Half Backronym: PISCES, ACI, MSTR

Summary

Money Stuff: The Podcast – Episode Summary Title: Half Backronym: PISCES, ACI, MSTR
Release Date: December 20, 2024
Host/Author: Matt Levine and Katie Greifeld, Bloomberg

---

1. Insider Trading Legalization in the UK Private Markets

Overview:
Matt Levine and Katie Greifeld delve into the UK's pioneering approach to insider trading within private markets. The UK is introducing a system called PISCES (Private Intermittent Securities and Capital Exchange System), which aims to facilitate trading in private company shares under a regulated framework.

Key Points:

• PISCES Initiative:
  The UK is establishing a regulatory sandbox to create tailored rules for private markets, distinguishing them from public markets. This framework reduces disclosure requirements while permitting certain trading activities among sophisticated investors.

• Legalization of Insider Trading:
  Uniquely, the UK has decided to legalize insider trading within this system. Levine expresses cautious optimism about this move, highlighting the potential for increased liquidity in private markets.

Notable Quotes:

• Matt Levine [02:47]:
  “They're launching this thing called Pisces, which stands for Private Intermittent Securities and Capital Exchange System. This is like a thing that everyone talks about.”

• Katie Greifeld [06:16]:
  “I love the word intermittent. You don't really see that word a lot tossed around.”

Discussion:
The hosts compare PISCES to existing systems, noting the challenge of balancing capital formation with market integrity. They explore why banning insider trading in private markets is inherently more complex due to limited public information and the nature of sophisticated investors who can operate with greater discretion.

---

2. Kroger and Albertsons Merger Fallout

Overview:
The episode covers the tumultuous attempted merger between grocery giants Kroger and Albertsons, highlighting antitrust concerns and the ensuing legal battle.

Key Points:

• Merger Attempt and Antitrust Issues:
  In 2022, Kroger and Albertsons attempted a merger to consolidate their market positions. However, the Federal Trade Commission (FTC) raised antitrust concerns, chiefly due to significant geographical overlap that could reduce competition and lead to higher prices.

• Hell or High Water Clause:
  The merger agreement included a "hell or high water" clause, obligating both companies to pursue the deal regardless of obstacles. Albertsons contended that Kroger did not adequately pursue necessary divestitures to satisfy FTC requirements.

• Legal Proceedings and Breakup Fee:
  The FTC's lawsuit ultimately led to the termination of the merger. Albertsons is now seeking damages for Kroger's failure to fulfill the merger terms, though Bloomberg Intelligence suggests they are more likely to secure a $600 million breakup fee rather than the initially sought billions.

Notable Quotes:

• Matt Levine [14:40]:
  “The main problem is antitrust. Right. Because it's two big grocery store chains combining... there'll be less competition.”

• Katie Greifeld [21:06]:
  “I do wonder where Albertsons goes from here. I don't expect you to have that answer, Matt.”

Discussion:
Levine and Greifeld analyze the strategic missteps and regulatory hurdles that led to the merger's collapse. They discuss the broader implications for the grocery industry, including the difficulty of scaling amidst dominant players like Walmart and Amazon. The conversation also touches on the volatility in Albertsons' stock performance post-merger announcement and subsequent termination.

---

3. MicroStrategy's Aggressive Bitcoin Acquisition Strategy

Overview:
The hosts examine MicroStrategy’s ongoing strategy to accumulate Bitcoin, its impact on the company's financials, and the implications of its inclusion in major stock indices.

Key Points:

• Bitcoin Purchases:
  MicroStrategy has been relentlessly purchasing Bitcoin, aiming to raise $42 billion over three years through stock sales and convertible debt offerings. However, due to convertible issuance limitations and stock performance, the completion of this target is anticipated by January.

• Market Impact and Volatility:
  The company’s stock trades at a significant premium over its Bitcoin holdings, creating an arbitrage opportunity. Levine criticizes this as selling volatility, where MicroStrategy benefits from the price discrepancies between its stock and Bitcoin's value.

• Index Inclusion:
  MicroStrategy's addition to the NASDAQ 100 and potential future inclusion in the S&P 500 raises concerns about increased volatility in retirement funds and broader market instability due to the company’s heavy Bitcoin focus.

Notable Quotes:

• Matt Levine [27:39]:
  “MicroStrategy is essentially a pot of Bitcoin. It trades at a huge premium to the value of that pot of Bitcoin.”

• Katie Greifeld [34:07]:
  “I did ask Michael Saylor about it. I interviewed him on the television... he was like, it's off to the races, basically.”

• Matt Levine [31:55]:
  “Selling overpriced stock and selling incredible volatility to convert investors are both like, yeah, that's a great trade. You should do that.”

Discussion:
Levine and Greifeld critique MicroStrategy's strategy as financially engineering the stock to fund Bitcoin purchases, leveraging the premium to perpetuate a self-serving cycle. They debate the sustainability of this approach, especially as the stock's premium relative to Bitcoin remains substantial. The conversation also covers the potential repercussions of index fund inclusions, which could expose broader market segments to increased volatility tied to MicroStrategy's Bitcoin-centric business model.

