1 00:00:03,120 --> 00:00:08,280 Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News. 2 00:00:11,320 --> 00:00:14,000 Speaker 2: Hello and welcome to The Money Stuff Podcast, your weekly 3 00:00:14,040 --> 00:00:18,439 Speaker 2: podcast where we talk about stuff related to money. I'm 4 00:00:18,440 --> 00:00:21,360 Speaker 2: Matt Levine and I write The Money Stuff Colin for Bloomberg. 5 00:00:20,960 --> 00:00:23,880 Speaker 1: Opinion, and I'm Katie Greifeld, a reporter for Bloomberg News 6 00:00:23,880 --> 00:00:25,520 Speaker 1: and an anchor for Bloomberg Television. 7 00:00:26,239 --> 00:00:26,800 Speaker 2: Got Katie. 8 00:00:26,960 --> 00:00:29,040 Speaker 1: We're going to talk about a merger. 9 00:00:29,760 --> 00:00:31,520 Speaker 2: I don't think it's a merger. I think we're talking 10 00:00:31,520 --> 00:00:32,360 Speaker 2: about short squeeze. 11 00:00:32,560 --> 00:00:34,680 Speaker 1: We're going to talk about a short squeeze. That's not 12 00:00:34,800 --> 00:00:38,760 Speaker 1: a merger. There is fraud involved. We're going to talk 13 00:00:38,880 --> 00:00:42,760 Speaker 1: about on cycle private equity recruiting. It wasn't a world 14 00:00:42,800 --> 00:00:43,919 Speaker 1: that I was familiar with. 15 00:00:44,240 --> 00:00:45,200 Speaker 2: That's an important world. 16 00:00:45,320 --> 00:00:48,000 Speaker 1: And then we're going to talk about bloom Er Candy Delicious. 17 00:00:48,320 --> 00:00:55,200 Speaker 1: I'm gonna say that. Okay, so this is a merger, 18 00:00:55,320 --> 00:00:56,000 Speaker 1: but maybe it's not. 19 00:00:56,200 --> 00:00:57,600 Speaker 2: We're telling you about MMTLP. 20 00:00:58,160 --> 00:00:59,480 Speaker 1: Yeah, there's some more here. 21 00:01:00,000 --> 00:01:02,440 Speaker 2: Thing that people on social media really care about it. 22 00:01:02,520 --> 00:01:04,160 Speaker 1: Oh yeah, a lot, a lot. 23 00:01:04,319 --> 00:01:06,200 Speaker 2: I've been getting emails about it for years. 24 00:01:06,520 --> 00:01:09,440 Speaker 1: Yeah, I mean I was reading some Reddit posts from 25 00:01:09,680 --> 00:01:12,640 Speaker 1: three years ago this morning. Gosh, how to begin how 26 00:01:12,640 --> 00:01:13,600 Speaker 1: to begin begin. 27 00:01:14,319 --> 00:01:17,840 Speaker 2: So there's an oil company called Torchlight. It had some 28 00:01:18,400 --> 00:01:20,800 Speaker 2: leases that were not producing a lot of oil, but 29 00:01:20,840 --> 00:01:23,280 Speaker 2: I like drill the releases. But it was a publicly 30 00:01:23,319 --> 00:01:25,920 Speaker 2: listed company and it did a reverse merger with a 31 00:01:25,959 --> 00:01:29,679 Speaker 2: like material science company, and they decided to get rid 32 00:01:29,680 --> 00:01:31,840 Speaker 2: of the oil assets, and like they could do it bad, 33 00:01:31,840 --> 00:01:33,720 Speaker 2: like spinning it out to shareholders. But like at some 34 00:01:33,880 --> 00:01:38,000 Speaker 2: point they had conceived this notion that short sellers were 35 00:01:38,120 --> 00:01:40,360 Speaker 2: bad and that like short sellers were the problem with 36 00:01:40,360 --> 00:01:41,560 Speaker 2: the company, and they were like, we want to find 37 00:01:41,560 --> 00:01:43,960 Speaker 2: a way to punish the short sellers. And the way 38 00:01:44,000 --> 00:01:46,200 Speaker 2: you do that, it turns out there's like a technology 39 00:01:46,200 --> 00:01:48,800 Speaker 2: to punish short sellers, which is that instead of spinning 40 00:01:48,800 --> 00:01:52,280 Speaker 2: out Torchlight or like the oil assets as a new 41 00:01:52,320 --> 00:01:54,680 Speaker 2: company where people could buy and sell the stock, you 42 00:01:54,720 --> 00:01:57,120 Speaker 2: spin it out as a company where they can't buy 43 00:01:57,160 --> 00:01:59,160 Speaker 2: and solve the stock. And the reason you do that 44 00:01:59,240 --> 00:02:00,600 Speaker 2: is like, if you were a short seller who is 45 00:02:00,600 --> 00:02:03,080 Speaker 2: short Torchlight, you've borrowed the stock and you have to 46 00:02:03,080 --> 00:02:06,080 Speaker 2: return what you borrowed. So if Torchlight splits up into 47 00:02:06,080 --> 00:02:08,680 Speaker 2: two companies, one of which is like the new Meta Materials, 48 00:02:09,160 --> 00:02:11,359 Speaker 2: that like has a public traded stock and one of 49 00:02:11,400 --> 00:02:14,200 Speaker 2: them is like this new not traded stock, then you 50 00:02:14,240 --> 00:02:16,760 Speaker 2: have to return both of those things to your stock lender. 51 00:02:16,919 --> 00:02:18,680 Speaker 2: Public get traded stock is easy, you just go buy 52 00:02:18,720 --> 00:02:21,000 Speaker 2: it on the stock market, but the not traded stock 53 00:02:21,280 --> 00:02:23,000 Speaker 2: you can't buy in the stock market, so you can't 54 00:02:23,000 --> 00:02:26,200 Speaker 2: return it to your stock lender. And so what Torchlight 55 00:02:26,240 --> 00:02:28,520 Speaker 2: figured out is if we do this merger and like 56 00:02:28,639 --> 00:02:30,840 Speaker 2: we have like this new meta material stock that's the 57 00:02:31,080 --> 00:02:33,960 Speaker 2: new public company, and we also have this other non 58 00:02:34,000 --> 00:02:38,440 Speaker 2: traded stock, then like the short sellers will see that, 59 00:02:38,760 --> 00:02:41,200 Speaker 2: and before the merger closes, they will know they have 60 00:02:41,280 --> 00:02:45,080 Speaker 2: to buy back their Torchlight short positions because after the 61 00:02:45,080 --> 00:02:47,679 Speaker 2: merger closes, they'll be host there'll be no way to 62 00:02:47,720 --> 00:02:49,720 Speaker 2: close out there short they'll be in big trouble. This 63 00:02:49,800 --> 00:02:52,120 Speaker 2: is the idea, and so they do that. They created 64 00:02:52,120 --> 00:02:54,400 Speaker 2: this non traded stock or this thing that wasn't supposed 65 00:02:54,400 --> 00:02:57,360 Speaker 2: to be traded called MMTLP. It's like a weird preferred 66 00:02:57,360 --> 00:03:01,280 Speaker 2: stock of the new public company that wasn't supposed to 67 00:03:01,280 --> 00:03:03,520 Speaker 2: be traded on a public stock exchange, and like sort 68 00:03:03,560 --> 00:03:06,079 Speaker 2: of represented a claim on the oil and gas assets. 69 00:03:06,600 --> 00:03:10,000 Speaker 2: And they like announced this merger, and they went out 70 00:03:10,080 --> 00:03:13,840 Speaker 2: and sort of marketed quietly to the right people. They 71 00:03:13,919 --> 00:03:16,280 Speaker 2: marketed the idea that there would be a short squeeze, 72 00:03:16,400 --> 00:03:18,280 Speaker 2: and so they didn't put it in their public filings. 73 00:03:18,280 --> 00:03:19,560 Speaker 2: They weren't like, oh, we're doing this to do a 74 00:03:19,560 --> 00:03:22,400 Speaker 2: short squeeze, but like privately amongst themselves, they were like, 75 00:03:22,400 --> 00:03:24,280 Speaker 2: we're doing this to do a short squeeze, and like 76 00:03:24,360 --> 00:03:27,520 Speaker 2: they sort of like tried to convince short sellers that 77 00:03:27,560 --> 00:03:29,840 Speaker 2: they would get squeezed. And they also like tried to 78 00:03:29,840 --> 00:03:32,560 Speaker 2: convince some number of Torchlight shareholders that there would be 79 00:03:32,560 --> 00:03:34,480 Speaker 2: the short squeeze. And the point of all this is 80 00:03:34,600 --> 00:03:37,160 Speaker 2: just before the merger, there's a short squeeze, all the 81 00:03:37,160 --> 00:03:39,240 Speaker 2: short sellers have to buy back the stock. The stock 82 00:03:39,280 --> 00:03:40,960 Speaker 2: goes way up, and what they do is just before 83 00:03:40,960 --> 00:03:42,720 Speaker 2: the merger they sell a bunch of stock. They doing 84 00:03:42,760 --> 00:03:45,120 Speaker 2: at the market offering a stock like right before the 85 00:03:45,120 --> 00:03:47,600 Speaker 2: merger closes in order to take advantage of the short 86 00:03:47,600 --> 00:03:50,600 Speaker 2: squeeze and raise like one hundred million dollars to use 87 00:03:50,640 --> 00:03:52,600 Speaker 2: to like keep drilling Torchlights oil leases. 88 00:03:52,720 --> 00:03:54,560 Speaker 1: That feels like meme stock economics. 89 00:03:54,800 --> 00:03:57,960 Speaker 2: It's very meme stock economics. The difference between this and 90 00:03:58,080 --> 00:04:02,240 Speaker 2: like game Stop is one, the company is explicitly like saying, hey, 91 00:04:02,280 --> 00:04:03,800 Speaker 2: there's gonna be a short scueze, usually in like a 92 00:04:03,880 --> 00:04:05,800 Speaker 2: meme stock. It's like people on Reddit are saying, hey, 93 00:04:05,840 --> 00:04:07,800 Speaker 2: there's gonna be a short scuzz here. It's the company doing. 