WEBVTT - Champagne and Caviar

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news. We had a really

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<v Speaker 1>important update. We talked last week about the enhanced games

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<v Speaker 1>where people take drugs to be faster, and the one

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<v Speaker 1>hundred meters dash was run by a guy who is

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<v Speaker 1>not on drugs and afterwards he gloaded. They got to

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<v Speaker 1>get on that some more, which is just a perfect

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<v Speaker 1>use of the English language.

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<v Speaker 2>I mean it really you can apply it to so

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<v Speaker 2>many different areas of your life, including the podcast.

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<v Speaker 1>Arriving later at the podcast.

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<v Speaker 2>Hey it's okay, we have a tight on drugs. We

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<v Speaker 2>have a tight twenty nine minutes.

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<v Speaker 1>It's all right, no, no, no, keep banering, no more.

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<v Speaker 2>How about them Nicks?

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<v Speaker 1>Well yeah, the next Yeah, they're on more.

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<v Speaker 2>They certainly are they really?

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<v Speaker 1>This is a swearing then there's ever been on this podcast. Yeah,

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<v Speaker 1>the next one. Last night, we're recruiting the on Thursday.

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<v Speaker 2>Yeah, what's the next game?

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<v Speaker 1>You're exhausted because you're.

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<v Speaker 2>Watching partying at.

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<v Speaker 1>Expend game one the Jeffrey.

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<v Speaker 2>There's so many ways to get into this. For a second,

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<v Speaker 2>very quickly.

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<v Speaker 1>Say hello podcast, your weekly podcast, were talking about sepilated,

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<v Speaker 1>money and met Levine. Are the many fim your opinion and.

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<v Speaker 2>I'm Katie Greifeld. I should do it really slow since

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<v Speaker 2>you did it really fast. And I'm Katie Greifeld, a

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<v Speaker 2>reporter for Bloomberg News and an anchor for Bloomberg Television.

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<v Speaker 1>I did not watch the Knicks at all or at

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<v Speaker 1>the Jeffrey. But the Jeffrey is like a Bloomberg bar.

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<v Speaker 1>I know it's been to like farewell parties of the Jeffrey.

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<v Speaker 2>That's the thing. In your newsletter you described it as

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<v Speaker 2>a New York bar, which is so impersonal given that

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<v Speaker 2>you and I have literally been there together.

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<v Speaker 1>The Jeffrey is a Bloomberg bar h on the East

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<v Speaker 1>six eighth Street. It's also I learned this, I think

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<v Speaker 1>from a bloomber of person. The owner of the Jeffrey

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<v Speaker 1>is not just some bar owner. No, he is one

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<v Speaker 1>of the nations leading activist hedge fundlers. It's just like

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<v Speaker 1>a fun.

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<v Speaker 2>We should have lunch, we should he sounds really interesting.

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<v Speaker 1>So, yeah, the Jeffrey. Many many people send me this

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<v Speaker 1>story about the Jeffrey doing a promotion where if the

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<v Speaker 1>Knicks won on Wednesday night, if the next one Wednesday night,

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<v Speaker 1>which they did, then your bar tab at the Jeffrey

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<v Speaker 1>was free and so presumably the point of this promotion

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<v Speaker 1>is that a lot of people would storm into the

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<v Speaker 1>Jeffrey order you know, champagne and caviar or whatever one

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<v Speaker 1>gets to the Jeffrey that's expensive, and hope for the

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<v Speaker 1>Knicks to win so that their part tab would be free.

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<v Speaker 1>And if the Knicks lost, they would be like ah

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<v Speaker 1>and pay a thousand dollars for their night out and

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<v Speaker 1>the Jeffrey, you know, if the next lost would be

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<v Speaker 1>up these giant partabs. If the nixt won, there would

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<v Speaker 1>be out all these give artabs to the differy hedge.

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<v Speaker 2>Yes they did by going.

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<v Speaker 1>To Vegas and no, sorry, we're going to Calshi betting

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<v Speaker 1>on the next to it. And so this is very

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<v Speaker 1>like straightforward beat on the Knicks to win. But Kalchi

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<v Speaker 1>put out a pressless about it.

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<v Speaker 2>Calsh was excited, they loved it.

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<v Speaker 1>The bar like put out a video, you know, a

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<v Speaker 1>little video you know, promotion. But they also had like

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<v Speaker 1>a little like white boarded explanation of the hedge that

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<v Speaker 1>I think Calshi probably helped with. It's just like this

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<v Speaker 1>is from Calsh. Small businesses are exposed to real world

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<v Speaker 1>risk every single day, whether politics, sports, economics, with no

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<v Speaker 1>efficient way to manage it. Traditional insurance is expensive, slow,

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<v Speaker 1>and not built for this kind of operational exposure. Calshi

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<v Speaker 1>changes the equation liquid transparent markets that let any business

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<v Speaker 1>take an upsetting position on the risks that affect their

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<v Speaker 1>bottom line. Also says, if the Knicks lease the bark likes,

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<v Speaker 1>I normally have revenue from the promotion, having paid only

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<v Speaker 1>a small premium for the peace of mind. No, it's

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<v Speaker 1>a sports bet, the Knicks for underdogs, and so like

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<v Speaker 1>I was looking, like I think historic, Like the pre

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<v Speaker 1>game price of the Knicks was about thirty six per

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<v Speaker 1>cents on the dollar, so you'd pay, you know, for

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<v Speaker 1>like a five thousand dollars head, you'd pay like eighteen

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<v Speaker 1>hundred dollars. Not bad, So it's not that small. Yeah anyway, Yeah,

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<v Speaker 1>so they bet on sports, and now betting on sports

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<v Speaker 1>is a hedge. And so many people send me this,

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<v Speaker 1>including after I write about because people don't originally unt

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<v Speaker 1>of money stuff.

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<v Speaker 2>It's really long.

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<v Speaker 1>It's sorry, sorry, sorry, he's.

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<v Speaker 2>Just got so many thoughts I summarize it.

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<v Speaker 1>So many people said to me, Yeah, because like my

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<v Speaker 1>view is that when people say prediction markets, they want

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<v Speaker 1>to be like Oh, it's we're hedging a real world risks.

