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Why Poland Is Talking About $1 Trillion in German Reparations · 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
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  Speaker 1: bring you the most important, noteworthy, and useful interviews for
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  Speaker 1: you and your money, whether you're at the grocery store
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  Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot Com. I
• 0:31
  Speaker 1: am honored to bring in if you told vash Chikovsky.
• 0:34
  Speaker 1: He is Minister of Foreign Affairs for the Republic of
• 0:37
  Speaker 1: Poland and he comes to us from our Washington, d C. Office.
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  Speaker 1: Have you told? Thank you so much for joining us.
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  Speaker 1: I would love to start with a number of news
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  Speaker 1: news articles that have been running in the US. There
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  Speaker 1: seems to be a perception that laws that ultimately were rejected,
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  Speaker 1: that were brought up in Poland to possibly remove the
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  Speaker 1: independence of the judicial area were broadly slammed by the
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  Speaker 1: European Union and if so, exacerbated the tensions. Do you
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  Speaker 1: think that the tensions between Poland and the European Union
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  Speaker 1: have been overblown? Do you think that they're getting worse? Uh?
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  Speaker 1: And what was sort of the endgame here? Yes, good morning,
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  Speaker 1: Thank you for for inviting me for this for this program.
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  Speaker 1: These are rumors, of course, sounds very scary, but not
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  Speaker 1: not true. We are trying to to finish on our transformation.
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  Speaker 1: Transformation we started twenty seven eight years ago after the
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  Speaker 1: collapse of the Soviet Union, the Soviet Block and the
• 1:31
  Speaker 1: last area which was not transformed, which was not modernized.
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  Speaker 1: It is a judicial system, legal system UH. And that
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  Speaker 1: was the demand of how people when two years ago
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  Speaker 1: we we were we won the election, so generally there
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  Speaker 1: was appeal of a population to to change, to modernize
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  Speaker 1: this system. We are not inventing anything new. We are
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  Speaker 1: just importing the solution, existing solution which are existing already
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  Speaker 1: in the other members of the European Union. The problem
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  Speaker 1: is that we are engaged in a in a dialogue.
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  Speaker 1: There are no tensions. There is a dialogue with the
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  Speaker 1: with the Commission because there are some of our standards
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  Speaker 1: in the Commission and Commission things that what is acceptable
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  Speaker 1: for other countries, especially the Western UH friends in the
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  Speaker 1: European Union, is not acceptable for the young democracy like Poland,
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  Speaker 1: is not acceptable for the country which has UH allegedly
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  Speaker 1: a different legal culture in our parts of Europe. This
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  Speaker 1: is unacceptable for for us. We are as. I said,
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  Speaker 1: we are not inventing anything new, We are not breaking
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  Speaker 1: the tradition. We are not imposing any restriction on the
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  Speaker 1: judicial system. We just want to modernize the system, make
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  Speaker 1: it more efficient. Well, but what's what's at stake here?
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  Speaker 1: Because there is the potential for the European Union to
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  Speaker 1: even reduce the funding that it gives you, or to
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  Speaker 1: reduce voting rights. Do you think that that's at stake,
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  Speaker 1: because that's just some of the things that have been positive. No,
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  Speaker 1: this is not at stake because they cannot reduce funding
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  Speaker 1: because the fundings are not for the good behavior or
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  Speaker 1: for certain pattern of behavior. The structural funds we are
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  Speaker 1: getting from from Brussels a part of the deal we
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  Speaker 1: signed when we join European Union. They are part of
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  Speaker 1: the European Treatise and this is a compensation for the
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  Speaker 1: opening of the market. We join European Union two thousand four,
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  Speaker 1: but we open our markets at the beginning of ninety nineties,
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  Speaker 1: so more than twenty about twenty five years ago. So
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  Speaker 1: so this is the deal in your opinion, that the
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  Speaker 1: weaker economies can be can compensate the opening of the
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  Speaker 1: markets to the bigger and sow economy said, so this
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  Speaker 1: is nothing to do with status of democracy or or
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  Speaker 1: legal system. The other problem, of course is the voting
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  Speaker 1: procedure Article seven of a treaty. But it requires the
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  Speaker 1: consensus in your opinion too to prevent us from participating voting.
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  Speaker 1: There is no such a consensus because there are a
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  Speaker 1: number of countries members of the opinion. They believe that
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  Speaker 1: there is nothing wrong going on in Poland. Um One other,
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  Speaker 1: one other article that has definitely one other idea that
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  Speaker 1: has called the attention of the media in the United
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  Speaker 1: States is this request by Poland that Germany owes it
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  Speaker 1: at least one trillion dollars in reparations for World War
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  Speaker 1: two damages. Has a Poland discussed how to pursue this
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  Speaker 1: money and how this will impact relations between Warsaw and Berlin.
