Comment by hliyan
8 hours ago
I've been told the following (obviously negative) narrative. Can someone verify/refute some of these? I've put (?) next to questionable claims.
1. Twitter is purchased with debt
2. Debt is transferred to xAI via acquisition of X/Twitter
3. Debt is further transferred to SpaceX via acquisition of xAI
4. SpaceX IPO offered at extreme valuation
5. Index fund inclusion rules waived for SpaceX IPO: profitability requirement, inclusion period cut from 90 to 5 days
6. Index funds are largely held by passive investors such as pension funds.
7. Index fund managers are not incentivized to exclude a SpaceX from their indexes. (?)
8. Holders of original X/Twitter debt (banks) incentivized to support the rule waiver since post IPO, SpaceX will have liquidity to service/pay the debt.
9. Passive investors are unable to rapidly respond to these types of changes because liquidating portfolios will incur capital gains taxes. (?)
10. SpaceX is in Texas jurisdiction, where shareholder lawsuits are not possible and must instead go for arbitration. (?)
> 7. Index fund managers are not incentivized to exclude a SpaceX from their indexes. (?)
Correction: index funds don't have a choice. They must follow the index, and so must buy the stock.
side effect: they'll have to sell other stocks, pushing their prices and weighting in market cap weighted indexes down.
> Passive investors are unable to rapidly respond to these types of changes because liquidating portfolios will incur capital gains taxes. (?)
For some active investors, yes. For passive investors (say you through your employer's pension fund), the tax isn't the problem. It's that the market has such a short time to adjust the price of these companies before indexes are forced to include them--and so might buy them at wildly inflated prices. Then, not too long after, the early investors can sell at still-high prices as soon as their lockup periods end. It's a massive transfer of wealth from pension funds and index investors to the early investors in those companies.
> Correction: index funds don't have a choice. They must follow the index, and so must buy the stock.
Maybe, most indexes do not have to follow the index. they just need to match the returns. An index fund manager has choice of what stocks to buy. However an index fund doesn't have enough managers to make many choices and so they normally buy just what is in the index. However all index fund managers know they are large enough that if they change their holdings "instantly" when the index it self changes the market will collapse and so the fund will under perform. Thus index fund managers are always trying to figure out what the index will do so they can start buying/selling stocks in smaller amounts before the change happens.
How each fund handles this is up to the managers. (and "total market" funds have less ability and need to do this)
The whole point of index funds is that you don't have to pay management fees to managers. It's very expensive to hire a team of people to analyze the entire stock market in detail and chose the best 500 companies, and historically people who did that on average didn't beat the S&P500.
Just look up the performance of Mutual Funds vs S&P500.
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So are they incentivized to allow an obvious grift and let the index have middling returns so they can skim the difference?
but any upside to second guessing the index gets allocated to the management, right? just like any downside, so its kind of immaterial for the end users, they're effectively bought into to SpaceX anyways
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But surely the managers of those pension funds can see this happening, and will not likely take on the risk of shares that are that young, no? The index funds hands are tied, i agree, but passive retirement funds are largely managed by people who are motivated for them to succeed. If this were not the case, then pension funds could have been looted long ago...
Pension funds that are actively tweaking the mix of stocks they hold likely might decide to play it safe.
On the other hand, do you want to be the one who says, "As a rule we follow the index, but this time we decided to break our own rule, and as a result we lost X% of returns"?
Better wrong with everybody else than wrong on my own.
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>Correction: index funds don't have a choice. They must follow the index, and so must buy the stock.
Right, if they've advertised as an S&P 500 index fund, they have to robotically follow the S&P 500, stupid inclusions and all. Changing that strategy would require ... a lengthy process involving input from shareholders.
However, someone can still start e.g. a "classic S&P 500" fund that follows the old rules for inclusion, and I suspect we'll see that in response to these recent decision.
Mmmm legalized theft: the new Tech Industry!
The twitter debt is a negligible portion of the money at stake here. It’s a footnote compared to the trillions of dollars in wealth that are moving around. We are only talking about it because the internet commentariat has special interest in twitter. Not worth wasting time thinking about it if you are deciding how to allocate your portfolio.
Nevertheless it is part of a pattern of weird deals in Elon’s companies. He’ll do anything to move the goalposts and turn his failures into successes. There is no norm he won’t violate, no boundary he won’t cross.
Sure, I don't like him either but it shouldn't be about him. It should be about the institutions we trusted to keep our index funds safe. Or was this always based on "vibes"? Was VOO never safe? Was it always possible for the people in charge of the stock market to simply include some money pit into our retirement funds? I feel like the people responsible for these decisions must fear life in prison or this will keep happening.
These are indices created by private entities. They are free to change their rules are they not? Maybe this is the wake up call to the risks of concentrated passive investment vehicles the public needed.
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It was never safe, he's exposed the system's design was never intended to be safe for anyone but those in charge.
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This was always the endgame of moving away from managed pensions to 401k's. First you get everyone's retirement income into the stock market, and then you use the stock market to take it all away from them.
It's inherently about him because he is the one behind these changes.
"It's a big club... and you ain't in it."
No, they absolutely don't fear prison (but they should).
It's just the aggregate behaviour of a group of people optimizing for short term profit and self-enrichment over everything and without any need for long-term careful planning because for various reasons they are pursuing the short term at all costs.
Twitter was 40 billion ish overpriced purchase and SpaceX is seeking to raise 75billion
Let’s not make billions into a footnote?
Space is raising $75B at an expected valuation of $750B so the Twitter value is just 5% of SpaceX’s IPO valuation and if it goes up then the fraction gets smaller.
Is 5% a footnote, maybe.
It’s a footnote because SpaceX is going to be worth trillions. If Twitter were fully written down right after IPO SpaceX’s shares might not even have a bad day.
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"He’ll do anything to move the goalposts and turn his failures into successes. There is no norm he won’t violate, no boundary he won’t cross."
Unfortunately, if you really start digging in to what is going on in the financial world, you will find he has violated no norms here. This is not a defense of Elon; this is a condemnation of the entire financial industry.
The whole thing scares me, honestly. It has never been a clean happy market where lots of honest people get together and are just honestly trying to make a better world for each other, there is no golden past where people were just nice or anything, but damn if computers don't let people build some structures that the robber barons of old could only have dreamt of. I'm really concerned that "index and chill" doesn't just have a "best by" date but that the best-by date could be in the past; I've heard of an awful lot of ways of exploiting it and other retirements schemes we have, this is just one. I find it implausible that these ideas exist but nobody is doing them.
We Uncovered a Hidden Wealth Transfer in the SpaceX IPO. You're Holding the Bag.
https://youtu.be/sYA-z0Y8WRQ
There is video explaining the process
I’ve always suspected the “index funds are the safest investment” system is ripe for exploitation.
Thanks. That's pretty shady and grim :(
See also:
https://www.youtube.com/watch?v=IHD8BDFYyGI
> Index funds are largely held by passive investors such as pension funds.
Pension operators are not typically passive. It's a different story to say that maybe they should be given that their returns don't always match up with index funds.
All the big banking players are in on this IPO
Morgan Stanley, Goldman Sachs, JPMorgan, Bank of America, and Citigroup
They all know how idiotic Tesla investors are, and they all want those idiots to pick up their bags.
Also: Musk's shares have 10x voting power, he can not be overruled by anybody (he will retain ~80% of the votes).
Also: SpaceX debt is $20 billion.
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