Yet Another Value Podcast - Chris DeMuth's State of the Markets August 2024

Episode Date: August 30, 2024

It's time to welcome back Chris DeMuth for his monthly state of the markets. For this August 2024 edition, Chris shares his thoughts on: election implications, anti-trust cases, Albertsons / Kroger's case, Robinhood credit card, and high-end credit cards launching travel lounges. Chapters: [0:00] Introduction + Episode sponsor: Daloopa [1:26] Chris' thoughts on markets overall for August 2024: small cap value outperformance, election risk [3:40] Market start pricing in Trump victory, before Biden dropped out / election risk, implications [9:51] Overview on Anti-trust cases: Albertsons / Kroger's and Capri / Tapestry [17:45] Albertsons / Kroger's cont'd [27:58] Costco [32:55] Robinhood credit card [44:06] High-end credit cards launching travel lounges Today's sponsor: Daloopa Hey there, fundamental analysts - Are you tired of the endless grind of updating financial models, scrubbing documents, and hard coding? Let’s talk about something that could transform your workflow—Daloopa. Daloopa delivers perfect historicals for thousands of public companies. That means every KPI, operating data, financial metric, adjustment, and guidance—all at your fingertips. And here’s the best part: Daloopa updates your models in near real-time, which is especially important during earnings season, tailored to your modeling format and style. Imagine never having to update your models again. With Daloopa, you can reclaim your time and focus on what really matters—analysis and research. Want to learn more? Create a FREE account at Daloopa.com/YAV

Are you tired of the endless grind of updating financial models, scrubbing documents, and hard coding? Let's talk about something that could transform your workflow, Delupa. Delupa delivers perfect historicals for thousands of public companies. That means every KPI, operating data, financial metric, adjustment, and guidance, all at your fingertips. And here's the best part. Delupa updates your models in near real time, which is especially important during earnings season, and it's tailored to your modeling format and style. Imagine never having to update your models again.

With DeLUPA, you can re-clean your time and focus on what really matters, analysis and research. Want to learn more? Create a free account at dilupa.com slash y-A-V. That's Delupa, D-A-L-O-O-O-P-A dot com slash Y-A-Vee. All right, hello, and welcome to the yet another value podcast. I'm your host, Andrew Walker. If you like this podcast, I mean a lot, if you could rate, subscribe, review wherever you're watching or listening to it. With me today, I'm happy to have one of my friend and the founder of Rangley Capital, Chris DeMute.

Chris, how's it going? it's going well happy to be here under you know what chris as i'm saying the disclaimer for those on youtube i better get my yet another value podcast hat on i forgot to put it on before here but before we get started a quick disclaimer nothing on this podcast is investing advice that's always true but maybe a little bit more particularly true today because chris and i had a long list of things we want to hit so we touch you on a bunch of different stocks uh everyone should remember you know not investing advice please do your own work consults financial advisor all that type of stuff so Chris, I've got a list of, I think, four to five different things we wanted to talk about.

Why don't we start with kind of, you know, I'd love to just start. We're talking August 28th, it's the end of August. You know, at the start of August, the stock market was down multiple days of kind of down three to five percent, opening up down five percent on, apparently it was the Japanese yen carry unwind, like volatility was really high, and then we mostly snapped back since then. But, you know, it was just a, if you kind of looked at the start of the month and then the end of the month and saw where stocks were, you'd be like, oh, it wasn't that big of a month, but especially at the beginning, there was a lot of volatility. So I just want to pause,

step back. As we're entering Labor Day coming off kind of a weird, funky month, what are your thoughts on the market's moves this month, the market overall, all of that? The small cap value outperformance has had these magnificent few moments. I remember when I was doing sports in high school, my coach was always very, very reticent to do highlight videos. You thought kind of your glory scoring moment was kind of overrated relative to how you do on average all the rest of the time. And the small cap value outperformance definitely had impressive highlight role that didn't kind of, not a huge duration over the last decade or so, but it was fun while it lasted. And yeah, interesting.

month for sure, interested in starting to think about election risk, interested in how fleeting a lot of the very short-term kind of proximate cause explanations for why the markets move the way they do kind of come and go. You know, you could look at a headline from a paper about the Fed or a yen carry unlined or something. And it's just by the time you look at it a week later, it's like the inverse explanation. You know, there's so many short-term explanations that you could just throw away or not think about. But, yeah, a lot of things kind of came full circle and back where we started a lot of, a lot of prices. Can I ask you one real quick? So in July, so July is the month where it was like Russell 2000, small cap value, everyone's

outperforming and you know I love that little meme of the guy who wins a he wins a metal and then he sprays champagne into his mouth and he kisses the girl who gives him the metal and then it zooms out and you know in some he's third on the podium and some he's eighth and that's kind of what it felt like it was like all these small cat value people were like yes we did it and then you zoom out and like the russell is down 50% beneath s&P over the past whatever you want to call you know it did strike me that the Russell goes on an absolute tear in July when Donald Trump poll numbers are Donald Trump's poll numbers are at their best, right? Right before Biden drops out, it seems like Trump's like romping to victory. Probably every vulnerable Democrat in every race is going to lose

just because they get dragged down by the top of the, all that. And then the moment, almost to the T, the moment Biden drops out, like all this volatility starts and the stock market drops. And, you know, Again, it seems like everyone's identified the yen unwind trade as it. The stock market has bounced back quite a bit since like the depths of the panic. But I was kind of wondering, hey, did the market start pricing in Trump victory plus Republican sweep or Republicans doing really well and start pricing it? The one policy, the one of the few policies Trump's been really clear on is he wants to cut corporate taxes some more, right?

