Latest / Bloomberg Intelligence / EM Optimism Has Been Overblown: Brown Brothers' Thin

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EM Optimism Has Been Overblown: Brown Brothers' Thin · Bloomberg Intelligence

• 0:02
  Speaker 1: Welcome to the Bloomberg Penl Podcast. I'm Paul Swinge. You,
• 0:05
  Speaker 1: along with my co host Lisa Brahma wits each day
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  Speaker 1: we bring you the most noteworthy and useful interviews for
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  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
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  Speaker 1: podcast or wherever you listen to podcasts, as well as
• 0:17
  Speaker 1: at Bloomberg dot com. Well, it's part of a new
• 0:21
  Speaker 1: trade deal. The US is pushing China for a stable
• 0:24
  Speaker 1: one um. This actually request comes at odds with years
• 0:28
  Speaker 1: of global pressure on China from the Group of Twenty
• 0:30
  Speaker 1: Economies in particular to move towards a more free floating currency.
• 0:35
  Speaker 1: To get a sense of what's going on, let's bring
• 0:37
  Speaker 1: in Dr wind Thin. Dr Thinn is the global head
• 0:41
  Speaker 1: of currency strategy of Brown Brothers Harmon in New York.
• 0:43
  Speaker 1: He joins us on the phone. So, Dr Thinn, what
• 0:46
  Speaker 1: is behind the US move to, you know, in theory,
• 0:49
  Speaker 1: push the Chinese to stabilize the one. It's caught me off,
• 0:56
  Speaker 1: car because as you know, the US has some pressuring
• 0:59
  Speaker 1: China bout his exchange. It positive for years and years
• 1:01
  Speaker 1: and years. It's it's getting written up all the time
• 1:03
  Speaker 1: in the semi annual Treasury fact supports. Now it's not
• 1:07
  Speaker 1: been in designated currency manipulator, but you know it's it
• 1:10
  Speaker 1: meets some of the criteria. So then to turn around
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  Speaker 1: and a most in the same breath asked them to
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  Speaker 1: basically manipulate the currencies. To me, it just doesn't make
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  Speaker 1: any sense. Um, you know, they hit the headline yesterday.
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  Speaker 1: I don't think it's something that really China can really
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  Speaker 1: commit to. I mean they are you know, opening up
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  Speaker 1: um uh their economy and markets, the more market forces,
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  Speaker 1: and to be quite honest, I don't think they want
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  Speaker 1: to really lose that the career freedom. I mean that
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  Speaker 1: is if you go into some sort of pig or
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  Speaker 1: quasi pig uh, you know, you you lose some degrees
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  Speaker 1: of freedom in terms of running monetary policy. And and
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  Speaker 1: it's and given how many balls that the Chinese policy
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  Speaker 1: makes a juggling right now in terms of structure reforms, uh,
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  Speaker 1: secular slowdown, etcetera, I don't think that's something they want
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  Speaker 1: to give up. So you know, it's one of those
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  Speaker 1: things that there's traveling that's being out there. Um you
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  Speaker 1: know I I I personally if they agreed to it.
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  Speaker 1: It's not. I don't think it's something that they can
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  Speaker 1: held to. Yeah, I gotta I gotta admit I was
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  Speaker 1: struck by the same idea that basically the US has
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  Speaker 1: been yelling at China all of these years for manipulation
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  Speaker 1: not only of currency but also of of its companies.
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  Speaker 1: And so then turn around and say, please manipulate them
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  Speaker 1: because otherwise your currency is going to weaken too much?
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  Speaker 1: Is head scratching at best? I'm wondering, do you buy
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  Speaker 1: that the U n would weaken considerably versus a dollar
• 2:27
  Speaker 1: if it were allowed to float freely? Well, I think
• 2:31
  Speaker 1: part of that question has to be, uh, frame within
• 2:33
  Speaker 1: sort of the view of what what do I? What
• 2:35
  Speaker 1: do you? What do I think of em? Because we
• 2:37
  Speaker 1: when I say that, is that the correlation between the
• 2:39
  Speaker 1: you want exchange rate and for instance, the e M
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  Speaker 1: s c I e M affects index is up around seventy,
• 2:45
  Speaker 1: which is a hugely a huge jump from what used
• 2:49
  Speaker 1: to be and what that reflects to me. You know,
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  Speaker 1: of course it's still a black box, but to me,
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  Speaker 1: you know, the PBOC fixes still fixes the you want
• 2:57
  Speaker 1: to exchange rea and allows to fuctuat in a certain ban,
• 2:59
  Speaker 1: but it tells me that this black box fixing mechanism
• 3:03
  Speaker 1: is has for better for worse introduced. Uh, you know,
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  Speaker 1: a more market forces into the exchange rate. That is,
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  Speaker 1: it's moving along with the rest of EM. So I
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  Speaker 1: happen to be a little bit more negative on EM
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  Speaker 1: than many I think out out there. I think there's
• 3:16
  Speaker 1: s some issues out quite a few issues out there.
