October 10, 2025 • 32 mins
Katie and Matt discuss finance book parties, the ICE/Polymarket deal, understanding and pricing the future, the Grossman-Stiglitz paradox, prediction-market spillovers, sports quants, tokenization, the OpenAI/AMD deal, discounting the AI future, AI pricing power, Cathie Wood’s emotional maturity, the ETF ecosystem and the Midnight Madness puzzle hunt.
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Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news. One day we're gonna
touch on the thought situation.
Speaker 2 (00:11):
Jesus, but no, I'm too frou.
Speaker 1 (00:15):
We can have a possum update.
Speaker 2 (00:17):
Yeah, tell us about the possum. You cleaned it up.
Speaker 1 (00:19):
I cleaned it up. That's that's really the update. I
don't want to say that this show is my therapy,
because it is truly not that this show.
Speaker 2 (00:28):
Is what you talk about in therapy.
Speaker 1 (00:29):
But it isn't the case that, Like, as I was
talking about the possum last week, I knew that editors
were not going to cut it out and that I
was using it as a commitment device to finally make
myself just go out there and shovel up the dead
possum in my heart. Im. That's if you didn't listen
to the last week's episodes.
Speaker 2 (00:50):
Yeah, wow, this would be horrifying. Go back listen to
that or don't interest it's interesting.
Speaker 1 (00:55):
This is just like this is the like skip ahead banter, Awa. Yeah,
I cleaned up the possum. And then then my wife
was like, I listen to your podcast, I learned about
the possum.
Speaker 2 (01:06):
That's a good test to find out if your spouse
listens and tests. I don't. I don't think Joe listens
because he didn't call me out on the fact that
I just wait for him to notice the vomit from the.
Speaker 1 (01:18):
See he knew that. Yeah, this is like densely packed
with references.
Speaker 2 (01:23):
Yeah, a lot of callbacks.
Speaker 1 (01:24):
Yeah.
Speaker 2 (01:25):
He probably also knows that because sometimes I'll say, Hey,
the cat vomited again, could you co get that right?
Speaker 1 (01:32):
And other times you'll be sitting pointedly facing away from
the cat vomit and he'll be like, I know that,
you know there's cat vomit there, and you're like, what, we.
Speaker 2 (01:43):
Have a cat psychological warfare.
Speaker 1 (01:47):
Hello, Welcome to the Money Stuff Podcast. You're Herley podcast
where we talk about stuff. I led it to Money.
I'm Matt Levine and I write The Money Stuff Colum
from Bloomberg Opinion.
Speaker 2 (01:58):
And I'm Katie Greyfell, a reporter for Bloomberg News and
an anchor for Bloomberg Television.
Speaker 1 (02:04):
Polly Market. Yeah, so Bloomberg News. How a story this
week that Shane Coplin, the founder of Polymarket, is now
the world's youngest self made billionaire, which.
Speaker 2 (02:22):
Is cool for him, definitely.
Speaker 1 (02:24):
Shane Coplin lives or used to live next door to
a guy who throws a lot of book parties for
finance books. Oh, so you can see him like all
the finance book parties.
Speaker 2 (02:34):
That's your kind of hangout.
Speaker 1 (02:36):
Sadly, yes, and so yeah, I've seen Shane Coplin at book.
Speaker 2 (02:39):
Parties and you've rubbed elvas.
Speaker 1 (02:41):
I've rubbed Elvas. And when I saw that article, I
thought youngest self made billionaire. I realized that Shane Coplin
is the second world's youngest self made billionaire to be
in my phone context. It's not like an entirely positive development.
Speaker 2 (03:01):
For right now. It is a positive development for Shane.
Will continue to watch this space.
Speaker 1 (03:05):
It is also he did at the right order though
first he was investigative by the government, and now he's
a self made billionaire.
Speaker 2 (03:11):
I was going to say, I forgot that it was
less than a year ago that his apartment was rated
by the Yeah, fast forward to October twenty twenty five,
he's super rich. ICE. Of course, the news from this
week was that they invested.
Speaker 1 (03:25):
The inter Intercontinental Exchange.
Speaker 2 (03:27):
We're not we're using government names.
Speaker 1 (03:31):
ICE can mean a number of things. Anyway, gone anyway.
Speaker 2 (03:33):
Ice, the Intercontinental Exchange investing two billion dollars in polymarket.
That gives it an eight billion dollar valuation. Pretty stunning.
And it was just last week that we were talking
about how prediction markets are eating everything and here we
are keep.
Speaker 1 (03:50):
Going yeah right, it's funny, like I think of Calshi
as a sports gambling site, piymarket, I don't know, probably
market like feels a little pure. Yeah, you know this
the bloomerg story about Shane Complin's like founding a polymarket.
You know, he's like reading economics papers about prediction markets.
(04:10):
I'm thinking this is too good an idea to just
exist on white papers, and like I think he's like
fully committed to the notion of Yeah, but like you know,
they did get into sportscambling. Yeah, and I think that
I'm not sure, but my sense is that it is
hard to justify an eight billion dollar valuation for a
prediction market that is just elections and uh, you know,
(04:36):
who will be a time man of the person of
the year and uh and uh, you know, like just
fun predictions and not you know, for addicted sports candlers.
Speaker 2 (04:43):
I will say that, you know, if you had told
me that Ice had outright bought poly Market for two
billion dollars, I still would have been like, Wow, that's
a lot of money. The fact that it does have
this eight billion dollar valuation also stuck out to.
Speaker 1 (04:56):
Me, Right, I just think that that that valuation discounts
a lot of growth in sports, yeah, and a lot
of margins in sports and not the other thing. But
I'm intrigued, right when you read the announcement, like and
again when you read like Shane Coplan's public statements like like, yeah,
there's sports, but like they're not they're not leaning on
(05:17):
the sports. It's not like Robin Hood saying sportscambling is
an emerging hasset class. Yeah, they're like, eh, we're like
trying to find ways to understand and price the future.
And I think that's like a noble go like like
prediction markets, Like like he's not wrong that, like economists
have talked about them for years, Like the idea of
prediction markets, like providing a set of probabilities about the future,
(05:38):
does seem really socially useful. And my sense was always
that no one had cracked the nut, not of like
creating trading infrastructure or making it legal, but then not
of like making people want to trade it, such that
there was like a big market, a big liquid market
for it, such that professionals would have incentives to make
(05:59):
prediction market prices correct, right, yeah, because like and once like, oh,
let's gamble on whether like you know, the Ukraine War
will end, like I mean, people are but like, it's
not like a fun gambling product and so there's not
a lot of money to be made if you have
good insight into it. And so just the whole thing
has never quite worked right, and like y US presidential
(06:20):
elections where there's a lot of money, but otherwise it
never never feels like it quite works in sports or
you know, sports solve that problem. Yeah, people really want
to gamble on sports, and there's a lot of dumb
money and so there's a lot of value for smart
money to bet against, and so you have incentives to
build good sports prediction models and trade on polymarket and
(06:43):
all kind of works. And then you know, the question
is that does that spill over into the New York
City mayor race or you know macroeconomic variables or like
you know, the Grammys or whatever.
Speaker 2 (06:54):
Yeah, well I do like that. You brought up again
the Grossman s tigletz paragdox in your call them on
this specific item. You're calling back to another column that
you know, maybe the way that we get to that
societal useful information is through the avenue of sports betting
and a lot of people making a lot of noise, right,
(07:17):
Like the gross and.
