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RBC's Golub on Investing in a Slow Growth Environment (Audio) · Bloomberg Intelligence

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  Speaker 1: I'm Catherine Cowlery. This is taking stock with Kathleen Hayes
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  Speaker 1: and Prim Fox on Bloomberg Radio. Conventional wisdom holds that
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  Speaker 1: the stock market would like to hear about an easier FED,
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  Speaker 1: a FED that's going to go much more slower when
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  Speaker 1: it comes to raising interest rates. Our next guest points out,
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  Speaker 1: in fact, that when we're in a very low rate environment,
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  Speaker 1: arising rates could be good for stocks, helping the banks
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  Speaker 1: with their net interest margins. For example. In fact, the
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  Speaker 1: last couple of days, we've seen a pullback and energy
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  Speaker 1: shares because Janet Yellen signal the FED is going to
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  Speaker 1: go very very slower, even slower than we thought, perhaps
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  Speaker 1: on raising rates. Jonathan Golivers back. He's chief US market
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  Speaker 1: strategist for RBC Capital Markets based right here in New
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  Speaker 1: York City. So John, let's start with this, were you
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  Speaker 1: surprised by Janet Yellin's comments at the press conference, maybe
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  Speaker 1: there's some long term economic problems that aren't going away.
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  Speaker 1: And then at the right out of the gate at
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  Speaker 1: two o'clock, the forecast the dots suggesting, hey, more and
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  Speaker 1: more FED officials only see one rate heck this year. Well,
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  Speaker 1: I think the reality is that we are in a
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  Speaker 1: slower economy on a long term secular basis. So this
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  Speaker 1: three and a half percent GDP number that we experience
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  Speaker 1: for the fifty years up until the financial crisis is
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  Speaker 1: probably not a trend that we're going to see um
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  Speaker 1: going forward. And and it's taken the FED awhile and
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  Speaker 1: you've seen this not with the FED, with the I
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  Speaker 1: m F and other forecasters, that it's taken them a
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  Speaker 1: while to actually lower that number back towards something closer
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  Speaker 1: to a trend of two percent, which is reality. And
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  Speaker 1: I think the FET is just reflecting that in in
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  Speaker 1: their comments about growth UM as far as do I
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  Speaker 1: you know one meeting versus UM two meetings? If if
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  Speaker 1: if we are at a sub five percent UM, employ
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  Speaker 1: unemployment is below five and corese c P I, which
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  Speaker 1: just came out today is running a two point two.
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  Speaker 1: We are so close to the exact numbers that the
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  Speaker 1: FETE is looking for under their mandate that unless there's
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  Speaker 1: some real global instability, they really should be obligated. But
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  Speaker 1: I just have to jump in because you know that
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  Speaker 1: the c p I you're over here is not their
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  Speaker 1: their key measure. It's the PC, which measures inflation somewhat differently,
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  Speaker 1: and that is that is down closer on the headline
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  Speaker 1: to one. It's as higher on the core maybe one
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  Speaker 1: point seven, one eight. But the c p I isn't
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  Speaker 1: really their main target, right, So, and you can't look
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  Speaker 1: at the So if you look at the the the
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  Speaker 1: the PC, which is what the FED looks like, and
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  Speaker 1: you said it's it's in the in the high ones. Again,
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  Speaker 1: you're so close to two percent number. There is no
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  Speaker 1: such thing is as economic nirvana. There's no such thing
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  Speaker 1: is exactly perfect. But if you're running inflation of even
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  Speaker 1: just with the Fed's measure just under two and unemployment
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  Speaker 1: under five, you just you should have higher rates. And
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  Speaker 1: so as we move through the year, if we get
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  Speaker 1: through these concerns about Brexit and other things, and volatility
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  Speaker 1: drifts down a little bit lower, UM, I think the
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  Speaker 1: FED is going to really be forced to take to
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  Speaker 1: continue to gradually raise rates. I don't know why, Jonathan,
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  Speaker 1: but that made me think of a nods as good
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  Speaker 1: as a wink to a blind bat. In other words,
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  Speaker 1: you just have to deal with things as they are.
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  Speaker 1: I don't know whether I can test you on pop
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  Speaker 1: your culture, but remember that scene some Monty Python sketch
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  Speaker 1: in which you're sitting in the prison cell and you
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  Speaker 1: get those weighty, blurry lines that take you off into Nirvana,
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  Speaker 1: and then you realize, no, no, you're not really in nirvana.
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  Speaker 1: You're really still in the cell. If you're still in
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  Speaker 1: the cell, how can you get out? Now? What are
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  Speaker 1: you recommending to investors to put their money in two
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  Speaker 1: investments or assets that will yield more than just let's
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  Speaker 1: say one and a half to two, right, So the
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  Speaker 1: first thing is if IF, and it's the way I
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  Speaker 1: look at it when you when companies. Right now in
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  Speaker 1: the US, the SMP is returning to shareholders in dividends
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  Speaker 1: plus buybacks. They're returning about four point seven percent capital
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  Speaker 1: back to shareholders. If you compare that to sub one six,
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  Speaker 1: which is what you're getting on a treasury bond or
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  Speaker 1: or whatever you get on IMMUNI, that is an extraordinarily
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  Speaker 1: attractive return of capital. It is much more attractive than
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  Speaker 1: European stocks. It's more attractive than bonds. And I think
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  Speaker 1: it's why even in a really low growth environment, stocks
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  Speaker 1: are still going to be a you know, maybe not
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  Speaker 1: a fantastic place to be, but a better alternative than
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  Speaker 1: anything else. And US stock should be the best on
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  Speaker 1: a global basis. So, uh, what kind of stocks? How
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  Speaker 1: do I invest and make money in a slow growth environment? Right?
