1 00:00:02,560 --> 00:00:07,080 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. 2 00:00:08,000 --> 00:00:11,000 Speaker 2: Should I give a really quick bird update? Oh yeah, 3 00:00:11,080 --> 00:00:13,600 Speaker 2: Well we put out the cliff Astness episode, which was 4 00:00:13,880 --> 00:00:15,640 Speaker 2: very well received, but we did get a few comments 5 00:00:15,680 --> 00:00:27,040 Speaker 2: about where they're not being a bird update really quick birds. Yeah, 6 00:00:27,200 --> 00:00:31,480 Speaker 2: the birds doing really well, flying really well. We need 7 00:00:31,520 --> 00:00:33,400 Speaker 2: to work on perching. So he's in a big. 8 00:00:33,320 --> 00:00:35,440 Speaker 1: Room's interesting is regressed on perching? 9 00:00:35,600 --> 00:00:40,000 Speaker 2: Well, the thing is, it's hard. He's very comfortable perching 10 00:00:40,000 --> 00:00:42,920 Speaker 2: on people. He's very comfortable perching on his cage. I 11 00:00:42,960 --> 00:00:45,320 Speaker 2: put in an old cat tree that I had at 12 00:00:45,320 --> 00:00:47,839 Speaker 2: my parents' house in the room where he is. He 13 00:00:48,000 --> 00:00:53,120 Speaker 2: refuses to perch on it. And so if you open, yeah, 14 00:00:53,120 --> 00:00:56,880 Speaker 2: you probably wouldn't purchase the catch. Yeah maybe, I mean 15 00:00:56,880 --> 00:00:58,800 Speaker 2: my cat hasn't touched it in several years, so I 16 00:00:58,840 --> 00:01:01,800 Speaker 2: thought maybe the cats I'll never never. I think I 17 00:01:01,840 --> 00:01:02,520 Speaker 2: need to get. 18 00:01:02,360 --> 00:01:04,360 Speaker 1: Like you owner ever and terror I can tell you 19 00:01:04,440 --> 00:01:04,720 Speaker 1: the cat. 20 00:01:06,959 --> 00:01:09,160 Speaker 2: I think I need to get him like an indoor 21 00:01:09,200 --> 00:01:12,679 Speaker 2: potted tree or something, because if you open the cage 22 00:01:12,720 --> 00:01:14,160 Speaker 2: and then run to the other side of the room, 23 00:01:14,280 --> 00:01:16,480 Speaker 2: he will fly directly to you. He will not land 24 00:01:16,520 --> 00:01:18,760 Speaker 2: on anything other than his cage and humans. So we 25 00:01:18,840 --> 00:01:21,560 Speaker 2: need to work on that. Also. We're calling it a 26 00:01:21,600 --> 00:01:23,600 Speaker 2: heat but it could be a lady bird. 27 00:01:24,240 --> 00:01:27,040 Speaker 1: Is this whole project still in the service of like 28 00:01:27,160 --> 00:01:30,760 Speaker 1: one day releasing or herd into the wild, or is 29 00:01:30,760 --> 00:01:33,039 Speaker 1: it more just like I think, be nice if he 30 00:01:33,120 --> 00:01:35,000 Speaker 1: wasn't clinging to your shoulder all the time. 31 00:01:35,120 --> 00:01:37,600 Speaker 2: I think given that it's so attached to humans, it 32 00:01:37,600 --> 00:01:40,000 Speaker 2: would be very hard to release this bird right now. 33 00:01:40,440 --> 00:01:42,360 Speaker 2: It won't perch. I mean, we'll see when we get 34 00:01:42,360 --> 00:01:43,840 Speaker 2: in a tree if it'll perch on the tree. 35 00:01:43,959 --> 00:01:45,960 Speaker 1: I guess I'll stop asking that question. I guess that's 36 00:01:46,000 --> 00:01:46,800 Speaker 1: just your bird now. 37 00:01:47,200 --> 00:01:50,720 Speaker 2: Yeah, and its name is bird. 38 00:01:52,560 --> 00:01:54,920 Speaker 1: Hello, and welcome to The Money Stuff Podcast. You're a 39 00:01:54,920 --> 00:01:57,640 Speaker 1: weekly podcast where we talk about stuff related to money. 40 00:01:58,000 --> 00:01:59,960 Speaker 1: I'm Matt Levie and I write The Money Stuff Calm 41 00:02:00,200 --> 00:02:01,600 Speaker 1: for Blue Our Opinion, and. 42 00:02:01,560 --> 00:02:04,080 Speaker 2: I'm Katie Greifeld, a reporter for Bloomberg News and an 43 00:02:04,120 --> 00:02:05,560 Speaker 2: anchor for Bloomberg Television. 44 00:02:06,880 --> 00:02:08,640 Speaker 1: Katie, I came to you this week and I was like, 45 00:02:08,680 --> 00:02:11,480 Speaker 1: I want to talk about ETFs, which sounded really sounds great. 46 00:02:11,560 --> 00:02:13,000 Speaker 1: And I was like, I want to talk about autocollable 47 00:02:13,080 --> 00:02:14,840 Speaker 1: ets and You're like, Nah. 48 00:02:14,840 --> 00:02:17,360 Speaker 2: You know that's the thing. It really feels like a 49 00:02:17,400 --> 00:02:20,359 Speaker 2: monkey's paw situation or something. I should be psyched. 50 00:02:20,919 --> 00:02:23,120 Speaker 1: The thing this is the thing. The thing about ETFs 51 00:02:23,200 --> 00:02:27,400 Speaker 1: is that eventually all of financial products and ultimately all 52 00:02:27,400 --> 00:02:30,200 Speaker 1: of human existence will be sucked into an ETF. And 53 00:02:30,280 --> 00:02:33,119 Speaker 1: like you have to be able to roll with all 54 00:02:33,200 --> 00:02:35,000 Speaker 1: of the possible forms of ETF. 55 00:02:35,120 --> 00:02:37,760 Speaker 2: I you know, I'm like super comfortable with the idea 56 00:02:37,800 --> 00:02:40,560 Speaker 2: that you know, there's structured products in ETFs. Yeah, I 57 00:02:40,600 --> 00:02:43,959 Speaker 2: know what for ETF is. The concept of an autocollable 58 00:02:44,000 --> 00:02:45,960 Speaker 2: ETF is a little bit of a tougher too. But 59 00:02:46,120 --> 00:02:49,720 Speaker 2: the first one launched this past week. Yeah, Calamus Kalamos 60 00:02:49,840 --> 00:02:54,040 Speaker 2: with JP Morgan is the swap counterparty. 61 00:02:54,200 --> 00:02:55,000 Speaker 1: Yeah. 62 00:02:55,160 --> 00:02:59,200 Speaker 2: So you did a breakdown in your Money Soff column 63 00:02:59,200 --> 00:03:01,959 Speaker 2: about how's theoretic this would work. You provided an example. 64 00:03:02,240 --> 00:03:04,240 Speaker 2: Some don't quite get it, okay. 65 00:03:04,760 --> 00:03:08,000 Speaker 1: So, like, if you're a JP market, you're in the 66 00:03:08,000 --> 00:03:12,799 Speaker 1: business like manufacturing products that clients want to buy. One 67 00:03:12,840 --> 00:03:15,560 Speaker 1: thing that clients come to with a lot is we 68 00:03:15,560 --> 00:03:22,000 Speaker 1: would like to hedge our stock market risk. It would 69 00:03:22,000 --> 00:03:26,280 Speaker 1: be nice if when the market crashed we could get 70 00:03:26,320 --> 00:03:29,280 Speaker 1: some insurance. And so there's a big business in manufacturing 71 00:03:29,360 --> 00:03:34,280 Speaker 1: insurance against market crushes because like fundamentally most people, most 72 00:03:34,320 --> 00:03:37,800 Speaker 1: investors are long equities and they want to have insurance. 73 00:03:37,920 --> 00:03:41,720 Speaker 1: Someone want to have insurance against the market crush, and 74 00:03:41,720 --> 00:03:43,600 Speaker 1: how do you manufacture that insurance because no one's to 75 00:03:43,680 --> 00:03:45,560 Speaker 1: sell that insurance, right, Like who wants to be in 76 00:03:45,560 --> 00:03:48,320 Speaker 1: the business of saying if the market crashes, I'll give 77 00:03:48,320 --> 00:03:50,840 Speaker 1: you money, Like it's a terrible wrong way situation to 78 00:03:50,840 --> 00:03:54,400 Speaker 1: be in. And so a lot of like the world 79 00:03:54,480 --> 00:03:56,880 Speaker 1: of like equity to rotistrating is figuring out how to 80 00:03:56,880 --> 00:04:01,480 Speaker 1: manufacture that sort of market risk insurance crash insurance. And 81 00:04:02,560 --> 00:04:06,120 Speaker 1: there are ways to do it, like the dispersion trade 82 00:04:06,120 --> 00:04:10,160 Speaker 1: and hedgephones is like a gibeis are closing. It's all 83 00:04:10,160 --> 00:04:13,400 Speaker 1: a complicated way to take single stock ball and turn 84 00:04:13,440 --> 00:04:16,600 Speaker 1: it into index vall so that you can sell people 85 00:04:16,600 --> 00:04:19,440 Speaker 1: insurance against market crashes. But like