Credit Cockroaches

0:11Emily Peck: Hello and welcome to Slate Money, your guide to the business and finance news of the week. I'm Felix Salmon of Bloomberg. I'm here with Emily Peck of Axios.

0:23Felix Salmon: Hello, hello.

0:24Emily Peck: With Elizabeth Spiers of the New York Times.

0:27Felix Salmon: Hello.

0:28Emily Peck: And we are going to finally give you the private credit bubble episode that you've been waiting for. You've been writing in and being like, talk about first brands. So now we are going to talk about first brands, the credit market, and whether things are bursting. We are also going to talk about cockroaches. Yes, that's the same subject. We are going to talk about cars, which are very expensive. We're going to talk about why they're so expensive and what's going on in the auto market. We are going to talk about QQQ, the NASDAQ ETF that is just insanely profitable. We have a Slate Plus segment on Matcha.

1:07Elizabeth Spiers: It's all coming up on Slate Money.

1:11Emily Peck: Okay, so let's start this week with honestly the subject that most listeners have been requesting, which is when are you going to talk about first brands when are you going to talk about private credit is there a bubble is it bursting i'm just going to come out and say there probably is a bubble and it probably isn't bursting at least not yet this is where i'm at on this one the big picture is that we are in a world historically frothy moment for credit for lending money to people. If you look at the bond market, which as slate money listeners know is the most important market in the world, the amount that companies need to pay to borrow money has never been lower, whether it's investment grade or high yield junk bonds, all of those credit spreads are super, super tight.

2:03Emily Peck: And what that means is a huge amount of money is going into lending money to companies. at the same time we have had some pretty high profile failures of the credit market like the credit market has failed to do its due diligence on tricolor which was this used car dealer mostly in texas on first brands which was also in the auto industry they do like auto parts they just borrowed a lot of money and both of them looked like they were being a bit fraudulent their debt collapsed. But the collapse of their debt does not seem to have affected the broader credit market. People are treating these as like weirdly isolated, fraudulent incidents.

2:46Emily Peck: But I know that, Elizabeth, you're going to come out and tell me that the world is falling and everything is terrible.

2:52Elizabeth Spiers: Do I have a reputation for that?

2:54Emily Peck: Yes.

2:54Elizabeth Spiers: I guess I do. I don't think the world is terrible and everything is failing, but there are some problems with both of these situations that could extend to other companies. One is just that Jamie Dimon at J.P. Morgan and Mark Lipschitz at Blue Owl Capital are sort of pointing fingers at each other for the tricolor bankruptcy. And the private credit people are saying, you know, this is the fault of the banks because they originate loans and then they turn around and sell them. So they don't have as much incentive to do their due diligence as private credit companies do. But the bankers argue that this is, in fact, not true because the private credit markets are more opaque, and therefore we don't have as much information about whether the deals that they're making are okay.

3:43Elizabeth Spiers: So I think these are weaknesses for both kinds of institutions that could apply to other deals besides these two companies. And the question is, now that people sort of know that these are potential weaknesses, says, are they going to do anything about it?

3:57Emily Peck: So to be clear, the potential weakness either way, and I think it is possible to get far too caught up in this like banks versus private credit thing. And to be very clear, I don't think that when Jamie Dimon started coming out and talking about cockroaches, what he meant, I don't think he was talking about private credit. What he was saying was, as you know, basically, as Warren Buffett famously said, it's when the tide goes out that you learn who was swimming naked, that when the credit boom comes to an end and credit becomes less plentiful, that's when you're going to start learning who the frauds were.

4:33Emily Peck: And what we learned with both Tricholore and First Credit is, oh, wait, you know, we were so busy, like, throwing money at anyone who wanted to borrow money that we didn't do enough diligence to realize that actually they were basically selling the same receivables to two or three different lenders. And I think that's what Jamie Dimon meant when he was talking about cockroaches, was like, it's never just one. If there's a fraud here and a fraud there, there's probably a bunch of other frauds somewhere else. But I think the bigger picture is just that a credit market in general is not going to get brought down by frauds.

5:11Emily Peck: The overwhelming majority of borrowers in both the bank loan market and the private credit market are not fraudulent. And so long as they are able to continue to pay back their loans, and it looks like most of them are, we're basically going to be okay. There are going to be some credit losses on the frauds, and there are probably going to be more frauds, but that's not a systemic problem.

5:35Felix Salmon: But could the systemic problem be, and a lot of the coverage I was reading talked about something you already have raised on this podcast, Felix, in a previous week when we talked about how Microsoft's bonds were, what is it, the yields are lower than... They're trading through treasuries? Yeah, they're trading through treasuries, which, in other words, people think Microsoft is more credit worthy than the US government right now.

5:57Emily Peck: But that's not necessarily what people think. But certainly that's what the market is saying.

6:01Felix Salmon: Anyway, a lot of the commentary I read about, it's tri, how do you say it? Tricolor? I have no idea.

6:07Emily Peck: Tricolor.

6:08Felix Salmon: Okay, I thought it was, Tricolor sounds so like when you buy that pasta that's three different colors, but, and you think it's really fancy, but it's just Tricolor?

