WEBVTT - Public Breakups: Polymarket, Taxes, SMCI

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, Radio News.

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<v Speaker 2>Hello and welcome to The Money Stuff Podcast, your weekly

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<v Speaker 2>podcast where we talk about stuff related to money. I'm

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<v Speaker 2>Matt Levine and I write the Money Stuff column for

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<v Speaker 2>Bloomberg Opinion.

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<v Speaker 1>And I'm Katie Greifeld, a reporter for Bloomberg News and

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<v Speaker 1>an anchor for Bloomberg Television.

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<v Speaker 2>What are you talking about, Katie, Well.

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<v Speaker 1>First of all, I think we should acknowledge that it's

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<v Speaker 1>Halloween and we are both phoning it in right.

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<v Speaker 2>Now in the literal sense and the.

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<v Speaker 1>Yeah, that's at home. I'm at my parents'.

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<v Speaker 2>House, but.

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<v Speaker 1>Just sitting here, none of our listeners would see it.

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<v Speaker 1>But we could have just lied.

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<v Speaker 3>I guess.

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<v Speaker 2>I took my daughter to get bagels today at like

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<v Speaker 2>six am, and she was wearing her costume, which is

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<v Speaker 2>She's Wednesday from the TV show. And she was like,

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<v Speaker 2>a weird that I'm wearing my costume this early. It

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<v Speaker 2>is like dark out and this guy watched by in

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<v Speaker 2>awere as well the costume. I was like, no, that

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<v Speaker 2>guy is too perfect perfect.

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<v Speaker 1>It's weirder if people weren't wearing their costumes. I meant

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<v Speaker 1>to bring Caddis to the office, but I've forgotten, but

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<v Speaker 1>on television previous probably no.

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<v Speaker 2>You like you were like should I wear these on

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<v Speaker 2>television and Halloween? And I was like yes, And then

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<v Speaker 2>you didn't do it.

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<v Speaker 1>I almost certainly did not actually do that, but I

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<v Speaker 1>always slip in a lot of Halloween puns. I talk

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<v Speaker 1>about a monster rally, a spooky setup for stocks, things

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<v Speaker 1>like that. If you listen to all two hours of

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<v Speaker 1>the show, I'm sure it was overwhelming.

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<v Speaker 2>Well, I hope you'll continue that during the.

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<v Speaker 1>Yeah, speaking of overwhelming, what we're talking about today, we're

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<v Speaker 1>going to talk about speaking of spooky things, We're going

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<v Speaker 1>to talk about hollymarket and what's going on in prodiction markets.

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<v Speaker 2>Something spooky.

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<v Speaker 1>Yeah, I don't know. We're going to talk about tax

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<v Speaker 1>aware long short strategies, Matt, you're going to explain that

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<v Speaker 1>to me, and then we are also going to talk

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<v Speaker 1>about super Micro and Ernst and Young Okay, cool jumping

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<v Speaker 1>into the first one poly market. This was a fun

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<v Speaker 1>one and I don't think you've written about this. I

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<v Speaker 1>feel like I had to really twist your arm to

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<v Speaker 1>talk about this today.

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<v Speaker 2>Yeah, you like texted me should we talk about probably

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<v Speaker 2>my kind? I was like no, and then you like

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<v Speaker 2>kept texting me until I got mad, and then I

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<v Speaker 2>was like, well, I'm mad enough about this, so you

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<v Speaker 2>can talk about it.

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<v Speaker 1>Yeah, And I was like, this is the seeds for

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<v Speaker 1>a great discussion, given that at seven thirty in the

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<v Speaker 1>morning and we're so passionate. So poly Market, it's not

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<v Speaker 1>based in the US. US investors or betters can't.

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<v Speaker 2>Okay, it's not based in the US. It's not based

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<v Speaker 2>in the US.

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<v Speaker 1>Yeah. So the big news was basically that there was

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<v Speaker 1>one person who was pushing up the Trump odds. His username,

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<v Speaker 1>I assume it's a man, was Freddy nine, nine hundred

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<v Speaker 1>and ninety nine, and Polymarket's investigation found it. I don't know,

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<v Speaker 1>he spent like forty five million dollars and just pushed

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<v Speaker 1>up Trump's odds. But it seems like financial markets question

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<v Speaker 1>Mark ran with that.

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<v Speaker 2>Yeah. There's also news today where like some like bly

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<v Speaker 2>Chain Analysis Company was like a third of trades on

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<v Speaker 2>polymarket or wash Trades.

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<v Speaker 1>M Yeah, I did see that.

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<v Speaker 2>Actually, So I don't know why is this interesting?

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<v Speaker 1>So the reason I wanted to talk about this is

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<v Speaker 1>because so I am on television every day for two

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<v Speaker 1>hours and there's been this weird vibe shift in the

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<v Speaker 1>markets and among investors and analysts talking about Trump's odds

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<v Speaker 1>going up even though polls have been fifty to fifty.

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<v Speaker 1>Basically since Kamala entered the race, you have seen a

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<v Speaker 1>Trump trade, at least that's what people have been calling it.

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<v Speaker 1>Unfolded markets. You've seen long end treasury yields kind of skyrocket,

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<v Speaker 1>and the US dollar has had a great month, And

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<v Speaker 1>there's disagreement. Some people say it's just the fact that

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<v Speaker 1>economic data has been really strong. Other people say this

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<v Speaker 1>is because Trump's odds have been going up in the

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<v Speaker 1>prediction markets. So I find that interesting because the polymarket

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<v Speaker 1>experience has revealed that, you know, what we're looking at

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<v Speaker 1>is sort of real time chances of which candidates is

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<v Speaker 1>going to win the election. It can be swayed pretty easily.

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<v Speaker 1>I mean, forty five million dollars is certainly not nothing,

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<v Speaker 1>but it's certainly not a lot of money.

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<v Speaker 2>So all these stories about polymarket being easy to make

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<v Speaker 2>it just feel to me like wishful thinking in a

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<v Speaker 2>couple of ways. And like I sympathize because I share

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<v Speaker 2>the wishes, but like, I just don't think I share

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<v Speaker 2>the thinking. Many people would rather not think that Trump

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<v Speaker 2>has a sixty seven percent chance of winning, and if

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<v Speaker 2>they could say, no, no, this is fake, it's really

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<v Speaker 2>fifty eight percent or fifty percent, then that would make

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<v Speaker 2>them happier, which I don't really understand because like you'll

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<v Speaker 2>never know like what the a priori odds were, and

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<v Speaker 2>in a week you'll know what happened. So it's like

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<v Speaker 2>being like, oh, this market is fake, it just doesn't

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<v Speaker 2>really do anything for it. But then the other thing

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<v Speaker 2>is like polymarket is a very crypto based prediction market.

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<v Speaker 2>By the way, like all of the other like non

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<v Speaker 2>crypto markets have kind of followed polymarkets odds. But anyway,

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<v Speaker 2>and like people love the idea that crypto markets are

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<v Speaker 2>being manipulated and are full of wash trading. There's a

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<v Speaker 2>lot of wash trading and crypto markets. But if you

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<v Speaker 2>thought polymarket is like a little bit more Trump skewed

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<v Speaker 2>because it's crypto people and crypto people are more Trump scued,

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<v Speaker 2>like that makes sense, you know, Like if you think

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<v Speaker 2>that like polymarkets prices are too high, you have to

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<v Speaker 2>do something about that, which means going to trade on polymarket,

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<v Speaker 2>and like you know that's kind of a pain. You

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<v Speaker 2>have to like go buy some crypto you have to

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<v Speaker 2>pretend to not be based in the US, and so like, yeah,

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<v Speaker 2>it was like some hurdles to jump through, and it's

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<v Speaker 2>possible that the people who want to bet on Kamala

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<v Speaker 2>Harris wouldn't want to go through those steps. But this

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<v Speaker 2>notion that you're gonna like find a secret trick that

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<v Speaker 2>actually polymarket is fake, Yeah, it doesn't really do anything

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<v Speaker 2>for me. No one's found that secret trick. The other

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<v Speaker 2>thing I say is like, you're like, people are making

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<v Speaker 2>enormous bets in the treasury market based on like their

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<v Speaker 2>assessment of Trump's odds. It's not like treasury traders are

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<v Speaker 2>idiotically following polymarket.

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<v Speaker 1>No.

