Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: Hello and welcome to The Money Stuff Podcast, your weekly
Speaker 2: podcast where we talk about stuff related to money. I'm
Speaker 2: Matt Levine and I write The Money Stuff com for
Speaker 2: Bloomberg Opinion.
Speaker 1: And I'm Katie Greifeld, a reporter for Bloomberg News and
Speaker 1: an anchor for Bloomberg Television.
Speaker 2: What's going on, Katie?
Speaker 1: All right? We are going to talk about DJT and
Speaker 1: your Phil. We're going to talk about sports gambling, and
Speaker 1: we're also going to talk about Ron Barron and Elon Mosk. Alright,
Speaker 1: it's been a while though, sure. Hey, so we tell
Speaker 1: you to email us every week. We're specifically looking for questions.
Speaker 2: So we want to do more of a mail bag
Speaker 2: so that Katy and I can sing mail bag. Yeah,
Speaker 2: And to do that, we need questions. So send us
Speaker 2: to your questions.
Speaker 1: All we need is a prompt.
Speaker 2: All we need is a prompt. We don't want to
Speaker 2: make up questions.
Speaker 1: No, don't make us make up questions.
Speaker 2: Send us your best questions at money Pod at Bloomberg
Speaker 2: dot net. And then if you send us a good question,
Speaker 2: we'll answer it on air. And if you send us
Speaker 2: only bad questions, we'll be forced answer those on air.
Speaker 1: We can work with that.
Speaker 2: Dj T, Trump Media and Technology DJT.
Speaker 1: They should sell stock. They can't sell stock yet, as
Speaker 1: you write, because they're not yet a year old. But
Speaker 1: there's a way for them to get more shares out
Speaker 1: there into the handle.
Speaker 2: They can sell stock. What they can't do, yeah, is
Speaker 2: an ATM just the silly finance start for an at
Speaker 2: the market offering. If you're a meme stock, this is
Speaker 2: like as me me as a memestock cats, right, Like
Speaker 2: it has like a business that I sometimes say it's
Speaker 2: like a moderately successful substock. They make like, you know,
Speaker 2: a million dollars a quarter in advertising revenues. Not bad,
Speaker 2: it's not bad for like one man operation, but like
Speaker 2: it's got a bunch of employees, a seven billion dollar
Speaker 2: equity market cap, which seems high for like a million
Speaker 2: dollar quarter revenue operation that, by the way, lose a
Speaker 2: lot of money because like they have to pay a
Speaker 2: lot of people to generate that million dollars revenue. And
Speaker 2: so probably some people there think that it's a business, right,
Speaker 2: and like it's going to be like the future of media, right,
Speaker 2: They're going to get into television and they're going to
Speaker 2: be the biggest social media platform there is. They're not now,
Speaker 2: but maybe one day they will be. But my impression
Speaker 2: is that it largely trades like a meme stock. It
Speaker 2: trades as a bet on the newsworthiness of Donald Trump,
Speaker 2: and so it has this valuation that is largely not
Speaker 2: driven by business fundamentals. And I've written about that sort
Speaker 2: of thing a lot over the years, and my feeling
Speaker 2: is like, if you have a valuation that's not just fundamentals,
Speaker 2: you should sell as much stock as you can because
Speaker 2: then you have money, and you've transformed your irrational public
Speaker 2: valuation into an actual pot of money that you can
Speaker 2: use to build a business. And they seem to agree.
Speaker 2: So they're like, we're going to sell stock. And the
Speaker 2: way you sell that stock has to be to retail investors, right.
Speaker 2: You have to go out and sell it in the
Speaker 2: market to retail investors. You can't do a standard book
Speaker 2: builds offering where like you hire a big investment bank
Speaker 2: and they call big mutual funds and hedge funds and
Speaker 2: they say, would you like to buy stock? Because like, yeah,
Speaker 2: like what does that pitchbuck look like? Right? What does
Speaker 2: the what does the investor deck look like. So they
Speaker 2: want to do an out of the market offering, they can't
Speaker 2: because they haven't been public for long enough basically because
Speaker 2: they're a Deespac company. And so they are doing this
Speaker 2: weird quasi ATM offering where like they've hired Yorkville Advisors,
Speaker 2: which is like a smallish fund in New Jersey.
Speaker 1: That mountain side mountain side New Jersey.
Speaker 2: You this podcast expert on New.
Speaker 1: Jersey to where I grew up, So.
Speaker 2: It is your horse spin to mountain side. Probably not
Speaker 2: I hire this mountain side fund to Basically, like, these
Speaker 2: guys will buy their stock whenever they want to, and
Speaker 2: then they'll turn around and sell it into the market
Speaker 2: and look like like a two point seventy five percent fee,
Speaker 2: and it's like a sort of quasi ATM offering.
