Reptile Brain: ???, GS, XXI

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Speaker 12 So it's a beautiful day in New York City. I'm having real lizard thoughts.
You know what I mean?

Speaker 9 Like, I want to believe. I feel like the lizarders don't know what you mean.
Okay. Let me explain.
Like, I want

Speaker 12 to believe I'm more complex than, oh, the sun is shining and the air feels good. But I'm not, because when it's nice outside, the weather, I am immediately so much happier.

Speaker 12 So in that way, I kind of feel like a lizard. Just simple.

Speaker 9 Yes. I thought you were going to talk about the fact that you have plans to leave this podcast and go home and take your turtles out to the roof to sun themselves.

Speaker 12 I have some baby turtles in my apartment that I've been taking care of.

Speaker 9 Turtle brands, turtle brands.

Speaker 12 This is what reptile brains.

Speaker 12 I've been taking care of them over the course of the winter, and they're going to be going back outside very soon.

Speaker 9 That's where they primarily live.

Speaker 12 But anyway, it's nice to take them to the roof and feed them their mealworms in the sunshine. They tend to like that.

Speaker 9 You and they both sunning yourselves. Yeah, pretty much

Speaker 12 warming our scales.

Speaker 9 Hello, and welcome to the Money Stuff Stuff Podcast, your weekly podcast where we talk about stuff related to money.

Speaker 9 I'm Matt Levine, and I write the Money Stuff column for Bloomberg Opinion.

Speaker 12 And I'm Katie Greyfeld, a reporter for Bloomberg News and an anchor for Bloomberg Television.

Speaker 9 It's another all-tariffs edition of the Money Stuff Podcast.

Speaker 12 Yeah, you know, it started as a joke and then it got really real. It's hard to talk about anything other than what is going on with the U.S.
trade policy.

Speaker 9 Yeah, we're going to try. Yeah.

Speaker 9 It's not really an all-tariffs.

Speaker 12 It's like at least a third tariffs, maybe half.

Speaker 9 Certain amount of

Speaker 9 what is going on in the world.

Speaker 12 I feel like we need to say what day we're recording it since it changes so much. We'll talk about whether or not that is the strategy, but we are recording this on a Thursday.
It's the 24th of April.

Speaker 9 When last I looked, the market was up today. Yeah.
After being up yesterday. Yeah, and the day before.
It's not literally a first in the last three months, but it feels like that.

Speaker 12 Well, it's funny that we're rallying so hard right now because you have China on one hand insisting that the U.S.

Speaker 12 and China are not talking, that negotiations aren't currently happening, they do not exist. And then you have President Trump saying that, no, they had a meeting this morning.

Speaker 9 And then a reporter asked him the follow-up.

Speaker 12 What administration officials were involved in discussions? Who are you talking to? And Trump said, It doesn't matter who they is.

Speaker 13 We may reveal it later. But they had meetings this morning, and we've been meeting with China.

Speaker 12 So it's unclear what is next.

Speaker 9 This all feels very real.

Speaker 12 What is actually going on, whether or not the U.S. and China actually are talking.

Speaker 12 But it seems like the market just really wants the Trump administration to blink and is rallying merrily along, hoping that they have.

Speaker 9 Right. It's so odd that the explicit statements from Trump as candidate and as president were tariffs are great, let's have lots of them.

Speaker 9 And the market in the lead up to his inauguration clearly like very heavily discounted that.

Speaker 9 And then the liberation day happened and the market crashed, realizing that in fact he was serious about tariffs. And now we're right back to, nah, he can't be serious about tariffs.

Speaker 12 Yeah, it feels very like first Trump administration where the sort of mantra was to take Trump seriously, but not literally. And it feels like we're back there.

Speaker 9 Yes. And like we say the all-tariffs episode, but I feel like the other sort of

Speaker 9 big thing hanging over this week anyway is firing Jerome Powell to get rid of the Fed independence. Yeah, that was pretty old.
Also seems to have been walked back, but who knows?

Speaker 12 Yeah.

Speaker 12 So

Speaker 12 Trump, in denying that he had any intention to fire Jerome Powell, said that the media ran away with it.

Speaker 12 But you did have Kevin Hassett, who is the top White House economist, say last Friday that Trump is looking at options here when it comes to removing Jerome Powell.

Speaker 12 So it wasn't entirely just the the media.

Speaker 9 Right. Also, he's like been truth socialing about how stupid Jerome Powell is.

Speaker 12 Yeah, said he can't wait for his termination. Yeah.

Speaker 9 Right. You combine the legal team studying race to fire him and Trump saying how bad he is.

Speaker 12 In both situations, both when it comes to trade and the possibility of removing Powell from the Fed, it kind of feels like Trump is just negotiating with the markets, like seeing how far the markets will let him go before long-dated treasury yields skyrocket higher, which you've seen that happen.

Speaker 12 And then you see the Trump administration back off.

