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Rates, ESG, Europe, And CVS (Podcast) · Bloomberg Intelligence

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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
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Speaker 1: my co host Matt Miller. Every business day, we bring
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Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
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Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
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Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
0:18
Speaker 1: at Bloomberg dot com slash podcast. I have a new
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Speaker 1: problem though, what these gas stations limit the amount of
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Speaker 1: gas I can get to a hundred dollars? You know
0:27
Speaker 1: when I get to two eight, three slows down and
0:34
Speaker 1: I'm not done filling it up. No, of course not.
0:36
Speaker 1: You've got a shot of that idea. That's horrible. People were, Yeah,
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Speaker 1: well it's horrible. Yes, So you're a big good truck guy,
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Speaker 1: all right, pre a misrab. I'm not sure if she
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Speaker 1: dressed pick up trucks, but she does cover the interest
0:48
Speaker 1: rate world for US managing director and global head of
0:50
Speaker 1: rate Strategy for TV Securities. Pretty I'm looking at the
0:53
Speaker 1: bond market. Boy, that ten year treasuries off one and
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Speaker 1: three thirty seconds, pushing that yield up to three point
0:59
Speaker 1: three two percent? Is this still kind of fallout from
1:04
Speaker 1: Jackson Home? What's going on. I think there's a couple
1:07
Speaker 1: of things going on. I mean, they were just back
1:09
Speaker 1: after the long weekend. I don't think liquidity is the
1:12
Speaker 1: best um. I mean, I think it should get better.
1:15
Speaker 1: We're in September. But I think there's some component of
1:18
Speaker 1: we're getting exaggerated price moves. There is a lot of
1:21
Speaker 1: corporate supply today and I think that's adding to duration pressure.
1:25
Speaker 1: And then as as you said, there's the you know,
1:28
Speaker 1: fallout from Jackson Hole, the fact that we have a
1:29
Speaker 1: FED meeting in two weeks. The jobs report was strong,
1:33
Speaker 1: and we had I M Services which is also strong,
1:35
Speaker 1: So the U s economy seems to be holding in there.
1:38
Speaker 1: We think the pressure on the FED is still there
1:40
Speaker 1: to keep moving those rates higher, and I think all
1:43
Speaker 1: of that is a perfect storm to make rates go up.
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Speaker 1: QUT is also continuing. I do think it's a little overdone.
1:49
Speaker 1: I think we're very well priced now for the FED
1:52
Speaker 1: taking rates up to four percent, keeping it there for
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Speaker 1: a while, and then if you do start to see
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Speaker 1: slowing and growth, we think the FED does act. So
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Speaker 1: I think the market may become a little too optimistic
2:02
Speaker 1: in terms of the ability of the economy to take
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Speaker 1: these rate hikes, which I think will have an impact
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Speaker 1: on road just with the lag. We're not seeing that
2:10
Speaker 1: in the data just yet. What happens historically? What happens
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Speaker 1: historically when you go to UM you know a certain
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Speaker 1: level on the FED funds rate. I don't care what
2:20
Speaker 1: it is, but let's take four percent or five percent
2:23
Speaker 1: or six percent. What happens to ten years. Do they
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Speaker 1: eventually catch up UM treasury yields or do they always
2:29
Speaker 1: hold below the Fed fund rate? They tend to hold
2:32
Speaker 1: below because typically, you know, the FED is not able
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Speaker 1: to get this soft landing or be able to to
2:40
Speaker 1: keep rates at that level. So the two year or
2:42
Speaker 1: the very front end can get up to that terminal rate,
2:46
Speaker 1: but then the long end tends to lag because within
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Speaker 1: a year or two of the FED reaching that terminal rate,
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Speaker 1: they tend to have to start to cut rates. So
2:54
Speaker 1: that's why the long end doesn't catch up. Now, the
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Speaker 1: one big difference this time is QUT. The FED is
2:58
Speaker 1: also letting the balance sheet run off, and that's resulting
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Speaker 1: in more durations apply to the market. I think that
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Speaker 1: this time around is putting a little more pressure in
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Speaker 1: the long end. But I think if the FED starts
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Speaker 1: to cut rates, they're also going to stop QUT. So
3:12
Speaker 1: you know, right now it seems to be that your
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Speaker 1: call for next year. Do you think we go into
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Speaker 1: a recession that's too deep, unemployment rises too high, American
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Speaker 1: families have trouble um keeping jobs, putting food on the table.
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Speaker 1: On the FED has to cut rates and stop QUT
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Speaker 1: pretty much. Yes, you said it well, I mean we
3:30
Speaker 1: are looking, unfortunately for the economy to slow down, and
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Speaker 1: it's hard for me to justify the FEDS four point
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Speaker 1: one on the unemployment rate. I mean, if it starts
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Speaker 1: to rise. Typically the the unemployment rate doesn't rise that gradually.
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Speaker 1: It tends to rise, it tends to accelerate once it rises.
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Speaker 1: So yeah, we're thinking closer to five in the second
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Speaker 1: half of next day on the unemployment rate, forcing the
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Speaker 1: fight to start to cut rates when I think they'll
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Speaker 1: they'll be late in starting to cut ride because they're
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Speaker 1: fighting the inflation problem. But once they start, I do
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Speaker 1: think they're at least getting to neutral and they'd have
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Speaker 1: to stop QT at that point as well. It's hard
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Speaker 1: for them to justify cutting rates and still undertaking QT,
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Speaker 1: but I think that's not something they're going to admit
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Speaker 1: to right now, They're going to let the data determine it.
