0:07:21.080 P outperformed just about every historical period, including the nineties, 0:07:21.120 --> 0:07:23.640 where the cues were just you know, a giant home 0:07:23.720 --> 0:07:26.440 run except for that little, you know, eighty three percent 0:07:26.560 --> 0:07:31.760 crash at the end. So, so, what what did Nasdaq 0:07:32.200 --> 0:07:37.680 do wrong in admitting SpaceX to the cues and what 0:07:38.080 --> 0:07:39.440 should they have done instead? 0:07:40.120 --> 0:07:42.640 Well, so what they did was over the spring they 0:07:42.680 --> 0:07:44.640 did what's called the consultation, which is they go to 0:07:44.640 --> 0:07:46.880 all the people who actually pay for the index. I mean, 0:07:46.920 --> 0:07:49.320 it's important to point out Nasdaq's in a business. They 0:07:49.480 --> 0:07:53.440 licensed the Nasdaq one hundred two folks like the investco 0:07:53.560 --> 0:07:56.320 to run the cues products that people know and so 0:07:56.680 --> 0:07:58.720 they went out to all the people who licensed that 0:07:58.840 --> 0:08:01.120 index and said, would you be okay if we did 0:08:01.240 --> 0:08:03.760 this thing? And everybody said yes, and so now we 0:08:03.880 --> 0:08:07.800 have new rules. What the new rules did was accelerate 0:08:08.000 --> 0:08:11.440 how quickly a company can get in if they're very large, 0:08:12.280 --> 0:08:15.520 to fifteen days. It used to be six months. And 0:08:15.840 --> 0:08:19.040 they've also changed how they think about the float. It 0:08:19.200 --> 0:08:21.240 used to be if you really floated a very thin 0:08:21.280 --> 0:08:24.280 amount of stock, they just wouldn't consider you at all. Now, 0:08:24.360 --> 0:08:27.760 at five percent float, they're going to pretend that your 0:08:27.800 --> 0:08:32.439 float is fifteen percent or three x, just because reasons. 0:08:33.320 --> 0:08:36.960 And then over time, as the float increases, as shares 0:08:37.000 --> 0:08:39.720 come off lock up and more shares trade, that will 0:08:39.920 --> 0:08:43.640 ramp until thirty three percent of the fund the company 0:08:43.679 --> 0:08:46.280 has floated, at which point it receives full weight in 0:08:46.320 --> 0:08:50.439 the index. Because the Nasdaq one hundred, unlike most other indexes, 0:08:50.559 --> 0:08:54.120 is not free float adjusted. So normally, if they didn't 0:08:54.160 --> 0:08:56.400 do anything and they let SpaceX in, it would come 0:08:56.400 --> 0:08:59.200 in at one point seventy five trillion. Instead, it's going 0:08:59.280 --> 0:09:01.839 to come up at fifteen percent of that when it 0:09:01.920 --> 0:09:05.520 finally launches, and then that will increase with every unlock 0:09:05.679 --> 0:09:08.439 The percentage that the funds need will go up, and 0:09:08.559 --> 0:09:11.360 so it creates this kind of ramp that as more 0:09:11.440 --> 0:09:15.040 shares come out, there's more guaranteed buying, which I gotta 0:09:15.080 --> 0:09:18.280 say feels like bad liquidity for the insiders. 0:09:18.520 --> 0:09:21.319 Well, what motivates them to do this? 0:09:21.600 --> 0:09:26.000 I mean, what harm would befall the index or the 0:09:26.160 --> 0:09:32.120 IPO or NASDAK generally if they waited the six months 0:09:32.200 --> 0:09:34.960 that they're supposed to wait for every other IPO. 0:09:35.320 --> 0:09:36.400 I mean, basically none. 0:09:36.960 --> 0:09:39.800 The only argument you can make is that by having 0:09:39.960 --> 0:09:45.000 SpaceX in the ETFs in the index itself, that people 0:09:45.040 --> 0:09:47.920 will be more attracted to that index, and therefore people 0:09:47.960 --> 0:09:50.440 will put more money in those funds, and ultimately that's 0:09:50.480 --> 0:09:53.680 what people really care about. They want money tracking those funds. 