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

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

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

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

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

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

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Speaker 1: wanted to want to learn about connections connections between emerging

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Speaker 1: markets and the energy sector, and here to help us

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Speaker 1: is Damian Sassaur. He's our fixed income strategist for Bloomberg Intelligence.

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Speaker 1: Damian always a pleasure, Thanks for being with me. Can

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Speaker 1: you explain what what exactly are we trying to understand here?

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Speaker 1: A connection that I didn't really I didn't realize existed. Yeah, sure, So,

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Speaker 1: I mean emerging markets, especially the debt issued by emerging

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Speaker 1: market oil and gas companies, tends to be are tightly

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Speaker 1: correlated to the sovereign parent countries in which they're located, right,

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Speaker 1: and so one would think it's an oil company. It

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Speaker 1: produces oil, and so it's business. It's emerging, you know,

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Speaker 1: it's it's it's the spreads for its for its debt

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Speaker 1: should be more correlated to the price of oil. But

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Speaker 1: that's just not the case. What what gives us an

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Speaker 1: ex I mean, what are you talking about? Brazil? So Brazil, Actually,

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Speaker 1: Brazil is an interesting case because um, the Natro Petro

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Speaker 1: Brass is basically owned by the Brazilian government. Yeah about

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Speaker 1: so you would think that it would um, but nevertheless,

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Speaker 1: it produces oil. I mean, it's got upstream and downstream businesses.

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Speaker 1: But Petro Brass for the most part, um and has

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Speaker 1: historically had a very tight correlation to the price of oil.

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Speaker 1: But um, you know, it's core the correlation between Petro

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Speaker 1: Brass bond spreads and that of its of Brazil itself

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Speaker 1: or just I mean they're upwards of close to although

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Speaker 1: that's been declining of late um in lieu of all

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Speaker 1: the political instability that's going on on the ground, right,

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Speaker 1: So I think what's happening is you might have creditors

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Speaker 1: a little bit more decenseive ties to the political turmoil

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Speaker 1: surrounding Michelle Timer and just exhausted by it because that

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Speaker 1: goes back to the previous administration and then the previous

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Speaker 1: previous administration in Brazil, and also there was there was

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Speaker 1: a big corruption scandal at Petro Brass That's that's correct.

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Speaker 1: So I mean as opposed to perhaps what's going on

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Speaker 1: in Mexico, right, I mean, what's interesting about pemm X,

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Speaker 1: which is the large and that is, you know, the

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Speaker 1: oil company in Mexico. Exactly the spreads of Mexico, of

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Speaker 1: quite frankly of pem X are more trightly correlated to

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Speaker 1: that of Mexico and Mexico given what's been going on

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Speaker 1: with NAFTA renegotiations and trade linkages to the US. What

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Speaker 1: you're finding is that uh, pem X bond spreads are

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Speaker 1: more trightly correlated to US financial conditions, the US money

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Speaker 1: markets right there the front end of the Yolk curve.

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Speaker 1: So you know, with um with all that's going on here,

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Speaker 1: with the removal of quantity, quant easing and perhaps you know,

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Speaker 1: quantightening going forward, and just finding that PEMMIC spreads and

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Speaker 1: more track lee or more closely tracking that of the

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Speaker 1: US and of of its sovereign parent is is do

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Speaker 1: we need to note that this is also because the companies,

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Speaker 1: these oil and energy companies, they are so closely linked

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Speaker 1: to the governments of these emerging economies like Mexico, like Brazil.

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Speaker 1: I mean, it's not as if these are what we

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Speaker 1: would consider to be private, shareholder owned companies. Well, well,

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Speaker 1: I mean that's a great point. I mean, Petro Brasse

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Speaker 1: and Pemas are definitely quasi sovereign entities that are you know,

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Speaker 1: they're not going to do anything that's the central government,

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Speaker 1: the government doesn't want them to do. But I can

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Speaker 1: I can direct your attention to a company um in

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Speaker 1: Russia by the name of lock Oil, right, and lock

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Speaker 1: Oil is not owned by the government, and yet it

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Speaker 1: spreads track that of the Russian sovereign upwards. So it's

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Speaker 1: not as if it's a public private, quasi sovereign corporate.

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Speaker 1: You know. Issue here, what you're finding is that emerging

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Speaker 1: market companies that that the embedded sovereign risk in their

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Speaker 1: bond spreads it just outweighs the fundamentals. And we've seen that, right,

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Speaker 1: fundamentals you know, for the most part, I don't want

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Speaker 1: to say they don't matter anymore, but we've been in

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Speaker 1: this one way street, this one way environment for e

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Speaker 1: M debt, and so you know, you're finding that they're

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Speaker 1: tracking sovereign bond spreads pretty closely. All right, I'm gonna

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Speaker 1: push back with you on on on Russia because you

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Speaker 1: mentioned Luke Oil. Okay, very good. It is a private company,

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Speaker 1: it is not run by the government, but it happens

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Speaker 1: to be in Russia. And my I mean, you know, uh,

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Speaker 1: forgive me, but I think that bottom reputing casts a

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Speaker 1: very wide shadow over every aspect of the Russian economy.

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Speaker 1: So it's not like Luke Oil is gonna do something

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Speaker 1: that the Russian energy ministry doesn't like. No, that's absolutely true.

