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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane along

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Speaker 1: with Jonathan Ferrell and Lisa Brownwitz Jay Leye. We bring

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Speaker 1: you insight from the best and economics, finance, investment, and

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Speaker 1: international relations. Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg

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Speaker 1: dot com and of course on the Bloomberg Terminal inflation

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Speaker 1: adjusted interest rates and that does fold over to real

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Speaker 1: estate and our Shonali Bastik knows it has a modicum

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Speaker 1: to do with a company named black Stone, and she

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Speaker 1: is with Jonathan Gray this morning. Shall absolutely thank you,

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Speaker 1: Tom John, thank you for joining us as the president

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Speaker 1: and CEOO of Blackstone. You are coming off what you're

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Speaker 1: calling your best quarter in your thirty six year history. Now,

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Speaker 1: records are very hard to keep beating. What do you

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Speaker 1: tell your investors about where you go from here and

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Speaker 1: how you squeeze out that next let of growth. Well, Shinale,

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Speaker 1: it's great to be with you. I'll just stop for

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Speaker 1: a moment and talk about the quarter because it's nice

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Speaker 1: to focus on it. We really delivered for our customers.

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Speaker 1: We had nearly record appreciation in our funds. We had

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Speaker 1: extraordinary fundraising and for our shareholders record fee related and

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Speaker 1: distributable earnings. And what's driving that, I'd say is a

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Speaker 1: couple of things. First off, is where we focus in

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Speaker 1: terms of investing really thematically. Uh, some areas like global logistics,

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Speaker 1: software and technology, the travel recovery out of COVID, all

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Speaker 1: of those have done quite well. You saw that in

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Speaker 1: the quarter. And the second thing I note is we

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Speaker 1: continue to expand what our business is about, who we

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Speaker 1: invest for, where we invest. We're moving more and more

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Speaker 1: in core plus real estate and infrastructure, direct lending UM

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Speaker 1: and we're also serving more clients. We're serving more institutions, retail, insurance,

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Speaker 1: and we've described it as a ship that's been operating

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Speaker 1: in a narrow channel moving to open water. So it

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Speaker 1: was a great quarter for us, and we're excited about

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Speaker 1: what we can do more for our clients now, John,

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Speaker 1: A lot of this has also come from fund realization,

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Speaker 1: you know, investment realization. You've said you've been selling assets

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Speaker 1: as well as investing in them. Now, is it getting

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Speaker 1: harder to invest at these valuations and with all of

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Speaker 1: the choppiness we're starting to see in the markets, Well,

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Speaker 1: it's certainly trickier as values move up to deploy capital.

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Speaker 1: The good news is we have some competitive advantages. One

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Speaker 1: is we operate in almost all our businesses at very

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Speaker 1: large scale. So this year we've done something like thirteen

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Speaker 1: public to privates that we've been invested in. Uh, that's

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Speaker 1: a real competitive advantage given size. The breath of our

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Speaker 1: platform continues to expand, as I noted before, that helps

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Speaker 1: us a So many of our large investments were in

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Speaker 1: our newer areas. And then again what we're trying to

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Speaker 1: do is find interesting areas and some of these thematic

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Speaker 1: neighborhoods that we love where we can buy in at

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Speaker 1: a more favorable price. So we bought in India an

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Speaker 1: automotive parts company several years ago that had at that

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Speaker 1: time a very small ev business, but we saw a

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Speaker 1: huge potential. We invested in that considerably. The company is

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Speaker 1: called sona com Star. That company has gone public. Hugely

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Speaker 1: successful investment. We made something like fifteen times our investors

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Speaker 1: capital because we found a really great company that people

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Speaker 1: didn't realize was an on theme investment. And we're doing

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Speaker 1: that this quarter again in the garage door opener business

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Speaker 1: with a company called Chamberlain, which owns the Liftmaster brand.

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Speaker 1: It's a play on the housing recovery that's happening, as

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Speaker 1: well as e commerce and access to homes, which makes

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Speaker 1: so much sense through the garage. So I would say

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Speaker 1: our response to a high price market is trying to

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Speaker 1: buy things we like, but do it in a little

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Speaker 1: bit of one derivative off or where we find value

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Speaker 1: in those areas, and that's the real challenge. Do you

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Speaker 1: agree with some of the competitors that you have in

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Speaker 1: the banking industry, some of you know that James Gorman

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Speaker 1: over at Morgan Stanley, John Waldron over at Goldman Sachs.

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Speaker 1: Do you believe that they have it right when it

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Speaker 1: comes to inflation, that perhaps there are many who are

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Speaker 1: under counting how much of an issue it's becoming. Yes,

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Speaker 1: I would agree that inflation is definitely becoming more pervasive,

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Speaker 1: more persistent than people had hoped uh. And I think

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Speaker 1: that's happening for a couple of reasons. One is, money

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Speaker 1: supply has grown really significantly by more than a third

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Speaker 1: since COVID, which happened monetary fiscal response to the crisis.

