WEBVTT - Abby Joseph Cohen, professor at Columbia Business School, Talks Fed Expectations

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>You make your luck on foreign exchange. You have win

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<v Speaker 2>thin with us today. You studied with Robert Mandel at

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<v Speaker 2>Columbia University years ago.

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<v Speaker 1>Is wonderful. You do even better if on an historic.

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<v Speaker 2>Day like this, Abby Joseph Cohen decides to join US

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<v Speaker 2>iconic at Goldman Sachs now teaching at win Thin's Columbia

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<v Speaker 2>Business School as well. Abby, when you slid out of Cornell,

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<v Speaker 2>this is just a few years ago, folks, the Dow

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<v Speaker 2>was just under one thousand. The Dow is forty nine

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<v Speaker 2>thousand and thirty seven right now. You were a pinata

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<v Speaker 2>in two thousand and eight. I'm going to give you

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<v Speaker 2>the worst She made the worst call at the worst

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<v Speaker 2>time in two thousand and eight, and the S and

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<v Speaker 2>B five hundred is up eight point six percent. If

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<v Speaker 2>you made the worst call in two thousand and eight,

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<v Speaker 2>that's better than nominal GDP. If you make the worst

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<v Speaker 2>call on the pandemic, Paul Sweeney, you're up one hundred

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<v Speaker 2>and five percent of twelve percent plus per year. I mean,

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<v Speaker 2>just the basic you know, basic, basic, tough. Is there

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<v Speaker 2>an alternative to the stock market? I don't see it.

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<v Speaker 3>Well, let's back up a little bit, uh, Tom, and

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<v Speaker 3>good morning to you Paul as well. What we have,

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<v Speaker 3>of course, is an American economy that was never gone.

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<v Speaker 3>The American economy has been dominant truly since the end

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<v Speaker 3>of the Second World War. We have been very fortunate.

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<v Speaker 3>We have been blessed, if you will, by decades of

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<v Speaker 3>investment and education and science and other forms of research,

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<v Speaker 3>and so we have a stock market that is reflecting that.

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<v Speaker 3>When I take a look at recent stock market performance,

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<v Speaker 3>I see that investors are focused on basically corporate profits

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<v Speaker 3>at this point, and companies have not been disappointing. Here's

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<v Speaker 3>the question I think for investors, and that is, with

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<v Speaker 3>valuations at current levels, is there any room to hide

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<v Speaker 3>if there are disappointments? And that to me is an

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<v Speaker 3>issue not just for traders, but also for long term investors.

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<v Speaker 4>So abby, how do you think the valuation? What's the

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<v Speaker 4>valuation discussion we should be having about this market, because

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<v Speaker 4>a lot of folks are citing high valuations, but it

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<v Speaker 4>seems like the earnings are out there to support them.

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<v Speaker 4>How do you think about it?

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<v Speaker 3>The earnings clearly appear to be out there, which is great.

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<v Speaker 3>I'm very pleased about that. I don't see a recession

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<v Speaker 3>coming in the US this year. Also great news and

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<v Speaker 3>what we need to recognize, of course, and so many

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<v Speaker 3>people who have been on Blueberg in recent weeks have

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<v Speaker 3>talked about this is the ongoing rotation that we're seeing

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<v Speaker 3>in the US stock market that is reflecting this challenging

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<v Speaker 3>valuation environment in some sectors. And I think that's a

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<v Speaker 3>healthy discussion to have. We do see that some sectors

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<v Speaker 3>that have been laggards have been moving ahead, and we

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<v Speaker 3>also see that some markets outside the United States have

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<v Speaker 3>also been performing better. One of the big question marks

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<v Speaker 3>out there, of course, is the dollar. Right now, we

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<v Speaker 3>have investors who are basically saying they're focusing on corporate profits,

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<v Speaker 3>they're focusing on cash flow. The intermediate and long term picture, however,

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<v Speaker 3>to me, looks somewhat cloudier, particularly with this valuation overhang

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<v Speaker 3>in some sectors.

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<v Speaker 2>I mean Paul Sweeney, Abby Joseph Cohen's iconic financial journalist

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<v Speaker 2>Journal's paper was on Aristotle. If she's studied with Aristotle

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<v Speaker 2>in her interi program at Colvin SEC years ago, I look, Abby,

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<v Speaker 2>and I want you to talk to people about the

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<v Speaker 2>historical moment we're in. I'm not going to borrow you. You

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<v Speaker 2>know where we are gold fifty three hundred, We've got dollar.

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<v Speaker 2>I got a president, tell me I want week dollar policy.

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<v Speaker 1>Let's be kind.

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<v Speaker 2>It's a neo Murcintils policy. Do you perceive the presidency

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<v Speaker 2>of Donald Trump is one off for financial markets or

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<v Speaker 2>is there a new reality here we have to adapt to.

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<v Speaker 3>Well, I'd like to correct you if I may. I

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<v Speaker 3>didn't study with Aristotle. It was Sophocles.

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<v Speaker 1>Okay, it's good, don't drink the beverage.

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<v Speaker 3>But there you have it. I'll stay away from that

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<v Speaker 3>as well. We have a situation right now where I

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<v Speaker 3>think that investors and especially traders are really focused on

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<v Speaker 3>the very short term what's the profit picture? Is the

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<v Speaker 3>FED going to adjust short term interest rates and so on?

