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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along

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Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day

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Speaker 2: for insight from the best in markets, economics, and geopolitics

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Speaker 2: from our global headquarters in New York City. We are

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Speaker 2: live on Bloomberg Television weekday mornings from six to nine

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Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or

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Speaker 2: anywhere else you listen, and as always on the Bloomberg

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Speaker 2: Terminal and the Bloomberg Business App. Eric Canterer joins us now,

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Speaker 2: the former House Majority leader and vice chair of Molis

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Speaker 2: and Company.

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Speaker 3: Eric, Good to see you, sir, Good to be here.

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Speaker 2: We're all trying to figure out how close are we

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Speaker 2: to a point where a leader in America comes out

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Speaker 2: with a set of policies and this market rejects it.

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Speaker 3: How close are we to that moment?

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Speaker 4: You know, it is so reminiscent of the discussion that

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Speaker 4: we had even when I was on the hill, and

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Speaker 4: if you look back even ten years ago, we were

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Speaker 4: screaming the same thing that we have reached a point

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Speaker 4: of unsustainable debt levels. We have to do something about it,

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Speaker 4: and I certainly agree with what both Kim Griffin and

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Speaker 4: Larry Frank Larry Fink have said that we are on

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Speaker 4: an unsustainable path. I think, though, that the discussion around

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Speaker 4: the debt and deficit is a little bit too simplistic,

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Speaker 4: because yes, it's okay to have some level of debt

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Speaker 4: and deficit. I think people, most people in their lives

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Speaker 4: have it, and I think the government's the same. I

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Speaker 4: think the trouble you get into is when you start

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Speaker 4: growing that deficit more quick and the debt more quickly

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Speaker 4: than you grow the economy. And there is no agreement

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Speaker 4: though on what to do about this, And so if

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Speaker 4: the parties would sort of step back and focus on

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Speaker 4: growing the economy, it actually the decisions to correct the

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Speaker 4: situation would be a little bit easier, the political cost

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Speaker 4: a little less if people could just try and focus

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Speaker 4: on how we're growing the economy instead of a lot

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Speaker 4: of the policy that's underway in Washington.

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Speaker 2: Isn't that the argument that the former administration led by

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Speaker 2: President Donald Trump made that we can pile a more debt,

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Speaker 2: but ultimately we're going to do it because we're pro growth.

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Speaker 3: Did that work out well?

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Speaker 4: No, because you've got to address both. I mean, there's

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Speaker 4: no question that it is the demographics in our country

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Speaker 4: and the healthcare costs and the increase in those healthcare costs.

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Speaker 5: Turbo charge now with higher interest rates. That's where this is.

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Speaker 4: This trifecta of a really toxic mix that we've got

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Speaker 4: that is threatening I think the future. And I don't

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Speaker 4: know if we're going to see the two candidates for president,

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Speaker 4: the existing the incumbent and Donald Trump ever propose a

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Speaker 4: fix to this.

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Speaker 5: But I think we know how to do it. We

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Speaker 5: talked about how to do it when I was there.

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Speaker 6: It's interesting that you have both sides of this. You

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Speaker 6: have from the policy perspective when you're in Congress, and

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Speaker 6: you have now from the Wall shuep perspective when you're

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Speaker 6: deciding how to invest and where to allocate. How convinced

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Speaker 6: are you that this time is different, that the bond

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Speaker 6: market is going to wake up to the risks that

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Speaker 6: you see from the fiscal side.

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Speaker 4: Well, listen, I think on the deal making side at MOLAS,

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Speaker 4: I mean, what we're seeing is client who really reacted

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Speaker 4: over the last couple of years to this volatility and

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Speaker 4: uncertainly around interest rates. Obviously, interest rates when you're in

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Speaker 4: the deal making business are very, very impactful. So you know,

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Speaker 4: I do think you know, at some point the market

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Speaker 4: is going to reject this continued occurrence of debt. I mean,

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Speaker 4: we're spending a trillion, seven hundred billion dollars more of

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Speaker 4: money than we have every single year at some point.

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Speaker 5: But again, I always go back to the fact that we're.

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Speaker 4: Quote unquote the fastest killed on the block in this country.

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Speaker 4: Where else are you going to put your money? And

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Speaker 4: whether we're seeing signs of that now and diversification, I'm

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Speaker 4: not sure yet. I'm not sure because when I look

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Speaker 4: at it and you look at the you know, ADP.

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Speaker 5: Report out today, we'll get the jobs reported out later

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Speaker 5: this week.

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Speaker 4: But you know, where else is there this innovation and dynamism.

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Speaker 4: I mean, we're on a role in this country where

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Speaker 4: you've got more small business startups than we've ever had before.

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Speaker 4: That is a signal that people are optimistic about America.

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Speaker 1: If the market, though, was to push Washington's hand, because

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Speaker 1: you know, Washington is not going to be the ones

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Speaker 1: to come up with a plan for the fiscal deficit.

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Speaker 1: Are the right people in place? You had a great

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Speaker 1: relationship in twenty eleven with then former Vice President Biden.

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Speaker 1: He's spoke glowingly about you able to work in a

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Speaker 1: bipartisan fashion. Are the right people in place to actually

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Speaker 1: come to the crisis.

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Speaker 4: Look, I think that the situation will demand that people,

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Speaker 4: you know, step up and come up with a solution.

