WEBVTT - Horse Pilates: A Mailbag Episode 0:00:02.720 --> 0:00:07.200 Bloomberg Audio Studios, Podcasts, radio News. 0:00:08.119 --> 0:00:12.960 Here we are Friday, January second, twenty twenty, recording this, live, 0:00:13.280 --> 0:00:18.280 recording this, live recording this on I don't know, December 0:00:18.280 --> 0:00:22.600 seventeenth days. Wow, it's been it's been an eventful two weeks. 0:00:22.920 --> 0:00:25.680 I know, between when we recorded this and when you're 0:00:25.680 --> 0:00:26.360 listening to it. 0:00:26.960 --> 0:00:28.560 Ominous, very ominous. 0:00:28.800 --> 0:00:30.960 Yeah, I'm going to regret this so. 0:00:31.040 --> 0:00:34.199 Much, probably just given the pace of everything that's happening 0:00:34.320 --> 0:00:37.040 all at once. But hopefully our answers to these questions 0:00:37.120 --> 0:00:40.200 won't have changed too much in two weeks. Hopefully, unless 0:00:40.200 --> 0:00:41.839 something amazing happens. 0:00:43.240 --> 0:00:46.600 Hello, and welcome to the Money Stuff Podcast here, weekly 0:00:46.640 --> 0:00:50.519 podcasts where we talk about stuff related to money. I'm 0:00:50.560 --> 0:00:52.400 Matt Levine, and I read the Moneys Doft column for 0:00:52.479 --> 0:00:53.280 Bloomberg Opinion. 0:00:54.240 --> 0:00:56.640 And I'm Katie Greifeld, a reporter for Bloomberg News and 0:00:56.680 --> 0:00:58.160 an anchor for Bloomberg Television. 0:01:00.080 --> 0:01:02.880 Not pretending to sing the mail bag thing, but today 0:01:02.960 --> 0:01:03.920 is a mailbag episode. 0:01:04.000 --> 0:01:22.000 Yeah, mail bag, Thank you, Katie, mail bag nail bag. 0:01:23.319 --> 0:01:24.160 Yeah, let's get into it. 0:01:24.160 --> 0:01:26.800 We've got some good ones. We're starting off strong with 0:01:26.920 --> 0:01:31.120 a question from Christopher, who asks why do analysts ask 0:01:31.240 --> 0:01:33.759 questions on earnings calls? I get why they ask them. 0:01:33.760 --> 0:01:36.880 In private meetings with the company, they then get exclusive 0:01:36.959 --> 0:01:41.319 access to body language information, but on public earnings calls 0:01:41.600 --> 0:01:44.400 they get their information only to have it simultaneously shared 0:01:44.400 --> 0:01:46.960 with everyone else. What do they get out of that? 0:01:47.280 --> 0:01:50.600 It's a good question. So basically all of the questions 0:01:50.640 --> 0:01:53.120 on earnings calls are asked by sales ad analysts whose 0:01:53.200 --> 0:01:55.520 job is not to buy stocks that will then go 0:01:55.560 --> 0:01:58.800 up vote, rather to publish research reports for their customers 0:01:59.480 --> 0:02:02.760 saying what's thots will go up and so like, broadly speaking, 0:02:02.840 --> 0:02:05.760 the research analysts are in a business of like providing 0:02:06.200 --> 0:02:10.240 public ish goods, right, Like, they're not getting paid directly 0:02:10.320 --> 0:02:13.920 for picking stocks. What they're doing is they're providing some 0:02:14.080 --> 0:02:17.480 holistic set of services to investor clients that make the 0:02:17.520 --> 0:02:20.720 investor clients think fondly about them and about their banks. 0:02:21.120 --> 0:02:24.800 And then the investor clients, because of those fond feelings, 0:02:24.880 --> 0:02:26.680 will either you know, in the US, they'll trade with 0:02:26.680 --> 0:02:28.919 the banks and pay them commissions and in Europe they'll 0:02:28.919 --> 0:02:31.520 pay directly for research. And so what that means is 0:02:31.560 --> 0:02:34.640 that like anything that the research analyst does that like 0:02:35.080 --> 0:02:39.760 makes investors like them is productive, and providing public goods 0:02:39.800 --> 0:02:43.480 by asking good questions on the earnings call is reasonably productive. Also, 0:02:43.760 --> 0:02:45.959 if you ask good questions on the earnings call, then 0:02:46.200 --> 0:02:49.079 people will hear you and think, ooh, I like that analyst, 0:02:49.600 --> 0:02:52.080 and that will lead