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Trillions
00:49:43
Slate Money talks Slate Money talks active investing and Robin Wrigglesworth’s book Trillions, Tether and Masterworks.
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- [00:10]
A
Hello and welcome to the Trillions episode of Slate Money, your guide to the business and finance news of the week. I'm Felix Salmon of Axios. I'm here with Emily Peck of Fundraise.
- [00:26]
B
Hello.
- [00:26]
C
Hi.
- [00:27]
A
I'm here with Stacey Marie Ishmael of Bloomberg.
- [00:31]
C
Hi. Hello.
- [00:33]
A
And we have a special guest beaming in from somewhere on the North Sea, Mr. Robin Wigglesworth. Welcome.
- [00:41]
D
Hello, everybody.
- [00:44]
A
Robin, who are you, where are you, and what book are you plugging?
- [00:48]
D
Yes. So my name is Robin Wigglesworth. I'm a global finance correspondent at the Financial Times. And despite the pretty Harry Potter esque last name, I am not plugging a fantasy novel, but a book on the history of passive investing and how it's reshaping markets, investing, finance, and the world. Really.
- [01:10]
A
We really loved having you on. When was it? A couple of years ago. We sang COD songs together. You are one of our favorite guests. So we're going to definitely talk to you about your book. We are going to talk about Masterworks, which is this company which is selling fractional ownership of paintings. We are also going to talk about Tether, which is a $69 billion cryptocurrency that claims to be backed by real world assets that aren't crypto. But who knows all of that and a spectacular sleepless segment on snacking coming up on Slate Money. So, Robin, your book is called Trillions. This is, I'm assuming, because there are trillions of dollars invested passively. There was this massive passive revolution. Is that, is that why you call it trillions, or is it just a sexy word?
- [02:10]
D
Well, it is a sexy word. It sounds great when I, when people say it, but yes, it's, it's, it's just because it's so massive.
- [02:16]
A
Right.
- [02:17]
D
And it's a bit of a play on words, on the fact that there's a hedge fund manager TV show on Showtime called Billions. And you know, these hedge funds are kind of cool and sexy with their billions. But if you're an index fund, then you're talking trillions. Like the biggest fund in the world is an index fund and that's over a trillion dollars. Just that one fund.
- [02:36]
A
A billion dollars isn't cool. You know what's cool? A trillion dollars.
- [02:41]
D
Exactly.
- [02:42]
A
Aaron Sorkin needs to update by three orders of magnitude.
- [02:45]
D
Yeah, I mean, he needs to get on that. But when he finally turns his talents to the passive investing revolution, I'm sure that's what we're going to get, some snappy Sorkin dialogue around index funds.
- [02:57]
A
So I need to ask because You've managed to squeeze an entire book out of index funds, which I'm quite impressed that you've managed to do that. If Aaron Sorkin or anyone else turned your book into a movie. I don't know if you've got anyone knocking down your door to option this thing yet. But what's the plot of the movie?
- [03:14]
D
Oh, that's a good question. I. The plot is. Yeah, I mean, it's a pretty familiar story of like some out there people.
- [03:23]
A
And the boy meets girl.
- [03:25]
D
Yes, exactly. Well, these boy meets computers in the 1960s, they've got long hair and they're typically not working. Yeah, well, they're mostly. Yeah.
- [03:36]
A
Hairy computers. Hairy computers.
- [03:38]
D
Yeah, exactly. Well, some of them were pretty big, at least at the time. They were chunky computers, these kind of mainframes in the time life building and stuff like that. Because they were working at crappy institutions. They weren't working at like Salomon Brothers or Drexel or Goldman Sachs. They were working at Wells Fargo, which was a crappy San Francisco bank at the time. They were working in like the third biggest bank in Chicago. They were working at like this small proxy investment company in the outskirts of Boston. But they kind of used computers and they realized that, oh, holy crap, most people actually do a really bad job beating the market. Well, how about we just join the market? And they invented the first index funds and they're just kind of crazy characters and they did something profoundly disruptive. So that's why I do think it is a fun story at least.
- [04:27]
A
The main thing I learned from reading your book was that while we all think of index funds now as the boring zero alpha, sort of like the place you go if you're like, I'm not smart, I can't beat the market, so I'm just going to invest with the market. That's not how they started. They started as a way of actually beating any other possible strategy. And really, basically the idea was if we use all of these computers to be able to match the market exactly, then that's outperformance right there.
- [05:09]
D
Well, it's kind of. It was the perfect marriage of the computer era that was not really dawning on Wall street, but it was in the rest of the world, as it were. IBM was finally turning out like computers that could actually be used by individual companies and not just the US government for creating nuclear weapons and financial academia. And people would realize that the best way, if you measured risk against reward, was what's the best risk adjusted return you can get? Well, actually it turned out to be just buying the entire market, and that's what they did. I mean, nobody really thought of it in terms of mediocrity per se, though. That was the obvious and facile attack. It was just that this is the best thing for most investors and especially for big investors like AT&T, these big pension plans at the time that basically had like hundreds of active managers that were just like swapping stocks between each other and taking massive trading costs off on the top. So, yeah, the most sophisticated big investors in the world were the ones that were doing this as a way of beating and doing better than just using normal fund managers. It was not considered boring at the time.