Speaker 1 (07:17):
Said, what's paradox is the idea that like, you can't
have efficient markets because then no one would have incentives
to trade and make the markets efficient. Yeah, so Lassie
Peterson says that you need efficiently inefficient markets. You need
like just the right level of inefficiency to incentivize people
to make them more efficient. And like the economisty of
(07:39):
prediction markets is like people who have particular insight into
like whether there'll be a war will like trade their insights,
but like who will trade against them? Like who's just
like randomly wandering around like, oh, I bet there won't
be a war, and then like you know, get suckered
by the policy experts and in the stock market, Like
the answer to those questions they're super easy, right, The
(08:01):
answer to like who will trade against the hedge fund
is an index fund who is just blindly managing retirement
money and needs to invest it in stocks, And so
the hedge fund has like someone they know those trade against,
or the answer is like you know a retail investor or, Like,
there's a lot of straightforward answers to like who is
on the other side of this trade that allow people
(08:21):
with a lot of information to make money by trading
and incorporating that information enter prices in prediction markets. It
was never clear who those people were, right, Like, it's
not a savings product, right, Like people don't put aside
one hundred dollars a month in retirement savings in prediction markets,
so there's no like uninformed flow to trade against there.
(08:42):
And it has historically not been a super fun gambling market,
like with the exception of presidential elections and a few
other high profile things. But when you add sports, it
becomes a fun gambling market, and then that just opens
everything up, right, It allows people to make money making
informed predictions at least on sports and then maybe at
most of something else.
Speaker 2 (09:02):
Yeah, I mean just assume that the people who are
betting on sports on the prediction market go into other
markets such as I don't know, elections or weather or
whatever else.
Speaker 1 (09:13):
Well, it's both, right, So it's like, on the one hand,
like do you attract dumb money recreational gamblers to the platform,
and then they're like, well, i'm here anyway, I might
as well bet on election. Its like that seems plausible.
And the other thing is like, you know, if you
are a quantitative trading firm and you have historically traded
like stocks and options, a lot of those people are
(09:35):
now getting sports curious, right, Like they're building sports trading desks.
They're like building models to price sports events. Because it's
like kind of the same skill set, right, It's like
taking machine learning and applying it to a bunch of
data and like using it to predict the future. And
it's like, well, you can do that with stocks, you
can do it with sports. And there's a lot of
money to made. And so some quant trading firms are
(09:59):
either heading into the sports market making business or the
traders are leaving to start sports market making businesses. And
if those people who are trading on traditional sports books
or who are like market making on calci, if those
people start market making on polymarket in sports, it's like
(10:20):
a relatively easy lift for them to add an election column, right,
Like it's a whole new set of data analysis, but
they're already plugged in, you know, they're already like now,
the market structure works. So maybe if you're making money
trading against recreational gamblers on sports and you see election
prices that you think are out of line, you're like, well,
I put a few million dollars on that election too.
Speaker 2 (10:41):
While I'm here, I might as well, Well it's just.
Speaker 1 (10:43):
Right, it's convenient there.
Speaker 2 (10:45):
Yeah, So what does ICE get out of this? I
don't know, That's the thing.
Speaker 1 (10:51):
I mean, one answer is an investment, right, I mean
there's two things.
Speaker 2 (10:54):
Right.
Speaker 1 (10:54):
It's like, if it's the future of sports gambling, that's valuable.
And then like if like the way you trade your
insights into like whether there will be inflation changes from
like trading treasuries to like buying the inflation contract on polymarket,
Like that's a big deal, right, And I don't know
that that is a near term likely outcome. One, it's
(11:18):
a possibility, and two becomes more likely when you partner
with a big exchange firm, you know, like ICE now
when they're thinking about like what kind of like macroeconomic
products should we offer. Now, in addition to like interest
rate futures and bond futures, they can offer predictions of
(11:39):
inflation right, So that's one thing they get is like
the that's like currently in the cards, right, Like the
current situation is like they're going to distribute polymarket data,
which is of interest to people who trade on and
the other think it's tokenization, which who knows. That can
mean a lot of things. Yeah, it could be like
(12:00):
technological infrastructure for like trading ice products, where like instead
of buying great futures, you buy great futures tokens, right,
But it could also mean, like everyone talks a big
game about stock tokenization. Everyone, it's a big game about
tokenizing private companies.
Speaker 2 (12:16):
Right.
Speaker 1 (12:16):
There's a lot of stuff in that space, and like
it is possible that Polymarket, which is crypton native and
kind of fun, is better positioned to do some of
those initiatives than like the New York Stock Exchange, right,
which is the New York Stock Exchange, right, and which
has like if you're the New York Stock Exchange, like
(12:36):
we're gonna make everything tokenized. Like everyone who's already trading
on the stock exchange is gonna be very annoyed. Yeah,
Like Polymarket you can tokenize whatever they want.
Speaker 2 (12:43):
Tokenization has been on my list of things to actually
think about for a while. See, but I haven't gotten there, Matt.
Speaker 1 (12:50):
I've written about it. It's funny. It's like, to me,
tokenization means two things. Like one, there's like some amount
of trading in tradition financial markets. You could change the
back end of the market structure and make it so
that instead of being on some company's ledgers, it's on
a blockchain and you can call it tokenized.
Speaker 2 (13:11):
And it's all a little people that.
Speaker 1 (13:14):
Yeah, it's the sort of thing that like ten years ago,
you'd be like, it'll be a different database for your
interest rate futures. You'd be like, I don't care about that.
But now it's like, oh, it's tokenized, right, So that's
like like one thing is like the actual technological stuff,
and like it's stuff about like how things work together
and how like if you're an hedgephund you can like
move your tokens from one platform to another, and like
you can you know, live in the same blockchain environment
(13:36):
for different kinds of trades, right, Like you can trade
crypto against futures. I don't know, there's like that technological
market structure stuff. And then like to me, it always
seems like when people talk about tokenization what they're always
talking about is getting around securities loss, and that's not
always always true. I don't know that that's what Ice
and polymarket are talking about. It's what Robin is talking
(13:58):
about every time they talk about togonization, right, And it's like,
you see, like people like we should tokenize private companies
so that you can buy shares of private companies without
having them have to go public. It's like, well, that's
not how the securities laws works. But if we call
a share a token, then they don't have to follow
the law.
Speaker 2 (14:13):
Yeah, so he struck me as.
Speaker 1 (14:14):
Wrong, but it might turn out to be empirically correct.
But anyway, so there's two kinds of organization. I've etten
a lot about the bad regulatory arbitrage kind, but like
it's possible, the technological kind is important, meaningful, we'll do something.
Speaker 2 (14:28):
Well, hopefully these initiatives will bear fruit and we can
actually figure out what Ice and polymarket are talking about.
Speaker 1 (14:34):
Yeah, I will say that, I like, I have spent
ten years writing about financial infrastructure firms saying we're doing
a blockchain initiative.
Speaker 2 (14:43):
It's all about the tech, and then like five years later.
Speaker 1 (14:45):
They're like, we have stopped their blockchain initiative.
Speaker 2 (14:47):
Stop asking about it. We don't want to talk about.
Speaker 1 (14:50):
It, right, So it's puzzle tokenization. Is that it's puzzle tokenization.
It's like we're putting the futures on the blockchain and
then five years later we'll stop talking about it. Yes,
I've thought a lot about taking anosition, but I don't
have any I don't know what I mean. It's either.
Speaker 2 (15:20):
I feel like I talked about raboris on this show before. Yeah, yeah,
the snake eating itself. Well, another way of saying that is,
you know, all these big tech companies are just spending
money in a circle, and this week I feel like
that idea was really on display. When you think about
(15:42):
open ai and a m D and the deal that
they inked, it's great. Yeah. Yeah, So my understanding basically
is that specifically with a m D, so they agreed
to deploy a bunch of a m D chips and
as part of that, they're also getting a bunch of
warrants for AMD shares as well.
Speaker 1 (16:05):
Yeah, there's kind of two wild ass ways of it.
