September 13, 2024 • 31 mins
Katie and Matt discuss SEC cell phone location data, private credit ETFs, and having robots make fake songs for the streaming revenue.
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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. I'm
Matt Levine and I write the Money Stuff column for
Bloomberg Opinion.
Speaker 1 (00:21):
And I'm Katie Greifeld, a reporter for Bloomberg News and
an anchor for Bloomberg Television.
Speaker 2 (00:25):
What do we got today, Kitty?
Speaker 1 (00:27):
We're going to talk about SEC raids and how to
trade them. We're going to talk about private credit ETFs,
question mark, and we're going to talk about Spotify arbitrage.
Speaker 2 (00:37):
Yes, excellent, sec raids.
Speaker 1 (00:46):
I'm a little bit surprised. Were your SEC jacket?
Speaker 2 (00:48):
I know I should have. I wrote about this, like
amazing paper about what happens on the SEC visits a company,
and I mentioned that I own an SEC raid jacket
that I joke about wearing but never wear.
Speaker 1 (01:00):
And you didn't even bring.
Speaker 2 (01:01):
It in, did you know? I read about this and
then reader emailed to say that an sec red jacket
was his Halloween costume. That's funny, but he didn't have one,
and he didn't actually know that they even existed, so
he just like got a blue windpricker and like got
yellow tape and put SEC on the back and wore
it to like Halloween parties with the finance pro friends,
to be scary. Yeah, that was a really good idea.
(01:22):
I have a real one.
Speaker 1 (01:23):
It'd be kind of funny if he paired that with
just fangs. That's it's the whole costume. That's cool. Well,
if you used the fact that you own an SEC
jacket is like a cute little setup to talk about.
Maybe a tradable signal. Maybe not that amazing paper. Watching
the Watchdogs, yes.
Speaker 2 (01:41):
Watching the watch dogs tracking SEC increase using geolocation data.
What they find is that when the SEC visits a
public company, that probably means there's something bad, right, and
so it's a negative signal.
Speaker 1 (01:52):
It's not just a chat, like just a coffee meeting.
Speaker 2 (01:55):
In aggregate, statistically it's a bad sign And so like
you get Adnorrambal returns of like negative one point four
to one point nine percent over the three months after
the SEC visit, whether or not there's a subsequent announcement
of an SEC investigation, even if they just do an
informal visit, there's some negative signal there. They also have
some really fun findings about the insider trading around. Yeah,
(02:18):
usually the sea of a company and the SEC comes
and visits. Should you sell the stock because that's bad
news or should you not sell the stock because that's
insider trading? Yeah, the answer is most people. There seems
to be a chilling effect where people tend not to sell,
but like when it's really bad news, they do sell.
Speaker 1 (02:33):
Well, I have to say so. The stat that you
highlighted was that insiders are sixteen percent less likely to
sell into two weeks surrounding an SEC visit relative to
periods with no visits. I'm kind of surprised it wasn't
like eighty five percent or ninety percent. I feel like
if the SEC was knocking on the door, maybe I
would just sit tight for a moment, right.
Speaker 2 (02:51):
Because like, arguably that's material news, and if you're still selling,
it does seem risky. But you know it's not that
because like maybe they're coming to chat, right, like you don't.
Speaker 1 (03:01):
Know, Ye, well, maybe it's that pension for risk that
got you from the SEC in the first place.
Speaker 2 (03:06):
Right, The causation can go their way, right, You're you're
the person who's you know, they're visiting you about your
insider training. Keep insider trading. Yeah, so that is interesting,
but it's not as interesting as the methodology of the paper,
which is like amazing. It's basically like, your phone has
two hundred as on it, and like one hundred of
them track your location, and ninety nine of all times,
(03:27):
at all times, and ninety nine of those sell your
location to a data vendor that then sells it to
hedge funds. Right, that's what your phone is.
Speaker 1 (03:35):
That's all right, that's why I never turn off my location.
I want the hedge funds to have that data.
Speaker 2 (03:40):
And the hedge funds appreciate that. Yeah, and they use
it as far as I can tell, mostly to figure
out what stores are getting a lot of foot traffic. Yeah,
that's the main U said. This sort of thing is like, oh,
there's a lot of foot traffic to this retailer, so
we should buy that retailer.
Speaker 1 (03:56):
Not just like Katie want to just salad today and
usually she goes to Sweet Green.
Speaker 2 (04:01):
You know, my understanding is that this data is pretty anonymized.
They don't have like Katie's data. They have like you know,
how many people went to Sweet Green. But if you
get all the data, you can like kind of recreate
who's Katie. Right. You can look at the phone that
is at the Bloomberg headquarters a lot and at the
(04:22):
horse Barn a lot. Yeah, I'm pretty sure this is Katy.
Speaker 1 (04:25):
It never goes downtown, right.
Speaker 2 (04:28):
And so what the authors here did is they got
all the cell phone data and they figured out which
phones belonged to SEC employees by looking at like which
phones were like mostly in SEC offices. And if your
phone is mostly in SC office, you're an SECM player.
And then if it goes to a corporate headquarters, then
the SEC was visiting that company.
Speaker 1 (04:47):
Well, let's just read this. You put it in the column.
But for listeners who haven't read the newsletter, a smartphone
is assumed to belong to an SEC employee if it
is quote paying for at least twenty unique workday hours
within one SEC location during the month, and the accumulated
time in the SEC building is greater than in any
other buildings in the respective month. I do like to
imagine though, that they're tracking janitors.
Speaker 2 (05:09):
Maybe, but the point is that those genders are then
also visiting.
Speaker 1 (05:12):
Maybe they're freelancing. I don't know.
Speaker 2 (05:14):
Okay, okay, but statistically it works out to be a
useful signal.
Speaker 1 (05:19):
This is true.
Speaker 2 (05:20):
So there's so much to say about this methodology. One
thing about it is I've talked a lot of my
column about how the SEC gets mad at banks for
letting their employees talk about business on their personal cell
phones and finds them hundreds of millions of dollars. This
is like SEC employees' personal cell phones providing tradable signals
(05:41):
too well to academics, right, And I think this is
very funny that the personal cell phone usage of the
SAC continues to be like a funny little mindfield an
agency that is finding banks for using personal cell phones.
Speaker 1 (05:53):
I will note that it was a pretty short time period.
They were collecting data from January twenty nineteen to your
A twenty twenty, so you know, a little bit over
a year.
Speaker 2 (06:03):
But still, Yeah, the paper came out like this year,
and the data is from four or five years ago,
so it's not tradable in the sense.
Speaker 1 (06:11):
That you know, well, the data is.
Speaker 2 (06:14):
If you had it in real time, and like these vendors,
they do sell the data in kind of real time.
So like my question was, can and do hedge funds
trade on this signal?
Speaker 1 (06:27):
Yeah?
Speaker 2 (06:27):
And I asked people the email if they did, and
no one said they did. My impression is that most
hedge funds do not try to get the data that
is like can we identify Katie? Or like can we
identify SEC employees? They get like how many people were
in the building? Right, Like they're getting you know, aggregated
data and not like trying to individual identify people. And
so this is probably not a signal that anyone actually
(06:50):
trades on. Also, it's not like so strong a signal.
You know, it's like one point nine percent of normally
turns over three months. That's like, yeah, it's.
Speaker 1 (06:57):
Like, well, I was wondering why that would exist at
all if people weren't trading on it. You know, it's
like a chicken in the egg thing.
Speaker 2 (07:05):
Why what the data?
Speaker 1 (07:06):
No, Like, why you would get those abnormal returns? Like
why is an informal SEC visit bad? Necessarily? What was interesting,
if I understanding this correctly, is that you had that
abnormal performance even if no formal investigation was announced.