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Speaker 1: But eighty percent of its revenue is coming from abroad, right,

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Speaker 1: it's not gas prompts. So look what we have is

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Speaker 1: you know, um, but you make a good point. I

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Speaker 1: mean this is that the political context is crucial when

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Speaker 1: you're looking at a merchant market debt. And that's and

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Speaker 1: that's the point here. I mean, you just can't ignore

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Speaker 1: the soueig risk. I mean, anybody who's gonna do a

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Speaker 1: deep dive and do a fundamental bottom analysis on any

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Speaker 1: e m issuer, you just can't ignore the political risk

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Speaker 1: that's embedded within bond spreads. I was gonna say, next

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Speaker 1: we should go to Venezuela, right, Petasa, Well, Pettis is

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Speaker 1: an interesting one, right, I mean, now that we've seen

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Speaker 1: you know, the you know all the talk about you know,

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Speaker 1: the U stupping sanctions and and everything that's going on

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Speaker 1: on the ground there. I mean, it's a real crisis.

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Speaker 1: And so what you've seen there is you've seen credit

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Speaker 1: the fault swap spreads blowout. And what that's done is

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Speaker 1: it's increased the implied probability of default from something like

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Speaker 1: upwards of seventy over the last month. That's a huge move.

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Speaker 1: And and so doing someone's made a lot of money

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Speaker 1: on this right because someone has bet that. I mean

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Speaker 1: obviously someone bought the credit the false swaus when they

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Speaker 1: were low and people thought there wasn't gonna be a problem.

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Speaker 1: And this is like you're you're hoping that you're gonna

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Speaker 1: get into an automobile accident and then you benefit because

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Speaker 1: the premium skyrocket. Well well just from but that's true

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Speaker 1: if you're if you're kind of playing, if you're trader

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Speaker 1: mentality and you're playing the CDs spreads. But if you're

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Speaker 1: a cash bond holder in petivesa right and you're a

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Speaker 1: long term investor, you know what you're seeing is people

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Speaker 1: have kind of been playing the front end because you know,

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Speaker 1: every time there's you know, they're gonna default, they're gonna default.

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Speaker 1: They don't default, and so the bonds pay out and

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Speaker 1: and they and they mature and they were deemed and

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Speaker 1: you get hundred cents on the dollar. But all those

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Speaker 1: short end bonds, especially the ones that are coming due

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Speaker 1: towards the end of the year, that are trading at

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Speaker 1: svs on the dollar, they've come down quite a bit,

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Speaker 1: and people are moving further out along the curve simply

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Speaker 1: because your risk of loss is less. Think about it.

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Speaker 1: If you're paying eighty cents for a pet of Basia

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Speaker 1: bond and at the faults you lose eighty cents, but

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Speaker 1: if you're paying thirty five cents for the twenty seven

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Speaker 1: or your risk of loss is that much less. So

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Speaker 1: you're seeing, you know, long term investors moving out along

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Speaker 1: the curve. And that's what's going on with That's that's

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Speaker 1: interesting because I mean that really highlights how people are

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Speaker 1: reacting to try to reduce their risk, but at the

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Speaker 1: same time they're looking for more yield. Yeah. Yeah, and

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Speaker 1: pet A Basa Actually I just ran the numbers. It's

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Speaker 1: actually the only oil and guest issuer in em hard

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Speaker 1: currency land that is actually down on the year. But

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Speaker 1: if you look at it over I mean, my goodness,

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Speaker 1: if you look at it over the last two years,

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Speaker 1: you know, I think it's up. You know, seventy eight

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Speaker 1: per chens, you know. So you can't ignore Petivisa if

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Speaker 1: you're kind of a closet Banta chaser and index tracker,

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Speaker 1: if you will, you know you have to have it

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Speaker 1: in the portfolio. It's just where do you want to

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Speaker 1: pay your points on the curve? Thanks very much for

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Speaker 1: explaining this very interesting. Thanks so as always. Damian Sasaur

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Speaker 1: Hughes are fixed income strategist for Bloomberg Intelligence, giving us

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Speaker 1: some detail about emerging market that in the connection between

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Speaker 1: the oil companies in those countries and uh the value

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Speaker 1: of their dead All right, I want to turn our

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Speaker 1: attention now to the hospitality industry, and as much as

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Speaker 1: Marriott has released its results and also we'll be getting

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Speaker 1: a preview of price line, I want to bring in.

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Speaker 1: Dan was Leaky is the senior equity analyst at morning Star,

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Speaker 1: and Dan, let's begin with Marriott, because yesterday they said

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Speaker 1: they've putting together this partnership with Ali Baba Group in

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Speaker 1: China because of course they want to tap into the

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Speaker 1: growing market for tourism and travel amongst Chinese individuals. Can

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Speaker 1: you speak to what you learned from Marriott's report today? Yeah,

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Speaker 1: you know, I guess with Ali Baba, we didn't find

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Speaker 1: that too surprising. I think it makes sense for Marriott,

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Speaker 1: and in the future, I expect other hotel operators to

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Speaker 1: join a platform like ali Baba. Given that they have

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Speaker 1: five million active monthly users, that's a platform that you're

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Speaker 1: going to want shelf space on, especially, you know, given

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Speaker 1: China is a growing outbound travel market, so this is

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Speaker 1: something that is should help Marriott's long term growth opportunity

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Speaker 1: in China. We're currently about eight percent of their total

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Speaker 1: rooms are from that region. Um. But beyond that, what

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Speaker 1: we learned out of the quarter was that their brand

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Speaker 1: continues to be very strong, and also the US corporate

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Speaker 1: business spent is seems to be pausing a little bit,

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Speaker 1: and that's a kind of been echoed by some other

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Speaker 1: competitors in the hotel space over the last week or two.