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<v Speaker 1>But they're really talking about sports betting, and so this

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<v Speaker 1>is like the overlap of the vent diagram, where it's

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<v Speaker 1>like it's sports betting and it's hedging a real world risk,

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<v Speaker 1>which is not true because they are hedging a sports

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<v Speaker 1>bet like they didn't have to do this. They're hedging

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<v Speaker 1>on sports.

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<v Speaker 2>But whatever, Matt is banging the table, he is passionate

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<v Speaker 2>about this point. A few things. I do want to

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<v Speaker 2>say that this was up to one hundred dollars per guest,

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<v Speaker 2>so champagne and cavia are you could probably get like

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<v Speaker 2>a little bit of both. Also, tax and gratuity were

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<v Speaker 2>not included, so I mean the bartenders still made money regardless,

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<v Speaker 2>which is nice. Were you Were you aware of the

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<v Speaker 2>other promotion that they ran for their game against the Calves? Okay,

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<v Speaker 2>so for Game four of the Knicks versus the Calves,

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<v Speaker 2>the Jeffrey said that for each point in the Knicks

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<v Speaker 2>margin of victory, the bar would reduce patrons bill by

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<v Speaker 2>one percent. Yes, yeah, so it turned out to be

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<v Speaker 2>a blowout. As I understand, I barely understand.

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<v Speaker 1>You're not expecting to reduce the tab by twenty seven

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<v Speaker 1>percent or whatever.

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<v Speaker 2>No, it was thirty seven percent, which is nuts. So

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<v Speaker 2>the total tal.

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<v Speaker 1>By the way, like by game four, like the Knicks

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<v Speaker 1>had blown out everyone for the last like two series.

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<v Speaker 2>It's amazing. You might have predicted the total discount for

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<v Speaker 2>customers in that promotion amounted to twenty seven hundred and

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<v Speaker 2>fifty dollars. So it'll be interesting to see what Wednesday

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<v Speaker 2>night's game came out to.

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<v Speaker 1>I wonder if they will report that. I feel like

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<v Speaker 1>they don't have will obligations.

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<v Speaker 2>But the reason I know about what they did for

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<v Speaker 2>Game four was because there was a Bloomberg News article

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<v Speaker 2>that reads piked on the terminal, which is how I

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<v Speaker 2>got to know about this because again, the Jeffrey is

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<v Speaker 2>a Bloomberg bar, so obviously all your Bloomberg buddies were

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<v Speaker 2>sending it to you. Right, It's ry like if you're.

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<v Speaker 1>A bar owned by a hedge fund lawyer that has

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<v Speaker 1>two blogs from Bloomberg, then yes, you have very important

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<v Speaker 1>real world economic risks that you have to hedge by

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<v Speaker 1>doing sports betting on CALSHI. But by the way, you

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<v Speaker 1>can also do sports betting on a sports book like

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<v Speaker 1>it's legal now, like you could Kelshi will do a

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<v Speaker 1>nice whiteboard for you.

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<v Speaker 2>I don't know, is there anything else to say? I

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<v Speaker 2>just love it. I wish I could drink.

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<v Speaker 1>I feel like some markets are sports gambling now and

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<v Speaker 1>here we are. Let's not tell you about SpaceX this week.

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<v Speaker 1>We'll tell you about SpaceX last week. Week.

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<v Speaker 2>We're doing really well. And then you mentioned SpaceX. Uh,

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<v Speaker 2>I think it's not.

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<v Speaker 1>Google selling some stock like.

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<v Speaker 2>A lot, like a lot, like eighty billion.

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<v Speaker 1>Dollars more than spacexan.

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<v Speaker 2>Were adapted IPO.

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<v Speaker 1>It's actually eighty five billion AiZ.

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<v Speaker 2>It's nice, so.

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<v Speaker 1>Much demand for Google stock. Yeah, the eighty five billion

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<v Speaker 1>is like not quite right, because like forty billion of

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<v Speaker 1>that is an at the market offering. So it's not

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<v Speaker 1>like they just bashed out.

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<v Speaker 2>Ten billion is Berkshire Hathaway.

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<v Speaker 1>Ten billion is Berksu Hay. I'm going to count Berkshire Hasway.

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<v Speaker 1>That's the anchor order that counts. But the forty billion

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<v Speaker 1>is like they didn't bash it all out this week.

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<v Speaker 1>It's an out the market offering. So the next like

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<v Speaker 1>few months or whatever, when they feel like it, they'll

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<v Speaker 1>sell some stock and the total might come to forty billion,

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<v Speaker 1>or it might not. We don't get there. But yeah,

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<v Speaker 1>they did about thirty five billion of common stock and

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<v Speaker 1>mandatory convertible this week plus ten billion properately place the

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<v Speaker 1>Berkshire Hathaway to you know, pay for data centers, Yeah,

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<v Speaker 1>pay for pay for chips, pay for the boom.

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<v Speaker 2>I feel like there's a few different sign of the

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<v Speaker 2>times in here. One of them, which you highlighted in

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<v Speaker 2>your newsletter is that equity issuance net equity issuance was

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<v Speaker 2>declining for a long time, yea, and buybacks for like

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<v Speaker 2>the thing to do.

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<v Speaker 1>Yeah, and did like sixty billion in buybacks like last year.

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<v Speaker 2>Yeah. But now maybe we're starting to see that trend

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<v Speaker 2>reverse and companies are going to issue more stock. Also,

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<v Speaker 2>we have IPOs coming back.

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<v Speaker 1>It's just like a wild chips in the markets where

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<v Speaker 1>when you think about the big US companies, you know,

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<v Speaker 1>even five years ago, you would have said stotypically they're

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<v Speaker 1>capital light, right, Yeah, I joked for years like Facebook

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<v Speaker 1>is a website, you know, and it's like worth a

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<v Speaker 1>trillion dollars, right, it's a website. How capital intensive could

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<v Speaker 1>a website be? And like, you know the answer to

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<v Speaker 1>that question is right, I have a lot of data

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<v Speaker 1>centers to run your.

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<v Speaker 2>Website, yeah, Matt.

