What Growing Starlings Need: USCIT, GSEs, SBET
40:00 Share

This is an iHeart Podcast.

Hi, I'm Kelly Cavaniaro, Managing Director, Head of North America Institutional Distribution. At Janus Henderson Investors, we believe working together is the way to work better. Like combining your portfolio plans and our in-depth strategy, your valued assets and our valuable insights, your mission and our vision. Working in harmony to seek the right investment opportunities. Janus Henderson Investors, investing in a brighter future together.

Learn more about the technology, insights, and support available at AmazonBusiness.com.

Microsoft.

Security is your job, and it's theirs too. With Microsoft Security, you have a partner that helps your business move forward confidently. To learn more, visit Microsoft.com slash CISO. That's Microsoft.com slash C-I-S-O. Bloomberg Audio Studios. Podcasts. Radio. News.

How's your body battery? Oh my god, I slept terribly last night. I'm so glad you asked. This is bad. I'm at 17. I woke up and my body battery was at 51. Usually I wake up in the 80s or the low 90s. What was weighing on you? I'm moving tomorrow.

I'm psyched. I'm going back to New Jersey. It's where I belong. I thought you were going to say you were stressed about your bird. Oh, God. I'm so glad you brought up the bird. Katie has a bird now. I have a bird. This is like Katie's exotic pet hour. Yeah. I have a lot to say about this bird. So he's a European starling. Sure. All right.

One of my proudest moments, and you didn't really notice this, but you showed me two pictures of this bird on your phone. He's pretty small in those pictures, and it was on your phone. And I was like, oh, a starling? And you're like, yes, it's a starling. I was like, yes. Yeah, you clocked that. I am the bird identifier. Yeah. Well, they're super common around these parts because they're an invasive species, which explains why now we're in possession of the birds.

My dad actually found him at my parents' house, like as a creepy crawly little like no feathers alien baby thing. And I called the Raptor Trust and they said, you know, because it's a non-native species, we can't.

They said, try to return it to the nest. I tried that. I couldn't find the nest. And I said, hypothetically speaking, how hard would it be to raise this bird? And they said, actually, it's really easy to hand raise European starlings. So that's what we've done. He's sitting here at the podcast right now. Oh, my God.

My parents are taking care of him at my direction. It's kind of fun because it feels like they're my employees. How many video calls are you doing a day with your parents? Many. I actually have a new photo to show you. Now he's about three to four weeks old. I'm really proud of this photo. Not that anyone listening can see it. Hold on. Put it in the show notes. My dad texted it to me this morning. You know, we can put it in my email. Oh, my God. Yeah, well, we'll put this photo in. Look at him. Put it in the email.

Aww, he's a bird. Yeah, he's a real bird now. So we want to release him. So no, not yet. There's three important milestones that this bird needs to pass before we can think about releasing him to the wild. He needs to be able to perch. He's getting better. My mom has been putting him on a stick and he will perch on the stick. He needs to be able to fly.

Obviously. He's flapping around. He's not flying yet. Is your mom like flapping her arms to demonstrate to him? That's sort of the conversation we keep having is we're not birds. You're not birds. It's really hard. And the third thing he needs to be able to do is feed himself. The hand of God has been feeding him mush for weeks now. So he needs to, you know. What's your mush recipe? Oh, I'm so glad you asked. So high protein dry cat food. You soak it for.

you know, a while. I've been doing a hard-boiled egg and then you mash it up. Hard-boiled egg? Yeah. It's kind of feels bad feeding egg to a bird, but he doesn't know. And then I have this like egg shell mix. It's made for chickens to try to give them more calcium so they lay better eggs, but

Basically, what baby starling, growing starlings need is a lot of protein and a lot of calcium. So this mix seems to be working pretty well. I've adjusted it as he's gotten a little bit older.

As the photo shows, he looks like a real bird. So we'll see if his bones will support himself as he continues to learn how to perch and fly. Well, I hope you'll bring him into the podcast before you chuck him off the balcony. The thing is, and I promise we'll move on soon, is that if he's not able to be released and we're not going to release him to a certain death if he isn't meeting these milestones, then we just have a bird now.

Yeah. Which isn't the worst thing. No, it's clearly the outcome you're rooting for. All right. I think we're done. We'll see you next week. Yeah. No, I think that that was a good update. And yeah. Hello and welcome to the Money Stuff podcast. Your weekly podcast where we talk about stuff related to money.

I'm Matt Levine, and I wrote the Money Stuff column for Bloomberg Opinion. And I'm Katie Greifeld, a reporter for Bloomberg News and an anchor for Bloomberg Television. Katie, there's been some tariff news. Yeah, I feel like we have to timestamp this conversation because everything is changing.