94 00:04:07,960 --> 00:04:10,040 Speaker 2: But then two, the other thing that's like really important 95 00:04:10,120 --> 00:04:13,120 Speaker 2: is they engineered the short squeeze by like giving out 96 00:04:13,120 --> 00:04:15,800 Speaker 2: this non traded stock in game Stop or whatever. The 97 00:04:15,920 --> 00:04:18,680 Speaker 2: short squeeze is not like a real short squeeze. It's 98 00:04:18,680 --> 00:04:21,000 Speaker 2: just like the price goes up and so short sellers 99 00:04:21,080 --> 00:04:23,640 Speaker 2: like lose money and so they feel like they need 100 00:04:23,640 --> 00:04:26,359 Speaker 2: to cover their short positions. But this is a specific 101 00:04:26,440 --> 00:04:30,560 Speaker 2: designed structure to make it impossible to keep a short 102 00:04:30,600 --> 00:04:33,039 Speaker 2: position on. So even if the stock went down, the 103 00:04:33,040 --> 00:04:35,160 Speaker 2: shorts would still be in trouble because they wouldn't be 104 00:04:35,160 --> 00:04:37,920 Speaker 2: able to buy back this weird non traded stock that 105 00:04:37,960 --> 00:04:40,279 Speaker 2: the company was giving out. So that was the idea. 106 00:04:40,360 --> 00:04:42,560 Speaker 2: Now I don't know if it worked. And the reason 107 00:04:42,640 --> 00:04:45,000 Speaker 2: we're talking about it is the SEC brought a fraud 108 00:04:45,120 --> 00:04:49,119 Speaker 2: case against Meta Materials, the company, and like the SEEO 109 00:04:49,120 --> 00:04:51,760 Speaker 2: of Torchlight and the former CEO of Meta materials who 110 00:04:51,760 --> 00:04:54,840 Speaker 2: were sort of allegedly in on this plan. And the 111 00:04:54,880 --> 00:04:56,680 Speaker 2: SEC says what you were doing was fraud, but they 112 00:04:56,680 --> 00:04:59,040 Speaker 2: don't know why it was fraud. They say, either it 113 00:04:59,080 --> 00:05:01,920 Speaker 2: was fraud because you did this short squeeze and that's 114 00:05:01,960 --> 00:05:04,400 Speaker 2: market manipulation. You're not allowed to do this thing that 115 00:05:04,480 --> 00:05:06,719 Speaker 2: causes the short squeeze, or it was fraud because you 116 00:05:06,760 --> 00:05:09,400 Speaker 2: didn't actually succeeded during the short scuers. No short sellers 117 00:05:09,440 --> 00:05:12,040 Speaker 2: bought back their stock. There was fine, but you convinced 118 00:05:12,120 --> 00:05:14,960 Speaker 2: enough retail shareholders that there would be a short squeeze 119 00:05:15,040 --> 00:05:16,440 Speaker 2: that they all bought the stock and then you were 120 00:05:16,440 --> 00:05:18,000 Speaker 2: able to sell because the stock did go up a lot, 121 00:05:18,200 --> 00:05:19,240 Speaker 2: because just nobody knows why the. 122 00:05:19,240 --> 00:05:21,159 Speaker 1: Stock But either way, what you did is fraud. 123 00:05:21,360 --> 00:05:22,560 Speaker 2: That's what the SEC says. 124 00:05:22,960 --> 00:05:26,839 Speaker 1: So what does this mean for the actual shareholders because 125 00:05:26,880 --> 00:05:30,120 Speaker 1: there were actual shareholders in this company while this was 126 00:05:30,120 --> 00:05:30,640 Speaker 1: all happening. 127 00:05:30,720 --> 00:05:33,640 Speaker 2: Oh yeah, if you bought stock, there's a good chance 128 00:05:33,640 --> 00:05:35,360 Speaker 2: you lost money. Right, Like the company sold you all 129 00:05:35,400 --> 00:05:37,840 Speaker 2: the stock at basically the peak, right, like they did 130 00:05:37,839 --> 00:05:39,760 Speaker 2: this short squeeze or whatever it was, like the stock 131 00:05:39,800 --> 00:05:42,000 Speaker 2: went way up and they did an out the market offering, 132 00:05:42,040 --> 00:05:43,839 Speaker 2: like right at the peak because they timed it to 133 00:05:44,000 --> 00:05:46,120 Speaker 2: when they were planning to have the short squeeze, and 134 00:05:46,160 --> 00:05:48,479 Speaker 2: so they sold one hundred million dollars worth of stock 135 00:05:48,800 --> 00:05:52,480 Speaker 2: to people, maybe some short sellers, but a lot of 136 00:05:52,480 --> 00:05:55,400 Speaker 2: like regular investors at prices that you know, like then 137 00:05:55,440 --> 00:05:57,600 Speaker 2: the stock fell by like, you know, eighty percent, so 138 00:05:57,920 --> 00:06:00,200 Speaker 2: a lot of people lost money. The other thing it means, though, 139 00:06:00,279 --> 00:06:02,719 Speaker 2: is like if you bought the stock sort of leading 140 00:06:02,720 --> 00:06:06,160 Speaker 2: into the short squeeze, you got shares of Meta Materials, 141 00:06:06,160 --> 00:06:08,280 Speaker 2: which is the public company, but you also got these 142 00:06:08,360 --> 00:06:11,839 Speaker 2: MMTLP shares. And the MMTLP shares were supposed to be 143 00:06:11,920 --> 00:06:14,120 Speaker 2: not traded, right, so like instead of having like a 144 00:06:14,120 --> 00:06:16,200 Speaker 2: public company, like you own torch Light, which is a 145 00:06:16,200 --> 00:06:18,400 Speaker 2: public company, and now you have like this not traded company. 146 00:06:18,480 --> 00:06:20,800 Speaker 2: Now it turns out they were traded. The company was like, 147 00:06:20,800 --> 00:06:22,360 Speaker 2: we're going to make them not traded. We're going to 148 00:06:22,440 --> 00:06:24,120 Speaker 2: like not list them on a stock exchange. But that 149 00:06:24,160 --> 00:06:26,640 Speaker 2: doesn't matter. They can still trade over the counter. It's 150 00:06:26,640 --> 00:06:30,159 Speaker 2: still a public company. And so in fact, MMCLP shares 151 00:06:30,200 --> 00:06:33,200 Speaker 2: did trade, not a lot, but they traded. You know, 152 00:06:33,200 --> 00:06:35,760 Speaker 2: the sec cases about stuff that happened only twenty twenty one. 153 00:06:36,400 --> 00:06:39,279 Speaker 2: Since then, yeah, MMCLP has become even more of a 154 00:06:39,360 --> 00:06:42,279 Speaker 2: meme because what happened is at some point the company 155 00:06:42,320 --> 00:06:45,760 Speaker 2: was like, you know what, the stock is not non 156 00:06:45,839 --> 00:06:49,200 Speaker 2: traded enough for us. There are still short sellers. 157 00:06:49,520 --> 00:06:52,280 Speaker 1: We're still mad at short to exterminate them. 158 00:06:52,279 --> 00:06:54,880 Speaker 2: So we're going to do this again, but like more so. 159 00:06:55,080 --> 00:06:57,040 Speaker 2: And so they did is they took MMTLP, which was 160 00:06:57,040 --> 00:06:59,520 Speaker 2: sort of like a tracking stock on the oil assets, 161 00:06:59,839 --> 00:07:02,200 Speaker 2: and they replaced it with they spun out the oil 162 00:07:02,200 --> 00:07:06,280 Speaker 2: assets into a new company called next Bridge, and the 163 00:07:06,320 --> 00:07:09,160 Speaker 2: stock of that company is like super duper not traded. 164 00:07:09,760 --> 00:07:14,320 Speaker 2: It's not registered with DTC, the like repository of all stock. 165 00:07:14,600 --> 00:07:17,000 Speaker 2: And so what that means is your broker can't hold 166 00:07:17,360 --> 00:07:19,680 Speaker 2: or transfer your shares for you, so it's just you 167 00:07:19,760 --> 00:07:21,640 Speaker 2: really can't trade it at all. And the idea was 168 00:07:21,680 --> 00:07:24,000 Speaker 2: like that would really drive out the short sellers. You 169 00:07:24,040 --> 00:07:26,400 Speaker 2: definitely couldn't buy that stock to close out your short 170 00:07:26,560 --> 00:07:28,280 Speaker 2: So I don't really know how many short sellers were 171 00:07:28,320 --> 00:07:31,520 Speaker 2: left at MMTLP because it was hard to trade it. 172 00:07:31,640 --> 00:07:33,320 Speaker 2: The plan wasn't twenty twenty one they were gonna get 173 00:07:33,360 --> 00:07:36,640 Speaker 2: rid of all the short sellers, but they replaced MMTLP 174 00:07:36,720 --> 00:07:38,840 Speaker 2: with Next Bridge. They published a perspective for it that 175 00:07:38,920 --> 00:07:41,320 Speaker 2: like explicitly said there's going to be a short squeeze, 176 00:07:41,640 --> 00:07:45,400 Speaker 2: and there was, in fact, again a rally, and MMTLP 177 00:07:45,520 --> 00:07:47,840 Speaker 2: stock is like either because there was a short squeeze 178 00:07:47,960 --> 00:07:49,720 Speaker 2: or because people were like, oh, there's gonna be a 179 00:07:49,720 --> 00:07:52,920 Speaker 2: short squez, it's great. And then Finra, the financial regulator, 180 00:07:53,600 --> 00:07:55,800 Speaker 2: halted trading in the stock like two days before it 181 00:07:55,840 --> 00:07:58,280 Speaker 2: poofed into Next Bridge, And so all these people who 182 00:07:58,280 --> 00:08:01,000 Speaker 2: had bought the stock expecting one there'd be a short 183 00:08:01,000 --> 00:08:03,160 Speaker 2: squeeze and two they would then sell at the peak, 184 00:08:03,400 --> 00:08:06,280 Speaker 2: they got stuck in it. They had stuck holding mm 185 00:08:06,280 --> 00:08:09,040 Speaker 2: TOP for like the last two days, and then it 186 00:08:09,240 --> 00:08:11,440 Speaker 2: poofed into a Next Bridge, which they can't sell at all. 187 00:08:11,520 --> 00:08:14,400 Speaker 2: So now I just own the stock in this oil 188 00:08:14,400 --> 00:08:16,240 Speaker 2: company that doesn't make any money, and like you know, 189 00:08:16,280 --> 00:08:18,320 Speaker 2: as in oil properties, it may one day make money, 190 00:08:18,440 --> 00:08:20,480 Speaker 2: but they can't trade it because it's really super duper 191 00:08:20,600 --> 00:08:23,160 Speaker 2: not tradable, and so it's like these decisions that the 192 00:08:23,160 --> 00:08:26,720 Speaker 2: company made were really bad for shareholders. Yeah, they made 193 00:08:26,720 --> 00:08:29,800 Speaker 2: life much worse for actual shareholders in the pursuit of 194 00:08:29,840 --> 00:08:31,120 Speaker 2: making life worse for short. 195 00:08:30,880 --> 00:08:33,880 Speaker 1: Sellers in a way, I find that sort of just 196 00:08:34,160 --> 00:08:37,200 Speaker 1: do whatever it takes kind of just amazing. 