Yet Another Value Podcast - Chris DeMuth's State of the Markets November 2022

Episode Date: December 1, 2022

Chris DeMuth joins the podcast to provide his state of the markets for November 2022, including what's happened with TWTR since the deal closed, FTX's implosion, and a quick run down of a few other merger arb situations.   Chapters  0:00 Intro  2:50 What's going on with TWTR since the deal?  13:50 FTX's implosion  35:30 Chris's current thoughts on crypto  41:15 Walking through some merger situations

This episode is sponsored by Visible Alpha. While traditional consensus providers offer limited line items and forecast periods, Visible Alpha fills the gap by creating the deepest consensus data in the market, with more and higher quality sources and longer-term forecast horizons. Through relationships with over 165 brokers, Visible Alpha sets a new industry standard for consensus data across all of the companies and industries, products, segments, geographies, and more. Rather than digging through the financial models one by one,

Visible Alpha extracts data from every line item across sell-side models so professional investors can save time and better understand analysts' expectations on metrics beyond just revenue and earnings. Join our rapidly growing by-side client base and streamline your investment research workflow so you can focus on generating new investment ideas. Listeners are invited to try Visible Alpha for free by visiting Visible Alpha dot com slash value that's visible alpha dot com slash value all right hello and welcome to the yet another value podcast i'm your host andrew walker if you like this podcast it mean a lot if you can follow

rate subscribe review it wherever you're watching or listening to it with me today i'm happy to have on my friend and the founder of rangelie capital chris the mute chris how's it going it's going well andrew happy thanksgiving and nice to see you good to see you too. Good to see you too. You know, I, I haven't recorded one of these in two weeks, and I pop on, and my first thought is for the YouTube guy, uh-oh, I'm starting to get a little bit more homeless, though my beard doesn't, doesn't compare it to your well-kept enormous beard over there. Yeah, I know you both. I always like to check in on your pod and see where that's coming, how that's coming. That's what everybody wants, the state of our facial air. But anyway,

let me start this podcast the way to do every podcast. First, a disclaimer to remind everyone, nothing on this podcast is investing advice. That's always true, but particularly true today since we're going to be going through probably a lot of different stocks, situations, everything. So just remember, please do your own work, not financial advice, consults financial advisor. Second way I start every podcast is with a pitch for you, my guess. We don't need that here. We do these every month so people can go listen to our prior 10 or 12 episodes for full

pitches. Anyway, we were emailing back and forth a few weeks ago this morning, everything, trying to figure out what to do. And I think both of us were kind of thinking, I thought this a few weeks ago you thought this day like man what are we going to talk about not much has happened and then i thought i was like oh since our last podcast twitter closed ftx blew up uh there's been some movement uh you know we've got a democratic senate and a republican house now like it actually a lot has apt it's crazy just how much changes inside of a month anyway i'll pause there lots to discuss

turn it over to you what's on your mind today uh perhaps we could start with twitter in part because when we're thinking about topics, we're often on Twitter, getting feedback from listeners and friends and looking for ideas. So maybe start with that. I would say that perhaps the key to my heart is paying me the money that I'm owed. And I feel like I have this complete kind of reopening of my heart to Elon Musk after $54.20. And, you know, I think that he comes across very different to me as an agent than as a principal. As an agent, I like a lot of kind of convergence on the things you said, on the law, on accounting, on this and that in a way that this is sort of convergent. I admire and enjoy

the variance when you're a principal. He's wild, heterodox, and fun. I like, like all of those things. People say it's the Wild West. I think the Wild West was cool. And we live in a wild world and him letting that shine through a little bit is, I think, fantastic. I think I look at this and boy, if he can slash 75% of head counts and kind of left with this kind of motley crew of people who need the visas. So you're kind of dealing with these Indian and Chinese Americans who are looking around. And I look at these guys and think, I bet they can run this whole thing fine. And that's going to be a big, big reveal if it's all fine. And you're going to look at all these other organizations and say, you know, what are all

these other people doing? It paid six figures to make Insta videos about their cappuccino in the morning and yoga in the afternoon. I'm rooting for him hard. I hope it works out well. There's chaos. he is he is doing what i don't know if it was specifically mark Zuckerberg but kind of the era and the uh the schick of uh you know moving fast and breaking things he's certainly doing that and saying doing some things that are probably terrible but he can kind of see what happens fix the bad replicate the good and uh so i think it's great i've not been that impressed by the kind of people storming away from Twitter and they say they're going to the alternative.

There's such a network effect here. The alternatives look kind of dumb to me. You know, you got to get excited about it and you go and you write something, you get no reaction a few hours later. And so I don't think those are going to take off. You know, it's like people who threaten to move to Canada when their favorite politician doesn't get enough votes.

