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Yeah, it turns out, you know, if you google how to defrost a bagel and it tells you to run it under cold water for thirty seconds, that is an unnecessary step. Not only is it unnecessary, I would not recommend it, it produces a disgusting result.
Yeah. No, your mistake was giggling instead of asking your local suburban jew who would tell you right answer.
Or just ask you know that you could go that route, or just ask your podcast co host because everyone has one of.
Those, and I'm facing important life decisions that my first thought is I should ask my podcast cast about those. Yes, at that's true.
It's practical for most tests. So this actually isn't our first episode of the year.
It's not our first episode to air this year. That's true. And we did pretend that we recorded the last episode this year, although we didn't keep up that pretence for very long.
I think we tricked everyone. Actually, of course that worked really well.
Hello and welcome to the second Money Stuff podcast of twenty twenty five, your weekly podcast where we talk about stuff related to money. I'm Matt Levin, 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.
What are you talking about today, Katie?
Today we're going to talk about Fanny May, Freddie Mack, and friend of the show Bill Lackman. We're going to talk about MBA students and when case studies become real life. And then we're going to talk about cocoa liquidity, Fanny and Freddy. Fanny and Freddy. So this trade is once again being resurrected and has some legs again. There's a lot of optimism out there that maybe finally these two are going to end up in private hands again.
Yeah. I used to write about this a lot and then everyone kind of forgot about it, and I wrote about it this weekend. I was like, I gotta start from scratch. I gotta be like, what is Fanny and Freddy. I'm not sure we'll do that on the podcast, but
we could. Is what are Fanny and Freddy? Fanny and Freddy were the big mortgage guarantee companies that were technically regular publicly traded companies, but everyone kind of thought they were backed by the government up until two thousand and eight when they went busted on some bad mortgage bets and then the government took them over, and it turns out they were in fight back by the government, and so everyone who relied on Fanny guarantees to get their
mortgages paid back got their mortgages paid back, and the government took over Fanny and Freddy, and shareholders of Fanny and Freddy the day after the government takeover looked like they had lost pretty much everything, but not literally everything. And then later in twenty twelve, the government said, you
know what, they've lost everything. And so they've now been like fully owned by the government more or less for I say, twelve and a half years now, and in that time people have spent kind of that whole time being like, obviously this can't last, and Fanny and Freddy have to return to private hands anytime now, and a lot of people have made that bet in the form of buying the stock of Fanny and Freddie, which still trades over the counter, and saying when they returned to
private hands, the stock is going to be really valuable. And they filed some lawsuits that didn't really work out a long time ago, but now you know Trump is coming back to office, and the same logic applies that they can't be publicly owned forever. Maybe, And so Bill Ackman is the latest. He brought up a lot of Fanny and Freddy common stock and has been tweeting about how Trump is going to return them to private hands and they're going to be worth a lot of money. And that's the news.
I did see a snarky tweet. Yeah, well, this one still can't get over the name brand hedge fund manager pumping his decade hold thin. They traded GSC bags on the last trading day, which is kind of what happened.
I mean, oh yeah, but like to be clear, like yes, like he is talking about this trade on Twitter on x and that has the effect that like retail traders see it and the stock goes up. Like the play here is not that he pumps it and the stock goes up and he sells into this retail demand. The play here is obviously that he wants this to happen.
He's not writing these tweets to retail investors. He's writing these tweets to Donald Trump and Elon Musk and like the other Donald Trump advisors who will decide what happens to Fanny and Freddy, because like it is true that like something has to happen to Fanny and Freddy, and sorry, it's not true. They could do nothing. I have argued for twelve years now that it's fine. It's totally fine. The status quo is fine. These are policy arms of
the government. They're like, essentially like the government's way of guaranteeing thirty year fixed rate refinanciable mortgages. There are a way that the government supports the house market. And they've you know, historically been implicitly backed by the guarantee of the US government, and now they're explicitly backed by like they're owned by the US government, and there is not really anything terrible happening from the fact that they're not
in private hands. I've said this for years that people are like, oh, actually, this is a terrible thing. There are various problems that come from them being in government ownership. But it keeps working, you know, it keeps being kind of fine, so they don't really need to do anything. But it's just it seems clear that like this Trump administration last time did want to get them into private hands, and they kind of ran out of time, and now they have four more years and like they're a little
less constrained, and so they will probably do it. And so it behooves Bill Ackman to get on X not to tell retail investors to go buy the stock, but to tell the Trump administration, oh, don't forget to privatize Fanny Man and Freddie back and give them back to their existing shareholders, who include probably a lot of like retail investors maybe who've held them since two thousand and four, but maybe who bought them last week, but also clear Blackman,
who would probably make a lot of money if they were handed back to shareholders.
