Latest / Bloomberg Intelligence / Jerome Powell’s Second Term And The Latest On Markets

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Jerome Powell’s Second Term And The Latest On Markets · Bloomberg Intelligence

• 0:00
  Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
• 0:04
  Speaker 1: my co host Matt Miller. Every business day, we bring
• 0:06
  Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
• 0:11
  Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
• 0:15
  Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
• 0:18
  Speaker 1: at Bloomberg dot com slash podcast. We had news yesterday
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  Speaker 1: President Biden reappointed FED Chair j Pale, but also elevated
• 0:28
  Speaker 1: Layo Bringer to the vice chair of the FED. But
• 0:30
  Speaker 1: there's still some other openings there at the FED. Let's
• 0:34
  Speaker 1: get a lay of the land there on all things FED.
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  Speaker 1: We can do that with the Caleb Nyeguard, Senior Research
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  Speaker 1: associated at the Yale Program on Financial Stability, previously worked
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  Speaker 1: in Statistics division at the Federal Reserve Bank of Chicago,
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  Speaker 1: Sonosa thing or two about the FED. Caleb, thanks so
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  Speaker 1: much for joining us here. Um, President Biden did not
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  Speaker 1: announce a full slate of FED nominees yesterday. Why do
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  Speaker 1: you think we don't have everything filled here? Yeah, it's
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  Speaker 1: it's great to be with you. Um, it's President Biden
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  Speaker 1: kind of operates on this definition of FED independence. That uh,
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  Speaker 1: that's basically that he doesn't comment on specific actions that
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  Speaker 1: the Central Bank takes. So he really has one big
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  Speaker 1: shot to send a message to the FED, to Congress,
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  Speaker 1: to financial markets, and to the broader publican general about
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  Speaker 1: what he thinks about the FED. And you know, I
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  Speaker 1: think he missed his opportunity yesterday by only filling two
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  Speaker 1: of the seats um two of the positions. He could
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  Speaker 1: have billed three others. Uh, there's the open seat from
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  Speaker 1: that Trump tried to fill with Judy Shelton Quarrels has
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  Speaker 1: gone and that seat's gonna need to be filled, and
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  Speaker 1: Clara does is leaving, so that seat needs to be filled.
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  Speaker 1: I mean, just imagine how powerful it would have been
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  Speaker 1: for Biden to account walk up to that Mike yesterday
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  Speaker 1: flanks not just by the feds number one and number two,
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  Speaker 1: but the fed's top five, and kind of the message
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  Speaker 1: that would have sense about what Biden thinks. Who the
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  Speaker 1: sen is, what their job is, what their priorities are,
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  Speaker 1: and you know who they represent and not just skin
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  Speaker 1: color and gender, but also economic background. I think he
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  Speaker 1: missed that opportunity because there are three those three seats
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  Speaker 1: he says he's going to fill them in early December,
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  Speaker 1: but between the debt feeling and the holidays, I just
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  Speaker 1: don't think that message is going to get through this
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  Speaker 1: same degree that it would have. And why not, I mean,
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  Speaker 1: why not come out and make these decisions sooner rather
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  Speaker 1: than later. We've had plenty of time to debate, to
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  Speaker 1: have an open conversation about especially with the vice here
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  Speaker 1: of supervision that all important seed, why leave it open
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  Speaker 1: for so long? Yeah, that's right, And I don't think that,
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  Speaker 1: you know, I think this is a messaging issue. I'm
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  Speaker 1: not one of those that believe that a month or
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  Speaker 1: two of one of these seats for the job itself
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  Speaker 1: is going to make a huge difference in the medium
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  Speaker 1: and especially not in the long term. Of what it doesn't.
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  Speaker 1: It shows what it has kind of showed for the
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  Speaker 1: FED chair race, which is the President Biden is just
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  Speaker 1: not considers just doesn't consider the said to be a priority.
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  Speaker 1: And maybe it's political concerns about distracting the different wings
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  Speaker 1: of the of the Democrats Democratic senators, but I but
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  Speaker 1: I think the concern is real that this is just
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  Speaker 1: showing that Biden just doesn't U as a priority. So Caleb,
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  Speaker 1: a lot of the progressives, particularly UH Elizabeth Warren where
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  Speaker 1: came out against reappointing FED Chairman J Pale. What do
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  Speaker 1: you think that the political calculus was for the president
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  Speaker 1: in the announcement he did make. Yeah, So, you know,
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  Speaker 1: I think this was a big loss by the progressive movement.