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<v Speaker 2>No, the follow on trades in like real financial markets

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<v Speaker 2>are confirmatory, right, They're not like, oh, like polymarket has

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<v Speaker 2>tricked everyone. It's like whatever, you know, the vibes are

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<v Speaker 2>that have shifted on polymarket have shifted in like broader

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<v Speaker 2>markets as well, And so that gives your reason to

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<v Speaker 2>believe that the polymarket odds are correct, not in the

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<v Speaker 2>sense of like right, correct about reality, but in the

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<v Speaker 2>sense of like correct about reflecting sort of like roughly

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<v Speaker 2>the market's view of the probabilities.

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<v Speaker 1>Yeah, So a couple of points there to your point

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<v Speaker 1>about like, how does this compare with other prediction markets.

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<v Speaker 1>You look at Predicted for example, which you know that's

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<v Speaker 1>been around for longer than polymarket. At least in my consciousness,

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<v Speaker 1>odds of Trump winning were sixty percent at least at

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<v Speaker 1>one point this week, So that's not too out of

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<v Speaker 1>line with what poly market is showing right now on Halloween,

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<v Speaker 1>showing like fifty five percent. But I think I don't know,

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<v Speaker 1>there's like a chicken in the egg thing here, which

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<v Speaker 1>is is poly market reflecting and like tracking the odds

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<v Speaker 1>in the broader market, or is the broader market I'm

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<v Speaker 1>talking about the treasury market following poly market to that

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<v Speaker 1>latter scenario. I mean, you do have part of the

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<v Speaker 1>cell side community actually taking polymarket into account. JP Morgan

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<v Speaker 1>has these baskets, these long short baskets that are sort

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<v Speaker 1>of putting together stocks that are expected to rise in

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<v Speaker 1>whatever outcome, and part of that model looks at moves

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<v Speaker 1>that align with poly market probabilities. So I mean, people

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<v Speaker 1>in the actual real markets are using polymarket as a tool.

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<v Speaker 1>So I think that's interesting. I'm not even saying like

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<v Speaker 1>polymarkets being manipulated I'm just saying, like it would be

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<v Speaker 1>easy to affect pricing, Yeah, I guess.

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<v Speaker 2>But if you're saying, like everyone in like the real

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<v Speaker 2>markets is paying a lot of attention to polymarket prices

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<v Speaker 2>and they're easy to manipulate, like that suggests they're easy

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<v Speaker 2>to manipulate on both sides, right, Like, if you want

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<v Speaker 2>to be like long treasuries, you can go tue some

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<v Speaker 2>polymarket contracts and move the market significantly, right if, like,

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<v Speaker 2>if the story here is true that like real investors

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<v Speaker 2>are sort of reflexively pricing based on polymarket ods and

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<v Speaker 2>that polymarket odds are relatively easy to manipulate, which I

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<v Speaker 2>just like, I don't really believe you other of those

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<v Speaker 2>stories entirely. I don't know.

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<v Speaker 1>It is kind of a fun thought experiment, though, The thought.

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<v Speaker 2>Experiment that I love is like, so I never mind treasuries.

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<v Speaker 2>The stock of DJT Trump media is kind of a

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<v Speaker 2>proxy for Trump's odds of winning and like kind of

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<v Speaker 2>a bigger one than the polymarket markets, and so like,

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<v Speaker 2>people constantly email me like, could you make money by

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<v Speaker 2>manipulating polymarket ods and then selling DJT on the back

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<v Speaker 2>of that? And I don't know the answer, but like

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<v Speaker 2>that's a fun little trade. Like DJT is such a

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<v Speaker 2>stranger proxy for Trump's odds than the poly market. Yeah,

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<v Speaker 2>markets are, and definitely one where there is like real

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<v Speaker 2>money to be made.

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<v Speaker 1>DJT has been frustrating to talk about on air because

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<v Speaker 1>every morning I go to like my most function on

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<v Speaker 1>the Bloomberg terminal, this is at like six point thirty

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<v Speaker 1>in the morning, and I look at what the biggest

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<v Speaker 1>moves are. It's been DJT this week, obviously, and then

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<v Speaker 1>I look at the biggest volume and it's also DJT.

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<v Speaker 1>So it's not even that it's just a couple Yahoo's

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<v Speaker 1>trading DJT. Like there is serious turnover in DJT, which

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<v Speaker 1>is pretty wild.

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<v Speaker 2>Yeah, it's like a good way to express an opinion

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<v Speaker 2>on his election, which is weird because polymarket is a

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<v Speaker 2>way to express an opinion on his election outcomes, because

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<v Speaker 2>like there's a contract that pays off zero one depending

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<v Speaker 2>on whether he wands they elects. DJT is nothing like that,

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<v Speaker 2>and yet it sort of functions as that, which is,

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<v Speaker 2>you know itself a fascinating fact about modern financial markets,

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<v Speaker 2>Like why is dj T a referendum in elections? It

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<v Speaker 2>seems like it should.

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<v Speaker 3>Be, so it is it has Trump been the name,

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<v Speaker 3>you know?

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<v Speaker 1>And Trump is running for president, So I don't think

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<v Speaker 1>it's like I mean.

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<v Speaker 2>Look, if he wins, I don't do that if he loses, right,

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<v Speaker 2>So like it's a correct thesis. It's just like why.

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<v Speaker 3>Yeah.

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<v Speaker 1>We had Nick Colas from Data Trek on TV this

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<v Speaker 1>week and one of the things that he emailed over

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<v Speaker 1>to the team was on the topic of offshore gambling odds.

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<v Speaker 1>He said that everyone thinks this is an untainted prediction market. Maybe,

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<v Speaker 1>but these odds are also affecting financial markets. You look

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<v Speaker 1>at the peso, you look at bank stocks, you look

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<v Speaker 1>at yields. Could savvy traders move the gambling odds and

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<v Speaker 1>trade financial assets for profit just like we're talking about.

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<v Speaker 1>You could spend forty five million dollars to move Trump's

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<v Speaker 1>odds and then also pair that with a short on

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<v Speaker 1>like ten your treasuries. That could have been interesting like

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<v Speaker 1>three weeks ago. And maybe that's what that French national

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<v Speaker 1>was doing. I don't know.

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<v Speaker 2>I hope that's true. One thing about this, like this

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<v Speaker 2>market is easy to manipulate. Argument is like that's true

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<v Speaker 2>on both sides, right, Like, obviously get a lot about

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<v Speaker 2>this with liboard manipulation. Like with liboard manipulation, you could

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<v Speaker 2>just like make up a number and that would affect

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<v Speaker 2>the value of like trillions of dollars of terrifatives. And

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<v Speaker 2>so people just make up a number because they were

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<v Speaker 2>like long these drives, they want them to go up,

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<v Speaker 2>and so they would like make up a high number.

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<v Speaker 2>And empirically it turned out that people were doing the

0:11:30.240 --> 0:11:32.560
<v Speaker 2>same thing on the other side, and so like library

0:11:32.640 --> 0:11:34.280
<v Speaker 2>was like kind of made up, but it's also kind

0:11:34.320 --> 0:11:36.640
<v Speaker 2>of accurate because like everyone was doing the same thing

0:11:36.640 --> 0:11:38.720
<v Speaker 2>and they're trying to manipulate the market on both sides.

0:11:39.000 --> 0:11:40.439
<v Speaker 2>There's a little of that here too, where it's like

0:11:40.480 --> 0:11:43.000
<v Speaker 2>you could buy a million dollars or Trump contracts and

0:11:43.080 --> 0:11:46.200
<v Speaker 2>like sell a billion dollars of treasuries and make some money.

0:11:46.240 --> 0:11:48.760
<v Speaker 2>Like maybe that doesn't tell you which way that bet

0:11:48.800 --> 0:11:51.079
<v Speaker 2>is being made, and it could easily be made both ways. Right,

0:11:51.280 --> 0:11:53.800
<v Speaker 2>It's not like the like real financial markets are moving

0:11:53.840 --> 0:11:57.720
<v Speaker 2>like that dramatically in response to a five percent shift

0:11:57.720 --> 0:12:00.080
<v Speaker 2>in the polymarket. Ods, maybe that trade is worth it,

0:12:00.120 --> 0:12:02.800
<v Speaker 2>but it seems like a risky trade to do well.

0:12:02.800 --> 0:12:05.360
<v Speaker 1>We'll find out in a couple of days or we will.

