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

Episode Date: March 5, 2024

It's time to welcome back Chris DeMuth for his monthly state of the markets. For this February 2024 edition, Chris shares his thoughts on New ETF $BOXX, Bitcoin and crypto in general, are we in a $BTC mania and Anti-trust outlook - election proxy (using Capital One / Discover as an example). For more information about Rangeley Capital, please visit: http://www.rangeleycapital.com/ Chapters: [0:00] Introduction + Episode sponsor: Tegus [2:09] Thoughts on New ETF $BOXX [18:55] Bitcoin and upcoming "halving" / current thoughts on crypto in general [30:44] Are we in a $BTC mania? [33:15] Anti-trust outlook - election proxy? Using Capital One buying Discover as an example [43:11] Final thoughts Today's episode is sponsored by: Tegus This episode is brought to you by Tegus, the future of investment research. From the beginning, Tegus has been committed to creating efficiencies in the research process by making it easy to access the content that investors need to get to differentiated insights. Today, they’re taking it one step further by bundling qualitative content, quantitative data, and better automation and technology together in the same platform. Instead of piecing together data from fragmented sources, just log in to Tegus to get expert research, company- and industry-specific metrics and KPIs, SEC filings, and more, all under the same license cost. You can even take your work offline with an Excel Add-in that updates almost any model with the latest financial data — keeping all your custom formatting intact. Tegus is the fastest way to learn about a public or private company and the only platform you’ll need for fundamental research. To try it free today, visit Tegus.com/value

This episode is sponsored by TIGIS, the future of investment research. From the beginning, TIGIS has been committed to creating efficiencies in the research process by making it easy to access the content that investors need to get differentiated insights. Today, they're taking it one step further by bundling qualitative content, quantitative data, and better automation and technology together in the same platform. Instead of piecing together data from fragmented sources, just log into TIGIS to get expert research, company and industry specific metrics and KPI's, SEC filings, and more, all under the same

license costs. You can even take a look at your work offline with an Excel add-in that updates almost any model with the latest financial data, keeping all your custom formatting intact. TIGIS is the fastest way to learn about a public or private company and the only platform you'll need for fundamental research. To try it for free today, visit tigis.com slash value. That's Tegus.com All right. Hello, welcome to the Yet Another Value Podcast. I'm your host, Andrew Walker, also the author of Yet Another Value Blog.com. If you like this podcast, it would 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 on for his monthly state of the markets. It is February 24. My friend and the founder of Range of Capital, Chris, the Newth. Chris, how's it going? It's going well. Glad to be here. How are you, Andrew? Doing good. Let's see. We've got a lot to talk about today. But before we get there, I'll just remind everyone, nothing on this podcast. is investing advice. That's always true, but particularly true today because we've got a lot of stuff we want to talk about and, you know, we'll be flipping through a lot of topics. Maybe I've

done absolutely no work on any of them and we're just talking out of our butts here. So please remember, not financial advice. Please consults financial advisor do your own work. We are not financial advisors and we're not tax advisors. I think we're even more not tax advisors than we are not financial advisors, and we're 100% not financial advisors. So we are more than 100% not tax advisors if the topic of tax comes up. And if either of us mention anything that even conceivably could be a cool tax dodge, the end. That is a really good segue. I think you said that because you knew the first topic on my list. Look, there's a Bloomberg article and a Matt Levine piece. people can find them if they Google.

There's this new, new-ish, ETF. The ticker is Box, B-O-X, and people should Google the Bloomberg piece and remember that we're not financial advisors. But what the basics of it is, you can invest in Box, and they figured out a very clever way to deliver the risk-free rate to investors, but have it taxed at long-term capital gains instead of, generally when you get the risk-free rate, you get the short-term interest income that comes with it, which is generally. higher. So it's funny because if I mentioned this to anyone outside of the finance world,

they're like, whatever, man, risk-free rates. But when you mentioned it to somebody who's really involved in finance and especially arbitrage, they're like, wait, I can get the risk-free with long-term capital gains. And their mind starts exploding because there's so many benefits to being able to do this. There's arbitrage possibilities, all this sort of stuff. So I'll pause one more time to mind everyone, not tax advice, not financial advice. But I want to turn it over to you because you've been early, early, early on this box train. But, you know, just how are you thinking about box, everything involved with it, all this type of stuff? So I have written about it a bit, owned it, friends, friendly with, friends with the creator,

somebody I hugely admire, just a great guy, a Marine PhD, brilliant, brilliant person. So I can tell you there's high, high and low lows about my reaction to it. The high high is this is one of the greatest, just in terms of dollar value. Yeah, somebody who doesn't pay a lot of attention to this kind of thing, it's going to say it's not spicy. But if you pay a lot of attention to this kind of thing and you think about the dollar of expected value and edge and difference between what has preceded it, it's so spectacular that one of my warnings from the beginning was,

