Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: Hello and welcome to The Money Stuff Podcast, your weekly
Speaker 2: podcast where we talk about stuff related to money. I'm
Speaker 2: Matt Levine and I write the Money Stuff column for
Speaker 2: Bloomberg Opinion.
Speaker 1: And I'm Katie Greifeld. I'm a reporter with Bloomberg News
Speaker 1: and an anchor for Bloomberg Television.
Speaker 2: Katy did that offscript, and I'm sort of clutching the
Speaker 2: table as she did.
Speaker 1: I forgot usually fret out the intro. I forgot to
Speaker 1: do that this week, but I do have a strong
Speaker 1: sense of self.
Speaker 2: Okay, what are we talking about this week? Katie?
Speaker 1: Great question freestyle? Yeah, T plus one. It's finally here
Speaker 1: in the US and in Canada and Mexico.
Speaker 2: It's possible.
Speaker 1: Maybe it's happening in India soon. We're going to talk
Speaker 1: about Elon Musk. We have a few different things to
Speaker 1: talk about with Elon Musk, but I really like the
Speaker 1: attention auction that you wrote about this week, So we're
Speaker 1: going to talk about that, and we're going to talk
Speaker 1: talk about Bill Wang. It thinks possible and there'll be
Speaker 1: we do have a mill bag. I like that you saying,
Speaker 1: and I didn't usually it's usually the other way around.
Speaker 1: T plus one. It's here. It feels like this was abrupt.
Speaker 1: Maybe I just haven't been paying attention.
Speaker 2: I think that if you had been reading articles for
Speaker 2: the last three months being like TE plus one settlement
Speaker 2: is coming the week after Memorial Day, you would have
Speaker 2: growen very bored. I think that's news for a long time.
Speaker 2: I think that's like news the week before, and then
Speaker 2: news the week it happens. But yeah, it's T plus one.
Speaker 1: It's T plus one. It happened at the start of
Speaker 1: this week that we're recording the podcast in there was
Speaker 1: a beautiful day where trades from both Tuesday and Friday
Speaker 1: settled on the same day. It was like a lunar
Speaker 1: eclipse or a solar eclipse, whatever you want to call it.
Speaker 1: Seems like things are actually going fine, right.
Speaker 2: I know, you root for chaos. I root for having
Speaker 2: funny things to write about, and so clearly it would
Speaker 2: have been more chaotic have T plus one kind of
Speaker 2: broken the financial system, But in fact things seem to
Speaker 2: be going very smoothly, and in fact, the fail rate
Speaker 2: so far it seems to be a little bit lower
Speaker 2: than the fail rate last week, meaning that if you
Speaker 2: do a security trade and it settles T plus two
Speaker 2: last week, T plus one this week. Then like in
Speaker 2: two days, you have to deliver the stock and the
Speaker 2: other person has to deliver the money, and if you
Speaker 2: don't do that in time, it's called a fail And
Speaker 2: people keep track of the fail rate and every soft
Speaker 2: and people have conspiracy theories about naked short selling because
Speaker 2: of like the fail rate's going up or whatever, and
Speaker 2: the fail rate like last week was like two percent
Speaker 2: or whatever, and then this week, like the first day
Speaker 2: of T plus one, it.
Speaker 1: Was like a little bit lower.
Speaker 2: So everything's going great. I was wondering what that means,
Speaker 2: like that the fail rate is lower. Like one possibility
Speaker 2: is that they spent all this time modernizing their systems.
Speaker 2: They turn on the modernized systems and it just works better.
Speaker 1: Right there you go.
Speaker 2: Possibility. Another possibility is that everyone's in the office this week.
Speaker 2: If you work in settlement, you're definitely not on vacations. Yeah,
Speaker 2: you're definitely like paying total attention to making sure the
Speaker 2: failure it stays though.
Speaker 1: Yeah, maybe the real thing to watch will be of
Speaker 1: course next week. Yeah, we do have another test coming
Speaker 1: up on Friday. The MSCI indexes are going to rebalance,
Speaker 1: so that's another potential hurdle. But yeah, definitely. The optimistic
Speaker 1: take here is that all the preparation that Bloomberg News
Speaker 1: and other outlets have been writing about that the banks
Speaker 1: and everyone else are undertaking, maybe it paid off. And
Speaker 1: this is a total y two K moment.
Speaker 2: Y two K in the sense of it's not like
Speaker 2: that the fears were misplaced. It's just that people worked
Speaker 2: really hard to fix them and they succeeded.
Speaker 1: We did it, guys.
Speaker 2: Yeah, congratulations all the settlement professionals. I think probably if
Speaker 2: you're a settlement professional and you spent like the last
Speaker 2: three months complaining about this's like probably some part of
Speaker 2: you wants there to be a disaster, so you like
Speaker 2: I told you.
Speaker 1: But yeah, I was saying to him Matt this morning
Speaker 1: that this would be a lot more fun had there
Speaker 1: been a disaster. But I guess it comes into question
Speaker 1: what's next. I know that some people talk about T
Speaker 1: plus zero. Gensler himself actually suggested that T plus evening
Speaker 1: could be a possibility, But what's the point.
