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Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim Fox.

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Speaker 1: Along with my co host Lisa A. Bramowitz. Each day

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Speaker 1: we bring you the most important, noteworthy, and useful interviews

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Speaker 1: for you and your money, whether you're at the grocery

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Speaker 1: store or the trading floor. Find the Bloomberg p m

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Speaker 1: L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com.

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Speaker 1: This is Bloomberg Markets. I'm Pim Fox. Joining me here

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Speaker 1: in the studio right now is William R. Rhodes. Bill

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Speaker 1: Rhodes is the author of Banker to the World, Leadership

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Speaker 1: Lessons from the front Lines of Global Finance. It also

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Speaker 1: happens to be the chief executive and president of William R.

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Speaker 1: Rhodes Global Advisors. Bill, thank you very much for being here.

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Speaker 1: I gotta say it's almost like a coincidence because, of course,

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Speaker 1: today we're awaiting news about the NAFTA renegotiation talks that

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Speaker 1: have been taking place over the weekend in Montreal, and

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Speaker 1: you have a direct relationship to uh NAFTA as it

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Speaker 1: was put together, and what if you could just tell

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Speaker 1: people about it. Well, first of all, it's always great

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Speaker 1: to be with you here, Pim. I worked on the

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Speaker 1: original LAFTA with rod Archefeller, Nelson's oldest son who passed

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Speaker 1: away a few years ago. But we worked very hard

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Speaker 1: on that because we saw a lot of the synergies

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Speaker 1: synergies possible between the three countries. It obviously had to

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Speaker 1: be updated. So much has happened in the area of technology,

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Speaker 1: UH that the updating is very necessary and the negotiations

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Speaker 1: were gonna be tough. We knew because uh the president

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Speaker 1: administration announced that they were very unhappy with the trade

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Speaker 1: deficit with Mexico and the smaller one with Canada. Although

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Speaker 1: there are a lot of pessimistic estimates and what's going

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Speaker 1: to happen. I think you have uh, a very good

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Speaker 1: group of people negotiating it. Lightheiser has a has a

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Speaker 1: record as a negotiaties are tough. Nego chases the US

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Speaker 1: the leading US exactly, and Christopher Freelands and old friends

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Speaker 1: used to me the uh uh the editor in the

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Speaker 1: United States for the Financial Times. It's very smart and

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Speaker 1: she knows what she's doing in Gualhardo does it from Mexico,

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Speaker 1: although really Vita Garai is the one who's the foreign

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Speaker 1: minister who really is on top of that. So you

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Speaker 1: have three very tough, smart people negotiating it, UH and UH.

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Speaker 1: I think at the end of the day it will happen.

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Speaker 1: But I think you'll need a couple of more sessions

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Speaker 1: before we get through it. UH. As you know, it's

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Speaker 1: a whole content thing on automobiles, etcetera. And this is

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Speaker 1: sort of a set piece for the whole trade policy

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Speaker 1: of the Trump administration going forward. This is why I

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Speaker 1: think it's so important and why the negotiations have been

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Speaker 1: so tough. Why why do you think that is it

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Speaker 1: because there's nothing that can be offered, because then you

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Speaker 1: would look weak or what I mean, if ultimately they're

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Speaker 1: going to strike some kind of deal, why wouldn't they

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Speaker 1: just do this rather than putting everyone through all this

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Speaker 1: storman drown well. I think each side UH wants to

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Speaker 1: show that they are negotiating in a tough fashion, and

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Speaker 1: the Canadians just agreed to I think a major concession

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Speaker 1: on the content side, which I think the Mexicans UH

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Speaker 1: said they'd look at and buy on automobiles, which I

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Speaker 1: think is is one of the key problems. So at

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Speaker 1: the end of the day, in spite of all the

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Speaker 1: bluster and threats and everything, like that. I think you

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Speaker 1: will eventually get a deal bill go right up to

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Speaker 1: the last minute. I think you probably need another couple

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Speaker 1: of sessions before it occurs, because I think you need

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Speaker 1: to take a look at what President Trump said at

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Speaker 1: the World Economic Form, which is you know, I went

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Speaker 1: to for twenty five years, and he basically said that

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Speaker 1: he wanted to do that deal, but obviously on his terms.

