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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside

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Speaker 1: my co host Matt Miller. Every business day, we bring

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Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along

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Speaker 1: with essential market moving news on the Bloomberg Markets Podcast

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Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and

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Speaker 1: at Bloomberg dot com slash podcast just reading on the

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Speaker 1: Bloomberg termoil right Now. Protests against china strict COVID measures

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Speaker 1: failed to materialize on Monday as a Chinese authorities deployed

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Speaker 1: a heavy police presence in the capital on other major

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Speaker 1: cities to deter a repeat of the weekend's demonstrations. When

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Speaker 1: we saw that news over the weekend, I said, we

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Speaker 1: need to check in with Leland Miller. He's our go

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Speaker 1: to voice and all things China. He's the CEO of

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Speaker 1: China bag Book International. Leland, We I'd love to get

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Speaker 1: your perspective given your experience in China. What did we

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Speaker 1: really see over the weekend with some of these demonstrations.

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Speaker 1: What are the takeaways? Well, clearly frustration is boiling over.

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Speaker 1: You know, the Chinese people have to deal with a

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Speaker 1: very draconian zero COVID policy for UH for months and

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Speaker 1: months and months and months and months and months now,

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Speaker 1: and it is crushed economic activity, it's crushed travel, it's

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Speaker 1: it's torn families apart. UH. And so I think that

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Speaker 1: there is a desire right now to send a message

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Speaker 1: that this needs to end. UH. And I think a

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Speaker 1: lot of the protests UM, we're about a frustration with

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Speaker 1: the leadership for not providing a roadmap out of this UH.

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Speaker 1: You know, winter is COVID spreading season. Things were never

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Speaker 1: going to be opened up over the winter and there

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Speaker 1: and then they're still not going to be UH for

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Speaker 1: the most part. But I think that the idea that

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Speaker 1: people still don't have a date on the horizon, they

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Speaker 1: don't have an idea of when when their misery is

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Speaker 1: going to end. I think that this, this this caused

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Speaker 1: things to really boil over. In addition, of course to

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Speaker 1: the fact that you've you've seen some very grizzly events recently,

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Speaker 1: like people trapped in their houses and and uh ire

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Speaker 1: is consuming them. So so this is this has really

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Speaker 1: gotten to a point where where people had enough. Now

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Speaker 1: I'm not sure from from what we understand here in

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Speaker 1: the West, it's incredibly dangerous to protest in China. Right,

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Speaker 1: My idea is that if you go out there, you're

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Speaker 1: literally risking your life. Um, is that really the case?

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Speaker 1: Do people in China understand that? Because that raises really

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Speaker 1: the bar for you know what, I'm willing to go

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Speaker 1: out of my house and protests against Yeah, protests in

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Speaker 1: China aren't uncommon, but what is very uncommon is to

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Speaker 1: see protests uh surging in multiple cities at the same

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Speaker 1: time about the same thing. Uh. This is sort of

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Speaker 1: this is you know, not just about dissatisfaction with the

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Speaker 1: local issue or a bank that people think might be insolving.

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Speaker 1: This is about a fundamental policy that the central government

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Speaker 1: has uh that that that that there's no tolerance for anymore.

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Speaker 1: So the you know, protesting can happen, but this clearly

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Speaker 1: was sending a signal that it could become something much bigger,

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Speaker 1: which is why the authorities have moved in to try

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Speaker 1: to stop it from from from boiling out of control

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Speaker 1: in the short term, Leland, Does the Chinese government not

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Speaker 1: understand Did the Chinese people not understand that they can't

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Speaker 1: get to some level of herd immunity without massive vaccinations.

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Speaker 1: That's what the rest of the world has learned. How

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Speaker 1: has it spun within China? Well, the the way the

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Speaker 1: Beijing has handled this over the past year or so,

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Speaker 1: past two years or so has has been quite puzzling.

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Speaker 1: You know. The for for the first two years and one,

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Speaker 1: there were you know, there was there was there were

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Speaker 1: tight restrictions on on COVID, but nothing like what we've

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Speaker 1: seen in There was plenty of time for the leadership

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Speaker 1: to have started a vaccine rollout, to imported mr and

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Speaker 1: A vaccines, to do a lot of the things that

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Speaker 1: China needs in order to get out of this, and

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Speaker 1: none of it was done. And of course the you know,

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Speaker 1: the belief is that that she didn't want to be

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Speaker 1: embarrassed by importing foreign vaccines. He wanted Chinese companies to

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Speaker 1: be able to do it so they could claim victory

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Speaker 1: domestically over the virus. But it's gotten to the point where,

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Speaker 1: you know, we're we're here on the on the cusp

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Speaker 1: of three. Most of the world has mostly moved on

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Speaker 1: from COVID, and China is looking at what could probably

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Speaker 1: going to be the worst COVID outbreaks that they've seen

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Speaker 1: in the coming months. And so the policy response has

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Speaker 1: been completely puzzling, and I think that's one of the

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Speaker 1: reasons that people are are so frustrated. Is there any

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Speaker 1: element of you know, the party maintains control over the

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Speaker 1: people by locking them down. I mean, it sounds so

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Speaker 1: dramatic and it's but in a sense, I can't understand

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Speaker 1: how that would actually work. Yeah, you hear that a lot.

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Speaker 1: It's it's hard to believe that this is about control.

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Speaker 1: Uh first and foremost. Uh. You have a situation where,

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Speaker 1: you know, health, health, health risks aside, the economy needs

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Speaker 1: to be open in order to thrive, in order to

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Speaker 1: just be able to tread water. And what's happening right

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Speaker 1: now is remarkable. Um, you saw very very few people

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Speaker 1: as we entered two believing that you know, there wouldn't

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Speaker 1: be a second half bounce, that she wouldn't relent at

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Speaker 1: certain point, and nothing of the sort has happened. So

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Speaker 1: if you look at what's likely to happen in the

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Speaker 1: coming months, the party has got to be responsive, look

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Speaker 1: at least look responsive to the people who are protesting

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Speaker 1: right now. So there will be some sort of rhetorical relaxation.

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Speaker 1: There's some policies they could target, they could talk about

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Speaker 1: less you know, splitting families apart, and they can talk

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Speaker 1: about you know, less stringent lockdowns or lockdowns for for

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Speaker 1: for short amounts of time, But you're about to go

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Speaker 1: into the winter months where COVID will spread out of

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Speaker 1: control if there is no sort of control mechanism. And

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Speaker 1: so there's really no good answer right now to to

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Speaker 1: to to the problem that the Chinese government has to solve.

