Speaker 1: This is Bloomberg Business Week. I'm Carole Masser and I'm
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Speaker 1: YouTube search Bloomberg Global News. This is my favorite read
Speaker 1: of the day. I read it in this morning. It's
Speaker 1: also almost read on the Bloomberg and Paul. It's about
Speaker 1: how the FETE is giving us all a lesson when
Speaker 1: it comes to lag time. Yeah. Absolutely, I mean the
Speaker 1: the FET is raising rates, their raising rates aggressively. They've
Speaker 1: communicated that clearly, but it takes time. It doesn't work immediately.
Speaker 1: And Alison Schreeger joins us. She is a senior fellow
Speaker 1: at the Manhattan Institute. She's also Bloomberg Opinion columnist. Joining
Speaker 1: us on zoom from the tri State Area Allison. A
Speaker 1: lot of folks were expecting, okay, the fed raisers rates,
Speaker 1: economy slows, and I would argue, or it seems like
Speaker 1: other than maybe the housing market. This takes some time here,
Speaker 1: doesn't Yeah, it does, because you know it's an inflation
Speaker 1: You know your expectation um, your expectations about inflation are
Speaker 1: in the future. You know, you agreed to a rental contract,
Speaker 1: you agree to a wage or increase. This all happens,
Speaker 1: you know, a year in advance. So that's one of
Speaker 1: the reasons it takes a long time for bad policy
Speaker 1: to work. What's important and I have to just put
Speaker 1: out there. You are the author of a book with
Speaker 1: a great title and economist walks into a brothel, which
Speaker 1: my daughters swiped off my bookshelf. Who is studying economics,
Speaker 1: so she swiped it. Um. You talk about the importance
Speaker 1: of expectations. We often talk about that in the financial
Speaker 1: markets overall, but when it comes to inflation and inflationary expectations,
Speaker 1: it's measured, we follow it. Why is that so important?
Speaker 1: Well as this, as I just said, you know, when
Speaker 1: you agree to a wage contract, you agree to rent
Speaker 1: an apartment, whatever, you know, this is based on what
Speaker 1: you think inflation is going to be over the next year.
Speaker 1: So you know, the monetary policy has shifted a lot
Speaker 1: in a lot us thirty years of thinking. Expectations or
Speaker 1: how you can influence people's expectations is what really matters,
Speaker 1: and it is the most powerful tool for monetary policy,
Speaker 1: So it's super important. Well, can I and just to follow,
Speaker 1: there's a difference between those expectations being well anchored and unanchored.
Speaker 1: What's the important distinction there? Well, if they're well anchored,
Speaker 1: then people have a lot of put a lot of
Speaker 1: credibility in the FED. You know, this is one of
Speaker 1: the reasons why for a long time the FED was
Speaker 1: targeting to percent inflation. It was this idea, as will
Speaker 1: say it's two percent, everyone will believe it's going to
Speaker 1: be two percent, and everyone's gonna conduct the economy is
Speaker 1: that it's going to be two percent, and it becomes
Speaker 1: this self fulfilling prophecy. But that all requires that people
Speaker 1: actually believe the Fed is actually going to deliver two
Speaker 1: percent inflation, and it seems like they've become unanchored now.
Speaker 1: And Alison, you know a lot of folks are saying
Speaker 1: this is not your grandmother and grandfather's inflation. A lot
Speaker 1: of this was kind of due to the supply side
Speaker 1: issues resulting from the pandemic, and maybe there's a limit
Speaker 1: to what the FED can do, and that's probably a
Speaker 1: valid argument, I outthink it is. I mean this unfortunately,
Speaker 1: this inflation has many fathers, So I mean, so I
Speaker 1: mean this supply side issues definitely, you know we're part
Speaker 1: of it, but we also, I mean partially, we were
Speaker 1: following an old playbook in one which is to boost
Speaker 1: the economy. You've got a boost demand through the severe
Speaker 1: contraction supply, and then boost a demand on top of it.
Speaker 1: So all around you just got a lot of inflation.
Speaker 1: And you know, even if you do have supply induced inflation,
Speaker 1: you know, the remedy is often to reduce demand because
Speaker 1: that's really sort of a lot easier to control. You know,
Speaker 1: the government can do things about supply, but I mean,
Speaker 1: it's even longer lags. If they said, if FED policy
Speaker 1: takes a year, maybe more government sort of boosting supply
Speaker 1: can take, you know, other than sort of certain trade
Speaker 1: policies can take even like more time, like five ten years.
Speaker 1: So one of the things I also loved in your stories,
Speaker 1: you said, the bond market has a terrible track record
Speaker 1: predicting inflation. If history is any kind, bond traders are
Speaker 1: the last to know when inflation is a bout to change,
Speaker 1: which I feel like, Alson, we spent a lot of
Speaker 1: time when we're talking with our TV colleagues about the
Speaker 1: financial marks. Oh, watch the bond market. It knows what
Speaker 1: it's doing. You're saying, not necessarily the case. I've never
Speaker 1: understood why that's a thing. I mean it said they
Speaker 1: have a terrible track record of protecting inflation. I don't
Speaker 1: even really believe inverted yield curves tell us that much.
