1 00:00:02,720 --> 00:00:08,880 Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. So here we are. 2 00:00:08,960 --> 00:00:12,319 Speaker 2: I guess around the clock. It's been approximately six months 3 00:00:12,400 --> 00:00:14,160 Speaker 2: since we recorded a podcast together. 4 00:00:14,360 --> 00:00:15,400 Speaker 1: Right, It's good to see. 5 00:00:15,640 --> 00:00:18,760 Speaker 2: It's nice to see you. You look crested, you got 6 00:00:18,760 --> 00:00:21,040 Speaker 2: a haircut, you're clean shaven, you have a tan. 7 00:00:21,239 --> 00:00:24,960 Speaker 1: Yeah. Yeah, yeah, it was nice. I missed the podcast, 8 00:00:25,040 --> 00:00:25,560 Speaker 1: of course. 9 00:00:25,400 --> 00:00:27,319 Speaker 2: But it was nice being making you're so full of it. 10 00:00:27,520 --> 00:00:33,159 Speaker 1: Yeah. Yeah, we're both like being incredibly insincere. Yeah, here 11 00:00:33,159 --> 00:00:33,400 Speaker 1: we are. 12 00:00:33,640 --> 00:00:36,040 Speaker 2: Yeah, I will say it was nice to you know, 13 00:00:36,159 --> 00:00:38,360 Speaker 2: roll into Thursday the last two weeks and been like 14 00:00:38,400 --> 00:00:40,880 Speaker 2: oh my god, and then have been like, oh wait, no, 15 00:00:41,000 --> 00:00:43,400 Speaker 2: everything's fine. I don't have to record anything right now. 16 00:00:43,920 --> 00:00:49,440 Speaker 1: I share that feeling. And also this Thursday was not 17 00:00:49,720 --> 00:00:50,080 Speaker 1: like that. 18 00:00:50,400 --> 00:00:52,360 Speaker 2: Yeah. We should set up a Patreon. 19 00:00:53,840 --> 00:00:56,760 Speaker 1: Hello, and welcome to the Money Stuff Podcast. You're a 20 00:00:56,760 --> 00:01:00,880 Speaker 1: weekly podcast where we talk about stuff related to money. 21 00:01:01,520 --> 00:01:03,680 Speaker 1: I'm Matt Levine and I write the Moneys Doff com 22 00:01:03,760 --> 00:01:04,679 Speaker 1: for Bloomberg Opinion. 23 00:01:05,280 --> 00:01:08,080 Speaker 2: And I'm Katie Greifeld, a reporter for Bloomberg News and 24 00:01:08,120 --> 00:01:09,759 Speaker 2: an anchor for Bloomberg Television. 25 00:01:10,800 --> 00:01:12,080 Speaker 1: Yeah, Taylor shows, gotting engaged. 26 00:01:12,160 --> 00:01:17,440 Speaker 2: Yeah, biggest financial market news of the week. Pretty surprising, 27 00:01:17,640 --> 00:01:20,640 Speaker 2: but not to at least one person named Romantic Paul. 28 00:01:20,760 --> 00:01:23,800 Speaker 1: You know, several people sent me this thing, is it right? 29 00:01:23,840 --> 00:01:26,199 Speaker 1: So like a guy made a well time you assume 30 00:01:26,200 --> 00:01:29,920 Speaker 1: it's a man. Yeah, a user with the account named 31 00:01:30,000 --> 00:01:33,320 Speaker 1: Romantic Paul made a well time trade on polymarket on 32 00:01:33,600 --> 00:01:41,920 Speaker 1: Taylors just getting engaged. Basically, like that contract was trading 33 00:01:41,959 --> 00:01:44,520 Speaker 1: it like twenty five percent, and then it spiked up 34 00:01:44,520 --> 00:01:47,360 Speaker 1: to like like forty percent like the day before she 35 00:01:47,400 --> 00:01:50,360 Speaker 1: got engaged. Yeah, and several people sent that to me, 36 00:01:50,520 --> 00:01:52,560 Speaker 1: and it's like, you know, like people were interested in 37 00:01:52,600 --> 00:01:56,840 Speaker 1: that stuff, but like that was a contract with a 38 00:01:56,880 --> 00:02:00,680 Speaker 1: couple one hundred thousand dollars of that's outstanding. Yeah, And 39 00:02:00,760 --> 00:02:04,160 Speaker 1: Rheumatic Paul seems to admit on the order of three 40 00:02:04,240 --> 00:02:07,480 Speaker 1: thousand dollars on this wall time trade. So was it 41 00:02:07,560 --> 00:02:10,280 Speaker 1: the biggest financial market use of Oh no. 42 00:02:10,280 --> 00:02:13,040 Speaker 2: I'm just talking about the magnitude of tailor Swift getting. 43 00:02:12,720 --> 00:02:14,840 Speaker 1: Engaged, right right, scenting. 44 00:02:14,680 --> 00:02:16,840 Speaker 2: Ripples across all financial. 45 00:02:16,520 --> 00:02:18,200 Speaker 1: Okay, you're saying, like Treasury is sold off. 46 00:02:18,280 --> 00:02:23,600 Speaker 2: Yeah, yeah, you didn't need a haven asset in that scenario. 47 00:02:23,800 --> 00:02:24,600 Speaker 2: America's back. 48 00:02:24,680 --> 00:02:27,640 Speaker 1: Hey, you saw your tweet like you're bearish and Taylor 49 00:02:27,680 --> 00:02:28,919 Speaker 1: Swift got engaged in your. 50 00:02:28,760 --> 00:02:31,760 Speaker 2: Bears, You're parish, Taylor Swift gone engaged in your bears. 51 00:02:31,800 --> 00:02:34,320 Speaker 1: Just a risk one moment. Yeah, soa, I'm sorry, I 52 00:02:34,320 --> 00:02:36,200 Speaker 1: take it back. I was just talking about the narrow No, 53 00:02:36,400 --> 00:02:38,760 Speaker 1: that's so many things. It's like submission markets, like you 54 00:02:38,800 --> 00:02:41,760 Speaker 1: can specifically bet on or had a specific thing, but 55 00:02:41,800 --> 00:02:44,440 Speaker 1: then like those things often have brought her financial market 56 00:02:44,440 --> 00:02:46,920 Speaker 1: implications and so like you can you can structure your 57 00:02:46,919 --> 00:02:49,280 Speaker 1: tailor Swift trade by like, I don't know ing the 58 00:02:49,360 --> 00:02:49,680 Speaker 1: S and P. 59 00:02:49,919 --> 00:02:53,360 Speaker 2: I have to say, I am surprised that it was 60 00:02:53,400 --> 00:02:55,799 Speaker 2: only about twenty five percent odds. I wish I had 61 00:02:55,880 --> 00:02:58,080 Speaker 2: known that it was trading that cheap. 62 00:02:58,160 --> 00:02:59,720 Speaker 1: Yeah, it was like it was she gets engaged by 63 00:02:59,760 --> 00:03:02,919 Speaker 1: the end of this year. Yeah, that seems cheap. 64 00:03:02,720 --> 00:03:05,560 Speaker 2: It does, I mean, especially right now when she's engaged 65 00:03:06,560 --> 00:03:10,680 Speaker 2: after this. For sure, I knew you raised the point 66 00:03:10,800 --> 00:03:14,840 Speaker 2: that she got engaged two weeks ago, so theoretically someone 67 00:03:15,040 --> 00:03:18,120 Speaker 2: probably knew. So maybe there was an element of insider 68 00:03:18,160 --> 00:03:18,639 Speaker 2: trading here. 69 00:03:18,800 --> 00:03:21,200 Speaker 1: Yeah, although again, like you know the amount of money 70 00:03:21,200 --> 00:03:23,240 Speaker 1: that you could make insider trading on the Taylor sw 71 00:03:23,240 --> 00:03:27,280 Speaker 1: with engagement news is in the like single digit thousands of. 72 00:03:27,240 --> 00:03:31,799 Speaker 2: Dollars single digit thousands. Yeah, what if you uh? Can 73 00:03:31,840 --> 00:03:32,760 Speaker 2: you lover these bets? 74 00:03:32,960 --> 00:03:35,360 Speaker 1: The problem is finding people to bet against yours a. 75 00:03:35,520 --> 00:03:38,880 Speaker 1: It's a prediction market, and to bet on yes, you 76 00:03:38,920 --> 00:03:40,520 Speaker 1: have to find people who are willing to bet on now. 77 00:03:40,560 --> 00:03:42,200 Speaker 1: And you know the number of people who wanted to 78 00:03:42,200 --> 00:03:44,640 Speaker 1: put millions of dollars into betting that Taylor's with won't 79 00:03:44,680 --> 00:03:47,200 Speaker 1: get engaged against the highly motivated buyer. 80 00:03:47,920 --> 00:03:52,640 Speaker 2: That's true. I guess if you knew for sure, you'd 81 00:03:52,640 --> 00:03:54,160 Speaker 2: probably just sell to a tabloid. 82 00:03:54,200 --> 00:03:57,280 Speaker 1: But right, right, right, or like you can make a 83 00:03:57,320 --> 00:03:59,240 Speaker 1: lot more, just like be friends with Taylor Swift just 84 00:03:59,240 --> 00:04:00,280 Speaker 1: seems like a lucid. 85 00:04:00,520 --> 00:04:04,840 Speaker 2: Yeah, there's a few things that point to this being 86 00:04:05,200 --> 00:04:07,800 Speaker 2: not insider trading or a person who didn't know for sure. 87 00:04:08,240 --> 00:04:10,880 Speaker 2: We were just joking. In hindsight, of course it seems obvious. 