Also media.
Welcome to Better Offline. I am, of course your host ed Zeitron. Now we're back in the studio in beautiful New York City, New York State. You need to check out the show notes. Of course, we have these beautiful fuck Data Center t shirts. Subscribe to my newsletter and so on and so forth. But today joining me at Swaggage Claim are two of Barons's finest reporters, the legendary Nick Dever who handles the gambling industry, and the Wall
Street reporting legend Rebecca Ungarno. Thank you so much for joining us now, Nick, Yes, we have had so many people emailing about prediction markets, and you cover the gambling industry as well. How are they different? How are they not the same thing, because they very much seem similar. Yeah.
I think from a consumer point of view, there's very difference between these products. You put money on the line, if your team wins, you get paid out. So from like a layman's point of view, I think there's very little difference. However, there is a difference on a gambling In gambling, you're betting against the house, so the betting firm sets the odds that you're betting against, right whereas in a prediction market, your counter party is another trader.
So trader or prediction markets are just essentially brokers that are putting two traders together on one contract. And I can explain that in a little more detail.
If you like, please.
So prediction markets sell what are called event contracts. So event contracts are futures contracts. They're also called binary options, and they're built around yes or no questions. So each contract is worth one dollar, and it has two traders. There's a trader on the yes side and there's a trader on the no side. So like, will this podcast go well, we can make that a prediction market. I hope, I hope it goes well.
Let's get this. I'm just set that up right now. Yeah, yeah, yeah, yeah.
So if person A thinks there's a seventy five percent chance that it will go well, and person B thinks there's a twenty five percent chance that it will not go well, person A pays seventy five cents and person B pays twenty five cents. Right, So if it turns out yes, the yes trader gets the twenty five cents put up by the no trader and makes and now
has a dollar contract. Now, let's say on a second contract, person C thinks there's a twenty five percent chance of yes, person D thinks there's a seventy five percent chance of no. So these two contracts where the odds are flipped average out, and there's a fifty to fifty chance that this podcast goes well, right, right, So the price of the contract is the predictions, and prediction markets are just brokers. The businesses themselves are just connecting to trades.
So where's the crypto side as well? Because I remember when polymarkets started it was a weird crypto thing. But is it still that?
Yeah, I would say it's still a weird crypto thing. They most of their business is still their international side where they just take I think it's US d T, it's some stable coin of that. They all of the contracts are traded on that. That's poly Market. They're an offshore run company. Yeah, offshore meaning right, yeah, I love this, yeah yeah, meaning not regulated in the US, not a
US US based company. Contrast that with Calshi. Calshi was the first registered designated contract market by the CFTC that's the Commodity Futures Trading Commission. They regulate all of this stuff, and so Calshi was the first firm to actually do this in what we would call like the legal way, whereas poly Market does not have to abide by the US regulations because they are not a US firm and they're trying to become They've gotten permissioned to operate in
the US, but they're like slowly rolling that out. A lot of people in the US don't have Polymarket US accounts. Yeah, if you want to trade on poly Market in the US, you're mostly using a VPN.
A new zone, but you unique crypto to do it. Yes. Yeah.
For the international site, this feel was.
Like it be rife with manipulation though.
Yeah, yeah, definitely I think that there because poly market operates, you know, on the blockchain, it's generally all anonymous, and it's very easy to get any kind of market you
want created, there's a lot of concern around manipulation. I think A helpful example is there was some football game or some sporting event, and there was a market for will someone streak at this event, you know, run onto the field naked, and someone did end up streaking, and the person that ended up streaking was someone who was trading on the market, you know, betting yes that someone would end up streaking, and then they went and did it,
and so they made you know, hundreds of thousands of dollars, paid a small fine relative to the sporting people. And you know, now we have so you get into this question. I think a hopeful metaphor is like our prediction markets, a thermostat or a thermometer. Are they like accurately pricing the potential outcome? You know, are they saying that something is going to happen? Or by their very existence do they make something more likely to happen?
Right, Rebecca, How's how are the banker's dealing with this? How's Wall Street looking at this? Because this it's tough to really grosp whether this is gambling or a futures contract, like banging on the chance of stock will go up, will go down, And.
There's such a big difference right now.
It's really interesting because the banks themselves, and this is separate from like the market makers or like you know, higher frequency trading firms. The banks themselves are very highly regulated by like three main agencies, the OCC the Office of the Controller of the Currency, the Federal Reserve, and the FD I see. So they're how they regulated, and then they have a bunch of like state agencies that
regulate them too. So far, the biggest banks have stayed pretty quiet on how they're thinking about these and they're you know, kind of waiting for this regulatory you know clarity. It reminds me a little bit of you know, bitcoin and crypto going mainstream, you know, ten eleven years ago, we're waiting for regulators. We're waiting for regulators, and banks
are They're really complex. They have a bunch of different businesses where they could come in and you know, for example, on the banking side, the investment bankers, you know, have an interest in well, do we want to help them raise money? Do we want to help them raise capital or take them public?
