Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, Radio News. Hello and welcome to
The Money Stuff Podcast. You're a weekly podcast. Are you
talking about stuff related to money? I'm Matt Levine and
I write The Money Stuff com Bloomberg Opinion, and.
Speaker 2 (00:21):
I'm Katie Greifeld, a reporter for Bloomberg News and an
anchor for Bloomberg Television. And today it's a nail back.
Dear listeners just keep on sending in questions, and it
feels like it's about time. It also helps that I'm
on vacation right now. We're recording this in the future.
In the past, I don't know.
Speaker 1 (00:42):
I'm the Sloops.
Speaker 2 (00:42):
Yeah, definitely, I am actively skiing right now. Remember we
did an episode about cocoa futures.
Speaker 1 (00:56):
How could I forget?
Speaker 2 (00:57):
I forgot a little bit, but I was so tickled
by this question. Yeah, we did. We talked about Hersheyr.
Speaker 1 (01:05):
Can I forget? Coming back to me, Matt.
Speaker 2 (01:09):
We have a question from Patrick, who says, thanks to
your podcast, I'm now obsessed with chocolate futures contracts. I
have a question about these chocolate warehouses that I just
can't understand. Maybe you can help me if they exist
to facilitate futures contracts. Why is the quality of the
chocolate often bad? I thought futures contracts specified the quality
of the chocolate in advance, in terms of origin and grade.
(01:33):
Is it not a flaw in the system that worst
chocolate is being put in these warehouses? Thanks? I love
that questions, good question. I did some Reportingeah, I I
went to Bloomberg Intelligence. When I have like a niche
question about a topic I know very little about. I'm
(01:53):
going to read this out loud. Sure, I got this
email and I read it really quickly, so I haven't
thought deeply about this. So hello, You're completely right. Contracts
would specify the quality and origin of cocoa beans, and
this is the reason why cocoa really doesn't have one
single price, but several that reflect these differences. So to
illustrate this from a higher level perspective, at the end
(02:15):
of last year, the ic COO published a report noting
that the price difference between London futures and NY was
due to London having more beans from Cameroon, which are
perceived to be of lower quality. Now, because cocoa is
a soft maybe there is some scope for exchanges to
hold lower quality or just mismanaged inventories. Don't really know
(02:36):
to what extent this is happening. Now, I'll leave a
quote quite popular among cocoa market participants. Quote when there
is a lot of cocoa, all cocoa is crap. When
there is no cocoa, all crap is cocoa. Oh dear,
I hadn't read that first. That's really funny. It's all
crap is coco. That is so interesting. I guess I
(03:01):
haven't really thought about it before that. When you take
a look at commodities such as this and you think
about the different prices on the different exchanges, I have
never thought that maybe the quality in this case of
cocoa explains the difference. Yeah, because with oil, I mean,
I don't really think about the quality of oil, but
it makes sense that there's I don't because I don't
think about that, but it makes sense. Yes, true, Yeah,
(03:28):
I mean I.
Speaker 1 (03:28):
Read about this a lot. Like if you're a chocolate maker,
you want cocoa to put into chocolate, and like if
your a chocolate bars tastes bad, that's bad for you.
If you're a commodity's futures warehouse, you need cocoa to
like be the underlying deliverable for the commodity future since
you put that in the warehouse, but you don't expect
(03:49):
that most people trading the futures will take delivery of
the cocoa, and so there's like a little bit more
of a disconnect, like you have to use pct vigrate
and everything, but like it's a little bit less important
that the cocoa taste good if it's mostly being used
as a substrate for commodities futures contracts, then if you're
actually just putting it directly into chocolate bars. And so
there are a couple of like examples of this from
(04:11):
the not chocolate market, which my very favorite is that
in the nickel market, Yes there's a warehouse, put nickel
in it. You trade futures on the nickel. Nickel is
kind of non perishable and so like you never really
have to say the nickel out of the warehouse, and
so it just sits in the warehouse for years. And
at some point someone discovered that some nickel that JP
(04:32):
Morgan owned not because it was like JP Morgan nickel,
because like they you know, happen to take the liver
around the futures contract. The nickel in this warehouse that
JP Morgan owned was actually a bag of rocks, and
like it was fine, Like who cares. They never took
it out, They never like made anything with it. Was
just a bag of rocks and the thing. But like,
once you discover it's a bag of rocks, you can
no longer use it to trade nickel futures. But until
then it doesn't matter. You're not like building anything. The
(04:54):
other great example is coffee futures. Yeah, in the coffee market,
coffee is like cocoa, perishable, and so there are rules
about like quality of the coffee that goes into the
coffee warehouses. One of the rules like you can't leave
it there forever, right because it's perishable, and so there's
an age penalty where like you get paid less if
you deliver old coffee. But it used to be that
(05:16):
you could take your older beans off the exchange and
then resubmit them for a new round of certification and
get rid of the age penalty. So the beans are
so like abstracted that like taking them out and putting
them back in makes them fresh new beans again, which
is not how like actual coffee brewing works. But for
commodities futures. It's fine, it's good enough, and they change
that rule, so like now you have to the fresher coffee.
