Pick Up the Phone: Shorts, PSUS, BLS

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Let's get going here.

Enough chit chat.

Let's go.

We're on the clock.

I got so much more chit-chat.

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

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

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

Katie, it's good to be back.

What do we got this week?

I'm so excited to see you in person, not pixelated.

We're talking about short sellers.

We're talking about Bill Ackman.

We're also talking about drama at the Bureau of Labor Statistics.

Drama is maybe a generous term for it.

Drama.

Yeah, drama, drama.

Scandal.

Dramatic.

Intrigue.

Short sellers.

Short sellers.

I have to say, so the way that I prepare for this podcast, and we can cut this if it's boring, I listen to it text to speech.

I put your columns in text to speech, and then this robot voice spits them out.

And so I was listening to Activist Shorts Can Still Have Fun and that legal disclaimer from Carrisdale Capital.

And I was so confused because I was like, Did Matt write this?

It kind of read like you wrote it, just the tone of this legal disclaimer.

You know, I have not taken any any steps to confirm this, but

I

did feel a little bit like this disclaimer was somewhat influenced by money stuff.

It was like a column.

So let me take a step back.

Okay.

Carrisdale.

Right.

No, let me take a further step back.

Okay, for sure.

Andrew left.

Activist short seller.

We talked about him on the podcast a while back.

He was charged criminally with like doing securities fraud because he was a short seller.

He would short a stock.

He would publish a report saying this stock is bad.

It'll go down.

And then the stock would would go down because people would read the report and then he would buy back the stock he had shorted he would cover his short and he'd make a profit and the sec and the department of justice didn't like this because they thought that he was sort of deceiving investors because he would say oh i'm short a stock is going to zero and then the stock would go down 10 he'd buy back his short it was like oh he's not really conveying his true opinion because he's buying back.

He's just trying to manipulate the market.

He's not trying to make money by finding companies that are really going to zero.

He's trying to make money by convincing other people to sell the stock, and then he's going to buy back for them.

It's like a reverse pump and dump.

A lot of people think this is kind of a wild theory because it's not like he's obligated to keep his short on until the company goes to zero, right?

And his reports, you know, have disclaimers that are like, we can trade in the securities at any time, no promises, right?

But

You know, there's like some bad facts and like there's some bad emails that sort of suggest that maybe he did overly enjoy his influence over retail traders.

And there are a couple of cases where like he would go on TV and they'd say, have you covered your short?

And he'd say like, no, not really.

And then like they argue he had.

So that's the Andrew Luff story.

I think that when he was arrested, that kind of like cast a pall over the activist short community because everyone who does this, who like

shorts a stock and then publishes a negative report about it, they all have disclaimers at the back saying

we reserve the right to buy back at any time.

And I think my impression is that the business model has always involved a certain amount of that, of covering, right?

If you do a really good job in the report and the stock goes down 20% on the first day, you will be tempted to say, well, I'm going to take some risk off, right?

I did my job.

I want to get paid for it now.

Maybe this company will go to zero in a year, but I don't want to lock up all my capital.

I don't want to take that risk.

I'm going to take some money off now.

And so I think that when the SEC

brought this case against Left, that was sort of scary to a lot of these short sellers.

And so anyway, this week, Carrisdale, another activist short seller, Carrisdale published a negative report on Lumen, and they have this disclaimer at the back.

That is, one,

written, like, I'm going to arrogantly say a somewhat money stuff style.

Two, if you like money stuff, you'll love it.

And I quoted it extensively.

Two, is a response directly to the left case.

And three is just like,

sort of like lays out more clearly what the business model might be.

And so it says things like, perhaps it would help investors to just assume the following: Assume we have shorted lots and lots of the stock of the covered issuer, that is Lumen, immediately prior to publication, and assume we will buy lots and lots of the stock of Lumen to cover our short position immediately subsequent to publication, right?

So they've always said we reserve the right to buy back our stock, but now they're saying just assume we bought back the stock.

