Yet Another Value Podcast - Chris DeMuth's State of the Markets January 2023

Episode Date: January 30, 2023

Chris DeMuth joins the podcast to discuss the state of the markets in January 2023 and discuss what's on his mind, including updates on AVTI, the meme stocks roaring back, and why energy stocks seem poised to continue to perform well.  Chapters  0:00 Intro  2:15 What's on Chris's mind  5:20 Quick hits on ATVI, SPB, and SJR  15:00 More on ATVI  24:30 Meme stocks are back!  30:00 Continued discussion on AMC / APE  37:00 Shareholder discounts and WE's discounted desks  39:30 Energy stock performance versus energy prices over the past year  44:20 Why the world seems structurally short every commodity

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listening to me to it. With me today, I'm happy to have my friend and the founder of Brings and Capital. Chris the Muth. Chris, how's it going? It's going great. Thanks for having me, Andrew. Thanks for coming on for the monthly State of the Markets podcast. Let me start this podcast the way to every podcast. First, the disclaimers remind everyone that nothing on this podcast is investing advice. That's always true, but that's particularly true today. We're going to talk about a bunch of different stocks and situations. We were talking before this call, and I think we went through you know, a hundred million microcap company, $500 million meme stocks in distress, all sorts of things. So we're going to talk about a lot of stuff. But just remember, none of this is investing

advice. Please do your own research, consult financial advisor. With all that out the way, it is late January, January 26th, 2023. We've got a new year. Chris, what's on your mind for the new year? Well, I think going a little farther afield within the event category than usual, because the two big, kind of stuck between a rock and the hard place problems in the Arb world for me are still very much in place. One tricky financing environment for deals that are just blowing up kind of pre-arb potential takeovers all the time. I mean, I did not do this, but in hindsight, looking at this past year, just shorting all

of the kind of takeover rumor stocks would have been an extreme. extremely lucrative place to find shorts. Yeah, especially anything getting acquired by private equity, like a private equity fund would basically, what we'd hear is they'd go in and they'd be doing, you know, their DCF model and they say, oh, we're going to raise a bunch of debt at 6%. And then three weeks into the L, I'd be like,

okay, the debt's 7%. And then, you know, three weeks later, they'd be like, the debt's 9%. And obviously I'm just pulling numbers out. But when your debt cost goes from 6 to 9 or, you know, 10 to 14 through two months of the process, It's all of a sudden the prices you can change. Like everything's just been destroyed.

So yeah, it's been really top on that side. In the few optimists amongst the private equity firm buyers right now, it's barely level, it's just a bio. It's barely a leverage buyout anymore. And the syndication kind of windows closed. Something that, you know, might have been an example of me missing the, missing the forest, staring at a tree, was. thinking about Twitter the whole time, thinking about that as an investment in the contract,

almost daily downgrading what the downside was and what it was worth as a standalone and what the incentive for the buyer was other than the contract. It was such an intoxicating topic that I don't think I pull back enough to say, think about all the other ones that have no contract, because that's what pre-arb and takeover rumors are. It's this without a requirement. And they pretty much all went bust or had modest takeover premiums and so forth. All those dynamics are still there. So I'm still grouchy and bearish on takeover rumors. I don't mind if we miss a few early on this year.

Like if we can get smarter about what environment we're in and miss, I mean, I'll probably be cranky the day we miss them. But like, you know, the kind of well projected deals, unless it just happens to be a that we just really want to own anyways, and I haven't seen one of those, I'm going to be pretty shy on takeover candidates. And then the other between a rock and a hard place, a hard place is zany regulators that are on kind of crusades against companies and deals, just trying to block everything and just brutally difficult regulatory processes. And then two things today, just to highlight as examples, interesting to see press from Bloomberg stating that the U.S. regulatory process on Activision, the timing was driven by trying to disrupt the companies in their ongoing talks with European regulators,

which I find appalling, it's almost a regulatory body equivalent of tortious interference. You have a private company that happens to be an American taxpayer that is in a discourse with a regulator trying to fix a perceived problem. So these are real people with real problems in the non-fictional world trying to make things better. And this American regulator is saying, oh, God, these guys are trying to solve a problem and fix something. We have to interfere with a process we're not involved in that would have universally applicable benefits, including to American. customers, we have to stop that because something good might happen. And if it was good, it would make them look less bad. And so we would have less power over them. I mean, it's really gross, vulgar low behavior that if this was a private enterprise, it would be criminal and should be.

