Perpetual Motion Machine: Adani, MSTR, OSTK

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Bloomberg Audio Studios.

Podcasts, radio, news.

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

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

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

What are we talking about today, Katie?

We're going to talk about Adani.

Sure.

What's going on?

Big news.

We're going to talk about microstrategy.

Oh, there's a lot to say there.

And we're going to talk about short selling, which is one of the favorite topics in the money stuff universe.

That's good.

Yeah.

You don't care about it.

All right.

I'm going to politely agree.

All right.

This was interesting.

So, Gautam Adani, U.S.

prosecutors accused Adani, who is one of the world's richest people, of promising to pay more than $250 million in bribes to Indian government officials to win solar energy contracts.

This was very interesting on a number of different levels.

Yeah.

And I read a lot about bribery.

I love bribery cases.

I read about them some.

It's so interesting.

One thing that's interesting is like, usually when you have a bribery case, it's like, and then they handed the bag of cash to the official, right?

Or like there's emails being like, the official would really like to buy his mansion now.

Here, it's like all of the like emails they quote sound legitimate because what it says is like to win these power contracts, they had to pay incentives to the state power companies.

And so they would say things like, we need to pay incentives to these state power companies.

And it's like, well, that sounds fine.

Like paying the state power companies

rebate for buying power seems fine.

Now, paying the state power company executives $200 million million is bad.

But so none of the stuff they quote makes it clear that it's going to these people personally.

You know, I read a lot about like how

if you were to pay bribes, none of this is ever legal advice, but I read a lot about how if you were to pay bribes, you should try to make them look business-like and not like a sack of cash and like winking emails saying, I've given you the chickens.

But just like, yes, we're paying incentives to make a commercially viable contract with the state power company.

And if it happens to go to the executives personally, personally, then like who can prove it?

Hearing you describe that kind of reminds me of the Eric Adams emails

with the airline.

And one of his staffers was like, no, you got to make it look a little legit.

He put that in an email.

He or she, I don't know.

Yeah.

Put that in an email.

I've only read like the charging documents from the SEC and from the Department of Justice.

And so one assumes they have evidence and testimony saying, oh, yeah, we gave them the money personally.

But it's actually weird because it's like,

for one thing, these numbers are so large.

If you're paying $200 million, it does sound like you're paying $200 million to the power company.

Because, like, that's a big bribe.

Oh, yeah.

$250 million.

Yeah.

And the bribes are weird because it's like, one of them is like, they did deals with different Indian states.

And so one of them, it's like, they paid several hundred thousand dollars.

Which is like, yeah, it sounds like a bribe.

And one of them is like, they paid several hundred million dollars.

It's like, that sounds like a legitimate business expense.

Yeah.

And like, also the guy who got $200,000 must be annoyed reading this indictment.

Like, I could have gotten $200 million.

Just seems strange.

Something that maybe you can expand upon is how this ties into the U.S.

Like, U.S.

prosecutors are alleging that he bribed the Indian government.

Like, why is the U.S.

getting involved in it?

So, part of the answer is the U.S.

loves to get involved.

Like, there are much crazier cases than this, right?

I love like Olympic doping cases where it's like, you know, in Paris, a foreign athlete gets drugs from a foreign doctor, and the U.S.

is like, ah, that's undermining international sport, and they'll bring charges.

Well, you know, an American athlete could have won that race.

That's a good point.

Thank you.

I think about this a lot.

Anyway,

go on.

Doping your horse.

But everything sort of flows through New York.

You know, like part of the answer is that.

Adani Green, which is the Adani group entity that allegedly paid the bribes, they had a partner on these power deals, and that's a company called Azure Global Power.

And that was for a while listed in New York.

But the main answer, particularly in the SEC case, is that a Donnie Green issued bonds.

They did like an international dollar-denominated bond offering, and some of those bonds were sold to U.S.

investors.

And so, allegedly, they defrauded U.S.

investors.

And it's a very interesting fraud.

I wrote that this is basically a greenwashing case because what happens is they issue these bonds in 2021 when they're paying the bribes,

allegedly paying the bribes, and they paid the bonds back in 2024.

So, like, nobody lost any money.

The investors are fine.

The U.S.

investors were fine.

It's chill.