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Speaker 1: Right now. It's inflation is public enemy number one, and
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Speaker 1: that's why I think the focus is whether they go
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Speaker 1: seventy five or fifty at the September meeting. So the
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Speaker 1: TV Securities, do you guys have an official recession call
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Speaker 1: or do you think this FED can soft landed? So
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Speaker 1: we have a slowdown in growth called you know, you're
4:33
Speaker 1: zero percent growth. When you're growing at zero doesn't take
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Speaker 1: a lot to slip into recession. So it's a shallow
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Speaker 1: slow down in growth that we do pencil in, and
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Speaker 1: that's why we've penciled in rate cuts in the end
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Speaker 1: of QT next year. All right, I'm gonna talk corporate
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Speaker 1: real estate. So TV Security, you guys are one Vanderbilt,
4:51
Speaker 1: Is that right? It is? Yes, it's a new building
4:54
Speaker 1: right next to Grand Central exactly. That's awesome. I mean,
5:00
Speaker 1: I mean, I'm not sure you even go there if
5:02
Speaker 1: you work from home, but it looked when they're putting
5:04
Speaker 1: it up, I was like, holy cow, this is gonna
5:05
Speaker 1: be awesome. Now it's a great building. I've been in
5:08
Speaker 1: the office since, you know, for over a year, and
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Speaker 1: it's filling up now. That. I think we're we have
5:15
Speaker 1: a few few flaws, and there's the summit. If you
5:18
Speaker 1: haven't been to the summit, it's great. Glass Bottom. I'm
5:21
Speaker 1: not a huge fan of heights, but it's very impressive
5:24
Speaker 1: when you look down on the glass bottom floor and
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Speaker 1: see all of New York. So that's a good building.
5:29
Speaker 1: I want to do that. Let's do that. Yeah, down,
5:32
Speaker 1: we need the invite though, yes, we need the any day,
5:36
Speaker 1: all right, pretty so, just real, real quickly here coming
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Speaker 1: up in a couple of weeks from this photo reserve.
5:43
Speaker 1: What would be a mistake where everybody goes, oh boy,
5:46
Speaker 1: here we go. You know, you can think of two
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Speaker 1: sided mistakes. I think one mistake would be if they
5:53
Speaker 1: suggest that they might be getting close to being done
5:56
Speaker 1: because just because oil prices are lower and inflation seems
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Speaker 1: to have beat That would be one mistake. The other
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Speaker 1: mistake would be to say, oh, no, we're going until
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Speaker 1: two on your over your inflation. I think that's a
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Speaker 1: mistake I'm really nervous about because it just inflation is
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Speaker 1: a very lagging indicator, and if they ignore growth, they're
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Speaker 1: absolutely going to overdo it because inflation is going to
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Speaker 1: take a while to come down to respond to slowing growth.
6:21
Speaker 1: So there are two sided risks. After jacksonal I'm more
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Speaker 1: concerned about the overdoing because we need to really win
6:27
Speaker 1: that inflation battle, even if it means a slowing growth. Alright,
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Speaker 1: this fat man. If they waited too long to raise
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Speaker 1: rates and now they're going to raise rates too late
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Speaker 1: and too long, and then maybe they'll even cut them
6:37
Speaker 1: too soon. We have to see Premisser. She'll have insight
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Speaker 1: for us along the way. As always. Managing director and
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Speaker 1: global head of Rate Strategy for TV Security is also
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Speaker 1: an ambassador for one Vanderbilt Avenue. Got to check that
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Speaker 1: building up. Alright. One of the fastest growing areas in
6:55
Speaker 1: investing is E s G environmental social governance. Sure enough,
7:00
Speaker 1: the largest exchange traded fund investing in s G, that
7:03
Speaker 1: would be the I Shares E s G, AWARE M,
7:06
Speaker 1: S C, I U S A E t F. Yep,
7:07
Speaker 1: that's what I got it all in there increases assets
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Speaker 1: by forty seven hundred times to four billion dollars since
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Speaker 1: its inception in twenty thousand and sixteen. But Mr Rhonda
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Speaker 1: Santas the Governor of the Great State of Florida, I
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Speaker 1: don't think he's really buying into it. Let's get into
7:23
Speaker 1: this story. Matt winklerd, Editor in chief emeritus and founder
7:26
Speaker 1: of Bloomberg News joins us here in a Bloomberg Interactive
7:28
Speaker 1: Broker Studio. Matt, thanks so much for joining us. You've
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Speaker 1: got a column out today looking at Florida, looking at
7:33
Speaker 1: the governor Rhonda Santis and his views on E s
7:36
Speaker 1: G investing. What did you find so, Paul and Matt,
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Speaker 1: great to be with you. Rhonda Santis, governor of Florida,
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Speaker 1: first term governor of Florida, highly educated, went to Yale
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Speaker 1: and Harvard Law School, has an initiative that prohibits the
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Speaker 1: state of Florida, which is the third largest state and
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Speaker 1: which has about two hundred and ten billion of assets
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Speaker 1: under management, from considering what you just mentioned as E
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Speaker 1: s G criteria for investing. The trouble is with that initiative,
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Speaker 1: it goes against Florida's own very own dictum that says,
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Speaker 1: we must consider performance total return as the yard stick,
8:24
Speaker 1: if you like, for measuring our returns. And if you
8:28
Speaker 1: do that, E s G absolutely crushes every other benchmark
8:34
Speaker 1: over any time period during the past decades. So his
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Speaker 1: own initiative is it odds with the essential requirement for
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Speaker 1: the Florida Retirement System to manage on the basis of performance.