what are your plans for this to have 100x the demand you have today, infrastructure and so forth? And it's something they've thought about because it's so good. The low lows are the IRS is on the other side of this conversation and everything that I love about it, they're going to hate about it. And so not need necessarily a highly principled philosophical reason to go after it it some way in the future. So those are kind of my first two thoughts. In terms of the structure, boy, not only are you creating something with largely long-term capital gains last year and

this year, I believe, will have no distribution. So it is really being executed pristinely at the moment as far as this possible. So you will get long-term capital gains on the way out. But if you were to lever up your brokerage account this year, that interest expense is actually an offset from short-term investment income. So you're just handing, you're just switching the tax status. Now, there's some leakage. It really depends on what you borrow at. One of the things, and kind of one of my first write-ups on this was for, I come from a military family and one of the many military benefits you get. you don't get paid a lot in cash, but you get all sorts of weird little benefits, including

in some cases, there are basically interest-free loans you can get. And I get lots of questions on what do you do with an interest-free loan because you don't want to lose the money. You don't want to necessarily, I mean, what a lot of guys do is buy a motorcycle with it, and that's not necessarily a good idea. You do have to pay the loan back at some point, but not with interest. So what do you do with it? Box, boy, you know, you're just getting a.

a real arbitrage if you have some kind of no or low access to really good interest rate. There's some other novel ways you can do that. One thing I thought was if you're a bank, right, there's this famous, I think it was odd lots that had this line that just jumped out to me. Like what is the one, the risk-free rate, the U.S. government should have all in the lowest costs of borrow possible, right? Whatever the government's barren at on a short term, that is the risk-free rate. you cannot borrow cheaper than the risk-free rate unless you're a bank.

If you're a bank, you can get short-term deposits from largely consumers, and those come with a 0% interest rate. So they're actually borrowing from people cheaper than the government can, than the government. And I actually think there's a reason for that, right? They keep your money safe. You can't keep it all under a mattress. They make it accessible to you anywhere in the world. It's actually a service.

But in return for the service, they can borrow than cheaper. A bank, you could imagine banks just look at this and say, hey, why are we part we're a for-profit taxable entity we have to carry lots of liquidity why are we parking it in short-term treasuries and again we're taxable pay short-term rate on that they should just be parking it all into box or something similar and reducing their tax rate like that like you could imagine it is just there are all sorts of implications you know obviously all of our degenerate friends you and my instantly thought hey what you said and people should remember not financial advice but if this is risk-free if i borrow you know max out

a margin account, get charged certain tax rates on the margin borrowing, and get turned long-term tax rates on the risk-free return. Yeah, I have a little bit of drag between the margin costs and the risk-free rate, but the tax arbitrage there is incredible. So I threw a lot out there. I'll pause. You could also imagine a situation or somebody at the individual level converted an IRA conversion year. It could be a big tax year, so you could blast box into it that year. You can also imagine a situation where some, it doesn't even have to be a hugely wealthy family. A family has like a family bank where there's kind of intergenerational lending relationships where somebody has some kind of windfall where you just spike the tax advantage

to the person with the windfall and you do the lending from the other people. So you even have kids or grandparents lending and then you hit the big tax advantage with the big earner that year and it's just it's it's just a tax incineration machine you know the other thing i mean i personally i'd love to hear because it sounds like you've talked to him like the irs and the government do not like looking do not like looking like fools and i think the irs would have the means in their disposal as they look at this to kind of figure out a way to shut this down and even if they don't i don't think it's a stretch to say hey they're running Bloomberg headlines and people are just going to go and be like, who's the least sympathetic people you can imagine?

Rich people with brokerage accounts, borrowing short, to go invest in box, are the IRS. Like, that's probably bipartisan. People want to close that loophole down. So I guess my question to you, like when you've talked to them or just what do you think, do you think the IRS is going to stand for this? Or would you suspect that this gets closed in the near to medium term? Well, I would say I have huge sympathy for such people, even if they, you know, if they don't. But I would say that the likelihood that the IRS looks carefully at this is 100%.

