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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jai Ley.

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Speaker 1: We bring you insight from the best in economics, finance, investment,

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Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot Com, and of course on the Bloomberg Right now,

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Speaker 1: we will sagui as we do to politics. Less avenge

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Speaker 1: worry joins rough Chatow. Now she has been such a

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Speaker 1: support to surveillance. With perspective on the election, Laslie, we

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Speaker 1: are overwhelmed with newsflow. If you were to write today

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Speaker 1: on the election, what would be your lead paragraph? I

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Speaker 1: think the lead paragraph has got to be the extraordinary

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Speaker 1: turnout that we're seeing. If you across the board early

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Speaker 1: voting in person by mail Um, I guess you know

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Speaker 1: it's a specially interesting in Texas to see that we're

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Speaker 1: just about hitting all ready the number of voters that

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Speaker 1: actually voted in total in Texas in twenties sixteen. Word

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Speaker 1: about of that number so early early voting turned out

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Speaker 1: across the country, but especially in certain states is really remarkable.

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Speaker 1: Briefest on your reading of the character of that voting

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Speaker 1: In the assumption by Mr Trump that Republicans and mass

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Speaker 1: will show up the first Tuesday of November. Is that

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Speaker 1: a correct theme? Are we off the mark? Well? I

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Speaker 1: think a lot of people believe that that are watching

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Speaker 1: this very carefully, that Democrats are more inclined, especially in

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Speaker 1: some of those battleground states, especially in the northern battleground

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Speaker 1: states where COVID has been very bad, that Democrats are

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Speaker 1: more inclined to vote by mail. Of course, we know

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Speaker 1: at this point anybody who's voting by mail has to

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Speaker 1: carry their ballot in. It's too late to send it

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Speaker 1: in through the postal service. The postal service is simply

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Speaker 1: not moving quickly enough. But we do expect more Republicans

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Speaker 1: turning out on the day on Tuesday. But I think

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Speaker 1: as people are hearing this message, they cannot actually put

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Speaker 1: their votes from today in the in the in the mailbox.

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Speaker 1: And assuming we'll get there on time, we might see

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Speaker 1: some turnaround in that. UM. But yes, I think, and

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Speaker 1: if that's right, of course, you know what we're led

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Speaker 1: to believe. Unless we see a Democratic victory in Florida

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Speaker 1: North Carolina, UM that this race could then go on

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Speaker 1: for quite some time because it might look like a

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Speaker 1: Republican lead at Trump lead early on and then it

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Speaker 1: might begin to change over the next several days. But tom,

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Speaker 1: you know, there are a lot of people that think

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Speaker 1: it's it's very hard to predict how Florida is going

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Speaker 1: to go. It's up for Biden right now, but if

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Speaker 1: it if it goes the other way, then of course

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Speaker 1: it will take some time potentially to to know what's happening. Leslie.

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Speaker 1: In eight minutes time, we're gonna get the latest read

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Speaker 1: on us jobless claims the last before the election. Typically

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Speaker 1: during election seasons, the economy dominates in this one not

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Speaker 1: as much. And actually President Trump from much of the

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Speaker 1: race dominated and was considered to do better when it

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Speaker 1: comes to the economy among voters. Has that changed, you know,

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Speaker 1: it's really complicated right now. Um, Donald Trump's number, his

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Speaker 1: ratings on the economy have come down. They're still stronger

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Speaker 1: um than than certainly by far than this handling of

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Speaker 1: the pandemic or any other number of issues. But I

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Speaker 1: think right now, you know the pandemic, people are seeing

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Speaker 1: the pandemic through to lent two different lenses. They're seeing

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Speaker 1: it either as a health crisis or they're seeing the

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Speaker 1: pandemic as an economic crisis. So I'm not entirely sure

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Speaker 1: that the polling is actually telling us what we need

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Speaker 1: to know. For a lot of people on the Republican side,

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Speaker 1: certainly amongst Donald Trump's base, they see the pandemic as

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Speaker 1: being a problem of the Democrats trying to shut down

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Speaker 1: the economy. UM. So it's slightly different, difficult calculation to handle.