Very rapidly. We were recording this at 4 o'clock on Thursday, May 29th. Yeah. And about 24 hours ago or less than that, a court, which I learned existed. The U.S. Court for International Trade. Yeah. Based in Manhattan. Sure. Yeah. That's where the trade is. So it blocked the tariffs that Trump put on on Liberation Day. Yeah. Most of his tariffs are on Liberation Day tariffs. And actually, the pre-Liberation Day tariffs.

Canada and China tariffs, the opioid tariffs, the fentanyl tariffs. Those were all blocked by the court. As of Thursday afternoon, the appeals court for the federal circuit, which is the appeals court that handles, that you also just learned exists, that handles the appeals from the court for international trade, that court

Put a temporary stay so it could consider whether to put a longer stay. So everything's very much in flux. But yeah, the Court for International Trade said these tariffs are illegal. Yeah. And it seems like we're heading to the Supreme Court. I mean, certainly. Yeah. Yeah. Probably won't be at the Supreme Court by the time this podcast airs on Friday. Probably not. But, you know, crazy things have happened. I mean, coming into this morning, futures were...

up a ton on the S&P 500 because it was like, okay, the trade war's over. It's not. It seems like the consensus that has emerged is that Trump has plenty of other tools to put on tariffs somehow. And I don't know what this does to the U.S. negotiating stance. It feels like it lessens it by quite a bit. I guess that's right. I don't know. It's just like, it feels like

The U.S. negotiating stance is so mercurial and so unreliable that I'm not sure how much it affects the negotiating stance. Because on the one hand, as you said, there's a lot of tools to put on tariffs. And if you are

a trade partner in negotiations with him, the threat has gone from, I will put on whatever tariffs I like pursuant to my unlimited authority to put on tariffs, to I will find some stuff to do and it'll be super annoying and confusing. It's like, that's not that much better, right? That's still a pretty bad threat. And

In some ways, I feel like a lot of what I read about people who are in the posture of negotiating with Trump, like you read about this in like the situation with Harvard. People worry about making deals because he is not a reliable interlocutor and can always just change the deal. And there's not a lot you can do about it. In some ways, like you having a little court supervision might be kind of good for negotiating posture. I don't know if that's true, but like, it just seems like it's nice that there's like

Just a soupçon of like law here. Yeah. And like procedures. Because, you know, I wrote about this today, Thursday. In some ways, this is a complicated case. There's all these statutes. There's all these questions of like what things should be left to the executive's discretion.

But in many ways, it's a very, very simple case, which is that the Constitution of the United States, which is like a real document. You can read it. It's a real thing that exists, right? Like not everyone involved in the government has read it. But like, you know, there's like a real document that people at least say they care about. The Constitution just says the Congress has the power to impose tariffs and the president doesn't. So like all this stuff of like executive orders imposing tariffs is really like

on a first order analysis, just not what the Constitution says. And I think that's kind of the court's starting point here. So it seems like kind of simple stuff and there's more complicated stuff, but it is in some ways a relief to see that the Constitution still has some controlling power.

Yeah, that does seem like something that you would root for. I do. I'm weird like that. Yeah. When it comes to the negotiating stance, the standpoint that I've seen Band-Aid about is basically if you're another country negotiating with the U.S., like this kind of removes the urgency or the incentive to make a deal with the U.S. because now it's in flux, you know, how much power Trump actually has to enact these tariffs. Yeah, that's right. But you wouldn't.

against him having a lot of power to do whatever he wants. Maybe you would, I don't know.

Yeah. Yeah. I don't know. The one consensus. Maybe we'll see when it goes to the Supreme Court tomorrow, but I don't know. Yeah. At least on this Thursday, the consensus that has seemed to emerge throughout the day, and you've seen this in like the slow bleed of the S&P 500 from, you know, our pre-market euphoria was this just turns up the volume so much on the trade policy noise because who knows what's going to happen. And then other noise, right? I mean, like one overhang case.

to financial markets is how much rule of law is there. And every time the court says Trump can't do something, you have wider variance in the outcome of how much rule of law is there. Because like, maybe you'll be like, oh yeah, the constitution does say that. Nevermind. Or maybe, like,

Peter Navarro said nothing has changed after a court said the tariffs are unconstitutional. Like, I don't know. That's like a threatening posture. It was kind of funny that this all happens within hours of Trump being told about the taco trade. The taco trade being Trump always chickens out. It was coined by an FT columnist. Rob Armstrong at the FT. Yeah. Basically that, OK, Trump comes out with this.

big announcement, you know, we're going to slap a gazillion percent tariff on so-and-so. And then, you know, inevitably it's walked back. And that's the taco trade. You bet on this is going to be walked back. And Trump was told about that in the Oval Office. And he was upset, as you would imagine, and said, no, this is negotiating. This is how it's done. Which, you know, maybe there's some truth to that. But, you

I can see how you could also turn that into a trade, even though it feels like, you know, in the last couple of weeks or so, it's become less profitable because it feels like the shock value is fading. Right, right, right. So a couple of things. One, like, always chickens out is...

