WEBVTT - This Is Weird: A Mailbag Episode 0:00:02.720 --> 0:00:09.360 Bloomberg Audio Studios, podcasts, radio news. On my desk yesterday 0:00:09.360 --> 0:00:14.520 I arrived a tungsten cube on the tungsten cube is engraved. 0:00:15.000 --> 0:00:20.320 This is weird. It arrives in a box with no note. 0:00:20.560 --> 0:00:22.360 I was not expecting a tungsten cube. 0:00:22.560 --> 0:00:26.480 Was it checked for anthrax first? Was it dustin? 0:00:26.640 --> 0:00:28.360 I want to give any ideas, but I assume that 0:00:28.400 --> 0:00:31.760 Bloomberg mellroom is quite comprehensive and it's anthex tusting, I hope, 0:00:31.800 --> 0:00:33.959 so I didn't even think about it. I was just like, ah, 0:00:34.400 --> 0:00:36.640 it's come through the Bloomberg mellroom. It's fine. Anyway, I 0:00:36.640 --> 0:00:38.680 have this tungsten cube now. So have anyone sent me 0:00:38.720 --> 0:00:41.080 a tungsten cube that says this is weird? Be in touch? 0:00:41.440 --> 0:00:44.400 That's fun. I have to say that, first of all, 0:00:44.440 --> 0:00:46.800 a tungsten cube with this is weird and groat on 0:00:46.880 --> 0:00:49.479 it is very much my jam. And secondly, sending that 0:00:49.520 --> 0:00:52.880 with no note and thereby making it weird is kind 0:00:52.880 --> 0:00:55.280 of a good joke. So I have no complaints, but 0:00:55.360 --> 0:00:57.880 I wouldn't mind hearing from whoever was said that to me. 0:00:58.840 --> 0:01:01.160 I didn't realize that this weird was engraved on it 0:01:01.200 --> 0:01:03.840 when you posted it. On Instagram. I thought that you 0:01:03.880 --> 0:01:05.039 added the text on. 0:01:05.000 --> 0:01:08.039 The no no, no, yeah, I posted on my close 0:01:08.040 --> 0:01:09.959 Friends stories. But I'm also holding it up to the 0:01:09.959 --> 0:01:12.800 camera in our zoom another way that you can't see it. 0:01:14.240 --> 0:01:15.840 That is a pretty good gag. 0:01:16.600 --> 0:01:18.880 Yeah, yeah, yeah, this is my life. 0:01:18.920 --> 0:01:20.640 It's pretty good. You have a little bit of a collection. 0:01:20.720 --> 0:01:23.800 Now, I do have my I have my money Stuff 0:01:23.840 --> 0:01:26.880 ten year anniversary collection. I'm now holding both of them 0:01:26.959 --> 0:01:30.880 up to the camera and again no one can see it. 0:01:31.280 --> 0:01:34.120 Speaking of things that come in the mail. 0:01:34.240 --> 0:01:38.000 Oh good one. 0:01:38.040 --> 0:01:40.640 Mail if it's also transition I've ever done on this podcast, 0:01:41.240 --> 0:01:43.560 It's a mail bag episode that was smooth. 0:01:43.600 --> 0:01:45.039 I wasn't even expecting it. 0:01:45.319 --> 0:01:47.760 I know, right when you at least expected a transition, 0:01:47.920 --> 0:01:49.480 We've got some pretty good ones this week. 0:01:49.640 --> 0:01:51.960 Mail Bag mail Bag. 0:01:53.200 --> 0:01:56.280 Hello and welcome to the Money Stuff Podcast. You're a 0:01:56.320 --> 0:02:00.080 weekly podcast where we talk about stuff related to money. 0:02:00.600 --> 0:02:02.640 I'm Matt Levian and I write the Money Stuff column 0:02:02.640 --> 0:02:04.000 for Bloomberg Opinion. 0:02:04.000 --> 0:02:06.680 And I'm Katie Greifeld, a reporter for Bloomberg News and 0:02:06.720 --> 0:02:08.240 an anchor for Bloomberg Television. 0:02:10.080 --> 0:02:18.480 And today we're doing a mailbag sud Effect. 0:02:19.919 --> 0:02:24.920 Mail Bag mail Bag great questions. Thank you for everyone 0:02:24.960 --> 0:02:27.280 for setting them in. Let's just dive right in. We 0:02:27.360 --> 0:02:29.720 got a great one out of the gates from broad 0:02:30.400 --> 0:02:35.000 he asks, why not more frequent reporting. As a CFO 0:02:35.040 --> 0:02:38.080 of a small but private equity owned business, I close 0:02:38.080 --> 0:02:41.280 our books monthly and report out our financial results each month. 0:02:41.639 --> 0:02:44.400 Every public company in the world is doing the same. 0:02:44.520 --> 0:02:47.440 It's no additional cost to release those results publicly in 0:02:47.480 --> 0:02:50.680 some form, even if not a full ten Q. This 0:02:50.840 --> 0:02:51.440 was interesting. 