WEBVTT - Matt Levine Ripped My Face Off: CEF, FX, A 0:00:02.720 --> 0:00:10.000 Bloomberg Audio Studios, Podcasts, Radio News. Katie, it is ominous 0:00:10.000 --> 0:00:10.399 out there. 0:00:11.039 --> 0:00:13.160 The skies are darkening as we speak. 0:00:13.320 --> 0:00:18.919 It's Thursday at two o'clock and change. And will I 0:00:18.960 --> 0:00:19.439 get home? 0:00:19.800 --> 0:00:20.680 Will you get home? 0:00:20.720 --> 0:00:21.400 Will you get home? 0:00:21.720 --> 0:00:26.120 Gosh? I hope so one or more reversed, that's true. 0:00:26.160 --> 0:00:28.280 There are bodies of water to ford. 0:00:29.480 --> 0:00:31.880 Hello, and welcome to the Money Stuff Podcast. You're a 0:00:31.920 --> 0:00:35.479 weekly podcast where we talk about stuff related to money. 0:00:36.520 --> 0:00:38.800 I'm Matt Levine and I write the Money Stuff column 0:00:38.800 --> 0:00:39.800 for Bloomberg Opinion. 0:00:40.040 --> 0:00:42.600 And I'm Katie Greifeld, a reporter for Bloomberg News and 0:00:42.640 --> 0:00:44.120 an anchor for Bloomberg Television. 0:00:46.120 --> 0:00:47.800 I feel like we got feedback last week that people 0:00:47.800 --> 0:00:51.120 are like, please more ETF stuff, which is unusual for us. 0:00:51.280 --> 0:00:53.519 I feel like maybe the people who leave comments are 0:00:53.560 --> 0:00:57.120 actually just contrarians. Like message. 0:00:57.680 --> 0:01:00.000 They know that the default view is nowhere. 0:01:00.720 --> 0:01:03.120 Yeah, And we messaged so heavily that people don't like 0:01:03.160 --> 0:01:06.040 this that they were compelled to write, actually we like this, 0:01:06.120 --> 0:01:08.600 and here are our thoughtful thoughts on them. But we're 0:01:08.600 --> 0:01:09.600 not talking about utfs. 0:01:09.640 --> 0:01:15.400 No, No, we're talking about funds, which are really ETF 0:01:15.440 --> 0:01:17.240 is a term of art. But is it a fun 0:01:17.319 --> 0:01:19.760 The treads on expan uar. But yeah, we talk a 0:01:19.760 --> 0:01:22.240 lot about I read a lot about people who are 0:01:22.280 --> 0:01:30.559 trying to jam private stuff into retail investors. The people 0:01:30.800 --> 0:01:32.840 doing most of the jamming are the people doing like 0:01:32.840 --> 0:01:36.080 private credit funds. But the thing that the retail investors 0:01:36.120 --> 0:01:40.160 want the most is probably like SpaceX and Mai, right, Like. 0:01:40.120 --> 0:01:43.720 I don't want private bonds, just give me SpaceX. 0:01:43.959 --> 0:01:47.520 Yeah, private credit is like sold by financial advisors, but 0:01:47.600 --> 0:01:50.760 like SpaceX has bought and it's hard because you need 0:01:50.800 --> 0:01:53.280 to like go find shares of that. And I think 0:01:53.280 --> 0:01:56.600 a lot of people have, in various ways had the thought, 0:01:56.760 --> 0:01:59.360 what if we didn't find shares? Right, what if we 0:01:59.560 --> 0:02:04.400 just did naked derivatives on SpaceX or open ai stock 0:02:04.520 --> 0:02:07.720 or whatever. Right. And the idea is you find someone 0:02:07.760 --> 0:02:10.320 who wants to be short open Ai, and they run 0:02:10.360 --> 0:02:12.600 a contract saying I'll give you the returns on open 0:02:12.600 --> 0:02:15.120 Ai and package that into a box and you sell 0:02:15.160 --> 0:02:18.000 it to retail investors, and then the retail investors get 0:02:18.040 --> 0:02:19.840 long open Ai, and whoever wants to be short it 0:02:19.880 --> 0:02:20.840 gets short open Aya. 0:02:21.000 --> 0:02:26.000 Yeah, you're just only exposed to the price action theoretically, and. 0:02:26.240 --> 0:02:27.840 A certain amount of categorty risks. 0:02:27.960 --> 0:02:29.519 Right right, right right. 