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Michael Cuggino on Facebook: So Many Avenues to Monetize(Audio) · Bloomberg Intelligence

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  Speaker 1: Charlie Pellett and that's a bloom Bread business flash. This
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  Speaker 1: is jaking stock with Bim Box and Kathleen Hayes on
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  Speaker 1: Bloomberg Radio. His Permanent Portfolio fund is up more than
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  Speaker 1: thirteen and a half percent so far this year. Michael
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  Speaker 1: Cogino is the president and the portfolio manager of the
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  Speaker 1: Permanent Portfolio family of funds, helping to manage approximately three
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  Speaker 1: billion dollars in customer assets. He joins us from San Francisco.
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  Speaker 1: Michael Congino, thank you very much for being with us.
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  Speaker 1: I'm great. So tell me about your performance in the
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  Speaker 1: context of Facebook. I noticed that that is a major
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  Speaker 1: holding of yours, in addition to some treasuries and also
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  Speaker 1: some Swiss bonds. Yeah, Facebook's has been a contributor performance.
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  Speaker 1: And basically our assets strategy and Permanent Portfolio is diversification.
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  Speaker 1: We invest in a variety of non correlated different asset
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  Speaker 1: classes in one mutual fund. It's designed to reduce overall
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  Speaker 1: portfolio volatility, provide to be you know, lower bated as
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  Speaker 1: stock and bonds, and and also a lower volatility product
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  Speaker 1: and so um. You know, we invest not only in
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  Speaker 1: US and non US stocks and bonds, but also commodities,
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  Speaker 1: precious metals, real estate stocks, UM and Swiss currency and
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  Speaker 1: Swiss government bonds as you mentioned, so pretty diversified. It's
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  Speaker 1: designed to UM seek to preserve purchasing power and grow
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  Speaker 1: capital over the long term, be a a grower, a
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  Speaker 1: preserver and a maintainer of investors capital at a rate
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  Speaker 1: that exceeds inflation. So, Michael, what you just described as
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  Speaker 1: a portfolio that on you can see on the one end, Facebook,
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  Speaker 1: very little sensitivity if anything, to global central bank moves
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  Speaker 1: unless it creates a huge you know, roaring global economy
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  Speaker 1: or a huge recession. The other end, the Realist eight bonds,
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  Speaker 1: things that are very sensitive. So I just can't get
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  Speaker 1: you away with at least one question on the Fed
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  Speaker 1: today at this point. Do you just say we're babar
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  Speaker 1: we were saying April or May, waiting to see if
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  Speaker 1: and when the FED races race this year and and
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  Speaker 1: focus on the fundamentals of the companies where you're invested,
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  Speaker 1: or do you think that there's something in this thing,
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  Speaker 1: this message today that changes that. Well, you know, a
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  Speaker 1: quick comment on Facebook, if they keep growing at the
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  Speaker 1: rate they're doing, building cash, maybe they'll become relevant to
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  Speaker 1: central banks as a funding source. But all joking aside, Um,
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  Speaker 1: I think the uh, the we are sort of where
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  Speaker 1: we were a few months ago. I think Brexit is
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  Speaker 1: behind us. Um, the scary jobs number a couple of
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  Speaker 1: months back appeared to be a one off. Um, And
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  Speaker 1: so you've got stronger employment, you've got modern economic growth.
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  Speaker 1: I mean the FED statement that changes from the previous
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  Speaker 1: month were a lot more I think comforting in terms
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  Speaker 1: of economic growth. So clearly they're seeing signs that economic
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  Speaker 1: growth is picking up. And whether that's sustainable or not
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  Speaker 1: is another issue because we've we've seen this movie before.
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  Speaker 1: But at the moment um, they clearly see an enhanced
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  Speaker 1: economic picture versus what they saw a month or two ago.
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  Speaker 1: Or maybe they saw it and they had too many
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  Speaker 1: questions with respect to labor and Brexit, which are now
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  Speaker 1: behind them. So I think again, you know, they may
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  Speaker 1: want to see more. That's probably why they didn't do
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  Speaker 1: anything in July. Here there's been now speculation that they
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  Speaker 1: might do something around the Jackson whole time period of September.