So I was wondering, is the market, did the market get a. excited for your tax cuts and then kind of some of the pullback was, oh, maybe we're not going to get those tax cuts after all or was different. And again, I'm not trying to like make it political or anything. I'm just wondering if that was something the market was discounting and kind of took it back. No, that makes a lot of sense. I think Trump was way ahead against Biden. I think the Democrats switch has gone extremely well from them, kind of replacing something that was, you know, looking like a one in four, maybe one in five, maybe one and six at its worst to work to something that's now one and two to work, maybe a little better than one and two.

And the election has really truly been a vibes election in which the Democrats have done quite well at coming back with a kind of tone and a very kind of cathartic moment of just having their prospects improve without a lot of policy data and the policy detail we see would be a debacle for the markets. So, you know, huge, you know, huge tax hikes, maybe tax hikes on unrealized capital gains, huge, you know, just a real cataclysm for the market. And so you're dealing with a very, very adverse public policy with a good rollout in terms style. It's funny. I always think what I really want is to have all my gives to be style and all my

gets to be substance. And this is the perfect inverse of that where the style is beautiful and nice and saying a lot of, you know, talking about freedom and then talking about taking a quarter of everybody's stuff. And it's a weird juxtuquisition between style and substance, but it's my least favorite way to give and the least favorite way to get in terms of dealing with politicians, but it's working. And the more superficial, the very low information voters that will decide this, because the interesting thing about the dynamics is other than the very volatile dynamics of the people involved, the actual fundamentals of the polling are very low volatility. Both sides have a very high floor, a very high ceiling. And so you're dealing with

this few, this very small coterie of undecided that kind of don't have a view about Donald Trump or Kamala Harris, and they have very little information, and they're not that curious. And so it's going to come down to fairly superficial vibes. The Democrats are doing very well on that right now. You know, just on vibes, it is just funny to me. Like, you know, end July, Democrats felt despondent. In my old age, I've started watching late night monologues when I'm brushing my teeth getting ready for bed. And, you know, end of July, all of them are on vacation because they take vacation half the time.

But before that, they're all despondent, you know, Biden doing poorly. And now they're all joyous. And if you listen to them, you think it's going to be a Democrat, a Democratic sweep. And I mean, Kamala Harris will almost certainly win the popular vote, right? But it is about as close to a coin toss election as you can get. And it's just crazy, you know, going from Biden with, I think the odds were probably about one in six is what you're saying. I think there's a release that said his internal polling had him at a 10%. chance to win. And obviously, every down-ballot race that matter, they were probably going to lose.

Going from that's 50-50, but the vibes, you know, you hear a, you hear rumors Trump meltdown or Trump going crazy or you can just look at his truth of social. And it's like, it's a 50-50 election. And it just feels like the vibes are saying, you know, blue wave or something. So I just find it funny that a 50-50 election, just because of it were coming from, the vibes feel much, much different. Speaking of politics. You can imagine emotionally, though, if you had some health problem. They said, oh, you have a 10% chance of living. And they say, wait, no, now it's 50. I'd be elated. I mean, I'd be elated with a, like, you really can imagine a 50% chance of survival. When you pretty much decided, hey, I'm getting ready to die. Oh, no, there's a one in two

chance. Everything's fine. You start to imagine it. That's probably actually the happiest, probably the biggest emotional delta between you're pretty much going to die and who knows. Well, that is definitely true, though. You know, the facts we can compare. compare like one in 10 chance of dying to 50-50 and like compare it to a political party, one in 10 to 50-50. It'd be like, maybe politics is a little too turned up and we're like, hey, you know, you were about to death. So I certainly hear that, though, I feel like, you know, 10 or 12 years ago,

if you've been like one candidate or the other, I'd be like, okay, cool, 50-50, 25, so who the heck cares. Speaking of politics, they're, you know, one of the places that in administration can have a lot is who they're choosing to run their different departments and those departments can choose, what to prove, what not to prove all that to yourself, maybe a little less with Chevron, but, you know, especially antitrust, right? We've seen, you and I've talked about it at nauseam, we've seen a lot of cases under this administration that I don't think would have been brought in the past, but they've brought

them and they've had a little bit more success, you know, 18 months ago, look like they were going to get swept kind of across the board. They've started to have some success. We've got some interesting ones out there in Albertsons. The ticker there is ACI. Kroger's is trying to buy them. That's been a almost two-year process at this point. The court case started this week.

