Speaker 1: Bloomberg Audio Studios, podcasts, radio news. One day we're gonna
Speaker 1: touch on the thought situation.
Speaker 2: Jesus, but no, I'm too frou.
Speaker 1: We can have a possum update.
Speaker 2: Yeah, tell us about the possum. You cleaned it up.
Speaker 1: I cleaned it up. That's that's really the update. I
Speaker 1: don't want to say that this show is my therapy,
Speaker 1: because it is truly not that this show.
Speaker 2: Is what you talk about in therapy.
Speaker 1: But it isn't the case that, Like, as I was
Speaker 1: talking about the possum last week, I knew that editors
Speaker 1: were not going to cut it out and that I
Speaker 1: was using it as a commitment device to finally make
Speaker 1: myself just go out there and shovel up the dead
Speaker 1: possum in my heart. Im. That's if you didn't listen
Speaker 1: to the last week's episodes.
Speaker 2: Yeah, wow, this would be horrifying. Go back listen to
Speaker 2: that or don't interest it's interesting.
Speaker 1: This is just like this is the like skip ahead banter, Awa. Yeah,
Speaker 1: I cleaned up the possum. And then then my wife
Speaker 1: was like, I listen to your podcast, I learned about
Speaker 1: the possum.
Speaker 2: That's a good test to find out if your spouse
Speaker 2: listens and tests. I don't. I don't think Joe listens
Speaker 2: because he didn't call me out on the fact that
Speaker 2: I just wait for him to notice the vomit from the.
Speaker 1: See he knew that. Yeah, this is like densely packed
Speaker 1: with references.
Speaker 2: Yeah, a lot of callbacks.
Speaker 1: Yeah.
Speaker 2: He probably also knows that because sometimes I'll say, Hey,
Speaker 2: the cat vomited again, could you co get that right?
Speaker 1: And other times you'll be sitting pointedly facing away from
Speaker 1: the cat vomit and he'll be like, I know that,
Speaker 1: you know there's cat vomit there, and you're like, what, we.
Speaker 2: Have a cat psychological warfare.
Speaker 1: Hello, Welcome to the Money Stuff Podcast. You're Herley podcast
Speaker 1: where we talk about stuff. I led it to Money.
Speaker 1: I'm Matt Levine and I write The Money Stuff Colum
Speaker 1: from Bloomberg Opinion.
Speaker 2: And I'm Katie Greyfell, a reporter for Bloomberg News and
Speaker 2: an anchor for Bloomberg Television.
Speaker 1: Polly Market. Yeah, so Bloomberg News. How a story this
Speaker 1: week that Shane Coplin, the founder of Polymarket, is now
Speaker 1: the world's youngest self made billionaire, which.
Speaker 2: Is cool for him, definitely.
Speaker 1: Shane Coplin lives or used to live next door to
Speaker 1: a guy who throws a lot of book parties for
Speaker 1: finance books. Oh, so you can see him like all
Speaker 1: the finance book parties.
Speaker 2: That's your kind of hangout.
Speaker 1: Sadly, yes, and so yeah, I've seen Shane Coplin at book.
Speaker 2: Parties and you've rubbed elvas.
Speaker 1: I've rubbed Elvas. And when I saw that article, I
Speaker 1: thought youngest self made billionaire. I realized that Shane Coplin
Speaker 1: is the second world's youngest self made billionaire to be
Speaker 1: in my phone context. It's not like an entirely positive development.
Speaker 2: For right now. It is a positive development for Shane.
Speaker 2: Will continue to watch this space.
Speaker 1: It is also he did at the right order though
Speaker 1: first he was investigative by the government, and now he's
Speaker 1: a self made billionaire.
Speaker 2: I was going to say, I forgot that it was
Speaker 2: less than a year ago that his apartment was rated
Speaker 2: by the Yeah, fast forward to October twenty twenty five,
Speaker 2: he's super rich. ICE. Of course, the news from this
Speaker 2: week was that they invested.
Speaker 1: The inter Intercontinental Exchange.
Speaker 2: We're not we're using government names.
Speaker 1: ICE can mean a number of things. Anyway, gone anyway.
Speaker 2: Ice, the Intercontinental Exchange investing two billion dollars in polymarket.
Speaker 2: That gives it an eight billion dollar valuation. Pretty stunning.
Speaker 2: And it was just last week that we were talking
Speaker 2: about how prediction markets are eating everything and here we
Speaker 2: are keep.
Speaker 1: Going yeah right, it's funny, like I think of Calshi
Speaker 1: as a sports gambling site, piymarket, I don't know, probably
Speaker 1: market like feels a little pure. Yeah, you know this
Speaker 1: the bloomerg story about Shane Complin's like founding a polymarket.
