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Argentina Is Biggest Risk Facing Emerging Market Credit · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim
• 0:08
  Speaker 1: Fox along with my co host Lisa Bramowitz. Each day
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• 0:27
  Speaker 1: All of the world leaders who are participating in the
• 0:29
  Speaker 1: G twenty summit have arrived. They are gathering on stage
• 0:33
  Speaker 1: in Boetos, Artis, And you know, it's interesting because we're
• 0:36
  Speaker 1: so focused on Jping meeting with Donald Trump, but there's
• 0:41
  Speaker 1: a lot of other things going on, including the fact
• 0:44
  Speaker 1: that the US Canada Mexico did just sign their new
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  Speaker 1: trade deal and meanwhile Mexico is about to get its
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  Speaker 1: new president joining US now. Damien Sassaur, who heads up
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  Speaker 1: things Fixed income Emerging Markets research for Bloomberg Intelligence, Damian,
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  Speaker 1: thank you so much for being with us. I want
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  Speaker 1: to start with this agreement that was just signed and
• 1:03
  Speaker 1: talk about its effect on Mexico, in particular Mexico. What
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  Speaker 1: are the hottest vets in emerging markets? Credit Land, which
• 1:10
  Speaker 1: has failed again and again and has been struggling. So
• 1:13
  Speaker 1: can you just give us a sense are they losing
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  Speaker 1: out here? Is it? Are they Is it putting Mexico
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  Speaker 1: to an even worse position even with everything else going
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  Speaker 1: on politically? Well, it's interesting because um, you know, Mexico
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  Speaker 1: is just taking it on the chin right and the
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  Speaker 1: pass at some of the weakest levels we've seen in
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  Speaker 1: some time. And and and we happen like Mexico at
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  Speaker 1: these levels. But you know, there are some real issues,
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  Speaker 1: I mean, more domestic than related to trade at this point.
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  Speaker 1: I think that's really kind of you know, resonating in
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  Speaker 1: the eyes and the minds of creditors here in the US.
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  Speaker 1: And and they have more to do with you know,
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  Speaker 1: issues such as um fees being charged by banks on
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  Speaker 1: on households and on depositors, on pemm X, on the
• 1:52
  Speaker 1: airport which was recently voted down. I mean, these are
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  Speaker 1: all issues that have quite frankly, a much bigger impact
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  Speaker 1: on asset valuations than than the trade agreement at this point, Damian,
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  Speaker 1: Does the security situation in Mexico also have an effect
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  Speaker 1: on how investors interpret the potential for investment returns? Absolutely, absolutely, Tim,
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  Speaker 1: I think sentiment is largely been driven by um, you know,
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  Speaker 1: much of the really the headlines coming out of the
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  Speaker 1: White House here in the US, right, and so you know, well,
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  Speaker 1: well you can't really kind of hang your hat on it. Yes,
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  Speaker 1: there's no question that sentiment has been impacted by that
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  Speaker 1: and UM and security is an issue, right because I
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  Speaker 1: think Amos on the record is saying he does not
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  Speaker 1: support a wall and he's not going to fund it.
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  Speaker 1: I can imagine. One other aspect of the G twenty meeting,
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  Speaker 1: which I find really interesting is that it is being
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  Speaker 1: held in Buenos Aires in Argentina. Argentina, of course, has
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  Speaker 1: had a very difficult period of time, uh, you know,
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  Speaker 1: after having gone back to capital markets after a long absence,
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  Speaker 1: showing that it still is in financial straits. Interestingly, though,
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  Speaker 1: the Argentinean currency has actually been doing phenomenally over the
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  Speaker 1: past month. What's going on? Well, I think that's more
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  Speaker 1: that's more technical on the heels of the I m
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  Speaker 1: F deal. But let me be very clear about this, Lisa,
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  Speaker 1: Argentina and specifically the elections in the second half of
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  Speaker 1: next year are the number one UH exogenous risk facing
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  Speaker 1: emerging market creditors in Okay. I mean, if we have
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  Speaker 1: a return to I'm not suggesting, you know, Kushner is
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  Speaker 1: going to be reelected, but not Paris or something along
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  Speaker 1: those lines, um, which is very probable. I mean, I
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  Speaker 1: think the the market, they're going to perceive that as
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  Speaker 1: really a very negative thing. And and to the austerity
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  Speaker 1: measures that that that racing Marcorea has passed, and and
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  Speaker 1: and and supports and and and that would be really
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  Speaker 1: really bad for for Argentina and for its creditors, of
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  Speaker 1: which there is no shortage, given the fact that Argentina,
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  Speaker 1: despite the sell off, is still one of the biggest
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  Speaker 1: overweights in emerging market portfolios today. Well, I want to
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  Speaker 1: pick up on something you said. You said that is
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  Speaker 1: the the biggest argenous risk facing emerging markets creditors, even
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  Speaker 1: more than China. Um. Yes, And I'll tell you why.