Oh, they're touching any of the fundraising.
They they could my understanding, you would know better than me. On Calsham and poly Market who their investors are. Is a VC is a PE?
Yeah, it's I think it's mostly vcs right now. But they're both targeting There was recent reporting in the Wall Street Journal that they're both poly Market and Calshi are targeting twenty billion dollar valuations.
Now it's just crazy, just totally totally business though.
Yeah, that's that's kind of the thing is there's not like the there's not a lot of difference between trading on poly market and trading on CALSHI, Like you're trading the same kind of the same contract and in effect, like it's the same kind of product that's being traded.
So you kind of get into a similar thing that the sports betting businesses had to deal with, where fan duel and draft kings are essentially you know, identical products selling you know, identical products and trying to differentiate themselves. And so we'll see in the coming months how how that ends up working, Rebecca, on the on the.
Go ahead, we'll be usually well, I mean, and on the trading side, it's a whole other like on the other side of the house exactly. Yeah, And like at the bank, so like you know, these massive trading businesses. It's so some of the reporting that we have so far and we're you know, working on this now and again the banks are being very tight lept on what they're saying about what they're getting involved in or not
getting involved in. This is something that so the investment banks, they're like the bankers, the trading desks and then the research and that's totally separate, and there's like this firewall, right, so research analysts are definitely like looking at these things just like any other input, any other source of information.
Of course, it's yes, there are differences, but it's like, okay, well what is cal she saying about this when you know, maybe a commodity's analyst who's looking at exactly exactly and just another input to look at. So that's all well and good. You can look at that. On the trading side, though, it's more complicated because again the CFTC, like Nick brought up, the Commodity Futures and Trading Commission that you know regulates crypto and you know, is now regulating some of these
prediction marked auctivities. They have to weigh in and they have you know, to some extent, but they're waiting for kind of a more complete look at Okay, golden sacks, you know, traders or enter any other like big bank traders, Like what are we able to trade now? That is
still kind of out there, right. There are event contracts like political elections and you know, things like that quote event contracts, right, and then there are other markets where on securities where it's like uh, that culture polymarket.
Market you can you can do like will and video stock end the day up or down right, And this is something that is happening every day.
Right exactly.
And that's a little more complicated because then you are dealing with securities rather than just like some amorphis like event contract.
So it's like complicated, but legally speaking that I'm sure someone will argue, well, this isn't a security because I'm betting on an outcome rather than scary itself.
Totally, totally, totally.
Also set us up for something kind of dystopian though, if these if banks or traders start trading on these markets where you have some of the bank interest and whether I don't know, a guy streaks ye oh, whether a place gets blown up, like this is where I think the fringes of insanity begin.
Definitely completely, and I just like I'll want you to weigh in or yeah, yeah, yeah, but like it just opens a whole new for banks that are so regulated. Yeah, it opens up a whole new source of like potential liability and like you've done more reporting on.
That, yeah, yeah, we've we've from what we've heard there, the banks are not as interested in those kinds of markets just because there's no like, you know, they don't have an election every single day, and like these destinies to make money, right, so there needs to be like a sustainable, constant kind of liquidity and like enough events for them to actually you know, participate in the markets and the kind of like securities related markets that maybe
these banks would be more interested in that they would have a better edge on whatever. Those are still mostly on poly market, and I really doubt that you know, a tightly regulated like US based bank is going to want to be trading like in stable coin, like on poly market against you know, potential insiders all of this stuff. That just doesn't sound like appealing, I would imagine.
But what about asset like the areas of the world, or like private equity vms or private credit firms? Aren't they different? And might they be dumb? Like might they get them? Might they get themselves involved in I just like yeah, yeah, yeah, yeah. When I see the data center stuff, when I hear in this private credit the private credit stuff with like tricula and first brands and positive gen and uh, I forget whatever was it was the there was the one there's now one in Europe
where that's us. Yeah. Yeah, the random Onneswer is just like yeah, you know when we said we promised you this collateral, we also promised it to seventeen other people. Sorry. Yeah, I worry that they are going to start, like are they allowed to It's.
A great question and my reporting and it's a great storage. It's a great question. I'm not entirely sure like where, if, and how they're coming into these things. In other words, I wouldn't be surprised. I don't know, but I wouldn't be surprised if one of the big private credit players, which is again like some of these things are they are just very lightly regulated banks, like to be clear, right, like they are lending money like and private credit.
