Timeless Wisdom: A Mailbag Episode

Summary

Money Stuff: The Podcast — "Timeless Wisdom: A Mailbag Episode" (May 8, 2026)

Host: Matt Levine
Co-host: Katie Greifeld
Format: Mailbag Q&A

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Episode Overview

This mailbag episode delivers on its promise of “timeless wisdom,” as Matt Levine and Katie Greifeld answer listener questions on financial advisors, favorite finance books, ESG in private equity, IPO share prices, and why business loans aren’t structured like mortgages. With classic Money Stuff wit and technical depth, the duo mix personal reflections, micro-anecdotes from Wall Street, and big-picture lessons, making for a satisfying episode both for regular readers/listeners and finance-curious newbies.

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Key Discussion Points & Insights

1. Matt Levine’s Financial Advisor: Disclosure & Reflections

(Starts ~03:00)

• Background: Matt discloses he owns a small amount in a Blue Owl Credit Income Corp. private credit fund due to a recommendation from his financial advisor.
• Journalist Portfolio Constraints:
  • Matt details journalistic ethics — he avoids investments he writes about (like Blackstone’s BREIT and Starwood real estate vehicles).
  • Ultimately, his advisor convinced him to take on “a little scooch of private credit,” which later created some awkwardness due to coverage overlap.
• Quote:

  “I have no investment advice. I have no opinions on the Blue Owl private credit fund... but I also wish I didn’t own it for purely journalistic reasons.” – Matt (05:23)

• Matt shares ambivalence: he values professional guidance for tax/college planning, not stock picking.
• Katie’s Take: She holds only index funds, saying,

  “We’re journalists. We’re not supposed to like do too much, right?” (08:07)

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2. Favorite Finance Books

(Starts ~09:35)

• Listener Justin asks for book recommendations.
• Katie prefers fiction but read (and liked) The Bond King by Mary Childs.

Matt’s Recommended List:

1. Diary of a Very Bad Year (N+1 interviews with an anonymous hedge fund manager during 2008 crisis)
   • Memorable concept:

     “Every time you do a private investment, you’re writing a call option on your own time… In a crisis, correlations go to 100%. So you just run out of time.” – Matt, recalling the book (11:38)

2. Expected Returns by Antti Ilmanen
   • The best overall guide to why investors get paid for risk.
   • Insight: Carry trades and real-world returns don’t always match textbook theory.
3. The Bond King by Mary Childs
   • Story of how seating charts and personal dynamics played a real role in Bill Gross’ ouster from Pimco.
   • Quote:

     “Everything is seating charts. And in The Bond King… why did he get kicked out? … he didn’t put his enemies at the front table.” (13:31)

4. Trading at the Speed of Light by Donald MacKenzie
   • Examines the peculiarities of high-frequency trading (HFT).
   • Anecdote: Rain sometimes increased market liquidity by disrupting microwave transmission, slowing down HFTs, which helped market makers.

   • “Rain created liquidity.” (15:36)

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3. ESG (Environmental, Social, Governance) in Private Equity: Do Employee Benefits Count?

(Starts ~15:46)

• Listener Chris (private equity) asks if nice retreats and perks for employees should count as ESG.
• Matt’s Take:
  • Governance (G) is sometimes at odds with “E” and “S”: G optimizes for shareholders, while S is about employees, and E the environment.
  • Perks for rank-and-file: good S (Social); perks for senior execs: potentially bad G (Governance).
  • Don’t boast about PE employee perks; for portfolio company employees, it’s a social positive.
• Quote:

  “There’s some line where giving the CEO nice perks is bad governance, and giving your cashiers… is good social.” (17:00)

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4. IPOs: What Role Does Share Price Play After Going Public?

(Starts ~19:37)

• Listener Ron asks: After the IPO, how does share price matter to the company?
• Matt’s Explanation:
  • In the US, companies can always issue new shares (no “stock inventory”).
  • Many successful companies rarely issue more shares after IPO; stock markets are more for returning capital (buybacks) than fundraising.
  • Stock price matters:
    • Executive and employee comp (especially for companies who pay with stock)
    • M&A currency (acquiring other firms with shares)
    • Capital raising (higher share price = easier debt funding)
    • Market signal for management (“real-time report card,” as Katie puts it at 22:28)
    • Fending off takeovers (market for corporate control)
• On Meme Stocks: Traditional capital allocation doesn’t work when you’re propelled by Reddit hype, but companies often still respond as if the price is meaningful, hiring and spending more.
• Quote:

  “The stock price is a signal of where to allocate capital, both to the market and to executives.” (22:09)

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5. Why Are Mortgage & Business Loans Structured Differently?

