Knowledge is Power in Thanksgiving Travel, Kheel says

for its courage. It is the most unloved bull market still, isn't it is? And it has been for a long time. I would say we're going on years now that investors have been asking me is it going to be over? And in actuality, if you look at the macro environment right now with growth above trend in over sixty sign of the countries around the world, that is a better macro backdrop that we've had in some time. Max Roser, who who does brilliant work out on Twitter and charts,

I'll retweet out his work folks. He's in England just I think he's at Oxford. He does just great work. He said. The poorest Portugal's poverty oft was worse than any country today. I mean it is a more prosperous world, a more prosperous emerging markets. How does Oppenheimer Funds invest differently now in emerging markets than you did ten and twenty years ago. Well, we've always been looking for exceptional companies in the emerging markets, true growth companies in the

emerging markets. So I think it's more that maybe some of the investors in the emerging markets have come to us rather than us change our process significantly. You know, people usually thought of emerging markets as state owned companies and big energy names, and that's basically what the indices

are comprised of. We've always looked for growth in the emerging markets and UM as you've seen, you know, particularly with companies in China this year and other parts of the emerging markets, very very strong returns as investors look for true growth in a slow growth world. Brian, good

morning to you, or good afternoon from London. In fact, when you're looking at an emerging markets, are you looking at a particular asset class or you invest in cross asset So at Oppenheimer Funds we have investments across the emerging markets. We run the largest UM equity emerging market fund UH and we also manage money in the emerging market debt space as well. But what we're focusing on as investors is a very nice macro backdrop in the emerging markets, the likes of which we haven't had in

a handful of years. You have um, you know, China slowing, but to a what we believe is a higher quality level of growth. You have Latin America recovering, You have the oil producers recovering, and what most and as important, you have inflation which has come down in the emerging markets,

which has allowed policy makers to be more accommodative. So on the fixed income side, attractive real yields and currencies that were beaten up on the equity side, very nice growth stories, both on the macro side but at the individual company level as well. As we look ahead to the FED minutes coming out later, how much of a risk to emerging markets does the tightening cycle from the Fed pose? Is it as much of a risk as it used to be. It is not as much as

a risk as it used to be. If you remember the taper tantrum in real yields in the emerging markets were close to you know, one or below one. If you look at when the FED raised raids for the first time, in real yields in the emerging markets were very low as well. So what that meant was inflation was was generally high in the emerging markets and it wasn't attractive for investors to be there to the extent

that it is now. So you had capital flight at this point in the cycle withinflation significantly down in the emerging markets. You have real yields on the order of three percent or so an aggregate across the emerging markets. So as the FED raises rates UM, which we believe will ultimately be of continue to be gradually and slowly um, there is less like you are significantly less likely to

see capital flight from the emerging markets. But I'm glad that they brings us up because, to be honest, I've been remiss in not doing a real yield analysis. Let's back up to investment one oh one. Why should our listeners look at inflation adjusted yields versus the nominal yield,

which is where the corporate officer lives every moment. Well, I mean, you want your standard of living to improve, so if you can, if you can generate income above the rate of inflation, your standard of living is improving. Some of the difficulties that investors have right now in the United States. If you look at a ten year treasury rate of I think around two thirty five to forty with inflation of around two, that's akin to running on a treadmill. You're not really getting anywhere, and you're

taking on interest rate. So that looks the real yield in the Philippines or Poland, or you don't name your other favorites. So if you looked in aggregate across the emerging markets, you're at about three percent real years. So I'm gonna pick up two hundred basis points plus two full percentage points a real yield. Do you hedge that against the currency risk? We can hedge that against the currency risk. We will use currencies as a lever to

pull to drive returns. What you have right now is a generally weaker dollar and currencies across the emerging markets that are generally under value to the U. S Dollar on a purchasing power parody basis. So we believe that currency is additive to fixed income emerging market returns at this point in the cycle. On the equity side, we believe that hedging currencies adds cost and complexity of the portfolios, and over longer term time periods is generally a gosh.