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Speaker 4: And there's really to me if you want to fix

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Speaker 4: the problem and send the signal to the markets that

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Speaker 4: the country and the investors in the markets.

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Speaker 5: That the country is on the right path.

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Speaker 4: You know, it's a simple notion, but it's difficult politically.

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Speaker 4: You know, you just take the steps to change the

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Speaker 4: healthcare entitlement, the Medicare program from a defined benefit system

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Speaker 4: to a defined contribution and basically off lay some of

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Speaker 4: the risks to the beneficiaries. That's really really tough politically.

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Speaker 4: But if there were a crisis, if the markets did

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Speaker 4: reject what's going on in Washington, you could take more

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Speaker 4: interim steps to go in and tweak the age of retirement,

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Speaker 4: to reduce the indexing of benefits.

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Speaker 5: You could means test there are.

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Speaker 4: Some things where you could buy and the government could

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Speaker 4: buy us decade plus in terms of the viability of

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Speaker 4: these programs.

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Speaker 1: That just doesn't win elections. I want to talk about

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Speaker 1: some of the proposals we are hearing from the candidates.

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Speaker 1: Former President Donal Trump is talking about ten percent tariffs

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Speaker 1: a wall, and then sixty percent blanket tariffs on China.

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Speaker 1: We ran the numbers and that says PC be north

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Speaker 1: of three percent. Yet again, do you think you would

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Speaker 1: actually do that given the fact that this can mean

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Speaker 1: such higher inflation, especially on everyday Americans.

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Speaker 5: Well, you know, I.

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Speaker 4: Think he goes back to that ammunition that someone had

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Speaker 4: given back in sixteen. You know, don't take him literally,

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Speaker 4: take him figuratively. Who knows, who knows what we can expect.

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Speaker 4: I think the unpredictability is what he likes. And there's

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Speaker 4: no question that his messages. We have been taken advantage

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Speaker 4: of by others, in particular China, and we need to

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Speaker 4: step up and gain some leverage when we try and

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Speaker 4: negotiate some resolution of this situation. But listen, there are

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Speaker 4: very troubling signs coming out of China, separate and apart

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Speaker 4: from the national security concerns around particularly sensitive industries. And

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Speaker 4: you know, because you think about what's going on with

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Speaker 4: EVS and the fact that the Chinese government is well

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Speaker 4: aware they've got to do something to take care of

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Speaker 4: their domestic economy. So they are ramping up production in

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Speaker 4: their manufacturing sector, and guess what, they're going to have

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Speaker 4: so much excess that now they're already looking like they're

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Speaker 4: sort of dumping all those into Europe. And the EVE

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Speaker 4: situation very very concerning in our OEMs here are equally

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Speaker 4: I think, as concerned that that may.

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Speaker 6: Happen when it comes to a deal making perspective. How

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Speaker 6: much you're avoiding cross border deals because of some of

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Speaker 6: these questions and concerns.

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Speaker 4: Well, you know, I think it's very interesting because so

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Speaker 4: much of the sectors that investors will look to really

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Speaker 4: we're shining in the US, and there's a lot of European,

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Speaker 4: Asian Middle East investors who are looking to allocate their

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Speaker 4: capital here in the US. But of course there are

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Speaker 4: political ramifications to monies coming in, and we've seen that

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Speaker 4: when it comes to countries that are not aligned with US,

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Speaker 4: whether it's China or someone else who is just not

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Speaker 4: on the favored list. You have to go through the

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Speaker 4: hoops with Scippius and things like that. But I think

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Speaker 4: the real concern that you know, I continue to hear

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Speaker 4: from clients at MOLAS and others. Is the fact that

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Speaker 4: we've got a situation with our anti trust regulators that

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Speaker 4: it's not just applicable to cross border deals, it's applicable

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Speaker 4: to every deal. And I think what Lena Khan Jonathan

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Speaker 4: Canner have done at both FTC and DOJ has been

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Speaker 4: such a stretch in terms of interpreting the law and

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Speaker 4: the anti trust law, and they've I think done a

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Speaker 4: disservice to our country, to investors, and frankly damaging the

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Speaker 4: competitiveness of America as a destination for capital.

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Speaker 2: That's the world we live in right now. We were

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Speaker 2: talking to Brian moynahan just the other week on the

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Speaker 2: trading floor of Banks for America at a similar complaint.

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Speaker 2: It was talking about the amount of deals that were

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Speaker 2: being held back by the prospect of them just not

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Speaker 2: being able to pass, not being able to go through,

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Speaker 2: and no one wanted to be on the wrong side

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Speaker 2: of that, being left to hung out to drive for

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Speaker 2: a year without any idea of whether the deal will

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Speaker 2: close or not. You've see the same thing potential deals

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Speaker 2: that could close that just aren't being made right now.

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Speaker 4: You know, I do think and what I will say

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Speaker 4: to decision makers, is that you know, if we're going

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Speaker 4: to go forward, if there's going to be a deal

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Speaker 4: to work, we're going to have to make sure that

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Speaker 4: we allocate the necessary time, resources and commitment to get

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Speaker 4: through that process.

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Speaker 5: But think about it, if we like.

