Another Great Convergence: 7bps, APO, HOOD

Summary

Money Stuff: The Podcast Episode: Another Great Convergence: 7bps, APO, HOOD
Release Date: February 7, 2025

Hosts: Matt Levine & Katie Greifeld
Publisher: Bloomberg
Description: Exploring Wall Street, finance, and beyond with Matt Levine and Katie Greifeld.

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Vanguard's Historic Fee Cuts and Industry Implications

Timestamp: [03:01] – [07:52]

In this segment, Matt Levine and Katie Greifeld delve into Vanguard's unprecedented decision to reduce fees across a substantial portion of its mutual funds and ETFs. Katie outlines that Vanguard has slashed fees on 87 mutual funds and ETFs, bringing their average fee down to an astonishing 7 basis points compared to the industry average of 44 basis points. This move not only underscores Vanguard's commitment to investor-friendly practices but also intensifies competitive pressure on other major asset managers.

Notable Quotes:

• Katie Greifeld [03:22]: "The industry average roughly is 44 basis points. So that tells you just how low Vanguard is."
• Matt Levine [05:10]: "It should be in a world of technology, a world of giant scale for these funds. It should be kind of free to invest in an index fund. And it kind of is."

Vanguard's unique ownership structure, where fund investors own the firm, allows it to prioritize lowering fees without the pressure of external shareholders. Katie highlights that this structure compels competitors like BlackRock and State Street to reconsider their own fee strategies, potentially leading to broader industry-wide fee reductions.

Impact on Active Funds: Vanguard isn't solely focused on passive index funds. Katie notes that Vanguard's active bond funds charge an average of 10 basis points, a strategy that allows managers to avoid taking excessive risks to outperform, thereby ensuring sustainable long-term performance.

Notable Quotes:

• Katie Greifeld [05:33]: "Their active funds are also really cheap. Their bond funds, in particular, their active bond funds charge 10 basis points on average."
• Matt Levine [07:19]: "I would frequently pay more for better experiences."

The discussion also touches upon the broader industry reaction, with some stakeholders questioning whether the relentless pursuit of lower fees might come at the expense of customer experience and service quality. Despite these concerns, the consensus between Matt and Katie remains that Vanguard's approach is fundamentally investor-centric and challenging to emulate by firms burdened with external shareholder expectations.

Apollo's Venture into Private Credit Trading Desks

Timestamp: [13:43] – [23:04]

Matt Levine introduces the next major topic: Apollo's initiative to establish a private credit trading desk. This move signals a significant shift in the private credit landscape, aiming to enhance liquidity and provide a structured marketplace for trading private credit assets.

Notable Quotes:

• Matt Levine [13:54]: "I wrote I don't really know what private credit is."
• Katie Greifeld [15:35]: "They are having conversations that have been highly constructive at the highest levels about this."

Katie explains that Apollo is not merely launching a single trading desk but is contemplating a comprehensive marketplace where multiple trading desks can operate, interact, and provide pricing services for private credit transactions. This ecosystem approach is intended to address the current liquidity challenges in the private credit market, making assets more tradable and accessible.

Matt elaborates on the historical context, comparing Apollo's strategy to the traditional investment banks' roles before increased regulations post-2008. He suggests that alternative asset managers like Apollo are filling the void left by banks, offering services that were previously dominated by less-regulated entities.

Notable Quotes:

• Matt Levine [17:09]: "These big alternative managers are kind of stepping in to do kinds of business that banks used to do."
• Katie Greifeld [19:09]: "How much credit is there in the world? There is this long term push against banks doing a lot of credit on their balance sheet."

The conversation delves into the potential future of private credit, speculating on its growth to potentially $30-$40 trillion. Matt posits that as private credit becomes more mainstream, it may emulate the evolution of public credit markets, introducing more streamlined trading mechanisms and potentially even hybrid products like ETFs for private credit.

Concerns and Predictions: Both hosts express cautious optimism, acknowledging the inherent risks associated with increased liquidity in private markets. The fear remains that the liquidity provided by trading desks and new platforms could lead to volatility similar to what was observed in public bond markets during 2020.

Notable Quotes:

• Matt Levine [21:57]: "I'm really excited for like the first 17 times I can write. People are worried about private credit liquidity because it's just going to happen again."
• Katie Greifeld [22:02]: "It was like, how quaint."

