1 00:00:02,720 --> 00:00:07,200 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. 2 00:00:07,960 --> 00:00:12,080 Speaker 2: I'm going to Utah for two days and then I'll 3 00:00:12,080 --> 00:00:16,800 Speaker 2: be back on Friday. So I'm excited going to a 4 00:00:16,800 --> 00:00:18,919 Speaker 2: corporate holiday party. That'll be fun. 5 00:00:18,960 --> 00:00:21,880 Speaker 1: You're going to a corporate holiday party. Yes, I was 6 00:00:21,920 --> 00:00:23,520 Speaker 1: going to say, what if some listeners with the corport 7 00:00:23,520 --> 00:00:25,319 Speaker 1: holiday party, but of course we're going to air this 8 00:00:25,400 --> 00:00:26,800 Speaker 1: on Friday after the party is over. 9 00:00:27,240 --> 00:00:30,400 Speaker 2: Yeah, that's true. So and I'll be back by then. 10 00:00:30,880 --> 00:00:36,120 Speaker 2: It's my husband's company's corporate holiday party, so I'm excited 11 00:00:36,200 --> 00:00:37,120 Speaker 2: to go to it. 12 00:00:37,640 --> 00:00:39,960 Speaker 1: That sounds grennod. It's a two day holiday party in Utah. 13 00:00:40,040 --> 00:00:42,880 Speaker 2: It's on a Wednesday night, which is a little bit difficult, 14 00:00:42,960 --> 00:00:47,000 Speaker 2: but that means I'm gonna fly out Tuesday night, come 15 00:00:47,080 --> 00:00:51,880 Speaker 2: back Thursday night. And I would have taken Friday off 16 00:00:52,520 --> 00:00:57,280 Speaker 2: except Invesco is holding a proxy vote for QQQ, and 17 00:00:57,360 --> 00:00:59,960 Speaker 2: I want to cover it really bad. So you know, 18 00:01:00,040 --> 00:01:01,000 Speaker 2: I was just love the game. 19 00:01:03,000 --> 00:01:05,400 Speaker 1: You got to come back to that proxy yet. 20 00:01:05,120 --> 00:01:07,520 Speaker 2: Yeah, I wish I was kidding. I Actually I am 21 00:01:07,520 --> 00:01:09,000 Speaker 2: psyched for the proxy vote. 22 00:01:09,120 --> 00:01:11,240 Speaker 1: Are they holding an in person meeting? Are you going 23 00:01:11,280 --> 00:01:11,480 Speaker 1: to it? 24 00:01:11,680 --> 00:01:14,360 Speaker 2: They are, but I'm not going to go to it, 25 00:01:14,360 --> 00:01:15,480 Speaker 2: it would be a little intense. 26 00:01:15,680 --> 00:01:17,120 Speaker 1: When I was a young m and I lawyer, I 27 00:01:17,120 --> 00:01:21,760 Speaker 1: went to the shareholder vote for some merger that we did. Yeah, 28 00:01:21,880 --> 00:01:25,040 Speaker 1: it was really sweet, like individual shareholders stood out to 29 00:01:25,040 --> 00:01:26,680 Speaker 1: be like, I just want to thank management for all 30 00:01:26,680 --> 00:01:28,840 Speaker 1: the work they've done and good jobs all in the company. 31 00:01:29,160 --> 00:01:30,720 Speaker 1: It was like in Maine, like I flew to the 32 00:01:30,760 --> 00:01:33,400 Speaker 1: shareholder meeting, not to do anything, just to watch a 33 00:01:33,440 --> 00:01:35,679 Speaker 1: shareholder meeting. I'm really glad I did it. Now I've 34 00:01:35,720 --> 00:01:38,319 Speaker 1: seen a shareholder meeting. You can't really appreciate a shareolder 35 00:01:38,360 --> 00:01:39,240 Speaker 1: meeting until you've been to one. 36 00:01:39,319 --> 00:01:42,000 Speaker 2: That's true. I would be so down, except you know, 37 00:01:42,040 --> 00:01:43,880 Speaker 2: I have to cover for the prince side. I don't 38 00:01:43,880 --> 00:01:45,600 Speaker 2: think that I could get a TV camera in there, 39 00:01:45,640 --> 00:01:47,800 Speaker 2: which might justify me going there in person. 40 00:01:47,840 --> 00:01:49,160 Speaker 1: But it's not a good television. 41 00:01:49,440 --> 00:01:52,960 Speaker 2: It's not good television necessarily, especially. 42 00:01:52,560 --> 00:01:54,240 Speaker 1: For the meeting. It's an exciting per se. 43 00:01:54,800 --> 00:01:57,440 Speaker 2: If the meeting is adjourned, again, what are we going 44 00:01:57,520 --> 00:01:58,279 Speaker 2: to do with the camera. 45 00:01:58,600 --> 00:02:00,280 Speaker 1: I do think that it would be like it would 46 00:02:00,280 --> 00:02:03,280 Speaker 1: be nice to just sort of have like five minutes, yes, 47 00:02:04,720 --> 00:02:07,080 Speaker 1: to be like, well, this meeting was adjourned and it's 48 00:02:07,120 --> 00:02:07,800 Speaker 1: like Sea Span or. 49 00:02:07,760 --> 00:02:10,760 Speaker 2: Something famously good TV. Yeah, but it is easier to 50 00:02:10,840 --> 00:02:13,760 Speaker 2: be at your setup when you're covering a live event. 51 00:02:13,919 --> 00:02:15,680 Speaker 1: I would have been very surprised had you said you 52 00:02:15,680 --> 00:02:16,960 Speaker 1: were going to the in person Sholder. 53 00:02:17,280 --> 00:02:19,880 Speaker 2: God, maybe next time if the meeting it's adjourned again. 54 00:02:20,000 --> 00:02:23,959 Speaker 1: Yeah, once in your life for Scharwolder, meaning it's fun. Hello, 55 00:02:24,280 --> 00:02:27,399 Speaker 1: and welcome to the Money Stuff Podcast, your weekly podcast 56 00:02:27,480 --> 00:02:31,720 Speaker 1: where we talk about stuff related to money. I'm Matt 57 00:02:31,760 --> 00:02:34,560 Speaker 1: Levine and I write the Money Stuff column for Bloomberg Opinion. 58 00:02:35,200 --> 00:02:37,760 Speaker 2: And I'm Katie Greifeld, a reporter for Bloomberg News and 59 00:02:37,800 --> 00:02:39,360 Speaker 2: an anchor for Bloomberg Television. 60 00:02:49,320 --> 00:02:51,600 Speaker 1: I feel like we're here for like the early stages 61 00:02:51,680 --> 00:02:55,200 Speaker 1: of the micro strategy trade, not the strategy trade, and 62 00:02:55,200 --> 00:02:57,919 Speaker 1: now we're like kind of here for kind of kind 63 00:02:57,960 --> 00:03:00,880 Speaker 1: of kind of the end of the micas oenity trade. 64 00:03:01,280 --> 00:03:04,080 Speaker 2: Wow. I was going to say careful, careful. 