(Starts ~24:26)

• Listener Paul asks why business loans often have interest-only payments with a balloon at the end, while mortgages amortize over time.
• Matt’s Framework:
  • Human earnings (mortgages): maximize early, pay down debt over career, want to clear it by retirement.
  • Company earnings: ideally grow over time; companies prefer to maintain debt (capital structure) for leverage/tax reasons.
  • Amortizing debt forces companies to re-borrow regularly—inefficient for capital markets.
  • Bullet/bond loans (interest-only, single repayment) are easier for investors, fund managers (no dribs and drabs of returned capital).
• Quote:

  “Companies typically like to have debt... amortizing would make that more complicated because they’d have to incur more debt as they paid down earlier debt.” (26:16)

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6. Books, Sci-Fi, and Life as a Journalist

(Falls throughout, see 09:51, 27:56)

• Katie has “recency bias” and names Project Hail Mary as a sci-fi favorite (28:03).
• Matt admits he hasn’t seen the movie, and riffing about family trips to the movies ensues.
• Both reflect on their somewhat boring personal portfolios, driven by journalistic ethics and index funds.

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Notable Quotes by Timestamp

• On owning investments as finance journalists:

  “I don’t want to have to say every time I write about it, ‘I own a little bit of this one.’ So I’d love to be out of it…” – Matt Levine (05:01)

• On financial advisors:

  “It’s nice to like talk to a professional and be like, ‘this is how much I was thinking of saving for college’ and being like, ‘yeah, that sounds good.’” – Matt Levine (07:24)

• On stock prices as management signals:

  “The stock price sends them a signal…if your stock price gets too low, then Carl Icahn is going to try to buy the company…” – Matt Levine (22:30)

• On meme stocks:

  “You’re not getting the right capital allocation signals when your stock goes up 1000% for no reason.” – Matt Levine (23:05)

• On high-frequency trading and rain:

  “Rain created liquidity.” – Matt Levine (15:36)

• On the real motivation behind executive perks in ESG:

  “There’s some line where giving the CEO nice perks is bad governance, and giving your cashiers…is good social.” – Matt Levine (17:00)

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Timestamps for Key Segments

| Timestamp | Segment | |-----------|-----------------------------------------------------| | 03:07 | Mailbag intro, Matt’s financial advisor story | | 09:35 | Favorite finance books | | 15:46 | ESG, private equity, and perks | | 19:37 | IPOs and the importance of post-listing share price | | 24:26 | Why business loans = interest-only, not amortized | | 27:56 | Bonus: Science fiction and books, personal chit-chat|

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Tone, Energy & Memorable Moments

• The episode blends Matt’s dry, professorial wit and Katie’s relatable candor. There’s meta-commentary on their own advice and how journalists deal with investing (spoiler: index funds win).
• Matt’s book recommendations spiral into telling stories and relaying fun micro-anecdotes about Wall Street personalities and quirks—turning finance history into office drama and unexpected metaphors (e.g., “seating charts” as destiny at Pimco).
• Matt’s delight in geeky details, like rain impacting HFT trades and how capital structure is managed, will appeal to hardcore Money Stuff fans and new listeners alike.

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Summary Takeaways

• Finance, as practiced, is both technical and very human—seating charts and “real-time report cards” matter as much as theory.
• For most, index funds suffice—but advice on taxes and planning is useful, even if you’re “the Money Stuff guy.”
• ESG: Perks for employees are “good S,” for the C-suite can be “bad G.”
• Share prices, post-IPO, are as much signals and compensation metrics as financing tools.
• Business loans and mortgages suit their borrowers’ life cycles.
• Matt’s book list is a treasure trove for any finance bookworm.

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For fans of the column or finance podcast newcomers, this mailbag episode distills Money Stuff’s trademark blend of technical clarity, narrative wit, and real-world context—providing “timeless wisdom” indeed.

Transcript

[Kelly Cavagnaro]

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[Matt Levine]

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[Katie Greifeld]

Should we talk about the fact that we're recording a mailbag?

[Matt Levine]

We're recording a mailbag.

[Katie Greifeld]

Mailbag. Not too tired to sing.

[Matt Levine]

Yeah, we're gonna release this sometime.

[Katie Greifeld]

I don't know, May 8th.

