A (2:40)

Yeah.

B (2:40)

And he's selling it to Disney for Disney stock. And that is going to be transformative for him and for Disney and for the entertainment industry. And it's kind of. There's. This is a big deal.

A (2:55)

Well, well, okay, so let's start with Rupert just. And then we'll move on to how this changes in the entertainment and Marvel movies that you'll be able to watch without wanting to tear your hair out. So is this just a sign that Rupert Murdoch kind of wants to spend the end of his life playing with politics or, you know, essentially in the news business, where he began with it. That's just like how he wants to kind of. He wants that to be his swan song or.

B (3:18)

Well, I mean, that was what he was going to have anyway. Right. It's not like the alternative was that he wouldn't be able to play with his news brands and his sports brands, which are the things which he really loves. Yeah, so. So yeah, he. He's left with nothing but that, which is interesting. Basically what's happening is that he has one company which is just news, basically. It's called News Corporation. He has another company which is. Got a big news operation in Fox News, and he's keeping Fox News, but he's selling most of the rest of the company except for the stuff which obviously wouldn't pass antitrust. And so, yeah, so he's also going to wind up with like the Fox network. And I don't know quite why or what he thinks he's going to do with the Fox network, but probably that'll get sold at some point.

C (4:10)

Yeah. It seems as though he's essentially selling the less profitable parts of his overall company, I would say.

A (4:15)

Overall.

C (4:16)

I mean, if you look in terms of what's really growing, you're not really seeing that in the movie industry.

B (4:21)

Well, I mean, no, he's selling the profitable parts of the company. The reason why Disney is paying $66 billion, including debt, for all of these assets is precisely because they're very profitable. He owns the Simpsons. He owns, you know, profitable, but not necessarily.

A (4:36)

Well, yeah, it's X Men. It's things. I mean, there are a lot of franchises in there he owns, like Family Guy.

B (4:42)

These are massively profitable franchises.

C (4:45)

Right. But if you're looking at that industry as compared to sports and news, I think it may make sense for him to focus essentially on what he knows well and where he's seeing more growth, I think.

B (4:57)

I mean, I don't think that there's more growth in news than there is in entertainment. I think entertainment quite is actually growing, has the ability to grow more than news does, because news by its nature is basically a national industry, while entertainment is basically an international industry. And you have the ability to export, you know, things like the Alien movies globally in the way that you don't have the ability to export Fox News globally. What I will say is that precisely because of that, the entertainment industry, because. Because of its global nature and also because of the threat of Amazon and Netflix, the need for insane amounts of scale has never been bigger. Yeah. And for all that, everyone thought that 21st Century Fox was big. You know, everyone thought that Warner Brothers was big, and both of them are getting taken over because, like, big isn't big enough now. Now you have to be truly enormous.

A (5:53)

Yeah. And just coming back to the point about whether or not he's selling off the growth businesses, I think, you know, Hulu is a good example here. Hulu, he's selling off his stake in Hulu to Disney. And that is a classic, you know, potential growth business in. In entertainment right now. That is one of the ways networks have been trying to go up against Netflix. And so that's now going to be in hands and they're gonna have an opportunity to either shutter it in favor of their own streaming platform or grow it. It's kind of up to them. And people are a bit worried, but so I think.

B (6:23)

Yeah, what are they worried about? Why would either of those be a bad thing?

A (6:27)

Shuttering Hulu? Yeah, people like Hulu.

B (6:30)

So it's just like people who have Hulu are worried they might not be as good.

A (6:33)

So there's also, I mean, you know, you can get deeper into it. So the nice thing about Hulu is that it wasn't what people call a walled garden. They kind of had content from everybody or a lot of different places coming in. It wasn't necessarily just a platform. Whereas Netflix is more becoming a platform for next Netflix's original productions.

B (6:52)

Well, that's because Disney is pulling all of its stuff from Netflix.

A (6:55)

Yeah.

C (6:56)

And so it would seem that this move means that's going to happen quite a bit more.

A (7:01)

So.

C (7:02)

And I think Netflix knows that. I mean, that's why Netflix has been moving towards creating more and more of its own content.

B (7:07)

Right. What we are. What we are not going to have, it seems quite clear, is a kind of Spotify for tv, where you get everything.

A (7:14)

No, exactly. You have. Hulu was sort of a cooperative project between a bunch of different players in the industry. So you had shows coming from a bunch of different places as well as programming like the Handmaiden's Tale that was original and lots of people liked prestige programming. Whereas now it seems like. Now it seems like either Disney is going to use it as a platform for itself, or, again, they already have a streaming platform. They've actually kind of kickstarted, even though it's not as popular as Other things. Um, and so maybe they'll just focus their resources there. So that's. Again, that's.

B (7:48)

But, yeah, I feel like this whole Hulu thing is a site, is a sideshow, really, if you're talking about a.

A (7:52)

Growth, a potential growth business. Entertaining streaming is part of that, but.

C (7:55)

Streaming in general, I think maybe we can then pivot to talking about, again, why this makes sense for Disney to do this.

