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

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

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

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

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

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

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Speaker 1: shares are down nearly four percent, falling deeper after a

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Speaker 1: report from Fox Business UH that the U S as

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Speaker 1: you see, sent a subpoena to the carmaker regarding Elon

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Speaker 1: Musk's plans to take it private and has claimed to

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Speaker 1: have had quote funding secured for the deal. Joining us

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Speaker 1: now for more insight is Professor Jill Fish, business law

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Speaker 1: professor at the University of Pennsylvania Law School. UH. Professor Fish,

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Speaker 1: thank you so much for being with us. Let's just

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Speaker 1: start with what are the legal issues as you see

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Speaker 1: them that the SEC is likely investigating when it comes

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Speaker 1: to Elon Musk and his tweets. Well, just to start um,

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Speaker 1: the tweets have gotten a tremendous amount of attention. They've

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Speaker 1: obviously had a huge effect on the stock price, and

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Speaker 1: so I think it's absolutely expected that the SEC would

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Speaker 1: want to probe into this and find out exactly what

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Speaker 1: Elon musk knew at the time that he made the statements,

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Speaker 1: what his purpose was in making the statements, and what

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Speaker 1: exactly he meant by those keywords funding secured. Based on

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Speaker 1: your experience, if you were called in to offer legal counsel,

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Speaker 1: what would you say two members of the TESLA board

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Speaker 1: at this point in time? Yes, Um, I guess I

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Speaker 1: would want to have an understanding of the situation. It's really,

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Speaker 1: I think, a very rapidly evolving situation. Uh, we as

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Speaker 1: the public aren't sure at this point exactly what the

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Speaker 1: status of the deal is, what the status of the

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Speaker 1: negotiations are. We learned I learned last night that Goldman

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Speaker 1: and silver Lake were involved in this. So my first

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Speaker 1: step would be to find out what's going on, Um,

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Speaker 1: how far along things are, and what the status of

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Speaker 1: the various players are. One thing that I'm struggling to

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Speaker 1: understand is how long an investigation like this would go

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Speaker 1: on by the SEC and what the potential consequences are.

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Speaker 1: Can you shed some light there. It's very hard to

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Speaker 1: predict because we really don't know what the SEC is

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Speaker 1: going to find. I think the SEC's first priority is

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Speaker 1: to make sure that the public, that the capital markets

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Speaker 1: have accurate information, and so I think the purpose initially

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Speaker 1: is to clarify the situation, to find out whether any

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Speaker 1: sort of corrective disclosures are necessary, and to move very

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Speaker 1: quickly on that. I think at this stage it's much

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Speaker 1: too early to try to understand are they going to

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Speaker 1: bring an enforcement action? Is there a possibility of some

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Speaker 1: sort of sanctions and so forth? We just don't know.

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Speaker 1: So if that's the case that I'm trying to understand,

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Speaker 1: you know, when I talked to investors in Tesla analysts,

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Speaker 1: they say, well, there is this SEC risk. How big

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Speaker 1: of a risk is it? If the investigation might take

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Speaker 1: a very long time, it might just result to in

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Speaker 1: sort of a hand slap of a fine um. I

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Speaker 1: think in terms of affecting whether Tesla goes private, the

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Speaker 1: SEC investigation is a limited risk. I think it could

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Speaker 1: upset the apple cart, so to speak, but I don't

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Speaker 1: think that the SEC investigation would prevent the company from

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Speaker 1: going private. I think with respect to Elon Musk's personal situation,

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Speaker 1: a lot of that is going to depend on these unknowns,

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Speaker 1: on what his intent was whether there was some sort

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Speaker 1: of purpose to deal with short sellers and manipulate the market,

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Speaker 1: or whether he just got ahead of himself. In the

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Speaker 1: SEC's view, Professor Fish, is it legal for the CEO

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Speaker 1: of a publicly traded company who also owns nearly of

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Speaker 1: a company's stock to put out a specific stock price

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Speaker 1: for a take private deal unless they have a committed

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Speaker 1: end or some kind of documented evidence that such a

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Speaker 1: conversation or negotiation is taking place. Um, well, you put

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Speaker 1: it very bluntly, and that's kind of a hard statement, right. Um.

