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$800 Million Crypto Fund Sees A Revolution in Finance: Masters · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Bramowitz. Each day we
• 0:11
  Speaker 1: bring you the most important, noteworthy, and useful interviews for
• 0:15
  Speaker 1: you and your money, whether you're at the grocery store
• 0:17
  Speaker 1: or the trading floor. Find the Bloomberg p m L
• 0:20
  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Our
• 0:33
  Speaker 1: next guest ran JP Morgan's New York energy trading business.
• 0:37
  Speaker 1: In the nineties, set up his own commodities fund and
• 0:41
  Speaker 1: now is investing in crypto assets. Daniel Masters Joins is
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  Speaker 1: now Chief Investment Officer of Global Advisors, also chairman of
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  Speaker 1: coin Shares Group. He manages about eight hundred million dollars
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  Speaker 1: of assets, including crypto assets. Danielle, thank you so much
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  Speaker 1: for being with us. UM. In an interview last month,
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  Speaker 1: you said, for us, it is abundantly clear that we
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  Speaker 1: are in the midst of a true financial revolution. You're
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  Speaker 1: referring to cryptocurrencies. What makes you so confident about that? Yes,
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  Speaker 1: good a good morning, and thanks very much for having
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  Speaker 1: me back. UM. The distributed ledger technology that's being pioneered
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  Speaker 1: by in development surrounding bitcoin and other cryptocurrencies is really
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  Speaker 1: the democratization of transactions in the same way as when
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  Speaker 1: the Internet appeared, we saw the news and information traveling
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  Speaker 1: around without the necessity for big organizations centers for distribution
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  Speaker 1: of that information. So blockchains, bitcoin and other such crypto
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  Speaker 1: assets are democracyizing the transactional interaction between individuals. That's at
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  Speaker 1: the core of what makes us a revolution. Can you
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  Speaker 1: tell us what is How do you describe coin shares?
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  Speaker 1: What what does coin shore is do for for customers?
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  Speaker 1: Coin Shares is a nascent digital investment bank. Many of
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  Speaker 1: the things we do are an analog and parallel to
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  Speaker 1: what happens in the legacy financial services industry. So we
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  Speaker 1: provide investment entry points for people to come into crypto
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  Speaker 1: assets without having to own them directly, and we take
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  Speaker 1: care of that hedging and replication. We provide services to
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  Speaker 1: people within the crypto community, and this is you know,
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  Speaker 1: at the peaks of the December prices approaching a trillion
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  Speaker 1: dollar ecosystem. We provide a treasury and assets and liability
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  Speaker 1: management type of services, hedging services, and some advisory. We
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  Speaker 1: also deploy proprietary capital within that ecosystem, funding these small
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  Speaker 1: companies and participating in some of the initial coin offering
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  Speaker 1: type of activity that I'm sure you're aware of. Okay,
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  Speaker 1: The reason I want just to set that in some
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  Speaker 1: contexts is because my next thought it has to do
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  Speaker 1: with what's known as leakage. Right, this is the lead
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  Speaker 1: the financial the rather the fractional reserve banking system, and
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  Speaker 1: the leverage that you have in that system is the
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  Speaker 1: use of cryptocurrencies. Is this causing a leakage in that leverage? Well,
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  Speaker 1: that's a great question, and you know, I mean, I
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  Speaker 1: think what is clear is that there was a kind
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  Speaker 1: of a regulatory sandbox in which digital assets of all
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  Speaker 1: kinds existed all the way from back when we started
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  Speaker 1: in right through the third or fourth quarter of last year.
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  Speaker 1: You know, when when an ecosystem is a billion or
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  Speaker 1: five billion or ten billion, it's almost experimental in the
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  Speaker 1: scope of the main financial system. But you know, once
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  Speaker 1: you start rapidly approaching a trillion, and with the associated
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  Speaker 1: media hype around it, this all of a sudden became
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  Speaker 1: something that regulators, banks, authorities of various kinds of central
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  Speaker 1: bank governments decided that it could no longer be ignored. So,
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  Speaker 1: you know, I don't think there's any concern from that
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  Speaker 1: community at the moment that there's lead kids, as you
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  Speaker 1: put it, but I think they're beginning to realize that
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  Speaker 1: there is potential for that in the future. I've never
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  Speaker 1: thought that it would be a sort of a fight
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  Speaker 1: to the death between you know, crypto and and the
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  Speaker 1: the dollar or the pound or the legacy financial system.
