WEBVTT - Vanderbilt's Smith on Planning for Money Market Reforms (Audio)

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<v Speaker 1>Broadcasting live to New York, Bloomberg eleventh, RYO to Washington,

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<v Speaker 1>d C, Bloomber to Boston, Bluemberg, dwell under It to

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<v Speaker 1>San Francisco, Bloomberg nine to the countries. Do these exam

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<v Speaker 1>General one ninet and around the globe the Bloomberg Radio,

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<v Speaker 1>Los App and Bloomberg got gone. This is taking stock.

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<v Speaker 1>I'm Kathleen Hayes along with Pim Fox. Something's been hard

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<v Speaker 1>to find recently showing up in the money markets, and

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<v Speaker 1>that's yield rising rates paid by banks and other company's

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<v Speaker 1>initial commercial commercial paper are learning new new investors to

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<v Speaker 1>the market. And we have a guest coming up who

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<v Speaker 1>says investors who choose not to participate in a government

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<v Speaker 1>forced money market fund migration stand to profit handsomely. Pim Yes.

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<v Speaker 1>I'm also I'm gonna be talking about some changes to

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<v Speaker 1>the rules that govern money market funds. That's all coming up.

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<v Speaker 1>All right now, let's go to Charlie Pellet in the

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<v Speaker 1>Bloomberg newsroom for Bloomberg Business Flash, and I thank you

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<v Speaker 1>very much, Pim Pox. Thank you, Kathleen Hayes. The down

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<v Speaker 1>the SMP Nez Bank All Advancing final thirty minutes of

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<v Speaker 1>trading on a Tuesday. Here we've got the SMP up

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<v Speaker 1>three now to three again there of two tents of

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<v Speaker 1>one percent, Nestack now up eighteen points, Hire by four

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<v Speaker 1>tenths of one percent down, Industrials up twenty nine points

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<v Speaker 1>again there of two tents of one percent. One of

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<v Speaker 1>today's catalysts for the move higher a number of companies

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<v Speaker 1>announcing deals after the Labor Day holiday in global central

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<v Speaker 1>banks very much in focus this month. David Kelly is

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<v Speaker 1>chief global strategist of JP Morgan Funds. Problem has been

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<v Speaker 1>every time there's any weakness in the the Japanese economy

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<v Speaker 1>or in the European economy, the knee jerk reaction has Okay,

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<v Speaker 1>we'll do more in terms of quantitative easing, and it's

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<v Speaker 1>a um I think that I think they're beginning to

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<v Speaker 1>learn the lesson that they're there. They really are hurting

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<v Speaker 1>the banks by doing so. They've got to make it

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<v Speaker 1>profitable for banks to lend, and so I think that

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<v Speaker 1>message is getting through. Right now, the SMP five hundred

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<v Speaker 1>index is trading higher by three points to three, a

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<v Speaker 1>gain there of two tents of one percent, down Industrials

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<v Speaker 1>of twenty nine again, also of two tens of one percent,

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<v Speaker 1>and as stand up eighteen a gain of four tenths

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<v Speaker 1>of one percent. Ten year up seventeen thirty seconds yield

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<v Speaker 1>one point five four percent, and gold of twenty thirty

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<v Speaker 1>ounce the thirteen forty nine, a gain there of two percent.

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<v Speaker 1>New York Attorney General Eric Schneiderman has opened an antitrust

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<v Speaker 1>probe into Milon Pharmaceuticals, saying a preliminary investigation shows the

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<v Speaker 1>company may have inserted anti competitive terms into its EpiPen

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<v Speaker 1>sales contracts with numerous local school systems. Gold again up

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<v Speaker 1>twenty six thirty, a gain there of two percent. Three

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<v Speaker 1>thirty two on Wall Street. Now look at the other

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<v Speaker 1>stories making news. Thank you Charlie from the Bloomberg News Room.

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<v Speaker 1>I'm Jill Schneider. This news update is brought to you

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<v Speaker 1>by Bentley University. What do you developing apps at Facebook

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<v Speaker 1>and analyzing data at Biogen have in common? An NBA

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<v Speaker 1>from Bentley University, where you will explore innovation leadership because

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<v Speaker 1>business is everywhere, prepare here. Donald Trump and Hillary Clinton

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<v Speaker 1>are in a statistical dead heat, according to a new

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<v Speaker 1>national poll by CNN. Speaking in Virginia Beach today, Trump

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<v Speaker 1>noted the new poll numbers. That big pole came out

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<v Speaker 1>today that Trump is winning. It's good psychology. I know

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<v Speaker 1>that for a fact, because people that didn't call me

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<v Speaker 1>yesterday they're calling me today. So that's that's the way

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<v Speaker 1>life works. Speaking to reporters on board her plane today,

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<v Speaker 1>Hillary Clinton also reacted to the latest polling. They're good

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<v Speaker 1>for me, and there's been a lot of them that

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<v Speaker 1>have been good for me recently. I don't pay attention

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<v Speaker 1>when they're you know, not so good. I don't pay attention.