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Speaker 1: All right, we'll get to the bigger, the bigger issue.

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Speaker 1: Just second, I want to ask you about Marriott and

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Speaker 1: are would how is the that pro that combination coming on,

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Speaker 1: because didn't they say that they want to cut what

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Speaker 1: two fifty millions in uh in dollars from the company's budget, right, Yeah,

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Speaker 1: so everything that appears on track. You know, they acquired

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Speaker 1: Starwood back in September of last year, is a good

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Speaker 1: acquisition and that Marriott was more focused on US and

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Speaker 1: Starwood had more of an international exposure, so that was

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Speaker 1: a nice marriage from that vantage point. But yeah, everything

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Speaker 1: appears on track. As far as the synergies that they

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Speaker 1: expect to strip out of the Starwood UM integration, UM

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Speaker 1: the two or fifty million and cost savings, they remain

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Speaker 1: on track to to have that annulyzed sometime next year. Dan,

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Speaker 1: it's this this is considered an asset light strategy. Is

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Speaker 1: that correct? Right? Right? And maybe explain how does that

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Speaker 1: work and why is that of benefit, particularly when it

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Speaker 1: comes to margins. Yeah, so, um, you know, so they

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Speaker 1: don't own a lot of their own hotels. They depend

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Speaker 1: on third parties to really join the platform, and therefore

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Speaker 1: they don't have a lot of development capital intensity costs

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Speaker 1: that really that that's all um forwarded by the third

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Speaker 1: parties that are joining Mariotte. And the reason they're joining

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Speaker 1: Mariotte is because Maria has a leading loyalty program, they

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Speaker 1: have strong brands, and they also have a good website

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Speaker 1: of traffic um So those are the things that a

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Speaker 1: third party will look to when they're looking, for example,

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Speaker 1: to franchise under one of the larger brands. And also

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Speaker 1: Marriott doesn't have to pay for any of the marketing costs.

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Speaker 1: All that is is again paid for by these third parties.

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Speaker 1: So the margins are very high versus if you own

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Speaker 1: the hotels, those costs are going to be associated with

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Speaker 1: that because those franchise fees as well as the incentive fees,

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Speaker 1: they continue to increase the revenue at Marriott and doesn't

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Speaker 1: cost them any more money. Uh yeah, that's that's essentially correct, right,

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Speaker 1: So there's a lot of there's a lot of leverage

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Speaker 1: here um as as they continue to sign up and

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Speaker 1: get unique growth. The costs are very low, and then

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Speaker 1: they get a percentage of the revenue that's generated by

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Speaker 1: these franchisees. Is this the model that you think most

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Speaker 1: hospitality hotel groups should follow? I do, But you know

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Speaker 1: it's also a matter of scale. So when you're a

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Speaker 1: smaller hoteler, you really have to kind of invest your

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Speaker 1: own capital behind the brands in order to get them

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Speaker 1: to a point where third parties can gain confidence in

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Speaker 1: in the brand development. UM. So you look at a

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Speaker 1: company like Hyatt, for example, that is has more of

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Speaker 1: an owned exposure. They're starting to get to the point

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Speaker 1: now where they're approaching two thousand total rooms where I

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Speaker 1: think they're starting to realize that third parties now believe

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Speaker 1: in the in the brands that they've put their own

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Speaker 1: where to put their own capital behind. So it's kind

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Speaker 1: of an evolution that a company gets into where it

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Speaker 1: becomes more asset light as as it builds a certain scale. Now,

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Speaker 1: price Line is set to release its results after the

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Speaker 1: close of trading today. The shaffs of price Line are

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Speaker 1: up nearly forty percent so far this year. Two stock

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Speaker 1: is of a dollar twenty three right now, what do

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Speaker 1: you expect to hear from price Line? Well, first of all,

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Speaker 1: our long held view is that Priceline is the best

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Speaker 1: position company with an online travel um. You know, the

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Speaker 1: question now is is it the best stock? We think

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Speaker 1: that it's actually near fair value or fair values two

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Speaker 1: thousand and thirty dollars essentially where the stock is training

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Speaker 1: right now. But you know, as far as the report,

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Speaker 1: we expected to be solid um Expedia reported their results

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Speaker 1: two weeks ago. They saw a pretty solid macro environment globally.

