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Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim Fox.

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Speaker 1: Along with my co host Lisa Bramowitz. Each day we

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Speaker 1: bring you the most important, noteworthy, and useful interviews for

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Speaker 1: you and your money, whether you're at the grocery store

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Speaker 1: or the trading floor. Find the Bloomberg p m L

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Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Since

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Speaker 1: the beginning of this year, when President Donald Trump took office,

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Speaker 1: arrests have suspected undocumented workers have jumped thirty eight percent,

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Speaker 1: and this is causing some alarm in some unlikely corners,

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Speaker 1: including Haskell County, were of the voters cast ballots for

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Speaker 1: President Trump. Michelle dre Risco, who highlighted UH this issue,

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Speaker 1: is joining us now. She is an economics reporter for

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Speaker 1: Bloomberg News. And you took a look at how certain

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Speaker 1: resident and UH company owners are getting increasingly concerned about

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Speaker 1: the crackdown on Mexican immigrants. Can you can you explain? Yeah? So, um,

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Speaker 1: I mean, especially in the agriculture industry, that's kind of

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Speaker 1: where we focused our our efforts and trying to understand this. Uh.

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Speaker 1: You know, employers are just worried because they have so

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Speaker 1: many foreign warn workers, and they want to protect these

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Speaker 1: workers not just for humanitarian reasons but also economic reasons.

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Speaker 1: So this is a part of the country and a

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Speaker 1: part of this Kansas. We went to southwest Kansas, where

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Speaker 1: it's incredibly tight labor market. Uh. You know, unemployment is

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Speaker 1: in some cases almost half the national rate of four

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Speaker 1: point three percent, So they're seeing two five to three

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Speaker 1: even percent unemployment, and that just it just means there's

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Speaker 1: a scarcity of workers and they need to hold on

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Speaker 1: to what they have in order to keep business going. Michelle,

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Speaker 1: maybe you could tell us a little bit of the

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Speaker 1: detail of Congressman Roger Marshall and how he has become

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Speaker 1: at least a public face for this debate because he's

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Speaker 1: the congressman from the first district Sure Congress is Arsa

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Speaker 1: was a very interesting to speak with. UM. So he's

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Speaker 1: a freshman Republican for the first district in Kansas, which

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Speaker 1: covers much of southwest Kansas but also some northwest Kansas

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Speaker 1: and a little bit of northeast Kansas. Is a large district.

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Speaker 1: UM and it got larger, right because it moved a

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Speaker 1: little bit east in Sure and and and and just

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Speaker 1: because you know that the population is a little bit

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Speaker 1: more sparse than it would be in other states, but

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Speaker 1: but it still is a significant, uh you know, significant

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Speaker 1: amount of landa's innificant amount of employees and employers. Um.

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Speaker 1: But the way he sees it, I mean, he talked

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Speaker 1: about how a year ago, um, you know, immigration was

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Speaker 1: maybe the three year number three or number four issue

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Speaker 1: for him with its constituents, and just over the course

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Speaker 1: of uh, you know, the later part of the campaign,

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Speaker 1: and then of course when President Trump took office, it's

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Speaker 1: become definitely the number one issue and one that he

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Speaker 1: continues to hear about when he goes home. Um. So

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Speaker 1: he's hearing it not just from a security standpoint, um,

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Speaker 1: but definitely from an economic standpoint. He talks about, you know,

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Speaker 1: the folks the businesses that are are worried, but also

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Speaker 1: the folks on the ground, families of immigrants who may

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Speaker 1: be documented or undocumented, but both being so worried about

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Speaker 1: the uncertainty right now are on policy, you know, Michelle.

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Speaker 1: One of the big arguments that President Trump made when

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Speaker 1: he was signing rules to crack down on immigration a

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Speaker 1: legal immigration was it was important to have people employed

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Speaker 1: in the US from the US, people who would get

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Speaker 1: wages that would be appropriate. Why aren't these companies just

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Speaker 1: raising wages in order to attract more people from the

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Speaker 1: US to work for them. Well, I think that's a

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Speaker 1: great question in general, and that's of course one that

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Speaker 1: we asked of these farmers. I mean, I think in

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Speaker 1: their case, especially where we were in southwest Kansas, they said,

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Speaker 1: you know, look, this isn't about cheap labor. We've tried

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Speaker 1: to hire people through higher wages. There's just not the

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Speaker 1: people that are willing to do it outside of the

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Speaker 1: foreign born labor um. So, you know, take the case

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Speaker 1: of someone like Kyle Aberhoff, who's general manager of a

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Speaker 1: dairy farm, and he said, look, we went to high

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Speaker 1: unemployment counties and Ransas. We said, here's our pitch we're giving.

