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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along

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Speaker 1: with Jonathan Ferrell and Lisa Abramowitz. Daily we bring you

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Speaker 1: insight from the best and economics, finance, investment, and international relations.

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Speaker 1: To find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg dot Com,

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Speaker 1: and of course on the Bloomberg Terminal. Now for the

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Speaker 1: City of London, Bob Diamond joins us to say he's

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Speaker 1: founding partner and CEO of Atlas Merchant Bank. Barely describes

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Speaker 1: when he did for Barclay's. I'll cut to the chase

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Speaker 1: because of time, go back and look did Barkley's get

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Speaker 1: a ball out during the crisis? Bob Diamond, thank you

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Speaker 1: so much. Honored to have you here in our studios

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Speaker 1: with Bloomberg Today. I'm gonna ask one question in the

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Speaker 1: city because John really wants to focus on Sterling. There's

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Speaker 1: the city, there's this comedy of Reaganomics, re Dux as well.

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Speaker 1: How does the city is an international venue, how does

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Speaker 1: it move forward? How does it survive? Is the global institution?

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Speaker 1: So this is a really important question, Tom, and I

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Speaker 1: think with all the debate around the announcements that were

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Speaker 1: made in the last couple of days. Um, there is

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Speaker 1: um much more support for the city. UH, something as

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Speaker 1: simple as removing the bankers bonus caps, which as you know,

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Speaker 1: was gamed by the banks and put the UK banks

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Speaker 1: that a significant competitive disadvantage to the US banks. Any

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Speaker 1: support for the city right now is UH, is important.

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Speaker 1: But what else would you like to say from this

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Speaker 1: government to bring that kind of enthusiasm back to the

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Speaker 1: city that I think was lost for many people after

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Speaker 1: the Brexit vote. You know, I think right now credibility

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Speaker 1: is the key and in uh, you know, Simon French

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Speaker 1: said this morning that the only currency that Simon French

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Speaker 1: from Panmore Gordon, the only currency that really matters in

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Speaker 1: the UK macro right now is credibility. UM. And I

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Speaker 1: think the the announcement earlier today which I saw on

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Speaker 1: the Blueberg headlines, which is that the Chancellor is going

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Speaker 1: to spend time with the banks and and the traders

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Speaker 1: and distributors of the of the guilt market, is important.

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Speaker 1: So I think step one is is credibility. Jonathan. If

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Speaker 1: you put this in context, we had a you know,

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Speaker 1: a hundred and fifty billion debt financed energy policy UM

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Speaker 1: without really preparing the guilt market um for what was

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Speaker 1: coming in terms of issuance, and I think people talk

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Speaker 1: about the currency crisis. I think this is more crisis

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Speaker 1: in the guilt market than it was in the currency market.

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Speaker 1: We can you talk a little bit more about what

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Speaker 1: some of those moves in rates would mean for a

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Speaker 1: big bank running a large mortgage book. We saw certain

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Speaker 1: banks remove certain products in the last twenty four hours.

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Speaker 1: You of course, that's what ever see a large mortgage

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Speaker 1: book over at Barclays in your time running that bank. Well,

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Speaker 1: can you tell me what you'd have to do when

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Speaker 1: you see rates move this quickly this fast, and expectations

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Speaker 1: for the Bank of England climb as quickly as they

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Speaker 1: have done. Well, if you put it in context, John,

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Speaker 1: then the two year guilt um is recently as as

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Speaker 1: recently as August was about one and a half percent,

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Speaker 1: you know right now it's about four and a quarter.

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Speaker 1: I think it touched four and a half in the

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Speaker 1: last couple of days. So to your point, that's a sizeable,

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Speaker 1: sizeable move um. That kind of volatility is not necessarily

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Speaker 1: bad for banks, particularly banks with investment banking operations such

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Speaker 1: as Barclay's. But what it will do is it will

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Speaker 1: really slow down the issuance of any new mortgages, So

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Speaker 1: the mortgage books in terms of new issuance. UM, you

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Speaker 1: know it's going to be as you said, there was

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Speaker 1: the announcement that a number of banks have really kind

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Speaker 1: of closed their mortgage issuance. Well, it's also going to

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Speaker 1: slow down the economy dramatically. What are you expecting in

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Speaker 1: terms of a downturn of potential response? Uh from England?

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Speaker 1: Given that the fiscal tool is kind of being blown

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Speaker 1: up in the Bank of England kind of has to

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Speaker 1: push back. So let's keep it in context. I talked about,

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Speaker 1: you know, I think the communications and the credibility around

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Speaker 1: announcing a dred and fifty billion debt financed energy policy.

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Speaker 1: We talked about those issues. But the other things that

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Speaker 1: were announced, there's some good things in there. I think.

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Speaker 1: I think the announce spent around both corporate and personal

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Speaker 1: taxes UM, keeping corporate taxes at or lowering them rather

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Speaker 1: than raising them to puts the UK in a credible

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Speaker 1: position amongst its peers. UM. I think announcing some easing

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Speaker 1: of immigration to to ease the labor supply issues. I

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Speaker 1: think some of the things that we're announced around kind

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Speaker 1: of infrastructure or reducing the bureaucracy to be able to

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Speaker 1: get to building around infrastructure and around housing. So keep it,

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Speaker 1: keeping it in context. There were some positive things that

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Speaker 1: were announced within this and I think because of the

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Speaker 1: shock to the debt markets, to the guilt markets, we

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Speaker 1: really have to find a way to hold the hands

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Speaker 1: of the markets until late November when the budget is

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Speaker 1: announced and we really get to look at what is

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Speaker 1: meant here by the medium and long term fiscal program

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Speaker 1: and somehow we have to we have to manage our

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Speaker 1: way through these markets. And I think the Chancellor meeting

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Speaker 1: with the banks today and over the next couple of

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Speaker 1: days UM is a positive step in that direction. Do

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Speaker 1: you see some opportunities then absolutely, UM within the guilt market,

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Speaker 1: within within stelling denominated assets more broadly, take your pick. Well, look, Jonathan,

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Speaker 1: I want to put that in context as well. People

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Speaker 1: have talked about UM. The currency crisis, the move from

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Speaker 1: one thirty down to where the currency is right now,

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Speaker 1: has really been about the dollar, the dollar, the dollar.

