We take some questions

0:08over here at the unhedged podcast we love getting questions from our listeners questions like why does Rob Armstrong look like Eddie Rama, the Prime Minister of Albania, rather than Cary Grant? And how do you make your own dishwasher tablets? But as we stumble bleary-eyed and frankly rather beaten up into the end of 2025, we put out a bat signal asking you lot listening out there for questions about markets and finance that you'd like us to answer on the show. We had loads, thanks very much, although hardly any, maybe in fact none, from women. Girls, come on now, Don't be shy. I've made a career out of asking stupid questions and Rob certainly has.

0:48It's fine. Anyway, today on the show, we're going to answer as many questions as we can. Sorry we can't get to them all and we're going to try not to mess it up. This is Unhedged, the markets and finance podcast from the Financial Times. I'm Pushkin. I'm Katie Martin, a markets columnist at Festive FT Towers in London, pre-recording this show so that by the time you listen to it, I'll be stuck into my third snowball of the day. Joining me down the line all the way from the North Pole is my chief elf, Robert Armstrong, the largest of elves, who is taking time out of fashioning small toys out of pieces of wood for all the good girls and boys at this busy time of year.

1:26Rob, tell me, are you a Christmas person or are you a humbug person? I am a Christmas person, although it takes me a long time to get into it. Uh-huh. I've often said that when I am king, anyone who puts up a Christmas decoration before Thanksgiving will be summarily executed. I think Christmas should be a short, intense period rather than an endless cycle of tiresome decorations. So I get into it around Christmas Eve, but then I'm super into it for 48 hours and it's over. But I have a question for you, Katie. Is a snowball a kind of beverage? You just mentioned the snowball I love a snowball I was going to ask you whether you have snowballs It sounds disgusting so you're going to have to bear with me It's like an eggnog, boozy eggnog drink to which you may if you want to, add more booze in the form of vodka and then you top it up with lemonade which makes it go all kind of fizzy and like a snowball and you squeeze some lime into the top of it Delicious So good Never heard of it It's sufficiently sinful and sweet and boozy that you should consume them at Christmas only.

2:42Only, yes. So I was going to ask you snowball or Negroni, but I'm guessing you're going to say Negroni. I do like just an eggnog. I think eggnog's good. Any excuse to drink cream. What could possibly go wrong? So, okay, look, let's get stuck in because, like I say, we did get like a heap of questions from listeners. Tom, he emailed and apologized for a stupid question. It's not actually a stupid question, Tom. He asked, why do companies care about their share price? What difference does it make to a company if their share price is going up or down? Good question. It actually is a very good question and one without a simple answer.

3:23So, I mean, there are simple answers, but they're incomplete. And then you quickly get into the complicated answer. Simple answer number one is the CEO's pay is often linked to it. Right? So the executives of the company get stock option grants or actual stock or whatever. And the idea is that this will align the interests of the people who run the company with the people who own the company, solving the so-called principal agent problem of corporate finance. this works sort of well, I guess. I think it's probably good overall that executives are paid this way. But the problem is, even if you don't let the executive sell for, say, five years after his stock grant, five years may not be the ideal planning period or decision horizon for a really good chief executive.

4:24So if the chief executive has a hard decision to make and the right thing to do is going to be one that might spook the shareholders, this will discourage them from doing it. So it's not you don't get perfect management incentives out of this. But this is reason number one. This is how people get paid. But there's a bunch of other reasons, right? It's not just about what's in the interest of a clutch of CEOs because who cares about those guys? There's not very many of them in the world. It's easier for you as a company to borrow money cheaply if you're able to demonstrate that you're worth a kajillion dollars.

5:04And if you want to raise more equity, so issue more shares or whatever it is, then it's easier to do that if you can demonstrate a record to previous investors that, look, this has worked out pretty well. So let's have more equity. Let's have more debt. So there is a kind of virtuous circle thing here as well. Correct. Where it's a currency. If you have a high stock price, you have a valuable currency with which to do things. But again, the dark side of this is that the value of that currency is controlled by a bunch of wild-eyed risk lemmings known as investors. and they can jerk that thing around fairly unfairly or in between in the short term.

