1 00:00:05,800 --> 00:00:08,720 Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm pim Fox. 2 00:00:08,760 --> 00:00:11,520 Speaker 1: Along with my co host Lisa Abramowitz. Each day we 3 00:00:11,640 --> 00:00:15,120 Speaker 1: bring you the most important, noteworthy, and useful interviews for 4 00:00:15,200 --> 00:00:17,840 Speaker 1: you and your money, whether you're at the grocery store 5 00:00:17,960 --> 00:00:20,720 Speaker 1: or the trading floor. Find the Bloomberg P M L 6 00:00:20,840 --> 00:00:32,040 Speaker 1: Podcast on Apple Podcasts, SoundCloud and Bloomberg dot Com. Well, 7 00:00:32,240 --> 00:00:36,479 Speaker 1: our Russian President Vladimir Putin has been condemning North Korea's 8 00:00:36,520 --> 00:00:39,760 Speaker 1: ongoing nuclear and missile program. He describes the tests as 9 00:00:39,800 --> 00:00:43,440 Speaker 1: a flagrant violation of u N rules, but he does 10 00:00:43,520 --> 00:00:47,800 Speaker 1: say that resolving the crisis is impossible without fresh talks. 11 00:00:47,840 --> 00:00:50,559 Speaker 1: Here to tell us more is Ariel Cohen. He is 12 00:00:50,600 --> 00:00:53,800 Speaker 1: a Senior Fellow at the Atlantic Council and director of 13 00:00:53,880 --> 00:00:57,959 Speaker 1: the Center for Energy and Natural Resources and Geopolitics at 14 00:00:57,960 --> 00:01:00,640 Speaker 1: the I A g. S. And he joined us on 15 00:01:00,680 --> 00:01:03,160 Speaker 1: the phone. Ariel, thank you very much for being with us. 16 00:01:03,160 --> 00:01:06,120 Speaker 1: What do you make of President Vadomir Putin's comments and 17 00:01:06,200 --> 00:01:11,720 Speaker 1: also his conference with the joint news conference with the 18 00:01:11,760 --> 00:01:17,720 Speaker 1: South Korean leader mun Ja In the best case scenario, 19 00:01:17,880 --> 00:01:22,640 Speaker 1: puting is trying to elbow himself into a negotiating position 20 00:01:23,280 --> 00:01:25,840 Speaker 1: and be a mediator. But I'm looking at the worst 21 00:01:25,840 --> 00:01:30,759 Speaker 1: case scenario in which Russia is trying to replace China 22 00:01:30,959 --> 00:01:35,039 Speaker 1: as the great power sponsor of North Korea. Uh. The 23 00:01:35,319 --> 00:01:41,680 Speaker 1: remarks were unprecedented because Kim Jong un is breaking decades 24 00:01:41,800 --> 00:01:45,679 Speaker 1: long policy of non proliferation that the Soviet Union and 25 00:01:45,680 --> 00:01:49,920 Speaker 1: then Russia, China and the five permanent members of the 26 00:01:50,000 --> 00:01:53,520 Speaker 1: United Nations, including the United States, we're always supporting. We 27 00:01:53,520 --> 00:01:59,800 Speaker 1: were always against proliferating nuclear weapons to new actors, be 28 00:02:00,040 --> 00:02:03,920 Speaker 1: at Pakistan or Iran or North Korea. And what we 29 00:02:04,000 --> 00:02:07,360 Speaker 1: see now is the sea change in which Russia is 30 00:02:07,480 --> 00:02:13,640 Speaker 1: effectively supporting Kim Jong saying, no sanctions, no military action. 31 00:02:13,919 --> 00:02:17,720 Speaker 1: So what are we supposed to do? Uh to kiss him? 32 00:02:17,800 --> 00:02:21,600 Speaker 1: So uh, this is bad news. And also I'm looking 33 00:02:21,680 --> 00:02:28,960 Speaker 1: how the North Korean missile nuclear weapons um and UH 34 00:02:29,280 --> 00:02:33,679 Speaker 1: miniaturization of warheads capacities are going up. And I suspect 35 00:02:33,680 --> 00:02:36,040 Speaker 1: I don't have a proof. I don't have access to 36 00:02:36,080 --> 00:02:40,119 Speaker 1: classified materials or intercepts of the emails or phone calls, 37 00:02:40,160 --> 00:02:44,239 Speaker 1: but I suspect maybe, just maybe Russian technology is leaking 38 00:02:44,320 --> 00:02:47,839 Speaker 1: into North Korea as we speak. Well, maybe you could 39 00:02:47,880 --> 00:02:49,880 Speaker 1: give us the context for us because this would not 40 00:02:49,919 --> 00:02:53,400 Speaker 1: be the first time that Russia or in previous guys 41 00:02:53,440 --> 00:02:58,680 Speaker 1: is the Soviet Union was a supporter of North Korea. Absolutely, 42 00:02:59,280 --> 00:03:06,359 Speaker 1: the grandfather other Um of the current leader Kim Uh 43 00:03:06,960 --> 00:03:10,119 Speaker 1: Kim ill songs Uh he said, I believe he even 44 00:03:10,120 --> 00:03:12,880 Speaker 1: saw himself maybe as a as a competitor or as 45 00:03:12,919 --> 00:03:17,840 Speaker 1: a challenger to the mantle of of leader to Maltzi tongue. 46 00:03:17,960 --> 00:03:21,400 Speaker 1: At the time, well, he was of course a much 47 00:03:21,800 --> 00:03:25,640 Speaker 1: smaller player, but he was indeed an asset of the 48 00:03:25,680 --> 00:03:29,080 Speaker 1: Russian of the Soviet military. He served in the Soviet 49 00:03:29,160 --> 00:03:32,920 Speaker 1: military as they rolled Uh into Korea during the war 50 00:03:32,960 --> 00:03:38,640 Speaker 1: with Japan. Uh and Uh he indeed was very He 51 00:03:38,720 --> 00:03:42,440 Speaker 1: was a Stalinist. He he was the product of that era, 52 00:03:43,000 --> 00:03:46,200 Speaker 1: a totalitary and leader. What's fascinating with North Korea. North 53 00:03:46,280 --> 00:03:50,800 Speaker 1: Korea is probably the only Uh Stalinist dictatorship left on 54 00:03:50,880 --> 00:03:58,600 Speaker 1: the planet. With his parades and with absolute political reporting, 55 00:03:59,000 --> 00:04:02,720 Speaker 1: when people are ratting each other out to the authorities, 56 00:04:03,120 --> 00:04:08,480 Speaker 1: Uh so Um. With time, they started to push away 57 00:04:09,360 --> 00:04:13,680 Speaker 1: his son Uh pushed away both the Russian faction and 58 00:04:13,760 --> 00:04:18,960 Speaker 1: the Chinese faction eventually, and now the grandson Um Uh 59 00:04:19,600 --> 00:04:22,480 Speaker 1: is of course cracking down on the pro Chinese and 60 00:04:22,520 --> 00:04:25,080 Speaker 1: even killing some of the members of his family who 61 00:04:25,080 --> 00:04:28,840 Speaker 1: are pro China. So the relationship with China is complicated. 