Yeah, he estimates he could make like a twelve hundred percent return on this. Sure, that's his math.
Yeah, I mean like conceptually, if you look at the technical cash flow water flow of these companies, the stock is worth zero dollars, right, And it's like that exactly right, But it's like it's kind of right. It's basically like the way these companies work is that every dollar they make for the rest of time goes to the US government,
and then after that the shareholders get something. Right, So like there's no cash flows to the shareholders and everyone just assumes that that deal will be changed for reasons, either reasons of like, oh, it's not fair to the shareholders, or reasons of like, we do need to get private capital back, and the only way to do that is
to like give something back to the shareolders. But like right now, like the sort of like legal official value of the cash flows to Fanny and Freddie sholders is zero dollars, and so Bi Lackman is buying the stock at like, you know, a low price, not zero dollars, but like a low price reflecting the uncertainty about whether they'll ever get cashlows. His thesis is you should just
stop that. You should forgive what is now something like three hundred and forty billion dollars of nominal debt to the government, and you just say, actually, all the profits from now and go to the shareholders instead of the government. Like yeah, that's a big difference. Giving them three hundred and forty billion dollars would make them much much, much, much much more valuable.
Something that I was hoping that you could explain to me is like, let's say that the status quo persists that the assumption that you know they will be returned to private hands actually doesn't end up coming true. You wrote that as it is right now, they don't have to pay their income in cash to the government, but each increase in net worth adds to the amount that they owe to the government, so they still can't pay off the debt. If they never returned to private hands,
could they ever get out of this hole? Like how does that work?
There's no hole. They're just owned by the government. With the way it works now is that every increase in the net worth of Fanny and Freddy goes to the government, which is what happens when the government owns one hundred percent of Fanny and Freddy. There's no hole, like there's nominally, like there's a number that is like nominally the debt that they owe to the government. It's technically preferred stock, not debt. It's like junior to the actual debt, like
you know, the mortgage guarantees. But the amount that they owned the government goes up every time their value goes up, which is a way to make sure that the government continues to own one hundred percent of their cash. Lists. But there's no like hole, like nothing bad happens to them if like the amount that they owner, the government goes up, and nothing good happens to them under the current legal structure if the amount of that they order
the government goes down. But like everyone's assuming the amount they owned the government will at some point go down through some sort of decision by the government, and when that happens, the people who invest in the stock will make a lot of money. I assume Katie's gone. Now, this is the problem with Katie is recording this podcast live from atop a horse, and she fell off the horse, and so the connection was interrupted.
For Yeah, I'm actually I've been loaded into the ambulance. I'm away to the hospital. But you know, I said, I gotta connect. I got into the listeners. Okay, So you were saying, there there's no hole that this is just the status quo. It's not like this.
There are a lot of weird accounting conceits going on here for reasons having to do with like the history of the bailout and like literally the US government's debt ceiling. But there are all accounting fictions, and like the reality is that right now, legally the terms are the government just owns Fanny and Freddy, And so the adjustment of accounting numbers doesn't really matter, just all the income goes
to the government. But Bill Ackman, but also a lot of people are betting, probably correctly, that that accounting treatment will change, and that status COO will change, and the beneficiaries of that change will be the people who own like twenty percent of the stock that is in public hans and that trades over the counter. And the assumption is like that stock will become valuable when the government figures out how to get Fanny and Freddie off of its books.
I guess, And you address this in the column, like what is the incentive for the government to do this? And I guess it makes sense why Ackman posted what he did.
