This week, Felix Salmon, Emily Peck and Stacy-Marie Ishmael are joined by Robin Wigglesworth to talk about his new book Trillions. They get into active investing, what’s going on with Tether, and the art company Masterworks. Transcript follows below.

Audio Length: 00:53:09

Transcript:

S2: trillions

S1: In this episode of Slate Money, your guide to the business and finance news of the week, I’m Felix Salmon Axios. I’m here with Emily Peck of fundraise.

S3: Hello. Hi.

S1: I’m here with Stacy-Marie Ishmael of Bloomberg.

S4: Hi. Hello.

S1: And we have a special guest beaming in from somewhere on the North Sea. Mr. Robin Wigglesworth Welcome.

S2: Hello, everybody.

S1: Robyn, who are you, where are you and what book are you plugging?

S2: Yes. So my name is Robyn Wigglesworth. I’m a global finance correspondent at the Financial Times. And despite the pretty Harry Potter esque last name, I’m 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?

S1: 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? Was it just a sexy word?

S2: Well, it is a sexy word. It sounds great when I when people say it, but yes, it’s just because it’s so massive, right? And it’s a bit of a play on words on the fact that it is 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.

S1: A billion dollars isn’t cool. You know what’s cool? A trillion? Exactly. Aaron Sorkin let needs to update by three orders of magnitude.

S2: Yeah. I mean, he needs to get on that. But I mean, when he when he finally turns his talents to that passive investing revolution, I’m sure that’s what we’re going to get some snappy Sorkin dialogue around index funds.

S1: So, 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 like turn your book into a movie, I don’t know if you’ve got any anyone like knocking down your door to option this thing yet, but what’s the plot of the movie, let’s say?

S2: Good question. The plot is the I mean, it’s a pretty familiar story of like some out there people and the boy meets girl. Yes, exactly. Well, these boy meets computers in the 1960s. They’ve got long hair, and they’re typically not

S4: pieces with the boy.

S2: Yeah. Well, the messy, yeah,

S1: hairy computer and hairy

S2: computers. Yeah, exactly. Well, some of them were pretty big, at least at the time. They were chunky computers. These have mainframes, and the time life building is stuff like that because they were working at crappy institutions, they weren’t working at, like Solomon Brothers or Drexel or Goldman Sachs. They were working in Wells Fargo, which was a crappy San Francisco bank at the time. They’re working in like the third biggest bank in Chicago. They were working at like this small poxy investment company in the outskirts of Boston. And but they they kind of use computers and they realized that most people actually do really bad job beating market. Well, how about we just joined the market and they invented the first index funds and they 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.

S1: The main thing I learned from reading your book was that. Well, 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.

S2: Well, it’s it’s kind of it was the perfect marriage of the computer error that was not really done dawning on Wall Street, but it was in the rest of the world, as it were. IBM was finally turning out that computers that could actually be used by individual companies and not just the US government for not creating nuclear weapons and financial academia. And people realized that the best way, if you imagine risk against reward, 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 were had like hundreds of active managers that were just like swapping stocks between each other and taking massive trading costs off the top. So yeah, that was 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.

S1: And is that still the case is like it’s the trillion dollars in passive investment strategy is still mostly big, sophisticated institutions? Or is it me with my Vanguard fund?

S2: No, it’s a mix now. I don’t know the exact breakdown. I mean, so in the public, the fund index fund universe that we know of those rounds of 16 trillion dollars, 17 trillion dollars, probably now overall, because lots of like 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. Several, we’re talking twenty five, twenty six trillion dollars, probably now. And that’s a big mix of ordinary people saving for retirement, for health care emergencies and so on to yeah, big pension plans, insurance companies, private banks, sovereign wealth funds. It’s a decent mix.

S3: 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?

S1: Like is there any downside to lots of money being put in these tracks?

S4: Is there any downside to lots of money?

S3: Specifically, what’s the downside to trillions?

