Investing in SpaceX’s Future on Mars

0:08Hello and welcome to Sleep Money, your guide to the business and finance news of the week. I'm Felix Salmon of Bloomberg with Elizabeth Spiers of New York Times.

0:20Felix Salmon: Hello. With Emily Peck of Axios. Hello, hello. We are talking Elon this week. We are going to talk about SpaceX, the IPO thereof, all of the money, all of the value, all of the crazy, all of the colonization of Mars. We are going to talk about Iran's economy and whether it makes sense to invest in people trying to put$300 billion to rebuild it. We are going to talk about tobacco bonds and what this means for America's municipal finances. We have a Slate Plus segment on digital privacy and the lack thereof as well. It's all coming up on Slate Money.

1:18Felix Salmon: be watching. Listen to Washington Wise, an original podcast for investors from Charles Schwab, to hear the stories making news in Washington right now. Host Mike Townsend, Charles Schwab's Managing Director for Legislative and Regulatory Affairs, takes a nonpartisan look at the stories that matter most to investors, including policy initiatives for retirement savings, taxes and trade, inflation concerns, the Federal Reserve, and how regulatory developments can affect companies, sectors and even the entire market. Mike and his guests offer their perspective on how policy changes could affect what you do with your portfolio.

1:55Felix Salmon: Download the latest episode and follow at schwab.com slash Washington Wise or wherever you listen. Slate Money is sponsored this week by Bill, which is the intelligence finance platform that helps business and accounting firms scale with proven results. Bill is a leading provider of software that simplifies, digitizes, and automates back-office financial processes for accounting firms and small to medium-sized businesses. What does that mean? It means they help businesses pay and get paid by ACH, JET, credit card, wire transfers, you name it. It's secure. It has AI-powered accounts payable automation that erases the busy work from capturing invoices and processing payments.

2:41It syncs seamlessly with accounting software. It does your 1099 tax filings, you name it. It's an end-to-end workflow. Its customers come from all industries, ranging from startups to established brands and non-profits to accounting firms themselves. When business owners choose Bill, they aren't guessing. They're choosing infrastructure that is already proven by millions of users and over a trillion dollars in secure payments. Bill doesn't just move money. It enables the business's entire accounts payables workflow, and it creates the ability for them to control their financial operations securely and at scale.

3:17So talk with a payments expert at bill.com slash proven and get a$150 gift card as a thank you. That's bill.com slash proven. Okay, guys, we need to talk about the$2.5 trillion elephant in the room. We didn't really talk about it last week. We need to talk about it this week. I am talking, of course, about SpaceX. It is a company that provides internet to lots of people around the world. It is a company that shoots rockets into space. It is a company that owns the company formerly known as Twitter and now known as X, along with its associated AI, known as Grok. And somehow, if you put all of these weirdly disparate businesses together, it is worth$2.5 trillion or thereabouts.

4:10It goes up or down by large amounts every day because it's a volatile stock. The thing it doesn't do is make anything like as much in the way of profits as all of the more mature trillion dollar companies like Google and Amazon and Apple and what have you. But then again, it's a much younger company. It only went public a week ago, so you can't expect it to be making a fortune quite yet. Emily, what is your favorite weirdness about SpaceX?

4:38Felix Salmon: Wow. That's wow. Okay. I guess it's plans that are seriously included in its public filings to colonize the moon and profit from said colonization. Like that is a serious thing that is in the official SEC filings and is part of their plan and presumably their valuation. Not just the moon, Mars. Mars too. Yeah. Yeah. Which is, I believe, more difficult. I mean, colonizing the moon, hard. colonizing Mars even harder really really also just like makes no sense friend of the pod Manu's idea has a wonderful essay about how it just logistically makes no sense Mars is always going to be require a whole bunch of stuff from Earth in order to operate and you know if you've ever gone to say Hawaii and you understand how difficult it is to how expensive it is to operate in a place where you need to import everything.

5:38Just imagine what it's like in Mars, where everything is a million times more expensive to import.

5:44Felix Salmon: Yeah, like they talk about buying grapes in Alaska. It's very expensive to get a grape. So I can only imagine what it would cost on Mars. How much would a grape cost in Mars? Exactly.

5:54Elizabeth Spiers: There's a good book called City on Mars, by the way, about all of this. And I think it was written entirely in reaction to Elon's plans to colonize Mars. It does fascinate me, though. I mean, he has as part of his trillion dollar compensation package at SpaceX, Elon does have one of his deliverables is, you know, we need to colonize Mars, whatever. The question to me is, if you look at the valuation of SpaceX, like how much people are willing to pay for stock in this company, I wonder whether anyone is seriously buying it because something Mars something or whether that's just. They're not. No?

6:31Right.

6:32Elizabeth Spiers: So I have a theory about this. I had assumed that most of the hype built into the IPO was really the company being valued as an AI company. But when you look at all these quotes from analysts and all the coverage, they almost exclusively just talk about rocket development. So are they valuing the company based on that part of the business? Or it seems like the retail sector thinks of it more as an AI everything company. But there's one analyst who just started coverage and gave it a$401 price target. And then when he was explaining why he would justify that, he said, you know, I mean, it's going to be hard to get there.

7:08Elizabeth Spiers: You have to literally build some rockets. And I thought, is that really how the market, like the sophisticated equity people are viewing this company? I think yes. But also, we have to go back in time a little bit to before SpaceX merged with XAI. And it did this merger, and it did this merger at a sort of exchange ratio, which valued XAI at some large amount of money that is now an even larger amount of money. And at the time, SpaceX was worth more than XAI, but they were both worth a lot. And I think that it is almost certainly true that if it hadn't merged with XAI, then the current valuation would be lower than it is.