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Speaker 1: So the the UK currency is down maybe twenty five

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Speaker 1: or thirty percent, the dollars up against every currency in

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Speaker 1: the world. So we need to keep that in context

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Speaker 1: of APIs mentions capital. Right now, we are going to

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Speaker 1: stop worldwide and have a conversation with a definitive expert

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Speaker 1: on e M arguably with Stanley Fisher. He invented our

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Speaker 1: concept of emerging markets. This is a guy where Damien

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Speaker 1: Sassaure of Bloomberg hangs on every word. Mark Mobius was

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Speaker 1: a communications major who got parchment from M I T

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Speaker 1: years ago and basically invented for Sir John Templeton the

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Speaker 1: emerging market business. We're honored that Mark Mobius joins us

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Speaker 1: from Dubai this morning. Mark, just what a pleasure to

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Speaker 1: have you with. Let me cut to the chase that

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Speaker 1: every pro wants to know. How close are we to

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Speaker 1: the instabilities of I think we're very close. Actually, we're

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Speaker 1: in a really a strange situation because on the one hand,

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Speaker 1: you've seen this incredible increase in money by it and

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Speaker 1: my definition of inflation is the evaluation of currency, and

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Speaker 1: if you increase fund sup life as we've seen in

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Speaker 1: the US, then that's what the evaluation of the money

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Speaker 1: is going to be, and it goes that's where prices

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Speaker 1: are going to go. But we're in a very strange

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Speaker 1: situation now because we've got these cryptocurrencies and here in Goodbye,

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Speaker 1: I've noticed that there's so many people transferring money in cryptocurrencies.

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Speaker 1: And if you look at the emerging markets in particular

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Speaker 1: places like Nigeria, they do a tremendous amount of turnover

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Speaker 1: in crypto counties. Uh, what is money supply? That's a

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Speaker 1: big question about, right. I look, Mark, and you and

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Speaker 1: I were on the stage at the World or for Story,

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Speaker 1: I wanna say eight years ago, and you stuck your

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Speaker 1: neck out and said Bologny that the rules have changed

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Speaker 1: for e M. There's this uh, this conceit right now

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Speaker 1: that e M is more financially solid. E M as

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Speaker 1: air act together unlike do they It depends on the country,

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Speaker 1: you know. That's a great thing about emerging markets. You

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Speaker 1: see such variety. You see some countries that are doing

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Speaker 1: a terrific job. By the way, Brazil, which used to

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Speaker 1: be a basket case, has been doing a pretty good

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Speaker 1: job and stabilizing the economy. And then you go to

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Speaker 1: a place like Taiwan, even Indonesia, they were doing a

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Speaker 1: very good job in uh managing their economies. So it

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Speaker 1: really depends on where you're going. And then you go

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Speaker 1: to Turkey and then you have a tremendous amount of

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Speaker 1: evaluation of the Church Lera and really a lot of

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Speaker 1: instability financially. But there are even opportunities in Turkey. So Mark,

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Speaker 1: at this point you started by saying that there are

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Speaker 1: some analogs that we're getting close to that. What's the

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Speaker 1: dividing line between now and then the trigger point that

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Speaker 1: makes this evolve into something that needs to be immediately

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Speaker 1: addressed rather than just a rapidly ball a rapidly evolving

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Speaker 1: ball of pain for debt investors. Uh, the real situation

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Speaker 1: now is that, unlike what we had in the past

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Speaker 1: during the Asian financial crisis, is that the dollar debts

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Speaker 1: are not as big as they were because all these

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Speaker 1: countries learned their lesson. They was not a good idea

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Speaker 1: for them to get into dollar debts, so they realized

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Speaker 1: that and didn't do it, except for a number of

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Speaker 1: countries that have been involved in the Belton Road projects

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Speaker 1: that China's been doing, where they've lent an awful lot

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Speaker 1: of money in women and b and dollars to these

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Speaker 1: countries which they can't pay. So here again you have

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Speaker 1: tremendous differences between countries and in some cases, as I say,

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Speaker 1: we're closer to these Asian and financial crisis kinds of situations. Mark,

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Speaker 1: I'm glad that you brought that up to Belton Road

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Speaker 1: initiative of China, which by some accounts has significantly soured.

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Speaker 1: There was one report recently, it was published in the

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Speaker 1: Wallster Journal yesterday that nearly sixty of China's overseas loans

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Speaker 1: are now held by countries considered to be in financial distress,

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Speaker 1: up from five percent back in two thousand ten. This

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Speaker 1: really raises a concern for China, which has acted more

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Speaker 1: like a banker than say that I m F when

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Speaker 1: it comes to these types of loans. How does this develop? Mark?

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Speaker 1: How does this evolve into something that could potentially have

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Speaker 1: contagion effects in markets? Are their countries that are going

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Speaker 1: to just basically be flatten their backs unable to pay

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Speaker 1: their bills that you're looking at. There are a number

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Speaker 1: of countries in that situation. I was in Sri Lanka

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Speaker 1: six months ago, and of course they're flat on their

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Speaker 1: backs that can't pay, and they owe the Chinese so much,

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Speaker 1: and of course they owe other donors. The problem is

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Speaker 1: is that nobody knows what the numbers really are because

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Speaker 1: the Chinese signed agreements with these countries that they should

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Speaker 1: not disclose again not disclosed what they owe and what

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Speaker 1: the Chinese lent to them. So we're really in a

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Speaker 1: dark spot. And if you talk to i MT people,

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Speaker 1: they are really very unhappy about the situation. Mark I've

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Speaker 1: got a fancy chart, really fancy chart. It's a very

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Speaker 1: weak extrapolation of how we get to another plaza accord.

