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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg

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Speaker 1: Daybreak Asia podcast. I'm Doug Krisner. You can join Brian

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Speaker 1: Curtis and myself for the stories, making news and moving

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Speaker 1: markets in the APAC region. You can subscribe to the

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Speaker 1: show anywhere you get your podcast and always on Bloomberg Radio,

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Speaker 1: the Bloomberg Terminal, and the Bloomberg Business app.

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Speaker 2: After the bell, Tesla reported worse than expected profit and

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Speaker 2: revenue for a third consecutive quarter. The company continues to

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Speaker 2: buckle under the weight of slower demand for electric vehicles. However,

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Speaker 2: Tesla said it is accelerating the launch of more affordable models.

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Speaker 2: It plans to start production on the cheaper cars before

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Speaker 2: the second half of twenty twenty five. That could ease

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Speaker 2: deterioration in profit margins and sales. The market sort of

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Speaker 2: seized on that as a positive, but Gerber Kawasaki's Ros

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Speaker 2: Gerber says he's not sure Tesla can deliver on that

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Speaker 2: new claim.

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Speaker 3: I just don't believe that statement. I don't see how

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Speaker 3: they're going to pull forward production of this vehicle to

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Speaker 3: be ready in a year after they just laid off

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Speaker 3: fifteen thousand people and a lot of factories and a

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Speaker 3: lot of high quality individuals just lost their jobs. So

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Speaker 3: I'm kind of curious to you know, we can say things,

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Speaker 3: but we know that when Elon says something, it often

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Speaker 3: takes four years after the initial comment.

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Speaker 2: That's Ross Gerber, the co founder of Gerber Kawasaki, and

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Speaker 2: he has formerly been a massive bull on Tesla. And

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Speaker 2: as I said, the market really seized on this, because

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Speaker 2: Tesla scheres was thirteen percent in late trading.

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Speaker 4: Well.

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Speaker 2: Joining us now for some discussion on this is Steve Mann,

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Speaker 2: Bloomberg Intelligence Global Autos and Industrial's research manager taking a

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Speaker 2: closer look. So, as you mentioned, the market, Steve really

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Speaker 2: seized on the idea of a cheaper car. So a

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Speaker 2: lot of companies have thought about and have tried to

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Speaker 2: make cheap evs. Can it really be done? I think

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Speaker 2: we have to say that with Tesla, this is a

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Speaker 2: CEO who landed spent rockets on a barge. Should we

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Speaker 2: believe him?

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Speaker 5: Hey, Brian, thanks for having me on. I think I

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Speaker 5: think this is a very important earnings release for Tesla.

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Speaker 5: Stock's been down forty percent since the minion of the year.

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Speaker 5: They really need to come out and really soothe the

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Speaker 5: concerns of like basically two groups investors. One those who

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Speaker 5: just believe Tesla is an automotive company, not a tech company,

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Speaker 5: and there are the other majority that believes this is

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Speaker 5: a tech AI company and not so much of an

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Speaker 5: auto company. So coming out and you know, announcing that

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Speaker 5: you know they're going to launch a more affordable EV

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Speaker 5: not in the second half of twenty twenty five, actually

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Speaker 5: moved it up to the first half of twenty twenty five.

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Speaker 5: That really resonated with I think the automotive group of investors.

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Speaker 5: And then I think, more importantly, as you know, this

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Speaker 5: stock's valued quite valuation is quite high on the back

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Speaker 5: of you know, their AI endeavor, and I think launching

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Speaker 5: a more affordable EV is critical to get scale more

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Speaker 5: vehicles on the roads to actually help them scale up

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Speaker 5: AI training. So I mean it was a really good

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Speaker 5: good call for Tesla, really, I mean, the numbers were bad,

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Speaker 5: but I think the outlook is positive.

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Speaker 1: Maybe I'm going to be a little skeptical and I'm wondering, Steven,

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Speaker 1: and you can weigh in on this, whether the move

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Speaker 1: the eleven percent move that we had in late trading,

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Speaker 1: any amount of that move that may be attributable to

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Speaker 1: kind of short covering here because we know, as you

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Speaker 1: said earlier, this stock year to date is down by

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Speaker 1: more than forty percent, and the street was prepared for

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Speaker 1: kind of, you know, pretty bad report here for the quarter,

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Speaker 1: and I'm wondering whether maybe a little bit of short

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Speaker 1: covering was involved in late trading.

