[Beeeep] $: Elon, Jane Street, Hunterbrook
2024-04-19 00:35:45
<p>The audio companion to Bloomberg Opinion’s beloved Money Stuff column hosted by its author Matt Levine, “whose deadpan style mixes technical elucidation and wit” (NY Times). Once a week, Matt and his friend, Bloomberg News reporter and TV host Katie Greifeld, talk about Wall Street, finance and…other stuff. New episodes every Friday.</p>
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I'm Maria Konnikova. And I'm Nate Silver. And our new podcast, Risky Business, is a show about making better decisions. We're both journalists whom we light as poker players, and that's the lens we're going to use to approach this entire show. We're going to be discussing everything from high stakes poker to personal questions.
Like whether I should call a plumber or fix my shower myself. And of course, we'll be talking about the election, too. Listen to Risky Business wherever you get your podcasts.
Bloomberg Audio Studios. Podcasts, radio, news.
Hello and welcome to the Money Stuff podcast, your weekly podcast where we talk about stuff related to money. I'm Matt Levine. I write the Money Stuff column for Bloomberg Opinion.
And I'm Katie Greifeld. I'm a reporter for Bloomberg News and an anchor for Bloomberg Television.
It's the best day of our lives.
It is the best day of our lives, which happens every day on Fridays. We have a lot to talk about. today. We have to talk about Elon Musk, of course.
We had a whole week without Elon Musk, I think.
I know, it was weird that we didn't get to it in the first week. So we'll talk about Elon Musk and that pay package, $56 billion, and, of course, his issues with Delaware. We're also going to talk about Jane Street versus Millennium. You just published on this.
By the time you hear this podcast, I will have published on it roughly 24 hours ago. We're recording it shortly after I published on it.
It's Thursday right now and Matt published 20 minutes ago, so this is the one I'm least prepared for. And we're also going to talk about Hunterbrook, the hedge fund. that's also a newspaper, question mark.
Before we get into this week's topics, it's our second episode.
It's our second episode. We got a lot of feedback on the first episode.
We got a lot of feedback. A lot of it was about...
All of it almost.
A comment that I made about the doped Olympics, surprised they already exist and they're funded by Peter Thiel.
Well, they don't exist. They're like launching.
Yeah. The idea is out there. The enhanced games that would have no drug testing. So if you didn't want to do a performance enhancing drugs, you could still enter. You would just lose.
Yes. Or you could do the regular Olympics, which will still have drug testing.
Yeah. And you'll probably still lose.
I wonder if, like, presumably day one, the best athletes will still do the regular Olympics. Yeah. I wonder how long it'll take for the enhanced Olympics to have faster times and higher jumps.
It's a great question.
Because if you're like the 10th best track athlete and you do a lot of drugs, are you better than the best?
Probably. Probably, yeah. Probably. There's only one way to find out.
So.
. Peter Thiel's going to do it.
These games need to happen. The event roster includes individual sports such as athletics, meaning track and field, aquatics, gymnastics, strength, and combat. I would watch these.
But what we don't have on that list, Katie.
. Is dressage. Is dressage. Yeah. No doped dressage.
For the uninitiated, dressage. is horse dancing, effectively. Just go on YouTube, look it up. It's a ridiculous sport that, for better or worse, I partake in. I'm not sure if, when I enter the enhanced games, which I will, whether I take the drugs, the horse takes the drugs, do we both take the drugs?
I think you both take the drugs. Have you or your horse ever been like offered drugs? Has there ever been like a controversy at your dressage?
We're not that good. Maybe in higher levels of the sport. But what we're doing, it's very loosely dressage. Let's talk about the top.
Moving right along.
Moving gracefully along.
Elon.
Elon Musk. The big news this week is that Tesla came out with their proxy statement. Two items of interest. They're going to ask shareholders to vote again on that 2018 pay package of $56 billion that was voided by a Delaware judge. And related to that, they're going to vote on whether to move Tesla's state of incorporation from Delaware to Texas.
