Surveillance: Hard Brexit Looks Very Tangible, Foley Says

with it's foreign exchange. From our Bloomberg Interactive Brooker Studios, we go to London and Jane Folly of Robbo Bank, Jane within the blur. Sometimes when I look at my Bloomberg screen, I squint my eyes. It's just because the red and the green could tell me what's going on. When you try to triangulate the markets right now, you've got to be focused on more than cable right well.

I think Sterling really does give us a really good reflection about how vulnerable investors are feeling with respect to the uncertainty, the political uncertainty in the UK right now. And it's been very interesting this morning listening to jurisam May. She came in front of Parliament and she sounded very defiant initially with respect to you, her dear, but she has been stood now for two hours, more than two hours, and there has been a lot of pressure from MP's

John Ferrell is going Jane, come on now. I just thought it's really interesting watching these headlines to drop across the bloomberg of people I've never heard of resigning, and I imagine most people in the FX market have never heard of them either, with the exception of tomic rap Jane, how important is that just in terms of we don't know who these people are, but just the numbers are what is important here. You have had already four ministers

resigning and an additional to a parliamentary Private secretary. But even if you didn't know those names, you would know the name as you pointed out of Brexit secretary rather now he is he has resigned and you could say, you know, this is the second Brexit minister to set to step down, the second one that really does reinforce

the splits within the cabinet. So we have here in the UK an extremely divided cabinet and extremely divided government and an opposition party which is very market unfriendly, an opposition party which is on the far left that has

policies to renationalize, etcetera. So the political backdop from an investor's point of view now is looking really very ugly and right now also, as many and pis have pointed out to the Prime Minister in Parliament this morning, there probably isn't parliamentary backing for her deal, and she has said if there isn't a deal, the UK is still going to leave the EU in March next year, meaning that the prospect of a hard bread is looking very

tangible today. So Jane, looking at the market right now overnight ball on cable really elevated yesterday and today as well. Still I'm looking at the pricing for a bank having them great hike being taken out for the spring of next year. What do you think we should be paying

attention to in markets right now? Well, you know, unfortunately, because it's so political, there are a lot of investors who are waiting on the headline, on the sidelines, just waiting for those headlines, waiting to see what's going to happen. So politics is very dominant certainly for the UK. I mean beyond that, of course, there is still the focus on on the trade deals on China and the US, on the U s data, see how much that the Fed can hike, to see how much the Federal Reserve

could be impacted by the global growth outlook. There is still bad data for Q three from Germany, from Japan, et cetera, so that there is still an awful lot to focus on. But in the UK for sterling, it's really quite simple. It's on those headlines regarding the UK politic political backdrop, it's it's the end of the year. You're going to start writing the rabble being piece. What

are you writing on the dollar right now? I mean, I know the cables the focus today one, but do you have an interesting dollar call or are you just waiting to see what breaks well. I've been really since since March. It's much of its extincts. To be precise, I've been adollable and my focus was one twelve, which really right now doesn't look that far away. I'm talking

about your dollar clearly doesn't look that far away. Now. Now, I think I can present an argument many commentators can that next year we could see a sarin in the outlook for the US, we could see growth platoning, we could see a platoning in U S rates. But I'm also still really quite concerned about Europe. I'm concerned about European growth, I'm concerned about ECB policy, concerned very much

about populism and the politics in Europe too. So I don't really see a case well by the euro is going to be in any position to take back a lot of ground against I've never asked this question. I'm going to do it right now. Is Brexit just pop is um United Kingdom flavor? Yeah, we've seen populism obviously in the US. We've seen populism in the UK. We've seen populism. We have it. We have it in Sweden, in Germany, we have it in Poland and in Czech Republic.

Jane Folly's excellence totally different than yours. Like when Jane talks, you know where she's from. Where are you from? Jane? Actually I'm from Ireland, but I was. I grew up in Southland, South London, and so that's that much different from where you are up in the Midlands. Yeah, OK, though if I had a Midlands accent, you wouldn't be a radio very very different, but ware into your joinus.

