Why Bitcoin Buyer MicroStrategy Is Doing Even Better Than Bitcoin

Summary

WSJ What’s News: "Why Bitcoin Buyer MicroStrategy Is Doing Even Better Than Bitcoin"

Release Date: November 25, 2024
Host/Author: The Wall Street Journal

1. Legal Developments Surrounding Donald Trump

Special Counsel Jack Smith has moved to dismiss two significant federal prosecutions against President-elect Donald Trump. The charges allege that Trump attempted to undermine the 2020 election results and unlawfully retained classified documents post-presidency. Smith stated he was adhering to the Justice Department's policy against prosecuting a sitting president. A Trump spokesperson hailed the decision as a "major victory for the rule of law," emphasizing that state-level prosecutions might also fade.

"Smith's move ends the unconstitutional federal cases against President Trump and is a major victory for the rule of law." – Vicky Huang [00:45]

2. Macy’s Accounting Scandal and Business Revamp

Macy's delayed its quarterly earnings report after uncovering an accounting issue involving $154 million in hidden expenses. The discrepancy was traced back to an accounting employee, now no longer with the company, who deliberately manipulated delivery expenses. Importantly, this maneuver did not affect the company's cash balances or vendor payments, indicating it wasn't for personal gain.

"It was intentional. It was not a mistake." – Vicky Huang [02:08]
Macy's CEO, Tony Spring, is actively working to revitalize the company's operations by closing underperforming stores and enhancing customer experiences. While the financial impact of the accounting issue remains unquantified, the affected $154 million is relatively small compared to Macy's total delivery expenses of $4.36 billion. Stakeholders are anticipating more details in the upcoming December 11 earnings report.

3. NBC’s Thanksgiving Parade Broadcasting Rights

NBC, the longtime broadcaster of Macy's annual Thanksgiving Parade since 1953, faces increased costs to secure the rights for the next decade. Reports indicate that NBC aims to maintain exclusive broadcasting rights on both its network and Peacock streaming service, with proposed payments averaging over $60 million annually, a significant rise from the current $20 million.

4. MicroStrategy's Aggressive Bitcoin Acquisition Strategy

Bitcoin has seen a 40% surge since Election Day, with MicroStrategy outperforming the cryptocurrency itself. The software company, led by CEO Michael Saylor, has transformed into a major Bitcoin purchaser, recently acquiring an additional $5.4 billion in Bitcoin.

Understanding MicroStrategy’s Business Model:
"MicroStrategy started out as a software intelligence company back in the '80s... in 2020, Michael Saylor came up with this idea of buying bitcoin to enhance the value of the company." – Michael Saylor [04:13]
Investment Strategy:
"He issued a lot of stock and sold a lot of convertible bonds... to purchase a lot of bitcoin." – Michael Saylor [04:46]
Potential Rewards and Risks:
"The company used borrowed money from investors to buy bitcoin. This makes it essentially a leveraged strategy... MicroStrategy stock jumped more when bitcoin jumps." – Michael Saylor [05:26]
Critics argue that MicroStrategy's leveraged approach ties the company’s fortunes too closely to Bitcoin's volatility, suggesting that for true Bitcoin exposure, investors might be better off purchasing the cryptocurrency directly.
"If you like Bitcoin, just buy Bitcoin." – Michael Saylor [06:01]

5. Market Reactions to Treasury Secretary Nomination

President-elect Donald Trump's nomination of Scott Besant as Treasury Secretary led to a rally in Treasuries and boosted major U.S. stock indexes. The Dow Jones Industrial Average increased by 1%, while the S&P 500 and Nasdaq each rose by 0.3%.

6. Quikrete’s Acquisition of Summit Materials

Concrete manufacturer Quikrete has announced a $9.2 billion acquisition of Summit Materials, merging two of the largest U.S. cement and concrete producers. This strategic move aligns with increased activity in the building materials sector, spurred by heightened government infrastructure spending.

7. U.S. Mediation Efforts in Lebanon-Israel Ceasefire

Officials from the U.S., Lebanon, and Israel are nearing an agreement to establish a ceasefire, intended to end over a year of conflict between Hezbollah and Israeli forces in Lebanon. U.S. National Security Council spokesman John Kirby emphasized the comprehensive nature of the negotiations:

"Nothing is done until everything is done... we need to keep at the work to see it through." – John Kirby [08:24]

The proposed ceasefire includes a 60-day period for the Israeli military to withdraw, allowing Lebanese armed forces to secure the region and prevent Hezbollah's resurgence.

