Latest / Bloomberg Intelligence / Issuance Process for 100-Year Bonds Is Too Risky, Cloherty Says

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Issuance Process for 100-Year Bonds Is Too Risky, Cloherty Says · 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
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  Speaker 1: you and your money, whether you're at the grocery store
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  Speaker 1: or the trading floor. Find the Bloomberg p m L
• 0:20
  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. The
• 0:32
  Speaker 1: Treasury Department sent a survey to primary dealers asking very
• 0:37
  Speaker 1: detailed asking for very detailed responses to whether investors would
• 0:43
  Speaker 1: have an appetite for fifty or even one hundred year
• 0:46
  Speaker 1: US treasuries Now, how realistic is the potential for this
• 0:50
  Speaker 1: ultra long dated bond issueist issuance by the US. I
• 0:53
  Speaker 1: want to bring in Michael Clardy. He's head of US
• 0:56
  Speaker 1: interest rate strategy at RBC Capital Markets in New York. Michael,
• 1:00
  Speaker 1: can you give us a sense before we dig into
• 1:02
  Speaker 1: what the Treasure Department is looking for and how feasible
• 1:05
  Speaker 1: this would be? Do you feel like this latest survey
• 1:09
  Speaker 1: signals that the Treasury Department is much more serious about
• 1:12
  Speaker 1: ultralong dated bond issuance now than they have been in
• 1:14
  Speaker 1: the past. All Right, this is an issue that's been
• 1:17
  Speaker 1: out there for a while, but the specific nature of
• 1:21
  Speaker 1: these questions doesn't make it feel like we've moved a
• 1:24
  Speaker 1: little bit closer um to the decision on this. So
• 1:27
  Speaker 1: greater odds uh that we do get an ultralong bond.
• 1:31
  Speaker 1: So let's talk about what they were looking for. They
• 1:33
  Speaker 1: want to know the appetite by investors, but also the
• 1:37
  Speaker 1: primary dealers have to play a pretty big role in
• 1:40
  Speaker 1: whether this happens or not. Right right, So, I think
• 1:44
  Speaker 1: the biggest challenge with an ultra long is going to
• 1:46
  Speaker 1: be how do you issue it? Issue it? The problem
• 1:49
  Speaker 1: for the US is that we have a lot of
• 1:51
  Speaker 1: debt outstanding already, We've got fourteen training to debt outstanding.
• 1:55
  Speaker 1: And if you look, there's lots of countries around the
• 1:57
  Speaker 1: world that issue ultralong bonds, but they all have much
• 2:01
  Speaker 1: smaller amounts of debt outstanding. So what they can do
• 2:04
  Speaker 1: is they can be tactical. They can they can wait
• 2:06
  Speaker 1: until they know there's demand for the bond, issue some
• 2:09
  Speaker 1: into those periods of strong demand, and then not issue
• 2:12
  Speaker 1: when there's weak demand. That works great if you only
• 2:14
  Speaker 1: have you know, a trillion dollars debt outstanding, when you've
• 2:17
  Speaker 1: got fourteen to be a relevant part of your overall
• 2:21
  Speaker 1: debt profile, you have to issue a lot of these
• 2:24
  Speaker 1: ultralong bonds, which means that you can't be tactical. You
• 2:28
  Speaker 1: have to issue every quarter regardless of market conditions. That
• 2:33
  Speaker 1: makes the issue is process highly risks. How big with
• 2:36
  Speaker 1: this ultra long portion of the market have to be
• 2:40
  Speaker 1: to be relevant? I mean, I think if you're at
• 2:44
  Speaker 1: anything less than you eventually want to get it up
• 2:48
  Speaker 1: to sort of five percent at least. Otherwise it's a
• 2:50
  Speaker 1: bit of a waste of time. It's a lot of bonds,
• 2:54
  Speaker 1: that is a lot of who is a lot of bonds?
