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

Episode Date: October 24, 2023

It's time to welcome back Chris DeMuth for his monthly state of the markets. For this October 2023 edition, Chris provides his take on problems and opportunities in biotech, tax loss selling, closed-end funds, big spread arbitrage, Albertson's / Kroger merger case and predictions for upcoming Liberty Day. For more information about Rangeley Capital, please visit: http://www.rangeleycapital.com/ Chapters: [0:00] Introduction + Episode sponsor: Stream by Alphasense [1:22] What is on Chris' mind this month: merger arb, closed-end fund, failed biotech, Liberty Day [3:42] How Chris is thinking about biotech companies right now [6:24] Problems in biotech, but is there opportunities? [10:36] Closed-end funds [14:04] Big spread arbitrage [22:10] Albertson's / Kroger merger case [33:15] Predictions for Liberty Day Today's episode is sponsored by: Alphasense This episode is brought to you by AlphaSense, the AI platform behind the world's biggest investment decisions. The right financial intelligence platform can make or break your quarter. AlphaSense is the #1 rated financial research solution by G2. With AI search technology and a library of premium content, you can stay ahead of key macroeconomic trends and accelerate your investment research efforts. AI capabilities, like Smart Synonyms and Sentiment Analysis, provide even deeper industry and company analysis. AlphaSense gives you the tools you need to provide better analysis for you and your clients. As a Yet Another Value Podcast listener, visit alpha-sense.com/fs today to beat FOMO and move faster than the market.

This episode is brought to you by Alpha Sense, the AI platform behind the world's biggest investment decisions. The right financial intelligence platform can make or break your quarter. AlphaSense is the number one rated financial research solution by G2. With AI search technology and a library of premium content, you can stay ahead of key macroeconomic trends and accelerate your investment research efforts. AI capabilities like smart synonyms and sentiment analysis provide even deeper industry and company analysis. Alphasense gives you the tools you need to provide better analysis for you and your clients. As yet another value podcast listener, visit alpha dash sense.com slash fs today to beat

FOMO and move faster than the market. That's alpha dash sense.com slash FS. All right. Hello. Welcome to yet another value podcast. I'm your host, Andrew Walker. If you like this podcast, would mean a lot if you could rate, subscribe, review, obviously five stars, wherever you're watching or listening to it with me today. I'm happy to have on for the this would probably be like the 21st month in a row. My friend, the founder of Rangie partner and Rangley Capital, Chris Mewth. Chris, how's it going? It's going fine, Andrew. How are you? I'm doing great. Having a slight bout of COVID. I feel great, but you know, nobody ever likes to have a slight bout of COVID. But neither here nor there. Before we get started, a quick

disclaimer to remind everyone, nothing on this podcast is investing in advice. That's always true, but particularly true today. Chris and I were talking beforehand, and I think we flipped through like 25 tickers ranging from $100 billion market caps to $20 billion, you know, might be involved with the Russian mafia, the Taiwanese mafia, whatever. So just remember, nothing on this podcast investing advice. Please consult a financial advisor to your own diligence. Anyway, Chris, it is October 20th, 2003 towards the end of the month of October. And I want to ask you, the question I do every month.

What's on your mind this month? big spreads, both merger ARB and closed-end funds, failed biotech heading into the year-end, starting to think about where we might have tax law selling on biotech debacles, especially if they went from hopes and dreams shattered and the people who bought into those hopes and dreams, left with something that's a net net, activism in both the closed-end funds and in the failed biotech that might actually make something happen in those, and starting to think about Liberty Day and coming up with a guess or two on what we might hear there. Cool. Let's start. I think the most interesting one, well, they're all very interesting,

but the one I want to start with, just because you mentioned it, and I've looked at a few, is the failed biotech. So I'll give an overview for people who aren't looking, and then maybe you can dive into specific situations or a situation. There are a lot of biotechs in the market, and most of them come public, and they'll have like 100 million in cash,

and they'll have a drug, right? And then they try to develop the drug, and hopefully it's a blockbuster, and the stock goes to, you know, a cajillion and the company's a multi-billion dollar company. But a lot of these guys, the drug fails. And then they're left with $50 million and a failed drug. And I think right now what we're seeing is there's a lot of,

in my example, $50 million, there's a lot of companies that are trading for like 25 or 20 million with 50 million in cash on the balance sheet. And they do that for two reasons. A, you mentioned tax loss selling, right? If you bought into this company with a 900 million market cap and now it's worth 25 million, might just be worth it for you to take the tax law sale and take that huge tax loss and move on. And B, there's a lot of management teams who, you know, they've got a company with 50 million in cash and they think, ooh, you know, I really came up snake eyes on this one drug, but I'm really good. I can go find another drug and develop it. And, you know, I don't know if that's in shareholders' best interest. So that's like an overview of the scope, but I'll turn it over to you. You know, what are you looking at them thinking about there? People don't change.

