Fun Shiny Object: FTX, Public, ETFs

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Opinion. And I'm Katie Greiffel, a reporter for Bloomberg News and an anchor for Bloomberg Television. What do you got today, Katie? Today we're going to talk about FTX has a lot more money than it thought it did. Then we're going to talk about private markets and just how hot they are. Then we're going to talk about ETFs and some oxymorons in the industry. I have a little bit. We were really like deliberating over what we were going to record

this week and then the most obvious money stuff story dropped and that is FTX. FTX. I've written a lot about FTX. I'm trying to get away from crypto but it keeps pulling back again. FTX found some money. A lot. Billions. A lot compared to what they had. Yeah. I guess surprising amount. It's surprisingly large amount. Should we say how much? I don't know how much. I haven't in front of me. I've printed out some notes. 16.3 billion dollars in cash

which it will distribute. Yeah. I mean the answer to how much is like if you had a claim at FTX, if you're a customer depositor at FTX, you'll get back something north of $118 cents on the dollar. You'll get back all of your money plus two to three years of interest because you'll get your money about two to three years after FTX went back. Right. Yeah. Yeah. There's a big caveat to that which is if you had dollars at FTX or tether or

euros, you'll get back your money with interest. If you had Bitcoin at FTX, you'll get back the value of Bitcoin on November 14th, 2022 in cash plus interest. So that your Bitcoin back then was worth like $17,000, $18,000. And so if you were a Bitcoin customer of FTX, you'll get back about 20,000 dollars and a Bitcoin right now is worth about $62,000. So you got back a little less than one third of your money if you had a Bitcoin at FTX.

Yeah. And I know that that is a tough pill to swallow for many people just judging by the reactions on X. Right. It's harsh. It's like the news stories are all FTX has enough money to pay back. All creditors at $118 cents on the dollar. And everyone on social media is like, ah, not me. I'm getting back less than a third of my money, which is true. It's true. It's just a sort of fact of bankruptcy law and accounting that that's what you

get. I will say though that most of FTX's customers seem to be a dollars. Like if you look at the numbers that they've put out, something like 70% of the customer claims were in dollars. And like, you know, there's probably just two and a half billion of Bitcoin and Ethereum claims. There's a main crypto claims. There's a bunch of others, but it's like mostly Bitcoin and ether. They're like two and a half billion of that. But you know,

there's like seven billion of dollar and tether claims. So most people are getting most of their money back with them. The people who aren't are getting back, you know, 30 cents on the dollar. And this is really unique. I mean, in terms of bankruptcy cases, I mean, what the average is 118% that they're going to get back. I feel like it doesn't typically work out this way. We have had some recent examples such as Hertz, which actually

exited bankruptcy with money left over that they then repaired shareholders with. But this feels pretty unusual. Oh, yeah. I mean, one thing that's very unusual is like you mentioned Hertz. Like it does sometimes happen that a company will go bankrupt and then like assets will recover and it'll have more than enough money to pay the creditors. And then as it hurts, the shareholders get the extra money back. It's like extra weird here that they

have extra money. And they're like, we're just going to give that to the creditors. Now part of that is clearly because some of these creditors are, you know, not getting made whole, right? Like the Bitcoin creditors, you know, you're like, oh, we'll give you a little 18 extra cents to make up for the fact that you've lost two thirds of your money. Part of it is that like if there were money left over or go to the equity holders, the equity holders and FDX are like

incredibly unsympathetic. It's mostly San Bankman for it and like also some venture capitalists who enable them. Also like in fact, not all of the creditors will be made whole because like actually between like the customers and the equity holders, there's this giant claim from the US government, which I've never really understood. It's like the IRS is like FDX had huge profits

and they need to pass tens of billions of dollars of taxes on those profits. Which is very weird because like out of the other side of its mouth, the government is saying that the X actually lost all the money. So there's like all these tax claims, there's all of these regulators who wanted to find FDX because it did a lot of illegal stuff. So basically they all agreed like the fine

claims, the taxes, everything like that is going to be subordinated to the customers. So basically there's any money left over, it'll go to the government and the government is like fine, the customers can have some interest. So I think that's kind of how it worked out here. So it feels like a happy end for some people obviously. So people that you know the Bitcoin customers are still real mad. Yeah, it's not like it's not

that happy. But it's better than it could have been. Oh yeah. And the claims have traded the whole time and it's the price is true. The claims trading is incredible. They started at three cents on the dollar and they're not trading over 100. Yeah, well it's really interesting. I mean some people made a business out of that. I'm thinking about there's this FDX creditor project. It was started by this guy, Louis Dorene also with another group of people which included FDX former head of