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  Speaker 1: This is there is no official decision of the government.
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  Speaker 1: This is just ongoing discussion, discussion among her politicians in
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  Speaker 1: the media. Of course, the problem is that after the
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  Speaker 1: Second World War there was no peace treaty with Germany,
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  Speaker 1: and neither Poland nor many other countries which were devastated
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  Speaker 1: by the German occupation. German Nazi occupation never got any
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  Speaker 1: any money any compensation for the for the lost. Let
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  Speaker 1: me remind you that during the Second World War, Poland
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  Speaker 1: lost six million people. Uh. They after the Second World
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  Speaker 1: War they moved the foreign countries, they moved our borders,
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  Speaker 1: and of course the number we lost in a material way.
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  Speaker 1: For instance, the capital of Poland, Warsaw, was devastated that
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  Speaker 1: more than eighty percent, maybe nine of the of the
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  Speaker 1: buildings were totally destroyed in the ninety five it was
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  Speaker 1: a stone desert. So uh, this is a discussion right
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  Speaker 1: now which is going on in Poland. Uh why we
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  Speaker 1: haven't got any conversation for the sort the tragic loss
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  Speaker 1: during the Second World War. But decision is not taken
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  Speaker 1: by the by the government. So those figures who are
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  Speaker 1: just mentioned just figures which are existing in the media only.
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  Speaker 1: And just real quick with Poland, consider a similar request
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  Speaker 1: from Russia. Some have suggested that's another problem, of course,
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  Speaker 1: because uh we were partitioned, uh due to the UH
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  Speaker 1: from the German Soviet Pact. Uh. And Uh, that's the
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  Speaker 1: war started the nine thirty nine and Poland was occupied
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  Speaker 1: parsonally by Nazi chairman, but party by by Soviets. And
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  Speaker 1: then of course we had forty five years or domination
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  Speaker 1: over over Poland. So all these things are considered right
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  Speaker 1: now and discussed in Poland. But as I said, there
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  Speaker 1: is no decision taking the government yet. Thank you so
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  Speaker 1: much for joining us. Truly a pleasure to speak with
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  Speaker 1: you and for setting the stage from a point of honesty,
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  Speaker 1: the told Vashtchikovsky, Minister of Foreign Affairs for the Republic
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  Speaker 1: of Poland. Uh coming to us from our Washington d
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  Speaker 1: C Bureau. Definitely interesting as the Polish government forms and
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  Speaker 1: negotiates with the European Union for its place. Well, the
• 7:34
  Speaker 1: dollar is pretty much a flat today after I guess
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  Speaker 1: surging yesterday, but I guess it's just a surge compared
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  Speaker 1: to the incredible weakening that we've seen throughout of the
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  Speaker 1: dollar versus it's peers. I want to be in Doug Barthwick,
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  Speaker 1: he's managing director and head of f X at Chapter
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  Speaker 1: Lane and Company. And Doug, you know, this really is
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  Speaker 1: one of the key questions in financial markets of the year,
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  Speaker 1: which is the week dollar and how long it and
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  Speaker 1: keep weakening in light of the FEDS likely December rate hike.
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  Speaker 1: Why do you think the dollar has a good chance
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  Speaker 1: of continuing to weaken going forward well, rate hikes and
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  Speaker 1: you haven't been happening since the start of the year,
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  Speaker 1: and the dollars continue to weaken because as the US
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  Speaker 1: hikes rates other countries that the dollar trades against. They
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  Speaker 1: also turned around their center banks to say, you know what,
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  Speaker 1: we're thinking about getting out of quantity of using as well.
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  Speaker 1: If you actually look at the numbers that were talked
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  Speaker 1: about yesterday on the quantity of using and the pullback
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  Speaker 1: for the balance sheet, it's going to be up until
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  Speaker 1: it it's gonna take until April of next year for
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  Speaker 1: the balance she'd actually start getting reduced. Because really what
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  Speaker 1: they're doing is they're tapering the current quei or reinvestment
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  Speaker 1: that's happening right now. So if they turned around and
• 8:42
  Speaker 1: said we're gonna stop reinvesting, that's one thing. But instead
• 8:45
  Speaker 1: they said, you know what, we're gonna keep on doing.
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  Speaker 1: We're just gonna reduced to reinvestment by maybe six billion
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  Speaker 1: on the treasuries for the next three months, then after
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  Speaker 1: that twelve and after that eighteen. So it's gonna take
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  Speaker 1: quite some time for them to get to a point
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  Speaker 1: where they're not still reinvesting. That's gonna be April of
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  Speaker 1: next year, at which time fatsy l and may not
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  Speaker 1: even be in her position now. The week the week
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  Speaker 1: dollar is something that's been going on for quite some time.
