WEBVTT - Cumberland's Burgess on Puerto Rico Defaulting on Debt (Audio)

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<v Speaker 1>Broadcasting live to New York, Bloomberg eleventh to Washington, d C.

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<v Speaker 1>Bloomberg to Boston, Bloomberg twelve, Hundreix to San Francisco, Bloomberg

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<v Speaker 1>nine to the Country Julius Exam General one nineteen and

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<v Speaker 1>around the globe the Bloomberg Radio plus Appen Bloomberg dot Com.

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<v Speaker 1>This is taking stock for the first time ever. Puerto

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<v Speaker 1>Rico is getting ready to default on its constitutionally guaranteed

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<v Speaker 1>debt one billion dollars in payments due on a total

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<v Speaker 1>of about thirteen billion dollars. We're gonna find out what

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<v Speaker 1>this means for investors, what it means for elected officials

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<v Speaker 1>in Puerto Rico and the US, and what it means

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<v Speaker 1>for the market. We're going to be speaking with Seawan

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<v Speaker 1>Burgess from Cumberland Advisors. I'm Kathleen Hayes, my co host,

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<v Speaker 1>Pim Fox is on vacation. And then we're gonna be

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<v Speaker 1>speaking to a formal legal advisor to former UK Prentis

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<v Speaker 1>Prime Minister David Cameron. Actually I shouldn't say former, he

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<v Speaker 1>hasn't stepped down yet, but he's on his way. We're

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<v Speaker 1>going to talk about navigating the post regulatory landscape and

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<v Speaker 1>also what's next for Mr Cameron. Now let's get to

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<v Speaker 1>Catherine Cowdery. She is in the Bloomberg newsroom with a

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<v Speaker 1>Bloomberg Business flash. Thank you, Kathleen Will. Consumer focused companies

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<v Speaker 1>are fueling modest games on Wall Street. The SMP five

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<v Speaker 1>funded is up for a fourth day in a soundtrack

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<v Speaker 1>for its biggest four day rally in nine months. Their

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<v Speaker 1>speculation at central banks will like to limit the falloff

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<v Speaker 1>from the UK's vote to leave the European Union. John Man,

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<v Speaker 1>late chief equity strategis at Wells Fargo Funds Management, says

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<v Speaker 1>investors are still assessing the impact of the Brexit vote

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<v Speaker 1>exactly what form this is going to take, but it's

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<v Speaker 1>very premature to get very negative or very positive on it.

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<v Speaker 1>I think what happens is, uh, the the governments, the

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<v Speaker 1>politicians sort of feel their way along the edge. Market

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<v Speaker 1>provides ample guidance as to what we like and what

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<v Speaker 1>we don't like. We check the markets every fifteen minutes

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<v Speaker 1>throughout the training day. Down Dustrial laborage is eighteen points

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<v Speaker 1>a tenth of a percent trading at seventeen thousand, nine

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<v Speaker 1>hundred forty seven. SMP five founded up nearly three points

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<v Speaker 1>an eighth of a percent at twenty one oh one,

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<v Speaker 1>and Astact is hired by fourteen point three tenths of

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<v Speaker 1>a percent, trading at forty eight fifty seven. West Texas

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<v Speaker 1>Intermediate crude oil up seventy cents a barrel one point

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<v Speaker 1>four percent at forty nine oh one. Spot gold is

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<v Speaker 1>up eighteen dollars seventy cents announced at thirteen thirty nine

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<v Speaker 1>thirty and a tenure treasury is up seven thirty seconds

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<v Speaker 1>with the yield of one point four four percent. Among

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<v Speaker 1>today's top business stories, Harley Davidson shares are rallying. They

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<v Speaker 1>are currently up thirteen and a half percent, trading at

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<v Speaker 1>fifty one dollar forty five cents. There's speculation that KKR

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<v Speaker 1>is preparing a bid for Harley Davidson of sixty five

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<v Speaker 1>dollars a share. And now let's get an update to

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<v Speaker 1>some of the other stories are following. Thank you Catherine

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<v Speaker 1>from the Bloomberg News room. I'm sharing on. Attorney General

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<v Speaker 1>Loretta Lynch says she will follow the recommendations of her

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<v Speaker 1>prosecutors and FBI investigators about whether to bring charges after

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<v Speaker 1>their investigation into Hillary Clinton's personal email server. Concludes. The

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<v Speaker 1>decision comes after news of a private meeting between Lynch

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<v Speaker 1>and former President Bill Clinton raised concern amongst some in

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<v Speaker 1>Washington about perceptions of the impropriety. Lynch discussed why she

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<v Speaker 1>isn't recusing herself completely. Well, recuse me with me that

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<v Speaker 1>I wouldn't even be brief on what the findings were

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<v Speaker 1>or what the actions going forward would be. Um And

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<v Speaker 1>while I don't have a role in those findings and

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<v Speaker 1>coming up with those findings, are making those recommendations as

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<v Speaker 1>to how to go forward, I'll be briefed on it,