88 00:04:10,920 --> 00:04:17,760 Speaker 2: But also they got engaged theoretically right after they podcasts. 89 00:04:17,800 --> 00:04:21,120 Speaker 2: Actually the Kelsey brother It's funny how that happens. Maybe 90 00:04:21,120 --> 00:04:23,599 Speaker 2: I'll go repropose to my husband after this. But anyway, 91 00:04:24,440 --> 00:04:28,200 Speaker 2: Taylor Swift, sorry, this is for the Swifties out there. 92 00:04:28,320 --> 00:04:31,760 Speaker 2: She hasn't done an interview like that with a previous 93 00:04:31,839 --> 00:04:34,920 Speaker 2: romantic partner of that scale. I mean this, you. 94 00:04:35,160 --> 00:04:37,720 Speaker 1: Dated a podcaster before. Maybe I'm wrong, I probably I know. 95 00:04:37,760 --> 00:04:40,960 Speaker 2: But she's dated other famous people where theoretically they could 96 00:04:40,960 --> 00:04:46,200 Speaker 2: have done a joint appearance like that. They didn't, I know, 97 00:04:46,200 --> 00:04:47,800 Speaker 2: but they could have found a podcast to go on, 98 00:04:47,920 --> 00:04:50,080 Speaker 2: is what I'm saying. Like, she hasn't like sat in 99 00:04:50,160 --> 00:04:53,840 Speaker 2: an interview or done anything like that with previous partners. 100 00:04:53,880 --> 00:04:57,920 Speaker 2: So you could watch the New Heights episode, which millions 101 00:04:57,960 --> 00:05:00,599 Speaker 2: of people did, be like, oh wow, these two people 102 00:05:01,040 --> 00:05:03,800 Speaker 2: clearly like each other, and that was the. 103 00:05:04,120 --> 00:05:06,479 Speaker 1: Really love that. Like you're like, no, you had to 104 00:05:06,600 --> 00:05:09,119 Speaker 1: know they're getting engaged because they podcasted together. 105 00:05:09,200 --> 00:05:12,320 Speaker 2: Well no, it was also a video podcast, which video podcast, 106 00:05:12,360 --> 00:05:14,520 Speaker 2: by the way, we should probably do more of anyway, 107 00:05:14,560 --> 00:05:17,880 Speaker 2: you could really read their body language. But probably maybe 108 00:05:18,160 --> 00:05:20,000 Speaker 2: if you want to give romantic Paul the benefit of 109 00:05:20,000 --> 00:05:22,400 Speaker 2: the doubt, he saw that podcast was like, oh shoot, 110 00:05:22,440 --> 00:05:25,599 Speaker 2: these are two people who genuinely like each other, and 111 00:05:25,640 --> 00:05:28,440 Speaker 2: that that was that they'd get engaged sometime this year. 112 00:05:28,680 --> 00:05:33,000 Speaker 2: It's only August. Yeah, yeah, and they're thirty five years old. 113 00:05:33,240 --> 00:05:35,400 Speaker 1: Yeah. You make good points thank you. I really I 114 00:05:35,400 --> 00:05:38,239 Speaker 1: don't mean to suggest that Romantic Paul was insider trading 115 00:05:38,680 --> 00:05:40,200 Speaker 1: to make three thousand dollars. 116 00:05:39,880 --> 00:05:41,479 Speaker 2: On tellers thirty five hundred. 117 00:05:41,640 --> 00:05:44,080 Speaker 1: Prediction markets are so weird and interesting and so like 118 00:05:44,960 --> 00:05:48,520 Speaker 1: growing in importance and strange ways. And I think, you know, 119 00:05:48,960 --> 00:05:53,839 Speaker 1: the contours of insider trading around prediction markets are very strange. 120 00:05:54,200 --> 00:05:54,640 Speaker 2: Yeah. 121 00:05:54,720 --> 00:05:57,000 Speaker 1: I think of it mostly in connection with sports betting, 122 00:05:57,080 --> 00:05:59,440 Speaker 1: right because and this is not a sports bet, it's 123 00:05:59,480 --> 00:06:04,120 Speaker 1: sports that as a sports figure, but I have written 124 00:06:04,160 --> 00:06:07,800 Speaker 1: a lot about and we've talked about how prediction markets 125 00:06:08,160 --> 00:06:12,760 Speaker 1: are an interestingly important way to make sports bets because 126 00:06:14,240 --> 00:06:19,080 Speaker 1: it seems like right now CFTC regulated commodities futures markets 127 00:06:19,120 --> 00:06:22,640 Speaker 1: like CALCI are a way to make sports bets that 128 00:06:22,960 --> 00:06:26,159 Speaker 1: are not subject to state regulation, so you can like 129 00:06:26,400 --> 00:06:30,440 Speaker 1: you know, ignore state gambling laws and get better tax 130 00:06:30,480 --> 00:06:33,160 Speaker 1: treatment than actual gambling because right now, gambling losses are 131 00:06:33,200 --> 00:06:37,680 Speaker 1: not fully deductible in your taxes, but commodity trading losses 132 00:06:37,720 --> 00:06:42,920 Speaker 1: are probably fully deductible. So the prediction markets, that particularly Calshie, 133 00:06:42,920 --> 00:06:45,720 Speaker 1: are having a real moment for like becoming the sports 134 00:06:45,760 --> 00:06:49,920 Speaker 1: gambling platform. And you know, this week I wrote about 135 00:06:50,040 --> 00:06:52,960 Speaker 1: robinhood is pursuing Nevada regulators so that they can be 136 00:06:53,000 --> 00:06:56,479 Speaker 1: allowed to offer sports gambling. Robinhoo wouldn't say this, but 137 00:06:56,600 --> 00:06:58,479 Speaker 1: I would say, so they can be allowed to offer 138 00:06:58,520 --> 00:07:00,520 Speaker 1: sports gambling on their stock trading app, which is like, 139 00:07:00,600 --> 00:07:02,760 Speaker 1: you know, kind of amazing, but like just like sort 140 00:07:02,800 --> 00:07:06,880 Speaker 1: of where things are heading. And prediction markets are beloved 141 00:07:06,880 --> 00:07:11,480 Speaker 1: by like economists and like libertarian weirdos because like in theory, 142 00:07:11,520 --> 00:07:13,240 Speaker 1: if you had a prediction market and everything, then you 143 00:07:13,240 --> 00:07:15,880 Speaker 1: could like predict everything and like the world would be 144 00:07:15,880 --> 00:07:18,920 Speaker 1: better informed because markets would push prices to their correct place. 145 00:07:19,800 --> 00:07:22,720 Speaker 1: And there's a lot of skepticism about that because like, 146 00:07:22,760 --> 00:07:24,440 Speaker 1: in fact, people don't want to bet on all sorts 147 00:07:24,480 --> 00:07:27,960 Speaker 1: of nonsense, and like the big problem with prediction markets 148 00:07:27,960 --> 00:07:32,640 Speaker 1: has always been like outside of like the US presidential election, 149 00:07:33,240 --> 00:07:36,240 Speaker 1: it's hard to find a lot of people who are 150 00:07:36,280 --> 00:07:39,920 Speaker 1: really into betting on prediction markets because it doesn't sort 151 00:07:39,920 --> 00:07:43,280 Speaker 1: of serve any savings purpose and it's not a natural 152 00:07:43,320 --> 00:07:48,120 Speaker 1: home for gamblers, and so the volumes on prediction markets 153 00:07:48,120 --> 00:07:50,720 Speaker 1: are kind of small, and you can have your doubts 154 00:07:50,760 --> 00:07:53,400 Speaker 1: about how predictive the prices are. You know, again, outside 155 00:07:53,440 --> 00:07:57,760 Speaker 1: of like the US presidential election, and when prediction markets 156 00:07:57,760 --> 00:08:02,200 Speaker 1: get into the sports gambling game changes that dynamic entirely. 157 00:08:02,280 --> 00:08:02,440 Speaker 3: Right. 