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Here we are Friday, January second, twenty twenty, recording this, live, recording this, live recording this on I don't know, December seventeenth days. Wow, it's been it's been an eventful two weeks. I know, between when we recorded this and when you're listening to it.
Ominous, very ominous.
Yeah, I'm going to regret this so.
Much, probably just given the pace of everything that's happening all at once. But hopefully our answers to these questions won't have changed too much in two weeks. Hopefully, unless something amazing happens.
Hello, and welcome to the Money Stuff Podcast here, weekly podcasts where we talk about stuff related to money. I'm Matt Levine, and I read the Moneys Doft column for Bloomberg Opinion.
And I'm Katie Greifeld, a reporter for Bloomberg News and an anchor for Bloomberg Television.
Not pretending to sing the mail bag thing, but today is a mailbag episode.
Yeah, mail bag, Thank you, Katie, mail bag nail bag.
Yeah, let's get into it.
We've got some good ones. We're starting off strong with a question from Christopher, who asks why do analysts ask questions on earnings calls? I get why they ask them. In private meetings with the company, they then get exclusive access to body language information, but on public earnings calls they get their information only to have it simultaneously shared with everyone else. What do they get out of that?
It's a good question. So basically all of the questions on earnings calls are asked by sales ad analysts whose job is not to buy stocks that will then go up vote, rather to publish research reports for their customers saying what's thots will go up and so like, broadly speaking, the research analysts are in a business of like providing public ish goods, right, Like, they're not getting paid directly
for picking stocks. What they're doing is they're providing some holistic set of services to investor clients that make the investor clients think fondly about them and about their banks. And then the investor clients, because of those fond feelings, will either you know, in the US, they'll trade with the banks and pay them commissions and in Europe they'll
pay directly for research. And so what that means is that like anything that the research analyst does that like makes investors like them is productive, and providing public goods by asking good questions on the earnings call is reasonably productive. Also, if you ask good questions on the earnings call, then people will hear you and think, ooh, I like that analyst, and that will lead to things like maybe them paying
for your research. It will also lead to maybe the company thinking you're good and liking you, and therefore one you know, having private meetings with you where they tell you stuff or give you a body language that allows you to be more informed and too.
Like.
Another job of research analysts is brokering meetings between companies and investors, right, so they do corporate access where you know, when a company is doing a non deal ROACHO or a conference or whatever, they're meeting with investors and those slots are kind of like arranged by the banks by the research analysts, and if you are in good favor with the company, then you get better access to those
things and you can do more for your clients. So as part of like the broad set of services they provide, asking good questions in a very public place on ear news callus it's a useful thing to do.
It sounds a bit performative. But I hear it.
Yeah, it's like a market Like being a research analyst is in some sense a marketing job, right, and so like being good in public is good marketing, I should say, also like it is an analytical job, and you are building your own model, and like if you have differentiated views or differentiated skills and you ask a good question that informs your model, other people will get the answer to the question, but they don't have the same model, they don't have the same skills, right, So you could
still get differentiated information or analysis by asking a question that everyone can hear. But a lot of what you're doing is letting everyone here smar you are.
Yeah, you're sort of speaking to something that I was wondering when reading this question, is whether there's satisfaction in asking like a really good question on the earnings call that maybe gets something more candid from the executives on the call.
You're a television anchor, Sure you know the answer to this question?
Well, yeah, I guess. I mean, if someone asked a really good question on an earnings call, I would probably highlight it and also steal it from myself.
Yeah, But also, just like, isn't there satisfaction.
In asking a really good question. Yeah, that's true. Or like the journalists at the FED press conference, right, yeah.
Right, same thing. The journalists of the FED Press conference. Any answer to their question. Every other journalists of that conference can write down, right, yes, but you ask a good question, then you're like, oh, you impress your colleagues, you impress the FED. Yeah, you impress your readers.
Yeah about or you tick off the FED something else. Something else I also wonder about is like whether I wonder this too about the journalists in the room at the FED Press conference, is whether there's any sort of sense that, like this is a team sport, that we're trying to get something out of these people that we might not have otherwise, or whether everyone is asking their own individual questions and not necessarily building on the question that was asked before you.
I mean, surely it's some combination, right, Like, surely you want to distinguish yourself, but also, like someone else draws some blood, you move in for the killer. Right, Yeah, probably somewhat similar.
Good question, Christopher. This next question, Yeah, who wants to read it?
It?
Gover?
