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Government Should Be Borrowing As Much As They Can Now: Stern · Bloomberg Intelligence

• 0:05
  Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.
• 0:08
  Speaker 1: Along with my co host Lisa Abramowitz. Each day we
• 0:11
  Speaker 1: bring you the most important, noteworthy, and useful interviews for
• 0:15
  Speaker 1: you and your money, whether you're at the grocery store
• 0:17
  Speaker 1: or the trading floor. Find the Bloomberg p m L
• 0:20
  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Government
• 0:33
  Speaker 1: debt government refunding? Is the level of government debt and
• 0:37
  Speaker 1: private debt? Is it endangering the growth of the US economy?
• 0:40
  Speaker 1: Here to tell us More's Joel Stern. He's the chairman
• 0:43
  Speaker 1: and the chief executive officer of Stern Value Management. Joel Stern,
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  Speaker 1: thank you very much for being in our eleven three
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  Speaker 1: oh studio. It's a pleasure to have you here. So
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  Speaker 1: answer this question for us. The level of government debt
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  Speaker 1: is causing a lot of people to opine about the
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  Speaker 1: future prospects for growth. What's your thought, Well, they are wrong,
• 1:01
  Speaker 1: they are wrong. There are two ways you can tell.
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  Speaker 1: Take a look at real interest rates if the level
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  Speaker 1: of debt. Look if the bond rating of a company
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  Speaker 1: goes down, what do you think happens to the rate
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  Speaker 1: of interest they pay? It goes skyward. The thirty year
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  Speaker 1: government bonds, they're yielding three point one or something. So
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  Speaker 1: there's gotta be there's gotta be a retort to that,
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  Speaker 1: and I'll tell you what it is. You don't look
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  Speaker 1: at book value. You will look at market value. The
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  Speaker 1: market value of assets in the United States, not just
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  Speaker 1: the stock market, hey, real estate, gold, diamonds, all kinds
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  Speaker 1: of assets. They are very very high. If you take
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  Speaker 1: a look at the debt ratio, the amount of debt
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  Speaker 1: in relation to the market value of the assets we have,
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  Speaker 1: the debt ratio has actually gone down quite considerably. Okay, So, Joel,
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  Speaker 1: you're making an argument saying that it is perfectly fine
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  Speaker 1: for the U. S. Treasure Department to be selling a
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  Speaker 1: record amount of debt each quarter going forward. For right,
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  Speaker 1: so you've got new debt, right, new debt, Yes, new debt,
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  Speaker 1: additional issue in uh So, given that argument, we got
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  Speaker 1: the Treasury funding announcement earlier today, do you think they
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  Speaker 1: ought to be selling longer dated debt and more of
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  Speaker 1: that because they're focusing so much on the front end
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  Speaker 1: with a new two months two months a note as well. Well.
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  Speaker 1: Keep in mind that government debt, as I understand it,
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  Speaker 1: has no call protection. Whatever rate of interest, for whatever
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  Speaker 1: period of time, you're stuck with it in the government.
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  Speaker 1: Well were we as citizens are stuck with it? Okay,
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  Speaker 1: we can't call the debt and retire it early. Okay,
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  Speaker 1: we can buy it up in the market place, but
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  Speaker 1: there's no call protection. I remember back in the early
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  Speaker 1: eighties when the Gut when the inflation rate was very,
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  Speaker 1: very high Underaggan, he inherited that was something like twelve percent. Well,
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  Speaker 1: would you believe thirty year government bonds was suddenly being
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  Speaker 1: offered at fifteen point two percent? Okay, fifteen percent? Well,
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  Speaker 1: what does that mean? It means that the government officials,
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  Speaker 1: the economists, they believe that the high inflation was going
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  Speaker 1: to continue for the next thirty years. Okay. A Beryl Sprinkle,
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  Speaker 1: who was the under Secretary of the Treasury, I called
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  Speaker 1: him at that time and I said, hey, Beryl, what
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  Speaker 1: do you think? He said, I'm not I'm not a
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  Speaker 1: risk taker on this. I'm just a government official. I
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  Speaker 1: don't have any bonuses paid to me based on whether
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  Speaker 1: or not my guesses are right. Whatever the market wants,
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  Speaker 1: that's what I'm gonna do, all right. It's one thing.
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  Speaker 1: If it's fifteen and a half percent. I'm looking at
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  Speaker 1: three point one percent for thirty years in US yields.
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  Speaker 1: Right now, you're suggesting that the US not necessarily issue
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  Speaker 1: thirty year debt at these types of yields because they
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  Speaker 1: could go lower. Is that correct? No, I would say
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  Speaker 1: that I would not be a betting person that for
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  Speaker 1: the next thirty years we're not going to have any
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  Speaker 1: significant inflation and therefore I'll get paid back in cheaper dollars.
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  Speaker 1: If I were the US government, I would never have
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  Speaker 1: gone to the route of the ten year. I would
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  Speaker 1: have stayed with the thirty year because the difference right now,
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  Speaker 1: for example, between the ten year and the thirty year
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  Speaker 1: is a drop in the bucket. It's about fifteen basis
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  Speaker 1: points well at that rate. For goodness sake, they should
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  Speaker 1: be borrowing as much thirty year money as they can,
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  Speaker 1: and they should be refinancing short term money into that.
