← Money Stuff: The Podcast
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- [00:00]
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- [01:00]
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Matt Levine
Meta's open source AI model Llama helps us collaborate with universities to help radiologists catch more errors.
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- [01:36]
Matt Levine
Magnifico.
- [01:37]
Katie Greifeld
Incredible.
- [01:38]
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- [01:48]
Matt Levine
Bloomberg Audio Studios Podcasts, Radio News. 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 Stuff column for Bloomberg Opinion.
- [02:08]
Katie Greifeld
And I'm Katie Greifeld, a reporter for Bloomberg News and an anchor for Bloomberg Television.
- [02:14]
Matt Levine
What are we talking about today, Katie?
- [02:15]
Katie Greifeld
We're gonna talk about Adani.
- [02:17]
Matt Levine
Sure.
- [02:18]
Katie Greifeld
What's going on?
- [02:18]
Matt Levine
Big news?
- [02:19]
Katie Greifeld
We're going to talk about MicroStrategy. Oh, there's a lot to say there. And we're gonna talk about short selling, which is one of the favorite topics in the Money Stuff universe.
- [02:29]
Matt Levine
That's a good way of saying, yeah, you don't care about it.
- [02:31]
Katie Greifeld
All right, I'm going to politely agree.
- [02:35]
Matt Levine
All right.
- [02:41]
Katie Greifeld
This was interesting. So, Gautam Adani. US Prosecutors accused Adani, who is one of the world's richest people of Promising to pay more than $250 million in bribes to Indian government officials to win solar energy contracts. This was very interesting on a number of different levels.
- [03:00]
Matt Levine
Yeah, I don't read a lot about bribery. I love bribery cases. I read about them some. It's so interesting. One thing that's interesting is, like, usually when you have a bribery case, it's like, and then they handed the bag of cash to the official, right? Or like, there's emails being like, the official would really like to buy his mansion. Now here it's like all of the, like, emails, they quot quote sound legitimate. Because what it says is like, to win these power contracts, they had to pay incentives to the state power companies. And so they would say things like, we need to pay incentives to these state power companies. And it's like, well, that sounds fine. Like, paying the state power companies rebate for buying power seems fine. Now, paying the state power company executives $200 million is bad, but. So none of the stuff they quote makes it clear that it's going to these people personally. You know, I write a lot about, like, how if you were to pay bribes. None of this is ever legal advice, but I read a lot about how if you were to pay bribes, you should try to make them look businesslike and not like a sack of cash. And like, winking emails saying, I've given you the chickens. But just like, yes, we're paying incentives to make a commercially viable contract with the state power company. And if it happens to go to the executives personally, then, like, who can prove it?
- [04:15]
Katie Greifeld
Hearing you described, that kind of reminds me of the Eric Adams emails.
- [04:19]
Matt Levine
Oh, yeah.
- [04:19]
Katie Greifeld
With the airline. And one of his staffers was like, no, you got to make it look a little legit.
- [04:24]
Matt Levine
Right?
- [04:24]
Katie Greifeld
He put that in an email. He or she, I don't know. Yeah, put that in an email.
- [04:28]
Matt Levine
I only read, like, the charging documents from the SEC and from the Department of Justice. And so one assumes they have evidence and testimony saying, oh, yeah, we gave them the money personally. But it's actually weird because it's like, for one thing, these numbers are so large. If you're paying $200 million, it does sound like you're paying $200 million to the power company because, like, that's a big bribe.
- [04:49]
Katie Greifeld
Oh, yeah, 250 million.
- [04:52]
Matt Levine
Yeah. And the bribes are weird because it's like one of them is like, they did deals with different Indian states, and so one of them, it's like they paid several hundred thousand dollars, which is like, yeah, it sounds like a problem. One of them is like, they paid several hundred million dollars. It's like, that sounds like a legitimate business expense.
- [05:06]
Katie Greifeld
Yeah.
- [05:06]
Matt Levine
And like, also, the guy who got $200,000 must be annoyed reading this indictment. Like, I could have gotten $200 million. Just strange.
- [05:14]
Katie Greifeld
Something that maybe you can expand upon is how this ties into the U.S. like, U.S. prosecutors are alleging that he bribed the Indian government. Like, why is the US Getting involved?
