June 27, 2025 • 31 mins
Matt and Katie discuss Boomer-candy ETFs, autocallables, private-credit trading, volatility laundering and Mark Zuckerberg's hiring spree.
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Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:08):
Should I give a really quick bird update? Oh yeah,
Well we put out the cliff Astness episode, which was
very well received, but we did get a few comments
about where they're not being a bird update really quick birds. Yeah,
the birds doing really well, flying really well. We need
(00:31):
to work on perching. So he's in a big.
Speaker 1 (00:33):
Room's interesting is regressed on perching?
Speaker 2 (00:35):
Well, the thing is, it's hard. He's very comfortable perching
on people. He's very comfortable perching on his cage. I
put in an old cat tree that I had at
my parents' house in the room where he is. He
refuses to perch on it. And so if you open, yeah,
you probably wouldn't purchase the catch. Yeah maybe, I mean
(00:56):
my cat hasn't touched it in several years, so I
thought maybe the cats I'll never never. I think I
need to get.
Speaker 1 (01:02):
Like you owner ever and terror I can tell you
the cat.
Speaker 2 (01:06):
I think I need to get him like an indoor
potted tree or something, because if you open the cage
and then run to the other side of the room,
he will fly directly to you. He will not land
on anything other than his cage and humans. So we
need to work on that. Also. We're calling it a
heat but it could be a lady bird.
Speaker 1 (01:24):
Is this whole project still in the service of like
one day releasing or herd into the wild, or is
it more just like I think, be nice if he
wasn't clinging to your shoulder all the time.
Speaker 2 (01:35):
I think given that it's so attached to humans, it
would be very hard to release this bird right now.
It won't perch. I mean, we'll see when we get
in a tree if it'll perch on the tree.
Speaker 1 (01:43):
I guess I'll stop asking that question. I guess that's
just your bird now.
Speaker 2 (01:47):
Yeah, and its name is bird.
Speaker 1 (01:52):
Hello, and welcome to The Money Stuff Podcast. You're a
weekly podcast where we talk about stuff related to money.
I'm Matt Levie and I write The Money Stuff Calm
for Blue Our Opinion, and.
Speaker 2 (02:01):
I'm Katie Greifeld, a reporter for Bloomberg News and an
anchor for Bloomberg Television.
Speaker 1 (02:06):
Katie, I came to you this week and I was like,
I want to talk about ETFs, which sounded really sounds great.
And I was like, I want to talk about autocollable
ets and You're like, Nah.
Speaker 2 (02:14):
You know that's the thing. It really feels like a
monkey's paw situation or something. I should be psyched.
Speaker 1 (02:20):
The thing this is the thing. The thing about ETFs
is that eventually all of financial products and ultimately all
of human existence will be sucked into an ETF. And
like you have to be able to roll with all
of the possible forms of ETF.
Speaker 2 (02:35):
I you know, I'm like super comfortable with the idea
that you know, there's structured products in ETFs. Yeah, I
know what for ETF is. The concept of an autocollable
ETF is a little bit of a tougher too. But
the first one launched this past week. Yeah, Calamus Kalamos
with JP Morgan is the swap counterparty.
Speaker 1 (02:54):
Yeah.
Speaker 2 (02:55):
So you did a breakdown in your Money Soff column
about how's theoretic this would work. You provided an example.
Some don't quite get it, okay.
Speaker 1 (03:04):
So, like, if you're a JP market, you're in the
business like manufacturing products that clients want to buy. One
thing that clients come to with a lot is we
would like to hedge our stock market risk. It would
be nice if when the market crashed we could get
(03:26):
some insurance. And so there's a big business in manufacturing
insurance against market crushes because like fundamentally most people, most
investors are long equities and they want to have insurance.
Someone want to have insurance against the market crush, and
how do you manufacture that insurance because no one's to
sell that insurance, right, Like who wants to be in
the business of saying if the market crashes, I'll give
(03:48):
you money, Like it's a terrible wrong way situation to
be in. And so a lot of like the world
of like equity to rotistrating is figuring out how to
manufacture that sort of market risk insurance crash insurance. And
there are ways to do it, like the dispersion trade
and hedgephones is like a gibeis are closing. It's all
(04:10):
a complicated way to take single stock ball and turn
it into index vall so that you can sell people
insurance against market crashes. But like a classic way to
do it is to say, we're going to have retail
investors sell us insurance against market crashes. And the way
retail investors sell insurance is essentially they buy bonds and
(04:32):
the bonds, you know, they put it in one hundred dollars,
they get back one hundred dollars plus like a very
high rate of interest, except if the market crashes, they
get back like nothing or they lose money. Right, so
the thing they buy is sort of a catastrophe bond
for market crash, Like if the market crashes, they don't
get back all their money, and the money they don't
get back gets used to pay someone else's insurance. One
(04:55):
of the main like the classic form of that is
called an auto callable. It's just like the name of it,
but it's basically you put in money. If the market
stays flat or up or even goes down a little bit,
you get back like one hundred and fifteen cents on
a dollar in a year. And if the market goes
down a lot, you know, you lose the amount of
the market crash and you know, and JP Morgan sells
that to you gives them index volatility that they can
(05:18):
turn around and sell to you know, institutional clients who
want a hedgeance market crash. So that is the autocoll.
It is a classic structured note structuring product that like
banks love to sell to you know, retailer high night
Worth investors. And now it's going into an ETF, which
(05:39):
was inevitable.
Speaker 2 (05:40):
I mean buffers have been so popular.
Speaker 1 (05:43):
Yeah, I think actually the press release for this ETF
said something like, this is the latest play for a
boomer candy pretty just like just the name of these
kinds of ETFs. Now. Yeah, And it's like a little
bit similar to a buffer in that it's like a
fixed income replacement that like maybe has a little little extra.
Speaker 2 (05:58):
Juice but even still on. And you know, I'm prepared
to be proven wrong, but I feel like this is
a tougher sell like buffers, I.
Speaker 1 (06:05):
Should say, it's different from a buffer. And then a
buffer is buffered, and this is like, yeah, in a crash,
you lose your money.
Speaker 2 (06:11):
Yeah, a buffer is okay, you're giving up upside, but
you're going to be cushioned buffered on the downside.
Speaker 1 (06:16):
That it was like you're getting a nice coupon, yeah,
except in bad states of the world, in which case
you there's a lot of money. Yeah.
Speaker 2 (06:22):
So I don't know, I mean, who is this for?
Like I hear them, I love them, I know, I know,
I just wonder, like.
Speaker 1 (06:30):
Obviously, like you know, I sold the agent high net
worth investors. And there's a story a while back that
I remember I quoted about Korean autocollables or some brokers
as something like no one's ever only bought one. Once
you buy them, you keep coming back from more because
they're so great, love them so much, and it's like,
you know, you think of the profile of it for
a second and you're like, yeah, of course that's true.
Speaker 2 (06:49):
Right.
Speaker 1 (06:49):
You keep buying them because you get paid a fifteen
percent yield. You keep buying them until there's one crash
and then you stop. Right, yeah, maybe, yeah, but right,
it pays a fifteen percent yield and most of the
market crash of the crashes.
Speaker 2 (07:01):
Yeah, So Kala Mos is first out the gate. I
think you have. Innovator and First Trust have also filed
for similar products. It's interesting that JP Morgan hasn't JP
Morgan sort of pioneered this category in the ETF space,
this derivatives power to find outcome space. They have Jeppy,
which is a household name in my household. Maybe not
(07:23):
in years, but then you know, there were a bunch
of Jeffy copycats, and you've also seen buffers rise up
in the last few years. But I don't know, it's
somewhat interesting to me that you know, it's not JP.
Speaker 1 (07:35):
Morgan that's well, JP Morgan is the swap count of party. Yeah,
which means that their vall that is being bought. They're
buying the vall from the retail customers to sell to
their institutional customers.
Speaker 2 (07:45):
Yeah. Yeah, but they're not the ones headlining the CTF necessarily.
Speaker 1 (07:49):
Yeah right. I never fully understood the structured nets business.
