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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.

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Speaker 2: Every business day, we bring you interviews from CEOs, market pros,

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Speaker 2: and Bloomberg experts, along with essential market moving news.

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Speaker 1: Find the Bloomberg Markets Podcast on Apple Podcasts or wherever

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Speaker 1: you listen to podcasts, and at Bloomberg dot com slash podcast.

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Speaker 1: Let's go to our next guest, get right back to

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Speaker 1: these markets. John Hurdle joins US executive chairman at Hurdle,

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Speaker 1: Callahan and Company. Hey, John, we have a risk one

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Speaker 1: day today, but there's still a lot of concern out there.

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Speaker 1: September was a tough month for risk assets, stocks down.

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Speaker 1: How do you guys think about the rest of this year.

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Speaker 1: You know it's still driven in large part by this

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Speaker 1: federal Reserve. How are you guys thinking about it?

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Speaker 3: Well, we'd like to have a real yield in the

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Speaker 3: bond portfolio for the first time in a long time.

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Speaker 3: You know, I the first thirty years I was in

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Speaker 3: the business, bonds were such a critical dimension of a diverse,

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Speaker 3: fied portfolio, and then we got this place where we

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Speaker 3: had no real yield and we needed the bonds to

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Speaker 3: stabilize the portfolios, but the price of that stabilization was

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Speaker 3: huge because we've got no real yield. So as an investor,

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Speaker 3: I like having real yield back in the bond market.

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Speaker 3: I also feel like this is more of a stock

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Speaker 3: picker's market. It's not just risk on risk off. That's

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Speaker 3: a term that has really become popular in the last

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Speaker 3: ten years. It's more of a trading term than an

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Speaker 3: investing term. We're always risk on because we think to

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Speaker 3: fulfill our client's missions, we've got to be in growth assets,

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Speaker 3: which are stocks and private equity and so forth. So

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Speaker 3: it's really a question we're not you know, we're investors,

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Speaker 3: not traders, and so this market actually feels a little

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Speaker 3: more normal than what we've gone through for the last

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Speaker 3: ten years.

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Speaker 2: So what do you think in terms of the sixty

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Speaker 2: forty split, Is that still the way to go for

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Speaker 2: the average investor?

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Speaker 4: Or?

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Speaker 2: Would you allocate more to bonds right now at these yields?

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Speaker 3: We wouldn't really allocate. We're not allocating more to bonds yet,

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Speaker 3: and we've been about seventy thirty so for a long

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Speaker 3: time we've been more growth oriented than fixed income than

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Speaker 3: income oriented. But we are adding duration. So we feel

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Speaker 3: like if we can move up duration and we're still

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Speaker 3: underweight relative to the Investment Great Index, but we're you know,

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Speaker 3: closer to matching it. We're adding duration, so we field

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Speaker 3: with a ten year to four sixty. We're getting closer.

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Speaker 3: You know, could it get to a five percent? Interesting?

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Speaker 3: But at this point we can increase yield, so get

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Speaker 3: current yield. The yield curve is steepening a little bit,

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Speaker 3: and if we do slip into a recession and interest

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Speaker 3: rate strop again, then we get capital appreciation out of

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Speaker 3: those bonds. So we're adding duration.

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Speaker 1: John On on the equity side here, you know, some

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Speaker 1: of the performance are most of the vast majority, if

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Speaker 1: not all, of the performance in the S and P.

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Speaker 1: Five hundred has been from a handful of names to

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Speaker 1: magnificent seven. Do you chase those here or do you

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Speaker 1: try to look for some of the names that have

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Speaker 1: not participated.

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Speaker 3: Well, you know, Mark Andresen wrote years ago that sawfwar

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Speaker 3: is eating the world, and so that is a secular change.

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Speaker 3: It's kind of like the industrial revolution. On the other hand,

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Speaker 3: Howard Mark says beautifully that there is no asset in

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Speaker 3: the world. It's a good investment at any price. It

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Speaker 3: depends on the name. We've got to go name by name.

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Speaker 3: And by the way, there are other companies that we

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Speaker 3: like that are We do like the tech set. We

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Speaker 3: like the US relative to the world because of our

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Speaker 3: exposure to technology. But really, when we think about the

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Speaker 3: great technology companies like Microsoft, they have strong balance sheets,

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Speaker 3: they have an installed base, and they have a moat

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Speaker 3: around their business. There are other businesses like Thermo Fisher

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Speaker 3: and Canadian Pacific Rail that aren't tech companies. Well, Canadian

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Speaker 3: Pacific isn't a tech company per se, but it also

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Speaker 3: has a strong balance sheet, installed base, and moat around

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Speaker 3: its business. So you know, it's not just tech companies,

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Speaker 3: but we think it's companies that have that kind of

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Speaker 3: a strong position and can manage through these uncertain times.

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Speaker 2: Are you concerned about you know, we talk so much

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Speaker 2: about the fact that inflation was helpful to earnings and

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Speaker 2: now we're in a disinflationary environment withouthurt earnings.

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Speaker 3: Maybe you know, markets are always priced at equilibriate, So

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Speaker 3: every time I sell something, someone's buying it from me,

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Speaker 3: and every time I buy something, someone's selling it from

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Speaker 3: to me. So if there's this notion that there's always

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Speaker 3: a positive and negative story and interest rates. You know,

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Speaker 3: five years ago we were desperate to get interest rates

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Speaker 3: higher and the Fed just couldn't get it done. And

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Speaker 3: then you know, we had this COVID situation and probably

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Speaker 3: the six trillion dollars.