0:12:05.280 --> 0:12:08.360
<v Speaker 2>We'll never know the correct odds, but we'll know the outcome.

0:12:08.480 --> 0:12:11.840
<v Speaker 1>Yeah, we'll know how close to reality the polymarket odds

0:12:12.200 --> 0:12:14.360
<v Speaker 1>were depending on how they shift in the next couple

0:12:14.400 --> 0:12:14.680
<v Speaker 1>of days.

0:12:14.679 --> 0:12:17.320
<v Speaker 2>I guess I don't think we'll ever know how close

0:12:17.320 --> 0:12:20.760
<v Speaker 2>to reality they were. Like either the winner, he won't,

0:12:20.880 --> 0:12:22.600
<v Speaker 2>but at no point, well, we know that he was

0:12:22.640 --> 0:12:26.480
<v Speaker 2>like sixty five ercent likely to win. Yeah, the market

0:12:26.480 --> 0:12:27.440
<v Speaker 2>will resolve to one.

0:12:27.880 --> 0:12:44.000
<v Speaker 3>Zero taxes, taxes.

0:12:44.600 --> 0:12:48.120
<v Speaker 1>I need you to just explain this to me. I've

0:12:48.160 --> 0:12:50.840
<v Speaker 1>read it, I've listened to it, and I feel like

0:12:51.080 --> 0:12:54.520
<v Speaker 1>I still am not grasping it. Yes, Robot told me

0:12:54.559 --> 0:12:55.280
<v Speaker 1>all about it.

0:12:55.960 --> 0:12:58.040
<v Speaker 2>The two is that you get to decide for the

0:12:58.080 --> 0:13:01.719
<v Speaker 2>most part when you get taxable gains or losses. Right, So,

0:13:02.280 --> 0:13:04.400
<v Speaker 2>if you have stock and it goes up, you just

0:13:04.440 --> 0:13:08.240
<v Speaker 2>hold onto it and like you wait and eventually, twenty

0:13:08.320 --> 0:13:10.520
<v Speaker 2>years from now you sell the stock and then you

0:13:10.559 --> 0:13:13.440
<v Speaker 2>pay taxes on the gains. Or by the way, one

0:13:13.520 --> 0:13:15.560
<v Speaker 2>hundred years from now, you die and it passes on

0:13:15.559 --> 0:13:17.240
<v Speaker 2>to your airs and they never pay taxes on the

0:13:17.280 --> 0:13:21.160
<v Speaker 2>gains because of like basis. Step up, right, if you

0:13:21.240 --> 0:13:24.559
<v Speaker 2>have stocks that go down, you sell them right now,

0:13:25.320 --> 0:13:29.240
<v Speaker 2>and you have a taxable loss or capital loss, and

0:13:29.280 --> 0:13:31.439
<v Speaker 2>that can be used to offset capital gains elsewhere in

0:13:31.480 --> 0:13:33.800
<v Speaker 2>your portfolio. So if you're like you have capital gains,

0:13:33.840 --> 0:13:36.640
<v Speaker 2>you also have some stocks that have gone down. You

0:13:36.679 --> 0:13:38.400
<v Speaker 2>sell the stocks that have gone down and use them

0:13:38.440 --> 0:13:41.280
<v Speaker 2>to offset your gains. Obviously, you'd rather buy stocks that

0:13:41.360 --> 0:13:46.360
<v Speaker 2>go up right and not have any taxable losses, but like,

0:13:46.400 --> 0:13:49.199
<v Speaker 2>sometimes you want taxable losses because like, you have gains elsewhere,

0:13:49.200 --> 0:13:50.800
<v Speaker 2>and you would prefer not to pay taxes on them,

0:13:50.880 --> 0:13:52.760
<v Speaker 2>but you don't want to just like lose money for

0:13:52.800 --> 0:13:59.640
<v Speaker 2>no reason. And the conceptual trick is conceptually it's so

0:13:59.760 --> 0:14:02.520
<v Speaker 2>you have hundred dollars, right, you go long like five

0:14:02.600 --> 0:14:04.640
<v Speaker 2>hundred dollars of the S and P, and you go

0:14:04.760 --> 0:14:06.319
<v Speaker 2>short like four hundred dollars of the S and P.

0:14:06.480 --> 0:14:08.440
<v Speaker 2>So your net exposure is one hundred dollars, right, So

0:14:08.440 --> 0:14:10.400
<v Speaker 2>it's like you've made the investment you wanted to make,

0:14:10.800 --> 0:14:13.760
<v Speaker 2>but now you're long a lot and short a lot

0:14:13.800 --> 0:14:16.080
<v Speaker 2>to offset it. But you're you know, you're still that long.

0:14:16.800 --> 0:14:18.560
<v Speaker 2>And then either of the market goes up or down.

0:14:18.720 --> 0:14:22.040
<v Speaker 2>If it goes up, you make money on your five

0:14:22.080 --> 0:14:24.520
<v Speaker 2>hundre dollars long and you lose money on your four

0:14:24.560 --> 0:14:30.200
<v Speaker 2>hundred dollars short, and then what you do is nothing

0:14:30.240 --> 0:14:31.640
<v Speaker 2>with your long. You just keep it on so you

0:14:31.680 --> 0:14:33.960
<v Speaker 2>don't penny taxes on the gains. And you close out

0:14:34.000 --> 0:14:36.240
<v Speaker 2>your short and you get a big tax loss on

0:14:36.280 --> 0:14:38.000
<v Speaker 2>your short and you can use that to offset your

0:14:38.040 --> 0:14:41.040
<v Speaker 2>gains elsewhere. And then you put on another four hundred

0:14:41.040 --> 0:14:43.240
<v Speaker 2>dollars short and you do it again. And so every

0:14:43.280 --> 0:14:45.800
<v Speaker 2>year you can like generate tax losses without any real

0:14:45.840 --> 0:14:48.880
<v Speaker 2>economic losses because your long your short positions are offsetting

0:14:48.920 --> 0:14:50.960
<v Speaker 2>each other. Right, So like net you're just long one

0:14:51.040 --> 0:14:54.320
<v Speaker 2>hundred dollars of stock, but you have losses every year.

0:14:55.360 --> 0:15:02.360
<v Speaker 2>Did you go away? So, Katie, I just explained taxiware

0:15:02.480 --> 0:15:07.760
<v Speaker 2>long short in a beautiful way. That crashed your internet. Yeah,

0:15:08.200 --> 0:15:10.680
<v Speaker 2>cause you to go lie down for a while.

0:15:11.280 --> 0:15:13.360
<v Speaker 1>It's too bad that I didn't hear that, because that

0:15:13.480 --> 0:15:16.200
<v Speaker 1>explanation was something that I needed.

0:15:18.720 --> 0:15:21.720
<v Speaker 2>In brief, you buy like two hundred dollars of the

0:15:21.840 --> 0:15:24.040
<v Speaker 2>S and P. You're short one hundred dollars the SMP

0:15:24.480 --> 0:15:26.880
<v Speaker 2>met your longe hundred dollars the SMP. But no matter

0:15:26.960 --> 0:15:29.520
<v Speaker 2>what happens, you have tax losses. You realize the tax

0:15:29.600 --> 0:15:32.520
<v Speaker 2>losses each year and you use them to offset your

0:15:32.520 --> 0:15:35.200
<v Speaker 2>gains elsewhere in the portfolio, like if you've sold the

0:15:35.240 --> 0:15:37.560
<v Speaker 2>business or whatever, and then you go put on the

0:15:37.560 --> 0:15:40.040
<v Speaker 2>short again and you do it all over again. That's

0:15:40.120 --> 0:15:42.640
<v Speaker 2>like conceptually the trade, but in reality that's not the

0:15:42.680 --> 0:15:44.720
<v Speaker 2>trade at all, because you're not really just allowed to

0:15:44.760 --> 0:15:46.760
<v Speaker 2>do that. You're not allowed to just buy a thing

0:15:46.800 --> 0:15:49.520
<v Speaker 2>and go short the same thing and take the losses

0:15:49.560 --> 0:15:53.080
<v Speaker 2>and not take the games. Those are called like the

0:15:53.120 --> 0:15:56.960
<v Speaker 2>straddle rules and the wash sale rules, and so the

0:15:57.000 --> 0:15:58.760
<v Speaker 2>trick is to do this in a way where you're

0:15:58.800 --> 0:16:02.160
<v Speaker 2>not long and short the same thing, and also where

0:16:02.760 --> 0:16:05.120
<v Speaker 2>when you close out the position and then you go

0:16:05.160 --> 0:16:07.880
<v Speaker 2>put on the position again, you're putting on different positions.