I would say Canada would be densely populated all the way to the Arctic Circle if all of those folks had followed. through and it seems kind of the same vibe as I'm getting on Twitter. So I think a lot of it's going to work, but it seems mad. I mean, you're just looking at this bedlam going forward that any kind of PR person or lawyer or anybody would tell you, don't say. And he says, so it's, it's kind of amazing to watch. Yeah, I've been all over the place on it. You know, I guess the one thing that jumped out as crazy was there was this night where Elon had just fired like another round of people.

and there was this night where everybody was saying, oh, if Twitter isn't here in the morning, like, here's how to contact me. And I mean, I don't know. I could be wrong, but it struck me as pretty crazy. I didn't know where that was coming from. Like, it's not like Elon fired everyone and the service is just going to collapse under its own weight. Like, I do think you'll start seeing, and I've noticed that maybe it's me personally or I'm looking for it. Like, you start seeing little bugs popping up or like spaces haven't been working or I've gotten weird things on notifications. But generally, you just start getting bugs. It's not like the site. was just going to fail will and no one would ever be able to log on for the rest of human

history or something. It did seem a little strange to me. I don't know. In terms of what Elon's doing, it's been wild just to see how chaotic it has been. I mean, I'm with you. It seems like it's kind of cool to see all these experiments running out in real time, I guess would be the favorable thing of it. Though it has been, I don't know, like the Twitter blue stuff where he allowed everyone, for people who weren't watching, he allowed anyone to apply for the Twitter Blue Checkmark, and people would do like, my personal favorite was somebody made an Eli Lilly account and said all diabetes drug, all insulin will be free in the U.S. going forward. And then Eli Lilly, the company has to go out and explain why insulin, which costs, you know, a penny to make is

priced at hundreds of dollars. They have this PR crisis. And it was hilarious to me, but at the same time, you could see like, oh, Elon, you try, I think he got, I don't know, tens of thousands of dollars in subscription revenue from Twitter Blue. And because of that, every brand. advertiser is pulling out their brand advertising like it was it was really cool to see in real time but you can also kind of see why maybe larger companies have to be a little more careful with their words anyway i'm all over the place but it's been fascinating yeah and and let me just back up on one thought um i defer to people's behavior when it's their own property maybe 99 percent, you know, my kind of, my carve-outs on liberty are just the kind of normal tropes of

basically exclude violence and fraud, right? Like you have to tell the truth. You can't hurt anybody. You can't hurt people and you can't touch their stuff. But other than other than limits on other people's property and violence, you can do whatever the heck you want. But I would like to pull back for a second and say, like, what are his duties to the bondholders? I mean, he certainly has to, I mean, bonds a bond is a creature of contract, not of, it doesn't have the same value maximizing property as if you have a common stockholder. You just have to pay. But can you do something that is so out of character with the likelihood that you could pay? He could always pay from other assets, right? Like, he could, he can pay as long as he wants to. But, but, but, but, but, you could always pay from,

But, boy, I'd be a little nervous if I was Morgan Stanley right now. I love your point you're making because I don't think anyone's really made this. Like, he paid $44 billion for Twitter, right? And $13 billion debt, 36 of equity. Let's say Twitter is worth $20 billion, right? Well, he is way underwater, right? Because the bonds are still made whole, $13 billion. But now his equity has gone from about $30 billion in that scenario to it's worth about $6 or $7 billion in that scenario, right?

So what he's doing, we call it an agent of chaos and it's been really interesting. But one way to look at it is, as you described, maximize variance, make this the riskiest option bet, the hugest maximization of value that the hugest upside downside of value you possibly can because from his point, I need to hit at this point a quadruple just to get back to break even, right? So I need to make this as risky and crazy as possible, just throw stuff at the wall. If it doesn't work, hey, maybe I turn Twitter's value from 20 billion to one billion. and that'll be someone else's problem, right?

That'll be the debt holder problem at that point. If it does work, even if it's unlikely, cool, I've made myself whole. So it is really interesting through that lens. And, you know, these are high-yield bonds. They do have covenants on what you can do financially. But operationally, I don't think there are really any covenants as long as you're within the financial covenants. He can kind of do what he wants.

And again, we saw this with the Twitter contract. Like the Twitter contract was made by a person playing by normal rules who was normally constrained by their reputation and kind of shame and all this sort of stuff. Elon just did not care about that when he saw he was about to lose money. With Twitter, I think bondholders might learn, oh, $13 billion bond, maybe you thought this guy was going to be constrained by normal rules. He does not care. He will increase variability to the absolute maximum to give himself a shot at making himself

full. And he doesn't care if he turns your bonds from, you know, 90% make hole on the downside to 10% or something. And it'll be interesting to see where they trade when they start to trade. It'll be interesting to see if he does a kind of pulsinger and come in and buy the month. It'll be interesting to see if he drives the bonds from 60 cents to 10 and then buys them at 10. I mean, I think a lot of this is not generally contemplated by somebody senior in the capital structure where there's just so much leeway in how you operationally handle the equity as the equity holder. It's really a one-off situation. One of the reasons why I'm glad it worked well, at least so far, at least for us, is it's not something that you can use normal kind of Kelly criteria, hey, what are we going to do the next hundred times?

There might not be a second time for this kind of situation. It's really, really amazing. There might not be a second time because I do think people are going to look at what Elon pulled during Twitter, and especially if you don't have a corporate buyer, if you've got a private buyer. I mean, how many $40 billion private deals have we ever seen? But if you've got a private buyer, or even if you've got a corporate buyer, people are going to start building in, I think, like, reputation blocks, right? Where if you try to get out because you've just got cold feet or the market's turned against you, I think there, I don't know how exactly.

