April 19, 2024 • 31 mins
Matt and Katie discuss Elon Musk's pay package, trading trade secrets, the joys and perils of gardening leave, a hedge fund that is also a newspaper, and a real life doped Olympics.
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Episode Transcript
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Speaker 1 (00:03):
Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2 (00:11):
Hello and welcome to The Money Stuff Podcast, your weekly
podcast where we talk about stuff related to money. Hi'm
Matt Levin. I read the Money Stuff column for Bloomberg Opinion.
Speaker 1 (00:21):
And I'm Katie Greifeld. I'm a reporter for Bloomberg News
and an anchor for Bloomberg Television.
Speaker 2 (00:25):
It's the best day of our lives.
Speaker 1 (00:27):
It is the best day of our lives, which happens
every day on Fridays. We have a lot to talk
about today. We have to talk about Elon Musk.
Speaker 2 (00:34):
Of course, we had a whole week with that Elon Musk.
Speaker 1 (00:36):
I think, I know it was weird that we didn't
get to it in the first week. So we'll talk
about Elon Musk on that pay package fifty six billion dollars,
and of course his issues with Delaware. We're also going
to talk about Jane Street versus Millennium. You just published
on this.
Speaker 2 (00:50):
By the time you heard this podcast, I will published
on it roughly twenty four hours ago. Were recording it
shortly after I published on it.
Speaker 1 (00:56):
It's Thursday right now, and Matt published twenty minutes ago.
So this is the one I'm least prepared for. As
we're also going to talk about Hunter Brook, the hedge
fund that's also a newspaper question mark. Indeed, before we
get into this week's topics, it's our second episode.
Speaker 2 (01:14):
It's our second episode. We got a lot of feedback
on the first episode.
Speaker 1 (01:17):
We got a lot of feedback. A lot of it
was about all of its comment that I made about
the doped Olympics. Surprise, they already exist and they're funded
by Peter Teel.
Speaker 2 (01:27):
Well, it don't exist, they're like launching.
Speaker 1 (01:29):
Yeah, the idea is out there, the enhanced Games that
would have no drug testing. So if you didn't want
to do it performance enhancing drugs, you could still enter.
Speaker 2 (01:38):
You would just lose, yes, or you could do the
regular Olympics, which you'll still have drug testing.
Speaker 1 (01:42):
Yeah, and you'll probably still lose.
Speaker 2 (01:43):
I wonder if, like presumably day one, the best athletes
will still do the regular Olympics.
Speaker 1 (01:48):
Yeah.
Speaker 2 (01:48):
I wonder how long it'll take for the Enhanced Olympics
to have faster times and it jumps.
Speaker 1 (01:53):
It's a great question because if you're like.
Speaker 2 (01:55):
The tenth best track athlete and you do a lot
of drugs are better than the best.
Speaker 1 (01:59):
You probably there's only one way to find out.
Speaker 2 (02:03):
Is going to do?
Speaker 1 (02:04):
These games need to happen. The event roster includes individual
sports such as athletics meaning track and field, aquatics, gymnastics,
strength and combat. I would watch these, but.
Speaker 2 (02:16):
What we don't have on that list is drissage.
Speaker 1 (02:21):
Trissage Yeah, for the uninitiated, dressage is horse dancing. Effectively,
just go on YouTube look it up. It's a ridiculous
sport that, for better or worse, I partake in. I'm
not sure if when I enter the enhanced games, which
I will, whether I take the drugs, the horse takes
the drugs. Do we both take the drugs the drugs?
Speaker 2 (02:41):
Have you or your horse ever been like offered drugs?
Has ever been a controversy at your dressage?
Speaker 1 (02:47):
We're not that good maybe in higher levels of the sport,
but what we're doing, it's very loosely dressage. Let's talk
about the time, moving gracefully along laon Musk. The big
news this week is that Tesla came out with their
proxy statement two items of interest. They're going to havesh
shareholders to vote again on that twenty eighteen pay package
(03:11):
of fifty six billion dollars that was voided by a
Delaware judge, and related to that, they're going to vote
on whether to move Tesla's state of incorporation from Delaware
to Texas. What do you want to start with?
Speaker 2 (03:22):
They're inter related, yes, right, he got paid a giant
snack of options in about twenty eighteen. Everyone says they're
worth fifty six billion dollars. Whatever they're worth, like forty
billion dollars, fifty billion dollars, just like a conventional number
that people attached to it because you know, go up
and down with the stock. But right now they're with
forty billion dollars and judge took them away in January.
I said that was too much to pay him, and
(03:43):
it wasn't properly approved by the shareholders. And so they're
going back to the shareholders to one get it properly
approved and two never has to deal with a Delaware
judge again because they're going to move to Texas.
Speaker 1 (03:53):
Like you said, these are two intimately related issues. But
sticking with the pay package, which everyone is saying is
fifty six billion dollars, maybe it's forty billion dollars. But
the vote is in June. Yeah, are they going to
approve it again these shareholders.
Speaker 2 (04:06):
I think, so the proxy quits a lot of letters
from individual shareholders saying how much they love Elon Musk
and how they're going to approve it, and also, by
the way, letters from like Trope Price Right big shareholders too.
It's interesting if you were a sharelder in like twenty
twenty one, or even like December of last year, I
think you would say this pay package was worth it.
In twenty eighteen, they said we're going to pay you
on Musk fifty six billion dollars if he takes the
(04:28):
market cap of Tesla from like sixty billion dollars, like
six hundred and fifty billion dollars, And at the time
that seemed like a real stretch goal. And then he
did it really quickly, and so all the shareholders got rich,
like they made a lot of money on Tesla, and
I think they felt the real sense of gratitude, and
so I think very few shareholders were complaining about his
pay package, but one did ensued. Right, Yes, I think
(04:51):
the shareholders were happy with it. But now if you
go back to them and say you want to approve
it again, they could be like, we already got whatever
he did. He did the stuff that made it a
six hundred and fifty billion dollar company. So if we
can get those past efforts for free, why shouldn't they
get it for free? They feel grateful, but do they
feel fifty six billion dollars grateful? But that's it. If
you're a Tesla scholder at this point, you're playing a
(05:12):
longer game, and rightly or wrongly, I think Tesla sholders
assume that Elon Musk and his continued affection are essential
to the value of Tesla's stock. And so if they
vote down this paypack goods, Like will he quit in
a huff? Maybe he's got a lot going on, right,
He's got a lot of distractions, so he could quit
in a huff. And although his mercurial stewardship has not
(05:37):
been great for the stock price in the last couple
of years, he quits in a huff, that's going to
take the.
Speaker 1 (05:40):
Stock think, Yeah, I mean the stock's already down forty
percent year today.
Speaker 2 (05:44):
Yeah, Like it's been a rough ride. But still I
think they want him there. It's not like if they
vote this down, he'll come back and be like, Okay, fine,
can you be like two billion dollars? Like I think like,
if they vote this down, he's going to be really mad,
like really mad.
Speaker 1 (05:56):
I guess I have two kind of related points to
that to what you're saying, what is the key man
risk to Tesla? Like, how much does Tesla need Elon
Musk at this point? Is something I think about all
the time. This is an established company at this point.
Speaker 2 (06:09):
No, I agree with that, it's an established company that
could probably operate on its own. It's not like the
stock has been continuing to go out from strength to strength.
It's been a rough time. I do think that there's
probably still a valuation premium for Elon Musk, and I
think like it's a somewhat retail heavy stocked a lot
of people who like Elon Musk and the stock, and
I think if he were to leave, that would be bad.
But I'm not sure of that in the way that
(06:29):
I might have been in like twenty twenty one.
Speaker 1 (06:31):
Yeah.
Speaker 2 (06:31):
I also think, by the way, whatever your sort of
economic calculation, I do think that some of the sholders
at least are like, we agreed to pay him to
these options. We voted on it. A court in a
weird technical opinion struck that down, and we don't think
that's fair. We think it's like bad for corporate democracy
and also bad for like fairness to Elon Musk, and
(06:52):
so we're going to give him that fifty six billion
dollars back anyway. I think there's probably some of that
going on among some of the including some of the
institutional shareholders.
Speaker 1 (07:02):
Even if this is approved, we'll just get avoided again.
Like how does this work if they approve it again.