---

4. Community and Cultural Insights

Overview:
Beyond financial discussions, Levine and Greifeld share light-hearted anecdotes about grocery store experiences, emphasizing the role of supermarkets in fostering community connections.

Notable Quotes:

• Katie Greifeld [22:25]:
  “I love Kings. I don't know, is it local, is it a regional? If it's on the Internet, I'm inclined to believe it.”

• Matt Levine [23:12]:
  “I have a photo of it on my desk. I'll show you after.”

Discussion:
The hosts reminisce about personal experiences with grocery store launch parties, highlighting how such events serve as communal gatherings. This segment provides a human touch amidst the technical financial discussions, illustrating the behind-the-scenes camaraderie and personal connections that enrich their professional narratives.

---

Conclusion

In this episode of Money Stuff: The Podcast, Matt Levine and Katie Greifeld navigate complex financial landscapes, from regulatory innovations in the UK’s private markets to high-stakes mergers in the grocery sector, and the controversial Bitcoin strategies of MicroStrategy. Their insightful analysis, peppered with expert commentary and real-world anecdotes, offers listeners a comprehensive understanding of current financial trends and their broader implications.

Final Thoughts:

• The legalization of insider trading in UK private markets under PISCES could redefine how private securities are traded, potentially increasing market liquidity but raising ethical concerns.
• The failed Kroger-Albertsons merger underscores the stringent antitrust environment and the challenges faced by large corporations in consolidating without infringing on competition laws.
• MicroStrategy’s Bitcoin endeavors highlight the intricate dance between leveraging stock premiums and managing corporate volatility, posing questions about the sustainability and ethical considerations of such financial maneuvers.

Listeners are encouraged to subscribe to the Money Stuff newsletter on Bloomberg.com, tune into Bloomberg TV's Open Interest, and engage with the hosts via email for further insights and discussions.

---

Note: All timestamps correspond to the podcast transcript provided.

Transcript

[Narrator]

GiveWell, a non profit that researches and recommends giving opportunities, takes the impact of donations seriously to ensure their recommendations withstand tough scrutiny. GiveWell had their own researchers spend months trying to identify flaws in their past work. They then publish their findings, mistakes and all for any donors to use for their giving. It's this kind of rigor that can help your donation make a big impact on the world. GiveWell has now spent over 17 years researching charitable organizations and only directs funding to a few of the highest impact opportunities they've found. Over 125,000 donors have used GiveWell to donate more than $2 billion. Rigorous evidence suggests that these donations will save over 200,000 lives. If you've never used GiveWell to donate, you can have your donations matched up to $100 before the end of the year or as long as matching funds last. To claim your match, go to givewell.org and pick podcast and specify where you heard this ad. Make sure they know that you heard about GiveWell from this podcast. Meta's open source AI available to all.

[Matt Levine]

Not just the few.

[Narrator]

Here's Dr. Cal Clark of Xaron Labs.

[Matt Levine]

Meta's open source AI model Llama helps us collaborate with universities to help radiologists catch more errors.

[Dr. Cal Clark]

Learn [e-mail] Open in 15th century Florence, the great inventor Leonardo da Vinci dreamt of creating a flying machine. But something kept getting in his way. Admin. Piles of it. Luckily, Leo used the smart buying tools on Amazon Business so he could work more efficiently with the extra time. He not only invented the flying machine, but actually built it.

[Matt Levine]

Magnifico.

[Katie Greifeld]

Incredible.

[Matt Levine]

Splendido.

[Dr. Cal Clark]

Whoa, easy there, Leo. Amazon Business, your partner for Smart Business Buying.

[Mikayla Shiffrin]

Bloomberg Audio Studios Podcasts Radio News.

[Matt Levine]

Hello and welcome to the Money Stuff Podcast, your weekly podcast where we talk about stuff related to money. I'm Matt Levine and I write the Money Stuff column for Bloomberg Opinion.

[Mikayla Shiffrin]

And I'm Katie Greifeld, a reporter for Bloomberg News and an anchor for Bloomberg Television.

[Matt Levine]

What do we got today, Katie?

[Mikayla Shiffrin]

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 at the grocery store and then we're gonna talk about MicroStrategy and Michael Saylor.

[Matt Levine]

Sounds great. Let's get into it.

[Mikayla Shiffrin]

Insider trading.

[Matt Levine]

It's great.

[Mikayla Shiffrin]

Yeah, yeah.

[Matt Levine]

I feel like I said on this podcast, I love insider trading and then I walked it back a little bit.

[Mikayla Shiffrin]

Then you qualified it a few different ways. But in the UK now, in certain circumstances it's maybe not encouraged. But maybe not allowed.

[Matt Levine]

They're launching this thing called Pisces, which stands for Private Intermittent securities and Capital Exchange System. 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 it was like, well, shouldn't you be able to trade their stock? And so there are all sorts of solutions and marketplaces that have sprung up and the UK is building this regulatory sandbox where basically they're going to have a set of rules for, for the private market that are different from the rules for public market, require less publicity, but allow 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 I think I'm kind of cautiously optimistic for, because I love insider trading.