0:02:52.440 --> 0:02:55.720 The ostensible purpose of financial reporting is to give investors 0:02:56.080 --> 0:02:58.520 the same financial data that management is using to manage 0:02:58.520 --> 0:03:00.520 its business, so that the investors can have sit in 0:03:00.520 --> 0:03:03.240 the shoes of management. Everyone knows that's not true, but like, 0:03:03.280 --> 0:03:05.560 that's sort of like the ostensible That's why there's a 0:03:05.639 --> 0:03:06.919 you know, in your ten K you have to have 0:03:06.960 --> 0:03:09.520 a management discussion and analysis where you sort of say what 0:03:09.600 --> 0:03:12.480 management is thinking about the financial results. Rod is surely 0:03:12.560 --> 0:03:15.000 right that every public company closes its books every month 0:03:15.000 --> 0:03:18.640 and has some sense of the financial results for that month. 0:03:19.240 --> 0:03:22.320 And if they had private equity investors, they would just 0:03:22.639 --> 0:03:25.080 send over the spreadsheet and the private equity investors be like, 0:03:25.080 --> 0:03:28.880 thanks this selfhul But they have public investors which means 0:03:29.919 --> 0:03:33.360 primarily that they have people that can sue them. Everything 0:03:33.400 --> 0:03:39.040 that happens in US financial regulation and especially US financial disclosure, 0:03:39.560 --> 0:03:41.840 is in the shadow of litigation. Right, So if you 0:03:41.840 --> 0:03:44.280 put out a ten Q and your numbers are wrong, 0:03:44.600 --> 0:03:47.320 you will get sued and you will be like, yep, 0:03:47.360 --> 0:03:50.160 our numbers are wrong. Here is some money plaintiffs layers, 0:03:50.760 --> 0:03:53.119 and I think that's a lot of what is going 0:03:53.160 --> 0:03:54.680 on here, Like when you put out a ten Q, 0:03:54.800 --> 0:03:56.960 Like a ten Q does not have audited financials, but 0:03:57.040 --> 0:03:59.720 you like spend three days with your auditor going through 0:03:59.760 --> 0:04:02.280 the ten and making sure that you have utited or 0:04:02.320 --> 0:04:06.280 comfort on every number in the financials because if they're wrong, 0:04:06.520 --> 0:04:09.280 you'll get very sued. And so that I think is 0:04:09.280 --> 0:04:13.320 why companies do not put out more frequent disclosure, because sure, 0:04:13.360 --> 0:04:16.280 you have those numbers, but the task of turning those 0:04:16.360 --> 0:04:18.680 numbers into something you could give to shareholders and not 0:04:18.680 --> 0:04:23.200 worry about getting sued over is monumental. People like understand 0:04:23.200 --> 0:04:25.159 that this is like not great, right, Like this is 0:04:25.200 --> 0:04:28.919 why periodically the SEC tries to have some reform that 0:04:28.960 --> 0:04:31.560 tries to make it harder for shareholders to sue public companies. 0:04:31.920 --> 0:04:34.800 But you know, I always say everything is security is 0:04:34.839 --> 0:04:37.520 for it. I think the arc of the universe spends 0:04:37.520 --> 0:04:39.880 towards it, making it easier to sue public companies. 0:04:40.200 --> 0:04:42.240 This question did make me think a little bit about 0:04:42.279 --> 0:04:45.400 how occasionally you will see companies pre announce their earnings, 0:04:45.760 --> 0:04:49.760 even though they're wedded to quarterly updates. They will go 0:04:49.880 --> 0:04:53.800 early sometimes, but usually it's for bad news. Also, that's 0:04:53.839 --> 0:04:54.400 not monthly. 0:04:55.160 --> 0:04:58.240 Yeah, people pronounced for operatings or for bad news. But 0:04:59.040 --> 0:05:03.440 right to have a monthly schedule of putting out financial 0:05:03.440 --> 0:05:07.360 information no matter what would be three times as stressful 0:05:07.360 --> 0:05:08.200 as doing it quarterly. 