Speaker 12 But someone made the point today that it kind of feels like every time we see a little bit of green in the equity markets, because maybe there's hope that we're going to get to a more reasonable place on trade, that it seems like the Trump administration has felt more emboldened by that.

Speaker 12 And we just enter this cycle again.

Speaker 9 But we're on the third day of the rally.

Speaker 9 People talk about the phrase the Trump put gets thrown around, right?

Speaker 9 So like you have like the classic like Powell put or whatever the Fed chair is at the time, you know, the idea that if things get bad, the Fed will step in to rescue the market.

Speaker 9 And so there's some floor under stock prices. My impression is that people think of the Powell put as being like kind of close to at the money, where like,

Speaker 9 you know, if you're the Fed, you're interested in steady economic growth and like any sign of wobbling in the market is a negative.

Speaker 9 The Trump put that we've maybe seen this week feels like it's quite far far out of the money. You know, it's like things have to go really off the rails to have the Trump put kick in.

Speaker 9 And also, like you just said, it's like, it's not just a floor. It's like a cap, right? Like if the market gets too good, it's like, ooh, we have Leeway to do weird stuff, right?

Speaker 9 Market gets too bad, you stop the weird stuff. It's like a, it's like a corridor.
It's like a like a call spread. Yeah.
And that's,

Speaker 9 I don't know.

Speaker 12 It's a very tactical market. It makes for some real tactical trading strategies.

Speaker 9 I had a headline this week that was like, at least the market isn't boring. And someone wrote back to me, like, yeah, it's great if you're trading this market.

Speaker 9 And it's like, you know, I got like a high-frequency trading proof. Like, you know, like, it's so good for

Speaker 9 some people. Yeah.
Right.

Speaker 9 Like, if you're a degenerate gambler, if you're a market maker, probably this is great, right? Like, market makers thrive on volatility.

Speaker 9 Some of them blow up on volatility, but like, yeah, a lot of them, it's probably great.

Speaker 9 And then if you're like a, you know, like a manufacturing CEO trying to decide whether to build a factory or just a bunch of people.

Speaker 12 Or, you know,

Speaker 9 or to hire or fire people.

Speaker 9 Yeah.

Speaker 12 It's been interesting. In some of the earnings reports, you've seen companies, you know, you report your numbers and you give guidance.

Speaker 12 You've had a lot of firms either downgrade their guidance, pull their guidance all together.

Speaker 12 You've seen a few companies come out with like a range of options for what could happen, like different blueprints for different scenarios, which I think is kind of cool. One of the airlines didn't.

Speaker 12 I wish I could remember, but I mean, what else can you do? It's impossible forecast what six months from now will look like.

Speaker 9 My intuition is that that's just bad, right? That like being able,

Speaker 9 being able to plan six months ahead is useful for business, right? Yeah, for sure.

Speaker 9 From like an economy-wide basis, you would rather have businesses generally be able to plan basic macroeconomic building blocks six months ahead than not, right? Yeah.

Speaker 9 And so one possibility is that this is all error, right? Like, they're just like, they're not

Speaker 9 doing a good job of stewarding the economy, right?

Speaker 9 Which seems to me like probably the correct analysis. But, like, people want there to be some sort of plan here, right?

Speaker 9 Yeah, they want there to be some sort of explanation here that is more satisfying than like they keep changing their mind or they don't really know what they're doing or the messaging is just extremely unclear for no reason.

Speaker 9 Yeah, I don't know what that is though.

Speaker 12 Yeah, the end game is a question that comes comes up a lot when it comes to, you know, the shifting trade winds coming out of the administration. I mean, we know that Trump loves tariffs.

Speaker 12 We know that they want to rebalance the global trade landscape. What that actually means seems to be sort of shifting goalposts.
I think so.

Speaker 9 Yeah, I've read a few times. One way to interpret their statements and actions is that they want America to be reindustrialized, if I'm like they say that, but also like definincialized, right?

Speaker 9 Like shifting from having a lot of foreigners selling goods to us, getting cash and investing it in U.S. financial assets, shifting to like investing the cash they get into U.S.

Speaker 9 manufactured goods, right? Yeah. So we're selling fewer financial assets and like the financial sector becomes like less important part of the American economy relative to like manufacturing, right?

Speaker 9 Like that's one way I think to interpret some of the stuff the Trump economic team does and says. But then you look at the actual effect and it's like...

Speaker 9 If you work at a high frequency trading firm, you're like, this is amazing. There's so much volatility.
And then if you work at a manufacturer, you're like, this is terrible.

Speaker 9 There's so much volatility.

Speaker 12 Yeah, well, also, you don't know if these tariffs are going to stick. Like, you have no visibility into that.

Speaker 12 And there's also the very real question of what incentivizes a company to bring manufacturing back to the U.S.

Speaker 12 The Whirlpool CEO said on their earnings call this week that, first of all, they think that actually they're going to benefit from tariffs, but the CEO, even with that in mind, said that 20% tariffs aren't going to

Speaker 12 move factories away from China. And you think about like

Speaker 9 145%.