I mean there's at least seventeen, but like two wild
asspays of it. One is that open Ai has committed
to spend I don't know the number, but it's like
it's six gigawatts of chips. Yeah, and they've said it's
like tens of billions of dollars per So the open
eye is committed to spend something on the order of
one hundred billion dollars buying chips from AIM and open
(16:28):
A doesn't have one hundred billion dollars. No. One thing
that is happening here is that the market has ascribed
a value to open ai of like, you know, half
a trillion dollars, and that value is sufficiently real that
open and ai can like make financial commitments based on it.
They can be like, yeah, we'll give you a hundred
(16:48):
million dollars for your chips, and they're great, and it's
like everyone's like, yeah, that'll work out right, But like
there's no, it's not in the bank, Like that's like, yeah,
it's five million dollars company, they'll find the money. And
I don't think that's a wrong bet. It's just an
interesting they're able to commit cash based not on the
cash they have, but on their valuation. And then the
other thing that's happening is that like when open ai
(17:09):
says anything about anyone, the stock goes up. And so
when Opening I announces a deal of like we're gonna
send one hundred million dollars on AMTI chips, AMD stock
very predictably goes up. And so knowing that as they
negotiated the deal, they're like, what we should do is
we should take your very predictable stock price rise and
(17:30):
use that to pay for the chips. Right like, essentially,
like AMD shareholders will get excited about AMD having this deal,
and so we'll let the AMD shareholders pay for the chips.
And so that's kind of what happened, which is that
AMD stock we're recruiting this on Wednesday at a stock
is up roughly one hundred billion dollars from where it
was last Friday before they announced the deal, and you
(17:54):
know that'll covers the chips. And open Ai, which as
far as we know, plans to pay cash for these chips. Yeah, yeah,
I don't think the deal is like we won't pay
for the chips. The deals. We will pay for the chips.
But Open Eye is getting warrants for roughly ten percent
of AMD with like vesting conditions, but they're like penny
(18:15):
warrants and so right Now, if you just assume they'll
get all of the warrants, that's like a thirty seven
billion dollar ish yeah, value transferred to open Ai. Yeah,
which one will help pay for the cost of this contract.
And two it is only fair because like they created
all that extra value at AMD, right, Like they're the
ones who by sprinkling their magic dust on AMD, we're
(18:39):
able to make AMD more valuable. And so yeah, they
get back half that value in warrants.
Speaker 2 (18:42):
Yeah. Well two things. So to your point that you
know open ai mentions some sort of whatever with another company,
a public company, their stare price goes up.
Speaker 1 (18:52):
Yeah.
Speaker 2 (18:53):
It makes me think about what we keep talking about
in terms of the private and public markets converging. Obviously,
open Ai famously is not public, but has been making
a ton of waves in the public stock market. The
other thing is, you know what we saw with open
Ai and AMD this week isn't a one off. They
have something similar with in Video, which of course is
(19:14):
a direct rival of AMD.
Speaker 1 (19:16):
Yeah, it's like very different, but it's like from at
a high level, the same thing, Right, it's like we
have a partnership where I think in that case, in
Video is investing in open Ai and then Yeah.
Speaker 2 (19:25):
In video agreed to invest as much as one hundred
billion dollars in open Ai to help open ai fund
a data center build out in Exchange. Open Ai committed
to filling those data centers with millions of in Nvidia chips.
This is a little bit old, but I was reading
this piece from Michael sembelest Over at JP Morgan and
(19:47):
he wrote this at the end of September. But it
spiritually can apply to all of these deals that Oracle
stock jump by twenty five percent after being promised sixty
billion dollars a year from open Ai in amount of
money open Ai doesn't earn yet to provide cloud computing
facilities that Oracle hasn't built yet and which will require
four point five gigwats of power, which is the equivalent
(20:08):
of several Hoover dams. So it's easy, if you wanted
to get scared and flustered, to build a case that
there's a bubble being inflated right now.
Speaker 1 (20:20):
I don't disagree. It's unusually easy to like visualize the future,
right It's usually easily to be like Ai is going
to be huge, m It's going to transform every aspect
of life. It's going to require a lot of power,
and like that requirement is going to be so obvious
that like we'll build the power plants. It's going to
require a lot of data centers, and that requirement is
going to be so obvious. We'll build the data centers
(20:41):
and it's going to rake in oceans of money. Yeah,
and that is so obvious that like the people who'll
be raking in the money open AI I can just
spend that money now, you know, Yeah, sixty billion dollars year,
No problem, we'll get that, we'll up. Yeah, Like this
is what capital markets are supposed to do, which is
like discount the future. And here there's like unusually widespread
(21:03):
consensus on like how big and transformative this future will
be and like what the steps are to get there,
and so it's all being discounted right now into you know,
the price of Open Eye. But also like these enormous,
long term, incredibly capital intensive deals where everyone's like, yeah,
of course that's going to get fine.
Speaker 2 (21:21):
It's like that's no problem, don't worry about it.
Speaker 1 (21:24):
And like one like that is the consensus view, right,
Like that is what people think.
Speaker 2 (21:29):
Right, very strong, it's very much so it's.
Speaker 1 (21:31):
Not like a priori crazy to be like, yes, we
can see how this is going to go, and so
we're putting our money into it now. On the other hand, too,
like yeah, if you want to take the contrarian view,
like that sounds like a bubble. Yeah, that does sound
like of course it sounds like a bubble.
Speaker 2 (21:46):
Yeah, because there is a risk that we are a
risk we're overbuilding here. For sure, A is going to
change the future. I feel like it's hard to argue
with that. But do we need this money? Gigawaws? Do
we need this money?
Speaker 1 (21:59):
I don't know how many giggs we need? Come on
you and like, you know, what he says kind of goes,
but like, I don't think it would be crazy to
think that, like the current consensus is wrunging in either
direction by a factor of two, right, and if it's
like low by a factor too, then like everyone's getting
get rich, right, And if it's high, then like all
these deals will look a little bubbly. But like still,
(22:20):
you know, and you know, in like ten years, like hey,
I will have been transformative, and I'm we're glad we
have many of those data centers.
Speaker 2 (22:26):
Yeah, for sure. Internet comparisons et cetera. You can make
them here. But instead I'm going to say that there
was an interesting crack that seemed to form this week.
Did you see that report by the Information on Oracle. Yes,
basically it's cloud margins are super thin. To give you
the details. According to the Information, so Oracle's cloud business
has narrow margins that many analysts anticipated. They generated about
(22:51):
nine hundred million dollars in sales by renting servers powered
by in video chips, but it's gross profit came in
at fourteen cents for every one dollars in sale. Again,
this is according to the Information, which is like retailer margins,
which is pretty crazy.
Speaker 1 (23:09):
Not that I mean, it's a huge business, right, and
so like, one question is like, who are going to
be the like monopoly players in this business? And who
are going to be the like in the fiercely competitive
business of selling to those monopolists, right? And like, right,
it's very possible that Oracle is in a commodity business.
And my sense is that people think that in Vidia
(23:32):
is very much not in a commodity business. Right, That
could be wrong, right, And my sense that people think
open AA is not in a commodity business. That open
AA has something special and so when it name checks
a public company, that company goes up. Right, And like
in Vidia has the same power, right, like the in
video will sign a partnership with someone and their stock
will go up. But like it's not clear that, like
(23:52):
the people who run the data centers have the same
pricing power.
Speaker 2 (23:56):
Just wonder how the snake dies in the end, you know,
is it because it chokes or because it's being eaten?
Speaker 1 (24:04):
You know?
Speaker 2 (24:04):
Do you ever think about that constantly?
Speaker 1 (24:23):
I want to talk about too, miscellan things I do
want to talk about. You had Kathy Wood on your show,
Yeah I did, and you talked about.