7:51It would probably still be a trillion dollars, you know, just because Elon, but it wouldn't be as big as it is because he does need that sort of AI sprinkles, which you need. Everyone in the stock market needs AI sprinkles these days. And he has better AI sprinkles than almost any other company in the world other than Anthropik, OpenAI, and Google, I would say.

8:15Felix Salmon: I think a lot of the valuation is this Musk premium that I think Felix wrote about a year or two ago with regards to Tesla, which is like if you just if you value Tesla on its just on what the business is, a car company, it should be valued at Y number. But because of this Musk premium, which is real, people, investors really like Elon Musk and think he has some kind of special sauce that he adds to his companies. And they bid up the stock price. As a result, the interest in this stock, we've been sort of following it at Axios Markets. Please subscribe. It's a daily newsletter. You can sign up online.

8:54Felix Salmon: Has been insane. There are like, what is the number, like 50 ETFs now that shoved SpaceX inside. There's like all these other products called leveraged ETFs, which let people make bets on the stock. They had an outsized portion of the IPO shares were offered to retail. People just think Elon Musk has a magic touch. And I have another theory for this that goes beyond, quote, magic touch, whatever, that has to do with corruption that I thought was really interesting that I read today. But I'll hold on that. There's a bunch of moving parts here. The Musk premium is absolutely real. The other thing that I want to just talk about very briefly is this idea that the Musk premium and the AI premium is kind of related.

9:39Musk genuinely was early to AI. He was the founder of OpenAI back when it was a nonprofit. He's been on this trip for as long as anyone, pretty much. And so he does deserve a certain amount of credit for being early to these things. And you're right that he's extremely good at delivering profits to people who invest alongside him. We all laughed when he bought Twitter for$54.20 per share because it was ridiculously overpriced at that price. And even he thought he was overpaying and tried to back out of it. And yet a whole bunch of people like Jack Dorsey and Mark Andreessen and various other people invested alongside him at$54.20 per share.

10:17It looked insane to do that. he couldn't you know there wasn't even a market for the bonds and if the bonds weren't worth anything i mean the loans you know if the loans weren't worth anything then the stock definitely wasn't worth anything and we all and we saw revenues plunge at twitter because he fired everyone and everyone was like well this was a disastrous takeover and this company is never going to be worth anything close to 5420 well guess what if you invested at 5420 per share then those shares would have like become shares in xai which then would have become shares in SpaceX and now those shares will be worth$170 each$200 each I don't know something like that

10:54Elizabeth Spiers: it's like you have made a lot of money that's true but not from you know being strategically brilliant but no one is no one has ever accused him like that's the whole point it doesn't matter why he has made money for so many people I think it does matter why if we're talking about the valuation of SpaceX because that Elon exceptionalism kind of cuts both ways it can be a benefit but it can also be a handicap because he has, especially if you look at his performance with Tesla, he throws out these crazy milestones and sometimes he meets them, sometimes he doesn't. But whenever he doesn't, people kind of sweep it under the carpet.

11:29Elizabeth Spiers: And can you imagine another scenario where any other public company CEO would put something as crazy in the filing as Mars colonization? If the CEO of GM got up and said, by 2036, we're going to have flying cars and put it in a filing. People would think, you know, this guy needs to take a long vacation and not come back. And with Elon, it sort of doesn't matter what he actually does. It's not even just a premium. It's more like anything that he's associated with has a default kind of meme stock behavior. And it doesn't really matter what the fundamentals are. Right. But you say that like it's a bad thing.

12:03Elizabeth Spiers: I think it is. Like what happens if Elon dies? What happens to all these companies? And, you I think that kind of centrat where one person determines the entire value of the company is super risky. It's an interesting question. For most of its existence, the received wisdom when it came to SpaceX was that it was Elon's other company that he had a large stake in but basically left alone. It was run by a very competent professional named Gwynne Shotwell. and she had turned it into just this colossus of a space company that did that made lots of money and did very well and it kind of did well because elon didn't think about it very much and he was far too busy tweeting or running tesla or running neural link or just running doge or whatever he was doing that week you know feuding with mark zuckerberg and challenging him to a gauge match so like that was the general consensus about spacex now you hear much less about spacex being you know gwynn shotwell's incredibly well-run space company and you hear much more about crazy elon stuff and you and i think you're absolutely right that a lot of the valuation is a function of people of thinking of this as elon's company and i do think that it is i mean we should talk a little bit about the liam denning article on bloomberg about this but i do think it is kind of inevitable that he is going to wind up merging spacex and tesla and that it's all going to be just a huge elon inc and i should just mention my theory for why he's going to merge spacex and tesla which is that tesla has not been a car company for a while it is really you know it started off as his way of trying to make robots that can drive you from place to place.

14:03They're not that good at that. But you know, that was always his dream. Now it is sort of evolving into a company that's trying to make robots that are humanoid and can do much more than just drive you from place to place. But those robots are clearly going to rely entirely on advances in AI. His AI company is SpaceX. It's not Tesla. So in order to use the AI in the robots and to have those energies, you need them to be one thing. I think weirdly it makes more sense for SpaceX and Tesla to merge than it does for, say, Tesla and SolarCity to merge, which was his last big merger.

14:39Felix Salmon: Before we talk about Liam Dunning and Tesla some more, I think there's another intriguing theory for why the market values SpaceX so much higher than it would if it was like a company would not run by Elon Musk. And it's that Elon Musk is essentially the United States' premier oligarch. He is an instrument of state power. We saw this like very literally take shape, obviously, in the first year of the Trump presidency when he came inside the government, ran Doge, fired a bunch of people, cut a bunch of agencies, did all this stuff. He was just literally an instrument of state power. But even taking that out of the equation, SpaceX has a monopoly on launching rockets into space.