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  Speaker 1: To me, it's always been a question of what portion
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  Speaker 1: of the total financial ecosystem a cruise to cryptocurrencies. And
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  Speaker 1: I think, you know, even if it's only five at
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  Speaker 1: the end of the day, that market will then still
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  Speaker 1: be much bigger than this right now, Danny, how much
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  Speaker 1: of the eight million dollars that you manage, how much
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  Speaker 1: is in crypto assets? All of it? All of it? Okay?
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  Speaker 1: So how do you go about determining how to invest
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  Speaker 1: that money? I mean, is you just sort of invest
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  Speaker 1: in bitcoin or sort of? Oh? No, we do a
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  Speaker 1: range of things. So, first of all, the largest bulk
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  Speaker 1: of our assets are from one of our companies we
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  Speaker 1: own called xpt Provider. An xpt Provider provides bitcoin and
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  Speaker 1: the etherorium certificate, the track the price of those assets
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  Speaker 1: on Nastack nastack coaxin Stockholm. That is by far our
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  Speaker 1: our largest product pool, and let's call that a passive strategy.
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  Speaker 1: Then we have active strategies. And the active strategies are
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  Speaker 1: essentially funds of various kinds. Um. We currently have two
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  Speaker 1: hour soon to be four, and um, you know, I
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  Speaker 1: can describe them generically as multi currency multi strategy in
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  Speaker 1: one bucket and index based in another bucket. So in
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  Speaker 1: the in the in the the interesting part is the
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  Speaker 1: active funds, the multi strap multi coin funds, and there
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  Speaker 1: will do anything from protocol coins so the mainstream bitcoin,
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  Speaker 1: etherorium z cash, from narrow uh you name it down
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  Speaker 1: to you know, small boutique niche type of initial coin
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  Speaker 1: offerings and everything in the middle. So how do you
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  Speaker 1: just in just real quick, how do you prevent fraud? Uh? Well,
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  Speaker 1: we have a very very a very very detailed screening system. Um.
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  Speaker 1: The there are pros and cons to digital finance, and
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  Speaker 1: you know, one of the cons is chaos. Um, one
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  Speaker 1: of the pros is in that chaos, there is some
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  Speaker 1: rich information. It's almost as though, you know the concept
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  Speaker 1: of stock analysts stocks analyzing stocks has gone back to
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  Speaker 1: where it was before. We have perfect information. So we
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  Speaker 1: have a multi stage screening process. I would say of
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  Speaker 1: the small initial coin offering type of things we get
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  Speaker 1: coming across our desk. Fewer than three percent make it
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  Speaker 1: through that filter. So there is a process to it,
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  Speaker 1: and and that's what we have to go through in
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  Speaker 1: order to get comfortable. I want to thank you very
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  Speaker 1: much for joining us. Daniel Master's chief investment officer for
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  Speaker 1: Global Advisors. He is also the chairman of coin Shares,
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  Speaker 1: a group Global Advisors on a seventy interest in a
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  Speaker 1: coin shares. I want to bring in Ira Jersey, or
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  Speaker 1: interest rate strategist for Bloomberg Intelligence. Uh, Ira, what if
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  Speaker 1: you could comment on Richard Clarenda, the number two pick
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  Speaker 1: for the Federal Reserve. He is um a respected economist
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  Speaker 1: at Columbia University, professor and also a lot of experience
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  Speaker 1: in the world of markets asset manager at pimco UM.
