SpaceX, AI and Interest Rates are TOO HIGH

Well, let's tap into your expertise.

We just had SpaceX IPO.

We want to discuss the 800-pound gorilla in the room.

And we know that the S&P was the only adult in the room that wasn't happy to stuff that thing right into their ETF or index.

I was wondering if you could riff on that about maybe why the Nasdaq did put it in and all the other ETFs did put it into their platform and the S&P said we're going to stick with our traditional rules.

What do you think SpaceX is going to do?

Well, so I think there's a couple of things around this.

So when I give presentations on the impact of passive on market behavior, one of the things that I actually highlight is the difficulty in getting an IPO out in an environment in which discretionary active managers are losing capital and underperforming more broadly.

An IPO requires somebody who's willing to deviate from the benchmark, and that requires active management.

It requires you stepping in and saying, I'm willing to take a bet on something that is not currently in the index.

That capacity falls as money leaves the active manager space.

It's one of the reasons it's been so difficult to get IPOs done for the past decade or so.

The solution to that is to embrace components of what led to the SPAC mania in 2020 and 2021 by adopting provisions of what's called fast track IPO status, which is really what NASDAQ has done.

They've basically SPACified the NDX.

And there's obvious reasons for doing that, right? If you want to have new IPOs, if you want to draw new listings to the NASDAQ listing system, you have to have tools and facilities that allow that to occur.

A high profile listing like SpaceX is obviously quite interesting, but more broadly, this has been a problem.

How do you get something public? The unique thing about SPACs and what really caused them to take off in 2020 and 2021 was that they were not eligible for index inclusion prior to making an acquisition, an operating acquisition.

But upon making that operating acquisition, they then became eligible for what's called fast track IPO status in which they would be included in the indices and require passive buying in as few as five days.

The rules on SPACs prevent insiders who are the sole source of liquidity for selling for a minimum of 20 days If the world's largest buyers show up and try to buy positions while the largest sellers are incapable of selling, what happens to price? It goes up.

And so there's all sorts of nonsense around the SPAC phenomenon, right? We were told that the success of SPACs was because management teams could make promotional statements that they couldn't make during a traditional S1 prospectus roadshow, etc.

That's nonsense.

right if you think the reason that we were couldn't get public is because adam newman wasn't promotional enough uh i i don't even know where to start right um what had actually happened in spax is nobody had ever it had never occurred to them to do them at the size that they were done and so that fast track ipo status just like we're seeing with the nasdaq's revisions to its rules required a certain amount of heft perhaps not 305 pounds but It worked out to about a billion and a half dollar SPAC became eligible for immediate index inclusion under fast track IPO status.

And that's what nobody had ever tried before.

SPACs have been around forever.

TG, you and I have used them in the past in hedge funds to simply conceal the amount of cash that we have in our portfolio, right? You pick up a little bit of volatility, a little bit of optionality, and you basically get to sit with a cash-like instrument while you don't have to report the cash on your balance sheet.