Transcripts For BLOOMBERG Bloomberg Daybreak Americas 20171228

At 53 basis points and well discuss. David . David time for an update whats making news in the business world. Good morning, emma. Emma 40 People Killed and dozens wounded this morning in the suicide bombing in the Afghan Capital of kabul. Explosions walked the center and afghan news organizations. Interior Ministry Spokesman said the exact number of attacker is unknown. Islamic state claimed attack. Bility for the in the u. S. Secretary of state Rex Tillerson written an oped defending u. S. Foreign policy under donald trump. He lauded the attack. In the president s move against north korea and Islamic State in his first year in office. Tillerson wrote, quote, in spite of the challenges i remain optimistic about the power of diplomacy to resolve conflict and advance american interests. President trump rejected reports earlier this month he was about to replace tillerson. Nd the u. S. Endured 15 weather related disasters costing 1 billion or more through the month of october. According to the federal Government National centers for environmental information, one shy of a single year record set in 2011 but that tally does not include the recent wildfires in southern california. Global news 24 hours a day powered by more than 2,700 journalists and analysts in more than 120 countries. People emma chandra. David . David time for the first take discussing the top three stories. The u. S. Treasury yield curve looks to reach towards a 10year record of being flat. Second, for those in the Northern United States its really, really cold. Alix told you that. Its important to her but doesnt seem to be affecting Energy Prices for now and last, south korea is looking at more restrictions on bitcoin, taking a new tack in trying to stem the frenzies speculation over there. Joining us now are julie and marty and well start by putting up a chart showing the ever narrowing difference between the long term and short term u. S. Bond yield. You look in the twos and 10s and 5s and 30s and going in the same direction which is flatter and flatter. My real question is this, is this affecting the markets assessing the u. S. Economy and where its going because it doesnt look favorable to the tax overhaul or is this the end of the year, people cleaning things up and not a lot of liquidity and should we Pay Attention to this at all . Marty probably somewhere in between. I do think there are a lot of year end issues that come with people closing out their books that affect the curve and you have the effects of unprecedented easing being scaled back and varies places around the world so probably somewhere in between. Alix interesting because it was warned if the three year breaks above two all bets are off and things will go crazy. We broke above two and things didnt go crazy and it was status quo and leads to the fixed income calls for next year from the big players when those polls didnt work out as well necessarily this year. Julie maybe we take this with a grain of salt at this point but sound like inflation is a bit of a worry and the credit cycle turning is once again another worry and Goldman Sachs is one that expected volatility to pick up a bit in 2018 as well so those are three of the big calls we have in the piece today. Alix coldman sacks is looking at a steeper yield curve. 53 basis points on 530s. We almost reached 50 for the 210. We have to wonder at what point is it a number or is it the basis that winds up freaking people out or the velocity, i want get a handle on that. David when you get worried there are other factors that give you concern, whether its unemployment levels or growth levels. Were growing at a decent level. Marty and almost every analyst you talk to thinks the year ahead looks brighter than the year past. So does it really reflect economic reality or is it just the various external issues that are pushing the yield curve flatter . Alix to your point the dollar versus the 210s they track each other and wind up saying if the dollar cant hold muster, come inside the bloomberg and check it out and the yield curve cant hold muster, it could show were not in for a good economy or you could look at this and say hey, were in globalized sink ronized recovery, julie, like Everything Else is good everywhere else instead. Julie correct. Me covering peer to peer lenders they care about this because people wand matter happens to them once the credit cycle turns because theyve only been around during this good times for issuing bond and whatnot and it will be interesting to see what happens when that does officially change. Alix 50 of the employees had not seen a downturn and under 30 or something. Julie on the research floor theres four guys who have seen another issue. Marty how many of them never have seen a recession. David same thing is true in a lot of c suites that never have seen a downturn. I managed in a downturn and its really different. Really different. Alix whats really different is how cold it is in the u. S. We have a great map from noaa and we can show how cold it is. We can bring it up. This is what youre looking at, that dark blue is 10 degrees fahrenheit and encompasses a swath of the country and even more if to the south is between 2030 degrees and in the very top of the northeast and near canada, negative 10. Thats what were looking at. Unbelievable and then i look at Commodity Prices and natural gas, is at 282. I find that to be a staggering stat, julie. Julie the worst part about this is im originally from michigan so i cant complain to my family. David i was looking at michigan, my home state, too. Julie i got a text from my mom saying its negative 11 without the wind chill. I cant complain to you. You beat me. Like its 15 here but that sound warm compared to negative 11. Smarty i look at it as a cat indicator. My cat is in chat ham, new york, they stick their noses out and go back inside. Julie they issued a warning not to let the cats out. Marty why hasnt gas responded . Alix you look at the northeast and they have gas but cant get out because the pipelines arent built and youll have a lot of differentials around the country and my favorite chart coggins the bloomberg is t. J. M. International independent International Prices and basically power prices in the northeast. Look at the enormous jump we saw in the last three days. If youre heating your home youll be in a lot of main there, marty. Marty propane, not electricity. Alix you switched to gas and its cleaner and withstand the rice. David back to bitcoin, like cat nip for us journalists but theres news. The south korea government will allow real names to be used in the crypto currency and may drop in exchanges. Well put up a chart to show you how bitcoin has done. The big drop was 15 , the big yellow down but even in the last couple days its down 40 . This is down 15 in perhaps response to south korea. This goes to the essence of bitcoin, what it is. Its anonymous and south korea is saying im not sure about anonymity and how sure people are willing to trade in it. And its fascinating to me, to this day, its reported the price of bitcoin in south korea is 30 above what the National Price is. Marty its been my contention and others that as soon as it seems to be affecting the ability of Central Banks to control their Monetary Policy, thats when this ends because Central Banks cannot allow crypto currencies to affect Monetary Policy and you are beginning to see some Central Banks start to express some concern over its impact on the conduct. And once that happens its over. Julie i dont know it necessarily would be over but bitcoin as we know it would be over in the sense it does need to be easier to move money around the world but decentralized system Central Banks cant control wont allow it to happen. Alex a lot of companies are paying in bitcoin and overstock and china buying oil from the middle east and shell opening up a bitcoin buying desk. What do we make of that . Julie is anyone going overstock and paying in bitcoin . Are they actually doing it . I dont know of anybody actually going to overstock and buying their couch with bitcoin. David either bitcoin works or doesnt and then if it works it permeates the real economy, not just the little small world of bitcoin and if it doesnt work, who cares. Alix and were talking about it as a currency, is it a currency or commodity or new asset class. When i think of currency, i dont think of something that falls 50 . Alix thats a equity. And if you have to look at volatility you have to classify it as an equity. Smarty there were similar movements in the tech bubble in the 1990s. So you could look at it that way but ultimately its going to be determined by regulators. And how they respond to this speculative bubble. I dont think theres any question, individual investors are turning this into a bubblelike situation. David what happened with tech bubble they were gaining customers but the revenue isnt coming in. Its an al gore rhythm because its not fraud but open to everybody