Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: The bird's doing well, by the way, So the next
Speaker 2: milestone is like he flies, Yes, he is great news.
Speaker 2: He yes. So I believe last week I was talking
Speaker 2: about how we needed to work on flying, really good
Speaker 2: at perching, really good at eating.
Speaker 1: Sure you've been showing him YouTube videos.
Speaker 2: We've been working on flying. He's pretty good at flying.
Speaker 1: Now.
Speaker 2: The thing is, I'm still working on my flying. Apparently
Speaker 2: came naturally to the bird. I have to keep reminding myself, like,
Speaker 2: this is a baby bird.
Speaker 1: Yeah, do birds when.
Speaker 2: I think he's or she, we can't tell because it's
Speaker 2: a baby is just entering adolescence. Because the bird will
Speaker 2: also like peck at you, Like yesterday was sitting on
Speaker 2: my shoulder and it was like pecking at my ear
Speaker 2: and then I googled it and they go through a
Speaker 2: teenager phase where they like get into biting you for
Speaker 2: a little bit and then they kind of grow out
Speaker 2: of it.
Speaker 1: Anyway, congratulations to your bird, Thank you, Hello and welcome.
Speaker 1: It's going to keep being the bird Stuff podcast, isn't it.
Speaker 2: I love it?
Speaker 1: Anyway, Hello and welcome to the money Stuff Podcast. You're
Speaker 1: a weekly podcast where we're talking about stuff related to
Speaker 1: money sometimes. I'm Matt Levine and I read the Money
Speaker 1: Stuff com for Bloomberg Opinion.
Speaker 2: And I'm Katie Greifeld, a reporter for Bloomberg News and
Speaker 2: an anchor for Bloomberg Television.
Speaker 1: Katie, in your other life as an anchor for Bloomberg Television,
Speaker 1: you've been anchoring some Bloomberg television.
Speaker 2: Absolutely, because we had a little bit of a SmackDown
Speaker 2: this week, I'm trying to make this a dramatic.
Speaker 1: Everyone loves a financial industry SmackDown now after ever since
Speaker 1: the like the classic act then icon one from like
Speaker 1: a decade ago, Everyone's like, oh, SmackDown.
Speaker 2: I mean, we'll never achieve those heights again. That was
Speaker 2: That's at the Bar and no one's passed it since.
Speaker 2: But in slightly less interesting smackdowns smackish last week I
Speaker 2: believe it was, there was a splashly Bloomberg News article
Speaker 2: about how Jim Chanos has a short thesis when it
Speaker 2: comes to Michael Sailor's strategy, the idea being that you
Speaker 2: basically short strategy and you buy bitcoin because strategy trades
Speaker 2: at a premium to its actual bitcoin holdings.
Speaker 1: Yeah, and one thing that Jim Chaino said that is
Speaker 1: entirely accurate and revealing, and everything ignored is that micro
Speaker 1: strategy also does the same trade and enormous side. Yeah,
Speaker 1: and like micro strategy is like kind of like fundamental
Speaker 1: business models, Like, well, our stock trades that two times
Speaker 1: the value of the underlying bitcoins, So we're gonna sell
Speaker 1: a ton of stock and use the money to buy bitcoin.
Speaker 1: It's like, yeah, of course it's the great trade. But
Speaker 1: like micro strategy has some advantages and putting the trade
Speaker 1: on Jim Chanos doesn't have, Like they don't have to
Speaker 1: pay to borrow the stock, they can't get squeezed out
Speaker 1: of their sharp but they were doing the same trade.
Speaker 2: But anyway, yeah, well go on. That was Chenos's position.
Speaker 2: We interviewed Michael Sailor on Tuesday of this week, and
Speaker 2: obviously he disagreed.
Speaker 1: Well, he was like, no, nobody should sell his biker
Speaker 1: strategy stocked by bitcoin. That's a crazy thing to do.
Speaker 1: Why would anyone sell biker stategy stocked by bitcoin? Yeah
Speaker 1: except for him, but whatever, whatever, No, I mean, to
Speaker 1: be fair, he's not doing it anymore.
Speaker 2: Yeah. Oh. He also said that you know, Chinos doesn't
Speaker 2: understand how like his valuation of strategy is off sides.
Speaker 2: That was on Tuesday. Jim Chanos came on Bloomberg Television
Speaker 2: on Wednesday with my colleague and friend Scarlett Fou and
Speaker 2: give his side of the story. I mean, he said
Speaker 2: that Sailor is a great salesman, but basically his argument
Speaker 2: amounts to financial gibberish. I think he might have I
Speaker 2: think he might have said that on social media and
Speaker 2: not on I would it's really the case that like,
Speaker 2: oh wait, wa wait, let me read you betweet. Actually
Speaker 2: it's pretty good. In response to Sailor's television club from
Speaker 2: our interview with him, this is, of course complete financial gibberish.
