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Hello and welcome to The Money Stuff Podcast.

You're a weekly podcast where we talk about stuff related to money.

I'm Matt Levin and I write The Money Stuff COLMN for Bloomberg Opinion.

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

Katy, you know what my man career aspiration is, tell me still lose a billion.

Dollars and come out better for it.

Well you can't not.

Yeah, well it's not the best possible career move.

But up there, surprisingly I up there on the list of career moves that you can make is losing a billion dollars if you're a hedge fund trader or bank trader, because like, there's just got to be something special about you.

If you use a billion dollars, well.

You know what I always say, A wounded lion is still a lion.

So The Shank Kumar has a great story about how hedgehund traders who lose money are in high demand and hopping among multi strategy hedgehunds, and it does feature a quote from a hedgehund re creator named Jason Kennedy who says even a wounded lion is still a lion, and the lion isn't mortally wounded, he will heal, and when he's fully back, that lion is worth a lot more money.

I do love it.

Like by the end of the metaphrase like also there's money, He's like.

Wait, let me tie this back into what we're talking about.

That's an incredible quote.

Sometimes you read an article and you come across a passage that just makes you pause.

That was this for me.

Yes, I would definitely rather be a wounded lion than a beaten mule, which is a callback to our mailback episode.

I'm the title of our episode.

Jason Kennedy has a very optimistic take on this, that the lion will heal.

Sometimes lions do get wounded and then they just die or they're never the same.

I grew up in sort of an efficient markets world.

I find it fascinating how quaint confident people are that they can identify investing skill.

Clearly, people believe it and like they have good reason to believe it.

Right.

These are like large, successful firms that for many years produce good returns, but just fascinating to me that you can be like, Wow, this guy who lost a billion dollars, he's great, he's so skilled.

You know, we'll get him on the on the downswing.

And get him at a discount.

Yeah, we'll get him at a discount and it'll be great, right, Yeah, as opposed to like the regime has changed, or he was lucky before or something, and now he's not a winded line.

He's just the guy who loses money.

He's a gazelle.

So there's a lot of recent examples of this happening, basically, these battered former stars getting picked up, perhaps at a discount.

I was struggling to find a success story.

It felt like this article.

Named a lot of bad examples or how this could go wrong.

I wonder if this ever works out.

It's weird, like you probably don't hear about the ones that work out, because like they're not going around bragging about how they lost a lot of money at their previous firms.

They're back to just being lions.

They're back to just being lions.

But right, the other thing is that this has always been a thing that happens, Like, yeah, it is definitely there's been an uptick in it recently, just because there's been such a talent war among the big multi strategy hedge funds, and so there are all these people on very large compensation packages that are moving around between these firms.

And if you run these firms, the people you can pick off from your competitors are often the people who have lost money.

That's partly because like they're out of favor or whatever.

Some of them, you know, potentially been fired, right because like traditionally these firms, if you have a big draw down, you get fired.

Although the article mentions some of these people are stars who like that doesn't happen to like they have a big draw down and it's like, oh, it's okay, you can stay here, but they get picked off anyway.

The other reason they're attractive is because they have to leave.

Like, if you lose money, even if you don't get fired, you're now like below your high water mark, and so you have to earn back all the money you lost before you can get a big bonus again, you know, more or less traditionally, and so if that's the case, it's very tempting to quit and started a new firm where your high water mark is resent back to zero.

Yeah, you're not in the penalty box.

Yeah, and you know, the article points out that it's not great for investors, like particularly if you're in multiple firms, like and people are just moving around to like reset their high watermarks, Like you're not getting the benefit of the high water mark.

That's true to that point.

There was a quote from a woman who now is a performance coach.

She used to be the ex head of a Georgia bank unit that linked investors with hedge funds, saying that after a bad year, the pitch is simple, check clean, sight, chill and let's be honest.

Some of these deals are the definition of an offer you can't refuse.

So it makes sense psychologically.

Yeah, I wonder about chill, right, Like what are your incentives at your new firm?

On the one hand, you want to prove that you still got.

It, you're still lying.

On the other hand, one thing the article points out is, like you get one of these, you can't continually lose a billion dollars.