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  Speaker 1: That's that's that's weighing on EM. SO I'm looking at
• 3:20
  Speaker 1: through a lens of uh sort of, I see EM
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  Speaker 1: weakness in this year, in two thousand nineteen. So my
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  Speaker 1: view would be that the you want to probably weakend
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  Speaker 1: as well along with the rest of EM. So Dr
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  Speaker 1: Thinn So, given that you know the U. S And
• 3:35
  Speaker 1: Chinese negotiators are back at it trying to hammer out
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  Speaker 1: a trade deal, what is your sense of the what
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  Speaker 1: will come out of those negotiations and how does that
• 3:44
  Speaker 1: impact your view of the dollar? Sure, you know, you
• 3:46
  Speaker 1: probably know, yeah, and you guys have been caring at
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  Speaker 1: a lot of the you know, the news and quite
• 3:50
  Speaker 1: timely fashion that we're playing sort of headline ping pong
• 3:54
  Speaker 1: right now. But for the most part, we're seeing some
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  Speaker 1: constructive comes from both sides. This is quite fence from
• 4:00
  Speaker 1: back in December, when, if you recall, the US put
• 4:03
  Speaker 1: it their span on the Chinese didn't even bother putting
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  Speaker 1: out any response. So they can they show the lines
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  Speaker 1: communication and better. Their meetings are much more frequent. Remember
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  Speaker 1: that we just ended a round in Beijing last week.
• 4:13
  Speaker 1: They're here in DC this week. So it's definitely picking
• 4:16
  Speaker 1: up all that you have to. Because we have the
• 4:18
  Speaker 1: March first deadline, I think most participants in the market
• 4:21
  Speaker 1: believe there will be some sort of delay. Despite all
• 4:24
  Speaker 1: this positive talk about some progress, it seems that the structure,
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  Speaker 1: the speaking points of structural reform issue in China, and
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  Speaker 1: I don't have something that can resolve in two weeks.
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  Speaker 1: So you know, we've heard comments that we could get
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  Speaker 1: a sixty day extension, and that's probably sort of the
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  Speaker 1: base case, and I think the market would actually I
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  Speaker 1: think that it's positive that we're just even though it's
• 4:43
  Speaker 1: pretty much like you know, taking the can down the road,
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  Speaker 1: you know, from the long term, as you I do
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  Speaker 1: think they'll come up with some sort of face saving
• 4:50
  Speaker 1: compromise that both sides can say the claim victory. Now,
• 4:53
  Speaker 1: I don't think it's gonna be some huge shift in
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  Speaker 1: what in in UM trading relations. I saw it would
• 5:00
  Speaker 1: be more long lines what we saw with NAFTA to
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  Speaker 1: oh just just sort of you know, sort of some
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  Speaker 1: tweaking here and there. But you know, it's not gonna
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  Speaker 1: be the greatest trade deals. And Slice Bread, which is
• 5:08
  Speaker 1: with spun slice Bread was was a fantastic trade deal.
• 5:12
  Speaker 1: Dr Thin, I do want to get your sense going
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  Speaker 1: back to what you said about emerging markets and the
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  Speaker 1: correlation between the U N and it broad our emerging markets.
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  Speaker 1: In the past two days, the UN is weekend versus
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  Speaker 1: the dollar by the UH actually has strengthened versus the
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  Speaker 1: dollar UH the most since December and about two months.
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  Speaker 1: And I'm just wondering, I mean, do you think that
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  Speaker 1: that is idiosyncratic specific to the rumors that we have
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  Speaker 1: heard that the US is looking for this is part
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  Speaker 1: of the trade negotiations, a fixed UN and a sort
• 5:40
  Speaker 1: of artificial propping it up. Or do you believe that
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  Speaker 1: this is sort of more optimism generally around emerging markets,
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  Speaker 1: whether or not it will last. Yeah, I know, I
• 5:47
  Speaker 1: think it's the latter. If you look at the more
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  Speaker 1: MSCI I refer to the MSc I e m f
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  Speaker 1: X index. Uh, that's been up the last couple of days. Um,
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  Speaker 1: it's a multi uh week high, so you know, and
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  Speaker 1: in general it's also very high coal. You know, good
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  Speaker 1: news on sort of the US trade um front is
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  Speaker 1: tends to be reflected in an in a stronger EM currencies,
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  Speaker 1: also a stronger Ausie dollar, and that you know, there's
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  Speaker 1: a feedback loop between sort of wider e M and
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  Speaker 1: and and Yuan, I think, but you know, it's all
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  Speaker 1: sort of you know and in some ways made the
• 6:17
  Speaker 1: two sides of the same coin. Um. You know again,
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  Speaker 1: um yea. As you know, Marcus Simmon, the pendulum swings
• 6:24
  Speaker 1: back and forth extremes. I tend to think sort of
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  Speaker 1: maybe on the extremely positive side right now, I don't
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  Speaker 1: think I don't think a significant deal is is likely
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  Speaker 1: by the March first deadline. It's possible, but I don't
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  Speaker 1: think it's my base case. Um, and so we may
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  Speaker 1: see that Pengelum swing back a little bit, so dr thin,
• 6:40
  Speaker 1: let's go ahead. No, good, I'm sorry, good, No. I
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  Speaker 1: think the one thing you have to sort of famous
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  Speaker 1: whole debate about EM is that the fact that the
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  Speaker 1: global growth outlook is you know, has worse than significantly
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  Speaker 1: in the last several weeks. You know, the drade out
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  Speaker 1: of Germany, UK, Japan and you know some except the
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  Speaker 1: U S and with retail sales shock or uh you know.