- [05:27]
Matt Levine
Okay, so part of the answer is the US Loves to get involved. Like, there are much crazier cases than this. Right. I love, like, Olympic doping cases, where it's like, you know, in Paris, a foreign athlete gets drugs from a foreign doctor, and the US Is like, ah, that's undermining international sport. And they'll bring charges.
- [05:45]
Katie Greifeld
Well, you know, in America, American athlete could have won that race.
- [05:48]
Matt Levine
That's a good point.
- [05:49]
Katie Greifeld
Thank you. I think about this a lot anyway.
- [05:51]
Matt Levine
That's right. Go on doping your horse. But everything sort of flows through New York. Part of the answer is that Adani Green, which is the Adani Group entity that allegedly paid the bribes, they had a partner on these power deals, and that's a company called Azure Global Power, and that was, for a while, listed in New York. But the main answer, particularly in the SEC case, is that Adani Green issued bonds. They did, like, an international dollar denominated bond offering, and some of those bonds were sold to US Investors. And so allegedly they defrauded US Investors. And it's very interesting fraud. I wrote that this is basically a greenwashing case because what happens is they issue these bonds in 2021 when they're paying the bribes, and allegedly paying the bribes, and they paid the bonds back in 2024. So, like, nobody lost any money. The investors are fine. The US Investors were fine.
- [06:46]
Katie Greifeld
It's chill.
- [06:47]
Matt Levine
Well, how are they defrauded? Well, they were defrauded because the SEC makes a big point of saying, look at all, like, the ESG promises that Adani puts in the bond offering. Like, they're like, not only are we a renewable power company, but we're also one that works in developing countries and doesn't pay bribes. And like, you can imagine being an ESG investor in 2021 and saying, I would love to put money into a company that does, like, renewable power, which is green and very like, E. And also works in developing countries. So it's like, you know, providing clean power to places where it's, like, not as easy to fund solar projects. So it's like, s. And then it doesn't pay Bribes. Because, like, a lot of, you know, energy projects in developing countries, you worry about it. They pay bribes. Good G. That's some good G. And like, the SEC says that Adami Green positioned itself as a leader in environmentally conscious, socially responsible, and good corporate governance principles, and it sought to differentiate itself from its peers and other potential investments or issuers in developing countries that might be susceptible to corruption and bribery issues.
- [07:49]
Katie Greifeld
Uh.
- [07:49]
Matt Levine
Oh, if you're an ESG investor, like, you're looking at solar projects in developing countries and like, oh, these probably pay bribes, and that's not very esg. But then Adani's like, we do solar projects in India and we don't pay bribes. And you're like, great. And those people were defrauded because they allegedly invested in a company that did pay bribes.
- [08:05]
Katie Greifeld
Yeah. So there you go. A detail that I love about this whole thing. You talk about Adani Green, you think about Gautam Adani himself, the reason why he is so rich and so systemically important to the government and their ambitions. And also the Indian stock market. He made his money in coal mining.
- [08:25]
Matt Levine
Oh, sure.
- [08:25]
Katie Greifeld
And this is all part of his broader reinvention.
- [08:28]
Matt Levine
Well, yeah, although that's actually not that uncommon. A lot of energy and infrastructure companies are. We also do green energy because, like, if you're in the energy business, you have some advantages in, like, entering energy contracts that are solar energy.
- [08:41]
Katie Greifeld
Yeah. I just like that he became greener. And also, allegedly, you must feel like bp. Yeah. Yeah.
- [08:48]
Matt Levine
Well, you say started doing primes.
- [08:50]
Katie Greifeld
We don't know that's true.
- [08:51]
Matt Levine
You know, I mean, obviously, like, there's the. There's like the Hindenburg allegations a while.
- [08:55]
Katie Greifeld
Back, about January 2023.
- [08:57]
Matt Levine
Yeah. So I don't think this is, like, particularly confirmatory of those, but it's a sort of general.
- [09:02]
Katie Greifeld
Like, I was wondering about that. I was trying rack my brain for that information, and I guess I could have looked it up.
