December 20, 2024 • 31 mins
Katie and Matt discuss insider trading in private companies, the process of generating financial acronyms, supermarket antitrust, the grand reopening party of a Kings supermarket in New Jersey, and MicroStrategy's index inclusion, convertible bonds, and whole deal.
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Episode Transcript
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Speaker 1 (00:03):
Bloomberg Audio Studios, Podcasts, Radio News. Hello and welcome to
the Money Stuff Podcast. You're a weekly podcast where we
talk about stuff related to money. I'm Matt Levin and
I are at the Money Stuff column for Bloomberg Opinion.
Speaker 2 (00:21):
And I'm Katie Greifeld, a reporter for Bloomberg News and
an anchor for Bloomberg Television.
Speaker 1 (00:26):
What are we at today, Katie?
Speaker 2 (00:28):
We're going to talk about insider trading it's now legal
in the UK and only in private markets. Then we're
going to talk about drama the grocery store, and then
we're going to talk about micro strategy and Michael Saylor.
Speaker 1 (00:41):
Sounds great, let's get into it.
Speaker 2 (00:45):
Insider trading, it's great.
Speaker 1 (00:47):
Yeah, if you guys had on this podcast, I love
insider trading. And then and then I walked it back
and you qualified.
Speaker 2 (00:52):
It a few a few different ways. But in the
UK now in certain circumstances it's maybe not encouraged, but
maybe not not allowed.
Speaker 1 (01:01):
They're launching this thing called PISCES, which stands for Private
Intermittent Securities and Capital Exchanges. This is like a thing
that everyone talks about. Private companies have become such a
big part of the market and are so important. And
the thing about being a private company is you can't
trade their stock, and I was like, well, shouldn't you
be able to trade their stock? And so like there
are all sorts of like solutions and marketplaces that have
(01:23):
sprung up, and the UK is building this regulatory soundbox
where basically they're gonna have a set of rules for
the private market that are different from the rules for
public market less publicity, but allowed for some trading of
private market shares. And in setting up those rules, they
thought should it be legal to insider trade? And they decided, sure,
why not, let's make it legal to insider trade, which
(01:45):
I think, like, you know, I'm kind of cautiously optimistic
for it because I love insider trading.
Speaker 2 (01:50):
So reading this, as I was working my way through
the column, I was thinking about the fun market. And
then you did get there that you have the nice
market and then you have the fund mark, which is
similar to the doped up Olympics, where let's just see
what happens.
Speaker 1 (02:05):
Yeah, right, it's the doped up Olympics, right. I mean,
like I've written about like this idea of having the
nice market, where like there are rules and like everyone's
suposed to be on kind of an informational level playing field.
And then like there's the idea of the fun market,
where there are no rules and you kind of just
do whatever you want. And I sort of started thinking
about that in terms of crypto, because like there's there
a reason in the abstract for crypto to like ban
market manipulation. And we've talked about like the Mango markets guy, right, Like,
(02:26):
there was like this notion in crypto that like, if
you can do it, it's legal, right, and there's no rules.
And it turns out that like US regulators impose a
lot of market manipulation rules, even on crypto markets, to
the surprise of some crypto market manipulators. But like you know,
in cryptosa, like it's just like it's a set of
gambling tokens. So like whatever rules everyone agrees to are fun.
(02:46):
In capital markets, it's a little different, right, Like you
have rules of capital markets in part because you think
they're the right rules to like encourage retirement saving and
capital formation. And I think the consensus is that in
public markets, insider trading is bad because people will be
less likely to invest their money in the stock market
if they think everyone is insider trading against them. And
if they think everyone's insider trading against them, then it'll
(03:08):
be harder for companies to raise money. And like, what
you want in a stock market is capital formation, like
retirement savings and not so much fun gambling, but like,
you know, like a crypto market, you could have fun
gambling rules. The private market stuff is from first principles,
you would be like, we want to encourage capitalformation and investing,
but so we would want to ban insider trading. But
(03:31):
you know, it's like a higher bar. It's not open
to all retail investors. It's open to like sophisticated investors,
and so the sophisticated investors can say, we're going to
live with some insider trading. And the other reason to
allow insider trading and private markets is insider trading rules
and the public markets kind of go along with disclosure rules.
And so the reason you can insider trade is because
it's like your company is kind of supposed to make
(03:52):
everything public anyway, and so if you know something that
they haven't made public yet, like wait three days and
then you can trade right in private markets. If your
company never just closes financial information, then how can you
ever trade? And it's like it's you know, like there
are solutions to that. But it seems like a little
bit harder to ban insider trading in private markets than
it is in public markets because there's just more information
(04:14):
that the public doesn't generally have, and so it's a
little harder for employees to trade, you know, without knowing
something that the public doesn't know. But the UK has
decided to strike that balance by just letting the employees trade.
Speaker 2 (04:26):
I want to talk more about the name a little bits. Yeah,
it seems like a backronym, Like do you think that
they organically.
Speaker 1 (04:35):
I don't think it's a backronym. I don't know. I
don't know.
Speaker 2 (04:37):
They like private intermittent securities and capital exchange system.
Speaker 1 (04:41):
I think most financial acronyms are like half backgrounds, right,
Like they're like kind of write down what it is, yeah,
and then you're like, ah, that doesn't spell anything, and
then you like add letters until it's spells something, and
then you like figure out those letters should stand for.
So like, yeah, they're like the private securities exchange. That's
kind of like pisces. Let's add some letters. They get
the pisces, right, I don't think they were, like, I
don't think they set out from like, let's name this
thing after an astrological sign. Maybe they did.
Speaker 2 (05:03):
I love the word intermittent.
Speaker 1 (05:05):
You know rightly that one's like there for the acronym.
Speaker 2 (05:08):
You don't see that word a lot tossed around. Other
words they could have considered occasional, the posse's I don't
like that at all.
Speaker 1 (05:18):
Actually you could have gotten into posseas but is a
little more, little more friendly.
Speaker 2 (05:23):
It's a fish, so this hasn't launched yet, right, that'll
be fun. I mean, even if they're saying enter at
your own risks sort of thing. I don't really know
what the moon music is like over in the UK,
but I could still see if this were in the US,
this would still lead to lawsuits.
Speaker 1 (05:39):
And I would posit that insider trading and private companies
is illegal in the US. Brief you know, there's an
SEC case from twenty eleven about a company doing employee
tender offers where they didn't tell the employees that they
were like negotiating a bridger, and so the SEC sued
them for fraud, which is like kind of what insider
trading is in the US. And you know, a lawyer
pointed out on LinkedIn that there's actually a California law
(06:02):
against insider trading that applies to private companies. And that's
relevant because you know, like most of like the private
companies in the in the US. You know, if you
say about like they're probably trading in California, so it's
pretty illegal in the US. But I think as chat
GPT is private company insider trading or like, you know,
I googled it and like, yeah, the l AI results
were like, no, it's fine, go ahead. I could be
(06:24):
wrong with that. I don't want to slander Google. But
it's just like it's not like a well known thing.
There's an SEC case from twenty eleven. There's not twenty
cases a year. And the reason is like private, you know,
there's no one suing, no one's like aware of you know,
like there's just like less ability to find out that
there was insider trading, right, but like probably there's some
insider trading. It's just like it's not like they announced
(06:44):
the bad earnings two days later, right, It's like they
never announced the bad earning, so you don't know that
you were insider trading.
Speaker 2 (06:50):
But with the rise of tender offers, which are becoming
more regular and just secondary market activity in general in
the US. Do you think that will see more.
Speaker 1 (06:58):
Cases tender offers are they're real?
Speaker 2 (07:01):
Yeah, I don't know enough about tender offers, and I
thought it was the company buying back shares from employees.
Speaker 1 (07:07):
That's like the normal idea of it, but increasingly it's
now kind of a two sided trade where the company
is sort of brokering a trade where some list of
new investors are buying back shares from employees and old investors.
Speaker 2 (07:20):
Interesting, so it's kind of like, you know, so like
the company is like the stock exchange kind.
Speaker 1 (07:24):
Of yeah, because there's no stock exchange, and like these
companies normally have control over the trading of their shares
and so if you want to buy, if they're the
company you want to sell, you a theird to the company,
and so the company, you know, intermediates the trade.
Speaker 2 (07:34):
So maybe we'll see more shenanigans, yeah.