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  Speaker 1: Because I believe that the economy, as you know, is
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  Speaker 1: going to be stronger going forward. I think we could
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  Speaker 1: have growth rates in between three and three quarters and
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  Speaker 1: four and a quarter percent, and if we do, interest
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  Speaker 1: rates are going to be higher. And if they are higher,
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  Speaker 1: take a look at the budget. I mean, the interest
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  Speaker 1: is something like seven percent of the entire federal budget,
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  Speaker 1: so we don't want it to become twelve percent or
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  Speaker 1: fift in percent simply because the rates go up. Let's
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  Speaker 1: lock the rates and now, well the Federal Reserve phrase
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  Speaker 1: interest rates consistent to what economists are predicting three maybe
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  Speaker 1: four times. Yes, I think so. But the keep in
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  Speaker 1: mind that right now, because short term rates have already
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  Speaker 1: been increasing, the Fed has to raise the interest rate
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  Speaker 1: they charge banks. Otherwise the banks are going to get
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  Speaker 1: at another subsidy. They don't deserve it. In other words,
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  Speaker 1: that they can borrow at the discount window. They have
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  Speaker 1: to raise the discount rate just to keep it competitive
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  Speaker 1: with treasury rates. Otherwise the banks have an unfair advantag
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  Speaker 1: So I'm trying to understand if you're saying, and you've
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  Speaker 1: been consisted in this, and frankly you've been right that
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  Speaker 1: the U. S economy will continue to accelerate. Um, what
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  Speaker 1: do you make of the earnings we've gotten so far,
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  Speaker 1: particularly Caterpillar, which sort of was the key moment in
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  Speaker 1: this earning season, coming out and saying this may be
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  Speaker 1: as good as it gets. I am not one for
• 5:22
  Speaker 1: taking a look at one quarter. Okay, you've got to
• 5:24
  Speaker 1: take a look at this thing over a period of
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  Speaker 1: quarters and see what's really happening. Keep in mind, too,
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  Speaker 1: the slashing of the tax rate is one big effect.
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  Speaker 1: There's a slight offset though. Remember what did what did
• 5:37
  Speaker 1: Trump do with regard to capital expenditures? You right off
• 5:40
  Speaker 1: the capital expenditures all in the current year. Remember we
• 5:43
  Speaker 1: would normally depreciate them over time. Well, one of the
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  Speaker 1: ways they thought to stimulate the economy would be an
• 5:48
  Speaker 1: immediate right off, and it would be. But the question is, then,
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  Speaker 1: what happens to comparability on accounting information if you're measuring
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  Speaker 1: return on investment or whatever. Now the investment is lower
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  Speaker 1: because it's been written off immediately, and the profits are
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  Speaker 1: lower because it's been written off against the profits. So
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  Speaker 1: it's gonna be we're gonna go through a period when
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  Speaker 1: we're gonna have comparables against the prior year for cooperations
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  Speaker 1: that are not going to be very meaningful. I would
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  Speaker 1: like to ask the people at Caterpillar to what extent
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  Speaker 1: was the new tax law, if it had any effect
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  Speaker 1: at all, And to what extent the tax law is
• 6:19
  Speaker 1: going to have an effect in the future, and that's
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  Speaker 1: true for all capital intensive companies. I want your thoughts
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  Speaker 1: on inflation and why we seem to be at maybe
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  Speaker 1: two percent inflation officially, and yet you talk to anybody,
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  Speaker 1: their perception is inflation is much higher. Know that you
• 6:36
  Speaker 1: have to talk to me. Inflation is much lower. Can
• 6:38
  Speaker 1: I tell you why? Very interesting. Let's assume the price
• 6:41
  Speaker 1: of peace goes up and you switched to string beans,
• 6:44
  Speaker 1: and say string beans have not yet gone up, then
• 6:47
  Speaker 1: the average price you pay is not as high as
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  Speaker 1: the index indicates. In other words, the the index assumes
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  Speaker 1: that the market basket of goods and services that people
• 6:55
  Speaker 1: buy is unchanged. There's another reason. I remember I was
• 7:00
  Speaker 1: on the board of a company called Vivatar. We made lenses,
• 7:02
  Speaker 1: flash equipment, thirty five millimeter cameras, and one of our
• 7:06
  Speaker 1: board members walked in and said, look at this, and
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  Speaker 1: he showed us the new Sony camera that had no
• 7:12
  Speaker 1: film in it. Okay, and he goes click, click, click,
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  Speaker 1: He takes a few photographs, and I said, where is
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  Speaker 1: the film in there? Oh, no, no film, just a microprocessor.