Speaker 2: Well, part of why they moved to T plus one
Speaker 2: is like the credit risk involved in waiting two days
Speaker 2: to settle a trade. And I think the big impetus
Speaker 2: was the memestock failures in twenty twenty one, when well,
Speaker 2: when a lot of brokers got the large margin calls
Speaker 2: because of the crazy volatility in the memestocks, and Robinhood
Speaker 2: had to go out and raise money, and like the
Speaker 2: lott of brokers shut off trading in game stop for
Speaker 2: a while. So all that stuff felt kind of bad
Speaker 2: and rickety, and so they wanted to change it. But
Speaker 2: I do think another part of the impetus for this
Speaker 2: is just like there's a general sense that payments and
Speaker 2: like financial transactions should be real time. That wasn't always
Speaker 2: people's sense, right, they used to like nail a check
Speaker 2: or whatever. But now you know, you look at the
Speaker 2: Venmo sort of, you know, like people's desire to be
Speaker 2: able to make real time payments on their phone, and
Speaker 2: like people find it weird that the US banking system
Speaker 2: doesn't be support with that and with securities transactions. I
Speaker 2: do think there's the example of crypto where crypto doesn't
Speaker 2: always move like instantly, but like a crypto trade on
Speaker 2: the blockchain settles when it happens, right, It's like it's
Speaker 2: instantaneous settlement. And people sort of are introduced to the
Speaker 2: financial world through that, and they look at stock trading
Speaker 2: they're like, why does it take two days? Or even
Speaker 2: why does it take one day? So I think there's
Speaker 2: just like a sort of sense that like in a
Speaker 2: modern computerized age, it shouldn't take any time to settle
Speaker 2: a transaction. And I think that's like wrong. I think
Speaker 2: it's like people confuse like the computer mechanics of like
Speaker 2: moving the stuff around with the actual sort of like
Speaker 2: financial mechanics of it. Nic stock trading is like very
Speaker 2: efficient and very sort of just in time. And so
Speaker 2: when people want to buy stock, they don't have money
Speaker 2: sitting in their account. Most people do, but big hedgephones
Speaker 2: want to buy so I don't have money just like
Speaker 2: sitting around in their account. They have to like go
Speaker 2: to their financing prime broker to like lend them the
Speaker 2: money the moment after they agree to the trade. Right,
Speaker 2: there's a lot of like you agree to a trade
Speaker 2: before you have the money sitting in the account. Sometimes
Speaker 2: you agree to the trade before you have the stock.
Speaker 2: All those sort of business processes happen after you agree
Speaker 2: to the trade. And if you moved to like very
Speaker 2: fast settlement which I don't know exactly what very fast means,
Speaker 2: Like maybe T plus evening is still like slow enough.
Speaker 1: I want like T plus lunchtime.
Speaker 2: Yeah, if you move to like instantaneous settlement, then like
Speaker 2: everything changes, like you have to prefund trades, you have
Speaker 2: to have the money sitting in the account before you
Speaker 2: do the trade. And again, like in crypto, it kind
Speaker 2: of works that way. Like in crypto, you kind of
Speaker 2: prefund everything, and so people are there's like a model
Speaker 2: for that, but it's not really how the modern financial
Speaker 2: system works.
Speaker 1: Yeah, I know I'm being dramatic when I say this,
Speaker 1: but I don't know. The notion of taking pages out
Speaker 1: of crypto infrastructure and bringing it into like the equity
Speaker 1: market feels very weird for me. This is the second
Speaker 1: time that we're sort of talking about that. Like we
Speaker 1: talked about twenty four hour trading. Yeah, a few weeks
Speaker 1: or months or years ago. At this point, I can't
Speaker 1: remember what it feels like. But the idea that maybe
Speaker 1: stocks being able to trade twenty four to seven or
Speaker 1: twenty four to five, maybe that's a reality in the future.
Speaker 1: Crypto does it here, Instantaneous settlement crypto does it. Why
Speaker 1: not equities.
Speaker 2: Crypto is a financial system that grew up entirely around
Speaker 2: computers and in the computer era, right, like it dates
Speaker 2: to like, you know, two thousand and nine. I think
Speaker 2: if you were just like designing a financial system from
Speaker 2: first principles, you'd be like, wow, that'll be on computers,
Speaker 2: and then I'll be like, well, we should it open
Speaker 2: at nine thirty in the morning. Now it's on a computer.
Speaker 2: The Internet is open twenty four hours a day, so
Speaker 2: you'd sort of design a system like that. And similarly,
Speaker 2: if you're like, well, I've got a database of stocks
Speaker 2: and a database of dollars, and like when I agree
Speaker 2: a trade, we swapped the dollars to the stocks, It's like, yeah,
Speaker 2: that should happen like on a computer, like immediately. Right,
Speaker 2: if you're designing a financial system in two thousand and
Speaker 2: nine or in twenty twenty four around computers, like you'll
Speaker 2: naturally have twenty four hour real time trades. Right. It
Speaker 2: just so happens that the actual financial system grew up
Speaker 2: over hundreds of years and wasn't built around computers, and
Speaker 2: the processes that have built up around that are very
Speaker 2: path dependent and historically determined, but some of them are
Speaker 2: good ish or like they work for humans or they
Speaker 2: work for a financial system. So with twenty four hour trading,
Speaker 2: what we talked about was in fact, in modern markets,
Speaker 2: people like concentrated liquidity. You know, the stock markets open
Speaker 2: six and a half hours a day, but like people
Speaker 2: actually like largely traded the clothes because that's when everyone
Speaker 2: else is trading, and it's good to be able to
Speaker 2: trade when everyone else is trading. And if you spread
Speaker 2: out your trading over twenty four hours, a few people
Speaker 2: to trade with in like three am. And similarly here
Speaker 2: it's yeah, like if everything moved instantaneously, like in some ways,
Speaker 2: that would look more efficient, but it would mean that
Speaker 2: you'd need to have the money in your account before
Speaker 2: you did a trade, and so there'd be like weird stuff.