Speaker 1 (07:37):
Because like if you have a tender offer like that,
or like they're sort of you know, stereotypically, like employees
are on the selling side and like venture capitalists on
the buying side, or like you know, growth funds are
on the buying side. Then you know you probably have
obligations to disclose material information to both sides, and if
you mess that up, as you know public companies do
all the time, you could eventually get lawsuits.
Speaker 2 (07:59):
Right.
Speaker 1 (07:59):
I mean, it's a smaller it's not a ripe field
for like securities class action lawyers yet, but like you'll
eventually say, some lawsuits.
Speaker 2 (08:05):
You went to an article from Sarah McBride in your
column on this and I thought it was interesting, like
the changing attitudes at these companies towards the fact that
there is a increasingly vibrant secondary market for their shares,
like it used to be like a bit taboo, I
feel like, and companies really didn't like it, but I
just feel like it's inevitable now.
Speaker 1 (08:28):
I think attitudes remain kind of varied, and like you
see in pisces in the UK, there's like one aspect
of the plans the companies will have some control over,
like when and how their their shares trade, which I
think is a big draw of the private markets everywhere,
which is just like you don't want activists to be
able to buy up your stock without telling you, right,
Like you want to have some control over who owns
your stock and when they can buy it. But yeah,
(08:50):
I mean, like in a world where you are private
until you're kind of big enough to go public, and
then you go public, you might really care about preventing
your employees from selling ntil you're a public in a
world where the default is kind of the same private forever,
Like your employees need some liquidity, and yeah, you offer
tender raffers, but like some companies are also like, you know,
we'll live with the secondary market.
Speaker 2 (09:11):
You can't eat on your net worth alone. You need
that liquidity, mat.
Speaker 1 (09:15):
You need that liquidity. I've also written this week of
at margin lens and tests stock, which is another way
to get that liquidity. That's a story we don't need
to talk about that.
Speaker 2 (09:37):
Let's glide gracefully along, shall we.
Speaker 1 (09:40):
Let's glide along.
Speaker 2 (09:41):
Right into the grocery aisle. Kroger and Albertson's. Man, are
they in a tiff? Yeah, it was a long engagement
and a messy breakup.
Speaker 1 (09:54):
I have to say I have a soft spot for
Albertson's because when I was very briefly an M and
a layer, I did a deal for Albertson's. Like they
sold themselves to two separate buyers. One was essentially Serberus.
The thing called Alberton's today is like the Cerberus Anthony.
And then they sold a lot of stories to a
company called Supervalue. This like nice midwestern grocery store chain.
(10:17):
And I was the junior lawyer for super Value.
Speaker 2 (10:21):
I thought you were going to say you grew up
going to an Albertson's, which like didn't quite try.
Speaker 1 (10:25):
No, But in college I went to like Shaw and
Star Market, which I learned for Albertson's brands, and I
was pleased.
Speaker 2 (10:30):
I went to Kings. So I can't relate to this
in any way.
Speaker 1 (10:34):
Not good at like knowing which grocery brands are un
by which companies Like for all I know that's a
Albertson's brand, I don't think it is.
Speaker 2 (10:39):
I don't think it is either. I love Kings anyway.
So there's all this enthusiasm over the regulatory landscape, how
we're going to get this big boom and m and A.
There's some deals that are still dying on the vine.
Kroger and Albertson's, their proposed merger is one of them.
And Albertson's suing Kroger saying that they in fact didn't
(11:02):
do everything that they could have to satisfy the FTC. Here.
Speaker 1 (11:05):
Yeah, so like you signed this deal, and like you know,
the main problem is antitrust, right, because it's too big
grocery store chains combining, and in particular it's chains with
a lot of geographical overlaps. You have a lot of
places where the Kroger's supermarket competes with the albertson supermarket
and if they combine, and then there'll be less competition
and the FTC for the next month doesn't like that.
(11:28):
Who knows after that? Right, But they signed this deal,
you know, in twenty twenty two, and so they were
dealing with the current FDC, and they signed the deal
hoping to combine, but they knew that there would be
FDC impediments and the deal required them to sort of
do everything in their power to get the deal done,
and in particularly required like Kruger is the buyer. Albertson's
(11:50):
is much more at risk in that situation because like
if the deal falls apart, it's bad for Albertsons. This
is less bad for the larger, more stable buyer. And
so the deal agreed was like it's called a hell
or high water clothes. They have to do anything, come
hell or high water to get the deal closed, except
they don't have to al more than six hundred and
fifty stores. And you know, the thing that everyone knew
they would have to do to get the deal closed
(12:11):
was to be would be to divest some of their stores.
And like all those places where at Albertson's and a
Kroger's compete, you put one of those competing stores into
a new company, or you sell it to a company
so that it continues to compete with the combined Krager
Albertson's and Albertson says that Krager like dragged its feet
and then propose enough to divestures and then listened to
(12:32):
the FTC when they asked for more divestres And so
the FTC eventually sued and their divestiture proposals were so
bad that the FDC one in court. And so now
the deal is dead and Albertson's wants billions of dollars
of damages from Kroger for not getting the deal.
Speaker 2 (12:48):
Then, yeah, I mean Albertson's had two specific gripes with
the divestiters that they weren't divesting the good stores, and
also that they didn't like the buyer that they picked
CNS Whole Sealers.
Speaker 1 (12:59):
I believe it was, Yeah, because CNS is like a
grocery hill store that doesn't own a lot of grocery stores.
And yeah, there's some question in the mind of like
the fac in the court about whether they could successfully
compete with combined Kroger. Yeah, and apparently Kroger like had
some sort of auction for these divestitures and like got
sixty potential bidders, but they didn't, you know, consult Albertson's
(13:20):
on the bidders and they just picked CNS. And so
Albertson's is now mad that they could have possibly found
a better buyer and they didn't, so the deal got killed.
Speaker 2 (13:27):
They have a lot to prove when it comes to
this lawsuit.
Speaker 1 (13:30):
Yeah, it seems hard. It does seem hard because like
as what you're trying to prove a kind of factually,
you're trying to prove they could have proposed a different
set of stores that I've asked, they could have found
a better buyer and if they had done that, the
FTC would have been happy with it. And it's like, well,
you know, like the FDC is like it's like pretty
skeptical of big mergers, right, and like it's possible that
they couldn't have gotten a deal done, or they couldn't
(13:50):
have gotten a deal done without divesting more than six
hundred and fifty stores. So they'll definitely be able to
find places where the're like, oh, they could have done
a better job. But will they be able to prove
that they would have gotten the deal and therefore deserve
billions of dollars of damages?
Speaker 2 (14:04):
Yeah, I was reading the Bloomberg Intelligence take on this,
so they basically agreed with you, saying that it's going
to be difficult to prove all this, but they did
say that they could prove that they're entitled to the
six hundred million dollar breakup fee. So maybe they won't
get billions of dollars in damages, but six hundred million
dollars is it's not nothing, but it's not six billion dollars.
Speaker 1 (14:25):
You can definitely argue that, though I Thinkroger is going
to say Albertson's preached its agreements and so it's not
entitled to it. But like that breakup fee is like
essentially there as like if you can't get through a
frant i address, Like the seller gets a consolation price,
so you would expect them to get the breakup fee.
Speaker 2 (14:39):
You touched on this a bit like the reason why
this has antitrust concerns And Okay, maybe you eliminate some
local competition and Kroger prices go higher as a result,
But then you think about this like dystopian future where
Walmart controls everything, like they're protect local competition, but that
(15:01):
local competition could just be steamrolled by Walmart in the future.
Speaker 1 (15:06):
I think in general, if you're like a pretty activist
FTC and like you want to prevent companies from getting
like you you you're like give careful scartinator mergers. Everyone
who's doing a merger is going to come and say, no,
we're actually this is better for competition because we'll be
able to take on ninety percent of time. The word
that goes there is Amazon, right, Like we will take
on Amalon, right, and so you have to let us
(15:26):
merge because then we'll be big enough to take on Amazon.
And the SEC I think is skeptical of that part
because everyone says that part because like they don't get
to stop Walmart or Amazon right, they get to stop mergers, right, Yeah,
And so if someone comes to you with a merger,
you're like, I want to you know, improve competition and
like reduce the concentration of corporate powers. I'm gonna say
no to this merger, and they're like, no, no, we're actually
(15:47):
doing it competing. It's more Omart, like you can't do
anything but Walmart.
Speaker 2 (15:50):
That's true. I do find myself more sympathetic to that
narrative when you consider what happened with Jet Blue and Spirit.