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Speaker 1: But of course the fact that the economy is not

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Speaker 1: doing well, that the stock market didn't do well yesterday,

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Speaker 1: that people are concerned about their jobs, UM, this can't

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Speaker 1: help the president. It most especially amongst those voters who

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Speaker 1: are in minority categories, amongst younger voters UM and amongst

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Speaker 1: old voters. The first two categories, younger voters minority voters

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Speaker 1: are losing their economic opportunities is at a much higher

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Speaker 1: rate than others UM, and so that really affects how

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Speaker 1: they feel about the current at the current leadership. Let's

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Speaker 1: think right to catch up as alwise, Lendy Benjamari that

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Speaker 1: of Channam House, thank you very much, But right now

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Speaker 1: we will digress and move to David Leebovitz of JP

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Speaker 1: Morgan Asset Management. Of course, trying to bring in a

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Speaker 1: strategy to adapt and adjust to a little bit of

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Speaker 1: a lift in the market in the last ten minutes. David,

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Speaker 1: I've got to go to the arch question. I mentioned

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Speaker 1: this early this morning. So many of the pullbacks have

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Speaker 1: been truly stochastic, pointing down, we go and we cover

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Speaker 1: right back up, straight, straight, straight. Does this have a

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Speaker 1: stochastic feel to you or is there something different about

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Speaker 1: this pullback? So I think that there there are three

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Speaker 1: issues that have really driven the pull back, and there

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Speaker 1: are three somewhat familiar issues. So if we get resolution there,

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Speaker 1: I do think things could bounce back quickly. Unfortunately, I

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Speaker 1: do believe resolution is going to take time. The first

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Speaker 1: thing that's going on is that the virus. Virus growth

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Speaker 1: is re accelerating. You're seeing it in Europe. I think

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Speaker 1: that this is much more about the lockdowns that have

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Speaker 1: been imposed in Germany and France, and a little bit

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Speaker 1: of you know, wait, will this happen to me too,

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Speaker 1: than it is necessarily about the impact of the virus

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Speaker 1: on the health of the population. The second thing, and

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Speaker 1: I think we talked about this a few weeks when

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Speaker 1: I was on with you all um. Policy, you know,

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Speaker 1: policy in the United States on the fiscal side continues

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Speaker 1: to come up short and Essentially, that is the bridge

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Speaker 1: that needs to continue being built to get us to

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Speaker 1: the other side of this pandemic more broadly. And then

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Speaker 1: I think the third thing that's gone on here is

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Speaker 1: that there's a lot of good news priced into the market.

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Speaker 1: You know, when we look at the way that stocks

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Speaker 1: have responded to better than expected earnings reports, I mean,

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Speaker 1: they haven't really done all that much, and so there

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Speaker 1: was a lot of good news. There was an assumption

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Speaker 1: on the part of a lot of investors that we

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Speaker 1: weren't going to have another hiccup with the economy, we

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Speaker 1: weren't going to have another hiccup with the virus. And

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Speaker 1: what we're seeing is that that's not necessarily the case.

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Speaker 1: And so I do think that we will bounce back,

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Speaker 1: but but it may be a little bit more challenging

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Speaker 1: than than we've seen over the course of the year

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Speaker 1: thus far. David, what do you make of the move

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Speaker 1: in treasuries or the lack thereof the fact that yields

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Speaker 1: have been so resilient and actually moved higher even in

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Speaker 1: the face of equity volatility. So I think a big

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Speaker 1: part of it is when you decompose what's moving treasury yields,

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Speaker 1: um it's really more about an increase in the term

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Speaker 1: premium than there is about an increase in inflation expectations.

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Speaker 1: And what that represents to us is a little bit

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Speaker 1: greater uncertainty around the direction of travel broadly. And you know,

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Speaker 1: if we were seeing yields back up on higher inflation expectations,

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Speaker 1: that would be a signal to us that investors are

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Speaker 1: pricing in better economic growth. UM. I think that this

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Speaker 1: backup and yields that we've seen, in the firmness and

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Speaker 1: yields that we've seen, represents a fairly wide distribution of

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Speaker 1: outcomes that could material lies over the course of the

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Speaker 1: coming months, UM. And obviously that's feeding through into the

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Speaker 1: performance of FX and then more recently the equity markets

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Speaker 1: more broadly. When you read your economics, JP Morgan, do

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Speaker 1: you filter in a disinflationary trend? Are you people on

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Speaker 1: board a true inflation to come? So I think it's

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Speaker 1: it's a good question, And what I would say is

