Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. So here we are.
Speaker 2: I guess around the clock. It's been approximately six months
Speaker 2: since we recorded a podcast together.
Speaker 1: Right, It's good to see.
Speaker 2: It's nice to see you. You look crested, you got
Speaker 2: a haircut, you're clean shaven, you have a tan.
Speaker 1: Yeah. Yeah, yeah, it was nice. I missed the podcast,
Speaker 1: of course.
Speaker 2: But it was nice being making you're so full of it.
Speaker 1: Yeah. Yeah, we're both like being incredibly insincere. Yeah, here
Speaker 1: we are.
Speaker 2: Yeah, I will say it was nice to you know,
Speaker 2: roll into Thursday the last two weeks and been like
Speaker 2: oh my god, and then have been like, oh wait, no,
Speaker 2: everything's fine. I don't have to record anything right now.
Speaker 1: I share that feeling. And also this Thursday was not
Speaker 1: like that.
Speaker 2: Yeah. We should set up a Patreon.
Speaker 1: Hello, and welcome to the Money Stuff Podcast. You're a
Speaker 1: weekly podcast where we talk about stuff related to money.
Speaker 1: I'm Matt Levine and I write the Moneys Doff com
Speaker 1: for Bloomberg Opinion.
Speaker 2: And I'm Katie Greifeld, a reporter for Bloomberg News and
Speaker 2: an anchor for Bloomberg Television.
Speaker 1: Yeah, Taylor shows, gotting engaged.
Speaker 2: Yeah, biggest financial market news of the week. Pretty surprising,
Speaker 2: but not to at least one person named Romantic Paul.
Speaker 1: You know, several people sent me this thing, is it right?
Speaker 1: So like a guy made a well time you assume
Speaker 1: it's a man. Yeah, a user with the account named
Speaker 1: Romantic Paul made a well time trade on polymarket on
Speaker 1: Taylors just getting engaged. Basically, like that contract was trading
Speaker 1: it like twenty five percent, and then it spiked up
Speaker 1: to like like forty percent like the day before she
Speaker 1: got engaged. Yeah, and several people sent that to me,
Speaker 1: and it's like, you know, like people were interested in
Speaker 1: that stuff, but like that was a contract with a
Speaker 1: couple one hundred thousand dollars of that's outstanding. Yeah, And
Speaker 1: Rheumatic Paul seems to admit on the order of three
Speaker 1: thousand dollars on this wall time trade. So was it
Speaker 1: the biggest financial market use of Oh no.
Speaker 2: I'm just talking about the magnitude of tailor Swift getting.
Speaker 1: Engaged, right right, scenting.
Speaker 2: Ripples across all financial.
Speaker 1: Okay, you're saying, like Treasury is sold off.
Speaker 2: Yeah, yeah, you didn't need a haven asset in that scenario.
Speaker 2: America's back.
Speaker 1: Hey, you saw your tweet like you're bearish and Taylor
Speaker 1: Swift got engaged in your.
Speaker 2: Bears, You're parish, Taylor Swift gone engaged in your bears.
Speaker 1: Just a risk one moment. Yeah, soa, I'm sorry, I
Speaker 1: take it back. I was just talking about the narrow No,
Speaker 1: that's so many things. It's like submission markets, like you
Speaker 1: can specifically bet on or had a specific thing, but
Speaker 1: then like those things often have brought her financial market
Speaker 1: implications and so like you can you can structure your
Speaker 1: tailor Swift trade by like, I don't know ing the
Speaker 1: S and P.
Speaker 2: I have to say, I am surprised that it was
Speaker 2: only about twenty five percent odds. I wish I had
Speaker 2: known that it was trading that cheap.
Speaker 1: Yeah, it was like it was she gets engaged by
Speaker 1: the end of this year. Yeah, that seems cheap.
Speaker 2: It does, I mean, especially right now when she's engaged
Speaker 2: after this. For sure, I knew you raised the point
Speaker 2: that she got engaged two weeks ago, so theoretically someone
Speaker 2: probably knew. So maybe there was an element of insider
Speaker 2: trading here.
Speaker 1: Yeah, although again, like you know the amount of money
Speaker 1: that you could make insider trading on the Taylor sw
Speaker 1: with engagement news is in the like single digit thousands of.
Speaker 2: Dollars single digit thousands. Yeah, what if you uh? Can
Speaker 2: you lover these bets?
Speaker 1: The problem is finding people to bet against yours a.
Speaker 1: It's a prediction market, and to bet on yes, you
Speaker 1: have to find people who are willing to bet on now.
Speaker 1: And you know the number of people who wanted to
Speaker 1: put millions of dollars into betting that Taylor's with won't
Speaker 1: get engaged against the highly motivated buyer.
