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.
That is the point, and index funds pay many less managers. However they all have a few managers to handle the various paperwork needed and those managers do make some decisions. They have much less influence vs a traditional funds, but it is slightly above zero.
I think the point is that they don't have the influence to intentionally deviate from the index because they think they know better. If your mandate is to be passive, then you need an index to follow. If you are that sure the S&P 500 index is wrong for some reason, or whatever other index you follow, then you need to invent a new index. Then, you can follow the new index.
At least my index funds do that. They don't get to constantly trade like non-index funds do, and they typically stick with the index, but every index fund I own has a line about "we select stocks that we think will match the index", which is different from buying the stocks from the index.
Again, the vast majority of the time they are matching the index stocks. However they have the right.
I guess that's true but put yourself in the position of a major fund manager. Would you rather explain "We lost 3% this year because of a dumb IPO because we track an index that includes dumb IPOs," or would you rather say, "We lost 3% this year because I decided, as a passive fund manager, that the index was wrong and I knew better"?
Your career would be over.
Or at least, you would have to transition over to an active fund!
No, that's not how it works. The resource managers who hire and promote fund managers are well aware of how trading large blocks too quickly can skew pricing. No one expects performance to exactly match the index. Read the prospectus.
I'm willing to buy the idea that most fund managers have the lattitude to give SpaceX the standard seasoning period, instead of buying in right when they hit the index. Which funds will do that? If it's all or most of them, that'd be nice.
I don't know what to tell you guys because I am not a fund manager. If any of you are, then I'll go with what you're saying. But I do know how large organizations work first hand, and I'm sure lots of us do on here.
Who exactly do you think wants to stick their neck out and say, "I work for a passive index fund. The whole premise of our career is that we don't try to play the market. But just this one time, I'm going to play the market anyway, and I'm going to use your money to do it."
Sorry, not happening. If you don't like the fact that this stuff is going to be included in the index, then your only option is to stop buying the index. Of course they think they would think they're right. Everyone doing active investing always, every time, thinks they're right. They will buy the index the way they always do, and then they will say, "If you don't like it, take it up with the index."
Watch the scene in Big Short at the bond rating agency for an indication of what's really going on here, is my guess.
Yeah, it's a 24 year old company that controls space Internet and is the most competent company building data centers. If a passive index doesn't include it they are taking a much stronger opinion on the stock than if they do include it.
If it's a poorly run fraudulent company the regulators and the banks are at fault for letting it go public not the indicies
The problem is, if you deviate too far from the index, your head is on the chopping block. There is no incentive to outperform the index, and every incentive to not meaningfully underperform it. Anyone bought into an index fund expects exact index performance (whether or not the prospectus technically allows for deviation).
So any manager who values his pay check will say "the index may go up, may go down. The investor's paper wealth may increase or decrease. That's not my problem! And in a market like this, I risk underperforming if I don't own this asset. So of course I'm going to buy it!"
> Maybe, most indexes do not have to follow the index. they just need to match the returns.
This is a great technical point, and in a scenario where a constituent has a lot of obvious correlations it might be relevant, but when you've got something that is effectively a meme stock with erratic leadership and a huge range in possible outcomes from bankrupt to most valuable company ever in the universe [claude tells me I should say 'idiosyncratic returns' instead of this rant], I don't see how you promise to match the performance of an index where it's a significant component except by buying it.
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
They are judged by how close to the index their returns are. If there a significant deviation either way they are judged harshly. Each fund is different, but they typical thing they will do is buy a competitor of some company in the index once in a while.
Typically managers pay is such that they don't get awards for guessing correctly, so they won't get any upside from a correct second guess, and they will see downsides from incorrect guesses.
Also unlike traditional funds, there are not enough managers to follow every company, so they can't pick stocks that will win just because they don't have enough to time research the stock. When they pick a stock they are just looking at the high level will this company perform like the other peers in the industry long term.
They do track the index.
The leeway to deviate is not intended to make bets on individual equities, but to - for example - match index returns with fewer execution costs.
For example an index fund that tracks a global equity index may not find it practical to own shares in every listed company globally, but absolutely will be judged on its tracking error vs the benchmark index.
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.
The reason pension funds include index funds in their mix of investments is because those funds have two features that are exactly what pension funds are aiming for: (1) broad diversification, and (2) conservative inclusion rules that avoid undue exposure to highly volatile firms.
Changing one of those features undermines the reasons for including the index. Doing it specifically for the purpose of including a firm where large pension funds have also been extraordinarily critical of the governance structure as a particular source of risk [0] even moreso.
I was looking at it from a more institutionalized perspective I guess. At least in my field, I know how this works because I see it play out. People are conservative and sometimes would rather be wrong with the herd as long as it means they're not risking being wrong on their own.
Having said that I guess you have a valid point. Once major institutional investors decide an index has basically gone corrupted, then they won't actually buy the index fund anymore. They will just buy all the stocks in the index, and underweight the parts they think are tainted. That's what I would do, anyways.
>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.
It's not the advertising that matters, it's the prospectus. Read the prospectus for any index fund and you'll find that out gives the fund managers a lot of leeway.
Sure, I was simplifying a bit with the technicals. But you're sure their leeway is enough that they can say "nah, we don't like what the index is doing now, we'll do our own deviations from it?" That seems implausible but I don't know enough about mutual fund/ETF regulations to say for sure.
I'm aware I can read the prospectus. And, to the extent that I found the relevant portion of the prospectus (that you could have done yourself and posted) here's what I see:
>The Fund employs an indexing investment approach designed to track the performance of the S&P 500 Index (the “Target Index”), a widely recognized benchmark of U.S. stock market performance that is dominated by the stocks of large U.S. companies. Under normal circumstances, the Fund invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in the stocks that make up the Target Index. The Fund attempts to replicate the Target Index by investing all, or substantially all, of its assets in the stocks that make up the Target Index, holding each stock in approximately the same proportion as its weighting in the Target Index.
That doesn't sound like a lot of leeway to arbitrarily ignore major new additions that make up a few percent of the index. They'd have to say "no, we're not holding each stock anymore".
It would be more informative to see SEC or court rulings on a mutual fund that tried something like this.
Or, we could just go the way HN normally works, and settle it by who can write the most confidently.
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.
If you think it's a wakeup call about passive investment I think you're asking the wrong question. The vast majority of people do not want to become experts in the financials of 800 different companies in order to maximize their account return on investment over the next 20 years. It's a part time job to do that. Some people do that successfully but most people recognize that they won't. Passive investment was supposed to be a tool for those people. If you ignore all of that, then sure they can just change the rules whenever they like. But that totally ignores the reason a lot of these rules exist in the first place. In my book we're about to get a taste of why we don't want private enterprise responsible for this stuff in the first place.
Exactly all this. The whole idea of passing investing is "hardly any of us know better than the market as a whole." If you don't agree with that, then you don't agree with passive investing. Which, whatever. Live your life.
But the story is not about all indices being wrong, the story is about index management being corrupted. Like bond ratings on mortgages in the run-up to 2008.
> Passive investment was supposed to be a tool for those people.
