WEBVTT - One Horse at a Time: A Mailbag Episode 0:00:02.720 --> 0:00:11.080 Bloomberg Audio Studios, Podcasts, Radio News. Hello and welcome to 0:00:11.080 --> 0:00:14.040 The Money Stuff Podcast, your weekly podcast where we talked 0:00:14.040 --> 0:00:18.119 about stuff related to money. I'm Matt Levina, and I 0:00:18.120 --> 0:00:20.160 write the Money Stuff column for Bloomberg Opinion. 0:00:20.440 --> 0:00:23.279 And I'm Katie Greifeld, a reporter for Bloomberg News and 0:00:23.320 --> 0:00:25.439 an anchor for Bloomberg Television. 0:00:26.600 --> 0:00:27.120 And Today. 0:00:28.480 --> 0:00:33.519 Mail Back, I didn't even say that, all right, I 0:00:33.520 --> 0:00:34.599 said it. Don't worry about it. 0:00:34.920 --> 0:00:36.920 Actually, that's what everyone wants. 0:00:37.400 --> 0:00:39.240 A lot of great questions, a lot of great questions. 0:00:39.240 --> 0:00:41.520 Thanks for sending us to your questions. They really tied 0:00:41.600 --> 0:00:43.800 us over imperious where I'm on vacation. 0:00:44.000 --> 0:00:53.120 It's also nice. Yeah, that's true. It's nice because I 0:00:53.159 --> 0:00:58.240 don't think we really solicited people for questions this time around. Yeah, 0:00:58.320 --> 0:01:00.400 but like not like, hey, we're recording. 0:01:00.120 --> 0:01:02.600 Under this as standing solicitation. True. Thanks, time you have 0:01:02.640 --> 0:01:05.360 a question, send it to us, and periodically we'll put 0:01:05.360 --> 0:01:07.040 them in a batch and think about answering them. 0:01:07.160 --> 0:01:09.800 Yeah. So shall we start off with Mark. 0:01:09.920 --> 0:01:13.800 Sure, let's start off with Mark. Mail Bag. 0:01:14.120 --> 0:01:17.920 Mail Bag Mark asks, do you think we'll see a 0:01:17.959 --> 0:01:20.080 law firm do an IPO for itself in the next 0:01:20.080 --> 0:01:22.840 few years, I e. Will retail investors be able to 0:01:23.120 --> 0:01:25.680 trade shares in k and E or Paul Weiss in 0:01:25.720 --> 0:01:29.080 five years. From a business model perspective, would a public 0:01:29.080 --> 0:01:31.960 company structure even makes sense. I'm sure they'd at least 0:01:31.959 --> 0:01:34.080 get the disclosures right. That's funny, Mark. 0:01:34.680 --> 0:01:36.400 Are you sure I worked at a law firm. I 0:01:36.400 --> 0:01:39.000 would make sure. So there are law firms like in 0:01:39.040 --> 0:01:41.240 other countries, like I think, including in the UK, you 0:01:41.280 --> 0:01:45.280 can trade shares of law firms. In the US, it 0:01:45.319 --> 0:01:50.320 has historically been prohibited because US legal ethics suggests that 0:01:50.320 --> 0:01:53.560 it's unethical for law firms to be owned by non lawyers. 0:01:53.760 --> 0:01:57.040 This is in part for genuine ethical reasons, like you 0:01:57.080 --> 0:01:59.560 want lawyers to have fidiial duties only to their clients 0:01:59.600 --> 0:02:01.440 and not to the share alders, and in part for 0:02:01.520 --> 0:02:06.560 like killed protectionism reasons, where like you want lawyers to 0:02:06.560 --> 0:02:08.840 to control their own terms of employment. That's changing a 0:02:08.840 --> 0:02:11.160 little bit. Like you see like a few states allow 0:02:11.440 --> 0:02:13.600 outside ownership of law firms, and like, yeah, we might 0:02:13.600 --> 0:02:16.440 see law firm atpos in a few years. I don't know. 0:02:17.880 --> 0:02:19.600 I think of a law firm as being not like 0:02:19.639 --> 0:02:23.120 a super capital intensive business, where like most of what 0:02:23.160 --> 0:02:28.200 a law firm is is like lawyers, and so on 0:02:28.240 --> 0:02:31.360 the one hand, that means that you don't need to 0:02:31.360 --> 0:02:35.680 go to public markets to raise hundreds of millions of 0:02:35.720 --> 0:02:40.680 dollars right to fund AI research because you're just like 0:02:40.840 --> 0:02:44.240 you know, you're just doing deals and law stuff getting 0:02:44.639 --> 0:02:46.840 paid by the deal. So like there's not a lot 0:02:46.880 --> 0:02:49.760 of like long term investment that only pays off heres later. 