You know, it reminds you it just, it just feels like a lot of regulators are living in their own world where companies are bad. And generally, I'm probably a little more, bullish on i don't know bullish sorry accepting of regulators than uh you who lean a little more libertarian but like i think of the the shaw the shaw hearing yesterday where the i mean you listen to more of it than me but where the canadian regulators almost thrown out of court because he goes in and he basically says hey these guys have a fix but we don't like the fix we didn't want them to fix this we wanted to we wanted to block this transaction it's like well that's not really your job like your job as a regulator was fine the original transaction would be harmful for

consumers under your standard block it get them to amend it but now that they have a remedy and it's fine you know like it's no longer a job to go and say like oh no you know we just didn't like this deal to begin with now that they've got a remedy to fix the consumers we're just we're angry they have a remedy like that doesn't make sense or I think of one ongoing that we've talked on this podcast before I mean I don't think we're there yet but spectrum brands where we're not quite to the regulator saying, oh, gosh, they're going to get a deal through that we didn't like to begin with. So screw this.

But we're getting close for a spectrum brands. They have a merger. They're selling their high-end door division. They've got divestures for everything that the government has a problem. And they're going to the court because the government's trying to block them and saying, hey, we've got a divester who picks the problem. And the government's basically saying, no, no, no, no, we don't care about divester. Just block this deal.

It's just, it's very, yeah, I don't even know. Those are both terrific examples. I listened to the whole hearing yesterday morning in Canada. My wife thought I was not being respectful enough of the regulator and hopes that I'm not in front of the same guy ahead in some future deal. I might not be allowed to go to Toronto or Ontario or anything, Chris. But good Lord, this person was very clearly, I mean, he was shaking. He almost looked like he was crying because the thing he thought was a problem was

away and he wanted something to hang them with. He wanted a problem to maintain his kind of petty authority. He didn't want, he was, he was shaking to the point of almost crying that this problem would go away, which totally reveals the whole game. Like he didn't, you know, there was nothing about benefiting the consumer or anything about the non-law point of the law. It was just, I am a regulator. As a regulator, I can block deals. Big companies are merging. I want to block deal. And it's like, no, that's not, at no point is that it just reminds me, you know, all the stereotypes of bad policemen or something new, they've got it, they've got a badge in the gun, they're going to let everyone know it. The regulators in this case have a badge and a

gun over big companies and they're going to let everyone know it whether what the big companies are doing are good, bad, whatever. I love the interaction between the competition commission lawyer and the appellate judges. The appellate judges, I thought, were handled the whole thing very well. But he had this point that he thought was incredibly fascinating that they just could not fathom what he cared about, which was he got that the authorities approved the deal and he got that they approved the deal that would happen and the only deal that would happen and the fix that would happen and the buyer of the fix and the price. They approved the thing that would happen, but he just thought it was just of utmost urgency that they go back and opine

specifically on the deal that's not going to happen, that nobody's trying to do the unfixed deal. And this was, I mean, it seemed to him to be like the most awful imaginable thing that this hypothetical thing that would not happen did not have a formal part of the process. And these judges were just trying to understand what his point was. And a good friend of mine who never agrees with me in public policy arguments, whenever I get shrill on a procedural point, he said, just to save us time, why don't we only discuss procedural points when they're against substantive interests? Because he points out, like, we almost never have something where I'm reeling about some procedural point that wouldn't serve some end that I also substantively believed it. like it's like never and he's like if we have anything really good to say about how we need to improve procedure let's just mention it when it would hurt our substantive point we're trying

to make and that would like remove pretty much 100% like he just hated the deal he hated the companies he wanted to hurt them and so he had this thing but the judges who didn't care and who never heard about this stuff before they're like why are you even talking about this and just to just to sum up in case listeners haven't been following this Canadian in court case. What he's doing is he's going to, if I remember correctly, Shaw and Rogers had an original divesture plan that did not pass muster. It was going to get rejected. So they went and found a divester plan that did pass muster. And basically the regulator here was saying, hey, judge, I still need you to go back. You know, it's like if I turned in a final paper and the

professor came back and failed me because she went and found my my first draft and said, oh, Andrew, this first draft wrong on every single point. I was like, yeah but my final draft was right why am i getting dragged it on this first draft which you know shouldn't really see the light of day nobody should have cared about any of that type of stuff yeah or you're just kind of annoyed you can imagine a parent uh who you know they're you know you have a whole lecture prepared for them about missing curfew and they make it at the last minute it's like oh like in theory you're trying to substantively help something for the greater good and that thing was done you should be happy but you're going to

kind of like you had this you had your speech already and so I think spectrums actually it seems so far to be in the same category where they enunciated a problem the companies offered to a hundred percent solve it and the government at least so far does not appear to even want to have a conversation about the entirety of the fix so again it seems like a point they're trying to make But in terms of thinking about arbitrage and deal risk, I still am close to 10 out of 10 at the moment of my concerns on both the regulatory side and the credit side. So I'm being fairly cowardly or just want to really get paid well for either of those risks, which means you know I like widespread. And one reason why I like widespread is one of the reason why I like widespread is, It's a big target where you have lots of ways to win.