158 00:08:02,440 --> 00:08:05,640 Speaker 1: It means that like, if you look at Calshi and 159 00:08:05,720 --> 00:08:08,560 Speaker 1: you think this is the future of sports betting because 160 00:08:08,600 --> 00:08:11,720 Speaker 1: it has a better regulatory and tax treatment than the 161 00:08:11,760 --> 00:08:14,800 Speaker 1: sports books that are doing billions of dollars of bets, 162 00:08:15,640 --> 00:08:18,960 Speaker 1: then you're thinking Calshi is going to offer people campbells 163 00:08:18,960 --> 00:08:21,520 Speaker 1: that they want and that they come back to every day, right, 164 00:08:21,560 --> 00:08:27,440 Speaker 1: because sports are constantly happening, and so then all of 165 00:08:27,480 --> 00:08:29,560 Speaker 1: the ancillary stuff, all of the stuff like betting on 166 00:08:29,560 --> 00:08:31,880 Speaker 1: Taylor Swift's baby is like just more appealing because more 167 00:08:31,920 --> 00:08:34,920 Speaker 1: people have Calshie accounts and more people are you know, 168 00:08:35,080 --> 00:08:38,920 Speaker 1: betting there anyway, so they'll bet on when you know, 169 00:08:39,080 --> 00:08:41,280 Speaker 1: when the when the wedding will happen, and yeah, you. 170 00:08:41,240 --> 00:08:44,640 Speaker 2: Know, the network effects will kick in, Yeah. 171 00:08:44,400 --> 00:08:46,680 Speaker 1: The network, so you know people will betting on everything, 172 00:08:46,760 --> 00:08:51,400 Speaker 1: and then you know, you'll have a CFTC regulated licensed 173 00:08:51,760 --> 00:08:54,960 Speaker 1: US Commodities Exchange for sports betting. And then then what 174 00:08:55,080 --> 00:08:58,240 Speaker 1: happens when people start, you know, making insider bets on 175 00:08:58,280 --> 00:08:59,960 Speaker 1: sports or on Taylor Swifts And. 176 00:09:00,520 --> 00:09:04,040 Speaker 2: I should know this, but have DraftKings and FANDUL like, 177 00:09:04,080 --> 00:09:07,600 Speaker 2: have they tried to offer stock betting on their platforms? 178 00:09:07,840 --> 00:09:10,240 Speaker 1: Yeah, a little bit. It's funny Flutter, which is like the. 179 00:09:10,160 --> 00:09:12,120 Speaker 2: Parent company a fandel right, a FANDL. 180 00:09:12,200 --> 00:09:14,640 Speaker 1: Yeah, they're working on some sort of partnership with CME 181 00:09:14,880 --> 00:09:20,840 Speaker 1: to offer essentially sports book bets on yeah, financial outcome, 182 00:09:20,920 --> 00:09:22,160 Speaker 1: you know, like, well the s and PB up or 183 00:09:22,200 --> 00:09:25,760 Speaker 1: down today, Because yeah, for one thing, if you're a 184 00:09:25,760 --> 00:09:29,120 Speaker 1: gambling platform, offering people more bets is just more appealing, right, 185 00:09:29,240 --> 00:09:31,000 Speaker 1: just give them you have more touch points. And then 186 00:09:31,000 --> 00:09:33,920 Speaker 1: for another thing, if you're a gambling platform and you 187 00:09:33,960 --> 00:09:35,920 Speaker 1: look at what Calshi is doing, you have to think 188 00:09:36,320 --> 00:09:40,520 Speaker 1: maybe we should be in the futures trading business rather 189 00:09:40,559 --> 00:09:42,840 Speaker 1: than the sports book business because it's the same business 190 00:09:43,480 --> 00:09:45,520 Speaker 1: and it gets better tax and regulatory treatment. 191 00:09:45,840 --> 00:09:47,880 Speaker 2: Man, that's pretty wild. 192 00:09:48,040 --> 00:09:51,560 Speaker 1: Yeah, there's just like a lot of conversions between gambling 193 00:09:51,600 --> 00:09:54,160 Speaker 1: and financial markets. 194 00:09:54,280 --> 00:09:57,920 Speaker 2: Parallels here to private markets becoming the public market. 195 00:09:58,080 --> 00:10:01,720 Speaker 1: Yeah, the betting markets are becoming the the financial markets. 196 00:10:01,760 --> 00:10:05,760 Speaker 2: Yeah, all of the then diagrams are just turning into circles. 197 00:10:06,000 --> 00:10:09,480 Speaker 2: Before we leave this topic talking about whether or not 198 00:10:09,520 --> 00:10:12,199 Speaker 2: this is insider trading or if it could be insider trading. 199 00:10:12,559 --> 00:10:18,080 Speaker 2: You wrote that if Romantic Paul is Travis Kelcey, that's fine. 200 00:10:19,559 --> 00:10:20,400 Speaker 2: Is that fine? 201 00:10:22,280 --> 00:10:25,360 Speaker 1: This is not legal advice go on. This is going 202 00:10:25,440 --> 00:10:27,600 Speaker 1: to depend a little bit on like the specific terms 203 00:10:27,600 --> 00:10:30,880 Speaker 1: of service of the platform, right, I mean, polymarket has 204 00:10:30,960 --> 00:10:34,360 Speaker 1: kind of vague terms of service. But if you think 205 00:10:34,400 --> 00:10:36,600 Speaker 1: about and this is not it, you have to see 206 00:10:36,600 --> 00:10:39,360 Speaker 1: regulated exchange. But if you think about the future that 207 00:10:39,400 --> 00:10:43,520 Speaker 1: will live in where all betting takes place on commodity, 208 00:10:45,440 --> 00:10:50,480 Speaker 1: then the way commodities insider trading rules work is if 209 00:10:50,520 --> 00:10:55,839 Speaker 1: you misappropriate information from someone else, then that's illegal. That's 210 00:10:55,840 --> 00:10:58,880 Speaker 1: illegal insider trading. But if you own the information, it's 211 00:10:58,920 --> 00:11:01,240 Speaker 1: harder to say that you're insider trading. So if you're 212 00:11:01,240 --> 00:11:03,720 Speaker 1: an oil company and you drill a lot of oil 213 00:11:03,760 --> 00:11:05,680 Speaker 1: and like you know, you're well as a bust, and 214 00:11:06,160 --> 00:11:08,400 Speaker 1: you think, oh, that's going to push up oil prices, 215 00:11:08,559 --> 00:11:12,280 Speaker 1: you're allowed to buy oil features because the point of 216 00:11:12,440 --> 00:11:16,199 Speaker 1: oil futures is to allow actual oil producers and consumers 217 00:11:16,240 --> 00:11:19,960 Speaker 1: to sort of hedge their actual production into bad And 218 00:11:20,000 --> 00:11:22,160 Speaker 1: so of course you're trading an inside information about your 219 00:11:22,200 --> 00:11:25,920 Speaker 1: own behavior. Right, if you're like a trader at an 220 00:11:25,960 --> 00:11:28,679 Speaker 1: oil company and you're front running your company by buying 221 00:11:28,679 --> 00:11:31,240 Speaker 1: futures for your own account. That's illegal insider trading. And 222 00:11:31,240 --> 00:11:33,439 Speaker 1: there are cases, right, there are cases of people who 223 00:11:33,440 --> 00:11:36,360 Speaker 1: are front running, who are misappropriating information get in trouble 224 00:11:36,360 --> 00:11:39,400 Speaker 1: for commodities insider trading, but just the owners of the commodity, 225 00:11:39,559 --> 00:11:42,040 Speaker 1: the commodity producers that are allowed to trade on their 226 00:11:42,040 --> 00:11:44,840 Speaker 1: own information. So I don't know where that leaves you 227 00:11:44,920 --> 00:11:48,360 Speaker 1: when your commodity is like will Taylor Swift and Travis 228 00:11:48,400 --> 00:11:49,840 Speaker 1: Kelsey get well re engage? 229 00:11:50,240 --> 00:11:51,920 Speaker 2: Will I propose to Tailor Swift? 230 00:11:52,000 --> 00:11:54,000 Speaker 1: Right? But I think it kind of leaves you like, yeah, 231 00:11:54,000 --> 00:11:55,560 Speaker 1: go ahead and trade on that. Again, there's like no 232 00:11:55,640 --> 00:11:56,240 Speaker 1: money here, right. 233 00:11:56,320 --> 00:11:58,680 Speaker 2: There also is a risk I was going to say, 234 00:11:58,679 --> 00:12:01,120 Speaker 2: because he didn't know that she was going to say yes, 235 00:12:02,360 --> 00:12:04,679 Speaker 2: but whatever, yeah. 236 00:12:05,679 --> 00:12:06,319 Speaker 1: Rarely. 237 00:12:07,960 --> 00:12:10,960 Speaker 2: Also she had already said yes by the time. But 238 00:12:11,040 --> 00:12:13,720 Speaker 2: I was thinking more of the example of he's the 239 00:12:13,760 --> 00:12:16,319 Speaker 2: CEO of a company and he knew that earnings were 240 00:12:16,320 --> 00:12:17,760 Speaker 2: going to be good, but they hadn't. 241 00:12:17,880 --> 00:12:21,240 Speaker 1: That's not the CEO's information, that's the company's information. And 242 00:12:21,240 --> 00:12:23,080 Speaker 1: by the way, companies can't really inside or trade their 243 00:12:23,120 --> 00:12:25,480 Speaker 1: stock like in stocks, the rules are kind of different. 