Speaker 2: Mister Sailor wants you to value his business based not
Speaker 2: only on net value of his bitcoin holdings NAV at market,
Speaker 2: but additionally with a multiple on the change in that
Speaker 2: NAV exclamation point, because now he can leverage his balance sheet. Lol.
Speaker 1: I mean, like, I'm sorry, that's correct. Like I don't
Speaker 1: want to say that micro strategies thing can't work right,
Speaker 1: because it's worked right, and like a lot of people
Speaker 1: have gotten carried out shorting it right, and like I'm
Speaker 1: not saying, oh, it's a great idea just short micro strategy,
Speaker 1: but like it is gibberoiush right, It's like the point
Speaker 1: that they're making is like bitcoin has gone up a lot,
Speaker 1: and so when we buy bitcoin, we're creating a ton
Speaker 1: of value for shareholders. And like at some level that's true,
Speaker 1: but another level, you just buy bitcoin, Like.
Speaker 2: This is true.
Speaker 1: And I think I probably said this on the podcast before,
Speaker 1: but like a thing that is just wild to me
Speaker 1: about micro Strategy in particular and bitcoin treasury companies generally,
Speaker 1: is like you have to tell some story about why
Speaker 1: you're not just a pot of bitcoins, right, and there
Speaker 1: are a number of ways to tell that story. And
Speaker 1: like all credit to micro Strategy, they've done all of it.
Speaker 1: They're smart, like they're good at fine, Like this is
Speaker 1: a well run bitcoin treasury company with a model that
Speaker 1: I fundamentally don't understand, but like they're great at it.
Speaker 1: But the sort of central story that they tell is like, well,
Speaker 1: we can be levered bitcoin holders, right, Like we can
Speaker 1: be instead of just you know, buying bitcoin put in
Speaker 1: the plot, we can like borrow money to put bitcoin
Speaker 1: in the plot. We can you know micro saylers, like
Speaker 1: we can issue preferred stock that pays ten percent, and
Speaker 1: we can buy a bitcoin that goes up by forty
Speaker 1: seven percent a year, and therefore we're like we're doing
Speaker 1: an arbitrage, which is like nobody should ever said the
Speaker 1: word arbitrage. You gain after that. But the thing that
Speaker 1: I find fascinat about micro strategy is that, like from
Speaker 1: the shareolders per sective, it is just not levered bitcoin exposure.
Speaker 1: Like the way micro strategy works. If there's a sixty
Speaker 1: billion ish dollar pot of bitcoin that trades it one
Speaker 1: hundred and twenty billion ish market capitalization, which means it's
Speaker 1: not levered bitcoin for you. If you put in a dollar,
Speaker 1: you get like fifty cents worth of bitcoin, which is
Speaker 1: the opposite of leverage. Leverage is like you put in
Speaker 1: you get back two dollars with a bitcoin. So I
Speaker 1: just find it somewhat crazy making. But here we are.
Speaker 2: But the thing is, even if Jim Chinos is correct
Speaker 2: what you were saying he is, that doesn't mean his
Speaker 2: trade is gonna work.
Speaker 1: He's sorry, I want to be there. The thing that
Speaker 1: he has definitely correct about is that it's jibberish, right,
Speaker 1: just from an aesthetic point of view, it's jibberish that
Speaker 1: doesn't doesn't mean the stoggle go down.
Speaker 2: That's the thing, and that's something we've talked about before
Speaker 2: with these bitcoin treasury companies, is that in the stock
Speaker 2: market people are happy to pay double basically in the
Speaker 2: case of Strategy, like the.
Speaker 1: Trade is about that that can't last. Yeah, and like
Speaker 1: you see cracks in it, right, the game Stop is
Speaker 1: now a big treasuring company and like it should converts
Speaker 1: this week, and you know, let's talk with down like
Speaker 1: twenty percent at some point, like you know, two weeks ago,
Speaker 1: I would have said, like, yeah, any company can like
Speaker 1: announce that the bitcoin treasuring company and like trade at
Speaker 1: two x of the value of it's bitcoin. Like it's
Speaker 1: not quite as true anymore.
Speaker 2: Yeah, like kind of immediately if it came not true, yeah.
Speaker 1: Which is great, but like the micro strategy still does.
Speaker 1: I mean it's coming a little bit.
Speaker 2: Yeah.
