Latest / Bloomberg Intelligence / US May Have To Target Korea's Nuclear Infrastructure: General McPeak

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US May Have To Target Korea's Nuclear Infrastructure: General McPeak · Bloomberg Intelligence

• 0:05
  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 A. Bramowitz. Each day
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• 0:33
  Speaker 1: Donald Trump has tweeted that caught red handed, very disappointed
• 0:37
  Speaker 1: that China is allowing oil to go into North Korea.
• 0:40
  Speaker 1: There will never be a friendly solution to the North
• 0:43
  Speaker 1: Korea problem if this continues to happen. Exclamation point. Here
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  Speaker 1: to tell us a little bit more about North Korea
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  Speaker 1: and the strategic options that the United States has is
• 0:54
  Speaker 1: a General Meryl mcpeaky's a retired four star general Formula
• 0:58
  Speaker 1: Air Force Chief of Staff. He can be followed on
• 1:01
  Speaker 1: Twitter at General McPeak He basically is currently in Lake Oswego, Oregon.
• 1:07
  Speaker 1: Thank you very much for being with us, sir, and
• 1:09
  Speaker 1: he is also the author of the recently completed The
• 1:13
  Speaker 1: Aerial View Trilogy. It is a three volume memoir that
• 1:17
  Speaker 1: takes the reader throughout his career. General mcpeaque, thank you
• 1:21
  Speaker 1: for your service as we honor all of our servicemen
• 1:25
  Speaker 1: and women. Your comments on North Korea, your thoughts and
• 1:29
  Speaker 1: reactions to the President's handling of the situation. Good morning,
• 1:34
  Speaker 1: dam Well. I think the North Korea problem is the
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  Speaker 1: most important one facing our country, most important national security problem.
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  Speaker 1: And uh, it's visible to on the horizon. Everybody can
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  Speaker 1: see it. Even those who don't want to do anything
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  Speaker 1: about it, understand that it constitutes a real threat to
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  Speaker 1: the United States. Uh, probably now and certainly in the
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  Speaker 1: next six months to a year. So I do believe
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  Speaker 1: we ought to do something about it, to take vigorous action.
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  Speaker 1: I'm not sure the President has gone about it in
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  Speaker 1: the right way. I would have done it perhaps differently,
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  Speaker 1: but he's right in saying that we probably have to
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  Speaker 1: do something here, and it may end up being a
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  Speaker 1: military action that's required. Now. You previously served as the
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  Speaker 1: chief of staff of the Air Force. You served in
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  Speaker 1: Vietnam over two d and sixty missions. There a variety
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  Speaker 1: of awards, a Silver Star, Legion of Merit, Distinguished Flying Cross.
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  Speaker 1: If the President or someone on his staff called General
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  Speaker 1: McPeak and said, Tony, I know they're the only ones
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  Speaker 1: that get to call you that if they said, Tony,
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  Speaker 1: lay out for us, what would be some of my options,
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  Speaker 1: What would be some of the options that wouldn't blow
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  Speaker 1: us all but would really try to solve this problem. Well,
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  Speaker 1: blowing us all up as a real life possibility here,
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  Speaker 1: especially if we do nothing so UH. First of all,
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  Speaker 1: I would favor any kind of action that we could
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  Speaker 1: take short of military intervention. You want diplomacy, sign me up.
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  Speaker 1: You want to try to get China to lean on
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  Speaker 1: them Great Russia, economic sanctions, I'm all for all these steps,
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  Speaker 1: but so far we've tried them all, it seems to me,
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  Speaker 1: and nothing's really worked. My opinion is that we'll probably
• 3:38
  Speaker 1: have to intervene and help the North dismantle UH their
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  Speaker 1: nuclear capability, and that means we would have to do
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  Speaker 1: some very specific targeting against nuclear infrastructure in the North
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  Speaker 1: and command and control UH. And of course, at the
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  Speaker 1: same time, we'd have to go to work on those
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  Speaker 1: guns that are dug and in the reverse slopes of
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  Speaker 1: the hills north of the demilitarized zone which range Soul.
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  Speaker 1: So Soul will be badly damaged in the opening moments
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  Speaker 1: of any military action there, and we simply have to
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  Speaker 1: start work immediately trying to dig those guns out of
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  Speaker 1: the caves that they're in north of the d MZ.