0:09:54.080 --> 0:09:58.000 From a performance perspective, it's not like every human being 0:09:58.040 --> 0:10:00.480 on the planet won't be able to buy these shares 0:10:00.600 --> 0:10:03.400 the day after at IPOs. They'll be If you want 0:10:03.400 --> 0:10:05.280 to go buy one hundred shares the day after the. 0:10:05.320 --> 0:10:07.880 IPO, therebore the day of the IPO. You don't even 0:10:07.920 --> 0:10:08.760 have to wait till the KAY. 0:10:08.760 --> 0:10:10.679 There'll be a price. Anybody will be able to buy it. 0:10:10.800 --> 0:10:13.880 So it's not like it is this rarefied thing that 0:10:14.080 --> 0:10:16.920 can only be bought through this index. It's going to 0:10:17.000 --> 0:10:19.480 be everywhere. It's going to be like applestock, It'll be 0:10:19.640 --> 0:10:22.679 easily tradable all over the world. So all this is 0:10:22.760 --> 0:10:27.199 doing is guaranteeing the existing money that is tracking that 0:10:27.360 --> 0:10:30.240 index will have to sell a whole bunch of other 0:10:30.360 --> 0:10:34.120 things in order to buy this new slug of SpaceX, 0:10:34.360 --> 0:10:38.319 which will be something like seven ish billion dollars on 0:10:38.440 --> 0:10:40.200 that one day that they have to buy it all. 0:10:40.280 --> 0:10:42.400 So they're just going to be a big whale buyer 0:10:42.480 --> 0:10:45.360 in the market on one day. Guess which way the 0:10:45.440 --> 0:10:49.160 price will go? Honestly, who knows? Because who everybody knows this, 0:10:49.240 --> 0:10:51.480 So it's gonna get front run. So do you buy 0:10:51.559 --> 0:10:53.760 it the day before this? Do you wait until after this? 0:10:54.760 --> 0:10:56.560 It's going to be one of those get the popcorn 0:10:56.600 --> 0:10:57.439 moments and markets? 0:10:58.120 --> 0:11:03.319 Is this an attempt to get ownership of SpaceX in 0:11:03.400 --> 0:11:05.200 an index before the S and. 0:11:05.200 --> 0:11:05.960 P five hundred. 0:11:06.480 --> 0:11:10.440 Sure, it's a chance to build a pool of assets 0:11:10.520 --> 0:11:14.000 with a reasonable weight before the rest of the index 0:11:14.040 --> 0:11:17.960 world is piled on. Although we should point out SMP 0:11:18.600 --> 0:11:22.559 is now considering accelerating their rules too, to include a 0:11:22.679 --> 0:11:26.080 company like SpaceX after six months not nearly as egregious, 0:11:26.559 --> 0:11:28.920 And the SMP has a committee that could say no, 0:11:29.720 --> 0:11:33.640 and they always free float weight everything, so even if 0:11:33.679 --> 0:11:35.760 they did let it in early, it's only going to 0:11:35.800 --> 0:11:38.720 be in at five percent of its nominal real value. 0:11:39.160 --> 0:11:43.319 So what could happen in the SMP is much less dramatic, thankfully, 0:11:43.480 --> 0:11:45.200 than what could happen in the queues. 0:11:46.000 --> 0:11:49.280 So really this raises the question is this just a 0:11:49.440 --> 0:11:53.600 one off, one time technical distortion or is this going 0:11:53.640 --> 0:11:57.360 to be a recurring tax on index ownership for people 0:11:57.559 --> 0:11:59.760 who don't want to play the ipo game, don't want 0:11:59.760 --> 0:12:01.080 to play the stock picking game. 0:12:01.640 --> 0:12:05.120 Well, historically, I should point out the academic research would 0:12:05.200 --> 0:12:10.000 suggest that getting IPOs into your index earlier is bad 0:12:10.160 --> 0:12:13.920 for the in the investor who's standing there before the transaction. 