You know, you get RICA and you win and you get a big delay and you win. And if it's supposed to be, you know, the upside is an IRA that's 100% or 80% and it takes twice as long as you think it's going to, you know, in tight spreads are small targets and you kind of have to be right about everything or it's a stupid investment. And so really widespreads that already price in kind of deal break probability on something where you won't mind owning it anyways, where you think it's an analytical downside and where it's already priced for regulatory aggression.

So, you know, we're getting there on Activision. You know, we already have a complaint filed. And I think things get more objective when you get in front of a judge. I mean, it's not exactly the same, but I think that if you use the value-investing analogy of Buffett's kind of short-term, voting machine, long-term weighing machine, the regulators, or these regulators at least,

are a voting machine, and the judges, for the most part, are weighing machines. Yep. No, look, I completely agree with, you know, just on Activision, we've discussed it ad nauseum on this podcast, but you know, it's funny, we've probably been discussing it for, I don't know, six months at this point. And when we started discussing it, the price was probably $75 per share. And now we're still discussing the price of $75 per share. share. And you know, I think, look, I will say, like, the thing that vexes me, I think the thing I email you once a week on, the thing that you're smarter on me, but I think we're both so unclear on is Activision needs to get approved by three people at this point. They need U.S. regulators

to approve it, and that's mainly the FTC. They need the EU regulators to prove it, and they need the UK CMA to approve it. And, like, I feel good. They can beat the FTC in court, even if the FTC is trying to tortiously interfere with other jurisdictions. I think they can come to a settlement with the EU. The UK CMA, like I think they can, but I just don't, I don't know, like, as you said, voting machine versus weighing machine, if the voting machine of UK regulators doesn't approve this, I don't know how you get to the weighing machine step. So that's one.

And then I'll let you say anything you want there. And then we can talk about, like, kind of the fundamental value as well. Sure. I think were I working on this for Microsoft? First of all, I decide if I really wanted to do the deal at this point and see how much you really wanted to try. I think they are trying. I think there would be good precedent for getting this deal done.

I think they wanted by the company. I would, I sometimes think of my strategy in certain things as I, my stupid phrase for it is a reverse triage where you basically have all this complexity interaction. like, can you just get the easy stuff done first, which not out of intellectual laziness, but out of, by the time you get to the really hard stuff, then you have fewer things to worry about. I would focus on the EU first and settle with the EU and settle with the EU on terms that show how you interact with them, how you are fix with luck. And of course, settling with the EU is really settling with large complaining competitors, get them on board with an EU settlement and then

market that to the CMA and then market that in the U.S. to the ALJ and settle in the U.S. last. And so that would be my order of operations. and I also would be looking for sneaking in as much as possible because this is going to be a big, expensive, complex process and a big settlement. I would work on sneaking in as much malice for my competitors as possible. If there's going to be this big settlement that restructures the industry,

the best thing that's been written about this recently was this wonderful piece that basically went through all of the iterations this industry's had going back, over the last few decades and any big antitrust settlement would have frozen that permutation in the industry that's just in constant tumult. Who's on top, who's on bottom, how these companies are structured. They've put these together and ripped them apart a dozen times as the market has evolved. It's an incredibly competitive dynamic market. And the government would just freeze it at one moment arbitrarily. And then that's how it would be 100 years from now

for something that has nothing to do with technology, nothing to do with helping customers, just has to do with the government wanting to make sure it looks like it's in charge. But in this case, it could really use that against some of the complainers and some of the competitors and really put Microsoft in terms of how things are done in the relationship between consoles, games, content, and platforms, they could make sure that if we're going to freeze everything,

I think that Microsoft lawyers could do an incredibly good job freezing themselves on top. So they could actually win on this deal in a number of ways. It makes it. I mean, I would be pretty surprised if you could do a legal settlement now that throws the video game industry in its current structure for 100 years. But I do hear what you're saying. But, no, and then just the other thing on Activision, you know, I have so many people, and it's generally generalists who reach out to me on this versus. kind of experts, but they'll reach out and they'll be like, hey, Activision Blizzard, you know, I think it's a heads I win, tails, I win more situation where, you know, the deal goes through.

