Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News. Hello and welcome to
Speaker 1: the Money Stuff Podcast. You're a weekly podcast where we
Speaker 1: talk about stuff related to money. I'm Matt Levin and
Speaker 1: I are at the Money Stuff column for Bloomberg Opinion.
Speaker 2: And I'm Katie Greifeld, a reporter for Bloomberg News and
Speaker 2: an anchor for Bloomberg Television.
Speaker 1: What are we at today, Katie?
Speaker 2: We're going to talk about insider trading it's now legal
Speaker 2: in the UK and only in private markets. Then we're
Speaker 2: going to talk about drama the grocery store, and then
Speaker 2: we're going to talk about micro strategy and Michael Saylor.
Speaker 1: Sounds great, let's get into it.
Speaker 2: Insider trading, it's great.
Speaker 1: Yeah, if you guys had on this podcast, I love
Speaker 1: insider trading. And then and then I walked it back
Speaker 1: and you qualified.
Speaker 2: It a few a few different ways. But in the
Speaker 2: UK now in certain circumstances it's maybe not encouraged, but
Speaker 2: maybe not not allowed.
Speaker 1: They're launching this thing called PISCES, which stands for Private
Speaker 1: Intermittent Securities and Capital Exchanges. This is like a thing
Speaker 1: that everyone talks about. Private companies have become such a
Speaker 1: big part of the market and are so important. And
Speaker 1: the thing about being a private company is you can't
Speaker 1: trade their stock, and I was like, well, shouldn't you
Speaker 1: be able to trade their stock? And so like there
Speaker 1: are all sorts of like solutions and marketplaces that have
Speaker 1: sprung up, and the UK is building this regulatory soundbox
Speaker 1: where basically they're gonna have a set of rules for
Speaker 1: the private market that are different from the rules for
Speaker 1: public market less publicity, but allowed for some trading of
Speaker 1: private market shares. And in setting up those rules, they
Speaker 1: thought should it be legal to insider trade? And they decided, sure,
Speaker 1: why not, let's make it legal to insider trade, which
Speaker 1: I think, like, you know, I'm kind of cautiously optimistic
Speaker 1: for it because I love insider trading.
Speaker 2: So reading this, as I was working my way through
Speaker 2: the column, I was thinking about the fun market. And
Speaker 2: then you did get there that you have the nice
Speaker 2: market and then you have the fund mark, which is
Speaker 2: similar to the doped up Olympics, where let's just see
Speaker 2: what happens.
Speaker 1: Yeah, right, it's the doped up Olympics, right. I mean,
Speaker 1: like I've written about like this idea of having the
Speaker 1: nice market, where like there are rules and like everyone's
Speaker 1: suposed to be on kind of an informational level playing field.
Speaker 1: And then like there's the idea of the fun market,
Speaker 1: where there are no rules and you kind of just
Speaker 1: do whatever you want. And I sort of started thinking
Speaker 1: about that in terms of crypto, because like there's there
Speaker 1: a reason in the abstract for crypto to like ban
Speaker 1: market manipulation. And we've talked about like the Mango markets guy, right, Like,
Speaker 1: there was like this notion in crypto that like, if
Speaker 1: you can do it, it's legal, right, and there's no rules.
Speaker 1: And it turns out that like US regulators impose a
Speaker 1: lot of market manipulation rules, even on crypto markets, to
Speaker 1: the surprise of some crypto market manipulators. But like you know,
Speaker 1: in cryptosa, like it's just like it's a set of
Speaker 1: gambling tokens. So like whatever rules everyone agrees to are fun.
Speaker 1: In capital markets, it's a little different, right, Like you
Speaker 1: have rules of capital markets in part because you think
Speaker 1: they're the right rules to like encourage retirement saving and
Speaker 1: capital formation. And I think the consensus is that in
Speaker 1: public markets, insider trading is bad because people will be
Speaker 1: less likely to invest their money in the stock market
Speaker 1: if they think everyone is insider trading against them. And
Speaker 1: if they think everyone's insider trading against them, then it'll
Speaker 1: be harder for companies to raise money. And like, what
Speaker 1: you want in a stock market is capital formation, like
Speaker 1: retirement savings and not so much fun gambling, but like,
Speaker 1: you know, like a crypto market, you could have fun
Speaker 1: gambling rules. The private market stuff is from first principles,
Speaker 1: you would be like, we want to encourage capitalformation and investing,
Speaker 1: but so we would want to ban insider trading. But
Speaker 1: you know, it's like a higher bar. It's not open
Speaker 1: to all retail investors. It's open to like sophisticated investors,
Speaker 1: and so the sophisticated investors can say, we're going to
Speaker 1: live with some insider trading. And the other reason to
Speaker 1: allow insider trading and private markets is insider trading rules
Speaker 1: and the public markets kind of go along with disclosure rules.