to things like maybe them paying 0:02:52.080 --> 0:02:55.240 for your research. It will also lead to maybe the 0:02:55.360 --> 0:03:00.440 company thinking you're good and liking you, and therefore one 0:03:00.840 --> 0:03:02.639 you know, having private meetings with you where they tell 0:03:02.639 --> 0:03:04.760 you stuff or give you a body language that allows 0:03:04.760 --> 0:03:06.520 you to be more informed and too. 0:03:06.560 --> 0:03:06.640 Like. 0:03:06.760 --> 0:03:10.480 Another job of research analysts is brokering meetings between companies 0:03:10.480 --> 0:03:13.520 and investors, right, so they do corporate access where you know, 0:03:13.520 --> 0:03:15.840 when a company is doing a non deal ROACHO or 0:03:15.880 --> 0:03:18.480 a conference or whatever, they're meeting with investors and those 0:03:18.480 --> 0:03:20.520 slots are kind of like arranged by the banks by 0:03:20.560 --> 0:03:24.239 the research analysts, and if you are in good favor 0:03:24.280 --> 0:03:26.280 with the company, then you get better access to those 0:03:26.280 --> 0:03:28.800 things and you can do more for your clients. So 0:03:29.960 --> 0:03:33.360 as part of like the broad set of services they provide, 0:03:34.080 --> 0:03:36.400 asking good questions in a very public place on ear 0:03:36.440 --> 0:03:37.960 news callus it's a useful thing to do. 0:03:38.200 --> 0:03:40.080 It sounds a bit performative. But I hear it. 0:03:40.840 --> 0:03:42.960 Yeah, it's like a market Like being a research analyst 0:03:43.000 --> 0:03:44.840 is in some sense a marketing job, right, and so 0:03:44.960 --> 0:03:49.040 like being good in public is good marketing, I should say, 0:03:49.040 --> 0:03:51.480 also like it is an analytical job, and you are 0:03:52.320 --> 0:03:56.040 building your own model, and like if you have differentiated 0:03:56.280 --> 0:03:59.280 views or differentiated skills and you ask a good question 0:03:59.360 --> 0:04:01.800 that informs your model, other people will get the answer 0:04:01.840 --> 0:04:03.320 to the question, but they don't have the same model, 0:04:03.360 --> 0:04:04.920 they don't have the same skills, right, So you could 0:04:05.000 --> 0:04:10.320 still get differentiated information or analysis by asking a question 0:04:10.360 --> 0:04:12.120 that everyone can hear. But a lot of what you're 0:04:12.160 --> 0:04:14.680 doing is letting everyone here smar you are. 0:04:14.880 --> 0:04:17.200 Yeah, you're sort of speaking to something that I was 0:04:17.240 --> 0:04:22.480 wondering when reading this question, is whether there's satisfaction in 0:04:22.560 --> 0:04:25.960 asking like a really good question on the earnings call 0:04:26.040 --> 0:04:30.280 that maybe gets something more candid from the executives on 0:04:30.320 --> 0:04:30.640 the call. 0:04:31.120 --> 0:04:33.279 You're a television anchor, Sure you know the answer to 0:04:33.279 --> 0:04:33.760 this question? 0:04:34.440 --> 0:04:36.839 Well, yeah, I guess. I mean, if someone asked a 0:04:36.839 --> 0:04:38.680 really good question on an earnings call, I would probably 0:04:38.720 --> 0:04:40.440 highlight it and also steal it from myself. 0:04:41.160 --> 0:04:45.200 Yeah, But also, just like, isn't there satisfaction. 0:04:44.920 --> 0:04:48.760 In asking a really good question. Yeah, that's true. Or 0:04:48.839 --> 0:04:53.040 like the journalists at the FED press conference, right, yeah. 0:04:52.960 --> 0:04:55.520 Right, same thing. The journalists of the FED Press conference. 0:04:55.800 --> 0:04:58.279 Any answer to their question. Every other journalists of that 0:04:58.320 --> 0:05:00.719 conference can write down, right, yes, but you ask a 0:05:00.720 --> 0:05:04.000 good question, then you're like, oh, you impress your colleagues, 0:05:04.320 --> 0:05:07.840 you impress the FED. Yeah, you impress your readers. 