Where a sail like the trade is very clear. It's like, they'll give you this multi hundred billion dollar company, right if you're the government. It's a good question. And part of the point of what I wrote the speaker was to just kind of press on that and be like, you know, the government has this valuable asset and the Lackman would prefer to own it, and Blackman is like,
the government should give it to me. And I think there's a wide thread assumption that the government will be like, yes, we should give it to you and to be fair to like the thousands of retail shaholders that own most of it. That's probably right, but it's weird, right, it's weird, but the government would just give this thing up. The answer to that is that the government's stake in this is monetizable, right, It's like it's valuable and they could
sell it for money. But they can't sell it for money unless it's like kind of restructured as a normal company, which probably does mean putting the common stock back in
the money somehow. So the idea is that if the government sort of sets this up in a way where the common sholders get something, then the government can sell down its stake over time, and that steak is going to be worth hundreds of billions of dollars and the government will get a lot of cash, whereas if it doesn't do that, it will continue to own Fanny and Freddy, which will continue to have like cash flows that will kind of go to the government, and so the government
will like get money over time. But you know, this way, it's like monetizing it possibly a high point and like getting cash now instead of like waiting over time to collect fees.
One of the questions if this did happen, like if if privacization did happen, what the effect on mortgage rates might be. And I mean you talk about in your column, how if it was privatized, then that sort of wink wink, you know this is backed by the government, that would go away, Like they would be allowed to fail if they ended up in this situation again, but maybe.
Why is that maybe allowed to fail? I don't know. I think it's hard to sort of game out what would happen, because I think what would happen is that in twenty twenty six or whenever they're released from government control, they will be well capitalized. They'll be like pretty well run,
They'll be regulated. Everyone involved will have an incentive to make sure that they don't go bankrupt six weeks later, because like that would be really bad, right, So they're not going to do Yeah, they're going to be careful. And the question is in twenty years, how will Fanny
and Freddie be run? And the historical precedent is like they started taking some risks and they started making some mistakes and like they weren't you know, great about everything, and their regulator is maybe a little asleep at the switch, and so they ended up going bankrupt, not literally going backrupt, but going into conservativeship and being on by the government.
Would that happen again eventually, maybe, And if it did happen again eventually, the question is would they be too big to fail and would the government bail them out again? Because if so, then it's like it's kind of weird to release them, and like, you know, it's like the classic story of financial bailouts of like the private shareholders get all the upside and then the government takes the downside.
Like here's the government took the downside. The government took them over when they were broke and got a lot of upside. But the status quo right now is kind of the government gets one hundred percent of the upside, and like the releasing them from conservativeship would mean private shareholders get the upside again. And then if in like twenty years they go bankrupt again, the government takes all the downside. It's like a little bit of a negative association.
But I don't know what happened. I mean, I think they will be regulated. They'll have like a regulatory capital requirement. The regulator will be part of the Trump administration, Like, I'm sure they'll be careful for maybe the rest of my financial blocking career, but like eventually, who knows.
It is kind of fun to imagine a universe where they are privatized and then sixteen years later or whatever, they end up in this kind of hot water. Again, the governments.
Things are cyclical, like it wouldn't be that weird, you know, but we can.
Just keep doing this until the heat death of the universe.
And one way that people think about this problem is is to try to avoid having institutions that are too big to fail, right, Like you try to make it so that banks are first of all robust defilure, but secondly you try to say, like, you know, can we make it so that if they do fail, they can fail in a way that like, you know, private capital
takes all the losses. And like that's definitely part of the thinking with Fanny and Freddy, where like instead of them backing every mortgage that's on their balance that they like are doing risk transfer securities where they're essentially selling the credit risk of their mortgages to other private investors, so that like it's not just Fanny and Freddy's capitalist
standing behind the mortgage market. Over the years, as people have thought about privatizing Fanny and Freddy, there have been proposals of, sure, let's privatize them, but not two of them. Let's make them like sixteen of them, so that if one mortgage company fails, then fifteen more will be fine and it won't be a systemic risk and it won't
require a government ballot. But you can sort of see why that's not the preferred proposal for the people who own the stock because who own the stock on the stock of like particular companies, and they want to, like, you know, have those companies be valuable, and those companies, frank they are more valuable if they're too bad to fail.