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  Speaker 1: What if you could tell us what are your thoughts
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  Speaker 1: about Mr Clarenda and what do you think he's going
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  Speaker 1: to bring to the Federal Reserve. Yeah, so I think
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  Speaker 1: Mr claren is a mainstream pick. Uh just like quite frankly,
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  Speaker 1: like J. Powell wasn't even even Governor Quarrels, who's right
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  Speaker 1: in front of the House Financial Services Committee as as
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  Speaker 1: we speak. Um. You know, Donald Trump has has not
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  Speaker 1: gone outside the box. So he's done a lot of
• 8:02
  Speaker 1: other things that are outside the box with who he
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  Speaker 1: picked for some cabinet posts and the like, but when
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  Speaker 1: it comes to the Fed, um uh, the FED governors,
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  Speaker 1: he's really been more or less mainstream. Certainly, you know,
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  Speaker 1: he had certain litmus tests that things like, you know,
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  Speaker 1: people who are for modesty regulation and even quarrels. Today,
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  Speaker 1: in his prepared remarks is saying that he uh um,
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  Speaker 1: that he favors most of the basis of of the
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  Speaker 1: post crisis of financial regulations, but that he wants to
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  Speaker 1: you know, scale scale some of them back. And I
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  Speaker 1: think most people would see that that that's probably not
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  Speaker 1: a bad thing for the economy or or markets in general.
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  Speaker 1: And Richard Clarenda is just within that same kind of mold.
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  Speaker 1: So iro this is FED Speak week. They're about four
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  Speaker 1: hundred thousand speeches by different FED officials this week, more
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  Speaker 1: or less roughly. Um. One of them caught my attention,
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  Speaker 1: John Williams, speaking in Madrid, uh just a bit ago,
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  Speaker 1: addressing the flattening US yield curve, saying so far it's normal. Uh.
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  Speaker 1: That said, he said if the yield curve were to invert,
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  Speaker 1: they would take it seriously and it would be a
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  Speaker 1: sign of a recession. What do you make of that,
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  Speaker 1: given the fact that the gap between ten and two
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  Speaker 1: year yields right now is that it's narrowest since two
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  Speaker 1: thousand seven and steadily narrowing a short term rates rise. Yeah,
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  Speaker 1: and we think we'll continue to narrow further. We actually
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  Speaker 1: think another fifteen basis points are so in the two's
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  Speaker 1: tens treasury curve for the for the course of the year. Um.
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  Speaker 1: So you know that we we we don't have a
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  Speaker 1: lot of experience with this. You know, we have to
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  Speaker 1: take into account that we've only had, you know, a
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  Speaker 1: limited number of recessions over the past fifty years, and
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  Speaker 1: and in more than half of them we certainly saw
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  Speaker 1: when yield curves got to got to zero or or
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  Speaker 1: inverted that at some point in the future you had
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  Speaker 1: you had a recession. But but those legs tend to
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  Speaker 1: take a very long time, So I don't think it's
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  Speaker 1: a foregone conclusion. I think what what it tends to
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  Speaker 1: happen is the yield curve gets too flat, but the
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  Speaker 1: fed continues to hike after that and when they continue
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  Speaker 1: to hike after that, they basically, um, they basically clamp
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  Speaker 1: down too far in financial conditions, interest rates, the whole
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  Speaker 1: entire yield curves goes up too far, and that's when
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  Speaker 1: you end up getting recession. Now, can they can they
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  Speaker 1: stop that this time? They They probably can. And one
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  Speaker 1: of the ways that they can do that is as
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  Speaker 1: you approach that zero, stop hiking, right, just just let
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  Speaker 1: the market be for a while. See if the yield
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  Speaker 1: curve starts to steep in a little bit, which implies
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  Speaker 1: that you're going to have faster inflation in the future
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  Speaker 1: and better growth in the future as opposed to you know,
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  Speaker 1: continuing to hike to kind of clamp down on on
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  Speaker 1: that growth and inflation. So um, so you have to
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  Speaker 1: be you know, the fit has to be very careful.
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  Speaker 1: And I think now that we've had kind of these
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  Speaker 1: three distinct periods over the last thirty years or so
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  Speaker 1: where that's all happened, maybe they've they've learned their lesson.