And it was, for a while. Then financial vultures realized there's huge pots of money tied up for 40+ years in funds that the person doesn't directly manage or have a say in. And if the investments are in indices then the index gets to vote on company matters across the economy on your behalf. What could go wrong?
If you dont like it, you need to choose something else. I dont know how people can keep throwing money at the thing they dont like and then complain it isnt doing what they want.
"Im too busy to spend 30 minutes to move my retirement somewhere I trust" just doesnt cut it.
I'm happy for you that you're always the perfectly informed player in every transaction you ever make having the most up to date information, ensuring that you're getting the best deal possible at any given second, groceries and all.
Sadly, some poor slobs are too lazy to be as informed as you.
I do none of those things, but I understand that there is a chance of losing money gambling in the stock market. Its not a free lunch with 100% upside.
I'm not arguing for myself, I'm arguing for the tens of millions of people who do not understand this system, are not aware of how it works, and are constantly pressured through employer plans, tax deferment, and other aspects of the system to choose the path of least resistance and put their money into a 401k. For a system to work properly it has to account for all of the users and not the top 5% or 1% of the users.
> For a system to work properly it has to account for all of the users and not the top 5% or 1% of the users.
The system doesn't work properly. Retirement is fundamentally broken in the US. The sooner people realize and wake up to that the sooner things might change.
A "401(k)" is not a monolithic entity. In practice, most employers offer a choice of funds, with the most popular being a year-targeted fund that rebalances between equities and bonds as you get closer to retirement. Having said that, you can probably dump your entire portfolio into government bonds, small cap stocks, or euro futures.
I have had jobs with good 401ks and terrible ones. The terrible ones usually have some bond/ saving option. When you leave the job you stick the money in a full service brokerage IRA. The problem is when you are at the same job for too long.
Doesn’t it say that it’s a retirement fund, intended to be saved until retirement age? The 10% penalty is little more than a wrist slap level deterrent, too. It’s usually like ~1 year of returns. Not a huge deal if you need to dip into it.
(There’s plenty to criticize about the whole 401k system of retirement accounts. But these criticisms seem misguided)
People putting retirement funds in a pile of companies that often have little impact on local communities they live in.
They’re changing laws to fast-track sketchy IPOs, putting hard earned money at risk why? So we can send people on a death-mission to Mars?
Point being, they are doing what they will with other people’s money and won’t suffer the consequences. Removing the checks and balances is exactly how financial disasters happen.
Exactly right, there's even ones so conservative they market themselves as cash equivalent. Basically zero gain/loss in those funds. If you're so worried then go login to your 401k and change it.
If I could pick from any possible retirement plan, I'd want in on the UK pension system that's guaranteed to beat inflation and earnings growth. Until the money runs out, at least!
Because it's not an actual investment and can't run out. Like US Social Security and many other national schemes, the UK is pay-as-you-go. Money coming in is immediately paid out.
Any funds lying around are supposed to be for temporary imbalances, but became significant due to a major demographic imbalance: the Baby Boom.
You can buy i-bonds in the US. You are limited in how much though. They are pegged above CPI. You never hear about them because no one makes money on it. And maybe it isn't that great of an investment.
I believe the (apparently AGI-pilled?) folks running the indices are more afraid of the public’s pitchforks in the scenario where the AI stocks go public at $3T value, then increase to $30T before the index rules dictate they buy in. Hence the rule change to prevent that from happening.
For a moment step into the theory of mind of the AI believer. That’s the common mindset in finance today. You believe that AI is displacing white collar work, and soon with robots it will displace physical work. Your personal job is to help set the rules for stocks to be included in the index. You believe that the point of indices is for passive investors to automatically be invested in the diversified set of top public companies (weighted by market cap). During previous economic shifts, where companies went public early and were already in the index during their growth phase, passive investors broadly benefited from that growth. These new AI companies have stayed private much longer, meaning that the index has missed the opportunity to “buy low” and build up a stake so far.
You believe that the owners of the leading AI companies stand to become owners of most wealth. Furthermore, that we are at an inflection point where the value of these companies rises so rapidly that delays in index investment will set in stone a permanent inequality, where early tech VC and other private funds own a huge portion of the economy. The few-$T downside risk of AI bubble popping this year feels to you like a minor concern compared to index funds being shut out of this wealth due to some arbitrary rules, which have been changed before and can be changed again. Delaying investment in these huge public companies feels like a more dangerous decision than buying in when they become public.
In short, there are two possible stories here:
1) Wall Street is AGI-pilled and thinks AI companies will be worth many trillions of dollars
2) Wall Street expects the AI bubble to pop and is trying to make the public into bag holders by selling a few hundreds of billions of dollars in the IPO
I think the second story actually doesn’t hold together, because Wall Street is making a bunch of correlated bets. The IPO cash is just one more source of capital, and much of it going to be used to make investments which are also correlated bets.
It doesn't matter what individuals believe. The rules exist to prevent people from doing dumb things that destabilize the market and when those rules are bypasses for belief reasons then the market will take that into account and discount the rules and the market loses its integrity. At that point you have signaled that the rules exist in order to facilitate corruption not oppose it, and you end up who knows where, but it certainly isn't better.
1) If the AI companies do end up running half the economy, we will have discussion for the rest of the human history about how the public got scammed by not being able buy in earlier at a lower price and how the late IPOs set in stone the oligarchy.
2) If the AI companies crash and burn, we will have discussion for several years about how everyone involved in running and financing them is a scoundrel who needs to go to jail for scamming us by selling us stock.
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.
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.
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.
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.
It may or may not be worth trillions. But the valuation right now based on the IPO sale price is .75 trillion. Which makes it vastly bigger than Twitter regardless.
It could nonetheless be worth trillions by the end of the day.
Space is the next great frontier and right now every single other company, and even country, remain orders of magnitude behind SpaceX. This could change in the future and viable competitors could emerge, public ownership could ruin SpaceX, or humanity's further entry into the cosmos could be delayed (Americans circa 1969 certainly probably also felt they were on the cusp of something great). But at current trajectories you're looking at something akin to there being one company that made ships better way better than everybody else, right before the Age of Sail kicked off.
Bro, they make 99% of the revenue providing internet connection where markets and governments have failed to provide good options. A trillion dollar valuation competing with the commodity cost of running fiber. Supporting off-grid internet is not a trillion dollar industry even combining it with all the revenue from other uses of satellites. It’s the next step in rockets which is more equivalent to better horse shoes than the age of sail.
I think most people, especially in this topic, know essentially nothing about SpaceX and are just going off political stuff. SpaceX have dropped the price to get stuff to space by about two orders of magnitude already, and there's no apparent reason Starship might not succeed in which case you're looking at even more orders of magnitude cost deduction.
Space is not, and cannot be, a frontier when it costs thousands of dollars to get a bottle of water into orbit. That suddenly changes when costs reach a sufficiently low threshold, and SpaceX is not only leading the race there but really the only significant player. Even China, with their vast resources, won't be able to compete unless they can reach near to technical parity with SpaceX. And, for now at least, they don't seem especially close and are, by far, the closest competitor SpaceX has, bro.