197 00:08:37,480 --> 00:08:39,720 Speaker 2: Yeah, it's like such a sort of well known obvious 198 00:08:39,800 --> 00:08:43,199 Speaker 2: fact that if a company is going around doing stuff 199 00:08:43,320 --> 00:08:45,480 Speaker 2: for the purpose of hoording short sellers, one that's gonna 200 00:08:45,480 --> 00:08:47,840 Speaker 2: be bad for shareholders, but two, like that company is 201 00:08:47,880 --> 00:08:50,880 Speaker 2: focused on the wrong thing, right, Yeah, if you're thinking 202 00:08:50,880 --> 00:08:53,320 Speaker 2: about short sellers like twenty percent of the time, like 203 00:08:53,400 --> 00:08:55,160 Speaker 2: you are not spending enough time on your business, and 204 00:08:55,200 --> 00:08:57,400 Speaker 2: these guys are thinking about short sellers like ninety percent, I. 205 00:08:57,400 --> 00:08:59,440 Speaker 1: Was gonna say that's one hundred percent. Well, there's a 206 00:08:59,440 --> 00:09:01,360 Speaker 1: few questions that I'm hoping you can help me out with. 207 00:09:01,440 --> 00:09:07,760 Speaker 1: So before this combination, it was Torchlight that was heavily shorted, right, 208 00:09:08,120 --> 00:09:10,920 Speaker 1: and it was the old version of Meta Materials that 209 00:09:11,160 --> 00:09:13,080 Speaker 1: wanted to do the merger so that they would get 210 00:09:13,120 --> 00:09:13,520 Speaker 1: the list in. 211 00:09:13,600 --> 00:09:16,240 Speaker 2: Yeah. Meta material is like a small Canadian company and 212 00:09:16,280 --> 00:09:18,160 Speaker 2: they were like listed on a I think on one 213 00:09:18,200 --> 00:09:20,720 Speaker 2: of the secondary Canadian stock exchanges, and they wanted a 214 00:09:20,800 --> 00:09:23,520 Speaker 2: US listing, and so yeah, torch Light had a Nasdaq listing, 215 00:09:23,559 --> 00:09:27,559 Speaker 2: and so they did a reverse merger where basically Meta 216 00:09:27,559 --> 00:09:32,480 Speaker 2: Materials would get Torchlights listing, and torch Light's assets would 217 00:09:32,480 --> 00:09:35,360 Speaker 2: be spun out into this like MMTLP whatever kind of thing. 218 00:09:35,640 --> 00:09:39,559 Speaker 1: What I don't quite understand is both CEOs linking arms 219 00:09:39,600 --> 00:09:42,280 Speaker 1: in this cause to just like kill all the shorts. 220 00:09:42,520 --> 00:09:47,079 Speaker 1: Why did this become the cause of the Meta Materials, Like, 221 00:09:47,120 --> 00:09:48,240 Speaker 1: I don't know. It just feels like there was a 222 00:09:48,240 --> 00:09:49,120 Speaker 1: cleaner way to do this. 223 00:09:49,200 --> 00:09:52,560 Speaker 2: Okay, yes, but the SEC would say the goal here 224 00:09:52,600 --> 00:09:55,360 Speaker 2: was not just to kill the shorts. There was another goal, 225 00:09:55,559 --> 00:09:57,800 Speaker 2: which the pump the stock up, right, and like so 226 00:09:57,840 --> 00:09:59,680 Speaker 2: they did pump the stock up. They raised like one 227 00:09:59,720 --> 00:10:02,080 Speaker 2: hundred million, a hundred plus million dollars selling stock into 228 00:10:02,080 --> 00:10:05,080 Speaker 2: this whatever it was rally, and then most of that 229 00:10:05,120 --> 00:10:08,160 Speaker 2: money went to Meta Materials M. The Canadian company got 230 00:10:08,200 --> 00:10:10,520 Speaker 2: not only the publicly thing, but like this money from 231 00:10:10,520 --> 00:10:12,920 Speaker 2: this pumped up stock price. Now, the deal was they'd 232 00:10:12,960 --> 00:10:14,760 Speaker 2: give some of that money to like Torchlight, to like 233 00:10:14,840 --> 00:10:17,240 Speaker 2: keep drilling the assets. But the SEC would say they 234 00:10:17,280 --> 00:10:19,720 Speaker 2: went around looking for companies that wanted a reverse merger 235 00:10:19,720 --> 00:10:21,800 Speaker 2: and then they're like, hey, by the way, we have 236 00:10:21,880 --> 00:10:23,760 Speaker 2: this great plan to pump up the stock price and 237 00:10:23,800 --> 00:10:25,280 Speaker 2: like raise a lot of money, and then you know, 238 00:10:25,360 --> 00:10:27,360 Speaker 2: some number of CEOs would say like, oh great, yeah, 239 00:10:27,440 --> 00:10:29,079 Speaker 2: I want a pumped up stock price and I want 240 00:10:29,080 --> 00:10:30,040 Speaker 2: a lot of money a good deal. 241 00:10:30,160 --> 00:10:30,600 Speaker 1: There you go. 242 00:10:30,760 --> 00:10:33,800 Speaker 2: So they did it. Now, why did Meta Materials do 243 00:10:33,920 --> 00:10:37,680 Speaker 2: the extra super duper not tradable thing? Why afterwards? I 244 00:10:37,720 --> 00:10:39,480 Speaker 2: don't know. I think some of it might be they 245 00:10:39,480 --> 00:10:40,959 Speaker 2: were really mad at short sellers. Some of it was 246 00:10:41,000 --> 00:10:42,800 Speaker 2: like they had to get rid of this MMTLP things. 247 00:10:42,840 --> 00:10:45,280 Speaker 2: Somehow they did have this retail investor base that has 248 00:10:45,360 --> 00:10:48,280 Speaker 2: spent years having conspiracy theories about short sellers. 249 00:10:48,760 --> 00:10:52,120 Speaker 1: So you wrote in your Money Steff column that they 250 00:10:52,160 --> 00:10:56,160 Speaker 1: took a page from the Overstock CEO's book from that 251 00:10:56,280 --> 00:10:59,600 Speaker 1: experience who did something similar. Then they did this, which 252 00:10:59,679 --> 00:11:02,000 Speaker 1: was a lightly better version. That's what you called it. 253 00:11:02,080 --> 00:11:03,640 Speaker 1: I wonder where this now evolves to. 254 00:11:04,240 --> 00:11:06,199 Speaker 2: Well, we're like really in the middle of the story 255 00:11:06,240 --> 00:11:08,959 Speaker 2: because the SEC brought these charges saying that the thing 256 00:11:09,000 --> 00:11:10,760 Speaker 2: they did in the merger in twenty twenty one was 257 00:11:10,760 --> 00:11:14,760 Speaker 2: a fraud. But there's still the like MMTLP into next Bridge, 258 00:11:14,960 --> 00:11:18,400 Speaker 2: the trading halt that's hotly controversial. They've been writing letters 259 00:11:18,440 --> 00:11:21,880 Speaker 2: to Congress, They've been sending threatening emails to journalists. They've 260 00:11:21,880 --> 00:11:23,840 Speaker 2: been sending very polite emails to me, honest, they sort 261 00:11:23,840 --> 00:11:26,360 Speaker 2: of arguing about this, like, I, you know, all my 262 00:11:26,679 --> 00:11:29,640 Speaker 2: interactions with the MMTLP people have been fine, but there's 263 00:11:29,640 --> 00:11:31,679 Speaker 2: a lot of them, like they're really passionate about it. 264 00:11:32,080 --> 00:11:35,600 Speaker 2: And the conspiracy theory at this point involves Finra. The 265 00:11:35,760 --> 00:11:39,640 Speaker 2: MMTLP community believes that the trading halt in that stock 266 00:11:40,320 --> 00:11:43,800 Speaker 2: was Finna trying to bail out short sellers, and like 267 00:11:44,280 --> 00:11:46,680 Speaker 2: Finra is conspiring with short sellers. By the way, this 268 00:11:46,760 --> 00:11:49,000 Speaker 2: is not true. The halt came after the X date 269 00:11:49,080 --> 00:11:50,880 Speaker 2: for short sellers to have to close out their positions, 270 00:11:50,920 --> 00:11:52,560 Speaker 2: like this is not true. But they you know, they're 271 00:11:52,600 --> 00:11:55,040 Speaker 2: calling for hearings and whatnot. And so meanwhile, the sec 272 00:11:55,120 --> 00:11:58,080 Speaker 2: like explicitly said in this case, we are still continuing 273 00:11:58,120 --> 00:12:01,400 Speaker 2: our investigation of the subsequent events MMTLP, so there will 274 00:12:01,400 --> 00:12:04,080 Speaker 2: probably be another case about the MMTLP. 275 00:12:04,360 --> 00:12:05,880 Speaker 1: So are you rooting for chaos here? 276 00:12:06,120 --> 00:12:08,040 Speaker 2: No? Okay, I kind of like. 277 00:12:08,800 --> 00:12:11,560 Speaker 1: Do you want there to be hearings because that's something 278 00:12:11,600 --> 00:12:12,120 Speaker 1: a little. 279 00:12:11,880 --> 00:12:13,800 Speaker 2: Bit fun like to me, Like, I feel really bad 280 00:12:13,800 --> 00:12:15,880 Speaker 2: for the regulators here, who, like I think, are just 281 00:12:16,840 --> 00:12:21,520 Speaker 2: doing very straightforward market regulation, and you clearly think you 282 00:12:21,520 --> 00:12:24,080 Speaker 2: know the SEC's position here, which is what I've been saying, 283 00:12:24,120 --> 00:12:25,680 Speaker 2: you know, since I started writing about this, is like 284 00:12:26,240 --> 00:12:29,880 Speaker 2: this company was doing a fraud by trying to arrange 285 00:12:29,920 --> 00:12:33,640 Speaker 2: the short squeeze, and all of the investors think the opposite. 286 00:12:33,679 --> 00:12:35,520 Speaker 2: They think the short sellers were doing some sort of 287 00:12:35,559 --> 00:12:37,800 Speaker 2: fraud and the company was just helping out shareholders by 288 00:12:37,800 --> 00:12:39,880 Speaker 2: taking revenge on the shorts, which is again not true 289 00:12:39,920 --> 00:12:42,440 Speaker 2: because the shareholders are stuck in this non treaded stock 290 00:12:42,440 --> 00:12:44,120 Speaker 2: and have lost a lot of money. So I just 291 00:12:44,120 --> 00:12:47,559 Speaker 2: think that the regulators are sort of very straightforwardly doing 292 00:12:47,600 --> 00:12:50,400 Speaker 2: the right thing and trying to prevent weird market manipulations, 293 00:12:50,679 --> 00:12:53,559 Speaker 2: and like somehow there's this populist view that that's all 294 00:12:53,600 --> 00:12:57,440 Speaker 2: wrong and the regulators should be punishing the short sellers 295 00:12:57,480 --> 00:13:00,280 Speaker 2: and like this sort of short squeeze is good. So no, 296 00:13:00,360 --> 00:13:02,240 Speaker 2: I'm not reading for I often read for Cass, but 297 00:13:02,280 --> 00:13:04,520 Speaker 2: here I'm like, these hard working regulators are just trying 298 00:13:04,559 --> 00:13:06,440 Speaker 2: to keep orderly markets and we should. 