Sick and Aging Trees: GSE, MBA, ICE
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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 30 seconds, that is an unnecessary step. Not only is it unnecessary, I would not recommend it. It produces a disgusting result. Yeah. No, your mistake was Googling instead of asking your local suburban Jew who would tell you the right answer.

Or just ask, you know, that you could go that route or just ask your podcast co-host because everyone has one of those. When I'm facing important life decisions, my first thought is I should ask my podcast co-host about this. Yes. I think that's true. It's practical for most. Podcasters.

So this actually isn't our first episode of the year. 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 pretense for very long. I think we tricked everyone, actually. Of course. I think that worked really well. Hello, and welcome to the second Money Stuff podcast of 2025.

Your weekly podcast where we talk about stuff related to money. I'm Matt Levine and I write the Money Stuff column for Bloomberg Opinion. And I'm Katie Greifeld, a reporter for Bloomberg News and an anchor for Bloomberg Television. What are we talking about today, Katie? Today, we're going to talk about Fannie Mae, Freddie Mac, and friend of the show, Bill Ackman. 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 and Freddie. Fanny and Freddie. 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. Yeah, I used to write about this a lot and then...

Everyone kind of forgot about it. And I read about it this week and I was like, I got to start from scratch. I got to be like, what is Fannie and Freddie? I'm not sure we'll do that on the podcast, but we could. What are Fannie and Freddie? Fannie and Freddie were the big mortgage guarantee companies that...

were technically regular publicly traded companies, but everyone kind of thought they were backed by the government up until 2008 when they went bust on some bad mortgage bets. And then the government took them over and it turns out they were in fact backed by the government. And so everyone who relied on Fannie guarantees to get their mortgages paid back, got their mortgages paid back.

And the government took over Fannie and Freddie and shareholders of Fannie and Freddie the day after the government takeover looked like they had lost pretty much everything, but not literally everything. And then later in 2012, 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, let's say, 12 and a half years now. And in that time, people have spent kind of that whole time being like, obviously this can't last, and Fannie and Freddie have to return to private hands any time now. And a lot of people have made that bet in the form of buying the stock of Fannie and Freddie, which still trades over the counter, and saying, when they return to private hands, the stock is going to be really valuable. And

They filed some lawsuits that didn't really work out 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 bought up a lot of Fannie and Freddie 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. I did see a snarky tweet. Oh.

Yeah, well, this one still can't get over the name brand hedge fund manager pumping his decade old thinly traded GSE bags on the last trading day, which is kind of what happened. I mean, but but 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 these tweets to

Donald Trump and Elon Musk and the other Donald Trump advisors who will decide what happens to Fannie and Freddie. Because like it is true that like something has to happen to Fannie and Freddie. And sorry, it's not true. They could do nothing. I have argued for 12 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 guaranteeing

30-year fixed-rate refinanceable mortgages. They're a way that the government supports the housing market. And they've, you know, historically been implicitly backed by the guarantee of the U.S. government. And now they're explicitly backed by, like, they're owned by the U.S. government. And there is not really anything terrible happening there.

from the fact that they're not in private hands. I've said this for years and people 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 they're a little less constrained. And so they will probably do it. And 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 Fannie Mae and Freddie Mac and give them back to their existing shareholders who include probably a lot of like

retail investors, maybe who've held them since 2004, but maybe who bought them last week, but also include Bill Ackman, who would probably make a lot of money if they were handed back to shareholders. Yeah, he estimates he could make like a 1200% return on this. Sure, why not? That's his math. Yeah, I mean, like conceptually, if you look at the technical...

Yeah.

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 shareholders. But like right now, like the sort of like legal official, like value of the cash flows to Fannie and Freddie shareholders is $0. And so Bill Ackman is buying the stock at like, you know, a low price, not $0, but like a low price reflecting the uncertainty about whether they'll ever get cash flows. His thesis is you should just stop that. You should forgive what is now something like $340 billion of

nominal debt to the government and you should just say, actually, all the profits from now on go to the shareholders instead of the government. Yeah, that's a big difference. Giving them $340 billion would make them much, much, much, much, much more valuable. 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 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 off the debt if they never returned to private hands. Could they ever get out of this hole? Like, how does that work?

