Suppose you had a index of 100 companys each with a market cap of 1 G$ for a total of 100 G$.
You have passive investors owning 20 G$ of that index, amounting to 20% of the total, 20% of each company, and 200 M$ per company.
You then rotate out a company for a new one. The index is still 100 G$, but to match the index you are contractually required to sell your 20% ownership of the old company and are contractually required to buy 20% ownership of the new company.
However, the newly added company only released 5% of its shares to the public and the founder kept hold of the remaining 95%. Those fund managers are contractually obligated to buy 20% of the newly added company, but only 5% is available. Like a short squeeze, where the squeezer buys and holds supply so there are not enough purchasable shares to cover the shorts (obligated ownership), this is a financial divide by zero.
To get the remaining 15%, which they are contractually obligated to acquire, they must purchase from the founder. As they are in violation of their contract if they fail to acquire the remaining 15%, the founder now has complete control to dictate any price they want.
That is the scheme described: how to short squeeze pensions who do not even have shorts for fun and profit.
It seems the S&P 500 indices only take the free-float shares into account when calculating weights:
S&P DJI’s market cap-weighted indices are float-adjusted – the number of shares outstanding is reduced
to exclude closely held shares from the index calculation because such shares are not available to
investors.
Yes, but not the Nasdaq-100 [1] which added the "Fast Entry" rule listed right there in section 2 literally this February because SpaceX is demanding immediate inclusion into the Nasdaq-100 as a condition for listing on the Nasdaq instead of the NYSE.
> Yes, but not the Nasdaq-100 [1] which added the "Fast Entry" rule listed right there in section 2 literally this February because SpaceX is demanding immediate inclusion into the Nasdaq-100 as a condition for listing on the Nasdaq instead of the NYSE.
...Honestly, Nasdaq's to blame for bending the knee in this case. If they choose to chase that pie, then they alone should be the ones to bear the burden, including any/all reactions from passive investors.
Passive investors should (ideally) switch to another index if they wish to not be involved in this IPO. The decision of how they should invest is theirs, and if they're not happy with this index, they should move to another index: Their money talks louder than any posturing that could ever be put out.
Not a comment on this particular content, but Patrick Boyle is great, I highly recommend his content in general! He's got tons of experience in finance, and (from what I can tell), understands his topics in depth. He offers very measured views about stuff, tending not to be caught up in zeitgeist one way or the other.
I had never appreciated that IPOs are almost always for a tiny fraction of the shares. It is immediately apparent to me that IPOs where you only sell a tiny fraction of the shares are less about raising capital and more about giving insiders a chance to unload their shares.
Musk is the ultimate conman. I admire the work that SpaceX is doing, but Elon just plays the market, every single time. I don’t know why he’s allowed to do that and why people still fall for his promises.
This SpaceX thing will make him 2 trillion guy, not the 1 trillion he’s promised to be.
Don't admire the work SpaceX is doing. It's a scam. They are a defense contractor that pretends to be about Mars. The technology is 100% about Golden Dome. Always was, read their real history,
This Musk guy makes Ponzi look like the Pope.You almost have to admire
it the way you admire a raccoon breaking into a triple locked trash can at 2 AM.
You are furious. You know you should be furious. But part of you is at
the window wondering "how did he do that?". As you will see below,
this raccoon is getting the trash can manufacturer
to remove the lock for him first.
This is how retail investors are about to get played by the SpaceX IPO:
First they only release 5% to 10% to create an artificially inflated price.
Its called the low float strategy...
Also...the Nasdaq 100 inclusion is supposed to be earned. You list, trade for up to a year at least, prove you are stable and then maybe you might be selected for inclusion. That rule protects the millions of people whose retirement money is in index funds.
But Musk told Nasdaq "fast-track me or I list on NYSE... so the Nasdaq
invented a "Fast Entry" rule out of thin air....15 trading days and you are in.
They openly admitted it was designed for SpaceX. S&P is now considering the same
thing for the S&P 500, which has around $24 trillion in assets tracking it.
Why does this matter? The second SpaceX hits these indexes, every passive fund
is forced to buy, your 401k, your Vanguard fund, your target date fund.
All buying SpaceX at whatever inflated price it opens at, with zero public track record. Nobody asks you.
