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The 'Liquification' of Private Markets Is Underway · Bloomberg Intelligence

• 0:02
  Speaker 1: Welcome to the Bloomberg Penel Podcast. I'm Paul swing you.
• 0:05
  Speaker 1: Along with my co host Lisa Brahma Waits. Each day
• 0:07
  Speaker 1: we bring you the most noteworthy and useful interviews for
• 0:10
  Speaker 1: you and your money. Whether at the grocery store or
• 0:12
  Speaker 1: the trading floor. Find a Bloomberg Penl podcast on Apple
• 0:15
  Speaker 1: podcast or wherever you listen to podcasts, as well as
• 0:17
  Speaker 1: at Bloomberg dot com. There is a question, if you
• 0:22
  Speaker 1: have a lot of money at this point in the
• 0:24
  Speaker 1: credit cycle and the economic cycle, what do you do
• 0:26
  Speaker 1: with it to get returns? What kind of returns are
• 0:29
  Speaker 1: you expecting? Joining us now, Christopher Wolf, chief investment officer
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  Speaker 1: at First Republic Private Wealth Management, which overseas about a
• 0:35
  Speaker 1: hundred and forty billion dollars in assets under administration, joining
• 0:38
  Speaker 1: us here in our Bloomberg Interactive Broker Studios. So, Christopher,
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  Speaker 1: I want to start with when you have your wealth management,
• 0:44
  Speaker 1: when you have your clients wealthy individuals, they have money,
• 0:49
  Speaker 1: where do you start in terms of the returns that
• 0:51
  Speaker 1: they should shoot for, in terms of their expectations. So
• 0:54
  Speaker 1: that's a great question. I think expectation management often becomes
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  Speaker 1: the heart of the initial discussion that you have with
• 1:00
  Speaker 1: the client um and where we start with them isn't
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  Speaker 1: all about the numbers, because you often get on the
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  Speaker 1: lges You're only gonna get two percent in bonds or
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  Speaker 1: maybe six percent in stocks, and that sounds kind of
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  Speaker 1: scary for a couple of reasons, which I'll get into,
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  Speaker 1: But it actually starts with the goals. What's important to
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  Speaker 1: you and how do you want to get there? And uh,
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  Speaker 1: that's a different conversation than what can I get for
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  Speaker 1: a return? Because the second question I just raised, which
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  Speaker 1: a client when they ask it often means they start
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  Speaker 1: to chase things. I want to get that return and
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  Speaker 1: that becomes more important, and well, what's the purpose of
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  Speaker 1: your money? So I'm gonna leave the purpose out because
• 1:28
  Speaker 1: that's individualized for everybody. It then becomes a job of
• 1:31
  Speaker 1: a wealth manager or someone else in a professional in
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  Speaker 1: the business to think about how am I going to
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  Speaker 1: manage the risks to get from A to B. So
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  Speaker 1: if A is I have let's say two million dollars
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  Speaker 1: and I need to have three million and you know,
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  Speaker 1: seven years to make my goal whatever it is, how
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  Speaker 1: am I going to get there with the least amount
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  Speaker 1: of risk possible? Now, the big judgment is what's the
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  Speaker 1: return number, And kind of simply put our views that
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  Speaker 1: returns are going to be a lot lower than they
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  Speaker 1: have been in the past. Past numbers I think is
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  Speaker 1: everyone knows from famous studies like if It's in and
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  Speaker 1: the like, or equities are more north of nine, ten eleven,
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  Speaker 1: depending on what time period you pick. We think it's
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  Speaker 1: closer to six um. And that's important because two big
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  Speaker 1: things have changed in our view. One is population growth
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  Speaker 1: has actually come down quite a bit and is set
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  Speaker 1: to decline as unless immigration changes a lot in the
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  Speaker 1: United States. And two is productivity growth looks like it's
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  Speaker 1: stagnant a bit, so kind of the drivers of economic
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  Speaker 1: growth over a long period look like they're a lot
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  Speaker 1: lower number one. Number two is we're maxed out in
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  Speaker 1: some ways in our view around the margin story. So
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  Speaker 1: if you're thinking about the premium you get from equities,
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  Speaker 1: it's still good relative to bonds in a low inflation world.
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  Speaker 1: But wow, it's not a high nominal number like nine,
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  Speaker 1: so it's more like six. But here's the good news.