8:46
Speaker 1: But it's possible he's not as concerned about performance financial
8:50
Speaker 1: performance as he is about politics, right, because he's made
8:53
Speaker 1: a number of really provocative moves already that draw him
8:56
Speaker 1: into the national spotlight and set him up for a
8:58
Speaker 1: presidential run. Yeah. I mean it is seemingly a very
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Speaker 1: political ploy on his part because he is educated enough
9:09
Speaker 1: to know that every fiduciary has an obligation to earn
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Speaker 1: the highest return at the lowest volatility for shareholders and
9:18
Speaker 1: bondholders alike. And if that is your focus, then you
9:23
Speaker 1: have to consider E s G in your investing. And
9:26
Speaker 1: if you don't, your shareholders, your bondholders, your pensioners were
9:31
Speaker 1: all suffer. Does the data support that? Matt? What do
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Speaker 1: you What did you see? I know you and shouldn't
9:35
Speaker 1: pay your colleague always dive into the data for your arguments.
9:39
Speaker 1: What's the data? So it's it's very conclusive. We have
9:44
Speaker 1: a decade's worth of data on the Bloomberg. We look
9:46
Speaker 1: at every if you like, exchange traded fund that invests
9:52
Speaker 1: everywhere and those that invest in what we call e
9:56
Speaker 1: s G um are over five years, over ten years,
10:01
Speaker 1: over two years, outperforming by orders of magnitude the benchmarks,
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Speaker 1: the traditional benchmarks of investing, whether it's the SMP five hundred,
10:10
Speaker 1: whether it's the Russell three thousand, whether it's any fossil
10:15
Speaker 1: fuel UH index that lately has been a star because
10:20
Speaker 1: of the war in Ukraine and the rise in in oil,
10:25
Speaker 1: in energy, traditional energy, E s G has done better
10:30
Speaker 1: than anything else. And that's not a secret actually or surprising, right.
10:36
Speaker 1: I mean people, look, people started ten years ago buying
10:39
Speaker 1: electric cars on the consumer level because they want to
10:43
Speaker 1: guard against climate change or push back against climate change.
10:46
Speaker 1: And obviously mom and pop investors are going to be
10:48
Speaker 1: doing that. If they feel that way, they're gonna invest
10:50
Speaker 1: with their hearts as well as their pocketbooks. And now
10:53
Speaker 1: we have huge institutions coming in and doing it as well.
10:55
Speaker 1: In Blackrock has ten trillion dollars in assets under managed,
11:00
Speaker 1: and they are watching this. Yeah. I think that's a
11:02
Speaker 1: great point. Uh. If you look at black Rock, people
11:06
Speaker 1: may have forgotten that black Rock really saved the US
11:11
Speaker 1: from the worst of the financial crisis. Black Rock was
11:14
Speaker 1: the one institution that came in and helped the US government, UH,
11:18
Speaker 1: sort out of what was a disaster the likes of
11:23
Speaker 1: which we hadn't seen in a couple of generations. You
11:26
Speaker 1: have to go back to the depression. So put it
11:27
Speaker 1: on fast forward. A company called Tesla UH making zero
11:33
Speaker 1: mission vehicles in starting in say two thousand ten, and
11:38
Speaker 1: when it went public and then two thousand twelve it
11:40
Speaker 1: introduces the models. And Tesla today as a car, as
11:44
Speaker 1: a car company, has the highest market valuation in the
11:49
Speaker 1: world among automakers. It's more than three times uh the
11:55
Speaker 1: value of Toyota, which sells more vehicles than anyone, but
11:59
Speaker 1: I am by a wide margin. I mean, Tesla sells
12:01
Speaker 1: what half a million vehicles a year in Toyota must twelve.