• 2:56
  Speaker 1: Is there an all, Michael? Is there an alternative way
• 2:59
  Speaker 1: to achieve the same thing, which is to try to
• 3:02
  Speaker 1: lower or keep the cost of funding the government low? Well,
• 3:07
  Speaker 1: start with the with the ultra von, no without with
• 3:10
  Speaker 1: what exists currently, right, So, I mean one of the
• 3:13
  Speaker 1: one of the other questions with the ultra von is
• 3:15
  Speaker 1: if you issue a fifty year von, do you brand
• 3:19
  Speaker 1: brand new buyers are treasury debt or are you simply
• 3:21
  Speaker 1: gonna cannibalize people who would have bought thirties and have
• 3:26
  Speaker 1: them buy fifties instead? Um, I think you know you
• 3:29
  Speaker 1: would see a lot of cannibalizations. So the other alternative
• 3:32
  Speaker 1: if if they want to extend the average charity is
• 3:34
  Speaker 1: just to issue more thirties, issue more thirties. Or is
• 3:37
  Speaker 1: it possible to disconnect let's say the principal payment from
• 3:41
  Speaker 1: the interest payment on treasuries. You could so you could
• 3:45
  Speaker 1: issue what that's called it a strip, so you've stripped
• 3:48
  Speaker 1: away the coupons from the principal payment that you Actually,
• 3:54
  Speaker 1: I think see a lot of demand um for those
• 3:57
  Speaker 1: zero coupon long bonds. The one challenge of that is
• 4:02
  Speaker 1: they don't raise a lot of money for the Treasury.
• 4:05
  Speaker 1: So if I'm selling today a principal strip, that's um,
• 4:10
  Speaker 1: you know, I don't get paid on for thirty years
• 4:13
  Speaker 1: or fifty years um. The value of that strip is
• 4:17
  Speaker 1: very low. Um. So I'm not by selling it today,
• 4:20
  Speaker 1: I'm not bringing in a lot of money. No, I
• 4:22
  Speaker 1: was just gonna say, you know, I really was struck
• 4:25
  Speaker 1: by this survey. The reason being that Treasury Secretary Steve Minusan,
• 4:30
  Speaker 1: who's just getting his feet wet at this point, he
• 4:32
  Speaker 1: doesn't have all of the boots on the ground and
• 4:34
  Speaker 1: the Treasury Department that this is one of the the
• 4:36
  Speaker 1: initial moves is to really show that he's serious about
• 4:39
  Speaker 1: looking into this ultralong dated issuance. I mean, do you
• 4:43
  Speaker 1: think from an efficiency standpoint, from a financing standpoint, that
• 4:47
  Speaker 1: it would actually help the United States lower their borrowing
• 4:50
  Speaker 1: costs over a longer period. No. Um. If you look,
• 4:55
  Speaker 1: the Treasury has this Boring Advisor Committee. UM, it's a
• 5:00
  Speaker 1: group of different both sell side and buy side, the
• 5:04
  Speaker 1: investor based for their bonds. UM. They put out a
• 5:08
  Speaker 1: study in UH last back in February where they basically said,
• 5:15
  Speaker 1: if we look, if we if you look at the
• 5:18
  Speaker 1: last fifty years, at times when rates were rising, you
• 5:22
  Speaker 1: saved a tiny bit of money by issuing longer than normal.
• 5:26
  Speaker 1: But when rates are falling, issuing longer than normal costs
• 5:29
  Speaker 1: you a ton of money. So it's a very a
• 5:32
  Speaker 1: submistan asymmetrical savings versus UH costs of the government. That's
• 5:37
  Speaker 1: because normally there's a thing a risk premium matern premium.
• 5:40
  Speaker 1: By issuing a very long bond, you're the buyer of
• 5:44
  Speaker 1: that has a little more interest rate risk than if
• 5:46
  Speaker 1: they bought something short. UM. So normally you have to
• 5:50
  Speaker 1: pay that buyer for taking that risk over long horizons.
• 5:55
  Speaker 1: This tends to be costly. Now issuing today, might you
• 5:59
  Speaker 1: know face a small today. It might save a little
• 6:01
  Speaker 1: bit of money, but again the Treasury we have so
• 6:04
  Speaker 1: much dead outstanding UMU to really be important for the
• 6:08
  Speaker 1: financing cost, you'd have the issue a real lot today.
• 6:12
  Speaker 1: I want to thank you very much for your thoughts.
• 6:13
  Speaker 1: Michael Clardy is the head of US Interest rates Strategy
• 6:16
  Speaker 1: at RBC Capital Market, speaking about Treasury Secretary Stephen Nuchan's
• 6:21
  Speaker 1: comments about Ultra long u S Treasury bonds. Right now
• 6:37
  Speaker 1: we want to turn to UH. I p O is
• 6:39
  Speaker 1: different as class but equally important. I must admit I
• 6:42
  Speaker 1: want to bring in Sandy Miller, general partner at I
• 6:45
  Speaker 1: v P, the leader in tech I p O s.