0:05:08.960 --> 0:05:11.359 Yeah. But in all these conversations, I feel like, you know, 0:05:11.480 --> 0:05:16.080 as we continue to bat around like quarterly versus semi annual, 0:05:16.120 --> 0:05:19.000 I just feel like when it comes to shareholder reaction 0:05:19.120 --> 0:05:21.720 in terms of how the stock actually performs, it just 0:05:21.760 --> 0:05:24.839 needs to be consistent, you know, whether you announced monthly 0:05:24.960 --> 0:05:26.840 or every three months or every six months. I feel 0:05:26.839 --> 0:05:30.840 like switching around between the different timeframes is what really 0:05:30.880 --> 0:05:33.080 matters for investors trying to make decisions. 0:05:33.480 --> 0:05:35.200 Yeah, I mean, I think Rod points out that like 0:05:35.920 --> 0:05:38.839 monthly reporting would smooth a lot of volatility and just 0:05:39.000 --> 0:05:41.680 you know, make things more predictable. And investors could have 0:05:41.720 --> 0:05:45.480 more information and not react as strongly to every three 0:05:45.520 --> 0:05:48.800 month announcements. But yeah, I think like the disconnect here 0:05:48.880 --> 0:05:50.960 is between the burden of actually doing the financials and 0:05:51.000 --> 0:05:53.159 the burden of like public company reporting, which is an 0:05:53.279 --> 0:05:56.040 entirely different beast. Kitty is wiping her screen. 0:05:57.440 --> 0:06:00.240 There's like a beam of like. 0:05:59.560 --> 0:06:03.760 She's trying wipe me off her screen. Is as you 0:06:03.839 --> 0:06:06.440 might know if you've been listening closely or listened last 0:06:06.440 --> 0:06:08.640 week closely. Katie is recording. 0:06:08.200 --> 0:06:10.320 This from Colorado, Colorado. 0:06:10.600 --> 0:06:13.640 I'm recording this from my house, so it's the somewhat 0:06:13.720 --> 0:06:17.160 unusual but not unheard of remote money stuff podcast recording. 0:06:17.279 --> 0:06:21.599 Yeah, it's always a little bit worse. So thanks for listening. 0:06:21.760 --> 0:06:23.640 All right, great question, Rod. 0:06:25.080 --> 0:06:27.240 Mail mail back. 0:06:27.839 --> 0:06:30.159 Let's see we have another one from Josh, and this 0:06:30.240 --> 0:06:32.640 one is about ETFs and Josh wants to know about them. 0:06:33.040 --> 0:06:35.920 He says, you've done a great job covering the flaws 0:06:35.920 --> 0:06:39.280 of levered equity ETFs, especially how daily resets make them 0:06:39.279 --> 0:06:43.280 diverge from long term leveraged exposure. Do you see potential 0:06:43.360 --> 0:06:47.320 for retail products that actually deliver true long term levered 0:06:47.360 --> 0:06:51.520 equity performance. Suppose you think Corporate America is too conservative 0:06:51.880 --> 0:06:54.480 with their use of leverage. But simply buying on margin 0:06:54.560 --> 0:06:57.640 is too costly for the ordinary retail investor. But an 0:06:57.640 --> 0:07:01.720 ETF sponsor could implement leverage far more efficiently. Is there 0:07:01.760 --> 0:07:03.080 a path for this to exist? 0:07:03.560 --> 0:07:07.440 Great question, so, Josh, I think that has been ETF 0:07:07.480 --> 0:07:11.200 builded by Katie. So we've talked about like levered ETF's 0:07:11.400 --> 0:07:15.240 ordinarily rebalance every day to give you two times or 0:07:15.240 --> 0:07:17.440 three times the daily returns of a stock, and that 0:07:17.560 --> 0:07:22.040 creates this weird volatility drag. And if you wanted to 0:07:22.080 --> 0:07:24.280 have like two times the returns of a company for 0:07:24.360 --> 0:07:26.800 like a year, there's not really a product that will 0:07:26.800 --> 0:07:30.240 give you that other than buying the stock on margin 0:07:30.280 --> 0:07:32.520 and waiting a year. But there's no rely ETF product. 