I mean, Brexit is just the populism of the era defined in the United The really interesting thing about Brexit is that on the dawn of Brexit, when we had the sun come up the following day after the votes, and many people sat there and said, big problem for the continent, perhaps the world. Within a couple of months it became less the world, maybe the continent, and then a couple of months after that it could be came maybe this is just a U case. So what's a

big problem right now, Jane? Is it expanding back out from the United Kingdom or is it a discreet story. I think there's two aspects here which could impact the the Eurozone and the EU and and the FIRTS is just as trade in the UK, we import a lot more from Europe than they do from US, and particularly Germany, so that so there's a straight trade front. Um. There's a lot of concerns about supply change, cars, autos except are going back and forth across the border. So we

have this story. But there is the other story, and this is about the integrity of the European project, of the Eurozone project, of the EU. And and this is a question or this is a threat perhaps, so Brexit is potentially a threat to both of those, particularly when you have populism and Italy nibbling at the at the the project as well, where you have nationalism in some countries as well, So populism nationalism they already there in Europe and that to have Brexit happening on the advocates

here is thing which again could undermine the project. So the letters are going in leading Brexit backer Jacob Reese Mark calling for a leadership challenge. Now as we know, Jane, you need forty eight of these letters to trigger a leadership challenge. Is that what is next on the horizon as you sit there in the city of London, people coming around to that idea that a leadership challenge is coming. We've seen several headlines this morning. I think this weekend

is going to be really crucial. We've seen treason May really fighting for her job before UM and I think this weekend is going to be really crucial for her too.

And what's really quite interesting and the two hours where she's been on her feet in Parliament today is a lot of lack of support to some of the funds for that for the deal, but also a lot of questions here for a second referendum, to a lot of people saying that they don't think that there is enough support in Parliament for her, and calls again again about her her leadership or questions about her ship. You know, of course I get all my history out of movies

and and Jane Foley to go back to Lincoln. Daniel day Lewis is Lincoln. They're all job owning about the Emancipation Act. And basically it's like, if you vote for this, I'll give you a you know, some bargain in your district in Ohio or wherever. Is that what goes on here? I mean this Prime Minister may leave House of Commons and go find and can ask a question in English? Hold on, but could some does a member of Parliament get a phone call? You know, we'll give you a subway,

a subway stop, or you know, some infrastructure project. It's that's what we're doing in America. It's not as it's common in the UK. But where do you have that is? Obviously with the d Up Treason may have a minority. The Troy Party have a minority in the House of Commons and she very reliant on the nine of tendencies from the Northern Island d Up Party to support her and went in order to buy that support after the election that last year, and she did certainly the several confessions.

Now this is Reese marg Is that how you said? Did I do well? Calls for a leadership challenge to check that? Three minutes ago I missed it, did I was just sending fan letters out and Jacoba, where your keyboard, Jim? Jane Fowley, what's a leadership challenge? This would be when within the the electoral process is very different. We don't elect a president or Prime minister in the way that you do. We elect the party and then the party chooses the leadership. So this is the different here in

the US. So they would be potentially putting other names in the hats and choosing a new OA. We would still have a Tory government. Jane Fowley. Thank you Civics with Jane Foley of Rabble Bank today for our American audience. John, My worst woman in London was that ending in line at the Tower of London to get in. It was

finding a bar. I could watch an American Football League game and the Detroit Lions are playing, and that's why it's so important to get deep Brexit perspective from our London bureau chief who loves he worships the Detroit Lions. He does, he doesn't care about Villa west Ham East Poultry whatever the Calean. This is the one guy in the United Kingdom I want to talk to you today. Why do you bring him? Mr Calenan of the Detroit Lion not speaking to our London bureau chief about the

Detroit Lions. We're going to talk to him about Brexit. Good morning to you or good afternoon to you, Neil Canahan, good morning. I could give your chapter in first about the Lions as well, obviously carriage Tom you probably will do that, Neil. Just the Prime Minister last the week looking increasingly unlikely, Jonathan Um. She came about today at ten thirty am. She looked confident, she was prepared, the speech was good, and then it just all began to

fall apart. MP after MP it stood up and said that they would oppose the deal that she has agreed, and the chatter during the morning was increasingly that they were getting close to the number of votes that would trigger a vote of confidence in her leadership. The BBC is now saying that that looks likely. Jacob Reese magg who's an arch your your skeptic. He's now said that he's going to send in a letter of no confidence.

