Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: I do have a bird update.
Speaker 1: I was gonna say, you texted me a picture of
Speaker 1: your bird. Yeah, and you just like, without any sense
Speaker 1: of irony, You're like, Fatspa's teen feathers are coming in.
Speaker 2: So she's just foughts ban I think so, I mean see.
Speaker 1: Thoughts, but like for purposes of this podcast, or do
Speaker 1: you call him that? Like to your parents and in the.
Speaker 2: Halls and walls of the Greifeld house, he is just bird.
Speaker 2: And also we're saying he as if he's a boy,
Speaker 2: but we don't know that.
Speaker 1: But this front of the show Lackman.
Speaker 2: Yeah, to the rest of the world, he's Fatspa front
Speaker 2: of the show Bill Lackman. But I haven't explained the
Speaker 2: joke to my parents.
Speaker 1: Yet, so we explained it to the bird quietly.
Speaker 2: I think I have said to him, your name is Bilackman,
Speaker 2: but I don't think he's internalized that that was the
Speaker 2: update though, that his teenage feathers are coming in.
Speaker 1: Good him.
Speaker 2: Yeah, it's super interesting. Hopefully I'm not the only one
Speaker 2: who thinks so. And Starling's are juveniles when they first
Speaker 2: grow their feathers, they're super brown. And kind of boring.
Speaker 2: But in the later stages of being a juvenile, he's
Speaker 2: still not an adult he or she, but they get
Speaker 2: this like interesting polka dot pattern on their chest and
Speaker 2: so it's growing in and patches the polka dots on
Speaker 2: his chest. Yeah, he's super cute.
Speaker 1: Yeah, so you'll know his gender because like they have
Speaker 1: different plumage on their adults.
Speaker 2: Yes, So hopefully in the next couple months we should
Speaker 2: know it'll be a gender reveal.
Speaker 1: Are you gonna have a bird gender reveal party?
Speaker 2: I think it's more he or she is throwing the
Speaker 2: party for us, and the party is just very solely
Speaker 2: overtime the feathers change.
Speaker 1: This is making me realize I have another question, which is,
Speaker 1: what will thoughts but romantic life be, like.
Speaker 2: You know, none or I think right now it's none.
Speaker 2: I would like to.
Speaker 1: I'm settled down at a nice lady bird of us.
Speaker 2: Yeah, exactly, you know, I don't know. I was thinking
Speaker 2: it would be nice for thoughts but to have a
Speaker 2: friend where my parents live in New Jersey. Unfortunately, it's
Speaker 2: not that uncommon to find stranded baby birds, so maybe
Speaker 2: that'll happen in the next few years.
Speaker 1: Right, I assume like there's no prospect of like visiting
Speaker 1: wild starlings chatting with thoughts like.
Speaker 2: Setting him up with a wild bird. I don't know.
Speaker 2: I don't know logistically how that would work. I don't
Speaker 2: think there are like any starling stud farms either.
Speaker 1: But hey, just run around the backyard right like indoor
Speaker 1: bird or I don't know if.
Speaker 2: He would come back, And I worry about him being
Speaker 2: able to feed himself. He is. Oh another update. I
Speaker 2: sort of got this one as interesting too. So I
Speaker 2: was talking about how he only wants to land on humans.
Speaker 2: So because he's in this largish half outdoor half indoor room,
Speaker 2: and he had been in the cage and then we
Speaker 2: would let him out for free flight, I made the
Speaker 2: executive decision, let's just have him out all the time.
Speaker 2: The cage doors are open. He can go in and
Speaker 2: out as he pleases, because there's a hose and a
Speaker 2: drain in the floor in that room, so we can
Speaker 2: just clean it down whenever we need to.
Speaker 1: With I need a like that.
Speaker 2: With the introduction of free flight, he is much more
Speaker 2: confident about perching on things other than humans.
Speaker 1: Yeah. Yeah, he's like flying around all day and needs.
Speaker 2: Sometimes That's there's not always a human in the room
Speaker 2: with him, So now he's more comfortable with the idea
Speaker 2: that other objects are suitable purchase.
Speaker 1: Hello, and welcome to the Money's Love Podcast, your podcast
Speaker 1: where you're talking about stuff related to money. I'm Matt
Speaker 1: Levine and I read the money Stopt column for Bloomberg Opinion.
Speaker 2: And I'm Katie Greifeld, a reporter for Bloomberg News and
Speaker 2: an anchor for Bloomberg Television.
Speaker 1: If that's he's going to be all burned updates, it's
Speaker 1: just gonna be Yeah, but he's going to get a.
Speaker 2: Microphone and he's just squawks. He does have different squawks
Speaker 2: for different things, Like you can tell when he's talking
Speaker 2: about atfs when you talk about ETFs, you know, or
Speaker 2: memes for that matter.
Speaker 1: Yeah, memes, memestocks are back.
Speaker 2: We're back in twenty twenty one, the helcyon days.
Speaker 1: I have to say, yeah, I'm not feeling it. Are
Speaker 1: there people feeling it? Am I just old? Like? Are
Speaker 1: the people on the internet like, oh yeah, this is
Speaker 1: just as good as it was in twenty twenty one.