The likelihood that it is basically legal in its current form, I think, looks good to me. But they could go after how earnings are being classified and make it painful. I think the people who, the irony of scale here is you probably could have kept up beneath the radar screen before. the press as it was smaller, but it's so good it's going to get really big. The really big guarantees IRS interest, but also the really big guarantees UNF fee stream that you can fight and defend this, right? So you look at Coinbase defended themselves only because of their scale. They would have been destroyed if they were smaller. Mark Cuban defended himself because of his scale. He would have been destroyed if he's any smaller. Most people smaller than Cuban with the SEC,

coin base would have been destroyed, would have been wiped out, would have been impoverished, and the government would have been good at what it does best, which is just using the process as punishment. And so here, whether they break through to be big enough to really be able to defend themselves, I don't know yet, I think it's decently likely that they'll have to. Yeah, I just, you know, part of the reason this exists, and this is, you know, one thing I personally, if I was ever running for office, I think I've said this before, my first thing, would be the 1099 loopholes for real estate investors, I believe it's 1099. The tax-free exchanges,

that be the first thing I would go after. And that would make me very unpopular among a lot of wealthy people. But I think it's crazy that real estate alone has this unique tax benefit where, hey, if you're selling a property and you're 1031, that's it. That's right. It's hugely regressive, too, right? It's not, there's nothing, there's nothing progressive about. It's hugely regressive. I think it's crazy. And it's probably going nowhere because it's been in the tax code for 50 years. And that's the type of thing everybody, you know, most people don't care. They probably think it's unfair.

But that's one. The other thing I would go after is ETS and like the reason box has this loophole is because ETFs have this weird redemption loophole where I'm probably saying it incorrectly. But they can redeem in kind. And because of that, they never have to distribute capital gains or realize capital gains. Like at the individual level when you buy, when you sell the ETF, yes, you'll get tax. But the ETF itself is never generating tax. and that's different than everything else, you know, a mutual fund.

At the end of the year, they have to distribute their capital gains. Like, if I was the IRS, whoever, I would be looking at this and not just saying, oh, we need to shut the box-specific loophole down. Like, I cannot believe ETFs have had this loophole exist for this long. And that's something I'd be, I'd look to close. And I would not be surprised if this is one of many catalysts that set us on that path. In terms of decreasing distortion and increasing fairness, you're 100% right. Also, I would add, it's philosophically neutral, right? This is bad socialism and bad capitalism because you're neutral to whether you then, once you get rid of tax expenditures like this,

you could either lower rates for everybody or increase spending for elsewhere, right? Like there's nobody philosophically who should defend this, and there really isn't anybody philosophically dependent. There are interests with highly concentrated benefits that are better at defending them than people with diffused invisible costs who hardly know they're paying them. Did you see that article on, it was in California, they're raising the minimum wage from 16 to 20. And the one loophole is Panera, like apparently one of Gavin Newsom's biggest donors is a Panera franchisee. And he managed to get in, hey, if you were selling bread before September 15th, 2023, you're loopholeed in.

And the definition of bread is very curious, like bagels are excluded from bread or something. Like, I don't mind I personally would probably like lower taxes than higher taxes. I personally would probably do away with a lot of the minimum wage stuff. But I don't mind if that's going to be the policy. It's just the loopholes are crazy. And for the Panera loophole, I think that's insane. For ETS to get tax, not get taxed and for mutual funds to get taxed, like that sort of stuff drives me crazy and creates huge distortions.

It's really problematic. Huge distortion. It makes it worse for everybody else. It creates a barrier tentry against the favored parties. And it really cuts into one of the biggest defenses that I would have for a society that in some ways really truly is unequal, which is a lot of the rest of us can post in the wake of big players who defend themselves. So like, for example, in our industry, in our state, the largest hedge fund has really low taxes because they got a special deal for not leaving that they could defend at their scale. but that creates higher taxes for everybody else. And so if they had to say, or if Panera bread in California had to say, the very legitimate

point, this is an uncompetitive policy. Taxes have to be lower. The minimum wage has to be lower or we will leave or we will fire people or we will be driven out of business. All that was true. And the next part should be, let's have good policies for everybody. But of course, what they say, it's an easier lift from lobbyists and easier give for the politicians.

say, okay, we'll give that to you, but that makes it worse for everybody else. This episode is sponsored by Teegis, the future of investment research. From the beginning, Teegis has been committed to creating efficiencies in the research process by making it easy to access the content that investors need to get differentiated insights. Today, they're taking it one step further by bundling qualitative content, quantitative data, and better automation and technology together in the same platform. Instead of piecing together data from fragmented sources, just log into TIGIS to get expert research, company and industry-specific metrics and KPIs, SEC filings, and more, all under the same license costs.