0:05:08.640 --> 0:05:12.360 Yeah about or you tick off the FED something else. 0:05:12.360 --> 0:05:15.240 Something else I also wonder about is like whether I 0:05:15.279 --> 0:05:17.360 wonder this too about the journalists in the room at 0:05:17.360 --> 0:05:20.200 the FED Press conference, is whether there's any sort of 0:05:20.279 --> 0:05:23.240 sense that, like this is a team sport, that we're 0:05:23.320 --> 0:05:27.280 trying to get something out of these people that we 0:05:27.920 --> 0:05:31.080 might not have otherwise, or whether everyone is asking their 0:05:31.080 --> 0:05:35.040 own individual questions and not necessarily building on the question 0:05:35.360 --> 0:05:36.400 that was asked before you. 0:05:36.640 --> 0:05:39.520 I mean, surely it's some combination, right, Like, surely you 0:05:39.640 --> 0:05:42.680 want to distinguish yourself, but also, like someone else draws 0:05:42.680 --> 0:05:45.440 some blood, you move in for the killer. Right, Yeah, 0:05:45.839 --> 0:05:47.320 probably somewhat similar. 0:05:48.320 --> 0:05:56.800 Good question, Christopher. This next question, Yeah, who wants to 0:05:56.839 --> 0:05:59.000 read it? 0:05:59.000 --> 0:05:59.080 It? 0:05:59.520 --> 0:05:59.719 Gover? 0:06:00.400 --> 0:06:03.680 What idiotic book is coming from senior hedge fund leaders? 0:06:03.720 --> 0:06:08.040 It's asset management? The entire point is to care about 0:06:08.080 --> 0:06:11.000 making few money. The people that do get hired who 0:06:11.040 --> 0:06:13.400 don't care about money are weirdos who create ten billion 0:06:13.440 --> 0:06:17.200 dollars Ponzi schemes. Jane Street hiring Mathcamp weirdos rather than 0:06:17.240 --> 0:06:20.720 the cross players is a literal criminal conspiracy. Anthropic is 0:06:20.720 --> 0:06:22.760 a weird cult, and it's specifically because of how weird 0:06:22.800 --> 0:06:25.640 and abnormal that the Open Ai board was that they 0:06:25.720 --> 0:06:28.240 tried to destroy the company because it released the successful product. 0:06:28.560 --> 0:06:30.839 We need more normal people in these companies and less 0:06:30.920 --> 0:06:34.239 ethereal PhDs that don't care buying a house, a plane, 0:06:34.320 --> 0:06:38.599 or a yacht, don't care about buying your household. Companies 0:06:38.600 --> 0:06:40.960 should have corporate policies that require employees over the age 0:06:40.960 --> 0:06:43.400 of twenty five to not have roommates. We get better 0:06:43.440 --> 0:06:45.919 products and better corporate decisions if people aren't living in 0:06:45.920 --> 0:06:48.800 cult houses but rather have to deal with the real 0:06:48.800 --> 0:06:51.480 housing market and do things like buy groceries and pick furniture. 0:06:51.680 --> 0:06:54.359 If hedge fund leadership wants to only hire socialists, then 0:06:54.400 --> 0:06:57.080 they should go lead a university rather than managing financial assets. 0:06:57.080 --> 0:06:59.920 For two and twenty or more. I love this question, 0:07:00.279 --> 0:07:04.120 any of this question. I love this rant. I don't 0:07:04.160 --> 0:07:05.960 even know what prompted it, but I have written about 0:07:05.960 --> 0:07:08.400 this that I believe, and I think I am not 0:07:08.520 --> 0:07:10.920 alone in this, that like a lot of the most 0:07:11.000 --> 0:07:18.480 successful people in the financial industry are deep down motivated 0:07:18.520 --> 0:07:22.720 by puzzle solving and intellectual curiosity rather than the pursuit 0:07:22.760 --> 0:07:26.560 of money. And I just think that this is an 0:07:26.600 --> 0:07:28.960 empirical fact that might not be true, but it seems 0:07:29.000 --> 0:07:31.680 to be true, right, Like you could imagine that the 0:07:31.760 --> 0:07:33.480 thing that would make you the best at managing hedge 0:07:33.480 --> 0:07:35.560 fund was like really liking money a lot, But it 0:07:35.600 --> 0:07:38.440 turns out that solving puzzles is really good for managing money. 