Speaker 2: It kind of reminds me of Crypto, how Crypto had
Speaker 2: this resurgence and we're back at all time highs and
Speaker 2: then some and it just feels like way less people care.
Speaker 2: And it feels kind of that way with the meme
Speaker 2: frenzy that we're seeing right now.
Speaker 1: Crypto is weirder because Crypto has a lot of different
Speaker 1: like streams, like memestocks kind of have you know, one
Speaker 1: stream which is people on the internet doing memes. That's true,
Speaker 1: it just feels like less.
Speaker 2: Yeah, I don't know, Well, we've seen it before.
Speaker 1: You know, you've seen it before.
Speaker 2: It was novel the first time.
Speaker 1: Right, I mean, you know the point at memes Dice
Speaker 1: is like people are on the internet talking about them
Speaker 1: and then too they go up a lot, right, and
Speaker 1: you really need the going up a lot to make
Speaker 1: it that fun. And I feel like we're not quite there.
Speaker 1: I mean, the Novelty in twenty twenty one was so
Speaker 1: you know, like millions of people came to Wall Street
Speaker 1: Bets for the first time, like it was creating millions
Speaker 1: of accounts a day. Yeah, and that doesn't seem to
Speaker 1: be happening here because like everyone who was going to
Speaker 1: get into it get into it. I mean now that
Speaker 1: fully realized. The first time I knew it, but I
Speaker 1: didn't like fully internalize it. How much memes dogs are?
Speaker 1: Can I do with short squeezes? It's so important to
Speaker 1: every memestock thesis, like oh, the evil shorts are getting
Speaker 1: squeezed right, Like it's it's like such a central part
Speaker 1: of the story. And like one thing is that there
Speaker 1: were learnings from twenty twenty one hedge funds, like don't
Speaker 1: short a ton of crummy consumer focused stocks because you
Speaker 1: might get carried out. And so if all the shorts
Speaker 1: are like less short, then uh, you know, Bernhower was
Speaker 1: writing about this newsletter that the shorts are going to
Speaker 1: have smaller positions in this conference. So what that suggests
Speaker 1: is like one, it's easier to do a short squeeze,
Speaker 1: like you'll get kind of the meme stock pop because
Speaker 1: as soon as a stock starts meming, all the shortsellers
Speaker 1: are going to cover their positions. But then two, it's
Speaker 1: not going to be as long lasting or as big
Speaker 1: because they all just cover their positions immediately and there
Speaker 1: won't be like the games up there with like months
Speaker 1: where people were like, oh, it's going to be the
Speaker 1: mother of all short squeze is the shorts still haven't
Speaker 1: enforced that, and like that's just it's instantaneous now. Yeah.
Speaker 2: It still does though, seem like maybe it's not sophisticated
Speaker 2: hedge funds who are short in these stocks, like most
Speaker 2: of the ones that went crazy this week, or Real
Speaker 2: least Coals, which kind of led the meme frenzy this
Speaker 2: specific week. I think it's forty eight percent of its
Speaker 2: float was shorted. Yeah, I mean, well, I was thinking
Speaker 2: about that list that you asked chat gibt for or
Speaker 2: the chat GBT produced for you, and one of it was,
Speaker 2: you know, the company needs to be unloved or not appreciated.
Speaker 1: Yeah, right, So I asked chat gbt like it's the
Speaker 1: next caravan and it's the next hundred bagger, and it
Speaker 1: gave me this kind of memi answer. Yeah, it was
Speaker 1: like it needs to have a heavy short interest and
Speaker 1: be like unloved or underappreciated by the market. And that
Speaker 1: is kind of that's it.
Speaker 2: That's like it felt like that was the most important thing.
Speaker 1: Or it's a sense of resentment. You need to be
Speaker 1: like mad at you need to have.
Speaker 2: A chip on your shoulder. Yeah, so that goes hand
Speaker 2: in hand with the you know, heavy short interest that
Speaker 2: this is you're going to put them in the same line.
Speaker 1: Yeah. Yeah, it's like there's like technical reasons that everyone
Speaker 1: could hate US stock and it could not be heavily
Speaker 1: shorted because it's like really hard to borrow. But now
Speaker 1: in general, that's those are the same thing.
Speaker 2: Something that I appreciated though, about the fact that we're
Speaker 2: having this conversation in twenty twenty five was that it
Speaker 2: dispelled at least two myths that were part of the
Speaker 2: conversation in twenty twenty one. The first being that the
Speaker 2: activity that we saw back then was all fueled by
Speaker 2: stimulus checks, you know, the stimulus checks that the govern
Speaker 2: and had helicopter across everyone.
Speaker 1: Yeah, I know. That totally dispels that met I mean,
Speaker 1: like some of the stuff I've read about this meme
Speaker 1: stock thing is like there's been enough of a stock
Speaker 1: rally to create kind of a wealth effect, and like
Speaker 1: the snameuless checks are another form of that.
Speaker 2: But yeah, I agree, Like, yeah, that could have been
Speaker 2: true in any time. That's right, except for I guess
Speaker 2: twenty twenty two and everyone.
Speaker 1: But yeah, I mean, no, you're right, it's not the
Speaker 1: stimulus checks, and.
Speaker 2: The wealth effect I think has somewhat been eroded by inflation.