And people don't change when change is necessary. You need different people for the most part. And hopeful potential biotech companies are run by hopeful people thinking by the potential. And the transition, when something's flat out failed, they don't tend to be the, now we're playing a new game. Now let's try to make the most of, you know, just making them numbers. A stock's at 10. We think it's going to go to 100. It's gone to one.

The job of very efficiently getting two for your owners is a really important job. There's a lot of value to be had there, getting them two versus zero. But if you're the guy who got in at 10 to go to 100 and you true, like your soul is invested in this, you're not that interested. I mean, I've had a couple talks. I think I'm not going to name the names. I think I mentioned the names to you before we started a bit of two biotech company managements this week. And one was just starry-eyed.

It's still hopeful, still thinking about the future. And they just don't care about like just having a conversation about per share value and how you deal with the necessary job of getting the right amount of capitalization to get the runway necessary to get your drug to market. they just don't really care about me as a schmuck shareholder. And then other ones are really pirity kind of basically hedge fund guys who don't really care that much about the drug. They're just looking for a way to make money.

And the biotech industry has so many of the first types. I think it's really important that we now have, I think I can say, Tang Capital as a activist, that's kind of going through these guys trying to consolidate an industry and trying to come up with some logical, rational way to handle what should be an incredible, I mean, there are billions of dollars, but there's a huge amount of money. I mean, in a lot of these individual companies, there's tens of millions of dollars of value. And when I say value, the kind of value that I can actually count. I mean, this is not

based on soothsaying, which the regular biotech stuff is soothsaying. I mean, it is based on the future. This is just counting. And you look at it and it's like the money is just sitting there and now there's actually a way to get at it. And now a quick break to remind you that this episode is brought to exclusively buy AlphaSense, the AI platform behind the world's biggest investment decisions. AlphaSense gives you the tools you need to provide better analysis for you and your clients. As yet another value podcast listener, visit Alpha-dashcense.com slash FS today to beat FOMO and move faster than the market. That's alpha-dash-sense.com slash FS. I mean, you know, and I completely agree with everything you said.

I love what Teng Capital is doing with these and they've done a few successfully. But the other thing we didn't mention that a lot of times happens, like, yes, I do think a lot of these, like, the people on the boards are running of these companies, oftentimes they're doctors. They have PhDs and biofro, but the other thing, the thing that they don't have is a lot of them don't have any stock ownership, right? I'll give one example that's, like, kind of topical. M.E.I. Pharma. This has been a company that had a lot of drugs that I think a lot of people for a long time thought had a lot of promise. And, you know, they kind of came up snake eyes on them. And right now, and I'll disclose, I own like a thousand. shares. So we're not talking, go look at the stock price. We're not talking big money here, but I'll make that disclosure. But right now, two funds, Anson and Cablecar, who I respect, though I don't know

super well, and Tang is actually in there as well, but they're running a contest saying roughly, hey, guys, your market caps 50 million. You have 100 million in cash on the balance sheet. Every drug, like you guys have four drugs. All of them failed. Return the capital to shareholders. And the manager teams out here like, don't let this company steal, don't let these short term shareholders steal the company from you. It's like, what are you talking about? Like, you guys have nothing. In fact, they tried to do a deal with another company where the other company had a drug and this company, you know, MEP Farmer had a lot of cash and they're like, we'll merge them together. That deal failed. And the other company filed. Like, nobody even wanted the drug that they were trying to merge with.

To me, it's so clear that this management team's trying to save their jobs, trying to spend the money paying themselves and doing other stuff and giving to shareholders. Like, I just don't understand it. So I don't want to get involved in a prospect there. Again, we only have a thousand shares. I haven't talked to ants on a cable car. But, geez. Like, come on, just return it to the shareholders. It's such a phony false dichotomy. Thank you very much for caring about my long-term benefit. But if my long-term is made up of short-terms in which I collect massive premiums and make millions of dollars by proxy contests that unlock the value of the cash on the balance sheet for me, I think my long term is going to be fine.

