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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane along

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Speaker 1: with Jonathan Ferroll and Lisa Brownwitz Jaily. We bring you

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Speaker 1: insight from the best and economics, finance, investment, and international relations.

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Speaker 1: Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot Com,

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Speaker 1: and of course on the Bloomberg terminal. Right now, and

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Speaker 1: this is well timed. Sarah Bianchi joins us working with

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Speaker 1: Edward Simon over at evercres I s I ahead of

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Speaker 1: US public policy and political strategy and actually very experienced

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Speaker 1: in the Washington science of gridlock. Did we just see, Sarah,

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Speaker 1: the end of gridlock? Is this what less gridlock looks like? Well,

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Speaker 1: it certainly is an impressive victory. Even though there were

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Speaker 1: no Republicans on this bill. With a fifty the Senate,

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Speaker 1: it's a very narrow majority and really holding all of them.

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Speaker 1: You have to give your hats off to President Biden

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Speaker 1: and his team in a narrow majority in the House.

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Speaker 1: So I think they're showing you that they were sent

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Speaker 1: here to get things done. Now their next package is

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Speaker 1: going to be even harder, So I'm not sure the

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Speaker 1: era of grid luck is over. They're going to try

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Speaker 1: to do things that have taxes and more difficult spending.

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Speaker 1: So we got some rough sledding to go, but certainly

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Speaker 1: today they ought to feel very good. Sarah, is there

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Speaker 1: any chance of a bipartisan infrastructure bill? You know, I

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Speaker 1: think there's a possibility that they could pull off some

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Speaker 1: of the infrastructure pieces and try to pass that in

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Speaker 1: the bipartisan way. What we've seen as Senator Mansion already

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Speaker 1: saying I'm not going down this other route again. I've

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Speaker 1: done this reconciliation only things, so they're at least kind

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Speaker 1: of have to get caught trying. But I don't think

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Speaker 1: you're going to see Republicans really biting on some of

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Speaker 1: these tax revenues that Democrats are talking about. So the

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Speaker 1: only way I see bipartis and hip is if they're

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Speaker 1: willing to pull off call it five a trillion just

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Speaker 1: on infrastructure and then try to do the rest on

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Speaker 1: their own. Is democrats, Sarah, it is one point nine trillion.

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Speaker 1: Do income replacement in the emergency of the have nots

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Speaker 1: of America or couldn't actually advanced prosperity in productivity in America.

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Speaker 1: There's a lot in this bill for everybody. Uh, there

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Speaker 1: is checks and there is child UH resources for families

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Speaker 1: with children, but there is also some testing and some

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Speaker 1: vaccination money that should benefit all of us across the board.

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Speaker 1: I think really the next bill is designed to really

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Speaker 1: strengthen the country. That's where the infrastructure comes, That's where

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Speaker 1: the R and D comes for things like five G

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Speaker 1: and semiconductors. So I think the next one is really

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Speaker 1: more of an investment in the country. But this one, again,

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Speaker 1: the biggest stimulus for all of us is if we

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Speaker 1: can get out of COVID, and so I think all

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Speaker 1: of it will be benefit to to to everyone, but

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Speaker 1: it's not all the answers for sure. Sarah, good to

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Speaker 1: see you and we appreciate your insight. Thank you, Sarah. Byankee.

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Speaker 1: There about the core side, Calen picker Um advanced as

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Speaker 1: a discussion. We welcome all of you on radio and

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Speaker 1: television worldwide with Barenburg, their senior economists. I just have

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Speaker 1: to know now, Callen the job owning you will listen

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Speaker 1: to with this press conference today, John has made it

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Speaker 1: clear to me this is not a snooze fest. This

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Speaker 1: is a press conference of import What will you listen for? Well,

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Speaker 1: I expect the ECB basically to reaffirm this commitment to

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Speaker 1: buy bonds a little faster in the near term. I

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Speaker 1: mean the first once what we've heard sounds like a

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Speaker 1: fairly well judged intervention because the ECB is facing what

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Speaker 1: you might describe as a time inconsistency problem. The market

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Speaker 1: has welcomed the big policy intervention around the world. We

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Speaker 1: have rising inflation expectations, growth and Mentumy is expected to

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Speaker 1: be very strong over the next couple of years, but

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Speaker 1: Europe is still under lockdown, and hence rising interest rates

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Speaker 1: at this moment is not what the economy needs. So

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Speaker 1: the ECV is essentially bought a little bit of time.