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Speaker 1: Hey, John, we're gonna have to I'm sorry, We're going

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Speaker 1: to leave it there just because of the time, but

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Speaker 1: we appreciate getting your thoughts. John Hurdle, Executive chairman at Hurdle,

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Speaker 1: Callahan and Company.

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Speaker 5: You're listening to the team Ken's are online program Bloomberg

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Speaker 5: Markets weekdays at ten am eastering on Bloomberg dot com,

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Speaker 5: the iHeartRadio app, and the Bloomberg Business app, or listen

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Speaker 5: on demand wherever you get your podcasts.

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Speaker 1: All right, Tom Farley joins us here. He's the chief

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Speaker 1: executive officer a Bullish, former president of the New York

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Speaker 1: Stock Exchange, here to chat with this. Hey Tom, First

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Speaker 1: of all, thanks for joining us. Tell us about what

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Speaker 1: you guys are doing at Bullish.

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Speaker 6: Great to be on with you. I am soaked by

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Speaker 6: the way I heard you talking about the rain. I

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Speaker 6: just I just walked into the office from a meeting

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Speaker 6: and completely drenched.

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Speaker 7: There you go, I'm glad this. I'm glad this is radio.

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Speaker 2: But you're on Zoom as well.

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Speaker 1: We got you on YouTube, we got you out on YouTube.

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Speaker 2: There you go, my man.

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Speaker 7: Great to be with you, guys. Yeah, bullish.

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Speaker 6: Look from the outset, we're taking an approach of being

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Speaker 6: a compliant adult digital assets exchange, and that didn't really

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Speaker 6: benefit us, to be honest with you, eighteen nineteen twenty,

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Speaker 6: it felt like the exchanges that were winning in many

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Speaker 6: in many cases were kind of cutting corners and doing

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Speaker 6: things differently than we were doing. But in the long run,

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Speaker 6: it'll it'll, you know, it'll work out in many ways, Paul.

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Speaker 6: Guys like you and I. You know that people might

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Speaker 6: look at and say our granddads. But we've been in

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Speaker 6: markets for all this time. We've seen the future, and

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Speaker 6: the professional financial services businesses will win in the digital

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Speaker 6: asset space. There will be two to four global exchanges,

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Speaker 6: not five, not one, and they will be well run businesses.

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Speaker 6: And so we've just focused on institutions, only fully regulated

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Speaker 6: did coins that actually make sense. You know, everybody loves

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Speaker 6: a frog coin or or digital animal drawing or what

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Speaker 6: have you. But what I'm really looking for are the

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Speaker 6: projects that are adding real value in the world that

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Speaker 6: are benefiting from blockchain technology to do good things, to

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Speaker 6: make for a more efficient financial market. And so those

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Speaker 6: are the areas we've been focusing on Bullish and it's

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Speaker 6: it's working. We're gaining market share. Where the number two

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Speaker 6: exchange in the world for ether, where on any given

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Speaker 6: day three, four or five for bitcoin, which are you know,

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Speaker 6: obviously two of the big the big ones out Well, I.

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Speaker 2: Definitely not a granddad. I want to point out that

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Speaker 2: Tom Farley was born after the Beatles broke up.

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Speaker 4: So.

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Speaker 6: You did, though, Tom, which, by the way, in crypto

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Speaker 6: and crypto, it makes me a great grand dad exactly.

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Speaker 7: Honestly.

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Speaker 6: You know, when I first I got into this back

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Speaker 6: in twenty twelve, but it was it was through an

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Speaker 6: investment in coinbase pre revenue. I got lucky, to be honest,

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Speaker 6: but kind of learned the space and then immerse myself

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Speaker 6: in Night twenty twenty and it was like the jargon,

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Speaker 6: the inscrutable jargon, and I would say like that doesn't

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Speaker 6: make any sense, and people would look at me like

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Speaker 6: literally like I was one thousand years old, like oh,

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Speaker 6: you'll just never get it.

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Speaker 2: That's why they make up that kind of jargon. By

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Speaker 2: the way, I've been following crypto for about the exact

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Speaker 2: same time. I bought my first bitcoin in December of

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Speaker 2: I guess twenty thirteen. December of twenty thirteen was when

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Speaker 2: I got nice trade for six hundred dollars.

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Speaker 1: Well, he lost it the key though, I did lose

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Speaker 1: my password.

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Speaker 2: But Tom, you were pretty busy at the time running

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Speaker 2: the New York Stock Exchange, which is arguably, you know,

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Speaker 2: the most important exchange in the world, certainly historically it is.

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Speaker 2: How have you used what you learned at ICE and

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Speaker 2: at NYC in the world of crypto.

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Speaker 6: Oh, my gosh, like a million ways, especially now, you know,

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Speaker 6: coming out of all the Shenanigans of twenty twenty one

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Speaker 6: and twenty twenty two and people being hurt and you know,

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Speaker 6: deception outright fraud in some cases, people now care about

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Speaker 6: credit worthy counter parties, they care about.

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Speaker 7: Businesses being run the right way.

