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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 Ferrell and Lisa Brownowitz Jay Ley, we bring

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Speaker 1: you insight from the best and economics, finance, investment, and

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

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Speaker 1: dot Com, and of course, on the Bloomberg Terminal. David

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Speaker 1: Kelly joins the style of JP Morgan Asset manages his

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Speaker 1: work as a global economist and chief Global strategist for

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Speaker 1: the Shop. David Kelly, I've never heard so much micro

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Speaker 1: analysis in our life. Are the pros right? That is transitory?

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Speaker 1: Part of its transitory, part of it has to be.

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Speaker 1: But but where in the midst of an inflation heat

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Speaker 1: wave here? Uh, you know, we're printing numbers above five

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Speaker 1: percent a year over year, and of course it's going

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Speaker 1: to back down from that. But what I think is

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Speaker 1: interesting is that all let's talk about inflation, all us

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Speaker 1: acceptance of inflation, all this these news headlines that's feeding

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Speaker 1: into inflation expectations and inflation is to some extent a

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Speaker 1: self fulfilling prophecy. So when people believe there's going to

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Speaker 1: be higher inflation, they think they can raise their prices,

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Speaker 1: they feel like they're they're willing to pay higher wages.

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Speaker 1: So the broad picture here is one in which inflation

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Speaker 1: is still running pretty hot and is likely to stay

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Speaker 1: hot through the end of the year until really we

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Speaker 1: see some sort of economic slowdown, which it doesn't seem

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Speaker 1: to be on the horizon here. So I think this

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Speaker 1: is still a very hot report here. So, David, do

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Speaker 1: you think that the market response, the knee jerk response,

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Speaker 1: is wrong that basically on the margins bonds yields into

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Speaker 1: a little bit lower on this faith that it is transitory. Yes, well,

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Speaker 1: I think I think we're too obsessed with second derivatives here.

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Speaker 1: I mean, we're looking at, you know, the declines, but

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Speaker 1: we're still a on of five handle on inflation. So

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Speaker 1: to me, it's not so much the the outer our

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Speaker 1: reaction of the bond market, um. It is the notion

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Speaker 1: that you could have a five percent inflation rate with

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Speaker 1: the one point four percent tenure treasury yield. I think

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Speaker 1: that's that's extraordinary, um, and I don't think it will persist.

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Speaker 1: I do think that we're going to see later on

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Speaker 1: this month of FED is gonna, you know, say that

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Speaker 1: they're gonna lay out plans for tapering. I think I'll

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Speaker 1: start tapering at the end of the year UM, and

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Speaker 1: gradually that's going to push interest rates higher. I think

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Speaker 1: it has to, given given where the inflation rate is

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Speaker 1: and and the fact that I don't think inflation is

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Speaker 1: all transitory. I think some of this will stick around

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Speaker 1: for the rest of this expansion. Let's put some numbers

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Speaker 1: on that, David, the kind of numbers you're looking for

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Speaker 1: into twenty two four handle on inflation, three handle, what

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Speaker 1: is it? Well? I think I think the first thing

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Speaker 1: is that at the end of the year, we're expecting

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Speaker 1: to see a consumption to flatter inflation rate between three

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Speaker 1: and a half and four percent. So the FED is,

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Speaker 1: you know, have jumped up to three point four percent.

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Speaker 1: I think there's still low on that number. And then

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Speaker 1: going into next year, I think we'll have persistent CPI

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Speaker 1: inflation of about two and a half to three percent UM,

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Speaker 1: with the consumption inflation inflation rates running about two four

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Speaker 1: to five year over year, so well above that the

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Speaker 1: FEDS to percent long term target. We're still not looking

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Speaker 1: for hyper inflation. I think the economy will eventually so

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Speaker 1: down enough to avoid that. But I think we're back

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Speaker 1: into a new old normal where inflation runs above two

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Speaker 1: percent on average rather than below two percent on average.

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Speaker 1: It's the Fed comfortable with that dynamic divid They shouldn't be,

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Speaker 1: because it's not just inflation, it's about as surprises too.

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Speaker 1: I think there, I think there there should be a

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Speaker 1: growing recognition that a very very long period of super

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Speaker 1: low interest rates is not only setting the stage for

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Speaker 1: higher inflation. It's enabling pretty reckless fiscal policy in many ways,

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Speaker 1: but it's also spurring asset bubbles and all those things

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Speaker 1: you know are our landlines for the economy going forward.

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Speaker 1: So the Fed shouldn't feel comfortable. What they should be

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Speaker 1: doing is getting ready to raise interest rates and to

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Speaker 1: cut back on bomb purchases. And John Farroll, we had

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Speaker 1: read and green in the screen, down up, others not,

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Speaker 1: and now they're all green in the screen. SPX and

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Speaker 1: Dow futures, John Outter, record high features up thirty seven,

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Speaker 1: advance in a quarter of one percent to yields behave

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Speaker 1: in themselves will lower by a basis point of the

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Speaker 1: front end. Now the two years at about two basis points.