Speaker 1: I mean, so these you know, they're just bond traders
Speaker 1: are human, and they're just as fallible as the rest
Speaker 1: of us, and they don't have special insight. And in fact,
Speaker 1: I think considering bonds are such long term assets, they
Speaker 1: tend to be very short term in they're thinking. You know, Alison,
Speaker 1: it's this Federal Reserve has been really clear I think
Speaker 1: on its messaging here. I mean, starting with Jackson Hole, Uh,
Speaker 1: you know, if you weren't paying attention that we want
Speaker 1: to fight inflation, now you're better and they've been very consistent.
Speaker 1: Is that part of being a good federal reserve is
Speaker 1: clearly communicating to the market really where you want to go.
Speaker 1: It is, I mean, thanks following this intellectual tradition, that
Speaker 1: this idea that you know, communication and setting expectations of
Speaker 1: the most powerful tool. I think the problem the FED
Speaker 1: has is it's a little late. Like if they were
Speaker 1: more ahead of the curve on inflation, they might have
Speaker 1: had a bit more credit ability. But the fact they
Speaker 1: kept insisting it was transitory. They keep been putting out
Speaker 1: forecasts that suggest inflation is going to be back to
Speaker 1: North Pole there um, I think really undermines their message.
Speaker 1: So I think they're now doing the right thing, but
Speaker 1: it's a little late, all right. So when someone like
Speaker 1: a Mark Moby says, hey, guys, get ready for maybe
Speaker 1: nine percent moves and interest rates because that's what's going
Speaker 1: to take to bring down the current inflation, how do
Speaker 1: you think about how high the Fed might need to
Speaker 1: go and how much we need to kind of get
Speaker 1: our heads around it. I think nine percent is a
Speaker 1: little high. I agree it would bring out inflation, but
Speaker 1: that in that case the cure might be worse than
Speaker 1: the disease. Um. I think, you know, they're definitely gonna
Speaker 1: go above five percent the inflation number. I mean, the
Speaker 1: way I think about it is you want this sort
Speaker 1: of the real interest rate to at least be at inflation.
Speaker 1: So the FED is still not sort of trying to
Speaker 1: pump demand. But I would look at core inflation rather
Speaker 1: than overall inflation, which is inflation of minus food and energy.
Speaker 1: So that's what about like six nine percent around now,
Speaker 1: So I mean, and it might go down just more
Speaker 1: supply chain issues ease. So probably I think nine percent
Speaker 1: it's a little high, but we could be looking at
Speaker 1: five five and a half and eighties six percent. All right,
Speaker 1: good stuff, Allison, really appreciate it. Alison schreger Uh Senior
Speaker 1: Fellow at the Manhattan Institute. She's also Bloomberg opinion columnists
Speaker 1: joining us on zoom, which we appreciate. We get the seer,
Speaker 1: so that's she's booming into us from the tri state area.
Speaker 1: So good stuff here. It's in it's inflation. It's a
Speaker 1: photo reserve, the Feato reserve. Yes, if you listen to
Speaker 1: most experts, was was behind the curve. Maybe still behind
Speaker 1: the curve, but it's not for lack of trying, at
Speaker 1: least over the last six to nine months. But you know,
Speaker 1: we keep saying, Okay, we're looking for sins Fir to
Speaker 1: come down, but man, is it sticky in terms of
Speaker 1: coming down. But she did emphasize, you know, focus on
Speaker 1: the core, which is something we talked about a lot.
Speaker 1: Check out our book too. It's a great title. It's
Speaker 1: a great book. And econmist walks into a brothel and
Speaker 1: other unexpected places to understand risk. This is Bloomberg Business
Speaker 1: Week with Carol Masser and Bloomberg Quick Takes Tim Stinovic
Speaker 1: on Bloomberg Radio. She's an incredible analyst and she's also
Speaker 1: a comic and she's running around doing the research channel stuff,
Speaker 1: doing TV, doing radio. Because some bankers reported earning this
Speaker 1: Mornia they call the little Little Company for Goldman sax
Speaker 1: stacks up almost three percent in today's trade. Let's get
Speaker 1: to it with Bloomberg Intelligence Senior Global Banks Alas to
Speaker 1: Allison Williams. She's here in our interactive broker's studio. All right, Uh,
Speaker 1: walk us through what do we need to know about
Speaker 1: goldben So number one trading still is the majority of
Speaker 1: their business and they delivered on trading, so fixed income
Speaker 1: trading up that led across that and fixed income trading
Speaker 1: was the highlight of the investment bank this quarter. For
Speaker 1: all banks, it was not interest income, but looking at
Speaker 1: the investment bank fixed income highlight, fees the low light.
Speaker 1: So how about on the equities business, because we get
Speaker 1: a SMP down big this year, NASH back down big.
Speaker 1: Can you make money trading equities in that kind of tape?
Speaker 1: I think the activity is helpful, but we're up against
Speaker 1: a really strong quarter from a year ago. Prime brokerage
Speaker 1: is a business that benefits from higher asset prices, use
Speaker 1: of leverage, so as you can imagine, that's not doing
Speaker 1: as well. But I would say for Goldman the focus is,
Speaker 1: you know what's happening on the market share front. Um.
Speaker 1: They are one of the top three with Morgan Stanley
Speaker 1: and JP Morgan, and that race has gotten a little
Speaker 1: tighter in recent quarters. I mean in a way that's
Speaker 1: all about bragging rights because they're all as the top three,
Speaker 1: focused on profitability and doing well. But you know, Goldman
Speaker 1: hold it held its own there um. And then to
Speaker 1: the fees, everyone's fees are down dramatically, I mean broad
Speaker 1: declines across equity underwriting, debt underwriting, m and AH so plaued.
