Fed Is Giving Americans a Lesson in Lag Tim

You can also listen to our radio show at two pm Eastern Time on Bloomberg Radio, or watch us on YouTube search Bloomberg Global News. This is my favorite read of the day. I read it in this morning. It's also almost read on the Bloomberg and Paul. It's about how the FETE is giving us all a lesson when it comes to lag time. Yeah. Absolutely, I mean the the FET is raising rates, their raising rates aggressively. They've communicated that clearly, but it takes time. It doesn't work immediately.

And Alison Schreeger joins us. She is a senior fellow at the Manhattan Institute. She's also Bloomberg Opinion columnist. Joining us on zoom from the tri State Area Allison. A lot of folks were expecting, okay, the fed raisers rates, economy slows, and I would argue, or it seems like other than maybe the housing market. This takes some time here, doesn't Yeah, it does, because you know it's an inflation You know your expectation um, your expectations about inflation are

in the future. You know, you agreed to a rental contract, you agree to a wage or increase. This all happens, you know, a year in advance. So that's one of the reasons it takes a long time for bad policy to work. What's important and I have to just put out there. You are the author of a book with a great title and economist walks into a brothel, which my daughters swiped off my bookshelf. Who is studying economics, so she swiped it. Um. You talk about the importance

of expectations. We often talk about that in the financial markets overall, but when it comes to inflation and inflationary expectations, it's measured, we follow it. Why is that so important? Well as this, as I just said, you know, when you agree to a wage contract, you agree to rent an apartment, whatever, you know, this is based on what you think inflation is going to be over the next year. So you know, the monetary policy has shifted a lot

in a lot us thirty years of thinking. Expectations or how you can influence people's expectations is what really matters, and it is the most powerful tool for monetary policy, So it's super important. Well, can I and just to follow, there's a difference between those expectations being well anchored and unanchored. What's the important distinction there? Well, if they're well anchored, then people have a lot of put a lot of

credibility in the FED. You know, this is one of the reasons why for a long time the FED was targeting to percent inflation. It was this idea, as will say it's two percent, everyone will believe it's going to be two percent, and everyone's gonna conduct the economy is that it's going to be two percent, and it becomes

this self fulfilling prophecy. But that all requires that people actually believe the Fed is actually going to deliver two percent inflation, and it seems like they've become unanchored now. And Alison, you know a lot of folks are saying this is not your grandmother and grandfather's inflation. A lot of this was kind of due to the supply side issues resulting from the pandemic, and maybe there's a limit to what the FED can do, and that's probably a

valid argument, I outthink it is. I mean this unfortunately, this inflation has many fathers, So I mean, so I mean this supply side issues definitely, you know we're part of it, but we also, I mean partially, we were following an old playbook in one which is to boost the economy. You've got a boost demand through the severe contraction supply, and then boost a demand on top of it. So all around you just got a lot of inflation.

And you know, even if you do have supply induced inflation, you know, the remedy is often to reduce demand because that's really sort of a lot easier to control. You know, the government can do things about supply, but I mean, it's even longer lags. If they said, if FED policy takes a year, maybe more government sort of boosting supply can take, you know, other than sort of certain trade policies can take even like more time, like five ten years.

So one of the things I also loved in your stories, you said, the bond market has a terrible track record predicting inflation. If history is any kind, bond traders are the last to know when inflation is a bout to change, which I feel like, Alson, we spent a lot of time when we're talking with our TV colleagues about the financial marks. Oh, watch the bond market. It knows what it's doing. You're saying, not necessarily the case. I've never understood why that's a thing. I mean it said they

have a terrible track record of protecting inflation. I don't even really believe inverted yield curves tell us that much. I mean, so these you know, they're just bond traders are human, and they're just as fallible as the rest of us, and they don't have special insight. And in fact, I think considering bonds are such long term assets, they tend to be very short term in they're thinking. You know, Alison, it's this Federal Reserve has been really clear I think

on its messaging here. I mean, starting with Jackson Hole, Uh, you know, if you weren't paying attention that we want to fight inflation, now you're better and they've been very consistent. Is that part of being a good federal reserve is clearly communicating to the market really where you want to go. It is, I mean, thanks following this intellectual tradition, that this idea that you know, communication and setting expectations of the most powerful tool. I think the problem the FED