What do you want to start with?
They're interrelated. Yes. Right? He got paid a giant stack of options in 2018.. Everyone says they're worth $56 billion.
Whatever. They're worth, like $40 billion. $56 billion is just like a conventional number that people attach to it, because, you know, it goes up and down with the stock. But right now it's worth $40 billion. And a judge took him away in January and said that was too much to pay him and it wasn't properly approved by the shareholders.
And so they're going back to the shareholders to, one, get it properly approved, and two, never have to deal with the Delaware judge again because they're going to move to Texas.
Like you said, these are two intimately related issues. But sticking with the pay package, which everyone is saying is $56 billion, maybe it's $40 billion, but the vote is in June.
Yeah.
Are they going to approve it again, these shareholders?
I think so. The proxy quotes a lot of letters from individual shareholders saying how much they love Elon Musk and how they're going to approve it. And also, by the way, letters from like T. Rowe Price, big shareholders too. It's interesting.
If you were a shareholder in like 2021, or even like December of last year, I think you'd say this pay package was worth it. In 2018, they said, we're going to pay Elon Musk $56 billion if he takes the market cap of Tesla from like $60 billion to like $650 billion. And at the time, that seemed like a real stretch goal. and then he did it really quickly. And so all the shareholders got rich.
They made a lot of money on Tesla. And I think they felt a real sense of gratitude. And so I think very few shareholders were complaining about his pay package, but one did and sued, right? There was one, yes. I think the shareholders were happy with it.
But now, if you go back to them and say, you want to approve it again, they can be like, we already got whatever he did. He did the stuff that made it a $650 billion company. So if we can get those past efforts for free, why shouldn't they get it for free? They feel grateful, but do they feel $56 billion grateful? That said, if you're a Tesla shareholder at this point, you're playing a longer game.
And, rightly or wrongly, I think Tesla shareholders assume that Elon Musk and his continued affection are essential to the value of Tesla stock. And so if they vote down this pay package, will he quit in a huff? Maybe he's got a lot going on, right? He's got a lot of distractions, so he could quit in a huff. And although his mercurial stewardship has not been great for the stock price in the last couple of years, he quits in a huff.
That's going to tank the stock, I think.
Yeah. I mean, the stock's already down 40% year-to-date. Yeah.
Like, it's been a rough ride, but still, I think they want him there. It's not like. if they vote this down, he'll come back and be like, okay, fine, can you give me like $2 billion? Like, I think, like, if they vote this down, he's going to be really mad, like, really mad.
I guess I have two kind of related points to that. To what you're saying, what is the key man risk to Tesla? Like, how much does Tesla need Elon Musk at this point is something I think about all the time. This is an established company at this point.
No, I agree with that. It's an established company. It could probably operate on its own. It's not like. the stock has been continuing to go up from strength to strength.
It's been a rough time. I do think that there's probably still a valuation premium for Elon Musk, and I think, like, it's a somewhat retail-heavy stock. There are a lot of people who like Elon Musk in this stock, and I think if he were to leave, that would be bad. But I'm not sure of that in the way that I might have been in, like 2021.. Yeah.
I also think, by the way, whatever your sort of economic calculation, I do think that some of the shareholders, at least, are like, we agreed to pay him these options. We voted on it. A court, in a weird technical opinion, struck that down, and we don't think that's fair. We think it's like bad for corporate democracy and also bad for like fairness to Elon Musk, and so we're going to give him that $56 billion back anyway. I think there's probably some of that going on among some of the shareholders, including some of the institutional shareholders.
Even if this is approved, will it just get voided again? Like, how does this work if they approve it again?
