WEBVTT - Technically a Horse: ETF, ETF, ETF 0:00:03.160 --> 0:00:08.320 Bloomberg Audio Studios, Podcasts, Radio News. 0:00:10.480 --> 0:00:13.800 Hello and welcome to the Money Stuff Podcast, your weekly 0:00:13.840 --> 0:00:18.080 podcast where we talk about stuff related to money. I'm 0:00:18.079 --> 0:00:19.960 Matt Levine and I write the Money Stuff column for 0:00:20.000 --> 0:00:20.800 Bloomberg Opinion. 0:00:21.560 --> 0:00:24.520 And I'm Katie Greifeld, a reporter for Bloomberg News and 0:00:24.560 --> 0:00:26.200 an anchor for Bloomberg Television. 0:00:27.120 --> 0:00:29.400 And he were talking about just one topic today. 0:00:29.600 --> 0:00:29.760 Yeah. 0:00:29.840 --> 0:00:32.760 That topic is you showed a horse this week. 0:00:34.360 --> 0:00:38.720 I was gonna say ets, but yeah, okay, so yeah 0:00:38.720 --> 0:00:41.640 I did. I rode my horse this weekend. His name 0:00:41.760 --> 0:00:46.159 is Gus. He's about fifteen hands. For the equestrians in 0:00:46.200 --> 0:00:50.040 the audience, which is all of the audience after listening 0:00:50.080 --> 0:00:55.600 to the Money Stuff podcast, it's a good sized size, 0:00:55.720 --> 0:00:59.720 mine size. So he is technically a horse. The only 0:01:00.120 --> 0:01:04.240 to listen to me. Listen to me. A dividing line 0:01:04.280 --> 0:01:05.000 between a horse. 0:01:05.760 --> 0:01:07.880 See think he's a person. 0:01:07.880 --> 0:01:10.319 No, no, no, he does have a personality. But the 0:01:10.360 --> 0:01:12.839 dividing line between a horse and a pony is just tight. 0:01:12.920 --> 0:01:15.840 Some people think it's age. No, it's just tight. So 0:01:16.040 --> 0:01:18.679 he for a while because I got him before he 0:01:18.760 --> 0:01:21.080 turned three, like a couple months before he turned three, 0:01:21.080 --> 0:01:23.120 so he was still a baby and still growing. For 0:01:23.160 --> 0:01:25.520 a while, I had a large pony, but he has 0:01:25.920 --> 0:01:28.279 grown to the point where he is now technically a horse, 0:01:28.600 --> 0:01:30.280 which we're very thrilled for him for. 0:01:30.959 --> 0:01:35.480 So you are, on occasion a competitive I. 0:01:36.840 --> 0:01:40.160 Am so I ride dressage. There's a thing called the 0:01:40.280 --> 0:01:45.240 United States Dressage Federation. On my older pony, whose name 0:01:45.319 --> 0:01:48.960 is Batman. I've had him since I was twelve. Batman 0:01:49.120 --> 0:01:51.720 is a pony. Batman is a large pony, small horse, 0:01:51.920 --> 0:01:54.120 but the line is fuzzier there because he's he's like 0:01:54.160 --> 0:01:57.080 fourteen two hands for the equestrians in the audience. I 0:01:57.120 --> 0:01:59.240 got up pretty high in the levels with Batman. We 0:01:59.280 --> 0:02:04.120 got up to third life. It goes training. Let me 0:02:04.120 --> 0:02:05.760 tell you about it. Okay, we can cut all of 0:02:05.760 --> 0:02:08.480 this if it's boring. Oh no, So when you when 0:02:08.480 --> 0:02:12.400 you showed your sage in the United States, there's intro level, 0:02:12.480 --> 0:02:16.200 there's training level first, second, third, fourth, then you get 0:02:16.240 --> 0:02:18.919 into like Grand Prix and stuff like that. 0:02:19.200 --> 0:02:24.560 I wish that the audience see demonstrating what Prix looks like. 0:02:24.760 --> 0:02:27.239 I tried to like embody the horse doing Grand Prix. 0:02:27.560 --> 0:02:29.320 So with Batman, we got up to third level and 0:02:29.320 --> 0:02:32.440 we did pretty good. Gus is just starting out. This 0:02:32.639 --> 0:02:36.040 was his second show ever. We showed training level. He 0:02:36.120 --> 0:02:38.639 did a great job. I will say I was so 0:02:38.720 --> 0:02:39.320 proud of him. 0:02:39.560 --> 0:02:42.560 From Instagram, I got the impression that you and Gus 0:02:43.840 --> 0:02:44.760 one we. 0:02:44.639 --> 0:02:49.000 Want a blue ribbon. But for context, we're showing training level. 