August 2, 2024 • 34 mins
Matt and Katie discuss Pershing Square USA's IPO, Citron Research's short-and-distort charges, bond market liquidity, and Katie's trip to Paris to watch running.
See omnystudio.com/listener for privacy information.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:03):
Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2 (00:11):
Hello and welcome to The Money Stuff Podcast, your weekly
podcast where we talk about stuff related to money. I'm
Matt Levian, and I write the Money Stuff column for
Bloomberg Opinion.
Speaker 1 (00:22):
And I'm Katie Greifel, a reporter for Bloomberg News and
an anchor for Bloomberg Television.
Speaker 2 (00:27):
Katie, we got some news this week.
Speaker 1 (00:29):
Oh, big time. We're going to talk about Bill Ackman obviously,
we're going to talk about Andrew Left, which should be fun.
And then we're going to talk about BONDI TFS which
maybe will maybe we'll be fun. We'll find out where
to start.
Speaker 2 (00:48):
Three.
Speaker 1 (00:48):
Oh my gosh. Yeah, So we went from twenty five
billion dollars to two and a half to four billion
dollars to two billion dollars. Now we're at I think
zero dollars.
Speaker 2 (00:58):
There was kind of a pit's up at ten billion
as well.
Speaker 1 (01:00):
I know I was in there somewhere.
Speaker 2 (01:01):
There was a hard gap at ten billion, which which
they did not hit the hard gap.
Speaker 1 (01:07):
No, no, So I don't even know what to say.
I mean, this was pretty spectacular to follow. We knew
that he was road showing this ipo of a closed
end funds Pershing Square USA exactly. He has a European
version which trades at a big discount, which is a
material part of this story, and it kept getting downsized
(01:28):
and now it was pulled entirely. They're reevaluating it. And
along that path we got a letter that was released
which maybe Bi Lackman didn't know was going to be released,
and then we had some investors bowing out as well.
Speaker 2 (01:43):
Right, So the story started with they're doing a road
show for this IPO. There was talk of it being
twenty five billion dollars, which would be a lot of
money for a closed end fund, or just in general,
it would be a very very very large IPEA. So
he's got all these So he runs a hedgehund called
Pushing Square. There's a management company that runs the hedge
(02:04):
funds and that like collects the fees from the hedge
funds and the clothes end funds. And he recently sold
about a ten percents take in the management company to
a few institutional and highnight Worth investors. And last week
he sent a letter to those guys, those people who
were investors in his management company saying essentially, hey, it
would be really helpful if you would put in some
(02:25):
orders in the Pushing Square USA Closed End Fund IPO.
And I read that letter and it seemed to me
that that's not a good sign. I probably underplayed this
when I wrote about it, because there are other possible interpretations, right,
Like one possible interpretation is that Bi Lackman is just
unusually candid about how the IPO process works to his
(02:47):
management company investors. But it sort of seemed like he
was saying, hey, guys, it would really help out a
lot if you could put it in order. Yeah. I
used to be a capital markets banker and you would
do a deal and you would get calls from investors.
I would say, how's the deal going, And there's only
one answer you can give them. You say, the deal
is going great. There's so much demand. You really better
put your order in because otherwise you're going to miss
(03:09):
out because this deal is going so good, so many
people wanted to buy it. You can't like necessarily lie
if the dealer is going poorly, but you say things like, oh,
there's a lot of interest, we're having a lot of meetings.
That feedback is really good. You should put in your
order quick, right, You try to create the sense of excitement.
If the deal is not going well, then like you
might call up your best friend investor and say, hey,
it would really help out if you would put in
a big order, because that would get us over the line,
(03:30):
that would create some momentum. And it sort of seemed
like that was what Acman was doing by sending this
letter to the people who are already in his management company.
Problem is, if you do that publicly, everyone can read it,
and no, that's a bad sign. So I do think that,
like the letter did not necessarily help very much, because
I do think that some people read it and think, well,
(03:53):
this suggests that there's not a ton of demand.
Speaker 1 (03:55):
Yeah, and I was just going to bring up bow
Post because you did name a few investors in that
letter to investors saying hey, it would help if you
could invest more. He mentioned that baal Post Capital had
previously committed to investing one hundred and fifty million dollars,
and then Bloomberg News broke the news that actually they
were pulling out. There weren't reasons given, but reportedly he
(04:19):
didn't like being named.
Speaker 2 (04:21):
Yeah, I mean, no one wants to be named as
the endorser for a deal unless I've sort of explicitly
agreed to that. I think the Bloomberg story suggested that
there's some political seth Klerman as a Democrat and Bill
Lackman has become like a very vocal Trump supporter. But
I don't know. I think that either of those are
possible explanations. But like, here's another explanation. If you interpreted
that letter to mean there's not a ton of demand,
(04:42):
then even if you were already in the book, you
would take your order out of the book, right, yeah,
Because this is the problem with this thing is like
you can be a long term investor, right you can
say I like Bill Lackman. I think that he's going
to compound my money at a high rate, and so
I want to be invested in his fund and I'll invest,
you know, this month and hold it for ten years
(05:03):
and expect Bill Ackman to compound my money for me.
But the problem is that on the first day of trading,
this thing is either going to trade up or it's
going to trade down. And as you said, his existing
clothes unfund trades at a big discount to its net
ASSEID value. Most closed un funds traded discounts to their
net asset value. And so if you're an investor, instead
(05:26):
of buying the shares at fifty dollars in the IPO,
you might say, well, I'll just wait until the next
day and I'll buy them at a discount. I'll buy
them at like forty five or whatever. So it would
be sort of silly to buy on the IPO if
you could wait to buy at a discount. The whole
point in the IPO process is for Bill Ackman to
tell people, no, no, it's going to trade it at
a premium, right, and so he makes that case in
(05:47):
this letter, but he sent these investors and that was
then made public sort of by accident. He makes the
case that is going to trade at a premium. You know.
The essential case is that a lot of retail investors,
for one reason or another, aren't going to get shares
in the IPA. Like the main one is that most
retail investors, most retail brokerages aren't going to get allocated
anything in the IPO. Also, there are some European retail
(06:07):
investors who would want to buy shares, but who can't
buy them in the IPM. So all these retail investors
want to buy shares in the bill Ackman IPO. They
can't buy it at the time of the IPO, so
they'll buy it the next day in the aftermarket, and
there'll be so much retail demand and maybe so much
institutional demand that the IPA will trade up. And so
if you wait to buy in the aftermarket, you'll have
to pay fifty five dollars a share instead of fifty
(06:29):
dollars a share. But the IPO was so big that
the really essential question is is there going to be
enough institutional demand in the aftermarket? Is there going to
be institutional demand the next day? And they were just
kept being indications that there was just not enough institutional
demand to like price a really tight large IPO. And
(06:49):
so if you thought that there wasn't that much institutional demand,
then you'd say, well, it'll trade down to forty five
and I'll wait until the buy it the next day,
and then there will be no institutional demand. Right, if
everyone's going to wait to buy it, then no one
will buy it in the idea.
Speaker 1 (07:01):
Well, two points on that, the first one being this
statement that they put out. Did acknowledge that they said
that this question.
Speaker 2 (07:08):
That's the whole thing.
Speaker 1 (07:09):
Yeah, basically would investors be better served waiting to invest
in the aftermarket than the IPO. Yes, it sounds like.
I mean if you just look at the history of
closed don funds. Also to the point of retail demand,
I mean, Bill Lackman has a million something followers on Twitter,
which is a lot. That's a huge audience, but it
seems quite tricky to turn followers into investors. That's not
(07:33):
necessarily guaranteed. And you think about the following that he
has on Twitter, I would imagine that the majority of
those people, or at least a sizeable portion, aren't necessarily
following him for his investing acumen.
Speaker 2 (07:49):
I mean, I hear you, right. I mean he's courting
controversy and a lot of Twitter opinions and not mainly
tweeting about. Part of that, by the way, is like
he has said that he wants to be able to
tweet more about investing, and because of the legal structures
that he currently operates, and he can't just go have
his tock pics on Twitter, and once he launches Pershing
Square USA, he can. But yeah, I hear you right,
(08:10):
I mean, like his Twitter following is not purely about investing.
Speaker 1 (08:13):
What I am wondering is what this means for the
overall Pershing Square IPO, because he did sell that ten
percent steak for a billion dollars, just over a billion dollars.
And I mean they've said that the success of this
pie Sus IPO is very important to the eventual IPO
of Pershing Square.