Speaker 12 Perhaps, but you think about a lot of these pharma companies who make their drugs in Ireland, for example. They're probably not going to shift those factories to the U.S.

Speaker 12 They're probably just going to have to accept that

Speaker 12 things cost more now. So I don't know if tariffs are the way to incentivize bringing manufacturing back versus tax breaks, for example.

Speaker 9 Aaron Powell, one thing that is happening here is that it seems so haphazard as a way of encouraging manufacturing, right?

Speaker 9 Like if you wanted to encourage manufacturing, you would do things like not impose tariffs on raw materials and intermediate goods so that you could make it easier for people to start factories here.

Speaker 9 But like you're constantly reading stories about like people who run factories here who like find that like their inputs have gone up because of tariffs and so they can't run their factories anymore.

Speaker 9 It's just it's it's not like a

Speaker 9 industrial policy designed to support manufacturing. It's like tariffs are good.
Yeah. I don't know.
People want there to be an explanation that is like

Speaker 12 very human, you know?

Speaker 9 Either like clever or like galaxy brain bad.

Speaker 9 Like one reason for the recent, the rally of the last couple of days is like Scott Bessant giving a speech at a closed-door investor summit saying basically we're going to have like a thaw in the China situation very soon.

Speaker 12 People are scandalized by that.

Speaker 9 People are scandalized by that.

Speaker 9 And like, it's definitely like, you can definitely read like takes that are like, this is like corruption and the whole thing is like for cronyism and to like give the favored people, you know, a lot of volatility to trade and a lot of inside information about what the decisions will be.

Speaker 9 Which is honestly like

Speaker 9 a more optimistic view than my view, which is that people just change their mind constantly and are not really

Speaker 9 planning that nefariously far ahead.

Speaker 12 Well, the cynical takeout there, too, is that, you know, Trump changes his mind based on who he last spoke to.

Speaker 12 I don't know. I don't think you get notes from Neil Dutt of Renaissance Macro.

Speaker 9 No.

Speaker 12 Okay. He had a really interesting note out this week that he used the NT function on his Bloomberg terminal, which is a way to chart news trends.

Speaker 12 He found that since the beginning of March, the SP 500 has shed a total of 719 points on days that Howard Luttnick and Peter Navarro have been the biggest story.

Speaker 12 By contrast, if Besson has been the biggest story on the day, the SP 500 has advanced a total of 52 points. So he concludes Besson is good for about one percentage point up on the SP 500.

Speaker 12 By contrast, the others are a drag of about 13.5 percentage points. So, I mean, those are the dueling forces.
All three of those men are dueling for Trump's attention.

Speaker 9 Yeah, I mean, there's a story about like Lutnick and Besant actually rushing into Trump when Nefaro was like in the bathroom or something.

Speaker 9 Right. You might imagine someone thinking, We have the guy who's good for the economy and we have the guys who are bad for the economy.
So let's turn up the dial on the guy who's good for the economy.

Speaker 9 But I don't think that's an accurate description of what's going on here.

Speaker 12 Yeah, it seems like Besson, at least looking at the reporting from this week and things shift all the change, but apparently, you know, Besson had a big hand, according to people familiar, in talking Trump off the ledge when it comes to firing Jerome Powell.

Speaker 12 Also, like you said, there was that story that when Peter Navarro was at the White House cafeteria or something along those lines, that him and Lutnig swooped in. We'll see.

Speaker 12 I mean, I don't know how to segue to this point, but I do want to make the point that Besson is also apparently, you know, playing a leading role in trade talks with Japan.

Speaker 12 He's also expressed that he would like the U.S. to basically make agreements with its allies on trade, and then they'll all approach China as a group.

Speaker 12 But it seems like that is very much not happening because on Thursday, you had two different stories drop. One was that Japan is going to resist Trump's efforts to form a trade bloc against China.

Speaker 12 And then you also had a story about how the EU and Beijing are basically in talks.

Speaker 9 Right. Like one analysis that I saw of the Liberation Day situation, right? Where Trump announced enormous fake reciprocal tariffs on every country.
Incredible.

Speaker 12 I was with my grandmother as discussed.

Speaker 9 And then in a fairly short time period, walked them all back, except he raised tariffs on China.

Speaker 12 145%.

Speaker 9 One reading of that was that if Trump had just announced giant tariffs on China and also like small tariffs on the rest of the world, then everyone would have been shocked and trade would have shifted away from the U.S.

Speaker 9 toward China. But by instead doing it in this shocking Liberation Day way and then walking that all back, he primed people to think, oh, this could be a lot worse.

Speaker 9 And in fact, he's only targeting China, so we should make deals with the U.S.

Speaker 9 and cut out China. And so this was a...

Speaker 9 sort of shock therapy way to reorient the talks to make it a essentially trade block of the rest of the world, or at least the U.S. and its allies, with China on the outside, right?