I'm buying it 75 and I think it's, you know, you get over 90 from the Microsoft payment. And then they'll say, well, if the deal doesn't go through, like the simple math is, Activision will get two and a half or three billion dollars from Microsoft. They'll have a ton of cash on their balance sheet. I think they can earn $4 per share this year, four times 20 gets me to an $80 stock price plus the cash on their balance sheet and the like fundamental value i win a deal goes through i win like what's the risk here and i kind of just look at them like event investors will remember nxPI and nxPI had the exact same thing when they were getting bought and uh the chinese authorities

blocked that deal from qualcomm and you know the stock was 130 and everybody said oh if this doesn't go through it's going to 150 if it does go through it's 135 we're getting it and guess what the deal broke and NXPI three months later was trading like 70 or 80 per share and it didn't touch it's higher now but this was 2018 or so it didn't touch 100 per share again until you know like mid 2020 late 2020 or something I look at Activision I'm like hey you know companies under m&A they tend to kind of freeze yes it seems to be performing well now but it's a video game company like go look at take two go look at Ubisoft go look at these guys like video game earnings can disappear in a hurry and yeah

I'm just, I'm a little scared everywhere just because it's such a popular, it's such a popular deal. It's the biggest merger arbitrage out there. Like everyone's looking at it. I'm just a little hesitant on it. Yeah. I mean, the market generally has been strong this year, but just looking back over the last year, I think there's been an almost perfect record of it's already priced in not being correct in bare markets. And maybe it's just defining terms. Maybe it's a setology, but that in weak markets, something bad happens. The deal gets blocked. They want to get done, it trades down.

So I think that to extent that at least at our scale, I mean, I think it would be different if you wanted to buy, you know, a huge, you know, 58, it's a pretty big liquid stock. It might be less the case if you wanted a $5 billion position. If you want $100 million or $200 million or for your PA want $100,000, I think you can buy it after a break. a better price. Like, even if you, this is what you want to own, I don't think there's a need to own it. I doubt this is a real true actual arbitrage where you're going to win either

way. You can say that, but I don't think it's probably literally correct. It's probably not, in terms of sizing it, it's probably doesn't take you out on the downside, right? Like a huge position. Yeah. It's a huge position in Twitter could have taken you out on a break. I don't think a huge position in Activision takes you out. That's a good point. And like, again, we've been talking about this since probably last summer. And last summer, it was a little bit different where, you know, I believe the stock market was down a little bit more. Like the stock markets had a big rally recently.

So stock market downed a little bit more. So you're probably looking at Activision's fundamental value being lower. And, and Activision was not performing as well, right? like the new call of duty which i believe's been a huge hit hadn't come out there were lots of questions around blizzard they were having all these issues so like probably the fundamental performance and the multiple has gotten better since then so it's a good point like you can run it to much let much better downside today than you could uh a couple years ago anyway i i guess that's it on activision what else has been on your mind yeah oh last last little activism is over the

holidays i had family staying with me and every time i kind of groused at people that I need to go back to work, and my mom or dad would be in the house. It was always like looking at Activision and like checking on their new games, which I had to tell them like, no, this literally is the work I need to understand this video game company and these new games they're putting out, but it looked so unsurious that it was like, geez, now I need to come up with like a project that looks more like work to other people than looking at this video game company. it sounded exactly, you know, 40 years ago, like I would have sounded making an excuse on,

no, this really is my homework. But anyways, yeah. It's like when we were looking at Bob Evans and we were just shoveling mashed potatoes into our mouth, like, look, this isn't because we're gluttonous. This is serious due diligence here. And if I remember correctly, my wife and I went and we had their, we went and tried a lot of their menu. And one of them was their candied bacon. I was like, we need two orders of the candied bacon, not because. because candied bacon is the most delicious thing in the world because this is serious due diligence.

We need to get this one right. So let's see. So I think litigation is very interesting this year. I think kind of waiting to learn front of the judge. I think that there's interesting thinking about January since we're kind of coming to the end of the month that we're talking about here. interesting that some of the kind of zany, fattish retail meme stocks are kind of back in action this month, even with what I generally would think of as a more serious environment. You know, my grape, the entire bull market is, can't we just raise interest rates to 5% for one quarter just to wipe out everybody who shouldn't be in business in this kind of weird environment where you don't have a cost of capital now you do i would have thought to some extent things would just get kind of

monotomically more serious but some of the zany stuff's kind of coming back um uh between amc and and uh bed bath and beyond and some of the names that were kind of super hot you know uh over the last few years kind of having kind of kicking around a little bit this month uh tesol is going to go you're yeah it's been so a my favorite meme for the past nine months has been every time another meme stock does some type of squeeze uh somebody will post the the meme of your own pal being like oh i've got if you guys keep doing this i'm going to raise interest rates by another 50 basis points or something that's that's been my favorite meme but yeah it's been really weird this week you know you've you've seen the return of not this month. You've seen the return of meme stocks. Oh, here we go. As you and I are talking