62 00:04:29,080 --> 00:04:32,440 Speaker 1: But nevertheless, both China and Russia are using North Korea 63 00:04:32,760 --> 00:04:35,719 Speaker 1: as a battering ramp against the United States and our 64 00:04:35,839 --> 00:04:40,280 Speaker 1: interests in the Pacific, as well as against our allies, uh, 65 00:04:40,400 --> 00:04:44,159 Speaker 1: the Japanese and the South Koreas. So can you lay 66 00:04:44,200 --> 00:04:48,200 Speaker 1: out a scenario in which there is some resolution that 67 00:04:48,360 --> 00:04:53,360 Speaker 1: is peaceful. Well in the ideal world, uh and uh 68 00:04:53,560 --> 00:04:57,440 Speaker 1: this this looks less and less realistic in the ideal world. 69 00:04:57,480 --> 00:05:01,800 Speaker 1: The great hours, the US, China, and Russia. We'll say, 70 00:05:01,839 --> 00:05:06,599 Speaker 1: we don't need a malignant proliferator. We know about the 71 00:05:06,680 --> 00:05:12,599 Speaker 1: ties between North Korea and Iran. UM. Most probably Iranians 72 00:05:12,600 --> 00:05:16,160 Speaker 1: have more money from oil sales. They give the money 73 00:05:16,200 --> 00:05:22,520 Speaker 1: to Kim. Kim also proliferated nuclear uh weapons technology to Syria. 74 00:05:22,560 --> 00:05:25,719 Speaker 1: You remember in two thousand and uh seven, I believe 75 00:05:25,760 --> 00:05:29,320 Speaker 1: we're two thousand and six, the Israelis in a night 76 00:05:29,560 --> 00:05:34,600 Speaker 1: strike destroyed uh a plutonium reactor in Syria, a reactor 77 00:05:34,680 --> 00:05:39,280 Speaker 1: that was based on North Korean technology. Uh. So Uh, 78 00:05:39,440 --> 00:05:43,600 Speaker 1: they are a malignant proliferator and great powers if they 79 00:05:43,640 --> 00:05:47,880 Speaker 1: were responsible, if they behaved as adults would get together 80 00:05:48,400 --> 00:05:54,520 Speaker 1: and squelch uh. That's regime's ability to produce nuclear weapons 81 00:05:54,600 --> 00:05:58,360 Speaker 1: and the means to deliver ballistic missiles. Now we are, 82 00:05:58,440 --> 00:06:01,640 Speaker 1: I think on the cost of the whole new ball 83 00:06:01,680 --> 00:06:04,920 Speaker 1: game in which we may be hit with a nuclear 84 00:06:04,960 --> 00:06:10,240 Speaker 1: weapon from North Korea realistic possibility. I hope as we 85 00:06:10,400 --> 00:06:13,440 Speaker 1: as we all do, we hope this doesn't does not happen. 86 00:06:13,560 --> 00:06:15,400 Speaker 1: I want to thank you Ariel Cohen. He is a 87 00:06:15,400 --> 00:06:18,680 Speaker 1: Senior Fellow at the Atlantic Council, Director of the Center 88 00:06:18,720 --> 00:06:36,479 Speaker 1: for Energy, Natural Resources in Geopolitics. Hurricane Irma has damaged 89 00:06:36,520 --> 00:06:40,599 Speaker 1: buildings and infrastructure in the Eastern Caribbean, packing winds of 90 00:06:40,600 --> 00:06:44,080 Speaker 1: a hundred and eighty five miles per hour. The storm 91 00:06:44,080 --> 00:06:49,840 Speaker 1: made landfall in bar Buddha around who a m. This morning. 92 00:06:50,000 --> 00:06:54,159 Speaker 1: And here to help us understand what's next is Shenando Bassu, 93 00:06:54,320 --> 00:06:59,440 Speaker 1: meteorologist and guess analyst for Bloomberg New Energy Finance. Shenando 94 00:06:59,440 --> 00:07:02,520 Speaker 1: always al asure. Thanks for joining me. Tell us the 95 00:07:02,640 --> 00:07:06,359 Speaker 1: latest on the Hurricane Irma, Hey him, Yeah, great to 96 00:07:06,400 --> 00:07:10,480 Speaker 1: be here. So IRMA very powerful storm right now today. 97 00:07:10,640 --> 00:07:14,080 Speaker 1: As of the advisory put out by the National Hurricane 98 00:07:14,080 --> 00:07:17,640 Speaker 1: Center this morning. The track has actually shifted just a 99 00:07:17,680 --> 00:07:20,840 Speaker 1: little far east, so as it heads up right now, um, 100 00:07:20,880 --> 00:07:24,400 Speaker 1: it's actually heading about you know, northwest, and then once 101 00:07:24,440 --> 00:07:26,800 Speaker 1: it reaches just north of Hispaniola, it's going to be 102 00:07:26,840 --> 00:07:30,520 Speaker 1: making the right turn as we can see on the 103 00:07:30,600 --> 00:07:32,880 Speaker 1: you know, the projected track here, and it'll be grazing 104 00:07:32,960 --> 00:07:35,400 Speaker 1: you know, the east coast of Florida, but of course 105 00:07:35,520 --> 00:07:40,600 Speaker 1: impacting the entire state. The warnings that have gone out 106 00:07:40,680 --> 00:07:45,400 Speaker 1: for this Category five storm are in Puerto Rico, as 107 00:07:45,440 --> 00:07:49,000 Speaker 1: well as the islands of St. Kitts, Nevas, the Virgin Islands, 108 00:07:49,240 --> 00:07:53,640 Speaker 1: and as you said, Hispaniola, Dominican Republican Haiti, Cuba also 109 00:07:53,720 --> 00:07:58,560 Speaker 1: being threatened. Has has there been any update on whether 110 00:07:58,680 --> 00:08:02,520 Speaker 1: this storm is still going to cause widespread destruction in 111 00:08:02,560 --> 00:08:06,480 Speaker 1: those places? It certainly is, you know, very very high winds. 