I hope that if it is privatized, we are back in a low interest rate environment, because the potential effect on mortgage rates is somewhat interesting. Like if it doesn't have that sort of wink wink government backing.
I don't know what the effect on mortgage rates would be. I think that, like my impression is that Fanny and Freddy are sort of run now on a basis that is meant to be kind of close to what they'd look like as regular public companies, and so like they wouldn't like double their guarantee fees tomorrow because they want to be more profitable, right, or they would like have them because they wanted to be more competitive, right. Like their fees are kind of like roughly what you'd expect
them to continue charging. Would their bonds trade wider if they were not backed by the US government? I don't know. That's like, you know, the bet that Bilackman is making is know that by the time they are released, they will have such a fortress balance sheet, they'll be so well capitalized that they will be essentially equivalent to the credit of the US government and they won't need the government backing. But I don't know, it's not totally clear
that that's true. And it depends also on like what actually happens with their capitalization, right, I mean, like you can argue over how much capital they should be required to hold, and you know, if you're the shareholders, you kind of want them to hold relatively little capital because then, among other things, that means like you don't have to dilute your own shares to make them viable standalone companies.
If you're a nervous regulator who remembers two thousand and eight, you want them to hold a lot of capital, But you know, there'll be a debate about how much capital they need. You know, Bill Lackman is arguing for a two point five percent capital ratio, which is like kind of low on the scale of what people argue that, but he says it's like it would be seven times as much as their losses in two thousand and eight, their losses on their guarantee portfolio, which I think is
you know, suggests that that would be pretty robust. So there's gonna be a lot of argument about how much capital they need.
Well, we'll see. I don't know where this possibly ranks on the Trump administration's priority list. And I mean there's analysts from Bluebern Intelligence who expect that this is like a twenty six twenty seven conversation.
So I think it's a twenty six twenty seven like events in part because of like every quarter that goes by that they're profitable, they build up more capital, and it's just easier to do this trade. So like, even if it was the top priority, releasing them tomorrow would make less sense than releasing them in twenty twenty seven. I don't know it ranks on the list of priorities either, but you know, it's like there's a.
Reason it means to buy Greenland first, right.
But also tweeting it and you know, like there's like your hedge fund buddies come to you, like, hey, you could really have about your hedgehund buddies. Then maybe it works out right, And like the other thing is like, so he's tweeting this in part for like the officials to read it, but he's also you know, other people will see this idea and maybe they'll buy the stock.
Some of those people are retail people who have you know, have no influence with the administration, but who knows who else will buy it?
Right?
Yeah, what if Elon Musk's these two's like, oh, that's a good trade and then Elon Musk buys like, you know, a million shares of Fanny made. Now it's igh on the priority list.
Yeah, And I mean didn't the shows rise like forty five percent of the day that he tweeted it. I think it was December thirtieth, So it's not like there was a ton of volume going on, but the backs were pumped.
Yeah, it's very binary, right, Like this is either a very valuable company or it's worth zero, and like it's just like some day someone's gonna flip the switch and make it very valuable. Probably almost certainly, And like Bill Lackman putting it on Twitter, like moves up the day when they flip the switch, and that makes it a lot more life.
One of those wacky kids getting up to over in Indiana.
I love these kids.
So are they still students or no?
No, no, I've looked up a couple of them on LinkedIn. They they have real jobs.
They're not did you add them?
No, But they're not like running this golf resort as far as anyway. So Indiana University, the Kelly School of Business, they have an MBA class like an integrative case experience. So it's like their capstone project for their MBA and it's on the business of sport. And the class project that's like sixty percent of your grade is to create an executive level recommendation to an entity facing real world challenges.