a classic way to 86 00:04:19,520 --> 00:04:22,839 Speaker 1: do it is to say, we're going to have retail 87 00:04:22,920 --> 00:04:26,840 Speaker 1: investors sell us insurance against market crashes. And the way 88 00:04:27,240 --> 00:04:32,120 Speaker 1: retail investors sell insurance is essentially they buy bonds and 89 00:04:32,160 --> 00:04:33,800 Speaker 1: the bonds, you know, they put it in one hundred dollars, 90 00:04:33,920 --> 00:04:36,520 Speaker 1: they get back one hundred dollars plus like a very 91 00:04:36,600 --> 00:04:39,280 Speaker 1: high rate of interest, except if the market crashes, they 92 00:04:39,279 --> 00:04:41,960 Speaker 1: get back like nothing or they lose money. Right, so 93 00:04:42,000 --> 00:04:45,440 Speaker 1: the thing they buy is sort of a catastrophe bond 94 00:04:45,560 --> 00:04:49,000 Speaker 1: for market crash, Like if the market crashes, they don't 95 00:04:49,000 --> 00:04:51,279 Speaker 1: get back all their money, and the money they don't 96 00:04:51,279 --> 00:04:55,760 Speaker 1: get back gets used to pay someone else's insurance. One 97 00:04:55,800 --> 00:04:57,560 Speaker 1: of the main like the classic form of that is 98 00:04:57,600 --> 00:05:00,000 Speaker 1: called an auto callable. It's just like the name of it, 99 00:04:59,839 --> 00:05:02,480 Speaker 1: but it's basically you put in money. If the market 100 00:05:02,640 --> 00:05:04,960 Speaker 1: stays flat or up or even goes down a little bit, 101 00:05:04,960 --> 00:05:07,159 Speaker 1: you get back like one hundred and fifteen cents on 102 00:05:07,240 --> 00:05:09,320 Speaker 1: a dollar in a year. And if the market goes 103 00:05:09,360 --> 00:05:11,960 Speaker 1: down a lot, you know, you lose the amount of 104 00:05:12,000 --> 00:05:14,760 Speaker 1: the market crash and you know, and JP Morgan sells 105 00:05:14,760 --> 00:05:18,600 Speaker 1: that to you gives them index volatility that they can 106 00:05:18,640 --> 00:05:21,720 Speaker 1: turn around and sell to you know, institutional clients who 107 00:05:21,720 --> 00:05:25,720 Speaker 1: want a hedgeance market crash. So that is the autocoll. 108 00:05:25,920 --> 00:05:29,520 Speaker 1: It is a classic structured note structuring product that like 109 00:05:29,720 --> 00:05:32,320 Speaker 1: banks love to sell to you know, retailer high night 110 00:05:32,320 --> 00:05:38,880 Speaker 1: Worth investors. And now it's going into an ETF, which 111 00:05:39,320 --> 00:05:40,040 Speaker 1: was inevitable. 112 00:05:40,080 --> 00:05:42,599 Speaker 2: I mean buffers have been so popular. 113 00:05:43,040 --> 00:05:45,160 Speaker 1: Yeah, I think actually the press release for this ETF 114 00:05:45,200 --> 00:05:48,000 Speaker 1: said something like, this is the latest play for a 115 00:05:48,040 --> 00:05:50,920 Speaker 1: boomer candy pretty just like just the name of these 116 00:05:50,960 --> 00:05:53,520 Speaker 1: kinds of ETFs. Now. Yeah, And it's like a little 117 00:05:53,560 --> 00:05:55,200 Speaker 1: bit similar to a buffer in that it's like a 118 00:05:55,200 --> 00:05:58,960 Speaker 1: fixed income replacement that like maybe has a little little extra. 119 00:05:58,800 --> 00:06:01,920 Speaker 2: Juice but even still on. And you know, I'm prepared 120 00:06:01,960 --> 00:06:03,960 Speaker 2: to be proven wrong, but I feel like this is 121 00:06:04,000 --> 00:06:05,760 Speaker 2: a tougher sell like buffers, I. 122 00:06:05,760 --> 00:06:07,320 Speaker 1: Should say, it's different from a buffer. And then a 123 00:06:07,320 --> 00:06:09,960 Speaker 1: buffer is buffered, and this is like, yeah, in a crash, 124 00:06:09,960 --> 00:06:10,799 Speaker 1: you lose your money. 125 00:06:11,000 --> 00:06:13,560 Speaker 2: Yeah, a buffer is okay, you're giving up upside, but 126 00:06:13,560 --> 00:06:15,960 Speaker 2: you're going to be cushioned buffered on the downside. 127 00:06:16,000 --> 00:06:18,919 Speaker 1: That it was like you're getting a nice coupon, yeah, 128 00:06:18,960 --> 00:06:20,640 Speaker 1: except in bad states of the world, in which case 129 00:06:20,680 --> 00:06:22,360 Speaker 1: you there's a lot of money. Yeah. 130 00:06:22,400 --> 00:06:25,120 Speaker 2: So I don't know, I mean, who is this for? 131 00:06:25,600 --> 00:06:29,480 Speaker 2: Like I hear them, I love them, I know, I know, 132 00:06:29,640 --> 00:06:31,360 Speaker 2: I just wonder, like. 133 00:06:30,880 --> 00:06:32,640 Speaker 1: Obviously, like you know, I sold the agent high net 134 00:06:32,680 --> 00:06:34,960 Speaker 1: worth investors. And there's a story a while back that 135 00:06:35,000 --> 00:06:39,359 Speaker 1: I remember I quoted about Korean autocollables or some brokers 136 00:06:39,400 --> 00:06:42,800 Speaker 1: as something like no one's ever only bought one. Once 137 00:06:42,800 --> 00:06:44,440 Speaker 1: you buy them, you keep coming back from more because 138 00:06:44,440 --> 00:06:46,520 Speaker 1: they're so great, love them so much, and it's like, 139 00:06:46,640 --> 00:06:48,240 Speaker 1: you know, you think of the profile of it for 140 00:06:48,240 --> 00:06:49,720 Speaker 1: a second and you're like, yeah, of course that's true. 141 00:06:49,800 --> 00:06:49,880 Speaker 2: Right. 142 00:06:49,920 --> 00:06:51,559 Speaker 1: You keep buying them because you get paid a fifteen 143 00:06:51,600 --> 00:06:54,560 Speaker 1: percent yield. You keep buying them until there's one crash 144 00:06:54,560 --> 00:06:57,520 Speaker 1: and then you stop. Right, yeah, maybe, yeah, but right, 145 00:06:57,560 --> 00:06:59,000 Speaker 1: it pays a fifteen percent yield and most of the 146 00:06:59,040 --> 00:07:00,760 Speaker 1: market crash of the crashes. 147 00:07:01,000 --> 00:07:03,359 Speaker 2: Yeah, So Kala Mos is first out the gate. I 148 00:07:03,360 --> 00:07:06,560 Speaker 2: think you have. Innovator and First Trust have also filed 149 00:07:06,560 --> 00:07:11,840 Speaker 2: for similar products. It's interesting that JP Morgan hasn't JP 150 00:07:11,960 --> 00:07:15,480 Speaker 2: Morgan sort of pioneered this category in the ETF space, 151 00:07:15,560 --> 00:07:19,880 Speaker 2: this derivatives power to find outcome space. They have Jeppy, 152 00:07:20,040 --> 00:07:23,800 Speaker 2: which is a household name in my household. Maybe not 153 00:07:23,960 --> 00:07:27,160 Speaker 2: in years, but then you know, there were a bunch 154 00:07:27,160 --> 00:07:30,360 Speaker 2: of Jeffy copycats, and you've also seen buffers rise up 155 00:07:30,360 --> 00:07:32,840 Speaker 2: in the last few years. But I don't know, it's 156 00:07:33,040 --> 00:07:35,560 Speaker 2: somewhat interesting to me that you know, it's not JP. 157 00:07:35,440 --> 00:07:38,400 Speaker 1: Morgan that's well, JP Morgan is the swap count of party. Yeah, 158 00:07:38,400 --> 00:07:41,760 Speaker 1: which means that their vall that is being bought. They're 159 00:07:41,760 --> 00:07:44,160 Speaker 1: buying the vall from the retail customers to sell to 160 00:07:44,200 --> 00:07:45,239 Speaker 1: their institutional customers. 161 00:07:45,280 --> 00:07:49,120 Speaker 2: Yeah. Yeah, but they're not the ones headlining the CTF necessarily. 162 00:07:49,280 --> 00:07:53,400 Speaker 1: Yeah right. I never fully understood the structured nets business. 163 00:07:53,640 --> 00:07:55,720 Speaker 1: But like part of it is like the retail and 164 00:07:55,800 --> 00:07:59,400 Speaker 1: high not worth like private wealth bankers are sitting around saying, 165 00:07:59,440 --> 00:08:02,200 Speaker 1: like what can we sell to our customers to make money? 