Money Stuff: Make the Predictions Come True

In theory, a thing that you could do is:

1. Buy some short-dated out-of-the-money call options on a public company.
2. Call up a deals reporter at a prominent news outlet and say “hey I hear Amalgamated Amalgamators is going to acquire Consolidated Widgets at $50 per share, you should publish that, it’s a big scoop, you will get a lot of clicks and keep your readers informed and win various journalism prizes.”
3. The reporter is like “thanks I’ll look into it.”
4. Time passes and the reporter does not publish the story you want.
5. So you call her back and say “hey this Consolidated Widgets deal is really heating up, if you want to be first with the scoop you’d better publish right now, you need to help the market understand this news.”
6. The reporter is like “yeah I called around and there’s nothing to this rumor, sorry!” [1]
7. You say “no you’re wrong, I promise, it’s real.”
8. She says “okay thanks for your input, I’m going to hang up now.”
9. You say “Wait! If you publish the story I will pay you $10,000.”
10. She says “What? No. Goodbye.”
11. You say “Wait! If you don’t publish the story I will kill your family.”

There are, obviously, a lot of things wrong with this sequence of events. For one thing, you are trying to do market manipulation; you are trying to push up the price of Consolidated Widgets stock based on false information, which is illegal. Also the bribery and death threats are bad.

I just want to make the narrow point that, in theory, this could maybe work. That is, the published work of journalists can, sometimes, have a big effect on the prices of financial assets; in some cases, one journalist publishing one discrete factual statement can materially move the price of a stock and make a lot of money for people on one side of a trade, regardless of the underlying truth of the statement. News publications can serve, in effect, as “oracles” for the prices of financial assets, at least temporarily. And so if you could influence the right journalist in the right situation, with tricks or bribes or threats or whatever, then you could make a lot of money. Not illegal advice!

(Not me, though; I’m never going to break merger news so please don’t try to bribe or threaten me.)

On the other hand, this only maybe works, and only for a little while. News reports are not actually oracles for financial prices; the terms of stocks and bonds and options and futures do not generally refer to news reports for their resolution. [2]  A journalist reports “Consolidated Widgets is in play,” maybe its stock goes up briefly, it announces “no we’re not,” its stock goes down, never mind. [3]

One interesting fact about the rise of prediction markets is that they offer financial contracts that pay off on the occurrence of all sorts of real-world events, and if you are betting on all sorts of real-world events you need all sorts of sources of truth, and if you are looking for a general-purpose source of truth about arbitrary noteworthy facts, your natural inclination might be “is it in the newspaper?” And so journalists’ stories are, often, the actual official oracles for various prediction contracts. We have, for instance, talked a few times about the “Ali Khamenei out as Supreme Leader” contracts on Kalshi. Those resolve based on reports from “The New York Times, the Associated Press, Reuters, Axios, Politico, Semafor, The Information, The Washington Post, The Wall Street Journal, ABC, CBS, CNN, Fox News, MSNBC, and Ali Khamenei.” If you could plant a few stories you’d be in business.

I suppose one set of questions you might have is, like, what does this mean for the accuracy and information content and fairness and manipulability of prediction markets? And then another set of questions you might have is, what does this mean for journalists? A lot more opportunities to take bribes, but also a lot more chances to get death threats, and also more prosaically a lot of people emailing you politely but insistently to ask you to change your stories to make their bets pay off.

Anyway here’s a Times of Israel story by Emanuel Fabian with the title “Gamblers trying to win a bet on Polymarket are vowing to kill me if I don’t rewrite an Iran missile story,” and that’s pretty much what it’s about, but as a journalist I definitely recognized the more mundane polite correction requests at the beginning:

“Regarding your Times of Israel report that described today’s launch as an ‘impact’ — Beit Shemesh Municipality and MDA (Magen David Adom) later corrected their reports to clarify that what fell was an interceptor fragment, not a full missile,” [one reader] claimed.

“I’d appreciate it if you could update your article, as in its current form it does not reflect reality. Alternatively, if you have information that it was indeed a full missile that was not intercepted, I would be glad to be corrected.”

Eventually, though, bribes and death threats:

“You have no idea how much you’ve put yourself at risk. Today is the most significant day of your career. You have two choices: either believe that we have the capabilities, and after you make us lose $900,000 we will invest no less than that to finish you. Or end this with money in your pocket, and also earn back the life you had until now.” ...