Speaker 1: But it is a little bit weird to me for
Speaker 1: Sailor to criticize Channis because as Channos has said, and
Speaker 1: as I just said, Sailor was doing the same trade
Speaker 1: right selling micro strategy, Like micro Strategy is in the
Speaker 1: business of selling it's on stock to buy bitcoin, right,
Speaker 1: So clearly, at some point in the fairly recent past,
Speaker 1: like this year, like micro Strategy has thought that bigcoin
Speaker 1: was better as it than its stock, right, like you
Speaker 1: could sell this stock to buy bitcoin. That's a longer
Speaker 1: as true. Right now, they're doing a lot of weird stuff,
Speaker 1: and they've moved kind of further away from equity. Right
Speaker 1: they started doing stock and convertible bonds, and then they
Speaker 1: moved into like this very high premium convertible preferred, and
Speaker 1: they moved into I think higher premium convertible preferred that
Speaker 1: has looked less and less equity content, and now they're
Speaker 1: selling straight ten percent preferred that doesn't convert into stock,
Speaker 1: So they're basically you know, if you just look at
Speaker 1: their actions, it suggests that they thought their stock was
Speaker 1: overvalued at some point and now they think their stock
Speaker 1: is fairly valued. And I think he's on TV something
Speaker 1: like you know, watch out, Jim Chanis, because we could
Speaker 1: issue preferred and you know, if the premium comes down,
Speaker 1: we'll just issue more preferred, Yeah, which I took to
Speaker 1: sort of mean that they might buy back stock, which
Speaker 1: is also crazy making.
Speaker 2: This might be what you're referring to. He said, if
Speaker 2: the stock trades at a week premium We're just going
Speaker 2: to sell the preferred and if the stock rallies up,
Speaker 2: he's going to get liquidated and wiped out.
Speaker 1: Yeah, which doesn't exactly say we're going to buy the.
Speaker 2: Stock, but yeah, whatever. So he also said so if
Speaker 2: the premium declines enough, he will issued preferred also in
Speaker 2: that scenario and then buy back the common shares.
Speaker 1: Well whatever.
Speaker 2: I mean, he's a few different king plans. Something that
Speaker 2: I thought was interesting from that interview, which I'm still
Speaker 2: trying to formulate an opinion on. So maybe you can
Speaker 2: give me one is you know, I asked him, you
Speaker 2: have all these copycat bitcoin treasury companies that are coming out,
Speaker 2: do you view them as competition? He said, I don't
Speaker 2: view them as competition. I view ETFs that track preferred
Speaker 2: shares is competition. So as Investco has one, I think
Speaker 2: the ticker is pg X. It has like four billion
Speaker 2: dollars in assets, So I guess he's trying to compete
Speaker 2: for investor attention, like he wants investors to buy his
Speaker 2: preferred shares, not broadly preferred shares. I don't really know.
Speaker 1: Interesting, Yeah, the bitcoin treasury thing is interesting because he has,
Speaker 1: like for a long time been a proselytizer for other
Speaker 1: companies should do this, right, Yeah, And when you think
Speaker 1: about like the model, like Jim Chandos and I can
Speaker 1: talk about the premium all we want, but like fundamentally,
Speaker 1: Michael Sailor reviews micro strategy, they bet that bitcoin will
Speaker 1: go up, and so like the main thing they want
Speaker 1: is for bitcoin to go up rate. Yeah, and the
Speaker 1: more companies that devote themselves to buying bitcoin, like, the
Speaker 1: more bigcoin will go up, and the better off micro
Speaker 1: strategy and shoulders. All right, so they're not competition, right, Yeah,
Speaker 1: like in a world of like enormous competition for you know,
Speaker 1: people to invest in this thing, Like would micro strategies
Speaker 1: premium come down maybe, But if micro strategies premium comes
Speaker 1: down by like Bitcoin going up ten x, I'm like,
Speaker 1: that's great for Michael Sailor, you know the preferred thing, Yeah,
Speaker 1: Like I don't. I actually don't know who. I've always
Speaker 1: thought of straight preferred as a pretty niche financial product, right,
Speaker 1: It's like, yeah, a lot of banks issue it, and
Speaker 1: it looks some like utility ones. It's not like a
Speaker 1: huge You don't regularly have tech companies being like I'm
Speaker 1: going to issue a straight preferred. Right, it's not like
Speaker 1: a real thing, Like bankers don't go around marketing ten
Speaker 1: percent preferred stock to companies, and micro Strategy is doing
Speaker 1: it in size, And yeah, I guess they're competing for
Speaker 1: like the fairly limited pool of like retail investors who
Speaker 1: want preferred stock. You know, they're offering ten percent. They're like,
Speaker 1: take our ten percent. And I guess, like surely somewhere
Speaker 1: out there there's a fixed income investor who is like,
Speaker 1: I just want a safe, high dividend, and the best
Speaker 1: dividend paying stock that I can get is this microstritge
Speaker 1: preferred And I don't care what the business model it's vies. Yeah,
Speaker 1: don't tell me about it, as long as they keep
Speaker 1: paying the dividend. And that's the thing that someone thought I.
Speaker 2: Could have seen him embracing these ETFs and other funds
Speaker 2: the track preferred chairs because theoretically micro strategy Yeah, so
Speaker 2: I don't know.