Speaker 2: The fact that Okay, stocks have gone up, but it
Speaker 2: so have the prices on everything else. I was in
Speaker 2: a grocery store and Hoboken and there were these like
Speaker 2: probably looking college kids and they were complaining about the
Speaker 2: price of like produce. I was like, that's so interesting,
Speaker 2: Like it's just so much in just everyday conversations that
Speaker 2: you stumble across people complaining about how expensive everything is.
Speaker 2: So I think the wealth effect is out there, but
Speaker 2: I think it's less so. The other myth that it
Speaker 2: dispelled was that the me mania was just a byproduct
Speaker 2: of zero interest rates. That is very much not the
Speaker 2: case right now.
Speaker 1: Yeah, that's fair, right. Another thing that you were just
Speaker 1: learning it was like, it's not an isolated phenomenon, right,
Speaker 1: It's not just like it has happened once and then
Speaker 1: people like learned from it. Like I think that what
Speaker 1: people learn from it is like it works, right, It's
Speaker 1: like a good game.
Speaker 2: It's a good game.
Speaker 1: Why not make a stock triple? And you know the
Speaker 1: course of a few days.
Speaker 2: Also, I know you explicitly said it's not investment advice,
Speaker 2: but I know that so many people after reading your
Speaker 2: column must have for fun, gone to chat GBT and
Speaker 2: asked what the next carbon is?
Speaker 1: Yeah, I mean, like right, I wrote, like a reader
Speaker 1: emailed me to be like I aske chat GPT and
Speaker 1: that carbon I was, and it told me open Door,
Speaker 1: So I bought open Door and look at me right.
Speaker 1: And I don't get the sense that what has happened
Speaker 1: in the last week or two is mainly or like
Speaker 1: largely AI driven, Yeah, but it does feel like in
Speaker 1: twenty twenty one there was this like coordination mechanism where
Speaker 1: people who wanted to buy Mimi stocks and like have
Speaker 1: stocks that go up a lot, like would go to
Speaker 1: you know, social media, so they'd Reddit mostly right Wall
Speaker 1: Street paths, and they'd like meet their friends there and
Speaker 1: their friends would talk about what stocks would go up,
Speaker 1: and they'd all kind of like coordinate around the stocks
Speaker 1: that they wanted to go up. And like, in some
Speaker 1: ways it feels like AI, which is like trained on Reddit,
Speaker 1: you know, has like found a way to abstract that
Speaker 1: where now, if you want to find the next to
Speaker 1: Mimi stock that will go up a lot, your instinct
Speaker 1: might not be to go to Reddit and ask the
Speaker 1: people there. Your instinct might be to go to chat
Speaker 1: chapt and ask chat chapt and chat GPT might tell you, right,
Speaker 1: it might tell you something that's kind of similar to
Speaker 1: a reddit or would tell you I think that's an interesting,
Speaker 1: like new vector for meme stocks to happen. And yeah,
Speaker 1: it's like you don't need anyone else on Reddit pumping
Speaker 1: the stock because like our AI tools have now been
Speaker 1: trained on that kind of meme stock, thinking.
Speaker 2: Yeah, I hadn't heard the idea that lllm's are just
Speaker 2: a blurry jpeg of the Internet.
Speaker 1: That's a ten Chang's headline that I love that.
Speaker 2: I love that I hadn't read that piece. I will say,
Speaker 2: reading your music's on that just made me more existentially
Speaker 2: worried about humanity because I don't think that people should
Speaker 2: be taking advice from Reddit or the blurry sess thing
Speaker 2: that's produced Reddit, right.
Speaker 1: I mean Alex balk used to say the first rule
Speaker 1: of the Internet is the things you hate about the
Speaker 1: Internet or the things you hate about people. When you
Speaker 1: say people shouldn't be taking advice from Reddit, you're saying
Speaker 1: people shouldn't be taking advice from people like AI is
Speaker 1: a distillation of Yes, the wisdom and the foibles of
Speaker 1: people right of the masses, Yeah, of something of some
Speaker 1: subset of people. Yeah, the people who are on Reddit,
Speaker 1: not only but also them. Yeah. Right, Like used to
Speaker 1: write this, Like if you had asked someone one hundred
Speaker 1: years ago what stocks should I buy? Or like how
Speaker 1: do stocks go up? They probably have said something like
Speaker 1: stock go up because a lot of people want to
Speaker 1: buy them. It's like fairly straightforward. I think if you
Speaker 1: ask people fifty years ago what stocks will go up,
Speaker 1: they would say things like stocks reflect the expected value
Speaker 1: of future cash flows and true stocks that will go
Speaker 1: up are the ones that have good businesses that are
Speaker 1: undervalued by the market or something right.
Speaker 2: Makes sense, And I think if you asked.
Speaker 1: Today, the answer is the stocks that people want to
Speaker 1: buy are the ones that go up. Right. Yeah, there's
Speaker 1: this like pseudo science of investing based on fundamental analysis
Speaker 1: that kind of ruled for fifty for you know, seventy
Speaker 1: five years, and that now like has received a little
Speaker 1: bit and been replaced by ah, whatever people want to do,
Speaker 1: what they're going to do, right, And like, in some
Speaker 1: ways we've had like new technologies to distill and like
Speaker 1: amplify whatever people want to do they're going to do,
Speaker 1: and those technologies include the Internet and now AI. But
Speaker 1: like In some ways it's frustrating because things don't have reasons,
Speaker 1: but in other ways it's like that's how it should be.
