WEBVTT - MIT's Microscopic Health-Tech Tools in Action

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio News.

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<v Speaker 2>You're listening to Bloomberg Business Week with Carol Masser and

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<v Speaker 2>tim Stenoveek on Bloomberg Radio.

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<v Speaker 3>Lauren Goodwin joins US now Economists and chief market strategist

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<v Speaker 3>at New York Life Investment. She's here with us in

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<v Speaker 3>the Interactive broker's studio. Lauren, let me just get your

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<v Speaker 3>perspective on again, acknowledging what we don't know, and there's

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<v Speaker 3>a lot we don't know the kind of mood that

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<v Speaker 3>we've seen develop over the course of this week, I think,

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<v Speaker 3>beginning with those comments from Jamie Diamond of JP Morgan

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<v Speaker 3>suggesting there could be some problems with private credit that

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<v Speaker 3>have gone ignored or unattended to. Now we see this

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<v Speaker 3>kind of action in the regional banks today. Your sense

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<v Speaker 3>of just kind of how you're watching this unfold, what

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<v Speaker 3>you're looking for, and what it might tell us about

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<v Speaker 3>the market.

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<v Speaker 2>It's such an important question, and to be honest with you,

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<v Speaker 2>as I've worked with public and private markets investors for

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<v Speaker 2>the last fifteen years, this has been on the radar.

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<v Speaker 2>As banks pulled back after the financial crisis, private capital

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<v Speaker 2>has stepped in a meaningful way to fuel business activity.

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<v Speaker 2>And one of the things that's sort of become apparent

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<v Speaker 2>to me in this let's call it shadow bank as

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<v Speaker 2>is commonly used, is the shadow banking system is a

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<v Speaker 2>lot like the normal banking system. There is some really

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<v Speaker 2>just high quality lending, very well backed, normal activity happening,

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<v Speaker 2>and there's some more challenging fraudulent activity happening. And so

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<v Speaker 2>in terms of what we monitor, it's all the same

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<v Speaker 2>stuff you monitor in the public markets. The major difference

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<v Speaker 2>is that you have to be much more careful with

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<v Speaker 2>things like default rates or some of the more standard

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<v Speaker 2>areas of data that are going to have different definitions

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<v Speaker 2>depending on who your lender is. Makes it a little

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<v Speaker 2>more difficult to parson the private markets, But it's the

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<v Speaker 2>same idea.

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<v Speaker 1>I mean, I feel like we still have to figure

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<v Speaker 1>out what happened here, right, I mean, I don't know.

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<v Speaker 1>There are regulators over zions, so you would assume that

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<v Speaker 1>everybody was being a little bit more careful. Having said that,

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<v Speaker 1>I mean, when you think about private that markets and

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<v Speaker 1>Jamie Diamond what he said this week, are you getting

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<v Speaker 1>a little bit more nervous about that there might be

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<v Speaker 1>more problems in the financial system.

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<v Speaker 2>I think it's incredibly.

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<v Speaker 1>Reasonable, as you said, private markets for a while.

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<v Speaker 2>Now, yeah, I think it's so reasonable to be more attentive.

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<v Speaker 2>Let's say, when you have valuations and credit spreads where

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<v Speaker 2>they are, you know, it gets more and more difficult

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<v Speaker 2>for people to see enormous amounts of upside in economic

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<v Speaker 2>activity and market activity as well. And when you have

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<v Speaker 2>a lending system that is so important to the real economy.

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<v Speaker 2>It again, it's it's it's reasonable to say, hey, what's

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<v Speaker 2>going on in this in this enormous segment of the

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<v Speaker 2>economy that has grown so much over the last five

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<v Speaker 2>to seven years. And so I think this is going

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<v Speaker 2>to be an area that's going to draw more and

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<v Speaker 2>more importance in our investment conversations coming up when it

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<v Speaker 2>comes to making investment decisions. Though you're seeing all in

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<v Speaker 2>yields in these asset classes that are still attractive to investors.

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<v Speaker 2>The transition that we're seeing then is focus on quality,

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<v Speaker 2>on workout capabilities, on you know, if there is a

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<v Speaker 2>problem in these asset classes, how do these teams navigate When.

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<v Speaker 3>You're mentioning sort of the surge that we've seen of

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<v Speaker 3>interest in private credit, it's a fice to say there's

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<v Speaker 3>been a surge of interest in AI and artificial intelligences

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<v Speaker 3>as well, and does strike me that over the last

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<v Speaker 3>week or so there's been kind of a different conversation

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<v Speaker 3>surrounding it, maybe one of outright skepticism, maybe one just

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<v Speaker 3>sort of about needing to see more proof in the putting.

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<v Speaker 3>And I wonder if you're seeing that as well, how

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<v Speaker 3>you're rethinking about thinking about the kind of breakneck growth

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<v Speaker 3>we've seen in AI and what needs to happen in

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<v Speaker 3>the quarters ahead.

