Garlic Cartel: Markets, Credit, Code
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Bloomberg audio studios, podcasts, radio news. Hello, and welcome to the money stuff podcast. You are weekly podcast where we talk about stuff related to money. I am not loving and I read the money stuff caller for blumberg initial.

I'm kate gyfun, a reporter for bomb news and an anchor for bloomberg television.

What are you talking about about that?

We're going to talk about farmers markets. We're going to talk about private credit. And then we're gone to talk about steal some trade secrets and moving to china.

Some good.

I printed out the pricing charts, feel like beef. So we have immediate section.

One of the farmers markets near me. I go to two farmers markets per weekend now, and I was recognized by a person working at one of the stands. wow. There is works in financial media and also works of formers are going to get her mind of things. And she's apparently a fan of mine and offered me free garlic.

Did you take IT?

So you took the free garlic .

and then you undercut some farm stands, some farmer who like, put in the labor, and you knew what to charge.

Because this is before I knew anything about farmers market that bay in the words.

in terms of, oh, I thought this was like last weekend.

No, was like three weekend again.

Okay, if only you had known.

I do not honestly pay that my attention to pressing at the former's words, but I am aware of the diverse and garlic pricing at the different stands. There is a stand where I have seen, but I purchase garlic for three dollars ahead. That seems really high for garlic. But also, the former garage is so good, like I know only the first market garlic can probably pay five. Me, trying to think of something really .

able to say reminds me of the arrested development scene. Or elusive s like it's a banana. Michael, how much could a cost or something like that? Yeah, I feel like if you're out of farmers market, you're kind .

of a Price and sensitive buyer.

too rich for my blood. Well, what a timely conversation that we're organically ally having about pricing at farmers markets.

It's all I think .

about yeah sorry.

I just said if not anything I think about IT all person which is question of the truth but now I think you .

might Price the yeah so is coronal ll university question mark yeah why do you tell about what they're doing?

There are aggregating Prices for farmers. They have a website that publishes free information on Prices of various agricultural goods for farmers at farmers markets to basically help them set their Prices. Because basically, if you are a farmer at the farmers market, you you know in the business of work in the land, go on the protests and you're maybe not like a savy Pricer of produce farmers markets.

And you know the buyers of primary markets are not a series seventy Prices of produce either. So you could probably charge them a lot more than you do. And corner is helping you charge them more than you do. But I telling you what the actual .

Price of garlic is seems like a real anti trust concern.

You know, I sort of have joking. He suggested that people guy kind of mad at me, like from two years. But as one is like, no, it's so is like, no, it's not an enter test concern, which is not really an enter test concern.

But the other thing is like I made that suggestion because the justice of private a couple months ago suit real page, which is like i'm gonna exaggerate this, but for lads, it's like software product that tells landwards how much other landlords are charging for rent, so they know how to cept the rent on their apartments. And the justice department said that real page is Fostering collusion among landor's and reducing competition in the rental space and raising Prices for tenants. And I had sort of time and chic compared the swimmer market stuff to real page and feel like bad because they're but the real page case is real.

There's more stuff there like the farmers markets stuff. They're essentially using rarely straight for technology to aggregate Prices at a bunch of farmers markets and also supermarkets. Real page is getting private information from the other. It's like they get more information than just like what's available to the public.

And they're also using IT to suggest the landers or this is what the just as the problem, the ledges, they're using IT to suggest the landMarks raise their Prices and like they've explicit said things like a rising type of saw, but like they like, you know in the business of trying to make landwards child child rent. This one is you know based on publicly available Prices, it's harder to get mad at IT. IT seems to me that there is a real continuum and that he just used to be the case that IT was hard to be sophisticated about knowing your competitors Prices in like all sorts various because yeah your computers Prices weren't like easily available on the internet yeah.

And now IT is so much easier to like aggregate public did about Prices. And so now you can anyone can bit more sensitive to like what their competitor or are charging. And the just this department is nerves, but not the .

but in the the goal here for the farms is explicitly to raise Prices. Yes, like there, there's a code from someone involved, in other words, to give them a Better day at the farmers market because they're going to be there for eight or six hours, whether they make four hundred dollars or eight hundred dollars. So we're looking for how we can help them earn more in those hours.

So that's the goal. They want the farmers to charge more. We should say this is from a marketplace article.