6:16Emily Peck: It's basically this used car company in Texas that would sell to relatively poor, relatively

6:22Felix Salmon: Hispanic, customer base.

6:25Emily Peck: Tricolor refers to the three colors of the Mexican flag. Everything was done in Spanish. Anyway, yeah. Wonderful.

6:30Felix Salmon: Okay, total tangent there, but I just wanted to mention the three color pasta. But yes, my point is, in the coverage that I was reading, a lot of people were saying that credit was loose, that companies were able to borrow for pretty low rates that should have been higher rates. Like people were lending at lower rates than they should have been. These borrowers like Tricolor, Tricolor were risky, and yet they were getting loans at like relatively low rates as credit was just swooshing about. So could there be a bigger risk now of some kind of like bond repricing wave or something where everyone kind of realizes, oh, we lent out a lot of money to these companies that are not creditworthy.

7:11Felix Salmon: We need to like fix that up real quick. And that could cause a problem.

7:15Emily Peck: So that's a really interesting question. And I think you're absolutely right. Let's first stipulate that the coupon on the trickle or bonds, like the yield that trickle or was borrowing at didn't matter. Right. Right. It's not that it was too low. They could have borrowed a 15 percent yield and they would still have gone bust. Right. Like if it's a fraud, it's a fraud and the bonds go to zero. And, you know, if you misprice the bond, it doesn't matter because you just want to avoid it going to zero and you want to avoid frauds. Right. That's a binary thing. Were they able to borrow money at a tighter spread than probably they should have been able to borrow?

7:50Emily Peck: I mean, probably they shouldn't have been able to borrow at all because they were a fraud. You know, that's the point.

7:56Elizabeth Spiers: Well, I'm not sure Tricolor was a fraud. I think First Brands is much more straightforward. First Brand looks like it was definitely a fraud. We're not sure if Tricolor was.

8:06Felix Salmon: The DOJ is investigating on tricolor. So I feel like there is.

8:10Emily Peck: Yeah, the credit market has done really well. It's up like more than 9 % year to date, which is crazy for fixed income. And 100 % yes, you know, if spreads start widening back out to something vaguely more historically normal and reasonable, then, you know, as we all know, in the bond market, when yields go up, prices go down. So it is possible that total returns on bond funds and in the bond market will turn negative rather than positive. You know, that is absolutely something that can happen. That always when credit markets tighten, that's good for lenders. When credit markets widen, that's bad for lenders.

8:49Emily Peck: We are inevitably going to have a credit market widening at some point. But again, that's just normal markets going up and down. I don't think that's anything to worry about, really.

8:59Elizabeth Spiers: Well, there was one private credit manager who referred to both of these situations as wily coyote moments where, you know, the coyote runs off the cliff and then is sort of suspended in midair until he looks down and then crashes to earth. And the analogy was just that when the lenders have an incentive to really do more diligence on the companies that they're lending to, what could happen is what happened with both of these companies, which is that they dig a little bit more and find these problems that were there from the beginning, really. But just the originators were not doing enough diligence on them to understand what was happening.

9:38Elizabeth Spiers: Although, you know, I will say the first brand situation strikes me as a more straightforward potential fraud because they had$2 billion worth of loans off balance sheet. And the way that they were generating loans is, as Felix mentioned, they were selling against their receivables. And this is a process called factoring. And there's nothing inherently wrong with it, except that in this case, they were selling the same invoices to multiple lenders.

10:02Emily Peck: The reporting on trigger laws, basically, that they were doing the same thing, that they were taking the same cash flows and securitizing them like multiple times yes you're right the way that frauds work when they're uncovered in the credit market is that you thought it was a perfectly normal company which you could price like a perfectly normal company then you realize that in fact there's missing money there's an account that's supposed to have 2.3 billion dollars in it and it has no money in it and then the bonds just crash basically very close to zero that is the wily coyote moment and that's what happens when a fraud is uncovered i'm sure the same thing happened with you know enron and if jamie diamond is right and there are other cockroaches i.e other fraudulent borrowers like that is going to happen to their bonds too we

10:49Felix Salmon: just don't know which bonds those are can we just pause and talk about jp morgan and mr diamond and his cockroaches i think a lot of the cockroaches are they at jp morgan and chase because this isn't The first time we've been talking about J.P. Morgan and Chase falling for a fraud. We just spoke last week about Charlie Javis and her company, her student loan company, Frank, which J.P. Morgan believed their fraud also, at least initially. She lied about how many customers she had. And J.P. Morgan, you know, would they buy the company, invest it in the company?

11:23Emily Peck: They bought the company, yeah.

11:24Felix Salmon: Yeah, I mean, I'm wondering if Mr. Diamond should be looking for the cockroaches in his house instead of talking about them.

11:32Elizabeth Spiers: Well, part of the reason why these standards are loosening is because these banks are desperate to deploy cash. And that creates an incentive maybe not to look as hard at where they're putting money as they should.

11:43Felix Salmon: I feel like that's always happening. Just like Felix said, banks are always just giving out cash without looking hard enough based on whatever prejudices and things that they have going on themselves. And then everything's always fine until it's not fine, that there's some fraud or that the system wobbles.