And so the professor that goes out and sources like actual like ongoing sports business situations and then like you know, packages them in a case and says to the class, what would you do about this? And this group of students took this challenge case situation involving the development of a golfer in Puerto Rico. Basically like this Puerto Rican like land development authority own some acreage in Puerto Rico and they brought in a developer to develop into a
golf resort. And these students were like, given the project of look at this situation, build a financial model, build some plans for how you would do it. Make a good presentation about how you would develop those golf resort. And you know they're NBA students, they have connections, and some of them were apparently relatives of people who work at a golf resort development company, which is like a
natural fit. So they were like they called their family or friends or whatever and were like, hey, you developed golf courses, what do you think about this golf project? And somehow what happened is, first of all, they did apparently a good presentation that was like, this is how we would develop this golf project. But secondly, the people they called were like, hey, this is such a good deal, we should do develop it. Not the people who are
already developing it, we should take over this deal. And
so the people they called like apparently took over. They called the Puerto Rican Land Development Authority and said, hey, we have a better plan, and they ended up jumping the original deal, and the people who had the original development project, who are now out in the COLT sued the new development company and the NBA students and the professor, saying basically, like, the way the professor got this case is that the guy who was developing the project originally
was a proud alumnus of the Kelly School of Business, and he was like, of course you can create a case about my masterpiece golf development. You should definitely ask your students to advise me. Maybe because he wanted the advice, or maybe because he was just proud of it, But in any case, he's now suing the professor and the students, saying, you stole my idea.
That is so wild and so good. When I first read it, I thought that like they went out and shopped it around after the course. But no, their presentation was based on the fact that they made this partnership with Discovery.
No. No, no, the presidation didn't say they made a partnership the presentation said that they consulted with Discovery to to basically sort of like get business ideas for how to develop this course. But it's interesting, like because yes, the lawsuit cites their presentation. It says, the student defendants made the following admissions and their recorded presentation, we explored
a union with Discovery Land Companies. So I think, you know, as you're pretending to develop a golf course, you're like, oh, we could do a merger, right, But except that it happened in real life. What was interesting to me is, I don't know if that's like they brought this lawsuit and in Discovery they they got to watch the student's presentation that was recorded for class and they said, aha,
they admitted it. Or if like the original developer of the project watched the presentation as part of the class, right, because like he was the one who said to the to the professor, hey should teach a course about my golf resort, and so you know, like probably he went to the final presentations, like the professor's like, hey, you should come see the students like what they think about, you know, how you should do the golf course, and he like shows up like all proud saying, yeah, I
want to I want to hear what you think of my golf resort. And they're like, we've had another bidder. And he's like, ah, so I hope that's what happened.
I don't actually so wait, So they sued the professor, they sued the students. Did they sue the school itself? Who beyond the students could be founded fault here?
Well, the main one is discovery of the company that apparently jumped the deal.
Yeah, that they seem like the baddies.
Well, I don't know if they seem like the batties, but they're the people have money, right, The best word is they're suing for one to two billion dollars. Why one to two billion dollars? Well, as part of their class project, the students calculated how much profit they expected this golf resort to bring in, and so they wrote down, this is worth one to two billion dollars, and so that's what they're suering for. I don't think the students have one to two billion dollars Sothough that's possible.
That's really funny. I mean, I guess it makes the plaintiff's lawyer's job really easy.
I wouldn't go that far. But yes, they get to put in their press dam It is rare for it defendant to calculate the damages, but here they did, right. It's like it's a good line. I will say that I got emails from readers being like I did a class project presentation saying that so and so should buy sow and so, and I got a b and then six months later they did it and I didn't get
to do the deal. What I wrote is that business school is a lot of like pretending to do business deals, and like this is the rare case where it like somehow transformed into our reality. But most of the time you stick to pretending.
And do you know when this actually happens, like when.
The twenty twenty one course.
Oh so I wonder, like for these students who have now graduated and are in their professional lives, I wonder what this feels like.
Yeah, it must be stressful. I will say, like I wrote, you know, you get an A plus in my course, Like I don't know, like if I heard their professor or like their current and floor, I'd be proud of them, like they they went out and did it, you know, like this is this is this shows some hustle, shows some enginuity, shows a commitment to business. I don't know.
It's good. I like it. The thing that's happening here is like the lawsuit is like we had an NDA where people agreed not to like disclose anything, but like it's not clear who they had an NDA with, Like I think they thought the students were signing ndias, but the students maybe weren't signing indias. It's a little unclear. So like it's not clear the students did anything wrong, right, Like it wasn't like they were like, ah, let's break
up this deal. It was like they were like, oh, we need to do a good presentation, so let's contact people on the field and sort of get their input.
