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I'm going to Utah for two days and then I'll be back on Friday. So I'm excited going to a corporate holiday party. That'll be fun.
You're going to a corporate holiday party. Yes, I was going to say, what if some listeners with the corport holiday party, but of course we're going to air this on Friday after the party is over.
Yeah, that's true. So and I'll be back by then. It's my husband's company's corporate holiday party, so I'm excited to go to it.
That sounds grennod. It's a two day holiday party in Utah.
It's on a Wednesday night, which is a little bit difficult, but that means I'm gonna fly out Tuesday night, come back Thursday night. And I would have taken Friday off except Invesco is holding a proxy vote for QQQ, and I want to cover it really bad. So you know, I was just love the game.
You got to come back to that proxy yet.
Yeah, I wish I was kidding. I Actually I am psyched for the proxy vote.
Are they holding an in person meeting? Are you going to it?
They are, but I'm not going to go to it, it would be a little intense.
When I was a young m and I lawyer, I went to the shareholder vote for some merger that we did. Yeah, it was really sweet, like individual shareholders stood out to be like, I just want to thank management for all the work they've done and good jobs all in the company. It was like in Maine, like I flew to the shareholder meeting, not to do anything, just to watch a shareholder meeting. I'm really glad I did it. Now I've
seen a shareholder meeting. You can't really appreciate a shareolder meeting until you've been to one.
That's true. I would be so down, except you know, I have to cover for the prince side. I don't think that I could get a TV camera in there, which might justify me going there in person.
But it's not a good television.
It's not good television necessarily, especially.
For the meeting. It's an exciting per se.
If the meeting is adjourned, again, what are we going to do with the camera.
I do think that it would be like it would be nice to just sort of have like five minutes, yes, to be like, well, this meeting was adjourned and it's like Sea Span or.
Something famously good TV. Yeah, but it is easier to be at your setup when you're covering a live event.
I would have been very surprised had you said you were going to the in person Sholder.
God, maybe next time if the meeting it's adjourned again.
Yeah, once in your life for Scharwolder, meaning it's fun. Hello, and welcome to the Money Stuff Podcast, your weekly podcast where we talk about stuff related to money. I'm Matt Levine and I write the Money Stuff column for Bloomberg Opinion.
And I'm Katie Greifeld, a reporter for Bloomberg News and an anchor for Bloomberg Television.
I feel like we're here for like the early stages of the micro strategy trade, not the strategy trade, and now we're like kind of here for kind of kind of kind of the end of the micas oenity trade.
Wow. I was going to say careful, careful.
Calling the end the end, but like there's been a completion of the narrative arc in that strategy. It's called strategy officially, yes, thank strategy is now kind of trading it pretty close to its non asset value, and the whole strategy trade of being we will sell one dollar of bitcoin for two dollars on the stock exchange doesn't work anymore, and they're kind of trying to figure out what's next.
Yeah, yeah, I mean we're not at one yet, and we're certainly not below one yet, but boy, what a collapse below one is.
You know, certainly where some of the strategy skeptics have seen it going. And I think we're a ways away from below one. They're like one point one five today, but you know, it's not you anymore. The bloom is a little off the rose. I don't know.
Yeah, let's time sent this and say we're recording on a Tuesday, just in case it goes.
To like whatever, all wrong. We haven't seen the end of that any never mind.
It's interesting. So the CEO of Strategy fondly he made waves last week he said on a different podcast, not this one, that if the m NAP does go below one, that selling bitcoin is in outside of the realm of possibility. That was on Friday. On Monday of this week, I believe it was that they announced that they're building up a one point four billion dollar dollar reserve, which is amazing.
Such it is, but.
It's also amazing because you think about in the same way that we know started talking about the strategy trade early and now we're sort of seeing it full circle. You think back to when Michael Saylor first announced in twenty twenty that they were going to be buying bitcoin. It was all about the debasement of the dollar, and they were worried about their dollar reserves basically being a melting ice cube. Now you fast forward five years plus and they're back buying dollars.