IT was a .

really fun read, I realized. So I was reading your real page column and IT occurred to me that perhaps i'm being naive. I just don't see any situation where there wouldn't be a race to the .

bottom in terms of like.

okay, we're all only gonna charge three thousand dollars per month, guys, that's the bottom. I feel like why wouldn't just undercut that, right?

I mean, these cases are weird, right? This notion of like tacit collusion or algorithmic collusion is different from a classic cartel where you get together in a room and you're like that I was going to charge less than three thousand dollars. And if you do break like there's no suggestion of breaking your legs here, right?

This is will not written down. No I don't .

think maybe joking .

then I can break your legs that um .

we'll get to story about that. But there's no like expose to Carter and it's just like everyone wants to charge as much as they can and like they're limited by competitive pressures where they have to charge less.

And there is the suggestion that if you know your competitors Prices, that is easier to not undercut them, like undercut them, right? If you don't, if you don't know whatever one also is charging, you might be like I want with the low cost provider and all charged twenty seven hundred. But if you know what everyone else judging, you can be out charged twenty nine nine ty night, right? Like you can.

It's a little bit easier to coordinate on the same Price if you have complete information. This is there is not necessarily true. And the justice river has been interested in the idea like Price sharing using there's a theory that if like competence in in this, we are getting together and sharing Prices with each other.

It's because it's ani competitive. You enough to know exactly what they're doing with the press usually. Well, if they're sharing Prices with each other, that's probably good for consumers like they're probably doing IT for a reason that involves maxixe their profits. And the just this viBrant has like long been interested in that.

And they had guidelines that were like certain kinds of preaching or okay, including like if it's aggregated and not like broken down by competent people know if you know what each of your competitors charges and like you can break the leggs of the one who charges the least. If is just aggregated, it's like a little IT more just informational. But you know they like aggregated data, okay? And data published by a third parties like a trade magazine and publishing Prices, rather than the competitor is getting together and sharing Prices.

This said that stuff was okay. And recently, there has been a change in their garden where they're like we're going to actually look at that stuff more closely. And I think the impression is that they are worried that machine learning algorithms are going to make companies Better at using this data to Price at the maximum level to extract profits, and like the sharing of data, going to make industries less competitive. So there is also, this is interesting paper from a couple months ago, but john yang, john of university, they are not called salaries on display, unintended consequences of wages disclosure or there's a paper about um you know like there's a lot of states have wage transparency laws were like .

when you advertise .

the position you have the same yeah exactly and john finds that those seem to lead to lower wages because if you don't have information, like the market is going to have disparity is right? And like some people are going to pay more than others because are ignored.

Where is like if you know what everyone also was paying, you're not going to pay any more, pay like a dollar more are you like be a little competitive, but there will be no outliers. And so I think that's the same intuition with pricing stuff who have ever want to sharing information. You won't have any outlier cheap providers because everyone knows like you know the market Price. Is this like I shouldn't ge .

last that's interesting thing that I think the wage excused her losely to is just super White teller oranges .

that make no sense but much yeah do you want .

to talk about some meat Prices? I actually looked the the website from cornel. This is monthly data. So don't think it's feel like weekly.

I don't think well.

I think it's interesting. So at the farmers market in september, we're looking at Price summary statistics across multiple meat products collected from ten farms selling in twenty one different farmers markets in new york state for chuck roast in september, your waited average Price per pound was nine dollars and sixty cents. Can you guess what IT was from the grocery store?

Seven dollars.

twenty eight dollars and twenty five thousand?

I don't know.

I was I think you do, but that's the average Price per pound versus the waited average Price.

So farmer barely experience can be hold .

your horses.

they are my friends.

Non organic bacon from the farmers market in september, according to this data, seventeen doors and twenty one sense for pound. What do you think IT was from the .

grocery store .

or so close? Seven dollars and ninety eight ten cent.

I was a date. So .

quite markup.

You're basing that farmers market big and it's going to .

be delicious is IT? I don't know.

I'm not a big in person, ginger. I got at my local farmers working stonishing ly expensive.

so good. We were driving back from albany this past weekend, and we went to arrest up. And there is a farmers market outside, like on the .

highway was, I got .

some dried beat chips and I got, but no, yeah, I was on the cup of new jersey.

Oh, you also at .

the rest stop on the highway. yeah. But I don't think of the farmers market person. I don't think I have the patience. Anyway, that was a robust discussion.