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Speaker 5: It seems like. But you know, I think, uh, I

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Speaker 5: think your last segment, one of your guests that you know,

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Speaker 5: have some reservation in terms of how they're going to

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Speaker 5: execute and launching this new vehicle, that that is a risk.

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Speaker 5: It's always been testless risk in in execution. But I think, uh,

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Speaker 5: you know, I think they're still going ahead with some

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Speaker 5: of the new production facilities that they're looking to to

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Speaker 5: erect uh in in Mexico. But I think, uh, you know,

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Speaker 5: with slowing sales in the Model three and Model Y,

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Speaker 5: they're taking advantage of the additional capacity to pull that,

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Speaker 5: uh pull that launch of the affordable e V ahead. Now.

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Speaker 5: I mean they've I mean it's not new to them,

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Speaker 5: they've I think if you look at the Models three,

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Speaker 5: they went through production Hell. They also went to through

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Speaker 5: production hell for the Model X years ago. They're doing

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Speaker 5: they're doing the same thing with cyber truck. And by

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Speaker 5: the way, cyber Truck, it's actually got faster than the

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Speaker 5: market has anticipated, and cyber Truck has been a huge

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Speaker 5: drag on earnings.

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Speaker 2: So anyway, Steve, Yeah, I mean part of the problem

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Speaker 2: is execution, as you highlight there, and and it's management.

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Speaker 2: We had two key executives leave the company now. Today

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Speaker 2: Martin Vieca, who's the head of investor relations, announced his

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Speaker 2: resignation on the call. Should we be concerned about management there?

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Speaker 5: Yeah, I think I think we we We shouldn't. I

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Speaker 5: don't think I'm too worried about the management change. You know,

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Speaker 5: these individuals have been with the company for a long time,

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Speaker 5: since you know, the Model three launch, since the sn

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Speaker 5: X launch, since the inception of the company. And you know,

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Speaker 5: they have a very good team. Teamwork is I mean,

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Speaker 5: it's probably one of the best in the industry, in

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Speaker 5: the auto industry. So you know, they still have very

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Speaker 5: strong individuals that they've hired over the past you know,

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Speaker 5: five years, they've been in a hiring spree in those

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Speaker 5: past five years. I think it wouldn't hurt to bring

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Speaker 5: some new blood into into UH, into the game and

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Speaker 5: UH and and kind of kind of look at look

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Speaker 5: in the future and and you know, maybe take take

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Speaker 5: the company in a little bit direction and in uh

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Speaker 5: in growing the AI and and and the in the

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Speaker 5: rest of the auto business.

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Speaker 1: He's still, when I say, he Elon Musk is still

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Speaker 1: committed to this idea of robot taxis. Do you think

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Speaker 1: this is a smart bet given everything that this company

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Speaker 1: is dealing with in terms of headwinds right now?

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Speaker 5: Well, I still think, uh, robo taxi is still many

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Speaker 5: years away. I think in the call, one of the

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Speaker 5: things that was discussed was, uh, you know, policy regulations

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Speaker 5: around robo taxi and au Thomas driving. I think there's

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Speaker 5: still a lot of work with the regulators that needs

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Speaker 5: to be done to get that going. But look, it's

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Speaker 5: even even the r N the development work that's been

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Speaker 5: that's going on today. You know, I don't think they're

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Speaker 5: going to get to robo taxi anytime soon. You know,

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Speaker 5: in our model, we actually don't think they'll launch in

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Speaker 5: until as early as you know, twenty twenty seven, and

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Speaker 5: probably won't able to gain you know, revenue and profits

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Speaker 5: well into the next decade. So it's going to it's

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Speaker 5: gonna take some time, but I think I think the

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Speaker 5: launching of the affordable ev really resonated with the investors,

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Speaker 5: and that's why you see the stock react to it.

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Speaker 2: Our own reporting, as you heard from Ed Ludlow, is

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Speaker 2: that they have made some moves to be able to

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Speaker 2: to produce these more affordable models early. But one thing

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Speaker 2: that wasn't immediately clear was whether or not these models,

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Speaker 2: whether this refers to the model too that has been

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Speaker 2: talked about in the past. Can you clarify that, is

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Speaker 2: that what they're talking about.

