WEBVTT - Knowledge is Power in Thanksgiving Travel, Kheel says 0:00:00.080 --> 0:00:12.960 Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. 0:00:13.480 --> 0:00:16.960 Daily we bring you insight from the best in economics, finance, 0:00:17.040 --> 0:00:23.480 investment and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:29.000 Bloomberg dot Com, and of course on the Bloomberg Brian 0:00:29.080 --> 0:00:34.320 Lovett with us working today Opery her Fund, an international investment. 0:00:34.320 --> 0:00:36.920 We've got a lot to be thank you, thankful for, 0:00:37.800 --> 0:00:40.559 but for those in the market mostly what we're thankful 0:00:40.600 --> 0:00:44.440 for its courage. It is the most unloved bull market still, 0:00:44.560 --> 0:00:47.040 isn't it is? And it has been for a long time. 0:00:47.080 --> 0:00:49.920 I would say we're going on years now that investors 0:00:49.920 --> 0:00:52.080 have been asking me is it going to be over? 0:00:52.360 --> 0:00:56.000 And in actuality, if you look at the macro environment 0:00:56.200 --> 0:01:00.200 right now with growth above trend in over sixty sign 0:01:00.240 --> 0:01:03.360 of the countries around the world, that is a better 0:01:03.440 --> 0:01:06.720 macro backdrop that we've had in some time. Max Roser, 0:01:06.760 --> 0:01:09.480 who who does brilliant work out on Twitter and charts, 0:01:09.480 --> 0:01:12.600 I'll retweet out his work folks. He's in England just 0:01:12.720 --> 0:01:14.720 I think he's at Oxford. He does just great work. 0:01:15.200 --> 0:01:21.240 He said. The poorest Portugal's poverty oft was worse than 0:01:21.280 --> 0:01:25.200 any country today. I mean it is a more prosperous world, 0:01:26.240 --> 0:01:31.360 a more prosperous emerging markets. How does Oppenheimer Funds invest 0:01:31.440 --> 0:01:35.320 differently now in emerging markets than you did ten and 0:01:35.400 --> 0:01:38.319 twenty years ago. Well, we've always been looking for exceptional 0:01:38.360 --> 0:01:41.399 companies in the emerging markets, true growth companies in the 0:01:41.400 --> 0:01:45.160 emerging markets. So I think it's more that maybe some 0:01:45.240 --> 0:01:47.240 of the investors in the emerging markets have come to 0:01:47.440 --> 0:01:51.480 us rather than us change our process significantly. You know, 0:01:51.640 --> 0:01:54.920 people usually thought of emerging markets as state owned companies 0:01:55.000 --> 0:01:58.560 and big energy names, and that's basically what the indices 0:01:58.560 --> 0:02:01.520 are comprised of. We've always looked for growth in the 0:02:01.560 --> 0:02:05.480 emerging markets and UM as you've seen, you know, particularly 0:02:05.560 --> 0:02:07.560 with companies in China this year and other parts of 0:02:07.560 --> 0:02:11.600 the emerging markets, very very strong returns as investors look 0:02:11.680 --> 0:02:15.240 for true growth in a slow growth world. Brian, good 0:02:15.240 --> 0:02:17.680 morning to you, or good afternoon from London. In fact, 0:02:17.720 --> 0:02:20.519 when you're looking at an emerging markets, are you looking 0:02:20.639 --> 0:02:23.720 at a particular asset class or you invest in cross 0:02:23.720 --> 0:02:27.680 asset So at Oppenheimer Funds we have investments across the 0:02:27.680 --> 0:02:32.239 emerging markets. We run the largest UM equity emerging market 0:02:32.240 --> 0:02:35.280 fund UH and we also manage money in the emerging 0:02:35.280 --> 0:02:38.320 market debt space as well. But what we're focusing on 0:02:38.440 --> 0:02:41.920 as investors is a very nice macro backdrop in the 0:02:41.919 --> 0:02:44.440 emerging markets, the likes of which we haven't had in 0:02:44.480 --> 0:02:48.600 a handful of years. You have um, you know, China slowing, 0:02:48.680 --> 0:02:51.480 but to a what we believe is a higher quality 0:02:51.600 --> 0:02:54.320 level of growth. You have Latin America recovering, You have 0:02:54.360 --> 0:02:58.359 the oil producers recovering, and what most and as important, 0:02:58.400 --> 0:03:01.840 you have inflation which has come down in the emerging markets, 0:03:01.880 --> 0:03:04.959 which has allowed