Oh yeah, for example, like the same story, right, Yeah,
they wouldn't let them merge, just like there's like.
Speaker 1 (16:03):
Those low cost carriers and like they're like, we need
to be bigger to compete with the legacy carriers and
like continue to provide price competition. Yeah, And the SEC
is like, now if you merged, there'll be less competition
between the two of you, and the price will go higher.
Speaker 2 (16:15):
And then Spirit filed for bankruptcy a couple of years later.
Speaker 1 (16:19):
I don't know enough about like the economics of grocery
stores to know.
Speaker 2 (16:23):
Like how true you were like a grocery store banker
in your past life. I feel like every story is the.
Speaker 1 (16:29):
Grocery store layer, but like, I'm sympathetic to the idea.
It is hard as a grocery stoperator these days to
compete with Walmart, Costco, Target, which is like not part
of the market from the FEC's point of view. But no,
I mean, like the Spirit Jet Blue stuff is just
like yeah, played out immediately. Yeah, probably letting the merger
to be better for competition.
Speaker 2 (16:47):
I'm not saying that Albertson's is going to die necessarily.
It is interesting to look at the stock price though,
since the start of October twenty twenty two, when the
steal is first announced, Kroger's is up forty eight percent
since the Albertson's. I had to check this a few times,
because they're up eight percent on a total return basis.
Their share price alone is down like twenty something percent,
(17:09):
but eight percent on a total return basis.
Speaker 1 (17:11):
So total return basis is like when they signed the deal, Yeah,
they tland to padd a big dividend. Yeah, it's sort
of like a down payment on the deal.
Speaker 2 (17:19):
Well, showing up. I love it when share price performance
doesn't match total return in like a very dramatic way.
Speaker 1 (17:26):
Normally that's not because you're paying a twer cent divot
in every quarter here. It's because they paid at a
big dividend as part of the deal. Yeah, so that's
not The stock.
Speaker 2 (17:34):
Price is not really ap I do wonder where Albertson
goes from here. I don't expect you to have that answer, Matt,
so so let's move on.
Speaker 1 (17:48):
It does our producer is telling us that Alberton's does
in fact own Kings.
Speaker 2 (17:53):
Oh my god. Now I'm personally invested in this story.
Speaker 1 (17:57):
Sure, sure, now, yeah, I love Kings.
Speaker 2 (18:00):
I don't know is it local? Is it is it
a regional? If it's on the internet, I'm inclined to
believe it.
Speaker 1 (18:06):
Of Kirker's brand, I didn't recognize, like any of Creaker's Brown's.
One of them is King Supers, but like s O
O P E R.
Speaker 2 (18:13):
Oh, yeah, I didn't know that. Have you never been
to a King's.
Speaker 1 (18:19):
I've been to a King Colin.
Speaker 2 (18:21):
That's not what I'm talking about. The King's near my parents' house.
This is not interesting anyway. So they had a relaunch party.
They renovated the store a couple of years back. I
think I was in crowd school and I went to
the party. Yeah, I went with my boyfriend now husband,
and it was.
Speaker 1 (18:42):
Wait, sec, can you set this so you're like in
grad school in New York?
Speaker 2 (18:45):
Yeah, for sure, and you're like, Joe, yeah.
Speaker 1 (18:48):
There's a supermarket launch in New Jersey. Yeah, I'm clear.
Speaker 2 (18:56):
I don't understand the confusion. I love it. A good quirky,
quirky outing and supermarket launch party is exactly my sort
of scene. And it was awesome. I have a photo
of it on my desk. I'll show you after.
Speaker 1 (19:10):
I do want to see that.
Speaker 2 (19:11):
Yeah, because I had like a photo booth at the
supermarket and they had all these samples. This was pre pandemic,
so samples were still cool. Oh god, it was so fun.
So anyway, man, now I'm rooting for Albertson's because King's
is a great grocery store and you can find them
in New Jersey.
Speaker 1 (19:29):
I like food down and the soundtrack is like, you
know whatever, it's like supermarket music, but it's also frequently
interrupted by this recorded voice, very enthusiastically saying, spice up
your dinner with sushi. And it's like like this, like
you're truly like loving description, like loving enthusiastic description of yeah,
what sushi is. It's amazing. God, yeah, I've never bought sushi.
(19:53):
You know what they're trying.
Speaker 2 (19:55):
I just think supermarkets and grocery stores. They really bring
the community together. Micro strategy, micro strategy.
Speaker 1 (20:15):
What do you got?
Speaker 2 (20:16):
How do we get into micro strategy micro strategy? You
put this on the list, I know I want to
talk about MicroStrategy. They obviously buy bitcoin. They're not only
a software company, so much so that they're being added
to the NASAQ one hundred.
Speaker 1 (20:30):
I think I've written this, but like when you and
I talked to John, I think I've maybe even said
on the podcast, but you and I talked to John Collison,
and like he said something like, if you run a
great business, all the capital market stuff take care of itself.
A company that spends too much time focusing on its
stock and like doing stuff with its stock is like
parking up the runtry. Micro strategy is the opposite.
Speaker 2 (20:47):
Attitude we found the foil.
Speaker 1 (20:50):
I like, temperamentally, am much closer to a micro strategy,
Like I like a company that's doing financial engineering's that's
that's fun.
Speaker 2 (20:57):
For this is your perfect company. So micro Strategy has
always been buying a lot of bitcoin. They're particularly buying
a lot of bitcoin right now. I think for six
consecutive Mondays they've announced more bitcoin purchases. In October, they
announced plans to raise forty two billion dollars over three years.
Three years.
Speaker 1 (21:15):
They're doing it like all now.
Speaker 2 (21:16):
Exactly through a combination of at the market stock sales
and through convertible debt offerings. But at this rate, they're
gonna fulfill that target by January.
Speaker 1 (21:25):
Wait, is that true? They don't think they're gonna do
that much convert No, no, no, I think they're gonna
do the twenty one billion dollar ATM like.
Speaker 2 (21:31):
But it is twenty one twenty one, like they call
it the twenty one twenty one plan, but they've burned
through a lot of it already.
Speaker 1 (21:39):
Of the ATM, the stock, yes, not the convert The
convert is part because like a convert is like first
of all, like a convert, like you do an offering,
you're they going to do five billion dollars or whatever,
and you go to a bank and you underte an
offering and you don't do it just tribling out week
to week. Secondly, actually their converts someone told me like
they have a lock up in their converts that say
you can't do another convert for another you know, a
(22:00):
few months or whatever.
Speaker 2 (22:01):
I saw that as well. I also saw it on Twitter. Yeah,
I don't know about that. What I don't know if
that's for real. Ya's okay, So let's assume that's for real.
Speaker 1 (22:09):
Zaes, I can see why I was. The convert investors
like don't want They are like one of the biggest
issues is not the biggest issue in the convert market.
And yeah, you know, there's some limit on how much
size you can buy, and so convert investors say, I
don't want to have, you know, the market flooded with
micro strategy paper. But that's the other point. The point
is that the stock investors love it. They don't care.
They love to have the market flooded with more micro
strategy stock. And like, if your micro strategy you and
(22:31):
it's a twenty one billion dollar at the market offering
over the course of three years, and your stock continues
to trade at like one hundred and fifty percent premium
to the value of your bitcoin, like you do it
all now, Like why would you wait? Yeah, there's no
reason to wait.
Speaker 2 (22:44):
I asked Michael Saylor about it. I interviewed him on
the television television, Yeah, on Thursday, And I aske him
about that, like, why all now are you going to
like lift the ceiling once you got there, And he
said that basically they went through it faster than they
thought because they now sit in October and then Trump
won the presidential election. We had that in November, and
(23:06):
then he was like, it's off to the races.
Speaker 1 (23:08):
Basically, to me, the micro strategy trade is like micro
strategy is essentially a pot of bitcoin. It trades at
a huge premium to the value of that pot of bitcoin.
If you're anyone, you should say, well, we're going to
sell the stock which is high, and buy bitcoin, which
is low, and eventually they'll converge, right, And it's a
risky trade to do if you're a short seller or whatever,
but it's an easy trade to do if you're a
micro strategy, right, because like you have the stock printmore stock,
(23:31):
and so I think micro strategy is very clearly doing
that trade. And like if you announce that you're going
to do twenty one billion dollars of that trade, you think, well, okay,
that'll converge pretty quickly, right, and like we'll keep doing
the trade until it converges, right, And if it converges
next week and like we're selling stock for like less
than the value of the bitcoin we can buy, then
we'll stop doing it. Right, But instead the premium has
(23:53):
it's like compressed a little bit, but it stayed really
really big. And so if your micro strategy, you're like, what,
we can keep doing this arbitrage for free, Like we
better do it, right? Why would you stop?