0:07:38.840 --> 0:07:43.560 But Graham is right that there are weirdnesses there, and 0:07:43.680 --> 0:07:46.880 that like, if you get into this business because you 0:07:46.960 --> 0:07:49.200 really like solving puzzles, like some number of those people 0:07:49.240 --> 0:07:53.080 do end up committing huge frauds. And there is some 0:07:53.160 --> 0:08:00.800 possibility that a world of nice, sociable, moderately intelligent lacrosse 0:08:00.840 --> 0:08:05.160 players would commit less fraud and have fewer blow ups 0:08:05.160 --> 0:08:10.200 and Ponzi schemes than one where where the weirds are 0:08:10.240 --> 0:08:12.640 running the nuts funds. But what do you do about that? Right? 0:08:12.920 --> 0:08:16.520 You can't. It's a fiercely competitive business, and if you 0:08:16.640 --> 0:08:21.960 are just trying to trade stocks with like friendly sociability, 0:08:22.200 --> 0:08:24.520 you'll get run over by the math kids. And so, 0:08:25.080 --> 0:08:27.400 you know, the competition leads to this strange place where 0:08:27.400 --> 0:08:29.680 the people who are less motivated by money make the 0:08:29.720 --> 0:08:31.840 most money, and then some of them are weird. Also, 0:08:31.840 --> 0:08:35.600 I should say, like I'm being sympathetic to his question, 0:08:35.640 --> 0:08:38.080 but fundamentally my sympathies are with the puzzle people, right, 0:08:38.120 --> 0:08:40.280 I mean, I love the puzzle people, and I think 0:08:40.559 --> 0:08:45.160 it is on balance good for the world and also 0:08:45.320 --> 0:08:47.960 very pleasing aesthetically that the puzzle people are in charge 0:08:48.000 --> 0:08:50.400 of finance. But it's a real you know, this is 0:08:50.440 --> 0:08:52.680 like it goes back to Liar's Poker. Right. This transition 0:08:52.800 --> 0:08:57.280 from the sort of sociable, essentially marketing oriented people to 0:08:57.480 --> 0:09:00.480 math puzzle people is one that has called attention on 0:09:00.520 --> 0:09:01.480 Wall Street for decades. 0:09:01.800 --> 0:09:07.080 H Great Graham, really good stuff. Okay, here's Sean that 0:09:07.240 --> 0:09:09.800 seems to love certain quotes because they're graded explaining a 0:09:09.840 --> 0:09:13.520 moment mechanism, trend, et cetera. For example, quote, it would 0:09:13.559 --> 0:09:16.480 be wise to view any investing in open Ai Global 0:09:16.720 --> 0:09:20.600 LLC in the spirit of a donation. End quote hidden 0:09:20.679 --> 0:09:24.559 poorly internally labeled Fiat at account eight million? 0:09:25.000 --> 0:09:25.960 Do you eight billion? 0:09:26.080 --> 0:09:26.800 Eight billion? 0:09:27.000 --> 0:09:28.080 She's a little till there. 0:09:28.000 --> 0:09:28.680 In front of it because it. 0:09:30.720 --> 0:09:33.679 Shan beckman Fried's famous spreadsheet famous. 0:09:33.920 --> 0:09:35.400 Do you have an all time favorite? 0:09:35.440 --> 0:09:36.959 Do I have an all time favorite quote? So I 0:09:37.000 --> 0:09:39.760 almost said this in the last answer, Samuel Johnson says, 0:09:40.120 --> 0:09:41.840 there are a few ways in which a man can 0:09:41.880 --> 0:09:45.160 be more innocently employed than in getting money. I think 0:09:45.200 --> 0:09:50.640 about that a lot. Yeah, people regularly get mad at 0:09:50.679 --> 0:09:55.160 Wall Street and fanciers and people trying to make a buck, 0:09:55.800 --> 0:09:57.960 and I often think it's better than almost all of 0:09:58.000 --> 0:10:03.679 the alternatives. People who are motivated power or revenge or 0:10:04.200 --> 0:10:07.680 even a sense of mission, we're often doing worse things 0:10:07.840 --> 0:10:09.480 than the people are just out there trying to make 0:10:10.520 --> 0:10:12.840 a buck or eight billion bucks. So that's a that's 0:10:12.880 --> 0:10:15.880 a you know, an all time favorite quote of mine. 0:10:16.160 --> 0:10:19.480 Another favorite quote of mine is, you know, Warren Buffett 0:10:19.480 --> 0:10:23.720 has a lot of famous quotes and his famous shareholder letters. 