There are lots of different things up there. I'm not sure which ones of them will go, but people are going to start building in, hey, if you get cold feet, here are some penalties if you try to pull a, you know, bad M-A-Material adverse eject or something. I think we'll start seeing that. I think the solution is, especially for anybody at the scale above where court expenses are really a big motivation. I think it's just going to be a penalty breakup, you know, like, let's do this deal at 60 if you challenge it and fail on the challenge. I think that that's the solution. Hey, I don't know if this works as a transition, but the person I've heard go farthest in terms of an explanation of being value maximizing in a way that has no risk aversion is SBF. He's actually explained how you shouldn't, it's selfish to pull in your sales that what you should do is you should even if at any matter,

mathematical upside downside and probabilities. You should add the most value. And even if that means there's this significant blow-up risk, it will be mitigated by other people with similar philosophies acting around the world. And he can't explain all this in detail earlier on and laid that all out before us. So I don't know what you think about him and that, but that's another one that's happened since last we spoke on the podcast. Let's talk. I mean, I mean, FTX, I don't know if we use allegedly or not. I'll just say allegedly a lot of corporate shenanigans going on there. Obviously filed for bankruptcy.

We're seeing huge domino effects in the crypto space. I mean, I've just been obsessed with the FTX story. It's one of those things. It sounds straight to say, but if you had pitched this to as a book or for like the show succession, you would have gotten turned down because it would have been too outlandish. Nobody would have believed like it could happen like this. Something could collapse this quickly. but it has just been absolutely wild.

We're seeing Domino's kind of fall and play out throughout the crypto space. I'll just turn it over to you. We can talk about FTX, we can talk about crypto, we can talk about all that type of stuff. I think it's amazing how stable his life has been since these revelations that he's not gotten dragged away in shackles. I'm with you there. I cannot believe, I mean, I guess process needs to play up. I don't know how he has in jail for all. charges anything i don't know how something hasn't been brought against him i've i've like had like thrown

pillows at the dining room table with my kids and gotten worse reaction from my wife than he's gotten from the authority so far like i don't i don't get to just like wander down the street like i'm in trouble at that point and he's like committed a multi-billion dollar fraud and he's speaking at a new york Times conference and he's free on his own recovery. Like he's a free man. I try not to get too conspiratorial, but things like him donating lots of money. And I think FTCS donated money on both sides of the aisle. I think there were people under him. He was huge Democrat, but I do think there were people under him who were big Republican donors. So I don't want to turn it into like a political thing, but him donating lots of money to politics and being outstanding. The Fed,

it reminds me of the fed's trading stocks and interest futures a couple months ago when that came out. And like there were no penalties for that congressman trading on covid disclosures and uh going doing one thing in their personal accounts and do like it just i try not to be too conspiratorial but it blows my mind that there's no repercussions for this and it undermines my faith in the system a little bit um and there the other analogy i throw out there and this has been widely referred to but in the kind of weird lack of follow-up is jeff epstein that you have you know if you have a fraud at a big enough scale that cuts close enough to home, that there's this kind of paralysis in terms of our regulatory and our political structure, kind of sorting things out. And maybe the world will

kind of come down on him like a ton of bricks, but it sure hasn't yet. So two reactions I have. One is that it is much worse for the crypto world. If he gets away from the alleged behavior so far, that basically says, well, because it was pretend money, you can go mingle accounts and do these things that would be just explicitly, obviously, of course, completely 100% legal if it was U.S. dollars. If the fact that it was crypto somehow makes this not criminal, then I think that that is a debacle for crypto. If he's personally liable, that says, oh, no, there were these high standards in four.

enforceable standards that he violated, and so that it would strengthen whatever residual value. So I think that him being free right now actually could exacerbate what is almost a daily further reverberations on other institutions as one after another goes bankrupt. Yep. Go ahead. Yeah. And then just the other reaction I have is, boy, if somebody comes to me and says they're in business to make money. I believe them. If they're say they're in business to save mankind, it makes me think

you know, they're in business to have orgies in a $40 million penhouse in the Bahamas. And his his his his kind of virtue focus is one that there are people on this planet. I know some people on this planet that are that charitable, but their own role in the charity isn't always like what they're fixated on. I think it's a kind of a weird thing and the history of like, I don't know the precise word to use on this, but sort of modeling kind of emotive mushyness. I know a WorldCom CEO was very much like that, that it does seem to be a bit of a bait and switch for fraudsters, that they have some kind of big, higher purpose that they make a big whoop out of.

And so his role with, you know, specifically with effective altruism aspects in people I admire, but it seems to be really jarring if you look at what the money was spent on, where it was spent, how it was spent, and how it was stolen. And then weirdly, just going back to the point on how societies reacted, the fact that big press organs are still kind of making this exception for him and that it wasn't his money, it was other people's money, and being, you know, kind of virtuous and charitable. with other people's money is not a virtue.

That's not a good thing. And big, serious press organs are kind of missing a beat on this that it was stolen money. It was other people's money. I've been, it's another thing, I've just been really confused by, it's pretty clear, like, if this had been a normal collapse and they had been over leveraged

or, you know, what apparently maybe happened to block by where they had a lot of collateral stuck at an exchange and they went bankrupt, like that would be one thing. and then you could write, oh, this guy fall from grace, charities were counting on him. But it is so strange. It appears allegedly he was just stealing the customer funds.