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Speaker 1: Um Expedia's room nights also saw some acceleration versus the

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Speaker 1: prior quarter, and then even though there's been some mention

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Speaker 1: of US corporate pause with the hotelers uh. They also

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Speaker 1: point out that the leisure market, which is more of

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Speaker 1: price lines um um forte that the leisure market is

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Speaker 1: quite strong, so we think that the quarter probably is

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Speaker 1: going to be quite quite solid for Priceline. Can you

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Speaker 1: speak about this idea of you know, the competition from

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Speaker 1: air b and b so vacation rentals, how does that

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Speaker 1: play into a Priceline strategy. Yeah, vacation rentals is a

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Speaker 1: growing market with online travel, and one of the reasons

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Speaker 1: why we like price Line is because Priceline actually has

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Speaker 1: a really strong vacation rental um platform. So price Line

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Speaker 1: has about one point two million properties and twenty five

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Speaker 1: million rooms on booking dot com um and of those

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Speaker 1: twenty five million rooms, about eight million or so our

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Speaker 1: vacation rentals or alternative accommodations, which would compare with Airbnb,

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Speaker 1: which probably you know has around three or four million

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Speaker 1: UM rooms itself on its platform. So price Line actually

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Speaker 1: has a very competitive offer into air Airbnb. And we

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Speaker 1: think that of the total bookings, vacation rentals probably represent

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Speaker 1: a low double digit of price lines total bookings. And

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Speaker 1: you think that at fair value? What is the alternative

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Speaker 1: if you don't like the price of Priceline. What should

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Speaker 1: you do? Well? Trip Advisor? Uh, you know, I think

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Speaker 1: trip the market, it's greatly probably discounting Trip Advisor that

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Speaker 1: also has a pretty good platform. Uh, there's a lot

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Speaker 1: of traffic that goes to trip Advisor. A trip advisor

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Speaker 1: has a lot of content. Um, you know they'll be

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Speaker 1: renowned seeing their results at the close of trading today.

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Speaker 1: As yes, thanks very much. Dan Wassleck, he is a

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Speaker 1: senior equity analyst at The morning Star talking about the

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Speaker 1: hospitality industry. Well, what are the characteristics that a money

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Speaker 1: manager looks for in an investment? Here to tell us

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Speaker 1: is David Coudla. He is the chief executive and the

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Speaker 1: chief investment strategist for Mainstay Capital Management, helping to manage

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Speaker 1: more than two billion dollars based in Grand Blank, Michigan,

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Speaker 1: and he can be followed on Twitter at David Underscore Kudla.

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Speaker 1: That's k U D. L A. Alright, David underscore coudla.

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Speaker 1: What are the characteristics? What are you looking for in

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Speaker 1: an investment right now? Right now, we're looking for investments

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Speaker 1: that can do well in a slow growth economy, and

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Speaker 1: those are the actors that are more dependent on secular

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Speaker 1: a second or growth story than they are the economy

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Speaker 1: and cyclical forces. The economy is doing okay, but it's

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Speaker 1: really just sputtering along at about two gdp growth. So

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Speaker 1: we've seen value stocks have really suffered this year. Growth

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Speaker 1: stocks have done very well, namely technology. Are you going

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Speaker 1: to stick with that or is it time to rebalance?

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Speaker 1: We're going to stick with technology and we're gonna stick

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Speaker 1: with big cap technology. Uh. We We are in the

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Speaker 1: ninth year of a bull market, and there will be

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Speaker 1: a point where, uh, this market finally cracks after the

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Speaker 1: over eight years of the second longest bull bull market

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Speaker 1: in the history of US stocks, where we'll see a

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Speaker 1: problem with a flat or down market and all stocks

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Speaker 1: will suffer at that time until that time when we

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Speaker 1: look at where do we want to be in this

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Speaker 1: market right now past six months in right now, it's

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Speaker 1: still with technology and even healthcare that tends to be

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Speaker 1: economically insensitive. Well, David, how do you how do you

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Speaker 1: know when to get out? I mean the NASDAC is

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Speaker 1: up nearly this year, the SMP is higher by more

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Speaker 1: than eleven. You know, no one's gonna ring a bell

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Speaker 1: for you when you know when it's time. But how

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Speaker 1: do you avoid that downturn on? How do you mitigate

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Speaker 1: the effects? Yeah, no one's gonna ring a bell, although

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Speaker 1: there are some people acting like the ringing bells UH

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Speaker 1: at Oakmark Capital H. Jeffrey Gunlock are have words of caution,

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Speaker 1: and we know that that market has stock market has

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Speaker 1: to have pessimist has to climb a wall of wory.

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Speaker 1: But when we look at market fundamentals, primarily earnings, earnings

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Speaker 1: are very strong and expected to be strong through. So

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Speaker 1: we think you stay with stocks for now. We're probably

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Speaker 1: UH quite a bit more careful within the bond sector,

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Speaker 1: staying away from those interest rate sensitive bond sectors. Well,

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Speaker 1: let's take one of the sort of tech join as

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Speaker 1: an example. Apple, Uh, the earnings that they are recently

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Speaker 1: posted better than estimated, also looking into the future saying

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Speaker 1: that they think they're going to do better than analysts

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Speaker 1: had previously thought. Is Apple characteristic of the kind of

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Speaker 1: company one to own it is. We saw iPhone sales

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Speaker 1: come through very strong in the most recent quarter. Uh.

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Speaker 1: They're continuing really to perform well with still a low

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Speaker 1: pe relative to a lot of their peers. And when

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Speaker 1: we look at the tax reform, that may becoming one

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Speaker 1: of the primary UH ingredients in that is a way

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Speaker 1: for those big companies like Apple to repatriate dollars. And

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Speaker 1: that will be good whether it comes in the form

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Speaker 1: of further investment or in financial engineering, stock buybacks, higher

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Speaker 1: dividend payout. So how do you respond to people that say, gee,

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Speaker 1: you know, David, You're just you're a momentum trader. You're

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Speaker 1: you're going with the momentum. You're adding to the positions

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Speaker 1: that are doing well. Uh, as you just said, eventually,

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Speaker 1: that's not going to work forever. Eventually it won't work forever.