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  Speaker 1: If inflation is like two, six is still better than two. Right,
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  Speaker 1: So if if the expectation is coming down for say stocks,
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  Speaker 1: and bonds. Are you finding that your clients are more
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  Speaker 1: willing to go out on the risk profile, whether it's
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  Speaker 1: alternative investments or emerging markets. Are they willing to take
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  Speaker 1: on more risk that maybe try to chase that return. Yeah,
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  Speaker 1: we have a slightly different view around that. I think
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  Speaker 1: a legacy of a lot of the thinking around where
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  Speaker 1: demographics as destiny and I have to invest where populations
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  Speaker 1: are growing. Lad most people to just run right into
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  Speaker 1: emerging markets and I need an allocation or some other
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  Speaker 1: kind of Patinko machine fill it out, you know approach.
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  Speaker 1: Our view is that there are some structural changes going
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  Speaker 1: on in markets that represent meaningful opportunities for clients. Here's
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  Speaker 1: two big ones, and then it leads to an answer
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  Speaker 1: to your question. The first is there's a lot less
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  Speaker 1: public stocks these days. There's about three thousand you can
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  Speaker 1: really invest in, and maybe two or three hundred that
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  Speaker 1: clients really recognize. A lot of M and A and
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  Speaker 1: other things have really brought down the number of opportunities
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  Speaker 1: in the U S. It's actually gone up outside the US.
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  Speaker 1: But the second big thing that's changed is you've seen,
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  Speaker 1: with the cost of money being so low, a collapse
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  Speaker 1: are really emerging evaluations between public and private markets. So
• 3:42
  Speaker 1: if you're public companies dominated by machine trading, a lot
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  Speaker 1: of private companies well funded now means that those valuation
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  Speaker 1: multiples are likely to stay close together and until the
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  Speaker 1: meaning a private company might trade it a similar valuation
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  Speaker 1: multiple pe or enterprise value to EBA dah. And we
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  Speaker 1: see that, and a lot of private folks are saying, well,
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  Speaker 1: this is just super expensive, and we get it. Private
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  Speaker 1: companies are now more highly rated than they have been
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  Speaker 1: in the past. But that makes sense. The cost of money,
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  Speaker 1: the cost of financing these companies is now so low,
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  Speaker 1: and if there are a fewer public market opportunities, then
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  Speaker 1: it looks to us like the private set is actually
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  Speaker 1: kind of very interesting. Here's the big trade. I think
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  Speaker 1: over the next couple of years there's north of eight
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  Speaker 1: trillion in our view of refinancings and the credit market
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  Speaker 1: that's likely to happen. And you can't capture that just
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  Speaker 1: by buying long fixed income as an example. You've got
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  Speaker 1: to do something different. You have to be thinking about
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  Speaker 1: long or short or distress debt or some kind of
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  Speaker 1: restructuring approach in our view to capture some of those
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  Speaker 1: refinancings and restructutions that we think are coming. So that's
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  Speaker 1: a private answer. That's where we go. I guess when
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  Speaker 1: when we look at the risk part of the pendulum. Though,
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  Speaker 1: in response to what you're saying about private markets, a
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  Speaker 1: lot of investors are saying this. In fact, you're seeing
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  Speaker 1: record amounts of money going into private markets debt and equity,
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  Speaker 1: and I'm wondering, at what point, uh, this is all
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  Speaker 1: chasing a return earn and ends up having a sad
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  Speaker 1: ending in terms of these companies having unsustainable businesses that
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  Speaker 1: are being kept afloat by a rush of cash seeking
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  Speaker 1: the promise of higher yields. Uh, and somewhere just to
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  Speaker 1: sit totally agree that what happens when the cost of
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  Speaker 1: money is zero is you're gonna have fund things that
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  Speaker 1: should have never been funded in the first and first place,
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  Speaker 1: or even yeah, you're gonna keep funding things that should
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  Speaker 1: stop being funded. Would be kind of one way to
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  Speaker 1: think about it. I guess our perspective is that, you know,
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  Speaker 1: the big driver here is interest rates. The cost of
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  Speaker 1: money is zero, cost of capitals close to zero. It's
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  Speaker 1: very low space. And if you don't have a lot
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  Speaker 1: of public market opportunities. The liquefication of the private markets
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  Speaker 1: as well underway in the United States. It's going to
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  Speaker 1: be very hard to reverse that our judgment, you're I'm sorry,
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  Speaker 1: we need like a little ding ding ding. The liquefication
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  Speaker 1: of private markets. I love it, go on, carry on,
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  Speaker 1: So I like it. I like that. This is great.