Speaker 1: Yeah, I don't. I don't really understand either, but like
Speaker 1: right to the extent that like instead of buying a
Speaker 1: diversified dividend fund, retail investors like I want that micro
Speaker 1: strategy dividend, Like.
Speaker 2: Yeah, who won?
Speaker 1: Who won?
Speaker 2: Yeah?
Speaker 1: Like to the extent that, like I'm the judge of
Speaker 1: this match, Like, yeah, I'm going to award it to
Speaker 1: Jim Chana's on points to the extent that, like, you know,
Speaker 1: we'll find out when someone gets knocked out, Like Jim
Speaker 1: Chanas is going to exit this trade before Michael Saylor does.
Speaker 2: That's true. That's true.
Speaker 1: He's going to do great.
Speaker 2: Cycle recruiting. You wrote that, Uh, no one likes it.
Speaker 1: It's amazing. They fixed it. They just fixed it.
Speaker 2: Well, Jamie Diamond especially didn't like it. You're right, he
Speaker 2: solved the problem.
Speaker 1: So I have some backstorright here. So I clerked for
Speaker 1: a federal judge after law school, and clerkship hiring has
Speaker 1: the same issues, where like basically there's a pool of candidates,
Speaker 1: and there's a pool of judges, and there's like a
Speaker 1: ranking of prestigious judges is ranking of prestigious candidates, and
Speaker 1: everyone's the best candidates are the best judges. And you know,
Speaker 1: it used to be that like towards the end of
Speaker 1: law school, you'd interview with the judge to get a clerkship,
Speaker 1: and then some judges were like, we'll interview a little
Speaker 1: earlier for clerkships. To start in two years and then
Speaker 1: we'll get the first cut up. The best candidates of
Speaker 1: crept up earlier and earlier, and it became like untenable.
Speaker 1: And when I was a clerk, my judge was like
Speaker 1: the leader of the like clerkship hiring plan that told
Speaker 1: people you can't hire before, like you know, the beginning
Speaker 1: of the third year of law school. And it was
Speaker 1: like kind of mostly enforced, but like a couple of
Speaker 1: judges defected and hired in the second year, and you know,
Speaker 1: I couldn't enforce it, but I was like in a
Speaker 1: dudgeon when people would would hire clerks too early, And
Speaker 1: so I saw this process play out where like it
Speaker 1: got too early. Everyone's like, this is dumb, it's too early.
Speaker 1: Let's move things back, yeah, and and hire on a
Speaker 1: normal schedule where we can like see people's grades and
Speaker 1: like know what they're like, and not just like hire
Speaker 1: at the beginning of law school. And we set it back,
Speaker 1: and then like immediately it started decaying again. So I
Speaker 1: think that like private equity hiring is a little of that,
Speaker 1: where like there's a logical time to hire new private
Speaker 1: equity associates, and it's you know, as they get to
Speaker 1: the end of their investment banking jobs, right, it's like
Speaker 1: three months before those jobs end or whatever. And because
Speaker 1: prestigious firms want prestigious candidates, they'll be like, well, just
Speaker 1: interview a month earlier. And then everyone rushes to, you know,
Speaker 1: keep up with them. And so now it's the hiring
Speaker 1: is like before the investment banking jobs start, and everyone
Speaker 1: that's Domin. So Jamie Diamond is like, that's Domin, we
Speaker 1: won't let you do it. And because he's Jamie Diamond,
Speaker 1: because JP Morgan is a big prestigious bank, Like they've
Speaker 1: had some traction where I think Apollo and General Atlantic
Speaker 1: have already said I'm not going to hire people this
Speaker 1: year for their twenty twenty seven start dates.
Speaker 2: But it sounds like you're saying you don't think that
Speaker 2: this truth of sorts will last.
Speaker 1: I think in five years we will be reading articles
Speaker 1: about how private equity hiring is, you know, starting before.
Speaker 2: Investing, talking about on this podcast.
Speaker 1: I'm talking about on this podcast for sure. This is yeah,
Speaker 1: this is a this is a long run contact for
Speaker 1: this podcast. Will this equilibrium decay like next month? I
Speaker 1: don't think so. I think there's gonna be like a
Speaker 1: real impact, where like people who started private equity in
Speaker 1: twenty twenty seven might get interviewed in twenty twenty six
Speaker 1: rather than twenty twenty five. Like that that could really
Speaker 1: happen because it has gotten sort of comical and like
Speaker 1: there is like some good will around, like moving things back,
Speaker 1: but like will it last forever? I don't know. I
Speaker 1: don't think so.
Speaker 2: Well, it's interesting. I took a dig in some of
Speaker 2: the Bloomberg historical archives. Morgan Stanley tried to do something
Speaker 2: like this.
Speaker 1: Everyone's tried to do this. This is like a thing. Yeah.