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Speaker 1: You know, some of these jobs are no skills required

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Speaker 1: in the entry level forty dollars, which means a lot

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Speaker 1: in an area where the cost of living isn't high.

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Speaker 1: And even then he said, it's hard to get people

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Speaker 1: if you talk about native born versus foreign born, it's

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Speaker 1: hard to get the native born unemployed to come to

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Speaker 1: that area of Kansas. He just he said, we tried,

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Speaker 1: and you know, we're willing to pay big bucks. And

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Speaker 1: you know, the only people that have taken these are

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Speaker 1: foreign born workers coming in. So that's that's what they

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Speaker 1: want to protect, is those those workers that they can get. So, Michelle,

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Speaker 1: given this economic concern for these producers, is there any

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Speaker 1: talk about them going to Washington and trying to change

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Speaker 1: the policies in order to get labor? I mean, even

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Speaker 1: if they're willing to, can they show that they've been

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Speaker 1: willing to pay more to people who are you know,

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Speaker 1: native residents and they just don't have enough staff. Well,

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Speaker 1: I think they're trying to make their voices heard both

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Speaker 1: on the state and the national levels through different organizations. Um,

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Speaker 1: of course there's a pretty powerful lobby and you know

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Speaker 1: American Farm Bureau and and others in the dairy industry

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Speaker 1: and and and some smaller ones in the farm industry

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Speaker 1: that are certainly making their case for this and have

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Speaker 1: for a while. I, you know, I think the the

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Speaker 1: onus is on Washington now to kind of get something going.

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Speaker 1: But of course, with with all the other things going on,

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Speaker 1: it's it's hard to say where immigration will fall and

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Speaker 1: in terms of priorities. But but yeah, they're still pushing.

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Speaker 1: I mean they're they're trying to be practical about this

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Speaker 1: and ask for very specific things, um, in terms of

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Speaker 1: kind of getting year round visas instead of just the

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Speaker 1: seasonal workers that the Trump administration has highlighted, and and

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Speaker 1: really try to put this before people. I mean they've

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Speaker 1: they've credited Agriculture Secretary of Sonny Purdue was really being

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Speaker 1: familiar with the problem and proposed solutions. But we'll see

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Speaker 1: how far you can get with Congress and with the

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Speaker 1: rest of administration. Michelle, are they going to get practical

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Speaker 1: before milk goes to six dollars and forts a gown? Well,

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Speaker 1: we'll see. I mean, you kind I know, you've seen

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Speaker 1: what the dairy Lavia said could happen um, and you

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Speaker 1: know that's just one figure. I mean they're they're talking about,

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Speaker 1: you know, some nightmare scenarios if we lose those workers,

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Speaker 1: and of course it's anyone's guests what would happen. But

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Speaker 1: so it's all about the money, Well it could be, yeah,

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Speaker 1: I mean, I mean for the companies, it's all about

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Speaker 1: the money. They want to stay in business and they

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Speaker 1: want to make more money. You know, I would think that, yeah,

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Speaker 1: on a on a massive scale, yes, But I think

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Speaker 1: when you talk to people who are especially in these

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Speaker 1: small towns, who know their workers, who whose kids play

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Speaker 1: with each other, you know, they go out to the

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Speaker 1: baseball games together, and they see these people, they definitely

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Speaker 1: have a humanitarian concern and that that was one thing

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Speaker 1: that you know, ring true for a lot of the

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Speaker 1: farmers I spoke with, they said, look, this this is

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Speaker 1: about economics, is about business, but you know, we need

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Speaker 1: to protect our workers, and we care about these people.

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Speaker 1: These are friends, um, not just their employees. So you know,

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Speaker 1: you do, you do see that hit home, especially in

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Speaker 1: the small town areas of the country that are dealing

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Speaker 1: with this. And yet you point to one Haskell County

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Speaker 1: where cattle Empire is the biggest employer. Cattle Empire relies

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Speaker 1: in big part on immigrants for their labor. Seventy seven

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Speaker 1: percent of voters cast ballots for President Trump. Did they

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Speaker 1: talk at all about changing their views at all on

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Speaker 1: his policies and their opinion of his tenure? Well, I

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Speaker 1: think they were. They were frustrated. Um some of them.

