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Speaker 1: Paul Talman, the chairman and CEO of PJAT Partners, joining

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Speaker 1: us around a table and amh, thirteen million is the

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Speaker 1: number We're going to mention a few times with that

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Speaker 1: man right there.

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Speaker 2: It's a record on any country ever what the US

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Speaker 2: is producing. Yet the Biden administration does not like to

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Speaker 2: talk about it. It's like a secret that no one

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Speaker 2: wants to talk about in Washington. But it's also part

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Speaker 2: of the reason why going into an election year, you

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Speaker 2: have gasoline under three dollars again.

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Speaker 1: Yeah, he's going to be talking about it later on,

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Speaker 1: that's for sure going to force. Let's begin with our

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Speaker 1: top story this morning, counting down to US economic data, GDP, Core,

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Speaker 1: PCEE and jobless claims. Ninety minutes away, Investors hoping for

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Speaker 1: more clues on the Fed's rate cut Timeline, Bank America

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Speaker 1: and Goldman expecting the first move to come in March

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Speaker 1: City Morgan Stanley have the Fed waiting until June to

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Speaker 1: talk about the outlook for investment banking, and a whole

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Speaker 1: lot more. Paul Talman, the CEO of PJAT Partners Joints,

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Speaker 1: is around the table.

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Speaker 3: Morning Pool, Good morning.

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Speaker 1: The investment banking recession sir, is it closing, is it ending.

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Speaker 3: It's beginning to warm. It's going to take a long time.

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Speaker 3: It's going to take a long time. We've had the

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Speaker 3: punch bowl, We've had incredibly easy money conditions, zero interest rates.

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Speaker 3: We've taken the punch bowl away, and markets haven't fully adjusted.

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Speaker 1: Do you think a couple of right cuts make a

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Speaker 1: difference to your world? This conversation that we have every

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Speaker 1: single day.

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Speaker 3: They do, they do. The reality is that rates right

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Speaker 3: now are coming down. The only question is when. And

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Speaker 3: I do believe that it's going to be pushed out

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Speaker 3: further and until we start to see actual rate cuts,

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Speaker 3: I think it's going to be difficult to really get

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Speaker 3: the financial markets, the m and A marketplace moving.

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Speaker 4: You said something there that I think is really telling.

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Speaker 4: You said, the punch bowl has been taken away, but

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Speaker 4: it takes time to adjust. Sort of the long and

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Speaker 4: variable lags that we've debated for about the better part

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Speaker 4: about three years. Do you think that there is a

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Speaker 4: mountain of reckoning and valuations that has yet taken place

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Speaker 4: in your space, in private equity, in sort of some

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Speaker 4: of the deal space.

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Speaker 3: Well, let's look at it. So if you go back

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Speaker 3: You've had a global m and a market that's four

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Speaker 3: to four and a half trillion year in, year out,

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Speaker 3: plus or minus four and a half trillion. All of

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Speaker 3: a sudden, COVID market triveles up three trillion, fed comes

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Speaker 3: in rates go to zero six trillion. Now the punch

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Speaker 3: bowls taken away eleven rate hikes three trillion. So we've

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Speaker 3: gone from four and a half to six to three.

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Speaker 3: And now the question is how do we get this

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Speaker 3: marketplace started again? And when you think about it, a

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Speaker 3: lot of that is private equity involvement has dried up.

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Speaker 3: And when you look at how active private equity has

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Speaker 3: been and how much they've hit the sidelines, that I

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Speaker 3: think is what people don't fully appreciate. And until private

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Speaker 3: equity gets more forward leaning, until they're prepared to sell

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Speaker 3: a lot of the assets that they have bill they're

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Speaker 3: prepared to recycle that capital and make new investments, I

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Speaker 3: think you're going to have this this stuck environment.

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Speaker 4: So what kind of haircut are we talking about? Because

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Speaker 4: essentially it's a price issue. They don't want to take

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Speaker 4: a twenty percent haircut of thirty percent haircut. They don't

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Speaker 4: want to lose money. How much are they going to

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Speaker 4: have to in order to get this market moving.

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Speaker 3: Look, one thing about private equity is they are exquisite

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Speaker 3: at controlling exit timings and they have long runways. And

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Speaker 3: that's why I think this is going to be a

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Speaker 3: very very slow build backup. And when you think about

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Speaker 3: that larger constituency being that active in the M and

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Speaker 3: A marketplace, and now all of a sudden, they're controlling

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Speaker 3: their exits and they're pushing them out, and they're not

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Speaker 3: returning capital to investors, and all of a sudden, the

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Speaker 3: capital that's being called is greater than the capital that's

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Speaker 3: being distributed. The IPO markets have been tight, so there's

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Speaker 3: very little in terms of monetizations in the IPO marketplace.

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Speaker 3: The credit markets have constrained dividend recapitalizations. There's a bit

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Speaker 3: at gone private equity assets as far as monetizing. So

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Speaker 3: we're going to work our way out of this. So

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Speaker 3: when you ask me about the recession, it's been an

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Speaker 3: M and A recession, it's been an investment banking recession. YEP.

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Speaker 3: I think many of the conditions are in place to

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Speaker 3: start that recovery, but it's not going to pop back up.

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Speaker 3: It's not going to do so immediately, but I think

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Speaker 3: we're starting to get there.

