Latest / Merryn Talks Money / Money Stuff: The Podcast: Guy on Twitter: PSUS, Left, ETFs

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Money Stuff: The Podcast: Guy on Twitter: PSUS, Left, ETFs · Merryn Talks Money

0:03
Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
0:10
Speaker 2: Hello listeners, Today John and I are bringing you something
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Speaker 2: rather special. While we're off on our little break. We
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Speaker 2: thought you would all enjoy listening to an episode of
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Speaker 2: Money Stuff, the podcast. You may already be familiar with
0:20
Speaker 2: Bloomberg Opinion columnist Matt Levine. Matt rats the Money Stuff newsletter.
0:24
Speaker 2: He used to be an investment banker at Goldman, Sachs
0:26
Speaker 2: and m and a lawyer, and now he's a podcaster.
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Speaker 2: Every week, Man's joined by Katie Greifeld, a journ us
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Speaker 2: with Bloomberg News and an anchor for Bloomberg Television. They
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0:46
Speaker 3: Hello, and welcome to The Money Stuff Podcast, your weekly
0:49
Speaker 3: podcast where we talk about stuff related to money. I'm
0:54
Speaker 3: Matt Levian and I read the Money Stuff column for
0:56
Speaker 3: Bloomberg Opinion.
0:57
Speaker 1: And I'm Katie Greythel, a reporter for Bloomberg News and
0:59
Speaker 1: an ink for Bloomberg Television. Katie, we got some news
1:03
Speaker 1: this week, Oh big time. We're going to talk about
1:05
Speaker 1: Bill Ackman. Obviously, we're going to talk about Andrew Left,
1:09
Speaker 1: which should be fun, and then we're going to talk
1:11
Speaker 1: about BONDI TFS, which maybe will maybe we'll be fun.
1:15
Speaker 1: We'll find out.
1:21
Speaker 3: Where to start.
1:23
Speaker 1: Oh my gosh. Yeah, So we went from twenty five
1:26
Speaker 1: billion dollars to two and a half to four billion
1:29
Speaker 1: dollars to two billion dollars. Now we're at I think
1:31
Speaker 1: zero dollars.
1:33
Speaker 3: There was kind of a pits up at ten billion
1:34
Speaker 3: as well.
1:35
Speaker 1: I know I was in there somewhere.
1:36
Speaker 3: There's a hard gap at ten billion, which which they
1:41
Speaker 3: did not hit the hard gap.
1:42
Speaker 1: No, no, So I don't even know what to say.
1:45
Speaker 1: I mean, this was pretty spectacular to follow. We knew
1:49
Speaker 1: that he was road showing this IPO of a closed
1:52
Speaker 1: end funds Pershing Square USA exactly. He has a European
1:56
Speaker 1: version which trades at a big discount, which is a
2:00
Speaker 1: material part of this story, and it kept getting downsized
2:03
Speaker 1: and now it was pulled entirely. They're reevaluating it. And
2:08
Speaker 1: along that path we got a letter that was released
2:12
Speaker 1: which maybe Bill Lackman didn't know was going to be released,
2:15
Speaker 1: and then we had some investors bowing out as well.
2:18
Speaker 3: Right. So the story started with they're doing a road
2:23
Speaker 3: show for this IPO. There was talk of it being
2:26
Speaker 3: twenty five billion dollars, which would be a lot of
2:28
Speaker 3: money for a closed end fund or just in general,
2:31
Speaker 3: it would be a very very very large IPEA. So
2:34
Speaker 3: he's got all these companies, right. So he runs a
2:36
Speaker 3: hedgehund called Pushing Square. There's a management company that runs
2:39
Speaker 3: the hedge funds, and that like collects the fees from
2:41
Speaker 3: the hedge funds and the clothes end funds. And he
2:44
Speaker 3: recently sold about a ten percents take in the management
2:47
Speaker 3: company to a few institutional and High night Worth investors.
2:51
Speaker 3: And last week he sent a letter to those guys,
2:54
Speaker 3: those people who were investors in his management company, saying essentially, hey,
2:58
Speaker 3: it would be really helpful if you had put in
3:00
Speaker 3: orders in the Pushing Square USA closes Undfund IPO. And
3:04
Speaker 3: I read that letter and it seemed to me that
3:09
Speaker 3: that's not a good sign. I probably underplayed this when
3:13
Speaker 3: I wrote about it, because there are other possible interpretations, right, Like,
3:16
Speaker 3: one possible interpretation is that b. Lackman is just unusually
3:20
Speaker 3: candid about how the IPO process works to his management
3:23
Speaker 3: company investors, but it sort of seemed like he was saying, hey, guys,
3:25
Speaker 3: it would really help out a lot if you could
3:27
Speaker 3: put it in an order. Yeah. I used to be a
3:29
Speaker 3: capital markets banker and you would do a deal and
3:33
Speaker 3: you would get calls from investors and they would say,
3:35
Speaker 3: how's the deal going, And there's only one answer you
3:37
Speaker 3: can give them. You say, the deal is going great.
3:39
Speaker 3: There's so much demand. You really better put your order
3:42
Speaker 3: in because otherwise you're going to miss out. Because this
3:44
Speaker 3: deal is going so good, so many people wanted to
3:46
Speaker 3: buy it. You can't like necessarily lie if the deal
3:49
Speaker 3: is going poorly, but you say things like, oh, there's
3:51
Speaker 3: a lot of interest, we're having a lot of meetings.
3:52
Speaker 3: The feedback is really good. You should put in your
3:54
Speaker 3: order quick, right. You try to create the sense of excitement.
3:57
Speaker 3: If the deal is not going well, then like you
3:59
Speaker 3: might call up your best friend investor and say, hey,
4:02
Speaker 3: it would really help out if you had put it
4:03
Speaker 3: in a big order, because that would get us over
4:05
Speaker 3: the line, that would create some momentum. And it sort
4:08
Speaker 3: of seemed like that was what Acman was doing by
4:11
Speaker 3: sending this letter to the people who were already in
4:13
Speaker 3: his management company. Problem is if you do that publicly,
4:17
Speaker 3: everyone can read it, and no, that's a bad sign.