S2: No, it’s the big subject right now because we’ve seen it so many times right in history, but certainly financial history that we take fundamentally good ideas and do them to death. We overdo it, right? Securitization actually. Pretty good idea. But, you know, do it badly or do it too much, then all hell breaks loose. So lots of people think that’s about index funds now. I definitely see some down signs 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, I find extremely unconvincing. They still

S1: hundreds. And the attack is basically that if everyone index is, then you won’t have any price discovery and markets will fail.

S2: It’s actually that’s the size of the headline thing. I mean, people have been warning about this since the seventies. But fundamentally, like how many people you really need to make an efficient markets and you really need to pay millions of active fund managers, the mutual fund managers, hedge fund managers, their traders, you know, incredibly big salaries to do this. I mean, 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.

S1: So Emily, you wanted to ask the obvious question here, which is basically if markets are so efficient? What’s up with GameStop?

S3: Yeah. And Robinhood and you know, people. Yes. What’s up with GameStop? How do people actively invest?

S2: It’s a great question. And I look, I’m not an efficient market Zeke. There are people that like work in index funds that are complete like jihadis around efficient markets, hypothesis that Gene Fama first articulated. I think it’s a bit like George boxes of semi-famous British statistician. What said the old models are wrong, but some are useful, and I think efficient markets is kind of a wrong model like we can see on every day and in the long. Ron Marks 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 like. They reflect what humans do and humans do dumb stuff all the day. I do dumb things like countless of times every day and Marchese kind of aggregate all the dumb and smart decisions of millions of people around the world. So our 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 are really hard to beat for the vast majority of people? No, not really.

S3: I guess it’s like people go to Las Vegas and gamble. Yeah. People going to trade GameStop. Exactly. Yeah. Do fun, more fun Robinhood stuff.

S1: This is my my mental model, which is like GameStop is is is a fun gamble, but it’s a bit bigger than that. I have this bigger idea that the boom is basically the prime ending is there for me. Formative years basically predated the easy availability of index funds in, you know, suddenly ETFs. Then US Gen X types embraced the passive revolution with both arms were like, This is great. Like, I get to outperform my, you know, 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. But now we have like a new generation of like the Zoom is and the younger millennials.

S4: So it’s something with time that you mentioned that the elder millennials just have no money.

S1: But then we can go and the elder Charles have no money so we can ignore those the geriatric millennials like like Stacy-Marie, you know, like they don’t

S4: really miss that. We missed that completely. You know, the fidelity of the world are like, Who are you? You not here?

S1: But now? But now we have a whole new generation of people who are buying crypto, who are buying NFT, who are buying 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?

S2: I think probably, yes, right? I mean, I think it’s partly that the Boomers have seen a few boom markets, and if you bust markets as well and younger people have bases since the financial crisis that made them, maybe they might remember it. And it’s made them jaded about some mainstream finance. But then bases in markets go up in the straight line. Ever since stocks don’t go down and buy, the dip has been like the mantra it like and the right thing to do for basically like over a decade now. So if you’re going to read it like there are threads there dedicated to like how to counter index fund FUD, like how do you like counter old people and boomers telling you to buy index fund like they call it, like boomer spam, essentially.

S4: So for anyone listening, that 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.

S3: Also, it’s so social that the trading now on Robinhood and you mentioned Reddit, and I mean, it’s a way 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 it’s it’s like just an extension of other things happening with social networking, I think, too.

S2: Well, I think probably the dot.com people were kind of going to the golf clubs or the bar and exchanging top stock tips. And it was kind of a social thing there is. While you wanted to be part of the crowd, if people are talking about stock tips at the golf club on Sunday, you’d kind of want to do the same. These are people had money now people, you know, those people don’t seem to have that money. But you know, with fractional trading, you can buy chunks of shares rather than higher shares. And it’s a community run. 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 game stock options and screwing hedge funds, if you can. That’s like an idea.