Yes, it is a huge put.
So cool, so good.
I love that.
It's a huge debate right now, like is private credit means a lot of different things whatever, But at the end of the day, it is lending outside of the banking system, Okay, like that that is safe to say. So I don't know, but I wouldn't be surprised if there's you know, like a calshie like a polymarket, if there is you know, kind of lending from these firms.
I don't know, but they are becoming the private credit you know, players are becoming so much more active in the private sector, and and just all these private, privately held companies where there's a whole matrix of like areas
where they could become involved. I don't know that, and I would be curious, but it's probably an input that they're looking at too, like just a research you know, input, right, Like you know, we like we look at oh, what is it saying about that we take about the grain of salt, But like, you know, it's still something we're going to look at. But it's an interesting question.
They are the predictions, yeah, sorry, they are. They are quite accurate. The you know, there's you know, we can there can be arguments made about whether or not they are like good for society, whether it's like an okay thing that we can bet on, you know, every single kind of I think the the CAUSHI CEO trect Mansur his quote is that you know, we want to make a monetizable asset out of every difference in opinion Jesus.
Christ, which is like that's like, yeah, the paraphrase Will Manicer of Chapo when he was seeing a video of a new sport with two guys run into each other. You see, this is the kind of thing you do in like.
Robo call, that's what it's giving.
It's like, yeah, we could very like near future dystopian. Well, someone who spends a lot of time lives in Vegas. I just want to say, this is an insult to my beautiful gambling. Yeah, beautiful honest dice roll even all crapsless craps and not this crappy. Yeah, it's it's very strange, and I think we've discussed.
That's a new state motto. By the way, I really like that our craps are not this crappy.
I love that.
I'm gonna rush into that T shirt.
I love that.
No, it's it is really scary though. Someone. I feel like someone's going to die from this, Like it's gonna it's gonna be this person dies by December thirty first, and they're going to get hunted like running men.
Yes, yeah, that's okay, So we're almost there.
Yeah.
So recently, actually there was a bit of controversy over like I guess what we would call death markets on Calshi. So when the US attacked Iran. There were lots of markets on both poly Market and Calshi related to military action in Iran, whether it would happen or not, by when it would happen. Usually these are formatted in like, you know, military strikes in Iran by xedate. Yeah, so one of the contracts that both Calshi and Polymarket had wash Camanie out by x date. Right, so this is
the supreme leader of Iran. Will he be out as preme leader by this date? So the like layman's interpretation of that would mean if he dies, he's out right. You know, that's probably how you would So was he in office anymore, he's dead, he's probably out right. So when on that Saturday Trump announced that he had been killed on poly Market, poly Market resolved their contract. Yes he is out right, right, But Calshi did not do this.
They froze, well, they like pause the market for like eight hours to like figure out how to handle this.
What is the consequence of posing the market just to him? Claire, Oh, it's just that there's no more trading happening, right, does the price move at all? So it's just frozen. It's just frozen.
And what they did is they reset when they made their decision, they refunded everyone their stakes the value of their contracts at last traded price before death. So if there was like a seventy four percent chance that he would be out at twelve fifty nine and he died at one, then they would pay the Yes, contract would pay out seventy four cents, right, right, So they did that in order to isolate the death component, right because Calshi, in what they have told me, they don't want to
allow people to profit on death. That's just not something they're interested in doing.
Right.
However, there was very large controversy around this because all of the Calshi traders who hopped on the Calshi and were like, oh cool, yeah, he's probably going to be out, I'll bet on this, they were Suddenly they did not get the money that they expected to. And Cawshi had like in its rules, in its rule book that was like laid out, there was like some fine print. But yeah, we get into this like weird question of like why didn't they pay because he was out?
Like what was the death?
They don't want people? Death was a carve out? There was a death carve out, so out by any other means but death. Now, the Commanie was like in his mid eighties, so it's kind of hard to imagine that he was going to resign or like, you know, they don't hold snap elections, so I don't really know. So it was just resignation, I guess that, you know, or like kidnapping like we saw in Venezuela. Maybe that was its own own yeah episode, Yeah, that was its own thing,
you know, was was what happened in Venezuela. Does that count as like a war or just like an encourage? So we get into all these really weird questions when the quote unquote oracle of these prediction markets is only resolving based on very specific outcomes, and so at a certain point, the entire point of these prediction markets is that they provide ways to hedge outcomes that you can't
find in other markets. Yes, there's no way to like hedge against that happening in the stock market, and like a clean way, right, but if like, like, okay, so let's say that I'm a business owner and I want to hedge against the pos stability that Trump does not finish this term from my point of view as a business owner, if he dies or resigns or is impeached. None of all of those three things fulfill the same thing for me, and I need a hedge against all
of those outcomes. But if we don't allow these markets to resolve on death, and you know, we can argue whether or not we could we should, they by definition become less valuable hedging tools. And so you kind of get into this point spot where you're like, what are these actually for? Like who is the person that's hedging against Camanie resigning?