I'm trying to find how much the manager's team at MEI Farmer got paid. But the CEO who I believe has stepped down now, but he owned 20,000 shares. So about $100,000 worth of shares, he did have 220,000 stock options, which have effectively gone to zero because everything this company did. And then, yeah, I think they just paid themselves like crazy. And it's like, all right, you guys have had this company. I mean, I've seen long thesis on this company from 10 years ago and just everything failed. But yeah, I love what Tang's doing. I love it.

And I think I went on a rant there, but I think you were a student noting like, we're in October. This is the heart of tax law seasons, right? Mutual funds, I believe their tax years end October 31st. And then obviously for normal people, the texture ends December 31st and go pull up a chart of XBI, the biotech industry. Like, it's gotten crushed. And I know friends who look at these companies are like, hey, they announced some blockbuster drug news and the stock's given up back basically all the gains. So you can like kind of buy it before they announced great drug news. Like I do think there are interesting opportunities.

Obviously, biotech has a lot of risk. There's a lot of science there. But just overall, there's opportunity. And compounding the tax law selling is the analyst who recommended this idea at a time and price. where clearly the thesis was drug success-based. And if you have a smallish position, there is this ethos of if I can get it to zero, I don't have to explain it to my boss.

If it's still a 1% position that was a 2% or 3% position before I got crushed, I'm still responsible for it. The nice thing about zero is you always feel like there's, I always feel like there's this kind of unitary responsibility at any scale for being kind of up on anything in your book. So just the desire to get it to actually zero and being a little sloppy about those last sales,

I think is a dynamic that can come into play here too. Just on the unitary thing at zero, people, a lot of times sometimes are like, oh, I have a tracking position and people be like, tracking position. Why do you need a tracking position? I get like logically, yes, you should be able to research something and follow something the same if you have a zero dollar position versus a hundred dollar position versus a hundred million dollar position. But just to me, like, if I see a hundred chairs, I'm like, oh, yeah, you know, like,

it's not like I'm running 5,000 stocks. It's like, oh, yeah, that is in my portfolio. I've got a little money on the line. I'm like a little more incentivized to research you. It's just kind of like, I remember it more than the thing I thought was interesting, don't have a zero stock. But I hear you like, you get it to zero and then you're like, okay, I can kind of move on from this and forget it.

Closed-end funds, a little bit analogous. Spreads are bigger than they have been. You always caution to make sure we look very carefully at the whole cost structure of the closed-end funds, which are often egregious, but that cuts into the significance of the discount. But those have been getting wider, which I like for a number of reasons. One, chunky spreads are always nice. a distribution, that's a real monetization of the NAV. Dividend favoring people are often negative about the idea of a distribution that's

greater than an earnings yield because it shows that that's not sustainable. But in my mind, it actually can be a very good thing if what you're in it for is the discount because you're actually collecting the discount at the pace that you're getting distributions. So I think closed-end fund discounts can be interesting. They also are interesting data points because they're sort of. so badly timed

that it is frequently the case that I prefer something I'm more interested in topic at par when

there's a 30% discount than I am when there's a big premium. These premiums and discounts

do not have a lot of information in them, a lot of durably profitable information

and they're very good contrast and they're very retail and if anybody who's in these

from their IPO, they're one of the most hideously awful IPOs structures ever. So they kind of select for price insensitive investors. But Boaz Weinstein,

who is one of just the smartest, I mean, just in terms of raw brain power, exceedingly bright, a fund manager, really a terrific investor. He's been doing activism in this. It's not always like a spicy activism, but it's been really consistent for him. And so that's been that's been, that's been like 10 capital in the failed biotex has been a way that people have been actually able to get their money out of these things. It's also one of the best forms of activism, because it's so clear, right? Like, hey, you guys own 100 publicly traded stocks, right? Your diversified closed end fund. They're worth 100. Your stocks trading at 85. Like, the management team, of course, they're kind of come out and say, hey, don't let this short term shareholder, like, disrupt the

value. It's like, what are you talking about? Like, I could go buy the hundred stocks myself. I could go buy a diversified ETF. Like what is worth more $100 if we liquidate or $85 if we keep trading in the public market? For you, yeah, it's worth more 85 in the public market because you keep electing, you know, your fees. But yeah, I just think it's one of the cleanest forms of activism. I do always like play around because what happens, I do always play around with A, if you're going along these, do you hedge out the index so you just isolate the spread, right? So if, you know, it's a large cap BTF, do you do short a large cap BTF buy that? So you're just locking in that spread and betting on it.