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Speaker 1: They cannot functionally open up the economy and not have

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Speaker 1: massive COVID outbreaks, but they can't keep the population under

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Speaker 1: control indefinitely under a draconian COVID zero. So you're likely

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Speaker 1: to see them try to thread the needle, try to

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Speaker 1: do the middle ground, and there's no guarantee that's not

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Speaker 1: gonna be a disaster as well. Yeah, that is. It's

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Speaker 1: tough stuff. I don't know how they're going to manage that.

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Speaker 1: Leland Miller, thanks so much for taking the time today.

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Speaker 1: We absolutely wanted to hear from you to get your

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Speaker 1: latest thoughts on China. Here, Leland Miller used to see

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Speaker 1: of the China Basebook International. They have their own proprietary

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Speaker 1: data sets and data sources over in China get some great,

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Speaker 1: great information. Well, China seems to be one of the

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Speaker 1: narratives of this Monday morning trading demonstrations over the weekend

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Speaker 1: causing some uneasiness as it relates to that economy, Apple

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Speaker 1: saying they're going to be short maybe six million iPhones

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Speaker 1: because of the disruptions and there plants over there in China,

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Speaker 1: So we need to just kind of get a circle

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Speaker 1: around this whole thing. We'll do that with Gina Martin Adams,

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Speaker 1: chief equity strategist of Bloomberg Intelligence, and a Rack Ronnick.

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Speaker 1: He's a senior tech an also Bloomberg Intelligence as well. Gina,

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Speaker 1: let's start with you, how do you factor in I

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Speaker 1: don't know, China risk if you will to your market outlook. Yeah,

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Speaker 1: I think with respect to the US, China risk is

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Speaker 1: largely centered on the multinational securities that do have exposure

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Speaker 1: either import exposure or export exposure to China. UM. So

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Speaker 1: clearly any sort of persistent slowdown into three, persistence of

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Speaker 1: these lockdown measures and the zero COVID policy is a

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Speaker 1: constant drag on this space in two that will continue

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Speaker 1: into three. For global equities, there really is a matter

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Speaker 1: of the investment opportunity set just continually shrinking with the

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Speaker 1: lack of kind of the investibility of China. This recall

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Speaker 1: for the last more than fifteen nearly twenty years now,

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Speaker 1: China was anticipated to be a very strong emerging market player,

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Speaker 1: and that was certainly reflected in its growing share of

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Speaker 1: the market cap of the global indices over the last year,

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Speaker 1: even closer to two years. Now that's really come under question,

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Speaker 1: and it makes pretty tremendous train tremendous sea change in

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Speaker 1: the investibility of global markets. Not having that big player

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Speaker 1: as an area where you can put capital in the

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Speaker 1: global markets has resulted in a flight to other areas

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Speaker 1: in emerging markets, in particular India, whereas evaluation premium for

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Speaker 1: Indian securities is off the charts, investors have clearly tried

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Speaker 1: to find ways to you know, leverage emerging market growth.

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Speaker 1: What about China? What about producers? Um, let's bring in

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Speaker 1: on a rag here. Um, it's fascinating what the point

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Speaker 1: gene is making about valuations on the stocks. But you know,

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Speaker 1: producers that make consumer goods like apple still seem to

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Speaker 1: have no problem. Um, you know, made in China, having

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Speaker 1: made in China stamped on their on their products and

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Speaker 1: consumers still buy them like crazy. Right? Is that changing

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Speaker 1: it all? On a rug. I don't think so, and

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Speaker 1: only the reason is there is no donative at this point.

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Speaker 1: I mean, what are you going to do by a

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Speaker 1: Nokia phone? So I mean, but they could produce in

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Speaker 1: India for example, like investors are there instead? Right, No,

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Speaker 1: that's the fair point. But the thing is this is

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Speaker 1: unlike stocks, this supply chain took twenty years to build.

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Speaker 1: You just can't get up and start building iPhones anywhere else.

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Speaker 1: They have already started to do that, but just less

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Speaker 1: than five percent of all iPhone assembly, and and a

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Speaker 1: large rationale for that is the supply chain for most

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Speaker 1: electronic goods is centered in China. So don't talk to

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Speaker 1: us about you know, what's Apple really doing day to

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Speaker 1: day to try to mitigate this issue? What have you seen?

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Speaker 1: So we have already heard that they are assembling these

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Speaker 1: phones outside the China at this point, and I think

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Speaker 1: it's going to take four or five years to make

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Speaker 1: a meaningful DNT to that. The second part is going

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Speaker 1: to be are they you know, the parts and the

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Speaker 1: other things that they need to actually assemble these products?

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Speaker 1: Are they going to start sourcing them outside now? For

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Speaker 1: that they really need to invest eggressively in areas such

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Speaker 1: as Mexico or other low cost regions where they can

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Speaker 1: manufacture some of these pots without that, you know, the

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Speaker 1: supply chain doesn't make any sense to um, you know,

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Speaker 1: just do things in isolation, because at any given time

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Speaker 1: they are making millions of these units. It's not you know,

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Speaker 1: something that has only a few thousands that you produced,

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Speaker 1: all right, it's fascinating. So they basically can't, is what

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Speaker 1: you're saying, move substantially, UM as quickly as investors can.

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Speaker 1: I just wonder if that means Gina. Does that mean

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Speaker 1: that there's an opportunity here? I mean, do you buy

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Speaker 1: the dip in that situation knowing that it has to

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Speaker 1: come back by the dip in China? Is that the question? Um?

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Speaker 1: You know, I think for investors that are willing to

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Speaker 1: take a tremendous amount of risk, your potential reward for

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Speaker 1: taking on that degree of risk is is fairly substantial, right,

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Speaker 1: But I at this point in time, it's relatively unpredictable.