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Speaker 4: To be the location in the world where capital flows

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Speaker 4: to its most efficient use, where it's the most dynamic

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Speaker 4: economy velocity of capital, we shouldn't have to do this.

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Speaker 5: And unfortunately, there is just an.

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Speaker 4: Overwhelming ideology that's infecting the policy in the current administration

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Speaker 4: Washington that is not necessarily that favorable. But again, all

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Speaker 4: the while you look to and say where else or

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Speaker 4: is it any better?

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Speaker 2: Let me ask you this though, is that ideology effect

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Speaker 2: in both parties? Because right on cue deal crosses the

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Speaker 2: Blimberg terminal, We announce it, we talk about it, we

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Speaker 2: go to the Twitter account of the Center of Massachusetts

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Speaker 2: tweet shock.

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Speaker 3: Not surprised at all.

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Speaker 2: What is surprising is the amount of Republicans that agree

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Speaker 2: with the Now that's a shift, and I'm trying to

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Speaker 2: work out do we actually have a business friendly party

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Speaker 2: in Washington anymore?

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Speaker 3: Does one exist?

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Speaker 4: Well? Listen, I always I'd say I'm a limited government,

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Speaker 4: pro free market, pro national security, conservative Republican. But I agree, Jonathan,

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Speaker 4: with your with your sentiment that Donald Trump has changed

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Speaker 4: the nature of the Republican Party. We are, i believe,

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Speaker 4: now perceived as the working class party, and the Democratic

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Speaker 4: Party has done more to ingratiate itself with quote unquote

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Speaker 4: the elite and the very and the very far left

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Speaker 4: on the ideological spectrum, and somehow the extremes are meeting

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Speaker 4: and you're seeing this happen. And I worry about this

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Speaker 4: because this extreme push in terms of government role in

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Speaker 4: the economy has happened.

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Speaker 5: With the support of both parties.

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Speaker 4: You look at the IRA Bill, certainly that was one party,

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Speaker 4: that was the Democratic Party, But if.

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Speaker 5: You look at the Chips Bill, that look what that did.

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Speaker 4: I mean, that was industrial policy focus on a particular

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Speaker 4: industry that folks in my party decided was a good

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Speaker 4: thing for national securities. So let's let the government go

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Speaker 4: all in. That is not sort of the limited government

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Speaker 4: outlook that you see.

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Speaker 5: And so you're right there is a shift towards labor.

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Speaker 4: Labor is in the polling public polling this country at

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Speaker 4: all time high in terms of favorability, and both parties

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Speaker 4: you've seen it. How in the world can a white

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Speaker 4: house go and join the picket lines.

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Speaker 5: That's what President Biden did, But you know what, so

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Speaker 5: did Donald Trump.

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Speaker 4: So did several Republican senators joined the picket lines in Detroit.

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Speaker 1: Well to Jonathan's point, jd Vance, who is a VP

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Speaker 1: shortless candidate, literally came out and said he thinks men

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Speaker 1: a con is maybe the only effective person in the

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Speaker 1: Biden administration. So say it was to be Trump, are

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Speaker 1: you getting the same sort of DOJ same sort of FTC.

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Speaker 5: I see, And you know that's the real question.

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Speaker 4: As the weather, we're going to continue to see the extremity.

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Speaker 4: I don't buy that because I still think there is

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Speaker 4: a DNA.

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Speaker 1: We're a product of that extremity. You lost your seat

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Speaker 1: because of that, in that populous wave that people said

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Speaker 1: you were really the beginning of it.

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Speaker 5: But remember where the anger was.

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Speaker 4: The anger really was against the so called establishment. It

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Speaker 4: wasn't necessarily towards you know it was it was towards

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Speaker 4: everything we thought and probably assigned an over weight to

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Speaker 4: the import of profligate spending in Washington. I think it

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Speaker 4: was just more it is about the establishment, the system

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Speaker 4: et cetera. I don't necessarily think people are going to

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Speaker 4: the polls in November based on anti trust regulation.

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Speaker 5: I really so.

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Speaker 4: I think that where you're going to have manifests in

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Speaker 4: a next Republican Trump administration is more of the DNA

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Speaker 4: that's a little bit more balanced and not so punitive

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Speaker 4: on corporates.

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Speaker 6: People might not be going to the polls, but you

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Speaker 6: have to plan a business around it, and that's really

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Speaker 6: one of the key questions. And we keep getting people

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Speaker 6: in here saying, Lori Calvecina, it's like staring at the sun.

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Speaker 6: How do you plan for something that feels like it

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Speaker 6: is shifting and you don't know exactly. How is there

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Speaker 6: any way that you are planning with the business and

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Speaker 6: the deal making to get ahead of whatever kind of

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Speaker 6: push we're going to get in November.

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Speaker 4: So I just think that we've got to be very mindful.

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Speaker 4: In twenty twenty five, there will be the super Bowl

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Speaker 4: of fiscal policy debate because you've got exploration of the

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Speaker 4: Trump tax cuts and some would say, well, not all

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Speaker 4: of them, Well yes, there will be. Everything will be

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Speaker 4: on the table, and just to extend the lower the

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Speaker 4: four hundred thousand dollars and under income bracket. That's a

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Speaker 4: three point two trillion dollar issue.

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Speaker 5: You talk about the debt.