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Speaker 1: But then he brought up for the first time that

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Speaker 1: he might even be opened and taking a look at

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Speaker 1: t p P again, which surprised everyone, which in my

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Speaker 1: mind is the correct thing to do. Alright, So having

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Speaker 1: learned this and uh, well, maybe just give us your

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Speaker 1: thoughts on the president's uh speech in Davos. Well, I

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Speaker 1: think he handled himself very well. I wasn't there, but

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Speaker 1: what I read about it, and he used the teleprompter

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Speaker 1: and he was very careful to say that in the

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Speaker 1: United States is uh uh, you know, first America first,

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Speaker 1: but not alone, which I think was the point that

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Speaker 1: he wanted to get through to them that we're not

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Speaker 1: trying to isolate ourselves from the rest of the world.

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Speaker 1: So I think as far as the speech goes, it

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Speaker 1: was well accepted. I understand the law. I was not

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Speaker 1: there uh in DeVos. What's very important is what he's

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Speaker 1: going to say on the state of the Union. That'll

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Speaker 1: be tomorrow night exactly be covering that live, all right.

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Speaker 1: So we we talked about NAFTA and we are awaiting

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Speaker 1: a press conference in perhaps in the next hour coming

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Speaker 1: from Montreal about that. Does this trade almost public negotiation

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Speaker 1: that the president is conducting, is that also sending a

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Speaker 1: message to the Chinese? Well, I think with China we've

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Speaker 1: got some real problems, not just on the trade side.

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Speaker 1: I think we have we have problems with them on

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Speaker 1: North Korea because, as I've said on your program before,

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Speaker 1: the only way we're going to get an agreement out

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Speaker 1: of Kim Jong Un is if we get the Chinese

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Speaker 1: and the Russians to a small park imminately the Chinese

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Speaker 1: to cut off all oil and gas uh and to

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Speaker 1: implement it, because they've agreed to do a lot of things,

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Speaker 1: but it's not clear they're implementing it. So that's a

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Speaker 1: major issue we have with China. And then we have

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Speaker 1: the South China Sea issue, which is also very very important.

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Speaker 1: And then of course we have this whole question of

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Speaker 1: of trade, and I think it's going to be very

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Speaker 1: difficult in the sense to achieve everything we want with

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Speaker 1: the Chinese. So I think think we're gonna have some

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Speaker 1: very tough years ahead of us dealing with China. Because

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Speaker 1: you think that this is going to unleash a trade

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Speaker 1: war between the United States and China. Well, I think

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Speaker 1: it depends on how China reacts with Kim Jongoon on Korea. Uh,

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Speaker 1: they have to show some more flexibility in the sense

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Speaker 1: of being willing to really push Kim Jongoon to negotiating

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Speaker 1: table um. And there are a number of problems that

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Speaker 1: China has in addition to what we're discussing. As you know,

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Speaker 1: I've been advocating and I just did it in my

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Speaker 1: recent up ed on the Markets that UM China needs

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Speaker 1: to take some very tough steps to rain in shadow

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Speaker 1: banking in China, to clean up the bed debts at

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Speaker 1: the state owned banks, and to start moving on closing

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Speaker 1: down the zombie companies and in areas like steel, coal

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Speaker 1: and shipbuilding, because if they don't uh start doing that,

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Speaker 1: you could have a main your financial problem in China

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Speaker 1: in the next couple of years. Bill Rhodes, he is

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Speaker 1: the President chief executive William R. Rhodes Global Advisors. Let's

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Speaker 1: turn our attention out to the world of technology with

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Speaker 1: Mark German. He is our technology reporter for Bloomberg and

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Speaker 1: the topic is Apple and Mark, you know, many people

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Speaker 1: don't recognize that Apple is really in the chip business

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Speaker 1: as much as it is in the phone business. Can

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Speaker 1: you explain? Yeah, that's exactly right. And speaking of chips,

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Speaker 1: the last guest mentioned they had a settlement with Emersion

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Speaker 1: on chips for the Force touch screens and whatnot. But

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Speaker 1: this story that we have today bloomber Technology is focusing

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Speaker 1: on the main processing engines, the system on the chips,

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Speaker 1: the wireless components used in products like the iPhone, the iPad,

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Speaker 1: the Apple t V, the home pod, and the air pods.

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Speaker 1: And it's it's a growing part of the company's overall

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Speaker 1: long term strategy. Why did they decide to do this? What? What?