product. I remember speaking to him on BTV during the sentencing, Sam Bingman, Fried's sentencing. And at that point that was in late March, he had over $90 million of these claims. So I mean, he's made out pretty well. Yeah. And even at that point when it was still seen as probably people are going to be made whole, people were according to this guy. People were still eager and willing to sell their claims because they wanted liquidity now. They didn't want to have to wait several

months to years to be made hold. They just wanted the money now. So they could go buy more Bitcoin and more crypto. Yeah, that's reasonable. I mean like if you were an FDX customer at the time of the bankruptcy and you had Bitcoin on the FDX and you couldn't get it out, what you might have done is said, I'm going to take all of my cash and buy that Bitcoin somewhere else because like I think Bitcoin prices are going to go up. And then you'd be made whole right? You'll eventually get your

cash out and you'll have been able to turn around and put it in Bitcoin. But a lot of people didn't do that for one because like some people like all of their money was on FDX and they couldn't get more cash. But also like I just think back to the collapse of FDX like that felt like a truly like nuclear event for crypto. In extinction event. Yeah. Just if you looked at that and you were like

Solana is going to trade up 1000% in the next 18 months. What if I thought you're crazy? Like it really just seemed like such an end of the world event for crypto that part of why the claims were trading at three cents on the dollars like you know FDX had this pile of assets and it's like well there I could get any money for those assets. Those are all crypto assets. And then of course crypto recovered and they were able to get back you know more than the dollar amount of their claims.

But if you were buying those claims at three cents on the dollar you're making it kind of a bold bet that crypto would recover as rapidly and as much as it does. Yeah. It begs the question. And Sam Thichman freed. Great question. What if he had another year mat? Well I mean the thing with him is like you know his description of this made people so mad like it was like he's like we had a run on the bank right. And it wasn't a bank. Yeah. Like you're supposed to have a run on the bank right

there are a lot of problems right. Like one is that like he wasn't running a bank. He was definitely telling people things about FDX's balance sheet and about its risk management that weren't true. And a lot of the money was being invested into weird stuff like paying Tom Brady a lot of money and buy apartments for his family and things like that. But but but ultimately you know basically like 10 minutes after he signed the bankruptcy papers he was like if I had had another week

I could have saved this company. I could have made all the customers whole. I could have gotten his back on our feet and the worst mistake was signing the bankruptcy papers because I could have pulled it out. No one believed that at the time right. Like he signed the bank's papers because like all of his lawyers all the people who worked at FDX were like buddy he had to pull the plug on this

right. I think no one's believed it ever since. And it's not true I don't think like I don't think if he had another week he could have like found a big equity investor who would have like underwritten all of these assets and said we're going to make all the customers whole because we think there's enough value here but like ultimately that worked out to be true right. Like it worked out that there was enough value there and he couldn't find another investor to come in and underwrite that

because like no one trusted FDX right. No one trusted him. And also it was like crypto winter right. Like crypto presses it collapsed and it didn't look good. But the interesting thing about the bankruptcy system is it like sort of automatically becomes that investor right. Like when you file for bankruptcy there's a stay on customer claims so the customers can't get their money back which is really helpful when you're running a quasi bank and like his big problem was people wanted

their money back and even have money to give them right. If the customers just can't ask for their money back that gives you a lot of time to work things out. And then also the bankruptcy process was so slow and deliberate that by the time they got around to selling their tokens the tokens had rallied right. So probably it would have been more sensible to sell sooner except the prices went

up a lot while they were waiting. So they've worked out great. The bankruptcy system sort of worked out as like a patient investor who could step in and take over FDX but didn't work out for SPF but I worked out for kind of worked out for creditors understanding that the ones who called the kinder still mad. I'm sure he's just sitting in jail so frustrated. Oh yeah. I mean he's been he's been trusted all along. Yeah. You know the interesting thing to me is like when this collapsed

one question that you'd have that I had was like what was he thinking? What was the end game here right? Like it's like you've taken so much customer money pretty much it's like no one knew where the money had gone. It seemed like a lot had been lost on weird trading things. It seemed like there was these big holes. Conceptually if you have a big hole in a very lucrative business you can like earn your way out of it by just continuing to print money and I guess that's what he hoped you