- [09:09]
Matt Levine
But yeah, the Hindenburg stuff is, like, very miscellaneous. It's not like Adani is bad because of this one bad thing they did. It's like, oh, look at this nephew. Right. So it's a little hard to. Like, somewhere in the Hindenburg report, there might be, like, something about this, but it's hard to tell. I was going to say something else.
- [09:27]
Katie Greifeld
What was it?
- [09:28]
Matt Levine
Wait, what were we talking about before Hindenburg?
- [09:30]
Katie Greifeld
Coal bribes. Bribes could have been that important. We could talk about Donald Trump a little bit. Like, it'll be interesting to see what happens here with a new U.S. attorney in New York.
- [09:47]
Matt Levine
Yes, I Want to get to that. But I want to go back to the thing I was going to say. Adani himself is very closely associated with power in India. Right. He's close with Modi, and he's a political figure as well as a business figure. And it's interesting to me, if you read this case, the way that the deal works is that step one, Adani Green wins this enormous contract with the Indian federal government green power thing, and then step two to, like, make that contract work, they have to go out and win contracts with each Indian state's power company. And, like, allegedly, they win the power contract, the federal contract first, and then they go out and start bribing the state governments. There's no suggestion that they won the federal contract illegitimately, which is, like, it's a little interesting. I don't know. They're, like, so politically connected in the Indian federal government. It's interesting that they're, like, paying bribes to the same. It's like, it's just something to raise an eyebrow at Donald Trump.
- [10:44]
Katie Greifeld
Donald Trump. So Adani really likes Donald Trump, at least according to his social media presence after Trump.
- [10:51]
Matt Levine
I think, yeah, I think if you're a business person, this is not true in 2016, but it's true in 2024. If you're a business person, you really like Donald Trump according to your social media presence.
- [11:02]
Katie Greifeld
Yeah, that's very true across nationalities.
- [11:05]
Matt Levine
Yeah. It's just like, why not hop on that train?
- [11:07]
Katie Greifeld
Well, he didn't just congratulate him. He also committed to invest $10 billion in the U.S. create as many as 10,000 jobs.
- [11:15]
Matt Levine
Incentives.
- [11:16]
Katie Greifeld
Yeah, incentives sometimes are another word for bribes, but yeah.
- [11:21]
Matt Levine
Although, again, it's like if he committed to invest $10 billion in the United States, that's a good incentive. That's like the United States in this relationship is the principle. If he committed to invest $10 billion in Trump Media, then that would be bad. That's the agent. But, no, I don't think that's happening. I remember in the first Trump administration being interested in. In what sort of Foreign Corrupt Practices act prosecutions there would be, given Trump's whole thing. And I remain interested in the second Trump administration about that, because in the first administration, Trump owned a hotel where foreign governments would put people up at high rates. But now there's Trump media, there's, like, a lot going on. So we'll see. We'll see.
- [12:14]
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- [13:15]
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- [13:17]
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- [13:41]
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- [13:49]
Katie Greifeld
It's discipline. It's teamwork. It's the drive and passion inside of us that comes before all recognition. It's the best in each of us, made better by the best in all of us. Whatever success looks like to you, Stifel is invested in yours. That's why Stifel is one of the fastest growing global wealth management firms in the country. So when you're ready to chase success, our financial advisors are ready for you. At Stifel, we invest everything into our advisors so they can invest everything into their clients. That means direct access to one of the industry's largest equity research franchises and a leading middle market investment bank. And it's why Stifel has won the J.D. power Award for Employee Advisor satisfaction two years in a row. If you're an advisor or an investor, choose Stifel. Where success meets success. Stifel Nicholas & Co. Incorporated member SIPC and NYSE for J.D. power 2024 award information, visit jdpower.com Awards compensation provided for using not obtaining the award.
- [14:57]
Oh my gosh. MicroStrategy MicroStrategy is buying so much Bitcoin. MicroStrategy shares are going up. So MicroStrategy has another short seller after it. Where do you want to start?
- [15:10]
Matt Levine
Its strategy is so interesting, like, but it's so simple. It's so simple. When we were talking to John Collison, I remember on this podcast he argued for the View that companies should focus on doing their business well, and that a company that spends too much time focused on, like, doing stuff with stock or, like, optimizing its stock price, just like doing stock trades is probably a bad idea, and you should focus on building a great business. MicroStrategy has a business, right?