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  Speaker 1: Because China is an investment grade uh issuer. You know, so,
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  Speaker 1: so spreads are not so wide, and the risk of
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  Speaker 1: Chinese of credit spreads in China really blowing out given
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  Speaker 1: the size of that economy is nowhere near that of
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  Speaker 1: you know, high yield speculative single B rated Argentina and
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  Speaker 1: and and Argentina's impact on EM portfolios is I mean
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  Speaker 1: it's amazing. I mean, despite the fact that China, I
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  Speaker 1: mean is fiftent of of e M dollar debt, Argentina
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  Speaker 1: is not far behind it. Argentina has issued a lot
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  Speaker 1: of US dollar debt in the past three years, and
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  Speaker 1: so yes, we believe that that has more potential than
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  Speaker 1: China to move the needle. Now, that's that's a direct impact.
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  Speaker 1: In terms of an indirect impact, clearly, weakness in China
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  Speaker 1: and slower growth in China has a knock on effect
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  Speaker 1: to the broader emerging markets. Right. So so from that perspective,
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  Speaker 1: I hear you. But but in terms of a direct impact,
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  Speaker 1: all lives are gonna be on that election. As we
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  Speaker 1: at into Damian, I was under the impression that a
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  Speaker 1: stronger US dollar would actually be better for emerging markets
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  Speaker 1: because it would make their commodities more competitive and their
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  Speaker 1: products and services more competitive. Is that off the table? Well,
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  Speaker 1: you know, you know you're hitting on a nerve. I mean,
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  Speaker 1: we wrote that exactly to that point. This week. We
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  Speaker 1: did a deep dive just yesterday on corporate credit fundamentals
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  Speaker 1: in emerging markets, and it's amazing what we found. We
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  Speaker 1: found that those um, those companies who basically have um
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  Speaker 1: basically large US dollar denominated inputs have really seen their
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  Speaker 1: credit fundamentals week and here in twenty team, which makes sense, right,
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  Speaker 1: because they have to spend more money on whatever it is,
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  Speaker 1: the the whatever input inputs they need to manufacture, whatever
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  Speaker 1: it is they're manufacturing, or or whatever the case may be.
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  Speaker 1: As we get into if we see the dollar begin
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  Speaker 1: to weaken, we should see those those companies, the fundamentals
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  Speaker 1: underlying those companies term more supportive. On the flip side,
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  Speaker 1: commodity producers who's whose output is denominated in dollars have
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  Speaker 1: done extraordinarily well and from a fundamental perspective look as
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  Speaker 1: good as they have in sometime. And that's including all
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  Speaker 1: the large quasi sovereign oil producers and and and some
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  Speaker 1: of the larger industrial metal producers. Thanks very much for
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  Speaker 1: being with us. Damien sassaur is our chief Emerging markets
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  Speaker 1: credits strategist for Bloomberg Intelligence. This comes on a day
• 6:23
  Speaker 1: when the G twenty meeting opens in Argentina. It's coming
• 6:28
  Speaker 1: after the family photo shoot with all the leaders lining
• 6:31
  Speaker 1: up at the G twenty meeting. You're listening to Bloomberg Markets.
• 6:35
  Speaker 1: I'm pim Fox along with Lisa Abramowitz. Can we talk
• 6:41
  Speaker 1: a lot about how the fang stocks are the Facebook, Amazon, Netflix,
• 6:46
  Speaker 1: Google have such dominance over the entire stock market. Increasingly,
• 6:51
  Speaker 1: these big companies are having a dominance over everything and
• 6:55
  Speaker 1: joining us now as someone who really talks about the
• 6:57
  Speaker 1: consequences of that. Jonathan Tepper, I'm very pleased to say,
• 7:00
  Speaker 1: is joining us now, founder of Variant Perception in London.