Speaker 1: You know, he's like reading economics papers about prediction markets.
Speaker 1: I'm thinking this is too good an idea to just
Speaker 1: exist on white papers, and like I think he's like
Speaker 1: fully committed to the notion of Yeah, but like you know,
Speaker 1: they did get into sportscambling. Yeah, and I think that
Speaker 1: I'm not sure, but my sense is that it is
Speaker 1: hard to justify an eight billion dollar valuation for a
Speaker 1: prediction market that is just elections and uh, you know,
Speaker 1: who will be a time man of the person of
Speaker 1: the year and uh and uh, you know, like just
Speaker 1: fun predictions and not you know, for addicted sports candlers.
Speaker 2: I will say that, you know, if you had told
Speaker 2: me that Ice had outright bought poly Market for two
Speaker 2: billion dollars, I still would have been like, Wow, that's
Speaker 2: a lot of money. The fact that it does have
Speaker 2: this eight billion dollar valuation also stuck out to.
Speaker 1: Me, Right, I just think that that that valuation discounts
Speaker 1: a lot of growth in sports, yeah, and a lot
Speaker 1: of margins in sports and not the other thing. But
Speaker 1: I'm intrigued, right when you read the announcement, like and
Speaker 1: again when you read like Shane Coplan's public statements like like, yeah,
Speaker 1: there's sports, but like they're not they're not leaning on
Speaker 1: the sports. It's not like Robin Hood saying sportscambling is
Speaker 1: an emerging hasset class. Yeah, they're like, eh, we're like
Speaker 1: trying to find ways to understand and price the future.
Speaker 1: And I think that's like a noble go like like
Speaker 1: prediction markets, Like like he's not wrong that, like economists
Speaker 1: have talked about them for years, Like the idea of
Speaker 1: prediction markets, like providing a set of probabilities about the future,
Speaker 1: does seem really socially useful. And my sense was always
Speaker 1: that no one had cracked the nut, not of like
Speaker 1: creating trading infrastructure or making it legal, but then not
Speaker 1: of like making people want to trade it, such that
Speaker 1: there was like a big market, a big liquid market
Speaker 1: for it, such that professionals would have incentives to make
Speaker 1: prediction market prices correct, right, yeah, because like and once like, oh,
Speaker 1: let's gamble on whether like you know, the Ukraine War
Speaker 1: will end, like I mean, people are but like, it's
Speaker 1: not like a fun gambling product and so there's not
Speaker 1: a lot of money to be made if you have
Speaker 1: good insight into it. And so just the whole thing
Speaker 1: has never quite worked right, and like y US presidential
Speaker 1: elections where there's a lot of money, but otherwise it
Speaker 1: never never feels like it quite works in sports or
Speaker 1: you know, sports solve that problem. Yeah, people really want
Speaker 1: to gamble on sports, and there's a lot of dumb
Speaker 1: money and so there's a lot of value for smart
Speaker 1: money to bet against, and so you have incentives to
Speaker 1: build good sports prediction models and trade on polymarket and
Speaker 1: all kind of works. And then you know, the question
Speaker 1: is that does that spill over into the New York
Speaker 1: City mayor race or you know macroeconomic variables or like
Speaker 1: you know, the Grammys or whatever.
Speaker 2: Yeah, well I do like that. You brought up again
Speaker 2: the Grossman s tigletz paragdox in your call them on
Speaker 2: this specific item. You're calling back to another column that
Speaker 2: you know, maybe the way that we get to that
Speaker 2: societal useful information is through the avenue of sports betting
Speaker 2: and a lot of people making a lot of noise, right,
Speaker 2: Like the gross and.
Speaker 1: Said, what's paradox is the idea that like, you can't
Speaker 1: have efficient markets because then no one would have incentives
Speaker 1: to trade and make the markets efficient. Yeah, so Lassie
Speaker 1: Peterson says that you need efficiently inefficient markets. You need
Speaker 1: like just the right level of inefficiency to incentivize people
Speaker 1: to make them more efficient. And like the economisty of
Speaker 1: prediction markets is like people who have particular insight into
Speaker 1: like whether there'll be a war will like trade their insights,
Speaker 1: but like who will trade against them? Like who's just
Speaker 1: like randomly wandering around like, oh, I bet there won't
Speaker 1: be a war, and then like you know, get suckered
Speaker 1: by the policy experts and in the stock market, Like
Speaker 1: the answer to those questions they're super easy, right, The
Speaker 1: answer to like who will trade against the hedge fund
Speaker 1: is an index fund who is just blindly managing retirement
Speaker 1: money and needs to invest it in stocks, And so
Speaker 1: the hedge fund has like someone they know those trade against,
Speaker 1: or the answer is like you know a retail investor or, Like,
Speaker 1: there's a lot of straightforward answers to like who is
Speaker 1: on the other side of this trade that allow people
Speaker 1: with a lot of information to make money by trading
Speaker 1: and incorporating that information enter prices in prediction markets. It
Speaker 1: was never clear who those people were, right, Like, it's
Speaker 1: not a savings product, right, Like people don't put aside
Speaker 1: one hundred dollars a month in retirement savings in prediction markets,
Speaker 1: so there's no like uninformed flow to trade against there.