Speaker 1: And so the reason you can insider trade is because
Speaker 1: it's like your company is kind of supposed to make
Speaker 1: everything public anyway, and so if you know something that
Speaker 1: they haven't made public yet, like wait three days and
Speaker 1: then you can trade right in private markets. If your
Speaker 1: company never just closes financial information, then how can you
Speaker 1: ever trade? And it's like it's you know, like there
Speaker 1: are solutions to that. But it seems like a little
Speaker 1: bit harder to ban insider trading in private markets than
Speaker 1: it is in public markets because there's just more information
Speaker 1: that the public doesn't generally have, and so it's a
Speaker 1: little harder for employees to trade, you know, without knowing
Speaker 1: something that the public doesn't know. But the UK has
Speaker 1: decided to strike that balance by just letting the employees trade.
Speaker 2: I want to talk more about the name a little bits. Yeah,
Speaker 2: it seems like a backronym, Like do you think that
Speaker 2: they organically.
Speaker 1: I don't think it's a backronym. I don't know. I
Speaker 1: don't know.
Speaker 2: They like private intermittent securities and capital exchange system.
Speaker 1: I think most financial acronyms are like half backgrounds, right,
Speaker 1: Like they're like kind of write down what it is, yeah,
Speaker 1: and then you're like, ah, that doesn't spell anything, and
Speaker 1: then you like add letters until it's spells something, and
Speaker 1: then you like figure out those letters should stand for.
Speaker 1: So like, yeah, they're like the private securities exchange. That's
Speaker 1: kind of like pisces. Let's add some letters. They get
Speaker 1: the pisces, right, I don't think they were, like, I
Speaker 1: don't think they set out from like, let's name this
Speaker 1: thing after an astrological sign. Maybe they did.
Speaker 2: I love the word intermittent.
Speaker 1: You know rightly that one's like there for the acronym.
Speaker 2: You don't see that word a lot tossed around. Other
Speaker 2: words they could have considered occasional, the posse's I don't
Speaker 2: like that at all.
Speaker 1: Actually you could have gotten into posseas but is a
Speaker 1: little more, little more friendly.
Speaker 2: It's a fish, so this hasn't launched yet, right, that'll
Speaker 2: be fun. I mean, even if they're saying enter at
Speaker 2: your own risks sort of thing. I don't really know
Speaker 2: what the moon music is like over in the UK,
Speaker 2: but I could still see if this were in the US,
Speaker 2: this would still lead to lawsuits.
Speaker 1: And I would posit that insider trading and private companies
Speaker 1: is illegal in the US. Brief you know, there's an
Speaker 1: SEC case from twenty eleven about a company doing employee
Speaker 1: tender offers where they didn't tell the employees that they
Speaker 1: were like negotiating a bridger, and so the SEC sued
Speaker 1: them for fraud, which is like kind of what insider
Speaker 1: trading is in the US. And you know, a lawyer
Speaker 1: pointed out on LinkedIn that there's actually a California law
Speaker 1: against insider trading that applies to private companies. And that's
Speaker 1: relevant because you know, like most of like the private
Speaker 1: companies in the in the US. You know, if you
Speaker 1: say about like they're probably trading in California, so it's
Speaker 1: pretty illegal in the US. But I think as chat
Speaker 1: GPT is private company insider trading or like, you know,
Speaker 1: I googled it and like, yeah, the l AI results
Speaker 1: were like, no, it's fine, go ahead. I could be
Speaker 1: wrong with that. I don't want to slander Google. But
Speaker 1: it's just like it's not like a well known thing.
Speaker 1: There's an SEC case from twenty eleven. There's not twenty
Speaker 1: cases a year. And the reason is like private, you know,
Speaker 1: there's no one suing, no one's like aware of you know,
Speaker 1: like there's just like less ability to find out that
Speaker 1: there was insider trading, right, but like probably there's some
Speaker 1: insider trading. It's just like it's not like they announced
Speaker 1: the bad earnings two days later, right, It's like they
Speaker 1: never announced the bad earning, so you don't know that
Speaker 1: you were insider trading.
Speaker 2: But with the rise of tender offers, which are becoming
Speaker 2: more regular and just secondary market activity in general in
Speaker 2: the US. Do you think that will see more.
Speaker 1: Cases tender offers are they're real?
Speaker 2: Yeah, I don't know enough about tender offers, and I
Speaker 2: thought it was the company buying back shares from employees.
Speaker 1: That's like the normal idea of it, but increasingly it's
Speaker 1: now kind of a two sided trade where the company
Speaker 1: is sort of brokering a trade where some list of
Speaker 1: new investors are buying back shares from employees and old investors.
Speaker 2: Interesting, so it's kind of like, you know, so like
Speaker 2: the company is like the stock exchange kind.
Speaker 1: Of yeah, because there's no stock exchange, and like these
Speaker 1: companies normally have control over the trading of their shares
Speaker 1: and so if you want to buy, if they're the
Speaker 1: company you want to sell, you a theird to the company,
Speaker 1: and so the company, you know, intermediates the trade.
Speaker 2: So maybe we'll see more shenanigans, yeah.