but whats it worth . Marty its worth whatever people are willing to pay for. Alix and there lies the issue. Julie there was an article by Morgan Stanley saying bitcoin would be worth nothing, its impossible to value, nothing, a million, theres nothing to base that on. David thank you for julie and marty. Alix coming up well talk more about the yield curve with jay polaski of global strategies. If you look at the 530s, 52 basis points. Lets talk about what that means. Thats two 10s, the 530 is around 53. Well discuss. This is bloomberg. Rg. Taylor chief check pitch koji says hes open to hiring his entire team of Investment Bankers in the u. S. During an interview in tokyo, he said north American Business with the Japanese Investment bank is weak, only 12 of nomura bankers is paced in america but he warns he may cut jobs in europe. Apple c. E. O. Tim cook received a 74 increase in annual bonus for 2017 and the bump comes as the iphone maker posted higher revenue following a rare decline a year earlier, including salary, incentive, pay and equities, cook stands to make 102 million this year, his top five lieutenants each got bonuses of around 3 million, bringing their total compensation to more than 24 million each. Meanwhile, the chief executive offensives earn an average of 3 million a year according to stock indexes in 22 nations. A Stafford Bloomberg ranking says those c. E. O. Salaries are 265 times more than the average u. S. Worker, the largest pay gap in the world. India has the second largest gap with c. E. O. s earning 229 times more than the average. Norway and austria are among the narrowest margins a and thats your Bloomberg Business flash. Alix the yield curve getting a flattening push before calling it a year. The unbelievable tale of the 210 curve and the 530 curve. The 530 catching my eye at 54 basis points and 210 at 52. We saw a big, big rush of money in the back end of the curve yesterday the 30year curve was down by eight basis points. Joining us is jay polaski, polaski global spread and principle. Which spread freaks you out . Ray neither at this point. You have the inversion. Alix at some point you have to rethink some things . Jay its suggesting there is risk, right and the risk is in what is being positioned as pro growth which is the tax cut. I see the tax cut as potentially being antigrowth because it could lead a new fed, right, you have to remember next year the fed will be made up mostly of new people and theyll have to make tough decisions and if they make a mistake or two and we get an economy that seems strong the beginning of the year they raise rates too fast and invert the yield curve without trying to but the long end is protected, the short end goes up and you have an inversion, stocks crash because i think people will get worried if it were to happen. Stocks crash and economy goes to a recession. David is the bond reporting on the tax haul, if you believe about growth the long end should come up, shouldnt it . Jay thats where you run in the supply and demand issue. Theres a lot more demand. Its been a big theme of mine for years. Theres more demand for Long Duration and safe assets than exist supply and therefore that long end is protected. The short end is being pushed up by Central Banks and by thoughts that hey, maybe we will get a little inflation and by i think a little bit of fear there could be a policy mistake. David that comply and demand rather than skepticism about growth, is the bond market skeptical of the growth or not . Jay i dont think it is. Were caught between these two pressure points. One, were protected at the top by supply and demand and two were getting a little worried a new fed could make a mistake and create inverted yield curve which nobody wants. I think the big issue, david, now is that the market, to your point, is ready. When that curve inverts, stocks will get hammered. Not before but when it happens, trained, eryone is so inverted yield curve, recession, sell. Alix talk about that in terms of the negative stock, in a blog post was written something along the lines i do worry trai inverted we may start to see or reach for yield kind of behaviors on Financial Investments that could potentially have broader implications in a time monetary or fiscal policy cant react if we get a big negative shock. I like the fact hes talking about stability risk like now and the reach for yields now. But if you take it at face value, what areas should be should we be most concerned about . Where we see the negative shock when the fed cant respond. Jay the negative shock would be when we have a recession and the fed cant do much about it because the rates havent been brought up that high. Ix where is the aye symmetric risk . Jay we dont have to be considered about growth. We dont need to be worried about inflation because we dont have the pressure points. I think what we need to be worried about is a policy mistake. Principally driven by the fed. David youve said you are more interested in asia and in europe in the United States right now. Youre hesitant about the United States going into the new year. Is that because of the concerns about growth . What drives to you that conclusion . Jay the u. S. Has been the leader since the bottom. Ill give you statistics to set it up. From the low the u. S. Is up almost 370 in dollar terms. Europe is up less than half than that. Asia is up less than europe. So theres a huge catchup. David equity markets . Jay in dollar terms. Theres tremendous upside opportunity. I think you have in europe you have less fed risk and less Central Bank Risk and earlier in their economic recovery. In asia you have tremendous political stability, both abe and japan and china are set a number of years. In the u. S. You have the fed risk, you have potential Political Risk with the midterms. You have a dollar weak in supporting Earnings Growth and likely to turn strong. You have stock buybacks which have been a big support to the u. S. Equity markets starting to turn off. Think there are a number of tailwind as i put it, david, the tailwind which supported the u. S. Equity market are starting to turn into headwinds and the u. S. Is giving up its leadership. Think there are a n i think a big call from an Asset Allocation perspective and a call i believe in is that the u. S. Is giving up its Global Equity leadership that its had since 2009 to the nonu. S. Markets and you see that this year in 2017, the u. S. Is trailing by about 400 basis points and what typically happens when these shifts occur, they are multiyear. Not just for a quarter or a year. Alix youre more scared about the fed and u. S. Politics than the brexit and italian elections . Jay absolutely. And i have been. To me breast sit a sign of european integration. In my view of the world, its all about the region and about asia, europe and the americas and i rank them as asia is proactive led by china and europe is resurgent led by the potential recovery of the franko german political motive for integration and the u. S. Is inactive. If you look at what where we are in the policymaking mix, europe, for example, is talking about a United States of europe by 2025. China is talking about a made in china policy by 2025. Were nowhere. David jay peloxy. Well ask jay to stay with us and maybe get more happier news out of him. Coming up, the year in shakeups, we reflect back on the biggest c. E. O. Departures of 2017. Live from new york, this is bloomberg. Is is bloomberg. Alix talk about the big titans who no longer hold their post. Number one for me is travis callinik, did he hurt or help uber, evaluated at 7 billion but there are Serious Problems. Jay there are Serious Problems and the valuation was hyped and at this point uber is falling into a trap where the c. E. O. Is a challenge and the business is becoming a challenge particularly outside the United States. David europe said well regulate it like any other transportation authority. Alix lets look at valuation and pull it up compared to ther Tech Companies as well. Jay and its not at 70 billion anymore. Alix the bad stuff he did is what made the Company Worth something. Jay its a great idea but now in a different situation. David thats a problem, because the way you got it that high is doing bad stuff and sooner or later it catches up to you. Lets turn to jeff immel and g. E. Its a powerful force in the industry for a number of years and look what happened to the stock price. Im sure its not all his fault but its not a pretty picture. Jay what it suggest is all about timing and timing for industrial cycle i believe is now and unfortunately mr. Immelt wont be there to enjoy it. Alix you owned it are did you sell or waiting for next year . Jay im done. I own the x. L. I. Which is the industrials and i think were set up for a late cycle in the economy, industrial cap ex, boom. And will be faciliated by the tax cut which will encourage investments. Alix the last one is hugh henry, he had a fund for 15 years and had to close it and this to me is a perfect example of how hedge funds, macrohedge funds are threatened by Central Banks. For that you see how poorly global macro hedge funds have performed. Jay there are three things about the mackeo hedge fund space, one, its huge and 1 trillion and expensive and massively underperforming and think its a space ripe for disruption and look forward to having something to say about that in the future. David youre going against Central Banks, pumping trillions in the marketplace to avoid volatility. Alix and negative debt is like 1. 