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Speaker 1: Called it twenty three. David Kelly with your frontline economics

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Speaker 1: and also doing strategy for JP Morgan. Fold this economics

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Speaker 1: and macro price change into the JP Morgan conviction on

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Speaker 1: the equity market. The key thing is that this, you know,

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Speaker 1: we're we're still speeding, We're just speeding a little bit

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Speaker 1: more slowly, but we are exceeding by a long shot,

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Speaker 1: the capacity growth rate of the U S economy. We're

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Speaker 1: barreling towards full employment, full capacitalization. That does push up

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Speaker 1: interest rates. Now everything pivots off interest rates. You've got

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Speaker 1: higher long term interest rates. I think that you'll see

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Speaker 1: a return to this UM, you know, growth to value

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Speaker 1: rotation UM. I think that you'll see a return to UM,

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Speaker 1: you know, a sort of compression of valuations across markets.

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Speaker 1: And you know, particularly when I look overseas at very

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Speaker 1: cheap um equity valuations and relative terms overseas. I think

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Speaker 1: that's going to become more important UM as interest rates rise,

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Speaker 1: because interest rates forced you to think about valuations. I

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Speaker 1: do think that higher inflation, strong growth means higher interest rates.

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Speaker 1: At heart, you're a policyman, David, so let's finish their

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Speaker 1: Muhammad erin the Washington Post on Friday put out an

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Speaker 1: article basically asking a question whether the dynamics that we

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Speaker 1: were discussing would overwhelm the administration's goals. Do you think

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Speaker 1: it will? Um? I think I think it could well

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Speaker 1: because I think people are misunderstanding what's going on the economy.

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Speaker 1: The economy is adapting to COVID. I mean, we had one,

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Speaker 1: We've had one economic wave, We've had four pandemic waves.

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Speaker 1: But the economy is is in you know, sort of

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Speaker 1: shrugging these things off. It's heading towards full employment. I

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Speaker 1: think the dangerous the economy will overheat before before the

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Speaker 1: administration can achieve a lot of its long term goals,

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Speaker 1: and just dealing with the macro overheating issue is going

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Speaker 1: to prevent them from dealing with a lot of the

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Speaker 1: goals they want to achieve. So I think that's fair common.

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Speaker 1: You have a friend in West Virginia, David Kelly. Thank you, sir.

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Speaker 1: J P. Mrkan as in management chief Global strategy is

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Speaker 1: sounding a little bit like sending a mansion at the end, there,

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Speaker 1: Tom the senator from West Virginia. Let's kick things off

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Speaker 1: with Tony presnzi Let market strategist, portfolio manager and Investment

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Speaker 1: Committee member. Tony, you've called it preparing as the right crescendo.

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Speaker 1: What do you mean by that, Tony, Well, I mean

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Speaker 1: to find a name other than transitory that's closer matching

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Speaker 1: to my name. Other than that. Other than that, there

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Speaker 1: are many things, of course that are peaking, but a

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Speaker 1: crescendo is probably a better word to think about musical band.

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Speaker 1: Of course, the music keeps playing, so, in other words,

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Speaker 1: for inflation, even though it'll peak at some point in

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Speaker 1: terms of its sound, the level it still might be high, um,

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Speaker 1: and that might unnerve investors at some point. That's why,

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Speaker 1: as you all know, this morning's data is important, and

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Speaker 1: of course the data in the court a quarters ahead

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Speaker 1: in terms of the inflation story, whether the Fed can

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Speaker 1: can re get gain control of the narrative, which it

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Speaker 1: pretty much did in June. Tony, you've taken over the

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Speaker 1: mantel from the great Fabosi in terms of writing the book.

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Speaker 1: The new book is or must read, folks, the strategic

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Speaker 1: bond investor. It's actually an English which unlike many many

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Speaker 1: bond books and in their Tony, you go to the

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Speaker 1: buzzword right now, which is narrative. You talk from tulips

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Speaker 1: to treasuries. What that's you know, the market talk that's

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Speaker 1: out there. What's the narrative right now? That is wrong

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Speaker 1: to use the twenty tens analogy for today. The twenty

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Speaker 1: tens analogy was that if we used if we apply

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Speaker 1: what happened in tens to ties, will probably all get

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Speaker 1: it wrong. By it, we probably mean the inflation rate,

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Speaker 1: interest rates, and even the growth story. Um now, some

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Speaker 1: of these things will be given than last times. For example,

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Speaker 1: interest rates could well be higher than in the last decade,

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Speaker 1: but that doesn't necessarily mean that equities will be lower

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Speaker 1: in the comic decade, because what we have seen is

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Speaker 1: a reboot of the because of the COVID crisis. And

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Speaker 1: I think back to May in June called Cornwell Consensus

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Speaker 1: was a G seven meeting on a document written in

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Speaker 1: Cornwall when we're in England where the Chief seven met uh.

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Speaker 1: It aimed at fostering better conditions for growth, in part

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Speaker 1: of course, to take on China economically, which, by the way,

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Speaker 1: it's not such a scary thing. We think back to

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Speaker 1: the Cold War nineteen. If an investor went in the cave,

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Speaker 1: it was a mistake, of course, that the global pie

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Speaker 1: grew and it made sense for investors to be invested

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Speaker 1: here instead. Of an arms race, it's a tech race.