would do but it's like also I don't know the hole was kind of like prices fell. The balance she didn't work and then prices did come back and the balance sheet kind of worked. I had no one noticed for a few more weeks it might have been fine. I don't know. Well never know but what we do know is that at least for these creditors the payouts are several months away. I basically want to get to what do the next couple months look like because I am not a bankruptcy expert. I'm not afraid to

say it. Where does this go from here? Well I think they have to confirm the plan. I think there are a lot of people get a vote on it. I think in general the majority of the creditors are probably pretty happy with this because they're getting more than they're entitled to in bankruptcy. I think a large minority of the creditors, the ones we alt crypto, are not very happy but it's also like it's not really a debate. This is how bankruptcy works and there have been any number of

crypto bankruptcies. I think there were some uncertainty early on. How do you value these things in bankruptcy? How do you decide whether people get back their bitcoins or their dollars? I think it's now pretty accepted that this is the way it works and it sucks if you're a Bitcoin holder and Bitcoin prices have rallied. But yeah, I mean what's going to happen is they'll confirm the plan.

I mean the plan is kind of estimates because they sell a lot of stuff. They still have billions more of tokens that they're selling but assuming all goes well they're going to get the money and then they're going to slowly pay it at the creditors. It's a whole process of you sending forums and I don't know. I'm just wondering, one is the story truly over. I mean they expect the plan to be confirmed in around September. They expect the Pads to take another year after that. So it's a while

but you'll stop caring about it at some point. It'll be yeah. They've gotten 107 cents and in six months they'll get four more cents. I'm like okay, fine, thanks. Yeah, imagine if crypto prices actually break 100,000 by the point where these payouts are actually paid out. Yeah, but at this point you can sell your claim for 100 cents and you can put that money into Bitcoin, right? If that's your bet, the year, kind of know where you are and just put the money into Bitcoin. I will say that,

you know, we talked about her, it's like the closest analogy is actually Mt. Gox. Do you remember Mt. Gox? I have to reach far back but yes. Magic the gathering online exchange. Yeah. The first big crypto exchange. A lot of it's Bitcoin disappeared in the hack. Yeah. There were

swirling questions about whether it was an inside job and so forth. But eventually, you know, they got back, I don't think they recovered all the Bitcoin, so they got a lot of the Bitcoin's and they went bankrupt when they were hacked and then Bitcoin prices rallied so

much. So this is like 2014. Yeah. Bitcoin prices rallied so much that by the time they were like ready to exit bankruptcy, they had not only enough to pay off all the claims at 100 cents on the dollar, but they had billions of dollars left over for like the owner of the exchange, which I think ultimately like they ended up giving that to like the Bitcoin holders because they were a lot of lawsuits. But that was the sort of case that kind of set the tone for like if you go bankrupt as a Bitcoin

exchange, you only owe the dollars. You don't know the Bitcoins. It just suggests that someone doing it as a trade. Like everyone who's like actually like run the bankrupt crypto exchange has been gotten in a lot of trouble. Not necessarily like it's not like a good trade, but someone's going to crack the code of like you run a crypto exchange. Crypto prices are really volatile. When they go down, you file for bankruptcy, then you've crystallized what you owe people, then they go back up

again and you get all of the excess. You get like a free option on the excess of the crypto price appreciation. Maybe the person who will do that trade is listening to this podcast right now. As one of the world's largest alternative asset managers, Apollo is helping to fuel the real economy by generating investment grade credit, helping to fill gaps in America's financial ecosystem, and providing greater access to more resilient and diverse pools of capital.

By providing companies with access to flexible financing solutions and partnering with management teams to help grow their businesses, Apollo is there every step of the way to drive positive outcomes for companies and power economic growth. Apollo, investing in tomorrow today, learn more at Apollo.com slash private investment grade. Maybe you've noticed that when it comes to business, the people who succeed tend to be the people

who seek out partners with skills or knowledge that they don't have. And that's what Lenovo's free online membership program, Lenovo Pro, can do for small businesses. They have the resources and expertise to help you make big tech decisions. As a small business owner, you understand more than anyone that any decision can make or break your business. That's where Lenovo Pro can help,