12:04
Speaker 1: And so what does that tell you The market, if
12:06
Speaker 1: you like, which is not ideological, which is not political,
12:11
Speaker 1: the market, which is just about what's cheap and what's
12:14
Speaker 1: expensive and relative value says Tesla is by far the
12:18
Speaker 1: most valuable company. And that's because there is a convergence
12:22
Speaker 1: of policy and people's preferences, and Tesla is an example
12:26
Speaker 1: of that. And uh, it's an example of what's happening
12:30
Speaker 1: to investing worldwide, which is why uh, you know, the
12:34
Speaker 1: total amount of money committed to E s G is
12:36
Speaker 1: something like thirty five trillion dollars, which is obviously bigger
12:39
Speaker 1: than the US economy. Wow. So I mean if I'm
12:42
Speaker 1: you know, twice twice the size about right? I mean,
12:45
Speaker 1: if if I'm a teacher in Florida, any pension holder,
12:50
Speaker 1: I gotta say, Okay, so you're telling me my returns
12:53
Speaker 1: are going to be lower because you have this perhaps
12:56
Speaker 1: politically driven ideology as relates to E s G. Is
12:59
Speaker 1: there any push from within the state or Well, what
13:02
Speaker 1: I would like to see is exactly. I mean, It's
13:05
Speaker 1: one thing for the governor of Florida to say this
13:08
Speaker 1: is what we're doing. It's quite another thing to see
13:10
Speaker 1: what Florida does. If Florida adheres to its mandate, which
13:15
Speaker 1: is get the best or the highest total return with
13:19
Speaker 1: the least volatility, it will have to consider E s
13:23
Speaker 1: G investing. Whatever the initiative says, what do you what
13:26
Speaker 1: do you think about Engine number one or ARC? I mean,
13:30
Speaker 1: where do you think the most exciting M E s
13:33
Speaker 1: G investments are coming from? Well? You know, look, I've
13:37
Speaker 1: been as you well know many times with the two
13:40
Speaker 1: of you. Said that to me, Tesla is one of
13:43
Speaker 1: the most exciting events, um because as a disruption, it
13:50
Speaker 1: has changed really the face of the automobile industry I
13:54
Speaker 1: think forever, and that we are inexorably going to electric vehicles.
14:00
Speaker 1: So that that is my my choice if you like,
14:05
Speaker 1: not just cars. I just saw some ads for electric boats,
14:08
Speaker 1: I mean anything that has we just we just had
14:11
Speaker 1: one come out. It has a fifty nautical mile range.
14:13
Speaker 1: It has a cruising speed of twenty knots and a
14:16
Speaker 1: top speed of thirty knots. And that's pretty incredible for
14:19
Speaker 1: a dollar boat that can hold your whole family. I'm
14:21
Speaker 1: excited about this product. All right, Matt Winkler, thank you
14:25
Speaker 1: so much for joining us as always, Matt Winkler, editor
14:28
Speaker 1: in Chief emeritus UH and the founder of Bloomberg News
14:32
Speaker 1: so many years ago, joining us here in a Bloomberg
14:34
Speaker 1: Interactive broker studio. He's got a column out here looking
14:36
Speaker 1: at E. S G Investing, looking at it in the
14:38
Speaker 1: lens of Florida, and the governor there ron to Santa Syn.
14:42
Speaker 1: You can type that. You can type n I Winkler
14:44
Speaker 1: on the Bloomberg can you he's gutting? Of course he has.
14:47
Speaker 1: But you can also type that p I N code okay,
14:50
Speaker 1: and they can get Bloomberg dot com slash h O
14:54
Speaker 1: P I N Bloomberg opinion right now for those people
14:57
Speaker 1: that use that intra web thing. Well, there's a lot
15:02
Speaker 1: going on in the UK, potential session, surging inflation and
15:06
Speaker 1: energy crisis and now a change in the Prime minister.
15:09
Speaker 1: How our markets reacting to that? Well, of course we
15:12
Speaker 1: need a voice on the UK. We go to somebody
15:13
Speaker 1: who was born and raised outside of Rowan Oak, Virginia
15:17
Speaker 1: and literally the middle of nowhere, but he's now in London,
15:20
Speaker 1: Tim Craighead, Director of Research, senior European strategist for Blueberg Intelligence.
15:24
Speaker 1: He's been in London. We had him in Hong Kong
15:27
Speaker 1: running our business there for years. New York. The guy
15:29
Speaker 1: has been everywhere. Uh, Tim, a lot going on. You're
15:32
Speaker 1: on holiday because I follow you on social media and
15:35
Speaker 1: you're biking all over the island of England. But you
15:38
Speaker 1: were trained Goldman Sacks. That means you're on call seven.
15:43
Speaker 1: So we need a voice on the European markets. We
15:45
Speaker 1: go to Tim Craig Head. Tim, what's going on in
15:47
Speaker 1: the investing markets. There's a lot across currents there are
15:51
Speaker 1: and thanks for having me on from the sunny coast
15:54
Speaker 1: of South Devon. But you know, the the cross currents
16:00
Speaker 1: are crazy looking at things this afternoon. You've got oil
16:03
Speaker 1: down three dollars a barrel if you live at Brient Crude. Um,
16:07
Speaker 1: You've got interest rates that continue to trade up. Um,
16:10
Speaker 1: You've got economic stats that are waning new lockdowns across
16:15
Speaker 1: China with a tumbling currency there. And on the currency front,
16:21
Speaker 1: every every currency, it seems under the shining sun is
16:25
Speaker 1: weak against the dollar. So you know, bring all that
16:27
Speaker 1: to bear in in the UK here we announced and the
16:30
Speaker 1: the probably minister and Liz Trust comes into comes in
16:34
Speaker 1: the office post her her meeting with the Queen today
16:38
Speaker 1: and you know she faces a storm. Um. Interesting with
16:43
Speaker 1: all of that in context, the UK market essentially flat.