policy makers to be more accommodative. So 0:03:05.440 --> 0:03:09.440 on the fixed income side, attractive real yields and currencies 0:03:09.480 --> 0:03:12.680 that were beaten up on the equity side, very nice 0:03:13.080 --> 0:03:16.240 growth stories, both on the macro side but at the 0:03:16.240 --> 0:03:19.280 individual company level as well. As we look ahead to 0:03:19.560 --> 0:03:22.240 the FED minutes coming out later, how much of a 0:03:22.400 --> 0:03:26.160 risk to emerging markets does the tightening cycle from the 0:03:26.160 --> 0:03:28.440 Fed pose? Is it as much of a risk as 0:03:28.440 --> 0:03:30.040 it used to be. It is not as much as 0:03:30.040 --> 0:03:31.560 a risk as it used to be. If you remember 0:03:31.600 --> 0:03:36.840 the taper tantrum in real yields in the emerging markets 0:03:36.880 --> 0:03:40.440 were close to you know, one or below one. If 0:03:40.480 --> 0:03:42.360 you look at when the FED raised raids for the 0:03:42.400 --> 0:03:46.680 first time, in real yields in the emerging markets were 0:03:46.760 --> 0:03:50.680 very low as well. So what that meant was inflation 0:03:50.880 --> 0:03:53.000 was was generally high in the emerging markets and it 0:03:53.040 --> 0:03:56.160 wasn't attractive for investors to be there to the extent 0:03:56.240 --> 0:03:58.560 that it is now. So you had capital flight at 0:03:58.600 --> 0:04:01.760 this point in the cycle withinflation significantly down in the 0:04:01.800 --> 0:04:05.000 emerging markets. You have real yields on the order of 0:04:05.040 --> 0:04:08.560 three percent or so an aggregate across the emerging markets. 0:04:08.600 --> 0:04:11.480 So as the FED raises rates UM, which we believe 0:04:11.480 --> 0:04:15.600 will ultimately be of continue to be gradually and slowly um, 0:04:16.400 --> 0:04:19.640 there is less like you are significantly less likely to 0:04:19.640 --> 0:04:23.120 see capital flight from the emerging markets. But I'm glad 0:04:23.120 --> 0:04:25.960 that they brings us up because, to be honest, I've 0:04:25.960 --> 0:04:29.600 been remiss in not doing a real yield analysis. Let's 0:04:29.600 --> 0:04:32.400 back up to investment one oh one. Why should our 0:04:32.440 --> 0:04:37.599 listeners look at inflation adjusted yields versus the nominal yield, 0:04:37.600 --> 0:04:41.480 which is where the corporate officer lives every moment. Well, 0:04:41.520 --> 0:04:43.479 I mean, you want your standard of living to improve, 0:04:43.640 --> 0:04:46.760 so if you can, if you can generate income above 0:04:46.880 --> 0:04:50.000 the rate of inflation, your standard of living is improving. 0:04:50.080 --> 0:04:52.760 Some of the difficulties that investors have right now in 0:04:52.800 --> 0:04:54.600 the United States. If you look at a ten year 0:04:54.640 --> 0:04:57.479 treasury rate of I think around two thirty five to 0:04:57.760 --> 0:05:02.040 forty with inflation of around two, that's akin to running 0:05:02.040 --> 0:05:05.400 on a treadmill. You're not really getting anywhere, and you're 0:05:05.400 --> 0:05:07.640 taking on interest rate. So that looks the real yield 0:05:07.640 --> 0:05:10.040 in the Philippines or Poland, or you don't name your 0:05:10.080 --> 0:05:12.520 other favorites. So if you looked in aggregate across the 0:05:12.560 --> 0:05:15.400 emerging markets, you're at about three percent real years. So 0:05:15.400 --> 0:05:18.440 I'm gonna pick up two hundred basis points plus two 0:05:18.480 --> 0:05:22.520 full percentage points a real yield. Do you hedge that 0:05:22.600 --> 0:05:26.200 against the currency risk? We can hedge that against the 0:05:26.200 --> 0:05:29.200 currency risk. We will use currencies as a lever to 0:05:29.279 --> 0:05:32.720 pull to drive returns. What you have right now is 0:05:32.800 --> 0:05:37.960 a generally weaker dollar and currencies across the emerging markets 0:05:38.040 --> 0:05:42.200 that are generally under value to the U. S Dollar 0:05:42.279 --> 0:05:45.279 on a purchasing power parody basis. So we believe that 0:05:45.320 --> 0:05:50.040 currency is additive to fixed income emerging market returns at 0:05:50.040 --> 0:05:52.880 