Like you know what I mean? It feels like I don't know. I have a weird view of this and that I think prediction markets are scary and vile and they enable something, but I also think they're a condition
created by the stock market brain take. But I think that the stock market has stopped being logical in any way, shape or form, and regular people, despite I would say, what was like three or four years ago and Robinhood went really nuts on options, I think that regular people do not have access to a logical or rational way of investing. Like you can't just invest in a company
for being good. You can't invest in a clean outcome because you're going to dine up against hedge funds and whoever fast trading and such that you couldn't possibly keep up. They have information you don't have. There's no way you could possibly keep up. I'm not saying prediction markets are good. I think they're terrifying. They are RoboCop shit. But it feels like something that could only occur in a world where there is not enough other ways to accumulate wealth.
I could not agree more.
And I think that one thing, like to this point, It was a few weeks ago, and I might have even said it to you, but there was an AD and I don't want to say for a certain it was either Caulci or polymarket, but it came up on TikTok or Instagram, and it was an AD or like a user user generated content type thing where a woman was holding a coffee and the did we talk about this? And the tagline again it was for one of them.
I don't want to misspeak, but it said, you know, like my bet will pay for my coffee, you know, like my you know, da da da. And I was like, oh my god, that is so bleak because it really speaks to this broad like and again financialization of everything, not I you know, that's a big conversation right now. It's talking about a world in which it is hard to accumulate wealth. I mean, just to state the most obvious thing, you know, and like, you know, just broad inequality.
My bet will help me pay for my like again, and I get it, Like I get that on I get why that would be an advertisement, and like I understand, but that is so you know, it's like a young woman, a young person, and it's like, oh my god, that is what that is a symptom of, you know, sort of like the world we're living in. And I'm not saying that's good or bad. I mean it probably it's bleak. It's like very bleak.
It's the growth. It's the same thing with sports scambling. And sports gambling seems for now like a lot more exploitative because they have the account managers who come and they're like, hey, you've lost three grand, why don't we
give you two grand? Work of credit? Yeah, and all of these these ways that you could leverage that it is exploiting the fact that because if you think about other stock market is these days, what the fuck are you meant to do if you if you actually if you invest in a company based on its fundamentals, you're going to lose money probably. Yeah, It's like Oracle is twelve percent up right now. I think we're just going out in a week, so who knows where it will be.
Even though they had like negative twenty four billion dollars cash flow, they're obviously misleading people when it comes to how like their capex because they're going to spend only fifty billion this year and they've already spent over forty that work. But if you, if you, because the market and their hedge funds have decided there's something else they'd like to do, you cannot join that. So what your
other options you've got? I don't know, Betting on the slap fights, yeah, Micheal slap competition, you've got sports gambling, and you've got this big, impenetrable thing at the stock market. But then you've got these seemingly honest, easy bets of Oh, I can just bet on an outcome that's fair. Yeah, unless the outcome is full of asterisks?
Yes, correct? Yeah, yeah, I think there was some there was some research recently. I don't know how I should. I saw this on Twitter disclaimer that like only thirty two and a half percent of prediction market customers are profitable, right, so two thirds of players are losers.
I mean that's gamblingbling you.
So yeah, I think, yeah, we when we get into this, I think gen Z especially, there's a certain amount of financial nihilism just general, like dread visa via the future and how am I ever going to have a house and et cetera, et cetera, and oh here's poly market. They let me bet on you know, whether Trump will say China in his speech.
And how many times he'll say it.
Yeah, yeah, yeah, this could be a fun thing.
That I could make money on to it, like you could make you could pay for your coffee with it. Yes, and yes, I will admit. My favorite Cauchy story is the one that I'm sure both of you read, where it's they tried to hire a fifteen year old streamer and I quote your brother legal team confirmed that we can't work with minors. R N kind of sad DBH, the.
R N and the TVHR.
Brother.
It really just brings it all together.
It really brings it together. But also you need to watch Running Man because all of this just reminds me of that moment, just just like the I get your slop in a bowl on whether Trump will will say a difference, it's cool nuclear the N word, like how many times will he do that? And he's done that many times, by the way, did not joke indeed, which is yet another dystopian thing. Yes, it just feel like the actual solution here would be more regulation of banks
and also getting rid of all of this. I think sports gamblings. I know you probably can't come out on this directly, but I think sports gambling is like one of the most noxious things because living in Vegas, gambling is everywhere, but it's also very very regulated. If you listen, if you look anything close to twenty one, they will come and card you, and they will chase you a wrend like they know I'm coming up on forty and they still like d me sometimes I'm beautiful en not but.