112 00:08:06,520 --> 00:08:08,600 Speaker 1: We have winds in excess of a hundred and seventy 113 00:08:08,600 --> 00:08:12,560 Speaker 1: miles per hour with an incredible storm surge. We expect 114 00:08:12,600 --> 00:08:17,040 Speaker 1: the hurricane itself to strengthen for at least another forty 115 00:08:17,040 --> 00:08:21,240 Speaker 1: eight hours, or strengthen or rather keep its current um 116 00:08:21,280 --> 00:08:24,080 Speaker 1: its current energy going, and then by the time we 117 00:08:24,120 --> 00:08:26,920 Speaker 1: get to a Friday or Saturday. That's when we'll maybe 118 00:08:27,000 --> 00:08:30,880 Speaker 1: start to see a slight decline in its in its power, 119 00:08:31,080 --> 00:08:34,800 Speaker 1: and then it'll probably get downgraded to a Category three 120 00:08:34,960 --> 00:08:38,280 Speaker 1: or four just before making landfall. Well, there's a report that, 121 00:08:38,320 --> 00:08:41,360 Speaker 1: for example, roofs roofs were ripped off buildings and homes 122 00:08:41,360 --> 00:08:44,400 Speaker 1: were flooded on the islands of Saint Bartholomy and Saint 123 00:08:44,440 --> 00:08:49,720 Speaker 1: Martin the eye of the storm passed overhead. Is there 124 00:08:49,720 --> 00:08:52,720 Speaker 1: going to be any lingering effects in terms, let's start 125 00:08:52,760 --> 00:08:56,360 Speaker 1: with transport, and I'm thinking of oil that needs to 126 00:08:56,440 --> 00:09:00,839 Speaker 1: come out of Venezuela and be refined. Yes, So there 127 00:09:00,880 --> 00:09:03,600 Speaker 1: are a few numbers of the number of refineries that 128 00:09:03,640 --> 00:09:07,239 Speaker 1: are in the way. Certainly those are on the islands 129 00:09:07,559 --> 00:09:10,400 Speaker 1: um that you mentioned previously, and also a couple in 130 00:09:10,640 --> 00:09:14,320 Speaker 1: the d R and Haiti, and so any ships that 131 00:09:14,360 --> 00:09:16,839 Speaker 1: are trying to make their way over there certainly not 132 00:09:16,920 --> 00:09:20,360 Speaker 1: going to be able to UM in the coming days. Now, 133 00:09:20,400 --> 00:09:24,040 Speaker 1: as far as the actual assets are conversed concern the refineries, 134 00:09:24,600 --> 00:09:29,360 Speaker 1: those may definitely be out of service until further recovery 135 00:09:29,400 --> 00:09:32,760 Speaker 1: efforts can be put into place. And in many places, 136 00:09:32,800 --> 00:09:36,840 Speaker 1: of course, electricity is out and the infrastructure has been destroyed. 137 00:09:36,880 --> 00:09:40,120 Speaker 1: That's going to take time to rebuild it certainly is. Yes, 138 00:09:40,800 --> 00:09:44,720 Speaker 1: the effects perhaps in the United States because of this 139 00:09:44,840 --> 00:09:48,640 Speaker 1: eastward turn, what will it mean just large amounts of 140 00:09:48,760 --> 00:09:51,679 Speaker 1: rain and wind? Or will it I mean, are we 141 00:09:51,720 --> 00:09:55,320 Speaker 1: still bracing for a hurricane to hit the Florida coast. Yes, 142 00:09:55,400 --> 00:09:57,520 Speaker 1: it's going to you know, it's a major hurricane at 143 00:09:57,520 --> 00:09:59,240 Speaker 1: the end of the day. And yes, that does mean 144 00:09:59,280 --> 00:10:03,560 Speaker 1: a lot of rain, certainly, you know, twenty in parts 145 00:10:03,679 --> 00:10:06,680 Speaker 1: at least, if not more, with very very high winds 146 00:10:06,720 --> 00:10:10,760 Speaker 1: along there along the coast. Because of the trajectory of 147 00:10:10,880 --> 00:10:14,240 Speaker 1: Irma right now, Hurricane Irma, we could see effects as 148 00:10:14,280 --> 00:10:17,840 Speaker 1: far north as the Carolinas into next week, and that's 149 00:10:17,880 --> 00:10:20,959 Speaker 1: something of course that will have to keep an eye 150 00:10:21,000 --> 00:10:24,680 Speaker 1: on as the storm progresses. Will there be any effects 151 00:10:24,720 --> 00:10:27,160 Speaker 1: you think in the Gulf of Mexico as a result 152 00:10:27,200 --> 00:10:33,079 Speaker 1: of Irma? Well, currently, any ship traffic and tanker traffic 153 00:10:33,200 --> 00:10:37,040 Speaker 1: that's out there may very well be affected. Of course, 154 00:10:37,080 --> 00:10:40,240 Speaker 1: this is a very large storm. It covers a very 155 00:10:40,400 --> 00:10:44,040 Speaker 1: large area, and so as a result, we can definitely 156 00:10:44,120 --> 00:10:46,760 Speaker 1: expect some maritime effects in the eastern half of the 157 00:10:46,800 --> 00:10:50,200 Speaker 1: Gulf of Mexico. For sure. Is that unusual that the 158 00:10:50,360 --> 00:10:53,120 Speaker 1: size of the storm, not necessarily the ferocity, but but 159 00:10:53,160 --> 00:10:57,800 Speaker 1: the actual size. The size is not so unusual. I mean, 160 00:10:57,840 --> 00:11:01,720 Speaker 1: we've certainly seen hurricanes that are very large in the 161 00:11:01,800 --> 00:11:05,000 Speaker 1: recent past. UM. But the intensity, of course, as we know, 162 00:11:05,160 --> 00:11:09,240 Speaker 1: this is the most powerful Atlantic hurricane in history, which 163 00:11:09,320 --> 00:11:13,240 Speaker 1: is incredible in of itself. Well, I know also that 164 00:11:13,800 --> 00:11:16,800 Speaker 1: there have been efforts already underway. I mean the President 165 00:11:16,880 --> 00:11:21,120 Speaker 1: has UH already