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  Speaker 1: The rally here is two big things are happening in
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  Speaker 1: private markets, and our view one is the growth in
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  Speaker 1: things like secondaries. So secondaries are when a firm comes
• 6:01
  Speaker 1: in and buys a limited partnership interest from you. So
• 6:03
  Speaker 1: when you buy a private investment, you're often if you're
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  Speaker 1: qualified and meet all the regulations, you have to buy
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  Speaker 1: a limited partnership or a limited liability company. You can't
• 6:11
  Speaker 1: really trade it. But trading systems are now being built
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  Speaker 1: up as a lot of firms are looking to do
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  Speaker 1: with all their extra capital, well maybe I can buy
• 6:18
  Speaker 1: an interest from somebody. You can now get a little
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  Speaker 1: bit more liquidity and private markets than you've had in
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  Speaker 1: the past. You still pay a price for it, but
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  Speaker 1: fifteen years ago was almost zero. Now post two thousand
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  Speaker 1: and eight, there's a lot of excess money looking to
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  Speaker 1: buy some of these interesting things. I think the second
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  Speaker 1: big thing that's happened is that we started to see
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  Speaker 1: a greater concentration of private capital in some of the
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  Speaker 1: bigger hands. It's much harder, I think for some of
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  Speaker 1: the smaller shops to to start up. So bigger pools
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  Speaker 1: a capital often means a lot of liquidity goes with that.
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  Speaker 1: So our view is that this trend is going to
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  Speaker 1: continue for a while. And the real barometer here is
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  Speaker 1: just simple interest rates staying low. On the floor of Chairman,
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  Speaker 1: Powell said, that's likely to be the case. This trend
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  Speaker 1: continues for as long as rates stay very low, the
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  Speaker 1: cost of capital stays very low. In our view, as
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  Speaker 1: long as the real cost of capital is close to zero,
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  Speaker 1: it's going to keep funding these private markets. So Chris,
• 7:03
  Speaker 1: just about twenty seconds, real quick. You every recession in
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  Speaker 1: your outlook, we do. We think it's uh, you know,
• 7:08
  Speaker 1: decent probability next year, um, but it's not fifty. It's
• 7:13
  Speaker 1: not overwhelming. So we're in a place where we think
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  Speaker 1: the low and slow story is still the central one.
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  Speaker 1: Just gonna feel really bumpy. It might feel like a
• 7:19
  Speaker 1: recession in certain parts of the stock market, for example,
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  Speaker 1: but bond markets a little over reaction. They're kind of
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  Speaker 1: telling you the story that it's really slowing down. At
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  Speaker 1: this point, things like optimism are a little bit lagging indicators.
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  Speaker 1: Bottom line is we think you can still position well
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  Speaker 1: for a low and slow environment, low and slow environment.
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  Speaker 1: Chris Wolf, thanks so much for joining us. Chris as
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  Speaker 1: a chief investment officer for First Republic Private Wealth Management,
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  Speaker 1: joining us here in our Bloomberg Interactive Broker studio. So
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  Speaker 1: that's the liquefication of private markets, that's all I can think.
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  Speaker 1: It's just great. But honestly, this it's It's true. There
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  Speaker 1: is an you know, flood of cash it's gone into
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  Speaker 1: private markets, and people are trying to create more of
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  Speaker 1: a public overlay for these markets to allow people to
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  Speaker 1: get in and out with a similar sort of liquidity
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  Speaker 1: as public markets offer. So at what point what's the
• 8:05
  Speaker 1: difference between public and private? I don't know. And we
• 8:07
  Speaker 1: will take a look at reworks and take a look
• 8:09
  Speaker 1: at we Works. Maybe maybe there is a golf there.
• 8:26
  Speaker 1: T MT Tech, Media, telecom. There is a lot going
• 8:30
  Speaker 1: on in the TMT space every day, which is why
• 8:33
  Speaker 1: we're happy to have John Butler here. John covers telecommunication
• 8:36
  Speaker 1: services and equipment for Bloomberg Intelligency joins us here in
• 8:38
  Speaker 1: our Bloomberg Interactive Broker studio and John a lot of
• 8:41
  Speaker 1: stuff going on in your world. Let's start with a
• 8:43
  Speaker 1: T and T. Boy, they have an activist investor in
• 8:47
  Speaker 1: their Elliott Management, pushing for change. What is Elliott Management
• 8:53
  Speaker 1: really looking for? I think in a word, they're looking
• 8:57
  Speaker 1: for divestitures. They're looking for a T and T two
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  Speaker 1: get more focused. And if you read their letter, they
• 9:06
  Speaker 1: talk a lot about how A T and T has
• 9:09
  Speaker 1: since they first announced the acquisition, a Time Warner has
• 9:14
  Speaker 1: changed strategy multiple times as the market itself has changed.