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Speaker 1: Most rational people are acting that the results of these

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Speaker 1: protests over the weekend will be more further compression and

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Speaker 1: economic activity more clamped down as the authorities in China

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Speaker 1: try to take on you know, um, these protesters. So

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Speaker 1: I think that the risk is tremendous right now. That said,

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Speaker 1: the stocks are incredibly discounted. You are taking a risk

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Speaker 1: that there is no opening coming in three Nonetheless, there

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Speaker 1: is very little expectation for growth baked into prices. So

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Speaker 1: I think that your risk reward works, right. You take

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Speaker 1: on a lot of risk, You could get a tremendous

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Speaker 1: amount of reward, but it is it is a lot

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Speaker 1: of risk. Admittedly, all right, Gina, great stuff. Appreciate checking

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Speaker 1: in with us, Gina. Martin Adams, chief equity strategist for

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Speaker 1: Bloomberg Intelligence, and Anama Rana used to senior tech animals

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Speaker 1: with Bloomberg Intelligence. Well he falls Apple very closely. And again,

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Speaker 1: investors today are just trying to parts what's going on

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Speaker 1: in China, What does that mean for the outlook for

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Speaker 1: global economic growth, What does it mean for some of

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Speaker 1: the tech companies that still like Apple, rely pretty heavily

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Speaker 1: on the supply chain, with lots of parts of that

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Speaker 1: in mainland China. And you think about how this government

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Speaker 1: is dealing with the zero COVID policy and what that

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Speaker 1: means for economic activity. So again that's kind of the

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Speaker 1: narrative of what this market is trying to digest. Let's

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Speaker 1: talk China. Let's talk kind of investing in emerging markets.

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Speaker 1: Because we're talking marging markets. The M S c I

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Speaker 1: big part of that is China. We can do that

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Speaker 1: today with Kevin Carter. He's the c I O and

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Speaker 1: founder of E m q Q Global. He joins US

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Speaker 1: Live and our Bloomberg Interactive Broker studios, so he gets

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Speaker 1: an extra gold star today for being live, not phoning

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Speaker 1: it in. Kevin, You've been doing business. So let's start

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Speaker 1: with the acronym. We always throw around these acronyms, and

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Speaker 1: I feel like I guess emerging markets and then it's

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Speaker 1: tech tech stocks y K E m q Q. Well

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Speaker 1: that's exactly, and it's emerging markets technology and and specifically

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Speaker 1: it's emerging market can sumer technology. It's the smartphone enabled

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Speaker 1: emerging market consumer that we're trying to tap into. So yes,

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Speaker 1: E is for emerging, M is for market in. Q Q,

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Speaker 1: as you know, is synonymous with tech investing and also

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Speaker 1: a sort of double and tender because the ten Cent

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Speaker 1: original platform that messaging was called q Q. That's right

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Speaker 1: back in the day. So when it's an E t

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Speaker 1: F by the way it is Q. Yeah, then that's

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Speaker 1: an exchange traded fund. That's correct, exactly. I just want

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Speaker 1: to clear this up because a lot of people driving

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Speaker 1: around like one cm QQ exactly, and then they don't

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Speaker 1: know there's an e t F. So if they like

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Speaker 1: what Kevin has say, can't go and buy it. If

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Speaker 1: they think it's hogwash, they can sell it or whatever.

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Speaker 1: You know. Yeah, well, the indexes are are up this year,

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Speaker 1: so good stuff. All right, talk to us about your

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Speaker 1: take from China. I mean you've been doing business there

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Speaker 1: for a long time, investing in these companies and these industries.

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Speaker 1: What's your takeaway. Well, look, China is the second largest

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Speaker 1: economy in the world at least, and a big thing,

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Speaker 1: and it's been the biggest part of the Emerging markets indexes,

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Speaker 1: the broad ones over UM, and it's an important place.

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Speaker 1: But it's different than us, and it has its own

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Speaker 1: challenges in its own ways of doing things, and I

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Speaker 1: think it's hugely misunderstood. I think there's a lot of

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Speaker 1: fears about China UM that are unfounded, things like delisting,

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Speaker 1: the so called government crackdown. So I think China's why

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Speaker 1: are those unfounded? I have those fears and I feel

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Speaker 1: like they're founded quite well. Well, um uh, I could

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Speaker 1: go into disappeared for a couple of months. When the

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Speaker 1: when the richest guy in the country just disappears for

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Speaker 1: a few months, that's worrying. Yes, well, I think Jack's

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Speaker 1: doing five but um but look what we do is

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Speaker 1: invest in the internet and any commerce companies in emerging markets,

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Speaker 1: including China. And the reality is that while China might

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Speaker 1: be an emerging market in a traditional sense, when it

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Speaker 1: comes to the Internet and e commerce and smartphones, China

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Speaker 1: is the most developed country on planet by far. I mean,

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Speaker 1: China is the Jetsons and their e commerce market dwarfs

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Speaker 1: the rest of the world, and it's actually four times

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Speaker 1: bigger than the other forty five emerging markets combined. So

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Speaker 1: China is important. It's an important part of the global

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Speaker 1: consumer internet story. But it's the second wave, and it's

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Speaker 1: the third wave that's coming beyond China that I think

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Speaker 1: investors should be looking at. I think a fair question

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Speaker 1: is is China even investable today? Well? I think it

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Speaker 1: certainly is. There are places like Russia that are definitely

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Speaker 1: not investable currently in a traditional sense, but no, I

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Speaker 1: think China is very much investable but it you know,

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Speaker 1: it's it's a volatile place for sure, and I think

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Speaker 1: it always will be. And well, we just had Gina

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Speaker 1: Martin Adams on from Bloomberg Intelligence who said there's a

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Speaker 1: lot of risk there, but the rewards are massive. Um,

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Speaker 1: the third wave that you speak of, is this also

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Speaker 1: a China play or are you talking about India? We

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Speaker 1: were talking about during the commercial how important India could be. Sure. So,

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Speaker 1: so we have a second strategy, which is the emerging

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Speaker 1: markets Internet companies ex China, which we called fm q

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Speaker 1: Q and the way to think about, uh, what's happening

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Speaker 1: on the planet, and it's happened here, but it happened

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Speaker 1: here so long ago. We forget that this is a

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Speaker 1: wave that's happening. But you have sort of three mega trends.

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Speaker 1: You have billions of new consumers and emerging markets. They're

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Speaker 1: getting their first computer in form of a smartphone that

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Speaker 1: costs eighty dollars brand new and is running on Android,

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Speaker 1: and they're getting access to the Internet for the first time.

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Speaker 1: And because they don't have a computer, uh you know

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Speaker 1: it's a traditional computer, they don't have a bank account,

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Speaker 1: there's no target stores. These people are leap frogging traditional consumption.

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Speaker 1: And so the first wave of consumer internet technology on

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Speaker 1: the planet started in the US around the year two

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Speaker 1: thousand and we had a fifteen year S curve of growth.