Speaker 2 (07:09):
It's a fascinating question, I think, and Tesla thinks the
answer is that if they approve it again this time,
it will stick, right, because what happened last time is
they approved it and the judge found that the shaholders
were not fully informed of all the conflicts of interest
involved in setting his pay package. Now they're fully informed,
in part because, like Tesla went back and gave disclosures,
(07:29):
but also they just attached the judge's opinion to the
proxy statement to be like anything that the judge found
bad here, you can read it, right. So I think
they have to be fully informed. There's no problem with
the vote, but the law and this is not super clear,
and they say in the proxy statement, we're not totally
sure what the effect of this will be I think
there's some argument that the disgruntled shareholder can sue again
(07:53):
and the judge again gets to decide if the pay
package is fair, and we kind of know she thinks
it isn't, so it might get stricked down. But the
other thing I want to say is that I don't
know what the disgruntl cherold. There's a guy named Richard Tournetto.
I don't know what he thinks. I don't know if
he wants to do this again. But you know who
cares his lawyers who when they won in the dellar
A court and they streck down this fifty six billion
(08:14):
dollar pay package. They went to the court and they said,
we want five point six billion dollars worth of Tesla
stock as a fee for this win. Right, And their
theory is we saved shareholders all this money by clawing
back the fifty six billion dollars from Elon Musk. If
the shareholders give Elon Musk the fifty six billion dollars back,
they haven't gotten the fee yet, right, it's still in court. Yeah,
if they give the money back, what is their argument
(08:34):
that they save the shareholders any money? Like, yeah, they've
got a lot of money riding on the argument that
Musk's compensation actually got clawed back, so they care.
Speaker 1 (08:43):
Yeah, let's talk about the second part of what happened Texas.
Are they going to run into this problem again in
Texas moving to Texas? What does that do for Tesla?
Speaker 2 (08:53):
They say that moving to Texas makes sense because they're
big factories in Texas, their headquarters in Texas. Elon lives
in Texas, and so they have to bet their incorporation
to Texas because that just makes sense. No other company
thinks that, right, Like, that's not really a thing. Like
every company is incorporated in Delaware, and very few are
located in Delaware. But it's what they say. The answer is,
nobody knows. There's a lot of Delaware corporate law and
(09:14):
there's not a lot of corporate law anywhere else because
most big companies that have big lawsuits are incorporated in Delaware,
and so that's where all the cases are. Tesla says,
and it's proxy that they think the law in Texas
is mostly the same as the law in Delaware. I
think it's probably true. But everyone kind of assumes that
if this had all happened in Texas, and if a
(09:38):
shareholder had sued Elon Musk in Texas, they get back
to the fifty six billion dollars, a Texas judge would
have been like, Nah, Elon Musk can keep that money.
There's no basis for assuming that nobody knows. It seems
that way, and clearly Elon Musk assumes it, because as
soon as the Delaware opinion came out, he's like, we're
moving to Texas. By the way, that happened, the opinion
(09:58):
came out and he was like, we're moving to says
right away, was saying it on Twitter. But Tesla now
and it's proxy statement has to explain why it's moving
to Texas, and it describes this very thorough process that
it did to evaluate moving to Texas. So it formed
a special committee of independent directors. There's one person on
the committee.
Speaker 1 (10:15):
Was his name Elon Musk.
Speaker 2 (10:16):
No, No, it's a truly independent director. Her name is Kathleen
Wilson Thompson. The special committee met sixteen times for more
than twenty six hours, says the proxy, which is like
a fun thing to imagine, Like I first imagined it
as like I met four hours today with the money
stuff committee. Like I was like typing on my computer.
I was like, oh, there's a meeting, But in fact
she met with like her lawyers, so she did. There
(10:37):
were real meetings, but just she was the only director
at the meetings. But they the committee evaluated all fifty
states to decide. It was like throwing darts, being like,
which state should we move to, and like it just
so happens that the best state turned out to be Texas. Coincidentally,
the same thing that Elon Musk was treating about like
two months ago. It's beautiful, so it worked out nicely.
Speaker 1 (10:56):
Yeah, it's good that it turned out that way.
Speaker 2 (10:58):
By the way, you asked you if the laws move
with I wrote this before there's some small chance of
a Delaware judge saying, no, you're not allowed to move
to Texas because you're only moving to Texas to pay Elon.
Speaker 1 (11:10):
Muskmore and which seems reasonable.
Speaker 2 (11:12):
That is like a violation of your pretty shaddies to
your Delaware shaholders, so we're going to stop you. I
wrote that in like January. I thought that was like
some extremely funny theoretical chance of that happening. Since then,
there's been like a Delaware court decision that makes it
less likely, So I don't think that's going to happen,
but it would be really funny.
Speaker 1 (11:29):
So I have one point, and I also have a question.
I guess I'll start with the point, and that is
that there is like a human psychology component to this,
because I remember when this happened in January that it
was voided this pay package. My suggestion to Elon Musk
would be, why don't you just have Tesla do a dividends.
Mark Zuckerberg did that with Meta. Now he's going to
(11:50):
make like seven hundred million dollars a year. Mark Zuckerberg
obviously owns a lot more Meta share, so it makes
more sense there. But you made the point to me
that Elon mus isn't trying to make normal extremely wealthy
man money. He has like insane aspirations that he needs
all this money for.
Speaker 2 (12:08):
He owns a minority of Tesla. He's a controlling Cheryl
everbody owns like twenty percent of the stock, so a
dividend would go mostly to other people, and like they're
not so rolling in cash, they could pay it like
tens of billions of dollars or dividends. Mark Zuckerwood gets
a dividend because he likes to go water skiing or
whatever it is that he does, right, hoverboarding, He.
Speaker 1 (12:23):
Has cows, right house, Yeah.
Speaker 2 (12:25):
Archery, I don't know, all sorts of normal things hobbies, Yeah,
like moderately expensive hobbies some of them. But Elon Musk's
hobbies are like brain implants, going to Mars, buying Twitter.
I'm forgetting a few, but like, he's not like looking
to spend money on a nice vacation. He's looking to
have tens of billions of dollars to fund going to Mars,
(12:45):
and so he needs these giant pay packages every now
and then to pursue his next ambition.
Speaker 1 (12:50):
You're not going to get that from your dividend checks.
And then my question for you is what do you
think is the most interesting way that this proxy vote
could turn out? What would be the most interesting chain
of events for you?
Speaker 2 (13:02):
Look, I love the idea of a Delaware court preventing
Musk from leaving for Texas. I think that would be
extremely funny. But I actually think the simpler answer is funnier,
which is, if the shareholders vote this down, that's wild,
Like he'll quit it a huff on Twitter like that day. Yeah,
it'll be an amazing thread of tweets and it will
be an amazing corporate tobaccle. Whatever time he's devoting to Tesla,
(13:26):
he'll go and devote to some other wild thing and
that'll be wild, and Tesla will like find its way,
as you know, it'll get back that fifty million dollars
and find its way as a company not controlled by
a wild, wild sequence of events.
Speaker 1 (13:39):
Now, in my mind would be the most interesting scenario
as well, and then we could truly find out what
the Elon Musk premium.
Speaker 2 (13:45):
Is the thing about Elon Musk companies is that if
you're an investor in Elon Musk companies, like you like
Elon Musk, like that's just how it goes, right, Like
you're not there because you like the assets but think
they're mismanaged, Like you're there because you like Elon Musk.
It would be really shocking for the investors in an
Elon Musk company to vote against them in such a
striking way.
Speaker 1 (14:03):
Do you want to talk about Elon Musk for like
twenty five more minutes or do you think we should
move on?
Speaker 2 (14:07):
I saw your look of like I have wrapped this
up so nicely. And then Matt comes in with more stuff.
I have some more stuff, but I'm gonna wrap it up.
Never mind, Stay tuned, Stay tuned. There's always more, love, Katie.
(14:35):
You're so impatient to get to James sain Street. Yeah.
Speaker 1 (14:38):
I don't really know why not that it's not super
interesting set the scene for us, what's going on?
Speaker 2 (14:44):
So I wanted to talk you about this because Jane
Street sued Millennium. Two Jane Street traders left Jane Street.
They went to Millennium, and Jane Street thinks they took
a complicated secret trade with them and are now making
money for Millennium at the expensive Jane Street, and so
they sued. I wanted to talk about it because the
complaint is public, but it's heavily redacted because Jane Street
(15:07):
is like, we have the secret trading strategy that's being
ruined by someone else copying it. They don't want to
say what the strategy is, right, but they have to
say what it is. They just have to black it
out in the publicly filed version.
Speaker 1 (15:16):
Yeah.
Speaker 2 (15:16):
So I want to read the complaint and all.
Speaker 1 (15:18):
The biopes go for it.