Speaker 2 (08:33):
Oh yeah, I mean he sold a ten percent stake
in the management company. The management company is just like
the thing that collects fees from the funds that he
runs right right now, he runs about eighteen billion dollars
worth of funds, and they sold the stake in the
management company at a ten billion dollar valuation. It's sort
of crazy to imagine that the entity that collects fees
on eighteen billion dollars worth of funds is worth ten
(08:53):
billion dollars, right. That can't be right, right? That implies
that he would take like half of the value from
like his investors' funds for himself or for his investors. Now,
the only way you can get to a ten billion
dollar valuation for the management company is if you think
that the management company is very soon going to manage
a lot more money. And I think obviously the case
that was made to these management company investors, is we
(09:17):
are going to transform from a smallish hedge fundition manager
to a sort of more institutional asset manager that attracts
a lot of retail interest and a lot of institutional
interest and runs tens of billions of dollars and has
a publicly traded permanent capital vehicle, and has like the
steady stream of large earnings from running large amounts of money.
(09:38):
And then, you know, I think if you were investing
in the measurment company, somewhere in your mind was the
notion of a twenty five billion dollar pieces IPO and
a zero dollar pieces ipo makes that case more challenging.
The other thing I want to say about the management
company is so I wrote on Thursday about the problem here,
which is that it's very hard to sell the these
(10:00):
shares at nav because you expect to close on fund
to trade at a discount. Everyone wants a discount. Well,
how do you sell the shares at a discount? Because
the shares are just it's a pot of money, right,
So you can't sell you know, one hundred dollars worth
of money at ninety dollars because then you only have
ninety dollars. So how do you create a discount? And
I wrote about some possible ways to do that, which
(10:21):
come down to kind of Pershing Square putting in some money.
But several readers emailed me immediately to be like, well,
here's the obvious way to do it. The obvious way
to do it is to put some of the management
company into pieces. So instead of really, I've been seating
the fund with like a billion dollars of his own
money for free, he could see it with ten percent
of Pershing Square the management company, for free, and then
(10:44):
pieces would have a net asset value more than just
the cash that investors put in. And then the investors say, okay,
I'm getting a discount and they put in their money.
And this is a good idea. And you know, someone
drew the analogy to like Vanguard, where Vanguard invest do
own a piece of the management company. It's because it's
a mutual company. But the problem here is you sort
(11:05):
of already promised the management company in an IPO to
these other investors, right, so to say we're going to
push the management company into pieces is a little bit
more challenging. So what does it mean for the for
the IPO added, It's like a setback, right, I mean
the IPO was I think premised on the Pieces IPO
going really well, and with having a hard time raising
(11:26):
money for Pieces, it's harder to get to a ten
billion dollar valuation for the management company.
Speaker 1 (11:32):
There's also the question of why does he want to
be public, Like why does he want to take the
overall hedge fund company public? I mean, there aren't many
of them. The obvious example is the Sculptor Rhythm thing,
which didn't exactly turn out well, which also had Bill
Lackman involvement.
Speaker 2 (11:49):
Yeah, minor involvement. Yeah, I don't know. You know, the
reason for launching the Clothes End Fund is quite straightforward, right,
I mean, you have permanent capitical vehicle. You get to
go on TV and tweet your stock picks and then
hopefully you can create some momentum in your stocks.
Speaker 1 (12:01):
I mean, he could just launch an ETF. I'll just
say it. I know, I know, permanent capital. That's very exciting.
I still don't quite understand clothes and funds. I get
it from the manager's point of view, permanent capital that
seems really great, But from the investor point of view,
I don't know why you would do that.
Speaker 2 (12:20):
No, I think he can make a good case for
that here because he is not possibly like takeover inclined investor.
Then knowing how much money you have for the long
term is actually really important, right. I mean, if you
have an ETF and they're withdrawals and you still have
of your positions, right. That is easy to do if
you are just the index one, right, But it's harder
to do if you are doing the kinds of trades
(12:42):
that b. Lackmann wants to do, which are like these
like long term fundamental equity and trades, but also like
you know, derivative trades. I mean, like some of their
track record is from CDX beats going into COVID, and
again that's harder to do if your capital can vanish
every night. So I think that from his perspective, it's
obviously to permanent capital, and I think he can make
the case to investors that actually, like permanent capital is
(13:05):
the way that I create value and ETF doesn't make
sense for the kind of investing that I do. I
think that's a reasonable case.
Speaker 1 (13:11):
Yeah.
Speaker 2 (13:11):
So the question of why does he want to take
the management company public? I don't know. I mean, some
of it is like I think anyone else, like, you know,
you want some legacy, right. I mean there's this perception
that with like the sort of famous Hedgehund managers of
like Acman's vintage, Like, there's a perception that the management
company is like that one guy. And I think that
they would like to have a proof of concept that
(13:32):
actually it's an institution and really the investing team has
kind of transitioned away from him and it's not just him,
and it's a permanent entity that will exist forever and
provide wealth for him forever, right, instead of like when
he quits, the thing vanishes. So I think there's a
temptation for anyone who runs a company to take that
company public so you can you know, take money off
(13:54):
the table and have permanent shares instead of just like
your own labor. But right, the track record of it
is kind of challenging.
Speaker 1 (14:00):
Yeah, well let's see if pieces gets off the ground
when it comes to the eventual pershing square IPO. Apparently
he's already thought of how to make this structure work.
That was also in the press release that don't.
Speaker 2 (14:13):
Get excited, yeah, excited to see like next week's piece
of structure. I think putting part of the management company
into it, putting some cash into it that doesn't come
from investors or or possibilities. Yeah, like I you know,
I wrote it like SPACs do kind of provide the
technology for this, right, like get spack. At a very
high level, is a sponsor puts in some money to
(14:35):
pay the startup costs. Then the sponsor kind of sells
shares at net asset value to investors, and then if
the sponsor does a good job and finds a good deal,
the sponsor gets a lot of like free upside. So
there's this like Carter, where like if the thing is
those kind of met the shareholders get all their money back,
(14:56):
so they are protected against the problems of investing at
nav and then having the navy go down. If the
thing does poorly, then the manager the sponsor eats the loss,
and if the thing does really really well, the shareholders
give up some of the upside and it goes to
the sponsor. And so the sponsor has the sort of
asymmetric trade where the sponsor puts in some money that's
(15:16):
at risk, but then if it does really well, the
sponsor makes a lot of money. You can imagine a
structure like that for pieces, where you know, Bill Ackman
seeds it with money, and if it trades below net
asset value, he kind of bears the first loss so
that the investors who buy in the IPO still get
at least the amount of money they put in. And
then if the thing does really well, he gets warrants
(15:37):
or something so that he gets upside to compensate him
for that. Like, that's a structure that could work. You
could do something like that. That's easy enough.
Speaker 1 (15:44):
That's some good ideas here.
Speaker 2 (15:46):
Part of he wants to, you know, quit podcast and
then go structure pieces mark two. But most of me,
it doesn't. Most of me just wants the podcast about it.
(16:07):
Andrew left.
Speaker 1 (16:08):
Andrew left, So this story broke. I think it was
on Friday, that's right, because.
Speaker 2 (16:13):
I wrote on Friday and then I published on Saturday,
because I didn't hit the send button on my email.
Speaker 1 (16:17):
It's really I that just made mistake.
Speaker 2 (16:22):
There, amateurs the column on Friday on the web and
the terminal, and then I didn't hit send on the email,
and no one told me until I told my wife
I published the column. She's like, I didn't get it.
Speaker 1 (16:37):
I feel like there's some arbitrage to do there.
Speaker 2 (16:39):
If you had the inside information about my column, you
could have traded Andrew Left features a day early. I
don't know.
Speaker 1 (16:44):
I bring that up the timeline because it feels crazy
that we haven't talked about this yet.
Speaker 2 (16:48):
Yeah, we just missed it last week.
Speaker 1 (16:50):
So set the scene for us. Set the table.
Speaker 2 (16:52):
So Andrew Left is a guy on Twitter. There's a
lot of people like this who are activist short sellers.
So what he does is he finds companies that he
thinks are bad, sometimes on valuation, often because he thinks
they're frauds, and he shorts their stock and then he
publishes angry reports saying what a fraud they are, and
(17:14):
then he tweets those reports and then their stock goes down,
and that's how he makes money. A lot of these
people are guys on Twitter who may or may not
have something like a hedge fund or something called a
hedge fund. But when Andrew Left got in trouble last
week the SEC, one of its complaints about him was
that he wasn't really running a hedge fund. He didn't
know outside money. He was just a guy investing his
(17:35):
personal account. I assume a lot of activists shorts are
just guys investing their personal accounts, but it just sounds nicer.
