WEBVTT - Here's Why Uncertainty Is An Economic Killer

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news. I'm Stephen Carroll, and

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<v Speaker 1>this is Here's Why, where we take one new story

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<v Speaker 1>and explain it in just a few minutes with our experts.

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<v Speaker 1>Here at Bloomberg.

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<v Speaker 2>People getting really a bit tired. They don't know even

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<v Speaker 2>if something's announced, whether two days later it's not changed again.

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<v Speaker 2>So you really see some fatigue of decision makers.

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<v Speaker 1>That's the CEO of Logistics Giant DHL, Tobias Meyer. For

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<v Speaker 1>executives like him navigating the near daily shifts in US

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<v Speaker 1>economic policy, it's like driving through fog with no headlights.

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<v Speaker 1>When the rules are changing so quickly, it's not just

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<v Speaker 1>hard to keep up, it's almost impossible to make decisions.

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<v Speaker 1>Should a company build a new factory, order more supplies,

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<v Speaker 1>hor or more workers, and where to do any of this?

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<v Speaker 1>And when you don't know what's coming, you hit the brakes.

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<v Speaker 2>But we haven't I don't think spent enough time talking

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<v Speaker 2>about just the un certainty out there.

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<v Speaker 3>Operating in this highly uncertain environment means go slow.

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<v Speaker 2>The higher uncertainty and greater risk of recession, the.

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<v Speaker 4>Fear that on a daily basis, you wake up in

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<v Speaker 4>the morning and not wondering whether which sectors again to

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<v Speaker 4>have twenty five percent towers, which country's tariffs again to

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<v Speaker 4>be at one hundred percent. That's where the damage is caused.

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<v Speaker 1>So here's why uncertainty is an economic killer. Joe Wisenthal,

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<v Speaker 1>host of Bloomberg's Odd Lots podcaster, is with me in London. Joe,

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<v Speaker 1>great to see you, Thank.

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<v Speaker 3>You for having me. Thrilled to be here.

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<v Speaker 1>Tell me, with your brain and knowledge these matters, how

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<v Speaker 1>can we define uncertainty in this moment in twenty twenty five.

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<v Speaker 3>Yeah, I mean it's a great question, and I think

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<v Speaker 3>there are sort of two different elements, which is, one is, Okay,

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<v Speaker 3>we know there's going to be a change in the

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<v Speaker 3>trading environment between the rest of the world in the US, right,

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<v Speaker 3>Like that's obviously a done deal, and nobody knows like

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<v Speaker 3>what type of arrange will be profitable in those environments

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<v Speaker 3>and so forth. So that's a form of uncertainty. But

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<v Speaker 3>that there's another, you know, the more deeper form of

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<v Speaker 3>uncertainty is, yes, we know there's going to be a change,

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<v Speaker 3>but we don't know to what right. And part of

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<v Speaker 3>that is I don't think you know, the White House

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<v Speaker 3>has clearly articulated what it wants the new environment to be.

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<v Speaker 3>There's a message uncertainty because various people speak for the

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<v Speaker 3>White House on behalf of the White House, and there's

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<v Speaker 3>a lot of ambiguity about the degree to which anything

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<v Speaker 3>they say actually reflects the thinking of the administration. And

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<v Speaker 3>when I say the administration, I only mean the President

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<v Speaker 3>because you know, typically one would think there is a

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<v Speaker 3>coherent message, but I don't think there is. There's you know,

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<v Speaker 3>there's rivals within the White House that have different priorities,

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<v Speaker 3>and I think that even the President himself, well, he

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<v Speaker 3>has some intuitions that you know, he believes that tariffs

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<v Speaker 3>are a tool that can be used to revive the

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<v Speaker 3>manufacturing sector. The degree to which that policy is cemented

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<v Speaker 3>seems still very up in the air.

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<v Speaker 1>Can we say that it's more uncertain now that it

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<v Speaker 1>has been in years?

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<v Speaker 4>Yeah?

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<v Speaker 2>Sure.