4:21
Speaker 3: So I do think that, like the letter did not
4:23
Speaker 3: necessarily help very much, because I do think that some
4:26
Speaker 3: people read it and think, well, this suggests that there's
4:29
Speaker 3: not a ton of demand.
4:30
Speaker 1: Yeah, And I was just going to bring up bow
4:32
Speaker 1: Posts because he did name a few investors in that
4:35
Speaker 1: letter to investors saying hey, it would help if you
4:37
Speaker 1: could invest more. He mentioned that bow Post Capital had
4:41
Speaker 1: previously committed to investing one hundred and fifty million dollars,
4:43
Speaker 1: and then Bloomberg News broke the news that actually they
4:48
Speaker 1: were pulling out. There weren't reasons given, but reportedly he
4:54
Speaker 1: didn't like being named.
4:56
Speaker 3: Yeah, I mean, no one wants to be named as
4:58
Speaker 3: the endorser for a deal. Nless, I've sort of explicitly
5:01
Speaker 3: agreed to that. I think the Blueberg story suggested that
5:03
Speaker 3: there's some political seth Klerman as a Democrat and Bill
5:06
Speaker 3: Ackman has become like a very vocal Trump supporter. But
5:09
Speaker 3: I don't know. I think that either of those are
5:11
Speaker 3: possible explanations. But like, here's another explanation. If you interpreted
5:15
Speaker 3: that letter to mean there's not a ton of demand.
5:17
Speaker 3: Then even if you were already in the book, you
5:20
Speaker 3: would take your order out of the book, right, yeah,
5:22
Speaker 3: Because this is the problem with this thing is like,
5:24
Speaker 3: you can be a long term investor, right, you can say,
5:28
Speaker 3: I like Bill Ackman. I think that he's going to
5:30
Speaker 3: compound my money at a high rate, and so I
5:32
Speaker 3: want to be invested in his fund, and I'll invest
5:35
Speaker 3: you know, this month and hold it for ten years
5:38
Speaker 3: and expect Bill Ackman to compound my money for me.
5:42
Speaker 3: But the problem is that on the first day of trading,
5:46
Speaker 3: this thing is either going to trade up or it's
5:48
Speaker 3: going to trade down. And as you said, his existing
5:51
Speaker 3: clothes unfund trades at a big discount to its net
5:53
Speaker 3: acid value. Most closed un funds traded discounts to their
5:57
Speaker 3: net acid value. And so if you're an investor, instead
6:01
Speaker 3: of buying the shares at fifty dollars in the IPO,
6:04
Speaker 3: you might say, well, I'll just wait until the next
6:06
Speaker 3: day and I'll buy them at a discount. I'll buy
6:08
Speaker 3: them at like forty five or whatever. So it would
6:11
Speaker 3: be sort of silly to buy in the IPO if
6:12
Speaker 3: you could wait to buy at a discount. The whole
6:16
Speaker 3: point in the IPO process is for Bill Acmin to
6:18
Speaker 3: tell people, no, no, it's going to trade it at
6:20
Speaker 3: a premium, right, And so he makes that case in
6:22
Speaker 3: this letter that he sent these investors and that was
6:24
Speaker 3: then made public sort of by accident. He makes the
6:26
Speaker 3: case that is going to trade at a premium. You know.
6:28
Speaker 3: The essential case is that a lot of retail investors,
6:31
Speaker 3: for one reason or another, aren't going to get shares
6:34
Speaker 3: in the IPO. Like the main one is that most
6:36
Speaker 3: retail investors, most retail brokerages aren't going to get allocated
6:39
Speaker 3: anything in the IPO. Also, there are some European retail
6:42
Speaker 3: investors who would want to buy shares, but who can't
6:45
Speaker 3: buy them in the IPM. So all these retail investors
6:48
Speaker 3: want to buy shares in the Bill Ackman IPO, they
6:50
Speaker 3: can't buy it at the time of the IPO, so
6:53
Speaker 3: they'll buy it the next day in the aftermarket, and
6:55
Speaker 3: there'll be so much retail demand and maybe so much
6:57
Speaker 3: institutional demand that the IPO will trade up, and if
7:00
Speaker 3: you wait to buy in the aftermarket, you'll have to
7:02
Speaker 3: pay fifty five dollars a share instead of fifty dollars
7:04
Speaker 3: a share. But the IPO was so big that the
7:08
Speaker 3: really essential question is is there going to be enough
7:11
Speaker 3: institutional demand in the aftermarket? Is there going to be
7:14
Speaker 3: institutional demand the next day? And there were just kept
7:17
Speaker 3: being indications that there was just not enough institutional demand
7:20
Speaker 3: to like price a really tight large IPO. And so
7:25
Speaker 3: if you thought that there wasn't that much institutional demand,
7:28
Speaker 3: then you'd say, well, it'll trade down to forty five
7:29
Speaker 3: and I'll wait until the buy the next day, and
7:31
Speaker 3: then there will be no institutional demand. Right, If everyone's
7:34
Speaker 3: going to wait to buy it, then no one will
7:35
Speaker 3: buy it in the IPA.
7:36
Speaker 1: Well, two points on that, the first one being this
7:39
Speaker 1: statement that they put out. Did acknowledge that they said
7:42
Speaker 1: that this question that's the whole thing? Yeah, basically, would
7:45
Speaker 1: investors be better served waiting to invest in the aftermarket
7:48
Speaker 1: than the IPO? Yes, it sounds like I mean, if
7:51
Speaker 1: you just look at the history of closed end funds.
7:53
Speaker 1: Also to the point of retail demand, I mean, Bill
7:57
Speaker 1: Lackman has a million something follow on Twitter, which is
8:01
Speaker 1: a lot. That's a huge audience, but it seems quite
8:04
Speaker 1: tricky to turn followers into investors. That's not necessarily guaranteed.
8:10
Speaker 1: And you think about the following that he has on Twitter.
8:13
Speaker 1: I would imagine that the majority of those people, or
8:16
Speaker 1: at least a sizable portion, aren't necessarily following him for
8:20
Speaker 1: his investing acumen.