Yeah, you look you don't look a day over, you look youth twenty.
But nevertheless it's you. It's because they know that gambling is scary and that it's addictive, and that a win can make you think every other one will happen. Except now it's just you can do it anywhere. You can just do it. Everything in the phone you've got every
device you can gamble. Ah. There are Instagram accounts, yes, that just there's there's this one with a guy who just dresses up like an old man and has beer full of bush fridge full of bush light and it's just him being like and he's on a gambling site that.
Is extremely extremely bleak. And I think it's yeah, and I think that like it is prompting like in the more traditional like so in banking and kind of like I think it is prompting these bigger questions and kind of existential questions about like, yeah, what is the difference, you know, in what we're doing and kind of like what is like what are we doing here? I mean, you know again, it's like it is going back to
the regulation that is playing out right now. And that is why it's such an interesting conversation where you do have the Trump administration rolling back so many aspects of banking regulation separate from prediction.
You know, forget prediction markets, all kind of things different.
So one example is, you know, for years banks have tried to get regulators to go a little bit uh make the stress testing process you know again super important post where regulators every year will kind of simulate different like disaster scenarios again, like totally hypothetical employment shoots up, stock market crashes, you know, these hypothetical scenarios bank and they test the banks currently like with the amount of capital that a Wells Fargo or a JP Morgan has, can you weather this?
Can you withstand?
They always do very they always do very well with caveats obviously, but you know they come and say, okay, you know that could be a weakness.
That could be a weakness.
Private credit has also introduced an interesting, you know kind of wrinkle here because it is by definition there is you know, kind of this hidden leverage, and regulators have talked about that don't but they're not thanks correct and so that's a whole other, fascinating, you know kind of ecosystem where it's like, okay, you are a bank, I'm going to stress tests you, you are lending you bank are ed bank okay incorporated? You are going to lend
to private credit lender Okay. But when you lend to there, there's not as much tracking what that what your borrower is lending to. So you can see it is hard to track where that money is going.
And I read the other day. I think it was middle of last year the Boston Fed, I think it was said that fourteen percent of large banks loans went to private credit and private equity.
It's a massive is a massive chunk and of loan growth overall. And I think that like when you go to so when you take prediction markets and you kind of take like the current regulatory backdrop, it's like and adds an interesting wrinkle because it's like, okay, by and large, a lot of the financial regulators are like, yes, we
want to be Like. The bottom line is they are rolling back like traditional guardrails, you know, like around the banks, but now prediction markets like okay, and that is currently being like you know, kind of that is being sorted out right now, so we'll see. And like the CFTC, I want to say, is like the only regulator again,
it's like the most relevant one here. It's like come out with like some guidance, but it remains to be seen, so you know, we'll see kind of how the administration handles that.
I just I feel like right now now personal opinion not held by I guess I think that there is a massive regulatory problem with laying because right now my favorite example is open Ai. So open Ai signed a deal with AMD, except they didn't. It was just an agreement without any formal contract. AMD is not increased guidance oracle three hundred billion dollar deal with our open Ai can't afford to serve it, don't have the has to raise debt. Data centers aren't built. S k Heinez and
open Ai. Samsung and open Ai signed a big deal to take forty percent of RAM, except they didn't. It was a letter of intent. All of these stocks have popped off of these deals. H nothing happened. It's very obvious there was never anything official. There should be regulated because people in the audience might hear this and say, that's not stock manipulation, But what is if that isn't? If that isn't and people could say, oh, it's marketing.
Oh we used weezer words. But it's like it feels like things like this will lead to outcomes that lose a lot of money. There's a lot of people a lot of money, and unless we do something soon, it's own to get only gonna get worse. Because every time someone like this is not stopped, someone else doesn't. They just like fuck it. Why would we bother. That will lead into the prediction markets as well, because you could just start saying whatever. But that's actually that is the
biggest thing with prediction. You can just say stuff.
Now there's like over the the extent to which the stock market is reliant on like increasingly complicated bits of semantics. Yes, it's like we've just never we're ad like a the semantic indexes, the asters.
Like letter of intent, agreement consideration too. There are deals, their deals, their agreements, but we've not changed guidance. We've not put any money. Now one's actually doing anything. But you know, it's just.
Lest we forget a memorandum of understanding.
Memory MOUs are the best. I love a good MoU They mean nothing, but they mean absolutely everyone. I love ANU. It's frustrating because I am not a particularly sophisticated trader. I may have only recently started putting money in the S and P five hundred after a period of not but it's and that's in an index, by the way.