Speaker 1: It's just like investing is an empirical science. Like if
Speaker 1: the stocks go up, it's because the stocks went up.
Speaker 1: There's not like some axiomatic that will tell you why
Speaker 1: thyes will go up. It's like you have to sort
Speaker 1: of know what people are thinking.
Speaker 2: I do kind of love that. Every time this happens.
Speaker 2: You know, there's a set of serious people who have
Speaker 2: to engage with it and like try.
Speaker 1: To Am I one of them? Not really, No, No,
Speaker 1: I'm talking more about like I lost my mind the
Speaker 1: last night that happened, but now I have like zen.
Speaker 2: I'm talking about more about like cell side sure, and
Speaker 2: like you know, single.
Speaker 1: Stock anlysts, you really like live in an ecosystem of
Speaker 1: like stocks reflect the present value of their future cash.
Speaker 2: Yeah, that's your bible. Yeah, your whole job is predicated
Speaker 2: on that.
Speaker 1: You have like a little fundamental model.
Speaker 2: It's really right, It's precious. There was a note from
Speaker 2: Barclay's talking about how to engage with it. They said
Speaker 2: that one way you can hedge is like through a
Speaker 2: dispersion trade of sorts, in this case, using options to
Speaker 2: bet on a basket of meme stocks that will continue
Speaker 2: to be far more vital than the s and P
Speaker 2: five hundred. Those wanting to take a more directional bet
Speaker 2: on the frothiest company they can buy puts that would
Speaker 2: benefit if he shares reverse course, which I don't know.
Speaker 2: I just feel like the safest thing that anyone could
Speaker 2: do is just not short.
Speaker 1: Things, right, I mean, like, I think the idea of
Speaker 1: buying putsas like you capped your Yes, you could lose
Speaker 1: that much money, but no more.
Speaker 2: Your losses aren't infinite.
Speaker 1: Right, It's the safest way to short meme stacks. But no,
Speaker 1: I agree with you, Like I would not personally wake
Speaker 1: up and see a memestack mania and be like, oh
Speaker 1: I gotta betty ends these. That's on that good use
Speaker 1: of my time. But I'm not a professional investor and
Speaker 1: I'm not a research channelist or.
Speaker 2: Even before you get to that point, you know, if
Speaker 2: you don't want to get your face ripped off on
Speaker 2: a company that you were shorting, maybe just don't short it, right, Yeah,
Speaker 2: no investment advice.
Speaker 1: No, I wouldn't. But I you know some people, some
Speaker 1: people you know their job is to make correct market calls,
Speaker 1: and other people their job and I symbolize with the
Speaker 1: research channeists, because other people their job is to create
Speaker 1: relevant markets related content. And when there's a memestock behavior,
Speaker 1: you're like, well, what memestock content am I going to produce?
Speaker 1: And I know that I know that difficulty. Well, sympathize
Speaker 1: with anyone else who has to create memes like related content.
Speaker 2: I want everyone to know that this was your idea.
Speaker 1: I know. I keep pushing ETFs, I know, and I
Speaker 1: keep sayings, I.
Speaker 2: Don't know if anyone wants to listen to it. This
Speaker 2: was Matt's idea.
Speaker 1: I love these ETFs.
Speaker 2: Yeah, three five three five one ETFs three fifty one's yeah.
Speaker 1: So one way to understand exchange traded funds is that
Speaker 1: they're exchange traded funds and they have nice like liquidity properties.
Speaker 1: But the real way to understand ETFs is that they
Speaker 1: are tages. Yes, and in particular, I learned that if
Speaker 1: you buy a mutual fund like you annually pay capital
Speaker 1: gains taxes on like the funds trading activity as whereas
Speaker 1: if you buy an ETF you do not. Because ets
Speaker 1: have found a way to make all of their trading
Speaker 1: both the meet redemptions and to like change their positions.
Speaker 1: They found a way to make all of their trading
Speaker 1: not a tax realization event. And this involves like in
Speaker 1: kind creations and redemptions. That involves like doing big heartbeat
Speaker 1: trades with like authorized participants. It's a whole ecosystem. But
Speaker 1: the way it works is the result of it is
Speaker 1: that you don't pay taxes.
Speaker 2: Well, you get to decide one you want to take
Speaker 2: the tax hit.
Speaker 1: Yeah, if you buy an ETF, this is not one
Speaker 1: hundred percent try, but this is you know, largely true direction.
Speaker 1: If you buy an ETF, you do not pay any
Speaker 1: taxes until you sell the ETF, which is not true
Speaker 1: of mutual funds. Are mutual funds you pay tax every
Speaker 1: year and the older forever. But with an ETF, you
Speaker 1: don't pay taxes until you sell the ETF shares and
Speaker 1: then gets wrapped up in the ecosystem of like you
Speaker 1: buy an asset, you defer taxes forever. You bar against
Speaker 1: the asset if you need to. Eventually you die, your
Speaker 1: airs get stepped out basis and like no one ever
Speaker 1: pays the tax, but at least you defer the tax.