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  Speaker 1: And you know, Richard Clarada is one of those people
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  Speaker 1: who I think understands us as an economic historian as
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  Speaker 1: monetary policy person. It's good to have him in that
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  Speaker 1: vice chair seat. Because he brings that historical perspective that
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  Speaker 1: maybe a few other folks on the Board of Governors
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  Speaker 1: doesn't have to follow up on on a Leasta's comment
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  Speaker 1: about the four thousand speeches that we're going to have
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  Speaker 1: to digest, you can add to that tweets from the
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  Speaker 1: President of the United States having to do with currencies
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  Speaker 1: and specifically the US dollar. Is that having any effect
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  Speaker 1: on on the value of the U S Dollar? I
• 11:20
  Speaker 1: was noting, for example, stronger at least against the Canadian
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  Speaker 1: dollar and just a little bit move lower against the
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  Speaker 1: euro today. Yeah, not not huge moves in in the
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  Speaker 1: euro from from the tweets. I think, you know, the
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  Speaker 1: market at some level is um uh. I don't want
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  Speaker 1: to say getting numb to tweets, but you know they
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  Speaker 1: they know that that. I think the president only can
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  Speaker 1: control markets so much and and and it's things like uh,
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  Speaker 1: fiscal policy that he'll wind up impacting significantly more or
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  Speaker 1: what he does things in trade policy and the like
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  Speaker 1: that he can control directly. Um, you know, tweets about
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  Speaker 1: you know, interest rates and things like that. Given who
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  Speaker 1: he's he's appointed, probably are going to have a huge effect.
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  Speaker 1: And you haven't seen huge moves in the end, for example,
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  Speaker 1: or or the euro today, it's been very modest. Um. Yeah,
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  Speaker 1: after after some of those tweets, A Jersey thank you
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  Speaker 1: so much for being with us. Our Jersey chief US
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  Speaker 1: interest rate strategist for Bloomberg Intelligence. It has over twenty
• 12:37
  Speaker 1: four billion dollars in assets. It's the second largest credit
• 12:40
  Speaker 1: union in the United States. Pen FED and our and
• 12:43
  Speaker 1: the chief executive and the president joins us. Now this
• 12:46
  Speaker 1: is the Pentagon Federal Credit Union, James Skank, thanks very
• 12:50
  Speaker 1: much for being with us. Based in Alexandria, Virginia. Mr Skank,
• 12:54
  Speaker 1: maybe just tell us a little bit about pen FED
• 12:57
  Speaker 1: and what you're doing with a new program entitled the
• 13:00
  Speaker 1: Entrepreneur Investment Program. Great. You know pen FED has been
• 13:04
  Speaker 1: serving our community for over eighty three years, and we're
• 13:08
  Speaker 1: as a credit union founded on the principle of people
• 13:10
  Speaker 1: helping people and as a defense credit union, we think
• 13:13
  Speaker 1: it's very important to continue to create jobs across America.
• 13:17
  Speaker 1: And each year over two hundred thousand veterans leave the service,
• 13:20
  Speaker 1: and about a quarter of them plan to start their
• 13:23
  Speaker 1: own business. So pen FED, several years ago has created
• 13:26
  Speaker 1: a foundation in which we pay a hundred percent of
• 13:29
  Speaker 1: the foundation operating costs, so all the money the foundation
• 13:32
  Speaker 1: raises goes back to support our programs. The one we're
• 13:35
  Speaker 1: very excited about announcing is a program in which donors
• 13:39
  Speaker 1: can donate to the pen Fed Foundation and we're going
• 13:42
  Speaker 1: to invest in startup companies. And so this is going
• 13:44
  Speaker 1: to be a gift that keeps on given because if
• 13:47
  Speaker 1: we can invest in the right startups, help these veterans
• 13:50
  Speaker 1: that bring some incredible leadership and technical skills, give them capital,
• 13:54
  Speaker 1: and give them a network to succeed, that money will
• 13:57
  Speaker 1: come back to the foundation allows to continue to create
• 14:00
  Speaker 1: eight jobs and invest in more startup companies. So we're
• 14:02
  Speaker 1: pretty excited about this new initiative through the pen Fet Foundation.
• 14:05
  Speaker 1: Just to clarify, these are not loans, their gifts correct,
• 14:10
  Speaker 1: We actually it'll be these will be loans, this will
• 14:13
  Speaker 1: be investments in so in other words, donate correctly seed
• 14:17
  Speaker 1: capital okay. So okay, So potentially you'll get the money
• 14:20
  Speaker 1: back with dividends, but you're providing it as sensibly at
• 14:23
  Speaker 1: a lower rate, that's correct, and bringing an incredible network.