the insulting to him phrasing of it. But the trade is when a drastic tariff announcement comes out, the actual result will be less than that, either because of negotiation or because you check it. Like you can be agnostic about the cause. You can just say like, this isn't as bad as it sounds. The second thing I want to say is that

Lewis Ashworth at FT Alphaville apparently got jealous of his colleague's ability to coin a term that became so famous. So he wrote a bunch of other potential acronyms, like Mexican food-themed acronyms. And the one I liked was taquito, which is Trump always quickly undoes initial trade offensive. Just like a little bit more specific about the thing that's happening. The other thing I want to say is that a reader emailed me to be like, would it be a good trade if you were a journalist to...

short the market and then ask Trump about the taco trade because like the mechanism there is like you ask Trump about the taco trade and he gets really mad and then he says I'll never chicken out again and tariffs get higher and the market drops like I think like you could have imagined for a second that like

Trump getting mad about the phrase taco trade could have been bad for stock prices. But of course, it was quickly followed by the trade court ruling, which is good for stock prices. So it's a little hard to isolate the impact of getting Trump mad about the taco trade. Yeah, that's pretty funny.

It could work if he had explicitly said, I'm going to tariff even harder right now. I think that it would have been reasonable to think that he might have thought that. But then, you know, events moved on. Yeah. That's what happens a lot. That's kind of the real core of the taco trade, which is events just keep moving on. Yeah. Well, it'll be interesting to see what happens to the taco trade as we continue to muddle through.

whether or not these tariffs are illegal and what other types of tariffs we're going to get. There's all these different tariffs that this ruling doesn't cover. Think about steel and aluminum, for example. Well, so the Liberation Day tariffs are...

10% to 150% tariffs on everything. Baseline. 10% baseline, but then every country had quote-unquote reciprocal tariffs that were much higher. It's an amazing chart. Based on the calculation of the trade deficits. It's like a whole thing. It was truly universal. And it was basically... You talk about steel tariffs. You have a sort of national security justification or whatever. You have some theory behind steel tariffs. But the Liberation Day tariffs were...

the US runs a trade deficit and we want to stop that. And so we're going to have tariffs that are calculated through some formula designed to zero the trade deficit, essentially, right? And-

The court said, you can't do that. The law that he used— AIPA? AIPA. International Emergency Economic Powers Act of 1977, the AIPA, allows you to respond to an emergency. And if you have tariffs that are responsive to an emergency, that's fine. But it can't be the case that all international trade for the last 30 years is an emergency. This is too much. It's too much power to the executive branch.

So you can't do that. But can you find specific goods to tariff and use other laws that say you have like specific economic tariffing powers? Like maybe, probably. Often there are more limits in those laws. You have to like do fact finding and like put out a report and...

They're time limited, right? So it's not as completely broad as the powers that they claimed under AIPA, which is why they did the AIPA stuff. They were like, we're going to do everything all at once with no review, no fact finding. So AIPA was the law they thought they could use for that. If they can't use that, then they have to find...

other laws, which will be a little bit more narrow. But you can still do a lot of tariffing. Yeah. I mean, there's Section 232, for example. That's what's being used on steel, aluminum vehicles, and auto parts. There's other laws as well, but usually there's some investigation associated with it. So it takes months versus President Trump is sitting in the Oval Office and he signs something. Because again, the Constitution says that Congress can make tariffs. And so...

Congress has in the past passed laws saying, here are some tariffs that the president can impose, right? But like ultimately it's the Congress's tariff power. And the Congress doesn't say in any of those laws, the president can make any tariffs he wants. It says, you know, he does an investigation, these particular things for these particular reasons, you can make tariffs, but it's not an open-ended grant of power. And one thing that the court

said yesterday is that if it were an open-ended grant of power, and one way to read IEPA is it's an open-ended grant to make whatever tariffs you want. I don't think it's a good reading, but it's like the Trump administration reading. The court said if you read it that way, then it would be unconstitutional for the Congress to give all of its tariff power to the president with no limitations whatsoever. And I think that's right. I have a personal interest in this. I don't know if I've talked about this on the podcast, but I've said it on my column, but like

That idea that Congress can't just give its power to the executive with no constraints is called the non-delegation doctrine. And-

It has had a controversial career in the Supreme Court, but one of the important cases in the recent Supreme Court about the non-delegation doctrine was argued by my wife. Whoa. Who's a criminal defense lawyer. And so I was in the audience for that. And so, you know, I have like a little rooting interest in the non-delegation doctrine. I get it. Even though to oversimplify and dumb it down, it seems like that is what has happened here. And it doesn't seem like Congress is too upset about it. So...

The potted history of the non-delegation doctrine is that it's never had any effect whatsoever. There is lip service paid to the idea that Congress can't delegate all of its legislative powers to the president, but that lip service is always paid in cases saying, but this delegation is fine, right? Including my wife's case. But-

There is like this notion that interest in it has been revived and like one day they're going to find a delegation that is too broad. Maybe it's AIPA. I don't know. Yeah. I don't know. Again, timestamp. This is on Thursday. It'll be fun to see how this shakes out. I don't know. I would love to be a fly on the wall in like some of these negotiations because I don't know if you're Japan negotiating with the U.S. right now or India. Do you just wait and see?