0:12:14.160 --> 0:12:18.800 So oddly, Vanguard's CRISP indexes from the Chicago Research Center 0:12:18.880 --> 0:12:22.319 for Pricing, those indexes have some of them are accelerated 0:12:22.360 --> 0:12:25.160 to five day intra induction after the IPO, and there's 0:12:25.200 --> 0:12:27.000 been a study around that and it says that's kind 0:12:27.040 --> 0:12:30.040 of a bad idea. You're very likely to be buying 0:12:30.160 --> 0:12:33.680 the pop and then sort of sitting on a long, 0:12:33.840 --> 0:12:38.319 slow decline back to what becomes some market value market 0:12:38.400 --> 0:12:41.640 fair value, but the index tends to be the top tick. 0:12:42.080 --> 0:12:43.520 I think it's very easy to create. 0:12:43.400 --> 0:12:45.760 A scenario where you could see something like that in 0:12:45.880 --> 0:12:49.480 the cues as these IPOs get added. But again, given 0:12:49.520 --> 0:12:52.560 that everybody knows precisely when the trade's going to happen, 0:12:52.600 --> 0:12:55.480 which is market on clothes, fifteen days after the IPO, 0:12:56.600 --> 0:12:58.800 you're probably going to see the ramp up well before 0:12:58.920 --> 0:13:00.800 that because everybody's going to try to be the one 0:13:00.960 --> 0:13:02.400 selling into that index buying. 0:13:03.040 --> 0:13:05.800 So how do you solve this problem. Is it simply 0:13:05.880 --> 0:13:08.959 a matter of adjusting this for the full float. Hey, 0:13:08.960 --> 0:13:11.720 you're only going to put five percent out right, that'll 0:13:12.200 --> 0:13:16.480 be reflected in in the waiting or do you just 0:13:16.600 --> 0:13:19.760 follow your existing rules in terms of how soon we 0:13:19.920 --> 0:13:24.600 add an IPO to the index after it goes public, 0:13:24.679 --> 0:13:27.600 so SpaceX has to wait the usual six months. 0:13:28.040 --> 0:13:30.839 Well, you know, the question is the should here is 0:13:30.960 --> 0:13:31.640 for who? Right? 0:13:31.720 --> 0:13:35.400 As an as an investor, as a lowly end investor. 0:13:35.960 --> 0:13:40.400 What this is doing is creating more differentiation between indexes 0:13:40.520 --> 0:13:43.079 than we have previously seen. Right, So we're going to 0:13:43.120 --> 0:13:44.960 look at the world as it is now, well, now 0:13:45.160 --> 0:13:48.839 the cues. The NASDAQ one hundred is for sure the 0:13:48.960 --> 0:13:53.120 hyper ipo get everything in fast, get everything in big. 0:13:53.559 --> 0:13:55.679 As long as it's listed on NASDAK and it's not 0:13:55.760 --> 0:13:58.000 a financial company, you're going to get it in the cues, 0:13:58.040 --> 0:13:59.719 and so that's going to be the go go go 0:14:01.400 --> 0:14:03.480 S and p is Somewhere in the middle, they're they're 0:14:03.520 --> 0:14:06.240 sort of trying to acknowledge this reality of the broken 0:14:06.280 --> 0:14:09.559 IPO market and maybe do things a little sooner. I 0:14:09.559 --> 0:14:12.439 would say most investors can probably ignore most of that 0:14:12.760 --> 0:14:15.920 because they're adults in the room. And then institutions, I 0:14:15.920 --> 0:14:17.959 should point out, aren't playing with any of the stuff. 0:14:18.040 --> 0:14:21.520 They all use MSCI indexes, right, and those have very 0:14:21.680 --> 0:14:25.920 static rule books that are very carefully adjudicated, and nobody's 0:14:25.920 --> 0:14:29.320 even talking about MSCI changing their rules about this stuff. 0:14:29.440 --> 0:14:31.640 So what this means is we're going to have much 0:14:31.680 --> 0:14:35.920 more differentiation between what passive means, and as an investor, 0:14:36.360 --> 0:14:39.080 that means you can no longer just say I'm index, 0:14:39.200 --> 0:14:41.200 I'm fine, You're gonna have to have an opinion. 