January 10, 2025 • 39 mins
Katie and Matt discuss the return of the Fannie Mae and Freddie Mac trade, a business school class project that came true in real life, and taking cocoa out of commodity exchange warehouses.
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Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:09):
Yeah, it turns out, you know, if you google how
to defrost a bagel and it tells you to run
it under cold water for thirty seconds, that is an
unnecessary step. Not only is it unnecessary, I would not
recommend it, it produces a disgusting result.
Speaker 1 (00:24):
Yeah. No, your mistake was giggling instead of asking your
local suburban jew who would tell you right answer.
Speaker 2 (00:31):
Or just ask you know that you could go that route,
or just ask your podcast co host because everyone has
one of.
Speaker 1 (00:38):
Those, and I'm facing important life decisions that my first
thought is I should ask my podcast cast about those. Yes,
at that's true.
Speaker 2 (00:49):
It's practical for most tests. So this actually isn't our
first episode of the year.
Speaker 1 (00:56):
It's not our first episode to air this year. That's true.
And we did pretend that we recorded the last episode
this year, although we didn't keep up that pretence for
very long.
Speaker 2 (01:05):
I think we tricked everyone. Actually, of course that worked
really well.
Speaker 1 (01:10):
Hello and welcome to the second Money Stuff podcast of
twenty twenty five, your weekly podcast where we talk about
stuff related to money. I'm Matt Levin, and I write
the Money Stuff column for Bloomberg Opinion, And.
Speaker 2 (01:24):
I'm Katie Greifeld, a reporter for Bloomberg News and an
anchor for Bloomberg Television.
Speaker 1 (01:28):
What are you talking about today, Katie?
Speaker 2 (01:30):
Today we're going to talk about Fanny May, Freddie Mack,
and friend of the show Bill Lackman. We're going to
talk about MBA students and when case studies become real life.
And then we're going to talk about cocoa liquidity, Fanny
(01:53):
and Freddy. Fanny and Freddy. So this trade is once
again being resurrected and has some legs again. There's a
lot of optimism out there that maybe finally these two
are going to end up in private hands again.
Speaker 1 (02:09):
Yeah. I used to write about this a lot and
then everyone kind of forgot about it, and I wrote
about it this weekend. I was like, I gotta start
from scratch. I gotta be like, what is Fanny and Freddy.
I'm not sure we'll do that on the podcast, but
we could. Is what are Fanny and Freddy? Fanny and
Freddy were the big mortgage guarantee companies that were technically
(02:31):
regular publicly traded companies, but everyone kind of thought they
were backed by the government up until two thousand and
eight when they went busted on some bad mortgage bets
and then the government took them over, and it turns
out they were in fight back by the government, and
so everyone who relied on Fanny guarantees to get their
mortgages paid back got their mortgages paid back, and the
government took over Fanny and Freddy, and shareholders of Fanny
(02:53):
and Freddy the day after the government takeover looked like
they had lost pretty much everything, but not literally everything.
And then later in twenty twelve, the government said, you
know what, they've lost everything. And so they've now been
like fully owned by the government more or less for
I say, twelve and a half years now, and in
that time people have spent kind of that whole time
(03:15):
being like, obviously this can't last, and Fanny and Freddy
have to return to private hands anytime now, and a
lot of people have made that bet in the form
of buying the stock of Fanny and Freddie, which still
trades over the counter, and saying when they returned to
private hands, the stock is going to be really valuable.
And they filed some lawsuits that didn't really work out
(03:36):
a long time ago, but now you know Trump is
coming back to office, and the same logic applies that
they can't be publicly owned forever. Maybe, And so Bill
Ackman is the latest. He brought up a lot of
Fanny and Freddy common stock and has been tweeting about
how Trump is going to return them to private hands
and they're going to be worth a lot of money.
And that's the news.
Speaker 2 (03:56):
I did see a snarky tweet. Yeah, well, this one
still can't get over the name brand hedge fund manager
pumping his decade hold thin. They traded GSC bags on
the last trading day, which is kind of what happened.
Speaker 1 (04:10):
I mean, oh yeah, but like to be clear, like yes,
like he is talking about this trade on Twitter on
x and that has the effect that like retail traders
see it and the stock goes up. Like the play
here is not that he pumps it and the stock
goes up and he sells into this retail demand. The
play here is obviously that he wants this to happen.
He's not writing these tweets to retail investors. He's writing
(04:32):
these tweets to Donald Trump and Elon Musk and like
the other Donald Trump advisors who will decide what happens
to Fanny and Freddy, because like it is true that
like something has to happen to Fanny and Freddy, and sorry,
it's not true. They could do nothing. I have argued
for twelve years now that it's fine. It's totally fine.
The status quo is fine. These are policy arms of
the government. They're like, essentially like the government's way of
(04:53):
guaranteeing thirty year fixed rate refinanciable mortgages. There are a
way that the government supports the house market. And they've
you know, historically been implicitly backed by the guarantee of
the US government, and now they're explicitly backed by like
they're owned by the US government, and there is not
really anything terrible happening from the fact that they're not
in private hands. I've said this for years that people
(05:15):
are like, oh, actually, this is a terrible thing. There
are various problems that come from them being in government ownership.
But it keeps working, you know, it keeps being kind
of fine, so they don't really need to do anything.
But it's just it seems clear that like this Trump
administration last time did want to get them into private hands,
and they kind of ran out of time, and now
they have four more years and like they're a little
less constrained, and so they will probably do it. And
(05:36):
so it behooves Bill Ackman to get on X not
to tell retail investors to go buy the stock, but
to tell the Trump administration, oh, don't forget to privatize
Fanny Man and Freddie back and give them back to
their existing shareholders, who include probably a lot of like
retail investors maybe who've held them since two thousand and four,
(05:57):
but maybe who bought them last week, but also clear Blackman,
who would probably make a lot of money if they
were handed back to shareholders.
Speaker 2 (06:04):
Yeah, he estimates he could make like a twelve hundred
percent return on this. Sure, that's his math.
Speaker 1 (06:10):
Yeah, I mean like conceptually, if you look at the
technical cash flow water flow of these companies, the stock
is worth zero dollars, right, And it's like that exactly right,
But it's like it's kind of right. It's basically like
the way these companies work is that every dollar they
make for the rest of time goes to the US government,
and then after that the shareholders get something. Right, So
like there's no cash flows to the shareholders and everyone
(06:31):
just assumes that that deal will be changed for reasons,
either reasons of like, oh, it's not fair to the shareholders,
or reasons of like, we do need to get private
capital back, and the only way to do that is
to like give something back to the shareolders. But like
right now, like the sort of like legal official value
of the cash flows to Fanny and Freddie sholders is
zero dollars, and so Bi Lackman is buying the stock
at like, you know, a low price, not zero dollars,
(06:52):
but like a low price reflecting the uncertainty about whether
they'll ever get cashlows. His thesis is you should just
stop that. You should forgive what is now something like
three hundred and forty billion dollars of nominal debt to
the government, and you just say, actually, all the profits
from now and go to the shareholders instead of the government.
Like yeah, that's a big difference. Giving them three hundred
and forty billion dollars would make them much much, much,
(07:14):
much much more valuable.
Speaker 2 (07:15):
Something that I was hoping that you could explain to
me is like, let's say that the status quo persists
that the assumption that you know they will be returned
to private hands actually doesn't end up coming true. You
wrote that as it is right now, they don't have
to pay their income in cash to the government, but
each increase in net worth adds to the amount that
they owe to the government, so they still can't pay
(07:37):
off the debt. If they never returned to private hands,
could they ever get out of this hole? Like how
does that work?
Speaker 1 (07:45):
There's no hole. They're just owned by the government. With
the way it works now is that every increase in
the net worth of Fanny and Freddy goes to the government,
which is what happens when the government owns one hundred
percent of Fanny and Freddy. There's no hole, like there's nominally,
like there's a number that is like nominally the debt
that they owe to the government. It's technically preferred stock,
(08:05):
not debt. It's like junior to the actual debt, like
you know, the mortgage guarantees. But the amount that they
owned the government goes up every time their value goes up,
which is a way to make sure that the government
continues to own one hundred percent of their cash. Lists.
But there's no like hole, like nothing bad happens to
them if like the amount that they owner, the government
goes up, and nothing good happens to them under the
current legal structure if the amount of that they order
the government goes down. But like everyone's assuming the amount
(08:27):
they owned the government will at some point go down
through some sort of decision by the government, and when
that happens, the people who invest in the stock will
make a lot of money. I assume Katie's gone. Now,
this is the problem with Katie is recording this podcast
live from atop a horse, and she fell off the horse,
and so the connection was interrupted.
Speaker 2 (08:47):
For Yeah, I'm actually I've been loaded into the ambulance.
I'm away to the hospital. But you know, I said,
I gotta connect. I got into the listeners. Okay, So
you were saying, there there's no hole that this is
just the status quo. It's not like this.
Speaker 1 (09:04):
There are a lot of weird accounting conceits going on
here for reasons having to do with like the history
of the bailout and like literally the US government's debt ceiling.
But there are all accounting fictions, and like the reality
is that right now, legally the terms are the government
just owns Fanny and Freddy, And so the adjustment of
accounting numbers doesn't really matter, just all the income goes
(09:26):
to the government. But Bill Ackman, but also a lot
of people are betting, probably correctly, that that accounting treatment
will change, and that status COO will change, and the
beneficiaries of that change will be the people who own
like twenty percent of the stock that is in public
hans and that trades over the counter. And the assumption
is like that stock will become valuable when the government
figures out how to get Fanny and Freddie off of
(09:47):
its books.
Speaker 2 (09:48):
I guess, And you address this in the column, like
what is the incentive for the government to do this?
And I guess it makes sense why Ackman posted what
he did.