So if you lose a billion dollars, it's like you did great.

You like took a lot of risk, You've learned from your mistakes, You move on, You got a new firm, it's great, but you lose it again that you're done, so like you haven't sentives to be more conservative at your new firm.

Well to that point, we already have an example.

There is this man, his name is Rob Banham.

He was at point seventy two, then he moved to Citadel.

He's already been let go after making tens of millions of dollars of more losses.

So I guess he found his second strike right.

Again, this is not would be classy, but it is possible that you lost a lot of money because you're really talented at losing money.

Yeah, but no, I love I love the like edgehun compensation structure of like like, I think a lot of people would like to be able to find a system where if you lose money, that's your problem, right, Not so much in multi strategy funds, but I've said about this before with single manager hedge funds, where if they lose a lot of money for their investors and they're below their high water mark, they will shut down the fund and spend like six months doing penance on a beach, and then they'll like start a new fund with a new name, and the investors would be like, what the hell, Yeah, you got to earn back your high water work.

And every so often people will be like, I'm going to indenture myself for years to my old investors and just earn back every penny of my how outter remark and not take and right like people do that, but not everyone does that.

I think limited partners would love to have some incentive structure, some compstructure, some contract where they could make the losses fully the hedgemand manager's problem.

But it's hard to do.

It's hard to do.

No one's quite cracked the good.

The only thing I stud point out is after I wrote about this, I learned of a paper by Maury L.

Say If a Duke called hedge fund Incentives, risk taking and asset prices.

What I wrote about is like the hedgehend managers like including a multi shred firms have like incentives to optimize their b and their high water mark.

So what that means is like, if it's getting to be the end of the year and you're up a lot, you like chill because you don't want to lose all the games you've made because those games provide your bonus.

Right, if you're down a little bit, you have a lot of incentive to take big risks because if you're down a little bit or flat, you don't get a big bonus.

But if you're up a lot, you got a big bonus.

And if you're down a lot, you don't do any worse than if you're down a little bit, So you might as well take big risks.

And what else say if he finds is that one that's true?

And two you can see it in asset prices where like basically more hi beta, more volatile stocks go up when a lot of hedgehunes are below their high water mark because they're gambling on redemption.

And so like you actually see stock prices react to the year end of bonus structures of hedgelong managers.

Man, so I'm gonna I'm going to borrow this paper for when I'm on television at the end of the year and things are going bananas.

I'm just going to say, well, I guess a lot of heat.

Yeah, anything that happens in the year, it's like probably someone like optimizing their bonus.

I use it all the time, month end, quarter ends.

Well, it looks like things are just weird today.

I can't explain this tick in this stock.

But right, I think that, as we've said on this podcast, the market is a conversation among four hedge funds.

I'm like, you know, if they need their.

Bonus's, it is time to talk about Elon Musk.

It's been what at least at.

Least a week, at least a single.

Week, has it only been want to make anyway?

Yeah, Elon Musk is back in the news this week.

Yeah, well actually last Friday Friday.

Yeah, you famously don't publish on Fridays.

It's does the crafting email for this?

Yeah, it takes hours.

So Elon Moss one trillion dollars.

I really don't like this framing.

Everyone says this, everyone does.

Elon Musk is the CEO of Tesla and the techno king of Tesla.

There's also, controversially, let's say he's the founder of Tesla.

That is a controversial statement.

He didn't found Tesla, but he's the founder of Tesla, right for sure.

For theoretical purposes, he's the founder of Tesla, and so like many founder CEOs, he's a big shareholder in Tesla and depends how you can because of like the weird option stuff, but he owns like twelve to twenty percent of Tesla.

It's not enough.

It's not enough, but it's a lot, right, And you look at a lot of like these big tech companies that are run by their more or less founders.

They don't get huge compensation packages, and they don't get huge compensation packages because like it's just assumed that, like they profit from the upside in the company by owning a lot of the company.

So like Jeff Bezos rand Amazon, and you know, Mark Zuckerberg runs Meta, Like these people don't get paid hundreds of billions of dollars.

They just own hundreds of billions of dollars of stock, and like when they do good stuff, the stock goes up.