Speaker 1: So even if you saw you might have to. If
Speaker 1: you sell the thing, eventually you pay taxes, and so
Speaker 1: that's really good. And it's like, you know, if you
Speaker 1: own like an S and P five hundred ETF, it's
Speaker 1: a little bit more tax efficient than if you own
Speaker 1: an SMP five hundred mutual fund because they're trading your
Speaker 1: redemptions whatever. But like, like whatever, it's not a huge
Speaker 1: impact on your life to pay those capital in sizes.
Speaker 1: Where it's really interesting is if you can use that
Speaker 1: to wrap other stuff. And so I think and so
Speaker 1: we're talking about like the Bloomberg's just teamed to lead
Speaker 1: you write a big article about these these three but
Speaker 1: like directionally, the idea is you worked at like a
Speaker 1: tech company, you got a lot of stock early on,
Speaker 1: and so your stock has a basis of roughly zero
Speaker 1: and it's now worth roughly one hundred million dollars. Does
Speaker 1: seem like some of these trades are for like one
Speaker 1: hundred million dollars, And so you have a lot of
Speaker 1: the stock and if you sell it, you'll have tens
Speaker 1: of billions of dollars with capital against taxes. And what
Speaker 1: you do is someone comes to you and like I
Speaker 1: will build an ETF for you, and you PLoP your
Speaker 1: stock into the CTF that it is custom built for you,
Speaker 1: and then the ETF does trades to get of that
Speaker 1: stock and replace it with like, you know, the S
Speaker 1: and P five hundred, and then you are left with
Speaker 1: S and P five hundred and you don't pay any
Speaker 1: taxes deferred taxes. You have zero basis in the S
Speaker 1: and P five hundred, but you've deferred taxes. You've sold
Speaker 1: out of your giant concentrated position in your employer stock
Speaker 1: and replaced it with like a nice diversified index fund
Speaker 1: without paying taxes, which is a really neat trick. Yes,
Speaker 1: I'm like oversimplifying. There's actually like rules about the original
Speaker 1: contribution has to be kind of diversified, so you can't
Speaker 1: just literally PLoP all of your employers stock and nothing
Speaker 1: else into it. But you can do it.
Speaker 2: We've talked about swap funds on this.
Speaker 1: This is like a better swap fund. You don't need
Speaker 1: other people, you just do it with your stuff. Historically,
Speaker 1: a swap fund was like ten people get together and
Speaker 1: they PLoP their stock in and then.
Speaker 2: Like I don't know, ten people.
Speaker 1: Firstified pool of like each other stocks. This is like
Speaker 1: we just boot boom. You're into the S and P
Speaker 1: five hundred so much clean. It is like a swap fund.
Speaker 1: It's a similar idea.
Speaker 2: So this kind of blows.
Speaker 1: INTF form because you get the ability to diversify by
Speaker 1: doing heart beats. In the article, someone calls it a
Speaker 1: black hole for capital gain size perfect.
Speaker 2: It's like descriptions.
Speaker 1: It's just it's just like a solution. You don't have
Speaker 1: to it's legal. It's legal.
Speaker 2: Sure, it's legal, and I want to. I think it
Speaker 2: was a lawyer that Justina interviewed for the piece who
Speaker 2: said that he's worked on hundreds of these or something
Speaker 2: of that magnitude, right, and like.
Speaker 1: It's hundreds, it's not millions. Yeah, because like you need
Speaker 1: a certain amount of money to make this work. This
Speaker 1: is not free. You need some advisor. Do you need
Speaker 1: an ETF issuer to do a white label ETF for you?
Speaker 1: So it's expensive. If you have one hundred million dollars
Speaker 1: of zero basis stock in your employer, like it's worth
Speaker 1: it because you're saving twenty million dollars with capital inside.
Speaker 1: If you have like you know, you bought some Tesla
Speaker 1: a few years ago and now you have a million
Speaker 1: dollar Tesla position with like a basis of like five
Speaker 1: hundred thousand dollars, you're probably not going to do this.
Speaker 1: But one thing that I have talked about on this.
Speaker 2: Podcast is I think have I also talked about it.
Speaker 1: We've talked about it, right, I have like advocated that
Speaker 1: like eventually everything will be an eaty, Like everything, every
Speaker 1: product will be etfized, and like one thing that means
Speaker 1: is like there will be automation and costs will come
Speaker 1: down so that if you're just like I want to
Speaker 1: do an ETF of this thing, like you'll push a
Speaker 1: button and it'll charge you like ninety five dollars and
Speaker 1: you'll get the ATF. And like when that happens, no
Speaker 1: one will have to pay capital gains taxes on their
Speaker 1: stock because everyone will be able to do this.
Speaker 2: And then we'll find out some way that this is illegal,
Speaker 2: Like it'll become.
Speaker 1: One will be like, well we should stop that. It's
Speaker 1: not like obviously this should work, right, I mean yeah,
Speaker 1: So the trade that they do is called a heartbeat, right,
Speaker 1: Like the idea is that you're an ETF, you want
Speaker 1: some concentrated stock, you don't pay taxes on in kind
Speaker 1: creations and redemptions. So if someone brings you a basket
Speaker 1: of your stock, if they bring you a basket of
Speaker 1: the underlying shares and you give them ETF shares, that's
Speaker 1: not a taxable transaction or vice versa. And so what
Speaker 1: they do is they have special baskets where basically, you know,
Speaker 1: a Jane Street or a bank or somebody will go
Speaker 1: to an ETF. They'll bring in the stuff the ETF wants.