Speaker 2: A lot of the problems that people worried about with
Speaker 2: T plus one were foreign investors having to convert currents.
Speaker 2: If you're a foreign investor and you want to buy
Speaker 2: a US stock, you can just decide to do that
Speaker 2: and then figure out how to convert your euros into
Speaker 2: dollars later, not like much later, but like two minutes later,
Speaker 2: and an instantaneous settlement world, you wouldn't be able to
Speaker 2: do that. Now, maybe your FX transaction would also settletaneously
Speaker 2: and everything with like just in time workout, But it's
Speaker 2: like trickier.
Speaker 1: It does seem really complicated, especially, I mean the FX
Speaker 1: piece talking about T plus one. When it comes to
Speaker 1: just domestic US equities, that's somewhat easy to wrap one's
Speaker 1: mind around, but thinking about the FX piece and the
Speaker 1: international investor piece. I was talking to someone on TV
Speaker 1: sometime this week and they said, you went from having
Speaker 1: twelve hours to source your US dollars to having like
Speaker 1: two hours.
Speaker 2: Yeah, And like, I don't know you say that to
Speaker 2: a normal person, And it's like, how long does it
Speaker 2: take for your bank to convert your years?
Speaker 1: And I've never thought about it, right, Like, yeah.
Speaker 2: It should theoretically it kind of should take a millisecond.
Speaker 1: Yeah right, Well maybe that's computer entries, but that's the
Speaker 1: world we're rapidly hurtling towards her. Maybe we're already in
Speaker 1: Can we talk about the thing I won't really want
Speaker 1: to talk about? Okay? So I cover ETFs in my
Speaker 1: day job, and I think that a lot of etf
Speaker 1: issuers do is securities lending. They lend out the securities
Speaker 1: and their portfolio it gets them a few basis points
Speaker 1: for doing that. They make that, but you think about
Speaker 1: the expense ratios on a lot of these ETFs and
Speaker 1: they're like three basis points, So a couple of basis
Speaker 1: points is super meaningful. I don't really understand how security
Speaker 1: is lending is impacted by this move to T plus one.
Speaker 1: It seems like it would be a headache. Not just
Speaker 1: an ETFs, put mutual funds, et cetera.
Speaker 2: It's a huge headache, I think. So here's why it works. So,
Speaker 2: like you're a mutual fund or you're an ETF, you
Speaker 2: like lend out your stocks. You know on stocks, you
Speaker 2: lend them out, then you decide to sell them right
Speaker 2: because you have outflows or because you're your indexes rebalancing
Speaker 2: or whatever, you decide to sell your stocks. So between
Speaker 2: the minute you sell the stock, the minute you'd like
Speaker 2: your sell order executes on the stock exchange, and the
Speaker 2: settlement date, you have to get the stock right. Like
Speaker 2: you've loaned it out, you don't have it in your possession,
Speaker 2: so you have to call back the borrow. So you
Speaker 2: had two days to do that. Now you have one
Speaker 2: day to do it right. Now you call back the
Speaker 2: borrow by like you've loaned the stock out, probably through
Speaker 2: a broke who's loaned out to like a short cellar.
Speaker 2: So you call your broker and you say call the
Speaker 2: intermediary and you say, I want the stock back in.
Speaker 2: The intermediary calls the hedge fund who borrowed it and said,
Speaker 2: we want the stock pack and the edge fund doesn't
Speaker 2: have it either. They've sold the stock, so they have
Speaker 2: to find it somewhere else right now, maybe they borrow
Speaker 2: it from some other mutual fund or some other lender,
Speaker 2: right and then they borrow it in like four hours
Speaker 2: and they deliver it to you within twenty four hours,
Speaker 2: and then you deliver it to settle your sale. But
Speaker 2: another possibility is like they can't borrow it and they
Speaker 2: have to buy in their short but then that settles
Speaker 2: T plus one. So they're doing a trade after you
Speaker 2: that has to settle before you in order to give
Speaker 2: you the stocks that you can deliver it on your cell.
Speaker 2: So it's like very tricky, and I think that like
Speaker 2: one thing that mutual funds have been at least talking
Speaker 2: about doing to address this is calling in their borrow
Speaker 2: before they sell their stock. You know, you're having like
Speaker 2: an index rebalanceing or whatever. Instead of hitting sell and
Speaker 2: then calling back your borrow, you call back your borrow
Speaker 2: the day before, so you make sure it settles, and
Speaker 2: then you hit sell. Larry Tabbo Bloomberg Intelligence that has
Speaker 2: written about like the problems of that in terms of
Speaker 2: both you lose like a day of that lending income,
Speaker 2: but you also maybe tip your hand that you're going
Speaker 2: to be signing the stock because you're calling a sophisticated
Speaker 2: hedge fund and saying we need our borrow back. The
Speaker 2: hedge fund gets some information from that. They know you're selling. Yeah.