Speaker 2 (24:03):
Yeah?
Speaker 1 (24:04):
I mean would you slow down? I mean it's it's
free money.
Speaker 2 (24:06):
Yeah, the reception has been insane, at least on the
equity side. I did ask him about the dead side,
because they have been using the equity issuance much more
than the convertible issuance, and he said he expects that
mix will shift more heavily to fix income in the
second quarter. But I want to get your thoughts on this.
Speaker 1 (24:25):
Why did you say fixed income?
Speaker 2 (24:27):
Yeah, that's what he said. Yeah, that's a direct.
Speaker 1 (24:30):
Quote, because I feel like they do converts, and like
their converts are all immediately hugely on the money.
Speaker 2 (24:36):
This is what he said, let me read it. He
expects the mix will shift more heavily to fix income
his words in Q two, because right now we're getting
too de levered, and we'd like to get more leverage.
We have about seven point two billion dollars of converts.
Four billion are already equity through the strike price, et cetera.
So they're looking like equity. We'd like to go back
and build more intelligent leverage for the benefit of our
(24:58):
common stock shareholders.
Speaker 1 (25:01):
Yeah, I think that makes sense, right, I mean, like
I do think that, Like, if your stock is trading,
it's such a huge premium to your net asset value,
Like it seems a little crazy dead there. Converts, Like,
he's right that their effect to the equity, right, if
the stock keeps going up, they're the fact of the equity,
and so you're not really getting a ton of like leverage. Blue.
(25:22):
But the other thing about the converts is that I
read about this, a convert is like you're selling volatility, right,
Like your convert investors are buying the convert because it's
an equity option, and the option is more valuable the
more volatile your stock is. And micro Strategy stock is
incredibly volatile, in part because it's a crazy proposition, but
like in large part because of and we've talked about
(25:43):
this too, like the double levered ETFs. They're like single
stock levered ETFs on micro Strategy, they're on billions of
dollars of stock. And I think you've said this on
the show, Like they add to the volatility because every
time the stock goes up at the end of the day,
they have to buy buy more stock to remain like
the proper leverage. Every time the stock goes down, they
have the sell stock to get back to the proper
level of leverage. And so they are adding enormously to
(26:06):
the volatility. They buy when it's up and they sell
when it's down, and so they make the stock like
more than you know, that's like more than one hundred
percent annual volatility, which is great for convert investors because
convert investors are doing the opposite trade and they're basically
getting like free volatility from these ETFs. And so, like,
I've always been skeptical of the idea that it's a
leveraged bitcoin fund because yes, it has leverage, but like
(26:27):
the premium and the equity price is so much greater
than the leverage. Like if you put a dollar into
micro Strategy stock, you're getting less than a dollars with
their bigoins. There's not really leveraged, right, but they are
selling volatility because people want to buy their volatility, So
selling overpriced stock and selling like incredible volatility convert investors
are both like, yeah, that's a gret trade. They should
do that.
Speaker 2 (26:46):
Well, there's more of a coming.
Speaker 1 (26:47):
Sure, you gotta do it till it stops, right, Yeah,
it's like irrational not.
Speaker 2 (26:52):
To if the music is playing, you're going to dance.
Speaker 1 (26:55):
And they're so far stopping. Yeah, is something that previous
compressed a little bit, but it's like it's still a
great trade for them. Theah thing I want to say
is I read about this a little bit like other
companies are like, wow, it is a great trade, we
should do this right. Yeah. And the way you do it,
it's not shorty micro strategy. It's just like a wish right.
The way you do it is like you sell your
own stock like you're company. You're like, you know, you're
(27:17):
not having that much fun as a company. You just
buy all the bitcoin that you can buy, sayeh or
micro strategy, and then you sell your stock to fund
more bitcoin buying. And it like has worked for some
companies where they traded a premium to their bitcoin whole
things and I also have other businesses, So it's like
it's hard to exactly calculate that, but you know, they
can raise money from investors to you know, they can
do at the market offerings to buy bitcuin.
Speaker 2 (27:36):
The other thing I wanted to talk about is the
index inclusion a little bit. It was announced last Friday
that they will get added to the NASAQ one hundred.
And people think of the NASAQ one hundred as a
big tech benchmark. It's not actually a tech benchmark, but
it's specifically non financial companies. Micro Strategy was controversial because, Okay,
(27:58):
they have a financial company, they have software business. They
have a software business. It's obviously not the main focus obviously,
And I did ask Sailor. I was like, do you
think of yourself as a software business? He founded it,
co founded it in nineteen eighty nine as a software
business god And he he said, I think of ourselves
primarily as a bitcoin treasury company.
Speaker 1 (28:19):
Now, I mean that's like, they're so, yeah.
Speaker 2 (28:22):
You heard that from the horse's mouth. Should it be?
Speaker 1 (28:25):
Like part of what the arbitrage is in micro Strategy
is like a lot of people want to buy bitcoin,
some people can't buy bitcoin, like physically buying bitcoin, and
so that they were like, well, buy ETFs or whatever.
Some people can't buy ETFs. Right, if you're an equity
fund manager, it's a little weird for you to buy, like,
you know, an ETF like a bitcoin. It's fine for
you to buy a software company.
Speaker 2 (28:44):
Right.
Speaker 1 (28:44):
If you're an index fund, you know, you don't buy
atfs because the ETFs aren't in the index. But you
can buy a micro strategy because it's in the index.
Speaker 2 (28:51):
That's true.
Speaker 1 (28:51):
So it's a real it's like an r B. I'm like,
who is allowed to buy? Like, there's just people who
want to buy bitcoin, and this is the closest thing
they can get to buying bitcoin their mandate.
Speaker 2 (29:01):
There is speculation that they could be eligible for the
S and P five hundred next year because there's going
to be new accounting rules that go into effect, which
I know not enough about. But under those new accounting rules,
I believe that MicroStrategy is it's thought that they will
then meet the profitability requirements to be included in the
S and P five hundred, which is if you thought,
(29:23):
like the NASAQ one hundred inclusion was controversial, MicroStrategy getting
added to the s and P five hundred will cause
so much parl clutching, because that's what like retirement funds track.
You know, I don't.
Speaker 1 (29:40):
It's a great arbitrage where a bitcoin treasury company is
almost saying we're a bitcoin investment fund, but it's not
quite right. It's you can you can be in the
index and still be like, no, we're just a regular company.
All we do is on bitcoin.
Speaker 2 (29:51):
But I'm just thinking about like my four oh one K,
you know.
Speaker 1 (29:54):
So much more volatile, right because like your for and
K at that point, well on some bitcoin, yeah, but
mostly it'll well a lot of it will own micro
strategy premium, right, Yeah, if it continues to trade it
a huge premium to the bitcoin, it'll just be like,
you know, like just slice of premium, but your for
our own gavalan.
Speaker 2 (30:12):
There's so much to look forward to in twenty twenty five.
I wasn't expecting your eyes to go dark at that.
The light just went out in Matt's eyes.
Speaker 1 (30:22):
I take it back, I take yeah, you're right, there's
so much luck for it to in twenty twenty five.
Speaker 2 (30:27):
Speaking of I.
Speaker 1 (30:28):
Know, I was gonna say, it reminds me that I
just wrote the last Money Stuff of twenty twenty four
and programming note, we're taking next week off and then
we'll be back with an entire episode of questions from
our It says here now for our first episode of
twenty twenty five.
Speaker 2 (30:45):
Happy holidays, Kitty, Happy holidays, Matt. We'll be back next
year with more stuff. God, it was so good.
Speaker 1 (30:55):
And that was Money Stuff Podcast.
Speaker 2 (30:56):
I'm Matt Luvia and I'm Katy Greifeld.
Speaker 1 (30:59):
You can find my word by subscribing to the Money
Stuff newsletter on Bloomberg dot com.
Speaker 2 (31:03):
And you can find me on Bloomberg TV every day
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Speaker 1 (31:21):
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Bloomberg Audio Studios, Podcasts, Radio News. Hello and welcome to
the Money Stuff Podcast. You're a weekly podcast where we
talk about stuff related to money. I'm Matt Levin and
I are at the Money Stuff column for Bloomberg Opinion.