Speaker 1 (10:00):
Where a sail like the trade is very clear. It's like,
they'll give you this multi hundred billion dollar company, right
if you're the government. It's a good question. And part
of the point of what I wrote the speaker was
to just kind of press on that and be like,
you know, the government has this valuable asset and the
Lackman would prefer to own it, and Blackman is like,
the government should give it to me. And I think
there's a wide thread assumption that the government will be like, yes,
(10:21):
we should give it to you and to be fair
to like the thousands of retail shaholders that own most
of it. That's probably right, but it's weird, right, it's weird,
but the government would just give this thing up. The
answer to that is that the government's stake in this
is monetizable, right, It's like it's valuable and they could
sell it for money. But they can't sell it for
money unless it's like kind of restructured as a normal company,
(10:42):
which probably does mean putting the common stock back in
the money somehow. So the idea is that if the
government sort of sets this up in a way where
the common sholders get something, then the government can sell
down its stake over time, and that steak is going
to be worth hundreds of billions of dollars and the
government will get a lot of cash, whereas if it
doesn't do that, it will continue to own Fanny and Freddy,
which will continue to have like cash flows that will
(11:04):
kind of go to the government, and so the government
will like get money over time. But you know, this way,
it's like monetizing it possibly a high point and like
getting cash now instead of like waiting over time to
collect fees.
Speaker 2 (11:16):
One of the questions if this did happen, like if
if privacization did happen, what the effect on mortgage rates
might be. And I mean you talk about in your column,
how if it was privatized, then that sort of wink wink,
you know this is backed by the government, that would
go away, Like they would be allowed to fail if
they ended up in this situation again, but maybe.
Speaker 1 (11:37):
Why is that maybe allowed to fail? I don't know.
I think it's hard to sort of game out what
would happen, because I think what would happen is that
in twenty twenty six or whenever they're released from government control,
they will be well capitalized. They'll be like pretty well run,
They'll be regulated. Everyone involved will have an incentive to
make sure that they don't go bankrupt six weeks later,
because like that would be really bad, right, So they're
(11:58):
not going to do Yeah, they're going to be careful.
And the question is in twenty years, how will Fanny
and Freddie be run? And the historical precedent is like
they started taking some risks and they started making some
mistakes and like they weren't you know, great about everything,
and their regulator is maybe a little asleep at the switch,
and so they ended up going bankrupt, not literally going backrupt,
but going into conservativeship and being on by the government.
(12:20):
Would that happen again eventually, maybe, And if it did
happen again eventually, the question is would they be too
big to fail and would the government bail them out again?
Because if so, then it's like it's kind of weird
to release them, and like, you know, it's like the
classic story of financial bailouts of like the private shareholders
get all the upside and then the government takes the downside.
Like here's the government took the downside. The government took
(12:41):
them over when they were broke and got a lot
of upside. But the status quo right now is kind
of the government gets one hundred percent of the upside,
and like the releasing them from conservativeship would mean private
shareholders get the upside again. And then if in like
twenty years they go bankrupt again, the government takes all
the downside. It's like a little bit of a negative association.
But I don't know what happened. I mean, I think
they will be regulated. They'll have like a regulatory capital requirement.
(13:04):
The regulator will be part of the Trump administration, Like,
I'm sure they'll be careful for maybe the rest of
my financial blocking career, but like eventually, who knows.
Speaker 2 (13:14):
It is kind of fun to imagine a universe where
they are privatized and then sixteen years later or whatever,
they end up in this kind of hot water. Again,
the governments.
Speaker 1 (13:23):
Things are cyclical, like it wouldn't be that weird, you know,
but we can.
Speaker 2 (13:27):
Just keep doing this until the heat death of the universe.
Speaker 1 (13:30):
And one way that people think about this problem is
is to try to avoid having institutions that are too
big to fail, right, Like you try to make it
so that banks are first of all robust defilure, but
secondly you try to say, like, you know, can we
make it so that if they do fail, they can
fail in a way that like, you know, private capital
takes all the losses. And like that's definitely part of
the thinking with Fanny and Freddy, where like instead of
(13:50):
them backing every mortgage that's on their balance that they
like are doing risk transfer securities where they're essentially selling
the credit risk of their mortgages to other private investors,
so that like it's not just Fanny and Freddy's capitalist
standing behind the mortgage market. Over the years, as people
have thought about privatizing Fanny and Freddy, there have been
proposals of, sure, let's privatize them, but not two of them.
Let's make them like sixteen of them, so that if
(14:12):
one mortgage company fails, then fifteen more will be fine
and it won't be a systemic risk and it won't
require a government ballot. But you can sort of see
why that's not the preferred proposal for the people who
own the stock because who own the stock on the
stock of like particular companies, and they want to, like,
you know, have those companies be valuable, and those companies,
frank they are more valuable if they're too bad to fail.
Speaker 2 (14:33):
I hope that if it is privatized, we are back
in a low interest rate environment, because the potential effect
on mortgage rates is somewhat interesting. Like if it doesn't
have that sort of wink wink government backing.
Speaker 1 (14:46):
I don't know what the effect on mortgage rates would be.
I think that, like my impression is that Fanny and
Freddy are sort of run now on a basis that
is meant to be kind of close to what they'd
look like as regular public companies, and so like they
wouldn't like double their guarantee fees tomorrow because they want
to be more profitable, right, or they would like have
them because they wanted to be more competitive, right. Like
(15:07):
their fees are kind of like roughly what you'd expect
them to continue charging. Would their bonds trade wider if
they were not backed by the US government? I don't know.
That's like, you know, the bet that Bilackman is making
is know that by the time they are released, they
will have such a fortress balance sheet, they'll be so
well capitalized that they will be essentially equivalent to the
(15:29):
credit of the US government and they won't need the
government backing. But I don't know, it's not totally clear
that that's true. And it depends also on like what
actually happens with their capitalization, right, I mean, like you
can argue over how much capital they should be required
to hold, and you know, if you're the shareholders, you
kind of want them to hold relatively little capital because then,
(15:52):
among other things, that means like you don't have to
dilute your own shares to make them viable standalone companies.
If you're a nervous regulator who remembers two thousand and eight,
you want them to hold a lot of capital, But
you know, there'll be a debate about how much capital
they need. You know, Bill Lackman is arguing for a
two point five percent capital ratio, which is like kind
of low on the scale of what people argue that,
(16:12):
but he says it's like it would be seven times
as much as their losses in two thousand and eight,
their losses on their guarantee portfolio, which I think is
you know, suggests that that would be pretty robust. So
there's gonna be a lot of argument about how much
capital they need.
Speaker 2 (16:25):
Well, we'll see. I don't know where this possibly ranks
on the Trump administration's priority list. And I mean there's
analysts from Bluebern Intelligence who expect that this is like
a twenty six twenty seven conversation.
Speaker 1 (16:37):
So I think it's a twenty six twenty seven like
events in part because of like every quarter that goes
by that they're profitable, they build up more capital, and
it's just easier to do this trade. So like, even
if it was the top priority, releasing them tomorrow would
make less sense than releasing them in twenty twenty seven.
I don't know it ranks on the list of priorities either,
but you know, it's like there's a.
Speaker 2 (16:57):
Reason it means to buy Greenland first, right.
Speaker 1 (17:00):
But also tweeting it and you know, like there's like
your hedge fund buddies come to you, like, hey, you
could really have about your hedgehund buddies. Then maybe it
works out right, And like the other thing is like,
so he's tweeting this in part for like the officials
to read it, but he's also you know, other people
will see this idea and maybe they'll buy the stock.
Some of those people are retail people who have you know,
have no influence with the administration, but who knows who
else will buy it?
Speaker 2 (17:19):
Right?
Speaker 1 (17:20):
Yeah, what if Elon Musk's these two's like, oh, that's
a good trade and then Elon Musk buys like, you know,
a million shares of Fanny made. Now it's igh on
the priority list.
Speaker 2 (17:28):
Yeah, And I mean didn't the shows rise like forty
five percent of the day that he tweeted it. I
think it was December thirtieth, So it's not like there
was a ton of volume going on, but the backs
were pumped.
Speaker 1 (17:39):
Yeah, it's very binary, right, Like this is either a
very valuable company or it's worth zero, and like it's
just like some day someone's gonna flip the switch and
make it very valuable. Probably almost certainly, And like Bill
Lackman putting it on Twitter, like moves up the day
when they flip the switch, and that makes it a
lot more life.
Speaker 2 (18:07):
One of those wacky kids getting up to over in Indiana.
Speaker 1 (18:10):
I love these kids.
Speaker 2 (18:11):
So are they still students or no?
Speaker 1 (18:15):
No, no, I've looked up a couple of them on LinkedIn.
They they have real jobs.
Speaker 2 (18:19):
They're not did you add them?
Speaker 1 (18:20):
No, But they're not like running this golf resort as
far as anyway. So Indiana University, the Kelly School of Business,
they have an MBA class like an integrative case experience.
So it's like their capstone project for their MBA and
it's on the business of sport. And the class project
that's like sixty percent of your grade is to create
an executive level recommendation to an entity facing real world challenges.
(18:42):
And so the professor that goes out and sources like
actual like ongoing sports business situations and then like you know,
packages them in a case and says to the class,
what would you do about this? And this group of
students took this challenge case situation involving the development of
a golfer in Puerto Rico. Basically like this Puerto Rican
like land development authority own some acreage in Puerto Rico
(19:05):
and they brought in a developer to develop into a
golf resort. And these students were like, given the project
of look at this situation, build a financial model, build
some plans for how you would do it. Make a
good presentation about how you would develop those golf resort.
And you know they're NBA students, they have connections, and
some of them were apparently relatives of people who work
(19:27):
at a golf resort development company, which is like a
natural fit. So they were like they called their family
or friends or whatever and were like, hey, you developed
golf courses, what do you think about this golf project?
