Bloomberg Audio Studios, podcasts, radio news. Let's get go in here. Enough chit chat, let's go.
We're on the cloth a right, I have so much more chit chat. Hello, and welcome to The Money Stuff Podcast, your weekly podcast where we talk about stuff related to money. I'm Matt Levine and I write the Money Stuff column for Bloomberg Opinion.
And I'm Katie Greifeld, a reporter for Bloomberg News and an anchor for Bloomberg Television.
Katie, it's good to be back putting out this week.
I'm so excited to see you in person, not pixelated. We're talking about short sellers, We're talking about Bill Lackman. We're also talking about drama at the Bureau of Labor Statistics.
Dramas maybe a generous term for it. Drama, Yeah, drama, drama scan, dramatic intrigues, short.
Sellers, short sellers. I have to say, so the way that I prepare for this podcast, and we can cut this if it's boring. I listened to it text to speech. I put your columns in text to speech and then this robot voice spits them out. And so I was listening to activist shorts can still have fun and that legal disclaimer from Carrysdale Capital, And I was so confused because I was like, did Matt write this? It kind of read like you wrote it, just the tone of this legal disclaimer.
You know, I have not taken any steps to confirm this, but I did feel a little bit like this disclaimer was somewhat influenced by money stuff.
It was like a column, So let me take a step back, okay, carrysale, right, let me take a further step back. Okay, for sure.
Andrew left Active a short. Tried about him on the podcast a while back. He was charged criminally with like doing securities ride because he was a short. Look, he would short a stock. You would publish a report saying the stock is bad, it'll go down, and then the stock would go down because people would read the report. And then he would buy back the stock he had shorted. He would cover his short, and he make a profit.
And the sec and the Department of Justice didn't like this because they thought that he was sort of deceiving investors because he would say, oh, I'm sure that stock is going to zero, and then the stock would go down ten percent. He'd buy back his short. It was like, oh, he's not really conveying his true opinion because he's buying back. He's just trying to manipulate the market. He's not trying to make money by finding companies that are really going
to zero. He's trying to make money by convincing other people to sell the stock and then he's going to buy back for them. It's like a reverse pumpit dump. A lot of people think this is kind of a wild theory because it's not like he's obligated to keep his short on until the company goes to zero, right, and his reports, you don't have disclaimers that are like we can trade on the security is at any time,
no promises, right. But you know, there's like some bad facts and like there's some bad emails that sort of suggest that maybe he did overly enjoy his influence over retail traders. And there are a couple cases where like you would go on TV and they'd say have you covered your short and its say like no, not really, and then like they argue he had. So that's the
Andrew Left story. I think that when he was arrested that kind of like cast a Paul over the activist short community because everyone who does this, who like shorts a stock and then publishes a negative report about it. They all have disclaimers of the back saying we reserve the right to buy back at any time. And I think my impression is that the business model has always
involved a certain amount of that of covering. Right. If you do a really good job in the report and the stock goes down twenty percent on the first day, you will be tempted to say, well, I'm going to take some risk off, right. I did my job. I want to get paid for it now. Maybe this company will go to zero in a year, but I don't want to lock up all my capitol. I don't take that risk. I'm going to take some money off now.
And so I think that when the SEC brought this case against Left, that was sort of scary to a lot of these short sellers. And so anyway, this week Carrisdale and other activist short seller Carrystelle published a negative report on the Lumen and they have this disclaimer at the back that is one written like I'm going to arrogantly say some what money stuff style too?
If you like money stuff, you'll lost di.
And I cudited extensively. Two is you know a response directly to the left case, and three is just like sort of like lays out more clearly what the business model might be. And so it says things like, perhaps
I would help investors to just assume the following. Assume we have shorted lots and lots of the stock of the covered assurer, that is Lumen, immediately prior to publication, and assume we will buy lots and lots of the stock of women to cover our short position immediately subsequent to pupl equations.
Right.
So they've always said we reserved the right to buy back ers not but now they're saying, just assume we bought back the stock. There's also some other like so in the absence of second by second trading updates, just assume that is exactly what we'll do. Then you won't be er defrauded or something like that.
That was when I almost crashed my car. But I was listening to this while driving and it was read to me in this rope voice, and I was like, did the robot mess up? Or did they really just put that.
An error in the text.
So funny.