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Speaker 1: The second wave, the China wave, started about two thousand

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Speaker 1: five with Ali Baba ten Cent Bai Do, which went

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Speaker 1: public before Google, and that wave, that S curve. You know,

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Speaker 1: it's still growing, but the steepest part of that growth

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Speaker 1: curve is behind us. And now you have India, Nigeria, Indonesia, Brazil,

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Speaker 1: all of these other five and a half billion people

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Speaker 1: that are getting their first computer today and again it's

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Speaker 1: not on their desk, it's in their pocket and it

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Speaker 1: costs sixty dollars and they're getting the Internet for the

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Speaker 1: first time. And that story is just getting started. And

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Speaker 1: FM can QQ. So if I look at the performance

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Speaker 1: year to date, obviously everything's down um and and E

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Speaker 1: m q Q is down thirty six percent. F m

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Speaker 1: q Q is down fifty Is there uh, you think

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Speaker 1: less risk in in the frontier markets. Well, I think

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Speaker 1: there's a lot less risk in both versions because they're

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Speaker 1: both down as you mentioned quite a bit. And in fact,

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Speaker 1: you know, the broader E m q Q is down

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Speaker 1: at least at one point, you know, over se as

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Speaker 1: of a couple of weeks ago. So this is a

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Speaker 1: volatile place. But we're investing in companies, were investing in

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Speaker 1: what we think are going to be the most important

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Speaker 1: growth businesses on the planet for the next couple of decades.

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Speaker 1: And those are the Internet companies that are providing all

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Speaker 1: the same things that the Fank stocks provide us, but

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Speaker 1: they're providing those services to the five and a half

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Speaker 1: billion people in India, in Brazil and the places I mentioned.

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Speaker 1: And that is if you're going to invest in emerging markets,

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Speaker 1: that's where you want to And these are actively managed.

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Speaker 1: I mean, this isn't you're not tracking an index here now,

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Speaker 1: these are these are rules based indexes. So we you know,

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Speaker 1: we own every publicly traded emerging markets internet company in

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Speaker 1: our broader offering. And then the ex China version fm

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Speaker 1: q Q owns, you know, the seventy five or so

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Speaker 1: that are not Chinese. What's number one on your to

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Speaker 1: do list looking at these companies in terms of due diligence?

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Speaker 1: Is a quality of management? Is it? Soundness of business models?

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Speaker 1: A balance sheet? How do you guys? Rule of law? Overall? Yes,

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Speaker 1: thank you. Well, you know again, the world's got a

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Speaker 1: lot of risk, and emerging markets have a lot of risk.

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Speaker 1: I mean, we've seen in Russia this year, I mean

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Speaker 1: war and you know your stocks basically wiped out completely.

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Speaker 1: So you know there's no free lunch, and emerging markets

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Speaker 1: and and and there is volatility um in terms of

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Speaker 1: the main part of the due deligence we do is

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Speaker 1: just identifying these companies because one of the problems, particularly

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Speaker 1: in emerging markets, is that the database has so much power.

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Speaker 1: And the biggest problem in the traditional indexes is that

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Speaker 1: about a third of the companies are government owned banks

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Speaker 1: and oil companies, state owned enterprises, which, in addition to

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Speaker 1: having conflicts of interest and inefficiency, there's corruption that's rampant.

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Speaker 1: And the second problem with the indexes is most of

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Speaker 1: the internet companies aren't included. So if you look at

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Speaker 1: Latin America, for example, Mercado Libre, the Amazon dot Com

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Speaker 1: and PayPal of every country in Central and South America,

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Speaker 1: it's not in the index. New Bank, the largest online

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Speaker 1: bank in the world out of Brazil, backed by Berkshire Hathaway,

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Speaker 1: and you on the New York Sock stage not in

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Speaker 1: the index. So the first thing is to make sure

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Speaker 1: that we find all these companies because the traditional approaches

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Speaker 1: are leave being a big hole. Wow, good stuff, talk

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Speaker 1: about risk and hopefully return. Kevin Carter, c I O

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Speaker 1: and founder of E m q Q Global talking about

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Speaker 1: emerging markets here. The risk reward UH certainly front of

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Speaker 1: mind for a lot of investors today as we kind

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Speaker 1: of process what's going on in China, as we've got

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Speaker 1: another data point with Apple Computer and their production issues,

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Speaker 1: So front of mine for emerging market investors. W T

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Speaker 1: a coop oil getting back lots of the losses I

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Speaker 1: had earlier today. We had reached a low today of

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Speaker 1: seventy three dollars and sixty cents per barrel. We're now

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Speaker 1: it's seventy five seventy five cents a barrel, off about

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Speaker 1: six tenths of one percent. By the way, I just

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Speaker 1: texted you a photo you did, and I texted Eric

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Speaker 1: also check it out. I was at UH. I was

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Speaker 1: in Newark, Ohio this week. I drove by a gas

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Speaker 1: station called Sheets, which you may know if you're a

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Speaker 1: trucker or if you spend a lot of time on highways.

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Speaker 1: They had a dollar ninety nine a gallon unladed. That

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Speaker 1: is amazing, and I guess it's I guess it was

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Speaker 1: some kind of marketing thing. But my nephew at the Thanksgiving,

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Speaker 1: you know, gathering, when the whole extended family was there,

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Speaker 1: he's just got his driver's license, so he went around

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Speaker 1: the house collecting people's keys and driving out to fill

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Speaker 1: up at the sheets for his stuff, adding value there

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Speaker 1: for in the of a Miller household. All right, we've

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Speaker 1: got global energy here, let's talk about it. Let's round table.

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Speaker 1: We can do that with Fernando Valley. He covers this

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Speaker 1: stuff for Bloomberg Intelligence and Mike mcloney's our commodity strategist

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Speaker 1: for Bloomberg Intelligence. I have no idea where these people are,

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Speaker 1: but they're not in studio. I can tell you that

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Speaker 1: Fernando talk to me about I guess you know your

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Speaker 1: view of crude here. Is it all hinging upon demand

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Speaker 1: out of China in the short term fall. I think

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Speaker 1: that's correct. It's China, and then it is the Western

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Speaker 1: world as well, because if you remember we talked about

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Speaker 1: how you're his cartailing their demand in order to meet

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Speaker 1: their needs for winter, and then inflation is impacting consumers

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Speaker 1: on the US globally really, but in the US and

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Speaker 1: emerging markets UH, and that will impact short term demand.