It's very responsible, very responsible.
But the point loves the eighty twenty.
Yeah, I love diversification.
Here's the thing. My worry is is that it's very obvious how you manipulate these markets, and without regulations to stop people, it's only going to get more ridiculous. You're just going to get CEOs that say things to create a market, possibly creating them themselves. And if they're a private company, that's not illegal, I believe. Yeah.
So when we talk about like, mentioned markets are a good example of where I think a lot of the like more manipulation concerns are. So a mention market is like, Okay, during this podcast, will ed say fuck with We're like we're betting on that, like that, the odds are the odds are high. You just did it, Ben, Yeah, So like will Caroline Levitt at the next White House press conference say the word China?
People?
These are mentioned markets, So we're literally just betting on the words that will come out of someone's mouth.
Right.
So, a very high profile example of this is coinbase CEO Brian Armstrong. You know, at the end of an earnings call, there was a polymarket mentioned market for what will Brian Armstrong say on the earnings call? And and you know literally like right before the like moderator was like thanks for joining everyone, like right before he's like, oh, someone just handed me the polymarket for what I'm gonna say, So I'll just get through all these you know, Bitcoin
web three. It just like went down the list and like paid all of them off. So he has come out and said that he was not trading on that market or involved in any way. But like we are opening ourselves up to like new ways that we can like manipulate markets. Yeah, insider trade and like when we create a market for everything and everything can become a bet more people than ever can become insider traders because there's just so much more things to insider trade on.
Well, is a question, how do you how much is necessary to create a market, Like what how much money does it require? This is a good question.
So polymarket pr has told me that the primary criteria for if a market can be created, because they field suggestions from their users. The primary criteria is if there's evidence of demand for the yes side.
And the no side. That's it. What is evidence in this case.
You know, if there's activity on Twitter about it, if people in the discord are like, please, I want to bet on this, it seems pretty ad hoc. I don't have much more detail than that, because they give me more detail.
Imagine they don't need to yeah, yeah, it's not money.
It's I mean, it's just like evidence of trading demand, right, and then they'll open it and then people can start right on it. You don't have to they have to be They don't have to be like, all right, you all have five hundred dollars ready to go on this, like there's nothing like you like, there's just as long as they can see that people will want to trade on it, they will make.
It makes sense, yes, And that kind of goes to the question of just like thinly like with banks, like thin thinly regulated versus not thinly traded excuse me, versus not right. It goes to the question of like when banks look at something, they're like, we can't make a market out of like, you know, trading on this one.
Two hundred thousand dollars in volume, Like there's just no way that like exactly huge bank is ever going to like yeah, you just open yourself up to so much.
So it goes back to that, Yeah, I mean also, I guess banks I didn't even think if that ye banks went want will touch because there's not enough money in it.
I think it's when I think of like a thinly traded like stock. Yeah, exactly.
It just goes back to liquidity and like the volatility, and like if banks can find a way to make money on something.
Legally, they will, Yeah, yeah, they will.
And so it's i you know, you could see a world in which and I'm not saying like there is no regulatory framework that would allow this.
No, I'm not saying that because in the future, in the future you could see it, like who.
Knows what that could look like. And so the banks are just like, Okay, we're going to wait for the regulators to say something. But like it comes to a question of also like internal enforcement, like banks all have like very very clear, you know, kind of rules around insider trading. Someone has non public information, if you trade on that, you will be fired. Like you know, that's very like well worn, you know kind of like but
now with prediction markets, how do you enforce that? It is hard And so banks are like actively and again I'm just like talking about banks specifically. You could also talk about like chech companies, healthcare companies, whatever. But banks where like we have talked about this a lot, like being this nexus of the markets, and they do have a lot of information that you know, Okay, that's different from someone in another sector, like how does a compliance
team enforce that? That is an open question right now that banks are like actively figuring out, and it's a really interesting question of compliance and enforcement.
You know.
Internally, it's just it feels like the wauls of breaking down around everything. Because before we do the prep call for this, we talk about analysts, for example, and I named someone. I'm not going to name people on this just for professional reasons, but people know who are.
We're very professional, all very professor.
I say, fuck, but there are these I need someone and you were like, that's not an analyst. Yeah. And it's becoming obviously because they're on CNBC, they're on Bloomberg. It's like, you've got these people pretending to be analysts. You've got these entities like private credit pretending to be thanks, You've got prediction markets pretending to be stocked. Yeah, it just feels like the walls are being torn down, and I know that this is gonna People aren't gonna like this.
I don't think most people should have access to the stock market or gambling. I think that they are dangerous and I think or at least they should be regulated in such a way that it's less dangerous, not just open season. And then the third guy on Twitter is like, I'm an analyst, mate, you are a poster.