15:27Felix Salmon: It has this great technology where it can reuse its rockets. That's their great innovation and makes it so much cheaper. They absolutely dominate that market. The United States government, I think, if I'm remembering correctly from their SEC filing. 25 % of their business comes from the federal government. And Musk and Tesla has a lot of sway with the federal government right now. This very week, the Department of Justice intervened to back Musk in a corporate lawsuit. What? He just has a lot of, he has an enormous amount of state power. And betting on him is sort of betting on the profitability of that in the long term.

16:03Felix Salmon: And the risk with backing an oligarch, of course, is because their power is derived from the state. And that could change. I mean, ask any of the guys who got pushed out of windows right by the Russians in London or whatever. But I do think that's sort of an interesting part of all of it. Yeah. If you look at what happened to Tesla stock after Trump got reelected, you know, everyone was like, Elon Musk is Trump's best friend. Therefore, we should buy Tesla stock because, you know, when Trump wants to smile on a company, there's a million things he can do to make that company more valuable. And that trade worked out really well.

16:38Felix Salmon: Yes, Trump could do things to make your company more valuable. He can also do things if he doesn't like you to make your company less valuable. If you look at, say, what the White House is doing right now with Anthropic and forcing it to pull its latest model off the market and all of that, that's like a real threat to Anthropic long term and even maybe to the whole business of AI models. So just being on the good side of the US government right now is not a given.

17:01Elizabeth Spiers: I have a totally speculative question about that. Elon has been on the outs with Trump too, but I think they're in a good place now. Elon went with them to China for the big meeting. So I'm wondering if maybe the government's crackdown on Anthropic has anything to do with Elon sort of lobbying them since Anthropic is a direct competitor. Possibly. The most compelling argument for the perennial beef between Anthropic and the White House that I've seen is this idea that Dario Amadei in particular is just constitutionally incapable of the kind of suck-upage that you need to be incredibly good at in order to get in there with the White House in general and with Trump in particular.

17:44Elizabeth Spiers: And the corruption, the corruptibility, I don't think he's... Yeah, I think he thinks of himself as being like a not corrupt person. And he like the kind of humiliation that you need to be able to put up with in order to say, do what Tim Cook did and deliver Trump a solid gold trophy for something just to make him like you is something that Dario can't do or just finds it basically isn't willing to do. and then when he does talk to the defense department or to the white house or to someone like that he talks in very sort of nerdy technocratic ways about the product and the strategy and ai and all the rest of it and that's not the language they speak and so when someone else whether it's you know andy jassy or elon or anyone else is like dario amade is a nerd he's a Democrat, he hates you, you know, and starts talking in like very base terms.

18:42Like that kind of language is much more likely to sway the White House than any kind of high minded argument that someone like Khamendai might come up with.

18:52Elizabeth Spiers: Yeah, I think it's also because Anthropic has been pretty open about at least trying to impose ethical guidelines around what they're doing. And I think that Trump wants the ability to just get rid of that if it's inconvenient.

19:04Felix Salmon: The other thing I wanted to bring up is what you were talking about, Felix, how X was not a profitable company. It was a shrinking company and operation. And so he just put it into SpaceX or he put into XA. He made XAI and then put it into SpaceX. And like now Liam Denning has a whole piece that's pretty convincing that eventually SpaceX will just gobble up Tesla, which is also not doing very well either. is there like some metaphor or analogy for what he's doing like hoovering up all the broken things into a thing that's not yet broken to make them valuable again like what is that is what's the term for what's what's happening what are we doing it reminds me a little bit of cisco systems in the late 90s which were just every week it would announce a new takeover of some random internet company.

19:57And it was this incredible way of making money because Cisco would trade it. Yeah, like I'm making that I'm making up numbers here. But you know, you would have some random internet company that was trading at a multiple of 20. And then Cisco was trading at a multiple of 40. And so the minute that Cisco buys the random internet company, suddenly, the value of that company that it bought doubles because you know all of that revenue or profit or whatever you know thing you're multiplying gets multiplied by 40 rather than 20 and so you just you create value out of thin air just by just by acquiring something when a bigger company is trading at a higher multiple than the smaller company you know then it is like this magical way of creating value and it doesn't make a huge amount of sense and as we all remember with cisco it all ended in tears but like it's It's something that works until it doesn't.

20:53Felix Salmon: Doesn't it just weigh down the operation that's doing well until it's laying on the floor? But the point is that the operation, yeah, I mean, yeah, that's the risk. Or, you know, I mean, there's no reason why, you know, like conceptual reason why owning a third-rate social network that's full of, you know, porn is going to help you shoot rockets into space. But, like, somehow it all just gets bundled in there. I think one thing weirdly that Merger did do is that it turned SpaceX from a company that was valued on revenues and multiples and profits. Because SpaceX was a profitable company. As you say, it makes money by shooting rockets into space.

21:35It makes even more money by providing internet connectivity to people around the world through Starlink. And then it turned that company from a profitable company into an unprofitable company. right now it's making losses because you know grok is just burning cash but somehow once you no longer make profits no one can value you on the multiple of your earnings right there's no there's no p.e multiple for spacex because it's losing money and so like it weirdly it's easier to justify a two trillion dollar valuation for spacex when it's losing money what than it is when it's making money because when it's making money you're like this is an insane multiple of profits When it's losing money, you can't make the argument because it's no profits at all.

22:18That's crazy.

22:19Elizabeth Spiers: Again, this is sort of Elon exceptionalism, though. It makes sense for him to take over Tesla because, first of all, they have the cash to do it. People have been speculating about it. They're saying Elon could take over Tesla by just offering a third premium over what Tesla's trading at now. And they have the ability to do that. And if you are a Tesla shareholder and you see the problems that the company has, there's not really a good reason why you would turn that down, you know, unless you just have some principled objection to Elon owning both companies, which clearly the kind of people who put money into Elon don't.