166 00:08:02,560 --> 00:08:04,920 Speaker 1: And then part of it is like the institutional vault 167 00:08:04,920 --> 00:08:07,760 Speaker 1: traders are sitting around thinking where can we get some 168 00:08:07,880 --> 00:08:10,880 Speaker 1: voll and like there's a meeting of the minds. So 169 00:08:10,960 --> 00:08:13,160 Speaker 1: here like the you know, the JP Morgan valltraders are happy, 170 00:08:13,200 --> 00:08:15,200 Speaker 1: even if they're not like making the DF fee. I mean, 171 00:08:15,200 --> 00:08:17,240 Speaker 1: they're making some sort of fee on your point about 172 00:08:17,240 --> 00:08:19,720 Speaker 1: who's this is four? Yeah, I read about this this 173 00:08:19,760 --> 00:08:22,160 Speaker 1: week and it reader emailed me, so remind me of 174 00:08:22,880 --> 00:08:24,560 Speaker 1: there's a catastrophe bond etf. 175 00:08:24,680 --> 00:08:29,080 Speaker 2: Yes, I love IOLs is the taker iOS and launched 176 00:08:29,080 --> 00:08:30,360 Speaker 2: without a lead market maker. 177 00:08:31,480 --> 00:08:33,720 Speaker 1: Yeah, and there's like a Bloomer article about it from 178 00:08:33,840 --> 00:08:36,640 Speaker 1: April saying the securities can be a hard cell for 179 00:08:36,679 --> 00:08:38,920 Speaker 1: retail investors who have never before had to price the 180 00:08:39,000 --> 00:08:41,560 Speaker 1: risk of a typhoon or earthquake. Ei way, they're not 181 00:08:41,600 --> 00:08:44,800 Speaker 1: pricing it now, they're a price taker. But anyway, they 182 00:08:44,920 --> 00:08:48,000 Speaker 1: quote someone saying the asset class does itself no favors 183 00:08:48,000 --> 00:08:51,520 Speaker 1: by having catastrophe in the name. At least it's clear though. 184 00:08:51,640 --> 00:08:54,319 Speaker 1: At least you kind of know like the basic contours 185 00:08:54,320 --> 00:08:56,560 Speaker 1: of what you're doing when it's this catastrophe in the name. Here, 186 00:08:56,640 --> 00:08:59,240 Speaker 1: it's called an auto callable, which is like tells you nothing, 187 00:09:00,000 --> 00:09:02,000 Speaker 1: and you know it's a big like headline, Yeah, this 188 00:09:02,000 --> 00:09:03,200 Speaker 1: is how much yell do you? And you're like, oh, 189 00:09:03,280 --> 00:09:05,640 Speaker 1: y old to create it. Then you're like, oh, I 190 00:09:05,679 --> 00:09:09,400 Speaker 1: can lose all my money. Yeah. Also, it's like if 191 00:09:09,400 --> 00:09:12,080 Speaker 1: you're into this sort of thing, which I know you're not. No, 192 00:09:12,440 --> 00:09:15,040 Speaker 1: you're into the sort of thing. It's really cool because 193 00:09:15,080 --> 00:09:18,559 Speaker 1: it's like the structure of it is basically you know, 194 00:09:18,600 --> 00:09:21,280 Speaker 1: it's an autocol, so there's like knock in and knockouts 195 00:09:21,280 --> 00:09:23,720 Speaker 1: and stuff. Basically, if the index is down forty percent 196 00:09:24,360 --> 00:09:25,920 Speaker 1: is when you start to lose money. Like instead of 197 00:09:25,920 --> 00:09:27,120 Speaker 1: getting a nice coupon. 198 00:09:26,840 --> 00:09:28,240 Speaker 2: It's like very rarely happens. 199 00:09:28,480 --> 00:09:32,600 Speaker 1: Okay, you say that. Yeah, the reason you say that 200 00:09:32,840 --> 00:09:36,000 Speaker 1: is because you and I and probably mostly who'll buying 201 00:09:36,080 --> 00:09:38,800 Speaker 1: it have an intuition of what the index is. But 202 00:09:38,840 --> 00:09:41,000 Speaker 1: the index that they use is not the S and P. 203 00:09:41,480 --> 00:09:45,240 Speaker 1: The index that they use is a like volatility targeted 204 00:09:45,440 --> 00:09:47,600 Speaker 1: S and P. Oh, So basically they like lever the 205 00:09:47,640 --> 00:09:49,920 Speaker 1: S and P to get you to a thirty five 206 00:09:49,920 --> 00:09:53,000 Speaker 1: percent volatility. Okay, essually in the ballpark of two x 207 00:09:53,080 --> 00:09:56,079 Speaker 1: leverard a little more than two x LeVert So a 208 00:09:56,160 --> 00:09:57,760 Speaker 1: twenty percent drop in the S ANDP is not that 209 00:09:57,840 --> 00:10:01,360 Speaker 1: common either. But it's like it's yeah, and like you 210 00:10:01,400 --> 00:10:04,400 Speaker 1: see forty percent, like forty percent that never happens, but 211 00:10:04,440 --> 00:10:06,880 Speaker 1: like the innex reps like twenty ish percent, you lose 212 00:10:07,040 --> 00:10:10,000 Speaker 1: forty percent of your money. So it's like the structure 213 00:10:10,080 --> 00:10:12,640 Speaker 1: is not like a lot of structure notes. It's like 214 00:10:12,679 --> 00:10:14,600 Speaker 1: you can tell the story and I supposed you know, 215 00:10:14,600 --> 00:10:16,839 Speaker 1: you're like if the market is down twenty percent, you 216 00:10:16,920 --> 00:10:19,200 Speaker 1: lose twenty percent. It's like very easy to understand here. 217 00:10:19,240 --> 00:10:23,040 Speaker 1: It's like you get this nice yield and sometimes you don't. 218 00:10:23,240 --> 00:10:24,720 Speaker 1: And it's not like when the market is down twenty percent, 219 00:10:24,760 --> 00:10:26,600 Speaker 1: it's like, yeah, like it it's like math and like 220 00:10:26,720 --> 00:10:29,360 Speaker 1: sometimes you don't. Yeah, so it's an intuitive product for 221 00:10:29,400 --> 00:10:30,240 Speaker 1: retail investors. 222 00:10:30,559 --> 00:10:33,400 Speaker 2: Yeah, I'm interested to see if. I mean, just given 223 00:10:33,480 --> 00:10:36,800 Speaker 2: how popular these types of ETFs would be if we 224 00:10:36,800 --> 00:10:39,240 Speaker 2: were recording this in twenty nineteen, which we wouldn't, but 225 00:10:39,480 --> 00:10:41,160 Speaker 2: I'd beel like, oh, who's going to buy this? But 226 00:10:41,200 --> 00:10:42,880 Speaker 2: I don't know what could happen. It could see some uptick, 227 00:10:42,960 --> 00:10:46,480 Speaker 2: but I really get it, So we'll see. Like, if 228 00:10:46,800 --> 00:10:49,480 Speaker 2: you can't explain it in an elevator ride. 229 00:10:49,240 --> 00:10:51,160 Speaker 1: You can explain it. It plays a high yield except 230 00:10:51,160 --> 00:10:52,000 Speaker 1: when the market crashes. 231 00:10:52,200 --> 00:10:54,080 Speaker 2: Except when the market crashes. Yeah, but it's you know, 232 00:10:54,120 --> 00:10:56,080 Speaker 2: if the index is about. 233 00:10:55,800 --> 00:10:58,480 Speaker 1: This level, if it's paying numbers, it's hard to explain. 234 00:10:58,559 --> 00:11:01,280 Speaker 1: But well, yeah, a lot of stuff. It's not like 235 00:11:01,559 --> 00:11:04,360 Speaker 1: floors and caps and everything. It's just like phase fifteen percent, 236 00:11:04,400 --> 00:11:08,440 Speaker 1: except when the market's down more than this x percent. 237 00:11:09,800 --> 00:11:12,840 Speaker 2: Something else that was wondering. You know, this has typically 238 00:11:12,880 --> 00:11:15,800 Speaker 2: been the domain of you know, high net worth individuals 239 00:11:16,200 --> 00:11:18,680 Speaker 2: who was making less money as a result of this 240 00:11:18,760 --> 00:11:22,400 Speaker 2: being put in the ETF wrapper, Like does JP Morgan 241 00:11:22,480 --> 00:11:27,320 Speaker 2: care if they're selling these two calamos versus selling this 242 00:11:27,400 --> 00:11:28,400 Speaker 2: in some other structure. 243 00:11:29,320 --> 00:11:31,680 Speaker 1: I always used to have the impression that structured notes 244 00:11:31,720 --> 00:11:34,200 Speaker 1: had very juicy fees. Yeah, but I actually I think 245 00:11:34,200 --> 00:11:36,959 Speaker 1: it's like kind of a competitive business that's not that juicy. 246 00:11:37,240 --> 00:11:40,679 Speaker 2: Yeah, well this ETF charges like seventy four basis points. 