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Speaker 1: What is it about the chips made by let's say

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Speaker 1: Intel or arm Holdings or a m D. What about

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Speaker 1: those chips? Are they not good enough? They are good enough?

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Speaker 1: But what Apple wants to do is sort of control

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Speaker 1: the whole set. So if they don't have to work

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Speaker 1: with third party developers of chips, they can keep their

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Speaker 1: plans closer to the vest. They can work on things

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Speaker 1: years before they would be able to work on them

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Speaker 1: with Intel and whatnot. Right now, Apple still uses Intel

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Speaker 1: chips for the main processors and Max and Apple sort

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Speaker 1: of stuck to Intel's roadmaps and whenever Intel has a

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Speaker 1: new chip coming out, then Apple is able to use it.

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Speaker 1: At this rate, they get to control their own pace

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Speaker 1: if they're building the chips themselves for their own hardware.

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Speaker 1: And the result is what that they get their custom

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Speaker 1: components that process tasks that are specific to Apple products,

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Speaker 1: right track your steps, power game graphics, the fa Ace

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Speaker 1: i D, also the Touch i D data and the

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Speaker 1: Apple Watch. Yeah, that's right. So they made components to

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Speaker 1: go along with new features. And there are some cases

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Speaker 1: where a third party hardware developer for chips doesn't make

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Speaker 1: components that support features that Apple wants to come out with.

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Speaker 1: For example, the Touch i D and Pace i D

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Speaker 1: examples the step tracking and whatnot. There there weren't chips

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Speaker 1: on the market from other chip developers that were able

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Speaker 1: to be optimized for the iPhone to support those new features.

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Speaker 1: So it gives an Apple a leg up to build

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Speaker 1: their own stuff. Okay, but this depends then on Apple's

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Speaker 1: ability to keep selling these hundreds of millions of devices

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Speaker 1: every year because they're the customer, right. So chip making

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Speaker 1: is a very very expensive game, and a lot of

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Speaker 1: people ask what is Apple doing with all this cash

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Speaker 1: that they have? Well, a lot of it goes into

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Speaker 1: this research and development necessary to build these chips. It's

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Speaker 1: an extraordinarily expensive and long term proposition. They work for

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Speaker 1: upwards of three to four years on a specific component

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Speaker 1: for a future iPhone. They're already working on the internal

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Speaker 1: chip apps for the iPhones of two even three in

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Speaker 1: order to get those features working popular by the time

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Speaker 1: the phone ship. And so it's a very time consuming

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Speaker 1: and a very expensive and a very resource intensive process.

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Speaker 1: So as long as they're selling two d three hundred

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Speaker 1: million devices a year, it's worth it. If not, if

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Speaker 1: they're not selling that many devices, and you know, there

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Speaker 1: could become a point where it's like why why are

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Speaker 1: they building all these chips? But I don't see that

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Speaker 1: happening anytime soon. Mark tell us about a gentleman named

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Speaker 1: Ronnie SHRUGI. Yeah, so he's the person in charge of

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Speaker 1: Apple's chip making efforts. He's the senior VP of Hardware technologies.

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Speaker 1: They have offices in Israel and the United States and

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Speaker 1: other countries to build these processors, and he's really in

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Speaker 1: charge of this endeavor to build chips. We did a

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Speaker 1: nice profile of him back in I would encourage anyone

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Speaker 1: interested in him or the or the chip making abilities

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Speaker 1: of Apple to take a look at that article as well.

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Speaker 1: And if you were to purchase, let's say, a new

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Speaker 1: iPad that will maybe come out by the end of

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Speaker 1: the year, what are you going to see in there

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Speaker 1: that Apple designs. So the current iPads they don't have

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Speaker 1: a ton of internal Apple custom chips, but we're expecting

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Speaker 1: this new iPad model that comes down in the fall

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Speaker 1: to have at least the pair of new Apple processors,

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Speaker 1: one for artificial intelligence tasks, the neural engine, which works

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Speaker 1: with face i D, So we're expecting the iPad to

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Speaker 1: get face i D, but also an Apple custom graphics processor.