This was a pretty big, I hate to use the F word, but this was allegedly a pretty big fraud. And it's strange, we're like, oh, it's so sad. He was going to donate a lot of money charities. It's like, yeah, he was going to donate by stealing from, just stealing from people. Like, that seems to be the bigger part of the story. our friend Thomas Brazil who Brazil who's done just magnificent work in the past on crypto bankruptcy claims and a lot of these have done incredibly well both in the crypto side and on the fraud side right so you have made off claims did incredibly well

I know Bapost bought a ton of you know kind of 30 cents in the dollar largely made whole because of the amount that they were able to come back with from the banks that had introduced to Madoff. So those claims were really good. The Mount Gox claims are really good. This one's going to be a lot trickier, though. I mean, I think there are kind of gray markets and just a couple pennies of the dollar at this point for FTX. You know, sorting it out where the money is, how much money there is is going to be a brainer. Let me switch to a different topic.

One thing with FDX, I do remember last year there was a podcast, and it's not the one everybody points to over the summer, but last year there was a podcast. People were asking SVF about Tether. And he said, oh, Tether, you know, we've withdrawn billions of dollars from them. They're fine. Don't worry about this. And then he walked through a bear case where he was like, well, let's say Tether is worth $0.90 cents on the dollar instead of a hundred cents on the dollar.

I remember things to yourself, that's not the bear case. The bear case is tether's a fraud and it's worth zero. And I couldn't believe this guy who was running in exchange and everything, like wouldn't be even willing to comprehend the barrier case of the fraud is a zero, right? All allegedly, and I think Tether's actually held up, but allegedly. And I've been thinking about that when within three weeks, you know, he goes from the Golden Boy of Crypto to everything collapse. And part of what gave him like when I was listening to that tether and I was so surprised, like he'd been back by these big VC firms. He was the golden boy of Tether. They had given him this, I don't want to say whitewash, but they give him this reputation.

And then he collapses and you find out no HR, no systems at the thing. He's living with all. I think everybody knew he was living with the execs, but they're engaging in whatever they're engaging in. But, you know, it's so surprising you come so quickly. Their balance sheets terrible, all of everything. And I was just kind of wondering on the VCs, like, does this change your opinion of VCs at all? Like, all of this could have been solved by very basic due diligence. And I understand you're not going to get private equity.

we're buying a whole company. We're going to talk to every employee due diligence. But I'm surprised that people were writing billion dollar checks into this thing. And they wouldn't have the due diligence of, oh, you have basic controls put in place and all this. Or, hey, I think you would have seen the balance sheet was pretty crazy, pretty quickly if you had looked at it, where it allegedly was all on FTT tokens and everything. I'm just, I'm very surprised by this. I'm wondering, is this one off? Is this just how crazy crypto was?

Does this make you think a little bit differently of VCs? Just as a funny insult, I might say, no, it doesn't make me think different to VCs. But I would say, boy, was it bull market behavior. So it was kind of a circular on both sides. Hey, everything we've done has worked for a few years so we can play very fast and loose, rely on our gut or intuition. The last five of these, we keep marking up, so I can keep marking up this one. So kind of this two-sided hubris. And then on the other side, the, I mean, and the best thing that was written about this was live on Sequoia's site, just putting it all out there, including, you know, him playing video games, apparently badly, but him paying video games while he was doing this pitch that was just the spectacular pitch in terms of its success.

but kind of flippant and casual and no real work being done. I mean, I think that maybe the other one that comes to mind in this category is Theranos. If you say, this is the youngest self-made billionaire in some category, then you do the kind of resulting fallacy of saying, given that that's the conclusion, it's my job to back into why this person is great and brilliant and wonderful. And if you look for, and at the kind of emotive, and friendship level, it's kind of sweet that you can always find something. If you say,

hey, I'm concluding this person's great and wonderful, you know, young, a self-made billionaire, the conclusion is they're great. It's my job to understand that. And oh, by the way, if I can't get there, then that's because I'm stupid. So let's see how smart I am by figuring out why the emperor's clothes are visible. And because they're already been made an emperor based on that billionaire status. And having over a billion dollars, at least on paper, you know, becomes part of your title in a way that if you have $700 million, you're still pretty rich guy. You've probably done something right. But it's not your identity in the same way. If you have over a billion dollars, you know, it's kind of billionaire Elizabeth Holmes,

billionaire Sam Baker and Fried. And so once they reached that status, it was kind of this flywheel on the VC side. And they were doing no work. I mean, boy, you know, you would do more serious diligence on like some, you know, a dry cleaner thinking about buying a second unit for half a million dollars would do more serious work. I mean, there was just nothing. Just on Theranos, it's a great comparison, but the thing with Theranos was, if I remember correctly, she was faking blood test results, right? So she was taking blood, sending out, and you come back and just faking blood test results. And that's a hard science. And I understand, like, look, we've got to look at the people who got defrauded by that with a suspicion. But

but it does make sense if I could, I gave somebody my blood and five minutes later they came back and had all these results. It makes sense like that's a type of fraud that's very hard to check. This was financial services. Like it seems pretty crazy that you couldn't catch like the balance sheet fraud and all this sort of stuff. It just speaks to an extra bottom level of no due diligence. And like it somebody said there's the old Peter Thiel once said maybe there's not enough fraud in the government once right when I think when Donald Trump was taking over. And I get what he was saying. And maybe VCs aren't investing in enough zeros, but that's the zeros where you're doing like angel round stuff, right? I'd expect if you write