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Speaker 1: But then then we look for as technical assid allocators,

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Speaker 1: where do we want to be in the next market environment.

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Speaker 1: You know, right now, if people who are Warren Buffet

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Speaker 1: or Graham Dodd type investors that have looked at value

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Speaker 1: because it's undervalue, that's simply been a value trap. So

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Speaker 1: momentum has worked very well this year. We think it

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Speaker 1: continues to work well and it will take us to

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Speaker 1: other sectors. Uh as as the market chiefs well. Is

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Speaker 1: a company like Tesla, do you consider that to be

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Speaker 1: a technology company, an automobile manufacturer, a solar company? How

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Speaker 1: would you parse Tesla all the above? Uh? You know,

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Speaker 1: it's a consumer. You know, we'd put it in the

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Speaker 1: consumer cyclical category as an auto manufacturer primarily, but also

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Speaker 1: you'll see it held in a lot uh tech funds,

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Speaker 1: technology stock funds because of the technology incorporated in the

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Speaker 1: overall business model in their products. You know what Elon

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Speaker 1: Musk is all about. But it's a it's a technology

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Speaker 1: stock that quite quite frankly, concerns is quite a bit

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Speaker 1: now and that's because we have this Model three production

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Speaker 1: ramp that we see a lot of. We have a

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Speaker 1: lot of concerns with a cash burn rate. We were

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Speaker 1: concerned about until um a couple of days ago when

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Speaker 1: it was announced that there would be another bar or

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Speaker 1: a bond offering to raise another one point five billion.

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Speaker 1: But you know, that's that's a company we can look at,

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Speaker 1: not like Apple at a low pe that's making a

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Speaker 1: lot of money. Tesla is a company with no Pe.

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Speaker 1: They have no earnings and it's a question of when

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Speaker 1: and if they will ever be a profitable company. So

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Speaker 1: we think owners of Tesla we called a story stock,

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Speaker 1: and they've given Elon Musk and Tesla path on a

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Speaker 1: lot of things because they believe in the future. But

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Speaker 1: we think there's a lot of reality to set in

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Speaker 1: in the next six to nine months for Tesla. Well,

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Speaker 1: it certainly hasn't stopped the stock because the shares are

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Speaker 1: up more than seventy percent so far this year. Do

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Speaker 1: you think that one point five billion dollar bond offering

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Speaker 1: that they're talking about, is that just an effort. They've

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Speaker 1: got to raise the money somehow, but they just don't

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Speaker 1: feel they can dilute the current shareholders. Yeah, and it's

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Speaker 1: it's a good time if you're going to capital markets

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Speaker 1: a lot of companies. There's companies that are going uh

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Speaker 1: in issuing debt to buy back their stock because capital

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Speaker 1: is so cheap right now, so now it's a good

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Speaker 1: time to do it. But they also we think it's

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Speaker 1: a good time for Tesla to do it because they've

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Speaker 1: had the rollout of the Model three. The press has

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Speaker 1: been very good. It was really superb rollout, but if

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Speaker 1: they get a production encounter, some of those production problems

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Speaker 1: the next year's service problems. UH, it'll be a little

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Speaker 1: tougher to go to capital markets. Given that their cash

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Speaker 1: burn rate throughout the money in two in two to

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Speaker 1: three quarters. I think it was very wise for them

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Speaker 1: to do that at this time. As far as this, uh,

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Speaker 1: this effort on on what you hall secular growth healthcare,

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Speaker 1: what what characterizes because I mean health care is abroad,

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Speaker 1: you know, a broad section of the of the market,

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Speaker 1: what particular areas of healthcare, pharmaceuticals, health insurance, health insurance,

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Speaker 1: healthcare providers. We saw a lot of revenue generated for

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Speaker 1: those companies with Obamacare, and we've seen as the different

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Speaker 1: packages have been put forwards legislation and proposals by the

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Speaker 1: Health and then the Senate. Uh. There there within are

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Speaker 1: the factors that the healthcare providers can continue to do well.

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Speaker 1: So healthcare being a non cyclical typically non cyclical a

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Speaker 1: a uh, A non economically sensitive sector that has been

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Speaker 1: on a growth tear, and we think that still a

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Speaker 1: good place to be. What would you say is the

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Speaker 1: one question that you get most often now from investors,

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Speaker 1: When will the other shoe drop? When? What do you

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Speaker 1: what do you tell this bull market end? We know it,

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Speaker 1: we know it will, right, we know it will. And

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Speaker 1: the further it goes, the more chances are quite frankly,

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Speaker 1: that it that that it ends badly. But uh, you know,

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Speaker 1: I think that some of these these uh well and

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Speaker 1: people that have gone to cash or short at this

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Speaker 1: market over the past year, two years, three years, four years,

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Speaker 1: they have definitely not done well and it is not

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Speaker 1: it is not got worked out for them, Thank you

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Speaker 1: very much that David coudla. He is the chief executive

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Speaker 1: and the chief investment strategist for Mainstake Capital Management, helping

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Speaker 1: to manage two billion dollars more than two billion dollars

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Speaker 1: in Grand Blank Michigan. Chairs of Ralph Lauren and Michael

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Speaker 1: Cores all moving higher today. Ralph Lauren up eight and

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Speaker 1: a half percent, Michael Corps is higher by twenty Who

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Speaker 1: says retail is dead, well, maybe my next guest. Daniel

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Speaker 1: DeMartino Booth is the founder of Money Strong and economic

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Speaker 1: consulting firm, former advisor the Dallas Federal Reserve, and a

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Speaker 1: Bloomberg profit. Bloomberg profits are professionals who offer actionable insights

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Speaker 1: on markets. The economy and monetary policy, and the contributors

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Speaker 1: may have a stake in the areas that they write about. Well,

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Speaker 1: Daniel DeMartino bootha, do you have a stake in Ralph Lauren?

