WEBVTT - iCapital's Dan Suzuki Talks FOMC Minutes

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<v Speaker 1>The FED minutes showing a few officials saw a case

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<v Speaker 1>for hiking interest rates at their June meeting, pointing to

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<v Speaker 1>inflation concerns, the minutes saying quote, many participants noted that

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<v Speaker 1>ongoing strong demand for AI infrastructure would likely sustain upward

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<v Speaker 1>pressure on prices for technology products and electricity. Let's get

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<v Speaker 1>more with Michael McKee, Bloomberg's International Economics and Policy correspondents.

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<v Speaker 1>Don't apult just one piece of the minutes out, Michael,

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<v Speaker 1>and make it all about that. Essentially, as Michael Feroli said,

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<v Speaker 1>these were pretty milk toast minutes, right. It could be

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<v Speaker 1>up next, or it could be down next in terms.

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<v Speaker 2>Of rates exactly, not really down, but on hold for

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<v Speaker 2>quite some time. The minutes kind of are like groundhog

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<v Speaker 2>Day because it was June seventeenth that the President signed

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<v Speaker 2>the Memory Understanding with Iran, and so the FED was

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<v Speaker 2>confronted with the fact that maybe the war would end

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<v Speaker 2>in inflation would go down, and if that were the case,

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<v Speaker 2>they looked at a scenario where they might stay on hold,

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<v Speaker 2>but if inflation continued to rise and the jobless rates

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<v Speaker 2>stayed down, they might raise rates. And they added, as

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<v Speaker 2>you pointed out, AI as an inflation worry to tariffs

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<v Speaker 2>and war, so the balance of risks tilted toward prices.

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<v Speaker 2>There's also a bit of a worsh effect in it all,

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<v Speaker 2>and that the minutes were about a thousand words shorter,

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<v Speaker 2>maybe fifteen to seventeen percent shorter. Participants views were notably

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<v Speaker 2>more concise according to our chat GPT analysis of the

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<v Speaker 2>minutes and policies discussions and the staff reviews of the

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<v Speaker 2>economy and markets were also condensed, So you didn't get

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<v Speaker 2>a real firm view from the minutes or from the

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<v Speaker 2>truncated minutes on what the Fed is going to do.

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<v Speaker 2>But that's because the Fed didn't know. And now we're

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<v Speaker 2>back at war and oil prices are going up, gasoline

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<v Speaker 2>prices will probably follow, and we don't know what is

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<v Speaker 2>going to happen, so stay tuned. We do have next

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<v Speaker 2>Tuesday CPI in the morning and then that warsh is

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<v Speaker 2>testifying to the House Financial Services Committee, so that'll be

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<v Speaker 2>a big day to try to make more progress for

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<v Speaker 2>the markets on what they think is going to happen.

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<v Speaker 3>Well, see if we get any of that, we'll certainly

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<v Speaker 3>get again his testimony, but if he gives us any

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<v Speaker 3>hints Michael, thank you so much for joining us. Bloomberg's

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<v Speaker 3>Michael McKee and let's continue the conversation with Dan Sezuki,

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<v Speaker 3>global investment strategists at I Capital. Dan, great to see you,

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<v Speaker 3>and I know on your outlook you and the team

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<v Speaker 3>you think cuts are more likely than hikes, But your

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<v Speaker 3>base case is essentially no move. That's not necessarily what

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<v Speaker 3>the market is pricing. It's pricing in that hikes are

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<v Speaker 3>more likely. So what are we missing?