Yes, So there's like there's morely that it's like a very sarcastic legal disclaimer. Yeah, and I think it's a good response to the SEC case because once you have that disclaimer, they can't really very a case against you, right. Yeah, really elated it out there, and it is sort of like a sarcastic defense of the activist short business model. Also, the other thing that happened is that Luman was down fourteen point five percent when they published this report, right,
So the report had an impact. And one thing that the SEC is saying and the Andrew Left case is that when he allegedly deceived people about what he was doing, he was buying back the shorts while saying he was
short forever. I think that's like a little bit of a weird claim, right, because I think that what happened is that people would sell those stocks that Andrew Left recommended against because they thought he was right, or because they thought he had a good track record, or because they thought other people would copy him, right, but not because they really thought he was going to be short
the whole time. And here Carristelle is like, assume we are not short anymore, and they still had a big effect on the stock, right, which suggests that like the effect that activist short sellers have is much more about like the content of the reports than it is about people trying to copy their trades, because these people are you know, when we talked about Andrew Left, what I said is like he's a guy on Twitter, Like, yeah,
he's not running a multi billion dollar hedge fund. People are not copying their trades because I think they are huge lucrative hedgehom manage.
His investor letters are addressed to him.
Yeah, they're copying the trades because I think they get them right. And here again like Caroristelle, like you know, is not a huge fund, but people seem to have found the report convincing, even as Carrostel is emphatically saying just assume we've covered it.
Short I want to talk about another short selling story that dropped this week because it feels like, I don't know, earlier this year, there was a lot of obituaries being written about short selling. You know, Jim Chainos, Yeah, forever.
It's been since like GameStop people have been writing.
Yeah. But Carson Block launched his first law only fond, which felt really like a sign of the times. So you had Carastale, you also had Hindenburg coming out against super Micro. Just in this past week, it feels like, and maybe it's just because I've been paying attention to it more since we talk about it a lot, but it feels like we are seeing more short selling campaigns come to life and make a splash in this market.
Yeah. Well, I think a little of it is like a reaction to the left case and they're like yeah, They're like we're still here, like like it can't intimidate us too much. I think an interesting thing about the left case is like I think that that business model is okay. The business model, like we short the stock, we publish negative things on it, and then we buy back because we take that first day reaction to our report and like we're not in it for the long term.
We're in it for what we hope is a good report, and the stock goes down, we take our profits, and then we do this again and again and hopefully like we have enough of a track record that like, you know, we have some long term interest, because it only works if we have a track record, right, Like we're not our report is not going to move down the stock
if we keep being wrong. So I think that's like a legitimate business model and My impression from like years of like kind of following these guys and talking to these guys occasionally is that that's not like an uncommon business model. It's sort of understood in the activist short community. They're like, yeah, you take some profits on the first day because like you're you know, you run a small fund, and yeah, and like why would you take you know,
short selling is a really risky business. And if you can take a profit on the first day and not sort of hold it until the stock goes to zero and get like in fights with the company and all this stuff, why wouldn't you take some risk off the table. But I think that it is probably the case that the SEC case against Andrew left probably some people didn't
understand that aspect of the business model and were surprised. Yeah, and sort of thought that if an activist short seller said the stock is going to zero, like they were going to hold their short position until the stock went to zero. And like one thing in the in the Caristel disclaimer is like we sometimes publish reports on companies that we think are worth zero dollars. We have never held a short position until the company went to zero.
But yeah, a thing that the SEC did was call attention to this business model, and like maybe the equilibrium going forward as everyone understands the business model, no one is deceived, you know, or allegedly deceived by people covering on the first day, but it continues to kind.
Of work, and maybe we get more fantastically written legal disclaimers out of it. That would be pretty good too.
Yeah, I mean, like the way this business works is you are good at writing, good at being inflammatory, good at getting publicity, right, That's how this business works, and so like you'll get good disclaimers, which.
Reminds me, well, two points. We haven't talked about hunter Brook in a while.
We're still there.
How do you say it?
Hunter Brook? All right? Right, right right? Hunter Brook the newspaper that is also a hedge fund that is also a website whose name doesn't have value because.
The skill set that you just described, being good at writing and being splashy sounds a lot like a journalist, and Hunter Brook is an interesting hybrid between those two.
Oh yeah, and like there's always been overlap between investigative journalism and like opinion journalism and shortzellers.
We asked the question the other week, who's hated more journalists are short sellers, but also quickly on the super Micro short report. So basically, hint, Hinterbrook, No, no, no, Hindenburg, Hinden never mind Hindenburg was Basically the basis of their short was that their investigationvealed glaring accounting red flags, evidence of undisclosed related party transactions, sanctions and export control failures and customer issues. So super Micro said that they don't
comment on rumors and speculations. But then I think the next day or the day after the next day, super Micro delayed their ten K filing, and I just thought that was interesting in light of you writing about how cool accounting is this week, it kind of ties in and now we have an accounting booboo.