- [06:19]
A
And is that still the case? Is the trillion dollars in passive investment strategies still mostly big sophisticated institutions, or is it me with my Vanguard fund?
- [06:30]
D
No, it's a mix now. I don't know the exact breakdown. I mean, in the public, the index fund universe that we know, there's around $16 trillion, $17 trillion probably now overall, because lots of big pension plans or a sovereign wealth fund in the Gulf or Norway where I live, you know, people can do this in house. So they just have their internal index strategies that isn't in a fund. So Overall, we're talking 25, $26 trillion probably now. And that's a big mix of ordinary people saving for retirement, for healthcare emergencies, to, yeah, big pension plans, insurance companies, private banks, sovereign wealth funds. So decent mix.
- [07:13]
B
Every so often I read a story that says there's too much money in these funds and like, it's really bad. Da da da da da. Is do I have to worry that there are trillions of dollars in index funds?
- [07:24]
A
Like, is there any downside to lots of money being put in these strategies?
- [07:28]
C
Is there any downside to lots of money? Specifically.
- [07:33]
B
What'S the downside to trillions?
- [07:35]
D
No, it's the big subject right now because we've seen it so many times in history, but certainly financial history, that we take fundamentally good ideas and do them to death. We overdo it. Securitization actually pretty good idea. But do it badly or do it too much, then all hell breaks loose. So lots of people think that about index funds. Now. I definitely see some downsides on a host of kind of nerdy areas. But the broad attack from largely active managers who are seeing their profit margins squeeze and they're still incredibly healthy, complaining about this, I find extremely unconvincing. There's still hundreds.
- [08:19]
A
And the attack is basically that if everyone indexes, then you won't have Any price discovery and markets will fail.
- [08:26]
D
Essentially that's the sort of the headline thing. I mean people have been warning about this since the 70s. But fundamentally, how many people do you really need to make an efficient market? So and you really need to pay millions of active fund managers, mutual fund managers, hedge fund managers, their traders, incredibly big salaries to do this? Fundamentally, the markets today seem way more efficient than they ever have in history and we can see that from how hard they are to beat. And fund managers make more money than they ever have before. And these companies are on average more profitable than Google and Apple. So I struggle to see why we should cry or shed any tears for the fate of active managers, at least for the foreseeable future.
- [09:11]
A
So Emily, you wanted to ask the obvious question here, which is basically, if markets are so efficient, what's up with GameStop?
- [09:21]
B
Yeah. And Robinhood and people. Yes. What's up with GameStop? Why do people actively invest?
- [09:29]
D
It's a great question. And look, I'm not an efficient market zealot. There are people that work in index funds that are completely complete jihadists around efficient markets hypothesis that Gene Farmer first articulated. I think it's a bit like George Box, this semi famous British statistician once said that all models are wrong, but some are useful. And I think efficient markets is kind of a wrong model we can see on every day. And in the long run markets aren't actually that efficient. But it's just a useful mental model for how markets do work that they do most of the time reflect what we know and they reflect what humans do. And humans do dumb stuff all the day. I do dumb things countless of times every day. Markets aggregate all the dumb and smart decisions of millions of people around the world. Are markets efficient? No. Will dumb stuff like GameStop or dot com or subprime crisis happen all the time? Yes. But in the long run, does that change the fundamental issue that markets really hard to beat for the vast majority of people? No, not really.
- [10:36]
B
I guess it's like people go to Las Vegas and gamble.
- [10:39]
D
Yeah.
- [10:40]
B
People gonna trade GameStop.
- [10:41]
D
Exactly.
- [10:42]
B
Do fun, more fun Robin Hood stuff.
- [10:45]
A
This is my mental model which is that like GameStop is a fun gamble, but it's a bit bigger than that. I have this bigger idea that the boomers, basically their prime earning years, their formative years basically predated the easy availability of index funds in certain ETFs. Then US Gen X types embraced the passive revolution with both arms and were like, this is great. I get to outperform my parents and Also spend much less time worrying about the market and spend much lower fees on hedge fund managers. It's a win, win, win. Um, but now we have like a new generation of, like the, the zoomers and the younger millennials who are jumping.
- [11:39]
C
And mentioned that the elder millennials just have no money, but then we can go.
- [11:43]
A
And the elder millennials have no money, so we can ignore those. The geriatric millennials, like, like Stacy, you know, like, they just.
- [11:50]
C
We miss that. We miss that completely. You know, the fidelities of the world are like, who are you? You? Not here.
- [11:56]
A
But now, but now we have a whole new generation of people who are buying crypto, who are buying N Gamestop, who are very actively trading, especially options on Robinhood. And is it my imagination or is the pendulum, like, generationally swinging back towards active gambling?