It's a fascinating question. I think, and Tesla thinks, the answer is that if they approve it again, this time it'll stick, right? Because what happened last time is they approved it, and the judge found that the shareholders were not fully informed of all the conflicts of interest involved in setting his pay package. Now they're fully informed, in part because, like Tesla, went back and gave disclosures, but also they just attached the judge's opinion to the proxy statement to be like, anything that the judge found bad, here, you can read it, right? So I think they have to be fully informed.
There's no problem with the vote, but the law on this is not super clear, and they say in the proxy statement, we're not totally sure what the effect of this will be. I think there's some argument that the disgruntled shareholder can sue again, and the judge again gets to decide if the pay package is fair, and we kind of know she thinks it isn't, so it might get struck down again. By the way, the other thing I want to say is that I don't know what the disgruntled shareholder is. There's a guy named Richard Tornetta. I don't know what he thinks.
I don't know if he wants to do this again. But you know who cares? His lawyers, who, when they won in the Delaware court, and they struck down this $56 billion pay package, they went to the court and they said, we want $5.6 billion worth of Tesla stock as a fee for this win, right? And their theory is, we saved shareholders all this money by clawing back this $56 billion from Elon Musk. If the shareholders give Elon Musk the $56 billion back, they haven't gotten the fee yet, right?
It's still in court. If they give the money back, what is their argument? that they saved the shareholders any money? Like, they've got a lot of money riding on the argument that Musk's compensation actually got clawed back, so they care.
Let's talk about the second part of what happened, Texas. Are they going to run into this problem again in Texas? Moving to Texas, what does that do for Tesla?
They say that moving to Texas makes sense because their big factory is in Texas, their headquarters in Texas, Elon lives in Texas, and so they have to move their incorporation to Texas because that just makes sense. No other company thinks that, right? Like, that's not really a thing. Like, every company is incorporated in Delaware, and very few are located in Delaware. But it's what they say.
The answer is nobody knows. There's a lot of Delaware corporate law, and there's not a lot of corporate law anywhere else, because most big companies that have big lawsuits are incorporated in Delaware, and so that's where all the cases are. Tesla says in its proxy that they think the law in Texas is mostly the same as the law in Delaware. Which I think is probably true. But everyone kind of assumes that if this had all happened in Texas, and if a shareholder had sued Elon Musk in Texas to get back the $56 billion, a Texas judge would have been like, nah.
Elon Musk can keep that money. There's no basis for assuming that. Nobody knows. It just seems that way. And clearly Elon Musk assumes it, because as soon as the Delaware opinion came out, he's like, we're moving to Texas.
By the way, that happened. The opinion came out, and he was like, we're moving to Texas right away. He was saying it on Twitter. But Tesla now, in its proxy statement, has to explain why it's moving to Texas, and it describes this very thorough process that it did to evaluate moving to Texas. So it formed a special committee of independent directors.
There's one person on the committee.
Was his name Elon Musk?
No, no. It's a truly independent director. Her name is Kathleen Wilson-Thompson. The special committee met 16 times for more than 26 hours, says the proxy, which is like a fun thing to imagine. I first imagined it as like, I met four hours today with the money stuff committee.
I was typing on my computer, and I was like, oh, there's a meeting. But in fact, she met with her lawyers. Oh, perfect. So there were real meetings, but she was the only director at the meetings. But she, they, the committee, evaluated all 50 states to decide.
It was like throwing darts, being like, which state should we move to? And it just so happens that the best state turned out to be Texas.
Coincidentally, the same thing that Elon Musk was tweeting about two months ago.
It's beautiful.
So it worked out nicely for me.
Yeah. It's good that it turned out that way.
By the way, you asked if the laws move with them. I wrote this before. There's some small chance of a Delaware judge saying, no, you're not allowed to move to Texas because you're only moving to Texas to pay Elon Musk more.
And which seems reasonable.
That is like a violation of your fiduciary duties to your Delaware shareholders. So we're going to stop you. I wrote that in like January, I thought that was like some extremely funny theoretical chance of that happening. Since then, there's been like a Delaware court decision. that makes it less likely.