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  Speaker 1: So there's in in simple terms, companies that are growth
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  Speaker 1: companies should do better in a slow growth environment than
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  Speaker 1: traditional value companies. UM and we're looking for and it's
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  Speaker 1: really kind of multiple buckets of growth. But the first
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  Speaker 1: is the ones that we hear about, the fangs and
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  Speaker 1: the biotechs and and those companies that have some kind
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  Speaker 1: of UM unique brand or intellectual property. Those should be
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  Speaker 1: the most attractive companies. Interestingly, healthcare, the fundamentals are fantastic.
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  Speaker 1: There's concerns about the impact of the elect Michael on that,
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  Speaker 1: so that's holding it down, but fundamentally it looks attractive.
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  Speaker 1: There's another category of companies that are not as compelling
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  Speaker 1: in their growth but they're stable and visible that you know,
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  Speaker 1: the kind of companies that you can depend on them
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  Speaker 1: as companies that are in what I would call business services,
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  Speaker 1: those would be companies that hallway store, a company like
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  Speaker 1: a Syntas that that you know, makes uniforms, and those
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  Speaker 1: kind of companies. Again, not high growth rate companies, but
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  Speaker 1: stable growth companies. And they've done extremely well over the
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  Speaker 1: last several years, and I think that category will continue
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  Speaker 1: to do well. Jonathan, what about investing in energy companies?
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  Speaker 1: Is that in the context of the most unloved asset
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  Speaker 1: class right now? What is the most unloved asset class? Well, well,
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  Speaker 1: there's there's no question the most unloved asset class right
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  Speaker 1: now is the health care sector. You know, these these
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  Speaker 1: companies are down substantially and yet they have the fastest
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  Speaker 1: growth rates, the best, the best fundamentals, and it's it's
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  Speaker 1: all about election related concerns. The energy stocks while they've
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  Speaker 1: h well, when you know they've they've they've been up
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  Speaker 1: there in the last few months as we've you know,
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  Speaker 1: as we've got over all those concerns that we had
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  Speaker 1: in January and February about are we going into recession
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  Speaker 1: when we all realize that we're not. You had a
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  Speaker 1: big rally in many of those materials and energy related companies,
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  Speaker 1: and in a in a strange way, they look actually
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  Speaker 1: quite expensive. Just a quick comment on bonds in this
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  Speaker 1: world where more and more yields are negative and there's
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  Speaker 1: there's this redheart rolley continues with you know, who knows
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  Speaker 1: the bubble or what's going to happen? Just stay away
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  Speaker 1: from bonds. Is there any kind of fixed income that
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  Speaker 1: looks good? You know? I the only way to make
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  Speaker 1: you know, money and bonds right now is for interest
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  Speaker 1: rates to just continue to go lower. And what most
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  Speaker 1: bond investors um people who aren't bond you know, mutual
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  Speaker 1: funds and portfolios, they're they're focusing more on taking credit risk,
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  Speaker 1: you know, the investing in corporates, corporates or mortgages or
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  Speaker 1: other instruments like that as opposed to treasuries. If you're
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  Speaker 1: a global bond investor, I mean you have a zero
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  Speaker 1: interest rate on Swiss government bonds out so I think
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  Speaker 1: seventeen years um. Japanese bonds I think are zero interest
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  Speaker 1: right out to fifteen years. German paper is hovering right
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  Speaker 1: or round zero out to ten. It's it's really a
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  Speaker 1: an extraordinary period and very very uncomfortable for people who
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  Speaker 1: depend on, you know, interest rate instruments to the safe retirement. Jonathan,
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  Speaker 1: you don't paint a pretty picture at least in the
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  Speaker 1: credit market. Is there anything that you have to offer
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  Speaker 1: in terms of gold and commodities? Well, well, first, in
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  Speaker 1: terms of not painting a pretty picture, I think that
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  Speaker 1: that you know, interest rates are not a loan or
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  Speaker 1: not going to provide it. But if you look at
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  Speaker 1: in the current economic environment, either there's there's very low
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  Speaker 1: corporate defaults. If you if you're investing in higher yield
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  Speaker 1: you know, debtor or corporate credit there there there their
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  Speaker 1: loans are performing extremely well. So if you are taking
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  Speaker 1: that credit risk, you are likely to be well rewarded.
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  Speaker 1: So there are places that that you can go gold.
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  Speaker 1: I'm never a fan of gold because the one end
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  Speaker 1: instrument you know never returns you a dividend is is
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  Speaker 1: a bar gold. Thank you very much, Jonathan goll have
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  Speaker 1: always returning with the information and insight, Chief US market strategist,
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  Speaker 1: RBC Capital Markets. We're going to take you through to
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  Speaker 1: the close on Wall Street right now. This is Bloomberg
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