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Speaker 1: I think there are a bunch of questions that I

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Speaker 1: would ask, or that the SEC would ask in terms

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Speaker 1: of determining legality. But I think the way the tweet

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Speaker 1: was framed in terms of his intention or his goal

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Speaker 1: at a specific stock price, I don't think that's necessarily problematic.

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Speaker 1: One of the things that we've seen with Elon Musk's tweets,

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Speaker 1: and it goes back before this specific incident, is he's

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Speaker 1: sort of pushing the envelope. He's using Twitter to communicate

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Speaker 1: information more rapidly in something in a in a style

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Speaker 1: that's really unconventional compared to your typical CEO. But I

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Speaker 1: don't think that's something that's necessarily illegal, and frankly, I

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Speaker 1: think it's something that markets may have to adjust to

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Speaker 1: as information becomes more time sensitive, as we start to

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Speaker 1: see greater use of social media and so forth. Professor Fish,

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Speaker 1: do you think you're gonna be teaching your students about

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Speaker 1: this particular case? Absolutely? How what capacity? UM? I think

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Speaker 1: that number one, the way companies communicate with their investors

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Speaker 1: and with the capital markets is evolving, is tremendously important.

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Speaker 1: Is something that UM is something that UH students are

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Speaker 1: going to have to learn about in their capacity as

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Speaker 1: corporate advisors. And I think the evolving use of social

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Speaker 1: media is something we want to think about really carefully.

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Speaker 1: Thanks very much for being with us. Professor Jill Fish

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Speaker 1: is a business law professor at the University of Pennsylvania

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Speaker 1: Law School. Talking about Elon Musk and Tesla, and of

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Speaker 1: course this all in the wake of those tweets made

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Speaker 1: by Elon Musk about taking the car manufacturer private. What

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Speaker 1: does the United States really want from China when it

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Speaker 1: comes to trade. Here to help answer that question is

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Speaker 1: Robert Lawrence. He is the Albert L. Williams Professor of

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Speaker 1: Trade and Investment at the John F. Kennedy School of

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Speaker 1: Government at Harvard University. He is also a Senior Fellow

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Speaker 1: at the Peterson Institute for International Economics. Previously, he served

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Speaker 1: as a member of the Council of Economic Advisors under

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Speaker 1: President Clinton, and he is the author of the forthcoming

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Speaker 1: book Blue Collar Blues. Is Trade to Blame for rising

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Speaker 1: US income in equality? I beg your pardon, Professor Lawrence.

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Speaker 1: Maybe you could just sort of give us a little

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Speaker 1: bit of your perspective before you tell us what you

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Speaker 1: believe President Trump's ultimate strategy with trade in China is. Well,

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Speaker 1: I am suspicious of I think basically what President Trump

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Speaker 1: wants to do is to raise tariffs and increase protection

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Speaker 1: in the United States. Uh. And I think he's prepared

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Speaker 1: to use the trade rules when it suits him in

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Speaker 1: order to accomplish this. UM. And that's why I'm suspicious

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Speaker 1: that his um urging China to change its behavior UM

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Speaker 1: and UM respect the intellectual property protection of American firms

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Speaker 1: in China is really a negotiating demand UM or what

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Speaker 1: I believe is actually a pretext for him to raise

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Speaker 1: barriers on Chinese products. So this is a really compelling

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Speaker 1: point because there are many people who say that President

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Speaker 1: Trump's actions so far are negotiating tactics that will ultimately

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Speaker 1: lead to a softer end. You're saying that that's not

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Speaker 1: the case. What is the end result of what you

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Speaker 1: believe President Trump is going for? Well, I I believe

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Speaker 1: the end result is high tariffs. Were already seeing them

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Speaker 1: in place against stealing an aluminum with no possibilities really

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Speaker 1: of them being removed in short in the short run.

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Speaker 1: And I actually think that the tariffs against China, which

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Speaker 1: have been escalating, are going to be with us for

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Speaker 1: a long time. Another thing that really strikes me as

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Speaker 1: inconsistent is that, um, when it comes to Mexico, what

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Speaker 1: the administration is trying to do is to negotiate a

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Speaker 1: man after that makes it much harder to outsource to Mexico,

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Speaker 1: and they want the agreement to expire. They don't want

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Speaker 1: to give a legal protection to investors in Mexico and

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Speaker 1: have the ability to challenge things that the Mexican government does.