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Speaker 6: And look, I'd love to tell you what we're doing

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Speaker 6: at Bullish is like, you know, solving differential equations, but

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Speaker 6: it's not. It's connecting buyers and sellers and ensuring that

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Speaker 6: you have a lot of bids and offers tightly tightly

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Speaker 6: wrapped around the market price. And that's what I've done

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Speaker 6: since I was twenty eight years old, twenty nine years

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Speaker 6: old when I when I went into the New York

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Speaker 6: Board of Trade, which is could be a whole nother

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Speaker 6: radio hour to talk about a twenty nine year old

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Speaker 6: kid trying to break up floor trading, but let's leave

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Speaker 6: that aside. Hey, Tom, it's really it's really the same,

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Speaker 6: it's really the same thing.

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Speaker 7: In fact, in some ways it's easier.

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Speaker 6: You know, in New York soalcing change, we were processing

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Speaker 6: one hundred million messages a second in our options feed,

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Speaker 6: one hundred million messages second. In crypto, if you're doing

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Speaker 6: five thousand a second, you get a gold medal. So

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Speaker 6: in some ways it's it's easier. Some ways it's it's

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Speaker 6: more difficult. But every day, all day, I'm benefiting from

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Speaker 6: the great people that I learned from in exchange world

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Speaker 6: my whole career.

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Speaker 1: Tom, How frustrating is it to you? And maybe just

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Speaker 1: a crypto market in general, when it still feels like

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Speaker 1: traditional financial Wall Street, if you will, Global banking, if

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Speaker 1: you will, still does not really recognize or appreciate crypto.

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Speaker 1: I mean, Jamie Diamond's still not on board. Just for

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Speaker 1: an example, how do you put that in context?

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Speaker 4: Uh?

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Speaker 6: I mean, you know, it's interesting, it's a good question.

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Speaker 6: And you know, Warren Buffett I would add to that.

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Speaker 6: I mean, these are these are people I think highly of,

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Speaker 6: but when you drill into their message, I actually share

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Speaker 6: a lot of their concern. You know, they were especially

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Speaker 6: Jamie was talking at the height of the mania and

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Speaker 6: kind of saying, hey, I've seen this movie before, ye

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Speaker 6: and and look at to some extent he was right.

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Speaker 6: And and we as an industry have brought the uncertainty

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Speaker 6: that we're in right now upon us. It was, as

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Speaker 6: I said, it was too much jargon, there's too much deception.

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Speaker 6: There are too many frog coins. So so it was

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Speaker 6: right on the At the same time, JP Morgan, uh,

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Speaker 6: is you is doing projects to benefit from the interesting

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Speaker 6: technological facets of blockchain, you know, the finality, the instant

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Speaker 6: finale to your instant settlement, the transparency that goes along

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Speaker 6: with blockchain, the incremental security that goes along with blockchain.

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Speaker 6: JP Morgan engages in brokerage for and and and and

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Speaker 6: prime brokerage or futures kind of commissioned business for bitcoin

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Speaker 6: or bitcoin futures on the CMME. So I think really

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Speaker 6: what you were seeing from some smarter look. There were

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Speaker 6: some people that just don't get it. They think Bitcoin's

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Speaker 6: going to go away tomorrow. Bitcoin ain't going away anytime.

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Speaker 6: But there were some people, I think who just sensed

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Speaker 6: something wasn't right, and there was some merit to that.

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Speaker 6: And this is a time of retrenchment, and I have

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Speaker 6: a lot of hope, maybe even optimism that we've bumped

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Speaker 6: along along the bottom and things are getting a lot

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Speaker 6: better quickly.

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Speaker 1: Hey, Tom, thanks so much for joining us. Really appreciate

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Speaker 1: you taking the time there. Tom Farley, CEO of Bullish,

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Speaker 1: former president at the n y S talking about the

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Speaker 1: crypto space and the exchanges that support the crypto space,

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Speaker 1: as Thomas suggesting, they've got some work to do. Arguably

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Speaker 1: as an industry, it's kind of short a lot of

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Speaker 1: aspects of that market.

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Speaker 2: Man ten years ago. If you had the choice tween

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Speaker 2: JP Morgan, Stock and bitcoin boom oh.

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Speaker 5: You're listening to the tape. Cat's are live program Bloomberg

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Speaker 5: Markets weekdays at ten am Eastern on Bloomberg Radio, the

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Speaker 5: tune in app, Bloomberg dot Com, and the Bloomberg Business app.

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Speaker 5: You can also listen live on Amazon Alexa from our

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Speaker 5: flagship New York station. Just say Alexa play Bloomberg eleven

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Speaker 5: thirty Again.

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Speaker 1: I'm looking at the two year here. I can just

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Speaker 1: jump into a two year treasury five point zero three percent.

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Speaker 1: I think on a rainy day like today, that's just fine.

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Speaker 2: Dude, you're all in on the two years.

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Speaker 7: I'm all in.

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Speaker 2: And keep telling you there's reinvestment risk there.

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Speaker 1: I'll deal with that when it happens. And I'm all

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Speaker 1: about today.

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Speaker 2: Get the stick from a money market. You know that

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Speaker 2: that rolls over for you. I am your daughter's Marcus account.

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Speaker 1: I'm in that one with her. You're in that so

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Speaker 1: I matched her. So we bubbled up on this.

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Speaker 2: My wife gets in it, and then she recommends all

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Speaker 2: our friends, and every time she recommends somebody, she gets

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Speaker 2: a bump on her rate.

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Speaker 1: That's a nice incentive there. I guess that's how my

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Speaker 1: daughter did it. Anyway, Ben Emmage joints is because he's

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Speaker 1: a professional. He's had a fixed income with New Edge Wealth. Ben,

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Speaker 1: do I buy the two year here? Or you got

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Speaker 1: something better for me?

