June 13, 2025 • 30 mins
Matt and Katie discuss the Michael Saylor vs. Jim Chanos debate, financial gibberish, the mid-2000s federal clerkship hiring plan, private equity recruiting and mid-frequency trading.
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Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:08):
The bird's doing well, by the way, So the next
milestone is like he flies, Yes, he is great news.
He yes. So I believe last week I was talking
about how we needed to work on flying, really good
at perching, really good at eating.
Speaker 1 (00:21):
Sure you've been showing him YouTube videos.
Speaker 2 (00:23):
We've been working on flying. He's pretty good at flying.
Speaker 1 (00:25):
Now.
Speaker 2 (00:26):
The thing is, I'm still working on my flying. Apparently
came naturally to the bird. I have to keep reminding myself, like,
this is a baby bird.
Speaker 1 (00:37):
Yeah, do birds when.
Speaker 2 (00:41):
I think he's or she, we can't tell because it's
a baby is just entering adolescence. Because the bird will
also like peck at you, Like yesterday was sitting on
my shoulder and it was like pecking at my ear
and then I googled it and they go through a
teenager phase where they like get into biting you for
a little bit and then they kind of grow out
of it.
Speaker 1 (01:00):
Anyway, congratulations to your bird, Thank you, Hello and welcome.
It's going to keep being the bird Stuff podcast, isn't it.
Speaker 2 (01:09):
I love it?
Speaker 1 (01:11):
Anyway, Hello and welcome to the money Stuff Podcast. You're
a weekly podcast where we're talking about stuff related to
money sometimes. I'm Matt Levine and I read the Money
Stuff com for Bloomberg Opinion.
Speaker 2 (01:20):
And I'm Katie Greifeld, a reporter for Bloomberg News and
an anchor for Bloomberg Television.
Speaker 1 (01:24):
Katie, in your other life as an anchor for Bloomberg Television,
you've been anchoring some Bloomberg television.
Speaker 2 (01:29):
Absolutely, because we had a little bit of a SmackDown
this week, I'm trying to make this a dramatic.
Speaker 1 (01:36):
Everyone loves a financial industry SmackDown now after ever since
the like the classic act then icon one from like
a decade ago, Everyone's like, oh, SmackDown.
Speaker 2 (01:46):
I mean, we'll never achieve those heights again. That was
That's at the Bar and no one's passed it since.
But in slightly less interesting smackdowns smackish last week I
believe it was, there was a splashly Bloomberg News article
about how Jim Chanos has a short thesis when it
comes to Michael Sailor's strategy, the idea being that you
(02:08):
basically short strategy and you buy bitcoin because strategy trades
at a premium to its actual bitcoin holdings.
Speaker 1 (02:15):
Yeah, and one thing that Jim Chaino said that is
entirely accurate and revealing, and everything ignored is that micro
strategy also does the same trade and enormous side. Yeah,
and like micro strategy is like kind of like fundamental
business models, Like, well, our stock trades that two times
the value of the underlying bitcoins, So we're gonna sell
(02:36):
a ton of stock and use the money to buy bitcoin.
It's like, yeah, of course it's the great trade. But
like micro strategy has some advantages and putting the trade
on Jim Chanos doesn't have, Like they don't have to
pay to borrow the stock, they can't get squeezed out
of their sharp but they were doing the same trade.
Speaker 2 (02:50):
But anyway, yeah, well go on. That was Chenos's position.
We interviewed Michael Sailor on Tuesday of this week, and
obviously he disagreed.
Speaker 1 (03:01):
Well, he was like, no, nobody should sell his biker
strategy stocked by bitcoin. That's a crazy thing to do.
Why would anyone sell biker stategy stocked by bitcoin? Yeah
except for him, but whatever, whatever, No, I mean, to
be fair, he's not doing it anymore.
Speaker 2 (03:12):
Yeah. Oh. He also said that you know, Chinos doesn't
understand how like his valuation of strategy is off sides.
That was on Tuesday. Jim Chanos came on Bloomberg Television
on Wednesday with my colleague and friend Scarlett Fou and
give his side of the story. I mean, he said
that Sailor is a great salesman, but basically his argument
(03:37):
amounts to financial gibberish. I think he might have I
think he might have said that on social media and
not on I would it's really the case that like,
oh wait, wa wait, let me read you betweet. Actually
it's pretty good. In response to Sailor's television club from
our interview with him, this is, of course complete financial gibberish.
Mister Sailor wants you to value his business based not
(03:59):
only on net value of his bitcoin holdings NAV at market,
but additionally with a multiple on the change in that
NAV exclamation point, because now he can leverage his balance sheet. Lol.
Speaker 1 (04:11):
I mean, like, I'm sorry, that's correct. Like I don't
want to say that micro strategies thing can't work right,
because it's worked right, and like a lot of people
have gotten carried out shorting it right, and like I'm
not saying, oh, it's a great idea just short micro strategy,
but like it is gibberoiush right, It's like the point
that they're making is like bitcoin has gone up a lot,
(04:35):
and so when we buy bitcoin, we're creating a ton
of value for shareholders. And like at some level that's true,
but another level, you just buy bitcoin, Like.
Speaker 2 (04:43):
This is true.
Speaker 1 (04:44):
And I think I probably said this on the podcast before,
but like a thing that is just wild to me
about micro Strategy in particular and bitcoin treasury companies generally,
is like you have to tell some story about why
you're not just a pot of bitcoins, right, and there
are a number of ways to tell that story. And
like all credit to micro Strategy, they've done all of it.
They're smart, like they're good at fine, Like this is
(05:05):
a well run bitcoin treasury company with a model that
I fundamentally don't understand, but like they're great at it.
But the sort of central story that they tell is like, well,
we can be levered bitcoin holders, right, Like we can
be instead of just you know, buying bitcoin put in
the plot, we can like borrow money to put bitcoin
in the plot. We can you know micro saylers, like
we can issue preferred stock that pays ten percent, and
(05:27):
we can buy a bitcoin that goes up by forty
seven percent a year, and therefore we're like we're doing
an arbitrage, which is like nobody should ever said the
word arbitrage. You gain after that. But the thing that
I find fascinat about micro strategy is that, like from
the shareolders per sective, it is just not levered bitcoin exposure.
Like the way micro strategy works. If there's a sixty
billion ish dollar pot of bitcoin that trades it one
(05:49):
hundred and twenty billion ish market capitalization, which means it's
not levered bitcoin for you. If you put in a dollar,
you get like fifty cents worth of bitcoin, which is
the opposite of leverage. Leverage is like you put in
you get back two dollars with a bitcoin. So I
just find it somewhat crazy making. But here we are.
Speaker 2 (06:08):
But the thing is, even if Jim Chinos is correct
what you were saying he is, that doesn't mean his
trade is gonna work.
Speaker 1 (06:14):
He's sorry, I want to be there. The thing that
he has definitely correct about is that it's jibberish, right,
just from an aesthetic point of view, it's jibberish that
doesn't doesn't mean the stoggle go down.
Speaker 2 (06:25):
That's the thing, and that's something we've talked about before
with these bitcoin treasury companies, is that in the stock
market people are happy to pay double basically in the
case of Strategy, like the.
Speaker 1 (06:36):
Trade is about that that can't last. Yeah, and like
you see cracks in it, right, the game Stop is
now a big treasuring company and like it should converts
this week, and you know, let's talk with down like
twenty percent at some point, like you know, two weeks ago,
I would have said, like, yeah, any company can like
announce that the bitcoin treasuring company and like trade at
two x of the value of it's bitcoin. Like it's
not quite as true anymore.
Speaker 2 (06:55):
Yeah, like kind of immediately if it came not true, yeah.
Speaker 1 (06:57):
Which is great, but like the micro strategy still does.