16:47
Speaker 1: So yeah, the kind of tells you something right there
16:50
Speaker 1: from the standpoint of what's discounted in the market at
16:53
Speaker 1: this point. Well, and right now I see a pound
16:55
Speaker 1: trading for a dollar fifteen. Um. I'm not sure that
17:00
Speaker 1: has as much to doo with Liz Trust as it
17:03
Speaker 1: has to do with um, you know, everything else that's
17:05
Speaker 1: going on there from you know, inflation. I think Goldman
17:09
Speaker 1: Sachs put out a report saying it could go to
17:11
Speaker 1: two concerns about an I m F bailout. Tell us
17:16
Speaker 1: about that. Yeah, so you know, I am F bailout.
17:20
Speaker 1: I think it's a bit on the extreme side. UM.
17:23
Speaker 1: One thing that was key today with Trust coming into
17:28
Speaker 1: into offices, there's been a a void from the standpoint
17:32
Speaker 1: of what government policy would be given the energy crisis
17:36
Speaker 1: here in the UK and more broadly across Europe and
17:40
Speaker 1: UM an ongoing growing list of big economies big government.
17:45
Speaker 1: UM has been announcing policies to help get businesses and
17:49
Speaker 1: consumers through the winter. And indeed, UM there was fear
17:54
Speaker 1: in the UK that Liz Trust would come in with
17:58
Speaker 1: an ultra right wing conservative of approach of cutting taxes
18:01
Speaker 1: and not offering handouts as she likes to call them.
18:04
Speaker 1: But you know, before she's even in the office, UM,
18:08
Speaker 1: you know, Bloomberg News actually found today UM the draft
18:13
Speaker 1: of a proposal to offer upwards of forty billion in
18:16
Speaker 1: support to business and a hundred and thirty billion and
18:19
Speaker 1: potential support for consumers to get through energy crisis by
18:24
Speaker 1: essentially capping energy prices now so that inflation rate would
18:29
Speaker 1: have would have essentially been driven in large part by
18:34
Speaker 1: huge escalations and energy prices. By the way, I love
18:37
Speaker 1: when politicians do. I love when politicians do massive u
18:40
Speaker 1: turns on campaign promises the day they come into office.
18:44
Speaker 1: You know, there you go, remember read my lips, no
18:48
Speaker 1: new taxes. Sure, yeah, that at least that took him
18:50
Speaker 1: like a year or two. That cost him the reelection.
18:54
Speaker 1: So Tim, go ahead, go ahead, Tim. Now, I was
18:57
Speaker 1: gonna say part of that, part of that pound weakness
19:00
Speaker 1: was a lot of the concern that you'd have all
19:03
Speaker 1: sorts of havoc with a you know, lower tax rates
19:07
Speaker 1: in the middle of of of a crazy period in
19:09
Speaker 1: the economy. And in fact, the first thing we're seeing
19:13
Speaker 1: some support is for the domestic economy. For Footsie doesn't
19:17
Speaker 1: really matter because as we've talked before, it's a mostly
19:19
Speaker 1: globally oriented, a big international brand, franchises and consumer and healthcare,
19:26
Speaker 1: et cetera. The week pounds actually a boon to those guys.
19:30
Speaker 1: So Tim, uh Matt and I were discussing, it's been
19:33
Speaker 1: a few years since we've been in the UK. Find
19:36
Speaker 1: what's what's your favorite point cost you a devon today?
19:42
Speaker 1: That's a critical question on holiday. Um, you notice I
19:46
Speaker 1: say holiday in a vacation and I noticed two weeks
19:49
Speaker 1: in a row. By the way, See, he's definitely getting
19:51
Speaker 1: used as a European thing there. You go so somewhere
19:56
Speaker 1: around uh seven or eight pounds that you could find
19:59
Speaker 1: them at London, you know North at ten right now
20:01
Speaker 1: if you go to the wrong pub. Really that's inflation, dude. Yeah,
20:07
Speaker 1: I have a list, by the way, if you ever
20:09
Speaker 1: are down in Chelsea or or Fulham. I like the
20:13
Speaker 1: Hollywood arms a lot. I'm a big fan of the
20:15
Speaker 1: builder's arms. I like the Duke of Clarence. I like
20:18
Speaker 1: the Duke on the Green Um and I love the
20:21
Speaker 1: Anglesey arms if you really want to hang with kind
20:23
Speaker 1: of the eurotrash there. But there's so many. Yeah, the
20:27
Speaker 1: right places the Washington in Delphize Park and that's named
20:30
Speaker 1: after George by the way, exactly all right, Tim, enjoy
20:36
Speaker 1: the holiday biking around um southern England. Uh. He's into
20:41
Speaker 1: this biking thing in the whole family. It's kind of yeah.
20:45
Speaker 1: My dad's into it too. He's very philoton guy, so
20:48
Speaker 1: you're also about He also like rock climbs too, so
20:52
Speaker 1: I mean, I don't know what's going on. Tim Craigead,
20:54
Speaker 1: he's a Director Research, senior European strategist for Bloomberg Intelligence.
20:58
Speaker 1: He's based in London. What we said that in the
21:04
Speaker 1: next life, I want to come back as a healthcare
21:07
Speaker 1: m and a banker. Every week it seems like there's
21:10
Speaker 1: a big, blockbuster healthcare deal and banks are getting paid
21:14
Speaker 1: left and right. Today, CBS to buy Signify Health in
21:17
Speaker 1: an eight billion dollar deal. CBS, you know, big pharmacy company,
21:21
Speaker 1: Healthcare Services Company, a hundred thirty billion dollar market gap.