Speaker 1: I guess from my perspective of someone who cares about
Speaker 1: the ETF and a little bit the mutual fund world,
Speaker 1: the fact that you do lose a day of that
Speaker 1: fee coming in.
Speaker 2: And I don't think that's a big deal.
Speaker 1: You lose a day on Also.
Speaker 2: They have twenty basis points of earnings.
Speaker 1: Hey, that sounds pretty good. I mean, we're talking about
Speaker 1: razor thin margins on some of these ETFs. I'm wondering
Speaker 1: if it'll make securities lending a less appealing proposition for
Speaker 1: some of these companies.
Speaker 2: I be surprised if it moves the needle on that
Speaker 2: because it's the money. You know, if you're like an
Speaker 2: index e, you're not selling stock that often.
Speaker 1: All right, that's everything I wanted to know about this.
Speaker 2: That's probably everything I wanted to say.
Speaker 1: But I guess we'll talk about it when we do
Speaker 1: move to T plus zero, because actually it surprised me
Speaker 1: to learn that we only moved to T plus two
Speaker 1: and twenty seventeen.
Speaker 2: Oh yeah, I was there.
Speaker 3: I was not.
Speaker 1: I mean I was there, actually, I just was not
Speaker 1: paying attention. Yeah, yeah, no, what was that doing.
Speaker 2: It was really twenty seventeen. Hey, I remember that. Yeah,
Speaker 2: it was T plus three for my whole career, and
Speaker 2: it was like plus five in like the sixties or something.
Speaker 1: Yeah, we moved to T plus three, I guess in
Speaker 1: nineteen ninety three.
Speaker 2: My favorite part is that I didn't know this still
Speaker 2: like this week it was T plus one, and like
Speaker 2: the nineteen until nineteen years, I sort of imagine that,
Speaker 2: like the reason it was T plus three or whatever,
Speaker 2: you know, I grew up in T plus three. The
Speaker 2: reason it was T plus three is because like you
Speaker 2: needed to like load the stock certificates on a horse
Speaker 2: and buggy and take them across around and count them
Speaker 2: by hand.
Speaker 1: That was happening in the nineties.
Speaker 2: Yeah, no, it was happening in the twenties, but like
Speaker 2: there were only so many stock certificates, so you could
Speaker 2: do all of that in one day, right, Yeah, And
Speaker 2: so it only became like a longer settlement process when
Speaker 2: there were more trades and they were not like fully computerized,
Speaker 2: and so you had you know, max that at T
Speaker 2: plus five where it was like still a pretty manual process,
Speaker 2: but there were a lot of trades, and now there
Speaker 2: are many more trades, but it's a much less manual process. Okay,
Speaker 2: there we are.
Speaker 3: We're some buggies.
Speaker 1: Oh boy, Elon Musk, it's been several weeks since we
Speaker 1: really really dug in.
Speaker 2: Part of me feels like Elon Musk, it's always the same.
Speaker 1: Story, and that is checking his phone. He just checked
Speaker 1: the time he has to want to talk about this.
Speaker 1: We are drawing closer and closer to that shareholder vote.
Speaker 2: Yeah, so, Elon Musk, he had a huge package of
Speaker 2: options from Tesla in like twenty eighteenth. You know, everyone
Speaker 2: says it's fifty six billion dollars, it doesn't really matter.
Speaker 2: And then this year a Delaware judge said, no, we're
Speaker 2: taking those back, and in reaction to that, Tesla wants
Speaker 2: two things. They want the shareholders to vote to give
Speaker 2: him back the options, and they want the shareholders to
Speaker 2: vote to reincorporate the company in Texas so that no
Speaker 2: Delaware judge can ever again take away Elon Musk's money.
Speaker 2: Both of those votes.
Speaker 1: As j thirteenth, he met the targets. Yeah, that he
Speaker 1: was supposed to hit.
Speaker 2: Like, I'm not a big ela On Musk pooster necessarily,
Speaker 2: but I feel like here in this money, yeah, like
Speaker 2: he should get the money. Maybe this is just projecting,
Speaker 2: but my impression is that the maybe like most standard
Speaker 2: view among the institutional investors in Tesla is one he
Speaker 2: should get the money. Fair is fair, and two they
Speaker 2: should not reincorporate in Texas.
Speaker 1: Yeah, so let's attack the first point because I've been
Speaker 1: thinking about why that doesn't feel great. So, yes, fair
Speaker 1: is fair here in the money, But like, I feel
Speaker 1: like you have to kind of forget about everything that
Speaker 1: has happened in the past year or so. I mean,
Speaker 1: I'm talking pretty short term when I talk about the
Speaker 1: year to date performance of Tesla, but it's been pretty bad.
Speaker 1: We've seen a big draw down in market cap and
Speaker 1: they're facing real business problems right now.