0:16:07.880 --> 0:16:10.880
<v Speaker 2>So like you know, if you have like some losses,

0:16:10.920 --> 0:16:14.440
<v Speaker 2>you sell those stocks and you buy different stocks so

0:16:14.480 --> 0:16:18.440
<v Speaker 2>that you continue to have the same exposure, but you

0:16:18.480 --> 0:16:20.640
<v Speaker 2>can realize your losses on the stuff that you got

0:16:20.720 --> 0:16:23.160
<v Speaker 2>rid of. That's where the secret soloss comes in. But

0:16:23.280 --> 0:16:24.920
<v Speaker 2>it's not that secret because there are a lot of

0:16:24.920 --> 0:16:26.880
<v Speaker 2>stocks in the world, and you can sort of create

0:16:26.920 --> 0:16:30.080
<v Speaker 2>a bunch of different, diverse, bied portfolios that give you

0:16:30.120 --> 0:16:32.960
<v Speaker 2>the exposures you want. And ideally, you know, you go

0:16:33.120 --> 0:16:35.360
<v Speaker 2>long stocks that are good and you go short stocks

0:16:35.360 --> 0:16:37.080
<v Speaker 2>that are bad, and like maybe you don't have as

0:16:37.080 --> 0:16:38.680
<v Speaker 2>many losses and you just have a lot of gains,

0:16:39.080 --> 0:16:43.120
<v Speaker 2>But it's sort of like that's just gravy. What you

0:16:43.240 --> 0:16:47.240
<v Speaker 2>really want is to have a long short portfolio where

0:16:47.240 --> 0:16:49.880
<v Speaker 2>like your net exposure is the net exposure you want,

0:16:50.240 --> 0:16:53.120
<v Speaker 2>and where if you lose money on one side of

0:16:53.120 --> 0:16:55.320
<v Speaker 2>the trade, you get to didacti from your taxes.

0:16:55.480 --> 0:16:58.360
<v Speaker 1>So your column in this conversation is inspired by a

0:16:58.400 --> 0:17:03.440
<v Speaker 1>great article by Justine of Bloomberg News last week, and

0:17:04.000 --> 0:17:06.159
<v Speaker 1>I feel like we're learning about a lot of different

0:17:06.200 --> 0:17:08.960
<v Speaker 1>methods if you're a really wealthy person to sort of

0:17:09.720 --> 0:17:14.120
<v Speaker 1>defer taxes. The question I had reading this article. Justina

0:17:14.320 --> 0:17:17.760
<v Speaker 1>describes an example of this brilliant Apple engineer. He has

0:17:18.119 --> 0:17:22.040
<v Speaker 1>a million dollars worth of Apple shares, He has years

0:17:22.080 --> 0:17:26.399
<v Speaker 1>of gains, So basically he does this strategy, you know,

0:17:26.440 --> 0:17:29.080
<v Speaker 1>maybe goes one hundred and thirty percent long thirty percent

0:17:29.200 --> 0:17:32.359
<v Speaker 1>short to do this trade. But why wouldn't he just

0:17:32.480 --> 0:17:35.480
<v Speaker 1>do a swap fund in that scenario, which we just

0:17:35.520 --> 0:17:36.880
<v Speaker 1>talked about like two weeks ago.

0:17:37.359 --> 0:17:40.640
<v Speaker 2>Swat funds have like their own administrative complexities. If you're

0:17:40.640 --> 0:17:43.320
<v Speaker 2>doing this, you're sort of permanently generating tax seductions, Like

0:17:43.359 --> 0:17:45.960
<v Speaker 2>you can keep generating tax eductions every year. Like the

0:17:46.000 --> 0:17:49.440
<v Speaker 2>swap fund is a way to diversify out of your

0:17:50.480 --> 0:17:55.320
<v Speaker 2>appreciated asset without immediately paying taxes on it, but you're

0:17:55.320 --> 0:17:58.159
<v Speaker 2>not like generating any additional tax losses. Swat funds are

0:17:58.240 --> 0:18:00.320
<v Speaker 2>kind of weird. You're not getting the same diversification as

0:18:00.359 --> 0:18:01.840
<v Speaker 2>you would by like buying an S and P fund

0:18:01.880 --> 0:18:03.680
<v Speaker 2>because you know, you're sort of like in a swop

0:18:03.720 --> 0:18:05.800
<v Speaker 2>fund with other people who have also contributed to the

0:18:05.840 --> 0:18:06.359
<v Speaker 2>swap fund.

0:18:06.760 --> 0:18:08.080
<v Speaker 1>Generally that makes sense.

0:18:08.440 --> 0:18:10.119
<v Speaker 2>You know, ranny aout this. People have been emailing me

0:18:10.119 --> 0:18:12.960
<v Speaker 2>with a lot of like other ways that people defer taxes.

0:18:13.440 --> 0:18:15.760
<v Speaker 2>This is just like a sort of juice up version

0:18:15.800 --> 0:18:19.520
<v Speaker 2>of tax loss harvest thing which any financial advisor and

0:18:19.720 --> 0:18:22.399
<v Speaker 2>most robo advisors at this point will do, where like

0:18:22.560 --> 0:18:24.960
<v Speaker 2>just at the end of the year, you like sell

0:18:25.000 --> 0:18:27.000
<v Speaker 2>your stocks that have gone down so that you can

0:18:27.040 --> 0:18:29.200
<v Speaker 2>take tax losses, and then you know, you go buy

0:18:29.200 --> 0:18:33.240
<v Speaker 2>some different stocks. And one thing that people have found

0:18:33.320 --> 0:18:36.919
<v Speaker 2>is that people often don't really want to buy different

0:18:36.920 --> 0:18:41.240
<v Speaker 2>stocks because different stocks would give them a different risk profile,

0:18:42.480 --> 0:18:44.719
<v Speaker 2>and so ideally they would go sell their stocks, take

0:18:44.760 --> 0:18:47.399
<v Speaker 2>their losses, and then go buy the same stocks. But

0:18:47.640 --> 0:18:49.879
<v Speaker 2>you can't do that because the IRS has rules against

0:18:49.880 --> 0:18:51.800
<v Speaker 2>the wash sales where you sell us stock, take the losses,

0:18:51.800 --> 0:18:56.159
<v Speaker 2>and then immediately buy the back. And so people get

0:18:56.280 --> 0:18:59.600
<v Speaker 2>arbitrarily close to that in ways that make people mad.

0:19:00.040 --> 0:19:02.720
<v Speaker 2>And so the classic is like if you are invested

0:19:02.760 --> 0:19:05.520
<v Speaker 2>in ETFs and you have an ETF that is down

0:19:05.560 --> 0:19:07.560
<v Speaker 2>at the end of the year, you sell an ETF

0:19:07.720 --> 0:19:09.920
<v Speaker 2>and you buy back a different ETF with the same

0:19:09.960 --> 0:19:13.199
<v Speaker 2>like theme, right, so you know, it could even be

0:19:13.359 --> 0:19:15.200
<v Speaker 2>like you sell at S and PTF when you buy

0:19:15.240 --> 0:19:17.960
<v Speaker 2>back a different S and P ETF whatever theme you had, Like,

0:19:18.280 --> 0:19:20.800
<v Speaker 2>there's probably ten ETFs that sort of serve that basic

0:19:20.840 --> 0:19:23.720
<v Speaker 2>purpose and you sell one and buy back the other,

0:19:24.040 --> 0:19:26.560
<v Speaker 2>and the underlying holdings might be the same, and the

0:19:26.680 --> 0:19:30.080
<v Speaker 2>basic idea might be the same. But you can say, no, no,

0:19:30.119 --> 0:19:32.320
<v Speaker 2>I didn't do a watch sale. I sold the one

0:19:32.320 --> 0:19:36.480
<v Speaker 2>ETF and bought back a completely different ETF, And people

0:19:36.480 --> 0:19:39.639
<v Speaker 2>who email me are like, that's not really allowed, And

0:19:39.680 --> 0:19:41.920
<v Speaker 2>the rules on this are like a little bit unclear.