1 trillion. Jay a great 60 40 balance fund, up 14 year to date. How hedge funds can be up zero, i dont know. Alix jay pelosky sticking with us. Up, natural gas and its coal. Its bloomberg. I. Alix this is bloomberg daybreak. Here is where we stand. Dow jones futures are up by two points. And european stocks continue to be flat. And mining stocks continue to outperform. Copper on the best longest winning streak since 1989. Continuing with that cross asset check, the tenure 30 year and all of the spreads. 243ear yield moving up to after the long and caused serious buying yesterday, the spread 54 basis points. It is a dramatic flattening into the end of the year. The dollar is also dramatic, dxy getting killed on its worst year since 2007. Besturodollar having its year since 2003. I could go on, just showing you the power of the weaker dollar. And around 60 a barrel for oil. David headlines outside the business world. Emma chandra has first word news. Emma president Vladimir Putin vows to crack down on terrorists after a bomb injures those in st. Petersburg last night. Putin said he had ordered security agents to liquidate bandits from a spot. That terrorism and said russia would be far worse if not for his countrys military operations in syria. Roy moore is going to court to try to stop alabama from settling don jones as the winner of the special election. His attorney wrote that he believes there were irregularities in the election and an investigation should be launched with the aim of prompting a new election. The secretary of state of alabama told the Associated Press that jones will be certified as the winner today and his office has found no evidence of fraud. A former lawyer for Martin Shkrelis companies has been found guilty of fraud. He was convicted of helping to still millions of dollars to pay off investors while martin at ali led an pharmaceutical company. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. Im emma chandra. This is bloomberg. Alix thank you so much. Here is a number for you, 15. 15 degrees fahrenheit, what were experiencing in new york and is spreading throughout the country. The map tells the story. Pink in the northeast and upper part of the country, 10, that is how cold we are looking. The warmer parts is around 10 degrees. It is a very chilly winter right now and it does not look like it is stopping or having an effect in the power market. Come inside the commodity market. The purple line is natural gas prices. As you can expect, it has s oared on the colder weather, but the other lines are the Regional Power prices, the white is what you will pay for natural gas in the northeast, the yellow is southern california, the blue line is the midwest, not moving as much. Joining us is Vincent Piazza of bloomberg intelligence, senior energy. Energy is competing for the worst performing sector in 2017. And even with wti rallying, natural gas has been like this all year long. O veryhave been past tw weak winter seasons. We are below versus last year, just below the fiveyear average. We understand where the Production Growth is coming from, that seems to be fairly well understood. We are looking for a quarter to you are you and february, that tends to drive january and february can of it tends to drive natural gas. So sentiment seems to be washed out at this point. We went through a very benign november and december, january and february will drive us here. When we look at these prices, it does not seem like folks are worried about it. January and february 10 to surprise us to the upside tend to surprise us to the upside. Alix which market is tighter . We talk about natural gas oversupply, that is not the issue, the issue is the bottleneck. Which area is the tightest . We talk about getting the gas out, right . The appalachian basin, so the northeast tends to be the area where we get the bottleneck, that is the driver of the issues. We see the differentials have blown out in the past, but they will normalize as capacity comes into the northeast. David but the Administration Says they want to deregulate and take care of the bottlenecks. Why is that Good Business . Supply is up, there are variations every year and as it gets cold we use more natural gas. Jay that is not myspace, but i think it could be a good investment opportunity. Commodities broadly could be the upside surprise next year. Secondbest sector this month, almost of 8 , 3 yields and a very attractive. Stock prices versus Commodity Prices, they are at 50 year lows, in other words commodities for systolic there is a 50 year gap that could be filled and it could be a big opportunity. It is an advantage if inflation hits. Alix so this is exactly what they were talking about. David we have a chart for that. [laughter] alix this is what day was talking about. This is when you had commodities outperform, that was the oil embargo, gold prices, financial crisis, and here is the tech of boom and bust, and we are below that level now. What i do not understand is why everybody is so convinced it will reverse. Vincent for natural gas, sentiments are washed out at this point. For crude i would think that the skeptics publicly rule probably rule for a little bit. Most of the good news is behind us. We have had transitory intermittent issues, whether it is the pipeline issue, the canadian pipeline issue as well, but what we know when we take a look at 2018 is that the output growth will be there for the u. S. , given stout hedging. At this point, what were looking for is u. S. Output to grow from roughly 9. 3, 9. 2 Million Barrels in 2017, to over 10 Million Barrels in 2018 and we are coming over q1 so when you take a look at net gas versus crude, the two questions we get a lot of for 2018 is how can things be any better for crude, but for net gas how can they get any worse . The if we take a look at the upstream space, the domestic upstream space, we are just above the lower end of the range on a relative basis, so there seems to be some opportunity their relative to history. Alix before we move on to copper, we want to piggyback off of that do you want to play companies that want to live in cash flow, or those that have Production Growth . Jay probably dividends for me personally, more than Production Growth, although i think the opportunity is in energy and it probably is natural gas, down almost 50 year to date. The sellout of the oil where you made a little money, buy natural gas for 2018, not a hard trade to make. Pretty significant upside. Alix hold on a second, because the Production Growth youre talking about, it comes with gas also, you are pumping a boatload of natural gas and vincent it is a free option for the crude oil producers. Which isuction growth, roughly about 8 for 2018 it seems, that has already been fairly well understood. It has been discounted already. The secular opportunity, the structural opportunity is in pipeline flows out to mexico and also global, exports of lng out of the u. S. Alix my favorite story. We are talking about david talking about favorite stories. Another one. Alix copper has a red hot streak. This is the quarterly on the comics. Comex. We are at 12 , we have not seen that since 2005 and 2006. Jay, tell me about the Global Recovery on this. Jay what is interesting to me about commodities, the base metals, is china. Everybody has always talk about china, china is slowing and demand will not be as good, i think that is exactly wrong. I think the surprise is china, it is a supply issue. They are getting serious about making the lives of their People Better and the way they will do it is they will fix pollution. If anybody has been to china in the last few years, it is a serious issue. The way to fix it is the shutdown a lot of these different situations that are a big polluters. It is not a demand story, it is a supply story. Lowqualitying supply off the market and they are going to continue to grow their economy. You have thats a connect recovery in the combination of all that, plus you have a market in the segment where the funds are closing left and right, sentiment is horrible, to me in a market, in a world where almost all assets have done well, everything is up, commodities are screaming buy me because we have not done anything. David china cut back on copper production just this week. You saw what happened to the price. Is there a tradeoff . Will they give up growth and will come back and bite you . Jay they have been. Im not sure they will be driving as much Going Forward. We have europe growing better than it has in a decade. U. S. Will