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Speaker 1: It will keep interest rates low and then probably that

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Speaker 1: welcomed rising interest rates reflecting better economic conditions will come

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Speaker 1: later this year, once the economy is opened and once

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Speaker 1: economic momentum is robust. Callum. I just wonder how divided

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Speaker 1: the Government Council is on this plan. The key letter

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Speaker 1: and the acronym PEP is a it's emergency. It's the

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Speaker 1: pandemic emergency proceased program And for some members of the

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Speaker 1: Government Council later this year, Calum, they might not consider

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Speaker 1: conditions emergency conditions. How do you see that progressing in

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Speaker 1: the year ahead. Well, I just like to cast our

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Speaker 1: minds like a year ago, that was a real emergency.

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Speaker 1: We were facing at a global level the prospect of

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Speaker 1: a major financial crisis, a major deflation, and we have

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Speaker 1: had an m precedented policy response that has worked, and

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Speaker 1: we're not yet out of the woods, and hence the

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Speaker 1: underlying risks are still significant. I think what we will

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Speaker 1: probably see actually over the course of this year is

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Speaker 1: some evidence that might make people worry about inflation risks.

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Speaker 1: A lot of one of factors will push inflation probably

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Speaker 1: above the two percent target for the ECB during the

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Speaker 1: middle of this year, but the ECB will have to

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Speaker 1: just remind everyone that these are one off powerful factors

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Speaker 1: that will unwind. We don't think we get on core

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Speaker 1: inflation anything close to two percent over the next couple

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Speaker 1: of years. We think we get close to one and

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Speaker 1: a half percent by end two and hence there's still

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Speaker 1: a big justification to keep buying bonds at least for

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Speaker 1: the next twelve months, perhaps even eighteen months. So let's

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Speaker 1: talk about the Japanification of the Eurozone. This idea that

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Speaker 1: the year hit the ECB will own a substantial portion

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Speaker 1: of overall debt from the government's in that region. What

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Speaker 1: proportion could that be by the end of this year.

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Speaker 1: Calum Well, I have to just jump in there. I

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Speaker 1: don't like this description Japanification of Europe. If the Eurozone,

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Speaker 1: if Europe would have enjoyed GDP per capita gains as

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Speaker 1: strong as Japan over the last decade, I doubt very

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Speaker 1: much we would have suffered the political uncertainty and the

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Speaker 1: problems that we've had. The ECB will rapidly expand its

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Speaker 1: balance sheet as necessary to lift inflation expectations, but the

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Speaker 1: real problems come from productivity, from weak investment momentum, and

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Speaker 1: for that we have to look at fiscal policymakers. All

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Speaker 1: the central Bank can do is grease the wheels to

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Speaker 1: allow actually commerce to improve with a bit of look

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Speaker 1: boosted by some fiscal support. So I think it's other

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Speaker 1: policymakers that we should be thinking about if we're really

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Speaker 1: worried about this so called Japanification risk. I gotta say, John,

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Speaker 1: I've never heard that before. When you start talking about Japanification,

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Speaker 1: usually it's a slur almost to an economic policy considered

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Speaker 1: slow growth and very little inflation for a very long

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Speaker 1: time with a lot of government intervention. Calum just there

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Speaker 1: seemed to say that was too generous for the Eurozone

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Speaker 1: based on what is seeing with respect to gra Let's

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Speaker 1: take a look at what we're seeing in this market

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Speaker 1: right now. You're a dollar one nine nine and coming

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Speaker 1: in a couple of tenths of one percent off session high,

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Speaker 1: still positive a tenth, still a stronger euro. But the

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Speaker 1: bid is in in the bond market right now. It's

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Speaker 1: Haalian yields down by five basis points to zero point

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Speaker 1: six to its Just quickly, John, you take it back

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Speaker 1: to Kilhen But John, very quickly, here the Swiss twenty year,

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Speaker 1: which is, you know, somewhat away from Europe, that does

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Speaker 1: the same thing with a more negative yield. Right now.

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Speaker 1: I thought we've seen the last few days. It is

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Speaker 1: a clear response to market conditions. And Callum might go further.

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Speaker 1: I think what's really important here is this is the

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Speaker 1: message from the entire governing council this morning, Callum, and

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Speaker 1: I just wonder how much division within the Governing Council

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Speaker 1: there still might be about plans to lean into the

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Speaker 1: financial conditions that we've seen. Titan just a little bit

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Speaker 1: undue tightening in the words of some ECB officials over

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Speaker 1: the last couple of weeks. Well, I think the Governing

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Speaker 1: Council will want to make sure that the front end

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Speaker 1: of this recovery is a strong one. That's the best

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Speaker 1: bet for actually hitting the two percent target in time.