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Private markets. Well, I'm trying to remember, did we speak about Destiny Tech in a real episode? Was that our first episode? It might have been... It was either number one or number two. I think it was number one. I think it was number one. Is this our fifth episode? No, leave it is. Okay, so somewhat recently... It's all somewhat recent. We spoke about the Destiny Tech 100 Fund, which is a public-goo-traded fund that says that it

invests in hot tech private companies. And this is all in an elegant intro to basically say that Aaron Griffiths from The New York Times were a really interesting piece this week about private markets. And just this boiling point that it feels that we're at, especially because it feels like companies just stay private forever right now. Yeah, I mean, there's two things, right? One is like these big private household name tech companies

that say private forever. Stripe is in private for more than a decade. And it's a giant company. SpaceX has been private forever and is a gigantic company. It's like easier than ever for like these big tech startups to raise money and the big famous companies whilst staying private. So, you know, if you want to own these cool household name companies, you can't get them on the stock market. But the other thing that I was thinking about is like sort of technically what private means is that

only accredited investors can buy it. So like anyone can buy stock of a publicly listed company, right? But if you want to buy a stock of a private company, they're only allowed to sell it to more or less if you are an accredited investor. That kind of just means like a wealth standard, you need to make like more than $200,000 a year or have more than I think a million dollars of assets. And like a dentist. Like a dentist. So, this is what we talked about last week.

Like dentists are like the sort of paradigm accredited investor. But like one fact about accredited investors like the SEC put out a study a while back that found that in 1983 when these rules were set, there were 1.5 million accredited investor households in America. In 2022, there's 24.3 million. Basically what that means is that the American investor class, like the people who are going to have investments, you know, are going to like play the stock market are largely

legally eligible to invest in private markets. And so what that means is there's just a huge business of selling to them because like if you are a broker or an asset manager and you can sell someone private company stock, then like you can charge a big commission, you can charge a 2% management fee, you can charge all sorts of fees. If you are an asset manager, like the paradigmatic public company investment is like an asset manager charge of like two basis points

for an S&P 500 ETF. And the person buys that from like Robinhood with zero commission, right? The economics that public market investing for like the industry are just like not that great, right? Yeah. Where's like the economics for private investing are amazing. So there's all this demand from investors who are eligible to invest in private companies, all this demand for them to invest in how tech startups are so little supply because these startups don't want people

to buy their stock. I'd like to just talk about some numbers because I feel like the incredible investor number probably speaks for itself, but I mean in this New York Times article another way to put it is that the secondary market right now it's on track to hit $64 billion this year, which is a record a decade ago that was about $16 billion, the secondary market for these private companies, which is like nothing compared to the daily trading volume of like Tesla,

right? But like yeah, making one percent on each chance is a nice little business. Well, at the same time you take a look at the public equity market in the US, there used to be 7,500 public companies and right now there's about 4,000 today. So I mean public markets are shrinking, private markets are getting even hotter and even bigger and like you said, there's this scarcity. And I mean hearing you describe that dynamic, I mean why would a company go public right now?

I mean the answer used to be that that was where all the money was. I don't think that's really true anymore. It's still kind of true. Like it's still like the biggest investors are still in the public markets. It's still like if you need to raise a lot of money, it helps to be public. But I do think that the main answer for a lot of tech companies is that you have given all the stock to either employees or early investors or your founders and they eventually want to be

able to sell. And it is hard for them to sell if you stay private because there's like a relatively tiny secondary market for private stocks. And if you're like founder CEO of a private company, you know, your ability to get billions of dollars and spend it on stuff is kind of limited. Whereas if you go public, you can sell your stock and get billions of dollars. But if you've raised money from venture capitalists and if you've given stock to early investors, they just expect you

to do an IPO at some point. There's like a sort of traditional expectation within like, you know, five to ten years you're going to do an IPO. I said all those people who trusted you with their money can get their money back and can hopefully make a huge profit because hopefully you'll go public at a large multiple of where you raise money. But you know, for some of these companies, like there is a temptation not to do that because going public, you have to disclose all your stuff,

you get sued a lot for securities fraud. They're like short sellers and activists. It's like a big pain. It's a pile of banks. So it's tempting not to. And then you just have to solve the problem like what about all these people who trusted you? Like how do you give them their money? And there are answers to that, right? You know, the stripe and SpaceX is at the world. They open a high. We'll do tender offers where essentially they'll match some big new outside investor with like their early

investors and they're in place and say, have you want to sell some of your stock? We have someone who's willing to buy five billion dollars of stock. And so then you can sort of control who buys the stock. So you're like a closed circuit. Yeah. The company is staying in control of who's buying and selling the stock, but you're giving people the opportunity to sell. The other option is just like you can say, look, we're going to stay private because you don't want to do the disclosure stuff.