this point in the cycle. On the equity side, we 0:05:52.920 --> 0:05:57.320 believe that hedging currencies adds cost and complexity of the portfolios, 0:05:57.400 --> 0:06:00.279 and over longer term time periods is generally a gosh. 0:06:00.400 --> 0:06:05.200 So unfixed income we have the ability um to hedge currencies, 0:06:05.240 --> 0:06:08.479 and we do so at certain points um. On the 0:06:08.600 --> 0:06:12.520 on the equity side, we typically do not hedge the currency. Brian, 0:06:12.600 --> 0:06:15.960 I want to pivot the conversation slightly to the to 0:06:16.080 --> 0:06:18.479 Europe and the US, so we keep talking about the 0:06:18.520 --> 0:06:22.800 relentless flattening of the U S yield curve. Right, Let's 0:06:22.839 --> 0:06:25.640 take the twos tense for example. The German twos tense 0:06:25.680 --> 0:06:28.599 curve has been flattening as well, but the spread between 0:06:28.640 --> 0:06:31.960 the two is the most positive since two thousand and six. 0:06:32.360 --> 0:06:36.560 Does that mean adding duration in Germany suddenly looks relatively 0:06:36.640 --> 0:06:39.000 cheap even if absolute yields are well below those in 0:06:39.000 --> 0:06:41.479 the US. Yeah, it does, but it's not. It's still 0:06:41.520 --> 0:06:45.920 not a particularly attractive investment many of the developed market 0:06:46.120 --> 0:06:49.160 UH fixed income instruments. I would say, you know, with 0:06:49.200 --> 0:06:51.680 regards to the flattening in the United States, I think 0:06:51.680 --> 0:06:53.480 what it says to me is that the Federal Reserve 0:06:53.600 --> 0:06:57.400 is ultimately going to have to back off its um 0:06:57.400 --> 0:07:02.440 off its tightening stance. There simply not enough spread between 0:07:02.480 --> 0:07:05.320 two and ten. Uh. The Fed really wants to raise 0:07:05.360 --> 0:07:07.480 interest rates three or four times in the coming year. 0:07:07.520 --> 0:07:10.040 You're gonna see a flat yield curb if that were 0:07:10.040 --> 0:07:12.360 to happen. Investors your to your point, might be happy 0:07:12.400 --> 0:07:14.960 to have some duration in their portfolio. If you look 0:07:15.000 --> 0:07:17.600 at US investors right now, their short duration. They've been 0:07:17.600 --> 0:07:20.360 told to be short duration for eight years. You know, 0:07:20.440 --> 0:07:24.240 having some duration your portfolio, maybe adding some credit can 0:07:24.320 --> 0:07:26.640 increase the yield and maybe bring down some vall. It 0:07:26.680 --> 0:07:29.560 will be interesting to see the two thousand and eighteen 0:07:30.000 --> 0:07:34.520 research packets and also how they're amended about April next 0:07:34.560 --> 0:07:37.600 your brand, Levitt, thank you so much with Happenheimer Funds, 0:07:37.600 --> 0:07:39.720 and thank you to your team. We enjoyed immensely of 0:07:39.840 --> 0:07:58.080 visiting your studios. Why don't you bring in our steamed 0:07:58.560 --> 0:08:05.560 petroleum guests. Yeah, absolutely fantastic to have Philip Veliger here 0:08:05.760 --> 0:08:08.840 um with with us in the London studio. I understand 0:08:08.880 --> 0:08:11.679 that you're here in London sort of on a Thanksgiving break, 0:08:11.720 --> 0:08:14.760 but you've really kindly agreed to drop into surveillance because 0:08:14.880 --> 0:08:17.720 he likes you so much. Tom, you hear that Happy 0:08:17.760 --> 0:08:21.160 Thanksgiving Tom, Well, happy Thanksgiving to you, Mr Roger. You know, 0:08:21.160 --> 0:08:23.600 I think nearer to have Phil Verliger here is to 0:08:24.040 --> 0:08:26.200 go back to the hindsight of there were very few 0:08:26.200 --> 0:08:29.440 people doubting a hundred dollar oil, and Phil Verliger is 0:08:29.480 --> 0:08:33.880 consistently doubted some of the excesses of of opec in 0:08:33.920 --> 0:08:37.360 a in a contrived market for years. Phil, do you 0:08:37.440 --> 0:08:42.640 maintain a lower price for oil? Call this year? Uh? Yes, sir, 0:08:43.400 --> 0:08:46.520 It's oil prices are going to stay about where they 0:08:46.520 --> 0:08:52.000 are right now, maybe fifty, maybe sixty. Think unless Uh, 0:08:52.440 --> 0:08:56.680 the events in Saudi