0:02:49.280 --> 0:02:51.480 Like I'm a pretty good rider at this point, so 0:02:51.520 --> 0:02:54.960 it's like pretty easy and the classes were super small. 0:02:55.320 --> 0:02:57.640 I actually posted that on my close friend's story. 0:02:57.720 --> 0:02:58.440 Oh no, I'm. 0:03:00.080 --> 0:03:02.640 It's totally fine because it felt a little bit embarrassing 0:03:02.840 --> 0:03:06.200 because it was such a small class and it's training level. 0:03:06.280 --> 0:03:10.120 But Gus did a great job. Yeah, he got a 0:03:10.160 --> 0:03:12.960 little bit scared. The wind was blowing in a way 0:03:13.000 --> 0:03:15.160 he didn't like, but you know, he was really brave 0:03:15.200 --> 0:03:20.280 about it. So hats off to Gus. It really is 0:03:21.200 --> 0:03:25.600 you have to understand horses are flight animals. They don't fight, 0:03:26.200 --> 0:03:30.760 and the horse ancestors who survived were the really scared 0:03:30.800 --> 0:03:34.720 ones who started running at the first sign of danger. 0:03:34.840 --> 0:03:37.520 So I mean it's written in their ancestral coat to 0:03:37.560 --> 0:03:38.440 be scared of things. 0:03:38.720 --> 0:03:40.520 Like there's a nice metaphor there or something. 0:03:43.120 --> 0:03:46.280 So that transitions nicely to what we're talking about today. 0:03:46.680 --> 0:03:50.640 Sadly, we're actually talking about it. Yeah, yeah, your favorite topic. 0:03:50.880 --> 0:03:53.000 You know, you would think I would be more excited 0:03:53.240 --> 0:03:56.480 about what we're doing today. I wouldn't think that we're 0:03:56.520 --> 0:03:59.080 talking about some pretty nitty gritty stuff when it comes 0:03:59.080 --> 0:04:00.280 to ETFs at the top. 0:04:00.400 --> 0:04:02.520 No, we're talking about I don't know. I guess we're talking. 0:04:02.400 --> 0:04:05.560 About well, we're talking about taxes and how to dodge them. 0:04:05.640 --> 0:04:06.160 Yeah. 0:04:06.240 --> 0:04:12.120 Yeah, we're also talking about derivatives enhanced exchange traded funds, 0:04:12.280 --> 0:04:15.280 which re chilled traders love because they're being hawked them 0:04:15.360 --> 0:04:18.400 on YouTube. And then we're gonna talk about Jamee Street. 0:04:18.480 --> 0:04:20.040 You we're gonna start by dying on Jane Street. 0:04:20.120 --> 0:04:26.200 Let's start with James Straw. I forget how you described it. 0:04:26.760 --> 0:04:27.839 They're like vampire. 0:04:28.320 --> 0:04:32.160 No, no, They're like these this secretive market maker that 0:04:32.520 --> 0:04:34.480 we read about all the time. 0:04:34.600 --> 0:04:37.200 I do feel like Jane Street sort of went from 0:04:37.520 --> 0:04:40.680 nothing to extreme prominence, and like the course of my 0:04:40.960 --> 0:04:43.560 being aware of financial markets, and like there was a 0:04:43.600 --> 0:04:47.040 point where they were truly under the radar, nobody had 0:04:47.080 --> 0:04:50.440 heard of them thing and now there are several chapters 0:04:50.480 --> 0:04:53.159 of a Michael Lewis book. You know this, you know 0:04:53.160 --> 0:04:56.800 they represent fifteen percent of stock trading or whatever the numbers. 0:04:57.160 --> 0:04:59.040 So they're pretty big, and they get a lot of 0:04:59.120 --> 0:05:01.240 articles about them because they're pretty interesting, and each of 0:05:01.240 --> 0:05:04.440 the articles has to say they're very press shy and 0:05:04.480 --> 0:05:10.120 at yeah, you know, they're not that pressure the information. Yeah, 0:05:10.160 --> 0:05:12.160 but I feel like the press they get is good 0:05:12.560 --> 0:05:15.320 in the sense that it's like, look at these guys. 0:05:15.360 --> 0:05:18.680 They make so much money. And my first thought was like, 0:05:18.720 --> 0:05:20.960 that's gotta be good for recruiting, but of course, like 0:05:21.600 --> 0:05:23.760 it's bad for recruiting. There are