0:07:33.080 --> 0:07:35.600 Since we started talking about this, trader did like a 0:07:35.600 --> 0:07:39.320 weekly and monthly rebel ETF which gives you a month 0:07:39.360 --> 0:07:41.720 of two times the returns I think for like the 0:07:41.800 --> 0:07:45.120 S and P. But it is very hard to do 0:07:45.160 --> 0:07:48.480 an ETF that is like, we'll give you leverage return 0:07:48.520 --> 0:07:52.640 on a stock for five years. Because the whole point 0:07:52.640 --> 0:07:54.640 of an ETF is it has daily liquidity and so 0:07:54.680 --> 0:07:58.080 people can buy into the ETF each day, and you're 0:07:58.120 --> 0:08:00.560 giving them a different proposition each day. If you're giving them, 0:08:00.640 --> 0:08:03.560 you know, five years return starting on September twenty fifth, 0:08:03.600 --> 0:08:07.040 instead of saying we'll giving you daily leverage returns. But 0:08:07.880 --> 0:08:11.200 there's no reason that if the thing that you want 0:08:11.320 --> 0:08:14.280 is long term levered exposure to a company or an 0:08:14.280 --> 0:08:17.720 index or whatever, there's no reason that you should get 0:08:17.760 --> 0:08:20.760 that in the forum of a daily liquidity ETF that 0:08:20.840 --> 0:08:22.840 you can get out of at any time, right, Like, 0:08:23.280 --> 0:08:25.560 there are other ways to build that product. Now, the 0:08:25.600 --> 0:08:27.920 classic way to build that product is something like a 0:08:27.960 --> 0:08:32.200 private equity firm which buys companies, levers them up, and 0:08:32.280 --> 0:08:36.760 takes investors. And as we talk about a lot around here, 0:08:36.960 --> 0:08:39.520 it is getting easier and easier to put private equity 0:08:39.559 --> 0:08:43.199 into your retail brokerage account and so one day in 0:08:43.240 --> 0:08:45.200 the not too distant future, you'll just like, you know, 0:08:45.280 --> 0:08:48.320 get a KKR fund and your brokerage account and that'll 0:08:48.360 --> 0:08:50.360 be that. But otherwise, yeah, I mean, like it is 0:08:50.400 --> 0:08:53.439 hard because the sort of classic retail products are mutual funds, 0:08:53.520 --> 0:08:57.200 whether or not they're ETFs, and mutual funds have leverage limits, 0:08:57.360 --> 0:09:00.280 and so it is a little hard to invest in 0:09:00.320 --> 0:09:03.600 a retail product that gives you two x the exposure 0:09:03.640 --> 0:09:07.839 to Corporate America other than that retail product being your 0:09:07.880 --> 0:09:11.679 own margin account. But you know, watch this space. In 0:09:11.800 --> 0:09:13.440 like a year, it's just going to be private equity 0:09:13.440 --> 0:09:14.360 funds in your prohne. 0:09:14.120 --> 0:09:17.360 Okay, I'm glad you brought up the trader ETFs. I 0:09:17.400 --> 0:09:20.040 have some sad news. A bunch of them actually shut down. 0:09:20.480 --> 0:09:22.959 I'm not surprised. It's a super niche product, right to 0:09:23.240 --> 0:09:25.720 Like I want two times the monthly return on the 0:09:25.800 --> 0:09:30.240 SMB why yeah, Like two times the daily returns is 0:09:30.240 --> 0:09:33.120 a fun gambling product, right, and two times the long 0:09:33.240 --> 0:09:38.000 term returns is maybe for like a month? Like why 0:09:38.040 --> 0:09:38.360 a month? 0:09:38.679 --> 0:09:42.400 Yeah? I think at least one of them still exists. 0:09:42.840 --> 0:09:46.600 They did on the Queues spy and also the Philadelphia's 0:09:46.600 --> 0:09:53.320 Semiconductor Index. Sure, and the Monthly Cues reset ETF still exists. 0:09:53.360 --> 0:09:55.040 But I mean it's small. It just seems like the 0:09:55.080 --> 0:09:58.360 demand isn't there. It's sixty one million, but. 0:09:58.360 --> 0:10:01.400 Still there's two trades here. There's like what Jo asked 0:10:01.400 --> 0:10:04.679 about is like if you think that Corporate America is 0:10:04.720 --> 0:10:06.960 too conservative with their use of leverage, right, so like 0:10:07.360 --> 0:10:12.040 you can think that the capital structure of the S 0:10:12.120 --> 0:10:15.240 and P is under levered, and you want to back 0:10:15.360 --> 0:10:17.840 lever at yourself, and you can't do that through a 0:10:17.840 --> 0:10:20.120 margin account because like you can't get good margin terms, 0:10:20.120 --> 0:10:23.120 but you wish some investment advisor would do it for you. 0:10:23.559 --> 0:10:26.960 That's a sort of set of corporate financedcs that are reasonable. 0:10:27.280 --> 0:10:30.960 The other one is like, if you enjoy gambling, you'll 0:10:31.040 --> 0:10:34.280 enjoy a double gamble twice as much. And that I think, 0:10:34.559 --> 0:10:37.520 I think is a levered bet on a semiconductor index. 