Speaker 2 (05:36):
That would be a disgusting cup of coffee.
Speaker 1 (05:39):
I mean yes, like I think coffee. Probably you could go, I.
Speaker 2 (05:42):
Don't know, pretty high standards.
Speaker 1 (05:44):
Yeah, okay, fun you would not drink no commodities futures
exchange coffee. I probably would just for rust.
Speaker 2 (05:51):
I mean, if I was dying, that would be kind
of fun.
Speaker 1 (05:56):
I think you should do it. So different commodities have
different rules, but like in general, like the need to
have like the freshest possible commodity, Like you want that
for your industrial uses, not for your putting in an
a warehouse.
Speaker 2 (06:07):
Yeah, great question, Patrick, that was That was a lot
of fun. Mail bag, mail bag. This question comes from
justin straight after my own heart. With the advent of
a private credit ETF is an adverse selection and inherent issue.
What is to protect the retail investor and prevent the
ETF manager from stuffing the fun with the loans it
(06:29):
expects to underperform with respect to similar loans from a
particular vintage. That is, like the most pessimistic fear here
a very reasonable fear, I know, but you would hope
that Apollo isn't trying to like use retail as exit
liquidity or whatever.
Speaker 1 (06:44):
I mean, you would hope you hope that all the
loans are good. Yeah, And like as an asset manager,
you have fiducial idities to all of your clients and
you try to make only the best loans. It is weird,
you know, Like, you know, you look at Apollo, like
much of their capital is their balance sheet, right, I
mean they run a big retirement services company, right, so yeah,
a lot of it is their balance sheet. A lot
(07:05):
of it is client money that pays stereotypically two and twenty, right,
It's probably not really two and twenty, but like you know,
people who pay kind of like alternative manager fees, and
some of it is like ETF money who pay let
our fees. So where do you put the best loans?
Your insurance company, your balance sheet? Very smart people run that,
your limited partners and your institutional prior credit funds, smart
(07:27):
repeat player allocators, your retail ETF clients. Who knows? Well?
Speaker 2 (07:33):
I actually did reporting for this question as well. I
sat down with Annopoglia from State Street Global Advisors on
March thirteenth on Bloomberg Television and I asked her this question,
does State Street have the in house expertise to sort
of evaluate what Apollo is putting in the ETF? And
this was her answer.
Speaker 3 (07:53):
She said, we do have the expertise in house, but
we also made the new hire set to make sure
that we had the right in seed SSGA is the
advisor by design. We wanted us to be in a
position to make selections and have investment discretion on what
task sets to take or not to take from Apollo.
Speaker 1 (08:13):
That's the sounds a blance right, is like, yeah, the
ETF manager has a fiducial abbligation to the ETF clients
and they have their own independent ability to make sure
they're not getting stuffed with like Apollo's worse loans. But
it's like Apollo, it's like not in the business of
like trying to make the worst loans, right, so like
they're trying to also make good loans. If you think
about like a bond ETF, like you have the same
(08:36):
risk there. And the reason people don't think about it
very much like they do a little bit right because
like there are sometimes like worries about chart picking But
the reason people don't think about it that much is because,
like you know, a bond fund has like a track record.
There's an incentive for like PIMCO to not do a
bad job managing its public bond funds because then people
won't put money into them. Yeah, the prior CREDITTF stuff
(08:57):
is new, and so there's no like through the cycle
performance data where you can tell whether a fund is
good or not right, and so you have to worry
about this stuff. In the long run, you sort of
assume that, like people will try to manage funds well
because that's how they raise money.
Speaker 2 (09:12):
Yeah, it doesn't have a track re heard, And I
think that's an important point because there are a lot
of very pessimistic concerns about the CTF. But it just
hasn't been alive for very long.
Speaker 1 (09:21):
Right, Like you could like sort of tell a story
of like private credit has had this like massive boom
and the market might be turning a little bit and
that was the perfect time to stuff retail with it.
But yeah, that's like.