0:19:42.160 --> 0:19:44.480
<v Speaker 2>Like if you read the rules. They seem to be

0:19:44.640 --> 0:19:47.719
<v Speaker 2>quite broad in saying that you can't do this stuff right.

0:19:47.760 --> 0:19:50.480
<v Speaker 2>You can't take tax losses when you're sort of hedged

0:19:50.560 --> 0:19:52.720
<v Speaker 2>the whole time. But if you look at sort of

0:19:52.720 --> 0:19:55.199
<v Speaker 2>actual enforcement, the rules are kind of enforced more narrowly,

0:19:55.240 --> 0:19:57.760
<v Speaker 2>where like if you sell one thing and buy back

0:19:57.800 --> 0:20:01.119
<v Speaker 2>a very similar thing, you seem to get in trouble

0:20:01.160 --> 0:20:02.800
<v Speaker 2>for it. So there's a lot of stuff going on

0:20:02.880 --> 0:20:04.840
<v Speaker 2>here that people are like, yeah, it seems to work.

0:20:04.960 --> 0:20:07.000
<v Speaker 1>I mean, it's kind of poetic that, like the origin

0:20:07.080 --> 0:20:11.119
<v Speaker 1>story of the etf rapper was just a way to

0:20:11.160 --> 0:20:15.480
<v Speaker 1>defer in dodge taxes, So you know, it's fitting with

0:20:15.560 --> 0:20:18.639
<v Speaker 1>the spirit anyway. I can't see your face, and I

0:20:18.680 --> 0:20:21.359
<v Speaker 1>don't like that. But something else that I wanted to

0:20:21.400 --> 0:20:25.040
<v Speaker 1>talk about from Justina's article, did you see the quote

0:20:25.040 --> 0:20:27.760
<v Speaker 1>that she had in there from David Schiser. He's the

0:20:27.840 --> 0:20:31.359
<v Speaker 1>professor at Columbia Law School. He said that basically, this

0:20:31.440 --> 0:20:36.120
<v Speaker 1>whole business of the taxaware long short, it feeds off

0:20:36.160 --> 0:20:39.000
<v Speaker 1>the complexity of the current rules, and in his view,

0:20:39.280 --> 0:20:42.320
<v Speaker 1>far too much time and energy is being expended by

0:20:42.400 --> 0:20:47.520
<v Speaker 1>these sophisticated players to pursue a lower effective tax rate

0:20:47.560 --> 0:20:49.359
<v Speaker 1>and I just thought that was funny. You know, like

0:20:49.400 --> 0:20:52.879
<v Speaker 1>what if like cliff Asnas was directing all of this

0:20:52.960 --> 0:20:57.200
<v Speaker 1>mental energy and this brain power at Bettering Society, for example,

0:20:57.240 --> 0:20:59.840
<v Speaker 1>That seems to be at least what this professor is suggesting.

0:21:00.840 --> 0:21:04.240
<v Speaker 2>I simpathized. But I also used to be a derivative structure,

0:21:04.720 --> 0:21:08.119
<v Speaker 2>and I tell you that in the abstract, it is

0:21:08.200 --> 0:21:10.679
<v Speaker 2>hard to go to a client and say, here is

0:21:10.720 --> 0:21:15.359
<v Speaker 2>a brilliant product for you, because like the brilliant product

0:21:15.400 --> 0:21:18.000
<v Speaker 2>like comes down to, like I get you some variation

0:21:18.119 --> 0:21:20.840
<v Speaker 2>on market returns and you pay me one percent, right,

0:21:21.200 --> 0:21:23.960
<v Speaker 2>and like over time, the expectation is that one percent

0:21:24.000 --> 0:21:26.280
<v Speaker 2>really adds up. So it's really helpful to go to

0:21:26.320 --> 0:21:29.359
<v Speaker 2>the client and say the way I'm going to make

0:21:29.400 --> 0:21:32.159
<v Speaker 2>money for you is not with my special brilliance, but

0:21:33.040 --> 0:21:36.240
<v Speaker 2>by like just taking it from the irs. There's just

0:21:36.280 --> 0:21:38.159
<v Speaker 2>a rule that says we can take this money from

0:21:38.160 --> 0:21:40.640
<v Speaker 2>the IRS and give it to you, and we'll take

0:21:40.640 --> 0:21:42.520
<v Speaker 2>half of it. And the client is like, yeah, that's

0:21:42.520 --> 0:21:44.240
<v Speaker 2>a good deal. When I was a derivative structure at

0:21:44.240 --> 0:21:46.080
<v Speaker 2>a bank, if you go to a client and you're like, oh,

0:21:46.119 --> 0:21:47.600
<v Speaker 2>you know, like we have a thing where you can

0:21:47.600 --> 0:21:49.480
<v Speaker 2>manage your risk. It's like not that exciting, right, But

0:21:49.480 --> 0:21:51.000
<v Speaker 2>if you go to client, you're like, here's a thing

0:21:51.000 --> 0:21:52.720
<v Speaker 2>where the IRS just pay you to do the trade,

0:21:52.800 --> 0:21:55.360
<v Speaker 2>then like that's great, you know they want that, And

0:21:55.800 --> 0:21:58.200
<v Speaker 2>so on the one hand being like, oh, these people

0:21:58.240 --> 0:22:01.120
<v Speaker 2>doing these tax ARBs should be doing something else for society,

0:22:01.119 --> 0:22:02.480
<v Speaker 2>Like I get it. But on the other hand, like

0:22:02.520 --> 0:22:04.280
<v Speaker 2>I don't know. If you're a financial engineer, the thing

0:22:04.320 --> 0:22:06.480
<v Speaker 2>where it's like the IRS is your free money is

0:22:06.520 --> 0:22:08.679
<v Speaker 2>a great product compared to the thing where you're like

0:22:09.119 --> 0:22:10.640
<v Speaker 2>I have found a way to beat the market. It's

0:22:10.640 --> 0:22:12.760
<v Speaker 2>hard to beat the market. It's not that hard to

0:22:12.800 --> 0:22:16.840
<v Speaker 2>figure out a way to generate tax detections and like

0:22:16.920 --> 0:22:19.840
<v Speaker 2>defer tax cans. Yeah, it's not easy, as smart people

0:22:19.840 --> 0:22:20.960
<v Speaker 2>can paid a lot of money to do it. But

0:22:21.000 --> 0:22:24.000
<v Speaker 2>it's like more reliable. It's not entirely reliable, right, you

0:22:24.000 --> 0:22:26.000
<v Speaker 2>read about these things, there's always someone being like this

0:22:26.080 --> 0:22:27.880
<v Speaker 2>is not really allowed, like this is going to get

0:22:27.880 --> 0:22:30.159
<v Speaker 2>someone in trouble, Like this might not you know, the

0:22:30.280 --> 0:22:33.000
<v Speaker 2>rules might change. So it's not like entirely reliable. But

0:22:33.040 --> 0:22:34.960
<v Speaker 2>it is a good pitch in a way that like

0:22:35.040 --> 0:22:36.119
<v Speaker 2>we'll beat the market.

0:22:35.920 --> 0:22:38.680
<v Speaker 1>Is not Yeah, they's true. There is an whole community

0:22:38.680 --> 0:22:41.000
<v Speaker 1>of people who would say, like, the government needs your

0:22:41.040 --> 0:22:42.760
<v Speaker 1>tax dollars, but that's a different story.

0:22:42.920 --> 0:22:46.320
<v Speaker 2>Well, those people probably aren't doing this trade, I.

0:22:46.280 --> 0:22:47.080
<v Speaker 1>Would imagine not.

0:22:49.200 --> 0:22:51.919
<v Speaker 2>I mean, you know, I actually did hear from a

0:22:51.960 --> 0:22:55.080
<v Speaker 2>reader who is like, I got pitched this and it

0:22:55.160 --> 0:22:58.080
<v Speaker 2>felt bad for me to say this much on my

0:22:58.200 --> 0:23:00.760
<v Speaker 2>tax as. So I said, no, that's a that's a

0:23:00.800 --> 0:23:01.480
<v Speaker 2>reasonable approach.

0:23:01.600 --> 0:23:04.760
<v Speaker 1>That sounds like a really good conscientious person. I don't

0:23:04.760 --> 0:23:05.400
<v Speaker 1>think a lot of people.