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Speaker 1: You know, we didn't talk so much about who they

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Speaker 1: voted for specifically one on one, but you know, some

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Speaker 1: of them would say things like, you know, I think

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Speaker 1: the rhetoric needs to kind of get toned down. I think,

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Speaker 1: you know, he's proposed some some good things in terms of,

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Speaker 1: you know, being focused more on the criminal deportations than

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Speaker 1: than anything else. But I think there's they all kind

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Speaker 1: of recognized as broken channel communications where there's certain things

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Speaker 1: being set out of Washington that are not helpful on

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Speaker 1: the ground, and even if it doesn't match with what's

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Speaker 1: going to happen with policy, it's it's already generating some

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Speaker 1: fear and uncertainty. So they're they're hopeful that you know,

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Speaker 1: this kind of gets worked out communications wise, and then

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Speaker 1: that that pays the way for some policy changes that

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Speaker 1: will be practically helpful down the road. Well, Michel, it's

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Speaker 1: certainly sounds like there's going to be a topic that

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Speaker 1: keeps on being of vital interest to the But just quickly,

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Speaker 1: the Member of the House, right, Roger Marshall, again, give

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Speaker 1: you twenty seconds. What's his position, what's he doing. Well,

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Speaker 1: he's he's trying to make it clear you know that yes,

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Speaker 1: we should be focused on security and on a national level,

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Speaker 1: he says, you know, as a congressman, I still think

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Speaker 1: security is a number one, UH concern around immigration, but

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Speaker 1: he said, look, I think the president will come around

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Speaker 1: of the economic practicalities of this, and this is certainly

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Speaker 1: a huge concern of my constituents. But one quote that

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Speaker 1: I really really stuck with me Um when we were

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Speaker 1: talking about this, he said, I wish the Republicans could

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Speaker 1: translate the sincerity of their hearts. He thinks that a

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Speaker 1: lot of his Republican colleagues really do care about these

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Speaker 1: immigrants as as workers and as people. And he he

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Speaker 1: doesn't you know, he thinks lost in this debate is

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Speaker 1: uh is sort of political um, politically charged debate, but

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Speaker 1: he thinks it's more about the economics and humanitarian concerns.

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Speaker 1: Thanks very much, Michelle jem Risco, economics reporter for Bloomberg News,

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Speaker 1: reporting from Washington. Great story, much appreciate it well. Oil

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Speaker 1: prices crewed is into the lowest level since August of

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Speaker 1: last year, with current price of less than forty three

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Speaker 1: dollars of barrel. Vincent Piazza has been watching this shaking

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Speaker 1: his head saying, MM, can it go lower? He has

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Speaker 1: senior equity energy analyst and global sector leader for Bloomberg Intelligence,

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Speaker 1: and he joins us here in our Bloomberg eleven three,

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Speaker 1: oh studios. So, Vince, do you see that this could

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Speaker 1: go lower? Uh? And what exactly prompted this latest leg

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Speaker 1: lower that broke through a certain technical thresholds that people had.

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Speaker 1: Sentiment is obviously poor, all right there? Ope, Uh, we

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Speaker 1: were looking for OPEC could do more than just reaffirm

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Speaker 1: or extend those cuts. We were looking for deeper cuts

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Speaker 1: just given the fact that we did not see any

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Speaker 1: any any of that storage dilute over the course the

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Speaker 1: past year or so. UM, and so these cuts. Extending

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Speaker 1: these cuts really doesn't do much because you have an

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Speaker 1: enormous amount of capacity coming out of the US that

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Speaker 1: has been underestimated. We have drilled uncompleted wells that present

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Speaker 1: this just in time inventory of capacity that can really

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Speaker 1: fill that void. Uh. And therefore you have imbalances that

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Speaker 1: will last for longer. You do not have a clear

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Speaker 1: view on the sustainability of demand growth, but we do

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Speaker 1: have a clear view on the output coming out of

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Speaker 1: the out of the US, which is pushing past nine

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Speaker 1: point two nine point three million barrels a day. It

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Speaker 1: will likely reach at this level uh ten million barrels

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Speaker 1: in the docun distant future. Put that into perspective, and

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Speaker 1: what was it say, five years ago. Well, so in

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Speaker 1: two thousand and seven, two thousand and eight, we bound

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Speaker 1: we we we bottomed that around five million barrels. We

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Speaker 1: peaked just before uh the announcement by OPEC at nine

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Speaker 1: point six million barrels. We dropped to around eight point six.