S1: And that is to be clear, some kind of a community around passive investing to this. These things called Bogle heads, which, you know, try and form a community. And most interestingly, I keep on going back to an article that 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 are doing the right thing. Feeling that you’re part of something bigger than yourself, you know, for a fee, which is not negligible, we will sell that to you. And Dimensional has done incredibly well by selling this like premium passive.

S3: 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, but you

S4: also wanted to firm up generics, right? And I think that’s where the combination of the dopamine hit of interesting ness 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 in their headsets and talking to people in Discord are the same people who are really into certain elements of the crypto market where everybody is also talking to everybody in Discord and on Reddit. Same people who are who are engaging in 10000 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, like what games they’re going to bet on this weekend. And all of the dynamics are the same, like the 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.

S3: It’s playing play play. Yes, it’s the way people play. Yeah.

S2: Yeah, I mean, on that the Reddit forum,

S3: I know there’s boggle heads,

S2: but yeah, it’s not eat. You don’t want to eat. You’re not the cool person at a party. If you bring up a, you’re a bobble head, right? You want to talk about buying this party? Yeah, exactly. Yeah, I bought Solana.

S1: Stacey, how do you buy a salon? And the answer is you have to trade into salon and out of Tether, what is Tether and why is it in the news?

S4: Well, Tether is in the news because my colleague Zeke Faux, that’s the UK’s best possible name for a financial journalist and investigative reporter, wrote the cover 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 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 U.S. dollar or an asset that is pretty fungible with a U.S. dollar, say, for example, highly rated commercial paper, perhaps. But the mystery of Tether that’s 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 not. 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 the Tether is claiming to have exist?

S1: And the answer was kind of

S4: a shrug emoji. You know, the thing that Tether maintains and has maintained from the very beginning when these first 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 U.S. 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 with U.S. dollars, and there’s other sorts of things 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 stablecoin. You also hear about USDC, which the U.S. dollar coin. But the principle is exactly the same,

S1: 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 is backed by and where those assets might be, those questions have never arisen where you see 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, you know, 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 stable stablecoin. Explain why that would be the case.

S4: I would love to do that. But you know? One of the things 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, OK, well, this person I trust, right? This like there’s a social proof element. This person I trust has either their own position and 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.

S1: Can I come up with a rival theory of

S4: a rival

S1: theory? My rival theory is that precisely because Circle, which is the company that issues USDC, is so closely regulated and hand-in-glove with U.S. regulators, people trading in an outer circle or U.S. 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, too. On the other hand, if you cash in and out of Tether, Tether is not going to report that to the IRS, and you don’t have to pay taxes on the money you’re making.

S4: This is like the Hobbesian versus county in view of why people are doing something in terms of the market. Yeah.

S2: Is it basically an shadiness? Is the USP of of Tether like? The shadiness is the point as it were? Yeah.

S1: 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.

S4: I strongly recommend the folks who read the magazine piece because there are some cracking color about about both of 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 to ever grind, which they have, you know, consistently denied. So just want to like, be real clear. But again, it’s just, you know, one of the more colorful phrases. And the thing is, like this, you know, this is a story that sort of made entirely of red flags, right? But you know, Felix your points, like those red flags have been flagging and red for some time. And yet here we are. It seemed like

S3: Tether. I mean, it’s a total confidence game, and the people using it are confident and Tether for some reason, even though it’s extremely shady and no one seems to be buying out of that or question that everyone agrees. It’s kind of shady. And yeah, well, I don’t.

S4: I don’t. I don’t have

S3: trust and still use it, so it’s fine.

S4: 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 percent? And yet there are folks out there for whom the, you know, the consistent thing that they say is like, No, everybody is 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 that idea of FUD that you like, folks are just out to get the system that is revolutionizing the financial world, and none of it is is backed by facts.