22:55Elizabeth Spiers: if you're a Tesla shareholder, that's probably good for you. And it's sort of for in terms of Musk's overall portfolio, it hides some of the Tesla mistakes under this narrative about upside that's so big and compelling, that it doesn't matter whether these companies make sense together. Well, it's big. Who knows whether it's compelling? I do think a lot of people who own SpaceX in it just because, you know, for the same reason, like, like Bloomberg just had this article about this fund manager in Florida who lost$50 billion of AUM, not because he didn't own NVIDIA, but just because he was underweight NVIDIA, you know, and people feel that they need to own some amount of SpaceX just because it has this potential to go up and they're scared to be underweight.

23:39And it's such a big part of the market that being underweight SpaceX is dangerous, whether you know, it's not part of the S &P 500. If you're benchmarking to the S &P 500, you're fine. But still, you if you're benchmarking to the market as a whole, then undeniably, SpaceX is part of the market as a whole. And you feel like you need some kind of an allocation. The number that I wanted to just draw out, though, is going back to what Emily was saying about retail, SpaceX sold about$20 billion of stock to retail. And just if you do the math on that, let's say that the average retail investor put in$5 ,000 or like the median retail investor put in five but let's say average right let's say the average retail investor put in$5 ,000 that's four million people putting in$5 ,000 into SpaceX there has never been I wrote this for the forecast newsletter at Bloomberg there has never been an initial public offering that was as public as this most of the time when you have an initial public offering, it's public in name only, and the allocation goes to a bunch of, you know, well connected institutions.

24:50In this case, 4 million in the small retail investors, or thereabouts got allocations to SpaceX. This is the first IPO, I think, possibly of all time, but certainly in US history, that you can really consider to be a public offering where the public was willing and able to buy into it. And they did. And, you know, if you look at where it's trading right now, they all made money.

25:18Elizabeth Spiers: Do you think that's because retailers in particular, consider anything that Elon has his fingerprints on a kind of meme stock, and they just expect it to? No, I think it's just IPO dynamics that like historically, the book runners of big IPOs, it was too much of a pain in the ass to send, you know, tiny allocations of$5 ,000 to retail, so they didn't bother. In this case, Robinhood got its allocation. And if you had a Robinhood account, it really wasn't hard to get one share or 10 shares or however many shares you wanted of SpaceX.

25:49Felix Salmon: What's really interesting to me is the way you just framed it, and I want to read your piece. Why didn't you share it with us before this conversation? Bizarre, bizarre behavior. You're describing it as like this very, it's a very public, literally a public offering in a real sense because the most 4 million people, members of the public, were able to buy in. But in this other very real sense, and as we've talked about on the podcast over the years, the public markets are like deceptively public, like in the way that like U.S. democracy is like deceptively democratic increasingly. So in that shareholders have less influence, they have less votes, like with this company, SpaceX in particular, like they're really reined in, can't sue.

26:31Felix Salmon: Elon Musk has, he controls this thing, like the board really doesn't control it. Like it is not public. Do you know what I mean? Like it is public and that we can buy it and like take the ride. And we have the option, some of us not to buy it if we're only invested in S &P index fund. But like, it's not democratic. Like you hear these like, There's no company in the world, though, that is public in that sense that is, you know, run like Switzerland with a whole bunch of like plebiscites and people like take votes on how it should be run. Like the closest thing there is, is like crypto DAOs. And we've seen shareholders Shareholders have a little bit of influence, a little, little bit, and other companies.

27:07Yeah, but the shareholders are all massive institutions. So what?

27:09Felix Salmon: So it's like now we let the retailers in and they have no influence. But the retailers have always had no influence. That's my point. I don't know. I think it's more undemocratic than ever. And what rubs me the wrong way about it is that these Robin Hoods, these Publix, these other companies constantly talking about democratizing finance. And all it means is we give you the opportunity to lose your money too. There's no, why are they using the word? Or to make money. Everyone who bought into the SpaceX IPO with$135 a share is feeling really fucking smug right now because they've made a bunch of money in the space of a few days.

27:46Felix Salmon: I know, fine, it's going their way now. It's not gonna go their way forever. Like things change. I guess I'm just wanting to rant a little bit on the use of the word democracy in the context of just taking money and putting it into things and not having any say whatsoever, especially in a company that's public in name only and is really just like Elon Musk's weird instrument where he hoovers up things that are losing money and puts it under the big SpaceX rug and makes a lot of money from it just somehow magically. He hoovers up the losers and makes them into winners. And retail investors probably think they're like that too.

28:26Felix Salmon: They'll be losers to winners too. But I don't know if this rocket ship can go on forever. You know what I mean?

28:45Felix Salmon: So we're heading into summer and that means it's time to change up the wardrobe, lighter fabrics, better materials, all that stuff that just like feels good, doesn't make you feel too hot, but also if you're like going in and out of the hot air and the air conditioning, you have like your transition pieces. And it's a good time to check out Quince. I shop there. It is less expensive. They have linen stuff. They have cotton, silk, but they're priced very reasonably. They have these amazing black pants that I bought on Quince. I wear them all the time when I went to the Milken conference and I was schmoozing with people wearing their$50 ,000 watches and their fancy Fury pantsuits.

29:29Felix Salmon: I was wearing these amazing black quince pants and I didn't know the difference. I mean, I thought they looked pretty good. So this summer, I'm definitely going to hit up quince for some great pieces. I already have their jeans. They also have like amazing sheets that you can buy and purses. I'm definitely looking to check that out for summer. So yeah, elevate your summer wardrobe. Go to quince.com slash money for free shipping on your order and 365 day returns. And now available in Canada too. That's quince.com slash money for free shipping and 365 day returns. quince.com slash money.