Speaker 1: Because like if you have a tender offer like that,
Speaker 1: or like they're sort of you know, stereotypically, like employees
Speaker 1: are on the selling side and like venture capitalists on
Speaker 1: the buying side, or like you know, growth funds are
Speaker 1: on the buying side. Then you know you probably have
Speaker 1: obligations to disclose material information to both sides, and if
Speaker 1: you mess that up, as you know public companies do
Speaker 1: all the time, you could eventually get lawsuits.
Speaker 2: Right.
Speaker 1: I mean, it's a smaller it's not a ripe field
Speaker 1: for like securities class action lawyers yet, but like you'll
Speaker 1: eventually say, some lawsuits.
Speaker 2: You went to an article from Sarah McBride in your
Speaker 2: column on this and I thought it was interesting, like
Speaker 2: the changing attitudes at these companies towards the fact that
Speaker 2: there is a increasingly vibrant secondary market for their shares,
Speaker 2: like it used to be like a bit taboo, I
Speaker 2: feel like, and companies really didn't like it, but I
Speaker 2: just feel like it's inevitable now.
Speaker 1: I think attitudes remain kind of varied, and like you
Speaker 1: see in pisces in the UK, there's like one aspect
Speaker 1: of the plans the companies will have some control over,
Speaker 1: like when and how their their shares trade, which I
Speaker 1: think is a big draw of the private markets everywhere,
Speaker 1: which is just like you don't want activists to be
Speaker 1: able to buy up your stock without telling you, right,
Speaker 1: Like you want to have some control over who owns
Speaker 1: your stock and when they can buy it. But yeah,
Speaker 1: I mean, like in a world where you are private
Speaker 1: until you're kind of big enough to go public, and
Speaker 1: then you go public, you might really care about preventing
Speaker 1: your employees from selling ntil you're a public in a
Speaker 1: world where the default is kind of the same private forever,
Speaker 1: Like your employees need some liquidity, and yeah, you offer
Speaker 1: tender raffers, but like some companies are also like, you know,
Speaker 1: we'll live with the secondary market.
Speaker 2: You can't eat on your net worth alone. You need
Speaker 2: that liquidity, mat.
Speaker 1: You need that liquidity. I've also written this week of
Speaker 1: at margin lens and tests stock, which is another way
Speaker 1: to get that liquidity. That's a story we don't need
Speaker 1: to talk about that.
Speaker 2: Let's glide gracefully along, shall we.
Speaker 1: Let's glide along.
Speaker 2: Right into the grocery aisle. Kroger and Albertson's. Man, are
Speaker 2: they in a tiff? Yeah, it was a long engagement
Speaker 2: and a messy breakup.
Speaker 1: I have to say I have a soft spot for
Speaker 1: Albertson's because when I was very briefly an M and
Speaker 1: a layer, I did a deal for Albertson's. Like they
Speaker 1: sold themselves to two separate buyers. One was essentially Serberus.
Speaker 1: The thing called Alberton's today is like the Cerberus Anthony.
Speaker 1: And then they sold a lot of stories to a
Speaker 1: company called Supervalue. This like nice midwestern grocery store chain.
Speaker 1: And I was the junior lawyer for super Value.
Speaker 2: I thought you were going to say you grew up
Speaker 2: going to an Albertson's, which like didn't quite try.
Speaker 1: No, But in college I went to like Shaw and
Speaker 1: Star Market, which I learned for Albertson's brands, and I
Speaker 1: was pleased.
Speaker 2: I went to Kings. So I can't relate to this
Speaker 2: in any way.
Speaker 1: Not good at like knowing which grocery brands are un
Speaker 1: by which companies Like for all I know that's a
Speaker 1: Albertson's brand, I don't think it is.
Speaker 2: I don't think it is either. I love Kings anyway.
Speaker 2: So there's all this enthusiasm over the regulatory landscape, how
Speaker 2: we're going to get this big boom and m and A.
Speaker 2: There's some deals that are still dying on the vine.
Speaker 2: Kroger and Albertson's, their proposed merger is one of them.
Speaker 2: And Albertson's suing Kroger saying that they in fact didn't
Speaker 2: do everything that they could have to satisfy the FTC. Here.
Speaker 1: Yeah, so like you signed this deal, and like you know,
Speaker 1: the main problem is antitrust, right, because it's too big
Speaker 1: grocery store chains combining, and in particular it's chains with
Speaker 1: a lot of geographical overlaps. You have a lot of
Speaker 1: places where the Kroger's supermarket competes with the albertson supermarket
Speaker 1: and if they combine, and then there'll be less competition
Speaker 1: and the FTC for the next month doesn't like that.
Speaker 1: Who knows after that? Right, But they signed this deal,
Speaker 1: you know, in twenty twenty two, and so they were
Speaker 1: dealing with the current FDC, and they signed the deal
Speaker 1: hoping to combine, but they knew that there would be
Speaker 1: FDC impediments and the deal required them to sort of
Speaker 1: do everything in their power to get the deal done,
Speaker 1: and in particularly required like Kruger is the buyer. Albertson's
Speaker 1: is much more at risk in that situation because like
Speaker 1: if the deal falls apart, it's bad for Albertsons. This
Speaker 1: is less bad for the larger, more stable buyer. And
Speaker 1: so the deal agreed was like it's called a hell
Speaker 1: or high water clothes. They have to do anything, come
Speaker 1: hell or high water to get the deal closed, except
Speaker 1: they don't have to al more than six hundred and
Speaker 1: fifty stores. And you know, the thing that everyone knew
Speaker 1: they would have to do to get the deal closed
Speaker 1: was to be would be to divest some of their stores.