S2: But isn’t this then just shrouding themselves in the cultish ness of the 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 kind of taking advantage of that. While something like like USD C 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 this hard to pretend that this isn’t a major fault lines that run through crypto. If you can defend this, then are you just going to defend everything? I just don’t

S1: get. So I actually put this question to see 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 had some kind of relationship with with Tether, and he denied any relationship with Tether beyond like is traded on Binance, which is his exchange. But what he said was basically the it is impossible to underestimate the first mover advantage. The 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 effects, all currency pairs of 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 kind of 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 slant 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 yeah, you can trade Tether against USDC. And that’s going to trade 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 changing that because it’s so path dependent. It’s basically impossible.

S2: But isn’t this then just shrouding themselves in the cultish ness of the 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 kind of taking advantage of that. While something like like USD C 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 this hard to pretend that this isn’t a major fault lines that run through crypto. If you can defend this, then are you just going to defend everything? I just don’t

S1: get. So I actually put this question to see 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 had some kind of relationship with with Tether, and he denied any relationship with Tether beyond like is traded on Binance, which is his exchange. But what he said was basically the it is impossible to underestimate the first mover advantage. The 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 effects, all currency pairs of 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 kind of 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 slant 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 yeah, you can trade Tether against USDC. And that’s going to trade 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 changing that because it’s so path dependent. It’s basically impossible.

S4: Yeah, it’s 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 Businessweek 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 Wright and says this is a one act play. The industry has seen many times before taking snippets of old news from various places on dubious sources and making it fit a prepackaged and predetermined narrative. And then, you know, they they specifically

S1: states he is this true that you go up to Zeke Faux and with a predetermined narrative and tell him what to write? I mean, as the managing editor of Crypto, I would

S4: say Zeke Faux is working on the story. Before Bloomberg had even decided to like, 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 some of the underlying assumptions that folks have. But my favorite line in this piece is exactly that for a 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

S1: of which is true. That’s all undeniable.

S4: All of those are facts, right? And this is this is kind of the fundamental tension. It’s like, are there? There are claims and then there are facts, and they are really well within their rights and certainly the communication strategy to be pointing out, you know, 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.

S2: But this just feels I mean, the need for something like Tether makes perfect sense. It’s kind of a reserve currency of the crypto ecosystem, but it’s a bit like choosing a reserve currency, not the U.S. dollar, but the Argentinean peso like, it just seems incredibly cavalier by the crypto community. Yeah, well, it just seemed cavalier of them to sort of accept this, that the first the first move becomes obvious.

S1: Are you saying that the crypto community could be a little bit cavalier?

S2: Know I would never,

S1: never say, knock me over with this

S2: feather. Well, you know, I’m clearly coming out of the closet is like a massive index fund, boomer, basically. But yeah, that’s my index fund fund that I guess so.

S1: So I think that we, we we can come out of this discussion having concluded that crypto is possibly a domain of cavalier folks.

S4: Sure. According to Gary Gensler, it’s the Wild

S3: West Pierce,

S4: please. Would you like to

S3: cook the founder of Tether Brock? I do. I that are 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 dula for creation. I only take on missions impossible.

S4: I mean, it was the missions impossible not to be. Not impossible. Mission Dula for creations implies

S1: what missions, missions and but I mean, what is possible? What is the Mission Impossible? Obviously, these missions impossible missions impossible.

S3: So I mean, there’s a smart guy behind this, obviously and

S1: named Brooke

S3: Brock Pierce, and there’s a great photo of him in the piece. And yeah, everyone really should read the piece 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 at a mirror like with like a dreamy, faraway is.

S4: I mean, it’s just there is. There was a lot in the story. The characters are the best part.

S1: 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 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 a little bit Felix,

S4: 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 acts like why buy fractional art?

S1: So good question. We actually had Julia Halperin come on to slate money swag to to answer that question a while back and everything. She said in that podcast, which was excellent and I can highly recommend, remains 100 percent true. Julia put the number at 500000, Scotland puts the number at about a million. But the idea is that once you’re spending more than a certain amount of money or not, it stops being a consumption good way. I like that something pretty that I like to look at on my wall and get, you know, it 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 low correlation 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, should GameStop namely get you into Gerhard Richter and Banksy?