B (8:00)

Right. Because it gives them. Because Disney is very good in movies. I mean, amazing in movies, because they acquired three major acquisitions since Bob Iger took over. They acquired Marvel, they acquired Pixar, and they acquired Lucasfilm. And between those three, they have just dominated the big movie space to, like, a point in which no one else even comes close. What they don't really have is all of the other stuff which people like to watch on tv, which is basically TV shows. And that's what they're getting with Fox, because Fox has the kind of TV shows that people really, really love to see. And man cannot live on movies alone.

A (8:43)

Yeah. I mean, they're also just getting full control over the Marvel franchise at this point, which is just. I mean, that's so much bread and butter for them already. Previously, there's this famous issue that the Avengers, part of the Marvel universe, existed with Disney, and then you had the X Men and Spider man actually over with Fox, and Fox was really bad at making Marvel movies. And so there was this. A lot of comic book nerds have just been wishing for a grand kind of reuniting all the different characters, which is now going to happen. But it also just gives them the ability to keep spinning out movies. It gives them ability to just keep extending this franchise without tiring out their ideas. And I actually don't think you can underestimate the value of just that one acquisition there along with. And.

B (9:25)

But I think the really big part of the deal, I mean, Hulu and movies and everything notwithstanding, the really big part of the deal is that Disney, for all of its size and for all of its global brand recognition, actually doesn't have much of an entertainment business internationally. And Star tv, especially in India, is the crown jewel that virtually everyone wanted, because India is this insane growth market. Star TV is by far like, the biggest and most profitable part of the sort of media space in India. And now with Star and also with sky, which they're going to be acquiring in Europe, they suddenly become as powerful in Europe and India as they are in the US where right now they have abc. And ABC is big and important. So that's Fine, but they don't have anything like that in Europe or India. And now they do.

C (10:24)

I would also say if you look at the deal itself, the acquisition, about a third of the value were those regional sports networks. And I think that's important if you look at Disney already having espn, that this could be part of them really trying to create more dominance in sports, which gives them a lot more leverage with the network at the same time that they can gain more leverage with the other streaming services now because they control so much of the content.

B (10:44)

Because yeah, that's the next big thing in streaming, which hasn't really arrived yet, but it will be arriving very, very soon, is live. And when I say live, I mean sports. No one is interested in seeing sports like after they're played. The whole point of sports is it needs to be live. And no one's really, really cracked that on the over the top streaming services yet.

C (11:07)

Yeah, I mean, I agree. I mean, I, well, I would say having come from the Midwest, that people do like watching sports clips quite a bit after they've been played. But yes, I think that live sports, you really. That's where also the ad dollars are.

A (11:18)

Yeah.

C (11:19)

So again, it makes sense for Disney to try to create more control over that again, just because it also gives them a lot of leverage in the money they can get from networks. So from digital.

A (11:30)

I want to bring up a vague philosophical question that you guys can brush aside if you want, but it's the thing about this deal that I'm kind of dwelling on, which is I don't think there's anything, I don't think anybody will argue this deal makes Disney a monopoly in any, in any technical sense of the word over entertainment. There's a lot of entertainment out there. I don't know what share of the movie market their films will now take up exactly, but there's. They don't, they don't control more than half the box office or even more than a quarter.

B (12:00)

When I was growing up, my, my working definition of a monopoly, which I got from my grandfather who was on the Monopolies and Mergers Commission of the United Kingdom, was when you have more than 25% of a industry.

A (12:13)

So at the same time you're staring at some point at a company that owns almost every important franchise film right now. You have, they have, they've consolidated over Marvel, they have, they now have, you know, the Star wars series, they've Avatar, which they're going to try and spin out into its own universe. And I'm guessing it'll be pretty popular and keep going down the list. You have.

B (12:35)

They have Die Hard.

A (12:36)

They have Die Hard. Now, if they could bring that, Bring that sucker back to life for Christmas. So they have a bunch of sports assets now to go along with espn. And just at some point. I don't know how to answer this, but does a company like Disney become too powerful, even though it, you know, in terms of just its heft as this entertainment conglomerate, even though it technically doesn't have a monopoly in any one part of it?

B (13:05)

My feeling about this is that right now, for reasons which I, for one, certainly don't really understand, we have reached a point in the entertainment, in the history of entertainment where franchises are way more important than they've ever been in the past. And I just don't believe that's going to last forever. I think right now, I think right now, like, the franchises seem like unbeatable and huge, but it was never that way in the past. And I doubt it will be that way going on into the future, I think.

C (13:41)

I don't know.

A (13:42)

I disagree.

C (13:43)

Yeah. As entertainment becomes more global, I really think that actually franchises are going to play a bigger role.

A (13:47)

Yeah, this is, that's, that's the thing. One of the reasons franchises have become so important is because you need instant recognition. In China, you need, that's. That's where sequels come in. I mean, they work in America, but worldwide, you need that sort of stability to sell something. And you know, by just glancing at a poster, it's like, oh, yeah, I recognize those characters.

B (14:05)

But what's the biggest Disney movie of the year like, up until this week when Star wars comes out is Coco, which is not a franchise.