Arabia, which are the really important event, 0:08:57.240 --> 0:09:01.840 the the arrest of all the wealthy people essentially attempt 0:09:02.120 --> 0:09:05.640 trying to extract you know, four hundred or six hundred 0:09:05.679 --> 0:09:09.880 billion dollars from these people. Uh. If you look at 0:09:10.040 --> 0:09:12.720 what's going on in Saudi Arabia, you have a country 0:09:12.760 --> 0:09:20.240 that is strongly opposed to Iran, Syria and uh in Lebanon, 0:09:20.280 --> 0:09:23.600 the Hespalaon Lebanon, and although those are backed by the Russians, 0:09:23.600 --> 0:09:25.840 at the same time, Saudi Arabia has been cooperating with 0:09:25.920 --> 0:09:29.320 Russia to hold up oil prices. The question is if 0:09:29.360 --> 0:09:33.960 the assorities are able to accumulate a substantial amount of cash. 0:09:34.160 --> 0:09:37.360 This essentially double the liquidity of the central bank from 0:09:37.360 --> 0:09:41.040 four eight hundred billion dollars maybe a trillion. I think 0:09:41.040 --> 0:09:45.040 the strategy will then change and they will probably UH 0:09:45.200 --> 0:09:48.640 increase production because they've been watching the Russian steel market share. 0:09:49.400 --> 0:09:52.280 At at that point they will be able to go 0:09:52.320 --> 0:09:55.079 back to the low price scenario for a for a year, 0:09:55.160 --> 0:09:58.360 to push oil on the market and re establish a 0:09:58.440 --> 0:10:01.240 base to grow from in the future. Year. That's really 0:10:01.280 --> 0:10:03.960 interesting because there's been a lot of expectations ahead of 0:10:04.000 --> 0:10:06.480 the Opeque meeting, ahead of this month, at the end 0:10:06.480 --> 0:10:08.440 of this month, and in some ways, you know, you 0:10:08.480 --> 0:10:12.360 could say that the market has now positioned itself for disappointment. 0:10:12.400 --> 0:10:15.960 Almost I think the market has disappointed, and I don't 0:10:15.960 --> 0:10:21.200 think the Saudis will do anything right now, because what 0:10:21.280 --> 0:10:25.280 they're doing is essentially trying to extract all this money 0:10:25.320 --> 0:10:29.440 that they claim has been taken by graft, and that's 0:10:29.440 --> 0:10:31.319 going to take some time because much of the money 0:10:31.400 --> 0:10:36.199 is overseas and they can't release these people from there 0:10:36.240 --> 0:10:38.960 from this UH prison they have them at at the 0:10:39.000 --> 0:10:41.959 st Regis until they've actually gotten the money back to 0:10:42.000 --> 0:10:44.920 Saudi Arabia because once the people are out, they can 0:10:44.960 --> 0:10:47.720 go to government like the United States or the English 0:10:47.760 --> 0:10:49.520 government and say the money was taken from us and 0:10:49.559 --> 0:10:53.280 to arrest and the Saudia Council be frozen. So they 0:10:53.320 --> 0:10:55.199 need to work it. But if you look, I think 0:10:55.200 --> 0:10:57.240 the key individual in this whole thing is is not 0:10:57.280 --> 0:11:00.640 the crown Prince but at al Jabbar, who's the foreign 0:11:00.720 --> 0:11:03.200 minister and who has been if you go back to 0:11:04.080 --> 0:11:07.360 he was a spokesman when when they invaded Kuwait, and 0:11:07.440 --> 0:11:10.320 he his father was the ambassador to Germany, and he's 0:11:10.400 --> 0:11:13.400 just a he's really the leading person. You know. The 0:11:13.400 --> 0:11:16.920 best best example is to read a book by Machiavelli 0:11:17.000 --> 0:11:21.440 which really describes what he's doing. Uh, and that changes. 0:11:22.080 --> 0:11:24.880 That's going to change what happens to prices. But Tom, 0:11:24.920 --> 0:11:27.560 I don't think. I think the question is could they 0:11:27.600 --> 0:11:31.120 go much lower? And the answer is probably they can't. Well, 0:11:31.240 --> 0:11:33.360 then that is the eu listicity. You talk about the 0:11:33.920 --> 0:11:38.160 desire to drill and the idea that cash will chase drilling. 