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Speaker 1: This is your world, help me understand it a little

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Speaker 1: bit more. You mentioned M and I, so let's talk

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Speaker 1: about that. If I'm a company right now, am I

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Speaker 1: waiting to see what happens with the politics before I

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Speaker 1: go out and do a big deal, a big acquisition.

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Speaker 3: The political environment that we're in, we're now in an

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Speaker 3: election year that's going to dramatically increase the volatility in

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Speaker 3: the marketplace. I don't think that's appreciated to the full

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Speaker 3: extent today. As we get further into the year and

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Speaker 3: closer to the election, my sense is you're going to

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Speaker 3: see the pause button hit on a lot of transactions. So,

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Speaker 3: in a way, may see a catalyst in the IPO

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Speaker 3: market where companies want to come to market early in

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Speaker 3: the year and not wait. I think you're likely to

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Speaker 3: see more M and A activity in the first half

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Speaker 3: of the year. People are likely to hit the sidelines later,

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Speaker 3: and then once the election is over and we understand

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Speaker 3: the direction going forward, I think you're going to have

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Speaker 3: a pretty robust snapback.

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Speaker 2: Hasn't Jet Blue and Spirit a potential merger that's blocked.

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Speaker 2: We see the way the Biden administration thinks of antitrust laws.

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Speaker 2: Hasn't that just said to the M and A market

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Speaker 2: potentially maybe wait till twenty twenty five and see if

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Speaker 2: the political environment changes.

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Speaker 3: The reality is that relatively few transactions get caught up

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Speaker 3: in the regulatory review, but it has a chilling effect

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Speaker 3: on those and we tend to focus too often on

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Speaker 3: the deals that get reviewed, the deals that get blocked,

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Speaker 3: and we don't focus on all the deals we never

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Speaker 3: saw that never got brought to market because of a

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Speaker 3: fear of an elongated review process. Interesting, and in a

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Speaker 3: world where it's incredibly complicated, where valuations are moving, to

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Speaker 3: be on the sidelines for twelve, fifteen, eighteen months, that's

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Speaker 3: an opportunity cost that's really sort of caused a lot

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Speaker 3: of companies to say, you know what, I'm just gonna

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Speaker 3: wait for another day.

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Speaker 4: How many rate cuts are necessary before it gets things moving?

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Speaker 4: Is it basically walk back half of them five rate

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Speaker 4: cuts and then things, you know, really go crazy, or

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Speaker 4: is it two?

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Speaker 3: I think the first critical inflection point was when we

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Speaker 3: stopped the hikes, and it's not a coincidence that the

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Speaker 3: depth of the market was when we were still hiking

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Speaker 3: and you started to see a small rebound some green

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Speaker 3: shoots when it was clear that we had hit spasis.

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Speaker 3: I think the next leg in the recovery is when

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Speaker 3: you actually start to see cuts and I don't know

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Speaker 3: if it's one or two, but you just need to

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Speaker 3: see some conviction that we've crested and we're on the

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Speaker 3: way down. And I think at that point in time,

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Speaker 3: things open up significantly. It's easier to get the bid

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Speaker 3: ask spreads narrowed. I think people have more conviction that

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Speaker 3: if they're leaning into assets, they're going to end up

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Speaker 3: with good deals. I think people are more comfortable starting

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Speaker 3: processes because they know that there's some momentum, some tailwind

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Speaker 3: behind and right now it's like two boxers sort of

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Speaker 3: circling one another.

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Speaker 1: How important were the energy deals over the last few

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Speaker 1: months just to get that process started to get things

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Speaker 1: moving well?

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Speaker 3: That was a very large, large component of this rebound

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Speaker 3: in M and A has been these large energy deals

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Speaker 3: and you've got all these shale producers, there's excess capacity.

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Speaker 3: There needs to be consolidation and rationalization. You've seen some

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Speaker 3: of it. I think you've seen the biggest of it,

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Speaker 3: but you'll continue to see consolidation in the space. But

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Speaker 3: there's no doubt that those were two of the very

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Speaker 3: few mega deals that we've seen in recent times.

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Speaker 1: Number one industry for you right now, where you'd expect

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Speaker 1: to see a lot more.

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Speaker 3: Look, I start with places where it's cash buyers, strong

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Speaker 3: balance sheets, So that leads you to healthcare, that leads

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Speaker 3: you to energy, that leads you to consumer, that leads

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Speaker 3: you to tech. But what's happened also is with these

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Speaker 3: seized up credit markets, there are a lot of companies

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Speaker 3: where in order to take them over you have change

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Speaker 3: of control, You've got to refinance the entire debt stack.

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Speaker 3: When you've got a debt stack that you're not sure

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Speaker 3: you can refinance, and if you refinance it, it's so

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Speaker 3: meanfully higher cost, all of a sudden, it's more and

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Speaker 3: more difficult. So cash buyers, strong balance sheets, those are

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Speaker 3: going to be the industries they are going to lead

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Speaker 3: us out of this.

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Speaker 1: I know what Bramo's thinking of right now, We're going

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Speaker 1: to talk about it in the next segment. You think

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Speaker 1: in big egos and media, Oh.

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Speaker 4: Yeah, big time.

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Speaker 1: I want to see you.

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Speaker 4: Know who's going to buy Disney Is you're going to

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Speaker 4: buy Netflix? But he's not going to talk.

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Speaker 1: About I fool you know, I'm just going to have

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Speaker 1: you with us. You're going to stick with us full

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Speaker 1: talbum that