And somehow what happened is, first of all, they did
apparently a good presentation that was like, this is how
we would develop this golf project. But secondly, the people
they called were like, hey, this is such a good deal,
(19:48):
we should do develop it. Not the people who are
already developing it, we should take over this deal. And
so the people they called like apparently took over. They
called the Puerto Rican Land Development Authority and said, hey,
we have a better plan, and they ended up jumping
the original deal, and the people who had the original
development project, who are now out in the COLT sued
the new development company and the NBA students and the professor,
(20:11):
saying basically, like, the way the professor got this case
is that the guy who was developing the project originally
was a proud alumnus of the Kelly School of Business,
and he was like, of course you can create a
case about my masterpiece golf development. You should definitely ask
your students to advise me. Maybe because he wanted the advice,
(20:32):
or maybe because he was just proud of it, But
in any case, he's now suing the professor and the students, saying,
you stole my idea.
Speaker 2 (20:38):
That is so wild and so good. When I first
read it, I thought that like they went out and
shopped it around after the course. But no, their presentation
was based on the fact that they made this partnership
with Discovery.
Speaker 1 (20:53):
No. No, no, the presidation didn't say they made a
partnership the presentation said that they consulted with Discovery to
to basically sort of like get business ideas for how
to develop this course. But it's interesting, like because yes,
the lawsuit cites their presentation. It says, the student defendants
made the following admissions and their recorded presentation, we explored
a union with Discovery Land Companies. So I think, you know,
(21:13):
as you're pretending to develop a golf course, you're like, oh,
we could do a merger, right, But except that it
happened in real life. What was interesting to me is,
I don't know if that's like they brought this lawsuit
and in Discovery they they got to watch the student's
presentation that was recorded for class and they said, aha,
they admitted it. Or if like the original developer of
the project watched the presentation as part of the class, right,
(21:36):
because like he was the one who said to the
to the professor, hey should teach a course about my
golf resort, and so you know, like probably he went
to the final presentations, like the professor's like, hey, you
should come see the students like what they think about,
you know, how you should do the golf course, and
he like shows up like all proud saying, yeah, I
want to I want to hear what you think of
my golf resort. And they're like, we've had another bidder.
(21:56):
And he's like, ah, so I hope that's what happened.
Speaker 2 (21:59):
I don't actually so wait, So they sued the professor,
they sued the students. Did they sue the school itself?
Who beyond the students could be founded fault here?
Speaker 1 (22:09):
Well, the main one is discovery of the company that
apparently jumped the deal.
Speaker 2 (22:12):
Yeah, that they seem like the baddies.
Speaker 1 (22:15):
Well, I don't know if they seem like the batties,
but they're the people have money, right, The best word
is they're suing for one to two billion dollars. Why
one to two billion dollars? Well, as part of their
class project, the students calculated how much profit they expected
this golf resort to bring in, and so they wrote down,
this is worth one to two billion dollars, and so
that's what they're suering for. I don't think the students
have one to two billion dollars Sothough that's possible.
Speaker 2 (22:35):
That's really funny. I mean, I guess it makes the
plaintiff's lawyer's job really easy.
Speaker 1 (22:41):
I wouldn't go that far. But yes, they get to
put in their press dam It is rare for it
defendant to calculate the damages, but here they did, right.
It's like it's a good line. I will say that
I got emails from readers being like I did a
class project presentation saying that so and so should buy
sow and so, and I got a b and then
six months later they did it and I didn't get
to do the deal. What I wrote is that business
(23:02):
school is a lot of like pretending to do business deals,
and like this is the rare case where it like
somehow transformed into our reality. But most of the time
you stick to pretending.
Speaker 2 (23:10):
And do you know when this actually happens, like when.
Speaker 1 (23:13):
The twenty twenty one course.
Speaker 2 (23:14):
Oh so I wonder, like for these students who have
now graduated and are in their professional lives, I wonder
what this feels like.
Speaker 1 (23:24):
Yeah, it must be stressful. I will say, like I wrote,
you know, you get an A plus in my course,
Like I don't know, like if I heard their professor
or like their current and floor, I'd be proud of them,
like they they went out and did it, you know,
like this is this is this shows some hustle, shows
some enginuity, shows a commitment to business. I don't know.
It's good. I like it. The thing that's happening here
is like the lawsuit is like we had an NDA
(23:45):
where people agreed not to like disclose anything, but like
it's not clear who they had an NDA with, Like
I think they thought the students were signing ndias, but
the students maybe weren't signing indias. It's a little unclear.
So like it's not clear the students did anything wrong, right,
Like it wasn't like they were like, ah, let's break
up this deal. It was like they were like, oh,
we need to do a good presentation, so let's contact
(24:07):
people on the field and sort of get their input.
Speaker 2 (24:09):
I don't know, I feel like exploring a union goes
beyond just you know, doing.
Speaker 1 (24:14):
It's all pretend, Like how would we do this deal?
How are we'd explore a union? I don't know. It's fine.
Speaker 2 (24:20):
At some point it crossed over into real life, Yeah you're.
Speaker 1 (24:23):
Sure, but like they didn't do anything wrong, Like yeah,
it cross never to real life because it was a
good idea, but I don't know, like like it would
be a failing on their part as pretend business advisors
to not explore a union with some with another golf developer,
and they did became.
Speaker 2 (24:37):
I do feel bad for the professor. I have sympathy
for the professor here, and I hope that this I
hope this course is still taught because it sounds fun.
A sports business integrative case experience. That sounds like a
valuable course to teach at the Kelly School of Business.
So thought val thoughts and vibes being sent to the
professor right now, and maybe it's let me pull this up.
(25:16):
I am never doing.
Speaker 1 (25:17):
He is riching into her saddle bags.
Speaker 2 (25:19):
I'm so smart.
Speaker 1 (25:22):
Some oats assault lick up here.
Speaker 2 (25:24):
It is okay. So I take pains to avoid the
commodity markets because there's just there's so many different nuances.
But occasionally commodities become really fun. And I think that
the cocoa markets have been really interesting for a while.
There's been some extreme weather and some sick and aging
(25:45):
trees on the other side of the world, and that
severely impacted the price of cocoa because there's a lot
less crop being harvested, and that has been really painful
for a lot of chocolate makers. Including for Hershe's, And
there was an incredible Blue news story out this week that,
according to people familiar with the matter, Hershey's wants to
(26:06):
take a position that will allow it to purchase more
than ninety thousand metric tons of coco on ice futures
us according to people familiar and the request of the CFTC,
if they take physical delivery accounts to about five twenty
foot containers, and it's more than nine times the amount
that the exchange currently allows. There are a lot of
(26:29):
supply concerns right now, and it sounds like, according to
these people, that Hershey's is at the point where they
don't want to mess around anymore. They want to purchase
all these futures which would allow them to take delivery
of this coco versus trying to buy it in the
physical market right now, where prices are just super high.
Speaker 1 (26:48):
Right the way I understand it is like commodities exchanges
largely have warehouses that contain some amount of the commodity,
and the way you trade futures is like you trade
futures back and forth which are like for future delivery
of the commodity and when they expire. Most of the
time you roll them, so you don't take delivery. But
sometimes you take delivery and then you get a certificate
entitling you to some of the commodity in the warehouse.
(27:10):
And usually you don't mean to do that until you
go and like sell some more futures backed by the certificate.
But every so often, if you're like a big user
of the commodities, you actually want to take the commodities
out of the warehouse because like there's some stuff in
the warehouse that the exchange runs, and you can't find
enough of your commodity elsewhere, and so you're like, yeah,
(27:31):
get the stuff out of the exchange warehouse. And Hershey's
is like, we cannot find chocolate anywhere. Where's their chocolate. Oh,
there's a lot in the ice warehouse. So we'll just
take all of that. So I think, like I understanding
that they want to buy, like, you know, the enormous
percentage of the cocoa at these ice warehouses.
Speaker 2 (27:47):
Yes, actually so much that if they did take delivery,
it would basically equate to all the beans that are
currently stop sewer than.
Speaker 1 (27:56):
All of the beans, right, get all the beans.
Speaker 2 (27:57):
They're not messing around anymore.
Speaker 1 (27:59):
I will say, I assume candy makers, including Hershees, have
like contracts with people who produce cocoa. And I assume,
and maybe this's not as true of Hershees as it
is of like your favorite artisanal chocolate maker, but I
assume that they want, like, you know, fresh cocoa, right,
They're like, oh, you know, bring us your best and
freshest cocoa so we can make chocolate bars out of it.
I also assume, and I could be way off base here,
(28:21):
but I assume that the cocoa sitting in the exchange
warehouse is not the best and freshest cocoa, because like
there's a lot of physical demand for cocoa, and if
you have some cocoa fresh off the tree or whatever,
then like people will buy it from you and you
don't need to deliver it into the ice warehouse to
support futures. There's an FT story in September about similar
things were going on in London, where like chocolate makers
(28:44):
were taking cocoa out of like the London exchange warehouses. Yeah,
and people were like, with left in London is a
poisoned pill, because it's like, yeah, it's like stale cocoa.
It's like been there for it's been sitting around for
a while, like all the good stuff has already been used,
and like they're kind of getting the dregs out of
the commodities. I don't know if that's what's happening here,
but I don't I don't know, Like chocolate bar made
(29:05):
of exchange warehouse.
Speaker 2 (29:06):
Chocolate, very extremely stale cocoa beans. I guess we'll find out.
I mean, reading through some of like the Commodity analyst
reports on the state of the cocoa industry, it seems
like these supplied demand dynamics are a long way from
being worked out, So I don't know. Maybe we'll see,
of course, if her Shee's actually gets this permission. This
is according to people familiar with the matter. Hershey itself
(29:28):
does not confirmed this, and we'll see the guests at
that point where we are all eating still chocolate. But
Hershey is interesting because they made a similar trade in
twenty twenty when there were all these pandemic related weirdnesses
in the cocoa industry. But anyway, this isn't the first
time that Hershey has just cornered the market, so to speak.
(29:49):
This time it feels more idiosyncratic like in twenty twenty,
every commodity market, it felt like, was just going through it.