Speaker 2 (09:33):
A kind of a I mean, we're recording this in
the future, so who knows what it looks like. Yeah,
maybe things will be totally better by the time this
episode comes out. But great question, mail bag, mail Bag,
(10:05):
we have another question. I don't have a name to
attach to this one, but the question is fun. As
we accelerate slash descend into the scenario where Elon Musk
is God King and the answer to every question is
because that's what Elon wants. What's the point of digging
into anything, Matt, take us into this existential spiral, right.
Speaker 1 (10:26):
I used to think of my job as like trying
to understand and explain complex structural financial topics, and then
like memestocks hit and I found myself writing a lot
of very dumb stuff and like coining the Elon market hypothesis,
which is, yeah, financial assets are valuable not because of
(10:46):
their cash flows, but because of their proximity to Elon Musk.
Because like there was a time and it's kind of
continuing where like Elon would like tweet about a thing
and like the thing would go up, and it's like
doage cooin, or like there's a story about Signal where
he tweeted Signal and like an unrelated company with Signal
his name went up. Like just anything like he turned
his attention to would go up. And if you sort
of like looked at that and thought, well, the present
(11:09):
value of the expected future cashlows of this company has
gone up because Elon tweeted about it, Then you would
be missing the point. And like what was actually happening
was just like yeah, people like Elan Musk and the
stock goes up right, And then like Memestock's kind of
crystallized that, like a lot of mental energy went into
like understanding the technicalities of a game stop where it's like, oh,
you know, like you could have a thesis about the
company's turnound, or you can be like, oh, like there's
(11:31):
a gamma squeeze and a short squeeze. There's all this
like technical stuff that you can understand. But like mostly
it was like people online liked it and this so
they bought it and went up. Right, everything got kind
of dumber, and our current political environment has expanded that dramatically.
You know, I wrote, let's say last week now about
the US Consumer Financial Protection BEEAU. The CFPP right like,
(11:54):
has written some rules about how financial companies are supposed
to interact with consumer customers, and those rules have been
sort of suspended by everyone of the FB being told
to go home. But like they're still there. Yeah, and
so there's only like stuff you can look at and
me like, oh, like the rules say this or like
this is like how you're supposed to do stuff, but
like it's not clear that how you're supposed to do
(12:16):
stuff matters anymore, that the rules are enforceable, And so
we're in this sort of weird gray area where like
if you try too hard to understand what is allowed
or how things work, you will be making mistakes because
like things don't work the way they're supposed to work,
and the rules don't necessarily apply anymore. And that's a
frustrating position to be in if you're in the business
(12:37):
of trying to understand things.
Speaker 2 (12:38):
How does it make you feel as a person who
writes a newsletter though, because it seems like you had
fun with the GameStop era.
Speaker 1 (12:44):
I define fund with the GameStop era, but it ate
at me because I was like, I wish I had
insight to off or have elite jokes.
Speaker 2 (12:51):
Well, when all else fails, at least we can laugh. Yeah,
we still have our.
Speaker 1 (12:56):
Loster sort of like yeah, I don't know. I mean, like,
as a person who has a newsletter, like there are
always events, but they are not interesting events.
Speaker 2 (13:08):
Yeah, I mean there's a parallel to be drawn with
my life on TV. News is always happening. I anchor
from nine to eleven, and there's just so many tape
bombs coming across all the time. But you know you
have to wonder at the end of the day, like
did I add value?
Speaker 1 (13:26):
I wonder every day.
Speaker 2 (13:27):
I cannot. I can't answer this question on this podcast.
Cool great question, mail Bag, mail Bag. I like this one.
This question comes from Bruce. It's a little bit of
a long one, so tuck in. Bruce says, I'm intrigued
by your recent coverage, so stick with us, all right, Bruce.
(13:47):
Bruce says, I'm intrigued by your recent coverage of super
performing private investment funds sefed heavily with techies. For my
spy novel, I invented a tech heavy hedge fund whose
principles are former CIA contractors who go from stealing Oligarch
secrets to stealing Oligarch cash, which they then launder through
a private fund whose operations are a black box to
the outside world. My villains reverse engineer capital market data
(14:11):
to fake trade reports for their tame auditor that explained
the funds quote unquote returns. I'm not accusing the funds
you wrote about of anything nefarious. I'm just struck by
how much they resemble the fictional high tech high return
mcguffin in my book. Is that crazy?
Speaker 1 (14:31):
Is there?
Speaker 2 (14:31):
For a recent A real world operator with bad intentions
couldn't take say, the cash from his cocaine business and
report it as fictional market returns from a proprietary model
investment fund, pay some tax, and then have untraceable money
to spend. Just asking the question, and not for legal advice, Bruce,
don't give away this gold material. As someone who's also
(14:54):
working on a kooky novel, you know, you can't say
too much.