Speaker 2 (15:19):
Okay, I'm not really going to read the whole complaint,
but they did a trading investigation. They had this idea
and they like tested it out, and the results confirmed
Jane Street's initial findings, notwithstanding their facial improbability, and revealed
that the market was bibe for certain classes of trades
in the presence of specific market signals and underline conditions.
Probably we could have, like a podcast producer put a
(15:40):
real beep over that, but I think I think I
did a pretty pretty good peep.
Speaker 1 (15:44):
Yeah, No, that definitely was a beeB anyway.
Speaker 2 (15:46):
So, yeah, they have this trade. Yeah, we don't know
what it is.
Speaker 1 (15:48):
I want to know what it is.
Speaker 2 (15:49):
So what we know about it is one that makes
money like reliably for like some number of months at least.
And two it's weird. Yeah, they really emphasize that it's weird.
It's facial improbability, and they say that it was counterintuitive, unexpected,
and initially met with significant skepticism and incredulity internally at
Jane Street. It's really tantalizing. They're like, we found this
(16:10):
trade that you would not believe. It's so crazy. They
like discovered it in like the data and they all
sat it on and being like this can't be real.
And then they tested it for like a year and
they go, wow, it's real.
Speaker 1 (16:20):
This is kind of silly. But reading about it and
reading that line specifically made me think of like Rudolph
the Red Nose reindeer, how everyone made fun of him
and then his nose actually lit up and illuminated the
night sky and they were like, Wow, this works. It's
sort of a similar situation. Yes, something else in the
(16:41):
Bloomberg News article, apparently Jane Street saw evidence that one
of the traders who left in February he was using
the strategy. They figured it out because Jane Street said
that its profits from using the strategy fell by fifty
percent in March, a drop, it said, could only be
attributable to quote, the entrance of a competitor using the
same strategy. What is this trade?
Speaker 2 (17:02):
It's apparently a trade where there's like capacity to make editor.
I'm going to make up a number, make a million
dollars a day, right, And Jane Sat was doing it
and making a million dollars a day, right, and then
Millennium starts to do it. Now that each make half
a million dollars a day.
Speaker 1 (17:12):
Right. Yeah, Because it's not like they lost money because
someone else started doing it. They're just they're not the
only person in this market anymore. Whatever this market is.
Speaker 2 (17:19):
It's some sort of options market. It seems clear it's
like some sort of options trade. Rumor is that it's
not in the United States, but it is.
Speaker 1 (17:27):
How does this work? Are we ever going to find
out what the trade is? Or is it just a secret?
Speaker 2 (17:30):
I'm going to keep asking. One of my favorite things
about this complaint is that one of these traders leaves
Jane straight from Millennium, and the complaint mentions how much
money he's getting, because they're making the point like he's
getting paid so much money. It can't be just because yeah,
he's like whatever experience, whatever skill, he wouldn't be making
that much money. He's getting paid that much money because
(17:51):
he's bringing this Chaine Street trade.
Speaker 1 (17:53):
To the millign people.
Speaker 2 (17:54):
How much he's making, Yeah, the complaint says, based on
conversations between shadow Wald and his colleagues at Jane Street,
his companies from MILLENNAUMO, but so they don't know. He
told his friends at Jane Street and then like Jane
Street asked his friends how much he was making. They're like,
all right, man, he's getting and then they put that
thing complaint.
Speaker 1 (18:10):
I can't imagine telling people so casually what I make,
especially if it's a lot of money.
Speaker 2 (18:16):
I can like, he's leaving, he's leaving a financial firm
for another financial firm, and like he goes out to
drinks with his friends and they're like, oh man, what
are they giving you? And he's like boob right, like
like that's why he's leaving, right, Like, it's not like
this is a very mercenary business.
Speaker 1 (18:30):
I don't know. He should have just bought a huge
apartment and let that speak for itself. That is how
much I'm making.
Speaker 2 (18:36):
Well, he hadn't made it yet. I feel like the
day of he's like, oh my, look at how much
money I'm making. I also love the best possible amount
of money to make is boob right, Like a number
is so big that they can't publicize it.
Speaker 1 (18:48):
That is pretty amazing. So I guess, yeah, the two
things I want to know what the tradear how much
this guy is making? Also, is this an unforced error
by Jane Street which doesn't have non competes? Like could
this all have been avoided had they had a non compete?
Speaker 2 (19:03):
There are really like two different things, right, There's a noncompete,
which usually it's like time limited. You can't go to
another firm for six months, a year or two years. Yes,
I think that would avoid that here, because what's it
going to be like in a year, Like it seems unlikely.
I don't know if the strategy is, but it seems
unlikely Jane Street will still be making a lot of
money on the strategy in a year because someone will
notice it. Somehow Alpha gets competed away all over the place.
(19:24):
Whatever this weird counterintuitive strategy is, Like, probably it'll decay.
Speaker 1 (19:27):
I have an idea, what maybe it's uh, this is
half a joke. This is a joke. Actually closed end
fund arbitrages.
Speaker 2 (19:34):
Oh man, you love closed end trying evertise, I'm thinking
it's not that, but right, so if you have a
non compete and like the guy goes and sits on
a beach for a year and then he comes back,
whatever he knew a year ago is just not valuable anymore.
It's not as valuable, and so that solves the problem. Now,
it doesn't always solve every problem, because you know, you
do have like a confidentiality agreement about IP because like
(19:54):
there's some stuff that has value longer term, like if
you really know how, like Jane Street Systems, there's some
chance that two years from now you could sell that
to someone and it would be valuable to them. Right.
So Jane Street does not have non competes, but they
have confidentiality agreements. That's how you can't use what you
learn here somewhere else. You know. They say in the
complaint like, well, it's typical for people to take some
(20:15):
time off between firms. This guy didn't. It's like, it's
not typical. It's not like people just feel like taking
some time off. They do. Yeah, I would, but a
lot of people don't. It's typical because usually firms have
non competes that require them to take time off. Yeah,
and he didn't. And so the impression from the complaint
is that he had a real time sensitive trade and
he's like I got to start the next day to
make as much money as I can from.
Speaker 1 (20:35):
This trade, and that's what he did allegedly.
Speaker 2 (20:38):
I don't. I think it's interesting because, like the non
compete is a really good solution because like it's clear,
m you know that whatever the time period is, so
let's say it's a year, you know, you can't go
work for the competing firm for a year, and then
after that you can What's interesting here is Jane Street
is arguing that these guys stole their intellectual property. As
of today Thursday, we don't have Millennium's response, but I
(20:59):
assume their response be something like, no, we didn't, we
didn't steal their intellectual poverty. But there's like this wide
overlap where if you work at a financial firm doing
closed un fund arbitrage, right, and then you leave and
you go to another financial firm, and you're like, I'm
going to close in fund.
Speaker 1 (21:15):
Arbittrge, I'm going to find closed on funds with huge discounts. Right.
Speaker 2 (21:19):
You're not gonna like forget everything you learned at the
first firm, right, Like there's some amount of just like
general skills and knowledge building and just like market experience
that everyone understands is portable and goes with you, Like
if you like download the code from your first firm,
like that's bad, right, But a lot of stuff it's
like the general experiences that you have at one firm
are going to inform what you do at the next firm.
And it's I think sort of hard to tease out
(21:41):
which is which Sometimes which is why gardening leave is
such a good solution, because it's like you do nothing
for a year, and then after that it's like we
don't have to worry about it. Here, Like Jane Street
makes it sound like this is a very complicated, very
counterintuitive and weird trade that like is their secret sauce.
But what if it's just like noticing that the price
is if some options are like too low, and like
(22:01):
clicking on them right like then like kind of weird
to say, like you have to forget that you noticed
that when you moved to another firm.
Speaker 1 (22:07):
My heart always hurts when I'm in a conversation about
gardening leave because I've never been on gardening leave. I
will never be on gardening leave. It sounds idyllic.
Speaker 2 (22:17):
When I left investment banking for deal Breaker, the Great
Wall Street comedy blog, I had, I want to say,
three months of.
Speaker 1 (22:28):
Gardening leave sounds great.
Speaker 2 (22:30):
I sat on my catch being terrified. I regret it
so much. I really wasted my gardening leave because I
was like, I have made this huge career change. I'm
getting paid so much less money. This is around the
time that like Goldman had that programmer who still code,
they had him prosecuted for still encoding. He went to
jail for a while, and so I spent some of
my time thinking Goldman's going to kill me eventually. Like
(22:51):
my last week of gardening leave, I talked to like
a Goldman PR person. He's like, no, this is great,
We're excited for you. It was like so worried. But
in any case, I spent my gardening leave being nervous
and not partying.
Speaker 1 (23:02):
Oh I hate that.