Robinhood's Foray into Event Contracts and Regulatory Challenges

Timestamp: [26:18] – [34:35]

The final major discussion centers on Robinhood's attempt to introduce event contracts, specifically targeting sports betting linked to major events like the Pro Football Championship. Despite initial enthusiasm, Robinhood quickly retracted the offering due to regulatory pushback from the Commodity Futures Trading Commission (CFTC).

Notable Quotes:

• Matt Levine [26:22]: "They launched an events contract on the Big Game you can't say Super Bowl because then you get in trouble."
• Katie Greifeld [28:53]: "We had several assassination attempts on President Trump."

Robinhood's event contracts were designed to allow users to bet on outcomes such as the winning team of the championship. However, the CFTC deemed these contracts problematic, leading to their removal within 24 hours of launch. Matt criticizes the regulatory stance, questioning the rationale behind excluding certain types of bets while allowing others, like political outcomes.

Notable Quotes:

• Matt Levine [30:10]: "It's not an asset class. The stock market goes up over time... The size of the sports betting market does go up over time, but the outcome of the Eagles game doesn't go up over time."
• Katie Greifeld [33:31]: "It's like, very community based."

The hosts explore the blurred lines between financial instruments and gambling, debating whether platforms like Robinhood should be able to offer a broader range of event-driven contracts. They discuss the social aspects that drive both sports betting and certain investment behaviors, noting parallels in community engagement and speculative activities.

Regulatory Implications: Matt predicts ongoing challenges and uncertainties as companies attempt to innovate within the boundaries of financial regulations. He emphasizes the importance of distinguishing between products that support economic activities and those that merely facilitate speculative or gambling behaviors without underlying economic value.

Notable Quotes:

• Matt Levine [31:23]: "It's an emerging asset class. It's a very cynical thing to say."
• Katie Greifeld [34:35]: "They sold their contracts and then pulled them."

Reflections on Market Trends and Convergences

Throughout the episode, Matt and Katie reflect on the broader trends shaping the financial landscape. They observe a "great convergence" where traditional financial instruments intersect with emerging technologies and regulatory frameworks, leading to both opportunities and challenges.

Notable Observations:

• The shift of private credit from being purely private to incorporating more public trading mechanisms.
• The historical parallels between current market innovations and past financial practices, highlighting lessons learned and potential pitfalls.
• The interplay between fee structures, customer experience, and regulatory environments in shaping asset management strategies.

Conclusion: The episode encapsulates the dynamic nature of the financial industry, where innovation continually reshapes traditional models. Vanguard's fee cuts and Apollo's initiatives signal a move towards more investor-friendly and liquid markets, while Robinhood's regulatory hurdles underscore the complex balance between innovation and compliance.

Final Notable Quotes:

• Matt Levine [33:53]: "History just repeats itself."
• Katie Greifeld [34:35]: "Everything hurts."

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Listen to the full episode of "Money Stuff" on Bloomberg or your preferred podcast platform to gain deeper insights into these pivotal financial developments.

Transcript

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[Katie Greifeld]

I'm at 40% right now. It was really not great doing television today.

[Matt Levine]

This is great. We've gotten, I've gotten for months now, emails from listeners being like, Bloomberg's engineers need to do something because your voice is inaudible next to Katie's voice. And what we've done is the Bloomberg engineers have like tuned down Katie's voice by 10%. So now we are more compatible.

[Katie Greifeld]

They've performed surgery on me, actually, and now this is how I sound. It feels like I ate an ashtray. I just feel disgusting. I need more milk.

[Matt Levine]

It's gonna be great.

[Katie Greifeld]

It'll be fine.

[Matt Levine]

Big week, Katie. 10th anniversary of money stuff.

[Katie Greifeld]

Happy birthday.

[Matt Levine]

Happy birthday to the newsletter, not the podcast. The podcast is still an inf getting on one.

[Katie Greifeld]

When did we get born? Like April. Well, well, you seem like you're in a good mood.

[Matt Levine]

It was touch and go to get here today, as you know, because we were both late.

[Katie Greifeld]

Yeah.

[Matt Levine]

And we're getting through the week.

[Katie Greifeld]

This is my last thing that I have to do today because I'm gonna call out sick tomorrow.

[Matt Levine]

Yeah, it seems reasonable. Hello and welcome to the Money Stuff podcast, your weekly podcast where we talk about stuff related to money. I'm Matt Levine and I write the Money Stop column for Bloomberg Opinion.