A (14:12)

Pixar has always been sort of an exception there. And I feel like in a way, it's the exception that proves the rule. And to some extent, they get away with it because they are Pixar and they just have such a strong brand with parents as the place that makes movies you can take your kid to, that you're not going to want to die sitting there watching. So that's. Although. So, I mean, that is.

C (14:32)

That's just last point. I mean, I do think what you're saying about a monopoly is concerning more in what it could do to the other streaming services, because I think right now we think of Netflix as kind of being the preeminent streaming service, but Netflix is in a fairly weak position in comparison to a Disney, because Netflix has to take on a lot of debt in order to generate this new content, whereas Disney has a lot More cash that they. So they have a lot more Runway that they can use in order to also kind of create a lot of content at the same time that they can pull content out of Netflix.

A (15:05)

Yeah, that's, that's actually a really interesting point because for a long time when we've talked about monopolies and antitrust, it's always about what we call horizontal mergers, where things like actually this deal, for the most part, where a movie studio buys another movie studio, content maker buys content maker, you're expanding across the same industry. But now people are getting more worried about. We call these vertical mergers where someone in this kind of buys something else in its supply chain. In this case, the content maker buys the streaming platform. And I think you're right that people. Actually, that is one aspect of it that people are more worried about than others.

B (15:38)

Wait, are you saying this that people.

A (15:40)

Are more worried about the vertical aspect of this deal, which traditionally.

B (15:42)

What's the vertical? Oh, because, because they create. I feel like that's actually pro competitive because right now, you know, Netflix is, is the big gorilla in the space. Amazon is probably the number two. And now we're going to have a genuine competitive number three in terms of these, these new streaming services that Disney is going to be launching. And that's good. That's more competition. That's not less.

A (16:08)

It is, but it also happens to be number three, that's attached to all of the biggest franchises on it. Right. So I don't know. I don't know if it's a settled question. I put it out there as a vague philosophical inquiry because I don't have it totally settled in my mind because.

B (16:21)

Because basically every time there's a merger, you can pretty much count on Jordan to be worried about.

A (16:26)

Yeah, I, I am vaguely worried and I, I haven't made up my mind about all of it. So I'm relying on you guys to help me sort through my emotional responses.

B (16:38)

But, but let's stay broadly in the world of entertainment because there's a tiny. In comparison acquisition which got made while Disney was spending $52 billion plus 14 billion in acquisition of debt to, to get various Fox assets, Apple went along and spent $400 million on buying Shazam, which is. I've always liked Shazam. Not just because it's an English company and this is such a small acquisition for Apple that it would normally not even have been public. Like they would just be. They would put out a statement saying, yeah, we make small acquisitions from time to time and it's not material to earnings. But in fact, for reasons which are kind of interesting, they actually made this one public. They made a bit of a song and dance about it and they even revealed how much they were paying.

A (17:36)

But before we get to the important stuff though is just how many British web startups have ever gotten bought out at that price? Like, what is the most, like, is that mixture Zam. Like one of the most successful British.

B (17:52)

I mean, there was that crazy company which HP bought, which turned out to be a complete scam, but that wasn't really a web company.

A (18:03)

Yeah.

B (18:04)

What's it called? Autonomy or something.

A (18:06)

So this is so like. So Apple just bought the jewel of Britain's app economy for barely enough to announce on it.

C (18:14)

For a pittance.

A (18:15)

For a pittance.

B (18:15)

Well, I mean, it's interesting that it was the jewel of Britain's app economy back when you could. When. Back when people bought music, right? Yeah. The idea was that you would Shazam a song that was playing on the radio.

A (18:29)

Yeah.

B (18:30)

And then you'd be like, I really love that song. And then there was a simple button where you go buy this song and then you would go along to the itunes store and you would buy it and that would be. That would generate revenue for Shazam. And Shazam became this sort of billion dollar capitalization and I believe, profitable company. It's like 15 years old. This has been around a long time. And then when people stopped buying music, that entire business model basically evaporated. And then people started wondering how or what the value proposition of Shazam was to its owners.

A (19:02)

Well, Shazam's interesting though, because even if it's not making money on its own, it definitely is something that's important to the broader music industry because radio isn't dead. Like that's the key thing. Shazams provides a ton of data to the music industry and to players in the music industry, labels, whatnot, where they use it sort of as an early warning system about what's an emerging hit. People will start Shazaming something regionally and say, hey, this is cropping up a lot in, you know, Washington Heights, in New York, maybe we have another reggaeton hit coming up, you know, that sort of thing. And so it's important to have that around if you are in music, if whether or not it can sort of stand and make a profit on its own, which actually makes it a really ideal. It does seem to make an ideal acquisition for a company like Apple where it doesn't need to make a profit off that per se, but it just makes its own position as a player in the music industry, more powerful.