0:02:29.880 --> 0:02:31.799 I've written about We've tied about people who do like 0:02:31.840 --> 0:02:35.560 various tokenizations, various things. And I wrote this week about 0:02:35.840 --> 0:02:39.800 River North doing these paired clothed un funds, which is 0:02:39.800 --> 0:02:42.120 like really the way to do this, Like ultimately it's 0:02:42.160 --> 0:02:46.079 a paired clothed un fund and it's on this index 0:02:46.120 --> 0:02:48.760 of it's like the Prime Unicorn Index, which is sort 0:02:48.800 --> 0:02:52.240 of an index of big private companies sort of sort 0:02:52.240 --> 0:02:54.200 of sort of, there's some public companies in there too. 0:02:54.240 --> 0:02:54.760 To keep it on. 0:02:54.800 --> 0:02:57.560 Two of its top ten holdings are public companies. 0:02:57.840 --> 0:02:59.360 They don't update that frequently or something. 0:02:59.600 --> 0:03:02.800 This is July sixteenth. No, no, no, but like oh they 0:03:02.800 --> 0:03:03.480 don't rebalance. 0:03:03.600 --> 0:03:06.000 Yeah yeah, like you know you have some unicorns in 0:03:06.040 --> 0:03:07.000 your index they go public? 0:03:07.440 --> 0:03:08.359 Yeah sure sure. 0:03:08.600 --> 0:03:10.560 But right, so it's got like SpaceX, it's got some 0:03:10.639 --> 0:03:14.040 anthropic it's got some of the heads. And what they're 0:03:14.080 --> 0:03:19.480 doing is they are writing cash settled swaps on that index. Right. 0:03:19.520 --> 0:03:22.600 The index measures let's say, the value of these private 0:03:22.600 --> 0:03:25.600 stocks and public stocks. Right, there's some questions about how 0:03:25.639 --> 0:03:27.840 you measure the value of private stacks for these companies. 0:03:27.840 --> 0:03:31.359 There's like secondary trading. There's funding rounds all the time. 0:03:31.400 --> 0:03:33.960 It's fine. You can like get a value and then 0:03:34.240 --> 0:03:36.120 they have the index, so they have the price and 0:03:36.240 --> 0:03:40.720 they have just cash settled swaps on that index. And 0:03:41.240 --> 0:03:43.520 you can go long or short. So there's a long 0:03:43.560 --> 0:03:46.560 fund that gives you exposure to this unicorn index, and 0:03:46.600 --> 0:03:49.360 there's a short fund that gives you negative exposure to 0:03:49.400 --> 0:03:54.600 this unicorn index. And the obvious trick is they completely offset, 0:03:54.880 --> 0:03:57.880 so net nothing happens, right net. It's like if someone 0:03:57.880 --> 0:03:59.360 wants to go along and someone wants to go short, 0:03:59.400 --> 0:04:01.760 the issues to each of them and bof we have 0:04:02.640 --> 0:04:05.160 both a way to invest in private companies and a 0:04:05.200 --> 0:04:07.600 way to short private companies. Some people want right, some 0:04:07.640 --> 0:04:10.840 people think it's a bubble et cetera. And so you 0:04:10.960 --> 0:04:16.480 get two delightful products the Selta retail without doing any 0:04:16.720 --> 0:04:18.120 economic activity outside of it. 0:04:18.240 --> 0:04:18.360 Right. 0:04:18.480 --> 0:04:19.960 You don't have to buy shares, you don't have to 0:04:20.360 --> 0:04:23.800 do anything, just offset retail bets against each other. 0:04:24.040 --> 0:04:26.400 So typically when we talk about closed end funds on 0:04:26.440 --> 0:04:28.120 this podcast, we talk. 0:04:27.960 --> 0:04:29.000 About you do what you do? 0:04:29.120 --> 0:04:32.160 We do? You know, we dabble. We often talk about 0:04:32.160 --> 0:04:34.360 how they trade a discounts. Does that matter at all 0:04:34.360 --> 0:04:36.520 here that these are going to launch and then probably 0:04:36.520 --> 0:04:37.480 trade it a discount. 0:04:37.880 --> 0:04:40.600 I have no idea how they'll trade. In fact, there 0:04:40.640 --> 0:04:44.400 is a history of unicorny closed end funds trading at huge. 0:04:44.160 --> 0:04:46.839 Premiums, right, right, So they'll trade at some dislocation. 