- [12:18]
D
I think probably yes. Right. I mean, I think it's partially that the boomers have seen a few boom markets and a few bus markets as well. And younger people have basically since the financial crisis that made them. Maybe they might remember it, and it's made them jaded about some mainstream finance, but they've basically seen markets go up in a straight line ever since. Right. Stocks don't go down buy the dip has been the mantra and the right thing to do for basically over a decade now. If you go on a Reddit, there are threads there dedicated to how to counter index fund fudge. Like, how do you counter old people and boomers telling you to buy index fund? They call it like boomer spam, essentially.
- [13:02]
C
And fud, for anyone listening. It refers to fear, uncertainty and doubts, which is also a phrase seized upon by folks who believe in crypto, which we will talk about later.
- [13:14]
B
Also, it's so social that the trading now on Robinhood and you mentioned Reddit and I mean, it's a way that, that younger investors are like, connecting with people and sort of like showing off. And it's very social in a way that I don't think it was for boomers. It's a. It's. It's like just an extension of other things happening with social networking. I think too.
- [13:37]
D
Well, I think probably@the.com people were kind of going to the golf clubs or, you know, the bar and exchanging top stock tips. And it was kind of a social thing there as well. You wanted to be part of the crowd. If people talking about stock tips at the golf club on Sunday, you'd kind of want to do the same. These people had money. Now people, you know, lots of people don't stand to have that money. But you know, with fractional trading, you can buy chunks of shares rather than tire shares. And it's a community. Right. You feel part of something bigger than yourself. And I think it's something that we all want. So it's kind of an extension of the, the community building that we see online happening around Reddit. And it just happens to be around trading gamestop options and screwing hedge funds, if you can. That's like an added bonus.
- [14:19]
A
And there is, to be clear, some kind of a community around passive investing too. There's these things called bogleheads which try and form a community. And most interestingly, I keep on going back to an article or the article that Michael Lewis wrote about passive investing. He only wrote one. He was basically, how do I make this incredibly boring subject interesting? And the way he did that was by finding this company called Dimensional Fund Advisors out in California, which actually charge quite a lot of money to do passive investing. And I love this model so much, it's super fascinating. Basically what they say is, look, doing the passive strategy, that's the easy bit. But building that community, having someone you can talk to to tell you that you're doing the right thing, feeling that you're part of something bigger than yourself, you know, for a fee, which is non negligible, we will sell that to you. And Dimensional has done incredibly well by selling this like premium passive.
- [15:23]
B
Yeah, you want a product to not be boring. I think, like if you're trying to sell a thing, you want it to be. Yeah, not boring. Like there's a reason we like.
- [15:31]
C
But you also want it to be affirmative. Right? You and I think that's, that's where the combination of the dopamine hit of interestingness and the like, the social acceptance that both, you know, you and Robin are describing kind of intersect. I have a grand unified theory of active investing, which is essentially that the same people who are super into playing video games, either competitively or communally, and like talking to people on their headsets and talking to people in Discord are the same people who are really into certain elements of the crypto market where everybody's also talking to everybody in Discord and on Reddit. Same people who have, who are engaging in 10,000 long posts on Reddit about, you know, how is everyone feeling today? Same people who are into sports betting and are like, you know, meeting up with their poker buddies and trying to decide what games they're going to bet on this weekend. And all of the dynamics are the same. The assets involved might Be different. The amounts of money involved might be different, but the underlying feelings and the underlying, I think social and cultural reasons for engaging in this are very, very similar.
- [16:40]
B
It's playing. It's play.
- [16:42]
C
Yes.
- [16:42]
B
It's the way people play. Yeah, yeah.
- [16:44]
D
I mean, on that the Reddit forum.
- [16:46]
B
I know there's Bogleheads, but.
- [16:48]
D
Yeah, but it's not. You don't want to. You're not the cool person at a party if you bring up that you're a Boglehead. Right. You want to talk about, you know, buying. I just bought this party.
- [16:57]
C
Okay.
- [16:58]
D
Yeah, exactly.
- [16:58]
C
Yeah.
- [16:59]
D
I bought Solana.
- [17:02]
A
Stacy, how do you buy Solana? And the answer is you have to trade into Solana and out of Tether. What is Tether and why is it in the news?
- [17:12]
C
Well, Tether is in the news because my colleague, Zeke Faux, that's Faux, best possible name for a financial journalist and investigative reporter, wrote the COVID story for the magazine this week about Tether and the mystery of the assets that supposedly back them. And when I say supposedly back, Tether is what's known as a stablecoin, the better to distinguish itself from the volatility coins of the rest of pretty much everything in crypto. Or the idea is the value of this coin will stay at, at or above $1, because in an ideal scenario, each coin, each token, however you want to think about this, is backed either by an actual US Dollar or an asset that is pretty fungible with a US dollar, Say, for example, highly rated commercial paper, perhaps. But the mystery of Tether that's referred to in this story by Zeke Faux is that it's actually very hard to track down where the 69 billion in assets that they say are backing each one of their stablecoins are at. It's a kind of a cracking story that Zeke was. He sort of wandered around the world talking to different bankers, talking to different financial markets participants, and essentially asking them, have you seen any evidence that all of the assets that Tether is claiming to have exist?