B (20:01)

And this is the really key thing about Shazam is that people realized and you know, I think some of us only realized this when the acquisition got made. And we're like, oh yeah, obviously that it wasn't actually a company which primarily made money from selling music. It wasn't even primarily a music discovery company, although that was the service that it provided to consumers. It's a consumer data company. And the real value of Shazam is, is in providing consumer data to people in the music industry. And Apple is a huge player in the music industry and wants to be a huger player in the music industry. And this is the real reason, I think, why Apple bought Shazam. Remember that like the underlying technology for all that it seemed magical 15 years ago, is pretty much off the shelf stuff right now. If, if what Apple wanted was the ability to recognize what song is playing on the radio, they could have built that themselves for tuppence hapenny. You know, the what they've bought is not that what they've bought is a data set and Shazam's knowledge of not only what the trends are in the music industry from day to day and week to week, but also what its individual users know and love. Because there's nothing which says I really love this song more than pulling out your phone and Shazaming it. So if you, if Shazam knows that on a user by user basis basis, especially if that user has itunes or Apple Music installed or is using an iPhone, then that gives Apple an incredible insight into what that individual likes to listen to. And that will be very useful in what is their equivalent of the war against Netflix, which is the war against Spotify.

A (22:04)

Yes.

C (22:04)

Yeah. This is also my theory is that Apple has so much cash, as you said, you know, like a quarter of a trillion dollars, that honestly I feel like this acquisition could have just been a screw you to Spotify because it's going to stop the like the referrals going from Shazam to Spotify at this point. It's such a small amount of money.

B (22:20)

And also because Shazam is English, they can actually use their offshore cash to pay for it.

A (22:25)

Yes, so funny.

B (22:27)

This is one of the reasons why Skype was such a great acquisition for Microsoft was because it was Estonian, they could use a bunch of offshore cash. It basically didn't affect their profitability at all. But yeah, so Apple buys Shazam because it turns out when Apple launched Apple Music and bought Beats and all of this kind of stuff, they looked at the number of People who listened to music and they looked at the market share of Spotify and they said, well, Spotify has a lot of customers, but it's still just a tiny fraction of the potential addressable audience. And we are Apple and we can just come in here as Apple and we own the music industry and we own the devices that people listen to their music on, and everyone trusts us. And we have this incredible brand which is much stronger than Spotify. And we're gonna overtake Spotify in like three weeks.

A (23:19)

Yep. Didn't happen.

B (23:20)

And totally didn't happen.

A (23:21)

Yeah, right now, I think the numbers are. I mean, Apple Music's not doing badly, but it's 30 million subscribers.

B (23:28)

It's growing more slowly than Spotify, which is for a young upstart, like hugely capitalized business is like, how is this possible?

A (23:37)

It is kind of amazing also that Apple's not growing faster given that they just have real estate on people's phones. I mean, that was the thing that made everyone assume it was just gonna come in and Bigfoot sp, just because it was there as part of the app ecosystem.

B (23:50)

And meanwhile, the valuation of Spotify, which was depressed for a long time precisely because people thought it was going to have its lunch eaten by Apple, has been going up and up and up. And last time I looked, it was somewhere in the region of $20 billion or something.

A (24:04)

Oh, really? I mean, they have 60 million users and still growing. I mean, subscribers, not users, subscribers. And they've gotten to the point also where they think that maybe advertising is going to be a viable business there too, which was kind of surprising. A lot of people thought that was just going to be a thing to tide them over a while.

B (24:19)

We're going to, we're definitely going to talk about Spotify in more detail if and when it finally does its direct listing, which is my favorite thing in the stock market, and we get to nerd out about direct listings. But for the time being, like, I think what we're seeing here is yet another example of Apple actually not being good at software.

A (24:43)

Yes.

B (24:43)

And, and, and like everyone else seems to be better at software than Apple is. You know, Spotify is better at it. Shazam is better at it. For all the. Apple can make really beautiful devices and used to make really beautiful operating systems. It's, it's software has never been all that great. And ultimately a streaming service is a piece of software and they just don't have the user experience that people want. All right, I think we've gone, what is it like coming up for 200 episodes of Slate Money at this point. And I'm not sure we've ever nerded out about backwardation and contango.

A (25:24)

Oh, I think we have at some point about oil maybe.

B (25:26)

I don't know. I would imagine in any case, Anna, because people care about Bitcoin because it's sexy.

A (25:33)

It's so sexy.

B (25:34)

This is our excuse. I mean, we don't really care about bitcoin, but we care about backwardation.

C (25:39)

Yes, exactly.

A (25:40)

I'm all in.

B (25:41)

So excuse me, tell us what's, what's going on in the world of contango?

C (25:46)

So basically right now, what we're seeing in the, the very nascent bitcoin futures market.

B (25:54)

So the bitcoin futures market is like one week, okay. And it's traded on cbo, which is this commodities exchange in Chicago.

C (26:02)

Right.

B (26:02)

And on one level, the fact that it exists is kind of astonishing, and on another level it really isn't. Because all that a futures market is is two people betting with each other on some state of the world. And it can be pretty much any state of the world. It can be like how much rain there is in Australia. And the brick coin price is a state of the world which you can bet on. And now they're betting, betting on the bitcoin price.

C (26:28)

Right. But the thing is, when you're usually talking about the futures market, you're talking about you have hedgers and you have speculators.

A (26:35)

Yes.