Bed Bath & Beyond, which is one that you and I were talking about, like literally as we're recording this podcast, they got a default notice from JP Morgan and the stocks going crazy. But you know, Bed Bath & Beyond is the perfect one. Before we started recording this podcast, Bedbath and Beyond had a stock price of 350 per share, let's call it, right? And that gave it a market cap of $400 million, which is not huge, but you could go look at the debt. The debt was trading for literally pennies on the dollar. You know, like it was not trading 80% of par where maybe there's some ups. It was trading 6% of par, right? When debt trades that low, there is no equity recovery for a bankruptcy. There were there were all these reports about they're getting

ready to file for bankruptcy and nobody would give them a debtor in possession loan, right? If you can't get a debtor in possession loan in bankruptcy, like forget unsecured bonds, forget equity. Like people are questioning if your business can, like, every, dollar that goes in, they think it's going to get lit on fire because debtor and possession loans are some of the best loans generally you can make. Like, and this stock, again, I understand it's only a couple hundred million market gap. It's getting squeezed around like crazy, but it's just really weird. And so that, anyway, that one was weird, but I understand like there's no borrow, all this type of stuff. The one that really jumps out to me is AMC-Ape, which I know you and I've talked about,

you've written up a little bit like, look, AMC-Ape are, and anyone who wants to, and anyone who wants to wants to talk about this. Like I've read the contract. I'd love to hear anybody who's got actual other thoughts if you've read the contract and stuff. I don't want to hear AMC to the moon. But AMC stock is trading for 550 per share. Eight is trading for $1.70 per share. They're under contract to collapse those two securities. And I think it's going to happen in the next 60 days. Maybe it's the next 100 days. But those two securities are going to collapse. And, you know, you rarely, you can buy two apes for less than one for one AMC right now. And those two securities are going to collapse, I think.

So they're under contract. They have every incentive to the world to do it. I keep looking at this. Again, I understand, like, there are borrow issues there. People are worried AMC's going to squeeze. But when you've got that biggest spread, like, I did a post late last month. You can use options to cover the difference and still make a really attractive return. I just keep looking at this and being like, what am I missing here?

The prices can't all be right. I mean, we know there's a paradox. and we know the less expensive side of it and what we don't know is how the more expensive side of it behaves and it's hard to do just stock for stock ratio in a way that is particularly attractive so you have to use options or just do it on hedged or just say, look, I am going to stipulate part of my trade.

I'm not going to justify part of my trade. I'm going to stipulate it. I'm going to say there are people out there who think this is worth a certain amount, demonstrably today think it's worth a certain amount. I am not one of those people, but I'm going to just defer to them in the coming months that they are going to hold their view or within, 50% of their view with 60, 70% of their view. I mean, it's a big fat, big spreads are big targets.

That's the crazy things can happen. And he can still make money. Just owning the cheap side of it. No, look, it's a good point because what you're saying is you can just, because AMC is so difficult to borrow, if you want, you can just go buy AAPE and say, look, AMC and APE are going to collapse. I'm just going to bet that the collapse is somewhere between where AMC and AAPE trade right now. Hopefully the collapse is not like well below. And, you know, if you do that with smart

sizing, I think it can work well. But my, the thing I struggle with there, and I do think it's fine, because like AMC is so clearly popped up by these mean traders. And, you know, like the bonds there, they're not bedbath beyond. They're not trading that six cents on the dollar, but they're close. You know, the bonds trade about 50 cents on the dollar. And I think the equity is fundamentally quite impaired. So like, you're buying a security that looks worth this. But as you said, like who are we to question the market if the market says one's a dollar 90 one's five like why should why should we say oh the value zero just because we think it's just tough they're not doing what you do badly they're doing something else if i was going to own a share of mGM and said oh my gosh

what if everybody approached the slots with my view of what their rational behavior would be tomorrow then it would say okay then it's going to go to zero tomorrow but i don't think it's everybody's going to do what I think is rational for them tomorrow. I think they're going to keep kind of doing the same thing they're doing today. My mom and grandma certainly aren't coming with that rational view. That's their favorite thing in the world. And so they're going to kind of, so I'm going to simply stipulate what slot lovers are going to do with slots next month. I'm not going to demand that they instantly start agreeing with me on what's optimally rational.

And that's my view of AMC stockholders. I don't think they're. trying to do what I try to do. They're doing something else. And I don't have a reason to think that's going to change immediately. At least, you know, it's harder if you give me a year or two. I just think it's going to be for a month or two, more or less the same. And with some shot, if you said something crazy happens with AMC in the next month or two, I don't know, it could also go up 10 times or something like you have all sorts of crazy things. I just don't see it being less risky or less volatile with a big hedge and the world of kind of hedge fund guys wanting to

do a mathematically correct hedge. You know, I'm always worried about the, you know, the Volkswagen type scenario of just like something where like just own the cheap part of it and it might be less dangerous than what is mathematically more precise, but in a world where something crazy can happen, it might hurt you. And look, like, AMC, eight, right? I remember when, so AMC had one share of sock, just AMC, they could not, they hit their statutory limit. They're literally, their certificate of incorporation. They hit the limit on that, and their shareholders wouldn't approve more. So they issued eight as like a workaround. And I remember when eight came out, you know, ape and AMC economically are equivalent things.