declared a disaster area in order to 166 00:11:21,600 --> 00:11:26,640 Speaker 1: facilitate the emergency evacuation. And Governor Rick Scott said that 167 00:11:26,679 --> 00:11:29,880 Speaker 1: the storm surge could cover your house. We can rebuild buildings, 168 00:11:29,920 --> 00:11:33,400 Speaker 1: but can't rebuild your family. Uh. And he has put 169 00:11:33,400 --> 00:11:38,120 Speaker 1: out an evacuation order. Yes, and I'm glad he has. UH. 170 00:11:38,160 --> 00:11:41,040 Speaker 1: This is going to cause a lot of damage along 171 00:11:41,080 --> 00:11:46,000 Speaker 1: the coast. The storm surge, especially UM puts human lives 172 00:11:46,000 --> 00:11:48,320 Speaker 1: at risk, and so I think this is the right 173 00:11:48,360 --> 00:11:51,960 Speaker 1: thing to do. Well. Uh. Indeed, for example, the season 174 00:11:52,000 --> 00:11:56,520 Speaker 1: opener of the NFL Miami Dolphins Tampa Bay Buccaneers that's 175 00:11:56,559 --> 00:11:59,880 Speaker 1: been postponed because of IRMA, it will be played in 176 00:12:00,000 --> 00:12:04,960 Speaker 1: Miami on November. Then there are we were speaking earlier 177 00:12:04,960 --> 00:12:07,560 Speaker 1: and there are many insurance claims that are going to 178 00:12:07,640 --> 00:12:11,400 Speaker 1: be filed as part of this. What about the industrial 179 00:12:11,840 --> 00:12:15,680 Speaker 1: insurance aspect, you know, the refineries, the ships, all of 180 00:12:15,679 --> 00:12:19,680 Speaker 1: that infrastructure that's got to have commercial insurance. Now, yeah, 181 00:12:19,760 --> 00:12:23,760 Speaker 1: there's definitely going to be commercial impacts. I can't speak 182 00:12:23,800 --> 00:12:28,600 Speaker 1: too much to the insurance side of UM and you 183 00:12:28,600 --> 00:12:33,079 Speaker 1: know that's side of this whole lot, but something we 184 00:12:33,120 --> 00:12:35,520 Speaker 1: should look out well. And in fact, the governor of 185 00:12:35,520 --> 00:12:39,080 Speaker 1: Puerto Rico, Ricardo Rosello, he declared a state of emergency 186 00:12:39,080 --> 00:12:43,400 Speaker 1: and has also activated the National Guard. What about getting 187 00:12:43,440 --> 00:12:47,200 Speaker 1: supplies to people that need them? Is that going to 188 00:12:47,280 --> 00:12:49,720 Speaker 1: be affected by I mean it must be affected by 189 00:12:49,760 --> 00:12:51,520 Speaker 1: the lack of transport. I mean you're not going to 190 00:12:51,600 --> 00:12:55,200 Speaker 1: be able to get water, plywood, batteries and generators, uh, 191 00:12:55,240 --> 00:12:58,560 Speaker 1: if you can't actually physically get it there, right, So, 192 00:12:59,000 --> 00:13:01,560 Speaker 1: as far as proper sans go, they will have to 193 00:13:01,640 --> 00:13:05,120 Speaker 1: be UM. I think, you know, at this point, we're 194 00:13:05,240 --> 00:13:08,680 Speaker 1: we're kind of beyond the time UM that we can 195 00:13:08,679 --> 00:13:11,760 Speaker 1: get things in or out of those areas. So most 196 00:13:11,800 --> 00:13:14,559 Speaker 1: likely we'll have to wait till after the storm passes 197 00:13:14,600 --> 00:13:17,720 Speaker 1: to you know, fly planes in or even UM barges 198 00:13:17,800 --> 00:13:20,560 Speaker 1: or ships that can carry those kinds of goods. Now, 199 00:13:20,640 --> 00:13:22,960 Speaker 1: know what, what have you? Just maybe just give us 200 00:13:22,960 --> 00:13:25,240 Speaker 1: an update of what you've heard, for example, of the 201 00:13:25,240 --> 00:13:29,720 Speaker 1: rebuilding or vamping efforts as a result the Hurricane Harvey 202 00:13:29,800 --> 00:13:31,240 Speaker 1: in the in the Gulf, because I know that was 203 00:13:31,640 --> 00:13:34,679 Speaker 1: that was just the last hurricane. Yeah, yeah, and uh, 204 00:13:35,040 --> 00:13:38,280 Speaker 1: this is the second major hurricane in a row that 205 00:13:38,400 --> 00:13:41,800 Speaker 1: will be making landfall here in the US. Harvey's impacts, 206 00:13:41,880 --> 00:13:44,680 Speaker 1: of course, are still ongoing. I mean, the rebuilding is 207 00:13:44,720 --> 00:13:49,240 Speaker 1: just barely getting started, you know along the coast of Texas. UM, 208 00:13:49,320 --> 00:13:53,400 Speaker 1: the commercial side of things still still feeling those impacts 209 00:13:53,440 --> 00:13:57,400 Speaker 1: as well. I mentioned previously that we had you know, 210 00:13:57,600 --> 00:14:01,600 Speaker 1: gasolene tankers, UM that we're not able to get to 211 00:14:01,679 --> 00:14:05,600 Speaker 1: Florida and you know delivery gatholene. And now as people 212 00:14:05,600 --> 00:14:09,840 Speaker 1: are evacuating, UM, there's definitely some tightness in the supply 213 00:14:09,960 --> 00:14:13,360 Speaker 1: market over there as a result of that. Right, all right, Well, 214 00:14:13,400 --> 00:14:17,360 Speaker 1: thank you very much. Shnandobasu is our meteorologist guess analyst 215 00:14:17,400 --> 00:14:34,320 Speaker 1: for Bloomberg New Energy Finance talking about the hurricane Irma. Well, 216 00:14:34,520 --> 00:14:37,680 Speaker 1: Hurricane Harvey's cost to the victims in the path and 217 00:14:37,760 --> 00:14:42,160 Speaker 1: two taxpayers is still being calculated. Indeed, the governor of 218 00:14:42,200 --> 00:14:45,440 Speaker 1: the state of Texas, Greg Abbott, he said that Texas 219 00:14:45,440 --> 00:14:47,480 Speaker 1: could need more than a hundred and twenty five billion 220 00:14:47,520 --> 00:14:50,600 Speaker 1: dollars from the US government. Well, what role will the 221 00:14:50,640 --> 00:14:54,120 Speaker 1: insurance industry play in this? Jonathan Adams is our senior 222 00:14:54,280 --> 00:14:59,280 Speaker 1: industry executive analyst for insurance. He's for Bloomberg Intelligence and 223 00:14:59,320 --> 00:15:02,080 Speaker 1: he joins US. Now, you know, Jonathan, I'm trying to understand. 