0:10:37.640 --> 0:10:39.040 Like I don't know, I don't know, but I think 0:10:39.040 --> 0:10:41.319 you're coming to that being like from the perspective of like, ah, 0:10:41.360 --> 0:10:44.400 the semi industry is too under levered. I need to 0:10:44.720 --> 0:10:48.040 synthetically lever up that industry. I think you're like, ooh, 0:10:48.320 --> 0:10:50.200 these talks will go up a lot. Why don't make 0:10:50.240 --> 0:10:51.200 them go up twice as much? 0:10:51.559 --> 0:10:54.080 Yeah, Josh, great question. 0:10:56.120 --> 0:10:58.960 Mail bag, mail bag. 0:10:58.840 --> 0:11:02.480 Another j name Justin asks. According to a recent op 0:11:02.600 --> 0:11:04.920 ed in The New York Times, the number of publicly 0:11:04.960 --> 0:11:07.800 traded companies has decreased by fifty percent over the last 0:11:07.840 --> 0:11:11.200 thirty years. Companies are choosing to remain private to avoid 0:11:11.280 --> 0:11:15.200 the additional regulatory requirements but also because of the evolution 0:11:15.559 --> 0:11:18.920 in the funding models for promising tech startups, how will 0:11:18.960 --> 0:11:23.040 this impact the investment options available to individual investors. Well, 0:11:23.120 --> 0:11:25.440 four oh one K investors in the future have to 0:11:25.480 --> 0:11:29.200 allocate some portion of their investment portfolio to private capital 0:11:29.200 --> 0:11:32.440 funds with management fees that are much higher than standard 0:11:32.440 --> 0:11:33.640 equity index funds. 0:11:33.880 --> 0:11:34.080 Yeah. 0:11:34.080 --> 0:11:35.800 I just feel like the answer is yes, right, Like 0:11:36.240 --> 0:11:38.599 it's not a first best state of affairs, right, Like 0:11:38.679 --> 0:11:41.280 the first best state of affairs I think. I think 0:11:41.280 --> 0:11:44.360 in the abstract is like somehow it gets easier to 0:11:44.400 --> 0:11:47.160 go public, and companies like feel some sense of like 0:11:47.200 --> 0:11:49.920 patriotic obligation to go public, and they're like, you know, 0:11:49.960 --> 0:11:52.480 we're a good company. We want mom and pop investors 0:11:52.480 --> 0:11:54.719 to be able to participate in our growth. And so 0:11:54.840 --> 0:11:57.640 all the little companies go public, and we make it 0:11:57.720 --> 0:12:00.240 really cheap and easy, and you know, we don't get 0:12:00.280 --> 0:12:03.720 sued when you go public. And so all the companies 0:12:03.760 --> 0:12:06.679 go public, and like the big, fun, fast growing companies 0:12:06.679 --> 0:12:09.000 are available to mom and pop investors they're available, and 0:12:09.040 --> 0:12:12.679 index funds they're available, and like standard low fee equity 0:12:12.800 --> 0:12:16.080 mutual funds, and life is great. Right, the second best 0:12:16.080 --> 0:12:19.840 outcome is like all the companies stay private and big 0:12:19.880 --> 0:12:23.040 institutional investors have access to their private shares, and those 0:12:23.040 --> 0:12:26.600 big institutional investors get bigger and bigger and bigger, and 0:12:26.640 --> 0:12:30.880 they tap out all of the available institutional capital and 0:12:30.920 --> 0:12:32.920 they're like, hey, there's a lot of money in four 0:12:32.960 --> 0:12:36.640 oh and ks, and then they lobby the president to 0:12:36.720 --> 0:12:39.640 let them take four roh and K money, and everyone's like, oh, yeah, 0:12:39.640 --> 0:12:43.000 it'd be great to put individual retail investors into private 0:12:43.040 --> 0:12:45.800 investments because those are the ones that go up a lot. 0:12:45.920 --> 0:12:48.720 And then the alternative asset managers are like, great, so 0:12:48.760 --> 0:12:51.560 we'll just charge like two and twenty for that, and 0:12:51.640 --> 0:12:53.720 then that's the equilibrium you end up in. I think 0:12:53.720 --> 0:12:56.400 that's like clearly happening, and it's not how anyone would 0:12:56.400 --> 0:12:59.680 design a financial