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  Speaker 1: So this target set PIM is rich. I mean, there's
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  Speaker 1: a very very large number of aiming points that we
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  Speaker 1: have to go after immediately. And uh and it will
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  Speaker 1: be a tough campaign, no doubt about it. Especially Soul
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  Speaker 1: will take a lot of damage. But our alternative is
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  Speaker 1: to allow this crazy, uh perhaps non deterable regime in
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  Speaker 1: the North to have the capability to wipe out Washington
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  Speaker 1: and New York City in Chicago. Uh, you know, with
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  Speaker 1: minutes notice. And that's unacceptable in general? Is it? Is
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  Speaker 1: there any tempt? Is there any way we can look at,
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  Speaker 1: for example, our relationship with Pakistan, which is a nuclear power.
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  Speaker 1: Is it possible to leave North Korea with a with
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  Speaker 1: nuclear weapons and still reach some kind of accommodation that
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  Speaker 1: would leave them in place? But without these threats, I
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  Speaker 1: don't see it. I mean, look, the Pakistani's have nuclear
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  Speaker 1: weapons to give them a deterrence capability against India. I'm
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  Speaker 1: not happy about that. I'd be much happier if nobody
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  Speaker 1: had nuclear weapons. I think we'd be much more secure
• 5:38
  Speaker 1: in the United States because our conventional military capabilities are
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  Speaker 1: far greater than anybody else's. So if all nuclear weapons disappeared,
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  Speaker 1: we'd all be better off for it. But in the
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  Speaker 1: case of judging, you know, from the more extreme to
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  Speaker 1: the less extreme, UH, this government North Korea is perhaps
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  Speaker 1: the worst in the world that we should want to
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  Speaker 1: see have nuclear weapons, and there's the risk is simply
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  Speaker 1: too great to let them hold large American cities at hostage.
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  Speaker 1: We simply, in my opinion, we simply have to dismantle
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  Speaker 1: their nuclear capability and put them under International instruction UH
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  Speaker 1: inspection for years to make sure that that doesn't rebuild.
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  Speaker 1: I want to turn your attention now to the Middle
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  Speaker 1: East and Iran, which, of course UH then begs the
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  Speaker 1: question of potential nuclear weapons. Your thoughts on what is
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  Speaker 1: going on currently in the Middle East with the potential
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  Speaker 1: confrontation between Iran and Saudi Arabia, And just as a note,
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  Speaker 1: you know you've taken a lot of flak over the
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  Speaker 1: course of your career for some of your thoughts about
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  Speaker 1: the Middle East. Give us your ideas well. I think
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  Speaker 1: the Middle East is a chronic problem, you know, that's
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  Speaker 1: been with us forever, UH, and there's no sign that
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  Speaker 1: we can sort out the issues that are involved there.
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  Speaker 1: I do think that the treaty or the agreement with
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  Speaker 1: the Iranians to put a pause on their nuclear program
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  Speaker 1: for a decade or so was a very good one
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  Speaker 1: and one one we should support UH and perhaps gives
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  Speaker 1: us time to work out some longer term relationship with
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  Speaker 1: the Iranians. At the end of the day, it's just
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  Speaker 1: gonna be hard for us to pick the course that
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  Speaker 1: makes sense in the Middle East. I mean, every everything
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  Speaker 1: we try to do seems to have awful consequences, including
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  Speaker 1: what we're doing today. I mean, we spent what a
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  Speaker 1: trillion dollars in Iraq with the Second Iraq War, maybe
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  Speaker 1: more than that before we're done, and lost thousands of people,
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  Speaker 1: and it's not obvious to me that Iraq is better
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  Speaker 1: off to day than it was before we intervene to
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  Speaker 1: remove Sadamus. So I don't have any brilliant ideas about
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  Speaker 1: what to do there. It's kind of like having cancer.
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  Speaker 1: You just sort of earned to live with it and
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  Speaker 1: hope you can die of something else. Well. I think,
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  Speaker 1: thank you very much for your time and just want
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  Speaker 1: to mention once again, UH, you're the Aerial View trilogy,
• 8:19
  Speaker 1: the three volume memoir. Just quickly, General, can you tell
• 8:24
  Speaker 1: what was the favorite single seat aircraft that you flew?
• 8:27
  Speaker 1: Because I know you flew F one Super Sabers and
• 8:30
  Speaker 1: F one of four Starfighters. What was your favorite aircraft?