Speaker 1: And so they then sell it over the course of
Speaker 1: three days, well.
Speaker 2: I think it's like one or three days. Yeah, the
Speaker 2: deal is for two and a half billion dollars, but
Speaker 2: it's not like that's happening today. It's like two and
Speaker 2: a half billion dollars over the course of up to
Speaker 2: three years. And so on any day in that three
Speaker 2: year period, the company can call the York Villa and say, hey,
Speaker 2: we want to do like twenty million today. They say
Speaker 2: a number of shares were I to do like a
Speaker 2: million shares today? And York Villa will sell it those
Speaker 2: shares over like three days. Yeah, give them the money.
Speaker 1: Reading it kind of made me think of them as
Speaker 1: just basically very slow market makers. I know that's super
Speaker 1: reductive and simplistic, but that's how I talked about it
Speaker 1: in my head to myself.
Speaker 2: They're like a broker in an atm ufering. You hire
Speaker 2: a bank or a broker and you tell them to
Speaker 2: sell stock over the day.
Speaker 1: Yeah, and they sell the stock.
Speaker 2: And they charge you a fee. And this is the
Speaker 2: same thing, only like they're not technically a broker. They're
Speaker 2: not technically doing it as a broker. They're doing it
Speaker 2: as a principal. They're buying the stock for their own
Speaker 2: account and then they're selling it into the market. The
Speaker 2: thing that makes them any principle rather than just the
Speaker 2: broker is that if they sell stock for thirty five
Speaker 2: dollars or whatever, they don't pay DJT the price they got.
Speaker 2: They pay DJT the company Trump Media. DJT is the
Speaker 2: ticker they pay DJT the volume weighted average price over
Speaker 2: the period they sell it. Actually the more complicated than that,
Speaker 2: but they pay them like a price that is objectively determined.
Speaker 2: It's not like if we sell stock for you thirty
Speaker 2: five dollars, we'll pay you thirty five dollars. It's like
Speaker 2: we'll sell stock or we won't. And so the natural
Speaker 2: thing to do is if you're paying the view op
Speaker 2: over some period, you sell the stock over that period,
Speaker 2: and then you've eliminated the risk, right, Like, you sell
Speaker 2: it the view op and you pay the view up.
Speaker 2: But like there's no obligation for them to sell, no
Speaker 2: obligation to them to sell during the pricing period. And
Speaker 2: so because of that, everyone can say, this is not
Speaker 2: a deal in which DJT is selling stock to the market.
Speaker 2: This is just the deal in which DJT is selling
Speaker 2: stock to Yorkville. And what Yorkville does with the stock
Speaker 2: is its own business. Now clearly, because they're paying like
Speaker 2: the volume weighted average price over like period of time,
Speaker 2: their incentive is to sell the stock over that period
Speaker 2: of time. And like there are like various indications that
Speaker 2: they're not going to hold onto the stock, right, Like
Speaker 2: they're a thirty million dollar assets under management fund buying
Speaker 2: two point five billion dollars of Trump stock. Right, there's
Speaker 2: like a limit that they can't buy more than four
Speaker 2: point nine nine percent of the stock. Two point five
Speaker 2: billion is like a quarter of the stock. So they're
Speaker 2: not going to hold onto the stock, but they're going
Speaker 2: to sell the stock, but they don't have to. There's
Speaker 2: no arrangement for them to sell the stock. The other
Speaker 2: thing I would say is, like the way the pricing
Speaker 2: works is that each day they look at the volume
Speaker 2: weighted average price and they take the lowest of those
Speaker 2: view ops and that is the price that they pay.
Speaker 2: And so that it creates incentives. Right, if you sell
Speaker 2: the stock like one third each day, then like the
Speaker 2: lowest day is the price you pay it and the
Speaker 2: other two days are like gravy for you. So you know,
Speaker 2: their incentive is to have one day be really bad
Speaker 2: so that they can pay DJT a low price for
Speaker 2: the stock and like sell it for a high price.
Speaker 1: And with a meme stock, that's probably gonna happen. You're
Speaker 1: gonna have one rocky day, You're.
Speaker 2: Gonna have volatility. Right, Essentially, what Yorkville is getting is
Speaker 2: a series of short term options that they're getting kind
Speaker 2: of for free, right, because of the stock is like
Speaker 2: forty dollars one day, thirty five dollars the next day,
Speaker 2: and forty dollars the following day. Then like they sell
Speaker 2: stock at like an average price of like thirty eight,
Speaker 2: but they pay like thirty five to DJT because that's
Speaker 2: the lowest of the three of view.
Speaker 1: Ops to just tie a bow on this. So they're
Speaker 1: a broker in ATM, but it's totally on djt's terms. No, Well,
Speaker 1: DJT is selling them the stock.