Speaker 9 So it was a way to accomplish exactly that sort of like, you know, make deals with everyone else and then

Speaker 9 have the upper hand against China. And

Speaker 9 I don't know. That was a reading of what happened, but it doesn't seem to have

Speaker 9 particularly had that effect. And you have to be very optimistic to think it'll have, you have to be like...

Speaker 9 Like, oh, people are so relieved and so happy that the tariffs weren't as bad as we thought that now they'll be rushing to negotiate with Donald Trump.

Speaker 9 But the alternative reading is people will be like, this was so erratic and chaotic that we should be rushing to negotiate with China because, like, they're predictable.

Speaker 12 Yeah, that's the thing. I mean, I could definitely see the argument for that strategy, but the narrative also exists out there that, no, the U.S.
is just an unreliable trading partner.

Speaker 9 And

Speaker 12 who knows if agree to a deal that it'll stick? I mean, you think about what's going on with Canada and Mexico right now. The USMCA,

Speaker 12 that was Trump's trade deal. And now apparently it's just been ripped up.

Speaker 9 Yeah, yeah. Right.
And it's related to the point about insane volatility in the market, right? Like none can plan ahead. This is not an administration that places any value on predictability.

Speaker 9 And in a lot of domains, predictability is really useful.

Speaker 12 It's going to be interesting to see what acts as like this stabilization mechanism. It seems like the bond market does have some sway with Donald Trump.
So bond investors.

Speaker 9 The sample size of that is small.

Speaker 12 It's small. There was also an interesting note out from thinking Chada over at Deutsche Bank.
So he lowered his SP 500 target to 6,150 from 7,000.

Speaker 12 6,150 sounds incredible to a lot of people right now because we're like at 5,500 on the SP 500.

Speaker 12 But he said that if you start to see approval ratings drop, then that might cause an actual, I forget the word he used, but that's when you might actually see things calm down.

Speaker 9 Maybe that will be the overflow. So we've seen that.
But secondly, I don't know why that's a mechanism.

Speaker 12 I mean, the pushback to that point is that, okay, he's in his second term. He's not going to run again unless he does.
That's also an open question. So, who knows? Maybe.

Speaker 9 If he decides to run again, approval ratings will not be an impediment.

Speaker 12 No, no.

Speaker 12 But, I mean, there is some momentum building behind that idea that if you see approval ratings drop in a big way, maybe Trump would soften his stance.

Speaker 9 I'll take the other side of that. I think I would rate the bond market above approval ratings, but I don't know.
What do I know?

Speaker 12 Okay, well, goodbye, everyone.

Speaker 9 Goodbye. Oh, wait, other thanks.
Oh, right, right, right, right.

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Speaker 12 What else is there going on? Goldman. Goldman, the good thing is that David Solomon and John Waldron are going to be paid a lot of money.

Speaker 9 What does a lot of money mean? I mean, they're getting paid.

Speaker 9 Come on.

Speaker 9 It means they got their $80 million special retention.

Speaker 12 I got to tell you, I was, you know, biting my nails over this one.

Speaker 9 It was close. Like, both of the big shareholder advisory firms said they shouldn't get them.

Speaker 12 And still, they won 66% of the vote, though.

Speaker 9 That's not that high.

Speaker 12 It is down from, I think it was in the 80s the last time you had it.

Speaker 9 You get 80-90% for, say, on pay vote.

Speaker 12 Wait, I have the exact number.

Speaker 9 Kind of a loss.

Speaker 12 I prepared, so I want to tell you. Last year, Goldman won 86% of the vote from shareholders, despite also opposition from Glass Lewis.

Speaker 9 Yeah, these guys get paid sort of market rates for big bank CEOs, right? I think David Solomon got $39 million last year and Waldron got $38 million,

Speaker 9 which is like, you know, comparable to like a Jamie Diamond or whatever. And so getting an extra $80 million bonus just for being good guys and wanting them to stick around

Speaker 9 seems high, right? Like they're getting paid market rates. Like, why do they need the extra bonus?

Speaker 9 And part of the answer is literally like Waldron, who is the number two at Coleman, there's reporting that he was approached by Apollo to come be some sort of high-up executive there

Speaker 9 and offered what the article characterized as life-changing money, even for him, which is like, I don't know, if I made $38 million a year, you would need a lot of money to change my life.

Speaker 9 But I think they offered him that.

Speaker 12 Well, it's like, I don't just want my great-great-grandchildren to be well-off. I want their great-great-grandchildren to also do well.

Speaker 9 Right. Like, I don't have a conception of how your life could change above making 38 million.

Speaker 12 Well, that's just a lack of imagination.

Speaker 9 I know, I know, I know, I know, I know. I should, I should.
I should be thinking bigger.

Speaker 9 But, anyways, he was offered life-changing money and he decided to stay because, yeah, he likes Goldman, it's a good place, whatever. Yeah.