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Speaker 1: And the naive chart is two thousand thirty two. I

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Speaker 1: don't buy it for a minute. With a race of

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Speaker 1: change first and second derivative dynamics that we see right now,

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Speaker 1: how close are you were I having a beverage of

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Speaker 1: our choice at the plaza hotel? Yeah? Yeah, this is

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Speaker 1: a really interesting question because here you have the dollars

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Speaker 1: hold strong, okay, and uh, prices in America are not down.

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Speaker 1: In fact, I just took a one month ship all

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Speaker 1: over America and people are spending like crazy. Then you

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Speaker 1: are to London. Now the London, the pounds devalued against

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Speaker 1: the dollar by what and yet try to find a

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Speaker 1: hotel at decent hotel in London of the low three

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Speaker 1: hundred or four hundred euros or founder pounds. It's crazy,

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Speaker 1: the whole situation. And that's why I say, I think

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Speaker 1: we're in a situation where nobody really knows what the

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Speaker 1: money supply is. And I believe a lot of this

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Speaker 1: is because of the crypto world. Mont You've got standards.

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Speaker 1: I'm guessing you're looking for a different kind of quality

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Speaker 1: hotel compared to many of us. I mean, you can't

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Speaker 1: do five start more. Mom times have changed. It's not

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Speaker 1: just inflation at the chain hotels. And by the way,

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Speaker 1: in the US, I checked into a marrier and they

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Speaker 1: asked me do you want made service? I said, what

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Speaker 1: do you mean? So we don't give maid service unless

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Speaker 1: you ask for it, and it's only every seven days.

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Speaker 1: Only every seven days's house. Yeah, I'm not sure that

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Speaker 1: would work for me. Mark Mike, I wanted to bring

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Speaker 1: up Raphael Bostick of the Atlanta Fed on the UK

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Speaker 1: at least I want your view on this. He was

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Speaker 1: basically asked about what was happening in the UK at

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Speaker 1: the moment and whether it adds to the odds of

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Speaker 1: a global recession, and he turned around and said it

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Speaker 1: doesn't help. And I just wondered what the rest of

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Speaker 1: the world would like to say back to the Federal

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Speaker 1: reserve Lee. So if if people are worried about the

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Speaker 1: UK not helping, I mean, surely the Federal Reserve and

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Speaker 1: aggressive rate hikes and a strong dollar is a bigger

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Speaker 1: threat to the global economy than what is going on

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Speaker 1: in the UK. Well, and that's actually perfect segue mark

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Speaker 1: into what you're looking for in terms of some of

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Speaker 1: the distress that you're focused on, for some sort of

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Speaker 1: sponse for the French Reserve, some sort of concerted effort

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Speaker 1: like Tom was talking about. Basically, is there a cap

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Speaker 1: on how much pain there can possibly be? Is there

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Speaker 1: a trade that you're looking at. I don't think the

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Speaker 1: FED is gonna care about the markets. They're gonna care

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Speaker 1: about the inflation. That's their person priority, and their playbook

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Speaker 1: is to keep on raising rates until the rate is

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Speaker 1: above inflection, which mean you're talking about nine percent inflation

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Speaker 1: now apencent um. Now, if you look at the UK,

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Speaker 1: to be fair, they have been reducing money supply um.

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Speaker 1: Of course they've raised it as much as the US,

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Speaker 1: but the U s money supply is still up there,

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Speaker 1: it's not really going down that much. So I think

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Speaker 1: we're in a situation where the playbook for the FED

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Speaker 1: is going to continue. Uh means they're going to continue

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Speaker 1: raising rates and the markets that are just gonna have

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Speaker 1: to live through it. And by the way, let's be reminded,

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Speaker 1: high rates don't mean a bare mom. I mean there

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Speaker 1: may have been many cases in history where the rates

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Speaker 1: were high, but we had a good you know of

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Speaker 1: a good bull market. So we have to watch that

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Speaker 1: place space carefully. Mombias grant to catch up. I gotta

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Speaker 1: catch up and give a short notice to Mom. Mabbias,

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Speaker 1: Thank you, sir of Mabias Capital Partners. William Dudley joins

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Speaker 1: us now, the former FIT president. He's been of uncommon

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Speaker 1: value before, during and after Jackson Hole Bill Dudley. Markets

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Speaker 1: are moving the litmus paper of the system. The tenure

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Speaker 1: real yield has gone from the bottom up to the

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Speaker 1: pre Great Financial Crisis level of about a two point

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Speaker 1: zero five. How to fancy people like you interpret where

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Speaker 1: the real yield is, how far the real yield has come,

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Speaker 1: and how it nears what seems to be some form

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Speaker 1: of historic normal. I think it tells you that the

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Speaker 1: FED is finally getting his arms around making mo terry

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Speaker 1: policy type chair. I'll talk about how you need to

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Speaker 1: see real yields positive throughout the yield curve, and there

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Speaker 1: the feed is moving pretty quickly in that direction. And

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Speaker 1: seenti five basis points last week, and they're promising another

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Speaker 1: maybe basis points before the end of the year, taking

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Speaker 1: the federal fund right well above four percent. So the

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Speaker 1: feed is catching up, and I think the question at

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Speaker 1: this point is will they stay in the course until

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Speaker 1: they've actually finished the job to get inflation back down

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Speaker 1: to two percent. Paul says, you'll do that, but whether

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Speaker 1: the rest of themc will come along with them, I

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Speaker 1: think it's an open question at this point. You like

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Speaker 1: Richard Clarata, who joined us on FED Day, no, the

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Speaker 1: mathematics the physics of modern economics, and then you discard

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Speaker 1: it the real world application. You did that at Goldman

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Speaker 1: Sachs for decades and then at the FED. I want

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Speaker 1: to talk about the inertial force in this odd word overshoot.