30:14Slate Money is sponsored this week by Monarch, which is the personal finance app that tracks everything. Accounts, investments, saving goals, and spending. You can get your first year of Monarch Core for half off just$50 with promo code SLATE. Monarch is a personal finance app that monitors your money so you don't have to. If you want to hit a savings goal or a net worth milestone, that Monarch is self-identified. Monarch can create cash flow visualizations which will show you that some large percentage of your income is going somewhere kind of unexpected, and you can do something about that. Monarch will tell you if your monthly savings rate has quietly fallen a bit short of what it should have done, as your lifestyle expenses have crept up, as they tend to do.

31:06All of these things where you keep on thinking to yourself, I should be trying to keep an eye on that, but it's hard because you have a life. Monarch can do for you. It's like having a financial advisor in your pocket. Monarch doesn't just tell you what you've already spent. It helps you set goals, map out big purchases, and see if you're actually on track before it's too late to adjust. So use code SLATE at Monarch.com to get your first year of Monarch Core half off at just$50. That's$50 off your first year at Monarch.com with code SLATE.

31:59Felix Salmon: wise you can count on the exchange rate you'd usually find on google no unwelcome surprises plus ditch that where's my money feeling most transfers arrive in under 20 seconds join millions saving billions on hidden fees be smart get wise download the wise app today t's and c's apply

32:22let's move on to the other great democratic experiment which is where america elected Donald Trump to be its president. And then Donald Trump decided he was going to invade Iran. And he started a whole war. And now he seems to have lost the war, which doesn't seem to have caused quite the degree of anger that you might expect. But in any event, the thing that I wanted to talk about was just because Donald Trump has lost doesn't mean that Iran has won. Iran has managed to achieve an interesting couple of strategic advantages that it might not have had before the war. Specifically, the ability to charge tolls in the Strait of Hormuz that never really happened pre-war, and also the ability to get$300 billion from somewhere to rebuild.

33:15But by the same token, it really needs that$300 billion to rebuild because the United States really did cause a huge amount of damage to the infrastructure of the country. And the economy of Iran, which was teetering to begin with, is now even worse. And the sort of big argument by Netanyahu before the war, which he was using to persuade Trump to start it was basically, look, the economy is teetering, there are people out on the streets protesting, all we need to do is drop a few bombs, And then somehow that will force the government out and there will be some massive, wonderful regime change.

33:57Obviously, Netanyahu was smoking something insane. Like no rational person believed him, but that didn't matter because Trump believed him.

34:06Elizabeth Spiers: Well, there's a quote from Senator Chris Van Hollen in Maryland where he said something like, you know, Netanyahu has wanted to bomb Iran for 40 years and Trump has been the first U.S. president stupid enough to do it. And I think that's kind of true. But in any case, the Netanyahu slash Trump thesis for why bombing Iran made sense has not made sense for 40 years and didn't make sense this time. It didn't work this time. But the first bit of it did work, right? The first bit of it is if we bomb Iran, then that's going to make Iran worse off, worked. And now we have this huge country at the heart of the Middle East with a bunch of oil that is economically a basket case.

34:45And what I wanted to ask you guys was basically, how should we think about the Iranian economy and what happens now?

34:53Elizabeth Spiers: So I have some thoughts about this$300 billion fund. Trump has said explicitly that it's not coming from government, that he's going to find private investors to put money into Iran, which almost feels like, OK, so your story now is that you bombed Iran. It's already a struggling economy, did$270 billion worth of damage, and now you're going to bring in private sector to basically invest in what Trump is sort of characterizing as natural resources. So, I mean, that just sounds like mob behavior. You know, we're going to destroy your country, but we'll help you rebuild it as long as we can literally own those resources.

35:29Elizabeth Spiers: You know, whenever the$300 billion plan was first announced, I thought, well, maybe that's a, you know, that's a good thing. But I had assumed that it would be something more akin to a Marshall plan for Iran. And this just seems like another Trump investment scheme.

35:44Felix Salmon: That's interesting. I was looking around and, I mean, Netanyahu wasn't wrong. Like, by the end of 2025, the currency lost nearly half of its value. I think it's like you can buy, I don't know, it's like a penny. The exchange rate is insane, suffice to say.

36:00Elizabeth Spiers: You're saying he wasn't wrong about the state of the economy?

36:02Felix Salmon: The state of the Iranian economy was worse than ever by the end of 2025. There were protests. We already knew that, right? Yeah, I'm just saying it was quite bad, and now it's obviously worse. And I think Elizabeth is right. We know that the U.S. has the capacity to spend money to rebuild a country because we have done it before and to success. I mean, it's been a long time. It's been 75 years. We haven't really done it in a minute. But the normal playbook now is kind of to just leave a mess behind. So I feel like there's no reason to expect it won't go like that again. And that's too bad. I think about this quite a lot.

36:40There is this kind of value investor intuition, right? That if a country is cheap, if an economy is doing badly, there's this idea that you can come in with money, whether it's$300 billion or anything else. And like the profit potential is so much higher because, you know, just if you just rebuilt Iran to where it was in the 70s, you know, that the amount of profit you'd make would be enormous, let alone to what it could be today if it became, you know, the next UAE or something like that, Saudi. so there's a lot of potential there and and there's the kind of idea that if you if you invest now you're sort of buying low and because we've leveled the iranian economy we're giving people an entry point that is the lowest possible entry point and the lower the entry point then the higher the potential profits and i think that this view of iran in particular but also just emerging markets in general just has not played out and if you look at how i remember talking to a fund manager a few months ago about the emerging market thesis 100 years ago.