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<v Speaker 4>Yeah, well, I don't think you're missing anything, Dan, but

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<v Speaker 4>I do think that the market's missing something. I mean,

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<v Speaker 4>I think the market is basically living in like the

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<v Speaker 4>world of two months ago, as was the Fed minutes,

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<v Speaker 4>which is like living in a different world if you

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<v Speaker 4>think about, you know, the Fed minutes that basically came

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<v Speaker 4>out that meeting happened hours before the MoU As signed,

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<v Speaker 4>so the war was still effectively going on. Gasoline prices

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<v Speaker 4>were above four dollars, and job growth was running about

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<v Speaker 4>one hundred and seven eight thousand jobs per month. If

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<v Speaker 4>you fast forward today, you know, yes, there's fits and starts,

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<v Speaker 4>but I think more likely, you know, the piece deal

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<v Speaker 4>will hold. You'll continue to see more passage go through

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<v Speaker 4>the straight u horm moves, gasoline prices have come down,

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<v Speaker 4>and job growth is closer to fifty thousand.

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<v Speaker 1>So it's just a.

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<v Speaker 4>Different world that we're living. And if you take this

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<v Speaker 4>world that we live in today and you look at

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<v Speaker 4>what the Minutes said about what the scenarios that they're

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<v Speaker 4>talking about, I think you're more likely to see, you know,

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<v Speaker 4>cuts than your hikes because they said if inflation comes

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<v Speaker 4>down because their ran pressure goes away, and then and

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<v Speaker 4>you start to see inflation come toward the two percent target,

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<v Speaker 4>then you're more likely to see a scenario where you're

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<v Speaker 4>on hold or you're more or going to cut. And

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<v Speaker 4>that's kind of what we laid out in the report.

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<v Speaker 1>So when does the market see this done? Because right

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<v Speaker 1>now we've yields going higher. I mean right now the

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<v Speaker 1>thirty yer yield is still at five oh seven.

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<v Speaker 2>Yeah.

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<v Speaker 4>I think the markets will come around to this when

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<v Speaker 4>inflation comes around. The problem for the markets is inflation's

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<v Speaker 4>lagging indicate. So if you focus on if you focus

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<v Speaker 4>on the past, and gasoline prices are coming down, albeit

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<v Speaker 4>sort of the move on the news overnight, you know,

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<v Speaker 4>gasoline prices will probably be trending lower overall energy prices

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<v Speaker 4>will be trending lower. They noted in the Minutes actually

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<v Speaker 4>that housing pressures will continue to be a drag on inflation.

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<v Speaker 4>So if you get that dynamic playing out through markets,

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<v Speaker 4>if you look at some sort of real time metrics

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<v Speaker 4>of inflation, they're telling you that there's probably more downside

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<v Speaker 4>to where those numbers are going to go.

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<v Speaker 3>One of the interesting things though about those thirty year

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<v Speaker 3>yields being elevated, is it's not just inflation, because real

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<v Speaker 3>yields are also with the highest since two thousand and eight.

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<v Speaker 3>What do you think is driving that? And why do

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<v Speaker 3>you think risk assets haven't reacted more to this because

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<v Speaker 3>this is usually something that could be troubling for stock markets,

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<v Speaker 3>for example, and they continue to trade within one percent

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<v Speaker 3>of all time high.

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<v Speaker 4>Yeah. I think, you know what, there's the structural case

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<v Speaker 4>for inflation and rates, and then there's sort of what's happening,

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<v Speaker 4>you know, relative geopolitics in the cycle. I think structurally

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<v Speaker 4>we're in a higher for longer inflation environment and a

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<v Speaker 4>struct higher for longer interest rate environment, which is why

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<v Speaker 4>you're sort of seeing that in the tenure. I mean,

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<v Speaker 4>we got we have fiscal issues to take care. We're

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<v Speaker 4>in a deglobalized, deglobalizing world. All that puts upward pressure

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<v Speaker 4>on the longer term inflation and interest rates story, which

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<v Speaker 4>is why I think, you know, the long end is

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<v Speaker 4>going to be a bit more sticky. But that means

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<v Speaker 4>you're probably see some yeal curve steepening through the end.

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<v Speaker 2>Of the year.

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<v Speaker 3>Why don't risk asss care though?