Speaker 2 (00:21):
And I'm Katie Greifeld, a reporter for Bloomberg News and
an anchor for Bloomberg Television.
Speaker 1 (00:26):
What are we at today, Katie?
Speaker 2 (00:28):
We're going to talk about insider trading it's now legal
in the UK and only in private markets. Then we're
going to talk about drama the grocery store, and then
we're going to talk about micro strategy and Michael Saylor.
Speaker 1 (00:41):
Sounds great, let's get into it.
Speaker 2 (00:45):
Insider trading, it's great.
Speaker 1 (00:47):
Yeah, if you guys had on this podcast, I love
insider trading. And then and then I walked it back
and you qualified.
Speaker 2 (00:52):
It a few a few different ways. But in the
UK now in certain circumstances it's maybe not encouraged, but
maybe not not allowed.
Speaker 1 (01:01):
They're launching this thing called PISCES, which stands for Private
Intermittent Securities and Capital Exchanges. This is like a thing
that everyone talks about. Private companies have become such a
big part of the market and are so important. And
the thing about being a private company is you can't
trade their stock, and I was like, well, shouldn't you
be able to trade their stock? And so like there
are all sorts of like solutions and marketplaces that have
(01:23):
sprung up, and the UK is building this regulatory soundbox
where basically they're gonna have a set of rules for
the private market that are different from the rules for
public market less publicity, but allowed for some trading of
private market shares. And in setting up those rules, they
thought should it be legal to insider trade? And they decided, sure,
why not, let's make it legal to insider trade, which
(01:45):
I think, like, you know, I'm kind of cautiously optimistic
for it because I love insider trading.
Speaker 2 (01:50):
So reading this, as I was working my way through
the column, I was thinking about the fun market. And
then you did get there that you have the nice
market and then you have the fund mark, which is
similar to the doped up Olympics, where let's just see
what happens.
Speaker 1 (02:05):
Yeah, right, it's the doped up Olympics, right. I mean,
like I've written about like this idea of having the
nice market, where like there are rules and like everyone's
suposed to be on kind of an informational level playing field.
And then like there's the idea of the fun market,
where there are no rules and you kind of just
do whatever you want. And I sort of started thinking
about that in terms of crypto, because like there's there
a reason in the abstract for crypto to like ban
market manipulation. And we've talked about like the Mango markets guy, right, Like,
(02:26):
there was like this notion in crypto that like, if
you can do it, it's legal, right, and there's no rules.
And it turns out that like US regulators impose a
lot of market manipulation rules, even on crypto markets, to
the surprise of some crypto market manipulators. But like you know,
in cryptosa, like it's just like it's a set of
gambling tokens. So like whatever rules everyone agrees to are fun.
(02:46):
In capital markets, it's a little different, right, Like you
have rules of capital markets in part because you think
they're the right rules to like encourage retirement saving and
capital formation. And I think the consensus is that in
public markets, insider trading is bad because people will be
less likely to invest their money in the stock market
if they think everyone is insider trading against them. And
if they think everyone's insider trading against them, then it'll
(03:08):
be harder for companies to raise money. And like, what
you want in a stock market is capital formation, like
retirement savings and not so much fun gambling, but like,
you know, like a crypto market, you could have fun
gambling rules. The private market stuff is from first principles,
you would be like, we want to encourage capitalformation and investing,
but so we would want to ban insider trading. But
(03:31):
you know, it's like a higher bar. It's not open
to all retail investors. It's open to like sophisticated investors,
and so the sophisticated investors can say, we're going to
live with some insider trading. And the other reason to
allow insider trading and private markets is insider trading rules
and the public markets kind of go along with disclosure rules.
And so the reason you can insider trade is because
it's like your company is kind of supposed to make
(03:52):
everything public anyway, and so if you know something that
they haven't made public yet, like wait three days and
then you can trade right in private markets. If your
company never just closes financial information, then how can you
ever trade? And it's like it's you know, like there
are solutions to that. But it seems like a little
bit harder to ban insider trading in private markets than
it is in public markets because there's just more information
(04:14):
that the public doesn't generally have, and so it's a
little harder for employees to trade, you know, without knowing
something that the public doesn't know. But the UK has
decided to strike that balance by just letting the employees trade.
Speaker 2 (04:26):
I want to talk more about the name a little bits. Yeah,
it seems like a backronym, Like do you think that
they organically.
Speaker 1 (04:35):
I don't think it's a backronym. I don't know. I
don't know.
Speaker 2 (04:37):
They like private intermittent securities and capital exchange system.
Speaker 1 (04:41):
I think most financial acronyms are like half backgrounds, right,
Like they're like kind of write down what it is, yeah,
and then you're like, ah, that doesn't spell anything, and
then you like add letters until it's spells something, and
then you like figure out those letters should stand for.
So like, yeah, they're like the private securities exchange. That's
kind of like pisces. Let's add some letters. They get
the pisces, right, I don't think they were, like, I
don't think they set out from like, let's name this
thing after an astrological sign. Maybe they did.
Speaker 2 (05:03):
I love the word intermittent.
Speaker 1 (05:05):
You know rightly that one's like there for the acronym.
Speaker 2 (05:08):
You don't see that word a lot tossed around. Other
words they could have considered occasional, the posse's I don't
like that at all.
Speaker 1 (05:18):
Actually you could have gotten into posseas but is a
little more, little more friendly.
Speaker 2 (05:23):
It's a fish, so this hasn't launched yet, right, that'll
be fun. I mean, even if they're saying enter at
your own risks sort of thing. I don't really know
what the moon music is like over in the UK,
but I could still see if this were in the US,
this would still lead to lawsuits.
Speaker 1 (05:39):
And I would posit that insider trading and private companies
is illegal in the US. Brief you know, there's an
SEC case from twenty eleven about a company doing employee
tender offers where they didn't tell the employees that they
were like negotiating a bridger, and so the SEC sued
them for fraud, which is like kind of what insider
trading is in the US. And you know, a lawyer
pointed out on LinkedIn that there's actually a California law
(06:02):
against insider trading that applies to private companies. And that's
relevant because you know, like most of like the private
companies in the in the US. You know, if you
say about like they're probably trading in California, so it's
pretty illegal in the US. But I think as chat
GPT is private company insider trading or like, you know,
I googled it and like, yeah, the l AI results
were like, no, it's fine, go ahead. I could be
(06:24):
wrong with that. I don't want to slander Google. But
it's just like it's not like a well known thing.
There's an SEC case from twenty eleven. There's not twenty
cases a year. And the reason is like private, you know,
there's no one suing, no one's like aware of you know,
like there's just like less ability to find out that
there was insider trading, right, but like probably there's some
insider trading. It's just like it's not like they announced
(06:44):
the bad earnings two days later, right, It's like they
never announced the bad earning, so you don't know that
you were insider trading.
Speaker 2 (06:50):
But with the rise of tender offers, which are becoming
more regular and just secondary market activity in general in
the US. Do you think that will see more.
Speaker 1 (06:58):
Cases tender offers are they're real?
Speaker 2 (07:01):
Yeah, I don't know enough about tender offers, and I
thought it was the company buying back shares from employees.
Speaker 1 (07:07):
That's like the normal idea of it, but increasingly it's
now kind of a two sided trade where the company
is sort of brokering a trade where some list of
new investors are buying back shares from employees and old investors.
Speaker 2 (07:20):
Interesting, so it's kind of like, you know, so like
the company is like the stock exchange kind.
Speaker 1 (07:24):
Of yeah, because there's no stock exchange, and like these
companies normally have control over the trading of their shares
and so if you want to buy, if they're the
company you want to sell, you a theird to the company,
and so the company, you know, intermediates the trade.
Speaker 2 (07:34):
So maybe we'll see more shenanigans, yeah.
Speaker 1 (07:37):
Because like if you have a tender offer like that,
or like they're sort of you know, stereotypically, like employees
are on the selling side and like venture capitalists on
the buying side, or like you know, growth funds are
on the buying side. Then you know you probably have
obligations to disclose material information to both sides, and if
you mess that up, as you know public companies do
all the time, you could eventually get lawsuits.
Speaker 2 (07:59):
Right.
Speaker 1 (07:59):
I mean, it's a smaller it's not a ripe field
for like securities class action lawyers yet, but like you'll
eventually say, some lawsuits.