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  Speaker 1: It's a stated fact that the president right now once
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  Speaker 1: a week or dollar to make the US more competitive.
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  Speaker 1: Secretary Treasury Nutans also pushed that point and said, it's
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  Speaker 1: not that the dollars we could set other there's other
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  Speaker 1: The dollar has been strongly as to the other countries
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  Speaker 1: have been way too weak. So he wants other currencies
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  Speaker 1: to strengthen their their currencies, and we see a continuation
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  Speaker 1: of that. We see yesterday's move as being a pullback
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  Speaker 1: based upon stop losses because folks were very much looking
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  Speaker 1: for the fet to step back because of hurricanes that
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  Speaker 1: didn't happen, So you saw a pullback based on the
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  Speaker 1: stop losses. Today the year is up about forty points
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  Speaker 1: because you know from yesterday's lows because of that, as
• 9:43
  Speaker 1: folks read through the numbers, all right, but you know,
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  Speaker 1: the dollars weakening has been the biggest decline against its
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  Speaker 1: peers in about a decade. We're seeing a number of
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  Speaker 1: big investment managers starting to tiptoe back into the dollar.
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  Speaker 1: Implicit in your marks is the idea that European and
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  Speaker 1: other economies are accelerating faster than the U S is.
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  Speaker 1: Do you think that perhaps traders are discounting the strength
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  Speaker 1: that we're seeing in the economy in the US. Oh,
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  Speaker 1: for for sure. I don't think traders really believe that
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  Speaker 1: their strength in the US economy quite as much as
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  Speaker 1: the FETE does. And remember what the FETE did yesterday
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  Speaker 1: is they stated an intention, they didn't actually move the rates.
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  Speaker 1: And I think that's important to understand is that since
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  Speaker 1: the start of the year, the fedsman aggressively talking about
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  Speaker 1: how they're going to start raising rates, and raised rates,
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  Speaker 1: you know, quickly, and what's happened is the Fed step back,
• 10:32
  Speaker 1: step back, step back. So certainly they've talked about having
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  Speaker 1: a rate rise at the end of this year in December,
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  Speaker 1: but it's still only six prices in the futures market,
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  Speaker 1: so folks aren't really buying into what the Feds thing. So, Doug,
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  Speaker 1: which is the most important cross to really watch. I'm
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  Speaker 1: looking at the US dollar versus the euro and it's
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  Speaker 1: currently at a zero point about zero point eight for
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  Speaker 1: euros uh per dollar. I'm wondering, where do you see
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  Speaker 1: that go I mean, how low can it go. But
• 11:02
  Speaker 1: we look at the euro against the dollars, so that's
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  Speaker 1: a one twenty right now. We believe in the fair
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  Speaker 1: point right now, it's probably around one. Remember we were
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  Speaker 1: trading one to one thirty before Greece came into the
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  Speaker 1: issue and we saw the move down to one four
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  Speaker 1: one oh five in the euro. Grease no longer has
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  Speaker 1: talked about in the markets. Nobody is concerned about what's
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  Speaker 1: happening in greases, so there should be a natural bounce
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  Speaker 1: back to that level playing field of the level which
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  Speaker 1: we believe should happen. I think we see probably one
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  Speaker 1: twenty five by the end of next month, and we'll
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  Speaker 1: probably see one thirty by the end of the year.
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  Speaker 1: I think that this dollar weakness is something that isn't
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  Speaker 1: even talked about in Germany at all. You know, when
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  Speaker 1: the ECB was when drag he was asked what do
• 11:41
  Speaker 1: you think of the Euro? In his statement, he discussed
• 11:45
  Speaker 1: about the volatility, but he didn't discuss the specific level.
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  Speaker 1: The Zoo index, talked about how German industry isn't thinking
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  Speaker 1: about the euro whatsoever. And marqual As she's gone around,
• 11:54
  Speaker 1: you know, trying to push to get the votes so
• 11:56
  Speaker 1: she can run and get re elected, hasn't taught, hasn't
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  Speaker 1: brought up the euro at all in any of her
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  Speaker 1: campaign speeches. So I don't think there's a concern right
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  Speaker 1: now about the level of the europe by Germany. But
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  Speaker 1: certainly there's a concerned about the level of the dollar
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  Speaker 1: in the United States and the US administration certainly once
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  Speaker 1: a week or dollar going forward, Doug, what does this
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  Speaker 1: mean for emerging markets currencies which have had an incredible
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  Speaker 1: rally this year, do you expect them to continue going
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  Speaker 1: that direction as the dollar weekends do Yeah, and there's
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  Speaker 1: a direct correlation here. As the dollar weekends against the yen,
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  Speaker 1: and there's a dollar weekends against the euro, emerging markets
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  Speaker 1: do well. If the dollar strengthens, the emerging markets don't
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  Speaker 1: have a problem because emerging markets have a considerable amount
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  Speaker 1: of external debt that's denominating US dollars. So if the
• 12:36
  Speaker 1: dollars should weaken, let's say dollar Mexico is to jump
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  Speaker 1: from up to twenty again, Mexican companies would have a
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  Speaker 1: bit of an issue in paying back their external debt.