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Speaker 1: It's economic and economic race that the nations are coming

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Speaker 1: together to to to to win, and so we may

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Speaker 1: have a much different story in its three and a

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Speaker 1: half trillion dollar bill that has been passed along with

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Speaker 1: the one trillion dollar bill, is an effort that is

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Speaker 1: consistent with the so called Cornwell consists consensus to create

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Speaker 1: more inclusiveness, to make economies greener, and of course to

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Speaker 1: digitize and to be bigger economically. Tony, the three and

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Speaker 1: a half trillion dollar plan, it's unclear why there it

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Speaker 1: will actually pass. A lot of analysts put it at

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Speaker 1: a fifty fifty at best. You have this one point

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Speaker 1: two trillion dollars in total, fifty billion dollars of new

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Speaker 1: spending that may get past the infrastructure the bipartisan bill.

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Speaker 1: If the three and a half trillion dollar plan does

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Speaker 1: not get passed, do you still foresee higher yields in

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Speaker 1: this cycle than we saw in the previous cycle. It's

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Speaker 1: highly probable, as you say, at least so that the

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Speaker 1: bill will be smaller than what was passed. We see

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Speaker 1: it probably closer to two chillion, but there are upside

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Speaker 1: risks to that. But the likelihood of passage by the

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Speaker 1: end of the year seems very high, but it is

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Speaker 1: an important part of the equation because investment in people

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Speaker 1: and things, infrastructure, broadbrand technology, as the first bill has

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Speaker 1: investments in those are the things that drive productivity. Remember

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Speaker 1: the simple math on economic growth in the US. Historically

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Speaker 1: it's been one plus a two one increase in the

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Speaker 1: amount of humans to produce goods and services and to

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Speaker 1: percent increase in how productive they were. That math is

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Speaker 1: change the one percent to increase in people, as we

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Speaker 1: see because of retire retirements, is now about a half

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Speaker 1: percent is projected to be there for the next thirty years.

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Speaker 1: According to the Congressional Budget Office the CBO, productivity has

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Speaker 1: been running about one and a half percent, which of

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Speaker 1: course is slow. But to get that number higher to

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Speaker 1: make a better story in terms of the growth picture, UH,

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Speaker 1: there need be investments in people, UH and in things

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Speaker 1: and and ultimately final the final word on this is

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Speaker 1: that what the biggest jover of productivity and therefore growth

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Speaker 1: is UH total factor productivity. Fancy way of saying, how

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Speaker 1: do we use people's skills? How do we use the

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Speaker 1: things that are in place to produce things better? And faster. Uh.

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Speaker 1: That that will be determined by the private sector primarily,

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Speaker 1: but the government sector seems to be engaged even in

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Speaker 1: Europe and in the same vein and uh. And so

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Speaker 1: it's an important story that's developed in terms of the

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Speaker 1: efforts to invest. Tony, you gotta leave it that it's

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Speaker 1: gonna catch up to John strategist and pull folio manager, Tony.

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Speaker 1: Thank you. Joining us now is Patrick Palfrey of Credit Swaye. Patrick,

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Speaker 1: let's stop right there your recording market call five K

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Speaker 1: year end next year. But within that and I find

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Speaker 1: this really interesting. You're not looking for multiple expansion, quite

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Speaker 1: the opposite. Can you walk me through the cool Patrick? Yeah, John,

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Speaker 1: I mean you're you're absolutely right. I think what a

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Speaker 1: lot of people are under appreciating about this curb, Patrick,

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Speaker 1: is just how strong the corporate profits are growing. And

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Speaker 1: in reality, we're seeing the growth in the E outstripping

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Speaker 1: the P. So what that means is the PE is

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Speaker 1: flat to slightly down from here. I know it's hard

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Speaker 1: to wrap your head around, but when you have profits

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Speaker 1: going this year followed by high single digits next year,

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Speaker 1: it allows for multiples to stay constant and flat as

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Speaker 1: opposed to expand. I think that's critical as we look

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Speaker 1: at what the driver of returns are for the next

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Speaker 1: twelve eighteen months. Patrick, the credit suite heritage in New

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Speaker 1: York is extraordinary from the late nineties, and Kent Osben

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Speaker 1: and Michael Mobison and the rest dominique constant onto what

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Speaker 1: you and John gollub are doing today. It's hyper hyper

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Speaker 1: detailed in your factor analysis, which is the factor on

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Speaker 1: the scattered at chart that gets you to a gallup

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Speaker 1: five thousand sp X. Well, right now that that factor's value,

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Speaker 1: it's pro cyclicality. Uh, it's looking at the infrastructure package

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Speaker 1: that potentially just passed and the one that is getting

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Speaker 1: framed out currently and looking at what's going on with

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Speaker 1: interest rates and saying where can I get exposure to

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Speaker 1: the dollars being spent? And that is economic sensitivity. It

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Speaker 1: is financials, its industrials, its materials, energy, it's anything that

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Speaker 1: looks traditionally value oriented. That's where the leadership is going

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Speaker 1: to come from. Over then your intermediate term, Patrick, I

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Speaker 1: want to understand your call for much fatter earnings going forward,

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Speaker 1: so the PE ratio is to actually start going down

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Speaker 1: despite the fact that price well couldtinue to rise. Mike