• 9:20
  Speaker 1: In fairness to a T and T. But I think
• 9:22
  Speaker 1: Elliott's point is they don't really have a handle on
• 9:26
  Speaker 1: what the strategy is with Time Warner yet. And you know,
• 9:31
  Speaker 1: and again I'll defend A T and T on this one,
• 9:34
  Speaker 1: the linear media market is changing rapidly, and so it's
• 9:39
  Speaker 1: hard for them to really skate to where the puck
• 9:41
  Speaker 1: is going to be, so to speak, if they don't
• 9:44
  Speaker 1: know where it is now. Okay, but even aside from
• 9:46
  Speaker 1: A T and T and Time Warner and whether that
• 9:49
  Speaker 1: tie up was a good idea or how exactly they're
• 9:51
  Speaker 1: controlling that. They're these other businesses to like a home
• 9:54
  Speaker 1: security business, which who knew. Then there's direct TV of course,
• 9:59
  Speaker 1: the Mexican in wireless operation who knew? Uh? And part
• 10:03
  Speaker 1: of its wire line footprints. So basically focus really is
• 10:08
  Speaker 1: the issue here, right that Ellie is trying to bring here.
• 10:11
  Speaker 1: How do they how are they going to identify which assets? So,
• 10:15
  Speaker 1: just to answer your question, A T and T has
• 10:18
  Speaker 1: sort of taken a conglomerate approach to the answer of
• 10:22
  Speaker 1: what do you do as wireless slows and it has
• 10:25
  Speaker 1: been slowing, it's going to continue to slow. It's a
• 10:29
  Speaker 1: commodity market. Do you do what Verizon has done, which
• 10:33
  Speaker 1: is you lay your bets on the next generation of
• 10:36
  Speaker 1: wireless and do that better and try and get some
• 10:39
  Speaker 1: profit out of that. Or do you tap an jacent
• 10:43
  Speaker 1: market or markets for growth, which is what A T
• 10:46
  Speaker 1: and T has chosen to do. Elliott is arguing there's
• 10:50
  Speaker 1: some stuff that A T. T has purchased over the
• 10:54
  Speaker 1: years that should go like the satellite business, direct TV
• 10:58
  Speaker 1: and as you meant in the Mexican wireless operations, which
• 11:03
  Speaker 1: frankly I agree with. I never quite understood what the
• 11:06
  Speaker 1: rational was there. Other than two create a cross border
• 11:11
  Speaker 1: network with an adjacent country. But frankly, I'm not again
• 11:16
  Speaker 1: sure if they know what they're doing in Mexico. It's
• 11:20
  Speaker 1: a very tough market, and that is a commodity market
• 11:23
  Speaker 1: dominated by the low end prepaid business. So I think
• 11:28
  Speaker 1: Elliott is looking at it saying, you know, let's think
• 11:31
  Speaker 1: about lopping that off and lopping off the satellite business
• 11:35
  Speaker 1: in order to become more focused and therefore more profitable.
• 11:38
  Speaker 1: So when you look at the media business, they've spent
• 11:41
  Speaker 1: over a hundred billion dollars buying a direct TV now
• 11:45
  Speaker 1: buying Time Warner. One of the concerns I would have
• 11:48
  Speaker 1: if I were a shareholder is, boy, that's really a
• 11:51
  Speaker 1: people intensive business. I need some creative people and they're
• 11:54
  Speaker 1: really driving the business forward. And what we've observed is
• 11:57
  Speaker 1: a defection of a lot of the senior people from Turner,
• 12:02
  Speaker 1: from HBO, from the studio. How concerning is that to
• 12:06
  Speaker 1: shareholders that you know, really need the content people to
• 12:09
  Speaker 1: drive the business. That is a big concern. And um,
• 12:13
  Speaker 1: you know, I've watched that defection process you were talking about,
• 12:17
  Speaker 1: you know, one after another, um leaving Warner, And so
• 12:22
  Speaker 1: the question becomes can telecom people competently run a media business.
• 12:29
  Speaker 1: You know, you and I were talking before the segment
• 12:31
  Speaker 1: about how different those cultures are. I worked at HBO,
• 12:35
  Speaker 1: and I've I've really seen the difference in cultures between companies.
• 12:41
  Speaker 1: You know, Telecoms are very utility like it's a high
• 12:44
  Speaker 1: fixed cost business. Uh, it's much easier to budget, I think,
• 12:49
  Speaker 1: and media is high variable. The microphone goes on and
• 12:53
  Speaker 1: he just tones it down completely. We were talking about
• 12:56
  Speaker 1: hanging from hanging from the chandeliers at h are a
• 13:00
  Speaker 1: kin drop in the cubicles at A T and T.