[Katie Greifeld]

And I'm Katie Greifeld, a reporter for Bloomberg News and an anchor for Bloomberg Television.

[Matt Levine]

What are we talking about today, Katie?

[Katie Greifeld]

We're gonna talk about Vanguard and seven basis points.

[Matt Levine]

Yeah.

[Katie Greifeld]

We're gonna talk about Apollo and then we're gonna talk about the big game.

[Matt Levine]

So Vanguard, I texted you this week.

[Katie Greifeld]

To say while I was on what.

[Matt Levine]

Should I say about Vanguard? Because you wrote an article about Vanguard cutting its fees and you never texted me back because you were on television.

[Katie Greifeld]

Sure was.

[Matt Levine]

So I never wrote about Vanguard, but you did. So tell me about Vanguard.

[Katie Greifeld]

So the story began on Monday when Vanguard announced that they were putting through their biggest ever fee cut across 87 mutual funds and ETFs. It brings their average fee on their like $10 trillion of assets down to just 7 basis points, which is wild. These are wild numbers. The industry average roughly is 44 basis points. So that tells you just how low Vanguard is. And then we wrote a follow up story, myself and Vildana Heyrich a couple days later talking about how this really tightens the screws on everyone else. Blackrock, State Street, Invesco, et cetera. Because Vanguard has this ownership structure where basically the fund investors own the firm and the thus everything they do is just geared towards lowering fees. Other companies don't operate that way. BlackRock doesn't operate that way. And BlackRock actually fell, I believe by the most since 2022 on Monday alone. Both because it was a down market with the will he won't he on tariffs. But also because of this news, which was interesting.

[Matt Levine]

Yeah, this is sort of the most intuitive way for an index fund to work. Right. It's like you get a bunch of investors, they pool their money, they hand their money to someone to perform the sort of administrative tasks of putting it into all of the stocks and they pay that someone a reasonable fee. But there's no outside shareholders. You don't need to pay the cost of capital of some giant firm to just pool your money and put it into an index. So it should be in a world of technology, a world of giant scale for these funds. It should be kind of free to invest in an index fund. And it kind of is.

[Katie Greifeld]

Well, Vanguard would be quick to tell you, including CEO Salim Ramji, who I also interviewed on BTV on Thursday, would say that, okay, you think of us as just this passive index fund company, but we're more than that. Matt Levine. We also have active funds, and they care very deeply about their active funds, but their active funds are also really cheap. Their bond funds, in particular their active bond funds charge 10 basis points on average. And they have this interesting theory that because their fee is so low, their managers don't have to take outsized risks in the active portfolios to, like, outperform or make up the fee. And that that leads to their outperformance over a longer term horizon.

[Matt Levine]

That makes sense. Yeah, it's like an old timey. Like, how much work is it to, like, take my money and invest it in bonds? Like, it's active in the sense that, like, you're choosing particular bonds, but they.

[Katie Greifeld]

Choose that bond over that bond.

[Matt Levine]

Yeah, but it's like the cost of that should come down over time and that shouldn't be, you know, like, Vanguard is a mutual. Right. It's like the people in the mutual fund, like, pay the managers and there's no outside ownership to collect another fee. I don't know. Makes sense.

[Katie Greifeld]

What I find interesting about Vanguard, especially right now. So CEO Salim Ramji, he came from BlackRock. He used to run the iShares line at BlackRock, which is their ETF business. So he went from BlackRock to Vanguard, which is like, we don't get a lot of, like, exciting moves like that in the ETF industry all the time. So that was a big deal. And again, like, BlackRock and everyone else has to operate in this universe that Vanguard has created where Vanguard is just lowering fees, lowering fees, lowering fees. And everyone else has to respond, even though, you know, they actually do have to worry about their margins and their external shareholders. But in tweeting about this story, I got a few tweets back to the effect of, you know, maybe they should actually stop focusing on lower fees and, like, focus more on putting this money back into the business and making the customer experience better.

[Matt Levine]

That's fair, because I'm like, oh, you just put your money and you own the. But like, in fact, it is a corporation that has to do things like maintain a website.

[Katie Greifeld]

Yeah, exactly.

[Matt Levine]

Have customer service. And like, yeah.