0:11:38.600 --> 0:11:41.080 I get the idea of cash chasing a hundred dollars 0:11:41.080 --> 0:11:46.240 of barrel? Does cash want to chase fifty seven dollar? There? Yes, 0:11:46.400 --> 0:11:49.920 there was a very good presentation that the Energy Information 0:11:49.920 --> 0:11:52.200 Agency had last week. It's on on. There was a 0:11:52.200 --> 0:11:55.520 webcast and RICE did, which is a consulting firm that 0:11:55.840 --> 0:11:58.440 goes down to the very nitty gritty, laid out a 0:11:58.440 --> 0:12:01.560 case where it's sixty the barrel. By the end of 0:12:01.600 --> 0:12:04.800 twenty we have four million barrels a day of production 0:12:04.920 --> 0:12:09.480 from UH from the Permian, and if it's thirty five dollars, 0:12:09.480 --> 0:12:12.040 we're down at two million barrels a day. And they 0:12:12.040 --> 0:12:13.920 did it almost on a well by well basis. And 0:12:13.920 --> 0:12:16.040 if you blow this up to the United States, the 0:12:16.080 --> 0:12:18.880 swing is probably three or four million barrels a day, 0:12:18.920 --> 0:12:22.280 so they really need it down They can make money 0:12:22.360 --> 0:12:24.920 according to Rice dead and according to everybody else, at 0:12:26.040 --> 0:12:28.840 at five dollars a barrel. And if you look at 0:12:28.880 --> 0:12:33.079 the futures market, open interest and contracts expiring more than 0:12:33.120 --> 0:12:36.640 twelve months is up by almost six from this time 0:12:36.720 --> 0:12:38.679 last year, so a lot of that oil has been 0:12:38.760 --> 0:12:43.240 hedged through banks or swap dealers and so on. So 0:12:43.600 --> 0:12:45.559 the next year is already in the can and the 0:12:45.600 --> 0:12:48.640 production is going to happen. So in terms of the price, 0:12:48.679 --> 0:12:51.440 then what sort of range are we in and for 0:12:51.520 --> 0:12:54.559 what time period. Well, I think the range we're going 0:12:54.600 --> 0:13:01.560 to be in is upper limit, uh, and it's that's 0:13:01.679 --> 0:13:04.760 probably that's Brent, or it's w t I Houston. The 0:13:04.760 --> 0:13:07.160 other thing that's happening is the world oil center of 0:13:07.160 --> 0:13:09.760 the world oil market has swung to Houston, and there's 0:13:09.760 --> 0:13:12.240 a w t I price in Houston, and the industry 0:13:12.280 --> 0:13:17.000 is trading there. Cushing has become less relevant, although it's 0:13:17.000 --> 0:13:20.240 still the hedging market. But you know, sixty dollars at 0:13:20.240 --> 0:13:24.240 the top side, uh, fifty dollars on the low side. Again, 0:13:24.280 --> 0:13:28.400 assuming Saudi Arabia doesn't do something. And this also assumes 0:13:28.440 --> 0:13:32.319 that the economy keeps growing uh, and it holds together, 0:13:32.360 --> 0:13:34.840 which of course is the first first part of the story. Phil, 0:13:34.880 --> 0:13:36.920 We've got two minutes left with you, not even that, 0:13:37.120 --> 0:13:39.320 And I do want to switch to your historic work 0:13:39.320 --> 0:13:42.600 on neft of decades ago. What are the ramifications that 0:13:42.679 --> 0:13:49.440 you see if the president does away with NAFTA. Um Tom, 0:13:49.520 --> 0:13:51.760 I've been I keep looking at that, and I've looked. 0:13:51.760 --> 0:13:54.040 The more I look at it, the more frightened I get. 0:13:55.280 --> 0:13:59.480 Is that well, because everything moves back and forth across 0:13:59.520 --> 0:14:02.920 the border without duty, and once you take NAFTA off 0:14:03.559 --> 0:14:05.439 it's the same thing you see over here with Brexit. 0:14:05.960 --> 0:14:09.360 I don't know what happens, what happens to manufacturing part production, 0:14:09.960 --> 0:14:12.760 and I know people have done different numbers. My guess 0:14:12.840 --> 0:14:16.520 is GDP is to two percentage points lower twelve months 0:14:16.559 --> 0:14:19.000 after we pulled out of NAFTA. I think it's that 0:14:19.120 --> 0:14:21.280 much because you know, the agricultural sector is going to 0:14:21.360 --> 0:14:25.120 suffer dramatically. I think they everybody says, well, autos will 0:14:25.120 --> 0:14:28.320 do better. No, autos won't because some of the parts 0:14:28.320 --> 0:14:30.160 are made in Mexico and they can't get them back. 0:14:30.200 --> 0:14:33.040 I mean, you can't turn the economy out of the 0:14:33.080 --> 0:14:35.720 doct I mean, you're your Nash. It's hard to get 0:14:35.760 --> 0:14:40.440 parts for your NASH, and it's uh uh you know 0:14:40.560 --> 0:14:44.000 they're gonna have trouble getting parts and they're trying moving manufacturings. 