- [18:36]
A
And the answer was kind of a shrugging emoji.
- [18:41]
C
The thing that Tether maintains and has maintained from the very beginning when these questions started coming up, and these aren't new questions, that, yes, we absolutely are backed. It used to be they used to say, yes, we absolutely are backed by US Dollars. And then a couple of years ago, found themselves embroiled in litigation, particularly in New York, where the New York Attorney General pointed out, hmm. In fact, folks, at Tether, you have not been consistently backing all of your claims with US Dollars. And there's other sorts that you are saying that you have, but I mean, stablecoins are important because to your point, Felix, they are the way that people get in and out of other crypto transactions, right? So it's, it provides liquidity in a way that really can't be underestimated. And Tether isn't the only stable coin. You also hear about usdc, which is the US dollar coin, but the principle is exactly the same.
- [19:36]
A
Although the thing about USDC is that it's much more closely regulated by American regulators. And while there have always been massive questions about what exactly Tether's backed by and where those assets might be, those questions have never arisen with usdc. And yet, and yet the amount of Tether out there dwarfs the amount of USDC out there. This is one of the things I don't understand. Given the choice between Tether, which is a dubious currency backed by a bunch of question marks, and usdc, which is a much less dubious currency backed by a very audited and transparent pile of assets, the crypto community has chosen the less stablecoin. Explain why that would be the case.
- [20:33]
C
I would love to, but you know, one of the things, and I have asked various people about this and I'm. Some of the answers I can't yet share because I have not sufficiently confirmed the basis. But one of the things that has come up over and over is really like marketing and community, right? The idea that the people who have really embraced Tether are folks who are well respected, have big names, you know, that are sort of widely followed and that there is a celebrity element to. Okay, well, this person I trust, right? This, like there's a social proof element. This person I trust has either their own position in Tether or are affiliated with the company behind Tether and the CEO, who's the CEO of two companies at the same time in a way that USDC just doesn't have the same sort of marketing.
- [21:26]
A
Can I come up with a rival theory?
- [21:27]
C
I love a rival theory.
- [21:28]
A
My rival theory is that precisely because Circle, which is the company that issues usdc, is so closely regulated and hand in glove with US regulators, people trading in and out of Circle, or US persons anyway trading in and out of Circle, are convinced that they're going to have to pay capital gains tax on all of the gains that Circle cashes them out to. On the other hand, if you cash in and out of Tether, Tether's not going to report that to the IRS and you don't have to pay taxes on all the money you're making in.
- [22:00]
C
Crypto, this is like the Hobbesian versus Cantian. In view of why people are doing something in terms of the market.
- [22:07]
D
Is it basically like shadiness is the USP of Tether? Like, the shadiness is the point, as it were.
- [22:13]
A
Yeah. I mean, can anyone tell me even, like, what country is Tether based in? Who is Tether's primary regulator? You know, basic questions like that.
- [22:22]
C
I strongly recommend the folks read the magazine piece because there are some cracking color about both of those questions. And there was a lot of news in the piece. Right. Like, Zeke was able to confirm that Tether does, in fact, own a decent amount of Chinese commercial paper, not Evergrande, which they have, you know, consistently denied. So I just want to, like, be real clear. But again, it's just, you know, one of the more colorful phrases in the thing is like this, you know, this is a story that's sort of made entirely of red flags. Right. But you know, Felix, to your point, like, those red flags have been flagging and red for some time, and yet here we are.
- [23:04]
B
It seemed like Tether. I mean, it's a total confidence game, and the people using it are confident in Tether for some reason, even though it's extremely shady and no one seems to be in. Be in doubt of that or question that. Everyone agrees it's kind of shady and.
- [23:22]
C
Yeah, well, I don't, I don't.
- [23:23]
B
I don't have it and still use it, so it's fine.
- [23:26]
C
I don't think that everyone agrees it's kind of shady. I, you know, and I think that's. That's kind of one of the, the elements in the piece that I find so interesting is, has Tether faced legal action? Absolutely. Have there been questions that they have kind of hedged against answering? Clearly 100%. And yet there are folks out there for whom the, you know, the consistent thing that they say is like, no, everybody's just out to get them. This is entirely unfounded. There is a real and not insignificant belief that any criticism whatsoever of Tether or any criticism of cryptocurrencies more broadly is really grounded in, you know, that idea of fud, that folks are just out to get this system that is revolutionizing the financial world, and none of it is backed by facts.
- [24:15]
D
But isn't this them just shrouding themselves in the cultishness of crypto as a whole, that they are trying to draw, take advantage of this kind of any criticism must be fud. And Tether is part of that and they're kind of taking advantage of that while something like, like USDC and Circle, you know, is part of the same crypto community. But it seems completely straightforward and people could use that. I can't get away from this issue that the, either the shadiness is the point or it's just hard to pretend that this isn't a major fault line run through crypto. If you can defend this, then are you just going to defend everything? I just don't get.