Speaker 1: They'll give them the S and P. Five hundred, they'll
Speaker 1: get back ETF shares. They'll wait like a day, and
Speaker 1: then the next day they'll hand back the ETF shares
Speaker 1: and take out whatever the ETF doesn't want. So it's like,
Speaker 1: these are not taxable transactions. Yeah, but they're weird transactions.
Speaker 1: They're not in the full underlying basket of the ETF.
Speaker 1: They're in like the specific stuff that ETF does he
Speaker 1: doesn't want, And they're not done because the counterparty wants
Speaker 1: to be an investor in the ETF. They're done because
Speaker 1: you know, the ETF is a just thing. It's training.
Speaker 1: I first learned about this in twenty nineteen when Bloomberg
Speaker 1: had a big article about heart beats and.
Speaker 2: A seminal piece or a.
Speaker 1: Seminal piece, and they were sort of like this really
Speaker 1: be legal, and you know, my view was like, sure
Speaker 1: it should be legal. ETFs doesn't pay taxes. But now
Speaker 1: it's like people have like learned from this mechanism that
Speaker 1: they can just get rid of all taxes. And then
Speaker 1: it's like, yeah, you know, someone might look at this
Speaker 1: and say, hey, we should close that loophole.
Speaker 2: That's the thing, Like the notion of a heartbeat is
Speaker 2: pretty well socialized at this point, but like these individualized
Speaker 2: heartbeat ETFs. The fact that these ETFs only exist to
Speaker 2: do this because you see heartbeat trades once a quarter
Speaker 2: in some of the biggest CTFs out.
Speaker 1: There, right because they're index funds. The index changes, and
Speaker 1: so they have to get rid of some stocks and
Speaker 1: get those talks and like you heartbeat that away so
Speaker 1: you don't pay taxes. It's not obvious that ETF holders
Speaker 1: shouldn't have to pay taxes on their index rebalancing, but
Speaker 1: like everyone's fine with that.
Speaker 2: It's fine, Yeah, this is this is this is the
Speaker 2: only purpose of the CTF.
Speaker 1: I mean, who can say with the only bet who
Speaker 1: can say?
Speaker 2: But so this leading anecdote that just you know, opened
Speaker 2: with was talking about the Twin Oak Active Opportunities ETF
Speaker 2: and and the thing about ETF, So this one has
Speaker 2: nearly four hundred and fifty million dollars in assets that
Speaker 2: could theoretically be all one person.
Speaker 1: It could My impression was that it was like a
Speaker 1: bunch of like SMP and stuff. But then it was
Speaker 1: like three sort of nearly one hundred million dollar positions
Speaker 1: and like three text talks, which no, say, day a
Speaker 1: dog suggests it was roughly three people who like this
Speaker 1: is pure speculation, but like it could have been three
Speaker 1: people who were really employees at those companies or were
Speaker 1: like granture capital investors in those companies and who have
Speaker 1: like very low basis thok in those companies.
Speaker 2: Well, theoretically, if they are still holding onto the CTF
Speaker 2: and invested in the CTF in some way and they're
Speaker 2: big enough, we should be able in like forty five
Speaker 2: days or something to see who they are sure, which
Speaker 2: is interesting to me. So you lose yes early the.
Speaker 1: Judge of that it does you don't know, right, I
Speaker 1: don't know worked at a company.
Speaker 2: You use the anonymity that you would get in the
Speaker 2: traditional swap funds.
Speaker 1: Yeah. The other thing that was interesting. The article is
Speaker 1: like you lose that and you're even in a more regulated,
Speaker 1: more public vehicle. One thing about it is in the
Speaker 1: ETF trades on the exchange, so anyone can buy it.
Speaker 1: Next to the other thing, no one would. They don't
Speaker 1: market it, and like it's not even clear that anyone
Speaker 1: could because you might own all of it and just
Speaker 1: not sell it. But but like you know, but they can.
Speaker 1: They can buy from authelized participants. Like in theory someone
Speaker 1: could buy the ETF. Well, and so you have like
Speaker 1: these weird obligations where you have like fiducial duties to
Speaker 1: run the ETF in the right way.
Speaker 2: Well, going back to the name, the twin Oak Active
Speaker 2: Opportunities ETF, which builds itself, is seeking long term capital appreciation.
Speaker 2: I could be poking around at my brokerage account somehow
Speaker 2: come across that and be like, yeah, you could click buy.
Speaker 2: I want to see capital appreciate. That sounds good. So
Speaker 2: that's cool too, right.
Speaker 1: It's a like weird family office trade that in theory
Speaker 1: anyone could free ride on. But like the whole juice
Speaker 1: in the trade is in the first like three days,
Speaker 1: so you're not like getting the a super exciting product
Speaker 1: if you just buy it on the exchange, because like
Speaker 1: the whole point of it was to say with the
Speaker 1: people taxes.