• 14:26
  Speaker 1: So pen FET has over business partners, We have relations
• 14:29
  Speaker 1: across all fifty states. We think we can identify the
• 14:33
  Speaker 1: right veterans and what a veterans need. What all entrepreneurs need.
• 14:36
  Speaker 1: They need capital, and they need a powerful network. We
• 14:38
  Speaker 1: think bringing these things together can help really create jobs
• 14:41
  Speaker 1: across America. James, I want to talk to us generally
• 14:44
  Speaker 1: about the idea of a credit union today, at a
• 14:47
  Speaker 1: time when credit availability is uh pretty pretty rampant. I mean,
• 14:51
  Speaker 1: you can get a loan pretty easily. Why is a
• 14:54
  Speaker 1: credit union better, especially when there's a certain sort of
• 14:58
  Speaker 1: advantage to having scale and a bank beside you, and
• 15:02
  Speaker 1: other sorts of advantages that say Bank of America and
• 15:05
  Speaker 1: uh well Struggle might have. It's about corporate structure. Nothing
• 15:10
  Speaker 1: wrong with the banking industry, but it's a different structure.
• 15:13
  Speaker 1: Of bank. CEO's primary purpose is to return value to
• 15:17
  Speaker 1: the shareholder, So they want to pay their depositors, the
• 15:20
  Speaker 1: lease charge their commercial loan customers the most, to increase
• 15:24
  Speaker 1: their spread margin, provide return to their shareholders. A credit
• 15:27
  Speaker 1: union is a whole different corporate structure. The whole reason
• 15:30
  Speaker 1: a credit union exists is a service specific field of
• 15:33
  Speaker 1: membership and to provide the value back to the consumer. So,
• 15:37
  Speaker 1: as a credit union CEO, my job is to pay
• 15:40
  Speaker 1: the absolute highest rate fund deposits, for example two oh
• 15:43
  Speaker 1: seven on a one year CD right now market leader,
• 15:46
  Speaker 1: and the lowest rates on our loans to our member
• 15:48
  Speaker 1: owners run at the lowest spread margin possible to give
• 15:52
  Speaker 1: the value back to our owners, which is the members.
• 15:55
  Speaker 1: I don't have shareholders, I have the members by giving
• 15:58
  Speaker 1: them a lower loan rate or higher dividend rate. By structure,
• 16:03
  Speaker 1: is a better value for the consumer. But at the
• 16:05
  Speaker 1: same time, as the CEO of a large financial institution
• 16:08
  Speaker 1: as pen Mention twenty four billion, I have to run
• 16:11
  Speaker 1: extremely operationally efficient. The one thing that surprises me here
• 16:14
  Speaker 1: in America is that more banks don't want to convert
• 16:16
  Speaker 1: to become a credit union to align with the structure
• 16:19
  Speaker 1: for the consumer who they're trying to help. Talked a
• 16:22
  Speaker 1: little bit about the members that may try to do
• 16:24
  Speaker 1: business with you in Puerto Rico and what you're doing there. Yeah,
• 16:28
  Speaker 1: we've been in Puerto Rico for over a decade. We
• 16:30
  Speaker 1: merged with the Fort Buchanan Federal Credit Union about a
• 16:33
  Speaker 1: decade ago. At the time we had just under eighteen
• 16:36
  Speaker 1: thousand members. Today we're one of the largest financial institutions
• 16:39
  Speaker 1: in Puerto Rico with two hundred thousand members. They've come
• 16:43
  Speaker 1: to Penn FED for trust and commitment. We've been there
• 16:46
  Speaker 1: with them through hard times. I've been there twice this year,
• 16:49
  Speaker 1: right after the hurricane, and I've been back in early March.
• 16:52
  Speaker 1: I bought Gary Sinise back to do a free concert.
• 16:55
  Speaker 1: We opened up the military base Fort Buchanan to the
• 16:57
  Speaker 1: San Juan community and the Greater Island to one show
• 17:01
  Speaker 1: that we appreciate the hardship in the struggle they've been through,
• 17:05
  Speaker 1: but at the same time, to continue to raise awareness.