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  Speaker 1: I said, how much does that camera cost? Two thousand
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  Speaker 1: four D? I see, and when do you think it
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  Speaker 1: will come down to a decent price. Oh, it'll get
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  Speaker 1: down to eight hundred within a year, and maybe it'll
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  Speaker 1: be down to three hundred in a few years. But
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  Speaker 1: here's the problem. People start then buying it big time,
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  Speaker 1: and guess what happens. It's not yet in the market basket.
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  Speaker 1: And by the time they put it in the market basket,
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  Speaker 1: all those price declines that take place from down to
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  Speaker 1: the three hundred, they never show up anywhere. Keep in mind, too,
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  Speaker 1: we're getting improvements in the iPhone or in the other phones,
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  Speaker 1: and the result is we're not it's not being priced
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  Speaker 1: in to the consumer price index I'm suggesting, and it's
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  Speaker 1: difficult to do it. Don't get me wrong. I feel
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  Speaker 1: badly for the Commerce Department and the Bureau Labor Statistics
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  Speaker 1: because it's difficult to do these calculations. And at the
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  Speaker 1: same time we have to realize that the inflation rate
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  Speaker 1: is almost permanently overstated. Joel Stern, we love having you on.
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  Speaker 1: Thank you so much for being with us and sharing
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  Speaker 1: your thoughts. Joel Stern, Chairman and chief executive of Stern
• 8:23
  Speaker 1: Value Management, very respected person in the market, long term
• 8:28
  Speaker 1: voice who is uh sounding a note of optimism on
• 8:32
  Speaker 1: all this caution and concerns that the best is behind
• 8:35
  Speaker 1: us and woe upon this credit cycle. And Lisa Brom
• 8:39
  Speaker 1: what's along with my co host Pim Fox, And this
• 8:42
  Speaker 1: is Bloomberg Radio. Oh Apple, the gift that ends up
• 9:00
  Speaker 1: giving despite people's doubt about whether or not it could deliver.
• 9:05
  Speaker 1: Here to talk about the earnings and what's to come.
• 9:07
  Speaker 1: John Butler, senior Telecom Services and Equipment analyst with Bloomberg Intelligence,
• 9:12
  Speaker 1: joining us in our eleven three Oh studios. John, is
• 9:15
  Speaker 1: there anything negative here or was this just an all
• 9:18
  Speaker 1: out and out amazing, wonderful blockbuster that shows that even
• 9:21
  Speaker 1: though Apple is tied to the smartphone, it doesn't matter.
• 9:24
  Speaker 1: They can still blow it out of the water. There
• 9:26
  Speaker 1: was not a lot to worry about this. Come on,
• 9:29
  Speaker 1: they defied the skeptics, um, you know. Rolling into the quarter,
• 9:34
  Speaker 1: there were all these reports coming out of the supplier
• 9:37
  Speaker 1: community that Apple was cutting orders for the iPhone X
• 9:41
  Speaker 1: iPhone ten, I should say, and there was a lot
• 9:45
  Speaker 1: of the concern was at that iPhone ten is helping
• 9:48
  Speaker 1: Apple bring up the average selling price of the iPhone,
• 9:51
  Speaker 1: so as unit chip and slow. If your average prices
• 9:55
  Speaker 1: going up, you're gonna get nice revenue gains, and we
• 10:00
  Speaker 1: saw that this past quarter, right, iPhone shipments were up
• 10:03
  Speaker 1: around three percent, but the revenue group four. And I
• 10:08
  Speaker 1: think what really encouraged people was Cook's commentary that the
• 10:12
  Speaker 1: iPhone TM has been the best selling iPhone in every
• 10:16
  Speaker 1: week since its launch, and that has never been the
• 10:18
  Speaker 1: case in the past with a new phone. That that
• 10:21
  Speaker 1: really is a record for them. And I hate to
• 10:24
  Speaker 1: use the word record because every company has record quarters
• 10:28
  Speaker 1: and record this and record that. It gets overused and overblown,
• 10:32
  Speaker 1: but I think it's really fair to take note to that.
• 10:35
  Speaker 1: I think that's an important trend here because it lends
• 10:38
  Speaker 1: confidence in the fact that there is a market for
• 10:42
  Speaker 1: a thousand dollar plus phone. And I think the iPhone
• 10:45
  Speaker 1: ten is proving that it's pims, it's Pins family. Right.