Well that's the interesting question.
And I mean, like I couldn't help but think in that moment of journalism, right, I mean, like obviously, okay, they're journalists and writers, and then they're like people who do not have the same are not held to the same standards, and that's a whole other conversation.
But like with analysts, yeah, totally.
I mean, like it's there are very clear kind of like you are regulated by FINRA, which is the self regulated you know, they're a regulator and they regulator. They regulate the brokerage industry, and like any quote cell side analyst, so like you know, an analyst who is again held to these standards like industry standards of disclosures and like conflict of interests and things like that, like that is
quote an analyst. Yeah, you can be an of course, there are like other ways, but like that, you can be an analyst in and that is legitimate in like another sector or like another like on the by side. Okay, fine, that's all legitimate, but there are certain standards that you're held to if you're like, for example, you know, like a FINRA analyst, and like that's not analyst capital a analyst, and that's not always clear to like a viewer of CMOS.
This is actually a question what is a sell side analyst? Because I have listeners who have lost this before, and I realized I haven't really defined it myself very well.
You would not for sure you're at a brokerage, something like brokerage inside of a bank, or you're just like a standalone kind of brokerage a Morgan Stanley. Great great example. They have their investment bank and that's like okay, they have their bankers over here. And on the other side and it's not this simple, but like on the other side, you have the cell side, and that is these analysts who are writing research reports.
They are held to FINRA rule two two for one. I think SECTIONNE six two two for one. Go google it.
That covers everything that like a cell side analyst must be held to. They are on the cell side versus the buy side. So they are selling you know, like research and you know, versus like they're not managing a fund right like they are giving information, they're issuing a buy hold sell. They are giving price targets, they are looking at financial models. They are in a different spot
than against someone on the buy side. That is like reading the cell side selling selling research, sell selling knowledge and wisdom. I don't know how the SEC defines that, I'll be very clear, And it's kind of like, I mean, it's kind.
Of outdated this way.
You know, it's almost like an antiquated thing sellside versus by high just kind of how like a wirehouse Like that's a very antiquated way of saying, like a big wealth manager.
Big thing. That's scattering me at the moment. And I'm not naming anyone specific for professional reasons, but why is it that these analysts always set these massive targets and don't seem to be affected by reality. Because there is a nonspecific prominent data center analyst who quite literally went out on television yesterday and said the oracle was a goodbye, and it was that it's actually better when you look at the report. This is factually incorrect. It's not even
an opinion thing. The cell side analysts always seem very positive even when reality isn't reflecting that. Shouldn't they know better? Is there a reason they would be more positive in general not talking about this person. Yeah.
I mean it's like this is like one of my favorite issues. It's just it's really fascinating because it kind of speaks to like this proliferation of like anyone can put out research and like you can kind of like a lowercase a analyst versus capital a analyst. I think that the thing to always go back to is, you know,
two thousand and one. I think two thousand and two new regulations were put in you know, spearheaded by Elliott Spitzer, who was the New York AG at the time, after you know, Merrill Lynch, Morgan Stanley put you know, certain analysts had put out research that were like was super bullish and was total mismatch to how they were privately describing Amazon. You know, Henry Blodgett famously, you know, put out a report band from the industry that's all well,
you know, chronicled. All new regulations were put in place around from security regulators around like okay, you are an analyst, Okay, you have to include all sorts of new disclosures, which is great, I mean, you know, and and again very high a member of my household. I think the language is something like me or a member of my household owns a security and X y z or something like that.
And also, you know kind of these charts you'll see at the bottom of a report where it shows the stock price, like an Apple, for example, the stock price relative to like where their price target is to hold them accountable for like you know kind of what that's looking like and stop, uh.
That would require someone to hold them accountable.
Yes, exactly.
And analysts are like, by and large, I mean, there's plenty of data on this, but like they are a very like bullish group. I mean the data if you just look at buy hold sell, like, they continue to be that and and the whole industry has really evolved where you know, this is a whole other conversation. We talked about this a little bit, but like people should be aware that like corporate access is you know, just a much bigger part of the analyst.
Job and and all that.
When you say access, what do you mean, Yeah, Like.
You're an analyst at a again, a Morgan Stanley or a UBS. And just to call out two random ones you your clients, like a hedge fund investor, you know, like a big institutional investor access to the management team of the company that I cover as an analyst. So I'm covering I'm covering the you know, I'm a healthcare analyst and I'm covering Johnson and Johnson, and like I can connect, you know, like the investor who's reading my research with the CFO of Johnson and Johnson. I'm just
calling out random companies, but it's that connection. It's that like link, and it's well, it's access.
It's just access feels that feels like a bad thing, like that doesn't feel like it benefits.