[Matt Levine]

Yeah, it's like the end of April now. But it's gonna be. It's gonna be all timeless wisdom from the Money Stuff podcast today. So we can release this at any time.

[Katie Greifeld]

That's true. On May. Have just gotten back from the Milken conference in Los Angeles.

[Matt Levine]

Okay, so if you're listening to this, Katie has returned from Milken, but hasn't had time to podcast this week. So we're diving into the vault for some timeless wisdom.

[Katie Greifeld]

Yeah, we've got some good ones lined up.

[Matt Levine]

Sure. Should we do the thing where we say hello and welcome to the Money Stuff podcast.

[Katie Greifeld]

I love doing that.

[Matt Levine]

Do I?

[Katie Greifeld]

Yeah.

[Matt Levine]

Hello and welcome to the Money Stuff podcast. I'm Matt Levine and I wrote the Money Stuff column for Bloomberg Opinion.

[Katie Greifeld]

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

[Matt Levine]

All right, let's get into the mailbag.

[Katie Greifeld]

Yeah, Mailbag, Mailbag. Pierre, starting us off strong, you've put this disclosure in newsletters before, or specifically one your disclosure read through a financial advisor. I have a small amount of money in a Blue Al fund, though I am not sure which one. Pierre wants to know, why does Matt have a financial advisor and does he read Money Stuff?

[Matt Levine]

So, first of all, I want to address the fact that I do own a little bit of Blue Owl Credit Income Corp. Which is a private BDC that Boaz Weinstein has not yet tendered for. But he's said today he's thinking about tendering for it.

[Katie Greifeld]

Are you panicking?

[Matt Levine]

No, I'm not panicking. So when I started with this financial advisor, he's like, I have this great thing for you called B reit, the Blackstone Real estate, like non traded real estate investment trust. And I was like, no, I don't think I can do that because I've written about them like four times and I don't want to own something I write about.

[Katie Greifeld]

Yeah, that's fair.

[Matt Levine]

And he was like, okay, what about the Starwood one? I was like, no, no, no, that still counts. Still counts. And then he's like, what about just like a little scooch of private credit? And I was like, a little scooch of private credit.

[Katie Greifeld]

I'll never write about that.

[Matt Levine]

I don't know why, I don't know.

[Katie Greifeld]

Was thinking.

[Matt Levine]

But obviously now I own a little bit of this private credit fund and I don't want to own it. Not because I'm panicking about software companies or whatever you're actually streaming, though. It's really like a tiny portion of my net worth. But I don't want to own it. Not because I'm panicking about liquidity or software companies or whatever, but because I don't want to have to say every time I write about it, I own a little bit of this one. So I'd love to be out of it, but unfortunately getting out of it is the thing that is the news story. So if I were tendering then, then that would be a good more of the story. So I just have to hold it and ignore it so I'm not tempted.

[Katie Greifeld]

He should have tendered to Boaz.

[Matt Levine]

Well, he didn't bid for that one, but he's going to.

[Katie Greifeld]

Oh.

[Matt Levine]

If he bids for that one, I might have to sell to him so that he can come back on the podcast.

[Katie Greifeld]

I mean, that would be great.

[Matt Levine]

How are you enjoying my shares in Osaka Roll?

[Katie Greifeld]

That would be a very fun science experiment.

[Matt Levine]

I wouldn't, though.

[Katie Greifeld]

I'd enjoy it.

[Matt Levine]

Paaz would enjoy it.

[Katie Greifeld]

Yeah.

[Matt Levine]

I would get 65 cents on the dollar, though, so I don't know.

[Katie Greifeld]

That's true.

[Matt Levine]

It's worth. Anyway, I have no investment advice. I have no opinions on the Blue Owl private credit fund. I have no complaints about their management of the fund, but I also wish I didn't own it for purely journalistic reasons. Wait, about my financial advisor.

[Katie Greifeld]

Yeah. Does he read Money Stuff? Does he listen to this podcast? Is he a man?

[Matt Levine]

He's a man. Most importantly, I hope he does not listen to this podcast because I feel bad talking about him. He definitely did not know who I was when I sort of came in the door. Yeah, this is like, a few years ago. I was, like, talking to a fancy friend of ours in the newsroom, and she was, like, talking about her financial advisor giving her tax advice. And I was like, I've always been, like a vanguard guy. I don't want a financial advisor to tell me what stocks to buy, what private credit funds to buy, but I want some professional to hold my hand a little bit on how much should I be putting in college funds? How much should I be? What's my target number for retirement? What tax stuff should I do to make my taxes lower?