Speaker 2 (07:19):
You could tell stories, right like they're aggressive with their accounting,
and the SEC says, knock it off, and they stop
being aggressive with their accounting, and their next you know,
earnings report is disappointing because they've stopped fudging them right
right right, you know stuff like that, or just like
they're a badly managed company, which is why the SEC
is visiting them, and that bad management ends up affecting
their performance. Yeah, but like I don't think people trade
(07:41):
on this, lagneal, but it is interesting because heedgehones. Do
you use self one location data and self on location
data is like controversial, right, people get mad. You know,
your phone now probably asks you like will you left
this app track you which you didn't like used to
do as much like now it's like Apple is trying
to provide apps from tracking you unless you want them to,
which you do for them.
Speaker 1 (08:00):
I always say yes.
Speaker 2 (08:02):
And you know, people have like periodic like privacy worries
about these things, And if you're a hedge fund, you're
putting a lot of effort into compliance. You're putting a
lot of effort into making sure that you're buying this
data from vendors who sort of ultimately have user permission
to track their location, and that it's anonymized in the
right way so that no one is going to later
accuse you of insider trading or of like violating people's
(08:24):
privacy or anything like that. And you know, you worry
about the regulatory environment changing and like getting harder to
use this sort of self in location data. And one
thing that might cause that to happen is the SEC
finding their personal phones being tracked to like create a
tradable signal. The SEC might get annoyed by that. They
might say, so we should cry down on these vendors.
Speaker 1 (08:45):
Maybe don't build your whole business on the availability of
this data.
Speaker 2 (08:50):
Yeah, but I think that this is a big source
of like alternative data for chants to actually trade on.
And now, obviously don't build your business on like SEC
self fund data, but nobody does. That's just going to
make paper. But the academic paper that draws awkward attention
to location.
Speaker 1 (09:04):
Data, well, I was going to say, even if no
one has emailed you to say that they're trading on it,
there's an ETF for everything, Like some interesting indie little
issuer might be reading this.
Speaker 2 (09:14):
People do try to trade on SEC investigations, people like
FOIA SEC investigations to sort of see what's being investigated
and use that as a signal. And this is like
a sort of much more real time, weaker but interesting signal.
Speaker 1 (09:27):
It's just still Yeah.
Speaker 2 (09:28):
I don't see people paying for this data.
Speaker 1 (09:31):
I want to see it. How much does this state
of cost? We should do like the money stuff investigation
and try to trade on it. It sounds fun. It's
still out there. Moving on, moving on to ETFs that
(09:58):
don't exist but might one day. At least this one
has plans private credit ETF. So we were just talking
about this sort of in a thought experiment type of way.
How would this work?
Speaker 2 (10:09):
That's real.
Speaker 1 (10:10):
The big brains that Apollo have a plan, Apollo. Yeah,
I did, the big brains at Apollo. I'm screaming. The
big brains at Apollo have a plan.
Speaker 2 (10:20):
We're keeping all better. Yeah, they have a plan. And
the plan is they're a teammate with State Street to
make an ETF that is like mostly public credit and
some private credit. I think, yeah, I understanding.
Speaker 1 (10:32):
There's many interesting things about this. I find the partnership
interesting just from like an ETF industry perspective. It's public
and private credit. We had talked a bit about how
there was that fifteen percent limit on a liquid securities
Give me the mount Levine take, because you actually haven't
written about this yet.
Speaker 2 (10:51):
I haven't this is a podcast exclusive. Okay, So you
mentioned the liquidity role, right, Like typical sec mutual funds,
including ETFs I have to have none more than fifteen
percent of their assets in I liquid securities, and private
credit is probably an ill liquid security, probably in the
sense that like you can't it doesn't. It's not like
a really you know, liquid trading market. I liquid means
(11:14):
something like we take you more than seven days to
sell it without affecting the market, and we just have
like an initial filing. And so I don't exactly know
what they're doing, but what they've done here is they've
said Apollo has a trading desk to trade private credit.
Just first of all, fascinating, like that's kind of a
new thing. But their trading desk is going to give
firm inter day bids to the ETF. So all the
(11:36):
private credit stuff that the ETF holds, which it presumably
bought from Apollo, apollow will buy it back and they
give you a bid to buy it back every day,
and the ATF can sell it every day. And I
think that the point of that is to satisfy the
liquidity requirement, because what they say is, you know, if
apollow will buy it back instantly. Then that makes it
liquid and so we can fulfill the ETF rules. I
(11:58):
think that works. It's a little cheap, it's a little weird.
Speaker 1 (12:01):
Well, I have to say, I'm really interested to see.
First of all, we have to get at the launch.
Talking to people, it seems like there is confidence that
this will launch, but with any first of its kind
sort of fund, there's always questions over whether the sec
will green lighted. I am curious to see if it launches,
how much of it actually is private credit, because you
take a look at some of the details, at least
(12:22):
eighty percent of the fund's assets will be in investment
grade either public or private securities. As much as twenty
percent may be allocated to high yield bond. So it
could just turn into it's eighty percent high grade public
debt and then twenty percent high old bonds.
Speaker 2 (12:40):
Yeah, there are a lot of regular stock mutual funds
that are tech focused then like have one little holding
of like a startup private stock. But yeah, ninety nine
percent public equities. You can imagine this being that there's
like a little sprinkling of private credit.
Speaker 1 (12:53):
Yeah. Ron Barren's funds, I mean he has at least
one mutual fund that's all public and then just SpaceX.
Speaker 2 (13:00):
Two points with this one is it's easy to get
retail exchange traded private credit exposure. It is called the BDC.
Speaker 1 (13:07):
Right, people find that unsatisfying, though I.
Speaker 2 (13:11):
Know that I don't enough. A BDC is a business
development company. It's a publicly traded pot of private credit.
Speaker 1 (13:18):
It feels like buying micro strategy for bitcoin exposure.
Speaker 2 (13:21):
Though no, it's not feel like it. I don't think
it does. That's what the BBC is a private credit fund.
That's what it is. It's a exchange traded, publicly available
fund that holds private credit loans. The difference between it
and an ETF is that a BDC is closed. Then
you can't take your money out. There's an arbitraged mechanism,
(13:42):
and so it won't necessarily trade it net asset value,
but mostly pretty close. I think. So I don't fully
understand the need for an ETF. I think some of
it is like feed driven. Some of it is like
just the ETF is the popular product, and so a
BDC feels weird and different than the ETF, feels like
an easy thing to hold in your portfolio. I suspect
(14:02):
part of it is like market maker driven. I suspect
that like the jan Straits of the world love trade
and ETFs and so like they're like, hey, we could
do it private credit ETF and so there's some like
desire for that, whereas the BDC is more of an
orphan in like the market structure world. But still it's weird,
right because like a BDC is this it's a retail
private credit fund.
Speaker 1 (14:22):
Yeah, I don't know. It does feel unsatisfying. Well, I
mean maybe because I'm totally ETF pilled, But why.
Speaker 2 (14:26):
Does it feel like? Tell me what is wrong with
a BDC in your mind?
Speaker 1 (14:29):
It just feels like a proxy.
Speaker 2 (14:31):
It just feels not as lot a proxy. It's a
pot of private credit assets. There's nothing proxy about it.
It is simply a pot of private credit assets.
Speaker 1 (14:38):
I know I'm not alone because if that answered the
desire in the marketplace. And maybe it's a misguide.
Speaker 2 (14:45):
Because the name is business development company. Yeah, sounds like
a need a company that develops businesses.
Speaker 1 (14:51):
It needs a rebrand, right if you just call it
a exchange would you be happier if you called it
an exchange traded closed end private credit fund?
Speaker 2 (14:58):
Are you still just allergic to the words closed in Yeah.
Speaker 1 (15:01):
I mean again, like I'm ETF pilled, so I need
the I need the openness.
Speaker 2 (15:06):
Okay, here's the other thing I want to say about
this though. You know, we talked about Bill Ackman's closed
then fund he should do an ETF, and I was like, well,
you know, he wants long term capital so that he
can make long term investments. I've written a lot about
private credit in the last few months, and one thing
I always say about private credit is that it is
a better funding structure for making loans than banking, is right,
(15:28):
Banks have short term funding, Banks take deposits. It's possible
to have a run on bank deposits, and so if
banks are making like liquid long term loans and funding
them with short term deposits, that's a risky business to
be in private credit. Meanwhile, Like raises money from insurance
companies and it's a fairly safe funding source for their
long term loans. If Apollo is offering to buy back
it's private credit assets every day, like that turns it
(15:51):
into runnable funding. If they have an ETF that they
promise to buy back the assets every day, like if
something goes wrong, investors can take all their money out
and follow off the buio back and then have to
raise new funding. So it is a much riskier funding
source for private credit than like the traditional you know,
insurance company, wealthy individual, whatever, like long term locked up money.