No, I completely disagree. I do not believe that when they announced the strategy it was about the debatement at the dollar, or that they were seriously sitting there thinking, oh, no, if we hold dollars in our corporate treasury, they'll become worthless and we won't be a real company. Like I don't believe that at all. I understand they said it. I just like, this is a capital market strategy where like people wanted bitcoin and they're like, we're gonna give
the people what they want. I do not believe that they believed that the dollar was going to be worthless. But secondly, whatever they were doing five years ago, like you know, they needed cash for corporate purposes, blah, blah blah, whatever the dollaries are of today is a very different situation, which is that in the intervening five years, they've raised billions and billions of dollars of fixed income securities, some of it like very low coupon convertible bonds, but a
lot of it very high coupon preferred stock. They've been doing a lot of like fixed income ten percent preferreds. There was this period where they were not trading a huge premium, so issuing stock to buy bitcoin is not super accreative. But bitcoin is still going up, and so if you issue a preferred stock at ten percent to buy bitcoin that's going up at like twenty percent a year, then that's in a creative trade. And so they did
a lot of that trade. But when bitcoin is going down, that's not in a creative trade because you're still paying the ten percent interest in you're paying the ten percent interest forever. And the other thing that's happening is you have to pay the interest in cash. Yes, it's a preferred stock, so they can turn off the interest, but
that's a bad look. But so basically they've incurred like hundreds of millions of dollars a quarter of they call it dividends, but essentially interesting expense on the money they borrowed to buy bitcoin. And where do you get the
money to pay that? It's always been a concern, and the answer has been kind of If you sell a lot of stock every quarter and you use most of that stock to buy bitcoin in a creative way, and you use some of the stock to pay interest on your debt, I'm like, yeah, whatever, it's fine, right, But like, once that trade stops working and you still need to pay that interest, then you're kind of in a situation that strategy is in, which is you just sell a
billion dollars worth of stock to pay the dividends on your preferred stock, which is not like a great situation. No, you don't love that, right, you don't love that.
No, for reasons.
One reason is people use the P word when you do that. Oh, I would not personally.
Use the P word here.
You know, there's something ponzi like about selling stock to raise money to pay the ten percent return that you promised previous investors. Right, I don't think that I would not personally use the Ponzi word about this trade, because there's a lot going on here it's all pretty transparent. It's fine, but you know, some people email me maybe you know it's not the same.
Yeah, great, No, it doesn't feel good to raise money from new investors to pay off your existing investors. We actually spoke to the CEO of Strategy on Tuesday on Bloomberg Television fondly, and we did ask, I mean, would you ever suspend the dividends? And he basically said, what you said, that that would create a lot of fear, a lot of uncertainty, a lot of doubt, fud perhaps, But he did also say, I mean, I asked him, you know, how would you prioritize suspending the dividend versus
selling bitcoin? And he said that basically, the idea is that they're creating this reserve, and they're going to build this reserve and perpetuity. Maybe they'll revisit it in a decade or so in hopes of pushing out building a yeah, building a buffer so that they'll have enough to cover their interest in dividend payments until twenty twenty eight. And then I guess we'll see you know where we are actually in twenty twenty eight, which will be interesting.
Right, I mean, like to me their calculation is fairly straightforward. Right, If they trade at like a premium, even a small premium to their net asset value, then they should sell stock at a premium to net asset value to handle all of their problems, including paying dividends on the preferred. Right, cutting off dividends on the preferred is a terrible situation. It kind of ends the trade. It like makes you no longer able to access capital markets in the way
they want to hear it. That's your last choice, right, but your first choice is like, if the stock is trading at a premium, you sell stock. If the stock is trading at a discount, you sell bitcoin. You know, you sell bitcoin. You don't love it. You were planning to hold the bitcoin forever, but you did a great trade selling all the stock at a premium, and now you get to do the reverse trade, which is buying
the stock at a discount by selling bitcoin. I don't know. Yeah, they might take a different view from me, but like, if it were me and my stock was trading at a discount to net asset value, I'd be selling bitcoin and bond stock.
Yeah, I mean, we'll see how this evolves. I do think it's an interesting moment where you're really reminded that Michael Saylor is not the CEO. He hasn't been the CEO for several years now.
He's because you booked the CEO on TV.
I know. But also, I mean, listen all the articles. Can you imagine Michael Saylor saying we might have to sell bitcoin? I cannot, I cannot. I guess you're right, Thank you. I think I am right in this situation.
Right, Like, if you're a true believer, then you're like, I'm in the business of buying bitcoin. I never saw it. If you're just like the other two hundred digital asset treasury companies, you're like, I'm in the business of doing a lucrative arbitrage trade. And if he's not trading at twice the value of my bitcoin, I'm selling stock. And if it's trading at half the value of my bedcoin, I'm selling bitcoin. Should we talk about.