[Katie Greifeld]

For sure.

[Matt Levine]

All the sort of not investing advice stuff that financial advisors do. And our fancy newsroom friend was talking of the benefits. So I came in the door and had a moment of, like, nervousness, but also arrogance that, like, that, like, this guy, like, ooh, the money stuff guy. But in fact, he was like, okay, whatever.

[Katie Greifeld]

That's how I feel most of the time.

[Matt Levine]

Clearly did not know who I was. But now I believe he is at least aware of the newsletter, because when I talked to him most recently, he was like, yeah, sometimes skim the newsletter and you probably don't want to be in this Blue Owl fund anymore.

[Katie Greifeld]

Oh, my gosh.

[Matt Levine]

Yeah. But, you know, what can you do? So, yeah, I have a financial advisor for, like, tax and other advising stuff.

[Katie Greifeld]

I think that's what you're supposed to do.

[Matt Levine]

Yeah, I feel conflicted about it because I'm definitely like, I am sophisticated enough that I probably could just use index funds and, like, figure stuff out on my Own. But like it's nice to like talk to a professional and be like, this is how much I was thinking of saving for college and being like, yeah, that sounds good. Right? It's just like confirmatory.

[Katie Greifeld]

Yeah.

[Matt Levine]

Eventually I'll just do that with like ChatGPT.

[Katie Greifeld]

It's true.

[Matt Levine]

But no, it's, it's helpful to have someone whose job it is to do this. Even though my job is not unrelated to this.

[Katie Greifeld]

Yeah, I mean I feel like that's the pitch of financial advisors.

[Matt Levine]

Right. It's not really like we will buy this stocks that'll go up.

[Katie Greifeld]

Right?

[Matt Levine]

Yeah, that's not the pitch to me. Although if I had like bit@B REIT, he might have had like a lot more spicy stuff to put into my portfolio.

[Katie Greifeld]

True, true.

[Matt Levine]

Like there's a certain amount of him being like, what about this? And maybe like, nah, just index one.

[Katie Greifeld]

Yeah.

[Matt Levine]

Who are you?

[Katie Greifeld]

I have a financial advisor.

[Matt Levine]

No further comments.

[Katie Greifeld]

No, I'm in all index funds.

[Matt Levine]

Okay, that's good.

[Katie Greifeld]

And it's just, you know, the other

[Matt Levine]

stuff I'm in like mostly index funds.

[Katie Greifeld]

Yeah. I'm also, I mean we're journalists. We're not supposed to like do too much, right? Yeah.

[Matt Levine]

Stocks?

[Katie Greifeld]

No.

[Matt Levine]

Crypto? No.1 private credit fund then.

[Kelly Cavagnaro]

Hi, I'm Kelly Cavagnaro, Managing Director, head of North America Institutional Distribution at Janice Henderson Investors. We believe working together is the way to work better. Like combining your portfolio plans and our in depth strategy. Your valued assets and our valuable insights. Your mission and our vision. Working in harmony together. Seek the right investment opportunities. Janice Henderson Investors. Investing in a brighter future together. Get the news you need in just 15 minutes.

[Matt Levine]

Start your day with Bloomberg Daybreak, the podcast with a global view on the stories that matter. I'm Nathan Hager.

[Kelly Cavagnaro]

And I'm Karen Moscow. Join us each morning for curated stories

[Matt Levine]

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[Kelly Cavagnaro]

thoughtful take on the story that matter.

[Matt Levine]

Listen to Bloomberg Daybreak each morning on Apple, Spotify, or anywhere you listen.

[Katie Greifeld]

Justin has a question. Justin says, I just recently finished reading and loved When Genius Failed along with the Jamie Dimon biography Last Man Standing. What are some of your favorite books about finance? That's fun. I don't have any favorite finance.

[Matt Levine]

You don't have any favorite finance books?

[Katie Greifeld]

I don't think so. I like fiction. I feel like we've talked about it a bit on this podcast. I like sci fi and fantasy and I really?

[Matt Levine]

I'm going to. I'm going to send you some.

[Katie Greifeld]

They have to be really good finance sci fi books. That would be great.

[Matt Levine]

A genre that is not high on my list, but a genre that I read because sometimes people will be like, hi, I work in finance and wrote a finance sci fi book.

[Katie Greifeld]

And I'll be like, oh, well, that'd be absolutely.

[Matt Levine]

I have like four of those.

[Katie Greifeld]

Yeah. I feel bad saying that because I actually really love finance and markets and like the world that I exist in in a professional capacity. But when I get out of this building, I like to read fiction. But you definitely have a library.