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  Speaker 1: Maybe maybe not. Um, it's getting close to the election
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  Speaker 1: at that point, but you could still see it happening Um,
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  Speaker 1: I think December remains the most likely scenario. It still
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  Speaker 1: gives them a few months to see if there are
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  Speaker 1: any European issues, um, you know, the European banks or
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  Speaker 1: another question that could impact central banks, as well as
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  Speaker 1: the potential stimulus in Japan. So there's still global concerns.
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  Speaker 1: And remember they did say cost the money, labor in
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  Speaker 1: the United States, and global activity of things they're thinking about.
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  Speaker 1: So I wouldn't say we're off to the races with
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  Speaker 1: rate increases, but I would say the k for rate
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  Speaker 1: increases has been enhanced by today's statement. Michael, can you
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  Speaker 1: tell us anything that you've been selling or buying? Well,
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  Speaker 1: we're again we're always diversified, so um, you know, we're
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  Speaker 1: looking in in the equity market, we're looking for areas
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  Speaker 1: that haven't participated to the same degree as the overall market.
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  Speaker 1: We've tended to stay away from the consumers, the more
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  Speaker 1: safety stocks, the yield alternative type stocks. We think they're overpriced, um.
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  Speaker 1: But as a general rule, we're also looking at more volatile,
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  Speaker 1: more more data levered stocks, more stocks that are you know,
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  Speaker 1: levered economic growth and investment activity. And so that's always
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  Speaker 1: the area we're looking. But there are, you know, tech
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  Speaker 1: financials I think makes sense. Energy and commodities are still
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  Speaker 1: a very beaten down sector for the long term, given
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  Speaker 1: that you know, global global growth is slow as dollar
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  Speaker 1: has been strong. UM to me, we're in an exacerbated
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  Speaker 1: or an enhanced sort of low and a typical commodity cycle,
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  Speaker 1: which means over the long term, it's an interesting area
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  Speaker 1: to look at on the bond side because there's such
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  Speaker 1: uncertainy with interest rates. We've tended to be higher quality
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  Speaker 1: UM and lower to lower intermediate duration, so we're looking
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  Speaker 1: at probably four to five year duration. Our treasury is
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  Speaker 1: probably a little bit less than that in our Swiss
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  Speaker 1: UM and sticking with investment grade corporates in a variety
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  Speaker 1: of industries and treasuries. You know, Michael Um, I had
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  Speaker 1: a really terrible call on Apple in the market today
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  Speaker 1: because I told my producer, yes, today have this show.
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  Speaker 1: We got to fed tomorrow. We don't have to way
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  Speaker 1: too much about Apple. You're earning surroud us gonna be
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  Speaker 1: old news. And then of course come in today, right
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  Speaker 1: and Apple helps fuel a rally, not a big rally. Nevertheless,
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  Speaker 1: what is what is your take on Apple? Now? You
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  Speaker 1: know we had the high level downgrade to a cell
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  Speaker 1: this week. It's it's kind of a lone wolf call. Still,
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  Speaker 1: but what about Apple the company itself and what it
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  Speaker 1: means for the market commands all kinds of attention. Surely
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  Speaker 1: they had a good number. I think it was based
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  Speaker 1: on lower expectations UM, but still a beat to beat.
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  Speaker 1: So given credit UM, I think it's a great company.
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  Speaker 1: I think they're in the middle of a product trans
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  Speaker 1: adian situation. UM. And as with Apple, as has been
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  Speaker 1: the case for a long time, the question and valuation.
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  Speaker 1: If you look at it as a consumer company that
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  Speaker 1: deserves a premium valuation, many people do. UM, it's cheap
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  Speaker 1: right now, and it pays a pretty good dividend UM,
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  Speaker 1: and if it continues to trade around these levels, it
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  Speaker 1: may be a good long term by If you view
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  Speaker 1: it more as a hardware company, a device maker, and
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  Speaker 1: they are starting to get quite a bit of competition
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  Speaker 1: from that front, UM, then it's trading at more reasonable
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  Speaker 1: valuations compared to sort of its peers. I still think
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  Speaker 1: that you know, they've got a tremendous amount of intellectual
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  Speaker 1: capital there and uh, and I wouldn't bet against them,
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  Speaker 1: but I think the competition's got more heated for them
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  Speaker 1: in the last few years, and that's going to be
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  Speaker 1: an interesting story to launch. So UM, I don't know
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  Speaker 1: how much it really drove the market today. I think
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  Speaker 1: probably people were more focused on the fed UM but
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  Speaker 1: but it certainly did help corporate earnings. UM. You know,
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  Speaker 1: at least the corporate earnings picture today. Michael Contino that see,
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  Speaker 1: you get someone to call you and is fretting about
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  Speaker 1: the cash that they have in their account. They're too
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  Speaker 1: afraid to buy equities and they can't stand the low
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  Speaker 1: returns that they would get on bonds. Is it too
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  Speaker 1: late for them to do either? Um? You know, I
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  Speaker 1: tell them, maybe invest in my fund. But then again
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  Speaker 1: I'm biased. UM, I think absolutely. I think in any
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  Speaker 1: market situation there is always opportunity, even in over valued sectors.