S4: So it’s just money making money again.

S1: 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, you know, really stuck with me from my interview with Scott Lynn was when he said, Yeah, possibly they’ve heard of Banksy and cause these like 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 is going to go up. I trust you.

S3: 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 M.M. Masterworks like? The fees are very large, which I guess I didn’t realize until I read Felix piece. Like, if you’re going to invest in her native assets, like why would you go to Masterworks I? Well, the

S1: feet, 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 percent, basically or 25 percent, 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 training 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.

S2: Well, I do think I mean, I when I heard about Masterworks, I’ve seen them advertising. I thought it sounded absolutely insane. But I mean, part of the reason why you buy art, this is either enjoy it or to brag about only owning it, not save by fractional shares of it and never see it. But like, I mean, with I mean, the types of discussions earlier, right? I mean. Buying an index fund when the stock market is trading it like dot.com levels and the bond market yields are returning in it from bond markets is the lowest it’s ever been for centuries. Then people are just desperate, desperate for anything that might offer them a plausible return. And arts, like high quality art has actually done really well in the long run. So that’s one more reason why we think people invest in crypto is because, frankly, the chance of you making a bundle of money becoming rich from investing in 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 why. Art, crypto property and stuff like that. So any kind of like

S4: sense, one of the oldest ways of generating, accumulating and maintaining wealth? I don’t think they’re really in the same category as say

S1: no because property has cash flows. That’s why it doesn’t involve that show:“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 billionaires that the people buying it need for your role. So you know, once once you’ve bought your once you’ve bought your third or fourth $100 million 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 multibillionaires 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 alongside that number.

S2: Certainly for some of the masses and certain things that aren’t there, the limited uses of that I’d rather buy a million share of a Monet than like a non-fungible token of a rock. So and I certainly would prefer that impose a pension fund. But why not do that and just these pension funds? Sovereign wealth funds pool their money together, buy lots of other, rent it to galleries around the museum. Generate yield that way rather than than store. And I know that rather than group that no

S4: Felix is about to ask you.

S1: So there are no there is no rental market for. I’m sorry. Well, people have tried to create that. It has never happened.

S2: OK, well, there’s never been a fractional share market for art over. So you know, this can be our company that we start on there right now.

S3: I think Robin’s on to something.

S1: Now there are a couple of companies that like rent out to offices and rich people. Yeah. They’ve never really got real rich.

S3: Renting art?

S1: Exactly. Check out mine. It’s not a trophy if it’s only rented.

S2: Wow.

S4: This is the inequality episode.

S1: Sleep money numbers round people. What’s your What’s your number, Stacy?

S4: 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, so.

S1: So I mean, not to mention the price of natural gas in Europe that has just gone completely business and reaching crazy levels. That, yeah, 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 one billion, which is the number of monthly active users of tick tock. Really? Yes, it has reached one billion, which is completely insane. I am one of them. I have to admit, I love tick tock. It’s kind of my favorite social networks that there was a piece just out in fortune saying that tick tock advertising drive 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, you know, 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.

S3: I won’t have to have a big attack on Facebook anymore. Everyone, I’ll just move to tech talk, and that’ll be that.

S4: 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 new content?

S2: That is a Hall of Fame idiocy. It was really incredible.

S4: R.I.P. Vine.

S1: Long live, ripe vine. But, you know, Vine was only six seconds. Tech stocks go up to three minutes. Now they just keep on getting longer and longer. Emily What’s your number?

S3: OK, my number is thirty one point one million dollars. So is that

S1: the price of a painting?

S3: Probably, but that’s not what my number represents, it represents Indra New Year’s compensation in 2017, the last full year she was see

S4: that perhaps Dory was wild fish.