• 13:04
  Speaker 1: But it is interesting right now A T and T
• 13:06
  Speaker 1: shares up two point three percent, So clearly there are
• 13:08
  Speaker 1: plenty of people who agree with Elliott's sort of push
• 13:12
  Speaker 1: here now on one thing before we move on. In
• 13:15
  Speaker 1: fairness to A T and T. They have not had
• 13:18
  Speaker 1: a lot of time owning time Warner to make changes,
• 13:22
  Speaker 1: and there always are management affections in the wake of acquisitions,
• 13:26
  Speaker 1: So I think things will settle out from here a bit.
• 13:29
  Speaker 1: All right, Well, we now get to Apple releasing phones,
• 13:32
  Speaker 1: and we have a minute left, so we're gonna give
• 13:34
  Speaker 1: it its due. Should we really care about the new
• 13:36
  Speaker 1: launch of the latest edition of the iPhone in this
• 13:40
  Speaker 1: manufactured holiday that Apple is so good at. Well, we
• 13:42
  Speaker 1: should care in the sense that we're going to get
• 13:44
  Speaker 1: a big camera up upgrade, and smartphones really are now
• 13:48
  Speaker 1: digital cameras with voice capability. In many ways, everything that
• 13:53
  Speaker 1: people are doing on smartphones is video oriented or picture
• 13:59
  Speaker 1: oriented's app Chat, Instagram, FaceTime, etcetera. And so I think
• 14:04
  Speaker 1: a camera upgrade is important, but it's not a big
• 14:09
  Speaker 1: year in terms of a wholesale change in the look
• 14:13
  Speaker 1: and feel of the iPhone like we saw with the
• 14:15
  Speaker 1: iPhone Tan or the iPhone Sex. Sorry, I was just
• 14:19
  Speaker 1: taking a selfie. John Butler, thank you so much for
• 14:21
  Speaker 1: being with us. John Butler, senior Telecom Services and Equipment analyst,
• 14:24
  Speaker 1: joining us here in our bloombergerta active broker studios. He
• 14:27
  Speaker 1: hails from Bloomberg Intelligence. Of course, uh, doing wonderful work there.
• 14:32
  Speaker 1: I love that we left a minute talk about the
• 14:34
  Speaker 1: new iPhone, which basically you should have because honestly, it
• 14:38
  Speaker 1: is really ultimately a camera and cameras are incredibly important,
• 14:42
  Speaker 1: but it's not a huge ce change in the way
• 14:44
  Speaker 1: that we experience the iPhone. Gold is really hot these days,
• 15:05
  Speaker 1: even though I sort of come off. It's high as
• 15:07
  Speaker 1: that we saw in the past few weeks. We have
• 15:09
  Speaker 1: City Group out today saying that they expect the price
• 15:12
  Speaker 1: of one ounce of gold to go to two thousand dollars,
• 15:16
  Speaker 1: a record high, up from a little bit more than
• 15:19
  Speaker 1: four dollars. Currently joining us now not to talk about
• 15:23
  Speaker 1: the price, but to talk about the process of trading gold.
• 15:27
  Speaker 1: I'm so clear pleased to say, is Sequila Mears. She's
• 15:29
  Speaker 1: senior director of the London Bullion Market Association. She's joining
• 15:32
  Speaker 1: us here in our Bloombergada Active Broker Studios. Sequila, let's
• 15:36
  Speaker 1: just start with the trading of gold and precious metals.
• 15:40
  Speaker 1: How do most investors trade these days? I mean, how
• 15:44
  Speaker 1: much are people still trading the physical commodity versus some
• 15:48
  Speaker 1: other sort of derivative. Well, thank you for this opportunity
• 15:53
  Speaker 1: to talk about the pressures metals market. And actually it's
• 15:55
  Speaker 1: quite a time any question, because since November two thou
• 15:59
  Speaker 1: the LBMA has been on a journey whereby we've been
• 16:01
  Speaker 1: collecting data on a voluntary basis from the banks and
• 16:04
  Speaker 1: I actually can tell you the London market currently is
• 16:07
  Speaker 1: trading fifteen billion US dollars worth of gold um, which
• 16:11
  Speaker 1: just gives you an idea in terms of liquidity and
• 16:14
  Speaker 1: how popular this asset class really is. Are you talking
• 16:17
  Speaker 1: about that I have a chunk of gold and I
• 16:19
  Speaker 1: give it to you and we've traded. Are you talking
• 16:21
  Speaker 1: about derivatives or you know, futures contracts? So it's spot,
• 16:25
  Speaker 1: it's options, it's uh, And obviously in terms of the
• 16:28
  Speaker 1: exchange traded party side, it's it's a variety of products
• 16:31
  Speaker 1: making up the gold trading number. Okay, my knowledge of
• 16:37
  Speaker 1: gold and trading is limited, but I do know some
• 16:39
  Speaker 1: a term called the gold fix, the pricing fix, that
• 16:42
  Speaker 1: it's done daily. That's about the extent of it. End.