Speaker 2: That's true. I guess if you knew for sure, you'd
Speaker 2: probably just sell to a tabloid.
Speaker 1: But right, right, right, or like you can make a
Speaker 1: lot more, just like be friends with Taylor Swift just
Speaker 1: seems like a lucid.
Speaker 2: Yeah, there's a few things that point to this being
Speaker 2: not insider trading or a person who didn't know for sure.
Speaker 2: We were just joking. In hindsight, of course it seems obvious.
Speaker 2: But also they got engaged theoretically right after they podcasts.
Speaker 2: Actually the Kelsey brother It's funny how that happens. Maybe
Speaker 2: I'll go repropose to my husband after this. But anyway,
Speaker 2: Taylor Swift, sorry, this is for the Swifties out there.
Speaker 2: She hasn't done an interview like that with a previous
Speaker 2: romantic partner of that scale. I mean this, you.
Speaker 1: Dated a podcaster before. Maybe I'm wrong, I probably I know.
Speaker 2: But she's dated other famous people where theoretically they could
Speaker 2: have done a joint appearance like that. They didn't, I know,
Speaker 2: but they could have found a podcast to go on,
Speaker 2: is what I'm saying. Like, she hasn't like sat in
Speaker 2: an interview or done anything like that with previous partners.
Speaker 2: So you could watch the New Heights episode, which millions
Speaker 2: of people did, be like, oh wow, these two people
Speaker 2: clearly like each other, and that was the.
Speaker 1: Really love that. Like you're like, no, you had to
Speaker 1: know they're getting engaged because they podcasted together.
Speaker 2: Well no, it was also a video podcast, which video podcast,
Speaker 2: by the way, we should probably do more of anyway,
Speaker 2: you could really read their body language. But probably maybe
Speaker 2: if you want to give romantic Paul the benefit of
Speaker 2: the doubt, he saw that podcast was like, oh shoot,
Speaker 2: these are two people who genuinely like each other, and
Speaker 2: that that was that they'd get engaged sometime this year.
Speaker 2: It's only August. Yeah, yeah, and they're thirty five years old.
Speaker 1: Yeah. You make good points thank you. I really I
Speaker 1: don't mean to suggest that Romantic Paul was insider trading
Speaker 1: to make three thousand dollars.
Speaker 2: On tellers thirty five hundred.
Speaker 1: Prediction markets are so weird and interesting and so like
Speaker 1: growing in importance and strange ways. And I think, you know,
Speaker 1: the contours of insider trading around prediction markets are very strange.
Speaker 2: Yeah.
Speaker 1: I think of it mostly in connection with sports betting,
Speaker 1: right because and this is not a sports bet, it's
Speaker 1: sports that as a sports figure, but I have written
Speaker 1: a lot about and we've talked about how prediction markets
Speaker 1: are an interestingly important way to make sports bets because
Speaker 1: it seems like right now CFTC regulated commodities futures markets
Speaker 1: like CALCI are a way to make sports bets that
Speaker 1: are not subject to state regulation, so you can like
Speaker 1: you know, ignore state gambling laws and get better tax
Speaker 1: treatment than actual gambling because right now, gambling losses are
Speaker 1: not fully deductible in your taxes, but commodity trading losses
Speaker 1: are probably fully deductible. So the prediction markets, that particularly Calshie,
Speaker 1: are having a real moment for like becoming the sports
Speaker 1: gambling platform. And you know, this week I wrote about
Speaker 1: robinhood is pursuing Nevada regulators so that they can be
Speaker 1: allowed to offer sports gambling. Robinhoo wouldn't say this, but
Speaker 1: I would say, so they can be allowed to offer
Speaker 1: sports gambling on their stock trading app, which is like,
Speaker 1: you know, kind of amazing, but like just like sort
Speaker 1: of where things are heading. And prediction markets are beloved
Speaker 1: by like economists and like libertarian weirdos because like in theory,
Speaker 1: if you had a prediction market and everything, then you
Speaker 1: could like predict everything and like the world would be
Speaker 1: better informed because markets would push prices to their correct place.
Speaker 1: And there's a lot of skepticism about that because like,
Speaker 1: in fact, people don't want to bet on all sorts
Speaker 1: of nonsense, and like the big problem with prediction markets
Speaker 1: has always been like outside of like the US presidential election,
Speaker 1: it's hard to find a lot of people who are
Speaker 1: really into betting on prediction markets because it doesn't sort
Speaker 1: of serve any savings purpose and it's not a natural
Speaker 1: home for gamblers, and so the volumes on prediction markets
Speaker 1: are kind of small, and you can have your doubts
Speaker 1: about how predictive the prices are. You know, again, outside
Speaker 1: of like the US presidential election, and when prediction markets
Speaker 1: get into the sports gambling game changes that dynamic entirely.
Speaker 3: Right.