I know you listened to the first day hearings, which were public. I believe the last day hearings are going to be public. I think for listeners, Mike Cohen, who did a lot of reporting around the JetBlue Spirit, he's going to come on the podcast for a halftime report in the near future. But Albertsons is up and running. Capri, they filed their response to the FCC. That's the tapestry merger. You know, I think just for full disclosure, we have very small point.

positions in Capri and Albertsons, like basically rounds to zero, but just to give everyone that disclosure. But I'd love to get your thoughts. You know, here we are, end of August, Albertson's in trial, Capri, kind of rounding up to Goet's trial. We can start with either, but what are your thoughts on the cases and where we sit with them? Just a quick aside on these agencies and how it affects the election. And one reason why I'm feeling particularly homeless politically and really am quite detainable. from, I'm endlessly interested in the analysis of who's going to win and how it affects markets, but I have no particular preference that I plan on expressing in the voting booth

is the Republicans' vice presidential nominee has spoken warmly about the current FTC chairman and a lot of the big family- I prefer now their chairwoman? chairwoman, chair, chair, and the, and the, at least big financial backers of the Democratic nominee have been saying, hey, I support you, this is all really great, but get rid of Lena Kahn. And so you have a big kind of the centrist financial kind of economically numerate people who support the Democrats for large. largely, you know, their wives are pro-choice or whatever. But the capitalists amongst the Democrats are really gunning for a better, different FTC chairman, and these kind of populist Republicans

want to co-opt her. The FTC has had a pretty lousy record. The DOJ's under Jonathan Cantor has been a little bit less bad, but they've brought some preposterous cases. I would say that the fancy purses merger has to be one of the kind of shining lights of an opportunity for prosecutorial discretion. It's one of these things that goes between, on one hand, there's some really good arguments that this is not an antitrust violation. And on the other hand, who cares? But I have a very hard time coming up with any sincere reaction other than those two. Either it's fine or who cares um but uh the the supermarket deal at least uh let's just pause on capri real quick because i hear you i did the i did the case with maverick value on capri and i'm with you it's like

who cares who cares how is this antitrust but the funny thing is when i talk to lawyers um antitrust lawyers and i i mean i've done expert calls with people who are pretty high up in antitrust circles and almost to a person not not exclusively right you can always find someone on both sides who will say, yes, this should be approved 100%, no, this shouldn't be approved 100%, right? But almost to a person, they say, look, we think this is a weak case. We would not have brought this case, but the FTC is probably going to win this case. Like, they've got the hot docs. They got the market definition. It seems like the judge is very sympathetic to the case. We think this is insane, but they're probably going to win.

And, you know, it's just kind of crazy. It's a multi-billion dollar merger. This is the only administration to my mind that would have ever challenged this. When this deal was announced, I don't think anyone thought this was going to get challenged, but it's just kind of crazy. You bring a case, you get a couple lucky hot dogs, and you get the right judge. It's like, hey, you can block a multi-billion dollar merger and maybe set some new type of precedent. It's wild to me.

I agree with all of that. And we've been on some of the same calls together, and I kind of left it sort of deflated on the topic because it just, I mean, I love situations where our checks and the facts and the specific data really align with what kind of makes sense philosophically. To me, I really struggle when something seems preposterous, but then you look at it and the local experts say, no, this preposterous seeming thing's going to happen. I have a hard time making a big bet in situations like that. In this one, they probably have what they need to convince the judge they need to convince. One of the myriad things I struggle with besides just the kind of frivolity of the whole thing is, I mean, this is the kind of thing that we should work on once we've solved like all of societies brought like, you know, we have like a million years of problems to think about before this. But if we were going to take this seriously, the market definition of both the high and low end is so absurd that they have this kind of rolling, mushy, transitivity problem around what this market is.

The fact that the judge sounded completely, not just serious, but to me was dismissive of the early challenge on the market definition, kind of I was largely out of that point. And maybe I'm just feeling kind of beat up on the whole antitrust issue and what this administration's trying to do and what I think they can get away with. But if they weren't willing to, I mean, they're like, we will give you specificity on how we define the market immediately before the end when it's far too late for you to mount a serious defense. So I'm angry. I mean, it's kind of like a passive aggressive girlfriend. It's like angry at you and not telling you why.

But they really want to do that. And the judge said, oh, that's totally, totally fine. You don't have to carefully, narrowly define what the market is. They're even talking about when it's mushy at the high. low end. I mean, at both cases, why is this very specific purse not a competitor at the high end? Why is this very specific one at low end? And they just kind of throw words at it and the judge that was fine with it. So I think it's hard to analyze. It's an unsurious topic. And I think they'll probably get away with it. Are you tired of the endless grind of updating financial

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Let's go to ACI because I know you listen to the, again, the first day and the last day hearings, I believe they're both going to be public. The rest of them, you have to be there in person. We'll have Mike Cohen on to talk about what kind of his halftime report of what he's seen. But, you know, this is an interesting one because this is a multi-billion-dollar merger, kind of politically fraud, right? Like one of the only things I can tell you about, Kamal Harris's positions is her, kind of the first thing she can't was, hey, food inflation and greedy grocers, like, ACI and Kroger's are right in the middle of what she's talking about. So you've got presidential candidates talking about this.