But like part of it is like the retail and
high not worth like private wealth bankers are sitting around saying,
like what can we sell to our customers to make money?
And then part of it is like the institutional vault
traders are sitting around thinking where can we get some
voll and like there's a meeting of the minds. So
(08:10):
here like the you know, the JP Morgan valltraders are happy,
even if they're not like making the DF fee. I mean,
they're making some sort of fee on your point about
who's this is four? Yeah, I read about this this
week and it reader emailed me, so remind me of
there's a catastrophe bond etf.
Speaker 2 (08:24):
Yes, I love IOLs is the taker iOS and launched
without a lead market maker.
Speaker 1 (08:31):
Yeah, and there's like a Bloomer article about it from
April saying the securities can be a hard cell for
retail investors who have never before had to price the
risk of a typhoon or earthquake. Ei way, they're not
pricing it now, they're a price taker. But anyway, they
quote someone saying the asset class does itself no favors
by having catastrophe in the name. At least it's clear though.
(08:51):
At least you kind of know like the basic contours
of what you're doing when it's this catastrophe in the name. Here,
it's called an auto callable, which is like tells you nothing,
and you know it's a big like headline, Yeah, this
is how much yell do you? And you're like, oh,
y old to create it. Then you're like, oh, I
can lose all my money. Yeah. Also, it's like if
you're into this sort of thing, which I know you're not. No,
(09:12):
you're into the sort of thing. It's really cool because
it's like the structure of it is basically you know,
it's an autocol, so there's like knock in and knockouts
and stuff. Basically, if the index is down forty percent
is when you start to lose money. Like instead of
getting a nice coupon.
Speaker 2 (09:26):
It's like very rarely happens.
Speaker 1 (09:28):
Okay, you say that. Yeah, the reason you say that
is because you and I and probably mostly who'll buying
it have an intuition of what the index is. But
the index that they use is not the S and P.
The index that they use is a like volatility targeted
S and P. Oh, So basically they like lever the
S and P to get you to a thirty five
(09:49):
percent volatility. Okay, essually in the ballpark of two x
leverard a little more than two x LeVert So a
twenty percent drop in the S ANDP is not that
common either. But it's like it's yeah, and like you
see forty percent, like forty percent that never happens, but
like the innex reps like twenty ish percent, you lose
forty percent of your money. So it's like the structure
(10:10):
is not like a lot of structure notes. It's like
you can tell the story and I supposed you know,
you're like if the market is down twenty percent, you
lose twenty percent. It's like very easy to understand here.
It's like you get this nice yield and sometimes you don't.
And it's not like when the market is down twenty percent,
it's like, yeah, like it it's like math and like
sometimes you don't. Yeah, so it's an intuitive product for
retail investors.
Speaker 2 (10:30):
Yeah, I'm interested to see if. I mean, just given
how popular these types of ETFs would be if we
were recording this in twenty nineteen, which we wouldn't, but
I'd beel like, oh, who's going to buy this? But
I don't know what could happen. It could see some uptick,
but I really get it, So we'll see. Like, if
you can't explain it in an elevator ride.
Speaker 1 (10:49):
You can explain it. It plays a high yield except
when the market crashes.
Speaker 2 (10:52):
Except when the market crashes. Yeah, but it's you know,
if the index is about.
Speaker 1 (10:55):
This level, if it's paying numbers, it's hard to explain.
But well, yeah, a lot of stuff. It's not like
floors and caps and everything. It's just like phase fifteen percent,
except when the market's down more than this x percent.
Speaker 2 (11:09):
Something else that was wondering. You know, this has typically
been the domain of you know, high net worth individuals
who was making less money as a result of this
being put in the ETF wrapper, Like does JP Morgan
care if they're selling these two calamos versus selling this
in some other structure.
Speaker 1 (11:29):
I always used to have the impression that structured notes
had very juicy fees. Yeah, but I actually I think
it's like kind of a competitive business that's not that juicy.
Speaker 2 (11:37):
Yeah, well this ETF charges like seventy four basis points.
Speaker 1 (11:41):
Yeah, but like with anything like this, like there's a
lot of mouths to feed, and like, yeah, they're doing
a swap with japing Organ, which is probably a JP
Morgan expects to make a certain amount of money and
then swap. I don't know, it's hard to exactly compare
the pricing of those to a structured note, But I
don't get the sense that, like I think deserve these
are a comparable products, right, Like these are sort of
(12:02):
advisor sold like upper end retail products, and so like
you know, they're all kind of competitive spaces. But this
is not like wildly undercutting some super lucrative, uncompetitive business,
right Like the structured notes is like everyone's kind of
in on that game.
Speaker 2 (12:17):
Okay, good, you were worried JP Morgan is in losing
out on anything. Yeah, to move onto the next JP
(12:37):
Morgan story, I guess the prior credit trading story private
credit trading.
Speaker 1 (12:42):
It's so good. Yeah, so right. There's a Bloomberg story
this week by Ellen Schneider and Carmen.
Speaker 2 (12:47):
Araya, A bad how, such a fun read.
Speaker 1 (12:49):
Japi Morgan has stood up this entire private credit trading desk,
which is so smart, like getting in early on what
is quite plausibly going to be the next bank line trading,
like a huge business. But unfortunately they don't do any trade.
Speaker 2 (13:02):
No one wants to trade with them.
Speaker 1 (13:04):
Now you have to start.
Speaker 2 (13:05):
Yeah, yeah, it's.
Speaker 1 (13:07):
Not that no one wants to trade with them. The
product doesn't trade. Yeah, that's not entirely true. Some of
it is that no one wants to trade with JP Morgan,
And like there are some private credit firms trying to
stand up trading desks, and like maybe it's just the
competitive dynamic, but I think ninety five percent of it
is that these loans don't trade and people don't want
them to trade. Yeah, and so JP Morgan constantly sends
(13:30):
out runs saying we're looking to buy five million dollar
chunks of like these forty loans, and here are our bids,
and everyone's.
Speaker 2 (13:37):
Like thank you, shooting out those runs into the void, and.
Speaker 1 (13:41):
Then they're calling and saying, hey, I just want to
see if you got my run and I was like, goodbye, God, Yeah,
it's really bad. It's great.
Speaker 2 (13:48):
The human psychology of that is just brutal, I know,
but it's what you got to.
Speaker 1 (13:51):
Do, right, And you know that, like the people doing
that are like, well, this is my shot at like
being the person who invented a whole new category and
bringing in, you know, hundreds of millions of dollars of
revenue and being a superstar. But one, it's not guaranteed
that will work out. And too, it is guaranteed that
before it works out, I will spend a lot of
time could calling people and getting nowhere right.
Speaker 2 (14:13):
Yeah, And I mean as a journalist I sympathize. Yeah, jeez, Louise,
I hate could.
Speaker 1 (14:18):
As a not very good investment banker in my former life,
I think about like how long one could have zero
in one's p and L. Yeah, you know, like they've
got some run back, right, No one's expecting them to
do a lot of trade this month. Yeah, at some
point someone will be like, hey.
Speaker 2 (14:33):
Guys, well there's a few interesting reasons in the article
that are raised for why JP Morgan is getting shut
out one is that the private credit firms want big
banks to stay out of their turf.
Speaker 1 (14:45):
Like, I don't think that's the main reasons presented as
a reason. That's part of the competitive dynamic of like
we want to free that bank, and that might be
part of it. I think the main reasons m hm, Okay,
So I think like an important reason that the article
highlights that I think is the second most important reason
is that this is what Cliff was talking about when
he came on.
Speaker 2 (15:02):
Like nice callback.
Speaker 1 (15:03):
Private markets are very attractive to a lot of investors
because they are less volatile than public markets. And if
you think about that for a fraction of a second,
or if you talk to Cliff, you'll be like, wait, magic,
they're not actually less volatiles. They don't trade, so you
don't see the fluctuations and the values that you see
in public markets because they trade constantly and so nonetheless,
(15:26):
like you know, as Cliff has written about, like there
is for some classes of investors, like a real value
in not having to mark down your positions. Yeah, and
if private credit loans traded constantly in a liquid market
that everyone could see, it would be harder to not
mark down your positions. When they went down in the market. Yeah,
(15:48):
and then some of the perceived advantage of private credit
would go away. And nobody trying to stuff private credit
into four one case it's going to be all that
excited about like increasing the volatility of the market. So
that is I think the second most important reason still.