I mean it's coming a little bit.
Speaker 2 (07:02):
Yeah.
Speaker 1 (07:03):
But it is a little bit weird to me for
Sailor to criticize Channis because as Channos has said, and
as I just said, Sailor was doing the same trade
right selling micro strategy, Like micro Strategy is in the
business of selling it's on stock to buy bitcoin, right,
So clearly, at some point in the fairly recent past,
like this year, like micro Strategy has thought that bigcoin
was better as it than its stock, right, like you
(07:25):
could sell this stock to buy bitcoin. That's a longer
as true. Right now, they're doing a lot of weird stuff,
and they've moved kind of further away from equity. Right
they started doing stock and convertible bonds, and then they
moved into like this very high premium convertible preferred, and
they moved into I think higher premium convertible preferred that
has looked less and less equity content, and now they're
(07:46):
selling straight ten percent preferred that doesn't convert into stock,
So they're basically you know, if you just look at
their actions, it suggests that they thought their stock was
overvalued at some point and now they think their stock
is fairly valued. And I think he's on TV something
like you know, watch out, Jim Chanis, because we could
issue preferred and you know, if the premium comes down,
(08:07):
we'll just issue more preferred, Yeah, which I took to
sort of mean that they might buy back stock, which
is also crazy making.
Speaker 2 (08:13):
This might be what you're referring to. He said, if
the stock trades at a week premium We're just going
to sell the preferred and if the stock rallies up,
he's going to get liquidated and wiped out.
Speaker 1 (08:23):
Yeah, which doesn't exactly say we're going to buy the.
Speaker 2 (08:25):
Stock, but yeah, whatever. So he also said so if
the premium declines enough, he will issued preferred also in
that scenario and then buy back the common shares.
Speaker 1 (08:36):
Well whatever.
Speaker 2 (08:37):
I mean, he's a few different king plans. Something that
I thought was interesting from that interview, which I'm still
trying to formulate an opinion on. So maybe you can
give me one is you know, I asked him, you
have all these copycat bitcoin treasury companies that are coming out,
do you view them as competition? He said, I don't
view them as competition. I view ETFs that track preferred
(09:00):
shares is competition. So as Investco has one, I think
the ticker is pg X. It has like four billion
dollars in assets, So I guess he's trying to compete
for investor attention, like he wants investors to buy his
preferred shares, not broadly preferred shares. I don't really know.
Speaker 1 (09:17):
Interesting, Yeah, the bitcoin treasury thing is interesting because he has,
like for a long time been a proselytizer for other
companies should do this, right, Yeah, And when you think
about like the model, like Jim Chandos and I can
talk about the premium all we want, but like fundamentally,
Michael Sailor reviews micro strategy, they bet that bitcoin will
go up, and so like the main thing they want
is for bitcoin to go up rate. Yeah, and the
(09:39):
more companies that devote themselves to buying bitcoin, like, the
more bigcoin will go up, and the better off micro
strategy and shoulders. All right, so they're not competition, right, Yeah,
like in a world of like enormous competition for you know,
people to invest in this thing, Like would micro strategies
premium come down maybe, But if micro strategies premium comes
down by like Bitcoin going up ten x, I'm like,
that's great for Michael Sailor, you know the preferred thing, Yeah,
(10:02):
Like I don't. I actually don't know who. I've always
thought of straight preferred as a pretty niche financial product, right,
It's like, yeah, a lot of banks issue it, and
it looks some like utility ones. It's not like a
huge You don't regularly have tech companies being like I'm
going to issue a straight preferred. Right, it's not like
a real thing, Like bankers don't go around marketing ten
(10:25):
percent preferred stock to companies, and micro Strategy is doing
it in size, And yeah, I guess they're competing for
like the fairly limited pool of like retail investors who
want preferred stock. You know, they're offering ten percent. They're like,
take our ten percent. And I guess, like surely somewhere
out there there's a fixed income investor who is like,
I just want a safe, high dividend, and the best
(10:50):
dividend paying stock that I can get is this microstritge
preferred And I don't care what the business model it's vies. Yeah,
don't tell me about it, as long as they keep
paying the dividend. And that's the thing that someone thought I.
Speaker 2 (11:03):
Could have seen him embracing these ETFs and other funds
the track preferred chairs because theoretically micro strategy Yeah, so
I don't know.
Speaker 1 (11:11):
Yeah, I don't. I don't really understand either, but like
right to the extent that like instead of buying a
diversified dividend fund, retail investors like I want that micro
strategy dividend, Like.
Speaker 2 (11:20):
Yeah, who won?
Speaker 1 (11:23):
Who won?
Speaker 2 (11:24):
Yeah?
Speaker 1 (11:25):
Like to the extent that, like I'm the judge of
this match, Like, yeah, I'm going to award it to
Jim Chana's on points to the extent that, like, you know,
we'll find out when someone gets knocked out, Like Jim
Chanas is going to exit this trade before Michael Saylor does.
Speaker 2 (11:39):
That's true. That's true.
Speaker 1 (11:42):
He's going to do great.
Speaker 2 (12:00):
Cycle recruiting. You wrote that, Uh, no one likes it.
Speaker 1 (12:04):
It's amazing. They fixed it. They just fixed it.
Speaker 2 (12:06):
Well, Jamie Diamond especially didn't like it. You're right, he
solved the problem.
Speaker 1 (12:10):
So I have some backstorright here. So I clerked for
a federal judge after law school, and clerkship hiring has
the same issues, where like basically there's a pool of candidates,
and there's a pool of judges, and there's like a
ranking of prestigious judges is ranking of prestigious candidates, and
everyone's the best candidates are the best judges. And you know,
(12:32):
it used to be that like towards the end of
law school, you'd interview with the judge to get a clerkship,
and then some judges were like, we'll interview a little
earlier for clerkships. To start in two years and then
we'll get the first cut up. The best candidates of
crept up earlier and earlier, and it became like untenable.
And when I was a clerk, my judge was like
the leader of the like clerkship hiring plan that told
(12:54):
people you can't hire before, like you know, the beginning
of the third year of law school. And it was
like kind of mostly enforced, but like a couple of
judges defected and hired in the second year, and you know,
I couldn't enforce it, but I was like in a
dudgeon when people would would hire clerks too early, And
so I saw this process play out where like it
got too early. Everyone's like, this is dumb, it's too early.
(13:15):
Let's move things back, yeah, and and hire on a
normal schedule where we can like see people's grades and
like know what they're like, and not just like hire
at the beginning of law school. And we set it back,
and then like immediately it started decaying again. So I
think that like private equity hiring is a little of that,
where like there's a logical time to hire new private
(13:36):
equity associates, and it's you know, as they get to
the end of their investment banking jobs, right, it's like
three months before those jobs end or whatever. And because
prestigious firms want prestigious candidates, they'll be like, well, just
interview a month earlier. And then everyone rushes to, you know,
keep up with them. And so now it's the hiring
is like before the investment banking jobs start, and everyone
(14:00):
that's Domin. So Jamie Diamond is like, that's Domin, we
won't let you do it. And because he's Jamie Diamond,
because JP Morgan is a big prestigious bank, Like they've
had some traction where I think Apollo and General Atlantic
have already said I'm not going to hire people this
year for their twenty twenty seven start dates.
Speaker 2 (14:16):
But it sounds like you're saying you don't think that
this truth of sorts will last.
Speaker 1 (14:20):
I think in five years we will be reading articles
about how private equity hiring is, you know, starting before.
Speaker 2 (14:26):
Investing, talking about on this podcast.
Speaker 1 (14:28):
I'm talking about on this podcast for sure. This is yeah,
this is a this is a long run contact for
this podcast. Will this equilibrium decay like next month? I
don't think so. I think there's gonna be like a
real impact, where like people who started private equity in
twenty twenty seven might get interviewed in twenty twenty six
rather than twenty twenty five. Like that that could really
(14:48):
happen because it has gotten sort of comical and like
there is like some good will around, like moving things back,
but like will it last forever? I don't know. I
don't think so.