37:49And if you look at all of the emerging markets, or the countries that might have been emerging markets, the emerging market funds 100 years ago, they're basically all still emerging markets today, with the possible exception of the United States. And it's very hard to make the case that this is some magnificent investment opportunity. And I do think that most of the money that goes in there is going to end up going in from Gulf states, basically, as a sort of geopolitical arm twisting rather than from sort of arm's length investors.

38:22Elizabeth Spiers: I think that's right. And I think another thing about this is that, you know, you're talking about people who are looking at investment potential and thinking about putting in money. Trump thinks about it. He doesn't come in with money, he comes in with guns, you know, and tries to sort of force these countries into, you know, giving up resources to the private sector. But if you were if you really were going into it with that long term investment mentality, the last thing you would want to do is destroy infrastructure in those countries, because that's very difficult to rebuild and you need it in order to make these investments work.

38:53Elizabeth Spiers: So I don't think that level of strategy is really happening in Trump's brain. What they really wanted to destroy was not the infrastructure so much as the, you know, hardline Islamist regime. And they totally failed to do that.

39:08Felix Salmon: What about South Korea? What about Japan? What about Europe after World War II? What about that? Yes. What about it? You're right. In the wake of World War II, there was a whole bunch of clever things that happened.

39:19Elizabeth Spiers: And we didn't have an isolationist government who viewed any type of foreign aid as part of a zero-sum game where it's taking money away from Americans.

39:27Felix Salmon: Yeah. Well, how did the Gulf Coast countries get so rich and prosperous? I don't know, Emily. How did the Gulf countries get so rich? It's a mystery. None of us will ever know. Just cut it. All right. Fine. It's a holiday, did you know? I don't have to work today.

39:54Felix Salmon: This episode is powered by AT &T Business. For every small business owner, there's a moment they remember when they realized they wanted to start their own business. It can be a life-changing moment, but those first steps are never easy. Figuring out the right building blocks, your goals, your schedule, your mindset, you have to think about an entire ecosystem. Not just the big stuff, but the little bits too. In this day and age, a major point for any successful business is strong connectivity. Spotty internet has led to some terrible work calls in my life, but when you're running a business, connectivity can make or break you.

40:23Felix Salmon: AT &T Business has the tools, team, and expertise you need for a reliable network you can depend on. They make connecting easy, and that's the main thing you want in a provider. Less time stressing so you can focus on the million other things on your plate. Can I hire more people? Should we get a bigger office space? Don't lose sleep over the small stuff. Keep focusing on the big things. AT &T Business built to work. Get AT &T Business at business.att.com.

40:50Elizabeth Spiers: Support for this podcast is brought to you by Walden University. Ever catch yourself thinking, what if I could go after what I actually want and really make a difference? You're not alone. And that's exactly why I want to tell you about Walden University. For over 50 years, Walden has helped working adults like you get the W with the knowledge and skills to build the future you want and make a difference where it matters most. If you've been waiting for the right moment, this is it. Head to waldenu.edu and take the first step. Walden University, set a course for change. Certified to operate by Shev.

41:27you do have to work today amelie you have to tell us everything that you learned about tobacco bonds

41:33Felix Salmon: okay here goes so here's what happened okay so i have this delightful editor at axios named jeffrey kane and he put a link in the slack as and this has sent me down a rabbit hole as most things do just a link in the slack and it was a link to a story on bloomberg first ever default shakes$80 billion corner of Muni market. Sounds extremely boring, but it turns out, does everyone remember Russell Crowe in The Insider? Everyone does because we did it on Slate Money Goes to the Movies. You should all listen to the episode. But basically, tobacco companies were lying to all of us for a really long time and they said everything was fine with cigarettes and oh, wow, no, it wasn't.

42:12Felix Salmon: We all knew it. There was plenty of evidence. They finally, all of the states got together in a world where states could come together and do things. We had a country. They came together and did something. They sued the hell out of the tobacco companies and they brought them to their knees. And the tobacco companies were like, we will pay a lot of money and we will do it forever for life to the states. And the states were like, and everyone was like, yay, we vanquished the evil tobacco companies or whatever. And so then what happened was the states were like, well, well, Wall Street was like, interesting, perpetual revenue stream from tobacco companies going to states who are always and perpetually in need of money right away right now and have no long-term kind of planning kind of muscles.

43:00Felix Salmon: That's interesting. What if we offer to give them lump sums of cash right away and then create these like bonds and then they just have to pay us every year interest and a little principle, but they get their money up front. And isn't that amazing? And some of the states, not all of them, were like, sounds great. So they took the LEM sums. They made these little shell companies. And off we went. And off we went. But something happened. No one could have seen coming. Actually, everyone saw it coming, but for some reason wasn't written into the bonds the right way. These projections of how many people would be smoking and how much money the tobacco companies were making were optimistic, which is a weird thing to say when talking about projections about how many people will be smoking, but they were optimistic.

43:46Felix Salmon: Instead, what happened was people really started quitting smoking. Governments really cracked down. Everyone was like, hey, these things cause cancer. Maybe we should discourage people from smoking them. And so that's what happened. And the rate of people smoking went down. Companies had less revenue coming in. So the money going out to the states that they needed to pay back the bonds was less. And everyone new has known for years that something had to quote unquote give. So what happened this month was Nassau County, where I'm from, by the way, yes, they defaulted on their tobacco bond. If mayor, we can talk about, it's probably fine.