- [24:58]
A
So I actually put this question to cz, who is the CEO of Binance. I had an interview with him last week and I'm like, what's with tether? Like why is there. I mean there was a little bit of speculation that he had like he had some kind of a relationship with, with tether and he denied any relationship with Tether beyond like it is traded on finance, which is his exchange. But what he said was basically the it is impossible to underestimate the first move for advantage. That tether just got in first and became like the place where there was the greatest amount of liquidity. And if you want to trade currency pairs, which is in normal fx, all currency pairs are based against the dollar, right. You can't actually trade the Norwegian krona against the Japanese yen. What you do is you trade the Norwegian krona against the dollar and then the dollar against the Japanese yen. You have to do like two legs of that trade. Similarly with crypto you can't trade like Solana against ether. What you do is you trade Solana against tether and then tether against Ether. And Tether has just become like the US dollar of the crypto space. It's become the asset, the base asset against which everything else is traded. And yet you can trade Tether against USDC and that's going to trade one to one most of the time. But that's just another currency pair. And Tether is where all the liquidity is. And so long as that's where all the liquidity is, people are going to use Tether as their sort of resting heartbeat of crypto trading in a way and, and, and changing that because it's so path dependent, it's basically impossible.
- [26:39]
C
Yeah, it's in the first mover advantage, incumbency, strong backers who talk a good game and tweet. Well, there's, you know, I want to read. So after business week put out the article. Tether of course responded in a blog post and in tweets and it's very similar to kind of what you are what you're describing, Robin, Right? It says this is a one act play the industry has seen many times before, taking snippets of old news from various places and dubious sources and making it fit a prepackaged and predetermined narrative. And then, you know, they, they specifically.
- [27:15]
A
Stacey, is this true? Did you go up to Zeke Foe with a predetermined narrative and tell him what to write? I mean, as the managing editor of crypto, that is, that is your Zeke.
- [27:23]
C
Foes working on this story before Bloomberg had even decided to call me. So I had very little to do with any predetermined narratives. And I think he did a really good job in that story of kind of actually challenging some of the underlying assumptions that folks have. But my favorite line in this piece is exactly that. First mover advantage, where they're like, you know, tether is the most liquid stablecoin in the market. It was the first stablecoin and it has withstood years of volatility. Tether makes the crypto economy more efficient. It's like bam, bam, bam, bam. Everything that you are saying, all of.
- [27:57]
A
Which is true, right? That's all undeniably true.
- [27:59]
C
All of those are facts. Right. And this is kind of the fundamental tension. It's like there are claims and then there are facts. And they are really well within their rights and certainly their communication strategy to be pointing out whatever folks have been saying. They've been saying this for a long time. We continue to provide an absolutely essential liquidity service and we continue to say that all of our coins are fully backed, even if they're not necessarily backed by US dollars.
- [28:28]
D
But this just feels, I mean, the need for something like tether makes perfect sense. It's kind of the reserve currency of the crypto ecosystem. But it's a bit like choosing a reserve currency. Not the US Dollar, but the Argentinian peso. It just seems incredibly cavalier by the crypto community. Yeah, well, it just seems cavalier of them to sort of accept this, that the first mover comes.
- [28:51]
A
Robin, are you saying that the crypto community could be a little bit cavalier? I would never, never say that. Knock me over with this feather.
- [29:00]
D
Well, you know, I'm clearly coming out of the closet as like a massive index fund boomer, basically. But yeah, that's my index fund fud. I guess so.
- [29:10]
A
So I think that we, we, we, we can come out of this discussion having concluded that crypto is possibly a domain of cavalier folks.
- [29:21]
C
Sure. According to Gary Gensler, it's the Wild West. Pierce, please quote, would you like to.
- [29:27]
B
Quote the founder of Tether, Brock.
- [29:28]
C
I do.
- [29:29]
B
I that my notes for this discussion were just a quote from Brock Pierce. He's the Tether co founder, former child actor who appeared in the Mighty Ducks alongside Emilio Estevez. Anyway, he, he told Zeke, quote, I'm a doula for creation. I only take on missions impossible.
- [29:52]
C
I mean, it was the missions impossible that got me. Not impossible. Missions.
- [29:56]
B
Doula for creation.
- [29:57]
C
Missions impossible.
- [29:58]
B
What is missions?
- [29:59]
A
Missions impossible. What is the plural of mission impossible? Obviously it is missions impossible.
- [30:04]
B
Right, yeah, missions impossible. So, I mean, there's a smart guy behind this, obviously named Brock, Brock Pierce. And there's a great photo of him in the piece. And yeah, everyone really should read the piece. Face with the hat. Yeah. And the other guy with the half shaven, he has shaving cream only on one side of his face and he's staring in a mirror like, with like a dreamy, far awayish.
- [30:30]
C
It's just there is, there is a lot in this story. The characters are the best part.
- [30:37]
A
I have someone who can preach the active investing gospel and make himself what looks like something very close to a billionaire by selling little bits of paintings. His name is Scott Lynn. He has bootstrapped this company called Masterworks until this week and then sold off 110 million dollar chunk of it this week at a billion dollar plus valuation. So probably at this point it's fair to say that Scotland is a billionaire. And I just find this fascinating the way that you can become a billionaire in the space of a couple of years just by chopping up paintings and selling them off in little bits.