Speaker 1: It means that like, if you look at Calshi and
Speaker 1: you think this is the future of sports betting because
Speaker 1: it has a better regulatory and tax treatment than the
Speaker 1: sports books that are doing billions of dollars of bets,
Speaker 1: then you're thinking Calshi is going to offer people campbells
Speaker 1: that they want and that they come back to every day, right,
Speaker 1: because sports are constantly happening, and so then all of
Speaker 1: the ancillary stuff, all of the stuff like betting on
Speaker 1: Taylor Swift's baby is like just more appealing because more
Speaker 1: people have Calshie accounts and more people are you know,
Speaker 1: betting there anyway, so they'll bet on when you know,
Speaker 1: when the when the wedding will happen, and yeah, you.
Speaker 2: Know, the network effects will kick in, Yeah.
Speaker 1: The network, so you know people will betting on everything,
Speaker 1: and then you know, you'll have a CFTC regulated licensed
Speaker 1: US Commodities Exchange for sports betting. And then then what
Speaker 1: happens when people start, you know, making insider bets on
Speaker 1: sports or on Taylor Swifts And.
Speaker 2: I should know this, but have DraftKings and FANDUL like,
Speaker 2: have they tried to offer stock betting on their platforms?
Speaker 1: Yeah, a little bit. It's funny Flutter, which is like the.
Speaker 2: Parent company a fandel right, a FANDL.
Speaker 1: Yeah, they're working on some sort of partnership with CME
Speaker 1: to offer essentially sports book bets on yeah, financial outcome,
Speaker 1: you know, like, well the s and PB up or
Speaker 1: down today, Because yeah, for one thing, if you're a
Speaker 1: gambling platform, offering people more bets is just more appealing, right,
Speaker 1: just give them you have more touch points. And then
Speaker 1: for another thing, if you're a gambling platform and you
Speaker 1: look at what Calshi is doing, you have to think
Speaker 1: maybe we should be in the futures trading business rather
Speaker 1: than the sports book business because it's the same business
Speaker 1: and it gets better tax and regulatory treatment.
Speaker 2: Man, that's pretty wild.
Speaker 1: Yeah, there's just like a lot of conversions between gambling
Speaker 1: and financial markets.
Speaker 2: Parallels here to private markets becoming the public market.
Speaker 1: Yeah, the betting markets are becoming the the financial markets.
Speaker 2: Yeah, all of the then diagrams are just turning into circles.
Speaker 2: Before we leave this topic talking about whether or not
Speaker 2: this is insider trading or if it could be insider trading.
Speaker 2: You wrote that if Romantic Paul is Travis Kelcey, that's fine.
Speaker 2: Is that fine?
Speaker 1: This is not legal advice go on. This is going
Speaker 1: to depend a little bit on like the specific terms
Speaker 1: of service of the platform, right, I mean, polymarket has
Speaker 1: kind of vague terms of service. But if you think
Speaker 1: about and this is not it, you have to see
Speaker 1: regulated exchange. But if you think about the future that
Speaker 1: will live in where all betting takes place on commodity,
Speaker 1: then the way commodities insider trading rules work is if
Speaker 1: you misappropriate information from someone else, then that's illegal. That's
Speaker 1: illegal insider trading. But if you own the information, it's
Speaker 1: harder to say that you're insider trading. So if you're
Speaker 1: an oil company and you drill a lot of oil
Speaker 1: and like you know, you're well as a bust, and
Speaker 1: you think, oh, that's going to push up oil prices,
Speaker 1: you're allowed to buy oil features because the point of
Speaker 1: oil futures is to allow actual oil producers and consumers
Speaker 1: to sort of hedge their actual production into bad And
Speaker 1: so of course you're trading an inside information about your
Speaker 1: own behavior. Right, if you're like a trader at an
Speaker 1: oil company and you're front running your company by buying
Speaker 1: futures for your own account. That's illegal insider trading. And
Speaker 1: there are cases, right, there are cases of people who
Speaker 1: are front running, who are misappropriating information get in trouble
Speaker 1: for commodities insider trading, but just the owners of the commodity,
Speaker 1: the commodity producers that are allowed to trade on their
Speaker 1: own information. So I don't know where that leaves you
Speaker 1: when your commodity is like will Taylor Swift and Travis
Speaker 1: Kelsey get well re engage?
Speaker 2: Will I propose to Tailor Swift?
Speaker 1: Right? But I think it kind of leaves you like, yeah,
Speaker 1: go ahead and trade on that. Again, there's like no
Speaker 1: money here, right.
Speaker 2: There also is a risk I was going to say,
Speaker 2: because he didn't know that she was going to say yes,
Speaker 2: but whatever, yeah.
Speaker 1: Rarely.