Or, and this comes to the B, like the spreads blow out in times of distress. And right now I'm looking at a chart. We, this is the largest since 2005, and I'm looking at this chart correctly. This is the largest discount to NAB, closed end funds have traded, excluding like the absolute COVID bottom and the absolute depths of the financial crisis. So not saying things can't get worse. Obviously, things can get a lot worse. But, you know, do you want to hedge out that index or do you kind of like,

buy it at the big discount and rely on, hey, it's at a big discount because they're starting to get some distress bank into the system. So there's just things like always flitted around, but I love the activism angle. I think it's about the cleanest and best form of activism you can actually do. Absolutely. Yeah. Let's talk big spreads. There are, you know, I've written a lot about spirit in particular recently. I had a post on the antitrust, the antitrust inflection earlier this week, which I include in the show. I can including the show notes of appeal or interest, but I just want to share it over to you. What are your thoughts on like big spread arbitrage right now?

Save is very much on my mind because I've had the most to read about it because we're actually about to head into the trial. Just a couple kind of observations on that. At this level of litigation, all the lawyering and writing and thinking is pretty good. It's rare to find a case that I find laughable while I'm reading that person's side. and I try to be not motivated as a reader and I hear you it's hard because I I tend to be pretty libertary I know you're more libertary than me but I read every case I read I'm like I don't see an antitrust problem here and I really have to be like no like put your put aside the beliefs like but it's

very rare for me to I've only had I think five actions in 25 years where I would have been more enforcement oriented than the government and and virtually so so I'm just one that stands out sorry T-Mobile Sprint is the one where I think there was political influence there, but the DOJ let it through, and that was a case I would have given a really close scrutiny. I think I would have brought a suit there, but they let it through and, you know, the world moves on, but please continue, I'm sorry. Listening and reading, the thing that I've been working on learning and improving the most on is delaying my judgment in inserting more observation.

So I say, wow. And one of the things that I found that I can do both reading and listening is when I'm trying to insert myself and prepare for my reaction. I'm listening to syllables with the other person saying. And if I try to just clear my mind of my own judgment, which I can give later, I can actually memorize dozens of paragraphs and actually recall the whole paragraphs because I'm not interrupting their point with my immediate hot take. And then when I eventually get to the judgment, because I'm judgmental, because it's our job to be judgmental, it's much better judgments than when I kind of feel like I need to quickly or so i've been working at being as respectful as possible to the doj and ftc while i'm

reading it um and and i think that sometimes that's easier or harder um i find this case on the margin uh more plausible than spectrum brands uh i find this case on the margin more plausible than Activision. It was a well enough crafted complaint, were it not for the companies actively, assertively, relevantly changing what I think is 80% of the fact pattern here. You just see change. And again, this is me trying to not be too judgmental. I find it sadistic to ignore somebody trying to solve a problem when they're trying to solve it, solving it nearly comprehensively, as far as I can tell. It doesn't look like good faith. It seems like an unsurious conversation when somebody says, you have a problem. And then they say, oh, okay, there's a problem. We'll fix it.

And then they continue on as if that wasn't even said. It doesn't seem serious. It doesn't seem grown up. It just seems like petulant, political. I mean, obviously, if we were in a political debate, I'm not trying to actually be convinced by you. I want to just go back to my corner and scream whatever I was screaming before. And that's what they sound like. I mean, they almost ignored the diviscer. Let me just back up. So, Spirit, there's, let's just say what the government is alleging. Like, I'll give a little more background here. When I talk to a lot of merger Arbs about spirit, I say, hey, I think Spirit is really interesting here and we won't lay out the math here, but I think it's really interesting. A lot of the ARB I talk to you say, oh yeah, I read the case,

