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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 30 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 googling instead of asking your local suburban Jew who would tell you the 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.

When I'm facing important life decisions, my first thought is I should ask my podcast co-host about this.

Yes.

Often that's true.

It's practical for most

podcasters.

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 pretense for very long.

I think we tricked everyone, actually.

Of course.

I think that worked really well.

Hello and welcome to the second Money Stuff podcast of 2025.

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.

What are we talking about today, Katie?

Today, we're going to talk about Fannie Mae, Freddie Mac, and friend of the show, Bill Ackman.

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.

Fannie and Freddie.

Fannie and Freddie.

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 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 got to start from scratch.

I got to be like, what is Fanny and Freddie?

I'm not sure we'll do that on the podcast, but we could.

What are Fanny and Freddie?

Fanny and Freddie 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 2008 when they went bust bust on some bad mortgage bets and then the government took them over and it turns out they were in fact backed by the government.

And so everyone who relied on Fannie guarantees to get their mortgages paid back got their mortgages paid back and the government took over Fannie and Freddie and shareholders of Fannie and Freddie the day after the government takeover looked like they had lost pretty much everything, but not literally everything.

And then later In 2012, 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'm going to say 12 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 Fannie and Freddie 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 Fannie and Freddie, which still trades over the counter, and saying...

when they return 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 bought up a lot of Fannie and Freddie 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.

Hold on.

Yeah.

Well, this one.

Still can't get over the name brand hedge fund manager pumping his decade-old, thinly traded GSC bags on the last trading day uh which is kind of what happened i mean oh yeah but 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 Fannie and Freddie.

Because it is true that something has to happen to Fannie and Freddie.

And sorry, it's not true.

They could do nothing.

I have argued for 12 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 the government's way of guaranteeing 30-year fixed rate refinanceable mortgages.

They're a way that the government supports the housing market.

They have historically been implicitly backed by the guarantee of the U.S.

government.

And now they're explicitly backed by like they're owned by the u.s 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 and 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 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 Fannie Mae 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 2004, but

maybe who bought them last week, but also include Bill Ackman, who would probably make a lot of money if they were handed back to shareholders.

Yeah, he estimates he could make like a 1200% return on this.

Sure, what up?

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 $0, 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 U.S.

government.

And then after that, the shareholders get something, right?

So 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 shareholders.

But like right now, like the sort of like legal official value of the cash flows to Fannie and Freddie's shareholders is $0.

And so Bill Ackman is buying the stock at like, you know, a low price, not $0, but like a low price, reflecting the uncertainty about whether they'll ever get cash flows.

His thesis is you should just stop that.

You should forgive what is now something like $340 billion of nominal debt to the government.

And you should just say, actually, all this profits from now on go to the shareholders instead of to the government.

Like, yeah, that's a big difference.

Giving them $340 billion would make them much, much, much, much, much more valuable.

Something that I was hoping that you could explain to me is: let's say that the status quo persists, that the assumption that 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.

The way it works now is that every increase in the net worth of Fannie and Freddie goes to the government, which is what happens when the government owns 100% of Fannie and Freddie.

There's no hole, right?

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 actual debt, like you know, the mortgage guarantees.

But the amount that they owe to the government goes up every time their value goes up, which is a way to make sure that the government continues to own 100% of their cash flows.

But there's no like hole.

Nothing bad happens to them if like the amount that they owe to the government goes up.

And nothing good happens to them under the current legal structure if the amount they owe to the government goes down.

But everyone's assuming the amount they owe to 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 on my way to the hospital, but you know, I said, I gotta connect.

I gotta do this for the listeners.

Okay, so you were saying there's no hole, that this is just the status quo.

It's not that there's like this.

There are a lot of like weird accounting conceits going on here for reasons having to do with like the history of the bailout and like literally the U.S.

government's debt ceiling, but they're all accounting fictions.

And like the reality is that right now, legally, the terms are the government just owns Fannie and Freddie.

And so the adjustment of accounting numbers doesn't really matter.

Just all of 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 quo will change and the beneficiaries of that change will be the people who own like 20% of the stock that is in public hands and that trades over the counter.