[Katie Greifeld]

One of the responses I got was from a woman, theoretically, who says that she's a financial planner who. I didn't verify her profile or anything, but she said, I wish they would have cut their fees a little less and instead invested in their customer facing it and user experience, which is often disjointed and confusing to consumers relative to the competition, which I find kind of funny. Okay. Your fees are seven basis points. You're paying next to nothing. And you have this small subset of people saying, no, please stop lowering fees. Put this into improving my experience as your client.

[Matt Levine]

Yeah, that seems pretty reasonable, man. I would frequently pay more for better experiences. I think there are a lot of people in the financial industry who get very sad at the idea that the only criterion is lowest fees. And you worry one about customer experience being sacrificed. But then people sometimes worry about performance being sacrificed too. Although the evidence for the hierarchy, managers having better performance isn't great. The other thing I'll say is you talk about BlackRock, it seems to me that the move in asset management is there's this kind of barbell strategy of, you know, there's like indexy public stuff that tends to zero fees and there's hot new private credit where you can charge all sorts of fees. Right. And so you look at blackrock getting into private credit in a big way because, like, the fees on that are just a lot higher. Bloomberg's Laura Benitez had an article this week about Pimco not really getting into private credit. And like, one thing there is, like, you have a lot of competition and margin compression on liquid fixed income, which is, you know, like the vanguard. Like, I have to fix it. Like, you know, Pimco's bread and butter is like running bond mutual funds. And that's a tough business because people want low fees and you get low fees and index funds and people want the hot new thing, which is private credit, and you can get high fees there. But, like, just running an active bond fund is tough.

[Katie Greifeld]

Yeah. What an interesting way to think about barbelling by fees rather than, like, risk, which I guess correspond to each other.

[Matt Levine]

But I mean, like, there are a lot of contexts where you can make a bar rally decision. Right. And like, yeah, here it's like your product offerings, like, there's a lot of demand for index, there's a lot of demand for alts and private. And like, the middle is getting kind of hollowed out. And it's been a tough time for, like, active mutual fund managers for a long time.

[Katie Greifeld]

Yeah, I mean, you're seeing that in the ETF world too, which you can't offer private yet.

[Matt Levine]

I know, but I was going to say, like, the other thing is like your article with Valdana, like, you talk about, like, in the ETF world, there are people who don't want to compete with the giants by cutting fees to zero. And so they're like, ooh, here's a weird product where you can charge much higher fees. And we're certainly seeing and talking about a lot of that. Like the weird productized ETFs.

[Katie Greifeld]

Yeah, exactly. I mean, you think about all the silly single stock super leveraged ETFs that are out there, all the derivatives based ETFs. Really interesting phenomenon occurred actually in 2024 where the average fee on new ETFs coming to the market was ticking higher. So the new, the new launches were expensive because the feeling among issuers is like, I'm not going to compete in the core, so I got to launch the silly stuff. And I can charge more.

[Matt Levine]

Yeah. And the core is already there. You can get index funds like now you need like the silly stuff.

[Carol Massar]

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[Katie Greifeld]

Shall we sail along?

[Matt Levine]

So Apollo is launching thinking about starting a private credit trading desk.

[Katie Greifeld]

They are having conversations that have been highly constructive at the highest levels about this.

[Matt Levine]

So I wrote about this. I wrote I don't really know what private credit is.

[Katie Greifeld]

You and me both, man.

[Matt Levine]

And I get answers. A bunch of people emailed to say basically something like if it's a registered public bond, it's public credit and if it's not that, then it's private credit. Which is not right. It's not how people use the term right. People talk about syndicated bank loans and loans that are bought by Clos as not private credit. That's something else. People don't really say public credit, but it's something else. Private credit is distinct from deals done by banks. Right. Private credit is asset managers doing direct lending. And in the past I would have followed that by saying that they hold to maturity on their balance sheet, but everyone kind of knew that would not last forever. Eventually, if you have potentially trillions of dollars in an asset class, people are going to trade it. And Paulo is the luncheonet trading desk or talking about launching it Trading desk.

[Katie Greifeld]

I feel like we've been talking about Apollo's trading desk for a while because we first started having this conversation especially around when they filed for an ETF with State Street.

[Matt Levine]

Yeah, right. Let me take that back. It's not that they're launching a trading desk. It's that they're having conversations that are constructive about.

[Katie Greifeld]

Highly constructive. Highly constructive at the highest levels about.