11:58Emily Peck: I'm going to take the other side of that. I think the reason why we have this big private debt, private credit bubble is precisely that the banks are not really in the business of lending money anymore. That basically since 2009, since Basel III, since the regulators have really tightened up on bank lending, the banks have been, yeah, we don't want to take that much credit risk. so interestingly what they're doing is they're lending to companies like blue owl and apollo and the other private lenders who are then turning around and lending to the companies so you know theoretically if i'm you know fraudulent felix and i borrow from a private lender and the private lender has borrowed most of their money from jp morgan then in the first instance the private lender that lent to me is going to get hurt but so long as they have enough capital and enough loans in their left portfolio to be able to repay jp morgan what they borrowed from jp morgan jp morgan is fine like jp morgan is like a one step removed from all of the potentially fraudulent companies that the private lenders have lent to it's not impossible that the banks will lose money on the money that they've lent to private lenders, but they do have like one extra layer of safety there.

13:19Elizabeth Spiers: So basically, J.P. Morgan helped the private credit companies buy the cockroach-infested house and now is complaining about the cockroaches.

13:28Emily Peck: And to your initial point, Elizabeth, we don't know whether the cockroaches are going to wind up being found more in the private credit world or more in the bank loan world or more in the bond world. Like there was a big collapse of Sachs bonds, which wasn't fraud. And it was just like, it was a bond, you know, it was the most transparent thing in the world. And yeah, it collapsed too. So like, I wouldn't say that Sachs was a cockroach necessarily, but yeah, there's a lot of credit paper out there that is being priced for perfection, as they say. And then the thing about bonds is that there's no, there's very little in the way of upside, you know, they have much more downside than upside.

14:10Emily Peck: So if you find a problem, they can lose money and you're not really being paid for that by potential upside.

14:16Felix Salmon: I guess my bigger question would be if there is something bad happening now with private credit and we can expect to see more first brands or try colors, is there going to be spillover? Every time something like this happens, everyone's like, remember the financial crisis. Remember what happened there. Those were bonds that exploded and really hurt the overall economy and real people lost real things. But this one doesn't seem like that.

14:41Emily Peck: It doesn't seem like that because what was happening in the financial crisis was that a bunch of risk-averse institutions that couldn't afford to lose money were buying what they thought to be AAA-rated, completely safe paper, and then it blew up in their face. No one believes that private credit is AAA-rated or completely safe. The money that people are investing in private credit companies is money that people can afford to lose. It's not life savings kind of stuff.

15:06Felix Salmon: But on the horizon, the White House has proposed adding private credit to people's 401ks. So there's a movement there.

15:14Emily Peck: Again, we can talk about whether that's smart or not, but it's still credit, right? It's still probably safer than buying the S &P 500 that's mostly AI stocks these days.

15:24Felix Salmon: There.

15:33Emily Peck: we should stay on the subject of dricholore and first rands because like there's something interesting going on in the auto industry which is that for all that the these two different companies in the auto industry are struggling like first rand still has five billion dollars of revenue every year you know it's still like never mind the financial ledger demand and shenanigans going on you know in the cfo's office the main business of its business which is making random auto parts to put in cars when they break down is doing just fine and we recently just had this rather startling headline that the average price paid for a new car has exceeded fifty thousand dollars which i mean what the actual fuck that is a huge amount of money to spend on a new car or anything really and we have had like a record high in the number and percentage of evs being sold partly because the incentives were being phased out so people wanted to get in before the end of september but the new car market seems to be quite hot the used car market seems to be quite hot.

16:49This is like, I don't know.

16:51Emily Peck: I mean, is this science of life in the economy?

16:55Felix Salmon: I don't know, because Bloomberg had a headline this morning, Friday, as we're speaking, auto loan delinquencies jump to new heights. They're at all time highs, apparently, since the crisis of 2009. So I think these high prices are stressing people out. Most people in the United States have no choice but to buy a car. Then you have to finance it. And we know that$1 ,000 monthly payments have become, if not the norm, I think more typical, more frequent. So I wonder if rising prices may be a sign of economic health, like you're saying, Felix, but I'm worried about stress, stress in the market.

17:31Elizabeth Spiers: I think it's more producers taking into account tariffs and just passing the cost on to consumers, because that was one of the things that First Brand said when they were trying to explain their bankruptcy away, was that they were affected by tariffs and two of their biggest creditors were GM and Ford. So I'm not sure that the prices are going up because consumer demand is up.

17:52Emily Peck: I mean, volumes are up too. It's not just the prices are up. The amount that consumers are paying on new cars is going up. The amount that consumers are paying on used cars is going up, which is, to Emily's point, one of the reasons why delinquencies are going up.

18:05Elizabeth Spiers: As a percentage of overall borrowing, it's not massively out of whack

18:11Emily Peck: compared to historical levels but as cars get more expensive i think a lot of people still are driving around in cars they bought pre-pandemic before like the whole massive car price inflation happened and eventually they're gonna start wanting to say well i can't drive this 10 year old car anymore i need to replace it with something else and then they're gonna go out into the market and they're like shit you know pre-pandemic when i bought my car i paid ten thousand dollars for a car and it was perfectly good and that you just can't do that anymore

18:43Felix Salmon: yeah cars have gotten really expensive i think one thing is as with the whole economy right now it's high income people wealthy people driving spending so i think you see like for a certain segment of the market it's like people who have money spending you know making those one thousand dollar a month payments because they can basically afford them driving prices up at the higher end and then pushing a lot of people down to get the used cars at the lower end, pushing those prices up. Do you know what I mean? Exactly.