0:02:50.800 --> 0:02:52.720 That's not entirely true, right, And like you you know, 0:02:52.720 --> 0:02:54.959 I've written a little bit about like the litigation finance market, 0:02:55.000 --> 0:02:59.160 and like one thing that litigation finances is law firms 0:02:59.800 --> 0:03:04.239 that take on incredibly complicated, very long term consumer class 0:03:04.240 --> 0:03:08.920 actions where they invest a lot of resources over years 0:03:09.440 --> 0:03:13.800 and don't get paid, and then five years later they 0:03:13.840 --> 0:03:16.320 win some massive vertige and get paid a billion dollars. Right, 0:03:16.560 --> 0:03:18.440 Like that sort of investment is a little bit hard 0:03:18.440 --> 0:03:21.600 to do when you're just like some lawyers who need 0:03:21.639 --> 0:03:24.200 to make a living, and so they get like outside 0:03:24.200 --> 0:03:27.000 investors for that. And it's not like share ownership, right, 0:03:27.040 --> 0:03:29.200 it's like a sort of special financing vehicle. But you 0:03:29.200 --> 0:03:31.440 could imagine doing that in IPO forum, where you like 0:03:31.520 --> 0:03:33.520 just have a publicly traded law firm that can make 0:03:33.560 --> 0:03:36.480 long term investments. And also just like you know, there's 0:03:36.480 --> 0:03:38.360 some level of long term investments that you would make 0:03:38.400 --> 0:03:42.640 if acquiring a new team that does some kind of work, right, 0:03:42.680 --> 0:03:45.040 and like you're hoping for to pay from the long term. 0:03:45.520 --> 0:03:47.680 The other problem with law rooms is like because they 0:03:47.680 --> 0:03:52.040 are just people, they can leave it. It'd be funny 0:03:52.080 --> 0:03:55.560 to like be a law firm and go public and 0:03:55.600 --> 0:03:58.400 then sell your shares and collect money and then like 0:03:58.920 --> 0:04:01.400 go leave and start another law firm and do it again. Right, 0:04:01.480 --> 0:04:05.480 Like there's not a ton of stuff there other than 0:04:05.520 --> 0:04:07.960 the lawyers. Right, Like there's some fise value in the name, 0:04:08.000 --> 0:04:09.680 but like probably less so than there is like a 0:04:09.680 --> 0:04:12.360 big investment bank, and like you don't have as much 0:04:12.480 --> 0:04:15.320 capital intensive business. So like if you just leave, you 0:04:15.360 --> 0:04:18.720 can capture most of the value that you previously sold 0:04:18.760 --> 0:04:21.360 to investors. And you see that like where law firms like, 0:04:21.360 --> 0:04:23.280 like law firms are pretty fragile businesses, and like if 0:04:23.279 --> 0:04:26.159 a law firm runs into trouble, like it's very easy 0:04:26.160 --> 0:04:27.960 for it to break up because you know, like some 0:04:28.080 --> 0:04:30.920 law firm, it's like main business stops working and it's 0:04:30.920 --> 0:04:32.719 not making money. Like the people who like, you know, 0:04:32.760 --> 0:04:34.520 the m and a team who are really good can 0:04:34.640 --> 0:04:37.159 just go somewhere else, and like it's not that jarring 0:04:37.200 --> 0:04:38.560 for them to leave, Like they don't lose a lot 0:04:38.600 --> 0:04:41.000 of franchise value. So yeah, it's like a little bit 0:04:41.000 --> 0:04:43.000 of a fragile business to take public, but people do 0:04:43.040 --> 0:04:43.440 it elsewhere. 0:04:43.480 --> 0:04:46.160 So it kind of reminds me of publicly listed hedge funds. 0:04:46.160 --> 0:04:48.239 Like there's a lot of key Man risk there. 