• 8:34
  Speaker 1: My all time favorite was the F sixteen. Wonderful airplane. Uh,
• 8:40
  Speaker 1: you know, a lot of innovation there. But the thing is,
• 8:43
  Speaker 1: when you climb up the ladder and strap the thing on,
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  Speaker 1: you feel small. It's really good to feel small when
• 8:49
  Speaker 1: you're entering a fight. Thanks. General Merrow McPeak, retired four
• 8:55
  Speaker 1: star general, former Air Force Chief of Staff, his book
• 8:59
  Speaker 1: The air View Trilogy. Delinquencies auto loan delinquencies they arise
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  Speaker 1: in credit card charge offs have increased. Is this a
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  Speaker 1: problem for US banks? Let's ask David Fanger. He is
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  Speaker 1: senior analyst at Moody's Investors Services and he joins us
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  Speaker 1: in our eleven three oh studios. David, thank you for
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  Speaker 1: being here. So are these problems for banks or have
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  Speaker 1: they figured out a way around this? Well, certainly what
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  Speaker 1: you cited on in terms of auto loan delinquacies credit
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  Speaker 1: card delinquencies is um. I would say both of those
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  Speaker 1: markets are in a little bit of a different position
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  Speaker 1: in terms of where they are post crisis. UH no
• 9:50
  Speaker 1: bank has Most banks do not have significant exposures to
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  Speaker 1: either of those businesses. They're one of many businesses that
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  Speaker 1: US banks are engaged in. So what we are expect
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  Speaker 1: think those delinquencies UM could rise further UM as long
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  Speaker 1: as the employment picture is healthy and it is are
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  Speaker 1: unlikely to to significantly rock the boat. Of what we've
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  Speaker 1: seen in both cases is, you know, graduate deturation underwriting standards,
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  Speaker 1: particularly an on a lending where we've seen for the
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  Speaker 1: past several years weaker underwriting standards, which is now leading
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  Speaker 1: to higher delinquencies. Weaker underwriting standards and longer duration of
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  Speaker 1: the actual loan. Correct that's correct, Yes, would that also
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  Speaker 1: have an effect on people's ability to pay well? Actually,
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  Speaker 1: the longer duration loan should be helped, intended intended to
• 10:38
  Speaker 1: help them. So so when auto buyer is looking at
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  Speaker 1: their payment the amount of the payment UM, a longer
• 10:45
  Speaker 1: live loan makes it easier to meet your monthly payments.
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  Speaker 1: The challenge for longer tenored loans is UM really again
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  Speaker 1: in in a weaker economic environment, UM, the the the
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  Speaker 1: ability to pay back the remainder of that loan may
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  Speaker 1: be more challenged. Uh. And what we see, indeed is
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  Speaker 1: increasing willingness in the part of lenders. When a buyer
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  Speaker 1: wants to auto owner wants to buy a new car,
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  Speaker 1: they have a significant remaining balance on their existing loan,
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  Speaker 1: and lenders have been increasingly going to roll those into
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  Speaker 1: the new loan, which creates an even larger problem potentially
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  Speaker 1: down the road. Okay, but before we get to that road,
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  Speaker 1: I have a feeling that banks have a way to
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  Speaker 1: become profitable despite all this. And you've issued a recent report,
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  Speaker 1: what about the health of the US banking system right now?
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  Speaker 1: Over capitalized? Um? Well, again, so Moody's rates banks. We
• 11:41
  Speaker 1: focus on the interest of bondholders, and we would not
• 11:43
  Speaker 1: view banks as being over capitalized. We certainly think the
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  Speaker 1: improvements to capital at banks have been positive for creditors
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  Speaker 1: and bondholders. UM in the aftermath of financial crisis. UM.
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  Speaker 1: The trajectory we think over the next year UM, particularly
• 11:58
  Speaker 1: for the largest US banks, the global investment banks, is
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  Speaker 1: positive because we are looking at a gradual broadening of
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  Speaker 1: growth across the global economy. We're looking at higher interesting
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  Speaker 1: than the US, and so particularly for those banks that
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  Speaker 1: are core funded that is as significant reliance on deposits
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  Speaker 1: for funding UM. Higher interest rates have been positive and
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  Speaker 1: are likely to continue to be positive for US banks.
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  Speaker 1: So expanding net interest margins exactly the loans that the
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  Speaker 1: banks make, have they at all been crowded out by
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  Speaker 1: non bank financial lenders because you keep hearing that banks
• 12:36
  Speaker 1: can't hold certain assets, don't hold certain assets, and that
• 12:41
  Speaker 1: the place has been taken by non bank financials. Well
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  Speaker 1: to some extent, that's by choice. UM. Certainly, for example,
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  Speaker 1: in auto ending, there's a significant portion of the auto
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  Speaker 1: ending business is conducted through by non bank financials. UM.