I don't understand why this would really change it that much. I just think that the thing that you know as the Japan trade negotiator or whatever is that Trump really wants to make deals. He really wants to have wins. He really doesn't trust free trade. He's really willing to push the boundaries of the law as much as possible. He's not really aware of what those boundaries are. To think like...

I'm going to tell him to stop it because a court struck him down seems crazy. Now more than ever you make a deal. Now more than ever you're like, look...

this court was wrong. We understand. Here's our tariff concessions. Like maybe you get a better deal now. Like you're rushing to make a deal. I don't know. I don't understand the idea that like now you're like, oh, it's fine. Like no more tariffs. Like I'll just walk away from the negotiating table. Seems crazy. I don't know. Maybe you don't walk away, but maybe you say, why don't we break for lunch for a little bit? Why don't we take a beat? I think now is the opportunity to make a good deal. I don't know. Don't listen to me. I don't know anything. But like,

To me, like, calling him up and being like, I'm in your camp, buddy. I want to make a deal. I know that you have the constitutional power to impose these tariffs. Let's make a deal. To me, this is the opportunity. You don't break for lunch. That's true. You cut the deal now. Yeah. No, I'm exaggerating. Because, like, if the deal involves, like, him imposing lower IEBA tariffs on you, like, those are illegal. Maybe. Maybe. So, I don't know. It's harder to know what the deal is, but I don't know how it changes the posture that much.

Hi, I'm Kelly Cavaniaro, Managing Director, Head of North America Institutional Distribution. At Janus Henderson Investors, we believe working together is the way to work better. Like combining your portfolio plans and our in-depth strategy. Your valued assets and our valuable insights. Your mission and our vision. Working in harmony to seek the right investment opportunities. Janus Henderson Investors, investing in a brighter future together.

Learn more about the technology, insights, and support available at AmazonBusiness.com.

What are some ways that Microsoft Security is helping customers stay ahead of 600 million attacks without slowing down business? For sports organizations, it means letting fans share in the action without sharing sensitive information. For automakers, it means driving change and securely innovating their development process. And for digital banks, it means staying ahead and keeping up with evolving cyber attacks.

Microsoft Security equips you with deeper insights to help you pinpoint vulnerabilities, see around corners, and innovate confidently. They scan trillions of signals daily, giving you the guidance, expertise, and tools to protect your business without sacrificing speed for safety.

Security is your job, and it's also theirs. With Microsoft Security, you have a partner that looks deeper, keeps you ahead, and helps your business move forward securely. To learn more, visit Microsoft.com slash CISO. That's Microsoft.com slash C-I-S-O. Microsoft Mechanics

Most of our topics today are vaguely and in some cases explicitly Donald Trump related. Fannie and Freddie, for example. Fannie and Freddie. Back in the news. Another bit of unilateral policymaking. An explicit implicit guarantee. I love it so much. Yeah. Donald Trump, the verb is so hard. I want to say he tweeted, but in fact, he posted on Truth Social, which you can say he truthed. Yeah. He truthed. I am working on, all caps, taking these amazing companies public.

But I want to be clear, the U.S. government will keep its implicit, all caps, GUARANTEES, and I will stay strong in my position on overseeing them as president. So Fannie and Freddie, the government-sponsored enterprises, had a long prehistory of being implicitly guaranteed by the U.S. government. So they explicitly said, so they guarantee mortgages, right? So they have trillions of dollars of mortgages. And they issued mortgage-backed securities that are guaranteed by them. And those securities always said,

these securities are not guaranteed by the US government. And they said that because otherwise you'd be confused because everyone thought they were guaranteed by the US government. That's what's called an implicit guarantee. Right, for sure. And they say it's not guaranteed, but everyone thinks it's guaranteed.

And then in 2008, they went bust and they turned out to be guaranteed by the U.S. government, effectively, because the government stepped in and took them over, bailed them out and made sure their creditors were made whole. And that was roughly 16 years ago. And ever since, people have said this can't continue forever. They have to return to private hands. And I always said, why? It's fine. Like, no one. Yeah, calm down. Yeah. But so now, once again, because Trump is in office.

And because there's a lot of money to be made, there's talk of returning Fannie and Freddie to private hands. And the mechanics of that are really complicated. And there is opportunity for people to

to get hundreds of billions of dollars of value. Yeah. And so that's of great interest to a lot of investors. Yeah, there's bags to be made. There's bags to be made. Yeah. Which could bring us to Bill Ackman, but we don't have to talk about that. We don't have to, but Bill Ackman is one of the big investors in that trade. When Fannie and Freddie were put into conservatorship by the government in the financial crisis-

Their stock became in the ballpark of worthless, but never stopped trading. And at some point in 2012, I think, the government changed the deal from the bailout to say, from now on, all of the profits of Fannie and Freddie forever will go to the government, and shareholders will never get anything ever again, which you might think would make the stock worthless. And made it almost worthless. But some people thought, that can't be true. That'll change. And so they bought the stock, and...

