Russian Tech Is Leaking Into North Korea, Atlantic Council's Cohen Says

ongoing nuclear and missile program. He describes the tests as a flagrant violation of u N rules, but he does say that resolving the crisis is impossible without fresh talks. Here to tell us more is Ariel Cohen. He is a Senior Fellow at the Atlantic Council and director of the Center for Energy and Natural Resources and Geopolitics at the I A g. S. And he joined us on the phone. Ariel, thank you very much for being with us.

What do you make of President Vadomir Putin's comments and also his conference with the joint news conference with the South Korean leader mun Ja In the best case scenario, puting is trying to elbow himself into a negotiating position and be a mediator. But I'm looking at the worst case scenario in which Russia is trying to replace China

as the great power sponsor of North Korea. Uh. The remarks were unprecedented because Kim Jong un is breaking decades long policy of non proliferation that the Soviet Union and then Russia, China and the five permanent members of the United Nations, including the United States, we're always supporting. We were always against proliferating nuclear weapons to new actors, be

at Pakistan or Iran or North Korea. And what we see now is the sea change in which Russia is effectively supporting Kim Jong saying, no sanctions, no military action. So what are we supposed to do? Uh to kiss him? So uh, this is bad news. And also I'm looking how the North Korean missile nuclear weapons um and UH miniaturization of warheads capacities are going up. And I suspect

I don't have a proof. I don't have access to classified materials or intercepts of the emails or phone calls, but I suspect maybe, just maybe Russian technology is leaking into North Korea as we speak. Well, maybe you could give us the context for us because this would not be the first time that Russia or in previous guys

is the Soviet Union was a supporter of North Korea. Absolutely, the grandfather other Um of the current leader Kim Uh Kim ill songs Uh he said, I believe he even saw himself maybe as a as a competitor or as a challenger to the mantle of of leader to Maltzi tongue. At the time, well, he was of course a much smaller player, but he was indeed an asset of the Russian of the Soviet military. He served in the Soviet military as they rolled Uh into Korea during the war

with Japan. Uh and Uh he indeed was very He was a Stalinist. He he was the product of that era, a totalitary and leader. What's fascinating with North Korea. North Korea is probably the only Uh Stalinist dictatorship left on the planet. With his parades and with absolute political reporting, when people are ratting each other out to the authorities,

Uh so Um. With time, they started to push away his son Uh pushed away both the Russian faction and the Chinese faction eventually, and now the grandson Um Uh is of course cracking down on the pro Chinese and even killing some of the members of his family who are pro China. So the relationship with China is complicated. But nevertheless, both China and Russia are using North Korea as a battering ramp against the United States and our interests in the Pacific, as well as against our allies, uh,

the Japanese and the South Koreas. So can you lay out a scenario in which there is some resolution that is peaceful. Well in the ideal world, uh and uh this this looks less and less realistic in the ideal world. The great hours, the US, China, and Russia. We'll say, we don't need a malignant proliferator. We know about the ties between North Korea and Iran. UM. Most probably Iranians have more money from oil sales. They give the money

to Kim. Kim also proliferated nuclear uh weapons technology to Syria. You remember in two thousand and uh seven, I believe we're two thousand and six, the Israelis in a night strike destroyed uh a plutonium reactor in Syria, a reactor that was based on North Korean technology. Uh. So Uh, they are a malignant proliferator and great powers if they were responsible, if they behaved as adults would get together and squelch uh. That's regime's ability to produce nuclear weapons

and the means to deliver ballistic missiles. Now we are, I think on the cost of the whole new ball game in which we may be hit with a nuclear weapon from North Korea realistic possibility. I hope as we as we all do, we hope this doesn't does not happen. I want to thank you Ariel Cohen. He is a Senior Fellow at the Atlantic Council, Director of the Center

for Energy, Natural Resources in Geopolitics. Hurricane Irma has damaged buildings and infrastructure in the Eastern Caribbean, packing winds of a hundred and eighty five miles per hour. The storm made landfall in bar Buddha around who a m. This morning. And here to help us understand what's next is Shenando Bassu, meteorologist and guess analyst for Bloomberg New Energy Finance. Shenando always al asure. Thanks for joining me. Tell us the latest on the Hurricane Irma, Hey him, Yeah, great to

be here. So IRMA very powerful storm right now today. As of the advisory put out by the National Hurricane Center this morning. The track has actually shifted just a little far east, so as it heads up right now, um, it's actually heading about you know, northwest, and then once it reaches just north of Hispaniola, it's going to be making the right turn as we can see on the you know, the projected track here, and it'll be grazing you know, the east coast of Florida, but of course

