Bloomberg Audio Studios, podcasts, radio news. One day we're gonna touch on the thought situation.
Jesus, but no, I'm too frou.
We can have a possum update.
Yeah, tell us about the possum. You cleaned it up.
I cleaned it up. That's that's really the update. I don't want to say that this show is my therapy, because it is truly not that this show.
Is what you talk about in therapy.
But it isn't the case that, Like, as I was talking about the possum last week, I knew that editors were not going to cut it out and that I was using it as a commitment device to finally make myself just go out there and shovel up the dead possum in my heart. Im. That's if you didn't listen to the last week's episodes.
Yeah, wow, this would be horrifying. Go back listen to that or don't interest it's interesting.
This is just like this is the like skip ahead banter, Awa. Yeah, I cleaned up the possum. And then then my wife was like, I listen to your podcast, I learned about the possum.
That's a good test to find out if your spouse listens and tests. I don't. I don't think Joe listens because he didn't call me out on the fact that I just wait for him to notice the vomit from the.
See he knew that. Yeah, this is like densely packed with references.
Yeah, a lot of callbacks.
Yeah.
He probably also knows that because sometimes I'll say, Hey, the cat vomited again, could you co get that right?
And other times you'll be sitting pointedly facing away from the cat vomit and he'll be like, I know that, you know there's cat vomit there, and you're like, what, we.
Have a cat psychological warfare.
Hello, Welcome to the Money Stuff Podcast. You're Herley podcast where we talk about stuff. I led it to Money. I'm Matt Levine and I write The Money Stuff Colum from Bloomberg Opinion.
And I'm Katie Greyfell, a reporter for Bloomberg News and an anchor for Bloomberg Television.
Polly Market. Yeah, so Bloomberg News. How a story this week that Shane Coplin, the founder of Polymarket, is now the world's youngest self made billionaire, which.
Is cool for him, definitely.
Shane Coplin lives or used to live next door to a guy who throws a lot of book parties for finance books. Oh, so you can see him like all the finance book parties.
That's your kind of hangout.
Sadly, yes, and so yeah, I've seen Shane Coplin at book.
Parties and you've rubbed elvas.
I've rubbed Elvas. And when I saw that article, I thought youngest self made billionaire. I realized that Shane Coplin is the second world's youngest self made billionaire to be in my phone context. It's not like an entirely positive development.
For right now. It is a positive development for Shane. Will continue to watch this space.
It is also he did at the right order though first he was investigative by the government, and now he's a self made billionaire.
I was going to say, I forgot that it was less than a year ago that his apartment was rated by the Yeah, fast forward to October twenty twenty five, he's super rich. ICE. Of course, the news from this week was that they invested.
The inter Intercontinental Exchange.
We're not we're using government names.
ICE can mean a number of things. Anyway, gone anyway.
Ice, the Intercontinental Exchange investing two billion dollars in polymarket. That gives it an eight billion dollar valuation. Pretty stunning. And it was just last week that we were talking about how prediction markets are eating everything and here we are keep.
Going yeah right, it's funny, like I think of Calshi as a sports gambling site, piymarket, I don't know, probably market like feels a little pure. Yeah, you know this the bloomerg story about Shane Complin's like founding a polymarket. You know, he's like reading economics papers about prediction markets. I'm thinking this is too good an idea to just exist on white papers, and like I think he's like fully committed to the notion of Yeah, but like you know,
they did get into sportscambling. Yeah, and I think that I'm not sure, but my sense is that it is hard to justify an eight billion dollar valuation for a prediction market that is just elections and uh, you know, who will be a time man of the person of the year and uh and uh, you know, like just fun predictions and not you know, for addicted sports candlers.
I will say that, you know, if you had told me that Ice had outright bought poly Market for two billion dollars, I still would have been like, Wow, that's a lot of money. The fact that it does have this eight billion dollar valuation also stuck out to.