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  Speaker 1: I think the bank always represent about the total auto
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  Speaker 1: loan market. UM. And there where we've seen weaker underwriting,
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  Speaker 1: deteriorating underwriting standards. UM. Now there's there's paper that banks
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  Speaker 1: don't want to hold their loans, banks don't want to
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  Speaker 1: make that the non bank financial sector is more willing
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  Speaker 1: to make and and and frankly that's positive for banks
• 13:18
  Speaker 1: in terms of credit risk. Talk about real estate. Let's
• 13:21
  Speaker 1: start with commercial real estate and bank exposure to see
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  Speaker 1: ANIE loans for example, UM. So we had been concerned
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  Speaker 1: about the rate of growth of CNI loans UM over
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  Speaker 1: the past couple of years. UH. Normally we look at
• 13:36
  Speaker 1: CNI loan growth as as you know, a healthy rate
• 13:39
  Speaker 1: of growth for SEENI loans should not deviate that much
• 13:42
  Speaker 1: from the rate of nominal GDP growth. Think about the
• 13:45
  Speaker 1: rate of growth of the economy is rate at which
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  Speaker 1: loan should go out exither growing much faster than corporations
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  Speaker 1: are leveraging up um, which ultimately can be negative for
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  Speaker 1: credit risk UM. We saw a rate of growth for
• 13:57
  Speaker 1: SEINGI landing in excessive nominal GDP growth for several years. However,
• 14:02
  Speaker 1: over the most recent year that rad of growth has
• 14:04
  Speaker 1: slowed some extent as well, and nominal GDP growth has accelerated,
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  Speaker 1: So we're we're a little bit more comfortable, if you will,
• 14:11
  Speaker 1: with the current rate of growth for seeing is landing.
• 14:14
  Speaker 1: Are there any specific geographical issues that we need to
• 14:17
  Speaker 1: pay attention to, because many of the problems that created
• 14:21
  Speaker 1: the two thousand seven two thousand eight financial crisis were
• 14:25
  Speaker 1: centered in areas where mortgages were made very inexpensive for
• 14:29
  Speaker 1: people that probably should not have been able to access them.
• 14:32
  Speaker 1: But some were exceptions, like for example, in Texas. You
• 14:35
  Speaker 1: didn't see this happen um at this point, I'm not
• 14:39
  Speaker 1: sure I can in the US at any rate can
• 14:42
  Speaker 1: highlight specific geographic regions UM that are are are performing
• 14:47
  Speaker 1: better or worse off than initiarily affecting the banks UH
• 14:51
  Speaker 1: credit profile. I think it's we we focus on the
• 14:53
  Speaker 1: larger banks. Of those banks typically tend to have fairly
• 14:57
  Speaker 1: broad footprints UM and so they're for are a little
• 15:00
  Speaker 1: bit less exposed or vulnerable to a specific to an
• 15:04
  Speaker 1: energy market or to a housing market. Precisely, and certainly
• 15:07
  Speaker 1: the energy markets have had some challenges of the last
• 15:10
  Speaker 1: couple of years, and and but the but the banks
• 15:13
  Speaker 1: have been able to Although they have did suffer a
• 15:16
  Speaker 1: period of higher loss rates on some energy loans, the
• 15:18
  Speaker 1: overall impact on bank earnings and risk profile was relatively modest.
• 15:23
  Speaker 1: Thank you very much for coming in and spending time
• 15:25
  Speaker 1: with us. David Fanger is senior analyst for Moody's Investors Services,
• 15:29
  Speaker 1: giving us an outlook for the US banking industry. Joining
• 15:49
  Speaker 1: me now is Brian Schappatta. He is our US Treasury
• 15:52
  Speaker 1: as reporter for Bloomberg News, and Bryan can be followed
• 15:55
  Speaker 1: on Twitter at beach Chapatta. That's h A double P
• 15:59
  Speaker 1: A double T A alright, double P a T T.
• 16:04
  Speaker 1: A great story today where you go through with the
• 16:08
  Speaker 1: experts like black Rock and Goldman Sacks are saying about
• 16:11
  Speaker 1: the bond market and their calls for eighteen. Let's go
• 16:15
  Speaker 1: through and let's begin with black Rock. What are they
• 16:18
  Speaker 1: suggesting if you are in the world of fixed income, Well,
• 16:21
  Speaker 1: I was going to alphabetical order these big money managers.
• 16:23
  Speaker 1: So the thing about black Rock is that you go
• 16:25
  Speaker 1: through their twenty you're not looking. What's interesting is they
• 16:27
  Speaker 1: have no overweight recommendations in the entire fixed income landscape. UM.