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  Speaker 1: To me, that's the really the most important thing I
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  Speaker 1: think going forward for EM is is what's the global
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  Speaker 1: grout growth outlook. And you know at this point there's
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  Speaker 1: a big, big question mark UM and we need more
• 7:11
  Speaker 1: clarity on that so real quickly dr thin the other
• 7:13
  Speaker 1: side of the world, halfway around the world. UM Brexit
• 7:17
  Speaker 1: continues to be a very messy situation. Yet the Sterling
• 7:19
  Speaker 1: kind of hangs in there around one thirty. What's your
• 7:21
  Speaker 1: short term view on on sterling? Sure, you know again
• 7:24
  Speaker 1: it's been just like just headlines up and down, the
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  Speaker 1: headline volatility, UM. I think to me, I think I
• 7:31
  Speaker 1: can't take there would be welcome as well. There's been
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  Speaker 1: talk about extending the Article fifty deadline past the end
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  Speaker 1: of March. There was headlines in the last year so
• 7:41
  Speaker 1: that they could somehow h a man the Irish pack stop.
• 7:45
  Speaker 1: I still think that's that's something UK wants, but the
• 7:48
  Speaker 1: the EU has made it clear that's a nonstarter, that
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  Speaker 1: that's non negotiable. So again, I think the pendulum sentiment
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  Speaker 1: has probably gone a little bit too far and son
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  Speaker 1: of getting a deal, um, it may swing back a
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  Speaker 1: little bit more towards the realism that you know, we're
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  Speaker 1: probably the can down the road. Uh, it just seems that,
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  Speaker 1: you know, the difference seemed too great to Dr Winton.
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  Speaker 1: Unfortunately we have to leave it there. Thank you so
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  Speaker 1: much for being with us, Dr Wintin, Global head of
• 8:13
  Speaker 1: Currency Strategy for Brown Brothers Harriman in New York. Well,
• 8:27
  Speaker 1: despite the winter storm that has descended upon our nation's capital,
• 8:30
  Speaker 1: we still expect to get the minutes from the Federal
• 8:33
  Speaker 1: Reserve meeting January meeting at two pm Eastern today, So
• 8:37
  Speaker 1: it help us break down what we might see in
• 8:40
  Speaker 1: those minutes. As Danielle di Martino booth. Danielle is the
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  Speaker 1: CEO and Director of Intelligence at Quill Intelligence ll c UH.
• 8:48
  Speaker 1: She was also a former advisor at the Dallas Federal Reserve,
• 8:51
  Speaker 1: and she is a Bloomberg Opinion economist. Danielle, thanks so
• 8:54
  Speaker 1: much for joining us here two o'clock. Despite the storm,
• 8:59
  Speaker 1: we should get the minute. What are you expecting to see?
• 9:01
  Speaker 1: What are you looking for? Well, I'm expecting to see
• 9:04
  Speaker 1: an elaboration on the chatter that we know has been
• 9:07
  Speaker 1: going on behind closed doors about that balance sheet um.
• 9:10
  Speaker 1: In j Pal's press press conference, he said that over
• 9:13
  Speaker 1: the next several meetings they would determine what the thresholds
• 9:17
  Speaker 1: would be with the benchmarks are such that they were
• 9:19
  Speaker 1: to either potentially taper, but that's looking less likely after
• 9:23
  Speaker 1: Mesters comments that said that that quantitative tightening would stop
• 9:27
  Speaker 1: on a dime. They wouldn't taper the quantitative tightening, But
• 9:30
  Speaker 1: I think the minutes today are going to reveal more
• 9:33
  Speaker 1: details about what that process is going to be, what
• 9:36
  Speaker 1: economic thresholds will be hit such that they would also,
• 9:40
  Speaker 1: in addition to stopping the rate hikes, also stopped shrinking
• 9:43
  Speaker 1: the balance sheet. So we've talked with a lot of
• 9:45
  Speaker 1: investors and analysts who are still expecting one two more
• 9:49
  Speaker 1: rate hikes later this year. Do you think that the
• 9:52
  Speaker 1: Federal Reserve is going to hike rates again in this
• 9:55
  Speaker 1: credit cycle? No, I think that that train has left
• 9:58
  Speaker 1: the station at this point. I don't. I don't think that.
• 10:00
  Speaker 1: In in a recent speech when he was up on
• 10:02
  Speaker 1: stage with Bernakey and Yell and famously, I don't think
• 10:05
  Speaker 1: that he would have opened the door to quantitative easing,
• 10:07
  Speaker 1: which he reiterated in a subsequent appearance, if he had
• 10:10
  Speaker 1: not already taken rate hikes completely off the table. Do
• 10:13
  Speaker 1: you think that today's meeting minutes are going to show this?