They only trade different because of this, that one loophole. When it came out, I remember AMC was at like eight and eight was at five. And I got so many emails that were like short AMC, long eight, go to the beach. And before this collapse happened, AMC was seven and eight was about 60 cents. So if you had short an AMC and gone to the beach, you were getting margin calls at the beach left and right because the AMC bar was crazy. But what I love about this is like, you know, A, you've got a, the companies under contract to collapse these things. they've got all the economic incentives in the world to collapse these things. It's a massive spread.

And, you know, if you, you know, nothing on here is financial advice, but if you're trying to play this by either just buying ape or using an option to cover, like, you're also, I think the fundamental value is worthless. But if you got a meme squeeze and this collapse, like eight could go from two to 20. You know, you never know. So you're giving yourself the upside exposure of something wildly different than what you and I think it's going to happen happening there, but it's just wild. And again, I know these are meme stocks and everybody says, oh, it's a joke. They're weird, but there's also securities. Like,

we can look at them and, you know, weird things should have mispricing. I remember when Gamestock went from 200 to 600, there was somebody who bought a $150 put. The next day, GameStop has gone from $200,600. The put had gone up in value because the volatility had gone so high. Or, you know, GameStop, like, what's 99% out of the money we're trading with such implied ball you could like make really good money. Like, you can make money on meme stocks. You don't have to just like completely ignore them just because they're crazy. I, because I like to write about these things after we set ourselves up, however we set up, I'm kind of more familiar with some of these reactions than I would be otherwise. And the two that really stand out for me are early on

writing about the AMC, APE, divergence, and realizing there's some people who just like the AMC stock and they don't want to talk about anything else. And these are not people who are ever going to do a dip-dip loan or something. Like, I'm always like saying like, okay, posit a view on a company optimize where in the capital structure you have the best upside-downside probability. But they're not thinking about upside or downside or probability. They're thinking about they like the stock. The same thing earlier on with, I remember getting the reactions to, I think it was Nicola and the stock being super expensive relative to warrants or anything. Like it was incoherently expensive. And I just got these reactions. I was like speculation,

just like any other equity, bro. Trust me, I understand the logic. But I made a ton of with the stock already. And if it goes up or down, I'm okay with that. And that was like, Like, what if they, and you get like hundreds of reactions like that. And so you think, okay, they're not trying to do the same thing, but they exist. They can move markets. They're in some of these things. And they've all crowded into, I mean, I don't think it's a huge part of the market overall, but they've crowded into these very few equities, largely on, you know, free trade mobile apps.

And so I don't think they go away all at once. I mean, I think they kind of get squished with rising rates, but that at least in January, you wouldn't want to take massively outsized bets, the things that they love are going to go away right away. So just the retail focus nature reminds me. I saw this earlier and I thought you would love it. So what made this connection was AMC. I believe if you own AMC stock, they give you like discounts on popcorn and they're, they'll

like have AMC will have a AMC shareholder day where they'll try to bring AMC shareholders into so like really playing up to a retail base. I know in the past you've talked about, you know, there are wine companies where if you're a shareholder, they'll give you discount on wine or ski companies. It's like in Japan. It's in Japan, Japanese kind of middle class Japanese investors can sometimes have like their house just full of free stuff. Not as common in the US, but it's nice. And look, I can understand like Buffett, Berkshire, if you, in a Berkshire share, Geico will give you like 8% off your insurance. And I can encourage shareholder mine. So I get it. But my current favorite is my friend just sent me this this morning. If you own

it is, I'm looking at my phone to see, I believe it's 20. If you own 20 shares of WeWork, they will give you 50% off a WeWork all access plus membership for three months. WeWork stock trades at $1.50 right now. So for $30 worth of WeWork stock, you can get 50. 50% awful we work all access pass, which if I remember correctly, it's either $100, $100 per month or like $200 per month, depending on which one you get. But obviously, you know, three months, it's just crazy. You get, you basically get, uh, free ownership and we work, plus you get a hugely discounted rent. So I love something like that. Emotionally, I'm very scale agnostic to free stuff or bargains. You know, it's funny. It's like we have some big position and it'll be like a

significant upside and you know like free little things like I'll maybe be less happy but I'll be like half as happy about it even if it's like a millionth as big a deal um well you do have to get the the we work membership which obviously you're eventually you'll be up but if if you want a we work membership anyone who's listening that's the uh that's the trade for you go it's not it's not a bad one I just randomly wave my daughter walked by the window and I've never had somebody walk by while we were recording before so that was why I just like looked looked up surprised. There's actually, I'm not going to mention it until I double check that it's legit, but there's a, there's a new site that can link into a brokerage account and based

on your investments, gives out freebies based on what you own. And some of them are real arbitrages. You know, you own $50 of the stock and get $50 freebie, this or that. So I'll write it up if it's legit, but I'm going to play with it a little bit first just to make sure there's not some catch. I'm just imagining like, hey, you own one share. Ferrari for what is it. It's like $200 per share. We're going to give you a free Ferrari, $200,000 car. Anything else you wanted to talk about? Ferrari actually does have freebies. And by which I mean, well, we can, you know, they do give cars to their best clients that are big discounts to the market price. So that's, that's an interesting one, but that's an expensive game to get into.