Speaker 2 (08:05):
You went to an article from Sarah McBride in your
column on this and I thought it was interesting, like
the changing attitudes at these companies towards the fact that
there is a increasingly vibrant secondary market for their shares,
like it used to be like a bit taboo, I
feel like, and companies really didn't like it, but I
just feel like it's inevitable now.
Speaker 1 (08:28):
I think attitudes remain kind of varied, and like you
see in pisces in the UK, there's like one aspect
of the plans the companies will have some control over,
like when and how their their shares trade, which I
think is a big draw of the private markets everywhere,
which is just like you don't want activists to be
able to buy up your stock without telling you, right,
Like you want to have some control over who owns
your stock and when they can buy it. But yeah,
(08:50):
I mean, like in a world where you are private
until you're kind of big enough to go public, and
then you go public, you might really care about preventing
your employees from selling ntil you're a public in a
world where the default is kind of the same private forever,
Like your employees need some liquidity, and yeah, you offer
tender raffers, but like some companies are also like, you know,
we'll live with the secondary market.
Speaker 2 (09:11):
You can't eat on your net worth alone. You need
that liquidity, mat.
Speaker 1 (09:15):
You need that liquidity. I've also written this week of
at margin lens and tests stock, which is another way
to get that liquidity. That's a story we don't need
to talk about that.
Speaker 2 (09:37):
Let's glide gracefully along, shall we.
Speaker 1 (09:40):
Let's glide along.
Speaker 2 (09:41):
Right into the grocery aisle. Kroger and Albertson's. Man, are
they in a tiff? Yeah, it was a long engagement
and a messy breakup.
Speaker 1 (09:54):
I have to say I have a soft spot for
Albertson's because when I was very briefly an M and
a layer, I did a deal for Albertson's. Like they
sold themselves to two separate buyers. One was essentially Serberus.
The thing called Alberton's today is like the Cerberus Anthony.
And then they sold a lot of stories to a
company called Supervalue. This like nice midwestern grocery store chain.
(10:17):
And I was the junior lawyer for super Value.
Speaker 2 (10:21):
I thought you were going to say you grew up
going to an Albertson's, which like didn't quite try.
Speaker 1 (10:25):
No, But in college I went to like Shaw and
Star Market, which I learned for Albertson's brands, and I
was pleased.
Speaker 2 (10:30):
I went to Kings. So I can't relate to this
in any way.
Speaker 1 (10:34):
Not good at like knowing which grocery brands are un
by which companies Like for all I know that's a
Albertson's brand, I don't think it is.
Speaker 2 (10:39):
I don't think it is either. I love Kings anyway.
So there's all this enthusiasm over the regulatory landscape, how
we're going to get this big boom and m and A.
There's some deals that are still dying on the vine.
Kroger and Albertson's, their proposed merger is one of them.
And Albertson's suing Kroger saying that they in fact didn't
(11:02):
do everything that they could have to satisfy the FTC. Here.
Speaker 1 (11:05):
Yeah, so like you signed this deal, and like you know,
the main problem is antitrust, right, because it's too big
grocery store chains combining, and in particular it's chains with
a lot of geographical overlaps. You have a lot of
places where the Kroger's supermarket competes with the albertson supermarket
and if they combine, and then there'll be less competition
and the FTC for the next month doesn't like that.
(11:28):
Who knows after that? Right, But they signed this deal,
you know, in twenty twenty two, and so they were
dealing with the current FDC, and they signed the deal
hoping to combine, but they knew that there would be
FDC impediments and the deal required them to sort of
do everything in their power to get the deal done,
and in particularly required like Kruger is the buyer. Albertson's
(11:50):
is much more at risk in that situation because like
if the deal falls apart, it's bad for Albertsons. This
is less bad for the larger, more stable buyer. And
so the deal agreed was like it's called a hell
or high water clothes. They have to do anything, come
hell or high water to get the deal closed, except
they don't have to al more than six hundred and
fifty stores. And you know, the thing that everyone knew
they would have to do to get the deal closed
(12:11):
was to be would be to divest some of their stores.
And like all those places where at Albertson's and a
Kroger's compete, you put one of those competing stores into
a new company, or you sell it to a company
so that it continues to compete with the combined Krager
Albertson's and Albertson says that Krager like dragged its feet
and then propose enough to divestures and then listened to
(12:32):
the FTC when they asked for more divestres And so
the FTC eventually sued and their divestiture proposals were so
bad that the FDC one in court. And so now
the deal is dead and Albertson's wants billions of dollars
of damages from Kroger for not getting the deal.
Speaker 2 (12:48):
Then, yeah, I mean Albertson's had two specific gripes with
the divestiters that they weren't divesting the good stores, and
also that they didn't like the buyer that they picked
CNS Whole Sealers.
Speaker 1 (12:59):
I believe it was, Yeah, because CNS is like a
grocery hill store that doesn't own a lot of grocery stores.
And yeah, there's some question in the mind of like
the fac in the court about whether they could successfully
compete with combined Kroger. Yeah, and apparently Kroger like had
some sort of auction for these divestitures and like got
sixty potential bidders, but they didn't, you know, consult Albertson's
(13:20):
on the bidders and they just picked CNS. And so
Albertson's is now mad that they could have possibly found
a better buyer and they didn't, so the deal got killed.
Speaker 2 (13:27):
They have a lot to prove when it comes to
this lawsuit.
Speaker 1 (13:30):
Yeah, it seems hard. It does seem hard because like
as what you're trying to prove a kind of factually,
you're trying to prove they could have proposed a different
set of stores that I've asked, they could have found
a better buyer and if they had done that, the
FTC would have been happy with it. And it's like, well,
you know, like the FDC is like it's like pretty
skeptical of big mergers, right, and like it's possible that
they couldn't have gotten a deal done, or they couldn't
(13:50):
have gotten a deal done without divesting more than six
hundred and fifty stores. So they'll definitely be able to
find places where the're like, oh, they could have done
a better job. But will they be able to prove
that they would have gotten the deal and therefore deserve
billions of dollars of damages?
Speaker 2 (14:04):
Yeah, I was reading the Bloomberg Intelligence take on this,
so they basically agreed with you, saying that it's going
to be difficult to prove all this, but they did
say that they could prove that they're entitled to the
six hundred million dollar breakup fee. So maybe they won't
get billions of dollars in damages, but six hundred million
dollars is it's not nothing, but it's not six billion dollars.
Speaker 1 (14:25):
You can definitely argue that, though I Thinkroger is going
to say Albertson's preached its agreements and so it's not
entitled to it. But like that breakup fee is like
essentially there as like if you can't get through a
frant i address, Like the seller gets a consolation price,
so you would expect them to get the breakup fee.
Speaker 2 (14:39):
You touched on this a bit like the reason why
this has antitrust concerns And Okay, maybe you eliminate some
local competition and Kroger prices go higher as a result,
But then you think about this like dystopian future where
Walmart controls everything, like they're protect local competition, but that
(15:01):
local competition could just be steamrolled by Walmart in the future.
Speaker 1 (15:06):
I think in general, if you're like a pretty activist
FTC and like you want to prevent companies from getting
like you you you're like give careful scartinator mergers. Everyone
who's doing a merger is going to come and say, no,
we're actually this is better for competition because we'll be
able to take on ninety percent of time. The word
that goes there is Amazon, right, Like we will take
on Amalon, right, and so you have to let us
(15:26):
merge because then we'll be big enough to take on Amazon.
And the SEC I think is skeptical of that part
because everyone says that part because like they don't get
to stop Walmart or Amazon right, they get to stop mergers, right, Yeah,
And so if someone comes to you with a merger,
you're like, I want to you know, improve competition and
like reduce the concentration of corporate powers. I'm gonna say
no to this merger, and they're like, no, no, we're actually
(15:47):
doing it competing. It's more Omart, like you can't do
anything but Walmart.
Speaker 2 (15:50):
That's true. I do find myself more sympathetic to that
narrative when you consider what happened with Jet Blue and Spirit.
Oh yeah, for example, like the same story, right, Yeah,
they wouldn't let them merge, just like there's like.
Speaker 1 (16:03):
Those low cost carriers and like they're like, we need
to be bigger to compete with the legacy carriers and
like continue to provide price competition. Yeah, And the SEC
is like, now if you merged, there'll be less competition
between the two of you, and the price will go higher.
Speaker 2 (16:15):
And then Spirit filed for bankruptcy a couple of years later.
Speaker 1 (16:19):
I don't know enough about like the economics of grocery
stores to know.
Speaker 2 (16:23):
Like how true you were like a grocery store banker
in your past life. I feel like every story is the.