Speaker 2: Well, in twenty thirteen, Morgan Stanley then abandoned their attempt
Speaker 2: to block first year bankers from talking with recruiters for
Speaker 2: outside firms. Employees complained and the complaint this is all
Speaker 2: according to people familiar from the time. The complaint was
Speaker 2: that they're being put at a disadvantage to you know,
Speaker 2: other entry level bankers at other firms.
Speaker 1: I don't think JP Morgan could enforce this. Yeah, the
Speaker 1: private equity firms hadn't come out in support of them.
Speaker 1: Like the calculation of JP Morgan is not just we
Speaker 1: will stop people from taking offers too early, because like
Speaker 1: that is really hard to do because you know, everyone
Speaker 1: going into banking wants to be in private equity, and like,
Speaker 1: you lose analysts if you said you can't go into
Speaker 1: private equity. But I think because also the private equity
Speaker 1: firms don't love it, it has a chance to succeed.
Speaker 2: Well, that's what I'm curious about. So I mean Apollo
Speaker 2: kicked this off, Mark Owen said in an email statement
Speaker 2: to Bloomberg. When someone says something that is just plainly true,
Speaker 2: I feel compelled to agree with it. But is part
Speaker 2: of the calculation on Apollo's part that they're going to
Speaker 2: earn some brownie points with Jamie Diamond, and that's more
Speaker 2: valuable than you know, getting an early shot at some
Speaker 2: of these analysts.
Speaker 1: I think it's both. Like, I think they're not kidding
Speaker 1: that it's dumb to hire people before they graduate from college,
Speaker 1: right for a job that starts in two plus years,
Speaker 1: and you know, interview them about like LBO modeling when
Speaker 1: they've never worked on a deal, right, Like it's genuinely dumb.
Speaker 1: You know, Like, yes, being in the good graces of
Speaker 1: Jamie Diamond is not a bad idea for any private
Speaker 1: equity firm. But like no, I think I mostly agree
Speaker 1: with them. I want to tell you about a couple
Speaker 1: of like reader emails I've gotten out this topic. Yeah,
Speaker 1: so one as I heard from someone who was like, yeah,
Speaker 1: I started in banking. I accepted my PE job like immediately,
Speaker 1: and then after a couple of weeks in banking, I
Speaker 1: realized I didn't like to do deals, and so he
Speaker 1: like backed out of his PE offer, which, first of
Speaker 1: all like yes, and generally I think and Apollo talking
Speaker 1: about this, they're like, we want to get recruiting right.
Speaker 1: If you're recruiting people before they start in banking, you
Speaker 1: don't really know that you're getting the people who really
Speaker 1: want to and will be good at doing private equity right.
Speaker 1: They don't know anything about Yeah, I've never worked on
Speaker 1: whatever they've been. This is part of a bigger process
Speaker 1: where everything is crept up earlier and become more intense.
Speaker 2: So now like you interns, well, we talked about university
Speaker 2: finance a few weeks through.
Speaker 1: Like I'm like, oh, they don't know anything about banking,
Speaker 1: but they've been like doing banking since there were children.
Speaker 1: But still, like you get a better sense of who
Speaker 1: actually wants to do it if you interview people after
Speaker 1: like a year in banking than if you interview them
Speaker 1: after twenty minutes. Yeah, I thought it was interesting that
Speaker 1: like this doesn't happen that much, like people backing out,
Speaker 1: Like he was like, yeah, my firm was then like
Speaker 1: advertising for someone to fill this spot really quickly, because
Speaker 1: like they don't over hire. It's not like you know,
Speaker 1: an airline where they sell twenty percent more seats because
Speaker 1: they figure people will drop out. They just figure everyone
Speaker 1: they hire's going to start two years later, which is
Speaker 1: pretty wild. The other thing that guys, like a couple
Speaker 1: of people are like you ask, like why is Apollo
Speaker 1: jumping to agree with Chap Murray? And like more possibility
Speaker 1: is they think that recruiting this early is not a
Speaker 1: good idea and they would like to recruit later to
Speaker 1: get more have a more informed recruiting conversation. Another possibility
Speaker 1: is they want to curry favor with shaving time. And
Speaker 1: a third possibility is that they don't need as many people. Yeah,
Speaker 1: Like the third possiblity is you're hiring for twenty twenty seven,
Speaker 1: you're like okay in two years. First of all, like
Speaker 1: there's all this stuff about how like private AQUD firms
Speaker 1: have nothing to do, like they're you know, they like
Speaker 1: can't get any excess, Like shops are kind of bored,
Speaker 1: like they're not doing as many deal as they can't
Speaker 1: raise money. You know, Yeah, it'd be good to tighten
Speaker 1: this wigod for twenty twenty seven. And then there's also
Speaker 1: just like the theme of what AI will do for
Speaker 1: junior hiring and financial services, right, Like, so if you're
Speaker 1: like running a big private equity firm and you're looking
Speaker 1: at your need for junior headcount two years out, and
Speaker 1: I feel a little uncertain, and you might say, you
Speaker 1: know what, we don't need to hire everyone for twenty
Speaker 1: twenty seven right now. We can take a pause on
Speaker 1: that and see how many people we actually need in
Speaker 1: twenty twenty seven. So I detinally don't know, like if
Speaker 1: you were a junior, like if you're about to start
Speaker 1: your banking job, like I don't know whether you'd rather
Speaker 1: have private equity recruiting now or not. It's kind of
Speaker 1: nice to have your entire future sewn up for the
Speaker 1: next five years, but at the same time, it's like
Speaker 1: stressful to interview now without knowing anything and without having
Speaker 1: done any deals and commit yourself to you know, your
Speaker 1: jobs for the next five years. I would think it's
Speaker 1: better for candidates to have a little bit more time. Yeah,
Speaker 1: but not if like the reason for that is that
Speaker 1: you know, the dystopian the dystopian future.