With the index inclusion and the implication of massive institutional liquidity
you have a clean exit for the insiders. After lockup expires, Musk and early investors dump the artificiality rarefied shares (it seems only 5% to 10%)
into a pool of demand that was artificially created by forced passive buying.
Your retirement money is their exit liquidity. Madoff went to prison for funneling new investor money to pay old investors. This is funneling passive investor money to inflate the price so insiders can cash out.And the exchange itself is rewriting the rules to make it happen.
Not saying anything positive about Musk, but what is the expected IPO price (I’m more curious about the alleged market cap)? If this scheme allows them to IPO at a valuation of $10T, I would be upset. If the valuation was something like $500B to $1T, that actually seems somewhat reasonable and likely to return value long-term as they are the clear leaders of space (for the time being at least).
The saving grace of the SP500 and most similar indexes is that they are cap-weighted. So if SpaceX only, floats 5% only that 5% of their capitalization counts for index calculation.
The Nasdaq100 is more complicated. SpaceX's 5% would be counted as about 25% of their total market cap for indexing.
It's worse than that, because S&P500 and Nasdaq100 share stocks. Like all of the MAG7 stocks. So if mag7 stocks dip because they're being structurally sold to buy SpaceX, then the S&P500 goes down too.
Arguably even worse because at least Nasdaq100 would have SpaceX in it that's getting bid up to offset the losses in other stocks. S&P won't have SpaceX right away. So it just goes down.
And the more those stocks go down, the lower their market cap - which means next rebalancing date they potentially get re-weighted again causing a bit more selling, etc. Presumably the companies that can will counter this with more buy-backs to keep their share price propped at an acceptable level (?).
From your description it sounds like they could offer SpaceX at a valuation of $10T and be able to still sell because every passive fund is automatically forced to buy it. But obviously they need to target a price range that will be more or less stable, otherwise even in 15 days the price will free fall anyway. The only question is whether 15 days is enough to find a stable price or not, I agree it sounds rushed.
I don't get it. He owns some of the companies out right and has no problem securing financing. Who is he screwing over?
> First they only release 5% to 10% to create an artificially inflated price. Its called the low float strategy...
Why would you float more than you reasonably would need. What's the upside of saying "we're worth X" due to a low float? Doesn't really buy you anything. And financiers are not stupid. Much the same way you can't create a shitcoin, sell one share to your buddy and convince a bank to lend you based on the "full" market cap
> the Nasdaq 100 inclusion is supposed to be earned. You list, trade for up to a year at least, prove you are stable and then maybe you might be selected for inclusion
Not really. Nasdaq and all indexes are supposed to serve as an index of largest companies in the country. It's not a prize that you have to "earn". Not including this company would be activism and against their mission.
> But Musk told Nasdaq "fast-track me or I list on NYSE... so the Nasdaq invented a "Fast Entry" rule out of thin air..
Yeah, it's called competition. You have a choice of where to list. This is how a healthy competitive environment works. Again, who is being harmed? Why is there a "Slow Entry"? No justification for bureaucratic hoop jumping.
> Why does this matter? The second SpaceX hits these indexes, every passive fund is forced to buy, your 401k, your Vanguard fund, your target date fund. All buying SpaceX at whatever inflated price it opens at, with zero public track record. Nobody asks you.
You found a cheat code! Create a company that's generating ~15b in revenue, has a >50% profit margin and ~50% revenue annual growth rate. Now you get to list your stock publicly, let the exchanges compete for your listing considering very few public large companies grow anywhere close to that, and force large indexes to buy you because, by this point you created one of the most valuable companies in the world!
15B in revenue is less than what AirPods sell in 6 months.
It's less revenue than Spotify.
It's nowhere near what should be necessary for a company to be "one one the most valuable companies in the world."
Elon knows this. He knows that the 1.5 T "valuation" is nonsense. The market for space launches is quite simply not that big. How many more Starlinks does the world need? What would you do if I gifted you a satellite?
The SpaceX valuation is predicted on hype for scientifically & economically illiterate ideas like "data centers in space."
Elon knows this. He knows that these indexing rules are the only way to keep the hype going and avoid a space-WeWork failed IPO.