So I don't think that's going to happen, but it'd be really funny.
So at one point, and I also have a question, I guess I'll start with the point. And that is that there is like a human psychology component to this, because I remember when this happened in January, that it was voided, this pay package. My suggestion to Elon Musk would be, why don't you just have Tesla do a dividend? Mark Zuckerberg did that with Meta. Now he's going to make like $700 million a year.
Mark Zuckerberg obviously owns a lot more Meta shares, so it makes more sense there. But you made the point to me that Elon Musk isn't trying to make normal, extremely wealthy man money. He has like insane aspirations that he needs all this money for.
He owns a minority of Tesla. He's a controlling shareholder. He owns like 20% of the stock, so a dividend would go mostly to other people. And like, they're not so rolling in cash, they could pay out like tens of billions of dollars of dividends. Mark Zuckerberg gets a dividend because he likes to go water skiing or whatever it is that he does, right?
Hoverboarding.
He has cows, right?
Cows, archery. I don't know. All sorts of hobbies. Like moderately expensive hobbies, some of them. But Elon Musk's hobbies are like brain implants, going to Mars, buying Twitter, and forgetting a few.
But like, he's not like looking to spend money on a nice vacation. He's looking to have tens of billions of dollars to fund going to Mars. And so he needs these giant pay packages every now and then to pursue his next ambition.
You're not going to get that from your dividend checks. And then my question for you is, what do you think is the most interesting way that this proxy vote could turn out? What would be the most interesting chain of events for you?
Look, I love the idea of a Delaware court preventing Musk from leaving for Texas. I think that would be extremely funny. But I actually think the simpler answer is funnier, which is, if the shareholders vote this down, that's wild. Like, he'll quit in a huff on Twitter like that day. Like, it'll be an amazing thread of tweets, and it will be an amazing corporate debacle.
Whatever time he's devoting to Tesla, he'll go and devote to some other wild thing, and that'll be wild. And Tesla will like, find its way as a, you know, it'll get back that $50 billion and find its way as a company who's not controlled by Elon, it'll be a wild, wild sequence of events.
That, in my mind, would be the most interesting scenario as well. And then we could truly find out what the Elon Musk premium is.
The thing about Elon Musk companies is that if you're an investor in Elon Musk, companies, like, you, like Elon Musk. Like, that's just how it goes, right? Like, you're not there because you like the assets but think they're mismanaged. Like, you're there because you like Elon Musk. It would be really shocking for the investors in an Elon Musk company to vote against them in such a striking way.
Do you want to talk about Elon Musk for like 25 more minutes, or do you think we should move on?
I saw your look of like, I have wrapped this up so nicely, and then Matt comes in with more stuff. I have some more stuff, but I'm going to wrap it up. Never mind.
Stay tuned.
Stay tuned. There's always more, Elon.
This podcast is supported by Apollo Global Management. When it comes to building and financing stronger businesses, Apollo turns some of the world's most complex challenges into growth opportunities. Apollo's customized capital solutions help drive innovation and growth, turning the great businesses of today into leaders of tomorrow. As one of the world's largest alternative asset managers, Apollo is helping to fuel the real economy by generating investment-grade credit, helping to fill gaps in America's financial ecosystem, and providing greater access to more resilient and diverse pools of capital. By providing companies with access to flexible financing solutions and partnering with management teams to help grow their businesses, Apollo is there every step of the way to drive positive outcomes for companies and power economic growth.
Apollo, investing in tomorrow, today. Learn more at Apollo.com slash private investment grade.
I'm Maria Konnikova.
And I'm Nate Silver.
And our new podcast, Risky Business, is a show about making better decisions. We're both journalists whom we light as poker players, and that's the lens we're going to use to approach this entire show. We're going to be discussing everything from high stakes poker to personal questions. Like whether I should call a plumber or fix my shower myself. And of course, we'll be talking about the election, too.
Listen to Risky Business wherever you get your podcasts.
