Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along
Speaker 1: with Jonathan Ferrell and Lisa Abramowitz. Daily we bring you
Speaker 1: insight from the best and economics, finance, investment, and international relations.
Speaker 1: To find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg dot Com,
Speaker 1: and of course on the Bloomberg Terminal. Now for the
Speaker 1: City of London, Bob Diamond joins us to say he's
Speaker 1: founding partner and CEO of Atlas Merchant Bank. Barely describes
Speaker 1: when he did for Barclay's. I'll cut to the chase
Speaker 1: because of time, go back and look did Barkley's get
Speaker 1: a ball out during the crisis? Bob Diamond, thank you
Speaker 1: so much. Honored to have you here in our studios
Speaker 1: with Bloomberg Today. I'm gonna ask one question in the
Speaker 1: city because John really wants to focus on Sterling. There's
Speaker 1: the city, there's this comedy of Reaganomics, re Dux as well.
Speaker 1: How does the city is an international venue, how does
Speaker 1: it move forward? How does it survive? Is the global institution?
Speaker 1: So this is a really important question, Tom, and I
Speaker 1: think with all the debate around the announcements that were
Speaker 1: made in the last couple of days. Um, there is
Speaker 1: um much more support for the city. UH, something as
Speaker 1: simple as removing the bankers bonus caps, which as you know,
Speaker 1: was gamed by the banks and put the UK banks
Speaker 1: that a significant competitive disadvantage to the US banks. Any
Speaker 1: support for the city right now is UH, is important.
Speaker 1: But what else would you like to say from this
Speaker 1: government to bring that kind of enthusiasm back to the
Speaker 1: city that I think was lost for many people after
Speaker 1: the Brexit vote. You know, I think right now credibility
Speaker 1: is the key and in uh, you know, Simon French
Speaker 1: said this morning that the only currency that Simon French
Speaker 1: from Panmore Gordon, the only currency that really matters in
Speaker 1: the UK macro right now is credibility. UM. And I
Speaker 1: think the the announcement earlier today which I saw on
Speaker 1: the Blueberg headlines, which is that the Chancellor is going
Speaker 1: to spend time with the banks and and the traders
Speaker 1: and distributors of the of the guilt market, is important.
Speaker 1: So I think step one is is credibility. Jonathan. If
Speaker 1: you put this in context, we had a you know,
Speaker 1: a hundred and fifty billion debt financed energy policy UM
Speaker 1: without really preparing the guilt market um for what was
Speaker 1: coming in terms of issuance, and I think people talk
Speaker 1: about the currency crisis. I think this is more crisis
Speaker 1: in the guilt market than it was in the currency market.
Speaker 1: We can you talk a little bit more about what
Speaker 1: some of those moves in rates would mean for a
Speaker 1: big bank running a large mortgage book. We saw certain
Speaker 1: banks remove certain products in the last twenty four hours.
Speaker 1: You of course, that's what ever see a large mortgage
Speaker 1: book over at Barclays in your time running that bank. Well,
Speaker 1: can you tell me what you'd have to do when
Speaker 1: you see rates move this quickly this fast, and expectations
Speaker 1: for the Bank of England climb as quickly as they
Speaker 1: have done. Well, if you put it in context, John,
Speaker 1: then the two year guilt um is recently as as
Speaker 1: recently as August was about one and a half percent,
Speaker 1: you know right now it's about four and a quarter.
Speaker 1: I think it touched four and a half in the
Speaker 1: last couple of days. So to your point, that's a sizeable,
Speaker 1: sizeable move um. That kind of volatility is not necessarily
Speaker 1: bad for banks, particularly banks with investment banking operations such
Speaker 1: as Barclay's. But what it will do is it will
Speaker 1: really slow down the issuance of any new mortgages, So
Speaker 1: the mortgage books in terms of new issuance. UM, you
Speaker 1: know it's going to be as you said, there was
Speaker 1: the announcement that a number of banks have really kind
Speaker 1: of closed their mortgage issuance. Well, it's also going to
Speaker 1: slow down the economy dramatically. What are you expecting in
Speaker 1: terms of a downturn of potential response? Uh from England?
Speaker 1: Given that the fiscal tool is kind of being blown
Speaker 1: up in the Bank of England kind of has to
Speaker 1: push back. So let's keep it in context. I talked about,
Speaker 1: you know, I think the communications and the credibility around
Speaker 1: announcing a dred and fifty billion debt financed energy policy.
Speaker 1: We talked about those issues. But the other things that
Speaker 1: were announced, there's some good things in there. I think.