There's no hole. They're just owned by the government. The way it works now is that every increase in the net worth of Fannie and Freddie goes to the government, which is what happens when the government owns 100% of Fannie and Freddie. There's no hole, right? 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, not debt. It's like junior to the actual debt, like the mortgage guarantees. But the amount that they owe to the government goes up every time their value goes up, which is a way to make sure that the government continues to own 100% of their cash flows. But there's no hole. Nothing bad happens to them if the amount that they owe to the government goes up. And nothing good happens to them under the current legal structure if the amount that they owe to the government goes down. But everyone's assuming the amount they owe to 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 for a

Yeah, I'm actually, I've been loaded into the ambulance on my way to the hospital. But, you know, I said, I got to connect. I got to do this for the listeners. Okay, so you were saying there's no hole, that this is just the status quo. It's not that there's like this. There are a lot of like weird accounting conceits going on here for reasons having to do with like the history of the bailout and like literally the U.S. government's debt ceiling. But they're all accounting fictions. And like the reality is that right now, legally,

The terms are the government just owns Fannie and Freddie, and so the adjustment of accounting numbers doesn't really matter. Just all the income goes to the government. But Bill

Bill Ackman, but also a lot of people are betting, probably correctly, that that accounting treatment will change and that status quo will change. And the beneficiaries of that change will be the people who own like 20% of the stock that is in public hands and that trades over the counter. And the assumption is like that stock will become valuable when the government figures out how to get Fannie and Freddie off of its books.

I guess the, 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. If you're a shareholder, 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 this week was to just kind of press on that and be like, you know, the government has this valuable asset and Bill Ackman would prefer to own it. And Bill Ackman was like, the government should give it to me. And I think there's a widespread assumption that the government would be like, yes, we should give it to you. And to be fair to like the thousands of retail shareholders that own most of it.

And that's probably right, but it's weird, right? It's weird that 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 valuable and they could sell it for money. But they can't sell it for money unless it's restructured as a normal company, which probably does mean putting the common stock back in the money somehow. So the idea is that if the government sets this up in a way where the common shareholders get something, then the government can sell down its stake over time and that stake 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 Fannie and Freddie, which will continue to have cash flows that will kind of go to the government. And so the government will get money over time. But this way, it's monetizing at possibly a high point and getting cash now instead of waiting over time to collect fees.

One of the questions, if this did happen, like if privatization 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 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 2026 or whenever they're released from government control, they will be well capitalized. They'll be 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 that would be really bad. So they're not going to do that. They're going to be careful. And the question is, in 20 years, how will Fannie 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 bankrupt, but going into conservatorship and being owned by the government. 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? Cause 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,

the private shareholders get all the upside and then the government takes the downside. Like, here the government took the downside. The government took them over when they were broke and got a lot of upside. But,

The status quo right now is the government gets 100% of the upside, and releasing them from conservatorship would mean private shareholders get the upside again. And then if in 20 years they go bankrupt again, the government takes all the downside. It's a little bit of a negative association. But I don't know what would happen. I think they will be regulated. They will have a regulatory capital requirement. The regulator will be part of the Trump administration. I'm sure they'll be careful for...

maybe the rest of my financial blogging career but like eventually who knows it is kind of fun to imagine a universe where they are privatized and then 16 years later or whatever they end up in this kind of hot water again the

The government has to put it back. These things are cyclical. Like, it wouldn't be that weird. You know? It wouldn't be that weird. But we can just keep doing this until the heat death of the universe. And one way that people think about this problem 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 to failure. 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 Fannie and Freddie, where, like...

instead of them backing every mortgage that's on their balance sheet, 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 Fannie and Freddie's Capital that is standing behind the mortgage market. Over the years, as people have thought about privatizing Fannie and Freddie, there have been proposals of, sure, let's privatize them, but not two of them. Let's make them like 16 of them so that if one mortgage company fails, then 15 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 the people who own the stock own the stock of like particular companies and they want to like, you know, have those companies be valuable. And those companies, frankly, are more valuable if they're too big to fail. 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. I don't know what the effect on mortgage rates would be. I think that like my,

My impression is that Fannie and Freddie 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 they wouldn't double their guarantee fees tomorrow because they want to be more profitable, right? Or they wouldn't have them because they wanted to be more competitive, right? Their fees are kind of roughly what you'd expect them to continue charging. Would their bonds...