$100,000, $200,000 checks to startups, if three or four of them aren't frauds or just like instant zeros, you're probably not taking enough risk in your super angel rounds, right? But these were billion dollar checks and you got defrauded by a balance sheet that was made up of like literally magical beings. It just, it seems so crazy that somebody could get taken. taken in by this, like, there is like, it just, it's a order of magnitude worse on the due diligence that it's just kind of hard to convey to me, you know? Not just huge checks, a similar point, but checks at these big evaluations that imply a certain kind of institutional aspect at that point where I think it would be an argument for

checklists and there should always be checklists and kind of multiple source skepticism. And there should always be that even if you like. and respect the person. You know, I think that a lot of skeptical work is done on the short side. If you look at somebody looking to take apart something, they do a lot more of the kind of sleuthing. And I think those sleuthing behaviors should be done on the long side and in due diligence, even if you respect the person. You know, it's not just that you discover fraud. You might just discover some aberration. Maybe you discover they're the victim of fraud. Maybe you discover this person is just benignly delusional about some opportunity that you just don't really see

there. But the only way you really get to the truth is multiple sourcing is skepticism and is thinking for yourself and just trying to get away from the kind of huge bias from seeing the positive result that came before because they're seen as kind of hot and then peaking at other people's conclusions. I mean, I think that it's fine to take into account, but like something I think we do well looking at a security that VC could do maybe a bit more looking at a private business, which is have a separate channel where you ultimately will compare all your thoughts, but you kind to do more independently, like almost try to not pay attention to who else is investing in around and just like going farther doing your own work. And then you can peak. But I feel like

VCs like almost all peaking. Like it's almost all just like, hey, if somebody else is doing it, then I'll do it. If they're not, I'm not going to. And so maybe, yeah, skepticism, due diligence, multiple sourcing and deeper, longer, clean room research before you compare notes. it also I agree with all that the one the one other thing that jumps out to me is I did not know about the Alameda FTX relationship before all this blew up like I'm I wasn't following it that closely I obviously wasn't writing billion dollar checks into this or anything but I mean just the fact that BCs knew about this and kind of ignored it look we've invested in things with related party deals before sometimes you know there are explanations or it's benign but

most of the times I'd say there's a reason when you see a related party deal and a proxy or a 10K, it's a big red flag, like a big, big red flag. You know, if it's a bank and they say, hey, one of the bank directors got his home mortgage from us, that's not a big deal. But you'll see, I know a couple companies like they're restaurant companies and the CEO's brother-in-law is doing the construction for all the restaurant companies and be like, oh, it's not a big deal.

No, that's a huge deal. And this, hey, the CEO who's running an exchange is also the CEO of a co-mingled hedge fund. crypto trading platform like whoa i can't believe that was a red flag and it's just it's both a reminder and it's shocking to me that uh that this kind of wasn't it wasn't picked up on or wasn't played until the exchange was literally up in flames yeah i mean a disaster and the more flexibility somebody has as a business person or as an allocate or anything else the less flexibility they should have or the less control they should have of observing accounting and and managing it. Like, I wouldn't want to have both. Like, if I get the substantive control over

a decision like he had over FTX, he should have had zero control over actually moving money around between these different entities. And he shouldn't have wanted it because he said, look, look, no, I can do real harm here. I want somebody else in charge of looking at how money moves around. And they just had this incredibly fast and loose and casual, like even if there wasn't, fraud. It was just wildly inappropriate. And I don't think you would want to have that much discretion because there's just going to be this constant question over kind of dual loyalties or fiduciate. There's no way to do that kind of mixed mandate and maximize everything. So you're constantly going to be in this tension. And so there's no way that could have been

done well. Something else I'd throw out about Alameda and the interesting early part that I had only overheard about in terms of arbitrage because you think, boy, if you're going to do, forget about merger. We could talk about merger up later if we wanted to, but forget just looking at like actual riskless arbitrages right now in capital markets are generally way to the right of the decimal points and tiny fractions of a second. So you're dealing with, hey, there's different currency markets and so forth. And so, you know, in, you know, a, you know, you know, capturing, you know, hundreds of thousands of a penny in, you know, for an instant, the idea that you had these, you know, 40% spreads in two different markets that you

could capture, it probably seemed like this bonanza, but the theory, and I felt guilty of this sometimes, the idea seems like it's 90% of the battle, but it's really 10% of the battle and just operationally executing its 90% of the battle. If you came up with idea, you think, And if you're kind of, if you're smart and you like math, you want to say like, hey, it's done. I came up with this. Like, where's my money? But the answer is one of these two things is a fraud. You can't really move it.