Speaker 2: Also she had already said yes by the time. But
Speaker 2: I was thinking more of the example of he's the
Speaker 2: CEO of a company and he knew that earnings were
Speaker 2: going to be good, but they hadn't.
Speaker 1: That's not the CEO's information, that's the company's information. And
Speaker 1: by the way, companies can't really inside or trade their
Speaker 1: stock like in stocks, the rules are kind of different.
Speaker 1: Like in stocks, companies have a fiduciarated a shareholders and
Speaker 1: they can't really inside or trade their stocks. But in
Speaker 1: commodities that's a little bit.
Speaker 2: We're talking about commodities, not stocks. Notes like tailors engagement.
Speaker 2: Congratulations Taylor Swift from your friends at the Money Stuff podcast.
Speaker 2: Come on, yeah, come on, it worked out really well
Speaker 2: your last podcast appearance. Do you want to talk about
Speaker 2: Michael Saylor? Yeah, this is a guy that we don't
Speaker 2: about sometimes and his company strategy not micro strategy strategy. Yeah,
Speaker 2: it's premium is collapsing before our eyes.
Speaker 1: I know, I feel a little bad about that somehow.
Speaker 1: I don't know why I cause that no, but like
Speaker 1: I've like made fun of this premium for years and years,
Speaker 1: and now it's collapsing before our eyes. And I'm like,
Speaker 1: you know, I don't wish all on anyone. I want
Speaker 1: them to keep running this ridiculous strategy for as long
Speaker 1: as they can.
Speaker 2: Strategy strategy, strategy. I mean it's been kind of depressed
Speaker 2: for a while. Yeah, the premium.
Speaker 1: Yeah, well they love, they love. Like you have to
Speaker 1: like sort of put a lot of signs around things
Speaker 1: like this, because like strategy businesses like they buy it a bitcoin.
Speaker 1: There's stock trades that like twice they're net asset value.
Speaker 1: They sell more stock to buy more bitcoin. Then the
Speaker 1: net asset value goes up. The stock goes up by
Speaker 1: two times as much, and it's a like perpetual flywheel.
Speaker 1: But now instead of two times, it's like one point five.
Speaker 2: Ish times and one point four.
Speaker 1: Yeah. So it's like this trade is a magical money
Speaker 1: printing machine. When you can sell stock at a big
Speaker 1: premium to your net asset value, and it's like a
Speaker 1: terrible disaster. If you can sell stock at a discount
Speaker 1: to your net asset value, as you come down, it's
Speaker 1: like less and less fun.
Speaker 2: Yeah.
Speaker 1: So they actually, I think they put out guidance that
Speaker 1: they would not sell stock at less than two point
Speaker 1: five times in that asset value, and then when the
Speaker 1: premium went below two times, they were like, well, never mind,
Speaker 1: we'll just keep selling stock at you know, whatever we
Speaker 1: can get.
Speaker 2: Yeah. So I have to say, I don't really understand
Speaker 2: why they did that, because.
Speaker 1: It's at one time it's a good trade, I know,
Speaker 1: but you can like sell you know, at a premium.
Speaker 2: You should sell at a premium, I know, But Okay,
Speaker 2: they pluged to they.
Speaker 1: Said they wouldn't, but like you know, that was when things.
Speaker 2: Like they were already below and half when they said that.
Speaker 1: Okay, but like the other reason okay, so sorry, and
Speaker 1: there was a.
Speaker 2: Two week span there, like they said they wouldn't do this,
Speaker 2: two weeks later they did, and they were already below
Speaker 2: two and a half times.
Speaker 1: Yeah, okay. So there's two questions, right, One is why
Speaker 1: would you sell stock at below two point five times
Speaker 1: net asset value? And the answer is because if you
Speaker 1: can sell stock at any view into net asset value,
Speaker 1: it's a good trade, right, it's a creative to your
Speaker 1: shareholders to sell stock for more than it's worth. And
Speaker 1: then the other question is why did they say they.
Speaker 2: Wouldn't sell That's what I don't understand.
Speaker 1: Okay, So there's two answers to that. One is the
Speaker 1: whole game here is like investor confidence. Right, So if
Speaker 1: you can say, oh, it's always going to be at
Speaker 1: a premium, then investors will like your stock and the
Speaker 1: stock will go up and will be at a bigger premium. Right.
Speaker 1: So one thing is you just have to like tell
Speaker 1: people what they want to hear, because you're you're in
Speaker 1: the business of selling them stock at a premium. But
Speaker 1: then the other reason is that they're not exclusively in
Speaker 1: the business of selling stock. They have gotten really into
Speaker 1: doing weird capital markets trades that I love as a
Speaker 1: former weird capital markets banker. And so they've found all
Speaker 1: sorts of like straight preferred stock deals to do, which
Speaker 1: is like, companies don't do big straight preferred stock deals.