Speaker 1 (16:29):
Grocery store layer, but like, I'm sympathetic to the idea.
It is hard as a grocery stoperator these days to
compete with Walmart, Costco, Target, which is like not part
of the market from the FEC's point of view. But no,
I mean, like the Spirit Jet Blue stuff is just
like yeah, played out immediately. Yeah, probably letting the merger
to be better for competition.
Speaker 2 (16:47):
I'm not saying that Albertson's is going to die necessarily.
It is interesting to look at the stock price though,
since the start of October twenty twenty two, when the
steal is first announced, Kroger's is up forty eight percent
since the Albertson's. I had to check this a few times,
because they're up eight percent on a total return basis.
Their share price alone is down like twenty something percent,
(17:09):
but eight percent on a total return basis.
Speaker 1 (17:11):
So total return basis is like when they signed the deal, Yeah,
they tland to padd a big dividend. Yeah, it's sort
of like a down payment on the deal.
Speaker 2 (17:19):
Well, showing up. I love it when share price performance
doesn't match total return in like a very dramatic way.
Speaker 1 (17:26):
Normally that's not because you're paying a twer cent divot
in every quarter here. It's because they paid at a
big dividend as part of the deal. Yeah, so that's
not The stock.
Speaker 2 (17:34):
Price is not really ap I do wonder where Albertson
goes from here. I don't expect you to have that answer, Matt,
so so let's move on.
Speaker 1 (17:48):
It does our producer is telling us that Alberton's does
in fact own Kings.
Speaker 2 (17:53):
Oh my god. Now I'm personally invested in this story.
Speaker 1 (17:57):
Sure, sure, now, yeah, I love Kings.
Speaker 2 (18:00):
I don't know is it local? Is it is it
a regional? If it's on the internet, I'm inclined to
believe it.
Speaker 1 (18:06):
Of Kirker's brand, I didn't recognize, like any of Creaker's Brown's.
One of them is King Supers, but like s O
O P E R.
Speaker 2 (18:13):
Oh, yeah, I didn't know that. Have you never been
to a King's.
Speaker 1 (18:19):
I've been to a King Colin.
Speaker 2 (18:21):
That's not what I'm talking about. The King's near my parents' house.
This is not interesting anyway. So they had a relaunch party.
They renovated the store a couple of years back. I
think I was in crowd school and I went to
the party. Yeah, I went with my boyfriend now husband,
and it was.
Speaker 1 (18:42):
Wait, sec, can you set this so you're like in
grad school in New York?
Speaker 2 (18:45):
Yeah, for sure, and you're like, Joe, yeah.
Speaker 1 (18:48):
There's a supermarket launch in New Jersey. Yeah, I'm clear.
Speaker 2 (18:56):
I don't understand the confusion. I love it. A good quirky,
quirky outing and supermarket launch party is exactly my sort
of scene. And it was awesome. I have a photo
of it on my desk. I'll show you after.
Speaker 1 (19:10):
I do want to see that.
Speaker 2 (19:11):
Yeah, because I had like a photo booth at the
supermarket and they had all these samples. This was pre pandemic,
so samples were still cool. Oh god, it was so fun.
So anyway, man, now I'm rooting for Albertson's because King's
is a great grocery store and you can find them
in New Jersey.
Speaker 1 (19:29):
I like food down and the soundtrack is like, you
know whatever, it's like supermarket music, but it's also frequently
interrupted by this recorded voice, very enthusiastically saying, spice up
your dinner with sushi. And it's like like this, like
you're truly like loving description, like loving enthusiastic description of yeah,
what sushi is. It's amazing. God, yeah, I've never bought sushi.
(19:53):
You know what they're trying.
Speaker 2 (19:55):
I just think supermarkets and grocery stores. They really bring
the community together. Micro strategy, micro strategy.
Speaker 1 (20:15):
What do you got?
Speaker 2 (20:16):
How do we get into micro strategy micro strategy? You
put this on the list, I know I want to
talk about MicroStrategy. They obviously buy bitcoin. They're not only
a software company, so much so that they're being added
to the NASAQ one hundred.
Speaker 1 (20:30):
I think I've written this, but like when you and
I talked to John, I think I've maybe even said
on the podcast, but you and I talked to John Collison,
and like he said something like, if you run a
great business, all the capital market stuff take care of itself.
A company that spends too much time focusing on its
stock and like doing stuff with its stock is like
parking up the runtry. Micro strategy is the opposite.
Speaker 2 (20:47):
Attitude we found the foil.
Speaker 1 (20:50):
I like, temperamentally, am much closer to a micro strategy,
Like I like a company that's doing financial engineering's that's
that's fun.
Speaker 2 (20:57):
For this is your perfect company. So micro Strategy has
always been buying a lot of bitcoin. They're particularly buying
a lot of bitcoin right now. I think for six
consecutive Mondays they've announced more bitcoin purchases. In October, they
announced plans to raise forty two billion dollars over three years.
Three years.
Speaker 1 (21:15):
They're doing it like all now.
Speaker 2 (21:16):
Exactly through a combination of at the market stock sales
and through convertible debt offerings. But at this rate, they're
gonna fulfill that target by January.
Speaker 1 (21:25):
Wait, is that true? They don't think they're gonna do
that much convert No, no, no, I think they're gonna
do the twenty one billion dollar ATM like.
Speaker 2 (21:31):
But it is twenty one twenty one, like they call
it the twenty one twenty one plan, but they've burned
through a lot of it already.
Speaker 1 (21:39):
Of the ATM, the stock, yes, not the convert The
convert is part because like a convert is like first
of all, like a convert, like you do an offering,
you're they going to do five billion dollars or whatever,
and you go to a bank and you underte an
offering and you don't do it just tribling out week
to week. Secondly, actually their converts someone told me like
they have a lock up in their converts that say
you can't do another convert for another you know, a
(22:00):
few months or whatever.
Speaker 2 (22:01):
I saw that as well. I also saw it on Twitter. Yeah,
I don't know about that. What I don't know if
that's for real. Ya's okay, So let's assume that's for real.
Speaker 1 (22:09):
Zaes, I can see why I was. The convert investors
like don't want They are like one of the biggest
issues is not the biggest issue in the convert market.
And yeah, you know, there's some limit on how much
size you can buy, and so convert investors say, I
don't want to have, you know, the market flooded with
micro strategy paper. But that's the other point. The point
is that the stock investors love it. They don't care.
They love to have the market flooded with more micro
strategy stock. And like, if your micro strategy you and
(22:31):
it's a twenty one billion dollar at the market offering
over the course of three years, and your stock continues
to trade at like one hundred and fifty percent premium
to the value of your bitcoin, like you do it
all now, Like why would you wait? Yeah, there's no
reason to wait.
Speaker 2 (22:44):
I asked Michael Saylor about it. I interviewed him on
the television television, Yeah, on Thursday, And I aske him
about that, like, why all now are you going to
like lift the ceiling once you got there, And he
said that basically they went through it faster than they
thought because they now sit in October and then Trump
won the presidential election. We had that in November, and
(23:06):
then he was like, it's off to the races.
Speaker 1 (23:08):
Basically, to me, the micro strategy trade is like micro
strategy is essentially a pot of bitcoin. It trades at
a huge premium to the value of that pot of bitcoin.
If you're anyone, you should say, well, we're going to
sell the stock which is high, and buy bitcoin, which
is low, and eventually they'll converge, right, And it's a
risky trade to do if you're a short seller or whatever,
but it's an easy trade to do if you're a
micro strategy, right, because like you have the stock printmore stock,
(23:31):
and so I think micro strategy is very clearly doing
that trade. And like if you announce that you're going
to do twenty one billion dollars of that trade, you think, well, okay,
that'll converge pretty quickly, right, and like we'll keep doing
the trade until it converges, right, And if it converges
next week and like we're selling stock for like less
than the value of the bitcoin we can buy, then
we'll stop doing it. Right, But instead the premium has
(23:53):
it's like compressed a little bit, but it stayed really
really big. And so if your micro strategy, you're like, what,
we can keep doing this arbitrage for free, Like we
better do it, right? Why would you stop?
Speaker 2 (24:03):
Yeah?
Speaker 1 (24:04):
I mean would you slow down? I mean it's it's
free money.
Speaker 2 (24:06):
Yeah, the reception has been insane, at least on the
equity side. I did ask him about the dead side,
because they have been using the equity issuance much more
than the convertible issuance, and he said he expects that
mix will shift more heavily to fix income in the
second quarter. But I want to get your thoughts on this.