You can even take a look at your work offline with an Excel add-in that updates almost any model with the latest financial data, keeping all your custom formatting intact. TIGIS is the fastest way to learn about a public or private company and the only platform you'll need for fundamental research. To try it for free today, visit TIGIS.com. slash value. That's T-E-G-U-S.com slash value. Let's see. I mean, look, box, it's just endlessly interesting to me. People should remember all the tax advice warnings we gave earlier, but it's just endlessly interesting. I mean, I just 10 out of 10 for the product, 10 out of 10 for the execution. Like, congrats to them. It's so clever. It's so interesting. People should Google

the story and read it. Go ahead. I, an aspect I struggle with this is trying to come up with a theoretical limiting principle on how you decide your last dollar you'd put in box. And I would say that my most incautious enthusiasms were not encouraged by the people who would know most about this structure, right? Like when I say, why don't I put, I mean, one of my theories here is why not you lever up all of my assets and put a 50% exposure slash 100% of my go 2x levered and put half of it in box. You know, you're dealing with some counterparty risk and you're dealing with something that could behave differently at 100x the scale. And you're dealing with something that is, you know, there's just a little bit of that

blow-up risk just with everybody on one side of this, trying to do the same thing. And in some cases, of course, also using private company securities, not just public ones. So I think it looks almost perfect. It's in the category that I'm always thinking about, which is I'm looking for something that looks borderline too good to be true. I think this one's really good. but man, if something went wrong and you'd remind yourself, I'm playing for, other than the tax benefit, mid-single-ditch yield, you really have almost zero blow-up risk.

That's one of the issues with it is the arbitrage is of the tax nature, right? So you have to have, ultimately, you have to have some taxable income to offset, right? So if you, let's take it to the most extreme, if you borrowed a trillion dollars and put a trillion dollars into box and you'd have a little bit of drag there, right? Because you're, you're going to pay a little bit more on the margin cost for the tax-free rate than you're going to pay. So you have a little bit of drag there. So you have to worry about that drag. And then you have, what is it, $10 billion or $100 billion of tax shield, right? But nobody has $100 billion of taxable income. So that's one of the issues with it. Like the payoff is a little mysterious.

And then as you mentioned, like the other issue is it sounds so great. But, you know, We have seen these products. I don't think it's quite as a big concern here because what they're doing is pretty vanilla. But, you know, as you said, there's always counterparty risk. There's weird things risk. Weird things happen. So there's those directs. Let's completely change tax.

You know, I want to go to the third item I have on the list because it's just been something that I've been thinking so much about Bitcoin and the upcoming having and everything going crypto crazy. And people who, you know, we've been in the public domain for 10-ish years or. whatever. I've always been pretty crypto skeptical. And I think you've always been pretty, I don't even want to say crypto curious, pretty crypto enthusiastic. I mean, the first time you and I talked about Bitcoin, I think Bitcoin, but might have, you know, Bitcoin today trading for 60,000. So a six handle, I think the first time you and I might have mentioned Bitcoin, it might have had a six handle, but it might have had two zeros behind it or three zeros behind it. So we followed for a long time. I want to ask you like, you know, Bitcoin, having coming up in April, everything,

crypto going bananas right now? Like, where are you sitting in the crypto world these days? I remember our kind of earliest bids on government auctions in Bitcoin. We bid on 30,000 coins and we missed it. But like we were trying to get it at a bit of a discount. The person actually paid a bit of a premium, which is curious because it seemed like there were other ways to get it at that scale. But yeah, that was that was our, I think, our first time we ever public.

And actually, the government, it was very funny. They were very conscientious about our keeping everything confidential. And then they published our names and our bids and everything. I think there was a list of inquiries that included both bidders and journalists. And then just BCC'd everybody, which was kind of funny. It wasn't my favorite in the world in that this was the U.S. Marshals auctioning off property from people they consider criminals. And so you always imagine the criminals knocking on your door one day and say, hey, nice Bitcoin you got. That was mine. Give it back. Which was not

a conversation I ever wanted to have in any event. Wait, just on that, it is funny when you go back. I think that was from the Silk Road auction, if I remember correctly. And it's really funny. If you go back and you run the numbers on like how many Bitcoins were seized from Silk Road or how many Bitcoins were in Mount God, the sums are so staggering. You're like, oh, my God, these Silk Road people, if they had just forgotten all the assassination attempts and everything, and they had just bought like this, at the time, I mean, 30,000 Bitcoin was still money, but if they just bought some Bitcoin and held to today, they'd be 100 billionaires and they wouldn't be in jail for the rest of their life for assassinations, for really hamphous

at assassination attempts, to be honest with you. One of my observations about the world is that most crime is unbelievably risk-taking. I mean, just a fanatically bad risk reward, even from a totally amoral perspective. And sometimes the fronts were really good fronts. I mean, Enron, if you looked at the ethical people who are like, we're doing the things that they're saying everybody's doing, those guys ended up billionaires totally legitimately, totally ethically. Some of the, at one point, the youngest billionaire and at one point, somebody who left the company to start something else. There were some very, very high quality people at Enron. They were kind of doing the thing that was like the front for the bad guys.