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Speaker 1: I think when we look towards the second half of

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Speaker 1: twenty three and beyond, then supply becomes a bigger question

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Speaker 1: than the men. But in the short term we see

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Speaker 1: a lot of those pressures continuing. The consumer is squeezed,

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Speaker 1: and in China, between COVID zero and their own economic

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Speaker 1: walls growth UH presents a big risk for those demand Mike,

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Speaker 1: what's your take on what what we see happening in China.

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Speaker 1: Apparently the protests have been quelled today, um, but I

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Speaker 1: still think it's pretty monumental that people are willing to

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Speaker 1: risk lives and livelihood and come out to protest. I

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Speaker 1: think that's part of the micro from China. The macro

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Speaker 1: is China incremental to mind, demand from China in terms

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Speaker 1: of all commands have been declining for a long time.

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Speaker 1: There in points of crewe I really peaked a few

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Speaker 1: years ago. Now Fernando can speak to that more everybody.

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Speaker 1: A lot of the the bulls have been spoken to

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Speaker 1: the opium, but I've been pointing out this has been

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Speaker 1: happening for quite a while. Our Chinese strategists out of

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Speaker 1: Agias said, the property crisis still is another more to go.

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Speaker 1: So to me, that major inclemantal source of demand in

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Speaker 1: the world has been bad for a while. And you've

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Speaker 1: looked at the agend they tried. They dropped the triple

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Speaker 1: R rate last week. The first time they cut the

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Speaker 1: triple R rate was almost ten years ago, so they've

429
00:23:24,440 --> 00:23:26,720
Speaker 1: been they've been trying to support their counting for quite

430
00:23:26,720 --> 00:23:28,359
Speaker 1: a while. And I like to point out what's really

431
00:23:28,400 --> 00:23:31,320
Speaker 1: happened in the last ten years is OPEC's largest customer

432
00:23:31,400 --> 00:23:33,639
Speaker 1: used to be US is now a competitor. So to me,

433
00:23:33,720 --> 00:23:35,280
Speaker 1: that's part of the reason we're going to continue to

434
00:23:35,320 --> 00:23:37,000
Speaker 1: go lower and crude oil now I think now it's

435
00:23:37,000 --> 00:23:38,680
Speaker 1: pretty good price, but the key thing is it got

436
00:23:38,720 --> 00:23:42,440
Speaker 1: too expensive. That pendulum swung too expensive, nownce the question

437
00:23:42,480 --> 00:23:45,080
Speaker 1: of how cheap will it get, And it's almost guaranteed

438
00:23:45,119 --> 00:23:47,040
Speaker 1: to get some form of cheapness as a world tilts

439
00:23:47,040 --> 00:23:51,080
Speaker 1: towards recession, as our economist model for the US recession

440
00:23:51,160 --> 00:23:53,480
Speaker 1: is very high for next year. So to me, this

441
00:23:53,560 --> 00:23:55,639
Speaker 1: is just part of that pendulum sweeking back. And one

442
00:23:55,680 --> 00:23:57,600
Speaker 1: thing that Crudel has been doing is just following copper

443
00:23:57,640 --> 00:24:01,440
Speaker 1: copper on the year. But my does doesn't OPEC come

444
00:24:01,480 --> 00:24:05,119
Speaker 1: in with more production cuts as the price falls responsive.

445
00:24:05,240 --> 00:24:09,439
Speaker 1: OPEC is notorious for cutting prices in and when prices

446
00:24:09,520 --> 00:24:11,480
Speaker 1: drop a lot, their job is to keep prices up.

447
00:24:11,520 --> 00:24:14,280
Speaker 1: So the mast big example is two thousand and eight,

448
00:24:14,359 --> 00:24:17,720
Speaker 1: so OPEC will remember OPEC used to be of total

449
00:24:18,119 --> 00:24:20,639
Speaker 1: supply around ten years ago. Now they're less than thirty.

450
00:24:20,960 --> 00:24:23,560
Speaker 1: They're less and less important. The most significant thing that's

451
00:24:23,560 --> 00:24:26,520
Speaker 1: pressure crude oil prices. Since two thousand six, which is

452
00:24:26,560 --> 00:24:28,159
Speaker 1: the first time we traded, the current price on the

453
00:24:28,200 --> 00:24:32,240
Speaker 1: screen has been US supply and Canada supply seeing demand,

454
00:24:32,440 --> 00:24:35,560
Speaker 1: and the US demand actually peaked right around that time.

455
00:24:35,600 --> 00:24:38,240
Speaker 1: So this is a major paradigm shift. And this is

456
00:24:38,240 --> 00:24:40,719
Speaker 1: what I see is crudal is just a massive swinging

457
00:24:40,760 --> 00:24:43,280
Speaker 1: pendulument got too expensive, going back down, and OPEC is

458
00:24:43,320 --> 00:24:46,480
Speaker 1: becoming less and less significant. And yes they will cut

459
00:24:46,720 --> 00:24:49,120
Speaker 1: because they pointed out the Feds tighten and they see

460
00:24:49,119 --> 00:24:51,600
Speaker 1: the demand destruction. That's the biggest factor right now. And

461
00:24:51,640 --> 00:24:53,680
Speaker 1: I think Fernando even led to a demand structure and

462
00:24:53,720 --> 00:24:56,159
Speaker 1: now is just getting started. The question I asked, what

463
00:24:56,400 --> 00:24:58,879
Speaker 1: stops this process? It's not going to be fed or

464
00:24:58,960 --> 00:25:03,160
Speaker 1: Central Bank Easy. So, Fernando, you know we're talking about

465
00:25:03,200 --> 00:25:06,760
Speaker 1: some of the US shale operators. What are they telling

466
00:25:06,800 --> 00:25:11,400
Speaker 1: you about production capacity all that kind of stuff. Well,

467
00:25:11,640 --> 00:25:15,800
Speaker 1: they are struggling with inflation themselves, and they're struggling to

468
00:25:15,920 --> 00:25:19,640
Speaker 1: grow at the rates from from prior years. And so

469
00:25:19,760 --> 00:25:22,560
Speaker 1: in the short term there is a little bit of

470
00:25:22,560 --> 00:25:26,400
Speaker 1: growth still left. But we we really think that US

471
00:25:26,440 --> 00:25:29,280
Speaker 1: shell is not going to reach the levels expected a