So unfixed income we have the ability um to hedge currencies, and we do so at certain points um. On the on the equity side, we typically do not hedge the currency. Brian, I want to pivot the conversation slightly to the to Europe and the US, so we keep talking about the relentless flattening of the U S yield curve. Right, Let's take the twos tense for example. The German twos tense curve has been flattening as well, but the spread between the two is the most positive since two thousand and six.

Does that mean adding duration in Germany suddenly looks relatively cheap even if absolute yields are well below those in the US. Yeah, it does, but it's not. It's still not a particularly attractive investment many of the developed market UH fixed income instruments. I would say, you know, with regards to the flattening in the United States, I think what it says to me is that the Federal Reserve is ultimately going to have to back off its um

off its tightening stance. There simply not enough spread between two and ten. Uh. The Fed really wants to raise interest rates three or four times in the coming year. You're gonna see a flat yield curb if that were to happen. Investors your to your point, might be happy to have some duration in their portfolio. If you look at US investors right now, their short duration. They've been

told to be short duration for eight years. You know, having some duration your portfolio, maybe adding some credit can increase the yield and maybe bring down some vall. It will be interesting to see the two thousand and eighteen research packets and also how they're amended about April next your brand, Levitt, thank you so much with Happenheimer Funds, and thank you to your team. We enjoyed immensely of visiting your studios. Why don't you bring in our steamed

petroleum guests. Yeah, absolutely fantastic to have Philip Veliger here um with with us in the London studio. I understand that you're here in London sort of on a Thanksgiving break, but you've really kindly agreed to drop into surveillance because he likes you so much. Tom, you hear that Happy

Thanksgiving Tom, Well, happy Thanksgiving to you, Mr Roger. You know, I think nearer to have Phil Verliger here is to go back to the hindsight of there were very few people doubting a hundred dollar oil, and Phil Verliger is consistently doubted some of the excesses of of opec in a in a contrived market for years. Phil, do you maintain a lower price for oil? Call this year? Uh? Yes, sir, It's oil prices are going to stay about where they

are right now, maybe fifty, maybe sixty. Think unless Uh, the events in Saudi Arabia, which are the really important event, the the arrest of all the wealthy people essentially attempt trying to extract you know, four hundred or six hundred

billion dollars from these people. Uh. If you look at what's going on in Saudi Arabia, you have a country that is strongly opposed to Iran, Syria and uh in Lebanon, the Hespalaon Lebanon, and although those are backed by the Russians, at the same time, Saudi Arabia has been cooperating with Russia to hold up oil prices. The question is if the assorities are able to accumulate a substantial amount of cash. This essentially double the liquidity of the central bank from

four eight hundred billion dollars maybe a trillion. I think the strategy will then change and they will probably UH increase production because they've been watching the Russian steel market share. At at that point they will be able to go back to the low price scenario for a for a year, to push oil on the market and re establish a

base to grow from in the future. Year. That's really interesting because there's been a lot of expectations ahead of the Opeque meeting, ahead of this month, at the end of this month, and in some ways, you know, you could say that the market has now positioned itself for disappointment.

Almost I think the market has disappointed, and I don't think the Saudis will do anything right now, because what they're doing is essentially trying to extract all this money that they claim has been taken by graft, and that's going to take some time because much of the money is overseas and they can't release these people from there from this UH prison they have them at at the st Regis until they've actually gotten the money back to Saudi Arabia because once the people are out, they can

go to government like the United States or the English government and say the money was taken from us and to arrest and the Saudia Council be frozen. So they need to work it. But if you look, I think the key individual in this whole thing is is not the crown Prince but at al Jabbar, who's the foreign minister and who has been if you go back to he was a spokesman when when they invaded Kuwait, and he his father was the ambassador to Germany, and he's

just a he's really the leading person. You know. The best best example is to read a book by Machiavelli which really describes what he's doing. Uh, and that changes. That's going to change what happens to prices. But Tom, I don't think. I think the question is could they go much lower? And the answer is probably they can't. Well, then that is the eu listicity. You talk about the desire to drill and the idea that cash will chase drilling. I get the idea of cash chasing a hundred dollars