(16:13):
So in that sense, it's very different from a BDC.
R BDC's are permanent capital. ETFs are kind of runnable capital.
Speaker 1 (16:20):
I just got a buzz. Maybe we don't want to
include this, but I just got a buzz because there
was just another filing for private credit ETF. Oh there
you get at like two thirty pm on Thursday for
the bond blocks Private Credit Clo ETF. Reading from the prospectus,
the fund is a newly organized, actively managed exchange traded
fund that will invest, under normal circumstances, at least eighty
(16:44):
percent of its net assets in private credit. Colos may
invest up to twenty percent of its net assets in
broadly syndicated bank loans, broadly syndicated bank loans clos, high
yield bonds, investment grade bonds, and cash. So the demand
at least from issuers is out there. Even know BDCs,
to your very real point, they exist. They exist also
(17:05):
it feels like there was a response. There's clearly a
response from this issue or bond blocks. It feels like
there was a response from Blackrock to this because people
have been waiting for this. I mean, we've talked about
it on the podcast before, like who's going to figure
out how to put private assets in a publicly traded ETF.
We know that black we know that Blackrock has ambitions there,
and on Thursday they didn't announce that they were doing that,
(17:26):
but they did announce this partnership with partners Group. They're
teaming up to offer retail investors a variety of private
markets through a single portfolio. They want to create like
this one stop portfolio to private equity, private credit, real assets.
It's not an ETF though, no, because it's not true retail.
Speaker 2 (17:45):
It's like a model portfolio for like qualified investors. Yeah,
you need to have like, no, for two million dollars
in assets.
Speaker 1 (17:51):
Yeah.
Speaker 2 (17:52):
And it's just like if you are a customer of
a wealth manager, like they'll happily put you into like
a private credit fund or whatever, and now black Rock
will help them put you into a portfolio of private
credit funds in one place. But it's not an ETF.
It's not like it's not like a true retail thing
you can buy.
Speaker 1 (18:11):
Yeah, you can't click a button and then buy it.
It is interesting though, just it feels like, especially in
the ETF market, there's an arms race for any white space,
and here's the white space. I do think it's interesting
that Apollo partnered with State Street. It does suggest that
like Apollo isn't all in on the ETF industry, that
(18:31):
they didn't want to you know, high.
Speaker 2 (18:34):
They don't care, I know, I know, but they want
like funding for their giant portfolio of private credit. Right
if State Street comes to them is like, we'll give
you retail funding, they'll take it, right. They're not like, ooh,
the one basis point fees on ets we want that juicy.
Speaker 1 (18:49):
It is interesting that they went with State Street though,
I mean, State Street obviously is home to the oldest
and biggest ETF, but they've kind of been slipping in
the ranks. Who does States But Goldman Sachs, for example,
has this accelerator platform which is like a white label,
but not quite a white label that some big names
have come through. I'm kind of surprised that Apollo went
(19:11):
with State Street versus going through a white label such
as Goldman's. But that's just a little bit of industry chatter.
Does not it does not matter to end investors at all.
(19:35):
Let me just check my phone. I'm sorry, everything's so
stupid all the time. I'm excited to talk about Spotify.
Speaker 2 (19:43):
That's a.
Speaker 1 (19:46):
I've never thought about the economics of Spotify before we
get to Michael Smith, which we might. We might get
to him. He sounds like a fake person. Maybe he's
a robot.
Speaker 2 (19:55):
Oh could be yeah, Michael calm Knuckles Smith anyway, Spotify, Yeah,
I mean the way it works is like you pay
like twelve.
Speaker 1 (20:03):
Bucks a month every month I do.
Speaker 2 (20:05):
It doesn't matter how much you listen to it. You
pay twelve bucks a month.
Speaker 1 (20:07):
Yeah. I have never thought about that, and it would
really suck if they did a sliding scale based on
use because I listened to so much.
Speaker 2 (20:16):
Yeah, I mean, the whole point of it is like
you don't, right, Like, the whole point of it is like,
you know, it used to be paid for albums and
now you pay for unlimited streaming and you pay twelve
bucks a month, but Spotify still pays the artists based
on how much they stream, sort of like takes all
the money that it gets, yeah, and it signs seventy
five percent to the rights holders, artists and record labels,
(20:38):
and then it divides up that pot of money based
on relatively how much you stream. It's not like Spotify
is like we pay one cent to stream, and like
if they're more streams and they expected, they pay more
money thany expected. They pay a fixed amount of money,
but they divide it up based on how much your
songs get streamed. And so what that means is that
if you are a customer and you pay twelve bucks
a month and you stream music twenty four to seven
(20:59):
from month, you will allocate more money than the twelve
bucks you put in. Spotify will send more than twelve
dollars to the people you are listening to. Meanwhile, if
I sign up for Spotify and I listened to one
song a month, Spotify will send like one penny to
the artist of the song that I listened to. And
once you know that, like the answer is obvious, which
(21:20):
is like you sign up for Spotify, you know you
have a computer on mute playing twenty four to seven
the songs that you want to send money to, and
then like you get the money.
Speaker 1 (21:29):
Yeah, And that's what I do money, That's what I
do with money stuff. Absolutely, I have my laptop at
home just listening on.
Speaker 2 (21:37):
Loose and I make three tenths of a penny.
Speaker 1 (21:42):
I make nothing. I'm doing this for fun. I'm just
doing it for the good of the company.
Speaker 2 (21:52):
He gets all of it. There's not that much money
in this unless you have a thousand computers saying it.
And so there's this guy, Michael Smith who had a
thousand computers which I mean actually like virtual computers on
like a cloud service. Right, He had like a thousand
cloud computers streaming songs twenty four to seven to send
him the money. And because Spotify pays attention to this stuff,
(22:16):
he couldn't just like stream one song over and over again.
He had to set up a bunch of fake bands
and have the fake bands record a bunch of fake songs.
And even the fake songs, he can't just be like
him tapping on a table, you know, has to like
sound song like. And so he had like hired an
AI company to write like AI music and it is
so disappointing. The prosecutors list a couple of dozen band
(22:37):
names and a couple of dozen.
Speaker 1 (22:39):
A lot of them titles, I mean, many of them
are kind of cool sounding.
Speaker 2 (22:43):
They're so good. This is like an alphabetical list, like
there's like a randomly selected bit of the alphabet. So
the song titles are mostly words starting with zy that
don't make any sense. But they include zygotes, zygotic, zygotic,
wash stands, zime, doing zimes, zimite, zimo, fight, zimo, jens.
(23:05):
And the artist names include Calliope, Bloom, Callous, Humane, calm Knuckles, good,
calm Market, calvinistic dust. Yeah. Anyway, it's like a lot
of great, randomly chosen names for fakes. But my point
is that all of this stuff presumably lived on like Spotify.
(23:26):
I say, we say Spotify, it's like all the streaming
services he apparently took for money, so Spotify, Apple, and
he's like YouTube. All these songs apparently lived on these services,
and they all seem to have been taken down because
I've been searching for them, I can't find any because
like if we could play.
Speaker 1 (23:39):
Them, I know, like asking from the perspective of the listener,
like we should be playing this music.
Speaker 2 (23:45):
These songs good, were they best? Were they mediocre? They
were generated? By AI, so they weren't like just nothing,
they were an AI trained in music. There he composed
the song.
Speaker 1 (23:55):
So how much money did he make? That's insane? So
it was about this, like when people just get too greedy,
Like what if he had pretended to be a real
artist and like made his own music, and like maybe
I don't know, he had a hundred songs under his name,
but he had all these robots listening to it, and
maybe he only made a million dollars. Would that have
(24:17):
been less detectable?