Speaker 1 (29:57):
I will say, like the cocoa market. You know, it
exists for chocolate manufacturers to heads their price of cocoa.
And like, I don't know, I'm not up on the
biggest chocolate manufacturers, but Hers she seems really big, right,
It's not that surprising that every so often the biggest
chocolate manufacturer would say, okay, we want all the beans now.
Speaker 2 (30:17):
Right, Yeah, there's a few of them out there. I mean,
you think about Mandley's, you have Mars. I know this
because a few months ago we were trying to book
a lot of chocolate makers because we wanted to talk
about coco on television. There's more than you would think.
Speaker 1 (30:32):
I'm going to talk about. My favorite commodity story, maybe
of all time, is that a while back in the
like in one of the exchange warehouses for nickel, someone
was like walking along and they noticed that like a
bag of nickel that belonged to JP Morgan, right, like
JP Morgan owned the entitlement to that nickel in the warehouse.
It was actually rocks like someone at some point either
(30:55):
before it went into the wear so while I was
sitting in the wareus, which was doing for years without moving.
At some point they had stolen the nickel and replaced
it with rocks, which is such a wonderful story about
how these commodity trades work because like, you didn't need
it to be nickel, like you're just trading back and
forth like abstract entitlements of the nickel. It didn't matter
that you weren't doing anything with the nickel. You weren't
making anything with the nickel, so it was totally fine
that it was rocks for a while until someone discovered it,
(31:16):
and then it was embarrassing. I also thought that story
because it then led to I think the warehouses like
had people go around and check all the other bags
of nickel to make sure they weren't rocks, which required
them to wear steel toad boots because you can you
really hurt yourself checking the bags of nickel. But anyway,
like these warehouses, because they're mostly used for futures, because
it is like a somewhat unusual event for someone to
(31:37):
come in and say, okay, we want all the cocoa
beans in the warehouse because we need to make chocolate
with them. Like what if the beans are all pebbles, right, what.
Speaker 2 (31:44):
If they're all I don't know, coffee beans. Obviously those
look different. But I hope that someone is crawling around
in the warehouses right now making sure that they have
all the cocoa beans.
Speaker 1 (31:54):
Awkward if, like all the chocolate bars are made of
pebbles because the warehouse cocoa was not real coca.
Speaker 2 (32:00):
Well, a conversation I had with one of these chocolate
makers that we finally got to go on TV was
are you still using chocolate? And a lot of them
have had to start using, you know, more filler in
the form of like nuts and various things because they
just can't source enough chocolate to make enough chocolate bars.
Speaker 1 (32:20):
If they're bugs in the ware sawdust in the word.
Speaker 2 (32:22):
Put it oudre, I grind them up, put them in
it's fine.
Speaker 1 (32:25):
Chemicals and any beans.
Speaker 2 (32:27):
Pretty much, we'll see. I don't know. They don't have
permission yet. A larger position limit is likely to send
the price of earlier dated futures to a significant premium
about the later dated ones. Apparently, the future's curve for
cocoa I was speaking to an analysis this morning is
has been backwardated for a long time. At this point.
So I don't know.
Speaker 1 (32:48):
Yeah, that's like fitting with the notion that like the
physical market is incredibly tight and her Shoes is trying
to get beans out of the futures. Right, Like, you
wouldn't buy cocoa beans in the form of commodities futures
unless it was more expensive to buy them than the
form of cocoa beans, right, Like the curve is the
curve is obviously backwardated, which I guess implies that there
(33:11):
will be some easing of cocoat conditions, but not yet.
Speaker 2 (33:14):
Yeah, their explanation for like the extreme backwardation is just
it's it's so dramatic at this point. It can't stay
at these levels forever, surely, Right, So that's.
Speaker 1 (33:23):
What that gradation means, I know, Like it means that
Hershe's is going to pay a huge freom to get
all of the beans out of the warehouse and then
they'll start over and then they'll be fun. Yeah, I
will say, why shouldn't they ge permission? You know, like
the point of this market is to you know, smooth
the prices of agricultural commodities, right, and like if an
actual producer of chocolate is like the only way for
(33:43):
us to make our chocolate bar quota is to take
the beans out like like they're not like a weird speculator,
like doing a weird corner, like they're just gonna make
chocolate bars with it.
Speaker 2 (33:52):
Seems like the what the market, Well, they got permission
in twenty twenty, so I don't know history would suggest
it'll be okay, But man, it just feels like every
couple of months, some whether it's lumber or sugar or
coffee or cocoa, something pops off and then there's a
bunch of curious stories such as this one.
Speaker 1 (34:10):
I'm a tourist in the commodity of space, but I
always find it very fun. Yeah, I think we have
to talk about two notes. We got about the mailbag episode.
Speaker 2 (34:19):
Yes, our official first episode of the year.
Speaker 1 (34:22):
So we had a mailbag episode let's say last week
recorded let's say three weeks. Yeah, but last week we
had a mailbag episode. It was great, you should listen.
But in it we said two things that people complain
about with various degrees of fairness. Someone asked like, why
can't you buy, like on the Stock Exchange, single family homes,
and I said, well you can. You should be able
(34:43):
to buy like single family rental homes. That's like an
investable asset class, and like probably they'll be eventually, there
will eventually be reats that allow you to do that
on the exchange. In fact, there have been reads that
allow you to do that for years, and someone emailed
me to point out that there's like three that trade
on the exchange now. So yes, you can go buy
single family homes in the form of shares of stock
and reads, but you can't buy, as I said, single
(35:04):
family owner occupied homes because those are run by their occupants,
not by a red but you can either read. And
the other one is that you said, and I questioned this,
and you were stuck to your guns. You said that
in the US ticker symbols on the Stock Exchange max
ad at four letters, and we got complaints. One set
of complaints was like, actually, mutual funds have five letter tickers,
(35:26):
which I think is not a fair complaint because those
are not stocks on the stock exchange. That's a different thing.
They're like in the universe of identifiers. They have five
letter tickers, but they're not stock exchange tickers. The other
complaint is that nas like actually like caps at at
four letters, but then there's like they have like special
codes you can add that are a fifth letter, so
like preferred stock can have a fifth letter, or like
you know, Google has multiple shares of stock, and like
(35:48):
some of them are Alphabet has multiple shares of stock
and some of them are like you know, goog A
or whatever, and you know, and as they used to
have the Q code, which apparently I learned from this
reader response. The Q code, which famously represents companies that
are in bankruptcy, like, is no longer part of the
NASDAK nomenclasure, but like still some venues put Q on
(36:08):
the end of a ticker when it's in bankruptcy.
Speaker 2 (36:10):
Yeah.
Speaker 1 (36:10):
So back in the day when like Tesla was not
the juggernaut it is now, and like people were shorting Tesla,
Like there's like a whole Twitter community who's like, you know,
banner was TSLAQ Yeah, because it's like, oh, Tesla's bankrut, right,
So the Q code is no longer a part of NASDAK,
but it's still bason in our hearts. So to clarify,
(36:31):
Katy has a response because Katie Katy knows for tickers.
Speaker 2 (36:34):
Yeah, the mutual fun thing. Yeah, they're not. They don't
trade on the exchange, hence ETFs or exchange traded funds.
So there's a four character limit. Generally, this is literature
from Nasdaq that for common stock insuances, NASAK assigns symbols
between one and four characters in length. There are some circumstances,
(36:57):
and I should have known that by saying that there's
a four character limit that that would invite people to
like find the asterisks. But there's a fifth symbol that
can be added to the original ticker in special cases
such as you know, different share classes, et cetera. But
if you are going with an ETF or in I
PO and you say I would like to list this
(37:19):
on your exchange, can I reserve this five letter ticker,
you would be told no, is my understanding. And I've
spoken with both Nazak and NISI about this at length
because I would love if they expanded the limit, just
because that would be fun to write about. And it's
a four character limit except in special circumstances, like you.
Speaker 1 (37:41):
Know, you're a little iconder like every three months, like
have they expanded the ticker symbols yet, because like that's
that's that's that story. You know that story all drafted
and ready go.
Speaker 2 (37:50):
Huh, I'm ready to go. Because and we also do
we have on folks from NISI and from Nasdaq on
you know, either Open Interest, which I anchored daily, or
on etf IQ. And every time we have anyone who
touches the listings business, I asked them about the ticker
limit and if they're considering five five, and every time
(38:12):
they politely tell me that no, they don't have any
plans to expand beyond four characters.
Speaker 1 (38:16):
So yeah, this is in the context of a question
about ETFs that was like, eventually there'll be like ten
zillion ETFs and there's only so many four letters.
Speaker 2 (38:25):
Yeah, and there's going to be ten zillion specifically single
stock ETFs which already have real estate taken up in
the ticker, and then you could see a supply crunch
there similar to what we're seeing in the cocoa market
right now.
Speaker 1 (38:39):
It's true, they'll have to get the tickers out of
the warehouses and.
Speaker 2 (38:44):
You better hope that you know they're good quality.
Speaker 1 (38:56):
And that was the Money Stuff podcast.
Speaker 2 (38:58):
And I'm Katie Greifeld.
Speaker 1 (39:00):
You can find my work by subscribing to the Money stuffnewsletter.
On Bloomberg dot.
Speaker 2 (39:03):
Com and you can find me on Bloomberg TV every
day on Open Interest between nine to eleven am Eastern.
Speaker 1 (39:09):
We'd love to hear from you. You can send an
email to Moneypod at Bloomberg dot net, ask us a
question and we might answer it on air.
Speaker 2 (39:16):
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 1 (39:22):
The Money Stuff Podcast is produced by Anamasarakus and Moses Onen.
Speaker 2 (39:25):
Our theme music was composed by Blake Maples.
Speaker 1 (39:28):
Brandon Francis Newnim is our executive producer, and.
Speaker 2 (39:31):
Stage Bauman is Bloomberg's head of Podcasts.