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Speaker 1: I think one of the issues in Europe at the

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Speaker 1: moment is a worry that actually it's some of the

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Speaker 1: inflationary excesses from the other side of the Atlantic, the US,

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Speaker 1: which are spilling over into the European market. And again,

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Speaker 1: just to repeat an earlier point, rising interest rates tell

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Speaker 1: us actually growth and inflation expectations are improving. They're a

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Speaker 1: sign that the ECB policy is working. But there's a

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Speaker 1: time inconsistency. If those rates rise before you actually get

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Speaker 1: the good growth in inflation, then it could be an

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Speaker 1: impediment of growth. So I suspect actually there's pretty strong

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Speaker 1: consensus to act against this modest time in financial conditions.

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Speaker 1: Just to play things on the safe side, can goardscratch

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Speaker 1: up Calen Picker in there, Barrenberg Senior economists Sebastian Page

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Speaker 1: of Tiro Price, Yes, a multi asset strategist, as I

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Speaker 1: said before his book Beyond Diversification is except cutly acute

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Speaker 1: about what to do given the mail stream of news

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Speaker 1: flow that we see today, semesterion, what is your major

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Speaker 1: message on how to reallocate now? Is it to go

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Speaker 1: back to fundamentals or is there a new set of rules?

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Speaker 1: There is a new set of rules in this much

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Speaker 1: lower rate environment. And the number one question I think

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Speaker 1: for investors in one tom is will rising rates be

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Speaker 1: good or bad for stocks? And I know you talk

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Speaker 1: about it a lot on the show, and you know,

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Speaker 1: think of things like coffee, egg, yolks, red wine, all

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Speaker 1: these things you don't really know if they're good or

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Speaker 1: bad for you, And it's the same with rising rates.

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Speaker 1: You don't really know if they're good or bad for stocks. Uh?

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Speaker 1: Did it? A discount model will tell you that if

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Speaker 1: the discount rate goes up, valuations go down. Also, you

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Speaker 1: could think of higher expected returns on bonds. I know

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Speaker 1: right now rates are coming down in Europe and we're

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Speaker 1: gonna see them come down in the US. But we

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Speaker 1: are in the rising rates environment in this recovery phase,

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Speaker 1: So the expected return on bonds goes up. It makes

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Speaker 1: bonds more attractive than stocks. But here's the rob and

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Speaker 1: a lot of your guests have mentioned this before. The

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Speaker 1: FED is only comfortable rising raising rates when they expect

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Speaker 1: positive growth, and positive growth surprises are good for stocks.

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Speaker 1: Tom Which just did an analysis that shows if you

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Speaker 1: go back thirty years and you look at all rolling

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Speaker 1: twelve month periods, you can find seventy two twelve month

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Speaker 1: periods during which the US tenure yield was up by

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Speaker 1: fifty basis points or more. What do you think is

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Speaker 1: the average return from the SMP five hundred over those

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Speaker 1: seventeen periods of rising rates. It's staggering seventeen percent, and

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Speaker 1: the hit rate, the percentage of time stocks made money,

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Speaker 1: is a hundred percent. So it's not clear whether rising

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Speaker 1: rates are good or bad for the market. It is

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Speaker 1: the number one question for investors in one It is

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Speaker 1: in a sense a new set of rules because of

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Speaker 1: the low level we're starting with and the trillion and stimulus. Ultimately,

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Speaker 1: right now we're along the recovery trade. Like a lot

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Speaker 1: of your guests, I know Sebastiy of the keyword there

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Speaker 1: is recovery. And when we ask ourselves the real rates,

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Speaker 1: high real rates good for the equity market, we also

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Speaker 1: have to answer the question where are we in the cycle.

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Speaker 1: If you're in the recovery stage and you'll start to

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Speaker 1: pick up. Isn't that typically a good thing for stocks.

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Speaker 1: It is a good thing to stocks because you get

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Speaker 1: positive growth shocks typically again you and you also possibly

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Speaker 1: get positive earning surprises. The earnings forecast for the year

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Speaker 1: are pretty high twent depending on which parts of the

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Speaker 1: stock market you're looking at, So the bar is high.