• 16:44
  Speaker 1: But I read here that it's the anniversary of the
• 16:48
  Speaker 1: price fixing. So a couple of things. One, congratulations, Uh,
• 16:52
  Speaker 1: explain how gold is actually priced, because I don't understand
• 16:56
  Speaker 1: is that priced daily by you guys? Are by banks
• 17:00
  Speaker 1: or by How's that work? Sure? If I may just
• 17:03
  Speaker 1: for to firstly correct the term price fix, it's no
• 17:06
  Speaker 1: longer the price fix, while historically that's exactly what it
• 17:09
  Speaker 1: was referred to. Since two thousand and fourteen we now
• 17:12
  Speaker 1: refer to as a price auction. So it's an auction
• 17:15
  Speaker 1: platform and Basically what's changed over the years is enhanced transparency,
• 17:21
  Speaker 1: independent governance, and actually giving you an electronic platform to
• 17:25
  Speaker 1: allow banks to trade and put in real, live trades.
• 17:30
  Speaker 1: So it is an auction process. What you have are
• 17:32
  Speaker 1: the bias on one side, sellers on the other side,
• 17:35
  Speaker 1: and the intention is for there to be an equilibrium.
• 17:38
  Speaker 1: So you try a price every round, and we're at
• 17:41
  Speaker 1: to specific a point an equilibrium has been reached between
• 17:45
  Speaker 1: the buy side and the cell side, that is the
• 17:47
  Speaker 1: price for that day. So as we talk about the
• 17:51
  Speaker 1: incredible volume of trading in precious metals right now that
• 17:56
  Speaker 1: you've been tracking collecting from banks, there is a question
• 17:59
  Speaker 1: of how much money banks have to hold when they
• 18:03
  Speaker 1: do trade gold, for example, and right now the standard
• 18:07
  Speaker 1: is for them to hold I believe, I believe of
• 18:09
  Speaker 1: the capital required to match the total value of the
• 18:14
  Speaker 1: amount being executed. Is that correct, That's but it's still
• 18:18
  Speaker 1: a very high number because one of the main things
• 18:20
  Speaker 1: that the l b m A has been lobbying against
• 18:23
  Speaker 1: that it's the wrong number for gold. Gold is a
• 18:26
  Speaker 1: liquid asset, as we've just shown and demonstrated through the
• 18:29
  Speaker 1: voluntary trade reporting regime, fifteen billion U s dollars is
• 18:32
  Speaker 1: a lot, So it is a liquid asset. And because
• 18:35
  Speaker 1: it's a liquid asset, there is no need to be
• 18:37
  Speaker 1: holding that much capital to back your balance sheet. Well,
• 18:41
  Speaker 1: how does that compare in terms of the amount of
• 18:43
  Speaker 1: capital the banks are being required to hold for gold
• 18:46
  Speaker 1: versus say, instruments that are recognized as being more liquid. So,
• 18:50
  Speaker 1: I mean gold has been grouped with commodities generally. So
• 18:54
  Speaker 1: what we're trying to explain that gold is, well, it's yes,
• 18:58
  Speaker 1: it behaves like a commodity given that there's a real
• 19:00
  Speaker 1: tangible but it also behaves like a currency. So actually,
• 19:04
  Speaker 1: and we all agree and we all know and understand
• 19:07
  Speaker 1: that currency is a liquid asset class. So what we're
• 19:10
  Speaker 1: trying to explain to the authorities is gold is a
• 19:13
  Speaker 1: unique asset class, specifically because it is a safe haven
• 19:16
  Speaker 1: when there is a crisis, when there is issues in
• 19:19
  Speaker 1: the terms of the currency prices, gold tends to do well,
• 19:24
  Speaker 1: as we are seeing in the recent times. So because
• 19:27
  Speaker 1: of that, we believe that is the wrong number. It
• 19:32
  Speaker 1: should be zero percent um And actually, if the rules
• 19:36
  Speaker 1: go ahead, it could impact that trading and it could
• 19:39
  Speaker 1: impact the banks being in the market within the gold space.