[Matt Levine]

Yeah, I have some of that. Like, I definitely try not to spend all of my time reading business books. But no, I do have a long list of fair finance books.

[Katie Greifeld]

Yeah.

[Matt Levine]

And I'm going to go to town on it now.

[Katie Greifeld]

Yeah. You can name five.

[Matt Levine]

Really? Five?

[Katie Greifeld]

Well, how many do you have?

[Matt Levine]

I might have like seven looked over his paper.

[Katie Greifeld]

Seven will allow it.

[Matt Levine]

The like, Pinnacle is Liars Poke run by brands at the gate. Everyone knows that. It's boring. I'm not going to talk about it.

[Katie Greifeld]

I have started Liars Poker. I do enjoy it.

[Matt Levine]

Like the whole language of Wall street continues to be derived from jokes in that book.

[Katie Greifeld]

Yeah.

[Matt Levine]

But. So I want to talk about a few others that I love and just tell an anecdote from each one.

[Katie Greifeld]

Oh my God, Matt.

[Matt Levine]

Yeah, I came prepared. Unusually so. One that I recommend all the time is a book called Diary of a Very Bad Year, which is from N1, the literary magazine. It's like Keith Kesson is an N1 editor interviewing an anonymous hedge fund manager as like a PM at a multi strat firm. And it's like he sort of like does periodic interviews throughout like the 2008 financial crisis. And this guy gives a window into how he's thinking about the financial crisis and how he's trading markets. And it's really good.

[Katie Greifeld]

That's awesome.

[Matt Levine]

One thing that I love, he's like a credit. He's like an emerging markets manager. And he says every time you do a private investment, you're writing a call option on your own time. In a sense, you're writing more call options against your time than you have time on the assumption that the correlation is not 100%. And in a crisis correlations go to 100%. And so you just run out of time because you're dealing with all of these fires on all of your investments and you sort of figured these investments won't all catch fire at once, but they do. And so you have no time. And so it's not just about your portfolio, it's about your time management. Another favorite book is in a different vein. Anti Elmanan of AQR wrote a book called Expected Returns, which I think is the best book about investing. When people ask me, how should I think about investing? I'm like, the question is, why are you getting paid? Why should you expect to get money for this investment? And this book is an attempt to sort of answer that question comprehensively about all sorts of investments. And it has all these little stylized facts that I love. One that I think about sometimes is that Carry basically works if you have two investments and one pays 10% a year and the other pays like 8% a year. Financial theory would say that the one that pays 10% a year has a higher expected loss. And so really their risk adjusted returns are the same. But in fact, over time, things that pay more tend to pay more than things that pay less. So it's the very intuitive, simple thing that you just sort of eyeball turns out to work a lot of the time. This is famous in foreign exchange, where economic theory says that currencies that pay higher interest rates are expected to depreciate, but that never works at all. And it's always the case that you can make money in the carry trade. Not always. Not investing in this. Okay. Our friend Mary Childs wrote a book

[Katie Greifeld]

called the Bond King that I did read too.

[Matt Levine]

Okay. Okay. There's one favorite finance book.

[Katie Greifeld]

I had to read it.

[Matt Levine]

Are you saying it's not your favorite?

[Katie Greifeld]

I mean, I guess it has to

[Matt Levine]

be the one finance book you've ever read.

[Katie Greifeld]

Yeah, that I completed.

[Matt Levine]

I love the Bond King. One thing I love is I write all the time. Everything is seating charts. And in the Bond King, it's sort of the story of how Bill Gross built Pimco as an investing firm and then got defenestrated from Pimco. And like, why did he get kicked out? I like to say that he got kicked out because, like, he was, like, having tension with, like, the other senior managers at Pimco. And he called a meeting. And in the meeting, he didn't put his enemies at the front table. He put them in the audience facing the front table instead of at the front table where the big people sat. And so they got so mad that they, like, went back to their offices afterwards and were like, he has to go, and they fired him. That's not quite true. That's like a little true.

[Katie Greifeld]

Yeah.

[Matt Levine]

And, you know, people making Millions and millions of dollars a year. All they care about is where they sit at the big meeting.

[Katie Greifeld]

We're all human at the end of the day. One more.

[Matt Levine]

I could go on forever.

[Katie Greifeld]

I have like, I can tell.

[Matt Levine]

Yeah, yeah. I'm looking at a long list strapping

[Katie Greifeld]

in here for a long time.