5:54And indeed, this presents such a risk that there is an entire industry known as private equity, which will get you into a situation as a company where you don't have to worry about the risk lemmings anymore. You've been taken off the market. You have one owner rather than a kajillion. and you can do hard things that would be too hard to do in the context of publicly traded shares of your company. So again, it's a mixed bag. And also, if you've got a very high share price and your company is worth a lot of money, at least on paper, then you can go and gobble up other companies if you like. And it's harder for other companies to come along and buy you if you're very expensive as a listed entity on a stock market.

6:42So it's a good question, like why do you care? But there are a bunch of reasons why companies care. Correct. So question number two from Paul. Should we be able to speculate on a broader range of commodities, e.g. the price of a burrito? Now, I'm going to say a burrito, not a commodity. Yes. No, that's a high value add product, the burrito. This, I think, is an interesting point, right? Like, why can't we just bet in financial markets on anything? Why can't we bet on whether Rob Armstrong is going to be wearing a Santa outfit on Christmas Day? Why can't we bet on who's going to be the new chair of the Federal Reserve?

7:28Yada, yada. To an extent, this is happening. This is what these prediction market companies are doing. It's happening, for better or worse. Now prediction markets, I think it is worth just like pausing on that for a little minute. They've gone kind of bananas in the States, haven't they? Because am I right in thinking you've only recently introduced sports betting? Only recently introduced sports betting. And I believe the reasons, the laws around prediction markets generally have changed a little bit. Although I need to double check that. But they're a big thing. I like them. I just want to say a word in favor of prediction markets, which is especially with politics, we all love to shoot off at the mouth about how we understand politics and we know who's going to win, who's going to lose.

8:17Well, if you go over to your prediction market, Calci or whatever, you can put your money where your mouth is. And this is good because then you're like, oh, I thought that so-and-so was going to win six months ago and I bet 50 bucks on it. How was I so stupid back then? So like being able to bet on a lot of stuff allows you to kind of hold yourself accountable. I'm not saying you should put a fortune on these things, but I see the kind of intellectual functionality of these things. I don't. I completely disagree with you on this. I think it's really unhealthy, right? So you mentioned Kalshi. So their co-founder and chief exec is called Tarek Mansour.

9:00He was talking the other day about how the platform could be used to, and I quote, financialize everything and create a tradable asset out of any difference in opinion. I'm saying, rut row, this is bad. OK, so one of the ways in which this is bad is a bunch of people have gone on to one of the prediction websites to bet on who would be nominated as the Time person of the year. You know, the Time Magazine's Person of the Year is like a big kind of event every year. And a bunch of people have bet that it would be AI. And actually what Time Magazine went for was a whole bunch of people who it described as AI architects.

9:40Now then, the people who'd bet on AI are saying, okay, so we win. And the prediction platform that's taken a lot of their money on this bet is saying, no, no, you don't. Yeah, you have to be very careful about specifying it. There's going to be conflicts. And also there'll be gaming of the system, right? It's, you know, people will be getting in there and making things happen that they bet on or inside. There will be insider trading and all of that stuff. Yeah. I hate sports betting. I should also note that I hate sports betting, like sports betting on the individual app. I'll fearlessly predict that gets made illegal eventually again.

10:18Yeah. I just think it's horrible. You know, it's like carrying a little liquor store in your pocket. It's like you can, you know what I mean? It's making a vice instantly available at all times with no restriction. This is not a good idea. But also, like you say, it's so easy to game it. So you can go on to CalSheet now and bet on who will Trump nominate as the chair of the Federal Reserve. Because as we all know, Jay Powell steps aside from that role in May next year. there's going to be a new chair. Now, if you happen to know who Trump is going to appoint as the Fed chair, then you can make a bet on that platform that's like not fair to the other people who are playing.

11:01Now, maybe you don't care about fairness and maybe I'm being too kind of prissy about this whole thing. You've got to like, you know, do this stuff properly. I guess to bring this answer around, we should also note that there are ways to bet on the price of a burrito. I mean, you can buy it, you know, you know what the price of a burrito is today and you can buy an inflation swap and speculate on how much inflation is going to drive the price of that burrito up. Right. So indirectly. What people want is like a her, her, her, you know, isn't this funny? It's a bit like, you know, the cryptoization of everything and the meme stockification of everything tells you that you should be able to bet on burritos.