[Mikayla Shiffrin]

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 fun market, which is similar to the doped up Olympics where just. Let's just see what happens.

[Matt Levine]

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 supposed 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 a reason in the abstract for crypto to like ban market manipulation. And we've talked about like the mango markets guy, right? Like 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 US regulators impose a lot of market manipulation rules even on crypto markets, to the surprise of some crypto market manipulators. But in crypto, it's a set of gambling tokens. So whatever rules everyone agrees to are fine. In capital markets, it's a little different. You have rules of capital markets in part because you think they're the right rules to 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 be harder for companies to raise money. And what you want in a stock market is capital formation, retirement savings, and not so much fun gambling, but crypto market, you could have fun gambling rules. The private market stuff is from first principles. You would be like, we want to encourage capital formation and investing, so we would want to ban insider trading. But it's like a higher bar. It's not open to all retail investors. It's open to 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 in private markets is insider trading rules in the public markets kind of go along with disclosure rules. And so the reason you can't insider trade is because it's like your company is kind of supposed to make everything public anyway. And so if you know something that they haven't made public yet, wait three days and then you can trade. Right. In private markets, if your company never discloses 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 that the public doesn't generally have. And so it's a little harder for employees to trade without knowing something that the public doesn't know. But the UK has decided to strike that balance by just letting the employees trade.

[Mikayla Shiffrin]

I want to talk more about the name a little bit.

[Matt Levine]

Pisces.

[Mikayla Shiffrin]

Yeah, it seems like a backronym. Do you think that they organically.

[Matt Levine]

No, I don't think it's a backronym. I don't know. They.

[Mikayla Shiffrin]

Private Intermittent securities and Capital Exchange System.

[Matt Levine]

I think most financial acronyms are half acronyms. They write down what it is, and then you're like, well, that doesn't spell anything. And then you add letters until it spells something. And then you figure out what those letters should stand for. Yeah, they were like the private securities exchange that's kind of like Pisces. Let's add some letters to get to 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.

[Mikayla Shiffrin]

I love the word intermittent. You don't really.

[Matt Levine]

Right. That one's like, there for the acronym.

[Mikayla Shiffrin]

You don't see that word a lot tossed around. Other words, they could have considered occasional. The posses. I Don't like that at all actually.

[Narrator]

Right.

[Matt Levine]

You could have gotten to Posse, but Pisces is a little more friendly.

[Mikayla Shiffrin]

It's a fish. So this hasn't launched yet. Right, 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.

[Matt Levine]

I would posit that insider trading and private companies is illegal in the U.S. brave. You know there's an SEC case from 2011 about a company doing employee tender offers where they didn't tell the employees that they were like negotiating a merger 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 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 U.S. you know, if you sort of think about like they're probably trading in California, so it's pretty illegal in the US but I think I asked ChatGPT is private company insider trading or like, you know, I googled it and like the little AI results were like, no, it's fine, go ahead. I could be wrong about that. I don't want to slander Google, but it's just like it's not like a well known thing. There's a SEC case from 2011, there's not 20 cases a year. And the reason is it's 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 the bad earnings two days later. Right. It's like they never announced the bad earnings. So you don't know that you were inside a trade or not.

[Mikayla Shiffrin]

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 we'll see more cases?

[Matt Levine]

I think like the tender offers are the real.

[Mikayla Shiffrin]

Yeah, I don't know enough about tender offers. And I thought it was the company buying back shares from employees.

[Matt Levine]

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.

[Mikayla Shiffrin]

Interesting.

[Matt Levine]

So it's kind of like.

[Mikayla Shiffrin]

So like the company is like the stock exchange kind of.

[Matt Levine]

Yeah. Because there's no stock exchange and these companies normally have control over the trading of their shares. And so if you want to buy, you have to go to the company. If you want to sell, you have to go to the company. And so the company intermediates the trade.

[Mikayla Shiffrin]

So maybe we'll see more shenanigans.

[Matt Levine]

Yeah, because if you have a tender offer like that, where there are sort of stereotypically employees are on the selling side and venture capitalists are on the buying side or growth funds on the buying side, then you probably have obligations to disclose material information to both sides. And if you mess that up, as public companies do all the time, you could eventually get lawsuits. Right. I mean, it's a smaller base. It's not a ripe field for securities class action lawyers yet. But, like, you'll eventually see some lawsuits.

[Mikayla Shiffrin]

You linked 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.

[Matt Levine]

I think attitudes remain kind of varied. And you see in Pisces in the uk, there's one aspect of the plan is that the companies will have some control over when and how 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. You want to have some control over who owns your stock and when they can buy it. But yeah, I mean, 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 until you go public. In a world where the default is kind of to stay private forever, your employees need some liquidity. And yeah, you offer tender offers, but some companies are also like, we'll live with a secondary market.

[Mikayla Shiffrin]

You can't eat on your net worth alone. You need that liquidity, Matt.

[Matt Levine]

You need that liquidity. I've also written this week about margin loans on Tesla stock, which is another way to get that liquidity. But that's a different story. We don't need to talk about that.