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Speaker 1: We have recovered very sharply off that low again. And

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Speaker 1: that's because of this just in time inventory that can

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Speaker 1: react more quickly to any kind of price signal, any

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Speaker 1: kind of price response. That's a that's a point you

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Speaker 1: got you should underscore, right, because this just in time

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Speaker 1: ability to turn on and turn off, the ability to

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Speaker 1: get hydrocarbons out of the ground is something that is

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Speaker 1: particular to the technology and the advances that have been

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Speaker 1: made in the United States. Yeah, um, horizontal drilling, hydraulic fracturing.

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Speaker 1: The the advantage has really been hasually been underestimated by

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Speaker 1: those outside the US and and and probably outside the industry, right,

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Speaker 1: they don't under the it's this is a turn on,

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Speaker 1: turnoff thing. Unlike many other kinds of drilling technique, longer

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Speaker 1: dated projects take longer to bring these hydrocarbons up. But

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Speaker 1: exploitation of on land US oil and gas. Tight tight

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Speaker 1: oil and gas allows for a very quicker response, quicker

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Speaker 1: response than exp So okay, so then let's use that

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Speaker 1: maybe as a jumping off point for this e q

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Speaker 1: T Rice Energy deal that was announced. I guess it

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Speaker 1: was yesterday. UH, tell us about this. Why this is

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Speaker 1: the Marcella shale. So it's a western Pennsylvania area, so

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Speaker 1: it's the broader Appalachian basin. UM it includes Pennsylvania, West

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Speaker 1: Virginia and also parts of Ohio. It touches the Marcella shale,

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Speaker 1: but also uh a newer shale, uh, the Utica as well.

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Speaker 1: What you have here is a lower cost, more economic basin,

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Speaker 1: and you have a consolidator who now becomes the largest

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Speaker 1: natural gas producer in the U S. E q T

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Speaker 1: EQTT they paid six point seven billions the price. Yeah,

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Speaker 1: and when when once you assume the debt, you're north

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Speaker 1: of eight. But the general theme here is that I

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Speaker 1: now have capacity that's lower cost coming out of the

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Speaker 1: Appalachian Basin that can push out into the Midwest and

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Speaker 1: also the Gulf Coast and depress natural gas benchmark prices

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Speaker 1: in other hubs. And therefore you have as b I

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Speaker 1: as mentioned in the past, a lower for longer output

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Speaker 1: of lower for longer price of NACK gas given the

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Speaker 1: higher output coming from a lower cost basin, given the

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Speaker 1: outlook for lower prices for longer, how does that affect

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Speaker 1: mergers and acquisitions that are in the pipeline that they

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Speaker 1: have uh dropped just because it's getting harder to evaluate

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Speaker 1: the worth is? Yeah, So so Q one H e

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Speaker 1: M p US deals numbered somewhere around twenty three billion

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Speaker 1: dollars UH in two Q. As of last week, roughly

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Speaker 1: about eight billion were announced. Now, if you add in

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Speaker 1: e q T and and RICE, that brings it up

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Speaker 1: a little bit. But you have this period of of

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Speaker 1: of uncertainty, of a clouded backdrop on certain fundamentals, and

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Speaker 1: that's sort of pushing the pushing the prospects of of

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Speaker 1: deal making out some. You have Coude oil which is

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Speaker 1: down roughly Natty is down year to date. You still

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Speaker 1: have in balances across the petroleum value chain and that

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Speaker 1: is causing pause for a lot of these e MP

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Speaker 1: management teams. That's natural gas, Yes, it is, okay, just

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Speaker 1: making sure Natty, all right, I'm gonna tell you, Natty, Uh,

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Speaker 1: it's actually up a tenth of a percent right now,

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Speaker 1: two dollars eighty nine cents for uh well British normal unit. Right,

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Speaker 1: that's what we're doing, a ten b TU. Thanks very

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Speaker 1: much for joining us, Vincent Piazza, he's always expert when

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Speaker 1: it comes to energy analysis for Bloomberg Intelligence. Let's say

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Speaker 1: stay international a little bit and go to Simon Ballard

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Speaker 1: here is our global credit strategist for Bloomberg News based

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Speaker 1: in London. Simon, always a pleasure to get your thoughts

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Speaker 1: on what's going on. I just want to set the

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Speaker 1: context if you can, which is we've got a rally

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Speaker 1: in US treasuries. Taking a look at the long end

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Speaker 1: of the curve, specifically, the tenure is up seven thirty seconds.