Speaker 1: I think the announce spent around both corporate and personal
Speaker 1: taxes UM, keeping corporate taxes at or lowering them rather
Speaker 1: than raising them to puts the UK in a credible
Speaker 1: position amongst its peers. UM. I think announcing some easing
Speaker 1: of immigration to to ease the labor supply issues. I
Speaker 1: think some of the things that we're announced around kind
Speaker 1: of infrastructure or reducing the bureaucracy to be able to
Speaker 1: get to building around infrastructure and around housing. So keep it,
Speaker 1: keeping it in context. There were some positive things that
Speaker 1: were announced within this and I think because of the
Speaker 1: shock to the debt markets, to the guilt markets, we
Speaker 1: really have to find a way to hold the hands
Speaker 1: of the markets until late November when the budget is
Speaker 1: announced and we really get to look at what is
Speaker 1: meant here by the medium and long term fiscal program
Speaker 1: and somehow we have to we have to manage our
Speaker 1: way through these markets. And I think the Chancellor meeting
Speaker 1: with the banks today and over the next couple of
Speaker 1: days UM is a positive step in that direction. Do
Speaker 1: you see some opportunities then absolutely, UM within the guilt market,
Speaker 1: within within stelling denominated assets more broadly, take your pick. Well, look, Jonathan,
Speaker 1: I want to put that in context as well. People
Speaker 1: have talked about UM. The currency crisis, the move from
Speaker 1: one thirty down to where the currency is right now,
Speaker 1: has really been about the dollar, the dollar, the dollar.
Speaker 1: So the the UK currency is down maybe twenty five
Speaker 1: or thirty percent, the dollars up against every currency in
Speaker 1: the world. So we need to keep that in context
Speaker 1: of APIs mentions capital. Right now, we are going to
Speaker 1: stop worldwide and have a conversation with a definitive expert
Speaker 1: on e M arguably with Stanley Fisher. He invented our
Speaker 1: concept of emerging markets. This is a guy where Damien
Speaker 1: Sassaure of Bloomberg hangs on every word. Mark Mobius was
Speaker 1: a communications major who got parchment from M I T
Speaker 1: years ago and basically invented for Sir John Templeton the
Speaker 1: emerging market business. We're honored that Mark Mobius joins us
Speaker 1: from Dubai this morning. Mark, just what a pleasure to
Speaker 1: have you with. Let me cut to the chase that
Speaker 1: every pro wants to know. How close are we to
Speaker 1: the instabilities of I think we're very close. Actually, we're
Speaker 1: in a really a strange situation because on the one hand,
Speaker 1: you've seen this incredible increase in money by it and
Speaker 1: my definition of inflation is the evaluation of currency, and
Speaker 1: if you increase fund sup life as we've seen in
Speaker 1: the US, then that's what the evaluation of the money
Speaker 1: is going to be, and it goes that's where prices
Speaker 1: are going to go. But we're in a very strange
Speaker 1: situation now because we've got these cryptocurrencies and here in Goodbye,
Speaker 1: I've noticed that there's so many people transferring money in cryptocurrencies.
Speaker 1: And if you look at the emerging markets in particular
Speaker 1: places like Nigeria, they do a tremendous amount of turnover
Speaker 1: in crypto counties. Uh, what is money supply? That's a
Speaker 1: big question about, right. I look, Mark, and you and
Speaker 1: I were on the stage at the World or for Story,
Speaker 1: I wanna say eight years ago, and you stuck your
Speaker 1: neck out and said Bologny that the rules have changed
Speaker 1: for e M. There's this uh, this conceit right now
Speaker 1: that e M is more financially solid. E M as
Speaker 1: air act together unlike do they It depends on the country,
Speaker 1: you know. That's a great thing about emerging markets. You
Speaker 1: see such variety. You see some countries that are doing
Speaker 1: a terrific job. By the way, Brazil, which used to
Speaker 1: be a basket case, has been doing a pretty good
Speaker 1: job and stabilizing the economy. And then you go to
Speaker 1: a place like Taiwan, even Indonesia, they were doing a
Speaker 1: very good job in uh managing their economies. So it
Speaker 1: really depends on where you're going. And then you go
Speaker 1: to Turkey and then you have a tremendous amount of
Speaker 1: evaluation of the Church Lera and really a lot of
Speaker 1: instability financially. But there are even opportunities in Turkey. So Mark,
Speaker 1: at this point you started by saying that there are
Speaker 1: some analogs that we're getting close to that. What's the
Speaker 1: dividing line between now and then the trigger point that
Speaker 1: makes this evolve into something that needs to be immediately
Speaker 1: addressed rather than just a rapidly ball a rapidly evolving
Speaker 1: ball of pain for debt investors. Uh, the real situation
Speaker 1: now is that, unlike what we had in the past
Speaker 1: during the Asian financial crisis, is that the dollar debts
Speaker 1: are not as big as they were because all these
Speaker 1: countries learned their lesson. They was not a good idea
Speaker 1: for them to get into dollar debts, so they realized
Speaker 1: that and didn't do it, except for a number of
Speaker 1: countries that have been involved in the Belton Road projects
Speaker 1: that China's been doing, where they've lent an awful lot
Speaker 1: of money in women and b and dollars to these
Speaker 1: countries which they can't pay. So here again you have
Speaker 1: tremendous differences between countries and in some cases, as I say,
Speaker 1: we're closer to these Asian and financial crisis kinds of situations. Mark,
Speaker 1: I'm glad that you brought that up to Belton Road
Speaker 1: initiative of China, which by some accounts has significantly soured.