0:23:05.520 --> 0:23:06.800
<v Speaker 2>But it's also it's like, you know, because you're like

0:23:07.119 --> 0:23:08.880
<v Speaker 2>like there's a little bit of uncertainty here and it's

0:23:08.880 --> 0:23:11.639
<v Speaker 2>really complicated, and like it's you know, like not everyone

0:23:11.680 --> 0:23:14.320
<v Speaker 2>who has pitched on a complicated financial product wants to

0:23:14.320 --> 0:23:18.240
<v Speaker 2>do it, and like it's not I would prefer to

0:23:18.280 --> 0:23:20.959
<v Speaker 2>pay higher taxes. It's this seems like a lot of

0:23:21.600 --> 0:23:23.960
<v Speaker 2>brain power to go through to save some money on

0:23:24.000 --> 0:23:26.920
<v Speaker 2>my taxes. But if you really want to save money

0:23:26.960 --> 0:23:29.000
<v Speaker 2>in your taxes, then like, no amount of brain power

0:23:29.119 --> 0:23:32.520
<v Speaker 2>is too much to spend on saving money on taxes.

0:23:33.200 --> 0:23:49.800
<v Speaker 1>That's true. Do you want to get to the fun stuff?

0:23:50.480 --> 0:23:50.840
<v Speaker 2>Okay?

0:23:51.320 --> 0:23:54.800
<v Speaker 1>Super micro, super micro? So I feel like it's bad

0:23:55.000 --> 0:23:57.400
<v Speaker 1>it's just not a good look when your auditor resigns.

0:23:57.880 --> 0:24:01.480
<v Speaker 2>Your auditor resigns in like a real huff, you know. Yeah,

0:24:01.640 --> 0:24:05.240
<v Speaker 2>super Micro's auditors at EUI, the former Ernst and Young,

0:24:05.840 --> 0:24:08.399
<v Speaker 2>resigned with a nasty letter being like, we can't trust

0:24:08.400 --> 0:24:11.000
<v Speaker 2>you anymore. Yeah, seems bad.

0:24:11.359 --> 0:24:13.720
<v Speaker 1>I saw a version of that letter make its rounds

0:24:13.760 --> 0:24:16.400
<v Speaker 1>on social media. I was pretty sure too. I feel

0:24:16.400 --> 0:24:17.760
<v Speaker 1>like it was like a paragraph or two.

0:24:17.920 --> 0:24:19.720
<v Speaker 2>Maybe you've seen a letter that I haven't seen.

0:24:19.960 --> 0:24:22.480
<v Speaker 1>It could have been a fake letter, to be totally honest,

0:24:22.680 --> 0:24:24.119
<v Speaker 1>but anyway, a huff.

0:24:24.160 --> 0:24:27.080
<v Speaker 2>So super Micro filed a disclosure saying that their auditor

0:24:27.119 --> 0:24:31.800
<v Speaker 2>EI had resigned because they had sent super Micro letter

0:24:31.920 --> 0:24:35.080
<v Speaker 2>saying that we can no longer rely on the representations

0:24:35.119 --> 0:24:38.880
<v Speaker 2>that management makes nor trust the audit committee, which is wild. Right,

0:24:39.359 --> 0:24:44.440
<v Speaker 2>Sometimes there are accounting scandals where the corporate managers are

0:24:44.520 --> 0:24:47.840
<v Speaker 2>doing bad stuff and then like the board finds out

0:24:47.920 --> 0:24:51.440
<v Speaker 2>and there's a scandal, and the board is shocked and

0:24:51.520 --> 0:24:54.840
<v Speaker 2>like works with the auditors to find the problems, right,

0:24:55.040 --> 0:24:57.480
<v Speaker 2>because like, the board doesn't really have incentives to do

0:24:57.560 --> 0:24:59.840
<v Speaker 2>a counting fraud, right, They're just there to get paid

0:25:00.400 --> 0:25:03.240
<v Speaker 2>a yearly fee and get sued when things go wrong,

0:25:03.320 --> 0:25:05.399
<v Speaker 2>like they don't want to do accounting fraud, but like

0:25:05.520 --> 0:25:07.679
<v Speaker 2>this is a somewhat unusual case where EUI is like,

0:25:07.720 --> 0:25:09.720
<v Speaker 2>not only do we not trust management, but like we

0:25:09.800 --> 0:25:12.440
<v Speaker 2>don't really want to talk to the audit committee anymore either,

0:25:12.800 --> 0:25:15.840
<v Speaker 2>which is a pretty smooth move right there. This is

0:25:15.880 --> 0:25:20.440
<v Speaker 2>such a salient, sorry, because Hindenburg put out a short

0:25:20.480 --> 0:25:23.160
<v Speaker 2>report on super Micro, you know, like a month ago,

0:25:23.560 --> 0:25:26.000
<v Speaker 2>saying that they're probably getting up to some accounting fraud.

0:25:26.400 --> 0:25:31.159
<v Speaker 2>When that happens, it's like the very natural like limit

0:25:31.240 --> 0:25:33.760
<v Speaker 2>on how seriously to worry about it is like, well,

0:25:33.760 --> 0:25:35.920
<v Speaker 2>their order hasn't resigned. The order is still auded in

0:25:35.960 --> 0:25:38.720
<v Speaker 2>their financial statement, so how bad can their accounting really be?

0:25:38.880 --> 0:25:40.960
<v Speaker 2>And then the utter resigns, Like yeah, there's no limit,

0:25:41.680 --> 0:25:42.719
<v Speaker 2>could be anything, you know.

0:25:42.880 --> 0:25:45.639
<v Speaker 1>I feel like this checks two boxes for you, at

0:25:45.720 --> 0:25:49.320
<v Speaker 1>least two boxes. One on your campaign to make auditors

0:25:49.359 --> 0:25:51.400
<v Speaker 1>be cool again. I feel like this does a lot

0:25:51.440 --> 0:25:53.560
<v Speaker 1>of a lifting for you, and then also.

0:25:53.520 --> 0:25:57.160
<v Speaker 2>Very cool to do this sort of I'm like this

0:25:57.200 --> 0:25:59.560
<v Speaker 2>is very cool, Like I would love to resign in

0:25:59.560 --> 0:26:01.560
<v Speaker 2>a huffle this and like you know, because like you

0:26:01.600 --> 0:26:04.880
<v Speaker 2>resign it off like this and you really like you're

0:26:04.880 --> 0:26:07.880
<v Speaker 2>getting your revenge, right, like the stock tanked. It's really

0:26:07.880 --> 0:26:10.239
<v Speaker 2>a bad look for the company, and so EI can

0:26:10.320 --> 0:26:12.720
<v Speaker 2>just be like, Nope, we're gonna resign, see you later,

0:26:12.840 --> 0:26:14.760
<v Speaker 2>and have like a really negative effect on the company

0:26:15.200 --> 0:26:18.159
<v Speaker 2>that's said You're gonna have a different interpretation of this,

0:26:18.240 --> 0:26:22.200
<v Speaker 2>which is EI has not like had the most amazing

0:26:22.280 --> 0:26:26.159
<v Speaker 2>run ever in terms of like being criticized for its

0:26:26.200 --> 0:26:31.280
<v Speaker 2>audit quality. And you could say, well, they are doing

0:26:31.280 --> 0:26:33.960
<v Speaker 2>this out of an abundance of caution, because like they

0:26:34.040 --> 0:26:36.440
<v Speaker 2>can't be caught standing close to a company with any

0:26:36.440 --> 0:26:40.680
<v Speaker 2>accounting problems because they've had some criticism of their audit work,

0:26:40.880 --> 0:26:43.639
<v Speaker 2>and in particular, you know, it reminds me of I

0:26:43.640 --> 0:26:49.040
<v Speaker 2>think last week EI was in the news for firing

0:26:49.080 --> 0:26:51.840
<v Speaker 2>people who are watching like two training videos at the

0:26:51.840 --> 0:26:54.880
<v Speaker 2>same time. Right, So, like their auditors have like continuing

0:26:55.000 --> 0:26:57.560
<v Speaker 2>education requirements and they have to watch videos on their

0:26:57.600 --> 0:27:00.160
<v Speaker 2>computers to check off the boxes, and some people were

0:27:00.160 --> 0:27:02.040
<v Speaker 2>watching two videos at the same time so they could

0:27:02.080 --> 0:27:04.639
<v Speaker 2>check off twice as many hours before getting back to

0:27:04.680 --> 0:27:05.240
<v Speaker 2>better things.