Speaker 1: And it has historically not been a super fun gambling market,
Speaker 1: like with the exception of presidential elections and a few
Speaker 1: other high profile things. But when you add sports, it
Speaker 1: becomes a fun gambling market, and then that just opens
Speaker 1: everything up, right, It allows people to make money making
Speaker 1: informed predictions at least on sports and then maybe at
Speaker 1: most of something else.
Speaker 2: Yeah, I mean just assume that the people who are
Speaker 2: betting on sports on the prediction market go into other
Speaker 2: markets such as I don't know, elections or weather or
Speaker 2: whatever else.
Speaker 1: Well, it's both, right, So it's like, on the one hand,
Speaker 1: like do you attract dumb money recreational gamblers to the platform,
Speaker 1: and then they're like, well, i'm here anyway, I might
Speaker 1: as well bet on election. Its like that seems plausible.
Speaker 1: And the other thing is like, you know, if you
Speaker 1: are a quantitative trading firm and you have historically traded
Speaker 1: like stocks and options, a lot of those people are
Speaker 1: now getting sports curious, right, Like they're building sports trading desks.
Speaker 1: They're like building models to price sports events. Because it's
Speaker 1: like kind of the same skill set, right, It's like
Speaker 1: taking machine learning and applying it to a bunch of
Speaker 1: data and like using it to predict the future. And
Speaker 1: it's like, well, you can do that with stocks, you
Speaker 1: can do it with sports. And there's a lot of
Speaker 1: money to made. And so some quant trading firms are
Speaker 1: either heading into the sports market making business or the
Speaker 1: traders are leaving to start sports market making businesses. And
Speaker 1: if those people who are trading on traditional sports books
Speaker 1: or who are like market making on calci, if those
Speaker 1: people start market making on polymarket in sports, it's like
Speaker 1: a relatively easy lift for them to add an election column, right,
Speaker 1: Like it's a whole new set of data analysis, but
Speaker 1: they're already plugged in, you know, they're already like now,
Speaker 1: the market structure works. So maybe if you're making money
Speaker 1: trading against recreational gamblers on sports and you see election
Speaker 1: prices that you think are out of line, you're like, well,
Speaker 1: I put a few million dollars on that election too.
Speaker 2: While I'm here, I might as well, Well it's just.
Speaker 1: Right, it's convenient there.
Speaker 2: Yeah, So what does ICE get out of this? I
Speaker 2: don't know, That's the thing.
Speaker 1: I mean, one answer is an investment, right, I mean
Speaker 1: there's two things.
Speaker 2: Right.
Speaker 1: It's like, if it's the future of sports gambling, that's valuable.
Speaker 1: And then like if like the way you trade your
Speaker 1: insights into like whether there will be inflation changes from
Speaker 1: like trading treasuries to like buying the inflation contract on polymarket,
Speaker 1: Like that's a big deal, right, And I don't know
Speaker 1: that that is a near term likely outcome. One, it's
Speaker 1: a possibility, and two becomes more likely when you partner
Speaker 1: with a big exchange firm, you know, like ICE now
Speaker 1: when they're thinking about like what kind of like macroeconomic
Speaker 1: products should we offer. Now, in addition to like interest
Speaker 1: rate futures and bond futures, they can offer predictions of
Speaker 1: inflation right, So that's one thing they get is like
Speaker 1: the that's like currently in the cards, right, Like the
Speaker 1: current situation is like they're going to distribute polymarket data,
Speaker 1: which is of interest to people who trade on and
Speaker 1: the other think it's tokenization, which who knows. That can
Speaker 1: mean a lot of things. Yeah, it could be like
Speaker 1: technological infrastructure for like trading ice products, where like instead
Speaker 1: of buying great futures, you buy great futures tokens, right,
Speaker 1: But it could also mean, like everyone talks a big
Speaker 1: game about stock tokenization. Everyone, it's a big game about
Speaker 1: tokenizing private companies.
Speaker 2: Right.