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<v Speaker 1>And also you have to pay a lot of people

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<v Speaker 1>a lot of money to run your website. But you know,

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<v Speaker 1>now there's just like beind a real change and how

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<v Speaker 1>capital intensive the like leading US businesses are, and that

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<v Speaker 1>just leads to a different financing universe where you know,

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<v Speaker 1>instead of raking in money and using it to buy

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<v Speaker 1>back stock, you're waking up and saying, wow, we need

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<v Speaker 1>so much money we have to sell stock.

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<v Speaker 2>Yeah.

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<v Speaker 1>I mean Google has been first of all, raking in money.

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<v Speaker 1>Secondly like selling debt, right, I mean, like you can

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<v Speaker 1>finance a certain amount of stuff with that. But ultimately,

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<v Speaker 1>you know, these are very highly rated, investment in grade

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<v Speaker 1>companies that have portress balance sheets, and eventually you're like,

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<v Speaker 1>you know what, I'd rather be more equity financed.

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<v Speaker 2>Yeah, so they're doing it. I always wonder in thinking

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<v Speaker 2>about that that shift in markets and you know, financing,

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<v Speaker 2>like what does this mean for investors who like hold

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<v Speaker 2>index ones because like Google shares, the alphabet shares went

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<v Speaker 2>down a bit, this is diluted, et cetera. But like,

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<v Speaker 2>what does it mean if you do see a c

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<v Speaker 2>change where there's just more equity issuance overall, I don't

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<v Speaker 2>really know. Yeah, like if you shift from from stock

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<v Speaker 2>buybacks net negative equity issuance to a world where it's positive,

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<v Speaker 2>I don't know what that means other than being interested

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<v Speaker 2>from the perspective of an investor.

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<v Speaker 1>Right. One thing that's just like sort of philosophically interesting is,

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<v Speaker 1>you know, we got a question on our last mailbag, right,

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<v Speaker 1>like what does the company stock price matter after it

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<v Speaker 1>goes public? Right? And like you they are great answers

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<v Speaker 1>to that, and I was like, oh, the market for

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<v Speaker 1>corporate control. Oh, but like the answer to that a

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<v Speaker 1>few months ago was not, Well, companies sell stock all

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<v Speaker 1>the time, so they need a high stock price so

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<v Speaker 1>they can you know, raise money without diluting share elders

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<v Speaker 1>too much. Because that is not how public companies think

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<v Speaker 1>until this week. And now it's like, well, you know,

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<v Speaker 1>stock price matter is because you got to build data centers,

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<v Speaker 1>like you'll be thinking about your cost of financing, and

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<v Speaker 1>the higher your stock prices, the cheaper your equity financing is.

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<v Speaker 1>So for one thing, it just changes how companies think

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<v Speaker 1>about their stocks. But for anything, like, I've lived my

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<v Speaker 1>life in a financial world where the stuff that you

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<v Speaker 1>do on the stock market is mostly not directly tied

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<v Speaker 1>to building factories to make widgets, you know, Like the

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<v Speaker 1>stock market is not primarily a way for companies to

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<v Speaker 1>raise money to do stuff. And if you are buying

0:11:25.080 --> 0:11:29.000
<v Speaker 1>stock on the stock market, it's vanishingly unlikely that you

0:11:29.040 --> 0:11:31.120
<v Speaker 1>are buying it from a company that will use your

0:11:31.200 --> 0:11:33.400
<v Speaker 1>money to make a you know, to do stuff. Right,

0:11:33.760 --> 0:11:36.840
<v Speaker 1>It's all just like a sort of like secondary trading

0:11:36.880 --> 0:11:39.959
<v Speaker 1>market where like ultimately the price of the stock sort

0:11:40.000 --> 0:11:43.040
<v Speaker 1>of reflects back into the company's capital allocation decision. But

0:11:43.040 --> 0:11:46.880
<v Speaker 1>it's not like you're giving the company to money. But

0:11:46.920 --> 0:11:48.560
<v Speaker 1>now it's like, yeah, you're giving the company money. Like

0:11:48.600 --> 0:11:50.559
<v Speaker 1>the thing that you're doing as an index one investor

0:11:50.600 --> 0:11:53.440
<v Speaker 1>really is like giving your cash to big companies to

0:11:53.520 --> 0:11:56.200
<v Speaker 1>build the AI future or whatever. Yeah, unless you don't

0:11:56.200 --> 0:11:56.400
<v Speaker 1>like that.

0:11:57.240 --> 0:12:00.960
<v Speaker 2>Also, what does the stock price matter after company goes public?

0:12:01.000 --> 0:12:04.480
<v Speaker 2>It matters for the employees in terms of their net worth,

0:12:04.600 --> 0:12:08.080
<v Speaker 2>Which leads me to an interesting nugget about this ATM

0:12:08.120 --> 0:12:11.120
<v Speaker 2>program that I want to get your thoughts on, because

0:12:12.160 --> 0:12:14.719
<v Speaker 2>in it it was buried that the ATM program is

0:12:14.760 --> 0:12:17.840
<v Speaker 2>intended primarily to facilitate, for a period of time, an

0:12:17.840 --> 0:12:22.120
<v Speaker 2>administrative change in how alphabet makes tax obligations associated with

0:12:22.120 --> 0:12:25.480
<v Speaker 2>employee equity grants. This approach will mimic a cell to

0:12:25.520 --> 0:12:29.760
<v Speaker 2>cover model. Upon vesting of restricted stock units, shares will

0:12:29.800 --> 0:12:32.360
<v Speaker 2>still be delivered to employees net of taxes, and the

0:12:32.400 --> 0:12:35.960
<v Speaker 2>company will use corporate cash to settle taxes on behalf

0:12:36.040 --> 0:12:39.760
<v Speaker 2>of employees. The company intends to issue stock for equivalent

0:12:39.760 --> 0:12:43.400
<v Speaker 2>proceeds through its ATM program. So that's interesting. So basically

0:12:43.400 --> 0:12:47.319
<v Speaker 2>they're going to pay the taxes for their employees.