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Speaker 1: Wilson of Morgan Stanley yesterday came on and he said

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Speaker 1: that he thinks people are underestimating margin pressures. This seems

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Speaker 1: to fly on the face of your call. Why our

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Speaker 1: company is going to be able to continue to pass

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Speaker 1: along expected at price increases for their inputs to consumers

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Speaker 1: for the foreseeable future. Well, I think it's actually simpler

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Speaker 1: than that they pass them along. It takes time, so

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Speaker 1: it doesn't mean, you know, month to month, there may

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Speaker 1: not be incremental um input costs, building. I specify input

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Speaker 1: costs because margins the total picture. And often times when

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Speaker 1: people talk about margin, there's two components. There's variable, which

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Speaker 1: is that input cost pressure and how that gets passed through,

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Speaker 1: and then there's the fixed part. And in reality, when

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Speaker 1: we begin to pass through those input costs, you're driving

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Speaker 1: higher sales over the existing fixed cost part of your business.

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Speaker 1: That's your machinery, it's your um, it's your buildings, it's

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Speaker 1: all those long life assets, and that causes significant margin

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Speaker 1: accretion driving higher sales over those fixed costs. So really,

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Speaker 1: what we typically see as margin pressure arises when sales

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Speaker 1: begin to falter. As long as sales remain healthy and

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Speaker 1: demand looks great. The inventory backlob looks phenomenal. Um. We

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Speaker 1: do not seeing margin pressure um coming from any of

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Speaker 1: these issues. Patrick gotta jump in with some news, just

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Speaker 1: some amazing headlines coming from the National Security Advisor, Mr Sullivan,

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Speaker 1: Tom saying that Opaque plus must do more to support

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Speaker 1: the recovery, that OPEC plus production boosts have not been enough.

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Speaker 1: This is the first real sign of the administration starting

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Speaker 1: to lean on OPEC plus, Tom, because of higher crude

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Speaker 1: prices and ultimately because of higher gas prices in this country.

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Speaker 1: And what's different here, it's not the it's not the

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Speaker 1: process John, that we remember from years ago, with American

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Speaker 1: independence and with Americans supply elasticity, our responsiveness to price.

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Speaker 1: We can fix the problem to a great extent if

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Speaker 1: we get higher oil prices. Clearly administration thinks barrels high

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Speaker 1: low right now lower sixty seven five step on w

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Speaker 1: t I list, we're down by about one point two percent.

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Speaker 1: This is Jake Sullivan, the National Security Advisor, basically saying

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Speaker 1: Lisa that Okay plus needs to do more. Why now,

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Speaker 1: that's my question, Why now this morning, why this morning,

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Speaker 1: ahead of the CPI print. I mean this to me

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Speaker 1: is a difficult sort of a thread needle to thread

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Speaker 1: because right now we're looking at a market. Thank you.

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Speaker 1: I try, I really try hard, but John that to me,

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Speaker 1: I think we have to repeatedly ask throughout them. The

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Speaker 1: clue is at eight thirty Eastern, isn't it? When we

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Speaker 1: get an inflation report in America? Patrick? Just to wrap

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Speaker 1: up here, energy in the equity market, that sector is

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Speaker 1: up thirty one percent year today had a bit of

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Speaker 1: a battle, particularly over the last week, given what crude

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Speaker 1: prices have been up to. Where do you stand on energy? Well,

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Speaker 1: right right now, I think it's really just depending on

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Speaker 1: where the party goes and looking at what just came out,

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Speaker 1: should should crewe begin the back of herre. I think

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Speaker 1: it is a little bit more difficult for energy to

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Speaker 1: continue to work. But over the longer term, we still

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Speaker 1: think demand remains strong. If we look out twelve to

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Speaker 1: eighteen months, um GDPs are suspected to run well above

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Speaker 1: trent and that is really to keep a bid under

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Speaker 1: oil um in all commodities for that matter, and and

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Speaker 1: really continue to tell the energy sector. So today may

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Speaker 1: not be the best tay given the news, but but

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Speaker 1: longer term we think it's still work when the administration

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Speaker 1: wants to do something about it. Patrick, It's gonna catch up,

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Speaker 1: Patrick Poufy, that of credit sways a joy to speak to.

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Speaker 1: Steve sad Off to say he's former Sex CEO barely

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Speaker 1: describes his contribution to fashion and retail when you hear

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Speaker 1: the word exclusive, he invented that. He's now Mastercard's senior

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Speaker 1: advisor on a boom economy, Steve, I want to go

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Speaker 1: to mortar and brick at seven sixty Madison Avenue. Aramez

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Speaker 1: is taking a landmark building of brick and mortar and

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Speaker 1: they're building it out, and it really speaks to the

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Speaker 1: durability of on site retail versus Amazon. Tell us about

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Speaker 1: the presumed death of mortar and brick, and I think

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Speaker 1: this death of retail and brick and mortar was so

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Speaker 1: short lived that brick and mortar retail is back. If

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Speaker 1: you look at the MasterCard spending POLT data, it would

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Speaker 1: tell you that for the month of July, for example,

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Speaker 1: brick and mortar was a versus year ago and represented

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Speaker 1: of all commerce. So while the digital has transformed shopping,