0:10:23.800 --> 0:10:24.800 Yeah, probably quoted a. 0:10:24.800 --> 0:10:26.920 Lot of them. The one that I like them most 0:10:27.480 --> 0:10:30.560 is at some point he's like talking trash about gold 0:10:30.960 --> 0:10:33.559 as an investment, right, and he's like, you can invest 0:10:34.000 --> 0:10:35.599 I think the number was like the market cap with 0:10:35.640 --> 0:10:37.160 the SMP. He's like, you can put you know, thirty 0:10:37.160 --> 0:10:39.800 two trillion dollars into the into the SMP. You put 0:10:39.840 --> 0:10:41.240 it the money into the SMP, you get all the 0:10:41.240 --> 0:10:44.000 productive capacity of America, all the companies, all the corporate profits, 0:10:44.040 --> 0:10:46.080 all right, all the business. Or you can put that 0:10:46.080 --> 0:10:48.160 amount of money into a cube of gold that is 0:10:48.240 --> 0:10:51.720 like yay hi by yay long, by yay wide. And 0:10:51.760 --> 0:10:53.679 he's like, and then it'll just sit there. You can 0:10:53.800 --> 0:10:56.000 fundle the cube, but it will not respond. 0:10:57.000 --> 0:11:00.880 It will not spin off any any dividends anything like that, 0:11:01.040 --> 0:11:01.720 no cash flow. 0:11:01.800 --> 0:11:03.800 I just think of Warren Buffett's saying, you can fundle 0:11:03.840 --> 0:11:05.480 the cube, but it will not respond. 0:11:18.679 --> 0:11:22.160 Okay. From ends a question on ISS slash Glass Lewis 0:11:22.160 --> 0:11:25.200 and the voting discussion. Isn't this the easiest way for 0:11:25.240 --> 0:11:28.280 a billionaire to gain a huge influence on companies? Buy 0:11:28.400 --> 0:11:31.280 Iss or Glass Lewis and steal the voting in one 0:11:31.480 --> 0:11:33.960 in the direction you want? Would this work? 0:11:34.480 --> 0:11:38.400 I don't know, you know, and Glass Lewis people, people 0:11:38.400 --> 0:11:41.920 are really mad at Iss, Glass List or the proxy advisory. 0:11:41.440 --> 0:11:45.320 Firms, as discussed on this pod ages ago. 0:11:45.400 --> 0:11:48.840 Now I speak only a few days before we recorded 0:11:48.840 --> 0:11:52.360 this pod, Donald Trump put out an executive order basically 0:11:52.440 --> 0:11:55.280 saying we don't like the proxy advisors. And there's this 0:11:55.320 --> 0:11:58.080 notion that the proxy advisors are in charge of all 0:11:58.080 --> 0:12:00.840 shareholder voting. Right, People like a conspira like this where 0:12:00.840 --> 0:12:06.520 it's like two foreign owned companies control how all American 0:12:06.559 --> 0:12:08.760 public companies are run. Right. The idea is that Iss 0:12:08.760 --> 0:12:11.200 and Glass Lewis tell the shareholders how to vote, and 0:12:11.200 --> 0:12:13.280 then the shareholders vote that way, and then the companies 0:12:13.320 --> 0:12:16.000 have to do what they say. This is exaggerating in 0:12:16.040 --> 0:12:17.440 a lot of ways, one of which is that like 0:12:18.160 --> 0:12:20.600 Iss and Glass Lewis have their most influence in the 0:12:20.720 --> 0:12:25.800 least important things like there are shareholder votes on you know, 0:12:25.800 --> 0:12:29.240 there are hundreds a year on non binding proposals that 0:12:29.320 --> 0:12:32.880 companies should write reports about ESG stuff or whatever, and there. Yeah, 0:12:32.920 --> 0:12:35.040 a lot of shareholders do defer to Iss and Glass 0:12:35.080 --> 0:12:37.160 Lewis because it just doesn't matter to them that much. 0:12:37.880 --> 0:12:40.480 Iss and Glass Lewis have meaningful influence on things like 0:12:40.640 --> 0:12:43.760 contested merger situations and proxy fights, where like there are 0:12:43.840 --> 0:12:49.520 real economic stakes, but they're a lot of asset managers 0:12:49.559 --> 0:12:52.480 are making their own decisions because they have more at stake, 0:12:52.520 --> 0:12:54.680 whereas the stuff where the Iss and Glass Lewis have 0:12:54.679 --> 0:12:57.079 the most impact is where people have the least at stake. 