• 7:03
  Speaker 1: He also he's in San Francisco today. He's also a
• 7:06
  Speaker 1: Bloomberg opinion columnist and author of a new book, The
• 7:09
  Speaker 1: Myth of Capitalism, Monopolies and the Death of Competition. Jonathan,
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  Speaker 1: thank you so much for joining us. You highlight in
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  Speaker 1: a recent column, which is an excerpt of your book, UH,
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  Speaker 1: that the US is startup culture is fading and that
• 7:22
  Speaker 1: this is a big problem. Why So, what's interesting is
• 7:27
  Speaker 1: over the last twenty years we've seen a rise in
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  Speaker 1: industrial concentration across the board, and that means that there
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  Speaker 1: are fewer and fewer players UH in particular industries. And
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  Speaker 1: it's not just the things, it's actually economy wide um.
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  Speaker 1: And so if you look at the twenty twenty years ago,
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  Speaker 1: we had twice as many public stocks. So there's been
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  Speaker 1: a collapse in listings in the stock market. Um, we've
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  Speaker 1: also seen essentially a collapse in startups, you know, even
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  Speaker 1: including non public companies. So every year companies die or
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  Speaker 1: exit markets. And when you have a collapse in startups, obviously,
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  Speaker 1: you know, if this were happening with the population in
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  Speaker 1: the US would be deeply alarmed and would be uh
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  Speaker 1: dire for the future. But that's what's happening effectively in business.
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  Speaker 1: And so what's happening is that there are a few
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  Speaker 1: much bigger companies that now dominate a lot of industries.
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  Speaker 1: The book The Myth of Capitalism touches on the fangs,
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  Speaker 1: but this is actually happening in many other industries as well,
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  Speaker 1: and so it's a broad based trend in in the U.
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  Speaker 1: S economy. What is your theory for why this is happening?
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  Speaker 1: So that the main reason is that in UH it
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  Speaker 1: goes back to two when Reagan changed the merger guidelines
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  Speaker 1: the Department of Justice in the FTC and basically mergers
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  Speaker 1: were given green light. And you know, when every single
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  Speaker 1: stock market boom that we've had has created a merger wave.
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  Speaker 1: So we're now sitting here chatting in and we're essentially
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  Speaker 1: four merger waves in and if you think about it,
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  Speaker 1: like the Sweet sixteen or the World Cup, you know,
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  Speaker 1: you start with sixteen players, get down to eight and
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  Speaker 1: to four and the two and so what happened is
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  Speaker 1: we've just had, you know, um, competitor after competitor being eliminated.
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  Speaker 1: And so you know, something like the US beer market,
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  Speaker 1: now two companies control the beer Americans drink, and that's
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  Speaker 1: totally contrary to the antitrust laws like the UM Sherman Act,
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  Speaker 1: Clayton Act, and so essentially it's this wave of mergers
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  Speaker 1: and eliminating competition. Jonathan, there's an argument that the larger
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  Speaker 1: that a company is, the more efficient they can be,
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  Speaker 1: and they can actually offer lower prices to the consumer,
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  Speaker 1: which is a net win. Why is it a problem
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  Speaker 1: for there to be so much more concentration at the top. Sure,
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  Speaker 1: so that's the argument that's offered UM And certainly when
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  Speaker 1: mergers are about to go through, they hire K Street
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  Speaker 1: law firms and then economists for hire generally trials, Rivers,
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  Speaker 1: Associate and comes lex con But the evidence is overwhelming
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  Speaker 1: that reducing the number of players actually it leads to
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  Speaker 1: price increases. So uh, you know, it's it's like New
• 10:03
  Speaker 1: Year's resolutions. Companies, you know, say that they're gonna get
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  Speaker 1: these synergies and they're gonna pass on to consumers, and
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  Speaker 1: as soon as the food shows up, they uh, you know,
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  Speaker 1: decided to break the New year resolution. And the book
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  Speaker 1: goes into sort of dozens of studies where that's the case.
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  Speaker 1: And so unfortunately, I think that the FDC and dj
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  Speaker 1: OR do nothing institutions and essentially broadly captured by um,
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  Speaker 1: the revolving door, and so there's there's no real challenge
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  Speaker 1: to mergers, and you just end up with higher prices.