• 10:15
  Speaker 1: I certainly do. I do, and and so that is
• 10:18
  Speaker 1: going to be positive for markets, right Well, I think
• 10:22
  Speaker 1: that markets have already priced in the positivity in today's minutes,
• 10:26
  Speaker 1: So I think that anything shy of the devishness that's
• 10:29
  Speaker 1: anticipated will be very unwelcome news. So that the market
• 10:32
  Speaker 1: has gotten fairly fairly ahead of itself. So, Danielle, we've
• 10:36
  Speaker 1: had the markets experience a tremendous amount of volatility in
• 10:39
  Speaker 1: December then kind of coming back reversing itself in January.
• 10:42
  Speaker 1: So far this year to date, a lot of it
• 10:44
  Speaker 1: was due to the Fed in the in the changing
• 10:46
  Speaker 1: positioning and policy and commentary and messaging. Do you think
• 10:50
  Speaker 1: the Fed minutes today will shine a light on what happened? Well,
• 10:54
  Speaker 1: I think that they will elaborate on the reasons that
• 10:57
  Speaker 1: the Fed went on pause. It will go into some
• 11:01
  Speaker 1: of the global economic um challenges that we've seen. Obviously,
• 11:05
  Speaker 1: We've seen Germany and Italy week and even more. Uh,
• 11:08
  Speaker 1: since then China is a train wreck. UM. So I
• 11:11
  Speaker 1: think that it will detail some of the reasons globally
• 11:14
  Speaker 1: and even here at home with housing UM being weak
• 11:17
  Speaker 1: in terms of justifying their position. I think that there
• 11:20
  Speaker 1: will be a lot of details. So out today, Golvins,
• 11:24
  Speaker 1: Peter Oppenheimer and a Bloomberg television interview said that the
• 11:28
  Speaker 1: expectations of recession have been overblown, and you can see
• 11:32
  Speaker 1: this by the positive performance of both credit and equities.
• 11:38
  Speaker 1: You disagree with that, why, well, I don't think that
• 11:41
  Speaker 1: you can actually take back the lagged defects of the
• 11:44
  Speaker 1: rate height of the rate tightening that has occurred. Uh.
• 11:48
  Speaker 1: The LaGG defects on the economy take nine to twenty
• 11:50
  Speaker 1: four months to settle in, so I don't think that
• 11:53
  Speaker 1: those can necessarily be reversed. On a more fundamental level. UH.
• 11:56
  Speaker 1: We follow at quil Intelligence very closely the breath of
• 12:00
  Speaker 1: jobless claims, and as of last week we saw fifty
• 12:03
  Speaker 1: three percent of states have rising year over year jobless claims.
• 12:06
  Speaker 1: Challenge your grain Christmas layoff data. We've seen six straight
• 12:09
  Speaker 1: months of year over year increases, and we know that
• 12:12
  Speaker 1: the best year of M and A on record mergers
• 12:14
  Speaker 1: and acquisitions on record, which was last year. We know
• 12:17
  Speaker 1: that that realizing synergy, so to speak, means that when
• 12:21
  Speaker 1: two companies get married, that there's going to be layoffs
• 12:23
  Speaker 1: that follow. And indeed that is the fastest growing category
• 12:26
  Speaker 1: of reasons behind layoffs. So we we we think that
• 12:30
  Speaker 1: this fifty three of states is going to increase. It's
• 12:32
  Speaker 1: just two percent just over a year ago, So we
• 12:34
  Speaker 1: think that that's going to increase, and that that alone
• 12:37
  Speaker 1: states that if you've got rising joblessness, you've got a
• 12:39
  Speaker 1: rising probability of a recession. So, Daniel, you're the author
• 12:42
  Speaker 1: of a book who's title I just love. I think
• 12:44
  Speaker 1: it's great, just titled fed Up and Insiders take on
• 12:47
  Speaker 1: why the Federal Reserve is bad for America? Why is
• 12:50
  Speaker 1: the Federal Reserve bad for America? In your opinion, Well,
• 12:53
  Speaker 1: I'm I'm an old uh. I guess I'm an old
• 12:55
  Speaker 1: markets veteran who took securities pricing way back when mark
• 13:00
  Speaker 1: It's actually determined prices. And you know, back in in
• 13:03
  Speaker 1: the aftermath of of Black Monday, Alan Greenspan started leaking
• 13:07
  Speaker 1: information to fix and come trading desks ahead of FED
• 13:10
  Speaker 1: moves to inject liquidity into the markets. This is a
• 13:12
  Speaker 1: matter of public record. And as the years went by,
• 13:15
  Speaker 1: every time there was a bigger hiccup, whether it was
• 13:17
  Speaker 1: long term capital management blowing up or San Diego and
• 13:21
  Speaker 1: in the municipal bankruptcy, whatever it was, every time there
• 13:25
  Speaker 1: was the need for the FED to step in, they
• 13:27
  Speaker 1: had to step in in a bigger way. And I
• 13:29
  Speaker 1: think intervening in market functionality is inherently not non American.