Speaker 1: There was one report recently, it was published in the
Speaker 1: Wallster Journal yesterday that nearly sixty of China's overseas loans
Speaker 1: are now held by countries considered to be in financial distress,
Speaker 1: up from five percent back in two thousand ten. This
Speaker 1: really raises a concern for China, which has acted more
Speaker 1: like a banker than say that I m F when
Speaker 1: it comes to these types of loans. How does this develop? Mark?
Speaker 1: How does this evolve into something that could potentially have
Speaker 1: contagion effects in markets? Are their countries that are going
Speaker 1: to just basically be flatten their backs unable to pay
Speaker 1: their bills that you're looking at. There are a number
Speaker 1: of countries in that situation. I was in Sri Lanka
Speaker 1: six months ago, and of course they're flat on their
Speaker 1: backs that can't pay, and they owe the Chinese so much,
Speaker 1: and of course they owe other donors. The problem is
Speaker 1: is that nobody knows what the numbers really are because
Speaker 1: the Chinese signed agreements with these countries that they should
Speaker 1: not disclose again not disclosed what they owe and what
Speaker 1: the Chinese lent to them. So we're really in a
Speaker 1: dark spot. And if you talk to i MT people,
Speaker 1: they are really very unhappy about the situation. Mark I've
Speaker 1: got a fancy chart, really fancy chart. It's a very
Speaker 1: weak extrapolation of how we get to another plaza accord.
Speaker 1: And the naive chart is two thousand thirty two. I
Speaker 1: don't buy it for a minute. With a race of
Speaker 1: change first and second derivative dynamics that we see right now,
Speaker 1: how close are you were I having a beverage of
Speaker 1: our choice at the plaza hotel? Yeah? Yeah, this is
Speaker 1: a really interesting question because here you have the dollars
Speaker 1: hold strong, okay, and uh, prices in America are not down.
Speaker 1: In fact, I just took a one month ship all
Speaker 1: over America and people are spending like crazy. Then you
Speaker 1: are to London. Now the London, the pounds devalued against
Speaker 1: the dollar by what and yet try to find a
Speaker 1: hotel at decent hotel in London of the low three
Speaker 1: hundred or four hundred euros or founder pounds. It's crazy,
Speaker 1: the whole situation. And that's why I say, I think
Speaker 1: we're in a situation where nobody really knows what the
Speaker 1: money supply is. And I believe a lot of this
Speaker 1: is because of the crypto world. Mont You've got standards.
Speaker 1: I'm guessing you're looking for a different kind of quality
Speaker 1: hotel compared to many of us. I mean, you can't
Speaker 1: do five start more. Mom times have changed. It's not
Speaker 1: just inflation at the chain hotels. And by the way,
Speaker 1: in the US, I checked into a marrier and they
Speaker 1: asked me do you want made service? I said, what
Speaker 1: do you mean? So we don't give maid service unless
Speaker 1: you ask for it, and it's only every seven days.
Speaker 1: Only every seven days's house. Yeah, I'm not sure that
Speaker 1: would work for me. Mark Mike, I wanted to bring
Speaker 1: up Raphael Bostick of the Atlanta Fed on the UK
Speaker 1: at least I want your view on this. He was
Speaker 1: basically asked about what was happening in the UK at
Speaker 1: the moment and whether it adds to the odds of
Speaker 1: a global recession, and he turned around and said it
Speaker 1: doesn't help. And I just wondered what the rest of
Speaker 1: the world would like to say back to the Federal
Speaker 1: reserve Lee. So if if people are worried about the
Speaker 1: UK not helping, I mean, surely the Federal Reserve and
Speaker 1: aggressive rate hikes and a strong dollar is a bigger
Speaker 1: threat to the global economy than what is going on
Speaker 1: in the UK. Well, and that's actually perfect segue mark
Speaker 1: into what you're looking for in terms of some of
Speaker 1: the distress that you're focused on, for some sort of
Speaker 1: sponse for the French Reserve, some sort of concerted effort
Speaker 1: like Tom was talking about. Basically, is there a cap
Speaker 1: on how much pain there can possibly be? Is there
Speaker 1: a trade that you're looking at. I don't think the
Speaker 1: FED is gonna care about the markets. They're gonna care
Speaker 1: about the inflation. That's their person priority, and their playbook
Speaker 1: is to keep on raising rates until the rate is
Speaker 1: above inflection, which mean you're talking about nine percent inflation
Speaker 1: now apencent um. Now, if you look at the UK,
Speaker 1: to be fair, they have been reducing money supply um.