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Speaker 4: Fiscal year twenty three, we were at seven hundred and

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Speaker 4: ninety one billion dollars of interest costs and we're going up,

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Speaker 4: and so everything's going to be on the table IRA.

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Speaker 4: The subsidies I can, I would say, if there's any

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Speaker 4: anticipation and advice I would give for those who have

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Speaker 4: been on the uptake in terms of.

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Speaker 5: These subsidies with the IRA, especially as.

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Speaker 4: It relates to evs and renewable industries, we better take

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Speaker 4: a real look to see whether we think those will continue,

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Speaker 4: because they're going to be on the table too. I

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Speaker 4: believe my party will first up look at some of

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Speaker 4: those subsidies and get rid of them.

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Speaker 2: So final question for you trying to work this sold out,

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Speaker 2: because I think this is really really difficult. In twenty sixteen,

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Speaker 2: we had a candidate, and I think if you could

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Speaker 2: divorce the person from the policy, the policy you looked

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Speaker 2: at was pro business, low taxes, comfrontation at some point

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Speaker 2: with China, and then TikTok Campen in the last couple

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Speaker 2: of weeks, and I was just thinking it's a Trump

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Speaker 2: template from Vulge one applicable to Volume two. Do you

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Speaker 2: think it is.

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Speaker 5: I do.

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Speaker 4: I don't think that he has changed much in terms

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Speaker 4: of his career trajectory. He's always been anti China. He's

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Speaker 4: always tried to go and getting some leverage in negotiations.

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Speaker 4: He's a deal maker. I also think that he is

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Speaker 4: focused on a growing economy. I think at the end

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Speaker 4: of the day, with all the noise you see from

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Speaker 4: J D Bands coming together with Elizabeth Warren and what

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Speaker 4: have you, at the end of the day, the Trump

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Speaker 4: administration next time will be pro business because he'll want

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Speaker 4: to see a growing economy.

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Speaker 3: I could talkch you well day, this was great.

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Speaker 2: I stood against soon Eric, Thank you, Eric cantor that

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Speaker 2: of mo listen, Michael Collins and PGM sank This defet's

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Speaker 2: own projections indicate a policy rate of Nearty four percent

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Speaker 2: by the end of twenty five, leaving a narrow margin

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Speaker 2: of error for a ten yere yield in the low

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Speaker 2: four percent area. Given the incoming treasury supply and inflation,

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Speaker 2: the remains above target. Michael Collins on place to say

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Speaker 2: is with us right now? Michael Collins said, I just

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Speaker 2: hear a little argument there for high upon yields.

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Speaker 7: You know, Jonathan, just think about it.

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Speaker 8: If you're the Federal Reserve, why would you even think

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Speaker 8: about cutting interest rates when the economy continues to be

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Speaker 8: really solid, Inflation, as we just saw Lorettamester say, continues

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Speaker 8: to be sticky and well above their target. The labor

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Speaker 8: market is still rock solid, if not outright strong. The

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Speaker 8: stock market has been hitting new highs, credit spreads are

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Speaker 8: new lows. Financial conditions are the easiest they've been since

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Speaker 8: just after the Fed started hiking, Why would you cut

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Speaker 8: interest rates with that backdrop? Right, So their mo is

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Speaker 8: to sit on their hands, really not do anything until

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Speaker 8: they have to until one of those indicators starts to crack, right,

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Speaker 8: And we're looking for signs that those indicators are cracking,

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Speaker 8: and they're just not there yet.

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Speaker 2: So if I called you this morning and said ten year,

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Speaker 2: four thirty seven, thirty year four fifty two, would you

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Speaker 2: like some you'd say no.

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Speaker 8: You know, we're actually short a little bit, like the

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Speaker 8: very front end, the two to kind of seven year

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Speaker 8: part of the curve, because that's where all those cuts

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Speaker 8: are priced in over the next year or year and

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Speaker 8: a half. But Jonathan, over the long term, we're sticking

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Speaker 8: to our guns. I'm looking at the twenty year today

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Speaker 8: at four sixty, and this is what we're advising our clients.

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Speaker 8: If you have a long term time horizon three years

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Speaker 8: and out, you're supposed to buy long term interest rates

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Speaker 8: here there is value. They'll probably be lower in three

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Speaker 8: years from now, but it's really the next you know,

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Speaker 8: six twelve, eighteen months that we're hedging our bets.

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Speaker 6: How much is that complete faith that the Federal Reserve

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Speaker 6: will be overly cautious in terms of how quickly they'll

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Speaker 6: cut rates? In other words, if they don't cut if

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Speaker 6: they don't really follow through on that they do cut

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Speaker 6: rates in June despite some of this strong data, would

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Speaker 6: you move away from that long duration view now?

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Speaker 7: I think if they cut rates sooner, you know it.

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Speaker 8: Even Embolden's the view that those long term interest rates

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Speaker 8: in the mid fours are too high. Right looking at

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Speaker 8: the five year, five year markets pricing of what the

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Speaker 8: Fed funds rate is going to be leased, So so that's

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Speaker 8: like a really term expectation of the funds rate.

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Speaker 7: It's at three eighty today, all.

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Speaker 8: Right, So the markets are only pricing in about one

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Speaker 8: hundred and sixty or so basis points of cuts forever, right,

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Speaker 8: And that that's really why we have a stronger viewpoint

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Speaker 8: on the longer term value in treasury yields right now,

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Speaker 8: because I think the Fed funds rate is probably going

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Speaker 8: to average well below three point eight percent a year

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Speaker 8: for the next ten years.