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<v Speaker 3>And we have, nevertheless a broader policy mix which is

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<v Speaker 3>not necessarily all that favorable on a long term basis. So,

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<v Speaker 3>for example, the trade policies which have been implemented, all

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<v Speaker 3>of the things being equal, notice I use the Keterist

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<v Speaker 3>parabus in there, but all of the things being equal,

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<v Speaker 3>the trade policy we have pushes inflation higher, not lower.

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<v Speaker 3>The fiscal policy we have right now will stimulate economic

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<v Speaker 3>growth in twenty twenty six through the depreciation allowances, through

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<v Speaker 3>the extra checks that middle income families will be receiving.

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<v Speaker 3>But all of the things being equal, that too pushes

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<v Speaker 3>up inflation, as does the weaker dollar. And so when

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<v Speaker 3>we have the President saying, as he did, he's okay

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<v Speaker 3>with a weaker dollar, which is a rather unusual thing

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<v Speaker 3>for the President of the United States to be saying,

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<v Speaker 3>that basically tells us something about the intermediate to longer

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<v Speaker 3>term view. Because keep in mind, the Fed, whatever decides

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<v Speaker 3>to do today, the Fed controls only the Fed funds rate,

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<v Speaker 3>only the very short term rate. Only the rate that

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<v Speaker 3>banks borrow at the rate of borrowing for everyone else

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<v Speaker 3>in the economy is done further out along the yield curve,

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<v Speaker 3>and that could be problematic because all of these other

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<v Speaker 3>pressures suggest that those interest rates have moved higher. Now,

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<v Speaker 3>what's also fascinating to me is that the administration is

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<v Speaker 3>talking about a number of steps that others would viewed

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<v Speaker 3>as economic or market interference, for example, telling banks what

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<v Speaker 3>credit card rates they should be.

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<v Speaker 1>Trying to go third rail? Are you teaching them?

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<v Speaker 3>And also the discussion in terms of controls on the

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<v Speaker 3>mortgage markets. This is something that we've not seen in

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<v Speaker 3>a very long time.

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<v Speaker 2>Joseph con As we continue with that, Joseph on Columbia Business.

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<v Speaker 2>Can you see her with a piece of chalk in

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<v Speaker 2>her hand talking about dropping credit card rates from twenty

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<v Speaker 2>nine count to ten percent?

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<v Speaker 1>See what they call students? Pusrati would be Joseph Cohen Abby.

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<v Speaker 4>What will you be listening for?

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<v Speaker 2>Today?

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<v Speaker 4>From FRED chairman j Pals will be his last appearance here.

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<v Speaker 4>What will you be listening for?

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<v Speaker 3>Because Nike everyone else, I'll be looking at the statement

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<v Speaker 3>which is issued and also obviously in the press conference.

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<v Speaker 3>I don't expect him to directly address the issues having

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<v Speaker 3>to do with the allegations that have been made.

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<v Speaker 2>Look abby at the state of the market. We began

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<v Speaker 2>with a historical perspective in this moment, this morning of

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<v Speaker 2>seven thousand, right now seven thousand, excuse me, six nine

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<v Speaker 2>hundred ninety five on SPX, there's an entire industry which

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<v Speaker 2>is basically saying to Americans, we know you're afraid I

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<v Speaker 2>have to be in the equity markets. Let us give

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<v Speaker 2>you some form of hedged return where we give away

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<v Speaker 2>a larger capital gain. Is that a sound investment approach,

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<v Speaker 2>which or does Joseph Cohen just say by the next

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<v Speaker 2>marginal share of Nvidia.

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<v Speaker 3>I when I advise individual investors, endowments, others, I'm always

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<v Speaker 3>taking the intermediate to longer term view. I'm not looking

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<v Speaker 3>at short term decision making. And so from that standpoint,

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<v Speaker 3>tom As, you know, I have been an enthusiast for

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<v Speaker 3>the US economy. I think that the United States economy

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<v Speaker 3>will continue to grow. There will always be hiccups. I

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<v Speaker 3>am concerned about some of the policy decisions that have

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<v Speaker 3>been taken right now. I am concerned about the dollar,

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<v Speaker 3>but I also know when we apply our CFA tools

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<v Speaker 3>in terms of relative valuations and so on, there are

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<v Speaker 3>some opportunities now the United States. Last year I spoke

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<v Speaker 3>about the Japanese market, the South Korean market, and to

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<v Speaker 3>that this year I would add the Indian market. India

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<v Speaker 3>has had a hard time getting its stock market moving

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<v Speaker 3>on any sustainable basis, but the companies underlying the major

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<v Speaker 3>indices in India you're performing quite well.

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<v Speaker 1>Right now.

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<v Speaker 2>We got to leave it there, Abby, Joseph con thank

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<v Speaker 2>you so much, and I was rude. I said, you know,

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<v Speaker 2>she slipped out of Cornell High above cut Yugos waters.

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<v Speaker 1>With a DOWT one thousand. But I was wrong. It

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<v Speaker 1>was it was like twenty thousand, five hundred when she

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<v Speaker 1>came out of.

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<v Speaker 3>Cornell a few years ago, because it was icy and

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<v Speaker 3>coal just like it is Indian work.

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<v Speaker 1>It is the walk up the slopes enough to kill you.

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<v Speaker 2>Abby Joseph Cohen Forever from Ithaca, Gulben Sachs and Columbia

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<v Speaker 2>Business School