Speaker 2 (16:04):
I mean, you have Apollo trying to do that, trying
to make trading a thing, but they're also trying to
shove private credit into four to one case.
Speaker 1 (16:12):
Yeah, so this is the tension, right, Like you don't
want volatility, yeah, but like you want retail customers, and
it is hard to build a retail product that is
completely a liquid yeah, but it makes sense. There's like
an economic intuition for like you can put private credit
into your four oh and K or your target date
fund and you'll know with certainty that you won't need
(16:32):
the money for thirty years, so that you can take
the ill liquidity risk. You don't need liquidity because you're
a long term saver, right, But nobody actually believes that
because like retail is like it's hard to lock up
retail for ten years, right, and so in practice to
have a retail product, you need something like at least
an interval fund and maybe an ETF right and an
(16:53):
ETF if you need trading, right, like you need to
be able to trade this stuff. So yeah, like there
is definitely a push for trading a private to get
it into retail. It's all right, so becuse the other way.
But I do you think the most important reason that
it's hard to trade private credit is that the deal
that private credit firms are offering to borrowers like private
equity sponsors is we will look you in the eye
(17:17):
and write you this loan, and we will own that
loan for the duration of the loan, and if you
have problems, you come to us, and like, we won't
be jerks because we're repeat players in this game. And
so once private credit trades, like you know, there's opportunities
for vulture funds and activists and like you know, loan
to own investors, and so it's less pleasant for the
(17:39):
private equity sponsors. And so you know, as they say
in the article, you know, unlike most bonds, private credit
loans require the approval of the lead lender and the
private equity sponsor to trade. So even if JP Murrien
could get someone to sell them, they'd have to go
to the sponsor and say, hey, can we buy this loan?
The sponsor could.
Speaker 2 (17:58):
Say no, yeah, which they have veto power. Basically, Yeah,
it's not.
Speaker 1 (18:03):
Just veto power. It's not just like we don't want
our loans to end up in the hands of like
activists we're scared of. It's also just like we want
our loans to be held by five people we negotiated
with rather than like any random person. Yeah, because we
want to be able to have a relationship with them
if we need to you know, extend or refinance the loan,
(18:24):
or you know, we run into problems or we need
to restructure, Like, we want to be able to talk
to people who we know and who like we have
a long term, repeat relationship with, rather than you know,
some random CLO manager. Yeah, and so that makes it
hard to trade re regret it.
Speaker 2 (18:40):
So how does this evolve? I know that you're in
the camp. It seems that it kind of feels inevitable.
Speaker 1 (18:46):
Yeah, I think so, But there's like a real cut argument.
Speaker 2 (18:49):
Yeah, and you also have I mean, like you said,
the private equity sponsors don't want this. You also have
like the likes of Blual who thinks that private should
stay private. I mean, like, how do you see this evolving?
Will there be a corner that remains in the shadows,
or do you think that everything eventually will be out
in the open and traded.
Speaker 1 (19:08):
You know, I think it's going to be contractual, and
so like, you know, you see a little of this in
the probably syndicated load market, where some loans are very
restrictive about who can buy them. And for the most part,
people think of the proably syndicated load market as like,
you know, kind of trading, and like banks have trading
desks and it's trades and it's you know, you can
get like marks and stuff, but it's not as like
what is the bond market, And like some loans you know,
(19:30):
have long restricted lists where people can't buy it. You
can have that in private credit, right where like some
sponsors some deals don't trade very much because they're very restrictive,
and other people say, I don't really care. I will
get a better price if I allow more trading with
my loans, and so I'll just take the better price.
And it's like interestingly, like there aren't that many private
(19:54):
credit firms and there aren't that many private aquity sponsors right,
Like it's all kind of like oligopolistic, and you could imagine,
like you know, people just come into arrangements and say, okay, fine,
well well you know, or like you have your reasons
for borrowing from firms that really don't allow trading, or
you have your reasons for buying from firms that love trading,
and like, you know, you could maybe you get a
(20:15):
better price with more liquidity and you know all the
other stuff. Yeah. Another possibility then a couple of reader
emails about this is like you can sort of like
halfway allow private credit trading where instead of selling the
loan to someone, you sell like a participation in the
loan where the original lender keeps like the servicing rights
(20:36):
and keeps the relationship with the borrower, but someone else
is buying the economic value of the loan. That's like
sort of a compromise that might work, and might you know,
give you some of the things that you want, like
letting the original lenders cash out a little bit or
de risk a little bit. It's like a little hard
to imagine because like with leverage loans, a lot of
what people do want is like the control rights and
(20:58):
the servicing rights and the ability to like have a
seat at the table in the restructuring. But maybe that's
the way I've heard to.
Speaker 2 (21:03):
Get Yeah, it'll be fun to find out, Katie.
Speaker 1 (21:20):
This is my last podcast.
Speaker 2 (21:21):
Because because you got the call from Mark.
Speaker 1 (21:24):
Zucker from too, I think it was fake.
Speaker 2 (21:28):
There. It's hard to know because apparently we're not alone
in thinking that our Mark Zuckerberg calls were fake.
Speaker 1 (21:36):
I'm just kidding that in fact it is.
Speaker 2 (21:38):
Oh, I'm not knowing, No, I'm kidding.
Speaker 1 (21:40):
Does seem to be the case that every single day,
every researcher in the world has gotten Mark Zuckerberg sliding
into their dms. Yeah, and ninety five percent of them
have been like, that's not Mark Zuckerberg, which is weird, right, Yeah,
which is weird because I don't know, it's so weird,
Like just the concept no, the job market. Oh yeah,
(22:01):
I was writing a little bit about this, Like I'm
used to like the financial industry, where the job is
to pay people enough that they don't live for your competitors,
but not so much that they leave to like sit
on a beach, right, Right, you need them to still
want more money but not be able to get it elsewhere, right,
And like you know, there's like a range, right, Like
(22:22):
there's like if you pay them more than X, they
won't go to your competitors. And if you pay them
less than why they won't quit to go to the beach,
And like you know why is go to the next
In AI, it's like it's flipped in AI. To out
compete your competitors for the best AI talent, you need
to pay the best aay Italian one hundred million dollars. Yeah,
(22:43):
and I'm like to like a twenty eight year old,
right if I love my job.
Speaker 2 (22:50):
But yeah, for sure if I got a.
Speaker 1 (22:51):
Hundred million dollars, I wouldn't do it anymore.
Speaker 2 (22:54):
Yeah, yeah, that's true.
Speaker 1 (22:56):
That's too much money. So are you don't need to
work anymore?
Speaker 2 (22:59):
Are you applying it's just more important that they don't
work at open AI?
Speaker 1 (23:03):
What do you mean?
Speaker 2 (23:04):
Listening to you talk, it sounds like you're saying that
Mark Zuckerberg is hiring these people just so they're not
working in a working It's.
Speaker 1 (23:11):
Very bizarre to me. I assume there's some sort of
like structure on their compensation where they don't just get
a bag of money on the first day and then
but no, I don't think he's like hiring them to
get them out of open AI. I think he's genuinely
trying to build a giant AI research.
Speaker 2 (23:24):
Project, super intelligent you, and it's.
Speaker 1 (23:28):
Apparently intended to include every AI researcher in the world
at one hundred million dollars a pop. And it's amazing.
Speaker 2 (23:34):
I think their desks are also going to be close
to Mark Zuckerberg. They're going to be physically close to
him as well.
Speaker 1 (23:39):
They're going to be made out of diamonds. I truly like,
I'm used to finance, but like in tech, it's like
a famous concept of like resting investing right, Like it's
famously like there are people who, by virtue of being
early employees at successful companies, don't need to work anymore. Yeah,
in an AI there only those people. Every person who
(24:02):
works that A doesn't need to work anywhere. It's so strange.