0:04:46.920 --> 0:04:50.320 Maybe it's not a discount, right if you look at 0:04:50.320 --> 0:04:53.080 the structure of this, there's like some stuff that suggests 0:04:53.080 --> 0:04:55.520 it shouldn't be too dislocated. So one one thing is 0:04:55.560 --> 0:05:00.680 like they are termed cash settled swaps, so settles in 0:05:00.720 --> 0:05:03.560 twenty twenty seven. I think the termination date is not clear, 0:05:03.600 --> 0:05:06.560 but it's twenty twenty seven is in the name. So 0:05:06.800 --> 0:05:08.880 this is the thing that like you buy it and 0:05:08.920 --> 0:05:12.919 in two years you get a payoff, So only so 0:05:13.120 --> 0:05:16.839 much discount you should really demand because you'll hopefully get 0:05:17.000 --> 0:05:19.080 you'll get your cash back in two years. And then 0:05:19.120 --> 0:05:22.240 the other thing that is interesting for discounts and premiums 0:05:22.320 --> 0:05:25.000 is like there are these two offsetting funds, right, so 0:05:25.160 --> 0:05:28.559 like if they both traded at a discount, you could 0:05:29.000 --> 0:05:31.160 buy both of them, and then you have a really 0:05:31.240 --> 0:05:33.600 interesting instrument. Right if you buy the long fund and 0:05:33.640 --> 0:05:36.760 you buy the short fund both at a discount, then 0:05:36.800 --> 0:05:39.040 you basically have captured the discount, but you have two 0:05:39.080 --> 0:05:43.599 years of counterparty risk weirdness risk, yeah, swabs risk, but 0:05:43.720 --> 0:05:47.520 like you know, fundamentally no market risk. I think probably 0:05:47.839 --> 0:05:49.040 this is not investment advice. 0:05:49.160 --> 0:05:51.840 I hope these lunch I mean, and. 0:05:51.800 --> 0:05:54.320 If they do trade at a discount like my first 0:05:54.320 --> 0:05:59.320 PA trade and twenty years, will be buying. 0:05:59.000 --> 0:06:01.440 Both of them, don't yourself. 0:06:02.160 --> 0:06:04.320 I will definitely not do that, And it's not investment advice. 0:06:04.360 --> 0:06:05.920 I might do that. I might do that just for 0:06:06.160 --> 0:06:10.480 just for giggles. Last weeking about auction rate securities, which 0:06:10.560 --> 0:06:13.600 is like my only PA trade ever was when I 0:06:13.680 --> 0:06:16.080 was a banker, and like the auction rate securities market 0:06:16.080 --> 0:06:19.400 got dislocated, and so I bought one lot of auction 0:06:19.520 --> 0:06:21.960 rate securities. Yeah you did not like a seven percent 0:06:22.040 --> 0:06:24.359 yield as a look at me living dangerously? 0:06:24.520 --> 0:06:26.240 God that did work out for you though? 0:06:26.320 --> 0:06:28.279 Oh yeah, I made seven percent for a week. 0:06:28.600 --> 0:06:32.160 All right, that's pretty good. Half a thought I had 0:06:32.360 --> 0:06:34.960 because I live in etf Land. Is you know, we 0:06:35.040 --> 0:06:39.760 talk about inverse single stock ETFs and there's some element 0:06:39.800 --> 0:06:41.800 of volatility drag there and if you hold these long 0:06:41.960 --> 0:06:44.760 term then it could be painful. Is there any funkiness 0:06:44.760 --> 0:06:46.040 that could happen on the short side. 0:06:46.080 --> 0:06:50.039 Here the inverse ETF problem, the volatility drag problem comes 0:06:50.040 --> 0:06:55.360 from rebalancing. Yeah, the rebalancing exists because every day you 0:06:56.160 --> 0:06:58.640 are offering the ETF to people, and you want to 0:06:58.640 --> 0:07:02.200 give them down from today, right, and so you're rebalancing 0:07:02.800 --> 0:07:07.040 to get the right amount of exposure with this thing. 0:07:07.360 --> 0:07:11.080 It's just swaps. It's a little easier. They're not leveraged, 0:07:11.640 --> 0:07:15.600 and you are not giving them like down from today, 0:07:15.640 --> 0:07:17.800 you're giving them like, you know, the total return over 0:07:17.840 --> 0:07:19.720 the period. So I don't think there's too much in 0:07:19.720 --> 0:07:22.880 the way of volatility drag. There's some possibility that's something 0:07:22.880 --> 0:07:24.800 you can get funky if like the index goes up 0:07:24.840 --> 0:07:27.080 a lot, there's like a cap on returns. Like there's 0:07:27.080 --> 0:07:28.920 some possibility of weirdness where if you buy the thing 0:07:28.960 --> 0:07:31.760 in six months, you're not getting quite the negative one 0:07:31.800 --> 0:07:35.280 times exposure you wanted, which is like the opposite of volatility. 