It's a very interesting case on both sides. I think this is one of the ones where, depending on your view, the facts, you could probably make the arguments on both sides. But I'd love to just get your thoughts on the first eight hearings and the overall case. unlike fancy purses this is a serious topic with serious points on either side um i prefer the case these companies are making uh but it's serious and there is a very specific bad history of the fixes involved in this very market so the idea that the government would be not only interested in this because it's retail focused including low end retail focus

including perfectly aligns with the political goals of the administration. But it's a big deal and the kind of things the companies would like to do to solve the perceived problems in the past have been tried and failed almost immediately and horrendously. So when companies get to build and create their competitors, they have historically been able to build and create bad competitors and get away with it. in ways that the government didn't perceive at the time. And so the idea that there'd be weariness there, fine. It is not a highly kind of econometric-based deal. It is not one that has great, clear victims. A couple problems are that just from the economics perspective.

One is talking about what is in effect, distributors and price without going into detail on margin is a little frustrating for me to hear. It'd be exactly like blocking a refiner deal and talking about gasoline prices without mentioning crude prices, right? Like, you know there's a big input here that grocers don't control their costs. And that, like, to not mention that seems to be so intellectually dishonest and unsurious that I'm kind of sputtering as they're talking about this. So their margins are paper thin.

I've had a history working on some milk antitrust deals that had some serious antitrust issues. One of the funny things about it is milk also is a kind of fraught emotional antitrust topic because not only is a consumer pacing, but it's very regressive in terms of the impact, like very wealthy people, even if you have lavishly expensive food, spend a tiny percentage of their income and wealth on food, very poor people, even if it's fetchless expensive, sometimes spend a huge percentage of the money they have on food. And so something like milk really affects not just customers, but especially poorer customers. But if you look at margins, there's a very funny thing, which is like it's cyclical.

There's, you know, supply and demand, prices move around. Frequently, it's the very lowest prices where there's some, coordination, there really is a history of some coordination and some actual antitrust issues and some pricing power. It's almost always used when prices are so weak that they kind of have problems that they cut some corners to manage. When prices are really high, if anything, they sometimes kind of subsidize things because they know they're going to be in a lot of trouble. So people complain about this at almost the inverse times of what it matters. So in any event, it's a little frustrating how kind of crude the cases.

And then one thing that I was really listening to that really, you know, we are not that exposed and I don't have a lot of conviction in this. I'm very interested in it. Maybe there will be trading opportunities long the way. But the less I'm involved, the more I'm kind of happy to be kind of neutral-ish. And I'm not really gunning for these guys that much. But something that really aligns with the witnesses and the information the government think they have with the way the government likes to think about markets is his pause. Bit high-level executives that monitor what they call competition and set prices skew by skew have a very formulaic job that's limited not just by all the participants, but it's limited by their kind of like bandwidth to deal with information.

So they will say something and they will be under oath and they're not lying. Like, we have two competitors in this market. We compete against this one Kroger and this one Albertson subsidiary. And they have prices and we set skews. Those are our competitors. Do you compete against Costco around the corner? No, we do not compete against Costco. They're packaging is slightly different.

So the government loves pedantic minutia that is very easy. to categorize in the same way that an individual executive who has this limited bandwidth will say, this is a competitor that isn't a competitor. But the actual human American mom with four kids and a $300 budget, you think she doesn't go around the corner to Costco to get what she needs? That's 100%. Of course, obviously. I have an Albert says right around my corner.

And it's like if they said a stick of gum is now a billion dollars, that would affect my life zero. I can get Amazon delivered to my house for free. I have another local grocer right around the corner. They would say neither of those are competitors because that's not what I want to think about right now. But the actual customer and real like capitalism is messier than the government could possibly understand. And what they like to think is either I currently understand this or it's a crime. But in capitalism, there's a million other things. And it's messy. The packaging is a little different, but it is 100% impacting prices, even if that executive doesn't understand it. It's just really funny because if you think about something like CPI, right?

Like if beef prices go up 20%, then they'll make adjustments and say, hey, you know, we're not going to say food prices are up 20% because beef prices are up 20%, so people will switch to chicken or something. But when you see these cases, like, you know, this is what I think a lot of this case is going to hinge on and what I'm really interested in kind of what Mike's read of the courtroom and how these cases are going. Again, we're talking to here Wednesday. The trial's just getting started, but the defendants are arguing, hey, the FTC is saying this is the number one and number two or number two and number three. Grocers merging.