Speaker 2 (23:03):
Yeah, yeah, it's really a shame. I did get to
experience gardening leave once, but I didn't get to really
enjoy it.
Speaker 1 (23:09):
Gardening leave wasn't that great. Take a big sip of water.
(23:32):
Let's get into hunter Brook. This is a meati.
Speaker 2 (23:34):
One hunter It's a hedge fund.
Speaker 1 (23:38):
Yeah, this is something that you and I have talked.
Speaker 2 (23:40):
About a lot in our private conversation.
Speaker 1 (23:42):
In our private conversations. Maybe explain what hunter Brook is
and we're pronouncing it with vowels.
Speaker 2 (23:49):
Yes, the thing is called hunter Brook. Their website is
it's h n t rb rka hunter Brook is. I
don't know how to describe it. Say it's a headphone.
That's also our newspaper. Sometimes I think it's a activist
short hedge fund that is very good at getting me
to pay attention to it.
Speaker 1 (24:06):
Yeah, I don't know if I've seen it anywhere else,
but maybe I'm just not looking at this.
Speaker 2 (24:14):
No. How to Work is is a media organization that
does like investigative reporting around the world to find interesting news,
and it funds its reporters by they take their scoops
and they give them to its affiliated hedge fund. And
if the hedge fund is like this is a market
(24:35):
moving scoop, then they trade on it and then they
publish the scoop and then the stock goes up or
down or whatever it's about. The market moves, and then
the hedge fund makes money, and it gives some of
the money to the reporters to pay for the continued reporting.
It's not a typical journalistic business model.
Speaker 1 (24:52):
True.
Speaker 2 (24:53):
All journalistic business models involve some conflicts of interests.
Speaker 1 (24:57):
True.
Speaker 2 (24:58):
Possibly it maybe involves a little bit more conflict of ventures. Yeah,
because like your incentive is to make your story as
market moving as possible. If you find some like bad
stuff about a company, and then I'll see you find
some good stuff about the company, and like also it's
like not that bad and like there's some mitigating factors.
You're tempted to just be like, this is the worst
company in the world, or this is the best company
(25:19):
in the world, because you're on the move the stock
price as much as possible. Yeah, So it is a
conflict in that way.
Speaker 1 (25:23):
I guess the part that feels strange to me is
that the hedge fund sees it first before it's published.
Speaker 2 (25:31):
And that's the whole part I know, there's no other part.
That's how they make money.
Speaker 1 (25:34):
Well, in terms of like how they report things out,
they don't talk to insiders. They can't talk to insiders.
Speaker 2 (25:40):
If you're like a regular journalist at a regular journalistic publication,
you can like call an insider at a company and
be like, hey, is it doing fraud. If the insiders like, yes,
it's doing fraud. Here are some secret documents proving it,
you're like, oh my god, this is a great scoop, right,
But if you're a Hunter Book and you do that,
then you're like, oh, no, this is inside information. We
can't trade on it. So they try to stay away
from information underli on published sources.
Speaker 1 (26:02):
So let's talk about what Hunter Book has done so far.
They officially debuted in early April. I believe their first
article was on United Wholesale mortgage. Now they've come out
with another splashy report that you wrote about. I'm impressed,
honestly by the volume so far, because there's a lot
of work that goes into investigative journalism of this degree.
Speaker 2 (26:23):
Also like into activist short selling, the sort of like
well known activist short selling funds. You know, every so
often they'll put up a short report, but it's not
like a daily news meeting to figure out what's going
to go on. The real meeting is like somewhere in between.
Speaker 1 (26:35):
Right.
Speaker 2 (26:35):
My question when they launched was like, what's it going
to look like on the second day, because the first
day it launches the big investigation. The second day is
that like bumped down the feed so they can do
like more local news, and that's there is no kind
of looks like a short seller's website where it's like
that big report is on top for a week or so.
But now it looks a little bit more like a
news organization where like they've had two like big stories
(26:56):
in the sense of like kind of short investigations this week,
but there's like a spinoff story for one of them.
It's like they's the other stuff. So one of the
stories this week was like an oil company that has
been telling investors it's going to reopen a trilling platform
and Hunter Bruk thinks they're not. And it's just like
a very straightforward kind of small short bet. It's like
this company is going to have like a little bit
worse news than the market expects, you know, So they
(27:17):
traded on that. I don't know. That almost feels like
something like a hedge finanalyst would come up with and
trade on and not bother to publish. It's just not
that interesting a news story, right. But the other one
they had was about Pasco, the big Korean like steel
company and Conglomberate doing a lot of work with very
unpleasant military hunter and Myanmar, and that one they didn't
trade on. Yeah, they said they did this big investigation
(27:38):
and they said, we're not trading on this, and I
was curious why. And I think the two leading answers
are one that it might not be that market moving,
which is like you can think of that as being
like a depressing story of like complicity and human rights
abuses actually doesn't matter to share.
Speaker 1 (27:55):
Olders, Cold Embrace of capitalism.
Speaker 2 (27:57):
Or you can be like you know, one reader email
to be like Posca's involvement in Men war has actually
been known for a long time. It's like been on
an ESG exclusion list. Like it might not be market
moving because like it's news to you, it's news to
many people, it's news to many of your general interest readers,
but it may not be news to the market.
Speaker 1 (28:14):
Right.
Speaker 2 (28:14):
The other explanation for why they didn't short Pasco that
I find much funnier is that South Korea has banned
a short selling.
Speaker 1 (28:22):
Maybe like the winner there, it could be.
Speaker 2 (28:25):
It could honestly be either because like it's not like
it's huge market moving news.
Speaker 1 (28:28):
I don't know. It seems like a hard business journalism. Yes,
it's bone crushingly hard, but also short selling is super
hard too, especially in this market. But also there's the
question of like, even if you are right, your thesis
is right, there's no guarantee that the stock is going
to do what you think it's going to do. And
I think that's happened to a lot of short sellers
(28:49):
in recent history.
Speaker 2 (28:51):
People hate short sellers, Yeah, it is part of it,
and in particular, like when you talk about recent history,
Like since like the memestock era, if it gets out
that you are short a stock, that stock could go
to the moon just because people are mad at you,
to the point that, like some number of activist short
sellers have gotten out of the business or said they'd
get out of.
Speaker 1 (29:10):
The business, have gone underground.
Speaker 2 (29:11):
Gone underground because like it used to be that if
you found a company that you thought was a fraud
and you published a report saying it's a fraud, people
would read it, and if you were right and convincing,
then the stock would go down. Now, if you think
of company's a fraud and you publish that report, people
on Reddit might say, we have to make that stock
go up to punish the evil short seller. So it's
just not as worth it. One possible advantage of the
Hunter Brick business model is like, to the extent they
(29:33):
convince people that they're a media company and not a
short seller, you like somewhat avoid that. Instead of instead
of being like, ah, this hedge fund is shorting the stock,
let's make it go up, you're like, oh, they've published
this media company published a report about human rights abuses.
That's bad, right, Like, yeah, there's some chance of you
like getting a little bit more of a sympathetic audience.
Speaker 1 (29:52):
Well, we'll see if they do take a shot at
a stock that has any.
Speaker 2 (29:57):
It'd be amazing if they were like game Stop, not
a very good company.
Speaker 1 (30:01):
I'm gonna say, like, if they come after a company
that has any chance of becoming a meme stock, like
I think about United Wholesale Mortgage, I don't even think
Wall Street Bets could get excited about that one. It
just it doesn't have that curb appeal.
Speaker 2 (30:14):
That's right. The oil company they went after this week
is interesting just because it's like a six hundred million
dollar market cut. Like you're not playing in territory where
like Ro Street Bets gonna have some fun.
Speaker 1 (30:24):
Did you want to talk to you on musk worn.
Speaker 2 (30:31):
And that was the Money Stuff Podcast.
Speaker 1 (30:32):
I'm Matt Levian and I'm Katie Greifelt.
Speaker 2 (30:35):
You can find my work by subscribing to the Money
Stuff newsletter on.
Speaker 1 (30:40):
And you can find me on Bloomberg TV every day
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Speaker 2 (30:44):
We'd love to hear from you. You can send an
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Speaker 1 (30:51):
You can also subscribe to our show wherever you're listening
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Speaker 2 (30:58):
The Money Step Podcast is produced by anim Masaracus and Moses.
Speaker 1 (31:01):
And our theme music was composed by Blake Maples.
Speaker 2 (31:04):
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Speaker 1 (31:07):
Sage Bauman is Bloomberg's head of podcast.