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Speaker 1: people want omni channel. They want product whenever and wherever

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Speaker 1: they want to get it. The physical retail store is back,

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Speaker 1: and you're seeing across the board, and the ur Metta's

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Speaker 1: example that you just gave is a good one relative

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Speaker 1: to stores are reopening, they're more reopenings of physical stores

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Speaker 1: right now than we've seen in years. Not I'm not

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Speaker 1: talking about reopening the closed stores. I'm talking about opening

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Speaker 1: new stores. So luxury is back. What you find is

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Speaker 1: that the across all levels, the lower end, the high end,

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Speaker 1: you're seeing people back in the stores. They want to

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Speaker 1: experience shopping. They've missed shopping in the physical store. Yes

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Speaker 1: they're buying online, and yes, brick and mortar has gone

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Speaker 1: I'm sorry. Digital has gone from all percent of commerce

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Speaker 1: to eighteen percent of commerce. But luxury and physical retail

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Speaker 1: is back. How will Amazon respond to this, all of

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Speaker 1: this the pandemic. How does the Amazon with a relatively

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Speaker 1: small part of your world, how do they expand their world? Well,

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Speaker 1: I think I think Amazon is the gold standard in

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Speaker 1: terms of the experience that consumers. Yet remember they want

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Speaker 1: an omni channel experience. They want the physical store, but

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Speaker 1: they also want the convenience of online, so online. I

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Speaker 1: would never never underestimate Amazon and its power and the

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Speaker 1: impact that it has on the rest of commerce. But

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Speaker 1: I would tell you that the brick and mortar physical

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Speaker 1: store use examples like a Warby Parker where they when

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Speaker 1: they open a physical store, they get triple their digital business.

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Speaker 1: So it's this interaction of the physical and the digital

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Speaker 1: that is so important. And in the post pandemic world,

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Speaker 1: we've seen how important the digital piece of it is.

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Speaker 1: But it's not digital alone, Steven, and that really is

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Speaker 1: the story of what you're seeing in the data. But

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Speaker 1: Steve talking about the changing nature of brick and mortar

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Speaker 1: with the digital aspect of it, I'm curious about the

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Speaker 1: location of where brick and mortar is coming back fastest

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Speaker 1: since there has been a migration. And when I look

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Speaker 1: on Manhattan's streets, for example, there's still a lot of

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Speaker 1: empty storefronts for rent for retail. Yeah, I think that

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Speaker 1: you've got to take New York a little bit as

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Speaker 1: an anomaly to what's going on around the country because

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Speaker 1: so much of the New York business, let's take the

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Speaker 1: luxury side of it as an example, somewhere around it

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Speaker 1: is tied to international tourism, which isn't there right now.

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Speaker 1: So New York, I believe does have some long, you know,

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Speaker 1: shorter term issues. Long term, it will come back. But

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Speaker 1: I think that you're seeing it across the you know,

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Speaker 1: you're seeing some shift back to the malls. Mall's performance

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Speaker 1: was positive in the last several months. Look at the

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Speaker 1: numbers that Simon's putting on the on the board. So

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Speaker 1: I think that it's going to be a back into

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Speaker 1: Certainly some of the malls. Suburban markets are performing well,

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Speaker 1: and a lot of the secondary cities are performing very well.

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Speaker 1: I think New York's a little bit slower than other

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Speaker 1: UH cities, but I think that you're in a period

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Speaker 1: of time where this is a little bit of a

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Speaker 1: Goldilocks retail environment because I have never seen in years

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Speaker 1: almost every sector of the MasterCard the categories performing well.

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Speaker 1: Luxury look at the numbers, You're a fifty percent versus

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Speaker 1: the pre pandemic period. Luxury jewelry department stores are up

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Speaker 1: seven percent versus a pre pandemic period. You're looking at

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Speaker 1: a peril growing at ten percent versus nineteen. I'm not

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Speaker 1: talking about last year's numbers. That's there was an anomaly

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Speaker 1: because of the pandemic, but versus pre pandemic levels, and

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Speaker 1: that leads you back to your question about stores opening

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Speaker 1: up in the UH in the urban areas and some

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Speaker 1: of the suburban because when you see this kind of

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Speaker 1: growth and the omni channel presence the consumers there, so

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Speaker 1: retailers start opening stores again. So just what would you

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Speaker 1: say to people who say this is somewhat idiosyncratic. People

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Speaker 1: are getting back to work, they have to restock their wardrobes,

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Speaker 1: perhaps after the pandemic fifteen or whatever you want to say,

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Speaker 1: They're going back to school. There's a huge seasonal factor

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Speaker 1: here that could potentially be pushing these numbers way beyond

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Speaker 1: where they will be averaged out by the end of

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Speaker 1: the year. What do you say to people who would

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Speaker 1: argue that, well, I think that there's some element of

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Speaker 1: you've got the benefit of the child tax credit, for example,

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Speaker 1: that's helping the You saw a bump in the end

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Speaker 1: of July and the MasterCard numbers as a result of that.