19:10Emily Peck: And what we've seen very much in the car market since the pandemic is that the automakers have been pushing their higher-priced, bigger, more expensive vehicles aggressively, and they've basically, to a large degree, just stopped making the entry-level smaller, cheaper vehicles. And so what that means is that there aren't that many entry-level, smaller, cheaper vehicles to buy even on the second-hand market anymore because they're not being made anymore. And so if you are in the market for a second-hand car that was made in the last five years, you basically have to wind up buying some expensive car because there aren't any cheap ones.

19:46Elizabeth Spiers: What's kind of mind-boggling to me is that the best-selling vehicle in the US is the Ford F-150, and they're starting at$65 ,000 new. And when I was growing up, that was sort of the affordable vehicle and you would sort of you would buy a Ford F-150 if you needed to use it for work or personal stuff uh and now it's it's got like luxury car status almost like one of the

20:09Emily Peck: reasons why pickup trucks have always been relatively more expensive than cars at least you know anything other than the very top end of cars is precisely that they have been sold as work tools and you know that they're you know you're investing in your business when you're buying an F-150 in the way that you're not when you're buying a Nissan Altima. But yeah, the F-150 price inflation has been something to behold. And people are just really loyal to that brand, and they'll pay whatever they need to, to drive around in an F-150. Bless them.

20:41Felix Salmon: And then everyone has the bigger cars, so then that makes everyone want bigger cars, because otherwise you feel very small on the road. I know, because I drive a smaller car, and I feel kind of, you know, I don't know, it's like walking around the city with the high rises. Are you even an American, Emily, if your car is small?

20:57Emily Peck: I'm driving around on a bicycle. Imagine how that feels.

21:01Felix Salmon: Should we talk about, though, another$65 ,000 truck that is popular out in the desert? We'd be remiss if we did not mention this wonderful piece from Wired magazine that came out earlier this week in which the reporter, her name escapes me, but she went out to the desert to a gathering of Cybertruck owners and just interviewed them. and the result is pretty delightful. I don't know. I bet Elizabeth has thoughts.

21:26Elizabeth Spiers: It was amazing. My favorite one was they interviewed one guy who said, you know, I just don't understand why people think the truck is so political and divisive. And then there was an editor's note appended to it that noted that the guy they were interviewing had been part of the January 6 riots and had been pardoned by President Trump.

21:43Felix Salmon: Yes.

21:45Elizabeth Spiers: There was another guy who said he used to be married and now he's divorced and he's like, women do not like this vehicle.

21:51Emily Peck: yes the Cybertruck is the one car that you can't put that bumper sticker on saying I bought this before Elon went crazy because like that was the sign that Elon had gone crazy and every time I see it I'm like really you decided really but people like it in the in the piece there were a few people

22:09Felix Salmon: that sounded quite rational they said they use it to haul things around and it's cool and it looks

22:15Emily Peck: neat and I I think if you believe that it looks neat then all power to you man if you think it makes you look like a complete dick then yeah all the other cars on the roads look the same

22:26Felix Salmon: it's true you can say for the cyber truck that it looks different which is neat they look the same

22:32Elizabeth Spiers: though for scientific reasons like you have a certain people have learned a lot about aerodynamics and things like that like if you have hard rough edges at the front of a vehicle that makes them

22:43Emily Peck: more dangerous that's why you don't see them on other vehicles it is a fundamentally dickish design in that it is quite dangerous to the people around it because it has that very long sloped windscreen and the driver really has no idea where the front of the car is or what's in front of their car.

23:02Felix Salmon: One of the guys interviewed was like, I can't quite see very well out the windshield. And I was like, that seems bad. Like that seems like, you know, pretty basic requirement of car, like be able to see out of car. I don't know, maybe self-driving is bigger now.

23:15Emily Peck: Yeah, exactly. Now you just let the robots do the driving for you.

23:18Felix Salmon: But I did think it was kind of wild that these people are buying a product that's so polarizing, and then they're taking them out to the streets of America, and people are flipping them off and just saying mean things to them. There was one Cybertruck owner who said he got a note on his car. What did the note say? It was like, you're an asshole or something, and then winds up talking to the woman who wrote the note.

23:40Elizabeth Spiers: That sounded a little apocryphal to me. He's very detailed about it. He's like, and then with tears in her eyes, she told me that she was sorry she judged me.

23:49Felix Salmon: Yeah, yeah. I had hoped that was real, but probably not. But it seems like when being an American consumer, that's one way to go, you know, to buy things that you know are going to spark conversations or get people to like give you the finger.

24:03Elizabeth Spiers: I just refuse to believe that anybody who's bought a Cybertruck recently would have not anticipated that reaction. Well, I mean, to be clear. Because it is kind of a political stance at this point. Not to buy a Tesla categorically, I think, but a Cybertruck specifically.