trade wider if they were not backed by the U.S. government? I don't know. That's like, you know, the bet that Bill Ackman is making is no, 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 credit of the U.S. 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. You can argue over how much capital they should be required to hold. If you're the shareholders, you want them to hold

relatively little capital because then, among other things, that means you don't have to dilute your own shares to make them viable standalone companies. If you're a nervous regulator who remembers 2008, you'll want them to hold a lot of capital, but there'll be a debate about how much capital they need. Bill Ackman is arguing for a 2.5% capital ratio, which is kind of low on the scale of what people argue about, but he says it's like it would...

be seven times as much as their losses in 2008, their losses on the guarantee portfolio, which I think is, you know, suggests that that would be pretty robust. So there's going to be a lot of argument about how much capital they need. 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 Bloomberg Intelligence who expect that this is like a 26-27 conversation. I think it's a 26-27 event in part because of like every quarter

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 2027 i don't know where it ranks on the list of priorities either but you know it's like there's a reason we used to buy greenland first right right but also there's a reason you're tweeting it and you know like there's like your hedge fund buddies come to you like hey you could really help out my your hedge fund buddies and 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, right? Like what if Elon Musk sees these tweets like, oh, that's a good trade. And then Elon Musk buys like, you know, a million shares of Fannie Mae. Now it's high on the priority list.

Yeah. And I mean, didn't the shares rise like 45% the day that he tweeted it? I think it was December 30th. So it's not like there was a ton of volume going on, but the backs were pumped. 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 someday someone's going to flip the switch and make it very valuable. Probably, almost certainly. And like Bill Ackman putting it on Twitter, like moves up the day when they flip the switch and that makes it a lot more valuable.

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What are those wacky kids getting up to over in Indiana? I love these kids. Are they still students? No, no, no. I've looked up a couple of them on LinkedIn. They have real jobs. Did you add them? No. But they're not running this golf resort as far as I know. But 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 60% of your grade is to create an executive level recommendation to an entity facing real world challenges. And so the professor that goes out and sources like actual data,

like ongoing sports business situations and then like you know packages them in a case and says to the class what what would you do about this and this group of students took this challenge case situation involving the development of a golf resort in puerto rico basically like the this puerto rican like land development authority on some acreage in puerto rico 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 this golf resort. And you know, they're MBA students, they have connections. And some of them were apparently relatives of people who work 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 we're like, Hey,

You develop 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. We should do development, not the people who are already developing it. We should take over this deal." And so the people they called apparently took over, 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 cold,

sued the new development company and the MBA students and the professor 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 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. That is so wild. It's so good. And

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 Land Companies. No, no, no. The presentation didn't say they made a partnership. The presentation said they consulted with Discovery 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 in their recorded presentation. We explored a union with Discovery Land Companies. So I think, you know, 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 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 said,

watch the presentation as part of the class, right? Yeah. Because, like, he was the one who said to the professor, hey, you 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 hear what you think of my golf resort. Oh, no. And they're like, we found another bidder. And he's like, ah!

So I hope that's what happened. I don't actually know. So wait, so they sued the professor, they sued the students. Did they sue the school itself? Who beyond the students could be found at fault here? Well, the main one is Discovery, the company that apparently jumped the deal. Yeah, they seem like the baddies. Well, I don't know if they seem like the baddies, but they're the people who have money, right?

The best part is they're suing for $1 to $2 billion. Why $1 to $2 billion? 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 $1 to $2 billion. And so that's what they're suing for. I don't think the students have $1 to $2 billion, although that's possible. That's really funny. I mean, I guess it makes the plaintiff's lawyer's job really easy.

I wouldn't go that far, but yes, they get to put in the press release. It is rare for a defendant to calculate the damages, but here they did. 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 so-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 school is a lot of pretending to do business deals. And this is the rare case where it somehow transformed into a reality. But most of the time, you stick to pretending. Do you know when this actually happened? It was a 2021 course. Oh. So I wonder, for these students who have now graduated and are in their professional lives, I wonder...

what this feels like. 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 were their professor or, like, their current employer, I'd be proud of them. Like, they went out and did it, you know? Like, this shows some hustle, shows some ingenuity, 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 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 NDAs, but the students maybe weren't signing NDAs. 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 people on the field and sort of get their input. I don't know. I feel like exploring a union goes beyond just, you know, doing... It's all pretend! It's like, how would we do this? Oh, we'd explore a union. I don't know. It's fine.

At some point, it crossed over into real life. Yeah, sure, sure, sure. But they didn't do anything wrong. Yeah, it crossed over into real life because it was a good idea. But I don't know. It would be a failing on their part as pretend business advisors to not explore a union with another golf developer.