8:22
Speaker 3: He'd be sad. I mean, I hear you, right. I
8:25
Speaker 3: mean he's he's courting controversy and a lot of Twitter
8:27
Speaker 3: opinions and not mainly tweeting about. Part of that, by
8:30
Speaker 3: the way, is like he has said that he wants
8:33
Speaker 3: to be able to tweet more about investing and because
8:36
Speaker 3: of like the legal structures that he currently operates, and
8:38
Speaker 3: he can't just go have his toc pics on Twitter,
8:41
Speaker 3: and once he launches Pershing Threw USA, he can. But yeah,
8:44
Speaker 3: I hear you, right, I mean, like his Twitter following
8:46
Speaker 3: is not purely about investing.
8:48
Speaker 1: What I am wondering is what this means for the
8:50
Speaker 1: overall Pershing Square IPO. Because he did sell that ten
8:54
Speaker 1: percent stake for a billion dollars, just over a billion dollars,
8:58
Speaker 1: And I mean they've said that the success of this
9:03
Speaker 1: pie sus IPO is very important to the eventual IPO
9:07
Speaker 1: of Pershing Square.
9:08
Speaker 3: Oh yeah, I mean he sold a ten percent stake
9:10
Speaker 3: in the management company. The management company is just like
9:12
Speaker 3: the thing that collects fees from the funds that he runs.
9:15
Speaker 3: Right right now, he runs about eighteen billion dollars worth
9:17
Speaker 3: of funds, and they sold the stake in the management
9:20
Speaker 3: company at a ten billion dollar valuation. It's sort of
9:22
Speaker 3: crazy to imagine that the entity that collects fees on
9:26
Speaker 3: eighteen billion dollars worth of funds is worth ten billion dollars, right,
9:29
Speaker 3: They can't be right, right? That implies that he would
9:31
Speaker 3: take like half of the value from his investors' funds
9:34
Speaker 3: for himself or for his investors. Now, the only way
9:37
Speaker 3: you can get to a ten billion dollar valuation for
9:38
Speaker 3: the management company is if you think that the management
9:43
Speaker 3: company is very soon going to manage a lot more money.
9:46
Speaker 3: And I think, obviously the case that was made to
9:49
Speaker 3: these management company investors is we are going to transform
9:53
Speaker 3: from a smallish hedge fundition manager to a sort of
9:57
Speaker 3: more institutional asset manager that attracts it's a lot of
10:00
Speaker 3: retail interest and a lot of institutional interest, and runs
10:03
Speaker 3: tens of billions of dollars and has a publicly traded
10:06
Speaker 3: permanent capitol vehicle and has like this steady stream of
10:10
Speaker 3: large earnings from running large amounts of money and then
10:14
Speaker 3: you know, I think if you were investing in the
10:15
Speaker 3: measurment company, somewhere in your mind was the notion of
10:19
Speaker 3: a twenty five billion dollar pieces IPO and a zero
10:22
Speaker 3: dollar pieces IPO makes that case more challenging. The other
10:26
Speaker 3: thing I want to say about the management company is
10:28
Speaker 3: so I wrote on Thursday about the problem here, which
10:31
Speaker 3: is that it's very hard to sell these shares at
10:35
Speaker 3: nav because you expect to close on fund to trade
10:38
Speaker 3: at a discount. Everyone wants a discount. Well, how do
10:42
Speaker 3: you sell the shares at a discount? Because the shares
10:44
Speaker 3: are just a it's a pot of money, right, So
10:46
Speaker 3: you can't sell you know, one hundred dollars worth of
10:48
Speaker 3: money at ninety dollars because then you only have ninety dollars.
10:51
Speaker 3: So how do you create a discount? And I wrote
10:53
Speaker 3: about some possible ways to do that, which come down
10:56
Speaker 3: to kind of pershing square putting in some money, with
10:59
Speaker 3: several reader emailed me immediately to be like, well, here's
11:02
Speaker 3: the obvious way to do it. The obvious way to
11:04
Speaker 3: do it is to put some of the management company
11:06
Speaker 3: into pieces. So instead of really I've been seating the
11:09
Speaker 3: fund with like a billion dollars of his own money
11:12
Speaker 3: for free. He could see it with ten percent of
11:15
Speaker 3: pushing square the management company for free, and then Pieces
11:19
Speaker 3: would have a net asset value more than just the
11:22
Speaker 3: cash that investors put in. And then the investors say, okay,
11:26
Speaker 3: I'm getting a discount and they put in their money,
11:28
Speaker 3: and this is a good idea. And you know, someone
11:31
Speaker 3: drew the analogy to like Vanguard, where Vanguard investors do
11:35
Speaker 3: own a piece of the management company. It's because it's
11:37
Speaker 3: a mutual company. But the problem here is you sort
11:40
Speaker 3: of already promised the management company in an IPO to
11:43
Speaker 3: these other investors, right, so to say we're going to
11:45
Speaker 3: push the management company into pieces is a little bit
11:48
Speaker 3: more challenging. So what does it mean for the for
11:51
Speaker 3: the IPO added, it's like a setback, right, I mean
11:53
Speaker 3: the IPO was I think premised on the Pieces IPO
11:58
Speaker 3: going really well, and with him having a hard time
12:01
Speaker 3: raising money for Pieces, it's harder to get to a
12:05
Speaker 3: ten billion dollar valuation for the management company.
12:07
Speaker 1: There's also the question of why does he want to
12:10
Speaker 1: be public, Like why does he want to take the
12:12
Speaker 1: overall hedge fund company public? I mean, there aren't many
12:16
Speaker 1: of them The obvious example is the Sculptor Rhythm thing,
12:20
Speaker 1: which didn't exactly turn out well, which also had Bill
12:23
Speaker 1: Lackman involvement.
12:24
Speaker 3: Yeah, minor involvement. Yeah, I don't know. You know, the
12:26
Speaker 3: reason for launching the Clothes End Fund is quite straight apward, right,
12:29
Speaker 3: I mean, you have permanent capital vehicle. You get to
12:31
Speaker 3: go on TV and twet your stock picks and then
12:33
Speaker 3: hopefully you can create some momentum in your stocks.
12:36
Speaker 1: I mean, he could just launch an ETF. I'll just
12:39
Speaker 1: say it. I know, I know, permanent capital. That's very exciting.