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Speaker 1: So that's sort of consistent. They don't want outsourcing to Mexico.

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Speaker 1: But when it comes to China, ostensibly what they want

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Speaker 1: is for the Chinese to protect American investors by ensuring

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Speaker 1: their intellectual property. And if the Chinese actually do that,

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Speaker 1: it's going to become more attractive to invest in China,

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Speaker 1: which isn't really what the administration wants. I think what

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Speaker 1: Mr Trump really wants is something he's promised for many years,

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Speaker 1: and that is to tax products which are outsourced by

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Speaker 1: American firms for production in China and then brought back

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Speaker 1: into the US market. Professor Lawrence, can you speak a

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Speaker 1: little bit about how tariffs have can can may have

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Speaker 1: a long term effect on an industry beyond just increases

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Speaker 1: in prices or blocking certain kinds of companies from uh,

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Speaker 1: you know, producing their products overseas. And I'm thinking of

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Speaker 1: many things you've talked about, including the chicken tax, which

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Speaker 1: goes back to four. How to tariffs affect businesses and

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Speaker 1: how they really operate well, well, they affect them tremendously

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Speaker 1: in today's global economy because increasingly products are not made

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Speaker 1: in one country and sold in another, but firms try

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Speaker 1: to make their products in the world. They make components

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Speaker 1: in one country and then they assemble them in a second,

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Speaker 1: and then they bring them in to a third. So

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Speaker 1: so many of the products that are manufactured in the

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Speaker 1: United States use imported components. What parists do is to

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Speaker 1: interfere with the entire system. And today, if you were

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Speaker 1: a planner in any corporation, you're going to have a

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Speaker 1: huge amount of uncertainty as to whether relying on the

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Speaker 1: components that you bring in from other countries is going

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Speaker 1: to be a viable economic strategy, because it's quite possible

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Speaker 1: either the US will put a tariff on your products

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Speaker 1: or the foreigners will also prevent you from doing this

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Speaker 1: by retaliating. So what I'm struggling to understand that what

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Speaker 1: you're describing as President Trump's goal is that the goal

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Speaker 1: of the of the people in the rust belt, Well,

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Speaker 1: I think it's ultimately not going to help help them

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Speaker 1: very much because of the global nature. Uh, it is

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Speaker 1: the goal of some in some industries. So if you're

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Speaker 1: in the steel industry, now you have protection from foreign competition,

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Speaker 1: and so you're quite happy with what President Trump has done.

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Speaker 1: If similarly in the aluminum industry, or or if you

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Speaker 1: make dishwashers, you've received more protection. But if you're a

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Speaker 1: steel user and you're in the rust belt, if you're

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Speaker 1: trying to make machinery, if you, for instance, are working

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Speaker 1: for Caterpillar, your firms. Costs have gone up, and you're

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Speaker 1: much less competitive in world markets, and you're gonna find

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Speaker 1: it tougher to compete. And I think there are more

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Speaker 1: people who you steal than produce it. So at the

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Speaker 1: end of the day, I think this is a strategy

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Speaker 1: that isn't going to work for people in the Rust belt,

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Speaker 1: even though it's optics may look good in the short run.

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Speaker 1: Professor Robert Lawrence, thank you so much for being with us.

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Speaker 1: It's always wonderful to get your insights. Professor Robert Lawrence

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Speaker 1: of the John F. Kennedy School of Government at Harvard University,

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Speaker 1: also a Senior Fellow the Peterson Institute for International Economics,

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Speaker 1: joining us from Boston. There has been a lot of

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Speaker 1: discussion about ten Cent, which reported its first drop in

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Speaker 1: profit in at least a decade. Shares were not happy.