Agree that 15b in revenue is not a lot. Finance has always been about future growth with majority of companies value well out into the future. And this company is growing at around 50% and has insane margins. They dominate their space with overwhelming majority of global launches. So a high multiple is justified imo
Yeah, you’ve shown it’s great to be a billionaire. Slow-clap. What you’re conveniently skirting around is all the little people’s retirement savings being transferred to the billionaires by artificially forcing the price high.
I think those boomer firms are asleep at the wheel and this kind of market engineering will completely blindside them. Vanguard can't even figure out how to show me my cost basis on the same screen as the one where I sell a security. What could they possibly be doing to prepare for this?
I think the xAI acquisition was a big tell though. How could a brand new, mostly irrelevant AI platform suddenly be worth over a hundred billion? No one can believe that xAI is somehow worth even a third of what Anthropic is worth, let alone most of what Anthropic is worth.
People put up with various other misleading claims or exaggerations. Battery tech. Roadster. FSD. But now the scheme of lying and manipulating things is so obvious. Not just with xAI but also the subscription switch for FSD. And the absurd push for space based datacenters. And the corruption involved in DOGE, as well as pushing to quickly secure FAA approval for 1 million satellites before this administration is kicked out of power at the midterms.
It’s clear this is one big scam, and unfortunately it may end up working. If they end up getting enough capital raised in an IPO, they may be able to use that capital to mostly catch up on the claims Musk has made.
Forcing everyone’s retirement funds to buy (at the artificially high and unsustainable price) is the scandal. Clever ploy to move more money from the plebes to the billionaires.
Good thing we can also preemptively divest on our retail accounts and just wait this out so we don’t get stuck bag-holding this turd sandwich. Ooh wait, selling triggers cap gains taxes.
What a great scam. So either dump all your index funds and pay the huge tax bill now or stay in and hope against all signs and odds that someone does something to stop this.
Suppose you had a index of 100 companys each with a market cap of 1 G$ for a total of 100 G$.
You have passive investors owning 20 G$ of that index, amounting to 20% of the total, 20% of each company, and 200 M$ per company.
You then rotate out a company for a new one. The index is still 100 G$, but to match the index you are contractually required to sell your 20% ownership of the old company and are contractually required to buy 20% ownership of the new company.
However, the newly added company only released 5% of its shares to the public and the founder kept hold of the remaining 95%. Those fund managers are contractually obligated to buy 20% of the newly added company, but only 5% is available. Like a short squeeze, where the squeezer buys and holds supply so there are not enough purchasable shares to cover the shorts (obligated ownership), this is a financial divide by zero.
To get the remaining 15%, which they are contractually obligated to acquire, they must purchase from the founder. As they are in violation of their contract if they fail to acquire the remaining 15%, the founder now has complete control to dictate any price they want.
That is the scheme described: how to short squeeze pensions who do not even have shorts for fun and profit.
It seems the S&P 500 indices only take the free-float shares into account when calculating weights:
S&P DJI’s market cap-weighted indices are float-adjusted – the number of shares outstanding is reduced to exclude closely held shares from the index calculation because such shares are not available to investors.
page 6 of https://www.spglobal.com/spdji/en/documents/methodologies/me...
Yes, but not the Nasdaq-100 [1] which added the "Fast Entry" rule listed right there in section 2 literally this February because SpaceX is demanding immediate inclusion into the Nasdaq-100 as a condition for listing on the Nasdaq instead of the NYSE.
[1] https://indexes.nasdaqomx.com/docs/NDX_Consultation-February... Section 3
> Yes, but not the Nasdaq-100 [1] which added the "Fast Entry" rule listed right there in section 2 literally this February because SpaceX is demanding immediate inclusion into the Nasdaq-100 as a condition for listing on the Nasdaq instead of the NYSE.
...Honestly, Nasdaq's to blame for bending the knee in this case. If they choose to chase that pie, then they alone should be the ones to bear the burden, including any/all reactions from passive investors.
Passive investors should (ideally) switch to another index if they wish to not be involved in this IPO. The decision of how they should invest is theirs, and if they're not happy with this index, they should move to another index: Their money talks louder than any posturing that could ever be put out.
Not a comment on this particular content, but Patrick Boyle is great, I highly recommend his content in general! He's got tons of experience in finance, and (from what I can tell), understands his topics in depth. He offers very measured views about stuff, tending not to be caught up in zeitgeist one way or the other.