12:43
Speaker 1: I still don't quite understand clothes and funds. I get
12:48
Speaker 1: it from the manager's point of view, permanent capital, that
12:50
Speaker 1: seems really great. But from the investor point of view,
12:53
Speaker 1: I don't know why you would do that.
12:55
Speaker 3: No, I think he can make a good case for
12:57
Speaker 3: that here because he is not possibly like takeover or
13:01
Speaker 3: inclined investor. Then knowing how much money you have for
13:05
Speaker 3: the long term is actually really important, right. I mean,
13:07
Speaker 3: if you have an ETF and they're withdrawals and you
13:10
Speaker 3: still have of your positions, right, that is easy to
13:12
Speaker 3: do if you are just the index one, right, But
13:15
Speaker 3: it's harder to do if you are doing the kinds
13:17
Speaker 3: of trades that the Lagmann wants to do, which are
13:20
Speaker 3: like these like long term fundamental equity and trades, but
13:23
Speaker 3: also like you know, derivative trades. I mean, like some
13:25
Speaker 3: of their track record is from CDX beats going into COVID,
13:29
Speaker 3: and again that's harder to do if your capital can
13:31
Speaker 3: vanish every night. So I think that from his perspective,
13:34
Speaker 3: it's obviously good to have permanent capital. And I think
13:36
Speaker 3: he can make the case to investors that actually, like
13:39
Speaker 3: permanent capital is the way that I create value and
13:41
Speaker 3: ETF doesn't make sense for the for the kind of
13:43
Speaker 3: investing that I do. I think that's a reasonable case.
13:46
Speaker 1: Yeah.
13:46
Speaker 3: So the question of why does he want to take
13:48
Speaker 3: the manager company public, I don't know. I mean some
13:50
Speaker 3: of it is like I think anyone else, like, you know,
13:52
Speaker 3: you want some legacy, right, I Mean, there's this perception
13:55
Speaker 3: that with like the sort of famous hedge fund managers
13:58
Speaker 3: of like Acman's vent. It's like there's a perception that
14:01
Speaker 3: the management company is like that one guy. And I
14:04
Speaker 3: think that they would like to have a proof of
14:06
Speaker 3: concept that actually it's an institution and really the investing
14:10
Speaker 3: team has kind of transitioned away from him, and it's
14:12
Speaker 3: not just him, and it's a permanent entity that will
14:16
Speaker 3: exist forever and provide wealth for him forever, right, instead
14:20
Speaker 3: of like when he quits, the thing vanishes. So I
14:22
Speaker 3: think there's a temptation for anyone who runs a company
14:25
Speaker 3: to take that company public so you can, you know,
14:28
Speaker 3: take money off the table and have permanent shares instead
14:31
Speaker 3: of just like your own labor. But right, the track
14:33
Speaker 3: record of it is kind of challenging.
14:35
Speaker 1: Yeah, well, let's see if pieces gets off the ground
14:38
Speaker 1: when it comes to the eventual pershing square IPO. Apparently
14:41
Speaker 1: he's already thought of how to make this structure work.
14:46
Speaker 1: That was also in the press release that don't.
14:48
Speaker 3: Get excited, Yeah, excited to see like next week's piece
14:51
Speaker 3: of structure. I think putting part of the management company
14:54
Speaker 3: into it, putting some cash into it that doesn't come
14:56
Speaker 3: from investors or possibilities. Yeah, you know, I wrote it
15:00
Speaker 3: in a foot like SPACs do kind of provide the
15:04
Speaker 3: technology for this, right, Like get spac at a very
15:07
Speaker 3: high level, is a sponsor puts in some money to
15:10
Speaker 3: pay the startup costs, then the sponsor kind of sells
15:13
Speaker 3: shares at net asset value to investors, and then if
15:16
Speaker 3: the sponsor does a good job and finds a good deal,
15:19
Speaker 3: the sponsor gets a lot of like free upside. So
15:22
Speaker 3: there's this like carter, where like if the thing is
15:26
Speaker 3: those kind of me the shareholders get all their money back,
15:31
Speaker 3: so they are protected against the problems of investing it
15:35
Speaker 3: at NAV and then having the NAV go down. If
15:37
Speaker 3: the thing does poorly, then the manager the sponsor eats
15:42
Speaker 3: the loss, and if the thing does really really well,
15:44
Speaker 3: the shareholders give up some of the upside and it
15:47
Speaker 3: goes to the sponsor, and so the sponsor has the
15:49
Speaker 3: sort of asymmetric trade where the sponsor puts in some
15:51
Speaker 3: money that's at risk, but then if it does really well,
15:53
Speaker 3: the sponsor makes a lot of money. You can imagine
15:55
Speaker 3: a structure like that for pieces, where you know, Bill
15:59
Speaker 3: Ackman seeds it with money, and if it trades below
16:03
Speaker 3: net asset value, he kind of bears the first loss
16:06
Speaker 3: so that the investors who buy in the IPO still
16:08
Speaker 3: get at least the amount of money they put in.
16:10
Speaker 3: And then if the thing does really well, he gets
16:11
Speaker 3: warrants or something so that he gets upside to compensate
16:15
Speaker 3: him for that like, that's a structure that could work.
16:17
Speaker 3: You could do something like that. That's easy enough.
16:19
Speaker 1: That's some good ideas here.
16:21
Speaker 3: Party wants to, you know, quit podcast and then go
16:23
Speaker 3: structure pieces mark two. But most of me, it doesn't.
16:27
Speaker 3: Most of me just wants the podcast about it. Andrew Left.
16:43
Speaker 1: Andrew Left, So this story broke. I think it was
16:46
Speaker 1: on Friday.
16:47
Speaker 3: That's right, because I wrote on Friday and then I
16:49
Speaker 3: published on Saturday. Because I didn't hit the send button
16:51
Speaker 3: on my email. That's really I don't that is.
16:56
Speaker 1: Made mistake there amateurs.
16:59
Speaker 3: To call him on Friday on the web and the terminal,
17:02
Speaker 3: and then I didn't hit send on the email, and
17:06
Speaker 3: no one told me until I told my wife I
17:09
Speaker 3: published the column, and she's like, oh, I didn't get it. Next.
17:11
Speaker 1: Wow. I feel like there's some arbitrage to do there.