Katie, you were so impatient to get to Jane Street.
Jane Street. Yeah, and I don't really know why. Not that it's not super interesting. Set the scene for us. What's going on?
So I wanted to talk about this because Jane Street sued Millennium. Two Jane Street traders left Jane Street. They went to Millennium. And Jane Street thinks they took a complicated secret trade with them and are now making money for Millennium at the expense of Jane Street. And so they sued.
I wanted to talk about it because the complaint is public, but it's heavily redacted. Because Jane Street is like, we have this secret trading strategy that's being ruined by someone else copying it.
They don't have to say what it is. They just have to black it out in the publicly filed version. So I want to read the complaint and all the beeps.
Go for it. Okay.
Not really going to read the whole complaint. But they did a trading investigation. They had this idea and they like, tested it out. And the results confirmed Jane Street's initial findings, notwithstanding their facial improbability, and revealed that the market was beep for certain classes of trades in the presence of specific market signals and underlying conditions. Probably we could have, like a podcast producer, put a real beep over that.
But I think I did a pretty good beep. Yeah.
No, that definitely was a beep.
Anyway. So yeah, they have this trade. Yeah. We don't know what it is.
I want to know what it is.
But what we know about it is one, it makes money reliably for like some number of months at least. And two, it's weird. Yeah. They really emphasize that it's weird. It's facial improbability.
And they say that it was counterintuitive, unexpected, and initially met with significant skepticism and incredulity internally at Jane Street. It's really tantalizing. They're like, we found this trade that you would not believe. It's so crazy. They like, discovered it and like the data, and they all sat around being like, this can't be real.
And then they tested it for like a year and like, oh wow, it's real.
This is kind of silly, but reading about it and reading that line specifically made me think of, like Rudolph, the red nosed reindeer, how everyone made fun of him. And then his nose actually lit up and illuminated the night sky. And they were like, wow, this works. It's sort of a similar situation. Yes.
Something else. In the Bloomberg News article, apparently, Jane Street saw evidence that one of the traders who left in February, he, was using the strategy. They figured it out because Jane Street said that its profits from using the strategy fell by 50% in March, a drop, it said, could only be attributable, to, quote, the entrance of a competitor using the same strategy. What is this trade?
It's apparently a trade where there's like capacity to make, I don't know, I'm going to make up a number, make a million dollars a day, right? And Jane Street was doing it and making a million dollars a day, right? And then Millennium starts doing it and now they each make half a million dollars a day, right? Yeah.
Because it's not like they lost money because someone else started doing it. They're just, they're not the only person in this market anymore, whatever this market is.
It's some sort of options market. It seems clear. It's like some sort of options trade. Rumor is that it's not in the United States, but I don't know where it is.
How does this work? Are we ever going to find out what the trade is? Or is it just a secret?
I'm going to keep asking. One of my favorite things about this complaint is that one of these traders leaves Jane Street for Millennium and the complaint mentions how much money he's getting because they're making the point like he's getting paid so much money. It can't be just because, yeah, he's like whatever experience, whatever skill, he wouldn't be making that much money. He's getting paid that much money because he's bringing this Jane Street trade to Millennium.
So he told people how much he's making. Yeah.
The complaint says, based on conversations between Shadowald and his colleagues at Jane Street, his compensation for Millennium.
They don't know. He told his friends at Jane Street and then, like Jane Street, asked his friends how much he was making. They're like, all right, man, he's getting. And then they put that thing.
I can't imagine telling people so casually what I make, especially if it's a lot of money.
I can. Like, he's leaving. He's leaving a financial firm for another financial firm. And like he goes out to drinks with his friends and they're like, oh man, what are they giving you? And he's like, that's why he's leaving.
Right. This is a very mercenary business. I don't know.
He should have just bought a huge apartment and let that speak for itself. That is how much I'm making.