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Speaker 1: Is it a requirement or is it efficacious that a

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Speaker 1: central bank overshoot a given target. Ideally, you don't overshood,

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Speaker 1: you do just enough to achieve your objectives. But as

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Speaker 1: you know, monetary policy has a lot of long lags

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Speaker 1: in terms of its effects on the economy, and it's

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Speaker 1: hard to judge those effects in real time. I think

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Speaker 1: the FED is probably gonna be is probably gonna ultimately

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Speaker 1: overshoot a bit, because they've said that they're the risks

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Speaker 1: are skewed. The risk of doing too little is much

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Speaker 1: greater than the risk of doing too much, because if

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Speaker 1: you do too little, you end up in the nineties

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Speaker 1: seventies with a more entrenched inflation problem, and then you

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Speaker 1: have to do even more later. So I think you know,

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Speaker 1: this is the consequence of the FED being late. If

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Speaker 1: you're late, you have to catch up. You catch up,

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Speaker 1: you probably are going to overshoot. You overshoot, you're gonna

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Speaker 1: have a recession. I think where I would fault the

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Speaker 1: FED right now is I don't think they've been realistic

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Speaker 1: about the pain that they're actually gonna cause. If you

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Speaker 1: look at their forecasts last week, that employing a rate

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Speaker 1: climbs a little bit, it climbs up to four point

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Speaker 1: four percent, and then inflation melts away. I don't think

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Speaker 1: it's gonna be quite so simple as that. There's never

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Speaker 1: been an example of the unemployer rate rising from three

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Speaker 1: and a half percent to four point four percent point

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Speaker 1: nine percent point rise if it rises more and a

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Speaker 1: half a percentage point. Every every time that's happened in

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Speaker 1: the post World War two period, US has end up

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Speaker 1: in a full blown recession and the smallest rise and

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Speaker 1: then a point of rate in those situations is two

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Speaker 1: percentage points. So I think the FED is understanding the

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Speaker 1: pain involved. What what worries me about that then, is

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Speaker 1: that people when the pain actually rise, people will start

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Speaker 1: will start to pressure the FED not to follow through.

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Speaker 1: And this is the point of the column that you

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Speaker 1: wrote today that there seemed to be some doubts in

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Speaker 1: your mind and in markets minds right now. If the

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Speaker 1: market had a mind that the FED is going to

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Speaker 1: stay the course, what do you think they have to

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Speaker 1: do to come out and say they're going to stay

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Speaker 1: the course or do you think they're not going to

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Speaker 1: that they're going to pull back on some of the

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Speaker 1: rate hikes, say if unemployment rises above four and a

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Speaker 1: half percent, Well, I think er Polo is committed to

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Speaker 1: staying the course. I think he's you know, studied history

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Speaker 1: and knows the consequences of not doing enough. But whether

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Speaker 1: it can bring the rest of the fiddle Open Market

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Speaker 1: Committee along with them later. I mean right now, it's

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Speaker 1: easy to be tough right because everybody wants to get

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Speaker 1: inflation down. The labor market is still very strong, and

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Speaker 1: so the pain hasn't really materialized yet. A year from now,

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Speaker 1: when the unemployer rates quit considerably higher, the e communist

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Speaker 1: slowed inflation has come down a bit, there's gonna be

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Speaker 1: people that are going to start to argue, do we

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Speaker 1: really need to push inflation all the way back to

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Speaker 1: two percent or can we take a break now? And

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Speaker 1: how much is this going to be a political pressure

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Speaker 1: on the FED? Well, I think the Biden administration will

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Speaker 1: be pretty good about guarding the Fed's independence. Typically, if

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Speaker 1: an administration starts to pick on the FED, that just

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Speaker 1: unnerves financial markets and that makes the central banks job

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Speaker 1: even harder. So I would be surprised if the Biden

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Speaker 1: administration started to attack the FED. But you already are hearing,

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Speaker 1: you know, cries from the left wing of the Democratic

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Speaker 1: Party about how unfair this is that low income workers

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Speaker 1: are gonna be put out of work. Um, you know,

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Speaker 1: as if there's some alternative. The problem here is that

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Speaker 1: once you're late, you have to catch up. Once you're late,

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Speaker 1: the unemploying rate has to go up. There are no

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Speaker 1: other alternatives, and so it's not not as if the

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Speaker 1: FED has a better path to achieve better outcomes. They need.

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Speaker 1: They need to do what they need to do to

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Speaker 1: get inflation back down. It's just gonna be difficult if

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Speaker 1: we see services stabilize and maybe reduce, if we see

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Speaker 1: goods come down to the goods disinflation or deflation that

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Speaker 1: we saw pre pandemic. I guess that means we come

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Speaker 1: back towards John Taylor's two percent. Are you wedded to

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Speaker 1: two point zero percent? Or can Build Dudley construct a

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Speaker 1: new normal at two point eight two point nine two

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Speaker 1: point adam posing where do you stand on that? Bill? Well,

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Speaker 1: I'm not If you're talking about the real real interest

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Speaker 1: rate or inflation, I'll go either way. I'll let you

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Speaker 1: make it up. But to me, it's it's just it's

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Speaker 1: a level that we're aspiring to get to out there.

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Speaker 1: I think there's some people that's say the FET should

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Speaker 1: raise their inflation target, but I think that's a bad

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Speaker 1: approach right now, because that's like moving the goalposts because

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Speaker 1: you can't achieve your objectives done that. I think that

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Speaker 1: I think that would undercut the fence credibility a lot,

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Speaker 1: and I think Paul has been very clear that, uh,

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Speaker 1: you know, his pursuit of to percent inflation from his

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Speaker 1: perspective is unconditional. Whether he can bring the rest of

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Speaker 1: the FLOMC along with him when the job starts to

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Speaker 1: become more difficult really a fundamental question right now. Markets

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Speaker 1: are you know, basically believe Powell inflation expectations stay well anchored.

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Speaker 1: But the pain process that's about to unfold is just begun.

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Speaker 1: That's the domestic pain, the international pain we're witnessing right now. Bill,

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Speaker 1: Well that that that's happened already, Yes, absolutely, How do

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Speaker 1: you think they should respond to that? So well, you

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Speaker 1: know the reality that they are not going to respond

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Speaker 1: to that because at the end of the day, Montre Paulison,

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Speaker 1: the US is about what's best for the United States

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Speaker 1: in terms of the fit achieving its US inflation and

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Speaker 1: output employment objectives. Obviously, this creates a lot of pressure

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Speaker 1: on the rest of the world. You know, the stronger

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Speaker 1: dollar holds down US inflation, a weaker foreign currency increases inflation.