Me, Right, I just think that that that valuation discounts a lot of growth in sports, yeah, and a lot of margins in sports and not the other thing. But I'm intrigued, right when you read the announcement, like and again when you read like Shane Coplan's public statements like like, yeah, there's sports, but like they're not they're not leaning on the sports. It's not like Robin Hood saying sportscambling is
an emerging hasset class. Yeah, they're like, eh, we're like trying to find ways to understand and price the future. And I think that's like a noble go like like prediction markets, Like like he's not wrong that, like economists have talked about them for years, Like the idea of prediction markets, like providing a set of probabilities about the future,
does seem really socially useful. And my sense was always that no one had cracked the nut, not of like creating trading infrastructure or making it legal, but then not of like making people want to trade it, such that there was like a big market, a big liquid market for it, such that professionals would have incentives to make prediction market prices correct, right, yeah, because like and once like, oh, let's gamble on whether like you know, the Ukraine War
will end, like I mean, people are but like, it's not like a fun gambling product and so there's not a lot of money to be made if you have good insight into it. And so just the whole thing has never quite worked right, and like y US presidential elections where there's a lot of money, but otherwise it never never feels like it quite works in sports or
you know, sports solve that problem. Yeah, people really want to gamble on sports, and there's a lot of dumb money and so there's a lot of value for smart money to bet against, and so you have incentives to build good sports prediction models and trade on polymarket and all kind of works. And then you know, the question is that does that spill over into the New York City mayor race or you know macroeconomic variables or like you know, the Grammys or whatever.
Yeah, well I do like that. You brought up again the Grossman s tigletz paragdox in your call them on this specific item. You're calling back to another column that you know, maybe the way that we get to that societal useful information is through the avenue of sports betting and a lot of people making a lot of noise, right, Like the gross and.
Said, what's paradox is the idea that like, you can't have efficient markets because then no one would have incentives to trade and make the markets efficient. Yeah, so Lassie Peterson says that you need efficiently inefficient markets. You need like just the right level of inefficiency to incentivize people to make them more efficient. And like the economisty of prediction markets is like people who have particular insight into like whether there'll be a war will like trade their insights,
but like who will trade against them? Like who's just like randomly wandering around like, oh, I bet there won't be a war, and then like you know, get suckered by the policy experts and in the stock market, Like the answer to those questions they're super easy, right, The answer to like who will trade against the hedge fund is an index fund who is just blindly managing retirement money and needs to invest it in stocks, And so the hedge fund has like someone they know those trade against,
or the answer is like you know a retail investor or, Like, there's a lot of straightforward answers to like who is on the other side of this trade that allow people with a lot of information to make money by trading
and incorporating that information enter prices in prediction markets. It was never clear who those people were, right, Like, it's not a savings product, right, Like people don't put aside one hundred dollars a month in retirement savings in prediction markets, so there's no like uninformed flow to trade against there. And it has historically not been a super fun gambling market, like with the exception of presidential elections and a few
other high profile things. But when you add sports, it becomes a fun gambling market, and then that just opens everything up, right, It allows people to make money making informed predictions at least on sports and then maybe at most of something else.
Yeah, I mean just assume that the people who are betting on sports on the prediction market go into other markets such as I don't know, elections or weather or whatever else.
Well, it's both, right, So it's like, on the one hand, like do you attract dumb money recreational gamblers to the platform, and then they're like, well, i'm here anyway, I might as well bet on election. Its like that seems plausible. And the other thing is like, you know, if you are a quantitative trading firm and you have historically traded like stocks and options, a lot of those people are now getting sports curious, right, Like they're building sports trading desks.
They're like building models to price sports events. Because it's like kind of the same skill set, right, It's like taking machine learning and applying it to a bunch of data and like using it to predict the future. And it's like, well, you can do that with stocks, you can do it with sports. And there's a lot of money to made. And so some quant trading firms are either heading into the sports market making business or the
traders are leaving to start sports market making businesses. And if those people who are trading on traditional sports books or who are like market making on calci, if those people start market making on polymarket in sports, it's like a relatively easy lift for them to add an election column, right, Like it's a whole new set of data analysis, but they're already plugged in, you know, they're already like now,
the market structure works. So maybe if you're making money trading against recreational gamblers on sports and you see election prices that you think are out of line, you're like, well, I put a few million dollars on that election too.
While I'm here, I might as well, Well it's just.
Right, it's convenient there.
Yeah, So what does ICE get out of this? I don't know, That's the thing.