Well, how were they defrauded?

Well, they were defrauded because the SEC makes a big point of saying, look at all like the ESG promises that Adami puts in the bond offering.

Like they're like, not only are we a renewable power company, but we're also one that...

works in developing countries and doesn't pay bribes.

And like you can imagine being an ESG investor in 2021 and saying, I would love to put money into a company that does like renewable power, which is green and very like E,

and also works in developing countries.

So it's like, you know, providing clean power to places where it's like not as easy to fund solar projects.

So it's like S.

And then it doesn't pay bribes because like a lot of, you know, energy projects in developing countries, you worry about it.

They pay bribes.

Good G.

It's some good G.

And like the SEC says that.

Adami Green positioned itself as a leader in environmentally conscious, socially responsible, and good corporate governance principles.

And it sought to differentiate itself from its peers and other potential investments or issuers in developing countries that might be susceptible to corruption and bribery issues.

Uh-oh.

If you're an ESG investor, like you're looking at solar projects in developing countries, you're like, oh, these probably pay bribes.

And that's not very ESG.

But then Adani's like, we do solar projects in India and we don't pay bribes.

And you're like, great.

And those people were defrauded because they allegedly invested in a company that did pay bribes.

Yeah.

So there you go.

A detail that I love about this whole thing.

You talk about Adani Green.

You think about Ghatam Adani himself, the reason why he is so rich and so systemically important to the government and their ambitions, and also the Indian stock market.

He made his money in coal mining.

Oh, sure.

And this is all part of his broader reinvention.

Well, yeah, although that's actually not that uncommon.

A lot of energy and infrastructure companies are like, we also do green energy because if you're in the energy business, you have some advantages in

during energy contracts that are solar energy.

Yeah, I just like that he became became greener and also allegedly.

You've got like BP.

Yeah.

Yeah.

Well, you say started doing primes.

We don't know.

That's true.

You know, I mean, obviously, like, there's the Hindenburg allegations a while back.

Yeah, January 2023.

Yeah.

So I don't think this is particularly confirmatory of those, but it's a sort of general like.

I was wondering about that.

I was trying to rack my brain for that information.

And I guess I could have looked it up.

Yeah, the Hindenburg stuff is like very miscellaneous.

It's not like Adani is bad because of this one bad thing they did.

It's like, oh, look at this nephew, right?

So it's a little hard to, like, somewhere in the Hindenburg report, there might be like something about this, but it's hard to tell.

Wait, I was going to say something else.

What was it?

Wait, what were we talking about before, Hindenburg?

Coal,

bribes.

Bribes.

Kind of not important.

We could talk about Donald Trump a little bit.

Like, it would be interesting to see what happens here with a new U.S.

attorney in New York.

Yes, I want to get to that.

I want to go back to the thing I was going to say.

Adani

himself is very closely associated with power in India, right?

He's like a host of Modi, and

he's a political figure as well as a business figure.

And

it's interesting to me if you read this case, the way that the deal works is that step one, Adani Green wins this enormous contract with the Indian federal government, green power thing.

And then, step two, to like make that contract work, they have to go out and win contracts with each Indian state's power company.

And like, allegedly, they win the power contract, the federal contract first, and then they go out and start bribing the state governments.

There's no suggestion that they won the federal contract illegitimately, which is like, it's a little interesting.

I don't know.

They're like so politically connected in the Indian federal government.

It's like, it's like interesting that they're like paying bribes to the state.

It's like, it's just don't have to raise an eyebrow hat.

Donald Trump.

Donald Trump.

So Adani really likes Donald Trump, at least according to his social media presence.

After Trump...

I think, yeah.

I think if you're a business person,

this is not true in 2016, but it's true in 2024.

If you're a business person, you really like Donald Trump according to your social media presence.

Yeah,

that's very true across nationalities.

Yeah, it's just like, why not?

hop on that trend.

He didn't just congratulate him.

He also committed to invest $10 billion in the U.S., create as many as 10,000 jobs.

Incentives.

Yeah.

Incentives sometimes are another word for bribes, but yeah, although, again, it's like, if he committed to invest $10 billion in the United States, that's a good incentive.

That's like the United States in this relationship is the principle.