of barrel? Does cash want to chase fifty seven dollar? There? Yes, there was a very good presentation that the Energy Information Agency had last week. It's on on. There was a webcast and RICE did, which is a consulting firm that goes down to the very nitty gritty, laid out a case where it's sixty the barrel. By the end of twenty we have four million barrels a day of production from UH from the Permian, and if it's thirty five dollars, we're down at two million barrels a day. And they

did it almost on a well by well basis. And if you blow this up to the United States, the swing is probably three or four million barrels a day, so they really need it down They can make money according to Rice dead and according to everybody else, at at five dollars a barrel. And if you look at the futures market, open interest and contracts expiring more than twelve months is up by almost six from this time last year, so a lot of that oil has been

hedged through banks or swap dealers and so on. So the next year is already in the can and the production is going to happen. So in terms of the price, then what sort of range are we in and for what time period. Well, I think the range we're going to be in is upper limit, uh, and it's that's probably that's Brent, or it's w t I Houston. The other thing that's happening is the world oil center of the world oil market has swung to Houston, and there's a w t I price in Houston, and the industry

is trading there. Cushing has become less relevant, although it's still the hedging market. But you know, sixty dollars at the top side, uh, fifty dollars on the low side. Again, assuming Saudi Arabia doesn't do something. And this also assumes that the economy keeps growing uh, and it holds together, which of course is the first first part of the story. Phil, We've got two minutes left with you, not even that, And I do want to switch to your historic work

on neft of decades ago. What are the ramifications that you see if the president does away with NAFTA. Um Tom, I've been I keep looking at that, and I've looked. The more I look at it, the more frightened I get. Is that well, because everything moves back and forth across the border without duty, and once you take NAFTA off it's the same thing you see over here with Brexit. I don't know what happens, what happens to manufacturing part production,

and I know people have done different numbers. My guess is GDP is to two percentage points lower twelve months after we pulled out of NAFTA. I think it's that much because you know, the agricultural sector is going to suffer dramatically. I think they everybody says, well, autos will do better. No, autos won't because some of the parts are made in Mexico and they can't get them back. I mean, you can't turn the economy out of the

doct I mean, you're your Nash. It's hard to get parts for your NASH, and it's uh uh you know they're gonna have trouble getting parts and they're trying moving manufacturings. So it's gonna raise costs. And I think it's the thing. My plate plead is, don't do it. Yeah. What I've heard from a couple of people's right where you go Dirtri Furliger, which is the idea of you're gonna need a part for that training and ain't gonna be there. So really good, Thank you so much. Honored with your

visit in London. Really look forward to seeing you in London, New York, Calgary or or Aspen. Phil Roger of his own pker and of course just wonderful and always controversial. On oil. We've of course keeping keeping an eye on Chancellor Philip Hammond's budget. The key thing is that growth forecast for the UK have been cuts. We've seen a little bit of a dip in sterling, also some curve flattening in guilt on that cut to the growth outlook.

But we're also keeping a very close eye on the Brexit development and with us to discuss that is Sony Kappa, Managing director at Redefined. Sony, great to have you on the program and good morning or afternoon to you rather in London. So when it comes to the Brexit negotiations, we're looking ahead to this December EU summit and it seems like finally the UK has given a little at the ground on the brexit bill. Prime Minister Theresa May ready to put more money on the table to settle

that divorce bill. How do you see the negotiations going in December, Well, I think they are going to be very fraud and very difficult and the UK remains in a very tricky situation. So even as we have relatedly accepted that there is a much higher price to be paid for Breakfit, mostly relating to existing obligations of the UK, the issue of the Irish border threatens to actually scupper

the whole negotiations with December. And the background that is that the having a border free crossing between Northern Ireland and an Ireland in UH is an important part of the peace process and that is non negotiable. And of course if the UK leaves the EU and Ireland bills remain in the EU, there will be a bother and the Irish Prime Minister has rightly intervened to say that he will veto any further negotiation with the UK unless and until the UK is able to give an assurance