Speaker 2 (24:18):
I think it would have been more detectable, because like
the reason he had all these songs was that no
one was streaming these songs millions of times. Each of
these songs was strained a small number of times, and
like in the aggregate, all of his songs were streamed
a lot, and he made a lot of money. But
if he had just one song and it was streamed
ten million times, someone might say, but what if.
Speaker 1 (24:39):
He had a hundred songs? You know?
Speaker 2 (24:40):
Like what he decided that the best way to avoid
detection and to avoid getting caught by Spotify's cheating checking
algorithms was to have a lot of songs so that
it's spreading out among a bunch of different songs.
Speaker 1 (24:53):
I respect his hustle. Should I say that I respect okay, good,
I respect its hustle too. All say I wish that
he had actually made music.
Speaker 2 (25:03):
He had a robot makings and I probably I know he
made music, and then he decided that it was more.
Speaker 1 (25:07):
Like I would have appreciated the vulnerability if he put
his music online and then he.
Speaker 2 (25:13):
Needed thouands of songs. Yeah, he was busy running a scam.
Speaker 1 (25:17):
That's true. It does sound. It does sound draining.
Speaker 2 (25:19):
People email me a lot to be like, your math
is wrong. And in fact, when like Spotify gives this
money to the rights holder, like most of that goes
to the record labels, it doesn't really go to the artists,
and the artists are getting stewed. Fine point taken. I'm
writing about this guy scam like in fact, the streaming
services are worse for musicians than I implied when I
read about the arbitrage. But secondly, like twenty people emailed
(25:41):
me about Wolfpeck, which is a funk band that you
might know as one of my like notes for what
I wanted the money instead.
Speaker 1 (25:49):
Of theme song to sound like oh right now, I.
Speaker 2 (25:53):
Was like describing the vibe I wanted and a brilliant
art director Jackie was like, oh, you should listen to
this Voltpec song.
Speaker 1 (25:59):
I was like, yes, now we're going to see stream skyrocket.
Speaker 2 (26:02):
For full Yeah. Yeah. In twenty fourteen, they put out
an album that was like twelve thirty second tracks of silence.
Speaker 1 (26:12):
And they were like that, so what you wanted our
music to sound like? No?
Speaker 2 (26:15):
No, Otherwise they put out music that is louder. They
asked their fans to stream it on Loop as they slept. Yeah,
because the fans weren't paying for that, right, they didn't
didn't affect them right as quiet, and they weren't paying
because they paid a flat feet of Spotify. Spotify counts
to stream if it's like more than thirty seconds, So
you stream like twelve thirty one second songs on loop
all night, then that's like, you.
Speaker 1 (26:36):
Know, that's great.
Speaker 2 (26:40):
Eighty stream right now, eight hundred streams.
Speaker 1 (26:44):
I'm certainly not going to fact check you.
Speaker 2 (26:46):
Yeah, it's like thousands streams for them, right, So that's
like thousands streams that like a fraction of a penny
per stream is like ten bucks or something. Not bad
if all of their fans do that. They were like,
we're going to put on a free concert funded by.
Speaker 1 (26:58):
The that's hysterical.
Speaker 2 (27:00):
They ended up raising about twenty thousand dollars and the
album was removed for violting Spotify's terms of service. Oh,
come on, nobody thought it was a crime. Somebody emailed
me to say that they handed out twenty dollars bills
at this free concert to thank their fans for doing it.
I don't know that's true.
Speaker 1 (27:14):
That's so fun.
Speaker 2 (27:15):
Anyways, really cool. The other thing that people pointed me
too is that in twenty sixteen, Nelly owed two point
four million dollars in back taxes, and so there is
a hashtag campaign Saved Nelly to get people to stream
hot in Here some number of times that was estimated
between like two hundred and eighty and four hundred million
in order to raise the money.
Speaker 1 (27:36):
It's insane. I don't know if it were it worked
to put I'm sure Nelly's fine.
Speaker 2 (27:40):
He's fine.
Speaker 1 (27:41):
Yeah, he's fine. I will say I listened to podcasts
when I sleep, which got me thinking about the sliding scale,
Like most of my Spotify usage comes at night when
I'm asleep.
Speaker 2 (27:50):
Oh, I mean, people were like, is this a crime
should be a crime.
Speaker 1 (27:52):
I know it's in the code.
Speaker 2 (27:53):
It's in the code, right. I mean, like there's a
lot of stuff like this, where like there's a company
that has some terms of service and people violate the
terms of service and then people are, yeah, shouldn't they
just sue them?
Speaker 1 (28:04):
Right?
Speaker 2 (28:05):
And I think here it's a little different because this
doesn't actually cost Spotify any money. Spotify doesn't care. Yeah,
Spotify is like, we get all this money and we
set aside three quarters of it the people who own
the songs, and we just don't care what happens. Yeah,
whoever wants that, you know, we don't care. We have
like some reasonably fair formula as a matter of like
pr and as a matter of like you know, getting
(28:27):
the record labels to sign up to put their music
on Spotify, but like, they don't care. It's not their money.
Speaker 1 (28:32):
So it doesn't get worse for artists. Is Spotify g's
more popular, that's.
Speaker 2 (28:38):
What compared to I don't know. I guess it gets
good for artists because Spotify has more money and it
sets aside a fixed fraction of that money for artists.
It's bad for artists if the alternative Spotify was like
buying CDs. Oh yeah, But what's really bad for artists
is like if there's a lot of guys like this,
that is people's reaction to the story is like, yeah, okay,
(29:00):
here's this one guy with a bunch of bots and
a very sort of sophisticated way to do this arbitrage
who made ten million dollars? But like, are there hundreds
of those guys? Is a lot of the money on
Spotify going to people who are somewhere faking their streams,
and obviously Spotify like puts a lot of effort into
stopping that, and they did keep stopping this guy, and
you had to go to some lengths to get back on.
(29:21):
But you know, people are suspecious and they did extract
ten million dollars from Spotify.
Speaker 1 (29:26):
That's so funny. That's so much money. Sounds like a good,
good gig. Oh. One thing I wanted to add he
paired up with that AI company in like twenty eighteen
or twenty nineteen, Right, they were early.
Speaker 2 (29:37):
That's true. Yeah, yeah, I don't know what AI means, right,
Like you can get pretty sophisticated with chenerative AI models
now that will like make a song in the style
of blah blah blah, but like like if you.
Speaker 1 (29:48):
Randomly, I do wonder like when it's together, you might
have enough.
Speaker 2 (29:51):
To full Spotify in twenty eighteen.
Speaker 1 (29:53):
Yeah, that's true. I do wonder though, when AI artists
are going to become big on Spotify, because I'm TikTok
a lot and there's all these silly AI songs of
Drake singing like Alana del Rey cover and some of
them we're good, some of them sound like real music,
So that'll be an interesting ethical question for Spotify. And
(30:15):
like a couple of years, probably I wish I had
a snapperod turn. That's fine, that's fine.
Speaker 2 (30:21):
And that was the Money Stuff Podcast.
Speaker 1 (30:23):
I'm Matt Levy and I'm Katie Greifeld.
Speaker 2 (30:25):
You can find my work by subscribing to the Money
Stuff newsletter on Bloomberg dot com.
Speaker 1 (30:29):
And you can find me on Bloomberg TV every day
on Open Interest between nine to eleven am Eastern.
Speaker 2 (30:35):
We'd love to hear from you. You can send an
email to you money pot at Bloomberg dot net, ask
us a question and we might answer it on air.
Speaker 1 (30:42):
You can also subscribe to our show wherever you're listening
right now. And leave us a review. It helps more
people find the show.
Speaker 2 (30:48):
The Money Stuff Podcast is produced by Anna Maserakus and
Moses on Them.
Speaker 1 (30:52):
Our theme music was composed by Blake.
Speaker 2 (30:54):
Maples, Brandon, Francis nunim As our executive producer.
Speaker 1 (30:57):
And Stage Bauman is Bloomberg's Head of podcasts.