I'll be really motivated by building AI.
Speaker 2 (24:08):
Yeah, I mean, I just find I'm exaggerating.
Speaker 1 (24:10):
I'm sure there're like some listeners who are like, I
don't think it paid like eight million dollars a year
and I work in AI, and it's really like, you're
really exaggerating. I agree, I'm really exaggerating, but you keep
reading story by Peep forgetting Yeah, really enormous.
Speaker 2 (24:21):
It's super disheartening.
Speaker 1 (24:23):
I find I love when people get paid a lot
of money. It's just like rising times left all.
Speaker 2 (24:27):
But it's just a good guy. I find Mark Zuckerberg
just a fascinating individual. I find Meta fascinating as well.
You know, Meta used to be called Facebook, and then
he spent so much money on the metaverse tanked the stock.
This was a huge thing, like how much money he
was funneling in for no return. Then they had to
(24:49):
do the Year of Efficiency or whatever. They fired a
bunch of people. I do wonder if we're watching this
build up again when it comes.
Speaker 1 (24:57):
Specifically, it's a general matter. I kind of think that
like AI is the real version of like the meta
the metaverse, or the fake version, you know, like yeah,
I don't.
Speaker 2 (25:08):
Know, MANKI is more real than the metaverse, like the
grown up version.
Speaker 1 (25:13):
I just feel like you can look look at like
the ll ms and like ask them to do useful things,
and they do useful things and like oh that was useful, right,
and then like the metaverse, it's like I don't have
legs in a video, you know.
Speaker 2 (25:24):
Like here's the Eiffel Tower, right.
Speaker 1 (25:27):
Like the metaverse was obviously intuitively stupid the whole time.
Speaker 2 (25:30):
I don't know, he spent so much money. No, we're
not cutting this, this is good. I don't know if
I've made this point on the podcast before, but I truly, truly,
truly believe that if he had just waited, like a
year or two, it would be AI Platforms. I feel like,
in his part of heart, does he regret naming it
meta platforms.
Speaker 1 (25:49):
I would like it at another like meta platforms is
a fine name for whatever nonsense you're doing, Like it's fine.
Metaverse platform is terrible that meta like meta.
Speaker 2 (26:00):
Yeah, I feel like everyone has kind of forgotten that
the metata I agree that. I do seriously wonder though,
if we're watching round two of this though this build up,
and that in a couple of years, maybe we're going
to be talking about massive layoffs and you know metasi.
Speaker 1 (26:17):
Researcher speakcause like if it stops being fun, they'll just
leave because they have one hundred million dollars.
Speaker 2 (26:23):
That's true, that's true. It is interesting to contrast how
hard Mark Zuckerberg and Meta are going at AI versus
like Apple, where the narrative is very much that they've
fallen behind. And then you think about Microsoft, which has
just been shedding thousands and thousands of jobs.
Speaker 1 (26:41):
Like Meta stands, Microsoft has like the open air well
sort of it's like complicated, but Microsoft sort of has
like you know, open ai as its AI horse.
Speaker 2 (26:50):
Yeah, yeah, that's true, just simply making the point that
like Meta is moving in a lot of different ways
than some of its magnificent seven peers.
Speaker 1 (26:59):
Sure right, No, I'm sure that a lot of the
piers are having the same thought you are, which is like,
spending billions and billions of dollars to hire twenty people
is surely not an efficient, yeah way to do anything.
Speaker 2 (27:14):
But seems like shareholders are on board for the time being. Though.
Speaker 1 (27:20):
I think enough reasonable people think there's some sort of
like winner take all aspect of this that it's not
insane to be like we're going to spend billions and
billions of dollars to hire every AI researchers that no
one else can have them. I mean, it's a little insane,
but it's like it's within the parameters. I do want
to say. I've been talking about people get paid one
hundred million dollars. But that's not the cap. There's like,
(27:41):
what is it scale AI that they bought.
Speaker 2 (27:44):
Yeah, that's the other story.
Speaker 1 (27:45):
I've bought for fourteen billion dollars. Yeah, of which not
all of it goes to the handful of founders they wanted.
But those people are getting paid more than one hundred
million dollars to come work from META. It's not called salary,
it's called like acquisition.
Speaker 2 (27:57):
But I think you jokingly referred to twenty eight year olds,
but isn't the co founder?
Speaker 1 (28:04):
This is the thing, Like, for one thing, these salaries
are so much higher than like twenty eight year olds
usually get paid in like the financial industry. But for
another thing, like I choked about this, but it's kind
of true. Like you work in finance, Like you start
out making like a nice living, but like you see
everyone around you with like their compounds and amagansett and
you're like, oh, I want that, And then like as
(28:26):
you move up the ladder, you get paid like millions
of dollars, but you're like, I need more millions of
dollars to have the lifestyle that I've come to expect.
Right in Hay, like all these people started two years ago,
they don't need anymore.
Speaker 2 (28:39):
I don't think it's like this are so just retire.
Speaker 1 (28:42):
It's just like finance is a good job of creating
the wants in people. Yeah, that lead them to want
to keep working even if they're making tens of millions
of dollars a year. Yeah. I guess that's true in
the tech industry too, but it seems less reliable. Like
all these people are right out of grad school and
they're getting paid hundred million. They weren't getting paid hundred
million dollars five years ago. They weren't starting at firms
(29:04):
where Yeah, like the CEOs of those firms were making
hundreds of millions of dollars because five years ago the
AI people weren't making hundreds of millions of dollars.
Speaker 2 (29:12):
This is vaguely reminding me of a conversation I believe
that we had on this podcast a couple of weeks
ago about how it feels like every tech founder or
like social media site, like there has to be like
some element of like we're saving the world or like
we're changing humanity or something like that. I wish I
could remember what exactly we were talking about, And I
(29:33):
think I made the point, or at least I was thinking,
like I wish that they would just say I'm making
a social media site that I'm going to sell ads
on or something like. I feel like with these people
that are making so much money, though maybe it is
true that like they view their mission is like higher than.
Speaker 1 (29:50):
Well, I think that AI, I mean whatever, Like I
think AI is like there is some level at which
you are like ultimately selling ads on social media sites,
but like not that it's not.
Speaker 2 (30:05):
As much Yeah, no, no, no, no.
Speaker 1 (30:08):
I think that like there are a lot of gradios
claims about like the effects on humanity of like you
know these l ms, but is something that's true. Yeah,
it seems like a more fundamental thing to work on then, No.
Speaker 2 (30:19):
This is just seems a little bit more like I
could see that like.
Speaker 1 (30:23):
A real you know, we're changing the world.
Speaker 2 (30:25):
You can have a real mission statement when it comes
to this. But I can't remember what exactly.
Speaker 1 (30:30):
Pay one hundred million dollars, that's really important?
Speaker 2 (30:32):
That's true. I would take one year at one hundred
million dollars and I'd probably leave. What's what I'm saying, Yeah,
we're in alignment.
Speaker 1 (30:41):
I feel like, Okay, so I feel like that's why we.
Speaker 2 (30:45):
Both picked up the phone call from Mark.
Speaker 1 (30:46):
Zuckerberg, and that was The Money Stuff Podcast.
Speaker 2 (30:52):
I'm Matt Levian and I'm Katie Greifeld.
Speaker 1 (30:54):
You can find my work by subscribing to The Money
Stuff newsletter on Bloomberg dot com.
Speaker 2 (30:59):
And you can find me on Bloomberg TV every day
on Open Interest between nine to eleven am Eastern.
Speaker 1 (31:04):
We'd love to hear from you. You can send an
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Speaker 2 (31:11):
You can also subscribe to our show wherever you're listening
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Speaker 1 (31:17):
The Money Stuff Podcast is produced by Anna Maserakus and
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Speaker 2 (31:21):
Our theme music was composed by Blake Maples.
Speaker 1 (31:23):
Brandon Francis Newnham is our executive.
Speaker 2 (31:25):
Producer, and Stage Bauman is Bloomberg's head of Podcasts.