[Narrator]

GiveWell, a nonprofit that researches and recommends giving opportunities, takes the impact of donations seriously. To ensure their recommendations withstand tough scrutiny, GiveWell had their own researchers spend months trying to identify flaws in their past work. They then publish their findings, mistakes and all for any donors to use for their giving. It's this kind of rigor that can help your donation make a big impact on the world. GiveWell has now spent over 17 years researching charitable organizations and only directs funding to a few of the highest impact opportunities they've found. Over 125,000 donors have used GiveWell to donate more than $2 billion. Rigorous evidence suggests that these donations will save over 200,000 lives. If you've never used GiveWell to donate, you can have your donations matched up to $100 before the end of the year, or as long as matching funds last. To claim your match, go to givewell.org and pick pod and specify where you heard this ad. Make sure they know that you heard about GiveWell from this podcast.

[Mikayla Shiffrin]

This show is sponsored by BetterHelp.

[Matt Levine]

BetterHelp has been revolutionary in connecting people to mental health services.

[Mikayla Shiffrin]

Using BetterHelp can be as easy as opening your laptop or your phone and clicking a button and the session begins.

[Matt Levine]

Clients are able to choose in what way they would like to communicate with me. Whether video or on the phone or.

[Mikayla Shiffrin]

Chat texting, BetterHelp is there when you need it. And that's what makes all the difference.

[Narrator]

Visit betterhelp.com podbusiness to get 10% off your first month.

[Mikayla Shiffrin]

Therapists were compensated.

[Bloomberg Host]

I'm alpine skier Mikayla Shiffrin. I've won the most World cup ski races in history. But what does success mean? To me, success means discipline. It's teamwork. It's the drive and passion inside of us that comes before all recognition. And it's why Stifel is one of the fastest growing global wealth management firms in the country. If you're looking for success, surround yourself with the people who will get you there.

[Katie Greifeld]

At Stifel, we invest everything into our advisors so they can invest everything into their clients. That means direct access to one of the industry's largest equity research franchises and a leading middle market investment bank. And it's why Stifel has won the J.D. power Award for Employee Advisor satisfaction two years in a row.

[Bloomberg Host]

If you're an advisor or investor, choose Stifel.

[Katie Greifeld]

Where Success meets success stifel Nicholas & Co. Incorporated member SIPC and NYSE for J.D. power 2024 award information, visit J.D. power.com Awards compensation provided for using not obtaining the award.

[Mikayla Shiffrin]

Let'S glide gracefully along, shall we? Let's glide along right into the grocery aisle. Kroger and Albertsons, man, are they in a tiff. They're in a tiff, yeah. It was a long engagement and a messy breakup.

[Matt Levine]

I have to say, I have a soft spot for Albertsons because when I was very briefly an M and a lawyer, I did a deal for Albertsons. They sold themselves to two separate buyers. One was essentially Cerberus. The thing called Albertsons today is the Cerberus entity. And then they sold a lot of stores to a company called Supervalu, this nice Midwestern grocery store chain. And I was the junior lawyer for Supervalu, and it was fun.

[Mikayla Shiffrin]

I thought you were going to say you grew up going to an Albertsons, which didn't quite track.

[Matt Levine]

No. But in college, I went to Shaw and Star Market, which I learned for Albertsons brands, and I was pleased about that.

[Mikayla Shiffrin]

I went to Kings. So I can't relate to this in any way.

[Matt Levine]

I'm not good at knowing which grocery brands are owned by which companies. For all I know, that's an Albertsons brand. I don't think it is.

[Mikayla Shiffrin]

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 in M and A. There's some deals that are still dying on the vine. Kroger and Albertsons, their proposed merger is one of them. And Albertsons suing Kroger's saying that they, in fact, didn't do everything that they could have to satisfy the FTC here.

[Matt Levine]

Yeah. So you sign this deal and, you know, the main problem is antitrust. Right. Because it's two big grocery store chains combining. And in particular, it's chains with a lot of geographical overlap. So 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. Who knows after that? Right. But they signed this deal, you know, in 2022. And so they were dealing with the current FTC and they signed the deal hoping to combine, but they knew that there would be FTC impediments, and the deal required them to sort of do everything in their power to get the deal done and particularly regret. Like, Kroger is the buyer. Albertsons is much more at risk in that situation because if the deal falls apart, it's bad for Albertsons. It's less bad for the larger, more stable buyer. The deal agreement was like, it's called a hell or high water clause. They have to do anything come hell or high water, to get the deal closed. Except they don't have to sell more than 650 stores. The thing that everyone knew they would have to do to get the deal closed would be to divest some of their stores and all those places where Albertsons and Krogers 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 Kroger. Albertsons. Albertsons says that Kroger dragged its feet and didn't propose enough divestitures and didn't listen to the FTC when they asked for more divestitures. The FTC eventually sued, and their divestiture proposals were so bad that the FTC won in court. And so now the deal is dead, and Albertsons wants billions of dollars damages from Kroger for not getting the deal done.

[Mikayla Shiffrin]

Yeah, I mean, Albertsons had two specific gripes with the divestitures. That they weren't divesting the goods stores, and also that they didn't like the buyer that they picked. CNS wholesalers, I believe it was.