system from like first principles, right, because 0:12:59.720 --> 0:13:02.319 like the you know you have is like historically what 0:13:02.400 --> 0:13:04.200 you have is like a lot of companies that want 0:13:04.200 --> 0:13:07.560 a lot of money are public and they're available to everyone, 0:13:07.600 --> 0:13:10.120 including retail investors, and then like a smaller number of 0:13:10.200 --> 0:13:12.959 companies that don't need as much money are private and 0:13:13.440 --> 0:13:15.600 they don't have access to retail investors. But like it's 0:13:15.640 --> 0:13:18.320 fine because it's like they're the smaller companies, the weirder companies, 0:13:18.360 --> 0:13:20.400 or the companies that don't need capital. And now we've 0:13:20.440 --> 0:13:22.400 moved to a model where like the big companies that 0:13:22.440 --> 0:13:24.440 do need a lot of capital can get it in 0:13:24.480 --> 0:13:27.920 private markets, but the private market capital providers are like, hey, 0:13:27.920 --> 0:13:29.679 we could really use some retail money. And so you 0:13:29.679 --> 0:13:32.719 have this like second layer of intermediation where you can 0:13:32.760 --> 0:13:34.800 just charge people a lot higher fees for investing in 0:13:34.840 --> 0:13:36.640 companies that would have been public twenty years ago. 0:13:38.559 --> 0:13:41.120 So the answer is yes, yes. 0:13:41.440 --> 0:13:44.280 Yeah, right, I got it. 0:13:44.320 --> 0:13:44.800 Prove me wrong. 0:13:44.840 --> 0:13:46.520 I'd love to be wrong. It just it's right. 0:14:00.200 --> 0:14:02.480 This is really interesting to just me. But we have 0:14:02.640 --> 0:14:08.880 another question from another j name. This one comes from Jordan. 0:14:11.400 --> 0:14:14.880 It'd be funny, okay, Jordan. Jordan asks one of the 0:14:14.960 --> 0:14:18.559 recurring trends across both betting markets and crypto is that 0:14:18.640 --> 0:14:22.280 things that were previously illegal are now legal if you 0:14:22.400 --> 0:14:26.080 go through these venues not legal advice. Does there exist 0:14:26.120 --> 0:14:28.560 a way to get around the Onion Futures Act of 0:14:28.640 --> 0:14:31.520 nineteen fifty eight by creating a betting market on poly 0:14:31.640 --> 0:14:34.600 market on the price of onions. Gosh, this question was 0:14:34.640 --> 0:14:35.640 written just for you. 0:14:35.960 --> 0:14:37.560 I feel like the answer is no. Okay. So we've 0:14:37.560 --> 0:14:39.480 talked about the Onion Futures Act of nineteen fifty eight 0:14:39.520 --> 0:14:43.160 in the past. Basically in the United States there are 0:14:43.320 --> 0:14:48.240 regulated commodity futures trading markets except for onions, because onions 0:14:48.280 --> 0:14:52.160 are specifically it's specifically illegal to trade onion futures. And 0:14:52.200 --> 0:14:53.960 the reason for that is, like someone cornered the onion 0:14:53.960 --> 0:14:55.880 market in the fifties and they were like so mad 0:14:56.120 --> 0:14:59.560 that they said, nowhere onion futures also motion picture receipts. 0:14:59.760 --> 0:15:01.960 Don't actually know why that is, but like the Onion 0:15:02.000 --> 0:15:04.720 Features Act also says it's illegal to trade futures on 0:15:05.360 --> 0:15:08.560 motion picture receipts, but otherwise you can trade futures on 0:15:08.560 --> 0:15:11.920 any commodity, which like people used to understand to mean 0:15:12.000 --> 0:15:15.600 like wheat and corn and metals and whatnot. And then 0:15:16.440 --> 0:15:18.400 in like the seventies they started to understand it to 0:15:18.440 --> 0:15:22.840 mean like treasury rates and stock indexes and stuff like that. 0:15:23.280 --> 0:15:26.880 And from there we have very recently expanded into a 0:15:26.880 --> 0:15:29.440 brave new world for commodities include who will win the 0:15:29.440 --> 0:15:32.640 football game tonight and who will win the election, And 0:15:32.720 --> 0:15:34.440 so now we have this brave new world where like 0:15:35.760 --> 0:15:41.920 almost everything is by default with many objections, with many complaints, 0:15:41.920 --> 0:15:43.840 with like many people believing this is wrong. But almost 0:15:43.840 --> 0:15:47.800 everything is currently legal to trade as a commodity futures 0:15:47.800 --> 0:15:51.760 contract on Calshie, Like if you can think of a proposition, 0:15:52.200 --> 0:15:55.240 you can make it into a commodity's future contract on Calshi. 