C (26:35)

Right. Now when you're talking about the bitcoin futures market, it appears that we only have speculators. And on top of that, it appears that these speculators are not what we refer to as smart money, which are like institutional investors who normally, if you're dealing in the futures market, you're probably not going to be putting on just a kind of unidirectional bet. You're going to, you're going to be hedging. But two things. One, it's very, very difficult to execute a proper hedge if you don't know, if you don't know that in the physical market you're going to be able to buy or sell at the same price that you can get in the futures market. So, and then on top of that, what we're seeing right now is that we're seeing the curve, we're seeing kind of an upward sloping futures curve.

B (27:24)

Okay, so what, what is a futures curve?

C (27:26)

So that is just simply the price of futures as, as, like the future contracts are farther out.

A (27:32)

And so basically the further out you, if it's Upwards sloping. Well, what that means they're more, more expensive.

B (27:38)

So basically the. Effectively, I know this is oversimplifying a bit, but if you treat the futures market as a prediction, which it is not, and never think of it that way, but what they're saying is the price of Bitcoin next month is higher than the price of Bitcoin today. The price of Bitcoin in three months time is higher than the price of Bitcoin next month, and so on and so forth. And this is where I love derivatives, because this is where it all becomes wonderfully unintuitive. Insofar as like Bitcoin seems to be an asset which is pretty much going up in price rather than down in price. It might be intuitive that the further out you go in time, the more expensive it's going to be. But in the futures market that's not how it works. Because you're going to explain this arbitrage to us.

C (28:26)

Well, normally the idea is that as you get closer to expiration, the spot price. So in like the physical market, that's just like where that, whatever that commodity is. Right now we're talking about Bitcoin, where that's trading should converge with the futures price. Because if not, you're going to create an arbitrage opportunity. Because if they're different prices and it's the exact same thing, essentially you can buy at the cheaper and sell at the higher. And normally what would happen is that you would have investors, arbitrageurs who would come in and like take advantage of any mispricing and then that will cause convergence. And if, if over time you see that you have an expected spot price that is below the futures curve, so the futures curve would have to converge down to meet the spot price. That is what we call contango.

B (29:13)

So. Okay, and just to explain what that means in English, you can, if you have, if Bitcoin is trading at $16,000 right now, and then there's a futures contract where you can sell it for $20,000 in three months time, then what you can do is just buy a Bitcoin right now for $16,000, sell your Bitcoin for $20,000 in three months time and lock in a $4,000 profit.

A (29:43)

Yeah, yeah.

C (29:44)

I mean, it's. When you really start to get into how actual like contango works is a little bit more complicated than that. Yeah, but let's, for all purposes. Yeah. Let's just say that you, when you have this type of market, you do have this arbitrage opportunity. And in a normal market, you would have. Investors can come in and take advantage of that and then that will remove that opportunity.

B (30:06)

And to be fair, over the course of the one week that it has been trading.

C (30:10)

Yes.

B (30:10)

That that arbitrage opportunity has narrowed substantially and it will probably go away quite soon. I guess the interesting question is like, does the existence of a futures market change anything about Bitcoin? And I think the answer is yes, at some level it does ratify Bitcoin as an asset class.

C (30:35)

Yes, I would say it. It ratifies it as a currency. Not necessarily really an asset class.

A (30:40)

Really. I see it almost.

B (30:43)

Okay, I'd say it's a commodity. It ratifies it as a commodity. I don't think it ratifies it as a currency because, you know, I mean, we don't need to get into the whole currency or commodity debate. But it is behaving like a commodity.

A (30:57)

No, the. I mean, just the volatility in it is.

C (31:01)

Yeah. So I would say to really call it any type of store of value makes very little sense because of the volatility we're seeing. But people are assigning a value to it. And in theory, it can also be used to buy goods and services. So if you're looking at how it's currently working, I actually think you potentially now could argue it's working more like a currency than a commodity.

B (31:25)

So wait, what's the difference and why is it more like a currency?

C (31:29)

Again, because there's no a. There's no really underlying value as opposed to if you have steel or wheat or whatever, you actually have some type of good. And then on top of that, you also have no real store of value because it's so volatile.

B (31:44)

And you're saying a store of value is something which you get in commodities or in currencies?

C (31:48)

I would say in. In commodities or. Yeah, or in like, if you're talking about something like gold where you actually have some store of value, do something with it.

B (31:57)

Okay, wait, hang on. I want to unpack this idea of some store of value because I don't entirely understand what you mean. What, what does it mean to say that gold has some store of value but Bitcoin does not?

C (32:09)

Because currently gold is an actual physical object that we as a society have said you can essentially that there is an. There is some type of value there. And yes, you could argue. Why do we assign a certain value to gold? That can be. That's a whole other conversation.

A (32:27)

Gold is the wrong example to use.

B (32:29)

Well, no, I think it's exactly the right example to use because the whole point about Bitcoin is it's meant to be digital, right?