A similar path to Microsoft. Being the primary gate holder to a developing market segment aka space. In our modern overvalued stock indexes they are worth 750 billion before considering future growth.
The idea that companies can corner entire markets has been proven false time and time again. Every "tech" unicorn has their valuation propped up by the idea they'll be the "primary gate holder" to some billion or trillion dollar industry. For Uber it was Taxis, for Tesla basically all ground transport, etc. None of them have been borne out and competitors are already well established. Blue Origin is already nipping at their heels with the recovery of Never Tell Me the Odds last year.
UFO soft-disclosure is already underway (the Pentagon releases more and more evidence). The USA will go full disclosure before the end of Trump's second term. SpaceX will be granted monopoly on the reverse-engineered alien spacetime propulsion tech, becoming the most valuable company ever. The SpaceX IPO is the final act of the plan that was set in motion when president Eisenhower signed the pact with the Zeta Reticulans (aka "the greys") at Holloman Air Force Base in 1954.
To explore this (hopefully parody) alt history, I don't know why the us gov wouldn't waited 70 some years for spacex to reach this point to grant that monopoly versus handing it off to the usual collection of defense contractors, eg raytheon (or whatever they're called now), Rand, etc.
The Holloman Pact made the alien technology transfer contingent on launching an alien-human hybrid program. You see, the Zeta Reticulans mandate their technology to be stewarded by hybrids (similar to how China requires a 50% Chinese joint venture to gain access to their markets). The two species' geneticists started working together, and in 1971 the first viable hybrid was born: Elon Musk. Then we had to wait for the hybrid to mature, before it could be given stewardship of this sensitive technology. Meanwhile a generations-long cultural manipulation program was also underway, to prepare humanity for disclosure.
No joke the actor who played Cigarette Smoking Man (William Davis) has said that he got all kinds of mail from people who had "proof" of aliens and for some reason thought he'd be the right one to share it with.
Of course it's sarcasm, but if it WAS true, it would be because the government was working in cahoots with all those defense contractors all along, until the Trump administration came along and decided to privatize it, at which point SpaceX seized its opportunity.
It’s a category error to compare the equity value of Twitter during its purchase to the amount of cash to be raised by SpaceX during its IPO.
Twitter has about $13B of debt, and about $1.5B of annual interest payments (that’s how much cash it actually needs to come up with this year). SpaceX has a planned IPO market cap of $2T and plans to raise $75B cash during the IPO.
"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.
It was much safer before the indexes decided to throw off all the safety hurdles designed to make sure stocks were relatively healthy and the price was reasonably well settled before they were included. And the core idea that a random investor probably can't reliably pick stocks that will out perform the broad indexes is probably going to remain true, even at the high evaluation SpaceX is a relatively small piece of the total index, it's just disasterous for public trust to see the safe guards thrown down like this imo.
if you're invested in a broadly diversified index you can be annoyed by this thing, but it won't impact you a lot.
E.g. if you owned something based on MSCI ACWI, which is free float weighted and global, SpaceX will end up being less than 1% of your portfolio even at a trillion dollar valuation.
It's just NASDAQ which is complicit in this scam by overweighting SpaceX.
6. Pension funds tend not to exclusively hold index funds. Individual retail investors do in their 401ks or personally. Pension funds tend to be fairly sophisticated and can easily insulate themselves from SpaceX/OpenAI/Anthropic if they want either by owning index funds and shorting the other companies or by not purchasing the stock. Also, pension funds are immune to (9) as taxes are handled differently for them.
7. ETF managers that track an index aren't allowed to put discretion into what they buy. They offer much lower fees because they don't have to do any thinking, just executing on an algorithm.
8. SpaceX servicing the X/Twitter debt isn't really a question. The total amount of debt is equal to about one year of revenue at the moment, and it's under 3% of the expected market cap of SpaceX. It's less than a third of what SpaceX's IPO is expected to generate selling new shares to the public. It's a non-issue. On the other hand, the fees the banks will get for the IPO could easily convince them to support the rules waivers.
9. This is true of some passive investors. It is not true of pension funds (which are usually not passive) or 401ks or other tax-advantaged retirement accounts. It is likely to be partly true for any individual depending on how much of their assets is in a tax-advantaged account vs a regular account.
10. Yes to Texas. It seems like the arbitration part is likely to be true (SpaceX is certainly claiming it in the prospectus), but there is not the certainty of having a long history of litigation.
Returning to 2+3:
The rolling up of all other private Musk companies into SpaceX certainly impacted the investors in those companies, and how much Musk owns vs other people. But the equity adjustments there would be interesting, not the debt.
Pensions are not ETFs, they are very different purchasers of securities. Pension funds are sometimes referred to as relatively passive investors, but even to the extent that there may be a sense where that is accurate, they are not the same kind of passive as ETFs. They do actively make decisions about what to invest in and alter those with changing curcumstances, and they do at times actively engage with the governance of the firms that they directly invest in (and they definitely engage about the governance structures, in part to manage risk and minimize the need to engage with governance details.)
> 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.
They still hold a fairly large amount of money in index funds "about 19.2 percent for public pension plans and 11.2 percent for corporate plans" [0 (2015)] That's a significant sum of money that will be forced into purchasing SpaceX well before it normally would be.
The twitter purchase was "only" 44 billion dollars. Thats a lot of money, but compared to the apparent valuation of the xAI branch of ~1 trillion (based on SpaceX being considered ~800B valuation last funding round), the vast majority of the new value seems to be coming from xAI, which is the least profitable of the labs spending on that scale. So its probably worse than that.
There are many valid complaints about public markets undervaluing businesses in comparison to private markets, now that everyone is putting their money on the line we start to see a different view being taken
which is exactly why public markets have always been a superior price discovery mechanism in comparison to private markets
But the SPCX float is a small fraction of its overall shares. So it will end up being around 0.08% to 0.12% of the weight of the SP500 [1]. Nothing to write home about.
Personally, I do think SpaceX is overvalued at these proposed IPO numbers and I will trade accordingly. So should anyone else who is confident and competent at taking appropriate market positions.
As of January, TSLA was somewhere around 2.3% of the S&P [1]. Because SpaceX will have so little float available, it would be somewhere around 0.7% if included.
It's only a problem for the ones left holding the bag. I'm at an all-time low allocation percentage in the US stock market and considering pulling more out still. Full on casino vibes at this point.
It's doubled in five years while inflation's gone up by 30+ percent. Where exactly is there to hide? Not gold - that peaked and went down a lot. Let's not talk about BTC, either.
Real estate? You've got taxes on that in the US, it's how our governments can pretend to not tax us as much as in Europe while still taxing us as much as in Europe (property tax goes to schools)
I mean, gold is up significantly more than then broad market since Trump took over, but that doesn’t mean you should gamble on it continuing.
I don’t trust real estate either. Seems like anything with a middleman is setting record levels of grift right now. I don’t trust the industries reports. No one is regulating or checking numbers.