I went one more thing which I love so much. yeah. You got an email from a reader about the otamus farmers market where this reader sold strappers for a while yeah and like ottawa farmers market had, is that Price fixing like the rules the farmers s market said you could not undercut the Prices that they were.

They were agreed on. And he didn't say that legs were broken, but a little bit. But he fan of loops where he is, like, you know, a four litter container of straw ry.

Is how to cost this much. And he realized that if he sold the two and a half leader container, mom, standard size container, he could undercut because there was no rule about selling that size container. Wow, so he would sell two enough leaders for for half the Price of four leaders and get more business. The kicker to this story is that he's now a data scientist at a technium because because I assume that like a tech forum recruit, like walking to the market and be like this guy yeah .

knows how to Price ad options. I wouldn't have .

guessed the pipeline worked in that direction, but that's yeah maybe he .

was on gardening leave.

Exchanges the goldman saks podcast features exchanges on rates, inflation, a us. Recession, risk exchanges on the market, impact of A I for the sharpest analysis on forces driving the markets and the economy, count on exchanges between the leading minds at golden sex new episodes every week. Listen now.

So private credit in the service role of private credit.

there's a lot going on.

is there or they're just a lot of headlines?

I don't know. There is a really interesting al story to s the extent that shopping for a that's .

exactly what IT is photographed over.

The thing that I thought was interest is the C F is like, yes, we're desperate for a private create measure. Do you know any? I need, I need to buy one right away.

It's just like they they like intensity of the search for like every big asset manager yeah really wants to buy a ager, which is just like it's a great position to be a few few years ago, launch your per credit for people. That's where does that ah there was like a little bit of time where private credit was like you know like a little bit in the world. It's a little bit of a new strategy now. It's like all these managers are like state street is kicking down their door.

Yeah, I wish that how I would spend my pandemic, but here I am recording this podcast IT. I kind like the honesty in the aggression. So this is a CEO of street global advisors is their asset management, ARM SHE said. This area is so well establish. And given the size of our clients and their need to build and invest in a meaningful size, I think IT just makes more sense for us to either partner or take a stake in a much more establish firm where it's one plus one equals three. That's interesting whether than trying to do IT organically and they're like we're behind already, let's go do IT organically .

and even to think I do IT organic means like huge guarantees to the people you hire, right? Is no like the market for people in private creditors just really pricing, whether you're hiring number, buying their firms. Yeah.

I start think about Apollo because he also said we're shopping for either full acquisition or minority stay combined with product partnerships, and they have a planned product partnership with Apollo. That etf filing heard around the world between Apollo and state street for a private credit etf, which I don't know if that one is going to launch. There's a lot of skepticism over that, but that's interesting. So sure.

But like they want a private credit offering for their like institution, like they want to be able to chuck billions of dollars, institutional money into a private create offering and everyone wants that. Yeah you know if you are running your private credit firm and you raising funds and like you're getting all these offers from all these traditional firms, yeah there's another article in the most journal about black rock looking for alt managers like private credit or other like alternative. And the reason for is so clear, like you can charge like roughly one order of magnitude more and fees for running alternative is them for running, you know, traditional money.

Well, to the point that state street be sharp, black rock has been shopping in a big way. I mean, they bought precent, for example. That was, you know, for data global infrastructure partners .

that finally closed. By the way, I think I get to the thing they're shopping for a private credit or infrastructure .

is like anything and yeah as long as it's alt and also maybe black rock is going to buy H P S. I don't know .

this that H S well back each choice is like a nominally preparing an IPO but like also a shopped themselves hard to background but also like there's take talk of like jp Morgan is like maybe like the jp diamond like I think was asked about bia private code firms like now we would never do that and then like came back that like .

my team tells you might yeah, I think i've .

been in for, yeah yeah. Like pull them back. But a lot of ways that H P. S. Could go, but one of those ways assign themselves the blackrock for an enormous prem.

This tragedy is worked out for black rock. They have like four hundred fifty billion dollars in alt. At least one hundred sixteen billion dollars is coming from G, I, P, for example. So it's a really easy way to just .

scare up yeah I mean like scale up like what like four percent of blackrock ks asset, right? But it's like the very juicy four percent, right?

It's like the the four percent that makes a lot .

of money yeah you charge IT makes a lot of the money and IT gets a higher multiple. And it's like, yeah, it's just like really attractive. And like you know saying where a giant index one provider is just less appealing to investors now and where giant alce provided.