has is it's a little late. Like if they were more ahead of the curve on inflation, they might have had a bit more credit ability. But the fact they kept insisting it was transitory. They keep been putting out forecasts that suggest inflation is going to be back to North Pole there um, I think really undermines their message. So I think they're now doing the right thing, but

it's a little late, all right. So when someone like a Mark Moby says, hey, guys, get ready for maybe nine percent moves and interest rates because that's what's going to take to bring down the current inflation, how do you think about how high the Fed might need to go and how much we need to kind of get our heads around it. I think nine percent is a little high. I agree it would bring out inflation, but that in that case the cure might be worse than

the disease. Um. I think, you know, they're definitely gonna go above five percent the inflation number. I mean, the way I think about it is you want this sort of the real interest rate to at least be at inflation. So the FED is still not sort of trying to pump demand. But I would look at core inflation rather than overall inflation, which is inflation of minus food and energy. So that's what about like six nine percent around now, So I mean, and it might go down just more

supply chain issues ease. So probably I think nine percent it's a little high, but we could be looking at five five and a half and eighties six percent. All right, good stuff, Allison, really appreciate it. Alison schreger Uh Senior Fellow at the Manhattan Institute. She's also Bloomberg opinion columnists joining us on zoom, which we appreciate. We get the seer, so that's she's booming into us from the tri state area. So good stuff here. It's in it's inflation. It's a

photo reserve, the Feato reserve. Yes, if you listen to most experts, was was behind the curve. Maybe still behind the curve, but it's not for lack of trying, at least over the last six to nine months. But you know, we keep saying, Okay, we're looking for sins Fir to come down, but man, is it sticky in terms of coming down. But she did emphasize, you know, focus on the core, which is something we talked about a lot. Check out our book too. It's a great title. It's

a great book. And econmist walks into a brothel and other unexpected places to understand risk. This is Bloomberg Business Week with Carol Masser and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. She's an incredible analyst and she's also a comic and she's running around doing the research channel stuff, doing TV, doing radio. Because some bankers reported earning this Mornia they call the little Little Company for Goldman sax

stacks up almost three percent in today's trade. Let's get to it with Bloomberg Intelligence Senior Global Banks Alas to Allison Williams. She's here in our interactive broker's studio. All right, Uh, walk us through what do we need to know about goldben So number one trading still is the majority of their business and they delivered on trading, so fixed income trading up that led across that and fixed income trading

was the highlight of the investment bank this quarter. For all banks, it was not interest income, but looking at the investment bank fixed income highlight, fees the low light. So how about on the equities business, because we get a SMP down big this year, NASH back down big. Can you make money trading equities in that kind of tape? I think the activity is helpful, but we're up against

a really strong quarter from a year ago. Prime brokerage is a business that benefits from higher asset prices, use of leverage, so as you can imagine, that's not doing as well. But I would say for Goldman the focus is, you know what's happening on the market share front. Um. They are one of the top three with Morgan Stanley and JP Morgan, and that race has gotten a little tighter in recent quarters. I mean in a way that's all about bragging rights because they're all as the top three,

focused on profitability and doing well. But you know, Goldman hold it held its own there um. And then to the fees, everyone's fees are down dramatically, I mean broad declines across equity underwriting, debt underwriting, m and AH so plaued. The numbers for year old friends that are in that are working away and trying to do deals and unfortunately not getting they had a few records are really good years.

I mean last year was truly amazing. I think we were at a record, you know, in the middle of the year and when when it's these bad markets. I talked about the pipeline, the pipeline, and I talk to my boss is about it. But I got a great pipe, right and you would be saying that and you would be saying the same thing since January. The pipeline is strong and that's that is the positive things that we haven't seen that sort of take a step back. But

the question is when did will that get executed? We have a few more days like we've had the past couple of days, and we can get a little bit more rally. Does that open up a window to get some of these deals done. I think the program like there are things happening, there are and you know, it was interesting if you looked at the death side of things. In August, things opened up and it was a really strong month on that side of the business. Uh. You know,