Speaker 1 (39:33):
Thanks for listening to The Money Stuff Podcasts. We'll be
back next week with more stuff.
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:09):
Yeah, it turns out, you know, if you google how
to defrost a bagel and it tells you to run
it under cold water for thirty seconds, that is an
unnecessary step. Not only is it unnecessary, I would not
recommend it, it produces a disgusting result.
Speaker 1 (00:24):
Yeah. No, your mistake was giggling instead of asking your
local suburban jew who would tell you right answer.
Speaker 2 (00:31):
Or just ask you know that you could go that route,
or just ask your podcast co host because everyone has
one of.
Speaker 1 (00:38):
Those, and I'm facing important life decisions that my first
thought is I should ask my podcast cast about those. Yes,
at that's true.
Speaker 2 (00:49):
It's practical for most tests. So this actually isn't our
first episode of the year.
Speaker 1 (00:56):
It's not our first episode to air this year. That's true.
And we did pretend that we recorded the last episode
this year, although we didn't keep up that pretence for
very long.
Speaker 2 (01:05):
I think we tricked everyone. Actually, of course that worked
really well.
Speaker 1 (01:10):
Hello and welcome to the second Money Stuff podcast of
twenty twenty five, your weekly podcast where we talk about
stuff related to money. I'm Matt Levin, and I write
the Money Stuff column for Bloomberg Opinion, And.
Speaker 2 (01:24):
I'm Katie Greifeld, a reporter for Bloomberg News and an
anchor for Bloomberg Television.
Speaker 1 (01:28):
What are you talking about today, Katie?
Speaker 2 (01:30):
Today we're going to talk about Fanny May, Freddie Mack,
and friend of the show Bill Lackman. We're going to
talk about MBA students and when case studies become real life.
And then we're going to talk about cocoa liquidity, Fanny
(01:53):
and Freddy. Fanny and Freddy. So this trade is once
again being resurrected and has some legs again. There's a
lot of optimism out there that maybe finally these two
are going to end up in private hands again.
Speaker 1 (02:09):
Yeah. I used to write about this a lot and
then everyone kind of forgot about it, and I wrote
about it this weekend. I was like, I gotta start
from scratch. I gotta be like, what is Fanny and Freddy.
I'm not sure we'll do that on the podcast, but
we could. Is what are Fanny and Freddy? Fanny and
Freddy were the big mortgage guarantee companies that were technically
(02:31):
regular publicly traded companies, but everyone kind of thought they
were backed by the government up until two thousand and
eight when they went busted on some bad mortgage bets
and then the government took them over, and it turns
out they were in fight back by the government, and
so everyone who relied on Fanny guarantees to get their
mortgages paid back got their mortgages paid back, and the
government took over Fanny and Freddy, and shareholders of Fanny
(02:53):
and Freddy the day after the government takeover looked like
they had lost pretty much everything, but not literally everything.
And then later in twenty twelve, the government said, you
know what, they've lost everything. And so they've now been
like fully owned by the government more or less for
I say, twelve and a half years now, and in
that time people have spent kind of that whole time
(03:15):
being like, obviously this can't last, and Fanny and Freddy
have to return to private hands anytime now, and a
lot of people have made that bet in the form
of buying the stock of Fanny and Freddie, which still
trades over the counter, and saying when they returned to
private hands, the stock is going to be really valuable.
And they filed some lawsuits that didn't really work out
(03:36):
a long time ago, but now you know Trump is
coming back to office, and the same logic applies that
they can't be publicly owned forever. Maybe, And so Bill
Ackman is the latest. He brought up a lot of
Fanny and Freddy common stock and has been tweeting about
how Trump is going to return them to private hands
and they're going to be worth a lot of money.
And that's the news.
Speaker 2 (03:56):
I did see a snarky tweet. Yeah, well, this one
still can't get over the name brand hedge fund manager
pumping his decade hold thin. They traded GSC bags on
the last trading day, which is kind of what happened.
Speaker 1 (04:10):
I mean, oh yeah, but like to be clear, like yes,
like he is talking about this trade on Twitter on
x and that has the effect that like retail traders
see it and the stock goes up. Like the play
here is not that he pumps it and the stock
goes up and he sells into this retail demand. The
play here is obviously that he wants this to happen.
He's not writing these tweets to retail investors. He's writing
(04:32):
these tweets to Donald Trump and Elon Musk and like
the other Donald Trump advisors who will decide what happens
to Fanny and Freddy, because like it is true that
like something has to happen to Fanny and Freddy, and sorry,
it's not true. They could do nothing. I have argued
for twelve years now that it's fine. It's totally fine.
The status quo is fine. These are policy arms of
the government. They're like, essentially like the government's way of
(04:53):
guaranteeing thirty year fixed rate refinanciable mortgages. There are a
way that the government supports the house market. And they've
you know, historically been implicitly backed by the guarantee of
the US government, and now they're explicitly backed by like
they're owned by the US government, and there is not
really anything terrible happening from the fact that they're not
in private hands. I've said this for years that people
(05:15):
are like, oh, actually, this is a terrible thing. There
are various problems that come from them being in government ownership.
But it keeps working, you know, it keeps being kind
of fine, so they don't really need to do anything.
But it's just it seems clear that like this Trump
administration last time did want to get them into private hands,
and they kind of ran out of time, and now
they have four more years and like they're a little
less constrained, and so they will probably do it. And
(05:36):
so it behooves Bill Ackman to get on X not
to tell retail investors to go buy the stock, but
to tell the Trump administration, oh, don't forget to privatize
Fanny Man and Freddie back and give them back to
their existing shareholders, who include probably a lot of like
retail investors maybe who've held them since two thousand and four,
(05:57):
but maybe who bought them last week, but also clear Blackman,
who would probably make a lot of money if they
were handed back to shareholders.
Speaker 2 (06:04):
Yeah, he estimates he could make like a twelve hundred
percent return on this. Sure, that's his math.
Speaker 1 (06:10):
Yeah, I mean like conceptually, if you look at the
technical cash flow water flow of these companies, the stock
is worth zero dollars, right, And it's like that exactly right,
But it's like it's kind of right. It's basically like
the way these companies work is that every dollar they
make for the rest of time goes to the US government,
and then after that the shareholders get something. Right, So
like there's no cash flows to the shareholders and everyone
(06:31):
just assumes that that deal will be changed for reasons,
either reasons of like, oh, it's not fair to the shareholders,
or reasons of like, we do need to get private
capital back, and the only way to do that is
to like give something back to the shareolders. But like
right now, like the sort of like legal official value
of the cash flows to Fanny and Freddie sholders is
zero dollars, and so Bi Lackman is buying the stock
at like, you know, a low price, not zero dollars,
(06:52):
but like a low price reflecting the uncertainty about whether
they'll ever get cashlows. His thesis is you should just
stop that. You should forgive what is now something like
three hundred and forty billion dollars of nominal debt to
the government, and you just say, actually, all the profits
from now and go to the shareholders instead of the government.
Like yeah, that's a big difference. Giving them three hundred
and forty billion dollars would make them much much, much,
(07:14):
much much more valuable.
Speaker 2 (07:15):
Something that I was hoping that you could explain to
me is like, let's say that the status quo persists
that the assumption that you know they will be returned
to private hands actually doesn't end up coming true. You
wrote that as it is right now, they don't have
to pay their income in cash to the government, but
each increase in net worth adds to the amount that
they owe to the government, so they still can't pay
(07:37):
off the debt. If they never returned to private hands,
could they ever get out of this hole? Like how
does that work?
Speaker 1 (07:45):
There's no hole. They're just owned by the government. With
the way it works now is that every increase in
the net worth of Fanny and Freddy goes to the government,
which is what happens when the government owns one hundred
percent of Fanny and Freddy. There's no hole, like there's nominally,
like there's a number that is like nominally the debt
that they owe to the government. It's technically preferred stock,
(08:05):
not debt. It's like junior to the actual debt, like
you know, the mortgage guarantees. But the amount that they
owned the government goes up every time their value goes up,
which is a way to make sure that the government
continues to own one hundred percent of their cash. Lists.
But there's no like hole, like nothing bad happens to
them if like the amount that they owner, the government
goes up, and nothing good happens to them under the
current legal structure if the amount of that they order
the government goes down. But like everyone's assuming the amount
(08:27):
they owned the government will at some point go down
through some sort of decision by the government, and when
that happens, the people who invest in the stock will
make a lot of money. I assume Katie's gone. Now,
this is the problem with Katie is recording this podcast
live from atop a horse, and she fell off the horse,
and so the connection was interrupted.
Speaker 2 (08:47):
For Yeah, I'm actually I've been loaded into the ambulance.
I'm away to the hospital. But you know, I said,
I gotta connect. I got into the listeners. Okay, So
you were saying, there there's no hole that this is
just the status quo. It's not like this.
Speaker 1 (09:04):
There are a lot of weird accounting conceits going on
here for reasons having to do with like the history
of the bailout and like literally the US government's debt ceiling.
But there are all accounting fictions, and like the reality
is that right now, legally the terms are the government
just owns Fanny and Freddy, And so the adjustment of
accounting numbers doesn't really matter, just all the income goes
(09:26):
to the government. But Bill Ackman, but also a lot
of people are betting, probably correctly, that that accounting treatment
will change, and that status COO will change, and the
beneficiaries of that change will be the people who own
like twenty percent of the stock that is in public
hans and that trades over the counter. And the assumption
is like that stock will become valuable when the government
figures out how to get Fanny and Freddie off of
(09:47):
its books.
Speaker 2 (09:48):
I guess, And you address this in the column, like
what is the incentive for the government to do this?
And I guess it makes sense why Ackman posted what
he did.