Speaker 1: The numbers for year old friends that are in that
Speaker 1: are working away and trying to do deals and unfortunately
Speaker 1: not getting they had a few records are really good years.
Speaker 1: I mean last year was truly amazing. I think we
Speaker 1: were at a record, you know, in the middle of
Speaker 1: the year and when when it's these bad markets. I
Speaker 1: talked about the pipeline, the pipeline, and I talk to
Speaker 1: my boss is about it. But I got a great pipe,
Speaker 1: right and you would be saying that and you would
Speaker 1: be saying the same thing since January. The pipeline is
Speaker 1: strong and that's that is the positive things that we
Speaker 1: haven't seen that sort of take a step back. But
Speaker 1: the question is when did will that get executed? We
Speaker 1: have a few more days like we've had the past
Speaker 1: couple of days, and we can get a little bit
Speaker 1: more rally. Does that open up a window to get
Speaker 1: some of these deals done. I think the program like
Speaker 1: there are things happening, there are and you know, it
Speaker 1: was interesting if you looked at the death side of things.
Speaker 1: In August, things opened up and it was a really
Speaker 1: strong month on that side of the business. Uh. You know,
Speaker 1: there's a lot of questions around the leverage land marks. Right,
Speaker 1: there was a big there were a lot of mark's
Speaker 1: last quarter. This quarter aware of the marks, and you
Speaker 1: know what we're also seeing the endowments is starting to
Speaker 1: report their performance and they're actually very I thought it'd
Speaker 1: be down. This is through June. They're kind of flatish.
Speaker 1: And what that tells me is a they were pretty
Speaker 1: well hedged, but by they haven't marked their big private
Speaker 1: equity investments to date. I wonder if the banks are
Speaker 1: slow to mark investments because these things got to be
Speaker 1: down significantly. Well, there were big marks, I mean big
Speaker 1: marks in the context. Right, So there were marks last quarter.
Speaker 1: I think this quarter was less because I think when
Speaker 1: the window opened up, you know, maybe there were some
Speaker 1: things that got done. Um and you know a couple
Speaker 1: of banks. Dad given number, a city gave and number.
Speaker 1: I think it was something like a hundred million last
Speaker 1: quarters six million. Deutsche Bank and Credit Suites are going
Speaker 1: to be the ones we're watching because they're bigger in
Speaker 1: the leverage business. Deutsche Bank has said they expect something.
Speaker 1: We'll find out how big that is. But I mean
Speaker 1: for the industry. Uh, you know, Jamie Diamond, I think
Speaker 1: made the great comments. It's you know, a fifth of
Speaker 1: what we were at the financial crisis, so you remember
Speaker 1: back in those days that was a real concern what
Speaker 1: was going on. And just because the size of that
Speaker 1: business and the size of banks balance sheets today, smaller business,
Speaker 1: bigger balance sheets. So is there is some aliceon net
Speaker 1: takeaway as if we try to kind of glean from
Speaker 1: what the CEO has had to say and how the
Speaker 1: big banks performed, what it says about the outlook here,
Speaker 1: I would say there, you know the three takeaways. One
Speaker 1: is the net interest income which was super strong that
Speaker 1: you know third quarters history, but the run rate is
Speaker 1: so much stronger coming into the fourth quarter. That's good
Speaker 1: as we look into can the loans hold up, can
Speaker 1: the class of deposits hold up UM. Secondly, we talked
Speaker 1: a lot about trading. We think that there continues to
Speaker 1: be volatility. We think that helps fixed income trading. UM
Speaker 1: fees at least are studying quarter to quarter, so still
Speaker 1: down a lot your year, but we're starting to see
Speaker 1: some studying, so that bodes well for next year. The
Speaker 1: last thing, provisions, that's what we called the wild card
Speaker 1: coming into this quarter, and they were a little bit
Speaker 1: higher than we expected, but not by much, so I
Speaker 1: would say tweaking the credit view and maybe the biggest
Speaker 1: number that we got or the biggest statement for the
Speaker 1: order wise Jamie diamond saying, Um, you know, if we
Speaker 1: go to five to six percent unemployment, five to six
Speaker 1: billion or provisions, you know, that's obviously worse than people expect,
Speaker 1: but nowhere near what we saw, Um perspectives. Yeah, Bloomberg
Speaker 1: Intelligent Senior Global Banks Alist Alison Williams, thank you so much,
Speaker 1: really appreciate it. You're listening to Bloomberg Business Week with
Speaker 1: Carol Messer and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio.
Speaker 1: So we know Ernie season is getting into full swing,
Speaker 1: and next week we'll get an update on the business
Speaker 1: of metal platforms. And ahead of that, in a story
Speaker 1: you can find online at Bloomberg business Week dot com,
Speaker 1: have a founder of Meta. Of course, we're talking about
Speaker 1: Mark Zuckerberg isn't saying much about the core platform in
Speaker 1: business known as Facebook exactly. We're also gonna get the
Speaker 1: truth behind the legs on the avatars and the metaburse.