Speaker 2: Yeah, that AI will just replace them anyway. Also wanted
Speaker 2: to talk about this a bit more from you know,
Speaker 2: the perspective of an Apollo or another pe firm. The
Speaker 2: reason why everything has been pushed are we saying back
Speaker 2: or forward? Probably the reason why later. The reason why
Speaker 2: everything is getting pushed early is theoretically because they want
Speaker 2: the best analysts, and it's almost seems like a trade
Speaker 2: off that to get the best analysts, part of the
Speaker 2: price you pay is probably some of the folks that
Speaker 2: you hire two years early before they have any experiences,
Speaker 2: some of them are going to be duds.
Speaker 1: Oh yeah, yeah, And this is I mean, this is
Speaker 1: what they say when they agree with JA. We want
Speaker 1: to get the recruiting right. You know, I did get
Speaker 1: one reader email. I was like, it's really hard to
Speaker 1: do recruiting. We've never found a way to be really
Speaker 1: like confident that we're getting the right people, and so like,
Speaker 1: who did the good job in the interview and is
Speaker 1: going to Goldman? Is like fine. To me, it seems
Speaker 1: like this would be a bad recruiting system because you
Speaker 1: would not know anything about people's performance. But like the
Speaker 1: counter argument is like, yeah, you never know anything anyway,
Speaker 1: and that's fine, But yeah, I would think that you'd
Speaker 1: get a lot of duds or people who aren't motivated,
Speaker 1: or you know, you'd miss a lot of people who
Speaker 1: like don't have the most prestigious backgrounds. But I actually
Speaker 1: kill it in banking, you know, like like it seems
Speaker 1: like a worst recruit process than like waiting until people
Speaker 1: have like done deals for a while.
Speaker 2: Also, in you know, all the coverage I've read about
Speaker 2: this over the past months, in the past couple of years,
Speaker 2: it just seems like there's only one pipeline to get
Speaker 2: into PEE at the entry level, and that's to come
Speaker 2: from banking. Do they hire from anywhere other than I
Speaker 2: be Yeah.
Speaker 1: You know, historically some number of like management consultants, some
Speaker 1: number of post MBA people. But I think it's increasingly
Speaker 1: hard and increasingly like the pipeline is the pipeline, and
Speaker 1: like there's like one way to do it, you know,
Speaker 1: particularly because they're interviewing so early.
Speaker 2: Well, we'll see how long this truth lasts.
Speaker 1: Yeah, I think there's something interesting, but like people want
Speaker 1: me to be like, if they want to compete for
Speaker 1: the best people want, don't they just wait and pay more.
Speaker 1: There's a weird fungibility about like both the people and
Speaker 1: the firms where it's like we all have to do
Speaker 1: the same recruiting at the same time because we're getting
Speaker 1: the same people to do the same job. Like you
Speaker 1: could have imagine like one private equity firm going to people,
Speaker 1: you know, a week before the job starts and say, look,
Speaker 1: I know you've accepted a job at another private equity firm,
Speaker 1: but like we think you're good, we'll double your salary. Right,
Speaker 1: you could imagine doing that, but I think it's like
Speaker 1: not done and you know, sort of frowned upon. And
Speaker 1: it's like small enough industry that people wouldn't do it.
Speaker 1: But it is a strange thing that everything feels so
Speaker 1: fungible and like, yeah, you know, it's such a direct
Speaker 1: competition for the same people that do the same thing,
Speaker 1: rather than like, you know, trying to differentiate yourself in
Speaker 1: some way other than hiring twenty minutes earlier.
Speaker 2: Yeah, the grand convergence.
Speaker 1: Right. There's a story in the Financial Times about Tower
Speaker 1: Research Capital, the great delightful high fregancy trading firm.
Speaker 2: Yeah, one of the oldest ones. Yeah, if I'm the oldest,
Speaker 2: I don't know.