Speaker 2 (31:00):
For listening to The Money Stuff Podcast. We'll be back
next week with more stuff
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. I'm
Matt Levine and I write the Money Stuff column for
Bloomberg Opinion.
Speaker 1 (00:21):
And I'm Katie Greifeld, a reporter for Bloomberg News and
an anchor for Bloomberg Television.
Speaker 2 (00:25):
What do we got today, Kitty?
Speaker 1 (00:27):
We're going to talk about SEC raids and how to
trade them. We're going to talk about private credit ETFs,
question mark, and we're going to talk about Spotify arbitrage.
Speaker 2 (00:37):
Yes, excellent, sec raids.
Speaker 1 (00:46):
I'm a little bit surprised. Were your SEC jacket?
Speaker 2 (00:48):
I know I should have. I wrote about this, like
amazing paper about what happens on the SEC visits a company,
and I mentioned that I own an SEC raid jacket
that I joke about wearing but never wear.
Speaker 1 (01:00):
And you didn't even bring.
Speaker 2 (01:01):
It in, did you know? I read about this and
then reader emailed to say that an sec red jacket
was his Halloween costume. That's funny, but he didn't have one,
and he didn't actually know that they even existed, so
he just like got a blue windpricker and like got
yellow tape and put SEC on the back and wore
it to like Halloween parties with the finance pro friends,
to be scary. Yeah, that was a really good idea.
(01:22):
I have a real one.
Speaker 1 (01:23):
It'd be kind of funny if he paired that with
just fangs. That's it's the whole costume. That's cool. Well,
if you used the fact that you own an SEC
jacket is like a cute little setup to talk about.
Maybe a tradable signal. Maybe not that amazing paper. Watching
the Watchdogs, yes.
Speaker 2 (01:41):
Watching the watch dogs tracking SEC increase using geolocation data.
What they find is that when the SEC visits a
public company, that probably means there's something bad, right, and
so it's a negative signal.
Speaker 1 (01:52):
It's not just a chat, like just a coffee meeting.
Speaker 2 (01:55):
In aggregate, statistically it's a bad sign And so like
you get Adnorrambal returns of like negative one point four
to one point nine percent over the three months after
the SEC visit, whether or not there's a subsequent announcement
of an SEC investigation, even if they just do an
informal visit, there's some negative signal there. They also have
some really fun findings about the insider trading around. Yeah,
(02:18):
usually the sea of a company and the SEC comes
and visits. Should you sell the stock because that's bad
news or should you not sell the stock because that's
insider trading? Yeah, the answer is most people. There seems
to be a chilling effect where people tend not to sell,
but like when it's really bad news, they do sell.
Speaker 1 (02:33):
Well, I have to say so. The stat that you
highlighted was that insiders are sixteen percent less likely to
sell into two weeks surrounding an SEC visit relative to
periods with no visits. I'm kind of surprised it wasn't
like eighty five percent or ninety percent. I feel like
if the SEC was knocking on the door, maybe I
would just sit tight for a moment, right.
Speaker 2 (02:51):
Because like, arguably that's material news, and if you're still selling,
it does seem risky. But you know it's not that
because like maybe they're coming to chat, right, like you don't.
Speaker 1 (03:01):
Know, Ye, well, maybe it's that pension for risk that
got you from the SEC in the first place.
Speaker 2 (03:06):
Right, The causation can go their way, right, You're you're
the person who's you know, they're visiting you about your
insider training. Keep insider trading. Yeah, so that is interesting,
but it's not as interesting as the methodology of the paper,
which is like amazing. It's basically like, your phone has
two hundred as on it, and like one hundred of
them track your location, and ninety nine of all times,
(03:27):
at all times, and ninety nine of those sell your
location to a data vendor that then sells it to
hedge funds. Right, that's what your phone is.
Speaker 1 (03:35):
That's all right, that's why I never turn off my location.
I want the hedge funds to have that data.
Speaker 2 (03:40):
And the hedge funds appreciate that. Yeah, and they use
it as far as I can tell, mostly to figure
out what stores are getting a lot of foot traffic. Yeah,
that's the main U said. This sort of thing is like, oh,
there's a lot of foot traffic to this retailer, so
we should buy that retailer.
Speaker 1 (03:56):
Not just like Katie want to just salad today and
usually she goes to Sweet Green.
Speaker 2 (04:01):
You know, my understanding is that this data is pretty anonymized.
They don't have like Katie's data. They have like you know,
how many people went to Sweet Green. But if you
get all the data, you can like kind of recreate
who's Katie. Right. You can look at the phone that
is at the Bloomberg headquarters a lot and at the
(04:22):
horse Barn a lot. Yeah, I'm pretty sure this is Katy.
Speaker 1 (04:25):
It never goes downtown, right.
Speaker 2 (04:28):
And so what the authors here did is they got
all the cell phone data and they figured out which
phones belonged to SEC employees by looking at like which
phones were like mostly in SEC offices. And if your
phone is mostly in SC office, you're an SECM player.
And then if it goes to a corporate headquarters, then
the SEC was visiting that company.
Speaker 1 (04:47):
Well, let's just read this. You put it in the column.
But for listeners who haven't read the newsletter, a smartphone
is assumed to belong to an SEC employee if it
is quote paying for at least twenty unique workday hours
within one SEC location during the month, and the accumulated
time in the SEC building is greater than in any
other buildings in the respective month. I do like to
imagine though, that they're tracking janitors.
Speaker 2 (05:09):
Maybe, but the point is that those genders are then
also visiting.
Speaker 1 (05:12):
Maybe they're freelancing. I don't know.
Speaker 2 (05:14):
Okay, okay, but statistically it works out to be a
useful signal.
Speaker 1 (05:19):
This is true.
Speaker 2 (05:20):
So there's so much to say about this methodology. One
thing about it is I've talked a lot of my
column about how the SEC gets mad at banks for
letting their employees talk about business on their personal cell
phones and finds them hundreds of millions of dollars. This
is like SEC employees' personal cell phones providing tradable signals
(05:41):
too well to academics, right, And I think this is
very funny that the personal cell phone usage of the
SAC continues to be like a funny little mindfield an
agency that is finding banks for using personal cell phones.
Speaker 1 (05:53):
I will note that it was a pretty short time period.
They were collecting data from January twenty nineteen to your
A twenty twenty, so you know, a little bit over
a year.
Speaker 2 (06:03):
But still, Yeah, the paper came out like this year,
and the data is from four or five years ago,
so it's not tradable in the sense.
Speaker 1 (06:11):
That you know, well, the data is.
Speaker 2 (06:14):
If you had it in real time, and like these vendors,
they do sell the data in kind of real time.
So like my question was, can and do hedge funds
trade on this signal?
Speaker 1 (06:27):
Yeah?
Speaker 2 (06:27):
And I asked people the email if they did, and
no one said they did. My impression is that most
hedge funds do not try to get the data that
is like can we identify Katie? Or like can we
identify SEC employees? They get like how many people were
in the building? Right, Like they're getting you know, aggregated
data and not like trying to individual identify people. And
so this is probably not a signal that anyone actually
(06:50):
trades on. Also, it's not like so strong a signal.
You know, it's like one point nine percent of normally
turns over three months. That's like, yeah, it's.
Speaker 1 (06:57):
Like, well, I was wondering why that would exist at
all if people weren't trading on it. You know, it's
like a chicken in the egg thing.
Speaker 2 (07:05):
Why what the data?
Speaker 1 (07:06):
No, Like, why you would get those abnormal returns? Like
why is an informal SEC visit bad? Necessarily? What was interesting,
if I understanding this correctly, is that you had that
abnormal performance even if no formal investigation was announced.
Speaker 2 (07:19):
You could tell stories, right like they're aggressive with their accounting,
and the SEC says, knock it off, and they stop
being aggressive with their accounting, and their next you know,
earnings report is disappointing because they've stopped fudging them right
right right, you know stuff like that, or just like
they're a badly managed company, which is why the SEC
is visiting them, and that bad management ends up affecting
their performance. Yeah, but like I don't think people trade
(07:41):
on this, lagneal, but it is interesting because heedgehones. Do
you use self one location data and self on location
data is like controversial, right, people get mad. You know,
your phone now probably asks you like will you left
this app track you which you didn't like used to
do as much like now it's like Apple is trying
to provide apps from tracking you unless you want them to,
which you do for them.