8. Republican Tax Bill Priorities and Challenges

Republican lawmakers are preparing to present a comprehensive tax bill to President Trump, aiming to combine multiple policy areas including tax cuts, spending reductions, energy policy, and border security. WSJ tax policy reporter Richard Rubin explains that this bundling strategy is designed to navigate the Senate's 60-vote requirement by leveraging the Republican majority.

"The key thing to know is that tax bills, fiscal bills, can get around the 60 vote requirements in the Senate." – Richard Rubin [09:47]

However, negotiating the specifics poses significant challenges, particularly regarding cuts to Medicaid, food stamps, and subsidies for clean energy. Clean energy initiatives, despite being viewed unfavorably by many Republicans, benefit sectors and regions within their constituencies, complicating the potential for substantial reductions without incurring political backlash. Additionally, discussions around the State and Local Tax (SALT) cap—previously introduced in 2017 and allowing limitations on federal tax deductions for high-tax states—remain a contentious point.

"It's totally different. The margins in the House will be potentially as slim as 217, 215 for a while for Republicans." – Richard Rubin [11:25]

The SALT cap issue is particularly sensitive among Republicans representing high-tax regions, making it a pivotal topic in ensuring the bill's passage.

Conclusion

This episode of WSJ What’s News delves into significant developments across political, economic, and business landscapes, highlighting the intricate interplay between corporate strategies, legislative maneuvers, and international diplomacy. From MicroStrategy's bold Bitcoin investments to the complexities of drafting a comprehensive Republican tax bill, the episode provides a thorough overview of events shaping the current and future market dynamics.

---

Notable Quotes:

• "He issued a lot of stock and sold a lot of convertible bonds... to purchase a lot of bitcoin." – Michael Saylor [04:46]
• "If you like Bitcoin, just buy Bitcoin." – Michael Saylor [06:01]
• "Nothing is done until everything is done... we need to keep at the work to see it through." – John Kirby [08:24]
• "The key thing to know is that tax bills, fiscal bills, can get around the 60 vote requirements in the Senate." – Richard Rubin [09:47]

Speakers:

• Vicky Huang – WSJ Reporter covering Crypto and Retail Investing
• Michael Saylor – CEO of MicroStrategy
• Richard Rubin – WSJ Reporter covering U.S. Tax Policy
• John Kirby – U.S. National Security Council Spokesman
• Tracy Hunt – Host, The Wall Street Journal

This summary is crafted to provide a comprehensive overview of the podcast episode, ensuring that listeners and non-listeners alike can grasp the essential discussions and insights presented.

Transcript

[Danny Lewis]

3, 2, 1.

[Tracy Hunt]

What will the world look like 10 or 20 years from now? The Wall Street Journal's Future of Everything podcast is here to give you a peek, and we can't wait to show you what's coming. Subscribe now.

[Vicky Huang]

Macy's finds a $154 million accounting problem and the company that's tied its success to Bitcoin, for better or worse. Plus, how Republicans are juggling priorities for the tax bill they plan to send Trump next year.

[Richard Rubin]

It's this balance between how much could you cut Medicaid, cut food stamps, repeal tax breaks for clean energy without costing votes among Republicans.

[Vicky Huang]

It's Monday, November 25th. I'm Tracy Hunt for the Wall Street Journal. This is the PM edition of what's the top headlines and business stories that move the. We'll get to all that in just a minute. But first, special Counsel Jack Smith has moved to dismiss a pair of landmark prosecutions against President elect Donald Trump, one alleging he sought to undermine the 2020 election results, the other that he unlawfully retained classified documents after leaving office. Smith today said he was following the Justice Department's longstanding policy against prosecuting a sit president. A spokesman for Trump said Smith's move, quote, ends the unconstitutional federal cases against President Trump and is a major victory for the rule of law. Two other state level prosecutions against Trump remain pending, but could also fade away. Macy's is delaying its quarterly earnings report after it discovered that an accounting employee hid up to $154 million in expenses. Our retail reporter Suzanne Kapner said Macy's is investigating the matter and the person responsible is no longer with the company.