17:14
Speaker 3: If you had the inside information about my column, you
17:16
Speaker 3: could have traded Andrew Left features a day early. I
17:18
Speaker 3: don't know.
17:19
Speaker 1: I bring that up the timeline because it feels crazy
17:22
Speaker 1: that we haven't talked about this yet.
17:23
Speaker 3: Yeah, we just missed it last week.
17:25
Speaker 1: So set the scene for us at the table.
17:27
Speaker 3: So Andrew Left is a guy on Twitter. There's a
17:31
Speaker 3: lot of people like this who are activists short sellers.
17:34
Speaker 3: So what he does is he finds companies that he
17:36
Speaker 3: thinks are bad, sometimes on valuation, often because he thinks
17:40
Speaker 3: they're frauds, and he shorts their stock and then he
17:45
Speaker 3: publishes angry reports saying what a fraud they are, and
17:49
Speaker 3: then he tweets those reports and then their stock goes down,
17:52
Speaker 3: and that's how he makes money. A lot of these
17:54
Speaker 3: people are guys on Twitter who may or may not
17:58
Speaker 3: have something like Ahead fund or something called a hedge fund.
18:01
Speaker 3: But when Andrew Left got in trouble last week the SEC,
18:05
Speaker 3: one of its complaints about him was that he wasn't
18:06
Speaker 3: really running a hedge fund. He didn't know outside money.
18:09
Speaker 3: He was just a guy investing his personal account. I
18:11
Speaker 3: assume a lot of activists shorts are just guys investing
18:15
Speaker 3: their personal accounts. But it just sounds nicer. So Andrew
18:18
Speaker 3: Left is Andrew Left, but he's also Sitron Research, which
18:20
Speaker 3: just sounds fancier than just being a guy on Twitter.
18:23
Speaker 3: And honestly, I think he's kind of earned it, like
18:25
Speaker 3: he's had a good track record of spotting frauds. You know,
18:29
Speaker 3: he really was instrumental in spotting big problems at Valiant
18:33
Speaker 3: Pharmaceuticals a few years ago in a way that really
18:36
Speaker 3: took billions of dollars off that market cap and was
18:39
Speaker 3: good investigative work. And he has a good track record
18:42
Speaker 3: of finding companies that will go down. So that's his deal.
18:44
Speaker 3: And last Friday, the SEC and the Department of Justice
18:47
Speaker 3: brought charges against him for doing alleged fraud. And basically
18:51
Speaker 3: they're accusing him of doing a reverse pupping dump. Right
18:54
Speaker 3: instead of like saying hey, you should buy the stock
18:56
Speaker 3: and then selling it, he said hey, you should short
18:59
Speaker 3: the stock, and then he bought it. So their accusation
19:01
Speaker 3: is that he would shorten these stocks. He would publish
19:03
Speaker 3: angry reports calling them frauds, and then kind of the
19:06
Speaker 3: minute he published the stock would go down and he
19:09
Speaker 3: would buy back the stock. So five minutes or an
19:12
Speaker 3: hour a day after he published his report, he was
19:15
Speaker 3: no longer short so he took all the risk off
19:17
Speaker 3: the table, and the SEC one I think, just doesn't
19:21
Speaker 3: like that because it just seems like if you're doing
19:25
Speaker 3: it that way, you don't really think the stock is
19:28
Speaker 3: a fraud. You just want to move the stock down
19:30
Speaker 3: so you can make money, and you don't care what
19:32
Speaker 3: happens after that. I don't think that's right. I think
19:35
Speaker 3: the SEC is wrong about that. I think that Andrew
19:37
Speaker 3: Left has a lot of incentive to care about what
19:40
Speaker 3: happens after that first day because this is his livelihood.
19:44
Speaker 3: And if he's always wrong, the stocks will stop going
19:49
Speaker 3: down and this will stop working. The only way this
19:51
Speaker 3: works is that every time he says this company is
19:54
Speaker 3: a fraud, there's a good chance the company is actually
19:56
Speaker 3: a fraud. And if he keeps having a pretty good
19:58
Speaker 3: hit rate, then the stocks will keep going down and
20:00
Speaker 3: he can keep collecting profits on the first day and
20:03
Speaker 3: he doesn't have to wait until, you know, a year
20:05
Speaker 3: later when the company goes bankrupt. But the whole thing
20:08
Speaker 3: doesn't work unless he's got a pretty good head rate.
20:10
Speaker 3: So the SEC doesn't like it for I think some
20:12
Speaker 3: reasons that are wrong. But the SEC also doesn't like
20:14
Speaker 3: it because he lied about it a lot, Like he
20:16
Speaker 3: would go on television and the reporters would say, sorry,
20:19
Speaker 3: you're still short, and he'd say, I'm still short, but
20:21
Speaker 3: he actually had covered So it's like bad, you can't
20:23
Speaker 3: do that. And you know, you think about like a
20:25
Speaker 3: pumping dump, like a classic pumping dump. There's like nothing
20:28
Speaker 3: to it. It's like some guy in a telegram chat
20:31
Speaker 3: room saying they got to buy this microcap stock because
20:34
Speaker 3: it's going to go to the moon, and maybe they
20:36
Speaker 3: give some business case for it, but everyone knows they're kidding.