C (32:35)

But the I, but the idea is that normally you'll see when there's a lot of pain in the market or the economy is going down, you'll see people shift towards gold because the idea is that that is going to allow you to that, that, that the price of gold will probably increase because you can actually maintain value there in a way that you might not be able to in currencies. Now, currencies, the only thing that really is a backstop for currencies is the full faith and credit of the issuer at this point. So for all intents and purposes, the currency of the United States or any other country is really based on nothing more than the fact that we have faith in the country that is issuing it. In the same sense that with Bitcoin, people have assigned faith to this kind of decentralized thing, but it doesn't in itself have any physical good that you could see as being any backstop to value. There's, there's nothing there.

B (33:33)

So, yeah, I, I, I mean, I'm not a bitcoin true believer by any regard, but I think I would push back a little bit on that in that the point of Bitcoin is precisely that we now are entering a world where perhaps the faith that we have in institutions is eroding and those institutions would include things like the full faith and credit of a national government, while at the same time, you know, it is entirely rational to have faith in mathematics. Right. And that the cryptographic basis for Bitcoin is entirely rational, you know, for a fact that the supply is limited, that there's no government who can like rock up one day and start issuing more of these things.

C (34:26)

I'm going to disagree just a little bit with, I don't disagree with the idea that, I do think if you are or not a bitcoin true believer, if you look, really the only idea of why there would be any value is because unlike a currency that can, you can essentially create as much as you want, Bitcoin has a limit on how much is supposed to be created. And so, I mean, I've heard some people make the argument that buying Bitcoin is like a short on all other world currencies to a certain extent. But I think there are a lot of problems with that. If you think long term, what it would mean if you can create all these other different types of payment mechanisms, like whether bitcoin, that limited supply really creates long Term value. But I do somewhat disagree with the idea that it's. It's more of a faith in kind of math and algorithms. Because I think ultimately, I mean, bitcoin is like blockchain is. It's a electronic spreadsheet that can't be altered. It's nothing much more complicated than that.

B (35:19)

But who said it needs to be complicated? No, no one's saying it needs to be complicated. It just needs to be cryptographically secure. And it seems to have done a reasonably good job of doing that.

A (35:30)

So I have a few points I want to make. I agree with Ann that it's not a commodity, really, at least not a commodity. If you think about the classic really utilitarian commodities like oil, wheat, in that you can't do anything with it on its own. That's really what. When you say most commodities are a store of value, it's because you can burn them, you can eat them, you can do something with them. Gold is also. We treat it like a commodity, but it's actually a weird one, right? It has this kind of collective delusion aspect of it. There are a few things you can do with gold. You can use them in electronics, obviously there's a jewelry market, but there's only so much actual concrete value. In a lot of ways, it's a financial play. And I think that's one of the reasons we're getting to now that. And gold is also not a great currency again, like it is. It occupies this weird space between them in part because of its price swings. And so, you know, Bitcoin, which started off as digital gold, that was what it was market, has actually done a great job mirroring it. Is this weird collective delusion that people are sort of agreeing to. To use. And that is why it has value, is there is just a core group of users that say we are going to hang with this thing until come what may. We're true believers. We're going to keep transacting in it or try to at the same time, I think you guys are also right. It's not a currency yet because again. Or it's not working as a currency that well because of the volatility, because people are actually dropping it. You're seeing transaction. The number of actual transactions isn't even really going up as the value is shooting up. So I think it is this weird when you have these things are sort of this in that weird middle category. It's almost irrelevant to debate, you know, whether or not there's actual value there. As long as you're just relying on it existing because enough people are attached to it.

C (37:16)

I agree with you. And I think that ultimately it is true that it currently has value because people have assigned value to it.

A (37:23)

Yeah.

C (37:23)

But if you're again going back to looking like something like Bitcoin futures, that market what we're seeing, whether you're going to see the normal activity where you'll actually have price discovery, where you'll actually have people coming in and taking shorts on this, that you'll actually have that type of normal movement that you would have, whether you're talking about a commodity or a currency, I think is unlikely at this point because of the incredible volatility of this asset as well as the lack of liquidity on a lot of these exchanges that makes the ability to short it very complicated.

A (38:00)

So let me, Let me ask a question about that. So this current exchange that's opened up is sort of. People are agreeing. It's not great. It's sort of. There's a lot of technical things people don't love about it. There's another exchange that's going to open up that people cme. Cme that think. People think is going to be a little bit better. It's going to use more different data points to determine the price. Exactly. You know, is that going to help the fact that you.

B (38:24)

I mean, can I just jump in here? Because I just want to understand what you guys are arguing.

A (38:29)

No.

B (38:29)

Well, okay, I want to, because what Ann was saying is this doesn't serve the purpose that futures contracts normally serve in terms of price discovery or whatever. And what you're saying is, well, maybe it will, or maybe with the new exchange cme, it might. And so what I'm asking is like, who cares? Is there any particular reason why it should.

A (38:52)

Well, okay, so let me get to that. The way. The reason I'm asking that is because Anna's saying that right now that the futures market isn't really doing. Isn't operating the way you'd expect to expect it to. And if it did operate the way you expected it to, it would probably puncture a little bit of that collective that I was talking about. So let's assume you have a functioning.

B (39:12)

Okay, wait, let me. I want to just go slowly here because I'm not following this. Okay, so let's say that the futures market is nice and liquid and you have institutional investors going long and short and volatility comes down to a point at which it becomes manageable. Now explain to me simply why would that in and of itself Puncture the collective delusion and make valuable.