24:18Emily Peck: Yeah, Elizabeth, very few people have bought a Cybertruck recently. The Cybertruck sales, which were never very high to begin with, are down like 65%. Even by Tesla standards, Cybertruck sales are doing very badly. This was always a folly. It was always obvious from the day the design was revealed that it was not going to be this massive selling vehicle. And guess what? it hasn't been. Everyone who wanted one bought one when it came out, and now no one wants one, and no one's buying it.

24:49Felix Salmon: I think they should remake Back to the Future, and instead of a DeLorean, they should do a Cybertruck. That would make it all worthwhile, because I don't remember many cars from the 80s, but I do remember the DeLorean in Back to the Future. If no one else does, it had the doors that open vertically, therefore was cool, and made by a really rich guy.

25:07Emily Peck: The one thing I will say that I like about the Cybertruck is related to what you were saying about how all of the other cars look the same for sort of aerodynamic reasons. And the reason why all of the other cars look the same for aerodynamic reasons is, number one, if you are an internal combustion engine car, then you want to get good gas mileage because it's expensive to fill up your car with gas, right? But number two, if you are in the EV, the EVs are even more aerodynamic because everyone had range anxiety for years when EVs started coming out. And they're like, I don't want to buy a car that I can't drive for 300 miles without recharging.

25:47Emily Peck: And so in order to increase the range of the cars, all of the EV manufacturers basically started making these teardrop shaped cars because that's the most aerodynamic shape. And they were all competing with each other on range. And so none of them could do an interesting design because that would hurt their range. And the range was the first thing everyone looked at in an EV. What I like about the Cybertruck is that it's a sign that people are looking past range, which is much less important than people think it is. And, you know, the Cybertruck is obviously sacrificing range for looks. and we also have the you know the new electric vw bus the id buzz which has like a big solid wall in front of it and that's a great looking vehicle and i love it and has terrible range and i'm i think you know more evs with like less great range that people don't care about range so much and they realize that evs are like normal cars and you can just recharge them when you need to and you don't actually drive them that far very much on a day-to-day basis.

26:49Emily Peck: Like, that is a positive sign to me.

26:52Felix Salmon: So here's my question to turn it back from Cybertruck, sort of. But you started the conversation talking about EV sales, and they really have spiked recently because people raced to buy them to get their$7 ,000 tax credit before it went away. And we know that the White House is reversing a lot of the policy levers that it had pulled to get more people to adopt EVs. What I'm wondering now is perhaps the Biden administration, their actions were enough. Like we have all these people that just race to buy EVs and the share of drivers who are driving EVs now is much higher. And at the same time, a lot of there was a piece this week also about a lot of retailers now have put in EV charging stations because they realize it's like a draw for people.

27:36Felix Salmon: So there's more EV charging stations now than there have been. And I'm wondering if we've reached a point where even though the government's pulling away aggressively from electronic vehicles, it's kind of like too late. And like the momentum is now like just pulling in EV favor. Because once you buy one, I'm imagining or you buy a hybrid, I'm imagining the next car you buy is the same. You're telling your friends about it and it kind of builds on itself. It's basically unheard of for people to move back, you know, to buy an EV and then buy a nice vehicle.

28:06Emily Peck: Yeah. That just doesn't happen. Now, to be clear, the percentage of cars on the road, the EVs, at least outside California, is still low. It's like single digits. So I'm not sure that we've reached that kind of, well, everyone has an EV now, so we don't need subsidies anymore. Everyone does not have an EV. No, I'm not saying we don't need them.

28:26Felix Salmon: I'm just saying maybe they did a lot of work already. But you're absolutely right.

28:31Emily Peck: EVs have become desirable, cool. More and more people have driven them. the people who've driven them like them, the people who, you know, most people in an ideal world would prefer to have an EV than an ICE vehicle. So I think we've reached an important inflection point. Yeah, certainly the lack of subsidies is not going to kill the entire industry, but it will probably slow the growth of the industry.

28:55Elizabeth Spiers: I think, well, they've already, automakers have already revised their projections down for EV adoption. You know, a few years ago, they were projecting something like 48 % of the market would be EVs by 2030. And now it's their projections are 29%. And it's because the automakers still understandably are worried about the lack of charging stations, which haven't proliferated as fast as they thought they would.

29:18Emily Peck: Yeah, projecting future growth of the EV market is hard. Also, all of the big legacy automakers have struggled with the move to EVs. None of them has dealt with it very well, partly because they have just these enormous fixed plants for putting together old-fashioned cars with a lot of moving parts and those plants just don't lend themselves to putting together evs and if you do try and use those plants to put together evs the evs aren't as good as the cars that are made on plants that were designed to make evs like teslas which is one of the reasons why tesla even with all of the bad press surrounding elon musk remains by far the biggest selling ev brand in america because they're designed and built as evs so yeah the big car makers you know they need huge amounts of capital which is quite expensive to try and create evs none of them have had massive success in a weird way the biggest success has been toyota which has done a more hybrid first strategy so So yeah, the optimism that the big car makers had that they could flick a switch and then just sell EVs, it's just not true.