Ms C I, Oh, yeah, we should. I asked him about that. So ms C I I wrote a newsletter on this because I also have a newsletterletter. Yes you did in your newsletter or aboris of newsletters. But MSc I in mid October for contacts, I guess no one really noticed it until JP Morgan pointed it out in a research note, But MSCI said that it was looking at whether or not digital asset treasury companies dats, if you will, look more like investment funds than traditional companies, and they propose have.
An answer to that question.
Basically, they proposed excluding dats from their indices. The decision is coming in January, I believe, But obviously that would be bad news bearers for strategy and all these dats.
Yeah, right, there are various rationales for a DAT, but surely one of them is like, there is some audience of stock investors who can buy corporate stocks but can't buy cryptodirectly or even crypto ETFs, and so one thing you are doing is appealing to that audience. And who is that audience? I mean it is to some extent boomer retail investors who like don't want to open a
crypto account or even deal with ets, right. It is to some extent like fundamental lung on the equity investors like Capital Group, which is a big sharldeer of strategy, who like the trade and would feel weird buying a bitcoin ETF, but like getting crypto exposure through Strategy, and then it is a very large extent passive equity investors who will buy the index. And if you cut out that, then you lose a lot of demand for digital acid
treasury stock. And maybe you take that last leg down from a small premium to the net asset value to you know, a small discount. Maybe.
Yeah. Well, the fun thing is that you know this decision point is coming up in January. I'm curious to see a situation where MSCI says that, okay, Strategy is an investment fund, we can't have it in our index. But then you think about the NASAQ one hundred. They went through this whole thing when they added Strategy to the Nasdaq one hundred, and they landed on the side of this is a company, this is an operating company.
So you could have a situation where MSCI is treating Strategy one way and NASTAC is treating it another.
Yeah. A couple of points there. One like there's like ten thousand dats and like, yes, they're all investment funds, and maybe Strategy is the biggest exception. Maybe like Strategy has a real business, like a software business that is at this point a teeny tiny fraction of the size if it's pot of bitcoin. But like, yeah, it's a business. You know, you get to eat, like you know, and every dat has some fig leaf like that, but strategy
is probably bigger than most. The other thing I'll say is like when NASDAG made this decision, it was trading at a premium and bitcoin is going up, right, and so like these are sort of like decisions influenced by real world politics, right, where like if you are an index provider, one thing that happens is like there are index funds and just other like you know, benchmarked investors who go to you own are like, I want to
own strategy. It keeps going up, and so then you put it in your index, right whereas MSCI is looking at it in a different context where it's been going down and they're like, wow, yeah, get it out of the index. Which is you know, it's badly cyclical and that you know, you make the index ones by it when it's going up, and then you make them sell it when it's calmed down. But you know, it's still there's there's some of that that element to it. All.
Right, let's try to say it. So we're going to talk about We're gonna talk about Bill Lackman, the Man. We need to talk about Bill Lackman the Bird a little bit. Unfortunately, my good friend Bi Lackman the Bird passed away in the last couple of months. I haven't been telling you, our dear podcast audience, because it's been very difficult for me. I knew that when we took in friend of the Show, Bill Ackman, that it was going to be touch and go, and unfortunately he did pass.
But I'm really happy for the time that we spent with him. I think that, you know, the months that he did spend with me and my parents. You know, he was on this earth for a little bit longer than he would have been, and it's very painful, but you know, it was a beautiful couple of months. And he came to us right after my pony Batman had passed, and certainly he was a wonderful bit of joy. So that's why we've been a little bit mum on mister Bird. But he is flying high in bird Heaven.
I'm sorry for very well thanks. I do worry that someone who hasn't listened to previous episodes will be very confused about how Bill Blackman came into your and your family's life for a few months. And I want to be clear, Katie rescued a bird and on the podcast we jokingly named the bird friend of the show Bill Ackmam, but it was not the actual hedgehong manager black When it's just the bird.
I really didn't want to talk about it. But like even last week, I was interviewing this guy from Vanguard and he said, there's three guys on my desk who want me to ask you about Friend of the Show Bill Ackman. And I was like, oh, yeah, he's a bird. So people are like reach out to me and ask about him. So, yeah, that's weird to talk about the man without talking about the all right, So Bill Ackman, Bill Ackman, the hedge fund manager, He's at it again.
He's really like, he really has got it in his head that he wants to do a closed end fund in the US that tradesit a premium. And he doesn't correct that nut yet, but he keeps work.