[Matt Levine]

Yeah. Because CNS is like a grocery wholesaler that doesn't own a lot of grocery stores. And so there's some question in the mind of, like, the FTC and the court about whether they could successfully compete with combined Kroger.

[Mikayla Shiffrin]

Yeah.

[Matt Levine]

And apparently Kroger had some sort of auction for these divestitures and got 60 potential bidders, but they didn't consult Albertsons on the bidders, and they just picked cns. And so Albertsons is now mad that they could have possibly found a better buyer, and they didn't. So the deal got killed.

[Mikayla Shiffrin]

They have a lot to prove when it comes to this lawsuit.

[Matt Levine]

Yeah, it seems hard. It does seem hard, because essentially you're trying to prove a counterfactual. You're trying to prove they could have proposed a different set of stores to divest. 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, the FTC is pretty skeptical of big mergers. It's possible that they couldn't have gotten a deal done or they couldn't have gotten a deal done without divesting more than 650 stores. So they'll definitely be able to find places where 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.

[Mikayla Shiffrin]

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 of this. But they did say that they could prove that they're entitled to the $600 million breakup fee. So maybe they won't get billions of dollars in damages, but $600 million is. It's not nothing, but it's not $6 billion.

[Matt Levine]

You can definitely argue about, oh like I think Krueger's going to say Albertson's breached its agreement 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 it for antitrust, the seller gets a consolation prize. So you would expect them to get the breakup fee.

[Mikayla Shiffrin]

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 dystopian future where Walmart controls everything, like they're protecting local competition, but that local competition control could just be steamrolled by Walmart in the future.

[Matt Levine]

I think in general, if you're a pretty activist FTC and you want to prevent companies from getting you give careful scrutiny to mergers, everyone who's doing a merger is going to come and say no, actually this is better for competition because we'll be able to take on 90% of the time. The word that goes there is Amazon, we will take on Amazon. And so you have to let us merge because then we'll be big enough to take on Amazon. And the SEC I think is skeptical of that. In part because everyone says it, in part because they don't get to stop Walmart or Amazon, they get to stop mergers. Right?

[Mikayla Shiffrin]

Yeah.

[Matt Levine]

And so if someone comes to you with a merger, you're like, I want to improve competition and reduce the concentration of corporate power, so I'm going to say no to this merger. And they're like, no, no, we're actually doing it to compete against Walmart. They can't do anything about Walmart.

[Mikayla Shiffrin]

That's true. I do find myself more sympathetic to that narrative when you consider what happened with JetBlue and Spirit. Oh yeah, for example, like same story, right? Yeah, they wouldn't let them merge.

[Matt Levine]

It's like there's like these 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.

[Mikayla Shiffrin]

Yeah.

[Matt Levine]

And the FTC is like, no, if you merge There'll be less competition between the two of you and the prices will go higher.

[Mikayla Shiffrin]

And then Spirit filed for bankruptcy a couple years later.

[Matt Levine]

Right. I don't know enough about like the economics of grocery stores to know like how true Kroger's complaint is.

[Mikayla Shiffrin]

You were like a grocery store banker in your past life. I feel like every story, somehow he's.

[Matt Levine]

A grocery store lawyer. But I'm sympathetic to the idea that it is hard as a grocery store operator these days to compete with Walmart, Costco, Target, which is not part of the market from the FTC's point of view. But no, I mean the spirit, JetBlue stuff has just played out immediately. Probably letting them merge would have been better for competition.

[Mikayla Shiffrin]

I'm not saying that Albertsons is going to die necessarily. It is interesting to look at the stock price though. Since the start of October 2022 when this deal was first announced, Kroger's is up 48%. Since then, Albertsons, I had to check this a few times because they're up 8% on a total return basis. Their share price alone is down like 20 something percent. But 8% on a total return basis.

[Matt Levine]

On a total return basis is like when they signed the deal, they planned to pay out a big dividend, sort of like a down payment on the deal.

[Mikayla Shiffrin]

Well, it's showing up. I love it when share price performance doesn't match total return in a very dramatic way.

[Matt Levine]

Yeah. And normally that's not because you're paying a 2 cent dividend every quarter. No, here it's because they paid out a big dividend as part of the deal.

[Mikayla Shiffrin]

Yeah.

[Matt Levine]

So the stock price is not really apples to apples.

[Mikayla Shiffrin]

I do wonder where Albertsons goes from here. I don't expect you to have that answer, Matt. So no, let's move on. Let me just quickly, that Albertsons does own Kings. It does.

[Matt Levine]

Our producer is telling us that Albertsons does in fact own Kings.

[Mikayla Shiffrin]

Oh my God. Now I'm personally invested in this story.

[Matt Levine]

Sure, sure.

[Mikayla Shiffrin]

I love Kings. I don't know, is it local, is it a regional? If it's on the Internet, I'm inclined to believe it.

[Matt Levine]

One of Kroger's brands I didn't recognize like any of Kroger's brands, but one of them is Kings Soopers. But like S O O P E R. Oh yeah.

[Mikayla Shiffrin]

I didn't know that.