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Speaker 1: It's called the GPU that's in the iPhone eight eight

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Speaker 1: plus in the iPhone ten, and so they bring it

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Speaker 1: to the iPad for the first time this year, and

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Speaker 1: it makes sense as a natural progression of pushing the

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Speaker 1: chips to more Apple devices and just quickly if you're

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Speaker 1: wanting to buy like a Mac, will you be getting

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Speaker 1: those special processors made by Apple. So right now there's

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Speaker 1: two Macs with special processors made from Apple their coprocessors.

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Speaker 1: In addition to the Intel chip. They're going to come

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Speaker 1: out with at least three updated Mac models with those

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Speaker 1: chips as well. Across we reported today. I want to

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Speaker 1: thank you very much for joining us. Mark Erman is

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Speaker 1: our expert when it comes to all things related to

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Speaker 1: technology for a Bloomberg News talking about Apple and its

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Speaker 1: chip building desires for my attention now to two different economies,

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Speaker 1: the economy for urban America and rural America. And here

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Speaker 1: to help us understand this is Tom Halverson. He is

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Speaker 1: the president and the chief executive of co Bank Assets

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Speaker 1: under management about a hundred and twenty five billion dollars,

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Speaker 1: joining us from Denver. Tom, thanks very much for being

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Speaker 1: on tell us about this new report about what influences

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Speaker 1: rural America's economy. Well, thank you, a pleasure to be

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Speaker 1: with you. You know, there's a there's a great deal

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Speaker 1: of things that influence the royal economy and it obviously

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Speaker 1: has a tremendous impact on the rest of the economy

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Speaker 1: as a whole. We've found trying to do a lot

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Speaker 1: of research that is particularly difficult all to gather appropriate

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Speaker 1: timely data and economic indications about what is in fact

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Speaker 1: going on in rural America. But we've done a lot

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Speaker 1: of research in that regard, published some some of it

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Speaker 1: that's available to you, and what you can see is, uh,

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Speaker 1: there's quite a meaningful divergence on a variety of different

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Speaker 1: indicators between what's happening in rural America, which hasn't been

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Speaker 1: a strong over the last five to ten years, is

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Speaker 1: what's been happening in UH in UH, in the urban

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Speaker 1: economy as a whole, is it? I mean, maybe start

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Speaker 1: with misconceptions. I mean, you know, if you mentioned the

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Speaker 1: rural economy of the United States, you may get people saying, well,

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Speaker 1: it's all agriculture and mining. Not so, No, it's not so.

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Speaker 1: There's actually a lot going on in in rural America.

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Speaker 1: In fact, the predominant portion of the population obviously lives

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Speaker 1: in in urban America, but they often don't understand fully

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Speaker 1: or perhaps potentially take for granted, just how reliant their

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Speaker 1: quality of life in their economic well being depends on

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Speaker 1: what goes on in rural America. Whether it be the

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Speaker 1: agricultural economy. But food and fiber that we all rely

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Speaker 1: on comes from rural America, as does our water other

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Speaker 1: natural resources UH and predominantly a lot of the electricity

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Speaker 1: and other things that are ubiquitous needs of of our

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Speaker 1: quality of life these days, as well as our economic

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Speaker 1: activity is also predominantly coming from from rural America. Well,

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Speaker 1: you mentioned in the report that in Iowa, agricultural products

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Speaker 1: only account for about ten percent of the state economy,

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Speaker 1: But then you have to figure in things like the

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Speaker 1: equipment manufacturers, agricultural lending. That changes the picture. It does. Indeed,

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Speaker 1: there is a wide array and diversity of economic activity

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Speaker 1: in rural America, and obviously they're all very highly correlated

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Speaker 1: UH and interdependent, but it's much more diverse than the

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Speaker 1: ability with modern telecommunications capabilities, for example, to and visage

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Speaker 1: economic activity occurring in rural America that couldn't have happened ten, fifteen,

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Speaker 1: twenty years ago, whether it be uh in in the

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Speaker 1: communications industry itself, or in the health care industry or

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Speaker 1: other things where where distance has a lot more a

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Speaker 1: lot less impact on cost as a result of communications innovation.