[Danny Lewis]

This hasn't affected the company's cash balances or payments to vendors. So it's not like this employee was stealing the money to keep for him or herself. It looks like it was, you know, an accounting maneuver to lower delivery expenses. And we don't know why this employee did it except that Macy's has said it was intentional. It was not a mistake.

[Vicky Huang]

The disclosure comes as Macy's CEO Tony Spring tries to revamp the company's business by closing underperforming locations and improving customer experience.

[Danny Lewis]

It could potentially have some impact. It's not quantified, but keep in mind that the amount is fairly small given that the delivery expense that Macy's recognized in this period was $4.36 billion. Now they're scheduled to report December 11, and we're hoping that we will get some more details then.

[Vicky Huang]

And speaking of Macy's airing the retailers annual Thanksgiving parade Is about to get pricier. NBC has had the broadcasting rights to the parade since 1953, and now we're exclusively reporting that it's trying to nail down a new deal to keep it on the network and its peacock streaming service for the next decade. People familiar with the talk say the proposed deal would kick in next year, With NBC paying, on average more than $60 million a year, up from around 20 million in the current cond. Bitcoin prices have surged about 40% since election day. MyCostrategy has climbed even faster. The software company turned itself into a bitcoin buying machine back in 2020, and today it announced its biggest bitcoin purchase so far, snapping up $5.4 billion worth. And for many individual investors, the stock is a more popular bitcoin play than the cryptocurrency itself. Vicky Huang is a w. USJ reporter covering crypto and retail investing. So, Vicki, catch us up. What is microstrategy? The company is more than just buying Bitcoin, right?

[Michael Saylor]

MicroStrategy started out as a software intelligence company back in the 80s. It was founded by Michael Saylor, who's this tech entrepreneur. But in 2020, Michael Saylor came up with this idea of buying bitcoin to enhance the value of the company. And soon bitcoin started rising in value, and microstrategy stock took off as well, just like bitcoin.

[Vicky Huang]

What strategy has he been using to buy all this bitcoin?

[Michael Saylor]

So the strategy he used is very much the kind of strategy you can do as a publicly traded company in the United States. He issued a lot of stock and sold a lot of convertible bonds, which are basically debt that can convert into stock at a certain price. Through issuing stock and selling bonds, he was able to use the proceeds from these deals to purchase a lot of bitcoin.

[Vicky Huang]

It seems like investors like the company's approach. You report its stock is trading at more than twice the value of its underlying bitcoin. What are the potential rewards from a strategy like this?

[Michael Saylor]

The company used borrowed money from investors to buy bitcoin. This makes it essentially a leveraged strategy. And leverage is something that Wall street traders, hedge funds, like to use a lot to amplify the gains that they can get from executing any type of financial trading strategy. And because he used leverage to buy Bitcoin, MicroStrategy stock jumped more when bitcoin jumps.

[Vicky Huang]

What kind of criticisms has microstrategy gotten because of this approach?

[Michael Saylor]

A lot of investors think that the way the stock has been surging, especially since Election Day means that the stock has basically detached from reality. As one short seller put it, they basically think that for a stock that has so much leverage embedded in it and it's so volatile that it usually is a signal of something bad that will come. And some investors also just think that buying a stock that holds Bitcoin and has all this leverage and volatility, it's almost like you're taking more times the risk that you could be taking. So critics say that if you like Bitcoin, just buy Bitcoin.

[Vicky Huang]

That was our reporter Vicky Wong. Thank you so much, Vicky.

[Michael Saylor]

Thank you for having me.

[Vicky Huang]

And in broader markets, Trump's pick of Scott Besant as his nominee for treasurer Treasury Secretary late Friday prompted a rally in Treasuries today and sent the major U.S. stock indexes higher. The Dow rose 1%, and the S&P 500 and the Nasdaq both ticked up 0.3%. The concrete maker Quikrete has struck a $9.2 billion deal to acquire Summit Materials. The deal would combine Summit and Quikrete's cement and concrete businesses, bringing together two of the biggest makers of building materials in the US Deal. Activity in the building materials sector has ramped up recently with more government spending on infrastructure projects. Coming up, Republicans in Congress want to send Trump a tax bill as soon as he takes office. We'll look at the tightrope they have to walk to do it. That's after the break.