By one bedroom, New York apartment with, I don't think we're getting into the Ferrari game. anytime soon. No, no. But anyways, what other things? I just want to check, see if anybody asked questions that we can peel off. I'll just say while you're looking through questions, the one thing that's kind of struck me as interesting is when we started doing these over the summer, you know, Nat gas was nine, oil was 120. Those are spot prices, not futures prices. I fully acknowledge that. But you and I are doing this in January. Nat gas is 280. oil is 80, right? So there's been big drawdowns. And like one thing that jumps out to me, and I've more, I've more written about it than talks on the podcast, but look, I was saying

it all summer. I was like, the curves, the curves for energy and energy company prices are completely diverge. Energy, energy companies are pricing in $60 oil and $3 net gas, and oil is 100 and net gas is 10. It makes no sense. Every day that this exists, cash is gut. into these companies. And we've kind of seen it play out, right? Like Amplify is one of our favorites that we've talked about, written about ad nauseum. And the stock has done well while oil and that gas have come in a lot. And that's because it was so discounted. And I think you and I, I know you and I both believe the stock's going to do really well once beta comes online. It's got all these other catalysts, probably not the time to fully discuss every single catalysts with

this position we've written and talked about. But, you know, like it just strikes me as over the summer we were saying oil and energy price you're going to come down like and then what's going to happen to your energy sucks like fine look at the prices and I think there's a lot of places where there's something's kind of similar in the market right now underpaying solves everything like I didn't know it was going to be a really warm winter I didn't know that's now if I didn't have a great way to do this and I wouldn't have done this speculatively because one of the problems with like hedging your book with the commodities outside of this. equities is if they're monkeying with it at the same time, you could easily be massively overhaged

and screw it out and part of a good idea into a terrible one. But like, boy, if we had hedged out natural gas versus our natural gas equity exposure, that would have been a demand's up. But it's really, it's really, I mean, I know there are people who do it. I think it takes a lot of money in a dedicated trader to hedge commodities is really hard because the commodities are always rolling. Like, you know, Nat gas in the winter when that gas is reeling demand is generally more expensive than that gas in the fall. So which are you had? But it's just it's really tough. And you know, you expose yourself to yet as you said, what happens if nat gas is short for one delivery cycle and that gas goes from two to 20 on delivery or, you know, oil is the most famous.

You could have been long oil short an energy company in 2020 saying these energy companies are pricing in the energy curve. And then oil goes from 30 to negative 30 in a day. And all of a sudden, you're like, oh, okay, yeah, I just, it's just really hard to hard hedge equities with commodities. Yeah, it probably would have made our risk and volatility worse, but it's just, you look at this, I think, boy, across energy and commodities right now, it's just amazing how much the equities still, I mean, just have survived this move so far and still just look disconnected. And I think Jeremy Raper's done incredibly good work on the coal side. But a lot of these, you just met of what you could get back in cash in a very short period of time. You own all these things free and clear. Like, hold your breath.

And in a few years from now, like, if you just think about it, like, the easiest way for me to think about this is always, one-time's leverage, my own money, forget about the audience, forget about the volatility, forget about the explaining day-to-day or week-to-week. And that's not our whole job. I mean, you know, if you have all the kind of short-term issues you have to deal with in terms of pressure. But if nobody was looking right now, if we had no audience, it was just your money and my money, one-time's leverage plus nobody else, I think the most interesting thing right there is just like what you can own free and clear that you've paid nothing for and out of what you get back in cash in things that I think are incredibly unpopular to own. what I think largely because of the ESG stuff and cyclical and volatile and exposed, I think very exposed, and it's very, very hard to have precise, correct views on the demand side, or you have to

know about macro and this or that. But on the supply side, it's quite analyzable. It feels to me, like across all commodities, not all commodities, but most commodities, it just feels to me, and I feel like a crazy, like, doom prepper, but it feels like the world is short, like, structurally short, every type of commodity, you know, or if it's not structurally short, the balance is hanging on a knife's edge. And if, like, you know, if Freeport in Texas blows up, actually that's not a great. But, you know, it just feels like if one little kink gets thrown into the wrench and all these things, go parabolic because the demand is so tight for them. And, you know, like the supply is just so limited because these things, they're infrastructure, basically. It takes years and years to build them up. And it just feels like we've underinvested so much. And I feel like a doom prepper looking at all this stuff. But I'm just like, I feel like from a value investor, these some like, hey, I'm paying 20% below the curve, even after the curves come down a lot. And by the way, it seems like we're structured short these things. So it seems like the curve has,