- [15:43]
Katie Greifeld
Yeah.
- [15:44]
Matt Levine
Runs an enterprise software company.
- [15:45]
Katie Greifeld
Phenomenally. A software company.
- [15:48]
Matt Levine
Yeah, right. Totally has a business. But one gets the sense that most of what its executives focus on day to day is issuing lots of stock and using the proceeds to buy lots of Bitcoin.
- [16:00]
Katie Greifeld
How do we get more bitcoin?
- [16:02]
Matt Levine
And then talking up the fact that they've bought more Bitcoin with the proceeds from selling stock. And I don't know how that has affected the customers of their enterprise software business. I don't know if the enterprise software business.
- [16:12]
Katie Greifeld
I'd love to interview one.
- [16:13]
Matt Levine
Yeah, I know, right? But as a shareholder value maximization strategy, right now, they've made the right choice. Clearly. They have made their stock go up so much by doing this insane perpetual motion trade where their stock trades at, like, I wrote, like, 150% premium to the value of the underlying Bitcoin, but it's actually more than that because you take into account leverage and stuff. Let's say their stock trades at, like, three times the price of, like, their underlying Bitcoin. And so they just sell a dollar worth of stock, they use it to buy a dollar worth of Bitcoin, and their stock goes up by $3. So they're just perpetually expanding their market cap. And, like, when I think about that trade, you know, we talked about the Destiny Tech 100 fund, where, like, it was trading at, like, 1,000% premium to the underlying private company shares because you couldn't get those shares. And so I was like, oh, they should issue stock because that'll compress the premium. Right? Like, you sell more stock, that puts selling pressure on your stock, your stock goes down. Meanwhile, you buy the underlying assets, the underlying assets go up. You sort of eventually get to a place where you're fairly valued. That's what MicroStrategy is doing. But the premium keeps going up. Like it doesn't work. Like, it works great for them, but it doesn't, like, actually compress the premium. So eventually they will have a market cap greater than like the entire world's economy because they found a perpetual motion machine.
- [17:28]
Katie Greifeld
And I look forward to that reality. It is interesting. I mean, I have my ETF glasses on all the time, but there's all of these.
- [17:37]
Matt Levine
There are Bitcoin ETFs, but no, there's.
- [17:39]
Katie Greifeld
Leveraged MicroStrategy ETFs that are doing incredible trading volume, which is nuts. There's been a couple days where they've been the most traded stock, which is crazy. And there is a theory out there that some of the people I follow on Twitter or X are entertaining that whether all the money that's coming into these ETFs is just part of the reason why you have that big premium. Mike Green over at Simplify has made the case that yes, Some of these ETFs have powered MicroStrategy to just this insane premium. Maybe that's why it's not getting arbitraged away.
- [18:19]
Matt Levine
I hope that's not true. It just seems like such a tail wagging the dog situation.
- [18:22]
Katie Greifeld
But the whole thing is true. I don't know. It's just one of the thought exercises.
- [18:27]
Matt Levine
One thing that I've heard argued is that MicroStrategy is a pot of Bitcoin. Why would you buy it at a three times premium to the underlying Bitcoin rather than buying Bitcoin or a Bitcoin ETF or something like that? One answer is like, you want to see where this is going and you think the premium will expand, which is like, you know, like, why not a science experiment? Yeah, like you could have a theory that the premium will expand. Like MicroStrategy has argued, like, we're actually a better way to hold Bitcoin because we can get leverage. You can't get leveraged. You can leverage your Bitcoin, but like you're trading at 3x the Bitcoin, so it's like it's not really a levered play. You have a fundamental view that the premium will expand. Another thing is like, for some reason you cannot own any other Bitcoin instrument and so you own this thing. I don't know who that would be.
- [19:15]
Katie Greifeld
Who fix that.
- [19:16]
Matt Levine
I have heard people say IRAs like, you can't buy a Bitcoin ETF in your IRA, but you can buy MicroStrategy in your IRA, which sounds terrifying. This is perhaps a less institutionally held stock than like a lot of other stocks. Perhaps, but there are some institutional investors in it and you can imagine being an equity fund manager where your mandate is like, you can't really buy ETFs in your equity fund, but, like, can you buy this corporate stock?