20:39
Speaker 3: You know, Oh, it's discovered a cure for cancer. And
20:42
Speaker 3: then the stock goes up a little bit and the
20:43
Speaker 3: pump and dumper dumps the stock, and the pumping nupper says, oh,
20:47
Speaker 3: I'm holding on until he gets through one hundred, and
20:49
Speaker 3: I'm all in on this, but he's lying and he's
20:51
Speaker 3: already sold the stock, and the sec sort of sees
20:54
Speaker 3: that in reverse and Andrew left. But I think the
20:57
Speaker 3: difference really is that a pump and dumper normally has
21:00
Speaker 3: no basis for recommending the stock other than like, if
21:03
Speaker 3: we all buy the stock, it'll go up, right. It's
21:05
Speaker 3: just a pure social market dynamic thing. And the only
21:09
Speaker 3: thing that that the audience cares about is that this
21:11
Speaker 3: pump and number is buying the stock. And if the
21:13
Speaker 3: pump and number is actually selling the stock, then like, yeah,
21:15
Speaker 3: it looks like fraud. With Andrew left, I don't think
21:18
Speaker 3: that's how it works. Like, I don't think people were
21:20
Speaker 3: shorting those stocks or selling those stocks because they're like, oh,
21:22
Speaker 3: Andrew Left is short, I'd better be short too. I
21:25
Speaker 3: think they were short in the stocks because Andrew Left
21:27
Speaker 3: published reports saying this company is a fraud, and they
21:30
Speaker 3: thought that's probably true, and often it was true. The
21:33
Speaker 3: SEC complains about this company called Kronoscrip, which is like
21:36
Speaker 3: cannabis company, and it was trading like like nine or
21:39
Speaker 3: ten dollars. And Andrew Left said, I think this is
21:43
Speaker 3: a fraud, and I have a price target of three
21:45
Speaker 3: dollars and fifty cents, and then like the next minute,
21:48
Speaker 3: you know, the stock goes down and he covers his
21:50
Speaker 3: short and he never waits for it to get to
21:52
Speaker 3: three dollars and fifty cents and he gets out of
21:53
Speaker 3: the trade, and then you know, he lies about it
21:55
Speaker 3: and says I'm still short even though he's actually not short.
21:59
Speaker 3: But that stuff got to like two dollars and settled
22:03
Speaker 3: an SEC's case for fraud. He was not wrong. Yeah,
22:06
Speaker 3: So like there's a lot of that where the SEC
22:09
Speaker 3: focuses on what he said about his own trading, but
22:12
Speaker 3: it doesn't focus on whether his reports were honest or accurate.
22:16
Speaker 3: And to me, this is not the law. But to me,
22:18
Speaker 3: like if the reports were honest and he was, you know,
22:21
Speaker 3: largely right, then like yeah, no harm, no fel.
22:23
Speaker 1: So let's talk about what the bright red bad thing was.
22:27
Speaker 1: Was it that he was lying about his actual position
22:30
Speaker 1: in the stock. Had he not said oh I'm still
22:32
Speaker 1: short when he actually had closed out his position, would
22:35
Speaker 1: we be having this conversation?
22:37
Speaker 3: I think not. I mean the actual stuff that he's
22:39
Speaker 3: accused of lying about is mostly that. And then a
22:42
Speaker 3: lot of like he occasionally did deals with other investors
22:46
Speaker 3: where they would pay him for research or there he
22:49
Speaker 3: would you know, he would give them idea they have
22:52
Speaker 3: profit share. There was some like economic deals with other
22:56
Speaker 3: investors where he would deny. You would go around saying
23:01
Speaker 3: we've never been paid for research. We never like partner
23:03
Speaker 3: with any hedge fund. We're always independent, and in fact
23:05
Speaker 3: that wasn't really true. And again the SEC really did
23:09
Speaker 3: get mad at him for saying he was a hedge fund.
23:11
Speaker 3: He would like tweet things like, you know, we want
23:13
Speaker 3: to reassure our investors that blah blah blah, and I
23:15
Speaker 3: oh you don't have investors right, like yeah, like that's dishonest,
23:19
Speaker 3: and like some pumpin' uppers, like do sort of create
23:22
Speaker 3: the impression that they run a lot of money for
23:24
Speaker 3: outside investors in order to like gin up an audience.
23:28
Speaker 3: But I don't know. I feel like everyone kind of
23:30
Speaker 3: knew he was a guy on Twitter with like airs
23:33
Speaker 3: and like that. Yeah.
23:34
Speaker 1: I loved what you had in your column about like
23:38
Speaker 1: him tweeting that about like we want to re ensure investors,
23:41
Speaker 1: and you compared that to you know, you want to
23:43
Speaker 1: reassure your furro one k investors as the manager of
23:46
Speaker 1: your four oh one K. I did lol in my
23:49
Speaker 1: car at that.
23:50
Speaker 3: I love it. By the way, you were reading my
23:51
Speaker 3: column in your car, which I know means listening to
23:53
Speaker 3: your robot read it exactly. I just feel like there's
23:56
Speaker 3: a lot of people in financial markets who are like,
23:59
Speaker 3: I've an ETF in my personal account one, so like
24:02
Speaker 3: I basically been a fund manager. Yeah, you know, anyone
24:05
Speaker 3: could be a fund manager. Those are the things that
24:06
Speaker 3: the SAC is mad about. And I think if he
24:08
Speaker 3: didn't do any of those things, which are all really
24:10
Speaker 3: ancillary to like what people were reading him for, then
24:13
Speaker 3: I think he probably wouldn't get in trouble. I would
24:15
Speaker 3: caveat that by saying again, I really do think that
24:19
Speaker 3: a lot of people really, really really dislike the business
24:23
Speaker 3: model of shorting a company, publishing bad stuff about the company,
24:27
Speaker 3: and then immediately covering. Like even if he never lied
24:30
Speaker 3: about that, even if he said in the fine print
24:32
Speaker 3: of his report like I could cover it any time,
24:34
Speaker 3: and then when he went on TV and they said
24:36
Speaker 3: have you covered, he said no comment or even yes, Like,
24:40
Speaker 3: I think that people would still be really mad about that,
24:43
Speaker 3: because it just seems like that it's dishonest, and I
24:47
Speaker 3: don't think it is, but I do realize that people
24:50
Speaker 3: find it upsetting. People think that if you're doing that,
24:54
Speaker 3: you can't really believe that the company is a front.
24:56
Speaker 3: And to me, it's just there's like a division of
24:58
Speaker 3: labor where he is in the business, so spotting the frauds,
25:01
Speaker 3: calling attention to them, profiting from that first day move
25:04
Speaker 3: and then moving on to the next thing and other
25:06
Speaker 3: people will provide the long term capital to be short
25:08
Speaker 3: the frauds all the way down or whatever.
25:10
Speaker 1: Yeah, and we should probably point out that he has
25:12
Speaker 1: pleaded not guilty to fraud charges.
25:14
Speaker 3: Oh I think he might win. I think you might win, Like, well.
25:18
Speaker 1: Yeah, his lawyer is basically. I mean he's making similar
25:21
Speaker 1: arguments to what you're saying that Left had no duty
25:24
Speaker 1: to disclose his personal trading intentions. He also added that
25:27
Speaker 1: the government wasn't accusing Left of publishing false information, and
25:31
Speaker 1: that feels important.
