WEBVTT - Flying High in Bird Heaven: MSTR, PSUS, ETF 0:00:02.720 --> 0:00:07.200 Bloomberg Audio Studios, podcasts, radio news. 0:00:07.960 --> 0:00:12.080 I'm going to Utah for two days and then I'll 0:00:12.080 --> 0:00:16.800 be back on Friday. So I'm excited going to a 0:00:16.800 --> 0:00:18.919 corporate holiday party. That'll be fun. 0:00:18.960 --> 0:00:21.880 You're going to a corporate holiday party. Yes, I was 0:00:21.920 --> 0:00:23.520 going to say, what if some listeners with the corport 0:00:23.520 --> 0:00:25.319 holiday party, but of course we're going to air this 0:00:25.400 --> 0:00:26.800 on Friday after the party is over. 0:00:27.240 --> 0:00:30.400 Yeah, that's true. So and I'll be back by then. 0:00:30.880 --> 0:00:36.120 It's my husband's company's corporate holiday party, so I'm excited 0:00:36.200 --> 0:00:37.120 to go to it. 0:00:37.640 --> 0:00:39.960 That sounds grennod. It's a two day holiday party in Utah. 0:00:40.040 --> 0:00:42.880 It's on a Wednesday night, which is a little bit difficult, 0:00:42.960 --> 0:00:47.000 but that means I'm gonna fly out Tuesday night, come 0:00:47.080 --> 0:00:51.880 back Thursday night. And I would have taken Friday off 0:00:52.520 --> 0:00:57.280 except Invesco is holding a proxy vote for QQQ, and 0:00:57.360 --> 0:00:59.960 I want to cover it really bad. So you know, 0:01:00.040 --> 0:01:01.000 I was just love the game. 0:01:03.000 --> 0:01:05.400 You got to come back to that proxy yet. 0:01:05.120 --> 0:01:07.520 Yeah, I wish I was kidding. I Actually I am 0:01:07.520 --> 0:01:09.000 psyched for the proxy vote. 0:01:09.120 --> 0:01:11.240 Are they holding an in person meeting? Are you going 0:01:11.280 --> 0:01:11.480 to it? 0:01:11.680 --> 0:01:14.360 They are, but I'm not going to go to it, 0:01:14.360 --> 0:01:15.480 it would be a little intense. 0:01:15.680 --> 0:01:17.120 When I was a young m and I lawyer, I 0:01:17.120 --> 0:01:21.760 went to the shareholder vote for some merger that we did. Yeah, 0:01:21.880 --> 0:01:25.040 it was really sweet, like individual shareholders stood out to 0:01:25.040 --> 0:01:26.680 be like, I just want to thank management for all 0:01:26.680 --> 0:01:28.840 the work they've done and good jobs all in the company. 0:01:29.160 --> 0:01:30.720 It was like in Maine, like I flew to the 0:01:30.760 --> 0:01:33.400 shareholder meeting, not to do anything, just to watch a 0:01:33.440 --> 0:01:35.679 shareholder meeting. I'm really glad I did it. Now I've 0:01:35.720 --> 0:01:38.319 seen a shareholder meeting. You can't really appreciate a shareolder 0:01:38.360 --> 0:01:39.240 meeting until you've been to one. 0:01:39.319 --> 0:01:42.000 That's true. I would be so down, except you know, 0:01:42.040 --> 0:01:43.880 I have to cover for the prince side. I don't 0:01:43.880 --> 0:01:45.600 think that I could get a TV camera in there, 0:01:45.640 --> 0:01:47.800 which might justify me going there in person. 0:01:47.840 --> 0:01:49.160 But it's not a good television. 0:01:49.440 --> 0:01:52.960 It's not good television necessarily, especially. 0:01:52.560 --> 0:01:54.240 For the meeting. It's an exciting per se. 0:01:54.800 --> 0:01:57.440 If the meeting is adjourned, again, what are we going 0:01:57.520 --> 0:01:58.279 to do with the camera. 0:01:58.600 --> 0:02:00.280 I do think that it would be like it would 0:02:00.280 --> 0:02:03.280 be nice to just sort of have like five minutes, yes, 0:02:04.720 --> 0:02:07.080 to be like, well, this meeting was adjourned and it's 0:02:07.120 --> 0:02:07.800 like Sea Span or. 0:02:07.760 --> 0:02:10.760 Something famously good TV. Yeah, but it is easier to 0:02:10.840 --> 0:02:13.760 be at your setup when you're covering a live event. 0:02:13.919 --> 0:02:15.680 I would have been very surprised had you said you 0:02:15.680 --> 0:02:16.960 were going to the in person Sholder. 0:02:17.280 --> 0:02:19.880 God, maybe next time if the meeting it's adjourned again. 