0:12:57.360 --> 0:12:59.400 But also it's just like they have no authority. They're 0:12:59.400 --> 0:13:02.440 just persuasive, right, They're just like useful, and if they 0:13:02.440 --> 0:13:06.080 stop being useful, then people would stop paying attention to them. 0:13:06.160 --> 0:13:08.160 So I think if you bought Iss and glass Lewis 0:13:08.200 --> 0:13:11.680 and use them to advance an agenda, first of all, 0:13:11.720 --> 0:13:13.360 you can only do so much to advance the agenda 0:13:13.400 --> 0:13:16.120 because it's only like share all theer voting. And secondly, 0:13:16.280 --> 0:13:18.640 if you did it too obviously, then people would get 0:13:18.880 --> 0:13:20.840 sick of you, and it can't be that hard to 0:13:20.840 --> 0:13:21.640 start another one. 0:13:21.960 --> 0:13:25.240 That's the thing like in practice, if a controversial billionaires, 0:13:25.240 --> 0:13:28.920 which is Elon Musk, bought either Iss or Glass Lewis, 0:13:28.920 --> 0:13:31.960 I feel like like whatever recommendation they make, people just 0:13:32.160 --> 0:13:32.920 know it's biased. 0:13:33.040 --> 0:13:35.400 Yeah, well you know everyone's like, oh it's biased. Now 0:13:35.440 --> 0:13:39.720 it is biased. They have some priors that happened to 0:13:39.800 --> 0:13:41.679 more or less aligned with the views of a lot 0:13:41.720 --> 0:13:47.480 of investment managers. Because the investment manager are the customers, 0:13:47.480 --> 0:13:50.480 and they're trying to run a business where people pay 0:13:50.520 --> 0:13:55.360 for their advice. But yeah, like you know, their bias 0:13:55.400 --> 0:13:57.199 is kind of aligned with their customers, and if you 0:13:57.320 --> 0:13:59.280 change that, then the customers would go somewhere else. 0:13:59.480 --> 0:14:04.440 Yeah, now we have a question from it's like the 0:14:04.480 --> 0:14:06.640 ETF segment. I don't really know how to answer this, 0:14:07.000 --> 0:14:09.400 but Leo asks, I feel like you could just have 0:14:09.600 --> 0:14:12.320 every buy in ETF be a creation and every cell 0:14:12.440 --> 0:14:15.160 be a redemption routed to the issuer and remove the 0:14:15.160 --> 0:14:20.040 possibility of ETF's trading outside of NAV. Why bother being 0:14:20.120 --> 0:14:22.160 able to trade them with other traders directly at. 0:14:22.120 --> 0:14:24.120 All, because they're exchange traded. 0:14:24.280 --> 0:14:26.200 Yeah, that's the thing. They trade throughout the day. 0:14:26.680 --> 0:14:30.200 Right. An instrument where you could only create and redeem 0:14:30.200 --> 0:14:31.320 with the issuer is just. 0:14:31.280 --> 0:14:34.320 The mutual fund yeah right, Yeah. 0:14:33.840 --> 0:14:37.600 And mutual funds have a couple of disadvantages. One is 0:14:37.640 --> 0:14:40.960 that it's just an administrative cost to the issue always 0:14:40.960 --> 0:14:43.320 having to trade with you, rather than you can trade 0:14:43.360 --> 0:14:46.560 on the exchange with anyone who wants to two. The 0:14:46.600 --> 0:14:48.800 issue wants to trade with you at NAV, but the 0:14:48.880 --> 0:14:51.440 NAV changes throughout the day, and so there's a cost 0:14:51.480 --> 0:14:55.840 in just updating that, whereas with an ETF you're trading 0:14:55.880 --> 0:14:58.160 at the market price, and so it just kind of 0:14:58.160 --> 0:15:00.120 takes care of itself. Nobody takes care of itself with 0:15:00.200 --> 0:15:02.120 arbitreasure is making sure the price is close to the 0:15:02.200 --> 0:15:04.800 nav but like the issuer doesn't have to worry about that, Like, 0:15:04.880 --> 0:15:09.680 it's much more administratively simple. Also though, like a lot 0:15:09.680 --> 0:15:13.800 of the point of the ETF thing is that if 0:15:13.840 --> 0:15:16.320 you're doing trades with the issue, the way ETFs worked 0:15:16.360 --> 0:15:18.760 is that I gave the issuer money and it gave 0:15:18.800 --> 0:15:23.000 me back shares. That is a taxable trade that creates 0:15:23.040 --> 0:15:28.880 tax liabilities for the other holders of the ETF of 0:15:28.920 --> 0:15:32.800 the fund right, because when the issue is selling stock 0:15:33.080 --> 0:15:39.080 for cash, it creates a tax realization event. The trick 0:15:39.160 --> 0:15:42.359 of ETFs is that they never trade. 