25:32
Speaker 3: That's true, and it's so important. You know, it's not important,
25:34
Speaker 3: I think to the SEC is like to the government's
25:36
Speaker 3: like analysis of its legal case, but it's so important
25:39
Speaker 3: to everyone else. It's so important to me. Right, If
25:42
Speaker 3: he's publishing reports saying these companies are frauds and they're
25:44
Speaker 3: all frauds, like, what is the problem with that?
25:46
Speaker 1: Maybe he should just be a journalist. I mean he
25:49
Speaker 1: make a lot less money, That's the thing. He'd win
25:53
Speaker 1: the moral moral argument every time, would you.
25:57
Speaker 3: That's true journalists too, and they don't.
25:59
Speaker 1: You know, that's a good question to propose to the
26:02
Speaker 1: broader public. Which do you dislike more journalists or short sellers.
26:07
Speaker 1: I don't know who would win or lose, however you
26:09
Speaker 1: want to phrase it. Robin Wigglesworth had a really long
26:27
Speaker 1: and interesting piece on fixing come ETFs, basically eating the
26:31
Speaker 1: bond market. He wrote it with Will Schmidt, and I
26:33
Speaker 1: have to say that the headline ETFs are eating the
26:37
Speaker 1: bond market. I thought this was going to be a
26:39
Speaker 1: negative story, but I don't think this is necessarily a
26:42
Speaker 1: negative piece.
26:43
Speaker 3: So he quotes me a little bit because I used
26:45
Speaker 3: to have a running gag.
26:47
Speaker 1: That's the important part.
26:48
Speaker 3: People are worried about bond market liquidity, and the notion
26:52
Speaker 3: was like there was the I don't know, a four
26:54
Speaker 3: year period where financial journalists kept saying, bond etf start
27:00
Speaker 3: eating the bond market, and it's so bad because in
27:04
Speaker 3: a crisis, people will be so used to the liquidity
27:07
Speaker 3: of bond ETFs and then when they get their bonds out,
27:10
Speaker 3: they won't be able to sell them and bond prices
27:12
Speaker 3: will go down. And I never understood this concern and
27:14
Speaker 3: thought it was very silly, and now it seems to
27:16
Speaker 3: have gone away, and ratheran now has this piece saying
27:19
Speaker 3: that bond ETFs are eating the bond market and that's good,
27:21
Speaker 3: and I think that I agree. It seems right.
27:24
Speaker 1: It does seem good. I mean, there is, or there
27:27
Speaker 1: used to be, and maybe there still is, but now
27:29
Speaker 1: it just seems a little bit silly. A lot of
27:31
Speaker 1: doom and gloom about bond ETFs. We talked a little
27:34
Speaker 1: bit about the liquidity mismatch last week. I feel like
27:38
Speaker 1: all of those fears were put to rest in March
27:42
Speaker 1: twenty twenty when the FED started buying ETFs, specifically, they
27:45
Speaker 1: started buying corporate bond ETFs, and they didn't buy that many,
27:49
Speaker 1: but they bought bond ETFs. So you have the FED
27:53
Speaker 1: stamp of approval on the structure, and everything turned out fine. Like,
27:57
Speaker 1: I can't imagine a better test.
27:59
Speaker 3: Yeah, I think that. I mean, it's not just the FED, right,
28:01
Speaker 3: I mean, it's like, in that period of crisis, it
28:05
Speaker 3: was hard to trade bonds, I think because it's always
28:08
Speaker 3: hard to trade bonds and a crisis, but it was
28:11
Speaker 3: very easy to trade ETFs, and so I think the
28:13
Speaker 3: perception is that most market participants felt that the ETFs
28:18
Speaker 3: were adding to liquidity rather than subtracting, because at least
28:22
Speaker 3: you could trade the ETF right, which will allowed you
28:24
Speaker 3: to do some sort of like macro positioning around credit,
28:27
Speaker 3: even if it was hard to get off individual bond trades.
28:31
Speaker 3: But I think the other point of Robin's piece is
28:32
Speaker 3: that the ETFs have largely made it easier to get
28:37
Speaker 3: off actual bond trades for a combination of reasons. One
28:40
Speaker 3: of which is that there are all these new dealers
28:44
Speaker 3: who you know, the sort of Jane Streets of the world,
28:46
Speaker 3: who are big ETF market makers. And if you're a
28:48
Speaker 3: big ETF market maker, then as bond ETFs get bigger,
28:51
Speaker 3: you have to get into bond ETF market making. And
28:53
Speaker 3: if you're an ETF market maker, you have to trade
28:56
Speaker 3: both the ETF and the underlying And so Jane Street
28:58
Speaker 3: and all the other inflatrading and all the ETF firms
29:01
Speaker 3: have gotten into bond trading, and so that's another source
29:04
Speaker 3: of liquidity and another set of market makers, another set
29:08
Speaker 3: of balance sheets. And as banks have retreated from market
29:11
Speaker 3: making and a lot of financial products, you have new
29:15
Speaker 3: bond traders that have made bond trading a little bit
29:17
Speaker 3: more liquid. And he also talks about portfolio trading, where
29:21
Speaker 3: instead of trading one bond at a time, you can
29:24
Speaker 3: call up Jane Street and say I have four hundred
29:26
Speaker 3: bonds I want to sell, and they're like, yeah, we
29:28
Speaker 3: could probably stuff most of those into an ETF. So
29:30
Speaker 3: it's fine, Yeah, we'll take them all. And so instead
29:32
Speaker 3: of kind of paying four hundred bit ask spreads, you
29:35
Speaker 3: kind of pay a tighter bit ask spread on a
29:37
Speaker 3: single portfolio, and that's I think improved liquidity for a
29:41
Speaker 3: lot of actual bond managers. So it's a very rosy
29:44
Speaker 3: story of like bond ETFs have made bond market liquidity nicer.
29:48
Speaker 1: It's really a beautiful tale, and I love listening to
29:51
Speaker 1: it and reading it over and over again. I am
29:54
Speaker 1: interested to see how it evolves. Colo ETFs. I remember
29:59
Speaker 1: when those laun sometime in the past three to four years,
30:02
Speaker 1: there was a lot of pearl clutching about that. And
30:04
Speaker 1: there's one ETF in.