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Speaker 1: So it's so the flip side for other countries is

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Speaker 1: much much tougher. Bill fantastic to catch up great pace

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Speaker 1: as a WISA that the former New York Fed president

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Speaker 1: and booked like opinion columnist. I remember you telling me

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Speaker 1: Ryanair it's three whatever on the Irish r y A.

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Speaker 1: I d you said by it to three and it

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Speaker 1: went three to eighteen. I mean that's what Ryanair did.

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Speaker 1: Did you buy it? No? I didn't. I mean, and

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Speaker 1: it's been down in pandemic and all that, and somehow

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Speaker 1: survives to move forward and does so with one of

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Speaker 1: the most extraordinary chief executive officers, Mr Michael O'Leary, who

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Speaker 1: has been medicated over the last three days and joins

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Speaker 1: us this morning. Michael, John and Lisa have some very

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Speaker 1: important British questions. I want to ask you what matters

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Speaker 1: to every viewer and ever listener right now. And you

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Speaker 1: own the high ground on this. If we don't fly

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Speaker 1: business class, we won't fly. There's a new addiction to

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Speaker 1: business class versus economy, which you own the high ground on.

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Speaker 1: Where are we in a couple of years with our

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Speaker 1: addiction to business class like New York to Paris eighteen

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Speaker 1: thousand dollars? I mean, it's a good question, but you

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Speaker 1: know there's two different markets here. Business class will continue

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Speaker 1: alonghould you know, I don't. It's a different business model.

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Speaker 1: But business class has disappeared on North American domestic and

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Speaker 1: business class has disappeared on trans European as well. Um,

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Speaker 1: you know, people will not pay a ludicrous premium on

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Speaker 1: one and to our flights to be stuck in some

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Speaker 1: whole airport that looks like resemblance the black hole at

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Speaker 1: Calcutta as he throw scapeall and and PARTI Sharts has

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Speaker 1: all had much of this year. Happily, the vast majority

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Speaker 1: of European pastors have switched sensibly to Ryanair for the

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Speaker 1: most on time, class, the lowest airfares and a really

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Speaker 1: and say, every time we speak, every time we speak, Michael,

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Speaker 1: there's always a pitch, there's always a sales pitch. Let's

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Speaker 1: talk about immigration, Michael and this new government. You've complained

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Speaker 1: about it for so so long. We've got an opportunity

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Speaker 1: for change. What do you want to see happen? Well,

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Speaker 1: you're particularly talking about the UK and the elegant version, Okay,

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Speaker 1: and the UK coming in Brexit has been the greatest

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Speaker 1: economic foot shooting in the history of economic developments as

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Speaker 1: the Second World War. It is the stupidest, dumbest economic

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Speaker 1: activity no to mankind. It was led by Boris Johnson,

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Speaker 1: Michael go Over a number of other legendary idiots who

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Speaker 1: decided that the way forward for the UK who was

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Speaker 1: to leave the biggest trading block in in the world.

432
00:23:45,320 --> 00:23:48,040
Speaker 1: Now you know, there's no point in arguing over Brexit.

433
00:23:48,200 --> 00:23:50,480
Speaker 1: Brexit has happened. But at least if you're going to

434
00:23:50,560 --> 00:23:53,520
Speaker 1: leave the European Union, leave with the most intelligent free

435
00:23:53,520 --> 00:23:55,920
Speaker 1: trade agreement in place with the European Union. Of course,

436
00:23:55,960 --> 00:23:59,000
Speaker 1: what these morons did was they left with the worst

437
00:23:59,359 --> 00:24:03,040
Speaker 1: great agreement in things and they had their remarkable situation

438
00:24:03,160 --> 00:24:05,160
Speaker 1: that we are and we're one of the biggest employers

439
00:24:05,200 --> 00:24:07,320
Speaker 1: in the UK. We employ more than eight thousand pilots

440
00:24:07,320 --> 00:24:10,600
Speaker 1: in capital in in the UK. This year, all of

441
00:24:10,640 --> 00:24:12,960
Speaker 1: the airlines are struggling to recruit people because a lot

442
00:24:13,000 --> 00:24:14,600
Speaker 1: of the English people don't want to work in a

443
00:24:14,720 --> 00:24:17,680
Speaker 1: service industry like the airline industry. Despite our high pay,

444
00:24:18,600 --> 00:24:21,359
Speaker 1: we couldn't get visas for Europeans. They would give us

445
00:24:21,440 --> 00:24:25,199
Speaker 1: visas for non Europeans, but not for Europeans because they

446
00:24:25,280 --> 00:24:27,639
Speaker 1: want to take back control of their border and now

447
00:24:27,680 --> 00:24:29,840
Speaker 1: they don't have much control because it's about a thousand

448
00:24:30,160 --> 00:24:34,560
Speaker 1: refugees each day coming across in Dinghies from France. Apparently

449
00:24:34,560 --> 00:24:38,200
Speaker 1: they're freeing persecution in in France. Who knew that France

450
00:24:38,280 --> 00:24:41,960
Speaker 1: was such a terminal country, but it is. Uh. The

451
00:24:42,040 --> 00:24:46,160
Speaker 1: UK is currently a country that has no labor policy. Uh.

452
00:24:46,200 --> 00:24:49,719
Speaker 1: And the restrictions in the labor market are inhibiting growth,

453
00:24:49,840 --> 00:24:52,440
Speaker 1: never mind the crazy budgets they've just announced that week.