0:15:55.480 --> 0:15:58.120 But there are a few exceptions, and one of them 0:15:58.160 --> 0:16:01.080 is onions, because onions are actually the statute. They say 0:16:01.160 --> 0:16:03.560 you can trade commodity features on everything but onions. So 0:16:03.600 --> 0:16:06.480 everything includes sports, includes elections, that doesn't include onions. 0:16:08.200 --> 0:16:10.120 Mail bag, mail back. 0:16:10.600 --> 0:16:12.760 I'm going to read the next question because it's segueyed 0:16:12.840 --> 0:16:17.800 directly from that. It's from Jamas, I mean Thomas Thomas right, 0:16:17.840 --> 0:16:20.680 say syllogism. One, gambling is legal if it is a 0:16:20.680 --> 0:16:24.360 commodities trade. True. Two, stock movement can be gambled on 0:16:24.440 --> 0:16:27.280 well true. Three company can insider trade on a commodity 0:16:27.280 --> 0:16:30.360 which it directly deals with, except onions of course, nice callback. 0:16:30.920 --> 0:16:33.560 So is insider trading of a company's own stock legal 0:16:33.600 --> 0:16:37.200 if it happens on a prediction market aka a commodities exchange. 0:16:37.360 --> 0:16:40.160 So I think the other exception to like everything is 0:16:40.200 --> 0:16:42.400 a commodity that can be traded on commodity exchange. The 0:16:42.480 --> 0:16:48.280 other exception is stock, because stock is a security and 0:16:48.320 --> 0:16:52.400 there are details complicated I do not pretend to fully understand, 0:16:52.440 --> 0:16:55.160 but there are rules about securities based swaps, so like 0:16:55.880 --> 0:16:58.240 there are commodities features which are regulated by the Commodity 0:16:58.320 --> 0:17:01.640 Futures Trading Commission, and are you know, traded on commodities exchanges. 0:17:02.080 --> 0:17:05.560 And then there are stock derivatives which are regulated by 0:17:05.600 --> 0:17:10.760 the SEC and have a more or less completely separate 0:17:10.760 --> 0:17:13.119 set of rules that apply to them. So if you 0:17:13.160 --> 0:17:18.000 were to try to list stocks on a prediction market 0:17:18.359 --> 0:17:22.679 just like stocks, or I think like binary options on stocks, 0:17:22.720 --> 0:17:26.479 I think questions like will Tesla be up or down today? 0:17:26.960 --> 0:17:29.120 Is I think a securities based swap, and I think 0:17:29.160 --> 0:17:32.159 you could not list that on a commodities exchange like calcio. 0:17:32.240 --> 0:17:34.679 This is not legal advice, and people are pushing the 0:17:34.680 --> 0:17:37.520 boundaries of this every day, so I don't feel confident 0:17:37.560 --> 0:17:40.000 that this will always be true, But for right now, 0:17:40.320 --> 0:17:42.240 I think it is the case that you can't just 0:17:42.320 --> 0:17:45.399 have straight up stock bets on prediction markets. Now, I 0:17:45.440 --> 0:17:48.040 went and looked at polymarket and calshiy, and there's some stuff. 0:17:48.320 --> 0:17:50.600 There's some like what will be the biggest AI company 0:17:50.600 --> 0:17:52.560 at the end of the year. There's stuff where you're like, 0:17:52.880 --> 0:17:55.000 that's a little bit like a securities based swap, but 0:17:55.000 --> 0:17:56.680 it's like far enough away that people don't think of 0:17:56.720 --> 0:17:59.280 it as betting on stocks. I know the answer to 0:17:59.320 --> 0:18:01.600 the question. I mean, I think if you think that 0:18:01.760 --> 0:18:05.280 like pretty straightforward bets on stocks will end up existing 0:18:05.359 --> 0:18:08.919 on these prediction markets. I don't know the answer to 0:18:08.960 --> 0:18:11.040 the question. Would it be legal for the company to 0:18:11.080 --> 0:18:14.800 gamble on its own stock. I feel like the intuitively 0:18:14.800 --> 0:18:17.320 correct answer is no, but the like the tracing through 0:18:17.359 --> 0:18:20.600 the commodities rules might be yes. But in any case, 0:18:20.640 --> 0:18:22.600 I wouldn't worry about it because like, these contracts are 0:18:22.680 --> 0:18:24.159 never going to be that liquid, and like, no one, 0:18:24.720 --> 0:18:26.440 you know, Tesla's not going to go around and be 0:18:26.520 --> 0:18:28.680 like I can make forty dollars betting my stock will 0:18:28.680 --> 0:18:29.200 be up today. 