Speaker 1 (10:00):
Where a sail like the trade is very clear. It's like,
they'll give you this multi hundred billion dollar company, right
if you're the government. It's a good question. And part
of the point of what I wrote the speaker was
to just kind of press on that and be like,
you know, the government has this valuable asset and the
Lackman would prefer to own it, and Blackman is like,
the government should give it to me. And I think
there's a wide thread assumption that the government will be like, yes,
(10:21):
we should give it to you and to be fair
to like the thousands of retail shaholders that own most
of it. That's probably right, but it's weird, right, it's weird,
but the government would just give this thing up. The
answer to that is that the government's stake in this
is monetizable, right, It's like it's valuable and they could
sell it for money. But they can't sell it for
money unless it's like kind of restructured as a normal company,
(10:42):
which probably does mean putting the common stock back in
the money somehow. So the idea is that if the
government sort of sets this up in a way where
the common sholders get something, then the government can sell
down its stake over time, and that steak is going
to be worth hundreds of billions of dollars and the
government will get a lot of cash, whereas if it
doesn't do that, it will continue to own Fanny and Freddy,
which will continue to have like cash flows that will
(11:04):
kind of go to the government, and so the government
will like get money over time. But you know, this way,
it's like monetizing it possibly a high point and like
getting cash now instead of like waiting over time to
collect fees.
Speaker 2 (11:16):
One of the questions if this did happen, like if
if privacization did happen, what the effect on mortgage rates
might be. And I mean you talk about in your column,
how if it was privatized, then that sort of wink wink,
you know this is backed by the government, that would
go away, Like they would be allowed to fail if
they ended up in this situation again, but maybe.
Speaker 1 (11:37):
Why is that maybe allowed to fail? I don't know.
I think it's hard to sort of game out what
would happen, because I think what would happen is that
in twenty twenty six or whenever they're released from government control,
they will be well capitalized. They'll be like pretty well run,
They'll be regulated. Everyone involved will have an incentive to
make sure that they don't go bankrupt six weeks later,
because like that would be really bad, right, So they're
(11:58):
not going to do Yeah, they're going to be careful.
And the question is in twenty years, how will Fanny
and Freddie be run? And the historical precedent is like
they started taking some risks and they started making some
mistakes and like they weren't you know, great about everything,
and their regulator is maybe a little asleep at the switch,
and so they ended up going bankrupt, not literally going backrupt,
but going into conservativeship and being on by the government.
(12:20):
Would that happen again eventually, maybe, And if it did
happen again eventually, the question is would they be too
big to fail and would the government bail them out again?
Because if so, then it's like it's kind of weird
to release them, and like, you know, it's like the
classic story of financial bailouts of like the private shareholders
get all the upside and then the government takes the downside.
Like here's the government took the downside. The government took
(12:41):
them over when they were broke and got a lot
of upside. But the status quo right now is kind
of the government gets one hundred percent of the upside,
and like the releasing them from conservativeship would mean private
shareholders get the upside again. And then if in like
twenty years they go bankrupt again, the government takes all
the downside. It's like a little bit of a negative association.
But I don't know what happened. I mean, I think
they will be regulated. They'll have like a regulatory capital requirement.
(13:04):
The regulator will be part of the Trump administration, Like,
I'm sure they'll be careful for maybe the rest of
my financial blocking career, but like eventually, who knows.
Speaker 2 (13:14):
It is kind of fun to imagine a universe where
they are privatized and then sixteen years later or whatever,
they end up in this kind of hot water. Again,
the governments.
Speaker 1 (13:23):
Things are cyclical, like it wouldn't be that weird, you know,
but we can.
Speaker 2 (13:27):
Just keep doing this until the heat death of the universe.
Speaker 1 (13:30):
And one way that people think about this problem is
is to try to avoid having institutions that are too
big to fail, right, Like you try to make it
so that banks are first of all robust defilure, but
secondly you try to say, like, you know, can we
make it so that if they do fail, they can
fail in a way that like, you know, private capital
takes all the losses. And like that's definitely part of
the thinking with Fanny and Freddy, where like instead of
(13:50):
them backing every mortgage that's on their balance that they
like are doing risk transfer securities where they're essentially selling
the credit risk of their mortgages to other private investors,
so that like it's not just Fanny and Freddy's capitalist
standing behind the mortgage market. Over the years, as people
have thought about privatizing Fanny and Freddy, there have been
proposals of, sure, let's privatize them, but not two of them.
Let's make them like sixteen of them, so that if
(14:12):
one mortgage company fails, then fifteen more will be fine
and it won't be a systemic risk and it won't
require a government ballot. But you can sort of see
why that's not the preferred proposal for the people who
own the stock because who own the stock on the
stock of like particular companies, and they want to, like,
you know, have those companies be valuable, and those companies,
frank they are more valuable if they're too bad to fail.
Speaker 2 (14:33):
I hope that if it is privatized, we are back
in a low interest rate environment, because the potential effect
on mortgage rates is somewhat interesting. Like if it doesn't
have that sort of wink wink government backing.
Speaker 1 (14:46):
I don't know what the effect on mortgage rates would be.
I think that, like my impression is that Fanny and
Freddy are sort of run now on a basis that
is meant to be kind of close to what they'd
look like as regular public companies, and so like they
wouldn't like double their guarantee fees tomorrow because they want
to be more profitable, right, or they would like have
them because they wanted to be more competitive, right. Like
(15:07):
their fees are kind of like roughly what you'd expect
them to continue charging. Would their bonds trade wider if
they were not backed by the US government? I don't know.
That's like, you know, the bet that Bilackman is making
is know that by the time they are released, they
will have such a fortress balance sheet, they'll be so
well capitalized that they will be essentially equivalent to the
(15:29):
credit of the US government and they won't need the
government backing. But I don't know, it's not totally clear
that that's true. And it depends also on like what
actually happens with their capitalization, right, I mean, like you
can argue over how much capital they should be required
to hold, and you know, if you're the shareholders, you
kind of want them to hold relatively little capital because then,
(15:52):
among other things, that means like you don't have to
dilute your own shares to make them viable standalone companies.
If you're a nervous regulator who remembers two thousand and eight,
you want them to hold a lot of capital, But
you know, there'll be a debate about how much capital
they need. You know, Bill Lackman is arguing for a
two point five percent capital ratio, which is like kind
of low on the scale of what people argue that,
(16:12):
but he says it's like it would be seven times
as much as their losses in two thousand and eight,
their losses on their guarantee portfolio, which I think is
you know, suggests that that would be pretty robust. So
there's gonna be a lot of argument about how much
capital they need.
Speaker 2 (16:25):
Well, we'll see. I don't know where this possibly ranks
on the Trump administration's priority list. And I mean there's
analysts from Bluebern Intelligence who expect that this is like
a twenty six twenty seven conversation.
Speaker 1 (16:37):
So I think it's a twenty six twenty seven like
events in part because of like every quarter that goes
by that they're profitable, they build up more capital, and
it's just easier to do this trade. So like, even
if it was the top priority, releasing them tomorrow would
make less sense than releasing them in twenty twenty seven.
I don't know it ranks on the list of priorities either,
but you know, it's like there's a.
Speaker 2 (16:57):
Reason it means to buy Greenland first, right.
Speaker 1 (17:00):
But also tweeting it and you know, like there's like
your hedge fund buddies come to you, like, hey, you
could really have about your hedgehund buddies. Then maybe it
works out right, And like the other thing is like,
so he's tweeting this in part for like the officials
to read it, but he's also you know, other people
will see this idea and maybe they'll buy the stock.
Some of those people are retail people who have you know,
have no influence with the administration, but who knows who
else will buy it?
Speaker 2 (17:19):
Right?
Speaker 1 (17:20):
Yeah, what if Elon Musk's these two's like, oh, that's
a good trade and then Elon Musk buys like, you know,
a million shares of Fanny made. Now it's igh on
the priority list.
Speaker 2 (17:28):
Yeah, And I mean didn't the shows rise like forty
five percent of the day that he tweeted it. I
think it was December thirtieth, So it's not like there
was a ton of volume going on, but the backs
were pumped.
Speaker 1 (17:39):
Yeah, it's very binary, right, Like this is either a
very valuable company or it's worth zero, and like it's
just like some day someone's gonna flip the switch and
make it very valuable. Probably almost certainly, And like Bill
Lackman putting it on Twitter, like moves up the day
when they flip the switch, and that makes it a
lot more life.
Speaker 2 (18:07):
One of those wacky kids getting up to over in Indiana.
Speaker 1 (18:10):
I love these kids.
Speaker 2 (18:11):
So are they still students or no?
Speaker 1 (18:15):
No, no, I've looked up a couple of them on LinkedIn.
They they have real jobs.
Speaker 2 (18:19):
They're not did you add them?
Speaker 1 (18:20):
No, But they're not like running this golf resort as
far as anyway. So Indiana University, the Kelly School of Business,
they have an MBA class like an integrative case experience.
So it's like their capstone project for their MBA and
it's on the business of sport. And the class project
that's like sixty percent of your grade is to create
an executive level recommendation to an entity facing real world challenges.
(18:42):
And so the professor that goes out and sources like
actual like ongoing sports business situations and then like you know,
packages them in a case and says to the class,
what would you do about this? And this group of
students took this challenge case situation involving the development of
a golfer in Puerto Rico. Basically like this Puerto Rican
like land development authority own some acreage in Puerto Rico
(19:05):
and they brought in a developer to develop into a
golf resort. And these students were like, given the project
of look at this situation, build a financial model, build
some plans for how you would do it. Make a
good presentation about how you would develop those golf resort.
And you know they're NBA students, they have connections, and
some of them were apparently relatives of people who work
(19:27):
at a golf resort development company, which is like a
natural fit. So they were like they called their family
or friends or whatever and were like, hey, you developed
golf courses, what do you think about this golf project?
