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It's Thursday.
I'm not going to the JP Morgan pub this Thursday week.
I was fun.
You were on the roof.
We went to the roof. It was pretty cool.
Like the very top part is like this obelisk into the sky, so we were gazing up at it and it was all that up.
It was so cool. It was.
God.
I wanted to like free solo it, but it was so cold.
It was.
Rooftop.
It was so snowy, and I see it was pretty terrified. It was totally safe.
There was a fence. There was a fence. I'm sure there is, but.
You were on the roof.
I was. It was like a quick a quick lookout.
You know.
I waved to New Jersey. Then we got back in. God, it was so cool. Though, we have to go. We have to You really have to do.
As you're talking about this, get some email invites being.
Like come, yeah, well we need to take up one of them.
Yeah, is there anything you got?
I'm off the week after next Yeah, oh.
My god, wait what week are you off?
The sixteenth?
Yikes, I'm off the week after that.
Two weeks off. It's like very satisfying to have the end.
In sight, you know, Yeah, no, I feel that.
No, of course, I live for my work.
And we'll be of course where you go. I mean, we can talk about this later.
I'll tell you off, Mike. I'm going somewhere warm.
I'm going somewhere cold.
Nice. Yeah, all right, Hello and welcome to The Money Stuff Podcast, your weekly podcast where we talk about stuff related to money. I'm Att Levine and I write the Money Stuff column for Bloomberg Opinion.
And I'm Katie Greifeld, a reporter for Bloomberg News and an anchor for Bloomberg Television.
We had an under the wire last week that that SpaceX and x I high were emerging.
We were ahead of the curve, so slightly somewhere nearly on the curve.
We're on the curve.
I was going to say, we're picking up behind the curve. We're a little bit.
We're picking up where we left off though, Yes, and that is on h It happened, SpaceX, It happened.
This is the thing. I come from the world of public company mergers, where like, you negotiate a deal for a few weeks, and you sign a deal, and then you announce the deal and then like six months later it closes and the Elon Musk has done that. He did the Twitter merger, which took at least forty years off my life. But when he decides to merge Xai and SpaceX, like from a glimmer in his eye to the deal is closed, is like, I don't know what four days like, Yeah, it's really incredible speed.
Well, as you sort of lay out in the newsletter, he's negotiating with himself and then signing it himself.
Yeah, it's great. It'll be interesting to learn from the eventual IPO filing. I don't know how much of these companies Elon Musk owns, right, But he's not the sole shareholder of either one. Right, there's a lot of employees, there's outside investors. But it seems like he owns or at least a majority of both companies, or at least the majority of the voting power of both companies, because
he could just kind of do the merger himself. He's the controlling executive of both, he controls the board of both, and he's most importantly the controlling sholder of both. So like when the deal is submitted to a shareholder vote, it's submitted to him, and he says yes, and so you can do it really fast. In addition to him being legally the controlling shareholder, also like all of the shareholders both love him and fear him. My sense is this is true. You can imagine some SpaceX shelders saying
SpaceX is a very valuable company. It is worth more than four times as much as x Ai. They say it's a one point twenty five trillion dollars valuation for the commanded company, one trillion for SpaceX, I'm two hundred and fifty billion for Xai. Those numbers are kind of fake because no money is changing hands, so there's no actual dollar value.
Right.
Those numbers are like kind of in the ballpark of what other transactions have valued the met But this doesn't, you know, whatever he wants, but the proportion matters, right, Like if you say SpaceX is a trillion dollar company, in Xai is a trillion dollar company, then Xai gets half the company. If you say you know what they did,
then Xai gets twenty percent of the company. And you can imagine that SpaceX shelter like say an employee or former employee saying that's not right like SpaceX is good. I like SpaceX, I don't like Xai, which is, you know, to some extent the successor of Twitter, and being mad about the deal price, but like there's nothing they can do, nothing to do at all. I wrote that this is
made easier by the fact that they are private companies. Yes, all of Elon Musks companies either reformed in or have kind of moved to Texas, so they're incorporated in Texas, and nobody really knows what exactly would happen if these were Texas public companies. But Texas does allow you to
kind of prevent small shareholders from bringing derivative lawsuits. So there's some chance that he could do this kind of stuff even with two public companies, or there's some chance, some chance when he emerges Tesla and SpaceX.
Yeah, then we'll have there's some.
Chance that like no one will be able to say anything about it. We'll see, we'll see.
I was going to say, I wish we were about to find out in this case, you know, if one of them was public. But it's a good point that eventually, when we do finally reach the convergence and SpaceX and Tesla merged.