• 13:35
  Speaker 1: Given the fact that real rates right now are not
• 13:39
  Speaker 1: much above zero, do you think that the FED is
• 13:42
  Speaker 1: out of ammunition to counter the next downturn? I think
• 13:46
  Speaker 1: it's going to be very difficult. I'm not sure how
• 13:48
  Speaker 1: quickly we will recapture the zero bound, but I think
• 13:52
  Speaker 1: Powell's understanding that we will go back to zero is
• 13:55
  Speaker 1: what has opened the door to his discussing quantitative easing
• 13:58
  Speaker 1: real quick. Here. Where do you think the next credit
• 14:00
  Speaker 1: crisis is going to be? You know, it's hard to say,
• 14:02
  Speaker 1: but I would have to say that with all the
• 14:04
  Speaker 1: negative yielding corporate debt in Europe and the fact that
• 14:07
  Speaker 1: the ECB was able to to to intervene in that
• 14:11
  Speaker 1: market and to purchase bonds in that market, suggests to
• 14:13
  Speaker 1: me that that is the most overvalued credit market in
• 14:16
  Speaker 1: the world. Negative yielding debt still eight trillion dollars or
• 14:20
  Speaker 1: more out there of such debt, which defies logic to
• 14:24
  Speaker 1: pay a borrower to borrow money from you. Danielle D.
• 14:28
  Speaker 1: Martino Booth, thank you so much for being here. Danielle D.
• 14:31
  Speaker 1: Martino Booth is chief executive of Quill Intelligence l l C.
• 14:35
  Speaker 1: Also a former advisor at the Dallas Federal Reserve and
• 14:38
  Speaker 1: a Bloomberg opinion columnist, author of Fed Up and Insiders
• 14:42
  Speaker 1: take on why the Food Reserve is bad for America.
• 14:55
  Speaker 1: Earnings recession is upon us. That is what we keep
• 14:58
  Speaker 1: hearing from a lot of analysts across Wall Street. But
• 15:02
  Speaker 1: the question is doesn't really matter when it comes to
• 15:04
  Speaker 1: how much stocks can rally and is it so bad
• 15:07
  Speaker 1: other than they are words sounding just terrible. Joining us
• 15:10
  Speaker 1: here in the Bloomberg Interactive Broker Studios is nickole As,
• 15:13
  Speaker 1: co founder of Data Trek Research l l SEE. Also
• 15:16
  Speaker 1: a Bloomberg opinion columnist, Nick, thank you so much for
• 15:19
  Speaker 1: being here. Also a fellow University of Chicago grad. I
• 15:22
  Speaker 1: had through that throw that in, So let's talk about this.
• 15:25
  Speaker 1: Are we looking at an earnings recession? Here in nine
• 15:28
  Speaker 1: and does it matter. The short answer on point one
• 15:30
  Speaker 1: is we absolutely are. First quarter earning should be down
• 15:33
  Speaker 1: about two two point two percent. Second quarter expectations are
• 15:36
  Speaker 1: running one percent, but they were two percent a month ago,
• 15:39
  Speaker 1: so we'll certainly see analysts cut those numbers too negative quarters.
• 15:42
  Speaker 1: That's an earnings recession. And now we kind of know
• 15:44
  Speaker 1: why the market fell apart in the fourth quarter of
• 15:46
  Speaker 1: last year. It was discounting this As far as what
• 15:48
  Speaker 1: it means for the future, not very much. I mean, analysts, markets, investors,
• 15:53
  Speaker 1: they're all looking for a settlement to the trade deal
• 15:55
  Speaker 1: to reignitet liibal economic growth and get the second half
• 15:58
  Speaker 1: earnings back on track. And that's why we're rallying this year.
• 16:00
  Speaker 1: So Nick, I was a former sell side analyst, So
• 16:02
  Speaker 1: I'm trying to ask you, how do you use sell
• 16:05
  Speaker 1: side research these days and what do you think they're
• 16:07
  Speaker 1: getting right and wrong as they think about earnings for
• 16:09
  Speaker 1: next year? For example? Yeah, I was also a sell said,
• 16:11
  Speaker 1: let's spen spent a decade the old First Boston covering
• 16:13
  Speaker 1: the autos in the nineteen nineties. I was there as well,
• 16:16
  Speaker 1: And so you know, analysts, industry analysts do one thing
• 16:20
  Speaker 1: very well. They analyze the industry and they try to
• 16:23
  Speaker 1: factor all those things into their earnings models. But they
• 16:26
  Speaker 1: are generally late to cut numbers, as we all know.
• 16:28
  Speaker 1: So we should have been seeing number cuts all the
• 16:31
  Speaker 1: way through the middle half of the middle and back
• 16:33
  Speaker 1: half of last year. We're only getting them now. And
• 16:35
  Speaker 1: that kind of tells you that the market was ahead
• 16:37
  Speaker 1: of the analysts. And they usually are priced typically leads fundamentals,
• 16:40
  Speaker 1: and this is no exception, So don't use them, So
• 16:45
  Speaker 1: use them for what they're sorry, I mean, let's take
• 16:48
  Speaker 1: this to the logical stuff. Here are they useful? They
• 16:51
  Speaker 1: are useful from two perspectives. First, they have a deep
• 16:53
  Speaker 1: industry knowledge, and if you want to be a fundamental investor,
• 16:56
  Speaker 1: you need that information. And somebody, particularly the analysts that
• 17:00
  Speaker 1: have ten twenty years of experience covering a sector, they're
• 17:02
  Speaker 1: very useful to understand the sector and the managements and
• 17:05
  Speaker 1: everything else. If you want to understand where the market's going, though,
• 17:08
  Speaker 1: you've got to be thinking about where the analysts will
• 17:10
  Speaker 1: be taking their numbers versus what they're doing with them
• 17:12
  Speaker 1: right now. Well that sounds like an ad for Bloomberg Intelligence. Um.