Speaker 1: And like all those places where at Albertson's and a
Speaker 1: Kroger's compete, you put one of those competing stores into
Speaker 1: a new company, or you sell it to a company
Speaker 1: so that it continues to compete with the combined Krager
Speaker 1: Albertson's and Albertson says that Krager like dragged its feet
Speaker 1: and then propose enough to divestures and then listened to
Speaker 1: the FTC when they asked for more divestres And so
Speaker 1: the FTC eventually sued and their divestiture proposals were so
Speaker 1: bad that the FDC one in court. And so now
Speaker 1: the deal is dead and Albertson's wants billions of dollars
Speaker 1: of damages from Kroger for not getting the deal.
Speaker 2: Then, yeah, I mean Albertson's had two specific gripes with
Speaker 2: the divestiters that they weren't divesting the good stores, and
Speaker 2: also that they didn't like the buyer that they picked
Speaker 2: CNS Whole Sealers.
Speaker 1: I believe it was, Yeah, because CNS is like a
Speaker 1: grocery hill store that doesn't own a lot of grocery stores.
Speaker 1: And yeah, there's some question in the mind of like
Speaker 1: the fac in the court about whether they could successfully
Speaker 1: compete with combined Kroger. Yeah, and apparently Kroger like had
Speaker 1: some sort of auction for these divestitures and like got
Speaker 1: sixty potential bidders, but they didn't, you know, consult Albertson's
Speaker 1: on the bidders and they just picked CNS. And so
Speaker 1: Albertson's is now mad that they could have possibly found
Speaker 1: a better buyer and they didn't, so the deal got killed.
Speaker 2: They have a lot to prove when it comes to
Speaker 2: this lawsuit.
Speaker 1: Yeah, it seems hard. It does seem hard because like
Speaker 1: as what you're trying to prove a kind of factually,
Speaker 1: you're trying to prove they could have proposed a different
Speaker 1: set of stores that I've asked, they could have found
Speaker 1: a better buyer and if they had done that, the
Speaker 1: FTC would have been happy with it. And it's like, well,
Speaker 1: you know, like the FDC is like it's like pretty
Speaker 1: skeptical of big mergers, right, and like it's possible that
Speaker 1: they couldn't have gotten a deal done, or they couldn't
Speaker 1: have gotten a deal done without divesting more than six
Speaker 1: hundred and fifty stores. So they'll definitely be able to
Speaker 1: find places where the're like, oh, they could have done
Speaker 1: a better job. But will they be able to prove
Speaker 1: that they would have gotten the deal and therefore deserve
Speaker 1: billions of dollars of damages?
Speaker 2: Yeah, I was reading the Bloomberg Intelligence take on this,
Speaker 2: so they basically agreed with you, saying that it's going
Speaker 2: to be difficult to prove all this, but they did
Speaker 2: say that they could prove that they're entitled to the
Speaker 2: six hundred million dollar breakup fee. So maybe they won't
Speaker 2: get billions of dollars in damages, but six hundred million
Speaker 2: dollars is it's not nothing, but it's not six billion dollars.
Speaker 1: You can definitely argue that, though I Thinkroger is going
Speaker 1: to say Albertson's preached its agreements and so it's not
Speaker 1: entitled to it. But like that breakup fee is like
Speaker 1: essentially there as like if you can't get through a
Speaker 1: frant i address, Like the seller gets a consolation price,
Speaker 1: so you would expect them to get the breakup fee.
Speaker 2: You touched on this a bit like the reason why
Speaker 2: this has antitrust concerns And Okay, maybe you eliminate some
Speaker 2: local competition and Kroger prices go higher as a result,
Speaker 2: But then you think about this like dystopian future where
Speaker 2: Walmart controls everything, like they're protect local competition, but that
Speaker 2: local competition could just be steamrolled by Walmart in the future.
Speaker 1: I think in general, if you're like a pretty activist
Speaker 1: FTC and like you want to prevent companies from getting
Speaker 1: like you you you're like give careful scartinator mergers. Everyone
Speaker 1: who's doing a merger is going to come and say, no,
Speaker 1: we're actually this is better for competition because we'll be
Speaker 1: able to take on ninety percent of time. The word
Speaker 1: that goes there is Amazon, right, Like we will take
Speaker 1: on Amalon, right, and so you have to let us
Speaker 1: merge because then we'll be big enough to take on Amazon.
Speaker 1: And the SEC I think is skeptical of that part
Speaker 1: because everyone says that part because like they don't get
Speaker 1: to stop Walmart or Amazon right, they get to stop mergers, right, Yeah,
Speaker 1: And so if someone comes to you with a merger,
Speaker 1: you're like, I want to you know, improve competition and
Speaker 1: like reduce the concentration of corporate powers. I'm gonna say
Speaker 1: no to this merger, and they're like, no, no, we're actually
Speaker 1: doing it competing. It's more Omart, like you can't do
Speaker 1: anything but Walmart.