Speaker 2 (31:10):
Thanks for listening to The Money Stuff Podcast. We'll be
back next week with more boo
Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2 (00:11):
Hello and welcome to The Money Stuff Podcast, your weekly
podcast where we talk about stuff related to money. Hi'm
Matt Levin. I read the Money Stuff column for Bloomberg Opinion.
Speaker 1 (00:21):
And I'm Katie Greifeld. I'm a reporter for Bloomberg News
and an anchor for Bloomberg Television.
Speaker 2 (00:25):
It's the best day of our lives.
Speaker 1 (00:27):
It is the best day of our lives, which happens
every day on Fridays. We have a lot to talk
about today. We have to talk about Elon Musk.
Speaker 2 (00:34):
Of course, we had a whole week with that Elon Musk.
Speaker 1 (00:36):
I think, I know it was weird that we didn't
get to it in the first week. So we'll talk
about Elon Musk on that pay package fifty six billion dollars,
and of course his issues with Delaware. We're also going
to talk about Jane Street versus Millennium. You just published
on this.
Speaker 2 (00:50):
By the time you heard this podcast, I will published
on it roughly twenty four hours ago. Were recording it
shortly after I published on it.
Speaker 1 (00:56):
It's Thursday right now, and Matt published twenty minutes ago.
So this is the one I'm least prepared for. As
we're also going to talk about Hunter Brook, the hedge
fund that's also a newspaper question mark. Indeed, before we
get into this week's topics, it's our second episode.
Speaker 2 (01:14):
It's our second episode. We got a lot of feedback
on the first episode.
Speaker 1 (01:17):
We got a lot of feedback. A lot of it
was about all of its comment that I made about
the doped Olympics. Surprise, they already exist and they're funded
by Peter Teel.
Speaker 2 (01:27):
Well, it don't exist, they're like launching.
Speaker 1 (01:29):
Yeah, the idea is out there, the enhanced Games that
would have no drug testing. So if you didn't want
to do it performance enhancing drugs, you could still enter.
Speaker 2 (01:38):
You would just lose, yes, or you could do the
regular Olympics, which you'll still have drug testing.
Speaker 1 (01:42):
Yeah, and you'll probably still lose.
Speaker 2 (01:43):
I wonder if, like presumably day one, the best athletes
will still do the regular Olympics.
Speaker 1 (01:48):
Yeah.
Speaker 2 (01:48):
I wonder how long it'll take for the Enhanced Olympics
to have faster times and it jumps.
Speaker 1 (01:53):
It's a great question because if you're like.
Speaker 2 (01:55):
The tenth best track athlete and you do a lot
of drugs are better than the best.
Speaker 1 (01:59):
You probably there's only one way to find out.
Speaker 2 (02:03):
Is going to do?
Speaker 1 (02:04):
These games need to happen. The event roster includes individual
sports such as athletics meaning track and field, aquatics, gymnastics,
strength and combat. I would watch these, but.
Speaker 2 (02:16):
What we don't have on that list is drissage.
Speaker 1 (02:21):
Trissage Yeah, for the uninitiated, dressage is horse dancing. Effectively,
just go on YouTube look it up. It's a ridiculous
sport that, for better or worse, I partake in. I'm
not sure if when I enter the enhanced games, which
I will, whether I take the drugs, the horse takes
the drugs. Do we both take the drugs the drugs?
Speaker 2 (02:41):
Have you or your horse ever been like offered drugs?
Has ever been a controversy at your dressage?
Speaker 1 (02:47):
We're not that good maybe in higher levels of the sport,
but what we're doing, it's very loosely dressage. Let's talk
about the time, moving gracefully along laon Musk. The big
news this week is that Tesla came out with their
proxy statement two items of interest. They're going to havesh
shareholders to vote again on that twenty eighteen pay package
(03:11):
of fifty six billion dollars that was voided by a
Delaware judge, and related to that, they're going to vote
on whether to move Tesla's state of incorporation from Delaware
to Texas. What do you want to start with?
Speaker 2 (03:22):
They're inter related, yes, right, he got paid a giant
snack of options in about twenty eighteen. Everyone says they're
worth fifty six billion dollars. Whatever they're worth, like forty
billion dollars, fifty billion dollars, just like a conventional number
that people attached to it because you know, go up
and down with the stock. But right now they're with
forty billion dollars and judge took them away in January.
I said that was too much to pay him, and
(03:43):
it wasn't properly approved by the shareholders. And so they're
going back to the shareholders to one get it properly
approved and two never has to deal with a Delaware
judge again because they're going to move to Texas.
Speaker 1 (03:53):
Like you said, these are two intimately related issues. But
sticking with the pay package, which everyone is saying is
fifty six billion dollars, maybe it's forty billion dollars. But
the vote is in June. Yeah, are they going to
approve it again these shareholders.
Speaker 2 (04:06):
I think, so the proxy quits a lot of letters
from individual shareholders saying how much they love Elon Musk
and how they're going to approve it, and also, by
the way, letters from like Trope Price Right big shareholders too.
It's interesting if you were a sharelder in like twenty
twenty one, or even like December of last year, I
think you would say this pay package was worth it.
In twenty eighteen, they said we're going to pay you
on Musk fifty six billion dollars if he takes the
(04:28):
market cap of Tesla from like sixty billion dollars, like
six hundred and fifty billion dollars, And at the time
that seemed like a real stretch goal. And then he
did it really quickly, and so all the shareholders got rich,
like they made a lot of money on Tesla, and
I think they felt the real sense of gratitude, and
so I think very few shareholders were complaining about his
pay package, but one did ensued. Right, Yes, I think
(04:51):
the shareholders were happy with it. But now if you
go back to them and say you want to approve
it again, they could be like, we already got whatever
he did. He did the stuff that made it a
six hundred and fifty billion dollar company. So if we
can get those past efforts for free, why shouldn't they
get it for free? They feel grateful, but do they
feel fifty six billion dollars grateful? But that's it. If
you're a Tesla scholder at this point, you're playing a
(05:12):
longer game, and rightly or wrongly, I think Tesla sholders
assume that Elon Musk and his continued affection are essential
to the value of Tesla's stock. And so if they
vote down this paypack goods, Like will he quit in
a huff? Maybe he's got a lot going on, right,
He's got a lot of distractions, so he could quit
in a huff. And although his mercurial stewardship has not
(05:37):
been great for the stock price in the last couple
of years, he quits in a huff, that's going to
take the.
Speaker 1 (05:40):
Stock think, Yeah, I mean the stock's already down forty
percent year today.
Speaker 2 (05:44):
Yeah, Like it's been a rough ride. But still I
think they want him there. It's not like if they
vote this down, he'll come back and be like, Okay, fine,
can you be like two billion dollars? Like I think like,
if they vote this down, he's going to be really mad,
like really mad.
Speaker 1 (05:56):
I guess I have two kind of related points to
that to what you're saying, what is the key man
risk to Tesla? Like, how much does Tesla need Elon
Musk at this point? Is something I think about all
the time. This is an established company at this point.
Speaker 2 (06:09):
No, I agree with that, it's an established company that
could probably operate on its own. It's not like the
stock has been continuing to go out from strength to strength.
It's been a rough time. I do think that there's
probably still a valuation premium for Elon Musk, and I
think like it's a somewhat retail heavy stocked a lot
of people who like Elon Musk and the stock, and
I think if he were to leave, that would be bad.
But I'm not sure of that in the way that
(06:29):
I might have been in like twenty twenty one.
Speaker 1 (06:31):
Yeah.
Speaker 2 (06:31):
I also think, by the way, whatever your sort of
economic calculation, I do think that some of the sholders
at least are like, we agreed to pay him to
these options. We voted on it. A court in a
weird technical opinion struck that down, and we don't think
that's fair. We think it's like bad for corporate democracy
and also bad for like fairness to Elon Musk, and
(06:52):
so we're going to give him that fifty six billion
dollars back anyway. I think there's probably some of that
going on among some of the including some of the
institutional shareholders.
Speaker 1 (07:02):
Even if this is approved, we'll just get avoided again.
Like how does this work if they approve it again.
Speaker 2 (07:09):
It's a fascinating question, I think, and Tesla thinks the
answer is that if they approve it again this time,
it will stick, right, because what happened last time is
they approved it and the judge found that the shaholders
were not fully informed of all the conflicts of interest
involved in setting his pay package. Now they're fully informed,
in part because, like Tesla went back and gave disclosures,
(07:29):
but also they just attached the judge's opinion to the
proxy statement to be like anything that the judge found
bad here, you can read it, right. So I think
they have to be fully informed. There's no problem with
the vote, but the law and this is not super clear,
and they say in the proxy statement, we're not totally
sure what the effect of this will be I think
there's some argument that the disgruntled shareholder can sue again
(07:53):
and the judge again gets to decide if the pay
package is fair, and we kind of know she thinks
it isn't, so it might get stricked down. But the
other thing I want to say is that I don't
know what the disgruntl cherold. There's a guy named Richard Tournetto.