“If you decide to go with your ego and not with your head, you are leaving behind dozens of wealthy people from all over the world who will know that you performed market manipulation and stole from them. They know who you are, you don’t know who they are. It took them less than 5 minutes to find out exactly where you live … how often you see your lovely parents … and exactly who your … brothers and sisters are.”

Hey terrific. Presumably if he did make the change, people on the other side of the bets would offer to bribe him to change it back. He should set up an auction. Make every fact in the world depend on who will pay the most for it. Not journalistic advice!

There are approximately five ways to buy stock in SpaceX before it goes public (in June?):

1. You can buy SpaceX stock from someone who owns it. SpaceX occasionally organizes tender offers in which existing investors sell stock to  new ones; maybe you can get on the list to be one of the new ones. Or maybe you can find an existing investor on your own, or on some trading platform, and buy her shares.
2. You can buy exposure to SpaceX stock from someone who owns the stock. For instance, an investor who owns SpaceX stock can put it into a special-purpose vehicle, or SPV, and sell shares of the SPV to people like you. You don’t own any SpaceX stock directly, but you have a claim on it; ultimately, when SpaceX goes public, you will get your stock or at least its cash value. For her trouble, the SPV organizer will probably charge you a big fee and/or sell shares of the SPV at a big premium to SpaceX’s actual valuation. Or a SpaceX shareholder could sell you a forward, promising to give you the stock once SpaceX goes public; again you don’t own the stock now but you have some claim on it. 
3. You can buy exposure to SpaceX stock from someone who has exposure to the stock. You can invest in an SPV-squared, an SPV that owns shares in another SPV that owns shares of SpaceX. (Or cubed.) Or an SPV that owns forwards. Etc.
4. You can buy exposure to SpaceX stock from someone who doesn’t own the stock, and tells you that. Someone who wants to bet against SpaceX could sell you a “naked” cash-settled forward, promising to pay you the value of SpaceX stock in a year. Here, you don’t own SpaceX stock or even have a claim on it, but you have a claim against your counterparty: If SpaceX goes public and she doesn’t pay up, you can sue her. We talked the other day about Benn Eifert, a hedge fund manager who “has entered into personal wagers with tech professionals and others about OpenAI’s eventual valuation, complete with legal contracts,” and I joked that a pretty good way for a retail investor to get exposure to OpenAI would be to tweet at Eifert. Maybe he’ll sell you some SpaceX too.
5. You can buy exposure to SpaceX stock from someone who doesn’t own the stock, and doesn’t tell you that. “Hey I’ve got an SPV with some hot SpaceX stock that just fell off a truck, you want in,” someone tells you at a party, and you say yes and give her $10,000. But she doesn’t have any hot SpaceX stock; she just knows you want some and is preying on your desires. Here, you don’t own SpaceX stock or have a claim on it or even really have a claim against your counterparty, because she will have spent your money and skipped town long before SpaceX goes public. But if you can find her maybe you can have her arrested.

Last week Bloomberg’s Bailey Lipschultz reported on the hot market for exposure to SpaceX and OpenAI stock, or exposure to exposure to SpaceX and OpenAI stock, or fake exposure to SpaceX and OpenAI stock:

In some cases, investors are forking over their money first, and legal questions around who really owns the stock, or if it exists, are coming later. Some of these investments are already linked to allegations of fraud, but even when they’re above board, many tack on exorbitant fees and create opaque structures that eat into returns.

“A lot of people think they own stock in SpaceX,” said Zach Ullman, partner at growth investment firm Lead Edge, which buys shares in the secondary market and participates in SPVs. “I’m not sure what the actual percentage of people who do actually own that, at the end of the day, is.”

Those concerns haven’t stopped SPVs from booming. The amount of funds invested in the vehicles has grown by 11 times since 2021, accounting for nearly half of the quarterly transaction volume tracked by Caplight Technologies, a data provider and operator of a platform for trading in shares of private companies.

Yes look there is a lot of retail demand for SpaceX and OpenAI stock, and very little supply, and no public market (yet) to set a single market-clearing price. And so if you are buying SpaceX stock, you’re pretty much getting whatever price the seller thinks they can charge you, and you’re not necessarily getting SpaceX stock:

[Giovanni] Pennetta, the manager of Manhattan-based Sestante Capital, was nabbed at John F. Kennedy International Airport in December after allegedly stealing millions of dollars from clients by pitching access to private companies including Anduril. Federal prosecutors charged Pennetta with securities fraud, wire fraud and aggravated identity theft related to the alleged scheme.

