In short
The episode is about major IPO news and market implications, plus two additional Bloomberg Intelligence segments. First, it discusses Milan-based Bending Spoons, formed in 2013, which owns Vimeo and AOL and has filed for a U.S. IPO. Guest Bailey Lipschultz (Bloomberg senior equities reporter) says the strategy resembles IAC/People: acquire platforms, “clean up,” cut costs, and grow monthly active users to about 500 million in March (up from 111 million in Dec 2023). Key investor questions: how AI affects AOL/Vimeo demand and whether CapEx needs are bigger than the planned $75B IPO.
Notable examples
SpaceX’s IPO roadshow and its effect on space stocks. Second, Clear Street’s Greg Pendy (equity analyst) argues SpaceX is repricing the space sector, citing Rocket Lab’s tight launch market, Starlink’s scale, and direct-to-device via AST Space Mobile. He highlights Planet Labs’ “rule of 40” trajectory and space-based data centers (Project Suncatcher with Google; Intuitive Machines’ Lanteris 1300). Third, Campbell Soup results are reviewed by Deanna Roseto-Pena (consumer analyst): aluminum can tariffs, oil >$100/bbl headwinds, soup down 8% quarter; focus on Rayo’s and Goldfish stabilization; no near-term M&A. Fourth, Bloomberg reporter Zach Meier explains an ETF tax loophole costing ~$48B/year: ETFs can avoid realizing gains by swapping securities with counterparties instead of selling for cash, deferring/possibly converting gains to long-term for investors.
Written by AI. May contain mistakes. Listen to the episode to check what was said.
Chapters
Tap a time to open that second in VOUnderstanding Bending Spoons and Its IPO
0:00 to 0:25
Discussion on Bending Spoons, its history, acquisitions, and IPO plans.
“At Brookfield, we invest in the thing, behind the thing, behind the next big thing.”
Understanding Bending Spoons and Its IPO
2:14 to 3:30
Discussion on Bending Spoons, its history, acquisitions, and IPO plans.
“Bailey, Bending Spoons, what is this company?”
SpaceX IPO and Its Impact on the Market
3:30 to 6:18
Analyzing the SpaceX IPO and its implications for the broader space industry.
“That's up from 111 million back in December 2023.”
Investing in the Space Economy
6:18 to 7:32
Exploring investment opportunities and market dynamics in the space industry.
“It came out with a fixed price and evaluation.”
Future of Space-Based Data Centers
9:15 to 9:30
Discussing the development of space-based data centers and their advantages.
“These may apply to Chase Business Complete Checking accounts.”
Exploring Space-Based Data Centers
14:00 to 18:07
Learn about advancements in space-based data centers and their implications.
“Another topic I think we're all learning about as we kind of go through the SpaceX is space-based data centers.”
Exploring Space-Based Data Centers
19:08 to 24:21
Learn about advancements in space-based data centers and their implications.
“These may apply to Chase Business Complete Checking accounts.”
Exploring Space-Based Data Centers
25:22 to 26:40
Learn about advancements in space-based data centers and their implications.
“These may apply to Chase Business Complete Checking accounts.”
Tax Loopholes in the ETF Industry
26:40 to 28:00
Understand the tax loopholes exploited by ETFs and their implications for the government.
“You're listening to the Bloomberg Intelligence Podcast.”
Understanding ETF Taxation
28:00 to 31:29
Learn how ETFs manage capital gains taxes and the implications for investors.
“I am the ultimate layman, so lay it on me.”
Show all 12 chapters
Political Implications of ETF Tax Loopholes
31:30 to 31:48
Explore the political challenges surrounding ETF taxation reform.
“And it's one that, you know, Republicans generally aren't looking for ways to raise people's taxes.”
Political Implications of ETF Tax Loopholes
32:14 to 32:45
Explore the political challenges surrounding ETF taxation reform.
“When you're running a business, the best days are the ones where priorities stay on track.”
Transcript
Automatic transcript. May contain errors.0:00At Brookfield, we invest in the thing, behind the thing, behind the next big thing. Our focus across infrastructure, energy, real estate, private equity, and credit is helping build the backbone of the global economy. We combine deep operational expertise with disciplined long-term investing, uncovering value and partnering alongside clients to shape tomorrow's economy today. Brookfield. Own what's next. Learn more at brookfield.com. This is not an offer to sell or investment advice. Investing involves risks, including loss of capital. Never bet against American grit or American energy. Through innovation, Venture Global is not only building some of the largest energy facilities in the world right here in the United States, but delivering American energy at a fraction of the cost and a fraction of the time.