0:15:41.960 --> 0:15:43.800 For cash famously. 0:15:43.400 --> 0:15:46.840 Famously, and so when I trade with you on the 0:15:46.880 --> 0:15:48.760 exchange and we're not trading with the issure, there's no 0:15:48.800 --> 0:15:51.760 tax realization event for the ATF. When there are creations, 0:15:51.760 --> 0:15:54.160 they're not like me going to the ETF with cash 0:15:54.160 --> 0:15:58.080 and getting my shares or vice versa. They're otherwise participants 0:15:58.320 --> 0:16:01.320 handing in shares and getting back of the ETF. So 0:16:01.360 --> 0:16:04.440 there's an in kind transaction and no tax event. Yeah, 0:16:04.520 --> 0:16:06.120 and so it is like, really important to the ETF 0:16:06.240 --> 0:16:09.280 is that there are no cash trades with the ETF, 0:16:09.440 --> 0:16:11.960 so there are no taxes, and they deffer taxes for 0:16:11.960 --> 0:16:13.000 as long as you hold the fund. 0:16:13.200 --> 0:16:16.240 So doing this would remove all the things that make 0:16:16.280 --> 0:16:17.120 an ets. 0:16:16.760 --> 0:16:17.680 This is just a mutual fund. 0:16:17.720 --> 0:16:17.920 Yeah. 0:16:18.320 --> 0:16:20.440 The question why would you why can't you just do 0:16:20.520 --> 0:16:22.720 every trade with the issuer? Is like, why can't an 0:16:22.720 --> 0:16:25.520 etfpm mutual fund? And the answer is, we've discovered a 0:16:25.520 --> 0:16:26.280 better technology. 0:16:26.440 --> 0:16:28.560 Yeah, why can't a mule be a horse? A lot 0:16:28.560 --> 0:16:32.480 of reasons. This is a really great question from Oscar. 0:16:33.040 --> 0:16:36.520 Why are there no meme ETFs? We have meme stocks 0:16:36.880 --> 0:16:40.359 and meme stock ETFs, but there is no meme ETF 0:16:40.800 --> 0:16:44.520 in otherwise completely boring ETF holding boring assets that nevertheless 0:16:44.560 --> 0:16:47.600 drums up huge retail excitement. It doesn't have to trade 0:16:47.600 --> 0:16:50.200 at some dune premium, just build up a big NAV. 0:16:50.800 --> 0:16:52.600 I read this a few times and then I understood 0:16:52.600 --> 0:16:56.080 what Oscar was asking because my immediate reaction was, there 0:16:56.080 --> 0:16:58.640 are ETFs that hold meme stocks, but he's talking about 0:16:58.640 --> 0:17:01.120 why hasn't an ETF t taken off in the same 0:17:01.160 --> 0:17:06.160 way that a meme stock has, like display meme like characteristics. 0:17:06.200 --> 0:17:07.320 Is how I understood it. 0:17:07.280 --> 0:17:09.240 And the answer is because of the ARP. Right. The 0:17:09.280 --> 0:17:11.840 answer is because if I buy an ETF on the 0:17:11.840 --> 0:17:14.360 stock exchange, I'm buying it from a market maker who 0:17:14.440 --> 0:17:20.120 is probably selling me shares of the ETF and buying 0:17:20.280 --> 0:17:23.520 the underlying stock, right and vice versa. If I'm selling, 0:17:23.640 --> 0:17:26.359 they'll buy the ETF, they can sell the underlying stock, 0:17:27.119 --> 0:17:29.720 and so if the values get out of line, then 0:17:29.760 --> 0:17:33.480 they'll just do that arbitrage. Right. If an ETF is 0:17:33.520 --> 0:17:36.200 trading it well above its net acid value, then market 0:17:36.200 --> 0:17:38.000 makers are going to sell the ETF and buy the 0:17:38.080 --> 0:17:40.440 underlying shares and close the ARP and do creations and 0:17:40.480 --> 0:17:43.320 redemptions to close the APP. So it can't really trade 0:17:43.320 --> 0:17:45.240 it much of a premium. And then the question is 0:17:46.320 --> 0:17:47.960 it's not trading at a premium, it would just pull 0:17:48.040 --> 0:17:51.760 up a big nav meme stock can be fairly small, right, 0:17:52.080 --> 0:17:55.040 people can buy the memestock and it'll go up. And 0:17:56.840 --> 0:17:59.440 a meme ETF that held a lot of shares would 0:17:59.440 --> 0:18:01.880 have to push the prices of all of the shares 0:18:02.240 --> 0:18:05.439 in order to go to the moon, right, Like, you 0:18:05.480 --> 0:18:09.480 can't have a premium, not sustainably, and so the only 0:18:09.520 --> 0:18:10.920 way for it to like go to the moon is 0:18:10.960 --> 0:18:12.879 to push out the prices of all the underlying shares. 