Speaker 2: That's true. I do find myself more sympathetic to that
Speaker 2: narrative when you consider what happened with Jet Blue and Spirit.
Speaker 2: Oh yeah, for example, like the same story, right, Yeah,
Speaker 2: they wouldn't let them merge, just like there's like.
Speaker 1: Those low cost carriers and like they're like, we need
Speaker 1: to be bigger to compete with the legacy carriers and
Speaker 1: like continue to provide price competition. Yeah, And the SEC
Speaker 1: is like, now if you merged, there'll be less competition
Speaker 1: between the two of you, and the price will go higher.
Speaker 2: And then Spirit filed for bankruptcy a couple of years later.
Speaker 1: I don't know enough about like the economics of grocery
Speaker 1: stores to know.
Speaker 2: Like how true you were like a grocery store banker
Speaker 2: in your past life. I feel like every story is the.
Speaker 1: Grocery store layer, but like, I'm sympathetic to the idea.
Speaker 1: It is hard as a grocery stoperator these days to
Speaker 1: compete with Walmart, Costco, Target, which is like not part
Speaker 1: of the market from the FEC's point of view. But no,
Speaker 1: I mean, like the Spirit Jet Blue stuff is just
Speaker 1: like yeah, played out immediately. Yeah, probably letting the merger
Speaker 1: to be better for competition.
Speaker 2: I'm not saying that Albertson's is going to die necessarily.
Speaker 2: It is interesting to look at the stock price though,
Speaker 2: since the start of October twenty twenty two, when the
Speaker 2: steal is first announced, Kroger's is up forty eight percent
Speaker 2: since the Albertson's. I had to check this a few times,
Speaker 2: because they're up eight percent on a total return basis.
Speaker 2: Their share price alone is down like twenty something percent,
Speaker 2: but eight percent on a total return basis.
Speaker 1: So total return basis is like when they signed the deal, Yeah,
Speaker 1: they tland to padd a big dividend. Yeah, it's sort
Speaker 1: of like a down payment on the deal.
Speaker 2: Well, showing up. I love it when share price performance
Speaker 2: doesn't match total return in like a very dramatic way.
Speaker 1: Normally that's not because you're paying a twer cent divot
Speaker 1: in every quarter here. It's because they paid at a
Speaker 1: big dividend as part of the deal. Yeah, so that's
Speaker 1: not The stock.
Speaker 2: Price is not really ap I do wonder where Albertson
Speaker 2: goes from here. I don't expect you to have that answer, Matt,
Speaker 2: so so let's move on.
Speaker 1: It does our producer is telling us that Alberton's does
Speaker 1: in fact own Kings.
Speaker 2: Oh my god. Now I'm personally invested in this story.
Speaker 1: Sure, sure, now, yeah, I love Kings.
Speaker 2: I don't know is it local? Is it is it
Speaker 2: a regional? If it's on the internet, I'm inclined to
Speaker 2: believe it.
Speaker 1: Of Kirker's brand, I didn't recognize, like any of Creaker's Brown's.
Speaker 1: One of them is King Supers, but like s O
Speaker 1: O P E R.
Speaker 2: Oh, yeah, I didn't know that. Have you never been
Speaker 2: to a King's.
Speaker 1: I've been to a King Colin.
Speaker 2: That's not what I'm talking about. The King's near my parents' house.
Speaker 2: This is not interesting anyway. So they had a relaunch party.
Speaker 2: They renovated the store a couple of years back. I
Speaker 2: think I was in crowd school and I went to
Speaker 2: the party. Yeah, I went with my boyfriend now husband,
Speaker 2: and it was.
Speaker 1: Wait, sec, can you set this so you're like in
Speaker 1: grad school in New York?
Speaker 2: Yeah, for sure, and you're like, Joe, yeah.
Speaker 1: There's a supermarket launch in New Jersey. Yeah, I'm clear.
Speaker 2: I don't understand the confusion. I love it. A good quirky,
Speaker 2: quirky outing and supermarket launch party is exactly my sort
Speaker 2: of scene. And it was awesome. I have a photo
Speaker 2: of it on my desk. I'll show you after.
Speaker 1: I do want to see that.
Speaker 2: Yeah, because I had like a photo booth at the
Speaker 2: supermarket and they had all these samples. This was pre pandemic,
Speaker 2: so samples were still cool. Oh god, it was so fun.
Speaker 2: So anyway, man, now I'm rooting for Albertson's because King's
Speaker 2: is a great grocery store and you can find them
Speaker 2: in New Jersey.
Speaker 1: I like food down and the soundtrack is like, you
Speaker 1: know whatever, it's like supermarket music, but it's also frequently
Speaker 1: interrupted by this recorded voice, very enthusiastically saying, spice up
Speaker 1: your dinner with sushi. And it's like like this, like
Speaker 1: you're truly like loving description, like loving enthusiastic description of yeah,
Speaker 1: what sushi is. It's amazing. God, yeah, I've never bought sushi.
