1 00:00:02,720 --> 00:00:07,200 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. 2 00:00:09,480 --> 00:00:11,559 Speaker 2: Yeah, it turns out, you know, if you google how 3 00:00:11,600 --> 00:00:13,680 Speaker 2: to defrost a bagel and it tells you to run 4 00:00:14,040 --> 00:00:17,040 Speaker 2: it under cold water for thirty seconds, that is an 5 00:00:17,120 --> 00:00:20,840 Speaker 2: unnecessary step. Not only is it unnecessary, I would not 6 00:00:20,880 --> 00:00:23,959 Speaker 2: recommend it, it produces a disgusting result. 7 00:00:24,560 --> 00:00:27,240 Speaker 1: Yeah. No, your mistake was giggling instead of asking your 8 00:00:27,360 --> 00:00:30,680 Speaker 1: local suburban jew who would tell you right answer. 9 00:00:31,240 --> 00:00:33,880 Speaker 2: Or just ask you know that you could go that route, 10 00:00:33,960 --> 00:00:38,319 Speaker 2: or just ask your podcast co host because everyone has 11 00:00:38,320 --> 00:00:38,639 Speaker 2: one of. 12 00:00:38,600 --> 00:00:44,720 Speaker 1: Those, and I'm facing important life decisions that my first 13 00:00:44,720 --> 00:00:47,640 Speaker 1: thought is I should ask my podcast cast about those. Yes, 14 00:00:47,760 --> 00:00:48,800 Speaker 1: at that's true. 15 00:00:49,280 --> 00:00:54,560 Speaker 2: It's practical for most tests. So this actually isn't our 16 00:00:54,600 --> 00:00:55,680 Speaker 2: first episode of the year. 17 00:00:56,160 --> 00:00:59,480 Speaker 1: It's not our first episode to air this year. That's true. 18 00:00:59,680 --> 00:01:02,000 Speaker 1: And we did pretend that we recorded the last episode 19 00:01:02,040 --> 00:01:04,440 Speaker 1: this year, although we didn't keep up that pretence for 20 00:01:04,520 --> 00:01:04,880 Speaker 1: very long. 21 00:01:05,160 --> 00:01:08,600 Speaker 2: I think we tricked everyone. Actually, of course that worked 22 00:01:08,640 --> 00:01:09,160 Speaker 2: really well. 23 00:01:10,160 --> 00:01:14,440 Speaker 1: Hello and welcome to the second Money Stuff podcast of 24 00:01:14,480 --> 00:01:19,199 Speaker 1: twenty twenty five, your weekly podcast where we talk about 25 00:01:19,240 --> 00:01:21,720 Speaker 1: stuff related to money. I'm Matt Levin, and I write 26 00:01:21,720 --> 00:01:24,280 Speaker 1: the Money Stuff column for Bloomberg Opinion, And. 27 00:01:24,240 --> 00:01:26,800 Speaker 2: I'm Katie Greifeld, a reporter for Bloomberg News and an 28 00:01:26,840 --> 00:01:28,280 Speaker 2: anchor for Bloomberg Television. 29 00:01:28,520 --> 00:01:29,959 Speaker 1: What are you talking about today, Katie? 30 00:01:30,280 --> 00:01:33,559 Speaker 2: Today we're going to talk about Fanny May, Freddie Mack, 31 00:01:33,640 --> 00:01:36,440 Speaker 2: and friend of the show Bill Lackman. We're going to 32 00:01:36,480 --> 00:01:41,399 Speaker 2: talk about MBA students and when case studies become real life. 33 00:01:41,800 --> 00:01:53,040 Speaker 2: And then we're going to talk about cocoa liquidity, Fanny 34 00:01:53,080 --> 00:01:57,960 Speaker 2: and Freddy. Fanny and Freddy. So this trade is once 35 00:01:58,000 --> 00:02:00,960 Speaker 2: again being resurrected and has some legs again. There's a 36 00:02:00,960 --> 00:02:06,320 Speaker 2: lot of optimism out there that maybe finally these two 37 00:02:06,400 --> 00:02:08,360 Speaker 2: are going to end up in private hands again. 38 00:02:09,240 --> 00:02:11,520 Speaker 1: Yeah. I used to write about this a lot and 39 00:02:11,560 --> 00:02:14,440 Speaker 1: then everyone kind of forgot about it, and I wrote 40 00:02:14,440 --> 00:02:16,960 Speaker 1: about it this weekend. I was like, I gotta start 41 00:02:16,960 --> 00:02:19,239 Speaker 1: from scratch. I gotta be like, what is Fanny and Freddy. 42 00:02:19,520 --> 00:02:21,040 Speaker 1: I'm not sure we'll do that on the podcast, but 43 00:02:21,120 --> 00:02:24,360 Speaker 1: we could. Is what are Fanny and Freddy? Fanny and 44 00:02:24,400 --> 00:02:30,880 Speaker 1: Freddy were the big mortgage guarantee companies that were technically 45 00:02:31,240 --> 00:02:34,000 Speaker 1: regular publicly traded companies, but everyone kind of thought they 46 00:02:34,040 --> 00:02:36,079 Speaker 1: were backed by the government up until two thousand and 47 00:02:36,120 --> 00:02:38,919 Speaker 1: eight when they went busted on some bad mortgage bets 48 00:02:38,960 --> 00:02:41,200 Speaker 1: and then the government took them over, and it turns 49 00:02:41,200 --> 00:02:43,200 Speaker 1: out they were in fight back by the government, and 50 00:02:43,240 --> 00:02:46,320 Speaker 1: so everyone who relied on Fanny guarantees to get their 51 00:02:46,360 --> 00:02:50,200 Speaker 1: mortgages paid back got their mortgages paid back, and the 52 00:02:50,280 --> 00:02:53,800 Speaker 1: government took over Fanny and Freddy, and shareholders of Fanny 53 00:02:53,800 --> 00:02:56,440 Speaker 1: and Freddy the day after the government takeover looked like 54 00:02:56,480 --> 00:02:59,639 Speaker 1: they had lost pretty much everything, but not literally everything. 55 00:03:00,120 --> 00:03:02,919 Speaker 1: And then later in twenty twelve, the government said, you 56 00:03:02,960 --> 00:03:05,160 Speaker 1: know what, they've lost everything. And so they've now been 57 00:03:05,200 --> 00:03:08,720 Speaker 1: like fully owned by the government more or less for 58 00:03:09,560 --> 00:03:13,680 Speaker 1: I say, twelve and a half years now, and in 59 00:03:13,720 --> 00:03:15,680 Speaker 1: that time people have spent kind of that whole time 60 00:03:15,720 --> 00:03:18,560 Speaker 1: being like, obviously this can't last, and Fanny and Freddy 61 00:03:18,600 --> 00:03:21,600 Speaker 1: have to return to private hands anytime now, and a 62 00:03:21,680 --> 00:03:23,880 Speaker 1: lot of people have made that bet in the form 63 00:03:23,919 --> 00:03:26,799 Speaker 1: of buying the stock of Fanny and Freddie, which still 64 00:03:26,840 --> 00:03:30,240 Speaker 1: trades over the counter, and saying when they returned to 65 00:03:30,240 --> 00:03:32,240 Speaker 1: private hands, the stock is going to be really valuable. 66 00:03:32,639 --> 00:03:36,240 Speaker 1: And they filed some lawsuits that didn't really work out 67 00:03:36,320 --> 00:03:38,920 Speaker 1: a long time ago, but now you know Trump is 68 00:03:38,960 --> 00:03:42,640 Speaker 1: coming back to office, and the same logic applies that 69 00:03:42,680 --> 00:03:46,080 Speaker 1: they can't be publicly owned forever. Maybe, And so Bill 70 00:03:46,160 --> 00:03:48,240 Speaker 1: Ackman is the latest. He brought up a lot of 71 00:03:48,280 --> 00:03:50,880 Speaker 1: Fanny and Freddy common stock and has been tweeting about 72 00:03:50,880 --> 00:03:53,480 Speaker 1: how Trump is going to return them to private hands 73 00:03:53,480 --> 00:03:54,640 Speaker 1: and they're going to be worth a lot of money. 74 00:03:54,840 --> 00:03:56,360 Speaker 1: And that's the news. 75 00:03:56,760 --> 00:04:00,880 Speaker 2: I did see a snarky tweet. Yeah, well, this one 76 00:04:01,440 --> 00:04:04,000 Speaker 2: still can't get over the name brand hedge fund manager 77 00:04:04,080 --> 00:04:07,560 Speaker 2: pumping his decade hold thin. They traded GSC bags on 78 00:04:07,600 --> 00:04:10,840 Speaker 2: the last trading day, which is kind of what happened. 79 00:04:10,880 --> 00:04:13,800 Speaker 1: I mean, oh yeah, but like to be clear, like yes, 80 00:04:13,920 --> 00:04:17,520 Speaker 1: like he is talking about this trade on Twitter on 81 00:04:17,880 --> 00:04:19,960 Speaker 1: x and that has the effect that like retail traders 82 00:04:19,960 --> 00:04:21,920 Speaker 1: see it and the stock goes up. Like the play 83 00:04:21,960 --> 00:04:23,919 Speaker 1: here is not that he pumps it and the stock 84 00:04:23,960 --> 00:04:26,000 Speaker 1: goes up and he sells into this retail demand. The 85 00:04:26,040 --> 00:04:28,359 Speaker 1: play here is obviously that he wants this to happen. 86 00:04:28,600 --> 00:04:32,520 Speaker 1: He's not writing these tweets to retail investors. He's writing 87 00:04:32,560 --> 00:04:36,440 Speaker 1: these tweets to Donald Trump and Elon Musk and like 88 00:04:36,480 --> 00:04:38,960 Speaker 1: the other Donald Trump advisors who will decide what happens 89 00:04:39,000 --> 00:04:41,240 Speaker 1: to Fanny and Freddy, because like it is true that 90 00:04:41,279 --> 00:04:43,479 Speaker 1: like something has to happen to Fanny and Freddy, and sorry, 91 00:04:43,520 --> 00:04:45,839 Speaker 1: it's not true. They could do nothing. I have argued 92 00:04:45,880 --> 00:04:49,159 Speaker 1: for twelve years now that it's fine. It's totally fine. 93 00:04:49,200 --> 00:04:51,520 Speaker 1: The status quo is fine. These are policy arms of 94 00:04:51,560 --> 00:04:53,919 Speaker 1: the government. They're like, essentially like the government's way of 95 00:04:53,960 --> 00:04:58,719 Speaker 1: guaranteeing thirty year fixed rate refinanciable mortgages. There are a 96 00:04:58,720 --> 00:05:02,119 Speaker 1: way that the government supports the house market. And they've 97 00:05:02,279 --> 00:05:04,919 Speaker 1: you know, historically been implicitly backed by the guarantee of 98 00:05:04,920 --> 00:05:07,039 Speaker 1: the US government, and now they're explicitly backed by like 99 00:05:07,040 --> 00:05:10,040 Speaker 1: they're owned by the US government, and there is not 100 00:05:10,200 --> 00:05:13,520 Speaker 1: really anything terrible happening from the fact that they're not 101 00:05:13,560 --> 00:05:15,560 Speaker 1: in private hands. I've said this for years that people 102 00:05:15,600 --> 00:05:17,560 Speaker 1: are like, oh, actually, this is a terrible thing. There 103 00:05:17,560 --> 00:05:20,520 Speaker 1: are various problems that come from them being in government ownership. 104 00:05:20,680 --> 00:05:22,640 Speaker 1: But it keeps working, you know, it keeps being kind 105 00:05:22,640 --> 00:05:25,440 Speaker 1: of fine, so they don't really need to do anything. 