And that was a fantastic business. There was no reason to do anything else. FTX. I mean, I can't imagine something with a more tarnished brand than, hey, we were in exchange and we stole all your money. I can't imagine something like exchanges rely. They are literally confidence businesses. And FTX, it's funny, like a little bit of it is they went bankrupt.

And then everyone was like, hey, yeah, it sucks. they sold their money, but their technology was so good and their trading systems were so good, we'd kind of like that to come back. And like they made a real thought of like bringing it back. I'm not sure where that went, but it's like, hey, like exchanges are licenses to print money, right? You make such great margins. You traded such high multiples.

Like if you just took the fraud away, you had a real business here. Yeah, you might not have been able to spend $50 million on everything you wanted, but you would have been making hundreds of millions a year. I don't know. It is just crazy. The whole ecosystem that has been built up around it for years and years and years has been largely a proxy for Bitcoin itself, that accumulating, storing Bitcoin, having it kind of in the ecosystem of your other assets went from being extremely difficult to moderately

difficult to recently super easy. Just, do you know how who has access to Bitcoin now? Anybody who has a Charles Schwab account can have it in with the rest of their assets, and it's easy to account for. It's easy to tax. It's easy to see. It's, you know, really. So it's interesting to me how the rest of the Bitcoin proxies have been doing extraordinarily

well and getting more, not less attention now that the underlying thing has gotten so easy. An analogy, I would say, imperfect, but similar to my thought on this, is we've had a very, very difficult to acquire diamonds for hundreds and hundreds of years. Now we have very convenient lab-grown diamonds. That should make the price of the difficult thing to go down right like uh but uh but we have now kind of a enthusiasm for everything right now which i find curious yeah i just i find really curious like we're in this very unique time the past four weeks six weeks where anything a i anything that touches AI or crypto is just screaming higher and i was in sixth grade when the dot com bubble kind of peaked and i i mean there are

real businesses here. Like, the AI stuff, Nvidia is printing money. Nobody's ever seen anything like this. But, you know, it does remind me a little bit of, I always hate saying it because people used to make fun of me, but Yahoo. I never know how to say that word. Like, they were making money at the height of the dot-com bubble because all of these

dot-com funded businesses were getting pumped with money and they were spending it on search banner ads on Yahoo. And like, Nvidia is making unreal amounts of money, but you do wonder if part of it is all this AI money is coming in and they're buying Nvidia chips. And if that ever, like, dries up or slows down, you could see this double de-sell. But unrelated. I just, I do feel like there's a little bit of this mania aspect with AI and crypto. But at the same time, I keep like, again, I've been very crypto-sceptical.

The only use cases to me have been, hey, we're trying to, you know, run crimes and keep our money out of the traditional financial system. Or, hey, we're trying to run scams or, hey, there's a mania. Like, those have been the main use cases. But I look at Bitcoin. I say 900 Bitcoins are mined every day, right? That's $54 million of new supply coming in. How much new demand is coming in now that Charles Schwab and like you're starting to hear about asset advisors saying, hey, all of our clients should have one to three percent of

their assets in crypto. So, you know, you switch from, you just go buy crypto in your Schwab account, as you said. Like it does seem like a lot of demand is going in. And if we're in a dot-com bubble, like, yeah, three years from now, maybe there's some sadness on the other side. But right now, it just, it feels like things are partying. It feels like they're going to get hotter before they get colder. I don't know. Again, that's famous last words. And I'm not here telling people to go party like it's 1999, literally, because that's when the dot-com bubble was. But I'm just saying like it feels

like we're at the start of something and things could get a lot crazier before they get more rational. And that's from a skeptic, but I can see where a lot of this is coming from. And if you look at the bankruptcy claims, and you look at all these things that FTX and these other guys were pouring money into, there was a big overlap between AI or AI, and I will stipulate whether or not it's a substantively deep connection to AI, but things that were marketed as AIVC private investments. And they have done extraordinarily well. The other crazy thing, like, people remember Mount Gawks, right?