If he committed to invest $10 billion

in

Trump media, then that would be bad.

That's like, that's the agent.

But no, I don't think that's happening.

I remember in the first Trump administration being interested in what sort of Foreign Corrupt Practices Act prosecutions there would be, given Trump's whole thing.

And I remain interested in the second Trump administration about that because in the first administration, Trump owned a hotel where foreign governments would put people up at high rates.

But now there's like, yeah, there's Trump media.

There's like a lot going on.

So we'll see.

We'll see.

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Oh my gosh, MicroStrategy.

MicroStrategy is buying so much Bitcoin.

MicroStrategy shares are going up so much.

MicroStrategy has

another short seller after it.

Where do you want to start?

Its strategy is so interesting.

But it's so simple.

It's so simple.

When we were talking to John Collison

on this podcast, he

argued for the view that

companies should focus on doing their business well, and that a company that spends too much time focused on like doing stuff with stock or like optimizing its stock I just think doing stock trades is probably

a bad idea and you should focus on building a great business.

Microshad has a business, right?

Yeah.

Runs a enterprise software.

It's nominally a software company.

Yeah, right.

Totally has a business.

But

one gets the sense that most of what its executives focus on day to day is issuing lots of stock and using the proceeds to buy lots of Bitcoin.

How do we get more Bitcoin?

And then talking up the fact that they've bought more Bitcoin with the the proceeds from selling stock.

And I don't know how that has affected the customers of their enterprise software business.

I don't know if like the enterprise software business.

I'd love to interview one.

Yeah, I know, right?

But as a shareholder value maximization strategy right now,

they've made the right choice.

Like clearly, like they have made their stock go up so much by doing this insane perpetual motion trade where their stock trades at like, I wrote like 150% premium to the value of the underlying Bitcoin, but it's actually more than that because you take into account leverage and stuff.

let's say their stock trades at like three times the price of like their underlying bitcoin and so they just sell a dollar worth of stock they use it to buy a dollar worth of bitcoin and their stock goes up by three dollars so they're just perpetually expanding their market cap and

like when i think about that trade you know we talked about the destiny tech 100 fund where like it was trading at like a thousand percent premium to the underlying private company shares because you could get those shares.

And so I was like, well, they should issue stock because that'll compress the premium, right?

Like you sell more stock, that puts selling pressure on your stock, your stock goes down.

Meanwhile, you buy the underlying assets, the underlying assets go up, you sort of eventually get to a place where you're fairly valued.

That's what MicroStrategy is doing, but the premium keeps going up.

Like it doesn't work.

Like it works great for them, but it doesn't actually compress the premium.

So eventually they will have a market cap greater than like the entire world's economy because they found a perpetual motion machine.

And I look forward to that reality.

It is interesting.

I mean, I have my ETF glasses on all the time, but there's all of these.

There are Bitcoin ETFs.

But no, there's leveraged MicroStreet ETFs that are doing incredible trading volume, which is nuts.

There's been a couple days where they've been the most traded stock, which is crazy.

And there is a theory out there that, you know, some of the people I follow on Twitter or X are entertaining that whether all the money that's coming into

these ETFs is like just

part of the reason why you have have that big premium.

Like, Mike Green over at Simplify has made the case that, yes, like some of these ETFs have

powered MicroStrategy to just like this insane premium.

Maybe that's why it's not getting arbitraged away.

I hope that's not true.

It just seems like such a tail-wagging the dog situation.

I mean, it's who knows.

Yeah, I don't know.

It's just like one of the thought exercises.

One thing that I have heard argued is that MicroStrategy is a pot of Bitcoin.

Why would you buy it at a three times premium to the underlying Bitcoin rather than buying Bitcoin or a Bitcoin ETF or something like that?

One answer is like, you want to see where this is going and you think the premium will expand, which is like, you know, like what?

Science experiment.

Yeah.

Like you could have a theory that the premium will expand.

Like, MicroStrategy has argued, like, we're actually a better way to hold Bitcoin because we can get leverage.

Like, you can't get leverage, but you can leverage your Bitcoin, but like, you're trading at 3x of the Bitcoin.

So it's like, it's, it's not, it's not really a levered play.