0:12:47.320 --> 0:12:49.839
<v Speaker 1>Yeah, which they do already, but they're going to pay

0:12:49.880 --> 0:12:54.199
<v Speaker 1>them with stock now basically, Yeah, I wrote and we

0:12:54.280 --> 0:12:57.280
<v Speaker 1>talked about like the idea that companies do not use

0:12:57.320 --> 0:13:00.440
<v Speaker 1>the stock market to raise money and the net equitations,

0:12:59.800 --> 0:13:05.840
<v Speaker 1>and I got pushfact like, in fact, these companies too,

0:13:07.320 --> 0:13:10.840
<v Speaker 1>in a sense issue stock to raise money, but they

0:13:10.880 --> 0:13:14.120
<v Speaker 1>do it in a barter system where instead of issuing

0:13:14.120 --> 0:13:16.720
<v Speaker 1>stock to raise money to pay giant salaries to employees,

0:13:16.760 --> 0:13:20.160
<v Speaker 1>they just pay the giant salaries to employees in stock. Right,

0:13:20.240 --> 0:13:22.640
<v Speaker 1>And so if you're an employee and these big tech companies,

0:13:22.640 --> 0:13:24.880
<v Speaker 1>you get paid a lot in stock where stock options

0:13:24.880 --> 0:13:27.600
<v Speaker 1>are restricted stock. And so a lot of how companies

0:13:27.679 --> 0:13:32.840
<v Speaker 1>fund themselves is by using stock to pay employees, which is,

0:13:32.960 --> 0:13:35.440
<v Speaker 1>you know, economically equivalent to selling stock to the general

0:13:35.480 --> 0:13:37.720
<v Speaker 1>public to get cash and then using the cash to

0:13:37.720 --> 0:13:41.520
<v Speaker 1>pay the employees. Right, but has you know, like accounting

0:13:41.559 --> 0:13:44.080
<v Speaker 1>and optical and tax benefits and so people you know,

0:13:44.120 --> 0:13:47.480
<v Speaker 1>do a lot of pay in stock. But the way

0:13:47.880 --> 0:13:49.320
<v Speaker 1>that that works is you still have to pay them

0:13:49.360 --> 0:13:52.760
<v Speaker 1>a little in cash, which is traditionally the normal way

0:13:52.760 --> 0:13:55.720
<v Speaker 1>you do this. You deliver the stock, and they have

0:13:55.760 --> 0:13:58.440
<v Speaker 1>some big tax obligation when you deliver the stock, and

0:13:58.480 --> 0:14:01.160
<v Speaker 1>typically what you do is you deliver net so like

0:14:01.360 --> 0:14:03.080
<v Speaker 1>you know, you deliver them sixty percent of the stock,

0:14:03.080 --> 0:14:06.760
<v Speaker 1>you withhold forty percent for taxes, and instead of like

0:14:07.200 --> 0:14:09.439
<v Speaker 1>sending the stock to the irs, you send the cash

0:14:09.480 --> 0:14:11.720
<v Speaker 1>to the irs. It's it costs you cash. If you're

0:14:11.760 --> 0:14:17.440
<v Speaker 1>Google or whatever and need to conserve cash, you might

0:14:17.600 --> 0:14:20.960
<v Speaker 1>do what Google is doing here, which is still the

0:14:21.040 --> 0:14:23.360
<v Speaker 1>same thing, which is you deliver the net shares to

0:14:23.440 --> 0:14:26.440
<v Speaker 1>the to the employees, you withhold the taxes. You send

0:14:26.520 --> 0:14:29.240
<v Speaker 1>the cash for the taxes to the IRS, except that

0:14:29.680 --> 0:14:33.080
<v Speaker 1>you get that cash by selling stock. So every time

0:14:33.160 --> 0:14:36.080
<v Speaker 1>they need to withhold money to pay employee tax bill,

0:14:36.680 --> 0:14:38.840
<v Speaker 1>they sell a little bit of stock under the ATM

0:14:38.880 --> 0:14:42.520
<v Speaker 1>program and use that to pay the taxes. So they

0:14:42.560 --> 0:14:47.239
<v Speaker 1>are issuing stock toories cash to meet their employment comp publications.

0:14:47.440 --> 0:14:50.720
<v Speaker 2>That's interesting because I read that. I didn't know that

0:14:50.720 --> 0:14:52.960
<v Speaker 2>they were already doing that, and I just wondered if

0:14:52.960 --> 0:14:55.480
<v Speaker 2>it fit into like the broader discussion we've been having

0:14:55.560 --> 0:14:59.800
<v Speaker 2>on AI talent wars and how fiercely competitive it is.

0:15:00.160 --> 0:15:02.960
<v Speaker 1>Like the reason Google is selling eighty five billion dollars

0:15:03.000 --> 0:15:05.400
<v Speaker 1>are stuck is you know AI, right, And so some

0:15:05.520 --> 0:15:08.320
<v Speaker 1>of that is like Capex to build you know, data

0:15:08.360 --> 0:15:10.840
<v Speaker 1>centers and like their chip program, But some of it

0:15:10.880 --> 0:15:15.000
<v Speaker 1>is just salaries, and the salaries are stuck and that's

0:15:15.040 --> 0:15:17.200
<v Speaker 1>expensive too, and you know there's a there's a limit

0:15:17.280 --> 0:15:19.160
<v Speaker 1>on that much you can do without raising equity.

0:15:19.480 --> 0:15:22.200
<v Speaker 2>For sure, can I read you a headline without contacts

0:15:22.200 --> 0:15:23.760
<v Speaker 2>that just crossed and you can tell me if you

0:15:23.760 --> 0:15:24.800
<v Speaker 2>don't want to talk about it?

0:15:24.880 --> 0:15:30.320
<v Speaker 1>Sure? Is it good? Free register? I bet I'm not

0:15:30.320 --> 0:15:31.320
<v Speaker 1>going to want to talk about it.

0:15:31.800 --> 0:15:37.360
<v Speaker 2>Jane Street is planning to build data center. Yes, yes,

0:15:37.880 --> 0:15:40.160
<v Speaker 2>the headline is Jane Street plants new data center as

0:15:40.200 --> 0:15:44.320
<v Speaker 2>compute power runs scarce. So Jane Street also getting in.