So Andrew Left is Andrew Left. But he's also Sitron Research,
which just sounds fancier than just being a guy on Twitter.
And honestly, I think he's kind of earned it, Like
he's had a good track record of spotting frauds. You know,
he really was instrumental in spotting big problems at Valiant
(17:58):
Pharmaceuticals a few years ago in a way that really
took billions of dollars off that market cap and was
good investigative work. And he has a good track record
of finding companies that will go down. So that's his deal.
And last Friday, the SEC and the Department of Justice
brought charges against him for doing alleged fraud. And basically
they're accusing him of doing a reverse pupping dump. Right
(18:19):
instead of like saying hey you should buy the stock
and then selling it, he said hey, you should short
the stock, and then he bought it. So their accusation
is that he would short these stocks, he would publish
angry reports calling them frauds, and then kind of the
minute he published the stock would go down and he
would buy back the stock. So five minutes or an
hour a day after he published his report, he was
(18:40):
no longer short, so he took all the risk off
the table. And the SEC one I think, just doesn't
like that because it just seems like, if you're doing
it that way, you don't really think the stock is
a fraud. You just want to move the stock down
so you can make money, and you don't care what
happens after that. I don't think that's right. I think
the SEC is wrong about that. I think that Andrew
(19:02):
Left has a lot of incentive to care about what
happens after that first day because this is his livelihood,
and if he's always wrong, the stocks will stop going
down and this will stop working. The only way this
works is that every time he says this company is
a fraud, there's a good chance the company is actually
a fraud. And if he keeps having a pretty good
(19:23):
hit rate, then the stocks will keep going down and
he can keep collecting profits on the first day and
he doesn't have to wait until, you know, a year
later when the company goes bankrupt. But the whole thing
doesn't work unless he's got a pretty good hit rate.
So the SEC doesn't like it for I think some
reasons that are wrong. But the SEC also doesn't like
it because he lied about it a lot, Like he
would go on television and the reporters would say, sorry,
(19:44):
you're still short, and he'd say, I'm still short, but
he actually had covered. So it's like bad, you can't
do that. And you know, you think about like a
pumping dump, like a classic pumping dump, there's like nothing
to it. It's like some guy in a telegram chat
room saying you got to buy this microcap stock because
it's going to go to the moon, and maybe they
give some business case for it, but everyone knows they're kidding.
You know, Yeah, it's discovered a cure for cancer. And
(20:07):
then the stock goes up a little bit and the
pump and dumper dumps the stock, and the pump and
nupper says, oh, I'm holding on until he gets through
one hundred. I'm all in on this, but he's lying
and he's already sold the stock, and the SEC sort
of sees that in reverse, and Andrew left. But I
think the difference really is that a pump and dumper
normally has no basis for recommending the stock other than
(20:27):
like if we all buy the stock, it'll go up right.
It's just a pure social market dynamic thing. And the
only thing that that the audience cares about is that
this pump and nupper is buying the stock. And if
the pump and number is actually selling the stock, then like, yeah,
it looks like frat with Andrew Left. I don't think
that's how it works. Like, I don't think people were
shorting those stocks or selling those stocks because they're like, oh,
Andrew Left is short, I'd better be short too. I
(20:50):
think they were short in the stocks because Andrew Left
published reports saying this company is a fraud, and they
thought that's probably true, and often it was true. The
SEC complains about this coming called Kronoscrip, which is like
cannabis company, and it was trading like nine or ten dollars.
And Andrew Left said, I think this is a fraud,
and I have a price target of three dollars and
(21:10):
fifty cents, and then like the next minute, you know,
the stock goes down and he covers his short and
he never waits for it to get to three dollars
and fifty cents and he gets out of the trade,
and then you know, he lies about it and says
I'm still short even though he's he's actually not short.
But that stuff got to like two dollars and settled
an SEC's case for a fraud. He was not wrong. Yeah,
(21:31):
So like there's a lot of that where the SEC
focuses on what he said about his own trading, but
it doesn't focus on whether his reports were honest or accurate.
And to me, this is not the law. But to me,
like if the reports were honest and he was you know,
largely right, then like, yeah, no harm.
Speaker 1 (21:47):
No fel So let's talk about what the bright red
bad thing was. Was it that he was lying about
his actual position in the stock? Had he not said, oh,
I'm still short when he actually had closed out his position,
would be be having this conversation.
Speaker 2 (22:02):
I think not. I mean the actual stuff that he's
accused of lying about is mostly that, and then a
lot of like he occasionally did deals with other investors
where they would pay him for research or there he
would you know, he would give them idea, they'd they
have profit share. There was some like economic deals with
other investors where he would deny He would go around saying,
(22:26):
we've never been paid for research, We never like partner
with any hedge fund, we're always independent, And in fact
that wasn't really true. And again the SEC really did
get mad at him for saying he was a hedge fund.
He would like tweet things like you know, we want
to reassure our investors that blah blah blah, and I say, oh,
you don't have investors, right, Like yeah, Like that's dishonest,
and like some pumpin' uppers like do sort of create
(22:47):
the impression that they run a lot of money for
outside investors in order to like gin up an audience.
But I don't know. I feel like everyone kind of
knew he was a guy on Twitter with like airs
and like that's normal.
Speaker 1 (23:00):
I loved what you had in your column about like
him tweeting that about like we want to re ensure investors,
and you compared that to you know, you want to
reassure your furroh one k investors as the manager of
your four oh one k. I did lol in my
car at that.
Speaker 2 (23:15):
I love it. By the way, you were reading my
column in your car, which I know means listening to your.
Speaker 1 (23:18):
Robot read it, and you're exactly.
Speaker 2 (23:20):
I just feel like there's a lot of people in
financial markets who are like I bought an ETF in
my personal account one, so like I basically a fund manager. Yeah,
you know, anyone could be a fund manager. Those are
the things that the SAC is mad about. And I
think if he didn't do any of those things, which
are all really ancillary to like what people were reading
him for, then I think he probably wouldn't get in trouble.
(23:40):
I would caveat that by saying, again, I really do
think that a lot of people really, really really dislike
the business model of shorting a company, publishing bad stuff
about the company, and then immediately covering. Like even if
he never lied about that, even if he said in
the fine print of his report like I could cover
at any time, and then he went on TV and
(24:01):
they said have you covered, he said no comment or
even yes, Like, I think that people would still be
really mad about that, because it just seems like that
it's dishonest, and I don't think it is, but I
do realize that people find it upsetting. Yeah, people think
that if you're doing that, you can't really believe that
the company is a fraud. And to me, it's just
(24:22):
there's like a division of labor where he is in
the business of spotting the frauds, calling attention to them,
profiting from that first day move and then moving on
to the next thing, and other people will provide the
long term capital to be short the frauds all the
way down or whatever.
Speaker 1 (24:35):
Yeah, and we should probably point out that he has
pleaded not guilty to fraud charges.
Speaker 2 (24:39):
Oh, I think he might win. I think you might win.
Speaker 1 (24:42):
Like, well, yeah, his lawyer is basically I mean, he's
making similar arguments to what you're saying that Left had
no duty to disclose his personal trading intentions. He also
added that the government wasn't accusing Left of publishing false information,
and that feels important.
Speaker 2 (24:57):
That's true, and it's so important. You know, it's not important,
I think to the secs, like to the government's like
analysis of its legal case, but it's so important to
everyone else. It's so important to me. Right, if he's
publishing reports saying these companies are frauds and they're all frauds, Like,
what is the problem with that?
Speaker 1 (25:11):
Maybe he should just be a journalist. I mean, he
make a lot less money.
Speaker 2 (25:15):
That's the thing.
Speaker 1 (25:17):
He'd win the moral moral argument every time, would you.
That's true.
Speaker 2 (25:23):
Journalists here and they don't you know That's that's a.
Speaker 1 (25:26):
Good question to propose to the broader public. Which do
you dislike more journalists or short sellers. I don't know
who would win or lose, however you want to phrase it.
(25:48):
Robin Wigglesworth had a really long and interesting piece on
fixing comme ETFs basically eating the bond market. He wrote
it with Will Schmidt, and I have to say that
the headline ETFs are eating the bond market. I thought
this was going to be a negative story, but I
don't think this is necessarily a negative piece.