472
00:25:29,320 --> 00:25:32,440
Speaker 1: few years back of fifteen sixteen million barrels a day

473
00:25:32,880 --> 00:25:36,560
Speaker 1: for total US production. We really think we're nearing our

474
00:25:36,960 --> 00:25:39,520
Speaker 1: overall peak and supply. And that's why I agree with

475
00:25:39,560 --> 00:25:41,040
Speaker 1: Mike in the short term that the main is a

476
00:25:41,160 --> 00:25:46,080
Speaker 1: much more relevant issue, and then the pendulum swings back

477
00:25:46,160 --> 00:25:50,080
Speaker 1: towards the upside once we don't have enough supply and

478
00:25:50,080 --> 00:25:52,480
Speaker 1: and Mike alluded to effect not being as important. We

479
00:25:52,520 --> 00:25:55,040
Speaker 1: also don't know that they have the spare capacity to

480
00:25:55,119 --> 00:25:59,400
Speaker 1: overcome that weakness in US shale. Uh. And then we

481
00:25:59,480 --> 00:26:02,360
Speaker 1: really that the inventory picture in the U S show

482
00:26:02,440 --> 00:26:07,320
Speaker 1: is a lot dimmer than was projected even one A

483
00:26:07,359 --> 00:26:10,560
Speaker 1: lot of the high quality acreage has been drilled, and

484
00:26:10,560 --> 00:26:13,000
Speaker 1: if you look at the productivity for a well in

485
00:26:13,119 --> 00:26:17,720
Speaker 1: all four large US shale basines. They're weaker in two

486
00:26:17,760 --> 00:26:23,520
Speaker 1: than he was in So just got about thirty seconds here, Fernando, Um,

487
00:26:23,560 --> 00:26:26,679
Speaker 1: do we start to see real drops in prices at

488
00:26:26,720 --> 00:26:29,120
Speaker 1: the pump as well? I know that there's a big

489
00:26:29,160 --> 00:26:32,639
Speaker 1: mechanism that needs to, you know, be played out. But

490
00:26:33,000 --> 00:26:35,879
Speaker 1: and I've lost all hope for diesel, But for regular

491
00:26:35,920 --> 00:26:38,440
Speaker 1: unletted does it continue to come down towards the sheets

492
00:26:38,520 --> 00:26:44,160
Speaker 1: dollar gallon level? Yeah, I believe that's that's true. Maybe

493
00:26:44,240 --> 00:26:46,480
Speaker 1: less so in the northeast of the US just because

494
00:26:46,480 --> 00:26:49,560
Speaker 1: of logistical issues. But when you look into the Mid

495
00:26:49,560 --> 00:26:53,119
Speaker 1: Continent Gulf Coast, you should see lower prices over for

496
00:26:53,200 --> 00:26:55,879
Speaker 1: the remainder of the year. Uh, with Brent and w

497
00:26:55,960 --> 00:26:59,679
Speaker 1: T selling off, and then even the crack spreads themselves

498
00:26:59,720 --> 00:27:02,199
Speaker 1: are little bit weaker. So you should see some relief.

499
00:27:02,960 --> 00:27:06,040
Speaker 1: Holiday relief, alright, good stuff for other people, Paul, Not

500
00:27:06,080 --> 00:27:08,480
Speaker 1: for us, No, not not for us, not in New Jersey.

501
00:27:08,480 --> 00:27:11,320
Speaker 1: For Nono Vali senior analysts Bloomberg Intelligence covering all the

502
00:27:11,400 --> 00:27:15,040
Speaker 1: energy space, and Mike mcgloan, he's our commodity strategist for

503
00:27:15,119 --> 00:27:21,119
Speaker 1: Bloomberg Intelligence, breaking down what's going on in global energy today.

504
00:27:21,320 --> 00:27:24,760
Speaker 1: Is Cyber Monday. You're gonna click away met and make

505
00:27:24,840 --> 00:27:28,160
Speaker 1: some purchases here today. I I've already done it. You've

506
00:27:28,200 --> 00:27:31,440
Speaker 1: done it. Look at you? Because I don't know how

507
00:27:31,520 --> 00:27:33,880
Speaker 1: much it really matters Cyber Monday. I started to see

508
00:27:33,960 --> 00:27:37,080
Speaker 1: huge deals pop up like on Thursday and Friday. Alrighty, okay,

509
00:27:37,359 --> 00:27:40,560
Speaker 1: all right, let's bringing Jen Bartasha. She's senior equity research channel.

510
00:27:40,600 --> 00:27:44,560
Speaker 1: She covers all the retail stuff for Bloomberg Intelligence. Jen

511
00:27:44,640 --> 00:27:46,560
Speaker 1: talk to us about kind of what we know so

512
00:27:46,600 --> 00:27:50,000
Speaker 1: far during this you know, Black Friday coming into cyber

513
00:27:50,080 --> 00:27:52,560
Speaker 1: what was it? How was it? Well, you know it

514
00:27:52,680 --> 00:27:55,520
Speaker 1: was it was probably a little bit better than people expected,

515
00:27:55,560 --> 00:27:58,720
Speaker 1: but it was nothing spectacular. Um. And that really shouldn't

516
00:27:58,760 --> 00:28:01,399
Speaker 1: be a surprise to anyone because we've got consumers who

517
00:28:01,440 --> 00:28:04,119
Speaker 1: are a little bit more conservative, um. And we have

518
00:28:04,240 --> 00:28:07,080
Speaker 1: retailers who have spread out those deals, as Matt was saying,

519
00:28:07,359 --> 00:28:10,240
Speaker 1: over a really long period of time. Yeah, I mean

520
00:28:10,240 --> 00:28:13,560
Speaker 1: they've already they already started to announce them before Black Friday,

521
00:28:13,600 --> 00:28:18,879
Speaker 1: and they seemed to last. Awhile, are retailers having a

522
00:28:18,960 --> 00:28:21,760
Speaker 1: problem with inventory across the board or is it just

523
00:28:21,840 --> 00:28:26,280
Speaker 1: specific stores that got stuck? It was really some specific

524
00:28:26,359 --> 00:28:30,280
Speaker 1: stores that we're having inventory issues, UM and and specific

525
00:28:30,359 --> 00:28:34,639
Speaker 1: categories even within certain stores. And so, you know, apparel

526
00:28:34,680 --> 00:28:36,720
Speaker 1: has been an issue. I think it's going to continue

527
00:28:36,760 --> 00:28:39,000
Speaker 1: to be an issue through this holiday season. You know,

528
00:28:39,080 --> 00:28:41,680
Speaker 1: we had our entire retail team out on Black Friday,

529
00:28:41,720 --> 00:28:44,720
Speaker 1: coming through stores, hitting the malls, UM. And you know,

530
00:28:44,840 --> 00:28:47,280
Speaker 1: we saw there were bags people were buying things, but

531
00:28:47,320 --> 00:28:49,800
Speaker 1: it wasn't in bulk. And and apparel was one of

532
00:28:49,840 --> 00:28:53,280
Speaker 1: those areas where people were buying very specific things in apparel,

533
00:28:53,280 --> 00:28:56,280
Speaker 1: it wasn't across the board. UM. So you know, I

534
00:28:56,320 --> 00:29:00,440
Speaker 1: think it's kind of a mixed a mixed result. UM.