0:14:44.000 --> 0:14:48.680 So it's gonna raise costs. And I think it's the thing. 0:14:49.160 --> 0:14:52.240 My plate plead is, don't do it. Yeah. What I've 0:14:52.240 --> 0:14:54.040 heard from a couple of people's right where you go 0:14:54.360 --> 0:14:56.920 Dirtri Furliger, which is the idea of you're gonna need 0:14:56.960 --> 0:14:59.520 a part for that training and ain't gonna be there. 0:14:59.800 --> 0:15:02.000 So really good, Thank you so much. Honored with your 0:15:02.040 --> 0:15:04.840 visit in London. Really look forward to seeing you in London, 0:15:04.880 --> 0:15:08.480 New York, Calgary or or Aspen. Phil Roger of his 0:15:08.560 --> 0:15:13.120 own pker and of course just wonderful and always controversial. 0:15:13.640 --> 0:15:25.680 On oil. We've of course keeping keeping an eye on 0:15:25.760 --> 0:15:28.720 Chancellor Philip Hammond's budget. The key thing is that growth 0:15:28.720 --> 0:15:30.920 forecast for the UK have been cuts. We've seen a 0:15:30.960 --> 0:15:33.600 little bit of a dip in sterling, also some curve 0:15:33.800 --> 0:15:37.440 flattening in guilt on that cut to the growth outlook. 0:15:37.480 --> 0:15:40.360 But we're also keeping a very close eye on the 0:15:40.400 --> 0:15:43.720 Brexit development and with us to discuss that is Sony Kappa, 0:15:43.800 --> 0:15:46.920 Managing director at Redefined. Sony, great to have you on 0:15:46.920 --> 0:15:50.360 the program and good morning or afternoon to you rather 0:15:50.840 --> 0:15:53.600 in London. So when it comes to the Brexit negotiations, 0:15:53.600 --> 0:15:56.840 we're looking ahead to this December EU summit and it 0:15:56.920 --> 0:16:00.120 seems like finally the UK has given a little at 0:16:00.120 --> 0:16:02.800 the ground on the brexit bill. Prime Minister Theresa May 0:16:02.880 --> 0:16:06.280 ready to put more money on the table to settle 0:16:06.360 --> 0:16:10.080 that divorce bill. How do you see the negotiations going 0:16:10.280 --> 0:16:14.040 in December, Well, I think they are going to be 0:16:14.200 --> 0:16:18.640 very fraud and very difficult and the UK remains in 0:16:18.920 --> 0:16:25.280 a very tricky situation. So even as we have relatedly 0:16:25.440 --> 0:16:29.360 accepted that there is a much higher price to be 0:16:29.440 --> 0:16:34.000 paid for Breakfit, mostly relating to existing obligations of the UK, 0:16:35.120 --> 0:16:40.680 the issue of the Irish border threatens to actually scupper 0:16:40.800 --> 0:16:45.040 the whole negotiations with December. And the background that is 0:16:45.280 --> 0:16:51.680 that the having a border free crossing between Northern Ireland 0:16:51.720 --> 0:16:56.560 and an Ireland in UH is an important part of 0:16:56.560 --> 0:17:00.440 the peace process and that is non negotiable. And of 0:17:00.480 --> 0:17:03.760 course if the UK leaves the EU and Ireland bills 0:17:03.880 --> 0:17:07.560 remain in the EU, there will be a bother and 0:17:07.680 --> 0:17:12.080 the Irish Prime Minister has rightly intervened to say that 0:17:12.160 --> 0:17:17.159 he will veto any further negotiation with the UK unless 0:17:17.200 --> 0:17:20.359 and until the UK is able to give an assurance 0:17:20.720 --> 0:17:23.359 that there will be no hard boded. That of course 0:17:23.520 --> 0:17:28.480 is incompatible with the UK actually leaving the Customs Union, 0:17:29.000 --> 0:17:32.560 which Brexitters want the UK to do and Theresa May 0:17:32.600 --> 0:17:35.560 had said the UK will do so. Money is one 0:17:35.640 --> 0:17:39.520 part of the discussion where the UK has finally agreed 0:17:39.600 --> 0:17:43.720 to double its contribution from twenty billion euros they had 0:17:43.720 --> 0:17:47.119 said to about forty billion as the starting offer, but 0:17:47.359 --> 0:17:52.280 the Irish problem remains completely intractable for now. Right, so 0:17:52.359 --> 0:17:55.280 how what are the chances then? What where would you 0:17:55.280 --> 0:17:58.120 put it in