there's a lot of questions around the leverage land marks. Right, there was a big there were a lot of mark's last quarter. This quarter aware of the marks, and you know what we're also seeing the endowments is starting to report their performance and they're actually very I thought it'd be down. This is through June. They're kind of flatish. And what that tells me is a they were pretty well hedged, but by they haven't marked their big private

equity investments to date. I wonder if the banks are slow to mark investments because these things got to be down significantly. Well, there were big marks, I mean big marks in the context. Right, So there were marks last quarter. I think this quarter was less because I think when the window opened up, you know, maybe there were some things that got done. Um and you know a couple of banks. Dad given number, a city gave and number. I think it was something like a hundred million last

quarters six million. Deutsche Bank and Credit Suites are going to be the ones we're watching because they're bigger in the leverage business. Deutsche Bank has said they expect something. We'll find out how big that is. But I mean for the industry. Uh, you know, Jamie Diamond, I think made the great comments. It's you know, a fifth of what we were at the financial crisis, so you remember back in those days that was a real concern what

was going on. And just because the size of that business and the size of banks balance sheets today, smaller business, bigger balance sheets. So is there is some aliceon net takeaway as if we try to kind of glean from what the CEO has had to say and how the big banks performed, what it says about the outlook here, I would say there, you know the three takeaways. One is the net interest income which was super strong that you know third quarters history, but the run rate is

so much stronger coming into the fourth quarter. That's good as we look into can the loans hold up, can the class of deposits hold up UM. Secondly, we talked a lot about trading. We think that there continues to be volatility. We think that helps fixed income trading. UM fees at least are studying quarter to quarter, so still down a lot your year, but we're starting to see

some studying, so that bodes well for next year. The last thing, provisions, that's what we called the wild card coming into this quarter, and they were a little bit higher than we expected, but not by much, so I would say tweaking the credit view and maybe the biggest number that we got or the biggest statement for the order wise Jamie diamond saying, Um, you know, if we go to five to six percent unemployment, five to six

billion or provisions, you know, that's obviously worse than people expect, but nowhere near what we saw, Um perspectives. Yeah, Bloomberg Intelligent Senior Global Banks Alist Alison Williams, thank you so much, really appreciate it. You're listening to Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. So we know Ernie season is getting into full swing, and next week we'll get an update on the business

of metal platforms. And ahead of that, in a story you can find online at Bloomberg business Week dot com, have a founder of Meta. Of course, we're talking about Mark Zuckerberg isn't saying much about the core platform in business known as Facebook exactly. We're also gonna get the truth behind the legs on the avatars and the metaburse. Let's get to this story. It's by columnist Max Jaffkin, who joins us along with the editor Bloomberg Business Week

editor Joel Webber, both in our studio. But Max, let's kick it off with you, UM, tell us about what is really the focus. We know it's all about the metaverse for Mark Zuckerberg right now, right so it meta You know a K. Facebook is a very interesting company right now because on one hand, you have this enormous and very successful, you know, dominant business which is social networking and UM advertising so dominant that you know, governments all around the world are are, you know, worried about

regulating it even possibly breaking it up. We saw they have to defest from Giffy tiny company they acquired a

couple of years back. UM. And then you have the metaverse, which Zuckerberg is very excited about talking about all the time, and is you know, it seems to be the you know, much of his focus and the focus of the UM sort of senior executives around him, and there really just isn't a whole lot of traction despite tons and tons of spending, you know, and almost mind boggling sums of money that they're spending to try to make this thing happens.

The attraction within Facebook for or meta for the Metaverse. Well that is what you know, super details, you know, super discouraging from the point of view of a sort

of meta investor. We saw reports over the last couple of weeks of um Meta employees not wanting to use their own product, which again that that that's sort of discouraging on one level because you'd you'd expect and hope that the people who are building this thing are excited about it, but also because Zuckerberg is pushing the idea that the metaverse is going to make a huge difference for office work, right, that it's not just a video

game platform. And the reason he's doing that is because the video game business is actually pretty mature, you know, they've they've been at this for almost a decade UM. And the fact that they can't get their own employees to use the platform, how they say we're all going to use it in the future, um, you know, doesn't doesn't bode well. Max, uh so in the Horizon world,