0:15:44.360 --> 0:15:47.480
<v Speaker 1>Sure, like All the big quant firms have been AI

0:15:47.640 --> 0:15:49.560
<v Speaker 1>firms forever, right. I mean they have like a big

0:15:49.600 --> 0:15:53.240
<v Speaker 1>machine learning model that takes stock prices and predicts future

0:15:53.240 --> 0:15:56.800
<v Speaker 1>stock prices, and so you know, they need data centers

0:15:56.800 --> 0:15:59.160
<v Speaker 1>and all the rest of it. It's the same model

0:16:00.120 --> 0:16:04.040
<v Speaker 1>frontier AI lab or you're a you know, electronic quantrating

0:16:04.040 --> 0:16:05.760
<v Speaker 1>for him, it's the same thing. That's why deep seek

0:16:05.840 --> 0:16:07.080
<v Speaker 1>is both it's it's the.

0:16:07.000 --> 0:16:08.680
<v Speaker 2>Same models, turtles all the way down.

0:16:08.800 --> 0:16:11.480
<v Speaker 1>Yeah. Yeah, the data centers are bigger when you're doing

0:16:11.840 --> 0:16:14.160
<v Speaker 1>like a frontier AI lab, but it's the same idea.

0:16:14.200 --> 0:16:16.360
<v Speaker 2>I just feel like I should be building a data center.

0:16:17.000 --> 0:16:18.840
<v Speaker 2>Why am I sitting in this room talking about it.

0:16:18.960 --> 0:16:22.320
<v Speaker 1>I just like living my lip in a way that

0:16:22.360 --> 0:16:39.160
<v Speaker 1>I do not need to build a data center. We're

0:16:40.120 --> 0:16:41.040
<v Speaker 1>shoot him on the pod.

0:16:41.640 --> 0:16:44.680
<v Speaker 2>Yeah, I mean he's not sentenced until August thirty first,

0:16:44.800 --> 0:16:46.040
<v Speaker 2>so he's out and.

0:16:46.040 --> 0:16:50.000
<v Speaker 1>About and like pretty vocal and like not wrong. Yeah,

0:16:50.320 --> 0:16:52.280
<v Speaker 1>he was going to be kind of short selling this week,

0:16:52.280 --> 0:16:56.200
<v Speaker 1>did you see. Yeah, the prosecutor who prosecuted him tweeted

0:17:00.000 --> 0:17:02.800
<v Speaker 1>Los Angeles Federal Jury. This is quoting the presetar. Los

0:17:02.840 --> 0:17:05.960
<v Speaker 1>Angeles Federal Jury has found Andrew Left guilty of market manipulation.

0:17:06.040 --> 0:17:09.440
<v Speaker 1>He used media appearances and his company to illegally influence

0:17:09.520 --> 0:17:14.960
<v Speaker 1>share prices and make quick profits, known as shortingh He

0:17:15.040 --> 0:17:16.959
<v Speaker 1>later walked I back a little bit to like shorting

0:17:17.000 --> 0:17:19.359
<v Speaker 1>is not illegal, but like you know that he thinks

0:17:19.400 --> 0:17:22.480
<v Speaker 1>it is. Yeah, but yeah, Andrew Left did some short

0:17:22.480 --> 0:17:28.160
<v Speaker 1>selling charge with market medization convicted this week. Not great

0:17:28.200 --> 0:17:28.879
<v Speaker 1>for short selling.

0:17:29.160 --> 0:17:31.639
<v Speaker 2>No, I'm going to steal a line from Carson Block.

0:17:31.920 --> 0:17:36.879
<v Speaker 2>Muddy Waters Research tweeted this rate before we started recording.

0:17:37.160 --> 0:17:39.280
<v Speaker 2>It's a very long tweet. It's like a Bill Ackman

0:17:39.400 --> 0:17:42.919
<v Speaker 2>length tweet. But he said that the jury convicted Andrew

0:17:42.960 --> 0:17:46.720
<v Speaker 2>of not actually believing the opinions he stated in his tweets,

0:17:47.200 --> 0:17:48.080
<v Speaker 2>which is interesting.

0:17:48.320 --> 0:17:50.119
<v Speaker 1>I think it is pretty clearly legal to do the

0:17:50.200 --> 0:17:53.359
<v Speaker 1>following research a company find out that it's a fraud,

0:17:53.800 --> 0:17:56.520
<v Speaker 1>short at stock, do active as shorting. I announce it

0:17:56.560 --> 0:17:58.639
<v Speaker 1>your short announced that it's a fraud, put out your research,

0:17:59.200 --> 0:18:03.679
<v Speaker 1>wat's the stock up, and then have a paper profit

0:18:03.800 --> 0:18:06.840
<v Speaker 1>from the stock dropping. But what Andrew Left did that

0:18:07.119 --> 0:18:10.760
<v Speaker 1>upset prosecutors was two things. One is that he closed

0:18:10.800 --> 0:18:20.440
<v Speaker 1>his positions very soon after tweeting, and that is ugly right,

0:18:20.880 --> 0:18:23.960
<v Speaker 1>if you take all of your profits from the immediate

0:18:24.000 --> 0:18:26.160
<v Speaker 1>reaction to your tweet rather than from like the stock

0:18:26.240 --> 0:18:29.120
<v Speaker 1>ultimately going to zero because it's a fraud, then like

0:18:29.680 --> 0:18:31.720
<v Speaker 1>is that because you really thought the stock was going

0:18:31.760 --> 0:18:34.400
<v Speaker 1>to zero or because you were just trying to manipulate

0:18:34.400 --> 0:18:37.119
<v Speaker 1>retail investors to sell the stock and you were like

0:18:37.280 --> 0:18:39.720
<v Speaker 1>buying into their demand. And if you do it the

0:18:39.720 --> 0:18:42.119
<v Speaker 1>other way, if you say I love the stock that

0:18:42.160 --> 0:18:44.919
<v Speaker 1>you've got a cure for cancer, and people buy the

0:18:44.960 --> 0:18:47.239
<v Speaker 1>stock and it goes up and you immediately sell all

0:18:47.320 --> 0:18:50.800
<v Speaker 1>of your stock, that really looks like a pump and dump.