percentage terms of their actually being a 0:17:58.160 --> 0:18:06.440 shift to trade talks in December, uh without some unexpected 0:18:06.680 --> 0:18:10.840 solution or money from Heaven dropping down to come up 0:18:10.880 --> 0:18:14.080 with a reasonable solution to the Irish problem. I would 0:18:14.080 --> 0:18:19.760 say less than twenty right, And already we're hearing that 0:18:19.760 --> 0:18:23.840 that certain banks are making contingency plans to start shifting 0:18:24.000 --> 0:18:29.160 business out of London in the first quarter of next year. 0:18:29.680 --> 0:18:34.120 That's going to accelerate perhaps then. I think what has 0:18:34.160 --> 0:18:39.919 happened is up until about a month back, businesses and 0:18:40.040 --> 0:18:44.920 banks we're waiting and watching to see how things went. 0:18:45.520 --> 0:18:48.320 But this has been a particularly bad month and a 0:18:48.359 --> 0:18:52.960 particularly bad week for the UK, with the decision to 0:18:53.240 --> 0:18:57.359 relocate the European Banking Authority out of London to Paris, 0:18:57.480 --> 0:19:02.200 the European Medicine Agency out of London Amsterdam, making Brexit 0:19:02.560 --> 0:19:06.960 very real and businesses can no longer sit on their 0:19:07.000 --> 0:19:10.960 hands and wait to do their contingency planning. They are 0:19:11.080 --> 0:19:13.800 starting to move and a lot of the exodus will 0:19:13.840 --> 0:19:18.159 actually start even before exit day, if and when it 0:19:18.280 --> 0:19:22.560 does actually happen. Redefine Managing Director Sony Kapaul, thank you 0:19:22.600 --> 0:19:24.480 so much for talking us through some of the briggs 0:19:24.560 --> 0:19:39.800 at risks. What better person to speak to is people 0:19:39.920 --> 0:19:43.200 around the US get ready for the holiday. Julian Mark Heel, 0:19:43.320 --> 0:19:47.160 the points guy, senior analyst with us here on Bloomberg Surveillance. 0:19:47.200 --> 0:19:50.479 Good morning or good afternoon here in the London to you, Julian, 0:19:50.520 --> 0:19:53.359 how are you doing? Good morning and afternoon to you. 0:19:54.400 --> 0:19:57.800 So you're the expert here on travel, people are going 0:19:57.840 --> 0:20:02.320 to be moving around mean unimaginably for me sitting here 0:20:02.320 --> 0:20:04.000 in London where we're just probably going to go to 0:20:04.000 --> 0:20:06.320 the pub around the corner and have some dinner. What 0:20:06.400 --> 0:20:09.800 are your top tips for traveling at this time of year? Yeah, 0:20:10.240 --> 0:20:13.400 when when you're traveling in the holiday season, really anytime, 0:20:13.400 --> 0:20:16.720 but especially during the holiday season. I like to say 0:20:16.760 --> 0:20:22.160 knowledge is power. Come armed with information. For instance, Uh, 0:20:22.760 --> 0:20:25.159 take a look at the map of the airport that 0:20:25.200 --> 0:20:27.639 you're going to be in. You're hopefully leaving a little 0:20:27.680 --> 0:20:30.280 extra time to get there and to you may end 0:20:30.359 --> 0:20:32.199 up in the airport for a little longer than you 0:20:32.280 --> 0:20:35.600 usually do. So make sure you know what food areas 0:20:35.600 --> 0:20:38.080 are in the airport where you might need to take 0:20:38.119 --> 0:20:40.960 your children to have a quick good drink or a 0:20:41.000 --> 0:20:43.720 quick bite while you're waiting for the flight. Also know 0:20:44.040 --> 0:20:50.160 what no, no, no when the children are older. When 0:20:50.160 --> 0:20:55.479 the children are older, they're downstairs in some bar and 0:20:55.720 --> 0:21:00.320 I'm up in the gold loins drinking bottled water. That's 0:21:00.320 --> 0:21:05.280 how it works. Please, that is certainly the ideal, yes, 0:21:05.359 --> 0:21:09.560 but but at the very least, then know which lounges 0:21:09.680 --> 0:21:11.879 in your terminal and which club you can go to, 0:21:12.119 --> 0:21:16.840 and what what will be required for admittance. Also, in 0:21:17.000 --> 0:21:20.080 case your flight ends up being delayed or canceled, know 0:21:20.320 --> 0:21:23.720 what other flights are available with your airline. And that 0:21:23.720 --> 0:21:26.320 doesn't necessarily mean that they have to be bookable, but 0:21:26.480 --> 0:21:29.280 what's actually flying. A lot of people rely on the 0:21:29.320 --> 0:21:32.159 airline agent to tell them what's the next best option. 