He wouldn't do that, I don't think unless he was actually confident that they have the votes to trigger that, to trigger the leadership confidence motion. And so it will be very, very tough for Treason May to survive the week. But then she we've been writing her offer in nearly two years and she's still there. Forty eight votes, forty eight letters needed to get the leadership contest, and I understand you need about a hundred and fifty eight votes to push him out of the position. Now do they

have the numbers? They have about a core of about a g who have consistently been against the deal that was under negotiation, and her in favor of no deal. But now based on what we saw earlier on or MP, after MP and her own party stood up and basically congratulated her for her work, but said this is not going to fly with me or my constituents, and I'm going to oppose the deal. And therefore she's really going to struggle in that leadership contest. The question is who

comes forward? Does Boris Johnson finally make a move. He's treating to before and never has. Who's going to be the obvious competitor to her? Dominic rab who who resigned this morning is probably a contender as well. And then the dangerous that the votes get split and she survives, and what's the alternative? And I think that's what's interesting about all of this. Prime Minister Masa's it's my deal,

no deal, or no Brexit at all. The people, the individuals that have resigned have said plenty about why they don't like the deal on the table, but said little about what the alternative if they pursue would be. Do we have any idea what the brexit? He has actually one here, Neil I think that the Parliament is so

split you just can't say. Because there is an animent of people who do want to second referendum, and she left opened that possibility last night when she talked about now Brexit and the last two years with being a lot of talk about nothing, but that that would seem unlikely. They don't have enough votes at the momentum. High bragsit that the right at the risk of that has risen marketly, and that's what markets are showing this morning. Neil I can get away with this you with your Irish heritage.

If we go back to David Lloyd George, who, among other things folks spoke Welsh and English was a second language, which I find extraordinary. But within the Irish question in the huge battles coming out of World War One, he was shown the door in nine two. When in a parliamentary system, when you're showing the door, do you know who's going to take over or is it a mystery right to the last moment? Is are there ducks lined

up now to take over for prime minister? May I think that's exactly what will be happening in this afternoon. People will be justling for a position so that they're ready to launch their pitch and to go for the leadership. Baris Johnson, Dominick rab maybe even Michael go if treason it's gone, Jim Ferroll. It's so different than America. Well, it's not a presidential system. You're the leader of the party and then you are therefore also the prime minister of your in power um and you vote for the

leader of the party. As a conservative core, it's not the people that vote for not all of the country, it's the conservative members that ultimately will vote for the like the part today it was about speaking to her party, Parliament and the country. You know, it's it's just different. But some people speaking to their constituency and you know the political game for so many people. Tom, that's how

do I get reelected? Neil Alliance Packers and the Lions pack I mean, can the Lions do it to the Packers? They're stumbling the way we've been playing for the last few we with no corner box radio against ironn Rodgers. No, okay, there you are folks from London and Ireland nailing the Michael Bard talk on the Detroit Lions, Neil calling and joining us. Is that? That's the coolest thing about Bloomberg is a guy running or London office is from Ireland

and loves Michael Barr's Detroit. You keep asking how they film one body stadium with NFL fans. There are tons in snowing. If you been over to blooming deal ship my music, I'm gonna get I wouldn't. I would never do that. Have you been over to Bloomingdale's and seeing their Christmas display into other respects? Oh? Mr? You real's you? Not me? You got that right? Feel like him? This morning.

You means and I quote stink stop the Brexit vote was clubs call it fifty eight, depending on who's counting and what the mood was. But in David blanch Flowers Cardiff, where Whales said leave, Cardiff said remain. The prosperity perhaps of Cardiff with a sizeable vote of remains six and leave.