Speaker 1 (31:28):
Thanks for listening to The Money Stuff Podcast. We'll be
back next week with more stuff
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:08):
Should I give a really quick bird update? Oh yeah,
Well we put out the cliff Astness episode, which was
very well received, but we did get a few comments
about where they're not being a bird update really quick birds. Yeah,
the birds doing really well, flying really well. We need
(00:31):
to work on perching. So he's in a big.
Speaker 1 (00:33):
Room's interesting is regressed on perching?
Speaker 2 (00:35):
Well, the thing is, it's hard. He's very comfortable perching
on people. He's very comfortable perching on his cage. I
put in an old cat tree that I had at
my parents' house in the room where he is. He
refuses to perch on it. And so if you open, yeah,
you probably wouldn't purchase the catch. Yeah maybe, I mean
(00:56):
my cat hasn't touched it in several years, so I
thought maybe the cats I'll never never. I think I
need to get.
Speaker 1 (01:02):
Like you owner ever and terror I can tell you
the cat.
Speaker 2 (01:06):
I think I need to get him like an indoor
potted tree or something, because if you open the cage
and then run to the other side of the room,
he will fly directly to you. He will not land
on anything other than his cage and humans. So we
need to work on that. Also. We're calling it a
heat but it could be a lady bird.
Speaker 1 (01:24):
Is this whole project still in the service of like
one day releasing or herd into the wild, or is
it more just like I think, be nice if he
wasn't clinging to your shoulder all the time.
Speaker 2 (01:35):
I think given that it's so attached to humans, it
would be very hard to release this bird right now.
It won't perch. I mean, we'll see when we get
in a tree if it'll perch on the tree.
Speaker 1 (01:43):
I guess I'll stop asking that question. I guess that's
just your bird now.
Speaker 2 (01:47):
Yeah, and its name is bird.
Speaker 1 (01:52):
Hello, and welcome to The Money Stuff Podcast. You're a
weekly podcast where we talk about stuff related to money.
I'm Matt Levie and I write The Money Stuff Calm
for Blue Our Opinion, and.
Speaker 2 (02:01):
I'm Katie Greifeld, a reporter for Bloomberg News and an
anchor for Bloomberg Television.
Speaker 1 (02:06):
Katie, I came to you this week and I was like,
I want to talk about ETFs, which sounded really sounds great.
And I was like, I want to talk about autocollable
ets and You're like, Nah.
Speaker 2 (02:14):
You know that's the thing. It really feels like a
monkey's paw situation or something. I should be psyched.
Speaker 1 (02:20):
The thing this is the thing. The thing about ETFs
is that eventually all of financial products and ultimately all
of human existence will be sucked into an ETF. And
like you have to be able to roll with all
of the possible forms of ETF.
Speaker 2 (02:35):
I you know, I'm like super comfortable with the idea
that you know, there's structured products in ETFs. Yeah, I
know what for ETF is. The concept of an autocollable
ETF is a little bit of a tougher too. But
the first one launched this past week. Yeah, Calamus Kalamos
with JP Morgan is the swap counterparty.
Speaker 1 (02:54):
Yeah.
Speaker 2 (02:55):
So you did a breakdown in your Money Soff column
about how's theoretic this would work. You provided an example.
Some don't quite get it, okay.
Speaker 1 (03:04):
So, like, if you're a JP market, you're in the
business like manufacturing products that clients want to buy. One
thing that clients come to with a lot is we
would like to hedge our stock market risk. It would
be nice if when the market crashed we could get
(03:26):
some insurance. And so there's a big business in manufacturing
insurance against market crushes because like fundamentally most people, most
investors are long equities and they want to have insurance.
Someone want to have insurance against the market crush, and
how do you manufacture that insurance because no one's to
sell that insurance, right, Like who wants to be in
the business of saying if the market crashes, I'll give
(03:48):
you money, Like it's a terrible wrong way situation to
be in. And so a lot of like the world
of like equity to rotistrating is figuring out how to
manufacture that sort of market risk insurance crash insurance. And
there are ways to do it, like the dispersion trade
and hedgephones is like a gibeis are closing. It's all
(04:10):
a complicated way to take single stock ball and turn
it into index vall so that you can sell people
insurance against market crashes. But like a classic way to
do it is to say, we're going to have retail
investors sell us insurance against market crashes. And the way
retail investors sell insurance is essentially they buy bonds and
(04:32):
the bonds, you know, they put it in one hundred dollars,
they get back one hundred dollars plus like a very
high rate of interest, except if the market crashes, they
get back like nothing or they lose money. Right, so
the thing they buy is sort of a catastrophe bond
for market crash, Like if the market crashes, they don't
get back all their money, and the money they don't
get back gets used to pay someone else's insurance. One
(04:55):
of the main like the classic form of that is
called an auto callable. It's just like the name of it,
but it's basically you put in money. If the market
stays flat or up or even goes down a little bit,
you get back like one hundred and fifteen cents on
a dollar in a year. And if the market goes
down a lot, you know, you lose the amount of
the market crash and you know, and JP Morgan sells
that to you gives them index volatility that they can
(05:18):
turn around and sell to you know, institutional clients who
want a hedgeance market crash. So that is the autocoll.
It is a classic structured note structuring product that like
banks love to sell to you know, retailer high night
Worth investors. And now it's going into an ETF, which
(05:39):
was inevitable.
Speaker 2 (05:40):
I mean buffers have been so popular.
Speaker 1 (05:43):
Yeah, I think actually the press release for this ETF
said something like, this is the latest play for a
boomer candy pretty just like just the name of these
kinds of ETFs. Now. Yeah, And it's like a little
bit similar to a buffer in that it's like a
fixed income replacement that like maybe has a little little extra.
Speaker 2 (05:58):
Juice but even still on. And you know, I'm prepared
to be proven wrong, but I feel like this is
a tougher sell like buffers, I.
Speaker 1 (06:05):
Should say, it's different from a buffer. And then a
buffer is buffered, and this is like, yeah, in a crash,
you lose your money.
Speaker 2 (06:11):
Yeah, a buffer is okay, you're giving up upside, but
you're going to be cushioned buffered on the downside.
Speaker 1 (06:16):
That it was like you're getting a nice coupon, yeah,
except in bad states of the world, in which case
you there's a lot of money. Yeah.
Speaker 2 (06:22):
So I don't know, I mean, who is this for?
Like I hear them, I love them, I know, I know,
I just wonder, like.
Speaker 1 (06:30):
Obviously, like you know, I sold the agent high net
worth investors. And there's a story a while back that
I remember I quoted about Korean autocollables or some brokers
as something like no one's ever only bought one. Once
you buy them, you keep coming back from more because
they're so great, love them so much, and it's like,
you know, you think of the profile of it for
a second and you're like, yeah, of course that's true.
Speaker 2 (06:49):
Right.
Speaker 1 (06:49):
You keep buying them because you get paid a fifteen
percent yield. You keep buying them until there's one crash
and then you stop. Right, yeah, maybe, yeah, but right,
it pays a fifteen percent yield and most of the
market crash of the crashes.
Speaker 2 (07:01):
Yeah, So Kala Mos is first out the gate. I
think you have. Innovator and First Trust have also filed
for similar products. It's interesting that JP Morgan hasn't JP
Morgan sort of pioneered this category in the ETF space,
this derivatives power to find outcome space. They have Jeppy,
which is a household name in my household. Maybe not
(07:23):
in years, but then you know, there were a bunch
of Jeffy copycats, and you've also seen buffers rise up
in the last few years. But I don't know, it's
somewhat interesting to me that you know, it's not JP.
Speaker 1 (07:35):
Morgan that's well, JP Morgan is the swap count of party. Yeah,
which means that their vall that is being bought. They're
buying the vall from the retail customers to sell to
their institutional customers.
Speaker 2 (07:45):
Yeah. Yeah, but they're not the ones headlining the CTF necessarily.
Speaker 1 (07:49):
Yeah right. I never fully understood the structured nets business.
But like part of it is like the retail and
high not worth like private wealth bankers are sitting around saying,
like what can we sell to our customers to make money?