a lot of people 0:05:23.760 --> 0:05:25.840 who want to go into finance to make money, and 0:05:25.880 --> 0:05:27.720 you want to hire the other people, the ones who 0:05:27.760 --> 0:05:30.000 are going to go into finance, like solve weird puzzles 0:05:30.360 --> 0:05:33.240 and like Jane Street, to be clear, I sometimes do 0:05:33.279 --> 0:05:34.920 puzzle hunts in New York City. 0:05:35.360 --> 0:05:37.920 So what does that mean, Matt. It's a puzzle hunt. 0:05:38.000 --> 0:05:40.520 It's like it's a little bit like dressage, but no, 0:05:40.600 --> 0:05:42.920 you like, it's like a scavenger hunt, but like the 0:05:42.920 --> 0:05:43.920 clues are weird. 0:05:43.680 --> 0:05:45.440 Puzzles like geo cash. 0:05:45.560 --> 0:05:48.880 I don't know, Okay, it's like a scavenger hunt, but 0:05:49.400 --> 0:05:52.800 a complicated puzzle cliss and it's a very financial industry thing. 0:05:53.279 --> 0:05:56.279 And like you basically you go and there's like eight 0:05:56.279 --> 0:05:58.960 teams from Goldman and like three teams from Jane Street, 0:05:59.040 --> 0:06:01.080 and then like a bunch of other hig freakoncy trading firms, 0:06:01.240 --> 0:06:02.880 and like it's always like Jane Street like a big 0:06:02.920 --> 0:06:04.880 puzzle hunt firm, you know, like you go to Jane Street. 0:06:05.400 --> 0:06:07.120 Do they dominate the puzzle hunts. 0:06:07.440 --> 0:06:09.640 No, it's like pretty competitive the puzzle hunts. 0:06:09.680 --> 0:06:09.880 Cool. 0:06:09.920 --> 0:06:12.160 Look, I think they're good at puzzle hunts. So it's 0:06:12.160 --> 0:06:14.400 like real puzzle solving people. If you do out too 0:06:14.480 --> 0:06:17.760 much of a reputation for being a giant lucrative pot 0:06:17.760 --> 0:06:20.320 of money, then you'll attract people who want the giant 0:06:20.360 --> 0:06:24.360 lucrative pot of money, and those people you might hypothesize 0:06:24.560 --> 0:06:27.080 will be worse at solving puzzles. I wrote something like 0:06:27.120 --> 0:06:30.479 that and someone emailed me to say, you're right. I've 0:06:30.480 --> 0:06:33.920 known people who worked to Jane Street, and like, early 0:06:34.000 --> 0:06:37.159 on it was people who liked puzzles and didn't like 0:06:37.240 --> 0:06:40.080 staying that late at work, and then they made more money, 0:06:40.120 --> 0:06:42.640 so they got people who liked money and want to 0:06:42.640 --> 0:06:45.120 stay later at work. So the culture has deteriortor oh 0:06:45.200 --> 0:06:46.840 my god, in the sense that people like work harder 0:06:46.880 --> 0:06:47.480 and make more money. 0:06:47.480 --> 0:06:48.800 Well, I was going to say, like, how do you 0:06:48.800 --> 0:06:51.640 control for that in the interview setting, Well. 0:06:51.520 --> 0:06:52.440 You ask them puzzles. 0:06:52.760 --> 0:06:55.400 Yeah, and you see if they're having fun. 0:06:55.640 --> 0:06:58.800 Yeah, it's a little that's funny, right, you can't really, 0:06:58.880 --> 0:07:00.800 there's only so many puzzles can do. If you're not 0:07:00.880 --> 0:07:03.279 having fun doing puzzles, right, Yeah, you're really good at 0:07:03.279 --> 0:07:05.800 all the puzzles and you like don't have that sparking 0:07:05.800 --> 0:07:07.040 your eye, you're still probably. 0:07:06.839 --> 0:07:09.920 Fine, right, there's not a certain light in your eyes. 0:07:10.120 --> 0:07:13.040 Yeah, if you're just like grudgingly good at puzzles, you'll 0:07:13.040 --> 0:07:16.120 be okay, Yeah, fine, yeah, because the puzzles do result 0:07:16.200 --> 0:07:16.600 in money. 