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Speaker 1: We're to sixteen and for the thirty year, we're under

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Speaker 1: two seventy five. We're just at two seven four right now,

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Speaker 1: up more than twenty four basis points thirty seconds. I

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Speaker 1: beg your pardon, go ahead now. Absolutely, we've got to

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Speaker 1: rally across here in Europe as well. And I think

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Speaker 1: there's that that underlying that underlying sort of uncertainty if

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Speaker 1: you wish to to global macro to politics. Um, and

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Speaker 1: while you've got you know, we're looking at two sixteen

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Speaker 1: on the tenure treasure as you say, we're we're down

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Speaker 1: to sort of twenty seven basis points on the tenure

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Speaker 1: bound in the front end of the German curve is

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Speaker 1: negative to the extend of sort of sixty four basis

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Speaker 1: points on the two year, which exacerbates the lack of

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Speaker 1: yield for investors over here in Europe even more than

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Speaker 1: in you're in in the US. Yeah, it's Simon. You know,

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Speaker 1: you wrote about this paradox, and I thought that it

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Speaker 1: was really compelling. Basically, you've got issuers, companies that are

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Speaker 1: selling dead at an accelerating pace. Right now. I'm looking

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Speaker 1: at the European Corporate Bond Index almost two trillion dollars

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Speaker 1: two trillion euros i should say worth of debt in

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Speaker 1: that index, up from less than one point four trillion

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Speaker 1: euros back in two thousand nine, a dramatic increase. And basically,

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Speaker 1: you've got companies that are betting that yields will eventually

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Speaker 1: rise and they want to lock lock in borrowing costs

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Speaker 1: at these low rates now. And then you have investors

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Speaker 1: who are betting that interest rates are going to stay

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Speaker 1: low and that it's worthwhile buying this, I mean somebody

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Speaker 1: has to be wrong. Well, somebody has to be wrong

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Speaker 1: in the long term, but in the short term they

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Speaker 1: probably live alongside each other quite happily. UM. And you've

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Speaker 1: seen a compression in yield spreads UM here in Europe

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Speaker 1: as well as in the US over the course of

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Speaker 1: the last year. If we take the European high Yield

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Speaker 1: Index on Bloomberg for example, that's that's tightened about a

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Speaker 1: hundred basis points during the course of this year. Those

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Speaker 1: sub investment grade rated corporates that investors have been chasing

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Speaker 1: and looking to invest in to try and get the

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Speaker 1: incremental yield against that backdrop of you know, to sixteen

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Speaker 1: and twenty twenty seven basis points on tena bundeer in

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Speaker 1: Europe that you know, people have been looking to to

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Speaker 1: to to try and maximize the yields in their portfolio.

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Speaker 1: So from an issue as perspective, why wouldn't you want

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Speaker 1: to raise funds in this sort of an environment at

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Speaker 1: these sort of funding levels, And from an issiute, from

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Speaker 1: a from an investor's perspective, then yes, you want to

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Speaker 1: look down the quality curve in order to try and

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Speaker 1: get as much yield as you can from these corporates

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Speaker 1: into your portfolio. At the end of the day, you know,

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Speaker 1: yields aren't going to continue to compress and too narrow,

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Speaker 1: and there will be a correction. It's a question of

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Speaker 1: these both both sides of this equation looking to make

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Speaker 1: sure they get their timing right, Simon to the to

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Speaker 1: The buyers ultimately believe that the European Central Bank, as

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Speaker 1: many central banks have done, would come in and bail

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Speaker 1: no matter if anything went wrong, particularly if well it

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Speaker 1: was a big collapse. Well, hasn't that But hasn't that

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Speaker 1: really been the sort of the the the belief across markers.