Speaker 1: That's not the thing. Like straight preferred stock is not
Speaker 1: a real instrument outside of like financials and a few
Speaker 1: other weird places. And they were like, we're gonna sell
Speaker 1: billions of dollars of preferred stock because essentially it's like
Speaker 1: borrowing money perpetually at call it nine percent ten percent interest,
Speaker 1: so by bitcoin. And if you think bitcoin will always
Speaker 1: go up by fifty percent a year, then borrowing at
Speaker 1: ten percent to buy bitcoin that yields fifty percent is
Speaker 1: a great deal. Yeah, And so they've been doing a
Speaker 1: lot of preferred stock deals. And I think when they
Speaker 1: said we're not going to sell stock below two point
Speaker 1: five x, they thought, we'll just to fix income financing
Speaker 1: to keep buying more bitcoins. And then the market for
Speaker 1: that's softened.
Speaker 2: Yeah, just like it's such.
Speaker 1: A weird market, Like people don't need billions of dollars
Speaker 1: of preferred stock of a tech company that bitcoin, and
Speaker 1: so when that market collaps, they're like, we still need
Speaker 1: to buy more bitcoin, so there's longing stock again.
Speaker 2: Yeah, it's funny. Who would be the typical buyer of preferreds?
Speaker 1: I have never really known that. I mean, it's like
Speaker 1: it's like income oriented. You know, if you're retiree and
Speaker 1: you can get nine percent yield, that's great, you know.
Speaker 2: Yeah, well apparently there's not enough of those people because
Speaker 2: they're recent of dollars with like you know, like that
Speaker 2: credit profile.
Speaker 1: Yeah, it's weird, weird trade.
Speaker 2: Their most recent sale raise just about like forty seven
Speaker 2: million dollars.
Speaker 1: And the stuff they're doing is I mean, for me,
Speaker 1: I love it, Like the most recent thing is there.
Speaker 2: You're not buying enough of it, have.
Speaker 1: Bought any of it, But like it's a floating rate
Speaker 1: preferred that the rate floats with, just like their feelings.
Speaker 1: The rate floats with. I want to keep it to
Speaker 1: trading at par, and so the rate will float at
Speaker 1: whatever makes it trade at par, which is like essentially
Speaker 1: floating with their own credit, which is a truly insane
Speaker 1: instrument that no one has ever done before. That like
Speaker 1: Michael Sayler is like, I'm going to do this, and
Speaker 1: so I shouldn't say no one's ever done it before.
Speaker 1: It's kind of auction ary preferred. But it's very strange
Speaker 1: and very cool and fun for capital markets nerds, but
Speaker 1: like they're not buy billions of dollars stop.
Speaker 2: Yeah. Yeah.
Speaker 1: And also, by the way, when I say something is
Speaker 1: and fun, that means I would not buy it.
Speaker 2: Yes, Okay, that's a necessary disclosure. There's also the question
Speaker 2: of why the premium is collapsing. I mean, taking a
Speaker 2: look at Bloomberg News coverage, it would one of the
Speaker 2: reasons pointed to go Ahead is that there's just so
Speaker 2: many cryptotature companies. How much is that truly deluding demand
Speaker 2: for strategy?
Speaker 1: So one thing that's interesting is, like, you know, people
Speaker 1: thought that the premium would collapse when spot bitcoin ets
Speaker 1: became a big thing, and it didn't really, Yeah, And
Speaker 1: I think the reason for that is, like they really
Speaker 1: are two different trades, right. The spot bitcoin ETF is
Speaker 1: like you can buy bitcoin and you want exposure to bitcoin,
Speaker 1: so you buy bitcoin. Micro strategy trade is you can
Speaker 1: buy stock at a premium so that they can sell
Speaker 1: more stock at a premium so they can accumulate more bitcoin. Like,
Speaker 1: you're really just betting on this is a company that
Speaker 1: can sell stock at a premium to buy assets. Right,
Speaker 1: that's the bet, And that bet is very circular and strange.
Speaker 1: But it was hard to find, right, it's not it's
Speaker 1: not replicated with a bitcoin etaf right, Like, that's just
Speaker 1: that's just the bet on bitcoin strategies, on selling train exposure.
Speaker 1: But now you can find that bet anywhere. There's like
Speaker 1: hundreds of companies they're like, oh, we've got a way
Speaker 1: to sell's talk at a premium. And some of the
Speaker 1: people who are gambling on the generic concept of like
Speaker 1: ability to sell stalk at a premium to buy a
Speaker 1: crypto or you know, doing it with other crypto companies
Speaker 1: that have higher premiums or lower premiums. Yeah, there are
Speaker 1: more flavors of that bet, and there are only so
Speaker 1: many people who want that bet.
Speaker 2: That's true.