• 6:49
  Speaker 1: He has done arguably more I p O s for
• 6:51
  Speaker 1: tech companies than anyone else. And Uh, Sandy, I want
• 6:55
  Speaker 1: to talk to you a little bit about about your
• 6:56
  Speaker 1: projection that this year we're going to see a really
• 6:59
  Speaker 1: dramatic number of technology companies come to market with initial
• 7:02
  Speaker 1: public offerings. Can you explain why? How many you expect
• 7:07
  Speaker 1: and you know what the demand is like for it? Sure,
• 7:10
  Speaker 1: I think it's gonna be a robust year. It's hard
• 7:12
  Speaker 1: to know the exact number, but I think we could
• 7:14
  Speaker 1: see now. I'm thinking here primarily of tech i p
• 7:17
  Speaker 1: o s, which is my area of focus, but I
• 7:20
  Speaker 1: think we're going to see, you know, in the range
• 7:22
  Speaker 1: of thirty to fifty I p o s this year.
• 7:25
  Speaker 1: We're off to a good start in the year. It
• 7:28
  Speaker 1: reflects a lot of pent up demand because we've had
• 7:30
  Speaker 1: a very very light I p o calendar again for
• 7:33
  Speaker 1: tech i p o s in the last three years,
• 7:35
  Speaker 1: despite the fact that the stock market has been in
• 7:37
  Speaker 1: a good place and there's so many great companies. So
• 7:39
  Speaker 1: the buyers are there. Obviously, institutional buyers like I POS
• 7:44
  Speaker 1: the source of alpha. Uh, the deals have been working.
• 7:47
  Speaker 1: Tech i p o s aout on average last year.
• 7:50
  Speaker 1: They're doing about the same so far this year. UM,
• 7:53
  Speaker 1: and people want new names. You know, half the there's
• 7:56
  Speaker 1: only half as many listed companies as the word twenty
• 7:58
  Speaker 1: years ago. So the wires are there, and then the
• 8:01
  Speaker 1: companies are there because there's more really strong tech companies
• 8:05
  Speaker 1: privately held still of scale called fifty million, hundred million,
• 8:09
  Speaker 1: two hundred million dollars and growing than we've ever had before.
• 8:13
  Speaker 1: In part because of course there haven't been very many
• 8:15
  Speaker 1: I p o s to take them out. So I think, uh,
• 8:18
  Speaker 1: the deals have been working well. The companies are ready
• 8:21
  Speaker 1: a lot of deals are on file already. Well. Fortunately
• 8:24
  Speaker 1: the Jobs Act is allowed the silent filing, which has
• 8:27
  Speaker 1: been a terrific uh thing for the sector. And uh,
• 8:31
  Speaker 1: you know, there's there's probably upwards of of you know,
• 8:35
  Speaker 1: more certainly more than five, maybe more than fifty, we
• 8:38
  Speaker 1: don't know for sure. Uh, the companies that have file
• 8:41
  Speaker 1: tech companies that have filed silently looking for I p
• 8:44
  Speaker 1: o s. It will come both this year and next year. Sandy,
• 8:48
  Speaker 1: you talked a little bit about the dearth of i
• 8:50
  Speaker 1: p o s and how the number of public realistic
• 8:52
  Speaker 1: companies has declined pretty dramatically. This is the source of
• 8:56
  Speaker 1: quite a bit of hand ringing, and the tech industry
• 8:59
  Speaker 1: is a perfect example. People are saying that there are
• 9:01
  Speaker 1: these companies that have grown to be the size where
• 9:04
  Speaker 1: they would have otherwise had an I p O for
• 9:06
  Speaker 1: a long time earlier, but they've been able to raise
• 9:08
  Speaker 1: so much money from venture capitalists and in the debt
• 9:11
  Speaker 1: markets that they haven't had to Can you explain why
• 9:14
  Speaker 1: these tech companies have waited so long? Well, I think
• 9:18
  Speaker 1: there as has been private financing available, if for tech companies,
• 9:22
  Speaker 1: primarily from equity rather than debt. Um and the companies
• 9:26
  Speaker 1: also have felt it was an easier road because they
• 9:29
  Speaker 1: didn't have the public scrutiny and they could take the
• 9:32
  Speaker 1: hard decisions that sometimes you have to make about you know,
• 9:35
  Speaker 1: business shifts and so on, that are tougher to do
• 9:37
  Speaker 1: in a public environment. But I think it was the
• 9:40
  Speaker 1: availability of the private capital that allowed them to really
• 9:43
  Speaker 1: do that. The private capital is still there today, but
• 9:46
  Speaker 1: the valuations today are better in the public market than
• 9:50
  Speaker 1: they are in the private market. And and so again,
• 9:53
  Speaker 1: and I think ultimately companies recognize they're going to need
• 9:56
  Speaker 1: um need the liquidity of going public and also the
• 9:59
  Speaker 1: brand building awareness uh that that a public offering brings.