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Speaker 1: that for everybody within the walls of Morrigan with my opinion,

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Speaker 1: there's somebody with with the opposite opinion. UM. In the

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Speaker 1: short run, we don't view inflation as a risk. We

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Speaker 1: think output gaps are wide unemployment rates are elevated, and

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Speaker 1: we would be surprised to see inflation and pick up

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Speaker 1: here in the very short term um long term, and

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Speaker 1: there's a lot of debate on this. We do think

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Speaker 1: that inflation will remain in check, and I am more

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Speaker 1: in the disinflationary camp. We obviously have seen this massive

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Speaker 1: debt build over the course of the past couple of savidly,

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Speaker 1: but it's there if JP Morgan as a management forgive me, David,

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Speaker 1: just some cracks in the line there as you would

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Speaker 1: complaining that last line. For Give me, David, I'm sorry.

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Speaker 1: Right now, we want to speak with Alberto Gallo with

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Speaker 1: real money at RISKUED Algebras investments has been wonderful for

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Speaker 1: us on opportunities out there in fixed income. Alberto, there

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Speaker 1: must be great comfort right now in cash. For Alberto Gallo,

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Speaker 1: is cash an asset? It is, and if interest rates

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Speaker 1: are really so low, the opportunity cost of holding a

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Speaker 1: bit more in liquidity is much lower because you're giving

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Speaker 1: up very low yields. Many government bonds are negative yields.

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Speaker 1: So we don't want to be invested all the time.

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Speaker 1: We want to be invested when there's an opportunity, and

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Speaker 1: you know, the sell off that we're seeing in over

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Speaker 1: the past few days is starting to become an opportunity

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Speaker 1: in some areas because the back stop by central banks

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Speaker 1: and governments is very strong. There's a lot of discussion

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Speaker 1: about what d CP will do. They can, obviously, they

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Speaker 1: can increase quantity division. They can also increase the t

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Speaker 1: LT are also the loans that d CP gives to

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Speaker 1: banks in size or maturity. But also Germany very important.

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Speaker 1: They announced a support for small businesses for up to

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Speaker 1: the revenue so the government will pay anything up to

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Speaker 1: revenue loss during the lockdown. So these things are very powerful.

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Speaker 1: And we've got phisical policy as well, not just central

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Speaker 1: what's so interesting here in Alberta. I think we can

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Speaker 1: take it right over to other central banks, including Mr Powell.

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Speaker 1: The headline December forecast will allow recalibration of stimulus. Are

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Speaker 1: you investing and putting capital at risk understanding that Madame

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Speaker 1: Legarde may change the rules of the game in December.

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Speaker 1: So we're we're having a virus resurgence today and it's

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Speaker 1: gonna come across Europe and probably also in the US.

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Speaker 1: But the reaction function policymakers will be pretty strong in

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Speaker 1: December with more quantity vision from d CP, potentially also

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Speaker 1: from the Fed, and then we have the vaccine. So

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Speaker 1: you know, short term the situation is varish, but medium term,

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Speaker 1: if you just look two months away, you have these

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Speaker 1: very strong backstops to guarantee the survival of the economy.

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Speaker 1: So it is a very positive environment for selling puts

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Speaker 1: on the economy, so for buying credit. Sovereign bonds don't

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Speaker 1: have a lot of value here, so we don't really

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Speaker 1: want to buy what the ECB will buy because boones

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Speaker 1: are already very negative. Bdps offer in Italy offer very

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Speaker 1: little yield, and you know, if governments continue to spend

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Speaker 1: at some point some you could see some widening yesterday

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Speaker 1: and the day before US treasuries were actually widening as

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Speaker 1: the SMP was falling. So we don't have safe aivans anymore.