0:50So while others are busy talking, we're busy building. That's venture global. That's unstoppable energy.
1:20Scarlet Fu:brighter future for your community. Learn more at chase.com slash business. Chase for business. Make more of what's yours. The Chase mobile app is available for select mobile devices. Message and data rates may apply. JPMorgan Chase Bank, NA. Member FDIC. Copyright 2026. JPMorgan Chase and Company.
1:42Scarlet Fu:Bloomberg Audio Studios. Podcasts. Radio. News. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. There's another company. Have you heard of Bending Spoons? No. All right. Well, Bending Spoons has also filed for a U.S. IPO. Bailey Lipschultz has heard about it and he has reported on it and he joins us now. He's our senior equities reporter. Bailey, Bending Spoons, what is this company? And it's a reference to The Matrix, isn't it?
2:20It's a reference to The Matrix, formed in 2013. And kind of the whole pitch is from the movie that it's kind of like the world is illusion. But you don't know Bending Spoons. I don't think anyone really knows what Bending Spoons is. They're a Milan-based company. The things that you do know them for, they do own Vimeo. They do own AOL. They own a number of these other companies. and kind of their whole pitches, acquire a company, clean it up, fit it into the broader portfolio, maybe lay off some people, cut some costs and really build out that way. I was talking to an investor this morning on the IPO flip, because that'll mean it kind of kicks off the process.
2:57I was kind of like, walk me through your quick thoughts on this company. And he was like, it's similar to IAC, the Barry Diller company, which got renamed to people. And he was like, again, we haven't quite done the work. We're all focused on SpaceX right now. But the broader pitch is it's a portfolio company to an extent and what that could or could not mean. I covered IAC since its beginning because I followed Barry Diller for 40 years. At no point in time did I know what IAC did. At no point in time did I know how to value it. But it was a bet on Barry Diller. What are these guys banking on?
3:29I think it's the strategy really is just their ability to grow. To your point, Barry Diller is a name. And I don't think when you look at kind of the younger team, the crew behind Benning Spoons led by CEO Luca Ferrari, great name, by the way, is really just the notion that they've grown monthly active users across the platform of portfolios to about half a billion people in March. That's up from 111 million back in December 2023. Obviously, a big part of that is acquiring more platforms. But the broader vision is to kind of right size this. the pushback that I've heard initially from investors, again, everyone's focused on SpaceX, when they look at Benning Spoons without having really dug too much into it is, how does AI impact the broader future?
4:12Is this a company that can pitch themselves as a company that can cut costs and lean into artificial intelligence? Or is it a company when you say, all right, well, what am I really using AOL or Vimeo for at the end of the day? AOL still exists? I thought the same thing.
4:26Scarlet Fu:Wow. I just did an AOL.com and I'm wondering who, I mean, I guess some people still have AOL. email addresses. Yeah, absolutely. Including our next guys, which we'll get into a little bit later. All right, Billy, SpaceX, what's the feedback? We're on day two of the roadshow, day three of the roadshow. What's the feedback here? Yeah, it seems to be humming along. Again, we had put out, I believe, Friday day time is a flat circle back to the back to the bending spoons reference, the matrix. It does seem to be going well. It seems like we're continuing to march along towards that pricing Thursday evening trading on Friday.
4:58The pushback initially that everyone wanted to talk about on Friday and over the weekend was down 4 % on the NASDAQ 100. Is that pressure selling? Is that bearish for this company? We're up almost 2 % on the NASDAQ. So those concerns, at least for the moment, kind of brushed aside. I think the big question going forward is what level of oversubscription do we get? Do we see anchor orders? Are we able to hear who those companies could be? I think the big thing when you talk about a$75 billion IPO, are you getting buy-in from the Googles of the world? Are they stepping up from a strategic perspective?
5:29Because not only does that kind of back the valuation that musk is seeking at 1.77 trillion from a trading dynamics perspective if strategics are taking up a third of this that means the flow gets even smaller no we don't we don't know we don't know that we don't know those specifics i think that's something that's going to be interesting to track in the coming days is how they allocate this book because if you sell to a strategic you're essentially taking the float out even further so less than four percent gets much tighter more quickly and then you add on the fact that it's going to be added to the NASDAQ 100 early next month.