0:02:20.000 --> 0:02:23.959 Yeah, once in your life for Scharwolder, meaning it's fun. Hello, 0:02:24.280 --> 0:02:27.399 and welcome to the Money Stuff Podcast, your weekly podcast 0:02:27.480 --> 0:02:31.720 where we talk about stuff related to money. I'm Matt 0:02:31.760 --> 0:02:34.560 Levine and I write the Money Stuff column for Bloomberg Opinion. 0:02:35.200 --> 0:02:37.760 And I'm Katie Greifeld, a reporter for Bloomberg News and 0:02:37.800 --> 0:02:39.360 an anchor for Bloomberg Television. 0:02:49.320 --> 0:02:51.600 I feel like we're here for like the early stages 0:02:51.680 --> 0:02:55.200 of the micro strategy trade, not the strategy trade, and 0:02:55.200 --> 0:02:57.919 now we're like kind of here for kind of kind 0:02:57.960 --> 0:03:00.880 of kind of the end of the micas oenity trade. 0:03:01.280 --> 0:03:04.080 Wow. I was going to say careful, careful. 0:03:04.120 --> 0:03:07.400 Calling the end the end, but like there's been a 0:03:07.440 --> 0:03:11.200 completion of the narrative arc in that strategy. It's called 0:03:11.240 --> 0:03:14.680 strategy officially, yes, thank strategy is now kind of trading 0:03:14.760 --> 0:03:19.240 it pretty close to its non asset value, and the 0:03:19.280 --> 0:03:23.200 whole strategy trade of being we will sell one dollar 0:03:23.240 --> 0:03:26.680 of bitcoin for two dollars on the stock exchange doesn't 0:03:26.680 --> 0:03:28.680 work anymore, and they're kind of trying to figure out 0:03:28.720 --> 0:03:29.160 what's next. 0:03:29.960 --> 0:03:33.760 Yeah, yeah, I mean we're not at one yet, and 0:03:33.800 --> 0:03:36.600 we're certainly not below one yet, but boy, what a 0:03:36.640 --> 0:03:38.200 collapse below one is. 0:03:38.280 --> 0:03:42.040 You know, certainly where some of the strategy skeptics have 0:03:43.080 --> 0:03:46.120 seen it going. And I think we're a ways away 0:03:46.120 --> 0:03:49.080 from below one. They're like one point one five today, 0:03:49.200 --> 0:03:51.640 but you know, it's not you anymore. The bloom is 0:03:51.680 --> 0:03:52.920 a little off the rose. I don't know. 0:03:53.000 --> 0:03:55.200 Yeah, let's time sent this and say we're recording on 0:03:55.240 --> 0:03:57.600 a Tuesday, just in case it goes. 0:03:57.440 --> 0:04:01.680 To like whatever, all wrong. We haven't seen the end 0:04:01.680 --> 0:04:02.760 of that any never mind. 0:04:02.840 --> 0:04:07.520 It's interesting. So the CEO of Strategy fondly he made 0:04:07.720 --> 0:04:10.560 waves last week he said on a different podcast, not 0:04:10.640 --> 0:04:14.240 this one, that if the m NAP does go below one, 0:04:14.280 --> 0:04:18.760 that selling bitcoin is in outside of the realm of possibility. 0:04:19.160 --> 0:04:21.640 That was on Friday. On Monday of this week, I 0:04:21.680 --> 0:04:25.000 believe it was that they announced that they're building up 0:04:25.040 --> 0:04:30.880 a one point four billion dollar dollar reserve, which is amazing. 0:04:31.000 --> 0:04:33.720 Such it is, but. 0:04:33.760 --> 0:04:36.440 It's also amazing because you think about in the same 0:04:36.480 --> 0:04:39.719 way that we know started talking about the strategy trade 0:04:39.760 --> 0:04:42.719 early and now we're sort of seeing it full circle. 0:04:43.120 --> 0:04:46.800 You think back to when Michael Saylor first announced in 0:04:46.839 --> 0:04:50.200 twenty twenty that they were going to be buying bitcoin. 0:04:50.240 --> 0:04:52.159 It was all about the debasement of the dollar, and 0:04:52.160 --> 0:04:55.200 they were worried about their dollar reserves basically being a 0:04:55.279 --> 0:04:58.919 melting ice cube. Now you fast forward five years plus 0:04:58.960 --> 0:05:01.800 and they're back buying dollars. 