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 also worth 1 G$. The index is still 100 G$, 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 retirement funds who do not even have shorts for fun and profit.

Note that this is a minor variation on my post on the same underlying topic here: https://news.ycombinator.com/item?id=47392325

But why must retail investors hold this bundle? If I’m holding now, I can sell it and buy a different bundle right? And if I’m not holding it now, I can just continue not to buy it after SpaceX gets included.

It'll happen a week or a month after IPO date though? It took fb/meta 1 year and then it entered as 1% qqq. TSLA entered 3 years after IPO so probably a small percentage.

Tsla is 2% vti (2T AUM). QQQ is 400B AUM. So add those two and you get $56B of purchasing. This seems like the amount they want to raise via IPO in total in the news, so the banks who do the IPO can sell it all guaranteed.

But people will want to buy it before it gets into the passive funds... So... Post inclusion market cap will be higher than we expect?

If you aren't Canadian (like me) you can watch this Bobbybroccoli video that explains it very well: https://www.youtube.com/watch?v=I6xwMIUPHss

Spoiler alert for the Bobbybroccoli video, but it turns out this trick doesn't work forever. And when Nortel inevitably crashed it left a good chunk of Canadians as bagholders. And looking at the stock market over the past few years, where basically all the the growth is seven companies, I'm starting to wonder if we're finally seeing America's answer to the Nortel fiasco.

(No, Lucent doesn't count, even though they're literally America's counterpart to Nortel. The key factor that made Nortel a problem was the lack of diversity in the Canadian market. Lucent crashed and burned in a field of hundreds of growing big-cap stocks, Nortel was an extremely big fish in a tiny pond.)

https://www.youtube.com/watch?v=8rS3fTbC7TE

Edit: someone posted it on HN, there's already a thread for it : https://news.ycombinator.com/item?id=47388640

SpaceX is looking at an IPO in the range of $1.75T on revenues of ~$16B. That's ~100x revenue (let's ignore the net for the moment).

How have recent IPOs done when they went out in the neighborhood of 100x revenue?

The market usually prepositions a lot of volume pre-add, so much that the add day is usually a non-event. But they usually have a quarter or more to preposition. 15 days is going to cause so much volatility and chaos.

And the funny thing is, the index arb desks can't really opt out of this - you can't arb all names except one in the index.

What a shitshow this would be if the rules pass as presented by Nasdaq.

Also, does Nasdaq think it's worth killing the reputation of their index for the spacex listing? An index is just a list that everyone agrees on following. Losing public trust in this list could mean the end of Nasdaq 100 as a serious contender. There are many alternatives that could easily take its place.

    > Assume SpaceX IPOs at a $1.75 trillion valuation.

Like Aramco before their IPO with wild post-IPO valuation claims, I am sure that SpaceX will IPO with a market cap far below this estimate.

Also, will the NASDAQ 100 index really fall apart if they make exception for the richest IPO valuation in US history? No. There, I said it out loud. We also survived the Alibaba IPO, and their financial structure is infinitely more shady/unreliable! Ditto for OpenAI and NASDAQ 100, which will follow shortly after.

The "problem" of a single org deciding the composition of stock indices has been argued ad nauseam for the last two decades in financial media. A lot of sweat (and pearl clutching) for little gain/clarity!

I get the allure of AI images for blogging, but for Pete's sake review what you're publishing or don't do it.

1. Garage 2. Buy SpaceX on Day 1.

These index funds are a mechanism for monopolization of 'the market' and it affects real people and it suppresses other markets through the perverse incentive structures it creates.

For example, I launched a crypto project back in 2019 which had its own decentralized exchange but ran into all sorts of hurdles with US regulations and also, the leaders of the community I was involved in were actively suppressing and slandering my project and propping up their biggest competitor's tech instead! All under the nose of regulators who approved all of it! I couldn't believe my eyes and neither could the community. But eventually it's like everyone started assuming that corruption and suppression was normal.

It's insane but it's like everyone is working to satisfy the big money and nothing else matters. Truth is suppressed, companies collaborate with their competitors and with regulators to deliver inferior goods and services to people while limiting their opportunities and dialing up surveillance and control.

At this stage, if I ever get the option to vote for a communist government, I would definitely take it.

Unofficially, we already have the worst form of communism now except the proceeds of the loot are distributed unequally and with a massive constant psyop running to convince people that what they get or don't get is a result of their own actions.

At least if we make communism official, we can shut down that psyop, acknowledge that the system is a controlled monopoly money machine and essentially just handing out money selectively and that the current criteria are arbitrary.

Once people accept the reality that the system has become an automated machine (since at least a decade) and that entrepreneurship and leadership has become redundant, then we can start thinking about fair distribution of the resources which the machine produces. The self-made people are not self-made, they are system-selected. Homeless people are not all lazy or incompetent; they are system-unselected. They didn't become homeless because they were crazy; they became crazy because they were made homeless. They became crazy trying to make sense of what happened to them. They couldn't figure it out because many if them did nothing wrong. They just got caught in a mental loop trying to fix stuff that they couldn't fix because it wasn't in their control. Their fate was always in the hands of the system.

I think the worst part is that some people who were given favorable treatment by the machine actually do believe that they earned their place. They don't know what it feels like to have all the algorithms suppressing their work and opportunities. They think their privileged treatment by algorithms is normal and same as everyone else.

The index will have cheaper options contracts than SpaceX while disproportionately subject to the same volatility

That’s the biggest and most egalitarian wealth creation engine in history, aside from some government moves this administration with the currency and commodities

This is only controversial because

A) you’re too married to indexing and told too many people to do it

B) you consider indexing to be sacrosanct for some reason, and consider inclusion to be a reward when it means nothing. this is a symptom of prosperity preaching