Speaker 2 (14:57):
Well, it's interesting. I took a dig in some of
the Bloomberg historical archives. Morgan Stanley tried to do something
like this.
Speaker 1 (15:04):
Everyone's tried to do this. This is like a thing. Yeah.
Speaker 2 (15:06):
Well, in twenty thirteen, Morgan Stanley then abandoned their attempt
to block first year bankers from talking with recruiters for
outside firms. Employees complained and the complaint this is all
according to people familiar from the time. The complaint was
that they're being put at a disadvantage to you know,
other entry level bankers at other firms.
Speaker 1 (15:28):
I don't think JP Morgan could enforce this. Yeah, the
private equity firms hadn't come out in support of them.
Like the calculation of JP Morgan is not just we
will stop people from taking offers too early, because like
that is really hard to do because you know, everyone
going into banking wants to be in private equity, and like,
you lose analysts if you said you can't go into
private equity. But I think because also the private equity
(15:51):
firms don't love it, it has a chance to succeed.
Speaker 2 (15:54):
Well, that's what I'm curious about. So I mean Apollo
kicked this off, Mark Owen said in an email statement
to Bloomberg. When someone says something that is just plainly true,
I feel compelled to agree with it. But is part
of the calculation on Apollo's part that they're going to
earn some brownie points with Jamie Diamond, and that's more
valuable than you know, getting an early shot at some
(16:15):
of these analysts.
Speaker 1 (16:16):
I think it's both. Like, I think they're not kidding
that it's dumb to hire people before they graduate from college,
right for a job that starts in two plus years,
and you know, interview them about like LBO modeling when
they've never worked on a deal, right, Like it's genuinely dumb.
You know, Like, yes, being in the good graces of
Jamie Diamond is not a bad idea for any private
(16:37):
equity firm. But like no, I think I mostly agree
with them. I want to tell you about a couple
of like reader emails I've gotten out this topic. Yeah,
so one as I heard from someone who was like, yeah,
I started in banking. I accepted my PE job like immediately,
and then after a couple of weeks in banking, I
realized I didn't like to do deals, and so he
like backed out of his PE offer, which, first of
(16:59):
all like yes, and generally I think and Apollo talking
about this, they're like, we want to get recruiting right.
If you're recruiting people before they start in banking, you
don't really know that you're getting the people who really
want to and will be good at doing private equity right.
They don't know anything about Yeah, I've never worked on
whatever they've been. This is part of a bigger process
(17:21):
where everything is crept up earlier and become more intense.
Speaker 2 (17:23):
So now like you interns, well, we talked about university
finance a few weeks through.
Speaker 1 (17:28):
Like I'm like, oh, they don't know anything about banking,
but they've been like doing banking since there were children.
But still, like you get a better sense of who
actually wants to do it if you interview people after
like a year in banking than if you interview them
after twenty minutes. Yeah, I thought it was interesting that
like this doesn't happen that much, like people backing out,
Like he was like, yeah, my firm was then like
advertising for someone to fill this spot really quickly, because
(17:48):
like they don't over hire. It's not like you know,
an airline where they sell twenty percent more seats because
they figure people will drop out. They just figure everyone
they hire's going to start two years later, which is
pretty wild. The other thing that guys, like a couple
of people are like you ask, like why is Apollo
jumping to agree with Chap Murray? And like more possibility
is they think that recruiting this early is not a
(18:11):
good idea and they would like to recruit later to
get more have a more informed recruiting conversation. Another possibility
is they want to curry favor with shaving time. And
a third possibility is that they don't need as many people. Yeah,
Like the third possiblity is you're hiring for twenty twenty seven,
you're like okay in two years. First of all, like
there's all this stuff about how like private AQUD firms
(18:32):
have nothing to do, like they're you know, they like
can't get any excess, Like shops are kind of bored,
like they're not doing as many deal as they can't
raise money. You know, Yeah, it'd be good to tighten
this wigod for twenty twenty seven. And then there's also
just like the theme of what AI will do for
junior hiring and financial services, right, Like, so if you're
(18:55):
like running a big private equity firm and you're looking
at your need for junior headcount two years out, and
I feel a little uncertain, and you might say, you
know what, we don't need to hire everyone for twenty
twenty seven right now. We can take a pause on
that and see how many people we actually need in
twenty twenty seven. So I detinally don't know, like if
you were a junior, like if you're about to start
your banking job, like I don't know whether you'd rather
(19:16):
have private equity recruiting now or not. It's kind of
nice to have your entire future sewn up for the
next five years, but at the same time, it's like
stressful to interview now without knowing anything and without having
done any deals and commit yourself to you know, your
jobs for the next five years. I would think it's
better for candidates to have a little bit more time. Yeah,
(19:37):
but not if like the reason for that is that
you know, the dystopian the dystopian future.
Speaker 2 (19:42):
Yeah, that AI will just replace them anyway. Also wanted
to talk about this a bit more from you know,
the perspective of an Apollo or another pe firm. The
reason why everything has been pushed are we saying back
or forward? Probably the reason why later. The reason why
everything is getting pushed early is theoretically because they want
the best analysts, and it's almost seems like a trade
(20:05):
off that to get the best analysts, part of the
price you pay is probably some of the folks that
you hire two years early before they have any experiences,
some of them are going to be duds.
Speaker 1 (20:15):
Oh yeah, yeah, And this is I mean, this is
what they say when they agree with JA. We want
to get the recruiting right. You know, I did get
one reader email. I was like, it's really hard to
do recruiting. We've never found a way to be really
like confident that we're getting the right people, and so like,
who did the good job in the interview and is
going to Goldman? Is like fine. To me, it seems
(20:37):
like this would be a bad recruiting system because you
would not know anything about people's performance. But like the
counter argument is like, yeah, you never know anything anyway,
and that's fine, But yeah, I would think that you'd
get a lot of duds or people who aren't motivated,
or you know, you'd miss a lot of people who
like don't have the most prestigious backgrounds. But I actually
kill it in banking, you know, like like it seems
(20:59):
like a worst recruit process than like waiting until people
have like done deals for a while.
Speaker 2 (21:03):
Also, in you know, all the coverage I've read about
this over the past months, in the past couple of years,
it just seems like there's only one pipeline to get
into PEE at the entry level, and that's to come
from banking. Do they hire from anywhere other than I
be Yeah.
Speaker 1 (21:19):
You know, historically some number of like management consultants, some
number of post MBA people. But I think it's increasingly
hard and increasingly like the pipeline is the pipeline, and
like there's like one way to do it, you know,
particularly because they're interviewing so early.
Speaker 2 (21:36):
Well, we'll see how long this truth lasts.
Speaker 1 (21:40):
Yeah, I think there's something interesting, but like people want
me to be like, if they want to compete for
the best people want, don't they just wait and pay more.
There's a weird fungibility about like both the people and
the firms where it's like we all have to do
the same recruiting at the same time because we're getting
the same people to do the same job. Like you
could have imagine like one private equity firm going to people,
(22:04):
you know, a week before the job starts and say, look,
I know you've accepted a job at another private equity firm,
but like we think you're good, we'll double your salary. Right,
you could imagine doing that, but I think it's like
not done and you know, sort of frowned upon. And
it's like small enough industry that people wouldn't do it.
But it is a strange thing that everything feels so
fungible and like, yeah, you know, it's such a direct
(22:25):
competition for the same people that do the same thing,
rather than like, you know, trying to differentiate yourself in
some way other than hiring twenty minutes earlier.
Speaker 2 (22:33):
Yeah, the grand convergence.