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Speaker 7: Right.

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Speaker 8: I mean we're just really debating, you know, the next

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Speaker 8: six to twelve months. But wow, over the long term,

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Speaker 8: I mean, global growth is slowing, China is really struggling.

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Speaker 8: You're seeing inflation in Europe continue to decelerate, right, So,

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Speaker 8: I mean there are big picture signs globally that growth

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Speaker 8: is going to continue to moderate and then inflation will

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Speaker 8: ultimately come down. It's really the challenge has been in

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Speaker 8: the US data.

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Speaker 6: Which is interesting because this is one of the key

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Speaker 6: nodes of debate, which is basically, are we in a

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Speaker 6: new regime post pandemic of higher inflation or to your point,

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Speaker 6: are we not. Would a possible policy shift change that

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Speaker 6: the potential for a more aggressive protectionist type of policy

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Speaker 6: with higher tariffs and more sort of near shoring and

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Speaker 6: on shoring of production.

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Speaker 8: Yeah, I mean the world Lisa had been pricing in

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Speaker 8: and according to our models, the markets we're pricing in

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Speaker 8: almost one hundred percent probability of this really weakflation soft

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Speaker 8: landing scenario, and we thought, you know, that was too aggressive,

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Speaker 8: meaning risk assets were maybe too a bullion, too optimistic.

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Speaker 8: One of the big risks to that scenario is obviously

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Speaker 8: heightened geopolitical risk, as you point out the political re

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Speaker 8: action to that, the stickiness of inflation associated with that,

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Speaker 8: and you're seeing obviously things like oil jumping here, but

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Speaker 8: even some of the commodities that have underperformed, like lumber,

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Speaker 8: natural gas, iron ore are bottoming out here. So you

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Speaker 8: could have this kind of bounce in commodities associated with

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Speaker 8: some of the geopolitical risk, which leads to stickier inflation,

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Speaker 8: which leads to a FED that is forced to hold

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Speaker 8: rates higher.

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Speaker 7: And to us, that's a risk to the markets, that's a.

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Speaker 8: Risk to the economy, that's a risk to you know,

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Speaker 8: credit spreads, if you will, well.

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Speaker 2: Let's talk about credit spreads, high yold spreads a little

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Speaker 2: bit wider, still in at around three hundred basis points

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Speaker 2: and then multi year tights.

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Speaker 3: Mica ah.

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Speaker 2: Custom we could come back to on this program, is

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Speaker 2: that title's a reflection of strength or complacency. How would

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Speaker 2: you describe it?

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Speaker 7: You know, it is a little bit of both.

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Speaker 8: I mean the fundamentals, Jonathan, and the credit markets, the

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Speaker 8: fundamentals of corporations around the world are actually still really robust.

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Speaker 8: I mean, we've expected profit margins to really come down.

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Speaker 8: They really haven't. You know, profitability isn't great, but it's okay.

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Speaker 8: Companies have done a really good job managing their balance

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Speaker 8: sheets and their liquidity, and these higher rates really haven't

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Speaker 8: hurt them so much. You know, credit to fault rates

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Speaker 8: are not going to surge in our estimation. You know,

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Speaker 8: it's hard to say spreads are cheap here. It's probably

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Speaker 8: even hard to argue that their fair value. But we

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Speaker 8: have seen in past cycles, and I've certainly lived through

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Speaker 8: a lot of these, where credit spreads narrow and they

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Speaker 8: stay at these really narrow level levels for a long

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Speaker 8: time years in some cases, and who knows, we might

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Speaker 8: be in one of those environments. But we also have

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Speaker 8: learned that the tail risks are significant, that when credit

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Speaker 8: spreads do wide and they kind of spike wider, and

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Speaker 8: it could could be any exogenous shock out of the blue,

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Speaker 8: including the risks I just mentioned, So it's definitely prudent

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Speaker 8: to cut risk here. We are doing that. We are

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Speaker 8: selling into this rally. We've been doing it for a while,

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Speaker 8: continuing to play defense to some extent in the credit markets.

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Speaker 8: But one thing you're seeing, Jonathan, with these credit spreads,

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Speaker 8: treasure yields are high. Right, The premium of a treasury

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Speaker 8: bond over sofur, which is theoretically the real risk free rate,

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Speaker 8: is very high.

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Speaker 7: So there's already this.

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Speaker 8: Big supply premium in treasury. So maybe it's the risk

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Speaker 8: free rate that's too high, and the corporate bond yields

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Speaker 8: are at the right level, So I think the spread

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Speaker 8: there's this technical aspect to it, right, There's a ton

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Speaker 8: of supply of treasuries and not a lot of supply

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Speaker 8: of private sector credit debt, so that in and of

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Speaker 8: itself causes these credit spreads to remain narrower than you

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Speaker 8: would expect.

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Speaker 3: This was a clinic.

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Speaker 2: Next time Gannika got through the tunnel, get from New

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Speaker 2: Jersey to New York, and we'll do this around the

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Speaker 2: table for a whole lot longer. Michael, Thank you, sir

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Speaker 2: Michael Collins, there a p Jim love it.