0:04:48.839 --> 0:04:51.520 Yeah, right, there's a lot of key Man risk, And 0:04:52.320 --> 0:04:55.520 it's the same thing where like the assets walk out 0:04:55.520 --> 0:04:57.880 the door or whatever. But like you know, hedge funds 0:04:57.880 --> 0:05:02.280 are still better because like the hedge fund has long 0:05:02.360 --> 0:05:06.520 term contractual relationships with its investors. Now they might be 0:05:06.560 --> 0:05:08.680 like key Man provisions and that, Like law firms don't 0:05:08.680 --> 0:05:10.720 really have that right, Like law firms like two things 0:05:10.720 --> 0:05:12.720 by engagements most of the time, like often don't have 0:05:12.839 --> 0:05:15.360 like long term contracts with their customers, and so you know, 0:05:15.440 --> 0:05:17.440 anyone can leave and take the clients with them. 0:05:17.600 --> 0:05:20.880 Yeah, well, I wish that there were publicly listed law 0:05:20.880 --> 0:05:22.480 firms just because I think it would be interesting to 0:05:22.480 --> 0:05:25.200 see how they trade and how they move as a group. 0:05:25.320 --> 0:05:27.800 Like a lot of like information and law firms stock 0:05:27.839 --> 0:05:31.839 prices like now yea like law firms are under attack 0:05:32.000 --> 0:05:34.760 and so forth. But yeah, I don't know that it's 0:05:34.960 --> 0:05:36.760 a great idea for the law firms. 0:05:36.839 --> 0:05:39.040 Well, it was a great question mark. 0:05:39.160 --> 0:05:43.560 Yeah, also from Mark, I assume the same mark for Katie. 0:05:43.760 --> 0:05:49.000 Would you buy a cyber horse? Kawasaki just announced one 0:05:49.440 --> 0:05:53.280 Google Kawasaki Corleo and it looks absolutely wild? 0:05:53.640 --> 0:05:56.320 Well, is that all your questions are real? All my 0:05:56.520 --> 0:06:00.760 questions or I do appreciate the question mark. I can 0:06:00.760 --> 0:06:07.400 tell that you're not an equestrian, not so sad, not 0:06:07.440 --> 0:06:09.240 just sound too much like a horse girl. It does 0:06:09.320 --> 0:06:11.599 look awesome. I did see the video. It looks like 0:06:11.600 --> 0:06:14.000 a lot of fun. But having a horse is about 0:06:14.080 --> 0:06:16.840 much more than just riding it. It's about your relationship 0:06:17.360 --> 0:06:20.320 with your horse, and I actually really value that. My 0:06:20.440 --> 0:06:23.880 childhood pony is named Batman. He's still with us, but 0:06:23.920 --> 0:06:25.880 he is very much retired. He's only a couple of 0:06:25.920 --> 0:06:28.240 years younger than I am. I haven't been able to 0:06:28.320 --> 0:06:32.160 ride him since like twenty twenty. He's been out of 0:06:32.200 --> 0:06:35.920 commission and I bought the course that I currently ride, 0:06:35.920 --> 0:06:37.880 whose name is Gus. I bought him, you know, as 0:06:37.880 --> 0:06:40.080 a three year old in twenty one the summer of 0:06:40.120 --> 0:06:43.440 twenty twenty one, but there was a solid year there 0:06:43.880 --> 0:06:46.680 where I was just driving out to the barn to 0:06:47.000 --> 0:06:50.039 hang out with Batman, literally just hang out with him, 0:06:50.360 --> 0:06:53.200 which is a lot of driving and a lot of time. 0:06:53.600 --> 0:06:56.640 But it's a relationship. So I would not buy a 0:06:56.640 --> 0:06:57.320 cyber horse. 0:06:57.400 --> 0:06:59.960 I like my you the bond to hang out here. 0:07:01.200 --> 0:07:02.560 I just put that in the garage. 0:07:02.720 --> 0:07:09.000 Would you buy the cyber horse for like riding when 0:07:09.000 --> 0:07:11.800 you can't get to the barn? No, like like an 0:07:11.800 --> 0:07:13.600 exercise bike when you can't get outside. 0:07:13.920 --> 0:07:17.200 I don't drink, so no, I don't. I don't really think. 0:07:17.240 --> 0:07:21.040 So it's not like I like if I go for 0:07:21.080 --> 0:07:23.680 a long time without horseback riding, obviously I miss it 0:07:23.720 --> 0:07:26.160 because it's fun. But it's like like. 0:07:26.080 --> 0:07:29.280 When like horse treadmill in your apartment. 0:07:29.080 --> 0:07:31.560 Like if I'm on vacation with my parents, for example, 0:07:31.960 --> 0:07:35.680 my parents, But like people go on rides like trail 0:07:35.800 --> 0:07:39.280 rides and stuff. I like having, you know, one dance partner. 