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<v Speaker 2>I'm absolutely saying this. It's really interesting. Actually, I just

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<v Speaker 2>got back from a three week roadshow with our clients

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<v Speaker 2>in Europe, and I was expecting a lot of things,

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<v Speaker 2>but I wasn't expecting all of my conversations to include

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<v Speaker 2>a big portion just about AI and US tech and

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<v Speaker 2>what's really going on there. And I would say that

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<v Speaker 2>the skeptic story is increasing. I think the catalyst, in

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<v Speaker 2>addition to valuations being high, et cetera, I think the

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<v Speaker 2>catalyst for this was really this sort of arroy both

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<v Speaker 2>spending announcements out of Nvidia and Open AI that I

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<v Speaker 2>have raised questions about the sustainability of the great earnings

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<v Speaker 2>capacity that we've seen in AI. What I'm really watching

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<v Speaker 2>to determine whether this is reaching bubble conditions is the

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<v Speaker 2>transition from capitalizing tech spend from cash off of these companies'

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<v Speaker 2>balance sheets and into the debt markets. It's starting, but

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<v Speaker 2>it's really early. I think we need to see that

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<v Speaker 2>mature and more before I be really concerned about bubble conditions.

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<v Speaker 1>All right, that's really interesting because I do feel like

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<v Speaker 1>last earnings time, we looked at things like Meta and

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<v Speaker 1>some of the big hyperscalers, and we did see them

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<v Speaker 1>actually having an impact from all the AI spend in

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<v Speaker 1>terms of boosting revenues. But I feel like we're gonna

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<v Speaker 1>have to go through that once again. Having said that,

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<v Speaker 1>you know, we've had quite a bounce back on the

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<v Speaker 1>equity side of things, it would be normal to see

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<v Speaker 1>maybe another correction of some sort here.

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<v Speaker 2>I think that's right. But there's a I can make

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<v Speaker 2>a list of five or six really credible reasons why

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<v Speaker 2>you might see a pullback in the equity market in

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<v Speaker 2>specifically US tech. But as we think about the next

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<v Speaker 2>six to nine months in the equity market, the tailwinds

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<v Speaker 2>are stronger than the headwinds. You have a FED that's

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<v Speaker 2>cutting interest rates, you have quantitative tightening that looks like

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<v Speaker 2>it's likely to be easing. You have tax refunds in

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<v Speaker 2>the spring that look like they're going to be much

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<v Speaker 2>stronger than they've been in recent years. There's really a

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<v Speaker 2>lot of important tailwinds to this market. And so until

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<v Speaker 2>we see the AI hyperscaler say demand is falling, until

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<v Speaker 2>we see the headwinds with respective trade, etc. Really make

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<v Speaker 2>their way into the data, we're likely to see a

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<v Speaker 2>pretty constructive market backdrop over the next six to nine months.

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<v Speaker 2>I want to ask just.

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<v Speaker 3>For your perspective on the economists. We heard a lot

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<v Speaker 3>from Chris Waller today. He was on our air in

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<v Speaker 3>the morning, and then our colleague Tom Keane sat down

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<v Speaker 3>with them at CFR. They had a longer conversation. Still,

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<v Speaker 3>you know, in his perspective here is you know, another

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<v Speaker 3>quarter point cut here. At the next meeting, talked a

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<v Speaker 3>lot about labor market, inflation, your sense of where this

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<v Speaker 3>US economy is, particularly when it comes to inflation, the

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<v Speaker 3>stickiness thereof how are you thinking through sort of ward that's.

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<v Speaker 2>Heat in Yeah, this is another area where we've spent

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<v Speaker 2>a lot of time because we anticipate that the first

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<v Speaker 2>level sort of impact of tariffs to consumer price inflation

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<v Speaker 2>are here, but aren't really going to be felt the

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<v Speaker 2>until the holiday season in the turn of the year,

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<v Speaker 2>And so I anticipate that we're going to have next

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<v Speaker 2>year a growth environment that's slower. We're looking a little

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<v Speaker 2>below one and a half percent, so it's a little

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<v Speaker 2>below consensus inflation that's about a little higher than consensus

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<v Speaker 2>where sticky around three percent for core inflation. That's a

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<v Speaker 2>stagflation light scenario. But when you again, when you when

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<v Speaker 2>you layer on the modifier, yeah, and when you add

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<v Speaker 2>the modifier, it's it's no, it's it's it's It's not

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<v Speaker 2>an overly bearish view on the US economy, but it's

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<v Speaker 2>one where the Fed and the market are grappling with

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<v Speaker 2>these same questions. While you have the overlay of a

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<v Speaker 2>sort of relatively bullish for the economy and for inflation

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<v Speaker 2>meaning inflation lower story coming out of AI. There's just

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<v Speaker 2>really when we talk about the long term implications of inflation,

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<v Speaker 2>things like technological change and productivity and demographics are always

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<v Speaker 2>on the list, and you put a question mark by them,

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<v Speaker 2>and that's what we're all going to be grappling with

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<v Speaker 2>over the next year.