0:05:02.080 --> 0:05:06.040 No, I completely disagree. I do not believe that when 0:05:06.080 --> 0:05:08.599 they announced the strategy it was about the debatement at 0:05:08.640 --> 0:05:11.520 the dollar, or that they were seriously sitting there thinking, oh, no, 0:05:11.880 --> 0:05:14.520 if we hold dollars in our corporate treasury, they'll become 0:05:14.560 --> 0:05:16.839 worthless and we won't be a real company. Like I 0:05:16.880 --> 0:05:18.560 don't believe that at all. I understand they said it. 0:05:18.600 --> 0:05:21.360 I just like, this is a capital market strategy where 0:05:21.360 --> 0:05:23.080 like people wanted bitcoin and they're like, we're gonna give 0:05:23.080 --> 0:05:25.360 the people what they want. I do not believe that 0:05:25.400 --> 0:05:27.720 they believed that the dollar was going to be worthless. 0:05:27.800 --> 0:05:30.120 But secondly, whatever they were doing five years ago, like 0:05:30.279 --> 0:05:33.000 you know, they needed cash for corporate purposes, blah, blah blah, 0:05:33.040 --> 0:05:36.800 whatever the dollaries are of today is a very different situation, 0:05:36.920 --> 0:05:39.840 which is that in the intervening five years, they've raised 0:05:41.040 --> 0:05:45.719 billions and billions of dollars of fixed income securities, some 0:05:45.880 --> 0:05:48.880 of it like very low coupon convertible bonds, but a 0:05:48.920 --> 0:05:52.240 lot of it very high coupon preferred stock. They've been 0:05:52.240 --> 0:05:56.000 doing a lot of like fixed income ten percent preferreds. 0:05:57.279 --> 0:06:00.160 There was this period where they were not trading a 0:06:00.240 --> 0:06:03.159 huge premium, so issuing stock to buy bitcoin is not 0:06:03.240 --> 0:06:05.760 super accreative. But bitcoin is still going up, and so 0:06:05.800 --> 0:06:07.919 if you issue a preferred stock at ten percent to 0:06:07.920 --> 0:06:10.000 buy bitcoin that's going up at like twenty percent a year, 0:06:10.200 --> 0:06:12.160 then that's in a creative trade. And so they did 0:06:12.160 --> 0:06:15.040 a lot of that trade. But when bitcoin is going down, 0:06:15.080 --> 0:06:16.760 that's not in a creative trade because you're still paying 0:06:16.760 --> 0:06:18.320 the ten percent interest in you're paying the ten percent 0:06:18.320 --> 0:06:20.320 interest forever. And the other thing that's happening is you 0:06:20.320 --> 0:06:23.039 have to pay the interest in cash. Yes, it's a 0:06:23.040 --> 0:06:25.039 preferred stock, so they can turn off the interest, but 0:06:25.160 --> 0:06:27.640 that's a bad look. But so basically they've incurred like 0:06:27.839 --> 0:06:30.320 hundreds of millions of dollars a quarter of they call 0:06:30.360 --> 0:06:32.640 it dividends, but essentially interesting expense on the money they 0:06:32.640 --> 0:06:35.120 borrowed to buy bitcoin. And where do you get the 0:06:35.200 --> 0:06:39.479 money to pay that? It's always been a concern, and 0:06:39.720 --> 0:06:41.400 the answer has been kind of If you sell a 0:06:41.440 --> 0:06:44.640 lot of stock every quarter and you use most of 0:06:44.680 --> 0:06:47.320 that stock to buy bitcoin in a creative way, and 0:06:47.360 --> 0:06:49.120 you use some of the stock to pay interest on 0:06:49.160 --> 0:06:51.920 your debt, I'm like, yeah, whatever, it's fine, right, But like, 0:06:52.600 --> 0:06:57.960 once that trade stops working and you still need to 0:06:57.960 --> 0:07:01.480 pay that interest, then you're kind of in a situation 0:07:01.680 --> 0:07:05.640 that strategy is in, which is you just sell a 0:07:05.720 --> 0:07:08.440 billion dollars worth of stock to pay the dividends on 0:07:08.520 --> 0:07:12.600 your preferred stock, which is not like a great situation. No, 0:07:12.720 --> 0:07:15.720 you don't love that, right, you don't love that. 0:07:16.040 --> 0:07:17.040 No, for reasons. 0:07:17.760 --> 0:07:20.760 One reason is people use the P word when you 0:07:20.840 --> 0:07:23.320 do that. Oh, I would not personally. 