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Speaker 1: We either have cash and then we have risky assets

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Speaker 1: that may or may not become attractive, and we prefer

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Speaker 1: credit here over over star. You prefer credit. There's a

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Speaker 1: lot to unpack here. The idea that the e c

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Speaker 1: B is pushing investors out of these safe assets because

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Speaker 1: they offer is no value and no hedge At the

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Speaker 1: same time, credit instruments don't provide a hedge either, because

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Speaker 1: companies can go bankrupt and these uh these investments can

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Speaker 1: get wiped out. What's the bet here that the e

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Speaker 1: c B is going to delve deeper into credit for

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Speaker 1: their purchases, or just that the economy will eventually revive

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Speaker 1: and that you will get at least some of your

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Speaker 1: money back versus equity, So there is no hedge, that's

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Speaker 1: the short answers. Instead of building a portfolio with stocks

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Speaker 1: and government debt as in the traditionally sixty forty portfolio,

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Speaker 1: what we are doing is to have a bit more

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Speaker 1: cash instead of instead of sovereign debt, and instead of stocks,

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Speaker 1: were going higher in the copital structure. So rather than

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Speaker 1: having you know, equity, which puts you as the most

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Speaker 1: junior stakeholder in a company, we're going to be higher

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Speaker 1: up in bonds, especially bonds that give you some largeral

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Speaker 1: two assets of a company, maybe ships in the case

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Speaker 1: of a cruise company, airlines, airplanes in case of an airline,

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Speaker 1: and so on, and you can get paid very high

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Speaker 1: yields with some protection in those instruments. So the rational

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Speaker 1: here is governments are issuing that at very low levels,

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Speaker 1: negative rates in case of Germany, and they're giving this

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Speaker 1: money to companies to help them to survive. So you're

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Speaker 1: there is no safe aivan, but you have a physical

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Speaker 1: policy backstop for the largest firms and in the case

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Speaker 1: of Germany, even for the smaller ones. So we're not

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Speaker 1: worried about, you know, a massive increase in the faults

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Speaker 1: in Europe. There may be some sectors that are weak,

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Speaker 1: but you know, we know governments are behind and the

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Speaker 1: economy will survive, and it makes more sense to lend

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Speaker 1: money to these companies than to lend money to the

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Speaker 1: state at negative rates. Alberto, when you talk about holding

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Speaker 1: some cash, you're sort of underscoring this connuntry. We're not

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Speaker 1: getting a lot of returns from the risk your assets,

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Speaker 1: and you want to have something on hand if there

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Speaker 1: is an entry point of things to sell off. What

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Speaker 1: is the appropriate amount of cash now relative to the past.

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Speaker 1: They can give you that flexibility while not dragging on

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Speaker 1: your turns too much UM in our funds. We have

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Speaker 1: been holding over half before the sell off. We had

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Speaker 1: um in the in the fund they run in January

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Speaker 1: February and currently we have around Generally we don't want

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Speaker 1: to be below ten percent, but we can compensate with

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Speaker 1: investments that make more money in the in the part

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Speaker 1: that he's invested, rather than buying, for example, in the

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Speaker 1: bonds at two, where you can make two and you

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Speaker 1: can lose tend if you're wrong. Abo, thank you so

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Speaker 1: much after this important you seeb announcement with Algebras Investments.

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Speaker 1: Greatly appreciate that this morning right now the statement and

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Speaker 1: the religion of the market, which is Apple. James Suva

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Speaker 1: joins us with City Group. He wrote up a big

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Speaker 1: note the other day and I said, let us find

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Speaker 1: their senior tech analysts, who is in San Francisco, Jim Suva.

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Speaker 1: We could talk all day about Apple, whether our our

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Speaker 1: listeners own it or not. Everybody's curious about the juggernaut.

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Speaker 1: How's Tim Cook doing is an opening question. What's he

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Speaker 1: want to get out of this earnings call? Is he

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Speaker 1: gets ready for a Tim Cook two thousand? Well, Tom,

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Speaker 1: it's great to hear from you again, my friend. I'll

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Speaker 1: tell you Tim Cook. A lot of people always focus

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Speaker 1: on Steve Jobs and what he did, which was great

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Speaker 1: of launching the iPhone. Many are now starting to see

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Speaker 1: that Apple is much more than simply a phonemaker. When

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Speaker 1: you think about the Apple Watch and the ear pods

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Speaker 1: and the air pods that are doing so much better

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Speaker 1: with the audio connectivity, and the Apple Watch with healthcare,

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Speaker 1: it is really changing the way we do things. You

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Speaker 1: know you think about. It can detect when somebody falls down.

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Speaker 1: It can help you with your heart rate, your oxygen levels.

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Speaker 1: These are things that are really game changing and they're

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Speaker 1: just at the early ending. So we think he's doing

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Speaker 1: a very good job at what we call diversifying their

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Speaker 1: product portfolio. Even more important, Jim Suva radio producers can

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Speaker 1: have it on the risks of the gentleman from Sparta

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Speaker 1: can email me at three am, Tom, are you awake?