It's going to Ruin to run a vacation of mine. I wonder if it's the one in two weeks, but yeah, it's gonna be great.
Yeah.
I also like the point made in here that you know, the narrative has been that SpaceX is going to fund building data centers in space, or it's going to fund XAI in some form, but it's pointed out that SpaceX generated around fifteen billion dollars in revenue last year. At this point made by Martin Piers, it's more about the fund raising ability of SpaceX.
Yeah, SpaceX is a self funding company, right. SpaceX has done recent employee tenders where the company itself has used its free cash flow to buy stockback from employees. And so why does SpaceX need to go public? Well, maybe they have like some vast new rocket program that they need to fund, but like, really it's to fund data centers in space.
Right.
They don't necessarily need public money to shoot rockets into space. They need it to sweep eaxs.
This is like a little stuff in space.
Like it probably makes sense from a corporate finance perspective for SpaceX as SpaceX to be public, but like it really helps to raise money for XAI or for AI type activities or data centers in space, and so this is a way for Elon Musk to take these somehow even more capital intensive business than shooting rockets into space and sweeping it into a fundraising are or not.
It is amazing to me how many people and ourselves included kind of are saying data centers in space with a straight face. Orbital data centers is also a phrase that I've heard.
Yeah, a lot of people are very very skeptical about the idea of data centers in space.
Well, I keep just thinking about where else can we put data centers? Why do they have to go in space? Would the ocean be easier in terms of weird frontiers where we could put data centers? Like how did we land on space as a realistic option.
I don't know that anyone's light it on it as a realistic option. But Elon Musk I really like science fiction for sure. He references is actually in the space XA merger announcement. There's a notion that, like there are some civilizations that harness energy from their planet. Just look so tired.
No, I'm here, I'm here.
There's some civilizations they can harness some large proportion of the energy on their planet. But then there are the better civilizations that can harness most of the energy of the star they orbit, and then they're even better the Sun. Yeah, and then they're even better civilizations that can harness like whole galaxies of energy. And so if you have all of the energy of the Sun at your disposal, you
can like travel between galaxies or whatever. And so that sounds so stupid, but Elon Musk, like one of his main dreams is to honest all of the energy of the Sun. And to do that, you put I'm sorry, you put a shellow satellites around the Sun that like take all of the energy from the Sun so that they run the data centers, so like you know, a little beam of light gets through so that we can like live on Earth and the rest of the Sun's
energy goes to the data centers. So Elon Musk can be like the data centers are harnessing the power of the Sun.
This is, honest to God, the first time I've ever heard of this.
Yeah, I learned of it from the announcement that references the Russian scientists who who came up with these tiers of civilizations and then I read a portion of his Wikipedia page and now I'm telling you and you're weeping.
Well, the thing is, I'm feeling really sick. I'm like brewing something right now. I'm also reading this like really trippy garbage like magic slash science fiction book right now, and like I'm at the point I'm eighty one percent of the way through it, so I'm going to finish it. But it's basically just like kind of garbage, Like you just threw a breath right now, and it's like I.
Read this badgeic sci fi garbage and then you come into work and it's more of it.
I feel like I'm dissociating. Am I on the pass?
Yeah like that?
But anyway, that's why.
Anyway, thank you for walking me through that.
I had just realized we're trying to harness the energy of the sun.
So they get a grand sci fi level. That's the intention in terms of like, well the data centers work, like yeah, I done knows, Yeah whatever, you know who I want to spend a minute talking about who Twitter's bondle this?
Yeah?
Do you remember when people, when people like me were like, man, what a bad deal to agree to fund Elon's Twitter buyout with debt that like now trade that yeah, back then traded like you know, forty cents on the doll.
A short sighted thing to say.
Now if Twitter needs to pay back, like it's like thirteen billion dollars of debt. Like like that's like you know, one minute of fundraising for Twitter, which is now called the SpaceX quaint. Anyway, everyone always.
Wins, Everyone always wins.
Yeah, I've read about this a little bit this week too. The SpaceX IPO team are working on changing the rules for index eligibility so that SpaceX can be put into at least some big stock indexes earlier than like normally for like that and as like one hundred ear the SMP three months. Yeah, it's like some some period of months,
and they want it to be fast. They're going to be in the business in the next year of moving an enormous amount of stock from like early SpaceX investors to index funds, and they want to move that stock efficiently.
It makes lot of sense.
It does. It can't really fault it.
I will say it's interesting that like SpaceX in terms of private companies is kind of in a league of its own, like sort of.