Speaker 2 (26:08):
So he quotes me a little bit because I used
to have a running gag.
Speaker 1 (26:12):
That's the important part.
Speaker 2 (26:13):
People are worried about bond market liquidity, and the notion
was like there was the I don't know, a four
year period where financial journalists kept saying bond ETFs are
eating the bond market, and it's so bad because in
a crisis, people will be so used to the liquidity
of bond ETFs and then when they get their bonds out,
(26:35):
they won't be able to sell them and bond prices
will go down. And I never understood this concern and
thought it was very silly, And now it seems to
have gone away, and Raban now has this piece saying
that bond ETFs are eating the bond market and that's good,
and I think that I agree. It seems right.
Speaker 1 (26:49):
It does seem good. I mean there is, or there
used to be, and maybe there still is, but now
it just seems a little bit silly. A lot of
doom and gloom about bond ETFs. We talked a little
bit about the liquidity mismatch last week. I feel like
all of those fears were put to rest in March
twenty twenty when the FED started buying ETFs. Specifically, they
(27:10):
started buying corporate bond ETFs, and they didn't buy that many,
but they bought bond ETFs. So you have the FED
stamp of approval on the structure and everything turned out fine.
Like I can't imagine a better test.
Speaker 2 (27:24):
Yeah, I think that. I mean it's not just the FED, right,
I mean, it's like in that period of crisis, it
was hard to trade bonds, I think, because it's always
hard to trade bonds in a crisis, but it was
very easy to trade ETFs. And so I think the
perception is that most market participants felt that the ETFs
were adding to liquidity rather than subtracting, because at least
(27:47):
you could trade the ETF right, which allowed you to
do some sort of like macro positioning around credit, even
if it was hard to get off individual bond trades.
But I think the other point of Robin's piece is
that the ETFs have largely made it easier to get
off actual bond trades for a combination of reasons, one
of which is that there are all these new dealers
(28:09):
who you know, the sort of Jaane Streets of the world,
who are big ETF market makers, And if you're a
big ETF market maker, then those bond ETFs get bigger.
You have to get into bond ETF market making, and
if you're an ETF market maker, you have to trade
both the ETF and the underlying and so Jane Street
and all the other infloat trading, and all the big
ETF firms have gotten into bond trading, and so that's
(28:29):
another source of liquidity and another set of market makers,
another set of balance sheets. And as banks have retreated
from market making and a lot of financial products, you
have new bond traders that have made bond trading a
little bit more liquid and He also talks about portfolio trading,
where instead of trading one bond at a time, you
can call up Jaine Street and say I have four
(28:50):
hundred bonds I want to sell, and they're like, yeah,
we could probably stuff most of those into an ETF.
So it's fine, Yeah, we'll take them all. And so
instead of kind of paying four hundred bit asks, you
kind of pay a tighter bit ask spread on a
single portfolio. And that's I think improved liquidity for a
lot of actual bond managers. So it's a very rosy
story of like bond ETFs have made bond market liquidity nicer.
Speaker 1 (29:13):
It's really a beautiful tale and I love listening to
it and reading it over and over again. I am
interested to see how it evolves. Colo ETFs. I remember
when those launched sometime in the past three to four years.
There was a lot of pearl clutching about that. And
there's one ETF.
Speaker 2 (29:30):
In Pertarit is going to lead to some pearl clutching.
Speaker 1 (29:33):
Oh definitely. It's a very scary three letter acronym. But
there's this one colo ETF. The ticker is j triple A.
It is so big. I think it recently got to
ten billion dollars. It's by far the biggest, and there's
some people who have pointed out that there's so much
demand for this specific ETF, and you know, some of
(29:55):
the flow is starting to increase to the other ETFs
as well, that it's starting to potentially tightened spreads on
clos just because all this money keeps pouring in, the
ETF has to keep buying clos and that's actually having
an impact in the cash markets as well, which is interesting.
Like the question that that raises in my mind is
you know, now you have this super accessible wrapper, maybe
(30:19):
it's introducing a new class of investors into that asset
class who didn't want to take the time to figure
out how to do the mechanics of it before, but
now it's super easy, and now you're seeing the ETFs
potentially impact that market.
Speaker 2 (30:34):
Oh yeah, Like a CLO is a relatively painful thing
to hold compared to a ETF, which is the stock. Right,
So like if you're a retail investor and you want
cl exposure, you can buy a CLO ETF. But also
if you're an institution, it's an easier thing to get
your head around, and it's an easier thing to trade too. Right,
if you want one day of CLO exposure, you can
(30:54):
buy the ETF in the morning and sell it in
the afternoon, which you can't do as easily with a
big diversified board. Oh have clos the story that you
told the spreads coming in, it's just in any product,
if liquidity is improved, you should expect the valuation of
the product to go up, right, and the spreads to
come in. And the ETF technology just improves the liquidity
(31:17):
of anything it wraps. And so if you have some
audience that would have said out it's like a pain
to hold whatever, but we can hold it in ETF form.
And you put an ETF form, then the liquidity of
that product, of the underlying product goes up and the
spreads go down. And obviously, you know, the example that
we've talked about before is bitcoin, right, I mean Bitcoin
was for some subset of investors a pain to hold,
(31:39):
and then you put in an ETF and Bitcoin prices
go up. So I think that it's a sort of
general use technology. Yeah.
Speaker 1 (31:45):
I feel like the story of ETF so much of
it just comes back to convenience. Like there's a few
ETFs out there that just hold two year treasuries, and
I remember when those launched there are a lot of
crank saying, like, why bother, why would I pay someone
to do this for me? It's like, because it's easy.
It's the easiest thing on earth to just click a
button you buy an ETF and then you don't have
(32:06):
to worry about buying those bonds yourself. You know, it's
about to say, I wonder how we're going to fit
ETFs into next week's episode. But I'm going to Paris,
so oh yeah, that's.
Speaker 2 (32:15):
An important programming note. KT in Paris and what is
the podcast will be off next week?
Speaker 1 (32:21):
Right? Yeah, I'm so excited for me.
Speaker 2 (32:24):
Are you watching horse Olympics?
Speaker 1 (32:27):
I am going to the Olympics. I am definitely going
to see track and field. I'm so excited, right yeah, your.
Speaker 2 (32:33):
Other sporting love? Is there best check and field event
to watch other than like just running around? Like? Is
there like is like javelin really exciting?
Speaker 1 (32:40):
Or My favorite event to watch is probably the eight
hundred meters because that's what I ran very averagely in college.
So I really like the middle distance events. Everyone loves
the sprints though obviously like the one hundred two hundred
meter relays are fun because it feels like Team us, say,
manages to drop the baton a lot, So hopefully we
(33:03):
don't do a lot of that this time around.
Speaker 2 (33:05):
We'll see enjoy your time in Paris and we will
be back here in two weeks with more stuff Love.
And that was the Money Stuff Podcast.
Speaker 1 (33:17):
I'm Matt Levine and I'm Katie Greifeld.
Speaker 2 (33:20):
You can find my work by subscribing to The Money
Stuff newsletter on Bloomberg.
Speaker 1 (33:23):
Dot com, and you can find me on Bloomberg TV
every day on Open Interest between nine to eleven am Eastern.
Speaker 2 (33:31):
We'd love to hear from you. You can send an
email to Moneypot at Bloomberg dot net ask us a question.
We might answer it on the air.
Speaker 1 (33:38):
You can also subscribe to our show wherever you're listening
right now and leave us a review. It helps more
people find the show.
Speaker 2 (33:44):
The Money Stuff Podcast is produced by Anna Maserakis and
Moses on Dam and special thanks this week to cal Brooks.
Speaker 1 (33:51):
Our theme music was composed by Blake Maples.
Speaker 2 (33:54):
Brandon Francis Nudam is our executive producer.
Speaker 1 (33:57):
And Sage Bouman is Bloomberg's head of podcasts.
Speaker 2 (34:00):
Thanks for listening to the Money Stuff podcast. We'll be
back next week with more stuff
Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2 (00:11):
Hello and welcome to The Money Stuff Podcast, your weekly
podcast where we talk about stuff related to money. I'm
Matt Levian, and I write the Money Stuff column for
Bloomberg Opinion.
Speaker 1 (00:22):
And I'm Katie Greifel, a reporter for Bloomberg News and
an anchor for Bloomberg Television.
Speaker 2 (00:27):
Katie, we got some news this week.