6:02So that's sky high demand. It gets kind of it gets more interesting. This is certainly going to be something that we keep a close eye on as the book gets built as allocations are doled out.
6:12Scarlet Fu:I mean, this is going to is this a conventional IPO or a very unconventional IPO? It's massive. That makes it unconventional. It's massive. It came out with a fixed price. It came out with a fixed price and evaluation. And I've said this, I think, for two weeks at this point. We had we and others had reported five months ago that they wanted to go public around one point seven five to two trillion dollars. We had reported five months ago that they wanted to raise seventy five billion dollars. They came out with a fixed price. They came out with those metrics already drawn in the sand. When you're thinking through how this deal is going to come together, Musk and company can say, we told you what we wanted.
6:49If you if you came to Starbase back in January and you came to came to Hawthorne a few months ago, you knew what we were pitching. And the story is continuing to be, though, the big pushback and the big question mark is CapEx. If, as we reported, they're going to spend$360 billion in 2030, is$75 billion an IPO just the tip of the iceberg?
7:10Scarlet Fu:Stay with us. More from Bloomberg Intelligence coming up after this. At Brookfield, you can own wealth that's measured in generations. For 125 years, we've built long-term wealth through expertise, discipline, and a clear vision for the future, providing investors access to alternative strategies built for what's next. Brookfield. Own what's next. Learn more at brookfield.com. This is not an offer to sell or investment advice. Investing involves risks, including loss of capital. Support for the show comes from Public. Lately, it feels like there are two types of investing platforms. Some are traditional brokerages that haven't changed much in decades, and others feel less like investing and more like a game.
7:51Public is positioned differently. It's an investing platform for people who are serious about building their wealth. On Public, you can build a portfolio of stocks, options, bonds, crypto without all the bugs or the confetti. Retirement accounts, yep. High yield cash, yes again. They even have direct indexing. Public has modern design, powerful tools, and customer support that actually helps. Go to public.com slash market and earn an uncapped 1 % bonus when you transfer your portfolio. That's public.com slash market. Ad paid for by Public Holdings. Brokered services by Public Investing, member FINRA SIPC.
8:27Advisory services by Public Advisors, SEC Registered Advisor. Crypto services by ZeroHash. All investing involves risk of loss. See complete disclosures at public.com slash disclosures.
8:38Scarlet Fu:Running a small business takes everything you've got, but with Chase for Business, you're not alone. They bring together local support and a broad range of resources to more than 7 million customers. With a deep understanding of your day-to-day needs, They provide products and guidance built to help you thrive. Right now, earn$500 when you open a new Chase Business Complete Checking account for new business checking customers with qualifying activities. Offer expires June 18th, 2026. Chase Business Complete Checking has the flexible tools you need to accept payments, make deposits, and manage your finances with confidence.
9:11Scarlet Fu:Learn more at chase.com slash podcast biz offer. Chase, make more of what's yours. These may apply to Chase Business Complete Checking accounts. The$500 offer is available for new business checking accounts with qualifying activities through June 18, 2026. Eligibility and qualification requirements must be met. Additional restrictions may apply. Please speak with a business banker for more information. JPMorgan Chase Bank, N.A., member FDIC. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App.
9:48Scarlet Fu:Listen on demand wherever you get your podcasts or watch us live on YouTube. This is a big week for IPOs. We talked earlier about Bending Spoons, a company that owns Vimeo and AOL, getting ready to file for an IPO. We're, of course, awaiting details on SpaceX, which Paul is supposed to price on Thursday and is supposed to begin trading on Friday on the Nasdaq under the ticker SPCX. But SpaceX's IPO has renewed all kinds of enthusiasm for all things space related. The whole space economy, rocket companies, all of that. So let's get into this industry with Greg Pendy. He is a director and equity analyst over at Clear Street.