[Matt Levine]

Like a venue about Like a marketplace where it's not just they'll have a trading desk but there'll be a bunch of trading desks and they'll trade with each other and there'll be a pricing service and some sort of electronic platform for people to meet and trade private credit. Because the trading desk that they were doing that they're planning in connection with the ETF was like to do a private credit ETF you need your assets to be liquid.

[Katie Greifeld]

You certainly should.

[Matt Levine]

And the way you get liquidity is by Apollo saying we'll buy the assets. Right. And so like that trading desk was a sort of like facing a single customer which is the etf. But then obviously you know, if you have that you're going to look for other places to trade with. But here it's like we want an all to all open venue for people who want to trade private credit because like obviously that's coming, right? Like obviously you have enough private credit funds, they're going to want to start trading and so that's what they're putting on.

[Katie Greifeld]

I'm trying to think about how to think about this and you say marketplace for bond trading and I think of like a market access or a trade web.

[Matt Levine]

Sure.

[Katie Greifeld]

Are they just trying to build that? But for private credit, something like that.

[Matt Levine]

You'Re so young, you think of market access or trade. It used to be like you know, a dozen dealers with telephones. Right?

[Katie Greifeld]

Well that just sounds fake.

[Matt Levine]

Yeah. Or like a dozen dealers with Bloomberg's. Right. And I think right. When Apollo talks about, you know, they're like to partner with banks, exchanges and fintech firms. Like exchanges and fintech firms suggest there is like an electronic marketplace. But yeah, like there's not that for private credit because it doesn't really trade and it doesn't have the electronic identifiers. Right. It's like you sign a contract, right. So you have to like do some like technological processes to make it tradable easily but you know, it's not that hard and you know they're going to do those processes. The other thing that I was thinking about in terms of how to think about this is like I haven't used the word banks to describe the Goldman Sachs of the world that originate bond deals and then have bond trading desks. But it used to be that that business was done mostly by non banks like Goldman Sachs, right. Which became a bank holding company in 2008. And it used to be that there was this world of investment banks that use their own capital to trade securities and, and that also Originated and like underwrote bond deals, committed their own capital, but basically sold it onto other people. And like those were non banks, they were investment banks and they, you know, were big and had a big market niche. And then over time like you know, the rules were relaxed in the US to allow banks to own them. And then in 2008 the big independent investment banks kind of got acquired or became bank holding companies. But like this used to be a non bank business. And you look at these big alternative managers and like to some extent they are like recreating what the big investment banks used to be. Right. Like you look at like Apollo, like Apollo, kkr, Blackstone, like their DNA is like their LBO shops, right? Yeah, but like the thing that they're doing now is we're going to originate loans or you originate, you know, debt deals and we're going to run a trading desk for people to trade debt deals. Right. They're kind of like moving into the business that like Goldman Sachs was doing 30 years ago before it became a bank. And, and they have some advantages in doing that business now, like largely in terms of just like being less regulated and also in terms of like being the cool place to go work if you want to work in finance. And so you can kind of get a lot of talent that banks have a harder time competing for now. Yeah, but a lot of this is like the sort of traditional business of the investment bank has become hard to do because the investment banks are all banks now and they're all pretty highly regulated. And so like the big alternative managers are kind of stepping in to do kinds of business that banks used to do.

[Katie Greifeld]

So does that give you any blueprint about where this expands to? I mean you have all these lofty projections right now of like private credit being 30, $40 trillion. If they're sort of like following the blueprint of, you know, what these big investment banks used to be like how does this end?

[Matt Levine]

I mean, how much credit is there in the world? There is this long term push against banks doing a lot of credit on their balance sheet. There's long term push through a little bit narrower banking where the risk of lending is taken by equity finance investment funds. And the big private credit managers are well set up for that. And there's a lot of stereotypical private credit deal is like direct lending to finance at lbo. But like all of these big managers are getting into structured investment grade stuff. You know, a lot of them are getting into like consumer loans and like eventually like why wouldn't these like quote Unquote, private credit firms be like, you know, holding most of the mortgages or whatever. Like, I don't know. There's a real possibility that like, this is like, you talk about like BlackRock kind of trying to have higher fees by, you know, diversifying its index funds with like private credit. Right. Like, you could see the kind of the reverse happening in private credit where you start with very risky, expensive direct LBO loans and you end up doing consumer credit for tighter spreads because you want to become a financial supermarket. That's a possible outcome.