Speaker 2: So a broker in an ATM, yeah, like a bank.
Speaker 2: The way it works is that the company calls them
Speaker 2: every day and says, hey, we want to sell twenty
Speaker 2: million dollars off their stock or whatever, and the broker
Speaker 2: sells that stock for the company and then pays the
Speaker 2: company the money it received minus a fee. Right, yeah,
Speaker 2: and this is different, Like this is the DJT calls
Speaker 2: Yorkville and says, hey, you want to sell some stock,
Speaker 2: and Yorksville says, okay, we'll give you the money in
Speaker 2: three days. But they don't have to sell the stock,
Speaker 2: and they're acting as principal and they're getting a lot
Speaker 2: of like little options on DJT stock. Right, So basically,
Speaker 2: if the stock is volatile, they make more money. That's
Speaker 2: not true of a broker in an ATM, right, Yeah,
Speaker 2: broker in a the ATM, if the stock is volatile,
Speaker 2: then like they're just selling it on behalf of the
Speaker 2: company here. Because they are a principal, they are making
Speaker 2: probably a lot more money than a broker in an
Speaker 2: at would. Also, they're not a broker, because that's sort
Speaker 2: of important for legal reasons. If they're doing it as
Speaker 2: a broker, then this is an ATM and it doesn't
Speaker 2: really work. And by the way, this is not an
Speaker 2: uncommon thing where a company wants to sell stock to
Speaker 2: investors in the market and like there's some impediment and
Speaker 2: so they do this sort of thing where they instead
Speaker 2: sell the stock in some structured way to some investor
Speaker 2: who specializes in intermediating these traits. Some of those people
Speaker 2: get in trouble for doing a sort of like the
Speaker 2: SEC says, you know, you're doing a brokerd offering and
Speaker 2: you're not supposed to do that, or you're supposed to
Speaker 2: be registered as a dealer. So there's some possibility of
Speaker 2: getting in trouble here when companies do this. Yeah, I
Speaker 2: think Borkville has a track record of doing it and
Speaker 2: not getting in trouble, so it seems okay, But it's
Speaker 2: a complicated kind of trade.
Speaker 1: Yeah, as you can tell, I'm trying to work through this.
Speaker 1: So Bailey Lipschultz wrote the article on Yorkville for Bloomberg News,
Speaker 1: and I was chatting with him about it, and I
Speaker 1: have to say, I've never thought about this before, And
Speaker 1: I was like, is this like a booming business? Like,
Speaker 1: who else does this?
Speaker 2: Specs? Well, Yorkfool is a ton of these respective.
Speaker 1: Yeah, well, he was saying, Yorkville is kind of one
Speaker 1: of one when it comes to this.
Speaker 2: They are one of one in this particular flavor of it. Yeah,
Speaker 2: but like when bed Bath and Beyond was sliding into bankruptcy,
Speaker 2: they did not this a different kind of trade, but
Speaker 2: I kind of looked the same. It was kind of
Speaker 2: like also a deal where like a investor agreed to
Speaker 2: buy stock from a company and sell it out into
Speaker 2: the market, but they weren't required to sell it out
Speaker 2: into the market, And so it was like, they're like
Speaker 2: flavors of this. You know. There was for a whilely
Speaker 2: business of what are called death spiral convertibles are not this,
Speaker 2: but they're not unrelated to this, right, So, yeah, Yorkville
Speaker 2: is one of one in this particular line of business,
Speaker 2: and this seems to be a better way of doing
Speaker 2: it than some of the other ways. But yeah, like
Speaker 2: this sort of thing of like selling stock to an
Speaker 2: intermediary to like sell out to the market is the
Speaker 2: thing that people do.
Speaker 1: So I mean, does this business go away for Yorkville
Speaker 1: once DJT is more than a year old.
Speaker 2: Maybe, But there's always more companies.
Speaker 1: That need it, that's true. I'm just wondering. Yorkville has
Speaker 1: done a ton of these, but it's a moment in time.
Speaker 2: Yeah, that's probably right. It's a moment in time for
Speaker 2: each company. But there's always like companies that need weird financing, right,
Speaker 2: and so like this is the being in the financing
Speaker 2: weird companies kind of business, the one that I like
Speaker 2: in weird companies. Yeah, I don't know, just.
Speaker 1: Move on, I think so. So sports gambling, So, sports gambling,
Speaker 1: you can't be too good at it if you run.