106 00:05:25,480 --> 00:05:27,240 Speaker 1: But it's just it seems clear that like this Trump 107 00:05:27,240 --> 00:05:30,360 Speaker 1: administration last time did want to get them into private hands, 108 00:05:30,400 --> 00:05:32,600 Speaker 1: and they kind of ran out of time, and now 109 00:05:32,600 --> 00:05:34,320 Speaker 1: they have four more years and like they're a little 110 00:05:34,360 --> 00:05:36,840 Speaker 1: less constrained, and so they will probably do it. And 111 00:05:36,920 --> 00:05:40,960 Speaker 1: so it behooves Bill Ackman to get on X not 112 00:05:41,120 --> 00:05:43,880 Speaker 1: to tell retail investors to go buy the stock, but 113 00:05:43,960 --> 00:05:47,640 Speaker 1: to tell the Trump administration, oh, don't forget to privatize 114 00:05:47,640 --> 00:05:49,880 Speaker 1: Fanny Man and Freddie back and give them back to 115 00:05:49,960 --> 00:05:53,120 Speaker 1: their existing shareholders, who include probably a lot of like 116 00:05:53,640 --> 00:05:57,080 Speaker 1: retail investors maybe who've held them since two thousand and four, 117 00:05:57,200 --> 00:06:00,640 Speaker 1: but maybe who bought them last week, but also clear Blackman, 118 00:06:00,680 --> 00:06:02,880 Speaker 1: who would probably make a lot of money if they 119 00:06:02,880 --> 00:06:04,240 Speaker 1: were handed back to shareholders. 120 00:06:04,400 --> 00:06:07,279 Speaker 2: Yeah, he estimates he could make like a twelve hundred 121 00:06:07,320 --> 00:06:10,640 Speaker 2: percent return on this. Sure, that's his math. 122 00:06:10,720 --> 00:06:12,919 Speaker 1: Yeah, I mean like conceptually, if you look at the 123 00:06:13,240 --> 00:06:16,520 Speaker 1: technical cash flow water flow of these companies, the stock 124 00:06:16,560 --> 00:06:19,320 Speaker 1: is worth zero dollars, right, And it's like that exactly right, 125 00:06:19,320 --> 00:06:20,800 Speaker 1: But it's like it's kind of right. It's basically like 126 00:06:20,960 --> 00:06:23,279 Speaker 1: the way these companies work is that every dollar they 127 00:06:23,360 --> 00:06:25,679 Speaker 1: make for the rest of time goes to the US government, 128 00:06:25,839 --> 00:06:28,120 Speaker 1: and then after that the shareholders get something. Right, So 129 00:06:28,160 --> 00:06:30,960 Speaker 1: like there's no cash flows to the shareholders and everyone 130 00:06:31,000 --> 00:06:34,520 Speaker 1: just assumes that that deal will be changed for reasons, 131 00:06:34,839 --> 00:06:37,080 Speaker 1: either reasons of like, oh, it's not fair to the shareholders, 132 00:06:37,120 --> 00:06:38,839 Speaker 1: or reasons of like, we do need to get private 133 00:06:38,839 --> 00:06:40,279 Speaker 1: capital back, and the only way to do that is 134 00:06:40,320 --> 00:06:42,320 Speaker 1: to like give something back to the shareolders. But like 135 00:06:42,400 --> 00:06:46,120 Speaker 1: right now, like the sort of like legal official value 136 00:06:46,120 --> 00:06:48,040 Speaker 1: of the cash flows to Fanny and Freddie sholders is 137 00:06:48,120 --> 00:06:50,640 Speaker 1: zero dollars, and so Bi Lackman is buying the stock 138 00:06:50,680 --> 00:06:52,920 Speaker 1: at like, you know, a low price, not zero dollars, 139 00:06:52,960 --> 00:06:55,920 Speaker 1: but like a low price reflecting the uncertainty about whether 140 00:06:55,920 --> 00:06:58,800 Speaker 1: they'll ever get cashlows. His thesis is you should just 141 00:06:58,839 --> 00:07:01,640 Speaker 1: stop that. You should forgive what is now something like 142 00:07:01,640 --> 00:07:04,880 Speaker 1: three hundred and forty billion dollars of nominal debt to 143 00:07:04,920 --> 00:07:07,160 Speaker 1: the government, and you just say, actually, all the profits 144 00:07:07,200 --> 00:07:09,200 Speaker 1: from now and go to the shareholders instead of the government. 145 00:07:09,320 --> 00:07:11,800 Speaker 1: Like yeah, that's a big difference. Giving them three hundred 146 00:07:11,800 --> 00:07:14,240 Speaker 1: and forty billion dollars would make them much much, much, 147 00:07:14,280 --> 00:07:15,360 Speaker 1: much much more valuable. 148 00:07:15,440 --> 00:07:17,880 Speaker 2: Something that I was hoping that you could explain to 149 00:07:17,920 --> 00:07:20,760 Speaker 2: me is like, let's say that the status quo persists 150 00:07:20,880 --> 00:07:23,560 Speaker 2: that the assumption that you know they will be returned 151 00:07:23,560 --> 00:07:26,960 Speaker 2: to private hands actually doesn't end up coming true. You 152 00:07:27,040 --> 00:07:29,360 Speaker 2: wrote that as it is right now, they don't have 153 00:07:29,400 --> 00:07:31,360 Speaker 2: to pay their income in cash to the government, but 154 00:07:31,480 --> 00:07:34,720 Speaker 2: each increase in net worth adds to the amount that 155 00:07:34,760 --> 00:07:37,280 Speaker 2: they owe to the government, so they still can't pay 156 00:07:37,280 --> 00:07:40,840 Speaker 2: off the debt. If they never returned to private hands, 157 00:07:41,080 --> 00:07:44,200 Speaker 2: could they ever get out of this hole? Like how 158 00:07:44,240 --> 00:07:45,000 Speaker 2: does that work? 159 00:07:45,360 --> 00:07:47,440 Speaker 1: There's no hole. They're just owned by the government. With 160 00:07:47,480 --> 00:07:50,480 Speaker 1: the way it works now is that every increase in 161 00:07:50,520 --> 00:07:53,280 Speaker 1: the net worth of Fanny and Freddy goes to the government, 162 00:07:53,440 --> 00:07:56,320 Speaker 1: which is what happens when the government owns one hundred 163 00:07:56,320 --> 00:07:59,160 Speaker 1: percent of Fanny and Freddy. There's no hole, like there's nominally, 164 00:07:59,200 --> 00:08:02,480 Speaker 1: like there's a number that is like nominally the debt 165 00:08:02,520 --> 00:08:05,360 Speaker 1: that they owe to the government. It's technically preferred stock, 166 00:08:05,440 --> 00:08:07,720 Speaker 1: not debt. It's like junior to the actual debt, like 167 00:08:07,760 --> 00:08:10,040 Speaker 1: you know, the mortgage guarantees. But the amount that they 168 00:08:10,040 --> 00:08:12,520 Speaker 1: owned the government goes up every time their value goes up, 169 00:08:12,560 --> 00:08:14,320 Speaker 1: which is a way to make sure that the government 170 00:08:14,360 --> 00:08:16,440 Speaker 1: continues to own one hundred percent of their cash. Lists. 171 00:08:16,480 --> 00:08:18,640 Speaker 1: But there's no like hole, like nothing bad happens to 172 00:08:18,680 --> 00:08:20,520 Speaker 1: them if like the amount that they owner, the government 173 00:08:20,560 --> 00:08:22,920 Speaker 1: goes up, and nothing good happens to them under the 174 00:08:22,920 --> 00:08:25,200 Speaker 1: current legal structure if the amount of that they order 175 00:08:25,240 --> 00:08:27,880 Speaker 1: the government goes down. But like everyone's assuming the amount 176 00:08:27,880 --> 00:08:30,440 Speaker 1: they owned the government will at some point go down 177 00:08:30,960 --> 00:08:34,520 Speaker 1: through some sort of decision by the government, and when 178 00:08:34,559 --> 00:08:36,920 Speaker 1: that happens, the people who invest in the stock will 179 00:08:36,960 --> 00:08:38,959 Speaker 1: make a lot of money. I assume Katie's gone. Now, 180 00:08:39,120 --> 00:08:42,720 Speaker 1: this is the problem with Katie is recording this podcast 181 00:08:42,920 --> 00:08:45,480 Speaker 1: live from atop a horse, and she fell off the horse, 182 00:08:45,520 --> 00:08:47,679 Speaker 1: and so the connection was interrupted. 183 00:08:47,720 --> 00:08:52,479 Speaker 2: For Yeah, I'm actually I've been loaded into the ambulance. 184 00:08:52,559 --> 00:08:55,079 Speaker 2: I'm away to the hospital. But you know, I said, 185 00:08:55,160 --> 00:08:58,920 Speaker 2: I gotta connect. I got into the listeners. Okay, So 186 00:08:58,960 --> 00:09:01,600 Speaker 2: you were saying, there there's no hole that this is 187 00:09:01,760 --> 00:09:03,839 Speaker 2: just the status quo. It's not like this. 188 00:09:04,480 --> 00:09:06,960 Speaker 1: There are a lot of weird accounting conceits going on 189 00:09:07,040 --> 00:09:09,800 Speaker 1: here for reasons having to do with like the history 190 00:09:09,840 --> 00:09:12,560 Speaker 1: of the bailout and like literally the US government's debt ceiling. 191 00:09:13,080 --> 00:09:15,520 Speaker 1: But there are all accounting fictions, and like the reality 192 00:09:16,120 --> 00:09:20,400 Speaker 1: is that right now, legally the terms are the government 193 00:09:20,440 --> 00:09:23,960 Speaker 1: just owns Fanny and Freddy, And so the adjustment of 194 00:09:23,960 --> 00:09:26,560 Speaker 1: accounting numbers doesn't really matter, just all the income goes 195 00:09:26,800 --> 00:09:29,640 Speaker 1: to the government. But Bill Ackman, but also a lot 196 00:09:29,679 --> 00:09:33,360 Speaker 1: of people are betting, probably correctly, that that accounting treatment 197 00:09:33,360 --> 00:09:35,520 Speaker 1: will change, and that status COO will change, and the 198 00:09:35,559 --> 00:09:38,400 Speaker 1: beneficiaries of that change will be the people who own 199 00:09:38,800 --> 00:09:41,040 Speaker 1: like twenty percent of the stock that is in public 200 00:09:41,080 --> 00:09:43,160 Speaker 1: hans and that trades over the counter. And the assumption 201 00:09:43,280 --> 00:09:45,680 Speaker 1: is like that stock will become valuable when the government 202 00:09:45,760 --> 00:09:47,679 Speaker 1: figures out how to get Fanny and Freddie off of 203 00:09:47,720 --> 00:09:48,400 Speaker 1: its books. 