Speaker 1 (08:00):
I always say yes.
Speaker 2 (08:02):
And you know, people have like periodic like privacy worries
about these things, And if you're a hedge fund, you're
putting a lot of effort into compliance. You're putting a
lot of effort into making sure that you're buying this
data from vendors who sort of ultimately have user permission
to track their location, and that it's anonymized in the
right way so that no one is going to later
accuse you of insider trading or of like violating people's
(08:24):
privacy or anything like that. And you know, you worry
about the regulatory environment changing and like getting harder to
use this sort of self in location data. And one
thing that might cause that to happen is the SEC
finding their personal phones being tracked to like create a
tradable signal. The SEC might get annoyed by that. They
might say, so we should cry down on these vendors.
Speaker 1 (08:45):
Maybe don't build your whole business on the availability of
this data.
Speaker 2 (08:50):
Yeah, but I think that this is a big source
of like alternative data for chants to actually trade on.
And now, obviously don't build your business on like SEC
self fund data, but nobody does. That's just going to
make paper. But the academic paper that draws awkward attention
to location.
Speaker 1 (09:04):
Data, well, I was going to say, even if no
one has emailed you to say that they're trading on it,
there's an ETF for everything, Like some interesting indie little
issuer might be reading this.
Speaker 2 (09:14):
People do try to trade on SEC investigations, people like
FOIA SEC investigations to sort of see what's being investigated
and use that as a signal. And this is like
a sort of much more real time, weaker but interesting signal.
Speaker 1 (09:27):
It's just still Yeah.
Speaker 2 (09:28):
I don't see people paying for this data.
Speaker 1 (09:31):
I want to see it. How much does this state
of cost? We should do like the money stuff investigation
and try to trade on it. It sounds fun. It's
still out there. Moving on, moving on to ETFs that
(09:58):
don't exist but might one day. At least this one
has plans private credit ETF. So we were just talking
about this sort of in a thought experiment type of way.
How would this work?
Speaker 2 (10:09):
That's real.
Speaker 1 (10:10):
The big brains that Apollo have a plan, Apollo. Yeah,
I did, the big brains at Apollo. I'm screaming. The
big brains at Apollo have a plan.
Speaker 2 (10:20):
We're keeping all better. Yeah, they have a plan. And
the plan is they're a teammate with State Street to
make an ETF that is like mostly public credit and
some private credit. I think, yeah, I understanding.
Speaker 1 (10:32):
There's many interesting things about this. I find the partnership
interesting just from like an ETF industry perspective. It's public
and private credit. We had talked a bit about how
there was that fifteen percent limit on a liquid securities
Give me the mount Levine take, because you actually haven't
written about this yet.
Speaker 2 (10:51):
I haven't this is a podcast exclusive. Okay, So you
mentioned the liquidity role, right, Like typical sec mutual funds,
including ETFs I have to have none more than fifteen
percent of their assets in I liquid securities, and private
credit is probably an ill liquid security, probably in the
sense that like you can't it doesn't. It's not like
a really you know, liquid trading market. I liquid means
(11:14):
something like we take you more than seven days to
sell it without affecting the market, and we just have
like an initial filing. And so I don't exactly know
what they're doing, but what they've done here is they've
said Apollo has a trading desk to trade private credit.
Just first of all, fascinating, like that's kind of a
new thing. But their trading desk is going to give
firm inter day bids to the ETF. So all the
(11:36):
private credit stuff that the ETF holds, which it presumably
bought from Apollo, apollow will buy it back and they
give you a bid to buy it back every day,
and the ATF can sell it every day. And I
think that the point of that is to satisfy the
liquidity requirement, because what they say is, you know, if
apollow will buy it back instantly. Then that makes it
liquid and so we can fulfill the ETF rules. I
(11:58):
think that works. It's a little cheap, it's a little weird.
Speaker 1 (12:01):
Well, I have to say, I'm really interested to see.
First of all, we have to get at the launch.
Talking to people, it seems like there is confidence that
this will launch, but with any first of its kind
sort of fund, there's always questions over whether the sec
will green lighted. I am curious to see if it launches,
how much of it actually is private credit, because you
take a look at some of the details, at least
(12:22):
eighty percent of the fund's assets will be in investment
grade either public or private securities. As much as twenty
percent may be allocated to high yield bond. So it
could just turn into it's eighty percent high grade public
debt and then twenty percent high old bonds.
Speaker 2 (12:40):
Yeah, there are a lot of regular stock mutual funds
that are tech focused then like have one little holding
of like a startup private stock. But yeah, ninety nine
percent public equities. You can imagine this being that there's
like a little sprinkling of private credit.
Speaker 1 (12:53):
Yeah. Ron Barren's funds, I mean he has at least
one mutual fund that's all public and then just SpaceX.
Speaker 2 (13:00):
Two points with this one is it's easy to get
retail exchange traded private credit exposure. It is called the BDC.
Speaker 1 (13:07):
Right, people find that unsatisfying, though I.
Speaker 2 (13:11):
Know that I don't enough. A BDC is a business
development company. It's a publicly traded pot of private credit.
Speaker 1 (13:18):
It feels like buying micro strategy for bitcoin exposure.
Speaker 2 (13:21):
Though no, it's not feel like it. I don't think
it does. That's what the BBC is a private credit fund.
That's what it is. It's a exchange traded, publicly available
fund that holds private credit loans. The difference between it
and an ETF is that a BDC is closed. Then
you can't take your money out. There's an arbitraged mechanism,
(13:42):
and so it won't necessarily trade it net asset value,
but mostly pretty close. I think. So I don't fully
understand the need for an ETF. I think some of
it is like feed driven. Some of it is like
just the ETF is the popular product, and so a
BDC feels weird and different than the ETF, feels like
an easy thing to hold in your portfolio. I suspect
(14:02):
part of it is like market maker driven. I suspect
that like the jan Straits of the world love trade
and ETFs and so like they're like, hey, we could
do it private credit ETF and so there's some like
desire for that, whereas the BDC is more of an
orphan in like the market structure world. But still it's weird,
right because like a BDC is this it's a retail
private credit fund.
Speaker 1 (14:22):
Yeah, I don't know. It does feel unsatisfying. Well, I
mean maybe because I'm totally ETF pilled, But why.
Speaker 2 (14:26):
Does it feel like? Tell me what is wrong with
a BDC in your mind?
Speaker 1 (14:29):
It just feels like a proxy.
Speaker 2 (14:31):
It just feels not as lot a proxy. It's a
pot of private credit assets. There's nothing proxy about it.
It is simply a pot of private credit assets.
Speaker 1 (14:38):
I know I'm not alone because if that answered the
desire in the marketplace. And maybe it's a misguide.
Speaker 2 (14:45):
Because the name is business development company. Yeah, sounds like
a need a company that develops businesses.
Speaker 1 (14:51):
It needs a rebrand, right if you just call it
a exchange would you be happier if you called it
an exchange traded closed end private credit fund?
Speaker 2 (14:58):
Are you still just allergic to the words closed in Yeah.
Speaker 1 (15:01):
I mean again, like I'm ETF pilled, so I need
the I need the openness.
Speaker 2 (15:06):
Okay, here's the other thing I want to say about
this though. You know, we talked about Bill Ackman's closed
then fund he should do an ETF, and I was like, well,
you know, he wants long term capital so that he
can make long term investments. I've written a lot about
private credit in the last few months, and one thing
I always say about private credit is that it is
a better funding structure for making loans than banking, is right,
(15:28):
Banks have short term funding, Banks take deposits. It's possible
to have a run on bank deposits, and so if
banks are making like liquid long term loans and funding
them with short term deposits, that's a risky business to
be in private credit. Meanwhile, Like raises money from insurance
companies and it's a fairly safe funding source for their
long term loans. If Apollo is offering to buy back
it's private credit assets every day, like that turns it
(15:51):
into runnable funding. If they have an ETF that they
promise to buy back the assets every day, like if
something goes wrong, investors can take all their money out
and follow off the buio back and then have to
raise new funding. So it is a much riskier funding
source for private credit than like the traditional you know,
insurance company, wealthy individual, whatever, like long term locked up money.