44:24Felix Salmon: Not a big deal, but I have a lot of thoughts on what it all means, but I'm going to stop there because I feel like I've been talking for a long time and I don't have the constitution for it, frankly. No, that was a wonderful monologue. 10 out of 10 for that monologue. Thank you so much. But the one thing you didn't say in the monologue, because you're a normal person who speaks English and not a finance person, is the magic word non-recourse. Yes. And the absolute genius and the wonderful thing about like, this could have all ended in tears. You say that like Nassau County defaulted on its bond.

44:57Well, no, it really didn't, because it's not really Nassau County's bond. It's a special purpose vehicle set up by Nassau County to receive a bunch of revenues from tobacco companies. And this special purpose vehicle then takes those revenues and pays them out to bondholders. But if it defaults, that's not a Nassau County default. Nassau County, there's no recourse to Nassau County. Nassau County does not need to make up the shortfall in any way. All of these bonds are tobacco revenues and only tobacco revenues. So if the tobacco revenues fall short, and the bondholders don't get as much money as expected the only people that are hurt by this are the bondholders nassau county gets to keep all of the money that it raised in that initial bond it gets to you know invest it however it likes and put it into building swimming pools or whatever it does with money that it gets from issuing bonds and it doesn't need to pay any of that money back ever it's one of the it's the most magical bond issue because you get a whole bunch of money up front and there's no repayment obligation ever in the history of the world.

46:06The bond investors get paid back only if the tobacco companies are still cash flowing and sending money into this fund, which right now they're kind of not doing to the degree that everyone expected. And are we going to shed any tears for these asset-backed bondholders buying tobacco revenue bonds? No, I don't think so.

46:27Felix Salmon: But there's a twist that was so interesting to me, and maybe this is jumping ahead too much, but I spoke to this guy, Matt Fabian. He is a municipal bond analyst at municipal market analytics. Anyway, he knew a lot about all this and it was very interesting. And one thing he told me, which I had been starting to cover a little bit last year, but I kind of dropped the ball on is the United States of America, the actual states, they're in a bit of a pickle right now. The federal government has been cutting back funding for states for quite a while since the COVID. And then President Trump came in and cut it to hell, cut the money to hell for all kinds of things, right?

47:04Felix Salmon: We know this, Medicaid, food stamps, all the kinds of things. At the same time, climate situation is here, and states are having to spend a lot more money just like dealing with the fallout from that, you know, like the hot, the cold, all of the storms, blah, blah, blah. It costs a lot of money to run the states. States don't want to do the thing that would get them more money, which is raise taxes. They need money. They're getting less and less of money. They're in a crisis. Some of these states have these tobacco bonds, which, as Felix pointed out, they're like off the hook. But there is still money coming in from these settlements, right?

47:40Felix Salmon: They're supposed to go to these bondholders, blah, blah, blah, when it finally comes in. But what Matt said, which I thought was really interesting, is that they could restructure the bonds. They could re-monetize and restructure and refinance. He had another word for it, re-something. It's not coming to my mind. It was some weird municipal bond term that starts with re. I don't know. They could restructure it and they could take the money and do something different with it and use it in a desperate attempt to gin up some cash rather than raise taxes because people don't like when you raise their taxes.

48:16Felix Salmon: So the tobacco money could still be of use to the states, Maybe. What do you think of that?

48:22Elizabeth Spiers: Well, the tobacco bonds are all kind of triple C and barely above junk rated right now. It seems like some kind of restructuring is inevitable anyway.

48:30Felix Salmon: Could be. But then they would be more responsible. It would get away from what Felix is saying if they did it. But it could be another way for states to milk the cigarette twice or something.

48:41Elizabeth Spiers: The states could just start an ad campaign to get everybody to start smoking again. I mean, we're almost there.

48:47Felix Salmon: Honestly, we're almost there, right? Maha, I think, thinks nicotine is healthy or something, I think. So it's weird. If you look at what happened in New Zealand, you kind of joke about this, but it's real. Smoking is right wing coded in a very interesting way. So under Jacinda Ardern, we remember Jacinda, right? You know, the amazing lefty prime minister in New Zealand. So she implemented this rule for cigarettes, basically. It used to be that if you were under 16, you couldn't buy cigarettes. And what she did is she changed it to if you were born after 2004, you can't buy cigarettes. It didn't change anything in 2020.

49:31It was still people who were under 16 couldn't buy cigarettes. But then as time went on and people got older, it got stuck at 2004. So like the people who were not allowed to buy cigarettes who were 16 in 2004 were never going to be allowed to buy cigarettes. And this was seen at the time as like an absolute genius policy, because if you never start smoking cigarettes, then you never become addicted to cigarettes. And they're highly addictive things. So the way you stop people becoming addicted is by stopping them starting. And so like, you know, the idea that you start smoking at 17 and then you get addicted, the way you stop that from happening is just by making sure that people don't start smoking at 17 in the first place.

50:09That seems too restrictive. This worked until, you know, she got kicked out, replaced by a gruff right-wing man who was like, this is bad, and basically took the Emily Peck point of you saying, I don't know, man, this is too effective. A little too, like a little bit. And he's like, okay, all you people who weren't allowed to buy cigarettes because you were born after 2004, you're allowed to buy cigarettes now. You go out and start smoking. And so it really is this sort of left-right thing where you have left-wing nanny states saying, no, no, no, you can't do that. And the right-wing libertarian state saying, of course, go ahead and kill yourself if that's what you want to do.

50:48Felix Salmon: You have the freedom to kill yourself. Go ahead. But I don't know. The fact that the municipalities need cash desperately now in a way that they haven't since like the end of the Great Recession, I think is something to watch.

51:13Felix Salmon: numbers round emily what's your number my number is 87 million that is the number of servings of frozen yogurt sold in the u.s for the 12-month period ending in march 2026 and i think that was all from one frozen yogurt store just down the street from me that constantly has a massive line outside. Yes, Felix. Is it Mimi's? Possibly. I try not to look. I avert my eyes whenever I walk first. So that's up 26 % from the previous year. And that is because Froyo is in phase three of its domination of the country. Phase one, you know, was like late 90s, was like TCBY. That stands for Felix, if you don't know the country's best yogurt.