• 17:15
  Speaker 1: But Nick, So when you think about the market, how
• 17:18
  Speaker 1: how important are some of these geopolitical macro issues, whether
• 17:21
  Speaker 1: it's you know, the trade deal with China, you know,
• 17:24
  Speaker 1: a Brexit deal. You know, that sounds a lot more
• 17:27
  Speaker 1: macro obviously than some of the micro levels you were
• 17:29
  Speaker 1: talking about. For the moment, macro really trumps everything else,
• 17:33
  Speaker 1: I think in the US equity market because the near
• 17:35
  Speaker 1: term fundamentals, both in the US and around the world
• 17:38
  Speaker 1: are kind of sluggish. We're seeing a possible recession in
• 17:40
  Speaker 1: parts of Europe, China, slowing. US retail sales and other
• 17:44
  Speaker 1: data have been kind of sloppy, and so the markets
• 17:46
  Speaker 1: are really hinging on whether or not we get a good, descriptive,
• 17:50
  Speaker 1: detailed trade deal between the US and China that then
• 17:53
  Speaker 1: gives both corporates and investors confidence to invest in the
• 17:57
  Speaker 1: back half of the year. Okay, So Christian christnam Money
• 18:00
  Speaker 1: of Oppenheimer Funds was on Blueberg Television earlier this morning,
• 18:03
  Speaker 1: and he was saying he could see this credit cycle,
• 18:06
  Speaker 1: this rally and markets continuing for five more years. Is
• 18:10
  Speaker 1: that feasible to you? Anything is possible. Let's not get
• 18:17
  Speaker 1: into relatives. Were philosophical. We're ten years into a recovery.
• 18:21
  Speaker 1: In practical terms, if you sort of give a pass
• 18:23
  Speaker 1: to two thousand and eleven, right, but they don't die
• 18:25
  Speaker 1: of old aged YadA, YadA. I mean, is if you
• 18:28
  Speaker 1: is it, is it a likely outcome to you? Likely? No, possible? Yes,
• 18:31
  Speaker 1: I would give odds odds, you know with some of
• 18:36
  Speaker 1: New York term issues like we're getting this year with
• 18:38
  Speaker 1: this bump in the road with earnings. Um. But you know,
• 18:41
  Speaker 1: cycles tend to form for a reason and tend to
• 18:43
  Speaker 1: repeat for a reason. People get too enthusiastics at the top,
• 18:46
  Speaker 1: they take on too much credit, and then you have
• 18:48
  Speaker 1: an economic downturn and the leverage kills him. But we
• 18:50
  Speaker 1: have heard very little enthusiasm. I mean, let's be very honest.
• 18:53
  Speaker 1: People have been bearished upon parish doubling down on parishness
• 18:57
  Speaker 1: for the past ten years. Yes, but I mean it's
• 19:00
  Speaker 1: in in a you know, historically low indest rate environment.
• 19:03
  Speaker 1: You know, how crazy was that in hindsight? But how
• 19:06
  Speaker 1: about the volatility nick that we've been dealing with just
• 19:08
  Speaker 1: over the last couple of three months. How does that
• 19:10
  Speaker 1: factor into your analysis? I mean we've been whipsawed December
• 19:13
  Speaker 1: versus year to day nineteen. How does that factor in
• 19:16
  Speaker 1: we have in whip saw, but I would put it
• 19:17
  Speaker 1: into a larger historical context. So, for example, a third
• 19:20
  Speaker 1: quarter of the last year SMP had no one percent days,
• 19:24
  Speaker 1: meaning it didn't move more than one percent in any
• 19:26
  Speaker 1: given day. Same with Q four of seventeen. You have
• 19:28
  Speaker 1: to go back to the early nineteen sixties to see
• 19:31
  Speaker 1: entire quarters where there was no volatility of that nature
• 19:34
  Speaker 1: one percent days. So in the grand scheme of things,
• 19:36
  Speaker 1: we're reverting back to a norm, to a mean. On average,
• 19:39
  Speaker 1: the SMP will have a one percent day every week
• 19:41
  Speaker 1: of the year. That's the average. Back to Nick real
• 19:44
  Speaker 1: quick here you were saying that you think that things
• 19:47
  Speaker 1: are going to be driven much more by the macro,
• 19:49
  Speaker 1: but we have seen sectors go through downturns, housing, energy.