Speaker 1: Let's get to this story. It's by columnist Max Jaffkin,
Speaker 1: who joins us along with the editor Bloomberg Business Week
Speaker 1: editor Joel Webber, both in our studio. But Max, let's
Speaker 1: kick it off with you, UM, tell us about what
Speaker 1: is really the focus. We know it's all about the
Speaker 1: metaverse for Mark Zuckerberg right now, right so it meta
Speaker 1: You know a K. Facebook is a very interesting company
Speaker 1: right now because on one hand, you have this enormous
Speaker 1: and very successful, you know, dominant business which is social
Speaker 1: networking and UM advertising so dominant that you know, governments
Speaker 1: all around the world are are, you know, worried about
Speaker 1: regulating it even possibly breaking it up. We saw they
Speaker 1: have to defest from Giffy tiny company they acquired a
Speaker 1: couple of years back. UM. And then you have the metaverse,
Speaker 1: which Zuckerberg is very excited about talking about all the time,
Speaker 1: and is you know, it seems to be the you know,
Speaker 1: much of his focus and the focus of the UM
Speaker 1: sort of senior executives around him, and there really just
Speaker 1: isn't a whole lot of traction despite tons and tons
Speaker 1: of spending, you know, and almost mind boggling sums of
Speaker 1: money that they're spending to try to make this thing happens.
Speaker 1: The attraction within Facebook for or meta for the Metaverse.
Speaker 1: Well that is what you know, super details, you know,
Speaker 1: super discouraging from the point of view of a sort
Speaker 1: of meta investor. We saw reports over the last couple
Speaker 1: of weeks of um Meta employees not wanting to use
Speaker 1: their own product, which again that that that's sort of
Speaker 1: discouraging on one level because you'd you'd expect and hope
Speaker 1: that the people who are building this thing are excited
Speaker 1: about it, but also because Zuckerberg is pushing the idea
Speaker 1: that the metaverse is going to make a huge difference
Speaker 1: for office work, right, that it's not just a video
Speaker 1: game platform. And the reason he's doing that is because
Speaker 1: the video game business is actually pretty mature, you know,
Speaker 1: they've they've been at this for almost a decade UM.
Speaker 1: And the fact that they can't get their own employees
Speaker 1: to use the platform, how they say we're all going
Speaker 1: to use it in the future, um, you know, doesn't
Speaker 1: doesn't bode well. Max, uh so in the Horizon world,
Speaker 1: is that what happened? Did we lose him? I was
Speaker 1: there for a second, lost in the spreadsheet on my phone,
Speaker 1: and as you write, it's soon going to be strapped
Speaker 1: to my face. That's so I can see it much
Speaker 1: more closely like comes into clarity. But but I do
Speaker 1: think that there's an interesting kind of strategic decision here
Speaker 1: at meta of like this tech maybe away from consumers
Speaker 1: and towards the corporate world and walk us through how
Speaker 1: that's looking so far. Right, So, if you watched connect um,
Speaker 1: which is their annual developer event for vr UM, a
Speaker 1: lot of the focus was around office work, as you said,
Speaker 1: you know, the big special guests. You know, they had
Speaker 1: some gaming announcements and and they did sort of the
Speaker 1: usual stuff. Um, but the big get was Sati Adela,
Speaker 1: the CEO of Microsoft, talking about now you can, um,
Speaker 1: you know load Microsoft sixty five, which is the product
Speaker 1: most people know is as office Word, Excel, power Point,
Speaker 1: you can do that in the metaverse, the chief executive
Speaker 1: of a Centure showed up to say, um, you know
Speaker 1: we Centure. You know, I think this is such a
Speaker 1: great thing. We've been you know, doing brainstorming sessions on
Speaker 1: the nth floor, which is the consultancies. Um, you know
Speaker 1: met first thing. And again this stuff potentially could could
Speaker 1: matter and you can sort of understand from a strategic
Speaker 1: perspective why Microsoft or why censure thinks is a good
Speaker 1: idea you know, Microsoft wants to be everywhere. Um, but
Speaker 1: there are points in the metaverse. Yeah yeah, so so
Speaker 1: hey why not. On the other hand, it's it's really
Speaker 1: hard to watch that and think, like, who is going
Speaker 1: to get excited about this? They're talking about sort of
Speaker 1: the parts of office work that everyone hates, you know, spreadsheets,
Speaker 1: management consultants, um, you know, brainstorming, you know, sessions. You
Speaker 1: really have to yeah, I mean you have to be
Speaker 1: like sort of being a management consultant to like this um.
Speaker 1: Which again, okay, maybe there are a lot of management
Speaker 1: consultants made that could be a good business um. But
Speaker 1: but it's just it just doesn't feel like they're able.
Speaker 1: They're generating a ton of excitement, and when you compare
Speaker 1: that to the revenue that sorry, the amount of spending
Speaker 1: they've done. We're talking something like twenty seven billion dollars
Speaker 1: since early UM and they call that an investment. Of course,
Speaker 1: Wall Street calls it a law. UM. So so we'll see. Okay,
Speaker 1: So the headset is another thing that comes up in
Speaker 1: the in the story and has been you know, talked
Speaker 1: about a lot. It's expensive bucks, right, like what what
Speaker 1: uh what? What's your take on on the headset. So
Speaker 1: the headset, it'll be very interesting. You know, Apple is
Speaker 1: widely rumored, we've reported, um that they're they're working on
Speaker 1: a headset. Will be interesting what they do. Um. I
Speaker 1: think the headset was both sort of more expensive than
Speaker 1: a lot of people who watched Space closely. We're hoping
Speaker 1: you knows, is three times what Facebook's sort of consumer
Speaker 1: headset costs. It's kind of hard to imagine somebody upgrading.