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  Speaker 1: You know, over the last couple of years, they've proven
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  Speaker 1: themselves quite a dept at picking battles that they think
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  Speaker 1: they're probably gonna lose, but in the process they can
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  Speaker 1: shift the window, expand the potential, you know, kind of
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  Speaker 1: win this war of ideas. Uh, And this time the
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  Speaker 1: progressive just didn't really bring their their A game to this.
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  Speaker 1: They have never named an alternative. You know, Warren's dangerous
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  Speaker 1: man kind of comment was appeared to be off the
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  Speaker 1: cuff and didn't have a big follow up. The squads
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  Speaker 1: and how their letter to that was released over the summer.
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  Speaker 1: You know, they had some shallow issue things concerns that
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  Speaker 1: they were bringing up, but they didn't name any names.
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  Speaker 1: They didn't even have a short list, and they didn't
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  Speaker 1: really collect around what it exactly is that they wanted,
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  Speaker 1: uh from the FED. What do you want to see then,
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  Speaker 1: particularly when it comes to the vice chair for supervision,
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  Speaker 1: as you mentioned before. Biden has talked a lot about
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  Speaker 1: gender and race diversity and inclusion as well. What are
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  Speaker 1: some of the qualifications of the people that you've seen
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  Speaker 1: floated around. Yeah, so that that diversity in in both
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  Speaker 1: both gender, race, and then and then background is really important.
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  Speaker 1: And I'll throw up at the top that in the law,
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  Speaker 1: the Federal Reserve Act itself says that that these the
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  Speaker 1: leadership should include various sectors of the economy, and it
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  Speaker 1: explicitly includes labor. And then you know, we've never had
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  Speaker 1: a member of the Federal Open Market Committee, so either
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  Speaker 1: from a Reserve Bank president or one of the governors
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  Speaker 1: that came from a background of of organized labor. We've
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  Speaker 1: had labor economists, we've not had someone from the actual movement.
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  Speaker 1: And so that would be something for one of the
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  Speaker 1: three seats UH that I would I would be interested
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  Speaker 1: in seeing. And then there are others on the on
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  Speaker 1: the actual supervision stuff. We want to see somebody that
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  Speaker 1: has experience in that matter, that has a track record
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  Speaker 1: of of of having having views um and there are
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  Speaker 1: there are a few people on the list that just
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  Speaker 1: don't really have much supervisory experience or public messages about that.
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  Speaker 1: And so that's what That's one of the things I
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  Speaker 1: want to see. All right, Caleb, thank you so much
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  Speaker 1: for joining us. We really appreciate you taking the time.
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  Speaker 1: Caleb Nyeguard, Senior Research Associate for the Yale Program on
• 5:53
  Speaker 1: Financial Stability, part of the Yale School of Management. I
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  Speaker 1: want to bring on Jim Shariko. He's a president CEO
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  Speaker 1: of a Via Holdings uh symbol a v y A.
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  Speaker 1: But we're gonna get to that in just a moment.
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  Speaker 1: But first let's check in with Kritty Gupta. Get some
• 6:11
  Speaker 1: small cap stocks that's coming up right now. Paul the
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  Speaker 1: Russell two thousand down one percent, underperforming the broader market.
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  Speaker 1: The move that looks a lot like tech, but under
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  Speaker 1: the hood you're seeing a little bit of a mixed picture.
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  Speaker 1: Jack in the Box shares down six percent tigger J
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  Speaker 1: A c K after the fast food chain reported same
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  Speaker 1: store sales that missed expectations and restaurant margin declines driven
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  Speaker 1: by higher costs and higher wages, kind of thing we've
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  Speaker 1: been hearing lately. Abercrombie and Fish is another one. Tigger
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  Speaker 1: A n F. Those shares down sixteen percent, the most
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  Speaker 1: intra day since March of once again hitting those supply
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  Speaker 1: chain issues. You also have Urban Outfitters down fourteen percent.
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  Speaker 1: Those third quarter results mixed. Uh, they did beat those expectations.