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Speaker 1: You could see a decline of more than three and

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Speaker 1: a half percent today following a similar decline yesterday. What

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Speaker 1: happened here and what are the implications? We're gonna be

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Speaker 1: speaking with Brendan Hearn, chief investment officer who joins us

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Speaker 1: now for for Crane Shares UM. Brendan, thank you so

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Speaker 1: much for being with US. What happened with Tencent, Like

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Speaker 1: just start there. Yes, Cent reported disappointing both revenue as

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Speaker 1: well as net income, as well as a um um

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Speaker 1: concern around some of the regulatory approval within China some

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Speaker 1: of their online games. So overall this was it was

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Speaker 1: a very disappointing results. Uh. Probably more importantly, it comes

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Speaker 1: at a time where you're seeing a little bit of

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Speaker 1: kind of cracks in the tech growth fang uh name So,

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Speaker 1: so certainly ten cent um is not is not helping

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Speaker 1: to US listed both Chinese as well as US listen

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Speaker 1: technology companies today, Brendan, I'm looking at the performance of

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Speaker 1: the Shanghai Stock Exchange Composite Index. It's down more than

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Speaker 1: seventeen so far this year. Is there any indication based

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Speaker 1: on your experience, that we're going to see any kind

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Speaker 1: of turnaround? Well, I think that the hope one PIM

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Speaker 1: as you have mscis inclusion of two thirty six Shanghai

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Speaker 1: and Shenzen names. The second inclusion in September one. If

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Speaker 1: you take the pe of the s and P five

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Speaker 1: hundred and minus it from the Shanghai pe, we're basically

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Speaker 1: back to a point where we had the crisis back

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Speaker 1: in the summer of twenty fifteen. If you subtract praise

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Speaker 1: the book of SMP minus Shanghai, it's the widest ever.

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Speaker 1: It's literally never Shanghai stocks have never been at this

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Speaker 1: level of a discount to their US equivalence ever. And yeah, wait, wait, wait, wait,

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Speaker 1: but how can you compare Chinese stocks to US stocks?

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Speaker 1: You can do it using the numbers, but you can't

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Speaker 1: use it using governance issues, uh, interference from the central government,

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Speaker 1: corporate issues. I mean, how can you compare the two? Well,

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Speaker 1: I think you know, we're just we're just looking at

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Speaker 1: this mathematically. You know, what are the numbers? And sir I,

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Speaker 1: I don't disagree that there are elements to investing not

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Speaker 1: only in in any emerging market or any foreign country.

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Speaker 1: There there's additional risks associated with that. So certainly, you know,

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Speaker 1: what we're doing UM should be part of an overall

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Speaker 1: diversified portfolio. What we do think it's a very on

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Speaker 1: the Shanghai names, very compelling valuations with the backdrop of

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Speaker 1: this coming UM inclusion from m s c I, which

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Speaker 1: will continue for the next several years. On on the

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Speaker 1: Hong Kong and US names, you do have say, for

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Speaker 1: a company like Ali Baba, Uh, they do have to

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Speaker 1: adhere to the US gap. They have to have a

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Speaker 1: US accounting firm and here to US listening standard, which

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Speaker 1: help address some of those concerns. Pim so Brendan, I

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Speaker 1: want to talk about what happened with ten Cent, why

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Speaker 1: things were so disappointing for them, and sort of tie

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Speaker 1: this to what we saw with Facebook when they reported earnings,

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Speaker 1: which there was a sense of peak tech or at

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Speaker 1: least peak expansion of tech, right, um that everyone who

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Speaker 1: has a smartphone has a smartphone, who's who is going

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Speaker 1: to have on etcetera, etcetera. I'm just wondering. I mean,

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Speaker 1: from a contagions standpoint, is ten cents sending a really

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Speaker 1: significant message that can be applied broadly throughout big tech?

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Speaker 1: You know, I think it's a it's a really great point.

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Speaker 1: And even the comparison you make Lisa around ten Cent,

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Speaker 1: because we do, you know, because of their reach at

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Speaker 1: over are a billion users of this, you know, this

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Speaker 1: social media platform run by ten Cent. Um. But but

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Speaker 1: one interesting thing about ten Cent is the core business

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Speaker 1: at this point is still online gaming and and there

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Speaker 1: were positives on on the social media side. Um, you know,

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Speaker 1: video subscription seventy four million up year over year, Mobile

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Speaker 1: payments eight hundred million monthly users grew year over year

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Speaker 1: for the quarters. So so so as much as we

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Speaker 1: kind of call ten Cent and Facebook, we make that comparison,

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Speaker 1: you know, it's that online gaming is is still a big,