Speaker 9 But also because they were like, Yeah, we'll find a way to get you paid more, right? So they got him paid $80 million more.

Speaker 12 Something that I find interesting is I like to imagine how, you know, the rest of Goldman feels about that. You had Mike Mayo from Wells Fargo say that this could be alienating to Goldman's workforce.

Speaker 12 He said that before the vote.

Speaker 12 And in one of the articles written by Todd Gillespie, he did write that under Solomon's tenure, payouts for its top brass have been a thorny issue that until now was mostly expressed by the bank's partner class.

Speaker 12 Some privately grumbled that packages for its leaders were excessive relative to the firm's performance and the awards being set aside for the rest of the staff.

Speaker 9 Yeah. So one thing I've written about a lot over the last few years is like Goldman has long had this partnership culture where there's a group of people who are called partners.

Speaker 9 They're not exactly like partners in the classic sense, but they were

Speaker 9 like they're sort of successors to the partners when Goldman was a private partnership. And they

Speaker 9 sort of viewed the firm as a continuation of that partnership where the partners had a big say in running the firm.

Speaker 9 There was a sort of egalitarianism among the partners where the CEO was like sort of the managing partner, but he wasn't like

Speaker 9 the boss of all the partners or anything like that. And I think under Solomon, that has really changed and they've consolidated into being much more of a normal public company.

Speaker 9 And maybe not the most important, but one symptom of that is it used to be that GovHo was like a partnership run for the benefit of the partners.

Speaker 9 And so like, if they had a good year, the partners all got paid, right?

Speaker 9 And now under the Solomon regime, it's a little bit more like we're going to pay like a public company and sort of maximize shareholder value and like not just gratuitously pay partners just because, you know, you're going to pay them based on competitive pressures.

Speaker 9 And there's like sort of a walk in the opposite direction with like Solomon and Waldron where like they're getting paid a lot of money even as the other, as the partners are no longer like the people divvying up the pot.

Speaker 9 So I think that like the partners on the one hand, some of them resent being like relegated to a second tier status and no longer feeling that they run the firm.

Speaker 9 And on the other hand, they're like, these guys are getting paid so much money, right? Yeah. Well, maybe they should go all work on an alts manager.
Yeah.

Speaker 9 I mean, like, one thing that Todd Galatsby wrote is that Goldman is trying to position itself as an alts manager because

Speaker 9 you get a better multiple as an alts manager. So, Goldman Sachs.

Speaker 9 Everyone's trying to position, like, we've talked about BlackRock on the show, like, trying to position itself as an alts manager because you get a higher multiple as an alts manager than as an index fund manager, but also than an investment banker.

Speaker 12 It's like me trying to rebrand myself as a podcaster versus a TV anchor.

Speaker 9 It makes sense. Higher multiple on podcasters.
Yeah, there you go.

Speaker 12 Goldman Sachs Asset Management. They have about $500 billion of private assets under management.
Blackstone, for context, has more than $1 trillion. So, I mean, they are up there.

Speaker 9 They're a real, you know, I remember being, you know, I was at Goldman.

Speaker 9 I've heard at Goldman more than 15 years ago.

Speaker 9 I wrote to Goldman about 15 years ago. And

Speaker 9 there was a big

Speaker 9 focus on private equity as a, you know, important component of the firm.

Speaker 9 You know, I was a fairly junior person, and I experienced it as like almost a recruiting thing where like, you know, the cool place to work in finance was private equity.

Speaker 9 So for Goldman to be able to be like, we run private equity was good for you know recruiting young people, but like similarly it's good for recruiting shareholders, right? Because you're like,

Speaker 9 you know, the multiples that are given to alts managers are higher than the multiples given to investment banks. Yeah.

Speaker 9 And like the, you know, the revenue is a little bit more stable and like it's a little bit

Speaker 9 certainly its executives get paid more. Yeah.

Speaker 12 So, I mean, to put some numbers to that, Blackstone trades at a P of like 37. Goldman's closer to twelve, which is less than thirty-seven.

Speaker 12 But I mean, Blackstone, KKR,

Speaker 12 those are pure play alts managers.

Speaker 9 I know what that means. Like they're not pure play.

Speaker 9 Relative to

Speaker 12 Goldman.

Speaker 9 Yeah.

Speaker 12 I mean, when I think of Goldman, my first thought is in their alts business, obviously.

Speaker 9 Yeah, of course. Right.
No, they're not primarily an alts business. But I think of KKR as a growing capital markets business, right? Like the big alts managers want to get bigger.

Speaker 9 And one way to get bigger is to get into some of the businesses that like the Colemans of the world are in, right? Like there is a convergence and

Speaker 9 obviously you'd rather have the multiple of being a more or less pure alts manager than being a more or less pure investment bank. But like they're in a lot of overlapping businesses.
Yeah.