247 00:11:41,440 --> 00:11:43,240 Speaker 1: Yeah, but like with anything like this, like there's a 248 00:11:43,280 --> 00:11:46,600 Speaker 1: lot of mouths to feed, and like, yeah, they're doing 249 00:11:46,640 --> 00:11:49,040 Speaker 1: a swap with japing Organ, which is probably a JP 250 00:11:49,160 --> 00:11:50,959 Speaker 1: Morgan expects to make a certain amount of money and 251 00:11:51,000 --> 00:11:55,520 Speaker 1: then swap. I don't know, it's hard to exactly compare 252 00:11:55,559 --> 00:11:57,200 Speaker 1: the pricing of those to a structured note, But I 253 00:11:57,200 --> 00:12:00,400 Speaker 1: don't get the sense that, like I think deserve these 254 00:12:00,400 --> 00:12:02,280 Speaker 1: are a comparable products, right, Like these are sort of 255 00:12:02,360 --> 00:12:07,040 Speaker 1: advisor sold like upper end retail products, and so like 256 00:12:07,120 --> 00:12:09,480 Speaker 1: you know, they're all kind of competitive spaces. But this 257 00:12:09,600 --> 00:12:14,720 Speaker 1: is not like wildly undercutting some super lucrative, uncompetitive business, 258 00:12:14,840 --> 00:12:16,719 Speaker 1: right Like the structured notes is like everyone's kind of 259 00:12:16,720 --> 00:12:17,240 Speaker 1: in on that game. 260 00:12:17,440 --> 00:12:21,480 Speaker 2: Okay, good, you were worried JP Morgan is in losing 261 00:12:21,520 --> 00:12:37,720 Speaker 2: out on anything. Yeah, to move onto the next JP 262 00:12:37,840 --> 00:12:41,840 Speaker 2: Morgan story, I guess the prior credit trading story private 263 00:12:41,960 --> 00:12:42,760 Speaker 2: credit trading. 264 00:12:42,920 --> 00:12:45,680 Speaker 1: It's so good. Yeah, so right. There's a Bloomberg story 265 00:12:45,679 --> 00:12:47,400 Speaker 1: this week by Ellen Schneider and Carmen. 266 00:12:47,200 --> 00:12:49,680 Speaker 2: Araya, A bad how, such a fun read. 267 00:12:49,800 --> 00:12:52,640 Speaker 1: Japi Morgan has stood up this entire private credit trading desk, 268 00:12:52,679 --> 00:12:56,000 Speaker 1: which is so smart, like getting in early on what 269 00:12:56,160 --> 00:12:59,199 Speaker 1: is quite plausibly going to be the next bank line trading, 270 00:12:59,240 --> 00:13:02,559 Speaker 1: like a huge business. But unfortunately they don't do any trade. 271 00:13:02,679 --> 00:13:04,120 Speaker 2: No one wants to trade with them. 272 00:13:04,240 --> 00:13:05,200 Speaker 1: Now you have to start. 273 00:13:05,520 --> 00:13:07,760 Speaker 2: Yeah, yeah, it's. 274 00:13:07,640 --> 00:13:09,079 Speaker 1: Not that no one wants to trade with them. The 275 00:13:09,520 --> 00:13:12,280 Speaker 1: product doesn't trade. Yeah, that's not entirely true. Some of 276 00:13:12,360 --> 00:13:14,040 Speaker 1: it is that no one wants to trade with JP Morgan, 277 00:13:14,360 --> 00:13:16,560 Speaker 1: And like there are some private credit firms trying to 278 00:13:16,559 --> 00:13:18,839 Speaker 1: stand up trading desks, and like maybe it's just the 279 00:13:18,880 --> 00:13:21,920 Speaker 1: competitive dynamic, but I think ninety five percent of it 280 00:13:21,960 --> 00:13:25,240 Speaker 1: is that these loans don't trade and people don't want 281 00:13:25,240 --> 00:13:30,000 Speaker 1: them to trade. Yeah, and so JP Morgan constantly sends 282 00:13:30,040 --> 00:13:33,640 Speaker 1: out runs saying we're looking to buy five million dollar 283 00:13:33,760 --> 00:13:36,920 Speaker 1: chunks of like these forty loans, and here are our bids, 284 00:13:37,200 --> 00:13:38,400 Speaker 1: and everyone's. 285 00:13:37,920 --> 00:13:41,439 Speaker 2: Like thank you, shooting out those runs into the void, and. 286 00:13:41,400 --> 00:13:43,400 Speaker 1: Then they're calling and saying, hey, I just want to 287 00:13:43,440 --> 00:13:47,040 Speaker 1: see if you got my run and I was like, goodbye, God, Yeah, 288 00:13:47,080 --> 00:13:48,480 Speaker 1: it's really bad. It's great. 289 00:13:48,720 --> 00:13:50,960 Speaker 2: The human psychology of that is just brutal, I know, 290 00:13:51,040 --> 00:13:51,959 Speaker 2: but it's what you got to. 291 00:13:51,920 --> 00:13:54,320 Speaker 1: Do, right, And you know that, like the people doing 292 00:13:54,360 --> 00:13:56,240 Speaker 1: that are like, well, this is my shot at like 293 00:13:57,040 --> 00:14:00,640 Speaker 1: being the person who invented a whole new category and 294 00:14:01,120 --> 00:14:03,120 Speaker 1: bringing in, you know, hundreds of millions of dollars of 295 00:14:03,120 --> 00:14:07,440 Speaker 1: revenue and being a superstar. But one, it's not guaranteed 296 00:14:07,440 --> 00:14:09,280 Speaker 1: that will work out. And too, it is guaranteed that 297 00:14:09,320 --> 00:14:10,800 Speaker 1: before it works out, I will spend a lot of 298 00:14:10,800 --> 00:14:13,440 Speaker 1: time could calling people and getting nowhere right. 299 00:14:13,520 --> 00:14:17,240 Speaker 2: Yeah, And I mean as a journalist I sympathize. Yeah, jeez, Louise, 300 00:14:17,280 --> 00:14:17,840 Speaker 2: I hate could. 301 00:14:18,280 --> 00:14:20,840 Speaker 1: As a not very good investment banker in my former life, 302 00:14:21,280 --> 00:14:24,360 Speaker 1: I think about like how long one could have zero 303 00:14:24,400 --> 00:14:27,000 Speaker 1: in one's p and L. Yeah, you know, like they've 304 00:14:27,040 --> 00:14:29,200 Speaker 1: got some run back, right, No one's expecting them to 305 00:14:29,240 --> 00:14:32,240 Speaker 1: do a lot of trade this month. Yeah, at some 306 00:14:32,280 --> 00:14:33,440 Speaker 1: point someone will be like, hey. 307 00:14:33,320 --> 00:14:38,120 Speaker 2: Guys, well there's a few interesting reasons in the article 308 00:14:38,200 --> 00:14:40,480 Speaker 2: that are raised for why JP Morgan is getting shut 309 00:14:40,480 --> 00:14:43,600 Speaker 2: out one is that the private credit firms want big 310 00:14:43,640 --> 00:14:44,960 Speaker 2: banks to stay out of their turf. 311 00:14:45,040 --> 00:14:47,040 Speaker 1: Like, I don't think that's the main reasons presented as 312 00:14:47,040 --> 00:14:49,200 Speaker 1: a reason. That's part of the competitive dynamic of like 313 00:14:49,240 --> 00:14:51,160 Speaker 1: we want to free that bank, and that might be 314 00:14:51,200 --> 00:14:54,280 Speaker 1: part of it. I think the main reasons m hm, Okay, 315 00:14:54,280 --> 00:14:56,480 Speaker 1: So I think like an important reason that the article 316 00:14:56,560 --> 00:14:58,800 Speaker 1: highlights that I think is the second most important reason 317 00:14:59,320 --> 00:15:01,720 Speaker 1: is that this is what Cliff was talking about when 318 00:15:01,760 --> 00:15:02,360 Speaker 1: he came on. 319 00:15:02,680 --> 00:15:03,680 Speaker 2: Like nice callback. 320 00:15:03,880 --> 00:15:07,640 Speaker 1: Private markets are very attractive to a lot of investors 321 00:15:07,880 --> 00:15:11,520 Speaker 1: because they are less volatile than public markets. And if 322 00:15:11,560 --> 00:15:13,280 Speaker 1: you think about that for a fraction of a second, 323 00:15:13,360 --> 00:15:15,960 Speaker 1: or if you talk to Cliff, you'll be like, wait, magic, 324 00:15:16,080 --> 00:15:18,960 Speaker 1: they're not actually less volatiles. They don't trade, so you 325 00:15:18,960 --> 00:15:21,960 Speaker 1: don't see the fluctuations and the values that you see 326 00:15:21,960 --> 00:15:26,320 Speaker 1: in public markets because they trade constantly and so nonetheless, 327 00:15:26,400 --> 00:15:29,160 Speaker 1: like you know, as Cliff has written about, like there 328 00:15:29,240 --> 00:15:33,160 Speaker 1: is for some classes of investors, like a real value 329 00:15:33,160 --> 00:15:35,960 Speaker 1: in not having to mark down your positions. Yeah, and 330 00:15:36,600 --> 00:15:42,680 Speaker 1: if private credit loans traded constantly in a liquid market 331 00:15:42,680 --> 00:15:45,240 Speaker 1: that everyone could see, it would be harder to not 332 00:15:45,360 --> 00:15:48,240 Speaker 1: mark down your positions. When they went down in the market. Yeah, 333 00:15:48,360 --> 00:15:51,400 Speaker 1: and then some of the perceived advantage of private credit 334 00:15:51,440 --> 00:15:54,960 Speaker 1: would go away. And nobody trying to stuff private credit 335 00:15:54,960 --> 00:15:56,920 Speaker 1: into four one case it's going to be all that 336 00:15:56,960 --> 00:15:59,600 Speaker 1: excited about like increasing the volatility of the market. So 337 00:16:00,240 --> 00:16:04,640 Speaker 1: that is I think the second most important reason still. 