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Speaker 1: Meaning do you have things in your closet that maybe

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Speaker 1: you're not going to throw away? Now? Well, I certainly

428
00:23:31,640 --> 00:23:36,040
Speaker 1: have plenty of Jimmy choose, So I personally stand behind

429
00:23:36,119 --> 00:23:39,080
Speaker 1: and endorsed the Michael Core's news. All right, well, very good.

430
00:23:39,119 --> 00:23:42,560
Speaker 1: So Michael Core is one point two billion for Jimmy Choo.

431
00:23:42,680 --> 00:23:45,440
Speaker 1: What what do you make of today's retail report from

432
00:23:45,600 --> 00:23:49,479
Speaker 1: Ralph Lauren and Michael Cores? Well, I mean it's not

433
00:23:49,720 --> 00:23:53,280
Speaker 1: terribly surprising. There's going to be there will be continued

434
00:23:53,359 --> 00:23:56,919
Speaker 1: pockets of of loyalty out there. I'm a perfect representative

435
00:23:57,119 --> 00:24:02,080
Speaker 1: representative thereof that being said, I'm complete lately, uh, price

436
00:24:02,240 --> 00:24:06,520
Speaker 1: sensitive outside of my my little sphears of loyalty, if

437
00:24:06,560 --> 00:24:08,600
Speaker 1: you will, And I think that we continue to see

438
00:24:08,600 --> 00:24:11,639
Speaker 1: that come out in the aggregate data. Him So, this

439
00:24:11,720 --> 00:24:15,680
Speaker 1: idea that people will pay whatever, they whatever, this being

440
00:24:15,760 --> 00:24:18,520
Speaker 1: asked for the things they really want, but everything else

441
00:24:19,000 --> 00:24:21,520
Speaker 1: is just sort of up for grabs. It's all price

442
00:24:21,600 --> 00:24:25,280
Speaker 1: driven it's kind of it's a lot of retail, if

443
00:24:25,320 --> 00:24:29,240
Speaker 1: you will, has been commoditized, and that commoditization has happened

444
00:24:29,320 --> 00:24:32,280
Speaker 1: via Amazons, as we all know and talk about until

445
00:24:32,280 --> 00:24:34,720
Speaker 1: we're blue in the face. Well, you've written a column

446
00:24:34,720 --> 00:24:38,800
Speaker 1: that says back to school means more retail agony. Describe

447
00:24:38,840 --> 00:24:41,600
Speaker 1: why you you believe that to be? So, you know,

448
00:24:41,640 --> 00:24:44,480
Speaker 1: I think that that we saw an acceleration of the

449
00:24:44,520 --> 00:24:48,560
Speaker 1: decline and brick and mortar retailers over the holiday season.

450
00:24:48,800 --> 00:24:52,040
Speaker 1: It's surprised even the most pessimistic analysts when it came

451
00:24:52,080 --> 00:24:55,720
Speaker 1: down to the trajectory of store closures. And because I

452
00:24:55,720 --> 00:24:59,359
Speaker 1: think many retailers, of course, as we've seen today, not all,

453
00:24:59,520 --> 00:25:02,640
Speaker 1: but because I think many retailers are in a vulnerable position.

454
00:25:03,119 --> 00:25:05,840
Speaker 1: I think it's it's feasible that we actually see some

455
00:25:05,880 --> 00:25:08,840
Speaker 1: more bloodshed around the back to school season, which is

456
00:25:08,880 --> 00:25:12,119
Speaker 1: the second most important time of the year for retailers

457
00:25:12,280 --> 00:25:14,600
Speaker 1: after after the holiday season. All right, and do we

458
00:25:14,920 --> 00:25:17,680
Speaker 1: is it worth while making a distinction between the retail

459
00:25:18,520 --> 00:25:24,159
Speaker 1: the retail corporations that only sell online versus those that have,

460
00:25:24,560 --> 00:25:27,240
Speaker 1: you know, substantial store locations, because I think, for example,

461
00:25:27,520 --> 00:25:30,840
Speaker 1: Michael Course has over like eight hundred and thirty stores

462
00:25:30,960 --> 00:25:34,479
Speaker 1: right now, you know exactly. In fact I was. I

463
00:25:34,520 --> 00:25:37,439
Speaker 1: was in a mall recently at gunpoint. My children had

464
00:25:37,480 --> 00:25:40,119
Speaker 1: taken me to see an animated feature, and you know,

465
00:25:40,119 --> 00:25:41,960
Speaker 1: out of the corner of my eyes, I noticed a

466
00:25:42,000 --> 00:25:44,800
Speaker 1: Michael Core store. I don't go into malls if I

467
00:25:44,840 --> 00:25:48,960
Speaker 1: don't have to, but you are right. Their footprint is enormous,

468
00:25:49,000 --> 00:25:51,640
Speaker 1: and that will that will come back to haunt them