• 10:51
  Speaker 1: Can you tell me about margins? So the margins were
• 10:55
  Speaker 1: flat if you look behind the curtain. What's going on
• 10:59
  Speaker 1: with Apple and a lot of other companies, as you've
• 11:01
  Speaker 1: had memory costs rising pretty considerably, and they were asked
• 11:06
  Speaker 1: about it on the call and the answer was, we
• 11:08
  Speaker 1: really believe we've sort of seen the peak in in
• 11:12
  Speaker 1: nand and de ram prices, which are the memory chips
• 11:15
  Speaker 1: and so margins should improve going forward. The one thing
• 11:20
  Speaker 1: I looked at in particular is I'm very focused on
• 11:23
  Speaker 1: that Apple margins where i'm services revenue, pardon me, and
• 11:27
  Speaker 1: there are potential to expand margins because they're very Those
• 11:32
  Speaker 1: sales are very acreative to Apple's margins. So as services
• 11:36
  Speaker 1: increases a percent of revenue, I think it's going to
• 11:39
  Speaker 1: bring the margin up. How about the inventory levels. The
• 11:43
  Speaker 1: inventory levels, according to the CFO were higher, by the way, uh,
• 11:50
  Speaker 1: five to seven weeks versus normal channel inventories of four
• 11:53
  Speaker 1: to six And the answer was, we did some buying
• 11:58
  Speaker 1: to take advantage of some component costs, so they were
• 12:04
  Speaker 1: stockpiling at moments during the quarter. I think when they
• 12:08
  Speaker 1: thought they had an advantage on chip prices, spot market
• 12:14
  Speaker 1: was as you know, PIM was spot market prices. They
• 12:16
  Speaker 1: move all over the place. They sort of chose their
• 12:20
  Speaker 1: points and bought components and and built to those um
• 12:24
  Speaker 1: those purchases. So I want to talk about share buybacks
• 12:27
  Speaker 1: because the numbers kind of blew me out of the water.
• 12:29
  Speaker 1: This morning. Uh, they announced one hundred billion dollars of
• 12:33
  Speaker 1: additional share repurchases, but they also showed that the amount
• 12:39
  Speaker 1: of money that they spent on their own shares in
• 12:41
  Speaker 1: the first quarter was equal to all of the shares
• 12:45
  Speaker 1: of any one of two hundred and seventy five members
• 12:48
  Speaker 1: of the SMP five hundred. At what point is this
• 12:52
  Speaker 1: counterproductive in the sense that, yes, the returning shareholder of money,
• 12:56
  Speaker 1: but they're not investing in anything new or acquiring any
• 12:59
  Speaker 1: of a companies that could potentially diversify their business away
• 13:03
  Speaker 1: from the smartphone. I share that concern. That's really my
• 13:06
  Speaker 1: only answer there is I saw the size of the
• 13:09
  Speaker 1: buy back and I thought, you know, I realized to them,
• 13:14
  Speaker 1: Apple shares are attractive, but there have to be higher
• 13:18
  Speaker 1: return projects out their higher return potential acquisitions, particularly Sinceri
• 13:25
  Speaker 1: in particular has sort of lagged its its rivals Google Assistant,
• 13:29
  Speaker 1: for example. Why aren't they out buying companies that are
• 13:33
  Speaker 1: doing natural language processing better than they are or A. I. Um,
• 13:40
  Speaker 1: you know, a lot of the companies in those areas
• 13:43
  Speaker 1: are very small, so it doesn't take a lot to
• 13:45
  Speaker 1: buy them. But I'm with you. I think they should
• 13:48
  Speaker 1: have kept some dry powder for M and A. Well.
• 13:53
  Speaker 1: I just I think it was up from seventon that
• 13:55
  Speaker 1: most people thought it was going to be the announced
• 13:57
  Speaker 1: share buy back, so they actually increase they would over
• 14:00
  Speaker 1: what people were expecting with capital returns. Just to put
• 14:02
  Speaker 1: it into perspective, it's not just that they were returning
• 14:05
  Speaker 1: capital to shareholders as people expected. They blew the estimates
• 14:08
  Speaker 1: out of the water, right, I don't right, So again
• 14:13
  Speaker 1: I was a little bit concerned about that in the
• 14:16
  Speaker 1: for the same reason you are, which is you know,
• 14:19
  Speaker 1: they could do a transformative acquisition here. Not that they
• 14:23
  Speaker 1: need to transform, but they could diversify more. In the
• 14:28
  Speaker 1: latest quarter, for example, iPhone sales were sixty of the
• 14:32
  Speaker 1: total and probably a much higher percent of profits. So
• 14:36
  Speaker 1: they're still highly dependent on a single consumer electronics product line.
• 14:43
  Speaker 1: So I'd love to see more diversification there, particularly in
• 14:46
  Speaker 1: services to I didn't mention that they could make some
• 14:49
  Speaker 1: key acquisitions there. Content. Perhaps I've got to have you back.
• 14:53
  Speaker 1: We've got much more to talk about. What Thanks very much,
• 14:56
  Speaker 1: John Butler. We found something to worry about. There's always
• 15:00
  Speaker 1: something to worry about. John Butler, senior Telecom services analyst
• 15:03
  Speaker 1: for Bloomberg Intelligence, much appreciated the fund that our next
• 15:22
  Speaker 1: guest manages is up more than six percent so far
• 15:25
  Speaker 1: this year. I want to introduce will prove it. He
• 15:27
  Speaker 1: is portfolio manager of the Fidelity Latin America Fund. The
• 15:31
  Speaker 1: symbol there is flat X, that's f l A t
• 15:34
  Speaker 1: X and it has about six hundred and fifty million
• 15:37
  Speaker 1: dollars of assets. And he is based in Boston, but
• 15:40
  Speaker 1: joins us here in our eleven three oh studios. Will
• 15:43
  Speaker 1: thanks very much for coming in. Maybe just give people
• 15:46
  Speaker 1: a little bit of your background as to how you
• 15:48
  Speaker 1: came to manage this particular fund. Sure, thanks for having me,
• 15:51
  Speaker 1: guys really appreciate it. Um So, I joined Fidelity ten
• 15:54
  Speaker 1: years ago. UM, you know, spent the first eight years
• 15:58
  Speaker 1: looking at various sector so did a couple of years
• 16:01
  Speaker 1: in global consumer, looked at the beverage and tobacco stocks,
• 16:05
  Speaker 1: luxury goods companies, um CAN. Spent a few years looking
• 16:08
  Speaker 1: at the commodity space, so the medals and miners UM,
• 16:11
  Speaker 1: and then another couple of years looking at emerging market financials.