338 00:16:04,680 --> 00:16:06,920 Speaker 2: I mean, you have Apollo trying to do that, trying 339 00:16:06,920 --> 00:16:09,680 Speaker 2: to make trading a thing, but they're also trying to 340 00:16:09,840 --> 00:16:11,640 Speaker 2: shove private credit into four to one case. 341 00:16:12,080 --> 00:16:13,600 Speaker 1: Yeah, so this is the tension, right, Like you don't 342 00:16:13,600 --> 00:16:17,280 Speaker 1: want volatility, yeah, but like you want retail customers, and 343 00:16:17,560 --> 00:16:21,760 Speaker 1: it is hard to build a retail product that is 344 00:16:21,800 --> 00:16:24,400 Speaker 1: completely a liquid yeah, but it makes sense. There's like 345 00:16:24,440 --> 00:16:27,960 Speaker 1: an economic intuition for like you can put private credit 346 00:16:28,280 --> 00:16:30,320 Speaker 1: into your four oh and K or your target date 347 00:16:30,360 --> 00:16:32,800 Speaker 1: fund and you'll know with certainty that you won't need 348 00:16:32,840 --> 00:16:34,960 Speaker 1: the money for thirty years, so that you can take 349 00:16:34,960 --> 00:16:37,120 Speaker 1: the ill liquidity risk. You don't need liquidity because you're 350 00:16:37,160 --> 00:16:40,240 Speaker 1: a long term saver, right, But nobody actually believes that 351 00:16:40,280 --> 00:16:43,200 Speaker 1: because like retail is like it's hard to lock up 352 00:16:43,240 --> 00:16:47,120 Speaker 1: retail for ten years, right, and so in practice to 353 00:16:47,160 --> 00:16:50,160 Speaker 1: have a retail product, you need something like at least 354 00:16:50,160 --> 00:16:53,320 Speaker 1: an interval fund and maybe an ETF right and an 355 00:16:53,320 --> 00:16:55,320 Speaker 1: ETF if you need trading, right, like you need to 356 00:16:55,320 --> 00:16:57,800 Speaker 1: be able to trade this stuff. So yeah, like there 357 00:16:57,840 --> 00:17:00,640 Speaker 1: is definitely a push for trading a private to get 358 00:17:00,640 --> 00:17:03,320 Speaker 1: it into retail. It's all right, so becuse the other way. 359 00:17:03,520 --> 00:17:05,359 Speaker 1: But I do you think the most important reason that 360 00:17:05,400 --> 00:17:08,800 Speaker 1: it's hard to trade private credit is that the deal 361 00:17:08,840 --> 00:17:13,240 Speaker 1: that private credit firms are offering to borrowers like private 362 00:17:13,280 --> 00:17:17,200 Speaker 1: equity sponsors is we will look you in the eye 363 00:17:17,240 --> 00:17:18,800 Speaker 1: and write you this loan, and we will own that 364 00:17:18,840 --> 00:17:21,800 Speaker 1: loan for the duration of the loan, and if you 365 00:17:21,840 --> 00:17:24,120 Speaker 1: have problems, you come to us, and like, we won't 366 00:17:24,119 --> 00:17:27,520 Speaker 1: be jerks because we're repeat players in this game. And 367 00:17:27,600 --> 00:17:32,800 Speaker 1: so once private credit trades, like you know, there's opportunities 368 00:17:32,840 --> 00:17:36,520 Speaker 1: for vulture funds and activists and like you know, loan 369 00:17:36,560 --> 00:17:39,919 Speaker 1: to own investors, and so it's less pleasant for the 370 00:17:39,960 --> 00:17:43,040 Speaker 1: private equity sponsors. And so you know, as they say 371 00:17:43,040 --> 00:17:47,280 Speaker 1: in the article, you know, unlike most bonds, private credit 372 00:17:47,320 --> 00:17:50,560 Speaker 1: loans require the approval of the lead lender and the 373 00:17:50,560 --> 00:17:55,040 Speaker 1: private equity sponsor to trade. So even if JP Murrien 374 00:17:55,080 --> 00:17:56,480 Speaker 1: could get someone to sell them, they'd have to go 375 00:17:56,520 --> 00:17:58,120 Speaker 1: to the sponsor and say, hey, can we buy this loan? 376 00:17:58,200 --> 00:17:58,879 Speaker 1: The sponsor could. 377 00:17:58,720 --> 00:18:03,440 Speaker 2: Say no, yeah, which they have veto power. Basically, Yeah, 378 00:18:03,560 --> 00:18:03,920 Speaker 2: it's not. 379 00:18:03,960 --> 00:18:06,720 Speaker 1: Just veto power. It's not just like we don't want 380 00:18:06,800 --> 00:18:08,720 Speaker 1: our loans to end up in the hands of like 381 00:18:09,080 --> 00:18:12,040 Speaker 1: activists we're scared of. It's also just like we want 382 00:18:12,080 --> 00:18:15,960 Speaker 1: our loans to be held by five people we negotiated 383 00:18:16,000 --> 00:18:18,800 Speaker 1: with rather than like any random person. Yeah, because we 384 00:18:18,840 --> 00:18:21,359 Speaker 1: want to be able to have a relationship with them 385 00:18:21,520 --> 00:18:24,720 Speaker 1: if we need to you know, extend or refinance the loan, 386 00:18:24,800 --> 00:18:26,560 Speaker 1: or you know, we run into problems or we need 387 00:18:26,600 --> 00:18:28,320 Speaker 1: to restructure, Like, we want to be able to talk 388 00:18:28,320 --> 00:18:29,959 Speaker 1: to people who we know and who like we have 389 00:18:30,000 --> 00:18:33,600 Speaker 1: a long term, repeat relationship with, rather than you know, 390 00:18:34,359 --> 00:18:39,000 Speaker 1: some random CLO manager. Yeah, and so that makes it 391 00:18:39,040 --> 00:18:40,080 Speaker 1: hard to trade re regret it. 392 00:18:40,320 --> 00:18:42,560 Speaker 2: So how does this evolve? I know that you're in 393 00:18:42,640 --> 00:18:46,160 Speaker 2: the camp. It seems that it kind of feels inevitable. 394 00:18:46,240 --> 00:18:49,200 Speaker 1: Yeah, I think so, But there's like a real cut argument. 395 00:18:49,480 --> 00:18:52,320 Speaker 2: Yeah, and you also have I mean, like you said, 396 00:18:52,320 --> 00:18:54,399 Speaker 2: the private equity sponsors don't want this. You also have 397 00:18:54,440 --> 00:18:56,879 Speaker 2: like the likes of Blual who thinks that private should 398 00:18:56,880 --> 00:18:59,840 Speaker 2: stay private. I mean, like, how do you see this evolving? 399 00:19:00,320 --> 00:19:04,399 Speaker 2: Will there be a corner that remains in the shadows, 400 00:19:04,680 --> 00:19:07,199 Speaker 2: or do you think that everything eventually will be out 401 00:19:07,200 --> 00:19:08,080 Speaker 2: in the open and traded. 402 00:19:08,560 --> 00:19:10,159 Speaker 1: You know, I think it's going to be contractual, and 403 00:19:10,200 --> 00:19:11,879 Speaker 1: so like, you know, you see a little of this in 404 00:19:11,880 --> 00:19:15,640 Speaker 1: the probably syndicated load market, where some loans are very 405 00:19:15,680 --> 00:19:18,760 Speaker 1: restrictive about who can buy them. And for the most part, 406 00:19:19,000 --> 00:19:22,159 Speaker 1: people think of the proably syndicated load market as like, 407 00:19:22,280 --> 00:19:24,240 Speaker 1: you know, kind of trading, and like banks have trading 408 00:19:24,240 --> 00:19:25,959 Speaker 1: desks and it's trades and it's you know, you can 409 00:19:26,000 --> 00:19:28,359 Speaker 1: get like marks and stuff, but it's not as like 410 00:19:28,400 --> 00:19:30,439 Speaker 1: what is the bond market, And like some loans you know, 411 00:19:30,520 --> 00:19:33,879 Speaker 1: have long restricted lists where people can't buy it. You 412 00:19:33,880 --> 00:19:36,040 Speaker 1: can have that in private credit, right where like some 413 00:19:36,280 --> 00:19:40,120 Speaker 1: sponsors some deals don't trade very much because they're very restrictive, 414 00:19:40,160 --> 00:19:43,760 Speaker 1: and other people say, I don't really care. I will 415 00:19:43,760 --> 00:19:46,840 Speaker 1: get a better price if I allow more trading with 416 00:19:46,920 --> 00:19:49,119 Speaker 1: my loans, and so I'll just take the better price. 