Speaker 2 (24:30):
The other show. Yeah, swimming is not your show.
Speaker 1 (24:34):
This is your show.
Speaker 2 (24:35):
The other show the E t f I S E
tf IQ weekly Mondays at noon. But you can catch
me on the clothes every day three to five pm. Anyway,
go on good Plug.
Speaker 1 (24:44):
And you asked her about the ETF I p O
heartbeat tray. We talked about a couple of weeks ago.
Speaker 2 (24:49):
There was no way I could not ask her.
Speaker 1 (24:52):
Yeah, so this is the trade where like someone pumps
like a billion dollars into into an r ETF and
they do right before some hot IPO and they're betting
that the ETF is going to get an allocation in
the IPO and the IPO is going to pop and
then they will heartbeat out of the ATF and so
they will have like borrowed shares of all the underlying companies,
(25:13):
put it into the ETF, taking it right back out again.
And they've done nothing, like there's no trade there, Like
they've reversed everything except that they've extracted their portion of
the IPO pop and monetized that. So if like the
ETF gets a twenty million dollar IPO allocation and it
goes up fifty percent, then like there's ten million dollars
(25:34):
of profits. And if you own half of the ETF
for like a day, then you get like five million
dollars of profits with no risk.
Speaker 2 (25:39):
Yeah.
Speaker 1 (25:40):
And so it seems like someone did that a couple
of times. Yeah, And you asked, Kathy, what about it?
Speaker 2 (25:46):
I did so, first of all, ask for who, she said,
as I doesn't know, probably a market maker. And she
pointed out that this takes a lot of guesswork on
the part of whoever is behind it, the theoretical market
maker in this.
Speaker 1 (26:00):
Yeah, people got it wrong, like there's like one of
the big ETFs had one of these big heart beats
for a big IPA that they didn't get an allocation.
Speaker 2 (26:06):
Yeah, this is according to the FT reporting that it
was the Arc Innovation ETF. That's their biggest ETF. Basically
before the Klarna IPO there was that huge heartbeat surge,
but ARC didn't actually get an allocation in that fund
to Klarna, so it was kind of a worthless experience,
whereas they had someone successfully did it with Circle I believe,
(26:27):
and ARC was a backer of Circle. I think like
the FT had mentioned that ARC's website hadn't mentioned Klarna
in some capacity, so you know, maybe it wasn't a
terrible guess. But I also asked her how she felt
about it. Actually, my coinker Scarlet Food, askt her how
she felt about it, Like, was she okay with the
fact that her funds are just being used as vehicles
(26:50):
to facilitate these trades, And her answer was she's not upset.
This is what makes a market and if they guess right, great,
If they don't, well then they have nothing. They've they've
incurred some costs.
Speaker 1 (27:03):
I'm just interested in that answer because when we tried
it with this, like that's kind of what I said.
I was like ETFs like, like, on the one hand,
her ETFs are like her investment vehicles. She runs it,
she's making decisions like you know, it's her fund. But
on the other hand, ETFs are kind of a piece
of market plumbing, and like that means they can be
used by other people mechanically that being her decision. And
(27:23):
so I think that it's like an interesting like her
take on this is like, yeah, we're kind of market plumbing,
and so if that's what people do, that's what people do.
That's not everyone's take. I heard from one person in
the ETF world that like won First of all, ETFs
can turn down creation and redemption trades.
Speaker 2 (27:39):
She said no to that, Okay, depends on.
Speaker 1 (27:42):
Like the authorized participant agreements. But their sense is like
the norm is that you can turn down. And then
two like this is rude, yeah, and not nice, and
because you know, like on the one hand, these are
ETFs are market plumbing that anyone can kind of trade against,
but on the other hand, like they are a like
retail investment product, and if you are an authorised participant,
(28:04):
if you're a market maker training against these ETFs, like,
it's kind of your job to be like a nice
participant in the ecosystem and make them a friendly investment
product for people. And if you're extracting the IPO premium
from the ETF, like, that's not nice to the end
investors and it's like not a constructive thing to do
in the ecosystem.
Speaker 2 (28:21):
Yeah, I mean, I was also a little bit surprised
and interested in her answer. It's very emotionally mature, because
if I put myself into her shoes and Okay, my
fund is a piece of market plumbing, I accept that.
But if I have a sink and someone turns on
the faucet, I would hope they're washing their hands, washing
(28:42):
their hands in this scenario, always investing in the fund
because they believe in, you know, my stock picking prowess,
not that they're just turning on the faucet and then
doing something else.
Speaker 1 (28:52):
I guess my emotional reaction would be if I woke
up one day and someone would invested an extra billion
dollars in my fund, I'd be like sweet. And then
three days later if they were like they took it
out again, and be like oh yeah, it would be
a real emotional roller coaster.
Speaker 2 (29:05):
Like you made my chart so ugly. Yeah, but Kathy,
would you know, she's not like us, She is built different.
Speaker 1 (29:13):
Yeah. One more thing we have to talk about is that.
So we had Ryan Patch and John Seal on the
podcast in May to talk about puzzle hunts generally and
the Midnight Madness Wall Street puzzle hunt that they run.
In particular. Midnight Madness was this past weekend.
Speaker 2 (29:29):
Did you participate?
Speaker 1 (29:31):
I did not because for two good for three reasons.
Speaker 2 (29:35):
One is that you were taking care of the possum.
Speaker 1 (29:39):
When is that to be like an entry in Middle
Badness costs I believe forty two thousand dollars for a
team of six people. You've got that, which a little
steep to the team that I have done puzzle hunts
with before, Like people had other things and so like
we didn't get the team together. And three, I am
an old man and it runs from like noon to
like four am. And the idea of shopping to apparently
(30:02):
started in Coney Island, and like you know, it goes
all over the city, and it just it just seemed
like a little too much for me. It's a young
man's game. Yeah, it's not only a man's there's a
gender divide.
Speaker 2 (30:16):
I don't know if that phrase works as well. It's
a young person's game.
Speaker 1 (30:20):
Yeah, But anyway, it was this weekend. Nineteen teams played.
There raised eight hundred and eighteen thousand dollars for charity
for the Good Shepherd Services, and I do want to
shout out the winners. The winner winner. The first place
team was Reagan Voke three thousand, which was like the pressure.
He says, it's a privately funded team. It's like a
little interesting thing here, which is that you know, it's
forty two thousand dollars for a team. A lot of
(30:42):
like financial firms sponsor one or more teams from the firm.
A lot of other financial firms have their well played
employees just privately sponsored themselves. And so Reagan Voked three thousand.
The winning team was privately funded, So I wasn't officially
sponsored by a firm, but I've heard it was some
number of Jan's treat people.
Speaker 2 (31:02):
Interesting.
Speaker 1 (31:03):
Second place team was sponsored by Citadel Securities Wow, and
was called Citadel Insecurities, which is a great team names.
And then the third place team, Midnight Marauders. I know
they're privately funded team. Anyway, congratulations on all your success.
You did it, and that was the Money Stuff Podcast.
Speaker 2 (31:21):
I'm Matt Levine and I'm Katie Greifeld.
Speaker 1 (31:24):
You can find my work by subscribing to The Money
Stuff newsletter on Bloomberg dot com.
Speaker 2 (31:28):
And you can find me on Bloomberg TV every day
on the close between three and five pm Eastern.
Speaker 1 (31:34):
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 the air.
Speaker 2 (31:42):
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 1 (31:48):
The Money Stuff Podcast is produced by Anna ma Aserakis
and Moses ondam Our.
Speaker 2 (31:53):
Theme music was composed by Blake Maples.
Speaker 1 (31:55):
Amy Keen is our executive producer, and.