Speaker 1: It's hard to note what counts as the hypercancy trading firm,
Speaker 1: but they're they're sort of big established hygh frequency training firm,
Speaker 1: and they're starting a they're apparently launching a hedge fund
Speaker 1: to run outside capital because like, you know, your high
Speaker 1: fagency trading firm, you run your own capital. You get
Speaker 1: like market signals that tell you what stocks to buy
Speaker 1: in the next three seconds. Yeah, and like those signals
Speaker 1: throw off enough exhaust that you can be like, I'll
Speaker 1: know what stocks to buy in the next three minutes, right, Yeah,
Speaker 1: you like, you know, you reach your capacity for how
Speaker 1: much of that you can do with your own money,
Speaker 1: and then you're like, well, open up to outside money
Speaker 1: and charge people twenty percent for telling them what stocks
Speaker 1: to buy in the next three hours or whatever. So
Speaker 1: it's an interesting like convergence of like what hedge funds
Speaker 1: do and what hypergency trading firms do.
Speaker 2: Yeah, this is an interesting one. I liked this phrase
Speaker 2: that was in the FT article. Let me find it
Speaker 2: where I put it? In my notes. Oh yeah, I
Speaker 2: like this mid frequency strategies. I haven't heard that before.
Speaker 2: We talked about high frequency, but now we're talking about
Speaker 2: mid frequency.
Speaker 1: Different. I don't know what it means, because, like, I
Speaker 1: think different people have different Like I think there are
Speaker 1: definitely people in the world who you're like, oh, yeah,
Speaker 1: I'm a high frequency trader. I've trade like every couple
Speaker 1: of days, right, But like, yeah, when like HFT people
Speaker 1: say it, they mean, like when HFT people like I
Speaker 1: trade every second, They're like, oh, that's so low frequency.
Speaker 2: What a pedestrian case of trading.
Speaker 1: You know. I've said milliseconds in articles and people have
Speaker 1: been like, seconds are so slow we're even talking about
Speaker 1: but no mid frequency. So we're doing a microsecond and
Speaker 1: an hour. Yeah, I'm sorry, we're doing a microsecond in
Speaker 1: a month somewhere in that range.
Speaker 2: I do like to imagine like a full circle moment though,
Speaker 2: like Tower being an example of Okay, they're you know,
Speaker 2: going out the time spectrum and maybe just we end
Speaker 2: up with long only fund managers at a certain point.
Speaker 1: I don't think we're gonna up. Well, it's sure like
Speaker 1: this is the thing, like people who are doing a
Speaker 1: lot of quantitative research into like signals that tell them
Speaker 1: what stocks to buy and sell. There are different ways
Speaker 1: to use that, and often it's like at different time scales,
Speaker 1: where like if you have like a pretty good method
Speaker 1: for knowing which stocks are likely to go up or down, like,
Speaker 1: one natural thing to do is to like buy the
Speaker 1: ones that'll go up and short the ones that'll go down, right,
Speaker 1: But nothing to do is you buy the ones that
Speaker 1: go up and not short anything and run a long
Speaker 1: only fund, right, And so you have like you know,
Speaker 1: AQR and other people who run you know, hedge funds
Speaker 1: and also are like, well, just take the long signals
Speaker 1: and run long only money because people want long only products.
Speaker 1: Or like, you know, I think about like other examples
Speaker 1: of this kind of thing, and like you look at Renaissance,
Speaker 1: and it's never clear exactly what the dividing line is.
Speaker 1: But like Renaissance, you know, yeah, as a very famous,
Speaker 1: extraordinarily successful hedge fund called Medallion that has been closed
Speaker 1: to outside money for that now because it's too good
Speaker 1: and it only has so much capacity, right, Yeah, And
Speaker 1: so they close it outside money and they run their
Speaker 1: own money and they make themselves billionaires, and then they go, well,
Speaker 1: you know, we have all of us, like you know,
Speaker 1: it's like pretty good signals that you know, like we
Speaker 1: reach capacity on our own money, but like we can
Speaker 1: use those signals to run institutional money and like not
Speaker 1: quite as good but good enough. So there's a lot
Speaker 1: of that where like you know, people who have really
Speaker 1: good signals that have limited capacity will run their own
Speaker 1: money with those really good signals, and then like there's
Speaker 1: some second tier of like we can run other people's
Speaker 1: money and still be pretty good.
Speaker 2: Yeah, I mean other I don't know that.
Speaker 1: Towers advertising that like maybe they're like, oh or like
Speaker 1: mid frequency signals or even better. You should definitely get
Speaker 1: in on this, right, But like I do think in
Speaker 1: renaissance is quite explicitly the case that they're like we
Speaker 1: have really good stuff for us and like okay stuff
Speaker 1: for you.