We don't want to be a public company, but we're going to let you trade the stock on the secondary market. And then anyone who wants to go to the can like find a buyer and sell their stock. You don't see a lot of that. Yeah. It's striking to me how resistant a lot of these companies are to allowing secondary trading. You know, there's in that story, they're in Gryffless story at the time.

She talks about testing tech 100 has like bought some forward contracts on Stripe. Which is a no no. Which is a no no. So like part of the secondary market is these forward contracts because like these employees are not allowed to sell stock. And so people will come to them and say, well, why don't you sign a contract saying that when you are allowed to sell the stock you will. And all the companies

like, no, that's not okay. That's cheating. That's not allowed. But so Stripe actually put out a statement saying, Stripe does not offer opportunities for retail investors to invest in the company. Nor are the majority of Stripe shareholders permitted to transfer their shares without Stripe's consent as such. Any offer to invest in Stripe that does not come from or through Stripe is very likely a scam. They don't want people trading their stock on the secondary market. They want to

keep control of what's going on. And yet, I mean, destiny tech still says it on Stripe. By the way, if you go to the, I will, you know, at some point, will they litigate that? I don't know. If you go to the website, it's still there. I was going to mention, do you remember the card of scandal? No. Okay. So do you know what card is? No, it's hoping you tell me.

Card is a company that helps private companies tech startups run their cap tables. So like, if you're a tech startup, you have like a bunch of employees, you're giving them stock, you have a bunch of venture capital investors. You have all sorts of different classes of stock, which have different rights. You probably have a spreadsheet or you keep track of this in a sort of not very

good way. Card is like, no, no, we'll keep track of it for you in a good way. So you'll know exactly how much stock you have at sending and like, who has what rights and whatever and like rule track who your shareholders are. And that's like a valuable service that they provide to companies. But it's also like an incredibly valuable list to have because like, there's so much demand

for private company stock. So card knows who all the people are who have the stock. Right? So it's like, we just have the list of every private company, every tech startups shareholders. And like, that list is so valuable. So many people would want to pitch those people on selling their stock and forward or for cash or whatever. And card got caught.

Using that, because card was running a secondary market. And they got caught hanging a shareholder of a private company who had not publicly said anywhere that they were a shareholder. But card knew from running that company is captable that this was a shareholder. And the company's CEO complained and card was very embarrassed. And they actually shut down their secondary market. And like a couple of days. And it's like, I very much see where card

was coming from because like, that's a valuable list. Yeah. I would like to. People want to sell the stock. It's a useful service to put those people together. And like, the company was mad. But it's like, who can't like, why does the company, like, these tech companies like really believe that they have for priority right to like restrict to trans their stock.

And like, this is not how public companies think. Right? Like public companies can't do that. Like, public companies, if you want to buy their stock, if you want to sell their stock, you can buy it or sell it. And in the tech startup world, companies seem to be a lot more proprietary about who gets the owner stock and like offended when someone tries to buy it away from current shareholders. I don't know. It's like an interesting new norm. Yeah. To the point that, you know, there's a lot of

employees within these companies that would like to sell. There's obviously a lot of investors who would like to buy those private shares. I thought it was interesting. There is this little anecdote in the New York Times piece quoting Jeff Parks. He's the chief executive of Stack Capital, which is one of those platforms. He said, quote, you want to be on the golf course like, hey, I own some SpaceX. And I thought that was pretty funny because in February, actually, I was at

this fundraising event for a foundation at this swanky New York City apartment. And I was in conversation with this guy. And he said, yeah, I own SpaceX. And I was like, oh my God. So that was pretty fun. When Stripes says that any offered to buy Stripes shares is a scam, they're not just talking about people doing for them. Like that is in fact a popular scam. There was like a rash of these when Facebook was a private company. Like everyone is offering fake Facebook shares.

Yeah. Because like, it's such a scam because it's not just an investment opportunity. It appeals to people's like sense of exclusivity. It's like, oh, I get to go to a party and say, it's a total status symbol. Yeah. And so like, it is true that one, there's a lot of demand for it as a status symbol. And two, like a lot of people sell pictures to meet that demand.