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<v Speaker 1>and I will be accept accepting their recommendations. Lynch says

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<v Speaker 1>the questions concerning her meeting with Clinton are fair. The

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<v Speaker 1>FBI is marking the twentieth anniversary of the terrorists bombing

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<v Speaker 1>of the Kobar Towers since Saudi Arabia. The attack killed

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<v Speaker 1>nineteen U S. Air Force personnel. At a ceremony today,

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<v Speaker 1>FBI Director of James Comey spoke to the families of

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<v Speaker 1>those who died that day. I am so sorry for

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<v Speaker 1>your loss. The older I get, the more I've come

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<v Speaker 1>to believe the closure is a myth, the notion that

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<v Speaker 1>the whole in your heart heels is nonsense. It feels,

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<v Speaker 1>as the General said, I'm sure to you like it

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<v Speaker 1>was yesterday. The remembrance included a brief laying ceremony. Assemblyman

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<v Speaker 1>Keith Ryant has considered to state Senator Adriano Espaillanti in

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<v Speaker 1>the Democratic primary. He takes over the Harlem seat held

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<v Speaker 1>by Congressman Charlie Wrangell. Global News twenty four hours a

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<v Speaker 1>D eight powered by more than twenty six hundred journalists

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<v Speaker 1>and analysts more than a hundred and twenty countries from

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<v Speaker 1>the Bloomberg News room. I'm Sherry Anne, this is Bloomberg, Catherine,

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<v Speaker 1>thank you, and now let's get a quick update of

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<v Speaker 1>those benchmarks. Down Industrial leverages up twelve points at seventeen thousand,

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<v Speaker 1>ninety two, smp F I founded up two points one,

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<v Speaker 1>naszac Hire by thirteen at forty eight fifty five. And

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<v Speaker 1>that's a Bloomberg Business flash. This is taking stock with

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<v Speaker 1>Kathleen Hayes and Pim Fox on Bloomberg Radio. A debt

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<v Speaker 1>default in slow motion. For months, Puerto Rico has been

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<v Speaker 1>negotiating with creditors. It's been lobbying the US Congress and

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<v Speaker 1>the White House to do something to help it avoid default.

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<v Speaker 1>Help it restructure thirteen billion dollars worth of debt, and

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<v Speaker 1>actually not all of that debt, but certainly key parts

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<v Speaker 1>of it. And here we are today, Puerto Rico is

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<v Speaker 1>ready to default on about one billion dollars worth of

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<v Speaker 1>its general obligation bonds. Those are bonds that the Constitution

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<v Speaker 1>said must be paid before other items. That's why they

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<v Speaker 1>are in the passing such an ironclad guarantee to investors.

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<v Speaker 1>But if it's a choice between keeping kids in school,

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<v Speaker 1>keeping government hospitals open, uh, the President has helped in

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<v Speaker 1>the Congress now to help Puerto Rico take this step

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<v Speaker 1>that will keep it in flow it while it resolves

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<v Speaker 1>its debt problem. At least that's the hope. Let's talk

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<v Speaker 1>now to someone who's been following us very closely, Shawn

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<v Speaker 1>Burge's portfolio manager and analysts for fixed income at Cumberland Advisors,

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<v Speaker 1>joining us from Sara Sota. So, Sean, this is quite

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<v Speaker 1>a day for Puerto Rico. Yeah, I love Kathleen, So

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<v Speaker 1>it's quite a day. A little bit of been following

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<v Speaker 1>poor to go over the last you know, however long,

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<v Speaker 1>it's it's been a big day in a big week.

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<v Speaker 1>So it's uh, if you're looking at about UM a

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<v Speaker 1>billion of two billion in debt service due today actually

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<v Speaker 1>getting paid with the General Obligation UM debt getting shafted

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<v Speaker 1>for the most part. So it's a bad day if

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<v Speaker 1>you own uninsured commonwealth debt. What is in the plan

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<v Speaker 1>now that has been agreed on in Washington for Puerto

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<v Speaker 1>Rico to move ahead? What must they do? What can

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<v Speaker 1>they do? What kind of help are they going to get?

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<v Speaker 1>We know just from the outline of Premissa, which ended

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<v Speaker 1>up passing the House and the Senate and being signed

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<v Speaker 1>off by the President, and you know, very much uh

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<v Speaker 1>bipartisan support across the board, which was actually kind of

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<v Speaker 1>a rarity to see nowadays in politics. Um, that was

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<v Speaker 1>kind of reassuring to see that the federal government here

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<v Speaker 1>is now going to step in and really provide some

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<v Speaker 1>clarity and some erection for the commonwealth, because it seemed like,

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<v Speaker 1>you know, they were just kind of and a boat

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<v Speaker 1>afloat with no means to do anything. And what Promiser

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<v Speaker 1>really does is that establishes a seven member control board

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<v Speaker 1>which will oversee their budget and they're spending and allow

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<v Speaker 1>them the ability to restructure some of their debt. And