0:27:05.400 --> 0:27:08.639
<v Speaker 4>I get that temptation, no comment, but EUI fired them,

0:27:08.680 --> 0:27:11.520
<v Speaker 4>which seems very harsh, And so you remember that EUI

0:27:11.560 --> 0:27:14.200
<v Speaker 4>has been like find a lot of money by regulators

0:27:14.240 --> 0:27:18.320
<v Speaker 4>for things like having its accountants cheat on continued education exams,

0:27:18.600 --> 0:27:20.240
<v Speaker 4>and so you can't really do that anymore.

0:27:20.520 --> 0:27:22.000
<v Speaker 2>And so this is this whole thing where like they

0:27:22.000 --> 0:27:25.560
<v Speaker 2>are very much in a compliance culture because it's kind

0:27:25.600 --> 0:27:27.199
<v Speaker 2>of like risky out there for them to be doing

0:27:27.240 --> 0:27:29.640
<v Speaker 2>what they're doing, and so they don't have a lot

0:27:29.640 --> 0:27:31.120
<v Speaker 2>of tolerance for nonsense right now.

0:27:31.840 --> 0:27:34.280
<v Speaker 1>Yeah, that's a fair point. The other box that I

0:27:34.320 --> 0:27:36.240
<v Speaker 1>was thinking about for you is that, you know, it

0:27:36.240 --> 0:27:38.280
<v Speaker 1>seems like you could be cast as sympathetic to the

0:27:38.320 --> 0:27:40.800
<v Speaker 1>short seller community, which has taken a lot of heat

0:27:41.000 --> 0:27:44.360
<v Speaker 1>over the past couple of years. And here's an example

0:27:45.000 --> 0:27:48.920
<v Speaker 1>of a short seller potentially doing good for society and

0:27:48.960 --> 0:27:51.040
<v Speaker 1>the health of markets potentially.

0:27:51.200 --> 0:27:54.399
<v Speaker 2>Yeah. Yeah, Like it's a lot like this is like

0:27:54.440 --> 0:27:56.639
<v Speaker 2>a little bit of an overdetermined case because like the

0:27:56.680 --> 0:27:58.680
<v Speaker 2>things that are going on here is like one, Hindenberg

0:27:58.760 --> 0:28:01.520
<v Speaker 2>is putting out a comprehensive every saying this company's accounting

0:28:01.560 --> 0:28:04.520
<v Speaker 2>is bad. Two an employee has apparently gone to like

0:28:04.720 --> 0:28:07.280
<v Speaker 2>the authorities to like blow the whistle and is like

0:28:07.680 --> 0:28:10.719
<v Speaker 2>talking to the Justice Department, which is investigating because an

0:28:10.760 --> 0:28:13.879
<v Speaker 2>employee is, you know, independently of Hindenburg come out to

0:28:13.920 --> 0:28:15.840
<v Speaker 2>say that the accounting is bad. And then three like,

0:28:16.800 --> 0:28:19.119
<v Speaker 2>I don't know exactly what's motivating Ey, but it's not

0:28:19.840 --> 0:28:22.800
<v Speaker 2>necessarily they read the Hindenburg report like, oh wow, this

0:28:22.800 --> 0:28:26.200
<v Speaker 2>accounting is bad, right, Like they might have independently disagreed

0:28:26.240 --> 0:28:28.800
<v Speaker 2>with the accounting. So, I mean the timing is a

0:28:28.800 --> 0:28:31.320
<v Speaker 2>little odd. There are definitely some cases where it's like

0:28:31.600 --> 0:28:33.959
<v Speaker 2>the short cellars or the market's like only line of

0:28:33.960 --> 0:28:37.000
<v Speaker 2>defense against like problematic accounting. And here it's not so

0:28:37.119 --> 0:28:40.040
<v Speaker 2>clear that that's true, but like it is potentially confirmatory

0:28:40.080 --> 0:28:41.520
<v Speaker 2>of what Hindenburg has been saying.

0:28:41.960 --> 0:28:44.560
<v Speaker 1>I guess we can't say for certain, had Hindenburg not

0:28:44.600 --> 0:28:47.240
<v Speaker 1>published its short report on August twenty seventh, whether we

0:28:47.240 --> 0:28:51.480
<v Speaker 1>would have seen Ey resign as their auditor in late October.

0:28:51.520 --> 0:28:52.479
<v Speaker 1>But I don't know.

0:28:52.760 --> 0:28:55.040
<v Speaker 2>It's a good question, right, there is pressure on them

0:28:55.120 --> 0:28:59.760
<v Speaker 2>not to be near anything that gets any suspicion. But like,

0:29:00.600 --> 0:29:03.960
<v Speaker 2>did they independently decide there were problems or were they like, oh,

0:29:04.000 --> 0:29:05.800
<v Speaker 2>this is too high profile for us. We got to

0:29:05.840 --> 0:29:07.760
<v Speaker 2>get out of this, right, Like, did Hindenburg put the

0:29:07.800 --> 0:29:10.200
<v Speaker 2>pressure on them and by the way, like one possibility

0:29:10.200 --> 0:29:12.800
<v Speaker 2>here is that this company is like pure is the

0:29:12.880 --> 0:29:18.760
<v Speaker 2>driven snow and Hindenburg is wrong and EI read theurg

0:29:18.800 --> 0:29:20.600
<v Speaker 2>report and we're like this is too hairy for us.

0:29:20.640 --> 0:29:23.680
<v Speaker 2>We got to get out of here. And like, in fact,

0:29:24.000 --> 0:29:26.560
<v Speaker 2>this is like a very destructive thing that has happened

0:29:26.560 --> 0:29:32.720
<v Speaker 2>where EI, rather than being a stalwart independent auditor, has

0:29:32.760 --> 0:29:36.719
<v Speaker 2>like felt the public pressure to renounce its client. Like

0:29:36.800 --> 0:29:38.000
<v Speaker 2>that's a story you could tell.

0:29:38.760 --> 0:29:41.280
<v Speaker 1>Yeah, if that plays out, we'll talk about it on

0:29:41.320 --> 0:29:41.880
<v Speaker 1>this podcast.

0:29:42.120 --> 0:29:44.200
<v Speaker 2>Probably I'm not going to mark my calendar for it,

0:29:44.200 --> 0:29:45.560
<v Speaker 2>but it's like a thing that could happen.

0:29:45.880 --> 0:29:48.560
<v Speaker 1>It's a watch this space sort of thing. Something that

0:29:48.600 --> 0:29:51.840
<v Speaker 1>I did want to talk about is that super Micro's

0:29:52.000 --> 0:29:55.760
<v Speaker 1>star has risen or had risen so quickly. This company

0:29:55.840 --> 0:29:57.920
<v Speaker 1>was only just added to the S and P five

0:29:58.000 --> 0:30:03.200
<v Speaker 1>hundred in March, which was kind of a controversial thing.

0:30:03.760 --> 0:30:06.960
<v Speaker 1>You know, even though index inclusion is based on rules,

0:30:07.000 --> 0:30:11.480
<v Speaker 1>there is some discretion on the part of the index committee,

0:30:11.720 --> 0:30:14.080
<v Speaker 1>and there was like this really brief moment in time

0:30:14.160 --> 0:30:16.200
<v Speaker 1>just the way that the timing worked out where super

0:30:16.240 --> 0:30:19.640
<v Speaker 1>Micro was I believe, in the Small Cap Index while

0:30:19.640 --> 0:30:22.719
<v Speaker 1>simultaneously being in the S and P five hundred. So

0:30:23.480 --> 0:30:25.360
<v Speaker 1>I don't know. It's just like this funny quirk that

0:30:25.840 --> 0:30:27.960
<v Speaker 1>I don't know if super Micro is really in the

0:30:28.000 --> 0:30:31.440
<v Speaker 1>pain locker and it's been dragging one of many things

0:30:31.520 --> 0:30:33.719
<v Speaker 1>dragging on the benchmark that it was only just recently

0:30:33.720 --> 0:30:34.120
<v Speaker 1>added to.