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Speaker 1: But it puts more money in the system, and then

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Speaker 1: at the same time we have some big structural shortages.

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Speaker 1: So in housing we've been building for Yeah, we've been

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Speaker 1: building and fewer homes than we did in the past.

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Speaker 1: We've been investing a lot less in energy of course,

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Speaker 1: um for that, you know, because we're trying to balance

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Speaker 1: that out in terms of green sustainability and so forth.

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Speaker 1: And we've seen fewer people in the workforce. So go ahead, sorry, Jonathan,

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Speaker 1: I want to get away from the CEO speak and

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Speaker 1: talk about with the structural solution here in weakness. You

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Speaker 1: came out of the University of Pennsylvania the year of

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Speaker 1: Bill Clinton. You're a card carrying bona fide Democrat. You've

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Speaker 1: been hugely charitable, You're an icon across the nation for charity.

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Speaker 1: Help the Democratic Party now with some charity. How do

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Speaker 1: you guys put the progressives and the moderates together? What's

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Speaker 1: the great formula? Wow? Um, that is a big assignment.

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Speaker 1: We're sorry to go. So I think it's where there

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Speaker 1: are shared objectives, you know. I think there are things

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Speaker 1: where you could say, how can we help people on

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Speaker 1: lower and middle income areas and do things that drive

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Speaker 1: the economy and drive opportunity for them. So immigration would

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Speaker 1: be one where I think we can help the economy.

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Speaker 1: We can help a lot of people. Ideally we can

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Speaker 1: bring people out of the shadows. Housing would be another

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Speaker 1: area where if we build more housing, that could drive

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Speaker 1: you know, down the cost of rental housing and and

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Speaker 1: buying homes for lots of people. I think in a

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Speaker 1: green energy context, building housing would help a lot. Education,

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Speaker 1: more investment, doing more and vocational schools, community schools, uh

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Speaker 1: in order to help people. What I want to do

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Speaker 1: is create more opportunity. I think the debate in the

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Speaker 1: Democratic Party is about whether we should fundamentally change the

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Speaker 1: system we have or should we give more opportunity to

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Speaker 1: people who have less opportunities themselves today. And I vote

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Speaker 1: with that second camp, which is I think we have

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Speaker 1: a powerful system that creates incredible companies, but more people

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Speaker 1: need access to it. My wife and I created a program,

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Speaker 1: New York City Kids Rise, in order to give low

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Speaker 1: income children a new city community to yourself. You're buying

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Speaker 1: a building in northern Manhattan in hard cash to build

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Speaker 1: the Gray Elementary School, right we we help support Harlem

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Speaker 1: Village academies. It's certainly something that's important to us. We

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Speaker 1: named it after my grandfather, Lean Gray, who believed a

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Speaker 1: lot in education, the opportunity it created, and we do

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Speaker 1: want to help as many people as possible. And I

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Speaker 1: think that debate that you touch on, Tom is so

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Speaker 1: important because there is a solution where we can bring

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Speaker 1: more people into the system, give them more opportunity, and

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Speaker 1: still keep the you know, the energy and power of

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Speaker 1: our economic system to create lots of jobs and wealth.

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Speaker 1: So that's why I wanted to go this idea of

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Speaker 1: pairing some of the social objectives with the financial objectives

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Speaker 1: of the Democratic Party. We've heard from them this desire

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Speaker 1: to change the composition of a FED in large part

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Speaker 1: because of the oversight of Wall Street. And I do wonder,

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Speaker 1: from your vantage point of a seven hun than thirty

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Speaker 1: one billion dollar firm that's expanding into an industry that

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Speaker 1: typically has been private and not regulated as tightly, what

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Speaker 1: do you expect and hope to see on that front? Wells,

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Speaker 1: as it relates to our firm, I would say we

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Speaker 1: we are regulated, certainly in lots of different ways, and

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Speaker 1: we take that the responsibility to transparency how we operate

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Speaker 1: is really really important. I think the difference between US

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Speaker 1: and large financial firms banks is uh, they're highly levered, right,

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Speaker 1: they operated ten to fifteen times leverage Uh. They also

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Speaker 1: have access to the FED window and their depositors are guaranteed.