Speaker 2: Right When I say here in the money, I mean
Speaker 2: like he was granted this money in twenty eighteen with
Speaker 2: the goal of taking the market cap from like fifty
Speaker 2: billion to six hundred and fifty billion dollars and he
Speaker 2: did that by like twenty twenty one. Yeah, and so
Speaker 2: he earned the money and they gave him the grants
Speaker 2: and then now they've been taken away. But like since then, yeah, yeah,
Speaker 2: things have changed. It's weird. It's a very backward looking
Speaker 2: pay award, yeah, because it was a forward looking pay
Speaker 2: award in twenty eighteen that has not been reversed. But
Speaker 2: the question is should they give him this backward looking
Speaker 2: pay award because he did accomplish all these things in
Speaker 2: the past. And I kind of think the answer is yes,
Speaker 2: that's fair. But I do think that if you're a
Speaker 2: just hyper rational investor looking at things today, it's like,
Speaker 2: is it a good idea to give him all this
Speaker 2: money given what has he done for me lately?
Speaker 1: Yeah? Yeah, I mean Tesla has a pretty sizable retail
Speaker 1: I mean a lot of them are huge fans of
Speaker 1: Elon Musk. But I would just imagine that human psychology
Speaker 1: is going to play in as and what has he
Speaker 1: done for me lately?
Speaker 2: Oh yeah, yeah, the retail people are there because they
Speaker 2: love Elon Musk. Yeah, the institutions, I think it's more.
Speaker 1: I mean you have seen like Glass Lewis come out
Speaker 1: and say that they probably shouldn't vote for this.
Speaker 2: There are few those came out against it in twenty
Speaker 2: eighteen as well.
Speaker 1: Yeah, something that keeps coming up is and this is
Speaker 1: something you've written about, is just that he's got a
Speaker 1: lot going on. This man is the CEO of six companies.
Speaker 1: It's clear that Tesla isn't like really the only thing
Speaker 1: occupying his mind share right now. He was really into
Speaker 1: his AI startup SpaceX Scark. I forgot actually that the
Speaker 1: boring company was still in there as well.
Speaker 2: The boring company is the one I always mentioned because
Speaker 2: it's like, I think, if you rank, how much does
Speaker 2: Elon Musk speak publicly about, pay attention to and care
Speaker 2: about his companies? Like, yeah, Tesla is really volatile and
Speaker 2: like right now Tesla maybe like having some problems of
Speaker 2: getting his attention, although the vote complicates that, But like
Speaker 2: boring companies usually toward the bottom because its name is
Speaker 2: the boring company. It digs tunnels. It's like just sort
Speaker 2: of less.
Speaker 1: It's like the cash in the portfolio, you know, you
Speaker 1: don't really talk about it.
Speaker 3: Sort of.
Speaker 2: It's not literally like that because no.
Speaker 1: Just in terms of like a small allocation that you
Speaker 1: don't really think about. Neuralink is real obviously when you
Speaker 1: look at the portfolio of his company's Twitter is the
Speaker 1: weirdest one to me, x I'm sorry.
Speaker 2: Elon Musk is really into AI, right, Yeah, He's kind
Speaker 2: of always been into AI. He was a founder of
Speaker 2: open Ai, right is now not an affiliated and angry
Speaker 2: about and like suing open Ai. But he was like
Speaker 2: there at the beginning, and he's very into AI right now,
Speaker 2: and everyone's kind of right into AI right now. And
Speaker 2: in some ways it's like weirdly trend following for Elon
Speaker 2: Musk to be like, I also have a large language
Speaker 2: model startup. Right, That's never been his thing. Right, He's
Speaker 2: not like, oh, I'm founding the tenth electric car company
Speaker 2: or the tenth commercial rocket company.
Speaker 1: Right.
Speaker 2: He's not like, you know, in fierce competition and like
Speaker 2: the tunnel digging business. Right, It's like all of his
Speaker 2: ideas have been sort of unusual and then XAI. He's like, yeah,
Speaker 2: I'll do a large luggage model. Why not? But it
Speaker 2: did seem like he had big AI plans for Twitter,
Speaker 2: and like Tessla does do a lot of not like
Speaker 2: large language models, but like a lot of AI for
Speaker 2: like the self driving cars. And it's a little strange though.
Speaker 2: He has instead started a separate company for AI and
Speaker 2: ramped it up and has a twenty four billion dollar
Speaker 2: valuation now and is raising money and seems to be,
Speaker 2: to some extent the apple of his eye, and Tesla's
Speaker 2: maybe a little neglected.
Speaker 1: Yeah, it does feel like that, and you think about
Speaker 1: I mean, his threat is that if he doesn't get
Speaker 1: this pay package, then hold devote his energy and time elsewhere.
Speaker 1: It seems like he's doing that already. And even if
Speaker 1: the pay package was reapproved again on June thirteenth, I
Speaker 1: believe the vote is it's not clear that would get
Speaker 1: him re excited about Tesla.
Speaker 2: So two things. One, like glass Lewis, one of their
Speaker 2: objections to his pay package is that he has clearly
Speaker 2: not been focused on Tesla. Yeah, and Tesla put out
Speaker 2: this response that's a stockholder should care noormously about value
Speaker 2: creation and not about whether Elon's perceived focus in scare
Speaker 2: quotes was strong enough, and like, that's fair, but it
Speaker 2: depends on your time frame. And in recent months, the
Speaker 2: value creation has maybe tracked his lack of focus. Right
Speaker 2: since the Twitter deal, like his lack of focus has
Speaker 2: been bad for now Again, this pay package is for
Speaker 2: like the work he did from twenty eighteen to twenty
Speaker 2: twenty one, so I can see approving it, but as
Speaker 2: a going forward better Yeah, you'd be worried about his
Speaker 2: lack of focus, not only because you keep reading articles
Speaker 2: about the other stuff he's doing, but also because the
Speaker 2: stick price is down and like it's izing business challenges.