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Speaker 8: So I would agree with you, Paul that if you

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Speaker 8: take the two yields and he will subtract any of

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Speaker 8: the core measures that we saw today. Yep, it's actually

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Speaker 8: positive real return.

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Speaker 1: That's why we're getting really illed these days, right right.

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Speaker 8: So that for that reason, I say, yes you should

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Speaker 8: because you don't have the duration risk. You may have

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Speaker 8: to have a investment risk, but you certainly get compensated

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Speaker 8: for inflation. So that's good, okay, And out the you curve,

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Speaker 8: I still remain relatively skeptical. I think at ten years

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Speaker 8: and thirtyth Bondh's is not enough compensation there.

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Speaker 5: Yet.

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Speaker 8: We may get there, you know, if we hit that

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Speaker 8: five percent level, which I think we're going. But I

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Speaker 8: think your best bet is on the front of the curve.

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Speaker 2: We see almost that on the twenty year, don't we.

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Speaker 2: I mean, I feel like, do you see yields going

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Speaker 2: much higher out out the curve?

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Speaker 8: So that depends on a few things, Matt, that it

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Speaker 8: depends one on obviously, the message of the FAT coming

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Speaker 8: out of all those data we're getting now is what's

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Speaker 8: higher for longer? Is it still higher and then longer

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Speaker 8: or are we at the high I think there's a

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Speaker 8: mixed message on this from the fat currny or as.

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Speaker 2: In there is because Powell says, on one hand in

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Speaker 2: a press press conference, he'll say, we're not going to

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Speaker 2: cut rate for years. Any there's an X on the

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Speaker 2: end of that year, So I mean it's multiple, not

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Speaker 2: just one year. We're not going to cut rates for years.

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Speaker 2: Then I look at the dot plot and I see

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Speaker 2: two rate cuts scheduled for next year. Not scheduled. I

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Speaker 2: realized they're just prognoses. But the majority of the Federal

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Speaker 2: Reserve expects to cut twice next year. Were they not

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Speaker 2: listening to Powell or are they not on the same

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Speaker 2: page as Powell?

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Speaker 8: So actually that forecast changed the last meeting because there

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Speaker 8: were people predicting a Hanna based points cuts, so they

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Speaker 8: took some of that back, which I think, by the way,

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Speaker 8: explains a lot of the yield movement we have seen

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Speaker 8: of last period. It's just a fat has acknowledged this.

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Speaker 8: This is a stronger economy. So it depends on that too.

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Speaker 8: Where the economy conditions showed is resilience, including today's data.

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Speaker 8: You can you know it's softening, is cooling, but it's

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Speaker 8: not collapsing in any sort of way. Lastly, we do

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Speaker 8: have a I think is supply demand imbalance so to speak,

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Speaker 8: in the treasury markets. Then we've got tons of supply

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Speaker 8: and we're seeing this change in demand. Maybe you call

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Speaker 8: like I read Jersey as some interesting specific analis on

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Speaker 8: that I would echo more that that that you know,

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Speaker 8: the supply is large, and it looks like that they

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Speaker 8: want to continue to issue more long term bonds. So

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Speaker 8: I think all those factors drive you to that that

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Speaker 8: five percent barrier. Now how high from there, who knows,

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Speaker 8: but I think five percent of the psychological number.

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Speaker 1: What you know, I've just been fascinated with energy, global

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Speaker 1: energy price at WTI crude oil here we're off about

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Speaker 1: a half a percent today, but still above ninety one

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Speaker 1: dollars or barrows at a just a real big move

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Speaker 1: off that high sixties we had just several months ago,

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Speaker 1: and that's inflation area. How do you think about energy

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Speaker 1: prices and how does that kind of factor into I

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Speaker 1: guess the economy.

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Speaker 8: It certainly is well because you know the data today

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Speaker 8: in PC Basker too showed an increase of energy there,

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Speaker 8: just like in CPI. So at some point people are

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Speaker 8: going to take notice of it and factor that again

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Speaker 8: in their expectations. So that's one issue you know Googlesby

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Speaker 8: in the speech yesterday made a real point about that, saying,

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Speaker 8: if you know, if we could TATA have this inflation

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Speaker 8: on the right path, if people expect differently from inflation

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Speaker 8: in the future, we may have to adjust policy. Right,

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Speaker 8: So there's that issue. Then I think it's about how

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Speaker 8: high will oil prices go before we getting real impact

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Speaker 8: on the economy because the past is I think a

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Speaker 8: good guy there. If high oil prices were the search

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Speaker 8: and spike high, then it's going to slow down activity.

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Speaker 8: People are going to pair back. It just seems to

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Speaker 8: be always a factor for slow down. Nonetheless, it will

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Speaker 8: be inflationary because we're still in a very high inflation.

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Speaker 2: Environment we have seen or we haven't seen. I should

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Speaker 2: say gas prices keep up with oil prices. And I'm

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Speaker 2: not talking about at the pump, you know, I'm talking

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Speaker 2: about the R BOB futures contract. It's not taken off

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Speaker 2: at the same rate. Do you think that means that

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Speaker 2: oil prices. Is this just a spike and they're going

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Speaker 2: to come back down or are they holding at this level?

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Speaker 8: I think it's the spike because of the little specific

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Speaker 8: technical features in the oil market currently. I think what's

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Speaker 8: happening there is that people recognize that the oil production

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Speaker 8: costs cuts are really filtering through the global system.