Speaker 1: And then the technical capabilities. It includes eye tracking, which
Speaker 1: is you know, very cool. I guess, um the company
Speaker 1: says for sort of meetings and things like that. Um,
Speaker 1: but battery life is lower than their cheaper headset. You know,
Speaker 1: the processing power doesn't seem like hugely better. Um. We
Speaker 1: even had a meta employee, you know, John Carmack, who's
Speaker 1: like a industry pioneer, sort of saying, you know, they're
Speaker 1: their pros and cons of this device, which you wouldn't
Speaker 1: really want to hear when you're talking about your hot
Speaker 1: new product that you just released compared to something that
Speaker 1: you released, you know, two years ago, that costs a
Speaker 1: third the price. I'm wondering, if nothing else, this metaverse
Speaker 1: discussion has taken some of the attention away from some
Speaker 1: of the problems that Facebook has with the regulators, elections
Speaker 1: coming up, things like this, it kind of feels like,
Speaker 1: at least maybe unintentional head fake so or maybe it's
Speaker 1: an intentional head fake. I mean, you know, one of
Speaker 1: the interesting things that's happened is you go back two
Speaker 1: years ago, We're heading into a general election, and all
Speaker 1: Mark Zuckerberg wanted to talk about was the platform sort
Speaker 1: of responsibility to society. We saw you know, Meta talking
Speaker 1: a lot about back then called Facebook, you know, talking
Speaker 1: a lot about election integrity, UM also talking a lot
Speaker 1: about public health and things like that. Now what's happened
Speaker 1: since then is some of those duties have been sort
Speaker 1: of pushed off to other parts of the company. You know,
Speaker 1: we have Nick Klegg has been elevated, uh to to
Speaker 1: this sort of role that Zuckerberg I think himself was
Speaker 1: largely handling before um AND. And as a result, you know,
Speaker 1: all the focus in terms of media attention and um
Speaker 1: AND and from a public policy point of view, is
Speaker 1: on this new thing UM, which I think has has
Speaker 1: come with some pros and cons. On one hand, UM
Speaker 1: Zuckerberg isn't taking it from all sides like is not
Speaker 1: maybe being criticized as much even as there's tons and
Speaker 1: tons of misinformation on the platform today. Um. On the
Speaker 1: other hand, a lot of focus on this platform that
Speaker 1: really doesn't seem to be thriving, and you know, breaking
Speaker 1: up of those election teams that you know, we're we're
Speaker 1: sort of a response to sort of some of the
Speaker 1: sketchy stuff that had happened previously. And you know, as
Speaker 1: you write, your kicker, pretty memorable. Gotta pay for that
Speaker 1: metaverse somehow. Well, and you know, Zuckerberg went on Joe
Speaker 1: Rogan's podcast a few months ago to talk about the
Speaker 1: metaverse and and that you know, huge opportunity for the metaverse.
Speaker 1: But Rogan has been like a prominent uh you know,
Speaker 1: vaccine skeptic. He's somebody who was kind of playing in
Speaker 1: this disinformation ecosystem. He's like exactly the guy that Mark
Speaker 1: Zuckerberg two years ago would have avoided. Right now, and
Speaker 1: now we see Zuckerberg kind of pivoting away from those
Speaker 1: concerns and to pumping this metaverse, um, you know, with
Speaker 1: questionable success. Well, it's an incredible read. And if you
Speaker 1: want to find the truth about the legs on the
Speaker 1: avatar you're gonna have to read the story on the
Speaker 1: terminal or at Bloomberg dot com. Another great story from
Speaker 1: Max Jaffin, columnist of Bloomberg Business Week, and our thanks
Speaker 1: to editor Jill Webberjill Weber, editor at Bloomberg Business Week,
Speaker 1: Joining both in our studio. You are listening and watching
Speaker 1: Bloomberg Radio. This is Bloomberg Business Week with Carol Messer
Speaker 1: and Bloomberg Quick Takes. Tim Stinovic on Bloomberg Radio. Well,
Speaker 1: our next guest is an entrepreneur, maybe even a serial entrepreneur.
Speaker 1: Among the companies, He's founded thumb Play, a mobile entertainment service.
Speaker 1: It grew to more than a hundred million revenue in
Speaker 1: less than three years before he exited the company, which
Speaker 1: was later acquired by clear Channel and is now called
Speaker 1: I Heart Radio. We've got a great dust with us
Speaker 1: Ari trus Dall, Yeah, founder and CEO of the data
Speaker 1: sharing platform CRISP. They have an interesting mission of how
Speaker 1: helping companies make their supply chains more efficient, reduce waste,
Speaker 1: and boost product profits. So he is here in our
Speaker 1: interactive Bloberg studio. So I read about your company, Paul,
Speaker 1: read about your company. Tell us exactly what you are
Speaker 1: doing and who you're working with great. Yeah, So we've
Speaker 1: worked with a lot of large retailers, a lot of distributors,
Speaker 1: and a lot a lot of large brands, so brands
Speaker 1: that large brands and three or four three large brands
Speaker 1: on the platform um and they saw during the pandemic
Speaker 1: and supply chain challenges that they needed just to collaborate
Speaker 1: better with the retailers and understand the data better so
Speaker 1: that they don't run other products. We all see empty
Speaker 1: shelves and we've seen challenges with undersupply and overstock and
Speaker 1: all of that. And everybody realized during the pandemic and
Speaker 1: these supply chain challenges, so they actually need to collaborate
Speaker 1: around the data after not great waste and also be
Speaker 1: also put products on the shelf well. And so you know,
Speaker 1: so let's it's interesting that you said, so you saw
Speaker 1: in terms of the demand for your services ramp up
Speaker 1: in a big way during the pandemic or post pandemic.