454
00:24:52,600 --> 00:24:55,720
Speaker 1: Michael there, it's clear that you have some pretty strong

455
00:24:55,760 --> 00:24:58,400
Speaker 1: feelings about this. I can say that, uh, And and

456
00:24:58,480 --> 00:25:00,720
Speaker 1: it's nice that you can share them with us. Your

457
00:25:00,800 --> 00:25:04,719
Speaker 1: perspective as one of the biggest employers in the United Kingdom,

458
00:25:04,800 --> 00:25:07,320
Speaker 1: how much as things are now at the labor policy

459
00:25:07,400 --> 00:25:10,320
Speaker 1: is currently in place, how much have wages gone up

460
00:25:10,359 --> 00:25:12,320
Speaker 1: on average for you? And do you expect them to

461
00:25:12,400 --> 00:25:16,640
Speaker 1: keep climbing with no change into the year? Fun enough,

462
00:25:16,680 --> 00:25:18,920
Speaker 1: wages haven't gone up that much. I mean, there's clearly

463
00:25:19,000 --> 00:25:22,679
Speaker 1: upward pressure on wages because of pay inflation. But you know,

464
00:25:22,800 --> 00:25:25,600
Speaker 1: the the challenge for a lot of industries in the UK,

465
00:25:25,720 --> 00:25:30,440
Speaker 1: whether it's retail, hospitality, air transport, is wages haven't gone

466
00:25:30,480 --> 00:25:32,479
Speaker 1: up because nobody wants to do the jobs even if

467
00:25:32,520 --> 00:25:34,399
Speaker 1: you increase to pay, people still don't want to do

468
00:25:34,440 --> 00:25:38,440
Speaker 1: the jobs. We're bringing in people from Morocco and from Turkey,

469
00:25:38,520 --> 00:25:40,880
Speaker 1: and we can get visas for those guys to work

470
00:25:40,880 --> 00:25:45,240
Speaker 1: in the UK, but they won't give us visas for Portuguese, Italians,

471
00:25:45,280 --> 00:25:48,720
Speaker 1: Germans and Polish people. It's a crazy system. But I'm

472
00:25:48,760 --> 00:25:51,320
Speaker 1: pleased to say that lots of people are fleeing the UK.

473
00:25:51,760 --> 00:25:53,480
Speaker 1: All of them are flying with Ryan Air on very

474
00:25:53,480 --> 00:25:56,080
Speaker 1: low airfairs to more than two hundred destinations all over

475
00:25:56,119 --> 00:25:59,800
Speaker 1: Europe and saving a fortune, making a fortune taking up

476
00:26:00,000 --> 00:26:02,760
Speaker 1: to paid jobs all over Europe. Michael, I don't think

477
00:26:02,800 --> 00:26:06,399
Speaker 1: Let's Trust is coding you anytime soon after this one.

478
00:26:06,480 --> 00:26:09,320
Speaker 1: But but but revenue revenue at Bloomberg is going to

479
00:26:09,400 --> 00:26:12,840
Speaker 1: call for the two advertisements I want to squeeze in

480
00:26:12,840 --> 00:26:15,240
Speaker 1: a foreign exchange question if we can, can you just

481
00:26:15,280 --> 00:26:18,040
Speaker 1: tell me, as a CEO, given the moose we've seen

482
00:26:18,040 --> 00:26:20,720
Speaker 1: and pounds sterling in the euro, given some of the

483
00:26:20,800 --> 00:26:23,679
Speaker 1: costs in US dollars, how have you hedged any of that?

484
00:26:23,720 --> 00:26:25,359
Speaker 1: What if you've done, have you had to adjust to

485
00:26:25,400 --> 00:26:29,240
Speaker 1: that story? Yeah? I mean the UK sterling were reasonably

486
00:26:29,280 --> 00:26:33,280
Speaker 1: instutated because we have were we essentially balanced our sterling

487
00:26:33,640 --> 00:26:36,280
Speaker 1: revenues with sterling costs and say, like we employed by

488
00:26:36,240 --> 00:26:37,720
Speaker 1: the fails and people in the UK, we have a

489
00:26:37,760 --> 00:26:40,679
Speaker 1: lot of airports and handling costs. In the UK we

490
00:26:40,800 --> 00:26:45,760
Speaker 1: are short euros long dollar. Thankfully, in Ryaner we've been

491
00:26:45,840 --> 00:26:48,359
Speaker 1: very fortunate. We've hedged our dollar exposure and all of

492
00:26:48,400 --> 00:26:50,880
Speaker 1: our topics. We've ordered more than two hundred aircraft from

493
00:26:50,880 --> 00:26:53,959
Speaker 1: bowling out to six We hedged all that at one

494
00:26:54,080 --> 00:26:59,760
Speaker 1: twenty four uh dollar dollar euro one twenty four, so

495
00:26:59,800 --> 00:27:02,520
Speaker 1: we are significant beneficiaries. That I think a real challenge

496
00:27:02,520 --> 00:27:04,240
Speaker 1: for a lot of our competitors in Europe is they're

497
00:27:04,240 --> 00:27:06,840
Speaker 1: not hedged on the dollar and therefore they're paying about

498
00:27:08,160 --> 00:27:11,720
Speaker 1: had more in terms of cost for their aircraft and

499
00:27:11,840 --> 00:27:16,040
Speaker 1: their spares. Thankfully, we've largely headed on capex are opics

500
00:27:16,160 --> 00:27:19,679
Speaker 1: is heaged out until the middle of twenty twenty three,

501
00:27:20,160 --> 00:27:23,480
Speaker 1: which would largely be oil, and we we headed the

502
00:27:23,480 --> 00:27:25,320
Speaker 1: oil as well, so we we both out to the

503
00:27:25,320 --> 00:27:27,720
Speaker 1: next April at about sixty four dollars of ours. So

504
00:27:28,320 --> 00:27:31,720
Speaker 1: we've been lucky and fortunately been very well hedged. But

505
00:27:31,760 --> 00:27:34,119
Speaker 1: a lot of our competitors in Europe who are buying

506
00:27:34,560 --> 00:27:38,000
Speaker 1: a US dollar assets and for the airline industry, aircraft

507
00:27:38,040 --> 00:27:40,480
Speaker 1: fuel and spars are all in dollars. It's a very