And the assumption is like that stock will become valuable when the government figures out how to get Fannie and Freddie off of its books.

I guess the, and you addressed 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.

If you're a shareholder, 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 this week was to just kind of press on that and be like, you know, the government has this valuable asset and Bill Ackman would prefer to own it.

And Bill Ackerman is like, the government should give it to me.

And I think there's a widespread assumption that the government will be like, yes, we should give it to you.

And to be fair to like the thousands of retail shareholders that own most of it.

And that's probably right, but it's weird, right?

It's weird that 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 shareholders get something, then the government can sell down its stake over time and that stake 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 Fannie and Freddie, 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 this way it's like monetizing at possibly a high point and getting cash now instead of like waiting over time to collect fees.

Aaron Ross Powell, one of the questions, if this did happen, like if privatization 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 2026 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 that, right?

They're going to be careful.

And then the question is, in 20 years, how will Fannie and Freddie be run?

And the historical precedent precedent is like they started taking some risks and they started making some mistakes and like they weren't great about everything.

And their regulator was maybe a little asleep at the switch.

And so they ended up going bankrupt.

Not literally going bankrupt, but going into conservative shape and being owned 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 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 100% of the upside, and like the releasing them from conservatorship would mean private shareholders get the upside again.

And then, if in like 20 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 would happen.

I mean, I think they will be regulated.

They will have like a regulatory capital requirement.

The regulator will be part of the Trump administration.

I'm sure they'll be careful for maybe the rest of my financial blocking career, but like eventually, who knows?

Who knows?

It is kind of fun to imagine a universe where they are privatized and then 16 years later or whatever, they end up in this kind of hot water again.

The government has to pay for it.

These things are cyclical.

It wouldn't be that weird.

It wouldn't be that weird.

But we can just keep doing this until the heat death of the universe.

And one way that people think about this problem 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 to failure, 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 Fannie and Freddie, where like instead of them backing every mortgage that's on their balance sheet, they 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 Fannie and Freddie's capital that's standing behind the mortgage market.

Over the years, as people have thought about privatizing Fannie and Freddie, there have been proposals of, sure, let's privatize them, but not two of them.

Let's make them like 16 of them so that if one mortgage company fails, then 15 more will be fine and it won't be a systemic risk and it won't require a government bailout.

But you can sort of see why that's not the preferred proposal for the people who own the stock, because the people who own the stock own the stock of like particular companies and they want to

have those companies be valuable.

And those companies, frankly, are more valuable if they're too big 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 Fannie and Freddie 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 wouldn't 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 U.S.

government?

I don't know.

That's like, you know, the bet that Bill Ackman is making is no, 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 U.S.

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

you don't have to dilute your own shares to make them viable standalone companies.

If you're a nervous regulator who remembers 2008, you'll want them to hold a lot of capital, but there'll be a debate about how much capital they need.

Bill Bill Ackman is arguing for a 2.5% capital ratio, which is kind of low on the scale of what people argue about.

But he says it's like it would be seven times as much as their losses in 2008, their losses on their guarantee portfolio, which I think is, you know, suggests that that would be pretty robust.

So there's going to 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 Blueberry Intelligence who expect that this is like a 26-27 conversation.

I think it's a 26-27 event 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 even if it was the top priority, releasing them tomorrow would make less sense than releasing them in 2027.

I don't know where it ranks on the list of priorities either.

But you know, it's like there's a reason.

I think we have to buy Greenland first, right?

But also Dorothy is tweeting it.

And you know, like, there's like your hedge fund buddies come to you like, hey, you could really help out your hedge fund buddies.

Yeah, maybe it works out, right?

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?

Like, what if Elon Musk sees these tweets?

Like, oh, that's a good trade.

And then Elon Musk buys like, you know, a million shares of Fannie Maid.

Now it's high on the priority list.

Yeah.

And I mean, didn't the shares rise like 45% the day that he tweeted it?

I think it was December 30th.

So it's not like there was a ton of volume going on, but the bags 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 someday someone's going to flip the switch and make it very valuable, probably, almost certainly.

And like Bill Ackman putting it on Twitter like moves up the day when they flip the switch and makes it a lot more valuable.