0:07:35.320 --> 0:07:37.920 The volatility drag exists because every day you're getting exactly 0:07:37.920 --> 0:07:41.320 the same proposition, which is like negative one or two 0:07:41.320 --> 0:07:44.800 times or whatever the ETFs exposure, And like here there's 0:07:44.800 --> 0:07:47.920 not that here, there's just like there's a term to swap, 0:07:47.920 --> 0:07:49.720 and you can buy it at any time to the swap, 0:07:51.080 --> 0:07:52.560 or even you can't buy it anytime. It's a little 0:07:52.560 --> 0:07:54.800 close and fund so they don't have to continuous offering. 0:07:55.200 --> 0:08:01.040 But no, it's very simple, and you know, like it's 0:08:01.080 --> 0:08:03.880 based on this index. Yeah, I think in large part 0:08:03.960 --> 0:08:07.840 because it's nice to have a third party calculated index 0:08:07.880 --> 0:08:10.080 for your cash settled swaps, so you can be like, oh, 0:08:10.160 --> 0:08:12.880 the things settle that whatever the price of the indexes today, 0:08:13.160 --> 0:08:15.880 like and someone else is doing the index. But if 0:08:15.920 --> 0:08:19.840 this works, you could do it for single names. You 0:08:19.840 --> 0:08:21.720 could do it for open air. You could have the 0:08:21.760 --> 0:08:24.880 inverse open AI fund and the yes open AI fund, 0:08:25.000 --> 0:08:28.720 and you should offer that to people with no financials. 0:08:28.920 --> 0:08:31.600 I don't know. It seems like a stretch, but we're 0:08:31.640 --> 0:08:33.920 in a brave new world of like it's not clear 0:08:33.960 --> 0:08:37.360 what securities regulations apply to anything anymore. And if you 0:08:37.400 --> 0:08:40.600 wanted to do a single stock closed end fund, that's 0:08:40.679 --> 0:08:44.800 just like betting on and against a private company. Could 0:08:44.840 --> 0:08:46.840 you do that? I mean, I mean two years ago 0:08:46.840 --> 0:08:48.840 I would have said no. Now I'm like, yeah, I 0:08:48.840 --> 0:08:49.240 don't know. 0:08:49.320 --> 0:08:51.520 Maybe these closed un funds do seem like a stepping 0:08:51.559 --> 0:08:56.280 stone to that reality. So yeah, I mean we talked 0:08:56.280 --> 0:08:58.200 about X Y Z right or the Destiny type. 0:08:58.240 --> 0:09:00.800 Yeah, that's the close in fund. The trays has private 0:09:00.800 --> 0:09:02.400 companies and trades are a huge premium. 0:09:02.520 --> 0:09:04.720 And we talked about how like Stripe for example, or 0:09:04.720 --> 0:09:08.440 some of these private companies would not love this, So 0:09:08.480 --> 0:09:11.600 I would imagine that they would also theoretically not love 0:09:11.720 --> 0:09:13.920 this either, even though we're talking about swaps here. 0:09:14.120 --> 0:09:15.319 I mean with Destiny, like. 0:09:15.360 --> 0:09:16.520 Are they using forwards? 0:09:16.600 --> 0:09:19.120 They owned various cats and dogs, but like one thing 0:09:19.160 --> 0:09:21.120 they owned is like forwards on stock, which is like 0:09:21.640 --> 0:09:24.720 those forwards are physically settled, right. Those forwards are basically 0:09:24.760 --> 0:09:27.559 someone who owns strip stock signs of contracts saying I 0:09:27.559 --> 0:09:30.839 will give Destiny my Stripe stock as soon as I'm 0:09:30.840 --> 0:09:34.800 allowed to, right, and when Stripe goes public, And the 0:09:34.840 --> 0:09:36.520 reason they do that rather than just selling the shares 0:09:36.520 --> 0:09:38.320 is because Stripe doesn't let them sell their shares, right, 0:09:38.320 --> 0:09:42.240 they have some transfer restrictions. Stripe and probably every private 0:09:42.280 --> 0:09:46.439 company that transfer restricts that shares probably