Speaker 1 (14:58):
Have you not described your entire navel on this podcast?
Speaker 2 (15:02):
Off Mike? For sure.
Speaker 1 (15:03):
It's a little bit like Bernie made Off right, Like, yeah,
it's a little different. But like Bernie Madoff pretended to
have investing returns and in fact had you know, Ponzi returns,
and people who are knowledgeable noticed that and said he
can't really have these investment returns. Someone is just like
(15:24):
he like, was doing more pretend volume than there was
volume in the stocks he was pretending to trade, right,
And so you have a little of that here. If
you were in the business of like selling drugs, yeah,
and then taking the money and pretending the money was
returns from your hedge fund, you would be reporting to
a regulator something about your trades, and the regular would
(15:44):
be like, but you don't have a custodian, you don't
have audited financial and like maybe like you grab your
auditor and maybe like the SEC is fooled, as they
kind of were with Bernie made Off. But it seems
like a lot of effort to go through in a
lot of like surface area for regulatory exposure. Yeah, and
you'd probably rather run like a coin opp laundromat or something, right, Yeah,
(16:05):
There's a lot of ways to launder money that don't
involve like entering a regulated industry.
Speaker 2 (16:10):
So, Bruce, I do want you to keep in touch
though you know where this, Yes, did you get further
along with the novel? Love to know the title?
Speaker 1 (16:17):
He's not like the only person who's ever thought this.
A while back, there is like a kerfuffle when uh oh,
when someone speculated that Bridgewater might be a Ponzi scheme
because they like were trading with like someone who they
expected them to be trading with the people had this
tether too, where they're like, who trades with tether? Whoere
do they get all their stuff from? But those things
seem to be wrong.
Speaker 2 (16:39):
Yeah, I don't think Bridgewater is a Ponzi scheme.
Speaker 1 (16:41):
No, I don't either. Okay, there was a minute where
people were like, oh, that's interesting.
Speaker 2 (16:46):
I feel like some of those tether questions are still
out there. Yeah, great question, Bruce, Good luck with the novel.
Maybe people have had this thought before, but turns out
it's really hard to actually write a novel. So I
respect very hard.
Speaker 1 (17:01):
That's making money and contrary.
Speaker 2 (17:21):
Mail bag mail Bag one more from Andy, Let's bring
it home, Andy says. Matt's newsletter today mentioned how financial
advice was traditionally bundled, where the overpriced stock picking paid
for the useful advice. This reminded me of a dumb
question I've had for years. Why doesn't anyone offer unbundled
financial advice on a fee for service basis? I want
(17:44):
to pay someone a fixed fee to chat with me
once per quarter about my goals, asset allocation, tax considerations,
when I can retire, et cetera. But as far as
I can tell and I've looked. No one offers these
services without bundling them with money management services where the
fee structure is a percent of AUM, and then they
charge like one percent of AUM, which feels like a lot.
(18:05):
It sounds like Vanguard is offering a cheaper version of
this for like twenty basis points of AUM in improvement.
But if I have like five million dollars to invest,
that works out to two thy five hundred per quarterly
zoom call or whatever. Seems like a bit expensive. Anyway,
Does unbundled financial advice exist?
Speaker 1 (18:24):
I feel like it must a little bit, but like, right,
there's not a lot. And you see why. It's like
the opposite of his problem, right, Like, if you're offering
zoom calls to people to talk about their hopes and
dreams and portfolio allocations, yeah, and you do you four
zoom calls a year with that person. You have to
like market yourself. You have to find hundreds of clients
(18:46):
and you have to amortize the cost of that over
the zoom calls. You do have to charge them hundreds
or thousands of dollars for the zoom call because that's
just your time on the zoom call. It's your time
like marketing and like, you know, building the business, and
then like who wants to pit dollars for a zoom
call when you put it like that, right, if you
put it as like, I'll provide you holistic services in
exchange for a small percentage of your assets, then people like, yeah, sure,
(19:10):
And if the small percentage one percently works out to
thousands of dollars, but I don't know, like you don't
get into the financial services industry to like build a
captive out for your hours, like you want the ability
to scale. And it's also it's like a natural form
of price discrimination, where like if you get a small client,
you can charge them a small amount of money because
you're charging them a fixed percentage of assets under management,
(19:33):
And if they then grow into a large client, you
charge them a large amount of money and they don't
notice because it's the same percentage of assets under management.
And it's just like a better business model for someone
who is, like you know, kind of largely in the
business of marketing and funding clients. That just seems like
the answer, right, Like, it seems like a bad business
model for someone to be in to be like I'll
give you some financial advice for an hour for one
(19:55):
hundred bucks, Like, I just don't think you can make
a living doing that. I will say that Andy found
a solution, so he continues, I think I found a workaround.