Speaker 2 (31:58):
Stage Bauman is Bloomberg's head of Podcasts.
Speaker 1 (32:01):
Thanks for listening to The Money Stuff Podcast. We'll be
back next week with more stuff
Bloomberg Audio Studios, podcasts, radio news. One day we're gonna
touch on the thought situation.
Speaker 2 (00:11):
Jesus, but no, I'm too frou.
Speaker 1 (00:15):
We can have a possum update.
Speaker 2 (00:17):
Yeah, tell us about the possum. You cleaned it up.
Speaker 1 (00:19):
I cleaned it up. That's that's really the update. I
don't want to say that this show is my therapy,
because it is truly not that this show.
Speaker 2 (00:28):
Is what you talk about in therapy.
Speaker 1 (00:29):
But it isn't the case that, Like, as I was
talking about the possum last week, I knew that editors
were not going to cut it out and that I
was using it as a commitment device to finally make
myself just go out there and shovel up the dead
possum in my heart. Im. That's if you didn't listen
to the last week's episodes.
Speaker 2 (00:50):
Yeah, wow, this would be horrifying. Go back listen to
that or don't interest it's interesting.
Speaker 1 (00:55):
This is just like this is the like skip ahead banter, Awa. Yeah,
I cleaned up the possum. And then then my wife
was like, I listen to your podcast, I learned about
the possum.
Speaker 2 (01:06):
That's a good test to find out if your spouse
listens and tests. I don't. I don't think Joe listens
because he didn't call me out on the fact that
I just wait for him to notice the vomit from the.
Speaker 1 (01:18):
See he knew that. Yeah, this is like densely packed
with references.
Speaker 2 (01:23):
Yeah, a lot of callbacks.
Speaker 1 (01:24):
Yeah.
Speaker 2 (01:25):
He probably also knows that because sometimes I'll say, Hey,
the cat vomited again, could you co get that right?
Speaker 1 (01:32):
And other times you'll be sitting pointedly facing away from
the cat vomit and he'll be like, I know that,
you know there's cat vomit there, and you're like, what, we.
Speaker 2 (01:43):
Have a cat psychological warfare.
Speaker 1 (01:47):
Hello, Welcome to the Money Stuff Podcast. You're Herley podcast
where we talk about stuff. I led it to Money.
I'm Matt Levine and I write The Money Stuff Colum
from Bloomberg Opinion.
Speaker 2 (01:58):
And I'm Katie Greyfell, a reporter for Bloomberg News and
an anchor for Bloomberg Television.
Speaker 1 (02:04):
Polly Market. Yeah, so Bloomberg News. How a story this
week that Shane Coplin, the founder of Polymarket, is now
the world's youngest self made billionaire, which.
Speaker 2 (02:22):
Is cool for him, definitely.
Speaker 1 (02:24):
Shane Coplin lives or used to live next door to
a guy who throws a lot of book parties for
finance books. Oh, so you can see him like all
the finance book parties.
Speaker 2 (02:34):
That's your kind of hangout.
Speaker 1 (02:36):
Sadly, yes, and so yeah, I've seen Shane Coplin at book.
Speaker 2 (02:39):
Parties and you've rubbed elvas.
Speaker 1 (02:41):
I've rubbed Elvas. And when I saw that article, I
thought youngest self made billionaire. I realized that Shane Coplin
is the second world's youngest self made billionaire to be
in my phone context. It's not like an entirely positive development.
Speaker 2 (03:01):
For right now. It is a positive development for Shane.
Will continue to watch this space.
Speaker 1 (03:05):
It is also he did at the right order though
first he was investigative by the government, and now he's
a self made billionaire.
Speaker 2 (03:11):
I was going to say, I forgot that it was
less than a year ago that his apartment was rated
by the Yeah, fast forward to October twenty twenty five,
he's super rich. ICE. Of course, the news from this
week was that they invested.
Speaker 1 (03:25):
The inter Intercontinental Exchange.
Speaker 2 (03:27):
We're not we're using government names.
Speaker 1 (03:31):
ICE can mean a number of things. Anyway, gone anyway.
Speaker 2 (03:33):
Ice, the Intercontinental Exchange investing two billion dollars in polymarket.
That gives it an eight billion dollar valuation. Pretty stunning.
And it was just last week that we were talking
about how prediction markets are eating everything and here we
are keep.
Speaker 1 (03:50):
Going yeah right, it's funny, like I think of Calshi
as a sports gambling site, piymarket, I don't know, probably
market like feels a little pure. Yeah, you know this
the bloomerg story about Shane Complin's like founding a polymarket.
You know, he's like reading economics papers about prediction markets.
(04:10):
I'm thinking this is too good an idea to just
exist on white papers, and like I think he's like
fully committed to the notion of Yeah, but like you know,
they did get into sportscambling. Yeah, and I think that
I'm not sure, but my sense is that it is
hard to justify an eight billion dollar valuation for a
prediction market that is just elections and uh, you know,
(04:36):
who will be a time man of the person of
the year and uh and uh, you know, like just
fun predictions and not you know, for addicted sports candlers.
Speaker 2 (04:43):
I will say that, you know, if you had told
me that Ice had outright bought poly Market for two
billion dollars, I still would have been like, Wow, that's
a lot of money. The fact that it does have
this eight billion dollar valuation also stuck out to.
Speaker 1 (04:56):
Me, Right, I just think that that that valuation discounts
a lot of growth in sports, yeah, and a lot
of margins in sports and not the other thing. But
I'm intrigued, right when you read the announcement, like and
again when you read like Shane Coplan's public statements like like, yeah,
there's sports, but like they're not they're not leaning on
(05:17):
the sports. It's not like Robin Hood saying sportscambling is
an emerging hasset class. Yeah, they're like, eh, we're like
trying to find ways to understand and price the future.
And I think that's like a noble go like like
prediction markets, Like like he's not wrong that, like economists
have talked about them for years, Like the idea of
prediction markets, like providing a set of probabilities about the future,
(05:38):
does seem really socially useful. And my sense was always
that no one had cracked the nut, not of like
creating trading infrastructure or making it legal, but then not
of like making people want to trade it, such that
there was like a big market, a big liquid market
for it, such that professionals would have incentives to make
(05:59):
prediction market prices correct, right, yeah, because like and once like, oh,
let's gamble on whether like you know, the Ukraine War
will end, like I mean, people are but like, it's
not like a fun gambling product and so there's not
a lot of money to be made if you have
good insight into it. And so just the whole thing
has never quite worked right, and like y US presidential
(06:20):
elections where there's a lot of money, but otherwise it
never never feels like it quite works in sports or
you know, sports solve that problem. Yeah, people really want
to gamble on sports, and there's a lot of dumb
money and so there's a lot of value for smart
money to bet against, and so you have incentives to
build good sports prediction models and trade on polymarket and
(06:43):
all kind of works. And then you know, the question
is that does that spill over into the New York
City mayor race or you know macroeconomic variables or like
you know, the Grammys or whatever.
Speaker 2 (06:54):
Yeah, well I do like that. You brought up again
the Grossman s tigletz paragdox in your call them on
this specific item. You're calling back to another column that
you know, maybe the way that we get to that
societal useful information is through the avenue of sports betting
and a lot of people making a lot of noise, right,
(07:17):
Like the gross and.