30:29Emily Peck: I mean, as Elizabeth was saying, the biggest selling car in America is the F-150. It's not the F-150 Lightning. The F-150 Lightning is selling fine by EV standards, but not by F-150 standards.

30:41Felix Salmon: I'm not going to buy one.

30:51Emily Peck: i want to move on to segment three which is not the numbers round but i want to kind of kick off with a number here which is 770 million dollars which is the amount of revenue generated by a single ETF known as QQQ. Now, there is a good chance as consumers of financial media, or just consumers of media, that you, dear listener, have heard of QQQ. It is, by some margin, the most heavily marketed ETF in the world. And Emily, you're going to tell me why it is marketed so heavily.

31:35Felix Salmon: So because of a quirk in the structure of QQQ, it's structured as a unit investment trust. But basically what that means is after the fund pays all its expenses, it can't just keep that rest of the money. It has to spend the money on marketing. So Invesco spends like hundreds of millions, tens of millions.

31:57Emily Peck: Over$200 million a year on marketing.

31:59Felix Salmon: Oh, it's a year on marketing, which is why they buy like Super Bowl commercials. And you've heard of QQQ because they spend all this money on advertising.

32:08Emily Peck: It reminds me of like the Barack Obama 2008 election campaign, which has so much money. It was like buying ads in video games.

32:16Felix Salmon: But then the ads do work. And this ETF is enormous, but they don't benefit from it. It's pretty wild.

32:22Emily Peck: Invesco, like the revenue from Invesco's QQQ ETF is actually substantially bigger than Invesco's entire revenues. It's like the subsidiary is bigger than the holdco.

32:33Elizabeth Spiers: So basically, if you meet somebody who works at Invesco, they're probably in marketing.

32:37Felix Salmon: Well, until now, because Invesco is trying to change the structure. And when it announced that it was going to try and change this structure, its stock price shot up because everyone was like, oh, finally, Bro can make money from its own product.

32:50Emily Peck: They're going to need more than 50 % of QQQ holders to vote for this change. And to be clear that it is 385 billion dollars this etf it is an absolutely enormous etf which means they're going to need holders of 200 billion dollars worth of etfs to vote in favor of this change and as everyone knows it's really hard to get shareholders to vote for anything because they're

33:17Elizabeth Spiers: very have the advertising budget to get their attention i was gonna say can they use their marketing funds to market to the shareholders i mean they're gonna have to it's it's gonna be

33:26Emily Peck: very interesting to see whether they can find 50 % of elders because a lot of people use the QQQ I'm going to say it's not dissimilar in some ways to stable coins you know how if you're in the crypto world you bet on bitcoin or you bet on dogecoin or you bet on solana and then when you're not betting you just keep your money in stable coins it's a kind of like default I feel like in the sort of tech day trading wall street bets world you know you can make your bet on Nvidia you can make your bet on Broadcom you can make your bet on Robinhood and then when you're not making bets you just keep it in QQQ which is the standard Nasdaq just buy everything ETF but it's like a short-term place where you keep cash for a while and then move it somewhere else you don't think of that necessarily as a long-term investment precisely because it is so expensive it is by far the most expensive big ETF out there while all the big S &P 500 ETFs are like four basis points, three basis points, you know, maybe six or seven if they're super expensive.

34:25Emily Peck: This thing is 20. And no one wants to spend 20 basis points a year just for an index fund.

34:30Felix Salmon: And I thought it was interesting that SPY, which is State Street's S &P 500 ETF, has the same structure. But where Invesco is like, they're licensing, they have a trustee that makes money, and it is BNY Mellon. So BNY Mellon makes money off of QQQ, but Invesco doesn't. But with State Street, their trustee is State Street. So they don't have the same problem as Invesco because they make money for themselves and it's all good. The other entity that makes just obscene gobs of money

35:07Emily Peck: from QQQ is the NASDAQ, which has paid$205 million for just telling QQQ what to invest in, saying like, these are our stocks. Like, it's a public information. These are our stocks. But like, because QQQ advertises itself as investing in the NASDAQ, it needs to pay NASDAQ a licensing fee for that. And that licensing fee is now over$200 million a year, which is wild.

35:30Felix Salmon: Why is it called QQQ? Because NASDAQ ends with a Q?

35:33Emily Peck: Probably.

35:33Felix Salmon: We're talking about this because FT wrote about it in a very good piece. And in the middle of the piece, they're like, here are the people from Invesco and NASDAQ talking about the creation of QQQ. And this was compelling to me. I think, I don't know, it's on drugs or something. Emily, you're becoming a nerd.

35:48Emily Peck: I watched it. You're becoming a finance nerd after all of these years in financial journalism.

35:54Felix Salmon: No, that seems wrong. But they never talked about why it was called QQQ, but I think that's a great ticker symbol, a great name. Just everything about it is wonderful. And did we already talk about how ETFs are, there's more ETFs than stocks or something now? We already talked about that.

36:08Emily Peck: There's been this massive explosion of ETFs. Most of them are not even within two orders of magnitude of the size of QQQ or SPY. When people are like, I just invest in ETFs, that's fine. But what you mean is I'm just investing in passive, low-cost ETFs like the Vanguard, S &P 500 or whatever. If you're buying tiny little ETFs that are meant to give you exposure to meme stocks or whatever, then God help you.