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Speaker 1: Really you've got the buyer behind you who's willing to

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Speaker 1: put up the bid, right the European Central Bank, And

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Speaker 1: then you've got the actual investor. And you've got the

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Speaker 1: actually investor. And that's the problem. The actual investor has

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Speaker 1: been crowded out to a certain extent by the quantity

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Speaker 1: of easing purchases of the of the central banks. We

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Speaker 1: has exacerbated the move tight and the decline in yields,

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Speaker 1: if you wish so. Going forward, you know, there is

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Speaker 1: this assumption that the central banks have always got your back,

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Speaker 1: will always be there but you know, as we we

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Speaker 1: look towards sort of the unwind, the tapering, you know,

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Speaker 1: be that later this year, be at the course of

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Speaker 1: two thousand and eighteen. It's the rhetoric, it's the language

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Speaker 1: that leads us to that position. Probably more importantly in

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Speaker 1: the short term, that's going to drive risk asset sentiment

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Speaker 1: and risk appetite as we start to learn about you know,

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Speaker 1: central banks potential timing for moving towards that taper. Even

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Speaker 1: if we're not talking about tapering itself, the language will

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Speaker 1: be critical. Simon, there is a cliche in debt markets

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Speaker 1: that Europe is about eighteen months to two years behind

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Speaker 1: the US in terms of credit cycles, and we are

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Speaker 1: seeing we are seeing in the US companies levering up

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Speaker 1: and you know, their credit quality deteriorating. Do you see

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Speaker 1: a similar trend in Europe? How are the issuers that

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Speaker 1: are coming to market? And can you give us some examples? Yes, no, exactly.

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Speaker 1: I mean we've we've we've got a number of issueres

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Speaker 1: I guess during the course of this year, as we've

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Speaker 1: seen this compression in high yield spreads, as we've seen

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Speaker 1: the reach for yield across the across the investor base.

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Speaker 1: Then the market has been opened up increasingly to too

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Speaker 1: sub investment grade borrowers um in order to you know,

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Speaker 1: to to to get funding on board. When interest rates

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Speaker 1: start to rise, when yields start to increase, then the

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Speaker 1: debt service costs of these weaker rated corporates will become

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Speaker 1: more onerous, and that's when investors have to start looking

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Speaker 1: at the fundamentals for the for the individual companies that

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Speaker 1: they've been buying into in in terms of their ability

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Speaker 1: to service those debt services, their ability to pay those

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Speaker 1: debt service costs um in a high yield environment. So

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Speaker 1: we've seen everything from you know, cypresses in the market.

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Speaker 1: Today's sub investment grade on a sovereign level probably has

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Speaker 1: a little bit more credibility in terms of your your

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Speaker 1: underlying fundamental belief than than than a high rated corporate.

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Speaker 1: But then we had the likes of you know, the

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Speaker 1: Accardo um retail chain only early on this week last week,

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Speaker 1: coming in Sterling and again and sort of reflecting the

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Speaker 1: the ability of weakerated credits to come and with some

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Speaker 1: fanfare as well. Um, but you know, the fanfares fine

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Speaker 1: wire the music explaining, but at some point the music

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Speaker 1: will stop when when the central banks suggest that they're

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Speaker 1: going to turn the volume down. And Simon, real quick,

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Speaker 1: what's the over under in the fact that the ECB

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Speaker 1: is unlikely to announce any kind of taper in the

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Speaker 1: near term. Yeah, I mean no, no, no taper in

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Speaker 1: the near term. I think that as soon as we

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Speaker 1: could look for any language or hint from them that

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Speaker 1: they're looking in that direction would be September. But for

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Speaker 1: the time being, you know, the market remains well supported.

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Speaker 1: We have the latest corporate sector purchase program data that

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Speaker 1: came out yesterday that showed that okay, slightly reduced level

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Speaker 1: last week, but they're still buying corporate bonds, They're still

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Speaker 1: supporting fixed income markets very very significantly. Um and in

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Speaker 1: that sort of context, investors want to continue to buy

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Speaker 1: what the central banks are buying. Thank you so much

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Speaker 1: for joining us. Simon Ballard, global credit strategist for Bloomberg News,

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Speaker 1: training us from London where they are a wash in

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Speaker 1: liquidity from the central brank without any sense of when

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Speaker 1: it could end, fueling this corporate debt boom and everything

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Speaker 1: boom as we are seeing