- [19:40]
Katie Greifeld
Yes, you can.
- [19:41]
Matt Levine
You can. And like, if you like, if you're like an equity fund manager who's like, really? I love bitcoin. This is like your best way to get Bitcoin. The 3x lever, ETFS maybe. But like, there's something amazing going on.
- [19:52]
Katie Greifeld
Oh, yeah.
- [19:53]
Matt Levine
And they are like capitalizing on it to the health.
- [19:57]
Katie Greifeld
Well, to that point. Maybe one of the reasons why you buy MicroStrategy at this premium is because you love Michael Saylor. Like, he does have a cult following.
- [20:05]
Matt Levine
Yes. Do you know who's not doing that trade? Michael Saylor selling stock.
- [20:10]
Katie Greifeld
Yeah, that's true. And I don't know, there's this Daily Mail cover from like March 2000 that's been making the rounds on X about him losing like $6 billion in a day on MicroStrategy. And it's just amazing to think that just the evolution of this company and the evolution of Michael Saylor and he's now obviously a very wealthy man, to be clear.
- [20:32]
Matt Levine
I really respect. Respect is maybe not the right word.
- [20:37]
Katie Greifeld
I really cherish and admire.
- [20:39]
Matt Levine
I cherish and am amazed by the idea of like, we run a software company, but that's boring. So we're just gonna get all in on buying as much bitcoin as we can. And it worked out so well. So well spread out.
- [20:52]
Katie Greifeld
So you said it's a pot of bitcoin and so it owns about $30 billion worth of Bitcoin and its market cap is $105 billion. And I think it's interesting to compare that to a traditional asset manager like a BlackRock, who has a market cap of $153 billion with 11/something trillion dollars in assets.
- [21:13]
Matt Levine
Yeah. But this is not the market cap of the manager. This is the market cap of the fundamental.
- [21:17]
Katie Greifeld
Yeah.
- [21:17]
Matt Levine
This is a fund that trades at 3x the value of its underlying stuff.
- [21:20]
Katie Greifeld
Yeah, yeah. It's not actually a fund.
- [21:22]
Matt Levine
Right. It's not actually a fund. It's just. It just is a fund. It also is a software company.
- [21:29]
Katie Greifeld
It's a fund software company that now Citron is trying to short.
- [21:33]
Matt Levine
Yeah. So this is like a famous widowmaker, right?
- [21:37]
Katie Greifeld
Yes.
- [21:37]
Matt Levine
Because people have noticed this for a long time.
- [21:39]
Katie Greifeld
Yes.
- [21:39]
Matt Levine
And have tried to short it and been carried out.
- [21:42]
Katie Greifeld
Carysdale did it just in March and I was taking a look at it, they did the same thing. Long bitcoin, short microstrategy Their reasoning at the time was that their trading history and basic common sense suggests that the current inflation. Current inflation premium will contract much as it has on prior occasions, providing a compelling opportunity for a pair trade. Since that Bloomberg news article, MicroStrategy is up 175% and Bitcoin is up 38%.
- [22:12]
Matt Levine
I mean, they're right before the end of the universe. That premium will contract before the heat death of the universe, before carousel gets out of the trade. Who knows, right? It is such a famous widowmaker. Citroen didn't put out a report being like, we're all in on anti microstrategy. They were like, we're hedging our long bitcoin with a little bit of short microstrategy. But, you know, same basic trait. And the stock went down, which I was impressed by. Like, I write about how weird this is and nobody sells it. So I don't know.
- [22:45]
Katie Greifeld
Amazing. Maybe you didn't tweet about it enough because that's what Citron did. It was cool to see that. But you, I don't know, I want to make the common sense argument that, oh, maybe it went down on this specific one just because it's come up so much, but I feel like that's never stopped.
- [23:00]
Matt Levine
Yeah, like, who knows, right? Like, there's a lot going on, including, you know, MicroStrategy is in the middle of selling $21 billion worth of stock. They sold, like, $4.6 billion of stock last week. Sorry, not last week. It's. Yeah, it actually was last week.