They're going to have dominant market share in a lot of places. And the defendants are saying, hey, you're exactly what you're saying, Chris, you're not considering the rise of Costco. You're not considering Instacart, which can ship things in. Like, you're not considering all these. And I will be very interested because, you know, historically, and I talked about this in my podcast with Brian from the University of, I want to say, Minnesota, we did it right when the suit came out. And we talked about it. He was like, look, historically, they've only looked at grocery stores, but the market has evolved a lot over 30 years. And I'm going to be really interested how the judge, how Mike's read of the judges of how these arguments are going,

because as you're saying, in the real world, Kroger takes prices up 20% cool. I'm going to Costco. I'm going to BJs. I'm going on Instacard and having the Albertsons across the store, I guess Albertsons will be merged, but having the Walmart across the street deliver, like the target, like there's a lot of competitors, but it's a very interesting market definition argument. And I would just say having, I haven't talked to quite as many experts here as I have on CPR, but I would say of the ones I've done, they're, they're kind divided on how they think a judge will look. Some of them say, yeah, a judge will look at this with modern sensibilities and some of the city, no, you know, like case law is kind of settled.

The FTC is going to have a really good chance of kind of limiting the scope of the market. I remember it a lot. I'll kind of flip it over to you. I mostly am throwing up my hands and saying, I want to listen to as much as I can. I want to be very, I want to be a good listener and observer to the judge's body language and questions. And it might be easier to be very deferential and reactive to that without a strong view. I mean, sometimes when I come into that with a strong view, I kind of quickly judge as insignificant. things that maybe I should listen to more in terms of like, how is this person thinking about this case? I would say it's a little bit by analogy to financial markets. If we look at something

and call a broker who has a job to look at a certain series of things and they're not trading or thinking about like off the run equivalence, the off the run stuff that is not easily analyzable and monetizable by a subset of the providers absolutely is the market affects pricing whether or not they're looking at it. It's simply that the specific sort of agent's executive with a limited job thinks about things so much like the government lawyers think about things and it totally dismisses just the messiness and complexity of the markets. One food example I really like because I've always like especially younger friends without as much money. I always have like all of these like kind of food hacks of things that are better. And so I eat a lot of meat. I lead a lot of

ground meat. And so you go to someplace like Costco. I don't know you know about this, but like instead of the normal packages, you get chubs, which are the kind of like odd lots of meat. It's like the it's the same quality stuff. They usually package the fattier version. So it's usually like a leaner cut way cheaper. I mean, it'll be like a dollar or two a pound cheaper. I mean, it is just like dog food cheap. Super good. Like normal quality. It's just like normal quality. It's just they don't have the same, it'll be kind of oblot amounts, somewhat less fatty ground beef. And you can just like mix and chop up bacon or something if you want it fattier. But it's super cheap. And if somebody said like, what is the price, it would never come into

effect. But an actual human American that has kids and a limited budget and wants to save money, they'll absolutely know all of these hacks. And it'll constrain all the prices. Even if the people whose prices are constrained, don't even understand why. They'll just see their supply and demand alternate for things they don't understand, and that's still a market, and that's absolutely capitalism, and it drives the government nuts because they want to, they want to understand how they can observe you and regulate you, even if there's no victim. There's no problem. They just, they don't like that they don't understand it. Unrelated to that, but I have never been a Costco member because I have never lived next to a Costco. But my brother-in-law has a

membership, and they deliver on Instacart, so we start ordering from there. And I don't know if you've ever had their rotissory chicken, but A, it's like $5 for the rotissory chicken. I mean, I'm being like the most basic American hero, but it's like $5. It's an unbelievable deal. I don't know how they sell it that cheap. But, B, it's the best rotissory chicken I've ever had. Like, it's so juicy.

I want to know how they do it. There have to be, like, such awful steroids or something involved in it. It's so juicy. I can't believe it's chicken. I just, you know, if our listeners have one takeaway, that's what I really want them to know. The rotissory chicken from Costco is unbelievable, and I have no clue how they do it. It's crazy. It's craziness.

It's fantastic. I eat it once a week or so. And a really good value tastiness combination is, you know, getting really, really good spices and, like, toppings for it. Like, you don't want to go too heavy on like, I'm pretty happy just to eat grilled chicken. But yeah, no, that's one of the best, especially if you're trying to eat, like I try to eat 200 grams of protein every day. It's a lot of protein. And if you're eating kind of red meat, that adds up in price. But other than eggs and, no, that's a staple of my diet.

I love it. I feel like I'm getting away with something because it's so cheap. And then just a little, you know, just kind of unusual, you know, I don't usually use barbecue sauce, but some kind of spice with that. but it's the quality is great. I think it's just a loss leader. I think they just, I don't know what their cost is on it. You're probably right, but it's just crazy. One other thing, you mentioned 200 grams of protein,

and I'm sure this is what people listen to this podcast for, but since my head injury and recovery, I'm trying to build back muscle, so I'm trying to do it. And I've never tracked calories before, which just shame on me. But I always thought, oh, I eat so much. Like, I'm sure I need to get, getting 200 grams of protein is really effing hard. Like, you have to, you have to work to get to,