0:07:39.360 --> 0:07:43.600 I don't really like crave to ride any horse with 0:07:43.640 --> 0:07:45.920 a robot horse. It's weird. It's like a it's a 0:07:45.960 --> 0:07:48.720 long term relationship. Batman has been in my life since 0:07:48.720 --> 0:07:52.880 I was eleven and I like to just have one horse, 0:07:53.000 --> 0:07:56.600 one relationship at a time, so I probably wouldn't buy 0:07:56.640 --> 0:07:59.840 a cyber horse. But thank you for the question mark anyway, 0:07:59.880 --> 0:08:04.280 moving swiftly long. I feel like I shared part of 0:08:04.280 --> 0:08:25.960 my soul there mailbag. This one comes from will he 0:08:26.080 --> 0:08:29.280 says love the podcast. I have a question about private 0:08:29.320 --> 0:08:32.680 credit moving to marketplaces. It strikes me that the underlying 0:08:32.720 --> 0:08:35.920 companies with this type of debt, like private equity portfolio companies, 0:08:36.160 --> 0:08:38.880 have little interest in their debt trading. I worked at 0:08:38.920 --> 0:08:41.120 a PE fund and now work at a portfolio company, 0:08:41.600 --> 0:08:43.560 and a lot of the value from lenders is that 0:08:43.600 --> 0:08:46.280 you are a repeat client with a relationship in case 0:08:46.320 --> 0:08:49.679 you want to change the agreement e g. Or example 0:08:49.760 --> 0:08:53.760 to acquisitions, or are under duress. We have debt in 0:08:53.800 --> 0:08:56.120 our debt documents that debt holders are not allowed to 0:08:56.160 --> 0:08:58.840 transfer their debt without our permission, which I imagine is 0:08:58.840 --> 0:09:02.839 a pretty standard term. Given the negotiating leverage hot demand 0:09:02.880 --> 0:09:05.360 for lenders to issue more private credit, why would a 0:09:05.360 --> 0:09:08.560 firm be okay with their debt trading. With these dynamics, 0:09:08.640 --> 0:09:11.760 it seems pretty unlikely that private credit would materially move 0:09:11.800 --> 0:09:12.640 to a marketplace. 0:09:13.320 --> 0:09:16.320 I think that's absolutely right that, like a lot of 0:09:16.360 --> 0:09:20.640 the value proposition of private credit to borrowers is you 0:09:20.679 --> 0:09:23.480 will have a long term relationship with your lenders who 0:09:23.520 --> 0:09:27.120 will be nice and won't sell your debt to like 0:09:27.280 --> 0:09:31.760 distress that vultures. I'm not sure that that would prevent 0:09:31.960 --> 0:09:33.880 a marketplace from developing. So first of all, one thing 0:09:33.920 --> 0:09:38.000 we've seen is like quasi marketplaces for LP stakes in 0:09:38.040 --> 0:09:40.960 private credit funds, which is a different thing, right, Like 0:09:41.040 --> 0:09:44.360 instead of actually your debt trading, like you're still facing 0:09:44.600 --> 0:09:47.600 as a barrow, You're still facing the same private credit fund, 0:09:47.920 --> 0:09:50.680 but like the ultimate owners of that fund can shift 0:09:50.679 --> 0:09:52.080 a little bit. So that's not quite the same thing 0:09:52.120 --> 0:09:54.760 as a private credit marketplace, but it does like give 0:09:55.360 --> 0:09:58.080 the LPs like some ability to get liquidity and some 0:09:58.160 --> 0:10:01.000 ability to get like marks like I don't know, even 0:10:01.040 --> 0:10:04.960 within like the private credit like loans themselves actually treading. 0:10:05.000 --> 0:10:07.800 You know, a polo is setting of a trading desk, right, Yeah, 0:10:07.920 --> 0:10:12.480 I think that one thing that is possible is to 0:10:12.520 --> 0:10:17.200 have some sort of marketplace where you have like the 0:10:17.240 --> 0:10:20.200 bars have some ability to limit who can buy their bonds, right, 0:10:20.200 --> 0:10:21.559 And you see a little bit of this like the 0:10:21.640 --> 0:10:24.080 probably syndicated loan market where like there's approved lists of 0:10:24.080 --> 0:10:26.160 who can buy the loans, but you could have a 0:10:26.200 --> 0:10:29.000 thing where you know, the marketplace says, you know, each 0:10:29.040 --> 0:10:31.440 bar can specify who's allowed to buy their loans, or 0:10:31.480 --> 0:10:33.320 like can specify who's not allowed to buy their loans, 0:10:33.320 --> 0:10:36.160 so like