• 10:03
  Speaker 1: So especially venture backed companies need to find an exit,
• 10:06
  Speaker 1: and the I p O has typically been the best exit,
• 10:09
  Speaker 1: in part because it can it can fuel m and A.
• 10:12
  Speaker 1: We saw that with one of our companies, have Dynamics,
• 10:14
  Speaker 1: a really strong company that was poised to do a
• 10:18
  Speaker 1: really successful I p O and then at the last minute,
• 10:21
  Speaker 1: Cisco came in and bought the company for a big premium.
• 10:24
  Speaker 1: I think we'll see more of that as well. Because
• 10:26
  Speaker 1: the i p O is actually catalyzed more m and
• 10:29
  Speaker 1: a activity Sandy is snapped considered a success absolutely the
• 10:36
  Speaker 1: the the company. I mean as whether something is a
• 10:39
  Speaker 1: long run success, and only we determine the long run.
• 10:41
  Speaker 1: But I think the I p O, if I assume
• 10:43
  Speaker 1: that's your question, I think the I p O is
• 10:45
  Speaker 1: very much a success. The priced you know, range revised up,
• 10:50
  Speaker 1: price above the range, trading above the range. There's always
• 10:53
  Speaker 1: volatility in these names, especially with companies that are super
• 10:57
  Speaker 1: high profile UM still in at the sation where they're
• 11:00
  Speaker 1: not you know, profitable companies. Uh, there's there's just more
• 11:04
  Speaker 1: volatility around them, and I think we'll see a fair
• 11:06
  Speaker 1: amount of volatility in the sector. But the overall a
• 11:09
  Speaker 1: very very strong year for I p O s and
• 11:11
  Speaker 1: also in the next year. Sandy. You noted that valuations
• 11:15
  Speaker 1: are better today in the public market than the private market.
• 11:18
  Speaker 1: Can you elaborate a little bit, Yeah, what I mean
• 11:21
  Speaker 1: by valuations, I mean multiples, because of course there's some
• 11:24
  Speaker 1: private you know that that are multiples reflecting the growth
• 11:27
  Speaker 1: rates of companies. But the uh, that's the normal environment.
• 11:32
  Speaker 1: Normally private companies are priced at some discount to publicly
• 11:36
  Speaker 1: public comparables growth adjusted, but we did go through a
• 11:40
  Speaker 1: period in particularly where that simply wasn't the case, and
• 11:46
  Speaker 1: the the private company multiples are actually higher than public
• 11:50
  Speaker 1: company multiples. That's an anomaly, UM, and it was sure
• 11:54
  Speaker 1: to correct and it has corrected. It's not a weak
• 11:57
  Speaker 1: private market. We're still a robust private market. There's the
• 12:00
  Speaker 1: available for for good companies. There's good prices, but it's
• 12:03
  Speaker 1: more balanced, and that's making the public market UM look
• 12:08
  Speaker 1: more attractive to companies UM that we're kind of trying
• 12:12
  Speaker 1: to choose between the private and the public market. Thank you.
• 12:15
  Speaker 1: Sandy Miller is the general partner of Institutional Venture Partners
• 12:19
  Speaker 1: based in San Francisco. Speaking about the potential torrent of
• 12:23
  Speaker 1: technology initial public offerings coming this year, we want to
• 12:35
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• 13:06
  Speaker 1: Bloomberg dot com slash lens. The afternoon attack in Paris
• 13:19
  Speaker 1: yesterday killed a policeman and has further aggravated the situation
• 13:24
  Speaker 1: in France as the country goes to the polls this weekend.
• 13:28
  Speaker 1: Here to tell us more, as Irene Finel Hannigman, Adjunct
• 13:31
  Speaker 1: Professor of International Affairs at Columbia University. Irene, thank you
• 13:35
  Speaker 1: for being with us. Let's get your impressions first of
• 13:39
  Speaker 1: what this means for the election in France. Well, I
• 13:42
  Speaker 1: think this clearly created an additional shock, as we now
• 13:47
  Speaker 1: know that the perpetrator was an Islamis terrorist again who
• 13:51
  Speaker 1: actually even known to the police uh and maybe affiliated
• 13:55
  Speaker 1: with what happened in Mark, say a few days ago.