says you can't 0:09:46.480 --> 0:09:49.360 do a forward contract, right, Like forwards are to Stripe 0:09:49.520 --> 0:09:51.840 no better than selling the shares right now. And so 0:09:51.920 --> 0:09:54.959 it's not clear whether these forward contracts are valid, and 0:09:55.480 --> 0:09:58.280 if they're not valid, then bad things could happen, like 0:09:58.520 --> 0:10:00.960 Stripe saying no, we get that stock instead of it 0:10:01.000 --> 0:10:03.440 going to destiny. When you know, Stripe goes public and 0:10:03.480 --> 0:10:06.640 they settle the forward. Here there's like Stripe gets no, 0:10:06.720 --> 0:10:09.640 say that's RCT. The private companies getting no says they're 0:10:09.679 --> 0:10:11.720 not involved at all. There's no contract on their stock. 0:10:11.960 --> 0:10:13.840 Nobody has to own their stock at any point. It's 0:10:13.880 --> 0:10:16.920 just purely a cash settled side back between two people 0:10:17.280 --> 0:10:19.320 that don't involve the private company. So there's not a 0:10:19.320 --> 0:10:19.959 lot they can do. 0:10:20.280 --> 0:10:21.760 Yeah, and that's sort of what I was getting. 0:10:21.840 --> 0:10:23.600 You put out a statement being like we're not involved 0:10:23.600 --> 0:10:25.719 and shouldn't do it, but they can't stop it. 0:10:25.720 --> 0:10:28.360 It might be like an annoyance rather Yeah. 0:10:28.400 --> 0:10:30.200 I mean, they're not going to change their lives at 0:10:30.240 --> 0:10:31.000 Stripper or whatever. 0:10:31.040 --> 0:10:33.080 But I did like that. You make the point though, 0:10:33.120 --> 0:10:35.800 that if you're buying into this closing fund, you're not 0:10:35.880 --> 0:10:39.320 funding a private company. You're not giving your money and 0:10:39.400 --> 0:10:44.959 put it. Yeah, exactly, it's just the price. Yeah, that's 0:10:45.120 --> 0:10:47.520 truly the reality that we're stepping towards. 0:10:47.920 --> 0:10:51.719 I mean, it very much is and people want to 0:10:51.760 --> 0:10:53.000 gamble on private companies. 0:10:53.160 --> 0:11:14.240 God blessom you know who doesn't want to gamble UVS 0:11:14.280 --> 0:11:17.319 clients on range target profit. 0:11:17.080 --> 0:11:18.920 Forward, you don't know because they lost. 0:11:19.120 --> 0:11:23.319 That's true bigly. Apparently the ft has really owned this story. 0:11:23.840 --> 0:11:26.760 Yeah, so UVS. I don't know. I don't want to 0:11:26.760 --> 0:11:30.360 blame VS. As a former derivative salesperson, I said withouts, 0:11:30.920 --> 0:11:34.959 banks sell derivative products, right, Like you work in FX, right, 0:11:34.960 --> 0:11:36.719 and like the thing you do is like clients come 0:11:36.720 --> 0:11:38.120 to you and are like, I would like to change 0:11:38.160 --> 0:11:40.960 my Swiss francs for dollars. Sure, You're like okay, and 0:11:41.000 --> 0:11:42.400 they'll be like how much will that be? And you'll 0:11:42.440 --> 0:11:45.600 be like zero points zero zero zero one basis pins 0:11:45.679 --> 0:11:47.880 or whatever. Right, you've charged them. The teen's not you me, 0:11:48.600 --> 0:11:50.960 And so you spend all day in the lab cooking 0:11:51.040 --> 0:11:53.120 up things that can be more expensive, right. You're like 0:11:53.240 --> 0:11:56.280 what if? And you try to like give them a 0:11:56.360 --> 0:11:59.360 product that sounds cool, and there's only so many products 0:11:59.400 --> 0:12:01.720 I can time cool. But like what they were doing 0:12:02.000 --> 0:12:03.880 is I don't know, it's got names. It's like a 0:12:03.880 --> 0:12:06.960 conditional target redemption forward or a range target profit. 0:12:06.679 --> 0:12:10.360 Forward all yess yeah, whatever anyway household name. 0:12:10.440 --> 0:12:13.360 The thing they were doing is basically like, we will 0:12:13.360 --> 0:12:16.199 sell you dollars. It seems to have been like European 0:12:17.200 --> 0:12:20.240 whatever client's buying dollars, right, So UBS is like, we 0:12:20.280 --> 0:12:23.400 will sell you dollars at like three tens of percent 0:12:23.480 --> 0:12:26.120 below the like forward price, so you're getting a bargain. 