continue to do ok and asia broadly is doing quite well. What i love about the secret eyes recovery, 45 countries and not a single country is not growing, in other words not a single country is in a recession. It is the first time in 40 years. We have no idea had to play that as investors. None of us were around 40 years ago. I am looking for something that has not had a big move and when i look around multiassets around the globe, commodities are saying there is an opportunity, so that is where people should Pay Attention, whether it is nat gas, copper, caught in which is usually cotton which is usually an indicator, there are a lot of signs. Nobody is in the commodity business anymore. It is a real opportunity. David ending on a positive note for jay. [laughter] David Vincent pr is a, thank you Vincent Piazza, thinking for being here. Jay will stay with us. Tim cook made 102 million in 2017, as the pay gap grows between ceos and the average worker, what you may be surprised at his house ceos are doing around the world, doing pretty well. Pimm fox will be on the radio this morning. Bloomberg surveillance can be heard in new york, the bay area, washington, dc and all across the u. S. On sirius xm radio. This is bloomberg. Emma this is bloomberg daybreak. Coming up, Paul Mortimer is the chief economist. This is bloomberg. David we turn now to wall street beat, where we cover three things wall street is buzzing about and number one, ceo day with tim cook getting a big raise and a new survey showing how ceos worldwide compared with the average income workers. In yorkers proposing to step court requiring my fisher and sellers to act in the best interest of clients. And dan gilbert has taken on wells fargo mortgages and now going after Silicon Valley. Joe weisenthal and jay pelosky is still with us. 102about tim cook, making million. His five lieutenants averaging 5 million, pretty good pay. Jay good to be in a highmargin business. [laughter] you can pay a lot of people a lot of money. I think this says that big tech is starting to come into the crosshairs, and not for the right reason. Tech has been the leading sector and at the big tech is under spread globally, so one thing im looking for next year is i need to start moving away from technology. David we want to do a comparison, because there was a survey today about ceo pay compared to the average workers. I just pulled three at random. The u. S. , number one. The you could at think the at the think is number four. And india, 21. This is in terms of nominal dollars. If you do it compared to average workers, india jumps to number two. 1 in india, which really stuck me. Joe those are breathtaking numbers. I think it speaks to the ratio of ceo pay to average workers, it will just be a corollary of any quality as a whole. And inequality as a whole. When you think of india, you think of a large number of poor people, but also a country with Global Companies listed on major exchanges around the world, so of course you will have that natural disparity, in terms of ceos paid by what Global Corporations are paying. Alix to be fair, a little bit to the u. S. , cost of living is higher than it will be anywhere else, the Largest Companies in the u. S. Joe tim cook is getting a costofliving bump. [laughter] alix and a private jet. The averagehe 1, worker, they have a higher cost of living as well and they are not getting a bump. Joe i am just going to go out on a limb and guess if we look at scandinavian countries alix they are high for total ceo pay, i am not sure about the ratio. Joe i would love to see that ratio. Alix im talking about that really sexy rule. The feds pulling back on it, but new york city may not. The department of Financial Services saying that products in the best clients interest will have to be offered before those more profitable. I find this interesting, but then you have an issue of, are you making yours less competitive if it is not a broader federal rule . Joe i think there is a macro political story about the democratic leanings, those estates saying you will pullback this regulation and we will make our own rules. I guess in some sense it is less competitive, but what, people will stop doing business in new york city . Jay you turn it from best interest to best practice and there is a push toward benefiting and making sure the customer is taken care of and all falls back to 2008, to me, this is an extension. It is a good idea and a donothing people will move away from new york or california as joe is saying, i think will be best interest to best practices and we will do it and others will follow. David norway is the top of the list, 201. Followed by austria, 491. Singapore, 561. The most equal. Jay i would not have guessed singapore. Alix dan gilbert, his bet on loans outpacing wells fargo now. This is an amazing chart. Quicken loans selling loans more profitably than wells fargo, now they are trying to lure tech talent from Silicon Valley in order to help increase their business even more. Joe there are so many adjusting aspects of this story, a lot of cash interesting aspects of the story, a lot of moving parts. As somebody who was born in detroit, i am very interested in this. Alix how did i not know this . By thatm very intrigued story and the turnaround and idea that maybe not, maybe the future of the economy is not doomed to just be new york, san francisco, los angeles and washington. It seems like a positive development. The idea that a lending institution, trying to take on the tech mentality and trying to draw talent, it is an interesting story overall. David you have been to detroit, you see what is going on. It is dan gilbert and also other people who have invested in detroit. It is coming back. Jay it is coming back and it is low price and low cost, so you can bring in talent, they want to be someplace different. I think there is a lot there. David jay pelosky. Coming up, he has been called the commander in tweet, a look at president Donald Trumps social media habits and what his predecessor had to say about his hashtags. Live from new york, this is bloomberg. David this is what caught my eye. The commander in chief this year became thecommanderintweet, and yesterday barack obama warned those in leadership should be careful about social media. Those in leadership should find ways to recreate a common space on the internet. One of the dangers of the internet is that people can have entirely different realities. They can be cocooneded in information that reinforces their current biases. David it does nothing likely that President Trump will be listening, as is close friend explained, he just cannot help expressing how he feels about things. Why does he do it . Because it is how he feels. He is communicating to the world, i will tell you how i feel, you can like it or not like it but i will tell you how i feel. And it is part of what you get. He is not politically correct. David so we heard from the president again and again over the course of the year, from kim jongun, to congratulate him bob kraft when the patriots won the super bowl. Npr to the top top 10 tweets, and the top 10 on how much they were like. Number one was going after cnn. He was after a video that we won a show about the wrestling thing. Interestingly, over the course of the year, 36 tweets about cnn and 146 about fake news. Alix really . David he was really concerned about this. Alix we wonder why potentially at t and Time Warner Cable will not go through, right . David you think cnn has something to do with it . Alix a little bit. David the kim jongun tweet was something about him being old, and he came back with he is short and fat. Alix i would never call him short or fact. David exactly. And this was retweeted a lot. He did a lot in foreign relations, saudi arabia, north korea. This is what i like to the best and this is violent to the best, 149 of them included an explanation point. Included anf them exhibition point. Alix you could also make the argument that back when tensions were high with north korea, the fact he was aggressive in tweeting chemchina leverage to convince north koreans, you have to give me something, because President Trump, he is a wildcard. You could make that argument. He is emotional, but sometimes it works. David it is also smart. He said in an interview the reason he does it is because he tweets something and then sees on the television, so we cannot point to the finger. Alix 100 . We had soulsearching when he first got elected, what do we do with this and when do we put up, how do we publicize it in the right way. David and how do we vet it. Alix exactly. Coming up, we will speak with Paul Mortimer, the chief economist, the 530 spread at 54 basis points what is your outlook for 2018 . This is bloomberg. Cannot live without it. So if you cant live without it. Why arent you using this guy . It makes your wifi awesomely fast. No. Still nope. Now were talking it gets you wifi here, here, and here. It even lets you take a time out. No no yes yes, indeed. Amazing speed, coverage and control. All with an xfi gateway. Find your awesome, and change the way you wifi. Alix market rebalancing, the yield curve aggressively flattens, commodities klein, scoring their books before the end of the year. It is cold outside. A cold spell washes over the u. S. And power prices surge. Buying binge, a strong Holiday Shopping season in the bag, but will be enough to save brick and Mortar Stores . David welcome to bloomberg daybreak. Alix how cold is it where you were . 