Speaker 1 (22:50):
Right. There's a story in the Financial Times about Tower
Research Capital, the great delightful high fregancy trading firm.
Speaker 2 (22:57):
Yeah, one of the oldest ones. Yeah, if I'm the oldest,
I don't know.
Speaker 1 (23:03):
It's hard to note what counts as the hypercancy trading firm,
but they're they're sort of big established hygh frequency training firm,
and they're starting a they're apparently launching a hedge fund
to run outside capital because like, you know, your high
fagency trading firm, you run your own capital. You get
like market signals that tell you what stocks to buy
in the next three seconds. Yeah, and like those signals
(23:27):
throw off enough exhaust that you can be like, I'll
know what stocks to buy in the next three minutes, right, Yeah,
you like, you know, you reach your capacity for how
much of that you can do with your own money,
and then you're like, well, open up to outside money
and charge people twenty percent for telling them what stocks
to buy in the next three hours or whatever. So
it's an interesting like convergence of like what hedge funds
do and what hypergency trading firms do.
Speaker 2 (23:49):
Yeah, this is an interesting one. I liked this phrase
that was in the FT article. Let me find it
where I put it? In my notes. Oh yeah, I
like this mid frequency strategies. I haven't heard that before.
We talked about high frequency, but now we're talking about
mid frequency.
Speaker 1 (24:03):
Different. I don't know what it means, because, like, I
think different people have different Like I think there are
definitely people in the world who you're like, oh, yeah,
I'm a high frequency trader. I've trade like every couple
of days, right, But like, yeah, when like HFT people
say it, they mean, like when HFT people like I
trade every second, They're like, oh, that's so low frequency.
Speaker 2 (24:24):
What a pedestrian case of trading.
Speaker 1 (24:27):
You know. I've said milliseconds in articles and people have
been like, seconds are so slow we're even talking about
but no mid frequency. So we're doing a microsecond and
an hour. Yeah, I'm sorry, we're doing a microsecond in
a month somewhere in that range.
Speaker 2 (24:42):
I do like to imagine like a full circle moment though,
like Tower being an example of Okay, they're you know,
going out the time spectrum and maybe just we end
up with long only fund managers at a certain point.
Speaker 1 (24:56):
I don't think we're gonna up. Well, it's sure like
this is the thing, like people who are doing a
lot of quantitative research into like signals that tell them
what stocks to buy and sell. There are different ways
to use that, and often it's like at different time scales,
where like if you have like a pretty good method
for knowing which stocks are likely to go up or down, like,
(25:18):
one natural thing to do is to like buy the
ones that'll go up and short the ones that'll go down, right,
But nothing to do is you buy the ones that
go up and not short anything and run a long
only fund, right, And so you have like you know,
AQR and other people who run you know, hedge funds
and also are like, well, just take the long signals
and run long only money because people want long only products.
(25:39):
Or like, you know, I think about like other examples
of this kind of thing, and like you look at Renaissance,
and it's never clear exactly what the dividing line is.
But like Renaissance, you know, yeah, as a very famous,
extraordinarily successful hedge fund called Medallion that has been closed
to outside money for that now because it's too good
(26:02):
and it only has so much capacity, right, Yeah, And
so they close it outside money and they run their
own money and they make themselves billionaires, and then they go, well,
you know, we have all of us, like you know,
it's like pretty good signals that you know, like we
reach capacity on our own money, but like we can
use those signals to run institutional money and like not
quite as good but good enough. So there's a lot
of that where like you know, people who have really
(26:25):
good signals that have limited capacity will run their own
money with those really good signals, and then like there's
some second tier of like we can run other people's
money and still be pretty good.
Speaker 2 (26:35):
Yeah, I mean other I don't know that.
Speaker 1 (26:36):
Towers advertising that like maybe they're like, oh or like
mid frequency signals or even better. You should definitely get
in on this, right, But like I do think in
renaissance is quite explicitly the case that they're like we
have really good stuff for us and like okay stuff
for you.
Speaker 2 (26:50):
Yeah, yeah, I yeah. The article doesn't go into that,
but it does say that this would mark one of
the first examples of a large high speed proprietary trading
shop opening a product for outside investors.
Speaker 1 (27:01):
Yeah sort of. Wellthough, like Jane Streets, it should bombs, right, Yeah,
not not a product for outside investors per se, but
like the idea that like you are a big successful
proprietary trading firm, and so you use outside money to
grow your business, is not like completely unheard of true?
And also I think some of them have taken like
outside equity investments. So I'm not sure about that you.
Speaker 2 (27:21):
Touched on this, but one of the quotes in the article,
attributed to a person close to Tower is that there's
just a finite limit to the amount of money that
you can make with the really high frequency strategies. Why
is that It's just because they're dealing with the likes
of Citadel and Jane Street and trying to compete against them,
or what does that mean?
Speaker 1 (27:41):
Well, like stocks don't go up that much, and so
is that just in a microsecond?
Speaker 2 (27:48):
Right?
Speaker 1 (27:48):
Like like what is investing? Right? Like you're a sort
of deep questionnaire. It was like why should you make
money by buying stocks? Right? And the answer is in
like the long term, because you're alligating capital to its
best uses, and you are saying this AI company is
going to transform the world, and so if I invest
in it now, it'll like ten x my money because
like it'll be transformative to the world. Right, And if
(28:11):
you're like why should you make money holding stocks? For
like one one thousandth of a second. The answer is
because you're providing a tiny, tiny liquidity service to somebody, right,
And like it turns out that you can make a
really nice living providing a tiny liquidity service to people.
But you can't, like, you know, make a trillion dollars, right,
Like you're not like allocating capital to like changing the
(28:33):
world really yeah, like providing a little service, right, So,
like there shouldn't be that much money. Like there's a
lot of money in very high frequency understanding what stocks
will go up in the next hundredth of a second,
But there's more money in understanding like how the economy
will transform the next ten years.
Speaker 2 (28:47):
Right, yeah, Because I wrote that quote and I was like,
isn't that true of a lot of things? What I mean,
like there's only a finite amount of money that you.
Speaker 1 (28:55):
Make, Like I don't think that there's Like I think
the one place where there is not a amount of
money is in like understanding what companies and technologies will
be transformative for the world, right, Like if you like
pick where economic growth will be, like you can make
a trillion dollars, right, Like not really, but like I
mean you can't, right I mean, like, you know, Facebook
is a trillion dollar company, right, you can like know
(29:17):
what the future will look like and make a trillion
dollars right, Like you can't? You know, you're like prodding
a service. Yeah, the bloomit how much money you can make?
Speaker 2 (29:28):
Well, there's a quote in here from a professor over
at the University of Illinois who also here's another quote
that just made me think a little bit. If you're
a firm that gets really good at mining gold, why
sticks are just mining gold? It's like both That was
another thinker.
Speaker 1 (29:48):
Mining gold, right, but.
Speaker 2 (29:50):
It's like you.
Speaker 1 (29:52):
Newsletter why Not? Why Not? Podcast? And that was the
Money Stuff Podcast.
Speaker 2 (30:03):
I'm Matt Luvian and I'm Katie Greifeld.
Speaker 1 (30:05):
You can find my work by subscribing to the Money
stuffnewsletter on Bloomberg dot com.
Speaker 2 (30:09):
And you can find me on Bloomberg TV every day
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Speaker 1 (30:15):
We'd love to hear from you. You can send an
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Speaker 2 (30:22):
You can also subscribe to our show wherever you're listening
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Speaker 1 (30:28):
The Money Stuff Podcast is produced by Anna Maserakus and
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Speaker 2 (30:32):
Theme music was composed by Blake Maples.
Speaker 1 (30:34):
Brandon Francis Nunham is our executive.