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  Speaker 1: And certainly I think you can make a case that
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  Speaker 1: bonds and stocks are are overvalued on some metrics. So UM,
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  Speaker 1: But given that, I think that you can find, you know,
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  Speaker 1: the corporate market is especially the shorter term corporate market.
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  Speaker 1: Investment grades have provided us a lot of opportunity. We
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  Speaker 1: run a flexible bond fund called Versable Bond Fund UM,
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  Speaker 1: and we're managing that again at a lower core you know,
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  Speaker 1: lower duration and higher quality standpoint um of it, as
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  Speaker 1: I think invest a great debt and the duration is
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  Speaker 1: probably four to six year or something like that, and
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  Speaker 1: we're you know, we're at the moment we're up nine
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  Speaker 1: percent of that fund. So not not to make predictions,
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  Speaker 1: but there are opportunities there um. On the stock side,
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  Speaker 1: I think there are definitely sectors and I pointed out
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  Speaker 1: a few of them that that have not performed to
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  Speaker 1: the degree of the overall market. I think financial sold
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  Speaker 1: off quite a bit because the FED appeared to be
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  Speaker 1: on hold an interest rates. I think there's a lot
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  Speaker 1: of potential long term value there. US balance sheets are strong.
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  Speaker 1: Once rates do start going up, I think you're gonna
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  Speaker 1: get the benefit of spreads um. And so we've we've
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  Speaker 1: been playing around in that area. I do think commodities
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  Speaker 1: and energy, fossil fuels and energy are not going anywhere.
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  Speaker 1: The world needs that stuff to grow, and yes it's
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  Speaker 1: in a down period of a cycle, but we expect
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  Speaker 1: that to change when global economic activity picks up. And
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  Speaker 1: an interesting anecdote to that, Freeport mcmaran is one company
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  Speaker 1: that we own and recently they were going to be
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  Speaker 1: selling assets to build up their balance sheet and and
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  Speaker 1: et cetera. UM, and they recently came out and said
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  Speaker 1: that rather than sell assets, are going to issue more equity.
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  Speaker 1: Now it's still a very cheap stock, but to me
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  Speaker 1: that was a confidence indicator that over the long term
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  Speaker 1: they may see that they're they're better to maybe hold
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  Speaker 1: onto some of those assets versus to sell them to
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  Speaker 1: bring down debt and maybe just issue equity, which in
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  Speaker 1: the short term is dilutive, no question, but in the
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  Speaker 1: long term could be a benefit of the capital structure.
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  Speaker 1: So there's always opportunity. Quick statement, get about twenty seconds
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  Speaker 1: on Facebook, it's prospects. We we love it as a
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  Speaker 1: long term growth story. I mean, it's not cheap in
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  Speaker 1: our view. Uh, you know, they have so many avenues
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  Speaker 1: um to monetize that they're still just becoming aware of.
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  Speaker 1: And and some of them, like Messenger, they haven't even
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  Speaker 1: started and they just I think that's the one they
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  Speaker 1: just grew to a billion users um. But the core
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  Speaker 1: business appears to be very strong. It's there to be
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  Speaker 1: taking market share. We expect good things. We always expect
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  Speaker 1: good things from you. Michael Pagino, Thanks so much for
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  Speaker 1: joining us. Today from San Francisco. He's president of Permanent
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  Speaker 1: Portfolio family of funds. I'm Kathine Hayes along with Pim Fox.
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  Speaker 1: This is Bloomberg. Yeah,