244 00:12:25,520 --> 00:12:28,760 Speaker 1: Like in stocks, companies have a fiduciarated a shareholders and 245 00:12:28,760 --> 00:12:30,360 Speaker 1: they can't really inside or trade their stocks. But in 246 00:12:30,400 --> 00:12:31,520 Speaker 1: commodities that's a little bit. 247 00:12:31,720 --> 00:12:37,840 Speaker 2: We're talking about commodities, not stocks. Notes like tailors engagement. 248 00:12:37,960 --> 00:12:41,800 Speaker 2: Congratulations Taylor Swift from your friends at the Money Stuff podcast. 249 00:12:41,960 --> 00:12:44,840 Speaker 2: Come on, yeah, come on, it worked out really well 250 00:12:44,960 --> 00:13:01,720 Speaker 2: your last podcast appearance. Do you want to talk about 251 00:13:01,920 --> 00:13:04,160 Speaker 2: Michael Saylor? Yeah, this is a guy that we don't 252 00:13:04,160 --> 00:13:08,960 Speaker 2: about sometimes and his company strategy not micro strategy strategy. Yeah, 253 00:13:09,000 --> 00:13:11,320 Speaker 2: it's premium is collapsing before our eyes. 254 00:13:11,480 --> 00:13:14,440 Speaker 1: I know, I feel a little bad about that somehow. 255 00:13:14,600 --> 00:13:16,720 Speaker 1: I don't know why I cause that no, but like 256 00:13:17,840 --> 00:13:20,520 Speaker 1: I've like made fun of this premium for years and years, 257 00:13:20,559 --> 00:13:22,720 Speaker 1: and now it's collapsing before our eyes. And I'm like, 258 00:13:23,240 --> 00:13:25,240 Speaker 1: you know, I don't wish all on anyone. I want 259 00:13:25,320 --> 00:13:28,640 Speaker 1: them to keep running this ridiculous strategy for as long 260 00:13:28,679 --> 00:13:29,120 Speaker 1: as they can. 261 00:13:29,280 --> 00:13:33,920 Speaker 2: Strategy strategy, strategy. I mean it's been kind of depressed 262 00:13:33,960 --> 00:13:37,720 Speaker 2: for a while. Yeah, the premium. 263 00:13:37,800 --> 00:13:41,000 Speaker 1: Yeah, well they love, they love. Like you have to 264 00:13:41,040 --> 00:13:43,079 Speaker 1: like sort of put a lot of signs around things 265 00:13:43,080 --> 00:13:45,560 Speaker 1: like this, because like strategy businesses like they buy it a bitcoin. 266 00:13:45,760 --> 00:13:48,120 Speaker 1: There's stock trades that like twice they're net asset value. 267 00:13:48,280 --> 00:13:50,960 Speaker 1: They sell more stock to buy more bitcoin. Then the 268 00:13:51,160 --> 00:13:53,120 Speaker 1: net asset value goes up. The stock goes up by 269 00:13:53,160 --> 00:13:55,959 Speaker 1: two times as much, and it's a like perpetual flywheel. 270 00:13:56,000 --> 00:13:58,480 Speaker 1: But now instead of two times, it's like one point five. 271 00:13:58,360 --> 00:13:59,920 Speaker 2: Ish times and one point four. 272 00:14:00,640 --> 00:14:04,560 Speaker 1: Yeah. So it's like this trade is a magical money 273 00:14:04,559 --> 00:14:07,240 Speaker 1: printing machine. When you can sell stock at a big 274 00:14:07,280 --> 00:14:10,640 Speaker 1: premium to your net asset value, and it's like a 275 00:14:10,720 --> 00:14:12,840 Speaker 1: terrible disaster. If you can sell stock at a discount 276 00:14:12,840 --> 00:14:15,080 Speaker 1: to your net asset value, as you come down, it's 277 00:14:15,080 --> 00:14:16,120 Speaker 1: like less and less fun. 278 00:14:16,400 --> 00:14:16,880 Speaker 2: Yeah. 279 00:14:16,920 --> 00:14:18,800 Speaker 1: So they actually, I think they put out guidance that 280 00:14:18,800 --> 00:14:21,240 Speaker 1: they would not sell stock at less than two point 281 00:14:21,280 --> 00:14:24,600 Speaker 1: five times in that asset value, and then when the 282 00:14:24,640 --> 00:14:27,720 Speaker 1: premium went below two times, they were like, well, never mind, 283 00:14:27,760 --> 00:14:30,240 Speaker 1: we'll just keep selling stock at you know, whatever we 284 00:14:30,320 --> 00:14:30,680 Speaker 1: can get. 285 00:14:30,960 --> 00:14:33,600 Speaker 2: Yeah. So I have to say, I don't really understand 286 00:14:33,640 --> 00:14:35,240 Speaker 2: why they did that, because. 287 00:14:36,880 --> 00:14:40,200 Speaker 1: It's at one time it's a good trade, I know, 288 00:14:40,280 --> 00:14:43,080 Speaker 1: but you can like sell you know, at a premium. 289 00:14:43,160 --> 00:14:45,080 Speaker 2: You should sell at a premium, I know, But Okay, 290 00:14:45,080 --> 00:14:46,240 Speaker 2: they pluged to they. 291 00:14:46,120 --> 00:14:48,400 Speaker 1: Said they wouldn't, but like you know, that was when things. 292 00:14:48,240 --> 00:14:52,760 Speaker 2: Like they were already below and half when they said that. 293 00:14:52,840 --> 00:14:56,000 Speaker 1: Okay, but like the other reason okay, so sorry, and 294 00:14:56,040 --> 00:14:56,520 Speaker 1: there was a. 295 00:14:56,480 --> 00:14:59,200 Speaker 2: Two week span there, like they said they wouldn't do this, 296 00:14:59,240 --> 00:15:01,080 Speaker 2: two weeks later they did, and they were already below 297 00:15:01,080 --> 00:15:01,800 Speaker 2: two and a half times. 298 00:15:01,920 --> 00:15:03,680 Speaker 1: Yeah, okay. So there's two questions, right, One is why 299 00:15:03,720 --> 00:15:06,200 Speaker 1: would you sell stock at below two point five times 300 00:15:06,360 --> 00:15:08,320 Speaker 1: net asset value? And the answer is because if you 301 00:15:08,400 --> 00:15:10,520 Speaker 1: can sell stock at any view into net asset value, 302 00:15:10,640 --> 00:15:12,360 Speaker 1: it's a good trade, right, it's a creative to your 303 00:15:12,360 --> 00:15:15,280 Speaker 1: shareholders to sell stock for more than it's worth. And 304 00:15:15,280 --> 00:15:17,080 Speaker 1: then the other question is why did they say they. 305 00:15:16,960 --> 00:15:19,400 Speaker 2: Wouldn't sell That's what I don't understand. 306 00:15:19,480 --> 00:15:23,920 Speaker 1: Okay, So there's two answers to that. One is the 307 00:15:23,960 --> 00:15:26,360 Speaker 1: whole game here is like investor confidence. Right, So if 308 00:15:26,360 --> 00:15:28,320 Speaker 1: you can say, oh, it's always going to be at 309 00:15:28,360 --> 00:15:30,840 Speaker 1: a premium, then investors will like your stock and the 310 00:15:30,880 --> 00:15:32,800 Speaker 1: stock will go up and will be at a bigger premium. Right. 311 00:15:33,320 --> 00:15:35,520 Speaker 1: So one thing is you just have to like tell 312 00:15:35,560 --> 00:15:37,400 Speaker 1: people what they want to hear, because you're you're in 313 00:15:37,440 --> 00:15:39,800 Speaker 1: the business of selling them stock at a premium. But 314 00:15:39,880 --> 00:15:41,840 Speaker 1: then the other reason is that they're not exclusively in 315 00:15:41,840 --> 00:15:45,360 Speaker 1: the business of selling stock. They have gotten really into 316 00:15:45,400 --> 00:15:49,520 Speaker 1: doing weird capital markets trades that I love as a 317 00:15:49,520 --> 00:15:52,640 Speaker 1: former weird capital markets banker. And so they've found all 318 00:15:52,680 --> 00:15:56,560 Speaker 1: sorts of like straight preferred stock deals to do, which 319 00:15:56,600 --> 00:15:59,680 Speaker 1: is like, companies don't do big straight preferred stock deals. 