What idiotic book is coming from senior hedge fund leaders? It's asset management? The entire point is to care about making few money. The people that do get hired who don't care about money are weirdos who create ten billion dollars Ponzi schemes. Jane Street hiring Mathcamp weirdos rather than
the cross players is a literal criminal conspiracy. Anthropic is a weird cult, and it's specifically because of how weird and abnormal that the Open Ai board was that they tried to destroy the company because it released the successful product. We need more normal people in these companies and less ethereal PhDs that don't care buying a house, a plane, or a yacht, don't care about buying your household. Companies should have corporate policies that require employees over the age
of twenty five to not have roommates. We get better products and better corporate decisions if people aren't living in cult houses but rather have to deal with the real housing market and do things like buy groceries and pick furniture. If hedge fund leadership wants to only hire socialists, then they should go lead a university rather than managing financial assets. For two and twenty or more. I love this question,
any of this question. I love this rant. I don't even know what prompted it, but I have written about this that I believe, and I think I am not alone in this, that like a lot of the most successful people in the financial industry are deep down motivated by puzzle solving and intellectual curiosity rather than the pursuit
of money. And I just think that this is an empirical fact that might not be true, but it seems to be true, right, Like you could imagine that the thing that would make you the best at managing hedge fund was like really liking money a lot, But it turns out that solving puzzles is really good for managing money. But Graham is right that there are weirdnesses there, and that like, if you get into this business because you really like solving puzzles, like some number of those people
do end up committing huge frauds. And there is some possibility that a world of nice, sociable, moderately intelligent lacrosse players would commit less fraud and have fewer blow ups and Ponzi schemes than one where where the weirds are running the nuts funds. But what do you do about that? Right? You can't. It's a fiercely competitive business, and if you are just trying to trade stocks with like friendly sociability,
you'll get run over by the math kids. And so, you know, the competition leads to this strange place where the people who are less motivated by money make the most money, and then some of them are weird. Also, I should say, like I'm being sympathetic to his question, but fundamentally my sympathies are with the puzzle people, right, I mean, I love the puzzle people, and I think it is on balance good for the world and also very pleasing aesthetically that the puzzle people are in charge
of finance. But it's a real you know, this is like it goes back to Liar's Poker. Right. This transition from the sort of sociable, essentially marketing oriented people to math puzzle people is one that has called attention on Wall Street for decades.
H Great Graham, really good stuff. Okay, here's Sean that seems to love certain quotes because they're graded explaining a moment mechanism, trend, et cetera. For example, quote, it would be wise to view any investing in open Ai Global LLC in the spirit of a donation. End quote hidden poorly internally labeled Fiat at account eight million?
Do you eight billion?
Eight billion?
She's a little till there.
In front of it because it.
Shan beckman Fried's famous spreadsheet famous.
Do you have an all time favorite?
Do I have an all time favorite quote? So I almost said this in the last answer, Samuel Johnson says, there are a few ways in which a man can be more innocently employed than in getting money. I think about that a lot. Yeah, people regularly get mad at Wall Street and fanciers and people trying to make a buck, and I often think it's better than almost all of
the alternatives. People who are motivated power or revenge or even a sense of mission, we're often doing worse things than the people are just out there trying to make a buck or eight billion bucks. So that's a that's a you know, an all time favorite quote of mine. Another favorite quote of mine is, you know, Warren Buffett has a lot of famous quotes and his famous shareholder letters.
Yeah, probably quoted a.
Lot of them. The one that I like them most is at some point he's like talking trash about gold as an investment, right, and he's like, you can invest I think the number was like the market cap with the SMP. He's like, you can put you know, thirty two trillion dollars into the into the SMP. You put it the money into the SMP, you get all the productive capacity of America, all the companies, all the corporate profits,
all right, all the business. Or you can put that amount of money into a cube of gold that is like yay hi by yay long, by yay wide. And he's like, and then it'll just sit there. You can fundle the cube, but it will not respond.
It will not spin off any any dividends anything like that, no cash flow.
I just think of Warren Buffett's saying, you can fundle the cube, but it will not respond.
Okay. From ends a question on ISS slash Glass Lewis and the voting discussion. Isn't this the easiest way for a billionaire to gain a huge influence on companies? Buy Iss or Glass Lewis and steal the voting in one in the direction you want? Would this work?
I don't know, you know, and Glass Lewis people, people are really mad at Iss, Glass List or the proxy advisory.
Firms, as discussed on this pod ages ago.