21:24
Speaker 1: It's a big company. Stocks down about four percent year today,
21:27
Speaker 1: kind of flat today. Let's dive into this deal. Jonathan Palmer,
21:30
Speaker 1: senior equity research analyst, a team leader for Bloomberg Intelligence,
21:34
Speaker 1: also a proud graduate of the Penn State University, which
21:39
Speaker 1: had a good road win this weekend to start the year.
21:41
Speaker 1: All right, Johnathan, CBS Signify Health, tell us what's going
21:44
Speaker 1: on here? Well, Paul, you you hit the nail right
21:46
Speaker 1: in the head when you mentioned services company. And CVS
21:49
Speaker 1: has kind of three legs to this tool. They have
21:51
Speaker 1: their retail stores, they have what they call their PBM
21:53
Speaker 1: or pharmacy Benefit manager, which which manages drug benefits, and
21:57
Speaker 1: then they have their insurer Etna, and really all these
22:00
Speaker 1: companies in the healthcare services universe want to expand their
22:04
Speaker 1: service offering, and Signify does that in a meaningful way
22:07
Speaker 1: for CVS because Signify is in the home and they
22:10
Speaker 1: have assets where they send people out to people's house
22:13
Speaker 1: to do evaluations and managed care. And so the next
22:16
Speaker 1: step after you know, we've had the pandemic here from
22:19
Speaker 1: the virtual cares home care. Yeah. I mean, if if
22:24
Speaker 1: I'm right looking at the medical industry, everything's going towards telemedicine,
22:29
Speaker 1: UM home care or a CVS, right because there's no
22:33
Speaker 1: reason anymore to go to the medical um offices compound
22:38
Speaker 1: or to your local g p UM. You can do
22:41
Speaker 1: it all by phone, by phone or by zoom and um.
22:46
Speaker 1: You know, the only time I need to interact with
22:48
Speaker 1: somebody is when I get my booster shot, and I'll
22:50
Speaker 1: do that down the street. Yeah, the market is definitely
22:52
Speaker 1: moving in that direction, and really the pandemic was a
22:55
Speaker 1: catalyst for it. And you know, we've seen a lot
22:58
Speaker 1: of care move out of traditional setting is into the
23:00
Speaker 1: home in the in the virtual spaces, and we've seen
23:03
Speaker 1: Amazon move, you know, with one medical to to kind
23:06
Speaker 1: of follow a suit here. So is this tell us
23:08
Speaker 1: about signify what is what's special about these guys? Why
23:11
Speaker 1: is it worth eight billion? Well, they operate in a
23:14
Speaker 1: niche and I don't want to bore you with the
23:15
Speaker 1: details of what they actually do on a day to
23:17
Speaker 1: day basis, but really they help manage Medicaid and managed care,
23:23
Speaker 1: manage managed care, Medicaid and Medicare advantage participants. Every year,
23:28
Speaker 1: these people need to see a doctor. Um if the
23:31
Speaker 1: plan doesn't have them come into the office, they send
23:33
Speaker 1: somebody out to see them doing evaluation. It's part of
23:36
Speaker 1: the business model and it really fills a niche. And
23:38
Speaker 1: so what CBS is hoping to do is is uh
23:41
Speaker 1: expand that niche. There's about eighty five million people in
23:44
Speaker 1: those those two buckets and signifies only seeing about two
23:48
Speaker 1: million of those a year and build more services around that.
23:51
Speaker 1: That home platform. You know, you mentioned CBS had acquired
23:55
Speaker 1: and I've forgotten all about that deal. And when that
23:57
Speaker 1: deal was announced, I had no idea what's CBS was doing.
24:01
Speaker 1: How is up and it's a big insurance company. What's
24:04
Speaker 1: a drug store company doing buying an insurance company? How
24:06
Speaker 1: is that played out over the last a couple of years. Well,
24:09
Speaker 1: they've finally gotten to a point where the debt level
24:11
Speaker 1: from from the deals down and it's finally kind of
24:14
Speaker 1: realizing the vision that they foresaw where they have this explaned,
24:17
Speaker 1: expanded platform where they offer a little bit of everything.
24:20
Speaker 1: You know, CVS probably doesn't really want to be in
24:23
Speaker 1: the retail drug store business anymore. There's Amazons and but
24:28
Speaker 1: they want to turn those locations into service centers and
24:31
Speaker 1: they have things like health hubs that they're offering where
24:33
Speaker 1: instead of going to your you know, your local GP,
24:36
Speaker 1: you'll just pop into your CBS, get your blood pressure chair,
24:39
Speaker 1: to get your meds, do an evaluation. So the evolution
24:42
Speaker 1: of healthcare is expanding in where we see more of
24:45
Speaker 1: the traditional players kind of spreading their tentacles out, you know,
24:49
Speaker 1: whether it's Walgreens, whether it's Amazon, whether it's Walmart. Everybody
24:53
Speaker 1: wants to be in the healthcare game. I can't believe
24:55
Speaker 1: they want to get out of the drug store business.