- [23:15]
Katie Greifeld
How it was this week, but time is a flat circle.
- [23:17]
Matt Levine
Well, but the point is, like, they disclosed like, this Monday that they had sold $4.6 billion of stock last week. They're probably doing roughly that clip this week. So, like, you know, maybe the stock went down because they're like, sold a bunch of stock. In any case, they're selling stock, buying bitcoin. Bitcoin is going up to $100,000. There is no reason that what they're doing should increase the premium. But taking a step back, if you're all in on bitcoin having enormous firepower to buy a lot of bitcoin makes bitcoin go up and it makes your strategy look better. Right. If MicroStrategy was buying Bitcoin and bitcoin was going down, people would be like, yeah, that's annoying. Right? But they're buying bitcoin. Bitcoin is going up. People are like, oh, they're geniuses. Look, they keep buying Bitcoin. It keeps going up. So it's like there is a virtuous cycle component to it where their enormous buying firepower gives them some momentum, both in terms of the value of their assets and also in terms of how they look to the market. Because they look like they're buying a thing that goes up.
- [24:15]
Katie Greifeld
Yeah, well, good game. Michael Saylor Wherever you are on your yacht in Miami.
- [24:28]
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- [25:28]
Mikaela Shiffrin
I'm Alpine skier Mikaela Shiffrin. I've won the most World cup ski races in history. But what does success mean? To me, success means discipline. It's teamwork. It's the drive and passion inside of us that comes before all recognition. And it's why Stifel is one of the fastest growing global wealth management firms in the country. If you're looking for success, surround yourself with the people who will get you there.
- [25:54]
Katie Greifeld
At Stifel, we invest everything into our advisors so they can invest everything into their clients. The that means direct access to one of the industry's largest equity research franchises and a leading middle market investment bank. And it's why Stifel has won the J.D. power Award for Employee Advisor satisfaction two years in a row.
- [26:12]
Mikaela Shiffrin
If you're an advisor or investor, choose.
- [26:14]
Katie Greifeld
Stifel where success meets success. Stifel Nicklaus & Co. Inc. Member SIPC and NYSE for J.D. power 2024 award information, visit jdpower.com Awards compensation provided for using not obtaining the.
- [26:27]
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- [27:36]
Katie Greifeld
Shall we keep talking about short selling and short squeezes?
- [27:40]
Matt Levine
Sure.
- [27:41]
Katie Greifeld
You wrote this week that short squeezes are illegal now.
- [27:43]
Matt Levine
So I wrote this week about appeals court decision from last month. Sorry, it's a slow week.
- [27:50]
Katie Greifeld
Yeah, I was wondering what's the next step?
- [27:52]
Matt Levine
Every so often things just sit on the back burner for a while and like, well today I'm going to write about month old court decision.
- [28:00]
Katie Greifeld
Let's look at what happened last month.
- [28:01]
Matt Levine
You know, you can't always be.
- [28:04]
Katie Greifeld
It makes for a great podcast.
- [28:06]
Matt Levine
Yeah, right. We love to be timely. So I read this week about something that happened last month, which is a appeals court decided that it's okay to do a short squeeze. So what it is is like companies most prominently overstock.com I thought they invented it. Someone emailed me with Pegasus Wireless might have invented this.
- [28:27]
Katie Greifeld
How did you miss that?