I shifted into more bonds. Probably a bit early, but I’m not a pro. I’ve just lost trust in the market which no longer seems tied to reality or at least my limited understanding of reality. Staying in it just feels yolo atm.
> The fact that the indexes don't have our back is a huge problem
how could an index fund possibly have anyone's back? It's in index of the top 500 publicly traded companies. that's all. If SpaceX or Tesla or Anthropic or anyone else fall out of the top 500 then they fall off the index by definition.
I think a lot of these comments are coming from extreme emotions associated with AI and Elon Musk and not so much the way things work and will play out.
No, that's not all. They had additional criteria that they changed right when big-name companies wanted to get added. Now, if they had historically gone by pure market cap, and these companies met that, then you'd have a point.
What Spacex/Elon are doing is sketchy as hell. But the numbers involved here are not terribly meaningful for your portfolio.
At IPO, $75B of Spacex shares will be bought/sold. The S&P 500 uses float-adjusted weightings, and the current float-adjusted total is $54T. If you are 100% invested in SPY, then about 0.14% of your holdings will be spacex on IPO day (75B/54T~=0.14%).
Obviously Musk and friends will start dumping some of the locked up float (~1.65T) when they can. But they definitely will not be doing so in a way that crashes the price or the market. That's in nobody's interest.
If you assume that half of the shares end up as float eventually (post-lockup), you'd end up owning around 1.6% of spacex in your S&P 500 etf (875B/~55T~=1.6%). That's not nothing but it's not significant enough that you should consider liquidating your 401k.
I'm picking on Spacex specifically because they are the biggest and imo, have the sketchiest/worst finances of the 3.
I think the idea here isn't the absolute numbers, but that if Elon manages to successfully fleece everyone's retirement, it will collapse confidence in the market, which could wipe out far more value than SpaceX alone.
IF SpaceX is actually worth 400-500bn and it's a few hundred billion dollars of fleece, sure, that's a "small" amount (still.. lord almighty it is never enough for these people). But the hazard is that it is a fleece. That would shake confidence in the system, the bear case is basically unlimited at that point.
I dunno won't index funds be forced to sell other stocks to buy these IPOs? Won't that possibly trigger a market crash if the IPO stocks loses a lot of value very fast after the IPO on top of investors predicting this fact and selling shares of other companies?
I dunno, the logical explanation makes sense, but markets don't work on logic especially on the short term. People fearing what other people will do and act in anticipation is known to happen.
Read the find print, but probably not. Index funds are aware of the issue you raise and they all have plans to handle it. Plans range from "not a problem, ignore", to "we don't even try to have the same stocks as the index, just similar stocks that we think will match the index performance". Most are someplace in between those extremes.
Yes selling will happen, and in the case of the S&P 500, it will be weighted selling across the whole index.
Spacex/Anthropic/OpenAI almost certainly won't crash the market. The most probable thing to happen is that all 3 of these rally a surprising amount on their opening day, because there will be so much forced buying of the shares.
In my opinion, the most likely bagholders will be any retail traders that buy these stocks before the lockups expire.
I think it's very likely that we see the following:
IPO day -> all 3 close higher than opening price.
1 month -> price settles into a range 20-30% higher than IPO price.
6-12 months -> price is back near IPO price +-5%. Anyone who bought and held in the first 3 months has unrealized losses.
Not completely sure what you mean by "short term compared to the IPO time"
IPO's fairly reliably pop on day one. The performance in the first 6 months is mixed but skews slightly negative.
But the size of these 3, combined with the rule changes that are allowing them to be included in the indices much quicker than normal, means this time is very different than what we've seen before.
In general you should never "sell your 401k." Period. (Short of using it for income during retirement.)
What you should do is have an Investor Policy Statement[0].
This should contain at least two things:
- your desired Asset Allocation (e.g. 30% U.S. stocks, 30% International stocks, 20% U.S. bonds, 20% International bonds) which should be decided upon based on specific, personal goals and risk tolerance
- your strict policy rules for if and when to do anything, if ever, e.g. (don't sell anything ever, or... rebalance your portfolio if one of your allocations is more than 2% from the desired goal)
Now... if say U.S. stocks took a big dump in the next 6 months (while other asset classes either grew, held steady, or simply didn't drop as much), when it would drop below 28% of your allocation, and you'd open a spreadsheet and figure out which other asset classes to sell a few percentage of, to buy the reduced price U.S. stock funds. (This is a policy-driven buy low, sell high strategy.)
Thanks for being the voice of reason here. So many people make their investment/allocation decisions on the fly... it's only going to get magnified by these 3 big IPOs. (and their unexpected consequences)
Firms will look at your $600k 401k AUM, Investor Policy Statements, and laugh you out the door. They won't care, you have no say. Your 401k plan is between them and your employer.
- yes 401k fund options are negotiated by people that don't know I exist, or care
- but... how I allocate my contributions to those funds is under my discretion
- and... I've never stayed somewhere long enough to have a $600k 401k balance. As soon as I'm gone, I roll it over to a private account that I have full control over (and much lower expense ratios.)
So I don't really care if I'm in the door or laughed out the door, because it has no material affect on how I manage my finances.
Not sure if OP meant literally sell, or just rebalance out of stocks. TBH I've been considering sliding over to all bonds for a time, since there is no tax event if funds stay in the account. But the numbers don't seem that high at the end of the day.
If you try to time the market and you sell at the exact peak you still have to time the market again and buy back at the correct bottom. If you miss either of these you're likely leaving long term performance on the table.
"Be fearful when others are greedy". Greed is at an all-time high, so be careful. Whether that means buying or selling or staying put is for you to decide.
Any advice that confidently ends with "but whether you do A, B, or C, is for you to decide" can generally be safely avoided. This is providing 0 bits of guidance.
True, but so is financial advice on the Internet. There is no answer to 'what should I do with my money today', and anyone that claims to have one either is stupid, lying or trying to scam you.
The only valid advice here is to be careful because the economic climate is unstable, and it's not the time to make rash decisions.
I was not scammed (and never gave any money to this individual or his blog sponsors/advertisers), the advice here is not stupid or mendacious, and it is genuinely helpful if your goals align with the stated intent of their admittedly very simple strategy.
The nihilism of "nobody knows what to do or can give you actual advice" is an self-defeating choice. There's plenty of help available out there. At least until some of the internet survives LLMs.
401ks probably have limited control, but in proportion to their share of your index funds, you could short these stocks or use options or buy an inverse ETF (if one will exist).
Hopefully you didn't accidentally waive your right to class action by signing something at some point in the last 15 years that survived multiple buy-outs to land in the hands of some company tertiary to the lawsuit.
i read it as most likely people will lose their retirements if the companies goes bust. is that correct? in my country now they move to new pension model which will allow more aggressive investments with them. i am worried it will just get sent to these bros and i'll work until i die.
Amazon is worth $2.81T right now and only represents 4.03% of the S&P500.
So a $1T share would represent less than 2% of the S&P500. This is significant for a single company, and 6% for 3 shit-tier companies (SpaceX, OpenAI and Anthropic) is even more significant, but we're far from "losing retirement if they go bust"-levels.