Speaker 1: Of course they've raised it as much as the US,
Speaker 1: but the U s money supply is still up there,
Speaker 1: it's not really going down that much. So I think
Speaker 1: we're in a situation where the playbook for the FED
Speaker 1: is going to continue. Uh means they're going to continue
Speaker 1: raising rates and the markets that are just gonna have
Speaker 1: to live through it. And by the way, let's be reminded,
Speaker 1: high rates don't mean a bare mom. I mean there
Speaker 1: may have been many cases in history where the rates
Speaker 1: were high, but we had a good you know of
Speaker 1: a good bull market. So we have to watch that
Speaker 1: place space carefully. Mombias grant to catch up. I gotta
Speaker 1: catch up and give a short notice to Mom. Mabbias,
Speaker 1: Thank you, sir of Mabias Capital Partners. William Dudley joins
Speaker 1: us now, the former FIT president. He's been of uncommon
Speaker 1: value before, during and after Jackson Hole Bill Dudley. Markets
Speaker 1: are moving the litmus paper of the system. The tenure
Speaker 1: real yield has gone from the bottom up to the
Speaker 1: pre Great Financial Crisis level of about a two point
Speaker 1: zero five. How to fancy people like you interpret where
Speaker 1: the real yield is, how far the real yield has come,
Speaker 1: and how it nears what seems to be some form
Speaker 1: of historic normal. I think it tells you that the
Speaker 1: FED is finally getting his arms around making mo terry
Speaker 1: policy type chair. I'll talk about how you need to
Speaker 1: see real yields positive throughout the yield curve, and there
Speaker 1: the feed is moving pretty quickly in that direction. And
Speaker 1: seenti five basis points last week, and they're promising another
Speaker 1: maybe basis points before the end of the year, taking
Speaker 1: the federal fund right well above four percent. So the
Speaker 1: feed is catching up, and I think the question at
Speaker 1: this point is will they stay in the course until
Speaker 1: they've actually finished the job to get inflation back down
Speaker 1: to two percent. Paul says, you'll do that, but whether
Speaker 1: the rest of themc will come along with them, I
Speaker 1: think it's an open question at this point. You like
Speaker 1: Richard Clarata, who joined us on FED Day, no, the
Speaker 1: mathematics the physics of modern economics, and then you discard
Speaker 1: it the real world application. You did that at Goldman
Speaker 1: Sachs for decades and then at the FED. I want
Speaker 1: to talk about the inertial force in this odd word overshoot.
Speaker 1: Is it a requirement or is it efficacious that a
Speaker 1: central bank overshoot a given target. Ideally, you don't overshood,
Speaker 1: you do just enough to achieve your objectives. But as
Speaker 1: you know, monetary policy has a lot of long lags
Speaker 1: in terms of its effects on the economy, and it's
Speaker 1: hard to judge those effects in real time. I think
Speaker 1: the FED is probably gonna be is probably gonna ultimately
Speaker 1: overshoot a bit, because they've said that they're the risks
Speaker 1: are skewed. The risk of doing too little is much
Speaker 1: greater than the risk of doing too much, because if
Speaker 1: you do too little, you end up in the nineties
Speaker 1: seventies with a more entrenched inflation problem, and then you
Speaker 1: have to do even more later. So I think you know,
Speaker 1: this is the consequence of the FED being late. If
Speaker 1: you're late, you have to catch up. You catch up,
Speaker 1: you probably are going to overshoot. You overshoot, you're gonna
Speaker 1: have a recession. I think where I would fault the
Speaker 1: FED right now is I don't think they've been realistic
Speaker 1: about the pain that they're actually gonna cause. If you
Speaker 1: look at their forecasts last week, that employing a rate
Speaker 1: climbs a little bit, it climbs up to four point
Speaker 1: four percent, and then inflation melts away. I don't think
Speaker 1: it's gonna be quite so simple as that. There's never
Speaker 1: been an example of the unemployer rate rising from three
Speaker 1: and a half percent to four point four percent point
Speaker 1: nine percent point rise if it rises more and a
Speaker 1: half a percentage point. Every every time that's happened in
Speaker 1: the post World War two period, US has end up
Speaker 1: in a full blown recession and the smallest rise and
Speaker 1: then a point of rate in those situations is two
Speaker 1: percentage points. So I think the FED is understanding the
Speaker 1: pain involved. What what worries me about that then, is
Speaker 1: that people when the pain actually rise, people will start
Speaker 1: will start to pressure the FED not to follow through.