There's also some other, like, so in the absence of second-by-second trading updates, just assume that that is exactly what we'll do.

Then you won't be er-defrauded or something like that.

That was when I almost crashed my car.

Just kidding.

But I was listening to this while driving and it was read to me in this robotic voice.

And I was like, did the robot mess up or did they really just put that?

They put an error in the text.

So funny.

Yes.

So there's like, there's more like that.

It's like a very sarcastic legal disclaimer.

Yeah.

And I think it's a good response to the SEC case because

once you have that disclaimer, they can't really bring a case against you, right?

Like you've really laid it out there.

And it is sort of like a sarcastic defense of the activist short business model.

Also, the other thing that happened happened is that Lumen was down 14.5% when they published this report, right?

So the report had an impact.

And one thing that the SEC is saying in the Andrew Left case is that when he allegedly deceived people about what he was doing, like he was buying back the shorts while saying he was short forever, I think that's like a little bit of a weird claim, right?

Because I think that what happened is that people would sell those stocks that Andrew Left recommended against because they thought he was right or because they thought he had a good track record record or because they thought other people would copy him, right?

But not because they really thought he was going to be short the whole time.

And here, Carrisdale is like, assume we are not short anymore.

And they still had a big effect on the stock, right?

Which suggests that like the effect that activist short sellers have is much more about like the content of the reports than it is about people trying to copy their trades.

Because these people are, you know, when we talked about Andrew Left, what I said is like, he's a guy on Twitter.

Like, he's not running a multi-billion dollar hedge fund.

People are not copying their trades because they think they are huge, lucrative hedge fund managers.

His investor letters are addressed to himself.

Yeah, they're copying the trades because they think they get them right.

And here again, like Carristel, like, you know, is not a huge fund, but people seem to have found the report convincing, even as Carristel is emphatically saying, just assume we've covered it short.

I want to talk about another short-selling story that dropped this week because it feels like, I don't know, earlier this year, there was a lot of

obituaries being written about short-selling.

You know, Jim Chainos.

Yeah, it's been forever.

It's been since like GameStop people have been writing.

Yeah.

But Carson Block launched his first long-only fund, which felt really like a sign of the times.

So you had Carousel, you also had Hindenburg coming out against Supermicro just in this past week.

It feels like, and maybe it's just because I've been paying attention to it more since we talk about it a lot, but it feels like we are seeing more short-selling campaigns come to life and make a splash in this market.

Yeah, well, I think a little of it is like a reaction to the left case.

And they're like, they're like, we're still here.

Like,

you can't intimidate us too much.

I think an interesting thing about the left case is like, I think that that business model is okay.

The business model of like, we short the stock, we publish negative things on it, and then we buy back because we take that first day reaction to our report and like, we're not in it for the long term.

We're in it for what we hope is a good report.

And the stock goes down.

We take our profits.

And then we do this again and again.

And hopefully, like, we have enough of a track record that like, you know, we have some long-term interest because it only works if we have a track record, right?

Like, we're not, our report is not going to move down the stock if we keep being wrong.

So, I think that's like a legitimate business model.

And my impression from like years of like kind of following these guys and talking to these guys occasionally is that that's not like an uncommon business model.

It's sort of understood in the activist short community that, like, yeah, you take some profits on the first day because, like, you're, you know, you run a small fund.

We're all just human.

Yeah.

And, like, why would you take, you know, short selling is a really risky business.

And if you can take a profit on the first day and not sort of hold it until the stock goes to zero and get like in fights with the company and all this stuff, why wouldn't you take some risk off the table?

But I think that it is probably the case that the SEC case against Andrew Left, probably some people didn't understand that aspect of the business model and were surprised.

Yeah.

And sort of thought that if an activist short seller said this stock is going to zero, like they were going to hold their short position until the stock went to zero.