I don't know what he thinks. I don't know if
he wants to do this again. But you know who
cares his lawyers who when they won in the dellar
A court and they streck down this fifty six billion
(08:14):
dollar pay package. They went to the court and they said,
we want five point six billion dollars worth of Tesla
stock as a fee for this win. Right, And their
theory is we saved shareholders all this money by clawing
back the fifty six billion dollars from Elon Musk. If
the shareholders give Elon Musk the fifty six billion dollars back,
they haven't gotten the fee yet, right, it's still in court. Yeah,
if they give the money back, what is their argument
(08:34):
that they save the shareholders any money? Like, yeah, they've
got a lot of money riding on the argument that
Musk's compensation actually got clawed back, so they care.
Speaker 1 (08:43):
Yeah, let's talk about the second part of what happened Texas.
Are they going to run into this problem again in
Texas moving to Texas? What does that do for Tesla?
Speaker 2 (08:53):
They say that moving to Texas makes sense because they're
big factories in Texas, their headquarters in Texas. Elon lives
in Texas, and so they have to bet their incorporation
to Texas because that just makes sense. No other company
thinks that, right, Like, that's not really a thing. Like
every company is incorporated in Delaware, and very few are
located in Delaware. But it's what they say. The answer is,
nobody knows. There's a lot of Delaware corporate law and
(09:14):
there's not a lot of corporate law anywhere else because
most big companies that have big lawsuits are incorporated in Delaware,
and so that's where all the cases are. Tesla says,
and it's proxy that they think the law in Texas
is mostly the same as the law in Delaware. I
think it's probably true. But everyone kind of assumes that
if this had all happened in Texas, and if a
(09:38):
shareholder had sued Elon Musk in Texas, they get back
to the fifty six billion dollars, a Texas judge would
have been like, Nah, Elon Musk can keep that money.
There's no basis for assuming that nobody knows. It seems
that way, and clearly Elon Musk assumes it, because as
soon as the Delaware opinion came out, he's like, we're
moving to Texas. By the way, that happened, the opinion
(09:58):
came out and he was like, we're moving to says
right away, was saying it on Twitter. But Tesla now
and it's proxy statement has to explain why it's moving
to Texas, and it describes this very thorough process that
it did to evaluate moving to Texas. So it formed
a special committee of independent directors. There's one person on
the committee.
Speaker 1 (10:15):
Was his name Elon Musk.
Speaker 2 (10:16):
No, No, it's a truly independent director. Her name is Kathleen
Wilson Thompson. The special committee met sixteen times for more
than twenty six hours, says the proxy, which is like
a fun thing to imagine, Like I first imagined it
as like I met four hours today with the money
stuff committee. Like I was like typing on my computer.
I was like, oh, there's a meeting, But in fact
she met with like her lawyers, so she did. There
(10:37):
were real meetings, but just she was the only director
at the meetings. But they the committee evaluated all fifty
states to decide. It was like throwing darts, being like,
which state should we move to, and like it just
so happens that the best state turned out to be Texas. Coincidentally,
the same thing that Elon Musk was treating about like
two months ago. It's beautiful, so it worked out nicely.
Speaker 1 (10:56):
Yeah, it's good that it turned out that way.
Speaker 2 (10:58):
By the way, you asked you if the laws move
with I wrote this before there's some small chance of
a Delaware judge saying, no, you're not allowed to move
to Texas because you're only moving to Texas to pay Elon.
Speaker 1 (11:10):
Muskmore and which seems reasonable.
Speaker 2 (11:12):
That is like a violation of your pretty shaddies to
your Delaware shaholders, so we're going to stop you. I
wrote that in like January. I thought that was like
some extremely funny theoretical chance of that happening. Since then,
there's been like a Delaware court decision that makes it
less likely, So I don't think that's going to happen,
but it would be really funny.
Speaker 1 (11:29):
So I have one point, and I also have a question.
I guess I'll start with the point, and that is
that there is like a human psychology component to this,
because I remember when this happened in January that it
was voided this pay package. My suggestion to Elon Musk
would be, why don't you just have Tesla do a dividends.
Mark Zuckerberg did that with Meta. Now he's going to
(11:50):
make like seven hundred million dollars a year. Mark Zuckerberg
obviously owns a lot more Meta share, so it makes
more sense there. But you made the point to me
that Elon mus isn't trying to make normal extremely wealthy
man money. He has like insane aspirations that he needs
all this money for.
Speaker 2 (12:08):
He owns a minority of Tesla. He's a controlling Cheryl
everbody owns like twenty percent of the stock, so a
dividend would go mostly to other people, and like they're
not so rolling in cash, they could pay it like
tens of billions of dollars or dividends. Mark Zuckerwood gets
a dividend because he likes to go water skiing or
whatever it is that he does, right, hoverboarding, He.
Speaker 1 (12:23):
Has cows, right house, Yeah.
Speaker 2 (12:25):
Archery, I don't know, all sorts of normal things hobbies, Yeah,
like moderately expensive hobbies some of them. But Elon Musk's
hobbies are like brain implants, going to Mars, buying Twitter.
I'm forgetting a few, but like, he's not like looking
to spend money on a nice vacation. He's looking to
have tens of billions of dollars to fund going to Mars,
(12:45):
and so he needs these giant pay packages every now
and then to pursue his next ambition.
Speaker 1 (12:50):
You're not going to get that from your dividend checks.
And then my question for you is what do you
think is the most interesting way that this proxy vote
could turn out? What would be the most interesting chain
of events for you?
Speaker 2 (13:02):
Look, I love the idea of a Delaware court preventing
Musk from leaving for Texas. I think that would be
extremely funny. But I actually think the simpler answer is funnier,
which is, if the shareholders vote this down, that's wild,
Like he'll quit it a huff on Twitter like that day. Yeah,
it'll be an amazing thread of tweets and it will
be an amazing corporate tobaccle. Whatever time he's devoting to Tesla,
(13:26):
he'll go and devote to some other wild thing and
that'll be wild, and Tesla will like find its way,
as you know, it'll get back that fifty million dollars
and find its way as a company not controlled by
a wild, wild sequence of events.
Speaker 1 (13:39):
Now, in my mind would be the most interesting scenario
as well, and then we could truly find out what
the Elon Musk premium.
Speaker 2 (13:45):
Is the thing about Elon Musk companies is that if
you're an investor in Elon Musk companies, like you like
Elon Musk, like that's just how it goes, right, Like
you're not there because you like the assets but think
they're mismanaged, Like you're there because you like Elon Musk.
It would be really shocking for the investors in an
Elon Musk company to vote against them in such a
striking way.
Speaker 1 (14:03):
Do you want to talk about Elon Musk for like
twenty five more minutes or do you think we should
move on?
Speaker 2 (14:07):
I saw your look of like I have wrapped this
up so nicely. And then Matt comes in with more stuff.
I have some more stuff, but I'm gonna wrap it up.
Never mind, Stay tuned, Stay tuned. There's always more, love, Katie.
(14:35):
You're so impatient to get to James sain Street. Yeah.
Speaker 1 (14:38):
I don't really know why not that it's not super
interesting set the scene for us, what's going on?
Speaker 2 (14:44):
So I wanted to talk you about this because Jane
Street sued Millennium. Two Jane Street traders left Jane Street.
They went to Millennium, and Jane Street thinks they took
a complicated secret trade with them and are now making
money for Millennium at the expensive Jane Street, and so
they sued. I wanted to talk about it because the
complaint is public, but it's heavily redacted because Jane Street
(15:07):
is like, we have the secret trading strategy that's being
ruined by someone else copying it. They don't want to
say what the strategy is, right, but they have to
say what it is. They just have to black it
out in the publicly filed version.
Speaker 1 (15:16):
Yeah.
Speaker 2 (15:16):
So I want to read the complaint and all.
Speaker 1 (15:18):
The biopes go for it.
Speaker 2 (15:19):
Okay, I'm not really going to read the whole complaint,
but they did a trading investigation. They had this idea
and they like tested it out, and the results confirmed
Jane Street's initial findings, notwithstanding their facial improbability, and revealed
that the market was bibe for certain classes of trades
in the presence of specific market signals and underline conditions.
Probably we could have, like a podcast producer put a
(15:40):
real beep over that, but I think I think I
did a pretty pretty good peep.