Speaker 1: And this is the point of the column that you
Speaker 1: wrote today that there seemed to be some doubts in
Speaker 1: your mind and in markets minds right now. If the
Speaker 1: market had a mind that the FED is going to
Speaker 1: stay the course, what do you think they have to
Speaker 1: do to come out and say they're going to stay
Speaker 1: the course or do you think they're not going to
Speaker 1: that they're going to pull back on some of the
Speaker 1: rate hikes, say if unemployment rises above four and a
Speaker 1: half percent, Well, I think er Polo is committed to
Speaker 1: staying the course. I think he's you know, studied history
Speaker 1: and knows the consequences of not doing enough. But whether
Speaker 1: it can bring the rest of the fiddle Open Market
Speaker 1: Committee along with them later. I mean right now, it's
Speaker 1: easy to be tough right because everybody wants to get
Speaker 1: inflation down. The labor market is still very strong, and
Speaker 1: so the pain hasn't really materialized yet. A year from now,
Speaker 1: when the unemployer rates quit considerably higher, the e communist
Speaker 1: slowed inflation has come down a bit, there's gonna be
Speaker 1: people that are going to start to argue, do we
Speaker 1: really need to push inflation all the way back to
Speaker 1: two percent or can we take a break now? And
Speaker 1: how much is this going to be a political pressure
Speaker 1: on the FED? Well, I think the Biden administration will
Speaker 1: be pretty good about guarding the Fed's independence. Typically, if
Speaker 1: an administration starts to pick on the FED, that just
Speaker 1: unnerves financial markets and that makes the central banks job
Speaker 1: even harder. So I would be surprised if the Biden
Speaker 1: administration started to attack the FED. But you already are hearing,
Speaker 1: you know, cries from the left wing of the Democratic
Speaker 1: Party about how unfair this is that low income workers
Speaker 1: are gonna be put out of work. Um, you know,
Speaker 1: as if there's some alternative. The problem here is that
Speaker 1: once you're late, you have to catch up. Once you're late,
Speaker 1: the unemploying rate has to go up. There are no
Speaker 1: other alternatives, and so it's not not as if the
Speaker 1: FED has a better path to achieve better outcomes. They need.
Speaker 1: They need to do what they need to do to
Speaker 1: get inflation back down. It's just gonna be difficult if
Speaker 1: we see services stabilize and maybe reduce, if we see
Speaker 1: goods come down to the goods disinflation or deflation that
Speaker 1: we saw pre pandemic. I guess that means we come
Speaker 1: back towards John Taylor's two percent. Are you wedded to
Speaker 1: two point zero percent? Or can Build Dudley construct a
Speaker 1: new normal at two point eight two point nine two
Speaker 1: point adam posing where do you stand on that? Bill? Well,
Speaker 1: I'm not If you're talking about the real real interest
Speaker 1: rate or inflation, I'll go either way. I'll let you
Speaker 1: make it up. But to me, it's it's just it's
Speaker 1: a level that we're aspiring to get to out there.
Speaker 1: I think there's some people that's say the FET should
Speaker 1: raise their inflation target, but I think that's a bad
Speaker 1: approach right now, because that's like moving the goalposts because
Speaker 1: you can't achieve your objectives done that. I think that
Speaker 1: I think that would undercut the fence credibility a lot,
Speaker 1: and I think Paul has been very clear that, uh,
Speaker 1: you know, his pursuit of to percent inflation from his
Speaker 1: perspective is unconditional. Whether he can bring the rest of
Speaker 1: the FLOMC along with him when the job starts to
Speaker 1: become more difficult really a fundamental question right now. Markets
Speaker 1: are you know, basically believe Powell inflation expectations stay well anchored.
Speaker 1: But the pain process that's about to unfold is just begun.
Speaker 1: That's the domestic pain, the international pain we're witnessing right now. Bill,
Speaker 1: Well that that that's happened already, Yes, absolutely, How do
Speaker 1: you think they should respond to that? So well, you
Speaker 1: know the reality that they are not going to respond
Speaker 1: to that because at the end of the day, Montre Paulison,
Speaker 1: the US is about what's best for the United States
Speaker 1: in terms of the fit achieving its US inflation and
Speaker 1: output employment objectives. Obviously, this creates a lot of pressure
Speaker 1: on the rest of the world. You know, the stronger
Speaker 1: dollar holds down US inflation, a weaker foreign currency increases inflation.