11:46I'm just saying like, you know, in financial markets, that's why there's so much very tedious regulation, because there will be in the region around if burritos were a regulated financial asset, there would be like a booklet, like as thick as my hand that says, what is a burrito? How do we define what a burrito is? How are we determining what the price is? If there are five different prices for burritos on my street, which one are we taking as the benchmark price and why? What happens if that price fails and blah, blah, blah. Boring, boring, boring. But the general public doesn't want boring, boring rules, rules, rules.

12:19It wants, I'm going to bet on a burrito. So I just think that sort of lolification of financial markets, the financialization of everything, for me, bad. Do not like. But, you know, reasonable people can disagree. Next question. We had a question from Jan who says, effectively, will UBS, the massive Swiss bank, move to the US? So it's a Swiss bank. It's been a Swiss bank forever. It gobbled up Credit Suisse when Credit Suisse died. It basically is Switzerland. And it's been talking about, oh, maybe we should decamp because we don't like all these nasty regulations we've got in Switzerland. Maybe we should go to the US.

13:03glorious golden pasture where there are no rules for banks so we can do whatever we like like i think it's a threat i mean it's saber rattling katie yeah you know what i mean and and good by the way i think we've discussed on this show many times that there is a lot of work to be done on the structure of european financial regulation to make it uh simultaneously safe, but more efficient and clear and less cumbersome than it is now. You say that. You know how much Eurozone bank stocks are up this year? Like 60 % or something ridiculous. Like it's been a incredible... Now they're trading at a lordly 0.6 times book or something.

13:47You're just jealous because you weren't in the trades. And if you've been in it as a dollar-based investor, woohoo! Anyway, you made the point. It is Switzerland, right? Right. It's not, you know, the Swiss are not going to let that happen. But it's good that the company is rattling the sabers. And I hope that it makes Swiss and European officials snap to attention and say we have work to do here because they do. We have work to do here because we need to be crazy, rule-free lunatics like the Americans because what could possibly go wrong? They don't need to be rule-free. The first thing you need, and we've discussed this on the show, is for the rules to be very clearly trans-European.

14:35Right? Not just the Eurozone. You know, I'm talking about across Europe in all of its manifestations. Not the Euro area. But, like, there has to be regulation across all European countries that makes financial services very transportable across borders. Yes. And they need to do that. And it's a major block to prosperity. And they got to do something about it. With love, I see very little prospect that you can convince people to get this done, Rob. But you are not wrong that this is a big issue that needs addressing. And maybe one day in our lifetimes, it will be addressed. Yes. Here's a nice little question coming from Matthias.

15:16Matthias, I'm afraid I don't know how to pronounce it, but you'll like this one. Why are shareholders so relaxed about the erosion of shareholder rights? So, for example, there was a story the other day about Exxon, the oil company, which has effectively won a court order that enables it to limit shareholder activism, which is where investors effectively tell companies what to do. Why do you think investors don't seem to really care that they have less power anymore? Corporate governance is one of those things that people only worry about once it has already gone terribly wrong. Yeah. So the classic example of this is the big Silicon Valley companies like Google, Meta.

16:06I'm trying to remember which ones have which have the the control of the company and economic ownership of the company are separated by kooky multiple shareholder classes. and as long as the stock price is going up people are like multiple shareholder classes who cares let's party right and then you know mark zuckerberg comes along and starts talking about the metaverse all along and everyone's like whoa whoa whoa whoa who's running this here i can't believe we had that story the other day didn't we that the meta is cutting back 30 of its spending on the metaverse And I'm like, lads, I have an idea for the other 70%.

16:49Why are you spending any money at all on this nonsense? They renamed the company for this project, so they can't just shoot it in the head, which is what clearly ought to happen. Well, they can't shoot it in the legs because none of these people have legs in the metaverse. They're all just like disembodied, floating computer people. Rubbish. But it's just one of those things. You only start worrying about governance when the trouble has already started. And it's just a sad fact of human nature. And, you know, the lawsuits start, then the recriminations have to start to fly before you get, you assert your rights.