Speaker 1: You know what they're trying.
Speaker 2: I just think supermarkets and grocery stores. They really bring
Speaker 2: the community together. Micro strategy, micro strategy.
Speaker 1: What do you got?
Speaker 2: How do we get into micro strategy micro strategy? You
Speaker 2: put this on the list, I know I want to
Speaker 2: talk about MicroStrategy. They obviously buy bitcoin. They're not only
Speaker 2: a software company, so much so that they're being added
Speaker 2: to the NASAQ one hundred.
Speaker 1: I think I've written this, but like when you and
Speaker 1: I talked to John, I think I've maybe even said
Speaker 1: on the podcast, but you and I talked to John Collison,
Speaker 1: and like he said something like, if you run a
Speaker 1: great business, all the capital market stuff take care of itself.
Speaker 1: A company that spends too much time focusing on its
Speaker 1: stock and like doing stuff with its stock is like
Speaker 1: parking up the runtry. Micro strategy is the opposite.
Speaker 2: Attitude we found the foil.
Speaker 1: I like, temperamentally, am much closer to a micro strategy,
Speaker 1: Like I like a company that's doing financial engineering's that's
Speaker 1: that's fun.
Speaker 2: For this is your perfect company. So micro Strategy has
Speaker 2: always been buying a lot of bitcoin. They're particularly buying
Speaker 2: a lot of bitcoin right now. I think for six
Speaker 2: consecutive Mondays they've announced more bitcoin purchases. In October, they
Speaker 2: announced plans to raise forty two billion dollars over three years.
Speaker 2: Three years.
Speaker 1: They're doing it like all now.
Speaker 2: Exactly through a combination of at the market stock sales
Speaker 2: and through convertible debt offerings. But at this rate, they're
Speaker 2: gonna fulfill that target by January.
Speaker 1: Wait, is that true? They don't think they're gonna do
Speaker 1: that much convert No, no, no, I think they're gonna
Speaker 1: do the twenty one billion dollar ATM like.
Speaker 2: But it is twenty one twenty one, like they call
Speaker 2: it the twenty one twenty one plan, but they've burned
Speaker 2: through a lot of it already.
Speaker 1: Of the ATM, the stock, yes, not the convert The
Speaker 1: convert is part because like a convert is like first
Speaker 1: of all, like a convert, like you do an offering,
Speaker 1: you're they going to do five billion dollars or whatever,
Speaker 1: and you go to a bank and you underte an
Speaker 1: offering and you don't do it just tribling out week
Speaker 1: to week. Secondly, actually their converts someone told me like
Speaker 1: they have a lock up in their converts that say
Speaker 1: you can't do another convert for another you know, a
Speaker 1: few months or whatever.
Speaker 2: I saw that as well. I also saw it on Twitter. Yeah,
Speaker 2: I don't know about that. What I don't know if
Speaker 2: that's for real. Ya's okay, So let's assume that's for real.
Speaker 1: Zaes, I can see why I was. The convert investors
Speaker 1: like don't want They are like one of the biggest
Speaker 1: issues is not the biggest issue in the convert market.
Speaker 1: And yeah, you know, there's some limit on how much
Speaker 1: size you can buy, and so convert investors say, I
Speaker 1: don't want to have, you know, the market flooded with
Speaker 1: micro strategy paper. But that's the other point. The point
Speaker 1: is that the stock investors love it. They don't care.
Speaker 1: They love to have the market flooded with more micro
Speaker 1: strategy stock. And like, if your micro strategy you and
Speaker 1: it's a twenty one billion dollar at the market offering
Speaker 1: over the course of three years, and your stock continues
Speaker 1: to trade at like one hundred and fifty percent premium
Speaker 1: to the value of your bitcoin, like you do it
Speaker 1: all now, Like why would you wait? Yeah, there's no
Speaker 1: reason to wait.
Speaker 2: I asked Michael Saylor about it. I interviewed him on
Speaker 2: the television television, Yeah, on Thursday, And I aske him
Speaker 2: about that, like, why all now are you going to
Speaker 2: like lift the ceiling once you got there, And he
Speaker 2: said that basically they went through it faster than they
Speaker 2: thought because they now sit in October and then Trump
Speaker 2: won the presidential election. We had that in November, and
Speaker 2: then he was like, it's off to the races.
Speaker 1: Basically, to me, the micro strategy trade is like micro
Speaker 1: strategy is essentially a pot of bitcoin. It trades at
Speaker 1: a huge premium to the value of that pot of bitcoin.