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Speaker 5: It's actually unclear. You know, it could take a couple

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Speaker 5: of forms. It could be a new platform, which is

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Speaker 5: the model too that you know the market has been

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Speaker 5: talking about. But look, they've done a really good job

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Speaker 5: in vertically integrating their manufacturing that have allowed them to

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Speaker 5: cut costs and you know, allowed them to be the

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Speaker 5: you know, one or two most profit or the one

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Speaker 5: or two profitable EV maker in the world. Nobody's nobody's

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Speaker 5: generating profits other than you know, Tesla and probably one

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Speaker 5: other Chinese company bid uh. So they've done a lot

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Speaker 5: in vertical ingrading manufacturing that allows them to cut costs.

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Speaker 5: So the other possibility is really adding an upgrade another

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Speaker 5: variant to the existing Model three and Model hy and

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Speaker 5: that allows them to actually sell that variant at a

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Speaker 5: cheaper price. And by the way, this is critical. This

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Speaker 5: cheaper model is critical because it allows Tesla to actually

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Speaker 5: expand geographic reach very quickly.

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Speaker 1: Steve, before we let you go, you mentioned China there

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Speaker 1: and byd give me your sense of the challenges that

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Speaker 1: lie ahead for for Tesla in China.

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Speaker 5: Uh, it's it's it's really tough over there. It's it's

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Speaker 5: a very very high, hyper competitive market. But I think

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Speaker 5: what's going positive that's going well for Tesla as well

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Speaker 5: as the Chinese ev maker is battery price has been

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Speaker 5: coming down. If you look at c at L, one

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Speaker 5: of the major global battery makers in the world, a

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Speaker 5: Chinese glow battery maker in the world, you can see

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Speaker 5: their margins have improved while prices have come down. So

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Speaker 5: that what it means is that, you know, the efficiency

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Speaker 5: the costs of prices of battery are still coming down rapidly.

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Speaker 2: Yeah, it's a good thing, all right, Steve, thanks so

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Speaker 2: much for joining us as Steve Mann there from Bloomberg Intelligence.

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Speaker 2: Joining us now is Jasmine and Berg, principal advisor at

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Speaker 2: E Marketer to take a closer look at what this

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Speaker 2: TikTok bin would mean. Well, there's so many different angles

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Speaker 2: to this, Jasmine. I'm curious about whether or not you

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Speaker 2: think that this gets lost in court for a year

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Speaker 2: or two, or whether we see some other sharp edged

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Speaker 2: moves by China and perhaps a sale.

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Speaker 6: Yeah, it's a great question. TikTok has made it clear

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Speaker 6: that it intends to launch a legal battle against this bill,

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Speaker 6: and I expect it will be a long and drawn

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Speaker 6: out and intense battle. So it's definitely not the end

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Speaker 6: of TikTok here in the US just yet, even though

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Speaker 6: it does certainly feel like the clock is ticking at

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Speaker 6: least in terms of how TikTok operates now, because this

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Speaker 6: battle could really last for months or even for years.

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Speaker 6: And you know, if TikTok does is able to divest,

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Speaker 6: even that would be you know, another it would have

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Speaker 6: up to a year to find a buyer and to

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Speaker 6: make a sale. So you know, there's still quite a

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Speaker 6: long road ahead before we see what truly happens to TikTok.

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Speaker 1: I'm wondering, given the connections that you have in the industry,

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Speaker 1: whether there is an opinion that is developing here on

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Speaker 1: what happens to TikTok. Is there a consensus developing or

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Speaker 1: is it simply too soon to say so.

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Speaker 6: I think there's a consensus around you know, the bill

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Speaker 6: inevitably becoming law. I think people are still, you know,

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Speaker 6: somewhat torn over what happens after that. There are still

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Speaker 6: a lot of ifs and questions that need to be answered.

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Speaker 6: And of course, this isn't TikTok's first rodeo. I mean,

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Speaker 6: this is an issue that we've all been covering and

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Speaker 6: dealing with for you know, the past couple of years,

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Speaker 6: with several different attempts to ban TikTok. Of course, this

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Speaker 6: one is is very different. It's felt different from the

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Speaker 6: start and the speed at which it passed through the

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Speaker 6: House and now the speed at which it's advancing through

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Speaker 6: the Senate. I mean, it just it feels like a

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Speaker 6: different moment, and it's something that at least we are

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Speaker 6: looking at much more closely, and the advertisers and the

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Speaker 6: brands that I speak to on a regular basis are

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Speaker 6: also looking at very closely.