I wish we would start paying proportional attention to business news, instead of treating AI (or any other "cutting edge") companies as economy-defining and giving these 50+% of the attention.
It is especially telling if we try to list out all the psychological biases at play:
- Availability & salience bias - vivid, memorable things feel more important than they are
- Narrative bias - humans tend to think in stories, and AI tells plenty
- Recency and novelty bias — new things feel more consequential than established ones (this one already drives like 80% of all HN content btw)
- Proportionality neglect - people are bad at intuitively grasping what percentages mean, even if they see the stats
- Social proof and reflexivity - coverage signals importance, and drives more coverage
- Status quo invisibility - things that work reliably become invisible (surprisingly, HN is really good in terms of working against this bias, I feel like at least 5% of all posts are some niche "inner daily workings" topics)
- Speculation premium in attention - uncertainty generates more discussion than certainty
- In-group signaling - cutting-edge things are status markers among influencers
On the other hand if you remove the gains from AI related companies the bull market basically disappears. [0] It makes up a small part of the market over all but if the market had been trading sideways for 3+ months people would be feeling quite differently about the economy.
One of the places you could have learned this would be the article itself:
> most share indices weight firms in proportion to the value only of shares they have released for public trading (the “free float”). For SpaceX, this means just the $75bn or so of stock it intends to issue in June—so its initial weight in the S&P 500 will be around 0.1%. The NASDAQ 100 is an exception, and has changed its rules to weight companies at up to three times their free float, in an apparent effort to woo Mr Musk. Even so, SpaceX’s probable initial weight in this $40trn index will still only be around 0.5%.
You're not modelling the contagion here. The problem is that while any single one isn't that big a share of the S&P 500, similar companies do make up a lot collectively. Excl some non-tech/AI firms:
NVIDIA Corp NVDA 8.02%
Apple Inc AAPL 6.53%
Microsoft Corp MSFT 4.84%
Amazon.com Inc AMZN 4.01%
Broadcom Inc AVGO 3.36%
Alphabet Inc GOOGL 3.32%
Alphabet Inc GOOG 3.09%
Meta Platforms Inc META 2.23%
Micron Technology Inc MU 1.71%
Advanced Micro Devices Inc AMD 1.19%
Oracle Corp ORCL 0.99%
That's 40% of the S&P 500.
And if anything happens to the AI bubble all of these go down together. While they won't all go to zero and cause a "-40%" overnight, Nvidia's rise is so meteoric that they will trigger a -8% and the rest's valuation has more than doubled since 2023. Even Apple, which isn't much of an "AI company", is still following the AI-tech hype.
If Nvidia eats shit, and the others go -50%, that translates to an overall ~-24% on the stock market.
Before any contagion outside the tech industry is considered. Look at the Dotcom Bubble and a -40% to -50% crash is quite plausible.
Unlike OpenAI or SpaceX, a lot of those tech companies are raking in the money. meta, google, amazon, apple all have huge cash flows. They will be buffered by this money - in dot com time, the money wasn’t already there, just the eyeballs. And while Cisco, which like Nvidia sold actual things, took a long time to regain their stock price, they made money selling actual things all along. On the other hand, there is more debt now than in dot com. I wouldn’t be surprised by a fifty percent decline, but it will be different than dot com for sure.
> And while Cisco, which like Nvidia sold actual things, took a long time to regain their stock price, they made money selling actual things all along.
This is the key comparison. It's not the "Pets dot com" side of the DotCom bubble, but the Telecom Bubble that followed. (All the AI startups that just repackage someone else's inference will go the way of Pets dot com, but their economic impact is minimal)
Certainly, Big Tech has massive cashflows. But those cashflows were priced into the 2023 valuations.
That is what makes the current valuations so ominous. Just a correction back to 2023 would be enormous. And as you note, a lot of these companies are taking on debt, dumping huge investments into AI. They're worse off than they were in 2023. Oracle may straight up go bankrupt.
The issue with nvidia is that they're "selling" most of their product to companies taking out debt to fund the purchases. The company explodes, nvidia's booked but not-yet-existing profits go poof. They're also giving most of these companies the money to buy their own products. Looks sweet on a balance sheet, doesn't represent reality in any sense.
I wish I could upvote this more. This is the point. Everything is so incestuous now that the problem isn't 2% here or 3% there, it'll be a catastrophe of epic proportions.
I do not want things to go kaboom, the CAPE index seems to indicate that what I want isn't relevant.
> Everything is so incestuous now that the problem isn't 2% here or 3% there, it'll be a catastrophe of epic proportions
Google and Amazon fund Anthropic which returns the favor with cloud purchases at these hyperscalers. So, google and amazon show increased earnings (via anthropic share markup) and increased cloud revenues via anthropic purchase. SpaceX didnt want to be left behind, so, it signed a deal with Anthropic.
Meanwhile capex at hyperscalers, VCs, PE etc is funding the party. Capex is not a concern to anybody as it doesnt appear on either revenues or earnings at the hyperscalers.
Downstream is partying from all the spending (server makers, chips, disk etc).
Whats not to like ! this is a perpetual money machine. Lets partay !
That's if everyone were acting perfectly rationally, but a world in which those three companies go bankrupt would have everyone panic selling every equity possible like it's the endtimes.
If they go bust won't it likely trigger a massive market crash? Afterall index funds will be forced to sell other US stocks to buy them, bringing their values down. Non-passive investors will predict that and divest even more and so on...
And that is on top of the IPO companies losing value themselves, this seems likely to trigger a doom-loop until the market reaches a low enough value. This will likely trigger layoffs and companies reducing spending and investments further depressing the economy. Added inflation from oil prices and war.
This doesn't seem like one big balloon ready to burst, but more like a house suspended by hundreds of balloons and they are about to be ran over by an airplane.
Yeah, think dot-com crash all over again, but probably worse IMO. Problem is, there really isn't a safe place to hide when this all happens. Some are less unsafe, like funds which track dividend-yielding stocks, or gold I guess (but that's just a speculative value store like bitcoin).
I don't know about your country, but in Sweden you can choose where part of your investment money (I think 40%) gets allocated.
On top of that you can choose where 100% of your private pensions are allocated.
Also some EU pension funds are already in the process of divesting from US markets...
I mean, the US public markets is about 49% of the worlds market so it is not like there aren't other options. Divesting doesn't mean moving everything out and pension funds also invest in non-public markets.
The reason they're doing that is because traditional European ponzi scheme pension systems don't work with shrinking populations, so actually we're working till we die in either case unless automation taxes pay for it.
You've been told a lie. Productivity has increased every step of the way even as populations shrink and the elderly cohort grows. Most of those productivity gains, i.e. the added value produced by each worker, has gone to shareholders' profits. If we had a reasonable tax system that captured more of that surplus value (which mostly goes offshore and does not in fact "generate more jobs"), then we'd have no problem at all funding the pension systems, and much more.
> You've been told a lie. Productivity has increased every step of the way even as populations shrink and the elderly cohort grows. Most of those productivity gains, i.e. the added value produced by each worker, has gone to shareholders' profits.