Now I speak only a few days before we recorded this pod, Donald Trump put out an executive order basically saying we don't like the proxy advisors. And there's this notion that the proxy advisors are in charge of all shareholder voting. Right, People like a conspira like this where it's like two foreign owned companies control how all American
public companies are run. Right. The idea is that Iss and Glass Lewis tell the shareholders how to vote, and then the shareholders vote that way, and then the companies have to do what they say. This is exaggerating in a lot of ways, one of which is that like Iss and Glass Lewis have their most influence in the least important things like there are shareholder votes on you know, there are hundreds a year on non binding proposals that
companies should write reports about ESG stuff or whatever, and there. Yeah, a lot of shareholders do defer to Iss and Glass Lewis because it just doesn't matter to them that much.
Iss and Glass Lewis have meaningful influence on things like contested merger situations and proxy fights, where like there are real economic stakes, but they're a lot of asset managers are making their own decisions because they have more at stake, whereas the stuff where the Iss and Glass Lewis have the most impact is where people have the least at stake.
But also it's just like they have no authority. They're just persuasive, right, They're just like useful, and if they stop being useful, then people would stop paying attention to them. So I think if you bought Iss and glass Lewis and use them to advance an agenda, first of all, you can only do so much to advance the agenda because it's only like share all theer voting. And secondly, if you did it too obviously, then people would get sick of you, and it can't be that hard to start another one.
That's the thing like in practice, if a controversial billionaires, which is Elon Musk, bought either Iss or Glass Lewis, I feel like like whatever recommendation they make, people just know it's biased.
Yeah, well you know everyone's like, oh it's biased. Now it is biased. They have some priors that happened to more or less aligned with the views of a lot of investment managers. Because the investment manager are the customers, and they're trying to run a business where people pay for their advice. But yeah, like you know, their bias is kind of aligned with their customers, and if you change that, then the customers would go somewhere else.
Yeah, now we have a question from it's like the ETF segment. I don't really know how to answer this, but Leo asks, I feel like you could just have every buy in ETF be a creation and every cell be a redemption routed to the issuer and remove the possibility of ETF's trading outside of NAV. Why bother being able to trade them with other traders directly at.
All, because they're exchange traded.
Yeah, that's the thing. They trade throughout the day.
Right. An instrument where you could only create and redeem with the issuer is just.
The mutual fund yeah right, Yeah.
And mutual funds have a couple of disadvantages. One is that it's just an administrative cost to the issue always having to trade with you, rather than you can trade on the exchange with anyone who wants to two. The issue wants to trade with you at NAV, but the NAV changes throughout the day, and so there's a cost in just updating that, whereas with an ETF you're trading at the market price, and so it just kind of
takes care of itself. Nobody takes care of itself with arbitreasure is making sure the price is close to the nav but like the issuer doesn't have to worry about that, Like, it's much more administratively simple. Also though, like a lot of the point of the ETF thing is that if you're doing trades with the issue, the way ETFs worked is that I gave the issuer money and it gave
me back shares. That is a taxable trade that creates tax liabilities for the other holders of the ETF of the fund right, because when the issue is selling stock for cash, it creates a tax realization event. The trick of ETFs is that they never trade.
For cash famously.
Famously, and so when I trade with you on the exchange and we're not trading with the issure, there's no tax realization event for the ATF. When there are creations, they're not like me going to the ETF with cash and getting my shares or vice versa. They're otherwise participants handing in shares and getting back of the ETF. So
there's an in kind transaction and no tax event. Yeah, and so it is like, really important to the ETF is that there are no cash trades with the ETF, so there are no taxes, and they deffer taxes for as long as you hold the fund.
So doing this would remove all the things that make an ets.
This is just a mutual fund.
Yeah.
The question why would you why can't you just do every trade with the issuer? Is like, why can't an etfpm mutual fund? And the answer is, we've discovered a better technology.
Yeah, why can't a mule be a horse? A lot of reasons. This is a really great question from Oscar. Why are there no meme ETFs? We have meme stocks and meme stock ETFs, but there is no meme ETF in otherwise completely boring ETF holding boring assets that nevertheless drums up huge retail excitement. It doesn't have to trade at some dune premium, just build up a big NAV.
I read this a few times and then I understood what Oscar was asking because my immediate reaction was, there are ETFs that hold meme stocks, but he's talking about why hasn't an ETF t taken off in the same way that a meme stock has, like display meme like characteristics. Is how I understood it.