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Speaker 2: Right now, Yeah, you wonder who would benefit the most?

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Speaker 2: I think a lot of people are saying meta and

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Speaker 2: it's interesting with the options that China has, it could

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Speaker 2: conceivably try to sell TikTok minus the algorithm and keep

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Speaker 2: it out sell it for a diminished amount. That would

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Speaker 2: very much hurt American owners, American shareholders in ByteDance itself.

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Speaker 2: How do you see the possibilities of a sale and

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Speaker 2: whether or not you know that might be the most

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Speaker 2: likely outcome is that it gets sold but no algorithm.

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Speaker 6: I mean, the algorithm question is a great one, right.

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Speaker 6: It's one of the most coveted parts of TikTok, and

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Speaker 6: I'm sure there are many companies here that would love

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Speaker 6: to get their hands on the algorithm, and to your point,

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Speaker 6: it would lessen the valuation of TikTok and perhaps expand

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Speaker 6: a list of potential buyers. No matter what, though, I

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Speaker 6: do think finding a buyer is going to be a

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Speaker 6: difficult task for TikTok. While there are a lot of

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Speaker 6: companies again that would like to get their hands on

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Speaker 6: the company, it is one that has been heavily scrutinized

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Speaker 6: over many years, not only here in the US, but worldwide.

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Speaker 6: So this buyer would have to have a strong pocket,

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Speaker 6: a strong stomach excuse me, as well as deep pockets

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Speaker 6: to be able to buy it, and companies like Meta

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Speaker 6: as well as the rest of big tech would pretty

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Speaker 6: much be out of the question because of antitrust and

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Speaker 6: regulatory concerns.

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Speaker 1: Yeah, former Treasury secret see is Steve Menuschen has already

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Speaker 1: said that he's assembling a group of investors that would

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Speaker 1: make a move to buy TikTok's US operation. Now we

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Speaker 1: know that Oracle is already hosting a lot of the

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Speaker 1: data that TikTok has for users here in the States,

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Speaker 1: which I think approaches around one hundred and seven million users.

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Speaker 1: Does Oracle, I know they have about eighty seven billion

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Speaker 1: in debt, But would that kind of emerge as a

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Speaker 1: company maybe that could take over TikTok or should we

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Speaker 1: be thinking about other firms? I mean you mentioned Microsoft

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Speaker 1: maybe as a possibility. Meta clearly out of the question.

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Speaker 1: Is you know, obviously with antitrust concerns there, But are

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Speaker 1: there companies like Oracle that you can see that may

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Speaker 1: have a chance at buying TikTok in the US.

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Speaker 6: So one of the companies that I think would be

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Speaker 6: a good fit, although I don't know how possible a

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Speaker 6: deal would be, is Walmart. It did you know propose

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Speaker 6: a deal I believe with Oracle in twenty twenty, so

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Speaker 6: there is some history there, and TikTok and Walmart, of course,

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Speaker 6: also have a long history of working together and partnering together.

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Speaker 6: The two of them also need to fend off Amazon,

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Speaker 6: so it would be a partnership that, at least in theory,

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Speaker 6: would make sense to me.

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Speaker 2: You know, there aren't many Chinese companies that have such

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Speaker 2: a massive presence in the United State, so it might

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Speaker 2: not be all that unusual if TikTok was just sold.

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Speaker 2: You mentioned Walmart. That's probably one company that has deep

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Speaker 2: enough pockets to consider buying TikTok. But let's talk a

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Speaker 2: little bit about how much this company might sell for.

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Speaker 2: I might have gotten a little bit out over my skis.

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Speaker 2: I told Doug that I thought the company would be

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Speaker 2: valued over one hundred billion dollars, and who could really

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Speaker 2: afford that. There's only a handful of companies that could,

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Speaker 2: and some of them would be blocked because of out

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Speaker 2: of trust, as Doug suggested. So what sort of value

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Speaker 2: does TikTok have.

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Speaker 6: Well, I've seen estimates that range anywhere between forty billion

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Speaker 6: and one hundred and fifty billion, again depending on whether

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Speaker 6: the algorithm is included. That's a little bit outside of

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Speaker 6: the purview that I have. We focus more on advertising,

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Speaker 6: which of course is a core part of TikTok's business.