65 00:03:04,120 --> 00:03:07,400 Speaker 1: Calling the end the end, but like there's been a 66 00:03:07,440 --> 00:03:11,200 Speaker 1: completion of the narrative arc in that strategy. It's called 67 00:03:11,240 --> 00:03:14,680 Speaker 1: strategy officially, yes, thank strategy is now kind of trading 68 00:03:14,760 --> 00:03:19,240 Speaker 1: it pretty close to its non asset value, and the 69 00:03:19,280 --> 00:03:23,200 Speaker 1: whole strategy trade of being we will sell one dollar 70 00:03:23,240 --> 00:03:26,680 Speaker 1: of bitcoin for two dollars on the stock exchange doesn't 71 00:03:26,680 --> 00:03:28,680 Speaker 1: work anymore, and they're kind of trying to figure out 72 00:03:28,720 --> 00:03:29,160 Speaker 1: what's next. 73 00:03:29,960 --> 00:03:33,760 Speaker 2: Yeah, yeah, I mean we're not at one yet, and 74 00:03:33,800 --> 00:03:36,600 Speaker 2: we're certainly not below one yet, but boy, what a 75 00:03:36,640 --> 00:03:38,200 Speaker 2: collapse below one is. 76 00:03:38,280 --> 00:03:42,040 Speaker 1: You know, certainly where some of the strategy skeptics have 77 00:03:43,080 --> 00:03:46,120 Speaker 1: seen it going. And I think we're a ways away 78 00:03:46,120 --> 00:03:49,080 Speaker 1: from below one. They're like one point one five today, 79 00:03:49,200 --> 00:03:51,640 Speaker 1: but you know, it's not you anymore. The bloom is 80 00:03:51,680 --> 00:03:52,920 Speaker 1: a little off the rose. I don't know. 81 00:03:53,000 --> 00:03:55,200 Speaker 2: Yeah, let's time sent this and say we're recording on 82 00:03:55,240 --> 00:03:57,600 Speaker 2: a Tuesday, just in case it goes. 83 00:03:57,440 --> 00:04:01,680 Speaker 1: To like whatever, all wrong. We haven't seen the end 84 00:04:01,680 --> 00:04:02,760 Speaker 1: of that any never mind. 85 00:04:02,840 --> 00:04:07,520 Speaker 2: It's interesting. So the CEO of Strategy fondly he made 86 00:04:07,720 --> 00:04:10,560 Speaker 2: waves last week he said on a different podcast, not 87 00:04:10,640 --> 00:04:14,240 Speaker 2: this one, that if the m NAP does go below one, 88 00:04:14,280 --> 00:04:18,760 Speaker 2: that selling bitcoin is in outside of the realm of possibility. 89 00:04:19,160 --> 00:04:21,640 Speaker 2: That was on Friday. On Monday of this week, I 90 00:04:21,680 --> 00:04:25,000 Speaker 2: believe it was that they announced that they're building up 91 00:04:25,040 --> 00:04:30,880 Speaker 2: a one point four billion dollar dollar reserve, which is amazing. 92 00:04:31,000 --> 00:04:33,720 Speaker 1: Such it is, but. 93 00:04:33,760 --> 00:04:36,440 Speaker 2: It's also amazing because you think about in the same 94 00:04:36,480 --> 00:04:39,719 Speaker 2: way that we know started talking about the strategy trade 95 00:04:39,760 --> 00:04:42,719 Speaker 2: early and now we're sort of seeing it full circle. 96 00:04:43,120 --> 00:04:46,800 Speaker 2: You think back to when Michael Saylor first announced in 97 00:04:46,839 --> 00:04:50,200 Speaker 2: twenty twenty that they were going to be buying bitcoin. 98 00:04:50,240 --> 00:04:52,159 Speaker 2: It was all about the debasement of the dollar, and 99 00:04:52,160 --> 00:04:55,200 Speaker 2: they were worried about their dollar reserves basically being a 100 00:04:55,279 --> 00:04:58,919 Speaker 2: melting ice cube. Now you fast forward five years plus 101 00:04:58,960 --> 00:05:01,800 Speaker 2: and they're back buying dollars. 102 00:05:02,080 --> 00:05:06,040 Speaker 1: No, I completely disagree. I do not believe that when 103 00:05:06,080 --> 00:05:08,599 Speaker 1: they announced the strategy it was about the debatement at 104 00:05:08,640 --> 00:05:11,520 Speaker 1: the dollar, or that they were seriously sitting there thinking, oh, no, 105 00:05:11,880 --> 00:05:14,520 Speaker 1: if we hold dollars in our corporate treasury, they'll become 106 00:05:14,560 --> 00:05:16,839 Speaker 1: worthless and we won't be a real company. Like I 107 00:05:16,880 --> 00:05:18,560 Speaker 1: don't believe that at all. I understand they said it. 108 00:05:18,600 --> 00:05:21,360 Speaker 1: I just like, this is a capital market strategy where 109 00:05:21,360 --> 00:05:23,080 Speaker 1: like people wanted bitcoin and they're like, we're gonna give 110 00:05:23,080 --> 00:05:25,360 Speaker 1: the people what they want. I do not believe that 111 00:05:25,400 --> 00:05:27,720 Speaker 1: they believed that the dollar was going to be worthless. 112 00:05:27,800 --> 00:05:30,120 Speaker 1: But secondly, whatever they were doing five years ago, like 113 00:05:30,279 --> 00:05:33,000 Speaker 1: you know, they needed cash for corporate purposes, blah, blah blah, 114 00:05:33,040 --> 00:05:36,800 Speaker 1: whatever the dollaries are of today is a very different situation, 115 00:05:36,920 --> 00:05:39,840 Speaker 1: which is that in the intervening five years, they've raised 116 00:05:41,040 --> 00:05:45,719 Speaker 1: billions and billions of dollars of fixed income securities, some 117 00:05:45,880 --> 00:05:48,880 Speaker 1: of it like very low coupon convertible bonds, but a 118 00:05:48,920 --> 00:05:52,240 Speaker 1: lot of it very high coupon preferred stock. They've been 119 00:05:52,240 --> 00:05:56,000 Speaker 1: doing a lot of like fixed income ten percent preferreds. 120 00:05:57,279 --> 00:06:00,160 Speaker 1: There was this period where they were not trading a 121 00:06:00,240 --> 00:06:03,159 Speaker 1: huge premium, so issuing stock to buy bitcoin is not 122 00:06:03,240 --> 00:06:05,760 Speaker 1: super accreative. But bitcoin is still going up, and so 123 00:06:05,800 --> 00:06:07,919 Speaker 1: if you issue a preferred stock at ten percent to 124 00:06:07,920 --> 00:06:10,000 Speaker 1: buy bitcoin that's going up at like twenty percent a year, 125 00:06:10,200 --> 00:06:12,160 Speaker 1: then that's in a creative trade. And so they did 126 00:06:12,160 --> 00:06:15,040 Speaker 1: a lot of that trade. But when bitcoin is going down, 127 00:06:15,080 --> 00:06:16,760 Speaker 1: that's not in a creative trade because you're still paying 128 00:06:16,760 --> 00:06:18,320 Speaker 1: the ten percent interest in you're paying the ten percent 129 00:06:18,320 --> 00:06:20,320 Speaker 1: interest forever. And the other thing that's happening is you 130 00:06:20,320 --> 00:06:23,039 Speaker 1: have to pay the interest in cash. Yes, it's a 131 00:06:23,040 --> 00:06:25,039 Speaker 1: preferred stock, so they can turn off the interest, but 132 00:06:25,160 --> 00:06:27,640 Speaker 1: that's a bad look. But so basically they've incurred like 133 00:06:27,839 --> 00:06:30,320 Speaker 1: hundreds of millions of dollars a quarter of they call 134 00:06:30,360 --> 00:06:32,640 Speaker 1: it dividends, but essentially interesting expense on the money they 135 00:06:32,640 --> 00:06:35,120 Speaker 1: borrowed to buy bitcoin. And where do you get the 136 00:06:35,200 --> 00:06:39,479 Speaker 1: money to pay that? It's always been a concern, and 137 00:06:39,720 --> 00:06:41,400 Speaker 1: the answer has been kind of If you sell a 138 00:06:41,440 --> 00:06:44,640 Speaker 1: lot of stock every quarter and you use most of 139 00:06:44,680 --> 00:06:47,320 Speaker 1: that stock to buy bitcoin in a creative way, and 140 00:06:47,360 --> 00:06:49,120 Speaker 1: you use some of the stock to pay interest on 141 00:06:49,160 --> 00:06:51,920 Speaker 1: your debt, I'm like, yeah, whatever, it's fine, right, But like, 142 00:06:52,600 --> 00:06:57,960 Speaker 1: once that trade stops working and you still need to 143 00:06:57,960 --> 00:07:01,480 Speaker 1: pay that interest, then you're kind of in a situation 144 00:07:01,680 --> 00:07:05,640 Speaker 1: that strategy is in, which is you just sell a 145 00:07:05,720 --> 00:07:08,440 Speaker 1: billion dollars worth of stock to pay the dividends on 146 00:07:08,520 --> 00:07:12,600 Speaker 1: your preferred stock, which is not like a great situation. No, 147 00:07:12,720 --> 00:07:15,720 Speaker 1: you don't love that, right, you don't love that. 148 00:07:16,040 --> 00:07:17,040 Speaker 2: No, for reasons. 