and I think the government has a very credible complaint. And I agree with them. The original case, the government had a very credible complaint. You know, there was this thing called the Northeast Alliance that was in place, and there are route payers where Spirit and JetBlue would have, you know, basically a monopoly if they combined. So I agree there was a credible case. But to me, and I'll let you dive into it if you want, but the facts changed, right? The Northeast Alliance was dissolved and JetBlue agreed to the best a lot of the spirit

markets. So when I look at that, I think that's what you're talking about when you say, hey, like the facts have changed. There's these investors, North East Alliance has gone, but the government is just, and this reminds me of spectrum in a lot of ways. The guy was just like, hey, no, there was an antitrust issue here. We, you know, shut this thing down. I want to say the thing that I'm saying. I don't want you to solve it. I want to say this in a very non-sexist way and not related to marriage way, but it is possible in personal relationships to every once in a while get into a conversation when

you're like, yes, we'll do it exactly your way. And the person doesn't pick up on that. you're like, I'm trying to surrender here. What do you want? But edit that out if my wife's going to listen. But in this case, I think the Northeast Alliance end is hugely positive. And the city pair slot divestitures is understated in how important it is by the numbers because they're offering to divest the critical constrained slots. Like what a slot is in some markets is like,

you are not in this market unless you have these specific slots. They're giving those up. The other ones aren't really that constraint. It really is like I prefer the writing and logic of the companies. It's far more colloquial and relaxed. And it gives me it has the, it has the impression of truth that it's so colloquial and logical that they're just like, we're solving the problems that are actually problems, what we're left with is just a market, like we're trying to compete.

And oh, by the way, in other situations, including the Northeast Alliance, you treat us as a worth of a solution, not the problem to this market. And now we're going to be more of a solution. Now you're complaining about that. We can't win. So I have a higher level of trust that the company's docs are going to come out very well in live trial, that when they are talking about it, the parole evidence, you know, the outside of the four corners of the docs is going to look highly consistent and credible. And the judge who, I don't think it's

going to be ideologically tied to the companies, but I think is going to be a logical problem solver. I think it's going to be not ideologically tied to the government's case is going to be like, okay, we have a problem here. What's the problem? What's the solution? And then if the government is basically, I'm sorry, we don't want to talk about the solution that they've proposed. It changes 80% the fact pattern, we just have a few throwaway lines in our docs, even referring to the fact that they've largely solved what we were originally whining about. I think that could come across horribly in front of a judge. I think that could come across as unsurious. And he's trying to fix a problem, trying to come to a conclusion. I think he's going to be able to write a

document that is going to savage that kind of sadism of, I'm talking about a problem that I'm complaining about, but if you fix it, then I'm going to ignore the fix. I mean, what is this company supposed to do? I'm just going to throw two things in here. One, Lionel Hutz and I did a very long, very detailed breakdown of the spirit, the spirit deal and trial that people should go listen to if they want to hear more about it. That was filed before the pretrial briefs, but one friend who I talked to quite frequently, we'll see if he listens to all these podcasts because he'll know who he is. He hears this and he'll probably ping me. But he, him and I were talking, Lionel and I did that podcast before the pretrial briefs were filed. The pretrial briefs

were filed exactly a week ago, I think. But the pretrial briefs, what he said to me when he read them was, hey, if you read the government's pre-trial brief, it looks like they wrote it all over the summer before the big de vestures were announced. And, you know, I think listen to the trial with line, the pod with Lionel, I think these divestures were perfect for this. It looks like the government wrote the whole thing before the pretrial, the divestures were announced. And then divestries were announced and they were about to file. And they're like, oh, I guess we should put a line in about the divestures. But it doesn't really look like, let me move to a different one that is really been on my mind recently. And that is Albertson's profile. And the ticker there is

ACI, I think a lot of ARBs aren't interested in it because, A, there is an antitrust case here, right? Albertsons and Kroger's for those who don't know are supermarkets and supermarkets are judged on the local level. So, you know, if Chris and I, if we had New Canaan is where Chris is, if there's two grocery stores in New Canaan and I own one and Chris owns the other, us merging is an antitrust problem there, even though, you know, in the grand scheme with the entire United States grocery stores, that's nothing. That's a local insurance problem. And that's a good one, right? That's fine. Alberts and Kroger are emerging. They, you know, in the grand scheme of U.S. retail or U.S. supermarkets, they're not huge, but they are going to have local problems

in several markets. And I, the government has not filed yet. California has indicated that they plan on filing. But I just want to get your thoughts there because I've been reading up on that case a lot, that potential case a lot recently. And I have some thoughts I want to dive into with you. But what's your thoughts on Albert's? I've been a little slow and lazy here for the two reasons that I believe the government's going to bring the case, and that supermarkets have really thin margins. Like, this is not like a wonderfully great business. If they have pricing power, boy, if I ever am a shareholder of a company with pricing power,