I mean, one answer is an investment, right, I mean there's two things.
Right.
It's like, if it's the future of sports gambling, that's valuable. And then like if like the way you trade your insights into like whether there will be inflation changes from like trading treasuries to like buying the inflation contract on polymarket, Like that's a big deal, right, And I don't know
that that is a near term likely outcome. One, it's a possibility, and two becomes more likely when you partner with a big exchange firm, you know, like ICE now when they're thinking about like what kind of like macroeconomic
products should we offer. Now, in addition to like interest rate futures and bond futures, they can offer predictions of inflation right, So that's one thing they get is like the that's like currently in the cards, right, Like the current situation is like they're going to distribute polymarket data, which is of interest to people who trade on and the other think it's tokenization, which who knows. That can
mean a lot of things. Yeah, it could be like technological infrastructure for like trading ice products, where like instead of buying great futures, you buy great futures tokens, right, But it could also mean, like everyone talks a big game about stock tokenization. Everyone, it's a big game about tokenizing private companies.
Right.
There's a lot of stuff in that space, and like it is possible that Polymarket, which is crypton native and kind of fun, is better positioned to do some of those initiatives than like the New York Stock Exchange, right, which is the New York Stock Exchange, right, and which has like if you're the New York Stock Exchange, like we're gonna make everything tokenized. Like everyone who's already trading
on the stock exchange is gonna be very annoyed. Yeah, Like Polymarket you can tokenize whatever they want.
Tokenization has been on my list of things to actually think about for a while. See, but I haven't gotten there, Matt.
I've written about it. It's funny. It's like, to me, tokenization means two things. Like one, there's like some amount of trading in tradition financial markets. You could change the back end of the market structure and make it so that instead of being on some company's ledgers, it's on a blockchain and you can call it tokenized.
And it's all a little people that.
Yeah, it's the sort of thing that like ten years ago, you'd be like, it'll be a different database for your interest rate futures. You'd be like, I don't care about that.
But now it's like, oh, it's tokenized, right, So that's like like one thing is like the actual technological stuff, and like it's stuff about like how things work together and how like if you're an hedgephund you can like move your tokens from one platform to another, and like you can you know, live in the same blockchain environment for different kinds of trades, right, Like you can trade crypto against futures. I don't know, there's like that technological
market structure stuff. And then like to me, it always seems like when people talk about tokenization what they're always talking about is getting around securities loss, and that's not always always true. I don't know that that's what Ice and polymarket are talking about. It's what Robin is talking about every time they talk about togonization, right, And it's like, you see, like people like we should tokenize private companies so that you can buy shares of private companies without
having them have to go public. It's like, well, that's not how the securities laws works. But if we call a share a token, then they don't have to follow the law.
Yeah, so he struck me as.
Wrong, but it might turn out to be empirically correct. But anyway, so there's two kinds of organization. I've etten a lot about the bad regulatory arbitrage kind, but like it's possible, the technological kind is important, meaningful, we'll do something.
Well, hopefully these initiatives will bear fruit and we can actually figure out what Ice and polymarket are talking about.
Yeah, I will say that, I like, I have spent ten years writing about financial infrastructure firms saying we're doing a blockchain initiative.
It's all about the tech, and then like five years later.
They're like, we have stopped their blockchain initiative.
Stop asking about it. We don't want to talk about.
It, right, So it's puzzle tokenization. Is that it's puzzle tokenization. It's like we're putting the futures on the blockchain and then five years later we'll stop talking about it. Yes, I've thought a lot about taking anosition, but I don't have any I don't know what I mean. It's either.
I feel like I talked about raboris on this show before. Yeah, yeah, the snake eating itself. Well, another way of saying that is, you know, all these big tech companies are just spending money in a circle, and this week I feel like that idea was really on display. When you think about open ai and a m D and the deal that
they inked, it's great. Yeah. Yeah, So my understanding basically is that specifically with a m D, so they agreed to deploy a bunch of a m D chips and as part of that, they're also getting a bunch of warrants for AMD shares as well.