Speaker 2: It sports scampling website. What you want is problem gamblers, right,
Speaker 2: I'm sorry to laugh at that, but like what you
Speaker 2: want is people who bet a lot of money. And
Speaker 2: are very bad at Now there are regulatory problems with that,
Speaker 2: because if you mostly get problem gamblers, like eventually you're
Speaker 2: gonna get shut down, or like regulators are gonna step in,
Speaker 2: are going to limit you in some way. Right, what
Speaker 2: you don't want as a sports gambling website is people
Speaker 2: who are really good at gambling and keep making money
Speaker 2: off of you. And so there's a Wall Street Journal
Speaker 2: article this week about basically some people who have built
Speaker 2: reasonably good sports gambling systems and actually make money doing it,
Speaker 2: find that the big sports gambling sites limit their accounts
Speaker 2: so they can't bet very much money because they were
Speaker 2: making too much money, and the gambling sites don't like that,
Speaker 2: and so they make them smaller amounts, and they complain
Speaker 2: and like regulators and politicians say that's not fair. But
Speaker 2: of course the sport's caadpling sites, they control the entire apparatus, right,
Speaker 2: they're both the market maker for the bats, and also
Speaker 2: if they provide the website and they take the client information,
Speaker 2: so they know who's good and who's bad, and they're like,
Speaker 2: we don't want to bet against the people who are good.
Speaker 2: We ran a bet against the people who are bad.
Speaker 2: So they cut people down or they limit their bet sizes.
Speaker 1: Seems like you got a lot of emails about this.
Speaker 2: I don't follow sports gambling that closely, but I'm interested
Speaker 2: in like market structure, and I read a lot about
Speaker 2: equity market structure, and in equity market structure in America,
Speaker 2: people are also very into this question of like, I
Speaker 2: don't want to bet against people who are good, I
Speaker 2: want to bet against people wo are bad. And so
Speaker 2: what that means in practice and like US equity markets,
Speaker 2: is that big market makers pay retail brokerages to trade
Speaker 2: with their order flow. Because the idea is, if you're
Speaker 2: a market maker, basically like some person on the other
Speaker 2: side of the trade is either informed or not right.
Speaker 2: Either their their order is informative, it's not right. And
Speaker 2: if you are constantly trading like smart hedge funds or
Speaker 2: with giant asset managers, then every time you sell them stock,
Speaker 2: that stock is going to go up. Right, So every
Speaker 2: time you sell them stock, you like lose little bit
Speaker 2: of money. If you're constantly trading with retail traders, their
Speaker 2: orders are not informative. They're not going to buy you know,
Speaker 2: a million shares. They don't like have inside information and
Speaker 2: so every time you sell them stock, the stock doesn't
Speaker 2: go up, and so you don't lose money. So you'd
Speaker 2: rather trade with the retail traders, and so you can
Speaker 2: pay robin Hood or Fidelity or whatever to get their
Speaker 2: retail orders, and then you get a better pool of
Speaker 2: orders than you would with just trading in the public
Speaker 2: market with like potentially institutions. And you know, so I
Speaker 2: wrote about that. I was like, you know, like these
Speaker 2: market makers in traditional finance and and you know equities
Speaker 2: also try to segment their order flow to trade with
Speaker 2: the bad people rather than the good people. But what
Speaker 2: I said was, like, what I don't know of is
Speaker 2: any cases where people who are just good at bets
Speaker 2: or keep making good bets get cut off by their broker, right. Accept,
Speaker 2: there's an example that I'm aware of because like they've
Speaker 2: talked about it publicly three Hours Capital. You know the
Speaker 2: crypto hedgeweb.
Speaker 1: Oh yeah, I haven't heard that name in a long time.
Speaker 2: So those guys before they became a crypto hedge one,
Speaker 2: they were like currency at a bank and then they
Speaker 2: started a currency trading hedge fund that eventually morphed into
Speaker 2: a crypto.
Speaker 1: Fund and then it was an existential event when it
Speaker 1: went down, but in any.
Speaker 2: Case, like great for crypto, but like sorry, the super
Speaker 2: bad for crypto, big crypto story. But before that, they
Speaker 2: were like a little FX story. And what they did
Speaker 2: was they went to every bank and they signed up
Speaker 2: for the bank's FX trading platform, where basically the bank
Speaker 2: would like say, we'll trade currencies with you, and we'll
Speaker 2: post prices and you can, you know, click and trade
Speaker 2: at those prices and we'll take the other side of
Speaker 2: the trade. And three Hours would sign up for every
Speaker 2: bank's platform, and they just look at all the websites
Speaker 2: and they'd see like sometimes one bank would post a
Speaker 2: lower price than another bank, so they could buy from
Speaker 2: one bank and sell to another bank and make a
Speaker 2: guaranteed risk free profit. And they did that and the
Speaker 2: banks got mad because that's just like taking money from them,
Speaker 2: and so they kicked three Hours off their platform and
Speaker 2: they said, we don't want to trade it with you anymore.