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Speaker 3: Thank you. Buddy.

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00:22:03,600 --> 00:22:06,399
Speaker 2: Joining us to discuss is Eric Vile, the CIO and

443
00:22:06,480 --> 00:22:08,840
Speaker 2: head of Global investments at Troe Price.

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00:22:08,960 --> 00:22:09,920
Speaker 3: Eric, Good morning to you, sir.

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00:22:10,080 --> 00:22:10,600
Speaker 5: Good morning.

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00:22:10,760 --> 00:22:12,760
Speaker 2: Let's just talk about chev and Powe a little bit later.

447
00:22:13,040 --> 00:22:16,119
Speaker 2: Have your expectations for the Federal Reserve this year shifted

448
00:22:16,160 --> 00:22:18,480
Speaker 2: in quite the same way market expectations have.

449
00:22:18,880 --> 00:22:22,440
Speaker 9: We were never as excited about as many ray cuts

450
00:22:22,480 --> 00:22:24,560
Speaker 9: as the Fed had him as the marketed priced in.

451
00:22:25,280 --> 00:22:27,120
Speaker 9: I think one of the things that really stands out

452
00:22:27,160 --> 00:22:29,560
Speaker 9: to me is if you go back to what Powell

453
00:22:29,640 --> 00:22:32,240
Speaker 9: said very early on. He was a student of what

454
00:22:32,280 --> 00:22:34,240
Speaker 9: happened in the seventies, And if you go back and

455
00:22:34,280 --> 00:22:36,200
Speaker 9: you look at the mistake made then, it was cutting

456
00:22:36,200 --> 00:22:39,199
Speaker 9: too early. And if you map the CPI to the

457
00:22:39,320 --> 00:22:42,160
Speaker 9: very beginning of this cycle versus the last, it's following

458
00:22:42,160 --> 00:22:42,960
Speaker 9: a similar curve.

459
00:22:43,000 --> 00:22:44,000
Speaker 5: And if they go ahead and they.

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00:22:43,880 --> 00:22:45,680
Speaker 9: Start cutting now, I think they're in danger of making

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00:22:45,680 --> 00:22:46,920
Speaker 9: the same mistakes you perceive.

462
00:22:46,920 --> 00:22:48,639
Speaker 2: That's the biggest risk, then cutting too soon and not

463
00:22:48,680 --> 00:22:51,320
Speaker 2: holding too long. I do what would that mean for

464
00:22:51,400 --> 00:22:52,919
Speaker 2: bond markets If they did well, I.

465
00:22:52,920 --> 00:22:56,840
Speaker 9: Think you would see what would happen is the spike up,

466
00:22:56,840 --> 00:22:58,840
Speaker 9: and then you would have to react to that in

467
00:22:58,880 --> 00:23:00,639
Speaker 9: a way that would put them on their backfoot, and

468
00:23:00,640 --> 00:23:02,639
Speaker 9: that would lose credibility and you would have a really big,

469
00:23:02,920 --> 00:23:03,840
Speaker 9: a big issue for them.

470
00:23:03,960 --> 00:23:06,360
Speaker 6: I want to challenge one thing that you said, which

471
00:23:06,400 --> 00:23:08,879
Speaker 6: is that Powell is a student of the seventies. Is

472
00:23:08,920 --> 00:23:10,960
Speaker 6: he really because right now he sounds pretty much like

473
00:23:10,960 --> 00:23:13,320
Speaker 6: the most dubbish member on that BBC. It sounds like

474
00:23:13,359 --> 00:23:15,120
Speaker 6: he really wants to cut rates, and frankly, a lot

475
00:23:15,119 --> 00:23:17,040
Speaker 6: of people are looking at that is the reason.

476
00:23:17,080 --> 00:23:17,960
Speaker 3: To buy stocks.

477
00:23:18,040 --> 00:23:19,440
Speaker 1: Are you saying that they have it wrong?

478
00:23:19,960 --> 00:23:21,200
Speaker 5: No, I'm not saying that they have it wrong.

479
00:23:21,240 --> 00:23:24,719
Speaker 9: I think I do think he is a student of history,

480
00:23:24,760 --> 00:23:26,560
Speaker 9: and what he has to do is keep that group,

481
00:23:26,920 --> 00:23:29,560
Speaker 9: you know, find the middle ground between that group, and

482
00:23:29,640 --> 00:23:33,800
Speaker 9: present it in a way that presents consensus broadly within

483
00:23:33,920 --> 00:23:36,520
Speaker 9: that committee and balance out the other speakers. So I

484
00:23:36,520 --> 00:23:39,160
Speaker 9: think he's very much trying to do that right now.

485
00:23:39,840 --> 00:23:42,720
Speaker 9: But again, I think as you look at the next

486
00:23:42,880 --> 00:23:46,239
Speaker 9: several months, the idea of cutting when where we are

487
00:23:46,280 --> 00:23:48,399
Speaker 9: from an economic perspective, just doesn't I think, make a

488
00:23:48,400 --> 00:23:49,560
Speaker 9: ton of sense right now.