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Speaker 1: None of that exists in our private you know, in

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Speaker 1: our business managing capital for third parties. So we are regulated,

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Speaker 1: but it is a different type of regulation. Our activities

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Speaker 1: are different. And I would just say generally today, I

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Speaker 1: think the financial system in the US is as healthy

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Speaker 1: as i've seen. The banks have a lot of cap

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Speaker 1: at all. There is really good oversighted markets. We're not

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Speaker 1: seeing big accesses out there, John, real quick here, I

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Speaker 1: know this big year for succession on Wall Street. A

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Speaker 1: lot of your peers have turned over the ranks at

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Speaker 1: the top. Do you have a timeline over a Blackstone

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Speaker 1: for taking the lead? No, we we feel pretty good

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Speaker 1: about what's happening. I didn't do it to us next time. No, no, no, no,

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Speaker 1: I would say this, look we we Uh, we have

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Speaker 1: a really good set up here. Steve Schwarzman is an

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Speaker 1: amazing leader, visionary business person, and I can tell you

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Speaker 1: somebody who's worked with him now for thirty years. Uh,

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Speaker 1: it's an incredible ye from me and the other So

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Speaker 1: we're sticking with our approach to be a fly on

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Speaker 1: the wall and Gray and Schwartzman go out of it

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Speaker 1: on politics. Jonathan Gregg, thank you so much for joining

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Speaker 1: us with a small real estate startup, fir in Black

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Speaker 1: on this spring. Gainst joins Now, founder and CEO of

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Speaker 1: Exante Data. Yes, let's just start with this. Had a

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Speaker 1: conversation recently with pimcom about the shape of this cycle.

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Speaker 1: Can you walk me through why this one's going to

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Speaker 1: be different? If you do, indeed think it will be,

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Speaker 1: I think we can already see that it's a totally

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Speaker 1: different cycle. Right, So the recession lasted a couple of

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Speaker 1: months rather than typically several years, Right, so everything is

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Speaker 1: moving at a turbo kind of pace, and really that

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Speaker 1: what is so different about this cycle is is not

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Speaker 1: just the type of the shock. Obviously, a pandemic shock

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Speaker 1: is normal, like it's different from a normal business cycle shock,

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Speaker 1: but it's also the policy of response, like just the

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Speaker 1: incredible strength of both monetary But what was really unusual

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Speaker 1: is just the size of the fiscal impulse we have had.

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Speaker 1: And and not only is the fiscal impulse huge, it's

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Speaker 1: also the stigma associated with using phiscal policy very aggressively

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Speaker 1: has been kind of removed, and that means that maybe

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Speaker 1: we'll get more we're going forward. We're already discussing at

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Speaker 1: this on steps in the US, right, even though we've

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Speaker 1: had such a big push already, So it's a totally

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Speaker 1: different cycle. Like we used to have essentially only monetary

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Speaker 1: policy driving the stimulus for a multi year period, right

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Speaker 1: and now finally fiscal policies stepped on the gas, and

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Speaker 1: it's been enough to really change inflation expectations. And look

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Speaker 1: around the world, like, it's not just in the US.

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Speaker 1: We have inflation that is on the move, it's everywhere,

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Speaker 1: and we even have a bunch of central banks that

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Speaker 1: are like feeling kind of behind and have to catch up.

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Speaker 1: So we have em central banks that they were hundred

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Speaker 1: or even more basis points in one go, and they

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Speaker 1: would say a couple of months ago that they would

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Speaker 1: be on cerri for a long time. We have the

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Speaker 1: UK where we thought they were going to be in

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Speaker 1: serer for a long time and now expectations they're gonna

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Speaker 1: hight next month. Things are moving really, really fast. The

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Speaker 1: consequences of this shift are basically disagreed upon pretty dramatically

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Speaker 1: depending on who you speak to. Some people are saying

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Speaker 1: it means shorter and hotter cycles. Other people mean say

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Speaker 1: that it means pretty much flattened out cycles with no

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Speaker 1: credit cycle whatsoever, because central bankers have their backs. What's

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Speaker 1: your view? So I think I think one point that

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Speaker 1: it is really important to make is that the market

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Speaker 1: has this perception from the experience over the last ten years,

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Speaker 1: that as soon as the central bank hikes rates by

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Speaker 1: fifty basis points hunter points, something very moderate, the economy

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Speaker 1: can't take it. I think we have to be very

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Speaker 1: careful there, because what happened over the last ten to

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Speaker 1: fifteen years was that the global economy is gonna weak,

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Speaker 1: and it wasn't necessarily that the rate sensitive sectors got

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Speaker 1: damaged by those rate hikes. There were other things going

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Speaker 1: on that meant that the central bank had to stop.