S1: Oh my god, the most amazing softball interview you’ve ever read where like, it’s just a series of own goals by the interviewee?

S3: Yes. So in New York Times magazine, they interviewed her for some. They interviewed her, and she said to David Marchese, Is that how we pronounce his name? David marches anyway. OK? Magazine. She said she has never, ever, ever asked for a raise, and when he asked why, she said, I find it cringeworthy. 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, a god, 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 thirty one point one million dollars was her salary in 2012. So she never really needs to ask. You don’t need to ask for a raise when you make that much money.

S1: My my favorite, my favorite part of the interviews when she said I still live in the same house, I know 30 years ago

S4: that house is.

S3: And then and then what did she say, Felix?

S1: All I did was buy up all of the surrounding.

S3: Very modest. It’s amazing. I mean, I should say 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 its cultural. Her aversion to asking for a raise is cultural shift that 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.

S4: I would note that in that same interview, she pointed out that her direct 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 the CEO are not broke when they’re at Pepsi, but just as a kind of a principle. Yes, that is true. If the person at the top or an or 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 sets. This, kind of example, is really damaging to the conversation about work and woman at work and norms and everything else. And it was just like reading that interview was absolutely took like twenty four hours of my life from the stress.

S1: Not not to mention the bit where she refuses to condemn the Texas abortion stance, which is like her book, obviously, she was 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 is running for office. As a Republican, it was very odd.

S3: 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. I was really a value

S4: life and 6000 square foot Greenwich, Connecticut mansions.

S3: You have to be careful. I think when you’re very rich, not to say crazy things like that just right.

S1: 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 so.

S4: I think if I if I were to hit the point where my annual executive compensation was $31 million, instead of writing a book, I would just like peace out in a gigantic house surrounded by arts that I own and didn’t rent or buy up the landscaping around me and not tell her You want anything ever again. Just like like why? Why, why expose yourself to the hassle of the internet when you could just not?

S1: All right, Robin, we’re going to finish with you. What’s your number?

S2: Well, I’m going to go for the biggest number of of of all of us. Twenty six trillion, just how much money I think is in index strategies like passive strategies at the moment.

S1: This is according to the little spreadsheet, the envelope on your desk where you are adding up.

S2: Yeah, it thought as an envelope and it kind of started. It’s flourished into a full on Excel spreadsheet. And these include some, some assumptions of sanity. Check that with. All in the investment industry, and it seems yes, of 26 trillion is probably conservative, but how much money is this and passive strategies?

S1: And the great thing about passive strategies is every time the stock market goes up another 20 percent bang, that number goes up by another example.

S2: And there’s this 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 in a fractionalized art index fund.

S1: I don’t think that may Moses haven’t tried to create that such a thing. People have tried and failed through.

S2: Some of this stuff is hard.

S3: How much money is that? Can you put it in context in any way? Like compare it to something?

S1: 26 trillion? Like how much? Like, put that put that into context, because it’s such a big number. No one can get that right.

S2: 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 or mutual funds, pension funds, insurance companies, sovereign wealth funds, index funds, hedge funds, venture capital, private equity. All that is around a quarter of that.

S1: Is it more than the value of all of the property in Greenwich, Connecticut?

S2: It’s a roughly maybe half the palace in Japan, like the Emperor’s Palace in Japan in the early 90s. I think that was that was around. I think that was around 50 trillion or something. The estimate of the land in the palace or something wasn’t that I can’t remember now. It’s a long time ago.

S3: It was crazy for the Tether 69 billion in perspective, though. Yeah, that’s not such a big deal.

S2: Yeah, exactly.

S1: 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 as late 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. Yes, correct. What is it? Emily.

S3: It’s snacking Felix. We’re going to talk snacks and and just we’re just going to get into it all.