Speaker 1: There's a lot of stuff in that space, and like
Speaker 1: it is possible that Polymarket, which is crypton native and
Speaker 1: kind of fun, is better positioned to do some of
Speaker 1: those initiatives than like the New York Stock Exchange, right,
Speaker 1: which is the New York Stock Exchange, right, and which
Speaker 1: has like if you're the New York Stock Exchange, like
Speaker 1: we're gonna make everything tokenized. Like everyone who's already trading
Speaker 1: on the stock exchange is gonna be very annoyed. Yeah,
Speaker 1: Like Polymarket you can tokenize whatever they want.
Speaker 2: Tokenization has been on my list of things to actually
Speaker 2: think about for a while. See, but I haven't gotten there, Matt.
Speaker 1: I've written about it. It's funny. It's like, to me,
Speaker 1: tokenization means two things. Like one, there's like some amount
Speaker 1: of trading in tradition financial markets. You could change the
Speaker 1: back end of the market structure and make it so
Speaker 1: that instead of being on some company's ledgers, it's on
Speaker 1: a blockchain and you can call it tokenized.
Speaker 2: And it's all a little people that.
Speaker 1: Yeah, it's the sort of thing that like ten years ago,
Speaker 1: you'd be like, it'll be a different database for your
Speaker 1: interest rate futures. You'd be like, I don't care about that.
Speaker 1: But now it's like, oh, it's tokenized, right, So that's
Speaker 1: like like one thing is like the actual technological stuff,
Speaker 1: and like it's stuff about like how things work together
Speaker 1: and how like if you're an hedgephund you can like
Speaker 1: move your tokens from one platform to another, and like
Speaker 1: you can you know, live in the same blockchain environment
Speaker 1: for different kinds of trades, right, Like you can trade
Speaker 1: crypto against futures. I don't know, there's like that technological
Speaker 1: market structure stuff. And then like to me, it always
Speaker 1: seems like when people talk about tokenization what they're always
Speaker 1: talking about is getting around securities loss, and that's not
Speaker 1: always always true. I don't know that that's what Ice
Speaker 1: and polymarket are talking about. It's what Robin is talking
Speaker 1: about every time they talk about togonization, right, And it's like,
Speaker 1: you see, like people like we should tokenize private companies
Speaker 1: so that you can buy shares of private companies without
Speaker 1: having them have to go public. It's like, well, that's
Speaker 1: not how the securities laws works. But if we call
Speaker 1: a share a token, then they don't have to follow
Speaker 1: the law.
Speaker 2: Yeah, so he struck me as.
Speaker 1: Wrong, but it might turn out to be empirically correct.
Speaker 1: But anyway, so there's two kinds of organization. I've etten
Speaker 1: a lot about the bad regulatory arbitrage kind, but like
Speaker 1: it's possible, the technological kind is important, meaningful, we'll do something.
Speaker 2: Well, hopefully these initiatives will bear fruit and we can
Speaker 2: actually figure out what Ice and polymarket are talking about.
Speaker 1: Yeah, I will say that, I like, I have spent
Speaker 1: ten years writing about financial infrastructure firms saying we're doing
Speaker 1: a blockchain initiative.
Speaker 2: It's all about the tech, and then like five years later.
Speaker 1: They're like, we have stopped their blockchain initiative.
Speaker 2: Stop asking about it. We don't want to talk about.
Speaker 1: It, right, So it's puzzle tokenization. Is that it's puzzle tokenization.
Speaker 1: It's like we're putting the futures on the blockchain and
Speaker 1: then five years later we'll stop talking about it. Yes,
Speaker 1: I've thought a lot about taking anosition, but I don't
Speaker 1: have any I don't know what I mean. It's either.
Speaker 2: I feel like I talked about raboris on this show before. Yeah, yeah,
Speaker 2: the snake eating itself. Well, another way of saying that is,
Speaker 2: you know, all these big tech companies are just spending
Speaker 2: money in a circle, and this week I feel like
Speaker 2: that idea was really on display. When you think about
Speaker 2: open ai and a m D and the deal that
Speaker 2: they inked, it's great. Yeah. Yeah, So my understanding basically
Speaker 2: is that specifically with a m D, so they agreed
Speaker 2: to deploy a bunch of a m D chips and
Speaker 2: as part of that, they're also getting a bunch of
Speaker 2: warrants for AMD shares as well.
Speaker 1: Yeah, there's kind of two wild ass ways of it.