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  Speaker 1: And so emerging markets are very sensitive to the strength
• 12:47
  Speaker 1: of the dollar, but they do very well as the
• 12:49
  Speaker 1: dollar weakens. Doug Borthwick, thank you so much. This is
• 12:52
  Speaker 1: a crucial topic because even as the as a dollar,
• 12:55
  Speaker 1: if the dollar does keep weakening, that will also provide
• 12:57
  Speaker 1: a support to commodity prices and as Doug was saying,
• 13:01
  Speaker 1: will also to provide ongoing support for emerging markets nations.
• 13:05
  Speaker 1: Doug Borthwick, Managing Director and head of f X at
• 13:07
  Speaker 1: Chatelin and Company. This is certainly something that we will
• 13:11
  Speaker 1: be watching. There are some pretty big money managers who
• 13:13
  Speaker 1: recently have been talking about how they're actually going back
• 13:16
  Speaker 1: and buying the dollar, including Melon Capital Management and State
• 13:20
  Speaker 1: Street Global Advisors. There was a fantastic story in this
• 13:35
  Speaker 1: week's edition of Bloomberg Business Week looking at Mark Zuckerberg,
• 13:38
  Speaker 1: the head of Facebook, and looking at his political awakening.
• 13:42
  Speaker 1: The author of this wonderful article joins me now, Max Chafkin,
• 13:46
  Speaker 1: technology reporter for Bloomberg Business Week, And you know, Max,
• 13:50
  Speaker 1: I love that Mark Zuckerberg went on paternity leave almost
• 13:55
  Speaker 1: to make a statement saying that men need to go
• 13:57
  Speaker 1: and plut a paternity leave in order to take of
• 14:00
  Speaker 1: their children and their families. At the end of August.
• 14:02
  Speaker 1: But it's not exactly been in this peaceful period of absence.
• 14:07
  Speaker 1: Has not been the most relaxing paternity leave I imagined.
• 14:10
  Speaker 1: Not not that any paternity leave would be not that relaxing,
• 14:13
  Speaker 1: but uh, he you know, even before uh this this
• 14:18
  Speaker 1: story that uh, the Robert Miller's special counsel is looking
• 14:22
  Speaker 1: into stuff that happened on Facebook. He was getting involved
• 14:25
  Speaker 1: in the DOCCA advocacy, He was raising money for the
• 14:30
  Speaker 1: hurricane victims. He was sort of, you know, basically present
• 14:33
  Speaker 1: on Facebook like he had never gone away. And I
• 14:35
  Speaker 1: think and that speaks to the fact that, you know,
• 14:37
  Speaker 1: over the last eight months or so, Mark Zuckerberg has
• 14:40
  Speaker 1: become a political figure. He's gone on this listening tour.
• 14:44
  Speaker 1: He's putting himself out there in a way that you know,
• 14:48
  Speaker 1: basically people who are running for president do. Now, that
• 14:51
  Speaker 1: doesn't necessarily mean he's running for president, and I think
• 14:54
  Speaker 1: that's pretty unlikely, but it is a shift for him,
• 14:57
  Speaker 1: and it it speaks both to his influence and and
• 15:00
  Speaker 1: power and also Facebook's um, you know, influence and power
• 15:04
  Speaker 1: and and the fact that this company is worth like
• 15:06
  Speaker 1: a half a trillion dollars. Well, so when you talk
• 15:08
  Speaker 1: about his politicking, we're talking about a national tour where
• 15:12
  Speaker 1: he went to factories, where he went to churches, a
• 15:16
  Speaker 1: very classic kind of, uh campaign run sort of affair.