Come on, yeah he does. So. Bloomberg News reported that he's aiming to raise five billion dollars for his US listed closed end funds. Listeners of this podcast will remember that he tried this a few months ago, maybe a year ago, over a year ago at this point actually, and initially I think his target was as much as twenty five billion dollars, so, you know, the valuation a
little bit less ambitious this time around. And he's also trying to sweeten it a bit by giving investors in the funds some shares in Pershing Square Capital, the hedge fund that he's also trying to IPO.
Yeah, the problem that he ran into is that it's really important that you sell shares of a closed end fund at a premium to net asset value of a new one, because that's how you raise the net asset value. Rightly, you can'not sell them at a premium to net asset value. And he thought that he would solve that problem by just telling everyone that he was amazing and therefore they should buy shares at a premiums and net asset value because he would compound their money much faster than other
alternatives would. And that didn't work. So he's trying something else, which is, you know, the obvious solution is like you give people a sweetener. Basically, like Bill Ackman has to kick in some value to make the shares worth more than what people pay for them, but like still, you know,
people pay more than what goes into the pot. And so that's the plan, which is basically like if you do the IPO of the clothes then fund at the same time you do the IPO of the management company, which seems to be kind of the plan, then you have a managing company which is worth ten billion dollars was a number of that, and then their last round and you give you know, ten percent of the managing company to the investors in the clothes Unfund like ooh,
they got a nice like billion dollar sweetener, and then they're willing to buy shares in the clothes end fund and the math all works right, and then you know, the next day, like you separate the sweetener and maybe the clothes un Fund trades it a discount the NASSA value,
but yeah, that's a problem for another day. Yeah, or maybe it trades at a premium, right, maybe, like it was hard to bootstrap this, but once it gets going, everyone will be like, oh, wow, he really is good at managing money, and the thing will trade it a premium. Doesn't happen a lot?
Yeah, And I mean he has the hard fact that you think about his European listed closed end funds.
Sure, there's not a ton of precedent.
Yeah, it's trading at a twenty five percent discount right now, and.
There are reasons there are distinctions.
But yeah, yeah, it's a similar idea. So I was going to say, I thought you were going to say, the obvious solution here is to just launch this in an et That seems no wrong. My mind wants to go tell me why that doesn't make sense.
Bill Eman is a good investing track record, but like the best thing he did was he was early to permanent capital for Hedgehong managers. I have written a lot that like the important job of Hedgehong manager is not to pick the stocks they go up, but to continue managing a hedge fund. And Bill Ackman, by launching a closed un fund in Europe, has given himself permanent capital in a way that like allows him to be patient and not worry about making You know, it's the best
possible set up for hedgeloont manager. First, Yeah, it is just not that this is not permanent capital, Like it doesn't solve any of the problems he wants to address.
Yeah, I hear what you're saying. Can I say one more thing about ETF's ok I'm just going to borrow some logic from Bloomberg Intelligence. They wrote a note about this saying Acman tries again at a closed end fund. I hear your point on permanent capital. They make the point that, Okay, you raise capital once at IPO, and then you typically struggle to grow beyond that initial capital, Whereas there's plenty of examples at this point of like big names coming into the ETF rapper and raising billions
of dollars. And if you're so confident that you are such a good hedge fund manager, why not launch in the ETF and just hope that that capital doesn't leave because they're so satisfied with your performance.
I just think that if you plan to do long term investing that requires you to commit the whole stakes for a long time, or like buy private companies, you can't do concentrated long term. I'm investing in the form of an ETF. I understand people do some of it, but it's not it's not the right vehicle.
I think I disagree on that point, but it's okay.
I do love an ETF. I do we are we talking about Howard Hughes, which is that when the Clothes then Fund didn't work, when he couldn't launch this twenty five billion dollar clothing fund, he was like, we're gonna team up with Howard Hughes. Howard Hughes is already public company. He was a big shareholder, he bought more shares. He's the chairman now of Howard Hughes. And he was like, in his mind, like he had clothes un Fund is like it's gonna be Berkshire Hathaway. Right, It's not gonna
be a fund. It's going to be a company that buys companies, or buys stakes and companies, or invests, and he is going to invest people's money much like Warren Buffett does in the form of a public company. And he realized after the Clothes Unfund didn't work that like he should just do it in the form of an existing public company.
Yeah.
One of my readers suggested herbal Life, which is a great suggestion, a little deep cut blackman joke. But he's like, oh, no, I have Howard Hughes right here. Howard Hughes like a real estate company. You can pivot that to being a general purpose investment company, and so he was like, you know, pershings like forty percent of it. He's the chairman, it still says, and it's ten Q. You know, we're gonna we have a strategy of becoming a diversified holding company.