149 00:07:17,760 --> 00:07:20,760 Speaker 1: One reason is people use the P word when you 150 00:07:20,840 --> 00:07:23,320 Speaker 1: do that. Oh, I would not personally. 151 00:07:23,040 --> 00:07:26,240 Speaker 2: Use the P word here. 152 00:07:27,400 --> 00:07:30,680 Speaker 1: You know, there's something ponzi like about selling stock to 153 00:07:30,800 --> 00:07:33,400 Speaker 1: raise money to pay the ten percent return that you 154 00:07:33,440 --> 00:07:36,800 Speaker 1: promised previous investors. Right, I don't think that I would 155 00:07:36,800 --> 00:07:41,280 Speaker 1: not personally use the Ponzi word about this trade, because 156 00:07:41,320 --> 00:07:43,640 Speaker 1: there's a lot going on here it's all pretty transparent. 157 00:07:43,920 --> 00:07:46,720 Speaker 1: It's fine, but you know, some people email me maybe 158 00:07:47,640 --> 00:07:48,520 Speaker 1: you know it's not the same. 159 00:07:48,560 --> 00:07:53,200 Speaker 2: Yeah, great, No, it doesn't feel good to raise money 160 00:07:53,200 --> 00:07:57,480 Speaker 2: from new investors to pay off your existing investors. We 161 00:07:57,520 --> 00:08:00,400 Speaker 2: actually spoke to the CEO of Strategy on Tuesday on 162 00:08:00,440 --> 00:08:04,600 Speaker 2: Bloomberg Television fondly, and we did ask, I mean, would 163 00:08:04,640 --> 00:08:07,640 Speaker 2: you ever suspend the dividends? And he basically said, what 164 00:08:07,880 --> 00:08:10,400 Speaker 2: you said, that that would create a lot of fear, 165 00:08:10,600 --> 00:08:14,400 Speaker 2: a lot of uncertainty, a lot of doubt, fud perhaps, 166 00:08:14,640 --> 00:08:17,600 Speaker 2: But he did also say, I mean, I asked him, 167 00:08:17,640 --> 00:08:21,440 Speaker 2: you know, how would you prioritize suspending the dividend versus 168 00:08:21,520 --> 00:08:24,880 Speaker 2: selling bitcoin? And he said that basically, the idea is 169 00:08:24,960 --> 00:08:27,360 Speaker 2: that they're creating this reserve, and they're going to build 170 00:08:27,360 --> 00:08:30,640 Speaker 2: this reserve and perpetuity. Maybe they'll revisit it in a 171 00:08:30,680 --> 00:08:37,040 Speaker 2: decade or so in hopes of pushing out building a yeah, 172 00:08:37,320 --> 00:08:40,559 Speaker 2: building a buffer so that they'll have enough to cover 173 00:08:40,880 --> 00:08:44,560 Speaker 2: their interest in dividend payments until twenty twenty eight. And 174 00:08:44,600 --> 00:08:46,800 Speaker 2: then I guess we'll see you know where we are 175 00:08:46,920 --> 00:08:49,520 Speaker 2: actually in twenty twenty eight, which will be interesting. 176 00:08:50,000 --> 00:08:53,439 Speaker 1: Right, I mean, like to me their calculation is fairly straightforward. Right, 177 00:08:53,520 --> 00:08:56,040 Speaker 1: If they trade at like a premium, even a small 178 00:08:56,080 --> 00:09:00,320 Speaker 1: premium to their net asset value, then they should sell 179 00:09:00,360 --> 00:09:05,400 Speaker 1: stock at a premium to net asset value to handle 180 00:09:05,400 --> 00:09:08,160 Speaker 1: all of their problems, including paying dividends on the preferred. Right, 181 00:09:08,720 --> 00:09:11,160 Speaker 1: cutting off dividends on the preferred is a terrible situation. 182 00:09:11,240 --> 00:09:13,120 Speaker 1: It kind of ends the trade. It like makes you 183 00:09:13,200 --> 00:09:15,959 Speaker 1: no longer able to access capital markets in the way 184 00:09:15,960 --> 00:09:17,840 Speaker 1: they want to hear it. That's your last choice, right, 185 00:09:18,040 --> 00:09:19,720 Speaker 1: but your first choice is like, if the stock is 186 00:09:19,720 --> 00:09:21,959 Speaker 1: trading at a premium, you sell stock. If the stock 187 00:09:22,040 --> 00:09:26,000 Speaker 1: is trading at a discount, you sell bitcoin. You know, 188 00:09:26,240 --> 00:09:29,559 Speaker 1: you sell bitcoin. You don't love it. You were planning 189 00:09:29,559 --> 00:09:32,960 Speaker 1: to hold the bitcoin forever, but you did a great 190 00:09:33,000 --> 00:09:35,400 Speaker 1: trade selling all the stock at a premium, and now 191 00:09:35,600 --> 00:09:37,559 Speaker 1: you get to do the reverse trade, which is buying 192 00:09:37,559 --> 00:09:41,720 Speaker 1: the stock at a discount by selling bitcoin. I don't know. Yeah, 193 00:09:41,840 --> 00:09:43,760 Speaker 1: they might take a different view from me, but like, 194 00:09:44,000 --> 00:09:45,800 Speaker 1: if it were me and my stock was trading at 195 00:09:45,800 --> 00:09:47,880 Speaker 1: a discount to net asset value, I'd be selling bitcoin 196 00:09:47,920 --> 00:09:48,600 Speaker 1: and bond stock. 197 00:09:49,120 --> 00:09:51,680 Speaker 2: Yeah, I mean, we'll see how this evolves. I do 198 00:09:51,720 --> 00:09:55,960 Speaker 2: think it's an interesting moment where you're really reminded that 199 00:09:56,040 --> 00:09:59,000 Speaker 2: Michael Saylor is not the CEO. He hasn't been the 200 00:09:59,040 --> 00:10:00,520 Speaker 2: CEO for several years now. 201 00:10:00,559 --> 00:10:03,679 Speaker 1: He's because you booked the CEO on TV. 202 00:10:04,440 --> 00:10:07,640 Speaker 2: I know. But also, I mean, listen all the articles. 203 00:10:08,120 --> 00:10:11,360 Speaker 2: Can you imagine Michael Saylor saying we might have to 204 00:10:11,400 --> 00:10:15,600 Speaker 2: sell bitcoin? I cannot, I cannot. I guess you're right, 205 00:10:16,200 --> 00:10:19,120 Speaker 2: Thank you. I think I am right in this situation. 206 00:10:19,679 --> 00:10:21,640 Speaker 1: Right, Like, if you're a true believer, then you're like, 207 00:10:21,760 --> 00:10:23,640 Speaker 1: I'm in the business of buying bitcoin. I never saw it. 208 00:10:23,880 --> 00:10:27,000 Speaker 1: If you're just like the other two hundred digital asset 209 00:10:27,000 --> 00:10:30,760 Speaker 1: treasury companies, you're like, I'm in the business of doing 210 00:10:30,760 --> 00:10:33,760 Speaker 1: a lucrative arbitrage trade. And if he's not trading at 211 00:10:33,760 --> 00:10:36,080 Speaker 1: twice the value of my bitcoin, I'm selling stock. And 212 00:10:36,120 --> 00:10:37,760 Speaker 1: if it's trading at half the value of my bedcoin, 213 00:10:37,840 --> 00:10:40,480 Speaker 1: I'm selling bitcoin. Should we talk about. 