is that what happened? Did we lose him? I was there for a second, lost in the spreadsheet on my phone, and as you write, it's soon going to be strapped to my face. That's so I can see it much more closely like comes into clarity. But but I do think that there's an interesting kind of strategic decision here at meta of like this tech maybe away from consumers and towards the corporate world and walk us through how

that's looking so far. Right, So, if you watched connect um, which is their annual developer event for vr UM, a lot of the focus was around office work, as you said, you know, the big special guests. You know, they had some gaming announcements and and they did sort of the

usual stuff. Um, but the big get was Sati Adela, the CEO of Microsoft, talking about now you can, um, you know load Microsoft sixty five, which is the product most people know is as office Word, Excel, power Point, you can do that in the metaverse, the chief executive of a Centure showed up to say, um, you know we Centure. You know, I think this is such a great thing. We've been you know, doing brainstorming sessions on the nth floor, which is the consultancies. Um, you know

met first thing. And again this stuff potentially could could matter and you can sort of understand from a strategic perspective why Microsoft or why censure thinks is a good idea you know, Microsoft wants to be everywhere. Um, but there are points in the metaverse. Yeah yeah, so so hey why not. On the other hand, it's it's really hard to watch that and think, like, who is going

to get excited about this? They're talking about sort of the parts of office work that everyone hates, you know, spreadsheets, management consultants, um, you know, brainstorming, you know, sessions. You really have to yeah, I mean you have to be like sort of being a management consultant to like this um. Which again, okay, maybe there are a lot of management consultants made that could be a good business um. But but it's just it just doesn't feel like they're able.

They're generating a ton of excitement, and when you compare that to the revenue that sorry, the amount of spending they've done. We're talking something like twenty seven billion dollars since early UM and they call that an investment. Of course, Wall Street calls it a law. UM. So so we'll see. Okay, So the headset is another thing that comes up in the in the story and has been you know, talked about a lot. It's expensive bucks, right, like what what

uh what? What's your take on on the headset. So the headset, it'll be very interesting. You know, Apple is widely rumored, we've reported, um that they're they're working on a headset. Will be interesting what they do. Um. I think the headset was both sort of more expensive than a lot of people who watched Space closely. We're hoping you knows, is three times what Facebook's sort of consumer headset costs. It's kind of hard to imagine somebody upgrading.

And then the technical capabilities. It includes eye tracking, which is you know, very cool. I guess, um the company says for sort of meetings and things like that. Um, but battery life is lower than their cheaper headset. You know,

the processing power doesn't seem like hugely better. Um. We even had a meta employee, you know, John Carmack, who's like a industry pioneer, sort of saying, you know, they're their pros and cons of this device, which you wouldn't really want to hear when you're talking about your hot new product that you just released compared to something that you released, you know, two years ago, that costs a

third the price. I'm wondering, if nothing else, this metaverse discussion has taken some of the attention away from some of the problems that Facebook has with the regulators, elections coming up, things like this, it kind of feels like, at least maybe unintentional head fake so or maybe it's

an intentional head fake. I mean, you know, one of the interesting things that's happened is you go back two years ago, We're heading into a general election, and all Mark Zuckerberg wanted to talk about was the platform sort of responsibility to society. We saw you know, Meta talking a lot about back then called Facebook, you know, talking a lot about election integrity, UM also talking a lot

about public health and things like that. Now what's happened since then is some of those duties have been sort of pushed off to other parts of the company. You know, we have Nick Klegg has been elevated, uh to to this sort of role that Zuckerberg I think himself was largely handling before um AND. And as a result, you know, all the focus in terms of media attention and um AND and from a public policy point of view, is on this new thing UM, which I think has has

come with some pros and cons. On one hand, UM Zuckerberg isn't taking it from all sides like is not maybe being criticized as much even as there's tons and tons of misinformation on the platform today. Um. On the other hand, a lot of focus on this platform that really doesn't seem to be thriving, and you know, breaking up of those election teams that you know, we're we're sort of a response to sort of some of the sketchy stuff that had happened previously. And you know, as

you write, your kicker, pretty memorable. Gotta pay for that metaverse somehow. Well, and you know, Zuckerberg went on Joe Rogan's podcast a few months ago to talk about the metaverse and and that you know, huge opportunity for the metaverse. But Rogan has been like a prominent uh you know, vaccine skeptic. He's somebody who was kind of playing in this disinformation ecosystem. He's like exactly the guy that Mark