Speaker 2: So I mentioned that when I wrote about it, and
Speaker 2: someone else emailed me to be like when he was
Speaker 2: an FX options trader, he had access to a bunch
Speaker 2: of different banks single deal or platforms, and he also
Speaker 2: armed the banks against each other. And he said I
Speaker 2: can confirm that they really don't like that, and a
Speaker 2: salesperson from each chewed me out and threatened to yank
Speaker 2: my access.
Speaker 1: I don't really understand what that's bad.
Speaker 2: It's bad because the banks lose money. It's not like
Speaker 2: illegal people do it, but like the banks feel like
Speaker 2: it's rude, so they don't. It's the same as with
Speaker 2: sports campling. It's the point is not that it's bad.
Speaker 2: The point is that if you have a client relationship
Speaker 2: and the client keeps making money off of you at
Speaker 2: your expense, you can just stop having that client relationship.
Speaker 2: And that's what the sports sides too.
Speaker 1: That seems more rude to me, but in any say, really, yeah,
Speaker 1: you're just arbitraging.
Speaker 2: You know, why should I let you keep arbitraging me?
Speaker 1: I guess that's a good question.
Speaker 2: If I keep betting with you and I keep losing money,
Speaker 2: I'm gonna stop betting with you.
Speaker 1: Don't hate the player or hate the game.
Speaker 2: I'm not hating you. I'm just not playing the game
Speaker 2: with you anymore.
Speaker 1: Fine, I mean right.
Speaker 2: It's a little weird that they actually call them up
Speaker 2: and yelled them instead of just stopping trading with them like, yeah,
Speaker 2: stop trading.
Speaker 1: I will say that I don't call me number one please.
Speaker 2: But I also got an email from another reader saying
Speaker 2: that he worked at a market maker, like one of
Speaker 2: the big, you know, electronic trading firms that do trade
Speaker 2: with retail orders, and he said, we built monitoring to
Speaker 2: isolate and identify professional traders out of the stream of
Speaker 2: retail orders, and so like they did identify people who
Speaker 2: were doing arbitrages on burker dealers, basically, like people who
Speaker 2: are good at trading stock options, not because they were
Speaker 2: like geniuses, but because they could like are different broker
Speaker 2: dealers against each other, And so he said, we called
Speaker 2: up their broker and said, you have to kick them
Speaker 2: off because they're making too much money off of us.
Speaker 2: And the burger apparently did this. It's like a thing
Speaker 2: that sort of happens in equities and equity options, like
Speaker 2: in retail market making. Like it is apparently possible to
Speaker 2: get kicked off your retail brokerage for being too good
Speaker 2: at trading retail options, just as it is in sportscambling exactly.
Speaker 1: And then you take a look at the Wall Street
Speaker 1: Journal store and you put an excerpt of this in
Speaker 1: your newsletter. But the example they used is Dave Holmes
Speaker 1: sports partner in Chicago, so that he started to win
Speaker 1: more using a math based wagering strategy. He ultimately got
Speaker 1: kicked off. But I would love to know what that
Speaker 1: strategy is because you think of where we sit as
Speaker 1: journalists and we can't day trade, and if I wasn't
Speaker 1: a financial journalist, I would be a fiend. But I
Speaker 1: think we can sports scamble. I think I can scratch
Speaker 1: this itch.
Speaker 2: So but I understanding is that a lot of the
Speaker 2: winning strategies are much like the three hours guys. It's
Speaker 2: like you sign up for a bunch of different sports
Speaker 2: pending platforms and you see where the odds are different,
Speaker 2: and you like buy the cheap ods and sell the
Speaker 2: expensive odds so that you end up neutral and you
Speaker 2: just have a guarantee profit because you're basically harming the
Speaker 2: sports books against each other. There are other ways, like, right,
Speaker 2: you can be really good at knowing who'll hit.
Speaker 1: A home run round study.
Speaker 2: Yeah, learn football, But I think like the people who
Speaker 2: like really do that like kind of work for the
Speaker 2: sports market makers. So yeah, I think that typically the
Speaker 2: arbitrage method is the one that people reliably make money
Speaker 2: on I want to say that he didn't get kicked off.