Speaker 1 (15:44):
Yeah, No, that definitely was a beeB anyway.
Speaker 2 (15:46):
So, yeah, they have this trade. Yeah, we don't know
what it is.
Speaker 1 (15:48):
I want to know what it is.
Speaker 2 (15:49):
So what we know about it is one that makes
money like reliably for like some number of months at least.
And two it's weird. Yeah, they really emphasize that it's weird.
It's facial improbability, and they say that it was counterintuitive, unexpected,
and initially met with significant skepticism and incredulity internally at
Jane Street. It's really tantalizing. They're like, we found this
(16:10):
trade that you would not believe. It's so crazy. They
like discovered it in like the data and they all
sat it on and being like this can't be real.
And then they tested it for like a year and
they go, wow, it's real.
Speaker 1 (16:20):
This is kind of silly. But reading about it and
reading that line specifically made me think of like Rudolph
the Red Nose reindeer, how everyone made fun of him
and then his nose actually lit up and illuminated the
night sky and they were like, Wow, this works. It's
sort of a similar situation. Yes, something else in the
(16:41):
Bloomberg News article, apparently Jane Street saw evidence that one
of the traders who left in February he was using
the strategy. They figured it out because Jane Street said
that its profits from using the strategy fell by fifty
percent in March, a drop, it said, could only be
attributable to quote, the entrance of a competitor using the
same strategy. What is this trade?
Speaker 2 (17:02):
It's apparently a trade where there's like capacity to make editor.
I'm going to make up a number, make a million
dollars a day, right, And Jane Sat was doing it
and making a million dollars a day, right, and then
Millennium starts to do it. Now that each make half
a million dollars a day.
Speaker 1 (17:12):
Right. Yeah, Because it's not like they lost money because
someone else started doing it. They're just they're not the
only person in this market anymore. Whatever this market is.
Speaker 2 (17:19):
It's some sort of options market. It seems clear it's
like some sort of options trade. Rumor is that it's
not in the United States, but it is.
Speaker 1 (17:27):
How does this work? Are we ever going to find
out what the trade is? Or is it just a secret?
Speaker 2 (17:30):
I'm going to keep asking. One of my favorite things
about this complaint is that one of these traders leaves
Jane straight from Millennium, and the complaint mentions how much
money he's getting, because they're making the point like he's
getting paid so much money. It can't be just because yeah,
he's like whatever experience, whatever skill, he wouldn't be making
that much money. He's getting paid that much money because
(17:51):
he's bringing this Chaine Street trade.
Speaker 1 (17:53):
To the millign people.
Speaker 2 (17:54):
How much he's making, Yeah, the complaint says, based on
conversations between shadow Wald and his colleagues at Jane Street,
his companies from MILLENNAUMO, but so they don't know. He
told his friends at Jane Street and then like Jane
Street asked his friends how much he was making. They're like,
all right, man, he's getting and then they put that
thing complaint.
Speaker 1 (18:10):
I can't imagine telling people so casually what I make,
especially if it's a lot of money.
Speaker 2 (18:16):
I can like, he's leaving, he's leaving a financial firm
for another financial firm, and like he goes out to
drinks with his friends and they're like, oh man, what
are they giving you? And he's like boob right, like
like that's why he's leaving, right, Like, it's not like
this is a very mercenary business.
Speaker 1 (18:30):
I don't know. He should have just bought a huge
apartment and let that speak for itself. That is how
much I'm making.
Speaker 2 (18:36):
Well, he hadn't made it yet. I feel like the
day of he's like, oh my, look at how much
money I'm making. I also love the best possible amount
of money to make is boob right, Like a number
is so big that they can't publicize it.
Speaker 1 (18:48):
That is pretty amazing. So I guess, yeah, the two
things I want to know what the tradear how much
this guy is making? Also, is this an unforced error
by Jane Street which doesn't have non competes? Like could
this all have been avoided had they had a non compete?
Speaker 2 (19:03):
There are really like two different things, right, There's a noncompete,
which usually it's like time limited. You can't go to
another firm for six months, a year or two years. Yes,
I think that would avoid that here, because what's it
going to be like in a year, Like it seems unlikely.
I don't know if the strategy is, but it seems
unlikely Jane Street will still be making a lot of
money on the strategy in a year because someone will
notice it. Somehow Alpha gets competed away all over the place.
(19:24):
Whatever this weird counterintuitive strategy is, Like, probably it'll decay.
Speaker 1 (19:27):
I have an idea, what maybe it's uh, this is
half a joke. This is a joke. Actually closed end
fund arbitrages.
Speaker 2 (19:34):
Oh man, you love closed end trying evertise, I'm thinking
it's not that, but right, so if you have a
non compete and like the guy goes and sits on
a beach for a year and then he comes back,
whatever he knew a year ago is just not valuable anymore.
It's not as valuable, and so that solves the problem. Now,
it doesn't always solve every problem, because you know, you
do have like a confidentiality agreement about IP because like
(19:54):
there's some stuff that has value longer term, like if
you really know how, like Jane Street Systems, there's some
chance that two years from now you could sell that
to someone and it would be valuable to them. Right.
So Jane Street does not have non competes, but they
have confidentiality agreements. That's how you can't use what you
learn here somewhere else. You know. They say in the
complaint like, well, it's typical for people to take some
(20:15):
time off between firms. This guy didn't. It's like, it's
not typical. It's not like people just feel like taking
some time off. They do. Yeah, I would, but a
lot of people don't. It's typical because usually firms have
non competes that require them to take time off. Yeah,
and he didn't. And so the impression from the complaint
is that he had a real time sensitive trade and
he's like I got to start the next day to
make as much money as I can from.
Speaker 1 (20:35):
This trade, and that's what he did allegedly.
Speaker 2 (20:38):
I don't. I think it's interesting because, like the non
compete is a really good solution because like it's clear,
m you know that whatever the time period is, so
let's say it's a year, you know, you can't go
work for the competing firm for a year, and then
after that you can What's interesting here is Jane Street
is arguing that these guys stole their intellectual property. As
of today Thursday, we don't have Millennium's response, but I
(20:59):
assume their response be something like, no, we didn't, we
didn't steal their intellectual poverty. But there's like this wide
overlap where if you work at a financial firm doing
closed un fund arbitrage, right, and then you leave and
you go to another financial firm, and you're like, I'm
going to close in fund.
Speaker 1 (21:15):
Arbittrge, I'm going to find closed on funds with huge discounts. Right.
Speaker 2 (21:19):
You're not gonna like forget everything you learned at the
first firm, right, Like there's some amount of just like
general skills and knowledge building and just like market experience
that everyone understands is portable and goes with you, Like
if you like download the code from your first firm,
like that's bad, right, But a lot of stuff it's
like the general experiences that you have at one firm
are going to inform what you do at the next firm.
And it's I think sort of hard to tease out
(21:41):
which is which Sometimes which is why gardening leave is
such a good solution, because it's like you do nothing
for a year, and then after that it's like we
don't have to worry about it. Here, Like Jane Street
makes it sound like this is a very complicated, very
counterintuitive and weird trade that like is their secret sauce.
But what if it's just like noticing that the price
is if some options are like too low, and like
(22:01):
clicking on them right like then like kind of weird
to say, like you have to forget that you noticed
that when you moved to another firm.
Speaker 1 (22:07):
My heart always hurts when I'm in a conversation about
gardening leave because I've never been on gardening leave. I
will never be on gardening leave. It sounds idyllic.
Speaker 2 (22:17):
When I left investment banking for deal Breaker, the Great
Wall Street comedy blog, I had, I want to say,
three months of.
Speaker 1 (22:28):
Gardening leave sounds great.
Speaker 2 (22:30):
I sat on my catch being terrified. I regret it
so much. I really wasted my gardening leave because I
was like, I have made this huge career change. I'm
getting paid so much less money. This is around the
time that like Goldman had that programmer who still code,
they had him prosecuted for still encoding. He went to
jail for a while, and so I spent some of
my time thinking Goldman's going to kill me eventually. Like
(22:51):
my last week of gardening leave, I talked to like
a Goldman PR person. He's like, no, this is great,
We're excited for you. It was like so worried. But
in any case, I spent my gardening leave being nervous
and not partying.
Speaker 1 (23:02):
Oh I hate that.
Speaker 2 (23:03):
Yeah, yeah, it's really a shame. I did get to
experience gardening leave once, but I didn't get to really
enjoy it.
Speaker 1 (23:09):
Gardening leave wasn't that great. Take a big sip of water.
(23:32):
Let's get into hunter Brook. This is a meati.