I don't know, I feel like exploring a union goes beyond just you know, doing.
It's all pretend, Like how would we do this deal? How are we'd explore a union? I don't know. It's fine.
At some point it crossed over into real life, Yeah you're.
Sure, but like they didn't do anything wrong, Like yeah, it cross never to real life because it was a good idea, but I don't know, like like it would be a failing on their part as pretend business advisors to not explore a union with some with another golf developer, and they did became.
I do feel bad for the professor. I have sympathy for the professor here, and I hope that this I hope this course is still taught because it sounds fun. A sports business integrative case experience. That sounds like a valuable course to teach at the Kelly School of Business. So thought val thoughts and vibes being sent to the professor right now, and maybe it's let me pull this up. I am never doing.
He is riching into her saddle bags.
I'm so smart.
Some oats assault lick up here.
It is okay. So I take pains to avoid the commodity markets because there's just there's so many different nuances. But occasionally commodities become really fun. And I think that the cocoa markets have been really interesting for a while. There's been some extreme weather and some sick and aging trees on the other side of the world, and that severely impacted the price of cocoa because there's a lot less crop being harvested, and that has been really painful
for a lot of chocolate makers. Including for Hershe's, And there was an incredible Blue news story out this week that, according to people familiar with the matter, Hershey's wants to take a position that will allow it to purchase more than ninety thousand metric tons of coco on ice futures us according to people familiar and the request of the CFTC, if they take physical delivery accounts to about five twenty foot containers, and it's more than nine times the amount
that the exchange currently allows. There are a lot of supply concerns right now, and it sounds like, according to these people, that Hershey's is at the point where they don't want to mess around anymore. They want to purchase all these futures which would allow them to take delivery of this coco versus trying to buy it in the physical market right now, where prices are just super high.
Right the way I understand it is like commodities exchanges largely have warehouses that contain some amount of the commodity, and the way you trade futures is like you trade futures back and forth which are like for future delivery of the commodity and when they expire. Most of the time you roll them, so you don't take delivery. But sometimes you take delivery and then you get a certificate entitling you to some of the commodity in the warehouse.
And usually you don't mean to do that until you go and like sell some more futures backed by the certificate. But every so often, if you're like a big user of the commodities, you actually want to take the commodities out of the warehouse because like there's some stuff in the warehouse that the exchange runs, and you can't find enough of your commodity elsewhere, and so you're like, yeah, get the stuff out of the exchange warehouse. And Hershey's
is like, we cannot find chocolate anywhere. Where's their chocolate. Oh, there's a lot in the ice warehouse. So we'll just take all of that. So I think, like I understanding that they want to buy, like, you know, the enormous percentage of the cocoa at these ice warehouses.
Yes, actually so much that if they did take delivery, it would basically equate to all the beans that are currently stop sewer than.
All of the beans, right, get all the beans.
They're not messing around anymore.
I will say, I assume candy makers, including Hershees, have like contracts with people who produce cocoa. And I assume, and maybe this's not as true of Hershees as it is of like your favorite artisanal chocolate maker, but I assume that they want, like, you know, fresh cocoa, right, They're like, oh, you know, bring us your best and freshest cocoa so we can make chocolate bars out of it.
I also assume, and I could be way off base here, but I assume that the cocoa sitting in the exchange warehouse is not the best and freshest cocoa, because like there's a lot of physical demand for cocoa, and if you have some cocoa fresh off the tree or whatever, then like people will buy it from you and you don't need to deliver it into the ice warehouse to support futures. There's an FT story in September about similar things were going on in London, where like chocolate makers
were taking cocoa out of like the London exchange warehouses. Yeah, and people were like, with left in London is a poisoned pill, because it's like, yeah, it's like stale cocoa. It's like been there for it's been sitting around for a while, like all the good stuff has already been used, and like they're kind of getting the dregs out of the commodities. I don't know if that's what's happening here, but I don't I don't know, Like chocolate bar made of exchange warehouse.