299 00:13:06,280 --> 00:13:07,480 Speaker 1: Let them God bless them. 300 00:13:07,559 --> 00:13:10,480 Speaker 2: Yeah, I'm going to talk about my favorite financial story. Ever. 301 00:13:10,800 --> 00:13:14,000 Speaker 2: I think it's interesting that the SEC believes that like 302 00:13:14,760 --> 00:13:18,200 Speaker 2: engineering a short squeeze is illegal. It's not like super 303 00:13:18,240 --> 00:13:20,520 Speaker 2: clear to me that that's right, but you know, it's 304 00:13:20,559 --> 00:13:23,880 Speaker 2: probably right. I mean it's market manipation, right. It's like 305 00:13:23,960 --> 00:13:26,839 Speaker 2: causing the price of a security not to reflect the 306 00:13:26,880 --> 00:13:29,880 Speaker 2: fundamentals of supply, and that's kind of market manipulation. So 307 00:13:29,920 --> 00:13:32,240 Speaker 2: I understand the case. It's probably right, but it's a 308 00:13:32,240 --> 00:13:36,120 Speaker 2: little odd. And every so often not companies, just market 309 00:13:36,160 --> 00:13:39,079 Speaker 2: participants engineer a short squeeze. And my favorite of them 310 00:13:39,520 --> 00:13:43,160 Speaker 2: is in twenty twelve, the SEC brought acase against Phil Falcone, 311 00:13:43,200 --> 00:13:46,960 Speaker 2: who ran Arbager, the hedge fund he like owned some 312 00:13:47,000 --> 00:13:50,120 Speaker 2: bonds which are delightfully called the max zips. I don't 313 00:13:50,160 --> 00:13:52,560 Speaker 2: know what Max is. I don't know his bonds, right, 314 00:13:53,000 --> 00:13:55,560 Speaker 2: And he like owned these boonds. He liked these bonds, 315 00:13:55,840 --> 00:14:00,280 Speaker 2: and he heard that some bank was shorting them, also 316 00:14:00,360 --> 00:14:02,480 Speaker 2: encouraging its clients to short them, and he got mad 317 00:14:02,480 --> 00:14:04,480 Speaker 2: at short slash. And so what he did was like, 318 00:14:04,520 --> 00:14:06,320 Speaker 2: He's like, okay, you're shorting the bonds. So he would 319 00:14:06,320 --> 00:14:08,320 Speaker 2: buy them. Like people would short the bonds, he'd buy them, 320 00:14:08,640 --> 00:14:11,120 Speaker 2: and he would also lend out his bonds. If you 321 00:14:11,120 --> 00:14:13,440 Speaker 2: want a short bonds, you have to borrow them from someone, 322 00:14:13,679 --> 00:14:16,400 Speaker 2: and so you know, Phil Falcone would tell his prime broker, 323 00:14:16,400 --> 00:14:18,719 Speaker 2: you can let out my bonds, and his bonds got 324 00:14:18,760 --> 00:14:20,600 Speaker 2: loaned up, and like he would keep landing at bonds. 325 00:14:20,640 --> 00:14:23,240 Speaker 2: People would borrow them, they'd sell them, he'd buy them, 326 00:14:23,280 --> 00:14:25,680 Speaker 2: he'd lend them out again, and ultimately he ended up 327 00:14:25,680 --> 00:14:29,080 Speaker 2: owning more than all of the bonds. The company issued 328 00:14:29,080 --> 00:14:30,600 Speaker 2: like two hundred million dollars of bonds and he had 329 00:14:30,720 --> 00:14:32,720 Speaker 2: own two hundred and twenty million because he had like 330 00:14:32,960 --> 00:14:34,360 Speaker 2: bought all of them and loan them out and then 331 00:14:34,400 --> 00:14:36,440 Speaker 2: bought them again. And so once he owned more than 332 00:14:36,480 --> 00:14:39,880 Speaker 2: all of the bonds, he stopped lending them out. He 333 00:14:39,960 --> 00:14:42,280 Speaker 2: called in the stock bar, He called all the brokerage 334 00:14:42,320 --> 00:14:45,600 Speaker 2: firms and said I want my bonds back, and they 335 00:14:45,600 --> 00:14:48,440 Speaker 2: had to go buy them to return them to Phil Falcon, 336 00:14:49,000 --> 00:14:51,160 Speaker 2: and they couldn't buy them because he owned all of 337 00:14:51,200 --> 00:14:54,600 Speaker 2: them and he wasn't selling. Yeah, and so the sec 338 00:14:54,960 --> 00:14:58,000 Speaker 2: has this incredible passage of like this unnamed at banker 339 00:14:58,040 --> 00:15:01,000 Speaker 2: brokerage called Phil Falcon. It was like, you know, we 340 00:15:01,080 --> 00:15:03,480 Speaker 2: understand you want your bonds back, but we can't find 341 00:15:03,520 --> 00:15:06,200 Speaker 2: them to buy them. And he said they should quote 342 00:15:06,360 --> 00:15:07,360 Speaker 2: just keep it bidding. 343 00:15:07,760 --> 00:15:09,040 Speaker 1: Oh my goodness. 344 00:15:09,160 --> 00:15:11,920 Speaker 2: And he said, sometimes you are just on the wrong 345 00:15:12,040 --> 00:15:13,000 Speaker 2: side of the trade. 346 00:15:13,840 --> 00:15:14,160 Speaker 1: Wow. 347 00:15:14,600 --> 00:15:18,800 Speaker 2: And so you know, the bank was like, I don't understand. Apparently, 348 00:15:18,800 --> 00:15:21,720 Speaker 2: Falcone said that he knew that there was a long 349 00:15:21,760 --> 00:15:24,560 Speaker 2: position in the bonds and excess of like the size 350 00:15:24,560 --> 00:15:26,960 Speaker 2: of the total bonds, and and the bank said, how 351 00:15:26,960 --> 00:15:28,920 Speaker 2: could you know this. Phial Cones said that he was 352 00:15:28,960 --> 00:15:31,880 Speaker 2: working the position himself and that he had acquired approximately 353 00:15:31,920 --> 00:15:34,840 Speaker 2: one hundred and ninety million bonds, meaning more than all 354 00:15:34,880 --> 00:15:37,720 Speaker 2: of the bonds. Yeah, And the SEC says the senior 355 00:15:37,760 --> 00:15:41,160 Speaker 2: officer and the other Wall Street firm personnel were stunned. Still, 356 00:15:41,160 --> 00:15:42,920 Speaker 2: I just like picture this conversation. 357 00:15:43,000 --> 00:15:45,240 Speaker 1: It's like he must have been having so much, just like. 358 00:15:45,240 --> 00:15:48,080 Speaker 2: The greatest feeling in the world to be like, oh, yeah, just. 359 00:15:48,440 --> 00:15:50,920 Speaker 1: Keep bidding, but he's gonna I mean, I would be 360 00:15:51,000 --> 00:15:52,680 Speaker 1: chasing that high for the rest of my life. 361 00:15:52,800 --> 00:15:55,520 Speaker 2: I mean yeah, I tell you. The SEC determined that 362 00:15:55,560 --> 00:15:58,440 Speaker 2: this was market manipulation. Come on, they sued him, they settled. 363 00:15:58,440 --> 00:16:00,840 Speaker 2: I don't think he admitted wrongdoing. It my suspicions that 364 00:16:00,880 --> 00:16:02,800 Speaker 2: he thinks and also kind of I think this was 365 00:16:02,840 --> 00:16:05,440 Speaker 2: just extremely cool that you shouldn't have gotten in trouble 366 00:16:05,440 --> 00:16:06,880 Speaker 2: for it, but he did get in trouble for it. 367 00:16:06,920 --> 00:16:11,560 Speaker 2: The SEC believes that engineering a short squeeze is market manipulation, 368 00:16:11,960 --> 00:16:13,800 Speaker 2: so they got meta materials too. 369 00:16:13,920 --> 00:16:17,080 Speaker 1: I just feel like short selling just breaks everyone's brain 370 00:16:17,280 --> 00:16:19,520 Speaker 1: on every single side of it. 371 00:16:19,520 --> 00:16:22,480 Speaker 2: It really does. People get mad at short sellers in 372 00:16:22,480 --> 00:16:24,880 Speaker 2: a way that has just exceeds like what they're actually doing. 373 00:16:24,960 --> 00:16:26,880 Speaker 1: People would say they're manipulating the market. 374 00:16:27,040 --> 00:16:29,080 Speaker 2: Yeah, but like even if you think that, like to 375 00:16:29,280 --> 00:16:32,000 Speaker 2: arrange your entire public company around punishing short sellers is 376 00:16:32,160 --> 00:16:34,120 Speaker 2: just like an overreaction, even if they're. 377 00:16:34,000 --> 00:16:47,760 Speaker 1: Doing something ill, that man can hold a grudge. Should 378 00:16:47,840 --> 00:16:52,040 Speaker 1: we talk about on cycle pe recruiting? I guess I 379 00:16:52,240 --> 00:16:56,600 Speaker 1: s Business Insider of course out with reporting this week 380 00:16:56,640 --> 00:17:01,160 Speaker 1: that apparently his cycle is starting much than usual, or 381 00:17:01,160 --> 00:17:04,040 Speaker 1: at least a month earlier then it started last year, 382 00:17:04,080 --> 00:17:04,920 Speaker 1: which was also starting. 383 00:17:05,080 --> 00:17:06,480 Speaker 2: Yeah, but it's a key month. R So, like the 384 00:17:06,480 --> 00:17:10,320 Speaker 2: way it works is like you go to college, maybe 385 00:17:10,359 --> 00:17:13,720 Speaker 2: like one summer you intern at an investment bank. Sure, 386 00:17:13,800 --> 00:17:15,879 Speaker 2: you graduate from college. I mean, if you're looking to 387 00:17:16,040 --> 00:17:18,800 Speaker 2: work in sort of like the standard financial path, and 388 00:17:18,880 --> 00:17:21,200 Speaker 2: you graduate from college and you go work at an 389 00:17:21,200 --> 00:17:23,960 Speaker 2: investment bank for to your analyst program, and at the 390 00:17:24,000 --> 00:17:27,359 Speaker 2: end of your two year analyst program, you often want 391 00:17:27,440 --> 00:17:30,280 Speaker 2: to work in private equity, and so you get a 392 00:17:30,359 --> 00:17:34,280 Speaker 2: job offer from you know, a big private equity fund KKR, Apollo, 393 00:17:34,640 --> 00:17:39,439 Speaker 2: Blackstone or whatever to start there after your two years 394 00:17:39,480 --> 00:17:43,240 Speaker 2: as an analyst's end. And at some point in the 395 00:17:43,280 --> 00:17:47,480 Speaker 2: distant past, twenty months into your analyst program, after doing 396 00:17:47,520 --> 00:17:49,840 Speaker 2: a bunch of deals and learning how you know, to 397 00:17:50,000 --> 00:17:53,119 Speaker 2: build financial models and generally, you know, getting some experience 398 00:17:53,160 --> 00:17:55,760 Speaker 2: in investment banking, you would go interview at the big 399 00:17:55,800 --> 00:17:57,760 Speaker 2: private equity funds and they'd ask you about your work 400 00:17:57,800 --> 00:18:01,040 Speaker 2: experience and they would hire you, and then you would 401 00:18:01,440 --> 00:18:03,400 Speaker 2: a few months later leave your bank and go work 402 00:18:03,440 --> 00:18:07,200 Speaker 2: in private equity. But over the years, the private equity 403 00:18:07,200 --> 00:18:09,560 Speaker 2: firms realized that they could get the best candidates by 404 00:18:09,560 --> 00:18:12,400 Speaker 2: interviewing a little bit earlier. So like, instead of interviewing 405 00:18:12,400 --> 00:18:15,000 Speaker 2: four months before your analysts program ms, they can interview 406 00:18:15,040 --> 00:18:17,520 Speaker 2: five months before your analyst program mens. And it has 407 00:18:17,560 --> 00:18:20,800 Speaker 2: moved up so much that now it is happening in 408 00:18:20,880 --> 00:18:23,480 Speaker 2: June before your analysts program starts. So like you started 409 00:18:23,600 --> 00:18:25,920 Speaker 2: at a bank in like let's say July or maybe August. 