[Matt Levine]

Whole world out there.

[Mikayla Shiffrin]

Have you never been to a Kings?

[Matt Levine]

I've been to a King Cullen.

[Mikayla Shiffrin]

That's not what I'm talking about. The Kings near my Parents house. This is not interesting. Anyway, so they had a relaunch party. Oh, what? They renovated the store a couple years back, I think. I was in grad school and I.

[Matt Levine]

Went to the party.

[Mikayla Shiffrin]

Yeah. I went with my boyfriend, now husband, and it was.

[Matt Levine]

Wait, sorry, can you set the scene? So you're like, in grad school in New York.

[Mikayla Shiffrin]

Yeah, for sure.

[Matt Levine]

And you're like, Joe.

[Mikayla Shiffrin]

Yeah.

[Matt Levine]

There's a supermarket launch in New Jersey.

[Mikayla Shiffrin]

Yeah.

[Matt Levine]

So I'm clear now.

[Mikayla Shiffrin]

I don't understand the confusion. I love 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.

[Matt Levine]

I do want to see that.

[Mikayla Shiffrin]

Yeah. Because they 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 Albertsons because King's is a great grocery store and you can find them in New Jersey.

[Matt Levine]

My local store is a food town. 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 this truly loving description, like, loving, enthusiastic description of what sushi is. It's amazing.

[Mikayla Shiffrin]

God.

[Matt Levine]

Yeah. I've never bought sushi, but they're trying.

[Mikayla Shiffrin]

I just think supermarkets and grocery stores, they really bring a community together.

[Matt Levine]

They do.

[Narrator]

GiveWell, a nonprofit that researches and recommends giving opportunities, takes the impact of donations seriously. To ensure their recommendations withstand tough scrutiny, GiveWell had their own researchers spend months trying to identify flaws in their past work. They then published their findings, mistakes and all, for any donors to use for their giving. It's this kind of rigor that can help your donation make a big impact on the world. GiveWell has now spent over 17 years researching charitable organizations and only directs funding to a few of the highest impact opportunities they've found. Over 125,000 donors have used GiveWell to donate more than $2 billion. Rigorous evidence suggests that these donations will save over 200,000 lives. If you've never used GiveWell to donate, you can have your donations matched up to $100 before the end of the year or as long as matching funds last. To claim your match, go to givewell.org and pick podcast and specify where you heard this ad. Make sure they know that you heard about GiveWell from this podcast.

[Katie Greifeld]

Success. It's discipline. It's teamwork. It's the drive and passion inside of us that comes before all recognition. It's the best in each of us, made better by the best in all of us. Whatever success looks like to you, Stifel is invested in yours. That's why Stifel is one of the fastest growing global wealth management firms in the country. So when you're ready to chase success, our financial advisors are ready for you. At Stifel, we invest everything into our advisors so they can invest everything into their clients. That means direct access to one of the industry's largest equity research franchises and a leading middle market investment bank. And it's why Stifel has won the J.D. power Award for Employee Advisor satisfaction two years in a row. If you're an advisor or an investor, choose Stifel. Where success meets success. Stifel Nicklaus & Co. Inc. Member SIPC and NYSE for J.D. power 2024 award information, visit J.D. power.com awards compensation provided for using not.

[Tincheck Representative]

Obtaining the award In 2023, US businesses paid a staggering $14 billion in IRS penalties, money that could have been reinvested to grow and innovate, all because of simple filing errors like incorrect tax identification numbers. But here's the good news. Tincheck is here to help you avoid these costly mistakes. Tincheck simplifies tax identity verification by instantly matching employee and vendor Data against nearly 30 global databases, including the IRS and other critical watch lists. It's fast, reliable, and takes just seconds to ensure compliance and error free onboarding. With TenCheck, you can avoid IRS penalties by catching errors early and streamline onboarding with our real time, bulk and customizable integration options. And all this starts at just $24.95 per month. Ready to safeguard your business and focus on growth? Visit tincheck.com today. Protect your business. Invest in its future. Get 10 check visit tencheck.com now.

[Mikayla Shiffrin]

MicroStrategy MicroStrategy what do you got? How do we get into MicroStrategy?

[Matt Levine]

MicroStrategy, you put this on the list.

[Mikayla Shiffrin]

I know I want to talk about MicroStrategy. They obviously buy Bitcoin. They're nominally a software company, so much so that they're being added to the NASDAQ 100.

[Matt Levine]

I think I've written this, but when you and I talked to John, I think I've maybe even said it on the podcast. But you and I talked to John Collison and 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 doing stuff with its stock is barking up the wrong tree. MicroStrategy is the opposite attitude.

[Mikayla Shiffrin]

We found the foil.

[Matt Levine]

I temperamentally, am much closer to MicroStrategy. I like a company that's doing financial engineering. That's fun for me.

[Mikayla Shiffrin]

This is your perfect company.

[Matt Levine]

I love it. It's great.

[Mikayla Shiffrin]

So MicroStrategy 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 42 billion dol over three years. Three years?

[Matt Levine]

Yeah. They're doing it like all now.