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Speaker 1: What about wages in rural America, albeit it's different for

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Speaker 1: you know, whether you're in the agriculture sector or an

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Speaker 1: education and health. But we'll give us an update on wages. Well,

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Speaker 1: it's it's it's interesting to note that they are in

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Speaker 1: addition to technological UH differences between you know, broadband penetration

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Speaker 1: or any other sort of indicators you want to look at,

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Speaker 1: diverging between urban and rural, there's also a significant diversion

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Speaker 1: in in wage growth, appreciation, unemployment levels, basic labor market

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Speaker 1: conditions in rural America over the last five to ten

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Speaker 1: years have significantly diverged from what's happening UH in UH

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Speaker 1: in urban America. Substantially more jobs have been created in

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Speaker 1: urban America than in rural America since the financial crisis

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Speaker 1: nearly a decade ago, and there's been much more wage

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Speaker 1: appreciation as a result, UH as well in in in

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Speaker 1: urban America. So in certain respects, the rural parts of

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Speaker 1: the country, in rural job creation, job opportunities, wage opportunities,

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Speaker 1: and the like have been have been less robust than

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Speaker 1: has been so in in the populous parts of the country.

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Speaker 1: What's your thought. I mean, we've been talking about NAFTA

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Speaker 1: today because of the negotiations and the recent press conference

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Speaker 1: in Montreal. Based on your customer base and your experience,

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Speaker 1: what's your take on the renegotiation of NAFTA. Well, it's

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Speaker 1: a it's a big issue. It's a big issue for

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Speaker 1: rural America in general. It's a big issue for agricultural

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Speaker 1: America in particular. If you if you look at the

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Speaker 1: changing trade patterns between our sols and our NAFTA partners

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Speaker 1: since that agreement was put in place, the agricultural economy

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Speaker 1: has been one of the predominant beneficiaries. We've substantially grown

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Speaker 1: our agricultural exports, who are particularly to Mexico and therefore

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Speaker 1: among our customers in the rural parts of the country.

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Speaker 1: There's a fair amount of apprehension about about the potential

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Speaker 1: risks associated with losing the access that our agricultural producers

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Speaker 1: have gained through you know, a lot of hard work

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Speaker 1: over a long period of time, as well as as

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Speaker 1: some concerned about what that might mean for the for

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Speaker 1: the future, because there obviously continues to be good growth

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Speaker 1: upside opportunities for the agricultural economy if we can maintain

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Speaker 1: these advantageous trading relationships. Thank you very much for being

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Speaker 1: with us. Tom Halverson as the president and the chief

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Speaker 1: executive of co Bank, based in Denver, helping to manage

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Speaker 1: more than a hundred and twenty five billion dollars in assets.

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Speaker 1: All right, let's turn our attention now to the deal

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Speaker 1: of the day. I guess you could call it over

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Speaker 1: eighteen billion dollars dr Pepper Snapple being snapped up by

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Speaker 1: A J. A b. The holding company of the Rheyman family,

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Speaker 1: and Ed Hammond, our deal's reporter is here to tell

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Speaker 1: us all about it, and Ed can be followed on

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Speaker 1: Twitter at Ed Hammond and why alright Ed Hammond and

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Speaker 1: why they got you up early out of bed to

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Speaker 1: do this one? Uh? Why is this deal so important

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Speaker 1: for the industry. It's important for the industry because it's

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Speaker 1: counter trend, which is always kind of a nice thing

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Speaker 1: to get us going. So the thing we've seen in

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Speaker 1: food and beverage M and A, particularly food M and

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Speaker 1: A in the last few years, has been in this

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Speaker 1: real pivot towards health and wellness. So every big deal

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Speaker 1: you've seen done, indeed a lot of small deals, the

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Speaker 1: real characteristic has been when moving food into a space

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Speaker 1: where you have, you know, much more attention on sort

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Speaker 1: of healthy consumers people not wanting to have tons of

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Speaker 1: sugar and sort of high fructo stuff in their diet.