224 00:15:02,200 --> 00:15:04,320 Speaker 1: There are so many different types of insurance, and one 225 00:15:04,400 --> 00:15:08,080 Speaker 1: of the things I read recently is that the Consumer 226 00:15:08,120 --> 00:15:11,480 Speaker 1: Federation of America said that only twenty of the people 227 00:15:11,680 --> 00:15:15,840 Speaker 1: in Texas who are affected by Hurricane Harvey have insurance. 228 00:15:16,400 --> 00:15:19,960 Speaker 1: And then when I look at the details, it says 229 00:15:20,040 --> 00:15:25,640 Speaker 1: private property insurance policies normally do not cover flooding. So 230 00:15:25,680 --> 00:15:28,480 Speaker 1: I'm wondering, tell us the sort of disposition of who 231 00:15:28,520 --> 00:15:32,200 Speaker 1: has insurance and who's on the hook for it. Sure, 232 00:15:32,320 --> 00:15:35,240 Speaker 1: I'd be happy to do that. So, UM, in terms 233 00:15:35,240 --> 00:15:40,000 Speaker 1: of consumers, You're exactly right. The number that UM purchase 234 00:15:40,040 --> 00:15:45,120 Speaker 1: insurance independent of their normal homeowners policy is a relatively 235 00:15:45,200 --> 00:15:48,920 Speaker 1: small percentage. UM having said that most of those that 236 00:15:48,960 --> 00:15:51,680 Speaker 1: do are the ones that are located in floodplains, and 237 00:15:51,720 --> 00:15:56,800 Speaker 1: they will UM receive some support from the National Flood 238 00:15:56,840 --> 00:16:02,800 Speaker 1: Insurance Program. So UM that federally run program will UH 239 00:16:03,200 --> 00:16:06,160 Speaker 1: step in and be paying a large portion of the 240 00:16:06,200 --> 00:16:11,600 Speaker 1: total in short loss for UH individual homeowners, for UM 241 00:16:11,760 --> 00:16:15,840 Speaker 1: commercial enterprises, and for other types of losses. For example, 242 00:16:15,840 --> 00:16:19,400 Speaker 1: there were half a million vehicles at least that have 243 00:16:19,560 --> 00:16:23,960 Speaker 1: been estimated to have been damaged in this storm. UM 244 00:16:24,080 --> 00:16:28,480 Speaker 1: ordinary auto policies will pick up that cost. So for 245 00:16:28,520 --> 00:16:33,120 Speaker 1: the private insurance industry, UM, a cost like that will 246 00:16:33,160 --> 00:16:37,280 Speaker 1: in fact be picked up and those individuals will be 247 00:16:37,320 --> 00:16:40,360 Speaker 1: made whole for their loss. Okay, so let's move on 248 00:16:40,480 --> 00:16:43,480 Speaker 1: then to what happens to let's say, these commercial lines 249 00:16:43,520 --> 00:16:48,680 Speaker 1: for things such as property, inland, marine, UH and related lines. Right, 250 00:16:48,720 --> 00:16:51,240 Speaker 1: I mean that that is something that travelers as well 251 00:16:51,280 --> 00:16:55,760 Speaker 1: as CHUB. Well that's the group is responsible for. Is 252 00:16:55,800 --> 00:16:59,840 Speaker 1: that correct? That's exactly right. And UM certainly those companies 253 00:16:59,880 --> 00:17:04,520 Speaker 1: do you have some personal lines coverage, but predominantly they're 254 00:17:04,520 --> 00:17:09,520 Speaker 1: commercial writers, and they will be paying UH some flood 255 00:17:09,800 --> 00:17:15,360 Speaker 1: losses because UH that type of commercial policy, UM does 256 00:17:15,400 --> 00:17:18,560 Speaker 1: have an opportunity to bring in flood coverage UH, and 257 00:17:18,680 --> 00:17:24,280 Speaker 1: some individual companies will be taking that coverage and also 258 00:17:24,359 --> 00:17:30,720 Speaker 1: important business interruption. So if your factory or store is 259 00:17:30,800 --> 00:17:35,240 Speaker 1: closed because of a covered peril, you will receive some 260 00:17:35,440 --> 00:17:40,320 Speaker 1: reimbursement for that closure. UM and companies like Travelers, Chubb, 261 00:17:40,440 --> 00:17:44,760 Speaker 1: and a G all have fairly significant market share relative 262 00:17:44,800 --> 00:17:48,160 Speaker 1: to the industry as a whole, and UM they will 263 00:17:48,200 --> 00:17:53,400 Speaker 1: certainly be UM writing some checks to support UM business 264 00:17:53,400 --> 00:17:57,240 Speaker 1: owners in Houston. Is there is there something that we 265 00:17:57,280 --> 00:18:00,560 Speaker 1: should know about the National Flood Insurance Program and how 266 00:18:00,640 --> 00:18:07,600 Speaker 1: that works alongside private insurance, Well, I think UM. The 267 00:18:07,680 --> 00:18:11,920 Speaker 1: important part of that program is unfortunately that it's not 268 00:18:12,160 --> 00:18:17,560 Speaker 1: priced UM very carefully in terms of the actual exposure 269 00:18:17,560 --> 00:18:20,320 Speaker 1: that it takes. As a result, it's operating at a 270 00:18:20,359 --> 00:18:24,160 Speaker 1: loss today. UM. This particular storm will make that worse. 