Speaker 1: So it's so the flip side for other countries is
Speaker 1: much much tougher. Bill fantastic to catch up great pace
Speaker 1: as a WISA that the former New York Fed president
Speaker 1: and booked like opinion columnist. I remember you telling me
Speaker 1: Ryanair it's three whatever on the Irish r y A.
Speaker 1: I d you said by it to three and it
Speaker 1: went three to eighteen. I mean that's what Ryanair did.
Speaker 1: Did you buy it? No? I didn't. I mean, and
Speaker 1: it's been down in pandemic and all that, and somehow
Speaker 1: survives to move forward and does so with one of
Speaker 1: the most extraordinary chief executive officers, Mr Michael O'Leary, who
Speaker 1: has been medicated over the last three days and joins
Speaker 1: us this morning. Michael, John and Lisa have some very
Speaker 1: important British questions. I want to ask you what matters
Speaker 1: to every viewer and ever listener right now. And you
Speaker 1: own the high ground on this. If we don't fly
Speaker 1: business class, we won't fly. There's a new addiction to
Speaker 1: business class versus economy, which you own the high ground on.
Speaker 1: Where are we in a couple of years with our
Speaker 1: addiction to business class like New York to Paris eighteen
Speaker 1: thousand dollars? I mean, it's a good question, but you
Speaker 1: know there's two different markets here. Business class will continue
Speaker 1: alonghould you know, I don't. It's a different business model.
Speaker 1: But business class has disappeared on North American domestic and
Speaker 1: business class has disappeared on trans European as well. Um,
Speaker 1: you know, people will not pay a ludicrous premium on
Speaker 1: one and to our flights to be stuck in some
Speaker 1: whole airport that looks like resemblance the black hole at
Speaker 1: Calcutta as he throw scapeall and and PARTI Sharts has
Speaker 1: all had much of this year. Happily, the vast majority
Speaker 1: of European pastors have switched sensibly to Ryanair for the
Speaker 1: most on time, class, the lowest airfares and a really
Speaker 1: and say, every time we speak, every time we speak, Michael,
Speaker 1: there's always a pitch, there's always a sales pitch. Let's
Speaker 1: talk about immigration, Michael and this new government. You've complained
Speaker 1: about it for so so long. We've got an opportunity
Speaker 1: for change. What do you want to see happen? Well,
Speaker 1: you're particularly talking about the UK and the elegant version, Okay,
Speaker 1: and the UK coming in Brexit has been the greatest
Speaker 1: economic foot shooting in the history of economic developments as
Speaker 1: the Second World War. It is the stupidest, dumbest economic
Speaker 1: activity no to mankind. It was led by Boris Johnson,
Speaker 1: Michael go Over a number of other legendary idiots who
Speaker 1: decided that the way forward for the UK who was
Speaker 1: to leave the biggest trading block in in the world.
Speaker 1: Now you know, there's no point in arguing over Brexit.
Speaker 1: Brexit has happened. But at least if you're going to
Speaker 1: leave the European Union, leave with the most intelligent free
Speaker 1: trade agreement in place with the European Union. Of course,
Speaker 1: what these morons did was they left with the worst
Speaker 1: great agreement in things and they had their remarkable situation
Speaker 1: that we are and we're one of the biggest employers
Speaker 1: in the UK. We employ more than eight thousand pilots
Speaker 1: in capital in in the UK. This year, all of
Speaker 1: the airlines are struggling to recruit people because a lot
Speaker 1: of the English people don't want to work in a
Speaker 1: service industry like the airline industry. Despite our high pay,
Speaker 1: we couldn't get visas for Europeans. They would give us
Speaker 1: visas for non Europeans, but not for Europeans because they
Speaker 1: want to take back control of their border and now
Speaker 1: they don't have much control because it's about a thousand
Speaker 1: refugees each day coming across in Dinghies from France. Apparently
Speaker 1: they're freeing persecution in in France. Who knew that France
Speaker 1: was such a terminal country, but it is. Uh. The
Speaker 1: UK is currently a country that has no labor policy. Uh.
Speaker 1: And the restrictions in the labor market are inhibiting growth,
Speaker 1: never mind the crazy budgets they've just announced that week.