Speaker 1: I mean there's at least seventeen, but like two wild
Speaker 1: asspays of it. One is that open Ai has committed
Speaker 1: to spend I don't know the number, but it's like
Speaker 1: it's six gigawatts of chips. Yeah, and they've said it's
Speaker 1: like tens of billions of dollars per So the open
Speaker 1: eye is committed to spend something on the order of
Speaker 1: one hundred billion dollars buying chips from AIM and open
Speaker 1: A doesn't have one hundred billion dollars. No. One thing
Speaker 1: that is happening here is that the market has ascribed
Speaker 1: a value to open ai of like, you know, half
Speaker 1: a trillion dollars, and that value is sufficiently real that
Speaker 1: open and ai can like make financial commitments based on it.
Speaker 1: They can be like, yeah, we'll give you a hundred
Speaker 1: million dollars for your chips, and they're great, and it's
Speaker 1: like everyone's like, yeah, that'll work out right, But like
Speaker 1: there's no, it's not in the bank, Like that's like, yeah,
Speaker 1: it's five million dollars company, they'll find the money. And
Speaker 1: I don't think that's a wrong bet. It's just an
Speaker 1: interesting they're able to commit cash based not on the
Speaker 1: cash they have, but on their valuation. And then the
Speaker 1: other thing that's happening is that like when open ai
Speaker 1: says anything about anyone, the stock goes up. And so
Speaker 1: when Opening I announces a deal of like we're gonna
Speaker 1: send one hundred million dollars on AMTI chips, AMD stock
Speaker 1: very predictably goes up. And so knowing that as they
Speaker 1: negotiated the deal, they're like, what we should do is
Speaker 1: we should take your very predictable stock price rise and
Speaker 1: use that to pay for the chips. Right like, essentially,
Speaker 1: like AMD shareholders will get excited about AMD having this deal,
Speaker 1: and so we'll let the AMD shareholders pay for the chips.
Speaker 1: And so that's kind of what happened, which is that
Speaker 1: AMD stock we're recruiting this on Wednesday at a stock
Speaker 1: is up roughly one hundred billion dollars from where it
Speaker 1: was last Friday before they announced the deal, and you
Speaker 1: know that'll covers the chips. And open Ai, which as
Speaker 1: far as we know, plans to pay cash for these chips. Yeah, yeah,
Speaker 1: I don't think the deal is like we won't pay
Speaker 1: for the chips. The deals. We will pay for the chips.
Speaker 1: But Open Eye is getting warrants for roughly ten percent
Speaker 1: of AMD with like vesting conditions, but they're like penny
Speaker 1: warrants and so right Now, if you just assume they'll
Speaker 1: get all of the warrants, that's like a thirty seven
Speaker 1: billion dollar ish yeah, value transferred to open Ai. Yeah,
Speaker 1: which one will help pay for the cost of this contract.
Speaker 1: And two it is only fair because like they created
Speaker 1: all that extra value at AMD, right, Like they're the
Speaker 1: ones who by sprinkling their magic dust on AMD, we're
Speaker 1: able to make AMD more valuable. And so yeah, they
Speaker 1: get back half that value in warrants.
Speaker 2: Yeah. Well two things. So to your point that you
Speaker 2: know open ai mentions some sort of whatever with another company,
Speaker 2: a public company, their stare price goes up.
Speaker 1: Yeah.
Speaker 2: It makes me think about what we keep talking about
Speaker 2: in terms of the private and public markets converging. Obviously,
Speaker 2: open Ai famously is not public, but has been making
Speaker 2: a ton of waves in the public stock market. The
Speaker 2: other thing is, you know what we saw with open
Speaker 2: Ai and AMD this week isn't a one off. They
Speaker 2: have something similar with in Video, which of course is
Speaker 2: a direct rival of AMD.
Speaker 1: Yeah, it's like very different, but it's like from at
Speaker 1: a high level, the same thing, Right, it's like we
Speaker 1: have a partnership where I think in that case, in
Speaker 1: Video is investing in open Ai and then Yeah.
Speaker 2: In video agreed to invest as much as one hundred
Speaker 2: billion dollars in open Ai to help open ai fund
Speaker 2: a data center build out in Exchange. Open Ai committed
Speaker 2: to filling those data centers with millions of in Nvidia chips.
Speaker 2: This is a little bit old, but I was reading
Speaker 2: this piece from Michael sembelest Over at JP Morgan and
Speaker 2: he wrote this at the end of September. But it
Speaker 2: spiritually can apply to all of these deals that Oracle
Speaker 2: stock jump by twenty five percent after being promised sixty
Speaker 2: billion dollars a year from open Ai in amount of
Speaker 2: money open Ai doesn't earn yet to provide cloud computing
Speaker 2: facilities that Oracle hasn't built yet and which will require
Speaker 2: four point five gigwats of power, which is the equivalent
Speaker 2: of several Hoover dams. So it's easy, if you wanted
Speaker 2: to get scared and flustered, to build a case that
Speaker 2: there's a bubble being inflated right now.