I was going to be glib and say "a thimbleful" but let's really look at it.
Firstly, pension funds hold some share of stocks, but far from all. Second, pension funds hold a share of a pie that's not all that came out of the bakery. The bakery made a lot more dough, but much pie was spent (horribly mixing metaphors) to buy assets like property and private investments. So in reality pension funds hold a fraction of a fraction. Third, pension funds invested in equity is a replacement for the old pension systems of yore where companies were forced to set aside money and invest smartly to fund guaranteed income pension plans. They don't have to do that anymore. Instead they contribute to a 401(K) or similar in other countries, which lowered their costs and reduced company risk. For listed companies, those savings went to the shareholders, of which pension funds were just a fraction of a fraction.
I hope this illustrates that we, the salaried workers, see only a small fraction of the value created by increased productivity.
No, it really doesn't. I think you're quite mistaken. Ultimately, most shares are held in funds which are pension or other personal wealth funds, and those are held by billions of ordinary people.
In the US, public and private pension funds directly hold about US$9.9trn of corporate equities, out of US$83trn of the publicly traded market (ignoring non-public wealth extraction which I also mentioned). That is about 12%. After allowing for pension exposure through mutual funds, we might be nearer to 20%. The Fed’s corporate-equity category also already includes ETF shares, so you can’t simply add “ETFs” on top without double-counting.
You've ignored the broader point about distribution. The Fed show that the top 1% own about half of corporate equities and mutual fund shares. So saying that shares are held by “billions of ordinary people” is quite wildly misleading.
My point wasn’t that ordinary workers own no shares through pensions or retirement accounts. But it is a limited and very unequally distributed channel for returning productivity gains to labor. It doesn’t make “shareholder profits” equivalent to “workers’ pensions.”
The key is that the wealth generated by workers makes its way into private pockets at many stages along the chain. Much of it never even makes its way to shareholders, neither through stock value increases nor dividends.
That is only pension funds. By far the largest indirect holds of US stock are households, via retirement accounts, mutual finds, ETFs, etc.
Yes, I agree, wealth inequality is massively skewed. But that is a different argument. In the end, if productivity increases and share prices go up, you and I are share holders (I presume you're saving for retirement), and we benefit. As does virtually every other person saving for retirement in the market.
Again, inequality is real, and is going to have to be addressed, but it is not the argument here.
Look, we are shareholders, but I showed how so much of the value generated by increased productivity never reaches listed companies, let alone their dividends. THAT is the key argument
Surplus value is a propaganda myth from Marx along with other trivially disproven delusions like LVT. Tell me what work is being done by whom in a wine cellar as the vintage matures after harvest?
"Reasonable" is doing herculean amounts of work as usual, as it is implicitly operating under a thief's logic that the target didn't really deserve it anyway therefore if I steal all of it I will be justified.
We see the same shit when regiemes 'nationalize' segments of the economy and then wonder why instead of miraculously getting better without the 'exploiters' things turn to shit and absolutely nobody wants to trade with them. Empathy such a foreign concept to them that they don’t understand why merchants refuse to trade with those who steal businesses wholesale. Whose only response when confronted about their crimes is lame whataboutisms and victim blaming.
fine, strip out the words "surplus value" and "reasonable" if they truly blind you to the point.
Let's say, "If we had a tax system that captured a greater share of the increase in profits resulting from higher productivity (which mostly goes offshore and does not in fact "generate more jobs"), then we'd have no problem at all funding the pension systems, and much more."
Yep, I'm sure in 25 years time, when I "should" retire, the retirement age will be 75, meaning another 10 years of work, so I have 35 left :) At least!
Which is why I have several different sets of savings for retirement. I have no choice about working now, but I hope to retire early in a few years, and my other savings just need to get me through until the official retirement income starts.
But this doesn't solve the problem in any way; it simply leads to production drop.
I mean, this is literally the logic of every communist government in the 20th century. They had the same logic that "given the mechanization of agriculture, food practically produces itself; you just need to throw a seed in the ground and give it a couple of tractor rides, and the earth will do the rest. Therefore, we need a tax on such activity, because we have enough resources to feed everyone".
In other words, it's literally a pure tax on automation. The results were mass deaths from starvation every single time.
There were so many contributing factors to those famines but my understanding is that it was far and away the broken incentives for reporting failures as successes to avoid immediate head chopping.
There has yet to be an attempt at a centrally planned economy that actually had accurate data to plan with.
Not advocating for central planning but the important point is that these failure modes are possible under any tyrannical regime. For an example of where capitalist competition fell down in a similar way, look no further than the Irish potato famines.
> it was far and away the broken incentives for reporting failures as successes to avoid immediate head chopping
Actually, no. What you're describing is more of a part of the next stage, designed to solve the already existing problem of famine, rather than its cause.
When communists come to power, they don't try in the first place to reorganize food production under strict centralization; this directly contradicts Marxism, according to which the state gradually withers away as a communist society is built. They simply try to redistribute what is already being produced in a more fair manner, to force peasants to contribute their "fair share" to society.
This causes production to plummet, people are dying of hunger, and only then the government takes control of organization of food production, and only after that do the factors you mentioned become relevant.
But the famine itself under communism, at least in its initial, most massive iteration, is not a consequence of a tyrannical regime, but is a consequence of the "taxation policy" being pursued.
Not sure that is the historical timeline for Collectivisation in USSR and definitely no China. Collectivisation and Land Reform was a primary goal in itself in China from the 1950s. Communist Liberation was 1949 so right from the onset.
"state gradually withers away as a communist society is built" is 19th century Marx. I think 20thc Leninism, in practice, had a less sanguine view of the evolution of the state. The NEP was a tactical move.
You could argue that Mao was always suspicious of state and party machinery which inherently had reactionary and counter revolutionary tendencies. However even when he was Mobilising the Masses, it was not restore to "autonomy" to the people but to clear the deck for further revolution. In Mao Zedong thought, "autonomy" is a very bourgeoisie.
Surely redistributing food (still effectively central planning) produced by a large number of peasant farmers is exactly equivalent to redistributive taxes on a very small number of very wealthy people who have captured the productivity gains of automation. Let's just dispense with the entire field of economics, all that fussy declining marginal utility and indifference curves, and just make a real zinger of an analogy.
Yes, it's EXACTLY equivalent. If you read the works of the communists who implemented all of this, you'll find literally the same arguments about unjust wealth created by productivity gains of automation (mechanization).
Do you think perhaps the totalitarian dictatorships perverted the communist aims of the proles perhaps just a little bit?
It's absolutely correct that we can easily feed, clothe, house everyone. We can even give everyone comforts. It's mostly greed that prevents it. Greed that capitalism spends $trillions cultivating by brain-washing us all to want more and never be satisfied.
Greed is a human axiom. Anything that depends on humans not being greedy isn't worth the paper it's printed on. That's why capitalism won, despite its many faults: it requires human greed to function.
Because its the only way the people who would like to be in power and can't manage to produce anything anyone else wants can see to get themselves put in charge: convince enough other people that despite their freedom, high standard of living, etc. they are somehow oppressed.