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<v Speaker 1>President Obama is the first American president to visit LAOS.

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<v Speaker 1>Bloomberg's Michael Barr tells us more. President Obama says the

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<v Speaker 1>US is committing ninety million dollars over the next three

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<v Speaker 1>years to help LAOS clear unexploded bombs the US dropped

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<v Speaker 1>on the country during the Vietnam War. That conflict was

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<v Speaker 1>another reminder that whatever the cause, whatever our intentions, war

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<v Speaker 1>inflicks a terrible toll, especially on innocent men women shoulder.

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<v Speaker 1>President made his announcement while it allows for a summit

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<v Speaker 1>of Southeast Asian leaders. Michael Barr Bloomberg Radio. A group

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<v Speaker 1>of advocates is launching a national campaign to press large

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<v Speaker 1>retailers and restaurant chains to end on call and last

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<v Speaker 1>minute scheduling. That follows recent deals by several retailers to

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<v Speaker 1>end the practice. In New York Global News twenty four

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<v Speaker 1>hours a day, powered by more than journalists and analysts

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<v Speaker 1>in more than one countries. I'm Jil Schneider. This is Bloomberg, Charlie,

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<v Speaker 1>and we thank you and again recapping the SMP moving

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<v Speaker 1>hire today up three points to three, a gain of

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<v Speaker 1>two tenths of one percent. We are brought to you

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<v Speaker 1>by National Realty Managers of New York City cash Flow

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<v Speaker 1>real Estate, providing you twelve percent annualized returns with immediate

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<v Speaker 1>monthly distributions. See them at n r I A dot net.

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<v Speaker 1>I'm Charlie Pellett and that's a Bloomberg business flash. This

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<v Speaker 1>is you Can Stock with Kathleen Hayes and Prim Fox

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<v Speaker 1>on Bloomberg Radio. Government forced money market fund my gration.

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<v Speaker 1>Some who don't participate stand to profit handsomely, and yet

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<v Speaker 1>there are a lot of people seem to be hitting

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<v Speaker 1>in that direction. So what is the red light that

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<v Speaker 1>our next guest is holding up. We're very happy to

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<v Speaker 1>welcome back to the show Hanley Smith. He's senior vice

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<v Speaker 1>president at Vanderbilt. So good afternoon, sir, thank you for

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<v Speaker 1>having me back. Thank you, well, it's great to have you,

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<v Speaker 1>great to have you in studio. So, first of all,

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<v Speaker 1>what is going on with the regulations that are changing

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<v Speaker 1>set the table for us, No, we'll starting October, the

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<v Speaker 1>SEC is instituting new rules on what's called money market

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<v Speaker 1>funds or in the trade to a seven funds, and

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<v Speaker 1>I won't get too technical, but it's a two point

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<v Speaker 1>seven trillion dollar market that's being rewritten. UM. Prime money

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<v Speaker 1>market funds which use commercial paper repo, those types of things,

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<v Speaker 1>non government types of holdings, will be to do one

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<v Speaker 1>of three things. Number one, they'll float their net asset value.

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<v Speaker 1>Now we've all grown up with the one dollar in

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<v Speaker 1>one dollar rout. That's changing just for prime money market funds.

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<v Speaker 1>And more to the point, which I think is what's

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<v Speaker 1>getting people concerned, is if the money fund gets in

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<v Speaker 1>any kind of distress, which is unusual, but it did

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<v Speaker 1>happen in two thousand and eight. As we know that

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<v Speaker 1>the fund can institute redemption fees or can actually gate

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<v Speaker 1>the redemptions. So a lot of corporate treasures and CFOs

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<v Speaker 1>that typically use. Prime money market funds are migrating out

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<v Speaker 1>of those types of funds into government only funds, which

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<v Speaker 1>will continue to have the one dollar rena V without

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<v Speaker 1>the requirements of gating or redemption fees. So that's where

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<v Speaker 1>you're seeing this migration. So I think it was maybe

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<v Speaker 1>the spring or probably earlier the summer, where prime funds

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<v Speaker 1>were always much higher in terms of assets. Now that's switched,

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<v Speaker 1>so you're starting to see that great migration. And what

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<v Speaker 1>it's happening and what's it's causing is that the types

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<v Speaker 1>of assets that's usually invest in prime money funds are

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<v Speaker 1>getting cheaper because people are selling them. So I think

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<v Speaker 1>that there's an opportunity for those investors that want to

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<v Speaker 1>remain in those types of assets to to benefit. And

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<v Speaker 1>you're starting to see that three month library one month

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<v Speaker 1>labrary has popped up. You're starting to see prime money

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<v Speaker 1>market funds as well as those that you separately managed accounts,

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<v Speaker 1>starting to see much greater yields than you've seen over

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<v Speaker 1>the last couple of years because of this migration. Let's