Speaker 2 (30:36):
Producer, and Stage Bauman is Bloomberg's head of podcasts.
Speaker 1 (30:39):
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):
The bird's doing well, by the way, So the next
milestone is like he flies, Yes, he is great news.
He yes. So I believe last week I was talking
about how we needed to work on flying, really good
at perching, really good at eating.
Speaker 1 (00:21):
Sure you've been showing him YouTube videos.
Speaker 2 (00:23):
We've been working on flying. He's pretty good at flying.
Speaker 1 (00:25):
Now.
Speaker 2 (00:26):
The thing is, I'm still working on my flying. Apparently
came naturally to the bird. I have to keep reminding myself, like,
this is a baby bird.
Speaker 1 (00:37):
Yeah, do birds when.
Speaker 2 (00:41):
I think he's or she, we can't tell because it's
a baby is just entering adolescence. Because the bird will
also like peck at you, Like yesterday was sitting on
my shoulder and it was like pecking at my ear
and then I googled it and they go through a
teenager phase where they like get into biting you for
a little bit and then they kind of grow out
of it.
Speaker 1 (01:00):
Anyway, congratulations to your bird, Thank you, Hello and welcome.
It's going to keep being the bird Stuff podcast, isn't it.
Speaker 2 (01:09):
I love it?
Speaker 1 (01:11):
Anyway, Hello and welcome to the money Stuff Podcast. You're
a weekly podcast where we're talking about stuff related to
money sometimes. I'm Matt Levine and I read the Money
Stuff com for Bloomberg Opinion.
Speaker 2 (01:20):
And I'm Katie Greifeld, a reporter for Bloomberg News and
an anchor for Bloomberg Television.
Speaker 1 (01:24):
Katie, in your other life as an anchor for Bloomberg Television,
you've been anchoring some Bloomberg television.
Speaker 2 (01:29):
Absolutely, because we had a little bit of a SmackDown
this week, I'm trying to make this a dramatic.
Speaker 1 (01:36):
Everyone loves a financial industry SmackDown now after ever since
the like the classic act then icon one from like
a decade ago, Everyone's like, oh, SmackDown.
Speaker 2 (01:46):
I mean, we'll never achieve those heights again. That was
That's at the Bar and no one's passed it since.
But in slightly less interesting smackdowns smackish last week I
believe it was, there was a splashly Bloomberg News article
about how Jim Chanos has a short thesis when it
comes to Michael Sailor's strategy, the idea being that you
(02:08):
basically short strategy and you buy bitcoin because strategy trades
at a premium to its actual bitcoin holdings.
Speaker 1 (02:15):
Yeah, and one thing that Jim Chaino said that is
entirely accurate and revealing, and everything ignored is that micro
strategy also does the same trade and enormous side. Yeah,
and like micro strategy is like kind of like fundamental
business models, Like, well, our stock trades that two times
the value of the underlying bitcoins, So we're gonna sell
(02:36):
a ton of stock and use the money to buy bitcoin.
It's like, yeah, of course it's the great trade. But
like micro strategy has some advantages and putting the trade
on Jim Chanos doesn't have, Like they don't have to
pay to borrow the stock, they can't get squeezed out
of their sharp but they were doing the same trade.
Speaker 2 (02:50):
But anyway, yeah, well go on. That was Chenos's position.
We interviewed Michael Sailor on Tuesday of this week, and
obviously he disagreed.
Speaker 1 (03:01):
Well, he was like, no, nobody should sell his biker
strategy stocked by bitcoin. That's a crazy thing to do.
Why would anyone sell biker stategy stocked by bitcoin? Yeah
except for him, but whatever, whatever, No, I mean, to
be fair, he's not doing it anymore.
Speaker 2 (03:12):
Yeah. Oh. He also said that you know, Chinos doesn't
understand how like his valuation of strategy is off sides.
That was on Tuesday. Jim Chanos came on Bloomberg Television
on Wednesday with my colleague and friend Scarlett Fou and
give his side of the story. I mean, he said
that Sailor is a great salesman, but basically his argument
(03:37):
amounts to financial gibberish. I think he might have I
think he might have said that on social media and
not on I would it's really the case that like,
oh wait, wa wait, let me read you betweet. Actually
it's pretty good. In response to Sailor's television club from
our interview with him, this is, of course complete financial gibberish.
Mister Sailor wants you to value his business based not
(03:59):
only on net value of his bitcoin holdings NAV at market,
but additionally with a multiple on the change in that
NAV exclamation point, because now he can leverage his balance sheet. Lol.
Speaker 1 (04:11):
I mean, like, I'm sorry, that's correct. Like I don't
want to say that micro strategies thing can't work right,
because it's worked right, and like a lot of people
have gotten carried out shorting it right, and like I'm
not saying, oh, it's a great idea just short micro strategy,
but like it is gibberoiush right, It's like the point
that they're making is like bitcoin has gone up a lot,
(04:35):
and so when we buy bitcoin, we're creating a ton
of value for shareholders. And like at some level that's true,
but another level, you just buy bitcoin, Like.
Speaker 2 (04:43):
This is true.
Speaker 1 (04:44):
And I think I probably said this on the podcast before,
but like a thing that is just wild to me
about micro Strategy in particular and bitcoin treasury companies generally,
is like you have to tell some story about why
you're not just a pot of bitcoins, right, and there
are a number of ways to tell that story. And
like all credit to micro Strategy, they've done all of it.
They're smart, like they're good at fine, Like this is
(05:05):
a well run bitcoin treasury company with a model that
I fundamentally don't understand, but like they're great at it.
But the sort of central story that they tell is like, well,
we can be levered bitcoin holders, right, Like we can
be instead of just you know, buying bitcoin put in
the plot, we can like borrow money to put bitcoin
in the plot. We can you know micro saylers, like
we can issue preferred stock that pays ten percent, and
(05:27):
we can buy a bitcoin that goes up by forty
seven percent a year, and therefore we're like we're doing
an arbitrage, which is like nobody should ever said the
word arbitrage. You gain after that. But the thing that
I find fascinat about micro strategy is that, like from
the shareolders per sective, it is just not levered bitcoin exposure.
Like the way micro strategy works. If there's a sixty
billion ish dollar pot of bitcoin that trades it one
(05:49):
hundred and twenty billion ish market capitalization, which means it's
not levered bitcoin for you. If you put in a dollar,
you get like fifty cents worth of bitcoin, which is
the opposite of leverage. Leverage is like you put in
you get back two dollars with a bitcoin. So I
just find it somewhat crazy making. But here we are.
Speaker 2 (06:08):
But the thing is, even if Jim Chinos is correct
what you were saying he is, that doesn't mean his
trade is gonna work.
Speaker 1 (06:14):
He's sorry, I want to be there. The thing that
he has definitely correct about is that it's jibberish, right,
just from an aesthetic point of view, it's jibberish that
doesn't doesn't mean the stoggle go down.
Speaker 2 (06:25):
That's the thing, and that's something we've talked about before
with these bitcoin treasury companies, is that in the stock
market people are happy to pay double basically in the
case of Strategy, like the.
Speaker 1 (06:36):
Trade is about that that can't last. Yeah, and like
you see cracks in it, right, the game Stop is
now a big treasuring company and like it should converts
this week, and you know, let's talk with down like
twenty percent at some point, like you know, two weeks ago,
I would have said, like, yeah, any company can like
announce that the bitcoin treasuring company and like trade at
two x of the value of it's bitcoin. Like it's
not quite as true anymore.
Speaker 2 (06:55):
Yeah, like kind of immediately if it came not true, yeah.
Speaker 1 (06:57):
Which is great, but like the micro strategy still does.
I mean it's coming a little bit.
Speaker 2 (07:02):
Yeah.