• 16:14
  Speaker 1: And then two years ago took over. Took over this fund.
• 16:17
  Speaker 1: All right, so let's dig into Latin American equities. Obviously,
• 16:21
  Speaker 1: emerging markets had been on a tear. I have seen
• 16:24
  Speaker 1: a little bit more of a soft patch of late.
• 16:27
  Speaker 1: I want to talk about a couple of countries in particular.
• 16:30
  Speaker 1: Let's start with Mexico. A lot of question marks. Right now,
• 16:33
  Speaker 1: we're heading into the election that is highly contentious. What's
• 16:36
  Speaker 1: your outlook? Yeah, I mean, if you look at the
• 16:39
  Speaker 1: recent polls, AM low so Locus obdor Um is in
• 16:42
  Speaker 1: the lead by a lot um and you know, the
• 16:45
  Speaker 1: elections in a couple of months. So you know, I
• 16:48
  Speaker 1: think that the odds are increasing that um that that
• 16:51
  Speaker 1: he's going to win that election. Um, you know, napt
• 16:54
  Speaker 1: uncertainties continue. Um. You know, I don't really have a
• 16:57
  Speaker 1: call on what's gonna happen with with NAFTA or with election.
• 17:00
  Speaker 1: So how do you how do you actually bet on
• 17:02
  Speaker 1: specific companies if you don't have a call on these
• 17:05
  Speaker 1: massive macro issues. Yeah, good questions. So I look at
• 17:08
  Speaker 1: good I'm looking for good quality businesses at cheap valuations.
• 17:11
  Speaker 1: There are a lot of great companies in Mexico, and
• 17:12
  Speaker 1: there are a lot of cheap companies in Mexico. But
• 17:14
  Speaker 1: there are not a lot of great cheap companies in Mexico.
• 17:16
  Speaker 1: So I'm underweight that market anyway, just given the lack
• 17:20
  Speaker 1: of value that I see there. So I don't really
• 17:22
  Speaker 1: need to make a call on these macro issues. UM.
• 17:24
  Speaker 1: What I'm really hoping is, you know, if UM, if
• 17:27
  Speaker 1: AMIL is elected, or if there's a negative resolution to NAFTA,
• 17:31
  Speaker 1: that the market comes down, I get the opportunity to
• 17:33
  Speaker 1: pick up some of these some of the local equities
• 17:35
  Speaker 1: at cheap values. Just give an example of a couple
• 17:38
  Speaker 1: of equities. You have a credit company, credit finance company
• 17:42
  Speaker 1: in the portfolio from Mexico. Plus I believe also you
• 17:46
  Speaker 1: have sort of a medical lab company as well. Yeah,
• 17:50
  Speaker 1: I mean so UM in Mexico. The sector that I
• 17:53
  Speaker 1: most overweight is financial services UM. So I'm not sure
• 17:56
  Speaker 1: you're talking about critical reality is one. Yeah, So financial
• 17:59
  Speaker 1: services in Mexico are very underpenetrated. It's one of the
• 18:02
  Speaker 1: most underpenetrated markets in the world for for credit products.
• 18:05
  Speaker 1: So that is a small cap company which does payroll
• 18:08
  Speaker 1: lending to government employees, so very secure UM kind of lending.
• 18:13
  Speaker 1: UM been able to grow quite quickly at very high
• 18:16
  Speaker 1: returns historically. And that stock UM I think is either
• 18:21
  Speaker 1: the most or or one of the least expensive maybe
• 18:25
  Speaker 1: bottom two or three stocks within the within that market.
• 18:28
  Speaker 1: And so I think it's good quality company, very very
• 18:31
  Speaker 1: cheap UM with good growth prospects. Let's head south. Let's
• 18:34
  Speaker 1: go to Brazil, because this is an economy that has
• 18:37
  Speaker 1: been in turmoil and been into the deepest recession, uh forever.
• 18:42
  Speaker 1: So what's your what's your approach to Brazil? Are you overweight? Underweight?
• 18:47
  Speaker 1: And uh what can you illuminate? Yeah, so I'm overweight
• 18:51
  Speaker 1: Brazil since end of so after Timor came in and
• 18:55
  Speaker 1: they were able to pass the first fiscal reform um.
• 18:58
  Speaker 1: So I've been overweight that market. So you look at Brazil.