David blanche Flower, of course a member of the Bank of England's committee, and of course iconic and wage economics and macro economics at Dartmouth College, Professor blanch Flower, wonderfully have you with us this morning, Just give us a glimmer of your whales. Why did Cardiff say remain in in Whales stunned? In certainly, well, in some sense what we've seen around the globe is the big cities essentially

work in pre content with where things were. So think about in the US New York and the big cities Chicago, in Britain, London, Um, Edinburgh all voted to remain. The rest of the rest of Wales essentially was pretty unhappy, the old coal towns and the steel towns and rural Wales. But I think the answer now is actually that it appears that the polling in Wales has kind of moved in the other direction, particularly has as Brittles has not delivered.

And obviously today is a big day where markets are in turmoil because it's quite clear that there really hasn't been a deal and there's no deal, there's credible on the table. So now we have I think particularly the big deal today is Scottland back, because Scotland is pretty unhappy and they're not even included, not the words of Scotland isn't even in the in this five page document, and the and the Scots and the Welsh, I think saying if Ireland has a deal, we want to deal

well exactly. And Prime Minister May, in a huge emotion earlier this morning, it seems hours ago, said Scotland is part of the United Kingdom which carries a certain seventeen oh three residents. Residents I should say to it, Professor Blanche Flower, within this and there's been upset one, upset two checkers dot dot don Here we are in November of two thousand and eighteen. Are we any closer in your reading to a desire for a second referendum? Or

is that the great untouchable? Well, I think we probably are closer to revos. I mean essentially there's three options on the table, leave with no deal, don't leave it all, or leave with this deal. And this deal looks hugely unacceptable. Um. Um. Reese has actually called for a maze resignation. UM. I think in the end what we're going to see is this deal isn't very isn't a really very good I mean, the person in charge of negotiating the deal, Dominic Rum,

has now quit. He's the person supposedly in charge of it. So I think this just looks like, you know, a total collapse of the deal, lack of political support, and I suspect in the end we're going to see some kind of revote. I when there was seven hundred thousand people demonstrating in London very peacefly a week or so ago. So I think I think in some sense that the option, this option of take this deal looks already like it's

not going to happen. Them in the market responding, we've seen a huge collapse in British banks, RBS and Barkleys. We've seen the British house builders Persimmon and and and others. I mean they've done eight per cent or so so when markets respond like that, I think you kind of have to rethink. And even if there's a fall of the government, um, the people are not going to be you know, the deal is not going to be much

better if you have a new prime minister tomorrow. So I think the answer is that this, this is really not a credible outcome. We may well see another another vote, and we may well in the end see you know that. I don't think the no Deal is going to happen. I think we've probably going to be um back to where you were, folks, Royal Bank of Scotland down ten eleven.

Here in London trading today David blanche Flower, Governor Kearney has some constraints here, fewer degrees of freedom, and one of them, as we saw in US retail sales, goes to a blanch Flower tone, which is where's the inflation? I mean every report is sort of kind of like, really, where's the inflation? Where is that dynamic? From where you sit right now? Are are are central bankers misjudging that

modest measured inflation fear? Absolutely? I mean if you look both in the US and the UK, the question you probably ask yourself is where where is the evidence that you need to raise rates to deal with the inflation inflationing expectations of flat certainly not rising. Inflation looks to be very weak. There is and obviously the downside risk. Let's go to Karnie. I mean, Connie made it clear that he thought the biggest downside risk we're actually from

brexit will too. Equally that that today you would clearly argue on what you and I've been talking about, that those risks are greater and the big deal, of course in the US we're hearing some business folks, is that the downside risk from trade wars. I suspect with rate rises coming the slowing of the world economy. What we're seeing is slowing of economy is induced by errors by the central bank, especially the stead I think it's all in all probability. The US is now slowing and what

we're hearing out of the FED members is complete error. Daniel, I once attended and spoke modestly to one of your packed lecture halls at Dartmouth College, and folks, the thing was completely packed with Keynesians, just so yeah, you know, I mean completely stacked, but you could hear a pin drop over the under employed. This has been a life study for you. I get more male professor plants, flower and elite saying it's a fully employed economy that I've

ever gotten before. How underemployed are the underemployed in America? Well, it's it's certainly clear that underemployment in America is a really big deal. Um and David Bell and I have a paper that people can see on my website. It basically shows you that it's the main variable that explains labor markets slack. It's under employment that's holding down wages. We have poorer data on the US than any other place. But it's not just the part time for economic reasons.