410 00:18:26,280 --> 00:18:29,520 Speaker 2: And now the private equity interviewing is starting in June, 411 00:18:30,400 --> 00:18:31,880 Speaker 2: a little more than two years in advance of when 412 00:18:31,880 --> 00:18:34,159 Speaker 2: you'd start in private equity. So you haven't started at 413 00:18:34,200 --> 00:18:37,520 Speaker 2: your bank yet, and you are doing interviews for the 414 00:18:37,600 --> 00:18:40,680 Speaker 2: job that you will take after your two years the bank. 415 00:18:40,520 --> 00:18:42,800 Speaker 1: Is over to anyone not in that industry or who 416 00:18:42,840 --> 00:18:46,679 Speaker 1: isn't very familiar with this sounds like lunacy. Like that 417 00:18:46,840 --> 00:18:50,320 Speaker 1: sounds like crazy town. And Business Insider had some delicious 418 00:18:50,320 --> 00:18:54,400 Speaker 1: details about these analysts who haven't started at their investment bank. 419 00:18:54,640 --> 00:18:56,520 Speaker 1: Maybe I don't want to call them analysts anyway, these 420 00:18:56,520 --> 00:18:59,480 Speaker 1: people who had analysts, these pre analysts who hadn't started 421 00:18:59,480 --> 00:19:02,440 Speaker 1: their investment bank, not even being in the city yet 422 00:19:02,520 --> 00:19:04,280 Speaker 1: having to hop on a plane. I know that you 423 00:19:04,320 --> 00:19:06,040 Speaker 1: are not sympathetic to their plate. 424 00:19:06,200 --> 00:19:08,080 Speaker 2: Well, I'm sympathetic to their plate. I don't work in 425 00:19:08,080 --> 00:19:12,320 Speaker 2: private equity, yeah, like like I've made different life choices. No, 426 00:19:12,440 --> 00:19:14,600 Speaker 2: I'm sympathetic to their plight. I think that's rough. What 427 00:19:14,680 --> 00:19:17,160 Speaker 2: I wrote is like I sort of understand it as 428 00:19:17,240 --> 00:19:20,520 Speaker 2: the interviewing conditions to some extent reflect the working conditions, right, 429 00:19:20,560 --> 00:19:23,879 Speaker 2: where like you want people who are so dedicated to 430 00:19:23,920 --> 00:19:25,840 Speaker 2: the cause of private equity that they will hop on 431 00:19:25,840 --> 00:19:27,679 Speaker 2: a plane before they've moved to New York to go 432 00:19:27,760 --> 00:19:29,600 Speaker 2: do an interview, Like you know you always read about 433 00:19:29,640 --> 00:19:31,879 Speaker 2: like the encycle recruiting. Like, in some ways this is 434 00:19:31,880 --> 00:19:34,000 Speaker 2: more humane than it was last year, because it used 435 00:19:34,000 --> 00:19:35,479 Speaker 2: to be like you started at your bank and then 436 00:19:35,520 --> 00:19:37,960 Speaker 2: like two weeks later you did your private equity interviewing, 437 00:19:38,240 --> 00:19:41,000 Speaker 2: and like you were working sixteen hour days as an 438 00:19:41,000 --> 00:19:43,000 Speaker 2: investment bank analyst. And so there are stories about like 439 00:19:43,000 --> 00:19:45,320 Speaker 2: people interviewing at two in the morning because that's the 440 00:19:45,359 --> 00:19:46,800 Speaker 2: only time they could get away from their desk. 441 00:19:47,000 --> 00:19:49,520 Speaker 1: Skipping their trainings or something else. 442 00:19:50,040 --> 00:19:50,919 Speaker 2: Skipping their trainings. 443 00:19:50,920 --> 00:19:54,280 Speaker 1: I feel like, fine, oh that's fine. 444 00:19:54,320 --> 00:19:57,400 Speaker 2: No, I mean I feel like in. 445 00:19:57,400 --> 00:20:00,400 Speaker 1: Tier days, Matt, you know, they weren't giving back, right, No. 446 00:20:00,440 --> 00:20:02,560 Speaker 2: But as a matter of like how human it is 447 00:20:02,600 --> 00:20:04,840 Speaker 2: for them, I feel like interviewing at two am after 448 00:20:04,880 --> 00:20:08,080 Speaker 2: a long day of yeah, building pitch books is worse 449 00:20:08,200 --> 00:20:12,639 Speaker 2: than skipping the training that you're probably gonna ignore anyway. 450 00:20:12,680 --> 00:20:13,360 Speaker 2: But maybe that's wrong. 451 00:20:13,600 --> 00:20:16,600 Speaker 1: Yeah, I mean, so I hear your point that again, 452 00:20:16,640 --> 00:20:19,000 Speaker 1: it's like a good test of the actual working conditions 453 00:20:19,000 --> 00:20:20,359 Speaker 1: you should be able to hop on a plane at 454 00:20:20,400 --> 00:20:23,280 Speaker 1: any time. But just hiring someone two years out with 455 00:20:23,359 --> 00:20:26,280 Speaker 1: zero work experience, it doesn't quite solve that problem for 456 00:20:26,359 --> 00:20:27,800 Speaker 1: me because that seems like lunacy. 457 00:20:28,240 --> 00:20:31,360 Speaker 2: It conveys a belief that what you learn in investment 458 00:20:31,400 --> 00:20:34,000 Speaker 2: in banking is completely fungible, which it's true, not in 459 00:20:34,040 --> 00:20:35,880 Speaker 2: a bad way. I think that the private equity firms 460 00:20:35,880 --> 00:20:39,720 Speaker 2: are sort of saying, we trust these banks so much 461 00:20:40,160 --> 00:20:42,480 Speaker 2: to train these people and all that they need to 462 00:20:42,520 --> 00:20:44,199 Speaker 2: know that we're not going to quiz them about what 463 00:20:44,200 --> 00:20:46,280 Speaker 2: they need to know. They're fine, they will go through 464 00:20:46,320 --> 00:20:48,280 Speaker 2: it to your analyst program. They will learn everything they 465 00:20:48,280 --> 00:20:50,200 Speaker 2: need to do private equity and that's fine, and we'll 466 00:20:50,240 --> 00:20:52,080 Speaker 2: just interview them now for like personality fit. 467 00:20:52,200 --> 00:20:54,440 Speaker 1: Are they giving them actual offers at the end of 468 00:20:54,440 --> 00:20:56,840 Speaker 1: the year. That's so that's nut so to me. 469 00:20:56,960 --> 00:20:59,080 Speaker 2: Also, the average like a little bit conditional. Like if 470 00:20:59,119 --> 00:21:01,439 Speaker 2: you like really screw up at your bank, then like 471 00:21:01,520 --> 00:21:03,280 Speaker 2: you lose your offer. I don't exactly know how the 472 00:21:03,280 --> 00:21:05,480 Speaker 2: mechanics of that work. You arrive at your bank with 473 00:21:05,520 --> 00:21:08,320 Speaker 2: an offer at your private equity firm because the privatya 474 00:21:08,400 --> 00:21:10,439 Speaker 2: firm has like seen whatever they're seeing you right, like 475 00:21:10,480 --> 00:21:14,840 Speaker 2: they like your style, your work ethic. Maybe you've interned 476 00:21:14,840 --> 00:21:16,680 Speaker 2: at a bank the previous summer, so you have some 477 00:21:16,880 --> 00:21:17,639 Speaker 2: knowledge of find. 478 00:21:17,640 --> 00:21:19,920 Speaker 1: Maybe you had some great jokes to tell me interview. 479 00:21:19,680 --> 00:21:21,400 Speaker 2: You know, and you've like studied, right, Like you get 480 00:21:21,400 --> 00:21:23,879 Speaker 2: asked questions about valuation and stuff. You have like some 481 00:21:23,960 --> 00:21:26,800 Speaker 2: ability to pretend that you know what you're talking about financially, 482 00:21:26,840 --> 00:21:28,840 Speaker 2: but you haven't like actually done deals, or maybe you've 483 00:21:28,880 --> 00:21:31,119 Speaker 2: done like a little bit as a summer intern. But yeah, no, 484 00:21:31,200 --> 00:21:32,840 Speaker 2: I mean, like the idea is they trust that the 485 00:21:32,960 --> 00:21:35,119 Speaker 2: banks will train you up, and you know, they know 486 00:21:35,200 --> 00:21:37,000 Speaker 2: what bank you're going to, and they know like what 487 00:21:37,119 --> 00:21:38,440 Speaker 2: department you'll be working in, and. 488 00:21:38,400 --> 00:21:39,840 Speaker 1: So kind of the banks field about this. 489 00:21:40,119 --> 00:21:42,439 Speaker 2: The banks have mixed feelings. You know. Goldmen for a 490 00:21:42,440 --> 00:21:44,639 Speaker 2: while was really fighting this and was saying like you 491 00:21:44,680 --> 00:21:47,600 Speaker 2: weren't allowed to have an accepted offer at a private 492 00:21:47,600 --> 00:21:49,760 Speaker 2: equity firm, which makes sense, right, Like it's a conflict 493 00:21:49,800 --> 00:21:52,000 Speaker 2: of interest, right, I think you're working on deals, You're 494 00:21:52,000 --> 00:21:53,879 Speaker 2: like doing a cell side for a company, and like 495 00:21:54,359 --> 00:21:56,560 Speaker 2: one bidder is your private equity firm and another bid 496 00:21:56,720 --> 00:21:59,320 Speaker 2: is a different private agre. Like that's weird. Now you're 497 00:21:59,320 --> 00:22:01,520 Speaker 2: an analyst. There's only so much you can do to 498 00:22:01,520 --> 00:22:03,959 Speaker 2: influence the process. But Gulbe for a while hated it 499 00:22:04,000 --> 00:22:07,040 Speaker 2: and was like would say, you know, you can't work 500 00:22:07,040 --> 00:22:09,720 Speaker 2: here if you have accepted offer, but then like you 501 00:22:09,760 --> 00:22:11,920 Speaker 2: lose everyone. It's a mixed bag for the banks. I 502 00:22:11,920 --> 00:22:15,240 Speaker 2: think the banks have always been very inverted pyramid models 503 00:22:15,280 --> 00:22:17,199 Speaker 2: where they hire a lot of analysts to do a 504 00:22:17,200 --> 00:22:20,280 Speaker 2: lot of grunt work, and then ultimately they only need 505 00:22:20,280 --> 00:22:23,680 Speaker 2: so many managing directors. So it's good if people leave 506 00:22:24,760 --> 00:22:28,000 Speaker 2: throughout their career. Now it is maybe not that good 507 00:22:28,040 --> 00:22:29,640 Speaker 2: if every analyst. 