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What are those wacky kids getting up to over in Indiana?

I love these kids.

Are they still students or I don't know?

No, no, no, no, no.

I've looked up a couple of them on LinkedIn.

They've have real jobs.

They're not.

Did you add them?

No.

But they're not like running this golf resort as far as I can tell.

But 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 60% of your grade is to create an executive level recommendation to an entity facing real-world challenges.

And so the professor goes out and sources like actual

ongoing sports business situations and then like, you know, packages them in a case and says to the class, what will you do about this?

And this group of students took this challenge case situation involving the development of a golf resort in Puerto Rico.

Basically, like the this Puerto Rican like land development authority owned 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 this golf resort.

And, you know, they're MBA 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 development.

Not the people who are already developing it.

We should take over this deal.

And so the people they called, like, apparently took over, like, 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 cold, sued the new development company and the MBA 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 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 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 land companies no no no the the presentation didn't say they made a partnership the presentation said 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 in 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 accept 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 like got to watch the students 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 yeah because like he was the one who said to the to the professor, hey, you 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 found another bidder and he's like ah

so i hope that's what happened i don't actually know so wait so they sued the professor they sued the students did they sue the school itself who beyond the students could be found at fault here well the main one is discovery the company that apparently jumped the deal Yeah, they seem like the baddies.

Well, I don't know if they seem like the baddies, but they're the people who have money, right?

The best part 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 suing for.

I don't think the students have one to two billion dollars, although 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 the pressure.

It is rare for a defendant to calculate the damages, but here they did, right?

It's like, it's a good line.

I don't know.

I will say that I got emails from readers being like,

I did a class project presentation saying that so-and-so should buy so-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 somehow transformed into a reality.

But most of the time, you stick to pretending.

Do you know when this actually happened?

Like, when it was a 2021 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 were their professor or like their current employer, 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 ingenuity, 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 NDAs, but the students maybe weren't signing NDAs.

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 in 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.

It's like,

how would we do this deal?

Oh, we'd explore a union i don't know it's fine at some point it crossed over into real life yeah sure sure sure but like they didn't do anything wrong like they like yeah it crossed over into real life because it was a good idea but like i don't 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 that's true it became real 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,

thoughts and vibes being sent to the professor right now.

Indeed.

And maybe a chocolate.

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Let me pull this up.

I am never doing that.

Katie is reaching into her saddlebags.

I'm so sorry.

Okay.

So I take pains to avoid the commodity markets because there's just

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's 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 Hershey's.

And there was an incredible Bloomberg 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 90,000 metric tons of cocoa on Ice Futures U.S., according to people familiar.

And the request to the CFTC,

if they take physical delivery, accounts to about 5,000 20-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 cocoa 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.

And so you go and like sell some more futures backed by the certificate.

But every so often, if you're a like a big, you know, 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, oh, get the stuff out of the exchange warehouse.

And Hershey's is like, we cannot find chocolate anywhere.

Where is their chocolate?

Oh, there's a lot in the ICE warehouse.

So we'll just take all of that.

So I think, like, my understanding is they want to buy like, you know, an 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 stopping.

Why would they want fewer than all of the beans, right?

Get all the beans.

They're not messing around anymore.

I will will say, I assume candy makers, including Hershey's, have like contracts with people who produce cocoa.

And I assume, and maybe this is not as true of Hershey's as it is of like your favorite artisanal chocolate maker, but I assume that they want 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 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 was an ft story in september about similar things were going on in london where like chocolate makers were taking cocoa out of like the the london exchange warehouses yeah and people were like what's 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 warehouse.

I don't know if that's what's happening here, but

I don't know why chocolate bar made of exchange warehouse chocolate.

Very, extremely stale cocoa beans.

I guess we'll find out.

I mean, reading through some of the like the commodity analyst reports on the state of the cocoa industry, it seems like the supply-demand dynamics are a long way from being worked out.

So, I don't know.

Maybe we'll see, of course, if Hershey's actually gets this permission.

This is according to people familiar with the matter.

Hershey itself has not confirmed this.

And we'll see if it gets to that point where we are all eating still chocolate.