• 19:01
  Speaker 1: What's really interesting about Brazil is it's the only major
• 19:04
  Speaker 1: economy in the world which is early cycle. So every
• 19:07
  Speaker 1: other market in the world, at least significant one is
• 19:10
  Speaker 1: mid or late cycle. Brazil, all the economic indicators are
• 19:13
  Speaker 1: showing now is recovering from this recession. So you look
• 19:16
  Speaker 1: at unemployment, inflation, interest rates. Him he's basically saying it
• 19:20
  Speaker 1: can't get any worse. And I think that that's a
• 19:25
  Speaker 1: relevant point because it is difficult for many people to
• 19:30
  Speaker 1: recognize that you want to be purchasing quality assets when
• 19:33
  Speaker 1: no one else believes they are quality assets. You don't
• 19:36
  Speaker 1: want to buy them when everybody is already aboard. Absolutely,
• 19:40
  Speaker 1: I mean paying top dollar. And this is why I
• 19:42
  Speaker 1: think just being aware of where you are in the
• 19:44
  Speaker 1: cycle matters. Like I'm not trying to call cycles, but
• 19:46
  Speaker 1: if you are at an early cycle stage and you
• 19:49
  Speaker 1: can find cheap assets or even mid cycle multiples on
• 19:52
  Speaker 1: on assets at early cycle, that's a great place to fish.
• 19:55
  Speaker 1: If you are a late cycle and you're playing top dollar,
• 19:57
  Speaker 1: that's bad. Alright. So is Brazil where your most overweight
• 20:01
  Speaker 1: right now? It is? It is so within Brazil, I
• 20:04
  Speaker 1: mean the financial space I think is very interesting. The
• 20:06
  Speaker 1: banks there are exceptional. Um, it's interesting, like you compare
• 20:10
  Speaker 1: emerging markets versus developed markets. In developed markets, banks are
• 20:14
  Speaker 1: now at least social businesses sometimes cover the cost of capital,
• 20:18
  Speaker 1: sometimes they don't. Brazil consolidated market, high margins, great businesses.
• 20:22
  Speaker 1: So I'm trying to get a sense, given the trade
• 20:25
  Speaker 1: war concerns, where is Latin America as a bet And
• 20:29
  Speaker 1: I know you're completely biased because you focus entirely on
• 20:32
  Speaker 1: this region, but you know where in the cycle if
• 20:34
  Speaker 1: you could say it is the region, I mean it's
• 20:37
  Speaker 1: it's a more important issue from Mexico obviously compared with Brazil.
• 20:40
  Speaker 1: So Brazil exports commodities for the most part, They're not
• 20:44
  Speaker 1: a big finish good exporter and the commodities are metals,
• 20:48
  Speaker 1: UM commodity, UM, soft bodies, so pulp and paper, soy corn,
• 20:53
  Speaker 1: that kind of thing. The export everywhere. China is a
• 20:56
  Speaker 1: big customer, but they also export to Europe in the
• 20:58
  Speaker 1: US UM. So you don't think it's going to be
• 21:01
  Speaker 1: that big of adition. I don't think so. I don't think.
• 21:02
  Speaker 1: I mean you could argue that they would. They would
• 21:04
  Speaker 1: benefit from the trades spat between the US and China,
• 21:07
  Speaker 1: right because if China is putting tariffs on imported soy
• 21:10
  Speaker 1: from the US, Brazil is actually the largest soy export
• 21:13
  Speaker 1: in the world, is going to help them all right,
• 21:15
  Speaker 1: Will Pruett, thank you so much for being with us
• 21:17
  Speaker 1: and coming in from Boston. Portfolio manager for the Fidelity
• 21:20
  Speaker 1: Latin American Fund uh managing about six hundred and fifty
• 21:25
  Speaker 1: million dollars of assets, and he has headed to Chile
• 21:29
  Speaker 1: in less than a week. Have a great flight. Welcome
• 21:47
  Speaker 1: to the Megan economy. I'm talking about the marriage between
• 21:51
  Speaker 1: Prince Harry and Megan Marco, which has the potential to
• 21:55
  Speaker 1: transform the fashion industry, if not forever, perhaps for a
• 22:00
  Speaker 1: few years. Joining us now, James Fallon editorial director for
• 22:03
  Speaker 1: Women's Where Daily, joining us here in our eleven three
• 22:06
  Speaker 1: our studios, James, thank you so much for being here.
• 22:08
  Speaker 1: So tell us about the Megan economy and just how
• 22:12
  Speaker 1: significant this marriage will be two retailers another in the
• 22:16
  Speaker 1: fashion world. I think it will be very significant. The
• 22:19
  Speaker 1: initial projections by UK Consultancy where that the marriage would
• 22:23
  Speaker 1: inject five hundred million pounds so six hundred plus million
• 22:27
  Speaker 1: dollars into the British economy. They immediately raise that and
• 22:30
  Speaker 1: they're now expecting it to be almost a billion pounds um.
• 22:34
  Speaker 1: And anything that Megan Marco wears more or less flies
• 22:39
  Speaker 1: off the shelves or gets back ordered on online, etcetera.