Speaker 1: Oh yeah, before nobody cared so fortunate to sell a
Speaker 1: company here in New York and then traveled around the
Speaker 1: world and then sold all these challenges with supply chain,
Speaker 1: especially in the feud side, but a third of all
Speaker 1: the feud that's made in the world actually never reaches
Speaker 1: a consumer. One third and then another one third is
Speaker 1: lost when the consumer gets it or the feud has
Speaker 1: no no no human reaches no humans. So no, it's
Speaker 1: pretty remarkable right in the world where people are starving,
Speaker 1: that there's so much food waste exactly over a billion people. Um.
Speaker 1: So that was the inspiration behind it. Um And but
Speaker 1: before the pandemic, nobody really cared. Um And during the
Speaker 1: pandemic everybody care about it. So are yeah? And does
Speaker 1: it stay with us? Are like the stress that we've
Speaker 1: seen on supply chains and companies having to make them
Speaker 1: much more efficient, much more productive, much more sustainable. Is
Speaker 1: that something real or is the sustainability aspect of it
Speaker 1: just kind of a cool thing to do or something changed.
Speaker 1: It's definitely changed during the pandemic. And um we see
Speaker 1: all of these challenges in the supply chain. Before it
Speaker 1: was easier to manage in a way. But now you
Speaker 1: see inflation increases usually strikes us, labor costs, usually shortages
Speaker 1: of labor. You see better use seasons. There's a lot
Speaker 1: of things that is hitting the supply chain. It might
Speaker 1: be a hundred million companies actually collaborating in a way
Speaker 1: to get products to the consumers. But were they were
Speaker 1: they collaborating before? You know, what's what's different because the
Speaker 1: collaboration was there. We talked about, you know, the massive
Speaker 1: global supply chain that's been in existence for decades to
Speaker 1: be fair, So what's different. You know, the whole supply
Speaker 1: chain runs on technology was created the year I was born,
Speaker 1: in the nineteen three years called E d I and
Speaker 1: that's just purchase orders that get sent through. It's very
Speaker 1: reactive UM and the ones that have further for drop stream,
Speaker 1: they actually don't understand what the consumers are doing. They
Speaker 1: get all of these disorted demand signals throughout the supply chain,
Speaker 1: so they end up producing a thousand when the actual
Speaker 1: consumer demand is hundred UM. And then you get what
Speaker 1: we're seeing now where all this is coming in reverse
Speaker 1: in a way. So now we have overstock and oversupply
Speaker 1: on twenty one percent more inventory is actually sitting in
Speaker 1: the retire in the retails changed now because because of
Speaker 1: this night, you said they had sixty five percent more
Speaker 1: inventory than they had a year ago. So now it's
Speaker 1: kind of coming in reverse again from the shortages that
Speaker 1: we had seen earlier. Well, so how much of that
Speaker 1: though was companies um are in many ways ordering ahead
Speaker 1: to make sure they weren't you found out to be short.
Speaker 1: You know exactly what happens. They typically say, you run
Speaker 1: a retailer on the upper upper east side, you're ordering
Speaker 1: a hundred products. If I'm the wholesaler and I give
Speaker 1: you fifty products, the retailer is smart knob. But now
Speaker 1: they ordered two hundred, so they could get a hundred
Speaker 1: UM if I'm sending that as a retailer or my
Speaker 1: wholesaler back to a brand again. Now they believe that
Speaker 1: this consumer amnners actually increased and the brand might have
Speaker 1: six months to act to produced this product, so I
Speaker 1: might make eight hundred now, but actually consumer demand didn't
Speaker 1: change that much. So based on you obviously can't tell
Speaker 1: us exactly who you're working with and all the companies
Speaker 1: a little We can maybe garners some stuff from looking
Speaker 1: at the website, but what you are seeing this supply
Speaker 1: chain story that has been with us for several years
Speaker 1: now because of the pandemic. What does it tell you
Speaker 1: about supply chains kind of getting back to quote unquote normal,
Speaker 1: and what does it tell you about the global economy.
Speaker 1: You know, I think it's gonna stay with us for
Speaker 1: a long time. I think it's gonna take a long
Speaker 1: time before actually all of this gets worked out throughout
Speaker 1: the supply chain, because there's always these new disruptions that
Speaker 1: are and that's hitting the hitting the supply chain. So
Speaker 1: I think it's gonna stay with us for a long time.
Speaker 1: So in other words, there's going to be shortages and
Speaker 1: you're going through the same things. You have too much
Speaker 1: and then people why but why is it such a mess? Now?