- [31:20]
C
So Felix, given you actually know things about art at a level I think is unavailable to me, this is very similar to the question that you ask about, you know, like why people own X, like why buy fractional art?
- [31:34]
A
So good question. We actually had Julia Halperin come on to Slate Money Swag to answer that question. Why while back. And everything she said in that podcast, which was excellent and I can highly recommend, remains 100% true. Julia put the number at 500,000. Scotland puts the number at about a million. But the idea is that once you're spending more than a certain amount of money on art, it stops being consumption. Good. Where you're like, that's something pretty that I like to look at on my wall and get, you know, makes my heart swell with happiness and starts becoming an actual asset that has resale value and where the resale value of that asset can in some cases be expected to go up over time. And that Asset has a relatively low correlation. We can argue how much of a local relation with stocks and bonds. If you listen to Scotland's marketing pitch, he will tell you very loudly that the asset has outperformed the S&P 500 over some period of time. Depending on how you define the asset. I would probably quibble with that. But the fact is that certain paintings have indeed appreciated in value quite dramatically. And that is what he is selling is the idea that, like GameStop, Schmeenstop. Let me get you into Gerhard Richter and Banksy.
- [33:09]
C
So it's just money making money again.
- [33:12]
A
You will never see the painting that you buy. It will live in storage forever. It is a purely financial transaction. One of the things that just really stuck with me from my interview with Scott Lyn was when he said, yeah, possibly they've heard of Banksy and cause these street artists. But most of the stuff that we sell to the investors in masterworks, they've never even heard of the artist. You know, we're selling Monet and Warhol and Richter and they don't even. They haven't even heard of them. It's just like, art, it's gonna go up. I trust you.
- [33:47]
B
I. I guess I thought there's like two kinds of, or maybe three kinds of people who invest in art or spend lots of money on art versus like people who really like art and have a lot of money. Then it's like, like those people that we read Billion Dollar Whale that buy the art and put it in like storage and just use it to launder money. And then I guess super rich people who want like trophy art or something, who don't actually like it, but like kind of a squishy third category. But like, if you're not laundering money with it, like, what. What is the point of mass masterworks? Like. Like the fees are very large, which I guess I didn't realize until I read Felix's piece. Like, if you're gonna invest in alternative assets, like, why would you go to masterworks? I just.
- [34:34]
A
Well, the fee. The fees in most alternative assets are very large. It's hard to get into alternative assets without paying large fees. I mean, think about it this way. If you buy a painting at auction, you pay the auction house like 20% basically, or 25%, you know. So, you know, if you try and do it yourself, there are very large fees involved. If you buy anything at auction, you kind of have to pay that kind of thing. We are seeing other alternative assets like digital basketball trading cards. You know, they might have lower Fees. But in general, if you want to try and get into these uncorrelated alternative asset classes, even if you just include things like hedge funds and private equity, the fees are always going to be big.
- [35:16]
D
Well, I do think, I mean when I heard about Masterworks, I've seen them advertising, I thought it sounded absolutely insane. I mean part of the reason why you buy art is either enjoy it or to brag about owning it. Not to buy fractional shares of it and never see it. But the tides of our discussions earlier, right? I mean buying an index fund when the stock market is trading at.com levels and the bond market yields, the return you get from bond markets is the lowest it's ever been for centuries, then people are just desperate, desperate for, for anything that might offer them a plausible return. And art, like high quality art, has actually done really well in the long run. So that's one of the reasons why we're seeing people invest in crypto a lot is because frankly the chance of you making a bundle of money becoming rich from investing stocks and bonds for the next 10, 20 years is pretty low. So you kind of left with like Hail Mary assets. So that's like, you know, wine, art, crypto, property, you know, stuff like that. So in a kind of world like.
- [36:19]
C
That, one of the oldest ways of generating, accumulating and maintaining wealth. I don't think they're really in the same category as sacred.
- [36:28]
A
No, no, because property has cash flows, right? That's why it doesn't involve in that, why it doesn't live in that swag category. But the other thing about art is that it's a bet on increasing inequality, right? The, the value of expensive art is basically a function of how much money the ultra, ultra, how many new. Because they're the people buying it for your rock. You know, once, once you've bought your, once you've bought your third or fourth hundred million dollar piece of property, then you start furnishing them with $100 million paintings. And you know, that's where you really spend the money. And so if you think the number of multi billionaires in the world is going up over the next 10 or 20 years, then it probably stands to reason that the value of high end art is going to go up with, with, alongside that number.
- [37:18]
D
Certainly for some of the masses and certain things that aren't there are limited uses of that. I mean I'd rather buy a millionth share of a Monet than a non fungible token of a rock. And I certainly would prefer that if I was a pension fund. But why not do that and just these pension funds, sovereign wealth funds, pool their money together, buy lots of art and rent it to galleries around the museum and generate yield that way rather than them storing. In some respects.