Chocolate, very extremely stale cocoa beans. I guess we'll find out. I mean, reading through some of like the Commodity analyst reports on the state of the cocoa industry, it seems like these supplied demand dynamics are a long way from being worked out, So I don't know. Maybe we'll see, of course, if her Shee's actually gets this permission. This is according to people familiar with the matter. Hershey itself does not confirmed this, and we'll see the guests at
that point where we are all eating still chocolate. But Hershey is interesting because they made a similar trade in twenty twenty when there were all these pandemic related weirdnesses in the cocoa industry. But anyway, this isn't the first time that Hershey has just cornered the market, so to speak. This time it feels more idiosyncratic like in twenty twenty, every commodity market, it felt like, was just going through it.
I will say, like the cocoa market. You know, it exists for chocolate manufacturers to heads their price of cocoa. And like, I don't know, I'm not up on the biggest chocolate manufacturers, but Hers she seems really big, right, It's not that surprising that every so often the biggest chocolate manufacturer would say, okay, we want all the beans now.
Right, Yeah, there's a few of them out there. I mean, you think about Mandley's, you have Mars. I know this because a few months ago we were trying to book a lot of chocolate makers because we wanted to talk about coco on television. There's more than you would think.
I'm going to talk about. My favorite commodity story, maybe of all time, is that a while back in the like in one of the exchange warehouses for nickel, someone was like walking along and they noticed that like a bag of nickel that belonged to JP Morgan, right, like JP Morgan owned the entitlement to that nickel in the warehouse. It was actually rocks like someone at some point either before it went into the wear so while I was sitting in the wareus, which was doing for years without moving.
At some point they had stolen the nickel and replaced it with rocks, which is such a wonderful story about how these commodity trades work because like, you didn't need it to be nickel, like you're just trading back and forth like abstract entitlements of the nickel. It didn't matter that you weren't doing anything with the nickel. You weren't making anything with the nickel, so it was totally fine that it was rocks for a while until someone discovered it,
and then it was embarrassing. I also thought that story because it then led to I think the warehouses like had people go around and check all the other bags of nickel to make sure they weren't rocks, which required them to wear steel toad boots because you can you
really hurt yourself checking the bags of nickel. But anyway, like these warehouses, because they're mostly used for futures, because it is like a somewhat unusual event for someone to come in and say, okay, we want all the cocoa beans in the warehouse because we need to make chocolate with them. Like what if the beans are all pebbles, right, what.
If they're all I don't know, coffee beans. Obviously those look different. But I hope that someone is crawling around in the warehouses right now making sure that they have all the cocoa beans.
Awkward if, like all the chocolate bars are made of pebbles because the warehouse cocoa was not real coca.
Well, a conversation I had with one of these chocolate makers that we finally got to go on TV was are you still using chocolate? And a lot of them have had to start using, you know, more filler in the form of like nuts and various things because they just can't source enough chocolate to make enough chocolate bars.
If they're bugs in the ware sawdust in the word.
Put it oudre, I grind them up, put them in it's fine.
Chemicals and any beans.
Pretty much, we'll see. I don't know. They don't have permission yet. A larger position limit is likely to send the price of earlier dated futures to a significant premium about the later dated ones. Apparently, the future's curve for cocoa I was speaking to an analysis this morning is has been backwardated for a long time. At this point. So I don't know.
Yeah, that's like fitting with the notion that like the physical market is incredibly tight and her Shoes is trying to get beans out of the futures. Right, Like, you wouldn't buy cocoa beans in the form of commodities futures unless it was more expensive to buy them than the form of cocoa beans, right, Like the curve is the curve is obviously backwardated, which I guess implies that there will be some easing of cocoat conditions, but not yet.
Yeah, their explanation for like the extreme backwardation is just it's it's so dramatic at this point. It can't stay at these levels forever, surely, Right, So that's.
What that gradation means, I know, Like it means that Hershe's is going to pay a huge freom to get all of the beans out of the warehouse and then they'll start over and then they'll be fun. Yeah, I
will say, why shouldn't they ge permission? You know, like the point of this market is to you know, smooth the prices of agricultural commodities, right, and like if an actual producer of chocolate is like the only way for us to make our chocolate bar quota is to take the beans out like like they're not like a weird speculator, like doing a weird corner, like they're just gonna make chocolate bars with it.