This podcast is supported by Apollo Global Management. When it comes to building and financing stronger businesses, Apollo turned some of the world's most complex challenges into growth opportunities. Apollo's customized capital solutions help drive innovation and growth, turning the great

businesses of today into leaders of tomorrow. As one of the world's largest alternative asset managers, Apollo is helping to fuel the real economy by generating investment grade credit, helping to fill gaps in America's financial ecosystem and providing greater access to more

resilient and diverse pools of capital. By providing companies with access to flexible financing solutions and partnering with management teams to help grow their businesses, Apollo is there every step of the way to drive positive outcomes for companies and power economic growth. Apollo, investing in tomorrow today. Learn more at Apollo.com slash private

investment grade. Maybe you've noticed that when it comes to business, the people who succeed tend to be the people who seek out partners with skills or knowledge that they don't have. And that's what Lenovo's free online membership program, Lenovo Pro, can do for small businesses. They have the resources and expertise to help you make big tech decisions. As a small business owner, you understand more than anyone that any decision can make or break your business. That's where

Lenovo Pro can help, especially if you're not a tech expert yourself. They can keep up with the latest tech trends like AI and help you save money on the smartest tech solutions for your business. And by joining Lenovo Pro, you can enjoy a long-term partnership focused on helping your business take advantage of every tech opportunity in the future. So you can add Lenovo's team to yours and then lean on them for all your tech questions. For free. So to join Lenovo Pro, visit Lenovo.com.

So exchange traded funds. The name implies a portfolio of different assets, a lot of different securities. But this interesting thing has happened in the ETF universe where I live. You have single stock ETFs. You have leverage single stock ETFs. They only track one stock and they do it a lot. And it's fun because it kind of feels like an oxymoron. And I remember when these things launched, which was one or two summers ago, time is a flat circle. But a lot of people asked,

who are these four? Why did these exist? These shouldn't exist. It's a subversion of the structure. And they're actually super popular. Oh, sure. But it's not really that ETFs hatched to be a flat. Like, are there very popular ETFs include the gold ETF for sure? Bitcoin ETF for sure. Like, it's a structure that I think started as like, let's have a mutual fund that is exchange-tradable and tax-efficient. But like, it turns out it's like a box that you

can trade on the stock exchange. It's useful for lots of things that you can't otherwise trade on the stock exchange. Like gold or Bitcoin or twice the price or negative two times the price of a stock. Yeah, that's a fair point. But I will say there was just so much skepticism about these things. I believe there is still a lot of skepticism. There is still. But not about their retail appeal

because they are doing great. But about their usefulness. Well, for a while, it looked like, I mean, for every popular single stock ETF out there and we're going to talk about some of them, there are a lot of ones with very little money because they track boring stocks. But the ones that track interesting stocks such as Tesla, such as Nvidia have really popped off. It is like a winner take all sort of situation. You're the ETF business expert. How bad is it for you to run a single

stock ETF that doesn't attract a lot of money? Like, how much does it cost you? How much does it cost to run a need to? Yeah, that's the thing. It's like a box. It is a box. But I mean, you still have people that need to keep the box alive. Yeah, I'm so glad you asked me this question because I was just reading this article that I wrote. That was an embarrassing sentence. It's like when someone walks by my desk and I'm watching myself on TV. But anyway, I was reading this article

that I wrote in October of 2023. City had a report actually on this and they found that roughly a third of ETFs that exist right now in the US don't make enough to cover their operating expenses, which is just a reality of the ETF world that costs have gotten so low. Like, there's so many funds on offer that charge less than 20 or 10 basis points a year that unless you have enormous scale, you're not going to make any money. But like, this thing goes like ETFs. First of all,

we say single stock ETFs. Like, they're all, I think, levered or inverse. Yes. So you are effectively charging people for like, you can get better margin terms than they can, right? You can borrow more cheaply from your broker to buy twice as much Nvidia stock or whatever. It's a really neat solution for the retail investors that are in these products. Projects. One, they can, you know, the ETF can probably borrow cheaper than they can. So you get like,

better economics, even with the ETF charging a one percent fee. But then also like, I assume some retail investors are like a little afraid of margin. And like, you know, you don't want to go negative, right? You don't want to owe your broker money. This like, the worst you can do is get it here. So this speaks to one of the big appeals of ETFs, especially

for individual investors. It's just convenience. I mean, I write about a lot of ETFs and just like, pretty vanilla ones to where, you know, people always grumble and sometimes on Twitter like, why does this exist? This doesn't need to exist. You can do this yourself. And it's like, yeah, you could or it's really easy to go to Robinhood and buy an ETF with no commission that does

it all for you. And that's what these leveraged single-sock ETFs do. Yeah, I used to be skeptical of like structure products because it's like they've packaged a bond of a bank with like a weird option and like if you could recreate that on your own and save like the 5% fee of the bank charges. But then people like, what are the odds? You're going to recreate that on your own. Like you're trying to get convenience fee. And I think I said with us with that now, what I will say is that