• 17:07
  Speaker 1: There's Americans in Puerto Rico that need our help. Just
• 17:10
  Speaker 1: like we helped the victims of the storms in Texas, Florida,
• 17:13
  Speaker 1: New Jersey. These are fellow Americans that continue to need
• 17:16
  Speaker 1: the leadership of the private sector in the public sector
• 17:19
  Speaker 1: to help close gaps to bring life back to stability
• 17:23
  Speaker 1: and normal. They're still over eighty thousand individuals without power
• 17:27
  Speaker 1: six months into it. Can you imagine if a loved
• 17:30
  Speaker 1: one that you knew here in the States, you know
• 17:32
  Speaker 1: in New York or New Jersey or Connecticut or here
• 17:34
  Speaker 1: in Virginia went a week without power. Imagine going six
• 17:37
  Speaker 1: months without power and fresh water in your home. It's
• 17:40
  Speaker 1: it's Americans need our help, you know, James, I'm struck
• 17:44
  Speaker 1: by the idea that pen fed is trying to serve
• 17:48
  Speaker 1: a specific group of clients. It's a nonprofit. It's trying
• 17:51
  Speaker 1: to be run up by the people. I'm trying to
• 17:53
  Speaker 1: square that with making sure that you're you know, fiscally
• 17:56
  Speaker 1: responsible and catering to clients at a time when to
• 17:58
  Speaker 1: false are starting to up. How how do you sort
• 18:02
  Speaker 1: of manage that and what do you see as far
• 18:04
  Speaker 1: as the consumer credit landscape goes. Given the fact that
• 18:07
  Speaker 1: we are seeing delinquencies and defaults increase, we still see
• 18:11
  Speaker 1: amazing demand for our business. The the administration's tax cuts
• 18:16
  Speaker 1: have been very bullish. Uh. I think we have historically
• 18:19
  Speaker 1: low unemployment right now. We're seeing demand for consumer loans, automobiles,
• 18:24
  Speaker 1: our market leading credit card products, and home mortgages above
• 18:28
  Speaker 1: the norm. We've grown over forty thousand new members the
• 18:31
  Speaker 1: first quarter of eighteen alone, So we're seeing great demand
• 18:34
  Speaker 1: for consumer products. But like all CEOs within the finance
• 18:38
  Speaker 1: financial services sector, we have to make good loans. We
• 18:41
  Speaker 1: need to make full doc loans, we need to make
• 18:42
  Speaker 1: sure we know who the consumer is. So we're seeing
• 18:45
  Speaker 1: really strong demand for our products and services. We had
• 18:48
  Speaker 1: a record year in twenty seventeen. We grew one point
• 18:51
  Speaker 1: seven billion. We've grown five dred million in assets the
• 18:54
  Speaker 1: first quarter. So the current administration policies, low unemployment, is
• 18:58
  Speaker 1: still historically low interest rate cycle. We're seeing great demand
• 19:02
  Speaker 1: for consumer lending. Even though we're late in the cycle
• 19:04
  Speaker 1: as you would think, we still think there's a few
• 19:07
  Speaker 1: years left to run because of a strong demand and
• 19:09
  Speaker 1: with these recent tax cuts. Last year, you opened something
• 19:13
  Speaker 1: called the Availability Command Center. Tell us what it is
• 19:16
  Speaker 1: and why you decided that this was worth your time,
• 19:19
  Speaker 1: energy and money. Definitely worth our time, energy and money.
• 19:22
  Speaker 1: Because we're an online firm. Pen Fed by Design does
• 19:26
  Speaker 1: percent of our business remotely, phones, mobile web. Of our
• 19:33
  Speaker 1: transactions are done remotely. We do a hundred million transactions
• 19:37
  Speaker 1: a month. Our Availability Command Center insures our systems are
• 19:41
  Speaker 1: up running twenty four hours a day, seven days a
• 19:43
  Speaker 1: week to do real time processing, not batch processing, real
• 19:47
  Speaker 1: time processing anywhere in the world. For our customers are
• 19:51
  Speaker 1: consumers what we call pen Fed members. With that said,
• 19:54
  Speaker 1: we could also from a forensis perspective, we can track
• 19:56
  Speaker 1: back any one of a hundred million transactions. Look for trends,
• 20:00
  Speaker 1: look for cyber hacked trends. We have really good visibility
• 20:04
  Speaker 1: and everything flowing into and out of our network real time.
