Money Stuff: The Podcast - Episode Summary

Title: Awkward Pauses: Tariffs, Basis, Leverage
Release Date: April 11, 2025
Hosts: Matt Levine and Katie Greifeld
Produced by: Anna Mazarakis and Moses Ondahm

1. Introduction to Tariffs and Market Volatility

[01:12] Matt Levine:
Matt Levine opens the episode by discussing his upcoming vacation and humorously ties it to past experiences where his absence coincided with significant market events, referencing the "Lehman Brothers bankruptcy in September 2008." This sets the tone for the episode, highlighting the unpredictability and volatility of financial markets.

[02:01] Katie Greifeld:
Katie expresses concern about Matt's vacation contributing to potential market chaos but acknowledges the possibility of decreased volatility:
"I mean, we can only hope and pray. But I'm glad you Signposted that this is happening on Wednesday because I mean, this podcast could be irrelevant by."
(02:01)

2. Walter Bloomberg and the Impact of Fake Headlines

The hosts delve into the incident involving Walter Bloomberg—a pseudonymous Twitter account mimicking Bloomberg News—which falsely reported a "90-day pause on tariffs."

[03:47] Matt Levine:
Matt remarks on the uncanny accuracy of Walter Bloomberg’s fake headline:
"It's so weird that it was accurate two days in advance, right?"
(03:47)

[05:10] Katie Greifeld:
Katie narrates the fallout from the fake headline, explaining how major news outlets like CNBC and Reuters propagated the misinformation, leading to temporary stock market surges before issuing corrections:
"They're like a nice dry run. It was a teachable moment that when there is any good news that you're going to see markets absolutely explode."
(05:10)

[09:24] Matt Levine:
Matt contemplates the mechanics behind such market manipulations:
"You can't really monetize it because it's like you're moving all the stocks. But I don't know, there's something really beautiful about doing such an enormous stock manipulation."
(09:24)

The discussion touches on the blurred lines between social media influence and real-life market movements, emphasizing the significant impact a single fake headline can have.

3. Treasury Markets: Basis Trades and Swap Spreads

The conversation shifts to the complexities within the Treasury markets, specifically focusing on basis trades and swap spreads.

[12:23] Matt Levine:
Matt explains the fundamentals of the basis trade and its implications for Treasury yields:
"The basis trade is like you buy a Treasury bond and you sell the futures contract that corresponds to that treasury bond..."
(12:23)

[14:01] Katie Greifeld:
Katie references insights from Thorsten Slack of Apollo, noting the extensive size of the basis trade market:
"There's like $800 billion in it right now."
(14:01)

[16:43] Katie Greifeld:
She further elaborates on the swap spreads, differentiating them from basis trades and discussing their recent significant declines:
"They cratered. I think that they hit at least a multi-year low, if not a record low."
(16:43)

4. Hedge Fund Exposure and Potential Blow-Ups

Matt and Katie express concerns about the high leverage ratios in basis trades and the potential for hedge fund failures amidst current market volatility.

[18:56] Matt Levine:
Matt questions the likelihood of hedge funds sustaining their positions:
"There's a broader question of like, will anyone blow up in this crazy volatility?"
(18:56)

[19:28] Katie Greifeld:
Katie highlights the massive scale of the basis trade compared to previous years, indicating heightened risk:
"I saw some stat that the basis trade is like double the size of what it was in 2020 when it blew up last and still haven't seen any reports of hedge fund blow ups."
(19:28)

This segment underscores the fragility within leveraged financial strategies and the looming threat of significant market disruptions.

5. Leveraged ETFs and Complex Financial Trades

The hosts delve into the intricacies of leveraged ETFs, explaining how certain trades can appear detached from market fundamentals yet yield consistent returns under specific conditions.

[20:03] Katie Greifeld:
Katie introduces the topic of leveraged ETFs, addressing listener feedback:
"Can we just say one thing? This was Matt's idea. Matt wanted to talk about leveraged ETFs this episode."
(20:03)

[22:35] Matt Levine:
Matt breaks down the mechanics of a specific leveraged ETF trade:
"These ETFs are creating volatility. They're trading with someone on the other side who is kind of a market maker and selling them the volatility that they're giving people."
(22:35)

[24:19] Katie Greifeld:
Katie discusses the practical challenges and costs associated with such trades, referencing insights from Rob Arnott of Research Affiliates:
"He said that 2024's gain for shorting again, both long and inverse triple leveraged ETFs was around 13%. Half of that went to borrowing costs."
(24:19)

This section highlights the sophisticated and often risky nature of leveraged financial instruments, emphasizing their potential for both high returns and significant losses.

6. Final Thoughts and Upcoming Content

As the episode concludes, Matt and Katie briefly touch upon upcoming content and the logistics of the podcast's schedule.

[25:56] Katie Greifeld:
Katie acknowledges Matt’s upcoming vacation and teases future episodes:
"But fear not, fear not."
(25:56)

[26:22] Matt Levine:
Matt mentions the availability of a Mailbag episode during his absence:
"And that was the Money Stuff podcast. I'm Matt Levine."
(26:22)

Notable Quotes

• Matt Levine:
  "It's so weird that it was accurate two days in advance, right?"
  (03:47)

• Katie Greifeld:
  "We can only hope and pray. But I'm glad you Signposted that this is happening on Wednesday because I mean, this podcast could be irrelevant by."
  (02:01)

• Matt Levine:
  "We have twisted the world where now it's like you sit down and you write a consequential truth social post and that's how tax policy gets made."
  (06:22)

• Katie Greifeld:
  "He described it as a slow, boring money machine, which I find really charming."
  (22:16)

• Matt Levine:
  "Someone's got to blow up."
  (19:56)

Key Takeaways

• Market Volatility: The episode emphasizes the inherent unpredictability of financial markets, especially in the context of political decisions like tariff adjustments.

• Influence of Social Media: Fake headlines, particularly those mimicking reputable news sources, can have significant short-term impacts on market behavior, highlighting the potent role of social media in modern finance.

• Treasury Market Complexities: Basis trades and swap spreads play a crucial role in Treasury markets, with high leverage ratios posing risks of hedge fund failures during volatile periods.

• Leveraged ETFs Risks: While leveraged ETFs offer opportunities for amplified returns, they come with intricate risks and costs, making them suitable only for sophisticated investors with a deep understanding of their mechanics.

Conclusion

In this episode of Money Stuff: The Podcast, Matt Levine and Katie Greifeld navigate the tumultuous waters of tariffs, market manipulations via social media, and the complexities of Treasury and leveraged ETF markets. Through insightful discussions and expert analysis, they shed light on the intricate mechanisms that drive financial markets, offering listeners a comprehensive understanding of current economic challenges and strategies.

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