where it went bankrupt and then Bitcoin went out a lot and then all of a sudden the creditors were like, we're getting paid a thousand cents on the dollar? Like what? And FTCS didn't quite hit that, but they had that AI stake that went up so much that a lot of their creditors were getting made really whole. And there are other Bitcoin miners that went bankrupt in the crypto winner of 2022 that were emerging in 2003 and they were geared up for these really big fights. And then all of a sudden, crypto went up a lot and they're like, hey, debtors, you're all

getting it 150 cents on the dollar. This is the most successful bankruptcy ever. Everyone go away. It's just been crazy. It's been crazy. I would also say use case wise, and my initial interest and enthusiasm is simply my finding something as an inverse of my confidence in government-backed fiat currency with no 2024 and no 2014. equivalent on the things that I value, which is, do you simply have backing by something that

is finite, such as gold? Do you have any kind of serious, monitorist policy? I am a extreme skeptic in smashing the accelerator in both monetary and fiscal policy simultaneously, where we have very, very high spending and increasingly high spending, and very high money production and increasingly high money production, and my thought that this is going to end extremely badly, need some kind of store of value. You don't necessarily want to be all in on equities all the time. You want to have some placeholder where you can stand still and catch a breath. And even with that, I would have cash 90% in US dollars, but I think 10% in something else, as imperfect as it is for me, is a placeholder, private sector, more finite supply.

It is harder to manipulate the supply of Bitcoin than it is U.S. dollars. And so that was my best use case for it as a store of value. It's not nearly as good for transactions. And it's terrible for what a lot of the bad guys thought, which was for impossible. to, for anonymous transactions. It's not that at all. You know, so that's why I think. No, I hear, I certainly hear all that.

I just, some of the store of value stuff, like the Bitcoin network relies on power generation, right? Like, Bitcoin is basically you're taking power and turning it into compute and Bitcoin. And I've always just worried about one of the things in my mind has been the mismatch between, hey, Bitcoin goes low enough, and all the sudden, you could imagine a world where power prices go up and Bitcoin goes through a swoon and all of a sudden you've got this issue where, hey, you're not making enough rewards to pay for the power prices of this massive computational scale. And I don't know. That would cut into mining and creating new, but you still have the current supply.

That doesn't destroy the price of supply. Well, you would have the Bitcoin current supply, but the incentive to maintain the network is from the mining, right? So Bitcoin goes no enough, our power goes high enough, and the network falls apart. I don't know. I couldn't be too crazy there. I've always been a little scary. I do want to one other thing that jumps out me, like that screams to me, hey, we're in a little bit of mania is I would have guessed when Bitcoin, you know, when I bit or choose your Bitcoin ETF came out.

We don't need to mention the specific companies, but there are companies that are Bitcoin proxies, right? And in 2021, when Bitcoin was going up and we were in this growth market, like the Bitcoin proxies benefited because if you were, if you had a brokerage account, if you traded public stocks, there was no easy way to get Bitcoin, right? You had to go open a crypto wallet and all this sort of stuff. You couldn't just go online and buy. So a lot of people would buy these Bitcoin proxies as a trade for them because you got indirect exposure.

And those generally traded at a pretty nice premiums of Bitcoin. because of that. And I've just been a little surprise. I understand we're in a bull market and everyone's dancing. I've been a little surprised that these Bitcoin proxies, the Bitcoin miners, the Bitcoin heavy companies, they've traded as well or much better than Bitcoin, despite all of this kind of competition for them coming online. You know, they were proxy for something and now you don't need the proxy. You can get basically the direct exposure. I've just, I've been surprised by that. I just wanted to get your thoughts on that. I agree. 100%.

It'd be interesting to think about what you would do with it. Were you a CEO of somebody who called it right? You could get credit for having called it right much lower earlier as somebody who really in some ways did add value for your investors just to do a big Bitcoin distribution to do like a Bitcoin dividend at this point, just like say, hey, you know. I think it'd be problematic. I mean, has anyone ever done a Bitcoin distribution because you'd be taking a public market security and trying to throw crypto into people's wallace?

Like the only way I could imagine you do that is you'd have to call up like a crypto ETF and be like, I'll trade my crypto into your ETF. You give me shares and then I'll distribute the shares or do like some type of tender offer for the shares is the only way I could imagine. But you seem more possible now than a few months ago. But yeah, I think you would do it. Yeah, it makes no sense to me that the proxies value would go up this much. That seems to me to likely be temporary. Let me throw completely different at you. I just wanted to quickly mention we don't have to discuss the antitrust merits or non-merits of this.