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  Speaker 1: The outlook was encouraging, but once again supply chain disruptions
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  Speaker 1: and pressure from higher costs weighing on that stock. To
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  Speaker 1: the upside though, because we've gotta have some good is
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  Speaker 1: in their American Eagle shares up five percent, took your
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  Speaker 1: a EO, also reporting better than expected earnings, this time
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  Speaker 1: on strong in store sales ahead of the holidays. And lastly,
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  Speaker 1: die Coum Industries took her d Y shares that fifteen
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  Speaker 1: percent after the infrastructure company whose sales turned positive for
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  Speaker 1: the first time in a year and even in margins
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  Speaker 1: also stabilized thanks to a client or some improvement when
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  Speaker 1: the client that Bloomberg Intelligence expects is Verizon. Interesting. Interesting,
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  Speaker 1: all right, Gretty goop that thank you so much. We
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  Speaker 1: appreciate getting that small cap report. Look at one of
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  Speaker 1: these small caps via holdings of the stock was up
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  Speaker 1: had a nice movie actually from eighteen to twenty two,
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  Speaker 1: pulling back at six point six percent today. Jim Shariko,
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  Speaker 1: president and CEO of A Villa, joins us here. Jim,
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  Speaker 1: thanks so much for joining us here via Again, a
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  Speaker 1: technology communications company that offers collaboration and kee communication tools
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  Speaker 1: for businesses. Talk to us about your business, Jim. We're
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  Speaker 1: seeing Zoom Technologies trade off a lot today and a
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  Speaker 1: lot of the companies that had benefited from some of
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  Speaker 1: the work from home issues getting a little bit under
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  Speaker 1: pressure here. Talked to us about your company, what you're
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  Speaker 1: seeing in your business. Yeah, Hi, good morning, Thanks for
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  Speaker 1: having me on UM. Yeah, for a viot look. We
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  Speaker 1: had our fourth quarter of fifthical year results yesterday. Was
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  Speaker 1: a strong year on many fronts. We exceeded the street
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  Speaker 1: expectations across the board UM, and we've really been focusing
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  Speaker 1: on delivering a three pillar value creation strategy. FIRSTUS growth.
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  Speaker 1: We've had six consecutive quarters a year on year growth.
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  Speaker 1: We reversed more than a decade of revenue declines by
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  Speaker 1: being up roughly a hundred million dollars to very close
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  Speaker 1: to three billion of revenue for the year UM. We
• 8:42
  Speaker 1: have moved to a cloud uh cloud first company. Our
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  Speaker 1: annually recurring revenues finished up roughly a hundred and seventy
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  Speaker 1: seven percent year on year, so we're seeing strength across
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  Speaker 1: the board. We operate in a hundred and ninety countries.
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  Speaker 1: We have more than a hundred thousand UH customers, and
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  Speaker 1: we've been investing significantly and really focusing on reshaping a
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  Speaker 1: bye to a cloud company and a real leader in
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  Speaker 1: large enterprise communication and collaboration. You know, it's interesting we
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  Speaker 1: heard from Zoom as well yesterday and they really in
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  Speaker 1: their press release we're highlighting how they have to be
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  Speaker 1: wherever some of these large enterprise companies are. So if
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  Speaker 1: it's a hybrid work environment, if it's fully work from home,
• 9:25
  Speaker 1: if it's all returned to office, they're having to you know,
• 9:29
  Speaker 1: sort of sort of tackle all of that. How are
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  Speaker 1: you thinking about finding a customer where they are, even
• 9:37
  Speaker 1: if it's at work from home, even if it's a
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  Speaker 1: percent in office. Yeah, if you take a look at
• 9:43
  Speaker 1: our overall solutions, in fact, we're purpose built for exactly that.