• 13:57
  Speaker 1: The real concern is whether this will harden or even
• 14:01
  Speaker 1: increase Mathine Rapin, the extreme right wing candidate support she's
• 14:06
  Speaker 1: supposed to have about almost matched with the Centris McColl.
• 14:11
  Speaker 1: Her support may increase, However, the question is whether at
• 14:16
  Speaker 1: the end of the day, this may not also actually
• 14:19
  Speaker 1: help the former Prime Minister of Francoisfidon, whose support was
• 14:23
  Speaker 1: eroding because of scandals, but who may look as if
• 14:26
  Speaker 1: he is a more sound and experienced type of politician,
• 14:32
  Speaker 1: able to basically take away some of Matine Rapine's support
• 14:36
  Speaker 1: and still present a very strong pro security yet at
• 14:39
  Speaker 1: the same time solid economic program. So right now, this
• 14:43
  Speaker 1: has made a volatile situation even more volatile and very concerning. Well,
• 14:48
  Speaker 1: I mean, can we get any sense of how it
• 14:51
  Speaker 1: is being received by voters by how this news is
• 14:55
  Speaker 1: being covered by the French media. Well, I think this
• 14:58
  Speaker 1: happened so quick ly, and the thing that was very
• 15:01
  Speaker 1: dramatic was it actually occurred during the last presidential debate,
• 15:05
  Speaker 1: which was taking place last night when it occurred, and
• 15:09
  Speaker 1: so they were very very quickly responding. Our French of
• 15:12
  Speaker 1: the campaign has been suspended today and in a way
• 15:15
  Speaker 1: this may sort of perhaps calm things a little bit
• 15:18
  Speaker 1: down right now, the media seems to be responding in
• 15:22
  Speaker 1: France almost hour by hours. More information is coming in.
• 15:26
  Speaker 1: The candidates are not making any statements, except for the
• 15:29
  Speaker 1: extreme left wing communist candidate Menancham, who said he will
• 15:34
  Speaker 1: continue to give us speeches and rally his supporters, which
• 15:39
  Speaker 1: may actually work against him. And may be seen as
• 15:42
  Speaker 1: exactly the wrong response. Uh so this is kind of
• 15:45
  Speaker 1: where we're at. The French press is again sort of
• 15:49
  Speaker 1: a little bit all over the place right now, difficult
• 15:52
  Speaker 1: to know exactly how they said. Definitely this is good.
• 15:57
  Speaker 1: Unfortunately for Marie Lepine. We knew that she would make
• 16:00
  Speaker 1: it through the first round. She may make it now
• 16:02
  Speaker 1: with support That actually increases The question is does Felon
• 16:08
  Speaker 1: or does the new young centrist candidate Emmanuel McColl who
• 16:12
  Speaker 1: was supposed to have about which one of those two
• 16:16
  Speaker 1: really make it into the into the contention with mariein
• 16:21
  Speaker 1: Rapin That is really going to be the big question.
• 16:24
  Speaker 1: Now we don't know at this point. I mean, does
• 16:26
  Speaker 1: it matter who wins the election because the French parliamentary
• 16:31
  Speaker 1: system is such that perhaps the power of the president
• 16:34
  Speaker 1: would be limited to let's say, move forward with changes
• 16:38
  Speaker 1: to the French participation in the European Union. Well, I
• 16:42
  Speaker 1: think um in a way, in part portion fortunately and unfortunately, actually,
• 16:47
  Speaker 1: the French presidency is quite a bit stronger than the
• 16:51
  Speaker 1: system which is much more faction based in other European countries.
• 16:56
  Speaker 1: So the powers of the president are fairly large in France.
• 17:00
  Speaker 1: It's also the president who would clearly be picking his
• 17:02
  Speaker 1: cabinets prime minister if it was Matthin Lepan because of
• 17:06
  Speaker 1: her really dangerous and incoherent economic program. It would also
• 17:09
  Speaker 1: immediately create a huge shock on the markets and a
• 17:13
  Speaker 1: huge shock on what would be seen as the future
• 17:15
  Speaker 1: of France, the future of the European Union at that point.