• 20:06
  Speaker 1: So in financial services, like in all industries today, UM
• 20:10
  Speaker 1: making the investment and information technology and infrastructure is worth
• 20:13
  Speaker 1: every penny. James Kank, thank you so much for joining us.
• 20:15
  Speaker 1: James Kink, President, chief executive officer of Pentagon. Federal Credit
• 20:20
  Speaker 1: Union is Penn FED, which is based in Alexandria, Virginia,
• 20:24
  Speaker 1: talking about a new program for veterans who are opening
• 20:28
  Speaker 1: new businesses as well as credit unions. China and the
• 20:47
  Speaker 1: automobile industry, it is lifting a nearly twenty year restriction
• 20:52
  Speaker 1: on foreign ownership of local jet is Chinese operations. Here
• 20:57
  Speaker 1: to tell us more. Kevin Tynan, Senior Auto zanns for
• 21:00
  Speaker 1: Bloomberg Intelligence, and you can follow Kevin on Twitter at
• 21:05
  Speaker 1: keV Tyne and ten And alright, keV Tyne and ten.
• 21:09
  Speaker 1: Why is China doing this well? I think they there's
• 21:13
  Speaker 1: a little bit of of the feeling that they want
• 21:17
  Speaker 1: to penetrate some markets outside of their own. UH. You know,
• 21:20
  Speaker 1: it's been very difficult to get Chinese manufacturers established in
• 21:25
  Speaker 1: Europe or in the US. UH. And the feeling is
• 21:27
  Speaker 1: that if they open up a little bit more, will
• 21:30
  Speaker 1: reciprocate and and get some of their brands in here.
• 21:33
  Speaker 1: So let's talk about exactly what China was doing. They
• 21:36
  Speaker 1: basically are saying that foreign automakers can own more than
• 21:41
  Speaker 1: fifty percent of local venturers. This would remove a two
• 21:45
  Speaker 1: decade restriction UH that had prevented some companies, including Tesla,
• 21:50
  Speaker 1: from going to China. Is Tesla the biggest potential beneficiary
• 21:55
  Speaker 1: of this or can you point to another company that
• 21:58
  Speaker 1: might see a bigger boon from this? Well, I think
• 22:01
  Speaker 1: from where we are now, he said, that would be
• 22:03
  Speaker 1: the idea that Tesla probably is the biggest beneficiary. Right,
• 22:07
  Speaker 1: All the other automakers have established partnerships UH that probably
• 22:11
  Speaker 1: don't expire for ten years at a minimum. VW and
• 22:14
  Speaker 1: f A W probably double that twenty five years. Um,
• 22:19
  Speaker 1: you know, and and and and those are gonna those
• 22:22
  Speaker 1: are gonna remain in place. So Tesla sort of coming
• 22:25
  Speaker 1: in as a new entrant into the market probably can
• 22:28
  Speaker 1: establish something, UH in these terms, a little bit more beneficial.
• 22:32
  Speaker 1: But I'm just not sure that you really want to
• 22:34
  Speaker 1: be that involved in the Chinese market without a local partner.
• 22:37
  Speaker 1: I think that would be very difficult to do as well.
• 22:40
  Speaker 1: So the idea that that Tesla walks in and can
• 22:42
  Speaker 1: be independent uh in that marketplace and just gained huge
• 22:46
  Speaker 1: amount of market share I think is unrealistic. Well, Kevin,
• 22:49
  Speaker 1: can you just give us a sense of what the
• 22:51
  Speaker 1: objection to this fifty type of ownership structure is. Well,
• 22:56
  Speaker 1: that that's a huge market and there's a lot more
• 22:58
  Speaker 1: money to be made and you're basically sharing it with
• 23:00
  Speaker 1: your with your venture partners. I've always said, you know,
• 23:03
  Speaker 1: and we hear all the time about, you know, the
• 23:06
  Speaker 1: largest automotive market in the world. But when you look
• 23:09
  Speaker 1: back at at you know, General Motors income statement, Um,
• 23:13
  Speaker 1: you know, the the revenue contribution that is brought back
• 23:18
  Speaker 1: into the income statement is just it's it's pennies on
• 23:20
  Speaker 1: the dollar compared to what they generate here in North America.