• 15:22
  Speaker 1: If it's not to set the stage for a possible
• 15:25
  Speaker 1: political career, why is he doing it? So? I think
• 15:29
  Speaker 1: it's it is possible that he's setting the stage for
• 15:32
  Speaker 1: a political career if he's not UM and he says
• 15:34
  Speaker 1: he's not running for president. He told me and my
• 15:37
  Speaker 1: co writer Sarah Fraar he's not running for president. I
• 15:39
  Speaker 1: think what he's doing is basically playing a little bit
• 15:43
  Speaker 1: of defense. I mean, I think the uh, the events
• 15:46
  Speaker 1: over the last uh a few months, really pretty much
• 15:49
  Speaker 1: since the election, UM have raised questions about how Facebook
• 15:53
  Speaker 1: is affecting our discourse. Mark Zuckerberg kind of in the
• 15:56
  Speaker 1: immediate aftermath at election said he didn't think that fake news,
• 16:00
  Speaker 1: you know, was much of a thing and kind of
• 16:02
  Speaker 1: laughed it off. And as we've learned more both about
• 16:05
  Speaker 1: you know, kind of what happened during the presidential campaign
• 16:08
  Speaker 1: and how important social media was, and now these new
• 16:11
  Speaker 1: revelations that maybe it wasn't just that um, you know,
• 16:14
  Speaker 1: that Clinton and Trump used social media in the campaign,
• 16:18
  Speaker 1: which we kind of knew, but that the you know,
• 16:20
  Speaker 1: the Russian government or people connect to the Russian government,
• 16:22
  Speaker 1: we're also trying to use this thing. Um, it really
• 16:25
  Speaker 1: cuts against the sort of brand promise of Facebook, and
• 16:28
  Speaker 1: I think could lead to, you know, additional regulation. We're
• 16:31
  Speaker 1: we're seeing, um, you know a lot of scrutiny in
• 16:33
  Speaker 1: Europe right now. You know that there's there, there's several
• 16:37
  Speaker 1: different actions going on, and and that scrutiny is now
• 16:41
  Speaker 1: migrating to the United States. So I think if he's
• 16:44
  Speaker 1: not running for president, um, he is probably partly you know,
• 16:48
  Speaker 1: just wants to get a better sense of whose customers
• 16:51
  Speaker 1: are and I think partly wants to you know, show
• 16:53
  Speaker 1: people that Facebook is is not to be feared. Yeah. Well,
• 16:57
  Speaker 1: I imagined that the regulation is definitely something that they
• 16:59
  Speaker 1: talk a lot about internally at Facebook. Another tension that
• 17:03
  Speaker 1: your article really highlighted, which I really loved, was this
• 17:06
  Speaker 1: idea that while Mark Zuckerberg would like to think of
• 17:09
  Speaker 1: Facebook is bringing people together and has espoused, uh, you know,
• 17:12
  Speaker 1: sort of the universalism of a lot of tech companies,
• 17:16
  Speaker 1: a lot of people criticize Facebook for alienating people and
• 17:19
  Speaker 1: not being a satisfying kind of relationship building tool, but
• 17:23
  Speaker 1: rather something that keeps people in their bubbles and frankly
• 17:26
  Speaker 1: away from actual human interaction, right. I mean this is
• 17:29
  Speaker 1: he's sort of over the last few months he's developed
• 17:31
  Speaker 1: this kind of political philosophy, which is that, uh, the
• 17:33
  Speaker 1: reason that Donald Trump won, the reason that Brexit um,
• 17:38
  Speaker 1: you know, happened, the reason that we have this rise
• 17:40
  Speaker 1: of nationalism you know, around the world is that there's
• 17:43
  Speaker 1: sort of a sense of isolation. People are not joining
• 17:47
  Speaker 1: things in the way they used to. Church attendance is lower,
• 17:50
  Speaker 1: you know, little leagues are lower. This this idea became
• 17:53
  Speaker 1: popular around two thousand with the publications book Bowling Alone.
• 17:56
  Speaker 1: Zugerberg has kind of discovered the idea. The problem is
• 18:00
  Speaker 1: that a lot of people think Facebook is sort of
• 18:02
  Speaker 1: causing this exactly, and so so he his argument is
• 18:06
  Speaker 1: sort of like the way to make the world better
• 18:08
  Speaker 1: is with more Facebook, whereas a critic might say no,
• 18:11
  Speaker 1: in fact, you know, you're this is this is like
• 18:14
  Speaker 1: the an expression of all all the things that are
• 18:16
  Speaker 1: wrong with the world. And I think that is what
• 18:18
  Speaker 1: is so dangerous about what's happening in Washington right now.
• 18:22
  Speaker 1: Like that is why Facebook is worried, because this really
• 18:26
  Speaker 1: cuts against the sort of promise of the of the company. Yeah,
• 18:29
  Speaker 1: you you had a statistic in here that about five
• 18:31
  Speaker 1: percent of Facebook users consider the interactions that they have
• 18:36
  Speaker 1: to be meaningful on Facebook. That was stunning to me.
• 18:41
  Speaker 1: How does he respond to that? So, so the statistic
• 18:43
  Speaker 1: is they're they're part of groups that they find meaningful.