impacting the entire state. The warnings that have gone out for this Category five storm are in Puerto Rico, as well as the islands of St. Kitts, Nevas, the Virgin Islands, and as you said, Hispaniola, Dominican Republican Haiti, Cuba also being threatened. Has has there been any update on whether this storm is still going to cause widespread destruction in those places? It certainly is, you know, very very high winds. We have winds in excess of a hundred and seventy

miles per hour with an incredible storm surge. We expect the hurricane itself to strengthen for at least another forty eight hours, or strengthen or rather keep its current um its current energy going, and then by the time we get to a Friday or Saturday. That's when we'll maybe start to see a slight decline in its in its power, and then it'll probably get downgraded to a Category three

or four just before making landfall. Well, there's a report that, for example, roofs roofs were ripped off buildings and homes were flooded on the islands of Saint Bartholomy and Saint Martin the eye of the storm passed overhead. Is there going to be any lingering effects in terms, let's start with transport, and I'm thinking of oil that needs to come out of Venezuela and be refined. Yes, So there are a few numbers of the number of refineries that

are in the way. Certainly those are on the islands um that you mentioned previously, and also a couple in the d R and Haiti, and so any ships that are trying to make their way over there certainly not going to be able to UM in the coming days. Now, as far as the actual assets are conversed concern the refineries, those may definitely be out of service until further recovery efforts can be put into place. And in many places, of course, electricity is out and the infrastructure has been destroyed.

That's going to take time to rebuild it certainly is. Yes, the effects perhaps in the United States because of this eastward turn, what will it mean just large amounts of rain and wind? Or will it I mean, are we still bracing for a hurricane to hit the Florida coast. Yes, it's going to you know, it's a major hurricane at the end of the day. And yes, that does mean a lot of rain, certainly, you know, twenty in parts at least, if not more, with very very high winds

along there along the coast. Because of the trajectory of Irma right now, Hurricane Irma, we could see effects as far north as the Carolinas into next week, and that's something of course that will have to keep an eye on as the storm progresses. Will there be any effects you think in the Gulf of Mexico as a result of Irma? Well, currently, any ship traffic and tanker traffic that's out there may very well be affected. Of course,

this is a very large storm. It covers a very large area, and so as a result, we can definitely expect some maritime effects in the eastern half of the Gulf of Mexico. For sure. Is that unusual that the size of the storm, not necessarily the ferocity, but but the actual size. The size is not so unusual. I mean, we've certainly seen hurricanes that are very large in the recent past. UM. But the intensity, of course, as we know, this is the most powerful Atlantic hurricane in history, which

is incredible in of itself. Well, I know also that there have been efforts already underway. I mean the President has UH already declared a disaster area in order to facilitate the emergency evacuation. And Governor Rick Scott said that the storm surge could cover your house. We can rebuild buildings, but can't rebuild your family. Uh. And he has put out an evacuation order. Yes, and I'm glad he has. UH. This is going to cause a lot of damage along

the coast. The storm surge, especially UM puts human lives at risk, and so I think this is the right thing to do. Well. Uh. Indeed, for example, the season opener of the NFL Miami Dolphins Tampa Bay Buccaneers that's been postponed because of IRMA, it will be played in Miami on November. Then there are we were speaking earlier and there are many insurance claims that are going to be filed as part of this. What about the industrial insurance aspect, you know, the refineries, the ships, all of

that infrastructure that's got to have commercial insurance. Now, yeah, there's definitely going to be commercial impacts. I can't speak too much to the insurance side of UM and you know that's side of this whole lot, but something we should look out well. And in fact, the governor of Puerto Rico, Ricardo Rosello, he declared a state of emergency and has also activated the National Guard. What about getting

supplies to people that need them? Is that going to be affected by I mean it must be affected by the lack of transport. I mean you're not going to be able to get water, plywood, batteries and generators, uh, if you can't actually physically get it there, right, So, as far as proper sans go, they will have to be UM. I think, you know, at this point, we're we're kind of beyond the time UM that we can

get things in or out of those areas. So most likely we'll have to wait till after the storm passes to you know, fly planes in or even UM barges or ships that can carry those kinds of goods. Now, know what, what have you? Just maybe just give us an update of what you've heard, for example, of the rebuilding or vamping efforts as a result the Hurricane Harvey in the in the Gulf, because I know that was

that was just the last hurricane. Yeah, yeah, and uh, this is the second major hurricane in a row that will be making landfall here in the US. Harvey's impacts, of course, are still ongoing. I mean, the rebuilding is just barely getting started, you know along the coast of Texas. UM, the commercial side of things still still feeling those impacts as well. I mentioned previously that we had you know, gasolene tankers, UM that we're not able to get to