Zuckerberg two years ago would have avoided. Right now, and now we see Zuckerberg kind of pivoting away from those concerns and to pumping this metaverse, um, you know, with questionable success. Well, it's an incredible read. And if you want to find the truth about the legs on the avatar you're gonna have to read the story on the

terminal or at Bloomberg dot com. Another great story from Max Jaffin, columnist of Bloomberg Business Week, and our thanks to editor Jill Webberjill Weber, editor at Bloomberg Business Week, Joining both in our studio. You are listening and watching Bloomberg Radio. This is Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes. Tim Stinovic on Bloomberg Radio. Well, our next guest is an entrepreneur, maybe even a serial entrepreneur.

Among the companies, He's founded thumb Play, a mobile entertainment service. It grew to more than a hundred million revenue in less than three years before he exited the company, which was later acquired by clear Channel and is now called I Heart Radio. We've got a great dust with us Ari trus Dall, Yeah, founder and CEO of the data sharing platform CRISP. They have an interesting mission of how helping companies make their supply chains more efficient, reduce waste,

and boost product profits. So he is here in our interactive Bloberg studio. So I read about your company, Paul, read about your company. Tell us exactly what you are

doing and who you're working with great. Yeah, So we've worked with a lot of large retailers, a lot of distributors, and a lot a lot of large brands, so brands that large brands and three or four three large brands on the platform um and they saw during the pandemic and supply chain challenges that they needed just to collaborate better with the retailers and understand the data better so

that they don't run other products. We all see empty shelves and we've seen challenges with undersupply and overstock and all of that. And everybody realized during the pandemic and these supply chain challenges, so they actually need to collaborate around the data after not great waste and also be

also put products on the shelf well. And so you know, so let's it's interesting that you said, so you saw in terms of the demand for your services ramp up in a big way during the pandemic or post pandemic. Oh yeah, before nobody cared so fortunate to sell a company here in New York and then traveled around the world and then sold all these challenges with supply chain, especially in the feud side, but a third of all the feud that's made in the world actually never reaches

a consumer. One third and then another one third is lost when the consumer gets it or the feud has no no no human reaches no humans. So no, it's pretty remarkable right in the world where people are starving, that there's so much food waste exactly over a billion people. Um. So that was the inspiration behind it. Um And but before the pandemic, nobody really cared. Um And during the pandemic everybody care about it. So are yeah? And does

it stay with us? Are like the stress that we've seen on supply chains and companies having to make them much more efficient, much more productive, much more sustainable. Is that something real or is the sustainability aspect of it just kind of a cool thing to do or something changed. It's definitely changed during the pandemic. And um we see all of these challenges in the supply chain. Before it

was easier to manage in a way. But now you see inflation increases usually strikes us, labor costs, usually shortages of labor. You see better use seasons. There's a lot of things that is hitting the supply chain. It might be a hundred million companies actually collaborating in a way to get products to the consumers. But were they were they collaborating before? You know, what's what's different because the

collaboration was there. We talked about, you know, the massive global supply chain that's been in existence for decades to be fair, So what's different. You know, the whole supply chain runs on technology was created the year I was born, in the nineteen three years called E d I and that's just purchase orders that get sent through. It's very reactive UM and the ones that have further for drop stream,

they actually don't understand what the consumers are doing. They get all of these disorted demand signals throughout the supply chain, so they end up producing a thousand when the actual consumer demand is hundred UM. And then you get what we're seeing now where all this is coming in reverse

in a way. So now we have overstock and oversupply on twenty one percent more inventory is actually sitting in the retire in the retails changed now because because of this night, you said they had sixty five percent more inventory than they had a year ago. So now it's kind of coming in reverse again from the shortages that we had seen earlier. Well, so how much of that though was companies um are in many ways ordering ahead to make sure they weren't you found out to be short.