Speaker 1: If you're anyone, you should say, well, we're going to
Speaker 1: sell the stock which is high, and buy bitcoin, which
Speaker 1: is low, and eventually they'll converge, right, And it's a
Speaker 1: risky trade to do if you're a short seller or whatever,
Speaker 1: but it's an easy trade to do if you're a
Speaker 1: micro strategy, right, because like you have the stock printmore stock,
Speaker 1: and so I think micro strategy is very clearly doing
Speaker 1: that trade. And like if you announce that you're going
Speaker 1: to do twenty one billion dollars of that trade, you think, well, okay,
Speaker 1: that'll converge pretty quickly, right, and like we'll keep doing
Speaker 1: the trade until it converges, right, And if it converges
Speaker 1: next week and like we're selling stock for like less
Speaker 1: than the value of the bitcoin we can buy, then
Speaker 1: we'll stop doing it. Right, But instead the premium has
Speaker 1: it's like compressed a little bit, but it stayed really
Speaker 1: really big. And so if your micro strategy, you're like, what,
Speaker 1: we can keep doing this arbitrage for free, Like we
Speaker 1: better do it, right? Why would you stop?
Speaker 2: Yeah?
Speaker 1: I mean would you slow down? I mean it's it's
Speaker 1: free money.
Speaker 2: Yeah, the reception has been insane, at least on the
Speaker 2: equity side. I did ask him about the dead side,
Speaker 2: because they have been using the equity issuance much more
Speaker 2: than the convertible issuance, and he said he expects that
Speaker 2: mix will shift more heavily to fix income in the
Speaker 2: second quarter. But I want to get your thoughts on this.
Speaker 1: Why did you say fixed income?
Speaker 2: Yeah, that's what he said. Yeah, that's a direct.
Speaker 1: Quote, because I feel like they do converts, and like
Speaker 1: their converts are all immediately hugely on the money.
Speaker 2: This is what he said, let me read it. He
Speaker 2: expects the mix will shift more heavily to fix income
Speaker 2: his words in Q two, because right now we're getting
Speaker 2: too de levered, and we'd like to get more leverage.
Speaker 2: We have about seven point two billion dollars of converts.
Speaker 2: Four billion are already equity through the strike price, et cetera.
Speaker 2: So they're looking like equity. We'd like to go back
Speaker 2: and build more intelligent leverage for the benefit of our
Speaker 2: common stock shareholders.
Speaker 1: Yeah, I think that makes sense, right, I mean, like
Speaker 1: I do think that, Like, if your stock is trading,
Speaker 1: it's such a huge premium to your net asset value,
Speaker 1: Like it seems a little crazy dead there. Converts, Like,
Speaker 1: he's right that their effect to the equity, right, if
Speaker 1: the stock keeps going up, they're the fact of the equity,
Speaker 1: and so you're not really getting a ton of like leverage. Blue.
Speaker 1: But the other thing about the converts is that I
Speaker 1: read about this, a convert is like you're selling volatility, right,
Speaker 1: Like your convert investors are buying the convert because it's
Speaker 1: an equity option, and the option is more valuable the
Speaker 1: more volatile your stock is. And micro Strategy stock is
Speaker 1: incredibly volatile, in part because it's a crazy proposition, but
Speaker 1: like in large part because of and we've talked about
Speaker 1: this too, like the double levered ETFs. They're like single
Speaker 1: stock levered ETFs on micro Strategy, they're on billions of
Speaker 1: dollars of stock. And I think you've said this on
Speaker 1: the show, Like they add to the volatility because every
Speaker 1: time the stock goes up at the end of the day,
Speaker 1: they have to buy buy more stock to remain like
Speaker 1: the proper leverage. Every time the stock goes down, they
Speaker 1: have the sell stock to get back to the proper
Speaker 1: level of leverage. And so they are adding enormously to
Speaker 1: the volatility. They buy when it's up and they sell
Speaker 1: when it's down, and so they make the stock like
Speaker 1: more than you know, that's like more than one hundred
Speaker 1: percent annual volatility, which is great for convert investors because
Speaker 1: convert investors are doing the opposite trade and they're basically
Speaker 1: getting like free volatility from these ETFs. And so, like,
Speaker 1: I've always been skeptical of the idea that it's a
Speaker 1: leveraged bitcoin fund because yes, it has leverage, but like
Speaker 1: the premium and the equity price is so much greater
Speaker 1: than the leverage. Like if you put a dollar into
Speaker 1: micro Strategy stock, you're getting less than a dollars with
Speaker 1: their bigoins. There's not really leveraged, right, but they are
Speaker 1: selling volatility because people want to buy their volatility, So
Speaker 1: selling overpriced stock and selling like incredible volatility convert investors
Speaker 1: are both like, yeah, that's a gret trade. They should
Speaker 1: do that.
Speaker 2: Well, there's more of a coming.
Speaker 1: Sure, you gotta do it till it stops, right, Yeah,
Speaker 1: it's like irrational not.
Speaker 2: To if the music is playing, you're going to dance.
Speaker 1: And they're so far stopping. Yeah, is something that previous
Speaker 1: compressed a little bit, but it's like it's still a
Speaker 1: great trade for them. Theah thing I want to say
Speaker 1: is I read about this a little bit like other
Speaker 1: companies are like, wow, it is a great trade, we
Speaker 1: should do this right. Yeah. And the way you do it,
Speaker 1: it's not shorty micro strategy. It's just like a wish right.