Speaker 1: You know? It's there's this theory called bullbit theory that
Speaker 1: says that it ripples through the whole supply chain. I
Speaker 1: think it gets disorder, disorder through the supply chain because
Speaker 1: information is not real time, So if you're sitting three
Speaker 1: of four steps away from the actual retailer, it's very
Speaker 1: hard to understand if the consumer demand actually went to
Speaker 1: five percent or if did they actually go So that's
Speaker 1: that's a systematic problem that will stay with us for
Speaker 1: a long time. Just got twenty seconds to quick if
Speaker 1: you could, All right, are you also seeing that the
Speaker 1: supply chains are going to be a little crazy and
Speaker 1: all over the place because people are bringing stuff back
Speaker 1: home changing their supplies. Is that happened exactly? Yeah, a
Speaker 1: lot of changing consumers, man, a lot of e commerce,
Speaker 1: a lot of home delivery, but bringing it closer to
Speaker 1: where the companies are near. Shorting story, yeah, yeah, yeah,
Speaker 1: absolutely short and shortened. Shortening the supply change is a
Speaker 1: big part of this um as well. So there's always
Speaker 1: disruptions that happened and you need data. That's the thing.
Speaker 1: All right, we gotta run. All right, thank you so much.
Speaker 1: Ri Charles Doll, founder and CEO at CRISP, joining us
Speaker 1: here in our interactive broker studio. This is Bloomberg Radio.
Speaker 1: I'm roam a journal. Yeah, but you let me drive.
Speaker 1: Oh no, no, no, no, honey, please, I want to drive.
Speaker 1: It's good question. Good drive, This good drive to the
Speaker 1: globe effect Don on Bluebird Radio. All right, this is
Speaker 1: a very interesting situation. Continental Resources shale billionaire Harold Ham's
Speaker 1: latest offer to take Continental Resources private is still too low.
Speaker 1: That's according to smeat Capital Management, the oil explorer's largest
Speaker 1: minority investor. Ham on Monday boosted his all cash offer
Speaker 1: to sev me four dollars and twenty eight cents per share,
Speaker 1: but Smeede believes that they should be paying about ninety
Speaker 1: dollars per SHARE's checking with Cold Smeed, president and portfolio
Speaker 1: manager of Smeaed Capital Management, joining us on the phone
Speaker 1: from London. So Cold give us, give us you know,
Speaker 1: kind of what you think is going on with the
Speaker 1: company with their board with management visa to be their offer. Yeah,
Speaker 1: that's a great question and thanks for having me on.
Speaker 1: So uh, you have to remember that, first off, Harold
Speaker 1: Ham is nothing short of a genius in the space,
Speaker 1: and he's built himself an incredible net worth and he
Speaker 1: in many cases has deserved that out of his hard
Speaker 1: work and understanding the business and being way more aggressive
Speaker 1: than anyone else. And that those were all the reasons
Speaker 1: that we were interested in the business. Now, um, with
Speaker 1: the offer he threw in, he's a great card player.
Speaker 1: It's the kind of person you don't want to be
Speaker 1: across the table from when you're not on his side.
Speaker 1: And he threw in an offer that we assume that
Speaker 1: he hoped oil prices would back off on. Obviously not
Speaker 1: enough because he had to raise the price, which we
Speaker 1: knew was going to be likely. Um. The difference though,
Speaker 1: is he raised the price just to please the Special committee. Um.
Speaker 1: It doesn't mean minorities agree with this. It doesn't mean
Speaker 1: that this is the true value of the business. UM.
Speaker 1: When we say ninety that's what we kind of expect
Speaker 1: in a fair deal versus what do we think the
Speaker 1: business is worth. We think it's worth over a hundred dollars,
Speaker 1: just so you're aware. So I'm looking at the shareholder
Speaker 1: list here on the Bloomberg terminal. H d S is
Speaker 1: the symbol when you load in the ticker. I got
Speaker 1: Harold Ham the outstanding, and then lots of other various
Speaker 1: trusts and family members here. So they controlled this thing.
Speaker 1: What's the recourse for minority shareholders here? It's a good question. So, UM,
Speaker 1: when this deal was originally announced in June, we had
Speaker 1: reached out to the special Committees Council UM to make
Speaker 1: sure we get the chance to engage with them as
Speaker 1: well as speak with their financial visor, which was publicly disclosed. Finally,
Speaker 1: that that's ever core UM now that was communicated to
Speaker 1: us by their council UM. Just so you're aware, that
Speaker 1: never took place and we never got to talk to
Speaker 1: either the Special committee or or the financial advisor. And
Speaker 1: so when we saw this announced UM, it was contrary
Speaker 1: to what we had communicated us as the largest minority. UM.
Speaker 1: We we provided five things that we were interested to
Speaker 1: find out where we felt that continental poorly disclosed. Why
Speaker 1: can they poorly disclosed? Because to your point, when harolds,
Speaker 1: you're larger shareholder and his family controls the business, you
Speaker 1: don't have to disclose much because you're the shareholder. And UM,
Speaker 1: so we're we're still interested. They'll have to provide a
Speaker 1: filing here in the next couple of weeks or so
Speaker 1: off of you know what they're going to be providing
Speaker 1: in the tender. And we're interested to see the process
Speaker 1: of the board did or didn't do. Um. We're interested
Speaker 1: to find out if the five things we flagged to
Speaker 1: them were actually even considered, because if they're not, you
Speaker 1: can kind of start to see a dialogue where um,
Speaker 1: they might have followed a process to not have a conflict.