214 00:10:40,360 --> 00:10:43,640 Speaker 2: Ms C I, Oh, yeah, we should. I asked him 215 00:10:43,640 --> 00:10:46,959 Speaker 2: about that. So ms C I I wrote a newsletter 216 00:10:47,120 --> 00:10:52,080 Speaker 2: on this because I also have a newsletterletter. Yes you 217 00:10:52,120 --> 00:10:58,160 Speaker 2: did in your newsletter or aboris of newsletters. But MSc 218 00:10:58,320 --> 00:11:01,240 Speaker 2: I in mid October for contacts, I guess no one 219 00:11:01,280 --> 00:11:03,640 Speaker 2: really noticed it until JP Morgan pointed it out in 220 00:11:03,679 --> 00:11:06,760 Speaker 2: a research note, But MSCI said that it was looking 221 00:11:06,800 --> 00:11:10,959 Speaker 2: at whether or not digital asset treasury companies dats, if 222 00:11:10,960 --> 00:11:14,480 Speaker 2: you will, look more like investment funds than traditional companies, 223 00:11:15,000 --> 00:11:16,640 Speaker 2: and they propose have. 224 00:11:16,559 --> 00:11:17,680 Speaker 1: An answer to that question. 225 00:11:17,800 --> 00:11:23,080 Speaker 2: Basically, they proposed excluding dats from their indices. The decision 226 00:11:23,200 --> 00:11:27,080 Speaker 2: is coming in January, I believe, But obviously that would 227 00:11:27,080 --> 00:11:29,920 Speaker 2: be bad news bearers for strategy and all these dats. 228 00:11:30,480 --> 00:11:35,480 Speaker 1: Yeah, right, there are various rationales for a DAT, but 229 00:11:35,640 --> 00:11:38,920 Speaker 1: surely one of them is like, there is some audience 230 00:11:38,960 --> 00:11:43,800 Speaker 1: of stock investors who can buy corporate stocks but can't 231 00:11:43,840 --> 00:11:49,400 Speaker 1: buy cryptodirectly or even crypto ETFs, and so one thing 232 00:11:49,440 --> 00:11:51,880 Speaker 1: you are doing is appealing to that audience. And who 233 00:11:51,960 --> 00:11:55,440 Speaker 1: is that audience? I mean it is to some extent 234 00:11:56,120 --> 00:11:58,280 Speaker 1: boomer retail investors who like don't want to open a 235 00:11:58,320 --> 00:12:00,800 Speaker 1: crypto account or even deal with ets, right. It is 236 00:12:00,840 --> 00:12:04,240 Speaker 1: to some extent like fundamental lung on the equity investors 237 00:12:04,240 --> 00:12:06,240 Speaker 1: like Capital Group, which is a big sharldeer of strategy, 238 00:12:06,720 --> 00:12:11,280 Speaker 1: who like the trade and would feel weird buying a 239 00:12:11,320 --> 00:12:15,720 Speaker 1: bitcoin ETF, but like getting crypto exposure through Strategy, and 240 00:12:15,760 --> 00:12:18,400 Speaker 1: then it is a very large extent passive equity investors 241 00:12:18,400 --> 00:12:21,000 Speaker 1: who will buy the index. And if you cut out that, 242 00:12:21,320 --> 00:12:24,640 Speaker 1: then you lose a lot of demand for digital acid 243 00:12:24,640 --> 00:12:27,280 Speaker 1: treasury stock. And maybe you take that last leg down 244 00:12:27,320 --> 00:12:30,520 Speaker 1: from a small premium to the net asset value to 245 00:12:31,120 --> 00:12:34,000 Speaker 1: you know, a small discount. Maybe. 246 00:12:34,280 --> 00:12:36,920 Speaker 2: Yeah. Well, the fun thing is that you know this 247 00:12:37,000 --> 00:12:41,000 Speaker 2: decision point is coming up in January. I'm curious to 248 00:12:41,040 --> 00:12:45,400 Speaker 2: see a situation where MSCI says that, okay, Strategy is 249 00:12:46,000 --> 00:12:49,520 Speaker 2: an investment fund, we can't have it in our index. 250 00:12:49,960 --> 00:12:51,960 Speaker 2: But then you think about the NASAQ one hundred. They 251 00:12:51,960 --> 00:12:55,080 Speaker 2: went through this whole thing when they added Strategy to 252 00:12:55,080 --> 00:12:57,720 Speaker 2: the Nasdaq one hundred, and they landed on the side 253 00:12:57,760 --> 00:13:01,400 Speaker 2: of this is a company, this is an operating company. 254 00:13:01,800 --> 00:13:04,480 Speaker 2: So you could have a situation where MSCI is treating 255 00:13:04,600 --> 00:13:07,040 Speaker 2: Strategy one way and NASTAC is treating it another. 256 00:13:08,160 --> 00:13:10,360 Speaker 1: Yeah. A couple of points there. One like there's like 257 00:13:10,600 --> 00:13:15,040 Speaker 1: ten thousand dats and like, yes, they're all investment funds, 258 00:13:15,559 --> 00:13:21,440 Speaker 1: and maybe Strategy is the biggest exception. Maybe like Strategy 259 00:13:21,440 --> 00:13:24,400 Speaker 1: has a real business, like a software business that is 260 00:13:24,440 --> 00:13:26,760 Speaker 1: at this point a teeny tiny fraction of the size 261 00:13:26,760 --> 00:13:29,200 Speaker 1: if it's pot of bitcoin. But like, yeah, it's a business. 262 00:13:29,240 --> 00:13:31,640 Speaker 1: You know, you get to eat, like you know, and 263 00:13:31,720 --> 00:13:34,840 Speaker 1: every dat has some fig leaf like that, but strategy 264 00:13:34,960 --> 00:13:37,319 Speaker 1: is probably bigger than most. The other thing I'll say 265 00:13:37,400 --> 00:13:41,240 Speaker 1: is like when NASDAG made this decision, it was trading 266 00:13:41,240 --> 00:13:43,600 Speaker 1: at a premium and bitcoin is going up, right, and 267 00:13:43,679 --> 00:13:47,040 Speaker 1: so like these are sort of like decisions influenced by 268 00:13:47,320 --> 00:13:49,880 Speaker 1: real world politics, right, where like if you are an 269 00:13:49,880 --> 00:13:52,880 Speaker 1: index provider, one thing that happens is like there are 270 00:13:52,920 --> 00:13:56,280 Speaker 1: index funds and just other like you know, benchmarked investors 271 00:13:56,400 --> 00:13:57,720 Speaker 1: who go to you own are like, I want to 272 00:13:57,720 --> 00:13:59,920 Speaker 1: own strategy. It keeps going up, and so then you 273 00:14:00,040 --> 00:14:03,240 Speaker 1: put it in your index, right whereas MSCI is looking 274 00:14:03,240 --> 00:14:05,280 Speaker 1: at it in a different context where it's been going 275 00:14:05,320 --> 00:14:08,000 Speaker 1: down and they're like, wow, yeah, get it out of 276 00:14:08,000 --> 00:14:10,640 Speaker 1: the index. Which is you know, it's badly cyclical and 277 00:14:10,760 --> 00:14:13,280 Speaker 1: that you know, you make the index ones by it 278 00:14:13,280 --> 00:14:14,680 Speaker 1: when it's going up, and then you make them sell 279 00:14:14,679 --> 00:14:16,520 Speaker 