Speaker 1 (07:03):
But it is a little bit weird to me for
Sailor to criticize Channis because as Channos has said, and
as I just said, Sailor was doing the same trade
right selling micro strategy, Like micro Strategy is in the
business of selling it's on stock to buy bitcoin, right,
So clearly, at some point in the fairly recent past,
like this year, like micro Strategy has thought that bigcoin
was better as it than its stock, right, like you
(07:25):
could sell this stock to buy bitcoin. That's a longer
as true. Right now, they're doing a lot of weird stuff,
and they've moved kind of further away from equity. Right
they started doing stock and convertible bonds, and then they
moved into like this very high premium convertible preferred, and
they moved into I think higher premium convertible preferred that
has looked less and less equity content, and now they're
(07:46):
selling straight ten percent preferred that doesn't convert into stock,
So they're basically you know, if you just look at
their actions, it suggests that they thought their stock was
overvalued at some point and now they think their stock
is fairly valued. And I think he's on TV something
like you know, watch out, Jim Chanis, because we could
issue preferred and you know, if the premium comes down,
(08:07):
we'll just issue more preferred, Yeah, which I took to
sort of mean that they might buy back stock, which
is also crazy making.
Speaker 2 (08:13):
This might be what you're referring to. He said, if
the stock trades at a week premium We're just going
to sell the preferred and if the stock rallies up,
he's going to get liquidated and wiped out.
Speaker 1 (08:23):
Yeah, which doesn't exactly say we're going to buy the.
Speaker 2 (08:25):
Stock, but yeah, whatever. So he also said so if
the premium declines enough, he will issued preferred also in
that scenario and then buy back the common shares.
Speaker 1 (08:36):
Well whatever.
Speaker 2 (08:37):
I mean, he's a few different king plans. Something that
I thought was interesting from that interview, which I'm still
trying to formulate an opinion on. So maybe you can
give me one is you know, I asked him, you
have all these copycat bitcoin treasury companies that are coming out,
do you view them as competition? He said, I don't
view them as competition. I view ETFs that track preferred
(09:00):
shares is competition. So as Investco has one, I think
the ticker is pg X. It has like four billion
dollars in assets, So I guess he's trying to compete
for investor attention, like he wants investors to buy his
preferred shares, not broadly preferred shares. I don't really know.
Speaker 1 (09:17):
Interesting, Yeah, the bitcoin treasury thing is interesting because he has,
like for a long time been a proselytizer for other
companies should do this, right, Yeah, And when you think
about like the model, like Jim Chandos and I can
talk about the premium all we want, but like fundamentally,
Michael Sailor reviews micro strategy, they bet that bitcoin will
go up, and so like the main thing they want
is for bitcoin to go up rate. Yeah, and the
(09:39):
more companies that devote themselves to buying bitcoin, like, the
more bigcoin will go up, and the better off micro
strategy and shoulders. All right, so they're not competition, right, Yeah,
like in a world of like enormous competition for you know,
people to invest in this thing, Like would micro strategies
premium come down maybe, But if micro strategies premium comes
down by like Bitcoin going up ten x, I'm like,
that's great for Michael Sailor, you know the preferred thing, Yeah,
(10:02):
Like I don't. I actually don't know who. I've always
thought of straight preferred as a pretty niche financial product, right,
It's like, yeah, a lot of banks issue it, and
it looks some like utility ones. It's not like a
huge You don't regularly have tech companies being like I'm
going to issue a straight preferred. Right, it's not like
a real thing, Like bankers don't go around marketing ten
(10:25):
percent preferred stock to companies, and micro Strategy is doing
it in size, And yeah, I guess they're competing for
like the fairly limited pool of like retail investors who
want preferred stock. You know, they're offering ten percent. They're like,
take our ten percent. And I guess, like surely somewhere
out there there's a fixed income investor who is like,
I just want a safe, high dividend, and the best
(10:50):
dividend paying stock that I can get is this microstritge
preferred And I don't care what the business model it's vies. Yeah,
don't tell me about it, as long as they keep
paying the dividend. And that's the thing that someone thought I.
Speaker 2 (11:03):
Could have seen him embracing these ETFs and other funds
the track preferred chairs because theoretically micro strategy Yeah, so
I don't know.
Speaker 1 (11:11):
Yeah, I don't. I don't really understand either, but like
right to the extent that like instead of buying a
diversified dividend fund, retail investors like I want that micro
strategy dividend, Like.
Speaker 2 (11:20):
Yeah, who won?
Speaker 1 (11:23):
Who won?
Speaker 2 (11:24):
Yeah?
Speaker 1 (11:25):
Like to the extent that, like I'm the judge of
this match, Like, yeah, I'm going to award it to
Jim Chana's on points to the extent that, like, you know,
we'll find out when someone gets knocked out, Like Jim
Chanas is going to exit this trade before Michael Saylor does.
Speaker 2 (11:39):
That's true. That's true.
Speaker 1 (11:42):
He's going to do great.
Speaker 2 (12:00):
Cycle recruiting. You wrote that, Uh, no one likes it.
Speaker 1 (12:04):
It's amazing. They fixed it. They just fixed it.
Speaker 2 (12:06):
Well, Jamie Diamond especially didn't like it. You're right, he
solved the problem.
Speaker 1 (12:10):
So I have some backstorright here. So I clerked for
a federal judge after law school, and clerkship hiring has
the same issues, where like basically there's a pool of candidates,
and there's a pool of judges, and there's like a
ranking of prestigious judges is ranking of prestigious candidates, and
everyone's the best candidates are the best judges. And you know,
(12:32):
it used to be that like towards the end of
law school, you'd interview with the judge to get a clerkship,
and then some judges were like, we'll interview a little
earlier for clerkships. To start in two years and then
we'll get the first cut up. The best candidates of
crept up earlier and earlier, and it became like untenable.
And when I was a clerk, my judge was like
the leader of the like clerkship hiring plan that told
(12:54):
people you can't hire before, like you know, the beginning
of the third year of law school. And it was
like kind of mostly enforced, but like a couple of
judges defected and hired in the second year, and you know,
I couldn't enforce it, but I was like in a
dudgeon when people would would hire clerks too early, And
so I saw this process play out where like it
got too early. Everyone's like, this is dumb, it's too early.
(13:15):
Let's move things back, yeah, and and hire on a
normal schedule where we can like see people's grades and
like know what they're like, and not just like hire
at the beginning of law school. And we set it back,
and then like immediately it started decaying again. So I
think that like private equity hiring is a little of that,
where like there's a logical time to hire new private
(13:36):
equity associates, and it's you know, as they get to
the end of their investment banking jobs, right, it's like
three months before those jobs end or whatever. And because
prestigious firms want prestigious candidates, they'll be like, well, just
interview a month earlier. And then everyone rushes to, you know,
keep up with them. And so now it's the hiring
is like before the investment banking jobs start, and everyone
(14:00):
that's Domin. So Jamie Diamond is like, that's Domin, we
won't let you do it. And because he's Jamie Diamond,
because JP Morgan is a big prestigious bank, Like they've
had some traction where I think Apollo and General Atlantic
have already said I'm not going to hire people this
year for their twenty twenty seven start dates.
Speaker 2 (14:16):
But it sounds like you're saying you don't think that
this truth of sorts will last.
Speaker 1 (14:20):
I think in five years we will be reading articles
about how private equity hiring is, you know, starting before.
Speaker 2 (14:26):
Investing, talking about on this podcast.
Speaker 1 (14:28):
I'm talking about on this podcast for sure. This is yeah,
this is a this is a long run contact for
this podcast. Will this equilibrium decay like next month? I
don't think so. I think there's gonna be like a
real impact, where like people who started private equity in
twenty twenty seven might get interviewed in twenty twenty six
rather than twenty twenty five. Like that that could really
(14:48):
happen because it has gotten sort of comical and like
there is like some good will around, like moving things back,
but like will it last forever? I don't know. I
don't think so.