0:07:16.680 --> 0:07:18.640 Yeah, if you work at Jane Street, do you have 0:07:18.680 --> 0:07:20.000 to like trading ETFs? 0:07:20.320 --> 0:07:20.440 Uh? 0:07:20.720 --> 0:07:22.920 No, Okay, well it seems like a lot of people 0:07:22.920 --> 0:07:23.680 at Jane Street do. 0:07:24.080 --> 0:07:27.200 Yeah. But like Jane Street is in the news because 0:07:27.200 --> 0:07:30.200 the Ft had another like profile of them that had 0:07:30.200 --> 0:07:32.800 a lot of interesting facts and sort of quotes, and 0:07:32.840 --> 0:07:35.840 they do quote they're like head of fixed income saying 0:07:36.160 --> 0:07:39.840 basically like their business models, like they automate something and 0:07:39.880 --> 0:07:42.880 then they go up one level of abstraction and they 0:07:42.920 --> 0:07:44.880 automate that so they can sort of do higher and 0:07:44.960 --> 0:07:48.320 hire more complicated, more value adding things by like automating 0:07:48.320 --> 0:07:51.400 all the stuff below it. And like that's kind of 0:07:51.440 --> 0:07:54.160 the common pattern and equities trading for the last twenty years. 0:07:54.600 --> 0:07:57.400 It is not really the pattern and fixed income trading, 0:07:57.440 --> 0:07:59.640 and like Jane Street has been kind of pushing bond 0:07:59.640 --> 0:08:02.360 trading to be more automated. But the point of that 0:08:02.680 --> 0:08:06.600 is that if you like solving puzzles and automating things, 0:08:07.280 --> 0:08:09.800 you don't have to care that much about trading ETFs because. 0:08:09.560 --> 0:08:10.320 Like, you know, you're. 0:08:11.720 --> 0:08:14.360 Puzzle. It's another puzzle. It's like you know, the computer 0:08:14.440 --> 0:08:16.080 is doing something amount of the ETF trading for you, 0:08:16.240 --> 0:08:17.800 or like some of the pricing for you. But it's 0:08:17.840 --> 0:08:22.880 clearly a place where people like the psychological aspect of trading. 0:08:22.960 --> 0:08:24.760 One of the better pictures of Jane Street it comes 0:08:24.760 --> 0:08:27.480 from Michael Lewis's book about Sam Beckman Free who worked 0:08:27.480 --> 0:08:29.640 there for a while, and it's a lot of like 0:08:30.240 --> 0:08:34.600 puzzles and people betting against each other and people learning 0:08:34.800 --> 0:08:38.000 the perils of adverse selection firsthand by like having their 0:08:38.000 --> 0:08:40.720 interviewers like trick them. So you know, it's a it's 0:08:40.800 --> 0:08:44.199 a trading firm but it's not like people whose first 0:08:44.200 --> 0:08:46.120 love is ETFs like you, right. 0:08:46.320 --> 0:08:50.640 Right, So talk to me about portfolio trading, where of 0:08:50.679 --> 0:08:55.080 course ETFs factor in mightily. Portfolio trading is something that 0:08:55.120 --> 0:08:58.320 I write about every couple of years and sort of 0:08:58.360 --> 0:09:00.640 relearn the mechanics of it every of years. When I 0:09:00.679 --> 0:09:02.120 have to write about it, I would say that I 0:09:02.120 --> 0:09:03.560 get it, but I don't understand it. 0:09:03.920 --> 0:09:07.559 So portfolio is trading a portfolio of bonds. Basically, it's 0:09:07.559 --> 0:09:11.400 like there are investors who will need to sell a 0:09:11.400 --> 0:09:13.920 lot of bonds at once, right, who like their thing 0:09:14.000 --> 0:09:16.040 is not like I'm going to like slightly adjust the 0:09:16.120 --> 0:09:19.680 exposure of my bond portfolio, but like I'm an endowment 0:09:19.920 --> 0:09:22.600 and I'm moving from forty percent bonds to thirty percent bonds. 0:09:22.640 --> 0:09:26.040 I'm selling, you know, a giant pile of bonds, And 0:09:26.679 --> 0:09:29.320 traditionally you would do that. You could call a bank 0:09:29.360 --> 0:09:31.280 and sell each bond and it would take a while 0:09:31.480 --> 0:09:33.720 because they'd price each bond and you'd sort of like 0:09:33.760 --> 0:09:35.360 pay a bit ask reread on each bond, and it 0:09:35.400 --> 0:09:38.880 was like inefficient. And people realize that trading a whole 0:09:38.880 --> 0:09:42.840 portfolio of bonds, you can price the portfolio itself. Rather 0:09:42.880 --> 0:09:46.280 than sort of think individually about each individual bond. And 0:09:46.679 --> 0:09:51.079 in