1: it when it's calmed down. But you know, it's still 280 00:14:16,559 --> 00:14:35,360 Speaker 1: there's there's some of that that element to it. All. 281 00:14:35,440 --> 00:14:38,440 Speaker 2: Right, let's try to say it. So we're going to 282 00:14:38,520 --> 00:14:43,400 Speaker 2: talk about We're gonna talk about Bill Lackman, the Man. 283 00:14:43,920 --> 00:14:45,960 Speaker 2: We need to talk about Bill Lackman the Bird a 284 00:14:46,000 --> 00:14:49,720 Speaker 2: little bit. Unfortunately, my good friend Bi Lackman the Bird 285 00:14:50,320 --> 00:14:53,480 Speaker 2: passed away in the last couple of months. I haven't 286 00:14:53,480 --> 00:14:57,360 Speaker 2: been telling you, our dear podcast audience, because it's been 287 00:14:57,480 --> 00:14:59,640 Speaker 2: very difficult for me. I knew that when we took 288 00:14:59,720 --> 00:15:02,520 Speaker 2: in friend of the Show, Bill Ackman, that it was 289 00:15:02,560 --> 00:15:07,040 Speaker 2: going to be touch and go, and unfortunately he did pass. 290 00:15:07,400 --> 00:15:10,640 Speaker 2: But I'm really happy for the time that we spent 291 00:15:10,720 --> 00:15:12,560 Speaker 2: with him. I think that, you know, the months that 292 00:15:12,640 --> 00:15:15,760 Speaker 2: he did spend with me and my parents. You know, 293 00:15:16,000 --> 00:15:17,920 Speaker 2: he was on this earth for a little bit longer 294 00:15:17,920 --> 00:15:21,280 Speaker 2: than he would have been, and it's very painful, but 295 00:15:21,640 --> 00:15:23,720 Speaker 2: you know, it was a beautiful couple of months. And 296 00:15:24,480 --> 00:15:28,600 Speaker 2: he came to us right after my pony Batman had passed, 297 00:15:28,600 --> 00:15:31,640 Speaker 2: and certainly he was a wonderful bit of joy. So 298 00:15:32,920 --> 00:15:36,440 Speaker 2: that's why we've been a little bit mum on mister Bird. 299 00:15:36,720 --> 00:15:38,680 Speaker 2: But he is flying high in bird Heaven. 300 00:15:40,920 --> 00:15:45,360 Speaker 1: I'm sorry for very well thanks. I do worry that 301 00:15:45,480 --> 00:15:49,440 Speaker 1: someone who hasn't listened to previous episodes will be very 302 00:15:49,480 --> 00:15:51,680 Speaker 1: confused about how Bill Blackman came into your and your 303 00:15:51,680 --> 00:15:54,120 Speaker 1: family's life for a few months. And I want to 304 00:15:54,120 --> 00:15:58,400 Speaker 1: be clear, Katie rescued a bird and on the podcast 305 00:15:58,440 --> 00:16:01,320 Speaker 1: we jokingly named the bird friend of the show Bill Ackmam, 306 00:16:02,120 --> 00:16:05,760 Speaker 1: but it was not the actual hedgehong manager black When 307 00:16:05,760 --> 00:16:06,600 Speaker 1: it's just the bird. 308 00:16:07,000 --> 00:16:09,800 Speaker 2: I really didn't want to talk about it. But like 309 00:16:09,920 --> 00:16:12,720 Speaker 2: even last week, I was interviewing this guy from Vanguard 310 00:16:12,760 --> 00:16:15,440 Speaker 2: and he said, there's three guys on my desk who 311 00:16:15,880 --> 00:16:19,040 Speaker 2: want me to ask you about Friend of the Show 312 00:16:19,120 --> 00:16:22,600 Speaker 2: Bill Ackman. And I was like, oh, yeah, he's a bird. 313 00:16:23,280 --> 00:16:26,120 Speaker 2: So people are like reach out to me and ask 314 00:16:26,200 --> 00:16:29,400 Speaker 2: about him. So, yeah, that's weird to talk about the 315 00:16:29,440 --> 00:16:35,360 Speaker 2: man without talking about the all right, So Bill Ackman, 316 00:16:35,560 --> 00:16:37,920 Speaker 2: Bill Ackman, the hedge fund manager, He's at it again. 317 00:16:38,520 --> 00:16:41,440 Speaker 1: He's really like, he really has got it in his 318 00:16:41,520 --> 00:16:43,680 Speaker 1: head that he wants to do a closed end fund 319 00:16:43,720 --> 00:16:47,440 Speaker 1: in the US that tradesit a premium. And he doesn't 320 00:16:47,440 --> 00:16:49,200 Speaker 1: correct that nut yet, but he keeps work. 321 00:16:49,200 --> 00:16:53,240 Speaker 2: Come on, yeah he does. So. Bloomberg News reported that 322 00:16:53,280 --> 00:16:57,920 Speaker 2: he's aiming to raise five billion dollars for his US 323 00:16:57,960 --> 00:17:01,240 Speaker 2: listed closed end funds. Listeners of this podcast will remember 324 00:17:01,280 --> 00:17:04,240 Speaker 2: that he tried this a few months ago, maybe a 325 00:17:04,280 --> 00:17:06,320 Speaker 2: year ago, over a year ago at this point actually, 326 00:17:06,720 --> 00:17:09,240 Speaker 2: and initially I think his target was as much as 327 00:17:09,280 --> 00:17:13,679 Speaker 2: twenty five billion dollars, so, you know, the valuation a 328 00:17:13,680 --> 00:17:17,680 Speaker 2: little bit less ambitious this time around. And he's also 329 00:17:17,880 --> 00:17:20,720 Speaker 2: trying to sweeten it a bit by giving investors in 330 00:17:20,760 --> 00:17:24,879 Speaker 2: the funds some shares in Pershing Square Capital, the hedge 331 00:17:24,880 --> 00:17:26,520 Speaker 2: fund that he's also trying to IPO. 332 00:17:26,880 --> 00:17:29,600 Speaker 1: Yeah, the problem that he ran into is that it's 333 00:17:29,680 --> 00:17:33,159 Speaker 1: really important that you sell shares of a closed end 334 00:17:33,240 --> 00:17:38,000 Speaker 1: fund at a premium to net asset value of a 335 00:17:38,040 --> 00:17:42,520 Speaker 1: new one, because that's how you raise the net asset value. Rightly, 336 00:17:42,600 --> 00:17:44,760 Speaker 1: you can'not sell them at a premium to net asset value. 337 00:17:45,040 --> 00:17:48,520 Speaker 1: And he thought that he would solve that problem by 338 00:17:48,640 --> 00:17:52,000 Speaker 1: just telling everyone that he was amazing and therefore they 339 00:17:52,000 --> 00:17:54,320 Speaker 1: should buy shares at a premiums and net asset value 340 00:17:54,440 --> 00:17:58,120 Speaker 1: because he would compound their money much faster than other 341 00:17:58,160 --> 00:18:02,920 Speaker 1: alternatives would. And that didn't work. So he's trying something else, 342 00:18:03,119 --> 00:18:06,199 Speaker 1: which is, you know, the obvious solution is like you 343 00:18:06,280 --> 00:18:08,480 Speaker 1: give people a sweetener. Basically, like Bill Ackman has to 344 00:18:08,560 --> 00:18:13,160 Speaker 1: kick in some value to make the shares worth more 345 00:18:13,200 --> 00:18:16,120 Speaker 1: than what people pay for them, but like still, you know, 346 00:18:16,520 --> 00:18:18,800 Speaker 1: people pay more than what goes into the pot. And 347 00:18:18,880 --> 00:18:21,000 Speaker 1: so that's the plan, which is basically like if you 348 00:18:21,119 --> 00:18:23,240 