469
00:25:51,680 --> 00:25:55,080
Speaker 1: at some point as more of the second and third

470
00:25:55,119 --> 00:25:58,000
Speaker 1: to yer malls begin to close down. Do you think

471
00:25:58,000 --> 00:26:00,240
Speaker 1: that that's reflected in the Chinese trade number US with

472
00:26:00,280 --> 00:26:05,160
Speaker 1: the United States That trade with China continues to be robust,

473
00:26:05,200 --> 00:26:08,400
Speaker 1: and indeed the sale of and demand of Chinese products

474
00:26:08,400 --> 00:26:12,680
Speaker 1: continues to rise, You know it does. I was fishing

475
00:26:12,720 --> 00:26:15,040
Speaker 1: over the weekend in Maine with Leland Miller, who's the

476
00:26:15,119 --> 00:26:18,399
Speaker 1: China Age book, who runs the China based book, and

477
00:26:18,760 --> 00:26:21,840
Speaker 1: he gave me you know that he always says, you

478
00:26:22,040 --> 00:26:24,720
Speaker 1: use an eye dropper full of of skepticism when you

479
00:26:24,720 --> 00:26:27,720
Speaker 1: see these data. I'm not so sure that five months

480
00:26:27,720 --> 00:26:30,480
Speaker 1: in a row of a growing surplus in China is

481
00:26:30,520 --> 00:26:35,479
Speaker 1: reflective as much of true underlying improvement or or Chinese

482
00:26:35,560 --> 00:26:39,119
Speaker 1: politicians trying to make a statement to President Trump about

483
00:26:39,200 --> 00:26:41,800
Speaker 1: some of the hard talk that he has on on trade.

484
00:26:41,840 --> 00:26:43,840
Speaker 1: I just I don't know if we can parish this

485
00:26:43,960 --> 00:26:47,400
Speaker 1: as being a true trend or or being more game

486
00:26:47,440 --> 00:26:50,639
Speaker 1: theory at play, because Trump continues to threaten trade wars

487
00:26:51,160 --> 00:26:54,439
Speaker 1: expand on that. If you can about the this potential

488
00:26:54,560 --> 00:26:59,959
Speaker 1: for the conversation really being political rather than economic, well again,

489
00:27:00,000 --> 00:27:01,359
Speaker 1: you know, I don't. I don't think that anybody in

490
00:27:01,440 --> 00:27:03,800
Speaker 1: the world, especially given with what's going on in North Korea,

491
00:27:04,040 --> 00:27:06,719
Speaker 1: wants to see the outbreak of a trade war. On

492
00:27:06,760 --> 00:27:09,879
Speaker 1: the other hand, we saw just last week that the

493
00:27:09,960 --> 00:27:14,800
Speaker 1: Japanese have indeed moved forward with tariffs on importing beef,

494
00:27:15,359 --> 00:27:18,080
Speaker 1: so it might be once in from the United States,

495
00:27:19,040 --> 00:27:22,720
Speaker 1: from me and from other countries as well. Uh So

496
00:27:23,359 --> 00:27:26,200
Speaker 1: these are small steps. But but we've not seen any

497
00:27:26,240 --> 00:27:29,840
Speaker 1: backing down in terms of threats of of of tariffs

498
00:27:29,840 --> 00:27:33,399
Speaker 1: on steel imports into the United States, and these things

499
00:27:33,480 --> 00:27:37,040
Speaker 1: never tend to end well. And again, you know, there's

500
00:27:37,040 --> 00:27:39,960
Speaker 1: been a lot of weakness out of the Chinese trade data.

501
00:27:40,040 --> 00:27:43,080
Speaker 1: I would put more stock in it than I otherwise would.

502
00:27:43,359 --> 00:27:46,000
Speaker 1: I do say it's more than just political given the

503
00:27:46,160 --> 00:27:49,400
Speaker 1: deeper disappointment that we saw overnight coming out of Germany

504
00:27:49,480 --> 00:27:52,600
Speaker 1: and its trade numbers, followed by weakness the night before

505
00:27:52,880 --> 00:27:56,200
Speaker 1: in its manufacturing industrial production figures. All right, now, if

506
00:27:56,200 --> 00:27:59,200
Speaker 1: we if we sort of combine that with what is

507
00:27:59,240 --> 00:28:02,280
Speaker 1: happening to the US consumer and how they're managing to

508
00:28:02,359 --> 00:28:05,240
Speaker 1: pay for all of the products that come from these countries,

509
00:28:05,640 --> 00:28:08,760
Speaker 1: maybe just to tell us more about that, well, you know,

510
00:28:08,800 --> 00:28:13,640
Speaker 1: what we have seen is extreme stickiness in services inflation

511
00:28:14,119 --> 00:28:17,240
Speaker 1: in this country, and whenever we see that. In fact,

512
00:28:17,640 --> 00:28:19,879
Speaker 1: a recent survey showed that parents are going to be

513
00:28:19,880 --> 00:28:24,280
Speaker 1: spending more money on after school activities those are services

514
00:28:24,400 --> 00:28:27,399
Speaker 1: than they will be spending on products to get their

515
00:28:27,480 --> 00:28:30,760
Speaker 1: kids ready for for for the back to school season,

516
00:28:30,800 --> 00:28:33,359
Speaker 1: which which brings us back to my column from last week.