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Speaker 2: So how to watch the crack spreads? Right, I'm just

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Speaker 2: learning our bob.

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Speaker 1: That's a new one for me.

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Speaker 8: Yeah.

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Speaker 1: Really that's gasoline futures. Yes, why so again just to

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Speaker 1: ask this question again, why is.

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Speaker 2: It going down?

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Speaker 7: So?

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Speaker 8: I think that is a supply issue there, okay, And

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Speaker 8: it was reported yesterday there was some additional supply there,

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Speaker 8: so it is very much sensitive to that. Whereas with

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Speaker 8: oil is the opposite situation. You know, John Ferrell on

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Speaker 8: Saveant has me at this point this morning, we actually

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Speaker 8: have high oil production United States. We just got low inventories,

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Speaker 8: a cushing for all kinds of reasons. So the draw

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Speaker 8: on that inventory pushes up the price. But once it

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Speaker 8: gets back flooded in with all those oil production.

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Speaker 1: Cushion that's in Oklahoma, right, and they have like the

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Speaker 1: tanks that's where the pipelines go in and.

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Speaker 2: Out Central I gotta get the Have you been the cushion?

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Speaker 6: No?

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Speaker 7: I haven't.

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Speaker 1: Alex Steel goes all the time. The alyxis are. I

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Speaker 1: want to go there because that seems like the pretty

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Speaker 1: you want to see how the sausage is made in

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Speaker 1: global energy. That's that's where we good. So so energy

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Speaker 1: inflationary impact is it something that's more temporary from your perspective.

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Speaker 8: So, I mean you have to watch headline inflation because eventually,

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Speaker 8: if it gets higher headline, then it will spill over

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Speaker 8: to an extending core. You know, Bloomberg has a very

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Speaker 8: nice tracking of headline real time, and it has moved

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Speaker 8: up again. It's sticked higher after a whole period of

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Speaker 8: the cline. So I think we just have to watch

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Speaker 8: this where this is going. They said, like, I think

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Speaker 8: that if you're getting it little spike and oil prices

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Speaker 8: they would go well over one hundreds. That it has

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Speaker 8: a psychological effect on consumers.

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Speaker 2: I don't understand why more people aren't worried about the

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Speaker 2: strike dragging on because Okay, there's inventory now, but because

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Speaker 2: they built up before the strike car of cars. But

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Speaker 2: if they strike for longer, that inventory is gonna get

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Speaker 2: whittled away. And we're already at a pretty high level

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Speaker 2: in terms of car prices. New car prices, used car

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Speaker 2: prices have been heading down, but that's going to turn

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Speaker 2: around for sure. And then you get one hundred and

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Speaker 2: fifty thousand people who are going to get a thirty

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Speaker 2: percent raise. If this works out right, then other people

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Speaker 2: are gonna want that kind of raise too, or something close.

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Speaker 2: So you've got both the cost of goods, which to

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Speaker 2: me are the most important goods, cars and.

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Speaker 1: Wages as opposed to bread and water rising.

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Speaker 2: That's got to be inflationary, hasn't it.

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Speaker 8: Yeah, it echoes a bit to the Chepanese idea, right

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Speaker 8: of Then you have unions, I think, successful in negotiating

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Speaker 8: higher wages, so other unions are going to try that too,

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Speaker 8: or seen some evidence of it. Now we have higher

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Speaker 8: energy prices and people reacting to those energy prices with

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Speaker 8: unions demanding wages part of it. So I won't say

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Speaker 8: there's a spiral here yet, but there's some of that

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Speaker 8: element happening. And I think overall strike should not disrupt

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Speaker 8: the economy too much. That the California strike was five

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Speaker 8: billion to the California economy but nothing to the US economy.

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Speaker 2: So what's your base case for next year?

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Speaker 3: Ben?

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Speaker 2: Are we going to have a recession?

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Speaker 8: I'm not in that camp. I think the economy is

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Speaker 8: holding up. So soft landing still so still that software landing,

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Speaker 8: that idea that we have too much of investment pushed

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Speaker 8: in the economy from the Inflation Reduction Act and the

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Speaker 8: Chips Act and the Infrastructure Act. That's just really coming true.

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Speaker 2: But in that case you don't probably see FED cuts.

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Speaker 2: Why would the FED cut if we have a soft.

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Speaker 8: Landing, No, I think it's I think that is where

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Speaker 8: I'm coming in my five percent yield scenario. So at

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Speaker 8: a four and a half current at the ten year,

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Speaker 8: the fifty base points forecasted in fat in the fat

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Speaker 8: by the fat, it's probably going to be taken back too.

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Speaker 8: If anything, if you look at that top lock currently

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Speaker 8: the market is fifty base points away from the fat median,

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Speaker 8: it's probably going to be again pulled up to the

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Speaker 8: FETs media and that will bring you to the ten

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Speaker 8: year five percent. And even at that level, which is high,

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Speaker 8: I wouldn't think that that would necessarily bring the economy

437
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Speaker 8: to a recession. I want to make one final point,

438
00:21:29,400 --> 00:21:32,760
Speaker 8: which is always the Yu curve discussion on the recession. Yep,

439
00:21:33,160 --> 00:21:34,680
Speaker 8: you know we have been in an inverted Yu curve

440
00:21:34,720 --> 00:21:37,359
Speaker 8: now for a bit. It has been historically the harbing

441
00:21:37,359 --> 00:21:40,640
Speaker 8: Geroff recession. At least a lot of studies but I've