There's a regulatory problem. Just do it. Something. And I have a little bit of mixed feelings about him. But one thing that Jim Rogers always did when he was doing with the emerging markets. And I think of crypto is a lot like an emerging market is he would just go and he would do it with like $500 or $1,000 and he would just set up the relationships. and you just start executing things at some small scale looking for a big opportunity. But just so you could say, like, okay, what actually happens if you show up in Kenya and you buy a coffee stock in their market?

And the answer is like frequently, not what you expected to happen. And so, but let's figure this out and let's learn lessons and pay $500 of tuition, not billions of dollars of tuition. And so I think this had a lot of aspects to me of the emerging markets where, they were just constantly whipsawed on operational regulatory problems. No, look, I can't remember when it was sometime last year when all the BlockFi and everybody were offering big deposit yields. And I was trying to figure out how they were doing it. And in hindsight, it seems, well, Block 5 file, but I don't believe, I don't know why,

but in hindsight, it seems like there might have been some other things going on. But at the time, it looked like a lot of it was Bitcoin FuturesR was what was happening. and I would look at that Bitcoin Futures, Arb, and I tried to figure out, and the risk I kept coming up to back to was there was collateral risk, and there was real blow-up risk, right? Because you have to, like, do it at one exchange and another exchange, and if one of the exchanges shut down or something, like, there were risks to it. But, yeah, I do, I'm probably describing it poorly because it was a while ago,

but it was fashioning. I didn't want to ask one other thing. Sure. You've been a long-time crypto, I've been, I mean, I remember back to the range of Cal podcasting days when Bitcoin was, you know, it's five figures now and it was in the four figures then and you're a Bitcoin bull. I've always been a little bit more of a crypto skeptic, I would say. I did, I did a lot of work on Ethereum and I kind of liked it, but it's always been hard for me to see like every use case seems to come back to, hey, we're going to do

traditional finance, but we're going to do it more poorly, more expensively, more slowly and with a lot more operational risk. So I did just want to say like, you know, we've seen five different blowups inside of a month here when you as a crypto i don't know if you're still a crypto or not like has this changed your take or your thoughts on crypto at all i i would say that i am a government skeptic and fiat skeptic and so optimist about the idea of decentralization and private sector alternatives on almost every topic including currency um i would say that It's going to be a steeper hierarchy in what survives, so good for Bitcoin and Ethereum compared to everything else.

And so it's going to be fewer institutions, and it's going to be wild. It's going to be wild, but I still think that in a world where you don't have backed currency, I still think that it has a role as a store of value. I think that it's a lot harder to make the case for it for transactions. I don't think it's going to be a big part of our lives, but the gold analogy I still think holds up, but gold's not a big part of our lives. So to say that it is a 21st century gold, I can go days or weeks without ever thinking about gold, even if it's nice to have something that stores value in an inflationary world in a world where I am mistrustful of both politicians and central bankers, having something else is something that still is attractive

to me. The part that's least attractive and that attracts bad actors is just to pick up on two things. One is the yield on some of these accounts that just people should be very wary of very high guaranteed returns. I think if you kind of, there's some threshold above which the percentages that are fraudulent is like 100%. And if you look at the, I think it was the Alameda pitch deck. I don't know if you saw their debt instrument where they were like 15% guaranteed boy, unless the unless the treasuries are yielding 15% and it's almost impossible to say that. And even if they were really sure,

that level of confidence they're trying to imbue in you is literally a confidence game. They need you to believe it for their thing to work. Just on the Bitcoin as, I definitely heard the Bitcoin as digital gold argument a ton. I think it's probably one of the best arguments. But I guess my two pushbacks on this would be is like storing Bitcoin is actually like a lot more expensive than storing gold just because

of the digital, the hash rates and everything, like it takes a lot of computational power. So I think that you would need that to calm down a lot over time. And I'm not sure what the solution to that problem is, would be number one. And then number two, I think this would apply to gold as well, but it's like, hey, this year is going to be the highest year in what, 40 years for U.S. inflation and Bitcoin's way down. Guess what? Gold's down too, but you look at those and say, hey, these are supposed to be stores of value that protect against inflation and we're having the highest inflation on record. And both of those are down? It's like, are they really protecting against inflation? Yeah, no, it's a great question. It's a hard case. And the things that just because I'm an American and I think about our government and I kind of, my biases or starting premises are.

certainly wishing that we had more robust symmetry in our monetary and fiscal policy whenever there are crises. And I indulge the things they say and do during crises. I just wish we'd pull back proportional. If we're doing something for a reason, I wish we would stop doing it when those reasons no longer applied in a way that we're more responsible and more long-term oriented, such that I have a lot of concern about the U.S. government and how we behave. in ways that affect our currency. The problem with the problem is everything else seems to be so consistently worse that America can actually kind of shine pretty brightly compared to other currency pairs, other government policies, and the private alternatives, right? And even the

suspicious uses of Bitcoin, even from a kind of amoral perspective, it's not particularly anonymous or discrete, right? Like, you know, even if you had less than a laudatory reasons to want privacy, it's not that private. So, yeah, so I think that when I start from the premise of distrust of our politicians and central bankers, there certainly should be something better. Bitcoin's the most plausible one in Ethereum. I think, I don't know if it's something better that the private sectors come up with for store of value. It would be something. something useful. It would be barrels, maybe barrels of oil and Timberland is better. And maybe you just denominate your life in, you know, Mr. Walker is worth X number of barrels. And you can always use