0:12:26.320 --> 0:12:28.200 But if the actual price in a month or whatever 0:12:28.240 --> 0:12:30.600 goes below that target price, we will sell it to 0:12:30.600 --> 0:12:34.160 you at that target price. So you'll get not a bargain, 0:12:34.200 --> 0:12:36.600 you'll get like a bad deal. You'll be buying above market, 0:12:36.960 --> 0:12:38.920 and we'll sell you twice as much in that situation 0:12:39.000 --> 0:12:42.200 as in the good situation. So basically like we will 0:12:42.240 --> 0:12:47.240 sell you dollars at a better than market price most 0:12:47.280 --> 0:12:48.839 of the time, and then some of the time will 0:12:48.840 --> 0:12:51.000 sell you many more dollars at a much worse on 0:12:51.040 --> 0:12:51.640 the market price. 0:12:51.840 --> 0:12:52.080 Right. 0:12:52.400 --> 0:12:55.160 So basically, the clients get a good deal in like 0:12:55.240 --> 0:12:57.440 eighty or ninety percent of scenarios, so you have a 0:12:57.440 --> 0:12:59.160 good thing to sell them. You're like, oh, look, you're 0:12:59.160 --> 0:12:59.839 getting a good deal. 0:13:00.040 --> 0:13:00.520 I want to go. 0:13:00.960 --> 0:13:04.240 Scenarios, and then they get a terrible deal. They get 0:13:04.240 --> 0:13:07.200 like really hosed in like ten percent of scenarios, and 0:13:07.440 --> 0:13:10.000 unfortunately the bad scenario came true and all the clients 0:13:10.000 --> 0:13:11.800 were like, we didn't know what were signing up for. 0:13:12.360 --> 0:13:16.560 And UVS is sad and sorry and has made apparently 0:13:16.559 --> 0:13:18.920 the after you reported, made more than one hundred good 0:13:18.960 --> 0:13:22.840 will payments, yeah, which basically is like a refund of 0:13:22.880 --> 0:13:24.320 the money they lost or we're so. 0:13:24.200 --> 0:13:26.800 Sorry, please don't leave us, we won't do it again. 0:13:27.280 --> 0:13:29.680 It's not just the money. It's like the UVS banker 0:13:29.720 --> 0:13:33.040 has to go to the client and like the internet 0:13:33.160 --> 0:13:35.160 client is like, you didn't even bring any materials. Like 0:13:35.400 --> 0:13:38.680 it's like they just go and like look you in 0:13:38.720 --> 0:13:41.320 the eye and like very sincerely sorry, and they're like, 0:13:41.360 --> 0:13:44.080 we're not even pitching a different derivative today. Today, we're 0:13:44.120 --> 0:13:46.559 here to just talk about how sorry we are. It's 0:13:46.559 --> 0:13:48.680 a really like touching moment. Yeah. And they also have 0:13:48.720 --> 0:13:51.840 internal trainings where they're like being told not to scam 0:13:51.840 --> 0:13:52.400 clients and. 0:13:52.280 --> 0:13:55.000 Also role playing like how these meetings should go from 0:13:55.080 --> 0:13:56.520 now on when you're pitching. 0:13:56.520 --> 0:14:00.760 Right, it's this great tension in investment banking where obviously 0:14:01.360 --> 0:14:04.560 you want the client who when you come to them 0:14:05.000 --> 0:14:08.760 with some crazy derivative, they're like, Okay, sure sounds good, 0:14:09.440 --> 0:14:11.720 and they don't like bit it out to get the 0:14:11.720 --> 0:14:14.440 price down or like model it up themselves or just 0:14:14.480 --> 0:14:16.559 like sure you would, I trust you, right, But like 0:14:16.600 --> 0:14:18.760 those people are really good clients and they make you 0:14:18.800 --> 0:14:21.160 a lot of money until something goes wrong and then 0:14:21.240 --> 0:14:24.080 like it looks bad in court. You know, Yeah, the 0:14:24.120 --> 0:14:26.040 client who really trusted you, the client who was not 0:14:26.120 --> 0:14:29.960 sophisticated at modeling you know FX volatility, like, those are 0:14:30.000 --> 0:14:32.920 not the clients that you want to go to court with. 0:14:33.560 --> 0:14:39.280 So it's a delicate balancing act where two years ago, yes, 0:14:39.360 --> 0:14:41.080 I was probably rewarding the people who were. 0:14:40.960 --> 0:14:43.119 Out in the Yeah, definitely gated. 