Speaker 1 (00:29):
Oh, big time. We're going to talk about Bill Ackman obviously,
we're going to talk about Andrew Left, which should be fun.
And then we're going to talk about BONDI TFS which
maybe will maybe we'll be fun. We'll find out where
to start.
Speaker 2 (00:48):
Three.
Speaker 1 (00:48):
Oh my gosh. Yeah, So we went from twenty five
billion dollars to two and a half to four billion
dollars to two billion dollars. Now we're at I think
zero dollars.
Speaker 2 (00:58):
There was kind of a pit's up at ten billion
as well.
Speaker 1 (01:00):
I know I was in there somewhere.
Speaker 2 (01:01):
There was a hard gap at ten billion, which which
they did not hit the hard gap.
Speaker 1 (01:07):
No, no, So I don't even know what to say.
I mean, this was pretty spectacular to follow. We knew
that he was road showing this ipo of a closed
end funds Pershing Square USA exactly. He has a European
version which trades at a big discount, which is a
material part of this story, and it kept getting downsized
(01:28):
and now it was pulled entirely. They're reevaluating it. And
along that path we got a letter that was released
which maybe Bi Lackman didn't know was going to be released,
and then we had some investors bowing out as well.
Speaker 2 (01:43):
Right, So the story started with they're doing a road
show for this IPO. There was talk of it being
twenty five billion dollars, which would be a lot of
money for a closed end fund, or just in general,
it would be a very very very large IPEA. So
he's got all these So he runs a hedgehund called
Pushing Square. There's a management company that runs the hedge
(02:04):
funds and that like collects the fees from the hedge
funds and the clothes end funds. And he recently sold
about a ten percents take in the management company to
a few institutional and highnight Worth investors. And last week
he sent a letter to those guys, those people who
were investors in his management company saying essentially, hey, it
would be really helpful if you would put in some
(02:25):
orders in the Pushing Square USA Closed End Fund IPO.
And I read that letter and it seemed to me
that that's not a good sign. I probably underplayed this
when I wrote about it, because there are other possible interpretations, right,
Like one possible interpretation is that Bi Lackman is just
unusually candid about how the IPO process works to his
(02:47):
management company investors. But it sort of seemed like he
was saying, hey, guys, it would really help out a
lot if you could put it in order. Yeah. I
used to be a capital markets banker and you would
do a deal and you would get calls from investors.
I would say, how's the deal going, And there's only
one answer you can give them. You say, the deal
is going great. There's so much demand. You really better
put your order in because otherwise you're going to miss
(03:09):
out because this deal is going so good, so many
people wanted to buy it. You can't like necessarily lie
if the dealer is going poorly, but you say things like, oh,
there's a lot of interest, we're having a lot of meetings.
That feedback is really good. You should put in your
order quick, right, You try to create the sense of excitement.
If the deal is not going well, then like you
might call up your best friend investor and say, hey,
it would really help out if you would put in
a big order, because that would get us over the line,
(03:30):
that would create some momentum. And it sort of seemed
like that was what Acman was doing by sending this
letter to the people who are already in his management company.
Problem is, if you do that publicly, everyone can read it,
and no, that's a bad sign. So I do think that,
like the letter did not necessarily help very much, because
I do think that some people read it and think, well,
(03:53):
this suggests that there's not a ton of demand.
Speaker 1 (03:55):
Yeah, and I was just going to bring up bow
Post because you did name a few investors in that
letter to investors saying hey, it would help if you
could invest more. He mentioned that baal Post Capital had
previously committed to investing one hundred and fifty million dollars,
and then Bloomberg News broke the news that actually they
were pulling out. There weren't reasons given, but reportedly he
(04:19):
didn't like being named.
Speaker 2 (04:21):
Yeah, I mean, no one wants to be named as
the endorser for a deal unless I've sort of explicitly
agreed to that. I think the Bloomberg story suggested that
there's some political seth Klerman as a Democrat and Bill
Lackman has become like a very vocal Trump supporter. But
I don't know. I think that either of those are
possible explanations. But like, here's another explanation. If you interpreted
that letter to mean there's not a ton of demand,
(04:42):
then even if you were already in the book, you
would take your order out of the book, right, yeah,
Because this is the problem with this thing is like
you can be a long term investor, right you can
say I like Bill Lackman. I think that he's going
to compound my money at a high rate, and so
I want to be invested in his fund and I'll invest,
you know, this month and hold it for ten years
(05:03):
and expect Bill Ackman to compound my money for me.
But the problem is that on the first day of trading,
this thing is either going to trade up or it's
going to trade down. And as you said, his existing
clothes unfund trades at a big discount to its net
ASSEID value. Most closed un funds traded discounts to their
net asset value. And so if you're an investor, instead
(05:26):
of buying the shares at fifty dollars in the IPO,
you might say, well, I'll just wait until the next
day and I'll buy them at a discount. I'll buy
them at like forty five or whatever. So it would
be sort of silly to buy on the IPO if
you could wait to buy at a discount. The whole
point in the IPO process is for Bill Ackman to
tell people, no, no, it's going to trade it at
a premium, right, and so he makes that case in
(05:47):
this letter, but he sent these investors and that was
then made public sort of by accident. He makes the
case that is going to trade at a premium. You know.
The essential case is that a lot of retail investors,
for one reason or another, aren't going to get shares
in the IPA. Like the main one is that most
retail investors, most retail brokerages aren't going to get allocated
anything in the IPO. Also, there are some European retail
(06:07):
investors who would want to buy shares, but who can't
buy them in the IPM. So all these retail investors
want to buy shares in the bill Ackman IPO. They
can't buy it at the time of the IPO, so
they'll buy it the next day in the aftermarket, and
there'll be so much retail demand and maybe so much
institutional demand that the IPA will trade up. And so
if you wait to buy in the aftermarket, you'll have
to pay fifty five dollars a share instead of fifty
(06:29):
dollars a share. But the IPO was so big that
the really essential question is is there going to be
enough institutional demand in the aftermarket? Is there going to
be institutional demand the next day? And they were just
kept being indications that there was just not enough institutional
demand to like price a really tight large IPO. And
(06:49):
so if you thought that there wasn't that much institutional demand,
then you'd say, well, it'll trade down to forty five
and I'll wait until the buy it the next day,
and then there will be no institutional demand. Right, if
everyone's going to wait to buy it, then no one
will buy it in the idea.
Speaker 1 (07:01):
Well, two points on that, the first one being this
statement that they put out. Did acknowledge that they said
that this question.
Speaker 2 (07:08):
That's the whole thing.
Speaker 1 (07:09):
Yeah, basically would investors be better served waiting to invest
in the aftermarket than the IPO. Yes, it sounds like.
I mean if you just look at the history of
closed don funds. Also to the point of retail demand,
I mean, Bill Lackman has a million something followers on Twitter,
which is a lot. That's a huge audience, but it
seems quite tricky to turn followers into investors. That's not
(07:33):
necessarily guaranteed. And you think about the following that he
has on Twitter, I would imagine that the majority of
those people, or at least a sizeable portion, aren't necessarily
following him for his investing acumen.
Speaker 2 (07:49):
I mean, I hear you, right. I mean he's courting
controversy and a lot of Twitter opinions and not mainly
tweeting about. Part of that, by the way, is like
he has said that he wants to be able to
tweet more about investing, and because of the legal structures
that he currently operates, and he can't just go have
his tock pics on Twitter, and once he launches Pershing
Square USA, he can. But yeah, I hear you right,
(08:10):
I mean, like his Twitter following is not purely about investing.
Speaker 1 (08:13):
What I am wondering is what this means for the
overall Pershing Square IPO, because he did sell that ten
percent steak for a billion dollars, just over a billion dollars.
And I mean they've said that the success of this
pie Sus IPO is very important to the eventual IPO
of Pershing Square.
Speaker 2 (08:33):
Oh yeah, I mean he sold a ten percent stake
in the management company. The management company is just like
the thing that collects fees from the funds that he
runs right right now, he runs about eighteen billion dollars
worth of funds, and they sold the stake in the
management company at a ten billion dollar valuation. It's sort
of crazy to imagine that the entity that collects fees
on eighteen billion dollars worth of funds is worth ten
(08:53):
billion dollars, right. That can't be right, right? That implies
that he would take like half of the value from
like his investors' funds for himself or for his investors. Now,
the only way you can get to a ten billion
dollar valuation for the management company is if you think
that the management company is very soon going to manage
a lot more money. And I think obviously the case
that was made to these management company investors, is we
(09:17):
are going to transform from a smallish hedge fundition manager
to a sort of more institutional asset manager that attracts
a lot of retail interest and a lot of institutional
interest and runs tens of billions of dollars and has
a publicly traded permanent capital vehicle, and has like the
steady stream of large earnings from running large amounts of money.