(16:13):
So in that sense, it's very different from a BDC.
R BDC's are permanent capital. ETFs are kind of runnable capital.
Speaker 1 (16:20):
I just got a buzz. Maybe we don't want to
include this, but I just got a buzz because there
was just another filing for private credit ETF. Oh there
you get at like two thirty pm on Thursday for
the bond blocks Private Credit Clo ETF. Reading from the prospectus,
the fund is a newly organized, actively managed exchange traded
fund that will invest, under normal circumstances, at least eighty
(16:44):
percent of its net assets in private credit. Colos may
invest up to twenty percent of its net assets in
broadly syndicated bank loans, broadly syndicated bank loans clos, high
yield bonds, investment grade bonds, and cash. So the demand
at least from issuers is out there. Even know BDCs,
to your very real point, they exist. They exist also
(17:05):
it feels like there was a response. There's clearly a
response from this issue or bond blocks. It feels like
there was a response from Blackrock to this because people
have been waiting for this. I mean, we've talked about
it on the podcast before, like who's going to figure
out how to put private assets in a publicly traded ETF.
We know that black we know that Blackrock has ambitions there,
and on Thursday they didn't announce that they were doing that,
(17:26):
but they did announce this partnership with partners Group. They're
teaming up to offer retail investors a variety of private
markets through a single portfolio. They want to create like
this one stop portfolio to private equity, private credit, real assets.
It's not an ETF though, no, because it's not true retail.
Speaker 2 (17:45):
It's like a model portfolio for like qualified investors. Yeah,
you need to have like, no, for two million dollars
in assets.
Speaker 1 (17:51):
Yeah.
Speaker 2 (17:52):
And it's just like if you are a customer of
a wealth manager, like they'll happily put you into like
a private credit fund or whatever, and now black Rock
will help them put you into a portfolio of private
credit funds in one place. But it's not an ETF.
It's not like it's not like a true retail thing
you can buy.
Speaker 1 (18:11):
Yeah, you can't click a button and then buy it.
It is interesting though, just it feels like, especially in
the ETF market, there's an arms race for any white space,
and here's the white space. I do think it's interesting
that Apollo partnered with State Street. It does suggest that
like Apollo isn't all in on the ETF industry, that
(18:31):
they didn't want to you know, high.
Speaker 2 (18:34):
They don't care, I know, I know, but they want
like funding for their giant portfolio of private credit. Right
if State Street comes to them is like, we'll give
you retail funding, they'll take it, right. They're not like, ooh,
the one basis point fees on ets we want that juicy.
Speaker 1 (18:49):
It is interesting that they went with State Street though,
I mean, State Street obviously is home to the oldest
and biggest ETF, but they've kind of been slipping in
the ranks. Who does States But Goldman Sachs, for example,
has this accelerator platform which is like a white label,
but not quite a white label that some big names
have come through. I'm kind of surprised that Apollo went
(19:11):
with State Street versus going through a white label such
as Goldman's. But that's just a little bit of industry chatter.
Does not it does not matter to end investors at all.
(19:35):
Let me just check my phone. I'm sorry, everything's so
stupid all the time. I'm excited to talk about Spotify.
Speaker 2 (19:43):
That's a.
Speaker 1 (19:46):
I've never thought about the economics of Spotify before we
get to Michael Smith, which we might. We might get
to him. He sounds like a fake person. Maybe he's
a robot.
Speaker 2 (19:55):
Oh could be yeah, Michael calm Knuckles Smith anyway, Spotify, Yeah,
I mean the way it works is like you pay
like twelve.
Speaker 1 (20:03):
Bucks a month every month I do.
Speaker 2 (20:05):
It doesn't matter how much you listen to it. You
pay twelve bucks a month.
Speaker 1 (20:07):
Yeah. I have never thought about that, and it would
really suck if they did a sliding scale based on
use because I listened to so much.
Speaker 2 (20:16):
Yeah, I mean, the whole point of it is like
you don't, right, Like, the whole point of it is like,
you know, it used to be paid for albums and
now you pay for unlimited streaming and you pay twelve
bucks a month, but Spotify still pays the artists based
on how much they stream, sort of like takes all
the money that it gets, yeah, and it signs seventy
five percent to the rights holders, artists and record labels,
(20:38):
and then it divides up that pot of money based
on relatively how much you stream. It's not like Spotify
is like we pay one cent to stream, and like
if they're more streams and they expected, they pay more
money thany expected. They pay a fixed amount of money,
but they divide it up based on how much your
songs get streamed. And so what that means is that
if you are a customer and you pay twelve bucks
a month and you stream music twenty four to seven
(20:59):
from month, you will allocate more money than the twelve
bucks you put in. Spotify will send more than twelve
dollars to the people you are listening to. Meanwhile, if
I sign up for Spotify and I listened to one
song a month, Spotify will send like one penny to
the artist of the song that I listened to. And
once you know that, like the answer is obvious, which
(21:20):
is like you sign up for Spotify, you know you
have a computer on mute playing twenty four to seven
the songs that you want to send money to, and
then like you get the money.
Speaker 1 (21:29):
Yeah, And that's what I do money, That's what I
do with money stuff. Absolutely, I have my laptop at
home just listening on.
Speaker 2 (21:37):
Loose and I make three tenths of a penny.
Speaker 1 (21:42):
I make nothing. I'm doing this for fun. I'm just
doing it for the good of the company.
Speaker 2 (21:52):
He gets all of it. There's not that much money
in this unless you have a thousand computers saying it.
And so there's this guy, Michael Smith who had a
thousand computers which I mean actually like virtual computers on
like a cloud service. Right, He had like a thousand
cloud computers streaming songs twenty four to seven to send
him the money. And because Spotify pays attention to this stuff,
(22:16):
he couldn't just like stream one song over and over again.
He had to set up a bunch of fake bands
and have the fake bands record a bunch of fake songs.
And even the fake songs, he can't just be like
him tapping on a table, you know, has to like
sound song like. And so he had like hired an
AI company to write like AI music and it is
so disappointing. The prosecutors list a couple of dozen band
(22:37):
names and a couple of dozen.
Speaker 1 (22:39):
A lot of them titles, I mean, many of them
are kind of cool sounding.
Speaker 2 (22:43):
They're so good. This is like an alphabetical list, like
there's like a randomly selected bit of the alphabet. So
the song titles are mostly words starting with zy that
don't make any sense. But they include zygotes, zygotic, zygotic,
wash stands, zime, doing zimes, zimite, zimo, fight, zimo, jens.
(23:05):
And the artist names include Calliope, Bloom, Callous, Humane, calm Knuckles, good,
calm Market, calvinistic dust. Yeah. Anyway, it's like a lot
of great, randomly chosen names for fakes. But my point
is that all of this stuff presumably lived on like Spotify.
(23:26):
I say, we say Spotify, it's like all the streaming
services he apparently took for money, so Spotify, Apple, and
he's like YouTube. All these songs apparently lived on these services,
and they all seem to have been taken down because
I've been searching for them, I can't find any because
like if we could play.
Speaker 1 (23:39):
Them, I know, like asking from the perspective of the listener,
like we should be playing this music.
Speaker 2 (23:45):
These songs good, were they best? Were they mediocre? They
were generated? By AI, so they weren't like just nothing,
they were an AI trained in music. There he composed
the song.
Speaker 1 (23:55):
So how much money did he make? That's insane? So
it was about this, like when people just get too greedy,
Like what if he had pretended to be a real
artist and like made his own music, and like maybe
I don't know, he had a hundred songs under his name,
but he had all these robots listening to it, and
maybe he only made a million dollars. Would that have
(24:17):
been less detectable?