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<v Speaker 1>How do we sort of measure uncertainty? I mean you

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<v Speaker 1>can look at the mats for one example.

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<v Speaker 3>Well, look, I think you know, in the two big

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<v Speaker 3>recent crises that we had, there were clear goals. During COVID,

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<v Speaker 3>the goal was to stop the spread of the disease

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<v Speaker 3>and then from an economic side, to sort of replaced

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<v Speaker 3>all the lost money, you know, all the lost economic

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<v Speaker 3>activity for those months during lockdown in two thousand and

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<v Speaker 3>eight and two thousand and nine. The goal was to

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<v Speaker 3>stop a bank run, and there was a lot that

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<v Speaker 3>they didn't know at the time, and they certainly, you know,

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<v Speaker 3>may have misjudged the speed and scale through which the

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<v Speaker 3>financial system was deteriorating in two thousand and eight and

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<v Speaker 3>two thousand and nine, But the goal was to stop

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<v Speaker 3>a bank run. In this case, you know, as they say,

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<v Speaker 3>the call is coming from inside the house, so you

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<v Speaker 3>don't really know what the goal is. Is the goal

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<v Speaker 3>to improve our ability to manufacture high tech things that

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<v Speaker 3>are important for national security?

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<v Speaker 4>Maybe?

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<v Speaker 3>Is the goal to fundamentally restructure the economy such that

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<v Speaker 3>everyone or a lot more people are in what we

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<v Speaker 3>call production work. Is the goal to stop the flow

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<v Speaker 3>of fentanyl? Is the goal to slow international migration. So

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<v Speaker 3>whereas in the last two crises, there is certainly a

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<v Speaker 3>lot of uncertainty, and there's a lot of debate about, well,

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<v Speaker 3>what's it going to take and how long will it

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<v Speaker 3>take to stop the spread of a pandemic or a

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<v Speaker 3>bank run, et cetera. I don't think we actually even

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<v Speaker 3>know what the goal is here, and so in some sense,

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<v Speaker 3>I would say, again, there are various attempts to measure

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<v Speaker 3>uncertainty that our market based measures, our sentiment based measures.

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<v Speaker 3>But I would say there is a degree of uncertainty

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<v Speaker 3>now that is in a way incomparable to any recent crisis.

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<v Speaker 1>What's the macro picture when we have this level of uncertainty,

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<v Speaker 1>given that, as you say, it doesn't really have a

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<v Speaker 1>parallel something we've looked at before.

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<v Speaker 3>Well, look, at a minimum, it's very hard to imagine

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<v Speaker 3>any company in the world committing to like serious investment

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<v Speaker 3>right now. And what I mean by investment obviously is

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<v Speaker 3>opening up new locations, opening up new production facilities, expanding headcount,

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<v Speaker 3>et cetera. Why would anyone do that in this environment?

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<v Speaker 3>And that's at a minimum. Furthermore, there has been this

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<v Speaker 3>hit to financial markets of financial tightening, as they say,

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<v Speaker 3>and so stock prices have gone down, yields on government

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<v Speaker 3>debt have gone up, credit spreads have gotten wider. So

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<v Speaker 3>there is just an increased cost of doing business already

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<v Speaker 3>on the financial side, and then you layer in the

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<v Speaker 3>actual literal increased cost of doing business because the goods

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<v Speaker 3>that a company imports, whether they're for resale or whether

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<v Speaker 3>their inputs to production have also gone up. So you

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<v Speaker 3>layer in the inherent policy uncertain and the fact that

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<v Speaker 3>until there's some policy stability, no one is going to

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<v Speaker 3>do anything new, on top of the fact that the

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<v Speaker 3>existing costs we're on day to day operations for both

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<v Speaker 3>financial and goods have gone up. And this is why

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<v Speaker 3>many people believe we're either going into a recession in

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<v Speaker 3>the US or that we're already in one.

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<v Speaker 1>At what points do businesses, consumers, markets simply got used

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<v Speaker 1>to things being so uncertain. Is there a point at

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<v Speaker 1>which that we all just sort of shrug and move on.