And like one thing in the, in the Carousel disclaimer is like,

we sometimes publish reports on companies that we think are worth zero we have never held a short position until the company went to zero yeah yeah a thing that the sec did was call attention to this business model and like maybe the equilibrium going forward is everyone understands the business model no one is deceived you know or allegedly deceived by people covering on the first day but it continues to kind of work and maybe we get more fantastically written legal disclaimers out of it that would be pretty good too yeah i mean like the way this business works is

you are

good at writing, good at being inflammatory, good at getting publicity, right?

That's how this business works.

And so, like, you'll get good disclaimers.

Which reminds me, well, two points.

We haven't talked about Hunter Brook in a while.

Or Hurter.

How do you say it?

Hunterbrook.

Oh, right, right, right.

Sorry.

Hunter Brook, the newspaper that is also a hedge fund that is also a website whose name doesn't have value.

Right, because the skill set that you just described, being good at writing and being splashy, sounds a lot like a journalist.

And Hunter Brook is an interesting hybrid between those two.

Oh, yeah.

And like, there's always been an overlap between investigative journalism and like opinion journalism and short sellers.

We asked the question the other week: who's hated more, journalists or short sellers?

But also, quickly on the Supermicro short report, so basically,

Hinterbrook.

No, Hunterbrook.

No, no, no, Hindenburg.

Hindenburg.

Never mind.

You can't say Hunterbrook.

Hindenburg was basically the basis of their short was that their investigation revealed glaring accounting red flags, evidence of undisclosed related party transactions, sanctions, and export control failures, and customer issues.

So, Supermicro said that they don't comment on rumors and speculations, but then I think the next day or the day after the next day, Supermicro delayed their 10K filing.

And I just thought that was interesting in light of you writing about how cool accounting is this week.

It kind of ties in.

And now we have an accounting boo-boo.

Yeah, I mean, you know, the active assured business model is like they're filling a real need, right?

It's like if a company is messing up its accounting and like someone notices that and says it publicly, like that can have a big effect.

Well, unless the accounting industry rebarons itself, we might have more short campaigns for years and years to come.

You know, I'll say something about that.

So I wrote about accounting this week.

I wrote like a sort of like appreciation of accountants because I was riffing on a business insider article saying that like kids these days don't want to be accountants.

And I got a bunch of emails from accountants saying, thank you for appreciating my art.

But I got one from a guy saying like, you know, there's actually like,

there's some studies of the sort of long-run demand for accountancy degrees.

And one of the big drivers of people into accounting was Enron.

Like when Enron failed in like a sea of accounting scandals, everyone like looked at that or like a lot of young people looked at that and they're like, I want to be an accountant, which is fascinating.

So anyway, he's like, yeah, we just need another big accounting scandal.

The accountancy will come right back.

There you go.

I like that.

All ties together.

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How about Bill Ackman?

How about him?

Oh my gosh.

So the Financial Times reported that he's seeking to resurrect the initial public offering of the Pershing Square USA by by offering sweeteners to early investors.

Can you imagine my delight at seeing this story cross from the Financial Times at 9:12 a.m.

Eastern this morning on Thursday?

I can imagine your delight.

I think I shared it.

We both were sort of like, what will we talk about on this podcast?

And then

the answer came to us, yeah, sweeteners.

So let's talk about some of these sweeteners.

Again, this is according to reporting from the Financial Times, according to several people familiar with the matter.

Some of of them are the right to buy extra shares in the vehicle in the future at a fixed price through warrants.

But according to the Financial Times, the real prize could be if you invest in Pershing Square USA, the closed-end fund, you could get rights to buy into the eventual IPO of the actual hedge fund.

Yeah, the hedge fund management company.

Right.

Right.

So we talked about this when the Pershing Square USA IPO got delayed, postponed.

Withdrew?

Withdrawn?

Withdrawn would be a rude word.

Okay, forget I said.

Temporarily withdrawn rather than permanently withdrawn.

The

problem was that people didn't want to pay full price for the shares, and you can't really sell the shares at a discount, right?

Again, a normal IPO, you just negotiate the price.

And if people want to pay less than you think the company is worth, then like you do that.

But with this, they're raising money to invest.

And so you can't really sell the shares at a discount because then you don't get as much money as you wanted to invest.