[Richard Rubin]

What then will the future reveal?

[Tracy Hunt]

There's one thing we know about the future. It's being built now.

[Danny Lewis]

We all have a stake in the.

[Richard Rubin]

Future of the future.

[Vicky Huang]

The future.

[John Kirby]

The future.

[Tracy Hunt]

And the Wall Street Journal's Future of Everything podcast is here to give you a glimpse of what's on the way. I'm Danny Lewis. Join us as we dig into how science and technology are shaping the future.

[Richard Rubin]

For that is where you and I.

[Michael Saylor]

Are going to spend the rest of our lives.

[Tracy Hunt]

Subscribe wherever you get your podcasts.

[Vicky Huang]

Officials from the U.S. lebanon and Israel say they're closing in on a ceasefire deal that would halt more than a year of fighting between Hezbollah and Israel in Lebanon. U.S. national Security Council spokesman John Kirby said the U.S. is deeply involved in getting a deal finalized.

[John Kirby]

Nothing is done until everything is done. Nothing's all negotiated until everything is negotiated. And, you know, we need to keep at the work to see it through so that we can actually get the ceasefire for which we've been working for so long and so hard.

[Vicky Huang]

Lebanese officials say the proposal would give the Israeli military up to 60 days to withdraw and let the Lebanese armed forces secure the area to prevent Hezbollah fighters from reestablishing a presence there. Republican lawmakers are getting ready for the incoming Trump administration. First on the agenda, one bill to rule them all. Republicans are trying to fit in as many priorities as possible into a single tax bill early next year, combining tax cuts, spending cuts, energy policy, border security, and President elect Donald Trump's campaign promises. WSJ reporter Richard Rubin covers U.S. tax policy. Richard, what are Republicans hoping to accomplish by putting everything into this one tax bill?

[Richard Rubin]

The key thing to know is that tax bills, fiscal bills, can get around the 60 vote requirements in the Senate. So Republicans are trying to maximize what they can do with the 53, 47 majority they'll have in the Senate and the very slim majority that they'll have in the House. And they're trying to find what can unify them and rack up a win as soon as possible.

[Vicky Huang]

But negotiating what to cut and what to keep probably won't be easy. What will be the approach on things like Medicaid, food stamps and clean energy initiatives?

[Richard Rubin]

It's this balance between ideas that produce lots of savings in the budget, spending cuts or repealing tax credits. In the case of clean energy with not losing votes, how much could you cut Medicaid, cut food stamps, repeal tax breaks for clean energy without costing votes among Republicans. A lot of Republicans view the clean energy tax breaks that Democrats created or expanded two years ago in the Inflation Reduction act as bad economics. But a lot of that money, whether it's battery plans, electric vehicle plants, solar installations, wind energy, carbon capture, is happening in Republican controlled areas of the country. And Republican members are seeing jobs, investment, the kinds of things in their districts that they want and even from a policy that broadly they may disagree with.

[Vicky Huang]

And I want to ask about another point of contention. You write about the SALT cap. That's a rule that limits how much state and local taxes that people, especially people in high tax states, can write off on their federal taxes. What would be some of the conversations within the GOP on that?

[Richard Rubin]

This was one of the tax increases that Republicans created in 2017 to pay for their tax cuts, which are set to expire at the end of 2025. And at the time there were a handful of Republicans who voted against the bill in the House, but Republicans had a bigger majority this time around. It's totally different. The margins in the House will be potentially as slim as 217, 215 for a while for Republicans, which empowers a very small group of people and there are enough Republicans from just outside New York City to the north in New Jersey, Long island, some in California who really care about this cap and are not likely to approve any bill or let any bill pass that doesn't significantly raise that $10,000 figure.

[Vicky Huang]

Richard Rubin is a tax policy reporter for the Wall Street Journal. And that's what's news for this Monday afternoon. Today's show was produced by Anthony Fancy with deputy editor Chris Zinsley. I'm Tracy Hunt for the Wall Street Journal. We'll be back with a new show tomorrow morning. Thanks for listening.

[Michael Saylor]

It.