Speaker 1 (24:25):
Why did you say fixed income?
Speaker 2 (24:27):
Yeah, that's what he said. Yeah, that's a direct.
Speaker 1 (24:30):
Quote, because I feel like they do converts, and like
their converts are all immediately hugely on the money.
Speaker 2 (24:36):
This is what he said, let me read it. He
expects the mix will shift more heavily to fix income
his words in Q two, because right now we're getting
too de levered, and we'd like to get more leverage.
We have about seven point two billion dollars of converts.
Four billion are already equity through the strike price, et cetera.
So they're looking like equity. We'd like to go back
and build more intelligent leverage for the benefit of our
(24:58):
common stock shareholders.
Speaker 1 (25:01):
Yeah, I think that makes sense, right, I mean, like
I do think that, Like, if your stock is trading,
it's such a huge premium to your net asset value,
Like it seems a little crazy dead there. Converts, Like,
he's right that their effect to the equity, right, if
the stock keeps going up, they're the fact of the equity,
and so you're not really getting a ton of like leverage. Blue.
(25:22):
But the other thing about the converts is that I
read about this, a convert is like you're selling volatility, right,
Like your convert investors are buying the convert because it's
an equity option, and the option is more valuable the
more volatile your stock is. And micro Strategy stock is
incredibly volatile, in part because it's a crazy proposition, but
like in large part because of and we've talked about
(25:43):
this too, like the double levered ETFs. They're like single
stock levered ETFs on micro Strategy, they're on billions of
dollars of stock. And I think you've said this on
the show, Like they add to the volatility because every
time the stock goes up at the end of the day,
they have to buy buy more stock to remain like
the proper leverage. Every time the stock goes down, they
have the sell stock to get back to the proper
level of leverage. And so they are adding enormously to
(26:06):
the volatility. They buy when it's up and they sell
when it's down, and so they make the stock like
more than you know, that's like more than one hundred
percent annual volatility, which is great for convert investors because
convert investors are doing the opposite trade and they're basically
getting like free volatility from these ETFs. And so, like,
I've always been skeptical of the idea that it's a
leveraged bitcoin fund because yes, it has leverage, but like
(26:27):
the premium and the equity price is so much greater
than the leverage. Like if you put a dollar into
micro Strategy stock, you're getting less than a dollars with
their bigoins. There's not really leveraged, right, but they are
selling volatility because people want to buy their volatility, So
selling overpriced stock and selling like incredible volatility convert investors
are both like, yeah, that's a gret trade. They should
do that.
Speaker 2 (26:46):
Well, there's more of a coming.
Speaker 1 (26:47):
Sure, you gotta do it till it stops, right, Yeah,
it's like irrational not.
Speaker 2 (26:52):
To if the music is playing, you're going to dance.
Speaker 1 (26:55):
And they're so far stopping. Yeah, is something that previous
compressed a little bit, but it's like it's still a
great trade for them. Theah thing I want to say
is I read about this a little bit like other
companies are like, wow, it is a great trade, we
should do this right. Yeah. And the way you do it,
it's not shorty micro strategy. It's just like a wish right.
The way you do it is like you sell your
own stock like you're company. You're like, you know, you're
(27:17):
not having that much fun as a company. You just
buy all the bitcoin that you can buy, sayeh or
micro strategy, and then you sell your stock to fund
more bitcoin buying. And it like has worked for some
companies where they traded a premium to their bitcoin whole
things and I also have other businesses, So it's like
it's hard to exactly calculate that, but you know, they
can raise money from investors to you know, they can
do at the market offerings to buy bitcuin.
Speaker 2 (27:36):
The other thing I wanted to talk about is the
index inclusion a little bit. It was announced last Friday
that they will get added to the NASAQ one hundred.
And people think of the NASAQ one hundred as a
big tech benchmark. It's not actually a tech benchmark, but
it's specifically non financial companies. Micro Strategy was controversial because, Okay,
(27:58):
they have a financial company, they have software business. They
have a software business. It's obviously not the main focus obviously,
And I did ask Sailor. I was like, do you
think of yourself as a software business? He founded it,
co founded it in nineteen eighty nine as a software
business god And he he said, I think of ourselves
primarily as a bitcoin treasury company.
Speaker 1 (28:19):
Now, I mean that's like, they're so, yeah.
Speaker 2 (28:22):
You heard that from the horse's mouth. Should it be?
Speaker 1 (28:25):
Like part of what the arbitrage is in micro Strategy
is like a lot of people want to buy bitcoin,
some people can't buy bitcoin, like physically buying bitcoin, and
so that they were like, well, buy ETFs or whatever.
Some people can't buy ETFs. Right, if you're an equity
fund manager, it's a little weird for you to buy, like,
you know, an ETF like a bitcoin. It's fine for
you to buy a software company.
Speaker 2 (28:44):
Right.
Speaker 1 (28:44):
If you're an index fund, you know, you don't buy
atfs because the ETFs aren't in the index. But you
can buy a micro strategy because it's in the index.
Speaker 2 (28:51):
That's true.
Speaker 1 (28:51):
So it's a real it's like an r B. I'm like,
who is allowed to buy? Like, there's just people who
want to buy bitcoin, and this is the closest thing
they can get to buying bitcoin their mandate.
Speaker 2 (29:01):
There is speculation that they could be eligible for the
S and P five hundred next year because there's going
to be new accounting rules that go into effect, which
I know not enough about. But under those new accounting rules,
I believe that MicroStrategy is it's thought that they will
then meet the profitability requirements to be included in the
S and P five hundred, which is if you thought,
(29:23):
like the NASAQ one hundred inclusion was controversial, MicroStrategy getting
added to the s and P five hundred will cause
so much parl clutching, because that's what like retirement funds track.
You know, I don't.
Speaker 1 (29:40):
It's a great arbitrage where a bitcoin treasury company is
almost saying we're a bitcoin investment fund, but it's not
quite right. It's you can you can be in the
index and still be like, no, we're just a regular company.
All we do is on bitcoin.
Speaker 2 (29:51):
But I'm just thinking about like my four oh one K,
you know.
Speaker 1 (29:54):
So much more volatile, right because like your for and
K at that point, well on some bitcoin, yeah, but
mostly it'll well a lot of it will own micro
strategy premium, right, Yeah, if it continues to trade it
a huge premium to the bitcoin, it'll just be like,
you know, like just slice of premium, but your for
our own gavalan.
Speaker 2 (30:12):
There's so much to look forward to in twenty twenty five.
I wasn't expecting your eyes to go dark at that.
The light just went out in Matt's eyes.
Speaker 1 (30:22):
I take it back, I take yeah, you're right, there's
so much luck for it to in twenty twenty five.
Speaker 2 (30:27):
Speaking of I.
Speaker 1 (30:28):
Know, I was gonna say, it reminds me that I
just wrote the last Money Stuff of twenty twenty four
and programming note, we're taking next week off and then
we'll be back with an entire episode of questions from
our It says here now for our first episode of
twenty twenty five.
Speaker 2 (30:45):
Happy holidays, Kitty, Happy holidays, Matt. We'll be back next
year with more stuff. God, it was so good.
Speaker 1 (30:55):
And that was Money Stuff Podcast.
Speaker 2 (30:56):
I'm Matt Luvia and I'm Katy Greifeld.
Speaker 1 (30:59):
You can find my word by subscribing to the Money
Stuff newsletter on Bloomberg dot com.
Speaker 2 (31:03):
And you can find me on Bloomberg TV every day
on Open Interest between nine to eleven am Eastern.
Speaker 1 (31:09):
We'd love to hear from you. You can send an
email to Moneypod at Bloomberg dot net, ask us a
question and we might answer it on air.
Speaker 2 (31:16):
You can also subscribe to our show wherever you're listening
right now and leave us a review. It helps more
people find the show.
Speaker 1 (31:21):
The Money Stuff podcast is produced by Anamasarakus and Moses
onam Our.
Speaker 2 (31:25):
Theme music was composed by Blake Maples.
Speaker 1 (31:27):
Brandon Francis Nudimassar executive producer.
Speaker 2 (31:30):
And Sage Bauman is Bloomberg's head of Podcasts.
Speaker 1 (31:32):
Thanks for listening to the Money Stuff podcasts.
Speaker 2 (31:39):
Thanks for listening to The Money Stuff podcast If you
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