Speaker 2: Sometimes I wonder slash worry about what's going to happen
Speaker 2: to the ETF industry. As a reporter, I don't have
Speaker 2: any feelings, but it feels like every ETF. I track
Speaker 2: ETF filings very closely, but every ETF filing nowadays is
Speaker 2: like triple leverage quantum computing stock with an income strategy overlay.
Speaker 2: It's just crazy. It's like all of this like spaghetti
Speaker 2: sauce that's being thrown at the wall, and then maybe
Speaker 2: these will become more popular, and then what does the
Speaker 2: industry turn into. I don't know.
Speaker 1: It's just like it turns into everything. It's it's so
Speaker 1: I've written about like tokenization mm hmm, and I think
Speaker 1: it like tokenization of securities is being largely like people
Speaker 1: trying to find sneaky rays around securities laws and like
Speaker 1: pretend that it's about technology. But someone asks you, like
Speaker 1: what do you think is like the good case? Like
Speaker 1: where are like useful things that can be done with
Speaker 1: the organization? And I look at this stuff and I'm like,
Speaker 1: this is gonna be token. Like this is like a
Speaker 1: whole product set that will be turned into APIs that
Speaker 1: will be turned into like, if you want et F,
Speaker 1: there will be like a series of buttons you can
Speaker 1: push and the ETF will come out and will be
Speaker 1: like exactly the et F you want, and it will
Speaker 1: just exist as an ETF. And you want to have
Speaker 1: to like sit at a meeting with a wealth manager
Speaker 1: or like go to a white label ETF firm, you'll
Speaker 1: just like the computer will give you the ETF that
Speaker 1: you want, and it will heartbeat away whatever you don't want.
Speaker 2: I feel like that is change traded everything, yea, not
Speaker 2: just funds.
Speaker 1: Any portfolio, any trade, any like combination of wins.
Speaker 2: Yeah, any desire that I might feel.
Speaker 1: About to hold. Yeah, yeah, any desire.
Speaker 2: Well we have to talk about Invesco.
Speaker 1: Yes, that's your idea, okay.
Speaker 2: Also in ETF land. This one actually was my idea.
Speaker 2: But really interesting filing last week. I should stop saying interesting.
Speaker 2: Let me just state of fact. There was a filing
Speaker 2: last week from Invesco. Here's something that not a lot
Speaker 2: of people know or care about.
Speaker 1: I mean to step out of the room. You have fun.
Speaker 2: The queues. The queues it's an ETF the tracks the
Speaker 2: NASAQ one hundred, so it's pretty big, pretty huge, three
Speaker 2: hundred and fifty three hundred and sixty billion dollars depending
Speaker 2: on the day. Started in the nineties, really from the
Speaker 2: dawn of the ETF, one of the oldest still existing ETFs.
Speaker 2: It's actually a unit investment trust. And that's interesting. My
Speaker 2: mind is blown because Invesco doesn't make any money off
Speaker 2: of the queues. The way that the fee breakdown as
Speaker 2: it stands right now, they charge twenty basis points. A
Speaker 2: bunch goes to Nasdaq, from which they license the index.
Speaker 2: A bunch goes to B and Y because they're the trustee.
Speaker 2: That does leave some for Invesco. But it is written
Speaker 2: into the que's prospectus that Invesco has to spend that
Speaker 2: on marketing, which is why the cues are like the
Speaker 2: official ETF of the NCAA and why every big marketing exactly.
Speaker 2: But it's an enormous marketing budget. But I wrote about
Speaker 2: this in August twenty twenty three because it's one of
Speaker 2: my favorite quirks in just the investing landscape that the
Speaker 2: queues are the most profitable ETF because you're charging twenty
Speaker 2: basis points on three hundred and fifty billion dollars of
Speaker 2: assets that spins off over seven hundred million dollars of
Speaker 2: fee revenue a year and investco. It's just this piggy
Speaker 2: bank that they can't break. But they're now trying to
Speaker 2: convert the cues into an open ended ETF from a
Speaker 2: unit investment trust. But to do that, they need shareholders
Speaker 2: to approve it. They need holders of the cues to
Speaker 2: approve it, which is a gargantuan task because they need
Speaker 2: fifty percent quorum on this vote, and there's tens of
Speaker 2: thousands of queues holders at this point. So it's like
Speaker 2: the ultimate exercise in herding cats. And I'm really fascinated
Speaker 2: to see how this goes.
Speaker 1: Well, let me ask you this question. Can they use
Speaker 1: their enormous marketing budget to like send personal mailings to
Speaker 1: eat shareholder and like I don't think sor and like
Speaker 1: please vote?
Speaker 2: I don't think so it's marketing. I mean, in a sense,
Speaker 2: it's not just like marketing the product to buy the product, though,
Speaker 2: it's like trying to rally shareholders for this specific purpose.
Speaker 1: Please buy cues to vote to change it into an ETF.
Speaker 2: Well, they are offering a carrot of sorts. They will
Speaker 2: lower the fee to eighteen basis points.
Speaker 1: Eighteen basis points for an index ETF seems still high,
Speaker 1: stordinarily high.