Speaker 1 (07:17):
Said, what's paradox is the idea that like, you can't
have efficient markets because then no one would have incentives
to trade and make the markets efficient. Yeah, so Lassie
Peterson says that you need efficiently inefficient markets. You need
like just the right level of inefficiency to incentivize people
to make them more efficient. And like the economisty of
(07:39):
prediction markets is like people who have particular insight into
like whether there'll be a war will like trade their insights,
but like who will trade against them? Like who's just
like randomly wandering around like, oh, I bet there won't
be a war, and then like you know, get suckered
by the policy experts and in the stock market, Like
the answer to those questions they're super easy, right, The
(08:01):
answer to like who will trade against the hedge fund
is an index fund who is just blindly managing retirement
money and needs to invest it in stocks, And so
the hedge fund has like someone they know those trade against,
or the answer is like you know a retail investor or, Like,
there's a lot of straightforward answers to like who is
on the other side of this trade that allow people
(08:21):
with a lot of information to make money by trading
and incorporating that information enter prices in prediction markets. It
was never clear who those people were, right, Like, it's
not a savings product, right, Like people don't put aside
one hundred dollars a month in retirement savings in prediction markets,
so there's no like uninformed flow to trade against there.
(08:42):
And it has historically not been a super fun gambling market,
like with the exception of presidential elections and a few
other high profile things. But when you add sports, it
becomes a fun gambling market, and then that just opens
everything up, right, It allows people to make money making
informed predictions at least on sports and then maybe at
most of something else.
Speaker 2 (09:02):
Yeah, I mean just assume that the people who are
betting on sports on the prediction market go into other
markets such as I don't know, elections or weather or
whatever else.
Speaker 1 (09:13):
Well, it's both, right, So it's like, on the one hand,
like do you attract dumb money recreational gamblers to the platform,
and then they're like, well, i'm here anyway, I might
as well bet on election. Its like that seems plausible.
And the other thing is like, you know, if you
are a quantitative trading firm and you have historically traded
like stocks and options, a lot of those people are
(09:35):
now getting sports curious, right, Like they're building sports trading desks.
They're like building models to price sports events. Because it's
like kind of the same skill set, right, It's like
taking machine learning and applying it to a bunch of
data and like using it to predict the future. And
it's like, well, you can do that with stocks, you
can do it with sports. And there's a lot of
money to made. And so some quant trading firms are
(09:59):
either heading into the sports market making business or the
traders are leaving to start sports market making businesses. And
if those people who are trading on traditional sports books
or who are like market making on calci, if those
people start market making on polymarket in sports, it's like
(10:20):
a relatively easy lift for them to add an election column, right,
Like it's a whole new set of data analysis, but
they're already plugged in, you know, they're already like now,
the market structure works. So maybe if you're making money
trading against recreational gamblers on sports and you see election
prices that you think are out of line, you're like, well,
I put a few million dollars on that election too.
Speaker 2 (10:41):
While I'm here, I might as well, Well it's just.
Speaker 1 (10:43):
Right, it's convenient there.
Speaker 2 (10:45):
Yeah, So what does ICE get out of this? I
don't know, That's the thing.
Speaker 1 (10:51):
I mean, one answer is an investment, right, I mean
there's two things.
Speaker 2 (10:54):
Right.
Speaker 1 (10:54):
It's like, if it's the future of sports gambling, that's valuable.
And then like if like the way you trade your
insights into like whether there will be inflation changes from
like trading treasuries to like buying the inflation contract on polymarket,
Like that's a big deal, right, And I don't know
that that is a near term likely outcome. One, it's
(11:18):
a possibility, and two becomes more likely when you partner
with a big exchange firm, you know, like ICE now
when they're thinking about like what kind of like macroeconomic
products should we offer. Now, in addition to like interest
rate futures and bond futures, they can offer predictions of
(11:39):
inflation right, So that's one thing they get is like
the that's like currently in the cards, right, Like the
current situation is like they're going to distribute polymarket data,
which is of interest to people who trade on and
the other think it's tokenization, which who knows. That can
mean a lot of things. Yeah, it could be like
(12:00):
technological infrastructure for like trading ice products, where like instead
of buying great futures, you buy great futures tokens, right,
But it could also mean, like everyone talks a big
game about stock tokenization. Everyone, it's a big game about
tokenizing private companies.
Speaker 2 (12:16):
Right.
Speaker 1 (12:16):
There's a lot of stuff in that space, and like
it is possible that Polymarket, which is crypton native and
kind of fun, is better positioned to do some of
those initiatives than like the New York Stock Exchange, right,
which is the New York Stock Exchange, right, and which
has like if you're the New York Stock Exchange, like
(12:36):
we're gonna make everything tokenized. Like everyone who's already trading
on the stock exchange is gonna be very annoyed. Yeah,
Like Polymarket you can tokenize whatever they want.
Speaker 2 (12:43):
Tokenization has been on my list of things to actually
think about for a while. See, but I haven't gotten there, Matt.
Speaker 1 (12:50):
I've written about it. It's funny. It's like, to me,
tokenization means two things. Like one, there's like some amount
of trading in tradition financial markets. You could change the
back end of the market structure and make it so
that instead of being on some company's ledgers, it's on
a blockchain and you can call it tokenized.
Speaker 2 (13:11):
And it's all a little people that.
Speaker 1 (13:14):
Yeah, it's the sort of thing that like ten years ago,
you'd be like, it'll be a different database for your
interest rate futures. You'd be like, I don't care about that.
But now it's like, oh, it's tokenized, right, So that's
like like one thing is like the actual technological stuff,
and like it's stuff about like how things work together
and how like if you're an hedgephund you can like
move your tokens from one platform to another, and like
you can you know, live in the same blockchain environment
(13:36):
for different kinds of trades, right, Like you can trade
crypto against futures. I don't know, there's like that technological
market structure stuff. And then like to me, it always
seems like when people talk about tokenization what they're always
talking about is getting around securities loss, and that's not
always always true. I don't know that that's what Ice
and polymarket are talking about. It's what Robin is talking
(13:58):
about every time they talk about togonization, right, And it's like,
you see, like people like we should tokenize private companies
so that you can buy shares of private companies without
having them have to go public. It's like, well, that's
not how the securities laws works. But if we call
a share a token, then they don't have to follow
the law.
Speaker 2 (14:13):
Yeah, so he struck me as.
Speaker 1 (14:14):
Wrong, but it might turn out to be empirically correct.
But anyway, so there's two kinds of organization. I've etten
a lot about the bad regulatory arbitrage kind, but like
it's possible, the technological kind is important, meaningful, we'll do something.
Speaker 2 (14:28):
Well, hopefully these initiatives will bear fruit and we can
actually figure out what Ice and polymarket are talking about.
Speaker 1 (14:34):
Yeah, I will say that, I like, I have spent
ten years writing about financial infrastructure firms saying we're doing
a blockchain initiative.
Speaker 2 (14:43):
It's all about the tech, and then like five years later.
Speaker 1 (14:45):
They're like, we have stopped their blockchain initiative.
Speaker 2 (14:47):
Stop asking about it. We don't want to talk about.
Speaker 1 (14:50):
It, right, So it's puzzle tokenization. Is that it's puzzle tokenization.
It's like we're putting the futures on the blockchain and
then five years later we'll stop talking about it. Yes,
I've thought a lot about taking anosition, but I don't
have any I don't know what I mean. It's either.
Speaker 2 (15:20):
I feel like I talked about raboris on this show before. Yeah, yeah,
the snake eating itself. Well, another way of saying that is,
you know, all these big tech companies are just spending
money in a circle, and this week I feel like
that idea was really on display. When you think about
(15:42):
open ai and a m D and the deal that
they inked, it's great. Yeah. Yeah, So my understanding basically
is that specifically with a m D, so they agreed
to deploy a bunch of a m D chips and
as part of that, they're also getting a bunch of
warrants for AMD shares as well.
Speaker 1 (16:05):
Yeah, there's kind of two wild ass ways of it.