(09:38):
And then, you know, I think if you were investing
in the measurment company, somewhere in your mind was the
notion of a twenty five billion dollar pieces IPO and
a zero dollar pieces ipo makes that case more challenging.
The other thing I want to say about the management
company is so I wrote on Thursday about the problem here,
which is that it's very hard to sell the these
(10:00):
shares at nav because you expect to close on fund
to trade at a discount. Everyone wants a discount. Well,
how do you sell the shares at a discount? Because
the shares are just it's a pot of money, right,
So you can't sell you know, one hundred dollars worth
of money at ninety dollars because then you only have
ninety dollars. So how do you create a discount? And
I wrote about some possible ways to do that, which
(10:21):
come down to kind of Pershing Square putting in some money.
But several readers emailed me immediately to be like, well,
here's the obvious way to do it. The obvious way
to do it is to put some of the management
company into pieces. So instead of really, I've been seating
the fund with like a billion dollars of his own
money for free, he could see it with ten percent
of Pershing Square the management company, for free, and then
(10:44):
pieces would have a net asset value more than just
the cash that investors put in. And then the investors say, okay,
I'm getting a discount and they put in their money.
And this is a good idea. And you know, someone
drew the analogy to like Vanguard, where Vanguard invest do
own a piece of the management company. It's because it's
a mutual company. But the problem here is you sort
(11:05):
of already promised the management company in an IPO to
these other investors, right, so to say we're going to
push the management company into pieces is a little bit
more challenging. So what does it mean for the for
the IPO added, It's like a setback, right, I mean
the IPO was I think premised on the Pieces IPO
going really well, and with having a hard time raising
(11:26):
money for Pieces, it's harder to get to a ten
billion dollar valuation for the management company.
Speaker 1 (11:32):
There's also the question of why does he want to
be public, Like why does he want to take the
overall hedge fund company public? I mean, there aren't many
of them. The obvious example is the Sculptor Rhythm thing,
which didn't exactly turn out well, which also had Bill
Lackman involvement.
Speaker 2 (11:49):
Yeah, minor involvement. Yeah, I don't know. You know, the
reason for launching the Clothes End Fund is quite straightforward, right,
I mean, you have permanent capitical vehicle. You get to
go on TV and tweet your stock picks and then
hopefully you can create some momentum in your stocks.
Speaker 1 (12:01):
I mean, he could just launch an ETF. I'll just
say it. I know, I know, permanent capital. That's very exciting.
I still don't quite understand clothes and funds. I get
it from the manager's point of view, permanent capital that
seems really great, But from the investor point of view,
I don't know why you would do that.
Speaker 2 (12:20):
No, I think he can make a good case for
that here because he is not possibly like takeover inclined investor.
Then knowing how much money you have for the long
term is actually really important, right. I mean, if you
have an ETF and they're withdrawals and you still have
of your positions, right. That is easy to do if
you are just the index one, right, But it's harder
to do if you are doing the kinds of trades
(12:42):
that b. Lackmann wants to do, which are like these
like long term fundamental equity and trades, but also like
you know, derivative trades. I mean, like some of their
track record is from CDX beats going into COVID, and
again that's harder to do if your capital can vanish
every night. So I think that from his perspective, it's
obviously to permanent capital, and I think he can make
the case to investors that actually, like permanent capital is
(13:05):
the way that I create value and ETF doesn't make
sense for the kind of investing that I do. I
think that's a reasonable case.
Speaker 1 (13:11):
Yeah.
Speaker 2 (13:11):
So the question of why does he want to take
the management company public? I don't know. I mean, some
of it is like I think anyone else, like, you know,
you want some legacy, right. I mean there's this perception
that with like the sort of famous Hedgehund managers of
like Acman's vintage, Like, there's a perception that the management
company is like that one guy. And I think that
they would like to have a proof of concept that
(13:32):
actually it's an institution and really the investing team has
kind of transitioned away from him and it's not just him,
and it's a permanent entity that will exist forever and
provide wealth for him forever, right, instead of like when
he quits, the thing vanishes. So I think there's a
temptation for anyone who runs a company to take that
company public so you can you know, take money off
(13:54):
the table and have permanent shares instead of just like
your own labor. But right, the track record of it
is kind of challenging.
Speaker 1 (14:00):
Yeah, well let's see if pieces gets off the ground
when it comes to the eventual pershing square IPO. Apparently
he's already thought of how to make this structure work.
That was also in the press release that don't.
Speaker 2 (14:13):
Get excited, yeah, excited to see like next week's piece
of structure. I think putting part of the management company
into it, putting some cash into it that doesn't come
from investors or or possibilities. Yeah, like I you know,
I wrote it like SPACs do kind of provide the
technology for this, right, like get spack. At a very
high level, is a sponsor puts in some money to
(14:35):
pay the startup costs. Then the sponsor kind of sells
shares at net asset value to investors, and then if
the sponsor does a good job and finds a good deal,
the sponsor gets a lot of like free upside. So
there's this like Carter, where like if the thing is
those kind of met the shareholders get all their money back,
(14:56):
so they are protected against the problems of investing at
nav and then having the navy go down. If the
thing does poorly, then the manager the sponsor eats the loss,
and if the thing does really really well, the shareholders
give up some of the upside and it goes to
the sponsor. And so the sponsor has the sort of
asymmetric trade where the sponsor puts in some money that's
(15:16):
at risk, but then if it does really well, the
sponsor makes a lot of money. You can imagine a
structure like that for pieces, where you know, Bill Ackman
seeds it with money, and if it trades below net
asset value, he kind of bears the first loss so
that the investors who buy in the IPO still get
at least the amount of money they put in. And
then if the thing does really well, he gets warrants
(15:37):
or something so that he gets upside to compensate him
for that. Like, that's a structure that could work. You
could do something like that. That's easy enough.
Speaker 1 (15:44):
That's some good ideas here.
Speaker 2 (15:46):
Part of he wants to, you know, quit podcast and
then go structure pieces mark two. But most of me,
it doesn't. Most of me just wants the podcast about it.
(16:07):
Andrew left.
Speaker 1 (16:08):
Andrew left, So this story broke. I think it was
on Friday, that's right, because.
Speaker 2 (16:13):
I wrote on Friday and then I published on Saturday,
because I didn't hit the send button on my email.
Speaker 1 (16:17):
It's really I that just made mistake.
Speaker 2 (16:22):
There, amateurs the column on Friday on the web and
the terminal, and then I didn't hit send on the email,
and no one told me until I told my wife
I published the column. She's like, I didn't get it.
Speaker 1 (16:37):
I feel like there's some arbitrage to do there.
Speaker 2 (16:39):
If you had the inside information about my column, you
could have traded Andrew Left features a day early. I
don't know.
Speaker 1 (16:44):
I bring that up the timeline because it feels crazy
that we haven't talked about this yet.
Speaker 2 (16:48):
Yeah, we just missed it last week.
Speaker 1 (16:50):
So set the scene for us. Set the table.
Speaker 2 (16:52):
So Andrew Left is a guy on Twitter. There's a
lot of people like this who are activist short sellers.
So what he does is he finds companies that he
thinks are bad, sometimes on valuation, often because he thinks
they're frauds, and he shorts their stock and then he
publishes angry reports saying what a fraud they are, and
(17:14):
then he tweets those reports and then their stock goes down,
and that's how he makes money. A lot of these
people are guys on Twitter who may or may not
have something like a hedge fund or something called a
hedge fund. But when Andrew Left got in trouble last
week the SEC, one of its complaints about him was
that he wasn't really running a hedge fund. He didn't
know outside money. He was just a guy investing his
(17:35):
personal account. I assume a lot of activists shorts are
just guys investing their personal accounts, but it just sounds nicer.
So Andrew Left is Andrew Left. But he's also Sitron Research,
which just sounds fancier than just being a guy on Twitter.
And honestly, I think he's kind of earned it, Like
he's had a good track record of spotting frauds. You know,
he really was instrumental in spotting big problems at Valiant
(17:58):
Pharmaceuticals a few years ago in a way that really
took billions of dollars off that market cap and was
good investigative work. And he has a good track record
of finding companies that will go down. So that's his deal.