It's people who are part time. They're happy to be part time, they want more hours, and many full time people do too, So that's the mismeasured factor. But it seems to me when you go around the country you talk to people that many of them say and like more hours. I'd like to work more than I can do.

People are ours constrained. And if that's so, that probably means that the nerors so called full employment rate of woman is well below where we are, perhaps in the order of three percent, not four and a half of the FED thinks and then when the FED raises because it doesn't look at under employment properly. This is a major era. And it's called in the economy too slow

because the economy is not at full employment. So okay, people say that, but it's actually that the story they're telling is a story date three two eight not posted out. Gotta leave it there. David blanche far and short and notist, thank you so much on his whales and his United Kingdom. Professor Blanchflower at Dartmouth College. This is a real joint pim Flax in Washington and Time King in New York. It is an annual visit off, hands down the most

prestigious award in business journalism. It is hugely competitive, so many of our guests over the years have been winners of this. I think of Rob and Roger and I'm Hilarian and others that have really been part of the Financial Times Book Award. Just just fabulous effort by McKinsey and FT Lionel Barber's shop just doing a great job. And this year was an extraordinary list of books. And it is fabulous to know that John Carrerew is one for Bad Blood. We'll get into the book in a minute.

But he comes into our studio, Pim totally depressed because Sterlings on nine seven in your award is paid in pounds. Sterling, did you cash it in for bitcoin this morning or something? Money hasn't come yet. The money hasn't That's the reason I'm so sad about Sterling's fault. And the check is in the mail and you'll see it and hopefully it won't be converted into bitcoin. There is a sentence, a painful sentence in a painful book, Bad Blood, Secrets and

Allies in Silicon Valley. Elizabeth was accepted to Stanford in the spring of two thousand two as a President's Scholar, a distinction bestowed on top students. This was one of the everyone listening. They wanted their daughter, their son to be like Elizabeth. Who was she back then before this

huge scandal. She was very smart and promising student. She had um spent her high school years in in Houston, had gone to St. John's, which is a prestigious private school in Houston, and graduated near the top of her class and gotten into Stanford with the scholarship that you mentioned. She was eighteen years old, and she lasted at Stanford less than a year and a half. She dropped out before the end of her sophomore year. In in the middle of her sophomore year and decided that she was

going to create her company, which she called Paranos. It was a mix of the terms therapy and diagnosis, because her vision was for a medical device that would run all the blood tests pretty much known to man on just a tiny sample of blood drawn from a finger. John, can you describe for the listeners if you believe this was something the scandal of Taraos. Was it premeditated or did it start out as something real and then just snowball into something that sucked so many people into it.

It was the ladder. This was not a premeditated long con. This was not Bernie Madoff who at some point in the mid eighties woke up one morning and said, I'm going to do a Ponzi scheme. And from that point on for the next years it was black and white. Elizabeth Holmes dropped out of Stanford truly uh, wanting to create a company and successful company, wanting to walk in the footsteps of Horitle Steve Jobs, and it became a fraud with the years. What what happened is, unlike Steve Jobs,

she wasn't working on a computer product. She was working on a medical product, and medical science is hard, and she encountered setbacks, and she papered them over and refused to acknowledge them to her investors, to her board, eventually to the public, and began cutting corners and telling small lies that that snowballed into bigger lies, and by the time she went live with her supposedly innovative blood tests in two thousand thirteen, the gap between what she claimed