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Speaker 1: So how far the central bank can go is a

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Speaker 1: totally open question, right, So, for example, in the UK,

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Speaker 1: now the market is convinced that the UK economy can

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Speaker 1: only take Hunter basis points and then they will have

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Speaker 1: to cut again. Right, that's a really big question, and

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Speaker 1: I think for a number of countries around the world,

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Speaker 1: the economy can take a great deal more on Hunter

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Speaker 1: basis points. As you've got industry leading work with exante

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Speaker 1: on COVID and you to day with your wonderful musty

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Speaker 1: releases on Twitter. You focus on cases, I'm focusing on

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Speaker 1: a really ugly country by country flow. The Guardian emphasizes

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Speaker 1: Bulgaria Latvia in lockdown and John Farrell's briefing me on

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Speaker 1: the United Kingdom are we ready for another global set

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Speaker 1: of lockdowns? So? Um, we look at cases, who look

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Speaker 1: at hospitalizations, who look at fatalities, right, we have to

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Speaker 1: look at the whole picture, and clearly we're in a

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Speaker 1: part of the cycle where just the cases is going

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Speaker 1: to give a different picture about how severe this is

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Speaker 1: relative to previous waves, right, because they do don't translate

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Speaker 1: into hospitalizations in the same degree. But that's it. If

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Speaker 1: if you look at what's going on right now, you're

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Speaker 1: right that there's some spikes in Eastern Europe. So I'll

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Speaker 1: give you an anecdote. Um, a couple of months ago,

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Speaker 1: Romania sold their vaccines to Denmark, which the country I'm

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Speaker 1: born in, because they didn't want to use them their selves. Right,

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Speaker 1: So some countries where the vaccination rates are very low

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Speaker 1: still and they're gonna have issues in the winter. Then

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Speaker 1: there's a different group of countries where we have very

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Speaker 1: very high vaccination rates, where presumably the hospital pressure will

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Speaker 1: be very very much lower than previous cycles. So we're

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Speaker 1: gonna have pockets of winter waves that are concentrated in

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Speaker 1: the places where that they are very way behind on

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Speaker 1: the vaccinations. And I think from the economic perspective, you're

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Speaker 1: going to find that this wave that we potentially are

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Speaker 1: phasing now is going to be having much much less

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Speaker 1: of an impact than any of the previous ones. And

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Speaker 1: we hope, so we hope, so thank you, sir. As

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Speaker 1: always data we need to frame up and see what

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Speaker 1: has changed. We do that with the chief yours economist

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Speaker 1: to PIMCO, Tiffany wild enjoins us this morning. Tiffany, in

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Speaker 1: your orbit, in your excel spreadsheet, what have you changed

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Speaker 1: in the last week or what are you really focusing

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Speaker 1: on the it's subject to change. Well, I think um,

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Speaker 1: and first of all, thanks for having me, um, But

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Speaker 1: but I think what we're seeing is um and that

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Speaker 1: the economy actually is re accelerating after this summer period,

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Speaker 1: summer soft patch, as a result of you know, rising

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Speaker 1: cases associated with this new delta van rising case of

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Speaker 1: COVID nineteen. We are starting to see as those case

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Speaker 1: counts are going down. Um, a pick up in spending

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Speaker 1: across leisure and travel services industries. And you know, we're

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Speaker 1: talking about the labor market this morning because the claims

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Speaker 1: data just came out. It does suggest to us that

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Speaker 1: you are going to see a re acceleration in the

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Speaker 1: labor market as well. And we expect jobs in October

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Speaker 1: net job gains to to start to pick up when

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Speaker 1: we finally get that report in a couple of weeks,

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Speaker 1: you know, so we do see some really encouraging signs

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Speaker 1: that the economy is re accelerating, you know. And again

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Speaker 1: this makes us, you know, more confident that um, you know,

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Speaker 1: monetary policy can kind of get on, get on with

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Speaker 1: this tapering business we expect in November and and and

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Speaker 1: we can continue to recover from this pandemic. Will the

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Speaker 1: FED be surprised by nominal and inflation adjusted wage growth? Um? Well, so,

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Speaker 1: you know, I think that we've had a couple of

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Speaker 1: you know, just in terms of high frequency data over

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Speaker 1: the last couple of months, we've had a couple of

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Speaker 1: very strong wage gains that are that have been reported

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Speaker 1: in in the official statistics. You know, we think that

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Speaker 1: maybe there's a little bit of noise in that um

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Speaker 1: and that you actually could see the wage data moderate

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Speaker 1: a little bit um. And that's as you get this

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Speaker 1: pick up in leisure services, which tend to just have lower,

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Speaker 1: lower wage jobs, you know. But I think if you

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Speaker 1: think more broadly here, going out to the next year,

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Speaker 1: you know, we should see wages accelerate. And that's because

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Speaker 1: we've seen a broad pickup and productivity in the economy.