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  Speaker 1: We are a portfolio company, in fact for the only
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  Speaker 1: portfolio company that offers solutions that cover both the unified
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  Speaker 1: communications space as well as the contact center space. And
• 9:58
  Speaker 1: we provide solution whether it's hybrid, whether it's private and
• 10:02
  Speaker 1: or public. Um. Many of our competitors really offer basically
• 10:07
  Speaker 1: one or maybe two of those solutions, but we're a
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  Speaker 1: complete portfolio company and in fact really focusing on from
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  Speaker 1: our point of view, how people communicate and collaborate, whether
• 10:18
  Speaker 1: it's uh, you know, work at home or from from
• 10:21
  Speaker 1: the office, because we view that work has been significantly disrupted,
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  Speaker 1: it won't go back to where it once was, and
• 10:29
  Speaker 1: these disruptions provide us an opportunity to grow really predicated
• 10:34
  Speaker 1: on the fact that our line platform enables enables business
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  Speaker 1: to really have that customer as well as employee experience,
• 10:42
  Speaker 1: and that's a real differentiator in today's market. So, Jimmy,
• 10:45
  Speaker 1: you know, you guys have just a fantastic advantage point
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  Speaker 1: talking you know, working with your clients. How do you
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  Speaker 1: think the future of work will be? Will it be hybrid?
• 10:55
  Speaker 1: Is that kind of the new norm now for corporations?
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  Speaker 1: You know it really is. You know we did I said,
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  Speaker 1: we deal with you know, the largest of large enterprises
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  Speaker 1: down to the SMB marketplace, and no matter what vertical
• 11:10
  Speaker 1: you look across, be at healthcare or banking or government, um,
• 11:14
  Speaker 1: we're seeing that the workforce will be um really more
• 11:17
  Speaker 1: of a hybrid environment as as we see it out
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  Speaker 1: through you know, the foreseeable future and what that means
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  Speaker 1: is that businesses today need more flexibility and how they
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  Speaker 1: use technology, how they can create this purposeful and consistent experience.
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  Speaker 1: And that's UM. You know, that's a huge opportunity for
• 11:36
  Speaker 1: us because we UM. We provide that platform, We provide
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  Speaker 1: the end to end solutions. You know, we've been running
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  Speaker 1: mission critical applications for our number of customers for for
• 11:48
  Speaker 1: for many many years. And the challenge is pretty clear,
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  Speaker 1: and that's to eliminate these departmental silos, UH and really
• 11:55
  Speaker 1: eliminate friction on how businesses conduct commerce and and we're
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  Speaker 1: excited about the opportunity for the company. Hey, Jim, thanks
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  Speaker 1: so much, sure for taking some time here. We really
• 12:04
  Speaker 1: appreciate getting your thoughts here. It's really the future of
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  Speaker 1: business and working and as Jim was just mentioning, it
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  Speaker 1: kind of feels like a hybrid is here to stay.
• 12:12
  Speaker 1: Jim Shariko, president and CEO of a Vaya symbol A
• 12:16
  Speaker 1: the y A. They stalk us up about eight percent
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  Speaker 1: year to day, had a big big move up yesterday
• 12:22
  Speaker 1: on the earnings eighteen to twenty two, pulling back about
• 12:24
  Speaker 1: six percent today, but a big move there, and we
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  Speaker 1: appreciate Jim taking the time Taylor, you're looking at the
• 12:32
  Speaker 1: NASTAC here today it's off one percent. We've kind of
• 12:35
  Speaker 1: got the SMP flatish, but the nasdak off, you know,
• 12:38
  Speaker 1: a little more than one percent. We've got the you know,
• 12:41
  Speaker 1: looking at the rates rising a little bit here, it
• 12:44
  Speaker 1: could be a little bit of a challenge. Well, and
• 12:45
  Speaker 1: I think we're gonna pull in pretty coopta back in
• 12:48
  Speaker 1: here because you had a big sort of you know,
• 12:51
  Speaker 1: it was so interesting, Paul. Yesterday we stood here and
• 12:54
  Speaker 1: early in the morning we got the Fed announcement. Sort
• 12:56
  Speaker 1: of it seemed to be this clarity rally, big relief
• 12:59
  Speaker 1: for then you had a decline of one point three
• 13:02
  Speaker 1: percent on the NASTACK by the end of the session,
• 13:04
  Speaker 1: and then you wake up today and you're off again
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  Speaker 1: another one percent. And one key metric I'm looking at
• 13:10
  Speaker 1: is the number of stocks in the NASTAC that are
• 13:12
  Speaker 1: making fifty two week lows. It's go up to five
• 13:15
  Speaker 1: hundred and news stocks it was four three days ago.