442
00:21:40,680 --> 00:21:43,080
Speaker 8: noted that each time the YU curve gets inverted and

443
00:21:43,080 --> 00:21:46,439
Speaker 8: then becomes initially flat, like every old treasure huels are

444
00:21:46,480 --> 00:21:49,439
Speaker 8: the same. That's when things become very uncertain. It's basically

445
00:21:49,440 --> 00:21:51,600
Speaker 8: the bomb market saying I get paid the same yield

446
00:21:51,680 --> 00:21:53,360
Speaker 8: for two years or for thirty years, but I don't

447
00:21:53,359 --> 00:21:57,000
Speaker 8: know where it's going. Right, pretty uncertain, and it historically

448
00:21:57,040 --> 00:22:00,400
Speaker 8: has shown that after that moment, the economy a lot

449
00:22:00,440 --> 00:22:03,119
Speaker 8: of weaknesses slow down. All right, so you know we

450
00:22:03,240 --> 00:22:03,840
Speaker 8: have to watch it.

451
00:22:03,960 --> 00:22:05,520
Speaker 1: Keep and I only yield curb as we like to do.

452
00:22:05,560 --> 00:22:08,240
Speaker 1: Ben Emon's head of Fixed Income with New Edge Wealth.

453
00:22:08,520 --> 00:22:09,800
Speaker 1: Thanks so much for joining us.

454
00:22:10,840 --> 00:22:14,240
Speaker 5: You're listening to the team Ken's are Live program Bloomberg

455
00:22:14,320 --> 00:22:17,679
Speaker 5: Markets weekdays at ten am eastering on Bloomberg dot com,

456
00:22:17,760 --> 00:22:20,920
Speaker 5: the iHeartRadio app and the Bloomberg Business app, or listen

457
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Speaker 5: on demand wherever you get your podcasts.

458
00:22:24,920 --> 00:22:27,600
Speaker 1: All right, let's talk about risk here. I look at

459
00:22:27,600 --> 00:22:29,320
Speaker 1: the VIX. Matt doesn't like the VIX, but I look

460
00:22:29,359 --> 00:22:30,520
Speaker 1: at the VIX because.

461
00:22:30,240 --> 00:22:32,200
Speaker 2: It's on screen, watching it a lot lately.

462
00:22:32,320 --> 00:22:34,919
Speaker 1: Sixteen point four to six. That is by no means

463
00:22:34,920 --> 00:22:37,560
Speaker 1: in an area where people are freaked out. About anything here.

464
00:22:37,560 --> 00:22:39,680
Speaker 1: But you know, the question is is the market properly

465
00:22:39,720 --> 00:22:40,680
Speaker 1: pricing in risk?

466
00:22:40,760 --> 00:22:42,440
Speaker 2: No, it's not the twelve to fourteen that it had

467
00:22:42,480 --> 00:22:42,880
Speaker 2: been over.

468
00:22:42,800 --> 00:22:45,800
Speaker 1: The No, which is amazing. Yeah. Nimrit Kang joins us

469
00:22:46,080 --> 00:22:51,000
Speaker 1: co CIO and senior portfolio manager at north Star Asset Management.

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00:22:51,320 --> 00:22:53,320
Speaker 1: Nimert I wonder thanks so much for joining us. First

471
00:22:53,359 --> 00:22:57,400
Speaker 1: of all, wonder how you guys think about risk manage

472
00:22:57,480 --> 00:23:00,840
Speaker 1: risk in your portfolio here, because it's been a crazy

473
00:23:00,880 --> 00:23:01,520
Speaker 1: few years here.

474
00:23:03,119 --> 00:23:06,560
Speaker 4: Yeah, thank you for having me, Paul. And it's really

475
00:23:06,600 --> 00:23:11,280
Speaker 4: interesting actually that you ask about risk because at Northstar.

476
00:23:11,880 --> 00:23:14,879
Speaker 4: You know, the last time I was on the radio

477
00:23:14,920 --> 00:23:16,879
Speaker 4: here with you, we were talking about how it's a

478
00:23:16,960 --> 00:23:20,520
Speaker 4: Goldilock's economy. The markets are at all time highs. Just

479
00:23:20,560 --> 00:23:23,639
Speaker 4: a month later the market's down seven percent from its highes.

480
00:23:23,840 --> 00:23:26,560
Speaker 4: The we all know what's happened in the bond market

481
00:23:26,560 --> 00:23:30,040
Speaker 4: with the rise in the ten year yields. So when

482
00:23:30,080 --> 00:23:33,240
Speaker 4: we at northstart think about risk, we think about risk

483
00:23:33,440 --> 00:23:36,240
Speaker 4: as our clients not being able to beat their financial

484
00:23:36,280 --> 00:23:40,160
Speaker 4: goals and also not having their portfolios be in alignment

485
00:23:40,200 --> 00:23:43,879
Speaker 4: with their values. The way we have approached risk is

486
00:23:43,960 --> 00:23:46,800
Speaker 4: really think about what are the long term trends that

487
00:23:46,880 --> 00:23:49,840
Speaker 4: are in place, and that's where we think about some

488
00:23:49,920 --> 00:23:52,120
Speaker 4: of this. You know, the big change in the monetary

489
00:23:52,200 --> 00:23:55,200
Speaker 4: cycle that we have seen from the cost of money

490
00:23:55,200 --> 00:23:58,320
Speaker 4: being free to actually having a price on money. How

491
00:23:58,359 --> 00:24:03,879
Speaker 4: does that change things everywhere? Right? And in juxtaposed to that,

492
00:24:04,000 --> 00:24:08,159
Speaker 4: there's also some major secular trends in place that have

493
00:24:08,280 --> 00:24:11,240
Speaker 4: been in place for decades, if not longer, and those

494
00:24:11,280 --> 00:24:14,720
Speaker 4: are related to ecological reckoning. You know, we all know

495
00:24:14,800 --> 00:24:17,520
Speaker 4: the extreme weather conditions we've been seeing. That's just the

496
00:24:18,080 --> 00:24:20,639
Speaker 4: symptomatic of some of those trends that have been placed.