• 16:32
  Speaker 1: You know, whether it's you know, their neutral communities, US credit,
• 16:36
  Speaker 1: emerging markets, things like that, don't like treasuries much or
• 16:39
  Speaker 1: European sovereigns um. But there their chief fixed income start
• 16:44
  Speaker 1: as Jeff Rosenberg basically said, you know, it's all well
• 16:47
  Speaker 1: and good when everyone's buying and you can flip bonds
• 16:50
  Speaker 1: and make a profit everyone everyone gets a trophy essentially,
• 16:53
  Speaker 1: But the risk is that once that stops and the
• 16:56
  Speaker 1: selling begins, everyone's left with all these liquid securities you
• 16:59
  Speaker 1: can't sell and you have to take big losses. So,
• 17:02
  Speaker 1: you know, and he wants to be on that side
• 17:04
  Speaker 1: of the would rather be on that side of sha
• 17:05
  Speaker 1: he says, go up in credit quality and you know,
• 17:08
  Speaker 1: be content with you know, maybe a little bit lower
• 17:10
  Speaker 1: returns in return for being able to get out of
• 17:13
  Speaker 1: your position if you absolutely need to. Was the black
• 17:16
  Speaker 1: rock was his position an outlier when it came to
• 17:19
  Speaker 1: some of the others that you interviewed, for example at
• 17:22
  Speaker 1: Fidelity Investments or Goldmen Sacks. You know, uh, there's a
• 17:25
  Speaker 1: lot of caution I think underlying a lot of these
• 17:30
  Speaker 1: Yeah they are so they're they're yeah, they're pessimists by
• 17:33
  Speaker 1: uh by trade now. Um. But you know Ford O'Neil
• 17:36
  Speaker 1: at Fidelity Investments, he was morning Stars Fixed Income Fund
• 17:39
  Speaker 1: Manager of the Year this year. Uh and basically sorry
• 17:42
  Speaker 1: in sixteen and he basically said, you know, I really
• 17:46
  Speaker 1: want to protect all the gains I made over the
• 17:48
  Speaker 1: last two years next year. Um, trying not to do
• 17:51
  Speaker 1: anything too uh too exotic. Uh, you know, add some
• 17:54
  Speaker 1: inflation protection uh chips. He likes those inflation Treasury inflation
• 17:59
  Speaker 1: for protected security. He says, inflation is going to accelerate
• 18:04
  Speaker 1: in YEP. I mean people said I was going to
• 18:06
  Speaker 1: accelerate this year. So you do have to take it
• 18:08
  Speaker 1: with a little bit with a grain of salt. Um.
• 18:10
  Speaker 1: But again, like the reflation trade this year. I mean
• 18:13
  Speaker 1: that was like the buzzword going into the start of
• 18:17
  Speaker 1: UM didn't exactly materialize, but we'll see what happens this year.
• 18:21
  Speaker 1: He also likes, uh, some floating rate securities which will
• 18:24
  Speaker 1: reset higher with FED rate hikes, so you know, protecting
• 18:27
  Speaker 1: yourself both on a long end if inflation starts to accelerate,
• 18:30
  Speaker 1: also on the short end if the FED continues hiking rates.
• 18:33
  Speaker 1: And he also mentioned Brazil and Mexico. Yeah, Brazil's a
• 18:37
  Speaker 1: fan favorite among these among all these folks. UM. You know,
• 18:40
  Speaker 1: obviously they offer you know, much higher yields that you
• 18:43
  Speaker 1: can get anywhere and sort of the you know, typical
• 18:45
  Speaker 1: developed markets. So if you're looking for some yield pick up,
• 18:49
  Speaker 1: that's a place to be along with Mexico. UM, I
• 18:52
  Speaker 1: know that. Goldman Sachs also mentioned places like Hungary, Poland,
• 18:56
  Speaker 1: Columbia to stay in South America and Czech Republic. Yeah,
• 19:02
  Speaker 1: this is Mike Swell right over at the Goldman Sex
• 19:05
  Speaker 1: Asset Management. He also says volatility, so let's just go
• 19:08
  Speaker 1: to just we understand this black rock. They're basically not
• 19:12
  Speaker 1: that excited. Be careful. Increased credit quality, fidelity inflation may
• 19:19
  Speaker 1: be accelerating so be mindful there. But we like Brazilian Mexico,
• 19:22
  Speaker 1: Goldman Sex also Brazilian Mexico. But volatility, right, volatility, I
• 19:27
  Speaker 1: mean it's so low. I mean well, I mean I'm
• 19:29
  Speaker 1: sure you know with the VIX, whether what you okay
• 19:31
  Speaker 1: at the VIX or whether you're looking at UM measures
• 19:34
  Speaker 1: of bond market volatility like the move Index from Merrill Lynch.