204 00:09:48,679 --> 00:09:51,440 Speaker 2: I guess, And you address this in the column, like 205 00:09:51,480 --> 00:09:55,120 Speaker 2: what is the incentive for the government to do this? 206 00:09:55,200 --> 00:09:58,840 Speaker 2: And I guess it makes sense why Ackman posted what 207 00:09:58,880 --> 00:09:59,520 Speaker 2: he did. 208 00:10:00,000 --> 00:10:02,520 Speaker 1: Where a sail like the trade is very clear. It's like, 209 00:10:02,559 --> 00:10:04,920 Speaker 1: they'll give you this multi hundred billion dollar company, right 210 00:10:05,120 --> 00:10:07,720 Speaker 1: if you're the government. It's a good question. And part 211 00:10:07,760 --> 00:10:09,319 Speaker 1: of the point of what I wrote the speaker was 212 00:10:09,400 --> 00:10:10,640 Speaker 1: to just kind of press on that and be like, 213 00:10:11,000 --> 00:10:13,520 Speaker 1: you know, the government has this valuable asset and the 214 00:10:13,640 --> 00:10:15,920 Speaker 1: Lackman would prefer to own it, and Blackman is like, 215 00:10:16,200 --> 00:10:19,240 Speaker 1: the government should give it to me. And I think 216 00:10:19,360 --> 00:10:21,600 Speaker 1: there's a wide thread assumption that the government will be like, yes, 217 00:10:21,679 --> 00:10:23,520 Speaker 1: we should give it to you and to be fair 218 00:10:23,559 --> 00:10:25,640 Speaker 1: to like the thousands of retail shaholders that own most 219 00:10:25,640 --> 00:10:27,920 Speaker 1: of it. That's probably right, but it's weird, right, it's weird, 220 00:10:27,960 --> 00:10:29,840 Speaker 1: but the government would just give this thing up. The 221 00:10:29,920 --> 00:10:33,160 Speaker 1: answer to that is that the government's stake in this 222 00:10:33,760 --> 00:10:37,320 Speaker 1: is monetizable, right, It's like it's valuable and they could 223 00:10:37,360 --> 00:10:39,520 Speaker 1: sell it for money. But they can't sell it for 224 00:10:39,559 --> 00:10:42,440 Speaker 1: money unless it's like kind of restructured as a normal company, 225 00:10:42,520 --> 00:10:45,960 Speaker 1: which probably does mean putting the common stock back in 226 00:10:46,000 --> 00:10:48,000 Speaker 1: the money somehow. So the idea is that if the 227 00:10:48,040 --> 00:10:50,080 Speaker 1: government sort of sets this up in a way where 228 00:10:50,400 --> 00:10:53,320 Speaker 1: the common sholders get something, then the government can sell 229 00:10:53,360 --> 00:10:55,400 Speaker 1: down its stake over time, and that steak is going 230 00:10:55,480 --> 00:10:57,160 Speaker 1: to be worth hundreds of billions of dollars and the 231 00:10:57,200 --> 00:10:59,680 Speaker 1: government will get a lot of cash, whereas if it 232 00:10:59,679 --> 00:11:02,200 Speaker 1: doesn't do that, it will continue to own Fanny and Freddy, 233 00:11:02,320 --> 00:11:04,679 Speaker 1: which will continue to have like cash flows that will 234 00:11:04,720 --> 00:11:06,520 Speaker 1: kind of go to the government, and so the government 235 00:11:06,520 --> 00:11:09,160 Speaker 1: will like get money over time. But you know, this way, 236 00:11:09,480 --> 00:11:11,800 Speaker 1: it's like monetizing it possibly a high point and like 237 00:11:11,840 --> 00:11:14,880 Speaker 1: getting cash now instead of like waiting over time to 238 00:11:15,040 --> 00:11:15,720 Speaker 1: collect fees. 239 00:11:16,679 --> 00:11:19,040 Speaker 2: One of the questions if this did happen, like if 240 00:11:19,120 --> 00:11:23,480 Speaker 2: if privacization did happen, what the effect on mortgage rates 241 00:11:23,559 --> 00:11:26,320 Speaker 2: might be. And I mean you talk about in your column, 242 00:11:26,320 --> 00:11:30,160 Speaker 2: how if it was privatized, then that sort of wink wink, 243 00:11:30,400 --> 00:11:32,480 Speaker 2: you know this is backed by the government, that would 244 00:11:32,640 --> 00:11:35,400 Speaker 2: go away, Like they would be allowed to fail if 245 00:11:35,400 --> 00:11:38,200 Speaker 2: they ended up in this situation again, but maybe. 246 00:11:37,880 --> 00:11:40,560 Speaker 1: Why is that maybe allowed to fail? I don't know. 247 00:11:40,640 --> 00:11:42,079 Speaker 1: I think it's hard to sort of game out what 248 00:11:42,120 --> 00:11:44,280 Speaker 1: would happen, because I think what would happen is that 249 00:11:45,040 --> 00:11:48,000 Speaker 1: in twenty twenty six or whenever they're released from government control, 250 00:11:48,040 --> 00:11:50,640 Speaker 1: they will be well capitalized. They'll be like pretty well run, 251 00:11:50,760 --> 00:11:53,840 Speaker 1: They'll be regulated. Everyone involved will have an incentive to 252 00:11:53,840 --> 00:11:56,559 Speaker 1: make sure that they don't go bankrupt six weeks later, 253 00:11:56,600 --> 00:11:58,120 Speaker 1: because like that would be really bad, right, So they're 254 00:11:58,120 --> 00:12:00,000 Speaker 1: not going to do Yeah, they're going to be careful. 255 00:12:00,440 --> 00:12:03,840 Speaker 1: And the question is in twenty years, how will Fanny 256 00:12:03,880 --> 00:12:07,720 Speaker 1: and Freddie be run? And the historical precedent is like 257 00:12:07,800 --> 00:12:10,200 Speaker 1: they started taking some risks and they started making some 258 00:12:10,320 --> 00:12:12,600 Speaker 1: mistakes and like they weren't you know, great about everything, 259 00:12:12,600 --> 00:12:14,560 Speaker 1: and their regulator is maybe a little asleep at the switch, 260 00:12:14,679 --> 00:12:17,439 Speaker 1: and so they ended up going bankrupt, not literally going backrupt, 261 00:12:17,480 --> 00:12:19,920 Speaker 1: but going into conservativeship and being on by the government. 262 00:12:20,240 --> 00:12:22,960 Speaker 1: Would that happen again eventually, maybe, And if it did 263 00:12:23,000 --> 00:12:24,960 Speaker 1: happen again eventually, the question is would they be too 264 00:12:25,000 --> 00:12:26,920 Speaker 1: big to fail and would the government bail them out again? 265 00:12:27,080 --> 00:12:29,199 Speaker 1: Because if so, then it's like it's kind of weird 266 00:12:29,200 --> 00:12:31,640 Speaker 1: to release them, and like, you know, it's like the 267 00:12:31,640 --> 00:12:35,679 Speaker 1: classic story of financial bailouts of like the private shareholders 268 00:12:35,840 --> 00:12:38,400 Speaker 1: get all the upside and then the government takes the downside. 269 00:12:38,440 --> 00:12:40,960 Speaker 1: Like here's the government took the downside. The government took 270 00:12:41,000 --> 00:12:44,319 Speaker 1: them over when they were broke and got a lot 271 00:12:44,320 --> 00:12:47,440 Speaker 1: of upside. But the status quo right now is kind 272 00:12:47,440 --> 00:12:49,040 Speaker 1: of the government gets one hundred percent of the upside, 273 00:12:49,080 --> 00:12:52,400 Speaker 1: and like the releasing them from conservativeship would mean private 274 00:12:52,400 --> 00:12:54,280 Speaker 1: shareholders get the upside again. And then if in like 275 00:12:54,280 --> 00:12:56,200 Speaker 1: twenty years they go bankrupt again, the government takes all 276 00:12:56,200 --> 00:12:59,040 Speaker 1: the downside. It's like a little bit of a negative association. 277 00:12:59,360 --> 00:13:00,880 Speaker 1: But I don't know what happened. I mean, I think 278 00:13:01,000 --> 00:13:04,439 Speaker 1: they will be regulated. They'll have like a regulatory capital requirement. 279 00:13:04,720 --> 00:13:07,320 Speaker 1: The regulator will be part of the Trump administration, Like, 280 00:13:07,520 --> 00:13:10,720 Speaker 1: I'm sure they'll be careful for maybe the rest of 281 00:13:10,760 --> 00:13:13,920 Speaker 1: my financial blocking career, but like eventually, who knows. 282 00:13:14,000 --> 00:13:16,000 Speaker 2: It is kind of fun to imagine a universe where 283 00:13:16,000 --> 00:13:19,280 Speaker 2: they are privatized and then sixteen years later or whatever, 284 00:13:19,360 --> 00:13:21,199 Speaker 2: they end up in this kind of hot water. Again, 285 00:13:21,800 --> 00:13:23,120 Speaker 2: the governments. 286 00:13:23,280 --> 00:13:25,679 Speaker 1: Things are cyclical, like it wouldn't be that weird, you know, 287 00:13:26,559 --> 00:13:27,080 Speaker 1: but we can. 288 00:13:27,040 --> 00:13:29,920 Speaker 2: Just keep doing this until the heat death of the universe. 289 00:13:30,080 --> 00:13:32,839 Speaker 1: And one way that people think about this problem is 290 00:13:32,840 --> 00:13:35,040 Speaker 1: is to try to avoid having institutions that are too 291 00:13:35,040 --> 00:13:36,600 Speaker 1: big to fail, right, Like you try to make it 292 00:13:36,640 --> 00:13:39,280 Speaker 1: so that banks are first of all robust defilure, but 293 00:13:39,360 --> 00:13:41,360 Speaker 1: secondly you try to say, like, you know, can we 294 00:13:41,440 --> 00:13:43,120 Speaker 1: make it so that if they do fail, they can 295 00:13:43,200 --> 00:13:45,720 Speaker 1: fail in a way that like, you know, private capital 296 00:13:45,720 --> 00:13:48,360 Speaker 1: takes all the losses. And like that's definitely part of 297 00:13:48,400 --> 00:13:50,800 Speaker 1: the thinking with Fanny and Freddy, where like instead of 298 00:13:50,840 --> 00:13:52,760 Speaker 1: them backing every mortgage that's on their balance that they 299 00:13:52,760 --> 00:13:56,360 Speaker 1: like are doing risk transfer securities where they're essentially selling 300 00:13:56,400 --> 00:13:58,800 Speaker 1: the credit risk of their mortgages to other private investors, 301 00:13:58,800 --> 00:14:01,400 Speaker 1: so that like it's not just Fanny and Freddy's capitalist 302 00:14:01,400 --> 00:14:04,160 Speaker 1: standing behind the mortgage market. Over the years, as people 303 00:14:04,200 --> 00:14:06,240 Speaker 1: have thought about privatizing Fanny and Freddy, there have been 304 00:14:06,280 --> 00:14:09,319 Speaker 1: proposals of, sure, let's privatize them, but not two of them. 305 00:14:09,360 --> 00:14:12,720 Speaker 1: Let's make them like sixteen of them, so that if 306 00:14:12,800 --> 00:14:16,960 Speaker 1: one mortgage company fails, then fifteen more will be fine 307 00:14:17,040 --> 00:14:19,520 Speaker 1: and it won't be a systemic risk and it won't 308 00:14:19,520 --> 00:14:22,480 Speaker 1: require a government ballot. But you can sort of see 309 00:14:22,480 --> 00:14:24,840 Speaker 1: why that's not the preferred proposal for the people who 310 00:14:24,840 --> 00:14:26,920 Speaker 1: own the stock because who own the stock on the 311 00:14:26,920 --> 00:14:28,800 Speaker 1: stock of like particular companies, and they want to, like, 312 00:14:28,880 --> 00:14:31,520 Speaker 1: you know, have those companies be valuable, and those companies, 313 00:14:31,480 --> 00:14:33,440 Speaker 1: frank they are more valuable if they're too bad to fail. 314 00:14:33,600 --> 00:14:36,840 Speaker 2: I hope that if it is privatized, we are back 315 00:14:36,880 --> 00:14:40,560 Speaker 2: in a low interest rate environment, because the potential effect 316 00:14:40,560 --> 00:14:43,360 Speaker 2: on mortgage rates is somewhat interesting. Like if it doesn't 317 00:14:43,360 --> 00:14:46,600 Speaker 2: have that sort of wink wink government backing. 