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Speaker 1: I think you have this near term phenomena of a

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Speaker 1: shortage of inventory. Right now, you can't find a product,

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Speaker 1: so you're having very high full price selling. Gross margins

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Speaker 1: are favorable, your supply chain costs are high, and that's

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Speaker 1: going to start to even itself out as you get

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Speaker 1: into next year when more inventory is going to be available.

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Speaker 1: I think that right now you've got a period for

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Speaker 1: next three six months where it's a little bit of

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Speaker 1: a the powers in the hands of the retailer relative

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Speaker 1: to the promotional environment, and people have to grab product

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Speaker 1: when they can because it's hard to find, uh, the

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Speaker 1: kind of product you want, especially unique kip ranching items.

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Speaker 1: But longer term, uh, you know, this is a retail

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Speaker 1: I've seen it so many cycles where when product becomes available,

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Speaker 1: retailers will order more product. You're gonna start to see

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Speaker 1: more availabilities you come back into next year because there's

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Speaker 1: always that desire to catch the last sale. And then

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Speaker 1: I wouldn't be surprised as it go a year from now,

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Speaker 1: you're going to find that you have your back to

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Speaker 1: a more much more normal inventory environment. Steve, thank you

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Speaker 1: so much? Do you say? Forming a sex fifth avenue

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Speaker 1: and with master Card is a senior advisor. Great to

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Speaker 1: hear from him, Nicholas Agazine. He is the CEO of

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Speaker 1: the Hong Kong Exchange and as you rightfully said, he's

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Speaker 1: the former Agent PAC chairman of JP Morgan as well

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Speaker 1: as the head of International Banking at JP Morgan. But

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Speaker 1: now since May twenty four or thereabouts, you've been the

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Speaker 1: CEO of Hong Kong Change. Obviously much of your time

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Speaker 1: since you took over as the CEO here has been

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Speaker 1: consumed by the regulatory changes and the turmoil on the

429
00:23:08,920 --> 00:23:10,840
Speaker 1: markets here and the sell off in many of the

430
00:23:10,880 --> 00:23:14,320
Speaker 1: platform companies. How are you, as the head of the

431
00:23:14,359 --> 00:23:17,080
Speaker 1: sea of the market here, going to weather the storm

432
00:23:17,160 --> 00:23:19,359
Speaker 1: because we don't know how deep and how long this

433
00:23:19,480 --> 00:23:23,240
Speaker 1: is gonna last. Yeah, well, thank you great to be here.

434
00:23:23,600 --> 00:23:26,760
Speaker 1: So firstly, it's it's it's obviously a great day for

435
00:23:26,840 --> 00:23:29,520
Speaker 1: us because we've announced our results, which is you know,

436
00:23:29,680 --> 00:23:35,320
Speaker 1: record revenues, record profits, record connect program and revenues as well,

437
00:23:35,520 --> 00:23:39,080
Speaker 1: so lots of good things. As to the regulatory environment,

438
00:23:39,119 --> 00:23:42,480
Speaker 1: which is like your first question, the thing is this

439
00:23:42,560 --> 00:23:44,520
Speaker 1: is happening all around the world. We see a lot

440
00:23:44,560 --> 00:23:48,600
Speaker 1: of antitrust regulations being implemented on big tech. It's happening

441
00:23:48,640 --> 00:23:53,760
Speaker 1: in Europe. The Chinese authorities are in their long march

442
00:23:53,880 --> 00:23:56,800
Speaker 1: to seeing how they're going to regulate this part of

443
00:23:56,840 --> 00:24:00,600
Speaker 1: the industry, which is a new economy. Different experiences around

444
00:24:00,600 --> 00:24:03,560
Speaker 1: the world. They're doing it in their own way and

445
00:24:03,560 --> 00:24:06,560
Speaker 1: trying to adjust to what's the right way to regulate this.

446
00:24:06,720 --> 00:24:08,840
Speaker 1: So this will take some time to trickle down through

447
00:24:08,880 --> 00:24:11,439
Speaker 1: the system, but we can't downplay the significance of it.

448
00:24:11,480 --> 00:24:14,440
Speaker 1: When you look at the waiting of the Hank Saying Index,

449
00:24:14,880 --> 00:24:17,680
Speaker 1: Ali Baba's number one with about ten percent, and number

450
00:24:17,720 --> 00:24:20,320
Speaker 1: four is tens and number five is made one. Three

451
00:24:20,359 --> 00:24:23,520
Speaker 1: of the top big companies that are under direct regulatory

452
00:24:23,760 --> 00:24:27,840
Speaker 1: scrutiny right now about of the market waiting of the

453
00:24:27,880 --> 00:24:33,160
Speaker 1: Hank Saying Index. So there's so much pressure internationally as

454
00:24:33,160 --> 00:24:36,040
Speaker 1: well to do we stay in do we pull out?

455
00:24:36,600 --> 00:24:38,760
Speaker 1: That's the question a lot of the international investors have

456
00:24:38,960 --> 00:24:40,640
Speaker 1: right now that you have to deal with. You talked

457
00:24:40,640 --> 00:24:44,080
Speaker 1: about these challenges in the earnings reports today. Yes and

458
00:24:44,200 --> 00:24:47,440
Speaker 1: absolutely now we have not seen the volume decrease and

459
00:24:47,720 --> 00:24:52,840
Speaker 1: actually volumes are pretty constant and there is continued activity.