And so anyway, Elon Musk is not like that for reasons, and he instead gets huge compensation packages.

And the board or Tessa's ass shareholders to vote on a new package that targets growing Tesla from the day about a trillion dollar company into a eight point five trillion dollar.

Company, which is two in videos, two.

In videos, yeah, right, more two in videos now, yeah, who knows what year, But if he succeeds in growing Tesla to an eight point five trillion dollar company, they will give him a trillion dollars worth of stock, which is great, but like, also he will have a trillion dollars worth of stock anyway, Like, he already owns a lot of stock, and if he eight point five times the company, then the stock will be worth a trillion dollars.

So like, it's not like they sat down and thought, if we give elan musk at trillion dollars, he will turn this into an eight point five trillion dollar company.

It's like, if we give another trillion dollars on top of the trillion dollars he already get for that, then I'll turn it into an eight point five trillion dollar company.

It's not a trillion dollar it's like whatever, it's if he does this, he would have a trillion dollars anyway, because he's a big shelter.

This is all in the shadow of like he had this comp package that Adella reports strike down, and like the judge at the time wrote, like the board did not analyze whether it was necessary to give him all of this given that he's a huge shareholder anyway, and like the comp set, the Zuckerbergs of the world don't get, you know, trillion dollar Paybay just they benefit from their share ownership.

Once again, the board does not think that Elon Musk gets much incentive effect from the shares he already owns.

Yeah, they're just like he needs more shares, and it's like clearly not true that he is being incentivized by a trillion dollars.

What's happening here is that Elon Musk wants to own twenty five percent of the company, and so the board is like, how do we get him twenty five percent of the company, And they just give him twenty five percent of the company.

They'd be like, well, if we don't give him twenty five percent of the company, you'd quit.

So here it is right, but that like looks really bad.

Even to a Texas court, that would look bad.

So what they're doing is they're saying, oh, we have like these super ambitious performance calls, and if he meets these goals, then we'll give them a trillion dollars.

It's probably a reasonable solution.

But it's so like he's owned like twenty five percent of Tesla, then he sold down like by Twitter and stuff.

It's very strange that he just he thinks he deserves to perpetually own twenty five percent of Tesla and the board is like, well you have to give it to m.

Well, people have tried to stop him from what from owning that much or I don't know, you think about the twenty eighteen experience, Yeah.

Right, I think that.

You know.

Elan mess says, the funniest thought comes the most likely, Like you could sue.

You could takes us to stop this.

Everyone assumes you would lose, but anyone really knows that's true.

I am really what if someone sued in one?

Wouldn't that be funny?

That wouldn't be funny.

Maybe not the funniest thing though, so it probably won't happen.

He'd be so mad that I think it'd be pretty.

Funny, but whatever, Okay, I am curious to see what happens over the next decade.

Obviously, because eight point five trillion dollars, I mean, the first you think about the incentive structure that was put in place the first time around.

That was very ambitious as well.

And he did it when he got his twenty eighteen package, Like the idea of making Tesla a trillion dollar company, which is not exactly the target, but like yeah, which he did would have seemed kind of absurd, and then he did it in fairly short order.

Yeah, I don't know, a decade, a long time.

One of the things that you mentioned in your column is that Elon Musk the world's richest man that briefly became not true this that's right, Larry Elson briefly became.

The world's richest man.

Now they're I don't know, I think like a billion dollars separates them at this exact moment.

But you think about the future, I think the exact think one.

Or both of them is like watching the chart as the lens crossed.

I would like to think that both of them are.

But in any case, obviously Oracle had insane earnings and had an insane outlook.

And uh like flatish earnings on insane look.

But yeah, well that's it's mostly out.

Yeah, and you think about the billings growth and whatever and where the future is going to go.

It really just underscored why Elon wants to turn Tesla into an AI company, because, Okay, maybe evs still are the future.

They don't feel as immediately the future as AI is right now.

Oh yeah, right, I mean you can point to your billings, your like potential future sales as a DA company to your.

Three hundred billion dollars worth of contracts that you signed with open Ai.

It's you know, it's sort of worth that much in market cup, right.

That's why Elon Musk is turning his focus to AI, and it's also why Tesla needs to pay up to keep him, right, because there are more obvious AI players like his AI company.