[Matt Levine]

Katie is literally falling asleep. I'm so tired. Okay. Donald McKenzie, I think it was on odd lots recently. He's like a Scottish sociologist. He wrote a book called Trading at the Speed of Light, which is about like how high frequency trading firms live their lives and think about things. And has so many great anecdotes, including that when the cme, the Chicago Mercantile Exchange, moved its technology from writing trade tickets in pencil to writing them in pen, it took eight months of fighting to change from pencil to pen. It's like a great story of technological progress in the 70s, 80s. But also it's a lot about microwave links from Chicago to New York. And apparently in the 2010s, rain created liquidity because when it rained, the microwave link went down and it was like slower to get information from Chicago to New York. And so what that meant was that basically like predatory high frequency traders were slowed down enough that market makers could quote tighter spreads because they weren't getting picked off by predatory market maker by predatory HFTs. And then like later in the decade, that effect reversed because I guess the market makers couldn't get the information faster enough. But anyway, so rain created liquidity.

[Katie Greifeld]

That's amazing, Justin. That was the most fun that Matt was.

[Matt Levine]

Justin, we'll have a beer at Morgan's. I'll give you some of my other books.

[Katie Greifeld]

Great question, Justin. Okay. Chris has a question though. Chris works at a private equity firm. Like many firms, we advertise our ESG credentials to our institutional LPs. Parentheses. I mean, less so now than two years ago, but you get the idea. Among these.

[Matt Levine]

We got this question a while, like a few weeks ago and it's probably like scrubbed it entirely from the webpage.

[Katie Greifeld]

But yeah. Anyway, among the ESG initiatives we tout is how well we treat our employees. Things like health and wellness initiatives, but also nice corporate retreats. That does sound nice. My question is this. Are employee benefits for private equity employees good ESG or bad esg?

[Matt Levine]

Someone once told me that ESG is really E and S and then G is just there to make the numbers work. So one pitch for esg, environmental, social and governance investing is that it's good for. For returns. Like if you buy things with good. If you buy companies with good ESG scores, you'll get a higher return. And the theory that I've heard is that the G is there because that's what gives you the higher returns. And that theory is very simple, which is that G governance basically means doing shareholder friendly stuff. Basically means supervising management and trying to get good returns for shareholders and being aligned with shareholders rather than doing whatever management wants. E and S, environmental and social stuff are about other stakeholders. Environmental is about, like doing good stuff for the environment even if it costs shareholders. Social is about doing good stuff for employees or communities, even if it costs shareholders money. But G is about doing stuff for shareholders even if it costs the CEO money. And so G doesn't really fit with like, esg. Like the other things are about, like, having a broader set of stakeholders. And G is just about trying to maximize shareholder returns in that vein. Being nice to your employees is good social. And if they're very senior management employees, then it's kind of bad governance. Right? It's like if you give the CEO $100 million at the expense of shareholders, that's like, yeah, like not ideal governance. Right. So I think that there's no, like, real answer to this question, but, like, I think there's some, like, seniority dividing line where, like, giving your CEO nice perks is bad governance and giving your cashiers rank and file is good social. I think that, like, probably the employees of portfolio companies are good social and probably the like actual employees of the private equity fund are a little more, you know, don't advertise the perks you give them. That's fine. It's fine.

[Katie Greifeld]

Cool. Well, thanks for the question, Chris. I hope things are going well.

[Matt Levine]

I hope you keep your perks.

[Katie Greifeld]

Yeah.

[Kelly Cavagnaro]

Hi, I'm Kelly Cavagnaro, Managing Director, head of North America Institutional Distribution at Janice Henderson Investors. We believe working together is the way to work better. Like combining your portfolio plans and our in depth strategy, your valued assets and our valuable insights, your mission and our vision working in harmony to seek the right investment opportunities. Janice Henderson Investors investing in a brighter Future.

[Bloomberg Audio Studios Announcer]

Together on June 10, Bloomberg Invest is back in Hong Kong. We look at the role Hong Kong plays between China and the world as major powers compete and markets realign. As global investors rethink risk, we'll explore the forces driving Asian demand and the future of private capital. Catch exclusive interviews with top newsmakers, plus a live report recording of Bloomberg's Odd lots podcast. Visit BloombergLive.com investhongkong to learn more. Supporting sponsor Deutsche bank.