I hope they sure use it more than these guys are. But I think that the spreads wide, so it's a great topic. I think it's not going to be too costly for us to wait until we read the complaint if it when it comes out, you know, and I have a smallish long position. So I kind of have a little placeholder on the side of Angels. This spread is, you know, there's a $5 spread on a $27, 25 a cash deal. That's hard to ignore. And maybe it goes better and faster than I expect. Maybe there's not a complaint, but I think it's very likely that there will be one. And so we can read it. by the way, the International Center for Law and Economics has a white paper that they...

Oh, I read it. I was going to ask, so I'll cut you off and say, they have a white paper, and basically what they argue is this shouldn't be an antitrust problem, because traditionally antitrust has only looked at grocery stores. And if you looked at grocery stores, yeah, there might be issues here. You could probably divest. But their argument is, hey, the world has changed and it's changed in two ways. A, membership stores like a Costco, you know, 20 years ago. go, people didn't really use them as subsidies for grocery stores, but now those absolutely compete. And when you consider Costco in it, all of a sudden, this isn't an antitrust problem everywhere. And the other thing they say is, hey, 10% of the U.S. population is using something like an Instacart to get their groceries delivered. 20 years ago, you weren't getting your groceries delivered with Instacart. So because of that, like the radius, you know, it used to be grocery stores within a two to five mile radius. Because Instacart's delivering, the radius has expanded.

and Instacart, like, it's opening up lots of choices and increasing competition. So because of both those reasons, even before you consider the vestures and everything, this should probably be allowed. And I thought that was really interesting because, you know, you can go read prior complaints, Whole Foods, Whole Foods Wild Oats, if I remember correctly. There was Albertson Safeway. And everyone's agreed that the market definition is grocery stores, excluding Costco's, right? And their argument is it needs updating.

I was wondering, I agree with that argument. And I think people can probably tell. but what do you think about that argument? And do you think a court, that's more important than what you and I think, right? Do you think a court would agree, hey, the definition should be all, you know, places you can get groceries, including a Costco, not just the traditional grocery store. These are my people. So the chance that they would convince me with this argument is close to 100%. Do you know Brian?

I think Brian's the chief economist there. Oh, I sent him in a, you and I will talk offline. I sent him a DM and said, hey, I'd love to have you on the podcast to talk about this white paper isn't responded. but we'll see if we can get a bottom. Yeah, no, so I, and it's just, I know of a very, very convincing person with his work have supported ICLE and, but these are. I was reading the paper and I was like, A, these are my people, even more than that, they're Chris's people.

And I actually, I read it earlier this week and I met to ping you, be like, hey, do you know these guys, but it's a dynamic wild world. You should be very, very humble about what you think you know about the future. it's changing constantly, even how people get their groceries. And I found it incredibly, it had the ring of truth to it to me. But these are serious economists. These are people who've done, I mean, they are doing the work in terms of understanding the economics here.

But I think it is, so 100% convincing to me, zero percent convincing to our current antitrust authorities who would be indignant about thinking about it like this. They know things about the future. they have incredibly narrow market definitions. You could be in violation of having a monopoly of yet another value-related products and services. To be fair, I do have a monopoly on. I've got the blog and the podcast.

There are many other things you can put out there. You could be in trouble. And so they're not going to be convincing. And I think the likelihood is convincing to a judge is 60%, 70. I think it's really gives somebody a serious person a lot to think about. out. And it's divisible. So like you can kind of pick and choose and say like, well, based on how they look at this, this just isn't a problem. But even where it is, you can pick off individual properties pretty well. No, I'm completely with you. Just to me, like, it's the same thing

that line of line mentioned on the spirit podcast. Right. Like does the government have a chance to win? Sure. But it seems very narrow to me. Like first you're going to have to convince a judge, hey, ignore, Judge, you probably have a Costco membership. You probably have an Amazon product. Like, ignore your personal experiences. Ignore all reality that says, hey, people shop at Costco and Kroger and like those are competitors now. Pretend that we live in a world where the only competitors are Kroger, your local

supermarket, and maybe the Walmart if you're lucky. So the government has to win that argument, which I think is a real long shot. And then they have to win, hey, Albertsons and Kroger's are divesting every market where they would have under traditional antitrust metrics, they would have any type of concentration issues. They're divesting that. So you have to win on, ignore the reality, and you have to win on, hey, we're way lowering the standard for it to the point where, you know, basically no mergers could do.