0:07:23.040 --> 0:07:26.240 Use the P word here. 0:07:27.400 --> 0:07:30.680 You know, there's something ponzi like about selling stock to 0:07:30.800 --> 0:07:33.400 raise money to pay the ten percent return that you 0:07:33.440 --> 0:07:36.800 promised previous investors. Right, I don't think that I would 0:07:36.800 --> 0:07:41.280 not personally use the Ponzi word about this trade, because 0:07:41.320 --> 0:07:43.640 there's a lot going on here it's all pretty transparent. 0:07:43.920 --> 0:07:46.720 It's fine, but you know, some people email me maybe 0:07:47.640 --> 0:07:48.520 you know it's not the same. 0:07:48.560 --> 0:07:53.200 Yeah, great, No, it doesn't feel good to raise money 0:07:53.200 --> 0:07:57.480 from new investors to pay off your existing investors. We 0:07:57.520 --> 0:08:00.400 actually spoke to the CEO of Strategy on Tuesday on 0:08:00.440 --> 0:08:04.600 Bloomberg Television fondly, and we did ask, I mean, would 0:08:04.640 --> 0:08:07.640 you ever suspend the dividends? And he basically said, what 0:08:07.880 --> 0:08:10.400 you said, that that would create a lot of fear, 0:08:10.600 --> 0:08:14.400 a lot of uncertainty, a lot of doubt, fud perhaps, 0:08:14.640 --> 0:08:17.600 But he did also say, I mean, I asked him, 0:08:17.640 --> 0:08:21.440 you know, how would you prioritize suspending the dividend versus 0:08:21.520 --> 0:08:24.880 selling bitcoin? And he said that basically, the idea is 0:08:24.960 --> 0:08:27.360 that they're creating this reserve, and they're going to build 0:08:27.360 --> 0:08:30.640 this reserve and perpetuity. Maybe they'll revisit it in a 0:08:30.680 --> 0:08:37.040 decade or so in hopes of pushing out building a yeah, 0:08:37.320 --> 0:08:40.559 building a buffer so that they'll have enough to cover 0:08:40.880 --> 0:08:44.560 their interest in dividend payments until twenty twenty eight. And 0:08:44.600 --> 0:08:46.800 then I guess we'll see you know where we are 0:08:46.920 --> 0:08:49.520 actually in twenty twenty eight, which will be interesting. 0:08:50.000 --> 0:08:53.439 Right, I mean, like to me their calculation is fairly straightforward. Right, 0:08:53.520 --> 0:08:56.040 If they trade at like a premium, even a small 0:08:56.080 --> 0:09:00.320 premium to their net asset value, then they should sell 0:09:00.360 --> 0:09:05.400 stock at a premium to net asset value to handle 0:09:05.400 --> 0:09:08.160 all of their problems, including paying dividends on the preferred. Right, 0:09:08.720 --> 0:09:11.160 cutting off dividends on the preferred is a terrible situation. 0:09:11.240 --> 0:09:13.120 It kind of ends the trade. It like makes you 0:09:13.200 --> 0:09:15.959 no longer able to access capital markets in the way 0:09:15.960 --> 0:09:17.840 they want to hear it. That's your last choice, right, 0:09:18.040 --> 0:09:19.720 but your first choice is like, if the stock is 0:09:19.720 --> 0:09:21.959 trading at a premium, you sell stock. If the stock 0:09:22.040 --> 0:09:26.000 is trading at a discount, you sell bitcoin. You know, 0:09:26.240 --> 0:09:29.559 you sell bitcoin. You don't love it. You were planning 0:09:29.559 --> 0:09:32.960 to hold the bitcoin forever, but you did a great 0:09:33.000 --> 0:09:35.400 trade selling all the stock at a premium, and now 0:09:35.600 --> 0:09:37.559 you get to do the reverse trade, which is buying 0:09:37.559 --> 0:09:41.720 the stock at a discount by selling bitcoin. I don't know. Yeah, 0:09:41.840 --> 0:09:43.760 they might take a different view from me, but like, 0:09:44.000 --> 0:09:45.800 if it were me and my stock was trading at 0:09:45.800 --> 0:09:47.880 a discount to net asset value, I'd be selling bitcoin 0:09:47.920 --> 0:09:48.600 and bond stock. 0:09:49.120 --> 0:09:51.680 Yeah, I mean, we'll see how this evolves. I do 0:09:51.720 --> 0:09:55.960 think it's an interesting moment where you're really reminded that 0:09:56.040 --> 0:09:59.000 Michael Saylor is not the CEO. He hasn't been the 0:09:59.040 --> 0:10:00.520 CEO for several years now. 0:10:00.559 --> 0:10:03.679 He's because you booked the CEO on TV. 0:10:04.440 --> 0:10:07.640 I know. But also, I mean, listen all the articles. 