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Cumberland's Mousseau on Munis: Cautions on Storm Preparedness · Bloomberg Intelligence

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  Speaker 1: and that's a Bloomberg Business Flash. You're listening to Taking
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  Speaker 1: Stock with Pim Box and Kathleen Hayes on Bloomberg Radio.
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  Speaker 1: I'm Kathleen Hayes. My Carl was Pim Fox on vacation.
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  Speaker 1: For Pim, he's not live here with me at the
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  Speaker 1: US Tennis Open Blushing Meadows, Corona Park. Queen's love coming
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  Speaker 1: out here every year for many reasons. It's an exciting event.
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  Speaker 1: Uh tennis has become quite a passion having come out
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  Speaker 1: here so many times. And also the interesting people that
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  Speaker 1: show up, not just tennis players, are people like Nick Bolletieri,
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  Speaker 1: who is one of the people who really created this
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  Speaker 1: whole tradition and business of coaching great champion tennis players.
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  Speaker 1: It's the people who come from places like Complent Advisors,
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  Speaker 1: people who love the markets and also love tennis just
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  Speaker 1: like we do. We're very happy to welcome back to
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  Speaker 1: our special US Open show. John mus So, Executive vice president,
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  Speaker 1: director of Fixed Income at Cumberland Advisors. Welcome back, Kathleen.
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  Speaker 1: It is great to be here, and it's not writing
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  Speaker 1: on us now. It's stopped raining, so all things are
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  Speaker 1: going to be going. I think we're gonna ask our
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  Speaker 1: boss for a retractable roof for our our tennis broadcasts
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  Speaker 1: out here, or at least three more ft of roof.
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  Speaker 1: There you go, a free more feet of roof. But
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  Speaker 1: let's First of all, let's get to the bond market.
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  Speaker 1: You know, we got the weaker I s M manufacturing
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  Speaker 1: report today, but the big jobs report tomorrow. I think
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  Speaker 1: the markets everybody kind of shrugged off I s M
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  Speaker 1: because the focus is still so strong on jobs. For
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  Speaker 1: the bond market, okay, which has been in a very
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  Speaker 1: tight range, still a lot of people bullish though, waiting
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  Speaker 1: to rally more if the economy looks weak, vultable maybe
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  Speaker 1: to a strong What what's the bond market looking for.
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  Speaker 1: I think the bond market is looking really at two things, Kathleen.
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  Speaker 1: It is looking at the fact that there is strength here.
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  Speaker 1: We've seen it in better wage numbers, better labor participation rate, uh,
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  Speaker 1: low growth, dropping unemployment. And if you look since the
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  Speaker 1: end of June, it would reflect that the third year
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  Speaker 1: bond is essentially where it is, maybe a basis point lower.
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  Speaker 1: Every other point in the bond market is actually a
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  Speaker 1: little higher, not dramatically higher, but higher since the end
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  Speaker 1: of So I think we're expecting to FED to raise
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  Speaker 1: rates at least once and maybe the lunatic fringe out there,
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  Speaker 1: maybe even twice, the lunatic fringe. So what kind of
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  Speaker 1: report tomorrow would the lumber consensus surveys for a hundred
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  Speaker 1: seventies seven thousand. The previous month was like two thousand
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  Speaker 1: the other one before that, but then the May report
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  Speaker 1: was very weak. So what kind of number would make
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  Speaker 1: bond traders like buy bonds like crazy because it wasn't
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  Speaker 1: strong enough, or just start selling off because it's it's
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  Speaker 1: too strong. I think unless you get an exceptionally weak number,
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  Speaker 1: I think you're just gonna see more of the same
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  Speaker 1: range bound, slow drift up in short term rates. And
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  Speaker 1: and remember there's other things pointing in the short term
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  Speaker 1: interest rate market as you head into the middle of October,
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  Speaker 1: and the change in net esset value pricing of leney
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  Speaker 1: market funds that has the short term bond markets um
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  Speaker 1: a little off. Okay, Now, when you look at who's
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  Speaker 1: buying bonds right now, we know a lot of UH
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  Speaker 1: global investors because when they look at their own sovereign bonds,
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  Speaker 1: their own government bonds, their wheels are lower than here,
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  Speaker 1: or they're even negative. Is that going to continue? I
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  Speaker 1: think we're bottoming out. I think people have seen some
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  Speaker 1: of the dangers of negative interest rates, not necessarily here
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  Speaker 1: in the US, but if you looked in Japan and
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  Speaker 1: went back about a month ago, a little less than
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  Speaker 1: a month ago, you had a small period of about
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  Speaker 1: seven days where the thirty year government bond rose from
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  Speaker 1: point oh five to point forty five. That doesn't sound
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  Speaker 1: like much, but your durations are so long at those
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  Speaker 1: low levels that the change in the price was about
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  Speaker 1: twelve points. There's a lot of volatility there at very
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  Speaker 1: low interest rates, and I think that's scared some people.