And somehow what happened is, first of all, they did
apparently a good presentation that was like, this is how
we would develop this golf project. But secondly, the people
they called were like, hey, this is such a good deal,
(19:48):
we should do develop it. Not the people who are
already developing it, we should take over this deal. And
so the people they called like apparently took over. They
called the Puerto Rican Land Development Authority and said, hey,
we have a better plan, and they ended up jumping
the original deal, and the people who had the original
development project, who are now out in the COLT sued
the new development company and the NBA students and the professor,
(20:11):
saying basically, like, the way the professor got this case
is that the guy who was developing the project originally
was a proud alumnus of the Kelly School of Business,
and he was like, of course you can create a
case about my masterpiece golf development. You should definitely ask
your students to advise me. Maybe because he wanted the advice,
(20:32):
or maybe because he was just proud of it, But
in any case, he's now suing the professor and the students, saying,
you stole my idea.
Speaker 2 (20:38):
That is so wild and so good. When I first
read it, I thought that like they went out and
shopped it around after the course. But no, their presentation
was based on the fact that they made this partnership
with Discovery.
Speaker 1 (20:53):
No. No, no, the presidation didn't say they made a
partnership the presentation said that they consulted with Discovery to
to basically sort of like get business ideas for how
to develop this course. But it's interesting, like because yes,
the lawsuit cites their presentation. It says, the student defendants
made the following admissions and their recorded presentation, we explored
a union with Discovery Land Companies. So I think, you know,
(21:13):
as you're pretending to develop a golf course, you're like, oh,
we could do a merger, right, But except that it
happened in real life. What was interesting to me is,
I don't know if that's like they brought this lawsuit
and in Discovery they they got to watch the student's
presentation that was recorded for class and they said, aha,
they admitted it. Or if like the original developer of
the project watched the presentation as part of the class, right,
(21:36):
because like he was the one who said to the
to the professor, hey should teach a course about my
golf resort, and so you know, like probably he went
to the final presentations, like the professor's like, hey, you
should come see the students like what they think about,
you know, how you should do the golf course, and
he like shows up like all proud saying, yeah, I
want to I want to hear what you think of
my golf resort. And they're like, we've had another bidder.
(21:56):
And he's like, ah, so I hope that's what happened.
Speaker 2 (21:59):
I don't actually so wait, So they sued the professor,
they sued the students. Did they sue the school itself?
Who beyond the students could be founded fault here?
Speaker 1 (22:09):
Well, the main one is discovery of the company that
apparently jumped the deal.
Speaker 2 (22:12):
Yeah, that they seem like the baddies.
Speaker 1 (22:15):
Well, I don't know if they seem like the batties,
but they're the people have money, right, The best word
is they're suing for one to two billion dollars. Why
one to two billion dollars? Well, as part of their
class project, the students calculated how much profit they expected
this golf resort to bring in, and so they wrote down,
this is worth one to two billion dollars, and so
that's what they're suering for. I don't think the students
have one to two billion dollars Sothough that's possible.
Speaker 2 (22:35):
That's really funny. I mean, I guess it makes the
plaintiff's lawyer's job really easy.
Speaker 1 (22:41):
I wouldn't go that far. But yes, they get to
put in their press dam It is rare for it
defendant to calculate the damages, but here they did, right.
It's like it's a good line. I will say that
I got emails from readers being like I did a
class project presentation saying that so and so should buy
sow and so, and I got a b and then
six months later they did it and I didn't get
to do the deal. What I wrote is that business
(23:02):
school is a lot of like pretending to do business deals,
and like this is the rare case where it like
somehow transformed into our reality. But most of the time
you stick to pretending.
Speaker 2 (23:10):
And do you know when this actually happens, like when.
Speaker 1 (23:13):
The twenty twenty one course.
Speaker 2 (23:14):
Oh so I wonder, like for these students who have
now graduated and are in their professional lives, I wonder
what this feels like.
Speaker 1 (23:24):
Yeah, it must be stressful. I will say, like I wrote,
you know, you get an A plus in my course,
Like I don't know, like if I heard their professor
or like their current and floor, I'd be proud of them,
like they they went out and did it, you know,
like this is this is this shows some hustle, shows
some enginuity, shows a commitment to business. I don't know.
It's good. I like it. The thing that's happening here
is like the lawsuit is like we had an NDA
(23:45):
where people agreed not to like disclose anything, but like
it's not clear who they had an NDA with, Like
I think they thought the students were signing ndias, but
the students maybe weren't signing indias. It's a little unclear.
So like it's not clear the students did anything wrong, right,
Like it wasn't like they were like, ah, let's break
up this deal. It was like they were like, oh,
we need to do a good presentation, so let's contact
(24:07):
people on the field and sort of get their input.
Speaker 2 (24:09):
I don't know, I feel like exploring a union goes
beyond just you know, doing.
Speaker 1 (24:14):
It's all pretend, Like how would we do this deal?
How are we'd explore a union? I don't know. It's fine.
Speaker 2 (24:20):
At some point it crossed over into real life, Yeah you're.
Speaker 1 (24:23):
Sure, but like they didn't do anything wrong, Like yeah,
it cross never to real life because it was a
good idea, but I don't know, like like it would
be a failing on their part as pretend business advisors
to not explore a union with some with another golf developer,
and they did became.
Speaker 2 (24:37):
I do feel bad for the professor. I have sympathy
for the professor here, and I hope that this I
hope this course is still taught because it sounds fun.
A sports business integrative case experience. That sounds like a
valuable course to teach at the Kelly School of Business.
So thought val thoughts and vibes being sent to the
professor right now, and maybe it's let me pull this up.
(25:16):
I am never doing.
Speaker 1 (25:17):
He is riching into her saddle bags.
Speaker 2 (25:19):
I'm so smart.
Speaker 1 (25:22):
Some oats assault lick up here.
Speaker 2 (25:24):
It is okay. So I take pains to avoid the
commodity markets because there's just there's so many different nuances.
But occasionally commodities become really fun. And I think that
the cocoa markets have been really interesting for a while.
There's been some extreme weather and some sick and aging
(25:45):
trees on the other side of the world, and that
severely impacted the price of cocoa because there's a lot
less crop being harvested, and that has been really painful
for a lot of chocolate makers. Including for Hershe's, And
there was an incredible Blue news story out this week that,
according to people familiar with the matter, Hershey's wants to
(26:06):
take a position that will allow it to purchase more
than ninety thousand metric tons of coco on ice futures
us according to people familiar and the request of the CFTC,
if they take physical delivery accounts to about five twenty
foot containers, and it's more than nine times the amount
that the exchange currently allows. There are a lot of
(26:29):
supply concerns right now, and it sounds like, according to
these people, that Hershey's is at the point where they
don't want to mess around anymore. They want to purchase
all these futures which would allow them to take delivery
of this coco versus trying to buy it in the
physical market right now, where prices are just super high.
Speaker 1 (26:48):
Right the way I understand it is like commodities exchanges
largely have warehouses that contain some amount of the commodity,
and the way you trade futures is like you trade
futures back and forth which are like for future delivery
of the commodity and when they expire. Most of the
time you roll them, so you don't take delivery. But
sometimes you take delivery and then you get a certificate
entitling you to some of the commodity in the warehouse.
(27:10):
And usually you don't mean to do that until you
go and like sell some more futures backed by the certificate.
But every so often, if you're like a big user
of the commodities, you actually want to take the commodities
out of the warehouse because like there's some stuff in
the warehouse that the exchange runs, and you can't find
enough of your commodity elsewhere, and so you're like, yeah,
(27:31):
get the stuff out of the exchange warehouse. And Hershey's
is like, we cannot find chocolate anywhere. Where's their chocolate. Oh,
there's a lot in the ice warehouse. So we'll just
take all of that. So I think, like I understanding
that they want to buy, like, you know, the enormous
percentage of the cocoa at these ice warehouses.
Speaker 2 (27:47):
Yes, actually so much that if they did take delivery,
it would basically equate to all the beans that are
currently stop sewer than.
Speaker 1 (27:56):
All of the beans, right, get all the beans.
Speaker 2 (27:57):
They're not messing around anymore.
Speaker 1 (27:59):
I will say, I assume candy makers, including Hershees, have
like contracts with people who produce cocoa. And I assume,
and maybe this's not as true of Hershees as it
is of like your favorite artisanal chocolate maker, but I
assume that they want, like, you know, fresh cocoa, right,
They're like, oh, you know, bring us your best and
freshest cocoa so we can make chocolate bars out of it.
I also assume, and I could be way off base here,
(28:21):
but I assume that the cocoa sitting in the exchange
warehouse is not the best and freshest cocoa, because like
there's a lot of physical demand for cocoa, and if
you have some cocoa fresh off the tree or whatever,
then like people will buy it from you and you
don't need to deliver it into the ice warehouse to
support futures. There's an FT story in September about similar
things were going on in London, where like chocolate makers
(28:44):
were taking cocoa out of like the London exchange warehouses. Yeah,
and people were like, with left in London is a
poisoned pill, because it's like, yeah, it's like stale cocoa.
It's like been there for it's been sitting around for
a while, like all the good stuff has already been used,
and like they're kind of getting the dregs out of
the commodities. I don't know if that's what's happening here,
but I don't I don't know, Like chocolate bar made
(29:05):
of exchange warehouse.
Speaker 2 (29:06):
Chocolate, very extremely stale cocoa beans. I guess we'll find out.
I mean, reading through some of like the Commodity analyst
reports on the state of the cocoa industry, it seems
like these supplied demand dynamics are a long way from
being worked out, So I don't know. Maybe we'll see,
of course, if her Shee's actually gets this permission. This
is according to people familiar with the matter. Hershey itself
(29:28):
does not confirmed this, and we'll see the guests at
that point where we are all eating still chocolate. But
Hershey is interesting because they made a similar trade in
twenty twenty when there were all these pandemic related weirdnesses
in the cocoa industry. But anyway, this isn't the first
time that Hershey has just cornered the market, so to speak.
(29:49):
This time it feels more idiosyncratic like in twenty twenty,
every commodity market, it felt like, was just going through it.
Speaker 1 (29:57):
I will say, like the cocoa market. You know, it
exists for chocolate manufacturers to heads their price of cocoa.