I have some numbers in your economy reference to this walser journal article that pointed out that black rocks market cap is similar to those of blacks, stone, Apollo, K, K, R, ea. Even though black rock manages like eleven and a half trillion and they manage a fraction of that. I read about this in mid october following blocks rocks earnings, just about how much money they make per dollar of A U.

M. And for blackrock, it's like according to blimber intelligence, they have an annualized fee of fourteen point six basis points. You can pare that to Apollo and it's something like fifty two basis points. So I would have guessed .

the higher number .

but for Apollo will apparently for black zone in K K, R in areas that figure ranges from fifty basis points, like a hundred basis points.

So ah classically two and twenty right. Yeah but like it's a much, much, much richer fee product and like a lot of the stories about private or like, wow, there's so much more money .

in this h my god is the bloomer .

article from september bonus star of the bankers are jumping ship for private credit riches. Yeah, why wouldn't you do that sense? You know, all these like private credit fans are started by people who are like our love and bankers at goldman and like went to start their own funds when that was like a somewhat contrary and move. And now they can see their firms for billions of dollars to to black rock.

If I could do that, I would.

It's just like, you know, anything I read about this is like, IT seems hard to run a private credit fund now from the perspective of like being an investor, judge Harris said the David inside the day that out of these ots funds are like the data of alt, right? I got its course like direct lending to leverage BIOS. And so you are in a business of like being friends with twenty private equity sponsors.

And when they do a bia, they call you and they say, would you like to lend us the money and you say yes because you say no and they stop calling you and then you don't have the paper to feed your hungry investors. And so there is the sense in good at that, like IT is hard to be a disciplined investor. IT is hard to look for value and make you really careful credit work because you're sentiment in the business of saying yes to every bio that gets Operate to you because you just have to do deals. But it's a great time to be selling from like you is a huge boom that like any new dream makes IT hard to be like a careful investor because like you have to deploy a lot of money but like it's a great .

time to be a seller. Yeah, I was actually just having this conversation with a private credit person and this person was talking about how there was private credit beta in now in, you know, you have to get more esoteric to find the alpha X, A.

you to find the elf. You first two person, fifty visions ts, and you can, at least this .

person would like to that's .

i'm saying it's hard because like everyone is like constitution, like wants to be doing good deals and not doing bad deals. But there's a lot of money in doing like I A credit ata.

Exchanges the goldman sax podcast features exchanges on rates, inflation, a us. Recession, risk exchanges on the market, impact of A I for the sharpest analysis on forces driving the markets and the economy, count on exchanges between the leading minds at golden sex new episodes every week. Listen now.

Let's, like most of trade secrets.

is a blimber story about cho jang, the founder of pain stone, which is a big and very successful quite fund in china. He was charged criminally in boston federal court in boston for allegedly yeah a former job at an american asset manager. And you like, they like down that at all.

The models like left for, actually you left for china and then downed IT all the models out of the out of the country. First is smart. There was another story while back about a guy who did the reverse like he done out of the models, and then he left the country like that night, and my good time he landed.

They have to end. That didn't work out for him. But this guy at the country first wasn't supposed be able to get into his corporate hard drive, but right, use the V, P, M to somehow logged into work from china, which I think he's probably not technically if there's any more at most quantum.

But allegedly did IT he allegedly downed and all the models. And it's an indication it's not full of detail. There's a suggestion that he used these models to set up is never very successful chinese quantity. I know that even what they're charging, but like there's a hint of that like these things are useful in his .

subsequent career. So well, I would like .

to know his returns.

Well, you point out your column that the U. S. Market is different than the chinese market.

It's very different. You know they've been a lot of stories about like chinese quant funds getting react in like regime changes or yes, the chinese governors you like can't Better on stocks or whatever. And like, you know you're long, short funds, you know explodes because you can be short anymore.

You know you think of like a quite fun stereotypically being trained on some relatively recent history and being bad, like adapting to sharp changes and like how the world works. Yeah, it's like probably overly simplified steroid pe and like some quite algorithms. S are really good at adJusting to do inflation. But like you know, that's the stereo. And like IT does seem hard during a quant fum that is like these are the returns of going long, this basket of tax and going sure, that basket of tax and then like you update IT for you can't short stocks anywhere.

Like yeah, all the government comes in with like a ton of stimulus and just completely changes the narrative they developed.

which we saw a couple weeks ago. The economic environment change. And IT doesn't seem very hard to deal with that. And like there are a lot of conference that blew up.