535
00:29:00,480 --> 00:29:02,440
Speaker 1: But the good news was that people were out and

536
00:29:02,480 --> 00:29:05,000
Speaker 1: they were looking for deals. And if I were to

537
00:29:05,040 --> 00:29:07,520
Speaker 1: go shopping, and that's a big if, Jen, will I

538
00:29:07,640 --> 00:29:11,600
Speaker 1: find stuff on the shelves, you will UM that the

539
00:29:11,640 --> 00:29:14,800
Speaker 1: inventory seems to be pretty right sized. UM. You know,

540
00:29:14,880 --> 00:29:18,280
Speaker 1: there are certain certain hot items that are are out

541
00:29:18,320 --> 00:29:20,640
Speaker 1: of stock. You know, we do an annual toy survey,

542
00:29:20,720 --> 00:29:23,959
Speaker 1: for example in Bloomberg Intelligence. UM, and there are some

543
00:29:24,000 --> 00:29:26,000
Speaker 1: hot toys of the seasons that are out of stock

544
00:29:26,040 --> 00:29:30,040
Speaker 1: now across Walmart, Target, Amazon, But it's really very select

545
00:29:30,120 --> 00:29:33,520
Speaker 1: items at this point. Um, we're hoping that this means that,

546
00:29:33,600 --> 00:29:35,680
Speaker 1: you know, it'll be a solid season and that they

547
00:29:35,720 --> 00:29:38,680
Speaker 1: won't be left with too much inventory as we head

548
00:29:38,680 --> 00:29:41,280
Speaker 1: into January and February. Though, what what are the hot

549
00:29:41,320 --> 00:29:44,000
Speaker 1: what's the tickle me Elmo of or the cabbage Patch

550
00:29:44,120 --> 00:29:46,880
Speaker 1: kid of the year. Well, you know, so far this

551
00:29:46,960 --> 00:29:49,160
Speaker 1: year it's been a lot of video games are out

552
00:29:49,160 --> 00:29:52,280
Speaker 1: of stock, so people are definitely loving their gaming type

553
00:29:52,320 --> 00:29:54,120
Speaker 1: of how can video games be out of stock? You

554
00:29:54,160 --> 00:29:57,240
Speaker 1: just buy a digital copy online. A lot of them

555
00:29:57,240 --> 00:29:59,280
Speaker 1: still come on the little discs that you pop into

556
00:29:59,360 --> 00:30:02,520
Speaker 1: those those older consoles, and so you know, those those

557
00:30:02,600 --> 00:30:09,800
Speaker 1: have been uniformly popular across all the regions. Know why because, um,

558
00:30:10,120 --> 00:30:13,400
Speaker 1: kids that get them want to be able to resell

559
00:30:13,520 --> 00:30:16,840
Speaker 1: them later. So that's that's why the existence of those

560
00:30:16,840 --> 00:30:20,560
Speaker 1: discs or that explains the existence continued existence of those

561
00:30:20,600 --> 00:30:23,040
Speaker 1: discs and the game shop brick and mortar stores coming

562
00:30:23,040 --> 00:30:25,920
Speaker 1: from it makes sense. Yeah, they're like trading card versions,

563
00:30:26,000 --> 00:30:28,840
Speaker 1: but they retain value whereas you know, the digital code,

564
00:30:28,880 --> 00:30:30,800
Speaker 1: you can't really pass it on. Hey, Jen, I know

565
00:30:30,880 --> 00:30:35,280
Speaker 1: you also in your coverage cover Beyond Meat that stock

566
00:30:35,360 --> 00:30:38,400
Speaker 1: got downgraded by Barkley's today after the stocks down like

567
00:30:38,440 --> 00:30:42,720
Speaker 1: seven percent, So thanks a lot Barkley's But um, what's

568
00:30:42,800 --> 00:30:44,800
Speaker 1: the deal with that whole faux meet thing? Is that

569
00:30:44,840 --> 00:30:47,640
Speaker 1: a flash in the pan? Is this a real sector

570
00:30:47,720 --> 00:30:50,320
Speaker 1: within the the food industry? How do you think about

571
00:30:50,320 --> 00:30:52,880
Speaker 1: it now? Well, I still think of this is there's

572
00:30:52,920 --> 00:30:55,520
Speaker 1: a there's a strong long term case to be said

573
00:30:55,560 --> 00:30:59,800
Speaker 1: for alternative proteins UM, but the current environment and looking

574
00:30:59,800 --> 00:31:01,920
Speaker 1: over the next year to two years, is going to

575
00:31:01,960 --> 00:31:04,680
Speaker 1: be a really tough environment for those players. And and

576
00:31:04,720 --> 00:31:07,200
Speaker 1: really there's there's just a bunch of headwinds that they're facing.

577
00:31:07,280 --> 00:31:10,800
Speaker 1: One is this the consumer UM people are trading down UM.