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  Speaker 1: The more concentrated the industry in the US generally the
• 10:32
  Speaker 1: more the higher the price. So alright, so Johnny, that's
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  Speaker 1: the case. What's the recipe for changing this? Certainly so
• 10:42
  Speaker 1: that the simply analyzing the problem would be terribly helpful. Um.
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  Speaker 1: The last chapter in the book and has some of
• 10:47
  Speaker 1: these proposals, but basically the sort of short answer is
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  Speaker 1: one prevent further concentration, meaning that we shouldn't allow mergers
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  Speaker 1: that reduce competition materially. Um and uh, there's research pointing
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  Speaker 1: out that when you get blow six players, prices tend
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  Speaker 1: to go up. And so I would say that you know,
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  Speaker 1: if an industry is blow six players, let them compete,
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  Speaker 1: don't let them merge. UM. I would also say that
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  Speaker 1: we have to break up the previous mergers that have
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  Speaker 1: reduced competition. UM. The world didn't end when standard oil
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  Speaker 1: was broken up for a T and T, and the
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  Speaker 1: world won't end when we break up the current to
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  Speaker 1: the monopolies. UH. And then the other aspect I think
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  Speaker 1: it's very important is that regulation tends to act as
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  Speaker 1: a very strong barrier to entry, and unfortunately, what we
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  Speaker 1: have in the United States right now is uh, not
• 11:33
  Speaker 1: too much or too little regulation, but regulations essentially that
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  Speaker 1: serves the interests of companies that want to keep out competitors.
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  Speaker 1: So we definitely need better, more principal space regulation that
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  Speaker 1: has competition and new entrants as its key objective. I
• 11:46
  Speaker 1: have to wonder what kind of responses you've gotten so
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  Speaker 1: far to this, because it seems like there are a
• 11:51
  Speaker 1: number of people talking about this now and and probably
• 11:54
  Speaker 1: more than say, ten years ago. Is that a correct statement? Absolutely,
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  Speaker 1: and I think that this has really started basically UM
• 12:03
  Speaker 1: at least entering the public consciousness probably about two years ago. UM.
• 12:07
  Speaker 1: I think that it unsurprisingly it was sort of at
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  Speaker 1: the end essentially of the of of a fourth merger
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  Speaker 1: wave was a peak, and in mergers for for the US,
• 12:16
  Speaker 1: twenty seventeen and eighteen broadly globally have been peaks. Um.
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  Speaker 1: But but clearly people are now realizing that there's just
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  Speaker 1: a lot less competition. The reaction has been overwhelmingwhelmingly positive. Um.
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  Speaker 1: You know, the people who have endorsed the book and
• 12:29
  Speaker 1: uh so praised the message of the book been Nobel
• 12:32
  Speaker 1: Prize winners like Ranks deton my expense, uh and then
• 12:36
  Speaker 1: the economists like Kenneth Rugoff and historians let you know
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  Speaker 1: first and so I think this is a very big
• 12:41
  Speaker 1: subject um and uh when I talk to people, you
• 12:45
  Speaker 1: know at book events or you know, just sitting at
• 12:47
  Speaker 1: the airport randomly chatting with people, Um, everyone recognizes their
• 12:51
  Speaker 1: own industry as having less competition, you know, sitting next
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  Speaker 1: to someone who works in hospitals of US hospital markets
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  Speaker 1: are highly concentrated, so it resonates in people's lives. I
• 13:01
  Speaker 1: have to one because we also had Tim wu On
• 13:03
  Speaker 1: the Columbia Professor recently, who is talking about a similar
• 13:07
  Speaker 1: type of idea. What kind of hope do you have
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  Speaker 1: that the current political establishment could potentially enact some measure
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  Speaker 1: that would be appropriate here in your opinion. So I
• 13:20
  Speaker 1: think that the tide is changing. And I did some
• 13:23
  Speaker 1: book events in in d C. And got to meet
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  Speaker 1: quite a lot of people on the hill, and very
• 13:27
  Speaker 1: definitely senators want to do something about this. You know,
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  Speaker 1: you have Warren Warner Grey book or club schar and others,
• 13:34
  Speaker 1: and even the Republicans who often have been perhaps more
• 13:38
  Speaker 1: friendly to big business than not, are realizing that actually,
• 13:41
  Speaker 1: if you care about competition and you care about free markets,
• 13:44
  Speaker 1: and you know you're pro capitalism, what you should want
• 13:47
  Speaker 1: is to have reduce industrial concentration to have more competition.