460
00:24:53,119 --> 00:24:55,440
Speaker 1: I do believe that there will be an impact. We

461
00:24:55,480 --> 00:24:58,520
Speaker 1: have to see how this impact trickles through. But we're

462
00:24:58,560 --> 00:25:03,760
Speaker 1: seeing similar type of modifications to how big tech works

463
00:25:04,200 --> 00:25:08,120
Speaker 1: all around the world. All platform businesses are being scrutinized,

464
00:25:08,280 --> 00:25:11,680
Speaker 1: how they use their data, how they manage information about

465
00:25:11,720 --> 00:25:14,399
Speaker 1: their clients. Do they have too much power how are

466
00:25:14,440 --> 00:25:18,000
Speaker 1: we going to manage their how they deal with the public.

467
00:25:18,040 --> 00:25:21,120
Speaker 1: So I don't say that's too different from what we're

468
00:25:21,119 --> 00:25:24,240
Speaker 1: seeing in other places. It may be perhaps in its

469
00:25:24,240 --> 00:25:26,720
Speaker 1: own way in some sectors like education, it may be

470
00:25:26,800 --> 00:25:28,880
Speaker 1: in a specific way that we don't see too much

471
00:25:28,920 --> 00:25:31,800
Speaker 1: in other places. But if you look at big companies,

472
00:25:32,280 --> 00:25:34,639
Speaker 1: it's it's very very similar. How's it impact in the

473
00:25:34,680 --> 00:25:37,120
Speaker 1: ip of pipeline because they were down in the second

474
00:25:37,200 --> 00:25:40,480
Speaker 1: quarter after what was a blistering first quarter that I mean,

475
00:25:40,560 --> 00:25:43,120
Speaker 1: that's correct. I mean, if we look at the first

476
00:25:43,160 --> 00:25:47,000
Speaker 1: six months, forty six I p o s, that's doubled

477
00:25:47,040 --> 00:25:49,359
Speaker 1: what it was in the first six of last year.

478
00:25:49,800 --> 00:25:52,160
Speaker 1: It's slowed down a bit on on on the second

479
00:25:52,280 --> 00:25:55,840
Speaker 1: on the second quarter, and the pipeline is actually a

480
00:25:56,000 --> 00:25:58,160
Speaker 1: record levels. I mean, if we look at how many

481
00:25:58,200 --> 00:26:01,520
Speaker 1: companies have actually filed and are being analyzed, we have

482
00:26:01,600 --> 00:26:05,840
Speaker 1: around two companies. So that's a very very significant and

483
00:26:06,000 --> 00:26:08,600
Speaker 1: healthy pipeline. But it's tech holding off right now, and

484
00:26:08,600 --> 00:26:11,040
Speaker 1: there's been lots of reports that by Dance perhaps is

485
00:26:11,080 --> 00:26:14,480
Speaker 1: going to go ahead despite this regulatory scutiny. First of all,

486
00:26:14,680 --> 00:26:18,000
Speaker 1: in the first six months of the companies that listed

487
00:26:18,160 --> 00:26:22,240
Speaker 1: these forty six that I mentioned were tech companies, So

488
00:26:22,359 --> 00:26:25,360
Speaker 1: they are the ones that are coming. The companies will

489
00:26:25,480 --> 00:26:28,080
Speaker 1: of course assess the market when is it too volatile

490
00:26:28,119 --> 00:26:31,399
Speaker 1: to go? But but there are companies listening. There's a

491
00:26:31,480 --> 00:26:34,360
Speaker 1: listing ceremony that we have tomorrow. I mean we had

492
00:26:34,400 --> 00:26:37,320
Speaker 1: one last week. I mean so, so the activity has

493
00:26:37,320 --> 00:26:40,240
Speaker 1: slowed down because some companies are evaluating the market is

494
00:26:40,280 --> 00:26:42,000
Speaker 1: this is the best market for me to go or not.

495
00:26:42,200 --> 00:26:45,840
Speaker 1: It has slowed down. The pipeline remains very, very strong,

496
00:26:45,920 --> 00:26:48,720
Speaker 1: and we actually have more and more companies that are

497
00:26:48,800 --> 00:26:51,920
Speaker 1: inquiring about doing an I p O in Hong Kong.

498
00:26:52,280 --> 00:26:55,680
Speaker 1: Possibly companies that were perhaps analyzing other markets and now

499
00:26:55,720 --> 00:26:58,199
Speaker 1: they're asking a lot of questions about Hong Kong. How

500
00:26:58,200 --> 00:27:00,520
Speaker 1: are you going to put your personal stamp on this

501
00:27:00,680 --> 00:27:04,440
Speaker 1: role at a time of course of great volatility. Uh,

502
00:27:04,520 --> 00:27:06,520
Speaker 1: you know the stock of course, the Paul Cha and

503
00:27:06,560 --> 00:27:09,440
Speaker 1: the financial secretary told me broke news with me saying

504
00:27:09,600 --> 00:27:13,639
Speaker 1: he was gonna welcome SPACs. Uh. The framework agreement is

505
00:27:13,640 --> 00:27:17,720
Speaker 1: it almost ready? Well, I mean there's spects is one

506
00:27:17,720 --> 00:27:20,119
Speaker 1: of the products that has been discussed for some time.