24:56
Speaker 1: I mean, that's where it's like a one stop shop
24:59
Speaker 1: for every Yeah, well except for cigarettes, right, I can't
25:02
Speaker 1: buy cigarettes of CBS, right, No, not for a while,
25:05
Speaker 1: but well I remember when that came across, and obviously
25:08
Speaker 1: it makes perfect sense, but I wonder if they're going
25:10
Speaker 1: to ever start selling weed, you know, because they do
25:12
Speaker 1: CBD already. Right, that's a good question. I don't know
25:16
Speaker 1: that fits in the mantra of CVS health, but well,
25:18
Speaker 1: we'll see mental health. So talk to us about just
25:21
Speaker 1: your space general thirty seconds, Jonathan, what's the hot area
25:24
Speaker 1: that that you're covering right now? What if your investor
25:26
Speaker 1: clients want to talk about the most Yeah, well, I
25:28
Speaker 1: think that one of the key areas is actually this
25:31
Speaker 1: this space that we're talking about right now, which is
25:33
Speaker 1: technology enabled assets. And so we've seen a big retreat
25:37
Speaker 1: invaluations from the peak of the pandemic last year where
25:41
Speaker 1: everybody was really boiled up on virtual care, and now
25:43
Speaker 1: we're starting to see now that these stock prices have
25:45
Speaker 1: come back. You know, one Medical getting picked up by Amazon,
25:48
Speaker 1: we see Signify getting picked up by CBS. We think
25:51
Speaker 1: there's more to come. What is Amazon going to do
25:53
Speaker 1: in healthcare? That sounds like a monster vertical they could do. Well.
25:56
Speaker 1: I think that's the that's the plan, although they haven't
25:59
Speaker 1: executed so far. I mean, their pharmacy is really nowhere
26:02
Speaker 1: right now. They had a business for employers called Amazon Care,
26:05
Speaker 1: which they just announced that they're gonna fold which they're
26:08
Speaker 1: now going to use one medical probably to be the
26:10
Speaker 1: beach head there. So healthcare is hard. Yeah, it's hard
26:14
Speaker 1: to have and I don't understand it at all. That's
26:17
Speaker 1: why we have smart people like Jonathan Palmer to kind
26:19
Speaker 1: of walk us through some of the stuff. All right.
26:20
Speaker 1: Jonathan Palmer, senior equity research analysts and team leader. He
26:23
Speaker 1: covers it, does all the healthcare stuff here, manages the
26:26
Speaker 1: team of analysts we have here, a Bloomberg intelligence. All right,
26:31
Speaker 1: let's talk cybersecurity. I kind of been telling my kids
26:34
Speaker 1: have been entering the workforce over the last several years.
26:36
Speaker 1: It's not plastics is the future. It's cyber security. I
26:40
Speaker 1: think that's going to be a long term growth story.
26:42
Speaker 1: Shawn Joyce, Global Cybersecurity and Privacy leader at p w
26:46
Speaker 1: S c sean give us a sense of I don't
26:50
Speaker 1: know the the C suite folks you talked to, the
26:53
Speaker 1: board members you talked to do you think they're putting
26:57
Speaker 1: cybersecurity risk? They're giving it an enough attention. So I
27:03
Speaker 1: think it's a great question, and I think that it
27:07
Speaker 1: is coming to the forefront of the board of agenda
27:11
Speaker 1: and there probably isn't the boardroom that I go into
27:13
Speaker 1: where they're not talking about a digital transformation. And I
27:17
Speaker 1: would argue that within that digital transformation technology is that
27:22
Speaker 1: central nervous system for many companies in confirming that the
27:26
Speaker 1: data is secure and protected is really and can be
27:31
Speaker 1: brand defining, you know. And I would just add, you know,
27:35
Speaker 1: the boardroom became very concerned during the Russian Ukrainian conflict
27:40
Speaker 1: or war, and you know, what should we do? Do
27:44
Speaker 1: we have any business there operations? And I would just
27:47
Speaker 1: say that is the first time that we're really seen
27:52
Speaker 1: cyber as a risk come to the forefront from from
27:56
Speaker 1: this perspective. First, it's over cyber cyber warfare are in
28:01
Speaker 1: between Ukraine and Russia. We're seeing seven Wiper viruses that
28:04
Speaker 1: have been deployed, We're seeing infrastructure being targeted, satellites being targeted,
28:09
Speaker 1: and obviously an ongoing informational war. The second thing is
28:14
Speaker 1: we're actually seeing crowd sourcing in civilian groups acting on
28:18
Speaker 1: behalf of nation states. So not only are you seeing
28:22
Speaker 1: it coming to the forefront on the board agenda, but
28:26
Speaker 1: this threat is becoming more complex and I think a
28:30
Speaker 1: lot of companies struggle to really handle this risk effectively.
28:35
Speaker 1: Does a major company automatically outsource this or do they
28:38
Speaker 1: does anybody try and take it on themselves. I think
28:42
Speaker 1: you'll see some of the more mature companies, especially when
28:45
Speaker 1: you're talking financial services, defense contractors, a lot of them
28:50
Speaker 1: take it on themselves because it's critical to what they
28:55
Speaker 1: do each and every day and part of their brand.