Oh, he hadn't made it yet. I feel like the day of, he's like, oh my, look at how much money I make. I also love the best possible amount of money to make is beep, right? Like a number so big that they can't publicize it.
That is pretty amazing. So I guess, yeah, the two things I want to know, what the trade are, how much this guy was making. Also, is this an unforced error by Jane Street, which doesn't have non-competes? Like, could this all have been avoided had they had a non-compete?
There are really like two different things, right? There's a non-compete, which usually it's like time limited. You can't go to another firm for six months, a year, two years. Yes. I think that would avoid that here, because what's it going to be like in a year?
Like it seems unlikely. I don't know what the strategy is, but it seems unlikely. Jane Street will still be making a lot of money on the strategy in a year, because someone will notice it. somehow. Alpha gets competed away all over the place.
Whatever this weird counterintuitive strategy is, like, probably it'll decay.
I have an idea.
What?
Maybe it's, this is half a joke. This is a joke actually. Closed-end fund arbitrage.
Oh man, you love closed-end fund arbitrage. I'm thinking it's not that. But right, so if you have a non-compete and like the guy, goes and sits on a beach for a year and then he comes back, whatever he knew a year ago is just not valuable anymore. Yeah. It's not as valuable.
And so that solves the problem. Now it doesn't always solve every problem, because, you know, you do have like a confidentiality agreement about IP. because like there's some stuff that has value longer term. Like, if you really know how, like Jane Street, systems work, there's some chance that two years from now you could sell that to someone and it would be valuable to them, right? So Jane Street does not have non-competes, but they have confidentiality agreements that say you can't use what you learned here somewhere else.
You know, they say in the complaint, like, well, it's typical for people to take some time off between firms. This guy didn't. It's like, it's not typical. It's not like. people just feel like taking some time off.
Tired. Yeah. I would, but a lot of people don't. It's typical because usually firms have non-competes that require them to take time off. Yeah.
And he didn't. And so the impression from the complaint is that he had a real time sensitive trade and he's like, I got to start the next day to make as much money as I can from this trade.
And that's what he did.
Allegedly. I don't know. I think it's interesting because, like, the non-compete is a really good solution, because, like it's clear. You know that whatever the time period is, let's say it's a year. You know, you can't go work for a competing firm for a year and then after that you can.
What's interesting here is Jane Street is arguing that these guys stole their intellectual property. As of today, Thursday, we don't have Millennium's response, but I assume their response will be something like, no, we didn't, we didn't steal their intellectual property. But there's like this wide overlap where if you work at a financial firm doing closed end fund arbitrage. Right. And then you leave and you go to another financial firm and you're like, I'm going to do closed end fund arbitrage.
I'm going to find closed end funds with huge discounts.
Right. You're not going to like, forget everything you learned at the first firm. Right. Like. there's some amount of just like general skills and knowledge building and just like market experience that everyone understands is portable and goes with you.
Like, if you like, download the code from your first firm, like, that's bad. Right. But a lot of stuff, it's like the general experiences that you have at one firm are going to inform what you do at the next firm. And it's, I think, sort of hard to tease out. which is which sometimes, which is why gardening leave is such a good solution, because it's like you do nothing for a year.
And then after that, it's like, we don't have to worry about it here. Like Jane Street makes it sound like this is a very complicated, very counterintuitive and weird trade. that, like, is their secret sauce. But what if it's just like noticing that the prices of some options are like too low and like clicking on them? Right.
Like, then, like, yeah, kind of weird to say, like, you have to forget that you noticed that when you move to another firm.
My heart always hurts when I'm in a conversation about gardening leave, because I've never been on gardening leave. I will never be on gardening leave. It sounds idyllic.
When I left investment banking for Dealbreaker, the great Wall Street comedy blog, I had, I want to say, three months of gardening leave.
Sounds great. What did you do?
I sat on my couch being terrified. I regret it so much. I really wasted my gardening leave because I was like, I have made this huge career change. I'm getting paid so much less money. This is around the time that, like Goldman had that programmer who stole code.