• 19:38
  Speaker 1: I mean, they're all they set record lows this year,
• 19:40
  Speaker 1: just kept grinding lower. Um. It's just been a study
• 19:43
  Speaker 1: march higher in equities and sort of a range bound
• 19:46
  Speaker 1: treasury market. So the idea that volatility will pick up, UM,
• 19:51
  Speaker 1: it's sort of something that's you know, I mean, it
• 19:53
  Speaker 1: might happen, but also it's like everyone wants that to happen,
• 19:56
  Speaker 1: so they're hoping that it happens. UM in a lot
• 19:59
  Speaker 1: of ways, because you know, if you have active fixed income,
• 20:03
  Speaker 1: which all these all these people are basically with the
• 20:05
  Speaker 1: exception I guess of a vanguard who I also spoke
• 20:08
  Speaker 1: with UM. I mean, you wanted to pick up, you
• 20:10
  Speaker 1: want opportunities. Everything is being bought right now, so there's
• 20:13
  Speaker 1: not a lot of opportunities to sort of find things
• 20:16
  Speaker 1: on the cheap. What is JP Morgan Asset Managements as
• 20:19
  Speaker 1: a good strategy for so. Bob Michelle at JP Morgan
• 20:24
  Speaker 1: Asset Management UH is probably one of the more aggressive
• 20:27
  Speaker 1: folks that I that I talked with. UM. He likes
• 20:30
  Speaker 1: a European additional tier one securities UH Coco bonds. I
• 20:34
  Speaker 1: believe they're also referred to as UH and high yield
• 20:38
  Speaker 1: within Europe. He just thinks of Europe looks healthy UH
• 20:41
  Speaker 1: and its economy is you know, maybe a year or
• 20:43
  Speaker 1: so behind the US as far as picking up so
• 20:47
  Speaker 1: UH more good things to come from there. Also likes
• 20:50
  Speaker 1: the steeper yield curve, which is kind of interesting. UM.
• 20:54
  Speaker 1: Other people are saying that as well. If PIMCO also
• 20:57
  Speaker 1: thinks the yield curve uh uh will steep in as well.
• 21:01
  Speaker 1: So that would be a departure, obviously from this year
• 21:04
  Speaker 1: where the big trend has been, especially in the last
• 21:06
  Speaker 1: few months of the year, this relentless flattening as short
• 21:10
  Speaker 1: term meelds rise with a long term meals hold study.
• 21:13
  Speaker 1: I like the point from a JP work and asset management.
• 21:16
  Speaker 1: What don't they like anything? The Central Bank in Europe,
• 21:19
  Speaker 1: the European Central Bank has purchased t c W Let's
• 21:22
  Speaker 1: tell us. What did Ted Revella TCW say, Yeah, I
• 21:25
  Speaker 1: mean he is sort of in the camp of black rock.
• 21:28
  Speaker 1: I would say, um, just sort of protecting yourself against
• 21:32
  Speaker 1: uh potential swing in the other direction where there's a
• 21:35
  Speaker 1: big sell off in bonds or stocks or both just
• 21:39
  Speaker 1: markets in general. Uh, he's just saying, be happy with
• 21:42
  Speaker 1: the two and a half to three and a half
• 21:43
  Speaker 1: percent return um. You know, obviously in an era where
• 21:48
  Speaker 1: you know, the SMP five hundred games, you know, six
• 21:49
  Speaker 1: and a half percent and a quarter. Uh. You know,
• 21:52
  Speaker 1: maybe people might not be too pleased with that, but
• 21:54
  Speaker 1: it's something that you know, if you want to diversify
• 21:57
  Speaker 1: and you know, not be too exposed if you feel
• 22:00
  Speaker 1: markets are a little frothy. Um, you know, going up
• 22:03
  Speaker 1: in credit quality, high quality corporate bonds, agency mortgages. You know,
• 22:08
  Speaker 1: take that clip that coupon essentially, and I have less
• 22:11
  Speaker 1: price volatility than some of the other more risky securities.
• 22:15
  Speaker 1: Thanks for being with us, Always a pleasure. Brian Sappada.
• 22:18
  Speaker 1: He is a US Treasurer supporter for Bloomberg News and Yes.
• 22:21
  Speaker 1: He can be followed on Twitter at b Shapata c
• 22:25
  Speaker 1: H A double P, A double T A Ford's luxury
• 22:47
  Speaker 1: brand Lincoln, what is the future for the brand? Well,
• 22:50
  Speaker 1: here to help us understand it is Jamie Butters. He's
• 22:52
  Speaker 1: our US auto supporter for Bloomberg and Jamie always a pleasure.