Seems like the what the market, Well, they got permission in twenty twenty, so I don't know history would suggest it'll be okay, But man, it just feels like every couple of months, some whether it's lumber or sugar or coffee or cocoa, something pops off and then there's a bunch of curious stories such as this one.
I'm a tourist in the commodity of space, but I always find it very fun. Yeah, I think we have to talk about two notes. We got about the mailbag episode.
Yes, our official first episode of the year.
So we had a mailbag episode let's say last week recorded let's say three weeks. Yeah, but last week we had a mailbag episode. It was great, you should listen. But in it we said two things that people complain about with various degrees of fairness. Someone asked like, why can't you buy, like on the Stock Exchange, single family homes, and I said, well you can. You should be able
to buy like single family rental homes. That's like an investable asset class, and like probably they'll be eventually, there will eventually be reats that allow you to do that on the exchange. In fact, there have been reads that allow you to do that for years, and someone emailed me to point out that there's like three that trade
on the exchange now. So yes, you can go buy single family homes in the form of shares of stock and reads, but you can't buy, as I said, single family owner occupied homes because those are run by their occupants, not by a red but you can either read. And the other one is that you said, and I questioned this, and you were stuck to your guns. You said that in the US ticker symbols on the Stock Exchange max
ad at four letters, and we got complaints. One set of complaints was like, actually, mutual funds have five letter tickers, which I think is not a fair complaint because those are not stocks on the stock exchange. That's a different thing. They're like in the universe of identifiers. They have five
letter tickers, but they're not stock exchange tickers. The other complaint is that nas like actually like caps at at four letters, but then there's like they have like special codes you can add that are a fifth letter, so like preferred stock can have a fifth letter, or like you know, Google has multiple shares of stock, and like some of them are Alphabet has multiple shares of stock and some of them are like you know, goog A or whatever, and you know, and as they used to
have the Q code, which apparently I learned from this reader response. The Q code, which famously represents companies that are in bankruptcy, like, is no longer part of the NASDAK nomenclasure, but like still some venues put Q on the end of a ticker when it's in bankruptcy.
Yeah.
So back in the day when like Tesla was not the juggernaut it is now, and like people were shorting Tesla, Like there's like a whole Twitter community who's like, you know, banner was TSLAQ Yeah, because it's like, oh, Tesla's bankrut, right, So the Q code is no longer a part of NASDAK, but it's still bason in our hearts. So to clarify, Katy has a response because Katie Katy knows for tickers.
Yeah, the mutual fun thing. Yeah, they're not. They don't trade on the exchange, hence ETFs or exchange traded funds. So there's a four character limit. Generally, this is literature from Nasdaq that for common stock insuances, NASAK assigns symbols between one and four characters in length. There are some circumstances, and I should have known that by saying that there's a four character limit that that would invite people to
like find the asterisks. But there's a fifth symbol that can be added to the original ticker in special cases such as you know, different share classes, et cetera. But if you are going with an ETF or in I PO and you say I would like to list this on your exchange, can I reserve this five letter ticker, you would be told no, is my understanding. And I've spoken with both Nazak and NISI about this at length because I would love if they expanded the limit, just
because that would be fun to write about. And it's a four character limit except in special circumstances, like you.
Know, you're a little iconder like every three months, like have they expanded the ticker symbols yet, because like that's that's that's that story. You know that story all drafted and ready go.
Huh, I'm ready to go. Because and we also do we have on folks from NISI and from Nasdaq on you know, either Open Interest, which I anchored daily, or on etf IQ. And every time we have anyone who touches the listings business, I asked them about the ticker limit and if they're considering five five, and every time they politely tell me that no, they don't have any plans to expand beyond four characters.
So yeah, this is in the context of a question about ETFs that was like, eventually there'll be like ten zillion ETFs and there's only so many four letters.
Yeah, and there's going to be ten zillion specifically single stock ETFs which already have real estate taken up in the ticker, and then you could see a supply crunch there similar to what we're seeing in the cocoa market right now.
It's true, they'll have to get the tickers out of the warehouses and.
You better hope that you know they're good quality.
And that was the Money Stuff podcast.
And I'm Katie Greifeld.
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