- [37:45]
A
No.
- [37:46]
C
Felix is about to art explain you.
- [37:48]
D
So go for it.
- [37:49]
A
There are no. There is no rental market for art. I'm sorry. Well, people have tried to create it. It has never happened.
- [37:55]
D
Okay, well, there's never been a fractional share market for art either. So, you know, this could be our company that we start on air right now.
- [38:04]
B
I think Robin's onto something.
- [38:06]
A
No, there are a couple of companies that like, rent out art to offices and rich people. Yeah, they've never really got real rich people renting art. Exactly.
- [38:19]
D
Check out my bathroom.
- [38:20]
A
It's not a trophy if it's only rented. Yeah. Wow.
- [38:23]
C
This is the inequality episode of Sleep Money.
- [38:28]
A
Numbers round people. What's your. What's your number, Stacy?
- [38:31]
C
My number is 80, which is. It's the first time since 2014 that the price of oil as measured by WTI for those who care topped $80. And that made me think about, wow. I remember 2014 when oil prices were measured closer to the hundreds of dollars. And it's really had me thinking about my favorite subject, supply chain crises. And the fact that we are really, really looking at intense supply constraints, obviously across different types of energy even before we get into peak demand season in winter for much of the world.
- [39:12]
A
So, I mean, not to mention the price of natural gas in Europe that has just gone completely bizonkers and reaching crazy levels. That's very much a supply shortage problem. Like Europe just didn't have enough natural gas to meet demand. There is apparently a supply shortage of diesel, which is coming up slowly on the United States, which no one quite knows how we're going to be able to deal with. And so, yeah, I feel like we're going to be reading these headlines definitely through the winter. I'm going to have a completely different number. I'm going to say 1 billion, which is the number of monthly active users of TikTok.
- [39:52]
C
Really?
- [39:53]
A
Yes, it has reached 1 billion, which is completely insane. I am one of them. I have to Admit, I love TikTok. It's kind of my favorite social network. There was a piece just out in Fortune saying that TikTok advertising drives significantly more sales than Facebook, Instagram, Twitter. Like this thing is on fire right now. And obviously all of the ancient history about Trump going to war with it and trying to break it up and trying to kill it and all of that seems to have been forgotten. And so this major Chinese social network has really taken over the world in the way that like almost no other Chinese company has been able to do.
- [40:40]
B
Maybe we won't have to have a big attack on Facebook anymore. Everyone will just move to TikTok and that'll be that.
- [40:46]
C
Well, you know, I still think that one of the less well advised moves a social network ever made was Twitter buying Vine and then nuking it.
- [40:57]
D
That is hall of fame idiocy. It was really incredible.
- [41:03]
C
Rip vine long lived Rip Vine.
- [41:06]
A
But you know, vine was only six seconds. TikToks go up to three minutes now. They just keep on getting longer and longer. Emily, what's your number?
- [41:13]
B
Okay, my number is $31.1 million.
- [41:18]
A
So is that the price of a painting?
- [41:21]
B
Probably. But that's not what my number represents. It represents Indra Nooyi's compensation in 2017, the last full year. She was.
- [41:30]
C
That story was wild.
- [41:35]
A
Oh my God, the most amazing softball interview you've ever read. Where like it's just a series of own girls by the interviewee.
- [41:43]
B
Yes. So in New York Times magazine, they interviewed her for some. They interviewed her and she said to David Marchesi. Is that how we pronounce his name? David Marches? Anyway, magazine, she said she has never, ever, ever asked for a raise. And when he asked why, she said, I find it cringe worthy. I cannot imagine working for somebody and saying my pay is not enough. Now these comments, obviously from one of the only women to ever lead a Fortune 500 company got. She was trashed up and down Twitter. Everyone is very upset. How dare you say this? People need to ask for raises. Everyone was very, very upset by it. And to repeat, $31.1 million was her salary in 26. So she never really needs to ask. You don't need to ask for a raise when you make that much money.
- [42:38]
A
My, my favorite, my favorite part of the interviews when she said, I still live in the same house.
- [42:43]
C
In 30 years ago, that house is.
- [42:45]
B
And then, and then what did she say, Felix?
- [42:48]
A
All I did was buy up all of the surrounding properties.
- [42:55]
B
Very modest.
- [42:57]
D
She's amazing.
- [42:59]
B
I mean, I should say absolutely amazing. She told Fortune they did a follow up interview with her because she probably is feeling horrible because of what she said. And she explained that it was. It's cultural. Her aversion to asking for a raise is cultural. She said. She claimed. And she said if women at Pepsi came and wanted a raise and said they were paid unfairly, she took that Quite seriously.
- [43:20]
C
I would note that in that same interview, she pointed out that her direct report reports would say things like, well, our compensation is indexed to your compensation, so if you don't ask for more money, we're not making more money. To be clear, the direct reports of a CEO are not broke when they're at Pepsi, but just as a kind of a principle. Yes, that is true. If. If the person at the top, or in. Or in even middle management is declining to advocate for themselves, they're definitely not advocating for anybody else. And that is a true thing. That is actually not culturally specific. Right. The consequences of having, again, one of a tiny minority of women in positions of executive leadership set this kind of example is really damaging to the conversation about work and women at work and norms and everything else. And it was just like reading that interview was absolutely. Took like 24 hours off of my life just from the stress.