0:18:12.960 --> 0:18:15.080 So you can imagine like a small ETF with like 0:18:15.320 --> 0:18:19.080 small Memei stocks doing that, But it's not the. 0:18:18.920 --> 0:18:21.359 Most obvious thing to do a giant ETF that holds 0:18:21.359 --> 0:18:23.520 small stocks. I feel like that would kind of. 0:18:23.680 --> 0:18:26.880 You can't have a giant Meme. Yeah, like the audience 0:18:26.920 --> 0:18:30.080 for Meme anything, the audience for like irrationally pushing out 0:18:30.080 --> 0:18:32.159 the price of things. It's not you know, it's not 0:18:32.240 --> 0:18:32.560 that big. 0:18:32.760 --> 0:18:33.280 Yeah. 0:18:33.400 --> 0:18:35.320 I will say, like, this is an interesting question because 0:18:36.119 --> 0:18:39.040 I feel like I've written this and said this possible 0:18:39.040 --> 0:18:41.160 on this podcast. One of the lessons of the Meme 0:18:41.200 --> 0:18:46.359 stock episode is that fundamental value is a floor on 0:18:46.840 --> 0:18:49.919 stock price, because if like a stock is trading well 0:18:49.960 --> 0:18:52.159 below it's fundamental value, then some private equity firm can 0:18:52.160 --> 0:18:54.600 come and buy the company and you know, extract its 0:18:54.680 --> 0:18:58.080 cash flows. But fundamental value is not a cap on 0:18:58.280 --> 0:19:01.359 stock price. Like, if a stock trades it ten times 0:19:01.359 --> 0:19:03.399 its fundamental life, there's nothing you can do about that. 0:19:03.640 --> 0:19:05.040 You can short it, but you can't make it go 0:19:05.080 --> 0:19:08.560 down to its fundamental day. There's no offsetting equivalent to 0:19:08.640 --> 0:19:11.080 like a private equity firm buying the company and cracking 0:19:11.119 --> 0:19:13.960 up its cash flows. And so everyone sort of thought 0:19:14.040 --> 0:19:17.240 that fundamental value in the long run was the driver 0:19:17.320 --> 0:19:20.160 of thought prices, and the memestock episode threw that into question. 0:19:20.280 --> 0:19:22.199 Is like, no, you don't. It doesn't have to be. No, 0:19:22.760 --> 0:19:25.280 with ETFs, there is a symmetrical mechanism, right, there's the 0:19:25.359 --> 0:19:28.439 arbitrage mechanism means that the ETF kind of has to 0:19:28.440 --> 0:19:30.520 trade its fundamental value, and if it doesn't, you can 0:19:30.560 --> 0:19:33.640 fix that yourself. You can like extract that premium directly 0:19:33.680 --> 0:19:37.040 by you know, genie a creation or redemption. And so 0:19:37.720 --> 0:19:40.200 that's why there's no MEITF because you can't sustainably trade 0:19:40.240 --> 0:19:41.080 above fair value. 0:19:41.520 --> 0:19:44.440 I still feel like it could happen. Yeah, maybe it'll 0:19:44.440 --> 0:19:46.040 happen in the next two weeks, and this will be 0:19:46.040 --> 0:20:07.920 the thing that eurodically changes our answers. Chris asks thank 0:20:07.960 --> 0:20:10.280 you for continuing to cover the amusing and somehow not 0:20:10.440 --> 0:20:14.959 yet a legal state of prediction market quote sporting outcome commodities. 0:20:15.480 --> 0:20:17.640 On the last podcast, it sounded like hal She could 0:20:17.760 --> 0:20:21.440 arguably become a platform that connects betters with market makers, 0:20:21.800 --> 0:20:24.479 which somehow seems like a bad thing for DraftKings and flutter. 0:20:24.880 --> 0:20:28.400 But couldn't the sports books become the market makers? 0:20:28.720 --> 0:20:33.480 Yeah? Why not? I Mean, it's unclear what actual entities 0:20:33.560 --> 0:20:36.600 end up doing this, but I do think that one 0:20:36.600 --> 0:20:38.920 way to think about it is that right now, there 0:20:38.920 --> 0:20:42.600 are sports books which are in the business of trading 0:20:42.600 --> 0:20:48.040