10:26Scarlet Fu:And Greg, it feels like there is a repricing of the space industry because of SpaceX. What was the narrative before SpaceX's IPO? What is it now? Yeah, thanks for having me. I think what investors are starting to appreciate, one is you have a very flagship company within SpaceX, which hopefully sets a bar in terms of valuation, but it also draws a lot of awareness to what's going on in the sector. So, you know, to give you an example, as people are looking at SpaceX, from our view, when we think about a name we do cover, Rocket Labs, we're starting to realize that with it, by looking at SpaceX, you're realizing how tight the launch market is right now, with the Falcon 9 relatively booked throughout 2007.
11:13So as that message gets out there from SpaceX, people can then look at Rocket Labs and see how compelling the opportunity is within launch for a name like that. We're also realizing when we look at SpaceX just how big the Starlink service is. And again, when we look at our coverage, a name like AST Space Mobile, a different approach in going to the market. They have over 60 MNO partners, including AT &T, Verizon, and Vodafone. But we're starting to realize just how disruptive, and it's really highlighting, direct-to-device is for a world where we depended on cell towers being within range, and space really can fill that gap.
11:52What's the market like for space? What are the economics about the space business these days? What do people need to know? So that's an excellent question. So I think most recently, we just saw Planet Labs report a very strong quarter, in our opinion, on the first quarter. This is a company that's already poised, we believe, to achieve the rule of 40 this year. That's your year-over-year revenue growth plus your EBITDA margin. It's a very big mark that people have often cherished with the top software names. We also believe and project that Planet Labs will generate free cash flow this year on top of the prior year.
12:30So really a developing business model there. We also believe that Rocket Labs, if you were to take out the heavy investment that they're putting in with their neutron rocket is close to adjusted EBITDA positivity. So you're starting to see some business models really evolve here, both from a financial perspective, but then also offering very compelling, disruptive growth potential down the road.
12:54Scarlet Fu:So Greg, there's clearly a lot of enthusiasm, and I'm sure much of it's justified. But there's some, I'm sure that's also a bit ahead of itself as well, because even if SpaceX raises a ton of cash, which pretty much we know is going to be the case and puts it to good use, it's still going to take a lot of time to build all these things. Yeah, no, that's a great point. So within the space economy, we are seeing the early stages of build out in the names we do cover. So when you think about intuitive machines, which we cover, a name we're very, very excited about. It's been our top pick for most of the year, we're only at the early stages of them building a satellite constellation around the moon.
13:36So you're going out. Now we're talking about the lunar economy, a very disruptive and aggressive timelines to build out a permanent presence on the moon. But it is something that both the government and a lot of the space companies are very serious about. So these are longer term investments. Finding that recurring model for Intuitive, though, we thought that they They had a game-changing acquisition earlier this year of Lanteris, which really brought forth EBITDA profitability. Another topic I think we're all learning about as we kind of go through the SpaceX is space-based data centers. What are the companies that you cover?
14:14What are they saying about that business? Yeah, so it's a hot button with two of the names we cover. So we cover Planet Labs, which is working with Project Suncatcher, that's Google, to develop space-based data centers. It's a 2027 story in the beta testing for them. So their biggest near-term catalyst is the OWL satellite this year, which is a big improvement in resolution. But they do have plans to start really developing that in 2027. The other name I would point people to is Intuitive Machines. Their Lanterus 1300, which was developed for the Lunar Gateway, actually is one of the most powerful solar arrays in space.
14:54And when we think about space-based data centers, one of the key advantages is the fact that you're getting 24-7 solar power. The drawback or the challenge will be launch costs. So when we read through the white paper on Project Suncatcher, it wasn't really looking for parity to terrestrial data centers until the early 2030s.
15:19Scarlet Fu:How do you think about the exclusion of SpaceX from the S &P 500? Is that a good thing or bad thing for the rest of the companies in the industry? Well, you know, for the companies in our industry, we believe that one of the most supportive things has been sort of ETFs within the sector. That's that's an area that we've seen within our names. I can't really speak to the S &P 500's decision on that. I will say that we've said SpaceX going public will actually not only draw attention, but it creates a very strong valuation argument for the names we do cover. How are your companies, these space companies, how are they valued by the marketplace?
16:03That's a great question. So when we think about valuation, what's different about the space sector is you have to anchor your valuation year differently for each company based on where the payback really falls. So, for example, with Rocket Labs, they're making a big bet on their neutron rocket, which is expected to only see its first launch in the fourth quarter of this year after heavy investment over several years. We believe that 2030, if they can achieve our estimate for 16 to, I'm sorry, 20 neutron launches, then that's the year you want to anchor the valuation. If I go to AST Space Mobile, they won't really get to commercialization under our estimates until mid-2027.