Speaker 2: The other thing I'd say is Tesla's in a weird
Speaker 2: position in terms of like how much of Elon Musk's
Speaker 2: focus it gets or it will get going forward, because
Speaker 2: it's his only public company and also it's his biggest company,
Speaker 2: and so on the one hand, that means it is
Speaker 2: his like cash source. It is I think more important
Speaker 2: to his fortune than any of the other companies, because
Speaker 2: it's if he needs a billion dollars, he can get
Speaker 2: it by selling Tesla stock borrowing against Tesla's slock much
Speaker 2: more easily than he can from his other companies, and
Speaker 2: so he sometimes does a need for a large amounts
Speaker 2: of money, for example to buy Twitter. Yeah, and when
Speaker 2: he does that, he sells Tesla stock. So Tesla's really
Speaker 2: important to him. And if some of his other companies
Speaker 2: like evaporated, he'd be fine. But it does evaporated, it
Speaker 2: would be a big problem. On the other hand, he
Speaker 2: hates running a public company. He's not a public company guy.
Speaker 2: It doesn't work. He goes around saying I do not
Speaker 2: respect the SEC. He gets in trouble, he gets sued
Speaker 2: by shareholders. He pushes the boundaries in a way that
Speaker 2: when you have a private company where all of the
Speaker 2: shareholders are your fans and understand that they're there to
Speaker 2: support you, it kind of works. But in a public
Speaker 2: company where anyone can buy stock and then sue you
Speaker 2: and like a judge or the SEC can just get involved,
Speaker 2: it doesn't work that well. And he clearly hates it.
Speaker 2: He sort of tried to take Tesla private in a
Speaker 2: never deel that got him in trouble with the SEC.
Speaker 2: And he's said off and on over the years that
Speaker 2: he hates and running a public company, and will SpaceX
Speaker 2: eventually go public probably but I would love that it's
Speaker 2: possible that it would have gone public before. Now we're
Speaker 2: not run by Elon Musk, who has had a bad
Speaker 2: experience of running public companies. So if he has some
Speaker 2: great idea, does he want to do it at Tesla
Speaker 2: where it's going to be subject to public company's scrutiny,
Speaker 2: or is he gonna want to focus on his other
Speaker 2: companies that he has much more control over.
Speaker 1: It feels like we're heading towards a rubber meets the
Speaker 1: road moment when it comes to the shareholder vote. I mean,
Speaker 1: either it's reapproved and he's a happy man maybe, or
Speaker 1: maybe he leaves and then we as we spoke about
Speaker 1: a few weeks ago, maybe we find out what the
Speaker 1: Musk premium to Tesla actually is and we find out
Speaker 1: I don't know whether Tesla needs Elon Musk at this point,
Speaker 1: whether it would do better with a traditional auto type CEO.
Speaker 1: When you think about I don't know the fact that
Speaker 1: EV demand is drying up for everyone, not just for Tesla.
Speaker 1: It feels like a kind of existential moment for the
Speaker 1: EV market.
Speaker 2: Yeah, it's not clear that his skill set is what's
Speaker 2: really needed at Tesla right now, because it's like a
Speaker 2: mature auto company with auto company problems, and he's off
Speaker 2: putting wires in people's brains. Right, maybe the move is
Speaker 2: in fact for him to step back as CEO, but
Speaker 2: that's hard for thenock price. Like you get a lot
Speaker 2: of valuation premium from the retail investors who love them.
Speaker 2: I mean, that's the other thing about it being a
Speaker 2: public company is it's the only place that his retail
Speaker 2: investors can invest with them. Yeah, you can't buy.
Speaker 1: SpaceX, but you know what a neat solution would be
Speaker 1: taking SpaceX public closed and fun sure and invest in
Speaker 1: all the elon musk companies. We can publicly list it too,
Speaker 1: and that would be really fun to watch.
Speaker 2: That is actually a really good idea.
Speaker 1: Thanks that one's for free, but.
Speaker 2: You get a commission on that one.
Speaker 1: Bill Aang Bill Wang.
Speaker 2: So Bill Wang is on trial for his family office,
Speaker 2: Archie's Capital Management, employed a while back and lost thirty
Speaker 2: something billion dollar fortune for him and billions of dollars
Speaker 2: for several banks, including Credit Suites, which didn't fail because
Speaker 2: of our chagoes.
Speaker 1: But like it's not here anymore.
Speaker 2: Yeah, it didn't didn't help. But he's on trial for
Speaker 2: kind of two things like market manipulation, bottle these stocks
Speaker 2: and pushed them way up and then they crashed when
Speaker 2: he stopped buying them, And for lying to banks, because
Speaker 2: basically he like borrowed a lot of money from banks
Speaker 2: to buy all these stocks, and had the banks known
Speaker 2: the true extent of his positions, they wouldn't have lent
Speaker 2: him all the money. And he's on trial this week,
Speaker 2: and I have to say it seems to be kind
Speaker 2: of going okay for him in the sense that they
Speaker 2: haven't really done the market manipulation case yet, but it
Speaker 2: just sort of sounds like the evidence is like he
Speaker 2: bought a lot of these stocks, which is weird, but
Speaker 2: it is not proof of market manipulation by itself. It
Speaker 2: doesn't seem to be any smoking gun of him being like,
Speaker 2: I'm buying these stocks so that I can like artificially
Speaker 2: inflate their price, so that I can do something. Because
Speaker 2: he didn't do something, they bottle the stocks and then
Speaker 2: they crashed and he lost all his money. He wasn't
Speaker 2: like doing it for some nefarious plan as far as
Speaker 2: I can tell. But the other thing he's on twelve
Speaker 2: for is lining to the banks, and like there was
Speaker 2: definitely some line to the banks. There's a lot of
Speaker 2: testimony that there was lying to the banks, but it
Speaker 2: wasn't from him. It's like from his employees.