I don't really understand what the distinction is between Howard Hughes and the new clothes down Fund. Right, you will now have let's say three publicly traded permanent capital vehicles where he can put investments, you know, the European Fund, the Close Up Fund, and Howard Hughes and I don't know, pick one.
You know, and Howard Hughes. I was reading their most recent earnings called just for Fun. They're getting close to announcing their next acquisition, you know, with Bill Ackman at the helm. So we'll see.
I hope it's scanning man.
Oh, that would be great.
Sea of ETFs.
Yes, thank you. Speaking of ETFs, Goldman Sacks I helped break the news this week. But Goldman Sacks is going to pay two billion dollars for ETF issue or Innovator Capital, one of the first movers in buffer ETFs, an area that you know and.
Love, Matt, I do love a buffer Etfhh. Yeah, I've written about buffer ETFs, like the buffer ETF, which is where effectively you like take people's money, you buy like a treasury strip, and then you have like a little extra money and you use that to buy call options on a on a stock index, and so then you've given people upside in the stock indecks with no downside. And you're like, ooh, it's a magic trick. That's like
a classic piece of derivative structuring, you know, magic. It's a classic building block of like the structured notes business at an investment bank, and it is now you know, Innovator and others have etfized it where now like if instead of buying a structured note from a bank or like building your own options product, you can buy an ETF. And Goldban looked at that and said, we want to be in the business of providing those ETFs, which is like you can obviously great business for Golden in a
couple of ways. One, like the structure note business is like great, you know, and like there are people in the lab cooking up structured notes to make a lot of money, and like you can scale it more with an ETF than you could with the structured notes. Yeah, and then also, like I wrote this, I don't know how true this is in the case of the buffer ETF, but in general, structured notes are a place for a
bank's volatility desk to lay off some volatility. If all of your hedge fund clients are buying like Korean stock call options, then you might like package a structured note that allows your retail clients to sell you Korean stock call options, because then you can like offset some of that risk. And stereotypically, the audiences for structured notes are like willing to listen to the story that the bank tells. Then like you know, the hedge funds who come to
the bank fro a trade. And so the structure notes was this is a nice like risk sync and doing that in an ETF maybe also right, Like if you're Golden, you're constantly coming up with and I should say disclosure, I was an equity derivative structure.
At goldbvin I had no idea.
Golden, You're constantly coming up with ideas for like how to you know, sell weird volatility products to people, And with an ETF business, you've like massively increased the audience of people you can sell weird volatility products too.
Yeah, so a couple of notes here. Buffer ETFs obviously have some vocal critics. Friend of the show, Cliff Fastness, for example, has been very.
Like as a former derivative structure, like he's just right, Like, instead of like buying some weird buffers around your stock exposure, just buy less stock. It's a better trade. It doesn't involve paying huge fees to gold This is a standard critique of structured notes. It's frankly a standard critique of like all equity to rods, and it's a perfectly valid critique of ETFs. But buffery tis I.
Do find it interesting from an ETF angle that Goldman has its own buffer ETFs. This is a product that they've already launched. They launched three earlier this year received really little traction. The fact that they went out and decided to buy an entire other firm for two billion dollars versus trying to, you know, really put the Goldman muscle and distribution might behind their own products is super interesting. Another detail I also love him here is that the
folks who founded Innovator, Bruce Bond and John Southern. This is the second time that they've founded an ETF company and then sold it. Their first experience was with power shares twenty hours ago. At this point, they sold it to Investco. Bonds tried to retire for a little bit. It didn't work. He came back and founded Innovator. They're pulling him back in well him and is his palentimetfs you can't walk away from I get it hearing him
tell it. It was John Southard who came across the idea of you know, structured products are huge, we should put them in ETFs. And that's what they did. They found an Innovator in twenty seventeen, they launched their first buffered products in twenty eighteen, and now they're selling to Goldman for two billion dollars. Bruce Bond has at least fifty percent steak in innovators. So you now have a new ETF billionaire, which is super cool. It's a great story, heartwarming story search products.
And I mean, right, I can't felt that. That's like the thought I wish I would have.
I know, I know that's the thing. You think about all the upstarts that are in the ETF industry right now. It's so easy to launch an ETF. And it feels like everyone INDs this is the blueprint I have to imagine for a lot of them. This is like the lottery ticket that they're hoping to find.
Good for them. And that was The Money Stuff Podcast.
I'm Matt Levine and I'm Katie Greifeld.
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