particular, what people like Jane Street realized is like 0:09:51.120 --> 0:09:53.720 they are all these bondtfs, bond ETFs. You can like 0:09:54.000 --> 0:09:56.840 hand in some bonds and get back shares with the ETF. 0:09:57.440 --> 0:10:00.640 The bonds that you hand in are going to be 0:10:00.640 --> 0:10:02.959 bonds that are supposed to go on the ETF. There's 0:10:03.000 --> 0:10:06.000 a lot of flexibility to create shares of the ETF 0:10:06.120 --> 0:10:09.040 because like a bond index, ETF just can never like 0:10:09.160 --> 0:10:13.080 exactly contain the index. It's like impossible to recreate a 0:10:13.120 --> 0:10:15.920 bond innecks precisely like a big bond because like a 0:10:15.920 --> 0:10:17.840 lot of bonds, and like you know, you can't like 0:10:17.920 --> 0:10:20.079 buy fractions of bonds, and like bonds are not always 0:10:20.120 --> 0:10:22.040 out liquid, and so every bond ETF is going to 0:10:22.120 --> 0:10:24.360 you know, have some sampling where they're like sort of 0:10:24.360 --> 0:10:27.000 tracking their index, but they're not exactly the index. What 0:10:27.000 --> 0:10:28.319 that means is like if someone wants to tell you 0:10:28.400 --> 0:10:30.240 a thousand bonds, you can go to an ETF and 0:10:30.280 --> 0:10:33.000 be like, overy this thousand bonds, would you like them 0:10:33.240 --> 0:10:35.480 in exchange for shares of the ETF, And the ETF 0:10:35.520 --> 0:10:36.920 will like do some math and be like, yeah, we'll 0:10:36.920 --> 0:10:38.599 take eight hundred and seventy six of those bonds and 0:10:38.640 --> 0:10:40.360 then you just got rid of all those bonds. And 0:10:40.400 --> 0:10:43.439 so Jane Street and like other you know, bond market 0:10:43.440 --> 0:10:45.560 makers who are also ETF market makers can do this 0:10:45.640 --> 0:10:49.880 transaction where they will buy some pension funds a thousand 0:10:49.920 --> 0:10:52.720 bonds from them and hold some of them on their 0:10:52.720 --> 0:10:54.760 balance sheet, but also squash a lot of them into 0:10:54.800 --> 0:10:58.720 an ATF get back these like very easily tradeable, fungible 0:10:58.720 --> 0:11:01.680 ETF shares, And so they've like kind of turned this 0:11:01.760 --> 0:11:04.560 complicated problem of buying all these bonds, they've reduced it 0:11:04.600 --> 0:11:07.360 mostly to a similar problem of like selling ETF shares. 0:11:07.679 --> 0:11:09.600 So it's a much more efficient way to do it. 0:11:10.000 --> 0:11:12.520 And it's become a big part of bond trading in 0:11:12.559 --> 0:11:16.040 the last like ten years. And it's like very electronified 0:11:16.040 --> 0:11:18.120 if people are doing it with computer models rather than 0:11:18.200 --> 0:11:20.120 like putting their finger in the air and trying to 0:11:20.120 --> 0:11:22.040 figure out how much each bond is worth. Yeah, it's 0:11:22.040 --> 0:11:23.920 like a move to like kind of equities like trading 0:11:23.920 --> 0:11:24.440 for bonds. 0:11:24.600 --> 0:11:28.000 Yeah, and it hinges on the creation and redemption mechanism 0:11:28.160 --> 0:11:29.960 that is inherent to ETFs. 0:11:30.000 --> 0:11:32.360 I'm not sure it always always does, because like you 0:11:32.360 --> 0:11:34.360 could sort of have the same concepts and just hold 0:11:34.400 --> 0:11:36.439 the bonds in your balance sheet. But yeah, and practice. 0:11:36.040 --> 0:11:38.199 Like a huge balance. 0:11:37.920 --> 0:11:40.880 Sheet and is like using an ETFs as kind of 0:11:40.880 --> 0:11:41.480 the balance sheet to. 0:11:41.440 --> 0:11:45.040 Buy My understanding and maybe this is because you know, 0:11:45.080 --> 0:11:48.280 I'm coming from the ETF perspective, is that portfolio trading 0:11:48.760 --> 0:11:51.160 picked up in a big way as bond ETFs. 0:11:51.520 --> 0:11:52.960 No, that's right, that's right. Yeah, that's right. 0:11:53.080 --> 0:11:53.760 Yeah, that's right. 