417 00:19:49,840 --> 00:19:54,159 Speaker 1: And it's like interestingly, like there aren't that many private 418 00:19:54,160 --> 00:19:56,960 Speaker 1: credit firms and there aren't that many private aquity sponsors right, 419 00:19:57,040 --> 00:20:01,280 Speaker 1: Like it's all kind of like oligopolistic, and you could imagine, 420 00:20:01,320 --> 00:20:03,800 Speaker 1: like you know, people just come into arrangements and say, okay, fine, 421 00:20:03,840 --> 00:20:08,280 Speaker 1: well well you know, or like you have your reasons 422 00:20:08,280 --> 00:20:11,280 Speaker 1: for borrowing from firms that really don't allow trading, or 423 00:20:11,280 --> 00:20:13,600 Speaker 1: you have your reasons for buying from firms that love trading, 424 00:20:13,640 --> 00:20:15,280 Speaker 1: and like, you know, you could maybe you get a 425 00:20:15,280 --> 00:20:17,359 Speaker 1: better price with more liquidity and you know all the 426 00:20:17,359 --> 00:20:21,160 Speaker 1: other stuff. Yeah. Another possibility then a couple of reader 427 00:20:21,160 --> 00:20:23,639 Speaker 1: emails about this is like you can sort of like 428 00:20:23,880 --> 00:20:29,240 Speaker 1: halfway allow private credit trading where instead of selling the 429 00:20:29,359 --> 00:20:32,159 Speaker 1: loan to someone, you sell like a participation in the 430 00:20:32,200 --> 00:20:36,200 Speaker 1: loan where the original lender keeps like the servicing rights 431 00:20:36,200 --> 00:20:39,960 Speaker 1: and keeps the relationship with the borrower, but someone else 432 00:20:40,080 --> 00:20:43,320 Speaker 1: is buying the economic value of the loan. That's like 433 00:20:43,400 --> 00:20:46,359 Speaker 1: sort of a compromise that might work, and might you know, 434 00:20:46,560 --> 00:20:48,439 Speaker 1: give you some of the things that you want, like 435 00:20:49,400 --> 00:20:51,240 Speaker 1: letting the original lenders cash out a little bit or 436 00:20:51,280 --> 00:20:53,680 Speaker 1: de risk a little bit. It's like a little hard 437 00:20:53,720 --> 00:20:55,919 Speaker 1: to imagine because like with leverage loans, a lot of 438 00:20:55,920 --> 00:20:58,280 Speaker 1: what people do want is like the control rights and 439 00:20:58,320 --> 00:21:00,800 Speaker 1: the servicing rights and the ability to like have a 440 00:21:00,840 --> 00:21:03,280 Speaker 1: seat at the table in the restructuring. But maybe that's 441 00:21:03,280 --> 00:21:03,879 Speaker 1: the way I've heard to. 442 00:21:03,880 --> 00:21:19,639 Speaker 2: Get Yeah, it'll be fun to find out, Katie. 443 00:21:20,320 --> 00:21:22,000 Speaker 1: This is my last podcast. 444 00:21:21,640 --> 00:21:25,080 Speaker 2: Because because you got the call from Mark. 445 00:21:24,920 --> 00:21:28,359 Speaker 1: Zucker from too, I think it was fake. 446 00:21:28,400 --> 00:21:32,760 Speaker 2: There. It's hard to know because apparently we're not alone 447 00:21:32,800 --> 00:21:35,040 Speaker 2: in thinking that our Mark Zuckerberg calls were fake. 448 00:21:36,520 --> 00:21:38,240 Speaker 1: I'm just kidding that in fact it is. 449 00:21:38,400 --> 00:21:40,200 Speaker 2: Oh, I'm not knowing, No, I'm kidding. 450 00:21:40,240 --> 00:21:42,120 Speaker 1: Does seem to be the case that every single day, 451 00:21:42,160 --> 00:21:45,840 Speaker 1: every researcher in the world has gotten Mark Zuckerberg sliding 452 00:21:45,840 --> 00:21:49,320 Speaker 1: into their dms. Yeah, and ninety five percent of them 453 00:21:49,320 --> 00:21:52,879 Speaker 1: have been like, that's not Mark Zuckerberg, which is weird, right, Yeah, 454 00:21:52,920 --> 00:21:55,639 Speaker 1: which is weird because I don't know, it's so weird, 455 00:21:56,640 --> 00:22:00,760 Speaker 1: Like just the concept no, the job market. Oh yeah, 456 00:22:01,440 --> 00:22:03,160 Speaker 1: I was writing a little bit about this, Like I'm 457 00:22:03,240 --> 00:22:07,600 Speaker 1: used to like the financial industry, where the job is 458 00:22:07,640 --> 00:22:10,800 Speaker 1: to pay people enough that they don't live for your competitors, 459 00:22:11,119 --> 00:22:12,880 Speaker 1: but not so much that they leave to like sit 460 00:22:12,960 --> 00:22:16,159 Speaker 1: on a beach, right, Right, you need them to still 461 00:22:16,200 --> 00:22:19,600 Speaker 1: want more money but not be able to get it elsewhere, right, 462 00:22:20,960 --> 00:22:22,560 Speaker 1: And like you know, there's like a range, right, Like 463 00:22:22,600 --> 00:22:24,360 Speaker 1: there's like if you pay them more than X, they 464 00:22:24,400 --> 00:22:26,040 Speaker 1: won't go to your competitors. And if you pay them 465 00:22:26,080 --> 00:22:27,680 Speaker 1: less than why they won't quit to go to the beach, 466 00:22:27,720 --> 00:22:29,120 Speaker 1: And like you know why is go to the next 467 00:22:30,280 --> 00:22:35,280 Speaker 1: In AI, it's like it's flipped in AI. To out 468 00:22:35,320 --> 00:22:39,280 Speaker 1: compete your competitors for the best AI talent, you need 469 00:22:39,320 --> 00:22:42,520 Speaker 1: to pay the best aay Italian one hundred million dollars. Yeah, 470 00:22:43,680 --> 00:22:46,360 Speaker 1: and I'm like to like a twenty eight year old, 471 00:22:46,440 --> 00:22:50,080 Speaker 1: right if I love my job. 472 00:22:50,119 --> 00:22:51,840 Speaker 2: But yeah, for sure if I got a. 473 00:22:51,920 --> 00:22:54,160 Speaker 1: Hundred million dollars, I wouldn't do it anymore. 474 00:22:54,480 --> 00:22:56,440 Speaker 2: Yeah, yeah, that's true. 475 00:22:56,600 --> 00:22:58,679 Speaker 1: That's too much money. So are you don't need to 476 00:22:58,720 --> 00:22:59,480 Speaker 1: work anymore? 477 00:22:59,640 --> 00:23:02,080 Speaker 2: Are you applying it's just more important that they don't 478 00:23:02,080 --> 00:23:03,000 Speaker 2: work at open AI? 479 00:23:03,960 --> 00:23:04,480 Speaker 1: What do you mean? 480 00:23:04,680 --> 00:23:06,280 Speaker 2: Listening to you talk, it sounds like you're saying that 481 00:23:06,320 --> 00:23:09,480 Speaker 2: Mark Zuckerberg is hiring these people just so they're not 482 00:23:09,520 --> 00:23:11,400 Speaker 2: working in a working It's. 483 00:23:11,320 --> 00:23:13,359 Speaker 1: Very bizarre to me. I assume there's some sort of 484 00:23:13,400 --> 00:23:15,760 Speaker 1: like structure on their compensation where they don't just get 485 00:23:15,800 --> 00:23:17,399 Speaker 1: a bag of money on the first day and then 486 00:23:17,880 --> 00:23:19,600 Speaker 1: but no, I don't think he's like hiring them to 487 00:23:19,600 --> 00:23:21,600 Speaker 1: get them out of open AI. I think he's genuinely 488 00:23:21,680 --> 00:23:24,880 Speaker 1: trying to build a giant AI research. 489 00:23:24,560 --> 00:23:28,280 Speaker 2: Project, super intelligent you, and it's. 490 00:23:28,160 --> 00:23:31,320 Speaker 1: Apparently intended to include every AI researcher in the world 491 00:23:31,359 --> 00:23:34,240 Speaker 1: at one hundred million dollars a pop. And it's amazing. 