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Speaker 1: big part of the business and that that's that is

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Speaker 1: the culprit in ten Cent, and I don't necessarily believe

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Speaker 1: that creates issues for UM us or or other say

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Speaker 1: Chinese technology companies that even we saw just just from

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Speaker 1: very recently Nettie's one of ten cents big competitors and

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Speaker 1: online gaming pretty pretty weak outlook. Um a little bit

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Speaker 1: of a forebearer of ten cents week online gaming results today,

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Speaker 1: Thanks for being with us as always. Brendan or Hearn

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Speaker 1: is the chief investment officer for Crane Shares, talking about

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Speaker 1: ten cent earnings and the Chinese technology sector. The good

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Speaker 1: news for Turkey is that some unconventional measures and intervention

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Speaker 1: have it staved off some of the declines from the

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Speaker 1: Turkish lira and it is rising a little bit against

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Speaker 1: the dollar. The bad news for European banks is some

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Speaker 1: of the most exposed continued to drop in equity markets,

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Speaker 1: and here to talk about bank exposure to Turkey and

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Speaker 1: how bad this could get is Jonathan Tyson, senior banks

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Speaker 1: analyst for Bloomberg Intelligence, coming to us from London. Jonathan,

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Speaker 1: what's going on here? Why do we continue to see

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Speaker 1: declines in the likes of maybe v A and in

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Speaker 1: p POI back, well, I think this is just a

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Speaker 1: more general risk off. Clearly b B v A. It

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Speaker 1: isn't just Turkey. I mean there in six sixty two

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Speaker 1: sales may have guarantee, but they're also Latin. I'm exposed

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Speaker 1: one of the most exposed to emerging markets of all

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Speaker 1: global banks. So the market is trying to assess what

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Speaker 1: happens the what ifs and emerging market exposure and currencies

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Speaker 1: are clearly very large risk. Jonathan. There are a couple

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Speaker 1: of issues with the banks in Turkey. One is their

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Speaker 1: asset base, which are their loans. You've got lots of

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Speaker 1: loans that are denominated in US dollars or euros, but

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Speaker 1: the borrowers are trying to repay those loans as they

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Speaker 1: are based in Turkey with Lira. The second thing is

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Speaker 1: the funding of the actual banks and how they can

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Speaker 1: continue operating. Can you explain a little bit more about

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Speaker 1: how they're dealing with these two issues. Well, do you've

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Speaker 1: hit the nail on the head. I mean, this is

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Speaker 1: one of the reasons that the banks, s happy crateity,

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Speaker 1: et cetera. Have sold off more effects lending foreign exchange

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Speaker 1: lending traditionally when in Europe we've had a problem, We've

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Speaker 1: had it in Hungary, we've had it in Poland, etcetera.

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Speaker 1: And they've been fines, but it was to the retail

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Speaker 1: base in the same market. In Turkey, these guys have

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Speaker 1: borrowed the corporates in dollars and by extension. Clearly their

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Speaker 1: interest costs have gone through the roof very recently, so

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Speaker 1: bad that will spike. We're already beginning to see that

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Speaker 1: in the FX loan MPR ratios that the Bank of

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Speaker 1: Turkey provide every week. How are they working through it? Well,

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Speaker 1: I think what they're gonna have to do, and the

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Speaker 1: foreign banks will be pulling away from f X lending,

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Speaker 1: and domestically they're going to have to take up we're

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Speaker 1: under a new accounting standard. They but start to take

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Speaker 1: up provisions over the next two or three quarters, which

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Speaker 1: is why you've seen the big domestic banks fall quite

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Speaker 1: heavily over the past two three weeks. Do you think

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Speaker 1: that there's a likelihood that one or more of some

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Speaker 1: of the major Turkish banks could fail. I don't. Personally,

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Speaker 1: I cannot see how that will be allowed to happen.

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Speaker 1: But that said, domestic consolidation. If you look at Russia

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Speaker 1: post sanctions, post oil slide, et cetera, we have seen

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Speaker 1: an awful lot of the smaller banks hoovered up. In Turkey,

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Speaker 1: you've got four or five banks that make up the market.