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Speaker 1: But yes, rising rates can coexist. You know, you don't

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Speaker 1: necessarily need to say they're good for stocks, but they

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Speaker 1: can coexist with very positive stock returns. And let's not

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Speaker 1: forget I know you were just talking about the Denmark

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Speaker 1: news and issues of the vaccines in Europe. Overall, the

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Speaker 1: news on the vact scenes have been phenomenal. And we

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Speaker 1: tracked this probability from a group called the super Forecasters,

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Speaker 1: and they have a probability that you'll you'll have enough

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Speaker 1: DoLS is to inoculate million people by July. That probability

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Speaker 1: prior to Fiser in November was even dip as recently

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Speaker 1: as January to below. Right now, it's so we tend

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Speaker 1: it's human nature to focus on the negative side of

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Speaker 1: the news, but the vaccine developments have just been phenomenal.

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Speaker 1: It's our base case that we're in a race between

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Speaker 1: vaccines and new strains. It's our base case that vaccines

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Speaker 1: will win that race. Vaccines may win that race in

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Speaker 1: certain regions faster than others. And that's what we've seen,

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Speaker 1: and we've been talking about it a lot with the

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Speaker 1: US versus the European Union. How much of a boost

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Speaker 1: do US fixed income markets get from very easy and

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Speaker 1: easier ECP policies. I think you see the market movements

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Speaker 1: this morning, they respond to it, but ultimately there's a

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Speaker 1: little bit of noise here in there. Right. The US

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Speaker 1: bond market will be driven by big macro forces, the

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Speaker 1: forces of the recovery, the stimulus, the fiscal measures, and

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Speaker 1: there will be a lot more driven by what will

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Speaker 1: hear from the Fed over the next few weeks, and

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Speaker 1: that will be uh fairly dubbish. So you'll still see

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Speaker 1: because of the recovery, rising rates, But I don't expect

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Speaker 1: rising rates to impact to negatively impact risk gasset returns.

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Speaker 1: It's so on the margin, Lisa, it's it's it's wish

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Speaker 1: Sebastian gonna see a Sebastian past that price. Multi assets

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Speaker 1: strategist Jason Farley of Johns Hoppinin scheduled to be with

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Speaker 1: us here on a pandemic update, the good news of

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Speaker 1: America and Dr Farley and the rest of us shocked

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Speaker 1: by what we see out of Denmark and Hester Zenica.

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Speaker 1: What we see how to the EU on blood clots.

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Speaker 1: Jason Farley with a wonderful research of j h U

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Speaker 1: and I really go to Robert Brosky and hematology as well.

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Speaker 1: Give us a summary of the risk right now in

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Speaker 1: America to the thrombosis, the embolism risks that we see

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Speaker 1: out of Denmark. Sure well, good morning. Uh. We've known

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Speaker 1: that COVID nineteen causes a state of hypercoagulability or blood

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Speaker 1: clots as you say, uh, since the beginning of the epidemic.

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Speaker 1: We've talked about things many, many types of things early

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Speaker 1: am I, including three bovascular accidents in patients or stroke

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Speaker 1: in patients with COVID nineteen. We've seen covid toe, which

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Speaker 1: is little blood clots that block the blood flow to

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Speaker 1: the vasculature. So we we know that this causes a

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Speaker 1: state of the body's response leading to lots of blood

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Speaker 1: clot formation. UM. This has caused magnificant disease and the

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Speaker 1: elderly particularly and those with coexisting comorbidities. In the United

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Speaker 1: States as well. We look and I mentioned Francis Collins

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Speaker 1: of n i H earlier with the key phrase even

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Speaker 1: in younger people. What is the risk of these hematology

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Speaker 1: events to younger people if they get COVID, which they

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Speaker 1: heal from easily, but nevertheless they've got blood clot risk

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Speaker 1: well certainly so anything that up the body's response to infection,

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Speaker 1: particularly the inflammatory responses, can trigger the clotting cascade. And

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Speaker 1: we do see it lower risk in younger individuals with

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Speaker 1: fewer comorbidities, and that risk rises as a boath with

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Speaker 1: age as well as underlying disease state. So what we

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Speaker 1: know is that we have seen uh cases of blood

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Speaker 1: clots in younger individuals. Although they are they remain relatively rare.

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Speaker 1: Um Professor Queen talk about the vaccine role and just

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Speaker 1: add to this conversation, Europe has a problem right now

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Speaker 1: on the consonant and I don't want to get into

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Speaker 1: the analysis of what has happened in Denmark, but the

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Speaker 1: outcome is pretty clear. The consequence to clear for the consonant,

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Speaker 1: there is an issue with vaccine acceptance now and trust

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Speaker 1: in some of these vaccines. Professor, have you seen us

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Speaker 1: bump up against that issue yet in America? Sure so.