it. I mean, that's maybe not crazy, but that's the only thing I can think of as an alternative. I was going to say that would have been a good store value over the past year. But guess what? Oil at this point is now flat over the past year, despite all of the inflation. And lumber is way down over the fast year. I think we've done crypto and I think we've done Twitter. I do want to quickly in the last couple minutes we've got, I put out a tweet just saying, hey, there were a couple other topics I know we want to talk about. I don't know if we'll have time, but I put out a tweet that said, hey, excited to have Chris on. There were lots of questions on there. I can walk you through or if any jumped out, we could quickly address those. You know, I saw things people asked

about. It's kind of a coincidence. I can almost all of the merger ARP stuff right now. now say later, lower, I'm skeptical and think there are tons of regulatory problems. And that holds true for somebody asked about tower semiconductor getting bought by Intel. I think a creative solution, which is rarely employed by buyers, is simply to carve out national assets and close deals X China in this case or X some unfriendly jurisdiction. I think it's a cool solution. I would try it. My experience of floating that by boards and managements and lawyers is almost a consistent bust. Unless you just have a tiny business, they're going to deal with China all the time. They don't want to stick up their middle finger at China, even for the

case of a closing this deal. It's a cash deal. They're paying $53 in cash for the whole business including China. They don't have a reason to, in doubt they'll do something particularly novel. So I think that that's a real regulatory delay and outcome risk. On that one, you know, if I remember correctly, that was a deal that was announced in February of this year, right? And I think Tower Stock was in the mid-30s when they announced it, and it's a 53 cash deal. You know, it does come back to incentives too, right? If the market had gone up or things had gotten better, Intel might be incentivized to say, hey, we'll close without China. But at this point, you know, I have not done the fundamental work, but my gut would say, based on where

semis have traded it and where the net, like tower being the low 20s, maybe lower without this deal. So if you're intel and you're like, hey, we can pay 53 for this asset that standalone would be worth 20 or we can walk on China like China's kind of giving us a free out if I was Intel I'd really be looking to take that thing I I wouldn't want the creative solutions that aren't required of me right versus I I mean we did say long time listeners remember we mentioned uh Apollo tenaco over the summer and that deal did close but I was pretty skeptical it would close because they required Russia Russia and Ukraine approval and I was like hey the market's turned against Apollo this is super levered business, it might be worth 25% of what they're paying on an equity basis.

Like, if you're Apollo, why not just take this regulatory gift you were given and walk? And they ended up closing. I'm not sure why. Maybe they were just still overall bullish. But if I'm Intel, I'm not doing something super creative to pay double what this business is worth, you know, even if it is strategic. Why not rewrite the contract, go lower and then do something cheaper, but get a pound of flesh for doing it for sure.

I agree 100% as far as Intel's reaction with Tower and the price in regards to their relationship with China. And also thirdly, in terms of just kind of thinking about a bare market, one of the things that really we've seen time and time again, and I'm kind of is any saw or cliche about what should be where you think is priced in the market, it still is going to trade horribly the day that that news comes out. So it's going to be what your math says approximately. minus, not what your math says approximately, plus, oh, they should kind of know it's in trouble. I mean, we've seen horrendous breaks when deals have broken and just relentlessly bad trading on pre-deals, non-contractual deals.

And this one in a sense you could say is non-contractual in terms of we're looking at a situation which will be outside of the contract in terms of the requirements of the buyers. And every single time, it's like people sharpen their pensions. afterwards, but like shoot first and ask questions later in terms of the price and what happens. And so I just think that it just makes me very, very wary of situations like this. If you want to see an example of this, Rogers was getting bought by the ticker there is ROG. They were getting bought by DuPont. And, you know, the contract was scheduled to terminate earlier this month if they didn't get China approval. They didn't get China approval because China's not

approving anything. And DuPont just said, oh, we agreed to buy you guys end of 2021. It was a hot market. We paid a big premium. Now it's not the end of 2021. We're, we're just going to pay the break fee and walk as we're allowed to do. And Roger stock, again, the ticker there is ROG, goes from about 235, 230 the day before Rogers walks to 100 the next day. You know, so I had heard some people were like, hey, I think DuPont could walk on this. I think there's a lot of downside to my chagrin. I didn't do any work or do anything there. But obviously the market was just kind of asleep at the wheel there.

They thought DuPont, big company, maybe they'll do something creative. Maybe there's some reputative. No, DuPont just said, hey, we can, by writing a $100 million check, we can save ourselves about $7 billion in value. I don't know the exact number. And they did what their economics aligned with. And I think Intel in, I believe that contract expires in February. I don't know if there's a, I don't know if there's an extension if they haven't gotten into

room, but in the next three months, I think Intel we'll be looking to do something similar. I don't know if Tara's got a price it or not, but it seems, it seems likely to me. Tight merger, arp spreads are just great structures for shorts. I'm kicking myself on this one. And it was kind of in no man's land. It wasn't wide enough to own or tight enough to short early on in the deal. And I kind of lost the plot on it. You can only pay attention to so many things.