0:10:08.120 --> 0:10:11.360 Can you imagine Michael Saylor saying we might have to 0:10:11.400 --> 0:10:15.600 sell bitcoin? I cannot, I cannot. I guess you're right, 0:10:16.200 --> 0:10:19.120 Thank you. I think I am right in this situation. 0:10:19.679 --> 0:10:21.640 Right, Like, if you're a true believer, then you're like, 0:10:21.760 --> 0:10:23.640 I'm in the business of buying bitcoin. I never saw it. 0:10:23.880 --> 0:10:27.000 If you're just like the other two hundred digital asset 0:10:27.000 --> 0:10:30.760 treasury companies, you're like, I'm in the business of doing 0:10:30.760 --> 0:10:33.760 a lucrative arbitrage trade. And if he's not trading at 0:10:33.760 --> 0:10:36.080 twice the value of my bitcoin, I'm selling stock. And 0:10:36.120 --> 0:10:37.760 if it's trading at half the value of my bedcoin, 0:10:37.840 --> 0:10:40.480 I'm selling bitcoin. Should we talk about. 0:10:40.360 --> 0:10:43.640 Ms C I, Oh, yeah, we should. I asked him 0:10:43.640 --> 0:10:46.959 about that. So ms C I I wrote a newsletter 0:10:47.120 --> 0:10:52.080 on this because I also have a newsletterletter. Yes you 0:10:52.120 --> 0:10:58.160 did in your newsletter or aboris of newsletters. But MSc 0:10:58.320 --> 0:11:01.240 I in mid October for contacts, I guess no one 0:11:01.280 --> 0:11:03.640 really noticed it until JP Morgan pointed it out in 0:11:03.679 --> 0:11:06.760 a research note, But MSCI said that it was looking 0:11:06.800 --> 0:11:10.959 at whether or not digital asset treasury companies dats, if 0:11:10.960 --> 0:11:14.480 you will, look more like investment funds than traditional companies, 0:11:15.000 --> 0:11:16.640 and they propose have. 0:11:16.559 --> 0:11:17.680 An answer to that question. 0:11:17.800 --> 0:11:23.080 Basically, they proposed excluding dats from their indices. The decision 0:11:23.200 --> 0:11:27.080 is coming in January, I believe, But obviously that would 0:11:27.080 --> 0:11:29.920 be bad news bearers for strategy and all these dats. 0:11:30.480 --> 0:11:35.480 Yeah, right, there are various rationales for a DAT, but 0:11:35.640 --> 0:11:38.920 surely one of them is like, there is some audience 0:11:38.960 --> 0:11:43.800 of stock investors who can buy corporate stocks but can't 0:11:43.840 --> 0:11:49.400 buy cryptodirectly or even crypto ETFs, and so one thing 0:11:49.440 --> 0:11:51.880 you are doing is appealing to that audience. And who 0:11:51.960 --> 0:11:55.440 is that audience? I mean it is to some extent 0:11:56.120 --> 0:11:58.280 boomer retail investors who like don't want to open a 0:11:58.320 --> 0:12:00.800 crypto account or even deal with ets, right. It is 0:12:00.840 --> 0:12:04.240 to some extent like fundamental lung on the equity investors 0:12:04.240 --> 0:12:06.240 like Capital Group, which is a big sharldeer of strategy, 0:12:06.720 --> 0:12:11.280 who like the trade and would feel weird buying a 0:12:11.320 --> 0:12:15.720 bitcoin ETF, but like getting crypto exposure through Strategy, and 0:12:15.760 --> 0:12:18.400 then it is a very large extent passive equity investors 0:12:18.400 --> 0:12:21.000 who will buy the index. And if you cut out that, 0:12:21.320 --> 0:12:24.640 then you lose a lot of demand for digital acid 0:12:24.640 --> 0:12:27.280 treasury stock. And maybe you take that last leg down 0:12:27.320 --> 0:12:30.520 from a small premium to the net asset value to 0:12:31.120 --> 0:12:34.000 you know, a small discount. Maybe. 0:12:34.280 --> 0:12:36.920 Yeah. Well, the fun thing is that you know this 0:12:37.000 --> 0:12:41.000 decision point is coming up in January. I'm curious to 0:12:41.040 --> 0:12:45.400 see a situation where MSCI says that, okay, Strategy is 0:12:46.000 --> 0:12:49.520 an investment fund, we can't have it in our index. 0:12:49.960 --> 0:12:51.960 But then you think about the NASAQ one hundred. They 0:12:51.960 --> 0:12:55.080 went through this whole thing when they added Strategy to 0:12:55.080 --> 0:12:57.720 the Nasdaq one hundred, and they landed on the side 0:12:57.760 --> 0:13:01.400 of this is a company, this is an operating company. 