320 00:15:59,680 --> 00:16:01,840 Speaker 1: That's not the thing. Like straight preferred stock is not 321 00:16:02,160 --> 00:16:04,640 Speaker 1: a real instrument outside of like financials and a few 322 00:16:04,640 --> 00:16:07,080 Speaker 1: other weird places. And they were like, we're gonna sell 323 00:16:07,120 --> 00:16:11,080 Speaker 1: billions of dollars of preferred stock because essentially it's like 324 00:16:11,600 --> 00:16:16,479 Speaker 1: borrowing money perpetually at call it nine percent ten percent interest, 325 00:16:17,240 --> 00:16:19,160 Speaker 1: so by bitcoin. And if you think bitcoin will always 326 00:16:19,200 --> 00:16:21,680 Speaker 1: go up by fifty percent a year, then borrowing at 327 00:16:21,720 --> 00:16:23,920 Speaker 1: ten percent to buy bitcoin that yields fifty percent is 328 00:16:23,960 --> 00:16:25,680 Speaker 1: a great deal. Yeah, And so they've been doing a 329 00:16:25,720 --> 00:16:28,000 Speaker 1: lot of preferred stock deals. And I think when they 330 00:16:28,040 --> 00:16:31,360 Speaker 1: said we're not going to sell stock below two point 331 00:16:31,360 --> 00:16:36,400 Speaker 1: five x, they thought, we'll just to fix income financing 332 00:16:36,520 --> 00:16:39,640 Speaker 1: to keep buying more bitcoins. And then the market for 333 00:16:39,720 --> 00:16:40,360 Speaker 1: that's softened. 334 00:16:40,640 --> 00:16:41,720 Speaker 2: Yeah, just like it's such. 335 00:16:41,560 --> 00:16:44,000 Speaker 1: A weird market, Like people don't need billions of dollars 336 00:16:44,040 --> 00:16:47,200 Speaker 1: of preferred stock of a tech company that bitcoin, and 337 00:16:47,280 --> 00:16:49,080 Speaker 1: so when that market collaps, they're like, we still need 338 00:16:49,120 --> 00:16:50,880 Speaker 1: to buy more bitcoin, so there's longing stock again. 339 00:16:51,200 --> 00:16:56,240 Speaker 2: Yeah, it's funny. Who would be the typical buyer of preferreds? 340 00:16:56,640 --> 00:16:58,240 Speaker 1: I have never really known that. I mean, it's like 341 00:16:58,280 --> 00:17:01,040 Speaker 1: it's like income oriented. You know, if you're retiree and 342 00:17:01,040 --> 00:17:03,720 Speaker 1: you can get nine percent yield, that's great, you know. 343 00:17:03,960 --> 00:17:07,680 Speaker 2: Yeah, well apparently there's not enough of those people because 344 00:17:07,680 --> 00:17:10,159 Speaker 2: they're recent of dollars with like you know, like that 345 00:17:10,320 --> 00:17:11,000 Speaker 2: credit profile. 346 00:17:11,080 --> 00:17:12,840 Speaker 1: Yeah, it's weird, weird trade. 347 00:17:12,960 --> 00:17:15,920 Speaker 2: Their most recent sale raise just about like forty seven 348 00:17:15,960 --> 00:17:16,680 Speaker 2: million dollars. 349 00:17:17,000 --> 00:17:19,000 Speaker 1: And the stuff they're doing is I mean, for me, 350 00:17:19,119 --> 00:17:21,080 Speaker 1: I love it, Like the most recent thing is there. 351 00:17:21,520 --> 00:17:23,399 Speaker 2: You're not buying enough of it, have. 352 00:17:23,560 --> 00:17:25,480 Speaker 1: Bought any of it, But like it's a floating rate 353 00:17:25,520 --> 00:17:27,920 Speaker 1: preferred that the rate floats with, just like their feelings. 354 00:17:28,160 --> 00:17:30,000 Speaker 1: The rate floats with. I want to keep it to 355 00:17:30,160 --> 00:17:32,760 Speaker 1: trading at par, and so the rate will float at 356 00:17:32,760 --> 00:17:35,000 Speaker 1: whatever makes it trade at par, which is like essentially 357 00:17:35,080 --> 00:17:38,440 Speaker 1: floating with their own credit, which is a truly insane 358 00:17:39,160 --> 00:17:41,240 Speaker 1: instrument that no one has ever done before. That like 359 00:17:41,280 --> 00:17:43,239 Speaker 1: Michael Sayler is like, I'm going to do this, and 360 00:17:43,280 --> 00:17:45,400 Speaker 1: so I shouldn't say no one's ever done it before. 361 00:17:45,440 --> 00:17:49,600 Speaker 1: It's kind of auction ary preferred. But it's very strange 362 00:17:50,040 --> 00:17:54,840 Speaker 1: and very cool and fun for capital markets nerds, but 363 00:17:54,840 --> 00:17:56,879 Speaker 1: like they're not buy billions of dollars stop. 364 00:17:57,080 --> 00:17:58,199 Speaker 2: Yeah. Yeah. 365 00:17:58,320 --> 00:17:59,840 Speaker 1: And also, by the way, when I say something is 366 00:18:00,119 --> 00:18:01,719 Speaker 1: and fun, that means I would not buy it. 367 00:18:02,480 --> 00:18:06,400 Speaker 2: Yes, Okay, that's a necessary disclosure. There's also the question 368 00:18:06,480 --> 00:18:09,240 Speaker 2: of why the premium is collapsing. I mean, taking a 369 00:18:09,280 --> 00:18:12,919 Speaker 2: look at Bloomberg News coverage, it would one of the 370 00:18:12,920 --> 00:18:16,760 Speaker 2: reasons pointed to go Ahead is that there's just so 371 00:18:16,800 --> 00:18:21,880 Speaker 2: many cryptotature companies. How much is that truly deluding demand 372 00:18:21,960 --> 00:18:22,719 Speaker 2: for strategy? 373 00:18:23,960 --> 00:18:26,200 Speaker 1: So one thing that's interesting is, like, you know, people 374 00:18:26,280 --> 00:18:29,720 Speaker 1: thought that the premium would collapse when spot bitcoin ets 375 00:18:29,800 --> 00:18:32,560 Speaker 1: became a big thing, and it didn't really, Yeah, And 376 00:18:32,600 --> 00:18:34,680 Speaker 1: I think the reason for that is, like they really 377 00:18:34,680 --> 00:18:36,960 Speaker 1: are two different trades, right. The spot bitcoin ETF is 378 00:18:36,960 --> 00:18:39,960 Speaker 1: like you can buy bitcoin and you want exposure to bitcoin, 379 00:18:40,000 --> 00:18:43,200 Speaker 1: so you buy bitcoin. Micro strategy trade is you can 380 00:18:43,200 --> 00:18:45,600 Speaker 1: buy stock at a premium so that they can sell 381 00:18:45,640 --> 00:18:48,000 Speaker 1: more stock at a premium so they can accumulate more bitcoin. Like, 382 00:18:48,000 --> 00:18:50,439 Speaker 1: you're really just betting on this is a company that 383 00:18:50,480 --> 00:18:52,680 Speaker 1: can sell stock at a premium to buy assets. Right, 384 00:18:53,040 --> 00:18:58,840 Speaker 1: that's the bet, And that bet is very circular and strange. 385 00:18:58,920 --> 00:19:01,200 Speaker 1: But it was hard to find, right, it's not it's 386 00:19:01,240 --> 00:19:03,840 Speaker 1: not replicated with a bitcoin etaf right, Like, that's just 387 00:19:04,160 --> 00:19:07,440 Speaker 1: that's just the bet on bitcoin strategies, on selling train exposure. 388 00:19:07,800 --> 00:19:09,480 Speaker 1: But now you can find that bet anywhere. There's like 389 00:19:09,560 --> 00:19:11,320 Speaker 1: hundreds of companies they're like, oh, we've got a way 390 00:19:11,320 --> 00:19:14,800 Speaker 1: to sell's talk at a premium. And some of the 391 00:19:14,800 --> 00:19:17,639 Speaker 1: people who are gambling on the generic concept of like 392 00:19:17,720 --> 00:19:19,440 Speaker 1: ability to sell stalk at a premium to buy a 393 00:19:19,440 --> 00:19:21,879 Speaker 1: crypto or you know, doing it with other crypto companies 394 00:19:21,880 --> 00:19:24,760 Speaker 1: that have higher premiums or lower premiums. Yeah, there are 395 00:19:24,840 --> 00:19:27,320 Speaker 1: more flavors of that bet, and there are only so 396 00:19:27,400 --> 00:19:28,800 Speaker 1: many people who want that bet. 397 00:19:28,960 --> 00:19:29,440 Speaker 2: That's true. 398 00:19:29,480 --> 00:19:31,800 Speaker 1: So I think that's part of why the premium is 399 00:19:31,840 --> 00:19:34,879 Speaker 1: not doing it as well. But also just like I 400 00:19:35,000 --> 00:19:37,480 Speaker 1: really think that this is the sort of thing where 401 00:19:37,520 --> 00:19:39,199 Speaker 1: if you think about it for a minute, you'll be 402 00:19:39,200 --> 00:19:42,720 Speaker 1: like you and so you look at like, you know, 403 00:19:42,800 --> 00:19:45,359 Speaker 1: Jim Chaino is betting against It's just like some of 404 00:19:45,359 --> 00:19:48,520 Speaker 1: the people who look at this who have my or 405 00:19:48,600 --> 00:19:52,119 Speaker 1: Jim Chanos's cast a blind are like this is crazy. Yeah, 406 00:19:52,280 --> 00:19:54,080 Speaker 1: And you know enough of those people say that, then 407 00:19:54,119 --> 00:19:56,520 Speaker 1: maybe like people stop buying it at two point five 408 00:19:56,720 --> 00:19:57,120 Speaker 1: x it. 409 00:19:57,119 --> 00:20:00,399 Speaker 2: Is fun to think