318 00:14:46,520 --> 00:14:48,120 Speaker 1: I don't know what the effect on mortgage rates would be. 319 00:14:48,160 --> 00:14:50,520 Speaker 1: I think that, like my impression is that Fanny and 320 00:14:50,520 --> 00:14:54,800 Speaker 1: Freddy are sort of run now on a basis that 321 00:14:54,920 --> 00:14:56,440 Speaker 1: is meant to be kind of close to what they'd 322 00:14:56,440 --> 00:15:00,200 Speaker 1: look like as regular public companies, and so like they 323 00:15:00,240 --> 00:15:03,320 Speaker 1: wouldn't like double their guarantee fees tomorrow because they want 324 00:15:03,360 --> 00:15:06,120 Speaker 1: to be more profitable, right, or they would like have 325 00:15:06,160 --> 00:15:07,920 Speaker 1: them because they wanted to be more competitive, right. Like 326 00:15:07,960 --> 00:15:10,200 Speaker 1: their fees are kind of like roughly what you'd expect 327 00:15:10,240 --> 00:15:16,000 Speaker 1: them to continue charging. Would their bonds trade wider if 328 00:15:16,040 --> 00:15:19,520 Speaker 1: they were not backed by the US government? I don't know. 329 00:15:19,640 --> 00:15:22,120 Speaker 1: That's like, you know, the bet that Bilackman is making 330 00:15:22,200 --> 00:15:24,440 Speaker 1: is know that by the time they are released, they 331 00:15:24,480 --> 00:15:26,400 Speaker 1: will have such a fortress balance sheet, they'll be so 332 00:15:26,440 --> 00:15:29,240 Speaker 1: well capitalized that they will be essentially equivalent to the 333 00:15:29,280 --> 00:15:31,200 Speaker 1: credit of the US government and they won't need the 334 00:15:31,200 --> 00:15:35,000 Speaker 1: government backing. But I don't know, it's not totally clear 335 00:15:35,040 --> 00:15:37,840 Speaker 1: that that's true. And it depends also on like what 336 00:15:39,320 --> 00:15:41,640 Speaker 1: actually happens with their capitalization, right, I mean, like you 337 00:15:41,680 --> 00:15:44,640 Speaker 1: can argue over how much capital they should be required 338 00:15:44,640 --> 00:15:47,000 Speaker 1: to hold, and you know, if you're the shareholders, you 339 00:15:47,080 --> 00:15:51,840 Speaker 1: kind of want them to hold relatively little capital because then, 340 00:15:52,080 --> 00:15:54,720 Speaker 1: among other things, that means like you don't have to 341 00:15:54,760 --> 00:15:58,480 Speaker 1: dilute your own shares to make them viable standalone companies. 342 00:15:58,720 --> 00:16:02,920 Speaker 1: If you're a nervous regulator who remembers two thousand and eight, 343 00:16:02,960 --> 00:16:04,400 Speaker 1: you want them to hold a lot of capital, But 344 00:16:04,520 --> 00:16:06,360 Speaker 1: you know, there'll be a debate about how much capital 345 00:16:06,440 --> 00:16:08,160 Speaker 1: they need. You know, Bill Lackman is arguing for a 346 00:16:08,160 --> 00:16:10,200 Speaker 1: two point five percent capital ratio, which is like kind 347 00:16:10,200 --> 00:16:12,640 Speaker 1: of low on the scale of what people argue that, 348 00:16:12,760 --> 00:16:16,160 Speaker 1: but he says it's like it would be seven times 349 00:16:16,200 --> 00:16:18,120 Speaker 1: as much as their losses in two thousand and eight, 350 00:16:18,400 --> 00:16:20,400 Speaker 1: their losses on their guarantee portfolio, which I think is 351 00:16:20,480 --> 00:16:23,320 Speaker 1: you know, suggests that that would be pretty robust. So 352 00:16:23,320 --> 00:16:24,760 Speaker 1: there's gonna be a lot of argument about how much 353 00:16:24,800 --> 00:16:25,440 Speaker 1: capital they need. 354 00:16:25,880 --> 00:16:29,320 Speaker 2: Well, we'll see. I don't know where this possibly ranks 355 00:16:29,400 --> 00:16:32,760 Speaker 2: on the Trump administration's priority list. And I mean there's 356 00:16:33,040 --> 00:16:35,440 Speaker 2: analysts from Bluebern Intelligence who expect that this is like 357 00:16:35,440 --> 00:16:37,760 Speaker 2: a twenty six twenty seven conversation. 358 00:16:37,880 --> 00:16:39,840 Speaker 1: So I think it's a twenty six twenty seven like 359 00:16:39,960 --> 00:16:43,280 Speaker 1: events in part because of like every quarter that goes 360 00:16:43,320 --> 00:16:45,600 Speaker 1: by that they're profitable, they build up more capital, and 361 00:16:45,640 --> 00:16:48,840 Speaker 1: it's just easier to do this trade. So like, even 362 00:16:48,880 --> 00:16:51,320 Speaker 1: if it was the top priority, releasing them tomorrow would 363 00:16:51,400 --> 00:16:53,640 Speaker 1: make less sense than releasing them in twenty twenty seven. 364 00:16:54,000 --> 00:16:56,040 Speaker 1: I don't know it ranks on the list of priorities either, 365 00:16:56,080 --> 00:16:57,720 Speaker 1: but you know, it's like there's a. 366 00:16:57,640 --> 00:16:59,880 Speaker 2: Reason it means to buy Greenland first, right. 367 00:17:00,480 --> 00:17:02,800 Speaker 1: But also tweeting it and you know, like there's like 368 00:17:02,840 --> 00:17:04,320 Speaker 1: your hedge fund buddies come to you, like, hey, you 369 00:17:04,320 --> 00:17:06,520 Speaker 1: could really have about your hedgehund buddies. Then maybe it 370 00:17:06,560 --> 00:17:08,439 Speaker 1: works out right, And like the other thing is like, 371 00:17:08,440 --> 00:17:10,440 Speaker 1: so he's tweeting this in part for like the officials 372 00:17:10,440 --> 00:17:12,560 Speaker 1: to read it, but he's also you know, other people 373 00:17:12,560 --> 00:17:14,440 Speaker 1: will see this idea and maybe they'll buy the stock. 374 00:17:14,520 --> 00:17:16,159 Speaker 1: Some of those people are retail people who have you know, 375 00:17:16,440 --> 00:17:18,920 Speaker 1: have no influence with the administration, but who knows who 376 00:17:18,920 --> 00:17:19,560 Speaker 1: else will buy it? 377 00:17:19,640 --> 00:17:19,840 Speaker 2: Right? 378 00:17:20,160 --> 00:17:22,119 Speaker 1: Yeah, what if Elon Musk's these two's like, oh, that's 379 00:17:22,160 --> 00:17:24,159 Speaker 1: a good trade and then Elon Musk buys like, you know, 380 00:17:24,359 --> 00:17:26,399 Speaker 1: a million shares of Fanny made. Now it's igh on 381 00:17:26,400 --> 00:17:27,680 Speaker 1: the priority list. 382 00:17:28,000 --> 00:17:30,399 Speaker 2: Yeah, And I mean didn't the shows rise like forty 383 00:17:30,400 --> 00:17:32,639 Speaker 2: five percent of the day that he tweeted it. I 384 00:17:32,640 --> 00:17:34,840 Speaker 2: think it was December thirtieth, So it's not like there 385 00:17:34,880 --> 00:17:38,119 Speaker 2: was a ton of volume going on, but the backs 386 00:17:38,160 --> 00:17:38,840 Speaker 2: were pumped. 387 00:17:39,160 --> 00:17:41,359 Speaker 1: Yeah, it's very binary, right, Like this is either a 388 00:17:41,440 --> 00:17:43,600 Speaker 1: very valuable company or it's worth zero, and like it's 389 00:17:43,640 --> 00:17:45,800 Speaker 1: just like some day someone's gonna flip the switch and 390 00:17:45,840 --> 00:17:49,320 Speaker 1: make it very valuable. Probably almost certainly, And like Bill 391 00:17:49,400 --> 00:17:51,840 Speaker 1: Lackman putting it on Twitter, like moves up the day 392 00:17:51,840 --> 00:17:53,280 Speaker 1: when they flip the switch, and that makes it a 393 00:17:53,320 --> 00:18:04,080 Speaker 1: lot more life. 394 00:18:07,280 --> 00:18:10,280 Speaker 2: One of those wacky kids getting up to over in Indiana. 395 00:18:10,520 --> 00:18:11,480 Speaker 1: I love these kids. 396 00:18:11,640 --> 00:18:15,640 Speaker 2: So are they still students or no? 397 00:18:15,640 --> 00:18:17,879 Speaker 1: No, no, I've looked up a couple of them on LinkedIn. 398 00:18:17,920 --> 00:18:19,159 Speaker 1: They they have real jobs. 399 00:18:19,200 --> 00:18:20,760 Speaker 2: They're not did you add them? 400 00:18:20,920 --> 00:18:23,080 Speaker 1: No, But they're not like running this golf resort as 401 00:18:23,080 --> 00:18:26,960 Speaker 1: far as anyway. So Indiana University, the Kelly School of Business, 402 00:18:27,240 --> 00:18:30,840 Speaker 1: they have an MBA class like an integrative case experience. 403 00:18:30,840 --> 00:18:33,040 Speaker 1: So it's like their capstone project for their MBA and 404 00:18:33,080 --> 00:18:36,480 Speaker 1: it's on the business of sport. And the class project 405 00:18:36,520 --> 00:18:38,760 Speaker 1: that's like sixty percent of your grade is to create 406 00:18:38,840 --> 00:18:42,640 Speaker 1: an executive level recommendation to an entity facing real world challenges. 407 00:18:42,760 --> 00:18:45,119 Speaker 1: And so the professor that goes out and sources like 408 00:18:45,200 --> 00:18:50,159 Speaker 1: actual like ongoing sports business situations and then like you know, 409 00:18:50,240 --> 00:18:52,080 Speaker 1: packages them in a case and says to the class, 410 00:18:52,160 --> 00:18:54,600 Speaker 1: what would you do about this? And this group of 411 00:18:54,640 --> 00:18:59,480 Speaker 1: students took this challenge case situation involving the development of 412 00:18:59,520 --> 00:19:02,520 Speaker 1: a golfer in Puerto Rico. Basically like this Puerto Rican 413 00:19:02,560 --> 00:19:05,640 Speaker 1: like land development authority own some acreage in Puerto Rico 414 00:19:05,920 --> 00:19:08,280 Speaker 1: and they brought in a developer to develop into a 415 00:19:08,320 --> 00:19:12,600 Speaker 1: golf resort. And these students were like, given the project 416 00:19:12,680 --> 00:19:16,280 Speaker 1: of look at this situation, build a financial model, build 417 00:19:16,280 --> 00:19:18,320 Speaker 1: some plans for how you would do it. Make a 418 00:19:18,359 --> 00:19:21,560 Speaker 1: good presentation about how you would develop those golf resort. 