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Speaker 1: You know, I should get paid for how productive I

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Speaker 1: am and how much prices are rising, So we should

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Speaker 1: see wages accelerate, um, you know. And and and ultimately

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Speaker 1: the fact that the labor market is getting tighter um,

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Speaker 1: which which it is, that should also put upper pressure

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Speaker 1: on wages across a wider range of sectors than just

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Speaker 1: kind of the low uh, you know, low income and

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Speaker 1: lower skilled jobs that we're seeing the biggest wage gains

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Speaker 1: right now. Did you hear that, Tom Off, you're more productive,

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Speaker 1: you need to get paid more. That was Tiffany money

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Speaker 1: better be listening this morning. That's Tiffany want to delivers

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Speaker 1: that sermon on what should happen in the labor market. Tiffany,

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Speaker 1: talk to me about what should happen. November three, Matlazetti

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Speaker 1: was in your seat twenty four hours ago talking up

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Speaker 1: a rate hiker the FED year and next year. Where

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Speaker 1: are you giving the team at the moment? Yeah, I

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Speaker 1: mean so, so ultimately we we we are we think

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Speaker 1: that you probably get a rate hike in the beginning

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Speaker 1: of three um and and the reason for that is

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Speaker 1: is that we still believe that inflation is likely to

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Speaker 1: moderate by the end of next year. Now, there have

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Speaker 1: been some you know, kind of a series of shocks

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Speaker 1: if you will, you know, that have kept inflation you know,

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Speaker 1: more higher for a little bit longer than I think

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Speaker 1: people were expecting. Um, you know, but we do ultimately

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Speaker 1: think that that still comes down that should give the

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Speaker 1: feed a little bit of breathing room, uh, in the

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Speaker 1: in the latter half of next year. Um. And as

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Speaker 1: a result, you know, we think that they will ultimately

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Speaker 1: it will be three before before they hike. Tiffany, do

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Speaker 1: you think that FETE officials appreciate the tightening of the

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Speaker 1: labor market to it's full Um? Yeah, so so I

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Speaker 1: think that there are you know, they've certainly highlighted what

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Speaker 1: what we would agree are sort of quote temporary friends

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Speaker 1: that are probably resulting in the labor market being tighter

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Speaker 1: than it otherwise would be, and you know that's health,

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Speaker 1: you know, just general anxiety around health as a result

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Speaker 1: of this pandemic. A lot of these service jobs, of course,

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Speaker 1: are very public facing, and then of course there's been

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Speaker 1: child childcare disruption. But I do think there are some

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Speaker 1: you know, kind of more medium term factors here that

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Speaker 1: will take a little longer to work themselves out, but

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Speaker 1: ultimately we do think that they will. And and that's

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Speaker 1: related to actually geography, which is kind of weird, but

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Speaker 1: this work from home dynamic has really changed, you know,

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Speaker 1: kind of the local market dynamics and where jobs are demanded.

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Speaker 1: So there maybe not you know, you're not demanding as

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Speaker 1: many jobs and some of these urban city centers, um,

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Speaker 1: you're you're demanding those jobs out and kind of more

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Speaker 1: of the suburban or maybe even the rural areas. And

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Speaker 1: so we're getting that mismatch. So really the question is

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Speaker 1: how long does it take for for that labor to

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Speaker 1: sort of migrate out. We're kind of we're optimistic. Um,

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Speaker 1: you know, we look at at data on migration from

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Speaker 1: the credit reporting agencies and it does suggest that you know,

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Speaker 1: some of these lower income zip codes and lower income

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Speaker 1: folks are able to move. We've seen excess moves from

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Speaker 1: from those zip codes, so that's good news. But ultimately,

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Speaker 1: these things take a little time to work out. Um

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Speaker 1: and then and then also keep in mind that usually

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Speaker 1: a hot labor market does draw people back into the

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Speaker 1: labor mark, and we saw that from seventeen to twenty nineteen.

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Speaker 1: You know. So I do think labor markets will get tighter.

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Speaker 1: We do think you get some wage inflation, you know.

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Speaker 1: But again, I think all of this is will sort

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Speaker 1: of be moderated to some extent by by some labor

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Speaker 1: supply gains that we're going to get next year as well, Tiffany.

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Speaker 1: In the meantime, as we were talking about earlier today,

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Speaker 1: the market expectation for five year inflation, if you look

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Speaker 1: at TIPS, is actually climbed to the highest since two

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Speaker 1: thousand and five, at two point eight percent north of that.

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Speaker 1: Do you think that that is correct, that that is

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Speaker 1: an accurate assessment of the five year inflationary outlook, Well,

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Speaker 1: you know, I think that, you know, obviously there's more

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Speaker 1: going on with the you know, the TIPS market than

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Speaker 1: just in expectations around the near term path of inflation,

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Speaker 1: you know, But what I would say is, I think

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Speaker 1: that the path has become more uncertain lately, UM, and

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Speaker 1: we believe that kind of over that five year time horizon,

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Speaker 1: it's it's going to remain uncertain. And that's because we think, um,

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Speaker 1: we're moving into what we're calling this kind of age

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Speaker 1: of transition where you have these kind of brown degree transitions,

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Speaker 1: some um, you know, trends towards de globalization and more

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Speaker 1: of a policy focus on inclusivity. And that's both on

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Speaker 1: the fiscal and monetary side, you know, and that has

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Speaker 1: the potential to produce some some upside um and inflation.