now, I can get to 5,000 calories. easy, right? Like, pass the ice cream, past the cookies, let's go. But 200 grams of protein, like, you're quite full. I can't do it unless I have a protein bar and a protein shake every day. Like, it's kind of impossible to do without it, I think. Six eggs, flamenia, some chicken, Greek yogurt, and a trout. Greek yogurt, I'm going to hold it up right before the podcast. I'm holding up my bowl. I had a cup. You get the protein Greek yogurt. It's like there's no, it tastes great because they've developed those, what is it, the bacteria, whatever that developed it. It tastes great. They've developed it over

years, so it tastes super sweet, but there's no sugar. It's basically all protein. Yeah, I love that. I'm sure that's what people are listening to the podcast for, but I just wanted to call that. One other little Costco thing. The stock's expensive as an investment totally is different, but just as a business

and how wonderful it is, is I've had a few people through the years who have been kind of approached abruptly by Costco and how completely transformative it is for a supplier because the scale is just more than they could contemplate. I mean, it's almost, it's borderline bullying in terms of how much supply they want to be able to take from a good supplier. And then they cut your margins just to the bone, but you have this

kind of like, you're almost like a utility. You have this kind of cash flow for all time. Like, you don't say no, like you do it, but it just transforms a small supplier's business. I have a I have a Vintner friend who was kind of picked up by Costco and it just changed her life. But it's an amazing business. I think it's wonderful as customer. Once you have a bunch of kids, you'll have a Costco membership. I don't know. We had two Wall Street Journal articles or I guess one's Bloomberg we wanted to discuss.

I don't know if we're going to have the full time for both of them. So I'll let you choose. One of them I can include a link to both in the show notes. But one of them was talking about credit card lounges or credit cards opening up airport lounges, which I know you do, you've done a lot of travel hacks and everything. And I find the whole dynamic green. So we can talk about that. Or the other one we're going to talk about is Bloomberg had this article on the,

I guess it's the Reitman's dynasty, but JAB, which is based of their private equity firm. And they had an analysis that was like, hey, these guys have like way underperform the market for 20 years. But the advisors managed to become billionaires off of it. And they're kind of the only people who've been advisors and become billionaires to say nothing of the fact that they've underperformed the market. So we can talk about either one. I'll kind of tosses into your court. I have thoughts about both. I'm currently more credit cards on my mind.

I just got my Robin Hood card. And I'm very confused about it because I've kind of done the arithmetic on their kind of, if you look at the kind of mechanics of the cards, it truly is all. Speaking of loss leaders, which you're talking about in Costco, I just don't know how you can offer 3% back. I mean, there's a problem like my taxes have a fee for using,

credit cards, but it's well beneath 3%. I mean, there's a positive spread on like everything. And they say it's unlimited. And I even said, hey, I have this limit, but can I just pay it off multiple times a month? And they didn't even say it was limited by 1x per month. So I could use a multiple of my credit limit to get a positive spread almost anywhere. And it's easy to manufacture spending that's well less than 3% cost. So I think I put an article up about Robin Hood. you know, I'm really interested because they've got, so their big thing is Robin Hood gold, right? Their charge turned, and the credit card is gold, but they're trying to turn it into a subscription service, $5 a month.

And I was just a year, or $50 a year. Or, and I was just really surprised by it because they were doing IRA matches, right? Bring, I believe those have expired, but if you're a gold member, if you brought IRA, Roth IRA money over, they were doing, I think it was like a 3% match. So you bring $1,000 over. They'd match $30. And unlimited. So in theory, Peter Thiel could have.

And I was arguing that, you know, one of, I think it's one of Buffett's lieutenants had the IRA that he turned into like a $200 or $100 million IRA. And I was arguing since it's unlimited. He has the chance for the greatest trade ever, right? Short Robin Hood. Nothing's investment advice. If you don't have positions here, we're just joking here. But short Robin Hood, transfer $100 million in, have them put in $3 million and then have them come out on the earnings call and be like, hey, we're taking a special charge because. some whale brought in a billion dollar IRA or something.

I thought that was kind of funny. But for somebody who's very private, he actually came out to clarify that he did that by magnificent security selection and compounding, as opposed to Mitt Romney and Peter Till, who I think what they did was cool and legit, but it was bold and aggressive that they put in, you know, like, hey, I have, you know, Bain partnership for three pennies. And then it compounded like crazy and deal with Facebook at a few pennies. So that was a big move and it worked. But Ted did it just with stock picking.

Good for him. And, you know, it's something I think about a lot now when I am looking at security. He's like, hey, you know, if he's doing it with basically one stock every 10 years and what he did was highly levered, kind of on the verge of distressed stocks that he thought weren't going to go bankrupt. And he was right basically five times in a row. And, you know, some people might say, oh, anyone can do a coin flip five times a room. but I'd probably push back on that. But anyway, Robin Hood, what I'm so interested in is they're the only people I'm aware of

who've ever done an IRA cash match, or cash bonus for transferring it over. I could be wrong, but they're the only people I saw no one else doing it. They have a credit card that has rewards that are better than any credit card that I personally am aware of, right? So my question, and it's all for $5 a month or $50 a year, as you said. But my question is kind of like, have they discovered a hack, right? Because you could imagine a world where, hey, the reason, doing these things as a lost leader,

as you said, as a loss leader, but doing them to get to be the center of someone's finances and having them, you know, day trading the Robin Hood app, which maybe encourages extra trading or something, maybe they've discovered a hack and all of these old fuddy-dubbies who were like really buttoned up and really worried about compliance and everything. None of them thought it. None of them were willing to be entrepreneur enough. and Robin Hood is just going to eat their lunch, right? Or kind of where I would fall out on it, I think, but I don't know.