We could have a fundamental view that the premium will expand another thing is like for some reason you cannot own any other bitcoin instrument and so you own this thing i don't know who i don't know who that would be

i have heard people say ira is like you can't buy a bitcoin etf in your ira but you can buy micro strategy in your ira which sounds terrifying yeah this is perhaps a less institutionally held stock than like a lot of other stocks perhaps but there are some institutional investors in it and you could imagine being an equity fund manager where your mandate is like, you can't really buy ETFs in your equity fund, but like, can you buy this corporate stock?

Yes, you can.

You can.

And like, if you're like an equity fund manager, it's like, really, I love Bitcoin.

This is like your best way to get Bitcoin.

The 3X lever at ETFs, maybe, but like there's something amazing going on.

Oh, yeah.

And they are like capitalizing on it to the hilt.

Well, to that point, maybe one of the reasons why you buy MicroStrategy at this premium is because you love Michael Saylor.

Like he does have a a cult following.

Yes.

Do you know who's not doing that trade?

Michael Saylor.

Selling stock.

Yeah, that's true.

And I know there's this Daily Mail cover from like March 2000 that's been making the rounds on X about him losing like $6 billion in a day on MicroStrategy.

And it's just amazing to think that just the evolution of this company and the evolution of Michael Saylor.

And he's now obviously a very wealthy man.

To be clear, I really respect.

Respect is maybe not the right word.

I really cherish and admire.

I cherish and am amazed by the idea of like we run a software company, but that's boring.

So we're just going to get all in on buying as much Bitcoin as we can.

And it worked out so well.

Yeah.

So well.

So you said, you know, it's a pot of Bitcoin.

Yeah.

And so it owns about $30 billion worth of Bitcoin and its market cap is $105 billion.

And I think it's interesting to compare that to like a traditional asset manager, like a BlackRock, who has a market cap of like $153 billion with $11 something trillion in assets.

Yeah, but this is not the market cap of the manager.

This is the market cap of the fund.

Yeah.

This is a fund that trades at 3x the value of its underlying stuff.

Yeah, yeah, it's not actually a fund.

Right.

It's not actually a fund.

Yeah.

It's just, it just is a fund.

It also is a software company.

It's a fund slash software company that now Citroen is trying to short.

Yeah.

So

this is like a famous widow maker, right?

Yes.

Because people have noticed this for a long time.

Yes.

And have tried to short it and been carried out.

Carrisdale did it just in March, and I was taking a look at it.

They did the same thing: long Bitcoin, short microstrategy.

Their reasoning at the time was that their trading history and basic common sense suggests that the current inflation

premium will contract much as it has on prior occasions, providing a compelling opportunity for a pair trade.

Since that Bloomberg News article, micro strategy is up 175%

and Bitcoin is up 38%.

I mean, they're right.

Like, yeah.

Before the end of the universe, that premium will contract.

Before the heat death of the universe.

But like

before Carousel gets out of the trade, who knows?

Yeah.

Right.

It is such a famous widow maker.

Citroen didn't like put out a report being like, we're all in on anti-microstrategy.

They were like, we're hedging our long Bitcoin with a little bit of short short micro strategy.

But, you know, the same, same basic trade.

Yeah.

And the stock went down, which I was impressed by.

Yeah.

Like, I write about how weird this is and nobody sells it.

So I don't know.

Amazing.

Maybe you didn't tweet about it enough because that's what Citrond did.

It was cool to see that, but you, I don't know.

I want to make the common sense argument that, oh, maybe it went down on this specific one just because it's come up so much, but I feel like that's never stopped.

Yeah, like who knows, right?

Like there's a lot going on, including, you know,

strategy is in the middle of selling twenty one billion dollars worth of stock they sold like four point six billion dollars of stock last week sorry not last week it's yeah it actually was last week how it was this week but time is a flat circle well but the the point is like they disclosed like this monday that they had sold four point six billion dollars of stock last week they're probably doing roughly that clip this week so like you know maybe the stock went down because they were like sold a bunch of stock in any case they're selling stock buying bitcoin bitcoin is going up to a hundred thousand

There is no reason that what they're doing

should increase the premium.

But like taking a step back, if you're all in on Bitcoin, having enormous firepower to buy a lot of Bitcoin makes Bitcoin go up.