Speaker 1: do the IPO of the clothes then fund at the 349 00:18:23,280 --> 00:18:25,520 Speaker 1: same time you do the IPO of the management company, 350 00:18:25,680 --> 00:18:27,679 Speaker 1: which seems to be kind of the plan, then you 351 00:18:27,720 --> 00:18:30,280 Speaker 1: have a managing company which is worth ten billion dollars 352 00:18:30,440 --> 00:18:32,359 Speaker 1: was a number of that, and then their last round 353 00:18:32,960 --> 00:18:34,679 Speaker 1: and you give you know, ten percent of the managing 354 00:18:34,720 --> 00:18:36,760 Speaker 1: company to the investors in the clothes Unfund like ooh, 355 00:18:36,760 --> 00:18:39,239 Speaker 1: they got a nice like billion dollar sweetener, and then 356 00:18:39,240 --> 00:18:42,000 Speaker 1: they're willing to buy shares in the clothes end fund 357 00:18:42,520 --> 00:18:44,840 Speaker 1: and the math all works right, and then you know, 358 00:18:44,920 --> 00:18:47,160 Speaker 1: the next day, like you separate the sweetener and maybe 359 00:18:47,200 --> 00:18:50,600 Speaker 1: the clothes un Fund trades it a discount the NASSA value, 360 00:18:50,600 --> 00:18:52,920 Speaker 1: but yeah, that's a problem for another day. Yeah, or 361 00:18:52,960 --> 00:18:55,520 Speaker 1: maybe it trades at a premium, right, maybe, like it 362 00:18:55,560 --> 00:18:57,760 Speaker 1: was hard to bootstrap this, but once it gets going, 363 00:18:57,800 --> 00:18:59,400 Speaker 1: everyone will be like, oh, wow, he really is good 364 00:18:59,400 --> 00:19:02,119 Speaker 1: at managing money, and the thing will trade it a premium. 365 00:19:02,520 --> 00:19:03,320 Speaker 1: Doesn't happen a lot? 366 00:19:03,880 --> 00:19:06,600 Speaker 2: Yeah, And I mean he has the hard fact that 367 00:19:06,640 --> 00:19:09,920 Speaker 2: you think about his European listed closed end funds. 368 00:19:10,280 --> 00:19:11,920 Speaker 1: Sure, there's not a ton of precedent. 369 00:19:12,960 --> 00:19:16,640 Speaker 2: Yeah, it's trading at a twenty five percent discount right now, and. 370 00:19:16,600 --> 00:19:18,760 Speaker 1: There are reasons there are distinctions. 371 00:19:18,800 --> 00:19:23,399 Speaker 2: But yeah, yeah, it's a similar idea. So I was 372 00:19:23,400 --> 00:19:24,640 Speaker 2: going to say, I thought you were going to say, 373 00:19:24,640 --> 00:19:27,399 Speaker 2: the obvious solution here is to just launch this in 374 00:19:27,440 --> 00:19:31,199 Speaker 2: an et That seems no wrong. My mind wants to 375 00:19:31,240 --> 00:19:32,879 Speaker 2: go tell me why that doesn't make sense. 376 00:19:33,200 --> 00:19:35,320 Speaker 1: Bill Eman is a good investing track record, but like 377 00:19:35,640 --> 00:19:37,600 Speaker 1: the best thing he did was he was early to 378 00:19:37,760 --> 00:19:40,960 Speaker 1: permanent capital for Hedgehong managers. I have written a lot 379 00:19:41,119 --> 00:19:43,320 Speaker 1: that like the important job of Hedgehong manager is not 380 00:19:43,359 --> 00:19:45,320 Speaker 1: to pick the stocks they go up, but to continue 381 00:19:45,320 --> 00:19:47,560 Speaker 1: managing a hedge fund. And Bill Ackman, by launching a 382 00:19:47,600 --> 00:19:50,880 Speaker 1: closed un fund in Europe, has given himself permanent capital 383 00:19:51,680 --> 00:19:54,640 Speaker 1: in a way that like allows him to be patient 384 00:19:54,920 --> 00:19:56,680 Speaker 1: and not worry about making You know, it's the best 385 00:19:56,680 --> 00:19:59,480 Speaker 1: possible set up for hedgeloont manager. First, Yeah, it is 386 00:19:59,520 --> 00:20:01,199 Speaker 1: just not that this is not permanent capital, Like it 387 00:20:01,200 --> 00:20:03,439 Speaker 1: doesn't solve any of the problems he wants to address. 388 00:20:03,640 --> 00:20:06,120 Speaker 2: Yeah, I hear what you're saying. Can I say one 389 00:20:06,119 --> 00:20:08,080 Speaker 2: more thing about ETF's ok I'm just going to borrow 390 00:20:08,160 --> 00:20:11,359 Speaker 2: some logic from Bloomberg Intelligence. They wrote a note about 391 00:20:11,359 --> 00:20:14,000 Speaker 2: this saying Acman tries again at a closed end fund. 392 00:20:14,480 --> 00:20:17,000 Speaker 2: I hear your point on permanent capital. They make the 393 00:20:17,040 --> 00:20:21,439 Speaker 2: point that, Okay, you raise capital once at IPO, and 394 00:20:21,480 --> 00:20:24,359 Speaker 2: then you typically struggle to grow beyond that initial capital, 395 00:20:24,400 --> 00:20:27,200 Speaker 2: Whereas there's plenty of examples at this point of like 396 00:20:27,480 --> 00:20:31,760 Speaker 2: big names coming into the ETF rapper and raising billions 397 00:20:31,760 --> 00:20:34,800 Speaker 2: of dollars. And if you're so confident that you are 398 00:20:34,840 --> 00:20:38,639 Speaker 2: such a good hedge fund manager, why not launch in 399 00:20:38,720 --> 00:20:42,840 Speaker 2: the ETF and just hope that that capital doesn't leave 400 00:20:42,880 --> 00:20:45,040 Speaker 2: because they're so satisfied with your performance. 401 00:20:45,800 --> 00:20:50,760 Speaker 1: I just think that if you plan to do long 402 00:20:50,880 --> 00:20:55,359 Speaker 1: term investing that requires you to commit the whole stakes 403 00:20:55,359 --> 00:20:57,600 Speaker 1: for a long time, or like buy private companies, you 404 00:20:57,920 --> 00:21:01,320 Speaker 1: can't do concentrated long term. I'm investing in the form 405 00:21:01,320 --> 00:21:03,800 Speaker 1: of an ETF. I understand people do some of it, 406 00:21:03,840 --> 00:21:06,119 Speaker 1: but it's not it's not the right vehicle. 407 00:21:06,320 --> 00:21:10,480 Speaker 2: I think I disagree on that point, but it's okay. 408 00:21:10,680 --> 00:21:13,080 Speaker 1: I do love an ETF. I do we are we 409 00:21:13,080 --> 00:21:15,840 Speaker 1: talking about Howard Hughes, which is that when the Clothes 410 00:21:15,840 --> 00:21:18,360 Speaker 1: then Fund didn't work, when he couldn't launch this twenty 411 00:21:18,400 --> 00:21:20,440 Speaker 1: five billion dollar clothing fund, he was like, we're gonna 412 00:21:20,440 --> 00:21:22,640 Speaker 1: team up with Howard Hughes. Howard Hughes is already public company. 