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Speaker 1: Vaccine hesitancy or or problems with vaccine acceptance has has

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Speaker 1: been a problem since the beginning of the pandemic. But

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Speaker 1: we've seen that muted, however, because of lack of vaccine supply.

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Speaker 1: So importantly right now queues are really long for COVID

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Speaker 1: nineteen vaccine and people can't find a vaccine even when

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Speaker 1: they qualify. Uh, So importantly, we've seen this response of

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Speaker 1: people not wanting the vaccine, or people hesitant to get

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Speaker 1: the vaccine or a wait and see approach has been

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Speaker 1: muted because of the supply issue. And Professor, I think

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Speaker 1: this rises the next question, which is when do we

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Speaker 1: start to bump up against the acceptance issue, and when

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Speaker 1: that force is to actually get rid of the age

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Speaker 1: caps on who and caount who can and who can't

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Speaker 1: have the vaccine and just make it available to everyone.

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Speaker 1: Do you think we're close to that point or not

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Speaker 1: until Well, certainly this has been a state by state

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Speaker 1: response and who the categories of are qualified to vaccinate

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Speaker 1: in the United States, and and quite Frankly, there are

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Speaker 1: many individuals who are still in the wings waiting, who

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Speaker 1: are the waiting and hopeful to receive the vaccine. So

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Speaker 1: removing age restrictions I think needs to bump up against

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Speaker 1: us pushing into that eight plus percent of those sixty

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Speaker 1: five years of age and older, and in the United

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Speaker 1: States we're sitting around sixty percent of those in that category.

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Speaker 1: So I think that we need to continue to focus

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Speaker 1: on our age categories for the for the short run,

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Speaker 1: probably in the March we getting of April, depending on

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Speaker 1: the number of shots that we get out into arms,

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Speaker 1: but then begin to think about the expansion of those

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Speaker 1: categories and getting the next round of people with shots

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Speaker 1: in their arms. And Jason. In the meantime, John's talked

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Speaker 1: about this a lot, the idea that a number of

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Speaker 1: governors are taking matters into their own hands. As you said,

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Speaker 1: it's state by state, and they're reopening perhaps earlier than

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Speaker 1: health officials would recommend. What do you say to people

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Speaker 1: who pushed back against health officials assertions and say there

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Speaker 1: hasn't been enough done to recognize the depression, the suicides,

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Speaker 1: the uh, the the violence that you have seen break

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Speaker 1: out that has had real medical impact that has stemmed

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Speaker 1: from some of the shutdowns that continue to be ongoing. Well, certainly,

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Speaker 1: and as a nurse, you know, we're trained to really

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Speaker 1: think about the consequences of disease like the ones you're mentioning,

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Speaker 1: so that the fallout of disease, if you will, I

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Speaker 1: would also add to that that that the consequences of

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Speaker 1: COVID nineteen remain real, and we are seeing lots of

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Speaker 1: positive numbers with increased vaccination, increased amounts of herd immunity,

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Speaker 1: if you will, estimates coming out this morning from the

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Speaker 1: New York Times of forty in the Carls the United States.

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Speaker 1: That's all good news. We also are also seeing lots

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Speaker 1: of mental health concerns, and so there's a balancing act.

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Speaker 1: But I would say to them that the CDC just

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Speaker 1: came out with some amazing data on a county by

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Speaker 1: county level as of earlier this week, demonstrating that the

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Speaker 1: earlier you roll back mask, the sooner you repopulate restaurants,

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Speaker 1: the more likely you are to see a greater number

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Speaker 1: of cases research and so we have to further push

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Speaker 1: her immunity. We have to get more shots in arms

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Speaker 1: before we begin making this not because we don't understand

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Speaker 1: and recognize the consequences of the state of these diseases,

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Speaker 1: but most importantly, we have to get ahead of the variants. Professor,

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Speaker 1: I'm going to see you as always. Jason Founding That

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Speaker 1: Jones Helkins nursing Professor on reopening and the risk of

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Speaker 1: increasing infections. This is the Bloomberg Surveillance Podcast. Thanks for listening.

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Speaker 1: Join us live week days from seven to ten am

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Speaker 1: from six to nine am for insight from the best

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Speaker 1: in economics, finance, investment, and international relations. And subscribe to

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Speaker 1: the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg dot com,

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Speaker 1: and of course on the terminal. I'm Tom keene In.

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Speaker 1: This is Bloomberg