Do you think perhaps the totalitarian dictatorships perverted the communist aims of the proles perhaps just a little bit?
No, I don't think so. From a historical point of view, everything is quite clear: after communists came to power, the most severe famines occurred even before this totalitarian dictatorship is build, as a consequence of these very tax policies, the purpose of which is "easily feed, clothe, house everyone".
Totalitarian dictatorship comes later, as the problem transform to "we can easily feed, clothe, house everyone, but they don't want to, so we should force them"
Could you expand on your second paragraph - I'm not sure I understand your position. Are you saying you think we're not able to provide for basic necessities with our current level of technical ability and available workforce?
Originally pensions were created so people who could not work would not be destitute.
The fact it became an all-inclusive all-year-round vacation reward is an anomaly which is getting corrected. Too bad for us we're the generations holding the bag.
There was a response about starting businesses. I consider those in their 60s to be capable of contributing to financial systems (eg businesses), I was just focusing on social aspects that have seemingly been lost with societal/political changes. So it was contribution in the non-financial sense I was particularly thinking of.
I suppose when we look at things like the 4-day week, we imagine more time and energy available for social cohesion. Or I do at least.
Initial public offerings whose market capitalizations rank within the Nasdaq 100’s top members will normally be eligible to be included after 15 days of trading, Nasdaq said in a statement. The timeline is shortened from at least three months currently.
“Industry professionals, including asset managers and institutional passive portfolio managers, were mostly supportive of the Fast Entry proposal and proposed timing,” Nasdaq said in the statement.[0]
15 days vs 90 days isn't some huge shift nor is it inherently some "flaw." These changes have been asked for long before Elon entered the White House.
The question is whether or not those industry professionals are speaking in their own interest, in the interest of all stockholders, in the interest of the economy as a whole, or any mix of the above.
This is why non partisan financial institutes like the FED and consumer protection groups like the CPB are important and we should have them as non corrupt and robust as possible.
Because it just doesn’t seem wise to trust asset managers with these kinds of things without a lot of evidence and transparency. The 2008 crisis should have taught all of us that much.
Why? An index fund represents the market (usually top 100 or 500 companies), and SpaceX will certainly be in the top few companies. I would argue it's a lot riskier to buy it after the IPO price (if you're buying it secondary it would be easier to spike prices by accident), plus then it's not representative of the actual market until you've purchased the stock.
Unless I'm misunderstanding this, buying at the sale price is the least risky way of purchasing the stock, which is what index funds should do. They should pursue the least risky way of indexing the market
Because nothing about the IPO price has any resemblance to a fair market valuation, and if it's being propped up by this forced inclusion, even less so? The rules existed to fundamentally protect against a Potemkin village situation where an underwriter and some early round investors whip the valuation into a froth and raise against a rabid corps of retail investors who don't necessarily care about a PE ratio of 1,000+ because they're buying the hype.
More importantly, it allowed organic price discovery to occur. This eschews that process because the indexes are _forced_ to participate essentially at _any_ price, so rather than the market writ large having the opportunity to reward or punish the underwriter pricing of the IPO and determine any true idea of price, they're forced to buy the banker's narrative, which will intrinsically prop up the stock to some degree, but at what cost, and based on what underlying?
You know that short selling is possible? And index funds are traditionally some of the keenest participants to lend their shares out to short sellers in return for a bit of extra return (over the raw index).
As far as I can tell, there's no minimum period you have to wait after an IPO to be able to short shares. Legally, you can do it from day one.
And instead of a classic short where you have to borrow the stock, you can also write single stock futures. Futures don't require you to borrow the underlying. You just need enough collateral, but that can be anything, like T-bills or whatever.
Or you can write call options, or buy put options, to bet on a falling stock price.
People can dream with lottery tickets, that doesn't make them wise pension plans.
While I like the dreams Musk sells of self-driving cars so good they don't need steering wheels, of space colonisation and useful robot workers cheap enough that I could personally afford them, at this point I don't trust him in particular to actually deliver any of those things.
(And no, you can't convince me with some variant of "look at ${current version} of FSD" or "look at progress with Starship", etc., that's like responding to someone who doubts you can build a house by pointing to a pile of bricks: they're a necessary step, but aren't sufficient).
Index funds are largely synonymous with passive, long term, buy-and-hold investors. That kind of investors are best served by slower changes to the index, especially since index funds are intended to piggy back on the price discovery that happens in public trading. An IPO price, which is the result of a private negotiation, is exactly what you don't want to buy stocks at if you're a passive, long term investor.
How is that the smart move? It's exactly what OP stated as undesirable for index fund investors. The price discovery of the public markets hasn't taken place yet.
SpaceX financials are a mess outside of the actual SpaceX part. xAI is losing money hand over fist, other random bits in there are doing the same. The valuation makes no sense.
It's basically a money transfer from the average person to the poor richest person on the planet.
The true Great Filter is mental illness, apparently.
Moreover their filings on the matter basically correctly weight their space launch business and then go "and xAI will obviously be worth a bajilion dollars more".
A lot of people are "printing revenue" in the current LLM economy, including, Nvidia, Azure, AWS, etc, the people selling shovels.
We have 0 proof that selling shovels is a sustainable business strategy since none of the gold prospectors are bold enough to publish GAAP + audited financial numbers.
Right now we have lots of people spending lots of money at the lower layers and none of the end-game companies, the ones selling to actual customers, private or companies, publishing any quarterly or yearly numbers that show that the end-state of current LLMs is profitability.
Keep in mind that Nvidia, Azure, AWS can't really pivot to something else once they can't stop selling shovels. Nvidia goes back to being a $10bn company selling GPUs to gamers and Azure/AWS probably see their earnings drop by a quarter or more if the AI bubble pops. At least shovel sellers during the gold rushes could cash in and invest in land or cattle or something and have long term sustainability.
Well, apparently Anthropic became "profitable" last month, because of some 1-time deal with xAI.
I wouldn't bet on either Anthropic or OpenAI being profitable, we'll find out soon enough what this house of cards has inside, as they both want to IPO.
Though with the current US administration, as proven by the SpaceX IPO, laws are mere recommendations.
> That’s $15 billion a year in compute costs, but reduced to an indeterminately-discounted level for the precise months that Anthropic is using to tell investors and the media that it has an operating profit. That operating profit is a result of accountancy rather than any improvements to its business model.
> While I wouldn’t say this is cooking the books, it’s definitely a shiatsu-grade massaging of the numbers. Anthropic has deliberately leaked a quarterly “profit” where it knows it can suppress its costs
Is it a loaded question? If you ask and I reply with a curt "no" and you vanish back into the ether without replying, what does that gain both of us as well as anyone that reads these comments later?
To your point, I'm both not a lawyer and based on what I've read/seen, no, they aren't breaking any laws. But what they're doing is overall very shady.
Fairly sure most of what banks did during the 2008 GFC wasn't illegal either, until we made it illegal. Robbing banks in Minnesota wasn't illegal in Illinois, either, until we made it illegal. Allowing the Titanic to leave with life-rafts for only 50% of its maximum capacity wasn't illegal either, until we made it illegal.