it's more pressure to the upside and downside. Like it's almost the best of both worlds. I think I have less and less to say, because I just don't think I'm that persuasive on it. I'm not sure that I'm right on kind of philosophical tradeoffs that are on the efficiency curve between economic growth and environmental protectionism, say. But I'm incredibly interested in and feel sort of bold

about not philosophical differences, but about incoherence. So if the world says we want an energy transition, we want green, new energy, we want intermittent fuel, and we're going to not just rhetorically commit, but we're going to actually commit with our capital to something that may or may not be a good idea. I'll set aside whether it's a good or bad idea for 2050, but it is not available for 2024, but we're acting as if we just kind of are blocking our ears for what we're going to do with a multi-decade difference between our philosophical preferences and our day-to-day needs or year-to-year needs. And we're just going to run into this in a few years. And in some cases, we're actually

going to trade down on the environmental benefits just because of the practical needs. And we've kind of had a little bit of a waiver because of this warm winter. But if this winter was as surprisingly cold as it was surprisingly warm, we would have been hit with that immediately. And it could be next year. The one that jumps out to you. So like, look, everybody loves nuclear now. I get it.

I'm all on board. Nuclear's clean. It's really efficient. Like, all this great. The one that really jumps out to me in Europe, you know, geopolitically should you have seen getting all your gas from the Russians might have like put you in a weird spot? probably but I can understand like not being prepared for this major gas supplier to basically go offline because they decide to launch a war into another country right but the one that always

jumps out to me and everybody points to it but it is so crazy to me new england over the winter is burning oil because they don't have enough natural gas and there's it's cold and the it's like the u.s has more natural gas than they freaking then we freaking know what to do with all we have to do is build pipelines and natural gas obviously it's not the greenest thing in the history of the world, but natural gas is really clean. And as a transition source, yeah, I'd rather be on nuclear for baselet or, but natural, like you're burning oil and wood instead of natural gas because you won't build a freaking pipeline from wherever you want to call in the, the Midwest or Texas, you won't build a pipeline. Like, it's absolutely

crazy to me. And you look at the stuff like, these decisions have ramifications. And, you know, if I wrote in the oil thing like the reason we stopped having peak oil fears in the late the late 2000s early 2000s is because we found the permian basin we found the shale revolution and everything in the u.s like if that happened today would politicians even allow for the infrastructure to exploit all of that to be built like i i don't know anyway i feel like a crazy person because i'm generally on board with like transitioning to cleaner stuff i think electric cars are awesome but why can't we have both like clean that gas nuclear and started transition. Wherever we want to ultimately end up, I think it's almost definitional of being an

adult and being rational to say, let's do what makes the most sense now, now. And we can talk about later, later. And I think that in some of these environmental conversations, it feels more like having a conversation with somebody else about their religion, where they're not trying to meet you with logic on a kind of secular footing of just upside downside probability. It's really, I think it started with a philosophically driven group that was very effective at convincing people in the government, and then they subsequently have gotten very good at convincing people in the investing community that would be good for them as a business. And if you look at places like Black Rock, some of the most strident environmentalists now are

massive capital allocators. There are a lot less strident about it when they're investing in China where they don't have the same influence, even where there's a lot that's dirtier. I mean, trying to solve these problems globally, you just walk into this buzzsaw of if you can't control China, it's almost, it's very fraught at getting it better just in the, developed Western world. But the ESG stuff has been a really good bits. I mean, you look at even just the marketing it has been really effective. And so once you have the capital allocators and the government and the philosophical environmental movement, it's just been incredibly effective. And my concern, I mean, I have a lot of concerns, but the concern that I think is the one that we

can express as an investment is that there's just this difference between the practical needs and the kind of hopes and the identity that people want to associate with in terms of where they'd put their money. And so you just have these underinvested needs. And then you get these just crazy situations where they're saying, you know, the price is too high so we need to crush supply. It's crazy. Yeah, it's been wild.

I'm sure people wanted to hear us go on a rant about energy. supply. We've been going almost out, anything else you wanted to talk about or anything I should want to get out before we talk about? No, I think, I think, I think, I liked our energy rant. I think that that's pretty good. Thank you for having me on. I've liked our energy rant too, because it's also been a profitable one too, but no, it's just crazy. Thanks for coming on, Chris. Looking forward to seeing your new Canaan next week. Looking forward to China's podcast next month, and we will talk then. Talk to you then. 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.