0:11:53.800 --> 0:11:56.000 It is. It is very closely linked to ETFs. 0:11:56.080 --> 0:11:58.480 I'm kind of surprised that portfolio trading isn't bigger though 0:11:58.760 --> 0:12:01.360 I know it's becoming a bigger part part of overall 0:12:01.400 --> 0:12:04.040 bond trading, but I think it's still in like single 0:12:04.080 --> 0:12:06.520 digit percentage of overall bond trading. 0:12:06.679 --> 0:12:08.199 I mean, why did you trade bond? 0:12:08.600 --> 0:12:09.719 Why did you trade? 0:12:10.160 --> 0:12:12.000 You know, I've written about this acause I have been 0:12:12.000 --> 0:12:14.440 thinking about private credit. Like there's historically you buy bonds, 0:12:14.600 --> 0:12:16.200 you know, like a ten year bond. You you know, 0:12:16.320 --> 0:12:18.480 You're like, I have a ten year liability, so I'm 0:12:18.480 --> 0:12:19.839 going to buy a ten year bond to match it, 0:12:19.920 --> 0:12:21.800 and I'm just hold it for ten years, right, So 0:12:21.840 --> 0:12:23.480 why do you trade bonds. I mean, one reason you 0:12:23.520 --> 0:12:26.079 trade bonds is because you are a pension pond that's 0:12:26.080 --> 0:12:28.599 like decided to move some of your allocation out of 0:12:28.640 --> 0:12:30.559 bonds or whatever. But a lot of the reasons you 0:12:30.600 --> 0:12:32.520 trade bonds is like you like a particular bond, right, 0:12:32.520 --> 0:12:35.120 Like you're some sort of like credit fund manager where 0:12:35.160 --> 0:12:38.120 you are making some sort of relative value trade that 0:12:38.160 --> 0:12:40.000 one bond is good and one bond is bad, and 0:12:40.040 --> 0:12:42.160 so then you're not like, oh, buy my hundred bonds 0:12:42.160 --> 0:12:44.199 at once, right. But yeah, I mean there are a 0:12:44.240 --> 0:12:47.240 lot of people who have needs to move whole portfolios 0:12:47.240 --> 0:12:48.760 and that's becoming a big business. 0:12:48.920 --> 0:12:52.200 Oh let's talk about the fact that Jane Street doesn't 0:12:52.200 --> 0:12:54.680 have a CEO. We've talked about this before. I do 0:12:54.880 --> 0:12:57.040 love it. It's so cool because again you think about 0:12:57.080 --> 0:13:02.320 this secretive trading firm. Paik As the Ft says. I 0:13:02.360 --> 0:13:04.360 feel like the fact that they don't have a CEO 0:13:04.440 --> 0:13:08.800 and they're run by like this like faceless entity does 0:13:08.920 --> 0:13:10.760 kind of add to that image. 0:13:10.920 --> 0:13:13.280 You know they have, like they'd like four founders. Yeah, 0:13:13.360 --> 0:13:15.760 couldn't name them. There's one guy who's still there's like 0:13:15.800 --> 0:13:17.400 one of the founders. And for a while I just 0:13:17.440 --> 0:13:19.400 looked yesterday and he doesn't shop up on LinkedIn or 0:13:19.400 --> 0:13:21.160 I couldn't find him, but like for a while, his 0:13:21.240 --> 0:13:23.559 LinkedIn just said like I had his name, and it's 0:13:23.559 --> 0:13:26.920 a like Trader had like quantitative trading for him. It's 0:13:27.000 --> 0:13:29.880 like a top resident, like a top linkin. I was 0:13:29.920 --> 0:13:31.840 thinking about that when I was writing about the guy 0:13:31.880 --> 0:13:35.040 who has been suing David Einhorn or green Light for 0:13:35.160 --> 0:13:37.920 months because he wants to call himself the former head 0:13:37.960 --> 0:13:40.160 of macro at green Light and green Light is suing 0:13:40.240 --> 0:13:42.480 him and he's suing them and it's a mess, and 0:13:42.520 --> 0:13:47.080 it's like really really good trolling, and it's like one 0:13:47.080 --> 0:13:49.720 way to live is to like sue, to be able 0:13:49.760 --> 0:13:51.800 to call yourself the job title you think you deserve. 0:13:51.840 --> 0:13:53.800 Another way to live is just trader on your LinkedIn. 0:13:54.000 --> 0:13:56.559 Like it's a different it's a different level. But yeah, 0:13:56.559 --> 0:13:59.880 they know have a CEO. They run everything by committee. 