I don't find this reassuring, because Elon's playbook is to force the public to purchase anything of his which doesn't do well on its own. Maybe a nice $1.776 trillion dollar tax funded investment into "unwoke" AI. :D
Yeah, his current playbook is to get the public to fund his Nazi propaganda machine of X + Grok. Letting a billionaire tie that heinous stuff to critical space infrastructure and use 401k money from all Americans to fund it is a criminal indictment of our entire system!
And when it happens, I suspect we'll end up having to eat austerity to avoid inflation again. Under new leadership from the Responsible Party, whoever that is where we live.
>Why does SpaceX warrant a change of existing trading rules?
They don't, while timing certainly benefits, and potentially was triggered by them and OpenAI and Anthropic IPOs, these rules are not specific to only apply to SpaceX.
FTSE Russell (Russell 1000/2000 etc.) Adopted "fast entry" for large IPOs. Eligible companies (investable market cap above Russell Top 500 cutoff) can join after 5 trading days (previously quarterly rebalances). Also eased float rules with carve-outs.
Nasdaq (Nasdaq-100): Effective May 1, 2026, top ~40 market-cap companies can enter after 15 trading days (previously 3+ months). Adjusted low-float handling.
S&P Dow Jones (S&P 500): Reducing seasoning from 12 months to 6 months for megacaps and waiving the 4-quarter GAAP profitability requirement for large issuers.
The answer remains, these rules do not specifically apply to only SpaceX, they apply to a range of companies that fit specific profiles. Timing happens to favor SpaceX, but will equally favor OpenAI, Anthropic and others within the same qualifiers.
The links above provide specifics as to the what's and the why.
And prior to that Elon did float the idea of IPOing on a non-NYC exchange, some Texas exchange. So a bit of a stick and some honey in the IPO fees and early access.
Yeah ultimately who wouldnt want that? (Strawman btw) The other extreme is, what exactly do the power hungry cretins want? Godlike worship form all other humans.
Reality will be whatever happens (capital and corportism wins through the monopoly of violence and the oligarchic capture)
One example of legible demands: Americademands.com
There are many people with many unmet needs. Everyone has played a part and continues to do so every day with their choices.
We all know they get paid by musk to load up on overvalued stocks so musk can get some cash from pension funds, the pay off a bit Russell’s for bending the rules. No one in their right mind would change rules to buy space x. What profit must have to compensate the valuation?
Stop downvoting the only person that talks reason. We have reached a point where Musk and its tech pals must be stopped with all means possible, because government oversight, democratic processes, and the judicial process clearly do not apply to them anymore.
Sadly that's what happens when people have a "high" technological culture with absolutely zero political nor ethical education. They see all the cool gadgets while being completely blind to the political and social side effects
This is a good point. It's like a strange form of selective magical thinking, or maybe it's really just a global psychosis.
Tech people without a background in humanities (not academic, even just because of personal interest) are the most prone to this in my experience.
Because 5 days is not enough for the market to discover the price of SpaceX.
And the rules were changed so the float is weighted as if it was much much larger than it is.
Are you sure? It discovers it within seconds following a bad earnings report. It seems hard to know right now whether five days might actually be sufficient or not, seeing as the cat is out of the bag about how unprofitable and debt laden this trillion dollar enterprise is.
No, it's not long enough. You need long enough for the initial investors to get past their lock-up period and either sell their shares, or not, which is typically 90-180 days. Otherwise, index fund investors will pick this up at basically peak overvalued initial pricing, only to potentially take a bath on it three months later.
Additionally with SpaceX they are issuing only a very small percentage of stock compared to a usual IPO, with an unprecedented valuation. Couple that with a much larger than usual amount of the IPO being issued through retail investment platforms rather than to professional institutions (30% rather than a more typical 5%) and it looks pretty unsettling.
If price is fully discovered right after ER then you will see price stabilized right after ER. But in fact post ER prices can wildly differ from the next minute, next day and next week price. It’s speculation and anticipation.
Ask yourself this question: Why were the rules there in the first place? SpaceX being big doesn't make this okay, it actually makes it more dangerous since more and significant money could be funneled.
You shouldn't be downvoted because your point is completely valid. Matt Levine made the same point in the last Money Stuff podcast. These indexes are supposed to contain the largest, most significant, and in some cases all companies so people shouldn't be mad at the indexes for pulling in a company that's going to have a 1.5T market cap at IPO. Given the market cap, it would actually be weird to not have it in an index like the S&P500 or QQQ.
Instead blame the bankers and market who are putting buying in at 1.5T valuation.
If people really don't want SpaceX in their S&P 500 tracking ETF, we should see a S&P-ex SpaceX in short order.
> The whole point of original rule was to have market discover price over time before adding a company.
IPOs and indexes were not really built to handle companies that stay private as long as we are now seeing. SpaceX is trading at crazy levels in the private market right now. Even if it prices down to something ~1T, it would be silly for an index that is a total market or the biggest 500 companies to ignore it. With that said, it'll be float weighted and have about as much impact on the s&p 500 as something like DoorDash.
>>If people really don't want SpaceX in their S&P 500 tracking ETF, we should see a S&P-ex SpaceX in short order.
"People" don't know much about finance to put it mildly.
ETFs are created by market demand. Even "factors" ETFs are often based on completely irrational things like dividends, P/E ratios and other meaningless metrics. This happens because people are easily seduced by narratives ("solid dividend paying stocks", "low P/E ratio - good returns") which are plainly wrong but tempting to an average person.
Most people realized they don't know anything about finance and would like to pay someone (their fund manager) to make responsible decisions and expose them to wide market while avoiding blatant manipulations. Unfortunately the incentives are misaligned here. The managers' incentives are somewhere else. They are not paid by long term performance of their fund and they are disproportionally penalized for taking contrarian decisions.
People being force feed those mega IPOs losing money on them is bad for others as well - there will be less wealth for productive investments and more in hands of "players" (or scammers if you want to call it out). There might be a crash. Trust in financial market will plummet and hostile regulation might arise which other market participants will pay for even though they are not to blame.
I will not have exposure to those mega IPOs but I am in privileged position because:
-My understanding of financial markets is much better than that of an average person.
-I have quite a bit of time to follow all of it and react in time
-I pay 0% capital gain tax and use a broker with nearly 0 fees which allows me to rotate for free (almost)
-I know where and how to move my money so I don't lose advantages of wide market exposure
It took me a lot of effort to set it all up like that. An average person falls short on all of the above and is not in position to avoid donating part of their pension fund to Musk and Altman though. It is still bad for me for reasons mentioned above.
What's really clever is that Musk could pull his Nazi salute at the inauguration of the president he bought, and the ensuing 'voting with your dollars' against him doesn't matter because he was able to orchestrate forcing people to pay him by cutting them out of the loop. I mean it's absolutely evil, but it's pretty clever - his team proved they can't run a country (they probably could, but don't want to), but they're incredibly adept at stealing.
I wonder if Musk chose rocketry solely because of the ability to use it to drain money from government?