I just, it's a really tough sell to me. It'll be interesting to see kind of the, it would be very interesting to see the judge here and what their like personal situation is. So I kind of like to get a gold star in either a really good value or kind of, what I want, knowing that you have to pay for it. It's like my wife shops at Costco for everything that's commoditized, and we get delivered everything that's like specialty and that I have a really strong, specific brand preference. I've walked in my local grocery store once in the last five years.

I mean, it's just like it exists, but I can't think of what at either the low end or the high end of price sensitivity I would need from them. So Instacart is an interesting one. That's how I get most of my groceries done. And I think it was Byrne Hobart, who I love his newsletter. I can't recommend it highly enough if people haven't described. It's the diff. It's quite cheap for how good the analysis is, in my personal opinion.

But he had something that really explained it to me. And this is one of the reasons why did he was talking Instagram card. And, you know, if you order 200 worth of groceries, you'll pay $20 to $30 in, like, I think they'll charge you about 7.5% or 5% in delivery fees on their end. And then, you know, you probably put in a 7.5% tip on that. And I don't know if that's too high or low, but, you know, $200 of groceries. you're probably talking 30 to 40 all in of the Instacart costs. And I would always look at him and be like, Jesus Christ, like that's a lot of money.

And then what he said was, hey, what they're doing is they're externalizing your internal costs of for me to go to the local Trader Joe's. You know, it's 20 minutes to get there. It's an hour to shop and wait in line. It's 20 minutes to get back. And, you know, you have to carry the groceries and bring them up and like, that's two hours of your time that you could spend doing something else. For $40, that's actually not bad or that bad on return or time.

So people look at it and they say it. but it's just externalizing the internal costs, which I thought was interesting. And, you know, I completely understand there are people who, and my example was about $20 per hour. I'm not trying to say for some people $20 per hour isn't worth it. I'm just, that was interesting to me. And that really does like separate the market out in interesting ways. People, I think in making these cost benefit analysis tend to understate the gas and depreciation on their own personal vehicles. It's a big positive for like Uber that people don't tend to think through those things well.

but it's a big advantage of using Instacart. And then also just you're being able to schedule your own time, right? It's not just, it's not apples to apples, how long each one takes. But it's the variability of being, you know, stuck in some traffic jam. I mean, I think about this in terms of the value that Amazon brings the consumer, thinking about the recent antitrust case against Amazon, being stuck in the traffic jam halfway to Home Depot to buy a $5 thing where you could miss some important meeting that could have some immense economic value to you is just, I mean, the risk of that is taken away by just outsourcing

everything that's not a priority. And now a quick break to remind you that this episode is brought to exclusively by AlphaSense, the AI platform behind the world's biggest investment decisions. AlphaSense gives you the tools you need to provide better analysis for you and your clients. As yet another value podcast listener, visit Alpha-Sense.com slash FS today to beat FOMO and move faster than the market. That's alpha-sense.com slash fs. Man, so I had flipped through the Amazon FTC case, but I reread it last week because I was thinking about I-Robot Amazon. And when you read this thing in death, I tweeted out in a mini-viral, but it is so funny. It's like a buy thesis on Amazon from 1999. They're like,

hey, online retail has a lot of advantages over grocery stores. And it's like, okay, cool. Yeah, that's right maybe let the grocery store merger go through online retail does have a lot of advantages or when they're talking about how amazon is lowering prices for consumers and they're requiring distributors to give them the lowest price like i i fail to see where the consumer harm is i just'm going to start sending lena con personal a request for like hey i need some toothpaste delivered for free for my front door within the next 24 hours i'm getting low would you kind of drop it off for me uh you know amazon's always done that for me in the past it hasn't been a big problem, but given that you hate them and you want to destroy Amazon, I was hoping you

could. I mean, there was, hey, Amazon, because they're delivering things within 24 hours for free, like, that's an answer to us problem. Competitors can't keep up. And it's like, wait, what? I really like having things delivered 24 hours for free. Let me, shoot, I don't know where it was going to. You know, I think we covered every, what else was on your list of things you wanted to chat about

today? Do you have any surprise, guest predictions for Liberty Day, which might happen before we next record a podcast. You know, I've just, over the past two years, I've just gotten very out on the Liberty team. I think all of these have pretty much been disasters. They pay themselves very well. You know, John Malone, who I think is, I always think back to that, there was a podcast, I think it was invest like the best, where the guy who wrote the outsider's book, somebody asked and they were like, hey, if you could invest in any of the outsiders, who would you invest in?