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Speaker 1: But I would just also keep in mind here, and

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Speaker 1: I think this is much less talked about, is that

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Speaker 1: there also some downside risk to inflation as well as

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Speaker 1: a result of this pandemic coming into the next five years.

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Speaker 1: And that's that we've seen productivity and innovation really get

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Speaker 1: jump started, um as a result of this pandemic. You

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Speaker 1: have the work from home, but then you also have

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Speaker 1: trends towards digitization, um, you know. And I think you know,

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Speaker 1: the other thing is is we've also seen a big

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Speaker 1: build up in in debt and leverage as a result

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Speaker 1: of this pandemic. It's okay now because interest rates are low,

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Speaker 1: but if we have a negative economic shock, it just

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Speaker 1: increases the risk that you get this uh, you know,

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Speaker 1: sort of debt fuel deflationary environment. So I think their

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Speaker 1: risks to the upside and the downside here. You know,

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Speaker 1: of course the market's trying to incorporate that, um, you know.

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Speaker 1: But I think the other thing to keep in mind

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Speaker 1: here is that if you look further out in the

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Speaker 1: tips market, kind of at the five year five years forward,

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Speaker 1: not to get too wonky, it is kind of trading

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Speaker 1: right around the Fed's target, you know, maybe touch above.

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Speaker 1: So I think the markets of giving the FED a

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Speaker 1: lot of credibility around its long term inflation goals. It's tiphany.

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Speaker 1: I was reading through the new outlook. Congratulations by the way,

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Speaker 1: because don't how much work goes into that for you

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Speaker 1: and the team, and within that, it just seemed to

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Speaker 1: me that as a team, you seem to think the

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Speaker 1: FED could be constrained down here, that it can't lift

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Speaker 1: rights too much. What do you think that means for

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Speaker 1: how long this cycle will be the shape of this cycle?

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Speaker 1: Given how constrains you guys think the FED is well

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Speaker 1: well Ultimately, we think this cycle you know, likely will

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Speaker 1: be faster than than what we saw after the Great

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Speaker 1: Financial crisis, you know, and part of that is just

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Speaker 1: because of the policy that we've seen, the really extraordinary policies.

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Speaker 1: So instead of you know, taking years to get back

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Speaker 1: to trend growth after the two thousand eight procession, you know,

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Speaker 1: we're likely going to do it, uh, you know, within

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Speaker 1: within the next several quarters. And that's really a testament

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Speaker 1: to the amazing physical policy that we've gotten, you know,

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Speaker 1: So just by that definition, this should be a faster

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Speaker 1: you know, kind of a faster cycle, um, you know,

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Speaker 1: but in terms of a FED, so you know, here,

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Speaker 1: I really think that when you start to raise rates, uh,

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Speaker 1: you know, as the tightening really gets in the cracks,

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Speaker 1: as as sort of was famously described. And and really

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Speaker 1: the question is what is you know, who is the

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Speaker 1: kind of weakest link and is that weakest link systemically important?

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Speaker 1: And that's really going to determine how much the FED

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Speaker 1: can FED can tighten. You've seen a lot of businesses

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Speaker 1: that have had to take on more debt as a

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Speaker 1: result of of just the economic disruptions associated with this pandemic.

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Speaker 1: And so when the FED starts raising rates. We think

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Speaker 1: that it's really going to turn out that the economy

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Speaker 1: is is more interest rate sensitive maybe than people thought.

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Speaker 1: The other thing to keep in mind here is that

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Speaker 1: the Fed's balance sheet is much larger than it was

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Speaker 1: pre pandemic, and if they want to start to normalize

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00:23:40,280 --> 00:23:42,399
Speaker 1: their balance sheet, that just means they're gonna hike the

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00:23:42,480 --> 00:23:44,320
Speaker 1: FED funds rate a little bit less than the otherwise

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Speaker 1: would have. So all of that suggests to us that

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00:23:46,760 --> 00:23:48,960
Speaker 1: you know, the target rate and in this cycle is

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00:23:49,000 --> 00:23:52,800
Speaker 1: probably going to be lower even than it was last cycle. Tiffany,

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00:23:52,880 --> 00:23:55,560
Speaker 1: thank you and congratulations from us and the team for

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00:23:55,600 --> 00:23:57,879
Speaker 1: fifty years of pim cut a lot of worse going

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00:23:57,920 --> 00:24:05,560
Speaker 1: into that. Thank you. Steve Chef runs with us. Now.