They had him prosecuted for stealing code and he went to jail for a while. And so I spent some of my time thinking Goldman's going to kill me. Eventually, like my last week of gardening leave, I talked to like a Goldman PR person. He's like, no, this is great. We're excited for you.
I was like so worried. But in any case, I spent my gardening leave being nervous and not partying.
Oh, I hate that.
Yeah. Yeah. It's really a shame. I did get to experience gardening leave once, but I didn't get to really enjoy it.
Gardening leave wasn't that great.
into leaders of tomorrow. As one of the world's largest alternative asset managers, Apollo is helping to fuel the real economy by generating investment-grade credit, helping to fill gaps in America's financial ecosystem and providing greater access to more resilient and diverse pools of capital. By providing companies with access to flexible financing solutions and partnering with management teams to help grow their businesses, Apollo is there every step of the way to drive positive outcomes for companies and power economic growth. Apollo, investing in tomorrow, today. Learn more at Apollo.com slash private investment grade.
I'm Maria Konnikova. And I'm Nate Silver. And our new podcast, Risky Business, is a show about making better decisions. We're both journalists whom we light as poker players. And that's the lens we're going to use to approach this entire show.
We're going to be discussing everything from high stakes poker to personal questions.
Like whether I should call a plumber or fix my shower myself. And of course, we'll be talking about the election, too. Listen to Risky Business wherever you get your podcasts.
Take a big sip of water. Let's get into Hunter Brook. This is a meaty one.
Hunter Brook. Yeah. It's a hedge fund. That's a newspaper. That's also a newspaper.
Yeah. This is something you and I have talked about a lot.
Yes. In our private conversations.
In our private conversations. Maybe explain what Hunter Brook is. And we're pronouncing it with vowels.
Yes. The thing is called Hunter Brook. Their website is Hunter Brook. It's H-N-T-R-B-R-K. Hunter Brook is...
I don't know how to describe it. I say it's a hedge fund. that's also a newspaper. Sometimes I think it's a activist, short hedge fund. that is very good at getting me to pay attention to it.
Yeah.
I don't know if I've seen it anywhere else, but maybe I'm just not looking at the right.
places. Who's in the FT? No, Hunter Brook is a media organization that does investigative reporting around the world to find interesting news. And it funds its reporters by... They take their scoops and they give them to its affiliated hedge fund.
And if the hedge fund is like, this is a market-moving scoop, then they trade on it and then they publish the scoop and then the stock goes up or down or whatever. it's about, the market moves. And then the hedge fund makes money and it gives some of the money to the reporters to pay for the continued reporting. It's not a typical journalistic business model.
True.
All journalistic business models involve some conflicts of interest. True. Possibly. It maybe involves a little bit more conflict of interest. Yeah.
Because your incentive is to make your story as market-moving as possible. If you find some bad stuff about a company, and then also you find some good stuff about the company, and also it's not that bad, and there's some mitigating factors, you're tempted to just be like, this is the worst company in the world, or this is the best company in the world, because you want to move the stock price as much as possible. So it is a conflict in that regard.
I guess the part that feels strange to me is that the hedge fund sees it first, before it's published.
I mean- That's the whole part. I know. There's no other part. That's how they make money.
Well, in terms of how they report things out, they don't talk to insiders. They can't talk to insiders.
If you're a regular journalist at a regular journalistic publication, you can call an insider at a company and be like, hey, is it doing fraud? If the insider's like, yes, it's doing fraud, here are some secret documents proving it, you're like, oh my God, this is a great scoop, right? But if you're Hunter Book and you do that, then you're like, oh no, this is inside information, we can't trade on it. Yeah. So they try to stay away from inside information and rely on published sources.