0:13:01.800 --> 0:13:04.480 So you could have a situation where MSCI is treating 0:13:04.600 --> 0:13:07.040 Strategy one way and NASTAC is treating it another. 0:13:08.160 --> 0:13:10.360 Yeah. A couple of points there. One like there's like 0:13:10.600 --> 0:13:15.040 ten thousand dats and like, yes, they're all investment funds, 0:13:15.559 --> 0:13:21.440 and maybe Strategy is the biggest exception. Maybe like Strategy 0:13:21.440 --> 0:13:24.400 has a real business, like a software business that is 0:13:24.440 --> 0:13:26.760 at this point a teeny tiny fraction of the size 0:13:26.760 --> 0:13:29.200 if it's pot of bitcoin. But like, yeah, it's a business. 0:13:29.240 --> 0:13:31.640 You know, you get to eat, like you know, and 0:13:31.720 --> 0:13:34.840 every dat has some fig leaf like that, but strategy 0:13:34.960 --> 0:13:37.319 is probably bigger than most. The other thing I'll say 0:13:37.400 --> 0:13:41.240 is like when NASDAG made this decision, it was trading 0:13:41.240 --> 0:13:43.600 at a premium and bitcoin is going up, right, and 0:13:43.679 --> 0:13:47.040 so like these are sort of like decisions influenced by 0:13:47.320 --> 0:13:49.880 real world politics, right, where like if you are an 0:13:49.880 --> 0:13:52.880 index provider, one thing that happens is like there are 0:13:52.920 --> 0:13:56.280 index funds and just other like you know, benchmarked investors 0:13:56.400 --> 0:13:57.720 who go to you own are like, I want to 0:13:57.720 --> 0:13:59.920 own strategy. It keeps going up, and so then you 0:14:00.040 --> 0:14:03.240 put it in your index, right whereas MSCI is looking 0:14:03.240 --> 0:14:05.280 at it in a different context where it's been going 0:14:05.320 --> 0:14:08.000 down and they're like, wow, yeah, get it out of 0:14:08.000 --> 0:14:10.640 the index. Which is you know, it's badly cyclical and 0:14:10.760 --> 0:14:13.280 that you know, you make the index ones by it 0:14:13.280 --> 0:14:14.680 when it's going up, and then you make them sell 0:14:14.679 --> 0:14:16.520 it when it's calmed down. But you know, it's still 0:14:16.559 --> 0:14:35.360 there's there's some of that that element to it. All. 0:14:35.440 --> 0:14:38.440 Right, let's try to say it. So we're going to 0:14:38.520 --> 0:14:43.400 talk about We're gonna talk about Bill Lackman, the Man. 0:14:43.920 --> 0:14:45.960 We need to talk about Bill Lackman the Bird a 0:14:46.000 --> 0:14:49.720 little bit. Unfortunately, my good friend Bi Lackman the Bird 0:14:50.320 --> 0:14:53.480 passed away in the last couple of months. I haven't 0:14:53.480 --> 0:14:57.360 been telling you, our dear podcast audience, because it's been 0:14:57.480 --> 0:14:59.640 very difficult for me. I knew that when we took 0:14:59.720 --> 0:15:02.520 in friend of the Show, Bill Ackman, that it was 0:15:02.560 --> 0:15:07.040 going to be touch and go, and unfortunately he did pass. 0:15:07.400 --> 0:15:10.640 But I'm really happy for the time that we spent 0:15:10.720 --> 0:15:12.560 with him. I think that, you know, the months that 0:15:12.640 --> 0:15:15.760 he did spend with me and my parents. You know, 0:15:16.000 --> 0:15:17.920 he was on this earth for a little bit longer 0:15:17.920 --> 0:15:21.280 than he would have been, and it's very painful, but 0:15:21.640 --> 0:15:23.720 you know, it was a beautiful couple of months. And 0:15:24.480 --> 0:15:28.600 he came to us right after my pony Batman had passed, 0:15:28.600 --> 0:15:31.640 and certainly he was a wonderful bit of joy. So 0:15:32.920 --> 0:15:36.440 that's why we've been a little bit mum on mister Bird. 0:15:36.720 --> 0:15:38.680 But he is flying high in bird Heaven. 