492 00:23:34,760 --> 00:23:36,919 Speaker 2: I think their desks are also going to be close 493 00:23:37,040 --> 00:23:39,320 Speaker 2: to Mark Zuckerberg. They're going to be physically close to 494 00:23:39,400 --> 00:23:39,880 Speaker 2: him as well. 495 00:23:39,880 --> 00:23:44,000 Speaker 1: They're going to be made out of diamonds. I truly like, 496 00:23:44,040 --> 00:23:45,960 Speaker 1: I'm used to finance, but like in tech, it's like 497 00:23:46,000 --> 00:23:49,200 Speaker 1: a famous concept of like resting investing right, Like it's 498 00:23:49,240 --> 00:23:53,480 Speaker 1: famously like there are people who, by virtue of being 499 00:23:53,520 --> 00:23:58,640 Speaker 1: early employees at successful companies, don't need to work anymore. Yeah, 500 00:23:58,840 --> 00:24:02,200 Speaker 1: in an AI there only those people. Every person who 501 00:24:02,200 --> 00:24:04,880 Speaker 1: works that A doesn't need to work anywhere. It's so strange. 502 00:24:04,960 --> 00:24:08,119 Speaker 1: I'll be really motivated by building AI. 503 00:24:08,440 --> 00:24:10,680 Speaker 2: Yeah, I mean, I just find I'm exaggerating. 504 00:24:10,680 --> 00:24:12,080 Speaker 1: I'm sure there're like some listeners who are like, I 505 00:24:12,119 --> 00:24:13,760 Speaker 1: don't think it paid like eight million dollars a year 506 00:24:13,760 --> 00:24:15,879 Speaker 1: and I work in AI, and it's really like, you're 507 00:24:16,000 --> 00:24:18,600 Speaker 1: really exaggerating. I agree, I'm really exaggerating, but you keep 508 00:24:18,680 --> 00:24:21,520 Speaker 1: reading story by Peep forgetting Yeah, really enormous. 509 00:24:21,840 --> 00:24:22,800 Speaker 2: It's super disheartening. 510 00:24:23,119 --> 00:24:25,399 Speaker 1: I find I love when people get paid a lot 511 00:24:25,440 --> 00:24:27,199 Speaker 1: of money. It's just like rising times left all. 512 00:24:27,200 --> 00:24:30,520 Speaker 2: But it's just a good guy. I find Mark Zuckerberg 513 00:24:30,640 --> 00:24:34,480 Speaker 2: just a fascinating individual. I find Meta fascinating as well. 514 00:24:35,480 --> 00:24:38,760 Speaker 2: You know, Meta used to be called Facebook, and then 515 00:24:39,200 --> 00:24:44,119 Speaker 2: he spent so much money on the metaverse tanked the stock. 516 00:24:44,400 --> 00:24:47,040 Speaker 2: This was a huge thing, like how much money he 517 00:24:47,119 --> 00:24:49,760 Speaker 2: was funneling in for no return. Then they had to 518 00:24:49,760 --> 00:24:52,560 Speaker 2: do the Year of Efficiency or whatever. They fired a 519 00:24:52,560 --> 00:24:55,520 Speaker 2: bunch of people. I do wonder if we're watching this 520 00:24:55,640 --> 00:24:58,159 Speaker 2: build up again when it comes. 521 00:24:57,920 --> 00:25:00,840 Speaker 1: Specifically, it's a general matter. I kind of think that 522 00:25:00,920 --> 00:25:05,200 Speaker 1: like AI is the real version of like the meta 523 00:25:05,640 --> 00:25:07,680 Speaker 1: the metaverse, or the fake version, you know, like yeah, 524 00:25:07,800 --> 00:25:08,240 Speaker 1: I don't. 525 00:25:08,119 --> 00:25:12,080 Speaker 2: Know, MANKI is more real than the metaverse, like the 526 00:25:12,080 --> 00:25:12,879 Speaker 2: grown up version. 527 00:25:13,000 --> 00:25:14,919 Speaker 1: I just feel like you can look look at like 528 00:25:15,840 --> 00:25:18,680 Speaker 1: the ll ms and like ask them to do useful things, 529 00:25:18,680 --> 00:25:21,040 Speaker 1: and they do useful things and like oh that was useful, right, 530 00:25:21,359 --> 00:25:23,199 Speaker 1: and then like the metaverse, it's like I don't have 531 00:25:23,280 --> 00:25:24,840 Speaker 1: legs in a video, you know. 532 00:25:24,880 --> 00:25:26,600 Speaker 2: Like here's the Eiffel Tower, right. 533 00:25:27,200 --> 00:25:29,960 Speaker 1: Like the metaverse was obviously intuitively stupid the whole time. 534 00:25:30,080 --> 00:25:33,320 Speaker 2: I don't know, he spent so much money. No, we're 535 00:25:33,359 --> 00:25:35,600 Speaker 2: not cutting this, this is good. I don't know if 536 00:25:35,600 --> 00:25:39,080 Speaker 2: I've made this point on the podcast before, but I truly, truly, 537 00:25:39,160 --> 00:25:41,359 Speaker 2: truly believe that if he had just waited, like a 538 00:25:41,400 --> 00:25:44,520 Speaker 2: year or two, it would be AI Platforms. I feel like, 539 00:25:45,359 --> 00:25:48,159 Speaker 2: in his part of heart, does he regret naming it 540 00:25:48,200 --> 00:25:49,120 Speaker 2: meta platforms. 541 00:25:49,800 --> 00:25:53,480 Speaker 1: I would like it at another like meta platforms is 542 00:25:53,480 --> 00:25:56,520 Speaker 1: a fine name for whatever nonsense you're doing, Like it's fine. 543 00:25:57,359 --> 00:26:00,480 Speaker 1: Metaverse platform is terrible that meta like meta. 544 00:26:00,720 --> 00:26:02,800 Speaker 2: Yeah, I feel like everyone has kind of forgotten that 545 00:26:02,960 --> 00:26:06,960 Speaker 2: the metata I agree that. I do seriously wonder though, 546 00:26:06,960 --> 00:26:09,800 Speaker 2: if we're watching round two of this though this build up, 547 00:26:09,840 --> 00:26:11,840 Speaker 2: and that in a couple of years, maybe we're going 548 00:26:11,880 --> 00:26:19,639 Speaker 2: to be talking about massive layoffs and you know metasi. 549 00:26:17,560 --> 00:26:21,200 Speaker 1: Researcher speakcause like if it stops being fun, they'll just 550 00:26:21,280 --> 00:26:22,920 Speaker 1: leave because they have one hundred million dollars. 551 00:26:23,080 --> 00:26:28,439 Speaker 2: That's true, that's true. It is interesting to contrast how 552 00:26:28,480 --> 00:26:32,240 Speaker 2: hard Mark Zuckerberg and Meta are going at AI versus 553 00:26:32,280 --> 00:26:35,680 Speaker 2: like Apple, where the narrative is very much that they've 554 00:26:35,720 --> 00:26:37,920 Speaker 2: fallen behind. And then you think about Microsoft, which has 555 00:26:38,040 --> 00:26:41,080 Speaker 2: just been shedding thousands and thousands of jobs. 556 00:26:41,119 --> 00:26:44,480 Speaker 1: Like Meta stands, Microsoft has like the open air well 557 00:26:44,680 --> 00:26:48,200 Speaker 1: sort of it's like complicated, but Microsoft sort of has 558 00:26:48,240 --> 00:26:50,560 Speaker 1: like you know, open ai as its AI horse. 559 00:26:50,800 --> 00:26:54,159 Speaker 2: Yeah, yeah, that's true, just simply making the point that 560 00:26:54,200 --> 00:26:56,960 Speaker 2: like Meta is moving in a lot of different ways 561 00:26:56,960 --> 00:26:59,400 Speaker 2: than some of its magnificent seven peers. 562 00:26:59,480 --> 00:27:01,840 Speaker 1: Sure right, No, I'm sure that a lot of the 563 00:27:01,880 --> 00:27:05,439 Speaker 1: piers are having the same thought you are, which is like, 564 00:27:06,400 --> 00:27:09,879 Speaker 1: spending billions and billions of dollars to hire twenty people 565 00:27:10,040 --> 00:27:14,200 Speaker 1: is surely not an efficient, yeah way to do anything. 566 00:27:14,440 --> 00:27:17,560 Speaker 2: But seems like shareholders are on board for the time being. Though. 567 00:27:20,119 --> 00:27:23,880 Speaker 1: I think enough reasonable people think there's some sort of 568 00:27:23,920 --> 00:27:26,199 Speaker 1: like winner take all aspect of this that it's not 569 00:27:26,240 --> 00:27:28,600 Speaker 1: insane to be like we're going to spend billions and 570 00:27:28,640 --> 00:27:31,680 Speaker 1: billions of dollars to hire every AI researchers that no 571 00:27:31,720 --> 00:27:33,840 Speaker 1: one else can have them. I mean, it's a little insane, 572 00:27:33,840 --> 00:27:36,160 Speaker 1: but it's like it's within the parameters. I do want 573 00:27:36,160 --> 00:27:37,960 Speaker 1: to say. I've been talking about people get paid one 574 00:27:38,000 --> 00:27:41,119 Speaker 1: hundred million dollars. But that's not the cap. There's like, 575 00:27:41,520 --> 00:27:43,680 Speaker 1: what is it scale AI that they bought. 576 00:27:44,240 --> 00:27:45,200 Speaker 2: Yeah, that's the other story. 