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  Speaker 1: So I think this is becoming essentially a bipartisan issue, um,
• 13:55
  Speaker 1: and I certainly do hope that we'll get some change.
• 13:58
  Speaker 1: Thanks very much for being with us. Jonathan Temper is
• 14:00
  Speaker 1: the founder of Variant Perception. He is also a Bloomberg
• 14:04
  Speaker 1: opinion columnist, and his latest book is entitled The Myth
• 14:09
  Speaker 1: of Capitalism, Monopolies and the Death of Competition. Just yesterday,
• 14:18
  Speaker 1: the California Public Utilities Commission met in order to try
• 14:24
  Speaker 1: to figure out what is next for the top utility
• 14:29
  Speaker 1: in the state of California. That is pg NY, and
• 14:31
  Speaker 1: here to tell us more is Mark Chettiac of Bloomberg News.
• 14:34
  Speaker 1: You can follow Mark on Twitter at Mark Chettiac. That
• 14:38
  Speaker 1: H E. D I A K. Mark. Just give us
• 14:42
  Speaker 1: a little background as to why P and G is
• 14:45
  Speaker 1: in the focus of regulators related to the recent wildfires. Hi, Yes,
• 14:53
  Speaker 1: thanks for having me on. I appreciate it. Um So
• 14:56
  Speaker 1: Penny is California's largest utility. UH It's been operating in
• 15:02
  Speaker 1: California for more than a hundred years, but it has
• 15:05
  Speaker 1: um within the last ten to fifteen years quite a
• 15:09
  Speaker 1: checkered past in the state. Um it's responsible. It was
• 15:12
  Speaker 1: responsible for a natural gas pipeline explosion in a San
• 15:17
  Speaker 1: Francisco suburb that killed eight people and level the neighborhood.
• 15:22
  Speaker 1: It's power lines are have been identified as starting many
• 15:27
  Speaker 1: of last year's deadly Wine Country fires in northern California.
• 15:31
  Speaker 1: Last year, and just recently, investigators are looking at its
• 15:35
  Speaker 1: power lines for starting the camp Fire, which is now
• 15:39
  Speaker 1: considered the most destructive and deadliest fire in California's history.
• 15:44
  Speaker 1: So UM, as you mentioned yesterday, California's top energy regulator
• 15:49
  Speaker 1: um is opening open these questioning basically whether or not
• 15:54
  Speaker 1: the company actually has the safety culture and structure in
• 15:59
  Speaker 1: place to UM to deliver safe and reliable electricity in
• 16:04
  Speaker 1: the state. Yeah, I mean, I guess that this raises
• 16:07
  Speaker 1: a lot of questions, right, I mean, is this just
• 16:09
  Speaker 1: sort of a cost of doing business for any utility
• 16:12
  Speaker 1: or is this some kind of rampant negligence that's endemic
• 16:15
  Speaker 1: at the utility. And then there's a question too, what
• 16:18
  Speaker 1: are you gonna do put them out of business? Who's
• 16:20
  Speaker 1: going to take over? So how are people sort of
• 16:22
  Speaker 1: addressing both of those questions? Yeah, that's a great point.
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  Speaker 1: And uh Michael Picker, who is the president of the
• 16:28
  Speaker 1: California Public Utilities Commission, kind of he basically spoke to
• 16:32
  Speaker 1: that specifically. What he said yesterday is um. He noted,
• 16:36
  Speaker 1: this is, you know, utility that people depend on for
• 16:39
  Speaker 1: reliable electricity, so you can't just put them out of business.
• 16:42
  Speaker 1: He he talked about, you know, fixing or changing PGNIE
• 16:48
  Speaker 1: is a kind to trying to fix an aircraft in flight. UM.