• 13:21
  Speaker 1: So that's sort of giving you an indication when you
• 13:23
  Speaker 1: think about breadth and the magnitude. And again, a one
• 13:26
  Speaker 1: percent sell off is nothing in the scheme of things,
• 13:29
  Speaker 1: but underneath the surface there seems to be something going on,
• 13:32
  Speaker 1: and that is the highest now since March of when
• 13:35
  Speaker 1: you think about the number of stocks that are making
• 13:37
  Speaker 1: fresh fifty two week lows. So just some really interesting dynamics.
• 13:41
  Speaker 1: And you know, again with yields rising, you do, as
• 13:43
  Speaker 1: you know better than anyone, talk about that discount rate
• 13:47
  Speaker 1: and cash flows. And then you've had a lot of
• 13:49
  Speaker 1: push pool with this COVID narrative though as you and
• 13:52
  Speaker 1: I've been talking about hard to talk about cases. It's
• 13:54
  Speaker 1: better to be talking about death and hospitalizations when you
• 13:57
  Speaker 1: think about, uh, sort of the stay at home home
• 14:00
  Speaker 1: trades all over again, Yeah, exactly, And you think about
• 14:03
  Speaker 1: the nastac and some of these tech names that kind
• 14:04
  Speaker 1: of goes to that you know, push and pull we've
• 14:07
  Speaker 1: had in this market really since the beginning of the pandemic.
• 14:09
  Speaker 1: Where do you want to be in some of those
• 14:11
  Speaker 1: traditional growth stories that have worked so well for really
• 14:15
  Speaker 1: since a financial crisis back in two thousand eight, or
• 14:17
  Speaker 1: do you really make that cyclical play, that reopening play
• 14:22
  Speaker 1: on you know, whether it's you know, some of the
• 14:24
  Speaker 1: energy names, or the financials or even some of the
• 14:27
  Speaker 1: small cap names. It's that push and pull there that
• 14:29
  Speaker 1: we see in this market, um, and we see kind
• 14:32
  Speaker 1: of waves where tech does well and then again some
• 14:34
  Speaker 1: of the more cyclical names do well. Yeah, let's do
• 14:36
  Speaker 1: all of this and more with Critty Gupta who we've
• 14:38
  Speaker 1: swooped in here and pretty you know. Again, we don't
• 14:41
  Speaker 1: want to make too much of a one percent here,
• 14:43
  Speaker 1: one percent there, But it was the price action at
• 14:46
  Speaker 1: the end of the day yesterday and sort of this continued, uh,
• 14:50
  Speaker 1: small slight cell off today that catches our attention. Is
• 14:53
  Speaker 1: this a rewriting or is this a yield reaction story? Well,
• 14:59
  Speaker 1: you know this is going to see I would say
• 15:02
  Speaker 1: neither actually, because I think this is where and you're
• 15:04
  Speaker 1: guys are gonna hate me for saying this, but it's
• 15:07
  Speaker 1: a little technical brace yourselves. Let me explain why. Because
• 15:10
  Speaker 1: you do start to see these tiny pullbacks. One of
• 15:13
  Speaker 1: the main themes of has been that there's been this
• 15:16
  Speaker 1: major rally and no major corrections. Instead, you see these
• 15:19
  Speaker 1: very shallow pullback to three percent drops, usually lead by
• 15:24
  Speaker 1: big tech, And I think that's what you're seeing right
• 15:26
  Speaker 1: now because in the past I'm looking at to chart
• 15:29
  Speaker 1: here two months, you do start to see that tech
• 15:32
  Speaker 1: without performing with this ev boom, with this a semis boom,
• 15:36
  Speaker 1: so tech was kind of a big part of that
• 15:38
  Speaker 1: trade in the last two months, and now it's taking
• 15:40
  Speaker 1: a breather because for two reasons. One, it's found that
• 15:43
  Speaker 1: big kind of jumping yields that we talked about about
• 15:46
  Speaker 1: yesterday at ten basis point move in today, which so
• 15:49
  Speaker 1: we do see that yield tensitivity coming back. But you
• 15:51
  Speaker 1: also have us going into the holiday period where you
• 15:55
  Speaker 1: are going to see a little less volume, a little
• 15:58
  Speaker 1: less cash on the table. And I think that's really
• 16:00
  Speaker 1: what markets are preparing for here, and they're just doing
• 16:03
  Speaker 1: that through tech in a very normal reaction that you've
• 16:07
  Speaker 1: seen this year, which is those shallow pullback. And it's interesting.