A (39:38)

It might puncture a little bit of the mania that we have right now. Because right now you, like we talked about earlier, a bunch of One Direction speculators who are just piling in, you don't really have a ton of shorting activity on this.

B (39:49)

Which is good.

A (39:50)

Yeah, exactly. It's good. I'm saying, so, I'm saying could we. So what I'm asking is if you have a better functioning market, you know, better functioning exchange, is that going to actually convince more people, more finance people to jump in and start shorting and treating this as something that can be tradable and bring down the price of it?

C (40:07)

In a perfect world? Yes, in the world that currently exists, I think it's unlikely because it is going to be very expensive and difficult to put on shorts. And so I think that the concern with that is that you're only going to have people putting on longs and that is just going to create more mania in the market. And I think you could have. There are so many problems when you're. You're creating these exchanges that they like Bitcoin trades 24 7, but you have exchanges that are obviously closing at 4pm and so you could have these weird. And then these exchanges also have 20% circuit breakers. So if there's a 20% volatility movement either way it's. They stop trading. So you could have some weird things that happen on the weekends where you have a movement, then all of a sudden you open up and you can't even trade. There are so many problems because of the volatility that I have a really hard time believing that you're going to have a ton of smart money coming in and putting on bets.

A (41:03)

Interesting, because last time we talked about this I was joking. That or about how traders like zombies who just want to eat volatility and that's why they were allergic to some.

C (41:12)

I just think the idea that you're going to get enough and enough that seem to have some knowledge about what's going on with this thing to, to inject a little bit of rational thinking, I think at this point is unlikely.

B (41:26)

Yeah, I agree with that. Especially because the one thing we can agree on, aside from the commodity currency debate, is that you can't do a discounted cash flow on these things. There's no fundamental value for Bitcoin. And so this idea that some informed person armed with an army of research analysts can come along and say, well, I know that the value of a bitcoin should Be. This is ridiculous. The value for Bitcoin is a largely arbitrary number, and in many ways, for the blockchain to work, all you need is just that that arbitrary number is positive enough that you can keep on mining it and miners can keep on validating transactions. And so long as that happens, it doesn't really matter what the nominal value is in dollars. All right, let's have a numbers round. Jordan, what's your number?

A (42:21)

200 million. Which apparently the valuation of a Hubble, which was supposed to be, or is supposed to be the Warby Parker of contact lenses. Except my good friend and Quartz journalist Ali Griswold just did a piece about how apparently you can get contact lenses from them if you just send a fake prescription written by a fake doctor.

B (42:39)

So are you saying that that means it's not worth 200 million?

A (42:43)

I'd say they have some. You know, there are some regulatory issues to work out. Perhaps they.

B (42:49)

I mean, is there, like a medical danger posed by this?

A (42:53)

I don't know. There's a medical danger, but you're not. I mean, if you're supposed to get a prescription for something from a real doctor and people are fulfilling it without a real prescription from a real doctor, that means maybe the company needs to get its act together fair.

C (43:05)

But, like, what's the worst that could happen if you had a contact lens.

A (43:07)

Prescription that was wrong? I don't know.

B (43:09)

It's still.

A (43:09)

I'm just saying.

C (43:11)

I just, like.

A (43:12)

I just like, you know, typically we have had bad. I think Silicon Valley has had some bad experience recently with companies just ignore basic regulations.

B (43:23)

Yeah, I'm less. I don't really buy this. I mean, is it a young company which isn't working perfectly? Sure. Is there massive danger of people, like, using fake prescriptions to buy bootleg contact lenses and then, like, take them out into the street? And I mean, like.

A (43:42)

No, I like that image, though.

B (43:43)

And. And, yeah. And does this mean that the investors in the company are stupid and it's not worth 200 million? I mean, no. Of all the things which I think it's very easy to point to failures and say, well, therefore the entire company is stupid.

A (44:03)

I'm not saying the entire company. I'm saying you should at least make sure that you're fulfilling actual prescriptions.

B (44:09)

But why is that so important? I can see there might be a few legal things and that there's a risk that the FDA or something will shut you down. And so it's important to care about that kind of thing. But on a fundamental level, why Is it so important?

A (44:27)

I'm not talking about spiritually for the health of the universe. I'm just saying that if you're a company in the business of fulfilling prescriptions, you should do it legally.

C (44:34)

Yes.

A (44:36)

That should be a high priority. It's just maybe this is one of those things where we're just. There's some gap between us where I see a problem and you don't.

B (44:43)

But I don't know. I think it's a different. I think part of the problem is this word prescription. Right. Because it's like that's something which in the world to say opiates is an incredibly dangerous thing which has to be very closely regulated. But in the world of contact lenses, really, who cares?

A (45:01)

I'll check back on this. You know, let's find an expert.

B (45:07)

Anna, what's your number?

C (45:09)

0.2%. That is. So the German GDP per capita would be 0.2% higher if Berlin were not in Germany. I came across a statistic this week which I thought was very interesting because if you look at.