419 00:19:21,640 --> 00:19:24,359 Speaker 1: And you know they're NBA students, they have connections, and 420 00:19:24,400 --> 00:19:27,000 Speaker 1: some of them were apparently relatives of people who work 421 00:19:27,040 --> 00:19:30,040 Speaker 1: at a golf resort development company, which is like a 422 00:19:30,119 --> 00:19:33,280 Speaker 1: natural fit. So they were like they called their family 423 00:19:33,359 --> 00:19:35,800 Speaker 1: or friends or whatever and were like, hey, you developed 424 00:19:35,800 --> 00:19:38,880 Speaker 1: golf courses, what do you think about this golf project? 425 00:19:39,160 --> 00:19:41,240 Speaker 1: And somehow what happened is, first of all, they did 426 00:19:41,280 --> 00:19:43,040 Speaker 1: apparently a good presentation that was like, this is how 427 00:19:43,040 --> 00:19:46,000 Speaker 1: we would develop this golf project. But secondly, the people 428 00:19:46,119 --> 00:19:48,560 Speaker 1: they called were like, hey, this is such a good deal, 429 00:19:48,640 --> 00:19:50,280 Speaker 1: we should do develop it. Not the people who are 430 00:19:50,280 --> 00:19:52,800 Speaker 1: already developing it, we should take over this deal. And 431 00:19:52,840 --> 00:19:56,080 Speaker 1: so the people they called like apparently took over. They 432 00:19:56,520 --> 00:19:59,280 Speaker 1: called the Puerto Rican Land Development Authority and said, hey, 433 00:19:59,320 --> 00:20:01,520 Speaker 1: we have a better plan, and they ended up jumping 434 00:20:01,520 --> 00:20:03,920 Speaker 1: the original deal, and the people who had the original 435 00:20:04,240 --> 00:20:06,760 Speaker 1: development project, who are now out in the COLT sued 436 00:20:07,240 --> 00:20:10,760 Speaker 1: the new development company and the NBA students and the professor, 437 00:20:11,040 --> 00:20:14,080 Speaker 1: saying basically, like, the way the professor got this case 438 00:20:14,800 --> 00:20:17,680 Speaker 1: is that the guy who was developing the project originally 439 00:20:18,080 --> 00:20:21,240 Speaker 1: was a proud alumnus of the Kelly School of Business, 440 00:20:21,520 --> 00:20:25,840 Speaker 1: and he was like, of course you can create a 441 00:20:25,840 --> 00:20:29,359 Speaker 1: case about my masterpiece golf development. You should definitely ask 442 00:20:29,400 --> 00:20:32,200 Speaker 1: your students to advise me. Maybe because he wanted the advice, 443 00:20:32,280 --> 00:20:33,720 Speaker 1: or maybe because he was just proud of it, But 444 00:20:33,800 --> 00:20:37,200 Speaker 1: in any case, he's now suing the professor and the students, saying, 445 00:20:37,240 --> 00:20:38,080 Speaker 1: you stole my idea. 446 00:20:38,400 --> 00:20:42,760 Speaker 2: That is so wild and so good. When I first 447 00:20:42,840 --> 00:20:44,800 Speaker 2: read it, I thought that like they went out and 448 00:20:45,000 --> 00:20:48,800 Speaker 2: shopped it around after the course. But no, their presentation 449 00:20:49,000 --> 00:20:51,880 Speaker 2: was based on the fact that they made this partnership 450 00:20:52,119 --> 00:20:52,760 Speaker 2: with Discovery. 451 00:20:53,520 --> 00:20:55,760 Speaker 1: No. No, no, the presidation didn't say they made a 452 00:20:55,760 --> 00:20:59,480 Speaker 1: partnership the presentation said that they consulted with Discovery to 453 00:21:00,040 --> 00:21:02,320 Speaker 1: to basically sort of like get business ideas for how 454 00:21:02,320 --> 00:21:04,840 Speaker 1: to develop this course. But it's interesting, like because yes, 455 00:21:04,920 --> 00:21:08,240 Speaker 1: the lawsuit cites their presentation. It says, the student defendants 456 00:21:08,280 --> 00:21:11,320 Speaker 1: made the following admissions and their recorded presentation, we explored 457 00:21:11,320 --> 00:21:13,520 Speaker 1: a union with Discovery Land Companies. So I think, you know, 458 00:21:13,560 --> 00:21:16,120 Speaker 1: as you're pretending to develop a golf course, you're like, oh, 459 00:21:16,280 --> 00:21:18,119 Speaker 1: we could do a merger, right, But except that it 460 00:21:18,119 --> 00:21:20,399 Speaker 1: happened in real life. What was interesting to me is, 461 00:21:20,400 --> 00:21:23,200 Speaker 1: I don't know if that's like they brought this lawsuit 462 00:21:23,240 --> 00:21:26,080 Speaker 1: and in Discovery they they got to watch the student's 463 00:21:26,119 --> 00:21:28,760 Speaker 1: presentation that was recorded for class and they said, aha, 464 00:21:28,800 --> 00:21:32,040 Speaker 1: they admitted it. Or if like the original developer of 465 00:21:32,040 --> 00:21:36,080 Speaker 1: the project watched the presentation as part of the class, right, 466 00:21:36,520 --> 00:21:38,800 Speaker 1: because like he was the one who said to the 467 00:21:39,119 --> 00:21:40,840 Speaker 1: to the professor, hey should teach a course about my 468 00:21:40,880 --> 00:21:43,560 Speaker 1: golf resort, and so you know, like probably he went 469 00:21:43,600 --> 00:21:45,680 Speaker 1: to the final presentations, like the professor's like, hey, you 470 00:21:45,680 --> 00:21:47,879 Speaker 1: should come see the students like what they think about, 471 00:21:48,080 --> 00:21:49,919 Speaker 1: you know, how you should do the golf course, and 472 00:21:49,960 --> 00:21:51,960 Speaker 1: he like shows up like all proud saying, yeah, I 473 00:21:51,960 --> 00:21:54,199 Speaker 1: want to I want to hear what you think of 474 00:21:54,240 --> 00:21:56,879 Speaker 1: my golf resort. And they're like, we've had another bidder. 475 00:21:56,880 --> 00:21:59,520 Speaker 1: And he's like, ah, so I hope that's what happened. 476 00:21:59,520 --> 00:22:03,000 Speaker 2: I don't actually so wait, So they sued the professor, 477 00:22:03,080 --> 00:22:05,640 Speaker 2: they sued the students. Did they sue the school itself? 478 00:22:06,040 --> 00:22:08,840 Speaker 2: Who beyond the students could be founded fault here? 479 00:22:09,160 --> 00:22:11,280 Speaker 1: Well, the main one is discovery of the company that 480 00:22:11,280 --> 00:22:12,200 Speaker 1: apparently jumped the deal. 481 00:22:12,680 --> 00:22:14,400 Speaker 2: Yeah, that they seem like the baddies. 482 00:22:15,000 --> 00:22:16,359 Speaker 1: Well, I don't know if they seem like the batties, 483 00:22:16,359 --> 00:22:18,720 Speaker 1: but they're the people have money, right, The best word 484 00:22:18,760 --> 00:22:21,720 Speaker 1: is they're suing for one to two billion dollars. Why 485 00:22:21,760 --> 00:22:23,679 Speaker 1: one to two billion dollars? Well, as part of their 486 00:22:23,720 --> 00:22:26,800 Speaker 1: class project, the students calculated how much profit they expected 487 00:22:26,800 --> 00:22:29,240 Speaker 1: this golf resort to bring in, and so they wrote down, 488 00:22:29,440 --> 00:22:31,320 Speaker 1: this is worth one to two billion dollars, and so 489 00:22:31,359 --> 00:22:33,440 Speaker 1: that's what they're suering for. I don't think the students 490 00:22:33,480 --> 00:22:35,240 Speaker 1: have one to two billion dollars Sothough that's possible. 491 00:22:35,480 --> 00:22:37,919 Speaker 2: That's really funny. I mean, I guess it makes the 492 00:22:38,080 --> 00:22:40,520 Speaker 2: plaintiff's lawyer's job really easy. 493 00:22:41,080 --> 00:22:42,920 Speaker 1: I wouldn't go that far. But yes, they get to 494 00:22:43,000 --> 00:22:44,960 Speaker 1: put in their press dam It is rare for it 495 00:22:44,960 --> 00:22:47,280 Speaker 1: defendant to calculate the damages, but here they did, right. 496 00:22:47,359 --> 00:22:50,240 Speaker 1: It's like it's a good line. I will say that 497 00:22:50,280 --> 00:22:53,600 Speaker 1: I got emails from readers being like I did a 498 00:22:53,600 --> 00:22:57,000 Speaker 1: class project presentation saying that so and so should buy 499 00:22:57,040 --> 00:22:58,679 Speaker 1: sow and so, and I got a b and then 500 00:22:58,720 --> 00:23:00,400 Speaker 1: six months later they did it and I didn't get 501 00:23:00,400 --> 00:23:02,000 Speaker 1: to do the deal. What I wrote is that business 502 00:23:02,000 --> 00:23:04,119 Speaker 1: school is a lot of like pretending to do business deals, 503 00:23:04,280 --> 00:23:05,760 Speaker 1: and like this is the rare case where it like 504 00:23:05,840 --> 00:23:08,800 Speaker 1: somehow transformed into our reality. But most of the time 505 00:23:09,440 --> 00:23:10,440 Speaker 1: you stick to pretending. 506 00:23:10,600 --> 00:23:13,280 Speaker 2: And do you know when this actually happens, like when. 507 00:23:13,280 --> 00:23:14,320 Speaker 1: The twenty twenty one course. 508 00:23:14,520 --> 00:23:17,560 Speaker 2: Oh so I wonder, like for these students who have 509 00:23:17,600 --> 00:23:21,920 Speaker 2: now graduated and are in their professional lives, I wonder 510 00:23:22,760 --> 00:23:23,639 Speaker 2: what this feels like. 511 00:23:24,240 --> 00:23:26,720 Speaker 1: Yeah, it must be stressful. I will say, like I wrote, 512 00:23:26,840 --> 00:23:28,359 Speaker 1: you know, you get an A plus in my course, 513 00:23:28,440 --> 00:23:31,360 Speaker 1: Like I don't know, like if I heard their professor 514 00:23:31,440 --> 00:23:33,080 Speaker 1: or like their current and floor, I'd be proud of them, 515 00:23:33,080 --> 00:23:34,560 Speaker 1: like they they went out and did it, you know, 516 00:23:34,680 --> 00:23:36,760 Speaker 1: like this is this is this shows some hustle, shows 517 00:23:36,760 --> 00:23:40,199 Speaker 1: some enginuity, shows a commitment to business. I don't know. 518 00:23:40,240 --> 00:23:42,880 Speaker 1: It's good. I like it. The thing that's happening here 519 00:23:42,920 --> 00:23:45,480 Speaker 1: is like the lawsuit is like we had an NDA 520 00:23:45,520 --> 00:23:47,840 Speaker 1: where people agreed not to like disclose anything, but like 521 00:23:47,880 --> 00:23:50,600 Speaker 1: it's not clear who they had an NDA with, Like 522 00:23:50,640 --> 00:23:52,679 Speaker 1: I think they thought the students were signing ndias, but 523 00:23:52,720 --> 00:23:55,359 Speaker 1: the students maybe weren't signing indias. It's a little unclear. 524 00:23:55,640 --> 00:23:58,320 Speaker 1: So like it's not clear the students did anything wrong, right, 525 00:23:58,400 --> 00:24:01,640 Speaker 1: Like it wasn't like they were like, ah, let's break 526 00:24:01,720 --> 00:24:03,399 Speaker 1: up this deal. It was like they were like, oh, 527 00:24:03,560 --> 00:24:07,159 Speaker 1: we need to do a good presentation, so let's contact 528 00:24:07,200 --> 00:24:09,399 Speaker 1: people on the field and sort of get their input. 