489
00:23:49,400 --> 00:23:51,879
Speaker 6: Which raises this question if you do think that this

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00:23:51,960 --> 00:23:54,119
Speaker 6: inflation is stickier and you think that the risk of

491
00:23:54,119 --> 00:23:56,760
Speaker 6: a seventies type of scenario is greater than the risk

492
00:23:56,840 --> 00:24:01,400
Speaker 6: of some sort of unforeseen downturn. You just buy commodities,

493
00:24:01,880 --> 00:24:05,280
Speaker 6: buy stocks, avoid bonds at all costs because right now

494
00:24:05,320 --> 00:24:08,520
Speaker 6: it's not clear that this FMC has the conviction to

495
00:24:08,600 --> 00:24:11,160
Speaker 6: really make the right call and not have a policy.

496
00:24:11,280 --> 00:24:15,040
Speaker 9: Err well, I wouldn't go that extreme, right So, as

497
00:24:15,040 --> 00:24:18,600
Speaker 9: we've unfortunately or fortunately said, we're right now in our

498
00:24:18,600 --> 00:24:22,119
Speaker 9: asset allocation commune, we're actually dramatically neutral is the phrase

499
00:24:22,160 --> 00:24:24,840
Speaker 9: that we've been using between stocks and bonds, which is

500
00:24:25,760 --> 00:24:28,840
Speaker 9: not the most exciting fodder for the media, but that's

501
00:24:28,840 --> 00:24:31,439
Speaker 9: where we are. I do think commodities those really interesting,

502
00:24:31,480 --> 00:24:34,800
Speaker 9: and so we are within our equity portfolios we're overweight

503
00:24:34,920 --> 00:24:37,240
Speaker 9: energy and the vast majority of those, and in different ways,

504
00:24:37,400 --> 00:24:39,760
Speaker 9: and we think there are some really interesting opportunities there

505
00:24:39,760 --> 00:24:41,160
Speaker 9: coming from our bottoms up work.

506
00:24:41,280 --> 00:24:43,600
Speaker 1: Going back to Powell and a student of the seventies,

507
00:24:43,680 --> 00:24:46,000
Speaker 1: does the commodity pressure you think and the increase we've

508
00:24:46,040 --> 00:24:48,800
Speaker 1: seen unnerve him because we heard him say that he

509
00:24:48,840 --> 00:24:52,359
Speaker 1: can quickly they see labor market deterioration. But you're saying

510
00:24:52,520 --> 00:24:54,639
Speaker 1: he's really leaning on inflation more than he is the

511
00:24:54,680 --> 00:24:55,360
Speaker 1: labor market.

512
00:24:55,600 --> 00:24:57,600
Speaker 5: Look, I can't tell you, I know what's in his head.

513
00:24:57,680 --> 00:24:59,919
Speaker 9: I do think though that in the inflation numbers that

514
00:25:00,040 --> 00:25:02,840
Speaker 9: we've seen have to give you some hause, right, just

515
00:25:02,880 --> 00:25:05,840
Speaker 9: as a reasonable place to be if you were him,

516
00:25:06,080 --> 00:25:06,719
Speaker 9: what would you do?

517
00:25:06,880 --> 00:25:08,600
Speaker 5: Right? And I think you have to look at that data.

518
00:25:08,680 --> 00:25:10,480
Speaker 2: Did you think we have sent a regime shift post

519
00:25:10,560 --> 00:25:13,560
Speaker 2: pandemic versus pre pandemic? And if you do, how is

520
00:25:13,600 --> 00:25:15,360
Speaker 2: investing in the next decade or so going to change

521
00:25:15,359 --> 00:25:17,080
Speaker 2: relative to the previous decade.

522
00:25:17,600 --> 00:25:20,600
Speaker 9: Without a doubt, we have seen a regime shift post pandemic.

523
00:25:20,640 --> 00:25:23,280
Speaker 9: And the issue is all about the absolute low rates

524
00:25:23,320 --> 00:25:26,600
Speaker 9: that we had heading prior to the pandemic, where it

525
00:25:26,640 --> 00:25:28,440
Speaker 9: was much more about the macro right, it was much

526
00:25:28,480 --> 00:25:31,960
Speaker 9: more about all things up when a zero environment risk

527
00:25:32,000 --> 00:25:34,880
Speaker 9: assets on. In this environment at higher levels, you have

528
00:25:34,960 --> 00:25:37,719
Speaker 9: to be more. It's much more of a bottoms up

529
00:25:37,720 --> 00:25:40,199
Speaker 9: world from our perspective, and it's not as easy in

530
00:25:40,359 --> 00:25:40,880
Speaker 9: just a chase.

531
00:25:40,960 --> 00:25:42,879
Speaker 2: Well, let's get into that, because it feels like everything

532
00:25:42,960 --> 00:25:45,600
Speaker 2: is up. Yep, so far this shire what shouldn't be up?

533
00:25:48,640 --> 00:25:52,480
Speaker 5: Interesting question? What shouldn't be up? We are right.

534
00:25:52,320 --> 00:25:55,320
Speaker 9: Now in a position where if you look across our portfolios,

535
00:25:55,359 --> 00:25:59,240
Speaker 9: we tend to have some overweight positions in a few areas,

536
00:25:59,280 --> 00:26:04,600
Speaker 9: so mostly in energy, in healthcare, we're relatively neutral and tech,

537
00:26:05,000 --> 00:26:07,760
Speaker 9: and we've taken some of that from some of the

538
00:26:07,840 --> 00:26:12,680
Speaker 9: areas like financials and a little bit in industrials where

539
00:26:12,680 --> 00:26:14,159
Speaker 9: we're a little bit more neutrally positioned.