- [44:21]
A
Not to mention the bit where she refuses to condemn the Texas abortion stance, which is like her book. Obviously, she's plugging a book. This is why she's on the interview circuit. I have seen the book. The very first blurb at the top of the back cover is Hillary Clinton. Like, this is not someone who I ever imagined would, you know, run for office as a Republican. And yet her answer to the Texas abortion question was basically the answer you would get from someone who was running for office as a Republican. It was very odd.
- [44:59]
B
Yeah. It was like, I'm not here to talk about that. I'm here to talk about what happens after the child is born or whatever. I value life. It was stuff like that. It was really incredible.
- [45:07]
C
I value life and 6,000 square foot foot Greenwich, Connecticut mansions.
- [45:13]
B
You have to be careful, I think, when you're very rich, not to say crazy things like that just right.
- [45:18]
A
I mean, I feel like. I feel like I know a bunch of very rich people who are kind of capable of not putting their foot in their mouth quite.
- [45:24]
C
I think if I. If I were to hit the point where my, like, annual executive con compensation was $31 million instead of writing a book, I would just, like, peace out in a gigantic house surrounded by art that I own and didn't rent, buy up the landscaping around me and not tell anyone anything ever again. Like, why, why, why expose yourself to the hassle of the Internet when you could just not.
- [45:49]
A
All right, Robin, we're going to finish with you. What's your number?
- [45:52]
D
Well, I'm going to go for the biggest number of all of us, 26 trillion, which is how much money I think is in index strategies, like passive strategies at the moment.
- [46:03]
A
This is according to the little spreadsheet, the envelope on your desk where you're adding up.
- [46:07]
D
Yeah, it started as an envelope and started, it's flourished into a full on Excel spreadsheet. And that includes some, some assumptions. But I've sanity checked it with people in the investment industry and it seems. Yeah, so 26 trillion is probably conservative. And how much money is just in passive strategies?
- [46:28]
A
And the great thing about passive strategies is every time the stock market goes up another 20%, bang, that number goes up by another 20% and there's this.
- [46:36]
D
Kind of ongoing kind of big sucking sound of money going from active to passive all the time across stock markets, bond markets. Maybe at some point in our children's lifetime they're going to be passively investing in a fractionalized art index fund.
- [46:49]
A
Don't think that may Moses haven't tried to create that such a thing. People have tried and failed.
- [46:57]
D
True. Some of this stuff is hot.
- [46:58]
B
How much money is that? Can you put it in context in any way like compared to something 26 trillion.
- [47:03]
A
Like how much put that into contact? Because that is such a big number. No one can get their brain around.
- [47:09]
D
26, 26 trillion is around twice America's annual gross domestic product. It is equivalent of around over a quarter of the entire global investment industry. All mutual funds, pension funds, insurance companies, sovereign wealth funds, index funds, hedge funds, venture capital, private equity, all that. So it's around a quarter of that.
- [47:33]
A
Is it more than the value of all of the property in Greenwich, Connecticut?
- [47:36]
D
It's roughly maybe half the palace in Japan, like the Emperor's palace in Japan in the early 90s. I think that was around 50 trillion or something. They estimated the land and the palace to something, wasn't it? I can't remember now. It's a long time ago.
- [47:51]
A
It was crazy.
- [47:52]
B
What's the tether 69 billion in perspective though? Maybe that's not such a big deal.
- [47:56]
D
Yeah, exactly.
- [47:57]
A
I mean the one thing I will say about tether 69 billion is it is systemically important and dangerous to nothing other than the crypto industry. It's not like I'm worried yet about fallout should tether collapse to anything other than people holding bitcoin. But that might change. We will talk more about crypto obviously in future episodes of Slate Money but for now I think that's it for us. This week we are going to have a Slate plus segment on probably the most important subject in the world.
- [48:30]
B
Yes, correct.
- [48:32]
A
What is it, Emily?
- [48:33]
B
It's snacking, Felix. We're gonna talk snacks and we're just gonna get into it all week.
- [48:38]
A
Yeah, we're gonna get into snacks with full apologies to Shane Farrow for not having her on the show this week, but we are gonna talk snacks without Shane. Many thanks to everyone for listening, for writing in the email of slatemoneylate.com Many thanks to Shaina Roth for producing. Many thanks to Robin Wigglesworth in Oslo for beaming in for this episode. We will be back next week with more Slate Money, but first on Monday, guess what? We have a tee up episode of Slate Money Succession with Rebecca Mead where we are going to talk about the first two seasons of Succession and what it means. And this is the woman who wrote the definitive article about Jesse Armstrong, who's the showrunner and Succession in the New Yorker. Read that article article, listen to the podcast on Monday and then we will all be ready to watch season three episode one on October 17th. Anyway, that's all coming up on Slate Money.