413 00:21:22,680 --> 00:21:24,640 Speaker 1: He was a big shareholder, he bought more shares. He's 414 00:21:24,720 --> 00:21:27,239 Speaker 1: the chairman now of Howard Hughes. And he was like, 415 00:21:27,920 --> 00:21:29,600 Speaker 1: in his mind, like he had clothes un Fund is 416 00:21:29,640 --> 00:21:31,480 Speaker 1: like it's gonna be Berkshire Hathaway. Right, It's not gonna 417 00:21:31,480 --> 00:21:33,119 Speaker 1: be a fund. It's going to be a company that 418 00:21:33,160 --> 00:21:35,959 Speaker 1: buys companies, or buys stakes and companies, or invests, and 419 00:21:36,000 --> 00:21:38,200 Speaker 1: he is going to invest people's money much like Warren 420 00:21:38,200 --> 00:21:40,560 Speaker 1: Buffett does in the form of a public company. And 421 00:21:40,600 --> 00:21:43,000 Speaker 1: he realized after the Clothes Unfund didn't work that like 422 00:21:43,040 --> 00:21:44,720 Speaker 1: he should just do it in the form of an 423 00:21:44,720 --> 00:21:45,919 Speaker 1: existing public company. 424 00:21:46,040 --> 00:21:46,560 Speaker 2: Yeah. 425 00:21:46,840 --> 00:21:48,639 Speaker 1: One of my readers suggested herbal Life, which is a 426 00:21:48,680 --> 00:21:52,879 Speaker 1: great suggestion, a little deep cut blackman joke. But he's like, oh, no, 427 00:21:52,920 --> 00:21:54,680 Speaker 1: I have Howard Hughes right here. Howard Hughes like a 428 00:21:54,760 --> 00:21:56,600 Speaker 1: real estate company. You can pivot that to being a 429 00:21:56,640 --> 00:21:59,119 Speaker 1: general purpose investment company, and so he was like, you know, 430 00:21:59,160 --> 00:22:02,600 Speaker 1: pershings like forty percent of it. He's the chairman, it 431 00:22:02,720 --> 00:22:04,760 Speaker 1: still says, and it's ten Q. You know, we're gonna 432 00:22:05,320 --> 00:22:08,159 Speaker 1: we have a strategy of becoming a diversified holding company. 433 00:22:08,600 --> 00:22:12,399 Speaker 1: I don't really understand what the distinction is between Howard 434 00:22:12,480 --> 00:22:14,720 Speaker 1: Hughes and the new clothes down Fund. Right, you will 435 00:22:14,720 --> 00:22:18,919 Speaker 1: now have let's say three publicly traded permanent capital vehicles 436 00:22:18,960 --> 00:22:21,639 Speaker 1: where he can put investments, you know, the European Fund, 437 00:22:22,040 --> 00:22:24,760 Speaker 1: the Close Up Fund, and Howard Hughes and I don't know, 438 00:22:25,359 --> 00:22:25,960 Speaker 1: pick one. 439 00:22:25,840 --> 00:22:28,400 Speaker 2: You know, and Howard Hughes. I was reading their most 440 00:22:28,440 --> 00:22:31,879 Speaker 2: recent earnings called just for Fun. They're getting close to 441 00:22:32,000 --> 00:22:36,840 Speaker 2: announcing their next acquisition, you know, with Bill Ackman at 442 00:22:36,840 --> 00:22:39,240 Speaker 2: the helm. So we'll see. 443 00:22:39,520 --> 00:22:40,520 Speaker 1: I hope it's scanning man. 444 00:22:41,119 --> 00:22:42,360 Speaker 2: Oh, that would be great. 445 00:23:00,000 --> 00:23:01,399 Speaker 1: Sea of ETFs. 446 00:23:01,560 --> 00:23:06,840 Speaker 2: Yes, thank you. Speaking of ETFs, Goldman Sacks I helped 447 00:23:06,840 --> 00:23:09,520 Speaker 2: break the news this week. But Goldman Sacks is going 448 00:23:09,560 --> 00:23:13,640 Speaker 2: to pay two billion dollars for ETF issue or Innovator Capital, 449 00:23:14,080 --> 00:23:18,439 Speaker 2: one of the first movers in buffer ETFs, an area 450 00:23:18,480 --> 00:23:19,160 Speaker 2: that you know and. 451 00:23:19,160 --> 00:23:22,359 Speaker 1: Love, Matt, I do love a buffer Etfhh. Yeah, I've 452 00:23:22,359 --> 00:23:25,520 Speaker 1: written about buffer ETFs, like the buffer ETF, which is 453 00:23:25,560 --> 00:23:30,399 Speaker 1: where effectively you like take people's money, you buy like 454 00:23:30,440 --> 00:23:32,720 Speaker 1: a treasury strip, and then you have like a little 455 00:23:32,720 --> 00:23:36,160 Speaker 1: extra money and you use that to buy call options 456 00:23:36,160 --> 00:23:38,240 Speaker 1: on a on a stock index, and so then you've 457 00:23:38,240 --> 00:23:40,920 Speaker 1: given people upside in the stock indecks with no downside. 458 00:23:40,920 --> 00:23:43,159 Speaker 1: And you're like, ooh, it's a magic trick. That's like 459 00:23:43,240 --> 00:23:47,760 Speaker 1: a classic piece of derivative structuring, you know, magic. It's 460 00:23:48,040 --> 00:23:51,720 Speaker 1: a classic building block of like the structured notes business 461 00:23:51,760 --> 00:23:54,679 Speaker 1: at an investment bank, and it is now you know, 462 00:23:55,040 --> 00:23:58,200 Speaker 1: Innovator and others have etfized it where now like if 463 00:23:58,240 --> 00:24:00,119 Speaker 1: instead of buying a structured note from a bank or 464 00:24:00,200 --> 00:24:03,120 Speaker 1: like building your own options product, you can buy an ETF. 465 00:24:03,680 --> 00:24:06,280 Speaker 1: And Goldban looked at that and said, we want to 466 00:24:06,880 --> 00:24:10,240 Speaker 1: be in the business of providing those ETFs, which is 467 00:24:10,320 --> 00:24:13,679 Speaker 1: like you can obviously great business for Golden in a 468 00:24:13,680 --> 00:24:15,960 Speaker 1: couple of ways. One, like the structure note business is 469 00:24:16,040 --> 00:24:19,639 Speaker 1: like great, you know, and like there are people in 470 00:24:19,680 --> 00:24:21,719 Speaker 1: the lab cooking up structured notes to make a lot 471 00:24:21,760 --> 00:24:24,320 Speaker 1: of money, and like you can scale it more with 472 00:24:24,320 --> 00:24:27,160 Speaker 1: an ETF than you could with the structured notes. Yeah, 473 00:24:27,200 --> 00:24:28,960 Speaker 1: and then also, like I wrote this, I don't know 474 00:24:28,960 --> 00:24:31,280 Speaker 1: how true this is in the case of the buffer ETF, 475 00:24:31,720 --> 00:24:36,479 Speaker 1: but in general, structured notes are a place for a 476 00:24:36,640 --> 00:24:41,080 Speaker 1: bank's volatility desk to lay off some volatility. If all 477 00:24:41,119 --> 00:24:44,879 Speaker 1: of your hedge fund clients are buying like Korean stock 478 00:24:44,920 --> 00:24:48,800 Speaker 1: call options, then you might like package a structured note 479 00:24:48,800 --> 00:24:51,399 Speaker 1: that allows your retail clients to sell you Korean stock 480 00:24:51,440 --> 00:24:54,399 Speaker 1: call options, because then you can like offset some of 481 00:24:54,440 --> 00:24:59,840 Speaker 1: that risk. And stereotypically, the audiences for structured notes are 482 00:24:59,520 --> 00:25:02,000 Speaker 1: like willing to listen to the story that the bank tells. 483 00:25:02,040 --> 00:25:03,359 Speaker 1: Then like you know, the hedge funds who come to 484 00:25:03,359 --> 00:25:05,440 Speaker 1: the bank fro a trade. And so the structure notes 485 00:25:05,520 --> 00:25:09,320 Speaker 1: was this is a nice like risk sync and doing 486 00:25:09,320 --> 00:25:12,520 Speaker 1: that in an ETF maybe also right, Like if you're Golden, 487 00:25:12,600 --> 00:25:16,040 Speaker 1: you're constantly coming up with and I should say disclosure, 488 00:25:16,080 --> 00:25:17,919 Speaker 1: I was an equity derivative structure. 