271 00:18:24,600 --> 00:18:28,200 Speaker 1: And really what Congress needs to do is to adjust 272 00:18:28,280 --> 00:18:32,520 Speaker 1: those prices that the n f I P charges in 273 00:18:32,640 --> 00:18:35,800 Speaker 1: order for it to be a sustainable program in terms 274 00:18:35,840 --> 00:18:39,760 Speaker 1: of what it offers the individuals. Today. UM, it's it's 275 00:18:39,760 --> 00:18:43,120 Speaker 1: pretty good coverage. It's up to town and fifty dollars 276 00:18:43,119 --> 00:18:48,359 Speaker 1: for an existing residents plus a hundred thousand dollars for content. So, uh, 277 00:18:48,640 --> 00:18:51,960 Speaker 1: the coverage is good. It just needs to be priced 278 00:18:52,000 --> 00:18:56,399 Speaker 1: in a fashion that it can really be sustainable for UM. 279 00:18:56,440 --> 00:18:58,600 Speaker 1: All the people that to kind upon it and are 280 00:18:58,640 --> 00:19:03,640 Speaker 1: there private insurance company needs that actually participate in reinsurance 281 00:19:03,720 --> 00:19:07,880 Speaker 1: that's then provided to the National Flood Insurance Program UM. 282 00:19:08,000 --> 00:19:12,240 Speaker 1: There are the the the program has just recently begun 283 00:19:12,359 --> 00:19:17,040 Speaker 1: to reinsure some of its exposure, and there were UM 284 00:19:17,200 --> 00:19:22,840 Speaker 1: quite a few in fact, reinsurers that participated in UM 285 00:19:23,359 --> 00:19:26,480 Speaker 1: a contract where a billion dollars was put into the 286 00:19:26,520 --> 00:19:30,360 Speaker 1: private sector. UM their various limits with regard to that, 287 00:19:30,480 --> 00:19:33,240 Speaker 1: but my estimate is that probably the n f i 288 00:19:33,320 --> 00:19:37,640 Speaker 1: P will collect UM a full billion dollars to deal 289 00:19:37,680 --> 00:19:42,159 Speaker 1: with its losses, and those reinsurers would really run the 290 00:19:42,200 --> 00:19:46,080 Speaker 1: gamut UM they're they're typically smaller companies like a Renaissance 291 00:19:46,160 --> 00:19:51,040 Speaker 1: Rey or Validis, but UM, as I said, participated, so 292 00:19:51,160 --> 00:19:54,639 Speaker 1: it would also likely include the likes of the Munich 293 00:19:54,680 --> 00:19:58,960 Speaker 1: reason the larger entities as well. But generally speaking, that 294 00:19:59,119 --> 00:20:03,199 Speaker 1: risk has been spread broadly and it will affect the 295 00:20:03,200 --> 00:20:09,480 Speaker 1: reinsurance companies, but more importantly UM. It's providing participation by 296 00:20:09,520 --> 00:20:13,720 Speaker 1: the private sector to support this program that, as I said, 297 00:20:13,760 --> 00:20:16,880 Speaker 1: we really need to have continue in the future. Well 298 00:20:16,880 --> 00:20:18,679 Speaker 1: We're going to send that note to Congress. They got 299 00:20:18,720 --> 00:20:20,960 Speaker 1: a lot on their docket that they need to do. Jonathan, 300 00:20:21,320 --> 00:20:23,600 Speaker 1: last point to you, what about specialty insurance for things 301 00:20:23,640 --> 00:20:29,280 Speaker 1: like refineries and oil platforms. UM, those certainly are at 302 00:20:29,440 --> 00:20:32,639 Speaker 1: risk as well, and there are a number of entities 303 00:20:32,840 --> 00:20:37,480 Speaker 1: that are specialty companies. UM. Much of that coverage isn't 304 00:20:37,520 --> 00:20:43,760 Speaker 1: what's called the excess of surplus lines market and UM 305 00:20:44,240 --> 00:20:50,239 Speaker 1: it's highly technical because of the UH the difficulties of 306 00:20:50,520 --> 00:20:54,280 Speaker 1: assessing the risk for those types of plant equipment. But 307 00:20:54,760 --> 00:21:00,119 Speaker 1: they will certainly UM be in the number of did 308 00:21:00,160 --> 00:21:04,080 Speaker 1: ease that will see some reimbursement. Jonathan Adams, thank you 309 00:21:04,119 --> 00:21:21,040 Speaker 1: so much, senior insurance industry analyst for Bloomberg Intelligence. I 310 00:21:21,040 --> 00:21:23,520 Speaker 1: want to turn our attention now to an effort by 311 00:21:23,520 --> 00:21:27,359 Speaker 1: the European Union to put together a regulatory framework that 312 00:21:27,440 --> 00:21:30,680 Speaker 1: they say will protect investors. And this has to do 313 00:21:30,880 --> 00:21:34,880 Speaker 1: with the research that investment professionals receive, how much they 314 00:21:34,920 --> 00:21:37,760 Speaker 1: pay for it, and how much it is actually worth. 315 00:21:37,800 --> 00:21:40,520 Speaker 1: Here to help us understand this issue is Larry tab 316 00:21:40,600 --> 00:21:42,560 Speaker 1: He is the chief executive and the founder of the 317 00:21:42,600 --> 00:21:44,679 Speaker 1: Tab Group. They're based in New York, and he joins 318 00:21:44,680 --> 00:21:47,640 Speaker 1: me here in our eleven three oh studios. Larry, thank 319 00:21:47,680 --> 00:21:51,000 Speaker 1: you very much for being great. I want maybe you 320 00:21:51,040 --> 00:21:55,919 Speaker 1: can just start us off by explaining how these regulations, uh, 321 00:21:55,960 --> 00:21:58,760 Speaker 1: and I'll give the full name of it right it's 322 00:21:58,920 --> 00:22:03,920 Speaker 1: markets in Finance show instruments directive method is the way 323 00:22:03,960 --> 00:22:07,600 Speaker 1: that acronym now explain what it is and how does 324 00:22:07,680 --> 00:22:10,560 Speaker 1: that fit into the world of investing? What is so 325 00:22:10,680 --> 00:22:13,879 Speaker 1: people can understand it. So so this is actually method 326 00:22:13,960 --> 00:22:16,720 Speaker 1: to the first method was somewhere on two thousand four 327 00:22:17,480 --> 00:22:20,320 Speaker 1: there and they're they're