they don't get bad distress the vultures. But 0:10:37.120 --> 0:10:39.520 one thing is that, like private credit is kind of 0:10:39.520 --> 0:10:42.560 new and hasn't seen like distress cycles, and like some 0:10:42.640 --> 0:10:46.640 of the talk about like private credit is nicer to 0:10:46.720 --> 0:10:49.600 companies that run into distress. Like you can imagine a 0:10:49.600 --> 0:10:52.440 world where there's like a broad downturn and that stops 0:10:52.480 --> 0:10:54.959 being true because it's sort of stopped being true for 0:10:55.040 --> 0:10:58.280 everyone at once. And similarly, you can imagine a world 0:10:58.320 --> 0:11:01.640 where like you know, credit funds need to sell and 0:11:02.520 --> 0:11:04.480 they all need to sell, and so there's like some 0:11:04.520 --> 0:11:06.439 amount of leverage for them to be like, look, we 0:11:06.840 --> 0:11:09.839 got to have ability to trade and where some more 0:11:09.880 --> 0:11:13.040 trading springs up. But I agree that like in a 0:11:13.120 --> 0:11:17.839 dynamic where there's a real huge demand for paper and 0:11:18.040 --> 0:11:21.360 the bars have a lot of leverage, it does seem 0:11:21.720 --> 0:11:24.160 hard to be like we're gonna have total free tradeability 0:11:24.200 --> 0:11:26.240 where anyone can buy your loans because like that is 0:11:26.280 --> 0:11:27.760 the thing that the barers don't want. 0:11:28.040 --> 0:11:31.040 Yeah, it's interesting, and I mean Apollo is, you know, 0:11:31.120 --> 0:11:33.160 on one end of the spectrum, and then you have 0:11:33.240 --> 0:11:37.000 like Blue Oul on maybe the opposite end, because they 0:11:37.520 --> 0:11:40.240 think private credit should stay private. They're not setting up 0:11:40.280 --> 0:11:43.040 a marketplace. I believe they're on the record saying that. 0:11:43.400 --> 0:11:46.640 Yeah. I think everyone will talk about relationships are really important, 0:11:46.640 --> 0:11:49.000 and like being a buy and hold investor is really important. 0:11:49.000 --> 0:11:52.160 But you know, at the same time, Apolo is like, 0:11:52.440 --> 0:11:56.000 you know, getting this to retail investors is really important. 0:11:55.559 --> 0:11:57.559 Because it'll we want this in your four one ke. 0:11:57.800 --> 0:11:59.760 Yeah, and like ultimately the pitch of that has to 0:11:59.800 --> 0:12:03.120 be we can get better rates if there's more liquidity 0:12:03.120 --> 0:12:05.760 and more Yeah, like a broader audience for it. Right, 0:12:05.800 --> 0:12:08.880 Like at some level, if you go to a borrower 0:12:08.880 --> 0:12:12.800 and you say, in exchange for not having a warm 0:12:12.840 --> 0:12:15.439 personal relationship with you for the rest of the time, 0:12:16.440 --> 0:12:19.560 we'll charge you fifty bases points less, some borrowers will 0:12:19.600 --> 0:12:22.120 say into that, Yeah, I like that. 0:12:22.240 --> 0:12:25.760 Will brought his own personal experience to the question as well. 0:12:25.840 --> 0:12:29.200 Great question. Will should we move along to Max Max 0:12:31.000 --> 0:12:36.520 mail Bag mailbag regarding Matt's story on equity funding costs 0:12:36.559 --> 0:12:39.760 increasing costs of SMP futures. This seems like a great 0:12:39.760 --> 0:12:42.800 place for dot dot dot in ETF question mark two 0:12:42.840 --> 0:12:45.760 exclamation points. I think the ETFs that sell zero day 0:12:45.760 --> 0:12:48.720 options are very fun and selling S and P futures 0:12:48.920 --> 0:12:51.680 then collecting the spreads does seem to rhyme with this 0:12:51.800 --> 0:12:54.840 in some way. Could an ETF do this while still 0:12:54.840 --> 0:12:57.600 being liquid and tradable? Does this already exist in the 0:12:57.600 --> 0:13:00.440 form of covered call ETFs or is selling future is 0:13:00.440 --> 0:13:04.400 different in some way ps. I'm a molecular biologist, not 0:13:04.440 --> 0:13:07.200 a finance person, so sorry, this question is totally obvious 0:13:07.240 --> 0:13:10.480 to