But Hershey is interesting because they made a similar trade in 2020 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 2020, every commodity market, it felt like, was just going through it.

Well, I will say, like, the cocoa market, you know, it exists for chocolate manufacturers to hedge their price of cocoa.

And like, I don't know, I'm not up on the biggest chocolate manufacturers, but Hershey 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 Mondelez,

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 cocoa 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 one of the exchange warehouses for nickel, someone was walking along and they noticed that like a bag of nickel that belonged to J.P.

Morgan, right?

Like J.P.

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 warehouse or while it was sitting in the warehouse, which it 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 you didn't need it to be nickel.

You're just trading back and forth like abstract entitlements to the nickel.

It didn't matter.

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 love that story because it then led to, I think the warehouses 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-toed boots because you really hurt hurt yourself checking the bags of nickel.

But anyway, like these warehouses, because they are mostly used for futures, and because it is like a somewhat unusual event for someone to come in and say, okay, we want all the cocoa beans on the warehouse because we need to make chocolate with them.

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.

It would be awkward if like all the chocolate bars are made of pebbles because the warehouse cocoa is not real cocoa 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 there are bugs in the warehouse sawdust in the warehouse yeah just put it right in grind them up put them in it's it's fine chemicals any beans you got just grind them up 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 above the later dated ones.

Apparently, the futures curve for cocoa.

I was speaking to an analyst this morning has been backward dated for a long time at this point.

So I don't know.

Yeah, but that's like fitting with the notion that the physical market is incredibly tight and Hershey's 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 in 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 cocoa 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 backwardation means right i know like it means that hershey's is going to pay a huge premium to get all of the beans out of the warehouse, and then it'll start over, and then it'll be fine.

Yeah.

I will say, why shouldn't they get permission?

Like, 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, they're not, like, a weird speculator, like, doing a weird corner.

Like, they're just going to make chocolate bars with it.

Seems like what the market is.

Well, they got permission in 2020.

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 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.

We recorded, let's say, three weeks ago.

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 there'll be eventually, there will eventually be REITs that allow you to do that on the exchange.

In fact, there have been REITs 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 REITs, but you can't buy, as I said, single-family owner-occupied homes because those are owned by their occupants, not by a REIT.

But you can buy the REIT.

And the other one is that you said, and I questioned this and you were stuck to your guns, you said that in the U.S., ticker symbols on the stock exchange max out 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 Nasdaq actually like caps out 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, Google A or whatever.

And, you know, Nasdaq 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 NASDAQ nomenclature, 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 was like a whole Twitter community whose like,

you know, banner was TSLAQ.

Yeah.

Cause it's like, oh, Tesla's bankrupt, right?

So the Q code is no longer a part of NASDAQ, but it still lives on in our hearts.

So to clarify, Katie has a response because Katie knows her tickers.

Yeah.

The mutual fund thing, yeah.

They're not, they don't trade on the exchange, hence ETFs are exchange-traded funds.

So there's a four-character limit generally.

This is literature from NASDAQ that for common stock insurances, NASDAQ 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, etc.

But if you are going with an ETF or an IPO 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 NASDAQ and NYSE 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.

Your little calendar, like every three months, like, have they expanded the ticker symbols yet?

Because

you have that story all drafted and ready to go, huh?

I'm ready to go because, and we also do, we have on

folks from NYSE 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 ask them about the ticker limit.

And if they're considering

five letters.

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 10 zillion ETFs and there's only so many four letters.

Yeah.

And there's going to be 10 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 turn them into ETFs.

You better hope that, you know,

they're good quality.

And that was the Money Stuff Podcast.

I'm Matt Levine.

And I'm Katie Greift.

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

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

Eastern.

We'd love to hear from you.

You can send an email to moneypod at bloomberg.net.

Ask us a question and we might answer it on air.

You can also subscribe to our show wherever you're listening right now and leave us a review.

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

Our theme music was composed by Blake Maples.

Brendan Francis Newnham is our executive producer.

And Sage Fauman is Bloomberg's head of podcasts.

Thanks for listening to the Money Stuff Podcast.

We'll be back next week with more stuff.

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