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<v Speaker 1>say you're an individual that has a money market account

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<v Speaker 1>as part of your brokerage account, your overall portfolio. I

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<v Speaker 1>know that it's not a bank account. But many people

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<v Speaker 1>you and I were just talking about this before you

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<v Speaker 1>came on. Many people treat it like a bank account

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<v Speaker 1>because you can write checks against it. You can also

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<v Speaker 1>use a credit or debit card against it. What are

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<v Speaker 1>some of the questions that if you have a money

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<v Speaker 1>market fund, what kind of detailed answers do you need

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<v Speaker 1>in order to understand whether any of this is going

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<v Speaker 1>to affect you. Well, first of all, you're right, they've

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<v Speaker 1>been sold for so many years as as dollar good,

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<v Speaker 1>so it's a savings account to many people, and that's

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<v Speaker 1>the way it's been sold for forty years. Uh. In

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<v Speaker 1>two thousand and eight where we had the hiccup so

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<v Speaker 1>to speak, that those all those rules changed. But people

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<v Speaker 1>have to remember it's not a saving as account. It's

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<v Speaker 1>actually an investment portfolio with investments underneath that actually fluctuate.

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<v Speaker 1>Now they might be short term three months, nine months,

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<v Speaker 1>so the fluctuations are minimal, but still they do. And

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<v Speaker 1>I think where the real concern is because of the

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<v Speaker 1>cost of running some of these funds. Due to the

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<v Speaker 1>extra regulations. UH, some of these money funds have stretched

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<v Speaker 1>into areas where they haven't normally have been to get

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<v Speaker 1>some yield into the portfolio. So first and foremost you'll

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<v Speaker 1>get a statement, or you'll get our perspectives, or you'll

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<v Speaker 1>get a quarterly report on the money fund. Take a

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<v Speaker 1>look at it. Um. We do a lot of investing

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<v Speaker 1>at Vanderbilt Avenue for family offices and high net worth individuals,

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<v Speaker 1>and if you do what We've looked at some of

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<v Speaker 1>these portfolios, and I saw one recently where I looked

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<v Speaker 1>at the portfolio. Half of the assets I didn't understand

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<v Speaker 1>what they were and the other half I wouldn't own

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<v Speaker 1>if I would. So it's important, um, for those in

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<v Speaker 1>the industry as well as in the retail sector, just

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<v Speaker 1>to take a look at the portfolio. Are you comfortable

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<v Speaker 1>with those those assets? Okay? So who's to blame or

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<v Speaker 1>who's causing this? Because it seems that people are yield

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<v Speaker 1>hungry right understandably. Uh, the Federal Reserve keeping the key

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<v Speaker 1>rate just off zero, that's one side of it. The

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<v Speaker 1>other side, though, is all the regulation that the Dodd

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<v Speaker 1>Frank legislation piled onto just about any kind of entity

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<v Speaker 1>doing business in the financial services industry. Yeah, check one,

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<v Speaker 1>end two, Because again I think we've been in an

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<v Speaker 1>artificial environment because of the low rates, because of all

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<v Speaker 1>the uh QEI and the things that we've talked about

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<v Speaker 1>for so many years keeping these rates down, and so

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<v Speaker 1>there's a lot of unintended consequences that could arise from

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<v Speaker 1>coming back off of you know, normalization policy or whatever

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<v Speaker 1>might But you're right, there's been a lot of regulations

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<v Speaker 1>to camp clamp down on these particular types of funds,

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<v Speaker 1>and so we're we're just concerned as a firm that

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<v Speaker 1>again people treated as a bank account when it truly isn't.

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<v Speaker 1>And the thing that I would just be cautious of

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<v Speaker 1>is because of all the uncertainty and the volatility we've

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<v Speaker 1>seen in the markets over the last couple of years,

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<v Speaker 1>people have been holding on to a lot more cash

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<v Speaker 1>just to feel comfortable. So pre two thousand and eight,

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<v Speaker 1>where cash was a couple of percentages points of my

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<v Speaker 1>portfolio and it was on a money market fund and

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<v Speaker 1>it was okay, and I didn't have to worry about it.

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<v Speaker 1>Post two thousand eight, that's changed with a lot of investors.

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<v Speaker 1>We're seeing cash could be anywhere from twenty of the portfolio,

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<v Speaker 1>and uh, what that's forcing them to do is go

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<v Speaker 1>places where they wouldn't normally be, and that's where the

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<v Speaker 1>problem comes up. Thank you very much. Henley Smith is

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<v Speaker 1>senior vice president Vanderbilt Avenue Asset Management. They're based in

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<v Speaker 1>New York. You're listening to taking stock and this is Bloomberg.

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<v Speaker 1>No such thing as a free lunch inflows to et F,

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<v Speaker 1>laying the seeds for heightened volatility and value destruction in

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<v Speaker 1>the future because of ill liquid assets they hold us.

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<v Speaker 1>Our next guest argument coming up right here on taking stock,