And they did. That's true. And then it became real. I do feel bad for the professor. I have sympathy for the professor here. It is pretty awkward. 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 thoughts and vibes being sent to the professor right now. Indeed. And maybe chocolate.

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and specify where you heard this ad. Make sure they know that you heard about GiveWell from this podcast. Let me pull this up. I am never doing this again. Katie is reaching into her saddlebags. I'm so sorry. I'm pulling out an apple, a carrot, some oats, a salt lick. Oh, here 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 trees on the other side of the world, and that's 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 Hershey's. And there was an incredible Bloomberg News story out this week that

According to people familiar with the matter, Hershey's wants to take a position that will allow it to purchase more than 90,000 metric tons of cocoa on ICE Futures U.S., according to people familiar. And the request to the CFTC...

If they take physical delivery accounts to about 5,000 20-foot containers, and it's more than nine times the amount that the exchange currently allows. There are a lot of 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 products.

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.

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 a, like a big, you know, 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, Oh, get the stuff out of the exchange warehouse. And Kurt

Hershey's is like, we cannot find chocolate anywhere. Where is their chocolate? Oh, there's a lot in the ice warehouse. So we'll just take all of that. So I think my understanding is they want to buy an enormous percentage of the cocoa at these ice warehouses. Yes. Actually so much that if they did take delivery, it would basically equate to all the beans that are currently stockpiled in those warehouses. Why would they want fewer than all of the beans, right? Get all the beans. They're not messing around anymore. I will say, I assume candy makers-

including Hershey's, have like contracts with people who produce cocoa. And I assume, and maybe this is not as true of Hershey's 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, but I assume that the cocoa sitting in the exchange warehouse is not the

the best and freshest cocoa. Because there's a lot of physical demand for cocoa. And if you have some cocoa fresh off the tree or whatever, then people will buy it from you. And you don't need to deliver it into the ice warehouse to support futures. There was an FT story in September about similar things were going on in London where chocolate makers were taking cocoa out of the London exchange warehouses. And people were like,

What's left in London is a poison pill because it's like, yeah, it's like stale cocoa. It's been sitting around for a while. All the good stuff has already been used and they're kind of getting the dregs out of the commodities warehouse. I don't know if that's what's happening here, but I don't know. I don't know why a chocolate bar made of exchange warehouse chocolate. Very extremely stale cocoa beans. I guess we'll find out. I mean...

Reading through some of the commodity analyst reports on the state of the cocoa industry, it seems like these supply-demand dynamics are a long way from being worked out. So I don't know, maybe we'll see, of course, if Hershey's actually gets this permission. This is according to people familiar with the matter. Hershey itself has not confirmed this. And we'll see if it gets to that point where we are all eating still chocolate. But Hershey is interesting because they made a similar trade in

in 2020 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. This time it feels more idiosyncratic. Like in 2020, every commodity market it felt like was just

going through it. Well, I will say like the cocoa market, you know, it exists for chocolate manufacturers to hedge their price of cocoa. And like, I don't know, I'm not up on the biggest chocolate manufacturers, but Hershey seems really big, right? It's not that surprising that every so often, uh,

The biggest chocolate manufacturer would say, okay, we want all the beans now, right? Yeah. There's a few of them out there. I mean, you think about Mondelez. 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 cocoa on television. There's more than you would think. I'm going to tell you about my favorite commodity story maybe of all time is chocolate.

Yeah.

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 you didn't need it to be nickel. You're just trading back and forth abstract entitlements to the nickel. It didn't matter. 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, and then it was embarrassing. I also love that story because it then led to, I think the warehouses had people

People go around and check all the other bags of nickel to make sure they weren't rocks, which required them to wear steel-toed boots because you can really hurt yourself checking the bags of nickel. But anyway, these warehouses, because they're mostly used for futures, because it is a somewhat unusual event for someone to come in and say, okay, we want all the cocoa beans in the warehouse because we need to make chocolate with them.

What if the beans are all pebbles, right? What 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 to satisfy. It would be awkward if all the chocolate bars are made of pebbles because the warehouse cocoa is not real cocoa.

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. If there are bugs in the warehouse, sawdust in the warehouse, put it right in. Yeah, just grind them up, put them in. It's fine. Any beans you got, just grind them up.