And like, I don't know, I'm not up on the
biggest chocolate manufacturers, but Hers she seems really big, right,
It's not that surprising that every so often the biggest
chocolate manufacturer would say, okay, we want all the beans now.
Speaker 2 (30:17):
Right, Yeah, there's a few of them out there. I mean,
you think about Mandley's, you have Mars. I know this
because a few months ago we were trying to book
a lot of chocolate makers because we wanted to talk
about coco on television. There's more than you would think.
Speaker 1 (30:32):
I'm going to talk about. My favorite commodity story, maybe
of all time, is that a while back in the
like in one of the exchange warehouses for nickel, someone
was like walking along and they noticed that like a
bag of nickel that belonged to JP Morgan, right, like
JP Morgan owned the entitlement to that nickel in the warehouse.
It was actually rocks like someone at some point either
(30:55):
before it went into the wear so while I was
sitting in the wareus, which was doing for years without moving.
At some point they had stolen the nickel and replaced
it with rocks, which is such a wonderful story about
how these commodity trades work because like, you didn't need
it to be nickel, like you're just trading back and
forth like abstract entitlements of the nickel. It didn't matter
that you weren't doing anything with the nickel. You weren't
making anything with the nickel, so it was totally fine
that it was rocks for a while until someone discovered it,
(31:16):
and then it was embarrassing. I also thought that story
because it then led to I think the warehouses like
had people go around and check all the other bags
of nickel to make sure they weren't rocks, which required
them to wear steel toad boots because you can you
really hurt yourself checking the bags of nickel. But anyway,
like these warehouses, because they're mostly used for futures, because
it is like a somewhat unusual event for someone to
(31:37):
come in and say, okay, we want all the cocoa
beans in the warehouse because we need to make chocolate
with them. Like what if the beans are all pebbles, right, what.
Speaker 2 (31:44):
If they're all I don't know, coffee beans. Obviously those
look different. But I hope that someone is crawling around
in the warehouses right now making sure that they have
all the cocoa beans.
Speaker 1 (31:54):
Awkward if, like all the chocolate bars are made of
pebbles because the warehouse cocoa was not real coca.
Speaker 2 (32:00):
Well, a conversation I had with one of these chocolate
makers that we finally got to go on TV was
are you still using chocolate? And a lot of them
have had to start using, you know, more filler in
the form of like nuts and various things because they
just can't source enough chocolate to make enough chocolate bars.
Speaker 1 (32:20):
If they're bugs in the ware sawdust in the word.
Speaker 2 (32:22):
Put it oudre, I grind them up, put them in
it's fine.
Speaker 1 (32:25):
Chemicals and any beans.
Speaker 2 (32:27):
Pretty much, we'll see. I don't know. They don't have
permission yet. A larger position limit is likely to send
the price of earlier dated futures to a significant premium
about the later dated ones. Apparently, the future's curve for
cocoa I was speaking to an analysis this morning is
has been backwardated for a long time. At this point.
So I don't know.
Speaker 1 (32:48):
Yeah, that's like fitting with the notion that like the
physical market is incredibly tight and her Shoes is trying
to get beans out of the futures. Right, Like, you
wouldn't buy cocoa beans in the form of commodities futures
unless it was more expensive to buy them than the
form of cocoa beans, right, Like the curve is the
curve is obviously backwardated, which I guess implies that there
(33:11):
will be some easing of cocoat conditions, but not yet.
Speaker 2 (33:14):
Yeah, their explanation for like the extreme backwardation is just
it's it's so dramatic at this point. It can't stay
at these levels forever, surely, Right, So that's.
Speaker 1 (33:23):
What that gradation means, I know, Like it means that
Hershe's is going to pay a huge freom to get
all of the beans out of the warehouse and then
they'll start over and then they'll be fun. Yeah, I
will say, why shouldn't they ge permission? You know, like
the point of this market is to you know, smooth
the prices of agricultural commodities, right, and like if an
actual producer of chocolate is like the only way for
(33:43):
us to make our chocolate bar quota is to take
the beans out like like they're not like a weird speculator,
like doing a weird corner, like they're just gonna make
chocolate bars with it.
Speaker 2 (33:52):
Seems like the what the market, Well, they got permission
in twenty twenty, so I don't know history would suggest
it'll be okay, But man, it just feels like every
couple of months, some whether it's lumber or sugar or
coffee or cocoa, something pops off and then there's a
bunch of curious stories such as this one.
Speaker 1 (34:10):
I'm a tourist in the commodity of space, but I
always find it very fun. Yeah, I think we have
to talk about two notes. We got about the mailbag episode.
Speaker 2 (34:19):
Yes, our official first episode of the year.
Speaker 1 (34:22):
So we had a mailbag episode let's say last week
recorded let's say three weeks. Yeah, but last week we
had a mailbag episode. It was great, you should listen.
But in it we said two things that people complain
about with various degrees of fairness. Someone asked like, why
can't you buy, like on the Stock Exchange, single family homes,
and I said, well you can. You should be able
(34:43):
to buy like single family rental homes. That's like an
investable asset class, and like probably they'll be eventually, there
will eventually be reats that allow you to do that
on the exchange. In fact, there have been reads that
allow you to do that for years, and someone emailed
me to point out that there's like three that trade
on the exchange now. So yes, you can go buy
single family homes in the form of shares of stock
and reads, but you can't buy, as I said, single
(35:04):
family owner occupied homes because those are run by their occupants,
not by a red but you can either read. And
the other one is that you said, and I questioned this,
and you were stuck to your guns. You said that
in the US ticker symbols on the Stock Exchange max
ad at four letters, and we got complaints. One set
of complaints was like, actually, mutual funds have five letter tickers,
(35:26):
which I think is not a fair complaint because those
are not stocks on the stock exchange. That's a different thing.
They're like in the universe of identifiers. They have five
letter tickers, but they're not stock exchange tickers. The other
complaint is that nas like actually like caps at at
four letters, but then there's like they have like special
codes you can add that are a fifth letter, so
like preferred stock can have a fifth letter, or like
you know, Google has multiple shares of stock, and like
(35:48):
some of them are Alphabet has multiple shares of stock
and some of them are like you know, goog A
or whatever, and you know, and as they used to
have the Q code, which apparently I learned from this
reader response. The Q code, which famously represents companies that
are in bankruptcy, like, is no longer part of the
NASDAK nomenclasure, but like still some venues put Q on
(36:08):
the end of a ticker when it's in bankruptcy.
Speaker 2 (36:10):
Yeah.
Speaker 1 (36:10):
So back in the day when like Tesla was not
the juggernaut it is now, and like people were shorting Tesla,
Like there's like a whole Twitter community who's like, you know,
banner was TSLAQ Yeah, because it's like, oh, Tesla's bankrut, right,
So the Q code is no longer a part of NASDAK,
but it's still bason in our hearts. So to clarify,
(36:31):
Katy has a response because Katie Katy knows for tickers.
Speaker 2 (36:34):
Yeah, the mutual fun thing. Yeah, they're not. They don't
trade on the exchange, hence ETFs or exchange traded funds.
So there's a four character limit. Generally, this is literature
from Nasdaq that for common stock insuances, NASAK assigns symbols
between one and four characters in length. There are some circumstances,
(36:57):
and I should have known that by saying that there's
a four character limit that that would invite people to
like find the asterisks. But there's a fifth symbol that
can be added to the original ticker in special cases
such as you know, different share classes, et cetera. But
if you are going with an ETF or in I
PO and you say I would like to list this
(37:19):
on your exchange, can I reserve this five letter ticker,
you would be told no, is my understanding. And I've
spoken with both Nazak and NISI about this at length
because I would love if they expanded the limit, just
because that would be fun to write about. And it's
a four character limit except in special circumstances, like you.
Speaker 1 (37:41):
Know, you're a little iconder like every three months, like
have they expanded the ticker symbols yet, because like that's
that's that's that story. You know that story all drafted
and ready go.
Speaker 2 (37:50):
Huh, I'm ready to go. Because and we also do
we have on folks from NISI and from Nasdaq on
you know, either Open Interest, which I anchored daily, or
on etf IQ. And every time we have anyone who
touches the listings business, I asked them about the ticker
limit and if they're considering five five, and every time
(38:12):
they politely tell me that no, they don't have any
plans to expand beyond four characters.
Speaker 1 (38:16):
So yeah, this is in the context of a question
about ETFs that was like, eventually there'll be like ten
zillion ETFs and there's only so many four letters.
Speaker 2 (38:25):
Yeah, and there's going to be ten zillion specifically single
stock ETFs which already have real estate taken up in
the ticker, and then you could see a supply crunch
there similar to what we're seeing in the cocoa market
right now.
Speaker 1 (38:39):
It's true, they'll have to get the tickers out of
the warehouses and.
Speaker 2 (38:44):
You better hope that you know they're good quality.
Speaker 1 (38:56):
And that was the Money Stuff podcast.
Speaker 2 (38:58):
And I'm Katie Greifeld.
Speaker 1 (39:00):
You can find my work by subscribing to the Money stuffnewsletter.
On Bloomberg dot.
Speaker 2 (39:03):
Com and you can find me on Bloomberg TV every
day on Open Interest between nine to eleven am Eastern.
Speaker 1 (39:09):
We'd love to hear from you. You can send an
email to Moneypod at Bloomberg dot net, ask us a
question and we might answer it on air.
Speaker 2 (39:16):
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 1 (39:22):
The Money Stuff Podcast is produced by Anamasarakus and Moses Onen.
Speaker 2 (39:25):
Our theme music was composed by Blake Maples.
Speaker 1 (39:28):
Brandon Francis Newnim is our executive producer, and.
Speaker 2 (39:31):
Stage Bauman is Bloomberg's head of Podcasts.
Speaker 1 (39:33):
Thanks for listening to The Money Stuff Podcasts. We'll be
back next week with more stuff.
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