I just love how his dry delivery makes his jokes hit harder
Aside from SpaceX:
I had never appreciated that IPOs are almost always for a tiny fraction of the shares. It is immediately apparent to me that IPOs where you only sell a tiny fraction of the shares are less about raising capital and more about giving insiders a chance to unload their shares.
Musk is the ultimate conman. I admire the work that SpaceX is doing, but Elon just plays the market, every single time. I don’t know why he’s allowed to do that and why people still fall for his promises.
This SpaceX thing will make him 2 trillion guy, not the 1 trillion he’s promised to be.
Don't admire the work SpaceX is doing. It's a scam. They are a defense contractor that pretends to be about Mars. The technology is 100% about Golden Dome. Always was, read their real history,
https://wikipedia.org/wiki/Golden_Dome_(missile_defense_syst...
At 25:48 you have the explanation for the (multiple) tricks: https://youtu.be/8rS3fTbC7TE?t=1548
This Musk guy makes Ponzi look like the Pope.You almost have to admire it the way you admire a raccoon breaking into a triple locked trash can at 2 AM. You are furious. You know you should be furious. But part of you is at the window wondering "how did he do that?". As you will see below, this raccoon is getting the trash can manufacturer to remove the lock for him first.
This is how retail investors are about to get played by the SpaceX IPO:
First they only release 5% to 10% to create an artificially inflated price. Its called the low float strategy...
Also...the Nasdaq 100 inclusion is supposed to be earned. You list, trade for up to a year at least, prove you are stable and then maybe you might be selected for inclusion. That rule protects the millions of people whose retirement money is in index funds.
But Musk told Nasdaq "fast-track me or I list on NYSE... so the Nasdaq invented a "Fast Entry" rule out of thin air....15 trading days and you are in. They openly admitted it was designed for SpaceX. S&P is now considering the same thing for the S&P 500, which has around $24 trillion in assets tracking it.
Why does this matter? The second SpaceX hits these indexes, every passive fund is forced to buy, your 401k, your Vanguard fund, your target date fund. All buying SpaceX at whatever inflated price it opens at, with zero public track record. Nobody asks you.
With the index inclusion and the implication of massive institutional liquidity you have a clean exit for the insiders. After lockup expires, Musk and early investors dump the artificiality rarefied shares (it seems only 5% to 10%) into a pool of demand that was artificially created by forced passive buying.
Your retirement money is their exit liquidity. Madoff went to prison for funneling new investor money to pay old investors. This is funneling passive investor money to inflate the price so insiders can cash out.And the exchange itself is rewriting the rules to make it happen.
Not saying anything positive about Musk, but what is the expected IPO price (I’m more curious about the alleged market cap)? If this scheme allows them to IPO at a valuation of $10T, I would be upset. If the valuation was something like $500B to $1T, that actually seems somewhat reasonable and likely to return value long-term as they are the clear leaders of space (for the time being at least).
The saving grace of the SP500 and most similar indexes is that they are cap-weighted. So if SpaceX only, floats 5% only that 5% of their capitalization counts for index calculation.
The Nasdaq100 is more complicated. SpaceX's 5% would be counted as about 25% of their total market cap for indexing.
It's worse than that, because S&P500 and Nasdaq100 share stocks. Like all of the MAG7 stocks. So if mag7 stocks dip because they're being structurally sold to buy SpaceX, then the S&P500 goes down too.
Arguably even worse because at least Nasdaq100 would have SpaceX in it that's getting bid up to offset the losses in other stocks. S&P won't have SpaceX right away. So it just goes down.
And the more those stocks go down, the lower their market cap - which means next rebalancing date they potentially get re-weighted again causing a bit more selling, etc. Presumably the companies that can will counter this with more buy-backs to keep their share price propped at an acceptable level (?).
From your description it sounds like they could offer SpaceX at a valuation of $10T and be able to still sell because every passive fund is automatically forced to buy it. But obviously they need to target a price range that will be more or less stable, otherwise even in 15 days the price will free fall anyway. The only question is whether 15 days is enough to find a stable price or not, I agree it sounds rushed.
Thanks for that. The trajectory of this timeline is beyond disheartening.
> This Musk guy makes Ponzi look like the Pope
I don't get it. He owns some of the companies out right and has no problem securing financing. Who is he screwing over?