0:14:00.160 --> 0:14:01.600 I don't know, like I wrote this, like it just 0:14:02.000 --> 0:14:04.080 they give off the impression of just being like a 0:14:04.200 --> 0:14:06.800 group of buddies who'd like to solve puzzles together and 0:14:06.840 --> 0:14:09.000 like the puzzles create a lot of money for them, right, 0:14:09.000 --> 0:14:12.120 it doesn't seem like a traditional like hierarchical you know, 0:14:12.240 --> 0:14:13.160 business organization. 0:14:13.400 --> 0:14:16.920 Yeah, specifically, the company calls itself a functionally organized structure 0:14:16.920 --> 0:14:21.080 consisting of various management and risk committees. Just amazing. I 0:14:21.120 --> 0:14:23.320 mean if this was a smaller company, I'd be like, 0:14:23.400 --> 0:14:26.040 I don't know, I don't know how long that can last. 0:14:26.120 --> 0:14:28.560 But obviously they're doing well for it. 0:14:28.760 --> 0:14:30.640 That feels like the sort of thing that can last 0:14:30.640 --> 0:14:32.520 more easily if you're a smaller company, right, I mean, 0:14:32.560 --> 0:14:34.160 like one thing in this a FT article is like 0:14:34.160 --> 0:14:36.520 they've become really big. It is harder to be non 0:14:36.560 --> 0:14:39.400 hierarchical when you have that many people. You know, a 0:14:39.440 --> 0:14:41.760 lot of how that business works is like they all 0:14:41.800 --> 0:14:43.720 trust each other and so there's not a real, you know, 0:14:43.840 --> 0:14:47.720 deep hierarchical supervision. And that's harder to do if there's 0:14:47.760 --> 0:14:51.880 three thousand people instead of three hundred. And also, they 0:14:51.920 --> 0:14:55.040 make so much money, and so all those people have 0:14:55.720 --> 0:14:58.840 grown accustomed to making a certain amount of money. And 0:14:59.240 --> 0:15:01.640 the article's like you they're one like even flat year, 0:15:01.680 --> 0:15:04.240 and people are going to be really dissatisfied because you know, 0:15:04.640 --> 0:15:06.760 you're sort of relying on the money growing every year 0:15:06.840 --> 0:15:07.640 to make everyone. 0:15:08.080 --> 0:15:10.160 Yeah, I guess why I would be skeptical with a 0:15:10.200 --> 0:15:12.680 small company is just because I would assume human ego 0:15:12.760 --> 0:15:15.280 comes in at some point where like one guy or 0:15:15.360 --> 0:15:18.840 gal wants to say I'm in charge, it's me, I'm 0:15:18.920 --> 0:15:21.640 I'm responsible for our success and I call the shots. 0:15:21.920 --> 0:15:24.800 That's just this trait a large company, except that there's 0:15:24.880 --> 0:15:26.160 more people might want to do that. 0:15:26.440 --> 0:15:28.480 But I guess I'm saying I'm obviously it worked for 0:15:28.480 --> 0:15:31.520 them another large company and it's still working. Is there 0:15:31.560 --> 0:15:36.320 any conditions under which where this couldn't work for Jane Street? 0:15:36.560 --> 0:15:36.680 Oh? 0:15:36.800 --> 0:15:53.520 Yeah, when it happens, we'll talk about it. Yeah, let's 0:15:53.560 --> 0:15:58.800 talk about taxes. There's a really interesting ETF filing this week, 0:15:59.080 --> 0:16:02.120 the Cambria tack. So we're ETF and Matt what you 0:16:02.160 --> 0:16:05.000 were describing with portfolio trading, where you know, this big 0:16:05.000 --> 0:16:09.920 institution comes with this like big basket of bonds, maybe 0:16:10.000 --> 0:16:14.400 random bonds, they give them to a Jane Street and 0:16:14.440 --> 0:16:17.640 then they get ETF shares in exchange. That's kind of 0:16:17.680 --> 0:16:22.160 like the process of this ETF. And I have to say, 0:16:22.560 --> 0:16:25.880 I'm not familiar with not that familiar with swap funds 0:16:25.920 --> 0:16:29.320 or exchange funds, but this is basically those. But in 0:16:29.360 --> 0:16:32.120 the ETF wrapper. Maybe you can