0:14:42.040 --> 0:14:47.360 Huh. Really really fascinating. I'm deeply concerned about the everybody 0:14:47.520 --> 0:14:53.880 knows massive buying cloth on clothes for SpaceX. What does 0:14:53.920 --> 0:14:56.280 this mean for price discovery? What does this mean in 0:14:56.440 --> 0:15:03.240 terms of distorting the true demand and supply relationship. 0:15:03.560 --> 0:15:05.080 It's hugely distortive. 0:15:05.600 --> 0:15:08.560 And the problem is that normally what you could say 0:15:08.640 --> 0:15:10.560 is something like, all right, we'll let this transaction get 0:15:10.600 --> 0:15:12.840 out of the way, and then things will calm down, 0:15:13.040 --> 0:15:14.600 and then everything will be and then we'll find out 0:15:14.640 --> 0:15:17.720 what prices really are like when natural buyers and sellers 0:15:17.800 --> 0:15:19.800 actually show up in the market and have to think 0:15:19.840 --> 0:15:22.960 about it. The problem is that implies there's some future 0:15:23.760 --> 0:15:26.960 time when we can say things are now normalized. I 0:15:27.040 --> 0:15:29.800 would usually have said something like, ah, three to six months, 0:15:30.040 --> 0:15:33.160 things will settle down, because in markets three months is 0:15:33.200 --> 0:15:37.080 a long time, But I should point out six months 0:15:37.160 --> 0:15:39.520 after this IPO, we get two things happening at the 0:15:39.560 --> 0:15:43.040 same time. Traditionally, when a lot of stock unlocks, right, 0:15:43.080 --> 0:15:45.720 one hundred and eighty days is a very common unlock window. 0:15:46.080 --> 0:15:49.120 And second, Nazac's gonna have to rebalance the index again, 0:15:49.480 --> 0:15:51.840 and if those things time perfectly, we're gonna end up 0:15:51.840 --> 0:15:54.360 with a bunch of shares unlocking, meaning the flight float 0:15:54.440 --> 0:15:57.520 might go from say five to fifteen percent. At the 0:15:57.600 --> 0:16:01.520 same time, NASAK will have to take theirre from fifteen 0:16:01.600 --> 0:16:04.000 percent to save forty five percent because they're gonna be 0:16:04.120 --> 0:16:06.720 three x whatever the float is on that read balance. 0:16:07.280 --> 0:16:10.680 So we're gonna have the exact same problem all over 0:16:10.880 --> 0:16:14.240 again as shares unlock and the index rebalances. 0:16:14.440 --> 0:16:17.680 I assume the three x was just for the thin 0:16:17.800 --> 0:16:22.120 IPO float. If that goes to fifteen percent or twenty 0:16:22.200 --> 0:16:24.240 five percent, it's three x again. 0:16:24.360 --> 0:16:25.520 That's until it until it. 0:16:25.520 --> 0:16:27.320 Hits a third, at which point obviously you're at one 0:16:27.360 --> 0:16:30.080 hundred percent r right. So but that's that's the way 0:16:30.280 --> 0:16:34.800 it happens linearly. But as float unlocks, three times that 0:16:34.920 --> 0:16:37.040 amount gets added to the index until. 0:16:36.880 --> 0:16:38.400 Okay, what's the motivation for that? 0:16:38.840 --> 0:16:42.240 Because the as TEK one hundred has never been free 0:16:42.320 --> 0:16:45.960 float adjusted. Now, it hasn't usually mattered because nobody really 0:16:46.040 --> 0:16:49.120 cares that Nvidia's ninety five percent float and Apple is 0:16:49.200 --> 0:16:52.200 ninety two percent float, but the index has always just 0:16:52.280 --> 0:16:52.920 included them at. 0:16:52.840 --> 0:16:53.520 One hundred percent. 0:16:54.040 --> 0:16:57.920 Right, It's only it's only a problem when it's very 0:16:58.080 --> 0:17:00.600 very small. So what historically there's been as a floor. 0:17:00.960 --> 0:17:02.920 If only ten percent of your shares are floating, you 0:17:03.000 --> 0:17:05.320 don't get to play at all, that's what they're getting 0:17:05.400 --> 0:17:06.480 rid of to replace it. 0:17:06.560 --> 0:17:08.840 With this sort of weird multiplier effect. 