Speaker 2: This is the other thing that's interesting about it. It's
Speaker 2: not that when you win too much money they kick
Speaker 2: you off your platform. It's that when you win too
Speaker 2: much money, they lower your bat size so you can
Speaker 2: still win, usually win like twenty bucks instead of twenty
Speaker 2: thousand bucks. And part of the reason for that is
Speaker 2: if they kicked you off, there'd be more of a backlash, right,
Speaker 2: And so the limits are a little bit more opaque,
Speaker 2: and so you have a little bit less trouble with
Speaker 2: like politicians and regulators. But another part of it is
Speaker 2: they do want your bets. Right. It's not bad to
Speaker 2: have on your platform someone who's really good at betting,
Speaker 2: because that's informative to you. Or if you know someone
Speaker 2: always wins, then when they make a bet, you can
Speaker 2: bet along with them, which means basically adjusting the odds
Speaker 2: so that like you're informed by their beats. And this
Speaker 2: is true in like market making too, right, Like if
Speaker 2: you're a banking you of a client who's like, you know,
Speaker 2: whenever they buy stock, the stock goes up, Like that's
Speaker 2: useful information for you. You can probably make some money
Speaker 2: on that, right, even if like you're the one selling
Speaker 2: the stock and so you lose money on each trader
Speaker 2: on them, Like having good information is useful. Similar with
Speaker 2: this scambling sites, like you want to keep the people
Speaker 2: who are winning betters because they're giving you information. I've
Speaker 2: written a little bit over the years about insider gambling
Speaker 2: in sports m M because like in the US, like
Speaker 2: the rules of insider trading for stocks are like kind
Speaker 2: of clear, the rules of insider betting on sporting events
Speaker 2: are like less clear, and like it's more controversial, and
Speaker 2: every so often, you know, someone who knows about, you know,
Speaker 2: a football player's injury will bet on a game, and
Speaker 2: then it's like, oh, is that illegal or right? And
Speaker 2: someone once told me that it used to be when
Speaker 2: sports gambling was more of a sort of mob controlled activity.
Speaker 2: You could get in trouble for insider gambling, you know,
Speaker 2: with the mob, but also there was a certain amount
Speaker 2: that was tolerated because like what they would do is
Speaker 2: like they would set a line set, like an opening
Speaker 2: line on a sporting event, and then like the people
Speaker 2: with inside information would come in and put bets or
Speaker 2: like the informed gamblers, like the good gamblers, but Also
Speaker 2: the people i'd inside information would come in and make bets,
Speaker 2: and then the bookies would get information from that and
Speaker 2: they would adjust their lines so they'd be able to
Speaker 2: make more money off the general public. So it's a
Speaker 2: little of that here where like if you're really good, better,
Speaker 2: the sports betting sites can use that to make money,
Speaker 2: but they don't want to just also pay you at
Speaker 2: millions of dollars because you keep winning your bets, so
Speaker 2: they'll pay you at twenty dollars.
Speaker 1: Yeah, and the mob's involved, Well, the.
Speaker 2: Mob is not involved probably in the legal sports campling
Speaker 2: sites for sure.
Speaker 1: That's a good disclaimer. Just thinking back to Dave Holmes,
Speaker 1: if they cut him down to twenty cents, like he
Speaker 1: should just increase his volume and make them pay.
Speaker 2: First of all, first of all, that's a very bad job,
Speaker 2: right if like you're constantly making twenty cent bets, like
Speaker 2: it's you know, you're like return on your time goes now.
Speaker 2: But secondly, like assuming your math based strategy generates you know,
Speaker 2: one hundred bets a day, like you can't make a
Speaker 2: million bets a day, right, it is true?
Speaker 1: Yeah, well anyway, God bless him, take it up and volume.
Speaker 1: So Ron Barren loves Elon Musk, one of Elon Musk's
Speaker 1: biggest backer. When you think about you know who invests
Speaker 1: in various Tesla properties and Ron Barron, of course you
Speaker 1: think of him as a mutual fund manager. And now
Speaker 1: he's putting together these funds that are just for Elon
Speaker 1: Musk's private companies for individuals.
Speaker 2: Yeah, be fun to have, like Elon Musk mutual fund.
Speaker 1: Few weeks ago, I said, I want to launch a
Speaker 1: closed end fund of just Elon Musk. He's doing that
Speaker 1: for one, yeah, for SpaceX and for XA, separate.
Speaker 2: Funds for one for each.
Speaker 1: Yeah.
Speaker 2: There's enormous retail demand for Elon Musk, right, And you
Speaker 2: can get a certain amount of Elon Musk by buying Tesla,
Speaker 2: but you can't get Twitter, slash X or XAI or
Speaker 2: SpaceX or the Boring Company or Neulink or all these
Speaker 2: other things that he does. And a lot of people
Speaker 2: want that. A lot of people want SpaceX, right, And
Speaker 2: there's like you know, there's there's I think we've talked
Speaker 2: about people like I want to say on the golf course,
Speaker 2: so I own some space ax.
Speaker 1: Yeah.
Speaker 2: And so there's a booming business and giving it to them, right,
Speaker 2: if you're like institutional and through like a friend of
Speaker 2: Elon Musk, and you can put a slug of SpaceX
Speaker 2: into a vehicle and sell shares of that vehicle, like,
Speaker 2: people will pay you a lot of money for it.
Speaker 1: I don't know if they would describe themselves as friends,
Speaker 1: but Ron Barron and Elon Musk have a good relationship.