about. Okay, let's say that the 410 00:20:00,440 --> 00:20:04,040 Speaker 2: strategy premium does erode even further. What this means for 411 00:20:04,520 --> 00:20:08,320 Speaker 2: this ocean of crypto treasury companies that now exist or 412 00:20:08,359 --> 00:20:09,399 Speaker 2: you just kind of all. 413 00:20:09,400 --> 00:20:12,679 Speaker 1: Like they're all the numbers that people have announced for 414 00:20:12,760 --> 00:20:16,040 Speaker 1: like their plans, it's tens of billions of dollars of 415 00:20:16,080 --> 00:20:18,719 Speaker 1: crypto treasury plans. Like that's not going to happen, Like 416 00:20:20,840 --> 00:20:22,960 Speaker 1: we'll see, Like it's just like they're not going to 417 00:20:23,080 --> 00:20:25,080 Speaker 1: raise that kind of money. I think some of it 418 00:20:25,119 --> 00:20:28,120 Speaker 1: is like people have converted their statues of crypto into 419 00:20:28,560 --> 00:20:32,200 Speaker 1: crypto treasury companies because like it's trading at a higher 420 00:20:32,240 --> 00:20:35,359 Speaker 1: value and if that arose and it ends up at 421 00:20:35,359 --> 00:20:37,119 Speaker 1: a zero premium, and well, you know they'll own a 422 00:20:37,200 --> 00:20:39,520 Speaker 1: stash of crypto and someonet inconvenient forum and it's like 423 00:20:39,600 --> 00:20:41,800 Speaker 1: kind of fine. But the people who are like we're 424 00:20:41,800 --> 00:20:44,680 Speaker 1: going to go sell twenty billion dollars of stock at 425 00:20:44,680 --> 00:20:46,760 Speaker 1: the market to buy doagecoin. 426 00:20:46,960 --> 00:20:50,560 Speaker 2: Yeah you are, they're not, So what does that mean? 427 00:20:50,600 --> 00:20:54,520 Speaker 2: We're just going to have like a watery graveyard of companies. 428 00:20:53,960 --> 00:20:57,399 Speaker 1: That are acount strategy is a different story because the 429 00:20:57,440 --> 00:21:01,400 Speaker 1: real company with you know, eccentric management. But a lot 430 00:21:01,400 --> 00:21:04,720 Speaker 1: of crypto treasury companies are sort of more or less defunct, 431 00:21:04,800 --> 00:21:07,120 Speaker 1: like biotech companies that have like a you know, one 432 00:21:07,160 --> 00:21:10,600 Speaker 1: million dollar market cap and then got acquired so that 433 00:21:10,680 --> 00:21:12,840 Speaker 1: someone could pump a billion dollars of crypto into them. 434 00:21:12,920 --> 00:21:16,040 Speaker 1: Right before there were biotech companies, there were gold miners. Right, 435 00:21:16,080 --> 00:21:19,280 Speaker 1: there's a long history of what are your grave yards 436 00:21:19,280 --> 00:21:22,119 Speaker 1: of public company tickers being passed throughund and let let's 437 00:21:22,119 --> 00:21:24,360 Speaker 1: go back to that, right, But the fad this year 438 00:21:24,480 --> 00:21:26,640 Speaker 1: was crypto treasury companies a fad two years ago. Yeah, 439 00:21:26,640 --> 00:21:27,000 Speaker 1: it's like. 440 00:21:26,920 --> 00:21:29,680 Speaker 2: Fine, yeah, okay, I feel better. 441 00:21:29,800 --> 00:21:33,600 Speaker 1: Yeah, crypto treasury companies are quite harmless, Like. 442 00:21:34,000 --> 00:21:36,520 Speaker 2: They're not like negatively impacting the economy. 443 00:21:37,320 --> 00:21:40,600 Speaker 1: No, I mean, you know, in some broad sense, yes, 444 00:21:40,640 --> 00:21:44,119 Speaker 1: but like it's not like a crisis could occur in 445 00:21:44,160 --> 00:21:47,479 Speaker 1: crypto treasure. So like if the strategy trade stops working. 446 00:21:47,800 --> 00:21:49,760 Speaker 1: Like the worst case is kind of it trades to 447 00:21:49,920 --> 00:21:53,040 Speaker 1: like eighty percent of that asset value. Right, that's still like, 448 00:21:53,119 --> 00:21:55,479 Speaker 1: you know, many tens of billions of dollars company, right, 449 00:21:55,480 --> 00:21:59,720 Speaker 1: Like they've really pumped a lot of I don't know 450 00:21:59,760 --> 00:22:01,840 Speaker 1: that I've want to say real value, but you know, 451 00:22:02,119 --> 00:22:05,000 Speaker 1: in quotes, real value into this small software company. 452 00:22:05,119 --> 00:22:07,480 Speaker 2: Got a lot of Bitcoin've got a lot of bitcoin. 453 00:22:07,160 --> 00:22:10,920 Speaker 3: At the end of the day, at where we are 454 00:22:10,960 --> 00:22:11,360 Speaker 3: in the day. 455 00:22:12,400 --> 00:22:15,280 Speaker 2: Okay, well, on the long list of things to worry about, 456 00:22:15,320 --> 00:22:34,439 Speaker 2: I will put that at the bottom. IPOs Matt, you 457 00:22:34,480 --> 00:22:38,199 Speaker 2: wrote about a paper. It came out of Joseph J. 458 00:22:38,320 --> 00:22:42,240 Speaker 2: Henry of Northeastern University and Terence M. O'Brien from the 459 00:22:42,320 --> 00:22:46,480 Speaker 2: University of Maryland. And I realized that you're biased here 460 00:22:46,520 --> 00:22:49,720 Speaker 2: because they quote you right off the bat. 461 00:22:51,040 --> 00:22:52,880 Speaker 1: That's true. I probably should have dissed. 462 00:22:53,200 --> 00:22:56,640 Speaker 2: Calm No. I think that's awesome. It's like an easter egg. 463 00:22:57,080 --> 00:22:58,760 Speaker 2: You actually go to look at the paper. 464 00:22:58,520 --> 00:23:02,400 Speaker 1: That you're something. Is that Like there are a lot 465 00:23:02,440 --> 00:23:07,080 Speaker 1: of like finance and law papers on SSRN that have 466 00:23:07,200 --> 00:23:09,399 Speaker 1: you know, twelve downloads. 467 00:23:09,680 --> 00:23:11,159 Speaker 2: And this one has more than that. 468 00:23:11,440 --> 00:23:15,639 Speaker 1: Sometimes, right, I don't mean to talk about this one specifically. 469 00:23:15,960 --> 00:23:19,520 Speaker 1: Sometimes I come across these papers in various ways, often 470 00:23:19,840 --> 00:23:22,280 Speaker 1: because the writer's summoned to me, and then I write 471 00:23:22,280 --> 00:23:24,080 Speaker 1: about them money stuff, and then they have more than 472 00:23:24,119 --> 00:23:30,280 Speaker 1: twelve downloads, And I think, I don't know how directly 473 00:23:30,359 --> 00:23:35,239 Speaker 1: useful money stuff mentions are for like academic tenure, but 474 00:23:35,320 --> 00:23:38,280 Speaker 1: like there's some there's going to be a marginals Yeah, 475 00:23:38,359 --> 00:23:42,199 Speaker 1: there should be. I want, I really want to see that, Like, 476 00:23:42,359 --> 00:23:46,000 Speaker 1: am I getting academics tenure? But anyway, if you quote 477 00:23:46,000 --> 00:23:47,560 Speaker 1: me at the beginning of your paper, it probably does 478 00:23:47,560 --> 00:23:48,600 Speaker 1: increase your chances. 479 00:23:48,720 --> 00:23:50,320 Speaker 2: Yeah, definitely, So sure. 480 00:23:50,560 --> 00:23:52,639 Speaker 1: Something to think about anyway. Yeah, So they are this 481 00:23:52,640 --> 00:23:56,320 Speaker 1: paper at IPO Pops, which we talked about on the 482 00:23:56,320 --> 00:24:01,560 Speaker 1: Mailbag episode of our podcast that was aired moster It no. 483 00:24:01,840 --> 00:24:06,639 Speaker 3: The mailbag episode we did, And this paper sort of 484 00:24:07,200 --> 00:24:09,840 Speaker 3: formalizes an intuition that I've long thought about, which is 485 00:24:09,840 --> 00:24:12,520 Speaker 3: that when you do an IPO, you're a company, and 486 00:24:13,600 --> 00:24:18,080 Speaker 3: you sell in the IPO something like ten to twenty 487 00:24:18,119 --> 00:24:19,080 Speaker 3: percent of your stock. 