And the answer is because of the ARP. Right. The answer is because if I buy an ETF on the stock exchange, I'm buying it from a market maker who is probably selling me shares of the ETF and buying the underlying stock, right and vice versa. If I'm selling, they'll buy the ETF, they can sell the underlying stock, and so if the values get out of line, then
they'll just do that arbitrage. Right. If an ETF is trading it well above its net acid value, then market makers are going to sell the ETF and buy the underlying shares and close the ARP and do creations and redemptions to close the APP. So it can't really trade it much of a premium. And then the question is it's not trading at a premium, it would just pull up a big nav meme stock can be fairly small, right,
people can buy the memestock and it'll go up. And a meme ETF that held a lot of shares would have to push the prices of all of the shares in order to go to the moon, right, Like, you can't have a premium, not sustainably, and so the only way for it to like go to the moon is to push out the prices of all the underlying shares. So you can imagine like a small ETF with like small Memei stocks doing that, But it's not the.
Most obvious thing to do a giant ETF that holds small stocks. I feel like that would kind of.
You can't have a giant Meme. Yeah, like the audience for Meme anything, the audience for like irrationally pushing out the price of things. It's not you know, it's not that big.
Yeah.
I will say, like, this is an interesting question because I feel like I've written this and said this possible on this podcast. One of the lessons of the Meme stock episode is that fundamental value is a floor on stock price, because if like a stock is trading well below it's fundamental value, then some private equity firm can come and buy the company and you know, extract its cash flows. But fundamental value is not a cap on
stock price. Like, if a stock trades it ten times its fundamental life, there's nothing you can do about that. You can short it, but you can't make it go down to its fundamental day. There's no offsetting equivalent to like a private equity firm buying the company and cracking up its cash flows. And so everyone sort of thought that fundamental value in the long run was the driver of thought prices, and the memestock episode threw that into question.
Is like, no, you don't. It doesn't have to be. No, with ETFs, there is a symmetrical mechanism, right, there's the arbitrage mechanism means that the ETF kind of has to trade its fundamental value, and if it doesn't, you can fix that yourself. You can like extract that premium directly by you know, genie a creation or redemption. And so that's why there's no MEITF because you can't sustainably trade above fair value.
I still feel like it could happen. Yeah, maybe it'll happen in the next two weeks, and this will be the thing that eurodically changes our answers. Chris asks thank you for continuing to cover the amusing and somehow not yet a legal state of prediction market quote sporting outcome commodities. On the last podcast, it sounded like hal She could arguably become a platform that connects betters with market makers, which somehow seems like a bad thing for DraftKings and flutter.
But couldn't the sports books become the market makers?
Yeah? Why not? I Mean, it's unclear what actual entities end up doing this, but I do think that one way to think about it is that right now, there are sports books which are in the business of trading sports pets with retail customers essentially, and there are prediction markets, which are public registered exchanges that are in the business of trading sports pets with anyone who wants to show up. And like, that's kind of how the stock market works.
Right There are retail brokerages that send their retail custom stock orders to you know, sit at all securities or chains trade or power or whoever, and then there's a public stock market. And one thing that happens is that those electronic trading firms that get the retail orders, they're also trading on the stock exchange, and so one thing they are doing is interacting with retail orders and then
laying off risk in the public markets. And you could imagine something like that happening with sports books, right maybe not the current sports books, maybe that's more like a market maker or function, but you have people who are interacting with retail traders and they're getting flows and they're you know, they're getting like two sided, uninformed flows and they're trading against it and they're making a spread and
so forth. And when they have unbalanced risk, they go lay it off in the public markets against whatever sharp
traders they find. They're like, I think that's a very reasonable model, and like, the way it works in the stock market is if you're a retail trader, you get a better customer experience and often like better pricing by trading with an electronic wal seller through your retail broker's platform, And like that could happen here too, or we're like, you know, the retail sports books can offer maybe a better user experience and so you trade with them, but
then they are trading in the public markets to lay out their risk. There are some problems with that theory, including about like the legal structure of commodities markets, but it does kind of feel like that could be a place that this ends up, where the retail traders are trading with someone who specializes in retail trading, and then like there's some professional institutional market.
So Chris maybe he identified the evolution.
Yeah, I don't know that the current sports books are going to be the best situated to to do that. But yeah, they're all kind of they're all basically hiring the same pool of high frequency traders.