0:21:32.280 --> 0:21:35.240 But it helps, actually if you already know what flight 0:21:35.320 --> 0:21:38.040 you would like to be rebooked on and specifically ask 0:21:38.119 --> 0:21:40.359 for that. They may not always do it, but if 0:21:40.400 --> 0:21:42.600 you go in, it never hurts to ask, and it 0:21:42.720 --> 0:21:45.040 helps to go in knowing what you want. You know, 0:21:45.560 --> 0:21:47.720 and look at this and we're sort of going into 0:21:47.720 --> 0:21:49.680 the you know, the holiday season, and then I guess 0:21:49.680 --> 0:21:52.480 we're in this slow season. Let's back up. Our flights 0:21:52.600 --> 0:21:56.440 cheaper than they were a year ago. You know, flights 0:21:56.880 --> 0:22:00.040 are not necessarily cheaper or more expensive. But if of 0:22:00.080 --> 0:22:04.200 course all of those fees that the airlines keep tacking on, 0:22:04.680 --> 0:22:07.320 and people are not huge fans of them, but the 0:22:07.359 --> 0:22:10.440 airlines are the enormous fans of them because they're generating 0:22:10.480 --> 0:22:13.240 billions of dollars of extra Okay, well, Heathrow. Let's go 0:22:13.280 --> 0:22:16.200 to Heathrow right now. Every time Nera flies to New York, 0:22:16.240 --> 0:22:21.000 she insists that the surveillance golf stream avoid Heathrow. Come on. 0:22:21.040 --> 0:22:24.280 The fees of Heathrow are insane. The fees that Heathrow 0:22:24.320 --> 0:22:28.000 are a special level of insane because of their departure tax. 0:22:28.400 --> 0:22:31.320 Especially if you're coming out of Heathrow in a premium 0:22:31.320 --> 0:22:34.040 class like business or first even on a point or 0:22:34.040 --> 0:22:37.520 mileage tickets, you're gonna end up paying hundreds of dollars 0:22:37.520 --> 0:22:42.600 for For Bloomberg, Washington is dullest like the airport that 0:22:42.680 --> 0:22:45.960 needs the most investment right now. You know, actually I 0:22:46.000 --> 0:22:49.000 would argue that LaGuardia in New York needs the most investment. 0:22:49.080 --> 0:22:52.040 It's a small airport that hasn't really had the investment 0:22:52.080 --> 0:22:54.879 in years dollars is certainly up there. It could certainly 0:22:55.000 --> 0:22:57.000 use a lot of work and a lot of resources 0:22:57.040 --> 0:22:59.600 put into it, But in my heart, LaGuardia is the 0:22:59.600 --> 0:23:01.840 one that and they are working on LaGuardia, so we'll 0:23:01.840 --> 0:23:04.960 see how it goes. Julian, You've done some work on 0:23:05.000 --> 0:23:07.919 the best and worst airlines in the United States and 0:23:07.960 --> 0:23:10.960 sort of laid out the argument as to whether it's 0:23:11.080 --> 0:23:13.480 really a case of best and worst or whether it's 0:23:13.520 --> 0:23:17.960 just customers perception when it comes to Thanksgiving. I'm guessing 0:23:18.000 --> 0:23:21.840 all the excitement, potentially all the stress if you've got 0:23:21.880 --> 0:23:25.000 lots of kids running around, might have some impact on 0:23:25.040 --> 0:23:29.840 your perception. Two airlines. Two airlines, actually do they pull 0:23:29.840 --> 0:23:31.560 it out of the bag during the holiday or does 0:23:31.600 --> 0:23:35.520 it all actually fall apart? You know, it's it's really 0:23:35.560 --> 0:23:38.840 tough to run an airline. To give them credit, they're 0:23:38.880 --> 0:23:44.040 moving hundreds of thousands of people every day in the 0:23:44.040 --> 0:23:47.360 most and the safest possible transport that's ever been invented 0:23:47.359 --> 0:23:51.080 by humankind, and to do all that and keep people 0:23:51.840 --> 0:23:55.200 happy is a tall order. That's not to say they shouldn't, 0:23:55.440 --> 0:23:58.760 and some airlines, like in our study. Alaska airlines do 0:23:58.800 --> 0:24:02.840 it better than others, like say Spirit and Frontier Um, 0:24:02.880 --> 0:24:05.440 but it's certainly a tall order, and during the holidays 0:24:05.440 --> 0:24:08.280