Now, they own stock, and it is unclear from first principles how you would reprivatize Fannie and Freddie. But it seems likely that whatever happens, the current shareholders of Fannie and Freddie, who bought the stock at pennies when it was declared to be worthless for all time, it seems likely that the current shareholders will get

A bag. Yeah. Haven't they already, though? Well, in market prices, yes. Yeah. At this point. Because people are anticipating that Fannie and Freddie will be returned to private hands, and specifically their private hands. Specifically, the existing shareholders of Fannie and Freddie will not, in fact, be zeroed, but will end up being shareholders of Fannie and Freddie and will get a lot of value. Yeah. It would be kind of funny if some of these big, vocal investors who are calling for the reprivatization, who have...

bought the stock when it was pretty much worthless, sold now in this insane run-up that it's seen. Yeah, why not? Yeah, this is good enough. Risk is just a return. Yeah. Stocks of both companies are trading at their highest level since 2008. But you look at the long-term chart, like going back to the 1980s, and it's still nowhere close to where it was.

Yes, because right now they're controlled by the federal government and their charters say that their shareholders can never get any money ever. Yeah. So that's worse than the old business model. Yeah, for sure. I don't know. This timeline, even though Trump is posting on Truth Social about it, it seems like this has picked up in urgency. Like this process would take years and years. I want to just be clear. Like there's two things. There's like you can return Fannie and Freddie to private hands.

And then there's the specific question of how much of it do you give to the existing shareholders? You can do zero. You can say, OK, the deal is the deal. And by the way, the deal is highly controversial. People think it's really unfair. There have been a lot of lawsuits. I want to respect their feelings that, in fact, the 2012 deal to zero the shareholders, there's a good case that it's pretty unfair. But whatever.

Given that it exists, you could reprivatize them without giving existing shareholders anything. You could just raise new money to capitalize them. You can say, I mean, there's some corporate complexities to doing that, but you could raise a lot of new money and essentially dilute the existing shareholders down to zero. And you could do that by saying, the government has, I think when I last read about this in January,

In the accounting of Fannie and Freddie, they owe the government $340 billion before the shareholders can get anything, right? And so you could say, well, OK, we're going to go out and raise $340 billion of new capital to repay the government. And after we raise that $340 billion, then the existing shareholders will have 0.0001% of the companies or whatever. And so their sales will be worthless. Not worthless, but not worth very much.

But the other extreme is you can say, you know what, that $340 billion that Fannie and Freddie owe the government, that was a mistake. They don't really owe that. So we'll just cancel that debt, right? And then the existing shareholders are sitting on shares worth hundreds of billions of dollars or more than $100 billion.

And those are kind of the two poles, right? You just think shareholders have nothing or they have more than $100 billion of equity? Two scenarios. Two scenarios. I don't think it's a priori necessary to choose the second one. I think there's reasons to choose the second one. You might think it's fairer to the shareholders. You might think the shareholders got a raw deal in 2012. It's a reasonable thing to think. And you might think that giving the shareholders a good deal is a good way to, you know, you'll need to raise money for Fannie and Freddie. You'll have better capital markets access if you treat the shareholders nicely.

But it's also the case that giving $100 billion of value to these existing shareholders is like a little bit of an optically strange move. Yeah. I don't know. It feels like any scenario is just going to be messy and optically strange. So what I care about, circling back to I'm moving, is what this could mean for mortgage rates. Yeah. Yeah. Yeah.

So Bill Pulte, he's the head of the FHFA, which oversees Fannie and Freddie. He had said back in February that...

that any effort to reprivatize the two must be carefully planned to make sure that the housing market remains safe without pressure on mortgage rates. So the explicit implicit guarantee, even though, you know, there's a lot of question marks and details to be worked out there, at least that seemed to remove some of the risk that mortgage rates would spike here.

Right. Like, who knows what a reprivatized Fannie and Freddie looks like? But, like, here are some possibilities. One is, like, there's an explicit government guarantee that they pay for. So there's, like, a fee. Yeah. And that would be incorporated into your mortgage, right? So it might raise rates. Yeah. Because right now, Fannie and Freddie kind of have an implicit, somewhat more than implicit, but less than explicit guarantee. Yeah. Because, like, they're in conservatorship and they have a line of credit with the federal government. Yeah.

And they don't pay for that. They pay a lot for it, but the accounting is somewhat complicated. But in a world where the government charged a 50 basis point fee for a mortgage guarantee, then that's 50 basis points on your mortgage, right? You could have a fully private Fannie and Freddie where either...