That's probably fine, all right, Dan Dan asks, I have a question about how companies execute share repurchases and the rules around it. I know that parenthetical back when the SEC and Force rules insiders could use a one oh five B one plan to try and five one ten ten five be one plan ten.
Be five to one.
Wait did I say ten B five to one ten five B one oh ten be five to one ten. No, it says it.
Doesn't matter what it says. I'm telling you about it actually is?
Okay? Sorry, sorry, down ten Wait you just said ten B five one plan to try and protect themselves against insigner trading allegations. Is there a similar plan for when a company is repurchasing shares or are they allowed to use insider information to time the repurchases? Also, how do they do it? I assume Coca Cola doesn't open their Robinhood account and submit a market order.
No, here's what they do. They call me, and then they used to call me when I was a banker. One thing I did was share repurchases, and so I can tell you all about this. I will try to keep it short because although it is dear to my heart, it's not that interesting. But yeah, So ten B five to one is like the SEC rule that basically says, when you don't have inside information, you can set up
a plan to buy stock or sell stock. So like corporate executives will set up a ten B five to one plan to sell stock to pay for college, and then later when the plans sell stock, even if they have inside information, it doesn't matter because that the plan is just automated. This is the theory. There are various workarounds,
but it's the same rule for companies. Companies regularly do stock buybacks using ten to five to one plans because they have some open window after they announce earnings where they can set up the plan and then like the plan can kind of go and be automated throughout the year and they can buy stock even when they're discussing mergers or whatever because like they have a ten to five one plan. Sometimes companies do that, they also do
other things. It used to be that the main way companies bought backstock was through tender offers where they made a public announcement anyone who wants to sell stock at this price can do it, and then they would buy stock at a price, and this would solve all those problems because they'd make full disclosure of everything and like everyone would have the same information and they'd tender all
their stock at the same time. It's pretty annoying process and companies do much less of that than they used to, basically because the SEC relaxed the rules. Like a few decades ago, it used to be considered that like open market stock purchases where market manipulation, and so companies didn't do it, and they relax those rules. This is periodically controversial, like people are like stock buybacks are market manipulation, so they should change the rules back and then companies would
have to do tender offers. But now they mostly do open market purchases. The other thing they do is delightful derivative products with their friendly local investment banker. Basically, anything you do, you're going to call an investment bank and they're going to do it for you. And the simple way is they're going to do it in the open market. Not so dissimilar from what you would do with robinhood.
They usually they'll like handle the you know, the average over the course of the day rather than you hitting every bye you know order. But if you want something more complicated, like a fancy derivative product, they'd be happy to put you into that called accelerated stock buybacks really good. I used to sell them.
Sounds juicy.
Yeah they're good. Yeah, call me for I don't want to actually endorse accelerate. It's like, well, have complicated feelings about this product I used to sell. But in any case, here's a question from Ian. Katie is mentioned on more than one occasion that she craves adrenaline and is an adrenaline junkie. She has also discussed her participation in the sport of horse dancing. Are the two related? Is trissage in activity that adrenaline junkies flock too? I want to hear the answer to this one.
Probably no.
I feel like horseback riding in itself is like a little bit you have has an element of.
Animal danger.
Yeah, could go fast even if during horse dancing He's.
Probably ideally they wouldn't. It's a twofold answer, because yes, there is an element of adrenaline and riding horses. But if you most adrenaline junkies are more into jumping, you know, they want to go fast over jumps. Dressage often the goal is to not go that fast. It's like horse ballet. But I love drissage well. I love drisage just for the training element of it. It's like horse pilates, honestly. But when it comes to showing, I just love having
to be on. It probably takes five to ten minutes for you to complete your test, and for those five to ten minutes, you have to nail every part of it. You just have to be on the entire time. So I really enjoy that element. It's not dissimilar from television, where the camera is on and you just have to perform, right Like.
Any performance or competitive activity has an adrenaline competit, even yes, even if it's.
Like, for example, obviously that's a high adrenaline sort of thing. Yes, for yeah, if you're like in a high stakes match, your heart is racing, but you're not obviously. In most cases, I assume chess probably yoursage is the most similar. I don't know, everyone go YouTube drissage in the alone?
Are there YouTube videos of Kiddie raffle.
Absolutely not, absolutely not.
Well, don't look for those though.
No, please don't. All right, Well, happy happy New Year. I hope you all had a great time.
And that was the Money Stuff Podcast.
I'm Matt Levine and I'm Katie Greifeld.
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