Speaker 9 And the KKR people get paid more. So one thing I wrote this week is like, some of that is like the youth of those firms, you know, like those firms, you know, they went public after Goldman did.

Speaker 9 They were founded way after Goldman was.

Speaker 9 We're still at the sort of closing stages of the giant private equity gold rush of the 80s and 90s and 2000s. Whereas

Speaker 9 investment banks have just been around longer. They're no founders.
I mean, there are founders, right? They're founders of investment banks who made very good money. But

Speaker 9 they're no founders of like... big and bulge bracket investment banks, right? Like those guys, you know, those banks are 100 years old.

Speaker 12 They're resting peacefully. Yeah.

Speaker 9 Some of what's happening happening is that the alts managers, like the people who are senior executives there took real risks getting into new businesses.

Speaker 9 Whereas like people who grew up as partners at Coleman were like in a you know sort of well-established business.

Speaker 9 So like, of course, the people who took those risks that started the alts managers get paid a lot more.

Speaker 12 Yeah, like took the risk to become a podcaster.

Speaker 9 Get it.

Speaker 9 Should be compensated for that. This is a good analysis, right? Yeah.

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Speaker 12 Reading your column, actually listening to it on my text to speech, it chiefly motivated me to find where there are still inefficiencies in the market.

Speaker 9 Do you think it's podcasting?

Speaker 12 In terms of the media landscape,

Speaker 12 perhaps. It certainly doesn't seem like it's linear television, but

Speaker 9 you know what it is. What? Email newsletters.
Oh, no, it's like some horrifying fourth thing.

Speaker 12 God, it's like you.

Speaker 12 But YouTube's like 20 years old. I know.

Speaker 9 If I even said it's like TikTok,

Speaker 9 you can picture me shaking my fist at a cloud.

Speaker 9 It's short form. TikTok is where the kids are.
It's some short-form video. It's some entirely other thing.

Speaker 9 It's like a brain implant. Yeah, it's brutal out there.

Speaker 12 Maybe glasses that you put on and it's just our faces. I was going to say, it seems like the inefficiency is still left to till in the market, to plow in the market.

Speaker 12 I don't know what farming metaphor I'm trying to use. Perhaps we should all just start Bitcoin treasury companies.

Speaker 9 I do think that

Speaker 9 so much of the crypto boom has been like people from traditional finance being like, oh my God, look at the bid S spreads here, right? It's like crypto is so inefficient. And

Speaker 9 also you could kind of get into it efficiently. So like all these people from traditional finance like jumped in to capture those threads.
But yeah, so this week, the amazing thing is 21.

Speaker 12 21. 21.

Speaker 9 Great name for a company. It is.
21 is a merger between a Cantor Fitzgerald SPAC. So Cantor raised the SPAC, a special purpose acquisition company.

Speaker 9 They sold stock, sold $100 million worth of stock to public investors a while back. And like they had that pot, and they were like looking around for...

Speaker 9 some sort of operating company to merge with and take it public with the SPAC. And what they found was was not an operating company.
It was a pile of Bitcoin managed by Tether. Yes.

Speaker 9 And also a pile of Bitcoin managed by Bitfinex, which is sort of related to Tether. And also a pile of Bitcoin managed by SoftBank and also probably some other piles of Bitcoin.

Speaker 9 But anyway, they mushed all these things together. So you have Cantor's $100 million of cash and then all these other people's Bitcoin.
You mush them all together. You have a giant pot of Bitcoin.

Speaker 9 that is publicly listed because the SPAC has a public listing. And so they announced the merger this week.
And it's always a a very easy merger because everyone is just a pot.

Speaker 9 And so you can be like, okay, so your pot is $100 million. So you get like $100 million worth of stock.
Your pot is $3 billion of Bitcoin. So you get $3 billion.

Speaker 9 So you allocate it based on how much stuff the different pots bring to the thing.

Speaker 9 And

Speaker 9 so, you know, the Cantor Fitzgerald SPAC got roughly $100 million worth of the pot. And it probably like tripled in price.
Yeah.

Speaker 9 So that suggests roughly that the stock market values the Bitcoin in this pot at roughly three times the actual value of the Bitcoin in the pot.

Speaker 12 Yeah. It's amazing.

Speaker 9 It's not like they invented this. No.
They have this investor presentation, which is amazing. And which is like, look at MicroStrategy, or now it's called Strategy.
Thank you.

Speaker 9 You know, the strategy company, which has been buying Bitcoin, putting them in a pot and selling shares for twice the value of Bitcoin.

Speaker 12 For like five years now.

Speaker 9 I don't think it's literally five years, but it feels like it.

Speaker 12 No, I think it was like 2020.

Speaker 9 Yeah.

Speaker 9 Yeah, you're right.

Speaker 12 Time flies, Matt. It's been five years.

Speaker 9 But, you know, they've been doing it forever and there's room for more.

Speaker 12 Apparently, my natural reaction when I saw this headline yesterday was, how many strategies do there need to be out there? Apparently, there's room.