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Speaker 1: And yes we've seen a changing of the guard. So

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Speaker 1: spare banks sold down lead and is sold it on

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Speaker 1: their steak. But I don't think we're there yet. I

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Speaker 1: think funding wise it isn't a problem. But growth has gone.

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Speaker 1: The domestic banks have to pay back and we are

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Speaker 1: approaching a period of pain. But that said as well,

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Speaker 1: I think the measures that have been taken so far

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Speaker 1: should stem for now the lear's full. That said, we

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Speaker 1: still need to understand what Airman is going to do

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Speaker 1: and will he allow them to hike rates. Jonathan Three

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Speaker 1: industry groups tell our calms, retailers, and energy. The companies

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Speaker 1: in those groups operating in Turkey, they get most they

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Speaker 1: generate most of their sales their revenue in Lira. Recently,

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Speaker 1: I believe the Turkish cell phone operator what is it,

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Speaker 1: turk Telecom, the phone operator, they reported a loss because

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Speaker 1: of what they described as unfavorable for X movements. It

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Speaker 1: erased their entire net income. Are we going to see

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Speaker 1: more companies report this this way? Well, you have to

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Speaker 1: remember that that's a mismatch between costs and revenues. Uh.

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Speaker 1: Our margin is being squeazed, absolutely, But then again for

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Speaker 1: some for example, if you're one of the big energy providers,

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Speaker 1: chances are your margin is gonna go up. And within

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Speaker 1: Bloomberg Intelligence, we've got several examples some of the ANIMs

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Speaker 1: have written about where this is ultimately to be positive.

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Speaker 1: So remember on every side of this debate depends how

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Speaker 1: you're skewed, but there will be profit beneficiaries. And as

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Speaker 1: far as the banking system is concerned, capital is still okay.

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Speaker 1: Funding liquidity costs will go up, consensus needs to come down.

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Speaker 1: But is this a stomach crisis for the financial system

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Speaker 1: at the moment? No? Is Is there a good reason

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Speaker 1: why only credit, for example, of sold off at least

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Speaker 1: as much. Yes, because the happy credit is the weakest,

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Speaker 1: the BBV has the most exposure. But are we calling

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Speaker 1: time on the bank system now? Absolutely not? Okay, Jonathan,

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Speaker 1: But let's dig into the liabilities of the four banks

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Speaker 1: that you really pinpointed as having the most risk. You

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Speaker 1: said that foreign bank claims on Turkey total two hundred

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Speaker 1: and twenty billion dollars in the first quarter. What do

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Speaker 1: those claims consist of? Are those UH loans made in

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Speaker 1: dollars and euros too smaller and mid sized companies and

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Speaker 1: could this lead to some significant rightdowns? Well, two things. One,

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Speaker 1: the b I esday so that everybody goes to tends

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Speaker 1: to be a bit out of date, and we don't

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Speaker 1: have much granularity. And also, as we know, balance sheet

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Speaker 1: dates can be quite a long way back in history,

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Speaker 1: so we have very little idea at the moment how

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Speaker 1: much has been rolled over forbear and something that in America,

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Speaker 1: you guys be very very comfortable and away with about

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Speaker 1: bank systems, it's pretty difficult. Certainly, liquidity provision will be

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Speaker 1: continuing at the moment for the most key businesses and

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Speaker 1: SMME is a very large part of Turkey. So do

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Speaker 1: I think that we're already saying mpls for f X

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Speaker 1: loans ticking out, but they're still only a two percent.

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Speaker 1: Do I think we're going to see anything that tangibly

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Speaker 1: as an analysts I can point to and say, here's

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Speaker 1: the data point. They're all in trouble in the next

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Speaker 1: six to nine months. Very unlikely. All Right, we gotta

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Speaker 1: leave it there. Thanks very much for being with us.

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Speaker 1: Jonathan Tys, Senior banks analyst for Bloomberg Intelligence, speaking about

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Speaker 1: Turkish banks. Thanks for listening to the Bloomberg p m

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Speaker 1: L podcast. You can subscribe and listen to interviews at

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Speaker 1: Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm

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Speaker 1: pim Fox. I'm on Twitter at pim Fox. I'm on

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Speaker 1: Twitter at Lisa Abramo. It's one before the podcast. You

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Speaker 1: can always match us worldwide on Bloomberg radioh