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<v Speaker 4>I think risk asst story moved on this. I mean,

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<v Speaker 4>this is one of the points that we highlight in

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<v Speaker 4>the midyear is that you know, the markets have moved

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<v Speaker 4>on from hormones, right, it almost like doesn't matter, And

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<v Speaker 4>we actually said it was actually a mispriced risk, underpriced risk.

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<v Speaker 4>Like so base case is that Iran is over from

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<v Speaker 4>effectively over from a market perspective, but the markets had

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<v Speaker 4>one hundred percent priced it out and that was a

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<v Speaker 4>little bit extreme in our view.

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<v Speaker 1>So, being the global investment strategist, where are you looking

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<v Speaker 1>to next? I mean, Korea has had a way of

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<v Speaker 1>time literally and you know before that it was pretty

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<v Speaker 1>much Japan.

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<v Speaker 3>Where might be.

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<v Speaker 2>The next hot market?

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<v Speaker 4>I think it depends on sort of what you're trying

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<v Speaker 4>to get at when you look internationally, because your Korea Taiwan.

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<v Speaker 4>They've been phenomenal performers, but you know, they're concentrated Semi

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<v Speaker 4>plays right, obviously tied into the ai story. So you're

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<v Speaker 4>not really getting a ton of diversification, even though geographically

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<v Speaker 4>you are. And so one of the areas we look

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<v Speaker 4>at sort of risk reward, I think Japan is actually

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<v Speaker 4>one of the more interesting areas because fundamentally you're actually

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<v Speaker 4>seeing good earnings momentum. You look at some of their

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<v Speaker 4>economic indicators, they're improving. You know, it's not too expensive,

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<v Speaker 4>and you get a lot of high quality companies. So

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<v Speaker 4>I think that's probably one of the better risk reward

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<v Speaker 4>areas right now.

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<v Speaker 3>While here in the US, I mean, it's been some

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<v Speaker 3>remarkable chopped in Like one day we love Semi the

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<v Speaker 3>next day we hate them. It's a back and forth

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<v Speaker 3>between them and the hyper scalers, from the check writers

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<v Speaker 3>to the check receivers. What is this a rotation taking place?

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<v Speaker 3>Is this a fight for leadership?

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<v Speaker 2>Yeah?

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<v Speaker 4>I mean, obviously you know you're dealing with two dynamics.

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<v Speaker 4>Is the pendulum is swinging, you know, is swung really

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<v Speaker 4>far in the direction of sort of the check receivers.

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<v Speaker 4>I think you said, right, and I think maybe you know,

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<v Speaker 4>what we talked about in our earlier reporter is sort

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<v Speaker 4>of the idea that cap vigilantes, the market's going to say,

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<v Speaker 4>you're spending too much. We don't see line of sights

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<v Speaker 4>actually that turning into business results. And so I think

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<v Speaker 4>the market, the hyperscalars so stomics that have listened and

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<v Speaker 4>they're monetizing that capex, and so now you start to

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<v Speaker 4>see that pandulum short of shift the other way. Ultimately,

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<v Speaker 4>I think there's that dynamic along with the competitive dynamic.

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<v Speaker 4>That's why you're seeing all this moving around. I think

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<v Speaker 4>I think it is sort of a nice case. I

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<v Speaker 4>think to see I think you will start to see

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<v Speaker 4>that pandum continue to swing in favor of the hyperscalers

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<v Speaker 4>to some extent, but there is ongoing competition coming in

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<v Speaker 4>and you're seeing, you know, so the pricing pressure on

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<v Speaker 4>the on the model story. I mean, every day we're

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<v Speaker 4>getting a new story about how they're having to cut

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<v Speaker 4>prices or offer more for less.

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<v Speaker 1>That's not a great sign Kapex vigilantis. One day we'll

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<v Speaker 1>be saying, down Suzuki, who invented the terms, thank you

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<v Speaker 1>for joining That is down Suzuki of I capital