Speaker 1: Michael there, it's clear that you have some pretty strong
Speaker 1: feelings about this. I can say that, uh, And and
Speaker 1: it's nice that you can share them with us. Your
Speaker 1: perspective as one of the biggest employers in the United Kingdom,
Speaker 1: how much as things are now at the labor policy
Speaker 1: is currently in place, how much have wages gone up
Speaker 1: on average for you? And do you expect them to
Speaker 1: keep climbing with no change into the year? Fun enough,
Speaker 1: wages haven't gone up that much. I mean, there's clearly
Speaker 1: upward pressure on wages because of pay inflation. But you know,
Speaker 1: the the challenge for a lot of industries in the UK,
Speaker 1: whether it's retail, hospitality, air transport, is wages haven't gone
Speaker 1: up because nobody wants to do the jobs even if
Speaker 1: you increase to pay, people still don't want to do
Speaker 1: the jobs. We're bringing in people from Morocco and from Turkey,
Speaker 1: and we can get visas for those guys to work
Speaker 1: in the UK, but they won't give us visas for Portuguese, Italians,
Speaker 1: Germans and Polish people. It's a crazy system. But I'm
Speaker 1: pleased to say that lots of people are fleeing the UK.
Speaker 1: All of them are flying with Ryan Air on very
Speaker 1: low airfairs to more than two hundred destinations all over
Speaker 1: Europe and saving a fortune, making a fortune taking up
Speaker 1: to paid jobs all over Europe. Michael, I don't think
Speaker 1: Let's Trust is coding you anytime soon after this one.
Speaker 1: But but but revenue revenue at Bloomberg is going to
Speaker 1: call for the two advertisements I want to squeeze in
Speaker 1: a foreign exchange question if we can, can you just
Speaker 1: tell me, as a CEO, given the moose we've seen
Speaker 1: and pounds sterling in the euro, given some of the
Speaker 1: costs in US dollars, how have you hedged any of that?
Speaker 1: What if you've done, have you had to adjust to
Speaker 1: that story? Yeah? I mean the UK sterling were reasonably
Speaker 1: instutated because we have were we essentially balanced our sterling
Speaker 1: revenues with sterling costs and say, like we employed by
Speaker 1: the fails and people in the UK, we have a
Speaker 1: lot of airports and handling costs. In the UK we
Speaker 1: are short euros long dollar. Thankfully, in Ryaner we've been
Speaker 1: very fortunate. We've hedged our dollar exposure and all of
Speaker 1: our topics. We've ordered more than two hundred aircraft from
Speaker 1: bowling out to six We hedged all that at one
Speaker 1: twenty four uh dollar dollar euro one twenty four, so
Speaker 1: we are significant beneficiaries. That I think a real challenge
Speaker 1: for a lot of our competitors in Europe is they're
Speaker 1: not hedged on the dollar and therefore they're paying about
Speaker 1: had more in terms of cost for their aircraft and
Speaker 1: their spares. Thankfully, we've largely headed on capex are opics
Speaker 1: is heaged out until the middle of twenty twenty three,
Speaker 1: which would largely be oil, and we we headed the
Speaker 1: oil as well, so we we both out to the
Speaker 1: next April at about sixty four dollars of ours. So
Speaker 1: we've been lucky and fortunately been very well hedged. But
Speaker 1: a lot of our competitors in Europe who are buying
Speaker 1: a US dollar assets and for the airline industry, aircraft
Speaker 1: fuel and spars are all in dollars. It's a very
Speaker 1: difficult time. Michael. Let's spend some longer, spend some more
Speaker 1: time next time alonger conversation about the mess that Europe
Speaker 1: is in, and you let me have the Prime Minister
Speaker 1: gives you a code. Europe is okay, Europe is growing
Speaker 1: strongly and you're right now, michaelums show up. The paper
Speaker 1: might have a different view on that, Michael Leary of
Speaker 1: Ryan f Let's get right to an important conversation within
Speaker 1: your collective gloom. Victoria Fernandez says, no, chief market strategist
Speaker 1: across Mark, she is in the trenches of what do
Speaker 1: you actually do with money? Victoria? You say no to cash? Why? Yeah?
Speaker 1: I mean look, tom If when we talked a couple
Speaker 1: of weeks ago, we had increased our cash position a
Speaker 1: little bit because we felt like we would get some
Speaker 1: inflection point and that would be an opportunity to go
Speaker 1: in and shift the portfolio a little bit. And so
Speaker 1: that's what we're doing. We're using up that cash. We're
Speaker 1: putting a little more beta, a little more cyclicality into
Speaker 1: our portfolios. I'm not a raging bull at this point,
Speaker 1: but I think you can take a little defense out
Speaker 1: of your portfolio and start building it up again. As
Speaker 1: we're probably getting closer to a bottom. We haven't hit
Speaker 1: a lot of those metrics that people are looking for.
Speaker 1: We have a negative earnings yield. You typically don't hit
Speaker 1: a bottom with the negative earnings yield. But we're also
Speaker 1: also not in there trying to time the bottom exactly.
Speaker 1: We think use some of the events like we've seen
Speaker 1: this week to start building more positions in your portfolio.