You know exactly what happens. They typically say, you run a retailer on the upper upper east side, you're ordering a hundred products. If I'm the wholesaler and I give you fifty products, the retailer is smart knob. But now they ordered two hundred, so they could get a hundred UM if I'm sending that as a retailer or my

wholesaler back to a brand again. Now they believe that this consumer amnners actually increased and the brand might have six months to act to produced this product, so I might make eight hundred now, but actually consumer demand didn't

change that much. So based on you obviously can't tell us exactly who you're working with and all the companies a little We can maybe garners some stuff from looking at the website, but what you are seeing this supply chain story that has been with us for several years now because of the pandemic. What does it tell you about supply chains kind of getting back to quote unquote normal, and what does it tell you about the global economy. You know, I think it's gonna stay with us for

a long time. I think it's gonna take a long time before actually all of this gets worked out throughout the supply chain, because there's always these new disruptions that are and that's hitting the hitting the supply chain. So I think it's gonna stay with us for a long time. So in other words, there's going to be shortages and you're going through the same things. You have too much and then people why but why is it such a mess? Now? You know? It's there's this theory called bullbit theory that

says that it ripples through the whole supply chain. I think it gets disorder, disorder through the supply chain because information is not real time, So if you're sitting three of four steps away from the actual retailer, it's very hard to understand if the consumer demand actually went to five percent or if did they actually go So that's that's a systematic problem that will stay with us for

a long time. Just got twenty seconds to quick if you could, All right, are you also seeing that the supply chains are going to be a little crazy and all over the place because people are bringing stuff back home changing their supplies. Is that happened exactly? Yeah, a lot of changing consumers, man, a lot of e commerce, a lot of home delivery, but bringing it closer to where the companies are near. Shorting story, yeah, yeah, yeah,

absolutely short and shortened. Shortening the supply change is a big part of this um as well. So there's always disruptions that happened and you need data. That's the thing. All right, we gotta run. All right, thank you so much. Ri Charles Doll, founder and CEO at CRISP, joining us here in our interactive broker studio. This is Bloomberg Radio. I'm roam a journal. Yeah, but you let me drive. Oh no, no, no, no, honey, please, I want to drive.

It's good question. Good drive, This good drive to the globe effect Don on Bluebird Radio. All right, this is a very interesting situation. Continental Resources shale billionaire Harold Ham's latest offer to take Continental Resources private is still too low. That's according to smeat Capital Management, the oil explorer's largest

minority investor. Ham on Monday boosted his all cash offer to sev me four dollars and twenty eight cents per share, but Smeede believes that they should be paying about ninety dollars per SHARE's checking with Cold Smeed, president and portfolio manager of Smeaed Capital Management, joining us on the phone from London. So Cold give us, give us you know, kind of what you think is going on with the

company with their board with management visa to be their offer. Yeah, that's a great question and thanks for having me on. So uh, you have to remember that, first off, Harold Ham is nothing short of a genius in the space, and he's built himself an incredible net worth and he in many cases has deserved that out of his hard work and understanding the business and being way more aggressive than anyone else. And that those were all the reasons

that we were interested in the business. Now, um, with the offer he threw in, he's a great card player. It's the kind of person you don't want to be across the table from when you're not on his side. And he threw in an offer that we assume that he hoped oil prices would back off on. Obviously not enough because he had to raise the price, which we knew was going to be likely. Um. The difference though, is he raised the price just to please the Special committee. Um.

It doesn't mean minorities agree with this. It doesn't mean that this is the true value of the business. UM. When we say ninety that's what we kind of expect in a fair deal versus what do we think the business is worth. We think it's worth over a hundred dollars, just so you're aware. So I'm looking at the shareholder list here on the Bloomberg terminal. H d S is the symbol when you load in the ticker. I got Harold Ham the outstanding, and then lots of other various

trusts and family members here. So they controlled this thing. What's the recourse for minority shareholders here? It's a good question. So, UM, when this deal was originally announced in June, we had reached out to the special Committees Council UM to make sure we get the chance to engage with them as well as speak with their financial visor, which was publicly disclosed. Finally, that that's ever core UM now that was communicated to

us by their council UM. Just so you're aware, that never took place and we never got to talk to either the Special committee or or the financial advisor. And so when we saw this announced UM, it was contrary to what we had communicated us as the largest minority. UM. We we provided five things that we were interested to find out where we felt that continental poorly disclosed. Why