Fortress balance sheet, AAA, super safe, and raise a lot of capital, and that raises their costs and thus raises mortgage rates. Or they're like, yeah, AA, yeah, pretty good, and raise less capital. And then possibly their mortgage-backed securities trade wider, and that raises your mortgage rates, right? The implicit guarantee is essentially they're backed by the government, but they don't pay for that backing. That's probably...

The cheapest for your mortgage, right? Let's go with that one then. Seems to be what they're going with. That's good. I know there's other stuff too. Like I was reading a paper today, like privatized Fannie and Freddie, like right now they're arms of the government. They kind of have always been arms of the government. You could imagine them being like more kind of free market-y, right? Like one thing that Fannie and Freddie do is there's like a thing called a conforming mortgage. And if you meet the requirements of a conforming mortgage, which are

not that low, but not that high, then you kind of get the same rate. The rate for a conforming mortgage is the rate for a conforming mortgage. But like you can imagine a fully private Fannie and Freddie having more discrimination among borrowers where there's less cross-subsidization and like very creditworthy borrowers get lower rates than like medium creditworthy borrowers. So like it could have the effect of not raising or lowering mortgage rates, but just like increasing the dispersion of mortgage rates. That would probably be fine for you.

You don't know that? I have a guess. Maybe I have a horrible credit score. You don't know? I don't know. I looked up your credit score. So, yeah. Well, it seems like we're going to be talking about this for years. I know. So, buckle up. I know. I've heard it a lot. You know, it's like heated up and cooled down over the years. And I used to write about it a lot. And then I didn't for a long time because, like, in the Biden administration, nobody talked about this. No.

And it's right about again in January because like people started tweeting about it. And now it's like feels like it's kind of coming back. I feel like the shares are just a good metric of how much this is being tweeted about. The shares suggest the market expects some real action. Yeah. There's a lot of social media activity.

Hi, I'm Kelly Cavaniaro, Managing Director, Head of North America Institutional Distribution. At Janus Henderson Investors, we believe working together is the way to work better. Like combining your portfolio plans and our in-depth strategy. Your valued assets and our valuable insights. Your mission and our vision. Working in harmony to seek the right investment opportunities. Janus Henderson Investors, investing in a brighter future together.

How can you grow your business from idea to industry leader? Bring your vision to life with smart business buying tools and technology from Amazon Business. From fast, free shipping to in-depth buying insights and automated purchase approvals, they deliver everything you need to achieve your goals.

It's not easy to stand out from the crowd. Simplify how you stock up to get ahead. Go to AmazonBusiness.com for support. What are some ways that Microsoft Security is helping customers stay ahead of 600 million attacks without slowing down business?

For sports organizations, it means letting fans share in the action without sharing sensitive information. For automakers, it means driving change and securely innovating their development process. And for digital banks, it means staying ahead and keeping up with evolving cyber attacks.

Microsoft Security equips you with deeper insights to help you pinpoint vulnerabilities, see around corners, and innovate confidently. They scan trillions of signals daily, giving you the guidance, expertise, and tools to protect your business without sacrificing speed for safety.

Security is your job, and it's also theirs. With Microsoft Security, you have a partner that looks deeper, keeps you ahead, and helps your business move forward securely. To learn more, visit Microsoft.com slash CISO. That's Microsoft.com slash C-I-S-O.

Bitcoin, treasury companies. Yeah. When did that phrase become real? I guess MicroStrategy- I think MicroStrategy probably coined it years ago, but it's become everywhere in the last few months. Yeah. Especially everywhere. Just in the last few months. Yeah, yeah, yeah. Because MicroStrategy started doing this in 2020. I think that when MicroStrategy started doing this, first of all, MicroStrategy was kind of a real company. Yeah. And- They are a software company. Right. And like-

They sort of started slow. They bought some Bitcoin. They got kind of meme-y. And so early in the days of MicroStrategy buying Bitcoin, you could say, and I probably did say, that it looks like every time they spent $1 buying Bitcoin, it increased their market cap by $2, and that's a good trade. But it wasn't super, super, super obvious. They would say things like, oh, we levered Bitcoin. It was like, they had a business. Who knows how you value the business? You know, all this stuff. You could look at that and be like, well...

I can't just copy that. I can't just put Bitcoins in a public company and have them be worth twice what they're worth as Bitcoins. And so I think it was a little bit slow adoption. People copied them, but not everyone copied them. And then the last few months, people have realized that you can take any random public company and just stuff it full of Bitcoins, and it'll double the value of the Bitcoins. And so that just feels like a great trade. There are a lot of people who own a lot of Bitcoins, right? And if you own $200 million worth of Bitcoin...

You can sell them for $200 million. But if you stuff them into a public company, they'll be worth a billion dollars. And that's more. Yeah. So everyone's doing it. Everyone's doing it. And especially this week, it feels like everyone is doing this. So, you know, you kicked off the week by talking about SharpLink gaming. Yeah, I guess they did it. No, they did it this Monday, yeah. Or Tuesday. You know, time...