I signed up for a wirehouse financial advisor. He charges
like one percent of AUM, but I only pay him
for the accounts I keep with him, which I keep
around the minimum he'll tolerate. And he's not the only
person who has done this. Like, you know, you find
(20:16):
a financial advisor, You're like, how much do I need
to put with you? He tells you five hundred thousand dollars.
You put five hundred thousand dollars with him for the
rest of the money and index funds, you know, and
like your self directed Vanguard account, and then you call
your financial advisor. I record it for advice. Right, you
get like a lot of the tax advice and whatever
that you get from the bundled fee, But you're not
paying him one percent of all of your ass as.
(20:38):
You're paying one percent of the minimum amount of assets
to get him on the phone.
Speaker 2 (20:42):
Does that feel a little mean to the financial advisors? Like, Hey,
I have this sum with you, but I have like
two million dollars in my Vanguard account, give me advice
based on my holistic.
Speaker 1 (20:53):
I don't think the financial advisor would like give you
advice basically. I don't think the sial adviser would be like, oh,
here's what you should do with your Vanguard account, right, Yeah, Well,
what you're looking for from the financial advisor is not
only like what should my asset allocation be? Yeah, you'd
rather he'll give you that. I hate to like undermine
financial advisor. Will they give you a thing being like
(21:14):
this is how much you have in stocks or bonds? Right,
and you can believe that or not right, because like
the financial advisor knows that and you don't, right, But
like whatever, they're.
Speaker 2 (21:21):
Probably buying a model portfolio from Black Rocks, so.
Speaker 1 (21:24):
Sure they've got some professional deciding how much you should
have in stocks and bonds or whatever, and like they'll
tell you that, and they'll do that with the portfolio
they manage, and then you're gonna mirror that with your
Vanguard account, right, you know, kind of more or less.
Speaker 2 (21:36):
I just feel though.
Speaker 1 (21:38):
The rude to mirror it exactly. It's rude.
Speaker 2 (21:40):
But also I feel like maybe you'd invest differently if
you have more money rather than less, If that makes sense.
Maybe I think that the only way to really know is,
you know, if Andy would let us listen to one
of these phone calls that he has with his financial advisor.
Speaker 1 (21:56):
The other thing is they say is like, you're not
mainly looking for advice about how to invest. Yeah, you're
looking for advice about tax harvesting. You're looking for advice
about like what the gift tex limits are on putting
money into a five twenty nine. You're looking for advice
about like how much money you need to say for
a time, Like you've all this like stuff that a
financial advisor does. Yeah, that is useful for you. That
(22:18):
is not like here's how much you should have in stocked.
Speaker 2 (22:20):
I know, but I'm saying it's.
Speaker 1 (22:21):
The least useful part. Yeah, like no one knows.
Speaker 2 (22:24):
But like retirement planning, for example, Like it would probably
be useful if the financial advisor had a holistic view
at all of your portfolios. That's right, Yeah, that's right.
Speaker 1 (22:34):
And some financial advisors will consider all of your money
and providing you that advice, even though not all of
it is with them, because like you know, there's like
and he's not the only person who like has money elsewhere? Right,
and the financial advisor like tries to give you a
host of picture and like they'll be mad if like
most of your money has elsewhere and they're you're calling
them every day, but like it's not like all or
nothing true. So I don't know that's the way to
(22:55):
do it.
Speaker 2 (22:56):
Good question, Andy, Good good question.
Speaker 1 (22:58):
And good answer. Yeah, all the conundrum right now, Like
I mean, like there's some minimum that the financial advisor charges,
and if you have that minimum with them, you're paying
a certain number of thousands of dollars a year for
your quarterly zoom call with them. And that's the going
rate for financial advice. And if you have one hundred
times the minimum with them, then you're paying more. And
(23:18):
you could put ninety nine percent of that money into
a Vanguard self tractored account and pay less, but like
you don't want that, and you're paying for service.
Speaker 2 (23:25):
Yeah, all right, all right, Well that was our meal
pad episode, and what a good reminder it is to
always send us questions. We love questions.
Speaker 1 (23:37):
We send us questions. And that was the Money Stuff podcast.
Speaker 2 (23:45):
I'm Matt Levian and I'm Katie Greifeld.
Speaker 1 (23:48):
You can find my work by subscribing to The Money
Stuff newsletter on Bloomberg dot com.
Speaker 2 (23:52):
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Speaker 1 (24:10):
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Speaker 2 (24:14):
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