• 22:43
  Speaker 1: So okay, so let's put this into context. Prince Harry
• 22:46
  Speaker 1: is not going to be king unless his brother dies, right,
• 22:49
  Speaker 1: So he's six in line. He's sixth in line, right,
• 22:51
  Speaker 1: so he's there's and five other people have to go
• 22:54
  Speaker 1: before he becomes king. Megan Marco is a an American
• 22:58
  Speaker 1: divorcee who is older than him, and they're getting married
• 23:01
  Speaker 1: in a relatively private affair. Uh. Not a lot of
• 23:05
  Speaker 1: media is going to be allowed. Does this affect the
• 23:09
  Speaker 1: economic impact or is the fascination with soon to be
• 23:13
  Speaker 1: Princess Markle too significant. It's that's the fascination is too significant.
• 23:18
  Speaker 1: I mean they're going to be tracking it one way
• 23:20
  Speaker 1: or the other. And I'm sure the British coverage is
• 23:23
  Speaker 1: already breathless and it will become even more breathless as
• 23:26
  Speaker 1: they build up to the May ninete date. Um as
• 23:30
  Speaker 1: the American coverage will become more breathless too, so it'll
• 23:33
  Speaker 1: be significant. And then you're also seeing Prince Harry in
• 23:38
  Speaker 1: a way is more popular than Prince William, even though
• 23:40
  Speaker 1: Prince William is heir to the throne. I think everybody
• 23:43
  Speaker 1: kind of identifies with the bad boy image a little
• 23:47
  Speaker 1: bit of Prince Harry. He's very personable. Um. And you're
• 23:51
  Speaker 1: also seeing a difference where, you know, as much of
• 23:54
  Speaker 1: an impact as Katherine Middleton has had, she now has
• 23:57
  Speaker 1: three children. She's not an actress can Marco as an actress.
• 24:01
  Speaker 1: So the public, being fickle, will immediately switch their attitude
• 24:05
  Speaker 1: and focus on Megan, and poor Kate will be like, oh,
• 24:08
  Speaker 1: she's a mother who cares baically. Wow, way harsh. They're
• 24:13
  Speaker 1: tough over there, clearly, Okay, I've got the Bride the
• 24:18
  Speaker 1: bridebook dot co dot uk. Countdown clock here sixteen days,
• 24:23
  Speaker 1: twenty hours, fifteen minutes to the Royal wedding. Estimated cost
• 24:29
  Speaker 1: about forty three million dollars. One of those costs is
• 24:33
  Speaker 1: supposed to be uh two dresses the wedding dress that
• 24:38
  Speaker 1: the bride will wear a plus the dress that she
• 24:40
  Speaker 1: will then wear in the evening celebration. Estimated costs there
• 24:44
  Speaker 1: about four hundred thou dollars. Yes, who will make the dress?
• 24:48
  Speaker 1: That's the questions, um, I mean that's the question. I
• 24:54
  Speaker 1: mean that the odds makers at the moment have this
• 24:58
  Speaker 1: British designer Ralph and Russo is this is one of
• 25:01
  Speaker 1: the shortlists. Um. It was a designer named Air Deem
• 25:04
  Speaker 1: for a while, but he seems to have faded. No
• 25:06
  Speaker 1: one will know until she steps out of the carriage
• 25:09
  Speaker 1: and they get that brief photo of her. Um. And
• 25:12
  Speaker 1: it can have a significant impact. It will have a
• 25:15
  Speaker 1: significant impact on whatever that person's businesses. Whether that impact
• 25:19
  Speaker 1: lasts remains to be seen. I mean, the Emmanuel's who
• 25:24
  Speaker 1: designed Princess Diana's wedding dress, built a career that lasted
• 25:28
  Speaker 1: maybe fifteen years, and Elizabeth Emmanuel still designs. But it
• 25:32
  Speaker 1: then kind of disappeared. Um, if I give you a
• 25:37
  Speaker 1: quiz to name the designer of Sarah Ferguson's wedding dress,
• 25:40
  Speaker 1: I dare to say neither of. You could probably say
• 25:43
  Speaker 1: that you're talking to such the wrong person because he
• 25:47
  Speaker 1: is her name, um, and she had a career. So
• 25:50
  Speaker 1: but who do you think will I think probably it
• 25:53
  Speaker 1: might be rough and Rousso I think that that's the
• 25:55
  Speaker 1: sort of focus that everybody's on. But again people are saying,
• 26:00
  Speaker 1: maybe it won't be a British designer, maybe it has
• 26:03
  Speaker 1: to almost be a British designer. What she may do
• 26:05
  Speaker 1: is she may go transatlantic, So the designer of the
• 26:08
  Speaker 1: wedding dress might be British and the designer of the
• 26:10
  Speaker 1: evening dress might be American. Let's talk besides the wedding dresses,
• 26:16
  Speaker 1: just sort of the fury over anything that she wears. Uh,
• 26:20
  Speaker 1: just out and about have we already seen the Megan effect,
• 26:25
  Speaker 1: particularly with a lot of the younger Canadian labels she wore,
• 26:28
  Speaker 1: because remember Suits was filmed in Toronto, so she sort
• 26:32
  Speaker 1: of took up a lot of young Canadian brands. Um,
• 26:36
  Speaker 1: and I mean one of them was jotted down a note.