488 00:24:19,560 --> 00:24:21,760 Speaker 1: The rest of your stock stays locked up. Right, It's 489 00:24:21,760 --> 00:24:23,479 Speaker 1: owned by the CEO, it's owned by the early investors, 490 00:24:23,480 --> 00:24:26,800 Speaker 1: it's owned by the employees and it's locked up in 491 00:24:26,880 --> 00:24:29,120 Speaker 1: the IPO, so they can't sell for like six months 492 00:24:29,160 --> 00:24:31,840 Speaker 1: after the IPO. Something like ten or twenty percent of 493 00:24:31,840 --> 00:24:34,560 Speaker 1: the shares come loose in the IPO, but most of 494 00:24:34,600 --> 00:24:37,520 Speaker 1: the shares most of the time are being sold to 495 00:24:37,720 --> 00:24:41,439 Speaker 1: like long term investors who have had conversations with management 496 00:24:41,480 --> 00:24:44,040 Speaker 1: and who management wants to be the shareholders. And so 497 00:24:44,080 --> 00:24:46,919 Speaker 1: there's this sort of deal where the management and the 498 00:24:46,960 --> 00:24:49,639 Speaker 1: bankers and the long term investors are trying to like 499 00:24:50,160 --> 00:24:52,040 Speaker 1: send the stock to people who will hold it for 500 00:24:52,080 --> 00:24:54,479 Speaker 1: the long term. And what that means is that when 501 00:24:54,520 --> 00:24:57,000 Speaker 1: the stock opens for trading the day after the IPO, 502 00:24:58,080 --> 00:25:00,800 Speaker 1: there's not a lot of stock to buy, because you know, 503 00:25:00,880 --> 00:25:03,399 Speaker 1: the company is sold tin ish percent of its stock 504 00:25:03,520 --> 00:25:07,159 Speaker 1: and then ninety ish percent of that stock goes to 505 00:25:07,200 --> 00:25:09,119 Speaker 1: people who don't sell it on the first day. The 506 00:25:09,160 --> 00:25:11,080 Speaker 1: amount of stock that's available to buy on the first 507 00:25:11,119 --> 00:25:14,000 Speaker 1: day is on the order of one percent of the 508 00:25:14,000 --> 00:25:16,800 Speaker 1: shares outstanding. And meanwhile, like you know, there's all these 509 00:25:16,840 --> 00:25:20,720 Speaker 1: retail investors want to buy stock, and so when there's 510 00:25:20,760 --> 00:25:22,920 Speaker 1: a hot IPO that a lot of retail investors want 511 00:25:22,960 --> 00:25:24,840 Speaker 1: to buy, there's just not a lot of supply for them, 512 00:25:25,119 --> 00:25:29,280 Speaker 1: and so the stock trades to a price that equilior 513 00:25:29,320 --> 00:25:31,320 Speaker 1: rates to blind demand for like that one percent of 514 00:25:31,359 --> 00:25:33,399 Speaker 1: the shares that the retail investors want to buy. But 515 00:25:33,440 --> 00:25:36,879 Speaker 1: that doesn't tell you what the company is worth necessarily. 516 00:25:37,119 --> 00:25:38,160 Speaker 2: Yeah, And it also. 517 00:25:37,960 --> 00:25:42,040 Speaker 1: Doesn't tell you what the right IPO price was, because 518 00:25:42,080 --> 00:25:45,400 Speaker 1: the IPO price is the clearing price for ten, fifteen, 519 00:25:45,480 --> 00:25:47,600 Speaker 1: twenty percent of the stock. But then you know, one 520 00:25:47,680 --> 00:25:49,600 Speaker 1: or two percent of the stock trades on the exchange, 521 00:25:49,960 --> 00:25:52,000 Speaker 1: So the clearing price on the exchange is going to 522 00:25:52,000 --> 00:25:54,000 Speaker 1: be a lot higher than the clearing price for the 523 00:25:54,040 --> 00:25:56,919 Speaker 1: IPO if like there's a lot of demand on the exchange. Yeah, 524 00:25:56,960 --> 00:25:58,960 Speaker 1: but if like all ten percent of the stock came 525 00:25:59,000 --> 00:26:01,359 Speaker 1: loose on the day after the IPO, it would probably 526 00:26:01,440 --> 00:26:04,000 Speaker 1: trade less of a pop. And so they write about 527 00:26:04,040 --> 00:26:05,879 Speaker 1: like there's this question of like how much money are 528 00:26:05,920 --> 00:26:08,480 Speaker 1: companies leaving on the table that we talked about, where 529 00:26:08,520 --> 00:26:12,479 Speaker 1: like people get really mad that when a stock doubles 530 00:26:12,520 --> 00:26:14,320 Speaker 1: on its first day after the IPO. They say, oh, 531 00:26:14,400 --> 00:26:16,760 Speaker 1: the bankers should have set the price higher so that 532 00:26:16,760 --> 00:26:18,440 Speaker 1: it wouldn't trade up that high, and the company left 533 00:26:18,480 --> 00:26:21,359 Speaker 1: all this money on the table. But that's not necessarily 534 00:26:21,359 --> 00:26:23,639 Speaker 1: true because most of the stock doesn't trade on the 535 00:26:23,640 --> 00:26:27,359 Speaker 1: first day. They couldn't necessarily have sold ten or twenty 536 00:26:27,359 --> 00:26:29,040 Speaker 1: percent of their stock at the price that it rose 537 00:26:29,080 --> 00:26:29,840 Speaker 1: to on the first day. 538 00:26:30,080 --> 00:26:33,880 Speaker 2: Yeah, this paper, I mean, it's a really good time 539 00:26:33,960 --> 00:26:36,640 Speaker 2: for this paper because I feel like this topic has 540 00:26:37,200 --> 00:26:40,000 Speaker 2: taken on new life because we're getting IPOs again and. 541 00:26:39,880 --> 00:26:41,560 Speaker 1: We're seeing right, I was going to say, like this 542 00:26:41,600 --> 00:26:43,479 Speaker 1: is an evergreen topic. I've been thinking about this for 543 00:26:43,520 --> 00:26:46,000 Speaker 1: like fifteen years, but you're right, like for a while 544 00:26:46,000 --> 00:26:47,760 Speaker 1: it went pretty dormant because there are no IPOs. 545 00:26:47,880 --> 00:26:50,840 Speaker 2: Yeah. Absolutely, and then twenty twenty five, I feel like 546 00:26:50,880 --> 00:26:54,120 Speaker 2: you've seen really dramatic pops even in the last couple months. 547 00:26:54,160 --> 00:26:57,639 Speaker 2: You think about Figma Core, we've circle we were talking 548 00:26:57,720 --> 00:27:01,640 Speaker 2: like triple digit, multiple percent pops, right, And. 549 00:27:01,600 --> 00:27:05,479 Speaker 1: You think about like you're an institutional stock investor, like 550 00:27:05,520 --> 00:27:08,159 Speaker 1: you do some valuation work, you meet with this company 551 00:27:08,160 --> 00:27:10,560 Speaker 1: as you think, this is what i'd pay for this 552 00:27:10,600 --> 00:27:13,720 Speaker 1: company because it's comparable to like other companies in my portfolio. 553 00:27:13,880 --> 00:27:15,919 Speaker 1: Maybe you own other private companies, right, because a lot 554 00:27:15,920 --> 00:27:19,280 Speaker 1: of institutions do. And then like the stock opens for 555 00:27:19,320 --> 00:27:24,160 Speaker 1: trading and retail investors haven't had fun new IPOs to 556 00:27:24,200 --> 00:27:26,280 Speaker 1: buy for years, and so a ton of demand for 557 00:27:26,400 --> 00:27:29,360 Speaker 1: very limited supply, and so the stocks go up a lot. 558 00:27:29,400 --> 00:27:33,040 Speaker 1: But that's not necessarily reflective of where institutions would price them. 559 00:27:33,240 --> 00:27:36,280 Speaker 2: Yeah, I will say, though, we're not talking about like 560 00:27:36,280 --> 00:27:38,800 Speaker 2: one day pops. I mean, in the case of those 561 00:27:38,840 --> 00:27:41,359 Speaker 2: three companies fig mccor we even circle, these are like 562 00:27:41,520 --> 00:27:43,719 Speaker 2: multi week mostly sustained. 563 00:27:44,400 --> 00:27:46,959 Speaker 1: Yeah. I want to be clear, like this explanation is 564 00:27:47,000 --> 00:27:49,919 Speaker 1: like an interesting and important technical explanation for some of 565 00:27:50,680 --> 00:27:54,040 Speaker 1: what happens in ipo pops. On the explanation, yeah, there 566 00:27:54,119 --> 00:27:57,600 Speaker 1: is a desire to underprice IPOs so that people who 567 00:27:58,640 --> 00:28:01,880 Speaker 1: invest in the IPO make a profit, because that's good 568 00:28:01,880 --> 00:28:05,439 Speaker 1: for them and for the banks, and also arguably for 569 00:28:05,440 --> 00:28:08,879 Speaker 1: the company because it like creates investor goodwill goodwill. But 570 00:28:09,480 --> 00:28:12,040 Speaker 1: this explanation is not the only reason that IPOs pop. 571 00:28:12,200 --> 00:28:15,000 Speaker 2: Yeah, it is interesting to look that they find that 572 00:28:15,080 --> 00:28:18,200 Speaker 2: the average IPO share price POP is like nineteen percent 573 00:28:18,320 --> 00:28:20,600 Speaker 2: higher than the actual offer price on the first day 574 00:28:20,640 --> 00:28:23,440 Speaker 2: of trading. Nineteen percent I mean relative to some of 575 00:28:23,480 --> 00:28:26,359 Speaker 2: the IPOs I just mentioned. Seems tame at this point. 