it's not super obvious that like a lot of people need to be treading in video on margin. Yeah. Like you're making it more convenient to kind of gambling eat trade kind of. Yeah. Like people to retail investors need to make levered bets on in video. Oh yeah. I mean, if you wanted to clutch your pearls here, you certainly could. But it's like, it's fine. I enjoy a gamble here and there. Oh, mongers. Like the people doing this. Some of them are making money. Some of them

are losing money. A lot of them are enjoying it. They're adults that they want a bet on Nvidia. They can bet on Nvidia. But it's like, it's funny the way these products are described because no one is like, we're riding away to make it more fun to bet on Nvidia stock. Yeah. Because like, for some reason, you can't say that. I know. No, the thing is I interview ETF issuers who offer these products all the time on TV, for example. And they can't say that.

This is fun for retail. Yeah. They can't just say that. Like this is a fun shiny object. You know, go wild with it. They usually talk about it in terms of trading tools. Like you can use this as a trading tool for some trade, which maybe the trade is just having fun. I do think it's really interesting to approach this because I mean, from the perspective of an investor, it's fun to talk about. And they're having fun doing it probably. But also just from the perspective of the ETF

issuer, I can't do math, Matt. So I'm hoping that you can do that. Let's talk about NVDL. That is the granite shares two times long Nvidia daily ETF. It's market cap is $1.8 billion. It charges 99 basis points. How much is it making annually? It's making $18 million. Right? annually. That makes sense. One percent of 1.8 is 18. That sounds pretty good. Okay. Now let's go to VU, for example. I don't know what their expenses are. I guess that's the paid margin. Yeah,

but we're just doing that can math. But like think of a company investment fund where your job is to buy one stock and hold it. It does some pretty good. It does some pretty good. $18 million to do that. It's pretty good. But there is there is margin. I assume the margin cost is all baked into the price. So the 99 basis points is pure problem. Wait, I want you to do more math. VU. It's the Vanguard S&P 500 ETF. It's market cap is let's call it $440 billion. It charges two

basis points. So how much do they make annually? Like 90 bucks. Right? That sounds right too. One percent would be $4 billion. Time basis points would be like $400. It's like 90 million. Yeah. So you think about there's not as much daylight between how much these two funds are making versus the AUMs of these funds, which is a long walk to get to my point of if you're an issue with a stable of these sorts of products that actually do get up to some respectable amount of

scale. You're making a lot of money. Like the Vanguard's of the world, at least when it comes to their ETF business, they have trillions of dollars in assets under management. They just don't make that much money. Vanguard doesn't care because they have their unique ownership structure. They're owned by their investors, etc. But a lot of issuers in the ETF industry that are trying to compete, they really do. This goes back to like what I was saying about the product market

thing. People have figured out how to do stock investing. It's like you index. It's a competitive market. It costs one or two. This is points. Right? And so a lot of air has been sucked out of the asset management and investment management. I'm broker and financial advisor business because there are a lot of people who are like, wait, I know how to do a responsible investing. It costs one basis point. Don't need a financial advisor. Don't need an active mutual fund manager.

All I need is like a Vanguard ETF. So at the margins of that, there are a lot of people who are like, you know what's fun? Two times in video. Right? Because there's this huge business out there that's like the sort of core of it is being hollowed out. And so people are like, oh, you could buy some Stripe Forward contract. For you also, if people are like, you could buy two times in video. If you buy one times in video on Robinhood, right? You're paying zero commission, right? Yeah. If you're

buying two times in video, you're paying, you know, my business points. I mean, it's interesting to see the sorts of ETFs that are launching now to deal with that problem that things are so cut down to the

bone. And you basically have the mid tier being hollowed out. Like you said, the death of the middle class, if you will, the consequence of that is you have seen new launches in terms of the size of the portfolio become more concentrated because more active ETFs are launching and they're getting more concentrated. And actually, there's really interesting data from Bloomberg intelligence that recently, the new launches have been more expensive as well. Like who's kind of launching this and

be fun? Yeah. But I mean, we're talking about like on average, it's like 61 basis points is the average right now because you do have more of these relatively expensive ETFs launching because issuers are just like, how am I going to make money here? Yeah. I mean, 10 years ago, I would not have said 61 basis points was that much for active management strategy, but it's like, yeah, the market has completely changed. Oh, yeah. And like you're not getting paid 61 basis points for like managing

your portfolio of one stock, right? You're getting paid 61 basis points for 100 basis points for thinking up the idea of like, you know what people want is two times in video, right? Like, you're getting paid for like ideas. It's like a marketing job almost. It's like figuring out consumers like college and figuring out what this help people and then they'll pay you for it. Because like everyone knows that you're responsible thing and like you have to find the appealing thing.