• 22:57
  Speaker 1: You can be followed on Twitter at mid in Hawk
• 23:01
  Speaker 1: M I T T E N and then just Hawk
• 23:04
  Speaker 1: H A W K all right, mitten Hawk. Tell us
• 23:07
  Speaker 1: what is the deal with the Lincoln brand? For tell us?
• 23:10
  Speaker 1: How many they sell and what are they trying to accomplish?
• 23:13
  Speaker 1: You know, Lincoln is a is a challenge brand here
• 23:16
  Speaker 1: in the US. It's uh, you know, the big brands,
• 23:19
  Speaker 1: the leaders in the luxury market, the volume luxury market
• 23:22
  Speaker 1: are Mercedes, BMW and Lexus and they all sell three
• 23:27
  Speaker 1: thousand or more a year and Lincoln, you know, barely
• 23:30
  Speaker 1: cracks a hundred thousand, so it's not really getting enough
• 23:34
  Speaker 1: volume to justify you know, the cost of product development
• 23:38
  Speaker 1: and and advertising support and all that. But it's not
• 23:41
  Speaker 1: a simple decision at all. You've got you've got these
• 23:44
  Speaker 1: contracts with dealers out there, and you've got a lot
• 23:47
  Speaker 1: of growth coming for Lincoln in China. And it's kind
• 23:50
  Speaker 1: of like with GM and Buick. Buick is not a
• 23:53
  Speaker 1: great brand in the US either, but it I think
• 23:56
  Speaker 1: there's a sense that in order for an American brand
• 23:59
  Speaker 1: to have credibility in China, it needs to continue to
• 24:02
  Speaker 1: be sold in the US. So it's a it's a
• 24:04
  Speaker 1: tough tough call for Jim Hackett at the CEO of Ford.
• 24:08
  Speaker 1: So you mean that Matthew McConaughey is not really going
• 24:12
  Speaker 1: to be able to move these Lincolns off the off
• 24:14
  Speaker 1: the lot. I understand he's going to be starring in
• 24:16
  Speaker 1: a couple of new Lincoln commercials and you get to
• 24:19
  Speaker 1: watch them during college football playoffs on New Year's Day.
• 24:23
  Speaker 1: That'll be fun. The commercials have been entertaining at times.
• 24:27
  Speaker 1: They've certainly inspired some other entertainment. A lot of comedians
• 24:30
  Speaker 1: have had fun riffing on spoofing on him. But no,
• 24:34
  Speaker 1: you know, I think he brings some uh some fun
• 24:37
  Speaker 1: to the brand and gets some attention and maybe hits
• 24:40
  Speaker 1: at some of the the cool factor that they're trying
• 24:44
  Speaker 1: to capture. But but the way it plays out, they
• 24:47
  Speaker 1: just they don't have enough volume, they have enough demand,
• 24:50
  Speaker 1: and they're not selling it a high enough high enough
• 24:53
  Speaker 1: prices and profit margins. You know, you can get by
• 24:56
  Speaker 1: on a hundred thousand a year. If you're Porsche, if
• 25:00
  Speaker 1: you're Lamborghini, if you're Ferrari, you can sell a lot
• 25:03
  Speaker 1: fewer than that. But that Lincoln, you know, it needs,
• 25:06
  Speaker 1: it needs bigger volumes. Well, doesn't it start at around
• 25:10
  Speaker 1: thirty five to forty dollars or am I misreading that? Yeah,
• 25:13
  Speaker 1: that that's probably about right for for Lincoln MK Z Sedan.
• 25:19
  Speaker 1: I mean those are, but you're competing with a lot
• 25:23
  Speaker 1: of other vehicles in that size and price category. And okay,
• 25:27
  Speaker 1: so that's but the good ones. So the hot ones
• 25:31
  Speaker 1: for them are that they've got the new Continental, which
• 25:34
  Speaker 1: is kind of an exciting throwback design, and the combined
• 25:37
  Speaker 1: sales of the Continental and the vehicles replacing the Mk
• 25:40
  Speaker 1: S Sedan, you know, they're up about three thousand thirty
• 25:44
  Speaker 1: six vehicles this year. You take that out, and Lincoln
• 25:47
  Speaker 1: sales would be down in line with the rest of
• 25:49
  Speaker 1: the market. The other hot Lincoln or potentially hotly other
• 25:53
  Speaker 1: good name they have is Navigator UM, which is you know,
• 25:56
  Speaker 1: was one of the original big, you know, sort of
• 25:59
  Speaker 1: hip hop, very sleek luxury type SUVs and it has
• 26:04
  Speaker 1: just been really left in the dust by the Escalade
• 26:07
  Speaker 1: and Mercedes and everyone else that wants to get in
• 26:11
  Speaker 1: that space. You mean that the dollar black label navigator
• 26:16
  Speaker 1: in baby blue is not going to just sell itself.