that there will be no hard boded. That of course is incompatible with the UK actually leaving the Customs Union, which Brexitters want the UK to do and Theresa May had said the UK will do so. Money is one part of the discussion where the UK has finally agreed to double its contribution from twenty billion euros they had said to about forty billion as the starting offer, but the Irish problem remains completely intractable for now. Right, so

how what are the chances then? What where would you put it in percentage terms of their actually being a shift to trade talks in December, uh without some unexpected solution or money from Heaven dropping down to come up with a reasonable solution to the Irish problem. I would say less than twenty right, And already we're hearing that that certain banks are making contingency plans to start shifting business out of London in the first quarter of next year.

That's going to accelerate perhaps then. I think what has happened is up until about a month back, businesses and banks we're waiting and watching to see how things went. But this has been a particularly bad month and a particularly bad week for the UK, with the decision to relocate the European Banking Authority out of London to Paris, the European Medicine Agency out of London Amsterdam, making Brexit very real and businesses can no longer sit on their

hands and wait to do their contingency planning. They are starting to move and a lot of the exodus will actually start even before exit day, if and when it does actually happen. Redefine Managing Director Sony Kapaul, thank you so much for talking us through some of the briggs at risks. What better person to speak to is people around the US get ready for the holiday. Julian Mark Heel, the points guy, senior analyst with us here on Bloomberg Surveillance.

Good morning or good afternoon here in the London to you, Julian, how are you doing? Good morning and afternoon to you. So you're the expert here on travel, people are going to be moving around mean unimaginably for me sitting here in London where we're just probably going to go to the pub around the corner and have some dinner. What are your top tips for traveling at this time of year? Yeah, when when you're traveling in the holiday season, really anytime,

but especially during the holiday season. I like to say knowledge is power. Come armed with information. For instance, Uh, take a look at the map of the airport that you're going to be in. You're hopefully leaving a little extra time to get there and to you may end up in the airport for a little longer than you usually do. So make sure you know what food areas are in the airport where you might need to take your children to have a quick good drink or a

quick bite while you're waiting for the flight. Also know what no, no, no when the children are older. When the children are older, they're downstairs in some bar and I'm up in the gold loins drinking bottled water. That's how it works. Please, that is certainly the ideal, yes, but but at the very least, then know which lounges in your terminal and which club you can go to, and what what will be required for admittance. Also, in case your flight ends up being delayed or canceled, know

what other flights are available with your airline. And that doesn't necessarily mean that they have to be bookable, but what's actually flying. A lot of people rely on the airline agent to tell them what's the next best option. But it helps, actually if you already know what flight you would like to be rebooked on and specifically ask for that. They may not always do it, but if you go in, it never hurts to ask, and it

helps to go in knowing what you want. You know, and look at this and we're sort of going into the you know, the holiday season, and then I guess we're in this slow season. Let's back up. Our flights cheaper than they were a year ago. You know, flights are not necessarily cheaper or more expensive. But if of course all of those fees that the airlines keep tacking on, and people are not huge fans of them, but the airlines are the enormous fans of them because they're generating

billions of dollars of extra Okay, well, Heathrow. Let's go to Heathrow right now. Every time Nera flies to New York, she insists that the surveillance golf stream avoid Heathrow. Come on. The fees of Heathrow are insane. The fees that Heathrow are a special level of insane because of their departure tax.

Especially if you're coming out of Heathrow in a premium class like business or first even on a point or mileage tickets, you're gonna end up paying hundreds of dollars for For Bloomberg, Washington is dullest like the airport that needs the most investment right now. You know, actually I would argue that LaGuardia in New York needs the most investment. It's a small airport that hasn't really had the investment

in years dollars is certainly up there. It could certainly use a lot of work and a lot of resources put into it, But in my heart, LaGuardia is the one that and they are working on LaGuardia, so we'll see how it goes. Julian, You've done some work on the best and worst airlines in the United States and sort of laid out the argument as to whether it's really a case of best and worst or whether it's