577 00:27:45,240 --> 00:27:48,399 Speaker 1: I've bought for fourteen billion dollars. Yeah, of which not 578 00:27:48,440 --> 00:27:51,520 Speaker 1: all of it goes to the handful of founders they wanted. 579 00:27:51,560 --> 00:27:53,960 Speaker 1: But those people are getting paid more than one hundred 580 00:27:53,960 --> 00:27:56,399 Speaker 1: million dollars to come work from META. It's not called salary, 581 00:27:56,440 --> 00:27:57,560 Speaker 1: it's called like acquisition. 582 00:27:57,640 --> 00:28:00,520 Speaker 2: But I think you jokingly referred to twenty eight year olds, 583 00:28:00,600 --> 00:28:02,520 Speaker 2: but isn't the co founder? 584 00:28:04,040 --> 00:28:07,040 Speaker 1: This is the thing, Like, for one thing, these salaries 585 00:28:07,080 --> 00:28:09,440 Speaker 1: are so much higher than like twenty eight year olds 586 00:28:09,520 --> 00:28:13,000 Speaker 1: usually get paid in like the financial industry. But for 587 00:28:13,000 --> 00:28:15,719 Speaker 1: another thing, like I choked about this, but it's kind 588 00:28:15,760 --> 00:28:18,000 Speaker 1: of true. Like you work in finance, Like you start 589 00:28:18,000 --> 00:28:20,480 Speaker 1: out making like a nice living, but like you see 590 00:28:20,520 --> 00:28:23,840 Speaker 1: everyone around you with like their compounds and amagansett and 591 00:28:23,880 --> 00:28:26,520 Speaker 1: you're like, oh, I want that, And then like as 592 00:28:26,560 --> 00:28:28,719 Speaker 1: you move up the ladder, you get paid like millions 593 00:28:28,760 --> 00:28:30,960 Speaker 1: of dollars, but you're like, I need more millions of 594 00:28:31,000 --> 00:28:34,160 Speaker 1: dollars to have the lifestyle that I've come to expect. 595 00:28:34,240 --> 00:28:38,080 Speaker 1: Right in Hay, like all these people started two years ago, 596 00:28:38,360 --> 00:28:39,480 Speaker 1: they don't need anymore. 597 00:28:39,600 --> 00:28:42,520 Speaker 2: I don't think it's like this are so just retire. 598 00:28:42,760 --> 00:28:45,120 Speaker 1: It's just like finance is a good job of creating 599 00:28:45,200 --> 00:28:48,560 Speaker 1: the wants in people. Yeah, that lead them to want 600 00:28:48,600 --> 00:28:51,000 Speaker 1: to keep working even if they're making tens of millions 601 00:28:51,040 --> 00:28:53,720 Speaker 1: of dollars a year. Yeah. I guess that's true in 602 00:28:53,760 --> 00:28:57,360 Speaker 1: the tech industry too, but it seems less reliable. Like 603 00:28:57,360 --> 00:28:58,760 Speaker 1: all these people are right out of grad school and 604 00:28:58,800 --> 00:29:01,960 Speaker 1: they're getting paid hundred million. They weren't getting paid hundred 605 00:29:01,960 --> 00:29:04,600 Speaker 1: million dollars five years ago. They weren't starting at firms 606 00:29:04,600 --> 00:29:07,640 Speaker 1: where Yeah, like the CEOs of those firms were making 607 00:29:07,840 --> 00:29:10,480 Speaker 1: hundreds of millions of dollars because five years ago the 608 00:29:10,520 --> 00:29:12,480 Speaker 1: AI people weren't making hundreds of millions of dollars. 609 00:29:12,600 --> 00:29:15,640 Speaker 2: This is vaguely reminding me of a conversation I believe 610 00:29:15,640 --> 00:29:17,440 Speaker 2: that we had on this podcast a couple of weeks 611 00:29:17,480 --> 00:29:21,640 Speaker 2: ago about how it feels like every tech founder or 612 00:29:21,680 --> 00:29:23,760 Speaker 2: like social media site, like there has to be like 613 00:29:23,960 --> 00:29:27,440 Speaker 2: some element of like we're saving the world or like 614 00:29:27,480 --> 00:29:30,720 Speaker 2: we're changing humanity or something like that. I wish I 615 00:29:30,720 --> 00:29:33,400 Speaker 2: could remember what exactly we were talking about, And I 616 00:29:33,440 --> 00:29:35,320 Speaker 2: think I made the point, or at least I was thinking, 617 00:29:35,360 --> 00:29:38,160 Speaker 2: like I wish that they would just say I'm making 618 00:29:38,200 --> 00:29:40,400 Speaker 2: a social media site that I'm going to sell ads 619 00:29:40,400 --> 00:29:43,360 Speaker 2: on or something like. I feel like with these people 620 00:29:43,400 --> 00:29:44,960 Speaker 2: that are making so much money, though maybe it is 621 00:29:45,040 --> 00:29:49,280 Speaker 2: true that like they view their mission is like higher than. 622 00:29:50,040 --> 00:29:52,280 Speaker 1: Well, I think that AI, I mean whatever, Like I 623 00:29:52,280 --> 00:29:58,240 Speaker 1: think AI is like there is some level at which 624 00:29:59,600 --> 00:30:03,000 Speaker 1: you are like ultimately selling ads on social media sites, 625 00:30:03,320 --> 00:30:05,720 Speaker 1: but like not that it's not. 626 00:30:05,760 --> 00:30:08,120 Speaker 2: As much Yeah, no, no, no, no. 627 00:30:08,080 --> 00:30:09,640 Speaker 1: I think that like there are a lot of gradios 628 00:30:09,640 --> 00:30:12,720 Speaker 1: claims about like the effects on humanity of like you 629 00:30:12,760 --> 00:30:15,600 Speaker 1: know these l ms, but is something that's true. Yeah, 630 00:30:16,240 --> 00:30:19,880 Speaker 1: it seems like a more fundamental thing to work on then, No. 631 00:30:19,760 --> 00:30:22,880 Speaker 2: This is just seems a little bit more like I 632 00:30:22,880 --> 00:30:23,720 Speaker 2: could see that like. 633 00:30:23,680 --> 00:30:25,480 Speaker 1: A real you know, we're changing the world. 634 00:30:25,520 --> 00:30:27,200 Speaker 2: You can have a real mission statement when it comes 635 00:30:27,240 --> 00:30:29,720 Speaker 2: to this. But I can't remember what exactly. 636 00:30:30,520 --> 00:30:32,120 Speaker 1: Pay one hundred million dollars, that's really important? 637 00:30:32,160 --> 00:30:36,360 Speaker 2: That's true. I would take one year at one hundred 638 00:30:36,360 --> 00:30:40,360 Speaker 2: million dollars and I'd probably leave. What's what I'm saying, Yeah, 639 00:30:40,720 --> 00:30:41,640 Speaker 2: we're in alignment. 640 00:30:41,680 --> 00:30:45,280 Speaker 1: I feel like, Okay, so I feel like that's why we. 641 00:30:45,320 --> 00:30:47,080 Speaker 2: Both picked up the phone call from Mark. 642 00:30:46,960 --> 00:30:52,240 Speaker 1: Zuckerberg, and that was The Money Stuff Podcast. 643 00:30:52,400 --> 00:30:54,360 Speaker 2: I'm Matt Levian and I'm Katie Greifeld. 644 00:30:54,760 --> 00:30:56,840 Speaker 1: You can find my work by subscribing to The Money 645 00:30:56,840 --> 00:30:59,320 Speaker 1: Stuff newsletter on Bloomberg dot com. 646 00:30:59,000 --> 00:31:01,520 Speaker 2: And you can find me on Bloomberg TV every day 647 00:31:01,560 --> 00:31:04,640 Speaker 2: on Open Interest between nine to eleven am Eastern. 648 00:31:04,880 --> 00:31:06,560 Speaker 1: We'd love to hear from you. You can send an 649 00:31:06,600 --> 00:31:09,800 Speaker 1: email to Moneypod at Bloomberg dot net, ask us a 650 00:31:09,880 --> 00:31:11,280 Speaker 1: question and we might answer it on air. 651 00:31:11,760 --> 00:31:13,880 Speaker 2: You can also subscribe to our show wherever you're listening 652 00:31:14,000 --> 00:31:16,000 Speaker 2: right now and leave us a review. It helps more 653 00:31:16,040 --> 00:31:16,920 Speaker 2: people find the show. 654 00:31:17,640 --> 00:31:20,440 Speaker 1: The Money Stuff Podcast is produced by Anna Maserakus and 655 00:31:20,480 --> 00:31:21,320 Speaker 1: Moses onam. 656 00:31:21,480 --> 00:31:23,560 Speaker 2: Our theme music was composed by Blake Maples. 657 00:31:23,880 --> 00:31:26,160 Speaker 1: Brandon Francis Newnham is our executive. 658 00:31:25,720 --> 00:31:28,440 Speaker 2: Producer, and Stage Bauman is Bloomberg's head of Podcasts. 659 00:31:28,760 --> 00:31:31,080 Speaker 1: Thanks for listening to The Money Stuff Podcast. We'll be 660 00:31:31,200 --> 00:31:32,720 Speaker 1: back next week with more stuff