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Speaker 6: And if you think about the size of TikTok's AD

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Speaker 6: business here in the US, it is by no means

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Speaker 6: a small player. We're expecting it to rake in about

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Speaker 6: ten billion dollars in US AD revenues in twenty twenty four,

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Speaker 6: assuming of course that it does not get banned. So

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Speaker 6: it is one of the largest social media ad players

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Speaker 6: out there and by no means again a small business.

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Speaker 1: So ten billion, how does that compare to what Meta

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Speaker 1: rakes in in terms of AD revenue.

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Speaker 6: So based on our estimates, we are predicting that Meta

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Speaker 6: will rake in about sixty four billion dollars in US

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Speaker 6: AD revenues this year. So it is significantly larger still

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Speaker 6: than TikTok. But if you think about the time that

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Speaker 6: TikTok has been here in the US and how rapidly

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Speaker 6: it has grown, it really has been able to cross

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Speaker 6: that ten billion dollar mark very very quickly. But back

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Speaker 6: to the previous question about whether you know Meta would

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Speaker 6: be one of the beneficiaries, of course, it would be,

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Speaker 6: but thinking about again the size of its AD business

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Speaker 6: versus the side of TikTok's ad business, any reallocated TikTok

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Speaker 6: AD dollars would still be pretty much incremental to that

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Speaker 6: is already expected to bring in.

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Speaker 2: Okay, briefly, the one difference between the House bill and

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Speaker 2: the Senate bill is this three hundred and sixty days

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Speaker 2: for TikTok to be divested by byte edance. Is three

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Speaker 2: hundred and sixty a big deal?

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Speaker 6: Well, it's one of the reasons that it was able

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Speaker 6: or that it has more support now in the Senate.

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Speaker 6: I mean it does give you know, TikTok more time

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Speaker 6: to find a potential buyer. So I think it's one

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Speaker 6: of the reasons that it was able to be pushed

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Speaker 6: through into the Senate and one of the reasons that

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Speaker 6: it's more likely to become law now.

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Speaker 2: Yeah, and it gets this past the election. I guess

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Speaker 2: that's good. Jasmine, thanks so much for joining us, Jasmin Enberg,

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Speaker 2: Principal analyst at eMarketer Stosh Graham joins us managing director

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Speaker 2: at Graham Capital Wealth Management to take a closer look

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Speaker 2: at markets. Stosh equities seem to regain some of the

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Speaker 2: momentum that was lost in the month of April. Most

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Speaker 2: of the month we were trending to the downside and

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Speaker 2: more acute last week. But these two days of gains

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Speaker 2: have recouped about half of the five to six percent

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Speaker 2: pullback that we saw. City Group says stocks are more

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Speaker 2: attractive as the slide removed some of the market fraud.

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Speaker 4: How do you see it, well, Brian, in regards to

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Speaker 4: market movements, say, for the rest of the year. Certainly

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Speaker 4: this pullback has been a point where by the dive,

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Speaker 4: by the dip, buyers have come back. I think looking

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Speaker 4: into the near term future, you're looking at largely two

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Speaker 4: things financial conditions primarily, and then secondarily, can investor sentiment

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Speaker 4: still be very positive? We know it's not as positive

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Speaker 4: at where it was three to four weeks ago, but

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Speaker 4: certainly sediment is still positive compared to historical norms.

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Speaker 1: What about purchasing managers sentiment? We had the flash April

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Speaker 1: composite PMI from S and P Global. Today, I mean

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Speaker 1: we're almost flirting with the line between expansion and contraction.

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Speaker 1: In fact, if you look at the measure of orders,

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Speaker 1: I mean we dipped into contraction for the first time

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Speaker 1: in six months, So the economy is softening. Is that

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Speaker 1: enough that would cause the FED maybe to give the

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Speaker 1: equity market a little bit of relief here and begin

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Speaker 1: to cut rates, let's say, twice before the end of

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Speaker 1: the year is out.

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Speaker 4: That is the big question, certainly amongst institutional money managers,

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Speaker 4: I know, just being on the terminal, that has been

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Speaker 4: a primary point of discussion because we have seen a

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Speaker 4: material amount of rate cuts come off over the last

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Speaker 4: quarter and a half. Look where markets are right now

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Speaker 4: and where they were or how they were reacting really

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Speaker 4: last five to six months. In this remarkable rally, you

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Speaker 4: had a dynamic of which you indirectly referred to it.