• 16:10
  Speaker 1: We've seen earnings come through, you know, generally very very
• 16:14
  Speaker 1: well across the SMP five hundred, but particularly in tech.
• 16:17
  Speaker 1: But again it just seems I think, as you mentioned,
• 16:20
  Speaker 1: pretty investors are trying to get a sense of boy,
• 16:23
  Speaker 1: the next six to twelve months. You know, how positive
• 16:27
  Speaker 1: can I be about earnings about top line growth? Yeah, Well,
• 16:31
  Speaker 1: this is a conversation that we had in right this
• 16:34
  Speaker 1: idea that it's going to see all about the recovery
• 16:37
  Speaker 1: trade and how you really compare yourself year over year
• 16:41
  Speaker 1: to the depths of every all the numbers were going
• 16:44
  Speaker 1: to be good because your comparisons or two in the
• 16:48
  Speaker 1: next essentially year, the next six to twelve months is
• 16:50
  Speaker 1: going to be a completely different story because now those
• 16:54
  Speaker 1: comparisons aren't going to be you don't have that kind
• 16:57
  Speaker 1: of extra leeway, that extra slack there. In stead, they're
• 17:00
  Speaker 1: going to be compared to how much progress have these
• 17:02
  Speaker 1: companies made relative we're talking about oil prices for example.
• 17:07
  Speaker 1: Today we're talking about energy stocks, so we're talking about
• 17:10
  Speaker 1: their capacity, and still when you look at the production
• 17:13
  Speaker 1: levels or you look at their revenue stream, they're not
• 17:16
  Speaker 1: anywhere near what they were in twenty nineteen. They're also
• 17:19
  Speaker 1: in terms of what values they're trading at, they're still
• 17:22
  Speaker 1: note and there's all those kind of questions that you're
• 17:25
  Speaker 1: going to start to see, whether it's tech, whether it's semis,
• 17:28
  Speaker 1: whether it's your industrial companies, whether or not they're actually
• 17:32
  Speaker 1: making that progress that we really wan them sing. Hey, Crety,
• 17:36
  Speaker 1: thanks so much for joining us to really appreciate as
• 17:38
  Speaker 1: always getting your thoughts on these markets. You know, tell,
• 17:45
  Speaker 1: I'm looking at a chart of the two year treasury
• 17:48
  Speaker 1: back in June the two years trading about fifteen basis points. Here,
• 17:51
  Speaker 1: we are today at sixty one basis points. It seems
• 17:55
  Speaker 1: like the market, because the markets are already doing its job,
• 17:59
  Speaker 1: let's see kind of how the FED should react. Managing
• 18:03
  Speaker 1: director and global head of rate strategy at TV Securities
• 18:07
  Speaker 1: pre is the Fed kind of falling behind the market
• 18:11
  Speaker 1: at all here. So we think that the FED threshold
• 18:15
  Speaker 1: to either accelerate, taper or hike as soon as priced
• 18:18
  Speaker 1: in that I think the threshold is much higher than
• 18:21
  Speaker 1: what the markets pricing in. But to your question, I
• 18:24
  Speaker 1: think the market is pricing in an economic outlook and
• 18:27
  Speaker 1: a Fed response to that outlook. And I think the
• 18:30
  Speaker 1: economic outlook that the market is pricing in is that
• 18:33
  Speaker 1: inflation remains a problem and that the labor market shows
• 18:36
  Speaker 1: signs of being tight, much more tight than we think
• 18:40
  Speaker 1: it is, which will sort of force the Fed's hand.
• 18:42
  Speaker 1: And that's why we've moved the timing of the first
• 18:45
  Speaker 1: hike now, which just a month ago you were talking
• 18:47
  Speaker 1: about where the two year was. We're pricing in end
• 18:50
  Speaker 1: of twenty two to now June two first hike, and
• 18:54
  Speaker 1: more than three hikes in the first year of the
• 18:56
  Speaker 1: hiking cycle. So it's a normal start to the hiking cycle.