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00:24:08,240 --> 00:24:13,040
Speaker 1: I won't speak for State State. Let's build on this

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00:24:13,240 --> 00:24:15,800
Speaker 1: march into the epicenter of the earning story. The difference

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00:24:15,840 --> 00:24:18,159
Speaker 1: between the companies that can execute and the companies that

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00:24:18,200 --> 00:24:21,280
Speaker 1: are struggling to stave. What should take on that right now? No,

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00:24:21,359 --> 00:24:24,080
Speaker 1: I think this is this is the story. Um, it's

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00:24:24,119 --> 00:24:26,560
Speaker 1: hard to imagine the multiple going a lot higher next year.

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00:24:26,600 --> 00:24:29,159
Speaker 1: You've got growth slowing, some inflation. I think is is

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00:24:29,960 --> 00:24:32,320
Speaker 1: very much not transitory, and I think it's going to

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00:24:32,400 --> 00:24:35,040
Speaker 1: be persistent. So you're upside of the market is your

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00:24:35,080 --> 00:24:37,920
Speaker 1: earnings growth, and right now, so far through the earning season,

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00:24:37,960 --> 00:24:40,920
Speaker 1: it's it's it's been pretty good. Um. And I think

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00:24:41,119 --> 00:24:43,239
Speaker 1: what we're looking for is how do the margins hold up?

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00:24:43,280 --> 00:24:45,840
Speaker 1: Our company is able to pass on price? And at

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00:24:45,840 --> 00:24:48,240
Speaker 1: a stock level, you really need to focus on companies

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00:24:48,320 --> 00:24:50,480
Speaker 1: that have pricing power. They have pricing power, they can

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00:24:50,560 --> 00:24:53,320
Speaker 1: pass along those costs. Then you know what, inflation is

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00:24:53,359 --> 00:24:55,720
Speaker 1: fine for them? Uh if if you can and it

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00:24:55,800 --> 00:24:58,280
Speaker 1: starts eating away your margin, I think you need to

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00:24:58,320 --> 00:25:00,720
Speaker 1: expect to get to get punished. And I think that's

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00:25:00,760 --> 00:25:02,840
Speaker 1: what we're looking at, and we're sifting out the winners

468
00:25:02,840 --> 00:25:07,960
Speaker 1: and the losers right now. Steve Steve off has return

469
00:25:08,160 --> 00:25:10,760
Speaker 1: for the last three years and one of his portfolios

470
00:25:10,920 --> 00:25:14,840
Speaker 1: solidly upper quartile. And this speaks to federate it and

471
00:25:15,040 --> 00:25:18,520
Speaker 1: often the rest of you guys saying you've got to

472
00:25:18,760 --> 00:25:22,760
Speaker 1: be in the market. Speak now to our audiences who

473
00:25:22,840 --> 00:25:28,640
Speaker 1: are saying, I'm scared stiff, I can't participate. Yeah. Well, first,

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00:25:28,760 --> 00:25:32,080
Speaker 1: it's been an honor to grow under Steve. I think

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00:25:32,080 --> 00:25:35,640
Speaker 1: he's terrific, But to that point, you've got to look

476
00:25:35,720 --> 00:25:37,919
Speaker 1: in the market and say where's the opportunity. So, if

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00:25:37,960 --> 00:25:40,320
Speaker 1: we are in an inflationary environment, if that is going

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00:25:40,359 --> 00:25:42,359
Speaker 1: to be a bigger impact in the market, which we

479
00:25:42,440 --> 00:25:45,200
Speaker 1: think it will, the question isn't do I cut bait

480
00:25:45,280 --> 00:25:47,520
Speaker 1: and run. The question is which parts of the market,

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00:25:47,640 --> 00:25:50,600
Speaker 1: which trades, do I put in place? You know that

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00:25:50,720 --> 00:25:53,280
Speaker 1: allowed my portfolio to benefit from that trend or at

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00:25:53,320 --> 00:25:55,520
Speaker 1: least get hurt the least. And so you know, building

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00:25:55,600 --> 00:25:59,119
Speaker 1: up from fixed income that's shorter duration fixed income something

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00:25:59,160 --> 00:26:01,800
Speaker 1: into zero to rerange, not as longer term. It means

486
00:26:01,800 --> 00:26:03,640
Speaker 1: a little bit more high yield and e M debt

487
00:26:04,200 --> 00:26:07,960
Speaker 1: where you've got shorter duration and more spread tightening capabilities.