Florida and you know delivery gatholene. And now as people are evacuating, UM, there's definitely some tightness in the supply market over there as a result of that. Right, all right, Well, thank you very much. Shnandobasu is our meteorologist guess analyst for Bloomberg New Energy Finance talking about the hurricane Irma. Well, Hurricane Harvey's cost to the victims in the path and

two taxpayers is still being calculated. Indeed, the governor of the state of Texas, Greg Abbott, he said that Texas could need more than a hundred and twenty five billion dollars from the US government. Well, what role will the insurance industry play in this? Jonathan Adams is our senior industry executive analyst for insurance. He's for Bloomberg Intelligence and he joins US. Now, you know, Jonathan, I'm trying to understand.

There are so many different types of insurance, and one of the things I read recently is that the Consumer Federation of America said that only twenty of the people in Texas who are affected by Hurricane Harvey have insurance. And then when I look at the details, it says private property insurance policies normally do not cover flooding. So I'm wondering, tell us the sort of disposition of who has insurance and who's on the hook for it. Sure, I'd be happy to do that. So, UM, in terms

of consumers, You're exactly right. The number that UM purchase insurance independent of their normal homeowners policy is a relatively small percentage. UM having said that most of those that do are the ones that are located in floodplains, and they will UM receive some support from the National Flood Insurance Program. So UM that federally run program will UH step in and be paying a large portion of the total in short loss for UH individual homeowners, for UM

commercial enterprises, and for other types of losses. For example, there were half a million vehicles at least that have been estimated to have been damaged in this storm. UM ordinary auto policies will pick up that cost. So for the private insurance industry, UM, a cost like that will in fact be picked up and those individuals will be made whole for their loss. Okay, so let's move on then to what happens to let's say, these commercial lines

for things such as property, inland, marine, UH and related lines. Right, I mean that that is something that travelers as well as CHUB. Well that's the group is responsible for. Is

that correct? That's exactly right. And UM certainly those companies do you have some personal lines coverage, but predominantly they're commercial writers, and they will be paying UH some flood losses because UH that type of commercial policy, UM does have an opportunity to bring in flood coverage UH, and some individual companies will be taking that coverage and also important business interruption. So if your factory or store is closed because of a covered peril, you will receive some

reimbursement for that closure. UM and companies like Travelers, Chubb, and a G all have fairly significant market share relative to the industry as a whole, and UM they will certainly be UM writing some checks to support UM business owners in Houston. Is there is there something that we should know about the National Flood Insurance Program and how

that works alongside private insurance, Well, I think UM. The important part of that program is unfortunately that it's not priced UM very carefully in terms of the actual exposure that it takes. As a result, it's operating at a loss today. UM. This particular storm will make that worse. And really what Congress needs to do is to adjust those prices that the n f I P charges in order for it to be a sustainable program in terms of what it offers the individuals. Today. UM, it's it's

pretty good coverage. It's up to town and fifty dollars for an existing residents plus a hundred thousand dollars for content. So, uh, the coverage is good. It just needs to be priced in a fashion that it can really be sustainable for UM. All the people that to kind upon it and are there private insurance company needs that actually participate in reinsurance that's then provided to the National Flood Insurance Program UM.

There are the the the program has just recently begun to reinsure some of its exposure, and there were UM quite a few in fact, reinsurers that participated in UM a contract where a billion dollars was put into the

private sector. UM their various limits with regard to that, but my estimate is that probably the n f i P will collect UM a full billion dollars to deal with its losses, and those reinsurers would really run the gamut UM they're they're typically smaller companies like a Renaissance Rey or Validis, but UM, as I said, participated, so it would also likely include the likes of the Munich

reason the larger entities as well. But generally speaking, that risk has been spread broadly and it will affect the reinsurance companies, but more importantly UM. It's providing participation by the private sector to support this program that, as I said, we really need to have continue in the future. Well We're going to send that note to Congress. They got a lot on their docket that they need to do. Jonathan, last point to you, what about specialty insurance for things

like refineries and oil platforms. UM, those certainly are at risk as well, and there are a number of entities that are specialty companies. UM. Much of that coverage isn't what's called the excess of surplus lines market and UM it's highly technical because of the UH the difficulties of assessing the risk for those types of plant equipment. But they will certainly UM be in the number of did ease that will see some reimbursement. Jonathan Adams, thank you

so much, senior insurance industry analyst for Bloomberg Intelligence. I want to turn our attention now to an effort by the European Union to put together a regulatory framework that they say will protect investors. And this has to do with the research that investment professionals receive, how much they pay for it, and how much it is actually worth. Here to help us understand this issue is Larry tab He is the chief executive and the founder of the