15 where i was. David i think it was 12. Alix you have an older House Committee agreed up the heat . David i will confess we have nest and it is a little sophisticated, for me. Alix fair point. Here is where we stack up before efore thefutures b cash. The eurodollar is up 4 . Unbelievable run for the eurodollar, best year since 2003. The dollar index continues to get pummeled. Take a look at 30 year yield, yes we see it rise by two basis points, but yesterday aggressive buying committee to basis points lost at its peak during the session yesterday. Unbelievable move. Flat on the day. My chart of the morning, 530 spread, 53 basis points. , do we invert how long do we go invert, hello do we go . David first we want in update on what is making headlines out of the business world. Emma chandra has first word news. Emma they Islamic State has claimed response ability for three suicide attacks in kabul today, as many as 40 People Killed and others wounded. The explosions at a cultural center. The aba says the attacks took place during a Panel Discussion turmeric to market the invasion of afghanistan. The victims include University Students and journalists. Rexsecretary of state tillerson has written an oped in the new york times, body moves against north korea and russia during his first year in office. He wrote, in spite of challenges i remain optimistic about the power of diplomacy to resolve conflict in advance american interests. President trump rejected reports earlier this month that he was going to replace tillerson. Italys Prime Minister has said that the countries Election Campaign is imminent. The statement comes as the president prepares to dissolve the Parliament Today by signing a decree that would end the latest bit of sessions in both houses, according to a state official that could not be named. The move would pave the way for new elections, most likely in early march. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. Im emma chandra. This is bloomberg. Alix thank you. In the last week of 2017, i have been mentioning the u. S. Yield curve getting one final flattened push. Really, 52 basis points with a 210 spread. What does that mean after hitting a decade little earlier this month . The boston fed president out a warning yesterday saying, i do worry we may start to see reach for yield behaviors on Financial Investments, and they could potentially have broader implications when fiscal policy cannot react if we get a negative shock. Joining us is Paul Mortimer lee global head, Market Economics , and chief economist us at bnp paribas. Just now he is worried . Where is the biggest risk . Paul and there are risks all over the place. Equities look very expensive and so forth. Does it look as though something will spoil the party, he has to say what it might be. The worst thing for asset prices would be inflation, but there is no sign in the data that there is any surprises in inflation coming. Most of the surprises in the last you have been on the downside. David what do you do as an investor . You know sooner or later there will be bad news. Weve never had uninterrupted growth, but we do not see tangible evidence yet, so what do you do and how do you prepare for the worst . Paul you have to hedge your bets. The further we go forward, the more you have got to hedge your bets, and you have to look for canaries in the goldmine. Some assets will start before others. David what are they . Paul it could be chinese stocks, house prices in places like canada and so forth, it could be highyield spreads, and corporate profits. Normally, when people talk about recessioncurve into there are three things to look at, that is the yield curve, highyield spreads, and corporate profits. Where weose things is are closer to recession, least of all the last one. Alix what about the argument is inflation picks up and the fed have to hike four times next year and to the curve of flattens and the fed makes it fun, what about thats an area that makes it flattened, what about that scenario . Paul all of them tend to move up in a tightening. We are a long way off of flat. The yield curve, it is like driving a car with a speedometer. With a faulty speedometer. They buy trillions of dollars of kiwi. Actually, they adjusting for that it will not be as five as it looks. David coming over profits, has tax overhaul but a sometime . They would do pretty well when they do not have to pay as much. Duringhey rigs hillary 2016 three accelerated during 2016. David before the tax overhaul. Paul exactly. Now we have a boost for demand and the cost of corporate profits should do well in 2018, i would think. David does that put off the recession . Paul yes, but you know, in terms of whether be a recession in the future, the answer is yes. When will be the recession in the future, that is difficult to say. It depends on what happens, what the fed does with rates. Alix Morgan Stanley sees 2020 for the recession. Paul i am not forecasting at the moment, but 19 or 20 seems likely. David ok. You will be staying with us. The new reality for real estate, an insider take on what effect, if any, the tax overhaul will have on the industry. That is coming up next. This is bloomberg. David in washington, there was discussion about the effects of the tax overhaul plan on real estate, but when we talked with a man identified with the industry, he was skeptical it would have much affect. My prices are all a function of supply and demand. If there is supply, my prices go down, or they stay flat. And if supply shrinks, my prices go up. David will there be more demand . Forget for a moment more demand for rental . David eliminate the standard deduction, that gives less incentive for somebody in the smaller range to buy a house because they do not get the deduction. Ive never believed that the biggest motivation for people buying houses is anything other than, where they live in how well a bit of. Well they live. David a mortgage deduction has encouraged homeownership. Theandidate eliminated directions about 20 years ago and everybody predicted it would be the end of the world, all of the realtors of screamed and yelled and you know what happened nothing. Alix what do you like right now . Not a lot, i am a seller rather than a buyer. Alix how easy is it to sell right now . Harder than it was two years ago. I am talking about commercial real estate. We have a lot of supply coming on. You talk about new york, there square, or 15 million square feet of new office space, what will that do to sixth avenue and 3rd avenue . I would not want to be an owner of that kind of real estate, competing with subsidized hudson yard. David we also spoke with a new york developer, the owner and founder of the Company Credit one thing he was company. He was talking about mac while. Asked him what he th where he got the market was moving in . It is less exuberant and then was two or three years ago. And there is a reason for it. It is not, it is not something to be not discussed. There has been a tremendous production of housing in brooklyn come in queens and in brooklyn, queens, and a lower manhattan, and to a degree that east side has lagged behind the development of the other areas. The production of housing is the best possible thing for new york city. Even if it is overproduction. David overproduction is great if you are a buyer, not so great if you are a seller or developer, is it . The Development Community knows how to protect itself and it should be able to price itself intelligently enough, so that it is able to meet the peaks and valleys of the market. There is now certainty in the market, we know where the price floors are. We know that the demand for 10,000 and 12,000 units is very slow. The appetite for that is limited, and therefore the production of the housing should be limited. We also know that there is a great need for housing in the will to 3000 range, so it attract a larger audience. If there is a competition and a choice that a buyer has, that is not terrible. To your point, there are still a large number of, a relatively large number of units 10 million or higher, available now, and there will be if these buildings get built, many more. Is there a demand for all of that property . I do not think there will be many more buildings that will be built at that price reference. I think the market is slowing down and the price of land is coming down a little bit. And atlanta comes down enough, it will allow our Community Land comes down enough, it will allow our community to go back to rental. Alix ok. Staying on real