[Katie Greifeld]

Yeah. I look forward to that future. And something I was thinking about, I mean, there has been several articles this week that have talked about this grand convergence between private and public, which has been going on for a while now as a narrative. But I mean, when you think about that convergence, is it just the private debt markets becoming more public? Are the public debt markets going to take on any characteristics of what happens in the shadows, or is this just private becoming more public?

[Matt Levine]

I think it's mostly private becoming more public. But like one way of private becoming more public is ETFs. Right. Like if, yeah, if there's like liquid trading, then there will be private credit ETFs, just as there are like, you know, loan ETFs, which, like, you know, bank loans used to not trade. Yeah, bank loans used to be not product that you could buy in your retail account. And now there's loan ETFs. There'll be private credit ETFs if this gets off the ground. And there's a lot of trading, which I'm sure there eventually will be. This being Apollo's being someone's private credit trading venue. Right?

[Katie Greifeld]

Yeah.

[Matt Levine]

Being like just private credit trading. Right. I spent like three years, maybe more writing most days the phrase people are worried about bond market liquidity because people are worried about bond market liquidity. And the story was something like there are all these like bonds, mutual funds, but really bond ETFs people were worried about. These ETFs are so liquid you can just trade them on the stock exchange anytime you want. And if people all want their money back at the same time, these ETFs will have effectually redemptions and they'll have to sell, or someone will have to sell all these bonds. And the bonds are not as liquid as the ETFs.

[Katie Greifeld]

No.

[Matt Levine]

And so it's a disaster waiting to happen. And the disaster never really happened. I made fun of this for a long time. There are those who would argue this.

[Katie Greifeld]

Is like real 2020 stuff. You know, I want to say it was earlier, I don't know.

[Matt Levine]

Yeah, 2020 is when it came to a head because of like was when the theory was tested, but people were worrying about it for years before that. So I'm just really excited for like the first 17 times I can write. People are worried about private credit liquidity because it's just going to happen again, right? Like there will be some trading and then there will be ETFs and like the trading in private credit markets will not be as liquid as the ETFs. And then people are, oh, what happens if.

[Katie Greifeld]

And it'll talk about illiquidity, doom loops. It'll be great.

[Matt Levine]

It'll be great. And like the best part of this is that I want to say Tracy Alloway was who pointed this out to me, but our Bloomberg colleague. But in like the 60s, people had this exact worry about equity mutual funds. Right?

[Katie Greifeld]

It was like, how quaint.

[Matt Levine]

Yeah. It was like, oh, these mutual funds, like if they all get redemptions at once, like they'll have to sell the stocks. There's not enough liquidity for that. And then like, you know, they performed relatively well and like people just forgot about that. And also stocks are very liquid, but it's going to keep going, keep moving up the capital structure to private credit.

[Katie Greifeld]

God, history just repeats itself.

[Carol Massar]

This is the Bloomberg businessweek Minute brought to you by Amazon Business. I'm Carol Massar. Green stocks have had a rough few years as the industry has struggled due to high interest rates, which made it more costly for green companies to get financing. Homeowners to buy solar panels and drivers to buy EVs. Add on top of that, pandemic lockdowns and supply chain issues. And the S and P Global Clean Energy Index is down by almost 2/3 since 2021. And yet some green investors are finding a silver lining in the presidency of Donald Trump despite his anti green policies. And that's because of low market valuations and improving earnings outlook. Investors single out battery producers as more electric grids install them to manage loads and store power when solar or wind installations are idle. Others say check out clean energy companies outside the US Noting China's strong support for green tech. That's the Bloomberg businessweek Minute brought to you by Amazon Business, your partner for smart business buying.

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[Stifel Representative]

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[Katie Greifeld]

So are you excited for the pro Football championship?

[Matt Levine]

I am looking forward to the professional football game to be played this weekend between the Philadelphia Squadron and the Kansas City 11.

[Katie Greifeld]

Wouldn't it be really cool if you could perhaps bet on that on the place where you also trade stocks? Alas, doesn't that seem like a for.

[Matt Levine]

A day it looked like it might.

[Katie Greifeld]

Happen One beautiful shining day in the sun.

[Matt Levine]

Yeah, Robin Hood. I love Robin Hood.

[Katie Greifeld]

They just like they shoot their shot.

[Matt Levine]

They do employ lawyers, like good lawyers, but they keep Years ago they launched a thing called Robinhood Checking and Savings. But they're like it's a bank account. And then like bank examiners were like it's not a bank account. You're not a bank. And they pulled it within like 24 hours. It was so embarrassing and so fun to write about. But yeah, they launched events contracts. Yes, they launched an events contract on the Big Game you can't say super bowl because then you get in trouble.