[Katie Greifeld]

Okay, this comes from ron asking about IPOs, Ron asks, after a company has gone public and has received the infusion of cash from the ipo, what role does the share price actually play in the operation of the company? Do most companies continue to hold a percentage of shares that they buy, slash, sell, to generate cash at later dates? Or is this mainly for employee stock compensation options?

[Matt Levine]

You know, I used to be a capital markets banker, and it is always strange to me how much people believe in, like, the concept of treasury stock. Like, people believe that companies have stock and there's a pot and they can sell that stock, and then when they run out, they run out. That's not how it works in the US it is how it works in some other places, but in the US there's no such thing as you can pretty much always print new stock whenever you want. So it's not like they're holding stock to sell. And most companies don't sell stock after they go public. Maybe that's not true, maybe that's an exaggeration. But classically, the big successful companies tend not to sell a lot of stock. I have written that at this point, the public stock market is for returning capital to shareholders rather than raising capital from shareholders. And even a lot of IPOs, companies don't need the money. They're just going public so they can. So their early investors can cash out. Although that is very much changing with the big AI IPOs, where people need all the money they can raise. But, so why does the stock price matter? I mean, a big part of the answer is executive and employee pay, right? If you're paying people in stock, you're motivating them with the stock. And if the stock goes up, then they're more motivated. And so it is good for the stock to go up for compensation reasons. There's also like M and A. If your stock is valuable, you can buy companies with your stock. Yes, big, successful public companies don't like to sell stock, but they do like to sell debt. And the more the stock is worth, like all things being equal, it's easier to raise debt financing, probably the stock price is a market signal about whether your company is creating value, about whether you're like a good thing to allocate capital to. And so a lot of CEOs are sort of raised in, like, the church of capital allocation discipline. And if their stock is going up, then they think, we are doing good stuff, we should do more projects and build more factories and launch new products and generally invest more in this company that is succeeding. And if their stock is Going down. They're like, we should do stock buybacks. Right. Which essentially means the stuff we're doing isn't working, so we should just give money back to shareholders and they can find something else to do with it. Which is kind of the signal sent by a stock buyback, or kind of the signal that the stock price going down sends you and then you do the stock buyback. So I think that it's just the stock price is a signal of where to allocate capital, both to the market and to the executives.

[Katie Greifeld]

It's like a real time rapport card.

[Matt Levine]

Yeah. And people believe in that. Executives are motivated by that. Executives try to allocate capital to things that are good. The stock price sends them a signal. There's also the market for corporate control, which is a fancy way of saying if your stock price gets too low, then Carl Icahn is going to try to buy the company or something. You try to keep the stock price high to fend off activists and hostile takeovers and whatnot. I think that's the answer. I've enjoyed writing about meme stocks over the last few years. Meme stocks break a lot of this. You're not getting the right capital allocation signals when your Stock goes up 1000% for no reason.

[Katie Greifeld]

Yeah. You're getting other signals, more, but more about, you know.

[Matt Levine]

Right. And you're sometimes like, allocating more capital to your company. Right. I mean, like we. I wrote about, like when GameStop was like, way up, they were like hiring executives from Amazon and, you know, launching all these new projects. It's the same, you know, it's the. If your stock price is up, that means you're a good allocator of capital. And so you start like, doing new stuff and hiring new executives and making acquisitions and doing all the stuff that, that a big growing company does because the market is telling you you're a big growing company that like, has, you know, high returns on your projects. And if you don't, in fact have high returns on your projects, then like, that signal gets messed up.

[Katie Greifeld]

I talk to a lot of CEOs on, on the television, and about half of them, maybe more than that, will tell you that they don't pay attention to.

[Matt Levine]

Course.

[Katie Greifeld]

But that's so crazy, you know, that they're lying. If I had a real time report card of how my company and my job performance was being viewed. Do you not say again?

[Matt Levine]

Do not.

[Katie Greifeld]

I'm not like that. No. I can't watch it move in real time.

[Matt Levine]

Yeah, right.

[Katie Greifeld]

Like, I'd be Glued to the screen.

[Matt Levine]

It's not just like people's opinions about you, it's also like your bank account. Right. Because a lot of these people like a lot of their net worth is in their company's stock, right?

[Katie Greifeld]

Absolutely.

[Matt Levine]

If I had all of my net worth in one company's stock, I would pay a lot of attention to that for sure.

[Katie Greifeld]

Nice question. Ron Paul has a question. Paul was saying that he was reading your segment about the whole business securitization and how business loans get paid off. It was interesting to Paul that the normal way that they get paid off is in interest only payments followed by a balloon payment at the end of the term. The only high dollar amount loan most people are familiar with from personal experience is a mortgage where you pay down the principal along the way and usually the final payment is the same size as all the others. Why are these two so different? Do businesses just need warrant more flexibility? Why don't they pay down some principal early to reduce interest costs? Okay, okay.