0:15:40.920 --> 0:15:45.360 I'm sorry for very well thanks. I do worry that 0:15:45.480 --> 0:15:49.440 someone who hasn't listened to previous episodes will be very 0:15:49.480 --> 0:15:51.680 confused about how Bill Blackman came into your and your 0:15:51.680 --> 0:15:54.120 family's life for a few months. And I want to 0:15:54.120 --> 0:15:58.400 be clear, Katie rescued a bird and on the podcast 0:15:58.440 --> 0:16:01.320 we jokingly named the bird friend of the show Bill Ackmam, 0:16:02.120 --> 0:16:05.760 but it was not the actual hedgehong manager black When 0:16:05.760 --> 0:16:06.600 it's just the bird. 0:16:07.000 --> 0:16:09.800 I really didn't want to talk about it. But like 0:16:09.920 --> 0:16:12.720 even last week, I was interviewing this guy from Vanguard 0:16:12.760 --> 0:16:15.440 and he said, there's three guys on my desk who 0:16:15.880 --> 0:16:19.040 want me to ask you about Friend of the Show 0:16:19.120 --> 0:16:22.600 Bill Ackman. And I was like, oh, yeah, he's a bird. 0:16:23.280 --> 0:16:26.120 So people are like reach out to me and ask 0:16:26.200 --> 0:16:29.400 about him. So, yeah, that's weird to talk about the 0:16:29.440 --> 0:16:35.360 man without talking about the all right, So Bill Ackman, 0:16:35.560 --> 0:16:37.920 Bill Ackman, the hedge fund manager, He's at it again. 0:16:38.520 --> 0:16:41.440 He's really like, he really has got it in his 0:16:41.520 --> 0:16:43.680 head that he wants to do a closed end fund 0:16:43.720 --> 0:16:47.440 in the US that tradesit a premium. And he doesn't 0:16:47.440 --> 0:16:49.200 correct that nut yet, but he keeps work. 0:16:49.200 --> 0:16:53.240 Come on, yeah he does. So. Bloomberg News reported that 0:16:53.280 --> 0:16:57.920 he's aiming to raise five billion dollars for his US 0:16:57.960 --> 0:17:01.240 listed closed end funds. Listeners of this podcast will remember 0:17:01.280 --> 0:17:04.240 that he tried this a few months ago, maybe a 0:17:04.280 --> 0:17:06.320 year ago, over a year ago at this point actually, 0:17:06.720 --> 0:17:09.240 and initially I think his target was as much as 0:17:09.280 --> 0:17:13.679 twenty five billion dollars, so, you know, the valuation a 0:17:13.680 --> 0:17:17.680 little bit less ambitious this time around. And he's also 0:17:17.880 --> 0:17:20.720 trying to sweeten it a bit by giving investors in 0:17:20.760 --> 0:17:24.879 the funds some shares in Pershing Square Capital, the hedge 0:17:24.880 --> 0:17:26.520 fund that he's also trying to IPO. 0:17:26.880 --> 0:17:29.600 Yeah, the problem that he ran into is that it's 0:17:29.680 --> 0:17:33.159 really important that you sell shares of a closed end 0:17:33.240 --> 0:17:38.000 fund at a premium to net asset value of a 0:17:38.040 --> 0:17:42.520 new one, because that's how you raise the net asset value. Rightly, 0:17:42.600 --> 0:17:44.760 you can'not sell them at a premium to net asset value. 0:17:45.040 --> 0:17:48.520 And he thought that he would solve that problem by 0:17:48.640 --> 0:17:52.000 just telling everyone that he was amazing and therefore they 0:17:52.000 --> 0:17:54.320 should buy shares at a premiums and net asset value 0:17:54.440 --> 0:17:58.120 because he would compound their money much faster than other 0:17:58.160 --> 0:18:02.920 alternatives would. And that didn't work. So he's trying something else, 0:18:03.119 --> 0:18:06.199 which is, you know, the obvious solution is like you 0:18:06.280 --> 0:18:08.480 give people a sweetener. Basically, like Bill Ackman has to 0:18:08.560 --> 0:18:13.160 kick in some value to make the shares worth more 0:18:13.200 --> 0:18:16.120 than what people pay for them, but like still, you know, 0:18:16.520 --> 0:18:18.800 people pay more than what goes into the pot. And 0:18:18.880 --> 0:18:21.000 so that's the plan, which is basically like if you 0:18:21.119 --> 0:18:23.240 do the IPO of the clothes then fund at the 0:18:23.280 --> 0:18:25.520 same time you do the IPO of the management company, 0:18:25.680 --> 0:18:27.679 which seems to be kind of the plan, then you 0:18:27.720 --> 0:18:30.280 have a managing company