just customers perception when it comes to Thanksgiving. I'm guessing all the excitement, potentially all the stress if you've got lots of kids running around, might have some impact on your perception. Two airlines. Two airlines, actually do they pull it out of the bag during the holiday or does it all actually fall apart? You know, it's it's really

tough to run an airline. To give them credit, they're moving hundreds of thousands of people every day in the most and the safest possible transport that's ever been invented by humankind, and to do all that and keep people happy is a tall order. That's not to say they shouldn't,

and some airlines, like in our study. Alaska airlines do it better than others, like say Spirit and Frontier Um, but it's certainly a tall order, and during the holidays it's even harder because of the number of people trappling. Julian Markue whether is the points guy Brian Kelly was going to be with us, but he's in Bali on some hundred flight from Dubai. You wanted to know if you were going to join him? Tom, Yeah, well yeah, I wish that they make kids take all the miles

Bloomberg surveillance this morning. But you by the accountants, the advisors at Eisener Amper. The two thousand seventeen tax season it is upon us. Are you ready for the challenges they are? Visit eisener Emper dot com slash tax reformed Julian. All of this is hinged on charged cards. Who's winning the banks or the airlines? Ah, The banks are winning as far as getting new customers, and the credit card usage,

especially in the US, is at record levels. There's a lot of fees being made off of those cards, from annual fees charged to the consumer to swipe fees charged at the merchant level. The airlines are also doing well. Because of course they sell those more points and miles to the banks. But the banks have really Yeah, the banks have really started to develop their own systems like

Chase Ultimate Rewards and American Express Membership rewards. So they're trying to bring it in house as much as they can. Judy and I just want to ask you a quick question on Ryanair. I mean, here in Europe, the short haul market, the low cost market really giving the legacy airlines a run for their money. Is it that situation in the US or not so much. We have a similar situation with Frontier and Spirit on the low cost end,

It's not quite as intense as Ryanair does it. Ryanair is running a Black Friday sale right now with prices as low as four nine. It's left four dollars and cents or four euro and cents, So we we haven't reached that level yet. Ryan Air has a special, uh special kind of touch with that, but it's it's certainly something that the US air lines see them doing and either have to compete or match. The thing is Ryanair under a lot of challenges at the moment with the

pilots unions. Yes, the pilots are as many of your listeners may know the there was a bit of a snap who it Ryanair last month when they had to cancel thousands of flights because by their own admissions, they the airline messed up their pilots holiday schedule and they ended up canceling fifty or more flights a day for a period of six weeks. Uh and Ryanair didn't do themselves any favors with their customers because, at least at first, they weren't telling their customers more than five days in

advance which flights were going to be canceled. After some strong customer reaction, they reversed that policy and put out a list. But it's come now to a head with the pilots union. Ryan Harris traditionally negotiated directly with the members of their airline hubs, in other words, a set of about eighty or so groups they would negotiate their contracts with, and that was a bit of a divide and conqueror strategy because you can play one off the other.

Now Ryanair's pilots want to form a single trade union and negotiate with just one committee. Yeah, Julians, just one more question our our perception as pilots make big, big six figure numbers, and you know they work like six hours a week. That's the reality in two, is it. It's not, especially when you get down to the regional carriers, where a starting pilot there might only make twenty or thirty thousand dollars a year. Could that be there? How can that be? I mean the kid for starters, A

kid looks like my grandchild. He so the pilot? Are you telling me the pilots making five a year? In some cases now, because there's been such a pilot short recently, they are starting to get sign up bonuses so that they'll come and work for the originals. But yes, when you're starting out, you need your hours and you don't have a lot of time in the cockpit. You you spend a lot of time in the air for not a ton of money. I know more than one pilot

who supplements her income by waitressing. There you go, don't be a stranger. Tell Brian when he gets back that he used to go away again on one of his two dollar trips to an article. We'd rather talk you j Julian killed there. Julian kill with the points guy, Thanks for listening to the Bloomberg surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom Keane before

the podcast. You can always catch us worldwide. I'm Bloomberg Radio