And he said John Malone, and he said, look, he combined elite capital allocation with elite execution. I think John Malone is one of the goats, right? He should be on the Mount Rushmore of everything. He's older, and I just don't think he's really focused on any of this anymore. And every lieutenant he's picked, I think, has been a disaster. You know, Warner Brothers Discovery is not his anymore, but it's impossible for me to look at what David Zazlov is doing over there and say, oh, yeah, like, this is a good idea. That's a disaster. Greg Maffa is making cajillions of dollars in like every Liberty stock.

I mean, maybe this is what have you done for me lately because Formula One was a massive win. Then the original investment in charter was a massive win. But you know, like everything Greg's taken over completely, curate, disaster. Liberty Triv Advisor, Disaster. Liberty Global, which is not Greg, that's, but that's been a disaster for years. Liberty Lillac. And like, I look at all these things and the executive teams keep getting paid and the stocks don't work. And Liberty Series, they bought Liberty Formula One. I mean, Formula One, they bungled the capital structure. Liberty Series had to build them out. Liberty Series, yeah, it seems like they're going to collapse, but, you know, like, there is still some spread there. I think once you fact, in the Siri Barrow, it's not that attractive. I don't know if Sirius is like, it's a nice business. There are a lot more headwinds now than there were five years ago. I would have said that five years ago as well, but they might have missed their boat for selling it. I'm rambling. I'm pretty out on it at this point. You look at all of the creative things that really nobody else did in the same way that Buffett did as an old man. And Buffett's really held on so much better of doing, you know, the Japanese trading houses and the massive position in Apple and some of the things like you could write books about his investing prowess at only the huge scale that has much, much, much fewer things that could be done and just things that other people weren't really doing as an old man. I mean, he just still has it. And I haven't seen that from Dr. Malone in the same way. I just ask my little answer is if you look at the Liberty Media,

proposal for the serious xm collapse it was both sized and it was priced and scheduled to be maybe announced that they could reach some resolution around the early november investor day and it was proposed at 1.05 which i thought was like a negotiating ploy to get it done at one so i think it's going to be kind of one for one uh lsxs for serious on liberty day my guess that that makes a whole sense, you know, I do. Yeah, it makes total sense. I do wonder if you're the serious board. Like, no, I don't see how they couldn't collapse it. Like, you're controlling share O wants to collapse. It gets your, it gets you completely free float. It gets everyone one stock one share. I think it does make sense. And you just get and you've given them something to demand that you're

like, okay, say you need one. We need one. Okay, say it by delivery. I think they can kind of bounce that back and forth. They had a month to do it a little over a month. So that was my guess. kind of interesting um kind of interesting um yeah those were all the ones that are on my mind cool all right well let's call it there chris this isn't great i man just the antitrust stuff with irobot albertsons and spirit and you know spirit the trial starts we're doing this october 20th the trial is scheduled to start october 30th yeah i have my eyebrows raised a little bit because the trial has been delayed twice and the first one seemed innocuous the second one. It's like, oh, oh, good. I'd be surprised if they settled, but, you know, better lawyers

than me and I am not a lawyer. So actual lawyers have said, hey, when you have double trial delays, that's where your eyebrows should kind of really start raising. But yeah, October 30th, I'm really excited. I think we'll have that, at least that trial to talk about on the next time we do a podcast, probably not a result. I think the result will come in December. And you know what? I completely forgot. This is our first podcast, 21 podcast, state of the months. First pod, Activision, Microsoft. Gone. Done. Never, never talking about that again. Cool. Anyway, Chris, stay in the markets. October 20th. We're done. I hope everything goes well with your knee, and we will chat soon. I look forward to it. Thanks, Andrew. 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.