Yeah, there's kind of two wild ass ways of it. I mean there's at least seventeen, but like two wild asspays of it. One is that open Ai has committed to spend I don't know the number, but it's like it's six gigawatts of chips. Yeah, and they've said it's like tens of billions of dollars per So the open eye is committed to spend something on the order of one hundred billion dollars buying chips from AIM and open
A doesn't have one hundred billion dollars. No. One thing that is happening here is that the market has ascribed a value to open ai of like, you know, half a trillion dollars, and that value is sufficiently real that open and ai can like make financial commitments based on it.
They can be like, yeah, we'll give you a hundred million dollars for your chips, and they're great, and it's like everyone's like, yeah, that'll work out right, But like there's no, it's not in the bank, Like that's like, yeah, it's five million dollars company, they'll find the money. And I don't think that's a wrong bet. It's just an interesting they're able to commit cash based not on the
cash they have, but on their valuation. And then the other thing that's happening is that like when open ai says anything about anyone, the stock goes up. And so when Opening I announces a deal of like we're gonna send one hundred million dollars on AMTI chips, AMD stock very predictably goes up. And so knowing that as they negotiated the deal, they're like, what we should do is we should take your very predictable stock price rise and
use that to pay for the chips. Right like, essentially, like AMD shareholders will get excited about AMD having this deal, and so we'll let the AMD shareholders pay for the chips. And so that's kind of what happened, which is that AMD stock we're recruiting this on Wednesday at a stock is up roughly one hundred billion dollars from where it was last Friday before they announced the deal, and you know that'll covers the chips. And open Ai, which as
far as we know, plans to pay cash for these chips. Yeah, yeah, I don't think the deal is like we won't pay for the chips. The deals. We will pay for the chips. But Open Eye is getting warrants for roughly ten percent of AMD with like vesting conditions, but they're like penny warrants and so right Now, if you just assume they'll get all of the warrants, that's like a thirty seven billion dollar ish yeah, value transferred to open Ai. Yeah, which one will help pay for the cost of this contract.
And two it is only fair because like they created all that extra value at AMD, right, Like they're the ones who by sprinkling their magic dust on AMD, we're able to make AMD more valuable. And so yeah, they get back half that value in warrants.
Yeah. Well two things. So to your point that you know open ai mentions some sort of whatever with another company, a public company, their stare price goes up.
Yeah.
It makes me think about what we keep talking about in terms of the private and public markets converging. Obviously, open Ai famously is not public, but has been making a ton of waves in the public stock market. The other thing is, you know what we saw with open Ai and AMD this week isn't a one off. They have something similar with in Video, which of course is a direct rival of AMD.
Yeah, it's like very different, but it's like from at a high level, the same thing, Right, it's like we have a partnership where I think in that case, in Video is investing in open Ai and then Yeah.
In video agreed to invest as much as one hundred billion dollars in open Ai to help open ai fund a data center build out in Exchange. Open Ai committed to filling those data centers with millions of in Nvidia chips. This is a little bit old, but I was reading this piece from Michael sembelest Over at JP Morgan and
he wrote this at the end of September. But it spiritually can apply to all of these deals that Oracle stock jump by twenty five percent after being promised sixty billion dollars a year from open Ai in amount of money open Ai doesn't earn yet to provide cloud computing facilities that Oracle hasn't built yet and which will require four point five gigwats of power, which is the equivalent
of several Hoover dams. So it's easy, if you wanted to get scared and flustered, to build a case that there's a bubble being inflated right now.
I don't disagree. It's unusually easy to like visualize the future, right It's usually easily to be like Ai is going to be huge, m It's going to transform every aspect of life. It's going to require a lot of power, and like that requirement is going to be so obvious that like we'll build the power plants. It's going to require a lot of data centers, and that requirement is going to be so obvious. We'll build the data centers
and it's going to rake in oceans of money. Yeah, and that is so obvious that like the people who'll be raking in the money open AI I can just spend that money now, you know, Yeah, sixty billion dollars year, No problem, we'll get that, we'll up. Yeah, Like this is what capital markets are supposed to do, which is
like discount the future. And here there's like unusually widespread consensus on like how big and transformative this future will be and like what the steps are to get there, and so it's all being discounted right now into you know, the price of Open Eye. But also like these enormous, long term, incredibly capital intensive deals where everyone's like, yeah, of course that's going to get fine.