Speaker 2 (14:57):
Well, it's interesting. I took a dig in some of
the Bloomberg historical archives. Morgan Stanley tried to do something
like this.
Speaker 1 (15:04):
Everyone's tried to do this. This is like a thing. Yeah.
Speaker 2 (15:06):
Well, in twenty thirteen, Morgan Stanley then abandoned their attempt
to block first year bankers from talking with recruiters for
outside firms. Employees complained and the complaint this is all
according to people familiar from the time. The complaint was
that they're being put at a disadvantage to you know,
other entry level bankers at other firms.
Speaker 1 (15:28):
I don't think JP Morgan could enforce this. Yeah, the
private equity firms hadn't come out in support of them.
Like the calculation of JP Morgan is not just we
will stop people from taking offers too early, because like
that is really hard to do because you know, everyone
going into banking wants to be in private equity, and like,
you lose analysts if you said you can't go into
private equity. But I think because also the private equity
(15:51):
firms don't love it, it has a chance to succeed.
Speaker 2 (15:54):
Well, that's what I'm curious about. So I mean Apollo
kicked this off, Mark Owen said in an email statement
to Bloomberg. When someone says something that is just plainly true,
I feel compelled to agree with it. But is part
of the calculation on Apollo's part that they're going to
earn some brownie points with Jamie Diamond, and that's more
valuable than you know, getting an early shot at some
(16:15):
of these analysts.
Speaker 1 (16:16):
I think it's both. Like, I think they're not kidding
that it's dumb to hire people before they graduate from college,
right for a job that starts in two plus years,
and you know, interview them about like LBO modeling when
they've never worked on a deal, right, Like it's genuinely dumb.
You know, Like, yes, being in the good graces of
Jamie Diamond is not a bad idea for any private
(16:37):
equity firm. But like no, I think I mostly agree
with them. I want to tell you about a couple
of like reader emails I've gotten out this topic. Yeah,
so one as I heard from someone who was like, yeah,
I started in banking. I accepted my PE job like immediately,
and then after a couple of weeks in banking, I
realized I didn't like to do deals, and so he
like backed out of his PE offer, which, first of
(16:59):
all like yes, and generally I think and Apollo talking
about this, they're like, we want to get recruiting right.
If you're recruiting people before they start in banking, you
don't really know that you're getting the people who really
want to and will be good at doing private equity right.
They don't know anything about Yeah, I've never worked on
whatever they've been. This is part of a bigger process
(17:21):
where everything is crept up earlier and become more intense.
Speaker 2 (17:23):
So now like you interns, well, we talked about university
finance a few weeks through.
Speaker 1 (17:28):
Like I'm like, oh, they don't know anything about banking,
but they've been like doing banking since there were children.
But still, like you get a better sense of who
actually wants to do it if you interview people after
like a year in banking than if you interview them
after twenty minutes. Yeah, I thought it was interesting that
like this doesn't happen that much, like people backing out,
Like he was like, yeah, my firm was then like
advertising for someone to fill this spot really quickly, because
(17:48):
like they don't over hire. It's not like you know,
an airline where they sell twenty percent more seats because
they figure people will drop out. They just figure everyone
they hire's going to start two years later, which is
pretty wild. The other thing that guys, like a couple
of people are like you ask, like why is Apollo
jumping to agree with Chap Murray? And like more possibility
is they think that recruiting this early is not a
(18:11):
good idea and they would like to recruit later to
get more have a more informed recruiting conversation. Another possibility
is they want to curry favor with shaving time. And
a third possibility is that they don't need as many people. Yeah,
Like the third possiblity is you're hiring for twenty twenty seven,
you're like okay in two years. First of all, like
there's all this stuff about how like private AQUD firms
(18:32):
have nothing to do, like they're you know, they like
can't get any excess, Like shops are kind of bored,
like they're not doing as many deal as they can't
raise money. You know, Yeah, it'd be good to tighten
this wigod for twenty twenty seven. And then there's also
just like the theme of what AI will do for
junior hiring and financial services, right, Like, so if you're
(18:55):
like running a big private equity firm and you're looking
at your need for junior headcount two years out, and
I feel a little uncertain, and you might say, you
know what, we don't need to hire everyone for twenty
twenty seven right now. We can take a pause on
that and see how many people we actually need in
twenty twenty seven. So I detinally don't know, like if
you were a junior, like if you're about to start
your banking job, like I don't know whether you'd rather
(19:16):
have private equity recruiting now or not. It's kind of
nice to have your entire future sewn up for the
next five years, but at the same time, it's like
stressful to interview now without knowing anything and without having
done any deals and commit yourself to you know, your
jobs for the next five years. I would think it's
better for candidates to have a little bit more time. Yeah,
(19:37):
but not if like the reason for that is that
you know, the dystopian the dystopian future.
Speaker 2 (19:42):
Yeah, that AI will just replace them anyway. Also wanted
to talk about this a bit more from you know,
the perspective of an Apollo or another pe firm. The
reason why everything has been pushed are we saying back
or forward? Probably the reason why later. The reason why
everything is getting pushed early is theoretically because they want
the best analysts, and it's almost seems like a trade
(20:05):
off that to get the best analysts, part of the
price you pay is probably some of the folks that
you hire two years early before they have any experiences,
some of them are going to be duds.
Speaker 1 (20:15):
Oh yeah, yeah, And this is I mean, this is
what they say when they agree with JA. We want
to get the recruiting right. You know, I did get
one reader email. I was like, it's really hard to
do recruiting. We've never found a way to be really
like confident that we're getting the right people, and so like,
who did the good job in the interview and is
going to Goldman? Is like fine. To me, it seems
(20:37):
like this would be a bad recruiting system because you
would not know anything about people's performance. But like the
counter argument is like, yeah, you never know anything anyway,
and that's fine, But yeah, I would think that you'd
get a lot of duds or people who aren't motivated,
or you know, you'd miss a lot of people who
like don't have the most prestigious backgrounds. But I actually
kill it in banking, you know, like like it seems
(20:59):
like a worst recruit process than like waiting until people
have like done deals for a while.
Speaker 2 (21:03):
Also, in you know, all the coverage I've read about
this over the past months, in the past couple of years,
it just seems like there's only one pipeline to get
into PEE at the entry level, and that's to come
from banking. Do they hire from anywhere other than I
be Yeah.
Speaker 1 (21:19):
You know, historically some number of like management consultants, some
number of post MBA people. But I think it's increasingly
hard and increasingly like the pipeline is the pipeline, and
like there's like one way to do it, you know,
particularly because they're interviewing so early.
Speaker 2 (21:36):
Well, we'll see how long this truth lasts.
Speaker 1 (21:40):
Yeah, I think there's something interesting, but like people want
me to be like, if they want to compete for
the best people want, don't they just wait and pay more.
There's a weird fungibility about like both the people and
the firms where it's like we all have to do
the same recruiting at the same time because we're getting
the same people to do the same job. Like you
could have imagine like one private equity firm going to people,
(22:04):
you know, a week before the job starts and say, look,
I know you've accepted a job at another private equity firm,
but like we think you're good, we'll double your salary. Right,
you could imagine doing that, but I think it's like
not done and you know, sort of frowned upon. And
it's like small enough industry that people wouldn't do it.
But it is a strange thing that everything feels so
fungible and like, yeah, you know, it's such a direct
(22:25):
competition for the same people that do the same thing,
rather than like, you know, trying to differentiate yourself in
some way other than hiring twenty minutes earlier.
Speaker 2 (22:33):
Yeah, the grand convergence.
Speaker 1 (22:50):
Right. There's a story in the Financial Times about Tower
Research Capital, the great delightful high fregancy trading firm.