517
00:28:33,520 --> 00:28:35,719
Speaker 1: But the more we see in terms of sticky service

518
00:28:35,760 --> 00:28:39,080
Speaker 1: price inflation, the less wherewithal the average household has to

519
00:28:39,120 --> 00:28:43,080
Speaker 1: spend on any goods. So you'll see that continued tug

520
00:28:43,080 --> 00:28:47,640
Speaker 1: of war moving forward as household strains continue to grow.

521
00:28:47,680 --> 00:28:50,440
Speaker 1: Of course, we saw news out of Discover Financial last

522
00:28:50,440 --> 00:28:53,120
Speaker 1: week before that Capital One Financial that we've we've seen

523
00:28:53,160 --> 00:28:57,040
Speaker 1: credit card defaults continue to tick up well and also

524
00:28:57,400 --> 00:29:01,440
Speaker 1: revolving credit which obviously credit cards. You say is at

525
00:29:01,480 --> 00:29:04,880
Speaker 1: a record? Is that a record right now? Well, that's

526
00:29:04,880 --> 00:29:07,840
Speaker 1: what Bloomberg reported last night. Yes, no, we we we

527
00:29:07,960 --> 00:29:12,440
Speaker 1: have indeeded indeed seen uh that prior peak taken out.

528
00:29:12,560 --> 00:29:15,600
Speaker 1: At the same time, though the Fed Senior Loan Officer

529
00:29:15,680 --> 00:29:20,120
Speaker 1: Survey data tell us that the standards are tightening, I

530
00:29:20,520 --> 00:29:22,800
Speaker 1: have to I'm just gonna sit back and and try

531
00:29:22,840 --> 00:29:25,360
Speaker 1: and figure out how this dynamic is going to play out,

532
00:29:25,680 --> 00:29:28,240
Speaker 1: because it's apparent that households are reaching to their credit

533
00:29:28,280 --> 00:29:32,960
Speaker 1: cards not to cover discretionary Ralph Lauren, Michael Corese type

534
00:29:32,960 --> 00:29:36,920
Speaker 1: of spending, but rather to cover spending on necessities. If

535
00:29:37,000 --> 00:29:40,360
Speaker 1: lenders are pulling back at the same time tightening standards,

536
00:29:41,040 --> 00:29:42,520
Speaker 1: you have to start to wonder if we're going to

537
00:29:42,600 --> 00:29:45,720
Speaker 1: see that play out in an increase in mortgage defaults,

538
00:29:45,880 --> 00:29:50,200
Speaker 1: in a continued rise in automobile loan defaults. We mentioned

539
00:29:50,200 --> 00:29:53,400
Speaker 1: Titan standards. What about tightening interest rates? Do you believe

540
00:29:53,440 --> 00:29:56,920
Speaker 1: that the increase in interest rates that is foretold by

541
00:29:56,960 --> 00:30:00,720
Speaker 1: the Federal Reserve will have a dramatic effect? You know,

542
00:30:00,800 --> 00:30:03,360
Speaker 1: I do. It's it's interesting. We have we we have

543
00:30:03,480 --> 00:30:06,120
Speaker 1: the ongoing battle between the hawks and the doves and

544
00:30:06,160 --> 00:30:09,600
Speaker 1: Bullard overnight saying there's not another rate increase. I think

545
00:30:09,600 --> 00:30:12,720
Speaker 1: that if the Fed manages to follow through on its

546
00:30:12,760 --> 00:30:17,200
Speaker 1: theory of balance sheet UH shrinking being on autopilot and

547
00:30:17,240 --> 00:30:19,720
Speaker 1: a non event for the market, it wouldn't surprise me

548
00:30:19,800 --> 00:30:22,160
Speaker 1: PIM if we were to see them follow that with

549
00:30:22,240 --> 00:30:26,160
Speaker 1: a rate hike in December, and at some point these

550
00:30:26,680 --> 00:30:29,280
Speaker 1: these continued rate hikes, one on top of the other,

551
00:30:29,560 --> 00:30:32,960
Speaker 1: will make a difference in conjunction with live or going

552
00:30:33,000 --> 00:30:35,760
Speaker 1: away for the average US household. I want to thank

553
00:30:35,760 --> 00:30:38,960
Speaker 1: you very much for joining us. Danielle di Martino Booth

554
00:30:39,040 --> 00:30:41,600
Speaker 1: is the founder of money Strong, former advisor at the

555
00:30:41,640 --> 00:30:45,760
Speaker 1: Dallas Federal Reserved, a Bloomberg profit, and you can follow

556
00:30:45,760 --> 00:30:49,120
Speaker 1: her on Twitter at di Martino Booth, which is also

557
00:30:49,160 --> 00:30:55,840
Speaker 1: the author of fed Up, This is Bloomberg. Thanks for

558
00:30:55,920 --> 00:30:58,560
Speaker 1: listening to the Bloomberg P and L podcast. You can

559
00:30:58,600 --> 00:31:02,240
Speaker 1: subscribe and listen to interview use at Apple Podcasts, SoundCloud,

560
00:31:02,360 --> 00:31:05,800
Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm

561
00:31:05,840 --> 00:31:09,400
Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa

562
00:31:09,440 --> 00:31:12,560
Speaker 1: Abramowits one before the podcast. You can always catch US

563
00:31:12,600 --> 00:31:14,160
Speaker 1: worldwide on Bluebirg Radio,