• 16:52
  Speaker 1: He said, you know, we don't want to crash the plane,
• 16:54
  Speaker 1: so we have to be very careful and very deliberative
• 16:57
  Speaker 1: about how we do this. What is the potential liability
• 17:01
  Speaker 1: for PGEN or has that not even been figured out? Well, Um,
• 17:06
  Speaker 1: first of all, let me make it clear that they
• 17:10
  Speaker 1: haven't determined the cause of this year's camp fire. So
• 17:13
  Speaker 1: p power lines are are being looked at, but no
• 17:16
  Speaker 1: final determination has been made. If the company has found liable,
• 17:20
  Speaker 1: analysts think UM it could be around fifteen billion dollars
• 17:24
  Speaker 1: that surpasses PGNs market cap. Right now, PI is also
• 17:28
  Speaker 1: looking at about fifteen billion dollars or more of liability
• 17:31
  Speaker 1: from last year's fire. So that's about thirty billion dollars
• 17:34
  Speaker 1: and liabilities that far exceeds the company's market capitalization. So
• 17:40
  Speaker 1: what's happening now is UM State officials are looking at
• 17:43
  Speaker 1: ways in which UM they can potentially help the utility
• 17:48
  Speaker 1: pay off these massive liabilities. They don't really want the
• 17:52
  Speaker 1: company to go bankrupt. UM that's kind of a worst
• 17:55
  Speaker 1: case scenario, But they also don't want the public very
• 18:00
  Speaker 1: much doesn't want the utility to get off scot free either. Well, yeah,
• 18:05
  Speaker 1: I mean there are chances of quote no bailout. As
• 18:08
  Speaker 1: you as you wrote in your latest story. I have
• 18:11
  Speaker 1: to wonder at this point, can they break the company up,
• 18:14
  Speaker 1: can they try to can the state try to give
• 18:18
  Speaker 1: some kind of advantage to competing utilities to try to
• 18:21
  Speaker 1: gain share. I mean, what are sort of some of
• 18:23
  Speaker 1: the ways that they could, uh that they could solve this. Yeah,
• 18:29
  Speaker 1: that's a great question, um, and I think every you know,
• 18:32
  Speaker 1: state officials are really taking a hard look at this.
• 18:35
  Speaker 1: Some of the options being considered. One the top energy regulator,
• 18:38
  Speaker 1: Michael Picker, said there could be changes at the company's board.
• 18:43
  Speaker 1: There's some board members who have been with the company
• 18:45
  Speaker 1: for quite some quite a long time, so you could
• 18:48
  Speaker 1: see something like that. You could the company has an
• 18:52
  Speaker 1: electric distribution service and also a natural gas distribution service.
• 18:56
  Speaker 1: You could see them breaking up those two pieces of
• 18:59
  Speaker 1: the company. You could even see them breaking up GENI
• 19:02
  Speaker 1: into smaller sort of regional division. So there are a
• 19:05
  Speaker 1: number of potential options. Nothing has been suggested, there are
• 19:09
  Speaker 1: there have been no firm suggestions at this point. Mark Tettiak,
• 19:13
  Speaker 1: thank you so much for being with us. Mark Tettiac
• 19:15
  Speaker 1: as an energy reporter for Bloomberg News coming to us
• 19:18
  Speaker 1: from San Francisco. Really interesting to think about too Big
• 19:22
  Speaker 1: to Fail in the context of utilities, especially when you
• 19:25
  Speaker 1: do have him a pattern frankly here with p Gennie,
• 19:28
  Speaker 1: although of course it does have to be established what
• 19:31
  Speaker 1: their role was in the campfires. But but really, uh,
• 19:35
  Speaker 1: potentially this could be a real big problem for California.
• 19:38
  Speaker 1: Well it could be. Yes. Pg US market cap right
• 19:41
  Speaker 1: now is just a little bit more than thirteen and
• 19:43
  Speaker 1: a half billion dollars and it has dropped by more
• 19:46
  Speaker 1: than forty percent this year. Yeah, it's been a really
• 19:49
  Speaker 1: rough year for them, and frankly, uh for all Californians
• 19:52
  Speaker 1: who are thinking, what are we gonna do with them?