0:17:09.680 --> 0:17:13.280 It seems like, you know, we're talking about an index. 0:17:13.720 --> 0:17:18.600 It seems like this isn't a passive decision, and it's 0:17:18.840 --> 0:17:22.320 coming from the folks at Nasdaq are making a very 0:17:23.119 --> 0:17:26.399 active bet. Hey, this Elon guy with Tesla was a 0:17:26.520 --> 0:17:30.400 giant win and SMP was late to the party adding them. 0:17:30.880 --> 0:17:33.520 Let's not make the same mistake with SpaceX. Is that 0:17:33.680 --> 0:17:34.159 the thinking. 0:17:34.680 --> 0:17:38.680 Yeah, I think that's exactly what's going on. It will 0:17:38.960 --> 0:17:42.240 for sure be a marketing tool for the index, certainly 0:17:42.280 --> 0:17:45.240 if SpaceX tears out of the gate, which with all this. 0:17:45.359 --> 0:17:47.480 Buying you know is more likely now. 0:17:47.960 --> 0:17:51.520 It definitely puts some tailwind behind the price of the 0:17:51.560 --> 0:17:54.399 stock when you have these known buyers, that's going to 0:17:54.520 --> 0:17:57.520 just take some time to roll through. And look, I 0:17:57.760 --> 0:17:59.879 think it makes it a very active index. 0:18:00.080 --> 0:18:00.720 It already was. 0:18:00.920 --> 0:18:04.280 It has weird selections all through it, like non financials 0:18:04.400 --> 0:18:08.560 only on Nasdaq. It's a bizarre set of rules, and 0:18:09.400 --> 0:18:12.920 now it's got this weird timed trading thing that you 0:18:13.080 --> 0:18:15.800 just mentioned. I think this makes it very tough for 0:18:15.840 --> 0:18:17.959 anybody to think of this as a long term buy 0:18:18.040 --> 0:18:20.920 and hold investment where everything will just work out in 0:18:20.960 --> 0:18:21.480 the long run. 0:18:21.640 --> 0:18:24.080 It's now making some very active trading bets. 0:18:24.400 --> 0:18:27.800 All right, So I'm gonna make you the philosopher king 0:18:28.160 --> 0:18:32.600 of index inclusion rules. What does that look like in 0:18:32.760 --> 0:18:39.960 terms of waiting period, minimum flow, profitability, governance, and just 0:18:40.359 --> 0:18:44.680 do we have different rules from mega IPOs than regular IPOs. 0:18:44.960 --> 0:18:47.399 I if I was running the universe, if it was 0:18:47.520 --> 0:18:50.680 Dave Noddig's index company, companies would have to trade for 0:18:50.720 --> 0:18:52.399 a year. They would have to have a year of 0:18:52.440 --> 0:18:55.119 trailing profitability, which is what the S and P currently has. 0:18:55.160 --> 0:18:59.359 They're talking about getting rid of that too. I would 0:18:59.480 --> 0:19:02.960 free flow adjust everything without question, all the way down 0:19:03.000 --> 0:19:04.679 to nothing. Like you can float one percent of your 0:19:04.720 --> 0:19:06.879 stock and you get a one percent presence Like, I 0:19:06.920 --> 0:19:09.680 think that's fine, And I would not count non voting shares. 0:19:09.880 --> 0:19:12.840 At all period. Huh. 0:19:13.359 --> 0:19:19.400 Fascinating fascinating stuff. So for investors interested in the SpaceX ipo, 0:19:20.600 --> 0:19:23.600 there are gonna be a lot of trading anomalies around 0:19:23.720 --> 0:19:27.560 this IPO. It seems like the structure is very much 0:19:28.880 --> 0:19:33.600 set up by Nasdak and others to goose the price higher. 0:19:34.320 --> 0:19:37.880 If you're a holder of cues. Well, maybe this has 0:19:38.000 --> 0:19:42.880 some impact around the edges. Some of it's going to offset, 0:19:43.080 --> 0:19:47.760 some of it could drive prices higher. But regardless, the 0:19:48.160 --> 0:19:52.680 IPO of SpaceX is going to impact your passive index. 0:19:53.359 --> 0:19:57.359 I'm Barry Riddolts. You're listening to Bloomberg's at the Money, 0:20:02.000 --> 0:20:04.320 any ti