estate, ending the year on a high net with sales with existing homes continue to grind higher. Joining us is Paul Mortimerlee. What is your forecast for next year . It depends where you are. Paul it looks like demand overall in the country will be strong. We have good jobs growth among people are feeling more secure. If you look at the rate of household formation, it seems to be picking up, so millennials are thinking about starting families. I think over all the demand will be good. But some pockets, as in new york, are going to be hit by the tax changes. Some people have said that the tax changes could not tempt us prices,e New York House as compared to what it will be otherwise. That is the concentrated top end of distribution. David and when we spoke with sam a lot of it was about commercial real estate in new york, what about homes across the country . House prices have been going up and supply is not catching up, why is that . Paul i think it make it up a little bit. What we have seen is a lot of supply in multifamily houses, people have been building apartment blocks to. Rent now we have seen vacancy rates pick up, the rent have slow down a bit. So now maybe it was wished a Single Family home buying. Alix it will not be capped at 750, the deduction, so when you mention new york, can we get more specific on what will be harmed. Just do not buy an expensive house. But what is your view . Paul the further that you go up, you will be hit by the market Interest Rate deduction and the fact that you cannot deduct state and local taxes, that is why people are queuing up to pay local taxes. Because they want to get their tax break this year. That will affect housing, but as sam said, people do not just by housing for the financial aspect. That do notith him panic, this will be a lower rate of house price increase then we would normally see. What we have seen is a fairly steady increase. It may mean house prices go flat for a couple years, maybe drop by the low single digits. I do not think this is a disaster, it is a curve on the market. And it is a curve on specific markets, rather than on the overall country. David the way that you describe it, it could be ideal. When housing went too far too fast in 2008 it crashed, so maybe some slow tugging along is a healthy thing for the economy overall. Paul that may well be, but we are in a different position from where we were in the mid2000. Household leverage has come down, that is rising in line with incomes. One of the things i do not worry about the u. S. Economy is over leverage in the household sector. In the housing sector. Alix you will be sticking with us. Coming up, winter has come. A cold spell washes over the u. S. And power prices go higher, dislocating areas of natural gas. What is next for commodities and stocks . This is bloomberg. Emma this is bloomberg daybreak. This is your Bloomberg Business flash. Numeric looking to make a splash in the United States. The chief executive says it is open to hiring Investment Bank is in the u. S. , or even making acquisitions. In an interview, he said north American Business with the Japanese Investment bank is a weaker, only about 12 of his bank is in the americas. But if the number rises, he may cut jobs in europe. Job seekers india k enjoy the first annual increase in advertising is and more than two years. That is according to job search companies. While the average salary climbs a 1. 2 , it is well below the pace of inflation which dropped 3 last month. It is a continue to squeeze on Household Finances and it is expected to extended a next year. Despite an arctic cold spell and seasonal demand, natural gas futures have yet to see a big surge. Expectsimmerman says he cap to continue trading at a narrow range. He says it could last fotraderse next 10 days when Mount Weather is forecast in production was again sourced alltime highs. That is your Bloomberg Business flash. Alix that video was staggering, did you see the snow . Six feet in pennsylvania. David just awful. Alix winter has come. David it is way too cold for me. Alix ok. This year overall kamaishi commodities really left in the dust your overall, commodities really left in the dust. The record low valuations are screaming, by me. Our next guest says it is a major extend for the bull market run starting in 2018, this is the s p return versus the s p. Here is where you had commodities really outperforming. The oil embargo, the financial crisis, and now we are at record lows. Joining us is a man that made that call, sean hackett of Hackett Financial advisors. Why do you feel like it is a given and they are screaming by me buy me. We look at stocks, bonds, real estate, and we always look at the important metrics that give us the turning points throughout history. As you said, right now we have not seen the low valuation commodities like this since 1999 when we began the bull market of 2000. So history does not always have to repeat, but it does rhyme very often and we see no reason why commodities at this point are not going to outperform. These cycles are long, 1015 year cycles, so we think this is a place where money has been parked in stocks, in bitcoin for example, in Real Estate Committee it will flow into what is undervalued and what is starting to trend and outperform. Alix do you need a catalyst, or will it be value rotation . Catalyst. S always a the three catalysts we see during this cycle is the bull market and u. S. Dollar topping out, which will take place in january which took place in 2016 in january, and the second precondition is there is usually a demand driver that comes in. We are agricultural specialists china iswhat we see is really going after creating ethanol from corn. If you remember in the 2000, it was the u. S. Producing ethanol from corn and it began a huge demand apology for corn prices, which ran up corn and really got the grain markets going. We see the same thing happening in china with cornbased ethanol. The third thing we see is there is something going on with the grand solar cycle minimum, it is when the sun gets really quiet, it has not happened in really 200 years. Throughout history when the sun goes quiet with sunspots, the weather gets very volatile, it and we havermal, tended to see significant hindrances to Food Production Going Forward and were just starting that cycle now. The weather driver for agriculture over the next 510 years will be a third main catalyst for why we think commodities will come off the bottom and outperform most other asset classes. Alix you called me winter has come. And we are looking at sunspots. [laughter] david ok, let me ask you about the chart and ask what about the commodity story are investors not getting . People are searching for yields, looking everywhere, why dont they see the potential yields coming from commodities . Paul this is a relative value chart. Relative to stocks. I think he is right in terms that we probably will have a recycle. I think the future is relatively bright. We have strong growth almost everywhere in the world, we have manufacturing booming around the world, so the commodities should be picking up. Alix go ahead. Paul i think the only shadow is really china. Wast looks like china, it vital to the middle boosting gdp in the runup to the congress in october, now there are signs that things are reusing, things are tightening a little bit, so that is maybe a shadow. Copper has had an amazing run recently in china, because the chinese have been clamping down on pollution with some of the big producers. Alix why is any of this inflationary . Paul the sheriff commodities that feeds through to what you and i buy is pretty small. It is not that big. Alix more labor. When you are taking a look at the best way to approach this kind of trade, i know that you are an ag guy, but is the value in the underlying commodity or stock . Sean we like to own the actual commodity in the beginning of the cycle. If you look at the history of performance, commodities themselves will outperform the stocks in the beginning and then once the trend is established and investors see the opportunities, they start flooding into the stock opportunities. Commodities first, stocks later. Alix shawn, thank you for joining us. Paul mortimerlee is staying with us. The strong Holiday Shopping season in the bag, what is next . This is bloomberg. Cannot live without it. So if you cant live without it. Why arent you using this guy . It makes your wifi awesomely fast. No. Still nope. Now were talking it gets you wifi here, here, and here. It even lets you take a time out. No no yes yes, indeed. Amazing speed, coverage and control. All with an xfi gateway. Find your awesome, and change the way you wifi. Or a little internet machine . It makes you wonder shouldnt we get our phones and internet from the same company . Thats why Xfinity Mobile comes with your internet. You get up to 5 lines of talk and text at no extra cost. So all you pay for is data. See how much you can save. Choose by the gig or unlimited. Xfinity mobile. A new kind of network designed to save you money. Call, visit, or go to xfinitymobile. Com. Alix this is bloomberg daybreak. A few seconds before brick and economic data, s p futures up by two points, metals and mining having a nice run, 7 10 of a percent. Across asset classes, you see a little bit of selling in the long and india have a weaker dollar and you see a stronger commodities picture. That wraps it up for the 10 year yield moving higher by 10 basis points. There is a little divine happening, it was, in the 30 year. And jobless claims coming in at 200and 45,000, month 45,000, a little bit higher than expected, but it is pointing to a stronger job story. Hotel inventories, if you look at that, up by 7 10 of a percent. Retail inventories up by 1 10 of a percent as well. Is that a good thing or is there more rebuilding that needs to happen, or is it a sign of weaker demand . Potentially, factories will work more to rebuild inventories after the Holiday Season. 