497
00:24:20,960 --> 00:24:24,280
Speaker 4: The other one is related to aging demographics. Again been

498
00:24:24,280 --> 00:24:27,719
Speaker 4: in place, but a big chunk of the population is

499
00:24:28,200 --> 00:24:32,120
Speaker 4: entering the retirement age in the developed markets and we're

500
00:24:32,160 --> 00:24:36,000
Speaker 4: starting to see all that manifestation come through in the

501
00:24:36,359 --> 00:24:39,600
Speaker 4: you know, in the labor numbers and so forth. So

502
00:24:39,760 --> 00:24:42,760
Speaker 4: for us, risk is really trying to understand what are

503
00:24:42,760 --> 00:24:45,439
Speaker 4: we trying to do for the long term to achieve

504
00:24:45,480 --> 00:24:49,320
Speaker 4: those goals pet for our clients, but then also thinking

505
00:24:49,400 --> 00:24:52,680
Speaker 4: about how do we boil it down to portfolio construction.

506
00:24:53,160 --> 00:24:55,280
Speaker 2: And you what do you come up with there? I mean,

507
00:24:55,520 --> 00:24:58,680
Speaker 2: we've been talking for the last well, we had talked

508
00:24:58,720 --> 00:25:01,480
Speaker 2: last year about the death of the sixty forty portfolio,

509
00:25:01,520 --> 00:25:04,840
Speaker 2: but I guess this year it's been a pretty good deal.

510
00:25:06,240 --> 00:25:10,480
Speaker 4: Yeah, you know, it's it's interesting you say that because we,

511
00:25:11,160 --> 00:25:15,000
Speaker 4: especially on the fixed income side, we're looking at yields

512
00:25:15,040 --> 00:25:18,040
Speaker 4: in agencies and so forth in the six percent range,

513
00:25:18,119 --> 00:25:21,440
Speaker 4: right going out ten years, five, ten years, And if

514
00:25:21,440 --> 00:25:24,320
Speaker 4: you really want to just hold those bonds to that

515
00:25:24,480 --> 00:25:26,880
Speaker 4: point to the maturity and collect that six percent yield,

516
00:25:26,960 --> 00:25:29,320
Speaker 4: that sounds pretty good and for a lot of our

517
00:25:29,320 --> 00:25:32,080
Speaker 4: clients that make sense in terms of meeting their objectives.

518
00:25:32,960 --> 00:25:36,080
Speaker 4: And then when we think about equities, for us, it's

519
00:25:36,119 --> 00:25:41,160
Speaker 4: about having a very high quality equity portfolio consisting of

520
00:25:41,520 --> 00:25:44,880
Speaker 4: companies that are just great, you know, high quality, low debt,

521
00:25:46,200 --> 00:25:50,119
Speaker 4: you know, very good capital deployment, run by capable management teams,

522
00:25:50,119 --> 00:25:53,200
Speaker 4: that are good stewards of capital and labor, and that

523
00:25:53,280 --> 00:25:56,800
Speaker 4: are providing those essential products and solutions which we think

524
00:25:56,840 --> 00:25:59,760
Speaker 4: there's going to be demand for, you know, going out

525
00:26:00,240 --> 00:26:04,320
Speaker 4: ten years. And that's really how we think about constructing

526
00:26:04,320 --> 00:26:06,280
Speaker 4: those portfolios and thinking about risk.

527
00:26:07,080 --> 00:26:09,360
Speaker 1: One of the things that we talked about a lot,

528
00:26:09,480 --> 00:26:13,359
Speaker 1: or or is talked about a lot in financial services

529
00:26:13,359 --> 00:26:15,679
Speaker 1: over the last really four or five six years has

530
00:26:15,680 --> 00:26:20,320
Speaker 1: been EESG and the development of that as a factor.

531
00:26:20,400 --> 00:26:22,800
Speaker 1: I guess, how do you guys think about that, because

532
00:26:22,800 --> 00:26:25,040
Speaker 1: it seems like in the US at least it's kind

533
00:26:25,040 --> 00:26:27,359
Speaker 1: of lost some momentum here has come a little politicized.

534
00:26:27,400 --> 00:26:27,720
Speaker 1: I guess.

535
00:26:28,920 --> 00:26:29,240
Speaker 2: Yes.

536
00:26:29,920 --> 00:26:35,680
Speaker 9: So Northstar has been doing socially responsible investing since nineteen ninety, right, okay,

537
00:26:35,840 --> 00:26:39,320
Speaker 9: And the way that we think about socially responsible investing

538
00:26:39,480 --> 00:26:43,080
Speaker 9: is coming from a different perspective where we think.