16:46So you have to kind of look out to 2029 when they have a decent amount of subscribers, we believe, that you can anchor the valuation there on 2029. Stay with us.
16:56Scarlet Fu:More from Bloomberg Intelligence coming up after this.
17:24if you could. Pit advertisement. Anna Kendrick is not a client of LPL Financial LLC and receives compensation to promote LPL.
17:29Scarlet Fu:Investing involves risk, including potential loss of principal LPL Financial LLC member FINRA's IPC. Support for the show comes from Public. Lately, it feels like there are two types of investing platforms. Some are traditional brokerages that haven't changed much in decades, and others feel less like investing and more like a game. Public is positioned differently. It's an investing platform for people who are serious about building their wealth. On Public, you can build a portfolio of stocks, options, bonds, crypto without all the bugs or the confetti. Retirement accounts? Yep. High-yield cash?
17:59Yes, again. They even have direct indexing. Public has modern design, powerful tools, and customer support that actually helps. Go to public.com slash market and earn an uncapped 1 % bonus when you transfer your portfolio. That's public.com slash market. And paid for by Public Holdings. Brokered services by Public Investing, member FINRA SIPC. Advisory services by Public Advisors, SEC Registered Advisor. Crypto services by ZeroHash. All investing involves risk of loss. See complete disclosures at public.com slash disclosures.
18:31Scarlet Fu:Running a small business takes everything you've got. But with Chase for Business, you're not alone. They bring together local support and a broad range of resources to more than 7 million customers. With a deep understanding of your day-to-day needs, they provide products and guidance built to help you thrive. Right now, earn$500 when you open a new Chase Business Complete Checking account for new business checking customers with qualifying activities. Offer expires June 18th, 2026. Chase Business Complete Checking has the flexible tools you need to accept payments, make deposits, and manage your finances with confidence.
19:04Scarlet Fu:Learn more at chase.com slash podcast biz offer. Chase, make more of what's yours. These may apply to Chase Business Complete Checking accounts. The$500 offer is available for new business check-in accounts with qualifying activities through June 18, 2026. Eligibility and qualification requirements must be met. Additional restrictions may apply. Please speak with a business banker for more information. JPMorgan Chase Bank, N.A., member FDIC. You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App.
19:41Scarlet Fu:Listen on demand wherever you get your podcasts or watch us live on YouTube. Getting back to earnings, Campbell's Soup, Camden, New Jersey-based Campbell's Soup company, reported some numbers. Let's break it down. Deanna Roseto-Pena, she covers a lot of these consumer names for Bloomberg Intelligence. What did we learn from the makers of Campbell's Soup? Again, Manhattan clam chowder is my go-to. What are the folks in Campbell's saying? Well, they're trying to be very conservative with how they communicate with everything going forward. Obviously, tariffs remain a headwind for them, especially in aluminum.
20:20You know, they're thinking that that's probably going to abate over the next couple of quarters. But with oil at over$100 per barrel, that's that's probably going to be remain a headwind in fiscal 2020, 2027.
20:36Scarlet Fu:So we talk a lot about soup and the condensed soup, but that's not the only part of their business. In fact, they have a big snack business as well. They have spaghetti sauce. So there's Rayo's, Arao's, Swanson. These are all brands within the portfolio. What brand has seen the fastest growth? Which one's lagging? I would say Rayo's and Goldfish has started to stabilize. Wait, wait, wait, wait. Goldfish? Yes, yes. Paul's a big, big fan of the Goldfish. Nice, nice. There we go. Pepper charms. Thank you. All right. Just making sure. Every day at 1035, I go upstairs to the sixth floor to get my goldfish.
Read the full transcript
21:09Well, I guess they have to thank you for that. They were not there today. Ken and I were crushed. Ken Feli, Chief Technical Director, we were crushed. We'll make it up to you guys tomorrow. So talk to us about their other businesses. Well, so the soup business is, it was down 8 % for the quarter. So that's, you know, that was obviously a headwind for meals and beverages. Salty snacks, it's not necessarily performing that well. So they mentioned that that's probably going to be a focus in the fourth quarter as well as in 2027. So, you know, it was it was OK than expected. I don't think that the stock is moving that much.