Speaker 1: So I think that's part of why the premium is
Speaker 1: not doing it as well. But also just like I
Speaker 1: really think that this is the sort of thing where
Speaker 1: if you think about it for a minute, you'll be
Speaker 1: like you and so you look at like, you know,
Speaker 1: Jim Chaino is betting against It's just like some of
Speaker 1: the people who look at this who have my or
Speaker 1: Jim Chanos's cast a blind are like this is crazy. Yeah,
Speaker 1: And you know enough of those people say that, then
Speaker 1: maybe like people stop buying it at two point five
Speaker 1: x it.
Speaker 2: Is fun to think about. Okay, let's say that the
Speaker 2: strategy premium does erode even further. What this means for
Speaker 2: this ocean of crypto treasury companies that now exist or
Speaker 2: you just kind of all.
Speaker 1: Like they're all the numbers that people have announced for
Speaker 1: like their plans, it's tens of billions of dollars of
Speaker 1: crypto treasury plans. Like that's not going to happen, Like
Speaker 1: we'll see, Like it's just like they're not going to
Speaker 1: raise that kind of money. I think some of it
Speaker 1: is like people have converted their statues of crypto into
Speaker 1: crypto treasury companies because like it's trading at a higher
Speaker 1: value and if that arose and it ends up at
Speaker 1: a zero premium, and well, you know they'll own a
Speaker 1: stash of crypto and someonet inconvenient forum and it's like
Speaker 1: kind of fine. But the people who are like we're
Speaker 1: going to go sell twenty billion dollars of stock at
Speaker 1: the market to buy doagecoin.
Speaker 2: Yeah you are, they're not, So what does that mean?
Speaker 2: We're just going to have like a watery graveyard of companies.
Speaker 1: That are acount strategy is a different story because the
Speaker 1: real company with you know, eccentric management. But a lot
Speaker 1: of crypto treasury companies are sort of more or less defunct,
Speaker 1: like biotech companies that have like a you know, one
Speaker 1: million dollar market cap and then got acquired so that
Speaker 1: someone could pump a billion dollars of crypto into them.
Speaker 1: Right before there were biotech companies, there were gold miners. Right,
Speaker 1: there's a long history of what are your grave yards
Speaker 1: of public company tickers being passed throughund and let let's
Speaker 1: go back to that, right, But the fad this year
Speaker 1: was crypto treasury companies a fad two years ago. Yeah,
Speaker 1: it's like.
Speaker 2: Fine, yeah, okay, I feel better.
Speaker 1: Yeah, crypto treasury companies are quite harmless, Like.
Speaker 2: They're not like negatively impacting the economy.
Speaker 1: No, I mean, you know, in some broad sense, yes,
Speaker 1: but like it's not like a crisis could occur in
Speaker 1: crypto treasure. So like if the strategy trade stops working.
Speaker 1: Like the worst case is kind of it trades to
Speaker 1: like eighty percent of that asset value. Right, that's still like,
Speaker 1: you know, many tens of billions of dollars company, right,
Speaker 1: Like they've really pumped a lot of I don't know
Speaker 1: that I've want to say real value, but you know,
Speaker 1: in quotes, real value into this small software company.
Speaker 2: Got a lot of Bitcoin've got a lot of bitcoin.
Speaker 3: At the end of the day, at where we are
Speaker 3: in the day.
Speaker 2: Okay, well, on the long list of things to worry about,
Speaker 2: I will put that at the bottom. IPOs Matt, you
Speaker 2: wrote about a paper. It came out of Joseph J.
Speaker 2: Henry of Northeastern University and Terence M. O'Brien from the
Speaker 2: University of Maryland. And I realized that you're biased here
Speaker 2: because they quote you right off the bat.
Speaker 1: That's true. I probably should have dissed.
Speaker 2: Calm No. I think that's awesome. It's like an easter egg.
Speaker 2: You actually go to look at the paper.
Speaker 1: That you're something. Is that Like there are a lot
Speaker 1: of like finance and law papers on SSRN that have
Speaker 1: you know, twelve downloads.
Speaker 2: And this one has more than that.
Speaker 1: Sometimes, right, I don't mean to talk about this one specifically.
Speaker 1: Sometimes I come across these papers in various ways, often
Speaker 1: because the writer's summoned to me, and then I write
Speaker 1: about them money stuff, and then they have more than
Speaker 1: twelve downloads, And I think, I don't know how directly
Speaker 1: useful money stuff mentions are for like academic tenure, but
Speaker 1: like there's some there's going to be a marginals Yeah,
Speaker 1: there should be. I want, I really want to see that, Like,
Speaker 1: am I getting academics tenure? But anyway, if you quote
Speaker 1: me at the beginning of your paper, it probably does
Speaker 1: increase your chances.