[Katie Greifeld]

You should pronounce it like Hunter Brook.

[Matt Levine]

They launched contracts on the big game where you could bet on Philadelphia or Kansas City. Not the Eagles or the Chiefs. No, Philadelphia or Kansas City. And they said they called it an emerging asset class, like event contracts in their announcement, which is now deleted from their website. But they didn't launch football betting. They launched the event contracts where you could buy a contract that pays off a dollar if Philadelphia wins the pro football championship, pays off $0 if Kansas City wins. Or you could buy the other contract that pays off if Kansas City wins, and that is a football bet. But they don't call it that because it's like there's this weird gray area where you can launch commodities futures. And commodities futures used to be like futures on soybeans. And then people are like, we can have financial commodities futures that are like bets on what the 10 year interest rate will be. And then people are like, well, if you can do that, what about bets on whether the Eagles will win the Super Bowl? And the line between like a financial futures contract and an events contract is a little blurry. And there's a lot of interest in events contracts. And so the cftc, the Commodity Futures Trading Commission, which regulates commodity futures, has like put out rules or like proposed rules that haven't been finalized and probably won't be saying, like, certain things are not okay. And those things include elections. They've like lost on that one. Like elections are now fair game. Assassinations. Timely, timely, timely.

[Katie Greifeld]

We had several assassination attempts on President Trump.

[Matt Levine]

Yeah, we also, like, in fact, I think Kalshi, one of the prediction markets, briefly listed contracts on what would happen to Luigi, like whether Luigi Mangione would plead, which is like kind of an assassination contract. It's related to assassinations. But anyway, another thing that's excluded is sports betting because, like, obviously, like sports betting is something else. Gambling is now, you know, largely legalized in the US you can like bet on sports on your sportsbook app. But is a sports bet a financial futures that is allowed on your burger Jav? Apparently not, because Robinhood launched it and pulled it 24 hours later because the CFTC told them to knock it off and they were very aggrieved about it. They said we were in regular contact with the CFTC prior to launching this product and we believe we are in full compliance with all applicable regulations. But nonetheless they pulled it.

[Katie Greifeld]

Well, who knows where this will go?

[Matt Levine]

I'm pretty sure it will go to not being Able to bet on the big game this weekend on Robinhood. This particular.

[Katie Greifeld]

Yeah, well, reading our Bloomberg news coverage, apparently Robinhood said it will continue to collaborate with the CFTC as it works on unveiling a more comprehensive events contract platform later this year. So their ambition is unscathed.

[Matt Levine]

Right. I mean the whole trend is in the direction of like free, lightly regulated events contract platforms. And like it's just weird to have an events contract platform that doesn't feature sports. Right. Because that's like the main event people want to bet on.

[Katie Greifeld]

Yeah, yeah.

[Matt Levine]

The CFTC also wanted to exclude betting on the Oscars. What's the point?

[Katie Greifeld]

I'm not going to be able to manipulate the Oscars.

[Matt Levine]

Right. I mean, I don't really know why.

[Katie Greifeld]

Like why they would be against it.

[Matt Levine]

Yeah. Part of it is like when you think about soybean futures, they're for like farmers to hedge their risk and for like soy sauce producers to hedge their risk. Right? Like you have natural counterparties on either side who are like doing real economic activity and are hedging that or like raising money to do it. Like there's some like underlying economic activity for all the like financial betting. Right. And so you can be like, oh, this commodities exchange is just like evil speculators betting. And they can be like, no, no, no. It's like supporting real economic activity. And then betting is just betting, right. Like no one really thinks maybe I'm wrong, but I've never heard anyone being like, oh yeah, sports betting is like building wealth. Right. People sometimes say it, but it's like.

[Katie Greifeld]

Well, it is an emerging asset class.

[Matt Levine]

It's an emerging asset class. It's a very cynical thing to say.

[Katie Greifeld]

Yeah, come on.