And last Friday, the SEC and the Department of Justice
brought charges against him for doing alleged fraud. And basically
they're accusing him of doing a reverse pupping dump. Right
(18:19):
instead of like saying hey you should buy the stock
and then selling it, he said hey, you should short
the stock, and then he bought it. So their accusation
is that he would short these stocks, he would publish
angry reports calling them frauds, and then kind of the
minute he published the stock would go down and he
would buy back the stock. So five minutes or an
hour a day after he published his report, he was
(18:40):
no longer short, so he took all the risk off
the table. And the SEC one I think, just doesn't
like that because it just seems like, if you're doing
it that way, you don't really think the stock is
a fraud. You just want to move the stock down
so you can make money, and you don't care what
happens after that. I don't think that's right. I think
the SEC is wrong about that. I think that Andrew
(19:02):
Left has a lot of incentive to care about what
happens after that first day because this is his livelihood,
and if he's always wrong, the stocks will stop going
down and this will stop working. The only way this
works is that every time he says this company is
a fraud, there's a good chance the company is actually
a fraud. And if he keeps having a pretty good
(19:23):
hit rate, then the stocks will keep going down and
he can keep collecting profits on the first day and
he doesn't have to wait until, you know, a year
later when the company goes bankrupt. But the whole thing
doesn't work unless he's got a pretty good hit rate.
So the SEC doesn't like it for I think some
reasons that are wrong. But the SEC also doesn't like
it because he lied about it a lot, Like he
would go on television and the reporters would say, sorry,
(19:44):
you're still short, and he'd say, I'm still short, but
he actually had covered. So it's like bad, you can't
do that. And you know, you think about like a
pumping dump, like a classic pumping dump, there's like nothing
to it. It's like some guy in a telegram chat
room saying you got to buy this microcap stock because
it's going to go to the moon, and maybe they
give some business case for it, but everyone knows they're kidding.
You know, Yeah, it's discovered a cure for cancer. And
(20:07):
then the stock goes up a little bit and the
pump and dumper dumps the stock, and the pump and
nupper says, oh, I'm holding on until he gets through
one hundred. I'm all in on this, but he's lying
and he's already sold the stock, and the SEC sort
of sees that in reverse, and Andrew left. But I
think the difference really is that a pump and dumper
normally has no basis for recommending the stock other than
(20:27):
like if we all buy the stock, it'll go up right.
It's just a pure social market dynamic thing. And the
only thing that that the audience cares about is that
this pump and nupper is buying the stock. And if
the pump and number is actually selling the stock, then like, yeah,
it looks like frat with Andrew Left. I don't think
that's how it works. Like, I don't think people were
shorting those stocks or selling those stocks because they're like, oh,
Andrew Left is short, I'd better be short too. I
(20:50):
think they were short in the stocks because Andrew Left
published reports saying this company is a fraud, and they
thought that's probably true, and often it was true. The
SEC complains about this coming called Kronoscrip, which is like
cannabis company, and it was trading like nine or ten dollars.
And Andrew Left said, I think this is a fraud,
and I have a price target of three dollars and
(21:10):
fifty cents, and then like the next minute, you know,
the stock goes down and he covers his short and
he never waits for it to get to three dollars
and fifty cents and he gets out of the trade,
and then you know, he lies about it and says
I'm still short even though he's he's actually not short.
But that stuff got to like two dollars and settled
an SEC's case for a fraud. He was not wrong. Yeah,
(21:31):
So like there's a lot of that where the SEC
focuses on what he said about his own trading, but
it doesn't focus on whether his reports were honest or accurate.
And to me, this is not the law. But to me,
like if the reports were honest and he was you know,
largely right, then like, yeah, no harm.
Speaker 1 (21:47):
No fel So let's talk about what the bright red
bad thing was. Was it that he was lying about
his actual position in the stock? Had he not said, oh,
I'm still short when he actually had closed out his position,
would be be having this conversation.
Speaker 2 (22:02):
I think not. I mean the actual stuff that he's
accused of lying about is mostly that, and then a
lot of like he occasionally did deals with other investors
where they would pay him for research or there he
would you know, he would give them idea, they'd they
have profit share. There was some like economic deals with
other investors where he would deny He would go around saying,
(22:26):
we've never been paid for research, We never like partner
with any hedge fund, we're always independent, And in fact
that wasn't really true. And again the SEC really did
get mad at him for saying he was a hedge fund.
He would like tweet things like you know, we want
to reassure our investors that blah blah blah, and I say, oh,
you don't have investors, right, Like yeah, Like that's dishonest,
and like some pumpin' uppers like do sort of create
(22:47):
the impression that they run a lot of money for
outside investors in order to like gin up an audience.
But I don't know. I feel like everyone kind of
knew he was a guy on Twitter with like airs
and like that's normal.
Speaker 1 (23:00):
I loved what you had in your column about like
him tweeting that about like we want to re ensure investors,
and you compared that to you know, you want to
reassure your furroh one k investors as the manager of
your four oh one k. I did lol in my
car at that.
Speaker 2 (23:15):
I love it. By the way, you were reading my
column in your car, which I know means listening to your.
Speaker 1 (23:18):
Robot read it, and you're exactly.
Speaker 2 (23:20):
I just feel like there's a lot of people in
financial markets who are like I bought an ETF in
my personal account one, so like I basically a fund manager. Yeah,
you know, anyone could be a fund manager. Those are
the things that the SAC is mad about. And I
think if he didn't do any of those things, which
are all really ancillary to like what people were reading
him for, then I think he probably wouldn't get in trouble.
(23:40):
I would caveat that by saying, again, I really do
think that a lot of people really, really really dislike
the business model of shorting a company, publishing bad stuff
about the company, and then immediately covering. Like even if
he never lied about that, even if he said in
the fine print of his report like I could cover
at any time, and then he went on TV and
(24:01):
they said have you covered, he said no comment or
even yes, Like, I think that people would still be
really mad about that, because it just seems like that
it's dishonest, and I don't think it is, but I
do realize that people find it upsetting. Yeah, people think
that if you're doing that, you can't really believe that
the company is a fraud. And to me, it's just
(24:22):
there's like a division of labor where he is in
the business of spotting the frauds, calling attention to them,
profiting from that first day move and then moving on
to the next thing, and other people will provide the
long term capital to be short the frauds all the
way down or whatever.
Speaker 1 (24:35):
Yeah, and we should probably point out that he has
pleaded not guilty to fraud charges.
Speaker 2 (24:39):
Oh, I think he might win. I think you might win.
Speaker 1 (24:42):
Like, well, yeah, his lawyer is basically I mean, he's
making similar arguments to what you're saying that Left had
no duty to disclose his personal trading intentions. He also
added that the government wasn't accusing Left of publishing false information,
and that feels important.
Speaker 2 (24:57):
That's true, and it's so important. You know, it's not important,
I think to the secs, like to the government's like
analysis of its legal case, but it's so important to
everyone else. It's so important to me. Right, if he's
publishing reports saying these companies are frauds and they're all frauds, Like,
what is the problem with that?
Speaker 1 (25:11):
Maybe he should just be a journalist. I mean, he
make a lot less money.
Speaker 2 (25:15):
That's the thing.
Speaker 1 (25:17):
He'd win the moral moral argument every time, would you.
That's true.
Speaker 2 (25:23):
Journalists here and they don't you know That's that's a.
Speaker 1 (25:26):
Good question to propose to the broader public. Which do
you dislike more journalists or short sellers. I don't know
who would win or lose, however you want to phrase it.
(25:48):
Robin Wigglesworth had a really long and interesting piece on
fixing comme ETFs basically eating the bond market. He wrote
it with Will Schmidt, and I have to say that
the headline ETFs are eating the bond market. I thought
this was going to be a negative story, but I
don't think this is necessarily a negative piece.
Speaker 2 (26:08):
So he quotes me a little bit because I used
to have a running gag.
Speaker 1 (26:12):
That's the important part.
Speaker 2 (26:13):
People are worried about bond market liquidity, and the notion
was like there was the I don't know, a four
year period where financial journalists kept saying bond ETFs are
eating the bond market, and it's so bad because in
a crisis, people will be so used to the liquidity
of bond ETFs and then when they get their bonds out,
(26:35):
they won't be able to sell them and bond prices
will go down. And I never understood this concern and
thought it was very silly, And now it seems to
have gone away, and Raban now has this piece saying
that bond ETFs are eating the bond market and that's good,
and I think that I agree. It seems right.