69. 7 billion of that, more than expected. We are importing more than we are exporting. David ok, Paul Mortimerlee is with us. Answer the question about inventories. The jobless claim is not a remarkable thing and we are doing well with unemployment, so what about the inventory, does it tell us about the economy . Paul there are two reasons people build up inventory, in anticipation of demand and there could be a lot of that. Around 3 . Ill be the other reason, this is a die off in demand and do have unwanted inventories. It looks like there is no sign of that. Going into next year, with tax cuts coming, it looks like retail spending will accelerate, particularly in the spring. David go into the gdp growth, i think that will be three quarters in a row that we have had robust gdp growth. After the first time we said it was a oneoff. At some point it becomes a trend, doesnt it . Paul i think there has been easing in the u. S. Financial conditions this year. The fed is raising rates. But the dollar has gone softer and stocks have gone up. That boost to the stocks have boosted consumer demand, lowered the ratio, investment is picking up again, and Global Demand looks robust. Alix when you look at retail inventories, how much more are we rebuilding and how much more inventory do we have to do . Paul it is difficult to say. We will see some. Maybe if retail demand surprises on the upside, we will see a runoff after christmas. I would expect of the next half year the retail side is going to be very robust. David take me to the fed, the changing fed, when they look forward to they say we have been able to raise it three times this year, therefore we are pretty good to raise more. Or do they say, we are benefiting from a week in dollar and we cannot count on that going into 2018. Paul they have been saying, we think we will raise rates three times next year. The risk is that they go to four. It depends on how strong the economy is, and what will happen to inflation. Inflation, because of base effect is likely to pick up by almost half a point in q2. Robustbe if we get very consumer and inflation picks up basis, the fed will say maybe we are going to slowly. Because the economy, despite everything we have done, it is accelerating before the tax cut. Alix talk about the consumer and retail season. Consumer confidence fell from a 17 year high, but it is around that level and the job outlook is pulling for consumers, but income is rising in the next months. And take a look at department stores, macys, jcpenney and kohls, they had a nice boost after the holidays. Kohls up over 3 . We are joined by our reporter who covers retail. Lauren, walk us through the areas where the consumer feels more confident. Lauren what we have seen this Holiday Season is in contrast to the past where we have seen the upper income shoppers literally driving the growth, this has been broadbased. I think it is because as we have all seen, this is not a new development but the fundamentals are in place. Secure,ople feel more Consumer Confidence has been at a high level. Been, i think, unexpected windfall for retailers. It may be better than expected. But this has been building, consumers have been feeling confident now for some time. David is retail back . Where they spending the money . Lauren it is back over all, but it is still difficult for a number of individual retailers and sectors. Department stores had a good christmas, but there challenges are not going away. And jcpenneyhls still have too many stores, they are to be, and there are many upstart retailers, like zappos, that will challenge them. Alix talk about taxes. Talk about personal tax cuts feeding into the retail environment. Paul if we look at earlier this year, the increase in real hassle disposable income was about 1 year on year. Clearly, that is really slow. That is a lot of pressure on the retail margins. By the time we get the next spring and the tax cuts are feeding through, you should be near 3 year on year. It will be a different environment, because from having ok, there are jobs being created, but the real incomes of individuals were not increasing and we think they will increase all of the going into the spring of 2018. Alix do people know that . Paul probably not. It may be a good surprise for them, because we have seen expectations come off. I think people are going to be pleasantly surprised as we go in for next year. David paul raised a critical word, margin. You have to make profits sooner or later. To a have information on where the margins are . Deals, consumers expect but it has been a less promotional season. Margins have been strong, sales have been strong, and inventory levels are pretty good. We have been waiting for the sales, scarring for bakingcouring for storage bins. It is crazy. Is retail higher because of tax reform . What are you hearing . Lauren a good question. Lawink the tax, the new tax is good for retailers because they pay on the higher end of the spectrum. I agree that consumers are going to spend a lot of this windfall, or you know, whatever they are getting back. And they are already feeling good, willing to pay closer to full price, so this will enhance that behavior. Paul, thankn and you for being here. 2017 was a challenging year for hedge funds, we will discuss what could be in store for the new year, next. Alix we wanted to point out , tune are commuting in, in to the radio sirius xm all caps the u. S. We want to focus on the movers as we go to break. Dow jones up by 45 points, s p futures up a by 2, metal and mining grinding higher as copper is up for 10 straight days, the longest winning streak since 1989. Talk about a rally for the end of the year. Take a look at the dollar, treasury market, you see the selling across the board in the treasury market, yields moving higher, but the 30 year yield fell 8 basis points. So the recovery of two basis points does not match up. That mean 52 basis points and of five that he continues to grind fighter. A weaker dollar flatter. We have a weaker dollar. And at the eurodollar having its best year against the dollar since 2003, unbelievable move. Individual stocks we are watching, overstock, bitcoin in some respects, bitcoin got hit as you might have curving of exchanges and south korea, so overstock is in sympathy with that. Devon, natural gas players, up about 3 . Not an enormous bump considering how cold it is, 15 in new york. And honeywell, up by 1 10 of a percent. This is bloomberg. Emma this is bloomberg daybreak. And coming up in the next hour, charles developed devo. This is bloomberg. Emma now to your Bloomberg Business flash. The u. S. Has entered 15 weatherrelated disasters, cost 1 billion or more this year. According to the federal Governments National center for environmental information, that is one child of a single year record set in 2011. The total economic losses so far exceed 210 billion and that number does not include the recent wildfires in southern california. And the Nevada Supreme Court says the exwife of steve wynn can seize documents related to a Sexual Harassment settlement he made in 2005. Of is fighting for control a stake in the resort. Her lawyers argued that his alleged conduct with a former employee speaks to corporate responsibility. A spokesperson for steve went called it a smear campaign. Moodywngraded once again, cutting its Credit Rating into junk territory. The south africabased firm has had to contend with cancer credit lines as it struggled to regain the confidence of creditors after reporting irregularities that stretched. Back to 2016 steinhoff is seven levels below Investment Grade now. David thank you. Hedge funds had a challenging year in 2017 with big funds tied at the big names closing down altogether, including john griffin who announced he would shut down Blue Ridge Capital and paul jones, one of the original micromanagers, closing one of his funds. This comes as more funds went out of business and then opened in the year. Joining us is columbia business object professor who recently served as chief Investment Officer of optima. Pleasure to be here. David explain what happened to hedge funds this year, because i have seen conflicted reports, one of which is there were net outflows of the funds, but assets increased. What happened . You saw outflows from the hedge fund to fund it sector, that area saw distinct outflows. You saw the flows coming in and we were down about 2. 