Speaker 2: It is very high. You're right about that, But I
Speaker 2: mean a lot of these holders are locked in. They've
Speaker 2: been holding this forever and they don't want to take
Speaker 2: the capital gains head. But if they are able to
Speaker 2: convert it, they'll theoretically be able to change the revenue breakdown.
Speaker 2: So even by lowering the feet, they're still making so
Speaker 2: much more money than they were before.
Speaker 1: They won't have to pay NASDAC.
Speaker 2: And So, because it's a natural question posed by my editors,
Speaker 2: who loses out here? And it seems like who loses
Speaker 2: out are the advertisers?
Speaker 1: You mean the recipient of the advertising?
Speaker 2: Yes, exactly. So the thinking seems to be that Nasdaq
Speaker 2: will still get their eight basis points. There are eight
Speaker 2: basis points of flesh.
Speaker 1: Bony for an index, because like you get, I believe.
Speaker 2: It's exclusive though, like I don't think anyone, Yeah, I know, yeah.
Speaker 1: Okay, that makes sense.
Speaker 2: So NASAK will still get paid a licensing fee, which
Speaker 2: is pretty hefty. VONI will have some sort of role
Speaker 2: not trustee. I believe that Invesco is asking shareholders to
Speaker 2: improve Investco to be the trustee as well. Bloomberg Intelligence
Speaker 2: estimates that right now Invesco spends eight basis points on marketing,
Speaker 2: which is so much money. Invesco estimates that'll be reduced
Speaker 2: to two to three two to three basis points to start,
Speaker 2: which translates into something like one hundred and fifty million
Speaker 2: dollars in annual revenue that Investco would unlock with pretty
Speaker 2: much no incremental spend to get it right. So you've
Speaker 2: seen Investco shares go absolutely bananas. I mean, it still
Speaker 2: needs to be approved. The vote is on October twenty fourth,
Speaker 2: and it's just going to be so hard to get
Speaker 2: all those people.
Speaker 1: Any I love the difficulty of getting redown investors to
Speaker 1: it or anything like it comes up occasionally in corporate Yeah,
Speaker 1: and although not that much because corporates usually have mostly
Speaker 1: institutional shareholders unless when their means ducks. But yeah, intf Land,
Speaker 1: it seems hard.
Speaker 2: It does seem hard. I think that's interesting. I hope
Speaker 2: that listeners agree, and please tell me if you don't.
Speaker 2: The other part of the story that I'll tell you
Speaker 2: about the only other unit investment trust of really meaningful
Speaker 2: size out there is Spy Sure, which is also from
Speaker 2: the nineties, born in nineteen ninety three, such as myself sure, and.
Speaker 1: Also famously has there's like some other children born around
Speaker 1: that time. Whoever in the.
Speaker 2: Perspectus, yeah, exactly, like all of these really old ETFs
Speaker 2: have these funky perspectuses.
Speaker 1: Yeah, they really against perpetuity problems, where like, yeah, their
Speaker 1: trusts and so they can't last past, you know, seventy
Speaker 1: five years past the life of some living person, and
Speaker 1: so they name a bunch of babies as like their
Speaker 1: reference lives for their early against perpetuities.
Speaker 2: If you ever really bored, it's worth poking around in
Speaker 2: the perspectus of ETFs that were born in the nineties.
Speaker 1: I have I hope you going to say I've never
Speaker 1: been that word. I'm pretty sure I've looked at the
Speaker 1: spy perspective, so might I have been that word?
Speaker 2: I asked an Apaglia of State Street Investment Management on
Speaker 2: Monday whether or not State Street was going to try
Speaker 2: something similar with Spy, and she said that filing to
Speaker 2: us is interesting, we are going to learn from it.
Speaker 2: And I never say never. Do you know if we
Speaker 2: learn something that we like from this proxy, we will
Speaker 2: think about it, which I heard as if Invesco is
Speaker 2: able to pull this off, maybe we'll do it with SPY.
Speaker 1: The spy have the same economic structure. Yes, eonomic money
Speaker 1: from spy.
Speaker 2: So some money stays in the door because State Street
Speaker 2: is currently the trustee on SPY, but they also have
Speaker 2: to spend a boatload of money on marketing as mandated
Speaker 2: by the perspectives.
Speaker 1: Okay, what's the charge for a spy?
Speaker 2: I think spy has nine basis points? I know, Well,
Speaker 2: they can't lower it that much because they have to
Speaker 2: give money to their index. They have to give money
Speaker 2: to the trustee, which is them, and then they have
Speaker 2: to spend money on marketing with the index.
Speaker 1: Like I'm aware of SMP funds that charge.
Speaker 2: That's true too, or your bass.
Speaker 1: Yeah, the index can't be that expensive.
Speaker 2: Definitely less so when it comes to the S and
Speaker 2: P five hundred. Sorry for all the ETF talk, but
Speaker 2: half of it was Matt's idea. The other half that
Speaker 2: was all me.
Speaker 1: Please write in and let us know, Please, Darren, No, I.
Speaker 2: Always want to hear I read it. I read every comment,
Speaker 2: so keep them coming. Please don't hurt my feelings.
Speaker 1: Go ahead and hurt badlines. And that was the Money
Speaker 1: Stuff Podcast.
Speaker 2: I'm Matt Leuvian and I'm Katie Greifeld.
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