- [28:29]
Matt Levine
I wasn't following short squeezes closely. Anyway, companies do this thing from time to time where they try to squeeze out their shorts. So a company will get mad at short sellers. They'll think, oh there's naked short sellers. Or they'll just be mad at people betting against them. And so they'll say what we're going to do is we're going to give each shareholder some magic token. Now it's a crypto thing. Like Overstock did it with a crypto thing. But it doesn't have to be a crypto thing. It can be like a paper certificate saying you're entitled to, you know, 10% of the company and you give them this magic thing in a way that can't be traded. So people who get the magic thing can't sell it. And what that means is that short sellers can't buy it. And so if you're a short seller, you borrowed stock from someone else. You sold the stock short and you owe the person you borrowed the stock from the stock back and whatever else comes with the stock. So if the stock pays a dividend, you have to pay them a dividend. If there's a spin off, you have to give them shares of the spinoff. If the company gives out this magic token, then the short sellers owe the magic token back to their share lenders. If they can't get the magic token because it doesn't trade, then they can't fulfill their obligation and they fall into a black hole. That's the idea. And so the effect of this is that you announce, oh, we're going to pay out this magic token in like a week. And then before you pay out the magic token, all the short sellers say, oh wait, if that happens, then I'll be in this black hole. And so I have to buy back my stock now to avoid that. And so the short sellers all buy back their stock and the stock goes up and the short sellers lose money and are sad and you as the CEO are happy because one, your stock went up and frankly you are probably selling stock into that rally because of course you're this kind of CEO. But then two, the short sellers lost money and like that's what you really wanted because you hate them. And this is like a controversial thing because it just so clearly is like a form of market manipulation, right? Like you're creating artificial demand for the stock by doing this weird non traded dividend that like clearly has no corporate finance purpose. Like clearly giving people a non traded thing is not good for your shareholders compared to giving them a traded thing. But you do it to hose the short sellers. And the SEC hates it and has brought fraud charges against a company that did something kind of like this. And when Overstock tried to do this a couple of years ago, the SEC kind of told them to knock it off and said they had to delay their dividend. Ultimately Overstock decided, we'll just do a traded dividend. And so what happened is they announced this weird magic token thing, the short sellers got nervous and covered some of their shorts and the stock went up. And the CEO of Overstock sold a lot of his own personal stock into that rally. And then ultimately Overstock said, nevermind, we're not going to do that. And the stock went back down. And they said never mind because the SEC stopped them. But it's never been clear that it's illegal. And so some short sellers who got squeezed by Overstock sued Overstock and they lost and the court said, well, this maybe creates an artificial price, but there's no deception involved. They said very clearly what they were doing. And so if there's no deception, it can't be market manipulation. You have nothing to sue for. So that's the current state of things.
- [31:49]
Katie Greifeld
So like you said, it's legal now.
- [31:52]
Matt Levine
Yeah, it's the 10th Circuit, so it's not where most securities cases are brought. It's not clear what would happen if the SEC brought a case. This is private short sellers who no one really sympathizes with. But, yeah, it kind of seems like it's legal to do this.
- [32:06]
Katie Greifeld
I feel like you wrote about this just so you could write about that guy that you love.
- [32:10]
Matt Levine
Yeah. Phil Falcone did an amazing short squeeze with these bonds that are delightfully called the Max Zips. In, like, 2007, he bought these distressed bonds because he thought they were a good investment. And then he found out that his prime broker was also shorting them. And he got so mad, which is rude. And he got so mad that he bought up more and more bonds until he owned, like 113% of the bonds, because he'd buy all the bonds, and then the prime broker would be like, I'm going to short some more bonds. And Phil Falcon would be like, I'd buy those, too. And he ended up owning more than 100% of the bonds. And then he called in his borrow. He called the prime broker and said, I want all my bonds that you owe me. And the prime broker is like, okay, I'll go find them. And the prime broker tried to buy them, and there was no one selling. And so ultimately they got on a call with Phil Falcone, and Phil Falcon said, just keep bidding. Sometimes you are just on the wrong side of the trade, which is amazing. And then Phil Falcone also said, somebody owns more than 100% of these bonds, which is probably why you can't buy them. And the prime broker was like, what? How do you know that? And Phil Falcone said, because I own them.
- [33:23]
Katie Greifeld
God.
- [33:23]
Matt Levine
Also incredible. And then the SEC sued him and said it was market manipulation and he got in trouble.
- [33:28]
Katie Greifeld
I do love him sending them on. Just like a wild goose chase. Only trouble.
- [33:33]
Matt Levine
Just keep bidding.
- [33:34]
Katie Greifeld
Just keep bidding. A lot of life lessons there. Did he make money ultimately? I mean, the SEC sued him. Yeah.
- [33:40]
Matt Levine
Like, I think it sort of. Like, the subsequent SEC penalties and problems were probably not worth it to him in the long run. Yeah, he did make money on the trade.