Speaker 2 (22:57):
Yeah, one of the oldest ones. Yeah, if I'm the oldest,
I don't know.
Speaker 1 (23:03):
It's hard to note what counts as the hypercancy trading firm,
but they're they're sort of big established hygh frequency training firm,
and they're starting a they're apparently launching a hedge fund
to run outside capital because like, you know, your high
fagency trading firm, you run your own capital. You get
like market signals that tell you what stocks to buy
in the next three seconds. Yeah, and like those signals
(23:27):
throw off enough exhaust that you can be like, I'll
know what stocks to buy in the next three minutes, right, Yeah,
you like, you know, you reach your capacity for how
much of that you can do with your own money,
and then you're like, well, open up to outside money
and charge people twenty percent for telling them what stocks
to buy in the next three hours or whatever. So
it's an interesting like convergence of like what hedge funds
do and what hypergency trading firms do.
Speaker 2 (23:49):
Yeah, this is an interesting one. I liked this phrase
that was in the FT article. Let me find it
where I put it? In my notes. Oh yeah, I
like this mid frequency strategies. I haven't heard that before.
We talked about high frequency, but now we're talking about
mid frequency.
Speaker 1 (24:03):
Different. I don't know what it means, because, like, I
think different people have different Like I think there are
definitely people in the world who you're like, oh, yeah,
I'm a high frequency trader. I've trade like every couple
of days, right, But like, yeah, when like HFT people
say it, they mean, like when HFT people like I
trade every second, They're like, oh, that's so low frequency.
Speaker 2 (24:24):
What a pedestrian case of trading.
Speaker 1 (24:27):
You know. I've said milliseconds in articles and people have
been like, seconds are so slow we're even talking about
but no mid frequency. So we're doing a microsecond and
an hour. Yeah, I'm sorry, we're doing a microsecond in
a month somewhere in that range.
Speaker 2 (24:42):
I do like to imagine like a full circle moment though,
like Tower being an example of Okay, they're you know,
going out the time spectrum and maybe just we end
up with long only fund managers at a certain point.
Speaker 1 (24:56):
I don't think we're gonna up. Well, it's sure like
this is the thing, like people who are doing a
lot of quantitative research into like signals that tell them
what stocks to buy and sell. There are different ways
to use that, and often it's like at different time scales,
where like if you have like a pretty good method
for knowing which stocks are likely to go up or down, like,
(25:18):
one natural thing to do is to like buy the
ones that'll go up and short the ones that'll go down, right,
But nothing to do is you buy the ones that
go up and not short anything and run a long
only fund, right, And so you have like you know,
AQR and other people who run you know, hedge funds
and also are like, well, just take the long signals
and run long only money because people want long only products.
(25:39):
Or like, you know, I think about like other examples
of this kind of thing, and like you look at Renaissance,
and it's never clear exactly what the dividing line is.
But like Renaissance, you know, yeah, as a very famous,
extraordinarily successful hedge fund called Medallion that has been closed
to outside money for that now because it's too good
(26:02):
and it only has so much capacity, right, Yeah, And
so they close it outside money and they run their
own money and they make themselves billionaires, and then they go, well,
you know, we have all of us, like you know,
it's like pretty good signals that you know, like we
reach capacity on our own money, but like we can
use those signals to run institutional money and like not
quite as good but good enough. So there's a lot
of that where like you know, people who have really
(26:25):
good signals that have limited capacity will run their own
money with those really good signals, and then like there's
some second tier of like we can run other people's
money and still be pretty good.
Speaker 2 (26:35):
Yeah, I mean other I don't know that.
Speaker 1 (26:36):
Towers advertising that like maybe they're like, oh or like
mid frequency signals or even better. You should definitely get
in on this, right, But like I do think in
renaissance is quite explicitly the case that they're like we
have really good stuff for us and like okay stuff
for you.
Speaker 2 (26:50):
Yeah, yeah, I yeah. The article doesn't go into that,
but it does say that this would mark one of
the first examples of a large high speed proprietary trading
shop opening a product for outside investors.
Speaker 1 (27:01):
Yeah sort of. Wellthough, like Jane Streets, it should bombs, right, Yeah,
not not a product for outside investors per se, but
like the idea that like you are a big successful
proprietary trading firm, and so you use outside money to
grow your business, is not like completely unheard of true?
And also I think some of them have taken like
outside equity investments. So I'm not sure about that you.
Speaker 2 (27:21):
Touched on this, but one of the quotes in the article,
attributed to a person close to Tower is that there's
just a finite limit to the amount of money that
you can make with the really high frequency strategies. Why
is that It's just because they're dealing with the likes
of Citadel and Jane Street and trying to compete against them,
or what does that mean?
Speaker 1 (27:41):
Well, like stocks don't go up that much, and so
is that just in a microsecond?
Speaker 2 (27:48):
Right?
Speaker 1 (27:48):
Like like what is investing? Right? Like you're a sort
of deep questionnaire. It was like why should you make
money by buying stocks? Right? And the answer is in
like the long term, because you're alligating capital to its
best uses, and you are saying this AI company is
going to transform the world, and so if I invest
in it now, it'll like ten x my money because
like it'll be transformative to the world. Right, And if
(28:11):
you're like why should you make money holding stocks? For
like one one thousandth of a second. The answer is
because you're providing a tiny, tiny liquidity service to somebody, right,
And like it turns out that you can make a
really nice living providing a tiny liquidity service to people.
But you can't, like, you know, make a trillion dollars, right,
Like you're not like allocating capital to like changing the
(28:33):
world really yeah, like providing a little service, right, So,
like there shouldn't be that much money. Like there's a
lot of money in very high frequency understanding what stocks
will go up in the next hundredth of a second,
But there's more money in understanding like how the economy
will transform the next ten years.
Speaker 2 (28:47):
Right, yeah, Because I wrote that quote and I was like,
isn't that true of a lot of things? What I mean,
like there's only a finite amount of money that you.
Speaker 1 (28:55):
Make, Like I don't think that there's Like I think
the one place where there is not a amount of
money is in like understanding what companies and technologies will
be transformative for the world, right, Like if you like
pick where economic growth will be, like you can make
a trillion dollars, right, Like not really, but like I
mean you can't, right I mean, like, you know, Facebook
is a trillion dollar company, right, you can like know
(29:17):
what the future will look like and make a trillion
dollars right, Like you can't? You know, you're like prodding
a service. Yeah, the bloomit how much money you can make?
Speaker 2 (29:28):
Well, there's a quote in here from a professor over
at the University of Illinois who also here's another quote
that just made me think a little bit. If you're
a firm that gets really good at mining gold, why
sticks are just mining gold? It's like both That was
another thinker.
Speaker 1 (29:48):
Mining gold, right, but.
Speaker 2 (29:50):
It's like you.
Speaker 1 (29:52):
Newsletter why Not? Why Not? Podcast? And that was the
Money Stuff Podcast.
Speaker 2 (30:03):
I'm Matt Luvian and I'm Katie Greifeld.
Speaker 1 (30:05):
You can find my work by subscribing to the Money
stuffnewsletter on Bloomberg dot com.
Speaker 2 (30:09):
And you can find me on Bloomberg TV every day
on Open Interest between nine to eleven am Eastern.
Speaker 1 (30:15):
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 (30:22):
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 (30:28):
The Money Stuff Podcast is produced by Anna Maserakus and
Moses onam Our.
Speaker 2 (30:32):
Theme music was composed by Blake Maples.
Speaker 1 (30:34):
Brandon Francis Nunham is our executive.
Speaker 2 (30:36):
Producer, and Stage Bauman is Bloomberg's head of podcasts.
Speaker 1 (30:39):
Thanks for listening to The Money Stuff Podcast. We'll be
back next week with more stuff
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