507
00:27:20,520 --> 00:27:23,760
Speaker 1: There's a consultation that is going to be launched probably

508
00:27:23,920 --> 00:27:27,520
Speaker 1: over the next a few weeks, and post that consultation,

509
00:27:27,600 --> 00:27:30,679
Speaker 1: depending depending on what the output of that consultation is,

510
00:27:30,800 --> 00:27:34,040
Speaker 1: will set up the right framework. There are conversation on

511
00:27:34,400 --> 00:27:38,760
Speaker 1: conversations that are on going between the securities regulators and

512
00:27:38,800 --> 00:27:42,040
Speaker 1: ourselves and the government, and we're trying to make a

513
00:27:42,080 --> 00:27:46,080
Speaker 1: framework of an instrument that is actually a high quality

514
00:27:46,359 --> 00:27:50,399
Speaker 1: in instrument. We want to give opportunities to investors, but

515
00:27:50,560 --> 00:27:53,719
Speaker 1: we have an obligation also to protect the investors interest.

516
00:27:54,080 --> 00:27:56,639
Speaker 1: All right, do you see a decoupling a bit with

517
00:27:56,720 --> 00:28:00,560
Speaker 1: Hong Kong because of the regulatory scrutiny in and the

518
00:28:00,640 --> 00:28:02,720
Speaker 1: coupling between the S and P and of course the

519
00:28:02,760 --> 00:28:06,399
Speaker 1: Hanks haanking here. So if I look at the data,

520
00:28:06,760 --> 00:28:09,399
Speaker 1: I don't see any possible the coupling in the sense

521
00:28:09,480 --> 00:28:13,720
Speaker 1: that we're seeing more international investors participating in the market.

522
00:28:14,160 --> 00:28:15,800
Speaker 1: I mean, if I give you a little bit of

523
00:28:15,840 --> 00:28:19,280
Speaker 1: the historical framework of will you look at two thousand

524
00:28:19,440 --> 00:28:22,400
Speaker 1: nineteen when there was eighty nine billion dollars on average

525
00:28:22,440 --> 00:28:26,960
Speaker 1: every day, then going up to one hundred and eight

526
00:28:27,200 --> 00:28:30,360
Speaker 1: billion dollars, and and and right now, I mean when

527
00:28:31,200 --> 00:28:34,200
Speaker 1: and it's it's almost double. Yeah, it's it's like just

528
00:28:34,240 --> 00:28:36,840
Speaker 1: like very significant. You also talked in the conference call

529
00:28:36,920 --> 00:28:40,240
Speaker 1: today about data revenue, but four percent for for that

530
00:28:40,840 --> 00:28:43,120
Speaker 1: Hong Kong exchange right now, how are you going to

531
00:28:43,280 --> 00:28:46,360
Speaker 1: increase data revenue? You want to obviously increase data revenue

532
00:28:46,360 --> 00:28:48,160
Speaker 1: at a time when China seems to have an iron

533
00:28:48,200 --> 00:28:53,040
Speaker 1: fist grip on data. It's this is data that we

534
00:28:53,120 --> 00:28:55,480
Speaker 1: have that we we have to try to use it

535
00:28:55,520 --> 00:28:59,480
Speaker 1: in as efficient way as possible. So if you look

536
00:28:59,520 --> 00:29:02,520
Speaker 1: at the averages for other exchanges around the world, it's

537
00:29:02,520 --> 00:29:04,880
Speaker 1: a higher number. So what we have to do is

538
00:29:04,880 --> 00:29:06,880
Speaker 1: to make sure are we doing all the right things

539
00:29:06,920 --> 00:29:09,320
Speaker 1: that we can with our data in terms of like

540
00:29:09,440 --> 00:29:14,320
Speaker 1: commercializing with our participants, with the investor community, and and

541
00:29:14,320 --> 00:29:16,320
Speaker 1: and and that's what that's what it is. It's a

542
00:29:16,600 --> 00:29:19,560
Speaker 1: little bit data that different data than the one of

543
00:29:19,640 --> 00:29:21,840
Speaker 1: some of the players. Nicholas Agasin, thank you so much,

544
00:29:21,920 --> 00:29:26,520
Speaker 1: CEO of Holkohong Exchange. This is the Bloomberg Surveillance Podcast.

545
00:29:26,760 --> 00:29:30,160
Speaker 1: Thanks for listening. Join us live weekdays from seven to

546
00:29:30,240 --> 00:29:34,320
Speaker 1: ten am Eastern on Bloomberg Radio and on Bloomberg Television

547
00:29:34,640 --> 00:29:38,680
Speaker 1: each day from six to nine am for insight from

548
00:29:38,680 --> 00:29:43,280
Speaker 1: the best in economics, finance, investment, and international relations. And

549
00:29:43,360 --> 00:29:48,520
Speaker 1: subscribe to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg

550
00:29:48,520 --> 00:29:51,840
Speaker 1: dot com, and of course, on the terminal. I'm Tom

551
00:29:51,960 --> 00:30:00,280
Speaker 1: Keene and this is Bloomberg. You go,