And that was a real problem.

And so they went back to the drawing board and they're like, how do we give people a sweetener so that they'll put in $50 for me to invest $50 and they'll feel like they're getting a discount?

And there are a couple of ways to do that.

One way is to actually give them a discount by putting in cash from Pershing Square.

Another way to do it is to give them ownership.

And I think we talked about this last time.

The obvious asset that you can put into this IPO is some of the management company.

The management company has a recent valuation.

They sold 10% of it at a $10 billion valuation.

So we have some idea of what the management company is supposed to be worth to sophisticated sophisticated investors.

The management company has plans to go public perhaps by next year.

When you say we'll give you a bit of the management company, there's like a path to that being monetizable.

And they have it lying around.

There's like an alignment of incentives where it's like someone emailed me when they pulled the IPO, like they could do what Vanguard does.

Vanguard is a mutual.

It's owned by the investors and its funds.

You pay fees to Vanguard, but like you have an alignment of incentives because you kind of get the fees back as an owner of the company.

Pershing Square would be like a little like that too, whereas Pershing Square USA holders would also own the management company.

So that makes sense as a sweetener.

Like you give them some of the management company.

It's a little awkward because part of the point of the Pershing Square USA IPO is to like raise a lot of assets for Pershing Square so that its management company will be worth a lot of money so that they can do an IPO of the management company that will raise a lot of money for Pershing Square and its owners and its investors.

And giving away some of the management company to get the Pershing Square USA deal done is like a little bit of a setback.

Yeah.

But, you know, you could do it.

And then the third option you can do is you can give people optically a discount.

You can give them warrants to buy more shares of Pershing Square USA, which I don't think is that appealing.

Yeah.

That's why the FT says like the real prize is the management company, because like just giving them warrants, it's still the same pot of money.

You're just like slicing it in different ways to try to, you know, see if people will like that more.

So, I mean, where does this leave you on the question of whether you'd just be better off waiting here?

I mean, is this enough to answer?

Waiting for what?

So, for waiting for it to actually trade at a discount?

Oh, it's just like a matter of price, right?

Like, you're getting a discount, right?

So, if you put in $50 in a structure where like you get back your Pershing Square USA share plus a warrant to buy the managing company, then you're getting a $50 claim on a pot of money that Bill Ackman is investing.

And you're also getting some percentage of the management company that is worth some amount of money, right?

And then you just negotiate the price, right?

Like if the management company is worth $10 billion and like people want a 10% discount and Persian Square USA is raising $5 billion, then you just do the math and be like, well, you know, then they need $500 million and like that's 5% of the management company, you know, whatever, right?

And then you can negotiate what the valuation of the management company is, but there's a path to getting a deal done.

So like when the IPO starts trading,

it will probably trade at a discount to its net asset value, but the net asset value will be more than $50 per share, right?

Because it'll be the $50 you put in plus whatever bit of the management company they put in.

So if the net asset value is like $55 and it trades at $50, then you should buy it for $50 in the IPO.

So does it also get you back to $25 billion?

I don't think so.

That's a big, like big pot of money.

Right.

That's the other important point here: is that at some point there was discussion of raising $25 billion in this IPO.

And

it's a tall order.

It's a tall order.

And you know, and like, if the discount needs to be 10%, then you need to put in like, if you're raising $5 billion, you need to put in $500 million worth of stuff to give people the discount.

If you're raising $25 billion, you have to put in $2.5 billion worth of stuff.

It costs you more, right?

Yeah.

The other interesting thing in the FC article is that in the previous round, part of the incentive to put in your money was that they would waive the management fees for the first year of the fund.

And now, in a revised version, they might not waive the management fees.

Yeah.

In part because you're maybe getting shares of the management company, which you share in the management fees anyway.

But yeah, like whatever they do to get people into this fund is going to cost Pershing Square money.

And so they'll make back some of it by charging more fees.

You know, I think they should just launch an ETF.

I know that they're not going to.

I know it.

I know where they're going.