0:30:34.400 --> 0:30:36.520
<v Speaker 2>This is definitely a thing that Schurtzeller's point too, like

0:30:37.200 --> 0:30:41.280
<v Speaker 2>companies often get added to nities because of like short

0:30:41.360 --> 0:30:45.360
<v Speaker 2>term price moves that are sometimes you know, bubbily or

0:30:45.400 --> 0:30:49.120
<v Speaker 2>basedline bad accounting or otherwise not sustainable, and then like

0:30:49.120 --> 0:30:51.240
<v Speaker 2>they're in the index and it's particularly embarrassing when the

0:30:51.240 --> 0:30:53.640
<v Speaker 2>problems are found. There could be some element of that here.

0:30:53.880 --> 0:30:56.400
<v Speaker 1>Yeah, well we'll see also if it stays at least

0:30:56.520 --> 0:30:58.400
<v Speaker 1>like in the NASDAQ one hundred, in the S and

0:30:58.400 --> 0:31:01.040
<v Speaker 1>P five hundred, I mean, it still a big company.

0:31:01.320 --> 0:31:03.240
<v Speaker 2>The other thing I liked about it is like the

0:31:03.280 --> 0:31:07.320
<v Speaker 2>Ey letter to super Micro resigning is not publicly filed,

0:31:07.360 --> 0:31:12.920
<v Speaker 2>although super Micro quotes it a little bit, but super

0:31:12.960 --> 0:31:15.560
<v Speaker 2>Micro's disclosure about it is like very sad, and it

0:31:15.600 --> 0:31:20.240
<v Speaker 2>includes the lines although the company recognizes Ey's decision is final,

0:31:20.520 --> 0:31:23.360
<v Speaker 2>it disagrees with Ey's decision to resign as the company's

0:31:23.440 --> 0:31:26.880
<v Speaker 2>independent registered public accounting from someone was like, it's like

0:31:26.920 --> 0:31:29.720
<v Speaker 2>a sad breakup, right, Like it's like we know we

0:31:29.760 --> 0:31:31.680
<v Speaker 2>can't do anything about it, but we're really sad about it.

0:31:32.000 --> 0:31:34.880
<v Speaker 2>But then the other thing that's crazy is that when

0:31:34.880 --> 0:31:38.560
<v Speaker 2>you put out a statement like this, EI gets like

0:31:38.640 --> 0:31:41.480
<v Speaker 2>a sort of right of response or like a right

0:31:41.520 --> 0:31:45.600
<v Speaker 2>of fact checking, where the statement that super Micro filed

0:31:45.800 --> 0:31:48.680
<v Speaker 2>comes with a little exhibit that is a letter from

0:31:48.760 --> 0:31:55.200
<v Speaker 2>EY to the SEC saying we have read super Micro's

0:31:55.200 --> 0:31:57.520
<v Speaker 2>disclosure and we agree with the statements contained in the

0:31:57.520 --> 0:31:59.760
<v Speaker 2>first paragraph, the first sentence of the second paragraph, the

0:31:59.800 --> 0:32:02.240
<v Speaker 2>third the first three sentences of the fourth pargraph, the

0:32:02.240 --> 0:32:05.920
<v Speaker 2>fifth paragraph, the seventh paragraph, and the eighth paragraph. We

0:32:05.960 --> 0:32:08.200
<v Speaker 2>have no basis to agree or disagree with the other statements,

0:32:08.560 --> 0:32:10.640
<v Speaker 2>which is like, first of all, it's just like an

0:32:10.680 --> 0:32:14.360
<v Speaker 2>incredibly like fun and embarrassing thing to have. But secondly,

0:32:14.440 --> 0:32:18.000
<v Speaker 2>like the things they don't agree or disagree with include

0:32:18.000 --> 0:32:21.000
<v Speaker 2>like supermankers, like we don't think this will affect any

0:32:21.040 --> 0:32:23.280
<v Speaker 2>of our financial statements, Like we don't have to restate

0:32:23.360 --> 0:32:25.400
<v Speaker 2>any of our financial statements. You. I was like, eh,

0:32:25.400 --> 0:32:27.200
<v Speaker 2>I don't know, I don't know. A good luck about

0:32:27.640 --> 0:32:30.040
<v Speaker 2>it's like really kind of like adding one more kick

0:32:30.080 --> 0:32:30.880
<v Speaker 2>on the way out the door.

0:32:31.400 --> 0:32:33.200
<v Speaker 3>Yeah, he's on this letter saying that they.

0:32:33.120 --> 0:32:34.760
<v Speaker 2>Don't agree with everything in the in the letter, in

0:32:34.800 --> 0:32:35.400
<v Speaker 2>the disclosure.

0:32:35.480 --> 0:32:38.200
<v Speaker 1>I mean, public breakups are really hard, They're really messy.

0:32:38.440 --> 0:32:41.440
<v Speaker 2>I almost have like pop culture reference here.

0:32:41.320 --> 0:32:45.200
<v Speaker 1>But I don't Someone can make another Ben affleck j

0:32:45.360 --> 0:32:47.880
<v Speaker 1>Lo reference, but I don't know the other one.

0:32:47.920 --> 0:32:50.600
<v Speaker 2>There's there's like a podcast host, right, her name is

0:32:50.720 --> 0:32:51.360
<v Speaker 2>Chicken something.

0:32:51.440 --> 0:32:55.800
<v Speaker 1>Oh my god, Brionna chicken Fry. Well, I can't believe

0:32:55.880 --> 0:32:58.600
<v Speaker 1>that that's in your head. That is like so firmly

0:32:58.720 --> 0:32:59.320
<v Speaker 1>in my world.

0:32:59.480 --> 0:32:59.800
<v Speaker 2>Yes.

0:33:00.280 --> 0:33:04.920
<v Speaker 1>Yeah, well zach Bryan Dumpter on Instagram.

0:33:05.000 --> 0:33:07.000
<v Speaker 2>Well they hit broken out basically the same thing as

0:33:07.040 --> 0:33:09.400
<v Speaker 2>Zachana Chicken.

0:33:09.200 --> 0:33:13.840
<v Speaker 1>Fry Yeah, in a way. Yeah, that's amazing. We should

0:33:13.840 --> 0:33:15.440
<v Speaker 1>just cut the podcast off here. You know what else

0:33:15.480 --> 0:33:20.400
<v Speaker 1>has been pretty messy and hard is recording this podcast remotely.

0:33:20.600 --> 0:33:23.320
<v Speaker 1>This has been a little bit of a nightmare. But

0:33:23.360 --> 0:33:24.400
<v Speaker 1>I think we got through it.

0:33:24.640 --> 0:33:25.880
<v Speaker 2>I think we can do there. Good guy.

0:33:26.240 --> 0:33:27.160
<v Speaker 1>A happy Halloween.

0:33:27.400 --> 0:33:28.920
<v Speaker 3>This was super spooky.

0:33:30.560 --> 0:33:32.040
<v Speaker 2>And that was the Money Stuff podcast.

0:33:32.160 --> 0:33:34.200
<v Speaker 1>I'm Matt Levian and I'm Katie Greifelt.

0:33:34.520 --> 0:33:36.600
<v Speaker 2>You can find my work by subscribing to The money

0:33:36.600 --> 0:33:39.200
<v Speaker 2>Stuff newsletter on Bloomberg dot com, and.

0:33:39.120 --> 0:33:41.640
<v Speaker 1>You can find me on Bloomberg TV every day on

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<v Speaker 1>Open Interest between nine to eleven am Eastern.

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<v Speaker 2>We'd love to hear from you. You can send an

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<v Speaker 2>email to Moneypot at Bloomberg dot net, ask us a

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<v Speaker 2>question and we might answer it on air.

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<v Speaker 1>You can also subscribe to our show wherever you're listening

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<v Speaker 1>right now and leave us a review. It helps more

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<v Speaker 1>people find the show.

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<v Speaker 2>The Money Stuff Podcast is produced by Anna Masarakus and

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<v Speaker 2>how is this on?

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<v Speaker 1>Our theme music was composed by Blake Maples.

0:34:03.280 --> 0:34:05.600
<v Speaker 2>Brandon Francis Munim is our executive.

0:34:05.160 --> 0:34:07.920
<v Speaker 1>Producer, and Stage Bauman is Bloomberg's head of Podcasts.

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<v Speaker 2>Thanks for listening to The Money Stuff Podcast. We'll be

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<v Speaker 2>back next week with more stuff.

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<v Speaker 1>This was a nightmare, a Halloween nightmare.