21:47So, yeah, it's it's business as usual, I guess. So what what is the tariff situation? What have they called out to people in terms of how that's impacting their business? Yeah. So basically it was mainly on aluminum. For the soup cans. For the soup cans. Yeah, General Mills is also in that headwind as well. They're experiencing that headwind. So it's obviously with the lapping of that and some rebates, that's probably going to set to normalize. But they're probably most worried about what is coming down the pipe with the Iran war and that disruption with fertilizers, as well as, you know, again, oil at over$100 per barrel.
22:29that's probably going to be a little bit of a next wave of inflation going forward. And the problem with this is that, you know, volumes are very, very affected with any, you know, potential price increases going forward. So, you know, similar to other packaged food companies, we'll see what happens over the
22:50Scarlet Fu:next six months. What's the story with M &A here for Campbell's? Because a lot of the food companies have been trying to trim down their portfolio, really focus on the best performing brands and get rid of some of the ones that are lagging behind. And we know that Campbell's recently purchased a part of Rayo's that it didn't already own. So it is out there making moves. Yeah, they're actually saying that, you know, in terms of capital allocation, they're going to remain as is in terms of that they're not increasing dividends. They're probably going to stay away from M &A for the time being. They're trying to normalize earnings before they are investing in the business more.
23:26You know, Rayo's was a very successful M &A, I would say, compared to like other companies that have purchased things recently, like, you know, Smoker and Hostess. But yeah, they're out of that equation for now. Stay with us.
23:42Scarlet Fu:More from Bloomberg Intelligence coming up after this. Support for the show comes from Public. Lately, it feels like there are two types of investing platforms. Some are traditional brokerages that haven't changed much in decades, and others feel less like investing and more like a game. Public is positioned differently. It's an investing platform for people who are serious about building their wealth. On Public, you can build a portfolio of stocks, options, bonds, crypto without all the bugs or the confetti. Retirement accounts? Yep. High-yield cash? Yes, again. They even have direct indexing.
24:16Public has modern design, powerful tools, and customer support that actually helps. Go to public.com slash market and earn an uncapped 1 % bonus when you transfer your portfolio. That's public.com slash market. Ad paid for by Public Holdings. Brokered services by Public Investing, member FINRA SIPC. Advisory services by Public Advisors, SEC Registered Advisor. Crypto services by ZeroHash. All investing involves risk of loss. See complete disclosures at public.com slash disclosures.
24:45Scarlet Fu:Running a small business takes everything you've got, but with Chase for Business, you're not alone. They bring together local support and a broad range of resources to more than 7 million customers. With a deep understanding of your day-to-day needs, They provide products and guidance built to help you thrive. Right now, earn$500 when you open a new Chase Business Complete Checking account for new business checking customers with qualifying activities. Offer expires June 18th, 2026. Chase Business Complete Checking has the flexible tools you need to accept payments, make deposits, and manage your finances with confidence.
25:18Scarlet Fu:Learn more at chase.com slash podcast biz offer. Chase, make more of what's yours. These may apply to Chase Business Complete Checking accounts. The$500 offer is available for new business checking accounts with qualifying activities through June 18, 2026. Eligibility and qualification requirements must be met. Additional restrictions may apply. Please speak with a business banker for more information. JPMorgan Chase Bank, N.A., member FDIC. Whether you're planning a big tech event, launching a new campaign, or just stocking up on team gear, finding the right promotional products makes all the difference.
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26:40Scarlet Fu:You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at 10 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. The top 1 % reap most from tax loophole costing$48 billion. The ETF industry is exploiting the tax rate at an unprecedented scale. Zach Meier, one of the two reporters on this story from Bloomberg News, joins us here in our studio. So, Zach, talk to us about what loophole you guys found in your reporting and kind of how's it work and who's benefiting. Sure.
27:16So this is a loophole that's been around for a long time. Basically, since the ETF industry started, the people who set it up realized that they could take advantage of this kind of obscure chapter of the tax code that no one ever really used for anything and use it to avoid taxes. Now, that used to be a relatively small phenomenon because the ETF market wasn't all that big. Now it's very big. And part of what our reporting shows is not only is that cost today to the government quite significant, but changes being pursued by the Trump administration now could almost double it just in the next few years because they're essentially opening up this loophole opportunity to mutual funds as well as ETFs.