• 17:18
  Speaker 1: So I think it does make an enormous difference, uh,
• 17:22
  Speaker 1: even before we start to look at the more complex
• 17:25
  Speaker 1: makeup of the of the parliamentary grouping. I mean, you
• 17:29
  Speaker 1: know you mentioned that the attack happened during a presidential debate.
• 17:34
  Speaker 1: Was that intentional? We don't know, you know. I I
• 17:38
  Speaker 1: think the horrible thing is that at this point it
• 17:42
  Speaker 1: seems that a lot of these attacks may be very
• 17:45
  Speaker 1: much premeditated orchestrated. It seems that information is coming out
• 17:49
  Speaker 1: very quickly, hard to know. May very well be the
• 17:53
  Speaker 1: case because the attack that was actually aborted in March
• 17:56
  Speaker 1: SI was the purpose of it was presumingly to dis
• 18:00
  Speaker 1: rupted the presidential election. Um, so this this may have
• 18:03
  Speaker 1: some link. I mean the election, the first round takes
• 18:07
  Speaker 1: place on Sunday, and then the second round is May seven.
• 18:13
  Speaker 1: Do you know if the European Union has any plan
• 18:17
  Speaker 1: for response if Marine Lepan and the far left candidate
• 18:21
  Speaker 1: Jean mcmlchan actually make it to that May seventh runoff.
• 18:25
  Speaker 1: I am not sure at this point. I think actually
• 18:30
  Speaker 1: everyone sort of is is just kind of holding their
• 18:33
  Speaker 1: breath uh and doesn't want in any way to step in.
• 18:36
  Speaker 1: The problem is that any comments or remarks or statements
• 18:40
  Speaker 1: coming out of the European Union may in fact only
• 18:43
  Speaker 1: worsen uh the anti EU approach that Marine Leepan already has.
• 18:48
  Speaker 1: It may just increased support uh, and she'll certainly play
• 18:51
  Speaker 1: on that. So I think everyone will try to stay
• 18:55
  Speaker 1: as far away as possible. That's why it was even
• 18:57
  Speaker 1: a little bit disturbing that Obama decided to call the
• 19:01
  Speaker 1: Centers candidate mccon This was not necessary yesterday because one
• 19:06
  Speaker 1: of the issues is McCall is often already accused of
• 19:08
  Speaker 1: being a little bit babst pro American because Mopolitan this
• 19:11
  Speaker 1: doesn't help. Well, thank you, we really we we. Unfortunately
• 19:15
  Speaker 1: we have to leave it there. Thank you so much
• 19:16
  Speaker 1: for your comments. Professor Irene Finilla hanig Mans adject professor
• 19:20
  Speaker 1: of International Affairs at Columbia University based in New York City,
• 19:24
  Speaker 1: talking about the attack in Paris and the ripple effects
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  Speaker 1: into the ongoing election. Well, let would be the first
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  Speaker 1: to wish you a happy earth Day. It's a little
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  Speaker 1: bit premature, but tomorrow is earth Day is celebrated worldwide.
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  Speaker 1: It was first celebrated in nine seventy and one of
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  Speaker 1: the questions that comes up is why is the United
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  Speaker 1: States so far behind when it comes to recycling materials.
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  Speaker 1: Here to tell us in give us more information about
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  Speaker 1: Earth Day is Jim Fishy is the chief executive of
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  Speaker 1: Waste Management. Jim, thanks very much for for coming in.
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  Speaker 1: I was looking up some statistics and it turns out
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  Speaker 1: that in the United States we've got low landfill fees,
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  Speaker 1: plus we've got a fragmented waste management system, and that
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  Speaker 1: just puts our rate at recycling at like that seems
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  Speaker 1: very low. You know, I think it's I think you're right.