And then part of it is like the institutional vault
traders are sitting around thinking where can we get some
voll and like there's a meeting of the minds. So
(08:10):
here like the you know, the JP Morgan valltraders are happy,
even if they're not like making the DF fee. I mean,
they're making some sort of fee on your point about
who's this is four? Yeah, I read about this this
week and it reader emailed me, so remind me of
there's a catastrophe bond etf.
Speaker 2 (08:24):
Yes, I love IOLs is the taker iOS and launched
without a lead market maker.
Speaker 1 (08:31):
Yeah, and there's like a Bloomer article about it from
April saying the securities can be a hard cell for
retail investors who have never before had to price the
risk of a typhoon or earthquake. Ei way, they're not
pricing it now, they're a price taker. But anyway, they
quote someone saying the asset class does itself no favors
by having catastrophe in the name. At least it's clear though.
(08:51):
At least you kind of know like the basic contours
of what you're doing when it's this catastrophe in the name. Here,
it's called an auto callable, which is like tells you nothing,
and you know it's a big like headline, Yeah, this
is how much yell do you? And you're like, oh,
y old to create it. Then you're like, oh, I
can lose all my money. Yeah. Also, it's like if
you're into this sort of thing, which I know you're not. No,
(09:12):
you're into the sort of thing. It's really cool because
it's like the structure of it is basically you know,
it's an autocol, so there's like knock in and knockouts
and stuff. Basically, if the index is down forty percent
is when you start to lose money. Like instead of
getting a nice coupon.
Speaker 2 (09:26):
It's like very rarely happens.
Speaker 1 (09:28):
Okay, you say that. Yeah, the reason you say that
is because you and I and probably mostly who'll buying
it have an intuition of what the index is. But
the index that they use is not the S and P.
The index that they use is a like volatility targeted
S and P. Oh, So basically they like lever the
S and P to get you to a thirty five
(09:49):
percent volatility. Okay, essually in the ballpark of two x
leverard a little more than two x LeVert So a
twenty percent drop in the S ANDP is not that
common either. But it's like it's yeah, and like you
see forty percent, like forty percent that never happens, but
like the innex reps like twenty ish percent, you lose
forty percent of your money. So it's like the structure
(10:10):
is not like a lot of structure notes. It's like
you can tell the story and I supposed you know,
you're like if the market is down twenty percent, you
lose twenty percent. It's like very easy to understand here.
It's like you get this nice yield and sometimes you don't.
And it's not like when the market is down twenty percent,
it's like, yeah, like it it's like math and like
sometimes you don't. Yeah, so it's an intuitive product for
retail investors.
Speaker 2 (10:30):
Yeah, I'm interested to see if. I mean, just given
how popular these types of ETFs would be if we
were recording this in twenty nineteen, which we wouldn't, but
I'd beel like, oh, who's going to buy this? But
I don't know what could happen. It could see some uptick,
but I really get it, So we'll see. Like, if
you can't explain it in an elevator ride.
Speaker 1 (10:49):
You can explain it. It plays a high yield except
when the market crashes.
Speaker 2 (10:52):
Except when the market crashes. Yeah, but it's you know,
if the index is about.
Speaker 1 (10:55):
This level, if it's paying numbers, it's hard to explain.
But well, yeah, a lot of stuff. It's not like
floors and caps and everything. It's just like phase fifteen percent,
except when the market's down more than this x percent.
Speaker 2 (11:09):
Something else that was wondering. You know, this has typically
been the domain of you know, high net worth individuals
who was making less money as a result of this
being put in the ETF wrapper, Like does JP Morgan
care if they're selling these two calamos versus selling this
in some other structure.
Speaker 1 (11:29):
I always used to have the impression that structured notes
had very juicy fees. Yeah, but I actually I think
it's like kind of a competitive business that's not that juicy.
Speaker 2 (11:37):
Yeah, well this ETF charges like seventy four basis points.
Speaker 1 (11:41):
Yeah, but like with anything like this, like there's a
lot of mouths to feed, and like, yeah, they're doing
a swap with japing Organ, which is probably a JP
Morgan expects to make a certain amount of money and
then swap. I don't know, it's hard to exactly compare
the pricing of those to a structured note, But I
don't get the sense that, like I think deserve these
are a comparable products, right, Like these are sort of
(12:02):
advisor sold like upper end retail products, and so like
you know, they're all kind of competitive spaces. But this
is not like wildly undercutting some super lucrative, uncompetitive business,
right Like the structured notes is like everyone's kind of
in on that game.
Speaker 2 (12:17):
Okay, good, you were worried JP Morgan is in losing
out on anything. Yeah, to move onto the next JP
(12:37):
Morgan story, I guess the prior credit trading story private
credit trading.
Speaker 1 (12:42):
It's so good. Yeah, so right. There's a Bloomberg story
this week by Ellen Schneider and Carmen.
Speaker 2 (12:47):
Araya, A bad how, such a fun read.
Speaker 1 (12:49):
Japi Morgan has stood up this entire private credit trading desk,
which is so smart, like getting in early on what
is quite plausibly going to be the next bank line trading,
like a huge business. But unfortunately they don't do any trade.
Speaker 2 (13:02):
No one wants to trade with them.
Speaker 1 (13:04):
Now you have to start.
Speaker 2 (13:05):
Yeah, yeah, it's.
Speaker 1 (13:07):
Not that no one wants to trade with them. The
product doesn't trade. Yeah, that's not entirely true. Some of
it is that no one wants to trade with JP Morgan,
And like there are some private credit firms trying to
stand up trading desks, and like maybe it's just the
competitive dynamic, but I think ninety five percent of it
is that these loans don't trade and people don't want
them to trade. Yeah, and so JP Morgan constantly sends
(13:30):
out runs saying we're looking to buy five million dollar
chunks of like these forty loans, and here are our bids,
and everyone's.
Speaker 2 (13:37):
Like thank you, shooting out those runs into the void, and.
Speaker 1 (13:41):
Then they're calling and saying, hey, I just want to
see if you got my run and I was like, goodbye, God, Yeah,
it's really bad. It's great.
Speaker 2 (13:48):
The human psychology of that is just brutal, I know,
but it's what you got to.
Speaker 1 (13:51):
Do, right, And you know that, like the people doing
that are like, well, this is my shot at like
being the person who invented a whole new category and
bringing in, you know, hundreds of millions of dollars of
revenue and being a superstar. But one, it's not guaranteed
that will work out. And too, it is guaranteed that
before it works out, I will spend a lot of
time could calling people and getting nowhere right.
Speaker 2 (14:13):
Yeah, And I mean as a journalist I sympathize. Yeah, jeez, Louise,
I hate could.
Speaker 1 (14:18):
As a not very good investment banker in my former life,
I think about like how long one could have zero
in one's p and L. Yeah, you know, like they've
got some run back, right, No one's expecting them to
do a lot of trade this month. Yeah, at some
point someone will be like, hey.
Speaker 2 (14:33):
Guys, well there's a few interesting reasons in the article
that are raised for why JP Morgan is getting shut
out one is that the private credit firms want big
banks to stay out of their turf.
Speaker 1 (14:45):
Like, I don't think that's the main reasons presented as
a reason. That's part of the competitive dynamic of like
we want to free that bank, and that might be
part of it. I think the main reasons m hm, Okay,
So I think like an important reason that the article
highlights that I think is the second most important reason
is that this is what Cliff was talking about when
he came on.
Speaker 2 (15:02):
Like nice callback.
Speaker 1 (15:03):
Private markets are very attractive to a lot of investors
because they are less volatile than public markets. And if
you think about that for a fraction of a second,
or if you talk to Cliff, you'll be like, wait, magic,
they're not actually less volatiles. They don't trade, so you
don't see the fluctuations and the values that you see
in public markets because they trade constantly and so nonetheless,
(15:26):
like you know, as Cliff has written about, like there
is for some classes of investors, like a real value
in not having to mark down your positions. Yeah, and
if private credit loans traded constantly in a liquid market
that everyone could see, it would be harder to not
mark down your positions. When they went down in the market. Yeah,
(15:48):
and then some of the perceived advantage of private credit
would go away. And nobody trying to stuff private credit
into four one case it's going to be all that
excited about like increasing the volatility of the market. So
that is I think the second most important reason still.