Speaker 1: But they met originally in twenty ten, and I mean
Speaker 1: Baron has just been buying Tesla stock forever. It feels like,
Speaker 1: I think this is really interesting. I mean for a
Speaker 1: lot of reasons. But also we've definitely talked about on
Speaker 1: this program beyond just Elon Musk, there's just a lot
Speaker 1: of demand among retail investors for private companies. It feels
Speaker 1: like a lot of the exciting companies right now are
Speaker 1: private companies, SpaceX probably being one of the best examples
Speaker 1: of that. And this is a way to do it.
Speaker 1: Is it the most efficient I mean compared to some
Speaker 1: of the other vehicles that we've talked about, thinking about
Speaker 1: Destiny for example, exactly. So there you have.
Speaker 2: It, right, scarce supply of these private companies. There's a
Speaker 2: lot of desire to invest in them. There are some
Speaker 2: legal restrictions, but not that many. Right, A lot of
Speaker 2: the investor class now are in credit and investors and can
Speaker 2: buy private funds, and so there is a real demand
Speaker 2: for this stuff. But I think is interesting is like
Speaker 2: the fact that there's a real demand for this stuff
Speaker 2: and like a limited supply mostly means that people who
Speaker 2: have that supply can make a lot of money, right,
Speaker 2: And so we've talked about the Destiny Tech one hundred
Speaker 2: fund where it traded an enormous premium to the net
Speaker 2: ascid value because like they had like this limited supply
Speaker 2: of cool private tech stocks and so they could sell
Speaker 2: that at you know, ten times acid value, or like,
Speaker 2: you know, there are a number of other like SpaceX
Speaker 2: or whatever vehicles where it's like the manager of that vehicle,
Speaker 2: the person who has actual SpaceX shares, can charge like
Speaker 2: two and twenty style fees to just own one stock.
Speaker 2: The story about Ron Barn's SpaceX funds is that they're
Speaker 2: not doing that, right. They're charging like a mutual fundye
Speaker 2: kind of fee structure where it's not an incentive fee
Speaker 2: and like relatively cheap. And so what he doing, which
Speaker 2: I think is more interesting, He's not like gouging it
Speaker 2: for money. He is using it as essentially advertisement for
Speaker 2: active management. Yeah, because like the point is like, if
Speaker 2: you run a mutual fund company, it's like a secularly
Speaker 2: rough time to run a mutual fund company, right, because
Speaker 2: index funds and ETFs are really taking away market share
Speaker 2: from actively managed stock mutual funds.
Speaker 1: Yeah.
Speaker 2: And if you're running an actively managed stock mutual fund
Speaker 2: and you're like, no, I'm really good at picking stocks,
Speaker 2: so you should invest with me and pay me, you know,
Speaker 2: one hundred basis point fees instead of paying Blackrock, you know,
Speaker 2: one basis point fees, that's like not a message that
Speaker 2: people are very receptive to you now, because like there's
Speaker 2: been a real popularization of the idea that index funds
Speaker 2: are better. There's a lot of data on like the
Speaker 2: persistence of mutual fund performance where it's like the people
Speaker 2: who are good at picking stocks, like, aren that good
Speaker 2: at picking stocks? Right, And there's not a lot of
Speaker 2: persistence from here to year of people who are good
Speaker 2: at picking stocks. And so just saying like I'm a
Speaker 2: good stock picker and you should invest with me because
Speaker 2: I'll pick the right stocks for you is not a
Speaker 2: good message anymore. But if you're like I will pick
Speaker 2: the right thoughts for you. And SpaceX like that's not
Speaker 2: in the index fund, right, I can't get SpaceX on
Speaker 2: the index fund. And so if you're a stock picker
Speaker 2: who has some mixture of private assets, like that is
Speaker 2: a more appealing message.
Speaker 1: Yeah. So two points there on the fees to be specific.
Speaker 1: So these funds charged this is according to his story
Speaker 1: from Miles Weiss. According to a person familiar with the matter,
Speaker 1: the funds charge an annual management fee of around one
Speaker 1: percent lock up investor capital for about eight years. Rival
Speaker 1: single purpose funds typically charge management fees of one to
Speaker 1: two percent annually, with that performance fee of as much
Speaker 1: as twenty percent. And in an interview, Ron Barn said
Speaker 1: exactly what you said. We're doing this because we want
Speaker 1: people to know about our mutual funds. I want my
Speaker 1: business to last for one hundred years. And I mean
Speaker 1: that ties into the ETF story that I love that
Speaker 1: you mentioned. But I will say that stock picking and
Speaker 1: ETFs is coming now. There's going to say coming back,
Speaker 1: but it's not coming back. It's becoming more of a moment.