B (45:27)

Yeah, GDP is like an additive thing. If you add up all of the economic activity in all of the regions of your country, you get to gdp, and economic activity in Berlin can't be negative, can it?

C (45:39)

Well, if you look at what apparently it overall ads, it appears that it might be. And if you look at other cities, like if you took London out, if you took Paris out, it would be something like GDP would be like 14% lower per person. But Berlin is so inefficiently run that it appears to actually be a drag on the overall German economy.

A (45:57)

Drag on the growth rate. That makes sense. If it's. If it's like. If Berlin is. Is regressing current.

B (46:05)

Yeah, I can, I can believe that it brings the GDP growth rate down. I just can't believe that it actually brings. It can't be GDP down because there is. I have been to Berlin. They have economic activity there. That economic activity is counted towards German gdp. I can't understand how if that economic activity gets taken out, GDP would go up.

A (46:24)

It would be kind of a funny commentary on like the German bureaucracy though, if, like, it turned out it was so inefficient that it was just fucking the rest of the country. Yes, I'm trying to. I don't think. I mean, I personally, I don't think a place can. Unless you literally looking at a hole in the ground that is sucking other things into it. That doesn't make a lot of sense to me.

C (46:42)

Yeah, it's a fair I'm going to go back to where I'll blame the economist, where I pulled this number from. It could be that they were referring to GDP growth, which probably makes no sense. But the point of my story is that we think of Germany as being this incredibly efficient country, but Berlin as a city is actually incredibly inefficient.

B (46:57)

And I kind of push back on that as well. I think that what you see with Berlin, in contrast to basically every other European capital, is that it doesn't have businesses, it doesn't have industry. There are almost no companies, major German companies, which are headquartered in Berlin, and therefore there's not so much GDP which is attributable to it. Like, the big industry in Berlin is government, really, and that doesn't generate cash. That said, I don't think Berlin is an inefficient city. I think it's actually a very efficient city. I think it works well as a city. I think that if you look at the startup scene in Berlin, it's very vibrant. There are more startups in Berlin than there are in virtually any other German city. And that, you know, just because there aren't big companies, there is no reason to, like, shit on Berlin.

A (47:50)

Well, so I'll tell you why this number does surprise me a little bit. Because Berlin traditionally has been looked at as, I think, what economist Enrico Moretti referred to as a poor. A sexy, poor city.

B (48:00)

I'm a bit sexy. That's the slogan. Berlin. Poor but sexy.

A (48:04)

Poor but sexy. So it's not like, you know, this was a place that attracted a lot of artists who didn't want to have to do a ton of work and could just kind of make their, you know, do their paintings or their. Or their dance performances and hang out and then. But recently it's sort of been shedding that reputation, and people been talking about it as a tech hub, but that's very recent. Well, so I kind of would expect that, if anything, you'd be seeing the reverse where finally Berlin was pulling its weight. But maybe not. I don't know.

B (48:30)

Yeah, I mean, the thing about tech as well is that it attracts investment, but it doesn't have huge cash flows. Right. Like, the biggest tech companies in Berlin, they're taking in money in terms of venture capital and that kind of thing. They're doing new rounds. They're not paying out dividends and cash flowing that much. If you're looking at something like SoundCloud, it's a big, important company, although it's in a little bit of trouble right now. But it's not like a major engine of the economy. But yeah, I'm going to stick up for Berlin. I like Berlin. I'm going to switch, I'm going to do the other side of the German coin, which is 3.97, 3.97% to be precise. Which is the yield on the Greek ten year bond, which is the first time it's dropped below 4% in living memory. It's down, get this, it was 7.86% just in February. Really, if you wanted to make money in the fixed income market this year, going long, Greek bonds would have made you a lot.

A (49:42)

Why are people so chill about Greece right now?

C (49:46)

People are so chill about the Eurozone.

B (49:48)

Right now and Greece has come to an agreement with its, you know, international lenders and it's managed to, it's, it's actually managed to issue a bond. And this is one of the weird cases where increased supply means higher prices rather than lower prices because it makes people feel much more comfortable with the idea that Greek debt is now a thing which you can trade and own to maturity.

A (50:11)

Is this also a sign that just they think Europe's going to be able to extend and pretend forever? Actually, yeah.

C (50:16)

Yes.

A (50:17)

Yeah. They're like, actually, this is a collective delusion. We can believe in it.

C (50:20)

It's another collective delusion.

B (50:21)

There is this, there was this a lot of talk around 2011 saying you can't kick the can down the road forever. And turns out, turns out, yeah, in fact, you can. So I think that's it for us this week. Thank you for listening to Slate Money. Keep on emailing us. The email is slatemoneylate.com Many thanks to Dan Schrader for trying to turn an incoherent bitcoin conversation into something which you guys might have conceivably made sense of. Do listen to El Gabfest en Espanol from my Univision colleague Leon Krauser that comes out every week and they have incredible guests on that one, including my other Univision and Fusion colleague, Jorge Ramos. So listen to that. They had Tim Kane on there. You know, he's got fluent Spanish and if you want to just keep up with your Spanish, it's a good way of doing that. So. And with that, we will talk to you next week on Slate Money.