Which is like, it's not exactly the casino business, right? Yeah. Like, you know, there's a lot of business over the world that are like, go on, live a little. Live a little fun. Yeah. Let loose. Listen to a podcast called Money Stuff. Mailbag. Mailbag. Are we sitting this up? Well, we both sang. So I feel like it's all set up. That's it. Just talking about pudding. Yeah. Shall we? So pudding. I said on the pod last week that one of my

rich, I want to go a little further back. Okay. Years ago. Yeah. I wrote about filling a swimming pool with simple syrup. And I got reader email explaining that you can swim as fast and syrup as you can in water. And then you, I said that one of my rich person dreams is to like fill a swimming pool with pudding or jello and see what would happen. Like if I could swim in it or if I would suffocate. And wow, we got a lot of engagement. It's just like, I've been doing this for long enough that

I refused to speculate on whether you would be able to swim and pudding because I knew. Yeah. I knew that we would hear from the world's leading pudding physics experts. Well, we got some video to which was great from the video from Chris. Oh, I obviously put it on the video. Well, we'll have to make this a video podcast. Oh, there it is. Yeah, it looks. Oh, no. This kid is falling into a pool of red. Oh, pudding. Oh, my God. It looks amazing. Yeah, this is like really.

Doesn't that look satisfying? No. So go watch this fascinating. Go watch the video. We're going to link to the video in the show notes. This is like truly a thing you're interested in. Yeah, definitely. I'm so into this. Wait, is he just lying on the floor? No, that's the he's like, that's the Jello. That's the Jello mat. So this kid just can't have all that. Yeah, well, okay. Oh, no, that's, oh, that's best. Okay. No, it looks delicious. You could eat as you swim.

Looks so good. But anyway, so we're watching a video from former NASA. He's great audio content. He did fill a swimming pool with Jello and then he had a lot of children try to jump in and they couldn't, they couldn't break through to get to the bottom of the Jello, which is exactly what I wanted to know. So that's one question answered. But I do want to know about pudding, pudding buoyancy. Do you want to tell us about it? Oh, I'm going to put one email from a physics grad student that

Harvard. Okay. Because can I tell you a secret? Sure. I've never taken a physics class, which might explain a lot of things, but go on. What if your school's physics class offered jumping in Jello or pudding? I probably would have taken it. Charles, a physics grad student at Harvard, right? I'm pretty sure that pudding is denser than water, so it'd be easier to float in it than normal. You can check the relative densities you're putting of choice versus water by pouring some of it

into the water carefully and seeing if it sinks. If you're really concerned, you can probably start by standing in the shallow end of your pool of pudding and then try swimming for the, that's good practical advice. I do. I was expecting more physics and less like maybe don't dive directly into the pudding from the physics grad student. I find that really like endearing because I have to worry about you. I am pretty concerned. What if you just can't involve into eight feet of pudding?

Well, that's the thing. You'd be fine. It turns out good. I don't think I would float back up to the surface. What do I? This video suggests that you wouldn't even sink. Well, that's Jello, Matt. Can I go pudding now, please? Try to think that's about. Try to keep up. And that was the Money Stop Podcast. I'm Matt Levine. And I'm Katie Greifeld. You can find my work by subscribing to the Money Stop newsletter on Bloomberg.com. And you can find me on Bloomberg TV

every day between 10 to 11 a.m. Eastern. We'd love to hear from you. You can send an email to moneypod.blumeberg.net, ask us a question and we might answer it on the air. You can also subscribe to our show wherever you're listening right now. And leave us a review. It helps more people find the show. The Money Stop Podcast is produced by Anna Mazurakis and Mazus Andam. Our theme music was composed by Blake Maples. Brandon, Francis, Ninnam is our executive producer.

And Sage Balmond is Bloomberg's head of podcasts. Thanks for listening to The Money Stop Podcast. We'll be back next week with more stuff. The Hartford understands protecting your business with the proper insurance can be a challenge. The Hartford team can provide coverage to suit your industry. The Hartford Empowers mid to large size companies like yours to help manage risk, from liability and property insurance to workers

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