51:54Felix Salmon: And it dominated my childhood, TCBY. Then there was the Pinkberry phase, the Tasty Delight phase, the 16 Handles phase. Now we're in phase three, Froyo colon the comeback or whatever you want to call it. People are waiting on line. Froyo three. Froyo three. Froyo three, the wait in line version of Froyo. And it's like really popular. And it's just, I don't know, it's just something I think about. Is Froyo, does it taste better if you've been waiting in the line for 45 minutes to get it? I think it has to. No, but I read, I was, before we hopped on the Zoom or whatever this is, Riverside, I was reading a New York Times piece where it was like, I waited online for frozen yogurt and here are my thoughts about it.

52:38Felix Salmon: And the concluding thought was basically like community spaces in the United States are shrinking. No one's going bowling, you know, that kind of thing. But what we have now is the line and it's our community. We have the Froyo line. If you're not waiting in line for Fro-Yo, where are you going to be able to look at the back of someone's head who's scrolling TikTok?

52:57Elizabeth Spiers: Isn't there a lot of data about millennials and liking shared experiences?

53:01Felix Salmon: Sharing shared experiences.

53:02Elizabeth Spiers: It is a shared experience. I don't think it's millennials, Elizabeth. I think it's Gen Z. Even the millennials are too old for this show.

53:09Felix Salmon: Yeah, maybe it's just. So, okay, this is Gen Z. This is their village green. It's just a lion waiting for frozen yogurt. That's democracy. Since we're on the demographic subject, I am going to come out with my number, which is 27. And the statistic is that 27 % of homes with three or more bedrooms in America are occupied exclusively by people aged 65 or older. The three bedroom homes are not family homes. The kids have moved out. The olds are in there. The olds aren't selling because something something capital gains or they just, you know, can't be asked. They have nowhere to go. Do you know how much a new place to live costs?

53:49Felix Salmon: Like they're stuck. Less than a three-bedroom home, but they've also got mortgages. They are locked into either a little mortgage or they own it outright and their monthly payment is pretty low. And if they were to buy something new, it would cost more. No? Yeah, but they don't have to buy. It wouldn't cost less than a three-bedroom home. They need bedrooms for when their grandchildren come to visit. Oh, my God. Just the anger. The anger from these two New York City residents is okay.

54:18Elizabeth Spiers: I'll shut up. Elizabeth, what's your number? My number is$8.5 million. And that's how much you can buy the Longaberger basket building in Newark, Ohio for. Do you know what this is? This is the Longaberger basket. I love this building so much. This is my favorite building in America. One of the family members in Longaberger decided that he wanted the office building to look like a Longaberger basket. And the architect was like, oh, yeah, sure. We can incorporate some of this stuff into the facade or whatever. And he was like, no, I want it to literally look like a Longaberger basket. So it does.

54:49Elizabeth Spiers: It's got like a stucco on the outside that looks like a basket weave and it's got two giant handles. And so now it went into foreclosure and a guy bought it for like$1.5 million, thought he was going to turn it into a luxury boutique hotel and that didn't work. So now it's for sale again. And it's a seven story building with 180 ,000 square feet on 21.5 acres of land. And it can be yours for$8.5 million. Could put all the old people there. I need to come in here with my favorite quote of any news article that I've read in the past week. Genuine quote from this article. Somebody made me an offer, but they wanted to take the handles off and they didn't want it to look like a basket.

55:30It was a hard no from me. I said, that's not going to happen. It's got to stay a basket or I won't sell it.

55:41Felix Salmon: It's a real basket case. You didn't need to go there, Emily. That's what you expect from me. But you did. That's what you want. That's why I'm here. Well, if you're going to hell anyway,

55:50Elizabeth Spiers: you might as well work in a handbasket.

55:52Felix Salmon: Yes. Boom. SpaceX headquarters. Guys, I am calling it. This is the end. All I'm going to do is I'm going to thank Justin and Molly for producing. I'm going to tell our lovely listeners to keep on emailing us on slatemoneyatslate.com. And I'm going to tee up the Slate Plus segment, which is about all of our private information on the internet and what if it becomes public. Is that a nightmare scenario? That is coming up for all you lovely Slate Plus members. We appreciate you. Otherwise, thanks for listening. And we'll be back next week with more Slate Money.

56:32Felix Salmon: Slate Money is brought to you by Charles Schwab. Decisions made in Washington can affect your portfolio every day. But what policy changes should investors be watching? Listen to Washington Wise, an original podcast for investors from Charles Schwab, to hear the stories making news in Washington right now. Host Mike Townsend, Charles Schwab's Managing Director for Legislative and Regulatory Affairs, takes a nonpartisan look at the stories that matter most to investors, including policy initiatives for retirement savings, taxes, and trade, inflation concerns, the Federal Reserve, and how regulatory developments can affect companies, sectors, and even the entire market.

57:13Felix Salmon: Mike and his guests offer their perspective on how policy changes could affect what you do with your portfolio. Download the latest episode and follow at schwab.com slash Washington Wise or wherever you listen. Hey, it's Paige from Giggly Squad. And you know those moments when you just want to slow down and actually treat yourself? That's exactly where Haagen-Dazs comes in. Haagen-Dazs just launched a brand new flavor, coffee almond toffee ice cream. It's rich, smooth, creamy, indulgent, and honestly too good to rush through. Take your sweet time. That's Daz. Find Haagen-Dazs new coffee almond toffee ice cream at retailers nationwide.