• 18:46
  Speaker 1: Um and and and a lot of almost everyone on
• 18:49
  Speaker 1: facebooks sort of has interacted with the group's portion of it.
• 18:52
  Speaker 1: It's it's like how you go to an event or
• 18:54
  Speaker 1: or whatever. Pant suit Nation, the Hillary Clinton group was
• 18:57
  Speaker 1: a group. Um. Mark Zuckerberg is disp wointed in that
• 19:00
  Speaker 1: he you know, the fact that only a hundred million
• 19:03
  Speaker 1: people hundred million people sounds like a lot are in
• 19:04
  Speaker 1: meaningful groups strikes him as as a failure of the
• 19:07
  Speaker 1: platform and something that needs to be corrected. And he's
• 19:10
  Speaker 1: told his employees, as we've as we wrote in the story,
• 19:13
  Speaker 1: that he wants to get to a billion people in
• 19:15
  Speaker 1: meaningful groups. Mark Zuckerberg loves things that come in you know, billions. Uh.
• 19:21
  Speaker 1: And so that's the big goal. That's the push. That
• 19:23
  Speaker 1: would be like a tenfold improvement in in their group's products.
• 19:26
  Speaker 1: So that's what they're working on right now. This is
• 19:28
  Speaker 1: a fantastic story. I love the ending to or he
• 19:30
  Speaker 1: really bristles against former coverage of Bloomberg Business Week and
• 19:33
  Speaker 1: how he outsources some of his personalized Facebook page and
• 19:37
  Speaker 1: other um. It sort of highlights how he wants to
• 19:39
  Speaker 1: seem like the guy next door, kind of can't be
• 19:42
  Speaker 1: because he likes things and billions and most of us
• 19:44
  Speaker 1: can't afford to Max chaff and thank you so much
• 19:45
  Speaker 1: for joining me. Max chaffin his technology reporter for Bloomberg
• 19:49
  Speaker 1: Business Week, really a fabulous story. I recommend checking it
• 19:53
  Speaker 1: out well. Right now, I have two big questions about
• 20:10
  Speaker 1: equity markets. One is will banks benefit as the FED
• 20:14
  Speaker 1: withdraw stimulus or not? And the second one is is
• 20:18
  Speaker 1: tech the next shoe to drop with some of the
• 20:21
  Speaker 1: big favorites of the year uh plunged facing a potential fall.
• 20:25
  Speaker 1: To answer both of those questions, as Phil Orlando, chief
• 20:28
  Speaker 1: equity strategistic Federated Investors who joins us now, Phil, I
• 20:33
  Speaker 1: want to start with the first question. Bank stocks. They're
• 20:36
  Speaker 1: up more than ten percent this year. A lot of
• 20:39
  Speaker 1: people think that they're going to be in prime position
• 20:41
  Speaker 1: to capture extra profits. For many of volatility is the
• 20:44
  Speaker 1: fedbacks away from their stimulus as well as higher yields.
• 20:47
  Speaker 1: What we're seeing now is not a very clear picture.
• 20:50
  Speaker 1: Volatility expectations not up even as the FED withdraw stimulus. Rates, Yes,
• 20:55
  Speaker 1: in the short term up, but long term we're seeing
• 20:57
  Speaker 1: that yield curve narrow. Is this a net benefit where
• 21:00
  Speaker 1: the banks or frankly, is this going to make it
• 21:02
  Speaker 1: even harder for the banks going forward? So our view
• 21:04
  Speaker 1: is that the banks are one of the prime beneficiaries
• 21:07
  Speaker 1: of of what we believe will be this sort of
• 21:10
  Speaker 1: unfolding FED policy. So Yelling yesterday lays out UH the
• 21:15
  Speaker 1: case for beginning to balance sheet shrinkage starting in October.
• 21:20
  Speaker 1: UH That shrinkage over the course of the next few
• 21:23
  Speaker 1: years should gradually take the Fed's balance sheet down from
• 21:26
  Speaker 1: about four and a half trillion to something in the
• 21:30
  Speaker 1: order of two and a half to three trillion dollars.
• 21:33
  Speaker 1: That's the level that I think will be sort of
• 21:34
  Speaker 1: the new normal for the FED. But the some of
• 21:37
  Speaker 1: the experts have said that that process will be the
• 21:40
  Speaker 1: equivalent of of moving interest rates up by about seventy
• 21:44
  Speaker 1: five basis points over time UM with inflation UH troughing
• 21:49
  Speaker 1: a little bit. Here. The FED wants to give itself
• 21:51
  Speaker 1: a couple more months for the core PC to perk up.
• 21:55
  Speaker 1: By the end of the year, we think that will happen.