508 00:22:29,240 --> 00:22:31,200 Speaker 1: Leaves, right, Yeah, that's what I was thinking. 509 00:22:31,000 --> 00:22:33,640 Speaker 2: Like it's good to have like fewer associates than analysts, 510 00:22:33,640 --> 00:22:35,239 Speaker 2: but you need a lot of associates, right, And if 511 00:22:35,280 --> 00:22:37,800 Speaker 2: it becomes like everyone in banking wants to go into 512 00:22:37,840 --> 00:22:41,280 Speaker 2: private equity, then you're left with kind of no middle 513 00:22:41,359 --> 00:22:43,439 Speaker 2: ranks and banking, and you need the middle ranks to 514 00:22:43,600 --> 00:22:45,879 Speaker 2: like one do the work and to like eventually produce 515 00:22:46,240 --> 00:22:50,360 Speaker 2: the senior ranks. Yeah, part of what you do as 516 00:22:50,400 --> 00:22:53,520 Speaker 2: a bank is try to convey to your junior bankers 517 00:22:53,520 --> 00:22:56,080 Speaker 2: that like a career there is pretty good, pretty good 518 00:22:56,119 --> 00:22:58,320 Speaker 2: competitive with private equity. I think that's hard these days. 519 00:22:58,320 --> 00:23:01,040 Speaker 2: I think like culturally, as you know from these articles, 520 00:23:01,080 --> 00:23:03,600 Speaker 2: like ninety nine percent of people who go into banking 521 00:23:03,600 --> 00:23:06,200 Speaker 2: as junior analysts, their dream is to go into private 522 00:23:06,240 --> 00:23:09,359 Speaker 2: equity and not to be investment bank vice presidents. But 523 00:23:09,520 --> 00:23:11,399 Speaker 2: some people, you know, along the way get convinced to 524 00:23:11,440 --> 00:23:13,760 Speaker 2: be investment bank a vice presidents instead. But no that 525 00:23:13,800 --> 00:23:15,920 Speaker 2: banks don't like it, but like they do need to 526 00:23:15,920 --> 00:23:17,800 Speaker 2: get rid of some people, and so it's a good way. 527 00:23:17,920 --> 00:23:20,639 Speaker 2: But it's also like private equity is so important to banks, right, 528 00:23:20,680 --> 00:23:25,960 Speaker 2: Like it produces so many deals, produces so many financing fees. Right, 529 00:23:26,240 --> 00:23:28,320 Speaker 2: the private ecud firms are such big clients of the 530 00:23:28,359 --> 00:23:31,639 Speaker 2: banks that having a lot of your alumni working at 531 00:23:31,680 --> 00:23:35,119 Speaker 2: private equity is marginally good for the banks, right, Like 532 00:23:35,600 --> 00:23:41,000 Speaker 2: you know, you want your employees to leave, not to 533 00:23:41,040 --> 00:23:43,800 Speaker 2: become competitors, but to become clients, right, And like to 534 00:23:43,840 --> 00:23:46,719 Speaker 2: some extent, that's what's happening here, right, not entirely right, 535 00:23:46,720 --> 00:23:48,360 Speaker 2: because like a lot of these private equity firms are 536 00:23:48,359 --> 00:23:51,000 Speaker 2: like really competitors of banks, right, Like you have like 537 00:23:51,000 --> 00:23:53,720 Speaker 2: private credit competing with bank lending. You have like you know, 538 00:23:53,760 --> 00:23:55,960 Speaker 2: you have banks trying to compete with private equity, Like 539 00:23:56,000 --> 00:23:58,560 Speaker 2: it's it's not as simple as like they're leaving to 540 00:23:58,600 --> 00:24:00,560 Speaker 2: go become clients, but it's like kind of like that, 541 00:24:00,560 --> 00:24:02,040 Speaker 2: that's kind of the story that people tell. 542 00:24:02,560 --> 00:24:05,639 Speaker 1: So this has been all over social media, which has 543 00:24:05,680 --> 00:24:08,280 Speaker 1: been fun to watch. I mean, Liquidity, for example, has 544 00:24:08,320 --> 00:24:11,040 Speaker 1: been posting a lot of the responses that he's gotten 545 00:24:11,240 --> 00:24:14,040 Speaker 1: outreach on his Instagram story. I also spent some time 546 00:24:14,080 --> 00:24:17,040 Speaker 1: on Wall Street Oasis, sure, and I'd like to read 547 00:24:17,080 --> 00:24:19,080 Speaker 1: you some of the posts. I think they're interesting. One 548 00:24:19,119 --> 00:24:21,480 Speaker 1: kind of gets what we were talking about when it comes 549 00:24:21,560 --> 00:24:24,679 Speaker 1: to being ready to hop on a plane and you know, 550 00:24:24,840 --> 00:24:28,080 Speaker 1: just do this very you know, kind of vicious sounding process. 551 00:24:28,520 --> 00:24:31,800 Speaker 1: This person wrote, I should have studied sooner. Yeah, I 552 00:24:31,800 --> 00:24:34,760 Speaker 1: am probably like sixty percent there, but June is insane. 553 00:24:35,080 --> 00:24:37,040 Speaker 1: Stuff like this makes me wonder if I am cut 554 00:24:37,040 --> 00:24:40,800 Speaker 1: out for this quote high finance pipeline, which I guess 555 00:24:40,920 --> 00:24:43,040 Speaker 1: is also part of the weeding out process. 556 00:24:43,400 --> 00:24:45,800 Speaker 2: Yeah, it's funny, like you do study right, like you 557 00:24:45,840 --> 00:24:48,280 Speaker 2: prepared to talk about DCF models, like you're going to 558 00:24:48,359 --> 00:24:50,119 Speaker 2: learn it in your two years at a bank, but 559 00:24:50,160 --> 00:24:51,680 Speaker 2: like you have to learn it in advance to be 560 00:24:51,720 --> 00:24:53,840 Speaker 2: able to talk about in interviews. It's like kind of 561 00:24:54,920 --> 00:24:56,359 Speaker 2: like a little oh, then maybe it gives you a 562 00:24:56,440 --> 00:24:57,200 Speaker 2: leg up on your job. 563 00:24:57,520 --> 00:25:00,280 Speaker 1: This is my favorite post though the title was playing 564 00:25:00,359 --> 00:25:04,280 Speaker 1: on cycle recruiting to a clueless europoor. All the threads 565 00:25:04,320 --> 00:25:07,400 Speaker 1: lately on the on cycle recruiting madness are really insane 566 00:25:07,400 --> 00:25:10,040 Speaker 1: to me. It seems to be accepted that it is 567 00:25:10,280 --> 00:25:12,320 Speaker 1: just the way it is, but I would love to 568 00:25:12,400 --> 00:25:14,560 Speaker 1: understand how it got to this point slash how it 569 00:25:14,600 --> 00:25:17,200 Speaker 1: works and what the logic is. From what I understand, 570 00:25:17,240 --> 00:25:19,840 Speaker 1: you recruit for a job you will start MP in 571 00:25:19,920 --> 00:25:22,720 Speaker 1: two years time, before you even hit the desk and 572 00:25:22,760 --> 00:25:25,240 Speaker 1: have any clue about what you were doing at the 573 00:25:25,320 --> 00:25:28,119 Speaker 1: largest pe funds? How does that make any sense? A 574 00:25:28,119 --> 00:25:31,720 Speaker 1: lot changes in two years, as does people's performance ability 575 00:25:31,840 --> 00:25:35,439 Speaker 1: slash motivation. And then my favorite reply, which I believe 576 00:25:35,480 --> 00:25:38,560 Speaker 1: is the top reply, is we move fast here London boy, 577 00:25:38,720 --> 00:25:41,800 Speaker 1: remember that time y'all blew a thirteen colony lead, which 578 00:25:41,800 --> 00:25:46,360 Speaker 1: I think is just the perfect answer. Yeah, I mean, 579 00:25:46,920 --> 00:25:48,160 Speaker 1: fair points on both sides. 580 00:25:48,240 --> 00:25:50,800 Speaker 2: Yeah, it definitely seems to me like a little crazy 581 00:25:50,920 --> 00:25:54,840 Speaker 2: to say, like we can identify someone two weeks out 582 00:25:54,840 --> 00:25:58,640 Speaker 2: of college who will be a good mid level employee 583 00:25:58,640 --> 00:26:00,840 Speaker 2: for us in two years. But I don't know, I 584 00:26:00,920 --> 00:26:03,360 Speaker 2: kind of trust that, like there's some truth to that. 585 00:26:03,680 --> 00:26:06,520 Speaker 2: You know, you're combining like the personal characteristics you see 586 00:26:06,520 --> 00:26:08,520 Speaker 2: from that person and like their motivation and their ability 587 00:26:08,600 --> 00:26:10,560 Speaker 2: to study for the interview and all that with your 588 00:26:10,560 --> 00:26:13,000 Speaker 2: assumption that, like the training they get at a bank 589 00:26:13,040 --> 00:26:14,880 Speaker 2: will be pretty good and pretty interchangeable. 590 00:26:15,000 --> 00:26:16,560 Speaker 1: Yeah, I do think there. 591 00:26:16,320 --> 00:26:17,880 Speaker 2: Must be duds, right, There must be people. 592 00:26:17,720 --> 00:26:21,119 Speaker 1: Who like definitely who are you know, great in the interview, 593 00:26:21,560 --> 00:26:24,159 Speaker 1: but who are kind of boud at their job actually, right. 594 00:26:23,920 --> 00:26:25,560 Speaker 2: And like the other thing is like what is your 595 00:26:25,600 --> 00:26:28,480 Speaker 2: motivation at your bank analyst program? Right? Like, on the 596 00:26:28,520 --> 00:26:31,359 Speaker 2: one hand, you want to learn a lot and like 597 00:26:31,440 --> 00:26:33,159 Speaker 2: be a big deal guy, so that like when you 598 00:26:33,200 --> 00:26:35,199 Speaker 2: get to your private acquity firm you'll be good at it. 599 00:26:35,480 --> 00:26:37,800 Speaker 2: But on the other hand, like you're not trying to 600 00:26:37,800 --> 00:26:41,040 Speaker 2: get promoted, you know, you're not trying to stay there 601 00:26:41,080 --> 00:26:42,959 Speaker 2: for the long term. You've got your next job lined up. 602 00:26:43,160 --> 00:26:45,240 Speaker 2: There's some out I think there's like more coasting and 603 00:26:45,400 --> 00:26:47,040 Speaker 2: like the few months leading up to when they leave 604 00:26:47,040 --> 00:26:49,520 Speaker 2: for private equity than there is like day one. But 605 00:26:49,640 --> 00:26:51,760 Speaker 2: like you know, it is like a little bit demotivating. 606 00:26:51,880 --> 00:26:53,760 Speaker 1: Yeah, definitely, the end is in sight. 