• 19:53
  Speaker 1: And we don't want to bail him out. Joining us
• 19:58
  Speaker 1: here in our Bloomberg Interactor Ochre Studio is Joe Maisak,
• 20:01
  Speaker 1: editor for the Bloomberg Grief for municipal markets. Joe Maisak,
• 20:05
  Speaker 1: let's begin with General Motors and the announcement this week
• 20:09
  Speaker 1: that they will be exiting a variety of locations. They
• 20:12
  Speaker 1: are shuttering a total of five plants, one of them
• 20:15
  Speaker 1: going to be in Canada. What effect is this going
• 20:18
  Speaker 1: to have on municipal finances? Well, you know, whenever you
• 20:22
  Speaker 1: and something, most of these plants are in the they're
• 20:26
  Speaker 1: in the Upper Midwest, Ohio and Michigan. Uh, of course
• 20:32
  Speaker 1: one in Canada. You know, there is a an outsize
• 20:38
  Speaker 1: effect in some of these small communities, uh where you
• 20:45
  Speaker 1: know these particularly Amanda Albright did a story this week
• 20:51
  Speaker 1: about Lordstown, Ohio. Small town has a factory in it
• 20:56
  Speaker 1: that GM wants to shut and that is going to
• 20:58
  Speaker 1: have an outsize impact because the village there's thirty people
• 21:06
  Speaker 1: and uh, you know, it's just as this has a
• 21:10
  Speaker 1: knockout effect. You know when you say, here, we're closing
• 21:13
  Speaker 1: down and we're getting rid of you know, several hundred people,
• 21:17
  Speaker 1: several thousand people. There are stores that are gonna have
• 21:21
  Speaker 1: there's gonna be an impact there, and the housing markets
• 21:24
  Speaker 1: is going to be impacted. Schools, So yeah, this is
• 21:28
  Speaker 1: it's it's tough when when you have a company coming
• 21:31
  Speaker 1: and say we're going to close down, and of course,
• 21:34
  Speaker 1: you know, maybe some of it is uh, you know,
• 21:38
  Speaker 1: a bargaining chip. We said we're shutting down six firms
• 21:41
  Speaker 1: or were started shutting down six factories, and you really
• 21:44
  Speaker 1: have to shut down maybe one. Well, just according to
• 21:47
  Speaker 1: this story, if you look at the total employment in
• 21:53
  Speaker 1: just as this example Lordstown, you're talking about five percent
• 21:56
  Speaker 1: of the total county employment. How do you take up
• 22:00
  Speaker 1: something like that. It's very difficult, especially because in these
• 22:04
  Speaker 1: Upper Midwest communities, you don't have a lot of uh,
• 22:09
  Speaker 1: it's it's not the same as in the South, where
• 22:11
  Speaker 1: you have a lot of factories that are uh, you know,
• 22:15
  Speaker 1: going to be moving in or want to move in.
• 22:18
  Speaker 1: So when you have one of these long time UM
• 22:22
  Speaker 1: employers decide that, well, let's say see you, it's very
• 22:26
  Speaker 1: difficult to make that up. And this has been really
• 22:29
  Speaker 1: the story of a lot of the rust Belt, the
• 22:31
  Speaker 1: so called rust belt, right. I mean, this is sort
• 22:33
  Speaker 1: of we're watching it in real time sort of as
• 22:35
  Speaker 1: it plays out near the end of this whole thing,
• 22:38
  Speaker 1: or maybe we're in the middle. I don't know, but
• 22:40
  Speaker 1: it's really interesting to think about how that affects municipalities.
• 22:43
  Speaker 1: On a brighter note though, for municipalities right now, uh,
• 22:47
  Speaker 1: there was a bond rally that was inclusive of municipal
• 22:50
  Speaker 1: bonds after j. Powell of the Fed spoke, people seem
• 22:54
  Speaker 1: to want to come back to the debt because it
• 22:57
  Speaker 1: seems like the Fed's not gonna hike rates as quickly.
• 23:00
  Speaker 1: How sustainable is the rally that we saw the sort
• 23:03
  Speaker 1: of knee jerk money into the record flow into Black
• 23:06
  Speaker 1: roxy t f MEUNI, Bonny TF and sort of the
• 23:09
  Speaker 1: the initial jolt there. Well, it's funny the thing we
• 23:14
  Speaker 1: talked about earlier this summer about so many bonds being
• 23:19
  Speaker 1: you know, going to mature and so many bonds being
• 23:22
  Speaker 1: called away money looking for a new home. We're setting
• 23:26
  Speaker 1: up for that again in December January. These are the
• 23:30
  Speaker 1: months where people get money back. And after we invested
• 23:33
  Speaker 1: and the supply, I would say, we're probably going to
• 23:38
  Speaker 1: get a little boomlet in December, but it's not gonna
• 23:42
  Speaker 1: it's it's not going to overwhelm the money that's looking
• 23:46
  Speaker 1: for a new home. So that is very constructive. Uh.