Speaker 2: Yeah, definitely, So sure.
Speaker 1: Something to think about anyway. Yeah, So they are this
Speaker 1: paper at IPO Pops, which we talked about on the
Speaker 1: Mailbag episode of our podcast that was aired moster It no.
Speaker 3: The mailbag episode we did, And this paper sort of
Speaker 3: formalizes an intuition that I've long thought about, which is
Speaker 3: that when you do an IPO, you're a company, and
Speaker 3: you sell in the IPO something like ten to twenty
Speaker 3: percent of your stock.
Speaker 1: The rest of your stock stays locked up. Right, It's
Speaker 1: owned by the CEO, it's owned by the early investors,
Speaker 1: it's owned by the employees and it's locked up in
Speaker 1: the IPO, so they can't sell for like six months
Speaker 1: after the IPO. Something like ten or twenty percent of
Speaker 1: the shares come loose in the IPO, but most of
Speaker 1: the shares most of the time are being sold to
Speaker 1: like long term investors who have had conversations with management
Speaker 1: and who management wants to be the shareholders. And so
Speaker 1: there's this sort of deal where the management and the
Speaker 1: bankers and the long term investors are trying to like
Speaker 1: send the stock to people who will hold it for
Speaker 1: the long term. And what that means is that when
Speaker 1: the stock opens for trading the day after the IPO,
Speaker 1: there's not a lot of stock to buy, because you know,
Speaker 1: the company is sold tin ish percent of its stock
Speaker 1: and then ninety ish percent of that stock goes to
Speaker 1: people who don't sell it on the first day. The
Speaker 1: amount of stock that's available to buy on the first
Speaker 1: day is on the order of one percent of the
Speaker 1: shares outstanding. And meanwhile, like you know, there's all these
Speaker 1: retail investors want to buy stock, and so when there's
Speaker 1: a hot IPO that a lot of retail investors want
Speaker 1: to buy, there's just not a lot of supply for them,
Speaker 1: and so the stock trades to a price that equilior
Speaker 1: rates to blind demand for like that one percent of
Speaker 1: the shares that the retail investors want to buy. But
Speaker 1: that doesn't tell you what the company is worth necessarily.
Speaker 2: Yeah, And it also.
Speaker 1: Doesn't tell you what the right IPO price was, because
Speaker 1: the IPO price is the clearing price for ten, fifteen,
Speaker 1: twenty percent of the stock. But then you know, one
Speaker 1: or two percent of the stock trades on the exchange,
Speaker 1: So the clearing price on the exchange is going to
Speaker 1: be a lot higher than the clearing price for the
Speaker 1: IPO if like there's a lot of demand on the exchange. Yeah,
Speaker 1: but if like all ten percent of the stock came
Speaker 1: loose on the day after the IPO, it would probably
Speaker 1: trade less of a pop. And so they write about
Speaker 1: like there's this question of like how much money are
Speaker 1: companies leaving on the table that we talked about, where
Speaker 1: like people get really mad that when a stock doubles
Speaker 1: on its first day after the IPO. They say, oh,
Speaker 1: the bankers should have set the price higher so that
Speaker 1: it wouldn't trade up that high, and the company left
Speaker 1: all this money on the table. But that's not necessarily
Speaker 1: true because most of the stock doesn't trade on the
Speaker 1: first day. They couldn't necessarily have sold ten or twenty
Speaker 1: percent of their stock at the price that it rose
Speaker 1: to on the first day.
Speaker 2: Yeah, this paper, I mean, it's a really good time
Speaker 2: for this paper because I feel like this topic has
Speaker 2: taken on new life because we're getting IPOs again and.
Speaker 1: We're seeing right, I was going to say, like this
Speaker 1: is an evergreen topic. I've been thinking about this for
Speaker 1: like fifteen years, but you're right, like for a while
Speaker 1: it went pretty dormant because there are no IPOs.
Speaker 2: Yeah. Absolutely, and then twenty twenty five, I feel like
Speaker 2: you've seen really dramatic pops even in the last couple months.
Speaker 2: You think about Figma Core, we've circle we were talking
Speaker 2: like triple digit, multiple percent pops, right, And.
Speaker 1: You think about like you're an institutional stock investor, like
Speaker 1: you do some valuation work, you meet with this company
Speaker 1: as you think, this is what i'd pay for this
Speaker 1: company because it's comparable to like other companies in my portfolio.
Speaker 1: Maybe you own other private companies, right, because a lot
Speaker 1: of institutions do. And then like the stock opens for
Speaker 1: trading and retail investors haven't had fun new IPOs to
Speaker 1: buy for years, and so a ton of demand for
Speaker 1: very limited supply, and so the stocks go up a lot.
Speaker 1: But that's not necessarily reflective of where institutions would price them.