17:26Yeah. Sorry. Yeah. Yeah. Sorry. Nobody cares. Right. Final question in from Rick. Apart from the impacts to human lives in Venezuela, what are the implications for global markets on the USA taking an increasingly active stance in attacking the Maduro? regime. I'm going to let you start on that one, Katie. That's a hard one. I think in terms of the implications for global markets, my expectation is that there will be precisely zero. One thing that we just keep learning over and over again is you can have rockets flying into Israel and into Iran. You can have this grinding situation in Ukraine. Ukraine, you can have this appalling war that's playing out in Sudan.

18:14Markets don't care about this stuff. They need a really good reason to care about this stuff. And I can't see a macro reason why markets would care about an escalation of violence between the US and Venezuela. Can you? No, I can't. And the point you just made is especially true in the oil market. Yeah. Because of fracking technology specifically, and I guess a few other things, the sources of oil globally are much more diversified than they used to be. So it's less of a big deal if a Venezuela or an Iran or a whoever, one of the big traditional players shuts down. There's other sources. The market regains its balance is the term.

19:01It re-equipulates. It re-equipulates. The re-equipulation of the oil market. Right. So I know that is a word. I'm certain of it. So that's a big deal. But the question, I think an interesting philosophical question is, is markets overall indifference to quite big geopolitical shakeups? Is that a good thing or a bad thing? Should we be glad about that? My instinct is that it's a good thing in as much as somebody can't hold the whole world hostage by doing something awful across a border or it's harder to do now. But on the other hand, you might say it's easier for the world to ignore these things than it once was.

19:52You know, you had conflict that, you know, 30 years ago, you had conflict in the Middle East. Everyone's thinking, well, what about the oil? What does this all mean? We better get on the stick here. and now everyone's like checking their watch and um going on a prediction market and uh on the price of a burrito right so uh so i i don't know uh you know the the kind of the fact that global markets are now so big and so well distributed that they can adjust to these things that could be good or bad in in different ways yeah you pick your poison on that so look you know In summary, no one cares about anything.

20:31And all we want to do is bet on burritos. It's a glorious Christmas message. We are going to be back on that profound note in just one sec with Longshore.

20:52Okie dokie, it is time for Longshore, that part of the show where we go long, a thing we love or short a thing we hate rob what you're saying i am short the infernal wickedness of the gift card where you give someone a certain amount of money to be spent on a little piece of plastic at a certain company which is all a nefarious trick because the companies know there's a good chance the card will be lost or not completely used. So they get free money. Or if you do spend it, you'll spend a little extra money because you can't get the transaction down to the penny on the stupid card. And it's all a nasty, not Christmassy, grinchy trick by corporate America.

21:44And I hate it. I totally agree with you. Gift cards are bad. Just give money. What the good uncle does is just puts money in an envelope and says, here, kid. You know? The favorite uncle. Yes. I am limit long. The story we had the other day from Josh Spiro in the FT on the Bitcoin investor who wants to take over a bit of St. Nevis. I read that too. Unbelievable. In an enclave for like crypto people with its own court system. Yes. So there's a lot of this about, and I am all in favour of tiresome tech libertarians and crypto maximalists being far away from me on a lawless island with like no health care, no police, few natural resources, and ideally some volcanoes or like geo fault lines or whatever, and no military.

22:39just for me for Christmas please go ahead and do it stop going on about it get yourselves out to these islands listeners we are taking a break for Christmas Day I think that's allowed but we will be back next week so from all of us on the Unhedged podcast myself and Rob the FT's audio team Andrew pressing the buttons in London and our friends at Pushkin who do all the production and editing to try and make us sound clever Merry Christmas Happy Hanukkah Happy holidays. Happy Festivus to the rest of us. Have a good one. And we will be back in your ears next week. Unhedged is produced by Jake Harper and edited by Brian Erstad.

23:18Our executive producer is Jacob Goldstein. Topher Forhears is the FT's acting co-head of audio. Special thanks to Laura Clark, Alistair Mackey, Greta Cohn and Natalie Sadler. FT premium subscribers can get the Unhedged newsletter for free. A 30-day free trial is available to everyone else. just go to ft.com slash unhedged offer. I'm Katie Martin. Thanks for listening.