Like it's becoming more of a thing, right. I mean, one reason that it seems like they're having traction with like the index companies, there's a backlog behind them of other multi hundred billion dollar companies that everyone wants to owner. It's like, yeah, this should be in the index as soon as they can.
Well, part of the reason I say this it relates back to ETFs. Don't worry for sure.
Sure.
Barron Capital which is a firm founded by Ron barn who is like a long time Elon Musk investor. He loves Elon Musk companies. They recently launched an ETF. The ticker is Ron b which I love, and they own
a pretty sizable chunk of SpaceX in the ETF. The number of shares that they hold stays static, but as the asset levels of the funds go around, some days it'll be like twenty two percent of the fund, some days it'll be eleven percent of the fund, which is interesting because the SEC has a fifteen percent cap on a liquid assets for ETFs, but the company confirmed that they classify it as less liquid. There's four liquidity tiers,
highly liquid, moderately less liquid, and then E liquid. But SpaceX for their purposes by their definition is less liquid.
I don't think pretty quick.
Yeah, that's the thing that's kind of what I mean.
It's in like a league of its own. It's a private company, but it's pretty liquid and it makes sense.
That attention to it, and it's like everyone knows that IPI is coming.
Yeah, should we talk about dats?
Yeah?
I was wondering when we were going to talk about closed end fund activism again, it's been a while.
Have we talked about think about the dawn of this podcast?
Oh?
Yeah, I don't know if we just talked about it a lot in for ten podcasts, but I'm pretty sure we talked about it on real podcasts.
You and I have talked microphones about clos and close in fund activism, close and fund activism as one, I guess we've talked about the Blackmen closed un funds.
One.
We've definitely talked about boas Weinstein.
On the front of the pod. The leading closed unfund activists or closing fund activism is like, you know, you have a closed end fund, which is a company that buys investments and also lists its own shares on the public slock market, and like sometimes they closed end fund the fund's own shares will trade at a discount to the net asset value, and then some activists will buy up some shares and run a proxy fight and try to kick out the management of the fund so that
they can liquidate the fund, sell all the underlying stuff at net asset value and like return money to the shareholders and capture that discount. This is the thing, you know, it's like controversial, but as it gets you know, yelled at by Blackrock or wherever, sometimes activists wins, sometimes they lose. Sometimes the underlying fund managers make the case that there's actually some long term value and that it is short sighted to liquidate the fund and capture the discount. Sometimes
that case doesn't work anyway. DATS Digital asset treasury companies were all the raids last year, led by Strategy formerly micro Strategy, which is you know a huge pot of bitcoins, which I know we gotta talk about strategy too, but
let's talky about activism first. All these companies were formed that would buy crypto like bitcoin are you know, different companies specialized in different things, and they would make it have a big pot of crypto and it would trade it like a huge premium to the net asset value. And so everyone did this trade like in summer of last year, and then it collapsed, like the prices came down, but also the premiums collapse, and now a lot of these doubts are trading it discounts to net asset value.
And so now you're starting to see glimmers of activism against stats where someone will be like, I can buy stock in this pot of bitcoin in the stock traits at like eighty percent of none asset value. So if I pay eighty cents, I can get a dollar worth a bitcoin. And the only problem is I got to crack open the pot and take out the bitcoin. And so you do things like pressure the management to do
buybacks or maybe lots of proxy facs. We haven't seen proxy fights yet, but like we've seen activist filings, and the proxy fights will be so good because if you run a digital ASSEID treasury company, like yeah, you kind of you know, colorful character, and if you're taking a run at them as an activist, you're probably kind of a colorful character too, and so there'll be some good proxy fights.
I have two things, maybe three.
I think this is really fun, like the concept of bringing the closed end fund activism playbook to crypto, because I feel like crypto market structure and equity market structure they blend together in some ways, or at least parallel each other, and this is just another way.
Well, but this is to be clear, just equity, like these are companies with stocks. And in fact, I think the controversy is that a lot of digital aid treasury companists will say, no, no, no, we're not a close that fund. We're operating business. We're creating a lot of value. For you. To just take our crypto and liquidate it to capture the discount is totally destructive of long term value. And then other people are like, no, you're a product bitcoins. Come on, yeah, we'll see, we'll see.
Who index classification. They have to be operating businesses.
Yeah, they argue that they're operating businesses, and so far they have more or less with the index classifiers.
The right to you with the might of the pen, a swipe of the keyboard. The other thing is this brought back just a myriad of memories of the gray scale Bitcoin trust.
Yeah, sure that did operate as.