36:32Felix Salmon: Well, can I ask, this is why I'm not a finance nerd, because I ask questions like this. What is the difference between when people say ETF, like QQQ or VOO, I think is Vanguard's version of QQQ, and an index fund? People say, like, I invest in an index fund. Isn't that the same thing as an ETF?

36:49Emily Peck: Very good question. It is not a dumb question at all. It's an extremely good question. And Jack Bogle, the founder of Vanguard, would happily talk to you for hours about the difference between ETFs and index funds. basically they do the same thing which is they invest your money in the index but they do it in different ways and the etf does it in a more tax efficient way it's so most people have moved to etfs because if you buy an etf and you don't sell your etf then you don't need to pay taxes on the money in the ETF, whereas index funds have income from all of the dividends and you need to pay taxes on that dividend income.

37:32Emily Peck: But like index funds were designed to be more like buy and hold vehicles. And the reason why someone like Jack Bogle didn't like ETFs was that they make it very easy to trade in and out and people day trade ETFs and people hold ETFs for very short time periods. And that kind of violates the passive investing gospel of just buy and hold. If you buy and hold ETFs, that is a wonderful thing. But in fact, a huge number of hedge funds and day traders and all the rest of it are also in the ETF world because they're doing relative value trades or something like that.

38:07Felix Salmon: So did the index fund come first? So this is a very stable way to buy and hold. And then finance industry, Wall Street was like, I know what we can do to these very stable instruments. We can trade them with these ETFs. Exactly. You know, and so it goes.

38:32Emily Peck: Do we have a numbers round? Elizabeth, you're looking excited about the numbers round. What's your number?

38:37Elizabeth Spiers: My number is 445 million, and that's the number of subscribers that Mr. Beast has. And this is relevant because Mr. Beast just filed a trademark for a financial services company. And he plans to offer online banking and investment banking services and also various crypto things.

38:56Felix Salmon: Who's investment banking with Mr. Beast?

38:59Elizabeth Spiers: He's also trying to start a mobile phone company. So I expect that Mr. Beast Healthcare will come next.

39:05Emily Peck: I mean, mobile phone companies. I have recently written an article for a bar of soap about mobile phone companies and why everyone should switch from the big mobile phone companies to the small little. you know, independent carriers because they're much cheaper and just as good. So if Mr. B. Are they just as good? Yeah, they really are just as good. It's the same network. So, yeah.

39:27Felix Salmon: So Ryan, what's his, what's Ryan Reynolds?

39:29Emily Peck: Well, Ryan Reynolds, his, his one was called Mint Mobile. And that was actually bought by T-Mobile. So if you have Mint Mobile, you get, you get T-Mobile service offered by T-Mobile. So just like a fraction of the cost of normal T-Mobile service. There is no, if you have a T-Mobile account, There's really no reason not to go with Mint instead of T-Mobile because Mint is exactly the same but cheaper.

39:53Felix Salmon: Okay. I need to absorb some things here. Who's your mobile provider, Felix?

39:59Emily Peck: I use a company called US Mobile who have been lovely and they're tiny and no one's ever heard of them. But one of the interesting things about US Mobile is that you get to choose which of the three networks you want to be on and you can switch back and forth between them. What? For instance, Mint Mobile is only on T-Mobile. Most of these companies are only on T-Mobile. There's one called Visible, which is just Verizon. But U.S. Mobile, you get to choose whether you want T-Mobile, AT &T, or Verizon. And if you can have multiple lines, you can have two different phones on two different networks.

40:30Emily Peck: And in fact, you can have one phone on two different networks. If you're really playing on advanced mode, most iPhones, most Android phones have dual eSIMs now. So you can actually have two different numbers on your phone on two different networks. So if one network isn't working, you can use the other network.

40:47Felix Salmon: But these companies, they don't sell internet access. We have Verizon Fios.

40:51Emily Peck: No, they don't sell Fios. But if you want wireless internet access, if you want a wireless 5G access point, which a lot of people have these days because it's perfectly good, you can stream video and all the rest of it, yeah, they'll sell you that too.

41:07Elizabeth Spiers: I think Emily's talking about home services.

41:10Emily Peck: Yes, that's exactly what I'm talking about. Homes are increasingly moving to wireless Wi-Fi.

41:15Felix Salmon: And it's super cheap? Yeah.

41:17Emily Peck: It's much cheaper than hardwired Wi-Fi.

41:19Felix Salmon: I mean, breaking news. Let's highlight this.

41:21Emily Peck: I have a home where I'm spending more than$70 a month for hardwired Wi-Fi, and I hate it. And I really want to move to wireless because it's just as good and much cheaper.

41:33Felix Salmon: Oh. Well, if you do that, please update us and tell us how much money you've saved. I would like to know.

41:38Emily Peck: Okay. Okay, well, maybe when my article comes out on the bar of soap, we can talk about my bar of soap article.

41:43Felix Salmon: I'm really confused about how a soap is related to this, but I look forward to finding out.

41:47Elizabeth Spiers: If you hold the soap like this, you can pretend it's a phone.