I mean there's at least seventeen, but like two wild
asspays of it. One is that open Ai has committed
to spend I don't know the number, but it's like
it's six gigawatts of chips. Yeah, and they've said it's
like tens of billions of dollars per So the open
eye is committed to spend something on the order of
one hundred billion dollars buying chips from AIM and open
(16:28):
A doesn't have one hundred billion dollars. No. One thing
that is happening here is that the market has ascribed
a value to open ai of like, you know, half
a trillion dollars, and that value is sufficiently real that
open and ai can like make financial commitments based on it.
They can be like, yeah, we'll give you a hundred
(16:48):
million dollars for your chips, and they're great, and it's
like everyone's like, yeah, that'll work out right, But like
there's no, it's not in the bank, Like that's like, yeah,
it's five million dollars company, they'll find the money. And
I don't think that's a wrong bet. It's just an
interesting they're able to commit cash based not on the
cash they have, but on their valuation. And then the
other thing that's happening is that like when open ai
(17:09):
says anything about anyone, the stock goes up. And so
when Opening I announces a deal of like we're gonna
send one hundred million dollars on AMTI chips, AMD stock
very predictably goes up. And so knowing that as they
negotiated the deal, they're like, what we should do is
we should take your very predictable stock price rise and
(17:30):
use that to pay for the chips. Right like, essentially,
like AMD shareholders will get excited about AMD having this deal,
and so we'll let the AMD shareholders pay for the chips.
And so that's kind of what happened, which is that
AMD stock we're recruiting this on Wednesday at a stock
is up roughly one hundred billion dollars from where it
was last Friday before they announced the deal, and you
(17:54):
know that'll covers the chips. And open Ai, which as
far as we know, plans to pay cash for these chips. Yeah, yeah,
I don't think the deal is like we won't pay
for the chips. The deals. We will pay for the chips.
But Open Eye is getting warrants for roughly ten percent
of AMD with like vesting conditions, but they're like penny
(18:15):
warrants and so right Now, if you just assume they'll
get all of the warrants, that's like a thirty seven
billion dollar ish yeah, value transferred to open Ai. Yeah,
which one will help pay for the cost of this contract.
And two it is only fair because like they created
all that extra value at AMD, right, Like they're the
ones who by sprinkling their magic dust on AMD, we're
(18:39):
able to make AMD more valuable. And so yeah, they
get back half that value in warrants.
Speaker 2 (18:42):
Yeah. Well two things. So to your point that you
know open ai mentions some sort of whatever with another company,
a public company, their stare price goes up.
Speaker 1 (18:52):
Yeah.
Speaker 2 (18:53):
It makes me think about what we keep talking about
in terms of the private and public markets converging. Obviously,
open Ai famously is not public, but has been making
a ton of waves in the public stock market. The
other thing is, you know what we saw with open
Ai and AMD this week isn't a one off. They
have something similar with in Video, which of course is
(19:14):
a direct rival of AMD.
Speaker 1 (19:16):
Yeah, it's like very different, but it's like from at
a high level, the same thing, Right, it's like we
have a partnership where I think in that case, in
Video is investing in open Ai and then Yeah.
Speaker 2 (19:25):
In video agreed to invest as much as one hundred
billion dollars in open Ai to help open ai fund
a data center build out in Exchange. Open Ai committed
to filling those data centers with millions of in Nvidia chips.
This is a little bit old, but I was reading
this piece from Michael sembelest Over at JP Morgan and
(19:47):
he wrote this at the end of September. But it
spiritually can apply to all of these deals that Oracle
stock jump by twenty five percent after being promised sixty
billion dollars a year from open Ai in amount of
money open Ai doesn't earn yet to provide cloud computing
facilities that Oracle hasn't built yet and which will require
four point five gigwats of power, which is the equivalent
(20:08):
of several Hoover dams. So it's easy, if you wanted
to get scared and flustered, to build a case that
there's a bubble being inflated right now.
Speaker 1 (20:20):
I don't disagree. It's unusually easy to like visualize the future,
right It's usually easily to be like Ai is going
to be huge, m It's going to transform every aspect
of life. It's going to require a lot of power,
and like that requirement is going to be so obvious
that like we'll build the power plants. It's going to
require a lot of data centers, and that requirement is
going to be so obvious. We'll build the data centers
(20:41):
and it's going to rake in oceans of money. Yeah,
and that is so obvious that like the people who'll
be raking in the money open AI I can just
spend that money now, you know, Yeah, sixty billion dollars year,
No problem, we'll get that, we'll up. Yeah, Like this
is what capital markets are supposed to do, which is
like discount the future. And here there's like unusually widespread
(21:03):
consensus on like how big and transformative this future will
be and like what the steps are to get there,
and so it's all being discounted right now into you know,
the price of Open Eye. But also like these enormous,
long term, incredibly capital intensive deals where everyone's like, yeah,
of course that's going to get fine.
Speaker 2 (21:21):
It's like that's no problem, don't worry about it.
Speaker 1 (21:24):
And like one like that is the consensus view, right,
Like that is what people think.
Speaker 2 (21:29):
Right, very strong, it's very much so it's.
Speaker 1 (21:31):
Not like a priori crazy to be like, yes, we
can see how this is going to go, and so
we're putting our money into it now. On the other hand, too,
like yeah, if you want to take the contrarian view,
like that sounds like a bubble. Yeah, that does sound
like of course it sounds like a bubble.
Speaker 2 (21:46):
Yeah, because there is a risk that we are a
risk we're overbuilding here. For sure, A is going to
change the future. I feel like it's hard to argue
with that. But do we need this money? Gigawaws? Do
we need this money?
Speaker 1 (21:59):
I don't know how many giggs we need? Come on
you and like, you know, what he says kind of goes,
but like, I don't think it would be crazy to
think that, like the current consensus is wrunging in either
direction by a factor of two, right, and if it's
like low by a factor too, then like everyone's getting
get rich, right, And if it's high, then like all
these deals will look a little bubbly. But like still,
(22:20):
you know, and you know, in like ten years, like hey,
I will have been transformative, and I'm we're glad we
have many of those data centers.
Speaker 2 (22:26):
Yeah, for sure. Internet comparisons et cetera. You can make
them here. But instead I'm going to say that there
was an interesting crack that seemed to form this week.
Did you see that report by the Information on Oracle. Yes,
basically it's cloud margins are super thin. To give you
the details. According to the Information, so Oracle's cloud business
has narrow margins that many analysts anticipated. They generated about
(22:51):
nine hundred million dollars in sales by renting servers powered
by in video chips, but it's gross profit came in
at fourteen cents for every one dollars in sale. Again,
this is according to the Information, which is like retailer margins,
which is pretty crazy.
Speaker 1 (23:09):
Not that I mean, it's a huge business, right, and
so like, one question is like, who are going to
be the like monopoly players in this business? And who
are going to be the like in the fiercely competitive
business of selling to those monopolists, right? And like, right,
it's very possible that Oracle is in a commodity business.
And my sense is that people think that in Vidia
(23:32):
is very much not in a commodity business. Right, That
could be wrong, right, And my sense that people think
open AA is not in a commodity business. That open
AA has something special and so when it name checks
a public company, that company goes up. Right, And like
in Vidia has the same power, right, like the in
video will sign a partnership with someone and their stock
will go up. But like it's not clear that, like
(23:52):
the people who run the data centers have the same
pricing power.
Speaker 2 (23:56):
Just wonder how the snake dies in the end, you know,
is it because it chokes or because it's being eaten?
Speaker 1 (24:04):
You know?
Speaker 2 (24:04):
Do you ever think about that constantly?
Speaker 1 (24:23):
I want to talk about too, miscellan things I do
want to talk about. You had Kathy Wood on your show,
Yeah I did, and you talked about.
Speaker 2 (24:30):
The other show. Yeah, swimming is not your show.
Speaker 1 (24:34):
This is your show.