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00:26:08,080 --> 00:26:12,040
Speaker 1: It means equity income dividends stocks to supplement your fixed

489
00:26:12,080 --> 00:26:14,800
Speaker 1: income because you're getting a higher yield and it's a

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00:26:14,840 --> 00:26:17,480
Speaker 1: little bit more inflation durable. And it means value cyclicals

491
00:26:17,560 --> 00:26:21,359
Speaker 1: right now where these companies can pass those prices along.

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00:26:21,440 --> 00:26:22,879
Speaker 1: And then I think the last one is their select

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00:26:22,920 --> 00:26:26,720
Speaker 1: opportunities and international and our view, particularly in the international

494
00:26:26,800 --> 00:26:29,879
Speaker 1: small and midsize space. So you can't just look to

495
00:26:29,960 --> 00:26:31,399
Speaker 1: run away because if you're not in the market, you

496
00:26:31,440 --> 00:26:33,680
Speaker 1: won't achieve your goals, you won't get that compounding. But

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00:26:33,720 --> 00:26:35,600
Speaker 1: you've got to look for the areas that are most advantaged,

498
00:26:35,640 --> 00:26:38,560
Speaker 1: and that's what we're doing across our portfolios. Steve. At

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00:26:38,600 --> 00:26:41,920
Speaker 1: what point do higher inflationary reads that we get on

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00:26:42,000 --> 00:26:44,840
Speaker 1: a repeated basis, this idea that perhaps it's not transitory,

501
00:26:45,160 --> 00:26:48,119
Speaker 1: start to lead to higher yields that really put a

502
00:26:48,280 --> 00:26:52,560
Speaker 1: crimp and equity returns. Yeah, it's it's a great question.

503
00:26:52,680 --> 00:26:54,200
Speaker 1: I mean, I think it depends on what kind of

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00:26:54,240 --> 00:26:56,760
Speaker 1: equities you're talking about. I think you're gonna see some

505
00:26:56,880 --> 00:26:59,920
Speaker 1: of the growth names underperform sooner, because remember, when you

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00:27:00,000 --> 00:27:02,159
Speaker 1: buy a growth company, you're buying it for their earnings

507
00:27:02,280 --> 00:27:04,879
Speaker 1: out five or ten years from now, and that can

508
00:27:04,920 --> 00:27:08,320
Speaker 1: get inflated away. If I'm buying a value cyclical, I'm

509
00:27:08,359 --> 00:27:10,439
Speaker 1: buying that because I think an oil price is going

510
00:27:10,520 --> 00:27:14,239
Speaker 1: to be more tomorrow. Well, that's not gonna get inflated away. Um.

511
00:27:14,400 --> 00:27:16,720
Speaker 1: And I think that's the nuance there at least. But

512
00:27:17,119 --> 00:27:18,760
Speaker 1: but we do have to watch yields. It get too

513
00:27:18,880 --> 00:27:21,399
Speaker 1: high do hurt multiples and that could happen next year.

514
00:27:21,560 --> 00:27:25,040
Speaker 1: What you just heard their folks from Chivalrone is textbook

515
00:27:25,200 --> 00:27:28,480
Speaker 1: where growth is a longer term x axis and values

516
00:27:28,560 --> 00:27:31,200
Speaker 1: of shorter term view. John did I hear earlier on

517
00:27:31,320 --> 00:27:34,560
Speaker 1: bonds of shivar own recommended the triple lovers all cash

518
00:27:34,640 --> 00:27:38,000
Speaker 1: from what do you want to finish? That? Was that

519
00:27:38,040 --> 00:27:41,080
Speaker 1: what you were saying that that's fake news. I'm calling

520
00:27:41,119 --> 00:27:44,639
Speaker 1: you out the fake news, Steve. Thank you, buddy. Always

521
00:27:44,680 --> 00:27:46,920
Speaker 1: gonna catch up. Thank you very much, Steve Chevron that

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00:27:47,200 --> 00:27:51,320
Speaker 1: at Federate today. This is the Bloomberg Surveillance Podcast. Thanks

523
00:27:51,359 --> 00:27:54,640
Speaker 1: for listening. Join us live weekdays from seven to ten

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00:27:54,720 --> 00:27:59,160
Speaker 1: AMI Eastern on Bloomberg Radio and on Bloomberg Television each

525
00:27:59,280 --> 00:28:03,000
Speaker 1: day from six to nine am for insight from the

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00:28:03,040 --> 00:28:08,240
Speaker 1: best in economics, finance, investment, and international relations. And subscribe

527
00:28:08,280 --> 00:28:13,200
Speaker 1: to the Surveillance podcast on Apple, podcast, SoundCloud, Bloomberg dot com,

528
00:28:13,320 --> 00:28:16,560
Speaker 1: and of course on the terminal. I'm Tom keene In.

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00:28:16,680 --> 00:28:18,520
Speaker 1: This is Bloomberg