0:18:30.000 --> 0:18:31.879 I feel like a company just has to do it 0:18:31.920 --> 0:18:33.159 so we can find out the answer. 0:18:33.400 --> 0:18:34.840 Once there's a series of things you have to do, 0:18:34.880 --> 0:18:36.960 which include getting some sort of bet on your stock 0:18:37.000 --> 0:18:40.920 listed on a prediction market, which is you know, that's 0:18:40.960 --> 0:18:43.480 your first problem right there by the way. I do 0:18:43.560 --> 0:18:45.840 think that more of that happens in Europe, like, you 0:18:45.840 --> 0:18:49.520 can have bets on stocks on prediction markets, but instort 0:18:49.560 --> 0:18:51.200 of treating rules and commodities rules are different. 0:18:51.240 --> 0:18:54.399 There. That was a good one to two punch of questions. 0:18:54.040 --> 0:18:56.600 Onions and stocks, the two things that are not legal 0:18:56.640 --> 0:18:57.800 to trade, and commodities features. 0:18:59.480 --> 0:19:01.520 We mail back. 0:19:02.160 --> 0:19:04.640 I'm really pleased to say that. The next question comes 0:19:04.680 --> 0:19:07.400 from another Josh, so we're back to the Jay names, 0:19:07.760 --> 0:19:12.479 which is interesting anyway. This Josh asks sports betting apps 0:19:12.560 --> 0:19:16.159 regularly ban or limit so called sharp betters, gamblers that 0:19:16.240 --> 0:19:18.679 have a history of winning a high percent of the time. 0:19:19.160 --> 0:19:21.359 This has always seemed weird or kind of unfair to me, 0:19:21.440 --> 0:19:24.520 But whatever, If these apps and other prediction type markets 0:19:24.560 --> 0:19:27.840 begin allowing bets on equities, can they legally do the 0:19:27.880 --> 0:19:31.359 same thing. If I'm consistently winning bets on if the 0:19:31.480 --> 0:19:34.200 SMP will go up or down on a specific day, 0:19:34.560 --> 0:19:36.840 can they ban me from making that bet? I love 0:19:36.880 --> 0:19:39.360 this question. I have no idea, but boys, it fun 0:19:39.400 --> 0:19:39.880 to think about. 0:19:40.400 --> 0:19:43.040 So a couple wins one is As we just said, 0:19:43.600 --> 0:19:45.320 I think it's going to be hard for these prediction 0:19:45.400 --> 0:19:49.720 markets to list stock trades because I think that's the 0:19:49.760 --> 0:19:52.720 securities based on now there isn't. The exception is indexes 0:19:52.920 --> 0:19:56.400 for some reason trade on commodities exchanges like stock indexas, 0:19:56.520 --> 0:20:00.560 So you can probably probably have a better on the SMP, 0:20:00.800 --> 0:20:04.440 whereas you can't on like Tesla or en video. So 0:20:04.560 --> 0:20:07.199 like it is plausible that like consistently winning bets on 0:20:07.200 --> 0:20:10.159 the s and P on your prediction market app is 0:20:10.160 --> 0:20:12.399 the thing that could happen, and then the question is 0:20:12.400 --> 0:20:16.680 can they ban you. So in traditional sports betting, you 0:20:16.800 --> 0:20:19.880 like have an account with a sports book that takes 0:20:19.880 --> 0:20:22.320 the other side of your bets, and the sports book 0:20:22.359 --> 0:20:25.840 doesn't want to lose, and so it will think about 0:20:26.080 --> 0:20:27.879 are you going to be a winning better? And it 0:20:27.920 --> 0:20:31.520 has various data to you know, evaluate that, including your 0:20:31.520 --> 0:20:34.120 track record and you know at the time of day 0:20:34.119 --> 0:20:36.199 that you make bets and things like that, and if 0:20:36.280 --> 0:20:37.760