• 26:20
  Speaker 1: It sure doesn't, It sure doesn't. Maybe if they'd done
• 26:23
  Speaker 1: the goal wing doors like they showed it the New
• 26:24
  Speaker 1: York Auto Show a couple of years ago, they could
• 26:27
  Speaker 1: have could have captured Why didn't do that? Because it's
• 26:30
  Speaker 1: really ridiculously hard to manufacture, uh, the same reason. You know,
• 26:35
  Speaker 1: Tesla has had trouble with it. Uh, And that was
• 26:37
  Speaker 1: really a signature thing for for Elon Musk and Tesla.
• 26:40
  Speaker 1: But it's really hard to do, especially in a reliable way.
• 26:43
  Speaker 1: And I don't know if I saw some stuff, you
• 26:45
  Speaker 1: know at the show where they just they were really
• 26:47
  Speaker 1: reluctant to demonstrate it any more than they had to.
• 26:50
  Speaker 1: It worked perfectly at the press conference, but it was
• 26:53
  Speaker 1: the rest of the time. Is a little um, you know,
• 26:56
  Speaker 1: a little bulky, a little clusi as it would kind
• 26:58
  Speaker 1: of uh chunk its way open and closed. How are
• 27:02
  Speaker 1: these the service pilots working that You've got a customer
• 27:05
  Speaker 1: service pilot program, you've got a concierge program, chauffeurs service,
• 27:10
  Speaker 1: and also a planned subscription service in some markets. What's
• 27:13
  Speaker 1: that doing in the brand? Yeah, it's some they're getting
• 27:17
  Speaker 1: some mixed results. I think they're getting you know, they're
• 27:19
  Speaker 1: getting to run some pilots and see what what will
• 27:22
  Speaker 1: take uh, kind of like we're seeing with some of
• 27:25
  Speaker 1: the other brands, some others that are maybe pushing a
• 27:27
  Speaker 1: little harder on it, like Volvo and Lexus. But Lincoln
• 27:30
  Speaker 1: is definitely trying to do some learning out there, trying
• 27:33
  Speaker 1: to catch lightning in a bottle. Again. The key for them,
• 27:36
  Speaker 1: or what it seems to be, is seeing what they
• 27:38
  Speaker 1: can learn and do some experiments in the US where
• 27:41
  Speaker 1: they know the market pretty well, and then figure out
• 27:43
  Speaker 1: what they need to bring to China to really accelerate
• 27:46
  Speaker 1: their growth there. Right, because that that seems to write
• 27:49
  Speaker 1: that high end trim, that seems like that could be
• 27:53
  Speaker 1: pretty attractive to those purchasers. Right. They're trying to figure
• 27:57
  Speaker 1: out so one of the things they do. I asked,
• 28:00
  Speaker 1: you know, one of the Lincoln marketing directors out in
• 28:03
  Speaker 1: at the l A Auto Show, he had just come
• 28:05
  Speaker 1: back from three years in China and they're talking about
• 28:07
  Speaker 1: expanding the the driver service that they would offer, and
• 28:13
  Speaker 1: I said, you know, do you ever try that in
• 28:15
  Speaker 1: in China or is it redundant because so many people
• 28:17
  Speaker 1: already have drivers And he said, you know, they they
• 28:19
  Speaker 1: tried it during the New Year's times when people tend
• 28:22
  Speaker 1: to get festive, and they got some interesting response to it.
• 28:26
  Speaker 1: But it's it's a real it's really challenging to trans
• 28:31
  Speaker 1: to try to translate always what you can offer UH
• 28:36
  Speaker 1: in services across the globe because different markets are so
• 28:39
  Speaker 1: are so different. Thanks very much. Jamie Butter is better
• 28:42
  Speaker 1: known as mitten Hawk on Twitter. He's our US autos
• 28:45
  Speaker 1: reporter for Bloomberg News. Thanks for listening to the Bloomberg
• 28:52
  Speaker 1: P and L podcast. You can subscribe and listen to
• 28:55
  Speaker 1: interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer.
• 29:00
  Speaker 1: I'm pim Fox. I'm on Twitter at pim Fox. I'm
• 29:04
  Speaker 1: on Twitter at Lisa Abramo wits one. Before the podcast,
• 29:07
  Speaker 1: you can always catch us worldwide on Bloomberg Radio.