0:14:42.880 --> 0:14:44.680 Clients and large size, and now it's like no more 0:14:44.720 --> 0:14:44.960 of that. 0:14:45.760 --> 0:14:48.600 Well, the FT gave some great examples of the harm 0:14:48.640 --> 0:14:52.040 that was wrought by some of these trades really kind 0:14:52.040 --> 0:14:55.800 of blowing up. One client lost more than three million 0:14:55.840 --> 0:14:59.800 Swiss franc which equates to like three point seven million dollars. 0:15:00.160 --> 0:15:03.280 Another person said that they lost fifteen percent of their assets. 0:15:03.320 --> 0:15:05.240 They also asked the bank to exit the investment a 0:15:05.240 --> 0:15:10.240 few days after Trump's Liberation Day, and apparently, according to 0:15:10.360 --> 0:15:15.040 FT reporting, UVS sold these products to customers with the 0:15:15.080 --> 0:15:19.760 equivalent of fewer than eight hundred thousand dollars or so. 0:15:19.760 --> 0:15:23.440 So I don't know. It's just a weird trade in general. 0:15:23.560 --> 0:15:25.640 To put on like this sounds like something like if 0:15:25.640 --> 0:15:29.080 you were a big business trying to hedge your currency exposure, 0:15:29.120 --> 0:15:33.320 maybe this would make sense. But selling it to even 0:15:33.360 --> 0:15:35.000 like very wealthy individuals is weird. 0:15:35.440 --> 0:15:35.680 Yeah. 0:15:36.040 --> 0:15:39.000 Like the way that the Ft describes it is that 0:15:39.120 --> 0:15:43.080 these products offer limited upside but exposed clients to potentially 0:15:43.160 --> 0:15:44.120 unlimited losses. 0:15:44.360 --> 0:15:46.920 It's everything that's like accumulators. It's like everything, right, It's 0:15:46.960 --> 0:15:48.240 like the trade is. 0:15:48.160 --> 0:15:49.680 Everything except buffer ETFs. 0:15:49.680 --> 0:15:52.160 Maybe I know, but like for so many wealthy clients, 0:15:52.160 --> 0:15:53.680 the trade is like you can get two percent more 0:15:53.680 --> 0:15:57.080 on your money by like taking some black hole of risk, 0:15:58.240 --> 0:16:00.920 and then you know you have the meat, and they're like, 0:16:01.200 --> 0:16:02.600 but what do you think the chances are of that 0:16:02.600 --> 0:16:03.800 black hole frisk happening? 0:16:03.840 --> 0:16:03.920 Right? 0:16:04.000 --> 0:16:05.480 And the clans like, oh, it sounds good, right, and 0:16:05.560 --> 0:16:07.920 they buy it and they get two percent extra yield 0:16:07.920 --> 0:16:10.000 and then like the black hole happens and they're very up. 0:16:10.080 --> 0:16:10.920 Yeah, hear the. 0:16:10.840 --> 0:16:14.160 Black hole with libation day tars and the dollar plunging. 0:16:14.360 --> 0:16:17.240 I will say, you were talking about the sympathy that 0:16:17.320 --> 0:16:20.760 you feel towards you know, these bankers who make these 0:16:20.760 --> 0:16:25.800 derivative products. I don't know. I think that's cool and aesome. 0:16:26.520 --> 0:16:28.320 But I was one of them. I only saw this 0:16:28.360 --> 0:16:30.680 investigated clients right for sure of them got their faces 0:16:31.120 --> 0:16:33.400 I'm not even kidding really, no, well I'm kidding a little, 0:16:33.400 --> 0:16:34.680 but like none of them got their faces. True. 0:16:34.720 --> 0:16:37.920 Wow, someone's going to write in and say, Matt. 0:16:37.760 --> 0:16:41.480 Levine face off, but I really didn't. I was also 0:16:41.520 --> 0:16:42.960 very ineffectual, so it's fine. 0:16:43.000 --> 0:16:46.560 My first beat at Bloomberg was covering FX as a 0:16:46.600 --> 0:16:50.120 little baby journalist, and the period that I was covering FX, 0:16:50.160 --> 0:16:53.160 there was no volatility in currency