Also in the Tesla proxy, yeah, there's a shareholder proposal to invest in Xai.

And it's funny because like there's some business rationale for Tesla to invest in XI companies put the chat out on the dashboard.

Which they've done I think talk to your car.

Yeah, But so like there's some business case.

There's a there's a very big, like Elon Musk personal business case, which is that Tesla is not the most obvious AI company, right, it's not going to capture the public imagination the way like Oracle is.

But then like Xai, which is a more obvious AI play, plays are very expensive and it needs money, and Tesla has money, so like it does make sense for Elon Musk to like merge them or like take some Tesla money and give a TEXTI or whatever.

But even in the current situation.

Even in Texas, it doesn't seem a little hard for Tesla to just decide on the CEO's whim to invest billions or dollars in the CEO's other company.

But if the cherlders.

Asked for it, yeah, that's true.

And then it's funny because like someone tweeted about it and Elon Musk was like, it's not up to me.

The shareolders have to ask far and so like some chrelder duly like went and proposed exactly and then like you know, the shareholders overwhelming the button favor and then the word are like that did they give surely what they want?

Well, we're going to give Elan his money, and then someone will negotiate it.

It's not how one normally runs a company, but it's like it's happening.

It's runs a company, all right, Eric Adams, thank you to Front of the Show Bill Ackman, the actual Bill Ackman, for teeing us up for this too delating conversation.

Friend of the Show by Lackman went on Twitter to try to persuade Eric Adams to drop out of the New York City mayoral race, which is a for our purposes.

Let's say three way race between Zori Mundanni.

Who's you know, fan favorite.

Odd lots cast, betting market favorite, polling favorite, Zora Mundannie, and then there's Andrew who's heard of him Bill Ackman favorite yep.

And then there's Area Adams is the current mayor and seems to have no shot.

But so like a prediction market, the polymarket has zorround at like eighty percent, odds Cuomo like eighteen percent, and then like you know, Adams like one or two percent or something like that.

And so Bill Ackman went on Twitter to be like, Arian Adams drop out, because I'm Donnie, seems to have a plurality, and so like if everyone else drops out, then like maybe a Cuomo consolidate's enough support to win.

So if Aria Adams drops out, that like really materially improves Cuomo's chances.

And so Acman went on Twitter to be like, er Adams drop out.

But he also said, and to fund your future, you could place a large bet on Andrew Cuomo and then announce your withdrawal from the race.

There is no insider trading on polymarket.

What a crazy thing to say.

I mean, God, plus, he's not even wrong.

He's wrong in the sense that he says you could place a large bet on uncoma.

I don't think that's true.

Like, I don't think the liquidity in these markets is enough for like, Like one thing we know about Eric Adams is that he enjoys like playing trips.

Yes, I don't think you could make a ton of money betting on anentercroma some liquidity.

But like, as a general proposition, is this a thing that will become popular in politics, which is betting against yourself and then dropping out of the race.

Yeah, I would like to see that world that future actualized.

I think it would be funny and it would provide a lot of fodder for this podcast.

Oh yeah, oh yeah, right, I mean, because like traditionally you're not you're not supposed to pay people to drop out of political races.

Seems a little it seems a little bribby.

But then like the prediction markets are sort of like a distributed way for dropping out of your race.

And I mean trading, and Bi Lackman didn't say I will be on the other side of this trade, so that was good, right.

I Mean, one thing I wrote about this is that there's not a ton of liquidity.

Eric Adams couldn't make a ton of money by doing this unless someone where to step in and be on the other side of the trade, which again he didn't offer, but like would have been you know, it would be the logical next step.

But then the other question is is he right about there being no insider trading and nobody really knows.

Yeah, it's like don't know until you try.

Or for years afterwards.

So, by the way, another independent reason that Eric Adams couldn't do that is because no one believes it's still illegal to trade on Pollymarket if you're a US person, Like poly Market is not available in the US.

No one ever talks about that ever.

Talks about like they used to chuckle about it, like you can't you know, like Probly marks like advertising all over New York and everyone's like, oh, you can't trade on Pollymarket in the US.

But like everyone did.