which is worth ten billion dollars 0:18:30.440 --> 0:18:32.359 was a number of that, and then their last round 0:18:32.960 --> 0:18:34.679 and you give you know, ten percent of the managing 0:18:34.720 --> 0:18:36.760 company to the investors in the clothes Unfund like ooh, 0:18:36.760 --> 0:18:39.239 they got a nice like billion dollar sweetener, and then 0:18:39.240 --> 0:18:42.000 they're willing to buy shares in the clothes end fund 0:18:42.520 --> 0:18:44.840 and the math all works right, and then you know, 0:18:44.920 --> 0:18:47.160 the next day, like you separate the sweetener and maybe 0:18:47.200 --> 0:18:50.600 the clothes un Fund trades it a discount the NASSA value, 0:18:50.600 --> 0:18:52.920 but yeah, that's a problem for another day. Yeah, or 0:18:52.960 --> 0:18:55.520 maybe it trades at a premium, right, maybe, like it 0:18:55.560 --> 0:18:57.760 was hard to bootstrap this, but once it gets going, 0:18:57.800 --> 0:18:59.400 everyone will be like, oh, wow, he really is good 0:18:59.400 --> 0:19:02.119 at managing money, and the thing will trade it a premium. 0:19:02.520 --> 0:19:03.320 Doesn't happen a lot? 0:19:03.880 --> 0:19:06.600 Yeah, And I mean he has the hard fact that 0:19:06.640 --> 0:19:09.920 you think about his European listed closed end funds. 0:19:10.280 --> 0:19:11.920 Sure, there's not a ton of precedent. 0:19:12.960 --> 0:19:16.640 Yeah, it's trading at a twenty five percent discount right now, and. 0:19:16.600 --> 0:19:18.760 There are reasons there are distinctions. 0:19:18.800 --> 0:19:23.399 But yeah, yeah, it's a similar idea. So I was 0:19:23.400 --> 0:19:24.640 going to say, I thought you were going to say, 0:19:24.640 --> 0:19:27.399 the obvious solution here is to just launch this in 0:19:27.440 --> 0:19:31.199 an et That seems no wrong. My mind wants to 0:19:31.240 --> 0:19:32.879 go tell me why that doesn't make sense. 0:19:33.200 --> 0:19:35.320 Bill Eman is a good investing track record, but like 0:19:35.640 --> 0:19:37.600 the best thing he did was he was early to 0:19:37.760 --> 0:19:40.960 permanent capital for Hedgehong managers. I have written a lot 0:19:41.119 --> 0:19:43.320 that like the important job of Hedgehong manager is not 0:19:43.359 --> 0:19:45.320 to pick the stocks they go up, but to continue 0:19:45.320 --> 0:19:47.560 managing a hedge fund. And Bill Ackman, by launching a 0:19:47.600 --> 0:19:50.880 closed un fund in Europe, has given himself permanent capital 0:19:51.680 --> 0:19:54.640 in a way that like allows him to be patient 0:19:54.920 --> 0:19:56.680 and not worry about making You know, it's the best 0:19:56.680 --> 0:19:59.480 possible set up for hedgeloont manager. First, Yeah, it is 0:19:59.520 --> 0:20:01.199 just not that this is not permanent capital, Like it 0:20:01.200 --> 0:20:03.439 doesn't solve any of the problems he wants to address. 0:20:03.640 --> 0:20:06.120 Yeah, I hear what you're saying. Can I say one 0:20:06.119 --> 0:20:08.080 more thing about ETF's ok I'm just going to borrow 0:20:08.160 --> 0:20:11.359 some logic from Bloomberg Intelligence. They wrote a note about 0:20:11.359 --> 0:20:14.000 this saying Acman tries again at a closed end fund. 0:20:14.480 --> 0:20:17.000 I hear your point on permanent capital. They make the 0:20:17.040 --> 0:20:21.439 point that, Okay, you raise capital once at IPO, and 0:20:21.480 --> 0:20:24.359 then you typically struggle to grow beyond that initial capital, 0:20:24.400 --> 0:20:27.200 Whereas there's plenty of examples at this point of like 0:20:27.480 --> 0:20:31.760 big names coming into the ETF rapper and raising billions 0:20:31.760 --> 0:20:34.800 of dollars. And if you're so confident that you are 0:20:34.840 --> 0:20:38.639 such a good hedge fund manager, why not launch in 0:20:38.720 --> 0:20:42.840 the ETF and just hope that that capital doesn't leave 0:20:42.880 --> 0:20:45.040 because they're so satisfied with your performance. 0:20:45.800 --> 0:20:50.760