Speaker 2 (16:04):
I mean, you have Apollo trying to do that, trying
to make trading a thing, but they're also trying to
shove private credit into four to one case.
Speaker 1 (16:12):
Yeah, so this is the tension, right, Like you don't
want volatility, yeah, but like you want retail customers, and
it is hard to build a retail product that is
completely a liquid yeah, but it makes sense. There's like
an economic intuition for like you can put private credit
into your four oh and K or your target date
fund and you'll know with certainty that you won't need
(16:32):
the money for thirty years, so that you can take
the ill liquidity risk. You don't need liquidity because you're
a long term saver, right, But nobody actually believes that
because like retail is like it's hard to lock up
retail for ten years, right, and so in practice to
have a retail product, you need something like at least
an interval fund and maybe an ETF right and an
(16:53):
ETF if you need trading, right, like you need to
be able to trade this stuff. So yeah, like there
is definitely a push for trading a private to get
it into retail. It's all right, so becuse the other way.
But I do you think the most important reason that
it's hard to trade private credit is that the deal
that private credit firms are offering to borrowers like private
equity sponsors is we will look you in the eye
(17:17):
and write you this loan, and we will own that
loan for the duration of the loan, and if you
have problems, you come to us, and like, we won't
be jerks because we're repeat players in this game. And
so once private credit trades, like you know, there's opportunities
for vulture funds and activists and like you know, loan
to own investors, and so it's less pleasant for the
(17:39):
private equity sponsors. And so you know, as they say
in the article, you know, unlike most bonds, private credit
loans require the approval of the lead lender and the
private equity sponsor to trade. So even if JP Murrien
could get someone to sell them, they'd have to go
to the sponsor and say, hey, can we buy this loan?
The sponsor could.
Speaker 2 (17:58):
Say no, yeah, which they have veto power. Basically, Yeah,
it's not.
Speaker 1 (18:03):
Just veto power. It's not just like we don't want
our loans to end up in the hands of like
activists we're scared of. It's also just like we want
our loans to be held by five people we negotiated
with rather than like any random person. Yeah, because we
want to be able to have a relationship with them
if we need to you know, extend or refinance the loan,
(18:24):
or you know, we run into problems or we need
to restructure, Like, we want to be able to talk
to people who we know and who like we have
a long term, repeat relationship with, rather than you know,
some random CLO manager. Yeah, and so that makes it
hard to trade re regret it.
Speaker 2 (18:40):
So how does this evolve? I know that you're in
the camp. It seems that it kind of feels inevitable.
Speaker 1 (18:46):
Yeah, I think so, But there's like a real cut argument.
Speaker 2 (18:49):
Yeah, and you also have I mean, like you said,
the private equity sponsors don't want this. You also have
like the likes of Blual who thinks that private should
stay private. I mean, like, how do you see this evolving?
Will there be a corner that remains in the shadows,
or do you think that everything eventually will be out
in the open and traded.
Speaker 1 (19:08):
You know, I think it's going to be contractual, and
so like, you know, you see a little of this in
the probably syndicated load market, where some loans are very
restrictive about who can buy them. And for the most part,
people think of the proably syndicated load market as like,
you know, kind of trading, and like banks have trading
desks and it's trades and it's you know, you can
get like marks and stuff, but it's not as like
what is the bond market, And like some loans you know,
(19:30):
have long restricted lists where people can't buy it. You
can have that in private credit, right where like some
sponsors some deals don't trade very much because they're very restrictive,
and other people say, I don't really care. I will
get a better price if I allow more trading with
my loans, and so I'll just take the better price.
And it's like interestingly, like there aren't that many private
(19:54):
credit firms and there aren't that many private aquity sponsors right,
Like it's all kind of like oligopolistic, and you could imagine,
like you know, people just come into arrangements and say, okay, fine,
well well you know, or like you have your reasons
for borrowing from firms that really don't allow trading, or
you have your reasons for buying from firms that love trading,
and like, you know, you could maybe you get a
(20:15):
better price with more liquidity and you know all the
other stuff. Yeah. Another possibility then a couple of reader
emails about this is like you can sort of like
halfway allow private credit trading where instead of selling the
loan to someone, you sell like a participation in the
loan where the original lender keeps like the servicing rights
(20:36):
and keeps the relationship with the borrower, but someone else
is buying the economic value of the loan. That's like
sort of a compromise that might work, and might you know,
give you some of the things that you want, like
letting the original lenders cash out a little bit or
de risk a little bit. It's like a little hard
to imagine because like with leverage loans, a lot of
what people do want is like the control rights and
(20:58):
the servicing rights and the ability to like have a
seat at the table in the restructuring. But maybe that's
the way I've heard to.
Speaker 2 (21:03):
Get Yeah, it'll be fun to find out, Katie.
Speaker 1 (21:20):
This is my last podcast.
Speaker 2 (21:21):
Because because you got the call from Mark.
Speaker 1 (21:24):
Zucker from too, I think it was fake.
Speaker 2 (21:28):
There. It's hard to know because apparently we're not alone
in thinking that our Mark Zuckerberg calls were fake.
Speaker 1 (21:36):
I'm just kidding that in fact it is.
Speaker 2 (21:38):
Oh, I'm not knowing, No, I'm kidding.
Speaker 1 (21:40):
Does seem to be the case that every single day,
every researcher in the world has gotten Mark Zuckerberg sliding
into their dms. Yeah, and ninety five percent of them
have been like, that's not Mark Zuckerberg, which is weird, right, Yeah,
which is weird because I don't know, it's so weird,
Like just the concept no, the job market. Oh yeah,
(22:01):
I was writing a little bit about this, Like I'm
used to like the financial industry, where the job is
to pay people enough that they don't live for your competitors,
but not so much that they leave to like sit
on a beach, right, Right, you need them to still
want more money but not be able to get it elsewhere, right,
And like you know, there's like a range, right, Like
(22:22):
there's like if you pay them more than X, they
won't go to your competitors. And if you pay them
less than why they won't quit to go to the beach,
And like you know why is go to the next
In AI, it's like it's flipped in AI. To out
compete your competitors for the best AI talent, you need
to pay the best aay Italian one hundred million dollars. Yeah,
(22:43):
and I'm like to like a twenty eight year old,
right if I love my job.
Speaker 2 (22:50):
But yeah, for sure if I got a.
Speaker 1 (22:51):
Hundred million dollars, I wouldn't do it anymore.
Speaker 2 (22:54):
Yeah, yeah, that's true.
Speaker 1 (22:56):
That's too much money. So are you don't need to
work anymore?
Speaker 2 (22:59):
Are you applying it's just more important that they don't
work at open AI?
Speaker 1 (23:03):
What do you mean?
Speaker 2 (23:04):
Listening to you talk, it sounds like you're saying that
Mark Zuckerberg is hiring these people just so they're not
working in a working It's.
Speaker 1 (23:11):
Very bizarre to me. I assume there's some sort of
like structure on their compensation where they don't just get
a bag of money on the first day and then
but no, I don't think he's like hiring them to
get them out of open AI. I think he's genuinely
trying to build a giant AI research.
Speaker 2 (23:24):
Project, super intelligent you, and it's.
Speaker 1 (23:28):
Apparently intended to include every AI researcher in the world
at one hundred million dollars a pop. And it's amazing.
Speaker 2 (23:34):
I think their desks are also going to be close
to Mark Zuckerberg. They're going to be physically close to
him as well.
Speaker 1 (23:39):
They're going to be made out of diamonds. I truly like,
I'm used to finance, but like in tech, it's like
a famous concept of like resting investing right, Like it's
famously like there are people who, by virtue of being
early employees at successful companies, don't need to work anymore. Yeah,
in an AI there only those people. Every person who
(24:02):
works that A doesn't need to work anywhere. It's so strange.
I'll be really motivated by building AI.