• 21:57
  Speaker 1: We think there's another rate high coming quarter point at
• 22:00
  Speaker 1: the end of the year. So the prospect of the
• 22:03
  Speaker 1: withdrawal of accommodation from the Federal Reserve, both in terms
• 22:08
  Speaker 1: of the balance sheet and adjusting the FED funds rate,
• 22:12
  Speaker 1: we think will will allow interest rates to move up
• 22:16
  Speaker 1: over time. I think the bond market has started to
• 22:19
  Speaker 1: price that in already. Just in the last month or so,
• 22:21
  Speaker 1: we've gone from just over the two percent level. We're
• 22:25
  Speaker 1: up in the two and a quarter to two point
• 22:27
  Speaker 1: three percent level right now. And thank you benchmark ten's. UH.
• 22:33
  Speaker 1: Banks will benefit from higher interest rates, it will lighten
• 22:37
  Speaker 1: their margins. UH. Just what the Fed is doing implies
• 22:42
  Speaker 1: that there is an expectation of firmer economic growth. Increased
• 22:46
  Speaker 1: lending activity will help the banks as well. So we're
• 22:49
  Speaker 1: absolutely right there with your first premise. Financial stock should
• 22:53
  Speaker 1: benefit from this, and I think that's why they're they're
• 22:55
  Speaker 1: starting a rally. So which banks in particular do you
• 22:59
  Speaker 1: like from here? Given current valuations and given that forecast
• 23:04
  Speaker 1: for banks benefiting from the Feds withdrawal. Well, you know,
• 23:09
  Speaker 1: I wasn't prepared to come on and drop a bunch
• 23:11
  Speaker 1: of names, but certainly our favorite uh JP Morgan Chase
• 23:16
  Speaker 1: in terms of UH, their their management, their their capitalization,
• 23:21
  Speaker 1: the UH the breath of the markets that they're involved in,
• 23:25
  Speaker 1: that they should be the poster child of of the
• 23:29
  Speaker 1: large cap money center bank that that will benefit from
• 23:33
  Speaker 1: the trench we've discussed. What about. Okay, so let's let's shift.
• 23:36
  Speaker 1: So your your bullish on banks from here, and you
• 23:38
  Speaker 1: think that they they stand to benefit UH from the
• 23:42
  Speaker 1: fed's withdrawal from their stimulus, Let's move on to tech
• 23:45
  Speaker 1: because the fang stocks obviously have been huge drivers behind
• 23:47
  Speaker 1: this year's rally and in the SP five hundred NASDAK.
• 23:50
  Speaker 1: I mean, I'm just wondering, from your perspective, do you
• 23:53
  Speaker 1: think that they are threatened from here due to increased
• 23:58
  Speaker 1: scrutiny from governments as well as frankly, not being able
• 24:03
  Speaker 1: to really meet such high benchmarks that they have set
• 24:05
  Speaker 1: for themselves. Well, you know, technology stocks are a sector
• 24:10
  Speaker 1: that we've liked, and they've actually done pretty well here.
• 24:13
  Speaker 1: If anything, we think that the pattern of regulation that
• 24:18
  Speaker 1: we've seen over the last seven or eight years has
• 24:20
  Speaker 1: probably peaked and is starting to go the other way. Additionally,
• 24:24
  Speaker 1: as as we would look at sort of this change
• 24:27
  Speaker 1: in administration, one of the things that we're hoping to
• 24:30
  Speaker 1: see frankly, that we expect to see over the next
• 24:33
  Speaker 1: year or so is UH this whole repatriation idea UH.
• 24:38
  Speaker 1: And and one of the one of the central tenets
• 24:40
  Speaker 1: of that UH is that if we're successful on repatriation,
• 24:45
  Speaker 1: literally a couple of trillion dollars is going to come
• 24:48
  Speaker 1: flowing back into the United States from overseas coffers looking
• 24:52
  Speaker 1: for something productive to do with it. One of the
• 24:55
  Speaker 1: things that that we think is going to happen is
• 24:57
  Speaker 1: that companies, and if you study the US, the corporate
• 25:01
  Speaker 1: cap X has just fallen off a cliff for the
• 25:03
  Speaker 1: last five or six years. Companies have stopped investing in themselves.