578
00:31:10,880 --> 00:31:15,560
Speaker 1: Alternative proteins are more expensive still than conventional proteins, so UM,

579
00:31:15,600 --> 00:31:18,480
Speaker 1: if people are watching their budgets, they're they're pulling back

580
00:31:18,520 --> 00:31:21,600
Speaker 1: from those those alt meat products. UM. And then you

581
00:31:21,640 --> 00:31:24,120
Speaker 1: have a lot of challenges because they're growth companies and

582
00:31:24,160 --> 00:31:26,880
Speaker 1: so they have not yet mastered you know, how to

583
00:31:27,000 --> 00:31:29,840
Speaker 1: how to build a bigger business and do things the

584
00:31:29,960 --> 00:31:33,400
Speaker 1: right way with regards to manufacturing or UM lining up

585
00:31:33,400 --> 00:31:36,280
Speaker 1: their innovation queue so that they do things in a

586
00:31:36,360 --> 00:31:39,560
Speaker 1: smooth and uninterrupted manner. UM. So they're growing pains that

587
00:31:39,600 --> 00:31:43,240
Speaker 1: are happening simultaneously with external pressures as well coming from

588
00:31:43,240 --> 00:31:45,880
Speaker 1: the consumer. And Jenna know you cover the supermarkets as well,

589
00:31:46,000 --> 00:31:48,560
Speaker 1: and one of the areas that consumers have seen inflation

590
00:31:48,640 --> 00:31:52,560
Speaker 1: probably the most profound, uh, is the supermarket. Do prices

591
00:31:52,600 --> 00:31:56,320
Speaker 1: ever go back down or I don't know, are we

592
00:31:56,360 --> 00:31:59,200
Speaker 1: just gonna pay these higher levels forever? Now? They actually

593
00:31:59,280 --> 00:32:01,360
Speaker 1: do come back down. And I will say, when I

594
00:32:01,400 --> 00:32:04,000
Speaker 1: look across the broad scape of root scope of retail,

595
00:32:04,600 --> 00:32:07,480
Speaker 1: grocery stores are some of the fastest to bring prices

596
00:32:07,520 --> 00:32:11,000
Speaker 1: back down. Um. And so we will we have seen

597
00:32:11,000 --> 00:32:13,640
Speaker 1: inflation starting to moderate. I think you'll start to see

598
00:32:13,680 --> 00:32:16,520
Speaker 1: some prices come down in different categories in the store

599
00:32:16,560 --> 00:32:20,880
Speaker 1: slowly as we get into the middle of next year. UM.

600
00:32:21,080 --> 00:32:23,920
Speaker 1: But they will come down UM. Now then you know,

601
00:32:24,040 --> 00:32:26,440
Speaker 1: if there are additional pressures, they could always go back

602
00:32:26,520 --> 00:32:29,880
Speaker 1: up again. UM. But they tend to unlike other categories,

603
00:32:29,920 --> 00:32:33,080
Speaker 1: they don't necessarily reset that bottom. They sometimes they can

604
00:32:33,160 --> 00:32:37,440
Speaker 1: go back to some closer to historical norms. Um. The

605
00:32:37,440 --> 00:32:39,200
Speaker 1: problem we have with food is that we were in

606
00:32:39,320 --> 00:32:42,280
Speaker 1: years of deflation UM for a long time, and people

607
00:32:42,320 --> 00:32:45,239
Speaker 1: got very comfortable with very low food prices, especially here

608
00:32:45,240 --> 00:32:48,320
Speaker 1: in the United states um. And so that makes the

609
00:32:48,360 --> 00:32:52,600
Speaker 1: inflation we've had feel even more uh, you know, even

610
00:32:52,640 --> 00:32:58,160
Speaker 1: more challenging than than it might otherwise. Yeah, I think

611
00:32:58,280 --> 00:33:00,440
Speaker 1: that's a good point. And you know, the was reading

612
00:33:00,440 --> 00:33:04,160
Speaker 1: a few notes about not just um beyond meat but

613
00:33:04,240 --> 00:33:07,160
Speaker 1: also Tyson Foods, and analysts were saying, look, it's it's

614
00:33:07,160 --> 00:33:11,080
Speaker 1: the whole protein area space. Just because of the cost um,

615
00:33:11,200 --> 00:33:15,360
Speaker 1: you know, investors are looking for other places. Although my

616
00:33:15,480 --> 00:33:17,800
Speaker 1: initial lot was you need protein anyway to survive, you can,

617
00:33:17,960 --> 00:33:20,520
Speaker 1: you can't look for something else. It's true, but people

618
00:33:20,560 --> 00:33:23,000
Speaker 1: also aren't thinking about you know, for beef, it's a

619
00:33:23,080 --> 00:33:25,720
Speaker 1: multi year cycle to bring a cow to market, right,

620
00:33:26,080 --> 00:33:29,080
Speaker 1: and you have other factors like there's drought, um, you know,

621
00:33:29,120 --> 00:33:31,720
Speaker 1: where it makes it more expensive to feed those cattle,

622
00:33:32,000 --> 00:33:34,440
Speaker 1: which means that ranchers have fewer head. And when they

623
00:33:34,480 --> 00:33:36,560
Speaker 1: have fewer head and they go through that, you know,

624
00:33:36,680 --> 00:33:39,680
Speaker 1: eighteen months cycle, there are fewer cows, which then drives

625
00:33:39,760 --> 00:33:42,800
Speaker 1: up cost and and you know, I don't know, I mean,

626
00:33:43,280 --> 00:33:45,000
Speaker 1: I want they make in the same amount of chickens

627
00:33:45,000 --> 00:33:47,280
Speaker 1: as they always make. I don't know. Jen Bartash is

628
00:33:47,280 --> 00:33:49,880
Speaker 1: great stuff. She breaks it down for Senior Equity Research

629
00:33:49,920 --> 00:33:54,520
Speaker 1: Analystic covers everything's on the retail side consumer beyond meat.

630
00:33:54,680 --> 00:33:56,720
Speaker 1: We can pretty much ask her about anything and she's

631
00:33:56,760 --> 00:33:58,360
Speaker 1: got some good analysis to back it up, so we

632
00:33:58,400 --> 00:34:04,120
Speaker 1: appreciate getting her time. Ye thanks for listening to the

633
00:34:04,120 --> 00:34:08,080
Speaker 1: Bloomberg Markets podcast. You can subscribe and listen to interviews

634
00:34:08,080 --> 00:34:12,359
Speaker 1: with Apple Podcasts or whatever podcast platform you prefer. I'm

635
00:34:12,400 --> 00:34:16,680
Speaker 1: Matt Miller. I'm on Twitter at Matt Miller three and

636
00:34:16,800 --> 00:34:19,399
Speaker 1: on Fall Sweeney I'm on Twitter at pt Sweeney. Before

637
00:34:19,440 --> 00:34:22,320
Speaker 1: the podcast. You can always catch us worldwide at Bloomberg

638
00:34:22,360 --> 00:34:22,600
Speaker 1: Radio