• 23:50
  Speaker 1: You know, that is one of those factors in the
• 23:53
  Speaker 1: muni market. See it in December, January, and then see
• 23:56
  Speaker 1: it in June and July. What's the likelihood they're going
• 23:59
  Speaker 1: to have to inc pase rates in order to entice buyers.
• 24:02
  Speaker 1: Not very much, not much, you know, we have wow.
• 24:06
  Speaker 1: You know when you take a look at the tenure
• 24:10
  Speaker 1: uh bond, the yield to drop back down. I mean
• 24:14
  Speaker 1: I thought for a while we might hit three on it. Nah,
• 24:17
  Speaker 1: not gonna uh And and you know, as I say,
• 24:20
  Speaker 1: there's boomlet and I the only place you can go
• 24:22
  Speaker 1: for three percent is Pennsylvania. For the tenure, the boomlet
• 24:27
  Speaker 1: is not going to result, and everybody, you know, all
• 24:31
  Speaker 1: of a sudden coming in and saying, well, we have
• 24:34
  Speaker 1: to pay more money to attract investors. Well, one place
• 24:37
  Speaker 1: that might have to pay more money is Puerto Rico
• 24:39
  Speaker 1: because there is some talk that they might be returning
• 24:42
  Speaker 1: to the municipal bond market at some point. How realistic
• 24:45
  Speaker 1: is that at this point? Oh? I saw that that
• 24:48
  Speaker 1: deal on the calendar, and that's actually the exchange bonds
• 24:52
  Speaker 1: for the Government Development Bank, the UH deal that has
• 24:57
  Speaker 1: restructuring deal that has been set up. So it's not
• 24:59
  Speaker 1: quite a new issue where they're coming in and saying, oh,
• 25:03
  Speaker 1: we're to send all sell all new bonds. Step right up?
• 25:06
  Speaker 1: How likely is that right now? I guess at some
• 25:09
  Speaker 1: point next year we'll probably see Puerto Rico way in
• 25:13
  Speaker 1: and say, well here's a new bond issue. But gosh,
• 25:18
  Speaker 1: who knows how much they'd have to pay a yield there? Joe,
• 25:23
  Speaker 1: Is there any estimate, just quickly on how much of
• 25:26
  Speaker 1: an effect the fact that banks are not going to
• 25:29
  Speaker 1: be buying and have actually been shedding municipal bonds from
• 25:32
  Speaker 1: their portfolios. Well, as you can see, not much. Uh,
• 25:38
  Speaker 1: you know, that the yields have been coming down. You know,
• 25:40
  Speaker 1: we had we had a little bit of an impact
• 25:43
  Speaker 1: and that was purely fed and rates moved higher and
• 25:47
  Speaker 1: just the kind of swooning again, you know. The An
• 25:51
  Speaker 1: interesting thing I just want to toss in the unrated
• 25:56
  Speaker 1: bond market is up about this year in Muni. Interesting
• 26:01
  Speaker 1: search for search for Yale to imagined. It yields a
• 26:04
  Speaker 1: little bit more and it's a little bit less liquid.
• 26:06
  Speaker 1: Joe Maisak, editor of the Bloomberg Brief, focused on the
• 26:08
  Speaker 1: miss of a bond market for Bloomberg News. Thank you
• 26:11
  Speaker 1: so much for being with us. Coming up, we're gonna
• 26:14
  Speaker 1: be talking about luxury and how the concept of luxury
• 26:18
  Speaker 1: is changing ahead of this holiday season. I'm Lisa Abramoh.
• 26:21
  Speaker 1: It's along with Pim Fox and this is Bloomberg. Thanks
• 26:25
  Speaker 1: for listening to the Bloomberg P and L podcast. You
• 26:27
  Speaker 1: can subscribe and listen to interviews at Apple Podcasts, SoundCloud,
• 26:31
  Speaker 1: or whatever podcast platform you prefer. I'm Pim Fox. I'm
• 26:35
  Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa Abramo.
• 26:39
  Speaker 1: It's one before the podcast. You can always catch us
• 26:42
  Speaker 1: worldwide on Bloomberg Radio.