WEBVTT - Rebecca Patterson Talks Iran War's Economic Toll

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news, Rebecca Patterson in studio

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<v Speaker 1>right now with the Council on Foreign Relations, but also

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<v Speaker 1>institutional work among others, with Bessemer Trust, and of course

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<v Speaker 1>the solo is associated with Bridgewater for years. I have

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<v Speaker 1>three words when I speak to Cherubs and I talk

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<v Speaker 1>about concision, I talk about acuity. I talk about avoiding conflation,

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<v Speaker 1>which is something that you conflate two ideas together and

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<v Speaker 1>you get in trouble. You are the queen, because the

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<v Speaker 1>queen's visiting in Washington. You are the queen of acuity.

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<v Speaker 1>And you walked in the studio having a full Patterson

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<v Speaker 1>tantrum over sovereign wealth funds. Beware, what do I need

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<v Speaker 1>to know about the rich guys country to country?

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<v Speaker 2>So I think one of the biggest underappreciated risks right

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<v Speaker 2>now for US financial markets and especially this tech rally,

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<v Speaker 2>is the possibility. I'm not saying it will happen, but

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<v Speaker 2>there is a probability that's not zero, that some of

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<v Speaker 2>the golf sovereign wealth funds, particularly I think Saudi and UAE,

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<v Speaker 2>if this war lasts a little longer, are going to

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<v Speaker 2>need cash. They're going to need it to shore up defenses,

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<v Speaker 2>to shore up damaged infrastructure. And right now the sovereign

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<v Speaker 2>wealth fund cash is largely We're the biggest single recipient

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<v Speaker 2>going to the US, and it's going fairly concentrated to

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<v Speaker 2>technology yep, and through a handful of financial intermediaries.

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<v Speaker 3>Now I'm not saying it'll.

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<v Speaker 2>Stop coming, but if that flow is cut by a

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<v Speaker 2>third even it would have a material impact on the US.

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<v Speaker 3>So that is a risk I'm watching carefully.

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<v Speaker 2>Saudi Arabia has a pretty big budget deficit, so it's

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<v Speaker 2>not like they have a ton of cash sitting around

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<v Speaker 2>they can easily tap.

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<v Speaker 4>It's inesting. Just in the small little world of professional golf,

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<v Speaker 4>we're starting to see it. There's reports out there, widely

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<v Speaker 4>reported that they may withdraw their financial support of the

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<v Speaker 4>Live Golf tour to the tune of a five billion

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<v Speaker 4>dollar number, and that caught everybody by surprise, and I

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<v Speaker 4>think in some of their discussions they were suggesting, Hey,

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<v Speaker 4>it is the pressure from the war. We need to

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<v Speaker 4>rethink some of our investments. That ties in, Yeah, exactly

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<v Speaker 4>with you.

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<v Speaker 2>And PIF, which is the Saudi main sovereign weal funds.

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<v Speaker 2>There's about thirteen big ones in the Gulf countries the GCC.

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<v Speaker 2>But PIF, even before the war in December, came out

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<v Speaker 2>with its five year plan saying it wanted to be

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<v Speaker 2>more efficient, more and more domestically focused with its investment.

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<v Speaker 2>So I just think we need to be thoughtful on

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<v Speaker 2>assuming that capital just keeps coming to the same degree

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<v Speaker 2>it has.

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<v Speaker 4>And I'm not sure what that says about that whole

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<v Speaker 4>region of the world, which was the money was just

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<v Speaker 4>flowing in there for years and years. Every financial firm

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<v Speaker 4>in the world was setting up an office in that

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<v Speaker 4>part of the world, and that was expected to be

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<v Speaker 4>maybe you know, a new financial globe, the capital of.

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<v Speaker 2>Capital exactly right, that's what they wanted to be. So

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<v Speaker 2>after I mean, it's been going on for a while,

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<v Speaker 2>but twenty fifteen, twenty sixteen, you guys remember oil prices

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<v Speaker 2>crashing in that period, partly because US fracking took off

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<v Speaker 2>and the Middle East had an Aha moment. They said,

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<v Speaker 2>wait a second, we need to double down on diversifying

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<v Speaker 2>our economies. Part of that was the sovereign wealth funds

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<v Speaker 2>making these big strategic investments and attracting US money to them.

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<v Speaker 2>So it is a quid pro quo, and they've built

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<v Speaker 2>up tourism, they've built up high value manufacturing, They've built

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<v Speaker 2>up tech and finance, of course, but can it last? Partly,

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<v Speaker 2>it depends how long this war goes. Is it just

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<v Speaker 2>temporary damage or is it something bigger?

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<v Speaker 1>I got an email coming in here in anticipation of

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<v Speaker 1>Rebecca Patterson being with the Threads down in Durham. First

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<v Speaker 1>of all, I'd love to go down just to see

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<v Speaker 1>the Durham Bulls play in the stadium.

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<v Speaker 3>But they got a new arena which is still a jewel,

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<v Speaker 3>very nice.

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<v Speaker 1>It's right downtown and you know, good morning down in

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<v Speaker 1>North Carolina. And he is an absolutely brilliant question which

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<v Speaker 1>goes back to your time at Besseer Trust. Okay, we

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<v Speaker 1>have been schooled that for certain our actual assumption of

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<v Speaker 1>equity returns will be single digit, two hundred beeps above

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<v Speaker 1>nominal GDP. We all studied the test, drank the kool aid,

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<v Speaker 1>and it's just been wrong, wrong, wrong, for years. Fred

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<v Speaker 1>wants to know who's right this equity market or single

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<v Speaker 1>digits subsided equity returns, which is it?