41:51Emily Peck: You know how old cell phones are known as candy bar design? Never mind candy bars, what about soap bars, people? My number is 1.8 billion, which is the number of dollars that S &P Global is spending to buy a company called With Intelligence. This is interesting to me because it's another sign that the boom in private markets is still booming and not busting. With Intelligence is basically a media company which provides information about private companies. And it's also interesting to me because I'm a journalist and this media company which provides information about private companies It's worth$1.8 billion.

42:37Emily Peck: So if you are running a media company that hires journalists to report on private companies, then you can sell your company for 13 times revenues, which is wild.

42:52Felix Salmon: Maybe I need to switch my beat.

42:53Emily Peck: Yeah. Move to hedge funds and private credit, then people will pay you millions.

42:57Felix Salmon: Until the private credit industry explodes.

42:59Emily Peck: It's like$3 million per employee for this company, that being. Emily, what's your number?

43:04Felix Salmon: My number is 5.44, otherwise known as$5.44. That is the price of a slice of pizza that has been deemed the worst pizza in New York City.

43:17Emily Peck: I mean, not least because it's$5.44. Come on, people.

43:21Felix Salmon: Mostly because it's$5.44. So to back up, there is this wonderful journalist called Anne Cadet. She has a sub stack. She used to be at the Wall Street Journal. And she sort of, not like a personal finance person, but more like a guerrilla personal finance expert New York City chronicler. So she had another piece recently that was, I spend 24 hours on the New York City subways. And she wrote about it. And it's delightful. And you should read it. Everything she writes is just absolutely delightful. She did a great piece, just incredible investigative journalism on the people who sell umbrellas when it rains in New York City.

43:55Felix Salmon: It's not raining. There's no one on the street selling umbrellas. It is raining. It's like someone flipped a switch and there's all these umbrella salesmen out. She gave us the full story on that. Anyway, she wanted to eat the worst slice of pizza in New York City, but it was really hard to figure out what that was. She had a reader scrape all the Google reviews of pizza places in New York City and figure out how to do the rankings.

44:17Emily Peck: Emily, can I just, before you do the big reveal, and I have not read this abstract, so I don't know what the big reveal is.

44:23Felix Salmon: Yeah.

44:23Emily Peck: Is it the Sparrows at Penn Station?

44:25Felix Salmon: No, no. It is a restaurant called A Slice of New York! Pizza Cafe. And it is in the Times Square area. And Anne goes with her friend who's more of a pizza expert. And they eat the pizza. And it sounds like just your regular bad slice of pizza from New York City. Triangle-shaped cheese and whatnot has no flavor according to the description. And they even interview the manager slash owner of A Slice of New York! Pizza Cafe. and it's just so delightful. And the guy's like, I know we could sometimes we could do better, but you know, we're really trying. And they come to the conclusion that it's just bad New York City pizza.

45:06Felix Salmon: But what makes it extra bad is that it's$5.44, which is a lot more than you need to pay for New York City pizza.

45:13Emily Peck: For those of you who are not New Yorkers out there, the hard and fast rule in New York is that the cost of a slice of pizza should always be the same as the cost of a subway fare. The subway fare is going up from$2.90 to$3. Therefore, the cost of a slice should be$3, not$5.50.

45:34Felix Salmon: Right. But then they talked to some people that were there. It's mostly tourists because it's Times Square. And she talked to a couple of customers, and they were like, this is really good. It's way better than what we can find where we live. And that is the key point.

45:47Emily Peck: Yeah.

45:48Felix Salmon: The key point is that New York City pizza, even the worst in the city as judged by a scraping of Google reviews is still probably better than most pizza you can get in most other places.

46:00Elizabeth Spiers: Anecdotally, I think the sort of lowest price, baseline price for a slice of pizza was for a long time, 99 cents. And now I think it's gone up because there are three pizza spots in my neighborhood and they're all one block from each other. And they all have a big sign outside that says buck 50 pizza.

46:17Emily Peck: I think there's still like two of the 99 cent pizzas places left, but But yeah, they are dying. It's hard to make money selling 99-cent slices of pizza anymore. The subway fare is$3, people.

46:30Felix Salmon: Is it? It went up to$3?

46:32Emily Peck: It's about to go up to$3, yeah.

46:34Felix Salmon: Wow. Well, you should read Anne's piece where she spends 24 hours on the subway, which definitely is like making your$3 last for a long time.

46:41Emily Peck: Retch that$3 and just stay on the subway for 24 hours.

46:46Felix Salmon: Wait, one last thing is that she tallied.

46:48Emily Peck: One last thing about the$5.44 pizza.

46:50Felix Salmon: No, this is about the 24-hour subway experience, which I guess is cheating on my number. But she had a tally of the number of people she saw reading books in her 24 hours. And the number was one.

47:02Emily Peck: That's so not true. I take the subway every day and I see people reading books like every time I take the subway. She wasn't looking hard enough. I read books on the subway, people. Anyway, I think that is it for us this week. Thank you for listening to Slate Money. Thank you for being a Slate Plus subscriber. If you are, then you will know that there is a wonderful show about matcha in your feed right now. Thank you to Jessamyn Molly and Shana Roth for producing. And we will be back next week with more Slate Money.