she had achieved and what the reality of the technology was was was so big that it became a fraud. John to just to be a front about it. At one point, I was at an industry event and Elizabeth Holmes was the guests speaker, and during this speech, you know, people talk to each other and everybody said, I don't understand how they're doing this. I don't under stand what she's saying. Is that something that should have wrung a lot more bells than it did. Absolutely, I mean she

when you look at her all her public appearances. She started raising her profile in late two thousand thirteen and then pretty soon became a fixture on the Silicon Valley conference circuit, at healthcare conferences and gracing the covers of magazines and doing a lot of TV. When you listener and you can go back and look at all these public appearances on YouTube, she never gets into the details of the technology or the science. It's all just these

sort of canned you know, catchphrase. I totally agree with that, And what Pim just said is absolutely critical about a lot of people are like, really you the thing about giant Carrew folks, it's so important. And again with us with the F. T. Mackensey book award, Bad Blood, just a riveting book. The thing that's so important here is guys like you caught this early. You won the Pulitzer Prize for you you you want George Polka didn't. No, I won the poster the year before for for something else.

But excuse me, but you're like the real You're like the real deal. When you were at the Wall Street Journal getting this done, why did the investment community not see your stuff and say, wait a minute. Well, for one thing, she scrupulously avoided sophisticated medical technology venture capitalists. In the latter part of you know, the latter stage of her company, which is when she raised most of the money, she she really avoided them and went to

the family offices of billionaires who were less sophisticated. Um. And then, you know, I think it has to do with the gold rush environment of Silicon Valley. I think we're really you know, we've witnessed in the past uh what half dozen years, another boom, another sort of tulip fever, just fifteen twenty years after the dot com boom, And in that kind of environment, people just, uh, you know, it's the fear of missing out. They all want to hitch them cells to the next rocket ship too riches.

They thought that this might be the next Facebook. Elizabeth Holmes might be the next Mark Zuckerberg. And I think that plays a big role. Robert Kraft, Betsy de Vos, Carlos Slim, George Schultz, Henry Kissinger. You could go on and on and list all the people associated and supporting Rupert Murdoch. Yes, you were in many ways vilify by the company and its supporters during your entire period of covering this. Did anyone ever come out and apologize and say, yeah,

you got it right, John? Never? I mean The closest thing that's happened is David Boys, I think, in some recent interviews with The New York Times in New York Magazine, conceding that I did important work, uh but then uh, you know, adding uh something about my overwriting, and also taking issue with the fact that I've been calling the actions of his law firm thuggish in my book tour Um. But nonetheless I'll take uh, you know, those words of

from from David Boys acknowledging that I had it. Nobody cares. All we care about is Adam McKay killed the big short Vanessa Taylor and Adam mccare and you get together and they're gonna do the big bad Blood. Have you met Jennifer Lawrence When I heard that she was gonna play Elizabeth? I said, that's perfect. I mean, did you does that fit for you? That Jennifer Lawrence is gonna play Elizabeth Holmes. I think it's great. I think she's great.

She's an unbelievable actress. She she's sounds scary. I think she's going to nail the role, and and uh yeah, I couldn't be happier. And I think McKay is a great choice to produce and direct. Are you gonna do the little side vignettes through it like they did in Big Short where they actually explains, you know, credit the fault swaps and now are they going to do that? I don't, I don't know, I mean right now? And where at the stage where the screenplay is getting written.

They hired Vanessa Taylor, who co out the Shape of Water with Giermo del Toro, to hire the screenplan So what that's what she's doing right now and I'm not I don't know what McKay's plans are, and I think it's just going to depend on what the screenplay looks like. This has been wonderful, Thank you so much. Bad Blood is a book in this it's again important book by itself, but it's really been vetted by the best in Financial journalism the f T. Mackenzie Book Awards, and it was

a winner. Amid incredibly is an incredible year for book journalism. And to see John Carerew do so well as a joy to see. And again the movie it wants a movie up. I think they might start filming it, you know, next year, you never know. John, Thank you so much. Care The book is bad, but thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, sound Out, 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