It is definitely a you know, it's one of these things that that analysts have to manage and like these one of these and I don't want to call it a conflict, because it's not inherently a conflict, but it is another kind of piece of the job that frankly, and there are many fantastic analysts out there who do manage that well and put out you know, have great relationships, but put out critical research, you know, like substantive research, and you just have to manage that. And there are
many fantastic analysts who do. But I even said, it's not unlike sometimes being a beat reporter, where you have to maintain just like good working relationships with the people you cover, even if you're going to say an accurate but like critical fair thing, and then you just have to like move on again. Very different from the role of an analyst, you know, but it.
Is there are similarities. I don't know if it's different, there are similarities.
I just wait, I just want to make sure I please please, right, So, a sell side analyst writes reports about companies in a certain sector and puts those reports out publicly and disseminates them to other banks, et cetera. And then hedge funds can go to the analyst and say, I want your specific research that you've done on these companies, and also can you introduce me to their management team.
That's part of the offering exactly, I see exactly.
And therefore, to be able to connect clients to management and make money for your firm, you have to maybe you have to be a little more positive in your report on that firm than you normally would in order to be able to connect your clients with them.
That's that's it.
That would be the cynical take, absolutely, but the very fair criticism I would say yes, absolutely, I don't cynical take but but but it is it's just like a feature that and again they're like excellent, excellent, excellent analysts who just like manage.
That's why we're being on specifically, but and.
Who just manage that. And it's just like being again and again.
Yes, okay, there are differences, but it is not unlike you write a tough story on a company. You are fair and then you got to move on and then you got to like move on, you know what I mean.
But the thing is, I don't know.
I know.
I think access journalism is bullshing and I think we're in the beginning of history. As I wrote yeah last week, it is it's no longer useful to do access. Access journalism doesn't work. It doesn't get you anything. If a PR firm or a PR person at a company doesn't answer your question because they're mad at you, that's their fucking problem. This is not the opinion of my guests,
is just me. I just when you told me this for the first time in the pre courl I was kind of I sat and thought about it a lot because it's like, you don't have to agree with me here. It feels antithetical to good analysis to be like, well, I can't be too mean, especially when your job is hey, should I invest in this, and it's like, well, you maybe should, because I I gotta get you the company. I got to make sure the company. Fuck that, I I don't know. This is the thing though, gets back
to my wife feeling about the stock market. It's like that feels rigged. It feels like you've got analysts who go on CNBC Bloomberg and I'm sure people will say, oh Bloomberg, real traders use the terminal whatever. But it's like the growth of retail investors is what makes this dangerous to me, The fact that it's the easiest time ever to invest in stocks. If I felt like buying a stock right now, I could do so in a few taps. If that's the case, having or that should
be the disclosure. Here's a good centrist path. I think that they should have to write down reintroduction they've made. Oh, they should say every time every time they've introduced a hedge fund, and they don't even need to name them. There's these say made introduction on this date. That way we could see because I bet there'd be a lot of them.
Also, I'm getting all new ideas for Foyer requests.
Not that they would be not that I had many who actually fall into that at all, because it's all private sector. But that's, you know, like, but I'm just I'm just getting ideas. I'm just getting ideas again, totally different.
But but this is the thing what good journalism is because it's like, these messy little lines between informations are not disclosed exactly. It wouldn't be as big a deal if they disclose this stuff. But also the term analyst is used very vaguely these days, totally confusing people. Citriny research for example, that.
People who are for example, again get to the heart of people who are like held to an industry reg you know, regulated industry standard that like is very like closely held, closely watch versus not. That's a perfect yeah, perfect example.
All Right, I think we're gonna wrap it there. We've had a great time.
Where can we find you two, I'm on x at Nick Dever Underscore, or you can check out my newly launched website Nicked and sorry, don't cancel the ed I can't believe you outed me at the end or Barons dot com.
Yes, you can find me on Barons dot com.
All right, everyone, you can find me of course, where's your ed dot at Better offline dot com. This podcast that you're already listening to you love them one log later in the week. Thank you all, Thank you, thank you for listening to Better Offline.
The editor and composer of the Better Offline theme song is Matasowski. You can check out more of his music and audio projects at Matasowski dot com, M A T T O, S O W S k I dot com.
You can email me at easy at better offline dot com or visit better offline dot com to find more podcast links and of course my newsletter. I also really recommend you go to chat dot Where's youread dot at to visit the discord, and go to our slash.
Better Offline to check out I'll Reddit. Thank you so much for listening. Better Offline is a production of cool Zone Media.
For more from cool Zone Media, visit our website cool Zonemedia dot com, or check us out on the iHeartRadio app, Apple Podcasts, or wherever you get your podcasts.