Speaker 1: The way you do it is like you sell your
Speaker 1: own stock like you're company. You're like, you know, you're
Speaker 1: not having that much fun as a company. You just
Speaker 1: buy all the bitcoin that you can buy, sayeh or
Speaker 1: micro strategy, and then you sell your stock to fund
Speaker 1: more bitcoin buying. And it like has worked for some
Speaker 1: companies where they traded a premium to their bitcoin whole
Speaker 1: things and I also have other businesses, So it's like
Speaker 1: it's hard to exactly calculate that, but you know, they
Speaker 1: can raise money from investors to you know, they can
Speaker 1: do at the market offerings to buy bitcuin.
Speaker 2: The other thing I wanted to talk about is the
Speaker 2: index inclusion a little bit. It was announced last Friday
Speaker 2: that they will get added to the NASAQ one hundred.
Speaker 2: And people think of the NASAQ one hundred as a
Speaker 2: big tech benchmark. It's not actually a tech benchmark, but
Speaker 2: it's specifically non financial companies. Micro Strategy was controversial because, Okay,
Speaker 2: they have a financial company, they have software business. They
Speaker 2: have a software business. It's obviously not the main focus obviously,
Speaker 2: And I did ask Sailor. I was like, do you
Speaker 2: think of yourself as a software business? He founded it,
Speaker 2: co founded it in nineteen eighty nine as a software
Speaker 2: business god And he he said, I think of ourselves
Speaker 2: primarily as a bitcoin treasury company.
Speaker 1: Now, I mean that's like, they're so, yeah.
Speaker 2: You heard that from the horse's mouth. Should it be?
Speaker 1: Like part of what the arbitrage is in micro Strategy
Speaker 1: is like a lot of people want to buy bitcoin,
Speaker 1: some people can't buy bitcoin, like physically buying bitcoin, and
Speaker 1: so that they were like, well, buy ETFs or whatever.
Speaker 1: Some people can't buy ETFs. Right, if you're an equity
Speaker 1: fund manager, it's a little weird for you to buy, like,
Speaker 1: you know, an ETF like a bitcoin. It's fine for
Speaker 1: you to buy a software company.
Speaker 2: Right.
Speaker 1: If you're an index fund, you know, you don't buy
Speaker 1: atfs because the ETFs aren't in the index. But you
Speaker 1: can buy a micro strategy because it's in the index.
Speaker 2: That's true.
Speaker 1: So it's a real it's like an r B. I'm like,
Speaker 1: who is allowed to buy? Like, there's just people who
Speaker 1: want to buy bitcoin, and this is the closest thing
Speaker 1: they can get to buying bitcoin their mandate.
Speaker 2: There is speculation that they could be eligible for the
Speaker 2: S and P five hundred next year because there's going
Speaker 2: to be new accounting rules that go into effect, which
Speaker 2: I know not enough about. But under those new accounting rules,
Speaker 2: I believe that MicroStrategy is it's thought that they will
Speaker 2: then meet the profitability requirements to be included in the
Speaker 2: S and P five hundred, which is if you thought,
Speaker 2: like the NASAQ one hundred inclusion was controversial, MicroStrategy getting
Speaker 2: added to the s and P five hundred will cause
Speaker 2: so much parl clutching, because that's what like retirement funds track.
Speaker 2: You know, I don't.
Speaker 1: It's a great arbitrage where a bitcoin treasury company is
Speaker 1: almost saying we're a bitcoin investment fund, but it's not
Speaker 1: quite right. It's you can you can be in the
Speaker 1: index and still be like, no, we're just a regular company.
Speaker 1: All we do is on bitcoin.
Speaker 2: But I'm just thinking about like my four oh one K,
Speaker 2: you know.
Speaker 1: So much more volatile, right because like your for and
Speaker 1: K at that point, well on some bitcoin, yeah, but
Speaker 1: mostly it'll well a lot of it will own micro
Speaker 1: strategy premium, right, Yeah, if it continues to trade it
Speaker 1: a huge premium to the bitcoin, it'll just be like,
Speaker 1: you know, like just slice of premium, but your for
Speaker 1: our own gavalan.
Speaker 2: There's so much to look forward to in twenty twenty five.
Speaker 2: I wasn't expecting your eyes to go dark at that.
Speaker 2: The light just went out in Matt's eyes.
Speaker 1: I take it back, I take yeah, you're right, there's
Speaker 1: so much luck for it to in twenty twenty five.
Speaker 2: Speaking of I.
Speaker 1: Know, I was gonna say, it reminds me that I
Speaker 1: just wrote the last Money Stuff of twenty twenty four
Speaker 1: and programming note, we're taking next week off and then
Speaker 1: we'll be back with an entire episode of questions from
Speaker 1: our It says here now for our first episode of
Speaker 1: twenty twenty five.
Speaker 2: Happy holidays, Kitty, Happy holidays, Matt. We'll be back next
Speaker 2: year with more stuff. God, it was so good.
Speaker 1: And that was Money Stuff Podcast.
Speaker 2: I'm Matt Luvia and I'm Katy Greifeld.
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