• 25:07
  Speaker 1: And I think if there's this incremental amount of cash
• 25:12
  Speaker 1: flow that needs to find a home companies have not
• 25:14
  Speaker 1: invested in themselves, that that we we are in need
• 25:17
  Speaker 1: of a technology upgrade in a lot of of legacy
• 25:20
  Speaker 1: type companies. I think there's gonna be a technology upgrade cycle,
• 25:25
  Speaker 1: UH as part of this cap X boom that we're
• 25:28
  Speaker 1: looking for that will benefit technology companies. Now, maybe that's
• 25:31
  Speaker 1: one of the reasons why tech companies have done so
• 25:34
  Speaker 1: well to date. We think there's a little bit of
• 25:36
  Speaker 1: a sort of a value rotation going on right now,
• 25:40
  Speaker 1: energy stocks doing better, financial stocks doing better as opposed
• 25:44
  Speaker 1: to the growth stocks like technology, which have had a
• 25:46
  Speaker 1: terrific year up until now. But I think looking longer
• 25:49
  Speaker 1: term out into the cycle, we think technology stocks will
• 25:53
  Speaker 1: be a beneficiary of some sort of an infrastructure you know,
• 25:58
  Speaker 1: upgrade cycle based upon cap X dollars flowing back into
• 26:01
  Speaker 1: the market. You know, I want to push back on
• 26:03
  Speaker 1: that a little bit, because you know, there is this
• 26:06
  Speaker 1: expectation that cash repatriation will create some kind of boon
• 26:09
  Speaker 1: to uh to those particular companies, at least their stocks.
• 26:13
  Speaker 1: And yet a company like Apple has basically used a
• 26:17
  Speaker 1: lot of the cash that they have stored overseas by
• 26:19
  Speaker 1: way of borrowing money. They can issue as much dead
• 26:23
  Speaker 1: as they want, and they've been issuing incredibly aggressively, more
• 26:25
  Speaker 1: than seven issuances so far this year, and they've been
• 26:28
  Speaker 1: using the proceeds to do buy back shares and do
• 26:30
  Speaker 1: whatever they want. I mean, they've been buying back three
• 26:32
  Speaker 1: billion dollars worth of shares through eighteen, I believe through
• 26:36
  Speaker 1: next year. So I mean you could argue that they
• 26:38
  Speaker 1: already have been deploying that cash through the debt markets.
• 26:42
  Speaker 1: Not every company is is as pristine as Apple. Uh
• 26:47
  Speaker 1: you can make the argument though, And they've talked about
• 26:50
  Speaker 1: the fact of trying to move some of their manufacturing
• 26:52
  Speaker 1: from let's say China back into the United States. So
• 26:56
  Speaker 1: so maybe if they got some of their cash home, uh,
• 26:59
  Speaker 1: they may use that to uh, you know, build that
• 27:02
  Speaker 1: that that new you know, high end plants somewhere. Um.
• 27:06
  Speaker 1: You know, Amazon has talked about building a second corporate
• 27:11
  Speaker 1: headquarters somewhere in the United States, uh, you know, New
• 27:14
  Speaker 1: York or Chicago or Detroit or whatever. We don't know
• 27:17
  Speaker 1: where they're going to do this. But so I think
• 27:19
  Speaker 1: companies for the first time in a really long time,
• 27:22
  Speaker 1: are looking at this sort of see change, if you will,
• 27:26
  Speaker 1: in terms of mindset out of Washington, in terms of
• 27:30
  Speaker 1: being either business friendly or not business friendly, or saying
• 27:32
  Speaker 1: wait a second, you know, we had an environment where
• 27:35
  Speaker 1: where Washington wasn't terribly friendly to us. Now that's changed.
• 27:39
  Speaker 1: Now we may get a couple of billion dollars back
• 27:42
  Speaker 1: to to UH impart invest in things like like corporate capex,
• 27:46
  Speaker 1: which frankly we haven't done for the last five or
• 27:48
  Speaker 1: six years, So this may be an opportunity to sort
• 27:51
  Speaker 1: of dust off those plans that we shelled and UH
• 27:54
  Speaker 1: to take a look at whether or not it it
• 27:56
  Speaker 1: makes sense to do something here. Fill Orlando, it's always
• 27:59
  Speaker 1: a pleasure speaking with you. Thank you so much for
• 28:01
  Speaker 1: joining us. Phil Orlando, Chief Equity Strategistic Federated Investors, bullish
• 28:06
  Speaker 1: on banks, seeing long term opportunity in tech stocks. Definitely
• 28:10
  Speaker 1: an interesting issue to keep track of the cash repatriation
• 28:14
  Speaker 1: and what that would do both respect to capital investment
• 28:17
  Speaker 1: as well as share buybacks. Thanks for listening to the
• 28:23
  Speaker 1: Bloomberg P and L podcast. You can subscribe and listen
• 28:26
  Speaker 1: to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform
• 28:30
  Speaker 1: you prefer. I'm pim Fox. I'm on Twitter at pim Fox.
• 28:35
  Speaker 1: I'm on Twitter at Lisa Abramo. It's one before the podcast.
• 28:38
  Speaker 1: You can always catch us worldwide on Bloomberg Radio.