Speaker 1: The questions do they do their job? So how far
Speaker 1: do you take this? Uh? Well, I mean it's Oklahoma corporation,
Speaker 1: so it doesn't follow Delaware chancery court. UM. What is
Speaker 1: particular to Oklahoma is their special appraisal rights under Oklahoma law. UM,
Speaker 1: where we could take them to court and prove a
Speaker 1: higher valuation ultimately. So UM, we're interested to see, like
Speaker 1: I said, what they're gonna file following this UM. But
Speaker 1: we have to see those documents first, and we'll probably
Speaker 1: ask for UM further and for nation if there's you know,
Speaker 1: not enough disclose that we again, for how poorly we've
Speaker 1: been treated in this process so far, I will not
Speaker 1: at all be shocked if that filing has almost nothing
Speaker 1: in it, because again this looks like it's a homer.
Speaker 1: I mean, you're playing no way a basketball game. You
Speaker 1: ain't getting any calls. Um, the reps aren't on your side.
Speaker 1: A couple of things here. Having been through this this
Speaker 1: process a few times, the bankers have to do comparable valuations.
Speaker 1: They have to justify the valuation. It has to trade
Speaker 1: in line with recent deals, with recent public trading, So
Speaker 1: you have to do all that type of stuff. Number one.
Speaker 1: Number two, I look at the price start. This stock
Speaker 1: has never been north at eighty a share ever, so
Speaker 1: they could probably be saying, you know, why should I
Speaker 1: pay a hundred? Well, except that they'd also never owned
Speaker 1: the pioneer assets that they bought for a song less
Speaker 1: than you know, roughly about twelve months ago. UM, it
Speaker 1: was disclosed in the quarter that that deal closed, that
Speaker 1: that asset produced a hundred fifty million dollars of free
Speaker 1: cash that was a year ago with obviously lower oil prices. Um.
Speaker 1: So what I don't think either the Wall Street analysts
Speaker 1: that covered the stock really understood. I think him get this,
Speaker 1: We get this is that if they say a cash cow,
Speaker 1: and what he could do to lever this thing as
Speaker 1: a private business, Uh, he could borrow every nickel of
Speaker 1: the four billion dollars he needs. So Um. You know again,
Speaker 1: he's a great card player. He's not going to give
Speaker 1: you anything close to fair because it's about Harold Ham
Speaker 1: in this transaction. It's not about anybody else. And that's
Speaker 1: where we disagree. That's where interest finally don't align. How
Speaker 1: do you think this is going to play out here?
Speaker 1: What's the most likely time frame? I guess? And is
Speaker 1: there a number you would come down to that's a
Speaker 1: little bit off your number but a little bit closer
Speaker 1: to his number? Uh? Well that's all part of the process,
Speaker 1: I guess. And um, we're, like I said, we're just
Speaker 1: interested to see what that process was. For example, if
Speaker 1: if someone said cool, what what would you expect out
Speaker 1: of this, we would have expected someone to come in
Speaker 1: and offer. In his filing in June, he said he
Speaker 1: was not interested in anyone else's offer. UM. Now he's
Speaker 1: frustrated his stock is not being valued like it should be.
Speaker 1: But he's right in that. We agree with him in
Speaker 1: that UM and all stock deal from Devon Energy would
Speaker 1: have been really interesting to us because they have a
Speaker 1: lot of crossover same geography UM as Continental Resources, and
Speaker 1: what Ham could be is their large anchor. Shivil that
Speaker 1: Devon doesn't have. What both companies are doing. What in
Speaker 1: the way that I wouldn't do is they're paying too
Speaker 1: much in dividends. They should be buying backstock. Ham couldn't
Speaker 1: do it because he'd be buying too many minorities out.
Speaker 1: Devon can't do it because they can't find any courage
Speaker 1: right now. But that would be our dream deal. Hey,
Speaker 1: last thought and last questions. I mean, you have a
Speaker 1: bunch of energy names among your top holdings. UM, is
Speaker 1: there a big macro play here for you? I mean,
Speaker 1: we've certainly seen Energy being me out performer by a
Speaker 1: mile wide margin this year and just got about thirty
Speaker 1: seconds call. Yeah, No, the Energy looks like the easiest
Speaker 1: game in town in a ten year period where stocks
Speaker 1: are going to do terrible. Um, this looks like the seventies.
Speaker 1: This looks like the two thousand's. Um. If you want
Speaker 1: my other big idea in our international portfolio, we own
Speaker 1: Meg Senovis. Buying Meg looks pretty attractive. We owned Senovis
Speaker 1: as well. We also own Oxy. So we love Buffa
Speaker 1: being around. We love having billionaires being interested in our ideas.
Speaker 1: Who doesn't, uh? Col s Meade Fund to spend some
Speaker 1: time with you and really dig into your holdings Continental Resources.
Speaker 1: Col Smead, President and portfolio manager at Smead Capital Management,
Speaker 1: joining us on the phone from London. By the way,
Speaker 1: that Smead Value Fund has bea just about all of
Speaker 1: its peers over the past five years, returning on average
Speaker 1: nearly twelve and saying something, I mean value has been
Speaker 1: great the past couple couple and a half years, but
Speaker 1: before that. Thanks for listening to Bloomberg Business Week. Download
Speaker 1: the podcast on iTunes, SoundCloud, or Bloomberg dot com, and
Speaker 1: you can also listen to our radio show at two
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Speaker 1: search Bloomberg Global News