[Matt Levine]

It's not an asset class. The stock market goes up over time not because of magic. It goes up over time because it's like an investment in economic activity. And the economy grows with technological process and demographic growth. The size of the sports betting market does go up over time, but the outcome of the Eagles game doesn't go up over time. Right. It's like you bet and some people win and some people lose and that's it. And most people lose. Right. And it's like negative sum game for the betters. And if I were a financial markets regulator, I would be like, look, I'll approve a lot of stuff that is pretty tangentially related to real economic activity. I understand that speculation begets liquidity, that a lot of complicated products are useful in hedging. You want to trade zero day options on meme stocks like, fine, that's really loosely related to real financial activity, but, like, it's all in a continuum. But then it's like sports betting is like, there's nothing. This is embarrassing to a financial regulator. Now. I think we're probably entering an era of, like, unembarrassable financial regulators. And so, like, yeah, like, whatever, you can definitely buy futures contracts on the Super Bowl. But, like, I just think that, like, turning over the financial markets purely to gambling is kind of a scary step. Right? Yeah, but it's like, you can understand why, right? Because you look at, like, the work of a sports book and the work of, like a high frequency equity trading shop is, like, very similar. Right. It's, like, similar techniques, it's similar skills, it's like, similar risks. Like, you're really doing the same kind of work. And there is a lot of movement between, you know, people who are market makers for stocks and people who are bookmakers for sports. And then on, like, the retail side, like, you look at, like, there's so much stuff in, like, retail stock markets. There's a Bloomberg article this week about people betting on sports and people who bet thousands of dollars a weekend on football. And a lot of what they say is it's a social thing. It's like I'm texting with my friends and getting our bets in and it's my way to keep up with my college buddies or whatever. And you see that in the meme stock phenomenon, too, where it's a very social phenomenon and it gives people a sense of fun and a sense of identity. It's not just like, we expect these stocks to go up. There's like some more social.

[Katie Greifeld]

It's like, very community based.

[Matt Levine]

Yeah. And it's just that, like, one of them is financial markets and one of them is gambling. But there's an obvious convergence socially. And so it is a little weird for the regulators to say, no, Robinhood, you can offer some kinds of fun gambling, but not other kinds of fun gambling. And eventually I think that will erode.

[Katie Greifeld]

Yeah. Another great convergence indeed in those shining 24 hours where you could do this on Robinhood. Apparently it had been rolled out to 1% of their customers. So Robinhood said it will give those investors the option to close their positions or take them to resolution. It would be fun to talk to some of those folks who are caught in this limbo.

[Matt Levine]

Oh, they get to take it to resolution. Yeah, I guess, because they.

[Katie Greifeld]

Pretty cool.

[Matt Levine]

Yeah.

[Katie Greifeld]

Okay.

[Matt Levine]

All right.

[Katie Greifeld]

Everything hurts.

[Matt Levine]

And that was the Money Stuff podcast. I'm Matt Levine.

[Katie Greifeld]

And I'm Katie Greifeld.

[Matt Levine]

You can find my work by subscribing to the Money stuff newsletter on Bloomberg.com.

[Katie Greifeld]

And you can find me on Bloomberg TV every day on Open Interest between 9 to 11am Eastern.

[Matt Levine]

We'd love to hear from you. You can send an email to moneypodloomburg.net Ask us a question and we might answer it on air.

[Katie Greifeld]

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.

[Matt Levine]

The Money Stuff Podcast is produced by Anna Mazarakis and Moses Andam.

[Katie Greifeld]

Our theme music was composed by Blake Maples.

[Matt Levine]

Brendan Francis Newnham is our Executive producer.

[Katie Greifeld]

And Sage Bauman is Bloomberg's Head of Podcasts.

[Matt Levine]

Thanks for listening to the Money Stuff podcast. We'll be back next week with more stuff.

[Carol Massar]

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Power 2024 award information.

[Stifel Representative]

Visit jdpower.com awards.

[Carol Massar]

This podcast is supported by BetterHelp, offering licensed therapists you can connect with via video phone or chat. Here's BetterHelp head of clinical Operations Hesu Joe discussing who can benefit from therapy.

[Katie Greifeld]

I think a lot of people think that you're supposed to be going to therapy once you're like having panic attacks every day. But before you get to that point, I think once you start even noticing that you feel a little bit off and you can't maintain this harmony that you once had in relationships, that could be a sign that maybe you want to go talk to somebody. There's always a benefit in talking to someone because we can all benefit from improved insight about ourselves and who we are and how we behave with other people. So if you're human, that's like a good indicator that you could benefit from talking to somebody.

[Carol Massar]

Find out if therapy is right for you. Visit betterhelp.com today. That's betterhelp.com.