Speaker 2: Yeah. But I think that the old model of like
Speaker 2: running a stock picking mutual fund and judging one hundred
Speaker 2: basis points.
Speaker 1: Is like oh yeah, yeah, yeah.
Speaker 2: If you are running a sort of like actively managed
Speaker 2: mutual fund complex and you want your business to last
Speaker 2: for one hundred years, you were thinking something about private markets, right,
Speaker 2: and like a lot of that is like these traditional
Speaker 2: asset managers are buying private credit managers so that they
Speaker 2: can get into that more lucrative, more not inexible business.
Speaker 1: Yeah.
Speaker 2: But this thing where it's like ah, SpaceX stocks, I
Speaker 2: can do something with that. That's another way to do that,
Speaker 2: but like something in.
Speaker 1: Privates, yeah, you know.
Speaker 2: Or the alternative is like enormous scale out automation. You
Speaker 2: can be a mutual fund manager if you're running gigantic
Speaker 2: index funds and you can afford to do that at
Speaker 2: two basis points. But like I like to pick my stocks,
Speaker 2: is like a harder business to stay in for the
Speaker 2: long run.
Speaker 1: Yeah, I don't know. Again, I find the idea of
Speaker 1: a highly concentrated portfolio of just these are my stocks
Speaker 1: that I like, here's like a dozen to two dozen
Speaker 1: of them, and I'm going to beat the market that way.
Speaker 1: I find that very compelling and you can see that
Speaker 1: the market. Yeah, if you beat the market that's a
Speaker 1: big if.
Speaker 2: Look that is still a bits that works, right, I
Speaker 2: mean Bill Ackman is out raising.
Speaker 1: I was wondering how long.
Speaker 2: Twenty five billion dollar funds to pick twelve stocks? But
Speaker 2: that's not really true, but it's partially true. I think
Speaker 2: the academic sort of consensus, the like regulatory consensus, there's
Speaker 2: like even a real move to the indexing and a
Speaker 2: real move to suspicion of active stock picking.
Speaker 1: Yeah, and like and for good reason, yeah.
Speaker 2: And a lot of suspicion that like, if you are
Speaker 2: a long only equity mutual fund manager getting paid no
Speaker 2: incentive fees, there's a lot of suspicion that you're generating
Speaker 2: very much alpha there, right, And if you're not generating alpha.
Speaker 1: Then like there's a good chance you're probably like a
Speaker 1: closet indexer and you're not actually doing too much different
Speaker 1: from the benchmark.
Speaker 2: Yeah, and you're charging a lot bigger fees than an
Speaker 2: index fund, right, right, even if you're not consciously a
Speaker 2: closet indexer, right, even if you're like consciously like trying
Speaker 2: to pick the best stocks. Like the track record of
Speaker 2: active equity mutual fund management, like, people have a suspicion
Speaker 2: about it, now, and so like having something that is
Speaker 2: objectively differentiated from like I'm buying stocks is just what
Speaker 2: this moment calls for. And it feels like that's secularly true,
Speaker 2: and it feels like it's not like five years people
Speaker 2: back to like wanting a twenty five stock equity mutual fund.
Speaker 2: It feels like that was a model from the last century.
Speaker 1: I think I'm taking the other side. I think I am.
Speaker 2: Well, you're watching the cool ETFs.
Speaker 1: For example, in ETF launch that I was really excited
Speaker 1: to see Alistair Hibbert from black Rock. He's like their
Speaker 1: star hedge fund manager. He was once paid more than
Speaker 1: Larry Fink. He just launched in ETF. The whole idea
Speaker 1: is like, here are my best picks. It's twenty to
Speaker 1: twenty five stocks. We're gonna hold him for a while,
Speaker 1: and it's in an ETF wrapper. That's really cool. Yeah yeah, yeah,
Speaker 1: so Ron Barren should launch an ETF. But then you can't, have,
Speaker 1: of course SpaceX in it. Though there are a lot
Speaker 1: of people trying to figure out how to put private
Speaker 1: assets in an ETF. I don't know how you do that,
Speaker 1: but yeah, yeah, I don't think I could do that.
Speaker 1: I don't know. I don't know how you would do it,
Speaker 1: but listen. We've got some of our best and our
Speaker 1: brightest on it.
Speaker 2: So I'm excited for that.
Speaker 1: Yeah, is there anything else I should say?
Speaker 2: Today? In Money Stuff birthday announcements, we have Bob Greyfeld,
Speaker 2: loyal listener.
Speaker 1: And father, huge Matt Levine fan. This is this is
Speaker 1: a great present the shout out. Even better would be
Speaker 1: him meeting you. You haven't actually met. You've spoken on
Speaker 1: the phone, though.
Speaker 2: That's true, and now he's gotten the shout out on
Speaker 2: the podcast.
Speaker 1: This is huge.
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