They wouldn't trade at a discount.

You're right.

It wouldn't.

It would easily solve that problem.

You know, it's an idea that I've poo-pooed because the whole point here is permanent capital to make long-term investments and an ETF doesn't do that.

But you're right that like it would solve the main problem they're trying to solve now, which is trading at a discount.

Yeah.

And I understand why investors such as Bill Ackman and issuers in general would like the closed-end fund structure for that appeal of permanent capital, but investors clearly prefer ETFs.

I mean, if you take a look at closed-end fund assets, they've been camped out at the same level.

I think it's like $300 billion in the U.S.

for a long time now.

There's been no growth there, even through all of these market cycles.

Yeah, the Bill Ackman pitch was like, this is not a closed-end fund.

This is sort of like Berkshire Hathaway analog.

Like, this is a company that happens to be structured as a closed-end fund.

But it is a closed-end fund.

Like, I'm not sure that pitch worked.

Yeah.

Let me just fact-check that number.

It's either 300 or 500.

We're going to leave all of this in.

God.

Come on, Matt.

Do something fun.

I don't know any of that.

Talk about the economy.

Either she's right.

It's 300 billion.

Oh, yeah.

Thank you.

Including all of it.

Including all of it.

If you had been wrong, we would have had to just edit it rather than include this.

Anyway, the point being, close-end funds are really small.

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BLS?

The BLS, the Bureau of Labor Statistics.

What is going on over there?

Absolute monkey business.

I'm trying to think what I can say on this podcast.

So the payroll revisions data covering April 2023 through March 2024.

There was hyper focus on these revisions.

And ultimately, they were huge.

It shows that payrolls are likely going to be revised down by over 800,000 jobs in those 12 months through March.

But just the singular focus on this specific report was already ridiculous.

And then it was made even more ridiculous by the fact that it was supposed to come out at 10 a.m.

One half of this podcast is on live TV at that time.

And it's me.

It didn't come out until 10.33 a.m.

But people are getting it piecemeal.

I have seen your filibustering skills in this podcast.

Were you like just talking about

tap for 33 minutes?

We call it tap dancing.

I was on air with Matt Miller and Chanali Basic, so we at least had each other.

We were just like sitting on it and be like, yeah, where's that?

Yeah, we were kind of, you know, by 10 minutes in, you're like, okay, well, something is strange here.

We still don't have this data.

We're waiting on it.

There was some funky trading going on as well.

I mean, in the grand scheme of life, it didn't amount to anything, but, you know, you had the S ⁇ P 500, you had bond yields zigging and zagging because people were getting it piecemeal.

That was the crazy thing.

People, as we know now, were calling up the BLS and the BLS was telling them the number.

Right.

Because apparently what happened is they had the numbers.

The BLS employees were able to see the numbers.

There was a technical glitch on the website.

So the website didn't have the numbers, but the internal people had the numbers.

And the data was embargoed until 10 a.m.

And so at at like 1015, if you called BLS, you might reach a person who was like, oh, the embargo is off.

I can give you the numbers, even though it wasn't on the website yet.

So like some people called and got the numbers and other people didn't call and were like refreshing the webpage and didn't get the numbers.

So reading the reporting after the fact, it seems like there were several communication failures over at the BLS about how they would handle external inquiries.

I will say that going through this experience, this is where lockups are your friend.

When it comes comes to economic data releases, there used to be lockups for things such as the jobs report, such as CPI, where news agencies would get them in advance.

That went away during the pandemic, but that wouldn't have even helped us in this situation because this is such usually not

that substantial data, or it's like second or third tier data being generous.

This was never even subject to a lockup.

So it's ridiculous that we even cared this much, but there was a better way to do this.

Sort of, right?

I mean, like, this is like,

I appreciate the effort to sort of publish it on the website to everyone all at once, right?

But if you can't do that, you know, you have to be able to do that.

Yeah.

I think there's an interesting thing in financial markets where, like, on the one hand, you want to reward people for doing work, for doing research, for like trying to find stuff out.