But one thing that struck me is in the past month, so we're talking end of February. This month, probably the biggest thing. deal that got announced was Capital One Buying Discover, which I think is a fascinating deal. I don't have super strong thoughts on it yet. I just think it's a fascinating deal. But a lot of people said, I mean, Elizabeth Warren came out within 24 hours and said, hey, this deal is bad, Big Bank, bad, merger, bad. Not a surprise. But a lot of people did say, hey, Capital One Discover signing this deal tells you what they think. And that's that the Biden administration is going to change, is changing, right? Because I think it's crystal

clear. Big bank merger, this is going to face antitrust hurdles. I think the antitrust hurdles are absolutely crazy. Like Discover is a distant fourth and Capital One issues credit cards. There's no change in competition. I think this is kind of the old Sprint T-Mobile line of it's not that we're going from four to three. It's that we're going from two to three. I think this would be a three to four because this covers languished for so long. But I just wanted to ask you, not on the antitrust specific case the Capital One discovery, but do you think companies are starting to look, you know, the election is nine months away? Are companies starting to look and kind of make their antitrust bets based on how they view the election? Or is this just Capital One was there and they said, hey, now's the time

discovers a willing seller, CEO turnover, they're having a lot of regulatory issues. We've got to strike while the iron's hot and, you know, it's not a view one way or the other. I find this deal fascinating. I think it absolutely is an election proxy to some extent. I, former neighbor of and huge admirer of Capital One's CEO, he's been thinking about this deal for a long time. This was something that he's kind of noodled through with his top lieutenant for years. Also, he is, this might be slightly grandiose to say, but he is almost in the kind of of Buffett category of will be seen as a white hat in a situation that has some ugliness in terms of the predecessor legal liability issues he's walking into and willing to

assume and fix. So I think he's kind of like a, I think he's upside to some problems that the target has had in the past. I think he's going to improve the robustness, competitiveness. robustness of the target. I think the government should require the deal before it stops it. And I also think it's highly time sensitive, some of the things that they would do. So I am, we are, I am not involved yet. I have huge regulatory frustration and skepticism. It, by the way, does not formally require an HSR review. It's a little different. It'll be OCC, but the normal antitrust concerns and people will be hounding. Oh, so no DOJ or FECC here?

No Hart Scott Redino, but Hart Scott Rodino, of course, does not exempt you. Art's going to do you approval or not technical having ones, not exonerate you from the normal antitrust law. And so they will have their hand in this via the OCC and other regulators. But no, it does not have the normal antitrust law. a trust review. So I think very highly of the buyer here. I think it is, I mean, this is one of the most competitive people in the country trying to do one of the most competitive deals and somebody, of course, who is tightly in business with the incumbent duopoly. So him coming with the third player,

This is one of the kind of most brash competitive onslaughts that a couple fat and lazy incumbents has seen coming. So the idea that the government will be the protection racket for them is obscene, but is... I'm so with you. And I was talking to a Capital One shareholder the other day, and he was like, there's absolutely no chance the government comes after them. And I was like, look, I hear you. I think this is an extremely pro-competitive bid. And Elizabeth Warren might have tweeted, uh,

stopped this deal as we were on the phone, uh, like literally as I was saying, I'm with you, but I think they're coming after it because it's just big banks, mergers equal bad. But I'm completely with you. This is,

you've got V-SEN master card and they are so dominant. And then American Express is different, but you know, they've got a niche and their big. Discover is an afterthought. And here you have Capital One saying, hey, we're one of the largest credit card issuers out there. we're going to use our brands and our spend to start up like an actual competitor over the long a third competitor who can really compete with Visa and MasterCard like that's opening up options for Americans for merchants it's incredibly competitive and I just I'd love to see the I'm sure there's going to be antitrust security I'd love to see how they framed the case but again having done JetBlue spirit and seeing is something that I thought was hugely actually pro-competitive

competitive, get rejected, and the government celebrate, and then, you know, the next day, baggage fees are going up and everything. And I don't think any of that's a coincidence. Like, I'm sure they're going to come. I'll be very interested how they come. But I just, I think it's so pro-competitive. It boggles my mind. I just think it's a masterstroke by Capital One.

Sorry, last thing. One interesting, I've done expert calls on Capital One. And one interesting thing you hear frequently. And Capital One will talk about this too. They spent the last 10 years investing in their tech stack to an extent that they don't don't think any other bank, particularly any bank below the big three, but even them has done. And they think that positions them very well for taking Discover on and improving a lot of the issues that you know to Discover has. And I just think it's so interesting a bank that

spent this much time investing in tech with the foresight to do like a deal like this. I just think it's a really, it's an interesting company. It's an interesting deal. I just think it's fascinating. Anyway, sorry, I ramble. I just something about Capital One's management that I know well that I think really fits in the public policy concerns here. Their CEO is an incredibly competitive person. I mean, it happens to be kind of an athlete competitive person. He is also not just a non-snob. He's kind of an anti-snob, right?