[Mikayla Shiffrin]

Exactly. Through a combination of at the market stock sales and through convertible debt offerings. But at this rate, they're going to fulfill that target by January.

[Matt Levine]

Wait, is that true? I don't think they're going to do that much convert.

[Mikayla Shiffrin]

No, no, no.

[Matt Levine]

I think they're going to do the $21 billion ATM.

[Mikayla Shiffrin]

But it is 2121. They call it the 2121 plan, but they've burned through a lot of it already.

[Matt Levine]

Of the atm.

[Mikayla Shiffrin]

The stock, yes.

[Matt Levine]

Not the convert. The convert is harder because a convert is like, first of all, a convert, like, you do an offering, you're like, I'm going to do $5 billion or whatever, and you go to a bank and you underwrite an offering and you don't do it. Just dribbling out week to week. Secondly, actually, their converts, someone told me, like, they have a lockup in their converts that say, you can't do another convert for another few months or whatever.

[Mikayla Shiffrin]

I saw that as well. I also saw it on Twitter. I don't know about that.

[Matt Levine]

About what?

[Mikayla Shiffrin]

I don't know if that's for realsies.

[Matt Levine]

No, I think it's realsies.

[Mikayla Shiffrin]

Okay, so let's assume that's for realsies.

[Matt Levine]

I mean, you can see why convert investors don't want. They are like, one of the biggest issuers, if not the biggest issuer in the convert market. And there's some limit on how much size you can buy. And so convert investors say, I don't want to have the market flooded with MicroStrategy paper. But that's not the point. The point is that the stock investors love it. They don't care. They would love to have the market flooded with more MicroStrategy stock. And if you're MicroStrategy, you announce a $21 billion at the market offering over the course of three years and your stock continues to trade at like, 150% premium to the value of your bitcoin. Like, you do it all now. Like, why would you wait? There's no reason to wait.

[Mikayla Shiffrin]

I asked Michael Saylor about it. I interviewed him on the television. Yeah. On Thursday. And I asked him about that. Like, why all now are you gonna, like, lift the ceiling once you get there? And he said that basically they went through it faster than they thought because they announced it in October. And then Trump won the presidential election. We had that in November. And then he was like, it's off to the races, basically.

[Matt Levine]

To me, the microstrategy trade is like. Microstrategy 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 that'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 microstrategy, because you have the stock. You can just print more stock. And So I think MicroStrategy is very clearly doing that trade. And if you announce that you're going to do $21 billion of that trade, you think, well, okay, that'll converge pretty quickly. Right. And we'll keep doing the trade until it converges. And if it converges next week and we're selling stock for less than the value of the bitcoin we can buy, then we'll stop doing it. But instead the premium has compressed a little bit, but it stayed really, really big. And so if your microstrategy, you're like, well, we can keep doing this arbitrage for free. Like, we better do it right. Why would you stop? Yeah, I mean, you slow down. It's free money.

[Mikayla Shiffrin]

Yeah. The reception has been insane, at least on the equity side. I did ask him about the debt 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 fixed income in the second quarter. But I want to get your thoughts on this.

[Matt Levine]

You say fixed income.

[Mikayla Shiffrin]

Yeah, that's what he said. Yeah, that's a direct quote.

[Matt Levine]

I feel like they do converts and their converts are all immediately, hugely in the money.

[Mikayla Shiffrin]

This is what he said. Let me read it. He expects the mix will shift more heavily to fixed income. His words in Q2 because right now we're getting too de levered and we'd like to get more leverage. We have about $7.2 billion of converts. 4 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 common stock shareholders.

[Matt Levine]

Yeah, I think that makes sense. Right? I mean, I do think that if your stock is trading at such a huge premium to your net asset value, it seems a little crazy to debt there converts. He's right that they're effectively equity. If the stock keeps going up, they're effectively equity. And so you're not really getting a ton of leverage value. The other thing about the converts is, and I wrote about this, a convert is like you're selling volatility. 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 MicroStrategy stock is incredibly volatile, in part because it's a crazy proposition, but in large part because of, and we've talked about this too, like the double levered ETFs, they're single stock levered ETFs on MicroStrategy that own billions of dollars of stock. I think you've said this on the show. They add to the volatility because every time the stock goes up, at the end of the day, they have to buy more stock to remain the proper level of leverage. Every time the stock goes down, they have to sell stock to get back to the proper level of leverage. They're adding enormously to the volatility. They buy when it's up and they sell when it's down. They make the stock has more than 100% annual volatility, which is great for convert investors because convert investors are doing the opposite trade. And they're basically getting free volatility from these ETFs. And so I've always been skeptical of the idea that it's a leveraged bitcoin fund because yes, it has leverage, but the premium and the equity price is so much greater than the leverage. If you put a dollar into MicroStrategy stock, you're getting less than a dollar worth of Bitcoin. So it's not really leveraged. Right. But they are selling volatility because people want to buy their volatility. Selling overpriced stock and selling incredible volatility to convert investors are both like, yeah, that's a great trade. You should do that.

[Mikayla Shiffrin]

Well, there's more of it coming.

[Matt Levine]

Sure. You got to do it till it stops. It's irrational not to.