0:18:51.040 --> 0:18:52.800
<v Speaker 1>And by the way, like Andrew Left did some of

0:18:52.840 --> 0:18:55.840
<v Speaker 1>that right, but he didn't for like Nvidia, where like

0:18:56.320 --> 0:19:00.840
<v Speaker 1>you know, if you bought into his tweets, you did great,

0:19:01.119 --> 0:19:03.960
<v Speaker 1>So it's fine, except that he was convicted of frauder day.

0:19:04.440 --> 0:19:05.920
<v Speaker 1>So like one thing that he did was to close

0:19:05.960 --> 0:19:08.040
<v Speaker 1>out his position very quickly, which I don't have a

0:19:08.119 --> 0:19:11.520
<v Speaker 1>huge problem with, but like it's ugly. And the other

0:19:11.560 --> 0:19:13.720
<v Speaker 1>thing he did is that there's like evidence there's like

0:19:13.880 --> 0:19:18.240
<v Speaker 1>internal messages that don't say like I don't believe this opinion,

0:19:18.560 --> 0:19:22.440
<v Speaker 1>but sort of sound like he was pretty sloppy and

0:19:22.720 --> 0:19:25.720
<v Speaker 1>wasn't putting out reports because he had done months of

0:19:25.720 --> 0:19:29.719
<v Speaker 1>deep fundamental research and was deeply convinced of his thesis.

0:19:29.760 --> 0:19:31.919
<v Speaker 1>But he was putting them at because he thought, if

0:19:31.960 --> 0:19:34.000
<v Speaker 1>I put out this report, the stock will drop and

0:19:34.040 --> 0:19:38.359
<v Speaker 1>I'll immediately take profits. And I don't think there's like

0:19:39.080 --> 0:19:41.840
<v Speaker 1>smoking gun, slammed on evidence over there, those things. But yeah,

0:19:41.920 --> 0:19:43.879
<v Speaker 1>like I can see how he was convicted. It's just

0:19:43.920 --> 0:19:46.600
<v Speaker 1>like it's very troubling because like there's no bright line anywhere,

0:19:46.960 --> 0:19:49.760
<v Speaker 1>you know, when he was charged. One thing that Andrew

0:19:49.800 --> 0:19:51.520
<v Speaker 1>Left did as a sort of publicity stunt was that

0:19:51.560 --> 0:19:55.520
<v Speaker 1>he like sent the SEC letters saying, please, like publish

0:19:55.520 --> 0:19:59.000
<v Speaker 1>a rule about how long I have to maintain a position,

0:19:59.240 --> 0:20:00.679
<v Speaker 1>Like I just want to Well, if you tell me,

0:20:00.680 --> 0:20:03.680
<v Speaker 1>I'll do it. Like if I'm not allowed to cover

0:20:03.720 --> 0:20:05.760
<v Speaker 1>my shorts for twenty four hours after I tweet them

0:20:05.760 --> 0:20:07.280
<v Speaker 1>I'm short, then like fine, I will do that. But

0:20:07.400 --> 0:20:09.479
<v Speaker 1>like I don't know what the rule is. There's no

0:20:09.480 --> 0:20:12.560
<v Speaker 1>bright line. Tell me what the rule is. And the

0:20:12.600 --> 0:20:15.320
<v Speaker 1>SEC ignored him, And I think the SEC is right

0:20:15.359 --> 0:20:19.080
<v Speaker 1>to ignore him because it's clearly just a matter of intent, right,

0:20:19.240 --> 0:20:21.520
<v Speaker 1>Like if you really truly believe this company is a

0:20:21.520 --> 0:20:23.919
<v Speaker 1>fraud and you short the stock and you say this

0:20:23.960 --> 0:20:26.240
<v Speaker 1>company is a fraud and the stock falls ninety percent,

0:20:27.160 --> 0:20:29.480
<v Speaker 1>and you're like, well, there's a matter of risk management.

0:20:30.119 --> 0:20:32.080
<v Speaker 1>I've you know, made ninety percent of the profits I

0:20:32.119 --> 0:20:34.680
<v Speaker 1>was hoping to make, and like, I need to conserve

0:20:34.680 --> 0:20:36.399
<v Speaker 1>capital and move on to the next trade. I'm going

0:20:36.440 --> 0:20:40.480
<v Speaker 1>to cover. And then like you announce your cover, you're

0:20:40.480 --> 0:20:42.919
<v Speaker 1>honest about like maybe it's fine. Maybe it's fine if

0:20:42.920 --> 0:20:45.639
<v Speaker 1>you have like a really good, well documented process. But

0:20:45.680 --> 0:20:47.480
<v Speaker 1>if you have a very sloppy process and you cover

0:20:47.520 --> 0:20:48.960
<v Speaker 1>in five minutes, then that looks bad.

0:20:49.119 --> 0:20:51.399
<v Speaker 2>Yeah, I was gonna say, it's hard to prove intent.

0:20:51.680 --> 0:20:56.280
<v Speaker 1>It's hard to prove intense. And I think that the

0:20:56.400 --> 0:20:59.480
<v Speaker 1>prosecutors were obligated to prove that Andrew Left had the

0:20:59.480 --> 0:21:03.159
<v Speaker 1>bad and they convinced the jury that he had the

0:21:03.160 --> 0:21:05.800
<v Speaker 1>bad intent because like the way you prove intent is

0:21:06.040 --> 0:21:09.280
<v Speaker 1>they have messages from him to like his buddies, saying

0:21:09.320 --> 0:21:12.320
<v Speaker 1>things like, I have a hot voice in cannabis. It's

0:21:12.400 --> 0:21:14.040
<v Speaker 1>it's cannabis but spelled.

0:21:14.280 --> 0:21:18.959
<v Speaker 2>Cannabass, delicious fish.

0:21:17.520 --> 0:21:19.560
<v Speaker 1>I have a hot voice in cannabis. Let's take advantage

0:21:19.560 --> 0:21:22.120
<v Speaker 1>of it. I don't know. Doesn't that sound like he's

0:21:22.160 --> 0:21:24.960
<v Speaker 1>trying to get retail traders to dump the stock rather

0:21:25.000 --> 0:21:27.520
<v Speaker 1>than he believes that these companies are front But the things,

0:21:27.560 --> 0:21:30.720
<v Speaker 1>it's like it can be both, right, Like it's clearly both,

0:21:31.000 --> 0:21:34.200
<v Speaker 1>like he clearly believed these companies were bad. And also

0:21:34.320 --> 0:21:36.920
<v Speaker 1>like at this trial they had people testify who are

0:21:36.920 --> 0:21:39.320
<v Speaker 1>like I put my life savings to these cannabis stocks

0:21:39.520 --> 0:21:42.320
<v Speaker 1>and then he told me they were frauds and they

0:21:42.359 --> 0:21:44.760
<v Speaker 1>went down. I lost my life savings. What a monster.