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Speaker 1: Thank you? Apple Watch. What I'm looking at your Jim

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Speaker 1: Suvan and Paul and I want to talk financials and

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Speaker 1: less concept is capital expenditures are relatively flat compared to

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Speaker 1: the ginormous growth. Does that surprise you? Do you model

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Speaker 1: CAPEX to increase? Well, that's a very important thing to

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Speaker 1: look at because CAPEX you typically think about building out

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Speaker 1: new factories and new production lines support your future growth.

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Speaker 1: What people forget is Apple down the street from where

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Speaker 1: I live put up a brand new, huge mega headquarters

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Speaker 1: that's shape like a circle. It almost looks like a spaceship.

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Speaker 1: Is very beautiful. So when you look at the year

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Speaker 1: over year what we call comparisons or the rate of

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Speaker 1: change you're here, it looks kind of flatished, and you're like, huh,

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Speaker 1: that seems odd, But you've got to realize they just

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Speaker 1: finished this mega, mega, mega headquarters. So with that in mind,

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Speaker 1: it actually doesn't surprise us that they're kind of flat.

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Speaker 1: And if you exclude that one time, you don't build

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Speaker 1: a new headquarters every year, you know, flat is actually

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Speaker 1: pretty good. And where they're spending the money is a

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Speaker 1: lot on data centers. So when you say, you know,

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Speaker 1: hey Siri, or you need things with your apps, they

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Speaker 1: simply work. Hey Jim, you know one of the big

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Speaker 1: themes around Apple these days is it's back to the phone.

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Speaker 1: It's back to five G. Do you think of five

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Speaker 1: G as a quote unquote supercycle that we used to

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Speaker 1: refer to with Apple or is it something different? I

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Speaker 1: think it is something different. I think you're The terminology

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Speaker 1: we use a supercycles is for those who of us

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Speaker 1: who are older who realize supercycles used to be a

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Speaker 1: very big thing in the past, you walk into a

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Speaker 1: cell phone store and all the promotions are centered on

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Speaker 1: one item, and everybody's got to have that phone, like

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Speaker 1: the Motorola razor Um or certain BlackBerry phone, or we

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Speaker 1: think about you know, the initial iPhone or two. Those

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Speaker 1: are gotta have phones. Now with the iPhone five G connectivity,

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Speaker 1: there's not a lot of apps right now, there's not

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Speaker 1: a lot of business case uses for why you've got

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Speaker 1: to have a five G phone. Now that being said,

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Speaker 1: I'm not negative at all because people working from home,

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Speaker 1: running their children to different events or school or things

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Speaker 1: like that, are working only want a battery that lasts

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Speaker 1: all day, and they simply want faster download speeds, and

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Speaker 1: the apps are getting more power hungry, and so I

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Speaker 1: think it will be a positive sales cycle, but short

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Speaker 1: of a supercycle, I think what the next thing is

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Speaker 1: is a diversified Apple portfolio where max iPads and watches

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Speaker 1: do a lot better by old cell where are you,

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Speaker 1: Jim Suva than we gotta run? I'm sorry, what was that?

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Speaker 1: By old cell? Where are you? Right now? Um? I

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Speaker 1: am in a bye rating with a hundred and twenty

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Speaker 1: five dollars for Apple, and I've had a bye rating

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Speaker 1: on it for years. Yeah, I remember, you know, it

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Speaker 1: was like Lisa was out, Lisa was going down in flames.

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Speaker 1: I'm here, I'm listening to just be careful carry No.

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Speaker 1: I meant no, Lisa a computer. I mean, did you

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Speaker 1: see that, Jim, the disrespect I get from A Bramowitz.

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Speaker 1: I'm talking about Lisa the computer. Lisa wasn't even born

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Speaker 1: when the Lisa computer. Maybe Lisa you were named after

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Speaker 1: the Lisa computer. Jim Suva, thank you so much for

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Speaker 1: breaking up the Thanksgiving discussion here with Lisa Brama's passa potatoes.

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Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and

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Speaker 1: listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast

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Speaker 1: platform you prefer. I'm on Twitter at Tom Keane before

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Speaker 1: the podcast. You can always catch us worldwide. I'm Bloomberg

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Speaker 1: Radio