And as a sort of like amateur tourists reading those stories, unlike the lessons, are like the sort of classical development of like quainted investing in the U. S. Might not apply perfectly to china, but presumably people know that, right? Like they stole the card would like Better when his first is doing great if he just stole the card. And like didn't like us trading to chinese markets like either that worked really well or like there's something .

we're missing there. Perhaps you twisted a little bit. You could draw all parallels to another case we've talked about. There was James street and millennium trade secrets tells about the new answer here.

Well, I mean, one thing is like this is actually a lot of these cases where the person gets charged criminally going to say arrested, but this kind not been arrested because he was out of the country, but like the a number of them get arrested, you know, like the one that is a serganoff oper allegedly stole code from golbin tax and got arrested and had quite a long time in jail before. Like, I think his convictions ultimately have returned.

And he was like that kind of a roughing of that. He was arrested roughly the time that I left golbin. And although I did not steal any code I likes.

do you want to say that again.

I did not steal any code, to be clear, but I was worried because I was going into media and I was like what I think made at me and say that I talked code. There's a real like time of like like goldin could have you put in prison if that didn't even like you looked to me like that because I was parents t they put him in prison but like, you know, the genre staff don't give me a put in prison for a variety reasons but a big one is like, there is no allegation of codes.

There's a difference between stealing ideas, which is like a really fussy area like jeans state is like convinced that these traders store appropriator complicated trading strategy that was developed with like much work, an investment at James street and belongs the James street. And like blondie is like, now these guys like, you know, they went how to trade options, and now they trade options for nothing prepared about that. And proudly, the truth, the somewhere between, but the even of chance is right.

That kind of like, know how you can get mad, you get sued. You really like that from working at the new firm. They have to pay them back, but not going to go to jail for that. Probably good advice. Where's like you like download code from A V, P, M, A.

Well, this guy, what's going to happen to him because he is in china.

So the like real sequence yeah that .

is a consequence. Does his firm get to keep doing great using these models is .

a widespread assumption that like this stuff to case yeah maybe you download like the whole like framework for how to build quite trading from, but like that that is kind of public. And you know, to the extent he downloaded like signals, those OK like no one, no one thinks that like three years after your stolen stuff from your firm, it's an yet IT was really as you the most right like this study case and so there's like there's this notion that like you have to be stopped from using a persons period of time.

But then I sure that it's really, really worrying about yeah you see that the gentry case where it's like whatever secret trade they're doing was the options in india, yes, but options in india doesn't tell you very much about the trade. Like jane you said, I like some very complicated, clever implementation, but no one thing that's going to make hundred million dollars here forever. You know like it's like change. You had some window in which use in which to do that trade like any embedded in and now know that to put the profits or the profits go probably that was happening here but also ah get happy like shooting the light that trading quana in china solely with stolen models.

Only thirty three yeah. And he saw these secrets, allegedly in two thousand. Cool thing is like .

the indication says that he was an associate and was not responsible for this. Bad like often you have some dispute about like whether the person was like download their own work yeah or like but like here, the implication is kind of like you like shut up with them. He says you did the training and then like that of the models and left complication that like he was just take other people's work.

This did prompt response from your readers, as I understand IT.

Oh yeah. So I really, really like the high level problems of doing this. You're just download code and then you start your own firm. Like the big problem is that you get arrested. Yeah, I like in a moving to china like solve that problem.

But then like a secondary problem is like you're crowding a trade that is there's not that much profit in IT necessarily give you and you're your old firm about doing IT like your both make less money. Only reported out that actually the biggest problem with this piece of getting arrested is raising money yeah because like if you we're a hedged fund and you downed their code, then like how do you raise money? You're like still code from the from industry that or you like I just really smart. I have some great ideas.

but it's like, or if you like, i'm gonna undercut that hedge fund and i'm gona give you to you at a cheaper Price, which gets us needed back to farmers markets.

IT does. But I do think that that pitch what might work for garlic is very bad for a hedge fun client. Yeah because you just like you're taking on a lot of like Operational and regulatory and reputational risk for like saving some money because like you like this had one strategy, felt the back of a truck and i'll give a you for hive.

They is that that's not a good like long term strategy for like downing, but women designer say, hey, we've developed our skills that like a leading us institution and now we're going apply them to this like less fully efficient market. That's a good match. And if you like magnet wink wink cost we told the models.

yeah.

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