And it makes your strategy look better, right?

If MicroStrategy was buying Bitcoin and Bitcoin was going down, like people would be like, yeah, that's annoying, right?

But they're buying Bitcoin and Bitcoin is going up.

People are like, oh, they're geniuses.

Look, they keep buying Bitcoin.

It keeps going up.

So it's like, there is like a virtuous cycle component to it where like their enormous buying firepower gives them some momentum, like both in terms of like the value of their assets and also in terms of like how they look to the market because they look like they're buying a thing that goes up.

Yeah.

Well, good game, Michael Saylor.

Wherever you are on your yacht in Miami.

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Shall we keep talking about short selling and short squeezes?

And

you wrote this week that short squeezes are illegal now.

I wrote this week about the appeals court decision from last month.

Sorry.

It's a slow week.

Yeah, I was wondering, like, what's the news?

Every so often.

You know, things just sit on the back burner for a while.

And I'm like, well, today, I'm going to write about unfold court discussion.

Let's look at what happened last month.

You know, you can't always be.

It makes for a great podcast.

Yeah.

Right.

We love to be timely.

So I read this week about something that happened last month, which is an appeals court decided that it's okay to do a short squeeze.

So what it is is like

companies, most prominently Overstock.com.

I thought they invented it.

Someone emailed me with

Pegasus Wireless might have invented this.

How did you know?

2006.

I wasn't following short squeezes classic.

Anyway, companies do this thing from time to time where they try to squeeze out their shorts.

So a company will get mad at short sellers.

They'll think, oh, there's naked short sellers.

Or they'll just be mad at people betting against them.

And so they'll say, what we're going to do is we're going to give each shareholder some magic token.

Now it's a crypto thing, like Oversight did it with a crypto thing, but it doesn't have to be a crypto thing.

It can be like a paper certificate saying you're entitled to 10% of the company.

And you give them this magic thing in a way that can't be traded.

So people who get the magic thing can't sell it.

And what that means is that short sellers can't buy it.

And so if you're a short seller, you borrowed stock from someone else, you sold the stock short, and you owe the person you borrowed the stock from.

the stock back and whatever else comes with the stock.

So if the stock pays a dividend, you have to pay them a dividend.

If there's a spin-off, you have to give them shares of the spin-off.

If the company gives out this magic token, then the short sellers owe the magic token back to their sharelenders.

If they can't get the magic token because it doesn't trade, then they can't fulfill their obligation and they fall into a black hole.

That's the idea.

And so the effect of this is that you announce, oh, we're going to pay out this magic token in like a week.

And then before you pay out the magic token, all the short sellers say, oh, wait, if that happens, then I'll be, you know, in this black hole.

And so I have to buy back my stock now to avoid that.

And so the short sellers all buy back their stock and the stock goes up and the short sellers lose money and are sad.

And you as the CEO are happy because one, your stock went up and frankly, you were probably selling stock into that rally because

you're this kind of CEO.

But then two, the short sellers lost money and like that's what you really wanted because you hate them.

And this is like a controversial thing because it just so clearly is like a form of market manipulation, right?

Like you're creating artificial demand for the stock by doing this weird weird non-traded dividend that like clearly has no corporate finance purpose.

Like clearly giving people a non-traded thing is not good for your shareholders compared to giving them a traded thing, but you do it to hose the short sellers.

And the SEC hates it and has brought fraud charges against a company that did something kind of like this.

And when Overstock tried to do this a couple of years ago, the SEC kind of told them to knock it off and said they have to delay their dividend.

Ultimately, Overstock decided, we'll just do a trade-offed dividend.

And so, what happened is they announced this weird magic token thing.

The short sellers got nervous and like covered some of their shorts, and the stock went up.

And the CEO of Overstock sold a lot of his own personal stock into that rally.

And then ultimately, Overstock said, never mind, we're not going to do that.

And the stock went back down.

And they said, never mind, because the SEC stopped them.

But it's never been clear that it's illegal.

And so some short sellers who got squeezed by Overstock sued Overstock and they lost.

And the court said, well,

this maybe creates an artificial price, but there's no deception involved.

Like they said very clearly what they were doing.

And so if there's no deception, it can't be market manipulation.

You have nothing to sue for.