Speaker 9 Right. It's like they came to it from opposite directions, right? So strategy was like a company and its CEO got really into Bitcoin.
Then CEO, now chairman,

Speaker 9 and he was like, what if we bought a lot of Bitcoin? Because like that would be a good investment for our company, right?

Speaker 9 Like, we should own Bitcoin because it'll go up and our company will be worth more. And that metamorphosed into like, what if we were only a lot of Bitcoin?

Speaker 9 Because people keep wanting to pay more for our stock than the Bitcoin is worth. So they just did more and more buying of Bitcoin.

Speaker 9 But like, they started from a place of like, we're a public company and we'd like to buy Bitcoin. 21 starts from the place of, I mean, I don't know how the merger conversations came together.
Yeah.

Speaker 9 But it essentially starts from a place of like, we are Tether. Yeah.
We own some Bitcoin. By the way, it's weird that Tether owns so much Bitcoin.
Yeah.

Speaker 9 Because Tether is mostly in the business of like selling stablecoin tokens for dollars and parking the money in dollars. But they have some like legacy business of owning Bitcoin.

Speaker 9 And also they've made so many profits that they invest in Bitcoin. So they own a lot of Bitcoin.

Speaker 9 And

Speaker 9 if you're a pot of Bitcoin, if you're a crypto native owner of Bitcoins, and you look at strategy, you're like, wow, those guys can get incredibly cheap funding for their Bitcoin because they can sell stock at 2x the value of their Bitcoin.

Speaker 9 So if you're just like a Bitcoin manager, how could you not be tempted to get into that business? Yeah. And so they did.

Speaker 9 And they did it by like essentially buying a public company, but like in this case, buying a SPAC to make it really clean.

Speaker 9 And so now they have a public listing for their pot of Bitcoin, which is worth three times what the Bitcoin is worth.

Speaker 12 I do just say I like the ticker, XXI, 21. Get it?

Speaker 12 So Jack Mahlers is going to be... the CEO.
He's 31, which is my age, but he made that point as a selling point that we're not a pivoting company, we're pure Bitcoin.

Speaker 12 And also talking about Tether, he said that how the deal came together was just that he's known Tether for a while, that, you know, a decade ago, there weren't many Bitcoiners out there.

Speaker 12 And I had the same reaction to Tether is a stablecoin issuer.

Speaker 9 Tether's relationship with Bitcoin is more interesting. They're now basically in the business of taking dollars and parking those dollars in treasury bills.

Speaker 9 The history of them producing dollars out of Bitcoin is an interesting one, right? I mean, they have been making collateralized loans against Bitcoin to create more tether dollars.

Speaker 12 Like, they're an interesting business, but yeah, an interesting business is you know, pretty diplomatic.

Speaker 12 But Jack Mahler's

Speaker 12 seriously, but also, yes, I'm taking you, you know, at your word at face value. Tether in an interesting business.
Jack Maulers went on Bloomberg TV to talk about this deal on Wednesday.

Speaker 12 I didn't interview him. My colleagues, Caroline Hyde and Ed Ludlow, did.
It was so fun. So he's going to be the CEO of this company.
He's also going to be the CEO of Strike.

Speaker 12 And they asked him about that.

Speaker 16 And he said, you can just do things. And I'm going to lead both businesses.
I truly believe my purpose on this planet is to try and help Bitcoin have a chance to change the world.

Speaker 9 This is not a business. This is part of Bitcoin.

Speaker 12 Well, they asked him,

Speaker 12 what is your day-to-day going to be if you're just

Speaker 12 jerking the Bitcoin? If you're just accumulating Bitcoin, what do you do all day?

Speaker 12 And I mean, he basically said is my job and what I've dedicated to do for our shareholders is grow our Bitcoin per share. That's what he's going to do.
So, which just means he's going to buy Bitcoin.

Speaker 9 Anyway, my head did explode when you said that, but let me say a couple of things. So, one, like, growing your Bitcoin for share, just buying Bitcoin, but fine, whatever.
Yeah.

Speaker 9 Two, no, they've, they say in their presentation that they're going to do.

Speaker 9 Bitcoin education and branding, including branded video media and acting as the go-to content partner for major conferences, web3 firms, and fintech institutions, which makes sense because, like, my analysis of these things, by which I mean strategy, this, I'm like, there's like 40 imitators.

Speaker 9 My analysis is like, you're sort of like meme stocking Bitcoin, right?

Speaker 9 Like you're sort of like finding people who are so excited by the story you're telling that they're willing to pay two or three times the value of the Bitcoin in your pot for your stock, right?

Speaker 9 So how do you sustain that? I mean, like, one thing is you have to like be very visible, right?

Speaker 9 And like Strategy and Michael Saylor have done a really good job of being visible and identified with Bitcoin. And like these guys have a great head start because they're like Tether, right?