I'm not an expert. I would kind of say like, hey, it's a really effing competitive place up there. Like interactive brokers, e-trade, like all these guys, if they thought they could do this profitably, they would have done it. Credit cards, for sure, J.P. Morgan and Amex would be given 3% cashback rewards if they thought you could do this properly. And I kind of think like maybe Robin Hood, you know, might be doing all these at a loss, and they might think it's a loss leader where, you know,

We're selling them at a loss, but don't worry. We'll make it up by doing lots of it, by selling a lot of it. It's like, no, it never kind of scale. So I don't know. I threw a lot out there. I'll toss all those thoughts over to you. One of the most consistently wrong thoughts in financial institutions where there's just been some grotesque loss that they're kind of sputtering to explain often had the origin story

of we're going to do this thing that's highly lucrative and exploitable. for the customers who will like us so much and be so happy with us that they'll do all of these other things that aren't that great along with it. And that was the story. I mean, that was the whole explanation of First Republic. That was more recently the story with a built card that was a disaster for Wells Fargo that was basically, oh, we're going to subsidize people able to pay rent with this credit card. This is a huge benefit. My apartment building switched over to built and I was so excited and I was like, hey, maybe they've really unlocked something, right? Because this was before the Wall Street Journal article where I could imagine you say,

hey, we're going to use the credit card and we subsidize like a little bit of the interchange fee that will eat that for the rent. But in return, we become, you know, the front of the person's wallet for their credit card or maybe because they're handling it for the landlords, they get all the landlords business, right? So you require, hey, we're going to let people do this with credit cards. They're going to love it. But in exchange, we get all of the security deposits. Like we handle all of your business. Like I thought they had unlocked some sort of really interesting network that no one had been able to unlock before.

And then you read the Wall Street Journal article and it's exactly what you're saying. It's like, hey, built, suckered Wells Fargo into a really bad deal. And, you know, Wells Fargo is eating hundreds of millions. But as soon as the contracts up, like the whole thing seemed set to explode, obviously things can change between now and then. But that's kind of what the Wall Street Journal article was alluding to. They had plans to increase this. We'll roll it out for mortgage. there's another card coming out that's going to do it for tuitions.

So I don't see the logic in it. Now, I'd say the card is a beautiful card. The app is a beautiful app. They have a whole bunch of things that I'm going to use it for, even above and beyond the 3%, that they've kind of gotten me to pay more attention to than I otherwise would have this great feature that's wonderful for travel, that you can just instantly create virtual cards

that look to the rest of the world like a completely new unrecognizable number that you can just use and then delete. So it still builds you. It's still a totally legit financial transaction. It's just semi-anonymous, right? Like you're traveling, you know, you're going to Tijuana or something and you're doing something that's just a little, like you're not super excited about them having all your information.

And so you just create a new card just takes one second to do. I thought that was a cool feature. Maybe other people had it. It was new to me. But that's still a win for them, right? They caused me to bother to look at an app to learn about something that I didn't know about before. Apologies if everybody else in the world knew about that feature.

I thought it was pretty cool. I'm using it for my kids, setting up for all my auto pay. I actually sent an email to the founder just this morning saying, hey, I'm going to use this for everything. Now that I'm bothering, is this a bait and switch? Do you have a reason to think you're going to be able to sustain these economics? I know people have done 2.5% unlimited cashbacks in the past have consistently lost money and pulled them back aggressively from there.

They kind of used it as a bait and switch, bring people in, then kind of moderate the terms. It just doesn't work. I mean, it's very hard to understand how the economics work. Just like Apple, the Apple card. I could be wrong because I haven't looked since I wrote the article, but if you use the Apple card at the Apple store from memory, you get 3% cash back on all purchases at the Apple store. And like if Apple can only do 3% on the Apple card at the Apple store,

so like they're encouraging that's about the best networking inside. If they can only do 3% there, then, you know, it's just screaming to me, The gold card doing 3% on everything, it's just screaming to me that there's issues there. And again, I don't know. Maybe they've seen with the $5 a month, the type of demographics they get, you get the full wallet share and you get everything for everyone. It's got some type of network. But it just seems to me, I mean, Amex, which owns their own network. So when you go and swipe an Amex card, you know, they get all the interchange fees.