[Matt Levine]

I feel like there's like several kinds of answers here. One is that companies and humans have different life cycles. Like a human is born and makes no money and then has a career where they start out making a little bit of money and then they make more and more money and then towards the end of the career they stop making money. And so you have financial products to sort of smooth that out. And so if you take out a mortgage, it's like typically you take out a mortgage and you don't have very much money, but you have a lot of earning power and you pay down the mortgage during your earning years. And then when you stop having earning power, you stop having a mortgage. It's very convenient. It's not perfect, but that kind of works out that way. Companies ideally grow their earning power every year. Ideally. Right. Countries too. So corporate and sovereign borrowers have more and more earnings power every year, ideally. And so they have more and more ability to pay down debt every year. And so if you take out a corporate loan, it's like you need the money now, but in 10 years you'll easily be able to pay back the money because you keep growing your earnings. But also mortgage is amortized because if you're a person and you go around for 30 years making the interest payment on your mortgage and then at the end of the term it's like, we need a million dollars, please. You might not have the million dollars lying around like a company. One, they might, right. Their earnings power might keep growing. Two, they can refinance the debt and in fact, companies do not generally borrow money and then pay it back and then say, we've cleared that debt. Companies like target a certain amount of capital structure with a certain amount of debt because to interest expense is cheaper than equity. If they have debt, then that increases their return on equity and they think of their equity as being more expensive than debt. They think we need to earn a 20% return for shareholders, whereas we can pay our creditors 6% or whatever. So companies typically like to have debt and as they grow, they tend to borrow more money. And so they don't need to amortize their debt. They want to keep a certain amount of debt outstanding. And amortizing would make that more complicated because they'd have to incur more debt as they paid down the earlier debt. Also, like from a market perspective, like the non amortizing bond or bullet loan is a better product for an investor because if you're an investor and you have a fund and you want to invest it and then you get some of the money back every year, you're like, I have to go invest this again. So having a non amortizing product is better for a lot of investors.

[Katie Greifeld]

Those are all the questions.

[Matt Levine]

I feel like we didn't have any real questions for you this time.

[Katie Greifeld]

That's okay.

[Matt Levine]

Should I ask you.

[Katie Greifeld]

You can ask me a question.

[Matt Levine]

I tried to get you to talk about your financial advisor or your favorite finance books, but you did not take the advice.

[Katie Greifeld]

Yeah, that was right.

[Matt Levine]

What's your favorite finance science fiction book?

[Katie Greifeld]

I have recency bias here, which is just propagating.

[Matt Levine]

Oh, okay. Interesting.

[Katie Greifeld]

I read that.

[Matt Levine]

I've never read those in February.

[Katie Greifeld]

It was fun.

[Matt Levine]

But did you learn anything about data centers in space?

[Katie Greifeld]

I don't know what it's about. Did you not see the movie?

[Matt Levine]

No, I don't see movies.

[Katie Greifeld]

Oh. I went with my parents.

[Matt Levine]

So nice.

[Katie Greifeld]

Something you have to look forward to in a few decades.

[Matt Levine]

Yeah, yeah. I've gone to the movies with my

[Katie Greifeld]

children, but I have to imagine that's still a chore.

[Matt Levine]

It's not like I've gone to Frozen two.

[Katie Greifeld]

Okay.

[Matt Levine]

Which is a chore.

[Katie Greifeld]

Yeah. Project Hail Mary might be a little intense for them.

[Matt Levine]

So we're getting there. We're getting there. 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 the close between 3 and 5pm Eastern.

[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 the 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, Moses Andam and Alexis Haut.

[Katie Greifeld]

Our theme music was composed by Blake Maples.

[Matt Levine]

Amy Kean is our executive producer. Thanks for listening to the Money Stuff podcast. We'll be back next week with more stuff. Foreign.

[Bloomberg Audio Studios Announcer]

Invest is back in Hong Kong we look at the role Hong Kong plays between China and the world as major powers compete and markets realign. As global investors rethink risk, we'll explore the forces driving Asian demand and the future of private capital. Catch exclusive interviews with top newsmakers, plus a live recording of Bloomberg's Odd lot podcast. Visit bloomberglive.com forward/investhongkong to learn more. Supporting sponsor Deutsche Bank.