According to prosecutors, Pennetta pitched investors on his access to investments in private companies, and said he could offer investment interests in those shares through NextGenTech Investments, a fund managed by Sestante. But the government says Pennetta didn’t actually have access to the shares and misappropriated more than $10 million in investor funds, sending most of the money to his own personal bank account.

It would be weird if that didn’t happen.

The way American shareholder democracy works is that, if you don’t like something that a US public company is doing, you can buy some of its stock and demand that it make changes. The simplest way to do that is to buy one share and then call the investor relations number to register your complaint; this probably won’t accomplish anything, but it might, and maybe it will make you feel better. [4]

The most effective way to do it is to buy 5% of the stock, submit your own nominees for the board, run a proxy contest, persuade other shareholders to vote for your slate, win, replace the board, and run the company the way you want. This has a much higher degree of difficulty and is much more expensive, but if you have billions of dollars it is far more effective than the other approaches. Carl Icahn once launched a proxy fight at McDonald’s Corp. to get them to change their treatment of pigs. A variation on this is doing a hostile takeover, where you buy 100% of the stock and then really run the company however you want. Elon Musk wanted an edit button on Twitter, so he spent $44 billion buying the company and now there is an edit button. 

There is an intermediate approach. You can buy at least $2,000 worth of stock, hold it for a while, and then submit a shareholder proposal for the company’s annual meeting. This does not, I have to say, work very well. There are somewhat complex rules for submitting shareholder proposals, and if you mess them up the company might be able to keep your proposal off the ballot. The rules significantly limit what your proposal can be about; if your proposal is, like, “Resolved, this company’s snack foods tasted better before you changed the recipe, please change it back,” or “Resolved, I bought a shirt from one of your stores and a button was missing and the sales clerk wouldn’t give me a refund, please give me a refund,” there is really no way to get it on the ballot and you’re better off calling IR. In practice, these proposals tend to be about broad social and environmental issues — the company should be more (or less) diverse, it should pollute less (or more), etc. — or about the company’s governance structure (its whole board should be up for election each year, its CEO should not also be the chair of the board, etc.), not about the details of the business. Also, the rules generally require that your proposal be non-binding: Even if you get it on the ballot, and even if a majority of shareholders vote for it, management still doesn’t have to do anything about it.

This approach is far more complicated and time-consuming than calling investor relations, and far less effective than running a proxy fight, and in practice it seems to be mostly the domain of hobbyists and nuns. Most public companies don’t love it, and the current US Securities and Exchange Commission is more or less explicitly trying to get rid of it. For the reasons laid out above, I don’t think that this would have much of an impact on how public companies operate, but it would annoy the nuns. Bloomberg’s Jeff Green and Saijel Kishan report:

Federal regulators are looking at new rules that could rein in shareholders who hold as little as $2,000 in stock to get their proposals on proxy ballots. Business groups are pressing for higher ownership thresholds like the one adopted last year in Texas, where investors are now required to own at least $1 million in stock or a 3% stake to file a proposal with companies incorporated there.

Governance watchdogs warn the most extreme options under consideration stand to muzzle small shareholders, including individual holders, networks of climate activists and faith-based groups on either side of the political spectrum.

“There's certainly a chilling effect,” said Sister Ann Scholz, a nun who has filed environmental and socially minded shareholder proposals on behalf of the School Sisters of Notre Dame Collective Investment Fund in St Louis. “And you do wonder how much of this is designed to intimidate, and how much of it is real and has lasting impact on how shareholders and companies interact.”'

Activist groups could still put out press releases saying that they want Exxon to pollute less or whatever, which would have roughly the same binding effect as putting it in Exxon’s proxy materials, but I guess putting it in the proxy materials has more symbolic oomph.

Last month, the US Supreme Court struck down most of President Donald Trump’s global tariffs, clearing the way for importers to ask for tariff refunds, which they have started to do. I wrote:

Tariff refunds are theoretically interesting because the importer who paid the tariff can sue to get its money back, but it’s not obvious that the economic incidence of the tariff is always on the importer. ... In a dissenting opinion, Supreme Court Justice Brett Kavanaugh pointed out that “the United States may be required to refund billions of dollars to importers who paid the IEEPA tariffs, even though some importers may have already passed on costs to consumers or others.” … If you bought stuff on Amazon and Amazon gets a refund, can you ask for your cut?