Speaker 9 They're like, they're people who are visibly identified with Bitcoin. But you can't just rest on your laurels.
You got to keep producing branded video to make people think

Speaker 9 because I like Bitcoin. And also, because I like Bitcoin, I got to buy the stock of 21.
Yeah.

Speaker 12 So I want to read you more of this interview. I really enjoyed watching it.
So he said, I want to grow our Bitcoin per share, his BPS. When you buy a share of 21, let's say our BPS is 0.05.

Speaker 12 Our intent is to be able to grow that to 0.06, et cetera.

Speaker 12 whereas a vehicle like an etf your exposure is static he said we will never have negative bitcoin per share at least that's our intent how would they get there negative bitcoin like yeah does that i think he means negative bitcoin per share growth right

Speaker 12 he said we will never have bps negative at least that's our intent he must mean negative growth I was just there.

Speaker 9 I was at my desk.

Speaker 12 I was watching the interview. I was typing curiously.

Speaker 9 I guess that's like the in-verse Bitcoin exchange trend.

Speaker 12 Like, how would you just like sell? How would you have negative Bitcoin per share?

Speaker 9 How do you get there?

Speaker 9 Borrow a lot of money and then you sell everybody. I don't know.
I don't have a great answer.

Speaker 9 I think he must mean negative growth.

Speaker 12 Jack, friend of the show, come on. Tell us what you meant.

Speaker 9 Yeah. Yeah.

Speaker 9 Negative Bitcoin per share. I should start that.
I wonder if that would trade it up premium.

Speaker 12 You know, why would you ever issue...

Speaker 9 What you do is you borrow in Bitcoin, then you buy bonds.

Speaker 9 Yeah.

Speaker 9 Well, I should do that.

Speaker 9 Right? Because like the basic theory of these Bitcoin treasury companies is you borrow in dollars and you buy Bitcoin. But like that theory isn't even true.

Speaker 9 Like they mostly you issue stock and buy Bitcoin. Like these, these things all say like, oh, we're super levered.
They're not that levered.

Speaker 12 Yeah.

Speaker 9 But no, the way you would do a negative Bitcoin company is you would go to like crypto firms,

Speaker 9 borrow Bitcoin from them, and then you would use those Bitcoin to buy treasury bonds. Okay.

Speaker 12 Yeah, because the vast majority of companies have zero Bitcoin per share.

Speaker 9 Yeah, that's the default setting. 0.05 is high.
Yeah. Negative would be weird, but doable and possibly worth doing.
I should start this company. You should.

Speaker 12 Why not?

Speaker 12 A lot of reasons. We'll see what multiple you get.

Speaker 9 Negative multiple.

Speaker 9 It would probably be terrible. Yeah.
Because like, you know, because Bitcoin is very volatile.

Speaker 9 And the Bitcoin treasury companies that are like, oh, we're going to be levered Bitcoin investments are, one, not that levered. And two, they're smartly levered.

Speaker 9 Like they do, you know, long-term non-margin callable, convertible debt to buy Bitcoin. Right.
So like they're really not taking on a lot of near-term leverage risk. Right.

Speaker 9 If you borrowed Bitcoin and used it to buy treasury bonds and the Bitcoin went up a lot, you would get margin calls from your crypto lenders who would not fund people to deal with necessarily.

Speaker 9 That could be you.

Speaker 9 Getting the margin calls? Yeah. No, never mind.
I'm not doing it, but someone should do it be fun be funny all right well i've got turtles to go set out in the sun go

Speaker 9 enjoy your mealworms

Speaker 12 they're kind of big so i have to actually cut them up for the turtles i bought jumbo mealworms by accident okay

Speaker 9 I want to hear much more about the cutting up of the mealworms.

Speaker 12 They're just like an inch long, and the turtles are also an inch long, so

Speaker 9 it's too big. The mealworm's going to eat the turtle.

Speaker 12 To be clear, they're dead.

Speaker 12 The mealworms.

Speaker 12 Let's go home.

Speaker 9 And now is the Money Stuff Podcast. I'm Matt Livian.

Speaker 12 And I'm Katie Greyfeld.

Speaker 9 You can find my work by subscribing to the Money Stuff newsletter on Bloomberg.com.

Speaker 12 And you can find me on Bloomberg TV every day on Open Interest between 9 to 11 a.m. Eastern.

Speaker 9 We'd love to hear from you. You can send an email to moneypot at bloomberg.net.
Ask us a question and we might answer it on air.

Speaker 12 You can also subscribe to our show wherever you're listening right now and leave us a a review. It helps more people find the show.

Speaker 9 The Money Stuff Podcast is produced by Anna Mazarakis and Moses Andam.

Speaker 12 Our theme music was composed by Blake Maples.

Speaker 9 Brendan Francis Noonan is our executive producer.

Speaker 12 And Sage Bauman is Bloomberg's head of podcasts.

Speaker 9 Thanks for listening to the Money Stuff Podcast. We'll be back next week with more stuff.

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