• 23:24
  Speaker 1: So it's really a volume story there. It always has
• 23:26
  Speaker 1: been a volume story there, but it's not really a
• 23:28
  Speaker 1: profit story, or it hasn't been as large a profit story.
• 23:31
  Speaker 1: And this sort of opens it up where you can
• 23:34
  Speaker 1: bring back a lot more of those earnings than you
• 23:36
  Speaker 1: had been able to previously. Kevin, is this going to
• 23:39
  Speaker 1: relate in any way to Chinese automobile companies looking to
• 23:43
  Speaker 1: get into the US market. I would I would think so.
• 23:47
  Speaker 1: I think there's other hurdles there as well, in terms
• 23:49
  Speaker 1: of UM regulation, safety compliance kind of things. UM, But
• 23:55
  Speaker 1: but I would I would tend to think that that
• 23:57
  Speaker 1: would be the goal here. Um when you look at
• 24:00
  Speaker 1: the size of the Chinese market and then the size
• 24:03
  Speaker 1: of Europe or or even North America, and you have
• 24:06
  Speaker 1: to wonder, what you know that that Chinese market continues
• 24:09
  Speaker 1: to growing year after year after year, UM, what the
• 24:12
  Speaker 1: interest would be? And I don't think that the Chinese
• 24:14
  Speaker 1: government would really be doing something uh detrimental to their
• 24:18
  Speaker 1: own companies at the expense of being beneficial for for
• 24:21
  Speaker 1: their uh Western partners, just for the sake of letting
• 24:24
  Speaker 1: them make more money. Kevin, how much of this comes
• 24:27
  Speaker 1: in response to President Trump? Uh? Some of it for sure. UM,
• 24:32
  Speaker 1: but it's been it's been talked about for probably five years. Uh,
• 24:36
  Speaker 1: so this this predates him, for sure. Maybe the the
• 24:40
  Speaker 1: rhetoric intensifies, uh since he's been in place. But this
• 24:44
  Speaker 1: is not a new concept or or something that's been
• 24:47
  Speaker 1: that's been tried to push forward. Uh, it's at least
• 24:50
  Speaker 1: five years. Kevin you're at the You're You're a consumer
• 24:55
  Speaker 1: Electronics show? Yeah, I was there, Yeah, Yeah. Why did
• 24:59
  Speaker 1: you find there that that applies to the automobile industry?
• 25:02
  Speaker 1: Is it really all about trying to automate everything that
• 25:04
  Speaker 1: goes on in the cabin? It is. But what I thought,
• 25:08
  Speaker 1: and I was there with Michael Dean, our European analysts,
• 25:12
  Speaker 1: and what really surprised me is is that there is
• 25:16
  Speaker 1: a lot of that, But how far away we really are? Um,
• 25:20
  Speaker 1: you know, this idea that we're going to be level
• 25:22
  Speaker 1: five full self driving anytime soon. Um, especially for the consumer,
• 25:28
  Speaker 1: for you know, your everyday passenger vehicle, is I think
• 25:31
  Speaker 1: much further away than people realize. Kevin Tynan, thank you
• 25:34
  Speaker 1: so much for being with us. Kevin Tynan, senior autos
• 25:37
  Speaker 1: analyst with Bloomberg Intelligence UH, and he was talking about
• 25:42
  Speaker 1: the move of China to open up its market to UH,
• 25:47
  Speaker 1: to the U S and two carmakers in general around
• 25:49
  Speaker 1: the world other than in China. Thanks for listening to
• 25:54
  Speaker 1: the Bloomberg P and L podcast. You can subscribe and
• 25:57
  Speaker 1: listen to interviews at Apple Podcasts, sound Cloud, or whatever
• 26:00
  Speaker 1: podcast platform you prefer. I'm pim Fox. I'm on Twitter,
• 26:04
  Speaker 1: at pim Fox. I'm on Twitter at Lisa Abramo. It's
• 26:08
  Speaker 1: one before the podcast. You can always catch us worldwide
• 26:11
  Speaker 1: on Bloomberg Radio