607 00:26:54,119 --> 00:26:56,840 Speaker 2: Yeah, the end is insight like before the beginning. 608 00:26:56,920 --> 00:27:00,480 Speaker 1: Also, I think the point on like, people's motivations change 609 00:27:00,520 --> 00:27:03,040 Speaker 1: a lot, especially at that period in your life when 610 00:27:03,040 --> 00:27:05,359 Speaker 1: you are so young out of college. Do you know 611 00:27:05,359 --> 00:27:06,760 Speaker 1: what you're going to want to do in two years? 612 00:27:07,280 --> 00:27:07,399 Speaker 2: Right? 613 00:27:07,600 --> 00:27:10,679 Speaker 1: Like two years ago, I wanted to be a TV anchor, 614 00:27:10,760 --> 00:27:12,600 Speaker 1: And you know, but like. 615 00:27:12,520 --> 00:27:15,959 Speaker 2: For instance, if you've never worked a sixteen hour day 616 00:27:15,960 --> 00:27:18,920 Speaker 2: at a finance job and you do it for a 617 00:27:18,960 --> 00:27:21,560 Speaker 2: month or two, you might decide you don't like it. Yeah, 618 00:27:21,600 --> 00:27:23,080 Speaker 2: and then you're like, well, I've signed up for two 619 00:27:23,119 --> 00:27:24,480 Speaker 2: years of this at my bank and then two more 620 00:27:24,520 --> 00:27:26,639 Speaker 2: years of it at my private equity firm. That's a 621 00:27:26,880 --> 00:27:29,560 Speaker 2: you know, you might change your mind, But I guess 622 00:27:29,560 --> 00:27:38,560 Speaker 2: the interview is to screen up people like them. 623 00:27:40,640 --> 00:27:44,359 Speaker 1: All right, let's move along here to boomer candy, which 624 00:27:44,960 --> 00:27:50,120 Speaker 1: it could mean sort of these very popular options writing ETFs, 625 00:27:50,240 --> 00:27:52,880 Speaker 1: or it could mean these buffer ETFs. And what we're 626 00:27:52,880 --> 00:27:56,200 Speaker 1: talking about right now are these buffer ETFs. So boomer 627 00:27:56,200 --> 00:27:59,879 Speaker 1: candy it's a label that Bloomberg Intelligence and Eric Belchunas 628 00:27:59,880 --> 00:28:02,399 Speaker 1: came up with. The Wall Street Journal published an article 629 00:28:02,520 --> 00:28:04,760 Speaker 1: on it this week that it's sort of become this 630 00:28:04,880 --> 00:28:08,679 Speaker 1: catch all term for these derivatives backed products that promise 631 00:28:08,720 --> 00:28:11,800 Speaker 1: you some degree of safety investing in the stock market. 632 00:28:11,920 --> 00:28:14,320 Speaker 2: Yeah, you buy an ETF that gives you like stock exposure, 633 00:28:14,359 --> 00:28:17,720 Speaker 2: but there's a floor, yeah, maybe a cap. Maybe you 634 00:28:17,720 --> 00:28:20,199 Speaker 2: get some income by selling call. There's some like you 635 00:28:20,240 --> 00:28:22,840 Speaker 2: add some derivatives to make it a little bit less 636 00:28:22,920 --> 00:28:25,359 Speaker 2: like stock and a little bit more like fixed income. 637 00:28:25,560 --> 00:28:29,360 Speaker 1: We are approaching, I feel like the extremes because now 638 00:28:29,400 --> 00:28:33,160 Speaker 1: you have these one hundred percent downside protected buffer ETFs 639 00:28:33,160 --> 00:28:36,240 Speaker 1: that are launching another couple which launched just this week. 640 00:28:36,240 --> 00:28:38,880 Speaker 1: In fact, you did some nice math on what that 641 00:28:38,960 --> 00:28:39,800 Speaker 1: actually means. 642 00:28:40,080 --> 00:28:42,800 Speaker 2: Yeah, so buffer ETF is like you put money in 643 00:28:43,120 --> 00:28:44,800 Speaker 2: and at the end of like six months or a 644 00:28:44,840 --> 00:28:47,160 Speaker 2: year or two years, you get all of your money back, 645 00:28:47,240 --> 00:28:49,480 Speaker 2: plus like some of the return on the s and 646 00:28:49,520 --> 00:28:51,760 Speaker 2: P five hundred. But like if the SMP goes down, 647 00:28:51,800 --> 00:28:53,360 Speaker 2: you still get all your money back. You get like 648 00:28:53,480 --> 00:28:55,160 Speaker 2: nothing else, but you get your money back, Whereas if 649 00:28:55,200 --> 00:28:57,640 Speaker 2: the sp goes down, if you adjust been in stocks, 650 00:28:57,640 --> 00:28:58,560 Speaker 2: you would have lost money. 651 00:28:58,600 --> 00:29:02,600 Speaker 1: But the upside cap, especially on the one hundred percent products, 652 00:29:02,640 --> 00:29:05,160 Speaker 1: the upside cap is pretty slim. 653 00:29:05,240 --> 00:29:07,400 Speaker 2: Yeah, Like I think like the math works out these 654 00:29:07,480 --> 00:29:11,360 Speaker 2: days that you can buy an ETF where you always 655 00:29:11,400 --> 00:29:13,320 Speaker 2: get back one hundred percent of your money and you 656 00:29:13,360 --> 00:29:15,520 Speaker 2: get the return on the SMP up to like eight 657 00:29:15,640 --> 00:29:18,160 Speaker 2: ish percent something like that. There was one I wrote 658 00:29:18,160 --> 00:29:21,760 Speaker 2: about on Thursday where you get back a cap of 659 00:29:21,800 --> 00:29:23,600 Speaker 2: four point eight percent, but that's for six months. So 660 00:29:23,600 --> 00:29:25,520 Speaker 2: you do that twice and you're like, yeah, like nine percent, 661 00:29:25,560 --> 00:29:26,400 Speaker 2: you know something like that. 662 00:29:26,400 --> 00:29:27,160 Speaker 1: That's super bad. 663 00:29:27,360 --> 00:29:30,520 Speaker 2: It's not terrible, but that math works because T bill 664 00:29:30,560 --> 00:29:33,480 Speaker 2: returns are over five percent. These things are like sort 665 00:29:33,480 --> 00:29:37,680 Speaker 2: of like they're giving you some range of returns around 666 00:29:37,760 --> 00:29:40,360 Speaker 2: the risk free rate, and so if like the risk 667 00:29:40,360 --> 00:29:42,120 Speaker 2: free rate is five percent, then they give you, you know, 668 00:29:42,400 --> 00:29:44,000 Speaker 2: zero to eight or nine percent. That's something. 669 00:29:44,280 --> 00:29:47,800 Speaker 1: So I mean the criticism of these products is that 670 00:29:47,800 --> 00:29:51,800 Speaker 1: that's a lot of fancy maneuvering to basically not quite 671 00:29:51,880 --> 00:29:55,760 Speaker 1: get juicy equity returns for not that much protection. I 672 00:29:55,880 --> 00:29:58,320 Speaker 1: liked this quote from Ben Johnson, he's head of Client 673 00:29:58,320 --> 00:30:01,280 Speaker 1: Solutions over at Morning Star. He said, we know, over 674 00:30:01,440 --> 00:30:03,720 Speaker 1: long enough periods of time that markets tend to go up, 675 00:30:03,760 --> 00:30:05,800 Speaker 1: and what you're giving up is going up every bit 676 00:30:05,840 --> 00:30:08,560 Speaker 1: as much as the market does over longer periods of time. Now, 677 00:30:08,560 --> 00:30:10,440 Speaker 1: if you're willing to make that trade in exchange for 678 00:30:10,480 --> 00:30:12,920 Speaker 1: a degree of comfort, for being able to sleep at night, 679 00:30:13,000 --> 00:30:15,200 Speaker 1: then so be it. But I think it raises the 680 00:30:15,240 --> 00:30:17,440 Speaker 1: good question of where do you take away from in 681 00:30:17,480 --> 00:30:20,280 Speaker 1: your portfolio to put this in? Are you taking away 682 00:30:20,280 --> 00:30:22,560 Speaker 1: from your equity allocation? Are you taking away from your 683 00:30:22,560 --> 00:30:27,160 Speaker 1: fixed income allocation? These are just these sort of hybrid products, 684 00:30:27,360 --> 00:30:29,280 Speaker 1: and I don't quite know what the answer is. 685 00:30:29,440 --> 00:30:31,640 Speaker 2: So two points on that. I think there's an argument 686 00:30:32,040 --> 00:30:34,360 Speaker 2: that these are to some extent marketed as you take 687 00:30:34,400 --> 00:30:37,440 Speaker 2: away from your fixed income allocation because it's fixed income 688 00:30:37,480 --> 00:30:39,840 Speaker 2: with better tax treatment. I don't know how true that is, 689 00:30:40,080 --> 00:30:42,760 Speaker 2: but that's my impression that, like, it's not fixed income, right, 690 00:30:42,760 --> 00:30:45,000 Speaker 2: it's like zero to nine percent return instead of like 691 00:30:45,000 --> 00:30:46,800 Speaker 2: a five percent return, so it's like sort of a 692 00:30:46,960 --> 00:30:51,520 Speaker 2: range around treasury returns. But I think it seems pretty 693 00:30:51,560 --> 00:30:54,160 Speaker 2: clear that the tax treatment of these things is that 694 00:30:54,200 --> 00:30:56,600 Speaker 2: your gains are capital gains. You can like roll them 695 00:30:56,640 --> 00:30:59,360 Speaker 2: over so that you only pay taxes when you sell 696 00:30:59,400 --> 00:31:01,120 Speaker 2: the ETA, So you could keep the money in the 697 00:31:01,120 --> 00:31:03,320 Speaker 2: thing for three years. You're paying long term capital gains 698 00:31:03,400 --> 00:31:05,120 Speaker 2: taxes and you're only paying it at the end of 699 00:31:05,120 --> 00:31:07,840 Speaker 2: the three years, whereas if you just own treasuries, you'd 700 00:31:07,840 --> 00:31:11,760 Speaker 2: pay ordinary income taxes every year. So there are ETFs 701 00:31:11,800 --> 00:31:14,880 Speaker 2: that are just explicitly that. There's the box ETF that 702 00:31:15,000 --> 00:31:19,200 Speaker 2: I'm written about, where like it's explicitly you are buying 703 00:31:19,240 --> 00:31:21,640 Speaker 2: a thing that promises you the Treasury Bill return but 704 00:31:22,080 --> 00:31:25,280 Speaker 2: tries to characterize it as long term capital gains. There's 705 00:31:25,320 --> 00:31:27,320 Speaker 2: debate about whether that works. But this is not that. 706 00:31:27,360 --> 00:31:28,920 Speaker 2: This is like you get a range of returns. It's 707 00:31:28,960 --> 00:31:32,760 Speaker 2: like equity linked, but it's like equity linked enough that 708 00:31:32,840 --> 00:31:35,840 Speaker 2: you get the good tax treatment, but fixed income enough that, like, 709 00:31:35,880 --> 00:31:37,720 Speaker 2: you know, your money doesn't go down. So I think 710 00:31:37,920 --> 00:31:39,560 Speaker 2: that's part of the answer to your question is like, 711 00:31:40,640 --> 00:31:42,680 Speaker 2: to some extent, this is a substitute for fixed income 712 00:31:42,720 --> 00:31:43,600 Speaker 2: with better tax treatment. 