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 above the later dated ones. Apparently the futures curve for Coco, I was speaking to an analyst this morning, has been backward dated for a long time at this point. So I don't know. Yeah, but that's like fitting with the notion that like the physical market is incredibly tight and Hershey's 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 in the form of cocoa beans right like the curve is the curve is obviously backward dated which i guess implies that there will be some easing of cocoa conditions but not yet

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 what backwardation means. I know. Like it means that Hershey's is going to pay a huge premium to get all of the beans out of the warehouse and then it'll start over and then it'll be fine. Yeah. I,

I will say, why shouldn't they get permission? The point of this market is to smooth the prices of agricultural commodities, right? And if an actual producer of chocolate is like, the only way for us to make our chocolate bar quota is to take the beans out. They're not like a weird speculator doing a weird corner. They're just going to make chocolate bars with it. Well, they got permission in 2020. Seems fine. 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. I'm a tourist in the commodity space, but I always find it very fun. Yeah. I think we have to talk about two notes we got about the mailbag episode. Yes. Our official first episode of the year. So we had a mailbag episode, let's say last week.

recorded, let's say, three weeks ago. 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, why can't you buy on the stock exchange single family homes? And I said, well, you can. You should be able to buy single family rental homes. That's an investable asset class. And probably there will eventually be REITs that allow you to do that on the exchange.

In fact, there have been REITs 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 REITs. But you can't buy, as I said, single family owner occupied homes because those are owned by their occupants, not by a REIT. But you can buy the REIT. And the other one is that you said...

And I questioned this and you were stuck to your guns. You said that in the U.S., ticker symbols on the stock exchange max out at four letters. And we got complaints. One set of complaints was like, actually mutual funds have five letter tickers, 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 NASDAQ actually caps out at four letters, but then they have special codes you can add that are a fifth letter. So preferred stock can have a fifth letter. Google has multiple shares of stock, and some of them are... Alphabet has multiple shares of stock, and some of them are like Google A or whatever. And NASDAQ 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. It's no longer part of the NASDAQ nomenclature, but still some venues put Q on the end of a ticker when it's in bankruptcy. Back in the day when Tesla was not the juggernaut it is now and people were shorting Tesla, there was a whole Twitter community whose banner was TSLAQ. Oh, Tesla's bankrupt. The Q code is no longer a part of NASDAQ, but it still lives on in our hearts.

So, to clarify. Katie has a response because Katie knows her tickers. Yeah. The mutual fund thing, yeah. 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 issuances, NASDAQ assigns symbols between one and four characters in length. There are some circumstances, and I should have known that by saying that there's a four-character limit that that would invite people to find the asterisks, but there's a fifth symbol that can be added to the original ticker in special cases, such as different share classes, etc. But if you are going with an ETF or

or an IPO and you say, I would like to list this on your exchange. Can I reserve this five-letter ticker? You would be told no, is my understanding. And I've spoken with both Nasdaq and NYSE 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. You got your little calendar every three months, like, have they expanded the ticker symbols yet? Because that's... You have that story all drafted and ready to go, huh? I'm ready to go. And we also do, we have on 4K,

Folks from NYSE and from NASDAQ on, you know, either Open Interest, which I anchor daily, or on ETF IQ. And every time we have anyone who touches the listings business, I ask them about the ticker limit. And if they're considering... Five? Five letters? And every time they politely tell me that, no, they don't have any plans to expand beyond four characters. So...

Yeah, this is in the context of a question about ETFs that was like, eventually there'll be like 10 zillion ETFs and there's only so many four-letter codes. Yeah, and there's going to be 10 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. That's true. They'll have to get the tickers out of the warehouses and limit to ETFs. You better hope that, you know, they're good quality.

And that was the Money Stuff Podcast. I'm Matt Levine. And I'm Katie Greifeld. You can find my work by subscribing to the Money Stuff newsletter on Bloomberg.com. And you can find me on Bloomberg TV every day on open interest between 9 to 11 a.m. Eastern. We'd love to hear from you. You can send an email to moneypod at Bloomberg.net. Ask us a question and we might answer it on air.

You can also subscribe to our show wherever you're listening right now and leave us a review. It helps more people find the show. The Money Stuff Podcast is produced by Anna Masarakis and Moses Andan. Our theme music was composed by Blake Maples. Brendan Francis Noonan is our executive producer. And Sage Bauman is Bloomberg's head of podcasts. Thanks for listening to the Money Stuff Podcast. We'll be back next week with more stuff.