It's like that's no problem, don't worry about it.
And like one like that is the consensus view, right, Like that is what people think.
Right, very strong, it's very much so it's.
Not like a priori crazy to be like, yes, we can see how this is going to go, and so we're putting our money into it now. On the other hand, too, like yeah, if you want to take the contrarian view, like that sounds like a bubble. Yeah, that does sound like of course it sounds like a bubble.
Yeah, because there is a risk that we are a risk we're overbuilding here. For sure, A is going to change the future. I feel like it's hard to argue with that. But do we need this money? Gigawaws? Do we need this money?
I don't know how many giggs we need? Come on you and like, you know, what he says kind of goes, but like, I don't think it would be crazy to think that, like the current consensus is wrunging in either direction by a factor of two, right, and if it's like low by a factor too, then like everyone's getting get rich, right, And if it's high, then like all
these deals will look a little bubbly. But like still, you know, and you know, in like ten years, like hey, I will have been transformative, and I'm we're glad we have many of those data centers.
Yeah, for sure. Internet comparisons et cetera. You can make them here. But instead I'm going to say that there was an interesting crack that seemed to form this week. Did you see that report by the Information on Oracle. Yes, basically it's cloud margins are super thin. To give you the details. According to the Information, so Oracle's cloud business
has narrow margins that many analysts anticipated. They generated about nine hundred million dollars in sales by renting servers powered by in video chips, but it's gross profit came in at fourteen cents for every one dollars in sale. Again, this is according to the Information, which is like retailer margins, which is pretty crazy.
Not that I mean, it's a huge business, right, and so like, one question is like, who are going to be the like monopoly players in this business? And who are going to be the like in the fiercely competitive business of selling to those monopolists, right? And like, right, it's very possible that Oracle is in a commodity business. And my sense is that people think that in Vidia is very much not in a commodity business. Right, That could be wrong, right, And my sense that people think
open AA is not in a commodity business. That open AA has something special and so when it name checks a public company, that company goes up. Right, And like in Vidia has the same power, right, like the in video will sign a partnership with someone and their stock will go up. But like it's not clear that, like the people who run the data centers have the same pricing power.
Just wonder how the snake dies in the end, you know, is it because it chokes or because it's being eaten?
You know?
Do you ever think about that constantly?
I want to talk about too, miscellan things I do want to talk about. You had Kathy Wood on your show, Yeah I did, and you talked about.
The other show. Yeah, swimming is not your show.
This is your show.
The other show the E t f I S E tf IQ weekly Mondays at noon. But you can catch me on the clothes every day three to five pm. Anyway, go on good Plug.
And you asked her about the ETF I p O heartbeat tray. We talked about a couple of weeks ago.
There was no way I could not ask her.
Yeah, so this is the trade where like someone pumps like a billion dollars into into an r ETF and they do right before some hot IPO and they're betting that the ETF is going to get an allocation in the IPO and the IPO is going to pop and then they will heartbeat out of the ATF and so they will have like borrowed shares of all the underlying companies, put it into the ETF, taking it right back out again.
And they've done nothing, like there's no trade there, Like they've reversed everything except that they've extracted their portion of the IPO pop and monetized that. So if like the ETF gets a twenty million dollar IPO allocation and it goes up fifty percent, then like there's ten million dollars of profits. And if you own half of the ETF for like a day, then you get like five million dollars of profits with no risk.
Yeah.
And so it seems like someone did that a couple of times. Yeah, And you asked, Kathy, what about it?
I did so, first of all, ask for who, she said, as I doesn't know, probably a market maker. And she pointed out that this takes a lot of guesswork on the part of whoever is behind it, the theoretical market maker in this.
Yeah, people got it wrong, like there's like one of the big ETFs had one of these big heart beats for a big IPA that they didn't get an allocation.