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  Speaker 1: I think it is lower than we'd like. And part
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  Speaker 1: of our objective is to try and get people to
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  Speaker 1: truly recycle more. I mean, and and that sounds a
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  Speaker 1: little cliche, but what I mean by that is put
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  Speaker 1: every plastic bottle, put every piece of cardboard and mixed paper,
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  Speaker 1: put every can in your recycle bin. Unfortunately, our model
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  Speaker 1: is one that encourages people to also put, in addition
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  Speaker 1: to recycling and recycle materials, put trash because it's a
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  Speaker 1: it's a you have a bin that basically collects everything,
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  Speaker 1: and and so there's an education process that's required of
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  Speaker 1: us to let people know that that your garden hose
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  Speaker 1: and your Christmas Lie's and your garden rake, it is
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  Speaker 1: kind of seasonal, by the way, those things don't necessarily
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  Speaker 1: go through a recycled plan. So how does your company
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  Speaker 1: deal with those garbage items that get mixed up with
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  Speaker 1: the recycling, Well, it ends up coming up a big
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  Speaker 1: conveyor belt and then it gets either hand or machine separated,
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  Speaker 1: and that that garden hose. Hopefully the garden hose doesn't
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  Speaker 1: wrap around the wheel and shut down the entire plant,
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  Speaker 1: which does happen, but a lot of that materially, the
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  Speaker 1: garden rake tends to get typically gets pulled off manually
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  Speaker 1: and goes into the trash. And so when we think
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  Speaker 1: about what's what's recycled, we've got to make sure that
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  Speaker 1: that's what's recycled truly becomes something else. That's the definition
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  Speaker 1: of recycling is that you take a plastic bottle and
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  Speaker 1: turn it into another plastic battle or some other use.
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  Speaker 1: So well, let's talk about that. So when you talk
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  Speaker 1: about recycling, when you talk about the rate that Pim
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  Speaker 1: just cited, does that mean that sort of people effectively
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  Speaker 1: sort a cent of their garbage or does it meant
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  Speaker 1: of the garbage is taken and then we've we we
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  Speaker 1: processed into something else that can be used. It's really
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  Speaker 1: the ladder. I mean, you know, people look at diversion
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  Speaker 1: and and diversion means that the first step away from
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  Speaker 1: the curb is someplace other than a landfill. So if
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  Speaker 1: I if I take a percent of my material at
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  Speaker 1: my house and put it into my recycle bin, then
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  Speaker 1: then I have diverted a percent of my material by
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  Speaker 1: that definition. Unfortunately, what happens is when it gets to
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  Speaker 1: the recycled plant half of it. If that's how much
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  Speaker 1: of my trash of are my recycled binness trash, half
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  Speaker 1: of it ends up ultimately going to a landfill anyway.
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  Speaker 1: And our goal is to make sure that people understand
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  Speaker 1: that the goal is not to divert a the goal
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  Speaker 1: is to recycle ad and that means turn that into
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  Speaker 1: something of use on the back end, not just send
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  Speaker 1: it to a recycle plant so that they can pull
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  Speaker 1: that garden rake out and ultimately send that garden rate
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  Speaker 1: to a landfill. Are the recycling plants that currently exist,
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  Speaker 1: are they at equated? No, they're not. The recycled plants
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  Speaker 1: that we have are are have new technology. We're refreshing
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  Speaker 1: that technology as we go. We're putting things like optical
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  Speaker 1: sorters in that that read the types of plastic coming
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  Speaker 1: up that that conveyor belt. But there is a lot
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  Speaker 1: of material that comes up the conveyor belt, and and
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  Speaker 1: it ranges from things like those garden hoses to bowling
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  Speaker 1: balls and and and really everything out of the sun. So, uh,
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  Speaker 1: there is there are some some components of that process
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  Speaker 1: that haven't changed in twenty years, but it is. There
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  Speaker 1: is a lot of technology being brought to the reason.
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  Speaker 1: The reason I bring that up is because I know
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  Speaker 1: that major corporations such as Coca Cola and Walmart. I mean,
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  Speaker 1: they have all pledged to add more recycled material to
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  Speaker 1: their packaging, but the companies say that they struggle to
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  Speaker 1: find the actual material and that supply is actually a problem.
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  Speaker 1: You know, I can't speak to whether supply is a
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  Speaker 1: problem for those folks. Were not on that end. We
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  Speaker 1: do provide. We're the biggest recycler in North America, so
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  Speaker 1: we have a lot of supply coming out of our plants. Honestly,
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  Speaker 1: a lot of it goes to China. Almost almost of
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  Speaker 1: our newsprint goes to China because they're the only buyer
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  Speaker 1: of that newsprint. Probably mixed paper goes to China, and
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  Speaker 1: about of cardboard goes to China. And so hence the
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  Speaker 1: volatility by the way in pricing, when when when one
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  Speaker 1: customer controls that bigger percentage, if they decide not to buy,
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  Speaker 1: as they have recently with newsprint, the price really can
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  Speaker 1: can can be volable. How much more expensive is it
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  Speaker 1: for a municipality to recycle versus just directing its waste
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  Speaker 1: to a landfill. Well, in theory, the theory has always
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  Speaker 1: been that you can provide recycling for a nominal a
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  Speaker 1: nominal charge, and then the recycler makes money on the
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  Speaker 1: back end. So when when that material goes through the plant,
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  Speaker 1: we make money when we sell the plastics on the
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  Speaker 1: back end or the cardboards on the back end. But
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  Speaker 1: you've got to be careful with that formula because if
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  Speaker 1: prices are in are in a kind of an all
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  Speaker 1: time lows, and we're sharing a piece of of of
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  Speaker 1: the back in sales, and yet our cost to process
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  Speaker 1: is higher than the commodity price. You can end up
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  Speaker 1: in a in a position where the recycler is not
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  Speaker 1: making any money. And so we we've changed the model
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  Speaker 1: a bit over the last twelve months so to the
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  Speaker 1: municipality paying a little bit more, right exactly, I mean
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  Speaker 1: we want them to share on the upside when things
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  Speaker 1: are good as they are right now, and on the
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  Speaker 1: downside when when prices are low, then then we shouldn't
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  Speaker 1: pay a rebate when the price is below our cost.