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<v Speaker 3>It's hard to imagine that you can ever fully shrug

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<v Speaker 3>and move on. But the answer to that persistent uncertainty

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<v Speaker 3>is to take fewer risks, to shore up your balance sheet,

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<v Speaker 3>to cut everything that you can theoretically cut. You know,

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<v Speaker 3>it's interesting, like in twenty twenty two, when there was

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<v Speaker 3>significant inflation, there were a lot of concerns. Then you know,

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<v Speaker 3>the Federal Reserve was jacking up interest rates and so

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<v Speaker 3>there was a lot of a concern. Then I was like, oh,

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<v Speaker 3>we're going to go into a recession. But one of

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<v Speaker 3>the overriding dynamics of that period was this visceral fear

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<v Speaker 3>of companies to be short of labor, because twenty twenty,

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<v Speaker 3>twenty twenty one, twenty twenty two, twenty twenty three, it

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<v Speaker 3>was probably the first time in recent corporate history where

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<v Speaker 3>companies realized that there is not an endless supply of

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<v Speaker 3>workers out there. I'd say, you had restaurants like, oh,

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<v Speaker 3>we literally can't operate right because we can't find the

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<v Speaker 3>workers in this environment. And so what that means is

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<v Speaker 3>that there was this real reluctance to fire anyone because

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<v Speaker 3>you might think, well, you know, things are uncertain, but

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<v Speaker 3>I can't fire anyone because the last thing I want

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<v Speaker 3>to do is to be caught short labor. Again, I

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<v Speaker 3>just had this very visceral experience of being short. We're

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<v Speaker 3>in a very different environment right now.

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<v Speaker 4>You know.

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<v Speaker 3>Arguably, even going into middle of February, which is when

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<v Speaker 3>the turbulence really began, there were signs of economics slow

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<v Speaker 3>down a little bit that may had nothing to do

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<v Speaker 3>with Trump. Maybe you know, it's time for like the

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<v Speaker 3>fit A Reserve to cut rates. Signs of the housing market,

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<v Speaker 3>which is very important stalling out. So even then there

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<v Speaker 3>was probably already this sort of negative growth impulse emerging

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<v Speaker 3>in the US economy, and so I think this time

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<v Speaker 3>around right now, I suspect that inside many companies, the

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<v Speaker 3>conversations are about what can we cut. We want to

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<v Speaker 3>preserve capital, we want to preserve cash, we want to

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<v Speaker 3>preserve operational flexibility, just to survive to the next month

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<v Speaker 3>or the next half of the next quarter.

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<v Speaker 1>Where do we look for signs that things are calming down,

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<v Speaker 1>that things are becoming more certain.

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<v Speaker 3>I mean, look, I'm a big fan of the stock

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<v Speaker 3>market as an indicator. The stock market is not as

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<v Speaker 3>volatile as it was. The policy environment, I guess, you know,

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<v Speaker 3>is less fluid that it seemed like a week ago,

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<v Speaker 3>right change, It could change, you know, but like the

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<v Speaker 3>pace of new news that's come out is slowed down

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<v Speaker 3>a little bit. You know, there's only so far you

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<v Speaker 3>can really go with that. So like at the margins,

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<v Speaker 3>things are more certain than they were a week ago,

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<v Speaker 3>but we're just talking marginal changes and.

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<v Speaker 1>We'll have to watch them to see more things go next. Joe,

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<v Speaker 1>great to have you here, Thanks for having me. Joe Wisenthal,

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<v Speaker 1>host was brilliant to Odd Lots podcast and author of

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<v Speaker 1>its newsletter. Thank you. For more explanations like this from

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<v Speaker 1>our team of three thousand journalists and analysts around the world,

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<v Speaker 1>go to Bloomberg dot com slash explainers. I'm Stephen Carol.

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<v Speaker 1>This is here's why. I'll be back next week with more.

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<v Speaker 1>Thanks for listening.