[Mikayla Shiffrin]

If the music is playing, you're going to dance.

[Matt Levine]

And they're so far from it stopping the premiums compressed a little bit, but it's still a great trade for them. The other thing I want to say is I read about this a little bit. Other companies are like, oh, this is a great trade. We should do this. And the way you do it is not shorting MicroStrategy, which is like a widowmaker dad's wish. Right. The way you do it is you sell your own stock. You're a company. You're like, you're not having that much fun as a company. You just buy all the bitcoin that you can buy. You say, yeah, we're MicroStrategy. And then you sell your stock to fund more bitcoin buying. And it has worked for some companies where they traded a premium to their bitcoin holdings. And they also have other businesses, so it's hard to exactly calculate that, but they can raise money from investors to, you know, they can do at the market offerings to buy bitcoin.

[Mikayla Shiffrin]

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 NASDAQ 100. And people think of the NASDAQ 100 as a big tech benchmark. It's not actually a tech benchmark, but it's specifically non financial companies. MicroStrategy was controversial because, okay, they have financial company. They have a software business. They have a software business. That's obviously not the main focus. Obviously. And I did ask Saylor, I was like, do you think of yourself as a software business? He founded it, co founded it, in 1989 as a software business.

[Matt Levine]

God bored.

[Mikayla Shiffrin]

He said, I think of ourselves primarily as a bitcoin treasury company now.

[Matt Levine]

I mean, that's like their.

[Mikayla Shiffrin]

Yeah, you heard that from the horse's mouth. Should it be going.

[Matt Levine]

Part of what the arbitrage is in microstrategy is like, a lot of people want to buy bitcoin. Some people can't buy bitcoin, like physically buying bitcoin. And so 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 an etf, like a bitcoin etf. It's fine for you to buy a software company.

[Mikayla Shiffrin]

True.

[Matt Levine]

If you're an index fund you don't buy ETFs because the ETFs aren't in the index. But you can buy a MicroStrategy because it's in the index.

[Mikayla Shiffrin]

That's true.

[Matt Levine]

So it's a real. It's like an arb on who is allowed to buy. There's just people who want to buy Bitcoin and this is the closest thing they can get to buying bitcoin with their mandate.

[Mikayla Shiffrin]

There is speculation that they could be eligible for the S&P 500 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&P 500, which is if you thought the NASDAQ 100 inclusion was controversial. MicroStrategy getting added to the S&P 500 will cause so much pearl clutching because that's what like retirement funds track, you know?

[Matt Levine]

Right.

[Mikayla Shiffrin]

I don't.

[Matt Levine]

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. You can be in the index and still be like, no, we're just a regular company. All we do is own bitcoin.

[Mikayla Shiffrin]

But I'm just thinking about like my 401k, you know, 401k, it's going to get so much more volatile.

[Matt Levine]

Right. Because like your 401k at that point will own some bitcoin.

[Mikayla Shiffrin]

Yeah.

[Matt Levine]

But mostly it'll. Well, a lot of it will own MicroStrategy Premium. Right?

[Mikayla Shiffrin]

Yeah.

[Matt Levine]

If it continues to trade at a huge premium to the bitcoin, it'll just be like, you know, like just slice of premium that your 401k will own.

[Mikayla Shiffrin]

There's so much to look forward to in 2025. I wasn't expecting your eyes to go dark at that. The light just went out in Matt's eyes. I take it back.

[Matt Levine]

I take it that you're right. There's so much forward to in 2025.

[Mikayla Shiffrin]

Speaking of.

[Matt Levine]

I know I was gonna say it reminds me that I just wrote the last money stuff of 2024 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 mailbag for our first episode of 2025. Happy holidays, Katie.

[Mikayla Shiffrin]

Happy holidays, Matt. We'll be back next year with more stuff. Oh my Gosh, it was so good.

[Matt Levine]

And that was the Money Stuff Podcast. I'm Matt Levine.

[Mikayla Shiffrin]

And I'm Katie Greifeld.

[Matt Levine]

You can find my work by subscribing to the Money stuff newsletter on Bloomberg.com.

[Mikayla Shiffrin]

And you can find me on Bloomberg TV every day on Open Interest between 9 to 11am Eastern.

[Matt Levine]

We'd love to hear from you. You can send an email to moneypodloomberg.net Ask us a question and we might answer it on air.

[Mikayla Shiffrin]

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.

[Matt Levine]

The Money Stuff Podcast is produced by Anna Mazarakis and Moses Andam.

[Mikayla Shiffrin]

Our theme music was composed by Blake Maples.

[Matt Levine]

Brendan Frances Newnham is our executive producer.

[Mikayla Shiffrin]

And Sage Bauman is Bloomberg's Head of Podcasts.

[Matt Levine]

Thanks for listening to the Money Stuff Podcast.

[Mikayla Shiffrin]

Thanks for listening to the Money Stuff Podcast. If you never want to miss a story, become a Bloomberg.com subscriber today. Check out our special intro offer right [e-mail] podcastoffer or click the link in our show notes. You'll also unlock deep reporting, data and analysis from reporters around the world.