28:03How does it work in layman's terms? I am the ultimate layman, so lay it on me. Yeah, so an ETF, it's just kind of like owning a stock yourself. If you buy a stock and it goes up in value and you sell it, you owe capital gains tax on the gain, the difference between what you got for it and what you paid. The funds work the same way. if an ETF makes a gain, they're supposed to essentially send you a tax bill that you have to pay tax at the end of the year. But ETFs are able to use this loophole where they say, well, we didn't actually sell it. We just swapped these securities off to a market counterparty.
28:43So rather than sell it for cash, we gave somebody securities and they essentially withdrew from our fund the same amount so there are no cash changed hands and therefore there's no tax. who does this? I mean, do all ETFs do this? All ETFs do it all the time. That's just kind of how they're set up. They, they, I should say sometimes they sell stuff, they sell their losses, but they don't sell their gains. And that's just the normal way it's worked for decades. But, but what's different is that the, as the industry has gotten so big, that's, it's, it's kind of gone from being a pretty small little leakage of taxes to actually a pretty big one.
29:25So these gains, are they gains at the ETF level or at the investor level? They're gains at the ETF level. So one question you might say is like, well, wait a minute, if the ETF doesn't send me a tax bill, I'm still going to have to pay tax when I sell my ETF. That's true. So some of this is just kind of a deferral, right? You get to postpone your tax bill until however long you own the fund. But in a lot of ways, that actually becomes avoidance because, for instance, if the ETF did short-term trading and had short-term capital gains, that magically becomes long-term capital gains to you, which are less expensive.
30:06So, I mean, again, all we read about it for the last dozen years about how big the ETF market's getting, the inflows we get. Eric Balchuda's coming in here every week telling us it's just the same story, gajillions of dollars flowing into ETFs. Has this gotten the attention of tax authorities, of Congress, of anybody who should be paying attention to this? Yeah. So Senator Ron Wyden, the Democrat from Oregon, back when he was Senate Finance Chair, kind of floated a proposal to, hey, let's just close this one off. It never went anywhere. And he actually dropped it when he updated his reform proposals last year.
30:46But he says he still wants to do something about it. the problem is there are so many ETF investors, right? You're talking about 20 million Americans or something like that. And so even though most of them get very little from it, there's a lot of people out there who would be, you know, concerned if their taxes were going to change. It just seems like, again,$48 billion a year, that's not chump change, you know? And it seems like somebody would want to get their hands on it if I'm the government, like the IRS. But again, And it's just is it also because maybe the administration's not pushing forward?
31:24Is there is there a sense that maybe the political environment's not right for this type of thing? Yeah, I mean, it's it's it's not a super high profile issue. And it's one that, you know, Republicans generally aren't looking for ways to raise people's taxes. Right. And so, you know, they're in charge right now. So if, you know, if a different Congress, maybe if they had something they want to spend money on, they might they might look at this again.
31:48Scarlet Fu:This is the Bloomberg Intelligence Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, 10 a.m. to noon Eastern on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.
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From the publisher
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Bloomberg Intelligence hosted by Paul Sweeney and Scarlet Fu
- Bailey Lipschultz, Bloomberg News Senior Equities Reporter, discusses Bending Spoons has filing for an initial public offering in New York, joining a string of European tech companies seeking US listings. Bailey also discusses SpaceX’s upcoming IPO.
-Greg Pendy, Director and Equity Analyst at Clear Street, discusses SpaceX’s IPO. SpaceX's initial public offering is well oversubscribed, according to people familiar with the matter, as demand builds for a potentially record-setting debut.
-Diana Rosero Pena, Bloomberg Intelligence Consumer Staples Analyst, discusses Campbell’s earnings. The canned soup maker reported adjusted earnings per share for the third quarter that beat the average analyst estimate.
-Zachary Mider, Bloomberg Reporter on the Investigations Team, discusses the Bloomberg Big Take: “Top 1% Reap Most From a Tax Loophole Costing $48 Billion a Year.” What was once a minor leak in the US tax system is now a torrent that’s costing the government around $48 billion a year. The industry says estimates of the ETF tax break’s size are overblown, that millions of ordinary investors benefit and that it encourages long-term saving. Yet there’s been little public discussion or debate about the tax break or the rapid growth in its exploitation.
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