Speaker 1: Does that mean find the banks? So we're not buying
Speaker 1: banks per se, but we are buying credit cards. We
Speaker 1: like Visa, we like American Express. We're buying some of
Speaker 1: the energy names too. As you know, we've been underweight
Speaker 1: energy for a while and we've been building that position.
Speaker 1: But we've added quite a bit. We've added to Philip
Speaker 1: sixty six X on mobile Valero. We've gone in and
Speaker 1: added a lot to those names and even more cyclical
Speaker 1: names like UPS. I know a lot of people didn't
Speaker 1: want to be in the space after the things that
Speaker 1: fed X said, but we think that that was more
Speaker 1: idiosyncratic for fed ACT and we think there's some opportunity
Speaker 1: in the fourth quarter for a company like ups as well.
Speaker 1: What about Facebook, Google, Amazon? Yeah, so that those high
Speaker 1: flying tech names, those communications services names, I think that's
Speaker 1: really where you've got to be careful. We have some
Speaker 1: exposure to those fang names, but it's not an area
Speaker 1: that we're adding to right now. Um. I think you
Speaker 1: have to be very careful on those because there's probably
Speaker 1: more downside as yields continue to go higher on those.
Speaker 1: Think if you're gonna play in that space, Apple is
Speaker 1: probably your safer bet at this point in time. They
Speaker 1: just closed out their fiscal year end over the weekend,
Speaker 1: and from what we're seeing from analysts, they had a
Speaker 1: pretty strong year. So I know a lot of people
Speaker 1: are waiting for Apple to make the big turn to
Speaker 1: say we've hit the bottom. I'm not sure we see
Speaker 1: that in their earnings coming out after this quarter end. Victoria,
Speaker 1: I want to understand your parameters. We've been talking a
Speaker 1: lot about the FED pivot and whether that's sort of
Speaker 1: underpinning some of the bullish sentiment that we here on
Speaker 1: the fringes of Wall Street and hunt necessarily mainstream. What's
Speaker 1: underpinning your conviction that we're getting close to a bottom. Well,
Speaker 1: I think a lot of it has to do with
Speaker 1: the momentum that we've seen, the trend lines that we're watching.
Speaker 1: There's a lot of contrarian um signals out there. You
Speaker 1: look at the bullbear ratio, you look at the put
Speaker 1: call spike ratio. I know that Tom was mentioning the
Speaker 1: VIX earlier this morning and we're surprised the VIX isn't
Speaker 1: higher than where it is, but we want to see
Speaker 1: the VIX continue to move higher in the with a
Speaker 1: three handle um. So I think you have to look
Speaker 1: at a lot of these trends and say we're getting
Speaker 1: close to where we think we need to be. Victoria
Speaker 1: cross Marks clients like everywhere else, are absolutely shell shocked
Speaker 1: with the news flow. All the nuances of it comes
Speaker 1: down to revenue and the dynamics of unit and price.
Speaker 1: How important is revenue into this earning season. It's extremely
Speaker 1: important because it's gonna tell us what the margins look like.
Speaker 1: I mean, one of the themes that we just talked
Speaker 1: about last week in our investment committee for all of
Speaker 1: our strategies was quality, quality of earnings, and quality of
Speaker 1: balance sheet. And so revenue is highly important. We know
Speaker 1: with prices being higher that top line will be there.
Speaker 1: It comes down to what do those margins look like
Speaker 1: and look EPs The expectations for this quarter have come
Speaker 1: down from north of nine percent to ride around north
Speaker 1: of three percent for the quarter. But I still think
Speaker 1: they're going to be strong enough to hold out of
Speaker 1: the market until the FED pushes us over. John Victoria's
Speaker 1: next investment management committee happens to be in the great
Speaker 1: state of Alabama. It's Texas, A and M Alabama. That's
Speaker 1: happened in October eight. You think we could make it down?
Speaker 1: People across Mark I want to go and watch Bama
Speaker 1: play Tom I'm told us the closest thing to Fernandez.
Speaker 1: Come on, it works, We make that happen. Let's go,
Speaker 1: y'all come on down. We're gonna do a Survina special.
Speaker 1: Do you like that? So I still love Victoria? Put
Speaker 1: that on? Just then the fight in Texas Egg Victoria,
Speaker 1: Fernandez across mort Global Investments love that. This is the
Speaker 1: Bloomberg Surveillance Podcast. Thanks for listening. Join us live weekdays
Speaker 1: from seven to ten am Eastern on Bloomberg Radio and
Speaker 1: on Bloomberg Television. Each day from six to nine am
Speaker 1: for insight from the best in economics, finance, investment, and
Speaker 1: international relations. And subscribe to the Surveillance podcast on Apple podcast, SoundCloud,
Speaker 1: Bloomberg dot com, and of course, on the terminal. I'm
Speaker 1: Tom keene In. This is Bloomberg m