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<v Speaker 3>So funny because I'm kind of watching all these conversations

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<v Speaker 3>happening in Washington. Yeah, talked with some of our colleagues

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<v Speaker 3>down there, and they say the same thing, which is,

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<v Speaker 3>there's the promise of increased productivity, but nobody really knows

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<v Speaker 3>at this point.

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<v Speaker 2>With that, it gives us all permission to acknowledge the

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<v Speaker 2>lack of conviction, right. And Look, it's interesting. I think

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<v Speaker 2>that there is a you know, a trade to place

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<v Speaker 2>and money to be made by having a really sort

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<v Speaker 2>of one sided perspective on this issue of inflation. In particular,

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<v Speaker 2>what we're seeing investors do is instead lean way more

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<v Speaker 2>into diversification. And it's funny because this diversification isn't a

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<v Speaker 2>new investment idea. But if you look back in the

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<v Speaker 2>last fifteen years, your ideal asset allocation wouldn't have actually

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<v Speaker 2>been very diversified. You should have been all in on

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<v Speaker 2>you as large cap growth equity for your ideal allocation,

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<v Speaker 2>and so closing underweights to international equities, adding gold and

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<v Speaker 2>other commodities.

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<v Speaker 1>That's where I wanted to go because gold is up

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<v Speaker 1>what sixty four percent? Yeah, if only if, But this

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<v Speaker 1>is a long time gold did nothing, So I mean,

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<v Speaker 1>how much did it be in your portfolio?

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<v Speaker 2>So I am of the team here. Here's one of

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<v Speaker 2>the areas where I do actually have a strong conviction personally.

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<v Speaker 2>I am of the team that gold has become a

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<v Speaker 2>new asset class and that we will continue to see

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<v Speaker 2>the price of gold rise in the coming years. We've

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<v Speaker 2>heard folks like Ray Dalio say that gold should be

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<v Speaker 2>as much as fifteen percent in your portfolio. I think

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<v Speaker 2>that's a little high for the average wealth investor, if

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<v Speaker 2>only because it is not a yielding asset class, and

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<v Speaker 2>so when you look at price return off of equity

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<v Speaker 2>by comparison, it's kind of cheating you really should we

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<v Speaker 2>get totally.

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<v Speaker 1>What do your take on why it's going okay?

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<v Speaker 2>Safe haven or is it there's so there's.

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<v Speaker 1>Hedging or a pushback on the dollar, Like what is

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<v Speaker 1>it there? So?

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<v Speaker 2>There's structural factors related to central banks over the last

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<v Speaker 2>really since Russia invaded Ukraine have been meaningfully trading dollars

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<v Speaker 2>for gold. That's accelerated this year as a result of

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<v Speaker 2>central bank and corporate hedging in response to some of

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<v Speaker 2>the political volatility we've seen out of the US. I

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<v Speaker 2>expect that sort of demand for gold to continue. There's

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<v Speaker 2>also not been much development and supply. It's you know,

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<v Speaker 2>you can't wish gold mines into being, and so it's there.

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<v Speaker 2>There's been a little bit of a hold up from

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<v Speaker 2>down necklaces that friend. And then I think right now

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<v Speaker 2>we are seeing a bit of a momentum or fomo

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<v Speaker 2>factor coming in where investors that maybe you know, set

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<v Speaker 2>it and forget it or wouldn't have thought very much

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<v Speaker 2>about this are saying like, did I miss the boat

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<v Speaker 2>on this one? And piling in nuts. Yeah, well it's

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<v Speaker 2>fun though.

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<v Speaker 1>In your portfolio.

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<v Speaker 3>Not enough, I'll say that quickly.

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<v Speaker 2>Well, a gold bar costs what more like more than

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<v Speaker 2>a million dollars now, so it's the the starting prices.

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<v Speaker 3>Skills on a.

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<v Speaker 1>Date just got like thirty seconds on a day when

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<v Speaker 1>we're feeling just a little bit nervous and wondering, is

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<v Speaker 1>this the beginning of something to come? Undoneer you're more

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<v Speaker 1>optimistic or pessimistic about the outlook.

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<v Speaker 2>My economist brain will always want to be pessimistic, But

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<v Speaker 2>I am I am, I'm constructive. I think that we

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<v Speaker 2>have some some tailwinds for the economy and markets that

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<v Speaker 2>get us through another nine months.

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<v Speaker 1>I didn't hear optimism?

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<v Speaker 2>No well optimistic.

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<v Speaker 1>No no, no too late. Thank you so much, Thank you

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<v Speaker 1>for having me, pretty to have you back. Learn Goodwin.

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<v Speaker 1>She's economist and Chief Market Strategies to Hats at New

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<v Speaker 1>York Life Investments, joining us here in studio