539
00:26:42,880 --> 00:26:45,679
Speaker 4: That there is no company that is going to be

540
00:26:45,760 --> 00:26:50,600
Speaker 4: socially responsible because the environment is evolving, our sense of

541
00:26:50,640 --> 00:26:53,679
Speaker 4: what's appropriate, what was appropriate thirty years ago is no

542
00:26:53,800 --> 00:26:56,919
Speaker 4: longer acceptable. Right, There's more and more things that are

543
00:26:56,920 --> 00:27:00,719
Speaker 4: being demanded. The society is changing. We can use our

544
00:27:00,760 --> 00:27:04,760
Speaker 4: shareholder rights on behalf of our clients to advocate for

545
00:27:04,880 --> 00:27:08,639
Speaker 4: positive change at these companies or for them to act

546
00:27:08,640 --> 00:27:12,520
Speaker 4: in better ways, behave more responsibility, as we would like

547
00:27:12,600 --> 00:27:16,920
Speaker 4: to call it. So, you know, in some ways, Paul,

548
00:27:17,080 --> 00:27:20,040
Speaker 4: if you think about in nineteen thirties, the Financial Standards

549
00:27:20,040 --> 00:27:22,800
Speaker 4: Accounting Board put in place that you know, you have

550
00:27:23,000 --> 00:27:26,400
Speaker 4: to report financials a certain way. ESG is a similar

551
00:27:26,520 --> 00:27:29,920
Speaker 4: there's the metrics. We don't think that you can look

552
00:27:30,000 --> 00:27:35,040
Speaker 4: at you can really understand how a company is shaping

553
00:27:35,040 --> 00:27:38,480
Speaker 4: its environment or what it's doing by just looking at metrics. Right,

554
00:27:38,520 --> 00:27:43,119
Speaker 4: that's a starting point. We fully support that their standardization

555
00:27:43,240 --> 00:27:46,000
Speaker 4: in the industry to that or to that account, But

556
00:27:46,119 --> 00:27:50,399
Speaker 4: for us, it's really about making sure that the companies

557
00:27:50,800 --> 00:27:54,919
Speaker 4: are upholding what we call our five pillar framework, that

558
00:27:54,920 --> 00:27:58,040
Speaker 4: they are in alignment with this view that we have

559
00:27:58,520 --> 00:28:00,679
Speaker 4: in terms of what they are doing to bridge the

560
00:28:01,119 --> 00:28:05,680
Speaker 4: economic inequity, gender and racial equity, what are they doing

561
00:28:05,680 --> 00:28:08,119
Speaker 4: in terms of human rights, what are they doing for

562
00:28:08,280 --> 00:28:13,560
Speaker 4: environmental all the different environmental aspects that we're looking at,

563
00:28:13,800 --> 00:28:16,560
Speaker 4: and then what does that all say about their corporate governance?

564
00:28:17,080 --> 00:28:20,680
Speaker 4: So it's not about ESG being in and out of fashion.

565
00:28:20,800 --> 00:28:24,320
Speaker 4: It's about making sure that there are material risks out

566
00:28:24,359 --> 00:28:28,199
Speaker 4: there and how do we incorporate that in our analysis? Right, So,

567
00:28:28,280 --> 00:28:31,760
Speaker 4: if we fast forward, there's this huge we noticed this

568
00:28:31,760 --> 00:28:34,880
Speaker 4: this summer in itself was where we had extreme temperatures

569
00:28:34,920 --> 00:28:37,960
Speaker 4: and all those different parts. Water is an area where

570
00:28:37,960 --> 00:28:41,400
Speaker 4: there's more and more stress. Water stress. How do we

571
00:28:41,440 --> 00:28:44,400
Speaker 4: think about all those trends. It's not about a metric

572
00:28:44,480 --> 00:28:47,600
Speaker 4: that's in fashion or not. It's the long term sustainability

573
00:28:48,040 --> 00:28:52,360
Speaker 4: and to ensure that we do get those financial returns

574
00:28:52,360 --> 00:28:54,920
Speaker 4: over long terms. They're not going to be there if

575
00:28:54,960 --> 00:28:57,920
Speaker 4: the companies that we're investing in their business models are

576
00:28:57,960 --> 00:29:00,920
Speaker 4: threatened and they're no longer can do business right. So

577
00:29:00,960 --> 00:29:03,680
Speaker 4: that's how we approach it here at north Star.

578
00:29:04,200 --> 00:29:06,680
Speaker 1: Hey, Nimber, thanks so much for joining us and sharing

579
00:29:06,680 --> 00:29:09,840
Speaker 1: your thoughts. You always appreciate that. Nimerck Kang, co CIO

580
00:29:10,120 --> 00:29:14,400
Speaker 1: and Senior portfolio manager at north Star Asset Management.

581
00:29:14,520 --> 00:29:17,520
Speaker 2: Thanks for listening to the Bloomberg Markets podcast. You can

582
00:29:17,560 --> 00:29:21,360
Speaker 2: subscribe and listen to interviews at Apple Podcasts or whatever

583
00:29:21,440 --> 00:29:25,160
Speaker 2: podcast platform you prefer. I'm Matt Miller. I'm on Twitter

584
00:29:25,360 --> 00:29:27,440
Speaker 2: at Matt Miller nineteen seventy three.

585
00:29:27,720 --> 00:29:30,120
Speaker 1: And I'm fall Sweeney. I'm on Twitter at pt Sweeney.

586
00:29:30,240 --> 00:29:32,920
Speaker 1: Before the podcast, you can always catch us worldwide at

587
00:29:32,920 --> 00:29:34,680
Speaker 1: Bloomberg Radio