Speaker 2: Yeah, I will say, though, we're not talking about like
Speaker 2: one day pops. I mean, in the case of those
Speaker 2: three companies fig mccor we even circle, these are like
Speaker 2: multi week mostly sustained.
Speaker 1: Yeah. I want to be clear, like this explanation is
Speaker 1: like an interesting and important technical explanation for some of
Speaker 1: what happens in ipo pops. On the explanation, yeah, there
Speaker 1: is a desire to underprice IPOs so that people who
Speaker 1: invest in the IPO make a profit, because that's good
Speaker 1: for them and for the banks, and also arguably for
Speaker 1: the company because it like creates investor goodwill goodwill. But
Speaker 1: this explanation is not the only reason that IPOs pop.
Speaker 2: Yeah, it is interesting to look that they find that
Speaker 2: the average IPO share price POP is like nineteen percent
Speaker 2: higher than the actual offer price on the first day
Speaker 2: of trading. Nineteen percent I mean relative to some of
Speaker 2: the IPOs I just mentioned. Seems tame at this point.
Speaker 2: I don't think that would turn heads in quite the
Speaker 2: same way that.
Speaker 1: Whatever happens is a long sample.
Speaker 2: Right and like yeah, thirty years.
Speaker 1: Yeah, And like I do think that the scarcity of
Speaker 1: supply means there's more kind of dispersion now.
Speaker 2: Yeah, you know, when there's.
Speaker 1: Two IPOs a week, they're not all going to pop
Speaker 1: one hundred percent.
Speaker 2: That's true. It feels like we're always away from that. Like,
Speaker 2: I know that the ipo market is normalizing.
Speaker 1: I said, two IPOs a week, that's that's a low number.
Speaker 1: I feel like there used to be a lot more
Speaker 1: than two IPOs a week.
Speaker 2: Two IPOs that people are exciting about a week. Though
Speaker 2: we're now we're now like pretty well, yeah, yeah, it's
Speaker 2: been groom for a while.
Speaker 1: And now it's great. I think that this dynamic here
Speaker 1: where like very little of the shares are available and
Speaker 1: retail wants them, and so the stock pops is exactly
Speaker 1: the same dynamic that you see in the private company
Speaker 1: stuff that we talk about all the time, like retail
Speaker 1: and retail issue, Like you know, accredited retail investors really
Speaker 1: want to own shares Open dentists, I really want to
Speaker 1: own shares of open AI and SpaceX. It is hard
Speaker 1: for a retail investor to buy open air and SpaceX,
Speaker 1: but it's not impossible. There's like little bits of open
Speaker 1: air and SpaceX and like little you know, there's like
Speaker 1: secondary funds. There's like little you know, closing funds that
Speaker 1: own a little bit of it. And because there is
Speaker 1: a limited but not zero supply available to retail, retail
Speaker 1: really bids them up. And so the prices of you know,
Speaker 1: open ai shares or proxies or SpaceX shares or proxies
Speaker 1: on the retail market the prices higher than what you
Speaker 1: see those companies raising money at. And it's the same story,
Speaker 1: right like, institutions will buy tens of billions of dollars
Speaker 1: of open ai stock at some price, and then retail
Speaker 1: investors will buy tens of millions of dollars of that
Speaker 1: stock gets a much higher price. That doesn't mean that
Speaker 1: like open Aiy's valuation is in the trillions of dollars.
Speaker 1: It means that the supply available to retail is really low.
Speaker 1: It's the same thing with IPOs, right like, the supply
Speaker 1: the first day available to retail is much lower than
Speaker 1: what institutions have access to, and so the price is higher.
Speaker 2: I feel like I'm too tired to like neatly make
Speaker 2: this point, but it just seems somewhat parallel to what
Speaker 2: we're talking about with micro strategy in the premium, and
Speaker 2: it's just coming down to supply and demand.
Speaker 1: Yeah, I mean, I guess it's true in the sense
Speaker 1: that micro strategy, unlike open ai or these IPAs or Figma,
Speaker 1: micro strategy is pretty much willing to supply whatever whatever
Speaker 1: is demanded, and that is bad for the premium exactly.
Speaker 2: And also to tie to the first thing that we
Speaker 2: talked about, those retail investors don't need to try to
Speaker 2: own open ai. They just need to make a prediction
Speaker 2: market around it somehow to reflect the movement of these.
Speaker 1: All right, right about that all the time? Yeah, well
Speaker 1: there's legal complications, yeah, because that's not a commodity, that's
Speaker 1: a security based swap, completely different problem. Pleave it there
Speaker 1: on that very boring note.
Speaker 2: Well, that was awesome. I think that was really totillating.
Speaker 1: And that was the Money Stuff Podcast.
Speaker 2: I'm Matt Levian and I'm Katie Greifeld.
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