1 flows versus the previous year, but it is still a positive outflow of 8. 7 billion into the sector. Compare that to active equity management, where 18 billion less in the last month alone and around the same number the month before. It is an area where it is hyperactive, they are as active as you can get, and it is one of the few areas in active management where the flows have been less than last year in terms of growth, but it is still a growth story. Alix i know that volatility is low. It is around 10. But if you look at realized it islation, it is dispersion, it should be good for the micromanagers and i do not understand what we see . Fabio you are right. An interesting example is the maverick fund, their it moved intound, the market just with straight clockwork, up 26 . Theyre actively managed fund is down 3 . There is, you are absolutely right, what we have seen is a far greater level of dispersion, some of the worst performing funds were in distress. Cerberus put in a year that will be near 30 . You have seen less clustering and more broadening. The volatility theme will be a big factor next year. Alix we have a great chart that shows the performance of hedge funds versus the s p, not that one, but i was also talking about that, dealing with the realized correlation versus volatility. But what i was referencing was the underperformance of active managers versus quants does not stack up to the s p. Blue, hedge funds are the but watch is the basic returns. Quant is better but cannot match up to the s p. Thought be of fabio these guys, you should also look at the volatility adjusted, because if you are hedged you are not expected to do that. The event driven guys were up about 11 this year, you will see 11 or 12 in the long short space. If they protect in a down market, which we have not seen any of this year, i think he will continue to see slows. That is why these are going in there, the market is looking top to some people, lows rising today, but allocation is driven by the hedge component more than the outperforming of them on s p component. David simply put, can you going to hedge funds in a big way without betting against the market . You said hedge long short, but it was all along this year, there was no short at all. Did it make sense to put funds into a hedge fund if you are not betting against the market . Fabio there is a wide variety of them, so yes, it absolutely does. The ones it would make sense to do so, more than any others, first of all in the event driven space, if you want to be in equities, qualcomm. You have a lot of special situations and these generate intricate things that they can profit from and they have, but fundamentally things will be long volatility. If we look expectations, you know, and earlier Paul Mortimerlee used the word surprise. The nobel prize was awarded this year for it, mental anchoring and those. If we look at the amount we have seen, the 10 year is expected to be up to 88 one year from now 288 one year from now, and it is expected be lower from when donald trump took over. This was not in the market. When you revise gdp estimates, you are saying, i was wrong earlier. Nobody likes to say i was wrong earlier. Gdp estimates crawled up in the last month, but minimally. You are looking at around 255 next year, it has come up about 13 basis points. If anybody thinks you look at the kind of it is interesting, following on laurens point about improving in the Retail Sector and what we heard from Paul Mortimerlee about surprises, those are the kinds of things, this is not an economy that looks ready to move 20 or 30 basis points. But with the anchoring you can see the move index, the volatility index, which is at an alltime low, actually exposed. Well,k macro will do Mortgage Fund federal funds that are long volatility will do well. Alix i also wonder about europe. This past year, the European Hedge Fund closures were more sonificant than in the u. S. , why were they disproportionately affected . You know there has to be the ecb in there somewhere, so what happened . Fabio the european economy actually picked up. [laughter] old wallke, maybe an street expression, a dead cat if you drop it from high enough. A lot of them were on the wrong side. You look at chris but noting who is a brexit guy, he made a ton of dough on the sterling trade and he is still having a lousy year, because Everything Else they were bearish and the way the people have been trained like pavlovs dog to be long, the europe you are trained for weaker growth. And they are actually seeing Actual Movement of stuff. Alix are there any other legends in the Hedge Fund World that are at risk . I am thinking of andy hall, the god of oil had to get out. The legend that had to close up shop. Who is remaining . Fabio i would think Paul Tudor Jones is under a lot of pressure, he is sort of stepping back. They kovner and you know, will pull up the numbers, but they were down double digits again. At some point you say, i am kind of done. Off from thated and i think they may find it completely stepping back even more, there. Andy hall, he is someone i met and is somebody that i will greatly miss. He was a fellow that came up, i asked, he was one of the true independent thinkers and that is a challenge you are getting, you are not getting enough independent thinkers. Andy hall, who i think the industry will miss, in 2008 he was contractually there at citibank and his bonus pool was larger than the entire profit of citibank. And he goes, what is your point . Alix because he was crushing it. [laughter] quoted, what kind of analyst doing not like . Sometimes analysts think we are having a conversation, we are not having a conversation. Alix always a pleasure to catch up with you. And coming up, an arctic cold spell washes over the u. S. What it means for power prices going into the new year. If you are in the northeast, it will hurt. And the initial jobless claims going higher, wholesale inventories rising 7 10 of a percent, and inventories also up. Dow jones futures right around the highs of the session. And in other aspect classes that asset classes, selling in the bond market as the yields move higher, but not as intense as it was before the echo data. And the eurodollar could use to be weaker, as the euro climbs. And crude is flat on the day. This is bloomberg. Alix harris what caught my eye this morning, the cold snap. Take a look at the map, winter is here. If you are a game of thrones person, winter has come. 10 degrees below fahrenheit with the pink. It gets even colder as you go down. You are looking at 10, 20, 30 degrees in the south. David northern wisconsin getting really cold. Alix if you have a house in maine, you are probably feeling the pain. I made that up on the spot. Take a look at our prices in the northeast. Take a look at the terminal, look at the spike, that is per kilowatt per hour. No surprise. But if you take a look and natural gas prices, you are assuming i would do natural gas because it will be cheaper, but boom. David it is winter. I mean, are we shocked about this . Alix we have not had this kind of winter in a long time and we had inventories coming down for natural gas, so if we continue this for two months what will it do for inventories . You have natural gas, but pipelines to get it to where we need it we have a lot of imports coming from canada. David winter has come. Alix that wraps it up here. The open is up next. This is bloomberg. Retail. Under pressure like never before. And its connected technology thats moving companies forward fast. Ecommerce. Real time inventory. Virtual changing rooms. Thats why retailers rely on comcast business to deliver consistent Network Speed across multiple locations. Every corporate office, warehouse and store near or far covered. Leaving every competitor, threat and challenge outmaneuvered. Comcast business outmaneuver. Alix 30 minutes until the start of trading, this is the countdown to the open. Coming up, it is the final flatten her. Occur gets one final flattening push as spreads hit the tightest levels in the decade. A warning of financial instability due to low Interest Rates. Betting against boredom. The s p on track for its best year since 2013. Nervousness about next year is popping up as traders prepare for an increase in volatility. And cold weather, hot commodities. An arctic cold spell gives natural gas a boost. Copper continues to rally, with its longest run in games in three decades. We are about 30 minutes until the opening bell. S p futures up about three points, euro dollar up about 0. 5 . Against the best dollar since 2003. Yields moving a touch higher after the huge selloff in yields yesterday. The 30 year yield yesterday at one point