Speaker 2 (24:08):
Yeah, I mean, I just find I'm exaggerating.
Speaker 1 (24:10):
I'm sure there're like some listeners who are like, I
don't think it paid like eight million dollars a year
and I work in AI, and it's really like, you're
really exaggerating. I agree, I'm really exaggerating, but you keep
reading story by Peep forgetting Yeah, really enormous.
Speaker 2 (24:21):
It's super disheartening.
Speaker 1 (24:23):
I find I love when people get paid a lot
of money. It's just like rising times left all.
Speaker 2 (24:27):
But it's just a good guy. I find Mark Zuckerberg
just a fascinating individual. I find Meta fascinating as well.
You know, Meta used to be called Facebook, and then
he spent so much money on the metaverse tanked the stock.
This was a huge thing, like how much money he
was funneling in for no return. Then they had to
(24:49):
do the Year of Efficiency or whatever. They fired a
bunch of people. I do wonder if we're watching this
build up again when it comes.
Speaker 1 (24:57):
Specifically, it's a general matter. I kind of think that
like AI is the real version of like the meta
the metaverse, or the fake version, you know, like yeah,
I don't.
Speaker 2 (25:08):
Know, MANKI is more real than the metaverse, like the
grown up version.
Speaker 1 (25:13):
I just feel like you can look look at like
the ll ms and like ask them to do useful things,
and they do useful things and like oh that was useful, right,
and then like the metaverse, it's like I don't have
legs in a video, you know.
Speaker 2 (25:24):
Like here's the Eiffel Tower, right.
Speaker 1 (25:27):
Like the metaverse was obviously intuitively stupid the whole time.
Speaker 2 (25:30):
I don't know, he spent so much money. No, we're
not cutting this, this is good. I don't know if
I've made this point on the podcast before, but I truly, truly,
truly believe that if he had just waited, like a
year or two, it would be AI Platforms. I feel like,
in his part of heart, does he regret naming it
meta platforms.
Speaker 1 (25:49):
I would like it at another like meta platforms is
a fine name for whatever nonsense you're doing, Like it's fine.
Metaverse platform is terrible that meta like meta.
Speaker 2 (26:00):
Yeah, I feel like everyone has kind of forgotten that
the metata I agree that. I do seriously wonder though,
if we're watching round two of this though this build up,
and that in a couple of years, maybe we're going
to be talking about massive layoffs and you know metasi.
Speaker 1 (26:17):
Researcher speakcause like if it stops being fun, they'll just
leave because they have one hundred million dollars.
Speaker 2 (26:23):
That's true, that's true. It is interesting to contrast how
hard Mark Zuckerberg and Meta are going at AI versus
like Apple, where the narrative is very much that they've
fallen behind. And then you think about Microsoft, which has
just been shedding thousands and thousands of jobs.
Speaker 1 (26:41):
Like Meta stands, Microsoft has like the open air well
sort of it's like complicated, but Microsoft sort of has
like you know, open ai as its AI horse.
Speaker 2 (26:50):
Yeah, yeah, that's true, just simply making the point that
like Meta is moving in a lot of different ways
than some of its magnificent seven peers.
Speaker 1 (26:59):
Sure right, No, I'm sure that a lot of the
piers are having the same thought you are, which is like,
spending billions and billions of dollars to hire twenty people
is surely not an efficient, yeah way to do anything.
Speaker 2 (27:14):
But seems like shareholders are on board for the time being. Though.
Speaker 1 (27:20):
I think enough reasonable people think there's some sort of
like winner take all aspect of this that it's not
insane to be like we're going to spend billions and
billions of dollars to hire every AI researchers that no
one else can have them. I mean, it's a little insane,
but it's like it's within the parameters. I do want
to say. I've been talking about people get paid one
hundred million dollars. But that's not the cap. There's like,
(27:41):
what is it scale AI that they bought.
Speaker 2 (27:44):
Yeah, that's the other story.
Speaker 1 (27:45):
I've bought for fourteen billion dollars. Yeah, of which not
all of it goes to the handful of founders they wanted.
But those people are getting paid more than one hundred
million dollars to come work from META. It's not called salary,
it's called like acquisition.
Speaker 2 (27:57):
But I think you jokingly referred to twenty eight year olds,
but isn't the co founder?
Speaker 1 (28:04):
This is the thing, Like, for one thing, these salaries
are so much higher than like twenty eight year olds
usually get paid in like the financial industry. But for
another thing, like I choked about this, but it's kind
of true. Like you work in finance, Like you start
out making like a nice living, but like you see
everyone around you with like their compounds and amagansett and
you're like, oh, I want that, And then like as
(28:26):
you move up the ladder, you get paid like millions
of dollars, but you're like, I need more millions of
dollars to have the lifestyle that I've come to expect.
Right in Hay, like all these people started two years ago,
they don't need anymore.
Speaker 2 (28:39):
I don't think it's like this are so just retire.
Speaker 1 (28:42):
It's just like finance is a good job of creating
the wants in people. Yeah, that lead them to want
to keep working even if they're making tens of millions
of dollars a year. Yeah. I guess that's true in
the tech industry too, but it seems less reliable. Like
all these people are right out of grad school and
they're getting paid hundred million. They weren't getting paid hundred
million dollars five years ago. They weren't starting at firms
(29:04):
where Yeah, like the CEOs of those firms were making
hundreds of millions of dollars because five years ago the
AI people weren't making hundreds of millions of dollars.
Speaker 2 (29:12):
This is vaguely reminding me of a conversation I believe
that we had on this podcast a couple of weeks
ago about how it feels like every tech founder or
like social media site, like there has to be like
some element of like we're saving the world or like
we're changing humanity or something like that. I wish I
could remember what exactly we were talking about, And I
(29:33):
think I made the point, or at least I was thinking,
like I wish that they would just say I'm making
a social media site that I'm going to sell ads
on or something like. I feel like with these people
that are making so much money, though maybe it is
true that like they view their mission is like higher than.
Speaker 1 (29:50):
Well, I think that AI, I mean whatever, Like I
think AI is like there is some level at which
you are like ultimately selling ads on social media sites,
but like not that it's not.
Speaker 2 (30:05):
As much Yeah, no, no, no, no.
Speaker 1 (30:08):
I think that like there are a lot of gradios
claims about like the effects on humanity of like you
know these l ms, but is something that's true. Yeah,
it seems like a more fundamental thing to work on then, No.
Speaker 2 (30:19):
This is just seems a little bit more like I
could see that like.
Speaker 1 (30:23):
A real you know, we're changing the world.
Speaker 2 (30:25):
You can have a real mission statement when it comes
to this. But I can't remember what exactly.
Speaker 1 (30:30):
Pay one hundred million dollars, that's really important?
Speaker 2 (30:32):
That's true. I would take one year at one hundred
million dollars and I'd probably leave. What's what I'm saying, Yeah,
we're in alignment.
Speaker 1 (30:41):
I feel like, Okay, so I feel like that's why we.
Speaker 2 (30:45):
Both picked up the phone call from Mark.
Speaker 1 (30:46):
Zuckerberg, and that was The Money Stuff Podcast.
Speaker 2 (30:52):
I'm Matt Levian and I'm Katie Greifeld.
Speaker 1 (30:54):
You can find my work by subscribing to The Money
Stuff newsletter on Bloomberg dot com.
Speaker 2 (30:59):
And you can find me on Bloomberg TV every day
on Open Interest between nine to eleven am Eastern.
Speaker 1 (31:04):
We'd love to hear from you. You can send an
email to Moneypod at Bloomberg dot net, ask us a
question and we might answer it on air.
Speaker 2 (31:11):
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 1 (31:17):
The Money Stuff Podcast is produced by Anna Maserakus and
Moses onam.
Speaker 2 (31:21):
Our theme music was composed by Blake Maples.
Speaker 1 (31:23):
Brandon Francis Newnham is our executive.
Speaker 2 (31:25):
Producer, and Stage Bauman is Bloomberg's head of Podcasts.
Speaker 1 (31:28):
Thanks for listening to The Money Stuff Podcast. We'll be
back next week with more stuff
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