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  Speaker 1: And I think you've seen rates rise a little bit
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  Speaker 1: since then. Is is this going to be a world?
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  Speaker 1: But let let's say we know the federals are will
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  Speaker 1: probably raise rates. We don't know. That's what it sounds like.
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  Speaker 1: Don't one interest rate increases You said most likely one
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  Speaker 1: month was saying to sound birth. But the hiked one
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  Speaker 1: rates once a year ago. I mean the pace so far.
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  Speaker 1: When they talk about gradual when we get one interest
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  Speaker 1: rate increase a year, that's that's the most gradualist path
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  Speaker 1: I've ever seen in my life. One of the points
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  Speaker 1: that you can make is the fact that here you
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  Speaker 1: are with a ten year government bond at a little
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  Speaker 1: over one and a half and yet a core trailing
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  Speaker 1: core CPI that's about two point two and went above
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  Speaker 1: two percent a few months ago, and the States stubbornly
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  Speaker 1: there unless the forces that start forcing inflation down. You
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  Speaker 1: know that if you're in a FED hike cycle, whether
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  Speaker 1: it's slow or medium, eventually some longer term rates rise
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  Speaker 1: to reflect where inflation actually is. So what's the strategy
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  Speaker 1: right now, Cumberland advises John Mauseill. You've been doing this
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  Speaker 1: for many years. You have clients who want you to
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  Speaker 1: make money for them, a lot of them investing in bonds.
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  Speaker 1: What's the bond strategy right now. The bond strategy at
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  Speaker 1: Cumberland is we have, for the first time in a
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  Speaker 1: few years, started to rain in duration. Uh, take some
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  Speaker 1: profits off the table. We do it with a barbell
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  Speaker 1: strategy where we own some longer securities and shorter securities.
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  Speaker 1: And this manute may mention, the long term meals haven't
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  Speaker 1: really moved much. That's that's really been an anchor point.
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  Speaker 1: And the idea is to have more ammunition. Uh. This
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  Speaker 1: isn't a prediction, but one thing that might keep us
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  Speaker 1: up at night. When we saw what happened with the
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  Speaker 1: Japanese bond market. If you look at all the develop
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  Speaker 1: bond markets, Germany, France, England, US, Japan. If they all
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  Speaker 1: caught a cold at once, if would not be a
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  Speaker 1: pretty trade. Certainly wouldn't. When you think of what's the
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  Speaker 1: biggest risk right now? The outlook that the UK data
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  Speaker 1: came in surprisingly strong today. We've had a number of
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  Speaker 1: members you keep waiting for Brexit to oh, no confidence,
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  Speaker 1: We're not gonna buy anything, We're not going to invest
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  Speaker 1: in anything, and instead they're holding up quite nicely. What
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  Speaker 1: is the risk right now? The outlook? I think the
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  Speaker 1: risk is if you're talking about Britain specifically, it is
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  Speaker 1: less than that forecast by a lot of people. Um.