updating the rules as we speak, 328 00:22:20,400 --> 00:22:22,520 Speaker 1: or they just finished them. We're looking to go live 329 00:22:22,720 --> 00:22:26,840 Speaker 1: January three. UM. There are a couple of parts to it, 330 00:22:26,880 --> 00:22:28,879 Speaker 1: but what they're trying to do is reduce conflicts of 331 00:22:28,920 --> 00:22:32,560 Speaker 1: interest in the investment process. And one of the biggest 332 00:22:32,560 --> 00:22:34,719 Speaker 1: things that they're trying to do is is focus on 333 00:22:34,760 --> 00:22:38,600 Speaker 1: how research has paid for. Traditionally, research has been kind 334 00:22:38,600 --> 00:22:42,440 Speaker 1: of included, um, you know and being paid for as 335 00:22:42,480 --> 00:22:44,440 Speaker 1: part of the trading commissions. When you send me in 336 00:22:44,600 --> 00:22:46,880 Speaker 1: order I send your research, or I send you more 337 00:22:46,920 --> 00:22:49,800 Speaker 1: likely I send your research on on in the desire 338 00:22:49,840 --> 00:22:52,879 Speaker 1: for you to trade with me. UM, I know this company, 339 00:22:52,960 --> 00:22:55,880 Speaker 1: so you should give your order to me. What what 340 00:22:56,040 --> 00:22:59,000 Speaker 1: Europe is trying to do basically is say that now 341 00:22:59,240 --> 00:23:02,520 Speaker 1: that's kind of inducement to trade. I'm giving you something 342 00:23:02,520 --> 00:23:06,400 Speaker 1: of value on the hopes of you sending me um 343 00:23:06,640 --> 00:23:10,280 Speaker 1: orders um and into certain ecenter. An inducement is almost 344 00:23:10,320 --> 00:23:13,040 Speaker 1: like a bribe. So I'm giving your research for the 345 00:23:13,080 --> 00:23:15,880 Speaker 1: bribe for getting your your order to me. So it's 346 00:23:15,880 --> 00:23:18,800 Speaker 1: not just so, it's not just so. What they're trying 347 00:23:18,840 --> 00:23:22,920 Speaker 1: to do is split the payment for research um away 348 00:23:22,960 --> 00:23:26,359 Speaker 1: from trading commissions and trying to get the by side 349 00:23:26,359 --> 00:23:29,119 Speaker 1: traders to focus only on best execution, not have to 350 00:23:29,160 --> 00:23:33,000 Speaker 1: worry about research. Then have the research valued. So I 351 00:23:33,040 --> 00:23:35,439 Speaker 1: have to make an agreement to value every piece of 352 00:23:35,480 --> 00:23:38,480 Speaker 1: research or every research agreement that I have, and pay 353 00:23:38,560 --> 00:23:42,160 Speaker 1: for it either out of of hard dollars, basically write 354 00:23:42,160 --> 00:23:44,879 Speaker 1: a check for it out of my own P and L, 355 00:23:45,880 --> 00:23:50,439 Speaker 1: or really tightly align that with the customer, uh, the 356 00:23:50,480 --> 00:23:54,240 Speaker 1: actual investor. So basically charge that research back to the 357 00:23:54,280 --> 00:23:59,200 Speaker 1: individual customer. How does that work in a world where 358 00:23:59,240 --> 00:24:02,000 Speaker 1: the research can't be linked? Well, maybe it can, but 359 00:24:02,000 --> 00:24:03,840 Speaker 1: where I would think it'd be difficult to link to 360 00:24:03,960 --> 00:24:06,480 Speaker 1: something that is revenue generating In other words, it's great 361 00:24:06,520 --> 00:24:09,600 Speaker 1: if you're making money, you're generating revenue, but if this 362 00:24:09,680 --> 00:24:12,439 Speaker 1: is all the cost side of the business, how do 363 00:24:12,640 --> 00:24:15,120 Speaker 1: you justify it and price it. Well, it's a little 364 00:24:15,119 --> 00:24:17,760 Speaker 1: easier on the equity side because they're commissions. This is 365 00:24:17,840 --> 00:24:20,320 Speaker 1: really difficult on the fixed income side. And the fixed 366 00:24:20,320 --> 00:24:22,440 Speaker 1: income side is included in the fit as well. So 367 00:24:22,520 --> 00:24:24,760 Speaker 1: now you know, on the fixed income side where you're 368 00:24:24,800 --> 00:24:28,159 Speaker 1: not actually paying you know, basis points and commission or 369 00:24:28,200 --> 00:24:31,480 Speaker 1: in the US, you know, since per share, you actually 370 00:24:31,640 --> 00:24:33,480 Speaker 1: have to figure out a way to value this thing. 371 00:24:33,800 --> 00:24:38,120 Speaker 1: And they're still having problems with that. But um yeah, 372 00:24:38,119 --> 00:24:41,679 Speaker 1: you know people the by side firms. The firms have 373 00:24:41,760 --> 00:24:44,640 Speaker 1: to decide how much is this research worth, whether it's 374 00:24:44,960 --> 00:24:47,760 Speaker 1: could be a sector, a sector that's completely you know, 375 00:24:48,000 --> 00:24:50,480 Speaker 1: we're not really interested, but I but I like these guys. 376 00:24:50,520 --> 00:24:52,959 Speaker 1: They put out great insight. The sector is cool. Right now, 377 00:24:53,000 --> 00:24:54,960 Speaker 1: I'm not investing in it, but I still want the research. 