- [33:50]
Katie Greifeld
That's good. And also he did win Something which is very real, and that is frequent mentions in the Money Stuff column.
- [33:58]
Matt Levine
But, you know, it's like, is that trade legal now? Well, the problem is that, like, I don't think he did anything really deceptive, but he wasn't, like, going around telling everyone that he was buying more than all of the bonds until he'd actually done it. Then he was telling everyone because it's amazing. But there is some difference between that and like the overstock case, where it's like, these companies are really, really clear. They're like, we're going to go out and get those shorts. And so there's no deception at all there. Sometimes there is. Sometimes they're a little coy about it because the SEC doesn't like it when you say, I'm just going to go out and burn the shorts. But they can't be that coy because they really hate short sellers. And so they really are going around on Twitter all day being like, oh, those short sellers.
- [34:41]
Katie Greifeld
Yeah.
- [34:42]
Matt Levine
I'm excited for Elon Musk to learn about this decision.
- [34:46]
Katie Greifeld
I feel like he's a little bit busy right now.
- [34:48]
Matt Levine
I think he is not spending a lot of time thinking about how much he hates short sellers right now. But I'm fairly confident the time will come again when Elon Musk spends a lot of time thinking about how much he hates short sellers.
- [35:01]
Katie Greifeld
Yeah.
- [35:01]
Matt Levine
And when he does, there's like a whole new technology for him. Well, he'll be good at it.
- [35:06]
Katie Greifeld
To that point. Carson Block from Muddy Waters was on Bloomberg Television sometime on Thursday and he said that he does expect more anti short seller rhetoric under Trump.
- [35:17]
Matt Levine
Yeah, that's right.
- [35:17]
Katie Greifeld
The exact quote is, we've already had some rhetoric. We might have some more anti short seller rhetoric. He did note he doesn't think that Trump and Musk believe that short sell are responsible for their company stocks falling, etc. But we know Elon Musk hates short sellers.
- [35:31]
Matt Levine
Yeah. And by the way, what's his name?
- [35:32]
Katie Greifeld
Block?
- [35:33]
Matt Levine
No. Evan Nunes.
- [35:34]
Katie Greifeld
Yeah.
- [35:35]
Matt Levine
The chief executive officer of Trump Media and Technology Group has, like written letters to Congress about, oh, the naked short sellers are getting our stock. Which I think it is very, very, very hard to argue that the stock of Trump Media and Technology Group has been systematically manipulated down to reflect less than its fundamental value. But, you know, there's like, oh, there's weird fails. There's naked short selling. So you've already seen, you know, from the Trump camp a increase in anti short seller rhetoric. And there's plenty of ways to burn short sellers, including, like the government can say it's illegal, which has happened in my, you know, financial career, but otherwise, yeah. And that was the Money Stuff Podcast. I'm Matt Levine.
- [36:20]
Katie Greifeld
And I'm Katie Greifeld.
- [36:22]
Matt Levine
You can find my work by subscribing to the Money stuff newsletter on Bloomberg.com.
- [36:26]
Katie Greifeld
And you can find me on Bloomberg TV every day on Open Interest between 9 to 11am Eastern.
- [36:32]
Matt Levine
We'd love to hear from you. You can send an email to moneypodlumberg.net Ask us a question and we might answer it on air.
- [36:39]
Katie Greifeld
You can also subscribe to our show wherever you're listening right now it and leave us a review. It helps more people find the show.
- [36:44]
Matt Levine
The Money Stuff Podcast is produced by Anna Mazarakis and Moses Andam.
- [36:48]
Katie Greifeld
Our theme music was composed by Blake Maples.
- [36:51]
Matt Levine
Brendan Francis Newnham is our executive producer.
- [36:53]
Katie Greifeld
And Sage Bauman is Bloomberg's head of podcasts.
- [36:56]
Matt Levine
Thanks for listening to the Money Stuff Podcast. We'll be back next week with more stuff.
- [37:10]
Katie Greifeld
Thanks for listening to the Money Stuff Podcast. If you never want to miss a story, become a Bloomberg.com subscriber today. Check out our special intro offer right now@bloomberg.com podcastoffer or click the link in our show notes. You'll also unlock deep reporting, data and analysis from reporters around the world.