• 18:59
  Speaker 1: It's the timing that I struggled with. And I also
• 19:01
  Speaker 1: struggled with the endpoint because the market saying, well, they'll
• 19:04
  Speaker 1: start really early, but after the first few hikes, the
• 19:08
  Speaker 1: hiking cycle will sort of abort because it's impact in
• 19:11
  Speaker 1: a long term growth is lower. And so I struggled
• 19:14
  Speaker 1: with the start in the end. But the market I
• 19:17
  Speaker 1: think is pricing in that the FED will be forced
• 19:19
  Speaker 1: in sooner than what they're indicating right now. And is
• 19:23
  Speaker 1: that um perhaps maybe confusion or uncertainty about the start
• 19:28
  Speaker 1: the pace in the end. Is that what a yield
• 19:31
  Speaker 1: curve on the two stands it just around a hundred
• 19:33
  Speaker 1: basis points is telling you right, yes, I think so
• 19:37
  Speaker 1: it's not as steep as you normally would expect that
• 19:40
  Speaker 1: two stands curve because the endpoint is much lower than
• 19:44
  Speaker 1: historically heading into a hiking cycle. In fact, what we
• 19:48
  Speaker 1: noticed in the last two cycles was as we were
• 19:50
  Speaker 1: getting closer to the endpoint the market, or to the
• 19:53
  Speaker 1: start of the hiking cycle, the market was moving the
• 19:55
  Speaker 1: endpoint higher. And that's just not happening this time. Because
• 19:59
  Speaker 1: there are pretty big questions I think among investors minders
• 20:03
  Speaker 1: to the structural impact of COVID, as COVID slowed down
• 20:08
  Speaker 1: productivity or is it impacting long term growth? And so
• 20:11
  Speaker 1: the FED. The assumption is that the FED might be
• 20:14
  Speaker 1: forced to start hiking because of inflation, but they won't
• 20:17
  Speaker 1: be able to hike too much. So the we're estimating
• 20:20
  Speaker 1: the endpoint of the hiking cycle that the market is
• 20:22
  Speaker 1: pricing in it less than one in three quarters. So
• 20:25
  Speaker 1: that's a very short hiking cycle if the market is right.
• 20:28
  Speaker 1: But ultimately, yes, that's what's impacting that curve where those
• 20:31
  Speaker 1: long end rates are not able to rise, because if
• 20:35
  Speaker 1: the endpoint of the hiking cycle is only one and
• 20:37
  Speaker 1: a half, then there's a limit to how high that
• 20:40
  Speaker 1: two year can go. But I disagree with that. I
• 20:42
  Speaker 1: think the FED is going to try and let the
• 20:44
  Speaker 1: economy run hot to get all the people back into
• 20:47
  Speaker 1: a large number of people who have left the labor
• 20:49
  Speaker 1: force back in and so if they start a little
• 20:52
  Speaker 1: bit late, I think they can go much more. And
• 20:55
  Speaker 1: so we think that the endpoint Priceton should be closer
• 20:57
  Speaker 1: to two and a half, which is where it was
• 20:59
  Speaker 1: in the last If the labor force and labor participation
• 21:03
  Speaker 1: is one of the variables that the FED is looking at.
• 21:05
  Speaker 1: What do you make of the argument that people a
• 21:08
  Speaker 1: sizeable portion of the people that have left they're not
• 21:11
  Speaker 1: coming back. How do you think about the labor market?
• 21:15
  Speaker 1: So I think that's the big question, right, are they
• 21:17
  Speaker 1: not coming back forever or are they being picky about
• 21:22
  Speaker 1: the type of job or what we call the reservation wage?
• 21:25
  Speaker 1: At what wage level do they come back? I think
• 21:27
  Speaker 1: the savings high level of savings, partly because we had
• 21:30
  Speaker 1: the fiscal transfer, partly because spending on services was just
• 21:35
  Speaker 1: even if you wanted to spend, you couldn't spend it
• 21:37
  Speaker 1: last year, and that's provided. I think a lot of
• 21:40
  Speaker 1: people in the labor market a cushion to wait for
• 21:43
  Speaker 1: a better job or or higher wages. But how long
• 21:47
  Speaker 1: does that qushion last? We know the fiscal transfers are
• 21:50
  Speaker 1: running out or they've already run out, So in the
• 21:53
  Speaker 1: next six months we think a lot of people might
• 21:56
  Speaker 1: be forced back in into the labor force, and that
• 21:59
  Speaker 1: will indicate to the FED that there is hidden slack
• 22:01
  Speaker 1: in the labor market. Now if they're actually not coming
• 22:04
  Speaker 1: back because COVID was such a big change that you
• 22:07
  Speaker 1: know they will sort of not come back or they'll retire.