576 00:28:26,760 --> 00:28:28,600 Speaker 2: I don't think that would turn heads in quite the 577 00:28:28,600 --> 00:28:29,320 Speaker 2: same way that. 578 00:28:29,920 --> 00:28:32,120 Speaker 1: Whatever happens is a long sample. 579 00:28:31,880 --> 00:28:33,960 Speaker 2: Right and like yeah, thirty years. 580 00:28:34,080 --> 00:28:37,240 Speaker 1: Yeah, And like I do think that the scarcity of 581 00:28:37,280 --> 00:28:41,000 Speaker 1: supply means there's more kind of dispersion now. 582 00:28:41,480 --> 00:28:42,840 Speaker 2: Yeah, you know, when there's. 583 00:28:42,680 --> 00:28:44,280 Speaker 1: Two IPOs a week, they're not all going to pop 584 00:28:44,280 --> 00:28:45,240 Speaker 1: one hundred percent. 585 00:28:45,240 --> 00:28:48,240 Speaker 2: That's true. It feels like we're always away from that. Like, 586 00:28:48,280 --> 00:28:50,200 Speaker 2: I know that the ipo market is normalizing. 587 00:28:50,400 --> 00:28:52,320 Speaker 1: I said, two IPOs a week, that's that's a low number. 588 00:28:52,360 --> 00:28:53,280 Speaker 1: I feel like there used to be a lot more 589 00:28:53,320 --> 00:28:54,320 Speaker 1: than two IPOs a week. 590 00:28:54,200 --> 00:28:56,840 Speaker 2: Two IPOs that people are exciting about a week. Though 591 00:28:57,600 --> 00:29:00,360 Speaker 2: we're now we're now like pretty well, yeah, yeah, it's 592 00:29:00,400 --> 00:29:01,680 Speaker 2: been groom for a while. 593 00:29:01,600 --> 00:29:05,239 Speaker 1: And now it's great. I think that this dynamic here 594 00:29:05,280 --> 00:29:08,120 Speaker 1: where like very little of the shares are available and 595 00:29:08,160 --> 00:29:12,480 Speaker 1: retail wants them, and so the stock pops is exactly 596 00:29:12,520 --> 00:29:15,480 Speaker 1: the same dynamic that you see in the private company 597 00:29:15,480 --> 00:29:19,280 Speaker 1: stuff that we talk about all the time, like retail 598 00:29:19,440 --> 00:29:22,840 Speaker 1: and retail issue, Like you know, accredited retail investors really 599 00:29:22,840 --> 00:29:26,320 Speaker 1: want to own shares Open dentists, I really want to 600 00:29:26,320 --> 00:29:30,120 Speaker 1: own shares of open AI and SpaceX. It is hard 601 00:29:30,520 --> 00:29:32,600 Speaker 1: for a retail investor to buy open air and SpaceX, 602 00:29:32,600 --> 00:29:36,000 Speaker 1: but it's not impossible. There's like little bits of open 603 00:29:36,120 --> 00:29:38,760 Speaker 1: air and SpaceX and like little you know, there's like 604 00:29:39,240 --> 00:29:42,520 Speaker 1: secondary funds. There's like little you know, closing funds that 605 00:29:42,560 --> 00:29:45,000 Speaker 1: own a little bit of it. And because there is 606 00:29:45,040 --> 00:29:48,800 Speaker 1: a limited but not zero supply available to retail, retail 607 00:29:48,880 --> 00:29:52,280 Speaker 1: really bids them up. And so the prices of you know, 608 00:29:52,920 --> 00:29:56,760 Speaker 1: open ai shares or proxies or SpaceX shares or proxies 609 00:29:57,520 --> 00:30:01,400 Speaker 1: on the retail market the prices higher than what you 610 00:30:01,440 --> 00:30:04,640 Speaker 1: see those companies raising money at. And it's the same story, 611 00:30:04,720 --> 00:30:07,640 Speaker 1: right like, institutions will buy tens of billions of dollars 612 00:30:07,640 --> 00:30:10,680 Speaker 1: of open ai stock at some price, and then retail 613 00:30:10,720 --> 00:30:13,240 Speaker 1: investors will buy tens of millions of dollars of that 614 00:30:13,320 --> 00:30:15,720 Speaker 1: stock gets a much higher price. That doesn't mean that 615 00:30:15,760 --> 00:30:18,000 Speaker 1: like open Aiy's valuation is in the trillions of dollars. 616 00:30:18,360 --> 00:30:20,680 Speaker 1: It means that the supply available to retail is really low. 617 00:30:21,120 --> 00:30:23,120 Speaker 1: It's the same thing with IPOs, right like, the supply 618 00:30:23,680 --> 00:30:26,040 Speaker 1: the first day available to retail is much lower than 619 00:30:26,040 --> 00:30:28,880 Speaker 1: what institutions have access to, and so the price is higher. 620 00:30:29,360 --> 00:30:32,040 Speaker 2: I feel like I'm too tired to like neatly make 621 00:30:32,080 --> 00:30:34,600 Speaker 2: this point, but it just seems somewhat parallel to what 622 00:30:34,600 --> 00:30:37,560 Speaker 2: we're talking about with micro strategy in the premium, and 623 00:30:37,560 --> 00:30:39,440 Speaker 2: it's just coming down to supply and demand. 624 00:30:40,000 --> 00:30:43,720 Speaker 1: Yeah, I mean, I guess it's true in the sense 625 00:30:43,760 --> 00:30:50,160 Speaker 1: that micro strategy, unlike open ai or these IPAs or Figma, 626 00:30:50,640 --> 00:30:56,400 Speaker 1: micro strategy is pretty much willing to supply whatever whatever 627 00:30:56,520 --> 00:30:59,160 Speaker 1: is demanded, and that is bad for the premium exactly. 628 00:30:59,200 --> 00:31:01,480 Speaker 2: And also to tie to the first thing that we 629 00:31:01,560 --> 00:31:05,560 Speaker 2: talked about, those retail investors don't need to try to 630 00:31:05,600 --> 00:31:07,960 Speaker 2: own open ai. They just need to make a prediction 631 00:31:08,040 --> 00:31:11,800 Speaker 2: market around it somehow to reflect the movement of these. 632 00:31:11,880 --> 00:31:14,360 Speaker 1: All right, right about that all the time? Yeah, well 633 00:31:14,760 --> 00:31:18,600 Speaker 1: there's legal complications, yeah, because that's not a commodity, that's 634 00:31:18,640 --> 00:31:22,840 Speaker 1: a security based swap, completely different problem. Pleave it there 635 00:31:22,840 --> 00:31:24,000 Speaker 1: on that very boring note. 636 00:31:24,240 --> 00:31:27,120 Speaker 2: Well, that was awesome. I think that was really totillating. 637 00:31:31,480 --> 00:31:32,960 Speaker 1: And that was the Money Stuff Podcast. 638 00:31:33,080 --> 00:31:35,080 Speaker 2: I'm Matt Levian and I'm Katie Greifeld. 639 00:31:35,440 --> 00:31:37,520 Speaker 1: You can find my work by subscribing to the Money 640 00:31:37,520 --> 00:31:39,920 Speaker 1: Stuff newsletter on Bloomberg dot com. 641 00:31:39,840 --> 00:31:42,360 Speaker 2: And you can find me on Bloomberg TV every day 642 00:31:42,400 --> 00:31:45,520 Speaker 2: on Open Interest between nine to eleven am Eastern. 643 00:31:45,880 --> 00:31:47,600 Speaker 1: We'd love to hear from you. You can send an 644 00:31:47,600 --> 00:31:50,800 Speaker 1: email to Moneypod at Bloomberg dot net, ask us a 645 00:31:50,880 --> 00:31:52,280 Speaker 1: question and we might answer it on air. 646 00:31:52,440 --> 00:31:54,560 Speaker 2: You can also subscribe to our show wherever you're listening 647 00:31:54,640 --> 00:31:56,680 Speaker 2: right now and leave us a review. It helps more 648 00:31:56,680 --> 00:31:57,600 Speaker 2: people find the show. 649 00:31:58,320 --> 00:32:01,880 Speaker 1: The Money Stuff Podcast is produced Anna Mazerakus and Moses Onen. 650 00:32:02,160 --> 00:32:04,800 Speaker 2: Our theme music was composed by Blake Maples and Stage 651 00:32:04,840 --> 00:32:06,560 Speaker 2: Bauman is Bloomberg's head of Podcasts. 652 00:32:06,840 --> 00:32:09,200 Speaker 1: Thanks for listening to The Money Stuff Podcast. We'll be 653 00:32:09,240 --> 00:32:10,760 Speaker 1: back next week with more stuff.