Yeah. I mean, you know, the activist short business model is like they're filling a real need, right. It's like if a company is messing up its account and like someone notices that and says it publicly, like that can have a big effect.
Well, unless the accounting industry rebearns itself, we might have more short campaigns for years and years to comb Yeah.
I'll say something about that. So I wrote about accounting this week. I wrote like I sort of like appreciation of accountants, because there was riffing on a business inside our article saying that like kids these days don't want to be accountants. And I got a bunch of emails from accountants saying thank you for appreciating my art. But I got one from a guy saying, like, you know, there's actually, like there's some studies of the sort of long run demand for accountancy degrees. And one of the
big drivers of people into accounting was Enron. Like when Enron failed in like a sea of accounting scandals, everyone like looked at that, or like a lot of young people looked at that, and they're like, I want to be an accountant, which is fascinating. So anyway, he's like, yeah, that we just need another big accounting scandal and the accountancy will come right back there, you go.
I like that.
I'll tice together.
How about Bill Ackman?
How about him?
Oh my gosh. So the Financial Times reported that he's seeking to resurrect the initial public offering of the Pershing Square USA by offering sweeteners to early investors. Can you imagine my delight at seeing the story cross from The Financial Times At nine to twelve am Eastern this morning, on Thursday.
I can imagine your delight. I think I shared it.
Yeah.
We both were sort of like, what will we talk about on this podcast and then and then the answer came to us. Yeah, sweeteners.
So let's talk about some of the sweeteners again. This is according to reporting from the Financial Times. According to several people familiar with the matter, some of them are the right to buy extra shares in the vehicle in the future at a fixed price through Warrens. But according to the Financial Times, the real prize could be if you invest in Pershing Square USA, the closed end fund, you could get rights to buy into the eventual IPO of the actual hedge fund.
Yeah, the hedge on management company, right, right, So we talked about this when the Pershing Square USA IPO got delayed postponed with true tron would be a rude.
Word, okay, forget, I said, temporarily.
With drown rather than the problem was that people didn't want to pay full price for the shares, and you can't really sell the shares at a discount, right Again, a normal IPO, you just negotiate the price and if people want to pay less than you think the company is worth, then like you do that. But with this, they're raising money to invest, and so you can't really sell the shares at a discount because then you don't get as much money as you wanted to invest. And
that was a real problem. And so they went back to the drawing board and they're like, how do we give people a sweetener so that they'll put in fifty dollars for me to invest fifty dollars and they'll feel like they're getting a discount. And there are a couple of ways to do that. One way is to actually give them a discount by putting in cash from Pershing Square. Another way to do it is to give them ownership.
And I think we talked about this last time. The obvious asset that you can put into this IPO is some of the management company. The management company has a recent valuation. They sold ten percent of it at a ten billion dollar valuations. We have some idea of what the management company is supposed to be worth, so sophisticated investors, the management company has plans to go public perhaps by next year. When you say we'll give you a bit of the management company, there's like a path to that
being monetizable, and they have it coming around. There's like an alignment of incentives where it's like someone emailed me when they pulled the IPO, like they could do what Vanguard does. Vanguard is a mutual, it's owned by the investors in its funds. You pay fees to Vanguard, but like you have an alignment of incentives because you kind of get the fees back as an owner of the company.
Pershing Square would be like a little like that too, where Pershing Square USA holders would also own the management company. So that makes sense as a sweetener, like you give
them some of the management company. It's a little awkward because part of the point of the Pershing Square USI IPO, it's like, raise a lot of assets for Pershing Square so that it's management company will be worth a lot of money, so that they can do an IPO of the management company that will raise a lot of money for Pershing Square and its owners and its investors, and giving away some of the management company to get the
Pershing Square US ideal done. It's like a little bit of a setback, yeah, but you know you could do it. And then the third option you can do is you can give people optically a discount. You can give them warrants to buy more shares of Pershing Square USA, which I don't think is that appealing. Yeah, that's why the ft says, like the real prize is the management company, because like just giving them warrants, it's still the same
pot of money. You're just like slicing it a different ways to try to, you know, see if people will like that more.
So, I mean, where does this leave you on the question of whether you just be better off waiting here? I mean, is this enough to answer for what? So for waiting for it to actually trade at a discount?