• 19:44
  Speaker 1: So secular just in thirty seconds. What's the counter argument
• 19:47
  Speaker 1: to that? Why are why is the number eight? Well,
• 19:51
  Speaker 1: I mean we're still trying to understand that. Um as
• 19:53
  Speaker 1: far as we're concerned, what we understand is that the
• 19:56
  Speaker 1: authorities saw gold as a commodity put it with the
• 20:00
  Speaker 1: comodities because has been allocated. When we try and understand
• 20:04
  Speaker 1: and ask the rationale behind, we haven't quite been given
• 20:09
  Speaker 1: a clear answer. Is it my guess, is it just
• 20:11
  Speaker 1: something around liquidity? Anythink? No, it's it's it's the idea
• 20:14
  Speaker 1: that there have traditionally been some serious losses incurred on
• 20:17
  Speaker 1: commodity trading desks from time to time, and they're trying
• 20:20
  Speaker 1: to make sure that that it doesn't happen, right, I mean,
• 20:22
  Speaker 1: that's sort of the idea exactly. And I think from
• 20:24
  Speaker 1: our perspective is again to explain that gold isn't just
• 20:27
  Speaker 1: your typical commodity, it's a it's a hybrid between a
• 20:31
  Speaker 1: commodity and for example, the FX markets Secular MERSA thank
• 20:36
  Speaker 1: you so much for joining us. Sequila is executive Board
• 20:38
  Speaker 1: Director in General Council for the London Bullion Market Association.
• 20:56
  Speaker 1: Well billionaires such as Jeff Bezos, Bill Gates and Warren
• 21:00
  Speaker 1: Buffett could have collectively lost hundreds of billions of dollars
• 21:03
  Speaker 1: in net worth over decades. Presidential candidate Elizabeth Warren's wealth
• 21:07
  Speaker 1: tax had been in effect. To get some of the
• 21:10
  Speaker 1: details behind us, we welcome Rich Miller Riches, an economics
• 21:12
  Speaker 1: reporter for Bloomberg News. He's down in Bloomberg studio in Washington,
• 21:17
  Speaker 1: d C. So Rich, thanks for joining us. What's behind
• 21:19
  Speaker 1: the math here? Well, behind the math is is they
• 21:22
  Speaker 1: take a look at what seemingly on its face is
• 21:25
  Speaker 1: a small tax proposed by a senator war and you know,
• 21:29
  Speaker 1: two percent on wealth over fifty million dollars and three
• 21:32
  Speaker 1: percent on wealth over a billion dollars. But thanks to
• 21:35
  Speaker 1: the cumulative you know, the the the impact of compounding, uh,
• 21:40
  Speaker 1: that amounts to a huge amount of money over time.
• 21:43
  Speaker 1: So the top fifteen richest Americans have wealth, according to
• 21:48
  Speaker 1: Forbes magazine in two thousand eighteen, approaching a trillion dollars. Now,
• 21:52
  Speaker 1: if this tax had been in effect since nine two,
• 21:55
  Speaker 1: when Forbes started started UH listing the rich richest Americans,
• 22:01
  Speaker 1: that that wealth would have been reduced to like more
• 22:04
  Speaker 1: than half to two billions. Still a nice piece of change.
• 22:08
  Speaker 1: But it shows you how how big an impact this
• 22:11
  Speaker 1: tax potentially could have. So which angle to this study?
• 22:15
  Speaker 1: Have the angle of look what this could have done
• 22:17
  Speaker 1: decimate the wealth of these individuals who are entrepreneurs in
• 22:21
  Speaker 1: our nation, or is it look at how much money
• 22:23
  Speaker 1: it could have redistributed and sort of evened out the
• 22:26
  Speaker 1: gap between the wealthy and the and the lower the
• 22:28
  Speaker 1: lower income very much the latter. I mean these two economists,
• 22:33
  Speaker 1: Manuel Says and Gabriel Zuckman, they're both at both French economists,
• 22:37
  Speaker 1: but they're both now at the University California at Berkeley.