713 00:31:43,800 --> 00:31:44,120 Speaker 1: Yeah. 714 00:31:44,280 --> 00:31:46,120 Speaker 2: The other thing I would say is like, your question 715 00:31:46,200 --> 00:31:47,800 Speaker 2: is the right one. So I used to be like 716 00:31:47,840 --> 00:31:51,800 Speaker 2: an equity derivatives structure, of course, and so people would 717 00:31:51,840 --> 00:31:54,400 Speaker 2: come to us with various ideas for like have the stock. 718 00:31:55,840 --> 00:31:57,640 Speaker 2: I don't want to take as much risk as I'm taking. 719 00:31:57,680 --> 00:32:00,000 Speaker 2: I'm willing to give up some upside to take less risks. 720 00:32:00,360 --> 00:32:02,440 Speaker 2: Can you do a derivative? And the answers like, yeah, 721 00:32:02,480 --> 00:32:04,120 Speaker 2: sure you can do it deriv But you know what 722 00:32:04,120 --> 00:32:06,400 Speaker 2: you could do. You could sell half your stock. Yeah, 723 00:32:06,480 --> 00:32:08,160 Speaker 2: you could sell half your stock and then you have 724 00:32:08,240 --> 00:32:10,720 Speaker 2: half as much risk and half as much upset and 725 00:32:11,160 --> 00:32:12,640 Speaker 2: your design equity to drive it is like you know, 726 00:32:12,680 --> 00:32:14,520 Speaker 2: you'd like do some stuff. You do some math, and 727 00:32:14,600 --> 00:32:17,560 Speaker 2: like the model tells you the delta of your product. Right. 728 00:32:17,640 --> 00:32:20,800 Speaker 2: The delta is essentially how much stock it is, right, 729 00:32:20,800 --> 00:32:24,240 Speaker 2: So like a one hundred delta means that like it's 730 00:32:24,280 --> 00:32:26,840 Speaker 2: just owning stock, a zero delta means it's just owning 731 00:32:26,920 --> 00:32:29,400 Speaker 2: you know, cash, and like a fifty delta means it's like, yeah, 732 00:32:29,400 --> 00:32:31,920 Speaker 2: it's like half as much stock. And so what you know, 733 00:32:31,920 --> 00:32:33,480 Speaker 2: I'd like design to de rives for people, like, yeah, 734 00:32:33,640 --> 00:32:35,440 Speaker 2: there's a collar where you get like it's like a 735 00:32:35,480 --> 00:32:37,600 Speaker 2: seventy delta collar. And I've always want to be like, 736 00:32:37,760 --> 00:32:40,320 Speaker 2: why don't you just like sell thirty percent of the 737 00:32:40,360 --> 00:32:44,120 Speaker 2: stock because then you have the same delta and you 738 00:32:44,120 --> 00:32:44,920 Speaker 2: won't pay us. 739 00:32:45,160 --> 00:32:47,360 Speaker 1: Yeah, yeah, we're charging. 740 00:32:47,120 --> 00:32:48,640 Speaker 2: You a lot of money to do this for you. 741 00:32:48,640 --> 00:32:50,880 Speaker 2: You can like draw scenarios where it's like you'd be 742 00:32:50,960 --> 00:32:54,480 Speaker 2: much happier with the derivative than you would with just 743 00:32:54,520 --> 00:32:56,600 Speaker 2: selling some of the stock. But what the delta is 744 00:32:56,640 --> 00:33:00,800 Speaker 2: telling you is that in expectation, they're basically equivalent on Apple. Yeah, 745 00:33:00,840 --> 00:33:03,920 Speaker 2: and you're paying us more to do the complicated derivative trade. 746 00:33:03,960 --> 00:33:06,040 Speaker 2: And so here it's the same sort of thing where 747 00:33:06,040 --> 00:33:08,200 Speaker 2: it's like you're marketing this product that's like, oh, we're 748 00:33:08,200 --> 00:33:11,080 Speaker 2: giving you equity returns, but with less downside. It's like, yes, 749 00:33:11,400 --> 00:33:13,080 Speaker 2: but another way to do that would be to like 750 00:33:13,720 --> 00:33:15,800 Speaker 2: sell three quarters or your stock and put it in 751 00:33:15,800 --> 00:33:17,680 Speaker 2: treasury bills, and then you're kind of in the same play. 752 00:33:17,720 --> 00:33:19,720 Speaker 2: It's like that really, but kind of in the same. 753 00:33:19,520 --> 00:33:21,840 Speaker 1: Place for a lot of these products, like maybe you 754 00:33:21,840 --> 00:33:24,200 Speaker 1: would just be better off in cash or like. 755 00:33:24,600 --> 00:33:26,360 Speaker 2: You know, ninety ten percent stock. 756 00:33:26,560 --> 00:33:29,200 Speaker 1: Yeah, but like one of the household names, I don't 757 00:33:29,240 --> 00:33:31,520 Speaker 1: know if that's true for everyone, but JEFPY, for example, 758 00:33:31,520 --> 00:33:35,480 Speaker 1: it's the JP Morgan Equity Premium Income ETF. It's just 759 00:33:35,720 --> 00:33:41,040 Speaker 1: absolutely ballooned in size. It's super super popular, and basically 760 00:33:41,040 --> 00:33:44,200 Speaker 1: it owns low volatility stocks and then it writes call 761 00:33:44,240 --> 00:33:47,680 Speaker 1: options on top of that to harvest that income and 762 00:33:48,040 --> 00:33:53,760 Speaker 1: it does outperform in a down market. That much is true. 763 00:33:54,200 --> 00:33:56,360 Speaker 1: But in twenty twenty two, for example, you know the 764 00:33:56,400 --> 00:33:58,280 Speaker 1: S and P five hundred was down like twenty percent. 765 00:33:58,320 --> 00:34:00,920 Speaker 1: I think JEFPY was down something like two. You know, 766 00:34:01,200 --> 00:34:04,240 Speaker 1: it wasn't down is cash And then you look at 767 00:34:04,840 --> 00:34:06,800 Speaker 1: you know, in a raging bowl market, it's going to 768 00:34:06,880 --> 00:34:10,440 Speaker 1: lag as well. So it's doing exactly what it's supposed 769 00:34:10,440 --> 00:34:13,799 Speaker 1: to do. But you could ask the existential question of 770 00:34:13,800 --> 00:34:14,280 Speaker 1: why bother. 771 00:34:15,160 --> 00:34:17,200 Speaker 2: Yeah, I mean, like I don't actually know offhand, like 772 00:34:17,200 --> 00:34:20,279 Speaker 2: like it's always possible that some strategy like has you know, 773 00:34:20,440 --> 00:34:23,279 Speaker 2: better returns than like some mix of cash and stock. Right, 774 00:34:23,640 --> 00:34:26,360 Speaker 2: there's some like market reason for that, right, But I 775 00:34:26,400 --> 00:34:29,840 Speaker 2: do think that a lot of this is product designed 776 00:34:29,880 --> 00:34:33,120 Speaker 2: to appeal to investors, right. It's just it's like, deep down, 777 00:34:33,400 --> 00:34:36,200 Speaker 2: our tools are cash and stock, and we can like 778 00:34:36,320 --> 00:34:39,759 Speaker 2: mix those things together to produce a fancy package, right, 779 00:34:39,880 --> 00:34:41,279 Speaker 2: And if we do that in the right way, you're like, oh, 780 00:34:41,280 --> 00:34:43,959 Speaker 2: that package looks so good. Yeah, And so you'll buy 781 00:34:43,960 --> 00:34:46,360 Speaker 2: the thing that's made out of cash and stock and 782 00:34:46,400 --> 00:34:48,560 Speaker 2: you'll pass a fee rather than just like having you know, 783 00:34:48,640 --> 00:34:50,799 Speaker 2: your own mix of cash and stock. But that could 784 00:34:50,800 --> 00:34:52,760 Speaker 2: be good, right, Like you might like not be able 785 00:34:52,800 --> 00:34:54,719 Speaker 2: to figure out the right mix of cash and stock 786 00:34:54,760 --> 00:34:56,520 Speaker 2: and someone else doing it for you is good, right, 787 00:34:56,880 --> 00:34:57,799 Speaker 2: But that's the game. 788 00:34:58,040 --> 00:35:00,400 Speaker 1: It's certainly fun to lunch of services do. It gives 789 00:35:00,400 --> 00:35:02,359 Speaker 1: me something to write and talk about. 790 00:35:03,680 --> 00:35:07,480 Speaker 2: Oh, we should talk about the fact that the podcast 791 00:35:07,520 --> 00:35:09,480 Speaker 2: is off next week, all right in July. 792 00:35:09,640 --> 00:35:12,600 Speaker 1: I hope you enjoyed this one because we're not here 793 00:35:12,640 --> 00:35:15,120 Speaker 1: next week. A Happy Birthday, America. 794 00:35:17,320 --> 00:35:21,480 Speaker 2: I'll be back on July twelve with them well rested. 795 00:35:21,520 --> 00:35:23,160 Speaker 1: Episode A lot more stuff. 796 00:35:25,480 --> 00:35:26,920 Speaker 2: And that was the Money Stuff Podcast. 797 00:35:27,080 --> 00:35:29,080 Speaker 1: I'm Matt Levian and I'm Katie Greifeld. 798 00:35:29,440 --> 00:35:31,520 Speaker 2: You can find my work by subscribing to the Money 799 00:35:31,520 --> 00:35:33,400 Speaker 2: Stuff newsletter on Bloomberg. 800 00:35:32,960 --> 00:35:35,399 Speaker 1: Dot com, and you can find me on Bloomberg TV 801 00:35:35,520 --> 00:35:37,880 Speaker 1: every day between ten to eleven am Eastern. 802 00:35:38,239 --> 00:35:40,000 Speaker 2: We'd love to hear from you. You can send an 803 00:35:40,000 --> 00:35:43,120 Speaker 2: email to you Moneypot at Bloomberg dot net, ask us 804 00:35:43,160 --> 00:35:44,680 Speaker 2: a question and we might answer it on air. 805 00:35:45,120 --> 00:35:47,320 Speaker 1: You can also subscribe to our show wherever you're listening 806 00:35:47,360 --> 00:35:49,399 Speaker 1: right now and leave us a review. It helps more 807 00:35:49,400 --> 00:35:50,320 Speaker 1: people find the show. 808 00:35:50,440 --> 00:35:54,040 Speaker 2: The Money Stuff Podcast is produced by Anna Maserakus and Moses. 809 00:35:53,680 --> 00:35:56,080 Speaker 1: On Our theme music was composed by Blake. 810 00:35:55,960 --> 00:35:58,160 Speaker 2: Maples, Brandon, Francis nunimss our. 811 00:35:58,080 --> 00:36:01,279 Speaker 1: Executive producer and Stage Bauman is Blomberg's head of podcasts. 812 00:36:01,560 --> 00:36:03,520 Speaker 2: Thanks for listening to The Mody Stuff podcast.