Can the stockmarket swallow Anthropic, SpaceX and OpenAI?

601 points by 1vuio0pswjnm7 18 hours ago

For SpaceX (and possible the others):

Yes it can, since they changed the rules to force over $30 trillion in passive 401k and retirement money to buy SpaceX at IPO valuations.

From https://x.com/Hedgeye/status/2060435253928604065:

"Rule changes for the SpaceX $SPCX IPO:

Index providers waived the profitability requirement and cut the seasoning window from 90 days to 5.

This forces over $30 trillion in passive 401k and retirement money to buy SpaceX at IPO valuations.

Bloomberg Intelligence estimates S&P 500 funds must absorb 19% of SpaceX's float within 6 months.

Russell 1000 and Nasdaq 100 funds will absorb 24%.

The rules built to protect passive investors:

1. S&P 500 has required 12 months of trading and 4 quarters of GAAP profitability since 2002. Both waived.

2. Nasdaq cut its inclusion window from 90 trading days to 15.

3. FTSE Russell cut its to 5.

All three benchmarks are now structured to buy SpaceX at IPO pricing."

pryce - 12 hours ago

This should be a 5 alarm fire. It reminds me of nothing more than organized crime rackets that targeted control of union retirement funds
- hliyan - 9 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. (?)
  - Arn_Thor - 7 hours ago
    
    > 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.
    
    bluGill - 5 hours ago
    
    > 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)
    
    gitfan86 - 4 hours ago
    
    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.
    
    bluGill - 3 hours ago
    
    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.
    
    daveshistory - 3 hours ago
    
    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.
    
    bluGill - 3 hours ago
    
    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.
    
    convolvatron - 2 hours ago
    
    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
    
    bluGill - an hour ago
    
    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.
    
    jayd16 - an hour ago
    
    So are they incentivized to allow an obvious grift and let the index have middling returns so they can skim the difference?
    
    bigfishrunning - 3 hours ago
    
    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...
    
    daveshistory - 3 hours 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.
    
    dragonwriter - an hour ago
    
    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.
    [0] https://www.reuters.com/legal/government/new-york-california...
    
    conartist6 - 6 hours ago
    
    Mmmm legalized theft: the new Tech Industry!
    
    SilasX - an hour ago
    
    >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.
  - ashdksnndck - 9 hours ago
    
    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.
    
    collabs - 7 hours ago
    
    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.
    
    ashdksnndck - 6 minutes ago
    
    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 $20T before the index rules dictate they buy in. Hence the rule change to prevent that from happening.
    
    skinfaxi - 5 hours ago
    
    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.
    
    throwway120385 - 4 hours ago
    
    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.
    
    daveshistory - 3 hours ago
    
    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.
    
    s1artibartfast - an hour ago
    
    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.
    
    bsenftner - 6 hours ago
    
    It was never safe, he's exposed the system's design was never intended to be safe for anyone but those in charge.
    
    dabidab - 4 hours ago
    
    This. People are locked in their 401k and penalized when taking it out says a lot about what it is.
    People should honestly read Killing the Sacred Cows it’s an eye-opener for anyone invested in 401k.
    
    coredog64 - 3 hours ago
    
    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.
    
    brianwawok - 3 hours ago
    
    And your proposed alternative? Please provide at least 50 years of historic returns
    
    nemomarx - 3 hours ago
    
    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!
    
    the_gastropod - 2 hours ago
    
    > …says a lot about what it is
    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)
    
    dabidab - an hour ago
    
    I mean put it in context of the OP.
    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.
    
    BurningFrog - 2 hours ago
    
    You can move your 401k money between several funds at any time.
    
    chasd00 - an hour ago
    
    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.
    
    throwway120385 - 4 hours ago
    
    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.
    
    BoredPositron - 6 hours ago
    
    It's inherently about him because he is the one behind these changes.
    
    cmrdporcupine - 5 hours ago
    
    "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.
    
    fsuts - 6 hours ago
    
    Twitter was 40 billion ish overpriced purchase and SpaceX is seeking to raise 75billion
    Let’s not make billions into a footnote?
    
    ashdksnndck - 10 minutes ago
    
    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.
    
    prepend - 6 hours ago
    
    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.
    
    mattmaroon - 6 hours ago
    
    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.
    
    jfengel - 5 hours ago
    
    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.
    
    calmworm - 6 hours ago
    
    Map out the road to trillions for us here, please.
    
    somenameforme - an hour ago
    
    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.
    
    jfengel - 5 hours ago
    
    "Worth" here means market cap. Which is almost completely divorced from its potential earnings.
    
    elictronic - 3 hours ago
    
    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.
    
    meindnoch - 5 hours ago
    
    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.
    Simple as.
    
    Octoth0rpe - 5 hours ago
    
    Oh man, I really hope this is sarcasm :)
    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.