Speaker 2 (24:18):
I think it would have been more detectable, because like
the reason he had all these songs was that no
one was streaming these songs millions of times. Each of
these songs was strained a small number of times, and
like in the aggregate, all of his songs were streamed
a lot, and he made a lot of money. But
if he had just one song and it was streamed
ten million times, someone might say, but what if.
Speaker 1 (24:39):
He had a hundred songs? You know?
Speaker 2 (24:40):
Like what he decided that the best way to avoid
detection and to avoid getting caught by Spotify's cheating checking
algorithms was to have a lot of songs so that
it's spreading out among a bunch of different songs.
Speaker 1 (24:53):
I respect his hustle. Should I say that I respect okay, good,
I respect its hustle too. All say I wish that
he had actually made music.
Speaker 2 (25:03):
He had a robot makings and I probably I know he
made music, and then he decided that it was more.
Speaker 1 (25:07):
Like I would have appreciated the vulnerability if he put
his music online and then he.
Speaker 2 (25:13):
Needed thouands of songs. Yeah, he was busy running a scam.
Speaker 1 (25:17):
That's true. It does sound. It does sound draining.
Speaker 2 (25:19):
People email me a lot to be like, your math
is wrong. And in fact, when like Spotify gives this
money to the rights holder, like most of that goes
to the record labels, it doesn't really go to the artists,
and the artists are getting stewed. Fine point taken. I'm
writing about this guy scam like in fact, the streaming
services are worse for musicians than I implied when I
read about the arbitrage. But secondly, like twenty people emailed
(25:41):
me about Wolfpeck, which is a funk band that you
might know as one of my like notes for what
I wanted the money instead.
Speaker 1 (25:49):
Of theme song to sound like oh right now, I.
Speaker 2 (25:53):
Was like describing the vibe I wanted and a brilliant
art director Jackie was like, oh, you should listen to
this Voltpec song.
Speaker 1 (25:59):
I was like, yes, now we're going to see stream skyrocket.
Speaker 2 (26:02):
For full Yeah. Yeah. In twenty fourteen, they put out
an album that was like twelve thirty second tracks of silence.
Speaker 1 (26:12):
And they were like that, so what you wanted our
music to sound like? No?
Speaker 2 (26:15):
No, Otherwise they put out music that is louder. They
asked their fans to stream it on Loop as they slept. Yeah,
because the fans weren't paying for that, right, they didn't
didn't affect them right as quiet, and they weren't paying
because they paid a flat feet of Spotify. Spotify counts
to stream if it's like more than thirty seconds, So
you stream like twelve thirty one second songs on loop
all night, then that's like, you.
Speaker 1 (26:36):
Know, that's great.
Speaker 2 (26:40):
Eighty stream right now, eight hundred streams.
Speaker 1 (26:44):
I'm certainly not going to fact check you.
Speaker 2 (26:46):
Yeah, it's like thousands streams for them, right, So that's
like thousands streams that like a fraction of a penny
per stream is like ten bucks or something. Not bad
if all of their fans do that. They were like,
we're going to put on a free concert funded by.
Speaker 1 (26:58):
The that's hysterical.
Speaker 2 (27:00):
They ended up raising about twenty thousand dollars and the
album was removed for violting Spotify's terms of service. Oh,
come on, nobody thought it was a crime. Somebody emailed
me to say that they handed out twenty dollars bills
at this free concert to thank their fans for doing it.
I don't know that's true.
Speaker 1 (27:14):
That's so fun.
Speaker 2 (27:15):
Anyways, really cool. The other thing that people pointed me
too is that in twenty sixteen, Nelly owed two point
four million dollars in back taxes, and so there is
a hashtag campaign Saved Nelly to get people to stream
hot in Here some number of times that was estimated
between like two hundred and eighty and four hundred million
in order to raise the money.
Speaker 1 (27:36):
It's insane. I don't know if it were it worked
to put I'm sure Nelly's fine.
Speaker 2 (27:40):
He's fine.
Speaker 1 (27:41):
Yeah, he's fine. I will say I listened to podcasts
when I sleep, which got me thinking about the sliding scale,
Like most of my Spotify usage comes at night when
I'm asleep.
Speaker 2 (27:50):
Oh, I mean, people were like, is this a crime
should be a crime.
Speaker 1 (27:52):
I know it's in the code.
Speaker 2 (27:53):
It's in the code, right. I mean, like there's a
lot of stuff like this, where like there's a company
that has some terms of service and people violate the
terms of service and then people are, yeah, shouldn't they
just sue them?
Speaker 1 (28:04):
Right?
Speaker 2 (28:05):
And I think here it's a little different because this
doesn't actually cost Spotify any money. Spotify doesn't care. Yeah,
Spotify is like, we get all this money and we
set aside three quarters of it the people who own
the songs, and we just don't care what happens. Yeah,
whoever wants that, you know, we don't care. We have
like some reasonably fair formula as a matter of like
pr and as a matter of like you know, getting
(28:27):
the record labels to sign up to put their music
on Spotify, but like, they don't care. It's not their money.
Speaker 1 (28:32):
So it doesn't get worse for artists. Is Spotify g's
more popular, that's.
Speaker 2 (28:38):
What compared to I don't know. I guess it gets
good for artists because Spotify has more money and it
sets aside a fixed fraction of that money for artists.
It's bad for artists if the alternative Spotify was like
buying CDs. Oh yeah, But what's really bad for artists
is like if there's a lot of guys like this,
that is people's reaction to the story is like, yeah, okay,
(29:00):
here's this one guy with a bunch of bots and
a very sort of sophisticated way to do this arbitrage
who made ten million dollars? But like, are there hundreds
of those guys? Is a lot of the money on
Spotify going to people who are somewhere faking their streams,
and obviously Spotify like puts a lot of effort into
stopping that, and they did keep stopping this guy, and
you had to go to some lengths to get back on.
(29:21):
But you know, people are suspecious and they did extract
ten million dollars from Spotify.
Speaker 1 (29:26):
That's so funny. That's so much money. Sounds like a good,
good gig. Oh. One thing I wanted to add he
paired up with that AI company in like twenty eighteen
or twenty nineteen, Right, they were early.
Speaker 2 (29:37):
That's true. Yeah, yeah, I don't know what AI means, right,
Like you can get pretty sophisticated with chenerative AI models
now that will like make a song in the style
of blah blah blah, but like like if you.
Speaker 1 (29:48):
Randomly, I do wonder like when it's together, you might
have enough.
Speaker 2 (29:51):
To full Spotify in twenty eighteen.
Speaker 1 (29:53):
Yeah, that's true. I do wonder though, when AI artists
are going to become big on Spotify, because I'm TikTok
a lot and there's all these silly AI songs of
Drake singing like Alana del Rey cover and some of
them we're good, some of them sound like real music,
So that'll be an interesting ethical question for Spotify. And
(30:15):
like a couple of years, probably I wish I had
a snapperod turn. That's fine, that's fine.
Speaker 2 (30:21):
And that was the Money Stuff Podcast.
Speaker 1 (30:23):
I'm Matt Levy and I'm Katie Greifeld.
Speaker 2 (30:25):
You can find my work by subscribing to the Money
Stuff newsletter on Bloomberg dot com.
Speaker 1 (30:29):
And you can find me on Bloomberg TV every day
on Open Interest between nine to eleven am Eastern.
Speaker 2 (30:35):
We'd love to hear from you. You can send an
email to you money pot at Bloomberg dot net, ask
us a question and we might answer it on air.
Speaker 1 (30:42):
You can also subscribe to our show wherever you're listening
right now. And leave us a review. It helps more
people find the show.
Speaker 2 (30:48):
The Money Stuff Podcast is produced by Anna Maserakus and
Moses on Them.
Speaker 1 (30:52):
Our theme music was composed by Blake.
Speaker 2 (30:54):
Maples, Brandon, Francis nunim As our executive producer.
Speaker 1 (30:57):
And Stage Bauman is Bloomberg's Head of podcasts.
Speaker 2 (31:00):
For listening to The Money Stuff Podcast. We'll be back
next week with more stuff
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