Tab Group. They're based in New York, and he joins me here in our eleven three oh studios. Larry, thank you very much for being great. I want maybe you can just start us off by explaining how these regulations, uh, and I'll give the full name of it right it's markets in Finance show instruments directive method is the way that acronym now explain what it is and how does that fit into the world of investing? What is so

people can understand it. So so this is actually method to the first method was somewhere on two thousand four there and they're they're updating the rules as we speak, or they just finished them. We're looking to go live January three. UM. There are a couple of parts to it, but what they're trying to do is reduce conflicts of interest in the investment process. And one of the biggest things that they're trying to do is is focus on

how research has paid for. Traditionally, research has been kind of included, um, you know and being paid for as part of the trading commissions. When you send me in order I send your research, or I send you more likely I send your research on on in the desire for you to trade with me. UM, I know this company, so you should give your order to me. What what Europe is trying to do basically is say that now

that's kind of inducement to trade. I'm giving you something of value on the hopes of you sending me um orders um and into certain ecenter. An inducement is almost like a bribe. So I'm giving your research for the bribe for getting your your order to me. So it's not just so, it's not just so. What they're trying to do is split the payment for research um away from trading commissions and trying to get the by side traders to focus only on best execution, not have to

worry about research. Then have the research valued. So I have to make an agreement to value every piece of research or every research agreement that I have, and pay for it either out of of hard dollars, basically write a check for it out of my own P and L, or really tightly align that with the customer, uh, the actual investor. So basically charge that research back to the individual customer. How does that work in a world where

the research can't be linked? Well, maybe it can, but where I would think it'd be difficult to link to something that is revenue generating In other words, it's great if you're making money, you're generating revenue, but if this is all the cost side of the business, how do you justify it and price it. Well, it's a little easier on the equity side because they're commissions. This is really difficult on the fixed income side. And the fixed

income side is included in the fit as well. So now you know, on the fixed income side where you're not actually paying you know, basis points and commission or in the US, you know, since per share, you actually have to figure out a way to value this thing. And they're still having problems with that. But um yeah,

you know people the by side firms. The firms have to decide how much is this research worth, whether it's could be a sector, a sector that's completely you know, we're not really interested, but I but I like these guys. They put out great insight. The sector is cool. Right now, I'm not investing in it, but I still want the research. You still have to come up with a value for it and pay for it and then assign that payment to your clas in or pay for it out of

your own pano. So what is the conflict or what is the challenge of implementing this and where are we in that process because these Securities and Exchange Commission has got to have a voice in this. Well, initially this was thought to be just a European problem, and the sec has basically said, you know what, we're not going to deal with this as a European problem and we're

not going to worry about it. As we talked to institutional investors and traders, what we're finding out is that the the institutions want one way of handling conflicts of interest and payment for research around the globe. As well as when you look at investment mandates, you know you may not necessarily you know, your investment mandate maybe why it might be technology, so it might be Apple. It might also be vot a phone, so so you know

a lot. You know, it may not necessarily be geographically focused. So you wind up in these issues where okay, well this one, I can you know, charge through commissions as in the US it's Apple, but you know this one's voting phone. It needs to be paid for directly. So the by side firms, the institutional investors kind of want one way of doing it. Where we are is that in the US, most firms of now are a lot of firms, especially the larger ones, are starting to make

agreements for their research. They've kind of said, you know what, here's our research budget budget, here's our execution budget. I'm a trader. I only worry about best execution. I might tack on a couple more cents per share to pay for the research, but the research has very little, if any discretion into where I trade. UM that that's a

that's a significant portion of it. But does it does It's not really in fully unbundling in in terms of you know what Europe is saying, because there those payments need to be then defined to me as an investor, um, and how do I charge the client? And what is the contract between me, the institutional investor and the pension fund And many of the firms have not really developed that. And then there are a number of other issues where I just said fixed income, best execution, analytics, and a

couple of other things as well. Market structure issue is in terms of dark pools and where things trade. It's a pretty encompassing set of regulations. Sounds like this is not something that is set in stone by any means right now, and that's currently undergoing, you know, a response from the industry, Well, the regulations are right, but I mean the response from the industry what they're gonna do.

But there are there are a number of folks, you know, we're talking with some of the largestness swial investors and they're trying to get ready for China with her. But I'm not sure they're going to be there. Thank you very much, Larry tab always a pleasure, Chief executive founder of the Tab Group based in New York. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, or

whatever podcast platform you prefer. I'm pim Fox. I'm on Twitter at pim Fox. I'm on Twitter at Lisa Abramo. It's one before the podcast. You can always catch us worldwide on Bloomberg Radio.