S1: Yeah, we’re going to we’re going to get into snacks with full apologies to Shane Varo for not having her on the show this week. But we are going to talk snacks without Shane. Many thanks to everyone for listening, for writing in the email. The Sleep Money at Slate.com. Many thanks to Shannon Roth for producing many thanks to Robin Wigglesworth in Oslo for beaming in for this episode. We will be back next week with more money, but first on Monday. Guess what? We have a tie 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 the article. Listen to the podcast on Monday, and then we will all be ready to watch season three, episode one on October 17. Anyway, that’s all coming up on Slate Money. We need to ask you for the purposes of Slate Plus, how much do you snack?

S2: I feel embarrassed to admit that in a public forum, but I have walked up to my desk right now, I have a dustbin that I call my dustbin of shame, which is literally filled to the top with candy wrappings, chip wrappings. Yeah, just snacks. So nothing, nothing racier than chocolate and crisps. Sadly. But yeah, it’s it’s there

S1: and it’s nothing healthy.

S2: I think maybe a few Apple calls just for appearances sake, but that’s about it. This is, but this is my shame. I eat healthy food in the kitchen, in my office. It’s all trash.

S1: Stacey, you are an employee of the world’s most famous snack provider. Bloomberg LP is known if, if nothing else, for its snacks. Tell us, tell us about your snacking.

S4: I would say of the snack situation is very aligned with former Mayor Mike Bloomberg’s philosophy around eating healthy. So I I’ve been snacking on like a little vegetable cup, which there’s like carrots and it’s like day. There’s also a section where you know, you think it’s like a cookie, but it’s like a quinoa bar sort of thing. So it’s like being in the office has really turned my snacking to to sort of a very healthy place

S1: where my, my, my snacking is. I haven’t quite managed to get to that place of having quinoa bars on hand. So yeah, it’s mostly whatever it happens to be lying around in the fridge. And then I got shouted at for having eaten it because apparently we were saving that for later. But Emily, you are. You have actually reported this story out for 14 Felix.

S3: Yes, I recorded this out for Fortune magazine, my weekly newsletter that they let me rich folks should

S4: subscribe to because it’s

S3: quite good, which folks should subscribe to. So what happened to me, Felix listeners? I opened a desk drawer the other day to get something and saw to my shame, as Robin will understand, multiple empty, crinkled up bags of Haribo gummy bears. Like, because I go to the supermarket, I’ll buy a bunch they cost like a dollar, throw them in my purse, come upstairs and just like secretly eat them while I’m working. So I was like, Am I alone? I don’t know. I tweeted about it. Lots of response. Great engagement. Our friend, friend of the podcast Taffy, brought us her Akonnor. I said, Boy, does everyone eat secretly in their offices or whatever? And she said, I eat half an Apple and 100 Cool Ranch Doritos, which I thought was hilarious. Other people told me they are eating flaming hot Cheetos, which is like a big, popular snack these days with chopsticks, so

S4: that you don’t get like the things all over your hands. Super true.

S3: The powder on your tongue.

S4: That’s not in your from there.

S3: This wasn’t just a tweet roundup story. I don’t want anyone to think that’s what I did know. I went out and I called multiple experts. I think I called six different people for this story, which for me, writing this newsletter while having also a full time other job was a lot, but it was worth it. I spoke to, I think the best expert was Adam Galinsky, who is a professor at Columbia Business School, and said he came to the conversation colds, having no idea what he would say about snacks, but for some reason agreed to talk to me, which I don’t really understand. But I love it. And as soon as he started talking about snacks, he came up with like seven seven reasons we snack more from home, which I found the data. Everyone snacks more now in the pandemic, but people who work from home snack even more. OK, so the reason being the pretty obvious proximity to the kitchen? You need a break. There’s like the breaks at home aren’t the same as in the office. You can’t just like go walk over to a meeting or like someone else’s desk or whatever. You need a break so you use the snack as an excuse. The context of being home, you feel more comfortable, like just eating like whatever is there and comforting. Like, I wouldn’t necessarily eat a pint of ice cream in the office, but if I’m home in the kitchen has one, I’m probably going to eat some of it. So there’s that the home context kind of thing. And then also, there’s always a reason to snack. Some people are upset or anxious, so they turn to food as comfort. Other people are not upset, they’re happy, and they turn to snacks to celebrate. So there’s always a reason and and that’s it. That’s my reporting. You know, there’s other things I could tell you, but I there was reporting that didn’t make it into come out. I just want you to know