Oh, it's just like a matter of price, right, Like you're getting a discount. Right, So if you put in fifty dollars in a structure where like you get back your person Square USA share plus a warrant to buy the management company, then you're getting a fifty dollars claim on a pot of money that Bi Lackman is investing, and you're also getting some percentage of the management company that is worth some amount of money, right, And then you just negotiate the price, right, Like if the managing
company is worth ten billion dollars and like people want a ten percent discount and persons Square a USA is raising five billion dollars and you just do the math and be like, well, you know, then they need five hundred million dollars and like that's five percent of the managing company, you know whatever, right, and then you can negotiate what the valuation of the management company is. But
there's a path to getting a deal done. So, like when the IPO starts trading, it will probably trade at a discount to its net asset value, but the net asset value will be more than fifty dollars per share, right, because it'll be the fifty dollars you put in plus whatever bit of the management company they put in. So if the net asset value is like fifty five dollars and a trades at fifty dollars, then you should buy it for fifty dollars in the IPI.
So does it also get you back to twenty five billion dollars?
I don't think so.
It's a big like a big pot of money.
Right. That's the other important point here is that at some point there was discussion of raising twenty five billion dollars in this IPO.
And it's a tall order.
It's a tall order, and you know, and like if the discount needs to be ten percent. Then you need to put in Like, if you're raising five billion dollars, you need to put in five hundred million dollars worth of stuff to give people the discount. If you're raising twenty five billion dollars, you have to put in two
point five billion dollars worth of stuff. It costs you more r The other interesting thing in the ft article is that in the previous round, part of the incentive to put in your money was that they would waive the management fees for the first year of the fund, and now in a revised version, they might not waive the management fees. Yeah, in part because you're maybe getting shares of the management company, which you share the management
fees anyway. But yeah, like, whatever they do to get people into this fund is going to cost the pushing square money and so they will make back some of it by charging more fees.
You know, I think they should just launch an ETF. I know that they're not going to. I know it.
I know it. You traded a discout.
You're right, it wouldn't It would easily solve that problem.
You know. It's an idea that I've poo pooed because the whole plant here is permanent capital to make long term investments, and ETF doesn't do that. But you're right that, like it would solve the main problem they're trying to solve now it's just trading at a discount.
Yeah, and I understand why investors such as Bill Ackman and issuers in general would like the closed end fund structure for that appeal of permanent capital, but investors clearly prefer ETFs. I mean, if you take a look at closed end fund assets, they've been camped out at the same level. I think it's like three hundred billion dollars in the US for a long time now. There's been no growth there, even through all of these market cycles.
Yeah, the Bill Lackman pictures like, this is not a c is then fund. This is sort of like Berkshire Hathaway Analytic, Like this is a company that happens to be structured as I closed then fund, and but it is. It's like, I'm not sure that that's right.
Yeah, let me just fact check that number. It's either three hundred or five hundred.
We're gonna leave all of this in.
Come on, Matt, do something fun. I don't talk about the economy. Either she's right, it's three hundred billion.
Oh yeah, all of it, all of it. If you had been wrong, you would have had to like just edit it.
But I was gonna follow up a salad anyway. The point being close end funds are really small b LS, the BLS, the Bureau of Labor Statistics. What is going on over there? I don't know, Absolutely a monkey business. I'm trying to think what I can say on this podcast. So the payroll revisions data covering April twenty twenty three through March twenty twenty four, there was hyper focus on
these revisions, and ultimately they were huge. It shows that payrolls are likely going to be revised down by over eight hundred thousand jobs in those twelve months through March. But just the singular focus on this specific report was already ridiculous, and then it was made even more ridiculous by the fact that it was supposed to come out at ten am. One half of this podcast is on live TV at that time, and it's me It didn't
come out until ten thirty three am. But people are getting a piecemeal.
I have seen your filibustering skills in this podcast. Were you like just talking about we called that for thirty three minutes.
We call it tap dancing. I was on air with Matt Miller and Shannali Basic, so we at least had.
Each and it was like sitting at me like, yeah, where's that.
Yeah, we were kind of you know, by ten minutes in you're like, okay, well something is strange here. We still don't have this data. We're waiting on it. There was some funky trading going on as well. I mean, in the grand scheme of life, it didn't amount to anything, but you know, you had the S and P five hundred, you had bond yield zigging and zagging. Because people were
getting it piecemeal. That was the crazy thing. People, as we know now were calling up the BLS and the BLS was telling them the number right.