exclamation points. That was charming, Max, So I love this. 0:13:10.720 --> 0:13:13.640 So we talked on the podcast last week about the 0:13:13.679 --> 0:13:16.600 basis trade. Yeah, this is the basis trade for S 0:13:16.640 --> 0:13:18.720 and P five hundred futures, right, Like, this is the 0:13:18.800 --> 0:13:20.520 trade here is that people want to buy S and 0:13:20.559 --> 0:13:23.760 P five hundred futures to basically like LeVert exposure to 0:13:23.800 --> 0:13:26.920 the S and P, and it is hard for them 0:13:26.960 --> 0:13:30.520 to do that because nobody or banks don't want to 0:13:30.720 --> 0:13:32.400 use their balance sheet to buy the S and P 0:13:32.600 --> 0:13:36.959 and sell futures against it right, Like, so someone needs 0:13:37.000 --> 0:13:39.839 to provide the funding to buy the S and P, 0:13:40.280 --> 0:13:42.520 buy the actual stocks and then sell the futures to 0:13:42.520 --> 0:13:45.160 people who want to buy the futures. Who should provide 0:13:45.200 --> 0:13:49.920 that Well, one answer is money market funds basically like 0:13:49.960 --> 0:13:53.000 that trade. It's not a stock trade. It's just like 0:13:53.040 --> 0:13:57.000 a cash trade. It's like lending balance sheet to provide 0:13:57.040 --> 0:13:59.400 people with access to the stocks. So you buy stocks, 0:13:59.400 --> 0:14:01.679 you sell stock futures. You have no risk. You're just 0:14:01.720 --> 0:14:05.600 like providing funding. And if, as has been the case, 0:14:05.880 --> 0:14:09.360 that funding is expensive because like no one wants banks 0:14:09.360 --> 0:14:10.439 don't want to do it, and there's a lot to 0:14:10.480 --> 0:14:12.480 demand for these futures, then you can get paid a 0:14:12.520 --> 0:14:15.880 lot for providing that funding. And the reason it's like 0:14:16.000 --> 0:14:17.480 no one wants to do it and it's expensive. This 0:14:17.520 --> 0:14:19.680 is kind of a weird trade, right. If you are 0:14:19.720 --> 0:14:22.200 a money market fund, someone can come to you and 0:14:22.200 --> 0:14:23.720 be like, look, what you should do is you should 0:14:23.720 --> 0:14:25.440 buy the S and P and sell S and P 0:14:25.560 --> 0:14:29.120 futures and you'll get paid a very high cash return 0:14:29.160 --> 0:14:30.480 for that, and you can get at any time you want. 0:14:30.480 --> 0:14:33.200 It's like a money market investment. You'd say, no, it's 0:14:33.200 --> 0:14:35.160 not a money market investment. I'm not allowed to buy stocks, 0:14:35.160 --> 0:14:36.880 I'm not allowed to sell futures, Like none of this 0:14:37.000 --> 0:14:39.320 is allowed, and so money market funds don't do it. 0:14:39.800 --> 0:14:42.000 And you know, I wrote about this because like there 0:14:42.040 --> 0:14:45.600 was a story about like some like long only fund 0:14:45.760 --> 0:14:48.520 managers who have like some ability to be pretty tactical. 0:14:48.720 --> 0:14:52.280 They're like, yeah, we're doing that instead of buying treasury 0:14:52.280 --> 0:14:54.400 bills or doing repo or whatever, we are buying the 0:14:54.480 --> 0:14:56.880 S and P and selling futures and getting paid you know, 0:14:56.920 --> 0:14:59.800 ten percent instead of four percent. But not a lot 0:15:00.080 --> 0:15:03.080 doing that. And so the question here is white not 0:15:03.200 --> 0:15:06.840 an ETF. And it reminds me of do you remember 0:15:06.880 --> 0:15:11.280 the ETF called the box boxs CAET So this is 0:15:11.280 --> 0:15:12.960 the same thing, right, box is like a crazy trade 0:15:12.960 --> 0:15:15.720 where it's like they like buy and sell options to 0:15:15.840 --> 0:15:19.880 get cash returns and have no equity risk and also 0:15:20.200 --> 0:15:22.600 they think get a really good tax treatmental though that 0:15:22.720 --> 0:15:25.760 is highly debated. But this is the same thing, right. 