• 22:12
  Speaker 1: I think then that has implications for how tight the
• 22:14
  Speaker 1: labor market is, and that has implications for wage inflation.
• 22:17
  Speaker 1: And I think inflation is not a big problem price inflation.
• 22:21
  Speaker 1: If you have wage inflation, what we think is likely
• 22:24
  Speaker 1: to happen as the price inflation remains high. But wage
• 22:26
  Speaker 1: inflation starts to decline, that's when it starts to impact growth,
• 22:30
  Speaker 1: and the FED will want to be very careful not
• 22:32
  Speaker 1: to add to the problem by raising rates. So yeah,
• 22:35
  Speaker 1: I think that you've hit the key question, which is
• 22:38
  Speaker 1: how quickly do these people come back? And do they
• 22:40
  Speaker 1: come back? And our views that over time, as savings
• 22:43
  Speaker 1: come off, that they will come back to the labor market.
• 22:46
  Speaker 1: How are you thinking about very negative real yields? You're
• 22:51
  Speaker 1: still at negative on the tenure, negative one sixty seven
• 22:55
  Speaker 1: on the thirty years. That speaking into some of these
• 22:58
  Speaker 1: loose financial condition ends, And and why aren't we seeing
• 23:02
  Speaker 1: bigger movement in real yells? Absolutely, I think in the
• 23:07
  Speaker 1: long end that is what is puzzling. When I look
• 23:09
  Speaker 1: at our forecasts, we are projecting a decent rise in
• 23:13
  Speaker 1: those ten year real rates um you know, by the
• 23:16
  Speaker 1: end of next year. And absolutely I think The fact
• 23:19
  Speaker 1: that real rates are that negative is why the repricing
• 23:23
  Speaker 1: in the rates market has not had an impact really
• 23:25
  Speaker 1: even to the dollar to the dollar or broader financial conditions.
• 23:29
  Speaker 1: Is because real rates ultimately impact financial conditions and the economy. Now,
• 23:34
  Speaker 1: why are they here? You are? I would think a
• 23:37
  Speaker 1: lot of that has to do with the FED que program.
• 23:39
  Speaker 1: They're still by mean, they've started to taper, but it's
• 23:42
  Speaker 1: a slow taper um. The FED has been taking out
• 23:45
  Speaker 1: a lot of duration from the market, and we know
• 23:48
  Speaker 1: that savings is high, so there's just a lot of
• 23:51
  Speaker 1: demand for duration. But that is set to change next
• 23:54
  Speaker 1: year where the FED stops buying by the middle of
• 23:57
  Speaker 1: next year, the FED is not buying any treasuries and
• 24:00
  Speaker 1: globally rates arising, and so I think some of that
• 24:03
  Speaker 1: demand for treasuries, for long data treasuries that have kept
• 24:07
  Speaker 1: these real rates at low, that starts to ebb away
• 24:10
  Speaker 1: and that's going to take I don't think positive. But
• 24:12
  Speaker 1: we do have a fifty basis point rise in tenia
• 24:16
  Speaker 1: real rates by the end of next year, and that's
• 24:18
  Speaker 1: what then starts to impact financial conditions and actually become
• 24:22
  Speaker 1: self limiting for how high Tenia nominal rates can go
• 24:25
  Speaker 1: as well, because those real rates then really start to bite. Premisra,
• 24:30
  Speaker 1: thank you so much for joining us. We always always
• 24:32
  Speaker 1: always appreciate getting your thoughts and opinion and opinions on rates.
• 24:36
  Speaker 1: Premisrab Managing Director, Global head of Rates Strategy at t
• 24:40
  Speaker 1: D Securities. Thanks for listening to the Bloomberg Markets podcast.
• 24:45
  Speaker 1: You can subscribe and listen to interviews of Apple podcasts
• 24:49
  Speaker 1: or whatever podcast platform you prefer. I'm Matt Miller. I'm
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  Speaker 1: on Twitter at Matt Miller V three on Boswheney, I'm
• 24:57
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• 25:00
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