0:21:44.800 --> 0:21:47.600
<v Speaker 1>It's like, no, they were frauds, like they stayed down. Yeah,

0:21:47.800 --> 0:21:50.480
<v Speaker 1>it's not like it's only they went down momentarily because

0:21:50.480 --> 0:21:52.640
<v Speaker 1>he was lying, Like they stayed down, like he was right.

0:21:53.160 --> 0:21:55.680
<v Speaker 1>And again like he was convicted of pumping and dumping

0:21:55.760 --> 0:22:00.600
<v Speaker 1>in Vidia. Yeah, in Vidia in like two thousand seventeen

0:22:00.720 --> 0:22:04.040
<v Speaker 1>ors on that great trade buying in video.

0:22:04.480 --> 0:22:07.320
<v Speaker 2>Who is influential enough that they could pump and dump in.

0:22:07.760 --> 0:22:10.679
<v Speaker 1>Before it was like in video It's still it was

0:22:10.680 --> 0:22:12.119
<v Speaker 1>a good trade if you bought in video.

0:22:12.680 --> 0:22:15.320
<v Speaker 2>Yeah. Well, it sounds like Andrew Left is going to

0:22:15.359 --> 0:22:15.879
<v Speaker 2>appeal this.

0:22:16.560 --> 0:22:19.240
<v Speaker 1>It's awesome really, like I could see this going anither way,

0:22:19.280 --> 0:22:21.240
<v Speaker 1>But I'm I think most people in finance are kind

0:22:21.240 --> 0:22:25.560
<v Speaker 1>of sympathetic to Andrew Left here, Like the messages are

0:22:25.560 --> 0:22:28.920
<v Speaker 1>not all great, but like it's really it's a very

0:22:28.960 --> 0:22:30.280
<v Speaker 1>blurry situation where you.

0:22:30.320 --> 0:22:33.600
<v Speaker 2>Got who among us US hasn't sent a sloppy.

0:22:34.880 --> 0:22:36.639
<v Speaker 1>Everything is security is right. You can't really hold a

0:22:36.680 --> 0:22:38.040
<v Speaker 1>little securities right against people.

0:22:38.040 --> 0:22:42.040
<v Speaker 2>But he also testified in his own defense, which is unusual.

0:22:42.160 --> 0:22:44.119
<v Speaker 1>I think he's gonna say everyone says it's unusual.

0:22:44.119 --> 0:22:45.680
<v Speaker 2>I'm going to say, you're a lawyer.

0:22:46.640 --> 0:22:47.560
<v Speaker 1>I'm not a real lawyer.

0:22:48.000 --> 0:22:50.120
<v Speaker 2>You're more of a lawyer than I am.

0:22:50.359 --> 0:22:52.359
<v Speaker 1>No. I know a lot of real criminal defense layers,

0:22:52.400 --> 0:22:56.200
<v Speaker 1>and they all, for the most part share the view

0:22:56.240 --> 0:22:58.399
<v Speaker 1>of every other criminal defenseiler in the world is that

0:22:58.520 --> 0:23:00.960
<v Speaker 1>you should never testify on your own defense. But me,

0:23:01.040 --> 0:23:03.000
<v Speaker 1>it's just the guy. I'm like, I don't know if

0:23:03.000 --> 0:23:05.240
<v Speaker 1>you think you're in It's like they bet Andrew left

0:23:05.320 --> 0:23:08.600
<v Speaker 1>was a belligerent but credible witness, Like I bet he

0:23:08.720 --> 0:23:12.400
<v Speaker 1>did a good job. Apparently not good enough, but well again.

0:23:12.520 --> 0:23:15.800
<v Speaker 2>Sentencing on August thirty first sounds like he's going to appeal.

0:23:15.920 --> 0:23:17.800
<v Speaker 1>I think the right outcome here is that he should

0:23:17.800 --> 0:23:21.679
<v Speaker 1>be convicted, and he should get zero days in prison.

0:23:21.960 --> 0:23:23.480
<v Speaker 1>I think it's like, yeah, he did a little light

0:23:23.520 --> 0:23:26.880
<v Speaker 1>security sprout, it's fine, but like he didn't hurt anyone.

0:23:27.520 --> 0:23:30.040
<v Speaker 2>There is the question about what effect this is going

0:23:30.080 --> 0:23:31.160
<v Speaker 2>to have on short cellars.

0:23:31.200 --> 0:23:34.720
<v Speaker 1>Yea, it is back when he got charged. Kristol is

0:23:34.760 --> 0:23:36.840
<v Speaker 1>another like active at short seller. They put out some

0:23:36.880 --> 0:23:40.760
<v Speaker 1>report on some company that had this big, like sarcastic

0:23:40.840 --> 0:23:43.479
<v Speaker 1>disclaimer at the end that was like, we don't know

0:23:44.400 --> 0:23:46.440
<v Speaker 1>like what we're allowed to do now, but you should

0:23:46.520 --> 0:23:49.320
<v Speaker 1>just assume that we covered our short immediately. Yeah, which

0:23:49.320 --> 0:23:51.560
<v Speaker 1>I don't think works as a disclaimer, but.

0:23:51.400 --> 0:23:53.200
<v Speaker 2>We definitely discussed that on this podcast.

0:23:53.359 --> 0:23:55.600
<v Speaker 1>Right, no one knows what the rules are, and like

0:23:56.760 --> 0:23:58.600
<v Speaker 1>the rule, there's a rule, right, the rule is like

0:23:58.680 --> 0:24:00.200
<v Speaker 1>don't have a bad intent.

0:24:00.400 --> 0:24:02.160
<v Speaker 2>But be good, be good.

0:24:02.240 --> 0:24:02.520
<v Speaker 1>Yeah.