So that's the current state of things.

So it's like you said, it's legal now.

Yeah, you know, it's like, it's the Tenth Circuit, so it's not like where most securities cases are brought.

It's not clear what would happen if the SEC brought a case.

Like, this is private short sellers who no one really sympathizes with.

But yeah, it kind of seems like

it's legal to do this.

I feel like you wrote about this just so you could write about that guy that you love.

Yeah, Phil Falcone did an amazing short squeeze with these bonds that are delightfully called the Max Zips in like 2007.

He bought these distressed bonds because he thought they were a good investment.

And then like he found out that his prime broker was also shorting them.

And he got so mad,

which is rude.

And he got so mad that he bought up more and more bonds until he owned like 113% of the bonds.

Because, like, you know, he'd buy all the bonds.

And then the prime broker would be like, I'm going to short some more bonds.

And Phil Falcone would be like, I would buy those too.

And like, he ended up owning more than 100% of the bonds.

And then he called in his borrower.

Like, he called the prime broker and said, I want all my bonds that you owe me.

And the prime broker is like,

okay, I'll go find them.

And the prime broker tried to buy them and there was no one selling.

And so ultimately they got on a call with Phil Falcone

and

Phil Falcone said, just keep bidding.

Sometimes you are just on the wrong side of the trade, which is amazing.

Yeah.

And then Phil Falcone also said, somebody owns more than 100% of these bonds, which is probably why you can't buy them.

And the prime broker was like, what?

How do you know that?

And Phil Falcone said, because I own them.

Got it.

Also incredible.

And then the SEC sued him and said it was market manipulation and he got in trouble.

I do love him sending them on just like a wild goose chase.

Only just to go.

Just keep bidding.

Just keep bidding.

A lot of life lessons there.

Did he make money ultimately?

I mean, the SEC sued him.

Yeah, like I think it sort of like the subsequent SEC

penalties and problems were probably not worth it to him in the long run.

Yeah.

He did make money on the trade.

That's good.

And also, he did win something which is very real, and that is frequent mentions in the money stuff column.

So much.

Yeah.

So good.

But, you you know, it's like, is that trade legal now?

Well,

the problem is that, like, I don't think he did anything really deceptive,

but he wasn't like going around telling everyone that he was buying more than all of the bonds until he'd actually done it.

Then he was telling everyone because it's amazing.

But there is some difference between that and like the overstock case where it's like these companies are really, really clear.

They're like, we're going to go out and get those shorts.

And so there's like no deception at all there.

Sometimes there is.

like sometimes they're like a little coy about it because the sec doesn't like it when you say i'm just gonna go out and burn the shorts but like they can't be that coy because they really hate short sellers and so they really are going around on twitter all day being like oh those short sellers yeah i'm excited for elon musk to like learn about this decision and

i feel like he's a little bit busy right now i think he is not spending a lot of time thinking about how much he hates short sellers right now but i'm fairly confident the time will come again when elon musk spends a lot of time thinking about how much he hates short sellers.

Yeah.

And when he does, there's like a whole new technology for him.

He'll be good at it.

To that point, Carson Block from Muddy Waters was on Bloomberg television sometime on Thursday, and he said that he does expect more anti-short seller rhetoric under Trump.

Yeah.

The exact quote is: we've already had some rhetoric.

We might have some more anti-short seller rhetoric.

He didn't note he doesn't think that Trump and Musk believe that short sellers are responsible for their company stocks falling, et cetera.

But we know Elon Musk hates short sellers.

Yeah, and by the way, what's his name?

Block.

No, Devin Noons.

Yeah.

The chief executive officer of Trump Media and Technology Group has like written letters to Congress about, oh, the naked short sellers are getting our stock.

Which I think it is very, very, very hard to argue that the stock of Trump Media and Technology Group has been systematically manipulated down to reflect less than its fundamental value.

But, you know,

there's like, oh, there's weird fails.

There's naked short selling.

So you've already seen, you know, from the Trump camp, a increase in anti-short seller rhetoric.

And there's plenty of ways to burn short sellers.

Including like the government can say it's illegal, which has happened in my, you know, financial career.

But otherwise, yeah.

And that was the Money Stuff Podcast.

I'm Matt Levien.

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