So let's talk about what Hunter Book has done so far. They officially debuted in early April, I believe. Their first article was on United Wholesale Mortgage. Now they've come out with another splashy report that you wrote about. I'm impressed, honestly, by the volume so far, because there's a lot of work that goes into investigative journalism of this degree.
Also into activist short-selling, the well-known activist short-selling funds, every so often they'll put up a short report, but it's not like a daily news meeting to figure out what's gonna go on the website.
True, an editorial meeting.
Hunter Book is somewhere in between, right? My question when they launched was, what's it gonna look like on the second day? Because the first day, it launches a big investigation. The second day, is that bumped down the feed so they can do more local news? And the answer is no, it kind of looks like a short seller's website where it's like that big report is on top for a week or so.
But now it looks a little bit more like a news organization where they've had two big stories in the sense of short investigations this week, but there's a spinoff story for one of them. There's a lot of stuff. One of the stories this week was an oil company that has been telling investors it's gonna reopen a drilling platform, and Hunter Book thinks they're not. It's just a very straightforward, small, short bet. It's like, this company is gonna have a little bit worse news than the market expects.
So they traded on that, I don't know. That almost feels like something a hedge fund analyst would come up with and trade on and not bother to publish, because it's just not that interesting a news story. But the other one they had was about POSCO, the big Korean steel company and conglomerate, doing a lot of work with very unpleasant military Hunter in Myanmar, and that one they didn't trade on. They said they did this big investigation, and they said, we're not trading on this. And I was curious why, and I think the two leading answers are, one, that it might not be that market moving, which is like, you can think of that as being a depressing story of complicity and human rights abuses, actually doesn't matter to shareholders.
Cold embrace of capitalism.
Or you can be like.
. One reader emailed me to be like, POSCO's involvement in Myanmar has actually been known for a long time. It's been on an ESG exclusion list. It might not be market moving, because it's news to you, it's news to many people, it's news to many of your general interest readers, but it may not be news to the market. The other explanation for why they didn't short POSCO that I find much funnier is that South Korea has banned short-selling, so that could be it.
Maybe like the winner there.
It could be. It could honestly be either, because it's not like. it's hugely market-moving news. I don't know.
It just seems like a hard business.
Journalism?
Yes. It's bone-crushingly hard, but also short-selling is super hard too, especially in this market. But also there's the question of, even if you are right, your thesis is right, there's no guarantee that the stock is going to do what you think it's going to do. And I think that's happened to a lot of short-sellers in recent history.
People hate short-sellers. Yeah. Is part of it. And in particular, when you talk about recent history, since the meme stock era, if it gets out that you are short a stock, that stock could go to the moon just because people are mad at you. To the point that some number of activist short-sellers have gotten out of the business or said they'd get out of the business.
Or just have gone underground.
Gone underground. Because it used to be that if you found a company that you thought was a fraud and you published a report saying it's a fraud, people would read it. And if you were right and convincing, then the stock would go down. Now, if you think the company is a fraud and you publish that report, people on Reddit might say, we have to make that stock go up to punish the evil short-seller. So it's just not as worth it.
One possible advantage of the Hunter-Brick business model is, to the extent they convince people that they are a media company and not a short-seller, you somewhat avoid that. Instead of being like, oh, this hedge fund is shorting this stock, let's make it go up. You're like, oh, this media company published a report about human rights abuses. That's bad, right? There's some chance of you getting a little bit more of a sympathetic audience.
Well, we'll see. if they do take a shot at a stock that has any-.
It'd be amazing if they were like, GameStop, not a very good company.
That's what I was going to say. Like, if they come after a company that has any chance of becoming a meme stock, like I think about United Wholesale Mortgage, I don't even think WallStreetBets could get excited about that one. It just, it doesn't have that curb appeal.
That's right. The oil company they went after this week is interesting, just because it's like a $600 million market cap. Like, you're now playing in territory where, like, WallStreetBets could have some fun.
And that was the Money Stuff Podcast. I'm Matt Levine.
And I'm Katie Kreifeld.
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