529 00:24:09,520 --> 00:24:12,359 Speaker 2: I don't know, I feel like exploring a union goes 530 00:24:13,040 --> 00:24:14,640 Speaker 2: beyond just you know, doing. 531 00:24:14,760 --> 00:24:17,960 Speaker 1: It's all pretend, Like how would we do this deal? 532 00:24:17,960 --> 00:24:20,200 Speaker 1: How are we'd explore a union? I don't know. It's fine. 533 00:24:20,840 --> 00:24:23,679 Speaker 2: At some point it crossed over into real life, Yeah you're. 534 00:24:23,520 --> 00:24:26,040 Speaker 1: Sure, but like they didn't do anything wrong, Like yeah, 535 00:24:26,080 --> 00:24:27,359 Speaker 1: it cross never to real life because it was a 536 00:24:27,400 --> 00:24:29,760 Speaker 1: good idea, but I don't know, like like it would 537 00:24:29,800 --> 00:24:32,280 Speaker 1: be a failing on their part as pretend business advisors 538 00:24:32,280 --> 00:24:34,800 Speaker 1: to not explore a union with some with another golf developer, 539 00:24:35,600 --> 00:24:37,240 Speaker 1: and they did became. 540 00:24:37,640 --> 00:24:39,920 Speaker 2: I do feel bad for the professor. I have sympathy 541 00:24:40,000 --> 00:24:43,040 Speaker 2: for the professor here, and I hope that this I 542 00:24:43,080 --> 00:24:45,960 Speaker 2: hope this course is still taught because it sounds fun. 543 00:24:46,240 --> 00:24:50,480 Speaker 2: A sports business integrative case experience. That sounds like a 544 00:24:50,560 --> 00:24:52,879 Speaker 2: valuable course to teach at the Kelly School of Business. 545 00:24:53,000 --> 00:24:57,399 Speaker 2: So thought val thoughts and vibes being sent to the 546 00:24:57,440 --> 00:25:15,239 Speaker 2: professor right now, and maybe it's let me pull this up. 547 00:25:16,760 --> 00:25:17,720 Speaker 2: I am never doing. 548 00:25:17,720 --> 00:25:19,200 Speaker 1: He is riching into her saddle bags. 549 00:25:19,840 --> 00:25:21,040 Speaker 2: I'm so smart. 550 00:25:22,359 --> 00:25:24,200 Speaker 1: Some oats assault lick up here. 551 00:25:24,240 --> 00:25:29,159 Speaker 2: It is okay. So I take pains to avoid the 552 00:25:29,320 --> 00:25:33,200 Speaker 2: commodity markets because there's just there's so many different nuances. 553 00:25:33,200 --> 00:25:37,240 Speaker 2: But occasionally commodities become really fun. And I think that 554 00:25:37,320 --> 00:25:40,520 Speaker 2: the cocoa markets have been really interesting for a while. 555 00:25:40,800 --> 00:25:45,679 Speaker 2: There's been some extreme weather and some sick and aging 556 00:25:45,720 --> 00:25:47,520 Speaker 2: trees on the other side of the world, and that 557 00:25:47,680 --> 00:25:51,280 Speaker 2: severely impacted the price of cocoa because there's a lot 558 00:25:51,400 --> 00:25:55,119 Speaker 2: less crop being harvested, and that has been really painful 559 00:25:55,640 --> 00:25:58,879 Speaker 2: for a lot of chocolate makers. Including for Hershe's, And 560 00:25:58,920 --> 00:26:02,320 Speaker 2: there was an incredible Blue news story out this week that, 561 00:26:03,080 --> 00:26:06,200 Speaker 2: according to people familiar with the matter, Hershey's wants to 562 00:26:06,200 --> 00:26:08,280 Speaker 2: take a position that will allow it to purchase more 563 00:26:08,280 --> 00:26:13,080 Speaker 2: than ninety thousand metric tons of coco on ice futures 564 00:26:13,160 --> 00:26:16,919 Speaker 2: us according to people familiar and the request of the CFTC, 565 00:26:17,880 --> 00:26:22,440 Speaker 2: if they take physical delivery accounts to about five twenty 566 00:26:22,440 --> 00:26:25,439 Speaker 2: foot containers, and it's more than nine times the amount 567 00:26:25,480 --> 00:26:29,439 Speaker 2: that the exchange currently allows. There are a lot of 568 00:26:29,600 --> 00:26:33,080 Speaker 2: supply concerns right now, and it sounds like, according to 569 00:26:33,160 --> 00:26:35,879 Speaker 2: these people, that Hershey's is at the point where they 570 00:26:35,880 --> 00:26:37,920 Speaker 2: don't want to mess around anymore. They want to purchase 571 00:26:38,040 --> 00:26:42,200 Speaker 2: all these futures which would allow them to take delivery 572 00:26:42,240 --> 00:26:45,000 Speaker 2: of this coco versus trying to buy it in the 573 00:26:45,000 --> 00:26:48,399 Speaker 2: physical market right now, where prices are just super high. 574 00:26:48,840 --> 00:26:51,960 Speaker 1: Right the way I understand it is like commodities exchanges 575 00:26:52,040 --> 00:26:56,200 Speaker 1: largely have warehouses that contain some amount of the commodity, 576 00:26:56,520 --> 00:26:58,480 Speaker 1: and the way you trade futures is like you trade 577 00:26:58,520 --> 00:27:00,600 Speaker 1: futures back and forth which are like for future delivery 578 00:27:00,600 --> 00:27:03,280 Speaker 1: of the commodity and when they expire. Most of the 579 00:27:03,320 --> 00:27:05,040 Speaker 1: time you roll them, so you don't take delivery. But 580 00:27:05,080 --> 00:27:07,520 Speaker 1: sometimes you take delivery and then you get a certificate 581 00:27:07,640 --> 00:27:10,200 Speaker 1: entitling you to some of the commodity in the warehouse. 582 00:27:10,720 --> 00:27:12,720 Speaker 1: And usually you don't mean to do that until you 583 00:27:12,720 --> 00:27:14,960 Speaker 1: go and like sell some more futures backed by the certificate. 584 00:27:15,240 --> 00:27:18,600 Speaker 1: But every so often, if you're like a big user 585 00:27:18,640 --> 00:27:22,320 Speaker 1: of the commodities, you actually want to take the commodities 586 00:27:22,320 --> 00:27:24,199 Speaker 1: out of the warehouse because like there's some stuff in 587 00:27:24,240 --> 00:27:28,760 Speaker 1: the warehouse that the exchange runs, and you can't find 588 00:27:28,840 --> 00:27:30,840 Speaker 1: enough of your commodity elsewhere, and so you're like, yeah, 589 00:27:31,359 --> 00:27:34,920 Speaker 1: get the stuff out of the exchange warehouse. And Hershey's 590 00:27:35,000 --> 00:27:38,439 Speaker 1: is like, we cannot find chocolate anywhere. Where's their chocolate. Oh, 591 00:27:38,480 --> 00:27:41,760 Speaker 1: there's a lot in the ice warehouse. So we'll just 592 00:27:41,800 --> 00:27:43,640 Speaker 1: take all of that. So I think, like I understanding 593 00:27:43,640 --> 00:27:45,159 Speaker 1: that they want to buy, like, you know, the enormous 594 00:27:45,200 --> 00:27:47,720 Speaker 1: percentage of the cocoa at these ice warehouses. 595 00:27:47,920 --> 00:27:51,119 Speaker 2: Yes, actually so much that if they did take delivery, 596 00:27:51,240 --> 00:27:53,320 Speaker 2: it would basically equate to all the beans that are 597 00:27:53,720 --> 00:27:56,200 Speaker 2: currently stop sewer than. 598 00:27:56,119 --> 00:27:57,720 Speaker 1: All of the beans, right, get all the beans. 599 00:27:57,880 --> 00:27:59,760 Speaker 2: They're not messing around anymore. 600 00:27:59,440 --> 00:28:03,960 Speaker 1: I will say, I assume candy makers, including Hershees, have 601 00:28:04,080 --> 00:28:07,040 Speaker 1: like contracts with people who produce cocoa. And I assume, 602 00:28:07,440 --> 00:28:09,159 Speaker 1: and maybe this's not as true of Hershees as it 603 00:28:09,200 --> 00:28:11,479 Speaker 1: is of like your favorite artisanal chocolate maker, but I 604 00:28:11,480 --> 00:28:13,720 Speaker 1: assume that they want, like, you know, fresh cocoa, right, 605 00:28:13,800 --> 00:28:15,840 Speaker 1: They're like, oh, you know, bring us your best and 606 00:28:15,920 --> 00:28:19,040 Speaker 1: freshest cocoa so we can make chocolate bars out of it. 607 00:28:19,280 --> 00:28:21,840 Speaker 1: I also assume, and I could be way off base here, 608 00:28:21,920 --> 00:28:25,400 Speaker 1: but I assume that the cocoa sitting in the exchange 609 00:28:25,400 --> 00:28:29,359 Speaker 1: warehouse is not the best and freshest cocoa, because like 610 00:28:29,400 --> 00:28:31,639 Speaker 1: there's a lot of physical demand for cocoa, and if 611 00:28:31,680 --> 00:28:34,520 Speaker 1: you have some cocoa fresh off the tree or whatever, 612 00:28:34,800 --> 00:28:36,679 Speaker 1: then like people will buy it from you and you 613 00:28:36,720 --> 00:28:38,600 Speaker 1: don't need to deliver it into the ice warehouse to 614 00:28:38,640 --> 00:28:41,840 Speaker 1: support futures. There's an FT story in September about similar 615 00:28:41,840 --> 00:28:44,360 Speaker 1: things were going on in London, where like chocolate makers 616 00:28:44,360 --> 00:28:47,960 Speaker 1: were taking cocoa out of like the London exchange warehouses. Yeah, 617 00:28:48,000 --> 00:28:50,920 Speaker 1: and people were like, with left in London is a 618 00:28:50,920 --> 00:28:53,800 Speaker 1: poisoned pill, because it's like, yeah, it's like stale cocoa. 619 00:28:53,800 --> 00:28:55,400 Speaker 1: It's like been there for it's been sitting around for 620 00:28:55,400 --> 00:28:57,320 Speaker 1: a while, like all the good stuff has already been used, 621 00:28:57,320 --> 00:28:59,120 Speaker 1: and like they're kind of getting the dregs out of 622 00:28:59,160 --> 00:29:02,440 Speaker 1: the commodities. I don't know if that's what's happening here, 623 00:29:02,520 --> 00:29:05,080 Speaker 1: but I don't I don't know, Like chocolate bar made 624 00:29:05,120 --> 00:29:06,400 Speaker 1: of exchange warehouse. 