can they poorly disclosed? Because to your point, when harolds, you're larger shareholder and his family controls the business, you don't have to disclose much because you're the shareholder. And UM, so we're we're still interested. They'll have to provide a filing here in the next couple of weeks or so off of you know what they're going to be providing in the tender. And we're interested to see the process

of the board did or didn't do. Um. We're interested to find out if the five things we flagged to them were actually even considered, because if they're not, you can kind of start to see a dialogue where um, they might have followed a process to not have a conflict. The questions do they do their job? So how far do you take this? Uh? Well, I mean it's Oklahoma corporation, so it doesn't follow Delaware chancery court. UM. What is

particular to Oklahoma is their special appraisal rights under Oklahoma law. UM, where we could take them to court and prove a higher valuation ultimately. So UM, we're interested to see, like

I said, what they're gonna file following this UM. But we have to see those documents first, and we'll probably ask for UM further and for nation if there's you know, not enough disclose that we again, for how poorly we've been treated in this process so far, I will not at all be shocked if that filing has almost nothing in it, because again this looks like it's a homer. I mean, you're playing no way a basketball game. You ain't getting any calls. Um, the reps aren't on your side.

A couple of things here. Having been through this this process a few times, the bankers have to do comparable valuations. They have to justify the valuation. It has to trade in line with recent deals, with recent public trading, So you have to do all that type of stuff. Number one. Number two, I look at the price start. This stock has never been north at eighty a share ever, so they could probably be saying, you know, why should I

pay a hundred? Well, except that they'd also never owned the pioneer assets that they bought for a song less than you know, roughly about twelve months ago. UM, it was disclosed in the quarter that that deal closed, that that asset produced a hundred fifty million dollars of free cash that was a year ago with obviously lower oil prices. Um. So what I don't think either the Wall Street analysts

that covered the stock really understood. I think him get this, We get this is that if they say a cash cow, and what he could do to lever this thing as a private business, Uh, he could borrow every nickel of the four billion dollars he needs. So Um. You know again, he's a great card player. He's not going to give you anything close to fair because it's about Harold Ham in this transaction. It's not about anybody else. And that's

where we disagree. That's where interest finally don't align. How do you think this is going to play out here? What's the most likely time frame? I guess? And is there a number you would come down to that's a little bit off your number but a little bit closer to his number? Uh? Well that's all part of the process, I guess. And um, we're, like I said, we're just

interested to see what that process was. For example, if if someone said cool, what what would you expect out of this, we would have expected someone to come in and offer. In his filing in June, he said he was not interested in anyone else's offer. UM. Now he's frustrated his stock is not being valued like it should be.

But he's right in that. We agree with him in that UM and all stock deal from Devon Energy would have been really interesting to us because they have a lot of crossover same geography UM as Continental Resources, and what Ham could be is their large anchor. Shivil that Devon doesn't have. What both companies are doing. What in the way that I wouldn't do is they're paying too much in dividends. They should be buying backstock. Ham couldn't do it because he'd be buying too many minorities out.

Devon can't do it because they can't find any courage right now. But that would be our dream deal. Hey, last thought and last questions. I mean, you have a bunch of energy names among your top holdings. UM, is there a big macro play here for you? I mean, we've certainly seen Energy being me out performer by a mile wide margin this year and just got about thirty seconds call. Yeah, No, the Energy looks like the easiest game in town in a ten year period where stocks

are going to do terrible. Um, this looks like the seventies. This looks like the two thousand's. Um. If you want my other big idea in our international portfolio, we own Meg Senovis. Buying Meg looks pretty attractive. We owned Senovis as well. We also own Oxy. So we love Buffa being around. We love having billionaires being interested in our ideas. Who doesn't, uh? Col s Meade Fund to spend some time with you and really dig into your holdings Continental Resources.

Col Smead, President and portfolio manager at Smead Capital Management, joining us on the phone from London. By the way, that Smead Value Fund has bea just about all of its peers over the past five years, returning on average nearly twelve and saying something, I mean value has been great the past couple couple and a half years, but

before that. Thanks for listening to Bloomberg Business Week. Download the podcast on iTunes, SoundCloud, or Bloomberg dot com, and you can also listen to our radio show at two pm Eastern on Bloomberg Radio or watch us on YouTube search Bloomberg Global News