Because apparently what happened is they had the numbers. The
BLS employees were able to see the numbers. There was a technical glitch on the website, so the website didn't have the numbers, but the internal people had the numbers, and the data was embargoed until ten am, and so at like ten fifteen, if you called BLS, you might reach a person who was like, oh, the embargoes off, I can give you the numbers, even though it wasn't on the website yet, So like some people called and got the numbers, and other people didn't call, and we're
like refreshing the webpage and didn't get the numbers.
So reading the reporting after the fact, it seems like there were several communication failures over at the BLS about how they would handle external inquiries. I will say that going through this experience, this is where lockups are your friend when it comes to economic data releases. There used to be lockups for things such as the jobs reports such as CPI, where you know news agencies would get
them in advance. That went away during the pandemic. But that wouldn't have even helped us in this situation because this is such usually not that substantial data, or it's like second or third tier data being generous. This was never even subject to a lock up, so it's ridiculous that we even cared this much. But there was a better way to do this.
Sort of right, I mean, like this is like I appreciate the effort to sort of publish it on the website to everyone all at once.
Right, If you can't do that you know, you have to be able to do it. Yeah.
I think there's an interesting thing in financial markets where like, on the one hand, you want to reward people for doing work, for doing research, like trying to find stuff out, because that's the point of financial markets. It's to make prices more efficient for people to find stuff out and
then have them reflected in prices. On the other hand, you want things to be fair, right, So you don't want like people to find stuff out by playing golf with the company ceo and being like, sorry, you didn't e merger and like finding out inside information, right, and so like there's this effort to make it a level playing field, but you also do want to incentivize people to get information. So it didn't work here. They were trying to make it a level playing field and they failed.
But I do really appreciate the people who and it didn't come out At ten o'clock, we're like, well, I guess I'll make a phone call. You should do that. It should work.
You sound like an editor, Yeah, right, exactly, yeah, exactly, telling your reporter to just pick up.
Like pick up the phone, you know, and like the way financial markets work now is a lot of people probably have automated trading algorithms that were scraping the you know, BLS website at ten o'clock and you.
Know, thirty three minutes straight mines.
Just refreshing the website, and the people who picked up the phone had an advantage over those computer traders for once, you know, So I don't know, I appreciate the people who picked up the phone. It's one of these where like if you didn't get this information before I was out on the website, Like, yeah, it's like a little embarrassing in hindsight, Yeah, like you should have called.
I guess part of the reason I'm being so hard on the BLS is because it has been not a great year for them, well right.
Because they've previously like done the opposite, and they put it up on the website before it was supposed to be up.
Oh yeah, CPI data too, Like I'm dunking on this payroll revisions release, but CPI data is absolutely I mean, now we're all really focused on the labor market, of course, but the CPI prints for the last four years have been the most important piece of data that you can get, and they put it on the website thirty minutes early in May.
I was a little unclear on that they put some stuff on the website a little early, but like there was no weird trading in it ahead of it, right, Like I think it was like they if identified a glitch where they published it early, but it wasn't like the market got it early.
Even still even still even still also super users, super users, the fact that they didn't have clear communication on how to handle external inquiries after the super users debacle, it raises an eyebrow.
Yeah, the super users debacle is when like people would get enhanced color on economic.
Being a host today, Oh yeah, I've just rippen through these explain super users.
I forget they would release economic data and like they would give like further color to a list of economists and like you know, hedge funds or whatever who bothered to sign up. Right, this is again it's like, you know, it's like a little meaning scandal, but it's also it's like these people are public servants. Like if you call the Bureau labor Stahysics and say I'd like to know
more about CPI, they'll tell you more. Yeah, And the people who have an economic interest in trading on macro data would say Hey, I'd like to be on your email where you explain things more, and the people who didn't didn't, right, And so the people who signed up for the email list got better information, and I don't know, I sort of feel like they deserved better information.
This actually brings me neatly to a point that I should make, because again I've been pretty harsh on the BLS here, But if we think back to this super user's debacle, one of the reasons why it even happened was because, yes, you can ask the BLS questions and the BLS can answer you, but the BLS doesn't have enough resources to answer each individual one. So this specific economists. I believe it was an economist thinking was I'll just
put everyone on a list. And I remember last week, after the payrolls revision debacle, I was speaking to Claudia sam who's a former freed economist, and I asked her what this meant for BLS credibility, and she said, it's absolutely inexcusable, of course, but at the same time, like the BLS is underfunded, they're under resource constraints, and you know, something like this is bound to happen if you don't give them the proper support. So here we are.
Yeah, here we are.
Sorry BLS, they're going through it. Katie is our you need to raise Yeah, yeah, here I am.
And that was the Money Stuff Podcast.
I'm Matt Levian and I'm Katie Greifeld.
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