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<v Speaker 1>that's really where what is key and this it gives

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<v Speaker 1>them um the ability to look at their debt and

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<v Speaker 1>to be able to pay you know, hopefully what they

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<v Speaker 1>can afford to, and you'll see cuts across the board,

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<v Speaker 1>but it should hopefully put them in a better position

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<v Speaker 1>going forward. And that's why you know, we're pretty optimistic

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<v Speaker 1>to see this. Well, I'm glad to hear that you're optimistic,

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<v Speaker 1>because I still in a nutshell when I think of

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<v Speaker 1>three and a half million people with thirteen billion dollars

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<v Speaker 1>with a debt, I think, how in the world did

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<v Speaker 1>investors ever keep buying bonds from Puerto Rico seeing how

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<v Speaker 1>this was piling up on and what was basically a

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<v Speaker 1>poor country that was already in bad shape. I mean,

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<v Speaker 1>where's your optimism? Where it's what's what's doing rating it?

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<v Speaker 1>That's it's a very valid point because when you look

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<v Speaker 1>at it, about half the islands below the poppy line,

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<v Speaker 1>and you know, investors for decades and and the island

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<v Speaker 1>itself is at fault as well, because what you know,

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<v Speaker 1>what they didn't do with that money was really look

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<v Speaker 1>at improving their infrastructure, their you know, accounting techniques, or

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<v Speaker 1>they're really any of their internal mechanisms. They just kept borrowing,

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<v Speaker 1>and investors for decades just kept wanting the money. You know,

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<v Speaker 1>it's triple tax exempt, kept putting the funds and and

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<v Speaker 1>everywhere else, and it offered higher yields and typically what

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<v Speaker 1>you can find. So, you know, investors just or kind

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<v Speaker 1>of you know, let's fault here as well. Well. I

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<v Speaker 1>guess maybe they thought that government would step in as

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<v Speaker 1>it has. But of course, as you point out, the

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<v Speaker 1>owners of the general obligation bonds are not getting paid up.

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<v Speaker 1>A question from a listener who's a financial advisor and

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<v Speaker 1>advises his clients to buy various kinds of bonds. Is

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<v Speaker 1>it true that these bonds are held by hedge funds,

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<v Speaker 1>in which some are related to New York City teacher

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<v Speaker 1>pension funds. Uh, well, we know Puerto Rico has held

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<v Speaker 1>really across the board. Um A large person then is

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<v Speaker 1>actually held by island residents and and on island banks,

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<v Speaker 1>large percentages are held by mutual funds. I mean, you

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<v Speaker 1>can find Puerto Rico to really places that you really

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<v Speaker 1>wouldn't think you could. For instance, you know not that

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<v Speaker 1>not a pull any fund under the mud, but Rochester

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<v Speaker 1>is fund. Uh, Rochester Fund actually held a large percentage

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<v Speaker 1>of Puerto Rico and it for a long time and

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<v Speaker 1>it's really once it really all this came to light

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<v Speaker 1>with Puertoco, really people start to take a look. But

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<v Speaker 1>you can find Puerto Rico and you know all kinds

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<v Speaker 1>of well places and portfolios. So for investors, uh they

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<v Speaker 1>you're are you do you would you say to people

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<v Speaker 1>be aware of the general obligation bonds you buy now? Uh,

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<v Speaker 1>don't buy Puerto Rico. Are there some deals now in

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<v Speaker 1>Puerto Rico because they hit bottom and people have hope

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<v Speaker 1>this will be resolved? What are you what are you

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<v Speaker 1>buying for your clients? What do you advising clients at Cumberland. Yeah,

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<v Speaker 1>our our stance has always been to avoid uninsured general

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<v Speaker 1>uninsured Puerto Rico dead, just because there was so much

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<v Speaker 1>murderiness and there still is. Um promissa you know, really

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<v Speaker 1>clear up the situation. It just provides the map forward.

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<v Speaker 1>So we still have to see where we're structurings end up,

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<v Speaker 1>what kind of haircuts certain credits get. So in our

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<v Speaker 1>view and what we do at Cumberland is we focus

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<v Speaker 1>on the opportunities and insured Puerto Rico debt, Puerto Rican debt,

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<v Speaker 1>so We've always maintained that I'm insured that is really

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<v Speaker 1>carries a high um degree of risk with it, so

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<v Speaker 1>we've avoided that area of the market and really focus

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<v Speaker 1>more on the insurers and the opportunities in there. So

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<v Speaker 1>that's where our work was really concentrated. Well, thank you

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<v Speaker 1>so much, Sean. It's a complicated situation, but definitely a landmark,

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<v Speaker 1>I guess, a milestone for Puerto Rico. Well look forward

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<v Speaker 1>to having you back as the next phase of Puerto

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<v Speaker 1>Rico's debt saga, that's the word saga continues. I'm Kathleen

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<v Speaker 1>Hayes taking sock and this is Bloomberg. This Hampton's Commuter

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