Speaker 2: Yeah, yeah, I yeah. The article doesn't go into that,
Speaker 2: but it does say that this would mark one of
Speaker 2: the first examples of a large high speed proprietary trading
Speaker 2: shop opening a product for outside investors.
Speaker 1: Yeah sort of. Wellthough, like Jane Streets, it should bombs, right, Yeah,
Speaker 1: not not a product for outside investors per se, but
Speaker 1: like the idea that like you are a big successful
Speaker 1: proprietary trading firm, and so you use outside money to
Speaker 1: grow your business, is not like completely unheard of true?
Speaker 1: And also I think some of them have taken like
Speaker 1: outside equity investments. So I'm not sure about that you.
Speaker 2: Touched on this, but one of the quotes in the article,
Speaker 2: attributed to a person close to Tower is that there's
Speaker 2: just a finite limit to the amount of money that
Speaker 2: you can make with the really high frequency strategies. Why
Speaker 2: is that It's just because they're dealing with the likes
Speaker 2: of Citadel and Jane Street and trying to compete against them,
Speaker 2: or what does that mean?
Speaker 1: Well, like stocks don't go up that much, and so
Speaker 1: is that just in a microsecond?
Speaker 2: Right?
Speaker 1: Like like what is investing? Right? Like you're a sort
Speaker 1: of deep questionnaire. It was like why should you make
Speaker 1: money by buying stocks? Right? And the answer is in
Speaker 1: like the long term, because you're alligating capital to its
Speaker 1: best uses, and you are saying this AI company is
Speaker 1: going to transform the world, and so if I invest
Speaker 1: in it now, it'll like ten x my money because
Speaker 1: like it'll be transformative to the world. Right, And if
Speaker 1: you're like why should you make money holding stocks? For
Speaker 1: like one one thousandth of a second. The answer is
Speaker 1: because you're providing a tiny, tiny liquidity service to somebody, right,
Speaker 1: And like it turns out that you can make a
Speaker 1: really nice living providing a tiny liquidity service to people.
Speaker 1: But you can't, like, you know, make a trillion dollars, right,
Speaker 1: Like you're not like allocating capital to like changing the
Speaker 1: world really yeah, like providing a little service, right, So,
Speaker 1: like there shouldn't be that much money. Like there's a
Speaker 1: lot of money in very high frequency understanding what stocks
Speaker 1: will go up in the next hundredth of a second,
Speaker 1: But there's more money in understanding like how the economy
Speaker 1: will transform the next ten years.
Speaker 2: Right, yeah, Because I wrote that quote and I was like,
Speaker 2: isn't that true of a lot of things? What I mean,
Speaker 2: like there's only a finite amount of money that you.
Speaker 1: Make, Like I don't think that there's Like I think
Speaker 1: the one place where there is not a amount of
Speaker 1: money is in like understanding what companies and technologies will
Speaker 1: be transformative for the world, right, Like if you like
Speaker 1: pick where economic growth will be, like you can make
Speaker 1: a trillion dollars, right, Like not really, but like I
Speaker 1: mean you can't, right I mean, like, you know, Facebook
Speaker 1: is a trillion dollar company, right, you can like know
Speaker 1: what the future will look like and make a trillion
Speaker 1: dollars right, Like you can't? You know, you're like prodding
Speaker 1: a service. Yeah, the bloomit how much money you can make?
Speaker 2: Well, there's a quote in here from a professor over
Speaker 2: at the University of Illinois who also here's another quote
Speaker 2: that just made me think a little bit. If you're
Speaker 2: a firm that gets really good at mining gold, why
Speaker 2: sticks are just mining gold? It's like both That was
Speaker 2: another thinker.
Speaker 1: Mining gold, right, but.
Speaker 2: It's like you.
Speaker 1: Newsletter why Not? Why Not? Podcast? And that was the
Speaker 1: Money Stuff Podcast.
Speaker 2: I'm Matt Luvian and I'm Katie Greifeld.
Speaker 1: You can find my work by subscribing to the Money
Speaker 1: stuffnewsletter on Bloomberg dot com.
Speaker 2: And you can find me on Bloomberg TV every day
Speaker 2: on Open Interest between nine to eleven am Eastern.
Speaker 1: We'd love to hear from you. You can send an
Speaker 1: email to Moneypod at Bloomberg dot net, ask us a
Speaker 1: question and we might answer it on air.
Speaker 2: You can also subscribe to our show wherever you're listening
Speaker 2: right now and leave us a review. It helps more
Speaker 2: people find the show.
Speaker 1: The Money Stuff Podcast is produced by Anna Maserakus and
Speaker 1: Moses onam Our.
Speaker 2: Theme music was composed by Blake Maples.
Speaker 1: Brandon Francis Nunham is our executive.
Speaker 2: Producer, and Stage Bauman is Bloomberg's head of podcasts.
Speaker 1: Thanks for listening to The Money Stuff Podcast. We'll be
Speaker 1: back next week with more stuff