Speaker 1: Yeah, so far, we've heard from Scott Becker, for example,
Speaker 1: who was a risk manager at Archagos, and he testified
Speaker 1: that he lied. He told several banks that Archaeos was
Speaker 1: heavily invested in fang stocks like Apple, Amazon, et cetera,
Speaker 1: et cetera. In actuality, actually they were really invested in
Speaker 1: ADRs for companies like ten cents and by Do et cetera.
Speaker 1: That was a large part of the portfolio.
Speaker 2: So that was a lie and he's but also like
Speaker 2: you know, Viacom was like yeah the company or yeah,
Speaker 2: quantities of a few, like a handful of stocks.
Speaker 1: Yeah. But I guess what looks good for Bill Wangs
Speaker 1: so far is that it's not clear that he necessarily
Speaker 1: told those employees.
Speaker 2: There's no email from him being like make sure to
Speaker 2: a lot of the banks, which sometimes in some cases
Speaker 2: they have that.
Speaker 1: Yeah. Yeah, but I mean you raised the point why
Speaker 1: did they lie? Then?
Speaker 2: I was thinking about that. There's a sort of like
Speaker 2: he was the boss, there's some sort of implicit assumption
Speaker 2: of well, if the employees are lying to the banks
Speaker 2: to keep our ke goos going. They were doing it
Speaker 2: because that's what their boss wanted to them, which, first
Speaker 2: of all, I'm not sure is enough for to be
Speaker 2: a crime. But saying I'm not sure that's true, I
Speaker 2: feel like people who have jobs are motivated to do
Speaker 2: a good job at work. It's not like they're like,
Speaker 2: I need to make this trade work at because my
Speaker 2: boss told me to. It's I need to make this
Speaker 2: trade work out because I'm like trying to be a
Speaker 2: good employee. And like, you know, you sort of have
Speaker 2: a general create value. Yeah, you want to create value,
Speaker 2: and you're whatever, you've been at that company for a while,
Speaker 2: and you have some sense of commitment to the company
Speaker 2: in some sense of professional desire to do a good
Speaker 2: job at whatever it is you do, and what you're
Speaker 2: doing is keeping this extremely concentrated portfolio from crashing. Then
Speaker 2: maybe you'll lie to a bank to do that, right,
Speaker 2: And maybe you're just doing it because that's in the
Speaker 2: very short term, the way to improve your own performance,
Speaker 2: and you're just trying to do a good job. So
Speaker 2: is that his fault. I don't know, it's like kind
Speaker 2: of his fault.
Speaker 1: But so for a couple of days into testimony, it
Speaker 1: seems okay ish for bull Wang at the moment just
Speaker 1: to meditate on Scott Becker a little bit longer. He's
Speaker 1: definitely not having a great week or a great last
Speaker 1: couple of weeks. Again, testified, he did say he lied.
Speaker 1: He also apparently texted in twenty eighteen that he hoped
Speaker 1: that his boss would die in a plane crash, and
Speaker 1: then in twenty twenty, I hope that he would die
Speaker 1: a quote slow, painful death from COVID. He said of
Speaker 1: the texts, I obviously regret that it is not.
Speaker 2: Inconsistent with what I said before. You'd be like really
Speaker 2: motivated to do a good job and also have days
Speaker 2: when you which your boss would dine a plane crash.
Speaker 1: I that's why I never want to get sued. I mean,
Speaker 1: for a lot of reasons. I don't want anyone to
Speaker 1: go through my text messages. They're all super clean though.
Speaker 1: But anyway, that was a fun.
Speaker 2: Little through the outs of the Money Stuff podcast.
Speaker 1: Exactly, Uh, we burn every recording, We'd smash it with bats. Anyway,
Speaker 1: that was a fun little detail that came out in testimony.
Speaker 1: Also coming out was the Goldman fat Finger, which wasn't
Speaker 1: previously known.
Speaker 2: I believe it's amazing.
Speaker 3: Yeah, it's amazing.
Speaker 2: At the end of our Chagos, like they had like
Speaker 2: scraps of money at different banks, and like they were
Speaker 2: getting furious margin calls, and they're also trying to buy
Speaker 2: more of these stocks to prop them up, and so
Speaker 2: they were going to every bank and saying, oh, we
Speaker 2: have one hundred million dollars at your bank, send us
Speaker 2: one hundred million dollars. And some banks were doing it
Speaker 2: even though they were like a day away from bankruptcy.