S1: I just want to do my life. Since this is sleepless, I think I can get away with this. We are hiring right now for a New York office manager at Axios. If you want to run the New York office of Axios, please contact me and we will get you that job. And just between you and me. And you don’t need to tell the Axios folks this. Make sure you just keep the goldfish. This is really all you need to do is make sure that the goldfish and the Lacroix is like on tap and then that’s the Oh, I will

S4: show one of my favorites sort of, you know, buzzy digital media startup stories, which is there was a media company that I worked out that was had buzzy in the name and one of the first like staff outrage, backlash. Situations I can remember is when they took the Lacroix away and replaced it with like an inferior, bubbly water situation, and people were so upset that eventually the La Croix came back. So I mean, I, you know, mess with snacks at your peril office managers.

S2: Well, the FDA, we have a cake trolley every Thursday, and we used to be apparently back to the

S4: square at the London office. Yeah, their offices. Yeah, there is no cake trolley in the New York office of the.

S2: This is the single biggest source of strife between regional bureaus at the FDA. I mean, it’s one of the last sort of case trolleys outside HQ. But yes, everything.

S1: So we did the did the shake, did the cake trolley manage to make it across? So the bridge to the new headquarters?

S2: Yes, it has reappeared now. Finally, it took a bit of a pandemic hiatus, but it is now back. And you know, I mean, I’m going to be honest, I used to work in London and the quality of the cake is pretty mediocre. I call it austerity cake I media budgets. We’re not Bloomberg News. We’re not like this isn’t snack central. But it was symbolic and it was nice and people would I would literally fight. But it would definitely be some sharp elbows when the trolley came out and people wanted to secure themselves a slice. But I’ve

S4: seen those

S3: elbows with man, the the cake trolley, like, were they sliced?

S1: Obviously, would come around a little pinafore and he would he would hand out like

S2: that is quite a mental image that I desperately want to see in reality. But sadly, no. The editorial assistants and the people that work in the canteen would come down with some coffee, which obviously also was very welcome. And back in the day, apparently this was a drinks trolley. Like people come and they roll around. You make yourself a martini at your desk, which I also think actually sounds pretty good.

S4: This was way before my time. Before my time, I did. I did experience the cake trolley in the London office, but the drinks trolley was myth and legend about,

S2: Yeah, I know

S3: when I started it HuffPost’s when it was owned by AOL, there was on Fridays, a beer cart that came around. The whoever was recently most recently hired would pilot it around and it have all different kinds of beers and it’s quite nice.

S1: I remember going over to the offices of the New Republic shortly after it was bought by Chris Hughes, and the one thing that he decided that these offices really needed was an extremely fully stocked bar, which we know what happened to the New Republic under Chris Hughes, who apparently maybe that wasn’t such a good idea, but it was. It was boozy. I’ll give it that.

S2: I’m just going to say to anybody who wants to give us a fully stocked bar, I’d definitely write better under the influence.

S1: Booze is expensive industry.

S4: Everything’s expensive in Oslo.

S2: I know it’s painful. I don’t drink anymore. I just sit here in my basement office, eat snacks until the shame overcomes me. And I have to stop working.

S3: Drink it away and just drink it away.

S2: Yeah, and then I don’t have to drink it away.

S1: People, how can how can you not value your sleep plus subscription if you get conversations like this? This is why you pay for it.

S4: Thanks. Please, please send us your snack preferences. Not so we can do anything about them. We’re just nosy and want to know.