0:24:02.680 --> 0:24:04.520
<v Speaker 2>There were interesting numbers in this story from the Wall

0:24:04.560 --> 0:24:08.360
<v Speaker 2>Street Journal on the chilling effect that basically this case

0:24:08.400 --> 0:24:10.560
<v Speaker 2>and probably other things have had on the short selling

0:24:10.560 --> 0:24:13.280
<v Speaker 2>industry overall. That apparently there were thirty one activist short

0:24:13.320 --> 0:24:15.640
<v Speaker 2>selling funds that have published research so far this year.

0:24:16.119 --> 0:24:19.399
<v Speaker 2>That compares to fifty five in twenty twenty. That is,

0:24:19.440 --> 0:24:22.920
<v Speaker 2>according to research firm breakout points by the way, Like.

0:24:23.160 --> 0:24:25.400
<v Speaker 1>What else has changed between now and twenty twenty is.

0:24:25.640 --> 0:24:26.640
<v Speaker 2>The lines going up.

0:24:26.920 --> 0:24:30.400
<v Speaker 1>The line's going up, and particularly the line's going vertically

0:24:30.480 --> 0:24:37.000
<v Speaker 1>up at certain dubious smallish cap stocks that were heavily shorted. Right, Yes,

0:24:37.320 --> 0:24:39.880
<v Speaker 1>the memestock thing was not great for activist short sellers either.

0:24:40.040 --> 0:24:43.359
<v Speaker 2>Fair point, fair point, there's a number of potential factors there.

0:24:43.800 --> 0:24:45.720
<v Speaker 1>This is bad. Like if you say a stock is

0:24:45.760 --> 0:24:48.720
<v Speaker 1>good and the stock goes up and you immediately sell,

0:24:48.880 --> 0:24:50.639
<v Speaker 1>that's a pump it dump. That looks bad, right, But

0:24:50.680 --> 0:24:52.399
<v Speaker 1>if you say a stock is bad and the stock

0:24:52.440 --> 0:24:55.920
<v Speaker 1>goes down and you immediately cover, like that is symmetric,

0:24:56.000 --> 0:25:00.240
<v Speaker 1>but it's it's like it's prudent risk management. Yeah, hard

0:25:00.240 --> 0:25:02.920
<v Speaker 1>to be a short seller and you're like lightly capitalized

0:25:03.119 --> 0:25:05.840
<v Speaker 1>and you're at a lot of risk. And if you

0:25:06.440 --> 0:25:09.359
<v Speaker 1>do the work of identifying the problem in a company

0:25:09.400 --> 0:25:11.840
<v Speaker 1>and the market reacts to your identifying the problem and

0:25:11.880 --> 0:25:13.520
<v Speaker 1>you're like, Okay, my work here is done. I'm going

0:25:13.600 --> 0:25:15.679
<v Speaker 1>to cover this and move on. Like I am sympathetic

0:25:15.720 --> 0:25:19.480
<v Speaker 1>to that, and that is now much riskier.

0:25:19.920 --> 0:25:21.800
<v Speaker 2>Well, it seems like the neatest solution would be the

0:25:21.800 --> 0:25:25.240
<v Speaker 2>one that you already mentioned, which is basically what Andrew

0:25:25.280 --> 0:25:27.920
<v Speaker 2>left ask the sec to do, which is tell.

0:25:27.760 --> 0:25:30.439
<v Speaker 1>Me how old it's an intent thing?

0:25:30.920 --> 0:25:31.840
<v Speaker 2>How do you prove that?

0:25:32.160 --> 0:25:33.680
<v Speaker 1>And by the way, like you know, having to wait

0:25:33.720 --> 0:25:35.720
<v Speaker 1>a day is makes the responishment harder. But how do

0:25:35.760 --> 0:25:37.639
<v Speaker 1>you prove intent? Like you don't write emails saying like

0:25:37.680 --> 0:25:39.479
<v Speaker 1>I have a hot voice and cannabis, let's take advantage

0:25:39.520 --> 0:25:39.679
<v Speaker 1>of it.

0:25:39.680 --> 0:25:42.800
<v Speaker 2>Well that's easy, yeah, you say.

0:25:42.600 --> 0:25:44.840
<v Speaker 1>That, But like, as someone who writes a lot about

0:25:44.840 --> 0:25:47.000
<v Speaker 1>like securities, fraad Case has, like the hardest thing in

0:25:47.040 --> 0:25:50.560
<v Speaker 1>the world is not putting your criminal intent and your

0:25:50.920 --> 0:25:52.040
<v Speaker 1>messages to your buddies.

0:25:52.080 --> 0:25:55.200
<v Speaker 2>I guess I just don't do enough crimes, you know, God, I.

0:25:55.119 --> 0:25:59.920
<v Speaker 1>Mean I try to every so often. I fedotic sense.

0:26:00.000 --> 0:26:02.719
<v Speaker 1>I want a dumb text and be like, not o crimes,

0:26:02.720 --> 0:26:04.600
<v Speaker 1>but just you know, like the texts I would move

0:26:04.640 --> 0:26:05.920
<v Speaker 1>on on the front page of the Wall Street Journal,

0:26:05.960 --> 0:26:08.840
<v Speaker 1>and I think, have I learned nothing from my career?

0:26:18.320 --> 0:26:19.880
<v Speaker 1>And that was the Money Stuff podcast.

0:26:20.200 --> 0:26:22.359
<v Speaker 2>I'm Matt Levine and I'm Katie Greifeld.

0:26:22.520 --> 0:26:24.680
<v Speaker 1>You can find my work by subscribing to the Money

0:26:24.680 --> 0:26:27.280
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0:26:46.960 --> 0:26:51.280
<v Speaker 1>The Money Stuff Podcast is produced by Anamasarakis, Moses Onm

0:26:51.680 --> 0:26:53.720
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<v Speaker 2>Theme music was composed by Blake.

0:26:55.359 --> 0:26:59.879
<v Speaker 1>Maples Amy Keen as our executive producer. Thanks for listening

0:26:59.880 --> 0:27:02.359
<v Speaker 1>to The Money Stuff Podcast. We'll be back next week

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<v Speaker 1>with more stuff. M