0:15:25.800 --> 0:15:29.920 It's like boxes, Like basically there is demand for lending 0:15:30.320 --> 0:15:33.000 in the options market, and we are going to be 0:15:33.040 --> 0:15:35.920 the lender into the options market. We're not buying options 0:15:35.960 --> 0:15:37.880 selling options. We're not doing any options trades. I mean 0:15:37.920 --> 0:15:40.440 we are, but like not to do options trades. We're 0:15:40.480 --> 0:15:42.840 doing them just to be a lender into the options market, 0:15:42.840 --> 0:15:45.320 because the options market will pay more for cash than 0:15:45.400 --> 0:15:48.400 like treasure reboil markets. Well, and this is the same thing. 0:15:48.440 --> 0:15:50.400 It's like the S and P five hundred futures market 0:15:50.480 --> 0:15:53.720 right now will pay for cash. So someone should set 0:15:53.760 --> 0:15:57.640 up a ETF that will provide that cash. I think 0:15:57.680 --> 0:16:00.000 the reason there's not an need dev for this probably 0:16:00.080 --> 0:16:02.400 when lunching next week. But like I think the reason 0:16:02.480 --> 0:16:04.280 there's not an ETF is like it is not at 0:16:04.320 --> 0:16:06.960 all clear that this is a permanent trade right right, 0:16:07.000 --> 0:16:09.360 Like this can go away at any time, and so 0:16:09.400 --> 0:16:12.400 it's a little weird to set up an ETF that 0:16:12.440 --> 0:16:13.880 will do this trade for years. 0:16:13.680 --> 0:16:15.520 If like you know flash in the pan. 0:16:15.640 --> 0:16:18.480 Yeah, Like it's a little tending to be like there 0:16:18.520 --> 0:16:22.880 should be a weird cash trade ETF. Like you have 0:16:22.880 --> 0:16:24.920 an ETF that's like we're a money market ETF, but 0:16:24.960 --> 0:16:27.680 like we're not constrained to regular money market instrments, so 0:16:27.680 --> 0:16:31.240 we can do anything that's like a short term cash investment. Yeah, 0:16:31.280 --> 0:16:33.800 And like when S and P five hundred future is 0:16:33.800 --> 0:16:35.680 basis is wide will do that trade and like when 0:16:35.680 --> 0:16:37.320 something else works, we'll do something else. 0:16:37.600 --> 0:16:39.640 Well, I mean, I hear what you're saying that you know, 0:16:39.680 --> 0:16:42.320 it's hard to know if this is permanent. To that point, 0:16:42.360 --> 0:16:46.640 I'm really surprised that there isn't a treasury basis trade ETF. 0:16:46.880 --> 0:16:49.920 Not that because I think it should exist, because there's 0:16:49.960 --> 0:16:51.880 so many opportunistic filers. 0:16:51.960 --> 0:16:55.880 That trade is we borrow a hundred times, are an 0:16:55.880 --> 0:16:58.600 asset value to buy treasure? You can't do that in ATF. 0:16:58.640 --> 0:17:01.240 There's some issuers that I talked too often. I wouldn't 0:17:01.240 --> 0:17:02.000 put it past them. 0:17:02.200 --> 0:17:04.240 Now I would put it past them, but you're not 0:17:04.240 --> 0:17:04.879 allowed to do that. 0:17:05.040 --> 0:17:05.600 I'll see. 0:17:07.520 --> 0:17:10.000 I feel like you're foreshadowing actual basis. 0:17:10.800 --> 0:17:45.840 Max, great question, Good luck with the biology. 0:17:31.320 --> 0:17:32.080 Mail bag. 0:17:32.359 --> 0:17:36.920 Mail bag, all right, Sal Sal has a question. Sel 0:17:37.040 --> 0:17:39.280 asks what is the value of the option to declare 0:17:39.320 --> 0:17:43.280 personal bankruptcy and how would you monetize it? Couldn't investor 0:17:43.320 --> 0:17:45.919 recruit a bunch of eighteen year olds to take levered risks. 0:17:46.480 --> 0:17:48.520 I feel the option really is very low because you 0:17:48.560 --> 0:17:51.600 can't get that much money when you're eighteen. The question is, 0:17:52.320 --> 0:17:54.680 in general, if you borrow money, you have to pay 0:17:54.720 --> 0:17:56.399 it back and so if you borrow money to buy 0:17:56.480 --> 0:17:59.600 lottery tickets and you lose all the money, then you're 0:17:59.640 --> 0:18:01.119 in trouble because you have to pay back all the 0:18:01.160 --> 0:18:03.840 money and you're allowed you types didn't pan out, But 0:18:04.359 --> 0:18:06.560 if you declare bankruptcy, then you don't have to pay 0:18:06.600 --> 0:18:09.719 the money back. This is the theory, right, you effectively 0:18:09.880 --> 0:18:12.640 like can structure your financial life like a call option, 0:18:12.720 --> 0:18:14.879 where like if everything works out, you get all the upside, 0:18:15.280 --> 0:18:17.160 and if it doesn't work out, you don't get any 0:18:17.160 --> 0:18:19.520 of the downside because you declare bankruptcy and move on. Now, 0:18:19.600 --> 0:18:21.080 there are several problems that it's one of those, like 0:18:21.320 --> 0:18:25.119 declaring markruptcy is in some ways a downside, Right, I 0:18:25.160 --> 0:18:28.520 don't necessarily want to declare bankruptcy. And the reason that 0:18:28.640 --> 0:18:31.680 sal asks about eighteen year olds is that, like, if 0:18:31.720 --> 0:18:37.280 you're forty six and have a house, you probably don't 0:18:37.280 --> 0:18:39.400 want to declare bankruptcy if it only get to keep 0:18:39.400 --> 0:18:41.879 your house. But that's not legal advice. But like, you know, 0:18:42.880 --> 0:18:45.800 your life will get worse if you declare personal bankrupcy, 0:18:45.840 --> 0:18:47.960 whereas if you're eighteen, your life may not get significantly 0:18:47.960 --> 0:18:50.320 worse if you declared personal vanqucy. But that's why they 0:18:50.359 --> 0:18:52.600 won't lend you money, like you can only borrow so 0:18:52.680 --> 0:18:55.280 much money when you're eighteen, because they know that this 0:18:55.400 --> 0:18:58.760 option exists. And the one huge exception to that is 0:18:58.880 --> 0:19:03.240 student loans. They're not dischargeable in bankruptcy. Yeah, it's like 0:19:03.400 --> 0:19:06.479 you can borrow hundreds of thousand dollars an eighteen year 0:19:06.480 --> 0:19:10.000 old to go to college, not because that's a particularly 0:19:10.080 --> 0:19:11.879 get credit risk, but because like you're not allowed to 0:19:11.880 --> 0:19:14.720 get rid of that debt yikes. Yeah. And then the 0:19:14.760 --> 0:19:16.639 other part of the question is could an investor recruit 0:19:16.640 --> 0:19:18.639 a bunch of eighteen year olds to take levered risks? 0:19:18.680 --> 0:19:20.560 Like even if you could do that, and like you'd 0:19:20.600 --> 0:19:23.480 structure to deal with them, like someone would define you 0:19:23.960 --> 0:19:26.480 and be like, this wasn't really an eighteen year old 0:19:26.560 --> 0:19:29.360 borrowing this money. This was you, the investor, borrowing the money, 0:19:29.359 --> 0:19:31.240 and then they kind of look through it and get 0:19:31.280 --> 0:19:33.280 you to pay it back. So I think that it 0:19:33.400 --> 0:19:36.880 is pretty hard to monetize the option to declare personal bankruptcy. 0:19:37.280 --> 0:19:41.119 But one reason I wanted to ask this question on 0:19:41.200 --> 0:19:44.040 the show is I'm sure we will get emails people 0:19:44.400 --> 0:19:47.640 who are like, this is how I monetize the option 0:19:47.800 --> 0:19:49.040 to declare personal vankruptcy. 0:19:49.520 --> 0:19:51.760 It's beautiful and we can talk about that in our 0:19:51.840 --> 0:19:53.960 next meal Bag episode possibly. 0:19:53.720 --> 0:19:55.479 Or even in the regular episode. 0:19:55.640 --> 0:20:01.960 That's true, that's true. The possibilities are limitless. Mail mail Bag. 0:20:02.840 --> 0:20:05.560 Here's a question from John on the podcast. Some time ago. 0:20:06.040 --> 0:20:09.440 Katie quipped that she might name a kid Xanadu someday. 0:20:09.880 --> 0:20:11.760 I feel like Katie would be more likely to name 0:20:11.880 --> 0:20:15.879 kids hers or other people's after ETF tickers. What ETF 0:20:15.960 --> 0:20:19.359 tickers would be the best children's names? What about horses names? 0:20:19.640 --> 0:20:21.240 I don't know that we have an answer to this question, 0:20:21.320 --> 0:20:22.240 but it was a funny question. 0:20:22.320 --> 0:20:23.679 John. I'm not sure if I like the way your 0:20:23.720 --> 0:20:24.280 brain works. 0:20:24.480 --> 0:20:28.400