Speaker 1: I don't disagree. It's unusually easy to like visualize the future,
Speaker 1: right It's usually easily to be like Ai is going
Speaker 1: to be huge, m It's going to transform every aspect
Speaker 1: of life. It's going to require a lot of power,
Speaker 1: and like that requirement is going to be so obvious
Speaker 1: that like we'll build the power plants. It's going to
Speaker 1: require a lot of data centers, and that requirement is
Speaker 1: going to be so obvious. We'll build the data centers
Speaker 1: and it's going to rake in oceans of money. Yeah,
Speaker 1: and that is so obvious that like the people who'll
Speaker 1: be raking in the money open AI I can just
Speaker 1: spend that money now, you know, Yeah, sixty billion dollars year,
Speaker 1: No problem, we'll get that, we'll up. Yeah, Like this
Speaker 1: is what capital markets are supposed to do, which is
Speaker 1: like discount the future. And here there's like unusually widespread
Speaker 1: consensus on like how big and transformative this future will
Speaker 1: be and like what the steps are to get there,
Speaker 1: and so it's all being discounted right now into you know,
Speaker 1: the price of Open Eye. But also like these enormous,
Speaker 1: long term, incredibly capital intensive deals where everyone's like, yeah,
Speaker 1: of course that's going to get fine.
Speaker 2: It's like that's no problem, don't worry about it.
Speaker 1: And like one like that is the consensus view, right,
Speaker 1: Like that is what people think.
Speaker 2: Right, very strong, it's very much so it's.
Speaker 1: Not like a priori crazy to be like, yes, we
Speaker 1: can see how this is going to go, and so
Speaker 1: we're putting our money into it now. On the other hand, too,
Speaker 1: like yeah, if you want to take the contrarian view,
Speaker 1: like that sounds like a bubble. Yeah, that does sound
Speaker 1: like of course it sounds like a bubble.
Speaker 2: Yeah, because there is a risk that we are a
Speaker 2: risk we're overbuilding here. For sure, A is going to
Speaker 2: change the future. I feel like it's hard to argue
Speaker 2: with that. But do we need this money? Gigawaws? Do
Speaker 2: we need this money?
Speaker 1: I don't know how many giggs we need? Come on
Speaker 1: you and like, you know, what he says kind of goes,
Speaker 1: but like, I don't think it would be crazy to
Speaker 1: think that, like the current consensus is wrunging in either
Speaker 1: direction by a factor of two, right, and if it's
Speaker 1: like low by a factor too, then like everyone's getting
Speaker 1: get rich, right, And if it's high, then like all
Speaker 1: these deals will look a little bubbly. But like still,
Speaker 1: you know, and you know, in like ten years, like hey,
Speaker 1: I will have been transformative, and I'm we're glad we
Speaker 1: have many of those data centers.
Speaker 2: Yeah, for sure. Internet comparisons et cetera. You can make
Speaker 2: them here. But instead I'm going to say that there
Speaker 2: was an interesting crack that seemed to form this week.
Speaker 2: Did you see that report by the Information on Oracle. Yes,
Speaker 2: basically it's cloud margins are super thin. To give you
Speaker 2: the details. According to the Information, so Oracle's cloud business
Speaker 2: has narrow margins that many analysts anticipated. They generated about
Speaker 2: nine hundred million dollars in sales by renting servers powered
Speaker 2: by in video chips, but it's gross profit came in
Speaker 2: at fourteen cents for every one dollars in sale. Again,
Speaker 2: this is according to the Information, which is like retailer margins,
Speaker 2: which is pretty crazy.
Speaker 1: Not that I mean, it's a huge business, right, and
Speaker 1: so like, one question is like, who are going to
Speaker 1: be the like monopoly players in this business? And who
Speaker 1: are going to be the like in the fiercely competitive
Speaker 1: business of selling to those monopolists, right? And like, right,
Speaker 1: it's very possible that Oracle is in a commodity business.
Speaker 1: And my sense is that people think that in Vidia
Speaker 1: is very much not in a commodity business. Right, That
Speaker 1: could be wrong, right, And my sense that people think
Speaker 1: open AA is not in a commodity business. That open
Speaker 1: AA has something special and so when it name checks
Speaker 1: a public company, that company goes up. Right, And like
Speaker 1: in Vidia has the same power, right, like the in
Speaker 1: video will sign a partnership with someone and their stock
Speaker 1: will go up. But like it's not clear that, like
Speaker 1: the people who run the data centers have the same
Speaker 1: pricing power.