540
00:26:14,160 --> 00:26:16,399
Speaker 6: Well, there's a question here about whether sixty forty works

541
00:26:16,680 --> 00:26:19,239
Speaker 6: in a new era, or inflation's a bigger risk than

542
00:26:19,280 --> 00:26:23,199
Speaker 6: potentially stagnation or some sort of recession. How much are

543
00:26:23,200 --> 00:26:25,560
Speaker 6: you shifting away from that with the idea of commodities

544
00:26:25,560 --> 00:26:27,520
Speaker 6: being more of a ballast than say, bonds.

545
00:26:29,160 --> 00:26:31,600
Speaker 9: We still believe that there can be some benefit from

546
00:26:31,680 --> 00:26:35,639
Speaker 9: diversification within bonds, for sure. We've also had a strong

547
00:26:35,720 --> 00:26:38,800
Speaker 9: view that having a real asset sleeve within your portfolio

548
00:26:38,880 --> 00:26:42,800
Speaker 9: matters and helps and provides really strong diversification from inflation

549
00:26:42,880 --> 00:26:45,040
Speaker 9: in a way that many of our peers don't do

550
00:26:45,119 --> 00:26:48,000
Speaker 9: in their asset allocation portfolios, and that's been a differentiator

551
00:26:48,040 --> 00:26:51,040
Speaker 9: for us. So we have that component which has been

552
00:26:51,080 --> 00:26:51,639
Speaker 9: really helpful.

553
00:26:51,840 --> 00:26:54,040
Speaker 6: You talk about financials that you're kind of not that

554
00:26:54,119 --> 00:26:56,760
Speaker 6: excited about them, which raises this question, if you believe

555
00:26:56,800 --> 00:26:59,000
Speaker 6: that rates are going to be higher for longer, why not.

556
00:26:59,280 --> 00:27:01,040
Speaker 1: Isn't that supposed to good for banks?

557
00:27:01,080 --> 00:27:03,640
Speaker 6: And weren't we supposed to see them both be able

558
00:27:03,680 --> 00:27:07,400
Speaker 6: to clip coupons but also with more kind of robust

559
00:27:07,440 --> 00:27:09,560
Speaker 6: market activity collect those.

560
00:27:09,400 --> 00:27:10,000
Speaker 1: Fees as well.

561
00:27:10,359 --> 00:27:12,919
Speaker 9: Yeah, So what matters, though, is the releti evaluation of

562
00:27:12,960 --> 00:27:14,640
Speaker 9: that group. So I think what you just said is right,

563
00:27:14,680 --> 00:27:16,919
Speaker 9: and part of that's already been factored in. Banks had

564
00:27:16,960 --> 00:27:19,639
Speaker 9: a nice little pop and we were we were in there,

565
00:27:19,760 --> 00:27:21,840
Speaker 9: and now we're taking some of that back so fully.

566
00:27:21,960 --> 00:27:23,960
Speaker 9: Goward just about price level than it is about that.

567
00:27:23,920 --> 00:27:25,320
Speaker 3: Can I squeeze in a baseball question?

568
00:27:25,480 --> 00:27:25,800
Speaker 5: Of course?

569
00:27:25,920 --> 00:27:27,320
Speaker 2: Just your thoughts some of the new ownership at the

570
00:27:27,320 --> 00:27:29,440
Speaker 2: Bottlemore Arioles super excited news.

571
00:27:29,520 --> 00:27:31,680
Speaker 9: We are both Look, they walked into Pickles Pub, which

572
00:27:31,720 --> 00:27:33,760
Speaker 9: is the most important bar in Baltimore and opening day

573
00:27:33,760 --> 00:27:35,640
Speaker 9: and bought around the drinks for everybody. So it doesn't

574
00:27:35,640 --> 00:27:36,320
Speaker 9: get better than that.

575
00:27:36,320 --> 00:27:37,800
Speaker 2: John, They can keep bud drinks. And then it got

576
00:27:37,840 --> 00:27:40,200
Speaker 2: deep podcasts keep tasking, all right, thank you, it's good

577
00:27:40,200 --> 00:27:43,959
Speaker 2: to see you. Thank you, and Mike as well, and

578
00:27:44,000 --> 00:27:46,760
Speaker 2: Mike it was actually Mike was it? Michael went around

579
00:27:46,760 --> 00:27:50,360
Speaker 2: find as Yeah, there we got this is the Bloomberg

580
00:27:50,440 --> 00:27:54,239
Speaker 2: seventans podcast, bringing you the best in markets, economics, an

581
00:27:54,280 --> 00:27:57,080
Speaker 2: gie politics. You can watch the show live on Bloomberg

582
00:27:57,119 --> 00:28:00,280
Speaker 2: TV weekday mornings from six am to nine am. Eton

583
00:28:00,560 --> 00:28:03,920
Speaker 2: subscribe to the podcast on Apple, Spotify or anywhere else

584
00:28:03,920 --> 00:28:06,560
Speaker 2: you listen, and, as always, on the Bloomberg Terminal and

585
00:28:06,680 --> 00:28:12,199
Speaker 2: the Bloomberg Business app HM