508
00:27:40,480 --> 00:27:43,480
Speaker 1: difficult time. Michael. Let's spend some longer, spend some more

509
00:27:43,520 --> 00:27:47,159
Speaker 1: time next time alonger conversation about the mess that Europe

510
00:27:47,240 --> 00:27:49,399
Speaker 1: is in, and you let me have the Prime Minister

511
00:27:49,400 --> 00:27:52,440
Speaker 1: gives you a code. Europe is okay, Europe is growing

512
00:27:52,480 --> 00:27:57,320
Speaker 1: strongly and you're right now, michaelums show up. The paper

513
00:27:57,400 --> 00:27:59,439
Speaker 1: might have a different view on that, Michael Leary of

514
00:27:59,520 --> 00:28:06,440
Speaker 1: Ryan f Let's get right to an important conversation within

515
00:28:06,600 --> 00:28:11,560
Speaker 1: your collective gloom. Victoria Fernandez says, no, chief market strategist

516
00:28:11,600 --> 00:28:14,640
Speaker 1: across Mark, she is in the trenches of what do

517
00:28:14,760 --> 00:28:21,400
Speaker 1: you actually do with money? Victoria? You say no to cash? Why? Yeah?

518
00:28:21,440 --> 00:28:23,720
Speaker 1: I mean look, tom If when we talked a couple

519
00:28:23,760 --> 00:28:26,040
Speaker 1: of weeks ago, we had increased our cash position a

520
00:28:26,080 --> 00:28:27,959
Speaker 1: little bit because we felt like we would get some

521
00:28:28,040 --> 00:28:30,840
Speaker 1: inflection point and that would be an opportunity to go

522
00:28:30,920 --> 00:28:33,240
Speaker 1: in and shift the portfolio a little bit. And so

523
00:28:33,359 --> 00:28:35,960
Speaker 1: that's what we're doing. We're using up that cash. We're

524
00:28:35,960 --> 00:28:39,040
Speaker 1: putting a little more beta, a little more cyclicality into

525
00:28:39,120 --> 00:28:42,520
Speaker 1: our portfolios. I'm not a raging bull at this point,

526
00:28:42,560 --> 00:28:44,920
Speaker 1: but I think you can take a little defense out

527
00:28:44,960 --> 00:28:47,680
Speaker 1: of your portfolio and start building it up again. As

528
00:28:47,720 --> 00:28:51,320
Speaker 1: we're probably getting closer to a bottom. We haven't hit

529
00:28:51,360 --> 00:28:54,120
Speaker 1: a lot of those metrics that people are looking for.

530
00:28:54,240 --> 00:28:57,280
Speaker 1: We have a negative earnings yield. You typically don't hit

531
00:28:57,280 --> 00:28:59,680
Speaker 1: a bottom with the negative earnings yield. But we're also

532
00:29:00,080 --> 00:29:02,800
Speaker 1: also not in there trying to time the bottom exactly.

533
00:29:03,120 --> 00:29:05,320
Speaker 1: We think use some of the events like we've seen

534
00:29:05,360 --> 00:29:08,760
Speaker 1: this week to start building more positions in your portfolio.

535
00:29:08,880 --> 00:29:12,960
Speaker 1: Does that mean find the banks? So we're not buying

536
00:29:13,040 --> 00:29:16,080
Speaker 1: banks per se, but we are buying credit cards. We

537
00:29:16,160 --> 00:29:19,360
Speaker 1: like Visa, we like American Express. We're buying some of

538
00:29:19,400 --> 00:29:22,000
Speaker 1: the energy names too. As you know, we've been underweight

539
00:29:22,120 --> 00:29:24,880
Speaker 1: energy for a while and we've been building that position.

540
00:29:25,200 --> 00:29:28,000
Speaker 1: But we've added quite a bit. We've added to Philip

541
00:29:28,120 --> 00:29:31,080
Speaker 1: sixty six X on mobile Valero. We've gone in and

542
00:29:31,160 --> 00:29:34,000
Speaker 1: added a lot to those names and even more cyclical

543
00:29:34,080 --> 00:29:36,920
Speaker 1: names like UPS. I know a lot of people didn't

544
00:29:36,920 --> 00:29:38,600
Speaker 1: want to be in the space after the things that

545
00:29:38,680 --> 00:29:40,640
Speaker 1: fed X said, but we think that that was more

546
00:29:40,680 --> 00:29:44,000
Speaker 1: idiosyncratic for fed ACT and we think there's some opportunity

547
00:29:44,080 --> 00:29:47,000
Speaker 1: in the fourth quarter for a company like ups as well.

548
00:29:47,040 --> 00:29:52,720
Speaker 1: What about Facebook, Google, Amazon? Yeah, so that those high

549
00:29:52,760 --> 00:29:56,320
Speaker 1: flying tech names, those communications services names, I think that's

550
00:29:56,360 --> 00:29:58,560
Speaker 1: really where you've got to be careful. We have some

551
00:29:58,680 --> 00:30:02,040
Speaker 1: exposure to those fang names, but it's not an area

552
00:30:02,080 --> 00:30:04,880
Speaker 1: that we're adding to right now. Um. I think you

553
00:30:04,920 --> 00:30:07,600
Speaker 1: have to be very careful on those because there's probably

554
00:30:07,680 --> 00:30:10,560
Speaker 1: more downside as yields continue to go higher on those.