489 00:25:17,520 --> 00:25:18,800 Speaker 2: At goldbvin I had no idea. 490 00:25:19,119 --> 00:25:21,600 Speaker 1: Golden, You're constantly coming up with ideas for like how 491 00:25:21,640 --> 00:25:24,800 Speaker 1: to you know, sell weird volatility products to people, And 492 00:25:25,320 --> 00:25:28,520 Speaker 1: with an ETF business, you've like massively increased the audience 493 00:25:28,520 --> 00:25:30,639 Speaker 1: of people you can sell weird volatility products too. 494 00:25:31,080 --> 00:25:34,160 Speaker 2: Yeah, so a couple of notes here. Buffer ETFs obviously 495 00:25:34,160 --> 00:25:36,959 Speaker 2: have some vocal critics. Friend of the show, Cliff Fastness, 496 00:25:37,040 --> 00:25:39,440 Speaker 2: for example, has been very. 497 00:25:39,320 --> 00:25:42,480 Speaker 1: Like as a former derivative structure, like he's just right, Like, 498 00:25:43,080 --> 00:25:46,520 Speaker 1: instead of like buying some weird buffers around your stock exposure, 499 00:25:46,560 --> 00:25:49,280 Speaker 1: just buy less stock. It's a better trade. It doesn't 500 00:25:49,280 --> 00:25:52,200 Speaker 1: involve paying huge fees to gold This is a standard 501 00:25:52,200 --> 00:25:55,919 Speaker 1: critique of structured notes. It's frankly a standard critique of 502 00:25:55,960 --> 00:25:58,919 Speaker 1: like all equity to rods, and it's a perfectly valid 503 00:25:58,920 --> 00:26:01,440 Speaker 1: critique of ETFs. But buffery tis I. 504 00:26:01,400 --> 00:26:05,600 Speaker 2: Do find it interesting from an ETF angle that Goldman 505 00:26:05,720 --> 00:26:08,879 Speaker 2: has its own buffer ETFs. This is a product that 506 00:26:08,920 --> 00:26:13,200 Speaker 2: they've already launched. They launched three earlier this year received 507 00:26:13,600 --> 00:26:17,040 Speaker 2: really little traction. The fact that they went out and 508 00:26:17,160 --> 00:26:20,760 Speaker 2: decided to buy an entire other firm for two billion 509 00:26:20,800 --> 00:26:23,840 Speaker 2: dollars versus trying to, you know, really put the Goldman 510 00:26:23,960 --> 00:26:28,000 Speaker 2: muscle and distribution might behind their own products is super interesting. 511 00:26:28,560 --> 00:26:32,000 Speaker 2: Another detail I also love him here is that the 512 00:26:32,040 --> 00:26:36,040 Speaker 2: folks who founded Innovator, Bruce Bond and John Southern. This 513 00:26:36,080 --> 00:26:39,520 Speaker 2: is the second time that they've founded an ETF company 514 00:26:39,560 --> 00:26:42,879 Speaker 2: and then sold it. Their first experience was with power 515 00:26:42,920 --> 00:26:46,520 Speaker 2: shares twenty hours ago. At this point, they sold it 516 00:26:46,560 --> 00:26:50,280 Speaker 2: to Investco. Bonds tried to retire for a little bit. 517 00:26:50,320 --> 00:26:54,560 Speaker 2: It didn't work. He came back and founded Innovator. They're 518 00:26:54,600 --> 00:26:59,159 Speaker 2: pulling him back in well him and is his palentimetfs 519 00:26:59,240 --> 00:27:02,320 Speaker 2: you can't walk away from I get it hearing him 520 00:27:02,359 --> 00:27:05,320 Speaker 2: tell it. It was John Southard who came across the 521 00:27:05,320 --> 00:27:08,520 Speaker 2: idea of you know, structured products are huge, we should 522 00:27:08,560 --> 00:27:11,119 Speaker 2: put them in ETFs. And that's what they did. They 523 00:27:11,160 --> 00:27:14,960 Speaker 2: found an Innovator in twenty seventeen, they launched their first 524 00:27:15,119 --> 00:27:18,600 Speaker 2: buffered products in twenty eighteen, and now they're selling to 525 00:27:18,640 --> 00:27:23,480 Speaker 2: Goldman for two billion dollars. Bruce Bond has at least 526 00:27:23,600 --> 00:27:27,760 Speaker 2: fifty percent steak in innovators. So you now have a 527 00:27:27,800 --> 00:27:30,720 Speaker 2: new ETF billionaire, which is super cool. It's a great story, 528 00:27:31,600 --> 00:27:35,119 Speaker 2: heartwarming story search products. 529 00:27:34,720 --> 00:27:37,840 Speaker 1: And I mean, right, I can't felt that. That's like 530 00:27:38,200 --> 00:27:39,200 Speaker 1: the thought I wish I would have. 531 00:27:39,359 --> 00:27:41,920 Speaker 2: I know, I know that's the thing. You think about 532 00:27:41,960 --> 00:27:44,360 Speaker 2: all the upstarts that are in the ETF industry right now. 533 00:27:44,359 --> 00:27:47,080 Speaker 2: It's so easy to launch an ETF. And it feels 534 00:27:47,119 --> 00:27:50,840 Speaker 2: like everyone INDs this is the blueprint I have to 535 00:27:50,880 --> 00:27:52,720 Speaker 2: imagine for a lot of them. This is like the 536 00:27:53,320 --> 00:27:56,080 Speaker 2: lottery ticket that they're hoping to find. 537 00:27:56,320 --> 00:28:06,200 Speaker 1: Good for them. And that was The Money Stuff Podcast. 538 00:28:06,520 --> 00:28:08,639 Speaker 2: I'm Matt Levine and I'm Katie Greifeld. 539 00:28:08,840 --> 00:28:10,960 Speaker 1: You can find my work by subscribing to The Money 540 00:28:11,000 --> 00:28:13,000 Speaker 1: Stuff newsletter on Bloomberg. 541 00:28:12,560 --> 00:28:15,160 Speaker 2: Dot com, and you can find me on Bloomberg TV 542 00:28:15,359 --> 00:28:18,800 Speaker 2: every day on the close between three and five pm Eastern. 543 00:28:19,520 --> 00:28:21,520 Speaker 1: We'd love to hear from you. You can send an 544 00:28:21,520 --> 00:28:24,879 Speaker 1: email to Moneypod at Bloomberg dot net, ask us a 545 00:28:24,960 --> 00:28:26,800 Speaker 1: question and we might answer it on the air. 546 00:28:27,119 --> 00:28:29,720 Speaker 2: You can also subscribe to our show wherever you're listening 547 00:28:29,800 --> 00:28:31,639 Speaker 2: right now and leave us a review. It helps more 548 00:28:31,680 --> 00:28:32,520 Speaker 2: people find the show. 549 00:28:33,440 --> 00:28:36,520 Speaker 1: The Money Stuff Podcast is produced by annam Aserakis and 550 00:28:36,600 --> 00:28:37,720 Speaker 1: Moses ONEm Our. 551 00:28:37,760 --> 00:28:40,120 Speaker 2: Theme music was composed by Blake Maples. 552 00:28:40,560 --> 00:28:42,840 Speaker 1: Amy Keen is our executive. 553 00:28:42,400 --> 00:28:45,720 Speaker 2: Producer, and Stage Bauman is Bloomberg's head of Podcasts. 554 00:28:46,120 --> 00:28:48,600 Speaker 1: Thanks for listening to The Money Stuff Podcast. We'll be 555 00:28:48,640 --> 00:28:50,320 Speaker 1: back next week with more stuff