30:05
Speaker 3: Protarity lead some pearl clutching.
30:08
Speaker 1: Oh definitely. It's a very scary three letter acronym. But
30:12
Speaker 1: there's this one colo ETF. The ticker is j triple A.
30:15
Speaker 1: It is so big. I think it recently got to
30:18
Speaker 1: ten billion dollars. It's by far the biggest. And there's
30:22
Speaker 1: some people who have pointed out that there's so much
30:25
Speaker 1: demand for this specific ETF, and you know, some of
30:30
Speaker 1: the flow is starting to increase to the other ETFs
30:32
Speaker 1: as well, that it's starting to potentially tighten spreads on
30:37
Speaker 1: clos just because all this money keeps pouring in, the
30:39
Speaker 1: ETF has to keep buying clos and that's actually having
30:42
Speaker 1: an impact in the cash markets as well, which is interesting.
30:46
Speaker 1: Like the question that that raises in my mind is
30:49
Speaker 1: you know, now you have this super accessible wrapper. Maybe
30:54
Speaker 1: it's introducing a new class of investors into that asset
30:58
Speaker 1: class who didn't want to take the time to figure
31:01
Speaker 1: out how to do the mechanics of it before, but
31:03
Speaker 1: now it's super easy, and now you're seeing the ETFs
31:06
Speaker 1: potentially impact that market.
31:09
Speaker 3: Oh yeah, Like a CLO is a relatively painful thing
31:11
Speaker 3: to hold compared to an et which is the stock. Right,
31:14
Speaker 3: So like, if you're a retail investor and you want
31:16
Speaker 3: cl exposure, you can buy a CLO ETF, But also
31:20
Speaker 3: if you're an institution, it's an easier thing to get
31:22
Speaker 3: your head around, and it's an easier thing to trade too. Right,
31:25
Speaker 3: if you want one day of CLO exposure, you can
31:29
Speaker 3: buy the ETF in the morning and sell it in
31:31
Speaker 3: the afternoon, which you can't do as easily with a
31:34
Speaker 3: big diversified portfolio of cls. The story that you told
31:37
Speaker 3: the spreads coming in, it's just in any product, if
31:41
Speaker 3: liquidity is improved, you should expect the valuation of the
31:46
Speaker 3: product to go up right, and the spreads to come
31:47
Speaker 3: in and the ETF technology just improves the liquidity of
31:53
Speaker 3: anything at wraps. And so if you have some audience
31:56
Speaker 3: that would have set out it's like a pain to
31:57
Speaker 3: hold whatever, But we can hold a ETF form, and
32:00
Speaker 3: you put an ETF form, then the liquidity of that product,
32:04
Speaker 3: of the underlying product goes up and the spreads go down.
32:06
Speaker 3: And obviously, you know, the example that we've talked about
32:09
Speaker 3: before is bitcoin, right, I mean Bitcoin was for some
32:12
Speaker 3: subset of investors a pain to hold, and then you
32:14
Speaker 3: put an ETF and bitcoin prices go up. So I
32:18
Speaker 3: think that it's a sort of general use technology.
32:20
Speaker 1: Yeah. I feel like the story of ETF so much
32:23
Speaker 1: of it just comes back to convenience. Like there's a
32:25
Speaker 1: few ETFs out there that just hold two year treasuries,
32:28
Speaker 1: and I remember when those launched, there are a lot
32:31
Speaker 1: of crank saying like why bother, why would I pay
32:34
Speaker 1: someone to do this for me? It's like, because it's easy.
32:37
Speaker 1: It's the easiest thing on earth to just click a button,
32:39
Speaker 1: you buy an ETF and then you don't have to
32:41
Speaker 1: worry about buying those bonds yourself. You know, it's about
32:44
Speaker 1: to say, I wonder how we're going to fit ETFs
32:46
Speaker 1: into next week's episode. But I'm going to Paris, so
32:50
Speaker 1: oh yeah, that's.
32:50
Speaker 3: An important programming note. Katy's in Paris and what is
32:55
Speaker 3: the podcast will be off next week?
32:56
Speaker 1: Right yeah, I'm so excited for me.
32:59
Speaker 3: Are you watching horse Olympics?
33:02
Speaker 1: I am going to the Olympics. I am definitely going
33:04
Speaker 1: to see track and field. I'm so excited, right yeah.
33:08
Speaker 3: Your other sporting love? Is there best check and field
33:11
Speaker 3: event to watch other than like just running around? Like?
33:13
Speaker 3: Is there like is like javelin really exciting?
33:15
Speaker 1: Or My favorite event to watch is probably the eight
33:19
Speaker 1: hundred meters because that's what I ran very averagely in college,
33:25
Speaker 1: So I really like the middle distance events. Everyone loves
33:28
Speaker 1: the sprints though obviously, like the one hundred two hundred
33:31
Speaker 1: meter relays are fun because it feels like Team USA
33:35
Speaker 1: manages to drop the baton a lot, So hopefully we
33:38
Speaker 1: don't do a lot of that this time around.
33:40
Speaker 3: We'll see enjoy your time in Paris, and we will
33:45
Speaker 3: be back here in two weeks with more stuff. And
33:50
Speaker 3: that was the Money Stuff Podcast.
33:52
Speaker 1: I'm Matt Levine and I'm Katie Greyfeld.
33:55
Speaker 3: You can find my work by subscribing to the Money
33:57
Speaker 3: Stuff news that are on Blimberg.
33:58
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34:06
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34:13
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34:19
Speaker 3: The Money Stuff Podcast is produced by Anna Maserakis and
34:22
Speaker 3: Moses Ondam and special thanks this week to Cal Brooks.
34:26
Speaker 1: Our theme music was composed by Blake Maples.
34:29
Speaker 3: Brandon Francis Nudan is our executive.
34:31
Speaker 1: Producer, and Sage Bauman is Bloomberg's head of Podcasts.
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Speaker 3: Thanks for listening to The Money Stuff Podcast. We'll be
34:37
Speaker 3: back next week with Morse Tuff