Speaker 2 (24:35):
The other show the E t f I S E
tf IQ weekly Mondays at noon. But you can catch
me on the clothes every day three to five pm. Anyway,
go on good Plug.
Speaker 1 (24:44):
And you asked her about the ETF I p O
heartbeat tray. We talked about a couple of weeks ago.
Speaker 2 (24:49):
There was no way I could not ask her.
Speaker 1 (24:52):
Yeah, so this is the trade where like someone pumps
like a billion dollars into into an r ETF and
they do right before some hot IPO and they're betting
that the ETF is going to get an allocation in
the IPO and the IPO is going to pop and
then they will heartbeat out of the ATF and so
they will have like borrowed shares of all the underlying companies,
(25:13):
put it into the ETF, taking it right back out again.
And they've done nothing, like there's no trade there, Like
they've reversed everything except that they've extracted their portion of
the IPO pop and monetized that. So if like the
ETF gets a twenty million dollar IPO allocation and it
goes up fifty percent, then like there's ten million dollars
(25:34):
of profits. And if you own half of the ETF
for like a day, then you get like five million
dollars of profits with no risk.
Speaker 2 (25:39):
Yeah.
Speaker 1 (25:40):
And so it seems like someone did that a couple
of times. Yeah, And you asked, Kathy, what about it?
Speaker 2 (25:46):
I did so, first of all, ask for who, she said,
as I doesn't know, probably a market maker. And she
pointed out that this takes a lot of guesswork on
the part of whoever is behind it, the theoretical market
maker in this.
Speaker 1 (26:00):
Yeah, people got it wrong, like there's like one of
the big ETFs had one of these big heart beats
for a big IPA that they didn't get an allocation.
Speaker 2 (26:06):
Yeah, this is according to the FT reporting that it
was the Arc Innovation ETF. That's their biggest ETF. Basically
before the Klarna IPO there was that huge heartbeat surge,
but ARC didn't actually get an allocation in that fund
to Klarna, so it was kind of a worthless experience,
whereas they had someone successfully did it with Circle I believe,
(26:27):
and ARC was a backer of Circle. I think like
the FT had mentioned that ARC's website hadn't mentioned Klarna
in some capacity, so you know, maybe it wasn't a
terrible guess. But I also asked her how she felt
about it. Actually, my coinker Scarlet Food, askt her how
she felt about it, Like, was she okay with the
fact that her funds are just being used as vehicles
(26:50):
to facilitate these trades, And her answer was she's not upset.
This is what makes a market and if they guess right, great,
If they don't, well then they have nothing. They've they've
incurred some costs.
Speaker 1 (27:03):
I'm just interested in that answer because when we tried
it with this, like that's kind of what I said.
I was like ETFs like, like, on the one hand,
her ETFs are like her investment vehicles. She runs it,
she's making decisions like you know, it's her fund. But
on the other hand, ETFs are kind of a piece
of market plumbing, and like that means they can be
used by other people mechanically that being her decision. And
(27:23):
so I think that it's like an interesting like her
take on this is like, yeah, we're kind of market plumbing,
and so if that's what people do, that's what people do.
That's not everyone's take. I heard from one person in
the ETF world that like won First of all, ETFs
can turn down creation and redemption trades.
Speaker 2 (27:39):
She said no to that, Okay, depends on.
Speaker 1 (27:42):
Like the authorized participant agreements. But their sense is like
the norm is that you can turn down. And then
two like this is rude, yeah, and not nice, and
because you know, like on the one hand, these are
ETFs are market plumbing that anyone can kind of trade against,
but on the other hand, like they are a like
retail investment product, and if you are an authorised participant,
(28:04):
if you're a market maker training against these ETFs, like,
it's kind of your job to be like a nice
participant in the ecosystem and make them a friendly investment
product for people. And if you're extracting the IPO premium
from the ETF, like, that's not nice to the end
investors and it's like not a constructive thing to do
in the ecosystem.
Speaker 2 (28:21):
Yeah, I mean, I was also a little bit surprised
and interested in her answer. It's very emotionally mature, because
if I put myself into her shoes and Okay, my
fund is a piece of market plumbing, I accept that.
But if I have a sink and someone turns on
the faucet, I would hope they're washing their hands, washing
(28:42):
their hands in this scenario, always investing in the fund
because they believe in, you know, my stock picking prowess,
not that they're just turning on the faucet and then
doing something else.
Speaker 1 (28:52):
I guess my emotional reaction would be if I woke
up one day and someone would invested an extra billion
dollars in my fund, I'd be like sweet. And then
three days later if they were like they took it
out again, and be like oh yeah, it would be
a real emotional roller coaster.
Speaker 2 (29:05):
Like you made my chart so ugly. Yeah, but Kathy,
would you know, she's not like us, She is built different.
Speaker 1 (29:13):
Yeah. One more thing we have to talk about is that.
So we had Ryan Patch and John Seal on the
podcast in May to talk about puzzle hunts generally and
the Midnight Madness Wall Street puzzle hunt that they run.
In particular. Midnight Madness was this past weekend.
Speaker 2 (29:29):
Did you participate?
Speaker 1 (29:31):
I did not because for two good for three reasons.
Speaker 2 (29:35):
One is that you were taking care of the possum.
Speaker 1 (29:39):
When is that to be like an entry in Middle
Badness costs I believe forty two thousand dollars for a
team of six people. You've got that, which a little
steep to the team that I have done puzzle hunts
with before, Like people had other things and so like
we didn't get the team together. And three, I am
an old man and it runs from like noon to
like four am. And the idea of shopping to apparently
(30:02):
started in Coney Island, and like you know, it goes
all over the city, and it just it just seemed
like a little too much for me. It's a young
man's game. Yeah, it's not only a man's there's a
gender divide.
Speaker 2 (30:16):
I don't know if that phrase works as well. It's
a young person's game.
Speaker 1 (30:20):
Yeah, But anyway, it was this weekend. Nineteen teams played.
There raised eight hundred and eighteen thousand dollars for charity
for the Good Shepherd Services, and I do want to
shout out the winners. The winner winner. The first place
team was Reagan Voke three thousand, which was like the pressure.
He says, it's a privately funded team. It's like a
little interesting thing here, which is that you know, it's
forty two thousand dollars for a team. A lot of
(30:42):
like financial firms sponsor one or more teams from the firm.
A lot of other financial firms have their well played
employees just privately sponsored themselves. And so Reagan Voked three thousand.
The winning team was privately funded, So I wasn't officially
sponsored by a firm, but I've heard it was some
number of Jan's treat people.
Speaker 2 (31:02):
Interesting.
Speaker 1 (31:03):
Second place team was sponsored by Citadel Securities Wow, and
was called Citadel Insecurities, which is a great team names.
And then the third place team, Midnight Marauders. I know
they're privately funded team. Anyway, congratulations on all your success.
You did it, and that was the Money Stuff Podcast.
Speaker 2 (31:21):
I'm Matt Levine and I'm Katie Greifeld.
Speaker 1 (31:24):
You can find my work by subscribing to The Money
Stuff newsletter on Bloomberg dot com.
Speaker 2 (31:28):
And you can find me on Bloomberg TV every day
on the close between three and five pm Eastern.
Speaker 1 (31:34):
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 the air.
Speaker 2 (31:42):
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 1 (31:48):
The Money Stuff Podcast is produced by Anna ma Aserakis
and Moses ondam Our.
Speaker 2 (31:53):
Theme music was composed by Blake Maples.
Speaker 1 (31:55):
Amy Keen is our executive producer, and.
Speaker 2 (31:58):
Stage Bauman is Bloomberg's head of Podcasts.
Speaker 1 (32:01):
Thanks for listening to The Money Stuff Podcast. We'll be
back next week with more stuff
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