My gut instinct — not legal advice! — is that you probably can’t get your cut: The retailer charged a price, you willingly paid it, and you have no particular claim to get any of it back. But you can always ask. The Wall Street Journal reports:

Costco Wholesale is being sued by a shopper looking to get his tariff costs back. 

A lawsuit filed Wednesday in an Illinois federal court alleges that Costco owes its customers refunds related to tariffs deemed unlawful by the Supreme Court last month. The suit is seeking class-action status on behalf of Costco shoppers nationwide.  

Costco increased product prices to offset the cost of tariffs, but it hasn’t promised shoppers a refund, said the lawsuit filed on behalf of Matthew Stockov, a Costco member who lives in Illinois. Shoppers won’t get a government refund directly, because they aren’t the importer of record, said the lawsuit. “The truly injured parties possess no direct avenue for redress,” alleged the lawsuit, which asks Costco for a refund on price increases related to tariffs, plus interest.

Here is the complaint, which makes some equitable claims (“unjust enrichment” and “money had and received”) as well as alleging fraud:

Costco engaged in unfair and deceptive trade practices by … failing to disclose to customers that it did not intend to share with members the benefit of any government tariff refund.

Is that really fraud? I feel like I could have told you that Costco would keep the refunds.

Of course?

A Blue Owl Capital Inc. private credit fund is urging investors to reject a share purchase offer led by Boaz Weinstein’s Saba Capital Management, saying the price is too low.

The tender offer for Blue Owl Capital Corp. II, known as OBDC II, represents a 33% discount to its net asset value, the business development company’s directors said in a statement Friday. ...

“The Board strongly recommends that shareholders reject Cox and Saba’s unsolicited, minority tender offer and do not tender their shares,” the directors wrote. “Tendering shareholders would be walking away from a high-performing portfolio.”

We have talked about Saba’s offer before. I have referred to it as “trolling,” though I have also argued that it would be kind of nice for Blue Owl to offer this service, letting OBDC II shareholders sell as much stock as they want, right away, but at a discount to net asset value. It can’t, for legal and marketing reasons, but Saba can. In a sense, Saba is providing a useful service to OBDC II’s shareholders, and arguably Blue Owl should be grateful. Weinstein has “said in [an] interview Blue Owl favors his intervention and that he has high esteem for its managers.” But obviously Blue Owl has to recommend against tendering! The most essential fact about private credit right now is that, when the manager of a fund tells you that its net asset value is $5.69 per share, the manager has to believe that the NAV is $5.69 per share, and it has to make you believe that the NAV is $5.69 per share. [5] If the shares are worth $5.69, then Blue Owl has to tell its investors not to sell them for $3.80. And if the shares are not worth $5.69, it is perhaps even more important for Blue Owl to tell them not to sell.

I wrote last week about using the stock market as a random number generator, and about hedge funds using corporate executives’ “watch-to-house” ratios as a trading signal. I got two great reader emails on these more-or-less jokey subjects. First, on random numbers, a reader pointed out that the Harlem “numbers” game — a private lottery that existed for decades in the 20th century — generated its winning numbers using clearinghouse totals of amounts of money exchanged by banks each day. Not the stock market but a similar idea.

Second, on watches, we discussed an investor who avoided investing in a now-insolvent company because he noticed that the company’s director was wearing a £200,000 watch, “about half the value of [the director’s] north London home at the time.” I wrote that “I want to see an academic finance paper collecting the data, computing executives’ watch-to-house ratios and checking to see if it has alpha.” A reader sent me a 1979 Calvin Trillin piece that begins “Not long ago, I became preoccupied with the cost of the wristwatches worn by members of the New Jersey State Legislature,” and ends:

I finally managed to put the cost of the wristwatches of New Jersey legislators out of my mind. What worries me now is that one of those modern political scientists who finds truth in numbers is probably studying this very matter with a computer. He is adding up the value of the watches of each of the members of each State Legislature. He is dividing by the number of members. He is dividing that number by the number of indictments handed down against legislators in the previous year. He is producing a figure that confirms what I have known from the start.

Exactly.

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