• 22:40
  Speaker 1: Helped Senator Warren put together her plan, and there the
• 22:45
  Speaker 1: argument is very much why we need this sort of tax,
• 22:51
  Speaker 1: this huge disparity and wealth, and and how we can
• 22:54
  Speaker 1: make it work. So they're trying to make it. I'm
• 22:56
  Speaker 1: I don't want to say that they're trying to make
• 22:58
  Speaker 1: it a bigger number, but there is sort of you know,
• 23:00
  Speaker 1: a gold sort of have this headline number of that
• 23:03
  Speaker 1: that's that sort of hits you over the head. I'm
• 23:05
  Speaker 1: saying this only because I was reading through and struck
• 23:08
  Speaker 1: by the idea that the assumption is that these individuals
• 23:11
  Speaker 1: would take no action to reduce those tax bills. And
• 23:15
  Speaker 1: we know that everyone gets an accountant who has a
• 23:19
  Speaker 1: certain income over a certain point, and they find every
• 23:21
  Speaker 1: loophole and then some well these guys with these guys
• 23:24
  Speaker 1: would probably have ten, ten or twenty accountants, right, the
• 23:28
  Speaker 1: entire accounting firm, right exactly. Now, I agree, it's it's
• 23:33
  Speaker 1: it's it's it's, it's it's they make some assumptions, and
• 23:39
  Speaker 1: but I think, I mean, the point is that this
• 23:42
  Speaker 1: is a debate that the Democrats are having and probably
• 23:45
  Speaker 1: the country is having. You know, what do we do
• 23:47
  Speaker 1: about this huge disparity? Uh? You know, here we have
• 23:50
  Speaker 1: top fifteen people and the country have close to a
• 23:53
  Speaker 1: trillion dollars worth of assets, and we have the top
• 23:57
  Speaker 1: zero point one richest have like twelve trillion dollars. You
• 24:02
  Speaker 1: know what, what if anything, should we do about that?
• 24:06
  Speaker 1: So this, I mean this, this underscores what, you know,
• 24:10
  Speaker 1: how you could try to do something about it, and
• 24:12
  Speaker 1: what impact it would have on on potentially on individuals.
• 24:16
  Speaker 1: And I agree with you that you know, obviously these
• 24:19
  Speaker 1: guys would take all sorts of legal actions to you know,
• 24:24
  Speaker 1: and including like you know, increasing consumption, you buy more votes,
• 24:28
  Speaker 1: right exactly, So Rich. How much support, you know, bipartisan
• 24:32
  Speaker 1: support is there in d C for these types of plans,
• 24:37
  Speaker 1: you know, that really are intended to kind of redistribute
• 24:40
  Speaker 1: wealth across the US. I think well, on the Democratic side,
• 24:46
  Speaker 1: I think you can see you know, from uh, both
• 24:52
  Speaker 1: Bernie Sanders and Elizabeth Warren, you know, two of the
• 24:54
  Speaker 1: top three vote getters according to the polls in among
• 24:58
  Speaker 1: the presidential contending field. You know, they both very much
• 25:01
  Speaker 1: zeroed in on wealth and income inequality and what you
• 25:06
  Speaker 1: know their respective administrations would do if they can't got
• 25:10
  Speaker 1: the presidency to to address it. So at least on
• 25:12
  Speaker 1: the Democratic side, it's it's a it's a it's a
• 25:16
  Speaker 1: it's a pretty big issue. You know, whether it would
• 25:18
  Speaker 1: be addressed through maybe changes in the capital gains tax
• 25:22
  Speaker 1: would be another way you could try to get at that,
• 25:24
  Speaker 1: or you know, changes in the progressivity of the income
• 25:27
  Speaker 1: tax or this wealth tax. You know, I don't think
• 25:32
  Speaker 1: there's any sort of agreement on that, but I think
• 25:34
  Speaker 1: there's at least among the progressives on the Democratic side,
• 25:38
  Speaker 1: where obviously there's a lot of energy um in the
• 25:41
  Speaker 1: primaries pre primaries, you know, there is a lot of
• 25:45
  Speaker 1: focus on this kind of issue. Rich Miller, thank you
• 25:48
  Speaker 1: so much for being with us. Rich Miller is an
• 25:49
  Speaker 1: economics reporter for Bloomberg News, joining us from our night
• 25:52
  Speaker 1: now in studio in Washington, d C. It's a really
• 25:55
  Speaker 1: interesting issue and one that I'm sure we'll be hearing
• 25:57
  Speaker 1: a lot more about as we head into the elections.
• 26:00
  Speaker 1: Thanks for listening to the Bloomberg pen L podcast. You
• 26:03
  Speaker 1: can subscribe and listen to interviews at Apple Podcasts or
• 26:05
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• 26:09
  Speaker 1: Twitter at pt Sweeney. I'm Lisa Abramloyits. I'm on Twitter
• 26:12
  Speaker 1: at Lisa Abramloits. One before the podcast, you can always
• 26:15
  Speaker 1: catch us worldwide. I'm Bloomberg Radio