Speaker 2 (23:34):
One hunter It's a hedge fund.
Speaker 1 (23:38):
Yeah, this is something that you and I have talked.
Speaker 2 (23:40):
About a lot in our private conversation.
Speaker 1 (23:42):
In our private conversations. Maybe explain what hunter Brook is
and we're pronouncing it with vowels.
Speaker 2 (23:49):
Yes, the thing is called hunter Brook. Their website is
it's h n t rb rka hunter Brook is. I
don't know how to describe it. Say it's a headphone.
That's also our newspaper. Sometimes I think it's a activist
short hedge fund that is very good at getting me
to pay attention to it.
Speaker 1 (24:06):
Yeah, I don't know if I've seen it anywhere else,
but maybe I'm just not looking at this.
Speaker 2 (24:14):
No. How to Work is is a media organization that
does like investigative reporting around the world to find interesting news,
and it funds its reporters by they take their scoops
and they give them to its affiliated hedge fund. And
if the hedge fund is like this is a market
(24:35):
moving scoop, then they trade on it and then they
publish the scoop and then the stock goes up or
down or whatever it's about. The market moves, and then
the hedge fund makes money, and it gives some of
the money to the reporters to pay for the continued reporting.
It's not a typical journalistic business model.
Speaker 1 (24:52):
True.
Speaker 2 (24:53):
All journalistic business models involve some conflicts of interests.
Speaker 1 (24:57):
True.
Speaker 2 (24:58):
Possibly it maybe involves a little bit more conflict of ventures. Yeah,
because like your incentive is to make your story as
market moving as possible. If you find some like bad
stuff about a company, and then I'll see you find
some good stuff about the company, and like also it's
like not that bad and like there's some mitigating factors.
You're tempted to just be like, this is the worst
company in the world, or this is the best company
(25:19):
in the world, because you're on the move the stock
price as much as possible. Yeah, So it is a
conflict in that way.
Speaker 1 (25:23):
I guess the part that feels strange to me is
that the hedge fund sees it first before it's published.
Speaker 2 (25:31):
And that's the whole part I know, there's no other part.
That's how they make money.
Speaker 1 (25:34):
Well, in terms of like how they report things out,
they don't talk to insiders. They can't talk to insiders.
Speaker 2 (25:40):
If you're like a regular journalist at a regular journalistic publication,
you can like call an insider at a company and
be like, hey, is it doing fraud. If the insiders like, yes,
it's doing fraud. Here are some secret documents proving it,
you're like, oh my god, this is a great scoop, right,
But if you're a Hunter Book and you do that,
then you're like, oh, no, this is inside information. We
can't trade on it. So they try to stay away
from information underli on published sources.
Speaker 1 (26:02):
So let's talk about what Hunter Book has done so far.
They officially debuted in early April. I believe their first
article was on United Wholesale mortgage. Now they've come out
with another splashy report that you wrote about. I'm impressed,
honestly by the volume so far, because there's a lot
of work that goes into investigative journalism of this degree.
Speaker 2 (26:23):
Also like into activist short selling, the sort of like
well known activist short selling funds. You know, every so
often they'll put up a short report, but it's not
like a daily news meeting to figure out what's going
to go on. The real meeting is like somewhere in between.
Speaker 1 (26:35):
Right.
Speaker 2 (26:35):
My question when they launched was like, what's it going
to look like on the second day, because the first
day it launches the big investigation. The second day is
that like bumped down the feed so they can do
like more local news, and that's there is no kind
of looks like a short seller's website where it's like
that big report is on top for a week or so.
But now it looks a little bit more like a
news organization where like they've had two like big stories
(26:56):
in the sense of like kind of short investigations this week,
but there's like a spinoff story for one of them.
It's like they's the other stuff. So one of the
stories this week was like an oil company that has
been telling investors it's going to reopen a trilling platform
and Hunter Bruk thinks they're not. And it's just like
a very straightforward kind of small short bet. It's like
this company is going to have like a little bit
worse news than the market expects, you know, So they
(27:17):
traded on that. I don't know. That almost feels like
something like a hedge finanalyst would come up with and
trade on and not bother to publish. It's just not
that interesting a news story, right. But the other one
they had was about Pasco, the big Korean like steel
company and Conglomberate doing a lot of work with very
unpleasant military hunter and Myanmar, and that one they didn't
trade on. Yeah, they said they did this big investigation
(27:38):
and they said, we're not trading on this, and I
was curious why. And I think the two leading answers
are one that it might not be that market moving,
which is like you can think of that as being
like a depressing story of like complicity and human rights
abuses actually doesn't matter to share.
Speaker 1 (27:55):
Olders, Cold Embrace of capitalism.
Speaker 2 (27:57):
Or you can be like you know, one reader email
to be like Posca's involvement in Men war has actually
been known for a long time. It's like been on
an ESG exclusion list. Like it might not be market
moving because like it's news to you, it's news to
many people, it's news to many of your general interest readers,
but it may not be news to the market.
Speaker 1 (28:14):
Right.
Speaker 2 (28:14):
The other explanation for why they didn't short Pasco that
I find much funnier is that South Korea has banned
a short selling.
Speaker 1 (28:22):
Maybe like the winner there, it could be.
Speaker 2 (28:25):
It could honestly be either because like it's not like
it's huge market moving news.
Speaker 1 (28:28):
I don't know. It seems like a hard business journalism. Yes,
it's bone crushingly hard, but also short selling is super
hard too, especially in this market. But also there's the
question of like, even if you are right, your thesis
is right, there's no guarantee that the stock is going
to do what you think it's going to do. And
I think that's happened to a lot of short sellers
(28:49):
in recent history.
Speaker 2 (28:51):
People hate short sellers, Yeah, it is part of it,
and in particular, like when you talk about recent history,
Like since like the memestock era, if it gets out
that you are short a stock, that stock could go
to the moon just because people are mad at you,
to the point that, like some number of activist short
sellers have gotten out of the business or said they'd
get out of.
Speaker 1 (29:10):
The business, have gone underground.
Speaker 2 (29:11):
Gone underground because like it used to be that if
you found a company that you thought was a fraud
and you published a report saying it's a fraud, people
would read it, and if you were right and convincing,
then the stock would go down. Now, if you think
of company's a fraud and you publish that report, people
on Reddit might say, we have to make that stock
go up to punish the evil short seller. So it's
just not as worth it. One possible advantage of the
Hunter Brick business model is like, to the extent they
(29:33):
convince people that they're a media company and not a
short seller, you like somewhat avoid that. Instead of instead
of being like, ah, this hedge fund is shorting the stock,
let's make it go up, you're like, oh, they've published
this media company published a report about human rights abuses.
That's bad, right, Like, yeah, there's some chance of you
like getting a little bit more of a sympathetic audience.
Speaker 1 (29:52):
Well, we'll see if they do take a shot at
a stock that has any.
Speaker 2 (29:57):
It'd be amazing if they were like game Stop, not
a very good company.
Speaker 1 (30:01):
I'm gonna say, like, if they come after a company
that has any chance of becoming a meme stock, like
I think about United Wholesale Mortgage, I don't even think
Wall Street Bets could get excited about that one. It
just it doesn't have that curb appeal.
Speaker 2 (30:14):
That's right. The oil company they went after this week
is interesting just because it's like a six hundred million
dollar market cut. Like you're not playing in territory where
like Ro Street Bets gonna have some fun.
Speaker 1 (30:24):
Did you want to talk to you on musk worn.
Speaker 2 (30:31):
And that was the Money Stuff Podcast.
Speaker 1 (30:32):
I'm Matt Levian and I'm Katie Greifelt.
Speaker 2 (30:35):
You can find my work by subscribing to the Money
Stuff newsletter on.
Speaker 1 (30:40):
And you can find me on Bloomberg TV every day
between ten to eleven am Eastern.
Speaker 2 (30:44):
We'd love to hear from you. You can send an
email to Moneypod at Bloomberg dot net. Ask us a
question and we find answer it on air.
Speaker 1 (30:51):
You can also subscribe to our show wherever you're listening
right now and leave us a review. It helps some
more people find the show.
Speaker 2 (30:58):
The Money Step Podcast is produced by anim Masaracus and Moses.
Speaker 1 (31:01):
And our theme music was composed by Blake Maples.
Speaker 2 (31:04):
Brandon Francis Nenham is our executive producer, and.
Speaker 1 (31:07):
Sage Bauman is Bloomberg's head of podcast.
Speaker 2 (31:10):
Thanks for listening to The Money Stuff Podcast. We'll be
back next week with more boo
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