• 26:39
  Speaker 1: One of them was this brand called mackage, and so
• 26:42
  Speaker 1: she wore a suit from them and they saw one
• 26:45
  Speaker 1: point six billion impressions after that, like boom. And I
• 26:50
  Speaker 1: mean it's just phenomenal the impact that she has. And
• 26:53
  Speaker 1: she knows how to wear I mean it sounds kind
• 26:56
  Speaker 1: of wrong, but she knows how to wear clothes. I
• 26:58
  Speaker 1: mean she looks very stylish, makes fabulous, she's a beautiful woman,
• 27:01
  Speaker 1: and she wears them well and carries herself well. And
• 27:04
  Speaker 1: so she's a good mom. Yeah no, And I think
• 27:05
  Speaker 1: I think that she's bringing up again not being critical,
• 27:12
  Speaker 1: Kate Middleton, but you know, Kate Middleton was not an actress.
• 27:18
  Speaker 1: You know, she was just a quote normal person. So
• 27:21
  Speaker 1: you know, she looks very stylished and closed. But you're
• 27:24
  Speaker 1: you're dealing with someone now and Megan Markle who is
• 27:27
  Speaker 1: used to being in the public eye. And I think
• 27:29
  Speaker 1: that's the difference. Estimate of four thousand guests, seventeen thousand
• 27:35
  Speaker 1: glasses of champagne and wine, thousand canapas, and an eight
• 27:41
  Speaker 1: tier banana cake. I'm intrigued by the banana case. It's
• 27:46
  Speaker 1: very odd. I think them I'd be surprised IF's only
• 27:50
  Speaker 1: um so little champagne, because they didn't. Well, the drinks
• 27:54
  Speaker 1: are estimated to cost about two hundred and sixty thou dollars. Yes,
• 27:59
  Speaker 1: will will there be souvenirs, of course, that will And
• 28:04
  Speaker 1: I think that's part of the billion pounds. Yeah, that's
• 28:06
  Speaker 1: part of the billion pounds. You'll have the plates, you'll
• 28:08
  Speaker 1: have the cops, you'll have the hats, you'll have whatever.
• 28:11
  Speaker 1: The bespokes silver plated fanfare trumpets, as well as a
• 28:16
  Speaker 1: drone destroyer for security. Well, I want to I want
• 28:18
  Speaker 1: to talk about the Royal wedding and whether there's anything
• 28:22
  Speaker 1: comparable in the US or whether this is its own base.
• 28:25
  Speaker 1: When it comes to its effect on the fashion world,
• 28:29
  Speaker 1: there really isn't anything comparable. I don't think that um
• 28:34
  Speaker 1: where you have one person trickling down and having that impact.
• 28:39
  Speaker 1: I mean you have celebrities of course who you know,
• 28:42
  Speaker 1: Beyonce or whomever, who have their own clothing lines and
• 28:44
  Speaker 1: can influence it. But there really isn't anything where there's
• 28:47
  Speaker 1: one event that everybody looks at and it's like, oh
• 28:49
  Speaker 1: my god, do we care what dress she's wearing? You
• 28:53
  Speaker 1: know the Oscars, yes, but those are every year other
• 28:55
  Speaker 1: than the Canadian brands. Just real quick, are there any
• 28:58
  Speaker 1: other brands that have benefited from me. Mark, I mean,
• 29:00
  Speaker 1: she's worn J crew and and that's buckled up. She's
• 29:04
  Speaker 1: she's warn Jason wu Um. And it will be interesting
• 29:08
  Speaker 1: to see how she mixes the balance, because you know
• 29:12
  Speaker 1: she will be a British princess, So how does she
• 29:14
  Speaker 1: mix the balance of promoting Britain but also remaining America. Well,
• 29:20
  Speaker 1: we've got sixteen days and twenty hours and fifteen minutes
• 29:23
  Speaker 1: to find out. Our thanks to James. Okay, don't rush it.
• 29:28
  Speaker 1: They're still sewing. James Fallon, editorial director, Women's Wear Daily,
• 29:33
  Speaker 1: thank you very much for being with us and and
• 29:35
  Speaker 1: lightening us about this upcoming a royal wedding. Thanks for
• 29:41
  Speaker 1: listening to the Bloomberg P and L podcast. You can
• 29:44
  Speaker 1: subscribe and listen to interviews at Apple Podcasts, SoundCloud, or
• 29:48
  Speaker 1: whatever podcast platform you prefer. I'm Pim Fox. I'm on
• 29:51
  Speaker 1: Twitter at pim Fox. I'm on Twitter at Lisa Abramo.
• 29:55
  Speaker 1: It's one before the podcast. You can always catch us
• 29:58
  Speaker 1: worldwide on Bloomberg Radio. To be Atta