28:57
Speaker 1: And I would add to tech companies too. I think
28:59
Speaker 1: there are other sectors and companies that should outsource different
29:04
Speaker 1: aspects of this cyber risk. Right, we're talking about cyber risk,
29:09
Speaker 1: and really if it's not the main part of what
29:12
Speaker 1: they do as a business, I would say I would
29:15
Speaker 1: outsource that to someone who has that expertise. By the way,
29:17
Speaker 1: do you have any headline numbers? I mean, we always
29:19
Speaker 1: talk about how many hundreds of billions of dollars are
29:23
Speaker 1: stolen in crypto every year, but it seems to me, um,
29:27
Speaker 1: you know, much more damage can be done. Um, when
29:31
Speaker 1: you're talking about huge financial entities like the big Wall
29:36
Speaker 1: Street banks or you know a Walmart or um, you know,
29:40
Speaker 1: signa healthcare how much damage is done in dollar terms
29:45
Speaker 1: via cyber crime every year? I would say easily tens
29:49
Speaker 1: of billions of dollars being done by you know, cyber
29:53
Speaker 1: criminals in Nation States each every year. And that's not
29:56
Speaker 1: just you know, through cyber crime and fraud and account
30:00
Speaker 1: takeover is it's all through also through the theft of
30:04
Speaker 1: intellectual property from companies. Just recently, we saw a breach
30:08
Speaker 1: or a ransomware event of the US company and they
30:12
Speaker 1: lost a hundred million dollars just in operations and the
30:16
Speaker 1: inability to actually produce their products. So this definitely is
30:22
Speaker 1: having a critical effect on business operations. And I think,
30:26
Speaker 1: you know, unlike what you probably talked about on your
30:29
Speaker 1: show when you talk about credit risk and market risk,
30:32
Speaker 1: fiber risk is newer, and I think a lot of
30:36
Speaker 1: people because of the educational gap and not being digital natives.
30:42
Speaker 1: As I said, it's a challenge to really deal with
30:45
Speaker 1: this risk versus some of the other traditional risk that
30:48
Speaker 1: you know, you and I have heard of historically that
30:51
Speaker 1: many people are familiar with. Sean, your deputy director of
30:55
Speaker 1: the FBI, I'd love to get your perspective on, you know,
30:59
Speaker 1: kind of how pair do you think the US government
31:02
Speaker 1: is and all of the interests aligned with the government
31:05
Speaker 1: is for cybersecurity, because it just seems like the risk
31:08
Speaker 1: whether it's coming from you know, Nation States or others
31:11
Speaker 1: are just almost impossible. Is that a Pentagon issue or
31:14
Speaker 1: does that fall under Does the FBI have its own
31:17
Speaker 1: division there, does the you know, um, the White House
31:21
Speaker 1: have its own cybersecurity people or or do you have
31:24
Speaker 1: one branch that overlooks it for everybody? So currently in
31:28
Speaker 1: the administration, so to answer your question directly, there is
31:31
Speaker 1: not one agency that handles everything. Uh. And I believe
31:35
Speaker 1: there should be an approach and a whole of government
31:39
Speaker 1: approach for those agencies to come together. However, I think
31:42
Speaker 1: this administration has done some great steps forward, you know
31:47
Speaker 1: with the establishment you know, SISSA as you know, just
31:51
Speaker 1: pushed through in legislation the National Cyber Incident Reporting Act. Right,
31:55
Speaker 1: we're seeing them do things like Shields Up, which is
31:58
Speaker 1: really companies coming together and how do they help protect
32:01
Speaker 1: each other? Um. Sister has also established the Joint Cyber
32:05
Speaker 1: Defense Collaborative. Right. When you look at the FBI, they
32:09
Speaker 1: have really pushed on their public private partnerships how they're
32:14
Speaker 1: actually helping companies defend along with the n s A.
32:18
Speaker 1: So it is really a collection of agencies, um. And
32:22
Speaker 1: like you're saying, though, I think that needs to be
32:24
Speaker 1: revisited and look at how can the government approach this
32:29
Speaker 1: from more of the next century approach versus maybe historically,
32:33
Speaker 1: how they how they've done that. The bureau, specifically the FBI,
32:37
Speaker 1: they have a cyber division. They have over a thousand
32:40
Speaker 1: people that are working this each and every day throughout
32:42
Speaker 1: the country and overseas. So they're coordinating with many different
32:46
Speaker 1: agencies and that, as you know, is one of their
32:49
Speaker 1: highest priorities of what they do each and every day.
32:52
Speaker 1: All Right, Sean, thank you so much for joining us.
32:54
Speaker 1: Really appreciate that. Shawn Joyce, Global Cybersecurity and Privacy Leader
32:59
Speaker 1: for PW. You see again, it was a debut director
33:02
Speaker 1: at the FBI, so he kind of gets it from
33:05
Speaker 1: um the you know, the private company side as well
33:08
Speaker 1: as the governmental side. Thanks for listening to the Bloomberg
33:13
Speaker 1: Markets podcast. You can subscribe and listen to interviews with
33:16
Speaker 1: Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller.
33:21
Speaker 1: I'm on Twitter at Matt Miller three, pt on Fall
33:25
Speaker 1: Sweeney I'm on Twitter at pt Sweeney. Before the podcast,
33:28
Speaker 1: you can always catch us worldwide at Bloomberg Radio.