make heads or tails 0:16:32.160 --> 0:16:32.360 of this. 0:16:32.840 --> 0:16:37.240 Yeah, So a swap fund is like conceptually you have 0:16:37.400 --> 0:16:41.440 like a big undiversified stock position. For instance, you work 0:16:41.480 --> 0:16:42.480 at a company and you want a lot of your 0:16:42.520 --> 0:16:45.680 own company stock, and you want to get out of 0:16:45.680 --> 0:16:49.320 that position and like get into an SMP five hundred fund, right, 0:16:49.360 --> 0:16:51.400 you want to diversify, and so to have a more 0:16:51.440 --> 0:16:54.760 normal diversified portfolio and not just on your own company stock. 0:16:56.600 --> 0:16:58.240 Then natural thing to do is you sell the stock 0:16:58.320 --> 0:17:01.120 you buy n SMP fund. But when you do that, 0:17:01.160 --> 0:17:03.000 you pay taxes on your stock. And if it's you 0:17:03.040 --> 0:17:05.080 know you've owned it for all time, it's appreciated a lot. 0:17:05.119 --> 0:17:07.159 You pay a lot of taxes. People figured out as 0:17:07.280 --> 0:17:12.280 like if you contribute property into a partnership, when you 0:17:12.320 --> 0:17:14.760 form a partnership and you get back shares of the partnership, 0:17:15.119 --> 0:17:17.600 this is not taxified, but that is come on and 0:17:17.720 --> 0:17:20.119 make it so that's not a taxable transaction. So like 0:17:20.160 --> 0:17:22.399 you don't have any gain, you don't have to pay 0:17:22.400 --> 0:17:24.439 any taxes. You just get shares of the partnership, and 0:17:24.480 --> 0:17:26.320 when you eventually sell your shares of the partnership, you 0:17:26.320 --> 0:17:28.840 pay taxes. And so what people do is like they 0:17:28.840 --> 0:17:32.440 get ten tech company employees of different companies and they 0:17:32.480 --> 0:17:35.120 all put their shares into a pot and they get 0:17:35.160 --> 0:17:38.000 back ownership, the partial ownership of the pot. And so 0:17:38.119 --> 0:17:41.439 now instead of owning their undiversified share in their own company, 0:17:41.640 --> 0:17:44.720 they own like a slice of shares of ten companies, 0:17:44.800 --> 0:17:48.440 and so they have a more diversified portfolio. And these 0:17:48.520 --> 0:17:50.800 ETF guys realize you could do that in ETF where 0:17:50.840 --> 0:17:52.679 basically you go out to like a bunch of retail 0:17:52.680 --> 0:17:56.840 investors who have portfolios at like Fidelity or whatever where 0:17:56.840 --> 0:17:58.879 they own not like a bunch of ETFs, but they 0:17:58.880 --> 0:18:02.919 own like you know, Tesla and Berkshire, Hathaway and whatever. Right, Yeah, 0:18:02.960 --> 0:18:05.320 and they can all PLoP that into a pot and 0:18:05.359 --> 0:18:07.480 get back and the pot is an ETF, and they 0:18:07.520 --> 0:18:09.439 get back shares of the ETF and now they go 0:18:09.480 --> 0:18:12.360 from having a fairly short list of holdings to having 0:18:12.400 --> 0:18:14.280 a more divers like a share of a more diversial 0:18:14.320 --> 0:18:17.400 plot set of holdings. And yeah, pay taxes. 0:18:17.640 --> 0:18:20.919 So the part that sort of breaks my brain is 0:18:21.040 --> 0:18:24.280 the CTF. The ticker is tax which is a great ticker. 0:18:24.359 --> 0:18:27.720 I can't believe that that hasn't already been used expected 0:18:27.760 --> 0:18:30.000 to launch in December. So it's going to run a 0:18:30.000 --> 0:18:33.000 strategy that favors value and quality shares with low or 0:18:33.040 --> 0:18:35.639 no dividend yields to avoid being taxed on those payouts. 0:18:35.840 --> 0:18:41.399 So what people come to them with the stocks that 0:18:41.440 --> 0:18:44.359 they own aren't necessarily the stocks that are going to 0:18:44.400 --> 0:18:46.359 be in the CTF. 0:18:46.720 --> 0:18:47.680 I guess that's right. 0:18:47.880 --> 0:18:51.960 I mean, unless they're soliciting people with specifically value in 0:18:52.040 --> 0:18:53.560