And it kind of coincided with this whole year. we had things that we were hyper focused on that I think were good choices of what to focus on. And so this one broke. And it's like, oh, my gosh, that was a beauty of an opportunity. But so, yeah, and other ones, I think later lower, people asked about ATVI, I think later lower. Tegna, I think later lower. A lot of these, I think there's big regulatory risk and the regulators are going to be aggressive. and I don't feel the need to, and maybe I'm being a little cautious here because of the pattern of

thinking about Twitter and all the things I liked about Twitter and thinking about how well, say, like Hindenberg did on trading that, like, hey, let's just wait, let's just be real, do the work, understand the situation, be patient, let the bad news come out, we can act on it like that day or act on it later. So I think a lot of these have a later, lower opportunity. With Twitter, I think there were a lot of things surprising, but one of the things that surprised me was with Twitter was Elon put rough timing, early May, deal on hold, early June. He said, hey, I'm putting you on notice.

I can terminate this in 30 days if you don't cure this thing. 30 days passed, and he broke the deal. And one of the things that surprised me is Twitter stock dropped the day the deal broke, the day he officially broke the deal. I was like, this guy's been communicating for two months. And on Twitter all the time, he's treating, he wanted to break the deal. But like the news hit and the stock dropped anyway. I was surprised with that.

I do think like that is probably relevant to an Activision Blizzard situation where it does seem like at least the U.S. is going to bring suit to stop this. All the T leaves are there. I believe there was a Reuters report out about a week ago that said that they're preparing, they're gearing up for that. Like, it does seem like it should be pricing the market. I can't believe anyone be surprised if the suit hits, but it does seem like when the suit does hit, it probably drops. Now, some people say, hey, if it's 95% of suit hits, there is the 5% chance that Microsoft makes enough concessions and they walk. So you are getting that upside optionality. But I do think that's where we're playing. Just last thing on Activision,

and then I'll wrap this up. The one thing, I think both of you and I struggle with Activision is both you and I think that there's a really good chance the U.S. brings a case. and both you and I think there's a really good chance Microsoft ultimately wins a case that that the U.S. brings. UKCMA has been, I think we've done work there. I think we're both very concerned about Microsoft's ability. If the UKCMA blocks Microsoft's ability to get a reverse, have you done anything else there? Do you have any updated thoughts on UKCMA? And we're going real nerdy for the merger arbitrage here when we're talking UKCMA. But tight with the DOJ. I think a lot of, I think we should bring an antitrust suit against the CMA and DOJ for collusion.

Collusion, yeah. They have, they're like-minded in a lot of things. They're coordinated. The prospect for quid pro quo is very real, trading off the side that has more of the agenda to block it versus the side that has the easier procedural route. And the DOJ's trouble they've run into in court. so much recently, I think, would further push them towards being cute about a procedure here. So I think that they are very aware of each other.

I think some of the verbiage out of the DOJ, out of CMA, and less important to me, but out of the EU as well, it looks a lot like team things up for each other. So, you know, you don't actually need direct coordination if you know what the other side's looking for. So I think that puts the deal really in peril. I think that if CMA was out of the picture and you're going in front of a U.S. judge, the Microsoft position on this seems to me just bending over backwards reasonable when it's related to call it duty and the things that the guy who's the head of kind of gaming for Microsoft's really good and really persuasive and impressive to me.

So as he explains why he's doing this deal, it sounds like nothing lies like the truth. I kind of believe their mobile focus. He's not trying to screw over PlayStation with on call of duty. I mean, if you look at their behavior historically, I don't know. Maybe he's just super persuasive and he's lying, but sounds real to me and the economics lines up. So I think that the deal is incredibly benign.

It's just in the center of the crosshairs of the point that this government wants to make. And so you never want to be the example to the point that the government has already decided they want to make. You don't just kind of stumble into the room and Microsoft kind of stumbled into the room with this deal. So I think it's a very hard situation. If CMA does break, have you, do you still think if CMA says, hey, we've reviewed, we've gone through the phase two, we're not. allowing this deal. Do you still think there are very few kind of arrows in Microsoft's quivers to get around that CMA ruling? It would be something else. You know, it would be, I think there's, I think it would be very, very hard. But if CMA is bringing the case carrying

water for the DOJ, it would be something unrelated to the deal. You know, it'd be something else they want from Microsoft. So, yeah, I know it's possible, but it's a single-edge, unlikely. I'm no regulatory expert, but that's the one thing that jumped out to me, like, hey, I understand what a DOJ case looks like. I understand the arguments we've seen these before. We can handicap them right now. We can handicap them once we've read all the filings and everything that we keep updating

with CMA. I just, I don't know if they want to block this, which it seems like they do. I don't know how you get around that, what you do. I mean, I don't know if Microsoft had, hey, CMA, we'll build the next three Activision Studios there and we'll put a new sales. Like, does that help? I just don't know what happens there. But hey, lots of time, as you said, probably later, lower, but we'll have lots of time

to discuss it. Anyway, Chris, I think we're just under an hour. I think we'll wrap it up there if that works for you. And we've got one more of these in 2022 or it's onwards in 2023. Excellent. Thanks, Andrew. Enjoyed to our conversation. Thanks. Thanks to everyone on Twitter who submitted the questions, and we'll do this again next month. Talk to you soon, Chris. Bye, bye, bye.

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.