Speaker 2: And so they did that to Golden. They're like, before
Speaker 2: it did seventy million dollars at Goldman, can you send
Speaker 2: it to us, Except they like hit the wrong button
Speaker 2: and instead of asking for ford and seventy million dollars
Speaker 2: from Golden, they sent for hundred and seventy million dollars
Speaker 2: in Golden And then they called govid Or like, hey,
Speaker 2: can we get that money back? And Golvin was like no,
Speaker 2: I sort of they were like, oh, we need to
Speaker 2: Like yeah, they like sort of dragged their feet a
Speaker 2: little bit, and then by the time they stopped dragging
Speaker 2: their feet, like it was clear that our Kegos was
Speaker 2: busted and yeah, Golbyn kept the money.
Speaker 1: Didn't they request a meeting with them.
Speaker 2: Yeah, they were like, yeah, you get at the money back.
Speaker 2: Let's just talk to your chief trader to make sure everything's.
Speaker 1: Okay, right, Like he's busy right now.
Speaker 2: I think anyone if you get a call saying can
Speaker 2: we have all of our money back, you're like, well,
Speaker 2: I think okay. Then Goldman they were just holding four
Speaker 2: hundred and seventy million dollars for them. They were also
Speaker 2: lending them enormous amounts of money against concentrated stock positions.
Speaker 2: And if you're like, oh, our go needs money, your
Speaker 2: next thought is are all these derivatives positions that we
Speaker 2: have with them are they good for them?
Speaker 3: Yeah?
Speaker 2: And the answer was very much no. So Goldman cut
Speaker 2: the money.
Speaker 1: There was testimony from a Jeffreys managing director as well,
Speaker 1: who when she got the call, her reaction was, what's
Speaker 1: the emergency? Like, we need all the money back right now?
Speaker 2: You get a call from your customer being like I
Speaker 2: need every penny in my account wired to me immediately.
Speaker 2: If you're just their bank, maybe you'd do that, right,
Speaker 2: But you also have like an enormous loan out to them,
Speaker 2: and you're like, wait a minute.
Speaker 1: Mail back.
Speaker 2: On this very podcast last week, we talked about, well,
Speaker 2: we talked about several city fat.
Speaker 1: Fingers to be a somewhat regular occurrence, but.
Speaker 2: We talked specifically about the one where they like, they
Speaker 2: sold a ton of European stocks and crashed all the markets,
Speaker 2: and then we're like, oops, we meant to sell fifty
Speaker 2: million dollars, but we sold four hundred and forty billion
Speaker 2: dollars among us? Who among us? Indeed, because every time
Speaker 2: I write or talk about a fat figure, I get
Speaker 2: emails from people about like, yeah, here's my pad finger story.
Speaker 2: I got a good one from a reader. He said
Speaker 2: that he's trading in his personal account. He made some
Speaker 2: money on call options, right, so he bought some call
Speaker 2: options and some stock. He sold the call options. He
Speaker 2: had one hundred thousand dollars, and he says, well, he's
Speaker 2: trying to figure out what to do with the money.
Speaker 2: He decided to put it into the bill ETF, like
Speaker 2: a short term money market ETF. He's like one hundred
Speaker 2: thousand dollars, and he says on his brokerage screen, like
Speaker 2: when you sell an option and then you got to
Speaker 2: do another trade, it defaults to doing an options trade.
Speaker 2: And so he was like, I'm gonna put a hundred
Speaker 2: thousand dollars into bill and instead he bought one hundred
Speaker 2: thousand dollars of call options on the bill money market,
Speaker 2: which is like, there is no more boring investment than
Speaker 2: the billity, but there's no crazier investment than call options
Speaker 2: on the time. Yeah, that's wild. And so he bought
Speaker 2: a lot of the He hit buy on a lot
Speaker 2: of these options, and he said that they executed like
Speaker 2: one contract and moved the market, and he noticed and
Speaker 2: canceled the rest of it and was only a few
Speaker 2: hundred dollars.
Speaker 1: But I thought it was amazing because we were talking
Speaker 1: in relation to the city system, how it was maybe
Speaker 1: just designed poorly. And I mean, here's a great example,
Speaker 1: a real life example of a person in their personal
Speaker 1: account falling victim to maybe an unintuitive trading screen, right right.
Speaker 2: If I were designing a trading system, I would probably
Speaker 2: make it default to trading cash, not options, every trade.
Speaker 2: So of course, if I were a retail broker, I
Speaker 2: would want to encourage as much option trading as possible,
Speaker 2: because that's how the retail brokers make money, so maybe
Speaker 2: I would, you know, maybe I would encourage.
Speaker 1: I would want the text to be as big as possible,
Speaker 1: like a really large font size. Those always make me
Speaker 1: feel safe. Anyway, time to go.
Speaker 2: How's the Money Stuff Podcast?
Speaker 1: I don't have my script?
Speaker 2: And that was the Money Stuff Podcast. I'm Matt Levian
Speaker 2: and I'm Katy Gray. We're not actually doing that, and
Speaker 2: that was the Money Stuff Podcast.
Speaker 1: I'm Matt Levian and I'm Katie Greifeld.
Speaker 2: You can find my work by subscribing to the money
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Speaker 2: The Money Stuff Podcast is produced by Anamasaracus and Moses
Speaker 2: on Them.
Speaker 1: Our theme music was composed by Blake Naples.
Speaker 2: Brandon Francis Newnham is our executive producer.
Speaker 1: And Sage Ballman is Bloomberg's head of podcasts.
Speaker 2: Thanks for listening to the Money Stuff podcast. We'll be
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