MARK BLYTH: They did it this week. Whatever. MELANIE WARRICK: It's a flat circle. MARK BLYTH: So SharpLink is great. Like, SharpLink is the purest form of this, because they were a sports betting marketing company or something. MELANIE WARRICK: Yeah. MARK BLYTH: They had a $2 million market cap as of mid-last week. Someone pumped them full of $425 million of Ethereum, right?

And so now they're trading at like a $2-plus billion pro forma market cap. I want to be clear. I wrote about this and I said market cap. But they don't have a $2.4 billion market cap. They have a $2.4 billion pro forma market cap. Right now, they have some shares outstanding, not very many of them, and the shares trade at a high price. And they have like a whatever, like Bloomberg will tell you, $80 million market cap, something like that. But they

They've also agreed to issue all these shares to these investors who want to pump them full of Ethereum. And if you count those shares, the market cap is like $2.5 billion. And this is important because we talked about QXO a few times. It's the same deal where you have a company with very few shares outstanding.

and a huge pot of money coming in. And the retail investors are like, oh, look, this company has $400 million of Ethereum and its market cap is $80 million. I should buy some more stock, right? That's wrong, right? Because the 80 million doesn't count the 425 million of Ethereum. But the stock is like,

The publicly traded stub is small enough and the market cap is confusing enough that people are buying it at a five or ten times premium to the value of the Ethereum in the pot. And there's nothing else, right? It's a $2 million company, right? But there's Ethereum in a pot and it trades at a large multiple of the value of the Ethereum. It is somewhat interesting that they went with Ethereum versus Bitcoin. Oh, I just think that people need to pick a lane and Bitcoin is so saturated that people are doing Solana, they're doing Ethereum, they're doing Trump coin, they're doing Dogecoin, they're doing everything.

Yeah. A lot of them are in Bitcoin, but it's not only Bitcoin anymore. Yeah. Yeah. I wrote about two other big ones this week. Household name companies are, you know, DJT, Trump Media and Technology Group, and GameStop both announced Bitcoin treasury buys, and their stocks both went down, which is like, that's the end of it. Okay, the trade's over. I don't think the trade is literally over, because I think those are special cases of companies that were kind of already meme stocks. But-

But it's definitely the case that any random company for at least several weeks that announced that it bought a lot of Bitcoin, like the stock would go way up. And people are like, oh, we should do that. And then these two big name-ish meme companies announced it and their stocks went down. And so, yep, trade's over. For GameStop. So they announced in March that they plan to add. This is not new news for GameStop. They actually bought the Bitcoin this week and it went down, but like.

In some ways, it's amazing that it took this long for them to come up with a plan that we're going to do this for GameStop. I feel like, I don't know, I would have expected it a couple of years ago, but here we are. Okay, first of all, I would have expected it from AMC, who does everything. That's true. AMC bought a goldmine because that was funny, right? Yeah. Like, AMC, sure. You know, somehow I had forgotten about that. I filled my brain with all this other stuff. I sometimes remember it and I'm like, oh my God, they bought a goldmine. Yeah.

Maybe we should talk about that more. I would like to get a status report on that. I know. Every so often I'm like, I mean, they bought a gold mine and I read about it, but I never go check on the gold. I have no idea. I'm not even sure that they literally bought it. I think they like did some sort of merger with a gold company. I don't know.

Anyway, GameStop has always been a little bit less like doing every meme. But they do a lot of memes. They've done some crypto stuff. But yeah, I think that if you want to do a Bitcoin treasury strategy, you kind of have to be all in on it. And GameStop, I think, still want to sell video games at the mall. And I think it was reasonable for a long time to think that if you're just GameStop, you don't really have an advantage in doing that strategy. MicroStrategy was there at first.

It's not clear why a copycat would be particularly valuable. So you might have tried to do something else before getting into the Bitcoin strategy. So you wrote that, you know, you compare maybe Michael Saylor will do something cooler with its Bitcoin than the CEO of DJT. But it doesn't seem like there's anything to do with it that's cool other than just buy more of it. I hear you. I don't really disagree. They're not going to sell it. I was being intentionally vague about doing cool stuff. OK.

Okay. One view of these Bitcoin treasury companies is that they're sort of like a meta pump for Bitcoin, right? The idea is they will buy all the Bitcoin and not sell it, and that will cause the price of Bitcoin to go up, and they'll all be rich. It's just like a diamond hands theory of Bitcoin. Like,

back one level to these treasury companies. But another theory, and a related theory, I guess, is like a lot of them, including MicroStrategy, will talk about like investor education efforts, right? Right. We talked about this with like, with 21, which is like another big... Jack Muller's. Jack Muller's, yeah, like big Bitcoin treasury company with like Tethers, Bitcoins. And...

you know, they're like, we're going to do investor education or like Nakamoto Holdings, like merged with an opioid company, like a tiny drug company. That one I haven't heard of. It's called Kindly MD. It's just like, it's just random, you know, all these like random, like tiny companies, like you can pump them full of Bitcoins. And like, they all talk about like, we're going to do marketing, media, investor education. It's all like, you know, we're going to make the price of Bitcoin go up. Right. And so like your theory is not only will they own Bitcoin, but they'll do stuff to make the price of Bitcoin go up.