• 19:54
  Speaker 1: What's the next sector to face a downturn? I'll tell
• 19:57
  Speaker 1: you the section we're looking at actually today for our
• 19:59
  Speaker 1: note for and Tonita's healthcare. Healthcare has not been a
• 20:02
  Speaker 1: leadership group this year, and it's supposed to be a
• 20:04
  Speaker 1: defensive group, and it's up only seven on the large
• 20:07
  Speaker 1: cap side versus eleven for the SMP, and it's lacking,
• 20:10
  Speaker 1: and it's lacking pretty seriously. And you know, you've seen
• 20:13
  Speaker 1: the three top names Fies, United Health, Johnson, and Johnson.
• 20:16
  Speaker 1: None of them are performing this year. So healthcare is
• 20:19
  Speaker 1: the one area that kind of befuddles us right now
• 20:21
  Speaker 1: because it should be working better than It is a
• 20:23
  Speaker 1: good growth group, it has good fundamentals, and yet so
• 20:25
  Speaker 1: far you're to date nothing done. Healthcare befuddlement. I can
• 20:29
  Speaker 1: I can relate to that? Nicolas co founder of Data
• 20:33
  Speaker 1: Trek Research l l C. He joins us in our
• 20:35
  Speaker 1: Bloomberg eleven three Ghost studios. Nick, thanks so much for
• 20:38
  Speaker 1: joining us. Deutsche Bank was one of the only major
• 20:52
  Speaker 1: banks that would continue to lend to the Trump organization
• 20:55
  Speaker 1: after a series of bankruptcies which created a sort of
• 20:59
  Speaker 1: cannunt drum for the German lender when a President Trump
• 21:03
  Speaker 1: won the US election. Joining us here to talk a
• 21:06
  Speaker 1: little bit about the deliberations inside of Deutsche Bank at
• 21:09
  Speaker 1: the time and the implications today. Shakia and Sarapore. He
• 21:13
  Speaker 1: has a reporter for Bloomberg News, joining us here in
• 21:15
  Speaker 1: our Bloomberg Interactive Broker's studios. So Shakin, can you lay
• 21:19
  Speaker 1: out just what was happening in and how Deutsche Bank
• 21:23
  Speaker 1: was discussing it? Sure? So in the aftermath election, Deutsche
• 21:27
  Speaker 1: Bank discover that it had, you know, what would appear
• 21:31
  Speaker 1: to be a problem on its hands, where it had
• 21:33
  Speaker 1: lent a considerable amount of money to the incoming president
• 21:36
  Speaker 1: and his company, and those loans were going to be
• 21:40
  Speaker 1: start coming to during a hypothetical second term, and they
• 21:44
  Speaker 1: had to confront the risk of, well, what happens if
• 21:46
  Speaker 1: he defaults, the company defaults, and we have to go
• 21:49
  Speaker 1: after his assets? What? What is that? What kind of
• 21:51
  Speaker 1: situations that create for us? So internally at Deutsche Bank,
• 21:54
  Speaker 1: at the highest level, bank executives discussed, you know, this
• 21:57
  Speaker 1: possible hypothetical risk, and as part of their deliberations they
• 22:01
  Speaker 1: discussed extending the repayment term for his loans so they
• 22:04
  Speaker 1: wouldn't mature until after a hypothetical second term. Now, the
• 22:07
  Speaker 1: bank ultimately decided against this. They didn't change the terms
• 22:10
  Speaker 1: of his loans and instead they decided they won't do
• 22:13
  Speaker 1: any more business with him. So the current status of
• 22:16
  Speaker 1: the business between Deutsche Bank, President Trump and his companies,
• 22:19
  Speaker 1: as I understand it, it's not the corporate investment bank
• 22:22
  Speaker 1: making the loans, it's the private wealth management that that's right,
• 22:25
  Speaker 1: that's right. So the investment bank had been doing business
• 22:29
  Speaker 1: with the President or with Mr Trump and his company UM.
• 22:34
  Speaker 1: You know, a more than decade ago, they had len
• 22:36
  Speaker 1: actually considerable amount of money to Mr Trump UM to
• 22:40
  Speaker 1: construct this tower in Chicago. Now the issue is he
• 22:43
  Speaker 1: defaulted on the loan. UH. They were dueling lawsuits. Trump's
• 22:47
  Speaker 1: lawsuit against Deutsche accused them of basically having UM having
• 22:52
  Speaker 1: started the global financial crisis back in two thousand eight,
• 22:55
  Speaker 1: or being part of the banks that that brought that
• 22:58
  Speaker 1: brought that into existence. And so the investment bank decided,
• 23:01
  Speaker 1: We're not going to do any more business with this
• 23:02
  Speaker 1: guy UM. But the private bank and the wealth management
• 23:05
  Speaker 1: decided they want to keep his business, and they started
• 23:08
  Speaker 1: as sending him credit. So Eric Trump, which is who
• 23:12
  Speaker 1: is one of the sons of President Trump, said, this
• 23:15
  Speaker 1: story is complete nonsense. We are one of the most
• 23:17
  Speaker 1: under leveraged real estate companies in the country. Speaking of
• 23:20
  Speaker 1: course of the Trump administration, How does this factor into
• 23:25
  Speaker 1: the Trump organization today? As well as UH Deutsche banks
• 23:29
  Speaker 1: sort of perilous relationship with the President that already is
• 23:34
  Speaker 1: in existence with respect to these loans that are outstanding,
• 23:37
  Speaker 1: I mean for the Trump organization. You know, Eric is
• 23:39
  Speaker 1: right in that they don't have a ton of leverage
• 23:42
  Speaker 1: that we can see. Um the loans that they take
• 23:45
  Speaker 1: out against their properties when weighed against the value of
• 23:47
  Speaker 1: the properties, and a lot of cases it's pretty small.