markets. You had to 0:16:53.160 --> 0:16:55.680 beg people to read your stories and also like really 0:16:55.720 --> 0:16:58.200 scrape the bottom of the barrel to find stuff to 0:16:58.200 --> 0:17:01.040 write about. I joined Bloomberg in like twin sixteen and 0:17:01.040 --> 0:17:04.119 stop covering currencies in twenty nineteen. So President Trump's first 0:17:04.200 --> 0:17:07.439 term actually gave us something to write about. But you know, 0:17:07.480 --> 0:17:12.200 this trade probably wasn't as risky, like it probably really 0:17:12.480 --> 0:17:14.960 was fine ninety percent of the time because the type 0:17:14.960 --> 0:17:18.879 of volatility that we saw in you know, the Swiss 0:17:18.920 --> 0:17:23.119 franc dollar exchange rate on Liberation Day, Like that wasn't 0:17:23.119 --> 0:17:25.080 happening for a long time. Like, I mean you saw 0:17:25.119 --> 0:17:26.240 it a cross as cyclasses. 0:17:26.320 --> 0:17:27.840 It's like what did that tell you, right? I mean 0:17:28.000 --> 0:17:30.760 like if this trade had been perfectly explained to like 0:17:31.960 --> 0:17:35.560 clients who were not professional effects traders but were smart 0:17:35.600 --> 0:17:38.280 and sophisticated you know, financial people, this trade had been 0:17:38.320 --> 0:17:42.480 perfectly explained, Like the perfect explanation is in the ballpark 0:17:42.520 --> 0:17:44.800 of like you will get some extra you know, the 0:17:44.840 --> 0:17:48.120 older profit or whatever most of the time. But if 0:17:48.160 --> 0:17:52.480 the dollar plunges like it does not usually plunge, then 0:17:52.680 --> 0:17:54.879 you will get your face ripped off. Yeah, And like 0:17:54.880 --> 0:17:56.320 some people would have been like, okay, I'll take that 0:17:56.359 --> 0:17:58.480 bet and then the dollar plunge and then got their 0:17:58.520 --> 0:18:01.760 faces ripped off. Yeah. It's like I've read about this before, 0:18:01.760 --> 0:18:04.920 Like there are clearly some customers who did not understand 0:18:05.000 --> 0:18:09.119 what they're getting into, and Naudio ubs to solve them 0:18:09.160 --> 0:18:11.800 something they didn't understand. But also like probably some people 0:18:11.800 --> 0:18:13.320 were like, I will make the bet that the dollar 0:18:13.320 --> 0:18:15.520 will not be super volatile, and the dollar is super. 0:18:15.280 --> 0:18:16.840 Valatle yeah yeah. 0:18:17.359 --> 0:18:19.480 But like look, everyone else is getting a good will payment. 0:18:19.480 --> 0:18:20.920 I actually get a good will payment too. 0:18:21.080 --> 0:18:23.200 Yeah, I mean you would think that they would happen 0:18:23.720 --> 0:18:26.879 potentially across asset classes, like every asset class had an 0:18:26.920 --> 0:18:29.160 outsized move on Liberation Day. 0:18:29.200 --> 0:18:32.840 Right, And there's something about FCX where people people smaller 0:18:32.880 --> 0:18:36.119 customers get sold weirder stuff like I mean, they're definitely 0:18:36.160 --> 0:18:38.639 equity trades like this, right, Like we've talked about like 0:18:38.880 --> 0:18:42.240 is it the cocumulator. We've talked about like structured note 0:18:42.280 --> 0:18:44.560 trades that kind of have this shape, right, Yeah, but 0:18:44.760 --> 0:18:47.320 I don't know. In FX, it does seem like people 0:18:47.720 --> 0:18:50.320 take more random gambles. And also like people don't expect 0:18:50.359 --> 0:18:52.919 as much as relativity and then you know, they get volatility. 0:18:52.960 --> 0:18:57.040 Like they're very strange market. It was a fun trip 0:18:57.080 --> 0:18:58.480 being there for like two and a half years. 0:18:58.920 --> 0:19:01.520 Right. If you're in I think the business of selling equities, 0:19:01.640 --> 0:19:03.679 there's a lot of like you know, you do puppers 0:19:03.720 --> 0:19:05.040 and stuff, but there's a lot of just like oh, 0:19:05.200 --> 0:19:07.320