Speaker 1 (26:49):
It does seem good. I mean there is, or there
used to be, and maybe there still is, but now
it just seems a little bit silly. A lot of
doom and gloom about bond ETFs. We talked a little
bit about the liquidity mismatch last week. I feel like
all of those fears were put to rest in March
twenty twenty when the FED started buying ETFs. Specifically, they
(27:10):
started buying corporate bond ETFs, and they didn't buy that many,
but they bought bond ETFs. So you have the FED
stamp of approval on the structure and everything turned out fine.
Like I can't imagine a better test.
Speaker 2 (27:24):
Yeah, I think that. I mean it's not just the FED, right,
I mean, it's like in that period of crisis, it
was hard to trade bonds, I think, because it's always
hard to trade bonds in a crisis, but it was
very easy to trade ETFs. And so I think the
perception is that most market participants felt that the ETFs
were adding to liquidity rather than subtracting, because at least
(27:47):
you could trade the ETF right, which allowed you to
do some sort of like macro positioning around credit, even
if it was hard to get off individual bond trades.
But I think the other point of Robin's piece is
that the ETFs have largely made it easier to get
off actual bond trades for a combination of reasons, one
of which is that there are all these new dealers
(28:09):
who you know, the sort of Jaane Streets of the world,
who are big ETF market makers, And if you're a
big ETF market maker, then those bond ETFs get bigger.
You have to get into bond ETF market making, and
if you're an ETF market maker, you have to trade
both the ETF and the underlying and so Jane Street
and all the other infloat trading, and all the big
ETF firms have gotten into bond trading, and so that's
(28:29):
another source of liquidity and another set of market makers,
another set of balance sheets. And as banks have retreated
from market making and a lot of financial products, you
have new bond traders that have made bond trading a
little bit more liquid and He also talks about portfolio trading,
where instead of trading one bond at a time, you
can call up Jaine Street and say I have four
(28:50):
hundred bonds I want to sell, and they're like, yeah,
we could probably stuff most of those into an ETF.
So it's fine, Yeah, we'll take them all. And so
instead of kind of paying four hundred bit asks, you
kind of pay a tighter bit ask spread on a
single portfolio. And that's I think improved liquidity for a
lot of actual bond managers. So it's a very rosy
story of like bond ETFs have made bond market liquidity nicer.
Speaker 1 (29:13):
It's really a beautiful tale and I love listening to
it and reading it over and over again. I am
interested to see how it evolves. Colo ETFs. I remember
when those launched sometime in the past three to four years.
There was a lot of pearl clutching about that. And
there's one ETF.
Speaker 2 (29:30):
In Pertarit is going to lead to some pearl clutching.
Speaker 1 (29:33):
Oh definitely. It's a very scary three letter acronym. But
there's this one colo ETF. The ticker is j triple A.
It is so big. I think it recently got to
ten billion dollars. It's by far the biggest, and there's
some people who have pointed out that there's so much
demand for this specific ETF, and you know, some of
(29:55):
the flow is starting to increase to the other ETFs
as well, that it's starting to potentially tightened spreads on
clos just because all this money keeps pouring in, the
ETF has to keep buying clos and that's actually having
an impact in the cash markets as well, which is interesting.
Like the question that that raises in my mind is
you know, now you have this super accessible wrapper, maybe
(30:19):
it's introducing a new class of investors into that asset
class who didn't want to take the time to figure
out how to do the mechanics of it before, but
now it's super easy, and now you're seeing the ETFs
potentially impact that market.
Speaker 2 (30:34):
Oh yeah, Like a CLO is a relatively painful thing
to hold compared to a ETF, which is the stock. Right,
So like if you're a retail investor and you want
cl exposure, you can buy a CLO ETF. But also
if you're an institution, it's an easier thing to get
your head around, and it's an easier thing to trade too. Right,
if you want one day of CLO exposure, you can
(30:54):
buy the ETF in the morning and sell it in
the afternoon, which you can't do as easily with a
big diversified board. Oh have clos the story that you
told the spreads coming in, it's just in any product,
if liquidity is improved, you should expect the valuation of
the product to go up, right, and the spreads to
come in. And the ETF technology just improves the liquidity
(31:17):
of anything it wraps. And so if you have some
audience that would have said out it's like a pain
to hold whatever, but we can hold it in ETF form.
And you put an ETF form, then the liquidity of
that product, of the underlying product goes up and the
spreads go down. And obviously, you know, the example that
we've talked about before is bitcoin, right, I mean Bitcoin
was for some subset of investors a pain to hold,
(31:39):
and then you put in an ETF and Bitcoin prices
go up. So I think that it's a sort of
general use technology. Yeah.
Speaker 1 (31:45):
I feel like the story of ETF so much of
it just comes back to convenience. Like there's a few
ETFs out there that just hold two year treasuries, and
I remember when those launched there are a lot of
crank saying, like, why bother, why would I pay someone
to do this for me? It's like, because it's easy.
It's the easiest thing on earth to just click a
button you buy an ETF and then you don't have
(32:06):
to worry about buying those bonds yourself. You know, it's
about to say, I wonder how we're going to fit
ETFs into next week's episode. But I'm going to Paris,
so oh yeah, that's.
Speaker 2 (32:15):
An important programming note. KT in Paris and what is
the podcast will be off next week?
Speaker 1 (32:21):
Right? Yeah, I'm so excited for me.
Speaker 2 (32:24):
Are you watching horse Olympics?
Speaker 1 (32:27):
I am going to the Olympics. I am definitely going
to see track and field. I'm so excited, right yeah, your.
Speaker 2 (32:33):
Other sporting love? Is there best check and field event
to watch other than like just running around? Like? Is
there like is like javelin really exciting?
Speaker 1 (32:40):
Or My favorite event to watch is probably the eight
hundred meters because that's what I ran very averagely in college.
So I really like the middle distance events. Everyone loves
the sprints though obviously like the one hundred two hundred
meter relays are fun because it feels like Team us, say,
manages to drop the baton a lot, So hopefully we
(33:03):
don't do a lot of that this time around.
Speaker 2 (33:05):
We'll see enjoy your time in Paris and we will
be back here in two weeks with more stuff Love.
And that was the Money Stuff Podcast.
Speaker 1 (33:17):
I'm Matt Levine and I'm Katie Greifeld.
Speaker 2 (33:20):
You can find my work by subscribing to The Money
Stuff newsletter on Bloomberg.
Speaker 1 (33:23):
Dot com, and you can find me on Bloomberg TV
every day on Open Interest between nine to eleven am Eastern.
Speaker 2 (33:31):
We'd love to hear from you. You can send an
email to Moneypot at Bloomberg dot net ask us a question.
We might answer it on the air.
Speaker 1 (33:38):
You can also subscribe to our show wherever you're listening
right now and leave us a review. It helps more
people find the show.
Speaker 2 (33:44):
The Money Stuff Podcast is produced by Anna Maserakis and
Moses on Dam and special thanks this week to cal Brooks.
Speaker 1 (33:51):
Our theme music was composed by Blake Maples.
Speaker 2 (33:54):
Brandon Francis Nudam is our executive producer.
Speaker 1 (33:57):
And Sage Bouman is Bloomberg's head of podcasts.
Speaker 2 (34:00):
Thanks for listening to the Money Stuff podcast. We'll be
back next week with more stuff
Popular Podcasts
The Breakfast Club
The World's Most Dangerous Morning Show, The Breakfast Club, With DJ Envy And Charlamagne Tha God!
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com
Decisions, Decisions
Welcome to "Decisions, Decisions," the podcast where boundaries are pushed, and conversations get candid! Join your favorite hosts, Mandii B and WeezyWTF, as they dive deep into the world of non-traditional relationships and explore the often-taboo topics surrounding dating, sex, and love. Every Monday, Mandii and Weezy invite you to unlearn the outdated narratives dictated by traditional patriarchal norms. With a blend of humor, vulnerability, and authenticity, they share their personal journeys navigating their 30s, tackling the complexities of modern relationships, and engaging in thought-provoking discussions that challenge societal expectations. From groundbreaking interviews with diverse guests to relatable stories that resonate with your experiences, "Decisions, Decisions" is your go-to source for open dialogue about what it truly means to love and connect in today's world. Get ready to reshape your understanding of relationships and embrace the freedom of authentic connections—tune in and join the conversation!