A closing fund, and they are so eager to convert it to an ETF so they could get rid of their discount.
Yeah, and they had a weirder governance and so you couldn't like just do a proxy fight. But like people were mad at them for not closing the discount earlier, and then they did, in fact want to convert to a and then they did. I know that your next sentence will be these dats should convert to eds, but I disagree and they disagree.
So yeah, so I'm very.
Excited for like a wave of this, in part because like one thing that is happening is the price of bitcoin is collapsing, Like the premiums of these dats are collapsing. And today Thursday, February fifth, Strategy was at least at some point trading below net asset value.
I mean I think their break even or whatever you want to call it is seventy six thousand dollars per bitcoin or about there.
Well there's two things. There's like their cost pass yeah, which like if they trade below their cost basis, then arguably their bitcoin buying has been money losing, right yeah, yeah, And like they're proxy for bitcoins. That's fine, like if bitcoin goes down, like they'll go down. But the other thing that's happening is like their stock at least briefly
traded below net acid value. The whole point of strategy is like paying a premium to own strategy because they were doing something that made their pot of bitcoins more valuable than just the pot of bitcoins, and now the market has completely moved away from that, and now they trade it roughly or even a little below the value of their bitcoins.
I'm actually scared to check where bitcoin is right now. When we stepped into this recording, it was down like ten percent on the day I think to it was like.
At sixty five thousand dollars.
Yeah, yeah, yeah, which is.
Down, Like yeah, it's it's been a b lovebath. I'm like part of what's happening. There's reporting of like you know, for sty leveraging or whatever, but like one thing that's happening is like a big chunk of bitcoin is held by strategy particularly and deats in general, and you do wonder what will happen with.
Those, right, I mean I do wonder? Can you tell me?
Well?
So, like, for instance, the dat that I wrote about this week that faced an activist is a bitcoin one called empery, and it has announced that it will either take you know, borrow money or sell bitcoming, but it might sell bitcoin to byvax stock. I think selling bitcoin to buy back stock, if you're adat that trades at a discount, is just like a straightforwardly good trade. And then like you have Strategy, which is enormous, has huge cash obligations you know to pay prefer dividends and stuff.
Because it's taken out all this debt and preferred stock to buy bitcoin. How will they fund that? Well, if there's stock trades at a premium to that it's underlying as a value, then they should sell stock to fund that stuff, which is embarrassing, But fine, if the stock trades at a discount, I mean they've sometimes said they
might sell bitcoin, and sometimes so they won't. But like, if you're stocks trading at a discount and you need cash to pay your debt, like maybe you sell some bitcoin and then like is every dbt you know that probably provided a lot of buying pressure on the way up. Are they providing selling pressure on the way down?
Well, that's the thing.
I feel like if a debt such as Strategy came out and sold even like a really insignificant amount of bitcoin.
What that would be for sentiment.
Yeah, it's not good. It's potentially a lot of actual volume. But yeah, it's a saith don't matter, it's it's great.
Yeah, I would love if boas Weinstein started dabbling in a little bit of debt activism.
Does it make sense for a plastody.
It's the same trade, yeah, fun actively, it's the same trade.
I'm going to send him this podcast, all right.
I think that one thing that Bo's Wanstein has done is he's tilted at funds run by companies like black Rock, where black Rock for a long time has talked a lot about good governance and Bo has has kind of used those words against them and said, like, you're not doing good governance. You're like stifling shareholders in your clothes and funds. I think you're like moral and political playbook would be different with the debt because like they don't care about cherholder governance.
Something else, right, some AI generated and some other him on an orange bole.
Your rhetoric is different when you're taking on a debt CEO. But like he should, the trade is they can always the trade speaking of bad first sentiment should talk me about the god?
Yeah, I mean software stad. I didn't know that until this week. Apparently this I mean, I guess it was theoretically started by anthropic I believe it was coming out with some tool for lawyers.
There's like some catalyst moment, but it's just been like a drumbeat of like AI doing stuff that used to be sort of hard specialized. It's like the thing people used to say about like Google and Apple that like you thought you'd built a business, but actually built like
a button, you know. Like it turns out that a lot of like business the business software is a thing that AI can either replicate, you know, individually for each company or just like you know, do the functions of And so there's a lot of worry about a lot of software as or service companies that they might not be competitive in a world of AI.
Yeah, which I get, you know, like that's a real fear.
Can you talk to me about the private equity angle, because that's been the other thing BDCs have been absolutely in the toilet amidst this SaaS apocalypse.