If they can't give 3% cash back, it's just shocking to me that a rob a note could. And it was kind of interesting to hear kind of my wife's reaction to this because she was a little not unsettled by Robin Hood's reputation. She just thought it's fine for me to use kind of transactionally. And then they have had billions of dollars move in. She was a little apprehensive about moving any kind of significant assets from a bank that's been around for a long time where she knows the people. She knows the physical locations. Like some kind of like, hey, we have, you know, a kid's. godparents work at the whatever private bank on wall street like she's not going to move a huge

amount of money from that to this app that has the retail vibe and the confetti and the problems around meme stock she's not the only one i mean i remember it seemed like they might go under when they had issues with handling their back office accounts during uh game stock media back in 2000 but i can't remember it's 21 or 22 at this point but it seemed like that might go under and like, you know, if you're looking at that and the company like can't handle trading, which should be their core function and they almost go under that, you worry something weird happens, you've got your IRA over there. It's like you worry that it's gone. Right. Now, I think, I suspect there would be, even if you were trading on margins account,

I suspect for retail or for retail shareholders, I think the government would step in if Robin Hood went down and was like, hey, the recovery for people who had their IRAs here is to be 80 cents on the dollar. I would suspect, but again, not investing in device, everybody she can sell the financial advisor, do your own work, risk, all that type of stuff, but that would just kind of be my suspicion. Makes sense. Yeah. You know, the one thing, we've got three minutes left, I just want to go back to the article. So the article was talking about how high-end credit cards are launching travel lounges. Oh, sorry, I got off on a huge tangent. I forgot to get back to that. That's the point of a podcast, right? I just thought it was

very interesting. You know, Chase Saffar, when they first wrote out, you got access to priority pass. And that gave you a lot of travel lounges. And I don't even bother using it anymore because the lounges became so crowded and the quality went down so much. New 25-minute free massage lounger at JFK next time you're there with the Chase Priority Pass connection. Oh, that's great. That's great. Yeah, but I don't even do it. Express massage, free lounge or 25 minutes, get some. But it was just, Like, so one of the things is Amex is launching a lounge that if you have the highest end card, you can get into, but it's not an airport. It's in like midtown Manhattan.

You can go and apparently it's really nice, like catered food and everything. But it's just interesting as these credit cards, you know, it's not just the rewards. They're competing with each other on all dimensions trying to lure people in with the air of exclusivity. And I will say like some of them I do some of the stuff. I don't know. I'll toss over to you. Like, how do you kind of think about that? I think it's fun.

I think it works kind of generally. You have kind of older people with a lot of miles. I don't know if you saw the head of Barstool pulled out his own car. He has 44 million miles on his, or points on his, on his. That's incredible. And he said, I'm not going to spend it, but 44 million. I thought it was kind of funny. And so it's like, older, like, but younger people that are kind of asset lights still like

the kind of travel. Like, I think it's really fun. I love kind of optimizing. you know, it's not a great use of one's time. It's not that scalable. But coming up with kind of hacks that are semi-personal finance, semi-travel. And it's the travel aspect of it that makes it kind of cool and fun. I mean, it's, I don't know, maybe I'm nerdy about it, but it's kind of a fun topic because it's not just a, oh, I'm trying to save money or make money, but it's like, I'm trying to save money and make money and go visit Thailand or something that's

kind of has that cultural aspect. So I think the clubs are cool. I think trying to have your card is school. And Amex has a long history of having a real prestige value that's gone back. I mean, decades and decades and decades. Like having that Amex did really, I mean, they did manage to identify a good group of customers. Well, for a while, like, I remember when I was like a kid, if you said somebody had the black Amex, you're like, you knew these guys were a baller. But for a while, one of the bare cases on Amex, and I do think that this is still something to think about, you know, like it used to be you put out the physical card and people could hear the clink when you drop the metal and they could see and they'd be like, oh, this guy's a baller. But now, I mean, it's

tapped to pay with everything. So you do lose a little bit of that exclusivity. But there is something where if you've got Amex and you, you know, or Chase Saffir was the one who added at the U.S. Open. If you've got that, you're on a date or you're with some friends. You say, oh, don't worry, I can get us into that Chase Saffir in lounge. Like, that is pretty cool. And Amex even advertises that in some of their ads. Like, hey, go with Amex. You get shortened lines at some stadiums. You get, like, it's pretty interesting. Look, I had some more thoughts on that, but we'll talk about next month. We'll talk about other stuff next one.

Who knows, it's 3 o'clock. I think you got a hard stop. So Chris Smith, stay at the markets for the end of August. Summer's coming to an end. We're heading into the new year. I've got kids for the first time. So now I know why people care so much about school starting up. Oh, my God, is it nice when you can send them off to daycare and they're okay.

I can focus on work for the day. But Chris, thanks for coming on. And we'll have you on next month. We'll be in touch. Bye. Are you tired of the endless. grind of updating financial models, scrubbing documents, and hard coding. Let's talk about something that could transform your workflow, Delupa. Delupa delivers perfect historicals for thousands of

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A quick disclaimer. Nothing on this podcast should be considered an investment advice. Guests or the hosts may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor. Thanks.