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  Speaker 1: I like to think of what's going on in Britain
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  Speaker 1: as they voted to go from full country club membership
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  Speaker 1: to a social membership, and I think economically they're gonna
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  Speaker 1: be okay. Might be a little bit of a downdraft,
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  Speaker 1: but they will be fine. You guys watching the b
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  Speaker 1: O J Bank of Japan, whether or not it stimulates
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  Speaker 1: more right now, it seems like the Bank of Japan's
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  Speaker 1: profile and among investors has gotten a lot higher. Is
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  Speaker 1: people wait to see boy then to make their negative
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  Speaker 1: rates more negative? Are they going to buy more? E
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  Speaker 1: T s hold more equities. I think if they're gonna
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  Speaker 1: go on a route of more stimulus, you're going to
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  Speaker 1: see them buy more things other than by So think
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  Speaker 1: about reeds, think about et F, think about the S
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  Speaker 1: and P in this country, and I think that's that's
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  Speaker 1: their route. I think they've seen some of the volatility
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  Speaker 1: of zero interest rates, and I think they're gonna level
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  Speaker 1: off on the bond side already. What keeps you up
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  Speaker 1: most at night chong on specifically on the municipal side,
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  Speaker 1: do you worry about pensions? We see some slow, slow
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  Speaker 1: progress us, but it is slow. Specifically, you look at
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  Speaker 1: things that are going on in the Gulf of Mexico
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  Speaker 1: with the storm, and you worry about municipalities preparedness are
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  Speaker 1: You look at the state like Louisiana, where uh, they're
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  Speaker 1: already battling problems from the floods. Financially, they're in tough
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  Speaker 1: shape because of the drop in the price at oil
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  Speaker 1: and the fact that they get rid of a billion
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  Speaker 1: dollar budget surplus. And you hope that you don't look
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  Speaker 1: at this. You go into the end of the hurricane season,
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  Speaker 1: they get hit with a Category three or four hurricane,
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  Speaker 1: which could really cause damage for a state that's not
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  Speaker 1: financially prepared well, certainly here for the U S Tennis Association,
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  Speaker 1: they've done a trific job financing all this expansion they're doing,
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  Speaker 1: and the and the real the big one this year.
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  Speaker 1: The star is this retractable group which Rock and the
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  Speaker 1: doll usual last guy Andy Murray. Uh. They easily sold
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  Speaker 1: all the finance they needed to do that. Um. What
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  Speaker 1: about the importance of the U S open to you
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  Speaker 1: as a tennis fan? You know what it means to
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  Speaker 1: you is someone who's watched it is forever and I
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  Speaker 1: been coming for thirty five years. Um. I started coming
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  Speaker 1: in and I was about twenty four years old. It
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  Speaker 1: is a great thing, not only for the New York
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  Speaker 1: area but for tennis fans in the United States. It
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  Speaker 1: is our national championship, but it is a particularly New
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  Speaker 1: York event, and they've embraced that and every year they
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  Speaker 1: make it better without having to be asked to make
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  Speaker 1: it better. This year it's the roof, and it's the new,
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  Speaker 1: brand new grandstand, a fabulous place to watch tennis. And
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  Speaker 1: so I think that the net result is you should
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  Speaker 1: go for the next few years. You're gonna see two
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  Speaker 1: thousand seven or eight thousand more fans a day coming
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  Speaker 1: in here, and if that promotes the growth of tennis nationwide,
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  Speaker 1: so much the better. Would you buy more bonds from
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  Speaker 1: to finance out here if you were advising your clients,
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  Speaker 1: says it? Or is that where your love for tennis stops? No? No, No,
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  Speaker 1: It's funny because you can distinguish we're not a big
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  Speaker 1: fans of stadiums and arena bonds that are back because
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  Speaker 1: a lot of times the public is paying for them. Here.
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  Speaker 1: If you look time the last time and they financed
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  Speaker 1: the Arthur Ash Stating, which is early twenty years ago,
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  Speaker 1: they did it with bonds that were insured and they
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  Speaker 1: were backed by future television revenues. They could do that
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  Speaker 1: again if you put another roof on what will become
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  Speaker 1: the new Louis Armstrong. So um, you know, if you
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  Speaker 1: look at the growth numbers here, you would like the
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  Speaker 1: coverage rations that would provide. Okay, final question, who are
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  Speaker 1: you rooting for on the men's side. On the men's side,
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  Speaker 1: I think you're gonna see Stanford Ranca. Uh. You know,
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  Speaker 1: he's got two majors under his belt and he'd like
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  Speaker 1: to have a US open. And on the women's side,
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  Speaker 1: I think you're gonna see Angela Carber. That'll nail her
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  Speaker 1: second major for the year. Wow, beating Serena. Correct? All right, Jonas,
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  Speaker 1: So thanks so much. Thanks Kathleen Stark Bonds talking fed,
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  Speaker 1: talking job support, talking about how very efficient this US
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  Speaker 1: Tennis Association has been with its financing using municipal bonds,
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  Speaker 1: which of course come in. Advisors is very well known
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  Speaker 1: for their their investments and management of municipal bond funds
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  Speaker 1: and money for so so many years. John must thank
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  Speaker 1: you for joining us. He is Director of Fixed In
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  Speaker 1: at Cumberland Advisors. I'm Kathleen Hayes, alive at the US Open,
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  Speaker 1: and this is Bloomberg perfectly