• 23:50
  Speaker 1: You know. They'll have a building valued that like let's
• 23:52
  Speaker 1: say x and the loan will be for like a
• 23:54
  Speaker 1: tenth of x UM, which is, you know, not typical
• 23:58
  Speaker 1: when it comes to commercial real estate developers. UM. And
• 24:00
  Speaker 1: they own a lot of their properties free and clear.
• 24:02
  Speaker 1: Now the issue is they have a tremendous, tremendous amount
• 24:06
  Speaker 1: of debt oh to Deutscha as well as Ladder Capital
• 24:08
  Speaker 1: and Deutscha. That relationship with Deutsche is one thing that
• 24:11
  Speaker 1: Democrats in Congress really want to spend the next two
• 24:14
  Speaker 1: years going over with a fine tooth comb because they've
• 24:17
  Speaker 1: spent the last two years in the minority. They haven't
• 24:19
  Speaker 1: been able to dig into this relationship. And they think
• 24:21
  Speaker 1: there's something there and that's what they're gonna do. What
• 24:24
  Speaker 1: what do they think is there there is this? You know,
• 24:29
  Speaker 1: no one will say this explicitly, but if you read
• 24:31
  Speaker 1: between the lines, they these are the two separate thrand
• 24:35
  Speaker 1: threads that they're chasing. On one hand, they think of
• 24:38
  Speaker 1: Deutsche Bank as a bank that has gotten to problems
• 24:41
  Speaker 1: when it comes to money laundering controls. It's so that's
• 24:45
  Speaker 1: that's one thing. The second thing is Deutsche Bank has
• 24:47
  Speaker 1: done a lot of business in Russia. The third thing
• 24:50
  Speaker 1: is Deutsche Bank has done a lot of business with
• 24:51
  Speaker 1: President Trump. Now are those three things connected in some way?
• 24:55
  Speaker 1: That's kind of the overarching question that they want to answer. Okay.
• 25:00
  Speaker 1: So that's why we're going to be getting a lot
• 25:02
  Speaker 1: of news about Deutsche Bank and President Trump from here
• 25:04
  Speaker 1: on out right, because the houses scrutinizing this and probably
• 25:07
  Speaker 1: driveling it out to get a sense of some kind
• 25:10
  Speaker 1: of illicit relationship. But as far as what we know now,
• 25:13
  Speaker 1: there is no evidence to that effect. There's no evidence whatsoever. Okay,
• 25:18
  Speaker 1: And and and to not public at least not public evidence.
• 25:21
  Speaker 1: And Eric Trump's point, it is not an over leveraged
• 25:25
  Speaker 1: company at this point that's facing bankruptcy or anything like that. No.
• 25:28
  Speaker 1: I mean, when you look at Trump Organization loans that
• 25:30
  Speaker 1: have been securitized into cnbs, they're making their payments on time.
• 25:34
  Speaker 1: There's no delinquency of any kind, and the amounts that
• 25:37
  Speaker 1: they borrowed are it's very low relative to the value
• 25:39
  Speaker 1: of those buildings. Well, Deutsche Bank is not doing new
• 25:41
  Speaker 1: business with the Trump organization. Who is That is a
• 25:44
  Speaker 1: great question. We don't that that's the answer. That's the
• 25:48
  Speaker 1: next story, okay, because the real estate business is a
• 25:50
  Speaker 1: business that obviously needs big chunks of capital. But I'm
• 25:53
  Speaker 1: guessing there's also revolving credits that they need to maintain
• 25:56
  Speaker 1: properties and do upgrades and things like that, and that typically,
• 26:00
  Speaker 1: you know, means external financing somewhere. That's right. And a
• 26:03
  Speaker 1: lot of these loans, I mean, some of their loans
• 26:04
  Speaker 1: are interest only with bloom payments and maturity and their path.
• 26:07
  Speaker 1: The company's past practice has been to rEFInd those loans
• 26:10
  Speaker 1: when it's nearing maturity. So for a lot of these
• 26:12
  Speaker 1: loans from Ladder and from Deutsche, they come to and
• 26:14
  Speaker 1: a hypothetical second term question is what happens Do they
• 26:17
  Speaker 1: pay off those balances or they seek financing from other
• 26:20
  Speaker 1: lenders and what kind of risks does that entail, both
• 26:24
  Speaker 1: for the lenders, for the company, for the White House. Excellent, Shaheen,
• 26:28
  Speaker 1: Thanks very much. Shaheen Sirapor, Bloomberg reporter for Bloomberg News.
• 26:34
  Speaker 1: Thanks for listening to the Bloomberg p and l podcast.
• 26:37
  Speaker 1: You can subscribe and listen to interviews at Apple Podcasts
• 26:39
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• 26:48
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