Yeah, this is according to the FT reporting that it was the Arc Innovation ETF. That's their biggest ETF. Basically before the Klarna IPO there was that huge heartbeat surge, but ARC didn't actually get an allocation in that fund to Klarna, so it was kind of a worthless experience, whereas they had someone successfully did it with Circle I believe,
and ARC was a backer of Circle. I think like the FT had mentioned that ARC's website hadn't mentioned Klarna in some capacity, so you know, maybe it wasn't a terrible guess. But I also asked her how she felt about it. Actually, my coinker Scarlet Food, askt her how she felt about it, Like, was she okay with the fact that her funds are just being used as vehicles to facilitate these trades, And her answer was she's not upset. This is what makes a market and if they guess right, great,
If they don't, well then they have nothing. They've they've incurred some costs.
I'm just interested in that answer because when we tried it with this, like that's kind of what I said. I was like ETFs like, like, on the one hand, her ETFs are like her investment vehicles. She runs it, she's making decisions like you know, it's her fund. But on the other hand, ETFs are kind of a piece of market plumbing, and like that means they can be
used by other people mechanically that being her decision. And so I think that it's like an interesting like her take on this is like, yeah, we're kind of market plumbing, and so if that's what people do, that's what people do. That's not everyone's take. I heard from one person in the ETF world that like won First of all, ETFs can turn down creation and redemption trades.
She said no to that, Okay, depends on.
Like the authorized participant agreements. But their sense is like
the norm is that you can turn down. And then two like this is rude, yeah, and not nice, and because you know, like on the one hand, these are ETFs are market plumbing that anyone can kind of trade against, but on the other hand, like they are a like retail investment product, and if you are an authorised participant, if you're a market maker training against these ETFs, like, it's kind of your job to be like a nice participant in the ecosystem and make them a friendly investment
product for people. And if you're extracting the IPO premium from the ETF, like, that's not nice to the end investors and it's like not a constructive thing to do in the ecosystem.
Yeah, I mean, I was also a little bit surprised and interested in her answer. It's very emotionally mature, because if I put myself into her shoes and Okay, my fund is a piece of market plumbing, I accept that.
But if I have a sink and someone turns on the faucet, I would hope they're washing their hands, washing their hands in this scenario, always investing in the fund because they believe in, you know, my stock picking prowess, not that they're just turning on the faucet and then doing something else.
I guess my emotional reaction would be if I woke up one day and someone would invested an extra billion dollars in my fund, I'd be like sweet. And then three days later if they were like they took it out again, and be like oh yeah, it would be a real emotional roller coaster.
Like you made my chart so ugly. Yeah, but Kathy, would you know, she's not like us, She is built different.
Yeah. One more thing we have to talk about is that. So we had Ryan Patch and John Seal on the podcast in May to talk about puzzle hunts generally and the Midnight Madness Wall Street puzzle hunt that they run. In particular. Midnight Madness was this past weekend.
Did you participate?
I did not because for two good for three reasons.
One is that you were taking care of the possum.
When is that to be like an entry in Middle Badness costs I believe forty two thousand dollars for a team of six people. You've got that, which a little steep to the team that I have done puzzle hunts with before, Like people had other things and so like we didn't get the team together. And three, I am an old man and it runs from like noon to like four am. And the idea of shopping to apparently started in Coney Island, and like you know, it goes all over the city, and it just it just seemed
like a little too much for me. It's a young man's game. Yeah, it's not only a man's there's a gender divide.
I don't know if that phrase works as well. It's a young person's game.
Yeah, But anyway, it was this weekend. Nineteen teams played. There raised eight hundred and eighteen thousand dollars for charity for the Good Shepherd Services, and I do want to shout out the winners. The winner winner. The first place team was Reagan Voke three thousand, which was like the pressure. He says, it's a privately funded team. It's like a little interesting thing here, which is that you know, it's
forty two thousand dollars for a team. A lot of like financial firms sponsor one or more teams from the firm. A lot of other financial firms have their well played employees just privately sponsored themselves. And so Reagan Voked three thousand. The winning team was privately funded, So I wasn't officially sponsored by a firm, but I've heard it was some number of Jan's treat people.
Interesting.
Second place team was sponsored by Citadel Securities Wow, and was called Citadel Insecurities, which is a great team names. And then the third place team, Midnight Marauders. I know they're privately funded team. Anyway, congratulations on all your success. You did it, and that was the Money Stuff Podcast.
I'm Matt Levine and I'm Katie Greifeld.
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