I don't know why that would make you buy them rather than Bitcoin, but whatever. But I will say MicroStrategy have a really interesting capital market strategy where they're like, we're going to use every part of our cap structure to raise more money to buy Bitcoin. And you can imagine being like, I'll buy the equity because they will get...

more attractive funding to buy Bitcoin by like selling converts at a high volatility. I don't know. That's not a crazy position, but like most of these companies are like, yeah, we're going to buy Bitcoin and we're going to talk about buying Bitcoin. Why would you pay a premium for that? Yeah. I don't know.

This is a tangent, but I just want to talk to like the average employee at MicroStrategy, which is now just strategy, by the way. We've been calling it MicroStrategy. It's still like officially, whatever. Nothing matters because they employ thousands of people. I want to talk to an average employee there who isn't involved with the Bitcoin strategy at all. It is a little perplexing. But, you know, like if they get paid in stock, they're pretty happy. I don't know.

I don't know, but I agree, obviously. But, you know, do they just think of it like I work at a conglomerate? Like there's part of the business that is just so totally disconnected to what I do. Right. It's funny. I've always said that like the software company really matters because like

I don't know, like some part, I don't know what part, at least some small part of the MicroStrategy thesis is like they could get in the S&P one day. Yeah. And then like, you know. They're in the NASDAQ 100. Yeah, yeah, right. Yeah. Because they're a real company, right? Yeah. And like if you use the Bitcoin ETF, you can't get into these indexes. It's like a little bit harder for like an active equity manager to buy an ETF share than it is to buy a share of an operating company. Yeah. So I think like there's something very important about what the software employees do at MicroStrategy that's a little bit undermined by like

Kindly MD and, you know, Sharplink were like the operating business is so small, so small.

compared to the pot of Bitcoin or Ethereum. Just to your point that, you know, perhaps we could see MicroStrategy enter the S&P 500. It is amusing how much crypto exposure there is in the S&P 500 right now, especially with Coinbase being added. These are our... I assume that your 401k is in the S&P 500. But I don't own any crypto because... In part because, like, there's a notion of journalistic ethics that you're not supposed to own crypto if you write about it. And, like, to me, I'm like...

I don't own shares of Tesla, but I own mostly index funds, which owns Tesla, right? So yes, you do. Yeah. And to me, the neutral portfolio is not owning nothing. The neutral portfolio is owning all of the financial assets in the world in proportion to their value. And so if you own zero Bitcoin, you're structurally biased against Bitcoin because Bitcoin is a trillion dollars of value. So you should own a little bit of Bitcoin to fully reflect the global financial portfolio. Yeah.

And now I do through the S&P. Yes, you do. Yeah. And, you know, like, why am I so smart, right? Why are you so smart? If 1% of, like, the global financial portfolio is Bitcoin, like, why shouldn't I own that 1% of my assets in Bitcoin? I think that's a pretty reasonable take. And they don't have to like it, but they don't have to like a lot of companies, right? Like, I'm not right. Yeah. So you just want a market cap weighted total asset portfolio, right?

You're looking at me like that's a weird thing to want. No, I'm not. That's like the most normal possible thing to want. Everyone wants that. Just you can't get it. But you can get closer to it by like having Bitcoin treasury companies in the S&P. Maybe I sound skeptical, but I'm not. I think that's great. I'm a simple man. I just want the global financial asset portfolio. Simple man. I just want to go home and see my bird.

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 Andong. Our theme music was composed by Blake Maples. Brendan Francis-Newden 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.

So

Switch to Verizon Business and get more from your internet without paying more for your internet. Get LTE Business Internet starting at $39 a month when paired with select business mobile plans. That's unlimited data and with it, unlimited possibilities. Start saving today with Verizon Business. Ranked number one in small business internet customer satisfaction by J.D. Power.

Starting price for 25 megabits per second LTE internet plan with smartphone plan savings, plus taxes, fees, and economic adjustment charge. Terms apply. For J.D. Power 2024 award information, visit jdpower.com slash awards. How is Microsoft Security helping customers stay ahead of 600 million attacks without slowing down business? From automakers to sports organizations and digital banks, Microsoft Security delivers deeper insights, scanning trillions of signals daily to help you see around corners and protect your business.

Security is your job, and it's theirs too. With Microsoft Security, you have a partner that helps your business move forward confidently. To learn more, visit Microsoft.com slash CISO. That's Microsoft.com slash C-I-S-O. This is an iHeart Podcast.