Speaker 2: Just wonder how the snake dies in the end, you know,
Speaker 2: is it because it chokes or because it's being eaten?
Speaker 1: You know?
Speaker 2: Do you ever think about that constantly?
Speaker 1: I want to talk about too, miscellan things I do
Speaker 1: want to talk about. You had Kathy Wood on your show,
Speaker 1: Yeah I did, and you talked about.
Speaker 2: The other show. Yeah, swimming is not your show.
Speaker 1: This is your show.
Speaker 2: The other show the E t f I S E
Speaker 2: tf IQ weekly Mondays at noon. But you can catch
Speaker 2: me on the clothes every day three to five pm. Anyway,
Speaker 2: go on good Plug.
Speaker 1: And you asked her about the ETF I p O
Speaker 1: heartbeat tray. We talked about a couple of weeks ago.
Speaker 2: There was no way I could not ask her.
Speaker 1: Yeah, so this is the trade where like someone pumps
Speaker 1: like a billion dollars into into an r ETF and
Speaker 1: they do right before some hot IPO and they're betting
Speaker 1: that the ETF is going to get an allocation in
Speaker 1: the IPO and the IPO is going to pop and
Speaker 1: then they will heartbeat out of the ATF and so
Speaker 1: they will have like borrowed shares of all the underlying companies,
Speaker 1: put it into the ETF, taking it right back out again.
Speaker 1: And they've done nothing, like there's no trade there, Like
Speaker 1: they've reversed everything except that they've extracted their portion of
Speaker 1: the IPO pop and monetized that. So if like the
Speaker 1: ETF gets a twenty million dollar IPO allocation and it
Speaker 1: goes up fifty percent, then like there's ten million dollars
Speaker 1: of profits. And if you own half of the ETF
Speaker 1: for like a day, then you get like five million
Speaker 1: dollars of profits with no risk.
Speaker 2: Yeah.
Speaker 1: And so it seems like someone did that a couple
Speaker 1: of times. Yeah, And you asked, Kathy, what about it?
Speaker 2: I did so, first of all, ask for who, she said,
Speaker 2: as I doesn't know, probably a market maker. And she
Speaker 2: pointed out that this takes a lot of guesswork on
Speaker 2: the part of whoever is behind it, the theoretical market
Speaker 2: maker in this.
Speaker 1: Yeah, people got it wrong, like there's like one of
Speaker 1: the big ETFs had one of these big heart beats
Speaker 1: for a big IPA that they didn't get an allocation.
Speaker 2: Yeah, this is according to the FT reporting that it
Speaker 2: was the Arc Innovation ETF. That's their biggest ETF. Basically
Speaker 2: before the Klarna IPO there was that huge heartbeat surge,
Speaker 2: but ARC didn't actually get an allocation in that fund
Speaker 2: to Klarna, so it was kind of a worthless experience,
Speaker 2: whereas they had someone successfully did it with Circle I believe,
Speaker 2: and ARC was a backer of Circle. I think like
Speaker 2: the FT had mentioned that ARC's website hadn't mentioned Klarna
Speaker 2: in some capacity, so you know, maybe it wasn't a
Speaker 2: terrible guess. But I also asked her how she felt
Speaker 2: about it. Actually, my coinker Scarlet Food, askt her how
Speaker 2: she felt about it, Like, was she okay with the
Speaker 2: fact that her funds are just being used as vehicles
Speaker 2: to facilitate these trades, And her answer was she's not upset.
Speaker 2: This is what makes a market and if they guess right, great,
Speaker 2: If they don't, well then they have nothing. They've they've
Speaker 2: incurred some costs.
Speaker 1: I'm just interested in that answer because when we tried
Speaker 1: it with this, like that's kind of what I said.
Speaker 1: I was like ETFs like, like, on the one hand,
Speaker 1: her ETFs are like her investment vehicles. She runs it,
Speaker 1: she's making decisions like you know, it's her fund. But
Speaker 1: on the other hand, ETFs are kind of a piece
Speaker 1: of market plumbing, and like that means they can be
Speaker 1: used by other people mechanically that being her decision. And
Speaker 1: so I think that it's like an interesting like her
Speaker 1: take on this is like, yeah, we're kind of market plumbing,
Speaker 1: and so if that's what people do, that's what people do.
Speaker 1: That's not everyone's take. I heard from one person in
Speaker 1: the ETF world that like won First of all, ETFs
Speaker 1: can turn down creation and redemption trades.
Speaker 2: She said no to that, Okay, depends on.