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<v Speaker 2>I mean, the equity returns we've had over the last

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<v Speaker 2>call it fifteen years or so have been fueled by

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<v Speaker 2>I think three main forces. Unusually large fiscal stimulus, some

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<v Speaker 2>of that was pandemic related, and some of it was

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<v Speaker 2>national security economic security related, monetary policy. Remember it wasn't

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<v Speaker 2>that long ago that we had zero and even in

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<v Speaker 2>some countries negative interest rates that fueled equity assets. And

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<v Speaker 2>then the structural tech trend. And I think those three

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<v Speaker 2>things combined help explain the differential between the economy and

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<v Speaker 2>the equity markets. Now going forward, are we able to

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<v Speaker 2>con continue this or do we go back to something

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<v Speaker 2>more in line with historical averages. With bond yields at

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<v Speaker 2>four point three to one this morning, and the Fed

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<v Speaker 2>in my view, unlikely to go back to a zero

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<v Speaker 2>world or something close to that anytime soon because inflation

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<v Speaker 2>is structurally higher, I think it's going to be difficult

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<v Speaker 2>to continue the ride we've had with stocks. I mean again,

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<v Speaker 2>this year, we're only up four percent year to date.

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<v Speaker 2>It's funny, everyone's like an all time high, all time high.

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<v Speaker 2>It feels like it should be more. It's only four percent. Right,

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<v Speaker 2>if you had your money in Japan, you'd be up

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<v Speaker 2>twenty percent already this year.

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<v Speaker 4>Are you surprised though, that when we did have that

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<v Speaker 4>sell off? With the beginning of the war. I think

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<v Speaker 4>a lot of people were surprised the veracity of the snapback.

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<v Speaker 3>Oh, one hundred percent. One hundred percent.

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<v Speaker 2>I mean the fact that we have oil prices at

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<v Speaker 2>one hundred and seven hundred and eight dollars I'm looking

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<v Speaker 2>at Brent crude, that we have higher bond yields, that

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<v Speaker 2>we have a worsening fiscal position, we have a k

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<v Speaker 2>shape to con with those lower end consumers hit harder

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<v Speaker 2>by high energy and high food prices. It and job

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<v Speaker 2>markets that aren't worsening but have stalled. The fact that

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<v Speaker 2>stocks are here and it rallied so hard is striking

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<v Speaker 2>to me. I think investors have been conditioned in recent

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<v Speaker 2>years to expect that we will have a resolution quickly

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<v Speaker 2>because it's a midterm election year and it's not in

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<v Speaker 2>the GOP's interest to have a prolonged war that could

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<v Speaker 2>hurt voters, and they've been conditioned to expect that buying

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<v Speaker 2>the dip pays. It worked in pandemic, it worked in

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<v Speaker 2>Liberation Day, but I think you have to be really

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<v Speaker 2>careful about that.

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<v Speaker 1>You know, Rebecca's people called me up this weekend, stop

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<v Speaker 1>me on the street, I should say, rather and they said, Tom,

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<v Speaker 1>if you don't plug the Council for Economic Education, she's

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<v Speaker 1>not coming back. This is a cool event you got.

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<v Speaker 1>Jan Azi is showing up of Goldman Sachs and I've

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<v Speaker 1>done this years ago. I think this is your diamond

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<v Speaker 1>gala event. Yep. And is it like with the King

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<v Speaker 1>and Queen meat? Is it like tuxedos and all.

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<v Speaker 3>That you No, we don't force tuxedo.

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<v Speaker 2>We let people show up in their work clothes and

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<v Speaker 2>you all are obviously invited as guests to my table

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<v Speaker 2>if you can be free on a six. But the

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<v Speaker 2>CE Council on Economic Education is focused on making sure

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<v Speaker 2>K through twelve students finish high school understanding the basics

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<v Speaker 2>of economics and personal finances.

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<v Speaker 3>It's getting more traction.

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<v Speaker 2>In recent years, we've seen state legislatures wake up. We

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<v Speaker 2>now have thirty nine states in the US that require

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<v Speaker 2>high school kids to take at least one personal finance

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<v Speaker 2>class before they graduate. So thirty nine is a huge

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<v Speaker 2>step forward from where we were. But it's not fifty,

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<v Speaker 2>which is crazy because this is so fundamental. If we

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<v Speaker 2>want a strong economy, if we want strong stock markets,

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<v Speaker 2>we have to have financially healthy consumers. So you can

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<v Speaker 2>talk about the moral arguments for this, the ability to

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<v Speaker 2>narrow that opportunity gap. But at the end of the day,

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<v Speaker 2>if I'm an equity investor listening to this conversation, this

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<v Speaker 2>is in my interest.

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<v Speaker 5>Interesting my daughter has They just added that a personal

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<v Speaker 5>finance and it's an AP course, so advanced placement, yes,

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<v Speaker 5>which is an incentive for kids to take it.

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<v Speaker 3>And I was so happy to see that. Yeah.

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<v Speaker 2>So we've just partnered with the College Board on that

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<v Speaker 2>AP course and we agree like if you can get

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<v Speaker 2>kids focusing on this, they're going to have a better

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<v Speaker 2>time in college and they're going to have better prospects

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<v Speaker 2>going ahead. They'll understand what the credit score is, how

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<v Speaker 2>to borrow, how to save.

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<v Speaker 5>Those are great to thirsteen colonies, but you got to

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<v Speaker 5>know how to also bounce a chess and what compounding means.

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<v Speaker 3>Thank you so much, thank you.

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<v Speaker 1>I appreciate it. With the Council on Foreign Relations and

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<v Speaker 1>again uh the CEE, the Council of Economic Education with

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<v Speaker 1>their event in early May,