555
00:30:10,760 --> 00:30:13,280
Speaker 1: Think if you're gonna play in that space, Apple is

556
00:30:13,320 --> 00:30:16,160
Speaker 1: probably your safer bet at this point in time. They

557
00:30:16,200 --> 00:30:18,840
Speaker 1: just closed out their fiscal year end over the weekend,

558
00:30:19,080 --> 00:30:21,400
Speaker 1: and from what we're seeing from analysts, they had a

559
00:30:21,400 --> 00:30:23,280
Speaker 1: pretty strong year. So I know a lot of people

560
00:30:23,280 --> 00:30:25,600
Speaker 1: are waiting for Apple to make the big turn to

561
00:30:25,640 --> 00:30:27,800
Speaker 1: say we've hit the bottom. I'm not sure we see

562
00:30:27,800 --> 00:30:30,640
Speaker 1: that in their earnings coming out after this quarter end. Victoria,

563
00:30:30,640 --> 00:30:32,880
Speaker 1: I want to understand your parameters. We've been talking a

564
00:30:32,880 --> 00:30:35,080
Speaker 1: lot about the FED pivot and whether that's sort of

565
00:30:35,160 --> 00:30:37,480
Speaker 1: underpinning some of the bullish sentiment that we here on

566
00:30:37,520 --> 00:30:40,840
Speaker 1: the fringes of Wall Street and hunt necessarily mainstream. What's

567
00:30:40,960 --> 00:30:45,640
Speaker 1: underpinning your conviction that we're getting close to a bottom. Well,

568
00:30:45,680 --> 00:30:47,480
Speaker 1: I think a lot of it has to do with

569
00:30:47,640 --> 00:30:50,720
Speaker 1: the momentum that we've seen, the trend lines that we're watching.

570
00:30:50,760 --> 00:30:54,080
Speaker 1: There's a lot of contrarian um signals out there. You

571
00:30:54,080 --> 00:30:56,320
Speaker 1: look at the bullbear ratio, you look at the put

572
00:30:56,360 --> 00:30:59,520
Speaker 1: call spike ratio. I know that Tom was mentioning the

573
00:30:59,600 --> 00:31:02,600
Speaker 1: VIX earlier this morning and we're surprised the VIX isn't

574
00:31:02,680 --> 00:31:04,440
Speaker 1: higher than where it is, but we want to see

575
00:31:04,480 --> 00:31:06,800
Speaker 1: the VIX continue to move higher in the with a

576
00:31:06,960 --> 00:31:09,320
Speaker 1: three handle um. So I think you have to look

577
00:31:09,320 --> 00:31:11,560
Speaker 1: at a lot of these trends and say we're getting

578
00:31:11,720 --> 00:31:14,760
Speaker 1: close to where we think we need to be. Victoria

579
00:31:14,840 --> 00:31:18,120
Speaker 1: cross Marks clients like everywhere else, are absolutely shell shocked

580
00:31:18,120 --> 00:31:21,280
Speaker 1: with the news flow. All the nuances of it comes

581
00:31:21,320 --> 00:31:24,800
Speaker 1: down to revenue and the dynamics of unit and price.

582
00:31:25,320 --> 00:31:31,120
Speaker 1: How important is revenue into this earning season. It's extremely

583
00:31:31,120 --> 00:31:33,640
Speaker 1: important because it's gonna tell us what the margins look like.

584
00:31:33,680 --> 00:31:35,600
Speaker 1: I mean, one of the themes that we just talked

585
00:31:35,600 --> 00:31:37,840
Speaker 1: about last week in our investment committee for all of

586
00:31:37,840 --> 00:31:41,640
Speaker 1: our strategies was quality, quality of earnings, and quality of

587
00:31:41,680 --> 00:31:44,840
Speaker 1: balance sheet. And so revenue is highly important. We know

588
00:31:44,920 --> 00:31:48,120
Speaker 1: with prices being higher that top line will be there.

589
00:31:48,400 --> 00:31:50,760
Speaker 1: It comes down to what do those margins look like

590
00:31:51,040 --> 00:31:54,840
Speaker 1: and look EPs The expectations for this quarter have come

591
00:31:54,880 --> 00:31:57,840
Speaker 1: down from north of nine percent to ride around north

592
00:31:57,880 --> 00:32:00,640
Speaker 1: of three percent for the quarter. But I still think

593
00:32:00,640 --> 00:32:03,160
Speaker 1: they're going to be strong enough to hold out of

594
00:32:03,200 --> 00:32:07,040
Speaker 1: the market until the FED pushes us over. John Victoria's

595
00:32:07,160 --> 00:32:11,240
Speaker 1: next investment management committee happens to be in the great

596
00:32:11,320 --> 00:32:15,040
Speaker 1: state of Alabama. It's Texas, A and M Alabama. That's

597
00:32:15,040 --> 00:32:18,520
Speaker 1: happened in October eight. You think we could make it down?

598
00:32:18,840 --> 00:32:21,040
Speaker 1: People across Mark I want to go and watch Bama

599
00:32:21,120 --> 00:32:24,440
Speaker 1: play Tom I'm told us the closest thing to Fernandez.

600
00:32:24,480 --> 00:32:27,240
Speaker 1: Come on, it works, We make that happen. Let's go,

601
00:32:27,600 --> 00:32:29,960
Speaker 1: y'all come on down. We're gonna do a Survina special.

602
00:32:30,240 --> 00:32:33,400
Speaker 1: Do you like that? So I still love Victoria? Put

603
00:32:33,400 --> 00:32:36,400
Speaker 1: that on? Just then the fight in Texas Egg Victoria,

604
00:32:36,400 --> 00:32:39,680
Speaker 1: Fernandez across mort Global Investments love that. This is the

605
00:32:39,720 --> 00:32:44,400
Speaker 1: Bloomberg Surveillance Podcast. Thanks for listening. Join us live weekdays

606
00:32:44,440 --> 00:32:47,880
Speaker 1: from seven to ten am Eastern on Bloomberg Radio and

607
00:32:48,000 --> 00:32:52,240
Speaker 1: on Bloomberg Television. Each day from six to nine am

608
00:32:52,320 --> 00:32:56,080
Speaker 1: for insight from the best in economics, finance, investment, and

609
00:32:56,200 --> 00:33:02,720
Speaker 1: international relations. And subscribe to the Surveillance podcast on Apple podcast, SoundCloud,

610
00:33:02,880 --> 00:33:06,480
Speaker 1: Bloomberg dot com, and of course, on the terminal. I'm

611
00:33:06,520 --> 00:33:16,480
Speaker 1: Tom keene In. This is Bloomberg m