Because that's the point of financial markets is to make prices more efficient, for people to find stuff out and then have them reflected in prices.

On the other hand, you want things to be fair, right?

So you don't want like people to find find stuff out by playing golf with a company's CEO and being like, sorry, you're doing a merger and like finding out inside information.

And so like there's this effort to make it a level playing field, but you also do want to incentivize people to get information.

So

it didn't work here.

They were trying to make it a level playing field and they failed.

But I do really appreciate the people who, when it didn't come out at 10 o'clock, were like, well, I guess I'll make a phone call.

You should do that.

That's how it should work.

You sound like an editor.

Yeah, right.

Exactly.

Yeah, exactly.

Telling your reporter to just pick up the phone.

Pick up the phone, you know, and like the way financial markets work now is a lot of people probably had automated trading algorithms that were scraping the BLS website at 10 o'clock and

basically for 33 minutes straight 33 minutes, just refreshing the website.

And the people who picked up the phone had an advantage over those computer traders for once, you know?

So I don't know.

I appreciate the people who picked up the phone.

It's one of these where, like, if you didn't get this information before it was out on the website, like, yeah, it's like a little embarrassing in hindsight.

I don't know.

Yeah.

Like, you should have called.

I guess part of the reason I'm being so hard on the BLS is because it has been not a great year for them.

Well, right, because they've previously done the opposite and they put it up on the website before it was supposed to be up on the website.

Oh, yeah.

CPI data, too.

Like, I'm dunking on this payroll revisions release, but CPI data is absolutely.

I mean, now we're all really focused on the labor market, of course, but the CPI prints for the last four years have been

the most important piece of data that you can get.

And they put it on the website 30 minutes early in May.

I was a little unclear on that.

They put some stuff on the website a little early, but like there was no weird trading ahead of it, right?

Like, I think it was like they self-identified a glitch where they published it early, but it wasn't like the market got it early.

Even still.

Even still.

Even still.

Also, super users.

Super users.

The fact that they didn't have clear communication on how to handle external inquiries after the super users debacle, it raises an eyebrow.

Yeah, the super users debacle is when like people would get enhanced color on economic data.

You're being a really good host today.

Oh, yeah.

I'm just ripping through these.

Yeah, no, explain super users.

Oh, I forget.

They would release economic data and like they would give like further color to a list of economists and like, you know, hedge funds or whatever who bothered to sign up, right?

This is again, it's like, you know, it was like a little mini scandal, but it's also, it's like, these people are public servants.

Like, if you call the Bureau of Labor Statistics and say, I'd like to know more about CPI, they'll tell you more.

Yeah.

And the people who have an economic interest in trading on macro data would say, hey, I'd like to be on your email list where you explain things more.

And the people who didn't didn't, right?

And so the people who signed up for the email list got better information.

And I don't know, I sort of feel like they...

They deserve better information.

This actually brings me neatly to a point that I should make because, again, I've been pretty harsh on the BLS here.

But if we think back to the super users debacle, one of the reasons why it even happened was because, yes, you can ask the BLS questions and the BLS can answer you, but the BLS doesn't have enough resources to answer each individual one.

So, this specific economist, I believe it was an economist, thinking was I'll just put everyone on a list.

And I remember last week after the payrolls revision debacle, I was speaking to Claudia Somme, who's a former Fed economist, and I asked her what this meant for BLS credibility.

And she said, it's absolutely inexcusable, of course.

But at the same time, like the BLS is underfunded, they're under resource constraints.

And, you know, something like this is bound to happen if you don't give them the proper support.

So here we are.

Yeah.

Here we are.

Sorry, BLS.

They're going through it.

Katie is arguing that you need to raise.

Yeah, yeah, here I am.

And that was the Money Stuff Podcast.

I'm Matt Levine.

And I'm Katie Greifelt.

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 moneypot 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 Bauman is Bloomberg's head of podcasts.

Thanks for listening to the Money's Stuff Podcast.

We'll be back next week with more stuff.

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