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  Speaker 1: What form is the plastic and the paper in when
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  Speaker 1: you sell it, well, it's bailed, I mean we we
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  Speaker 1: and we separate the plastics into different types of A
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  Speaker 1: big tide bottle is a different type of plastic than
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  Speaker 1: than a plastic the sawny water bottle, for example. So
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  Speaker 1: so we separate those plastics. Some are are lower value.
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  Speaker 1: The high value plastics tend to be those two sawny
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  Speaker 1: water bottles, and those are are fantastic for us. And
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  Speaker 1: and so we bail those and and send them onto
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  Speaker 1: to someone who's going to use them and recycle them.
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  Speaker 1: Are there other countries that are better at recycling and
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  Speaker 1: what can we learn? Well, as it's a great question,
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  Speaker 1: there are countries that are better at it. I would
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  Speaker 1: tell you that that when you we've all been to Europe,
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  Speaker 1: and when you go to Europe, they don't have what
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  Speaker 1: we use today is as single stream recycling. So single
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  Speaker 1: stream means everything goes in one bin and then we
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  Speaker 1: separate it. Typically in Europe there they we call them
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  Speaker 1: dual stream, and they source separate everything. So so when
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  Speaker 1: you go to a house in Germany, they separate their
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  Speaker 1: own glass from their plastics, from their from their aluminums
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  Speaker 1: and papers, and then it's picked up separately. So you
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  Speaker 1: can imagine that that stream is much cleaner, you know
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  Speaker 1: when you get today glass that benefit the United States,
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  Speaker 1: I mean if we were able to adopt it at
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  Speaker 1: a municipal level. You know, the theory was that we
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  Speaker 1: would do that. Single stream would enable people to recycle
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  Speaker 1: more and because now they don't have to separate it,
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  Speaker 1: they don't have to go through their own uh you know,
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  Speaker 1: do their own work that will separate it for them.
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  Speaker 1: That was the theory behind single stream, and I think
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  Speaker 1: to some extent that has helped, you know, increase the
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  Speaker 1: amount of recycled material, but it's also increasing amount of
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  Speaker 1: trash that people put in. And I think the answer
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  Speaker 1: to that is a better education process, so people really
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  Speaker 1: understand that this commodity, this, that this garden hose is
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  Speaker 1: not recyclable, whereas the plastic bottle is. Jim Fish, thank
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  Speaker 1: you so much for joining us to Fish is president
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  Speaker 1: of Waste Management, which is based in Houston, Texas, and
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  Speaker 1: focuses on recycling materials such as plastic. Those two sawny
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  Speaker 1: water bottles which are high quality plastic as well as
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  Speaker 1: other things, but not your garden hose, So don't put
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  Speaker 1: it in because it will clog up their systems. That
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  Speaker 1: seems to be the message. Uh. He joins us today
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  Speaker 1: on Earth Day, where we look for ways to make
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  Speaker 1: sure that our earth stays beautiful. Thanks for listening to
• 27:54
  Speaker 1: the Bloomberg P and L podcast. You can subscribe and
• 27:57
  Speaker 1: listen to interviews that Apple Podcasts, SoundCloud, or whatever podcast
• 28:01
  Speaker 1: platform you prefer. I'm Pim Fox. I'm on Twitter at
• 28:05
  Speaker 1: pim Fox. I'm on Twitter at Lisa abramowits one before
• 28:09
  Speaker 1: the podcast. You can always catch us worldwide on Bluebirg
• 28:12
  Speaker 1: Radio