If you go to their website now they're like, Polymarket is coming home.

The website actually has a little eagle, so good.

No, it's like it's just like, you know, it looks like it looks like a Trump Sun designed it.

But anyway, Polymarket is coming home.

Polymarket will soon be available for US traders the website right, but it's not now right, so you can't do it, but so right now, Like if you want to trade prediction markets in the US, you can trade on CALCI.

What should talk about all the time because you can predict sporting events on calshy, and CALSHI has insider trading rules, quite strict insider trading rules, so you can't trade if you have material on public information or if you can influence the outcome of the event.

Polymarkets rules are less clear, and I imagine that when polymarket is available in the US, it will look more like real commodities exchanges, which don't say you can't trade on material on public information, because that's not how commodities markets work.

I quoted Carolyn fam who's the acting Commissioner at the CFTC.

You talked about the special characteristics of the derivative markets, where end users necessarily trade on the basis of their own proprietary information in order to hedge their risks.

You're an oil company trading oil futures.

You know something about oil production that other people don't know, and you're totally allowed to trade it.

So in US regulated commodities markets, you're not allowed to trade with misappropriated information.

So if you work at an oil company and you trade for your personal account based on the oil companies production plans, that's probably insider trading.

That's probably not allowed because you're misappropriating that information.

You have some duty to keep that confidential, right, But like the oil company itself can trade commodities, And if you like, read that through to election markets, which are not commodities, none of this makes any sense in election markets, but you know they are treated as commodities.

If you read it through to election markets, then it's like, well, if Eric Adams is campaign manager place an insider bet, that would be bad to be misappropriation for sure, eric Adoms does it himself.

Maybe it's fun.

So I really don't know.

I really don't know what the sort of like future rules around insider trading prediction markets will be, because like there are a lot of people, include like Calshi and the people who got Calshi to be a regulated US Torovators exchange, there are a lot of people who are like, that's icky and unfair, and we do not want to have the trouble that would come with allowing insider trading, right, but there are a lot of people who are, like, the whole point of prediction markets is insider trading.

The whole point of prediction markets is to get accurate predictions by like incentivizing insiders to bet on stuff they know.

Like that's like when economists set up prediction markets, right, that's the whole point.

Yeah, And so Kelshi has spent years trying to become a regulated exchange, and like wanted to appeal to conservative regulators.

We don't live at a time where people are that conservative insider trading anymore.

So I think I don't really know what's gonna happen.

You could build a case that Eric Adams did listen to Bill Ackman, which I find tickling about this story.

He hasn't dropped out yet, right, he.

Hasn't dropped out yet.

But this is Thursday, und Yes, on September fifth, Eric Adams had a press conference I believe that was Friday.

He said that he's staying in New York City's mayoral race.

He also said that Andrew Cuomo is a snake and a liar.

That's a direct quote.

So on Friday of last week, he was very committed to staying In September six is when we got the Bill Lackman tweet, which was awesome.

And then today, on Thursday, the eleventh of September, Bloomberg News reported that New York City Mayor Eric Adams did tell a group of civic and business leaders that he's conducting his own polling to decide the future of his re election campaign.

This is according to people who attended the meeting.

So he's at least thinking about it.

He's still making money.

Like that's like, I just love the tell the political matter.

Billman would like him drop out the financial matter, believans like you can make a lot of money by dropping in.

I don't think it's true, but it would be funny if it was true.

Maybe he's thinking about it.

Who knows, I'm not.

You know you're buying enter Cromo contracts.

I'm certainly not.

I don't know if we can man step away from the mic first.

No, as I said, I don't think there's a lot of money to be made at it, and there's a lot of unpleasantness, right, But maybe it's like the market is discounting this right, Like, yeah, the market is aware of Bill.

Ackrans streets like that's true.

Is like three percent?

Right?

I wonder if Coma's chances would go have that much if Adams chopped out, But I don't know.

We'll say I was going to say, we've still got a long way to go, but there's not that much longer time marchers still on.

All right, Well we've collectively sighed, So I think I think that's the end.

That's the final side.

Yeah, And that was the Money Stuff Podcast.

I'm Matt Levine and I'm Katie Greifeld.

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