Like, Amex has a lot of like culturally historical reasons for who they deal with and who they don't, to some extent, Visa and MasterCard. But Rich Fairbanks' whole thing from the time he founded Capital One is, there are people who are underbanked who don't have credit cards and we can figure out with econometrics, with data, with even the much by today's standard is more rudimentary data sets they have then who can have credit. In some cases, it's tighter. In some cases, it's looser. Like, for example, compared to how Capital One will run it, it'll pull credit weight back on people who have very, very high balances and leverage elsewhere, right? It's less sensitive to what are you doing

with your credit card. That to him's not that big a deal. What are you doing with your overall finances? It can be a really good business to lend money and have revolvers to very, very indebted people until there's a crisis, then you blow up. Capital One, buying this deal and this buyer will lower our systemic risk, not raise it. And I'm certain of that. And it's also just good for America, because if you think about issues around class and race and other concerns that historically have had a lot of sensitivity around banking, my solution would be have somebody come in who's just purely data-driven, who says, I have no kind of historical biases. I care about the data and the facts, and that is Capital One. This episode is sponsored by TIGIS, the future of investment

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TIGIS is the fastest way to learn about a public or private company and the only platform you'll need for fundamental research. To try it for free today, visit tigis.com slash value. That's Tegus.com slash value. A few people who were close to Capital One when the deal was announced, they were actually laughing. They were like, the biggest synergies here are just going to be Capital One taking an actually functional, competent data machine and driven machines to underwriting everything and improving all the Discover because, I mean, I'm sure Discover it's fine, but they were basically just

like, it's going to be night and day and the improvements there, the improvements in marketing, targeting, and spend and all this. Anyway, it would be insulting for them to admit how much cost savings and how much improvement they can make and running this. This was actually a, this was a ton of fun. I really enjoyed all three of these subjects, but, you know, you and I both have a lot of physical therapy these days. So I'm going to call it here if that's okay with you and get ready to prep for

physical therapy and a little more work. Anything you wanted to last thoughts? My last thought would be just tying in protecting Visa and MasterCard with protecting United and the airline oligopoly and Walmart from Albertsons and Kroger. But boy, this DOJ and FTC are on offense. They are very confident in what they're doing. And the ability to go after, like if you look through the Albertson's Kroger complaint and their next moves are going to be informed by and strengthened by the decision in JetBlue that they have that has really unwound the Baker Hughes burden shifting in the way that they're going to be able to take everything else. So these guys, you might disagree and you might think based on your logic, they should now be.

be a little embarrassed and tepid. They are going to go on offense and they're going to go in, by the way, a very sympathetic judge for the government against Albertsons and Kroger. There's more to come. If you liked the line from the judge, there are those that like the spirit and I'm doing this one for you. Well, there's going to be more like that. Halberts and Kroger is so crazy to me because I need to finish reading the complaint. But, A, if I remember correctly, they defined union labor as a market, which I don't think union labor has ever been defined as a market for. It was union labor, right?

Or was it union grocery stores? I think it was union labor. That was one. And then two, I would just challenge, similar to spirit, like, I would challenge you, go on a spirit flight and then go on a jet blue flight and be like, yeah, I really think, like, go shop at it. go shop at a Kroger and then go shop, you know, do your grocery shopping through Instagram or go shop at a Walmart or a Costco and then be like, yeah, I really need the government to

just make sure that this business model is protected, exists. It is a little crazy. The two, I'll say, I promise you this is my last comment and the list both go, but the two best domestic airlines, if you just think if it's your money and your experience, right, This isn't just some judge saying something, but you actually are paying for the experience, but you have to have the experience, are JetBlue, which is cheap, and it's really nice, right? It's not cheap because, ha, ha, gotcha, they're playing a game with, largely a game with excise taxes. So all the games are driven by the government because you don't pay excise tax on bags.

And it's a nice, it's a fair deal and a good experience. And then the other one is JSX, and JSX is fantastic. Like, it's basically a scheduled charter, and it is a regulatory arbitrage, and the government's trying to destroy it along with the competitors, and in some cases, the same competitors that try to destroy JetBlue and the JetBlue deal. So I find aesthetically, if you just kind of look at who these entrants are, they've kind of freshened things up, right? That not only are they going into markets to make them more competitive,

but if they're newer and brash and young, they're often really nice experiences. They're the kind of things you actually do with your own money. At least you'd want the choice as a customer, but not only would you want the choice, but if you look at the ones that the government's really going after, it's often the choice you'd actually want to make. Yeah, it's crazy.

Okay, anyway, Chris, that was great. We'll talk soon. Thanks for popping on. We'll have another one of these next month. Very good. Talk to you later. Bye-bye. A quick disclaimer. Nothing on this podcast should be considered investment advice.

Guests or the host may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor. Thanks.