> First they only release 5% to 10% to create an artificially inflated price. Its called the low float strategy...
Why would you float more than you reasonably would need. What's the upside of saying "we're worth X" due to a low float? Doesn't really buy you anything. And financiers are not stupid. Much the same way you can't create a shitcoin, sell one share to your buddy and convince a bank to lend you based on the "full" market cap
> the Nasdaq 100 inclusion is supposed to be earned. You list, trade for up to a year at least, prove you are stable and then maybe you might be selected for inclusion
Not really. Nasdaq and all indexes are supposed to serve as an index of largest companies in the country. It's not a prize that you have to "earn". Not including this company would be activism and against their mission.
> But Musk told Nasdaq "fast-track me or I list on NYSE... so the Nasdaq invented a "Fast Entry" rule out of thin air..
Yeah, it's called competition. You have a choice of where to list. This is how a healthy competitive environment works. Again, who is being harmed? Why is there a "Slow Entry"? No justification for bureaucratic hoop jumping.
> Why does this matter? The second SpaceX hits these indexes, every passive fund is forced to buy, your 401k, your Vanguard fund, your target date fund. All buying SpaceX at whatever inflated price it opens at, with zero public track record. Nobody asks you.
You found a cheat code! Create a company that's generating ~15b in revenue, has a >50% profit margin and ~50% revenue annual growth rate. Now you get to list your stock publicly, let the exchanges compete for your listing considering very few public large companies grow anywhere close to that, and force large indexes to buy you because, by this point you created one of the most valuable companies in the world!
15B in revenue is less than what AirPods sell in 6 months.
It's less revenue than Spotify.
It's nowhere near what should be necessary for a company to be "one one the most valuable companies in the world."
Elon knows this. He knows that the 1.5 T "valuation" is nonsense. The market for space launches is quite simply not that big. How many more Starlinks does the world need? What would you do if I gifted you a satellite?
The SpaceX valuation is predicted on hype for scientifically & economically illiterate ideas like "data centers in space."
Elon knows this. He knows that these indexing rules are the only way to keep the hype going and avoid a space-WeWork failed IPO.
Agree that 15b in revenue is not a lot. Finance has always been about future growth with majority of companies value well out into the future. And this company is growing at around 50% and has insane margins. They dominate their space with overwhelming majority of global launches. So a high multiple is justified imo
Yeah, you’ve shown it’s great to be a billionaire. Slow-clap. What you’re conveniently skirting around is all the little people’s retirement savings being transferred to the billionaires by artificially forcing the price high.
I would think Fidelity, Vanguard et al are going to eat Musk for lunch.
It’ll take a decade.
I think those boomer firms are asleep at the wheel and this kind of market engineering will completely blindside them. Vanguard can't even figure out how to show me my cost basis on the same screen as the one where I sell a security. What could they possibly be doing to prepare for this?
Is that before or after they eat Tesla for lunch?
All of that could be true, but since there has been no SpaceX IPO, it seems a bit early for outrage.
I think the xAI acquisition was a big tell though. How could a brand new, mostly irrelevant AI platform suddenly be worth over a hundred billion? No one can believe that xAI is somehow worth even a third of what Anthropic is worth, let alone most of what Anthropic is worth.
People put up with various other misleading claims or exaggerations. Battery tech. Roadster. FSD. But now the scheme of lying and manipulating things is so obvious. Not just with xAI but also the subscription switch for FSD. And the absurd push for space based datacenters. And the corruption involved in DOGE, as well as pushing to quickly secure FAA approval for 1 million satellites before this administration is kicked out of power at the midterms.
It’s clear this is one big scam, and unfortunately it may end up working. If they end up getting enough capital raised in an IPO, they may be able to use that capital to mostly catch up on the claims Musk has made.
What scandal? Inflating share prices is standard fare.
Forcing everyone’s retirement funds to buy (at the artificially high and unsustainable price) is the scandal. Clever ploy to move more money from the plebes to the billionaires.
Good thing we can also preemptively divest on our retail accounts and just wait this out so we don’t get stuck bag-holding this turd sandwich. Ooh wait, selling triggers cap gains taxes.
What a great scam. So either dump all your index funds and pay the huge tax bill now or stay in and hope against all signs and odds that someone does something to stop this.
You can hedge the position via options without having a taxable event on passive investment.