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Speaker 4: In some situations you had bad economic news being seen

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Speaker 4: as good for markets, and then second early you had

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Speaker 4: good economic news being used as good news for markets. Again,

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Speaker 4: when you have those dynamics, you get a little bit.

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Speaker 4: You get worried that markets could be throthy, and when

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Speaker 4: you look at investors sentiment and how strong it's been

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Speaker 4: over that period of time, the market's taking a breather,

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Speaker 4: I think is a natural reaction. But again, looking in

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Speaker 4: the near term future, financial conditions are still pretty loose,

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Speaker 4: and right now capital markets again are very favorable for

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Speaker 4: companies that have strong balance sheets.

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Speaker 2: Well, I think Doug raised an interesting point because if

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Speaker 2: you think about it, interest rates are not the be

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Speaker 2: all and end all. Their one input into the cost

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Speaker 2: side of doing business, and inflation is sticky, so we're

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Speaker 2: not expecting the FED to really cut. So why would

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Speaker 2: stocks you go up? Well, they would go up if

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Speaker 2: one of the other inputs, which is growth, is higher.

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Speaker 2: And even more important than growth is how the companies

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Speaker 2: manage are their earnings higher? So if the earnings are higher,

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Speaker 2: you're probably feeling pretty good here. But then if growth

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Speaker 2: is faltering, as suggested with the latest uh, the latest

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Speaker 2: ism numbers, then it is something to be concerned about.

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Speaker 2: I'm not sure that that's entrenched yet, about a weakness

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Speaker 2: in growth. How do you see growth?

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Speaker 4: No, absolutely, And I would say that is for personally,

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Speaker 4: for us in our firm, that is the risk that

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Speaker 4: the market is not fully appreciating. I think one of

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Speaker 4: the difficult dynamics with using various economic data points, whether

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Speaker 4: it's the variety of reports from the jobs report, uh,

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Speaker 4: you know we referenced PMI, A lot of these reports

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Speaker 4: get revised at a later point in time, and how

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Speaker 4: the data is collected, and you're specially you're seeing this

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Speaker 4: with the labor market where you have an initial jobs

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Speaker 4: report and then a month later, three months later, the

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Speaker 4: numbers have been getting revised and generally speaking being revised lower.

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Speaker 4: And it's not necessarily due to some nefarist mean, it's

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Speaker 4: just the way or the inefficiencies of how the numbers

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Speaker 4: or how the data is collected. So while I think

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Speaker 4: in the short run, again largely because investment sentiment and

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Speaker 4: financial conditions are very favorable, and historically that has been

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Speaker 4: your your your most or that's been your strongest variables

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Speaker 4: for near term market movements. What we're talking about, which

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Speaker 4: would be you know, concerns about a week economy and

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Speaker 4: how that can impact financial asset markets and especially equity markets.

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Speaker 4: That is that's your intermediate term. So I would say

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Speaker 4: six to twelve months that is the risk because earnings growth,

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Speaker 4: as you've been alluding to, generally have been pretty strong

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Speaker 4: so far this quarter or this earning season.

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Speaker 1: So do you seek shelter in companies that have very

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Speaker 1: strong balance sheets holding on to a lot of cash

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Speaker 1: and I'm thinking of big cap tech, Does that make

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Speaker 1: sense to get a little defensive here, under the umbrella

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Speaker 1: of big cap tech. Are you just frightened the evaluations

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Speaker 1: being too high.

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Speaker 4: Exactly for us in terms of information technology, which to

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Speaker 4: be fair, has seen the strong over the last six

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Speaker 4: months has seen the strongest earning's revisions higher of all

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Speaker 4: sm P five hundred subsectors, and it's largely it's tied

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Speaker 4: to artificial intelligence and the expected spending in that respective technology.

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Speaker 4: But again, valuations are very rich in the information technology space.

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Speaker 4: A sector that we have been watching for some time

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Speaker 4: that is generally unloved is energy. Now the recent price

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Speaker 4: movements in WTI or various other commodities has produced a

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Speaker 4: nice wind or tailwind last thirty days.

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Speaker 2: Yeah, we'll see if it continues. Stash, Thanks very much,

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Speaker 2: Stosh Graham, Managing director at Graham Capital Wealth Management.

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