Yeah, because like for a while, SaaS seemed like a really good business. Where you sell software at a company is you charge them recurring license and so you had this really good stable cash flow. And when you have a business with really good stable cash flow, what happens is private equity wants to buy it and they want to lever it up because stable cash flows are good
for servicing debt and becoming good private equity businesses. And then you have this problem where private equity and private credit, which like provides the leverage, are overweight sort of SaaS companies because they're the safe companies, and then it turns out they're not safe, like all of this stuff that is, you know, it was meant to be like sort of safe, stable recurring revenue like conservative investments, and now turns out to be kind of risky.
Right.
The Bloomberg story about this is that software is the largest sector exposer for BDCs, so like credit business development companies, it's around twenty percent of portfolios.
Right.
Credit under like you're underwriting weird companies, like you're underwriting biots, and you're like, oh, this company, like you know, can show me their contracts where they have like all this like very stable recurring revenue, and so you're happy to underwrite that and have it in your portfolio, and that maybe is.
Not that the table Well, on that twenty percent figure. I think that came from Barclays. The story also points out that it's possible slash maybe probable, that it's higher than that because you think about and this is a quote from an analyst at Raymond James. If your software business is in healthcare, the fund classifies it as a healthcare exposure. The software exposure is meaningfully higher than it looks.
Yeah, so because like every business of a.
Software Yeah, it's kind of been where we've where the tide has been going over the past however many decades.
Right, it's not software, right, it's like how much of like all of business will be eaten by AI? Right, how many businesses would become irrelevant? Right? I mean we've talked about like consulting and investment banking, right, and certainly journalists, right, certainly all these things. Right, And so like a lot of businesses these days are more less software businesses, and it's the extent they're put out of business by AI, then that'll be bad for their shareholders and lenders.
Right.
Yeah, I don't know. This is kind of like the AI thing that people are wonnering about, right.
Yeah, the existential Oh my god, I have to say it's interesting. I mean the story on the terminal, which is great private equities giant software bet has been up ended by AI. It points out that some firms have hired consultants to check their portfolios for businesses that could be vulnerable.
They don't know, man, But also they could just ask, like me, it's me, I'm vulnerable.
They could ask chatchibt to do that analysis for them. Also they've been i mean, private credit in particular has been you know, funding the AI build out, Like.
The AI isn't one of these things will work out.
But it's not a new concept to them. It's just weird that it seems like the way that the market is now positing that you know, none of these alternative asset managers have questions whether I'm not holdings are maybe vulnerable.
I think that like people have different views on the timeframe of like AI disrupting every industry, right.
Yeah.
The thing that happened this week is like particular cloud products are introduced that look like they're further ahead than people thought, and that they could replace the faster than people thought. I think people had a mindset of, like we are financing this huge data center build out so that in X years AI will eat the world, right, and like for the next few years, nothing will be eaten, right, and it's like, oh, things might get eaten.
Fast than you think.
Also, by the way, if your conclusion from this week is AI has actually already completely eaten all of the software sector, then like maybe you could slow the data center build out because you've accomplished a lot with the data centers we have.
Yeah, maybe we are overbuilding.
That could be a takeaway. And I don't think that's the band takeaway here.
Everyone's too busy selling software. Yeah, so Areas in Blue al and also a whole host of these other bdceizures that are just getting crushed did report earnings, and are CEO made the point that only about nine percent of ares Is loan assets were two software firms. So everyone's coming out and trying to say that their actual risk here is pretty low. It is interesting that this just
feels like very much. Let's just throw out the whole bathtub, all the babies put them in it, and let's throw it out the windows.
Yeah, I mean, you know, one thing we've talked about and I've written about a lot is private credit is structurally a pretty safe business, right, like structurally pretty safe right on. Nothing's perfect, right, but they have equity funding, they have long term funding. They don't they don't have maybe quite the marked market discipline that some other investment
firms might have. And so it is true that like if there is a three week panic about software and then everyone's like, actually we go overreacted, the private credit firms can really ride that out like quite easily, right, Yeah, Like the BDC's thought prayer goes down, comes back up. There's no like run on banks, right, there's no like
loss of funding. So this is just like try to manage perception and tough it out right now, it could change, right, but like, for now, it's a fairly safe funding model. But at the end of the day the LENDSI to pay over, they don't, right, Yeah, Like it's a safe funding model, and it seems like SaaS company should be a fairly safe credit to invest today. But if that turns out to be row, it's bad.
Well there's a whole bunch of them on sale right now.
So go Nuts definitely won.
And that was the Money Stuff podcast.
I'm Matt Levine and I'm Katie Greifeld.
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