625 00:29:06,040 --> 00:29:11,000 Speaker 2: Chocolate, very extremely stale cocoa beans. I guess we'll find out. 626 00:29:11,080 --> 00:29:13,719 Speaker 2: I mean, reading through some of like the Commodity analyst 627 00:29:13,840 --> 00:29:16,880 Speaker 2: reports on the state of the cocoa industry, it seems 628 00:29:16,880 --> 00:29:19,800 Speaker 2: like these supplied demand dynamics are a long way from 629 00:29:19,840 --> 00:29:22,840 Speaker 2: being worked out, So I don't know. Maybe we'll see, 630 00:29:22,880 --> 00:29:25,320 Speaker 2: of course, if her Shee's actually gets this permission. This 631 00:29:25,360 --> 00:29:28,280 Speaker 2: is according to people familiar with the matter. Hershey itself 632 00:29:28,320 --> 00:29:30,640 Speaker 2: does not confirmed this, and we'll see the guests at 633 00:29:30,640 --> 00:29:33,560 Speaker 2: that point where we are all eating still chocolate. But 634 00:29:34,040 --> 00:29:38,560 Speaker 2: Hershey is interesting because they made a similar trade in 635 00:29:38,640 --> 00:29:42,720 Speaker 2: twenty twenty when there were all these pandemic related weirdnesses 636 00:29:42,960 --> 00:29:46,200 Speaker 2: in the cocoa industry. But anyway, this isn't the first 637 00:29:46,200 --> 00:29:49,760 Speaker 2: time that Hershey has just cornered the market, so to speak. 638 00:29:49,960 --> 00:29:52,840 Speaker 2: This time it feels more idiosyncratic like in twenty twenty, 639 00:29:53,320 --> 00:29:57,160 Speaker 2: every commodity market, it felt like, was just going through it. 640 00:29:57,840 --> 00:30:00,240 Speaker 1: I will say, like the cocoa market. You know, it 641 00:30:00,320 --> 00:30:05,040 Speaker 1: exists for chocolate manufacturers to heads their price of cocoa. 642 00:30:05,160 --> 00:30:07,600 Speaker 1: And like, I don't know, I'm not up on the 643 00:30:07,600 --> 00:30:10,720 Speaker 1: biggest chocolate manufacturers, but Hers she seems really big, right, 644 00:30:10,840 --> 00:30:14,600 Speaker 1: It's not that surprising that every so often the biggest 645 00:30:14,680 --> 00:30:17,200 Speaker 1: chocolate manufacturer would say, okay, we want all the beans now. 646 00:30:17,160 --> 00:30:19,760 Speaker 2: Right, Yeah, there's a few of them out there. I mean, 647 00:30:19,760 --> 00:30:24,600 Speaker 2: you think about Mandley's, you have Mars. I know this 648 00:30:24,720 --> 00:30:26,760 Speaker 2: because a few months ago we were trying to book 649 00:30:26,920 --> 00:30:29,480 Speaker 2: a lot of chocolate makers because we wanted to talk 650 00:30:29,480 --> 00:30:32,240 Speaker 2: about coco on television. There's more than you would think. 651 00:30:32,480 --> 00:30:34,760 Speaker 1: I'm going to talk about. My favorite commodity story, maybe 652 00:30:34,760 --> 00:30:39,160 Speaker 1: of all time, is that a while back in the 653 00:30:39,280 --> 00:30:42,479 Speaker 1: like in one of the exchange warehouses for nickel, someone 654 00:30:42,640 --> 00:30:46,280 Speaker 1: was like walking along and they noticed that like a 655 00:30:46,320 --> 00:30:48,840 Speaker 1: bag of nickel that belonged to JP Morgan, right, like 656 00:30:48,920 --> 00:30:51,640 Speaker 1: JP Morgan owned the entitlement to that nickel in the warehouse. 657 00:30:52,360 --> 00:30:55,040 Speaker 1: It was actually rocks like someone at some point either 658 00:30:55,120 --> 00:30:56,680 Speaker 1: before it went into the wear so while I was 659 00:30:56,720 --> 00:30:59,200 Speaker 1: sitting in the wareus, which was doing for years without moving. 660 00:31:00,000 --> 00:31:01,680 Speaker 1: At some point they had stolen the nickel and replaced 661 00:31:01,680 --> 00:31:03,960 Speaker 1: it with rocks, which is such a wonderful story about 662 00:31:03,960 --> 00:31:06,000 Speaker 1: how these commodity trades work because like, you didn't need 663 00:31:06,040 --> 00:31:07,719 Speaker 1: it to be nickel, like you're just trading back and 664 00:31:07,720 --> 00:31:10,440 Speaker 1: forth like abstract entitlements of the nickel. It didn't matter 665 00:31:10,480 --> 00:31:12,280 Speaker 1: that you weren't doing anything with the nickel. You weren't 666 00:31:12,280 --> 00:31:14,400 Speaker 1: making anything with the nickel, so it was totally fine 667 00:31:14,400 --> 00:31:16,160 Speaker 1: that it was rocks for a while until someone discovered it, 668 00:31:16,200 --> 00:31:18,360 Speaker 1: and then it was embarrassing. I also thought that story 669 00:31:18,400 --> 00:31:21,440 Speaker 1: because it then led to I think the warehouses like 670 00:31:21,600 --> 00:31:24,560 Speaker 1: had people go around and check all the other bags 671 00:31:24,560 --> 00:31:26,840 Speaker 1: of nickel to make sure they weren't rocks, which required 672 00:31:26,880 --> 00:31:29,440 Speaker 1: them to wear steel toad boots because you can you 673 00:31:29,480 --> 00:31:32,040 Speaker 1: really hurt yourself checking the bags of nickel. But anyway, 674 00:31:32,240 --> 00:31:35,800 Speaker 1: like these warehouses, because they're mostly used for futures, because 675 00:31:35,800 --> 00:31:37,640 Speaker 1: it is like a somewhat unusual event for someone to 676 00:31:37,680 --> 00:31:39,000 Speaker 1: come in and say, okay, we want all the cocoa 677 00:31:39,000 --> 00:31:41,120 Speaker 1: beans in the warehouse because we need to make chocolate 678 00:31:41,120 --> 00:31:45,000 Speaker 1: with them. Like what if the beans are all pebbles, right, what. 679 00:31:44,920 --> 00:31:47,400 Speaker 2: If they're all I don't know, coffee beans. Obviously those 680 00:31:47,440 --> 00:31:50,120 Speaker 2: look different. But I hope that someone is crawling around 681 00:31:50,160 --> 00:31:53,000 Speaker 2: in the warehouses right now making sure that they have 682 00:31:53,080 --> 00:31:53,840 Speaker 2: all the cocoa beans. 683 00:31:54,560 --> 00:31:56,520 Speaker 1: Awkward if, like all the chocolate bars are made of 684 00:31:56,720 --> 00:32:00,000 Speaker 1: pebbles because the warehouse cocoa was not real coca. 685 00:32:00,720 --> 00:32:03,880 Speaker 2: Well, a conversation I had with one of these chocolate 686 00:32:03,880 --> 00:32:05,880 Speaker 2: makers that we finally got to go on TV was 687 00:32:06,320 --> 00:32:10,719 Speaker 2: are you still using chocolate? And a lot of them 688 00:32:10,760 --> 00:32:12,960 Speaker 2: have had to start using, you know, more filler in 689 00:32:13,000 --> 00:32:15,239 Speaker 2: the form of like nuts and various things because they 690 00:32:15,320 --> 00:32:19,720 Speaker 2: just can't source enough chocolate to make enough chocolate bars. 691 00:32:20,040 --> 00:32:22,240 Speaker 1: If they're bugs in the ware sawdust in the word. 692 00:32:22,520 --> 00:32:24,280 Speaker 2: Put it oudre, I grind them up, put them in 693 00:32:24,520 --> 00:32:25,560 Speaker 2: it's fine. 694 00:32:25,360 --> 00:32:28,240 Speaker 1: Chemicals and any beans. 695 00:32:27,920 --> 00:32:30,640 Speaker 2: Pretty much, we'll see. I don't know. They don't have 696 00:32:30,920 --> 00:32:34,920 Speaker 2: permission yet. A larger position limit is likely to send 697 00:32:34,920 --> 00:32:37,920 Speaker 2: the price of earlier dated futures to a significant premium 698 00:32:37,920 --> 00:32:41,200 Speaker 2: about the later dated ones. Apparently, the future's curve for 699 00:32:41,320 --> 00:32:43,560 Speaker 2: cocoa I was speaking to an analysis this morning is 700 00:32:43,760 --> 00:32:46,880 Speaker 2: has been backwardated for a long time. At this point. 701 00:32:47,200 --> 00:32:48,200 Speaker 2: So I don't know. 702 00:32:48,800 --> 00:32:51,080 Speaker 1: Yeah, that's like fitting with the notion that like the 703 00:32:51,120 --> 00:32:54,000 Speaker 1: physical market is incredibly tight and her Shoes is trying 704 00:32:54,000 --> 00:32:57,200 Speaker 1: to get beans out of the futures. Right, Like, you 705 00:32:57,240 --> 00:33:02,360 Speaker 1: wouldn't buy cocoa beans in the form of commodities futures 706 00:33:02,600 --> 00:33:05,520 Speaker 1: unless it was more expensive to buy them than the 707 00:33:05,520 --> 00:33:07,400 Speaker 1: form of cocoa beans, right, Like the curve is the 708 00:33:07,440 --> 00:33:11,520 Speaker 1: curve is obviously backwardated, which I guess implies that there 709 00:33:11,560 --> 00:33:14,080 Speaker 1: will be some easing of cocoat conditions, but not yet. 710 00:33:14,880 --> 00:33:18,360 Speaker 2: Yeah, their explanation for like the extreme backwardation is just 711 00:33:18,480 --> 00:33:20,800 Speaker 2: it's it's so dramatic at this point. It can't stay 712 00:33:20,800 --> 00:33:23,840 Speaker 2: at these levels forever, surely, Right, So that's. 713 00:33:23,680 --> 00:33:26,800 Speaker 1: What that gradation means, I know, Like it means that 714 00:33:26,800 --> 00:33:28,760 Speaker 1: Hershe's is going to pay a huge freom to get 715 00:33:28,760 --> 00:33:30,360 Speaker 1: all of the beans out of the warehouse and then 716 00:33:30,400 --> 00:33:32,520 Speaker 1: they'll start over and then they'll be fun. Yeah, I 717 00:33:32,520 --> 00:33:34,600 Speaker 1: will say, why shouldn't they ge permission? You know, like 718 00:33:34,840 --> 00:33:37,640 Speaker 1: the point of this market is to you know, smooth 719 00:33:37,680 --> 00:33:40,920 Speaker 1: the prices of agricultural commodities, right, and like if an 720 00:33:40,960 --> 00:33:43,680 Speaker 1: actual producer of chocolate is like the only way for 721 00:33:43,800 --> 00:33:46,960 Speaker 1: us to make our chocolate bar quota is to take 722 00:33:46,960 --> 00:33:49,280 Speaker 1: the beans out like like they're not like a weird speculator, 723 00:33:49,280 --> 00:33:51,200 Speaker 1: like doing a weird corner, like they're just gonna make 724 00:33:51,240 --> 00:33:52,160 Speaker 1: chocolate bars with it. 725 00:33:52,160 --> 00:33:54,160 Speaker 2: Seems like the what the market, Well, they got permission 726 00:33:54,160 --> 00:33:58,160 Speaker 2: in twenty twenty, so I don't know history would suggest 727 00:33:58,960 --> 00:34:01,880 Speaker 2: it'll be okay, But man, it just feels like every 728 00:34:01,880 --> 00:34:05,040 Speaker 2: couple of months, some whether it's lumber or sugar or 729 00:34:05,080 --> 00:34:08,160 Speaker 2: coffee or cocoa, something pops off and then there's a 730 00:34:08,160 --> 00:34:10,160 Speaker 2: bunch of curious stories such as this one. 731 00:34:10,239 --> 00:34:11,800 Speaker 1: I'm a tourist in the commodity of space, but I 732 00:34:11,800 --> 00:34:14,239 Speaker 1: always find it very fun. Yeah, I think we have 733 00:34:14,360 --> 00:34:19,240 Speaker 1: to talk about two notes. We got about the mailbag episode. 