378 00:24:55,240 --> 00:24:56,800 Speaker 1: You still have to come up with a value for 379 00:24:56,920 --> 00:24:59,439 Speaker 1: it and pay for it and then assign that payment 380 00:24:59,480 --> 00:25:01,000 Speaker 1: to your clas in or pay for it out of 381 00:25:01,000 --> 00:25:04,439 Speaker 1: your own pano. So what is the conflict or what 382 00:25:04,560 --> 00:25:07,600 Speaker 1: is the challenge of implementing this and where are we 383 00:25:07,680 --> 00:25:10,679 Speaker 1: in that process because these Securities and Exchange Commission has 384 00:25:10,720 --> 00:25:13,560 Speaker 1: got to have a voice in this. Well, initially this 385 00:25:13,680 --> 00:25:16,080 Speaker 1: was thought to be just a European problem, and the 386 00:25:16,200 --> 00:25:18,800 Speaker 1: sec has basically said, you know what, we're not going 387 00:25:18,840 --> 00:25:20,719 Speaker 1: to deal with this as a European problem and we're 388 00:25:20,760 --> 00:25:22,800 Speaker 1: not going to worry about it. As we talked to 389 00:25:22,840 --> 00:25:25,720 Speaker 1: institutional investors and traders, what we're finding out is that 390 00:25:25,880 --> 00:25:29,119 Speaker 1: the the institutions want one way of handling conflicts of 391 00:25:29,160 --> 00:25:32,120 Speaker 1: interest and payment for research around the globe. As well 392 00:25:32,160 --> 00:25:34,639 Speaker 1: as when you look at investment mandates, you know you 393 00:25:34,680 --> 00:25:37,280 Speaker 1: may not necessarily you know, your investment mandate maybe why 394 00:25:37,320 --> 00:25:40,119 Speaker 1: it might be technology, so it might be Apple. It 395 00:25:40,200 --> 00:25:42,800 Speaker 1: might also be vot a phone, so so you know 396 00:25:43,160 --> 00:25:46,000 Speaker 1: a lot. You know, it may not necessarily be geographically focused. 397 00:25:46,000 --> 00:25:48,800 Speaker 1: So you wind up in these issues where okay, well 398 00:25:48,840 --> 00:25:51,320 Speaker 1: this one, I can you know, charge through commissions as 399 00:25:51,359 --> 00:25:53,960 Speaker 1: in the US it's Apple, but you know this one's 400 00:25:54,000 --> 00:25:55,800 Speaker 1: voting phone. It needs to be paid for directly. So 401 00:25:55,840 --> 00:25:58,480 Speaker 1: the by side firms, the institutional investors kind of want 402 00:25:58,520 --> 00:26:01,439 Speaker 1: one way of doing it. Where we are is that 403 00:26:02,200 --> 00:26:05,199 Speaker 1: in the US, most firms of now are a lot 404 00:26:05,280 --> 00:26:08,480 Speaker 1: of firms, especially the larger ones, are starting to make 405 00:26:09,119 --> 00:26:11,639 Speaker 1: agreements for their research. They've kind of said, you know what, 406 00:26:12,040 --> 00:26:15,720 Speaker 1: here's our research budget budget, here's our execution budget. I'm 407 00:26:15,720 --> 00:26:18,840 Speaker 1: a trader. I only worry about best execution. I might 408 00:26:18,880 --> 00:26:21,200 Speaker 1: tack on a couple more cents per share to pay 409 00:26:21,240 --> 00:26:24,080 Speaker 1: for the research, but the research has very little, if 410 00:26:24,119 --> 00:26:28,320 Speaker 1: any discretion into where I trade. UM that that's a 411 00:26:28,440 --> 00:26:31,600 Speaker 1: that's a significant portion of it. But does it does 412 00:26:31,720 --> 00:26:35,320 Speaker 1: It's not really in fully unbundling in in terms of 413 00:26:35,440 --> 00:26:38,960 Speaker 1: you know what Europe is saying, because there those payments 414 00:26:38,960 --> 00:26:41,920 Speaker 1: need to be then defined to me as an investor, um, 415 00:26:41,960 --> 00:26:44,320 Speaker 1: and how do I charge the client? And what is 416 00:26:44,359 --> 00:26:48,600 Speaker 1: the contract between me, the institutional investor and the pension 417 00:26:48,640 --> 00:26:51,639 Speaker 1: fund And many of the firms have not really developed that. 418 00:26:51,720 --> 00:26:53,400 Speaker 1: And then there are a number of other issues where 419 00:26:53,400 --> 00:26:57,600 Speaker 1: I just said fixed income, best execution, analytics, and a 420 00:26:57,640 --> 00:27:00,119 Speaker 1: couple of other things as well. Market structure issue is 421 00:27:00,160 --> 00:27:02,640 Speaker 1: in terms of dark pools and where things trade. It's 422 00:27:02,640 --> 00:27:05,960 Speaker 1: a pretty encompassing set of regulations. Sounds like this is 423 00:27:06,000 --> 00:27:08,040 Speaker 1: not something that is set in stone by any means 424 00:27:08,160 --> 00:27:10,920 Speaker 1: right now, and that's currently undergoing, you know, a response 425 00:27:10,960 --> 00:27:13,840 Speaker 1: from the industry, Well, the regulations are right, but I 426 00:27:13,840 --> 00:27:15,840 Speaker 1: mean the response from the industry what they're gonna do. 427 00:27:16,000 --> 00:27:18,879 Speaker 1: But there are there are a number of folks, you know, 428 00:27:18,920 --> 00:27:21,040 Speaker 1: we're talking with some of the largestness swial investors and 429 00:27:21,760 --> 00:27:23,639 Speaker 1: they're trying to get ready for China with her. But 430 00:27:23,760 --> 00:27:25,439 Speaker 1: I'm not sure they're going to be there. Thank you 431 00:27:25,560 --> 00:27:28,600 Speaker 1: very much, Larry tab always a pleasure, Chief executive founder 432 00:27:28,600 --> 00:27:33,159 Speaker 1: of the Tab Group based in New York. Thanks for 433 00:27:33,240 --> 00:27:35,879 Speaker 1: listening to the Bloomberg P and L podcast. You can 434 00:27:35,920 --> 00:27:39,760 Speaker 1: subscribe and listen to interviews at Apple Podcasts, SoundCloud, or 435 00:27:39,800 --> 00:27:43,280 Speaker 1: whatever podcast platform you prefer. I'm pim Fox. I'm on 436 00:27:43,320 --> 00:27:47,160 Speaker 1: Twitter at pim Fox. I'm on Twitter at Lisa Abramo. 437 00:27:47,280 --> 00:27:49,879 Speaker 1: It's one before the podcast. You can always catch us 438 00:27:49,920 --> 00:27:51,480 Speaker 1: worldwide on Bloomberg Radio.