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Speaker 1: This kind of isn't that. This is more what we

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Speaker 1: think of a traditional sort of sugary drinks, stuff that

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Speaker 1: you would go in a store and you would buy

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Speaker 1: and maybe feel a little bit guilty about afterwards. You're

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Speaker 1: going to buy them in a Crispy Cream store, You're

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Speaker 1: gonna buy them in a Panera bread store, in a

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Speaker 1: Noah in an Einstein Noah store, right exactly. So the

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Speaker 1: idea now is that you'll probably get some kind of

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Speaker 1: some kind of deal where you're going to get cheaper

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Speaker 1: doctor Pepper's in your in your Panera at store, or

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Speaker 1: maybe you're gonna get free Dr Pepper or free snapper

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Speaker 1: with your Crispy cream. Either way, it's not exactly a

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Speaker 1: move towards health, and so from that point of view,

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Speaker 1: it's interesting. The other thing that's really interesting here, and

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Speaker 1: this is a huge thing for JB in in kind

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Speaker 1: of moving to do the deal, is they have a

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Speaker 1: big coldbrew coffee business. At the moment, they're entirely dependent

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Speaker 1: on their coffee stores really for selling that or they

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Speaker 1: get held up by the retailers. This immediately opens a

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Speaker 1: channel for them to distribute their cold brew straight two stores,

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Speaker 1: which is a huge market for them and something that

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Speaker 1: will I think provide kind of instant um instant uplift

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Speaker 1: for them. Can you just explain to people this cold

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Speaker 1: brew coffee. Uh, I don't want to say that it's

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Speaker 1: a fat yet, but I'll let's just say it's a trend.

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Speaker 1: There are kind of fans within it, So like within

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Speaker 1: Colboro you have like nitro coffee, which is kind of

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Speaker 1: Cobrew on steroids, and that's that seems to be a

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Speaker 1: bit of a New York fans. So Cobrew is you know,

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Speaker 1: it's it's as far as I understand, it's it's different

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Speaker 1: from just iced coffee because it's actually brewed cold. It

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Speaker 1: takes like twelve to fifteen hours. You sit it on

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Speaker 1: the grains the ground story, which is slightly coarser, and

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Speaker 1: it brews in a different way. It means it's it's

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Speaker 1: slightly lower in acids, and it tastes slightly nicer, and

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Speaker 1: it's not just like you know, a drip coffee poured

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Speaker 1: over rice that was quite good, wasn't that was really good? Yes? Indeed,

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Speaker 1: and so the idea being that now, because of this acquisition,

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Speaker 1: every place that you were able to go and buy

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Speaker 1: Dr Pepper or Snapple products like big grocery store chain,

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Speaker 1: you're are going to be able to get your cold

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Speaker 1: brew coffee onto those same shells exactly. So when you

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Speaker 1: go to Walmart to pick up your Dr Pepper, you

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Speaker 1: were able to buy like a can of Pete's Cold Brew,

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Speaker 1: which is that's a huge part of their business and

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Speaker 1: obviously that's a big part of this proposition for JB.

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Speaker 1: Why merged these businesses together. Well, they've certainly got a

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Speaker 1: nice portfolio, the Rieman family of Austria, and they're adding

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Speaker 1: it to it, correct because they own thirty eight percent

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Speaker 1: of COTI and five percent of Record Bank US. Yeah,

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Speaker 1: I think it's important thing to disentangle here. Yes, the

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Speaker 1: Rhyman family will be big investors in this proform of

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Speaker 1: business when the merger has done. But this is also

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Speaker 1: j a B Consumer Funds, which is a kind of

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Speaker 1: non Rieman family vehicle that's all outside money. So it's

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Speaker 1: it's two bits of j B. It's the it's the

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Speaker 1: holding code which is predominantly Rhyman family, but it's also

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Speaker 1: the consumer business which is not Roman family, so you're

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Speaker 1: seeing both of those investing together into this new code. Interestingly,

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Speaker 1: you also have money coming in from Byron Trott, who

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Speaker 1: is advising on the deal, also investing in a deal.

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Speaker 1: This is a very unusual structure, something only he seems

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Speaker 1: to be able to do. He did it recently with

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Speaker 1: Warren Buffett on the Pilot Flying Jay's deal as well.

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Speaker 1: Thanks very much for being with us and explaining it.

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Speaker 1: I have a feeling we're going to be calling on

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Speaker 1: your expertise more to learn more about this. Ed Hamming,

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Speaker 1: our deal's reporter for Bloomberg. Thanks for listening to the

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Speaker 1: Bloomberg P and L podcast. You can subscribe and listen

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Speaker 1: to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform

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Speaker 1: you prefer. I'm pim Fox. I'm on Twitter at pim Fox.

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Speaker 1: I'm on Twitter at Lisa Abramo. It's one before the podcast.

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Speaker 1: You can always catch us worldwide on Bloomberg Radio.