734 00:34:19,480 --> 00:34:22,319 Speaker 2: Yes, our official first episode of the year. 735 00:34:22,640 --> 00:34:25,440 Speaker 1: So we had a mailbag episode let's say last week 736 00:34:25,960 --> 00:34:28,920 Speaker 1: recorded let's say three weeks. Yeah, but last week we 737 00:34:28,920 --> 00:34:31,480 Speaker 1: had a mailbag episode. It was great, you should listen. 738 00:34:31,680 --> 00:34:34,440 Speaker 1: But in it we said two things that people complain 739 00:34:34,480 --> 00:34:37,759 Speaker 1: about with various degrees of fairness. Someone asked like, why 740 00:34:37,800 --> 00:34:41,200 Speaker 1: can't you buy, like on the Stock Exchange, single family homes, 741 00:34:41,600 --> 00:34:43,640 Speaker 1: and I said, well you can. You should be able 742 00:34:43,680 --> 00:34:45,600 Speaker 1: to buy like single family rental homes. That's like an 743 00:34:45,640 --> 00:34:48,440 Speaker 1: investable asset class, and like probably they'll be eventually, there 744 00:34:48,440 --> 00:34:50,360 Speaker 1: will eventually be reats that allow you to do that 745 00:34:50,400 --> 00:34:52,400 Speaker 1: on the exchange. In fact, there have been reads that 746 00:34:52,440 --> 00:34:54,600 Speaker 1: allow you to do that for years, and someone emailed 747 00:34:54,600 --> 00:34:56,120 Speaker 1: me to point out that there's like three that trade 748 00:34:56,120 --> 00:34:58,640 Speaker 1: on the exchange now. So yes, you can go buy 749 00:34:58,680 --> 00:35:01,680 Speaker 1: single family homes in the form of shares of stock 750 00:35:01,719 --> 00:35:04,680 Speaker 1: and reads, but you can't buy, as I said, single 751 00:35:04,719 --> 00:35:08,719 Speaker 1: family owner occupied homes because those are run by their occupants, 752 00:35:08,760 --> 00:35:10,920 Speaker 1: not by a red but you can either read. And 753 00:35:10,960 --> 00:35:13,960 Speaker 1: the other one is that you said, and I questioned this, 754 00:35:14,080 --> 00:35:16,960 Speaker 1: and you were stuck to your guns. You said that 755 00:35:17,400 --> 00:35:20,279 Speaker 1: in the US ticker symbols on the Stock Exchange max 756 00:35:20,320 --> 00:35:24,560 Speaker 1: ad at four letters, and we got complaints. One set 757 00:35:24,560 --> 00:35:26,880 Speaker 1: of complaints was like, actually, mutual funds have five letter tickers, 758 00:35:26,920 --> 00:35:28,480 Speaker 1: which I think is not a fair complaint because those 759 00:35:28,480 --> 00:35:30,560 Speaker 1: are not stocks on the stock exchange. That's a different thing. 760 00:35:30,880 --> 00:35:33,279 Speaker 1: They're like in the universe of identifiers. They have five 761 00:35:33,360 --> 00:35:36,120 Speaker 1: letter tickers, but they're not stock exchange tickers. The other 762 00:35:36,120 --> 00:35:38,600 Speaker 1: complaint is that nas like actually like caps at at 763 00:35:38,600 --> 00:35:41,240 Speaker 1: four letters, but then there's like they have like special 764 00:35:41,280 --> 00:35:43,839 Speaker 1: codes you can add that are a fifth letter, so 765 00:35:43,920 --> 00:35:45,799 Speaker 1: like preferred stock can have a fifth letter, or like 766 00:35:46,040 --> 00:35:48,080 Speaker 1: you know, Google has multiple shares of stock, and like 767 00:35:48,120 --> 00:35:50,600 Speaker 1: some of them are Alphabet has multiple shares of stock 768 00:35:50,719 --> 00:35:52,560 Speaker 1: and some of them are like you know, goog A 769 00:35:52,800 --> 00:35:54,560 Speaker 1: or whatever, and you know, and as they used to 770 00:35:54,600 --> 00:35:57,719 Speaker 1: have the Q code, which apparently I learned from this 771 00:35:58,120 --> 00:36:02,840 Speaker 1: reader response. The Q code, which famously represents companies that 772 00:36:02,880 --> 00:36:04,759 Speaker 1: are in bankruptcy, like, is no longer part of the 773 00:36:05,040 --> 00:36:08,279 Speaker 1: NASDAK nomenclasure, but like still some venues put Q on 774 00:36:08,280 --> 00:36:09,880 Speaker 1: the end of a ticker when it's in bankruptcy. 775 00:36:10,040 --> 00:36:10,320 Speaker 2: Yeah. 776 00:36:10,360 --> 00:36:12,640 Speaker 1: So back in the day when like Tesla was not 777 00:36:12,680 --> 00:36:15,240 Speaker 1: the juggernaut it is now, and like people were shorting Tesla, 778 00:36:15,360 --> 00:36:18,920 Speaker 1: Like there's like a whole Twitter community who's like, you know, 779 00:36:19,120 --> 00:36:23,840 Speaker 1: banner was TSLAQ Yeah, because it's like, oh, Tesla's bankrut, right, 780 00:36:24,040 --> 00:36:26,880 Speaker 1: So the Q code is no longer a part of NASDAK, 781 00:36:27,080 --> 00:36:31,200 Speaker 1: but it's still bason in our hearts. So to clarify, 782 00:36:31,320 --> 00:36:34,279 Speaker 1: Katy has a response because Katie Katy knows for tickers. 783 00:36:34,640 --> 00:36:37,560 Speaker 2: Yeah, the mutual fun thing. Yeah, they're not. They don't 784 00:36:37,560 --> 00:36:41,120 Speaker 2: trade on the exchange, hence ETFs or exchange traded funds. 785 00:36:41,640 --> 00:36:48,239 Speaker 2: So there's a four character limit. Generally, this is literature 786 00:36:48,440 --> 00:36:53,600 Speaker 2: from Nasdaq that for common stock insuances, NASAK assigns symbols 787 00:36:53,640 --> 00:36:57,720 Speaker 2: between one and four characters in length. There are some circumstances, 788 00:36:57,920 --> 00:36:59,680 Speaker 2: and I should have known that by saying that there's 789 00:36:59,680 --> 00:37:02,719 Speaker 2: a four character limit that that would invite people to 790 00:37:03,000 --> 00:37:05,920 Speaker 2: like find the asterisks. But there's a fifth symbol that 791 00:37:06,000 --> 00:37:09,360 Speaker 2: can be added to the original ticker in special cases 792 00:37:09,920 --> 00:37:12,360 Speaker 2: such as you know, different share classes, et cetera. But 793 00:37:12,400 --> 00:37:16,040 Speaker 2: if you are going with an ETF or in I 794 00:37:16,160 --> 00:37:19,200 Speaker 2: PO and you say I would like to list this 795 00:37:19,400 --> 00:37:23,000 Speaker 2: on your exchange, can I reserve this five letter ticker, 796 00:37:23,680 --> 00:37:27,440 Speaker 2: you would be told no, is my understanding. And I've 797 00:37:27,480 --> 00:37:30,720 Speaker 2: spoken with both Nazak and NISI about this at length 798 00:37:30,760 --> 00:37:34,320 Speaker 2: because I would love if they expanded the limit, just 799 00:37:34,360 --> 00:37:37,120 Speaker 2: because that would be fun to write about. And it's 800 00:37:37,120 --> 00:37:41,640 Speaker 2: a four character limit except in special circumstances, like you. 801 00:37:41,600 --> 00:37:43,560 Speaker 1: Know, you're a little iconder like every three months, like 802 00:37:43,840 --> 00:37:46,200 Speaker 1: have they expanded the ticker symbols yet, because like that's 803 00:37:46,280 --> 00:37:49,680 Speaker 1: that's that's that story. You know that story all drafted 804 00:37:49,719 --> 00:37:50,200 Speaker 1: and ready go. 805 00:37:50,400 --> 00:37:53,600 Speaker 2: Huh, I'm ready to go. Because and we also do 806 00:37:53,680 --> 00:37:57,480 Speaker 2: we have on folks from NISI and from Nasdaq on 807 00:37:57,760 --> 00:38:00,200 Speaker 2: you know, either Open Interest, which I anchored daily, or 808 00:38:00,239 --> 00:38:03,879 Speaker 2: on etf IQ. And every time we have anyone who 809 00:38:04,040 --> 00:38:07,120 Speaker 2: touches the listings business, I asked them about the ticker 810 00:38:07,120 --> 00:38:12,160 Speaker 2: limit and if they're considering five five, and every time 811 00:38:12,200 --> 00:38:14,680 Speaker 2: they politely tell me that no, they don't have any 812 00:38:14,760 --> 00:38:16,680 Speaker 2: plans to expand beyond four characters. 813 00:38:16,920 --> 00:38:19,880 Speaker 1: So yeah, this is in the context of a question 814 00:38:19,880 --> 00:38:22,120 Speaker 1: about ETFs that was like, eventually there'll be like ten 815 00:38:22,200 --> 00:38:24,879 Speaker 1: zillion ETFs and there's only so many four letters. 816 00:38:25,040 --> 00:38:28,280 Speaker 2: Yeah, and there's going to be ten zillion specifically single 817 00:38:28,320 --> 00:38:32,200 Speaker 2: stock ETFs which already have real estate taken up in 818 00:38:32,200 --> 00:38:34,840 Speaker 2: the ticker, and then you could see a supply crunch 819 00:38:34,840 --> 00:38:37,520 Speaker 2: there similar to what we're seeing in the cocoa market 820 00:38:37,560 --> 00:38:37,919 Speaker 2: right now. 821 00:38:39,719 --> 00:38:41,640 Speaker 1: It's true, they'll have to get the tickers out of 822 00:38:41,640 --> 00:38:42,440 Speaker 1: the warehouses and. 823 00:38:44,719 --> 00:38:55,320 Speaker 2: You better hope that you know they're good quality. 824 00:38:56,120 --> 00:38:59,040 Speaker 1: And that was the Money Stuff podcast. 825 00:38:58,520 --> 00:38:59,560 Speaker 2: And I'm Katie Greifeld. 826 00:39:00,120 --> 00:39:02,879 Speaker 1: You can find my work by subscribing to the Money stuffnewsletter. 827 00:39:02,960 --> 00:39:04,000 Speaker 1: On Bloomberg dot. 828 00:39:03,840 --> 00:39:06,200 Speaker 2: Com and you can find me on Bloomberg TV every 829 00:39:06,280 --> 00:39:09,560 Speaker 2: day on Open Interest between nine to eleven am Eastern. 830 00:39:09,680 --> 00:39:11,319 Speaker 1: We'd love to hear from you. You can send an 831 00:39:11,320 --> 00:39:14,560 Speaker 1: email to Moneypod at Bloomberg dot net, ask us a 832 00:39:14,600 --> 00:39:16,440 Speaker 1: question and we might answer it on air. 833 00:39:16,600 --> 00:39:18,760 Speaker 2: You can also subscribe to our show wherever you're listening 834 00:39:18,840 --> 00:39:20,839 Speaker 2: right now and leave us a review. It helps more 835 00:39:20,880 --> 00:39:21,760 Speaker 2: people find the show. 836 00:39:22,080 --> 00:39:25,640 Speaker 1: The Money Stuff Podcast is produced by Anamasarakus and Moses Onen. 837 00:39:25,960 --> 00:39:28,080 Speaker 2: Our theme music was composed by Blake Maples. 838 00:39:28,440 --> 00:39:31,200 Speaker 1: Brandon Francis Newnim is our executive producer, and. 839 00:39:31,200 --> 00:39:33,239 Speaker 2: Stage Bauman is Bloomberg's head of Podcasts. 840 00:39:33,640 --> 00:39:35,960 Speaker 1: Thanks for listening to The Money Stuff Podcasts. We'll be 841 00:39:36,080 --> 00:39:37,560 Speaker 1: back next week with more stuff.