Speaker 1: Like the authorized participant agreements. But their sense is like
Speaker 1: the norm is that you can turn down. And then
Speaker 1: two like this is rude, yeah, and not nice, and
Speaker 1: because you know, like on the one hand, these are
Speaker 1: ETFs are market plumbing that anyone can kind of trade against,
Speaker 1: but on the other hand, like they are a like
Speaker 1: retail investment product, and if you are an authorised participant,
Speaker 1: if you're a market maker training against these ETFs, like,
Speaker 1: it's kind of your job to be like a nice
Speaker 1: participant in the ecosystem and make them a friendly investment
Speaker 1: product for people. And if you're extracting the IPO premium
Speaker 1: from the ETF, like, that's not nice to the end
Speaker 1: investors and it's like not a constructive thing to do
Speaker 1: in the ecosystem.
Speaker 2: Yeah, I mean, I was also a little bit surprised
Speaker 2: and interested in her answer. It's very emotionally mature, because
Speaker 2: if I put myself into her shoes and Okay, my
Speaker 2: fund is a piece of market plumbing, I accept that.
Speaker 2: But if I have a sink and someone turns on
Speaker 2: the faucet, I would hope they're washing their hands, washing
Speaker 2: their hands in this scenario, always investing in the fund
Speaker 2: because they believe in, you know, my stock picking prowess,
Speaker 2: not that they're just turning on the faucet and then
Speaker 2: doing something else.
Speaker 1: I guess my emotional reaction would be if I woke
Speaker 1: up one day and someone would invested an extra billion
Speaker 1: dollars in my fund, I'd be like sweet. And then
Speaker 1: three days later if they were like they took it
Speaker 1: out again, and be like oh yeah, it would be
Speaker 1: a real emotional roller coaster.
Speaker 2: Like you made my chart so ugly. Yeah, but Kathy,
Speaker 2: would you know, she's not like us, She is built different.
Speaker 1: Yeah. One more thing we have to talk about is that.
Speaker 1: So we had Ryan Patch and John Seal on the
Speaker 1: podcast in May to talk about puzzle hunts generally and
Speaker 1: the Midnight Madness Wall Street puzzle hunt that they run.
Speaker 1: In particular. Midnight Madness was this past weekend.
Speaker 2: Did you participate?
Speaker 1: I did not because for two good for three reasons.
Speaker 2: One is that you were taking care of the possum.
Speaker 1: When is that to be like an entry in Middle
Speaker 1: Badness costs I believe forty two thousand dollars for a
Speaker 1: team of six people. You've got that, which a little
Speaker 1: steep to the team that I have done puzzle hunts
Speaker 1: with before, Like people had other things and so like
Speaker 1: we didn't get the team together. And three, I am
Speaker 1: an old man and it runs from like noon to
Speaker 1: like four am. And the idea of shopping to apparently
Speaker 1: started in Coney Island, and like you know, it goes
Speaker 1: all over the city, and it just it just seemed
Speaker 1: like a little too much for me. It's a young
Speaker 1: man's game. Yeah, it's not only a man's there's a
Speaker 1: gender divide.
Speaker 2: I don't know if that phrase works as well. It's
Speaker 2: a young person's game.
Speaker 1: Yeah, But anyway, it was this weekend. Nineteen teams played.
Speaker 1: There raised eight hundred and eighteen thousand dollars for charity
Speaker 1: for the Good Shepherd Services, and I do want to
Speaker 1: shout out the winners. The winner winner. The first place
Speaker 1: team was Reagan Voke three thousand, which was like the pressure.
Speaker 1: He says, it's a privately funded team. It's like a
Speaker 1: little interesting thing here, which is that you know, it's
Speaker 1: forty two thousand dollars for a team. A lot of
Speaker 1: like financial firms sponsor one or more teams from the firm.
Speaker 1: A lot of other financial firms have their well played
Speaker 1: employees just privately sponsored themselves. And so Reagan Voked three thousand.
Speaker 1: The winning team was privately funded, So I wasn't officially
Speaker 1: sponsored by a firm, but I've heard it was some
Speaker 1: number of Jan's treat people.
Speaker 2: Interesting.
Speaker 1: Second place team was sponsored by Citadel Securities Wow, and
Speaker 1: was called Citadel Insecurities, which is a great team names.
Speaker 1: And then the third place team, Midnight Marauders. I know
Speaker 1: they're privately funded team. Anyway, congratulations on all your success.
Speaker 1: You did it, and that was the Money Stuff Podcast.
Speaker 2: I'm Matt Levine and I'm Katie Greifeld.
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Speaker 1: The Money Stuff Podcast is produced by Anna ma Aserakis
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